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Page 1: THE LATEST RESEARCH AND MODELS ON … Flare pipe e Wastaewater Holding tanks well at and cement Well casinge and tower Drill pad storage pit ast Frackinng fluid GGas r ecoovery Fractures

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THE LATEST RESEARCH AND MODELS ONOPTIMIZING UTILITY USAGE IN MULTIFAMILYVOL. 4, ISSUE 1 • SPRING 2014

SUPPLEMENT TO

magazinePROMULT I HOUS ING

Fracking, exportsand storage, oh my

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A national consortium for utility managementprofessionals in the apartment industry

www.UMAdvisory.org

Whether it’s navigating the smart grid, or learning the latest methods for lowering rates, there is power in numbers.

You can’t make good business decisions without good data, the kind that comes from industry-wide connection

and knowledge. UMA is a network of leading experts, owners, and operators in the multifamily industry. It’s a connection that assures that owners and operators can

stay nimble within fast-moving utility environments and the multifamily markets they impact.

Stay informed. I personally invite you to register today.

How much is your multifamilyoperation leaving on the table?

There’s power in numbers

Tim [email protected]

Associated Estates Director of Ancillary Services

Utility Management Advisory, Board Member

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®

RegulatoryU P D A T E

PENALTIES FORTOWN LAW / ACTION BLDG SIZE DISCLOSE TO INCOMPLIANCE

Multifamily energy disclosure requirements

Energy Conservation Audit &Disclosure (ECAD) Owner musttrack / report consumption for 10year old-plus buildings

Buyers, govern-ment agency attime of sale

Class C misdemeanor andsubject to fine up to $500.If criminally negligent, afine of up to $2,000 maybe assessed.

Austin

Chicago Energy Use BenchmarkingOwner must track and report buildingand common area consumption. Anengineer must examine data every 3 years and certify data to the City.

Public websiteannually by 2015

$100 to building owner forfirst violation, $25 per dayafter that if not fixed.

Chicago

Council Bill 116731 Whole building datamust be reported, including units.

Governmentagency, residentsannually

Quarterly fines $500-$1,000 based on buildingsize. Owner and residentsfirst violation: $150.

Seattle

To read the actual ordinances, go to www.nwpsc.com/locallaw

Building Energy Reporting andDisclosure Owner must track andreport building consumption

Public website,governmentagency annuallyby 2015

Non-residential tenants: $35per violation for not supply-ing owner with energy data.Residents face no fines.Owners pay $75-$200 / daydepending on size / use ofbuilding up to $3,000.

Boston

Local law 84 Owners must report unitconsumption. Audit required every 10years on buildings > 50,000 sq. ft.

Public website,governmentagency annually

$500; continued failure$500 per quarter with amaximum of $2,000.

NYC

Clean and Affordable Energy ActOwners must report commonarea consumption.

Public website,governmentagency annually

DDOE will issue a writtenwarning. If violation is notcorrected after 30 days ofwritten notice, DDOE can fineowners up to $100 per day.

DC

PLEASE NOTE THIS IS MERELY AN OVERVIEW AND IS NOT INTENDED TO BE A SUBSTITUTE FOR LEGAL ADVICE.

> 30,000 sq. ft.(> 10,000 sq.ft. on 6/1/14)

> 250,000 sq.ft. on 6/1/2015(> 50,000 sq. ft.on 6/1/16)

> 20,000 sq. ft.

> 50 units by2015 (> 35 unitsby 2017)

> 10,000 sq. ft

> 100,000 sq.(> 50,000 sq.ft. on 4/1/14)

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4 JOURNAL OF UTILITY MANAGEMENT SPRING 2014 WWW.UTILITYSMARTPRO.COM

6 Reg rushFront runner states California,Connecticut and Ohio are leading theway on energy conservation and utilitycost recovery. How does this affectyour operation?

7 Saving for a rainy dayCalifornia utilities are now on track toreceive a third of the electricity theysell from intermittent resources likesolar panels and wind turbines by2020. How will they store the excess?

8 Socrates and the thermostatGoogle’s Nest thermostat may be thebarrier-breaker landlords have beenwaiting for to peek into the utility useof residents, and accurately reportconservation.

10 Everything old is new again—the California drought

12 5 utility trendsto watch this year

13 Negawatt hour

TABLE OF CONTENTS

Fracking, exports and storage, oh myFracking wells in Pinedale, Wyoming. In2012, hydraulic fracturing supported 2.1 million American jobs and contributed $284billion to the U.S. GDP, according to a studyby IHS. By 2025, IHS reports that unconven-tional drilling will support 3.9 million jobs.

14 Cover

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contrast, winters were the warmest onrecord in San Francisco and Las Vegas, thetalk is about utility costs. Seattle utilitycompanies are considering a 30 percent rateincrease over the next 6 years.

It could have been worse.The shale-based energy revolution that I

first wrote about a couple issues ago, is notonly helping us through the winter, it isbuilding our economy and fortifying ourleverage around the world. It is why thiswinter’s energy bills weren’t as bad as theycould have been, but we can still do better.

Knowledge delivers informed choices.The business of multifamily is only growingin complexity as mounting regulations,shifting legislation and evolving energymarkets coalesce as the primal soup oftomorrow’s new utility environment.

What if it is as simple as discerning who’sahead of the pack and watching thosecanaries for clues?

©2013 NWP SERVICES CORPORATIONALL RIGHTS RESERVED • Printed in USA

www.utilitysmartpro.com535 Anton Boulevard, Suite 1100

Costa Mesa, Calif. 92626Ph: 949.253.2592

PUBLISHER NWP Services Corporation

UMA DIRECTORS Mary Nitschke, UMA presidentDirector of Ancillary ServicesPrometheus RE Group

Mark Copeland, COOAtlas Residential

Tom SpanglerEnergy Manager, Greystar

Tim HaddonDirector, Ancillary ServicesAssociated Estates Realty Corp.

Wes WintersteinVP, Utilities ManagementBell Partners, Inc.

EDITORIAL BOARD Utility Management Advisory

MANAGING EDITOR Kent [email protected]

EXECUTIVE EDITOR Michael [email protected]

PRODUCTION Amanda Christensen, NWPAndrea Tucker, NWPImage Advertising, Inc.

SUBSCRIPTIONSSubscribe at www.UtilitySmartPro.com

REPRINTSTo request content licensing, email:

[email protected]

CHANGE OF ADDRESSWrite: Circulation Desk

4115 Blackhawk Plaza Circle, Suite 100Danville, CA 94506

WWW.UTILITYSMARTPRO.COM SPRING 2014 JOURNAL OF UTILITY MANAGEMENT 5

Allow me to provide a first-hand accountfrom the beautiful Northeast: this winterwas brutal. Endless snow, bouts of extremecold and a polar vortex have made thismother-of-all-winters colder than most win-ters across the last twenty years.

Chicago had its third snowiest winter onrecord, Detroit had its second snowiest andothers broke wintery-white records fromToledo to Philadelphia to Atlanta.

As such, utility costs are front and center.Along with the snow, many are digging outfrom winter utility bills that doubled—eventripled—such as consumers in Pennsylvaniawhere electricity has been deregulated. Theunfortunate chose or were defaulted to vari-able plans that fluctuated with wholesaleelectric prices. These prices spiked hard inthe extreme cold, increasing electricity andgas used by power generators. Some of theplans hit 38-cents a kilowatt (compared tothe average 8-cents) spurring over 750 com-plaints to the Public Utility Commission.

It’s not that better choices weren’t avail-able to these residents. In fact, it’s probablycertain that an extremely high utility billwas merely an unintended consequence ofan uninformed choice.

In the old coal mining days, canaries wereused as an early warning system to alert min-ers of toxic air in time for everyone to safe-ly vacate the mine. It was a fast and simpleway to know of impending danger.

We might find a scant few canaries yetsinging in today’s multifamily utility billingmarket.

Even on the West Coast where, in stark

FROM THE PUBLISHER

Canary in the coal mine

Michael [email protected]

OUR MISSIONThe Utility Management Advisory is a forum to leverage multifamily owners’ real-world expe-riences and perspectives into information that will drive education to policy makers and prop-erty owners, and dispense tangible, actionable recommendations. This alliance will improvemultifamily owners’ and managers’ ability to: conserve, save money, serve residents, whileprotecting and enhancing their fiscal bottom lines and property values, and staying ahead ofemerging policies and requirements.

UtilityManagement

Advis y SM

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residents for conservation. Legislatorsenacted a law that allows for the expandeduse of electricity submeters and taskedPURA with regulating their installationand use.

Accordingly, PURA asked tenants’groups, utility stakeholders, meter manufac-turers, utility billing companies, and multi-family owners to participate in drafting reg-ulations pertaining to the installation ofelectricity submeters and resident billing.The working group provided a draft,approval mechanisms, and other commentsto PURA in January of 2014. The anticipat-ed enactment of the regulations had beenscheduled for the summer of 2014. However,a group emerged that is concerned abouthow multifamily owners that have electrici-ty generation or co-generation capabilitieswill be regulated. This will push back thelikely enactment to the winter of 2014.

OhioIn October of 2013, theColumbus Dispatch ran athree part series detailingthe (currently legal)practice of “marking up”

residents’ electricity bills by two multifamilyowners in Ohio. The affected residents paidmore than they would have if they were thecustomer of record with the local utility andthe owners in question recovered more fromtheir billing program than they were billedby the local utility. These are not standardpractices in the utility billing industry inOhio (nor any other state).

In response, Representative Mike Foleyintroduced House Bill 422. HB 422 not onlyprevents mark-up or over-allocation of elec-tricity billing, it also prohibits current prac-tices in Ohio such as allocated (RUBS)billing and the ability to pass throughadministrative fees to residents.

In addition, HB 422 contains onerouspenalties. Accordingly, the utility billingindustry and multifamily lobbying partnersare opposing HB 422 and will introduce acompeting bill. This bill will codify existingpractices in Ohio, such as the ability to useRUBS and pass through fees, and enactcommon-sense lease disclosure require-ments and consumer protections. Author Michael Foote is senior regulatory andcorporate counsel at NWP where he’s been on

the legal team since2008. Prior to NWP Footewas general counsel forista North America, Inc.He has 14 years experi-ence with utility billing lawand is regarded an indus-try expert. He lives nearSan Diego, California.

WWW.UTILITYSMARTPRO.COM6 JOURNAL OF UTILITY MANAGEMENT SPRING 2014

Reg rush

Energy conservation rings loudly in the leg-islative halls of many states as lawmakerstackle issues related to the utility billing ofmultifamily residents. Since the reasonsbehind the legislation differ, the bills andlobbying effort take different forms. Those inthe utility billing and multifamily industrieswith presence on Capitol Hill are monitoringand participating in the process to ensure apositive outcome.

CaliforniaIn February, 2013 SenatorLois Volk and Assembly-man Paul Fong intro-duced California SenateBill 750. SB 750, as intro-duced, mandates the

installation of submeters for water billing, pre-vents the use of allocated ratio utility billingsystem (RUBS) methods, and prohibits thepass-through of administrative fees to resi-dents. The impetus for this bill was two-fold.California legislators hope they can achievesignificant water and electricity conservationto help meet required reduction mandates.Additionally, the sponsors wanted to providea consumer protection framework forCalifornia residents.

The sponsors reached out to environmen-tal and tenants’ advocacy groups to helpcraft the legislation. As is the case in Ohio,the terms of the introduced bill would haveprohibited long-standing practices (andlease agreement language) in California.

Utility billing and multifamily lobbyinggroups attempted to work with the bill’ssponsors to modify onerous penalty provi-sions, expansive disclosure requirements,and impossible meter maintenance time-lines. They pushed to include language thatwould streamline the meter testing processwith the California Department of Weightsand Measures (W&M). The sponsors madesome changes to SB 750 but did not makeenough to mollify all of the bill’s opposition.Due, in part, to last-minute lobbying effortsthe bill stalled in the Water, Parks andWildlife Committee and did not advance toan Assembly vote. At that time, the spon-sors decided to make the bill a two-year billand resume in 2014.

SB 750’s sponsors continue to work withmultifamily and utility billing groups tomodify the terms of the bill in order tosecure passage.

In February of 2014, Asm. Adam Grayintroduced Assembly Bill 1983. AB 1983codifies existing accepted practices inCalifornia, such as the ability to use allocat-ed (RUBS) methodologies and pass-throughadministrative fees to residents. AB 1983contains common-sense consumer protec-tion language and penalty language. It alsoallows longer timelines for multifamily own-ers and developers to comply with a subme-ter installation mandate for newly con-structed buildings.

A third bill is likely to be introducedwhich will tackle some of the issues withW&M. During the negotiations on SB 750it became clear to all involved that the par-ties could agree on modifications to theduties, obligations and regulations of theDepartment of W&M. They will submit astand-alone bill that will codify the areas ofagreement including the ability to testmeters in different counties other thanwhere the property is located, the ability topre-test meters without specifying the exactlocation where the meters will be installed,and a better definition of when a meter isplaced in service; this removes the specter ofcivil and criminal penalties for meter manu-facturers that submit meters for testing thatdo not pass on a county’s test bench. Thelast point is one of contention which led tothe vast majority of meter manufacturers’refusal to ship to California.

ConnecticutThe Connecticut PublicUtilities Regulatory Author-ity (PURA) began codifyingregulations regarding elec-tricity submetering in the

summer of 2013. Like California,Connecticut has previously enacted astatute that requires energy reductions.

Connecticut legislators realized that thestate has a large stock of multifamily build-ings that are master-metered for electricityservice, yet owners are not allowed to sub-meter electricity to provide price signals to

ON THE HILL

It has the power to transform multifamilyswifter than any other. Here’s what youneed to know about looming legislation.

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they are in widespread use.“Battery technology is probably going to

be the immediate, short-run leader,” saidJeff Gates, managing director of commercialtransmission at Duke Energy Corp. inCharlotte, N.C. Duke built a large battery-storage facility near one of its Texas windfarms, and the company plans to build simi-lar projects in California and other states,he said.

While utilities have installed a handful ofbattery-storage systems in California andother places, many of them were designed tostore less than an hour’s worth of electricity.California utilities are likely to want systemsthat can store at least two or three hours ofpower to fill in gaps left by solar panels aftersunset, Gates said.

Different types of batteries are alreadybeing made by manufacturers includingGeneral Electric Co., of Fairfield, Conn.,and LG Chem Ltd. of South Korea.

Some people hope that California’s bet

on energy storage will create opportunitiesfor technologies that currently exist only inthe lab or in one-off projects, including stor-age based on compressed air or giant fly-wheels. Gravity Power LLC, a startup inGoleta, Calif., uses deep underground boreholes, filled with water, to create energywhen huge pistons are dropped down cen-tral shafts.

Among the questions the California

FUTURE TECH

SPRING 2014 JOURNAL OF UTILITY MANAGEMENT 7WWW.UTILITYSMARTPRO.COM

From backyard tinkerers to bigcorporations, inventors have been struggling tofind a way to store solar, wind and other renew-able energy so it can furnish electricity when thesun doesn’t shine or the wind doesn’t blow.

Saving for a rainy day

California is offering businesses a big incen-tive for success—contracts that the utilityindustry estimates could total as much as $3billion for successful, large-scale electricity-storage systems.

This year, big utilities that do business inCalifornia must begin adding enough bat-tery systems or other technology so that by2024 they can store 1,325-megawatts worthof electricity—nearly 70 times the amountthat the handful of mostly experimental sys-tems in the state store now. Regulators arealso requiring municipal utilities to buy orlease energy-storage equipment.

The storage systems California wantsdon’t exist on such a scale, so the new rulesamount to a big bet—paid for by utility cus-tomers—that creating demand will produceworkable new technology. If so, other statesare likely to follow suit, experts say.

“We’re not talking about lab experimentsanymore,” said Nancy Pfund, managingpartner of Silicon Valley venture-capitalfirm DBL Investors. “We’re talking about areal solution to a growing issue as renewablesbecome a bigger percentage of everyone’sgrid. The whole world is watching this.”

Like most states, California has an elec-tric system that was built around big powerplants that cranked out electricity aroundthe clock. But utilities here are on track toget a third of the electricity they sell fromintermittent resources like solar panels andwind turbines by 2020.

Nationally, renewables accounted for 37percent of the new generating capacityadded last year, according to the FederalEnergy Regulatory Commission.

Utilities now use small natural-gas plantsto fill gaps when power generation anddemand aren’t in balance, but the statethinks storage systems would be more effi-cient and produce less pollution.

At least in the first few years, many of thestorage contracts are likely to go to projectsthat use rechargeable batteries, like the onesin electric cars and buses, industry officialssay. Batteries have been tested for durabilityand safety by the automotive industry, and

experiment may answer is where storagedevices should be installed. Some expertsthink they should be built next to windfarms, for example, as Duke did. Others sug-gest they should be located along transmis-sion lines or installed next to businesses andhomes with solar panels.

“I don’t think we understand the functionof storage on the grid enough yet to knowwhere it would have the highest value,” saidMark Nelson, a power-planning manager atSouthern California Edison, based inRosemead, Calif.

SolarCity Corp., of San Mateo, Calif., inDecember began offering commercial cus-tomers rechargeable batteries—the sameones that are used in Tesla Motors Inc. elec-tric cars—along with solar panels. Tesla, ofPalo Alto, Calif., said that it plans to builda U.S. battery factory to supply its Fremont,Calif., car factory and SolarCity’s energy-storage business. “Storage is importantbecause the sun only shines part of the day,but we use electricity all of the day,” ElonMusk, who is chairman and chief executiveof Tesla and chairman of SolarCity, said.

Southern California Edison recentlyinstalled stacks of lithium-ion batteries at anIrvine, Calif., parking garage that has solarpanels on the roof and a row of electric-carchargers on a lower floor. The panels gener-ate electricity for the car chargers and thebatteries, which help power the chargersafter sunset.

Some utilities and consumer advocatesworry that the technologies are expensiveand aren’t ready for prime time.

Mike Niggli, president of San Diego Gas& Electric Co., a unit of Sempra Energy,said that although there are many storagetechnologies, “few of them are cost-effectiveat this time.”

The financial strength of some companieslikely to offer their products is also a con-cern, following a series of bankruptcies bybattery makers, including Xtreme Power,which filed for Chapter 11 in January, andA123 Systems Inc. and Ener1 Inc., whichfiled for bankruptcy protection in 2012.

California is one of 37 states that haverenewable-energy mandates or goals, but theonly one to require utilities to buy lots ofstorage.

“Energy storage is a highly specializedmarket now,” said Haresh Kamath, aresearcher at the Electric Power ResearchInstitute, a utility-funded group in PaloAlto, Calif. “But I expect it to become animportant part of the grid’s architecture incoming years.” Excerpt Cassandra Sweet and Rebecca Smith,energy reporters for The Wall Street Journal

NEMA 4, 70 KW lithium ion battery chargerfor heavy industrial application. Modern charg-er technology is the target of much of today’s-growth and research.

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8 JOURNAL OF UTILITY MANAGEMENT SPRING 2014 WWW.UTILITYSMARTPRO.COM

CUTTING EDGE CONSERVATION

Feedback informs nearly every decision we make.Whether it’s grades in school, a scowl from our wife oroccupancy at our communities, we internally processthe responses we receive and that becomes the basisby which we construct future choices. It’s a simpleprinciple of human behavior. Think Pavlov.

other rules aimed at making metric-basedimprovements in commercial conservation.

One challenge to these initiatives issomething called “split incentive.” In a nut-shell, apartments are not single-familyhomes. The same incentives that worked forhomeowners can’t work for apartments. Thelandlord who might pay for energy savingretrofits doesn’t necessarily pay for the utili-ties in his units so he wouldn’t directlyrecover the cost benefit. And the residentswho use the utilities and might benefit fromenergy saving retrofits don’t own the build-ing, and have little sway in upgrades.

However, owners that invest in in-unitgreen upgrades will be making long-termimprovements to their properties that canbe marketed to new or renewing residentsand eventually recouped on sale. If utilitycosts keep increasing faster than rents, thesemeasures will have an impact because theylower the resident’s total cost of renting.And regulations like benchmarking willmake these investments more visible toinvestors and residents.

Benchmarking an apartment’s energy usewill someday be a required standard, butuntil that day we are reliant on resident’spersonal conservation choices. Nest address-es that issue inside the personal space of anapartment where no landlord dares to tread.

After a thirty-day-cycle, the residentreceives an emailed report of their energyuse in a fun infographic format, along withhints on saving energy. To add competition,

Socrates and the thermostat

Another principle is that people want toperceive a certain level of freedom. In otherwords, the boring teacher with brilliantrecall of facts-as-conclusions is statisticallyless effective than the teacher who providesthe facts and coaches the students towardtheir own conclusions. Such processing,also called scientific method, is more effec-tive in altering human behavior than mem-orization. Think Socrates.

So what do these simple principles ofhuman behavior have to do with managingapartments?

Enter iPod inventor Tony Fadell, thebrains behind the Nest Thermostat pur-chased by Google in January. Its simpledesign, like many Apple products, far under-states its function allowing the user to quick-ly and intuitively learn how to use it. At firstblush, you may not even know it’s a thermo-stat. Be careful. It’s only a Socratic lure coax-ing you into greater thought, even behaviormodification. And its three-years-plus on themarket suggests it’s working.

While it may look like a shiny hockeypuck stuck to your wall, it’s actually a sirencalling the resident to energy conservation.And that’s what it has to do with apartmentand utility management.

Energy conservation is on the hearts andminds of legislatures, utilities, landlords andresidents.

Apartments have become the next targetfor energy savings as regulators begin tohone their reach with benchmarking and

the report also reveals how their energy usecompares to their neighbors, others in thestate and the country. In many geographicalareas, the Nest is connected to the localutility company and can provide specificdata correlated to actual dollars on theirenergy use with equally-specific recommen-dations on saving money.

The Nest awards little graphic leaves onthe display when being used efficiently andadvises residents how well they are savingcompared to other Nest owners.

It connects to the Internet allowing theresident to control the apartment’s temper-ature from the web, phone or tablet.Residents can check the apartment’s tem-perature and easily schedule away timewhile at work, program the thermostat toadjust down at night, auto-calculate theamount of time it will take to heat or coolthe apartment before the resident rises, allwhile saving on their energy bill with everyrefinement of the device.

Its motion sensor detects and memorizes aresident’s movement within the apartment.After a week of learning the occupants’behaviors, including adjustments to thetemperature and usually home-not-homepatterns, it begins to make small changes inthe temperature control to save energywhile maintaining the same comfort levels.One way it does this is by circulating hot orcold air already in the space, rather thancreating new heat or cold. Another is byraising/lowering the setting when the occu-pants are not at home. Since residents setthe limits of the changes, they can savemore or less money, and accommodate petswho may be at home.

The Nest Thermostat is not cheap but atthe present, it is the best off-the-shelf way ofcommunicating energy efficiency andbehavior modification to residents we canfind. Retail, it runs about $250 a unit. Bulkpricing is available and with the purchase byGoogle, it’s still uncertain whether pricingwill change.

Nest also opened its API code, meaningthat third-party vendors can access theirplatform to build and offer additional func-tions. It works in much the same way as theiPhone is a platform for apps. It’s unclearhow Google will promote this feature butNest’s original goal was to create a fully-automated home that could be monitored

After installing the thermostat and complet-ing a Nest set-up, residents can easily sched-ule their settings day-by-day on their phone ortablet. Temperature settings are moved andchanged by drag-and-dropping the circle thatturns into a slider when touched.

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CUTTING EDGE CONSERVATION

SPRING 2014 JOURNAL OF UTILITY MANAGEMENT 9WWW.UTILITYSMARTPRO.COM

from the Internet. As well as temperatureand smoke detection, the founders werealready working on compatibility with secu-rity and entertainment systems.

Nest can make sense for common areas ata property and infrequently used rooms like afitness center where occupancy is randomand the savings can be substantial by reset-ting temperatures automatically when no oneis there.

At present it may be hard to make thecase for buying a Nest for units when muchof the savings goes to the resident. To offsetthis you might charge, say, $10/month forthe Nest and it would pay for itself (to theowner) in two years. An additional consid-eration is that Nest can be used to controlcosts in vacant units: a property manageronly needs the device’s product code to viewand control its usage.

Though still a rich choice at its pricepoint, Nest has a reach that transcends thesplit incentive. It delivers some energy sav-ings to owners and places residents in con-trol of their space with the competitive funof a video game.

Authors DeeAnneMcClenahan is the sen-ior director of procure-ment and sustainabilityfor Greystar, one of thelargest owners and oper-ators in the multifamilyindustry. McClenahanhas focused on control-ling costs across theportfolio, including sup-ply chain and utilitymanagement, raising

the focus of energy management, efficiency, andsustainability as a core strategy of Greystaracross the country. A LEED Green Associateand Certified Sustainable Building Advisor(CSBA), McClenahan developed the GreystarGreen Awards program as a way to engage,motivate, and educate property staff and resi-dents, collect data, and promote sustainability forevery community. A graduate of the University ofMaryland, McClenahan lives near Phoenix, Ariz.

Tom Spangler is one ofthe elder statesmen inresident utility billing,meaning he has spententirely too much timetrying to explain whathe does to people out-side the multifamilyindustry. Spangler is aconsultant currentlyserving as energy man-ager for Greystar. Priorto that, he managed

ancillary income and utility expense programs forUDR for over a decade. Spangler is a lifelongVirginia gentleman and has an engineering degreefrom Virginia Tech and an MBA from the DardenSchool at UVA. Tom lives in Richmond, Virginia.

The Nest energy report is an email sent toresidents summarizing the last month’s heat-ing and cooling usage and provides tips onsaving energy.

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Households were given a water budget—families were given an allotment of 225 gal-lons-per-month of water to use. If you usedmore than that, you were fined. (In the BayArea, I found record of a $55 dollar fine.Remember, this was 1977, when a gallon ofgas was $0.62!)

People put bricks in their toilet tanks toreduce the amount of water that flushingused, brought buckets into the shower tocapture water run off with which they wouldthen water their plants. Public restroomswere closed because of heavy water restric-tions. Water police patrolled neighborhoodsto see who was using sprinklers at non-des-ignated days and times. People who werecaught with green lawns, had water restric-tors installed by the local water company.The devices were so restrictive that only atrickle of water came out of the sink and youcould not do dishes and take a shower at thesame time.

In 2014, California Gov. Jerry Browndeclared a drought state of emergency. Hehas requested a voluntary 10 percent waterreduction by all Californians. Sound famil-iar? Are we doomed to repeat history?

In the spirit of breaking the trend, let’slook at what uses water in the typical U.S.home. According to the EPA, 70 percent ofall water consumption occurs indoors andthe rest is outdoor use. I believe that, due tothe density of multifamily the percentage ofindoor water used is about 80 percent (onaverage). But the breakdown is still valu-able. Using the EPA’s information—the toi-let accounts for 27 percent of all indoorwater use, the washing machine is 22 per-cent, the shower is 17 percent, the faucetuses 16 percent, 4 percent is other water useand 14 percent is assessed as leaks.

Let me repeat that last one—14 percentof water use on any given home is leaks.

Let’s look at some low hanging fruit.In multifamily, we like to say that we

should not be held accountable for thewater consumption in the unit because wecannot control how many times-per-day res-idents flush the toilet or how long tenantsspend in the shower or if they run the faucetwhile they are brushing their teeth. But wecan control how those fixtures function.

It is our responsibility to keep our fixturesin proper working condition. This means noleaks. What if we simply make it a routineprocess to inspect the units for leaky faucets,test for toilet leaks and set our toilet fill lev-els correctly? Potentially we could save up to14 percent on indoor water use. This meansthat your residents can save 14 percent ontheir water bills, which assists in the renew-al process. A leaky toilet can lose up to 200-

10 JOURNAL OF UTILITY MANAGEMENT SPRING 2014 WWW.UTILITYSMARTPRO.COM

HOT DRY PLANET

In 1977, California Governor Jerry Browndeclared a drought state of emergency. It start-ed with voluntary water reductions, and thenwas converted to mandatory water restrictions.

Everything old is new again—the California drought

Abnormally dryModerate droughtSevere droughtExtreme draoughtExceptional drought

Intensity

Dominate impactsShort termLong term

Drought type

LS

U.S. Drought

SOURCE: USDA.GOV, DROUGHTMONITOR.UNL.EDU

August 25, 1977 Phyllis Olson watches as members of the East Bay Municipal Utility Districtinstall a water restrictor that will limit her water flow from 883 gallons per month to 225. (right)December 31, 1949 A boy takes a shortened bath during drought conditions in New York. Watershortages have resulted in a variety of interesting devices.

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F R O M W H E R E D O W E G E T O U R WAT E R ?

70%of the earth’s fresh

water supply is locked in ice and permanent snow

97.5%of the earth’s

water is unusable ococeaeaninic c sasaltlt

2.5%of the earth’s

water is usable fresh water. Of

that water, here’s where it goes

30%is of the earth’s available fresh water is used for:

ht

49%making electricity

32%irrigation and

livestock

12%public supply

4%industrial

3%mining SOURCE: USGS.GOV; IEEE.ORG, EPA.GOV

gallons-per-day. If we fix leaks we save waterwhich will save money and save the world.

The dementors are coming! Or waterpolice, whichever name you prefer. Theywill fine you and suck the water pressure outof your lines.

Technology has changed a lot since 1977,too. Dudes don’t need to drive around incars to see if you are using too much water.There are satellite-based weather trackingirrigation systems out there that check theweather for the month and develop whatyour water budget should have been for thatmonth and compare that water budgetagainst your actual use. Then you may befined accordingly for the excess amount ofwater that you used.

Foster City, California, currently uses thistype of system and fines communities thatexceed their water budget. This technologyis being deployed by other cities. The fineson irrigation will most likely have to beabsorbed by the property owner. These costswill be difficult, if not illegal to include inyour allocation to your residents. How willyou defend yourself?

Active irrigation control will becomeparamount. The dialogue with our landscap-ers needs to evolve to involve more than“are my plants pretty?” and “let’s walk theproperty and look at our less attractiveareas.” Bring your water bill to the meetingwith your landscaper and maintain a dia-logue regarding water management.Confirm that he understands that his roleinvolves not just the plants, but the water.

We are not condemned to repeat our-selves. We can do better, if we choose.California needs to improve very quickly ifwe do not want to run out of water.

Wasted water will grow more expensiveon a national basis. As an industry, we havepower when it comes to water management.We have great, garden-style communities,epic fountains and a vast numbers of toilets.As we learned from Spiderman, “with greatpower comes great responsibility.”

Water we waiting for? Author Mary Nitschkeis passionate about util-ities and should, per-haps, switch to decaf.She is the first presi-dent of the UtilityManagement AdvisoryBoard, holds an EnergyResource ManagementCertificate from UCDavis, two BAs from

UC Berkeley and is director of ancillary servicesfor Prometheus Real Estate Group, Inc. Nitschkehas the first law of thermodynamics posted by heroffice door, and a 1970 Lincoln Mark III, whichover 400 bhp, in her driveway in Northern Calif.

HOT DRY PLANET

SPRING 2014 JOURNAL OF UTILITY MANAGEMENT 11WWW.UTILITYSMARTPRO.COM

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Energy efficiency policies continue to spread worldwideThe introduction of new energy efficiencypolicies and regulations was widespread in2013—and that momentum appears poisedto continue around the world in 2014.

More than half of U.S. states have nowofficially enacted quantitative energy effi-ciency targets, and around 30 states offerconcrete incentives to utilities that drivereductions in energy demand. Yet evenmore states have instituted a framework forsevering the tie between utility energy salesand revenue, thereby removing the disin-centive for utilities to help electricity andnatural gas customers lower their bills.Mississippi and Louisiana are the latest play-ers to join the energy efficiency policy land-scape.

Across the pond, European member states

NEGAWATTS

recently formalized their action plans toachieve an E.U.-wide 20 percent reductionin energy consumption by 2020, as part of asweeping energy efficiency directive.

And in Asia—where it’s forecasted thatmore than half of annual global energy willbe consumed by 2035—several countries arebecoming more aggressive with efficiencypolicies. Japan, Singapore, China, and manydeveloping nations in the region are findingefficiency to be one of the cheapest andcleanest energy resources at their disposal.

Natural gas and renewable energy chip away at coalAmerica’s energy portfolio is changing.Natural gas—along with clean power—ispersisting in chipping away at coal’s seg-ment of the U.S. energy generation mix.

Much of this shift is due to the expansion

12 JOURNAL OF UTILITY MANAGEMENT SPRING 2014 WWW.UTILITYSMARTPRO.COM

of oil and natural gas production here athome. Domestic natural gas production isprojected to grow 56 percent between 2012and 2040. And by 2040—if not earlier—natural gas will displace coal as the primaryfuel for U.S. electricity generation. The shiftis already under way: in November, theTennessee Valley Authority—located in oneof the top coal-burning states—announcedits plans to shutter eight coal plants repre-senting 3,300 megawatts of capacity.

At the same time, the share of renewableenergy in the U.S. generation mix contin-ues to grow rapidly.

Utilities are exploring ways to thrivein a distributed-generation worldHow should a bakery respond when, eachyear, more and more of its customers want tostart baking their own cookies?

Electric power utilities will confront a sim-ilar situation in 2014, as tens of thousands ofadditional homes and businesses will startbuying less electricity from traditional retail-ers, instead opting to produce power fromtheir own solar panels. Rooftop solar installa-tions have reached a furious pace in the U.S.:a new system is now brought online everyfour minutes. And all other things equal, anincrease in behind-the-meter distributedgeneration (DG) means a decrease in salesand revenue for utilities.

5 utility industry trendsto watch this yearLast year brought about a number of interestingdevelopments in the energy industry. Here arefive key trends we’ll be watching closely in 2014.

Source: American Council for anEnergy-Efficiency Economy (ACEEE)

State-by-state energyefficiency scorecard

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SPRING 2014 JOURNAL OF UTILITY MANAGEMENT 13WWW.UTILITYSMARTPRO.COM

Demand response will aid the grid’s transition toward supplyFundamental changes in the electric grid’ssupply and demand profile are requiringutilities to think creatively about how tomanage this transition.

On the supply side, deep investments inutility-scale renewables like solar and windare bringing into focus the intermittency ofthese sources. It’s no secret that solar elec-tricity production grinds to a halt in theevening, and that wind speeds often pick upafter electricity consumers have gone tosleep. And on the demand side, the rise inelectric vehicles—the most energy-inten-sive appliances in the history of the home—could put substantial pressure on the grid atcertain times of day.

A mix of smart technologies, customerengagement, and demand response will helpbring electricity production and consump-tion into the precise alignment that the gridrequires to function properly. While innova-

This DG-driven revenue curtailment couldproduce a frightening cycle for the powerindustry: reduced sales revenues could leadto less system-wide investment, which couldlead to a less cost-effective electric grid,which could in turn lead to an increase inrates for consumers. That could drive morehigh-value consumers opting to producetheir own power—which could all lead tofurther reduced sales revenue for utilities.You get the picture. Rinse and repeat, untilthe days of a centralized utility give way to adistributed generation world.

The challenge for utilities in the comingyear will hinge on constructively participat-ing in this trend, rather than sitting on thesidelines. An innovative pack of utilities arealready seizing upon such opportunitieswhich include utilities’ leasing solar panelsto ratepayers and creating subsidiaries thatinstall rooftop solar outside their regulatedservice territory.

In parallel to finding an optimal role indistributed generation, utilities are naturallysuited to further unlock the potential oflarge-scale solar. It still accounts for themajority of installed solar electric capacityin the U.S., and it is set to take off in a bigway in the next few years.

Smart meter infrastructure paves theway for dynamic pricing programsIn the last 6 years, the number of smart metersin the U.S. has grown more than sixfold.There are now more than 46 million smartmeters installed nationwide—enabling real-time communication of energy data betweencustomers and their service providers.

This trend isn’t about to slow down.Worldwide, the installed base of smartmeters will triple from 313 million in 2013 tonearly 1.1 billion within ten years, accordingto a November report by Navigant Research.

But while smart meter deploymentsbecome widespread, dynamic pricing—which better matches energy supply anddemand through real-time price changes—is not as prevalent. However, some utilitiesare emerging as leaders in applying dynamicpricing to better engage their customers andensure system reliability.

Programs like Pacific Gas and Electric’sSmartRate and Baltimore Gas and Electric’sSmart Energy Rewards are at the forefrontof the utility industry’s adoption of dynamicpricing. Their focus is on using time-varyingenergy prices to keep a grid-friendly balancebetween electricity supply and electricitydemand, and on designing easy-to-under-stand rates and rebates that help customersmanage their consumption in a personalizedand energy efficient way.

Amory Lovins was right. In 1989, theAmerican physicist noticed a misprint in areport of the Colorado Public UtilitiesCommission: negawatt for megawatt (MW).He borrowed the word to describe powersaved through conservation or efficiencymeasures, and argued that these were thebest way to meet rising demand for power,both for businesses and the environment.The first global study of such measuresshows how far they have come.

The report, by the International EnergyAgency (IEA), says that investment in ener-gy efficiency is large and growing:$300 billion in 2011 by compa-nies and governments in 11countries. That is the same astotal investment in electricitygeneration from oil, gas and coal,though less than investment inrenewable electricity plus renew-able-energy subsidies. But it savesmore in emissions of carbon diox-ide than all the spending on renewables, andpays for itself.

As a result, says the agency, “avoidedenergy”—the difference between theamount actually used each year and theamount that would have been used hadthere been no conservation since 1974—isnow equivalent to two-thirds of annual con-sumption. That is almost as much as theworld’s output of oil, gas and coal combined.The result has been a bonanza for energy-service companies, which advise other firms

how to cut fuel costs. In America, thesefirms’ revenues grew by 20 percent a year inthe decade ending 2011 to $7 billion.

Companies are responding to high oilprices which stimulate energy savings every-where, although energy subsidies dull thiseffect in some countries. But Robert Tromop,head of the IEA’s energy-efficiency unit, saysthat regulation and technological innovationmatter just as much. China, for example, istightening its vehicle-emissions standards,boosting sales of fuel-efficient cars. It alsorequires that all new coal-fired plants with acapacity of over 600MW be “supercritical”ones that are about a third more efficient

than traditional designs.Fridges used to consume

more energy than televisions.Now, TV sets consume morebecause they have got larger,whereas fridges have got moreefficient, partly in response togovernment energy-saving tar-gets. The market for “smart”appliances, which save energy

by switching themselves off when not need-ed, is almost doubling every year.

Regulations impose costs as well as savethem. But when the IEA examined theimpact of efficiency targets on Japanese con-sumer goods, it found the benefits—lowerrunning costs, more innovation—outweighedthe extra burden. Efficiencies spurred by regu-lation will not create a low-carbon energyindustry by themselves. But they do more tomeet the goal than is usually recognized. Excerpt The Economist

NEGAWATTS

tive energy storage approaches may play afuture role in managing this exacting dancebetween power supply and demand, othermore proven and more cost-effectiveoptions will be required in the near term.

The impressive ability of demand responseto reliably stabilize electric systems underpressure has been on full display in the pastyear: DR helped keep the lights on duringhours of record-breaking summer powerdemand in New York last July, and also dur-ing hours of record-breaking winter powerdemand in Texas in February.

It appears that nimble DR mechanisms(e.g. dynamic pricing and real-time customerengagement) will become increasingly valu-able assets for utilities as a low-cost strategyto manage not just weather-driven peaks, butalso the day-to-day patterns associated witha cleaner and smarter electric grid. Authors Dan Yates and Alex Laskey are co-founders of Opower, a privately-held companythat partners with utility providers around theworld to promote energy efficiency.

Negawatt hour

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U.S. dollars per million British thermal units (MMBtu)

18

16

14

12

10

8

6

4

2

02007 2008 2009 2010 2011

Japan(ave. LNG import price)

U.K.(NBP)

U.S.(Henry Hub)

SOURCE: EIA

U.S. dollars per million British thermal units (MMBtu)

18

16

14

12

10

8

6

4

2

02007 2008 2009 2010 2011

Japan(ave. LNG import price)

U.K.(NBP)

U.S.(Henry Hub)

SOURCE: EIA

AMERICA’S GAS BOOM

14 JOURNAL OF UTILITY MANAGEMENT SPRING 2014 WWW.UTILITYSMARTPRO.COM

Rife with tension and uncertainty are frack-ing, gas storage and exporting the very samenatural gas that had only just begun to easeprices down. So what’s next?

among other things, the environmentalconcerns of fracking, and its stigma.

“There is a better appreciation for theneed to take seriously the need to protectthe public and reassure the public this shaleboom can be done safely.” Jason Bordoff,director of the Center on Global EnergyPolicy at Columbia University said.

Many think the shift in transparency hasmore to do with the increasing number ofwells making their way toward populationsand further from remote oil fields. Dealingwith nearby residents will become a must aswells continue to encroach cities and towns.

The big chill: exportsAnd then there’s the Russian invasion ofCrimea. Putin’s latest move is heating upthe discussion of U.S. gas and oil exports toEurope, a discussion that, heretofore, hadbeen generally stalled on Capitol Hill.

Six European nations rely on Russia for100 percent of their gas, while seven othersget at least half their gas from Russia. AndEuropeans won’t be drilling themselves outof the problem any time soon sinceEuropean property owners don’t have sub-surface rights to their property, as do manyAmericans.

Fracking, exports andstorage, oh my

Multifamily accounted for a whopping $18.03billion in energy bills a decade ago, a numberthat has only grown alongside overall resi-dential energy use since then, and then addsome because of the country’s shift fromhome-ownership to rentals. That was 15 per-cent of U.S. energy consumption in 2005, thelatest year for which this data is availablefrom the U.S. Department of Energy.

Fracking grows upFracking’s large footprint on our industryand our country is hard to ignore. Longthought to be the country’s energy salva-tion, it has something for everyone: jobs,controversy, cheap fuel, mystery, geopoliti-cal leverage and dirty water.

This March, the process of hydraulic frac-turing, known as fracking, celebrated 65years since the first patent was issued in1949 to Halliburton Oil Well CementingCompany. All these years later fracking hasmatured to elevate the U.S. to lead positionin global oil and gas production.

March seemed a big month for energy onother fronts, as well. One of the largest gath-erings of researchers and those who drill oiland natural gas (IHS CERA Week) gath-ered in Houston to discuss a plan to address,

“Why would you be in favor of drilling onyour property if you don’t stand to gain any-thing from it?” said Chris Finlayson, chiefexecutive of British energy company BGGroup, in regard to instances where miner-al rights are controlled by governments,instead of by individuals.

Until now the Obama administration hasstood as the last hurdle in the move toexport natural gas from the U.S. There areover 20 export license applications stalled atthe Department of Energy (DOE), the old-est for over 800 days.

Primarily Dow Chemical, closely-tied tothe administration, has lobbied heavily tostall exports out of concern that it will raisedomestic prices.

While the world hungers for natural gas,the truth is that it will still take time forEurope to see any American liquefied natu-ral gas (LNG); the first U.S. LNG exportterminal out of the six approved isn’texpected to start production until late 2015.

With all the controversy circling naturalgas and making matters worse for consumerprices, an unusually cold March erodedstockpiles already at an 11-year low.

About 49 percent of U.S. households usegas for heating, especially in the Midwestaccording to the U.S. Energy InformationAdministration (EIA). With more coldweather forecasts looming, it seems hard tocatch a break on utility bills. This is notgood news for apartment owners or theirresidents.

Who could have prepared for such a per-fect storm of rising energy costs, weather,and politics? It’s critical to our operationsand our residents that we get in front ofenergy prices because this is certain: energyprices will remain volatile and we are tied tothis ebb and flow until we make andimprove channels to control costs.

Old models of gas price drivers based onhurricane activity in the Gulf of Mexicohave been replaced by a new model. Pricesare now tied to everything from Putininvading Crimea to how much is left in stor-age to weather in the Northeast.

Thanks to an unusually cold winter andsupply bottlenecks, natural gas recently hitits highest price since December 2008. Sohow long will prices stay elevated and howcan one possibly get ahead of the game?

A penny savedUnder normal conditions, natural gas con-sumption in is cyclical. Historically, betweenApril and November more natural gas is pro-duced than consumers demand. Producersuse a system of underground pressurized stor-age that builds inventories until mid-fall

Natural gas trends

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1990

1995

2000

2005

2010

2015

2020

2025

2030

2035

2040

U.S. dry natural gas production

35

30

25

20

15

10

5

0

history

TR

ILL

ION

CU

BIC

FE

ET

SOURCE: U.S. ENERGY INFORMATION ADMINISTRATION, ANNUAL ENERGY OUTLOOK 2013 EARLY RELEASE

2011 projection

shale gas

tight gas

Alaska

non-associatedoffshore

coalbed methaneassociated with oil

non-associated onshore

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

Energy consumption in the U.S.

45

40

35

30

25

20

15

10

5

0

BT

U

SOURCE: U.S. ENERGY INFORMATION ADMINISTRATION

hydroelectricrenewables

natural gas

coal

nuclear

wood

petroleum

AMERICA’S GAS BOOM

SPRING 2014 JOURNAL OF UTILITY MANAGEMENT 15WWW.UTILITYSMARTPRO.COM

which are then used through winter. Thatsaid, in recent years gas has started to par-tially displace coal as a raw fuel for electric-ity generation which has had a moderateincrease in natural gas demand during thesummer months of air conditioning use.

Natural gas is stored in depleted oil or gasreservoirs, in natural aquifers, or in salt cav-erns. Federal energy forecasters in Marchpredicted that natural gas prices next winterwill average about 3 percent higher thanthey did this winter. Still, gas supplies willre-build as production increases.

The arctic weather that hit much of thenation created record demand that con-sumed an enormous surplus of gas in storageaccording to the EIA.

But it could have been worse. Despiterecord temperatures not seen in over a gen-eration, natural gas storage levels and newsupply such as fracking helped control pricespikes in wholesale markets to a few days.

While prices have fallen since February,they have yet to drop to where they were ayear ago and probably won’t until reservesreach previous levels according to the EIA.

Continuing cold weather is expected tokeep reserves down through April, and setthe stage for record production through thespring and summer. Gas producers areexpected to ramp up production in order totake advantage of the higher prices.

The EIA projects a surplus by 2018 leav-ing supplies robust enough for a healthyexport market.

Until then and beyond, multifamily willneed to stay in tune to an ever-changingglobalized market and political ebbs andflows of pricing. Authors Tom Spangler is one of the elder states-men in resident utility billing, meaning he hasspent entirely too much time trying to explainwhat he does to people outside the multifamilyindustry. Spangler is a consultant currently serv-ing as energy manager for Greystar. Prior to that,he managed ancillary income and utility expenseprograms for UDR for over a decade. Spangler isa lifelong Virginia gentleman and has an engineer-ing degree from Virginia Tech and an MBA fromthe Darden School at UVA. Tom lives inRichmond, Va.

Darren Novich is manag-ing partner at The EnergyLink where he reducesenergy costs for some ofthe largest multifamilycompanies in the coun-try. Novich has alsoworked with severalenergy supply providers.He served four years inthe U.S. Air Force andgraduated from the

University of Florida. Novich lives near Atlanta, Ga.His knowledge and experience as an energy tradergives him the advantage against any therm or Kwh.

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