In the past, many apartment building owners considered the best way to hedge inflation and save on energy costs was to lock into bulk utility contracts, agreeing to a set price structure for various terms. While they saved money as rates increased, the opposite occurred when rates went down. For example, in 2008, natural gas costs were approximately $0.31 per cubic metre. The following year, they were $0.18 per cubic metre.

So, aside from bulk contracts, what can be done to reduce energy costs?

Before looking at the options, it’s important to understand where energy costs have gone in relation to rents.

Rent Increase Guideline
In 2008, the Rent Increase Guideline, as set out by the Ontario government, was 2.6 per cent. Next year, Ontario is capping rent increases at 0.8 per cent. This is a 69 per cent decline since 2008, which is approximately a 10 per cent decline per year.

The average Rent Increase Guideline since 2008 has been 1.9 per cent per annum. This does not seem like much given inflation and high increases in apartment building expenses.

Realty taxes and utilities generally represent 60 to 70 per cent of the total expenses for apartment buildings. Since 2007, realty tax rates for apartments in Toronto have declined by approximately 3.3 per cent per annum. This is a result of adjustments to the current value assessment (CVA) of multi-residential buildings – apartments have been traditionally over taxed compared to other property classes. That said, with the decrease in realty taxes has come a reduction in rents. So, in a way, it has been a mixed blessing.

Utility costs
Gas rates have come down in recent years. In fact, they have declined on average 10.5 per cent per annum since 2007. This is a direct result of global demand and the recession depressing the price of natural gas.

However, prices increased between 2012 and 2013 by 15 per cent. Many foresee this as an indication that prices will rise again as Canada exits the recession. If this is the case, it might be a good time to lock into a bulk utility contract. Spending monies to upgrade efficiencies (for example, boilers) at this time might not be economical given low prices.

Hydro and water are another story, though. Water and hydro rates have increased on average 11 and eight per cent, respectively, per year since 2007. Aging infrastructure and increased demand will see these rates continue to rise by double digits moving forward. These are the areas building owners should concentrate on as they will get the biggest bang for their buck. Owners should also apply for increases above the Rental Guideline Increase as the double digit increases may be seen as “extraordinary.”

Energy-saving measures
Because every apartment building is unique, different energy-saving measures will produce varying savings and paybacks depending on the property.

Both hydro and water can be sub-metered. Sub-metering passes the complete cost of the utility on to tenants. While converting a bulk-metered property to a sub-metered one takes time and initially results in reduced rents, the long-term cost-saving benefits outweigh the short-term drawbacks.

Other ways to reduce hydro costs include installing energy-efficient lighting and ballasts, timers on lights in various rooms, motion sensor lighting dimmers, delay switches and voltage harmonizers. Any of these measures can be implemented over time; however, replacing existing fixtures with energy-efficient lights and installing motion sensor lighting offer the greatest payback, have the largest immediate impact on consumption and are the least expensive to initiate, especially in buildings with big underground parking garages. Motion sensors in common areas are also very practical. Payback on these items is generally under 1.5 years.

Further ways to reduce water consumption include installing low-flush toilets, and changing faucets, shower heads and flare valves. Another water-saving solution is to install a flow management device. The H2minusO is one the most cost-effective conservation measures to have emerged in recent years. The device uses air in water supply lines to combat the inefficiency of a metering device to provide the volume of water a building requires. Some apartment owners using this technology are seeing reductions in costs by as much as 15 to 30 per cent, and have paybacks as low as six months.

Regardless of which measure a building owner implements, they all reduce costs. At this time, it is best to do something rather than nothing to curb energy costs as the Rent Increase Guideline is moving downward as fast as the price of hydro and water is increasing, and this will not change for the medium term.

Lorenzo Di Gianfelice is the broker of record and owner of Commercial Focus Realty Inc., Brokerage. He is also a team member of the company’s apartment group, which has been involved in more than $3 billion worth of apartment transactions.