A letter to my Condo Association

My parents forwarded me an email seeking comment on a new proposal for our condo building. It, and my response, are below.

Gas Submetering vs. Assessment Add-on

The MASC Board is seriously considering cancelling the Studebaker gas submetering contract and including gas expenses in the 2011 monthly condo fee assessment. Factors that support the Boards’ approval of this alternative include:
•Eliminating a monthly bill for each homeowner and Studebaker’s $3.79 monthly admin fee ($16,700 annual cost for the community) and other fees imposed in their contract;
•Eliminating the expense of maintaining and repairing the submetering equipment for 368 units;
•Removing the 45-60 day delay in collecting gas payment revenues (Studebaker’s processing and billing cycle); and
•Eliminating the administrative burden of monitoring Studebaker’s collection activities..

A potential disadvantage might be that residents may be less vigilant about conservation when they do not receive a separate bill. Water is currently included in our HOA dues. If we make this change, we will need residents to be responsible about both water consumption as well as gas use. Also, since gas expenses fluctuate throughout the year (low in summer/high during colder months), some owners may perceive they are paying more with the flat assessment throughout the year.

In recent months the Board and some concerned homeowner volunteers investigated the possibility of replacing Studebaker with a different submetering vendor at a lower cost with more convenient payment options. Unfortunately, we learned that there are only a few companies which provide submetering service, and those firms have many of the same shortcomings as Studebaker and charge equal or higher fees for their services.
Including gas charges would increase 2011 monthly condo fees by the following:

Studio $ 8.35
1 Bedroom $10.85
1 Bedroom + den $13.35
2 Bedroom $15.86
2 Bedroom + den $18.36

The Board would like to hear opinions from interested homeowners before making a final decision on this matter. Please send your thoughts (either pro or con) to [redacted.] Since we have to finalize the 2011 Budget at the next Board Meeting (October 14, 2010 at 7 p.m.), please reply no later than Monday, October 11, 2010. Thank you.

Midtown Alexandria Station Condominium Board of Directors

And my response

James Swift
POA for Unit 818
Midtown Alexandria Station

Request for Comment RE: Gas Submetering vs. Assessment Add-on

Thank you for soliciting comments on the proposal of changing from an end-user billing model to a communalization of our building’s gas supply. For the reasons discussed below, I am not in favor of the proposal.

First, I acknowledge that the proposal will reduce fees ($45.48 yearly, at a minimum) from the bill. While eliminating sub-metering may “eliminate the administrative burden” of overseeing the sub-metering, the overall administrative burden will not completely disappear. It will merely be re-directed towards the payment, paperwork and oversight of paying the gas bill for all of the residents of the building. As I’ll explain later, more work will likely be created to find ways to administer disincentives to seemingly unlimited gas use in the aggregate, since some residents may consume more gas than they normally would.

Second, one must consider basic economics when debating such a change in policy. What rations existing supplies of limited resources, like gas? The answer is price. Prices not only ration existing supplies of scarce goods, but also are powerful incentives in determining the supply and demand such goods. By eliminating a monthly bill, even with a small reduction in “fees” from a sub-metering company, you eliminate the impetus of consumers (in this case, residents) to act as rational economic actors. This might work out if the cost of gas were fixed (it’s not) and demand were inelastic (also not).

While most individuals will act rationally, and continue to consume gas as they normally would if they paid the bill each month, others will not, and will consume more, especially in winter when prices are higher due to increased demand. Further, renters will have even less incentive than owners to conserve gas if their unit’s owners cover the cost of HOA dues or build them into the price of the unit rather than paying the bill each month. Sadly, not all residents will act responsibly. The aggravation that will be caused by merely one irresponsible tenant leaving windows open in the winter will outweigh the administrative savings. I’m not sold, either, that the long-term savings will be achieved, as consumption will predictably rise.

We don’t know what the future will bring, but by having (and maintaining) the separate meters, existing and future owners will have the confidence that they are not subsidizing a few irresponsible tenants.

Simply put, I don’t see the projected cost savings as significant in light of the possible downside risks.

Thank you for giving me the opportunity to respond to this proposal. I appreciate the Association’s efforts to reduce fees and costs.

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2 Thoughts on “A letter to my Condo Association

  1. Kristian Marlow on October 5, 2010 at 10:24 pm said:

    This problem is so common that there have to be studies out there that give some numbers backing what you’re saying. What I wonder (rather not intuitively) is if in fact there are some owners that will actually use less gas as a result of community burden. May seem weird, but possible.

    I am working on a current study of my building—I like to read novels in the bath—where I am waiting to see how much the fees go up since I moved in.

    • Kristian Marlow on August 2, 2012 at 9:09 am said:

      Update: All three water boilers failed within a 2-week period, presumably a result of my hot-water usage.

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