7NOX Blog

Tips for Calculating an After-Hours AC Rate

office worker using calculator

Written by 7NOX Team

August 26, 2021

After-hours HVAC charges are a sticky OPEX budget item. Normal core hour rates are predictable. Power providers determine your property’s kWh costs for you. But with after-hours AC, managers must calculate the hourly rate themselves. And it’s work that needs to be done right if you want to recoup your full utility outlay. 

With figuring after-hours AC rates, you get as much as you give. The more detailed your cost analysis, the more accurate your rate. And an accurate rate will refund your actual utility cost per hour, an inaccurate one won’t.

But determining detailed costs also takes time—your time—and that’s valuable. There must be a middle ground—an approach that minimises time while maximising resource win back. To locate it, we approached FMs working today for their input on striking a balance. Here’s what they told us.       

Lock In the Parts of Your AHAC Rate Early

Most after-hours AC rates need to include more than electricity for chillers and boilers. For sure, there’s the fixed energy cost of your HVAC system to consider (more on that later), but what about other resources and services you provide? Lock in these costs early. It will give your calculation process more focus and direction. But what are the other costs?  

If you’re managing an office space, your tenants may need access to lift services, parking and hallway lighting. If you’re a university, you may need to add security and cleaning services to the charge. FMs with manual AHAC programs need to include an admin fee to cover staffing costs. Someone will need to record the after-hours request, program the BMS and handle cancellations.    

Start with the most obvious expenses and work your way to more granular items. Go as far as practicable for your situation. Some guess work is inevitable, but at least identify each hard cost. You can always discard extraneous ones later. Besides, you’ll need the list later when drafting your AHAC clause for your lease. Listing excluded costs in your lease is a smart way to quell tenant complaints about future AHAC increases. 

Fixed Energy Cost: “Keep it Simple”

Since it’s your biggest electricity hog, your HVAC system will make up the bulk of your energy use for AHAC. Therefore, it results in the biggest potential for annual OPEX losses. So accuracy literally pays here.

The simplest (least accurate) method would be to divide your annual energy bill by the number of standard operating hours per year. It’s a simple, but rough estimate that lumps every kWh into the same basket. It tells you how much it costs to operate your property, not your plant. The lack of kWh discrimination could result in under or over-charing tenants and making your property less profitable.  

At the other end, an FM could attempt to record their plant’s actual kWh usage in real time. Smart meters and EMS equipment give real time feedback, but they’re expensive and complex to integrate. Stuart Bryant, GM for a large property holder in New Zealand, explained how his company attempting to calculate their AHAC costs with smart meters:  

“In one instance, we installed a series of TOU meters across all distribution boards that controlled the mechanical plant to work out the ‘actual’ energy usage. This worked but was complicated, and I wouldn’t recommend it.”

Such a granular approach is costly—both in time and money—and, by the end, may be more trouble than it’s worth. Even if benchmarking your property’s kWh usage is the point, usage rates and costs fluctuate throughout the year, so the accuracy you locate at one moment will inevitably vary from season to season.

“In one instance, we installed a series of TOU meters across all distribution boards that controlled the mechanical plant to work out the ‘actual’ energy usage. This worked but was complicated, and I wouldn’t recommend it.”

Stuart Bryant, GM

“I’ve found that a simple system (agreed with the tenant up front in the lease) works best,” Bryant states. His point is notable: simplicity can be preferable to accuracy, especially when tenants are involved. Simple calculation methods are much easier to get tenant buy-in from the get go. Complexity often breeds skepticism, as tenants fear hidden costs lurk within convoluted processes. 

Pro Tip: Schedule an energy audit. Whether it’s for a NABERS assessment or simply to save on energy bills, an energy audit gets the hourly data you need to calculate your fixed energy costs. Plus, it increases your sustainability.

Should You Include Depreciation?

Including accelerated depreciation will likely depend on the complexity of your HVAC system and budget. After-hours AC requests do shorten the lifespan of your equipment, so if you decide to recoup that cost, make sure it’s worth your time. One way to manually calculate depreciation is to research ASHRAE reported estimates for each piece of HVAC system, but this is complex and time consuming. 

FM’s with access to asset management systems can speed up the process. Some AMS software use built-in ASHRAE reports to predict equipment life cycles. These programs can serve as a helpful guide for adding hourly depreciation to your AHAC if you have access to them.  

Still, other FMs are using experts to fill in the depreciation data gaps. Bryant explained that his company solicited incumbent engineers to gather data for calculating depreciation. He notes, “Having the independent data and showing the workings meant a simple explanation to tenants when they’d questioned costs.” 

Bryant’s quote highlights a critical piece of the AHAC puzzle: third-party validation. Soliciting experts is expensive, but it also adds independence and credibility to the data you collect. For some managers, ensuring a calculation that reassures tenants is worth the upfront investment. For others, it may be an unnecessary cost.

bulls eye with arrow sitting on coins

Aim for Fairness, But Be Practical

With AHAC, the notion of tenant fairness will inevitably creep into your calculation. While buildings with only one HVAC zone make figuring AHAC costs fairly straightforward, multi-storied buildings introduce complexity. Consider these two situations: 

  • Situation #1: Tenant A is a data center and Tenant B is a law firm. Tenant A uses five times the electricity as Tenant B.
  • Situation #2: A building has two HVAC zones: Zone 1 is bigger and requires $50/kWh to cool. Zone 2 is smaller and only requires $30/kWh. 

For Situation #1: How do you plan for this discrepancy in power usage? Is it fair to charge both tenants the same rate for after-hours AC?  For Situation #2: If you opt to go with the $50/hr charge for your AHAC rate for all tenants, aren’t tenants in Zone 2 getting ripped off?

These are fair questions to consider, and there are practical ways to provide for exceptions. For example, FMs with a multi-tenant building could average their electricity costs across HVAC zones:

  • Floor 1 – 3  =  $22/hr
  • Floor 4 – 8  =  $36/hr
  • Floor 9 – 12 = $30/hr
  • Average = $29.33/hr

Averaging in this way spreads the cost more equitably among tenants, but the process assumes that energy data per zone is easy to come by. Plus, most FMs want only one AHAC rate for all tenants because it keeps leases consistent and billing easier. So, while you should strive for fairness, stay practical in your expectations.      

Bryant says shifting your perspective on after-hours AC is beneficial here. He suggests thinking of it as a one time “cost of service” rather than a pro rata charge. “Again, I think simplicity is the best policy here,” he states. “The basic calculation that tenants have agreed to pay when using AHAC is most important. It doesn’t matter if one or multiple tenants are using it at the same time because it’s really a cost of the service you’re providing for each.”  

Keep Sustainability a Priority

If you’re not on top of them, after-hours requests can tank your sustainability efforts. Without an effective booking system, cancellations and reschedules may have you heating or cooling empty spaces. Make sure you’re automating as much of the process as possible. Consider investing in technology to help, like an AHAC automation app that lets tenants order after-hours AC from their smartphones. Automation helps you conserve time, money and energy. 

Plus, look for opportunities to work with individual tenants to save energy during their requested hours. Bryant suggests starting with tenants who make regular requests. “Talk with the tenant or landlord about ways to minimize their electricity usage during this time. Consider adjusting your BMS for better control of temperatures. It will limit the usage of your main plant and reduce electricity and/or gas consumption.” 

Conclusion

Tenant satisfaction is a key “cost” of sloppy after-hours AC calculation. Overly complex processes, infrequent communication, and billing inconsistencies lower tenant satisfaction and occupancy rates. Tenants unfamiliar with AHAC may question the need for a separate billing at all. Others may be confused by the idea of delivering a utility-as-a-service. A few may even dispute your fixed energy rate. Many tenants simply forget the AHAC agreement exists, leading to angry emails about mystery electric bills. 

These situations are why setting expectations with tenants is so valuable. “Agree to the cost and workings of the plan up front with the tenant,” Bryant advises. “Spend the time early to avoid spending time each month discussing and explaining costs and charges.”

BACnet Basics: What are BIBBs? 

BACnet Basics: What are BIBBs? 

Every complex topic or field needs a helpful naming system. Scientists name flora and fauna by genus and species. Even astronomers have their own...