Many tenant buildings have just one main energy meter, which means electricity expenses are combined into a single electricity bill. In these cases, all electricity is charged to the property owner, even when the tenants are the end users. Therefore, building owners must find a way to allocate electricity costs .
A common approach is to divide the electricity bill based on the square footage used by each tenant, which means larger companies end up paying more. However, this approach penalizes tenants who use a lot of space without consuming a lot of electricity – retailers with large storage areas are a good example.
Splitting the energy bill evenly is also an option when tenant spaces are approximately the same size. However, this approach does not consider that some tenants have higher energy consumption per square meter. For example, a tenant with many computers and a data center with permanent air conditioning consumes much more energy than a retailer, even if both use the same floor space.
Improve your building's energy metering infrastructure.
Unlimited electricity does not encourage savings
A negative consequence of unmetered electricity is that tenants have little incentive to improve their energy efficiency . This applies to both billing methods described above.
- If tenants are charged equally, any savings made from energy efficiency are also shared equally. For example, if a tenant saves $500 per month with efficiency measures, but there are 20 tenants in the building, the corresponding savings is only $25.
- If tenants are charged based on floor area, the savings from energy efficiency are also divided by area. If a tenant using 20% of the area implements a measure that saves $500 per month, they will only receive $100.
Another negative consequence of unmetered electricity is that everyone bears additional costs when a particular tenant is inefficient. Furthermore, for the two reasons described above, there is little incentive for the inefficient tenant to reduce consumption.
Energy efficiency measures for common areas can be effective, but most electricity consumption is concentrated in tenant spaces. Improvements to common areas are typically carried out by property management companies and their cost is recovered through increased rents.
How Submetering Encourages Energy Savings
When commercial spaces are equipped with individual energy meters, electricity costs can be allocated fairly. Tenants who focus on energy efficiency reap the full savings from their efforts, while wasteful tenants bear the full cost of their inefficiency.
Another advantage of sub-metering is that homeowners can more effectively monitor the electricity consumption of common areas. When there is only one main energy meter, there is no way of knowing how the electricity bill is divided between tenants and common areas.
After implementing sub-metering, property management companies can calculate the difference between total consumption and the sum of all tenant consumption values.
- As an example, consider a building where total consumption is 100,000 kWh, but the sum of all tenant spaces is 90,000 kWh.
- The owner can conclude that consumption in common areas and losses in internal distribution represent 10,000 kWh, or 10 percent.
If there is suddenly a large gap between the total consumption and the tenant's consumption, the property management company must inspect the installation. The difference could be caused by a common system using more energy than usual, or tenants' meters could be incorrectly set and measuring less than actual consumption.
In the case of New York City, Local Law 88 makes submetering mandatory for all tenants who meet certain conditions outlined in the law. Buildings covered by LL88 must also have their lighting updated in accordance with the requirements of the New York Energy Conservation Code. The deadline for compliance is January 1, 2025.
