The California Public Utilities Commission (CPUC) recently issued a decision allowing submetering of electricity in multi-story commercial buildings. Since 1962, commercial tenants that do not have individual utility-owned electric meters have been paying for their electricity usage through their rent, with the costs typically allocated in proportion to their square footage.
Under the new decision, it is possible for commercial tenants to pay for the electricity they actually use, rather than an averaged share. At the same time, the decision is fairly limited in its scope, as it applies only in Pacific Gas & Electric’s service territory, and only to certain commercial buildings. This article looks at what the CPUC’s decision does, and what it does not do.
Background
In most large multi-story commercial buildings, there is only one electric meter for both common areas and tenant-controlled areas. In this situation, tenants are not customers of the utility and do not have utility-owned meters that measure their individual electricity usage.
In order to recover their electricity costs, commercial landlords allocate these costs among tenants as part of their rent. The allocation is typically based on the relative rentable area occupied by each tenant. As a result, individual tenants have a relatively small incentive to conserve energy or improve the energy efficiency of their facilities and operations. In fact, this approach results in tenants with low usage of electricity per square foot subsidizing the electricity use of tenants that use more electricity per square foot.
The new approach adopted by the CPUC was the result of a settlement between Pacific Gas & Electric and the Building Owners and Managers Association (BOMA)1 in a PG&E rate case proceeding before the CPUC. A consumer group, The Utility Reform Network (TURN), opposed the adoption of the settlement, raising a number of objections and concerns. The CPUC ultimately adopted the settlement despite TURN’s opposition,2 but did add a number of clarifications and conditions to address issues raised by TURN.
The Settlement and Its Purpose
The basic concept of the settlement is to allow commercial building tenants to receive price signals to encourage their participation in energy efficiency and conservation programs. In other words, if commercial tenants pay for their actual electricity usage, they will have a greater incentive to reduce their energy use. Furthermore, almost all of the buildings eligible to participate in the submetering program are on time-of-use rate schedules, and the variations in the hourly cost of electricity would be passed along to tenants, providing more accurate price signals than a flat rate.
Under the decision, submetered tenants will only be billed for electricity use that is under their direct control; common usage, such as building lobbies, elevators, and garages, will be metered separately, and will continue to be billed as is done now, typically on the basis of percentage of building area occupied.3
Tenants will be billed at the same per unit rate for electricity as the master meter customer, so there is no markup on the electricity. The landlord can charge the tenant the landlord’s costs for the meter, reading the meter, and providing information services to the tenant, but cannot charge a markup on these costs. While the tenants taking submetered service would be customers of the landlord, not of PG&E, the bills provided to the tenants are required to have the same level of detail as the master meter bill that the landlord receives from PG&E.
Under the settlement, if some tenants in a building agree to submetering and others do not, the submetered tenants would pay based on their metered usage, common usage would be metered and allocated across all tenants, and the balance of tenant usage that is not submetered would be allocated among the non-metered tenants as specified in their leases.
Current leases, however, do not address a situation in which some tenants pay on a usage basis and others do not. Depending on the building, as a practical matter it may not be possible for some landlords to isolate common area electrical expenses from those associated with the occupancy of rentable area.
The CPUC also imposed some additional administrative requirements, including ordering preparation of an informational packet to be provided to BOMA members spelling out the information to be provided to tenants about the program, and ordering PG&E and BOMA to conduct a fairly detailed survey about commercial building master metering, with the results to be presented for evaluation by the CPUC in PG&E’s next general rate case.
PG&E is in the process of changing its electric tariff Rules 1 and 18 to comply with the terms of the settlement, with an expected effective date of November 1, 2007.
Limitations
In many ways, the scope of the decision adopting the settlement is fairly limited.
Because the settlement was adopted in a PG&E proceeding, the decision only authorizes submetering in PG&E’s service territory. While the CPUC would probably approve similar programs for SCE and SDG&E if requested by the utilities and BOMA, that would require a separate authorization from the CPUC. It is also possible that TURN or another intervener would protest, and argue that the PG&E program should be used as a pilot or test, and its results evaluated before extending the program further. This would likely further delay implementation in additional service territories.
The program is only available in high rise buildings, which are defined as "A multi-story, multi-tenant building located on a single premises usually comprised of three or more stories and equipped with elevators." The phrasing of this definition makes it unclear what buildings will qualify, and could potentially eliminate a significant number of buildings from participating. For example, would a four-story building without elevators qualify? What if the building is only two stories, but otherwise qualifying, and with elevators?
Finally, the program is only for commercial buildings, not residential buildings. Multiunit residential buildings (obtaining a building permit after July 1, 1982) are required to have individual electric meters.4
It will be interesting to see the answers to the survey ordered by the CPUC, as right now it is unclear how popular and effective this new program will be.
Footnotes
1. More specifically, the Building Owners and Managers Associations of San Francisco, Greater Los Angeles, Orange County, and California.
2. In Decision (D.) 07-09-004.
3. According to BOMA, tenants often control only 30% to 40% of the energy consumed in commercial buildings.
4. Public Utilities Code section 780.5.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.