Submetering Could be Poised for Growth

electricA blog posting from JLL says that currently, only about 15 percent of buildings in San Francisco have some form of submetering in place, as the practice is largely optional in Bay Area commercial real estate markets. In cities such as New York, Chicago and Seattle, submetering of electrical utilities is more common, and in New York, local statutes require submetering of tenant spaces.

With submetering, tenants can be charged for their actual utility consumption rather than a pro-rata share based on the square footage of their leased space.

Last year Legrand North America committed to reduce its energy intensity by 25 percent over 10 years, and as part of that commitment, Legrand chose to install submeters at many of its facilities. In the process, the company learned some lessons. For example, it found that the submeter design and installation process was more involved than it originally thought, and it necessitated the support of its IT staff and electrical engineers.

According to the JLL blog, submeters can be tied into building management networks to give landlords and tenants real time visibility into energy usage. Submetering helps building owners plan for maintenance and future expansions. They also provide cost certainty for tenants.

Not surprisingly, studies have found that energy usage goes down in multi-tenant buildings when tenants foot their own utility bills. Last year, WegoWise applied advanced regression modeling on monthly utility data from over 3,000 multifamily and affordable housing buildings across Massachusetts and found that multifamily buildings where owners pay the utility bills use about 30 percent more energy (BTUs) per square foot than buildings where tenants pay the utility bills. Additionally, WegoWise found that annual utility costs for buildings with owner-paid bills are 20 percent higher than tenant-paid bills.

The results spotlight the ‘split incentive’ issue, where tenants are not motivated to save energy if they aren’t the ones footing the utility bill.

Recently, Senate Bill 535 was passed into law, which among other things, establishes a voluntary Tenant Star program to promote energy efficiency in rental property.

To allow tenants to start touting their energy efficiency policies, the EPA will create the Tenant Star designation as an offshoot of Energy Star, according to an article in National Real Estate Investor.

Takeaway: One focus of Tenant Star will be a voluntary program to recognize owners and tenants that use energy efficiency in designing and creating new and retrofit spaces. But what about ongoing energy efficiency efforts? Submetering could become an important component of measuring and comparing energy usage in leased spaces.

Photo: Electric meters via Shutterstock

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