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To Save Energy, Tenant-by-Tenant Tracking of Electricity Use Allowed for Some California Commercial Buildings
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December 3, 2007
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By Peter V. Allen, Paul C. Lacourciere and Richard M. Shapiro
Thelen Reid Brown Raysman & Steiner LLP
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 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 typically is 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 CPUC was the result of a settlement between Pacific Gas & Electric and the Building Owners and Managers Association in a PG&E rate case proceeding before CPUC. 1/ A consumer group, The Utility Reform Network (TURN), opposed the adoption of the settlement, raising a number of objections and concerns. CPUC ultimately adopted the settlement despite TURN's opposition in Decision 0709-004 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. Moreover, 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 be billed only 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. (According to BOMA, tenants often control only 30 to 40 percent of the energy consumed in commercial buildings.)
Tenants will be billed at the same per unit rate for electricity as the master meter customer so there will be no mark-up 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 mark-up 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.
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 of commercial building master metering, with the results to be presented for evaluation by 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.
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 CPUC probably would approve similar programs for Southern California Edison and San Diego Gas and Electric if requested by the utilities and BOMA, that would require a separate authorization from CPUC. It also is 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 likely would further delay implementation in additional service territories.
The program is available only 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 potentially could 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 is qualifying and has elevators?
Finally, the program is only for commercial buildings, not residential buildings. Multi-unit residential buildings for which a building permit was issued after July 1, 1982) are required to have individual electric meters. Public Utilities Code §780.5.
It will be interesting to see the answers to the survey ordered by CPUC because now it is unclear how popular and effective this new program will be.
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For more information about the issues covered in this report, please contact Peter V. Allen in our San Francisco office at 415-369-7561 or at pvallen@thelen.com or Paul C. Lacourciere in our San Francisco office at 415-369-7601 or at placourciere@thelen.com or Richard M. Shapiro in our San Francisco office at 415-369-7117 or at rshapiro@thelen.com or contact your Thelen attorney. For more information about Thelen's Construction & Government Contracts Department, click here.
ENDNOTE
| 1/ | Specifically, the Building Owners and Managers Associations of San Francisco, Greater Los Angeles, Orange County and California. |
©2007 Thelen Reid Brown Raysman & Steiner LLP
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