Electrical Sub-metering 101
September 8, 2009
Sub-meters allow a user-pay system where tenants pay for the electricity they use. That creates an incentive for tenants to conserve electricity and allows property owners/managers to regain control of their electricity budget.
By H. Victor Seeman, BSc, MBA
If you’re an owner or manager of a multi-unit residential building in Ontario, you’ve likely heard quite a bit about electrical sub-metering (ESM) and the need to do it. Chances are good that you are confused by - or have no idea about - what’s going on, why, and why now.
To help give you a basic understanding of this part of your business, I will present a series of articles covering various aspects of it. We will start by offering “Electrical Sub-metering 101”, a very basic Q & A primer to help you get started in demystifying the ESM world. In subsequent articles we’ll look at other ESM issues including legislative issues, electricity pricing, meter selection and installation, and implementation case studies.
What is electrical sub-metering?
In this context, sub-meters are meters that measure individual electricity consumption in each residential and/ or commercial unit of a multi-unit residential or commercial building. Sub-metering enables a user-pay system. Tenants are billed individually by suite and pay only for the electricity they actually use.
What is the rationale for doing this?
Traditionally a multi-unit building had only one bulk electricity meter, so the only way to apportion costs fairly to residents was through a pro-rata flat fee, often based on square footage rather than actual consumption. This fee was then included in their rent or condo fees. However, this method removed any financial incentive to conserve electricity. By moving to a user-pay system, consumers can directly receive the financial benefit of their own conservation efforts.
Sounds great in theory, but does it actually work?
From the consumer’s perspective, studies have shown that when buildings switch to user-pay ESM, about 60 per cent of residents save money, about 20 per cent pay the same amount, and the remaining 20 per cent see their bills increase. The increases often last no more than the first few months, since the incentive to save kicks in. From the environmental perspective, total building electricity consumption drops substantially - from 10 to as much as 25 per cent post-conversion.
Will saving the electricity in my building actually make a difference?
The Ontario government is counting on it. In Ontario, only about 15 per cent of the roughly 2.6 million condo, rental, and social housing units are sub-metered for electricity. The government is targeting a 6,300 megawatt reduction in demand through this initiative. That’s about 20 per cent of Ontario’s 31,600 MW of total generating capacity in August of 2008.
Why is this happening now?
Aside from the recent run-up in energy prices and the global “green” push for environmental responsibility, the Ontario government decided to help us along in doing the right thing by passing legislation. The Energy Conservation Responsibility Act, which received Royal Assent in March 2006, included, among other things, requirements for smart meter installations.
Everybody else benefits - will I get to benefit too?
Yes and here’s how.
• You regain control of your electricity budget because you are no longer at the mercy of tenants with no sense of actual costs and no incentive to save. If all tenants are sub-metered, your exposure to price and consumption fluctuation is only on the common elements, which are both more controllable and a much-smaller percentage of the total.
• You avoid the need to seek above-guideline increases to compensate for large jumps in electricity prices.
• In many rental buildings (but certainly not all) our experience shows that the rent reduction required at turnover to compensate for converting from “hydro included” to “plus hydro” is less than the allocated hydro amount - and in some cases none at all. This brings more pure revenue to the bottom line and more value to the building through the cap rate multiples (in fact, almost always in excess of the cost of the meters).
• You can legitimately claim that you are pursuing a “green” initiative, demonstrating your commitment to prudent environmental stewardship.
Is a smart meter the same as a sub-meter?
Not necessarily. All smart meters can be sub-meters, but not all sub-meters are smart meters. For example, some sub-meters are no more than an analog or digital re-creation of the “dial under glass” meters of old. In contrast, smart meters incorporate any number of additional capabilities. They include:
• Automated Meter Reading (AMR), which allows for remote meter reading (saving the cost of the meter reader).
• Interval Metering (IM), which keeps track of both how much and at what times the electricity is being used. This enables consumers to benefit from Time-Of-Use (TOU) electricity pricing, where non-peak electrical consumption will be discounted.
• Demand response and management controls, including for example, the ability to adjust thermostats remotely. Perhaps the greatest benefit of a smart meter is that a resident can log into their personalized account on the Web and see various consumption reports, including - potentially – consumption in real-time. This empowers them by giving them the data necessary to make intelligent consumption choices that suit their lifestyle.
I don’t want to bother my residents with the mess and inconvenience of in-suite work. Now what?
The good news is you likely won’t have to. Just as computers have become smaller and more sophisticated, so too have smart sub-meters. In most cases the smart sub-meters can be installed in the hydro closets in the hallways, and typically in any given suite power is only down for six to eight hours.
Can I install sub-meters in a building with electric heat?
Not only can you - you must! The greatest benefits and savings accrue to buildings with electric heat. The only difference is that the heating equipment is likely on 240 volts, rather than the 120 volts for “lights and plugs”. In that case it would necessitate two meters per suite, rather than one.
I really want this, but can I afford it?
The good news is it likely costs much less than you think. Besides, most reputable ESM firms have various financing options available and will work with you to meet your specific needs.
How do I get resident buy-in?
If this is confusing to real estate professionals, how much more so to individual residents. We’re also aware that some residents may see this initiative as nothing more than a cashgrab by landlords or condo boards. These two key success factors will help ensure a smooth implementation.
• Choosing the right ESM partner that can help educate your board and/ or residents about sub-metering by providing information, orientation sessions and ongoing support to property managers and residents alike.
• In the case of rentals, introducing “hydro extra” pricing only upon suite turnover and not on existing tenants.
Waiting for suite turnover could kill my financials!
Not necessarily. Even though sub-meter installation needs to be completed on the whole building at one time, a number of firms have an option that, aside from a nominal fee, billing and meter rental fees do not commence until suite turnover, i.e. the metering company carries that cost. This will actually bullet-proof your bottom line.
Will my building qualify? What’s the next step?
A reputable ESM firm will send out – at no cost to you – a trained technician to do an initial site survey and determine if and how a smart sub-meter installation would take place. The good news is that in most cases buildings can be converted to ESM.
This article appeared in the August 2008 issue of Canadian Apartment Magazine.
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