Meters, Monopolies, and The New “Green” Gold Rush

April 5, 2018

 

In the early 1900's when the US electrical grid was first adopted, building owners and developers had no choice but to rely on utility companies to generate and provide power to their buildings. There simply wasn’t another option. As electricity became more and more of an essential part of life, power companies began to “plant” their electric utility meters on buildings all across the nation.

 

 

 

“Ben Franklin may have invented electricity, but it was the man who invented the meter who made the money.”

 

 

 

This relevant quote by Earl Warren conveys the impact that utility meters would have on history and why the verb “plant” seems fitting as power companies staked their claim with each installed utility meter. This marked the beginning of a hundred year monopoly over what is now a multi-trillion dollar industry.

 

 

 

 

Let's highlight the factors that contributed to this industry being built under monopoly control:

 

  1. The public need for the commodity was a high priority yet access was extremely expensive with no existing infrastructure. 

  2. Generation technology at the time of adoption was largely centralized so an expensive infrastructure was required to fulfill public need.

  3. Society’s need was answered by private investments and corporate capitalism.

 

In order to distribute power from the electric grid to consumers in a multi-family building, the power company will generally use one of two meter configurations:

 

 

Individually Metered: A building that is individually metered means each unit has its own electric utility meter, and therefore each tenant is responsible for their own electric utility bill. Most multi-family buildings developed or renovated after around 1965 are generally individually metered.

 

 

Master Metered: Master metered buildings usually have all units tied to a single meter, and therefore it is typically up to the building owner to pay the electric utility cost. While master metered setups were typically installed in most multifamily buildings prior to the 60's, today a fair amount of buildings remain master metered.

 

 

Through the mid 1900s, our society became more and more energy dependent, tenant electric consumption steadily rose, and along with that of course, utility costs. This began to cause concern for building owners because their master meter buildings couldn’t hold tenant’s accountable for their own individual electric consumption. Owners could try to recover their building’s electric costs by passing them to their tenants through increased rents, however with no way to identify each units individual consumption this failed to keep a high usage tenant accountable for using more electricity than a low usage tenant. In addition, a tenant had little incentive to be conscience of their own energy usage as other tenants or the owner would end up paying for some or all of that cost.

 

There has to be a better way, right? Here are some of history’s other attempts at improving electric metering for multi-family buildings:

 

 

Utility Renovation - New developments in the 1960s began to be built with individual utility meters so that the utility could meter and bill tenants directly. While some owners of previously built buildings chose to pay for these utility renovations, many could not justify the cost to renovate to individual utility meters and instead sought cheaper methods of recovering their master metered electric costs.

 

 

RUBS - One method that became enforceable in the 1970s was RUBS (Ratio Utility Billing System) which allowed a master metered building owner to charge individual tenants for electricity based on metrics such as square footage, number of occupants, etc. This remains a common cost recovery system for landlords of master metered buildings, however since this method is not based on the individual tenant’s actual consumption, it is widely deemed an unfair method. It also lacks any incentive for energy conservation.  

 

 

Sub-Metering - Some property owners took it upon themselves to invest in electric sub-meters for each unit. This still ultimately left the property owner responsible to pay the entire building’s electric cost to the power company, however it allowed property owners and property management to recoup that cost by charging tenants based on individual use. This helped promote conservation and utility savings as both landlords and tenants were now equally aware of their individual costs. Unfortunately, this brought up the concern from tenants that property owners could pass rising utility costs to tenants who lacked control over the energy efficiencies of the building, such as insulation or major energy appliances. It also empowered property owners to deem their electric charges to tenants as part of the rent, making tenants subject to eviction for nonpayment of their electricity bills (something that would not be possible if the tenant’s had a direct utility meter).

 

 

Regardless, for many master metered building owners the cost to make utility renovations or install electric sub-meters never seemed to make sense enough to pay for, so many multifamily buildings continue to enforce questionable utility cost recovery methods.

 

How can we leverage modern technology and innovation to make energy a win for everyone?

 

Today there are superior sub-metering technologies and many more methods of power generation. It’s not news to most of us that the price of retail electricity from utility companies has been skyrocketing to absurd rates in many US states. However, at the same time, the levelized cost of energy that can be generated onsite (from solar, for example) has plummeted drastically and can be provided directly to tenants without the hefty transmission costs that we have been accustomed to. These methods of distributed energy are a result of innovation and advancing technology that is cutting out much of the old distribution process and enables us to rely on the old centralized system only for backup power or surplus load demand. With relatively new policies in place like Net Metering, Net Metering Aggregation, and Virtual Net Metering, it is no longer difficult for property owners to generate and provide clean affordable electricity on their own.

 

 

So back to Mr. Warren's quote:

 

 

“Ben Franklin may have invented electricity, but it was the man who invented the meter who made the money.”

 

 

Most modern day multi-family buildings are designed with individual utility meters because that has become the norm in catering to the utility's centralized system of energy distribution. However, with changes in today’s energy economic landscape, preferred methods have been teetering towards renewables and onsite power generation. Power companies have certainly made a lot of money over the years by creating and distributing electricity. Now that property owners can do both of those themselves, it may be time to ask ourselves if perhaps master metered buildings updated with energy sub-metering & onsite generation is the best solution for enhancing the bottom line for both landlords and tenants.

 

100 years should be long enough to figure it out, right?

 

 

 

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