Have an electric master meter at your property?
We built this short guide to help property owners understand the pro’s and con’s when dealing with a master meter. If you don't know what a master meter is, it's when you have multiple units or dwelling spaces in a building all tied to one electric meter. This can make utility billing a heated monthly topic during "who pays what" conversations.
The first step you may want to take before investing time down a path that will lead to a dead end is; 1) Start with a question, "does it feel like a win win?" If you feel like you're doing the right thing, and your tenant is paying less or no more than they would have been” usually the regulation supports the process.
The second step is; 2) Invest the time to actually understand your city, state, and federal regulations. There are some regulations that protect tenants from getting taken advantage of by landlords so the policy around electric bill back can be fairly tight. As long as the tenant is not paying more than they would be with the utility normally the policy checks out. We won’t talk about the regulations in detail as that is something you need to do on a local level and can vary from jurisdiction to jurisdiction.
Here is a guide to help you understand your different options:
Landlords that include utilities or other perks often raise the rent to reflect the estimated value added for tenants. This is a very common method because it is usually viewed as the easiest and simplest method. However, this method can be inaccurate in regards to cost recovery, and it usually does not account for varying amounts of electric use between tenants. Another challenge with simply raising rent to offset utility costs is that rent prices generally determine tenant interest, however, rent prices also impact the landlords bottom line. These are two conflicting forces that master metered landlords will need to weigh carefully with this method to insure a price that is reasonable enough to attract tenants but still high enough to earn a reasonable profit.
Electric sub-metering is a system that allows a landlord, property management firm, or HOA to bill tenants for individual measured electric consumption. A sub-metering system typically includes a master meter, which is owned by the utility company supplying the power and who also bills the property owner directly for overall usage. The property owner then invests in their own private sub-meters to measure individual unit usage levels and bill each tenant for their share. Landlords will sometimes simply add the tenant’s usage cost to the rent or, more likely, have property management monitor, process, and bill the tenant for their usage. The property management firm or billing service can sometimes charge a small fee to the tenant for this service.
RUBS (Ratio Utility Billing System)
Ratio Utility Billing System allocates the property’s overall utility bill to the residents using a pre-calculated formula based on occupant factors, square footage factors, or a combination of both. It also considers the portion of the bill that is common area rather than tenant living. This method is commonly used for situations where the constraints of space or construction do not allow a property to be sub-metered or the cost of sub-metering doesn't pencil out. RUBS requires no initial capital investment, is considered to be fair by most people (not all), and is legal in most states. RUBS formulas are based on simple industry statistics and, therefore, most complaints regarding this method boil down to to the fact that tenant invoices are not based off actual individual usage.
Individual Utility Meters
Master metered buildings that undergo the capital improvement of renovating to individual utility meters (also known as direct-meters), have utility owned meters placed in each living unit. The utility will then supply and bill each tenant directly for their individual use at a standard utility rate schedule while the property owner is typically billed by the utility at a commercial rate for common area consumption.
Grid + Ivy Sub-Metering
Master metered buildings that are acceptable candidates for on-site power generation (usually solar PV) have the option of implementing Grid.Tech's’ “Ivy” method, which is a revenue generating strategy leveraging two unique components. Grid will leverage German engineered hardware with their own software platform to deliver an automated sub-metering solution. This can be fully implemented at little or no cost when installed with the second component, a revenue generating PV system. With Grid’s technology, these components mesh together to allow a property owner to bill tenants based on real individual consumption in order to recover the buildings overall “pre-solar” electrical cost, while the solar PV reduces the owners obligation to the power company. This creates a margin for the property owner that can be taken home as increased NOI while also passing some savings to the tenants. We like to call this a win-win scenario.