Making Energy Hogs Pay

Making Energy Hogs Pay
September 07, 2007

Given that commercial buildings are responsible for about 20 percent of the United States's greenhouse gas emissions, encouraging landlords and tenants to cut electricity is one key way to fight global warming. Problem is, there has been little incentive in places like California to do so. Why? Because in a skyscraper like the one Green Wombat inhabits in downtown San Francisco, state regulations have allowed only one meter and the landlord typically divides up the utility bill according to the amount of square feet each tenant leases. So, even if Tenant A installs energy-efficient lighting and takes other measures to cut electricity consumption but happens to have the biggest suite in the building, it'll get stuck with the biggest utility bill. And though Tenant B might lease offices half the size of Tenant A's it'll pay far less even if it's an energy hog and uses more power than its green neighbor.

On Thursday California regulators moved to remedy that conundrum by allowing utility PG&E (PCG) and building owners to install meters for each tenant. The idea is that "submetering" will provide an incentive for tenants to conserve energy by making them pay only for the electricity they actualloy use.

"The inability for commercial building tenants to reap in the benefits of investments made in energy efficiency and demand response has been a hurdle," said California Public Utilities Commission president Michael Peevey in a statement. "All it takes is price signals and a customer willing to make an investment in order to take advantage of the potential cost savings.” Added PUC commissioner Dian Grueneich: "The prohibition on submetering in commercial buildings has been a barrier to energy efficiency for decades. This decision sets an example that the other utilities and the rest of the country can follow."

Presumably, the other two big California utilities, Southern California Edison (EIX) and San Diego Gas & Electric (SRE), will be able to implement submetering as well. PG&E and the Building Owners and Managers Association - which manages 600 million square feet of office space - have agreed to sub-metering. The hitch is that tenants - who directly control 1,600 megawatts of energy demand, according to the PUC - will have to agree to submetering in their lease. But if tenants can reduce electricity demand by 20 percent, the PUC says California can avoid building a 320-megawatt gas-fired power plant.