Submetering in the United States multi-family marketplace

Submetering of utilities in multi-housing developments is a relatively young industry in the United States. Prior to the mid-1970s, most multi-housing projects were constructed under the master meter concept for utilities. Relatively inexpensive energy provided multifamily developers and owner/operators little incentive to try and capture utility services consumed at the apartment level. Since prices were low and relatively stable, utility services were simply included in the rent structure.

The energy crisis of 1974, however, had a definitive impact on the way utility services are consumed in the United States and has resulted in changes to the way multi-family developers viewed utilities. With the backing of government regulation, utilities required that multi-unit dwellings be built with plans to separately meter energy, typically natural gas and electricity. As such, most multi-unit developments constructed after the mid-1970s are treated like single family homes by utilities. That is, the residents of these developments pay the utility direct for electricity and natural gas. It is during this period that the submetering industry in the United States was born.

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As energy prices inched upward, many multi-family owners began to look for opportunities to recover utility costs through shifting the burden for those costs to the end user. Early ratio type billing programmes, while an option, were not well accepted due to the problems with using square footage as a basis for allocating energy costs, particularly in buildings with central hydronic heating systems, where all apartments do not perform equally with respect to energy consumption. During those early years, small submetering companies emerged with solutions to these problems.

Early energy submetering and allocation efforts
Natural gas

Early submetering solutions focused on measurement of parameters for furnaces, baseboard heating system, etc. Measurement of ‘run time’ or ‘on time’ became an accepted method to allocate energy from central heating systems. During this time, many companies developed proprietary systems to measure the run time of different HVAC appliances. Most of these systems required the installation of signal wires from the device to be measured to the outside of the building to a data collection module of some sort. Early systems were programmed to produce a printed summary of run time activity locally which was then forwarded to the billing company, which produced utility bills based on this information. As technology evolved these systems became computerised, allowing for modem communications, which allowed billing companies to read data more regularly.


Electric metering options for services without a standard meter socket were limited initially to allocation systems in which current was measured at an apartment service panel by an electromagnet, or current transformer. Multiplied by a fixed input voltage, the result is an allocation of electric costs, but not an ANSI kilowatt hour reading. Gradually, electronic kilowatt hour meters emerged that delivered true, ANSI accurate kilowatt hour readings. Again early systems were remote read systems using low voltage wires to communicate information to large modular data collection equipment.

Product development

As the submetering market slowly grew, products emerged to help refine allocation methodologies. The incorporation of temperature data into allocation methods was initially seen as a viable avenue to increase the accuracy of energy allocation at the apartment level. The added accuracy would hopefully make allocation models more palatable to property owners and their residents.

ASHRAE and energy allocation

Until 1993 there was little information available to educate building owners and submetering companies about energy allocation. In 1993 the American Society of Heating, Refrigerating, and Air-Conditioning Engineers (ASHRAE) published a Guideline for Energy Cost Allocation (8P) for Multiple Occupancy Residential Buildings. The purpose of this guideline was to help create some standards, or as explained in the document ‘equitable cost allocation methodologies’, for use in multiple occupancy residential buildings. The guide discusses the relative ineffectiveness of resident education or ratio type allocation programmes which do little to motivate residents to conserve energy.

Specifically, however, the guideline lays out equipment applications and methods that are sound from an engineering standpoint, defensible, and equitable to the end users, the residents. ASHRAE cites research that concludes there is a much higher likelihood of energy cost reductions when residents are billed on the basis of measurements taken by an energy allocation system versus ratio billing methods.

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That number varies, but industry experience tells us that conservation can exceed 35%. Couple that with cost shifting to end users and property owners can signifcantly reduce their operating expenses. In all, ASHRAE Guideline 8P contains a very detailed explanation of energy allocation procedures and methodologies as well as a discussion about resident billing requirements. Energy allocation methods still remain one of the most misunderstood practices within the arena of multifamily energy cost recovery, yet the conservation and cost reduction are significant.

Government regulation of submetering

The regulatory environment for submetering in the United States is an evolving body of work. There are no national regulations – in most cases, if rules exist, they do so at the state and local level and in some cases are dictated by Public Utility Commissions. The regulations of utility providers themselves can in fact impact opportunities for submetering or energy allocation. Many states hold the view that utility services provided through a master meter to a resident of a multi-family dwelling are a landlord-provided commodity and as such payment for those utilities is considered additional rent. In these cases, Landlord-Tenant Law governs these operations. Clearly then, the regulatory environment with respect to submetering is varied and ever evolving.

In 1998, the National SubMetering and Utilities Allocation Association (NSUAA) was established. The purpose of the association is to promulgate policies designed to develop best business practices for the industry, to be an advocate for the industry with legislative bodies and to help promote public policies that directly affect the utility allocation industry. The membership of this organisation is dedicated to improving the climate for utility submetering and allocation, improving and enhancing industry standards and guidelines. The NSUAA has become the primary resource for information and data in the industry today.

Water Submetering and exponential growth in submetering

In the mid 1990s water and waste water costs came into the view of multi-family property operators. Until that time, water costs were normally included in rent. The radical increase in waste water treatment costs during this period put significant pressure on property operators to shift those costs to end users. The result was exponential growth in the submetering industry as a whole. Most of the current submetering firms in the United States were born during this growth period.

It makes business sense. Metering and billing water and waste water is a relatively straightforward concept. In addition to metering and billing, ratio billing programmes became popular as an alternative to the high costs of retrofit plumbing in many older properties. While ratio programmes do not promote conservation, they do shift costs, so they can help meet the needs of expense management for property operators. Ratio programmes, however, can be problematic with residents as they spread costs based on sometimes arbitrary factors such as square footage or occupancy, but do not take into account personal behaviour issues. Residents who maintain an apartment but who seldom use it pay an equal share of the water/waste water bill, but do not actually use the commodity. Property operators have struggled with sub metering water, often due to the long term nature of the payback. Ratio Utility Billing System (RUBS) programmes have allowed them to shift costs, which in the shorter term is beneficial.

On a more positive note, most newly constructed apartment developers did include water metering in their overall plans during this period, which was also a very active period in the multi-family construction industry. The result was explosive growth in the industry with several smaller, regional companies bursting out into the marketplace. As a result the competition among submetering firms became intense and pricing pressure essentially turned this service into a commodity, with the lowest bidder typically winning the projects. This intense period saw the introduction of some European firms into the marketplace with long histories in submetering overseas. The financial resources of these organisations put even further price pressure on the market, resulting in some consolidation.

The growth in water metering operations in this marketplace served as a catalyst for a number of innovations in meter reading technology, in particular wireless meter reading components and systems. Referred to as AMR in the utility industry, the wireless industry helped to improve the submetering industry through significant improvement in the reliability of meter readings. The key players in wireless in this marketplace have delivered outstanding, reliable products that have become household names in submetering.

Wireles capability for electric and heat metering

The wireless revolution in water metering technology has since expanded into both the electric submetering and heat metering marketplace. Compact electric submeters have become more popular with apartment owners, particularly in regions where electric is deregulated or where electric rate caps have expired. Expectations of electricity rate increases in areas such as New York, Hawaii and some mid-Atlantic states have driven property operators to consider electric submetering as an alternative to the inclusion of electric costs in rent. Developments in the wireless electric meter industry have made the installation and billing process much easier and return on investment is now within acceptable guidelines due to higher electric rates.

Additionally, in regions where development is vertical, available space for traditional electric metering hardware is scarce and as such, developers are looking to compact, private metering systems, while negotiating master metered rates with utilities. Some utility providers have even published submetered rates to embrace this concept. The future of electric metering in the apartment industry will likely include smart metering and time-of-use rate structures to encourage reduced loads during peak demand periods. Lastly, the condominium industry is beginning to address electric submetering as a wise alternative to the current practice of including utility costs in association fees based on percentages of ownership. The main thrust is the desire of unit owners to pay only for what they use and the opportunity to unbundle electric costs from association fees, which may have the added benefit of increasing property values.

Condominium associations are also exploring a return to a master meter concept for electricity to take advantage of lower bulk service rates, opening the door for electricity submetering. Applications for metering energy used in central systems have also evolved significantly since the early days of the industry. Energy allocation products are now available to fit virtually every central heating and cooling system in the marketplace. These system types include baseboard heating systems, forced hot air furnaces, single speed and multispeed fan coils, two and four pipe hydronic systems, and heat pumps. The most important change in technology has been the incorporation of temperature data into firmware that previously only processed timing information.

Temperature information is critical to relative accuracy, especially with newer boiler control systems that allow for continuous modulation of water temperatures based on outdoor air temperature. In addition to these major improvements, error data has been included in these systems to provide feedback to billing companies related to system performance and tampering. These additions, along with hourly data from the on-board transmitters, have vastly improved the reliability of metered data, provided great feedback for system maintenance, and improved end user comfort levels with allocation billing methodologies.

Sumary While growth in the water submetering market is flat, even with the introduction of wireless ‘point of use’ water metering systems, there are significant opportunities for growth in both electric submetering and energy allocation in buildings with central plants. Un-metered heat and cooling energy consumed in buildings with central heating and cooling systems represents the largest single growth opportunity for submetering firms in the U.S. The opportunity for energy cost recovery through submetering and energy allocation programmes remains very strong.

The major issue confronting the submetering market is educating owner/operators about the products and methodologies that are readily available, easy to implement and reasonable in cost. Experience dictates, and ASHRAE has quantified, that people use less energy when they are directly responsible for paying for the power they use. An additional opportunity for conservation and value enhancement is in the condominium market. As energy costs continue to climb, condo owners want to be sure that they are paying for what they use, nothing more and nothing less. Once submetering is introduced in conds, the opportunity for enhanced property values due to reduced expenses is a very attractive prospect.