Been doing more triple net lease audits lately as commercial real estate heats up here in Oregon. What are the most common billing errors you find in NNN pass-throughs? I'm seeing a lot of issues with EWEB and PacifiCorp allocations where landlords aren't properly separating common area usage from tenant-specific charges. Would love to hear what red flags others look for.
Triple net lease utility auditing - what to watch for
Clyde - biggest issue I see with Otter Tail Power here in North Dakota is demand charge allocation. Landlords often just divide total demand by square footage instead of actual tenant usage patterns. A restaurant tenant shouldn't pay the same demand rate as a clothing store. Also watch for seasonal adjustments that don't get passed through correctly.
Great topic Clyde. With Tucson Electric Power, I constantly find errors in rider charges - especially the renewable energy surcharges. TEP has like 6 different environmental riders and landlords frequently misallocate them or apply outdated rates. Also check if the building qualifies for time-of-use rates but landlord is using standard schedules.
In Pennsylvania with PPL, the biggest gotcha is power factor penalties. Most commercial leases don't address this specifically, so tenants get surprised with charges they can't control. I always recommend checking the master meter power factor and making sure any penalties are allocated fairly based on actual tenant equipment, not just square footage.
Watch out for fuel cost adjustments too. Idaho Power has monthly fuel adjustments that can swing pretty wildly, but many landlords use outdated or averaged rates. Found one property where tenants were being charged last year's fuel rates - cost them about $3,000 in overcharges over 8 months.
Duke Energy Cincinnati has those pesky transmission charges that change quarterly. Half the property managers I deal with don't even know these exist, let alone how to properly allocate them. It's only $0.02/kWh but adds up fast on large commercial properties.
All great points everyone. Another thing - check the meter reading dates vs billing periods. EWEB reads meters on different cycles and sometimes landlords will average or estimate usage instead of using actual read dates. This can shift costs between tenants unfairly, especially for seasonal businesses.
Alabama Power has similar issues with read date timing. Plus they have this weird "late payment penalty" that applies to the master account but some landlords try to allocate it to tenants pro-rata. That should be a landlord cost, not passed through unless there's specific lease language allowing it.
Don't forget about connection fees and deposits. When tenants move in/out, there are often utility connection charges that get buried in the monthly pass-through billing. These should be charged directly to the specific tenant, not spread across all tenants in the building.
Great thread - bookmarking this. Just started doing lease audits here in South Carolina and Dominion Energy has some complex rate structures. The economic development riders alone have like 4 different tiers. Sounds like allocation methodology is key regardless of the utility.
Excellent discussion everyone. One thing I'd add from my MLGW experience - always verify the landlord is actually paying the bills on time. Late fees and reconnection charges shouldn't be passed through to tenants. I've seen properties where the landlord was chronically late paying electric bills but still passing the penalties to tenants. That's just poor property management, not a legitimate operating expense.