Commercial office building in Richmond, 12 tenants. Dominion Energy bills the building a single demand charge on the master meter. The property manager allocates demand charges to tenants based on each tenants proportion of total kWh consumption. But demand and consumption arent proportional ? a tenant running a server room 24/7 has high consumption but relatively flat demand. A dental office with high instantaneous loads from imaging equipment has lower consumption but contributes more to peak demand. Three tenants are disputing their demand allocation. How should demand be allocated?
Tenant submetering and demand charge allocation disputes
Carol ? kWh-proportional allocation of demand charges is the most common method because its simple but its also the least accurate. The theoretically correct method is to submeter each tenant for both kWh AND kW and allocate demand charges based on each tenants coincident peak demand ? meaning their demand at the time the building hits its overall peak. This requires interval metering on each tenant.
From the CPA perspective ? the allocation methodology should be specified in the lease. If the lease says demand charges allocated pro rata based on square footage thats what it says regardless of whether its fair or accurate. If the lease says based on consumption thats the method. Changing the allocation methodology mid-lease requires all tenants to agree. Check the lease language before recommending a different method.
Lorraine ? good point on lease language. The leases for this building specify utility costs allocated based on proportionate share of consumption. So the current kWh-based allocation is contractually required even if its technically inaccurate for demand. The disputing tenants would need to negotiate a lease amendment.
Carol ? another approach is to install tenant submeters with demand recording capability and use the data to demonstrate the inequity. If the dental office is contributing 15% of building peak demand but only 8% of consumption, showing them the data might motivate all parties to amend the lease allocation methodology for the next lease cycle.
I deal with this in Scottsdale strip malls constantly. The fairest method Ive seen is a hybrid: base demand charges allocated by square footage (since the building infrastructure exists for all tenants regardless of usage) and excess demand charges above the base allocated by coincident peak contribution. Requires interval submetering but produces allocations that all tenants perceive as fair.
Patricia and Ginas suggestions both require capital investment in submetering. For this building the property manager quoted $45,000 for interval submeters on all 12 tenant spaces. Hard to justify unless the demand allocation dispute is causing enough tenant friction to warrant the investment.
I had a similar situation in Shreveport with a medical office building ? 8 tenants, one master meter, demand allocation disputes. The property owner installed current transformer submeters from a company called Enernet for about $800 per tenant space. Not full interval metering but enough to capture monthly peak demand for allocation purposes. Total cost under $7,000. Much more affordable than full interval submetering.
Demand charge allocation in multi-tenant buildings is one of the most common disputes auditors encounter. The hierarchy of allocation methods from least to most accurate: 1) Square footage pro rata 2) kWh consumption pro rata 3) Connected load pro rata 4) Monthly peak demand per tenant 5) Coincident peak demand contribution. Higher accuracy requires better metering. Lorraine is correct that lease language governs current allocation regardless of accuracy. Maries suggestion of affordable CT submeters is a practical middle ground.