Electric Submetering: A Case for Energy Efficiency in the District of Columbia A Report for the District Department of Environment Stephan Hardeman and Amanda Harris May 4, 2015 Table of Contents 1. Executive Summary _________________________________________________________ 3 2. Introduction ________________________________________________________________ 5 3. Project ____________________________________________________________________ 5 3.1 Methodology ____________________________________________________________ 5 3.2 Understanding the Issue ___________________________________________________ 6 3.3 Regulatory Context _______________________________________________________ 8 3.3.1 D.C. Regulations in Depth ______________________________________________ 8 3.3.2 D.C. Energy Benchmarking ____________________________________________ 11 3.4 Defining the Project Components ___________________________________________ 12 3.4.1 Metering Systems____________________________________________________ 12 3.4.2 Housing types and associated utility costs _________________________________ 14 3.5 New York City: A Case of Successful Residential Submetering ___________________ 14 4. Challenges ________________________________________________________________ 18 5. Potential Benefits from Electric Submetering ____________________________________ 22 5.1 Building Owners and Operators ____________________________________________ 22 5.2 Tenants _______________________________________________________________ 23 5.3 Utility Providers ________________________________________________________ 24 5.4 The District ____________________________________________________________ 25 6. Recommendations: Drawing a Path Forward _____________________________________ 26 6. Conclusion _______________________________________________________________ 29 Appendix A _________________________________________________________________ 31 2 1. Executive Summary One of the most vexing issues facing energy managers and policymakers is “split incentive,” in which building owners and tenants can not effectively distribute the rewards of an individual tenants energy conservation efforts. This is frequently due to communal utility usage via master meters wherein tenant usage is aggregated by design. Submetering, an alternative form of electric metering helps to overcome this split incentive by ensuring that tenants measure and pay for their individual energy consumption, rather than dividing utility costs in other, more arbitrary ways. Through directly connecting energy usage to billing rates, submetering encourages tenants to more carefully monitor energy consumption. This, in turn, encourages efficient behavior. As of early 2015, the implementation of submetering within the District of Columbia is limited to nonresidential rental units. However, the regulatory language that supports this prohibition is unclear - in fact, submetering in residential buildings is never explicitly prohibited. Instead, regulations only address nonresidential submetering, thereby implying a prohibition on its use outside of that context. Because of the uncertainty surrounding submetering regulations in Washington, D.C., this report first seeks to bring clarity to the municipal statutes through a detailed review of the applicable codes. Within these regulations, definitions are found to be a major source of limitation moving forward, but they should not be the limiting factor for future consideration of submetering. A case study of residential submetering in New York City provides evidence that submetering regulations for residential implementation can be well managed. Though the successes of New York’s submetering are notable, the technology has seen more than a century of use there. Since Washington, D.C. does not have as extensive a history with electric submetering, challenges to its permitting and implementation, as well as its benefits will vary, and are therefore outlined in detail here. Aside from regulatory language, challenges include the lack of knowledge that accompanies submetering and, with it, the potential for mismanagement. Other challenges are creating a functional space for the utility company, finding the best point of entry for residential submetering, and addressing a lack of innovation that is connected to the District’s apartment vacancy rate. 3 Alongside the numerous challenges associated with successful implementation of electric submetering, there are as many benefits. Potential benefits are found for tenants through reduced energy costs and for property owners through incentive programs. Utility companies can benefit through increased energy efficiency, resulting in less waste and higher profit margins. The city of Washington, D.C. could see immediate reductions to its city-wide energy use helping to meet its goals as laid out in its Sustainability Plan. If residential submetering is to be adopted in the District of Columbia, this report provides recommendations for successful implementation. First, the District will have to engage key stakeholders to ensure that benefits are equally distributed. Second, current benchmarking regulations should be expanded to include more sectors. Third, regulatory language must be reconstructed in a way that minimizes misinterpretation, and fourth, the path of least resistance for submetering technologies must be carefully understood and identified. Finally, the District should join national coalitions on submetering in order to expand the conversation around the technology and federal regulations into the mainstream. Submetering has the potential to play a role in a more sustainable future. However, it may not be the simplest or most desirable means of addressing pressing concerns related to energy efficiency, equitability, and climate change. At present, there is no place for the technology to gain a foothold among residential electricity users. While this report concludes by encouraging alternative modes of achieving reductions to the city’s energy use, it does not deny that submetering should occupy a place in D.C.’s energy future. The value of residential submetering should be recognized and explored in active collaboration with all relevant parties to the residential housing sector. Strong policies that support residential submetering will enable greater and more targeted reductions in energy use, but will require a long term commitment from D.C. regulators, city utilities, and all housing providers and tenants. 4 2. Introduction Electric submetering is an underutilized technology with the potential to both increase energy efficiency and decrease end-user consumption. Due to its ability to track the energy usage of multiple tenants in a single space, submetering is often found in commercial buildings, where it ensures fair distribution of energy costs. In the District of Columbia, electric submetering is only present in commercial spaces because of a widespread belief that it is prohibited in any other context. The reasons behind this belief are a principal cause for the research that has culminated in the pages to follow. Though submetering remains uncommon as an energy distribution solution, it promises a variety of benefits in addition to driving greater energy efficiency. In particular, it may be a vehicle for providing reduced energy costs to low-income families. Additionally, submetering contributes to sustainability measures and supports the District of Columbia’s sustainability plan (“Sustainability Plan”), which proposes cutting citywide energy use in half by 2032. 1 While the research undertaken for this report confirms an implied prohibition of residential submetering in Washington D.C., it also seeks to expand the conversation around the issue and increase the level of knowledge for policymakers in the District who may consider an expansion of the technology in the future. As the District moves towards the goals set forth in its 2012 Sustainability Plan, it must reconsider the submetering prohibition due to the environmentally friendly nature of the technology. It is the hope of the authors that if that day comes, this report will serve as a basis for review of both the benefits and challenges of electric submetering. 3. Project 3.1 Methodology At the outset of this project, electric submetering was an unfamiliar concept to the researchers. To create a foundation of knowledge, an exhaustive exploration of the public and private 1 n.a. “Sustainable D.C. Plan,” District Department of the Environment. 2012. Web. <http://www.sustainableD.C..org/wpcontent/uploads/2012/10/SD.C.-Final-Plan_0.pdf> 5 interpretations of the technology and its potential uses was completed through independent research and multiple interviews. Over time, the focus of the project shifted, and research followed suit. The initial focus was on combined heat and power (CHP), as the understanding was that a prohibition existed for use of this technology in residential buildings within Washington, D.C. However, as the project pathway became clearer, the perceived prohibition on residential submetering became the obvious area of focus. Over time, that focus further narrowed to the best applications of submetering technology. Some interviews pointed to multifamily lowincome housing as the ideal place to apply submetering technology, and ample time was spent on this topic to determine if this was the truth. Later, as a better understanding was garnered for the barriers to submetering in affordable housing, the focus again broadened to encompass marketrate multifamily residences as well. Research covered the numerous issues outlined above, as well as finding and understanding existing regulatory language both within the District of Columbia and in other major cities where submetering has seen more use. In addition to research, interviews were conducted with stakeholders with various levels of engagement on the matter of residential submetering. All interviews conducted for this project are outlined in Appendix A. 3.2 Understanding the Issue During the initial research phase, the consensus among District Department of Environment (“DDOE”) staff was that a prohibition was in place that prevented the use of electric submetering in multifamily residential housing units. To confirm this, relevant District of Columbia regulations were considered with the hopes that any such prohibition would be made clear in the language there. Relevant regulatory language was found in Title 34 of the Code of the District of Columbia, as well as Chapter 44 of the D.C. Public Service Commission’s Notice of Final Rulemaking on submetering and energy allocation. Here, definitions of relevant terms were found, as well as specific language regarding the installation and use of submetering in nonresidential properties. However, no language was present that explicitly prohibits submetering in any building type, residential or otherwise. Instead, a lack of clear language on residential submetering functions as an unofficial prohibition. This was bolstered by definitions 6 for terms related to public electric utilities that effectively limited the application of submetering, which will be further discussed in a section below. One could reasonably assume that “that which is not prohibited is permitted,” ultimately deeming electric submetering permissible in multifamily residential properties. Conversations with representatives from DDOE however, imply that the District did not fail to apply this same logic in the past, only to be halted in the process. It must be noted that all electric utilities in the District are under the jurisdiction of the Public Service Commission (“PSC”). As such, attorneys from their office offered the best opportunity toward gaining of a clear understanding of the statutory language on all matters relevant to electric submetering. Unfortunately, while a specialist with the PSC was quick to declare submetering prohibited, he also stated that he could not identify the statutory language that stated such. Furthermore, he did not know, or did not want to identify, the individual who directed him to claim the prohibition. Conversations with staff attorneys and attorney advisors with the PSC revealed the same. Unable to explain why a prohibition is perceived to exist, those attorneys responsible for interpreting the law declared that without clear statutory language to permit submetering in residential properties, the implied prohibition will remain the status quo. For purposes of this project, it was ultimately decided that an implied prohibition on electric submetering in multifamily residential properties functions in the same way as would regulations outright proscribing the same. Additionally, multiple barriers to entry make the use of submetering in multifamily residential property too intimidating for widespread adoption. Regulations do comprise one of the most visible barriers to entry – not through specific language, but instead through limitations imposed by the language, as well as through the sense of confusion that they create. At the same time, other barriers are present that are not based in legal issues, but instead in practicality. Those barriers include: the power and control a heavily monopolized utility market; the city’s low vacancy rate and subsequent disincentivized property owners; no clear point of entry in the housing market for electric submetering; and an unfortunate history of mismanagement of the technology in a national context. 7 3.3 Regulatory Context 3.3.1 D.C. Regulations in Depth As previously mentioned, regulations for submetering in the District of Columbia manage to be both clear enough to create barriers and unclear enough to cause confusion. This portion of the case study seeks to make clear the language found in D.C. regulations, as well as the ways that it limits the ability of property owners to adopt technologies like submetering. Figure 1 lists the applicable terms and definitions as found in Title 34 of the District of Columbia Code and Chapter 44 of the PSC rulemaking decisions. Not all definitions are included here; instead, only the ones that have a direct impact on metering are covered. Term Definition Building All of the individual units served through the same utility-owned meter within a property defined as Class 2 Property Any person or entity responsible for the operation and management of a building. Class 2 Property shall be comprised of improved residential real property, which: Building owner, operator, or manager Class 2 Property (A) Is not occupied by the owner thereof; (B) Contains not more than 5 dwelling units, whether as a row, detached, or semidetached structure, or is a single dwelling unit owned as a condominium; and (iii) Is used exclusively for nontransient residential dwelling purposes; and (C) Is used exclusively for nontransient residential dwelling purposes. Class 2 Property is also considered to be improved residential real property which is owned by a cooperative housing association shall also be classified as Class 2 Property; provided, that less than 50% of the dwelling units contained therein are occupied by the shareholders or members of such cooperative housing association. Competitive billing Community net metering Finally, nothing in this subsection shall be construed to include hotels in the Class 2 Property classification. The right of a customer to receive a single bill from the electric company, a single bill from the electricity supplier, or separate bills from the electric company and the electricity supplier. A billing arrangement under which the monetary value of electric energy generated by a community renewable energy facility and delivered to the electric company's local distribution facilities is used to offset electric energy charges accrued during a subscriber's 8 applicable billing period. Consumer, customer Electric company Electricity supplier Energy allocation equipment Individual billing meter Nonresidential rental unit Public utility, utility, or utility company A purchaser of electricity for end use in the District of Columbia. The term excludes an occupant of a building where the owner, lessee, or manager manages the internal distribution system serving the building and supplies electricity solely to occupants of the building for use by the occupants. Every corporation, company, association, joint-stock company or association, partnership, or person and doing business in the District of Columbia, their lessees, trustees, or receivers, appointed by any court whatsoever, physically transmitting or distributing electricity in the District of Columbia to retail electric customers. The term excludes any building owner, lessee, or manager who, respectively, owns, leases, or manages, the internal distribution system serving the building and who supplies electricity and other related electricity services solely to occupants of the building for use by the occupants. A person, including an aggregator, broker, or marketer, who generates electricity; sells electricity; or purchases, brokers, arranges or, markets electricity for sale to customers. The term excludes the following: (A) Building owners, lessees, or managers who manage the internal distribution system serving such building and who supply electricity solely to occupants of the building for use by the occupants; (B) (i) Any person who purchases electricity for its own use or for the use of its subsidiaries or affiliates; or (ii) Any apartment building or office building manager who aggregates electric service requirements for his or her building or buildings, and who does not: (I) Take title to electricity; (II) Market electric services to the individually-metered tenants of his or her building; or (III) Engage in the resale of electric services to others; (C) Property owners who supply small amounts of power, at cost, as an accommodation to lessors or licensees of the property; and (D) A consolidator. Any device, other than submetering equipment, used to determine approximate electric or natural gas usage for any nonresidential rental unit within a building. An individual meter or a set of meters when meters are combined for billing purposes. Real property leased for commercial purposes. Every street railroad, street railroad corporation, common carrier, gas plant, gas company, electric company, telephone corporation, telephone line, telegraph corporation, telegraph line, and pipeline company. 9 Submetering equipment Wholesale electricity supplier Equipment used to measure actual electricity or natural gas usage in any nonresidential rental unit when the equipment is not owned or controlled by the electric or natural gas utility serving the building in which the nonresidential rental unit is located. The electric company, which, pursuant to § 34-1509, obtains bids from, and contracts for electric service with, third parties and provides standard offer service to retail customers. Figure 1: Relevant terminology as defined by D.C. code. Definitions in bold appear separately in Chapter 15A: “Installation of submetering equipment” The most significant concern to pursuing residential electric submetering is the failure of D.C. regulations to provide clear statutory language on the matter. In fact, the applicable statutes make no reference at all to residential properties and only define the use of submetering equipment in such a way that nonresidential rental units are specified. This can be read one of two ways either residential is permitted because it is not specified, or it is not permitted for the same reason. Another limitation is posed by the definitions of ‘building,’ and under that, ‘Class 2 property.’ If a building is defined as having the characteristics of a Class 2 property, and a Class 2 property can contain no more than five separate dwellings, then only buildings with 5 or less dwellings may be considered for submetering. While submetering may be beneficial for such a small number of individual units, such a limitation prevents it from being considered in larger units, which may experience equal or greater benefits from its use. A third limitation is that building owners are excluded from operating as a public utility or electricity supplier. Building owners with submetered units must purchase their electricity from a supplier and sell it to their tenants. In those situations, the building owner becomes the electricity supplier. However, if a building owner cannot be an electricity supplier, this would preclude the use of submetering. Additionally, buildings are defined as possessing utility-owned meters, and if building owners can’t operate as utilities, then buildings must by definition receive their utilities from a utility company such as PEPCO. In contrast to the above definitions, which are not made in a way that accommodates residential submetering, the definition for competitive billing is worded in a way that can potentially 10 support both residential and nonresidential submetering. By allowing customers the option of receiving a single bill or separate bills from their electricity company and electricity supplier, this definition stands out as one that lacks the implicit prohibition of residential submetering found in the above examples. Definitions that would potentially support residential submetering are nonetheless the exception, not the rule. However, the mixed message of these regulations is the cause for their misunderstood nature. By never explicitly stating that residential submetering is prohibited, the D.C. regulations create an air of uncertainty that has so far prevented exploration of the technology in any setting other than nonresidential rental units, where it is clearly allowed. 3.3.2 D.C. Energy Benchmarking The Clean and Affordable Energy Act of 2008 established that all private buildings over 50,000 gross square feet within the District of Columbia, including multifamily residences, must measure and disclose their energy consumption to DDOE on a yearly basis. 2 These benchmarking requirements provide the D.C. government with the tools necessary for tracking a building’s energy use, comparing its use to past performances, and instigating competition between buildings at a local and national scale. According to the DDOE, 3 these comparisons are shown to drive energy efficiency upgrades as well as increase occupancy rates and property values. The District of Columbia is a national leader in terms of establishing benchmarking guidelines, as it is the first jurisdiction in the country to require private buildings to measure their energy performance, and second only to New York City to publically disclose the collected data. Spearheading the movement and ultimately, the competition, to make buildings more efficient, there are now eight cities nationwide who strive to make higher efficiency the norm. 4 They also seek to universalize the data collected, encouraging transparency and standardization through the 2 “Clean and Affordable Energy Act of 2008” District of Columbia Official Code 2008. Title I, Sec. 101. “Energy Performance Benchmarking of Privately Owned Buildings” District Department of the Environment 2011. Web. 15 Apr 2015. <http://green.D.C..gov/sites/default/files/D.C./sites/ddoe/publication/attachments/BenchmarkD.C._Final_Rulemaking.pdf> 4 Michelle Rock, “Benchmarking: Saving Money and Energy.” Institute for Market Transformation. 5 Apr 2015. <http://www.imt.org/policy/building-energy-performance-policy/infographic> 3 11 use of the U.S. Environmental Protection Agency’s free, industry-standard ENERGY STAR Portfolio Manager. 5 3.4 Defining the Project Components Unless otherwise noted, the terms defined below are general in nature, and their application applies to submetering in general. 3.4.1 Metering Systems Meters are simply sensors that measure and record resource use. Utility metering can be employed at several different scales, and is used to support effective management of a building’s systems, including management of comfort, energy and water consumption, delineated cost burdens, and investment decisions in the short and long term. Historically, utility metering occurs on an aggregate basis, with measurements taken for whole buildings roughly once per month. While this model supports utility cost-recovery and billing practices, it does not address the greater need for the integration of information technologies as potential sources of resource conservation and economic savings. Associated technologies, such as electric utility submetering, offer a variety of benefits through more accurate and timely management of system operations, as well as a greater sharing of resource consumption information with customers and tenants. 5 The ENERGY STAR Portfolio Manager® is an online tool designed to measure and track energy and water consumption, as well as greenhouse gas emissions. It can be used to benchmark the performance of one building or as a comparison against similar buildings nationwide. It also serves as a tool for setting energy use targets and estimating energy consumption during the design and construction of new buildings. 12 Master Metered When a building is master-metered, all energy use is routed through a single meter that is owned by the utility. Typically, the property owner pays a bulk-rate price for any electricity consumed by tenants, and then bills the tenants equally for those electricity costs. 6 Direct Metered In direct metered buildings (also known as individually metered) each unit is supplied with a utility-owned meter. The utility directly bills each tenant for electricity usage at a retail residential rate. 7 Submetered In a submetered building, the utility supplies electricity through a utility-owned master meter at a bulk rate paid by the property owner. That electricity is then distributed to the tenants through propertyowned submeters. 8 The property owner then charges each unit for its individual usage. 6 John McManus, “Submetering Electricity at Residential Apartment Buildings in New York State.” Avvo, Inc. 2015. Web. 5 Apr 2015. <http://www.avvo.com/legal-guides/ugc/submetering-electricity-at-residential-apartment-buildings-in-new-york-state> 7 Ibid. 8 Ibid. 13 3.4.2 Housing types and associated utility costs Affordable housing Under the provisions of the U.S. Housing Act of 1937, the U.S. Department of Housing and Urban Development (HUD) provides housing assistance to families living in public housing by way of its Public Housing Agencies across the nation. In the District, these agencies are the D.C. Housing Authority and Community Connections. To keep assisted housing affordable for lower-income households, federal law directs that the residents’ share of rent in federally assisted public housing is equal to thirty percent of the households adjusted monthly income. In interpreting the federal housing law, HUD defines “rent” to include both shelter and the costs for reasonable amounts of all associated utilities. The PHA determined value that is required to cover a resident’s reasonable utility cost is the utility allowance. Such allowances are estimates of the expenses associated with different types of utilities and their uses. The way by which a household is metered determines whether or not it can receive an allowance for a given utility service, whereby allowances are provided in individually metered properties, but not provided for in master-metered properties. Market rate housing Market rate housing refers to properties that are rented or owned by people who pay market rent to lease the property or paid market value when they bought the property. There is no subsidy for the housing. 3.5 New York City: A Case of Successful Residential Submetering Unlike in Washington, D.C., the statutory language authored by the State of New York’s Public Service Commission identifies not only the instances whereby a multi-unit residential property may use electric submetering to measure energy consumption, but also explicitly outlines the protocols required to ensure the proper notifications and protections to all affected tenants. 9 Any attempt to clarify D.C.’s statutory language in a manner such that it supports electric submetering 9 “Residential Electric Submetering” Department of Public Service, New York State Public Service Commission 2012. Chapter II. Electric Utilities, Title 16, Part 96. 14 in the District ought to include a similarly comprehensive explanation of all required processes for the permitting of buildings and the installation of submetering equipment. The following case study examines the history of electric submetering in New York City for purposes of understanding the historically vacillating relationship and lengthy collaboration between the city’s utility providers and utility regulators. For the most recent regulations passed by the New York State Public Service Commission, please refer to Appendix B. The practice of landlord’s reselling utility service to residential tenants, or submetering, has existed in New York City since 1915. At that time, New York Edison, the city’s utility provider (now known as Consolidated Edison, Inc. (“Con Edison”)) promoted the sale of master-metered utility services at a discounted bulk rate to landlords in an effort to deter them from bypassing the utility system and installing their own small power plants. In turn, landlords profited by selling electricity to their tenants at a rate higher than originally charged by the utility company. Throughout the 1930s and 1940s, tenant complaints escalated into court proceedings where courts were forced to debate the question of whether ordinary business corporations owning apartment buildings could lawfully provide electric services to tenants. The PSC (or “Commission”), a New York State agency responsible for regulating utilities and utility charges refused to take a position on the matter, claiming it was out of their jurisdiction. Meanwhile, the Edison companies proposed to eliminate submetering, arguing that removing the practice would permit lower utility rates for tenants and end customer abuses. At the time, the Appellate Division in New York failed to decide the issue of whether landlords could sell electric services, or whether the PSC had the power to regulate them as electric companies under existing provisions of the law. 10 However, in 1950, the PSC approved a tariff filed by Con Edison prohibiting the resale of its utility services. As a result of a gap in regulation whereby “the submeter act[ed] in effect as a public utility in selling current to his tenants, and yet [was] entirely free from regulation,” residential submetering ended. 11 10 11 Gerald A. Norlander, “Residential Electricity Submetering in New York.” 2009. Campo Corp. v. Feinberg, supra, 279 App. Div. at 305. 15 Following the ruling by the Court of Appeals, all gas and electric utilities in New York City were required by the PSC to adopt tariffs prohibiting the remetering and resale of energy, as well as prohibiting residential submetering. 12 Commercial submetering was treated differently under the tariffs and never officially prohibited, while residential submetering was proscribed for more than twenty-five years. As electricity prices began to rise in the 1970s, residential property owners and landlords scrambled for ways to reduce their costs and responsibilities in master-metered buildings. They argued that large reductions in tenant energy usage would be achieved by converting their properties to electric submetering. 13 Con Edison supported the proposal in 1976 when they requested that the PSC require submetering of all master-metered buildings. In 1977 an experimental submetering program began in rented units in New York City, and in 1978 the PSC supported submetering in cooperative and condominium housing units as well. A year later, in 1979, the electric submetering program for rental housing was expanded on a case-by-case basis. The Commission’s policy since 1977 has favored an increase in the use of submetering to promote individual electricity customers paying bills that directly correspond to their consumption. As proponents of submetering, they and many property owners hold that submetering increases efficient use of electricity, mitigates rising electric rates, furthers State energy efficiency goals, and reduces environmental impacts as a whole. Resurfacing in the 1990’s however were concerns surrounding rent reduction schemes, in which landlords offered a decrease in rent in return for tenants taking over their utility charges. As recently as 2008, rental reduction figures were disputed and revised, 14 and tenants could expect to pay an average of fifty percent more in utility costs than the value of the rental reduction they receive. 15 This raises considerable concern for tenants living on fixed incomes still today. 12 “Residential Electric Submetering” Department of Public Service, New York State Public Service Commission 2012. Chapter II. Electric Utilities, Title 16, Part 96. 13 “Landlords pressing for tenant meters; Landlords press to change meters to direct billing.” N.Y. Times. February 16, 1975. 14 “Update Number 1 to Operational Bulletin No. 2003-1” New York Division of Housing and Community Renewal, 3 Sept 2008, <http://www.dhcr.state.ny.us/rent/operationbulletics/orao20031_updated090308.htm> 15 Gerald A. Norlander, “Residential Electricity Submetering in New York.” 2009. 16 Despite persistent landlord-tenant disputes over the years, the New York State Energy Research and Development Authority (NYSERDA), as well as the PSC, continue to encourage residential submetering. Most recently, the PSC approved the use of System Benefit Charge funds to generously subsidize the costs incurred by building owners who install submetering equipment. The NYSERDA also funded the preparation and publication of a “Residential Submetering Manual” urging landlords to pursue eviction proceedings for unpaid electric charges. 16 Such advice deliberately circumvents the state’s Home Energy Fair Practices Act of 1981 (HEFPA), which provides for payment plans and other economic remedies. 17 As of 2002, submeters were officially defined as utilities by the PSC and thus, were immediately subject to HEFPA regulations. 18 Not surprisingly, potential changes to the regulatory framework for submetering are proposed nearly every year by the PSC. In October 2008, the PSC opened a proceeding “to amend the Commission’s submetering regulations as they apply to both residential and nonresidential building owners, to improve the process by which customers convert direct, master-metered buildings into submetering service to individual residential and non residential owners and tenants.” 19 On December 18, 2012, the PSC adopted a resolution to amend the state’s Residential Electric Submetering regulations and reflect changes in Commission and consumer policies. The resolution also addresses the availability of new technologies promoting energy efficiency and changes to the national and local energy market. The amendments, of which there are several, carefully stipulate how owners of submetered properties can sell electricity, and afford consumer protections to submetered tenants in residential buildings. Several of the new requirements refer to the initial application and permitting process by which a property owner must comply prior to providing submetered electricity to others. Today, rental property owners seeking to submeter their master-metered buildings must obtain permits from electric utilities and then receive the explicit approval from the PSC. The 16 Herbert Hirschfield, Joseph Lopes and Howard Schechter, “Residential Electric Submetering Manual” New York State Energy Research and Development Authority, Residential Electrical Submetering Manual 2001, Web. 15 Apr 2015. <http://www.submeteronline.com/pdf/subman2001.pdf> 17 “Home Energy Fair Practices Act” New York Public Service Commission 2002 Title 16. 18 Ibid. 19 Case 08-M-1274, “In the Matter of Reviewing and Amending the Electric Submetering Regulations” New York Codes, Rules, and Regulations 2008 Title 16 Part 96.Web. 17 application process requires a significant amount of information on the building, and typically, a consulting engineer is retained to assemble and prepare the application to the PSC. 20 Upon receipt and processing of the application (which may take six weeks or more), the PSC must (in accordance with the State Administrative Procedures Act) publish a notice in the New York State Register for a minimum of forty-five days to provide interested parties with notice and an opportunity to comment. Assuming there are no problems with the application, the PSC staff person processing the application will place the matter on the agenda for Commission review and approval. 4. Challenges Statutory language Poorly articulated statutory language is the primary barrier to residential submetering in the District of Columbia. As noted in Section 3.3.1 (D.C. Regulations in Depth), all existing regulations for submetering in Washington, D.C. are made specifically for nonresidential units. The lack of specific language for residential units has the potential for misinterpretation, and while most interviewees suggested that a prohibition on submetering for residential properties did not exist, some of those experts who were interviewed 21 suggested that there is in fact a prohibition in place. The statutory language, as it currently stands, is confusing to experts and nonprofessionals alike, and this poses a significant challenge for future implementation of the technology. Lack of knowledge around availability/possibility of electric submetering While submetering is not a new technology, its use is not widespread. This is certainly true in the District of Columbia, where the use of submetering has so far taken place primarily in large commercial buildings. Because of the lack of understanding of submetering and the obscurity of the regulations around it, its use is likely to remain limited. Furthermore, the foreignness of the technology itself limits its potential for adoption and use by developers seeking to implement innovative methods of building construction and design. 20 “Residential Electric Submetering” Department of Public Service, New York State Public Service Commission 2012. Chapter II. Electric Utilities, Title 16, Part 96. 21 “Specialist” at District of Columbia Public Service Commission. 18 Additionally, there is little to no education given to the general public on the benefits that submetering offers. Property owners are not familiar with the benefits of submetering and are likely to misuse it if it is installed in their properties. 22 Similarly, tenants may have access to energy usage data that they would not otherwise have access to, and while this data is generally beneficial, tenants may not know how to interpret it. This lack of education extends to developers, who may not be aware of the potential of the technology to offer otherwise unachievable solutions in new buildings. Based on conversations with affordable housing providers, submetering systems are an unfamiliar topic of discussion in building retrofits because of two key concerns: first, building owners are unclear on the permissibility of submetering for residential properties; and secondly, the meters themselves do not reduce consumption. Rather, they only provide the sensor infrastructure and data necessary for the efficient operation of buildings and for accurate benchmarking of performance. This distinction presents a clear challenge of associating a direct means of linking specific energy cost reductions with the submetering investment, ultimately handicapping these technologies against alternative investment options. The role and power of utility companies In 1999, residents of the District of Columbia were given the option of choosing among a handful of utility companies for their electricity needs. As of 2013, six options were available, with PEPCO being the default provider if residents chose not to shop for alternatives. 23 Since a central aspect of submetering is the sale of electricity to a property owner at a reduced rate, it is likely that those companies would seek to limit its adoption in an effort to maximize profits. While the metering types outlined in Section 3.4.1 all involve utility ownership to some degree, only direct metering guarantees market-rate sale of electricity. It is therefore in the interests of the utility company to ensure that the majority of metering types in use are those that provide the greatest monetary returns. 22 Libby Nelson, “Energy-Billing Practice Raises Tenants’ Ire.” New York Times Blogs, 20 July 2009. Web. <http://cityroom.blogs.nytimes.com/2009/07/20/energy-billing-practice-raises-tenants-ire/?_r=1> 23 “District of Columbia Electricity Rates.” Save On Energy, 2013, <https://www.saveonenergy.com/District-of-Columbia/> 19 Residential vacancy rate in Washington, D.C. The most recently available data for vacancy rates places the District of Columbia at 27th in a ranking of U.S. cities with the lowest vacancy rate. 24 While the national vacancy rate was 4.2 percent at the end of 2014, 25 D.C.’s vacancy rate was measured at 4.1 percent in the same time period. 26 Residential vacancy rates are determined by a number of variables, including employment and the supply and demand of apartments in a particular geographic area. However, the fact that the District of Columbia’s vacancy rate is nearly the same as the national average suggests that there is no reason for developers and property owners to set themselves apart from competitors through innovative operating mechanisms such as submetering. The D.C. rental market is considered a “renter’s market,” and such conditions do not favor an increase in submetering use. It is very unlikely that renters are creating demand for submetering, and without that demand, developers and property owners will continue to operate within the status quo. Points of entry Without clear regulations, it is difficult to determine the best point of entry for electric submetering in the District housing market. Early research pointed to affordable housing as a potential entry point for submetering on a large scale, as this segment of the population stood to gain the most from the potential savings that submetering is capable of delivering. However, later developments revealed that affordable housing is riddled with barriers – statutory, regulatory, financial, and others - preventing it from being a viable place to implement this technology at this time. Unfortunately, this does not guarantee that the multifamily market-rate housing sector would be a more desirable pathway for implementation. In fact, both sectors pose significant barriers that must be addressed, and ultimately overcome, if electric submetering is to take hold in the District. 24 John Chang, “National Apartment Report: 2014 Real Estate Investment Research.” Marcus and Millichap Real Estate Investment Services, 2014. 25 Bill McBride, “Reis: Apartment Vacancy Rate Unchanged in Q4 at 4.2%.” Calculated Risk Blog, 6 Jan 2015. Web. <http://www.calculatedriskblog.com/2015/01/reis-apartment-vacancy-rate-unchanged.html> 26 n.a., “2014 Q3 D.C. Apartment Market Highlights by Delta Associates.” Urban Igloo, 28 Oct 2014. Web. <http://www.urbanigloo.com/2014-q3-D.C.-apartment-market-highlights-by-delta-associates/> 20 Housing sectors There are important issues to consider regarding transparency and fairness to occupants in all housing sectors, which should be addressed if submetering is to be adopted. A few states and municipalities have enacted policies to ensure fairness to occupants and to guarantee utility savings with submetering, because the protection of multifamily housing tenants is as important as reduction to end-user energy use. In affordable housing units, a number of challenges prevent any certainty that submetering would assist in energy efficiency gains alongside lower prices for consumers. First, there is no guarantee that any savings will be passed down to tenants. Secondly, a historical conflict and distrust between Congress and HUD (as identified in an interview with an affordable housing expert) will make devolving any subsidies in the affordable housing market from landlord to tenant extremely difficult. Instead, a utility allowance would need to be negotiation and structured in order for residents to fully benefit from any changes to the permissibility of residential submetering. Finally, rules and regulations that prohibit an affordable housing provider from taking on debt also negate the ‘return on investment’ argument that would otherwise be used to leverage a housing provider. This regulation subsequently harms the tenants of affordable housing. In market rate housing, utilities are either direct or master metered. Convincing a utility company that it ought to reduce utility costs through the bulk rate pricing schemes that come along with submetering will pose a significant barrier to incorporating electric submetering in this residential housing sector. Mismanagement Deregulating the electricity market has the potential to cause corruption or mismanagement through increased steps and players in the supply chain. There are examples of this kind of mismanagement, such as in New York City, where at a Section 8 Housing project, it was determined that a landlord’s mismanagement of a recently installed submetering system caused 21 “astronomically high” utility prices for the residents. 27 Another form of mismanagement can occur when the installation of submeters has the unintended effect of raising utility prices due to building inefficiencies. 28 Due to the potential for corruption or mismanagement, as well as unforeseen outcomes, the use of submetering has to be considered on a case-by-case basis. 5. Potential Benefits from Electric Submetering Based on the differences noted in metering systems outlined above, submetering provides various benefits to every party in the residential housing sector as will be outlined below. Property owners, for example, are able to take advantage of bulk-rate electricity prices, as well as any subsidies that exist for installation of submetered systems. At the same time, tenants benefit from the bulk-rate price of electricity as well, provided that the property owner passes the subsidy on to the tenant and does not increase the cost of electricity. Additionally, the potential and residual impacts attributed to submetering a residential building, including changes to occupant behavior or an increased rate of improvements to building operations and maintenance create an opportunity for significant energy use reductions in the long term. 5.1 Building Owners and Operators In general, there are two ways a building manager can pursue reductions in energy use: through increased resource efficiency, or through resource conservation. Resource efficiency is usually improved through the installation of new technologies that deliver the same services (lighting, or heating and cooling, for example) while using less overall energy. Resource conservation on the other hand, is achieved through improved operation and maintenance practices and/or occupant behaviors such as reducing unnecessary lighting or heating loads and reprogramming energy control systems. Metrics for both require knowledge of current resource use and practices, generally at the sub-building level. 27 Libby Nelson, “Energy-Billing Practice Raises Tenants’ Ire.” New York Times Blogs, 20 July 2009. Web. <http://cityroom.blogs.nytimes.com/2009/07/20/energy-billing-practice-raises-tenants-ire/?_r=1> 28 Manny Fernandez, “State Freezes Plan to Have Tenants Pay Electric Bills.” The New York Times, 14 Feb 2009. Web. <http://www.nytimes.com/2009/02/15/nyregion/15electric.html> 22 Electric submetering largely eliminates a volatile, variable, and difficult-to-control factor from a building's operating budget as well as apartment electric usage costs. While this benefit has been realized in the commercial sector, the residential market stands to gain environmentally and economically from the same opportunities, as does the District as a whole. Whether a building is a commercial or residential, owners can better predict costs when the only electric usage to be considered is for common areas under management control. Indirect benefits attributed to submetering include isolating operational inefficiencies, which are known to contribute to the unnecessary waste of energy and financial capital. Submetering data can identify abnormal energy consumption as a result of system faults that would otherwise not be recognizable in the whole building’s utility use data. The detailed information gathered from the use of submetering technologies enables a more condition-based and preventive maintenance strategy in residential buildings and can assist property owners in avoiding the higher costs typically incurred with deferred or unplanned maintenance. Furthermore, identifying and making improvements to these inefficiencies can result in reduced energy-related emissions. These potential benefits however, can be difficult to quantify in the short term, and reveal an additional point of concern for future research. Lastly, property owners can benefit from a wholesale rate on energy to be distributed to submetered tenants. This pricing strategy is often coupled with master-metered and submetered buildings when the purchaser of the electricity is able to buy provider-specified amounts to receive the reduced rate. 29 The difference between retail and wholesale electricity rates can then serve as a benefit for either property owners or tenants. 5.2 Tenants Affordable housing tenants Electric submetering in affordable housing has the potential to reduce overall rental costs if submetering is decoupled from the standard 30 percent of income that is normally paid as gross 29 n.a., “Electricity Primer: What is a Wholesale Electricity Market?,” Electric Power Supply Association, 1 May 2015. Web. <https://www.epsa.org/industry/primer/?fa=wholesaleMarket> 23 rent. 30 One solution would be to offer tenants the opportunity to decrease their rental costs below the 30% cap if they are able to manage energy efficiency in a way that reduces their total housing costs below the standard amount. If electricity is purchased at a bulk rate and property owners are then able to pass those savings on to tenants in affordable housing units, tenants would be able to see the direct effects of any alterations to their energy usage patterns. At the same time, increased energy efficiency would translate to an overall reduction in energy purchases by the property owner. Market rate housing tenants Tenants in market rate housing properties with direct or master metering may find submetering beneficial for the increased information access that is coupled with it. In particular, submetering technology often allows for more specific measurement of energy use, and is increasingly incorporating methods of user-based information interpretation, such as websites or smartphone applications. If end users are given the ability to interpret their own energy use, they can identify ways to increase efficiency through methods such as more controlled appliance use or purchase of the most efficient technologies. 5.3 Utility Providers Submetering benefits utilities and society in the same way: by reducing the waste of electric energy. An increase in citywide energy efficiency defers the need for local utility companies to site, build, or acquire electric generating capacity that would otherwise be needed to meet higher demands. Economically, this truth serves as a key component to leveraging a conversation with District utility providers. Being that the District currently lacks regulations around residential submetering, it therefore also lacks requirements as to the installation of such technologies. This gap in legislation allows for innovative collaboration between the D.C. government and its utility providers. If it is decided that utility companies are permitted to install the necessary wiring for submetering, rather than limiting this structural component of the technology to property owners, utility 30 n.a. “Housing,” District of Columbia Housing Authority, 5 Apr 2015. Web. <http://D.C.housing.org/category.aspx?catid=1> 24 program implementers can achieve economies of scale by hiring contractors to perform multiple types of work at once. If multifamily electric submetering is to work in the District, it will be DDOE’s role to create opportunities for the city’s utility providers to willingly and eagerly participate in the process. Finally, a well-designed submetering program will assist utility providers in any targeted outreach to landlords and tenants in the multifamily residential housing arena. Faced with the unique opportunity to address and potentially draft legislation from scratch, the District stands to benefit the most if it brings all relevant actors to the table. Working with utility providers, instead of in opposition to them, can lead to the development of inclusive and responsible legislation that benefits all those affected, and promises longevity. 5.4 The District The District’s Sustainability Plan outlines two targeted reductions for which submetering might play an important role: reducing citywide energy consumption and greenhouse gas emissions by half by 2032. 31 This is not to say that residential submetering can achieve these reductions alone, but it does provide a potentially valuable option to the District’s tool belt. The D.C. residential housing market occupies a significant portion of the city’s infrastructure, and cannot be ignored when exploring ways to reduce fossil fuel consumption. Converting residences that currently operate using a master-metered system for measuring energy consumption to a submetered system ensures that individual households and tenants see their monthly consumption patterns. This information on its own will not reduce consumption, but it does provide the values and measures required to encourage the necessary changes in consumer behavior to see the city’s goal come to fruition. Equipping property owners with the tools necessary to make structural changes to a building, and enabling residents to understand the economic and environmental value to unplugging unused appliances benefits the entire D.C. community. 31 n.a. “Sustainable D.C. Plan,” District Department of the Environment. 2012. Web. <http://www.sustainableD.C..org/wpcontent/uploads/2012/10/SD.C.-Final-Plan_0.pdf> 25 6. Recommendations: Drawing a Path Forward 1. Engage key stakeholders to develop a pragmatic action plan that informs the Washington, D.C. housing market of potential electric energy measuring platforms. Establishing the use of electric submetering for multifamily residential properties will require the work and support of many stakeholders from within the District community. It is recommended that DDOE establish a submetering working group to help inform and mobilize the residential community through a collaborative process similar to the one formed for the development of the Sustainability Plan. In establishing the collaborative process, DDOE should identify representatives from all sectors of the residential property community who will be affected by such conversions. The entities invited to participate in the effort should include, but not be limited to: real estate developers; residential property owners and affordable housing providers; landlords; market-rate and affordable housing tenants; the housing finance agency; utility regulators and members of D.C.’s three electric utility providers. 2. Expand current benchmarking requirements so as to gather the data required to support the implementation of submetering through regulatory action. The purpose of the District’s current benchmarking regulations is to help property owners, managers, and tenants better understand and manage their energy consumption. The regulations also help to promote transparency and the sharing of energy efficiency information in the marketplace. Expanding these reporting requirement to include all privately owned Figure 3: Amount of Energy Consumption by Sector in Washington, D.C. According to DDOE's own calculations, the residential housing sector accounts for 18 percent of the District's total GHG emissions.... clearly they recognize this sector as an important area for benchmarking as well. 26 buildings and homes, regardless of size, would help to identify the city’s largest energy users. It was realized in the 2012 Green Building Report for the District of Columbia that overall the District’s stock of commercial buildings are among the most efficient in the nation. The same report also found that the age and size of a building do not directly correlate to a building’s efficiency in ways previously assumed. 32 In fact, regardless of age and size, the least efficient commercial buildings in the District use over 235 percent more energy than the most efficient. 33 One might question then, what the efficiency ratings are for buildings not previously included in District surveys and studies. If the District is in fact going to make cost-effective decisions and investments to reduce citywide energy consumption and improve energy efficiency, as laid out in the Sustainability Plan, it must understand how each of the city’s energy consuming behaviors affects the citywide carbon footprint. To do so, it must measure, monitor, and analyze energy use in every sector, regardless of square footage. Once the reporting requirements are expanded to include multifamily residential housing properties less than 50,000 square feet in size, it is recommended that the data collected is monitored and assessed over a three year period before moving forward with the next recommendations outlined below. It is critically important that DDOE, with the help of utility regulators and housing agencies, determine if submetering is in fact the most economically and environmentally effective measure available to the city in an effort to increase energy efficiency and improve energy end-use behaviors. This determination can only be made through the careful collection and analysis of energy use from all sectors of the District’s built environment. 3. Refine the District’s statutory language towards submetering. As previously noted, the primary challenge to the future expansion of submetering is lack of a clear statutory language at the District-level. Electric submetering regulations, as they currently 32 Washington, D.C., District Department of the Environment. Green Building Report for the District of Columbia. 2012. Web. <http://ddoe.D.C..gov/sites/default/files/D.C./sites/ddoe/publication/attachments/20140113_Green%20Building%20Report%202 012_FINAL.pdf> 33 n.a. “Sustainable D.C. Plan,” District Department of the Environment. 2012. Web. <http://www.sustainableD.C..org/wpcontent/uploads/2012/10/SD.C.-Final-Plan_0.pdf> 27 exist, only state where the technology is permitted, and allow for multiple interpretations of the status of a prohibition. To address this, the regulations need comprehensive updating so that there is no question of a prohibition on residential submetering. Making the needed changes could be as simple as clearly specifying the cases in which submetering is permitted and prohibited, clarifying the vagueness in the current statute. Such a change would leave no room for misinterpretation. Another way that the regulatory language may be improved is if the definitions found in Figure 1 are reviewed and made consistent. If the District makes the above changes and clearly prohibits submetering, definitions should reflect that prohibition. For example, residential rental units should be defined and mentioned alongside nonresidential rental units where applicable, such as in the definition for submetering equipment. Once the statutory language is clearly defined, and if it reflects the permissibility of electric submetering in residential properties, DDOE can use its website as a platform for landlords and tenants to acquire document templates to help them comply with regulations. At the time of research, very little information exists on electric submetering for the District other than what is found in the statutes. An informative and user-friendly portal for citizens with an interest in submetering would assist in eliminating all doubts about its status within the city. 4. Pursue the path of least resistance. To determine the path of least resistance for the implementation of submetering technologies in multifamily residential properties within the District, DDOE must evaluate current costs, including equipment (meters and data collection systems), installation, maintenance, and billing administration. Consider how these costs would manifest in multifamily residential buildings of different sizes and configurations, and develop alternatives that allow for the phasing of submetering requirements. Assess associated costs to determine which party or parties should be responsible for installation, and create a reasonable timeframe for expected implementation. Furthermore, in an attempt to reach the greatest number of people, it is recommended that DDOE continue its partnership with the District of Columbia Sustainable Energy Utility (D.C. SEU). As 28 the District’s contracted energy efficiency provider, D.C. SEU has a history of helping residents, businesses, and institutions to save energy and money through energy efficiency strategies and renewable energy programs. Using three years of benchmarking data, D.C. SEU will be well positioned to identify buildings and customer groups with the greatest energy savings potential, as well as the knowhow to target ratepayer dollars where they are needed most. 5. Join national coalitions organizing around the country to see changes to the federal statutory language regarding submetering. On the affordable housing front, the National Housing Trust (NHT) is leading national engagement for electric submetering by organizing and convening stakeholders in targeted states to build the needed relationships and dialogue among the players – energy groups, affordable housing providers, housing finance agencies, and key utilities. With the help of their partners, NHT provides technical advice based on best practices in existing utility energy efficiency programs. They are working together with the American Council for an Energy Efficient Economy, the National Consumer Law Center, and D&R International to leverage changes to federal regulations around submetering. Their efforts however, require the support of local organizations and agencies. DDOE could play a critical role in helping NHT to facilitate discussions and build strong ties with the District’s utility providers and regulators. It is therefore recommended that DDOE, simultaneously and in conjunction with the previous recommendations outlined here, immediately contribute to the ongoing efforts of residential housing and outreach experts across the nation. Key objectives in this engagement must include demonstrating to utilities the potential for energy savings and lasting customer relations through offering the option of electric submetering in the multifamily residential housing stock. 6. Conclusion Across the country commercial property owners are adopting electric submetering in an attempt to reduce unnecessary energy consumption through changes to consumer behavior. Public buildings in several jurisdictions have also recently become subject to benchmarking regulations that seek to induce similar changes in an effort to contribute to nationwide end-use energy 29 reductions. At the onset of this research, it was assumed that by removing the prohibition on residential electric submetering, the District would be one step closer to meeting its stated goals of reducing energy use and greenhouse gas emission by half in coming years. At this time, it is too early to determine if submetering could in fact serve as a catalyst for compliance with these recommendations and goals. While the technology does enable identification of life cycle-cost-effective measures, as well as provide benchmarking data to support the monitoring and verification of energy performance, it does not guarantee the necessary changes to consumer behavior that will lead to the District’s targeted reductions. In fact, it can be argued that changes to individual behaviors might be best achieved through simpler measures. It is therefore recommended that the District Department of the Environment continues to explore residential submetering as a long-term goal to reduce energy consumption, but focuses its immediate attention on educating end-users on energy efficiency practices and incentivizing opportunities for private property owners to invest in building retrofits. If the District Department of Environment accepts the long-term challenge of clarifying the statutory regulations to permit residential submetering, it is recommended that it do so in collaboration with leaders in the community whom have been working to stipulate the same in federal regulations. Meanwhile, the first and most critical step to helping changes to the regulations come to fruition will require the engagement of all multifamily residential stakeholders in the District. As evidenced by the city’s history of establishing collaborative working groups in order to address the concerns of all affected parties, the development of strong policies to support residential submetering will require open and creative conversations. The future of the District of Columbia hinges on sustainable solutions to the pressing environmental problems of our time. Electrical submetering has only a small part to play in promoting energy solutions that can benefit current and future generations. A path forward should involve as many options as possible, and submetering should be given an appropriate chance to play a part in the post-carbon economy of the future. 30 Appendix A Interviews and Valuable Contacts The individuals listed below were key to helping the authors of this report understand the multifaceted approach necessary for electric submetering to gain momentum and support in D.C.’s residential housing market. The conversations had with each of the people listed here o represent the opinions of the individuals only, and not necessarily the company by which they are currently employed. Their titles and employers are provided only for ease of future communications, should DDOE decide to reach out to any of those individuals interviewed for this report. Jenifer Kefer Senior Analyst CTC Technology & Energy Jen Derstine Director of Strategy, Policy, and Distributor Development Capstone Turbine Association Jared Lang Sustainable Development Manager National Housing Trust Elizabeth Chant Principal Consultant Vermont Energy Investment Corporation Talib Abdus-Shahid People’s Counsel Office of the People’s Counsel James Brown Attorney Advisor General Counsel’s Office Public Service Commission Jessica Long Sustainability Managers JBG Companies 31