Chapter 5 Overview

Tenants can pay for electricity through one of three ways.

• Direct meter: The tenant contracts with, and is billed by the utility.

• Sub-meter: The tenant pays the landlord based on the meter as well as a “handling fee” that will vary based on negotiations, but is typically not more than 12%.

• Rent inclusion: The tenant pays a fixed amount per square foot. If a company is direct metered or sub-metered, it will have financial incentive
to improve the energy efficiency of its space. Any reductions in usage or peak demand will directly reduce the company’s monthly utility bills. However, if a company is paying for energy by rent inclusion, it will have little financial incentive to reduce usage until a sub-metering agreement is negotiated.

There are several different ways utilities charge large customers:

• Energy and demand: This is the most common pricing scheme. The dollar amount that companies pay at the end of each billing period is based on an energy charge and a demand charge. The energy charge is based on the total amount of energy used and is measured in kilowatt-hours (kWh, a unit of work). The demand charge is based on the maximum load in kilowatts (kW, a unit of power) drawn by
the company’s equipment, normally recorded over a 15-minute time interval each month.The demand charge is significant because it sets the amount of generation capacity the utility needs to build to meet customer demand. Building new power plants is expensive and can lead to higher electricity rates for customers. As a result, utilities try to control customer load growth to defer building new generation capacity for as long as possible through demand charges and conservation programs. Electric bill 4 (energy charge 2 energy usage) & (demand charge 2 maximum load) Therefore, in order to reduce electric bills, companies must either reduce the amount of electricity they use or reduce the maximum amount of electricity they use at any one time.

• Time of use: This pricing scheme is also based on energy use and demand; however, there are different rates for peak and off-peak demand and different seasons.


Under this scheme, electricity drawn during periods of highest demand will be more expensive than electricity drawn during periods of lower relative demand.

• Real-time pricing: Prices vary by hour and day, and are linked to the wholesale market price.

In addition, many utilities offer demand response programs that provide monetary incentives for customers to reduce their energy usage during periods of peak demand, most often on hot summer days. Opportunities to take advantage of Demand Response programs should be evaluated on a case-by-case basis.

Additional information

For further information on billing structure and demand response programs, consult regional utilities.
For more information on energy use intensities by climate zone and region see:
Energy Information Administration, “Commercial Buildings Energy Consumption Survey (CBECS)” September 2008. Accessible at

Benchmarking energy usage

The energy intensity of a facility can be expressed with two values: electricity intensity and fuel intensity. To calculate these values for an office building or floor, simply divide total electricity or fuel usage of the space for one year by total square footage of office space. For example, Building X is a 50,000 square foot facility with annual electricity consumption of 1,000,000 kWh and annual natural gas consumption of 7,500 therms:


To determine how a building performs compared to similar buildings, compare its energy intensity values to known benchmarks for the building type and geographic area. If a given building has energy intensity values that are higher than the benchmarks, there likely will be significant potential for cost effective energy efficiency improvements.

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