Understanding Electricity Billing for NYC Office Leases

Understanding the various electricity billing methods is crucial for companies looking to rent office space in NYC. There are typically three ways electricity expenses are charged to tenants: direct metering, submetering, and flat rate billing. Additionally, electricity can be included in the base rent in some instances, such as shared sublets and offices within flexible office space companies. 

Let's delve into these three billing scenarios to better understand how it works when renting office space in New York City. Your NYC office leasing broker could explain it to you, but why not impress them by getting a head start?

DIRECT METERING happens when a company is billed straight from Con Edison, the utility provider in NYC, for their electricity usage. In this arrangement, the office space has a dedicated electricity meter that records the exact amount of electricity used. You've seen these circular glass domes mounted to the wall with spinning dials and numbers inside. Most people are familiar with this type of arrangement because houses and apartments have a meter, and every month, the utility company sends a bill for the amount of electricity we use. Once you sign an office lease, you'll need to call the utility provider to set up an account. 

1. Offices vs. Apartments: Electricity for offices in NYC is usually more expensive than electricity for apartments, as the two are billed at different rates. The city also charges additional taxes for commercial electricity. Therefore, the electricity bill for a 1000 sq ft office will likely be greater than that of a 1000 sq ft apartment.

2. Cost Savings: Directly metered electricity is generally the best-case scenario because the utility provider bills the company for the exact amount of electricity used. If you don't use much electricity, your bill should be low; if you use a lot, your bill will reflect that.

3. Save the Planet: Directly metered electricity is considered the most eco-friendly. The reason is simple: if you're paying for every kilowatt, you'll be mindful about leaving the AC running or the lights on. Conversely, if you're charged a flat monthly rate for electricity, leaving the AC running has no monetary impact. 

One disadvantage of renting office space with a direct electricity meter is that the monthly costs fluctuate, which could make budgeting more of a challenge. 

SUBMETERED ELECTRICITY is similar to directly metered electricity. The office has a dedicated meter, and the tenant is charged for the electricity they consume. However, if you have a submeter, you do not receive a bill from Con Edison or your local utility provider. The landlord handles the meter reading and billing. Because of this, there is usually a surcharge associated with submetered electricity to cover these administrative costs. 

• Surcharge: The submeter surcharge is invoiced as a percentage of the electricity bill. For example, if you're looking for office space to rent and trying to obtain the additional monthly expenses, the landlord might tell you that the electricity is "submetered plus 12%." This means that if your company uses $230 worth of electricity in a given month, you'll receive a bill from the landlord for $257.60 ($230 + 12%).

• Discounts: A landlord might receive a bulk rate discount from the utility provider because they're buying larger amounts of electricity than individual tenants would. Sometimes, the landlord will pass those savings along to the tenant. But, whether you have a direct meter or a submeter, your monthly bill won't differ substantially. 

One advantage of submetered billing (and flat rate billing) is that you receive a single itemized bill from the landlord every month. This simplifies the payment process, as everything is all in one place. So, you won't wake up in the middle of the night wondering, Did I pay the Con Ed bill??

In FLAT RATE billing, tenants pay a fixed rate for electricity, usually between $3 and $3.50 per square foot annually. (Electricity is paid monthly, so remember to divide by 12 when calculating.) The electricity bill does not fluctuate with usage; it's the same every month, no matter how much electricity you use. 

How is the electricity charge determined when using a flat rate?

To calculate the monthly electricity bill, multiply the rentable square footage of the office by the price per square foot of the electricity and divide by 12 (months) to get the monthly amount. Therefore, the monthly electricity bill for a 3,000-square-foot office in NYC with a flat rate of $3 per square foot for electricity would cost $750 per month. 

Of the three electricity scenarios, flat rate billing costs the tenant the most. Since the landlord cannot bill the tenant for the exact amount of electricity they use, the landlord must add a buffer. The landlord has to pay the utility company for the building's electricity consumption, and no landlord wants to subsidize a company's electricity costs. Hence, the landlord needs the flat rate to cover the total amount of the tenant's electricity usage. To ensure this, a landlord might inspect the tenant's office space to verify their electrical equipment. For example, the landlord will require a higher flat rate cost for electricity if the tenant has a deep freezer, a wall of energy-zapping servers, and is mining for Bitcoin.

• Predictablity: The advantage of a flat rate is that the monthly bill is predictable, even if the company pays a little more for it. This takes the guesswork out of your financial planning. You always know what to expect, and you're never caught by surprise in a hot summer when electricity costs spike. 

• Simplified Billing: And like submetered electricity, your monthly office rental invoice includes the flat rate charge, which is easier than paying a third party. Send one payment and you're done.

But flat-rate electricity is the least environmentally friendly because companies have no financial incentive to conserve power. They pay the exact same amount whether they blast the AC all summer or open the windows and sweat it out. 

We'd be remiss if we didn't mention a fourth electricity billing scenario -- or non-billing scenario. Sometimes, electricity costs are included in the base rent. You'll find this only in specific instances. For example, many shared office sublets and flexible office space companies include electricity costs in the base rent. The reason is simple: it's just easier to do it that way. 

In both cases, there is likely one electricity meter for the entire office suite. A flexible office space company might have a 20,000-square-foot office space with 100 private offices for rent. It's not practical to install a meter in every room. The flex office provider could charge a flat fee for electricity, but it's cleaner to roll those expenses into the total costs of the office rent. And it simplifies the billing process. Tenants prefer all-inclusive office pricing, too, so they don't feel like they're getting nickel-and-dimed. 

Let's review

In most cases, companies do not get to choose how they want to be billed for electricity. If the office does not have an electricity meter, the landlord is not likely to incur the expense of installing one. And it's probably not cost-effective for the tenant to pay for the installation either. So, consider how the electricity is charged when you rent office space. Your office lease document will contain a provision regarding electricity usage and explain how you are charged. 

Flat-rate electricity is most commonly associated with smaller office spaces. It's not cost-effective for every small office space for lease in a building to have its own meter. Conversely, a company renting an enormous full-floor office space will likely have its own direct meter or submeter, rather than paying a flat fee. 

Each electricity billing method has a few benefits and drawbacks. 

• Direct metering offers accuracy but comes with variable costs.
• Submetering is essentially the same as direct metering, albeit with a surcharge. 
• Flat rate billing ensures a consistent and predictable monthly expense, but you'll pay a slight premium to ensure the landlord isn't subsidizing your usage. 
• Inclusive electricity really simplifies things because you never see the charge. But this doesn't mean you're not paying for electricity. The electricity costs are rolled into the total price of the office space. As they say, there is no such thing as a free lunch -- or free electricity, apparently.

We hope this helps. If you have any further questions, reach out!