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The Truth About Submetering
Submeter billing is challenging at the best of times. Complicated legacy meters and a reliance on outdated equipment frequently lead to over- or underbilling.
Many building owners are loath to upgrade because of the upfront costs. But with the right system and better practices, submetering can be more than worth the investment, says Michael Wong, CEO of the software company Genea and co-presenter of The Painful Truth about Submeter Management at the 2019 BOMA International Conference and Expo.
Common Submetering Problems
Multitenant buildings normally use submeters to distribute each tenant’s fair share of the utilities. Tenants have their own meters, and building management bills each proportionally depending on how much energy or other resources they used that month.
But the older meters that are often used to calculate consumption make the process much harder than it should be, Wong says.
“Most people don’t understand the demand charge, yet we’re asking property management teams to understand how utility charges work in their market and how to replicate that for tenant billing.” - Michael Wong
“Building engineers are having to walk around with a clipboard once a month reading meters manually and writing the data on a piece of paper,” Wong explains. “In a typical building, they have 20 to 200 submeters. An Excel spreadsheet is created and used for invoices to bill tenants. That means tons of labor. It’s a very manual process with a lot of human errors.”
Property managers are essentially asked to become utility billing experts, Wong says. Legacy meters that can have different multipliers depending on the meter model complicate the reading process, as do utility charges like demand and ancillary fees.
“Most people don’t understand the demand charge, yet we’re asking property management teams to understand how utility charges work in their market and how to replicate that for tenant billing,” says Wong.
High Costs of the Old Meter Model
The high probability of error isn’t just inconvenient—it’s potentially dangerous for the business. The cost of these financial mistakes adds up over time. Tenants who find they’ve been overbilled will want the overcharges back, which could be a substantial sum.
Companies implementing Genea’s submetering software frequently discover mistakes that are easy to make during manual data entry, like using the wrong multipliers or transposing numbers, explains Wong.
“Let’s say you’ve been overbilling an accounting or law firm tenant for years, and they finally get things audited to make sure they understand how you’re doing the billing,” says Wong. “They’re not just recouping one month of overcharges—you could be on the hook for years. Landlords might have to write a quarter-million-dollar check to tenants for overbilling when they’re not even trying to overcharge them. Mistakes happen.”
3 Tips to Improve Your Submetering Strategy
Wong offers three tips for improving your submetering approach in your buildings.
1. Your equipment doesn’t need to be replaced. It can be modernized.
The upfront cost of networked meters tends to deter property management teams from investing even though the equipment can save considerable time and money.
“Meter manufacturers have been trying to solve the problem for years, but real estate owners typically don’t see any return on investing capital in smart meters, so they’ll say no and keep using clipboards,” explains Wong.
Service-based offerings like Genea’s are paid for through billing fees passed through to tenants, so the cost doesn’t come out of your budget.
Fully embracing digital recordkeeping also helps keep your records straight; you can replace your clipboard with an app that scans QR codes on each meter, compares them to the last 12 months of readings and flags anomalies.
2. Use the same strategy for your entire portfolio.
You may have different buildings in your portfolio handling submetering in slightly different ways. Large real estate owners more often than not have inconsistencies in submetering practices, Wong says. Come up with a strategy based on best practices that you can roll out to your entire portfolio.
3. Audit yourself.
Gathering and standardizing data across your portfolio is a good idea even if you’re not in the process of switching to a digital solution.
“One of the biggest issues is that sometimes the mess is so big that just getting a list of the number of submeters and basic submetering information can be a challenge for some property teams,” Wong says.
“One of our clients decided to adopt this on a portfoliowide basis and it took them at least a month or two to gather all of the metering information. Part of the issue is that every property keeps its data in a different way. The problem perpetuates itself because people don’t have the time day to day [to iron out inconsistencies]. Make sure you allocate enough time to do the project, so you don’t have to take care of it on a forward basis,” he continues.
“Submetering is a very small part of a property team’s plate of things they have to accomplish month to month, but it can create a big headache. It gives people a lot of pain. Getting this right is important.” - Michael Wong
The time investment for modernizing your submetering practices can seem steep, especially when you’re gathering a year of historical data for each meter. But creating a submetering process that’s fairer to both you and your tenants is worth it, Wong explains.
“Submetering is a very small part of a property team’s plate of things they have to accomplish month to month, but it can create a big headache,” says Wong. “It gives people a lot of pain. Getting this right is important.”
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