What Is Submetering?

What Is Submetering?

Submetering is the practice of measuring individual tenant utility consumption within a multi-tenant building using dedicated meters installed on each tenant's space. Instead of splitting a building's total utility bill using estimated formulas, submetering measures exactly how much electricity, gas, water, or steam each tenant actually uses.

In a typical commercial building, the utility company (like Con Edison in New York City) delivers power through a single master meter for the entire property. Without submeters, the building owner either absorbs the cost, divides it by square footage, or uses a Ratio Utility Billing System (RUBS) — all of which are inaccurate and often unfair.

With submetering, each tenant space has its own meter that tracks actual consumption. The building owner reads these meters, calculates charges based on the current utility rates, and invoices each tenant for their actual usage.

How Submetering Differs from Other Billing Methods

Direct Metering

With direct metering, each tenant has their own account directly with the utility company. The utility bills the tenant and the building owner is not involved. This is common in residential buildings but rare in commercial properties because of how electrical systems are designed in larger buildings.

Ratio Utility Billing (RUBS)

RUBS divides the master meter bill among tenants based on a formula — usually square footage, occupancy, or a combination. It's simple but imprecise: a tenant with heavy equipment pays the same rate per square foot as an empty office. RUBS creates disputes and provides no incentive for tenants to conserve energy.

Submetering

Submetering measures actual consumption. Each tenant pays for exactly what they use at the applicable utility rate. It's the most accurate, transparent, and legally defensible method of tenant utility billing in New York City.

How Does Submetering Work?

The submetering process has four steps:

1. Install meters. Physical submeters are installed on each tenant's electrical panel, gas line, or water connection. Most NYC commercial buildings already have electric submeters installed.
2. Read meters. At a regular interval (usually monthly), someone reads the meters and records each tenant's current reading. This can be done manually by walking the building or automatically with connected meters.
3. Calculate charges. The difference between the current and previous reading gives the tenant's consumption for the period. This is multiplied by the applicable utility rate to produce the charge.
4. Invoice tenants. Each tenant receives an invoice showing their meter readings, consumption, applicable rates, and total charge. The building owner collects payment.

Why NYC Building Owners Are Submetering

Legal Compliance

NYC Local Law 88 requires submetering in commercial buildings over 25,000 square feet with tenant spaces over 5,000 square feet. As of January 2025, compliance is mandatory. Building owners who don't submeter face fines and enforcement actions.

Cost Recovery

Without submetering, building owners absorb utility costs that should be passed through to tenants. In a building with ten tenants averaging $3,000/month in electricity each, that's $360,000 per year in recoverable costs. Submetering ensures every dollar of actual consumption is billed accurately.

Increased Property Value

Commercial properties are valued based on Net Operating Income (NOI). Every dollar of utility cost recovered through submetering flows directly to NOI. At a typical 5% cap rate, every $1 of recovered annual utility cost adds $20 to your building's value. A building recovering $100,000/year in previously absorbed utility costs has increased its value by $2 million.

Tenant Accountability

When tenants pay for their actual usage, they use less. Industry studies consistently show that submetering reduces overall energy consumption by 15–25% because tenants have a financial incentive to conserve. Lower consumption means lower total utility costs for the building.

What Makes Good Submetering Software?

If you already have meters installed, the hard part isn't the hardware — it's the billing. Good submetering software should:

• Track rates automatically. Con Edison rates change periodically. Your software should fetch and apply current rates without manual lookups.
• Generate audit-ready invoices. Every invoice should link to the exact rate source used, with documentation tenants can verify.
• Give tenants transparency. A tenant portal where tenants can view invoices, check their usage history, and verify the math eliminates disputes.
• Not lock you in. Avoid long-term contracts. Good software earns your business every month.

Getting Started with Submetering in New York

If you're a building owner in NYC considering submetering, here's where to start:

1. Check if Local Law 88 applies to your building. If your building is over 25,000 sq ft with commercial tenants in spaces over 5,000 sq ft, you're required to submeter.
2. Assess your existing meters. Many NYC commercial buildings already have submeters installed. Check your electrical room — you may be closer to billing than you think.
3. Choose software over a service bureau. Traditional service bureaus charge monthly fees, lock you into contracts, and use spreadsheets that miss rate changes. Modern software like SimpleSubMeter automates the entire process at a fraction of the cost.
4. Schedule a demo to see how quickly you can start billing tenants and recovering utility costs.