Until recently, owners of commercial properties in PG&E’s service area could only recover the cost of electricity through rent, regardless of each tenant’s individual usage. As a result, many leases required tenants to pay a proportionate share of the building’s electricity costs. However, on September 7, 2007, the California Public Utilities Commission (the “PUC”) entered an order allowing owners of commercial buildings in PG&E’s service territory to install electricity submeters to meter and directly charge for individual tenants’ energy use. The change is designed to encourage energy efficiency by creating an opportunity for tenants to lower their electricity costs through the implementation of energy conservation measures. The PUC is expected to enter similar orders for Southern California Edison and San Diego Gas and Electric.

The PUC imposed a number of important restrictions on building owners including:

1. Tenant Must Agree: The tenant must first agree to submetering through a signed lease and cannot be assessed metered energy charges unless it has so agreed.

2. No Owner/Manager Surcharges Allowed: Tenants must be charged for electricity in accordance with the same rate schedule that applies to the master meter, and no more. Owners can recover the costs of providing metering and information service but cannot make a profit on these activities.

3. Common Area Electricity Still Shared: Common areas will continue to be allocated across all tenants and billed and paid in accordance with leases as part of the rent (generally based upon square footage).

4. Detailed Bills from Management Required: The bills from owners to tenants must have the same level of detail as the master bill from PG&E, as well as additional detail regarding allocation of common area charges and other information to assist the tenants in managing energy costs.

5. No Customer Relationship Between Tenant and PG&E: The decision emphasizes that submetering will not result in the tenants becoming retail customers of PG&E and will not cause the building owner to become an energy wholesaler.

Under the order, PG&E, in association with the Building Owners and Managers Association of San Francisco (“BOMA”), will prepare detailed informational packets for commercial owners. Due to its concerns about the actual benefits of submetering, the California PUC directed PG&E and BOMA to conduct a survey to address the real world impact of these changes.