Landlords and Tenants: Electric Deregulation Is Coming
By: MARY S. RANUM
Spring 2000
Several states have already deregulated the electric utility industry, nearly every other state is thinking of doing so. Deregulation will give electric customers a choice of electric service providers. Electric service will be divided into generation, transmission, distribution, and other services, so that a customer could choose to have the different components of electric service provided by different companies.
Leases should address now the issues that will arise upon deregulation of the electric utility industry. Landlords will want to maintain control over the selection of electric service providers without facing arguments from tenants. Tenants, particularly large tenants who pay a significant portion of the operating expenses of a building will, on the other hand, want to be involved in selecting the provider of electric services.
Leases should also address access to install new wiring or other equipment that may be necessary as a result of electricity being provided by new companies. Landlords will want to protect themselves against the possibility of being responsible for interruption of services that may occur in the transition from one provider to another. Finally, landlords will want to include in their definition of operating costs the right to pass through to tenants the costs and expenses associated with changing electric utility providers. Passing these expenses through as operating expenses may be justified by landlords as expenses incurred to reduce other building costs. Even though electric deregulation has not yet occurred in Minnesota, landlords and tenants are well advised to watch for these issues in leases that are being negotiated today.