Utility separation for your Bay Area ADU: PG&E, water, gas, and the rent question

An ADU tenant in Sunnyvale forwarded me her June electric bill last summer: $312 for a 750-square-foot detached ADU. Her lease said utilities were included. The owner's response was that the rent reflected average use. Average use, the tenant pointed out, didn't include the EV she'd been charging on the shared circuit.

The whole conversation could have been avoided with clearer utility separation at lease signing. Twelve years of ADU management and 200-plus tenancies later, utility setup is the single most common source of mid-tenancy friction I see. It's also the one most owners haven't fully thought through.

How utility setups work on Bay Area ADUs

Most ADUs in the South Bay sit on a single-family lot that was already wired and plumbed before the ADU was built. The default configuration is one PG&E electric meter, one PG&E gas meter (if applicable), and one water meter (sometimes a Santa Clara Valley Water District meter, sometimes city). The ADU shares all three with the main house.

A small percentage of ADUs get separate meters. Detached ADUs that pulled new permits in 2024-2026 sometimes have a separate electric service drop. Older ADU conversions from existing garages or basements almost never do.

The result: in most cases the landlord is the PG&E customer of record for both the main house and the ADU. The tenant pays rent. The landlord pays the utility bill. How those two reconcile is the question.

The legal piece: Civil Code §1940.9

California Civil Code §1940.9 says that if a tenant pays for utilities, the landlord must disclose any shared metering before the lease is signed. If utilities are shared with another rental unit, a common area, or the landlord's own residence, the landlord must disclose that and the basis on which costs will be allocated.

The disclosure isn't optional. A landlord who fails to disclose shared metering and then charges the tenant a portion of the utility bill can be sued for the difference. The courts have generally interpreted §1940.9 strictly.

Every ADU lease should specify whether utilities are bundled into rent, paid directly by the tenant, or charged through as a pass-through with a disclosed allocation method.

There's also the California PUC's Master Meter Customer framework, which applies when a landlord is the customer of record for a utility serving multiple tenants. The landlord cannot mark up the utility cost above the rate the utility itself charges. Pass-through means pass-through.

Sub-metering options

The cleanest solution to shared utilities is a sub-meter that measures only the ADU's consumption.

For electricity, PG&E generally doesn't install a second meter on a single-family property. The workaround is a private sub-meter installed at the ADU's main disconnect. Install cost runs $400-600 for the meter plus an electrician's labor. The landlord reads it monthly and bills the tenant based on PG&E's published rate. The CPUC framework requires the landlord to keep the meter calibrated and not mark up the cost.

For water, city water meters can sometimes be sub-metered at the ADU's branch, but it depends on the city. San Jose Water and Santa Clara Valley Water District both allow private sub-metering with similar landlord-billing rules. Cost: $200-400 plus install labor.

For gas, the situation mirrors electric. PG&E doesn't typically install a second gas meter on a single-family lot. Private sub-meters exist but installation is more complex because gas is regulated more tightly. Most ADU owners either bundle gas into rent or skip gas service in the ADU entirely. All-electric ADUs became more common after the 2025 Energy Code tightened the prescriptive path on space heating and water heating.

If your ADU was permitted in 2024 or later and PG&E confirmed a second service drop, the ADU might have its own meter from day one. Newer construction in San Jose, Sunnyvale, and Cupertino has been increasingly going this route, partly because the all-electric reach codes push higher service capacity requirements anyway.

Bake into rent vs. charge separately

For ADUs under 700 square feet with a single tenant, the typical utility load is predictable enough that a 15-20% buffer above the historical average covers most months. A landlord paying $80-130 per month for the ADU's share of electric, gas, and water can bake $150 into the rent and absorb the variance. Works well for landlords who don't want to deal with monthly billing, sub-meter reading, or end-of-month tenant disputes.

For ADUs over 800 square feet, multi-tenant arrangements, units with EV chargers, or tenants who run high-AC summers, separate billing aligns incentives. The tenant who actually controls the thermostat pays for the consumption that thermostat creates. The landlord doesn't subsidize a 3,000-kWh-per-month tenant running AC at 68°F constantly.

The math I use: if the tenant's actual monthly utility cost varies by more than $50-80 from the "average" the rent bundles, separate billing becomes worth the operational overhead.

For ADUs in the South Bay in 2026, my default recommendation is to sub-meter electricity, bundle water (small enough that the variance rarely matters), and skip gas because most new builds are all-electric.

Summer-specific challenges

Three patterns I see every summer in the South Bay.

Air conditioning bills spike when the temperature crosses 90°F for more than 4-5 days in a row. The Bay Area's microclimates mean a Cupertino ADU and a Sunnyvale ADU can have very different summer utility loads. ADUs without good insulation can run 2-3x their normal electric bill during a 95°F+ week.

EV charging on a shared circuit is the new variable. A tenant with a Tesla or a Rivian plugging into a Level 2 charger on the ADU's service can add $40-80 per month to the electric bill. If the lease doesn't anticipate this, the landlord eats the cost.

Irrigation creep on the main house affects ADU water bills when the meter is shared. A landlord who waters a backyard lawn in July adds 30-50% to the shared water meter reading. If the tenant is paying a portion based on a formula, this is exactly the kind of cost the tenant didn't sign up for.

What to put in the lease

The lease language I write into every ADU tenancy:

Specify whether utilities are bundled, separate, or pass-through. Identify which utilities apply to each category.

If pass-through, specify the allocation method (sub-meter read, proportional square footage, fixed split, or other).

Disclose any shared metering arrangements per Civil Code §1940.9. Make this section explicit and signed separately.

If EV charging is permitted on the property, specify whether the landlord is providing the charger, who maintains it, and how the consumption is billed. My default: the tenant brings their own Level 1 trickle charger if they want one, or the landlord sub-meters the ADU's main panel and charges the tenant for actual consumption.

If irrigation is shared and water is bundled into rent, lock in the rent number at a level that anticipates summer irrigation creep. Don't try to "make tenant pay their share" without sub-metering.

The tenant screening checklist I covered last week catches most applicant-side issues. The utility setup catches the property-side ones.

What to do this week

If you have an ADU tenant moving in this summer, pull last year's utility bills for the months June through September. Look at the main house's typical load vs. the ADU's likely load. Decide on bundle / pass-through / sub-meter before you write the lease, not after. And if you're going pass-through and don't have a sub-meter, get one installed before move-in. Retrofit installs after a tenant is already in are expensive and disruptive.

If you have an existing ADU tenancy where the utility situation has been informal, now is the time to formalize it before the August AC bills hit. A written addendum with a clear allocation method, signed by both parties, avoids the mid-tenancy friction I've watched cost landlords thousands in disputes.

For owners thinking about new ADU builds, confirm with your GC and PG&E whether a separate service drop is feasible. It's the cleanest long-term solution and worth the upfront cost.

If you're trying to figure out the right utility setup for your specific ADU, request a free ADU rental analysis and I'll walk you through what works for your property. Twelve years and 200-plus tenancies across the South Bay.

Sources

• California Civil Code Section 1940.9 (Shared Metering Disclosure) — California Legislative Information
• California Public Utilities Commission Master Meter Customer Rules — California Public Utilities Commission
• PG&E Rate Information — Pacific Gas and Electric Company
• Santa Clara Valley Water District — Santa Clara Valley Water District
• San Jose Water Company — San Jose Water
• California Energy Commission 2025 Energy Code — California Energy Commission