Direct utility billing: a win-win for everyone. (Service Spotlight).

There's no question that residents hate rent increases. But as the cost of running a property goes up each year, property owners have to make up the difference somewhere--usually by raising the rent or finding a way to cut costs. And one way many owners are choosing to cut expenses is through direct utility billing.

The concept is simple: instead of a property owner paying for the utilities used in his or her apartments, he or she arranges to have individual property meters installed, and residents pay directly for their own water and gas service. While submetering issues can be complex--owners should check local laws and regulations before considering a system--more communities than ever are transferring the cost of water and gas service to residents, which helps conserve energy and avoid those dreaded rent increases.

According to Bill Wallace, President of National Water & Power, direct utility billing for water and gas marks not so much the beginning of a new trend, but the final piece of a cycle that started in the 1970s. "Fifty years ago, property owners paid for everything but telephone service--electricity, heat, everything," he says. "During the energy crisis in the 1970s, it became national policy to have residents pay for their own electricity, and now, residents pay for their own electricity, telephone and cable. Water sewer, and trash service are now the only remaining utilities that property owners still pay for."

What the increasing trend toward submetering marks, is a movement to get residents to pick up the tab for those last remaining utilities. "Residents are already paying for 85 percent of their utilities," he says. "what this does is get them to pay for 100 percent of the services they use. The property owner still provides the services, but the residents pay for it."

This system has benefits beyond those to the bottom line, experts say.

Conservation

Dick Morris, National Sales Manager for CBSI (Conservation Billing Services Inc.) says that one of the first things owners notice after installing a utility billing system is that water usage drops dramatically. "One guy at a property we recently began servicing came in and said he hated to see the change because he let his shower run all night to help him sleep," he says, noting that he sees a drop in water usage at 18 to 40 percent after a submetering system is installed.

"All of a sudden, residents start reporting leaks," he adds. "For the first few weeks, the maintenance staff gets really busy."

"An interesting side benefit," Wallace says, "is that if you run less water from the tap, you also run less water down the drain. You end up reducing wastewater flow by a similar amount. It becomes an environmental impact issue."

Wallace says that metering systems can help prevent building moratoriums that are imposed when local governments can't keep up with sewer usage growth in an area, and put a stop to all building until they can construct new water treatment facilities. "If an apartment property can adopt a program like this, they not only use less water but they produce less waste water," he says. "In some parts of the country, that's actually a more important issue."

Inflation

One of the reasons rents must rise is simple inflation--as costs for products and services go up, owners raise rents to make up the difference. When a product or service becomes more expensive at a rate that outpaces local inflation, owners can find themselves with a problem on their hands, as rents might not be competitive in the area. Wallace says that some property owners turn to direct utility billing to combat this phenomenon.

"The United States has been in a period of relatively low inflation, but that's not true for certain costs," he says. "Water and sewer costs are rising faster than the inflation rate. Over time, property owners become uncomfortable with the idea of this unbounded cost."

By passing the cost on to residents directly, he says, owners see a drop in utility usage, and residents see exactly where costs are rising and by how much. "Passing off this cost to residents does two things: First, the resident becomes someone who worries about unbounded costs. And secondly, they then use their own behavior, to minimize water and sewer costs. It keeps the costs of water service from rising so fast."

Installing a System

There's no question that installing a direct utility billing system is easier during initial property construction, but retrofitting doesn't have to be a major headache, experts say. "Owners will see big savings if they build with a system," Morris says. "We ship meters directly to the job site and the plumber installs them as he's going in hooking up the shut-off valve for each apartment. It's really not that much more work for him to do. He's going to charge for it, of course, but it's far less than what it costs to send a crew in after construction is complete."

Wallace estimates a savings of $100 per apartment to install a submetering system at construction instead of retrofitting; he says owners should expect to pay about $200 per apartment during building, and $300 per apartment to retrofit.

Morris says costs can differ depending on how old a building is and what the existing plumbing infrastructure looks like. If each apartment doesn't have an individual shut-off valve, for example, the complication of installing meters goes up. He recommends that owners consult with several different companies before deciding that retrofitting is too expensive--in most cases, he says, the potential savings outweigh the initial cost.

That said, however, retrofitting is far from impossible, and Wallace says owners will easily recoup the cost of installing a system in the first few months of having residents pay their own utility bills.

Morris makes several recommendations to owners looking for a company to provide direct utility billing services:

* Look for a company that installs meters and performs reliable collection services--ask for recommendations from other local properties;

* Ask for a radio frequency system that requires no hardwiring in buildings;

* Look for a company that sends its own people in to install and service the system; and

* Look for a company that recognizes the inconvenience to residents and leaves a minimum of mess behind when in an apartment.

He also recommends that the submetering provider send someone to the property to meet with managers, leasing professionals and maintenance staff to explain exactly what's going on, how the system works, and how to introduce it to residents.

Notifying Residents

Letting residents know about a new submetering system can be tricky. After all, they're used to having their utilities paid for in their rent, and may not be thrilled at the prospect of another monthly bill. But service providers say that explaining to them why the new system is being installed and the benefits they'll see as a result can help soften the blow.

"We recommend that owners explain to residents that they can help control rent increases by paying their own utility bills," Morris says. "Explain, for example, that there would have been a $30 rental increase, but that rent will only go up by $15 because of the new system. It's a win-win for everybody."

Wallace agrees, and says that most residents will also understand the importance of conservation and how submetering can further their efforts in this area. "Explain to residents that you're looking forward to their participation in what is essentially a conservation effort," he says, adding that the best time to kick off a submetering system is at lease turnover, when new language can be added to the lease explaining that residents will pay their own water bills. "It takes about a year to get up and running," he says.

Finally, he says, explain to residents that the property owner was careful in selecting a provider who will install and service meters with a minimum of disruption. "They're going to do the best they can with a nice, clean installation where nobody lets the cat out accidentally," he says. "And we're not going to have repeat invasions of resident privacy."

Submetering NSC Members

American Water             www.americanwater.com
  & Energy Savers
CBSI (Conservation         www.cbsi.cc
  Billing Services Inc.)
Midway Services Inc.       www.midwayservices.com
National Exemption         www.submeter.com
  Services Inc.
National Water & Power     www.nwpco.com
USI Energy                 www.usienergy.com
US Waterworks              www.uswaterworks.com
Viterra Energy Services    www.viterrausa.com

Kim Fernandez is a freelance writer for trade and consumer publications who lives in Bethesda, Md. A former Managing Editor of Units, she has written about the multifamily housing industry since 1994.

Kim Fernandez is a freelance writer for trade and consumer publications who lives in Bethesda, Md. A former Managing Editor of Units, she has written about the multifamily housing industry since 1994.