Submetering: What You Don't Know Can Cost You.

In the past, residents were not responsible for utility costs. The typical resident would only be responsible for paying rent and could use an unlimited amount of utilities. This caught the attention of regulators, environmentalists and property owners and has resulted in a dramatic increase in submetering and allocation practices throughout the United States.

This movement towards individual billing began in the late 1970s and early 80s when the United States was faced with a critical energy crisis that led government officials to explore alternative energy conservation measures. This effort led to a variety of significant changes in our culture, including more fuel-efficient automobiles, and the individual metering of gas and electricity for multifamily housing residents.

Prior to the energy crisis, the majority of communities were served by only one gas meter and one electric meter. Thus, residents of these properties had no financial motivation to conserve. Confronted with this situation, the majority of states enacted measures that mandated individual metering of gas and electricity for newly constructed communities.

Similarly, in the last few years, the need to conserve water by holding residents responsible for water costs has moved to the forefront of discussions about conservation across the country. Property owners who bill their residents for water usage typically use one of two methods: submetering or allocation. A property is submetered when each unit contains a meter that measures water usage for that unit. The residents are then billed monthly for their water and sewer usage. This billing is often performed by a third party billing company on behalf of the property owner. Alternatively, an allocation system can be used when a submeter is not installed. In these situations, residents are billed for water based on a set factor, such as the square footage of their apartment home, or the number of occupants.

The movement to make residents responsible for their share of utility usage has led to a dramatic increase in the number of communities that bill their residents for utilities, including water.

According to a recent study by Viterra Energy Services, an NAA National Suppliers Council member, over 1.2 million apartment homes are currently being billed by property owners for water usage.

The dramatic increase in submetering and allocation programs in the last few years has caught the attention of regulators and government bodies throughout the country. Legislators and regulators have been alerted to the multifamily housing industry by the number of inquiries they have received concerning submetering and allocation programs. Additionally, many of these same officials have sought to encourage these practices due to the amount of water savings that submetering and allocation programs generate.

As detailed in the NAMNMHC "Submetering, RUBS, and Water Conservation" report of June 1999, "water-billing programs can decrease water usage up to 39 percent." This study has proven to be a useful tool in lobbying efforts across the country.

As a result, government officials and regulators have recently begun to enact measures throughout the country that specifically affect the submetering and allocation industry. In the last two years, state legislation has been proposed or enacted in at least nine states. Here are some examples of legislative activity in some states:

* During the 2000 Arizona legislative session, a bill was passed which specifies that both submetering and allocation practices are legal and also sets forth specific billing requirements.

* During the 1999 Arkansas legislative session, a bill did not pass that would have prohibited a property owner from charging additional fees to their resident, in connection with a utility billing program.

* The California legislature is currently considering a bill that would require a property owner operating an allocation program to disclose this practice in leases and certain advertisements.

* The Florida legislature eliminated a longstanding law that required property owners who operated submetering programs to file annually with the Public Service Commission.

* A bill was passed this year in Georgia that specifically allows submetering and allocation programs. This bill also specifies billing methods, as well as lease notification requirements.

* A bill was proposed last year in Nevada that would have mandated the use of submeters for new and existing communities.

* In 1999, the Oklahoma legislature passed a bill that specifically authorized submetering.

* In Oregon last year, a pre-existing statute was changed to allow a property owner to charge his residents a reasonable fee in connection with the operation of a submetering program.

* Two bills are currently pending in Tennessee that directly deal with the submetering and allocation industry. However, only one bill has been acted upon since March. This bill would affirm that submetering and allocation practices are legal.

Property owners not only have to be aware of state issues, but many areas have rules or are considering adopting rules affecting resident utility billing practices. For example, local ordinances were written this year in Chicago and Cleveland that, if passed, would have dramatically affected the ability of property owners to recover utility costs from residents.

In addition to legislative actions on submetering and allocation activities, several public utility commissions are currently investigating the industry, including California, Texas, Washington and South Carolina. In each of these states, a multitude of issues are being analyzed related to the submetering and allocation industry, such as:

* In California, an investigation began in 1998 by the California Public Utilities Commission (CPUC). This investigation was initiated to gather information about submetering and allocation practices in order to clarify their legal status.

* Property owners in South Carolina are currently not regulated by any government entity, nor do any regulations exist that govern utility billing practices. Thus, the South Carolina Public Utilities Commission is currently in the process of forming rules to govern the industry.

* In Texas, the Texas Natural Resources Commission (TNRCC) is in the process of amending its pre-existing rules on submetering and allocation. The Texas legislature has instructed the TNRCC to promote submetering, and the hearings have focused on this issue.

* In Washington, the Washington Utilities and Transportation Commission (WUTC) has recently begun a rule-making process which should clarify the jurisdiction the WUTC has over property owners who bill for utilities. Based on the amount of regulatory activity, submetering and allocation programs have caught the attention of government officials throughout the country.

With the amount of regulatory activity involving the submetering and allocation industry, it is important for property owners to stay abreast of this activity and how it may affect their properties. There are several resources available for this information.

Many local apartment associations, as well as NAA, have information on submetering and allocation. In addition, several billing providers have regulatory departments that can provide updated information to property owners. Property owners also have the opportunity to join the National Submetering and Utility Allocation Association (NSUAA). The NSUAA was formed in 1998 and its members consist of property owners, billing providers, meter manufacturers and apartment associations. The NSUAA has participated in each of the aforementioned regulatory activities. For more information on the NSUAA, call 847/681-8475 or email them at [e-mail].

Submetering and Allocation Update

There have been recent regulatory activities involving the resident utility billing industry. NAA/NMHC and the National Submetering and Utility Allocation Association have been actively involved in many of these activities on behalf of the association and the industry, including providing financial support for various state efforts. Many of the summaries are provided monthly to NAA's affiliates in the State and Local Policy Update. For more information, contact your local affiliate or NAA at 703/518-6141, x119.

ARIZONA

Utility Rates

Description: HB 2139 would clarify the choices that a property owner has to either submeter or allocate charges for utility services, including water, wastewater, gas electricity and solid waste removal. This legislation would also establish a billing format, allocation methodologies and allow management to charge administrative fees. Arizona Multihousing Association amended this bill to require property owners to specify in the lease agreement how they allocate utility costs, and prohibits submetering or implementation of a ratio utility billing system (RUBS) program. during the term of the lease until a residential notification.

Affiliate position: S; Status: Effective 4/01/2000

Water Submetering

Description: The city of Mesa is conducting a comprehensive water management study to promote water conservation and the reduction of water bills in area apartment communities. Mesa is testing "site-specific water management strategies from Phase I of its study". Two apartment communities have been selected to participate in this study. The study will review and monitor water usage from Dec. 1, 1998, to Dec. 1, 1999.

Affiliate position: S; Status: Pending

CALIFORNIA

RUBS (Ratio Utility Billing System)

Description: The California Public Utility Commission (CPUC) is conducting an investigation of RUBS and whether property owners or their billing agents can bill residents for water consumption without implementing a water submetering system or general sewer services. CPUC has already ruled that property owners can charge the predetermined CPUC rates when communities use water submetering to determine residentsi water consumption. It has also stipulated that those property owners who do not charge the approved CPUC rates are in violation of this ruling.

Affiliate position: U; Status: Pending

RUBS

Description: SB 2127 would require a property owner that allocates water and sewer charges for each residentis unit, but does not provide separate water and sewer meters for each unit, to explicitly disclose any separate water and sewer billing arrangements in lease agreements with residents, and, if advertising a specific rental rate, to disclose in that advertisement any separate water and sewer billing arrangements in lease agreements with residents. Recently however, some amendments have been made to this legislation that cast a shadow on the billing practices of some property owners, prohibits a RUBS system and may prejudice the proceedings of the California Public Utilities Commission as well as send a negative message to consumers.

Affiliate position: O; Status: Pending

Water Submetering

Description: During a Public Utility Commission workshop on September 15, the California Housing Council proposed a "best practices" concept for water submetering and billing in apartment communities. These best practices are essentially a list of the standard work practices that are already used by virtually all members of the water submetering industry. If companies in the industry comply with these best practices, then the PUC would not regulate them as a public utility. However, if a company were to violate these best practices, then they would be regulated as a public utility.

Affiliate position: S; Status: Pending

Water Submetering

Description: The Public Utilities Commission (PUC) issued a decision stating "that the PUC does not in fact have jurisdiction over 80% of the water providers in the State of California. The jurisdiction actually belongs to the cities and counties." Hence, the PUC is not the government entity responsible for ruling on the legality of the rental property owners billing residents directly for water usage through submetering and other billing methods.

Status: Effective

GEORGIA

Water Submetering

Description: HB 1221 pertains to water submetering and allocation systems used by property owners. The legislation does three things: (1) clarifies that apartment owners may use submeters or allocation formulas to charge residents for the water they use, including common area recovery and reasonable fees; (2) states that properties that do this are not required to meet monitoring and reporting provisions for public water and sewer systems; and (3) prohibits property owners from charging more for water and sewer than the total cost they pay for it.

Affiliate position: S; Status: Pending

NEVADA

Water Submetering

Description: A notice of petition is before the Public Utilities Commission of Nevada regarding water submetering. The Regulatory Operations Staff of the Commission has filed the petition, designated as Docket No. 99-7014, with the Public Utilities Commission of Nevada. The Staff seeks the Commission's opinion on whether apartment owners who bill their residents separately for water and sewer services are subject to the Commission's jurisdiction.

Affiliate position: U; Status: The Public Utilities Commission ruled that they did not have jurisdiction over the apartment industry and that the water allocation matter would need to be settled at the legislative level in 2001.

SOUTH CAROLINA

During the past year, NSUAA has been actively involved in a Public Service Commission rulemaking. We have retained in-state legal counsel, been a formal party to the PSC proceeding, appeared in hearings, provided written filings, met with regulators, and done other things to advocate our industryis position. We have also collaborated with several apartment associations during the rulemaking. Originally, the proceeding included water, sewer and electric service. Then, they split off the electric submetering proceeding and NSUAA focused about 90 percent of its efforts on the water/sewer proceedings. Meanwhile, we have been tracking the electricity submetering proceeding. The PUC asked for comments on a legal question.

Status: Pending

TENNESSEE

Water Submetering

Description: HB 0713/SB 1434 would prohibit property owners from charging residents separately for water, unless each resident has a water meter. This legislation also prohibits additional fees for the act of billing consumers and limits administrative fees to $4 per each dwelling unit per month. In addition, HB 0713/SB 1434 would restrict the yearly administrative fee that property owners can charge residents to $48. The Tennessee Apartment Association (TNAA) testified before a study committee this past summer regarding hot water metering, resident utility billing systems (RUBS), and water submetering. TNAA has also met with the Realtors and Home Builders to formulate a policy regarding water submetering.

Affiliate position: O; Stares: Pending

TEXAS

Water Submetering

Description: The Texas Natural Resource Conservation Commission (TNRCC) has published proposed rules to overhaul water billing by rental properties that submeter or allocate water. Tiffs includes multifamily properties as well. While the rules are significantly better than a previous draft proposed last fall, they are not as favorable as a draft that was being circulated by TNRCC in late December. The Texas Apartment Association (TAA) has several concerns regarding this proposal that are as follows:

Common Area Takeout 

Proposal: The rules would mandate a 25 percent deduction for common areas before a mastermeter water bill may be allocated, if the common are is not entirely submetered or separately metered.

TAA's position: While TAA supports the concept that the owner should be responsible for a portion of the bill that accounts for common area consumption, TAA believes that 25 percent is too high.

Allocation Formulas

Proposal: The proposed rules would allow property owners to allocate by two methods: (1) an occupancy formula; or (2) based on submetered hot water usage.

TAA's position: Property owners should be given as much flexibility as possible to use various allocation formulas.

Prohibition against switching from submetering to allocation.

Proposal: The rules prohibit a property owner who is submetering from switching to billing residents on an allocation formula. The only time that the rules would allow such a change is when there is a change in property ownership.

TANs position: The draft completely ignores problems that owners might encounter such as malfunctioning submeters (due to problems such as outdated or inferior equipment, remote reading problems, etc.), or other practical reasons why an owner may decide not to continue using submeters.

Affiliate position: O; Stares: Pending

WASHINGTON

The State of Washington has announced its intent to conduct a rulemaking process that has the potential to impact our industry. NSUAA distributed a Regulatory Alert to all members with a suggestion that they track the rulemaking, participate in it, and take appropriate steps to protect their interests.

Status: Pending

Marc Treitler Mr. Treitler serves as general counsel for Viterra Energy Services and also sits on the board of directors for the National Submetering and Utility Allocation Association.