Utilities

Landlords bring pipe to fight with regulators: Prospect of state oversight brings flood of protest

October 1, 2007

The state's apartment industry, backed by firms that landlords hire to bill their tenants for water and sewer service, says state officials are legally all wet if they try to regulate the industry as utilities.

Indiana Utility Regulatory Commission jurisdiction "does not extend to the regulation of a landlord's water pipes any more than it may extend to a homeowner's garden hose," Clayton Miller, a Baker & Daniels attorney representing the Water Sub-Billing and Conservation Coalition, told the commission last month.

The coalition includes seven firms that provide billing services for multifamily and commercial properties, such as Carmel-based ViaStar Energy and Indianapolis-based SpeedRead Technologies.

Another member, National Submetering & Utility Allocation Association, also seeks to drown IURC oversight.

Sub-metering is the use of meters at individual rental units. It's sometimes also used interchangeably with "sub-billing," a practice of using a master meter for an entire complex, then using formulas to estimate individual tenant consumption based on factors such as number of rooms or people in a particular unit.

It's an alternative to a traditional practice of merely dividing a water bill equally among all tenants, regardless of an individual's water consumption.

IBJ reported in July that the commission was investigating whether to regulate landlords, following complaints that some sock renters with unreasonable administrative fees or assess higher rates than the commission permits a regulated water and sewer utility to charge customers.

But billing firms in the coalition, like apartment owners, could face any number of regulatory burdens, such as continually having to justify their costs, if they're deemed public utilities. The risk is that some subbillers would be driven out of business or, at least, out of Indiana, Miller said.

The Apartment Association of Indiana also opposes the state's apparent thirst for new rules, arguing that sub-metering/subbilling generally is fairer to tenants.

The Sub-Billing and Conservation Coalition argues that, while the state's definition of "public utility" is broad, courts have ruled that such entities must be of a public nature.

"Residents of an apartment building or manufactured housing community are not the general public, but occupy the landlord's property by virtue of their contract with the landlord, in the form of a lease," Miller argued.

Regulation of landlords furnishing water is not unprecedented. North Carolina's utilities commission, for example, caps administrative fees landlords can charge at $3.75 per unit per month. The fee allows a landlord to recover the costs of meter reading, billing and collecting.

Indianapolis-based J.C. Evansville LLP, which operates Pinecrest and Pueblo mobile home parks in the Evansville area, told the commission it used to charge each resident $1.50 a month for administrative costs of sub-billing, saying it is a "common practice" among area apartment and manufactured home communities.

The firm said it discontinued the fees a few years ago but defended sub-metering and -billing for being "an effective, reasonable way to allocate the total bill."

While both the coalition and the apartment association said they are against marking up the price of water, they defend administrative charges.

"There is ... an important distinction between recovering from tenants more than what the utility charges the landlord" and "charging tenants for additional services not provided by the utility," said the coalition.

The Indiana Office of Utility Consumer Counselor, representing ratepayers, proposes that apartment and mobile home parks that sub-bill reflect those administrative costs through other arrangements, perhaps "through slightly higher rent."
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