Landlord handling of water, sewer bills under scrutiny: Utility commission examining charges to see whether owners operate as utilities

July 16, 2007

State utility regulators are examining whether operators of apartments and trailer parks are hosing tenants with excessive bills for water and sewer service.

The inquiry by the Indiana Utility Regulatory Commission takes aim at decades-old billing practices that include dividing up a complex's total water and sewer bills among all tenants.

The commission said it's received a handful of complaints over the years alleging rental property owners, or their billing agents, are assessing tenants higher rates than the commission permits a utility to charge its customers.

They "may also be imposing charges such as administrative fees, late fees, returned check charges not authorized by statute, meter installation charges, financing charges, and connection/disconnection/reconnection charges."

Those may constitute "rate setting without commission authorization."

As such, those property owners "may be operating as a public utility," said the commission.

IURC spokeswoman Mary Beth Fisher would not say what measures the commission is considering to deal with the problem -- if indeed there is one.

But regulations in other states show some possibilities.

North Carolina, for example, requires generally that anyone furnishing water to 15 or more residential customers for compensation be classified as a public utility. In that case, the North Carolina Utilities Commission requires providers to obtain a franchise certificate from the state and to file a schedule of charges-subject to commission approval.

Such "utilities" pay a filing fee of $25 to $250, depending on their size.

North Carolina also allows no more than $2 to be added to the cost of purchased water and sewer service as an administrative fee to compensate the provider for meter reading, collection and billing.

Meanwhile, in Maryland, the Montgomery County Department of Housing & Community Affairs has a seven-page list of rules for landlords whose water and sewer service is read from a master meter and then allocated to tenants based on a formula of estimated usage.

The so-called ratio utility billing system, or RUBS, is a growing trend among landlords who seek to separate water and sewer bills from rent payments. Many landlords favor removing water and sewer bills from rent to protect themselves from utility rate hikes and as a way to make base rent look more competitive, according to the National Consumer Law Center.

Rental industry groups say RUBS promotes conservation by making tenants more accountable. Critics say this formula for estimating bills-such as based on square footage of an apartment and number of tenants-is too arbitrary, however.

"A tenant who spends much of her time on the road for work will very likely use less water and sewer service than a tenant who works out of her unit," said an NCLC report.

"An allocation based on square footage could unfairly charge a senior living alone in a two-bedroom unit the same as a young family of four where one parent and two young children remain at home most of the time."

Montgomery County, Md., attempts to protect renters whose landlords use RUBS by requiring disclosures such as the landlord's precise formula for determining average monthly bills for all units in a complex.

That county's regulations also require landlords deduct a certain percentage of water used for landscaping irrigation, swimming pools and laundry rooms.

Water and sewer billing has been an inexact science for renters. In many multifamily rental units, installing hundreds of individual water meters would be expensive and impractical.

The IURC is mum as to what it might consider. Indiana has tended to be a more business-friendly state when it comes to regulation so, according to observers, it's unlikely a radically consumer-friendly regulation would emerge.

Yet the investigation has drawn the interest of rental property owners and water and gas utilities.

Though the Indiana Apartment Association has yet to file its position paper with the IURC, it calls practices such as splitting bills based on a formula a "very valuable tool for serving the public interest."

The practice also encourages a number of larger complexes to secure more favorable, volume rates from utilities, the group said.

Some utilities also want to preserve submetering. It makes it much easier to bill an apartment complex or condominium association than several individual tenants, said David McGimpsey, a Bingham McHale attorney representing Hamilton Southeastern Utilities.

Plus, as long as the utility can continue to bill the complex and not individual customers, it is protected from the costs of collecting from individual tenants who don't pay their bills.

"It protects the financial integrity of the utility," McGimpsey added.

Otherwise, he said, "the administrative expense is going to be borne by all the customers on the system."

The Office of Utility Consumer Counselor has yet to file a comment in the case and said it gets only three or four complaints a year on rental water and sewer billing.

Generally, if a landlord pays for water and recoups the costs from tenants on a dollar-for-dollar cost basis, "we do not see a problem," said OUCC spokesman Anthony Swinger.

"But where it becomes a problem is when landlords assesses additional charges without being legally authorized as a regulated utility."

Some landlords contract with billing companies to collect water and sewer fees from tenants, and sometimes those companies add charges.

As for fairness to renters, "it's an issue we're not going to take a position on," said Hamilton Southeastern's McGimpsey. "We can't change the way the pipes run."
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