Utility billing and the state of compliance in the industry

Utility billing programs are an excellent tool for expense recovery. Utility expenses are an owner’s third largest expense.

Billing programs provide a price signal to residents to reduce consumption, thereby decreasing utility expense. Such programs also recover a percentage of the utility expense directly from residents. These are all good things for owners—but you may be wondering, “What is the downside?”

The primary concern is that without proper compliance for a billing program, the owner may face exposure for improper or “unfair” utility billing.

Utility billing programs require compliance and diligence from the utility billing service provider and from owners. There are specific portions of the program where the owners must perform.

Owners must ensure that the residents are properly obligated under a residential lease to pay for utilities separately from rent. The lease language is of paramount importance as it is typically the first line of defense to resident complaints.

Often, there are jurisdictional requirements for the lease content that discloses the billing program. Owners are in the business of obligating residents through lease language. However, they are typically not in the business of knowing the local jurisdictional requirements for lease language.

The lease issue illustrates how a highly functioning billing program requires the diligence and efforts of both parties. Highly functioning utility billing programs are effective partnerships between owners and utility billing service providers. Accordingly, utility billing providers must bring a significant amount of expertise and working knowledge to the partnership to achieve recovery results and to mitigate any potential risks.

Not all utility billing service providers have or offer industry expertise, however. Some providers place an obligation on the owner to comply with all local laws. This may include laws and regulations related to lease language, bill presentment, bill content, proper calculation of resident amounts, proper fee amounts, and potentially reporting/registration duties.

This scenario does not achieve the twin goals of recovery and risk minimization. The owner may be responsible for decisions and actions that the service provider performs. The provider does not provide any consultation or expertise and has no incentive to ensure that bills are sent out correctly.

On the other end of the spectrum are highly-functioning partnerships that achieve the desired results. These partnerships begin with an agreement that clearly delineates duties, responsibilities, and liability for the respective parties.

The service provider should consult with owners on its areas of expertise from sales activities through to billing residents. The rules, statutes, and regulations for utility billing by landlords are sometimes complex and can be regulated by multiple entities.

The billing service provider’s expertise in navigating the regulatory landscape issues is vitally important. The stakes may be quite high. For Texas properties, for example, non-compliance with rules means that a resident may be entitled to three times any overcharge plus one month’s rent. Other jurisdictions may not have a regulatory framework and residents in those jurisdictions may avail themselves to consumer protection and/or class action remedies as well —which are expensive to defend.

Advocacy and legislative initiatives are also important pieces of the overall compliance picture. Advocacy activities can include liaising with and providing information to regulators and residents in order to prevent billing issues from becoming the subject of a regulatory or legal action.

This participation can be to combat legislation which will negatively affect owners or to introduce legislation that is favorable.

Currently, “highly variable” is the best descriptor of the state of compliance in the utility billing industry. Service providers may provide no compliance services or expertise, some compliance and expertise, or a comprehensive suite of compliance activities (which can extend to development and acquisitions as well).

The legislative and regulatory frameworks in particular jurisdictions require a detailed understanding to ensure that owners are not put at risk by operating their utility billing program. The potential penalties for non-compliance can be severe and erode resident trust. Owners should strongly consider where their provider sits on the compliance spectrum and what their provider is doing for their joint benefit. 