Fall 2016 legislative and regulatory update

California Senate Bill 7
California Legislative Session, Senate Bill 7 (“SB 7”) passed the Senate and Assembly and is in effect as of January 1, 2018. The Governor signed the bill into law prior to the end of September, 2016. The new law creates a mandate for the installation of meters (by the owner or the providing utility) in every multifamily unit. It also regulates amounts to allocate to residents, billing fee types and amounts payable by residents, bill content, and other consumer protection issues. The new law will include a safe harbor for properties using an allocated (“RUBS”) methodology prior to the effective date of the legislation (January 1, 2018).

Legislators, industry stakeholders, and environmental groups endeavored for more than a decade to secure the passage of legislation to require the installation of submeters. The defined conservation benefits achieved from submetering compared to “in-rent” billing for utilities was the primary driver in the state due to its well-documented drought and water supply issues.

The new law will provide certainty to multifamily owner/operators, utility billing service providers, and residents themselves. The effective date of 2018 allows properties that are in development to comply with the mandate. It also allows properties with existing water and sewer billing programs to modify practices to ensure compliance.

Ohio
Legislative activities picked back up in the State of Ohio over the summer of 2016. However, it appears that nothing will come from these efforts in 2016.

As background, in September of 2013, the Columbus Post-Dispatch ran a series of articles highlighting multifamily owner/operators that were “marking up” rates that they charged their residents for electric service and allocating more than their expense to residents. Legislators introduced three separate bills in 2014 to regulate “submetering companies” in different forms. None of these bills made it out of committee.

This summer, the legislature introduced two new bills to regulate utility billing performed by landlords to residents. Senator Kevin Bacon(!) introduced Senate Bill 348 (“SB 348”). This bill would regulate multifamily owner/operators, home owners’ associations, and manufactured housing operators that bill residents for water, sewer, gas, or electric service. SB 348 allows landlords to bill using metered or allocated methodologies and proscribes limits on how much a landlord can recover (including a method to recover more that the property’s expense). The sponsor characterized this bill as a “starting point” and intends for other stakeholders, including the Ohio Consumers Counsel (“OCC”) and the Public Utilities Commission of Ohio (“PUCO”) to participate in crafting the law. SB 348 allows for landlords to pass through a “reasonable” administrative fee for billing but restricts other fee types such as account establishment and final bill fees.

Representative Mike Duffey introduced House Bill 589 (“HB 589”). This bill directs PUCO to promulgate a regulatory structure for the content of bills, billing fee types and amounts, penalties for noncompliance, and the content of bills sent to residents. HB 589 limits the amount that a landlord can recover to the “prevailing residential cost” and prohibit any “marking up” of rates used by residents. HB 589 prohibits landlords from charging residents for any common area utility usage separately from rent. Further, the bill would prohibit the use of allocated methodologies.

The majority of landlords in Ohio operate billing programs that only allocate utility expenses. SB 348 seeks to expand this practice and codify the ability to mark-up rates to residents. HB 589 seeks to end the marking-up practice and severely restrict landlords’ recovery for utility expenses. The utility billing industry believes that there are fertile middle grounds between these two pieces of legislation and have been working with OCC to craft compromise language to introduce in 2017 or to modify one of the existing bills in 2017. The legislature is unlikely to act on either of the introduced bills in 2016.

New Jersey
In 2011, the New Jersey Board of Public Utilities (“BPU”) ended its ban on submetering in residential properties in BPU regulated areas for newly constructed properties. BPU and the water utilities it regulates found over the five year period since the ban was lifted that submetering benefits the utilities, the customers, and the State of New Jersey and now seek to expand the ability to submeter to properties constructed prior to 2011. BPU stated its preference for the ability of residents to monitor their consumption and directly modify consumption habits based on price signals.

BPU approached the New Jersey Apartment Association (“NJAA”) and asked for information and data on existing properties that installed a submetering system and the conservation benefits that the system produced. BPU plans on performing a rulemaking to allow for the expansion of submetering after review of data and internal discussions. NJAA and utility billing service providers are assisting in the data-gathering and will participate in any rulemaking or legislative process.