News: CJ Exclusives

Regulations Push Up Rent, Waste

Apartment owners seek relief on rules governing water service to tenants

Clarke Martin is keeping his fingers crossed that the Apartment Association of North Carolina can convince the General Assembly that consumers and environmentalists will both benefit from proposed legislation to change the rules covering how apartment owners monitor and bill their tenants for water, and to cut industry regulation by the North Carolina Utilities Commission. Martin, executive director of the Triad Apartment Association, believes the reforms will pay off in less water consumption, government intrusion, and business costs, which over time, will lead to lower rent.

He may have reason to be hopeful about the legislation. Last year, with help from North Carolina’s congressional delegation, the AANC successfully pushed for a change in U.S. Environmental Protection Agency policy that removed onerous federal rules from the owners.

“We were the straw on the camel’s back,” Martin said of the December 2003 revision in EPA policy he said was fueled by a letter to EPA from the state’s delegation after AANC asked for help during its March 2003 trip to Capitol Hill. The change acknowledged what Martin and his colleagues considered obvious: that apartment owners who install individual water meters to measure each apartment’s water use and then bill accordingly, should not be subject to costly, time-consuming requirements of the Safe Drinking Water Act, like true water utilities are.

Apartment owners selling water?

Before the change, submetering, as it’s known, triggered an EPA definition that the owner was reselling water. Thus, EPA determined, the owner was acting as a water utility and must monitor and test for bacteria and other harmful agents as required by the SDWA.

“They (EPA regulators) were treating them just like they were sucking water from the river,” Martin said, shaking his head in disbelief. That meant, among other things, that owners who submetered were forced to hire Certified Distribution Operators to conduct water inspections, get samples to a lab, and file reports. At the same time, the water utility providing water to the apartment building was doing the same thing.

“Technically, they (CDOs) made sure the distribution system operated correctly,” said Scott Wilkerson, president of BNP Residential Properties, which owns apartment communities in North Carolina and began submetering in the late 1990s. “But we don’t have one,” he said. Regardless, when BNP couldn’t find a CDO to the job, it sent some of its employees to certification school to comply with EPA policy.

The AANC has been working for years to address these issues, but with December’s EPA victory in hand, the organization has refocused its efforts on the General Assembly to change state laws to reflect the EPA definition change, end NCUC regulation, and encourage water conservation.

Rep. Pryor Gibson, D-Troy, said he thinks submetering is key to saving water. He sponsored House Bill 1582, which addresses the industry’s issues. “It’s the rental car mentality — if it’s not mine, I’ll use it” Gibson said of attitudes about careless water usage. A companion Senate bill, S1221, was introduced by Sen. Daniel Clodfelter, D-Charlotte.

Before the mid-1990s, most apartment owners included water in the rent, providing no financial incentive for tenants to be careful about how much they used. But in 1996, North Carolina followed a nationwide trend toward submetering and separated rent from water costs, said Andy Lee, director of the Public Staff’s Water Division for the Utilities Commission. That created a direct link between a renter’s water consumption and the resulting water bill, and provided a reason to conserve.

What was viewed as an environmental step forward proved to be a regulatory step backward for owners who submetered. They were snagged by EPA’s definition of reselling water. Not only did they become subject to the SWDA, the state’s Utilities Commission entered the picture to oversee rates for owners who were deemed public utilities.

About 240 companies and 300 apartment complexes in the state are subject to NCUC regulation of their water rates, Lee said. This is despite the fact that owners are prohibited from marking up water from the price the real utility charges for it. “All we’re doing is a straight pass-through of the cost — no profit,” Wilkerson said.

The owners are, however, allowed to charge tenants $3.75 per month to cover administrative costs of submetering. Wilkerson said owners pay the master water bill and most use the fees to hire a company to collect water charges from tenants. When that’s completed each month, the rebilling firm pays the owner back with the tenant payments that were collected individually. He maintained the owner’s costs often exceed the allowed fee.

Lee supports water conservation, but the NCUC has concerns about apartment industry requests to use something commonly called the “hot water-cold water” billing method. As Wilkerson described it, this involves a base billing on the use of hot or cold water, and then an extrapolation to determine usage of the other. For example, he said, “if you use 1 percent of hot or cold, they assume you use 1 percent of the other.” That’s not precise enough for Lee. “It’s inequitable,” he said, arguing there is no correlation between the amount of hot and cold water used.

Wilkerson countered that “total capture” is best, but that 28 percent of existing apartments in North Carolina are built in a way that doesn’t allow water to be measured in each apartment. “It is clearly not the preferred method, but it’s better than not doing anything on the 28 percent,” Wilkerson said.

Problems with the EPA

Issues over regulation and billing have been ongoing for years. The apartment industry tried several times to reach consensus with the General Assembly and EPA on the difference between “reselling” and “allocating” water. The legislature was agreeable, according to AANC members, but EPA refused to relent on its definition of a water utility. It wasn’t only the owners who were frustrated. So was a key representative from the N.C. Department of Environment and Natural Resources. “It’s such a long and complicated road to get to where we are today,” said Jessica Miles, chief of the Public Water Supply Section in DENR’s Division of Environmental Health. “We had a disconnect for a couple years with EPA.”

That is, until last December. The EPA’s policy change was welcome regulatory relief to Susan Passmore of Blue Ridge Property Management, which owns and manages nine North Carolina communities with more than 2,800 apartments. Now she’s eager for state-level changes. Passmore sees no reason for the Utilities Commission to continue having jurisdiction over owners who submeter since the owners are no longer considered water utilities. The proposed legislation would remove NCUC from the equation and transfer water submetering to the state’s Landlord Tenant Law, a change Passmore characterized as better for owners and residents.

“We believe that transferring this jurisdiction will be less confusing for both parties because all the remedies and protection will fall under one set of codes,” she wrote in a response to CJ’s inquiry.

Making things easier for all stakeholders is on Gibson’s mind as well. “We’re trying to work it out in a feasible way,” he said of the legislation. “At the end of the day, common sense is going to win.”

Martinez is an associate editor at Carolina Journal.