Utility Fees Put Renters in Tight Spot

Marjorie Sutherland winced and started worrying when the letter arrived in February from Sage Park Apartments in Anaheim, her home for seven years.

It said that if she renewed her lease, she would have to pay for water, sewer and trash service, fees that used to be included in her monthly rent. Neighbors told her they had received bills of up to $69.

“I can’t afford it,” said Sutherland, a 71-year-old retiree who estimates she has about $5 to spare each month on her $8,400 annual income. “I’m on Social Security. I can barely afford my electric and gas bills, and it’s either pay it or move.”

Soon, utility bills may follow renters wherever they go.

In the last two years, landlords of more than 90,000 apartments in California and 700,000 units nationwide have begun billing separately for water, sewer and trash services once rolled into rent. In California, no standards govern their rates, which are typically based on inexact formulas rather than tenants’ actual usage.

Besides effectively raising rents, the trend has spun off a mini-industry of about a dozen contractors who handle billing for landlords, tacking on their own processing fees. Irvine-based National Water & Power, which bills 330,000 units throughout the nation, is preeminent among them.

NWP and other third-party billers present new headaches for regulators in California and elsewhere.

“The law didn’t anticipate these businesses,” said Daniel Paige, program supervisor for the California Public Utilities Commission’s water division. “The law specifies that anyone furnishing water for compensation is a public utility, but they argue they don’t furnish the water--they just charge for it.”

The utility commission has opened a formal investigation into whether third-party billers can legally impose water and sewer fees and whether such companies should be regulated as utilities. Last month, PUC staff proposed workshops to discuss these issues.

Billers say they welcome the scrutiny.

“We do everything ethically, so we have no problem with there being clarity,” said Michael Weintraub, NWP’s senior vice president of marketing.

California tenants aren’t waiting for the bureaucracy’s wheels to turn.

They have filed more than 230 complaints and petitions about billing services with the utilities commission since the start of 1998. The overwhelming majority come from residents at three Orange County complexes: Oakwood Apartments in Newport Beach, Hidden Hills in Laguna Niguel and Sage Park, all NWP clients.

Some of the gripes reflect simple confusion. With names like California Edison Utilities of San Diego, California Utility Co. and Pacific Power and Water, third-party billers are often mistaken for water providers by tenants.

But other complaints question billers’ right to impose fees at all. And in several cases, tenants say they were billed as much as double what the local water company would have charged for their usage.

“Rents are going up enormously here and this just makes it worse,” said Joe Caux, supervisor of the Fair Housing Council of Orange County’s landlord-tenant division. “It’s basically a double rent increase.”

Most of the nation’s 20.5 million apartments still fold utility fees into rent, but that’s likely to change--fast, landlord groups say.

The issue is Topic A among apartment owners, especially in southern and western states.

“I’m drowning in it, pun intended,” said Barbara Vassallo, director of state and local policy for the National Apartment Assn. “Everybody’s talking about it. Everybody wants to do it.”

Water and sewer services have become an increasingly expensive line-item for landlords because of tougher environmental regulations.

“There have been enormous leaps in water and sewer rates in the last 10 years because of the Clean Water Act,” said Eileen Lee, vice president of environment for the National Multi-Housing Council, a Washington trade group for apartment owners.

Real estate investment trusts, whose shareholders own vast portfolios of apartment complexes, were among the first landlords to make the changeover.

Two of the largest, Equity Residential Properties Trust and United Dominion Realty Trust, are NWP investors, Weintraub said. Each owns less than 10% of the company.

“The REITs were among the first to see this as an opportunity and now smaller owners are doing it,” Weintraub said.

Some landlords do utility billing themselves, spinning off subsidiaries to do the paperwork and to absorb tenants’ beefs. But many say it’s easier to turn over the high-volume, low-dollar work to third-party billers.

“It’s a logistics nightmare,” said Shawn Howie, chief financial officer for Irvine Apartment Communities, Orange County’s biggest landlord. NWP handles trash or water billing for more than 20 Irvine Apartment complexes.

“That isn’t our business--providing quality rentals is. Lots of things are being outsourced these days,” Howie said.

No matter who handles the bills, tenants and housing advocates fear abuses may result because no standards exist for how landlords or their contractors calculate rates.

Since October, Ramesh Patel has been paying utility fees to Pacific Power and Water, the third-party biller hired by his Laguna Hills complex, Alicia Village. The first month he paid $35. Then the charges crept upward to a high of $47.20 in February.

“They have a free hand to bill me whatever they want,” Patel said. “I don’t mind paying legitimate charges, but how can I be sure they’re charging me the right amount?”

That question is at the heart of the CPUC’s investigation, as well as an inquiry by the Orange County district attorney’s office into NWP’s activities that has been shelved until the utility commission makes its ruling.

Most apartment complexes do not have meters that measure water and sewer service in individual units. That means billers assign each tenant a portion of the complex’s total bill based on a somewhat arbitrary formula.

NWP executives say they start with the complex’s total water bill, subtract a portion for services to communal areas, then divvy up the rest between apartments based on their square footage, number of occupants or number of fixtures.

But there is no way for tenants to be sure services for common areas don’t leak into their bills, or to know what the total complex bill was, NWP’s Weintraub acknowledged.

Still, NWP and other third-party billers call tenants’ concerns exaggerated, pointing out that a similar tremor went through rental markets 20 years ago when most landlords stopped building electric bills into rents.

Utility fees average about $20 a month, including the $2 to $5 monthly processing charges that cover billing companies’ costs and provide their profit margin, they say.

Billers and landlords also contend that tenants will use water more sparingly if they pay for it themselves.

“If you pass along the cost, it puts them in charge of that cost,” said Frank Suryan, president of William Lyon Property Management Co., a Newport Beach company that owns 14 complexes in California, Colorado and Florida. “Otherwise there’s no incentive toward conservation.”

Lyon holds a small stake in NWP, which handles billing for its apartments. The year tenants started paying for utilities, they did not get a rent increase, Suryan said.

“Effectively, we traded it off for a year,” he said.

To allocate fees more precisely, many new apartment complexes are being outfitted with submeters that gauge usage in individual apartments.

Several states have stepped in to ensure that tenants are billed fairly.

Texas requires utility billers to use a uniform formula to calculate fees. Virginia, Texas, Oklahoma and Washington do not allow owners or their contractors to charge processing fees; North Carolina caps them at $2 a month.

Some Florida counties forbid owners to make a profit on utilities or to cut off service to residents who don’t pay.

When complaints surfaced in California, the PUC recommended billers charge the same amount for water as the utility supplying it. The agency also warned that any company charging for sewer service is a utility and must be registered.

Enforcing the recommendations has proven sticky.

Late last year, the commission ordered NWP to issue refunds to a San Jose complex, saying the company overcharged residents and needed to register as a utility. NWP refused to comply, challenging the agency’s jurisdiction to regulate third-party billers.

The standoff resulted in the agency’s formal investigation.

The CPUC’s final ruling is scheduled for mid-2000, but agency officials say it may take legislation to clarify what constitutes a utility and where third-party billers fit into the equation.

Tenants wonder if they can afford to wait that long.

“It’s scary,” Sutherland said. “I have no idea what I’m going to do when that first bill comes this month. I just don’t want to be evicted.”