I have a large industrial building with a handful of different tenants. The building only has one incoming power meter from the utility, and then there are individual submeters for each tenant. As a result of this, the single power bill I get is very large, and I get cheaper power because we are on an industrial rate schedule. The average small power consumer pays 11 cents per kilowatt in my area, but I only pay about 7.5 cents per kilowatt in bulk. I charge the tenants what the power company would charge them based on their own usage. This results in me earning a few hundred bucks each month when I pay the electric bill. I'm also taking the risk that if a tenant does not pay, I still have to pay the electric company. (and I have been left with a big bill before) I'm curious if anybody does anything like this in a residential setting? I am interested in buying an apartment building, and I'm thinking the same method should work there. In my industrial building the only utility is power, no gas or water (on a well), but I'm looking at an apartment building with 7 gas, power, and water meters. I could potentially submeter all 3 utilities. I've never owned or lived in an apartment before. How is power billing usually taken care of? Is it most common for each unit just to have it's own meter and pay the utility directly?

I assume it's industrial commercial, no apartments. But it's the same if you had residential units too. Guess what, you charging more than the actual cost of utilities just put you in the utility services business, you are a utility provider, you have no idea of the federal and state regulations you just got involved in, besides being an unregulated utility provider! I suggest you divide the usage as to the actual use and charge no more than the actual cost at your rate, commercial tenants are business people, not uninformed residential tenants, if they wanted to they could nail you as a utility provider and compliance requirements for providing services. You really don't want to be a utility provider for a few cents on a KW! Don't believe me, call your utility commission and see what they say! Good luck :)

A private utility company is a company that provides any everyday necessity of power or water for profit. Over the years i'm aware of two cases that were in the news where a developer and a landlord were found to be a utility provider and were fined for being 1. unregistered and 2. out of compliance in the delivery of utilities. My post above is based on this experience. The key is charging a user an additional fee above the cost of the utility source to profit, you are then selling a utility. There are no issues of passing on actual costs to a consumer. I would never get legal advice from a utility company unless the person I was speaking to was an attorney specializing in utility law. Doesn't matter what their job title is, Mary Lou may be compliant in her job as her company runs a utility but she probably isn't familiar with all the federal and state laws of a different operation or an unregulated utility provider. With respect to state law and exclusions for properties built prior to 1977, might be related to the federal PURPA which was passed in 1978, and the exceptions mentioned above do not address charging an additional fee over the actual cost of the service provided. When you think about it, federal law covers about everything we do at some point, from breathing air, what we eat, where you can be, what you put in a toilet and what you may say, everything in commerce is regulated, even your personal ability to contract, so to say there is no federal law concerning something is most likely an uninformed statement, remember too that state powers are granted at the federal level. As massive as the power industry is and the regulatory world around it, I can't imagine being able to go into the business of providing utility services for a profit and not be regulated at all. My experience also tells me that the public or a consumer in utilities is not defined by being a residential or industrial matter, I do know PURPA touches on residential services but it also includes any consumer. Utility law is outside my area of expertise, but I do understand what being in the business of doing something is, I do know that brokering utility serves is a regulated activity, providing utility services for a profit puts you in the shoes of a utility provider, regardless of the scale of your business may be. Bottom line, might ask your attorney, I suggest that no one gets the idea of reselling utilities for a profit off of forums based on someone doing so or their idea of what laws may be applicable. :)

In NC, water is a little different than electric and gas. I'll stick to electric and gas for the moment. The key statute in NC for electric and gas is Master Electrical and Natural Gas Meters Prohibited. Anything residential built after 1977 needs to be metered individually. I have managed over 20 residential properties over the past 15 years in NC where the tenant and landlord have agreed in the lease that the cost of the electric service shall be included in the rental payments and the service shall be in the name of the landlord. Note that the above sentence is the exemption clause in NCGS 143-151.42(b)(2) from the link above. I have been in two separate eviction court cases related to the above, where a tenant challenged the landlord charges for electric service. In both cases, the electric service was added to the judgement. In neither case did the judge ask about rating or rated services, but only (paraphrased) asked 'what is the cost of the electric?' From these cases, and from the letter of the statute, I would be leery of rating electric service unless the rating is explicitly spelled out in the lease. But that's me. Our expense is pass-through and is truely a convenience to our customer and not a revenue source. All our properties follow NCGS 143-151.42(b)(2) and were built after 1977. Master Water service, on the other hand, is frequently sub-metered in NC with multiple implementation methods that are regulated. If you are rating service, then as @Bill Gulley points out the NC Utilities Commission rules on Provision of Water and Sewer Service by Landlords will apply. Likewise, well services for >5 residential units/properties will have water quality regulations and, I believe, will require you to register with NCUC and follow their utility rules. (We have multiple properties on wells, but we are clearly NCUC exempt because these are for individual houses.) I am familiar with some greater Raleigh water residential submetering projects. The implementations I've seen use a third party ECP and billing partner with tenant chargebacks through a simple lease line-item. These implementations follow NCUC requirements and are pass-through (rates equal the cost of purchased water per NCUC R18-6) with a regulated service charge. Hope that helps. Sources:http://www.ncleg.net/EnactedLegislation/Statutes/HTML/BySection/Chapter_143/GS_143-151.42.htmlhttp://www.ncuc.net/ncrules/Chapter18.pdf

I've found it best to increase rent and include utilities. It also an easy way to insure that the utilities are actually being paid. I've sold occupied properties only to find out the electric bill is 6 months past due. I like maintaining control.

Originally posted by @Joe Splitrock: It's funny how people can be so sure without actually knowing the law. You are totally incorrect. It is very normal for landlords to separately bill for power in the exact amount that was billed to them. This is specifically NOT illegal in probably every state. Residential units go by state by state laws, there are no federal laws regarding this. Industrial units, like the ones I already have, are not regulated by these laws - there are no landlord/tenant laws regarding commercial units in my state. It is governed by contract law. (as I said, I consulted with the local power company before doing this) I am not yet an expert on the laws of North Carolina, but it does appear that the specific law there is written to exclude properties built before 1977, which is what I am looking at. You are NOT a utility if you are selling power on property which you exclusively own.

I was incorrect to say it is illegal to rebill power in all cases. What I was trying to say is that you become a utility provider and have to follow strict regulations that most landlords would not want to deal with. I suspect most landlords billing power don't comply with the rules due to lack of understanding. That is kind of surprising because the information is readily available with simple searching on the internet. I attached a link talking about common myths landlords in NC have, specifically talking about misconceptions around the statute you referenced. Read the whole article, but one point it makes on the top of the second page is that a landlord charging for electric or gas meets the requirements of being a utility. The source of that article is law firm in North Carolina. I see a specific concern if you have a master meter and you are splitting it between residential tenants without sub-metering. For example lets say you own a duplex. You get a gas bill in March of $186.24 and you then bill each tenant $93.12. You basically have determined without metering that each tenant used half the gas. This removes incentives for either tenant to reduce usage and ultimately you over-billed one of the tenants. Either tenant could argue they didn't use that much gas. Here is a direct quote from one of the links which is an open letter to apartment owners from the North Carolina Public Utilities Commission: "The purpose of this advice is simply to provide guidance for residential apartment owners on how to avoid violation of utility law in North Carolina. Utility regulation may allow master metering or resale of utility service to tenants in other states. However, in North Carolina residential apartment landlords are prohibited from using master meters or reselling utility service based on tenant usage, with limited exceptions." Here is another direct quote from a linked document from NCUC which states the landlord is a provider and it goes on to say they are a public utility: "Every provider is a public utility as defined by G.S. 62-3(23)a.1. and shall comply with, and shall be subject to all applicable provisions of the Public Utilities Act and all applicable rules and regulations of the Commission, except as hereinafter provided.detailing provider billing requirements of a landlord. " It would be easy to take one of my comments out of context and state that I am wrong. Ultimately utility billing is highly regulated and can be illegal in certain cases, even in NC. I encourage everyone to do your own research on any topic found on BiggerPockets. You will find even within the law there are different interpretations. I would avoid the assumption that because someone has been doing something for years that it is legal. People do illegal things all the time and never get caught. I would highly recommend separate meters in most cases and let the tenants connect directly to the utility. Exceptions may be gas for a central boiler or water bills. In those cases you should include the service in the rent as fixed and not bill separately. Here are the links. The first is from the NC PUC, second is law firm and third is from NCUC: http://www.aanconline.org/pdf/landlords%20and%20ut... http://c.ymcdn.com/sites/www.triangleaptassn.org/r... http://www.ncuc.commerce.state.nc.us/ncrules/Chapt...

@Joe Splitrocksee my post above and NCGS 143-151.42(b)(2) and Ryan R.response regarding electric services. For water, sub-metered service providers can charge based on Rule R18-6 from NCUC. See my post above. From NCUC: "The rates shall equal the cost of purchased water or sewer service (The usage rate charged by the provider shall equal the usage rate charged by the supplier.). A Commission-approved administrative fee not to exceed $3.75 may be added to the cost of purchased water and sewer service to compensate the provider for meter reading, billing, and collection." Emphasis mine. Like I pointed out in prior posts, Sage Water and other sub-metering ECP contractors will do the build-out, then generally charge in the $3 range per month for O&M service. Many apartment complexes in Raleigh have done this.

Does anybody add utility charges?

Account Closed

OP

Investor · Henderson, NC · Member since 2016 · 484 posts · 208 votes

10y

Did you miss the part where that does not apply to buildings built before 1977? How many times do I have to say this?

And yet again I point out, individual meters are not required under the law in pre 1977 buildings. That makes it impossible to bill "actual" usage. You cannot find "actual" usage with a math formula. The best you could ever hope for is a close guess.

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Account Closed

OP

Investor · Henderson, NC · Member since 2016 · 484 posts · 208 votes

10y

Originally posted by @Wade Sikkink:

We have this situation in our building. First of all, the building is served by propane for heat and hot water. No meters of any kind for the propane. There is a 2000 gallon tank on the property that serves the building. We get the bill from the propane company when the tank is filled. The previous owner set up a system of charging a flat rate to each apartment each month for the propane service. Conceptually it's like being put on a budget system by the gas company. And legally it's considered part of their rent since the amount is fixed and disclosed upfront.

Second, we have individual electric meters in the building, but the city won't read them. There is one meter on the outside of the building that they read every month and send us the bill (along with water and sewer). There are 15 meters in the basement (14 apartments and one for the house). I read those meters every month on the same day that our outside meter gets read. I then produce a utility statement for each tenant that has their propane budget amount and their electric meter reading amount. The previous owner had a formula he used to calculate the electric usage amount for each apartment based on their meter reading.

I had this same concern about being considered a "utility provider" so I met with my attorney to discuss it and get his opinion if doing this is okay. By the way, whether or not you make a profit is immaterial. You can be "in the business" if you make a profit or not, so that argument above doesn't matter. If it's okay to resell something at a loss, then it's also okay to resell it at a profit.

In my state, this issue is not addressed in landlord-tenant law. There is no prohibition against re-selling any services other than sewer. It specifically says you cannot re-bill sewer services, because they are never metered. There are also a bunch of rules around water services because as everyone knows they are frequently a subject of dispute between landlords and tenants. However, nothing regarding gas or electric service.

In Nebraska, municipalities often run their own electric utility services, and as such have pretty much complete authority to set the rules of how utilities operate within their jurisdiction. Since the city refuses to read the meters inside my building, they are thereby granting me approval to read the meters and bill the tenants. The one rule they have to follow is that they have to provide service in the city and the rates have to be "reasonable" I also have to do those two things. I have to provide service (duh, that's what landlords have to do anyway) and I have to charge a reasonable rate. This is also no different than apartment complexes making deals with cable TV companies to provide service to the building and then re-selling that service to the tenants either at a profit or a loss. Cable TV is also a regulated industry.

Bottom line is that just like everything else in real estate, local laws vary considerably. Utilities are very local and all the rules are set locally. Check with your attorney to find out what's legal in your area and be wary of people on message boards spewing about how something is absolutely this or definitely that.

I appreciate the actual experienced advice. More proof that there is in fact no federal laws regarding this.

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Joe SplitrockPro Member

Moderator

Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes

10y

Originally posted by @Account Closed:

Did you miss the part where that does not apply to buildings built before 1977? How many times do I have to say this?

And yet again I point out, individual meters are not required under the law in pre 1977 buildings. That makes it impossible to bill "actual" usage. You cannot find "actual" usage with a math formula. The best you could ever hope for is a close guess.

Hey Ryan, You seem really worked up over this. You went to effort to sign up on BiggerPockets to talk about this issue and you phrased your question like you wanted input from others. You are really closed to other ideas that don't support your own view, so why are you here? I read the link you provided and it says that INDIVIDUAL meters are not required for buildings prior to 1977. We agree on that. You read that to mean you can bill people however you want if the building is older than 1977 and I don't see that. My point is you cannot find actual usage and you cannot make a close guess. We will agree to disagree. I cannot make you read the links I sent you, but one link is from the NC state PUC and the other is the state electrical provider. I am sure you would acknowledge those sources are more reliable than me. The links are there to help you. There is really nothing else I can say. Good luck and welcome to BP!

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Chris Martin

Investor · Willow Spring, NC · Member since 2009 · 5k+ posts · 3k+ votes

10y

Can't we all just get along? ;)

Going back to the original post, I think the answer to the question "I'm curious if anybody does anything like this in a residential setting?" is 'No'. This would be a question for NCUC or someone authoritative to answer definitively, but given what I've seen I'd stand by my prior post that "I would be leery of rating electric service unless the rating is explicitly spelled out in the lease." If you charge what you paid (same rate as your costs) I think you would fit within statutory and utility commission guidelines. My opinion only. My opinion is based on two cases before an NC judge where a tenant contested landlord-paid utility charges, per my earlier post. But my case was residential and not master metered.

Joe, you are a sharp guy. And I appreciate your posts. That's the great thing about BP... lots of sharp people can have an intelligent conversation. The links to NCUC and state law are the best references, IMO. In two of your three references, specifically the "second law firm" reference and Apartment Association of North Carolina links, I couldn't imagine why they didn't reference NCGS 143-151.42(b)(2) which is the exemption I've referenced a few times. The reason is these references are outdated. The current law in NC, which was amended by NC SB545 signed by our Republican NC Gov. McCrory, is below:

I'm not sayng that the AANC or attorney advice is wrong, quite the contrary. It is just outdated relative to NC statutes.

This post is for entertainment: Not to be construed as legal advice.

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Brent Coombs

Investor · Cleveland, OH · Member since 2015 · 6k+ posts · 2k+ votes

10y

Tenants beware! If @Account Closedever becomes your landlord in a separately metered apartment, DEMAND that your lease require YOU to directly pay utilities to the provider!

(I never thought Tenants should prefer that, but now)...

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April Smith

Greensboro, NC · Member since 2016 · 18 posts · 0 votes

10y

WOW! thanks for the info Brent

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Does anybody add utility charges?

Does anybody add utility charges?

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