Water Utilities Policy Don't Make Sense for Multifamily

[John Deyrup]

There are three issues around water utilities work that don't make that much sense to me. These issues are likely to get much worse due to the lack of investment of in water infrastructure and climate change in the coming years.

1. Tiered schedules treated differently for apartments vs single family homes

2. Billing being tied to a property

3. Lack of incentives around water conservation/efficiency

Tier Schedule:

Water bills in our area are billed on tiered rates based on usage so that apartments will pay the higher tier rate even though there are multiple families living at the location; e.g.

Pricing:

<= 2000 cf / $6 per 100 cf
> 2000 cf / $9 per 100 cf

Two families in separate houses using 2000 cf/month each

House 1: $120: (6 * 2000 / 100)

House 2: $120: (6 * 2000 / 100)

Total Bill Paid: $240

Two families in a multifamily using 2000 cf/month each, are treated as one billing location for usage rates

Unit 1: $120: (6 * 2000 / 100)

Unit 2: $180: (9 * 2000 / 100)

Total Bill Paid: $300

I am not sure what the policy benefit of charging 50% more for people living in apartments/multifamily is; I would assume that it is cheaper for the city to maintain piping to one location vs two locations. Am I missing something about why families living in the multifamily should pay more?

Bills Being Tied to Property:

Utility bills are not tied to a landlords property for gas and electric. What is it about water bills that requires them to be tied to the property owner?

Issues around conservation/efficiency:

I don't think the incentives work properly for any of the utilities. Landlords should be incentivized to increase unit efficiency and tenants should be incentivized to use less resources. With heat and gas the landlord has almost no incentive to increase the efficiency of the units because the tenant pays for all of the utilities. There is an incentive for the tenant to use less energy, but there is only so much they can do without building improvements. With water the tenant has no incentive to use less water, but the landlord has an incentive to make water usage more efficient.

I am not sure what the right solution; it could be cost sharing in utilities, requiring utility usage to be made public so renters can compare rent + utilities, or some other solution. I don't directly bill my tenants based on water usage, but all of my costs are reflected in the rent so both landlords and tenants pay for this.

CTA: Is anyone interested in forming a group to petition state and local governments about this issue. 

[JD Martin]

I'm going to answer this since I've spent a good part of my life working in public utilities (specifically w&s)

1. You generally get a minimum consumption with that type of billing, so it's apples to apples. Example: fixed rate of $10 for the first 1k gallons, $2/thousand for everything beyond that. If you had 10 units in an apartment building, you should get 10 minimums and then the same overage, so in this case you'd have $100 for the first 10k gallons, $2/beyond. PM me a link to your water utility company and I'll look at their rate structure and explain it to you. If they don't do that, then your argument makes sense because a)the MFH is being penalized because they are not getting credit for residential units, and b)it is generally cheaper for the utility to maintain fewer connections for more people than the other way around. I would trade 100 SFHs for a 100 unit apartment building in my organization all day long. There are exceptions to this - very tall units might require auxiliary pumps or greater storage tank sizes, etc - but in terms of infrastructure in the ground density is cheaper. MFH also tends to use less water per unit than SFH because residents typically do not water gardens, wash cars, or use anywhere near the same amount of water for non-personal use (drinking, bathing, cleaning).

2. In an ideal world, when the utility is a non-profit entity (government or non-profit run), the water charges would be attached to the unit because a)that's where the service was consumed, and b)non-paying customers offload the cost of doing business from the business owner (the landlord) to the public (the utility). Every time someone runs off without paying a bill, the rest of the rate payers have to make up those costs by paying a few cents more in their water rates. That's unfair to those who do pay. Since the utility has no control over who the landlord puts in the unit, why should they have to eat the loss? That said, reality is that many states have allowed RE owners (and that includes me, since I own a bunch of rental properties) to pass that cost on to the public. When I was in Ohio, our utility had virtually no lost revenue, since water bills were tied to the property and anything unpaid simply became a tax lien. That put the landlord responsible for making sure they either paid the water bill themselves, or (what most did) just got a copy of the bill, and booted non-paying tenants or took the unpaid bill out of their deposit. 

3. Utilities are tough when it comes to conservation. Conservation can both be a savings and a loss to the utility; it depends on the nature of the utility and where they are on their sawtooth. What I mean by sawtooth is this: the cost for providing utility services generally resembles a downward-sloped sawtooth. If you had to build a water system to provide 10k gallons per month for one person, and it cost $1 million to operate per month, your costs would be $100/gallon ($1mil/10k gallons). As you added customers, the incremental cost would be relatively small, since some large costs are fixed - laying pipe, buying filter systems, etc - and other incremental costs (more chlorine, for example) are small. So it might be that after awhile, it cost $2 million to operate per month to serve 1000 customers 10 million gallons/month, which puts your cost at $.20/gallon. So you have this downward trend, except that maybe 1000 customers is your limit, and to serve 1001 customers you need a second filter system which costs another $500k/month to operate, so now your cost per month for 1001 customers is $.25/gallon - not as much as when you were serving one person, but more than serving 1000k people. That's your reverse sawtooth.

Now when people conserve utilities the effect depends on where you are. Let's say you're at the top of that sawtooth and you only have 1 customer. If that guy starts saving water, you are really going to be ate up in costs - you need him to use water. On the other hand, if you're at the 1000 customer level, you're maxed out. If 500 of those people start saving half their water, now you can add 250 people to the system for the same costs which improves your profitability. This holds true regardless of the utility. Gas utilities might need to bring on a new pipeline. Electric utilities might need to build a new generation station. Water systems might have to add pumping stations or extend lines. ETC. 

So for your third question there's no real answer. Smart utilities encourage conservation when they are near the bottom of that sawtooth, and encourage more use/more customers/more density if they are near the top.