What is submetering?
Most central Ohio residents get their electricity from AEP, a regulated utility. However, some apartment and condominium residents are served by “submeter” companies that act as intermediaries between the utility and the customer. Some submeter companies have a business model based on reselling electricity and water at a markup, a practice that has drawn complaints from consumers and consumer advocates and has been the subject of ongoing reporting by The Dispatch.
Efforts to regulate or change submetering practices are playing out in several venues. Here’s where they stand:
■ Lawsuit in Franklin County Common Pleas Court, case number 16-CV-000143, proposed as a class-action. The case is in the discovery phase.
■ PUCO investigation, case number 15-1594. The commission ruled in June that submeter companies can charge no more than consumers would otherwise pay to the local regulated utility. The ruling is still subject to revision, and several parties have filed testimony for and against the PUCO effort.
■ The Office of the Ohio Consumers’ Counsel has filed a formal complaint with the PUCO, case number 16-0782, asking for changes to submeter rules for consumers who live in AEP territory. The case has no timetable for resolution.
■ State legislation. Rep. Mike Duffey, R-Worthington, and Sen. Kevin Bacon, R-Minerva Park, have separately introduced bills that would regulate certain practices of submeter companies. Several bills proposed in recent years did not have enough support to pass.
■ The Columbus City Council held a hearing this year to hear concerns about submetering and look at the possibility of city regulations. No additional action has occurred, and Mayor Andrew J. Ginther said through a spokeswoman that the General Assembly and PUCO are the proper venues for dealing with the issue. rates, said Joe Maskovyak, fair-housing coordinator for the Coalition on Homelessness and Housing in Ohio.
“The consumer, for one, has to figure out they’re getting screwed,” he said.
Several consumers interviewed for this story say their greatest frustration is that they don’t fully understand what is happening. “I think it would be nice if everything were clear,” said Charlie Michaels, a condominium owner on the Far North Side.
Nationwide Energy and American Power are the two largest companies that use this model of utility markups. The two serve a combined 28,306 households in AEP’s Ohio territory, most of which are in central Ohio, according to AEP. Nationwide Energy, with offices in the Arena District, is the larger of the two, with 17,539 households; American Power, with offices in Westerville, has 10,767 households.
Each company shares ownership with prominent developers of multi-family housing and serves the units developed by the related companies, along with unrelated clients. Nationwide Energy is owned by the people who also own Lifestyle Communities, and American Power is owned by the people who also own Ardent Communities and Village Communities.
Tenants say the connection between the developers and submeter companies is not clearly disclosed.
‘Imitation utilities’
AEP officials say it is inexcusable that the problems with submetering have been widely known for years, yet little substantive action has been taken.
“They skirt the very rules that we as regulated utilities have to play by,” Reitter of AEP Ohio said.
He repeatedly uses the term “imitation utility” to describe companies such as American Power and Nationwide Energy because he thinks “submeter company” is an inaccurate way to describe these businesses.
A traditional submeter business model has been around for decades; under it, companies essentially are a billing service that charges a few dollars for each bill. In contrast, American Power, Nationwide Energy and others rely on markups on the cost of electricity and water.
How much is the markup? The companies won’t say,
but the nonpartisan Ohio Legislative Service Commission analyzed the differences in costs based on publicly available data and found a “bulk savings discount” of 25 percent. This example is based on a hypothetical 350-unit apartment complex in central Ohio.
The commission says it asked Nationwide Energy for information to better illustrate the cost differences, but the company declined to help, other than to provide generalities about its business model that could not be verified.
Gary Morsches, Nationwide Energy’s CEO, says criticism of his company is baseless. He calls out Whitt, the attorney who is working on the proposed class-action lawsuit, and has several complaint cases before the PUCO.
“AEP Ohio and utility advocate Mark Whitt are waging a war to restrict property rights and suppress energy-saving innovations that benefit consumers,” Morsches said in an e-mail. “NEP continues to apply, on behalf of its property-owner customers, the same electricity rate as the local host utility residential rate, and at some communities, the rate applied is less.”
He added, “NEP’s services are a gateway to real energy innovation and efficiency in Ohio. We provide property owners the ability to meter for electricity via a smart meter for each separate unit. This network of smart meters creates a smart-metered microgrid, which provides greater flexibility, access to innovations and control over electricity generation and use.”
Lacking consensus
The Dispatch’s 2013 report mainly looked at how submeter bills compared with regulated prices for households, and it found that consumers were paying 5 percent to 40 percent more for service. The comparison was straightforward, using copies of bills and looking at what the regulated price would be for the same usage.
The bulk-buying discounts spotlighted by the Legislative Service Commission are at the wholesale level and invisible to consumers.
As lawmakers and regulators look at the markups, their focus has been on the simple comparison of customer bills, with almost no scrutiny of the underlying business model.
The PUCO opened its investigation in 2015. The result was the June ruling that submeter companies can charge no more than a customer would pay to the regulated utility, with exceptions. Those exceptions include charges for electricity in common areas such as hallways, and a broader exception that allows occasional price gaps.
Nationwide Energy had phased out its extra charges on bills over the previous few years, so the company did not have to change its practices as a result of the PUCO order.
It was a different story for American Power. Based on dozens of bills reviewed by The Dispatch, customers were paying a monthly fee of $10 to $11 that was listed as “distribution recovery,” plus a separate charge of $6.75 listed as “service charge.” These charges were in addition to a base rate that was the same as the regulated price for a household.
After the PUCO order, American Power immediately halted the two charges. This adds up to an annual savings of about $200 per housing unit for the bills examined. If these bills are representative of the company’s full customer base, the overall savings is $1 million to $2 million.
“We are well aware ... that this is not a full and complete fix of the submetering issue,” PUCO Chairman Asim Haque said in a recent interview. “For a full and complete fix, we would need some guidance from the General Assembly.”
In other words, he thinks the PUCO has done as much as is allowed under state law.
“We tried to take care of, from a policy perspective, the primary issue, which was price gouging,” Haque said.
Duffey, the state legislator, has been one of the harshest critics of the PUCO action, which he describes as “just window-dressing” because it does not address the underlying business model.
He also worries that the General Assembly will ultimately pass something that appears to be consumer-friendly but has the effect of codifying harmful practices. For example, he is leery of any proposal that would include a ban on local governments making their own rules governing submetering.
Brad Miller, a spokesman for House Speaker Cliff Rosenberger, R-Clarksville, had this statement:
“As the debate over submetering in recent years has illustrated, there has not been a consensus opinion on what, if anything, should be done legislatively,” he said. “However, we do recognize the helpful steps that PUCO has taken to establish some standards for the industry, as well as companies like NEP that are changing its business practices to consumers’ benefit at the behest of property owners.”
Two bills on the subject are pending, but there is little evidence that either has a chance of passing.
Meanwhile, the PUCO is still considering whether to revise any aspects of its June decision, which is a normal part of the process on a major case. The commission also is reviewing a complaint case from a consumer advocate, the Office of the Ohio Consumers’ Counsel, that is seeking more protections for submeter customers in AEP territory.
In the background, the proposed class-action lawsuit remains active, with no indication of its likelihood of success.
Taken together, all this means there is a chance that consumers will see changes, but also a strong possibility that nothing will be different at this time next year.