Dispatch series | Day 1 of 3

Shocking cost investigation: Utility middle men charge renters inflated prices

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  • JABIN BOTSFORD | DISPATCH
    At the Enclave at Albany Park, renter Rachelle Sexton pays 30 percent more for electricity than the regulated price.
  • JABIN BOTSFORD | DISPATCH
    Lindsay Wilmes and her boyfriend, Dustin Flowers, talk with neighbors about bills at Northpark apartments in Columbus.

Consumer protection for utility customers sometimes stops at the apartment door in Ohio.

Unlike most states, Ohio allows unregulated, third-party “submeter” companies to make big profits by reselling electricity and water to residents of apartments and condominiums.

“They pretty much told me that I don’t have a choice and this is how it is,” said Rachelle Sexton, who rents at the Enclave at Albany Park in Westerville.

Her August bill was $176.24, which was 30 percent more than she would have paid for the same usage at regulated prices.

A 10-month investigation by The Dispatch found that residents pay markups of 5 percent to 40 percent when their landlords enter into contracts with certain submeter companies. If the customer fails to pay, the companies sometimes resort to collection tactics that would be illegal for regulated utilities, including shutting off heat in winter and even eviction.

The problems stem from an absence of regulation, a blind spot in Ohio law that affects an estimated 18,000 to 20,000 housing units in the Columbus area, and that has the potential to affect any of about 3 million Ohioans who live in apartments or condominiums.

“What it gets down to is the individual consumer,” said Ohio Attorney General Mike DeWine in response to the Dispatch findings. “We made a public-policy decision years ago in this state that we were going to put in place certain protections for the individual utility consumer.

“It seems to be a problem when you have a small minority of consumers who do not have those protections. That, to me, would raise a lot of questions.”

Yet no state agency has the authority to respond. That would require action by the Ohio legislature, DeWine said.

Here’s how it works: A submeter company buys the utility meters and distribution system within an apartment complex. It then buys electricity or water, or both, from utilities and sells them to tenants, often at inflated prices and with fees.

In some cases, the submeter companies are owned by principal owners of the apartment complexes. And the submeter companies have names that sound like big, well-known businesses — names such as Nationwide Energy Partners and American Power & Light.

Complaints and questions about these companies are on the rise, with 5,137 inquiries to the Central Ohio Better Business Bureau about submeter companies since October 2012, up 33 percent from the year before.

The most-common complaints are about high bills and unresponsive customer service, said Joan Coughlin, a vice president in the office. “We had consumers state that they moved from a larger residence to a smaller apartment and had their utility costs increase,” she said.

And, when a building is served by a submeter company, tenants are not eligible for money-saving programs available to most Ohioans. This includes the “choice” program, which allows customers to select a utility provider from among several. Instead, the submeter company is the only option.

Submeter customers also are ineligible for PIPP Plus, a federally funded subsidy for low-income residents available to anyone served by a state-regulated utility. The program served 41,160 households in Franklin County last year.

“We’re being victimized,” said Dustin Flowers, who rents at Northpark on the Far North Side. His most-recent bill was 23 percent more than it would have been at the regulated price.

He said high bills have thrown off his budget and forced him to cut back on spending in other areas. “I’ve lost sleep over this.”

In many other states, this type of utility resale is banned by law or rule. That leaves just a few other states where it is allowed: Alabama, Georgia, Kansas, Pennsylvania, South Carolina, Utah and Washington.

What those states do not have is evidence that companies are using gaps in the system on a large scale. In this way, Ohio is unique, with companies whose business models depend on the lack of rules.

“Allowing markups for submetering is just bad policy,” said Janine Migden-Ostrander, the former Ohio Consumers’ Counsel who is now a principal at the Regulatory Assistance Project, a national nonprofit group that advises regulators on utility policy. “They aren’t providing the customer with any real service that they wouldn’t otherwise get from the utility company. There is no value added for the customer.”

Made in central Ohio

The Dispatch investigation focuses on two central Ohio companies: American Power & Light and Nationwide Energy Partners. They sell services to property owners, read meters and handle billing and collections.

By acting as intermediary between utility and resident, the businesses perform functions of a utility without regulation.

Both companies have close ties to large apartment owners in the region, serving their tenants and others. American Power is part of a group that includes Ardent Property Management, and Nationwide Energy was founded by the chief executive of Lifestyle Communities.

While there are many similarities, the companies have some big differences. Nationwide Energy provides a detailed explanation of its fees, and it has a call center to respond to customers. It also works to resolve complaints and help those unable to pay, customers said.

In contrast, American Power is less responsive to customers and consumer groups, and it is more aggressive in collections. It gets a grade of D from the Better Business Bureau, compared with a B- for Nationwide Energy.

“We are moving toward complete transparency with the residents and the developers,” said Mike Palackdharry, Nationwide Energy’s president, interviewed at the company’s Arena District offices.

He said his company delivers value that justifies the costs, including the convenience of a combined bill for water and power, and helping consumers reduce energy use.

“We are trying to do things the right way and to bring a positive impact to our residents,” he said.

When presented with examples of customers paying more than the regulated price, Palackdharry said it was not a fair comparison, because his company’s bills include charges for electricity use in common areas, such as hallways. If the tenants were not served by his company, those costs would lead to higher rents, he said.

After not responding to requests for an interview, Bill Finissi, American Power’s vice president, provided The Dispatch with emailed responses to questions.

“(A)ll tenants enter into agreements with our company with eyes wide open and with full knowledge of the leasing contract provisions,” he said.

“Our costs also include a share of common-area electrical usage, and a charge for submetering and administration,” he said. “This is our business model which prospective tenants have complete freedom to accept or not. By the way, if we didn’t do it this way, these extra costs, which are essential costs of providing apartment housing, would need to be included in the rent.”

Consumer advocates say they would prefer that such charges were included in rent to make it easier for tenants to see the true costs when they shop for housing, as opposed to being surprised by high utility bills.

 

While submetering is legal throughout Ohio, the large majority of consumer complaints are in the Columbus area. Why not in other places? Consumer advocates can only guess. They point to a lack of well-organized tenants’-rights groups and the fact that Nationwide Energy and American Power happen to be based in the area.

Ohio’s unique regulatory structure means that the business model easily could spread across the state. The model also could spread to other states with a similar lack of rules.

“Columbus is absolutely ground zero for these rebilling schemes,” said Spencer Wells, a former tenant-outreach coordinator for the Coalition on Homelessness and Housing in Ohio, an advocacy group.

If residents are late with payments, American Power will sometimes evict them, even if the consumer’s rent is up to date and even though American Power is not the landlord.

“Once you enter this slippery slope, where a third party has the ability to order evictions, that’s shocking,” said Emily Crabtree, a lawyer with Columbus Legal Aid who has defended American Power customers.

American Power initiated 51 eviction cases last year, according to Franklin County Municipal Court records. The company has opened 159 of the cases since 2010. Nationwide Energy opened 278 such cases from 2002 to 2011, but none since.

No connection to AEP

Despite familiar-sounding names, Nationwide Energy and American Power are not affiliated with two of Columbus’ most-prominent companies, Nationwide Insurance and American Electric Power.

Housing-rights advocates say American Power’s name is confusing for tenants who think they are dealing with the local utility, AEP. It’s not as much of an issue for Nationwide Energy because Nationwide Insurance doesn’t sell electricity.

Many of their practices would be illegal if the provider was a state-regulated utility like FirstEnergy or AEP.

In central Ohio, AEP sells electricity to the submetered complexes. The difference is that it sells in bulk to the property owner or submeter company, instead of to the end user.

Although AEP does not directly serve submeter customers, the company still gets calls from confused residents. AEP would prefer it if those customers were hooked up to AEP meters, but the company understands that submeter companies are following Ohio law, said spokeswoman Terri Flora.

“As people make choices to rent in an apartment, they need to be fully aware of what that choice involves,” she said of the possibility of paying higher prices with a submeter company. “It’s a different environment than consumers are used to.”

According to AEP, there are about 130 submetered apartment or condominium complexes in central Ohio. When asked to estimate how many units are in the complexes, AEP said it is likely 18,000 to 20,000.

The state regulatory system was developed early in the last century to stop utilities from abusing local monopolies over the meters, wires and other delivery systems. Submeter companies did not exist then.

“As a matter of policy, we want all customers to be treated fairly and equally,” said Todd Snitchler, chairman of the Public Utilities Commission of Ohio, which regulates utilities and is the type of agency that oversees submetering in many states.

While that might be the aim of Ohio’s regulation, his agency lacks jurisdiction over submeter companies. He said that the Ohio General Assembly would need to take action for the PUCO to assert authority.

“That’s a policy call for them to make,” he said.

Customer bills tell story

When a customer questions the rates of Nationwide Energy or American Power, the companies reply that the charges are the same as those charged by the local utility. But that’s not accurate, based on a Dispatch analysis of bills from a wide variety of customers.

In each case, the bills are based on the equivalent rates that would be charged by regulated utilities, except with added fees. When you include fees, customers are paying an extra 5 to 40 percent.

At the same time, the bills do not give customers the benefit of bulk-buying discounts and other savings that the submeter companies use to make their wholesale cost much lower than the regulated price.

To illustrate this, The Dispatch looked at a hypothetical 100-unit apartment complex in which each tenant used 750 kilowatt-hours of electricity in a month, which experts say is typical. At AEP’s central Ohio regulated price, each household would get a bill for $113.57, a figure confirmed by the utility.

However, if a submeter company bought the same amount of electricity for all 100 units, it would qualify for a commercial rate and it could also shop for a bulk-buying deal on Ohio’s open market. Based on the commercial prices available in central Ohio, the complex could obtain the power for the equivalent of $70.93 per unit.

By reselling power to the tenant at the full AEP rate of $113.57, the submeter company’s rate is 60 percent higher than its own wholesale power cost. And that doesn’t include a host of submeter fees, which can easily exceed $30 a month.

When presented with this, Palackdharry said the example overstates the potential profit because it does not take into account seasonal factors and other technical issues.

His boss, Nationwide Energy founder and CEO Mike DeAscentis Jr., went into great detail about the business model in a 2010 presentation to investors. “How we make money is we buy power at a commercial rate and we resell it at the residential rate and there is arbitrage in the rate structure,” he said, according to a transcript obtained by The Dispatch.

DeAscentis is also the CEO of Lifestyle Communities, an apartment developer. He is the son of that company’s founder and chairman, Mike DeAscentis Sr. Nationwide Energy provides its services to Lifestyle Communities and other large property managers, such as Crawford Hoying, which is owned by Brent Crawford and former Ohio State football player Bob Hoying.

Property owners are willing to sign these contracts because submeter companies often cover costs of setting up meters. Also, the submeter company will bill customers for electricity and water used in common areas and pass the money to the property owner. A regulated utility will not handle such payments.

“Our philosophy here is we are a real-estate company,” said Dave Carline, president of Crawford Hoying’s apartment division, explaining why his company hired Nationwide Energy. “We really wanted to get out of any energy business. We wanted to allow energy companies to do their own thing and let customers deal directly with them.”

Nationwide Energy began in 1999 by installing its metering systems in newly built apartments. It later expanded to also serve older properties, including some in which tenants previously had individual meters and billing from the utility, and had no choice but to switch to the new provider. The company has about 40 employees.

“NEP is the new utility,” DeAscentis said in the 2010 presentation. “We do everything that a utility does except generate power. NEP builds electrical-distribution systems for residential communities, and we were very deliberate when we started the business 10 years ago to put it in a place where it was not regulated.”

He spoke of plans to expand into Pennsylvania, New York and the Washington, D.C., area. The company is now active in Pennsylvania.

“Our business is very unique,” he said. “As we went across the country and did management presentations of people who see 300 or 400 deals a year in the energy space, no one ever saw a business that had a model like ours and what we were doing.”

American Power was founded in 2003 by developer Donald R. Kenney Sr. It shares office space with many of his other ventures, including Ardent Property Management, Village Communities and Metro Development. His companies have built more than 35,000 apartments or condominium units, according to the Metro website.

Outside the mainstream

There are reasons other companies have not tried this. It is illegal in most states, and established submeter companies say that such a model has a high risk of lawsuits, intervention by regulators and blowback from angry consumers.

The submeter industry has been around for decades and has customers across North America and Europe. Most of these companies make money by selling equipment and services, and they comply with industry standards that say it is unethical to charge a markup on the cost of electricity or water.

“When you start trying to get creative (with pricing), you create problems for the entire industry, and we don’t want that,” said Matt White, president of Meter Technology Works of Tampa, Fla. He sells meters to submeter companies and is past president of the national submeter trade group, the Utility Management and Conservation Association.

The current president, Arthur Blankenship, owner of Argen Billing, an Atlanta-area submeter company, said he is concerned by reports of “rogue companies” in Ohio.

“Our industry doesn’t have anything to hide, and if there are companies out there doing something dubious, that needs to be addressed,” he said.

Neither Nationwide Energy nor American Power is a member of the trade group. But another local submeter company, Guardian Water & Power of Grandview Heights, is a longtime member.

Founded in 1983, Guardian has customers in 30 states. For its Ohio customers, Guardian typically charges about a $3-per-month service fee for each apartment served, which the landlord can pay or pass along to the tenant. The company makes no profit from marking up water or power, and it has never evicted anybody.

Harry Apostolos, Guardian’s co-founder and owner, declined to comment specifically about Nationwide Energy or American Power, which he said are competitors.

In general, he said, some companies have chosen business models that go against industry best practices, and they have “created a black eye for the industry in central Ohio.”

Click here to read more about Guardian Water & Power's business practices

State officials no help

Consumers often do not know what is happening. When they find out, they are shocked that this is legal in Ohio.

“It was inexplicable,” said Gabriel Santiago of Reynoldsburg, a former Nationwide Energy customer who moved out of his apartment this year because of what he saw as excessive electricity charges.

Guy Fulcher, a former American Power customer who now lives in Galena, was fed up with the response when he tried to file a complaint.

“The attorney general back then was Richard Cordray, and his office just rolled over and said, ‘We don’t regulate that,’  ” he said. “They said to go to PUCO. PUCO said, ‘We don’t regulate that.’  ”

Consumer advocates say that these extra charges, and the fact that they are legal in Ohio, should be a source of shame.

They would like to see the Ohio General Assembly or PUCO rein in the most-abusive of the practices. But first, they say, there must be awareness that a problem exists.

dgearino@dispatch.com

@dispatchenergy