Before
The Ohio House of Representatives
Public Utilities Committee
Testimony on Consumer Protections Related to Master-Metering, Submetering and Reselling
of Public Utility Services
House Bills 422, 545, 568, and 662
By
Bruce Weston
Ohio Consumers’ Counsel
Office of the Ohio Consumers’ Counsel
December 2, 2014
Chairman Stautberg, Vice Chair Roegner, Ranking Member Williams, and members of the House Public Utilities Committee, I am Bruce Weston, the Ohio Consumers’ Counsel. Thank you for this opportunity to testify with recommendations for consumer protection. The Office of the Ohio Consumers’ Counsel is the state advocate for Ohioans regarding their residential electric, natural gas, telephone, and water services.
Our work on these issues includes my testimony on House Bill 483 in April of this year, when Representative Duffey proposed an amendment to bring balance between resellers of utility services and their consumers who were lacking needed protections. He and others saw that protection is needed for consumers who, in this niche market, lack the benefit of regulation or market forces that the General Assembly instituted for other utility consumers. I stand ready to assist the General Assembly with bringing the balance of consumer protections to the reselling of utility services. There are four House Bills on the subject of master-metering, submetering, and reselling of public utility services. Those are House Bills 422, 545, 568, and 662.
My testimony will first cover some background on this niche in the market that has resulted in a need for consumer protection. I then will describe principles for consumer protection that should apply to legislation on this issue. Finally, I will discuss the pending bills in the context of the principles. By way of background, in many of Ohio’s apartments, condominiums, manufactured homes and other housing communities, the public utilities do not directly meter and bill individual residents for the utility services that they use. Instead, the utility services are provided through a master meter that registers combined usage for an entire building or property and is billed to the landlord. Ohioans in this situation do not have the protections of PUCO oversight and/or market forces that the General Assembly provided to customers of utilities under Ohio Revised Code Title 49. Providers of resold utility services are operating in this niche market that Ohioans enter for their housing needs. In many instances, a landlord, park operator, or condominium owners association simply passes along the actual cost of utility service to residents without any markup. Or these entities include the projected utility service costs as part of the residents’ rent. But in other situations, these entities resell the public utility service to tenants and residents. The problem for consumers is that this resale of utility service can result in higher, or much higher, bills than what customers would otherwise pay if those customers were billed directly by the utility (or other provider).
This consumer problem was highlighted last fall in newspaper articles. (The articles are attached to this testimony.) It was reported in those news articles that reselling has inflated customers’ utility bills through added fees and charges by as much as 40 percent in some cases.
Representative Duffey commented on this reselling situation in his sponsor testimony for H.B. 662 (with Representative McGregor) before this Committee on November 19, 2014. He stated that “In comparison with other states, Ohio appears to be in the minority that do not offer consumer protections similar to the protections that exist with incumbent utilities.”
What follows are the major principles that I recommend as guidance for legislation to solve this consumer problem. For purposes of brevity, there are other lesser protections that I will not address here.
First, there should be price protections for the customers of resold utility services. These customers should receive protections similar to the General Assembly’s protections for customers of public utility services. The best consumer protection would be a two-pronged price cap approach. One cap would prevent a third-party reseller from charging more than the actual cost that it is paying for the utility service. And the second cap would prevent a reseller from charging more than the price that other residential customers in the same service area are paying for public utility service, such as the utility’s standard service offer or a municipality’s price for service.
Second, there should not be exceptions or loopholes to the consumer price protections. Legislators should not allow perpetuation of the niche that has resulted in the higher charges to consumers. For example, the Committee should reject proposals to allow exceptions to consumer protections for such circumstances as a reseller acquiring its commodity using long-term contracts, a reseller’s use of fixed-prices to sell the commodities to consumers, a reseller’s use of contracts with consumers, and a reseller’s mere disclosure of its rates no matter how high.
Third, these price protections and other consumer protections should apply to all utility commodities. These services include electric, gas and water.
Fourth, public utility services related to common areas and commonly used equipment should not be separately charged to consumers. Individual consumers do not control the use of utility services for common areas. Such charges should be limited to actual costs and included among other costs in the rent.
Fifth, legislation that offers protections for consumers of resold public utility services should have “teeth” for enforcement. Consumers should have the right to file civil actions in their local county and municipal courts, such as in small claims court, for damages and penalties. One point is that violations of the law should cost a violator more than what it might consider as a mere cost of doing business.
Sixth, legislation should expressly not preempt other laws or regulations that provide additional consumer protections. State laws, local ordinances, PUCO regulations or other governmental actions that provide consumer protections for resold services should remain.
Seventh, resellers should provide consumers with disclosures about the resale of public utility services. Those disclosures should be made to consumers before they enter agreements that allow for reselling utility services. But disclosure is not a substitute for price caps and other consumer protections.
Next, I will discuss some elements of the bills that are pending to address this reselling issue. I thank the Representatives who have been working to find a solution to these consumer protection issues. H.B. 422 (Lines 74-81) and H.B. 568 (57-64) would limit charges to the actual cost of the services that the landlord paid for the utility services. Those bills would provide a significant protection for consumers, consistent with the first principle I recommended for consumer protection. H.B. 568 would allow consumers to be subjected to charges for an administrative fee, to be set by the PUCO (Lines 62-71). The charge for such a fee could be problematic, but the bill’s use of regulation of the price of the fee is some protection for consumers.
H.B. 662 has the two-pronged price cap protection that I recommended earlier, set forth on lines 152- 164. This protection is limited, however, to resold services that are not measured by a submeter. H.B. 662 lacks the consumer protection of a two-pronged price cap for submetered services. The pricing arrangement, where there is no submeter, is commonly known as a Ratio Utility Billing System (RUBS). Under the RUBS method the actual utility bill for the property is distributed to each resident based on a formula that can include number of occupants, square footage, etc. H.B. 545 and H.B. 662 do not provide consumers with price protections on the resale of public utility services if the master-meter is served by municipal authorities or cooperatives (HB 545 Lines 47-48, HB 662 Lines 51-52). This exception for consumer price protection should be removed, so that Ohioans have price protection wherever they may reside.
H.B. 545 would allow an exception to price protection, if the consumer enters into a contract for a specifically stated price when the reseller uses distributed generation, renewable energy, or alternative energy (Lines 86-99). H.B. 545 could be significantly improved for consumers by eliminating this exception. The exception is not consistent with my second principle (i.e., no loopholes). Similarly, HB 662 (Lines 177-187) could be improved by eliminating an exception for a reseller’s long-term contracts with a supplier.
My third recommended principle, as stated, is to provide consumer protections for resold services, regardless of commodity type. HB 545 does not (but should) provide price protections for consumers who purchase resold water. We understand that water is the commodity that is the most resold utility service to consumers.
The fourth principle I recommended is to prevent charging consumers for the costs related to common areas that consumers do not control. However, H.B. 545 (Lines110-123) and H.B. 662 (Lines 256-269) do permit landlords, park operators, condominium associations and third party resellers to levy additional charges to consumers for common areas and commonly used equipment. In this regard, H.B. 662 (Lines 270-276) does provide consumer protection where customers may not be charged more than the price cap, including any administrative or late fees and charges for common areas.
HB 422 (Lines 98-114) and HB 662 (Lines 298-313) would make the law enforceable by Ohio consumers. That is consistent with my fifth recommended principle to make the consumer protection law enforceable.
The sixth principle I recommended is for the new law to not interfere with any other consumer protection laws, regulations or ordinances. H.B. 662 has some language (Lines 295-297) to accomplish this principle, which should be broadened. For example, the PUCO, under its authority, has approved tariffs that prevent the resale of natural gas services. Those decisions and the PUCO’s authority for such decisions should remain undisturbed by a new law.
Finally, as stated above, my seventh recommended principle is for disclosure to consumers. Disclosure is an important consumer protection. Many consumers may not be aware when signing a lease for housing that they will be purchasing resold public utility services. Some of the bills contain significant disclosure requirements. But I emphasize that disclosure alone will not adequately protect consumers. Therefore, the key consumer protections include those already described, including the price protections.
In conclusion, I stand ready to work with you and your colleagues to protect consumers on these issues. House Bills 422, 568 and 662 all contain conceptual approaches that, with tweaking, I could support as a solution for consumer protection. Protection is needed for consumers who, in this niche market, lack the benefit of regulation or market forces that the General Assembly instituted for other utility consumers. Thank you again.