Industry on trial

How a water leak led to chancery court and the legislature

Email | Print By Bill Carey

The water submetering industry has grown fast in recent years and has produced a Nashville-based company with $4 million in annual revenue. But it is being attacked in court, criticized by the Metro Water Department and hampered by a federal regulation it says is being misinterpreted.

Now, the state legislature may pass a law that could effectively shut it down. Says Water Systems Inc. Vice Chairman Tom Lynch: "I hate to see laws made — they scare the hell out of me." 

There was once a time when Big Brother took care of people who lived in apartments and condominiums. Apartment dwellers paid for everything as a part of their rent, including expenses such as electricity and gas.

The energy crisis changed all that. Starting in the late 1970s, apartments and condominiums began making their tenants pay separate bills for things like electricity, gas and eventually cable.

Water bills took longer. Until just a few years ago, it was very unusual for apartment dwellers to pay separate bills for water because it cost too much money to install separate water meters at apartment complexes. The communal water system required people who conserve water to pay the same water bill as people who waste it.

Everything changed around 1995, with the invention of a device known as "remote meter reading." Remote meters utilize computer technology and radio waves to give an accurate reading of exactly how much water a particular tenant is using.

The submetering industry grew fast in California and moved east. "My company was created as a result of that technology," says Bill Griffin, the president of Santa Ana, Calif.-based National Water and Power, which runs submetering systems at about 1,000 apartment, condominium and mobile home properties in 35 states.

Typically, submetering companies approach apartment complexes with a proposal that goes like this: the complex owner pays the initial cost of installing submeters (about $200 per unit for new apartments, $300 for existing apartments.) The submetering company begins sending each tenant a bill equal to the value of his or her water usage, plus a fee of either $3 or $4 per tenant.

The industry claims that water usage then falls by as much as 39 percent because residents must pay their own monthly bills and become waste-conscious.

In Tennessee, submeters were installed in about 150 apartment complexes, condo developments and mobile home trailer parks. The industry even created new locally-owned companies such as Water Systems Inc., which now runs submetering systems for 42,000 apartment, condo and mobile home units throughout the U.S.

But in recent years, the industry has not grown as fast in Tennessee as it has in other states. One reason for that is a clause in the Safe Drinking Water Act of 1978. According to the way the Atlanta office of the Environmental Protection Agency interprets that act, apartment complexes and condominiums that install submeters are classified as a "Class Two Water District." As such, an apartment complex or condo development that becomes submetered must have its water tested five times a week for chlorine content and once a month for bacteria, steps that the industry says are ridiculous since everyone knows that the water is coming from a water treatment plant anyway.

"The only EPA office in the U.S. that is interpreting the law that way is the one in Atlanta, and frankly, it is wrong," Mr. Griffin says. "This is not the way that the law is being interpreted elsewhere in the country."

Mr. Lynch, whose company submeters about 35 sites in Tennessee, says the interpretation of the EPA law is a major deterrent to business here. "It costs us about $90 per month per property to do it," he says.

The submetering industry has also had a wave of bad publicity and legal problems here that Mr. Griffin says is unprecedented in other states. Last year, Nashville-area people filed two notable lawsuits against submetering companies. One was filed by Saeed Bukallah and several other tenants of the Legacy Hill Apartments in Bellevue, who claim they were systematically overcharged by National Water and Power and that the submetering industry is illegal anyway. Mr. Bukallah's attorney, Martha Zendlovitz, said she could not comment on the case.

The other case was filed by several tenants of the 333 Apartments at 333 Gallatin Road, who are represented by attorney Jean Dyer Harrison. One of the key aspects of that case is whether the submetering company, in this case Water Systems, has the right to cut off water service to individuals who weren't paying their bill.

Meanwhile, the Tennessee Regulatory Authority was getting complaints about the submetering industry. One person claimed that his average monthly water bill was $55, which he thought was ridiculously high since his son, who has a larger family and has a house, has an average water bill of $20.

The lawsuits and complaints sparked stories in Nashville's newspapers and on local TV news, which was when the Metro Water Department began to speak out publicly about the issue. "Whenever there were complaints, we were still continuing to get all the phone calls," said Metro Water Associate Director Jim Tarpley. "A lot of people were raising questions about the fact that no one was regulating the industry."

The Water Department submitted a bill to the Metro Council that would have effectively made it illegal for anyone but the government to bill for water.

Under siege, the National Submetering and Utility Allocation Association hired Baker, Donelson, Bearman & Caldwell attorney Jonathan Cole to defend it in the lawsuit and Baker Donelson lobbyists (which include Jennifer Ford, Darren Helmers, Charlie Davidson and Todd Richardson) to lobby on its behalf. Mr. Griffin met with several council leaders and found that his firm and his industry had a lot of work to do. "No one had spoken up for the industry," Mr. Griffin said. "I was shocked."

Mr. Griffin concedes that some people in his industry have made mistakes. "We are a new industry, and because we are, we probably make more errors than a utility that has been around for 50 years," he says. "But the business is an honest business and we work in good faith."

Mr. Griffin claims, among other things, that the industry does not charge more for water than the average rate that the water department charges that property. The only payment that his companies get, he says, is the monthly service charge that is clearly stated on bills. He is also insistent that submetering is beneficial to society. "Submeters encourage people to save water, and our research shows that when submeters are installed people used between six and 39% less water."

Somehow, Mr. Griffin and his lobbyists were able to kill the Metro ordinance, effectively getting the council to defer to the will of the state legislature.

The legislature has since had a study committee meeting extensively on the submetering issue. The bill that is coming out of that study committee is not in its final form, and is being lobbied hard by Baker Donelson lobbyists. But Rep. Ben West, the sponsor of the bill and one of the biggest critics of the submetering industry, says he wants the bill to put the industry under the purview of the Tennessee Regulatory Authority and to outlaw the industry's principle source of revenue -- per-apartment service fees. "My constituents have told me about a lot of atrocities in this business," Mr. West said.

The bill, in its present form, would put submetered apartments and condos under residential water rates, something that would increase the rates that apartment tenants (who now buy water at cheaper commercial rates) pay for water. "Apartment dwellers are treated the same as homeowners on an electric bill and a phone bill," Mr. West says. "I think they should pay the same, cubic foot by cubic foot, for what I pay for water."

The Metro Water Department is following this process closely and has made no secret as to what its intentions are. "What value does the submetering industry bring to the marketplace?" Metro Water Operations Director Jim Tarpley asks rhetorically.

Nonetheless, Metro Water wants in the submetering industry.

Even though Metro Water is perfectly free to submeter new apartment buildings and condos, the department cannot legally do the same with existing developments without new legislation. Mr. Tarpley and his boss, Metro Water Director Buddy Williams, have both said that they hope the new legislation specifically allows Metro Water to do this.

Metro Water has also estimated that if it is allowed to get into the submetering business and if submeters are put on a residential rate, the department could make $3 million more per year than it is getting now.

Although he does not know what will come out of the legislature this year, Mr. Griffin says the general public would not be well served by a bill that effectively paralyzes his industry and puts submetering in the hands of Metro Water. "They (Metro Water) have criticized my industry a lot, saying we are the bad guys and they are the good guys and that they are going to protect the public from us," Mr. Griffin says. "But if Metro gets what it is asking for, people who live in apartments and condos will be paying more because they will be paying at the residential rate." Nevertheless, Mr. Griffin concedes that his industry will almost certainly be regulated by the TRA as a result of the legislation.

A hearing in the case between National Water and Power and Mr. Bukallah will take place Friday afternoon in Chancellor Irvin Kilcrease Jr.'s Chancery Court. It is not known when the submetering bill will begin to make its way through the House and Senate committee system.