Maximizing the Value of Utility Billing Programs

Many apartment communities have adopted utility billing programs as part of their energy management initiatives. Properties will use these programs to help encourage conservation, share the burden of utility costs, advertise lower rents, and to pass along utility rate increases as they occur instead of waiting for the lease to renew. These programs can be of value but ONLY if they are done correctly. Unfortunately, I often find that there is substantial room for improvement.

First, let’s consider the business model of the billing company. They get paid based on the number of bills they send out each month to your residents. They don’t get paid based on how effective the program is - meaning they don’t have any incentive to ensure the program is meeting the property’s goals. Further, once a property starts a billing program it is hard to stop which means the billing company has a rather secure source of revenue. These programs are hard to stop because the properties build them into their leases and rent structure. Also, many of the billing companies try to get management companies to sign long-term contracts with auto renewals – don’t do those.

Before you begin a utility billing program for any utility type (water, electric, gas, etc.), I strongly suggest that the property take measures to make sure the consumption issues have been addressed prior to starting. Trying to pass along the cost of utilities when consumption isn’t where it should be is going to mean higher bills for your residents which leads to complaints, move outs, and poor collections. Trying to get residents to pay for your deferred maintenance is a recipe for failed programs. It is much easier to get residents to buy into these programs when the property has done its part to ensure the bills represent controlled or “normal” usage.

When it comes to creating the bills for your residents there are really three inputs – who, what, and how. The ‘who’ is your resident information that tells the billing company what residents to bill and for what period of time (occupancy period) to bill them. The ‘what’ is the utility bill(s) that you are allocating or passing along to the residents. And, the ‘how’ is the method by which the resident bills are calculated.

The ‘who’ is where I often find the biggest problems. As we all know, your resident population is constantly changing and if the billing company doesn’t have the correct information your billing is wrong. This is especially important when using RUBs. For example, if the billing company does not have all the residents in their system to bill that should be billed then they are essentially over charging the residents they are billing. Many billing companies have websites or fax systems that community staff use to send the billing company the community’s resident information. Unfortunately, this just doesn’t always happen. In the multifamily industry, employee turnover is high and new employees learn the basics first – leasing and collecting. Often by the time they get around to learning the ancillary programs they are gone or transferred. Do a quick comparison of the residents billed to your rent roll to see what I mean. Your billing company’s resident population should EXACTLY mirror your property management software’s information. I strongly suggest working with your billing company to set up an automatic data exchange program whereby your property management software sends the billing company the resident information. This ensures that the billing company bills the correct residents each month, removes the burden from your property staff, and will greatly affect the performance ($) of your program.

‘What’ is being billed is the other reoccurring piece of data the billing company needs. This is simple. Just make sure they are sent the utility bills as they come in. Try to avoid letting the billing company default to the previous bills as that can lead to over or under charging, back billing, and poor performance.

We determine ‘how’ we are going to bill residents during the set up phase. We need to check state and local laws to make sure the method we are going to use is legal. Some jurisdictions prohibit RUBs or require specific formulas, there are caps to billing fees, and, maybe the most overlooked, there are nuisances with utility rate schedules that can make submetering very difficult or unfair. Because of some utility rate schedules, submetering can sometimes be a means of RUBs or allocation because you cannot multiply the submeter usage by the utility rates and you end up allocating the property bill. If your local utility company uses a tiered rate schedule or base fees take extra care in determining how to bill. Make sure you understand exactly how the billing is going to work especially before you invest in submeters.

The most important component of creating a successful program is the collection process. It is your money and you should collect it. DO NOT LET YOUR BILLING COMPANY DO THE COLLECTIONS! Billing companies do not have any incentive to ensure you get all your money. Remember, they get paid on the number of bills they send and not on the collections. Billing companies love to do the collections because that ensures they get their money as they take their fees then send you what is left over. You already have, hopefully, a very good system of collecting money monthly from your residents (rent). Further, when the billing companies do the collections it hard to determine how much your residents owe. You need each resident’s balance in your property management software that way when you run your delinquency reports you can tell how much you are owed. You don’t want to run your delinquency reports and then have to log on to your billing company’s website to run more reports. When the charges/balances are in your software you and your staff can now using existing processes to get your money. I also recommend a payment application hierarchy – apply resident payments to “other” charges first and rent last so that you can sue for rent. To do this, you need to get the charges or the amounts the billing company billed your residents into your software. When the bill company sends the bills to your residents, they will send you a file showing all those charges and they will send you an invoice for their fees. Those charge amounts need to be entered into your software. Because of the volume of charges, I recommend creating and import function so that the charges do not have to be manually entered. I cannot overstress the importance of you collecting your own money.

Don’t let the billing company charge excessive new account fees. It’s not a great way to welcome a new resident by sticking them with those fees ESPECIALLY is you are not getting a large percentage of the fee. When you do the collections, the late fees go away but if you are not then make sure you get 100% of the late fees charged – no reason the billing company should get the late fees. Of course, make sure your lease accurately defines exactly how the resident is going to be charged and make sure your staff can explain it to residents. I find when the staff doesn’t understand the exact method they will convey a sense of error to the resident which makes matters worse.

Make sure that you maintain your meters. If meters aren’t working correctly that means residents aren’t paying what they should be paying. Also, when meters don’t work correctly and you are allocating the property’s bill, residents with working meters are over paying or compensating the resident’s whose meters aren’t working. Lastly, I recommend using the submeter usage information to provide customer service to your residents with high bills. Take the meter reading reports your billing company provides and send your maintenance staff to the units with the highest consumption to fix the problems. Reducing consumption in the worse performing units will reduce your bills, improve collections, demonstrate customer service, and, because of certain utility rate schedules, can benefit all the residents.