Direct billing spurs water conservation

Not every issue finds the interests of apartment owners aligned with those of environmentalists and local government officials. But charging apartment residents for water based on their usage is one, and it is an issue of growing importance.

Historically, apartment residents have paid for water usage through their monthly rent. Electricity also was typically included in rent. But the energy crisis of the 1970s changed that. Today, billing residents directly for the electricity used in their apartment is standard practice, and by all accounts, has significantly reduced electricity usage.

Given the conservation success achieved by unbundling rent and electricity expenses, why is it that separate billing for water remains relatively infrequent? There are several explanations. In the past, water prices were low, and it was either prohibitively expensive or technically infeasible for property managers to monitor usage and bill apartment residents separately for water. Furthermore, some state and local jurisdictions have historically restricted property owners' ability to charge apartment residents separately for water and sewer.

Direct billing technology/economics In recent years, the economics and technology of residential water use in apartments housing have been changing dramatically, however. Between 1990 and 1998, the cost of residential water and sewer increased 45%, almost double the 25% increase in consumer prices in general during that period. A large part of this dramatic cost escalation is the result of state and local governments trying to meet the demands of the federal Clean Water Act's waste water treatment requirements. In some areas water consumption patterns have stressed local resources to the point that municipalities have had to import water, resulting in yet higher costs.

Increased water costs and improvements in metering technology have converged to make it more feasible for property owners to charge individual apartments for their water usage. By installing secondary meters, or submeters, in each apartment and in the common areas, owners can also determine water use inspecific area. In many cases, these submeters can be read electronically without having to enter the apartment.

Despite these technological advances, however, in many cases it is still not economically feasible to retrofit apartments with submetering equipment. This is typically the case in older mid- and high-rise properties, where metering would require major structural work. In an effort to help residents make the connection between water usage and costs, managers at some of these properties are allocating a portion of the property's total water bill among residents. This is done using one of a number of formulas known as RUBS, for ratio utility billing system. With RUBS, the property's water bill is allocated among residents based on the square footage of the apartment, number of occupants, number of taps, number of fixtures, or some other quantitative measure. By billing residents for water separately from rent, cost savings from conservation can still be passed on to the residents.

The Regulatory Framework While the economics and technology of water monitoring and billing are evolving rapidly, the regulatory framework for this practice remains inconsistent. Residential water use is largely regulated by the federal government under the Safe Drinking Water Act (SDWA) of 1974, but the U.S. Environmental Protection Agency (EPA) has delegated authority to enforce the Act to the states. In 1996, Congress revised the SDWA to direct the EPA to provide states with guidance to minimize regulatory burdens and avoid duplicate water quality testing requirements in order to encourage water conservation efforts.

As a result of the flexibility granted to the states to enforce the SDWA, the states have applied varying interpretations of the Act that have resulted in a rather uneven pattern of requirements. Several states, including Florida and California, have interpreted their responsibilities under the Act so as to "permit" individual property owners to submeter water usage on their properties and directly bill residents for these costs. Other states, such as Massachusetts, strictly prohibit submetering water usage on residential rental properties. While still other states, such as Alabama and North Carolina, authorities have required property owners to become licensed utilities before they undertake submetering. By subjecting apartment owners to the same water quality monitoring and other regulatory requirements as the city's own water authority, these locales create additional costs and compliance issues that effectively discourage water submetering or allocation.

Many jurisdictions are now evaluating their regulation of residential water pricing and billing. One of the most important pieces of information the states need to evaluate their regulatory options is how much water savings are likely to accrue if apartment residents are charged directly for water consumption. In jurisdictions where the existing water and sewerage treatment facilities are approaching capacity, the water conservation achievable through apartment submetering or water allocation practices can delay or eliminate the need for costly new facilities to be built.

Research Supports Expansion To help provide information of use to local officials, the National Multi Housing Council recently sponsored two separate studies of the water savings likely through submetering/water allocation. The two studies used very different research approaches but each attempts to estimate how residents' water consumption depends on how they pay for it. (The complete studies are available in the "Research & Statistics" section of the Council's Web site at

The first study, co-sponsored by the National Apartment Association, looked at properties in Texas, Florida and California that had either submetered or implemented RUBS systems. Detailed information was collected on property characteristics and water usage through site visits, utility records, and interviews with property staff. These properties were compared to otherwise similar properties where water and sewer was included in the rent.

The study found that the submetered properties, which have the most direct link between individual consumption and costs, used 18 to 39% less water than properties who included water costs in the rent. RUBS properties used 6 to 27% less than the in-rent sample.

The second study, conducted by NMHC, analyzed data from existing national surveys to estimate how sensitive residential water consumption is to pricing. While innovative in that it focused on apartments, this study corroborated the findings of other studies of consumer demand for water. It found that a one percent increase in the marginal price of water resulted in a seven-tenths of 1% long-run reduction in use. Projecting from this calculated sensitivity, the study estimated that if all apartment residents began paying typical prices for water based on their usage, average consumption might eventually be cut in half.

These two studies document what might seem obvious: People use less of something if they must pay for it. But the calibration of the response is important information for elected officials and regulatory authorities who must decide whether to authorize separate billing water use in multifamily rental housing. Water submetering/allocation is a classical win-win practice. It can help apartment properties control operating expenses and perhaps delay further rent increases. And it can help local jurisdictions meet their water conservation goals and possibly delay the need for costly infrastructure expansions.

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