Submetering and the Bottom Line
By Bernard Hasten
With water and energy rates rising across the country and consuming more and more of manufactured home communities’ operating budgets, large numbers of community owners and managers are turning to submetering as a way to ease the burden of rising utility costs.
By installing submeters and passing on water and energy costs to residents, owners have not only tapped into one of the most effective solutions for reducing monthly costs, but they have also contributed to water and energy conservation efforts.
Bottom-Line Case Studies
Before implementing a submetering program, owners should look at a cost analysis of installing submeters in order to determine the rate of ROI for their properties. Below are analyses of two communities, which will be equipped this year with submeters and the newest wireless automated meter reading technology.
At Maryville Estates, a 225-unit community in Illinois, the owner will pay $235 per unit to install water submeters and the meter reading technology at a total cost of $52,875. While that amount may seem high to some owners, the ROI will be less than 12 months and the cost recovery will be ongoing, leading to significant yearly savings. The following chart illustrates the estimated ROI of this particular property.
Submetering Case Study
Total Units 225
RETURN ON INVESTMENT
Install Price————————–$235.00 $52,875.00
Down Payment ———————–20.00% $10,575.00
Interest Rate ————————–7.00% $3,701.25
Average Water Bill per Month——–$17.16 $3,861.00
Return on Investment—————–11.91 Months
Once the initial investment has been paid off, the owner will be able to apply the monthly $3,861 in utility cost savings to his bottom line, giving him a yearly savings of $46,332.
At Lakeview, a 182-unit community in Michigan, the owner’s 2003 water and sewer expense was $60,665. At $235 per unit for installation for submeters and the meter reading technology, the total investment will amount to $42,770. The ROI will likely be a bit slower on this community than at Maryville, because the owner has decided to implement the program in phases and pass on water and sewer costs to each of the residents when their leases come up for renewal, a process that may take up to12 months. However, since it is proven through various studies that water consumption drops by about 20 percent when residents are responsible for their own water bills, the cost recovery will begin immediately. In the case of Lakeview, this should begin to save the owner $12,100 in the first year. In total, the bottom line of the community should change by about $66,000 over the course of 12 to 24 months. This equates to a $660,000 rise in property value after spending a little more than $40,000 to implement the submetering program.
Some owners of smaller communities have expressed their concern that the initial investment would be too high to justify submetering and that ROI would be too far down the road. But, case studies from smaller communities with programs already in place prove that submetering is a wise investment for virtually all owners.
For instance, at an 80-unit home site community in Northwestern Wisconsin, the owner had submeters installed in late 2001. At an installation rate of $325 per home site, the initial investment totaled $28,000. Prior to installing the submeters, the owner was responsible for the entire water and sewer bill, which in 2001 was $9,600. Since submetering the property and passing on water and sewer costs to residents, water consumption has dropped by about 25 percent and the owner is now recovering 100 percent of the water and sewer costs. The owner anticipates that the initial investment will be paid off in late 2004 and that the ongoing revenue recovery will be extremely beneficial to the property’s bottom line.
While some owners and managers experience initial complaints from a few residents, most adjust pretty quickly to the new system, especially when on-site management is careful to explain the benefits to the resident in terms of both fairness and conservation. Most residents respond positively when they understand that they will no longer be paying for what their neighbors waste, but only for what they actually use once a submetering program has been implemented. Those who are careful not to waste, such as those who fix leaks right away and those who turn off their hose while washing their car, generally see an average 20 to 25 percent reduction in water costs.
The significant water conservation benefits of submetering have been well documented with studies indicating that submetered properties use between 18 and 39 percent less water.
Americans use nearly five times the amount of water than people in the rest of the world and it is important that we become aware that our resources are dwindling while our population continues to grow. When residents pay for their own water, not only to they tend to use much less, plus they are more likely to repair leaky faucets more quickly. Just by fixing a dripping faucet a tenant can conserve up to 600 gallons of water per month, while repairing a leaky toilet can save another 200 gallons per month, according to the U.S. Environmental Protection Agency.
In order to implement the most effective submetering program, owners and on-site management should take a proactive approach in terms of customer service. The first step is to educate residents about the benefits of submetering and to establish open lines of communication with them so that any concerns are immediately addressed.
Before the submeter installation process begins, it is very important to give residents plenty of advance notice about any work being done on the property. It is possible that their water may be turned off for a short period of time and that a plumber may have to enter or work under the home in order to install the equipment. Taking this step will not only help resident relations, but will speed up the installation process by providing a workable schedule for both management and residents.
To provide a high caliber of customer service, it is also essential to hire the right company for meter reading, billing and collection, whose staff can serve as a source for questions and complaints from residents.
To select a good service provider, talk with other owners about their experiences or contact the National Submetering & Utility Allocation Association, the submetering industry’s trade association, for profiles of its members. Some of the essential services a company should provide include Internet access for owners, managers and residents to individual accounts; an easily readable bill; a dedicated 800 customer service number for residents; ability to receive payment by credit card; a monthly report to management detailing paid accounts vs. delinquent accounts; and a good record on early collections and reimbursement to the property. Other services should include types of system management reporting, such as resident consumption versus the entire property, actual resident readings versus average readings and water loss reporting.
Submetering is a triple win opportunity. Residents win because it is a fairer system and they only pay for what they use and not for what they think their neighbor wastes. The environment wins because of conservation, and owners win because passing on utility bills to residents enables them to subsidize escalating costs of water, sewer and energy and significantly improve the bottom line.
Bernard Hasten is president of Indianapolis, Indiana-based Speedread Technologies, a company that distributes automatic meter reading equipment. He can be reached at BHasten@speedreadtech.com.