Ohio Supreme Court guts ‘submetering’ business said to drive up renters’ electric bills

So-called “submetering” companies are in fact public utilities, the Ohio Supreme Court ruled Wednesday, driving a dagger through the heart of an industry critics say has spiked electric costs for renters who became trapped in a novel business model.

The ruling sets up a new regulatory landscape where state officials must apply a series of consumer protections and cost controls to submeterers, who for years have eluded scrutiny by the Public Utilities Commission of Ohio.

PUCO commissioners have ruled that submeterers are not public utilities and are therefore not regulated by the PUCO, a position supported by the submetering industry itself, along with landlords, a trade group representing mobile home builders, and the Ohio Manufacturers’ Association.

The court Wednesday unanimously reversed and ruled in favor of American Electric Power, a traditional utility company that distributes power to customers, over Nationwide Energy Partners, a pioneer for the disruptors of the submetering model.

Justice Pat DeWine, in an opinion, wrote that despite arguments from NEP to the contrary, the company behaves almost indistinguishably from a utility company. It sources electricity, installs equipment and distributes over a power grid.

“It directly bills tenants for their use of electricity and may disconnect service if a tenant fails to pay. It earns a profit based on the difference between the price it pays for electricity and the price it resells electricity,” he wrote.

“In short, NEP is in the business of supplying electricity to consumers.”

The director of the Ohio Consumers’ Counsel, a state agency that acts as a legal advocate for ordinary ratepayers, chalked the ruling up to a major win for consumers.

“No company gets to sell essential electric service in Ohio without playing by the rules,” said Maureen Willis, the agency director. “The court’s ruling enforces that.”

The ruling is unanimous, although Justice Jennifer Brunner, the court’s lone Democrat, agreed only with the ruling and not its reasoning.

What is submetering?

Since the early 20th century, states have kept a basic deal with utility companies: the utilities get economic monopolies to avoid a glut of poles and wires, and the states get a robust regulatory system to ensure customers are treated fairly.

The rise of submetering companies in Ohio over the past two decades scrambled that peace.

Submetering companies say they buy electricity at a discounted commercial price before selling to residential customers at a residential price. Its officials insist that it charges customers no higher than the rates of utility companies. Court records show Nationwide Energy Partners would pay $22,000 to $72,000 per tenant as a “door fee” plus another $6 a month per head, on the scale of tens of thousands of renters.

Nationwide Energy Partners has previously claimed it has 34,000 electric customers over 168 complexes for electricity, and 33,000 customers over 171 complexes for water. DeWine, in his opinion, described the relationship as submeterers purchasing from landlords a “monopoly right to resell electricity to their tenants.”

Industry critics and submetered customers have vigorously disputed the notion of fair or equal pricing. Tenants have long complained about skyrocketing electric bills that don’t track with a small apartment size or limited consumption. Stories of $600-plus bills aren’t hard to find. And dozens of consumer complaints to the Ohio Attorney General and PUCO have accomplished little, given the lack of PUCO authority.

Wednesday’s ruling will be most acutely felt in Columbus and Cincinnati, where submeterers are known to be most active. But its precedent stops outward growth that was likely headed to big cities around the state.

Critics have noted that the presence of submeterers creates two classes of customers: one that gets basic consumer protections against a monopoly and one that doesn’t.

American Electric Power has noted that submeterers can pass unregulated charges on to customers, like electricity for lighting and air conditioning in common spaces at apartments. And as the Ohio Consumers’ Counsel has emphasized to policymakers, state law doesn’t guarantee submetered customers the ability to choose their own cheaper power suppliers, protections against power shutoffs, or access to bill pay assistance.

Signal Ohio reached out to both American Electric Power and Nationwide Energy Partners for comment.

What happens next?

The court remanded the case to the PUCO to consider, in light of the ruling that submeterers are public utility companies, whether Nationwide Energy Partners has been improperly supplying electricity in American Electric Power’s service territory and whether the company has been operating as an unregistered electric supplier. Both could lead to fines.

The case has been closely watched from the Statehouse, where Nationwide Energy Partners has been pushing lawmakers to get ahead of the court’s ruling and change the law to explicitly designate the company as a non-utility. Others have pushed in the opposite direction, seeking broader consumer protections for customers.

Nationwide Energy Partners is currently paying eight lobbyists to represent its interests at the statehouse, disclosures show.

Rep. Sean Brennan, a Parma Democrat who has fought for years for a crackdown, said he was elated and almost in tears when he heard about the ruling.

“What have I been saying all along?” he said. “If it looks like, sounds like, and smells like a utility, it is one, and needs to be regulated accordingly.”

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This story was originally published by Signal Ohio and distributed through a partnership with The Associated Press.