Article originally published in The Columbus Dispatch [View Original Article]
In the early 1980s, Harry Apostolos looked at the way apartment owners paid for utilities and he saw a textbook case of market inefficiency.
Most owners paid tenants’ water bills as part of the rent, and that left the residents with no incentive to conserve. Apostolos, who had just earned a master’s degree in economics from Ohio State University, decided to start a business that would provide what he saw as a better option.
“We were able to transmit a price signal that elicited a change in behavior that resulted in a drop in consumption,” he said.
In 1983, he co-founded the company now called Guardian Water & Power. He sold property owners on the idea of “submetering,” which meant he would install meters and handle billing, shifting the cost of the resource to the end user.
Guardian has 40 employees at its Grandview Heights offices and customers in 30 states. It is a family business, with Patricia, Harry’s wife, serving as the company president.
The company is one of about 50 businesses in the mainstream of the submetering industry in the United States, many of which are members of the Utility Management and Conservation Association. These businesses have models that are in contrast with two other central Ohio submeter companies, American Power & Light and Nationwide Energy Partners, that make a profit by marking up the cost of electricity or water. Such markups are against the law in most states, but not in Ohio.
Guardian is an example of how a typical submeter company makes its money. About three-fourths of Guardian’s annual sales come from a service fee of about $3-5 per customer bill, Apostolos said. The other one-fourth comes from selling and installing metering equipment.
“We don’t make a profit off of commodities,” he said. “We’re a billing service.”
For submeter companies such as Guardian that operate in multiple states, one of the most-complicated parts of doing business is following a multitude of state and local rules.
For example, North Carolina says a submeter company can charge a billing fee of no more than $3.75 per month; in Connecticut, submeter companies must register with the state utility commission.
Apostolos and his colleagues in the trade association would prefer it if there were few, if any, regulations and if the companies were allowed to police themselves.
But this only works if everyone is meeting some basic industry standards, said Arthur Blankenship, president of the trade group and owner of a submeter company in the Atlanta area. One of the most-important rules is that the submeter company must pass through costs to the consumer, with no markup other than the billing fee.
Blankenship said he expects that market forces will eventually weed out the companies with less consumer-friendly business models. “If you mark up your utilities too much, the competition uses that against you and your occupancy rate drops,” he said.
Apostolos is confident that his business model would not have to change much if Ohio responds to the markups here by passing new rules.
But that is not a top concern. He is much more focused on the mechanics of metering and how to improve it.
“There is a never-ending challenge of technology changes, to adapt our business to that technology,” he said.