Hartford Business Journal

6 Hartford Business Journal • March 28, 2016 www.HartfordBusiness.com One of the most recent approvals was also the most contentious. In February, PURA greenlighted submeter- ing at four apartment buildings owned by Phil- adelphia-based PMC Property Group, including Hartford's 55 Trumbull St., 915 Main St., and 41 Niles St., as well as 900 Chapel St. in New Haven. The approval caps a years-long legal fight in which regulators clashed with PMC over the use of submetering in those properties before the practice was legal in Connecticut. PMC has been submetering the three Hart- ford buildings since 2008 and the New Haven building since 2004, according to PURA. The company previously sought retroactive submetering approvals from PURA, but was denied, leading PMC and its contractor to file several lawsuits against the regulator. Those suits have dragged on since, but PMC has agreed to withdraw them under the terms of a settlement it reached in late January with PURA's prosecutorial unit and the Office of Consumer Counsel (OCC). For its part, PURA agreed to terminate its submetering-related administrative proceed- ings against PMC and to not bring any enforce- ment actions for past unauthorized submeter- ing by the landlord. "It all took a very long time, but I think we all ended up in a good place," said PMC's Hartford attorney, Paul McCary. "I think PMC's very pleased that they can now go forward and submeter under rules that are approved by PURA and acknowledged by all the stakeholders to be appropriate." OCC principal attorney Joseph Rosen- thal said his agency thought the deal was in the best interests of tenant ratepayers. "We thought the settlement provided a decent balance for tenants in that they are get- ting a robust set of protections, confirmation that the landlord will be dividing up his or her utility bill among tenants without a markup, plus a $50 bill credit," Rosenthal said. "Moreover, OCC's agreement to the settlement did not waive the tenant's rights to pursue their own claims." Consumer protections Connecticut law — prior to a change in 2013 — had discouraged or banned subme- tering outright in most buildings, limiting its use to only campgrounds and marinas. Consumer advocates have scrutinized submetering because it allows landlords to stand in as a sort of third-party utility company, creating the possibility for profit markups, inaccurate meter readings and other consumer abuses. Landlord electricity markups, for exam- ple, were a controversial practice in New York City for decades, according to the New York Times, and there have been more recent controversies in other states, such as Ohio, where a 2013 investigation by The Columbus Dispatch found that third-party resellers were charging tenants more than they would have paid to a utility company. PURA spokesman Michael Coyle said that sort of arrangement is forbidden in Connecticut and that his agency sought to address many concerns in the regulations it crafted over the past two years. One key rule forbids a landlord from charging a higher electricity rate than a ten- ant would pay if they were a utility customer. Landlords are also required to use subme- ters certified by the American National Stan- dards Institute, to keep metering and other records for at least two years, and to provide metering records to PURA if requested. Landlords must also test subme- ters at a tenant's request, and dis- close to PURA how they will handle ten- ant complaints and concerns. Monthly bills to tenants are required to disclose when the subme- ter was read, how much power was used and the aver- age rate applied to determine the bill. Dennis Schain, spokesman for the state Department of Energy and Environ- mental Protection, which advocated for submetering in its comprehensive energy strategy sev- eral years ago, said Connecticut's rules protect tenants and also incentivize them to consume less electricity. "As part of the state's focus on providing a 21st-century approach to energy issues, we have addressed the issue of submeter- ing in a positive way," Schain said. Limited appeal While submetering has a variety of bene- fits, it's unlikely to spread to all Connecticut apartment buildings. For one, state law forbids properties with utility meters in all units — mainly the case in newer buildings — to convert to sub- metering. Scale brings greater benefits, so small buildings are less likely to submeter. Submetering makes the most sense for own- ers of older apartment buildings, some of which used to be commercial buildings, such as PMC's 55 Trumbull St., which formerly belonged to the Southern New England Telephone Co. Older or converted apartment buildings are often "master metered," meaning they have one utility meter to measure the whole building. Landlords of those properties typi- cally charge tenants a flat utility fee, giving residents no incentive to turn off lights or moderate air conditioning or heating. Why not just install more utility meters? "When you take a building that was wired for commercial use with one meter to serve the whole building, the cost of putting in utility metering is phenomenally expen- sive," said McCary, the PMC attorney. "It's hundreds of thousands of dollars." Master metering can also hurt a land- lord's competitiveness, because his proper- ty's power costs are often higher, which can mean higher rents in comparison to other properties, McCary said. New avenue for renewables Perhaps the most significant impact of Connecticut's recent submetering rules is that they make it feasible for landlords to install fuel cells and solar panels and sell the power output to tenants. That creates a more compelling business case for investing in renewables. Previously, landlords who installed renew- able generation could use it only in com- mon areas like hallways and community rooms. Now, they can sell that power to their apartment tenants. The face of renewable submetering in Con- necticut for the past six-plus years has been Bruce Becker, an architect who redeveloped Hartford's 777 Main St. (the former Bank of America tower) and 360 State St. in New Haven, which received submetering approval in December. Each building has a 400-kilowatt fuel cell made by South Windsor's Doosan. Becker said 777 Main's fuel cell began oper- ating last year, and has a 15-year contract under the state's Low-Emission Renewable Energy Credit program to sell credits generated by the fuel cell to Eversource. 777 Main can also sell excess electricity back into the grid through the state's net-metering program. It's these types of state incentives that will help Becker shorten the payoff period for his investment in the fuel cell, which is attached to a combined-heat-and-power system that provides heat and hot water in the 26-story tower. "Now that [the regulations are in place], it's in every landlord's interest to consider on-site generation and renewable energy for multi-family housing properties because now they can recover and help pay for their investment," Becker said. Becker said he expects additional incentives when he installs solar panels at the Hartford property in the coming months. He said submetering isn't guaranteed to earn a return for a landlord who invests in renewables. The more units an apartment building has, the better, and financing terms are also crucial, he said. Becker has 40-year financing on his Hart- ford fuel cell with 4.5 percent interest. "I think the [return] on the renewable investment will be greater than that," he said. Meanwhile, submetering is also a com- mon practice in commercial leases, but they too now require PURA approval, said OCC's Rosenthal. Hartford's Marriott Residence Inn recently applied and was approved to add two submeters inside the hotel's com- mercial space. Rosenthal said he hopes to see many more applications to PURA soon. "It is our understanding that submetering is widespread in commercial buildings," he said. "However, it is not legal unless autho- rized by PURA, so we encourage commer- cial as well as residential landlords to obtain authorizations." n from page 1 Regs focus on tenant rights Submetering Growth These Connecticut apartment buildings have received approv- al to use submetering. Submetering Address Apt. Units Approved by PURA 55 Trumbull St., Hartford 149 2/19/2016 915 Main St., Hartford 109 2/19/2016 41 Niles St., Hartford 41 2/19/2016 900 Chapel St., New Haven 104 2/19/2016 360 State St., New Haven 500 12/2/2015 777 Main St., Hartford 285 7/1/2015 676 Mix Ave., Hamden 498 6/11/2015 205 Church St., New Haven 146 5/6/2015 Total 1,832 S O U R C E : P U B L I C U T I L I T I E S R E G U L A T O R Y A U T H O R I T Y REPORTER'S NOTEBOOK Fantasy sports bill could bring millions in state revenue Legislation that seeks to officially autho- rize daily fantasy sports websites already operating in Connecticut and many other states has the potential to bring in as much as $7 million in state revenue, according to the co-chair of the committee that raised the bill. Rep. David Baram (D-Bloomfield) cited the figure in an interview last week about Senate Bill 192, which was raised last month by the Joint Committee on General Law, which Baram co-chairs. "Right now they are operating without any regulation," Baram said of websites like Fan- Duel and DraftKings. "It's happening and it's nationwide." The latest version of the bill states that daily fantasy sports (DFS) websites are not consid- ered gambling. Lawmakers also lowered the minimum playing age from 21 to 18, and created a first-time $50,000 registration fee for DFS oper- ators, with annual renewal fees of up to $10,000. Now, the Finance, Revenue and Bonding Committee is weighing additional revenue- raising measures, Baram said, which could include a per-transaction fee similar to a "rake" in a poker game or taxes on winnings. Fantasy sports games allow users to build teams of professional athletes and compete against others based on the athletes' statisti- cal performances. The Boston Globe reported that FanDuel and DraftKings said they expected to pay out a total of $3 billion in cash prizes in 2015. But the sites don't want to be considered gambling. The federal Unlawful Internet Gam- bling Act of 2006, which struck a deep blow to Internet poker companies and made it illegal for U.S. financial institutions to knowingly han- dle Internet gambling-related funds, contained a carve-out provision for fantasy sports. Baram said the General Law Committee discussed with DFS representatives the vital question of whether the games are gambling or games of skill. He said he was convinced DFS is a game of skill. "Here, you're actually researching it and you're combining players on teams," he said. "It was fairly convincing that this was much more than buying a lottery ticket." However, he concedes that some may disagree, including the state's two casino- operating tribes. "There is tremendous concern by the state that if we regulate and legalize fantasy sports that it not violate the compacts" between the state and the casinos, Baram said. Mohegan Sun and Foxwoods pay 25 percent of their slots revenues to the state, which brought in $268 million in fiscal year 2015. "Nobody wants to jeopardize that," Baram said. Earlier this month, Virginia became the first state to legalize fantasy sports. A number of other states are considering similar proposals. – Matt Pilon Daily fantasy sports websites like DraftKings may soon be authorized and regulated in Connecticut. I M A G E | C O N T R I B U T E D

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