It appears that the 12.4 million residents of Canada’s ‘industrial heartland’ province of Ontario will soon begin seeing the most aggressive rollout of smart meter technology yet undertaken in North America. In April 2004 Ontario Premier Dalton McGuinty announced that the government was moving forward with its commitment to install smart meters in 800,000 homes and businesses by 2007, and every home and business by 2010.
Recently, in November 2005, the government introduced the proposed Energy Conservation Responsibility Act to provide the legislative framework for an entity that will oversee Ontario’s smart metering communications systems and technologies. The responsibilities of this entity could include facilitating the procurement of smart meter systems and the collection and management of data. However, the intent is that local distribution companies will own, install, operate and maintain the new smart meters.
Although many of the details related to governance, ownership and regulatory structures – as well as other fundamental technical and operating parameters – were still unknown at the time this article was published, the government did commit to ongoing consultations through to the end of the year. Clearly the local distribution companies, other potential ancillary service providers, the Ontario Energy Association and the Electricity Distributors Association all look forward to working collaboratively with government to ensure the effective implementation of the smart meters initiative.
CONSERVATION A PRIORITY
The Ontario government has set a specific target for conservation – to achieve a 5% reduction in peak electricity demand growth by 2007. Smart meters and the introduction of time-of-use pricing will no doubt help in pursuing such an ambitious target – a target that seems all the more challenging when one considers that Ontario’s annual growth in peak demand (driven largely by strong population and economic growth) has consistently averaged around 1.5% a year over the past decade.
The government has also appointed Ontario’s first Chief Energy Conservation Officer, and has created a Conservation Bureau within the Ontario Power Authority to support and encourage conservation and energy efficiency province-wide.
Premier McGuinty recently spoke to over 400 industry leaders and senior regulatory officials at the 2005 Ontario Energy Association (OEA) Conference in Niagara Falls.
The Premier talked at length about the importance of having consumers pay the true costs of generating electricity, rather than subsidising or artificially capping prices – the debt-laden approaches Ontario often took in the past.
The Premier reiterated the government’s commitment to building a stronger culture of conservation in a province recognised as one of the largest per capita users of energy in the industrialised world.
Providing consumers with the information, tools and incentives they need to better manage in a higher-cost energy environment will be crucial. For large energy-intensive industrial users, the challenge is simple – to build a new competitive advantage around their ability to innovate, adapt and reposition themselves as global leaders in the efficient use of energy.
For residential and other smaller volume customers, the Premier noted that “smart meters, along with flexible time-of use pricing, will allow Ontarians to save money if they run appliances in off-peak hours. It’s part of our plan to transform Ontario’s energy consumption culture into a conservation culture.”
“The mechanical meters in our homes today are on a par with technology used when Edison invented the light bulb,” said Dwight Duncan, Ontario’s Minister of Energy at the time (now Minister of Finance). “Smart meters will empower consumers to manage their electricity costs in real time and respond to pricing incentives that encourage both conservation and load-shifting to off-peak periods.”
MULTI-FACETED PLAN FOR ELECTRICITY SECTOR REFORM
The smart meters initiative is just part of the Ontario government’s multi-faceted plan to reform and restructure the province’s electricity sector. In fact, many other commitments and elements of the plan are also quite bold.
• Replace all coal-fired generation in Ontario (7,500 megawatts) by 2007/2009 with new, cleaner sources of generation.
• Achieve a 5% renewables target by 2007, 10% by 2010 (starting from a renewables share of the overall supply mix of less than 1%).
• Put an objective, balanced decision-making structure in place for addressing the often controversial issues of nuclear refurbishment and the role of nuclear power in the province’s long-term supply mix.
• Refurbish, rebuild or replace a total of 25,000 megawatts of generating capacity over the next 15 years.
Ontario Premier Dalton McGuinty delivers keynote address at the 2005 OEA Conference
It would be difficult to find another major industrial jurisdiction anywhere in the world facing a challenge of this magnitude. This is what makes the energy file in Ontario so critical today, and likely for many years to come.
“Energy conservation is a cornerstone of our government’s plan to ensure Ontario has a safe, clean, secure and reliable supply of electricity for many years to come,” says Donna Cansfield, Ontario’s newly-appointed Minister of Energy. “By helping Ontarians make smart choices about how and when they use electricity, we’re helping them save money and making the most of our electricity supply.”
MEETING THE SMART METER TARGETS
To meet the target of 800,000 smart meters installed by 2007, the January 2005 implementation plan developed by the Ontario Energy Board (OEB), the province’s independent energy regulator, proposed that initial installation focus on large consumers and residential and commercial consumers in large urban areas. Consumers with peak demand over 200 kW would get interval meters, and residential and small commercial consumers would get smart meters.
Smaller local distribution utilities would follow, installing smart meters for their customers starting in 2008 and drawing on the experience of the larger urban installations.
The OEB also identified the mandatory technical requirements for smart meters and subsequently forecast the capital cost of installation for all Ontario customers at about US$850 million.
The OEB’s January 2005 implementation plan also proposed:
• A basic smart meter system to measure how much electricity a consumer uses each hour of the day.
• A two-way communication system that transfers data to and from the meter, including reading from remote locations.
• Consumers’ access to consumption data by telephone or internet the following day.
• Distributors would continue to be responsible for the installation and maintenance of smart meter systems.
• Consumers may be able to choose enhanced services, such as remotely controlled energy
consumption or in-home customer display, from a distributor or retailer for an additional charge.
OEB’S ‘SMART PRICE PLAN’
In March 2005, the OEB announced time-of-use pricing for consumers with smart meters. Most Ontario consumers did not have smart meters when the new Regulated Price Plan took effect. Local distribution utilities are not obligated to provide time-of-use pricing to consumers with smart meters until 1 April 2006, but may introduce it sooner if they choose. .
The time-of-use price structure has different price levels depending on season, day of the week (i.e., weekday, weekends or holidays), and the specific period of the day when electricity is used:
• On-Peak (9.3¢/kWh*, when demand is highest)
• Mid-Peak (6.4¢/kWh*, when demand is moderate)
• Off-Peak (2.9¢/kWh*, when demand is lowest)
*Denotes Canadian currency.
Ontario’s Regulated Price Plan is a relatively new ‘ratesmoothing’ plan designed to make sure that the prices consumers pay for electricity better reflect the prices paid to electricity generators, but without the volatility that exists in wholesale electricity markets. The Plan only applies to residential, low-volume and designated consumers in Ontario. As at 1 April 2006, and every six months after that, the prices these ‘eligible’ consumers pay for electricity may change based on an updated OEB forecast.
The 55,000 large industrial and commercial electricity customers across the province – those who use more than 250,000 kWh per year – will continue to operate fully in the spot, forward and portfolio-based hedge markets.
By providing consumers with greater control over their individual energy bills, Ontario will realise system-wide savings through future reductions in the frequency, duration and corresponding levels of peak demand. In a jurisdiction with relatively tight supply/demand fundamentals, such as the current situation in Ontario during the peak demand periods in both summer and winter, these system-wide benefits could indeed be considerable.
The cost of installing smart meters for all customers in Ontario will be recovered through the rate base, and the OEB earlier estimated that the cost for residential customers could be anywhere between US$1.00 and US$3.50 per month per customer, including all capital and net operating costs. This, of course, ultimately depends on the technology platform chosen and the overall level of functionality built into this platform, decisions not yet announced by the government.
This is a critical decision point and the key to the initiative’s success or failure obviously lies in the many details which have still to be released. The value proposition for consumers and the spirit of collaboration among all stakeholders has carried the initiative this far. Now is the time to come to a clear and practical understanding of the specific roles and responsibilities of the various players, and how the smart meters initiative can be effectively ‘operationalised’ in the best interests of consumers.