Potential Smart Metering Issues for Ontario Residential Customers

1. Potential Smart Metering Issues for Ontario Residential Customers James Strapp Associate Partner, IBM Business Consulting Services

2. Customer Issues • Program Implementation • TOU Rate Design • Customer Choice Smart metering has a number of benefits for Ontario residential customers, but there are issues in:

3. Installation Schedule Millions of Electric Meters Ontario 800K Underway Sources: Chartwell AMR AMR Installations Database 2005 and IBM Complete

4. Other Installations Installation complete Underway Customer Density Hydro One Least Dense Ontario Average Most Dense Toronto Hydro Source: IBM

5. Structural Complexity • >80 distributors • Some centralization • Planning and specifications • Common procurement of systems and assets • MDM/R • Existing central agency roles to be defined • OEB, IESO, OPA, Ministry • A new “Smart Metering Entity”

6. Ontario Situation One of the world’s most aggressive schedules Unique customer density challenges New organizations and roles Centralization / decentralization mix Increased likelihood of Billing errors Higher metering costs Customer confusion over responsibility Issue 1: Program Implementation

7. TOU Rate Survey • 17 programs by 15 utilities in 12 states • Residential programs • Northern utilities • Larger utilities >100,000 customers • Active and discontinued programs • Comprehensive, but not exhaustive

8. Complexity TOU Rate Profiles (1) # of Programs Shoulder Periods (0) Split Peak (3) Seasonal Rates (8) Summer Winter Simple Peak (3) Rate Time of Day Source: IBM

9. Complexity TOU Rate Profiles (2) 6 rates 9 periods Ontario 6 rates 8 periods BGE 3 rates 8 periods PGE 6 rates 4 periods PEPCO Summer Winter Source: IBM

10. Active Discontinued Bill Impact Ontario Source: IBM

11. Peak to Off-Peak Ratio Summer Peak to Off-Peak Ratio Average Ontario Active Discontinued Source: IBM

12. Ontario Situation Complex rate structure 6 different rates 9 different periods Comparatively little absolute consumer benefit to load shifting No real rate trials and evaluation Increased likelihood of Customer confusion Savings not exceeding the additional metering charge Issue 2: TOU Rate Design

13. Low Opt Out Levels for “Mandatory” TOU Rates • Puget Sound Energy • April 2001 – 330,000 on TOU Rates • By November 2002: 3.6% opted out • At cancellation later in November: 8.0% opted out • Strong TOU customer retention over 18 years at • PEPCO: 56,199 TOU customers • BGE: 81,952 TOU customers • California SPP • ~70% chose to stay on TOU/CPP rates even after the addition of a $3 to $5 monthly metering charge

14. Ontario Situation Cannot opt out and remain with local distributor Opt-out option with competitive retail contract Increased likelihood of Customer frustration Retailers actively marketing against TOU rates Issue 3: Customer Choice

15. Summary of Residential Customer Issues • A complex implementation program • Aggressive schedule • Difficult geography • Roles to be clarified • Complex TOU rate structure • Small differentiation in peak to off-peak rates relative to many other programs • Mandatory program • With retailers opportunity to market an opt out option • Others • Lack of local TOU rate experience • History of political promises of savings

16. Going Forward • Clarify roles • Coordination of responsibilities deemed to be central • Pragmatic approach to rate design • Trials and customer surveys • Provide an opt out option with the LDC • Encourage retailers to offer innovative DR programs, not ‘backwards’ to a flat rate