Smart meters have few benefits for big costs: AG report


By:  Business reporter, Business Reporter, Published on Tue Dec 09 2014

Ontario’s $2 billion smart meter program for hydro utilities has delivered few benefits for the hefty cost, says Ontario’s auditor-general Bonnie Lysyk.

In fact, one in six of the 4.8 million meters have not yet transmitted any readings, she found.

And Lysyk took the occasion of her probe of the smart meter program to take a roundhouse swipe at energy bureaucrats for plunging into the system without proper planning, and making it impossible for consumers to understands their rising hydro bills.

Lysyk took a special jab at Hydro One, which she said incurred about 50 per cent of the cost of the smart meter program — but installed only 25 per cent of the meters.

Smart meters allow utilities to charge different prices at different times of day, a function that’s supposed to encourage conservation, especially at peak times when the system is under stress.

But Lysyk said the pricing system has had only “a modest impact on reducing peak demand” among householders and “no impact at all on energy conservation.”

Among her findings:

  • Smart meters were supposed to cost $1 billion. In fact, the total cost will be double that amount.
  • The energy ministry grossly over-estimated the benefits of the smart meter program. It figured the benefit would be $600 million over 15 years. But it forgot to include a yearly inflationary increase of $50 million. That reduces the net benefit of the huge project to $88 million over 15 years.
  • The cost of smart meters varied wildly among Ontario’s 73 local utilities, which paid from a low of $88 per meter to a high of $544.
  • Energy bureaucrats have bamboozled consumers for years by hiding the true costs of energy in a catch-all fee called the “global adjustment” that now makes up the majority of the cost of energy.

Lysyk said that neither the energy ministry nor the Ontario Energy Board — which is supposed to protect ratepayers — did a cost-benefit analysis of smart meters before plunging ahead with the program, first estimated in 2005 to cost $1 billion.

“Given the large scale of smart metering and the high risk associated with new technology, its implementation should have warranted strong governance and oversight,” Lysyk wrote.

Ontario’s auditor general says the province’s smart meter program has failed some key objectives. In a new report, Bonnie Lysyk says the $2-billion initiative has not met electricity conservation or cost-reduction goals.

The initial cost-benefit estimate — which proved wildly inaccurate — was performed only after the energy board had approved its implementation plan.

Costs continued to rise after the initial $1 billion estimate. They stood at $1.4 billion by the end of 2013, Lysyk reports.

In addition, the Independent Electricity System Operator (IESO) — which operates the Ontario power grid minute by minute — spent $249 million on a provincial data centre to collect the torrent of information that flows out of smart meters.

The cost is billed to ratepayers.

But Lysyk found that, in many instances the quarter-billion-dollar centre duplicates the data collected by many utilities. (The IESO responds that it has “exclusive authority” over the function performed by the centre.)

After all that expense, did smart meters produce savings? Lysyk was hard put to find them.

Smart meters send in data by electronic signal, so meter readers are no longer required. But Lysyk said that only 5 per cent of utilities reported savings. The others said their costs were the same, or higher.

Nor did the meters do much for consumers, Lysyk found. The province claims the meters and time-of-use pricing should help customers save money, and lower stress on the system during peak demand periods.

When peak demand is reduced, there’s less need to build expensive generating stations that operate for only a few hours a day, and stand idle the rest of the time.

Those benefits have not materialized, Lysyk said.

For one thing, she said, the difference between peak and off-peak rates hasn’t been large enough to encourage consumers to change behaviour patterns. In fact, over the years, the difference has narrowed, providing less and less incentive to cut back during peak demand.

Earlier in the day, energy minister Bob Chiarelli had stood by smart meters. “Studies have shown people are saving money with smart meters,” he insisted in the Legislature.

But Lysyk wrote that it’s difficult for customers to even understand their bills.

Most power generators are laid not through a visible market, but through contracts with a set price schedule.

The cost of all those contracts is now rolled into a single, opaque ball and charged back to customers through a fee called the “global adjustment” that now makes up about 70 per cent of the energy charge on hydro bills.

Consumers will pay $50 billion in global adjustment fees in the period 2006 to 2015, Lysyk estimates.

How much is that? It would cover the 2014 provincial deficit five times.

Lysyk also slams the province for increasing the supply of electricity beyond what the province needs.

Ontario has always exported some power, but exports grew 158 per cent between 2006 to 2013.

The problem is that the electricity is usually sold at a steep loss: “The total cost of producing the exported power was about $2.6 billion more than the revenue Ontario received from exporting that power.”

The losses are made up for by Ontario ratepayers through the global adjustment fee.

Lysyk didn’t save all her criticism for electricity.

She also criticized the Ontario Energy Board for failing to monitor gas utilities as closely as it should.

The utilities, which are paid to deliver natural gas to their customers, are not supposed to profit on the commodity cost of the gas. They are simply supposed to pass on what it cost to buy from producers.

On the whole, Lysyk found, consumer gas prices are in line with commodity costs.

But she found that energy board staff rely almost entirely on the gas utilities for their version of what the commodity cost is: “Board staff seldom obtained source documents to verify the information.”

Complaints against gas marketers who sell fixed-price natural gas contracts declined by 81 per cent from 2009 to 2013, Lysyk found.

But she said the energy board could do more to help consumers by providing rate information from the various gas providers on its website.


Ontario’s Auditor General has released a report that damns the smart meter program for such reasons as:


  Smart meters were supposed to cost $1 billion. In fact, the total cost will be double that amount. (even at double, the cost per meter is only $416.67 vs. $555 in BC).

  The energy ministry grossly over-estimated the benefits of the smart meter program. It figured the benefit would be $600 million over 15 years. But it forgot to include a yearly inflationary increase of $50 million. That reduces the net benefit of the huge project to $88 million over 15 years.

  The cost of smart meters varied wildly among Ontario’s 73 local utilities, which paid from a low of $88 per meter to a high of $544.

  Energy bureaucrats have bamboozled consumers for years by hiding the true costs of energy in a catch-all fee called the “global adjustment” that now makes up the majority of the cost of energy




Ontario’s auditor general’s report:

Excerpts from the report, the $$meter section is at pages 362-404.


i)             As well, the benefits of Smart Metering in reducing distribution companies’ operating costs and reducing electricity bills to ratepayers were so far limited: Of the distri­bution companies we consulted, 95% said they real­ized no savings and their operating costs actually rose, and over half said they received a high volume of ratepayer complaints about “increased bills with no savings.”

ii)            In 2013, separate studies released by the Ontario Power Authority and the OEB indicated that TOU pricing had a modest impact on residential ratepay­ers, reducing their peak demand by only about 3%, but a limited or unclear effect on small businesses, and none at all on energy conservation.

iii)          Those distribution companies that did track complaints found that most ratepayers were upset about TOU pricing, which they believed resulted in higher electricity bills than previously.

iv)          The IESO has exclusive authority to develop and operate a provincial data centre in which to process smart-meter data for the province. However, the goal of operating the provincial data centre as a central system to ensure standard and cost-effective data processing has not been met because most dis­tribution companies have used their own systems to process smart-meter data (before transmitting it to, or after receiving it from, the provincial data cen­tre) for billing purposes.

v)           There are 73 distribution companies across Ontario, each responsible for procuring, installing and operating smart-meter systems. Each distribution company negotiated with different vendors to procure sys­tems for their regions. As a result of the different costs incurred by distribution companies, we noted that the average cost per meter was about $190, but varied significantly, ranging from $81 per meter at one distribution company to $544 per meter at another.

vi)          The installation of about 4.8 million smart meters in Ontario rendered millions of conven­tional analog meters obsolete, making it necessary to retire and dispose of them sooner than planned. The distribution companies we consulted said the analog meters they had to scrap were still in good shape and could have been used for another five to 16 more years.

vii)        another additional cost is related to the replacement of smart meters, which will likely further increase the Delivery Charge on electricity bills because smart meters would be subject to earlier and more frequent replacement than analog meters.

The estimated useful life for a typical smart meter is 15 years, compared to 40 years for an analog meter. The dis­tribution companies we consulted said the 15-year estimate is overly optimistic because smart meters:

• are subject to significant technological chan­ges, making it difficult to maintain hardware and software for the first-generation meters, which do not have the advanced functions of newer models;

• have complex features, such as radio com­munications and digital displays, which are subject to higher malfunction and failure rates;

• are similar to other types of information tech­nology, computer equipment and electronic devices in that they are backed by short war­ranty periods and require significant upgrades

or more frequent replacements as the technol­ogy matures; and

• will likely be obsolete by the time they are re-verified as required by the federal agency Measurement Canada every six to 10 years

viii)       About 4.8 million smart meters have been installed by distribution companies across Ontario, but approximately 812,000 of them, or about one in six, have not transmitted any data to the prov­incial data centre for processing.  (Note: 812,000 being manually read)

ix)          Smart meters enable the collec­tion of massive amounts of personal electricity-use data, allowing ratepayers and distribution com­panies—as well as anyone else with access to the data—to see exactly what makes up a ratepayer’s electricity use. The smart-meter data could reveal when people are out, daily routines and changes in those routines. As a result, electricity-use patterns could be mined, for example, for marketing and advertising purposes.

x)           Therefore, there could be security risks at the distribution-company level that the IESO was not aware of and over which it had no control.

xi)          The Office of the Fire Marshal (OFM), Ontario’s principal adviser on fire protec­tion policy and safety issues, indicated that it is aware of fires involving smart meters in Ontario, elsewhere in Canada, and in the United States. However, some distribution companies and fire departments do not report such cases to the OFM, so more information is needed to assess the extent of the problem in Ontario.

xii)    From May 2011 to March 2013, for example, the OFM recorded 14 fires involving either meters or the bases on which they were mounted. Based on anecdotal evidence, the OFM identified three possible root causes for the fires:

• old meter base connections may have been loose or otherwise unfit for a seamless exchange to a new smart meter;

• new smart meters may have been improperly installed; or

• new smart meters may have had defects that caused electrical failures or misalign­ment with the old meter base

xiii)       In February 2007, and again in Octo­ber 2012, the ESA indicated that it has been aware of potential fire risks in smart meters, and incidents of property damage involv­ing smart meters and/or meter bases. To address these concerns, the ESA surveyed the distribution companies, asking them to provide information on such incidents. However, the ESA indicated that it has not received sufficient information to conclude on the severity of the issue or the types of meters causing problems.

xiv)      Insufficient tracking and monitoring of smart meters-related fire incidents has made it difficult to determine the scope and extent of the problem across the province as well as to address the prob­lem accordingly, creating safety risks in Ontario.  (Note:  No one is tracking fires, just like in BC)

And one member found this amazing revelation revealed in the last line of the article:

Nevertheless, the ministry promised not to take on any more $2-billion projects without thinking them through. “In line with best practice, the Ministry will ensure that the proper analysis is completed ahead of implementing major initiatives,” it said in its formal written reply, included in the report.