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

1. Program Implementation 2. TOU Rate Design 3. Customer Choice Customer Issues Smart metering has a number of benefits for Ontario residential customers, but there are issues in:

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

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

 >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” Structural Complexity

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

 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 TOU Rate Survey

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

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

Active Discontinued Bill Impact Source: IBM Ontario

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

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

 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 Low Opt Out Levels for “Mandatory” TOU Rates

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

1. A complex implementation program - Aggressive schedule - Difficult geography - Roles to be clarified 2. Complex TOU rate structure - Small differentiation in peak to off-peak rates relative to many other programs 3. Mandatory program - With retailers opportunity to market an opt out option 4. Others - Lack of local TOU rate experience - History of political promises of savings Summary of Residential Customer Issues

 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 Going Forward