Ontario Electricity Board Bans Landlord "Smart" Submetering of Electricity Without Energy Audits, Transparency, and Specific, Informed Tenant Consent

On August 18, 2008 the Ontario Electricity Board issued a Decision and Order on submetering that involves many of the same issues faced by New York tenants due to the dog's breakfast of a submetering regime created by the New York State Public Service Commission.

The Ontario Energy Board (OEB) found all current submetering to be unauthorized, and nullified any prior consents of tenants to take submetered electric service. its Order allowed future submetering only if certain conditions are met. Some of the more significant conditions include

1. Disclosure to tenants of the results of unexpurgated third-party energy audits prior to any agreement requiring the tenant to pay charges for electricity, which includes disclosure of the proportion of Energy Star appliances and an assessment of the building envelope;
   
2. Transparent disclosure of all costs being passed through, including administrative costs and contracts with licensed metering and billing companies;
3. No profit-making by the landlord,
   
4. Specific rent reductions with disclosure of the method used to recalculate rent when the tenant pays for electricity, and, most important,
   
5. New individual tenant consent to pay for electric service from the landlord that is informed and voluntary and accompanied by the required disclosures.

Background
According to the Ontario Electricity Board (OEB) Decision and Order, the situation in Ontario presented many of the problems now plaguing New York's submetered tenants:

Prior to the creation of this proceeding the Board received many complaints from tenants with respect to the implementation of smart sub-metering in their apartment buildings.

**** [T]he Board received over 250 submissions from affected parties, an overwhelming number of which came from bitterly unhappy tenants and tenant organizations. Tenants have indicated that smart sub-meters have been installed in their buildings and their units under a variety of terms and conditions, not all of which have been clear.

**** [T]he volume of complaints, their nature, and the scope of the smart sub-metering activity being undertaken in the province led the Board’s Chief Compliance Officer to issue a Compliance Bulletin which unequivocally characterized the discretionary metering activity being undertaken as unauthorized, and inconsistent with the requirements of the Electricity Act, 1998....

**** Tenants have been, and apparently are being, asked to consent to smart sub-metering under circumstances that do not meet the statutory requirements, or even reasonable practice.
The submissions received from all sides of the issue suggest that there is an air of urgency respecting this subject.

**** As things stand now, no discretionary metering activity by landlords in residential complexes or industrial, commercial, or office building settings is authorized. The Board considers it to be in the public interest to remove such barriers as it reasonably can to the orderly and lawful implementation of this important government policy.

Accordingly, the Board has decided to issue an order which will permit these discretionary metering activities, according to a set of terms and conditions which are thought to provide reasonable protection for the legitimate interests of all affected persons, until such time as the anticipated legislative package is in place. In the Board’s view, reasonable protection will be achieved through written consent, which is both informed and voluntary, by tenant consumers.

Inadequate Rent Reduction and Shifting to Tenants the Cost of the Landlord's Energy Inefficient Facilities.
The OEB described flaws inherent in landlord submetering that were pointed out in the tenant comments:

First, [tenants] had little confidence in the methodologies employed by landlords to establish rent reductions associated with individual metering. A very high percentage of the submissions received reported that the rent reductions offered by landlords were far smaller than the new electricity bill they were being asked to pay....

Another area of concern for tenants really goes to the heart of the program itself. Tenants expressed the view that they had little ability to control or manage the costs associated with their electricity use. They complained that the landlord has exclusive authority to select and install all of the important electricity dependent appliances. In many cases they indicated that the appliances in use in their particular apartments were old, inefficient, and sometimes poorly maintained. Similar concerns were raised with respect to the insulation value of their respective apartments. Tenants have typically no authority, and little ability, to improve leaking windows and doors or poorly insulated walls. This lack of control of key elements of conservation potential is particularly concerning. If tenants have no genuine ability to improve the energy efficiency of their units, how meaningful can individual billing be?

Many tenants complained that the proposal for smart sub-metering was presented substantially as a requirement and not as a matter requiring their consent....

Condominium and Rental Housing Submetering Distinguished.
The OEB noted the fundamental differences posed by landlord submetering in the residential rental context:

In the condominium setting, the condominium corporation has a fiduciary duty to the unit holders and is unequivocally accountable to the occupants of the respective buildings. There is no parallel to the condominium corporation in the residential complex setting. Each tenant in a residential complex has a separate and distinct contractual relationship with the landlord, and there is no corporate entity that has the legal obligation to represent the interests of the respective apartment unit tenants.

Implementation of smart sub-metering in the residential tenancy environment is a very different exercise than in the condominium context....

First, in an important sense, the roll-out of smart sub-meters in residential complexes is inconsistent with a key principle of the overall culture of conservation energy strategy, which is that with control over energy usage comes cost responsibility.

As was pointed out by many tenants in their submissions, a very substantial element of conservation and energy efficiency activity lies exclusively within the power and purview of the landlord. The landlord selects, maintains and installs the appliances used in the units, and is solely responsible for the maintenance of the buildings, including installation of windows, doors and insulation. Typically, the tenant has no control over these key elements, yet the installation of smart sub-meters has the effect of transferring responsibility for electricity charges for the apartment unit from the landlord to the tenant. This is a disconnect between control and cost responsibility.

In the Board’s view, this set of circumstances requires that the implementation of smart sub-metering in residential complexes is accompanied by a set of terms and conditions that provides the tenant with sufficient information respecting the condition of the appliances and the integrity of the building’s apartments to make his or her consent an informed consent.

Disclosure of Energy Audit to Tenant Required Prior to Agreeing to Submetering
The OEB nullified all prior consents to submetering, and required disclosure of energy audits to tenants prior to any new submetering arrangement:

The Order accompanying this Decision will contain a provision requiring that the landlord conduct an energy audit of the premises, and make that audit available to the tenant at the time his or her consent is sought. A tenant should not be asked to agree to participate in the smart sub-metering program without having a good appreciation of the extent to which the building and the appliances in use meet the government’s objectives with respect to conservation and energy efficiency.

Transparency of Charges and Subcontracted Meter Services.
The OEB laid out a new transparency requirement that prior to any new submetering with authorization, the owner must provide the tenant with information about costs involved including administrative costs and any outsourcing contracts between the landlord and licensed submetering service companies:

There is a considerable variety of arrangements between landlords and tenants. The informed consent structure reflected in the Order enables tenants to take into account their specific circumstances in deciding whether to participate in a smart sub-metering program in their building.

The Board finds that any smart sub-metering installation in bulk metered residential complexes and industrial, commercial, or office building settings on or after November 3, 2005 is unauthorized, and any resulting changes to financial arrangements respecting the payment of electricity charges by tenants to be unenforceable.

**** The consenting tenant must be in a position to have confidence that the smart sub-metering activity does not impose an unreasonable cost burden associated with the distribution of electricity. This means that the arrangements between the landlord and the smart sub-metering provider must be disclosed to tenants and regulatory authorities requesting the same. Accordingly, the Order accompanying this Decision will contain a provision requiring that the landlord retain, for examination upon request, all of the contractual documents related to any smart sub-metering activity at his or her place of business.

In contrast, in New York unlicensed contractors are allowed by the PSC to provide metering services to landlords who outsource the work to them, and tenants have no access to the contracts, books and records of the landlord relating to charges being demanded for electric service.

A Tale of Two Countries.
The New York Public Service Commission is currently considering a request for rehearing of a decision in which it retroactively approved charges for submetered electric service that had not been authorized. The PSC relied on the fact that tenants were aware that the landlord was charging separately for electric service. See PSC Asked to Rehear Decision Retroactively Approving Four Years of Submetering without an Order Waiving the Prohibition against Resale of Electricity, PULP Network, March 25, 2009. The Ontario Electricity Board in analogous circumstances

found that all of the sub-metering activity in apartment settings . . . has been unauthorized, and arrangements predicated on the unauthorized activities are unenforceable. It makes no difference that those arrangements may have been made with a tenant who is newly entering the premises as opposed to a tenant who is already resident in the residential complex....

**** Landlords and smart sub-metering companies accepted a risk by embarking on discretionary metering activities without the benefit of any authorization pursuant to section 53.18 of the Electricity Act. Their approach has resulted in considerable confusion and disaffection among tenants. The rather awkward state that now exists must be regularized in a responsible fashion if the government’s conservation program is to have any credibility among this segment of consumers.

As a result, tenants in Ontario are now seeking and obtaining refunds of the unauthorized charges for submetered electric service.

In contrast, the New York PSC

• allows landlords to charge for electric service without orders,
  
• allows landlords with submetering orders to ignore their requirements with impunity,
  
• allows landlords to provide untariffed service without valid service agreements with tenants.

Tenants in New York are slammed by landlords requiring purchase of monopoly electric service, without specific informed consent, without adequate rent reductions, without energy audits, and without prior disclosure of expected costs, without any effective oversight, and without enforcement of consumer protection laws.