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Regulatory Neglect Thwarts Sub-metering Rental Housing Industry Awaits Defensible Rules
April, 2009
By Barbara Carss
Electrical sub-metering is effectively on hold in multi-residential rental buildings following a recent opinion from the Ontario Energy Board’s Chief Compliance Officer, but the seeming setback could be a step toward the clear rules for implementing the technology that landlords, tenants’ groups and energy conservation proponents have long advocated.
Rental housing and sub-metering industry representatives are now in discussions with the Ministry of Energy and Infrastructure, the Ministry of Housing and the Ontario Energy Board (OEB) to try to resolve how landlords can obtain appropriate consent from tenants to install sub-meters, and to clarify the status of the tens of thousands of rental housing units that have already been sub-metered.
“We have been asking the Ontario Energy Board to address this issue for years,” says Vince Brescia, President and Chief Executive Officer of the Federation of Rental-housing Providers of Ontario (FRPO). “There was never a regulatory system put in place, but there was never any indication from any corner of government that it intended to stop this activity. In fact, all the messages coming out of government were the opposite.”
The Ontario government has an ambitious goal to install smart meters, which measure electricity consumption at the time of use, in all single-family residences by the end of 2010. This will allow consumers to take advantage of off-peak times when electricity prices are lower to operate more energy-intensive equipment and appliances such as dishwashers, clothes washers and dryers. Alternatively, it will deliver a price signal to encourage consumers to adjust their consumption habits, particularly during the peak hours of demand when energy costs are higher.
However, energy management specialists maintain that a single bulk meter, even if it is capable of measuring time of use, does little to change occupants’ behaviour in multi-residential or multi-tenanted commercial buildings when electricity costs are simply averaged out over the entire tenant base. Sub-metering is affiliated technology that measures the electricity each unit consumes so that the true consumption costs can be passed through to the occupants.
ENDORSEMENT PRECEDES OBJECTIONS
The Ontario Power Authority (OPA) appeared to be in agreement in 2007 when it gave a Certificate of Achievement to Park Property Management, which manages nearly 8,000 rental units in Ontario, and its sub-metering contractor, Stratacon.
The Minister of Energy at the time, Donna Cansfield, also commended Stratacon, a utility management company and provider of smart meter and sub-metering technology that operates primarily in the rental housing sector, in a speech in the Ontario legislature. “Nobody really believes that the OEB has been unaware that sub-metering [in rental buildings] has been going on for some time,” Brescia says.
The companies that have been installing sub-meters in rental apartment buildings are licensed to do so in multi-residential condominium buildings under Ontario’s Electricity Act and a Regulation of that Act (O.Reg. 442/07). This allows for the installation of sub-meters in new construction or in existing registered condominiums with the approval of the condominium corporation’s board of directors.
In March 2009, the OEB issued a Compliance Bulletin, stating: “The installation of sub-metering systems in residential complexes, other than condominiums, is not currently authorized by the Electricity Act or regulation. Therefore, such activities are currently prohibited based on Section 53.18 of the Electricity Act.”
The bulletin is not a binding directive from the Board. It is simply the Chief Compliance Officer’s interpretation and opinion, but affected parties are responding cautiously.
“It has put sub-metering completely on pause, but we still believe the government understands the benefits,” says John MacDonald, President and Chief Executive Officer of Stratacon, which is licensed by the OEB to install sub-meters in condominium buildings. “We have been talking quite extensively to the government and we’re working with other sub-metering companies. We’ve put together, as an industry, a voluntary code of compliance that we believe should address a lot of the OEB’s concerns. Our belief is that the issue really revolves around how we obtain consent for sub-metering.”
COMPLICATING FACTORS
Implementing sub-metering in rental housing is logistically complicated since it could contravene other legislated protections for tenants if not introduced properly. The Residential Tenancies Act (and the prior Tenant Protection Act) allows landlords to increase the rent to whatever the market will bear when a unit is vacated, but once it is reoccupied, the rent can only increase by restricted amounts. Removing electricity costs from the rent and compelling tenants to pay them directly alters the basis from which allowable rent increases are calculated.
“Our members are very cautious and they’ve actually been moving quite slowly on this front,” Brescia says. Most landlords and their sub-metering contractors have opted to get tenants’ consent for a set rent reduction as a tradeoff for paying electricity costs separately, or landlords have waited until the units turn over to entrench separate hydro payments into the lease and rent structure for incoming tenants.
The compliance bulletin appears aimed at new installations rather than existing sub-meters. Landlords are free to make sub-metering a condition of the lease for incoming tenants, but sitting tenants who have switched from inclusive electricity costs to sub-metering create some uncertainty. “If there is consent in place, it is our view that it’s business as usual,” MacDonald says.
Technically, it would be simple enough to apportion electricity costs as before based on bulk meter readings, but landlords would need approval from the Ontario Rental Housing Tribunal to adjust rents to once again recover electricity costs. “It would be a logistical nightmare and I don’t think the government wants to swamp the Tribunal with applications,” says Margaret Herd, Vice President, Residential Management, with Park Property Management, which has about 4,500 sub-metered units in its portfolio.
GAPS & INCONSISTENCIES
Negotiators for the rental housing and sub-metering industries are now hopeful the provincial government will create another Regulation under the Electricity Act to allow sub-metering in rental apartment buildings. “It’s open to them to specially create a Code of Conduct and start issuing licenses, and they can do that quite quickly,” says Joe Hoffer, a Partner with Cohen Highley LLP who specializes in residential tenancy law.
The Residential Tenancies Act, 2006, contains two sections that address smart meters and the apportionment of utility costs, but neither section has yet been proclaimed into law. Some of the proposed measures within Sections 137 and 138 have been contentious. Notably, prorating rent reductions to the tenant’s electricity costs, as per Section 137 (3), would reward the most wasteful users with the greatest rent discounts, while more frugal consumers receive lesser reductions. However, the inactive sections set out formal rules for notifying, compensating and protecting tenants that rental industry representatives point to as a more focused way to mitigate potential drawbacks for low-income tenants than a blanket prohibition on sub-metering.
“The irony is that tenants are far better off to have the electricity component [of their rents] paid separately to a third party than to have it paid in the rent,” Hoffer maintains. “If the tenant hasn’t paid the electricity bill, it has to go through a lengthy collections process. The landlord can’t evict. The tenant stays in the unit.”
Meanwhile, the OEB’s compliance bulletin highlights a disparity between tenants in rental apartment buildings and those in condominiums even though tenants in condominiums fall under the auspices of the Residential Tenancies Act.
“In a condo building where there are tenants, sub-metering is still lawful,” Hoffer says. “All the terms and conditions of their tenancies are the same. The only thing different is the tenure of the building. So there’s no real basis for making that distinction.”
CONSERVATION & COST-SAVING POTENTIAL
The evidence from sub-metered buildings shows that many tenants see a drop in their electricity costs when they are charged precisely for what they consume. In many cases, these tenants have gained financially because rent reductions more than compensate for new direct electricity costs, and there is little doubt that the overall results support the Ontario government’s goals for a conservation culture.
“In the first year, in 2,500 units, we reduced our electricity consumption by 30%,” Herd reports. “We’ve found that the complaints are coming from the abusers, but we’ve had a good response from most of the tenants who are becoming more educated about the need to conserve. I find it outrageous that the government would select tenants to be exempt from its conservation goals.”
Tenants in rental apartments have arguably been denied an economic incentive that is available to tenants in condominiums. “Part of the culture of conservation is that you should be able to benefit from your conservation,” notes James Sidlofsky, a Partner with Borden Ladner Gervais LLP’s energy markets group.
“Our finding has been that if people are more in control, they will buy into the program,” MacDonald concurs. “We’ve got a lot of letters from tenants who have become aware of the issue and have said that they want to continue in the sub-metering program.”
The exact tally of each suite’s energy use has also had a spinoff payback in Park Property Management’s portfolio. “We’ve effectively eliminated [marijuana] grow ops by doing this,” Herd says. “We are adding to safety and security of residents because now that element of society doesn’t want to live in the building.”
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