April 1, 1996
Pre-filed Testimony on Behalf of Energy Probe
Senior Consultant, Borealis Energy Research Association
Presented to the Ontario Energy Board Regarding
IN THE MATTER OF the Ontario Energy Board Act R.S.O. 1990, c. O.13;
AND IN THE MATTER OF an Application by The Consumers’ Gas Company Ltd. for an order or orders approving rates to be charged for the sale, distribution, transmission and storage of gas for its 1997 fiscal year.
The following pre-filed evidence is submitted on behalf of the intervenor, Energy Probe. A résumé of the author is attached as Appendix A. The evidence addresses item 3.5.6, “Meter Reading and Billing”, of the Board’s Issues List in E.B.R.O. 492. The purpose of the evidence is to address meter reading costs related to residential and small general service customers (although, where costs for larger customers were available it is included.) The evidence benchmarks the meter reading costs of Consumers Gas against comparable municipal electric utilities in Ontario. The evidence also attempts to put meter reading costs in the context of total customer accounting costs.
The meter reading cost of Consumers Gas for residential customers is $0.965 per read. This cost is three or more times the current costs for meter reading reported by the three largest municipal electric utilities surveyed.
Meter reading costs at all the municipal utilities surveyed are being aggressively managed and are expected to drop this year or next year.
All of the municipal electric utilities surveyed are doing, or want to be doing, multi-utility metering, which they all recognize as efficient. Maintaining data integrity is a key competitive issue for the surveyed utilities.
The results of this survey suggest that the competitive pressure on municipal electric utilities to maintain load during and after a period of significant bulk power rate increase appears to have been a more effective force for promoting efficiency in meter reading than the exercise of Ontario Hydro’s regulatory oversight of these utilities. Competitive pressure on electric distributors since the early 1990s also appears to have been more effective in driving meter reading efficiency than did regulatory oversight of Consumer Gas during a period of generally declining gas commodity prices.
Consumers Gas should lower its meter reading costs for residential customers to the current level of comparable municipal electric utilities. The resulting reduction in the Consumer Gas’ proposed Test Year cost of service would be approximately $3.9 million. However, the Board may wish to make some accommodation for transition costs. I suggest that Test Year meter reading costs for general service customers be cut by $3.5 million. Whether or not accommodation is made for transition costs, the company should also be required to reduce meter reading costs in the near future at least to the current cost of Scarborough Hydro, which is almost four times as efficient as Consumers Gas.
I surveyed four municipal electric utilities: Scarborough Hydro, Milton Hydro, London Hydro, and another utility that is among the largest five in Ontario but wished to remain anonymous. The three large utilities were selected as broadly comparable to Consumer Gas in that they serve urban, industrialized parts on Ontario. Milton Hydro was included as an example of a utility serving a lower density area. Another reason these utilities were selected was because they are generally recognized within Ontario’s electricity industry as aggressive managers and industry leaders within Ontario’s power distribution sector. I also interviewed one of the major meter reading contractors in Ontario. At each of the surveyed utilities, I interviewed the respective general manager. Also, in each case, except for Milton Hydro, I interviewed utility personel directly responsible for meter reading.
All surveyed utilities read residential and small general service meters six times per year (except as noted below), as does Consumers Gas.
London Hydro’s meter reading cost for residential and small general service customers is $0.31 per read. This cost blends the costs of to hard-to-read and easy-to-read meters. London Hydro contracts out all of its meter reading. The most recent contract was signed in 1994. The price is fixed and the term is five years with an option for two additional years. The contract contains a clause that allows the utility to get out of the contract on a 30-day notice if the contractor’s performance is unsatisfactory. London Hydro currently owns its own hand-held hardware and provides it to the contractor. The utility is planning to sell its equipment and contracting for a bundled service, for both cost savings and improved flexibility. The anticipated cost premium for bundled service is expected to be in the order of one to two cents per read. London Hydro was created in that city’s municipal annexation in the early 1990s. Prior to annexation, London was served by the London Public Utilities Commission, which services water and electricity customers. Annexation led to the removal of the water service function and also added a significant number of low-density customers to London Hydro. Although the London Public Utilities Commission had a more dense service area, its meter reading costs, measured at dissolution, were higher, at 36 cents per read. London Hydro, through its contract, also collects water metering data for the City of London Works Department along with it own electric metering data. London Hydro is doing Automatic Meter Reading (AMR) for time-of-use metering and is strongly committed to AMR development. AMR is contracted out. London Hydro is also considering card swipe prepayment meters for customer service reasons and to reduce bad debt costs.
Milton Hydro’s meter reading costs per read are as follows:
Table 1: Milton Hydro Meter Reading Costs
Residential Outside Electric/Outside Water $0.40 Residential Outside Electric/Inside Water $0.71 Residential Inside Electric/Inside Water $0.75 Residential Rural Outside or Inside Electric (No Water) $1.04 Commercial Urban Electric (kWh, kVA, kW)/Water $1.00 Commercial Rural Electric (kWh, kVA, kW) (No Water) $1.87 Final Read – Residential Urban $1.25 Final Read – Residential Rural $2.35 Final Read – Commercial Urban $1.25 Final Read – Commercial Rural $2.25
These prices include equipment charges. Milton Hydro is the smallest surveyed utility by a substantial margin and has the lowest customer density. Milton Hydro is presently pursuing a cooperation agreement with Union Gas in an effort to reduce costs. All of Milton Hydro’s meter reading is contracted out and has been for many years. Milton Hydro also has an AMR development program.
Scarborough Hydro’s meter reading cost are currently the lowest of the surveyed utilities. Scarborough is Canada’s largest multi-service utility, serving both water and electricity customers. Scarborough Hydro’s residential meter reading costs per read are shown in Table 2.
The costs in Table 2 reflect the fact that Scarborough Hydro provides the meter reading equipment to the contractor. However, the utility currently has an request for proposals (RFP) out for meter reading services. Scarborough Hydro anticipates that the RFP will it out of the business of owning the meter reading equipment while lowering costs. Scarborough Hydro’s experience suggests that substantial economies exist in multi-utility meter reading. Scarborough Hydro has a strong commitment to AMR for time-of-use rates and is negotiating with Consumers Gas on shared meter reading.
Table 2: Scarborough Hydro: Current Residential Meter Reading Costs Electric Outside $0.25 Electric Inside $0.34 Water Outside $0.13 Water Inside $0.37
I also surveyed another large municipal utility. Its residential metering reading costs are approximately 30 cents per read. Its residential meters are read six times per year except for its electric heating customers which are read monthly. For industrial and commercial customers with demand and energy meters, the cost per read is approximately $1, and meters are read monthly. Large accounts are not included in this figure. This large utility is pursuing a joint program with another utility to contract out for multi-utility meter reading services. The hope of this large utility is that its residential meter reading costs can be reduced by 15% to 20% through co-operation.
The municipal electric utilities surveyed were not always as efficient in meter reading as they are today. Historically, some Ontario electric utilities had costs as high as $1 per read. The work was typically done by utility staff, and contracting out was limited or non-existent. Utility work rules were rigid and employees were typically paid hourly with little incentive for efficiency. The rate shock imposed on municipal electric utilities by Ontario Hydro in the early 1990s damaged the interests of the utilities. Sales volumes in virtually all market segments went into a period of sustained contraction. At the current bulk power rates, most municipal utilities are unlikely to see sales volumes return to the level they were at in 1989 until well after the year 2000. The need to retain load and reduce competitive losses to competing fuels, particularly gas, forced these utilities to re-examine all elements of their distribution costs, with particular attention to controllable O&M costs.
Discussion and Comparison
Metering reading costs are controllable O&M costs, not subject to cost-increasing pressures from third party influences. Energy Probe has had an active interest in the controllable component of Consumer Gas’ O&M costs since E.B.R.O. 487.
For Consumers Gas in the fiscal year 1995, the average annual cost of meter reading for general service customers was $5.79 (Ex. I Tab 4 Sch. 10). Since Consumers Gas reads meters six times per year, the cost per read is $0.965. Consumers Gas is increasing the share of meter reading contracted out. At present, approximately 70% of all meter reading is contracted out. The cost per read for contracted reading is in the order of $0.50. Consumers Gas is actively discussing shared meter reading with many other utilities. Switching to shared meter reading could initially be somewhat cumbersome given the number of utilities involved.
For Consumers Gas, inside meters are substantially more costly to read than outside meters. For Consumers Gas the annual cost for reading each inside meter is $11.16 in 1995 (Ex. I Tab 4 Sch. 10), or $1.86 per read. Approximately 300,000 of its residential meters are inside.
The primary factor driving meter reading costs appears to be the efficiency of the utility. The next most important factors are whether multiple meters are read, and whether the meter is located inside or outside. The electric utilities surveyed have added far fewer customers in recent years than Consumers Gas. Therefore the electric utilities have had much less opportunity, relative to Consumers Gas, to shift the proportion of their meters from inside to outside locations. Other significant factors driving costs include customer density on the streets served and the presence of meter obstructions.
I have attempted to quantify factors that may affect the comparability of meter reading costs between utilities. One factor that affects comparability is the treatment of utility-owned equipment. The case of London Hydro suggests that the premium for bundled service, including an equipment charge, may be in the order of a few cents per read. Another potential factor is the treatment of route planning costs. Route planning costs are primarily startup costs. I conclude that the data in Ex. I Tab 4 Sch. 10 appear to be roughly comparable with reported meter reading costs from municipal utilities.
Meter reading costs contribute to customer accounting costs through the cost allocation process. Customer accounting costs are insensitive to the volume of usage and should be recovered on a fully allocated basis through a fixed charge such as a monthly hookup charge. The annual customer accounting costs for each residential and small general service customers of Consumers Gas are shown in Table 3.
The customer accounting costs of Consumers Gas have escalated significantly over the five years as shown. Although meter reading costs are a modest component of total customer accounting costs, which for the Test Year will be over $10 per month per customer according to the company’s proposal, the savings to be obtained by bringing the efficiency of Consumers Gas up to the level of the largest surveyed electric distribution utilities is significant.
Table 3: Consumers Gas Annual Fully Allocated Customer Accounting Cost per Customer EBRO 492 EBRO 490 EBRO 487 EBRO 485 EBRO 479 Costs ($ millions) Rate 1 144.57 127.93 112.5 104.58 94.43 Rate 6 15.91 14.41 13.05 12.2 11.81 Customers (millions) Rate 1 1.177 1.136 1.096 1.054 0.99 Rate 6 0.13 0.126 0.124 0.121 0.118 Cost/Cust. ($/cust.) Rate 1 $122.83 $112.61 $102.65 $99.22 $95.38 Rate 6 $122.38 $114.37 $105.24 $100.83 $100.08
References: Fully allocated customer accounting costs: Ex. I, Tab 4, Sch. 8 Customer numbers: Exhibits C3, C4, C5, Tab 3, Sch. 1
Consumers Gas should have meter reading costs in the order of 30 cents per read with an expectation of further cost reductions in the near term. Efficiency gains of this magnitude would represent an annual saving of $3.00 per residential and general service customer and a reduction in revenue requirement in the Test Year of $3.9 million. In considering this matter, the Board may want to make some accommodation for transition costs. I suggest that Test Year meter reading costs for general service customers be cut by $3.5 million. Whether or not accommodation is made for transition costs, the company should also be required to reduce meter reading costs in the near future at least to the cost of Scarborough Hydro, which is almost four times as efficient as Consumers Gas.
This concludes my pre-filed evidence.