Anyone following the progress of Ontario’s Smart Metering Initiative and wondering how it applies to condominiums should read an August 2009 decision of the Ontario Energy Board (“OEB”) on smart sub-metering in rental buildings. See the decision here.

This case was commenced by the OEB on its own initiative as a stop-gap interim measure to try and guide a widespread frenzy of landlords outfitting their rental buildings with smart sub-metering equipment despite the fact that such installations have been expressly prohibited by law since 2005. Some landlords have actively begun downloading electricity costs to tenants, which is similarly illegal.

Rather then stand by while landlords carry out all of this illegal work, the OEB’s recent ruling now authorizes landlords to install smart sub-meters in rental apartment buildings and industrial, commercial or office buildings, but landlords must meet strict conditions before they can bill the tenants for the electricity they consume.

The conditions include obtaining and providing tenants with an energy audit and then obtaining the tenant’s express written consent to the billing. Another condition is that landlords must follow the Smart Sub-Metering Code that was drafted specifically for situations where condominium corporations arrange for a smart sub-metering provider to install a smart sub-metering system and operate the billing service and collect the money from unit owners. This Code, enacted in 2008 with precious little input from the condominium industry, is available here. The August 2009 ruling by the OEB adapted this Code for use by landlords by making a few small changes, such as replacing the words “condominium corporation” with “landlord” (or its OEB equivalent, “distributor”).

Little has been said by condominium lawyers or managers about the OEB’s Smart Sub-Metering Code, presumably because it has hardly been used, but it seems clear that it will soon be given a vigorous workout by the residential landlords who are chomping at the bit to start downloading electricity costs to tenants. The result might be that some of the kinks in this Code are worked out before many condominium corporations find themselves having to deal with it. That may be positive news.

While nothing else in this recent decision of the OEB directly affects condominium corporations, some of the commentary is educational and interesting, especially the discussion on the differences in the smart metering legislation as between residential tenancy scenarios on the one hand and condominium complexes on the other. In setting out the current context of smart sub-metering, the OEB said the following:

In the residential complex setting the implementation of smart sub-meters is intended to at once make tenants directly responsible for their actual usage, while enabling them to control and constrain their usage to control their costs. This element of direct control and attendant responsibility for electricity usage is key to the government’s smart metering strategy. It is the government’s stated intention to drive overall conservation and energy efficiency through individual responsibility incented by pricing structures. It is for this reason that the government announced that smart meters will be installed in every home in the province by the end of 2010. The government explicitly authorized licensed distributors to install smart meters through Ontario Regulation 427/06 made under the Electricity Act. That process for single-family residential dwellings is well underway, and in some communities in Ontario has been completed. It is expected that the government’s goal of province wide installation of smart meters will be achieved soon, and that time-of-use rates, necessary to exploit the full value of smart meters and smart sub-meters, will be in place in the near term. The Board has noted the government’s announcement on May 14, 2009 which stated that an estimated 3.6 million customers will be on time-of-use rates by June 2011.

The government also explicitly authorized the installation of smart meters or smart sub-metering systems in condominium settings through the adoption of Ontario Regulation 442/07 made under the Electricity Act. The regulatory regime established by the government to achieve this purpose involved empowering the condominium corporation or the developer to enter into smart metering or smart sub-metering implementation arrangements.

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. That may explain why the government has not yet put in place parallel legislative instruments to authorize the program for residential complexes.

While interesting, these comments about the fiduciary duty of condominium corporations are somewhat puzzling, given the fact that section 53.17 of the Electricity Act, 1998 and O.Reg 442/07 appear to permit condominium corporations to go ahead and install smart sub-metering systems and commence third party billing of unit owners, all without the need for approval by unit owners. This is, by any stretch, a radical departure from the provisions in the Condominium Act, 1998 that require approval by a large proportion of owners for changes to services and, where required, amending the condominium declaration as to whether expenses are common expenses or shall be paid by the individual owners. While this remarkable power of the board of directors can, in some cases, be the only difference between financial stability and ruin for many condominiums, some might say that a fundamental democratic principle has fallen victim to the environmental imperative. This, however, is a much larger debate for another day.

The OEB went on to say:

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.

This observation is not entirely inapplicable to condominium unit owners, who typically cannot modify, maintain or repair the common elements, which often include the insulation, exterior walls, window frames, etc. The “disconnect” referred to by the OEB is a question of fairness that also applies in the case of smart sub-metering in condominiums and must be addressed as part of the decision-making process. Boards of older condominium buildings that impose smart sub-metering without considering the relative energy efficiency of the units may be doing their owners a major disservice and can probably expect a major backlash during the winter months of the first year of individual billing. It is trite to say that installing smart sub-metering cannot succeed without significant communication, consultation and involvement with the owners. This, too, is a topic for another day.

Since it is still very early days for smart sub-metering in condominiums and because there is considerable confusion and understandable reluctance by condominium corporations to “take the plunge” and install this equipment, there have been relatively few lessons learned that could be applied to the regulation of smart sub-metering in rental buildings. It therefore comes as no surprise that the OEB has, with this recent ruling, changed the playing field so that landlords are given access to the legislative infrastructure designed for (but hardly used by) condominium corporations.

The net effect of this ruling is to allow the rental sector to take the lead in smart sub-metering, which should give condominiums a comfortable seat from which to watch what happens and to learn from the growing pains.