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Opinion

Smart Meters, Boondoggle in the Making

Why this doomed to fail, billion-dollar mega-project should make BC taxpayers tremble.

By Will McMartin 4 Apr 2011 | TheTyee.ca

Tyee contributing editor Will McMartin is a veteran political advisor and analyst. Read his previous columns here.

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How smart? Spend a billion dollars to save a quarter billion?

A single word -- mega-project -- has been known to make even the hardiest B.C. taxpayer tremble.

We all recall the Coquihalla Highway in the 1980s ($500 million in cost overruns hidden from the legislature), the Fast-Cat Ferries in the 1990s ($400 million plus down the drain), and the newly-expanded Vancouver Convention Centre in the early 2000s ($346 million over budget because the government forgot to draw up a business plan) -- to mention just three.

All looked great, on paper at least, when first proposed. In fact, it's hard to think of one that was certain of failure (or massive over-spending) before getting started.

Not so with BC Hydro's $1 billion smart meter mega-project.

Before even a single one of the new devices is installed, smart meters are doomed to fail. They'll never achieve the stated objective of the BC Liberal government, which is to cut consumers' use of electricity.

And one of the main reasons why smart meters are a dumb mega-project will surprise many -- B.C.'s aging population.

BC households are shrinking

Over the last 20 years (from 1991 to 2010), the number of B.C. residents grew (see Table 1, here) from nearly 3.4 million to over 4.5 million. That's an increase of 34.1 per cent.

The early part of the period saw remarkable growth: in 1994 and 1995, B.C. gained a phenomenal 108,000 and 101,000 people, respectively.

Since the mid-1990s, however, population growth has been slowing.

In 2011, according to BC Stats, we'll add about 66,000 people. And in the years ahead, that number is expected to decline annually, so by 2031 the yearly increase will be in the range of 53,000.

Aging is a major reason for our slowing population growth. Forty years ago, in 1971, the median age in British Columbia was 27.8 years of age. Today, that figure is 41.1 years, and by 2036 it is forecast to be 45.6.

An aging British Columbia means fewer births (as a proportion of the total population), because, obviously, older people have fewer babies (or already have had them) than do younger people.

Indeed, by 2027-28, B.C.'s rate of "natural increase" is expected to turn negative, because after that date the number of people who die each year will be greater than the number of newborns.

So, whereas B.C.'s population expanded by 34.1 per cent over the last 20 years, the rate of growth over the next twenty (2011-2030) is expected to be just 25.9 per cent.

Here is the salient point -- an aging population also means that households are getting smaller.

The year 1981 marked a watershed in the demographic history of our nation. In that year, Statistics Canada found that the number of one-person households had surpassed, for the first time, the number of large households (defined as having five or more occupants).

That trend has continued unabated over the last three decades, and in the 2006 census the number of one-person households was three-times that of large households (27 per cent to just nine per cent).

The fact is, more Canadians live alone today than ever before in our nation's recorded history.

Statistics Canada also reported in 2006 another historic event -- the number of census familes without children was greater than the number of census families with children.

There are many reasons behind the evident shrinking of the size of households in B.C. and Canada, but one of the most important is our aging population. In 2006, Statistics Canada found that 34 per cent of people living alone were age 65 years or older.

Divorce and separation also have led to an increase in the number of people living singly, and fertility rates have been falling across the country for decades.

Five years ago, the 2006 Canadian census reported that the average B.C. household had just 2.47 occupants (compared to the national average of 2.6).

Why smaller households matter

What does an aging population and decreasing household size have to do with smart meters?

To repeat a point made earlier, B.C.'s population between 1991 and 2010 rose by 34.1 per cent. But over the same time frame, the number of BC Hydro residential accounts grew by 43.6 per cent.

(In 1991, the Crown corporation had 1.1 million residential customers; in 2010, 1.6 million. BC Hydro financial and operational data are available in the Crown corporation's annual reports. For data in the 2010 annual report, see p. 112-115 here.)

Why would the number of residential customers be growing faster than B.C.'s population? It's because of our shrinking households.

Determining the average number of British Columbians at each BC Hydro residential account is relatively easy. We merely have to divide the provincial population by the number of residential customers.

By making those calculations, it becomes evident that in the early 1980s, each residential account had an average of more than three occupants; today that figure is under 2.8.

And as British Columbians continue to age, that trend is certain to persist over the foreseeable future (that is, the next 20 years or so).

Smart meters will not -- can not -- have an impact on two of the three factors that drive the consumption of electricity by BC Hydro's residential customers, a growing, and aging, population.

Rate of consumption has fallen for decades

It's straightforward: a growing population means increasing demand for electricity (more people need more power), and an aging population means an ongoing reduction in the size of the average household -- which will continue to keep the rate of growth in the number of BC Hydro residential accounts above the rate of population growth.

Only the third factor -- the quantity of electricity consumed by individual British Columbians -- might be affected by the installation of smart meters.

Indeed, this is the argument put forward by both the BC Liberals and BC Hydro. They claim that smart meters will increase consumer awareness of electricity use. Armed with this information, residential customers will make a conscious decision to cut back on consumption.

Yet, the fact is that the demand for electricity by residential consumers already is in decline -- and is clearly shown to be doing so by BC Hydro's own data -- even before the wasteful, unnecessary expenditure of $1 billion on smart meters.

In 1971, the average BC Hydro residential account consumed 6,949 kilowatt hours of electricity. At the beginning of the next decade, in 1981, that number had jumped to 9,001 kWh, and it grew again in 1991, to 10,089. (See p. 113 of BC Hydro's 2010 annual report here. The line, "Average annual kWh use per residential customer," has been a regular feature of the Crown corporation's annual reports since the 1960s.)

But consumption by the average residential customer has begun to flatten during the last 20 years. In 2001, the typical BC Hydro household used 10,344 kWh of electricity, and last year, in 2010, that figure was 10,857.

By examining decade-over-decade growth -- that is, taking the average for all the years in a decade, and comparing it to the preceding 10-year period -- it's easy to see just how dramatically has been the fall in the rate of increase.

From the 1970s to the 1980s, the growth in the consumption of electricity by the average BC Hydro residential account was 18 per cent.

That figure fell almost in half, to just 9.4 per cent, from the 1980s to the 1990s.

And then it fell in half again, to 4.5 per cent, from the 1990s to the first decade of the 2000s.

Can anyone discern a pattern here?

The point is, even before the expenditure of nearly $1 billion on smart meters, the rate of increase in the consumption of electricity by BC Hydro's residential customers has been falling for several decades.

No independent analysis of smart meters

So, why is our publicly-owned Crown corporation, BC Hydro and Power Authority, embarking on a costly mega-project when the empirical evidence so clearly shows that it will have a negligible impact on the consumption of electricity? (Or, put another way, when the demographic factors that drive the consumption of electricity are beyond the ability of smart meters to control.)

A mere eight months ago, in the summer of 2010, the BC Liberal government rammed through the legislature Bill 17, the Clean Energy Act. The new statute committed the province and BC Hydro and Power Authority to doing a lot of different things, but two are vital to the smart meter saga.

First, BC Hydro was required (by section 17) to "install and put into operation smart meters and related equipment" at every home and business in British Columbia "by the end of the 2012 calendar year."

Second, the statute removed from scrutiny (by section 7) by the BC Utilities Commission an array of BC Hydro capital projects (estimated to cost in excess of $8 billion over a four-year period). One of the projects so exempted was the smart meter initiative.

Consequently, no independent analysis of the nearly $1 billion expenditure on smart meters was slated before the first contracts were signed and B.C. taxpayers' (and BC Hydro rate-payers') money started being shoveled out the door.

(Tyee readers will recall that the very first smart meter contract -- $73 million to install the devices at every home and business -- went to a company owned by a New York investment firm whose Vancouver operations are headed by a government-appointed member of BC Hydro's board of directors, and where a BC Liberal insider works as a "senior adviser.")

Dumb and very expensive

So, instead of a tough, empirical review by the BCUC, the only analysis of the smart meters to date has been by BC Hydro's newly-reconfigured communications department -- headed and staffed by public relations veterans recruited from the defunct Vancouver Olympic Organizing Committee (VANOC).

The contents (and especially the math) of that "Business Case" study are laughable -- and clearly refuted by other, empirical studies by none other than, yes, BC Hydro.

A subsequent column will examine the howlers in the smart meter business case, but consider this whopper: the expenditure of nearly $1 billion on smart meters will save -- yes, save -- British Columbians $520 million over the next two decades. (We have to spend money, you see, to save less money.)

This assertion, of course, is from the same Crown corporation that in 2004 pledged to save British Columbians at least $250 million over a 10-year period by outsourcing certain BC Hydro operations to Accenture.

With nearly two years left to go in that contract, BC Hydro already has paid Accenture the full amount budgeted for the entire decade-long period. Instead of achieving "savings" from the Accenture outsourcing, BC Hydro rate-payers and beleaguered B.C. taxpayers will likely cough up an extra $250 million before the contract expires.

The smart meter initiative, it is plain to see from an examination of BC Hydro's own data, is a dumb -- and very expensive -- mega-project. Merely the latest, sad to say, in a long list to have caused B.C. taxpayers to tremble.  [Tyee]

Read more: Energy, Politics

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