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Ontario's Failed Experiment (Part 2)

Service quality suffers under PBR framework.

Fortnightly Magazine - August 2009

rates … In other plans, aggregate penalties, or the existence of service guarantees and rebates, link the firm's financial performance to its service performance…”

However, after issuing the report, the OEB took no further action on service quality until 2008.

Redefining ‘Mandatory’ Standards

The OEB described the January 2008 staff paper 4 as an initial step in a consultation process designed to assist the OEB in determining an appropriate set of electricity distributor service quality requirements (ESQR). However, prior to any consultation or regulatory process in this proceeding, the staff discussion paper stated on page 3,“The Board has concluded that it will implement a “standards approach” to service quality regulation. Under the ‘standards approach,’ compliance with the performance standard is mandatory and can be enforced through the Board’s compliance process.”

Inexplicably, however, the paper doesn’t propose standards for service reliability. While “Board staff acknowledges that system reliability is critical for customers” ( p.30), “Board staff proposes that these Original SQIs [the reliability indicators] not become mandatory ESQRs at the present time but be retained in a modified form for monitoring and reporting purposes” (p. 23 ).

The report ignores the 2000 Rate Handbook and OEB Decision that established mandatory reliability standards. In 2000, the OEB stated the reasoning behind the standards as follows: “… the Board’s approach to encourage the maintenance of service quality during the first generation PBR plan is to apply minimum standard guidelines for customer service indicators, and to apply a utility’s historic performance as its specific service reliability standards. Where a utility has not monitored service reliability in the past, it is required to initiate monitoring and reporting of the indices.” ( 7-2)

Thus for SAIDI and SAIFI, “All planned and unplanned interruptions of one minute or more should be used to calculate this index. Utilities that have at least three years of data on this index should, at minimum, remain within the range of their historic performance.” ( 7-6, 7-7 ). There’s nothing unclear about this order: “Board’s …PBR plan is to … apply a utility’s historic performance as its specific service reliability standards.” This was confirmed by the OEB’s August 2003 notice which noted that in 2000 “the Board approved initial minimum standards.”

The 2008 report was, according to OEB staff, based on a review of other jurisdictions and found a greater incidence of monitoring than of service quality incentive and standards. However, no data or analysis was offered to support this statement. However, it’s clear that many jurisdictions worldwide that have adopted incentive regulation also have adopted SQR.

In fact, the report Electricity Distribution Quality of Service, October 2007 states: “Ofgem considers quality of service to be one of its key priorities in network regulation …2006/07 was the fifth year that the DNOs [Distribution Network Operators, the UK nomenclature for LDCs] faced financial incentives on their quality of service performance …” 5

In addition to the U.K., incentive-based SQR exists in many other European jurisdictions, and in jurisdictions like Australia. For example, the Council of European Energy Regulators (CEER) noted in its 3rd