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Ontario's Failed Experiment (Part 2)

Service quality suffers under PBR framework.

Fortnightly Magazine - August 2009

which reliability is a small part, as the foundation of its entire electric distribution regulatory framework across multiple proceedings and years: the 2005 through 2006 cohort analysis, 12 2006 through 2009 cost comparison and benchmarking, 13 and 2007 through 2009 third-generation IR rate setting. 14 According to the OEB consultant’s cost benchmarking report: 15

The econometric model that we developed was based on the largest sample of data available. This, as we have seen, is in keeping with good econometric practice since a larger sample reduces the variance of parameter estimates and thereby helps us develop models with more variables and more flexible forms. The full sample period available was 2002-2006. We included in the sample data for all companies for which requisite data of good quality were available for at least two of the four years.

If the 2002 and 2003 RRR data is acceptable to the OEB in these applications (including all the problems aired in those proceedings on capital costs, capitalization, outsourcing, leasing, and embedded distributors), then straightforward data on interruptions, which definitions have been constant for decades, should be easily amenable to analysis on reliability trends and compliance. Furthermore, the OEB’s consultant has used the 2002 and 2003 reliability data rejected in the 2008 staff report in sophisticated econometric model estimation. And, the OEB has used just this same reliability data in extensive applications during its cost benchmarking proceeding: 16 “Extensive data are available today on the operations of Ontario power distributors which are potentially useful in benchmarking their performance. The OEB is the primary source of such information… At the time of our updated study, OEB operating data from 2002 to 2006 were available.”

Commenting on their estimation with the reliability data, the OEB’s consultant stated (p.67): “We should also note that some of the results from the first stage econometric models for the reliability variables were sensible. In the research using SAIDI as the dependent variable…we found that SAIDI was generally higher (suggesting low reliability) for companies that had more rural and less undergrounded systems and used less capital.”

In fact, the report noted the benefit of additional data ( p. 66 ): “Additional years of data for the estimation of the cost and quality models would also be helpful.” Why not 2000 and 2001 data?

In fact, in the OEB’s most recent release of reliability data (June 24, 2008), data for the largest distributor is missing from 2002 through 2006. 17

The OEB is willing to employ the 2002 and 2003 reliability data in its cost benchmarking that would determine each LDC’s future annual revenue. Yet, the OEB reports that it will not use this same data for its reliability-trend analysis since this data “may not have been reported consistently or calculated properly.” If the data is good enough for rate setting, it should be sufficient for trend analysis. If accepted, the OEB’s position would mean that no compliance test could be conducted and no historical analysis prior to 2004 could be performed.

Starting in 2000, the OEB collected this reliability data annually (but