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Ontario's Failed Experiment (Part 2)

Service quality suffers under PBR framework.

Fortnightly Magazine - August 2009

customers. Indeed, the authors’ econometric research over the past decade finds that O&M reductions significantly were related to reduced reliability. 22

But, what about individual LDCs and their performance relative to the standards set by the 2000 Electricity Distribution Rate Handbook ? Some LDCs aren’t compliant with their performance standard established in 2000. On average, Ontario LDCs have been experiencing a deterioration of reliability over the 2000 to 2007 period. Furthermore, even though we noted deterioration in the 2005 to 2007 period above relative to the 2000 to 2002 period, for some LDCs their 2000 to 2002 reliability performance had degraded from their pre-PBR performance. Unfortunately, and in contravention to the OEB’s 2000 reliability mandate, some LDCs are using the post-PBR degradation to establish new, lower standards based on their most recent three-year performance. However, the OEB’s decision in 2000 was to establish a minimum floor for reliability. The intent wasn’t to establish a rolling three-year moving average where the reliability standard itself would degrade. 23

Keeping Ontario’s Promise

On average, Ontario LDCs have been experiencing a deterioration of reliability over the 1995 to 2007 period. Furthermore, on average, LDCs aren’t compliant with their standards established in 2000. Indeed, performance deteriorated during the 2005 through 2007 period relative to the 2000 through 2001 period; 2000 through 2001 reliability performance itself degraded significantly from that of the 1995 to 1997 and 1998 period. As reliability degraded, LDCs appear to have used the worsening performance to implement ever-yet lower “rolling-standards.”

There’s clear evidence of reliability degradation in the OEB’s data to question the assertion in the staff discussion paper that there are no concerns with reliability in the Province. With the existing data, however, it’s impossible to attribute cause for the degradation. As indicated in the staff discussion paper and as mandated by the OEB’s decision in 2000, all service reductions, regardless of cause, are used to calculate the interruptions indexes.

The OEB and the Ontario government has played a role in this degradation. Implicitly, the laissez faire regulatory attitude displayed by the OEB since 2000 has abetted the deterioration. Explicitly, the OEB’s growing fixation on partial cost benchmarking, as opposed to the total benchmarking advocated in the 1st Generation PBR, has directly incented LDCs to curtail O&M expenditures so as to improve their benchmarking score. Our own research on costs, reliability and investment found such curtailments degraded reliability. The OEB in 2003 reminded stakeholders that its legislative mandate requires the OEB: “To protect the interests of consumers with respect to prices and the reliability and quality of electricity service.” If the OEB has failed to protect consumers with respect to reliability, can rates be presumed just and reasonable?

Reliability may have been affected by causes beyond an individual LDC’s ability to control—for example, loss of supply from the transmission system. Indeed, the Implementation Task Force argued that LDCs should be held accountable for the failures under their control ( p.36): “One other factor that needs to be considered when calculating the indices is the effect of external causes. These causes include outages