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Regulatory Reform in Ontario

Successes, shortcomings and unfinished business.

Fortnightly Magazine - November 2009

common every year. Inevitably, when distributors switch from manual to automated systems, they find their measured frequency and duration of outages increase. This implies that manual systems for measuring interruption data tend to miss or undercount the frequency and duration of outages. The fact that distributors increasingly rely on automated outage management systems probably accounts for a significant share of the measured increase in SAIFI and SAIDI over the 1991 through 2007 period. To the extent this is true, these increases are evidence only that reliability is being measured more accurately rather than declining. This can’t be definitively established one way or another, but the fact that the technology used to measure reliability has been changing over time does indicate that the methods used by OEB staff to evaluate service quality ( i.e., comparing average reliability measures over a three-year period relative to the preceding three years) generally will yield more accurate inferences on underlying performance than the authors’ approach of comparing reliability between more distant points in time.

But while there is ambiguity regarding reliability trends, there’s no doubt that the authors are incorrect when they attribute reliability declines between 2000 and 2007 to the impact of PBR. This is true for a simple reason: The industry wasn’t subject to PBR between 2000 and 2007. First-generation incentive regulation lasted only from 2000 to 2001. Second generation PBR did not begin until 2007. The industry therefore wasn’t subject to PBR for most of the 2000 through 2007 period. 14

The claims of declining reliability due to a “shift from total-productivity and total-cost benchmarking in the 1999 through 2000 period to a narrow focus on benchmarking O&M expenditures” also are untrue. First, total cost benchmarking wasn’t applied at all in 1999 through 2000. Second, while TFP trends were used to calibrate the X factor in the first-generation plan, TFP was used in the same way in the third-generation plan. Finally, “benchmarking O&M expenditures” played no role whatsoever in Ontario regulation until the establishment of the 3rdGenIRM. This plan wasn’t approved until September 2008 and therefore clearly is irrelevant to the 2000 through 2007 period the authors examine. 15, 16

Cronin and Motluck are correct in saying that service quality is important and should at some point be integrated more formally into Ontario’s PBR framework. It was understood, however, that service quality wouldn’t be part of 3rdGenIRM for a number of reasons, including data issues and the prioritization of resources and projects within the OEB. Cronin and Motluck correctly emphasize the importance of maintaining quality, but this objective can be better achieved through appropriate refinements of the regulatory framework, not by making insupportable allegations about Ontario’s PBR experience.

 

Endnotes:

1. Cronin, F., S. Motluck and J. Kwik, “ Dealing With Asymmetric Risk ,” Public Utilities Fortnightly , May 2009, p. 47.

2. During this consultation, Dr. Cronin advised the OEB Staff and Mr. Motluck was a key OEB staff member. Judy Kwik (who co-authored the May 2009 article, but not the July or August articles) was the key OEB staff member during

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