Ten years after restructuring: Degraded distribution reliability and regulatory failure in Ontario

Ontario’s electric distribution utilities began the 1990s with a stellar record of reliability that rivalled that of any advanced economy. While individual network reliability varied, the system customer-weighted average was exemplary and remained stable over the decade. These networks were generally thought of as “gold-plated”; they were municipally based non-profits with no debt, community-oriented and subject to a paternalistic style of regulatory oversight. Starting in 2000, electric distribution utilities underwent significant regulatory reforms including changes in: governance and ownership, regulatory oversight, horizontal and vertical integration, and retail market competition. Since that time, the inconsistent, ineffective, and perverse incentives have contributed to declining reliability and network performance. Continuously changing policies by the government have undoubtedly contributed to degradation of reliability and industry performance, and the laissez faire attitude by the regulator has abetted the deterioration. The regulator’s growing fixation on partial cost benchmarking can be expected to have incented LDCs to curtail O&M expenditures so as to improve their benchmarking score. Ontario may also be unique in that, in essence, service quality has been subject to no effective standards or penalties for a decade.

► Restructuring and reliability of distribution utilities in Ontario is discussed.
► Prior to restructuring, network performance was superior.
► After restructuring, utilities have exhibited declining reliability and performance.
► Continuously changing policies and perverse incentives may have contributed to degradation.
► Reliability has been subject to no effective standards or penalties for a decade.