3rd Generation Incentive Regulation

Case number
EB-2007-0673
Launched
Sector
Electricity
Status
Archived
Details

In 2007, the Board initiated a consultation on the development of the principles and methodology for an incentive regulation plan for electricity distributors. This consultative process led to the issuance of a series of Board reports setting out the Board’s policy, parameter values, and stretch factor assignments for the plan that will be used to adjust electricity distribution rates starting in 2009 for those distributors whose 2008 rates were rebased through a cost of service review:

  • The Board’s policy approach is set out in the “Report of the Board on 3rd Generation Incentive Regulation for Ontario’s Electricity Distributors” dated July 14, 2008. 
  • A Supplemental Report of the Board setting out the Board’s determination of the values for the productivity factor, the stretch factors, and the capital module materiality threshold for use in the plan was issued on September 17, 2008.
  • On January 29, 2009, the Board completed the consultation process and issued its “Addendum to the Supplemental Report of the Board on 3rd Generation Incentive Regulation for Ontario’s Electricity Distributors”. The Addendum sets out the Board’s determination on the model it will use to assign stretch factors to distributors and on the membership of the three distributor groupings for stretch factor assignments for the 2009 rate year.

See also: Filings and Working Group materials in Relation to the Development of 3rd Generation Incentive Regulation

Updates

Date Issue / Document
January 29, 2009

The Board issued the Addendum to the Supplemental Report of the Board on 3rd Generation Incentive Regulation for Ontario’s Electricity Distributors (the Addendum). The Addendum sets out the Board’s determination on membership of the three distributor groupings for stretch factor assignments for the 2009 rate year.

December 4, 2008

Board staff posted a document containing updated material prepared by Pacific Economics Group (“PEG”) in relation to the consultation on stretch factor rankings:

This document includes:

  • Updated versions of Tables 5 and 6 in the March 20, 2008 report, entitled "Benchmarking the Costs of Ontario Power Distributors", prepared by PEG in relation to the Comparison of Ontario Electricity Distributors Costs (EB-2006-0268) to complement the results of benchmarking evaluations prepared by PEG posted on Jul 22-08 and Nov 21-08.  The updated version of Table 5 details PEG’s proposed peer groups for Ontario distributors; these peer groups have not changed since the March 20, 2008 PEG report.  The updated version of Table 6 presents OM&A unit cost indexes for Ontario distributors by peer group; these indexes have been updated to include 2007 data; and
  • Revised versions of the July 22-08 and Nov 21-08 efficiency rankings and sensitivity analysis (revised by PEG with the release of above to correct for an error found in the July 2008 results)
November 21, 2008

The Board initiated further consultation on the stretch factor rankings for 3rd generation incentive regulation for electricity distributors. 

September 17, 2008

The Board issued the Supplemental Report of the Board on 3rd Generation Incentive Regulation for Ontario’s Electricity Distributors (the Supplemental Report).  The Supplemental Report sets out the Board’s determination of the values for the productivity factor, the stretch factors, and the capital module materiality threshold for use in 3rd Generation IR. It also sets out the Board’s determination on the issue of tax changes in relation to the Z-factor. The filing guidelines in the Supplemental Report reflect those determinations and supersede those found in the Appendix to the July 14, 2008 Report.

July 22, 2008

The Board issued the results of benchmarking evaluations prepared by the Pacific Economics Group (“PEG”), including 2007 data, to divide the Ontario electricity distributors into three efficiency “cohorts” supporting the 3rd Generation IR. This update of the Ontario electricity distributor efficiency ranking will be used to set the membership of the three distributor groupings for stretch factor assignments for the 2009 rate year. The results are based on evaluations done using OM&A cost data for the years 2005, 2006 and 2007.

References:

The ranking and cohorts for the 2009 rate year are:

July 15, 2008

The Board issued the Report of the Board on 3rd Generation Incentive Regulation for Ontario’s Electricity Distributors (the Report). The Report sets out the Board’s policy approach to 3rd Generation Incentive Regulation (3rd Generation IR) and includes guidelines for distributors to use in preparing electricity rate applications.

May 15, 2008

In light of comments made by participants at the May 6, 2008 stakeholder meeting, Board staff has revised its proposal with regard to an incremental capital module, and invites stakeholder comment on the changes.

May 2, 2008

The Board posted a Board staff presentation for the May 6, 2008 stakeholder meeting that puts forward staff’s proposal for 3rd Generation IR for electricity distributors. 

On April 23, 2008, the Board issued a letter announcing a stakeholder meeting to allow participants to explore and thus better understand the implications of new positions and alternative mechanisms advanced by other participants in comments received on two papers issued on February 28, 2008. Staff has prepared summaries of the written comments:

March 27, 2008

Board staff has posted transcripts of the stakeholder meeting on the Development of 3rd Generation Incentive Regulation (EB-2007-0673) on March 25th and 26th.

February 28, 2008

The Board issued two papers for stakeholder comment in relation to this consultation: a Board staff Discussion Paper presenting options for the 3rd Generation IR mechanism; and a Report prepared by Board staff’s expert consultant, Dr. Lawrence Kaufmann of the Pacific Economics Group (PEG), that makes specific recommendations for the productivity and stretch factor components of the X-factor.

November 21, 2007

The Board issued a letter to stakeholders that provides an update on this project and timeline.

August 2, 2007

The Board initiated a consultative process on the development of the principles and methodology for the third generation incentive regulation mechanism (3rd Generation IRM) for electricity distributors with the posting on its website of a Board staff Scoping Paper. The Scoping Paper proposes a general approach and the key issues for the consultation.