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Ontario Hydro example

At the beginning of the 1990s Ontario Hydro in Canada developed a 25-year strategic plan which included ten new nuclear power stations. They sought Ontario government permission to proceed with the whole plan. The approval process involved official ‘interveners’ making a case to receive funding from Ontario Hydro to challenge the basis of the plans. The Independent Power Producers Society of Ontario (IPPSO), representing all non-government power producers, received funding for a critical report on Ontario Hydro’s approach to strategic planning prepared by Chris Chapman (1992a).

The report’s argument was in two parts. First, confidence bands on Ontario Hydro’s load forecast should have been several times wider; other uncertainties were similarly underestimated and, as a consequence of these uncertainties, the Ontario Hydro approach to strategic decision making was not fit for the intended purpose. Second, a very different planning approach, outlined in some detail, was needed. The mathematical optimization approach adopted by Ontario Hydro was flawed because the optimization did not consider uncertainty. But the common practice of addressing uncertainty via scenario robustness tests was not ‘risk efficient’ in a basic ‘portfolio theory’ sense, and Ontario Hydro’s search for optimality was sound in principle if not....


  

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