Sproule OPER 2P91 Winter 2017 OPER 2P91 Assignment 2: Control Charts Story Electricity in Ontario is bought and sold through a wholesale market operated by the province's Independent Electricity System Operator (IESO). About 70% of the electricity is supplied by provincially-owned Ontario Power Generation (OPG), which operates generating stations such as DeCew Falls in St Catharines and Adam Beck in Niagara Falls. The remaining 30% comes from other producers such as TransCanada. Homeowners and small businesses purchase their power at regulated retail prices via distribution companies such as Horizon Utilities. Large businesses such as General Motors buy their power directly through the IESO at unregulated wholesale prices. Producers Consumers OPG Households Distribution companies Other generators IESO Small businesses Large businesses Brock University Brock University can both buy and sell electricity. It has a co-generation plant that provides most of the heating, cooling, and electricity for the campus. 2 Throughout most of the year, the campus needs additional electricity and purchases it through the IESO. At some times of the year, the plant generates extra electricity that it sells back through the IESO. Thus it is important for the plant manager to understand how electricity prices behave. The use of a free market as opposed to a regulated pricing structure for wholesale electricity sometimes causes controversy. When such markets run smoothly, they are very efficient in matching electricity supply and demand. However, if there is a temporary shortage of generating capacity, severe weather, or collusion by several generating companies to manipulate supplies (see quote below for an example), then prices can become very high and very volatile. Sproule OPER 2P91 Winter 2017 \"Houston-based energy company Reliant Energy Services, Inc., and four of its officers have been charged in connection with a federal criminal investigation of the manipulation of the California energy markets....\"1 Therefore the IESO and its participants are interested in monitoring the market for unusual price behaviour. Assignment The Excel file HOEP_Nov2016.xls shows the actual Hourly Ontario Electricity Price (HOEP) in dollars per megawatt-hour ($/MWh) charged to wholesale customers during 22 weekdays in November 2016. For example, on 9 November the HOEP was $14.36 per MWh during hour 8, i.e. the one-hour period from 09:00 to 10:00 am. Weekends are not included because they follow different price patterns. Your task is to prepare control charts that Brock's co-generation plant could use to monitor electricity prices from day to day. You will need to work through the following steps. A) Prepare an X-bar chart and an R chart to monitor the average \"peak period\" price each day. In Winter, the peak period includes hours 8-11 (7:00 to 11:00) and hours 18 and 19 (17:00 to 19:00). 1. Calculate the mean and the range of the HOEPs for hours 8-11 and 18-21 (inclusive) of each day; those 8 hours will be your \"sample\" of each day's prices. Then calculate the overall averages of these values. 2. Use these along with the appropriate values from the control chart table in your textbook to calculate the upper and lower control limits. 3. Create an X-bar chart and plot all 22 daily samples on it. Your chart should have an appropriate title and should have the dates as labels on the x axis. 4. Create an r chart and plot all 22 daily samples on it. Your chart should have an appropriate title and should have the dates as labels on the x axis. 5. Copy these charts to a Word document and answer the following question: a. Based upon these charts, was the HOEP pricing process out of control with respect to the daily \"peak period\" price mean or range at any time during this period? On what days was it out of control? What should management do? Sproule OPER 2P91 Winter 2017 B) Prepare a c-chart showing the number of hours each day when the price exceeded $55. (Use all 24 hours for this analysis.) 1. For each day, determine the number of hours where the price exceeded $55. Calculate the overall average. 2. Calculate the upper and lower control limits for your c-chart. (Use z=3.) 3. Create a c-chart and plot all 22 daily values on it. Your chart should have an appropriate title and should have the dates as labels on the x axis. 4. Copy this chart to your Word document and answer the following question: a. Based upon this chart, was the HOEP pricing process out of control with respect to the number of hours when the price exceeded $55? On what day(s) was it out of control? What should management do? For calculations, you may find it helpful to use the Excel functions average(), max(), min(), and if() or countif(). For drawing the charts, use Excel's line chart feature. You may do this assignment individually or in groups of two students; in the latter case, choose one person to submit the assignment in Sakai. Make sure that the first page of your word document gives the names and student numbers of both students. Submit both your Excel file and the Word file to Sakai by March 31, before 11:00 pm. Late assignments will receive a penalty of 20% per day. References 1. Quote taken from USA Department of Justice web site, accessed 16 Jan 2010, at http://www.usdoj.gov/opa/pr/2004/April/04_crm_223.htm