800 E.B.R.O. 497-01 THE ONTARIO ENERGY BOARD IN THE MATTER OF the Ontario Energy Board Act, R.S.O. 1990, c. O.13; AND IN THE MATTER OF an Application by The Consumers' Gas Company Ltd. for approval of an incentive mechanism in relation to the Operation and Maintenance Expense component of its cost of service, effective during the 2000 through 2002 fiscal years, and an incentive mechanism in relation to Demand Side Management. Hearing held at 2300 Yonge Street, 25th Floor, Hearing Room No. 1, Toronto, Ontario on Wednesday, February 3, 1999 commencing at 9:00 a.m. ---------- VOLUME 6 ---------- B E F O R E : H. GAIL MORRISON PRESIDING MEMBER PAUL VLAHOS Member ROGER M. HIGGIN Member 801 A P P E A R A N C E S JENNIFER LEA ) Board Technical Staff EDWARD SWEET ) KATHI LITT ) FRED CASS Enbridge Consumers Gas, Applicant MURRAY KLIPPENSTEIN Pollution Probe ROBERT WARREN Consumers Association of Canada (CAC) TOM BRETT Metropolitan Separate School Board, Ontario Association of School Board Officials and CAESCO BETH SYMES Alliance of Manufacturers and Exporters, Canada GUY PRATTE ) Industrial Gas Users PETER C.P. THOMPSON, Q.C.) Association (IGUA) DAVID POCH Green Energy Coalition IAN MONDROW HVAC Coalition ELIZABETH DeMARCO Coalition for Efficient Energy Distribution (CEED) THOMAS ADAMS Energy Probe PHILIPPA LAWSON ) Ontario Coalition Against MICHAEL JANIGAN ) Poverty (OCAP) MICHAEL MORRISON Ontario Association of Physical Plant Administrators LINDA ANDERSON Union Gas Preliminary Matters 802 ---Upon commencing at 9:00 a.m. THE PRESIDING MEMBER: Please be seated. Good morning. Any preliminary matters? MR. CASS: Madam Chair, I have two preliminary matters. First of all, with respect to undertaking responses, everyone should have a small package of responses being H1.1 and H3.1 through to H3.3. I believe, and I stand corrected if I'm wrong, but I believe that this completes the answers to all undertakings from the first these days with the exception of the one I referred to yesterday afternoon, Madam Chair, in response to your question. THE PRESIDING MEMBER: Thank you, Mr. Cass. MR. CASS: Secondly, Madam Chair, my other preliminary point actually relates to the other case, the unbundling case. As the Board is aware, the date for Applicant's argument in that case falls on Monday, February the 8th. Given the length of this hearing, the Applicant is just not going to be able to meet that date, especially with Mr. Grant having spent so much time here. The Applicant would propose a three-day extension which I think would take it to Thursday, February the 11th and, of course, a similar accommodation in the scheduling of the other arguments for that case. THE PRESIDING MEMBER: That's fine, then. Preliminary Matters 803 Thanks, Mr. Cass. Do your best. MR. CASS: Thank you, Madam Chair. THE PRESIDING MEMBER: Good morning, Mr. Janigan. Mr. Thompson. MR. JANIGAN: Good morning. MR. THOMPSON: Buenos dias. MR. JANIGAN: Aloha. ---Off the record discussion THE PRESIDING MEMBER: Trying to make us feel good, I know. Any other preliminary matters? Mr. Cass? MR. CASS: Madam Chair, the next panel will address issues A.3, service quality indicators, and A.5, monitoring and reporting requirements. As the Board can see, the members of the panel are Mr. McGill, Mr. Grant and one new witness, Mr. John McClintock, and I'd ask Mr. McClintock to go forward and be sworn. STEVE McGILL, JIM GRANT; Recalled JOHN WILLIAM McCLINTOCK; Sworn DIRECT EXAMINATION BY MR. CASS: Q. Mr. McClintock, I have just a very few questions for you. You are the Manager, Distribution Planning Services Operations and Engineering for Enbridge Consumers Gas; is that correct? MR. McCLINTOCK: A. That's correct. McGill,Grant,McClintock 804 dr ex (Cass) Q. Your curriculum vitae at Exhibit A, section 4 accurately describes your background and qualifications; does it? A. Yes, it does. Q. And you were responsible for the evidence shown opposite your name at Exhibit A, tab 8, schedule 1; is that correct? A. That's correct. Q. Was that evidence prepared by you or under your direction and control? A. Yes, it was. Q. Do you have any corrections to make to that evidence? A. No, I don't. Q. And is the evidence accurate, to the best of your knowledge or belief? A. Yes, it is. MR. CASS: Thank you, Madam Chair. That is my examination-in-chief of the panel. THE PRESIDING MEMBER: Thank you, Mr. Cass. Mr. Warren? MR. WARREN: Madam Chair, I'm sorry I was asleep at the switch when you asked about preliminary matters. I got the transcript late last night and read a portion of it, but I didn't get to yesterday afternoon portion and I was just inquiring about the status of one of the undertakings. I believe it was Dr. Higgin asked Mr. Grant to McGill,Grant,McClintock 805 review section 8 of the evidence dealing with non-utility -- sorry, it was Mr. Vlahos who asked the question. I was just wondering if that undertaking had been... THE PRESIDING MEMBER: We did speak about that yesterday afternoon, Mr. Warren. The undertaking couldn't be completed until the draft code was released, which I believe happened yesterday. So I think we should probably be seeing that undertaking when Mr. Grant has a few moments. Would that be correct? MR. CASS: That is correct, Madam Chair. Thank you. MR. WARREN: I'm just wondering, are we likely to see it -- is it unreasonable to expect it tomorrow? MR. GRANT: I will get right at it as soon as I leave here today and we will do our utmost to try and get it together for tomorrow. MR. WARREN: Thanks very much, Mr. Grant. Thank you, Madam Chair. CROSS-EXAMINATION BY MR. WARREN: Q. Panel, I have a few questions only on the issues for which you are responsible. First of all, do I understand, panel, that service quality indicators are to be taken as measures of service which are to satisfy the Board that efficiencies and cost reductions are not achieved at the expense of customer service and safety? McGill,Grant,McClintock 806 cr ex (Warren) Is that broadly what they are intended to be? MR. McGILL: A. I believe that's one interpretation of what they are. I think we view them as a means of making sure and ensuring to the ratepayer that throughout the PRB period that we will be maintaining an adequate level of service, and the service quality indicators we've chosen are designed to give a solid overview across a number of functions within the company to ensure that those -- the functions are delivering service adequately. Q. Thanks for that gloss, Mr. McGill. So I take it that what you would add to my definition of it is that you want not only to satisfy the Board, but also to satisfy the ratepayers that you are maintaining an adequate level of service and safety; fair enough? A. Yes, that's correct. Q. And you have chosen five service quality indicators. Do I understand that they were chosen by the company using its own performance standards; is that fair? A. I think that the levels of service quality that we have brought forward are based, to some extent, on our experience and they're based on what we believe is a reasonable level of service to carry forward throughout the PRB period. The indicators themselves and the thought that went into selecting them didn't really have a lot to do with current levels of service in the company at the time McGill,Grant,McClintock 807 cr ex (Warren) that we were preparing this. Q. We'll get to the service levels in a moment. But were these five indicators chosen -- were they benchmarked against any industry standards, standards outside of Consumers? A. Yes. I think to some extent they were. The telephone service factor, we considered call centre performance in other industries and the utility industry in settling on what we believe is a reasonable level of service to provide. With respect to other of the service quality factors, I believe that those are based more on internal measures and experience in the past, but I think in most respects those are things that most gas utilities would view as areas of service quality that are important to measure and deliver on. Q. Other than the telephone service factor, were the other four service quality indicators benchmarked against industry standards? Yes or no? A. I don't believe they all were. Q. Is that none of the four were, or some of the four, Mr. McGill? A. Well, the two that I'm directly responsible for, the telephone service factor and the meter-reading service factor: The telephone service factor definitely; the meter-reading service factor, it's difficult to find published data that you can use to rely on as a benchmark, but we are aware that other utilities consider their McGill,Grant,McClintock 808 cr ex (Warren) meter-reading performance and particularly the proportion of estimated reads as a measure of performance. With respect to the other three, I'd have to hand that over to Mr. McClintock. MR. McCLINTOCK: A. When you say "benchmarking", I'm assuming what you're saying is that we took a look at what other utilities and other organizations are doing. That is the case with the ones that directly relate to pipeline integrity and public safety. And we did take a look at what others did and what we considered to be important and picked the ones which were best suited to our company. Q. That is, you picked the five indicators; is that right? Is that what your answer is, Mr. McClintock-- A. Yes. Q. --looking in part. Okay. My question then is, the standards that you imposed, were they benchmarked? The standards of performance of the five indicators, were they benchmarked against outside standards? A. I'll answer that in two ways. The actual way of measuring the gauge, as such, we did take a look at what other utilities were doing, and the actual levels to be achieved, we looked at what others were doing as well as how we were doing it. Q. And did you set the standard according to what others are doing or according to what you're doing? A. According to what we were doing. McGill,Grant,McClintock 809 cr ex (Warren) Q. All right. Did anyone outside of your company make any recommendations to you about (a) what the indicator should be; and (b) what the service levels within those indicators should be? A. Not to myself directly. Q. Well, I don't want to play cat and mouse with it, Mr. McClintock. You're here representing the company. Can you answer for the company whether or not anybody advised you or made recommendations? A. Nobody made any recommendations. Q. All right. Thanks, Mr. McClintock. And can you tell me whether or not customers, actual ratepayers were surveyed or asked in some fashion whether (a) these were appropriate indicators; and, (b) the service levels within the indicators were appropriate? A. No. Q. And I have understood it correctly that the service levels chosen are those which the company is currently meeting; is that right? MR. McGILL: A. No, that's not correct. The telephone service factor is something that we are endeavouring to deliver on in 1999. We're in a position now where we are trying to add staff to the call centre in order to improve our performance there. We're in the midst of doing that. It requires hiring people and training them. That requires some length of time, and it's our expectation that by the end of the '99 fiscal year we will McGill,Grant,McClintock 810 cr ex (Warren) have our TSF target met and also the meter-reading service level target. Q. So for two of the target levels you're not meeting the standard proposed at the moment, but you believe you will at the end of 1999; is that right? A. Yes. We have plans in place that should enable us to deliver those service quality levels by the end of '99. Q. With respect to the remaining three, they are targets which you now meet; is that right? MR. McCLINTOCK: A. We're not meeting them right now. Our plan is to meet them by the end of the year. Q. Now, with respect to any of the five indicators, will they be affected by the improvements or enhancements in the computer system? MR. McGILL: A. The telephone service factor, we expect that we will be able to reduce some level of clerical work in the call centre upon the implementation of the second phase of CIS, and the incremental cost reductions associated with that would be brought forward as part of the CIS 'Z' factor. Q. Will CIS influence any of the other service quality indicators? A. I don't believe that it would have a direct influence on them. There may be some indirect benefit, but I don't think it's something that we would be able to quantify. MR. McCLINTOCK: A. They won't affect the McGill,Grant,McClintock 811 cr ex (Warren) emergency response, the integrity survey or the gas utilization fractions. Q. Now you're proposing, according to your prefiled evidence, to file an annual report with Board Staff and I would like to know the mechanics of that. Is that report going to be filed in the context of an annual rates case? MR. McGILL: A. It would be my expectation that we would file our service quality monitoring information at the time we file the material for the annual rate review. Q. And is it your intention that the report which is filed would be examined by third party intervenors or stakeholders? A. Yes, I expect it would. Q. And that examination would take place in the context of an annual rates case? A. Yes, that's my understanding as to how we would proceed. Q. But you're not, as I understand it, proposing that the Board be able to do anything with the report in the sense of ordering you to improve or imposing a penalty or otherwise; is that right? MR. GRANT: A. We're proposing a process, I think it's fair to say, where the Board would have -- we would like the Board to have as much discretion as possible in the monitoring process, and we would be filing the detailed assessment of our service standards with the McGill,Grant,McClintock 812 cr ex (Warren) Board through the ERO. And if, after doing that, the Board felt that there was specific action that needed to be taken, that we could discuss that with Board Staff and then proceed. Q. Sorry, Mr. Grant, I'm now somewhat confused. You've talked now about a detailed report. Are there to be two reports, one which is more detailed than the second? A. Well, in order to keep the rates case simple, I think that we would want to give some high-level information in the rates case. But what I'm suggesting is that a more detailed monitoring process with Board Staff would also be the order of the day. Q. So there will be a detailed report which will be filed, not with the Board, but with Board Staff, and that detailed report will not be filed as part of the annual rate case filings; is that right? A. That would be my expectation. We would file - and when I say "Board Staff", I meant the Energy Returns Officer - and so that detailed report we could have filed with them and the high-level report could be filed in a rates case. Q. And with respect to the detailed report, is it your intent -- is it the company's intention that that be examined by intervenors or stakeholders either as part of the annual rate case process or otherwise? A. Well, I see at least a two-step process. We McGill,Grant,McClintock 813 cr ex (Warren) would file the detailed report with Board Staff and we would probably set up meetings with Board Staff and take them through some of the details and have a discussion around our performance. And so that's the first step. And I think that that's the most efficient way to deal with monitoring in a PBR environment. And, in that way, we don't have to have a long process in a hearing room. It would be my hope that we could minimize the time taken in a hearing room on this particular aspect of our proposal. Q. Get back to my question. I take it, Mr. Grant, that the answer to my question -- my question was whether or not the ratepayers, through intervenor representatives, would ever see the detailed report and examine it. And I take it the answer to the question is no? A. That's not our intention, no. Q. And is that for reasons of confidentiality, Mr. Grant? A. No. It's really for reasons of simplicity. We want to keep the process as simple as possible. Q. Now, Mr. Grant -- sorry, Mr. McGill was quite careful to expand my definition of the objective of SQIs by saying it was a means of ensuring, for the ratepayers, that the company was maintaining an adequate level of service. In light of that, would it not be appropriate, McGill,Grant,McClintock 814 cr ex (Warren) Mr. Grant, for the ratepayer representatives to be able to see the detailed report and examine it? MR. McGILL: A. Well, I think, Mr. Warren, that as we progress through the PBR arrangement, if we are encountering problems in delivering on the service quality factors, that's going to be identified and we're going to have some explaining to do and we're going to have to delve into some of the details of the issues in order to come up with a solution and ensure to the Board that we are acting responsibly and in an effective way to deliver on service. And I would view it as more as a process of examining our performance on an exception basis. Q. "Exception basis" being only those circumstances where you're not meeting the standards; is that what it means? A. Yes. I think that that's where it would be more appropriate to look into some of the details that are giving rise to the difficulties. Q. When you say "more appropriate", more appropriate for the Board, or for the ratepayers to look into the details of why you're not meeting this end? A. I think both, in the sense that one of our objectives of going forward in PBR is to simplify the regulatory process. MR. GRANT: A. I don't draw a distinction between the Board and the ratepayers either. The Board represents, I guess, the ratepayers. And, in that regard, McGill,Grant,McClintock 815 cr ex (Warren) I would think that we would want to make sure that the Board is satisfied with how we are doing. Q. I just wonder, Mr. Grant, if you and Mr. McGill could get into the same buggy and drive in the same direction at the same time. And my question is this: If -- let's take the instance where there is an exception, you're not meeting the standards; will a detailed report on that circumstance be filed in a rate case and examined by the ratepayers; yes or no? A. No, that's not our intention. It will be filed with the Board and we will discuss it, including any corrective action we need to take. Q. Now, that gets me to the question of what relief, if any -- what order the Board can make. As I read your prefiled evidence, and you might turn it up, Exhibit C, section 3, page 16. A. Yes, I have that. Q. As I read that prefiled evidence, Mr. Grant, the company is not proposing that the Board be able to do anything in the form of issuing an order in the event that you're not meeting your service quality standards. Have I read that correctly or not? A. You're looking at the last paragraph on the page? Q. I am indeed. And the evidence reads: 'The Board could then review the company's McGill,Grant,McClintock 816 cr ex (Warren) performance based on these indicators, and if the performance did not meet the service quality standards, there would be a review of the reasons for this change in performance. The review process will also permit the examination of the natural variations that can occur in a year and on a year-over-year basis which are not representative of service quality deterioration.' I do not read in that evidence any suggestion that the Board is to make an order of any kind to the company in respect of a failure to meet the service quality indicators. Have I not read it correctly? A. There's no suggestion of that, but there's also no suggestion that the Board would be limited in any way. I think that, you know, part of a PBR plan is that people need to stay flexible and if through this process there was a need for the Board to order us to do something, then they're free to do that and we would comply. Q. Could the Board, Mr. Grant, order that the company pay a penalty for failure to meet the service quality standards? A. Well, I would think that that would -- that would be one of the options available to the Board if the Board approved, in this proceeding, the notion that McGill,Grant,McClintock 817 cr ex (Warren) penalties ought to be leveled in that situation. Q. As things stand now, you have not asked for, in your prayer for relief, any -- you have not asked for a PBR scheme that contemplates the Board being able to award penalties if you don't meet your service quality standards; correct? A. That's correct. We don't believe they're necessary. Q. I'll get to the reasons why you don't believe it necessary. But your view is, that if the Board were to grant the relief which you've asked for, it would not have the authority to issue an order for a penalty if you don't meet your service quality indicators; correct? A. That's correct. If the Board approves our methodology and our proposal, then there would be no penalty provision within this PBR agreement. Q. Okay. Thanks for that, Mr. Grant. Now, could I ask you to turn up Dr. Bauer's prefiled evidence in -- page 14. Do you have that, panel? A. Yes. Q. I'd like just to begin at the very bottom of the page in the last paragraph beginning on page 14, Dr. Bauer writes: 'The proposed plan lacks penalties if the company fails to meet the target service quality levels.' McGill,Grant,McClintock 818 cr ex (Warren) We can agree that that's correct, right; Mr. Grant? A. Yes. Q. Now, on page 15 over, beginning in the first full paragraph about half-way through it, Dr. Bauer writes: 'To be compatible with the concept of performance-based regulation; that is, to provide internal incentives for management to pursue desirable goals, a penalty must be established for violations of this minimal service quality requirement.' Now, do you agree or disagree with Dr. Bauer that to be compatible with the concept of performance-based regulation a penalty must be established for violations of the minimal service quality requirement? A. I disagree with that statement. Q. Is there, in your view, in the absence of a penalty, sufficient incentive for the company to meet the service quality standards? A. Yes. Q. And would it not provide -- in light of Mr. McGill's comment to me this morning that the purpose of SQIs was, in part, to ensure the ratepayers that the standards were met, would it not be a visible means of protection for the ratepayers to provide for a penalty? A. For the ratepayers to provide a penalty, is that... McGill,Grant,McClintock 819 cr ex (Warren) Q. For the scheme to provide a penalty to give comfort to the ratepayers that the company is, in fact, meeting its standards? A. No, I don't think so. I think from the ratepayers' point of view what's important in this PBR are two things: That the company has made public commitments to meet certain service standards, and that there is some sort of a process to ensure that the company is meeting those standards. I think that's what's really important to the ratepayer. The debate around what that process is is obviously the one that we're having today but, in general terms, I think that's what the ratepayer needs to know, that there are standards, that they're public, that they meet criteria - I think Dr. Higgin was talking about criteria the other day - that they meet those criteria, and that there's some process for correction if the utility is not meeting them. Q. Okay. The process for correction as it stands now doesn't contemplate, I suggest to you, the Board being able to do anything. This is, your application doesn't contemplate the Board being able to make any order at all with respect to failure to meet it. Do we not agree on that; Mr. Grant? A. I don't think that's quite the case. If we were not meeting a standard and we're proposing a thorough monitoring process, so if we're not meeting a standard and McGill,Grant,McClintock 820 cr ex (Warren) we go through a monitoring process, there ought to be a means in that monitoring process for the company to discuss reasons why that may not be the case. And then there ought to be a resolution of the problem or the issue. And that resolution may entail the company expending dollars which are not factored into gas rates in any way to correct the problem. And it's in that regard that I think the Board would have the discretion to say: Okay, we understand the reasons why you have not met these standards and we understand you have a plan in place to correct them. We, therefore, order you to go ahead and correct them, correct the situation. I think the Board has that discretion. Q. So the Board would order you to do it and you would have to do it, and the costs of your doing that would be borne by the shareholders; is that right? A. That's correct. Q. Now, just to finish off what Dr. Bauer has written on page 15 - I'm not sure that I need to read it into the record - but Dr. Bauer is recommending, first, that the penalties need to be high enough to encourage management to pursue quality-enhancing requirements, and also he recommends that service quality indicator safeguards should be designed to provide for a penalty in case of underachievement but no reward for overachievement as market forces will reward them anyway. I take it you don't agree with either of those McGill,Grant,McClintock 821 cr ex (Warren) two propositions by Dr. Bauer? A. No, I don't agree with penalties and I don't agree with asymmetric approaches such as the one he's advocating. Q. Okay. Now, just to complete the circle on this, Mr. Grant. When I asked you about what assurances were in place for the ratepayers, you said the assurances lie in the process, at the end of which the Board is able the make an order to the company to make improvements, the cost of compliance is to be borne by the shareholders. But do I take it that the ratepayers are not going to participate in that process in any way; correct? A. My vision of it is that the intervenors would not be participating directly in that process. Q. When you say "participating directly", you mean they'll be participating indirectly through their surrogates; that is, the Board itself? Is that what you mean? A. Yes. I don't know what you mean by "surrogates", but intervenors have a -- certainly will be kept up to date, as Mr. McGill has said, at a high level as to what's going on with respect to service quality. Intervenors may also be satisfied that if there is a degradation in service levels below the standards, that the company has dealt with it by way of the monitoring process, and satisfied the Board through that process, and the Board has issued an order to correct the McGill,Grant,McClintock 822 cr ex (Warren) situation. So all of that, I think it's quite fair for intervenors to want to know that process has taken place and you're free to ask interrogatories through a normal rates case process to find out about it. Q. The intervenors, as I understand your evidence, will not see the detailed exception report? We're agreed on that? A. Yes, that's correct. Q. The intervenors will not be in a position, I take it, to make recommendations to the Board as to what corrective action needs to be taken to meet the standards; is that correct? A. Yes, that's correct. Q. Finally, with respect to Dr. Bauer, if you can just look at page 16. In the first full paragraph at the top, Dr. Bauer is making, among other recommendations, a recommendation that the components of the service quality mechanism -- service quality indicator mechanism be augmented with customer survey and employee safety data. What is your response to that recommendation? MR. McGILL: A. Well, I believe that customer surveys would be expensive, subjective, difficult to interpret and they wouldn't identify the real causes of any deficiency or they wouldn't point to the causes. They would probably identify things that I would characterize as symptoms. McGill,Grant,McClintock 823 cr ex (Warren) An example would be our meter-reading performance standard. It's very specific, it's designed to be understandable, something that is relatively easy to measure and that we know that if we go for prolonged periods of time without being able to read a meter or without reading a meter that that usually results in billing difficulties and some degree of dissatisfaction for the customer. So what we've attempted to do in bringing forward these service quality indicators is identify things that are relatively simple to quantify, easily understood and that drive to the heart of the issues they are designed to monitor. Q. I take it your answer is no? A. No. Q. Now, can I ask to you turn up an Ontario Hydro interrogatory No. 4. It's Exhibit D, section 3.4. A. Yes, I've got that. Q. Do you have that, Mr. McGill? A. Yes. Q. Now, that question, broadly paraphrased, is: Why it is the company doesn't believe that penalties are appropriate. And I'd like to just spend a few minutes on your response to see if I've understood it. What you say in the first full paragraph of your response is that: 'The levels are set on the basis of customer expectations, industry norms and an assessment of McGill,Grant,McClintock 824 cr ex (Warren) customer practices. They are not differentiated on a relative or perceived value to the customer.' Then you go on in the second paragraph to say: 'Further, since they do not necessarily reflect the value customers associate with a particular SQI, they...' that is the penalties, '...seem ill-suited for the purpose of protecting customer interests.' Now, my reading of the answer, Mr. McGill - correct me if I am wrong, please - is that somehow penalties are inappropriate because the levels are not tied to customer expectations in the first place. Have I understood the answer? A. Yes, I think that's one of the points that we were trying to convey. Q. Now, would you agree with me that, according to what you've told me this morning, one of the rationale for the service quality indicators; namely, a measure of whether service is suffering as a result of cost reduction and that the purpose, in part, is to protect customer expectations of a certain service level being maintained, that one of the ways that that could be done would be for the customers to see that there is a strong disincentive for the company to let its service decline in the form of a penalty? Doesn't that provide a visible means of protection or comfort for the ratepayers? McGill,Grant,McClintock 825 cr ex (Warren) A. It may, but I believe that our commitment that we're making here and the process that we propose to ensure that we deliver on it gives the customer assurance that we are going to deliver on our service quality commitments. Q. Mr. McGill, can you tell me, what's the harm to Consumers if the PRB scheme provides for penalties if you don't meet your SQI levels? A. When you say "Consumers" you mean ratepayers? Q. No, you. What's the harm to you if the system includes penalties if you don't meet your service standards? You say you're going to meet them anyways, so the risk is pretty low. How do you suffer? MR. GRANT: A. Well, the obvious -- I'll give you a couple of points in response. The obvious is -- I presume when you say "penalties" you're talking about financial penalties, so there'd be a financial penalty in that instance. So that's how the company would suffer, financially. But I think perhaps more to the point, in the context of a PRB environment that we're about to go into, it may send the wrong message to management. It may cause management, not just our company, this is in general, to focus on the wrong things in terms of doing whatever it takes to avoid that penalty, as opposed to focusing on the positive aspect of incentive regulation. So I think that conceptually that's why I McGill,Grant,McClintock 826 cr ex (Warren) have a problem with it. But obviously the other aspect that I mentioned was the financial penalty. I don't think it's necessary. I think from a ratepayer's perspective, as I said earlier, if a utility made statements -- commitments publicly for objective measures of its performance and there is some process whereby the utility has to correct things if they're not meeting it and it corrects it at its own expense, then I think that that satisfies the SQI part of a PRB plan. Q. Just finally on this question of service quality indicator, two questions to you, panel. If the Board were to approve your PRB proposal, with the following two conditions, among others: First, that there would be financial penalties if the company didn't meet its service quality levels -- MS. LEA: Sorry, Mr. Warren, was that "did not meet"? MR. WARREN: Sorry, if the company did not meet. MS. LEA: Thank you. MR. WARREN: Q. Would the company still proceed with the PRB plan? MR. GRANT: A. I thought I heard you say two things. Was that... Q. I'll get to the second in a minute. A. Okay. Well, as I said yesterday, we're committed to PRB and we're committed to moving forward with it. McGill,Grant,McClintock 827 cr ex (Warren) I think that if the Board were persuaded that financial penalties were in order for the SQI, it would be a very unfortunate situation. It would set -- in our view, it would be inconsistent with an incentive scheme. I suppose the extent to which these penalties are in place would have to be something we'd assess at the time. I think the industry in Ontario is so far down the road now with pursuit of PRB that there's no going back to cost of service. So we would have to find a way to live with it, but it would be unfortunate. Q. The second condition: If the Board were, as a condition of approving your PRB proposal, make it a requirement that the annual report -- there be one annual report on whether you met the service quality indicators, that that report be filed as part of the annual rates application and that it be subject to examination by the intervenors, would the company still proceed with its PRB plan? A. Well, I think it's the same answer. I mean, we are so far down the road on PRB in this province I think that we're going to move in that direction. And I think it would be taking away from some of the benefits of PRB if the Board were to set that condition, in particular, the hearing time benefits that we're anticipating. So the Board would have to be making that tradeoff, I would think, in setting that condition. McGill,Grant,McClintock 828 cr ex (Warren) Q. Finally, just a few brief questions on the issue of monitoring and reporting. And, in that context, could you turn up Board Staff Interrogatory No. 63 which is Exhibit D., section 1.63. A. Yes, I have that. Q. That answer -- or that question is designed to elicit the question of what reporting will take place and you summarize it in a table on page 2. First of all, there is the report on performance measures which you've just been discussing. I'd like to turn to the second category, the CPI and customer growth true-up. Do I take it that that report would be filed with the Board and it would result in an automatic adjustment to those components of the formula; is that right? A. Yes. I'm not so sure that it's a report, per se, but it's a process similar to the process we go through now with the ROE formula, applying the ROE formula. Q. But my question, to be fair to you, Mr. Grant: There will be no -- you don't contemplate that there will be a report that will be filed, for example, as part of the annual rates case that will be examined in the rates case? It's, in effect, a kind of automatic adjustment; is that right? A. Yes, it is. The customer growth number, I McGill,Grant,McClintock 829 cr ex (Warren) would expect, would be reviewed in the rates case because that's customer additions and that drives the capital budget, so that will be reviewed. I don't see CPI being reviewed, though. Q. Now, the third category, affiliate transactions; is that best left to when you answer Mr. Vlahos's request for information? A. Yes, I think it is. Things have changed appreciably since the date of this interrogatory response. Q. Okay. The final question though is: I take it, Mr. Grant, that there will be no report that will be delivered to the Board annually or otherwise on the company's productivity figures. Is that right? A. That's right. There won't be an annual report in that area. There will be the normal financial monitoring that we've done for years through the ERO. That will be continued. MR. WARREN: Thanks very much, Panel. I have no questions. THE PRESIDING MEMBER: Thank you, Mr. Warren. Mr. Thompson? MR. THOMPSON: Yes. Just a few, please. CROSS-EXAMINATION BY MR. THOMPSON: Q. Just on this point about customer surveys, my understanding is the company has used customer surveys on many occasions in the past. Am I correct? MR. McGILL: A. Yes, we do undertake customer surveys. McGill,Grant,McClintock 830 cr ex (Thompson) Q. Could you just give me a list of the purposes for which they've been undertaken? A. The main reason we undertake... Well, there's, I guess, a wide range of reasons why we undertake customer surveys. Some of them deal with market situations, others deal with customer perception. Sometimes we're trying to find out what level of understanding customers may have with respect to certain issues. And some of the surveys we do are designed to give us some kind of indication as to the overall degree of customer satisfaction. Q. And do you do one every year, more than one? Can you give us some idea of the frequency of surveys? A. It varies. Some may be just one off, some may be done -- repeated as the need is seen to arise. Some are done annually and, to a very limited extent, we even do some monthly surveying. Q. What are the ones that are done monthly? A. Two that come to mind, or I guess the two areas that are reviewed are billing, I guess satisfaction with the billing process in general, and satisfaction with our overall telephone service level. Q. They're done monthly? A. On a very limited basis, they're done monthly. Q. What do you mean, "a very limited basis"? A. I mean that there's a very small number of McGill,Grant,McClintock 831 cr ex (Thompson) questions asked and they're designed to provide us with a general indication of basically how we are doing in the eyes of the customer. Q. And why have you excluded these surveys from the telephone indicator when you're doing them monthly? A. Well, I go back to the reasons I stated earlier, that they're subjective, they're influenced by outside factors, they're difficult to interpret. And, with respect to the telephone survey itself, there's components of how a call is handled that offset each other. And basically what I'm talking about is the fact that, on occasion, if the customer calls and is upset for some reason - and that could be the length of time it took to get through or have their call answered - the CSR can usually do something to alleviate that customer's concern. So what we find there is that if we're slow to answer, we can deliver a good overall level of service by taking a little extra time with a customer in helping them with their problem or their inquiry. So when you have that kind of tradeoff that's being reflected in the service, it's difficult to say or use that survey to determine what it is exactly that is driving the overall level of satisfaction. Q. What is the overall level of satisfaction at the moment? If we asked for these reports, what would they show? Sounds to me like they're a little cheesed off. McGill,Grant,McClintock 832 cr ex (Thompson) A. Well, again, the last surveys I viewed - and it's probably been over a month since I've looked at one - but, again, they're indicative of the tradeoff where customers tend to be somewhat dissatisfied with our time to answer, but our overall telephone satisfaction level is probably on the order of 70 per cent. Again, it has been some time since I've looked at one, so it's a ball-park figure. Q. When was the last one done? A. Probably for December. Q. Would you undertake to produce a copy of it, so we could see what it shows? MR. CASS: Madam Chair, I'm just having a little difficulty with the relevance of this in relation to the PBR proposal. The PBR proposal, of course, is that the company will meet service quality indicators that Mr. McGill has already indicated the company has to do some work in order to be able to meet by the time the PBR proposal is in effect. In light of that, maybe Mr. Thompson could help me. I'm not sure of the relevance of finding out, in his words, the extent to which customers might be "cheesed off", I think he said, under current circumstances. MR. THOMPSON: Q. Well, one of the indicators that is being proposed is a telephone service factor. Am I correct? MR. McGILL: A. That's correct. McGill,Grant,McClintock 833 cr ex (Thompson) Q. And this involves some turnaround time on average. You're striving to explain what that factor is. I've been away for a few months. A. Well, I'm just not 100 per cent certain what you're asking in that question. I'm just wondering if you could perhaps rephrase it. Q. Well, describe the telephone service factor that the company asked the Board to approve as a quality indicator. A. The telephone service factor is the annual percentage of calls that would be answered within a 30-second wait time. So what our proposal is, and what we are committing to in the PBR arrangement, is that on average that we will maintain a minimum of a 70 per cent TSF. So we will answer -- on average, we'll answer 70 per cent of the calls within 30 seconds. Q. And -- A. And that's-- Q. Sorry. Carry on. A. --that's an objective measure that is quantifiable and I think relatively easy to understand and it's well accepted in the call centre industry. Q. And what are you doing today? How far off are you on that, at the moment? A. We are, based on the -- okay, the TSF for the month of December was slightly under 50 per cent. Q. What does that mean? McGill,Grant,McClintock 834 cr ex (Thompson) A. That means that we were only answering calls within 30 seconds approximately 50 per cent of the time for the month of December. Q. Are there any months when you have achieved this 70 per cent number? A. Well, as I indicate in the prefiled evidence, in prior years we had been attaining TSFs in excess of 70 per cent and the evidence indicates some of the background with respect to our TSF levels over the last few years and explains why we've run into some of the difficulties we have. Q. So that the surveys will give us some evidence of customer reaction or customer satisfaction to the quality of service that you're providing on the telephone, as we speak? A. Yes, in a very general way. Q. It's therefore, I suggest, relevant to a determination of whether the factor you have selected is reasonable in terms of a performance indicator, and it's also relevant to Dr. Bauer's suggestion that customer surveys ought to be part of the evidentiary aspect of the performance indicator. So I'm asking that the most recent one be produced to illustrate what is being generated at the moment. A. Well, I think I've indicated in my earlier answers that we're not happy with the level of TSF we're delivering right now, that the indications we have from McGill,Grant,McClintock 835 cr ex (Thompson) our surveys indicate that customers aren't particularly pleased with people being only about 50 per cent on average being satisfied with the wait time, but that overall we are able to mitigate that to a great extent through how we deal with the people once we do have them on the phone. And I don't think you'll read any more out of the survey than what I've just told you. Q. Well, I'm asking you to undertake to produce a copy of the most recent customer survey with respect to telephone response. Can I ask for that undertaking? A. I will undertake to file a copy of the most recent telephone customer satisfaction survey summary data. It's just a very brief three-line spreadsheet, so... Q. Why won't you give us the whole thing? How many pages -- A. That is the whole thing. Q. Oh, that's the whole thing. A. That's all I ever see. Q. Okay, that's fine. A. It's not an elaborate thing. MS. LEA: Undertaking H6.1. ---UNDERTAKING NO. H6.1: Enbridge Consumers Gas undertakes to file a copy of the most recent telephone customer satisfaction survey summary data. MR. THOMPSON: Q. Now, are there any regular McGill,Grant,McClintock 836 cr ex (Thompson) surveys with respect to safety? MR. McCLINTOCK: A. What do you mean by "safety"? Q. What do you mean by "safety"? You're in the business. I mean "safety". A. We have programs related to ensuring a safe distribution system, but not a survey. Q. Well, Dr. Bauer, in his evidence at page 15, indicates that, and he makes reference in a footnote 34 to employee safety measures evidence as being a component part of service quality indicators. A. Are you talking about employee safety as opposed to public safety here? Q. I'm talking about both. Is there any survey evidence with respect to public safety? A. No. Q. Is there any survey evidence with respect to employee safety? A. No. Q. So do you know what Dr. Bauer is referring to when he talks about "employee safety measure evidence"? A. He may be talking about things like looking at lost time injuries and incidents involving employees. Q. And is that evidence available? A. There is information on that, but I don't see the relationship to a service quality indicator. Q. Was it considered in relation to a service quality indicator? McGill,Grant,McClintock 837 cr ex (Thompson) A. Yes, we did take a look at that. Q. You excluded it? A. Yes. Q. And would you just explain why you excluded it? A. When we look at the service quality indicators we're really looking at them from the standpoint of service levels to the customer, pipeline integrity, which then translates into safety of the public. Safety of employees are integral to the business and we, of course, want to have a safe work environment and we want people to be safe, but there's not a direct relationship to pipeline integrity or levels of service to the customer. So although they're very important to running the business, there's not a direct relationship to SQIs. Q. That's why you rejected it? A. Yes. Q. I see. And you made a conscious decision to reject these customer surveys as well? A. Yes. Q. I see. Now, just following up on a point that Mr. Warren raised about what happens if the Board adds features to your proposal that you have not presented. My experience in - start with football and move on to business - is that most incentive mechanisms are McGill,Grant,McClintock 838 cr ex (Thompson) based on agreements between the performer and the parties attempting to incent better performance; in this case the Board and intervenors. So the question really is: If the Board adds a number of features to what it is you have proposed, such as a penalty feature, such as added service quality indicator features - and there may be others - does the company consider that it has the option to not go forward with that PBR plan? MR. GRANT: A. Well, the company always has options, but the question that you posed to me now was essentially posed to me yesterday by Mr. Vlahos, and my answer is that the company is committed to moving forward with PBR, so it's not as if the Board issues a decision and, for whatever reason, we don't like one aspect of it that we're going to say: Well, all bets are off and we're back to some other process, say, a cost of service process. That's not what we're thinking. We believe that the industry is moving forward into PBR. We believe our PBR approach is a logical step for us and the Board to get used to PBR, to learn from it and we're committed to PBR. Q. So that if the Board added a penalty mechanism, added additional service quality indicators, changed the O&M base on which the formula might operate, made changes to elements of the formula different from what you have suggested, you will go forward; is that what you're telling us? McGill,Grant,McClintock 839 cr ex (Thompson) A. Yes. Once again, yesterday when Mr. Vlahos and I were discussing this issue we were discussing it in the context of, I believe it was a stretch factor within the formula. I would hasten to add that I think that the Board itself would only attach conditions to our agreement that are consistent with its own principles. And, in particular, on the SQI area, the way I read their principles, in particular principle No. 4, is that there ought to be appropriate pricing signals and a system of incentives to maintain an appropriate level of reliability and quality of service. So it's the maintenance of an appropriate level that, as I read it, is key to the Board when it comes to SQIs. And on the question of penalties, obviously another principle that the Board has is that there be just and reasonable rates established, and if financial penalties were upsetting the risk reward balance that we have in this proposal, I would think that that would be troublesome to the Board as well. I've testified that our PBR proposal is designed so that there is no need to review the ROE formula and that it's basically -- the risks are not materially different. So I would think that the Board would take all those things into consideration. Q. Is it your position that penalties are inconsistent with an incentive scheme? That's what I took McGill,Grant,McClintock 840 cr ex (Thompson) from your answers to Mr. Warren, but I may have misunderstood you. A. Yes, they're not consistent with this proposal because we're making commitments on service levels and we'll meet them. If we cannot meet them -- through a monitoring process, if it's obvious we're not meeting them, then the risk is on the shareholder and the shareholder must pay dollars to meet them. Q. I know you don't like them with respect to service quality, but I thought your position was a bit broader. You were saying penalties are inconsistent with an incentive scheme; is that what you were saying? A. Yes, I view penalties as disincentives or they could be viewed as disincentives. I tend to look on the positive side of PBR, so I look for positive incentives, not negative. Q. Do you look for bonuses? A. No, we're not looking for bonuses. Q. I thought in SSM penalties were a feature of that agreement, a negative incentive; am I mistaken? A. I'd have to review our agreement again to give... Q. Can you do that and tell me if penalties are... A. Yes, I can. MS. LEA: Shall we make that an undertaking then. 6.2, please. McGill,Grant,McClintock 841 cr ex (Thompson) ---UNDERTAKING NO. H6.2: Enbridge Consumers Gas undertakes to determine if penalties are a feature of the SSM agreement. ------------------[H6.2 answered: see page 842] MR. THOMPSON: Q. Mr. Warren has just drawn my attention to Exhibit I3.1, page 2. There the second paragraph suggests that penalties are part of the scheme. There's actually a heading there: Negative Incentive (Penalty). MR. GRANT: A. Thank you for that. Q. Why did you agree to a penalty feature of this element of the incentive scheme if penalties are inconsistent with an incentive scheme? A. It's inconsistent with our PBR proposal. There are a number of incentive schemes. One incentive that is already approved by the Board is the transactional services and there's no penalty mechanism within that. The SSM, as you point out, has a penalty mechanism. The PBR that's currently before the Board does not have a penalty mechanism. So it's not cast in stone, you don't have to have a penalty mechanism for an incentive proposal. Q. But I thought you were saying a penalty is -- I know you don't have to have it, but I thought you were saying that the company's position is penalties are inconsistent. Isn't SSM an incentive scheme? A. Yes. Q. So the company has accepted a penalty in McGill,Grant,McClintock 842 cr ex (Thompson) connection with SSM which is an incentive scheme, which seems to me to contradict your position that penalties are inconsistent with incentive schemes. A. No, I was speaking with reference to PBR and the Board's principles on PBR. I'm not aware of any Board principles on SSM, but I was really focusing on PBR. And the way I read the Board's principles is that we're out there to maintain service levels and, therefore, as long as we are maintaining them, it doesn't preclude penalties - I'll grant you that - but it doesn't require them either. Q. You regard SSM as outside the ambit of performance-based regulation? A. It's outside of our O&M PBR proposal. Q. No, but in a comprehensive PBR scheme is SSM inside the ambit of PBR or outside the ambit of PBR? A. Well, in a comprehensive sense it's inside. Q. Thanks. Finally, I just want to understand -- MS. LEA: I'm sorry, Mr. Thompson, just before we move on then we can cancel Undertaking 6.2, I understand? Mr. Grant, you're not required to -- MR. THOMPSON: Yes, thank you very much. MS. LEA: Thank you. MR. THOMPSON: Q. Finally, just to understand the process implications of the SQI feature of your targeted PBR proposal in the context of the next three years, because the term of this is three years under your McGill,Grant,McClintock 843 cr ex (Thompson) proposal? MR. GRANT: A. Yes, that's correct. Q. So in each of those, for the next three years, we will have a rate case? A. Yes. Q. And in that rate case we'll be scrutinizing everything but some components of O&M, if your proposal goes forward: Y2K, for example, CIS. There will be some O&M elements that have been hived out of your base amount that we'll have to scrutinize? A. I agree with you that you're scrutinizing Y2K and CIS, but those are not O&M elements. CIS, we're proposing to rate base it and, to the extent that you need to scrutinize the 'Z' factor which has been discussed the last few days, there's a 'Z' factor related to CIS, yes, you have to scrutinize that one. Y2K is essentially set up as a variance account now. Q. But there's some CIS-related expenditures already in your O&M envelope? A. There are CIS savings, cost reductions related to CIS, incremental cost reductions from the O&M base, we're proposing that that be a 'Z' factor, so that will be part and parcel of the review of CIS. Q. In any event, let me move on. If your proposal goes through, some scrutiny of - I say O&M - maybe you think it's all, I think it's some O&M will be eliminated. McGill,Grant,McClintock 844 cr ex (Thompson) But in terms of service quality, that will continue to be scrutinized in the rate case; have I got that straight? A. Not necessarily. Q. I thought you said to Mr. Warren you're going the file some high-level report in the rate case dealing with your performance with respect to these SQIs? A. That's correct. We will do that, but that doesn't necessarily - and I don't mean to be sounding like I'm splitting hairs - but it doesn't mean that it's an issue and it doesn't mean that it needs to be scrutinized. It could be filed as a matter of course and if whatever issues that arise from that have been dealt with in another forum outside the hearing room, then I would see no need to get into it in the hearing room. Q. Well, in terms of the ratepayers' opportunity to scrutinize it, it's going to come up in the rate case. That's what you told me. A. No, in terms of the intervenors' ability to scrutinize it. The ratepayers through the Board and Board Staff are -- in effect, are scrutinizing the process through a monitoring process quite separate from the hearing process. Q. Your view is the Board is not representing just the public interest in this scrutiny process, it's representing the ratepayers? A. Yes. Q. It's outside the hearing room process? McGill,Grant,McClintock 845 cr ex (Thompson) A. Yes. Q. Is that a novel view of the Board's role? When I say the "Board", are you talking about the ERO? A. It would be through the Energy Returns Officer that we would be monitoring and -- Q. Would the Board members even know about it? A. They may not, the Board members themselves may not know about it other than that there has been a process undertaken and that the ERO, the Energy Returns Officer, is satisfied at the end of the day with the process. Q. So you're going to file a detailed report with the ERO, that's one individual in the Board -- in the Board; correct? A. Yes, it would be with the ERO and -- Q. He represents the ratepayers? A. It would be him and I believe his director could be involved. Q. Okay. So he is looking out for all the interests of all the ratepayers in your proposal? A. He's ensuring compliance with the commitments that we've made and, through that, ratepayer interests are looked after. Q. Let's assume service quality stinks. A. Yes. Q. What does he do then? A. I think that -- my view of it is that the Board would have -- McGill,Grant,McClintock 846 cr ex (Thompson) Q. What does the ERO do? A. The ERO would have the authority then to say to us "correct it". Q. So the ERO administers-- A. That's fair, yes. Q. --discipline? A. Yes. Q. Does the Board membership hear anything about it? A. My understanding of the internal process at the Board is that they would be entitled to be aware that the monitoring process is complete to the satisfaction of staff. Q. Well, let's assume it's not to the satisfaction of the ERO and he says it stinks. A. Then we have to -- Q. Does he just tell you? A. That's correct, and we have to correct it. We have to satisfy him that we have corrected the situation. Q. Let's assume that you haven't complied with one of your standards, you've fallen short on all of them, so you haven't performed up to your service quality level that you've asked the Board to approve. A. Yes. Q. And the ERO is going to monitor this. And you are telling us now he goes back to you and says: You haven't performed. You're going to say: Well, we'll do McGill,Grant,McClintock 847 cr ex (Thompson) better. You promise to do better? A. Yes, and we have-- Q. What does he do then? A. --a plan in place. Q. Just wait? A. Well, no. I think that there would be -- in that instance, there would probably be a requirement for perhaps more frequent monitoring-- Q. By the ERO? A. --more communication between the company and Board staff, the ERO. I mean, Mr. Thompson, I don't have all the answers to all of the issues that may come up and all of the scenarios and all the rest of it. I'm trying to keep the process simple. I'm trying to make sure we're satisfying the Board and our customers, our ratepayers. Q. It looks to me -- A. And I'm trying to also drive out efficiencies in the rate-hearing process. I believe those are laudable goals. I don't want to limit the rights of others, but I do want to drive out efficiencies and keep it simple. Q. Well, it has the earmarks of removing some important topics from scrutiny by intervenors and Board Members in the context of the rate case. But just coming back -- so this process involving the ERO could be an iterative process? A. Oh, yes. One key feature of PRB is McGill,Grant,McClintock 848 cr ex (Thompson) everybody's flexible and it's a new environment, it really is. It's a new way of proceeding. Q. But where do we scrutinize it? You're going to file a high-level report in the rate case, so that's when we'll have an opportunity to ask our questions? A. Yes, I think so. And I think it's a legitimate question. If the high-level report indicates that there's a problem, it's a legitimate question and pursuit of examination on your part to say to the company: What have you done about it? Q. So how is all of this an improvement on the cost of service regime? It seems to me we've added an incremental monitoring process here that could get out of hand. A. Well, I think we discussed the other day that we'd be saving on average four days hearing time and some of that may be clawed back because there may be a need to scrutinize some capital items a little further. We discussed that the other day. And if, for whatever reason, in the scenario that you've indicated to me there is some extra need at the end of the day to pursue something in a hearing, then that may claw back a little bit more. But at the end of the day we can all agree, I think, that we're striving to be more efficient in the hearing process. MR. McGILL: A. Another advantage as well is that -- McGill,Grant,McClintock 849 cr ex (Thompson) Q. But you're adding what I would call off-the-record processes-- MR. GRANT: A. Well -- Q. --under did scheme and, to me, it's sort of counterproductive. MR. McGILL: A. Just to come back to your previous question. I think another thing that is being provided through our PRB proposal is the company's commitment to deliver on the five service quality indicators that we've brought forward. And that's never been there before under cost of service. MR. GRANT: A. The other thing, from a process point of view -- Q. You mean the commitment has never been there before? You've always bragged about quality of service in rate cases, as I recall it. A. I think the company has always been committed to deliver a high level of customer service and now there is a public commitment that the company has brought forward and committed to. Q. Well, yahoo! So what? You've always told us that service quality and safety and all this will not be sacrificed. A. That's correct. Q. Intervenors have insisted on that and it has been reflected in ADR agreements and so on. So is this anything more than that? MR. GRANT: A. It just isn't intervenors that McGill,Grant,McClintock 850 cr ex (Thompson) insisted on it; we did. Q. Pardon? A. We did as well. Q. Okay. Well, it was agreed to? A. I remember drafting in the early days of ADR agreements those precise words, that we were concerned -- Q. I know, there was never any -- everybody was concerned-- A. Indeed. Q. --that there be no erosion of quality of service or safety. A. Yes. Q. All right. A. I think the other thing, from a process point of view, that I'm trying to keep in mind - and, again, Mr. Thompson, I'm not saying I've got all answers to all of the scenarios and issues that you may raise - but the Board, in my view, in the next few years is going to be regulating a number of entities in a PRB environment and I think we have to all try to keep the process as simple as possible without creating the need for hearing room examination of the issues. If you applied that principle to all of the entities the Board is going to be regulating, you simply wouldn't have a process that made any sense. So we're trying to keep it as simple as possible. Q. Well, we'll argue as to whether you have achieved that goal or not. McGill,Grant,McClintock 851 cr ex (Thompson) What is the plan at the end of the three years? Where do we go then? A. With SQI? Q. No, with PRB. A. Well, as I testified the other day, we are going to rebase. Q. Are you going to comprehensive at the end of three years? A. Once again, we discussed this the other day and there is an off-ramp mechanism in our proposal that is there in the PBR -- the three-year PRB period that would accommodate a move to comprehensive. Q. I was talking at the end of the three years. Is there any specific plan? When this plan expires, where are we going? Has that question been asked and answered on the record? A. That specific question, put in that way, I don't think has. We don't have a specific plan at this point for that -- at that point in time. My feeling is that -- Q. Have you got a general plan? A. Well, my feeling is that we will be -- by the end of this three years, we will be into a comprehensive PRB situation. Q. Any chance of being into it before the end of three years based on your perception of the -- if this hasn't been covered before. McGill,Grant,McClintock 852 cr ex (Thompson) A. That has been covered before. MR. THOMPSON: Thank you very much. Those are my questions. THE PRESIDING MEMBER: Thank you, Mr. Thompson. MS. LEA: Madam Chair, just before we contemplate a break, I just wanted to put on the record information which may assist parties or the company or the Board. Part 7 of the new Act deals with the powers and duties of the Energy Returns Officer. So if anyone is interested in the subject that Mr. Thompson was pursuing, you will find Sections 106 through 112 of the new Act to be important and, particularly, Section 109 which deals with the duty of the Energy Returns officer to report to the Board. So if that's of assistance to anyone... I hope it is. Thank you. THE PRESIDING MEMBER: Thank you, Ms. Lea. I think we'll take a break. 15 minutes. We will be back at a quarter to eleven. ---Recessed at 10:20 a.m. ---On resuming at 10:47 a.m. THE PRESIDING MEMBER: Please be seated. Mr. Janigan, are you next, or is it Mr. Brett? MR. BRETT: I think I may be next, Madam Chair. THE PRESIDING MEMBER: Go ahead, Mr. Brett. CROSS-EXAMINATION BY MR. BRETT: Q. Mr. McGill, could you advise, what has been McGill,Grant,McClintock 853 cr ex (Brett) the experience of the company in the last few years with respect to abandoned calls from customers? MR. McGILL: A. I don't have any specific details of that, that I can recall right now. I think, just in general, as the average wait time increases, the level of abandoned calls would tend to increase along with that. Q. I seem to recall -- well, in your evidence in-chief at section 3.0 - I'm not sure you need to turn this up - but at page 5, you have a percentage of calls abandoned by various sectors. For utilities, you have 5 per cent. I seem to recall a number of 5 per cent somewhere else in the evidence. But you have no number in the evidence specific to Consumers Gas at this point; is that correct? A. No, I don't believe we do. Q. Would 5 per cent, though, in your view, be a realistic estimate? Would you have any reason to think that yours would be different than the average, the number quoted there for utilities? A. Well, given that I know that we are not operating at a 70 to 80 per cent TSF within 30 seconds at this point in time, I think that our percentage of calls abandoned would probably be higher than the average that's indicated in table 3-2 on page 5 of 16. Q. So somewhere between 5 and 10 per cent would be...? A. Again, I'm not in a position where I can McGill,Grant,McClintock 854 cr ex (Brett) really quantify that at this time. Q. You don't do analysis on that factor, as such. Do you know how these figures are arrived at generally in the industry? A. Most of the telephone service level figures are gathered through automated systems that are attached to the telephone infrastructure of a call centre and that there is various types of predefined reporting that comes out of them. As I said, we do keep track of our abandonment rate but, as I indicated earlier, I just don't have the number at this point in time. Q. Oh, I'm sorry. I misheard you. Could you provide then by way of undertaking what your abandonment rate is, say, for the last three years? A. Yes, I can do that. Q. Thank you. MR. SWEET: Madam Chair, that would be Undertaking H6.2. ---UNDERTAKING NO. H6.2: Enbridge Consumers Gas undertakes to provide their call abandonment rate for the last three years. MR. BRETT: Q. And I'm sorry, I missed your answer to Mr. Thompson. I think you gave him -- let me step back a half step. Your evidence suggests that your estimate in 1998 for TSF -- for actual TSF is 50.4 per cent. That's from table 3-1 on page 2. McGill,Grant,McClintock 855 cr ex (Brett) Now, did you give Mr. Thompson a more recent number than that? MR. McGILL: A. Well, the number I quoted earlier today was the number -- I didn't quote an exact number, but we were slightly below 50 per cent for the month of December. That was the last figure that I had seen. And, again, the service quality level that we are committing to is an annual average and the month-to-month performance does change. But, on average, over the year, we would be committing to the 70 per cent TSF level. Q. And what do you estimate now will be your overall average for 1998? Is it still the 50 per cent or...? A. No, I don't know what it will be for 1998. As I indicated earlier, we're in the process of trying to gear up in the call centre in order to get up to the level of performance that we believe is appropriate. Q. The years here that you have listed in this table; are they calendar years or your fiscal years? A. These would be fiscal years. Q. Now, you've had, as the table indicates, some variation over the years in TSF targets and performance, and your evidence lays out your analysis of why that's the case. In your '99 budget you had projected a target of 74 per cent. Now, you're stepping back from that to 70 McGill,Grant,McClintock 856 cr ex (Brett) per cent in your proposed standard and my question is: Why are you doing that? Why aren't you leaving it at 74 or, indeed, why aren't you trying to get back to the levels that you had in '94 and '95 which were higher than that? A. Okay. Well, I think there's at least two questions there. I guess to answer the first one last, the reason we are not attempting to get back into an 80 per cent TSF level is because, (1), we don't believe that that is in keeping with customer expectation; and, (2), that it would require a significant increase in our O&M expenditures beyond what we have in the 1999 base. I think the first question was why our service quality target is 70 per cent as opposed to the 74 per cent that the '99 -- the original 1999 budget was developed to support is, in part, due to the fact that the '99 approved budget is somewhat less than what we were originally targeting. But we do believe that we will be able to reach the 70 per cent level. And, again, that's a minimum target with respect to the service quality indicator. So it's our expectation, you know, that we'll be striving to achieve something beyond that. Q. So you use the call centre performance or the call centre staffing as one way of -- you adjust that upward or downward depending on whether you -- whether the Board approves the budget that you seek in your McGill,Grant,McClintock 857 cr ex (Brett) submission? A. Well, the staffing levels, to some extent, are related to the O&M budget that we have available to us. But, again, we are trying to make sure that we are delivering an adequate level of service. So we're continually trading things off in an effort to provide the best level of service we can with what we've got to work with under varying conditions. Call volumes change with weather, call volumes change with broker activity. There's a number of things that can affect that. Q. Can you give us any indication of, or give us a general indication of what the incremental cost is to you in running that portion of the company's O&M budget to increase the TSF by, say, a factor of 5 per cent? In moving from 70 to 74 per cent, or from 70 to 75 per cent, what additional dollars would you be looking at there? A. I don't think I could really say without getting into significant analysis. I think by and large it would tend to be almost a linear relationship because much of the O&M expense in operating the call centre is the labour associated with the actual CSRs. So to have more people available to answer the phone quickly, it would reflect a higher labour cost and that it's probably not a direct one-to-one relationship, but I would imagine that they would be fairly close to McGill,Grant,McClintock 858 cr ex (Brett) linear. Q. Can you just remind us what the budget is for the call centre currently? A. The 1999 budget level for the call centre I believe was $19.6-million. Q. And finally in that area, there's a relationship, I take it, between the TSF factor and the percentage of calls that are abandoned. Do you have a view on what that is? Is that a linear sort of relationship as well? A. No, I don't believe it is. And I think it would be very difficult to try and draw any conclusions from the information that's contained in, I think it was table 2-3 or 3-2 actually in that regard. Q. Table 3-1 or -- A. 3-2, the one we were looking at a little earlier. Q. But you'd agree directionally that the lower the TSF becomes, presumably the higher the number, the higher the percentage of abandoned calls becomes? A. That would be the general trend. Q. But you've done no analysis on that -- any further analysis that elaborates on that? A. As I -- Q. I only raise the issue because it seems that people whose calls who can't get through and who hang up are, you know, that's an indicia of something that's not right. McGill,Grant,McClintock 859 cr ex (Brett) A. Well, and again, that's why we chose TSF as the indicator because it, on balance of the things you could monitor, it gives you a good indication of how you're performing. You could look at calls abandoned, you could look at average wait time in isolation and try and figure out some way of developing some kind of meaningful measure out of that. But what TSF does, and the reasons why call centres usually focus on that as a performance level, is because it reflects, I guess, all of those elements of handling calls. It reflects both the wait time and your ability to answer calls within a specific length of time. Q. With respect to the emergency response, your proposed standard is, as I understand it, that you will respond to no less than 83 per cent of emergency calls within one hour during the term of the PBR plan. Is that a fair statement -- I mean, a fair summary? MR. McCLINTOCK: A. That's correct. Q. And could you tell me - I wasn't entirely clear reading the evidence - when you -- "response" there means, I take it, arrival at the site? A. That's correct. Q. And I take it that you send someone to the site when you get a call from someone saying that they smell gas. Is that a fair summary? McGill,Grant,McClintock 860 cr ex (Brett) A. In that definition of emergency response, we included a number of calls. One would be the customer is -- they believe they're smelling gas inside the building. Another type of call would be an unusual odour or fumes that they're detecting in the building, or if there's a call that there's been a fire or an explosion. We would then respond with a representative who would arrive at the site and provide assistance in a variety of ways. They may make the area safe, like basically shut the gas off, or they may provide assistance to the Fire Department in whatever way that's needed. Q. Okay. So, effectively, the definition of an emergency or when you send a person out to the site in either of the situations that you've described, whether or not you call some other service, like the fire service or the police service, it wasn't entirely clear to me when exactly you send a person out and when you don't in those situations. I think what you're telling me is in every situation where the customer describes a problem of either they think they smell gas or they smell some other kind of odour that might be gas, in each and every one of those cases you send someone out? A. Yes, that's basically correct. The source may be from the Fire Department itself phoning us and asking us to attend the site as opposed to an individual customer. McGill,Grant,McClintock 861 cr ex (Brett) Q. Right. All right. Now, you have used as your benchmark here -- my interest here is in the benchmark. You have used your 1998, I guess the 83 per cent reflects your current experience; is that correct? A. That's correct. Q. And in one of your IR responses - I don't know that you need to turn it up, it's Board Staff I74 - you were asked to talk about the average, the mean, the median and the mode amount of time required to reply. And you gave as the mean, which I take it is broadly speaking the average, something between 36 and 40 minutes. And I'm interested in -- and also your median numbers and your mode numbers are somewhat lower than that. In '98 the median is 37 and the mode, which I gather is the most frequently observed time, is 23. In light of that analysis there which goes back over the five years, it doesn't appear to change much over the five years, it seemed at first blush that your one hour was rather generous to the company as the objective. Why would you not try and make it tighter than that? A. It's not a question of making the timeframe tighter, it's an issue of measurement. And the way that the calls are responded to and the shape of the curve if you were to - I'm getting into some statistics here - but if you were to take a look at McGill,Grant,McClintock 862 cr ex (Brett) the number of calls and the time to respond, there's more calls that you respond to in the shorter timeframe than in the longer timeframe, and what that does is it creates an asymmetrical type curve. From I guess a statistical standpoint and a tracking standpoint, it's better to use the percentage of time completed within -- percentage of calls completed within a specific timeframe as you measure. There's less fluctuations because of the deviation. So it's not a question of saying that the one hour is the target, it's a way of measuring. Q. But your test, if I can put it that way, or target that you've suggested is that you will respond to no less than 83 per cent of emergency calls within one hour during the term of the PBR plan. Now, you've given yourself leeway obviously because you're using 83 per cent, which suggests that you can respond to a certain number of them in over an hour and still comply with this. Isn't that still a target; isn't that still saying you're going to get out there within an hour of the time that you hear of this emergency? A. Yes. There's no question some calls we respond to very, very quickly - it depends upon the nature of the emergency - and others will take longer, often because of distance, geography reasons. But there's many a case that we're out there much, much quicker than an hour, within a very short McGill,Grant,McClintock 863 cr ex (Brett) period of time. Q. I'm sorry, I'm confused. When you say it's a matter of measurement - maybe we're just missing one another here - but I agree you have to measure, you'll be measuring the time it takes you. And I agree with you when you say -- I understand you when you say that, in some cases, you'll take much less than an hour to answer the call, but it's not just a way of measuring, isn't it; isn't this also a performance target? This is saying that you will have your people arrive on-site within an hour in at least 83 per cent of the cases-- A. That's correct. Q. --on, you know, a case-by-case-by-case basis. So it's more than just a technique of measurement, it's a performance standard that you're going to ask yourself to commit to adhere to? A. Yeah, that's correct. But you have to also bear in mind too that we are not an emergency response organization, not like the fire department, police or ambulance services. They're often the primary responder. In fact, in many cases it's the fire department or the police that are there first on the scene and they're the ones calling us to attend and to provide some assistance. Q. Could you just address my question, Mr. McClintock, in this way: McGill,Grant,McClintock 864 cr ex (Brett) I've asked you, in effect, whether you think that what you're doing by choosing a one-hour target is overly generous to the company, gives you an over amount of leeway, as it were, given the fact that your average time is 40 minutes? I mean could you address that directly? Is your answer simply that you want to be realistic, or are you really saying you can't do better than the one hour as a target; and, if so, why? A. I go back to my previous statement there that really it's a matter of measurement. One way of measuring is to look at means or medians or modes. Another measure is to look at percentage, and I don't believe there's any compromise in either method of measuring. It's a better method of measuring when you look at percentage within a particular timeframe. It's not a matter of compromising our response in any way or being overly generous. Q. I wonder if I could ask you to look for a moment at your next test, your distribution system integrity survey. And my focus here really is on the definition of this test and how this might be viewed by a third party who was trying to assess compliance with it. Your standard, as I understand, is over on page 15 of section 3, and I'll just turn to that and read it: 'The company will complete the annual leak McGill,Grant,McClintock 865 cr ex (Brett) and corrosion survey programs each year during the term of the PBR plan.' Now, we asked you a question about that at Interrogatory 4.38. I'm not sure you need to turn it up, but you have two programs I gather within this, or two subprograms. You have a leak detection program and a corrosion prevention program; correct? A. That's correct. Q. And you organize yourself for each of these programs. I gather with respect to the leak detection program you have a system of priorities whereby you monitor different piping configurations at different frequencies over the term of the year; is that right? A. That's correct. Q. And you effectively block out a certain number of areas that you're going to cover in each year? A. In essence that's the way it works. Q. And then for the corrosion program, it works in a similar fashion? A. Yes. Q. In either of these cases, do you lay out a plan in advance of what you're going to accomplish in the first year, in the next year in your normal planning? A. There's a general plan laid out of what we're going to do over the course of time, but what influences it, of course, is pipe that's removed, abandoned and new installations that take place in the form of mains and service lines that run from the gas main to the house. So McGill,Grant,McClintock 866 cr ex (Brett) that can actually influence the schedule. That's basically the way it works. Q. Well, in this answer that I'm looking at to 4.38 we asked about how a person -- a third party could assess whether the program has been complied with, and you say at the bottom: 'The projected work for 2000, 2001 and 2002 is based on the current amount of pipe in the distribution system. It is not possible to precisely establish the number of survey areas over the coming year since it is not known how the location of future installations will mesh with the design of the survey areas. Therefore, the projected survey areas noted below represent the minimum requirements.' So you then give a series of areas. Now, these survey areas are what, these are blocks of territory within your mapping -- within your franchise? A. That's correct. Q. Identifiable on some set of maps? A. Yes, basically. But they may change. I understand what you're driving at. Probably the easiest way to explain it is that service lines are installed to customers throughout the system and it's not possible to project several years down the road exactly where those customers will be. On that basis where they end up being affects the McGill,Grant,McClintock 867 cr ex (Brett) survey area and what you will be doing within that timeframe, and you may make adjustments to that area; you may expand it or decrease it. Q. By the same token though you have an established infrastructure of pipeline throughout your system? A. That's correct. Q. And presumably in terms of at least your -- well, presumably in terms of both programs you can lay out to a considerable degree what areas you're going to be covering. Regardless of whether you have new customers signing on or not, you still have to do the leak detection in the pipe that you already have laid. I think you're saying that there's going to be some new pipe put in the ground from time to time and that will have to be fit into this schedule. But don't you have to lay out a basic program? A. That's correct, and that's what these numbers here are based on, is the information we have as of the response to this interrogatory. Q. The question in my mind is: Is there going to be -- will you have sufficient detail in your plan? You say here: Well, we're going to do our plan. Presumably you mean we'll do our plan on schedule. Is there sufficient detail in that -- first of all, will that plan exist in a written form somewhere that it will be filed as part of the PBR process? I mean, in other words, the plan will be filed and any changes from McGill,Grant,McClintock 868 cr ex (Brett) the plan will also be filed? A. Let me try to answer it from a process standpoint. At the beginning of the year a plan is laid out and if there's a need throughout the year to modify it, then those modifications will take place because of pipe going in the ground. It's unlikely that during the year that there would be any changes that would cause you to modify the survey areas to any great extent. At the end of the year one can then take a look at it and determine whether, in fact, those surveys have been completed in accordance with what's been laid out. Q. How many people are involved in this effort roughly, typically? A. I don't have that information at hand. Q. How large an effort is it, is what I'm trying to get at. Is it an effort that involves dozens and dozens of people, or two or three people within the company? A. It's in the dozens order of magnitude. Q. All right. So you're saying that you will be filing, as part of the plan -- there is a plan in existence for each year and it will be in sufficient detail that the Board, for example, intervenors, ratepayers, if you like, could determine whether or not the plan has been complied with? A. Yes, there'll be a way of saying that this is what was scheduled, this is what was planned to be done McGill,Grant,McClintock 869 cr ex (Brett) and this is what actually was accomplished. Q. We've had a lot of discussion around the monitoring and the penalties issue and I have just one or two questions on each of those areas. I wanted to make clear that I understood your answer earlier, Mr. Grant. You did say, I think, that the issue of the plan performance -- the performance of the company relative to the standards in the plan will be an issue in each rate case; is that fair? Or did I hear you -- I heard you say two different things there. I heard you say it would be an issue if the company felt that they had not lived up to the plan and there was a problem that they had to change. Then I heard you say to Mr. Thompson that it would be an issue -- that anyone could raise the issue. You would provide this high-level material as part of a rate case filing and any party would be free to raise an issue related to this material in the rate case, regardless of what it said, whether it said that in general you were complying, or in general you weren't complying, parties would be able to raise the question of whether you were complying or not. Is that fair? I mean, pardon the long-winded question, but it's... A. Yes. When I discussed the process with Mr. Thompson I indicated that, as Mr. McGill had said, we would be filing a report -- a high-level report as part of our rates proceeding and that may just -- that may be the McGill,Grant,McClintock 870 cr ex (Brett) end of it. It may be that high-level report summarizes the situation and the standards and whether we've met them in the previous historic year. And if we haven't, it's quite legitimate I think for parties to ask why not and what have you done about it. Whether it's an actual issue in the rates case is a separate matter, in my view. I don't think it necessarily has to be an issue. It's really an informing process that I was speaking to. Q. If a party wished to make it an issue in the rate case, Mr. Grant, having received this material, because of lack of clarity, or different possible interpretations that might be placed on the material, or because of a different view they might have from their own experience or the experience of the ratepayers that they represent and speak to on a regular basis, you wouldn't object; I take it, to having it in that situation put on the issues list? A. I guess you're asking me to commit to something that I don't know the context in. I think my point is that no one's rights are limited. If parties feel that it should be an issue and they want to argue the point with us at the issues conference and, if need be, on issues day, then they're tree do that. I would hope that parties would be -- in the McGill,Grant,McClintock 871 cr ex (Brett) spirit of PRB, would be satisfied with a monitoring process that is done outside of the hearing room and, as long as we can give assurances that that monitoring process has resulted in corrective action - if corrective action is necessary, and that ratepayers are not being asked to pay for that corrective action - I would hope that in the spirit of efficiency then parties would -- that would be enough for parties so that they didn't have to make it an issue. But that doesn't mean that their rights are limited, they certainly are free to attempt to make it an issue. Q. But the more detailed report that you're speaking of, the real fulsome report on the plan and how it's worked -- the annual report in the parlance of most of these plan documents that we see, you don't contemplate making that available to the intervenors and through them to ratepayers. I don't understand, Mr. Grant, what your concern there is. Are you concerned that -- is your concern simply with the matter of time that might elapse, people might have questions of you, or... It seems to me, on the face of it, prima facie unusual not to make available this report to all parties that are supposedly participants in this process that's supposedly a collaborative process and one in which parties, over time, should buy into. A. It's principally for efficiency reasons that McGill,Grant,McClintock 872 cr ex (Brett) I'm taking the position I am. I don't think it's necessary to have it in the context of a hearing, especially if it's being dealt with through a comprehensive monitoring process with the Board. Q. Well, whether it's in the context of a hearing or not I suppose is another question, but why shouldn't it be made available to the parties in the first instance? A. Well, I suppose we could -- I don't want to fetter the Board's discretion on this matter. I think the Board, if it felt that it was more efficient to have a process whereby intervenors could review the document and comment on it, if need be - similar to the Board's new process on the rate order that comes out at the end of a regulatory rates case - then that should be -- the Board should be free to pursue that as an avenue of efficiency and, thereby, keep it out of the hearing process. But I don't think that we should set any hard and fast rules at this point as to process, as to what has to happen. I'm going to leave that up to the Board. Q. My concern is, I suppose, the spirit with which the company seems to be approaching this effort. If I look -- well, would it surprise you -- I mean, I would venture a guesstimate, Mr. Grant, without having looked at each and every one of these 12 or 13 other decisions that you filed, that virtually in every case there would be some kind of public process to review the results of the plan. McGill,Grant,McClintock 873 cr ex (Brett) I've only looked at two of those other cases. One which we have already discussed at some length in a different context in this hearing, the B.C. Gas case, and in the B.C. Gas case, when they speak of annual evaluation on page 14, they talk about, among other things, interested parties should have access to the service quality evaluation prior to the annual review. It's quite clear. I mean, they are talking about the substantive document being made available to the parties and they have an annual review process that's going to be -- that's going to take place. In the other case that I had an opportunity to review which I have spoken to you about earlier in a different context, the Southern California Edison Company, decision of the California Public Utility Commission on September 20th, 1996, the Commission, under the topic "Review", this is at page 39, talks about a working group process. Now, he talks about directing the company to convene a working group process which, for example, will assess the need for any additional standards for evaluation on debated matters. Why is it that -- how is it that these utilities can accommodate this kind of a process when you're not able to do that? I'm speaking specifically here of making the substantive document available to parties and allowing them to, in one fashion or another, raise issues McGill,Grant,McClintock 874 cr ex (Brett) associated with the utility and with the Board. A. I take your point that other jurisdictions have approached things in the way that you've suggested and they presumably have their own reasons for doing that. In our case, I don't believe it's necessary to go through that process. And I would leave -- again, I want to give the Board as much discretion in this area as possible, I think we all should, because we have to be aware of the number of entities the Board is going to regulate under PRB. I wouldn't want to cast in stone in this proceeding a process that would bind up parties and the Board and other utilities in the province in the future. And the kind -- the kind of consultative process that you spoke of has some advantages to it. There is no doubt about that. It tends to -- if it's done properly, it tends to promote buy-in and greater understanding between parties as to the business and why it operates the way it does, and it allows the company to understand the positions of other parties. So there is some advantages to a consultative process, but there are also some disadvantages in terms of process, the length of time it takes. I wouldn't want to be saving regulatory costs in the hearing room and then creating a process that's just as costly outside the hearing room, or perhaps even more costly. I think we all have to be concerned about that sort of thing. McGill,Grant,McClintock 875 cr ex (Brett) So, at the end of the day, I think we all have to leave it with the Board. If the Board, through the monitoring process that we are proposing, found that there was a real need to bring -- to broaden the consultative process, bring intervenors as representatives of some ratepayers into a room with the company, say, for a day, you know, and bookend the thing, say, talk about it only for a day and there's limited funding, you know, to keep the costs down. If the Board felt that that was the right way to go, we should all leave it up to the Board to pursue that. I don't think that we should be, in this proceeding, try to set hard and fast rules around that. Q. Well, you agree with me that there are different options to do it, and I suppose what everyone should be seeking is the most efficient way to do that, whether that's taking a day in a rates case and doing it or taking a day in a consultative process and doing it. There are different ways that one might do that; do you agree? A. Yes. And, indeed, I don't think you touched on the most efficient way; and, that is, that we go through a monitoring process, we file the high-level report in a rates case, everyone reads it and says: I don't need to cross-examine on it, it looks likes it's going fine. I mean, that's hopefully is where we end up. Hopefully we're always meeting our standards. McGill,Grant,McClintock 876 cr ex (Brett) Q. Well, the concern I guess -- would you not agree with me that the difficulty with the high-level report approach is that you just -- you know, what's a high level report? Some high-level reports are a page with four lines on each item saying, for example, in the case of the -- well, saying that the standard is "x" and we've met it. That might be a high-level report. That doesn't do -- that doesn't convey very much information to people who are trying to understand what's happening. You know, you've met it by how much, for example. A. Well, let me try to deal with your concern by way of an example. Examples always help me to answer questions, I guess. Let's say that the TSF standard is 70 per cent and the high-level report that we file says over the course of the year we've met the standard, it came in at 71 per cent, and it's an annual standard. If that's the case -- well, let me back up. Perhaps there would be a little bit of narrative in the report describing the challenges perhaps that we had to overcome in the year and, at the end of the day, it was 71 per cent. In my view, from a rate-hearing process point of view, that ought to be enough. In other words, you don't need to know whether in the month of December it was 62 per cent, in the month of January it was 74 per cent and, McGill,Grant,McClintock 877 cr ex (Brett) you know, why was it different, what were you doing in those months. That level of detail, we can leave that to the detailed monitoring report and discussion between the company and Board Staff. Q. Well -- A. So at the end of the day, using that example, I would see that that would be the most efficient way to proceed. I don't know if that's helpful or not. Q. Well, I would suggest to you on your example that parties would probably want to see what the monthly variation is. If there is a huge monthly variation in your capacity to respond to calls because of your system and your staffing to the point that, for example, in January and February it's only half of what it is throughout the shoulder seasons in the summer, parties might very well be interested in that, they might want to know what that variation is and how low those numbers got in a worst-case basis and how much it will cost to fix them. A. Why? If it cost the shareholder money to fix it, I don't know, from a ratepayer point of view, why that matters. Q. Well, looking down the road -- I mean, customers and ratepayers are trying to line up in their minds the cost of these services relative to performance and what the tradeoffs are. And that's going to be in the long run intimately McGill,Grant,McClintock 878 cr ex (Brett) associated with the satisfaction you have. Are you getting value for money? Will you be willing to pay more for better service? Those are questions that always come up in these plans over time. A. I suppose you and I are expressing philosophical differences at this point and I don't know-- Q. Indeed. A. --whether this is argument or not, but it seems to me that when moving away from the cost of service model to a performance-driven model, there does need to be a shift in views on everybody's part, and including the company obviously. So I think we should keep that in mind as we go through the next few years and monitor the progress. Q. Do you not think, Mr. McGill, that there's a little irony -- there is some irony in the company's reluctance to ask their customers what they think of the services that are provided to them? You seem to be very reluctant to consult your customers on a systematic basis, unlike what appears to be the case in some other jurisdictions. MR. McGILL: A. Well, I think we do consult our customers in a number of ways. We consult them with three and a half million times a year on the telephone. I think -- Q. I'm speaking here of consulting specifically with them with respect to their -- in a structured way, McGill,Grant,McClintock 879 cr ex (Brett) through a professional survey, on their degree of satisfaction or otherwise with these standards that you -- these areas of activity that you've decided are the most important in terms of customer satisfaction standards, ratepayer satisfaction standards. A. Well, I think I've got to come back to some of our objectives with respect to what the service quality indicators are designed to do. They're designed to be well understood, relatively simple and inexpensive to track and quantify and give us and the Board a good indication of how the company is performing overall with respect to delivering on service quality. We could make the process bigger, we could make the process smaller; and what we've tried to do is bring forward a proposal that strikes a reasonable balance. Q. The last area I want to look at is the area of penalties, and you have discussed this a little bit. I would like you to turn up -- in the materials that Ms. DeMarco filed with you last week, the book of materials on PBR, if you take out that booklet and look at Tab 2. Tab 2 is the study that was commissioned by NARUC last year on performance-based regulation. There were a number of authors, but it was done for the National Association of Regulatory Utility Commissioners. And if I can just paraphrase it and summarize it briefly, in my mind at least, and you can take this McGill,Grant,McClintock 880 cr ex (Brett) subject to check. It analyzes some early performance-based programs, some of which are completed, some of which are still underway, some programs in New York and California, and then it tries to draw some conclusions from those general lessons for the community. That's a bit of a very high-level summary, but does that seem a fair summary to you of what this is? A. I believe it's a review of a number of PBR programs. I think I could agree with that. Q. Right. Well, the section I'm interested in begins at page 33 of your booklet and is entitled: Choosing the Amount of Penalty or Reward. And it goes through and discusses the subject in general terms, and it then summarizes what various plans have done in terms of how much money, how many basis points specifically related to ROE they have put at risk. And if I may refer you to page 34, under the title: Quantifying the Penalty Reward, I'm going to read this section briefly to you and it is a balance section here. I don't mean to suggest this is by any means -- this does not appear to me to be tilted in one way or another, but the two paragraphs that I'm interested in are the following, starting just under the title: Quantifying the Penalty Reward: 'Perhaps the most important decision to make in developing service quality PBR is how much McGill,Grant,McClintock 881 cr ex (Brett) money will be put at risk. A utility must have enough at stake that its managers will pay attention to the regulatory goals.' Then it goes on to say that: 'Some utilities will need more of an incentive than others to perform.' In fairness to you, it says, 'Some will need none.' It then goes on to discuss the average -- some of the experience that they have observed, and they say: 'Service quality PBR amounts can be expressed in terms of basis points of return on equity. In New York, the maximum at stake in service quality PBR has been in the 15 to 30 basis point range. New York staff reports that 30 basis points may not be sufficient to affect behaviour.' Now, bear in mind this was written last year and it does deal with, I grant you, electric utilities, not gas utilities. But that said, let me continue: 'At the other extreme, the Mississippi Power PBR distributes 100 basis points on the basis of very few service quality indicators.' And so on. And it has a range there that looks like it varies from 15 on the low side to 110 on the high side. They cite Pacific Gas & Electric, San Diego Gas & Electric and Central Maine Power. And so I look at all that, and then on the next McGill,Grant,McClintock 882 cr ex (Brett) page, 35, they give their conclusions, these particular authors give their conclusions. And I'm looking here at particularly the third paragraph down on page 35. They say: 'Penalty indices should be developed using three-year historical averages as performance benchmarks and 100 basis points of return on equity spread equally among each of the proposed six indices.' In their study, they have concluded that for the electric utilities there should be six indices and they've laid out what they are. 'Within each index, a penalty function should be created such that 80 per cent of the total penalty for poor performance is incurred for performance within one standard deviation of the benchmark.' Now my question to you is: Taking into account that analysis, can you give me your explanation of why, in the case of Consumers, there should not be any kind of penalty to ensure that these standards are lived up to? And I guess before you do that, let me just cite one other paragraph, one other passage here. If you turn to page 36 under the heading: Magnitude of Penalties: 'A good starting point for the total penalty is 100 basis points of return on equity, although this could be adjusted up or down for particular McGill,Grant,McClintock 883 cr ex (Brett) concerns. The objective is to set a penalty that is large enough to attract management's attention and be larger than the cost of compliance, without exceeding the value of compliance of the customer.' So then they give a range. So I just raise this -- the reason I read these sections in and raise this in this fashion is that there's a lot of thought being devoted out in the PBR community to how these structures should work. And here you have the results of an analysis done for NARUC in the United States. You seem to be offside, as it were, an "out lier" in this situation, and I'm curious as to why that is. MR. GRANT: A. I think I can comment on the points that you have raised. Going back to the title of this section of the report, Penalty and Reward, when I read that title, another way to look at it is risk and return. In my view, that brings into the discussion the risk profile of the utility, the return on equity questions that may be raised in the context of risk and return or penalty and reward. And so, insofar as this particular application before the Board is concerned, in my view, it is out of scope. You would only be pursuing this avenue of debate if you were also looking at the Board's formula, the Board's ROE formula and allowing for a full debate on McGill,Grant,McClintock 884 cr ex (Brett) whether this penalty/reward mechanism changes the risk profile of the utility. So, for that reason alone, I believe it's out of scope with this proposal. As you know, the proposal is designed carefully so that there is no material impact on the utility's risk. The other comment I will make is that these discussions tend to take place in the context of a comprehensive PBR proposal that is before the Commission or the Board, and that is capturing all kinds of aspects of cost of service. And so, once again, it may be appropriate in a comprehensive environment to review this issue, but I don't think it's specifically relevant to a more targeted approach that we're taking here. Q. Leaving -- A. The final thing -- Q. Sorry. Go ahead, I'm sorry. A. The final thing I think to consider is that, in each of these cases, you have to go back and look at the facts of the particular utility, and by that I mean that the service levels in these utilities may or may not have been where they should be as a starting point, so there may have been a need to both incent through reward or disincent through penalty certain behaviours and actions on the part of these utilities. And I don't believe that's the case here. We did discuss service levels in the last case McGill,Grant,McClintock 885 cr ex (Brett) that we had before the Board, EBRO 497, at least to some extent, and it's from that take-off point that we're moving into PBR. So I think we have got our service levels to the point where they should be, and so there's no need to incent or penalize the utility on a go-forward basis with respect to service levels. So I think generally those are my comments around the paragraphs that you have pointed me to. Q. Well, on your last point, Mr. Grant, your evidence as filed with respect to TSF factors indicates, as I read it - and I'm reading from page 4 of 16 of section 3 - that your performances currently and, as targeted -- your targeted performance of 70 per cent is actually below the average of 40 utilities. It says here: 'The average TSF achieved as reported in the '96 report for the 40 utilities reporting the call centre statistics was 71 per cent with 93 per cent of calls answered.' That's a 7 per cent abandonment rate, I take it. Let's just say without -- I don't want to make too much of a point of saying you're below. You're the average, you're on the average. You're not, as I understand this evidence, in any kind of leadership position particularly or -- so, you know, it seems to me there's room to improve. MR. McGILL: A. Well, I think in most cases McGill,Grant,McClintock 886 cr ex (Brett) there's usually always room to improve. I guess what we're striving for is to deliver on a value proposition that meets what we believe our customers' expectations are, and we believe the 70 per cent TSF level and our plans to get there will meet those expectations. Q. With respect to your second reason, Mr. Grant, I don't have - and this has been raised in one or two other places over the hearing - I don't see the distinction you make between the targeted PBR and the comprehensive PBR. You say in effect: Well, if this were a comprehensive PBR it might be appropriate to have penalties; since it's a targeted PBR dealing only with O&M, it's not appropriate to have penalties. I don't see the logic of that. To me, penalties are penalties. Why should they apply more in one case than the other case? Perhaps the amount might vary or the structure of the penalty might vary, but why should it turn on whether it's targeted or broad? MR. GRANT: A. First of all, I don't think I agreed that under comprehensive that it necessarily followed that you had to have penalties. I think I was really talking about the issue would need to be looked at within a comprehensive PBR context at the same time that you looked at the ROE formula. McGill,Grant,McClintock 887 cr ex (Brett) But when you look at these things a lot of them are talking about basis points, and I would presume that what they mean here is basis points off the return on equity. And some jurisdictions and some plans have dead bands around that return on equity before anything is either shared or rewarded or penalized. So there's all kinds of permutations and combinations that run off of the ROE. Now, the ROE is made up of all elements of revenue requirement, not just O&M. So it's for that reason that I'm suggesting that if it needs to be reviewed at all, it would be within a comprehensive PBR proposal. THE PRESIDING MEMBER: Excuse me, Mr. Brett, but the Board has another commitment. I wonder could you complete your questions after lunch, please? MR. BRETT: Well, actually, Madam Chair, as it turns out - and this is the second time in the last year this has happened - but I'm at the end of my cross-examination. So we're finished. Those are my questions. And thank you, panel. THE PRESIDING MEMBER: Thank you, Mr. Brett. The Board will return at two o'clock. MS. LEA: Both Mr. Janigan and I have a conflict for this afternoon, but if two o'clock is the planned return time we may be able to accommodate that. Thank you. McGill,Grant,McClintock 888 ---Luncheon recess taken at 11:50 a.m. ---On resuming at 2:10 p.m. THE PRESIDING MEMBER: Please be seated. Our apologies. Anything preliminary, Ms. Lea? MR. THOMPSON: Madam Chair, as a preliminary matter, I wonder if I might just put this request on the record at this time. What I'd like to be permitted to do is just ask some questions about the company's response to IGUA No. 37. The information in this response is important to IGUA's argument in this case. I checked with my colleagues and I don't think there was very much, if any, cross-examination on it and, to be fair to the company, I want to make sure that we are on the same page in terms of what the information discloses. I would think in total it might take 15 to 20 minutes to confirm or discuss the responses to this information in the context of the targeted PBR formula. And I suggest that, if you would allow me to do it, that it proceed after others have finished on the service quality indicators topic. THE PRESIDING MEMBER: Could you guide us to the right exhibit number? MR. THOMPSON: Yes. Exhibit D, section 10, question 37. THE PRESIDING MEMBER: Thanks very much. Preliminary Matters 889 MR. THOMPSON: It's data with respect to growth forecast, employee forecasts and elements in the O&M expenses that relate to functions which will be performed by CIS later. THE PRESIDING MEMBER: Mr. Cass, do you have any comment on this request? MR. CASS: Well, I have two observations, Madam Chair. First of all, it seems fairly obvious that Mr. Thompson wants to go back and re-open the hearing, as I hear him, on issues that could have been cross-examined on previously. I haven't heard any explanation as to why that would be appropriate. Given the very extensive cross-examination we seem to have had on all issues, it's not clear to me why we should now start to re-open issues and go back for more cross-examination. That's my first observation. My second is simply: I don't think that we have the witnesses here to answer the questions - and that's preliminary because, of course, I haven't heard the questions yet - but, given the interrogatory that Mr. Thompson has referred to, I don't think we have the appropriate panel of witnesses here. MR. THOMPSON: Well, I'm not trying to re-open anything. I'm prepared to argue on the basis of my understanding of the answers. I don't want it to be later said: Well, that's not what the answer means. Preliminary Matters 890 In terms of why it wasn't canvassed previously, I spoke to Mr. Pratte. He wasn't aware of this interrogatory, it appears to have been in a book that we had but misfiled. So that's not anybody's fault but our own. As I say, it's important to the IGUA position if we're going to get into a formulaic approach. The information is there. I wanted to be fair to the company not to put it in argument and then have them say: Well, that's not what it means. So I thought it would be fair to everyone that I confirm what the numbers mean. Mr. McGill is shown as someone that's responsible and the numbers relate, as I say, to customer growth. They're in the record, employee reductions and the line items of expense that relate to functions that the CIS will, as I understand it, influence. I'm in your hands. I appreciate it's irregular and unusual and I throw myself on the mercy of the Tribunal. THE PRESIDING MEMBER: Did you not bring your violin? Mr. Cass, did you have another comment? I saw you reach for the mike. MR. CASS: Thank you, Madam Chair. I wonder if I might just direct a question to Mr. Thompson through you. We don't have Mr. Charleson and Mr. Seal here Preliminary Matters 891 whose names also appear on the interrogatory. And, given that Mr. Thompson has indicated that what he's looking for is clarification of the answer, is there any possibility that Mr. Thompson could put his question down and we would answer it by way of an undertaking response? MR. THOMPSON: I don't have any problem with that if neither Mr. Grant or Mr. McGill can answer the question. That would be quite satisfactory. But I suggest we let the others finish, and if I'm going to be allowed to do this, I'll try and do it at the end of the cross of Mr. Janigan and others and perhaps before the Board asks its questions, if that's satisfactory. THE PRESIDING MEMBER: Okay. One moment, please. ---Off the record discussion. THE PRESIDING MEMBER: Mr. Thompson, given that the witnesses are no longer all here that relate to that, two things: First of all, we wonder if you would review the transcript in as much detail as possible to see if you can solve some of your problems through what's already been put on the record. Secondly, I think if you still have questions they should be raised in writing with the idea that the witnesses will give you their best efforts to respond. MR. THOMPSON: Might it be more expeditious if, at the end of the day, I just read them on the record, rather than go away without it. Preliminary Matters 892 THE PRESIDING MEMBER: Yes. Do you have 20 minutes worth of questions, or you thought it would take 20 minutes for them to answer them? MR. THOMPSON: Well, the exercise would have taken 20 minutes. THE PRESIDING MEMBER: Okay. Maybe that will be -- we'll see where we are when we finish, but maybe that will be more expeditious. Mr. Janigan, are you... MR. JANIGAN: I think Ms. Lea is in a worse time crunch than I am, so... THE PRESIDING MEMBER: Okay. MS. LEA: Thank you very much. STEVE McGILL, JIM GRANT, JOHN WILLIAM McCLINTOCK; Resumed. CROSS-EXAMINATION BY MS. LEA: Q. Gentlemen, I wonder if we could begin with a couple of clarification questions, please. If we could look at Exhibit C, section 3, page 5, please. You indicate with respect to your 1999 budget you've set it so as to achieve a TSF of 74 per cent of calls answered within 30 seconds with an average answer delay time of 45 seconds. You indicate at the bottom of that page that you intend to maintain a 70 per cent TSF for the term of the PBR plan. That 70 per cent, I presume, also applies to calls answered within 30 seconds and an average delay time McGill,Grant,McClintock 893 cr ex (Lea) of 45 seconds? MR. McGILL: A. The service quality indicator only references the TSF factor of 70 per cent of the calls answered in 30 seconds. That would probably equate to an average delay time of approximately 45 seconds, so that I don't think that it would vary much between the 74 and the 70 per cent. Q. But you have not explicitly set a target for your PBR plan which involves an average answer delay time? A. No, we have not. Q. On page 4 of your evidence you talk about the American Gas Association Edison Electric Institute Resource Guide about utility practices with respect to call centre statistics. It says here: 'For the 40 utilities reporting call centre statistics, the average TSF was 71 per cent with 93 per cent of calls answered.' That seems a little ambiguous to us. Do you mean 71 per cent answered within 30 seconds and 93 per cent -- what does that have to do it? A. Okay. What the 71 per cent refers to is a TSF of 71 per cent calls answered within 30 seconds. What the 93 per cent reference is, is that 93 per cent of all calls end up being answered. DR. HIGGIN: There would be 7 per cent abandoned. MR. McGILL: It would equate to 7 per cent McGill,Grant,McClintock 894 cr ex (Lea) abandoned. MS. LEA: Q. Okay. And do you know what your percentage of abandonment is? MR. McGILL: A. Actually that was within the undertaking. I've got the numbers for the past three years, so I was prepared to read that into the record if that's seen as an expeditious way of handling the undertaking. I believe it was Undertaking H6.2 which was the percentage of calls abandoned over the past three years. Q. Yes. A. So the figures are: For 1996 it was 8.8 per cent, for 1997 it was 14.7 per cent, and for 1998 it was 11.6 per cent. Q. So considerably in excess of the utility average as reported by the AGA? A. It's in excess of the average reported in the EEI/AGA joint survey. Q. All right. Thank you. Turning to meter-reading, I understand that the service quality indicator that you've chosen for the PRB period is .5 per cent and that this is the actual amount achieved in '95 and '96; is that right? That's, 'unread for four consecutive months will not exceed .5 on an annual average basis.' A. Yes, I believe the figure for those years was approximately 5 per cent. Q. All right. McGill,Grant,McClintock 895 cr ex (Lea) A. Sorry .5 per cent, half of a per cent. Q. Okay. We don't want to be an order of magnitude out here. A. Right. Q. Okay. .5. I understand that a level of .4 per cent was achieved in 1997? A. That's correct. Q. Why have you not set your PRB SQI then at .4 per cent to give yourself the challenge of meeting your previously achieved target? A. I think, again, it comes back to a question of balance and value and tradeoffs between the cost of undertaking to do this work and the results that that equates to. Q. What do you believe will be the incremental cost between the difference of .5 per cent and .4 per cent? A. It's probably on the order of 100- to $200,000 per year. Q. And is it a situation where getting that last few fractional points is extremely difficult; whereas -- in other words, does the cost increase as you get closer to zero? A. Yes, it definitely would. I think -- and there's a degree of variance in this as well. We have a significant number of inside meters. This is primarily where our missed meter-reading problems derive from. And there's a number of factors McGill,Grant,McClintock 896 cr ex (Lea) that influence our ability or affect our ability to get at those meters to read them. So it does vary from time to time, and it's not something that is totally within our control. Q. Turning to emergency response time, there was a quote on page 9 of the evidence we didn't understand. It's in paragraph -- the fourth paragraph I think. Pardon me, it's the last paragraph -- fourth full paragraph I guess. It's the last sentence: 'From a statistical perspective, the deviation associated with a variation of average times from one period to the next casts doubts on the appropriateness of using average times.' Can you tell me what that means, please? MR. McCLINTOCK: A. Yes. It relates to an explanation that I gave earlier. The way the curve is for the distribution of calls, the number of calls plotted against the time to respond, it's more heavily weighted to the beginning. It's not a normal distribution. And what happens is when you use average times, if you have a slight variance from one period to the next it will throw off your average; whereas, when you look at percentage within a particular timeframe, it's not as sensitive to small variations. Q. One moment, please. ---Off the record discussion. MS. LEA: Q. Sir, did you discuss already the McGill,Grant,McClintock 897 cr ex (Lea) question of how that varied on a month-to-month basis, whether it was seasonally driven or not? MR. McCLINTOCK: A. No, I didn't discuss that. Q. Can you deal with that briefly? A. There are factors which do affect the response from season to season. I think a good example is what we went through with the snow conditions in a good part of Ontario recently. The driving was very difficult and, therefore, the response time was much slower. And that does happen. Q. Mr. Brett asked you whether you had considered increasing your target, if I can put it that way, by reducing the response time to under one hour. Have you considered increasing the 83 per cent response rate so that you would be responding to more -- a greater percentage of calls within one hour? Can you improve on your standard that you've proposed? A. That was our standard in fiscal 1998 and I don't really see any reason to improve upon it, it's the way we've operated, there hasn't been a problem. Q. Could you ratchet it up over the period of the PRB, make it 83 per cent this year, 85 per cent the next year, something like that? Do you think that would cause operational problems for you? A. As you ratchet it up, so to speak, there are costs and there are operational issues associated with it, McGill,Grant,McClintock 898 cr ex (Lea) so... Q. Do you know what the incremental cost would be? A. No. Q. What about the operational difficulties? A. As you increase it, you would have to look at changing your philosophy of response and moving more towards something like an emergency response organization that has maybe people positioned in more strategic locations to respond, maybe having people on standby waiting for calls to come in. It would mean really a change in how you would approach it. So I think we'd have to give it some pretty careful thought to see if there is value to it. Q. Okay, thank you. With respect to distribution system integrity, you indicate at page 13 of your evidence that in 1994 you introduced a revised program which was considered to be the best in industry practice. How did you establish that you had the industry best practice standard as your program? A. The process that we went through was to, in fact, take a look at what other organizations were doing through our association with the American Gas Association and the Canadian Gas Association. And what we did was we looked at the type of plant that they had, underground plant, the surveys that they were doing, what the results were and we basically McGill,Grant,McClintock 899 cr ex (Lea) tried to pick some of the best practices that they had. At the same time we started to apply our own internal best practices exercise to see what was the best. At the same time there was some exercises going on, again through the American Gas Association, associated with benchmarking and some of the input from that, some of the early input from that allowed us to target what we saw as being some of the best practices. Q. Do you need to update your study to determine if you're still running at the top of the pack? A. Yes, that's something that we will be doing in the future. Q. How soon? A. Right now I'm not aware of any plan to do it in the immediate future. Q. So it won't be occurring during the time period of this PRB program, then? A. If by examining the practices of other utilities, either through association meetings or through questionnaires which we respond to or participate in, that we find that there may be some better practices or, for example, there's new technology that comes along, it may cause us to change the program. Another thing that may happen is the results of the survey. If we find something, it may cause us to change the frequency or where we focus our effort. So it could change, yeah. Q. Would more information like that cause you to McGill,Grant,McClintock 900 cr ex (Lea) change this service quality indicator over the time period of the PRB? A. Could you explain that again? Q. Yes. I think the statement of this service quality indicator is: 'The company will complete the annual leak and corrosion survey programs each year during the term of the PRB plan.' Is that the SQI? A. Yes. Q. So if you receive further information that indicates that your program needs updating or improving, would that necessitate a change in the SQI, or would you merely undertake that change and not actually change the SQI within this program? A. I would think we would want to change the SQI. Q. And I presume that you would then report to the Board that you're intending to change the SQI by ratcheting it up during the period of the PRB plan? A. Yes, we would have to communicate that. Q. One moment, please. ---Off the record discussion. MS. LEA: Thank you very much for your answers. Thank you to Mr. Janigan and Ms. DeMarco for allowing me to proceed. Thank you, Madam Chair. Those are my questions. McGill,Grant,McClintock 901 cr ex (Janigan) THE PRESIDING MEMBER: Mr. Janigan, are you going ahead now? MR. JANIGAN: Yes, thank you, Madam Chair. CROSS-EXAMINATION BY MR. JANIGAN: Q. I just have some very brief questions. First I'd like to start with the issue of penalties and, in particular, dealing with an exchange I believe Mr. Grant had with Mr. Warren this morning concerning the undesirability of penalties in a service quality standard scheme in a PRB plan. First of all, I wonder if I could refer you to page 1 of the evidence of service quality indicators at Exhibit C, section 3. And it indicates in the first paragraph: 'Maintenance of service quality levels is an important component of a PRB plan. Indicators of service quality will provide assurance that operating efficiencies achieved in a PRB environment have not come at the expense of customer service levels or safety in system integrity.' In light of the importance of meeting these service quality indicators, I had difficulty in understanding, Mr. Grant, your response to Mr. Warren in relation to penalties in any service quality standard. You indicated, I believe, that you believe that the presence of a penalty would cause the company to focus on avoiding penalty in the context of the PRB scheme. McGill,Grant,McClintock 902 cr ex (Janigan) I have difficulty in understanding, given the importance of service quality indicators, how the focus of avoiding a penalty and, in essence, meeting service quality indicators could be harmful to the customers or to the company. MR. GRANT: A. Well, I think that penalties in a general sense will invoke behaviours on the part of any organization to avoid such penalties, and they may avoid such penalties at the expense really of looking for ways and means of trying to be more efficient on the cost side. So that clearly when penalties are part of the equation, if you will, that becomes a management focus and tends to, in my view, take away from some of the other important objectives that we're trying to accomplish under PRB. To the extent they are not necessary, to the extent that a punitive aspect of PRB is not necessary to accomplish service levels, I think that it becomes not just financially unfair to the utility, but also from a cultural point of view sends the wrong message inside the utility. Q. Surely that is the intent of the penalty, to prevent the company from achieving efficiencies at the expense of not meeting service quality standards? A. No, I don't view a punitive aspect to this. I don't view that as an objective that is -- that can be accomplished by means of a punitive aspect to PRB. Clearly there is an aspect to our PRB that says, McGill,Grant,McClintock 903 cr ex (Janigan) if you're not achieving your service standards you have to go out and spend shareholder dollars to do that. And when I hear people talk about penalties, in my view, what that talks to is a punitive aspect to it; in other words, above and beyond what it costs the utility to maintain service standards, there is need for a punitive aspect, a penalty to be levied. And I just don't see that as necessary in this case, or appropriate. Q. I don't want to unduly prolong it, but I wonder if you could give me an example potentially of what focus on avoiding the penalty might lead to harmful consequences for ratepayers or for the company? A. Certainly. I think as part of our monitoring process we've discussed earlier the need to sit down and look at particular circumstances. In fact, when I look at the penalty provision within the SSM agreement that we have, it contemplates that sort of thing. It contemplates not an automatic penalty; it contemplates a process whereby you can try to make up the difference over some period of time. So, in my view, when the penalties are out there in the context of a PBR, what it does is it focuses management's attention on avoiding the penalty, first of all, and doing things in the short term to avoid that penalty, as opposed to thinking a little longer term about efficiencies. And, in my view, leaving the penalty out of the McGill,Grant,McClintock 904 cr ex (Janigan) equation means that if, in the case of a degradation in service levels, let's say a temporary degradation, we would have the opportunity to explain the situation in our annual monitoring and, therefore, focus on ensuring that we're doing the right thing in the longer term to get back to where we should be on that service standard and not simply focusing on doing whatever it takes to avoid some sort of penalty. And here, I'm assuming it's an automatic penalty. An example I think that is relevant is in the area that Mr. McClintock just mentioned. Clearly, we have in the last little while experienced some problems in terms of our response time and I think that, if the reasons are valid, that ought to be a consideration in the annual monitoring and review process, so that we can feel comfortable in the utility that, when we get to monitoring at the end of the year, we can explain that deviation and hope to get an understanding from those that we're explaining it to. Q. But aren't you really discussing the mechanics of how the penalty is applied rather than whether a penalty should be in existence or not? A. Well, I suppose I was making an assumption in my response, not just to you, but to others. When people talk about penalties, I was assuming that there would be some automatic penalty levied against the company if a statistic wasn't met. And I just -- it's in that context that I'm McGill,Grant,McClintock 905 cr ex (Janigan) discussing these penalties. I just don't think that that's appropriate. Q. Would you be content in the circumstances with a similar kind of provision that exists in the SSM? A. I don't think that it's necessary for that in the PBR. Clearly in the SSM that was something that was part of the negotiation process and was settled on, and that's fair enough, but I don't believe that it's necessary in the context of our PBR to enter into a penalty provision, if you will, in the PBR agreement. Q. Now, as I understand it, one of the goals in setting service quality indicators is to capture customer expectations for service levels. Would that be correct? MR. McGILL: A. Well, I think we would want to ensure ourselves that we are delivering service at a level that by and large meets customers' expectations. Q. And, as I understand, Mr. McClintock, you indicated earlier that there is a variety of service quality indicators that are in use in PBR plans across North America and you basically chose those that you felt were the most important or applicable in the Consumers Gas PBR. Is that correct? MR. McCLINTOCK: A. That is correct. Q. Okay. Now, as I understand your evidence, you did not use a customer survey to choose those service quality indicators? A. That's correct. McGill,Grant,McClintock 906 cr ex (Janigan) Q. Okay. And during the course of the PBR plan there will be no customer survey to determine performance pursuant to the service quality indicators? A. That's correct. The ones we selected, you do not need to do a customer survey to evaluate them. Q. Now, at the end of the day, when you -- prior to moving to a comprehensive PBR, you are going to be reviewing both the standards and the company's performance pursuant to those standards. Is that correct? MR. McGILL: A. I would assume that we would as part of evaluating a comprehensive PBR. Q. Now, how will we know at that point in time that you have chosen the right standards? MR. GRANT: A. At what point in time? The point in time...? Q. The point in time when you move to the comprehensive PBR. What kind of evidence are you going to bring forward that you have chosen the right standards or alternate standards that you may come up with? A. I don't know what kind of evidence, but we will certainly bring evidence that explains the decision-making. The other day I was discussing the comprehensive PBR process and I indicated that there would also be, in my view, once we have gained all internal approvals for the comprehensive PBR plan, that we would also have some sort of a consultative process prior to filing the application. McGill,Grant,McClintock 907 cr ex (Janigan) Q. I'm just curious of how that will proceed in the absence of some surveys of customers in terms of their reaction to the standards chosen and the company's performance. A. Well, let's not forget that between now and the time that we actually implement a comprehensive PBR, we're going to have a great deal of opportunity to learn from this particular step-wise PBR that's before the Board. And what I mean by that is, with respect to service quality, we will learn how to focus in and ensure that we're meeting the service quality standards, we as an organization. We hope to become better utility managers through that three-year PBR period, not just in terms of driving out efficiencies, but ensuring we're meeting the service quality standards. And, indeed, the monitoring process will be an ongoing one with the Board and we can all learn as we go. So I would assume that, through that process, we're going to gain a great deal of experience and knowledge that will allow us to then move on to the next step toward a comprehensive PBR. MR. McCLINTOCK: A. If I could just add to that. The customer does not necessarily know exactly what the ingredients are in service quality indicators to give them assurance that there is safety and good service, that good service is provided. McGill,Grant,McClintock 908 cr ex (Janigan) And an example would be the whole concept of public safety and the relationship to pipeline integrity. That then follows through to our pipeline integrity survey programs. They would not know about leak survey and corrosion survey. We would be the ones who would appreciate how that fits in. So to do a customer survey external to find out what they think is important, wouldn't directly relate to the -- or link to the quality factors which we select. Q. I believe you've indicated in the evidence some of the things that you're going to be doing to ensure that you have the right levels in the context of the individual standards that you have set. You have mentioned leak and corrosion surveys. Are there any other kinds of evidence that the Board will have at the time that you plan to move to a comprehensive PBR that we may be able to assess whether or not the bar should be moved higher or lower on an individual standard? MR. McGILL: A. Well, I believe that we would bring forward evidence to support whatever set of quality service standards we propose under a comprehensive proposal and, at that point in time, that evidence can be evaluated and determined whether or not it's reasonable and adequate to support our position then. Q. Can you at this point in time be a little more specific about what kind of evidence that would be? MR. CASS: Sorry, Madam Chair. McGill,Grant,McClintock 909 cr ex (Janigan) It may just be me, but I'm missing the relevance of what the company might propose to do in relation to service quality indicators under a comprehensive proposal to the issues that are before us in respect of this application. THE PRESIDING MEMBER: I'm having a little trouble with that myself, Mr. Janigan. MR. JANIGAN: I think it goes to what monitoring is going to be taking place during the period of time that the service quality indicators are in place. Essentially, I would assume that the evidence that is garnered during this period of time will be the evidence that is used to assess whether or not the service quality indicators are adequate under a comprehensive PBR. What I was getting at is, obviously, that there's one component of evidence which will not be present, which will be customer surveys. There will be other kinds of surveys available. I was inquiring what other specific sorts of evidence may be garnered during the period of time that this PBR plan is in place. THE PRESIDING MEMBER: Well, I guess it's open to you to argue that they're not undertaking appropriate monitoring steps in this case, and to argue in the next case that the information they provided is not sufficient to support their application. But I take Mr. Cass's point. MR. JANIGAN: That's fine. Those are all my McGill,Grant,McClintock 910 cr ex (DeMarco) questions in any event. THE PRESIDING MEMBER: Thank you, Mr. Janigan. Ms. DeMarco? CROSS-EXAMINATION BY MS. DeMARCO: Q. Mr. Grant, can I just take you briefly back to the objectives that were discussed many moons ago now. Is it safe to say that out of these discussions you indicated that one of the objectives of a PBR regime is to effect a transition to a competitive market? MR. GRANT: A. I'm sorry. Are you taking me to the Board's objectives? Q. No, no. Just to our discussions of the objectives in a PBR regime. A. Oh. Q. I believe it was in response to Mr. Warren, you agreed that an objective of PBR was, as he phrased it, creating a surrogate for the competitive market? A. Yes, it allows us to move in that direction, PBR does. Q. And effect a philosophical change toward competition; is that correct? A. I think I was making reference to a cultural change within the organization which would be more consistent with a competitive market situation. Q. So we're talking about a changed management thinking? A. Yes, a change in management's thinking and, indeed, all employees. McGill,Grant,McClintock 911 cr ex (DeMarco) Q. And is it also fair to say that another objective of a PBR regime is to allow for enough flexibility to account for and address unique characteristics of the utility or the regulatory environment? A. I'm sorry, Ms. DeMarco. Could you try that one again on me? Q. Sure. Another characteristic of a PBR regime is to allow for enough flexibility to account for and address unique characteristics of the utility or the regulatory environment? A. Yes, I agree with that. Q. And specifically you mentioned the mains replacement program, I believe, in support of this objective. A. Yes. I was speaking in the context of the comprehensive PBR. Q. That's right. And also I think you mentioned the starting point of the utility in support of this flexibility objective; is that correct? A. You mean the starting point with respect to the O&M area? Is that what you're referring to? Q. In general, where the company commences a PBR. A. Yes, that's fair. That should be taken into account. Q. So when the utility's operating in a more competitive environment - and I'm going to direct this McGill,Grant,McClintock 912 cr ex (DeMarco) question to Mr. McGill at this point - you would agree that the company's core customers will be a group of direct customers consisting of several hundred agents, brokers and marketers and large-volume customers? MR. McGILL: A. I think what I said earlier was that there are a number of visions of what the future may hold. That is one of them. I tend to view the agents, brokers and marketers right now more as business partners than I do customers. And when I say "business partners", I mean that they are parties that we are working together with and I expect we will be working maybe even closely -- more closely with them in the future to deliver a combined, or a service to the end user. So whether or not we end up with 200 customers or 1.5-million customers at the end of the day and how we define those entities as customers or not, I think it's premature to try and say right now. Q. I wonder, Mr. McGill, if you would turn to Exhibit B, section 1, page 6 of 12. A. Okay, I've got the page. Q. Under the heading: Future Core Utility, I wonder if you would just read the first paragraph. A. 'Most market participants agree that in the future the unbundled core utility will continue to be regulated and will operate as an open access natural gas distribution utility serving a much smaller group of direct customers consisting McGill,Grant,McClintock 913 cr ex (DeMarco) of several hundred agents, brokers and marketers (ABMs) and large-volume customers. Despite the change in the number of customers, the utility will continue to distribute gas to 1.4-million delivery points and act as a consumer advocate for natural gas consumers.' Q. So, in effect, you've indicated that customers will largely consist of agents, brokers, marketers and large-volume customers in the evidence; is that correct? A. What the evidence says is that most market participants agree that that is the view of the future. Q. And this is your evidence? A. It's the company's evidence. Q. And the company is forwarding that view? A. I think what I've tried to make clear is that the end state isn't defined as of yet and that there are a number of visions of what the end state will be, and I don't think we're in a position right now to say what that will be. Q. Well, I guess I'm having a little trouble with that, given that in the company's evidence you put forward this view of the future core utility as including these groups as customers, so... A. I think that's one way of defining energy marketers. But I indicated earlier that I view them more to be business partners than I do to be customers. McGill,Grant,McClintock 914 cr ex (DeMarco) Q. Were you involved in the preparation of this section of the evidence? A. Exhibit B, yes, to some extent I was. Q. Mr. Grant, you have in fact - I can find the transcript reference if you like - agreed on the transcript that ABMs are, in fact, future core customers of the utility? MR. GRANT: A. Could you give me the reference? Q. I will. THE PRESIDING MEMBER: Ms. DeMarco, I'm not quite clear what turns on this. We've been at this before I think. MS. DeMARCO: Madam Chair, it's quite essential, in my client's opinion, for them to be viewed as customers in the context of any PBR plan, and certainly the evidence appears to indicate that they certainly are and, in addition - if I can find the transcript reference - Mr. Grant has also agreed that they are current customers of the utility and future core customers of the utility. THE PRESIDING MEMBER: If you have that agreement I think you can use that in your argument when the time comes. MS. DeMARCO: That's fine. I'll proceed on that basis. MS. DeMARCO: Q. I wonder, panel, if you know approximately how many Ontario gas customers are neither direct purchase or ABC-T arrangements? MR. McGILL: A. I'm not sure province-wide but McGill,Grant,McClintock 915 cr ex (DeMarco) on the Consumers Gas system, approximately 550,000 are on some form of direct purchase arrangement and, of that, I believe about 280,000 are participating in agent billing and collection arrangements. Q. Is it fair to say that greater than half of the retail market has switched to some form of direct purchase agreement? A. It depends on how you define it. By volume, approximately I would say it's between 60 and 70 per cent of the volume that we deliver pertains to direct purchase arrangements, but in terms of the number of customers, it represents something just in excess of a third. Q. Clearly a significant number? A. Yes, I would agree that it's significant. Q. Is it true that Ontario has the greatest percentage of customers on direct purchase as compared to other jurisdictions in North America? A. I'm not familiar with what the proportions are in other jurisdictions, so I can't really comment on that. Q. Is it safe to say that the number is again fairly significant? A. Yes, I think I already agreed to that. Q. This may be a fairly unique aspect of the Ontario gas market; is that correct? A. That might be one way of characterizing it, yes. McGill,Grant,McClintock 916 cr ex (DeMarco) Q. And a fairly unique factor in the starting point for this PBR plan? A. I'm not sure that it really has a bearing on the proposal that we have before the Board right now. Q. I guess that's subject to debate. I wonder if I can refer you now to Exhibit C, section 3 of the evidence at page 1 of 16 generally. You indicate that the company completed a review of its existing performance indicators to ensure overall service levels in pipeline integrity. Is it fair to say that overall service levels equates with service to all customers and in all aspects of the business? A. I think that's fair to say, although our focus was on end-use customers. Q. You also indicate that some analysis was undertaken to determine the service quality indicators, not the standards but the performance measures themselves. Who did this analysis? MR. McCLINTOCK: A. I was involved in that. Q. And was it a committee that undertook this or were you the head of the committee? I wonder if you could give me some more details. A. I was one of the participants. There were a number of people over the course of time from different parts of the company that took a look at it. I myself became involved in it towards the end of the process where a lot of the preliminary research had McGill,Grant,McClintock 917 cr ex (DeMarco) been done on it. But basically what we did was took a look at what other utilities were doing and looking at what we were doing. Q. When was this done in the context of the PBR planning process? A. I believe it started several years ago. I got involved in it myself about a year ago. Q. So in terms of the PBR planning process that's sort of mid-way -- near the end of the process; is that correct? MR. McGILL: A. I don't think we can really say one way or another. There was a fair amount of work going on, I believe primarily in 1997, and I think that's when most of the up-front research was done. Q. And you've indicated, Mr. McClintock, that some comparison with other jurisdictions was done. Was there any statistical comparisons done? MR. McCLINTOCK: A. No. Really the comparison that we did was to take a look at what they considered to be important in terms of customer service, pipeline integrity, this sort of thing. That was really where the focus of the comparison was. Q. Was there a cost/benefit analysis associated with prospective performance measures? A. Can you explain that a little more? Q. Was there some form of analysis to determine the cost versus the benefits of choosing any particular McGill,Grant,McClintock 918 cr ex (DeMarco) service quality indicator? A. No. What we did was, we picked the ones which really best reflected our ability to gauge or monitor how the operation was doing. Q. So there was no cost analysis to the company associated with that at all? A. Not in choosing the factors, no. Q. In what then? A. When you establish performance targets for running your operation, whether it be at the minute level or at the high level, you do some analysis to see what the costs are and, if you wanted to increase the level or make modifications you always do an assessment of the impact. But it wasn't used to decide what factors we picked. Q. So what you're indicating is the cost/benefit -- if I could just rephrase, the cost/benefit analysis was done in association with the standards that were set, but not with the measures that were chosen; is that fair? A. If you're implying that we chose factors and then set targets and did analysis to set the targets, that really wasn't -- it wasn't the case whatsoever. Throughout our business life cycle we set targets and we do analysis to run the business. We selected then the measures which were best and then applied our performance measures which we believed to be appropriate. Q. So where did the cost/benefit analysis come McGill,Grant,McClintock 919 cr ex (DeMarco) into play? A. It could have evolved many years ago. If you're going to set up an emergency response organization such as we have you do some analysis to see what it's costing you and you may try different scenarios to see the impact of making changes. That happens throughout the course and the evolution of a business. Q. You've indicated that the analysis resulted in a list of critical service quality indicators. Was there a report or some sort of document that was associated with this choice? A. I'm hesitating because I got involved in it basically at a session where I was handed information from the research that was done. I don't know exactly what form it took, whether it was a report or what it was. MR. McGILL: Q. And I'm not aware of any such report. MR. GRANT: A. Service quality indicators were discussed in the report that we were referring to the other day and that was part of all of our research that was pulled together into a report. MS. DeMARCO: I wonder, Madam Chair, if that's part of the report that we could have disclosed as it doesn't appear to be strategic information or sensitive information from my read of it. MR. CASS: Madam Chair, we've already been around this circle I believe and I think it's been expressed to McGill,Grant,McClintock 920 cr ex (DeMarco) the Board by me and others that, unfortunately, the strategy in that report is interwoven with the analysis and the company objects to producing it in accordance the ruling that the Board has already made now twice, I believe. MS. DeMARCO: Madam Chair, my understanding of the ruling was that if there are portions of the document that could be disclosed that dealt with service, or I believe it was conservation, then the company would undertake to do so. MR. CASS: That is not my understanding of the ruling, Madam Chair. On the day in which the ruling was given I had indicated to the Board that Mr. Grant was, in the time available to him, trying to make a search of working papers and other documents to see if there was something else that could be produced, and it was my understanding of the Board's ruling that Mr. Grant should continue to do that and, if there was something else that can be produced on the areas identified, that that would be done, subject to any confidentiality issues. THE PRESIDING MEMBER: Is that continuing, or are we getting some report back that there is nothing further that can be produced? MR. CASS: Yes, Madam Chair, Mr. Grant of course has been here. My understanding is that he has arranged with someone at the office to be conducting that search. I don't know the results at this point in time, McGill,Grant,McClintock 921 cr ex (DeMarco) but, yes, the search is ongoing. THE PRESIDING MEMBER: Ms. DeMarco, it's our understanding that Mr. Grant will be looking for whatever the company agrees to disclose out of that package. If there is information relating to the questions you've asked that is not interwoven with the strategic planning aspect of it, I'm sure -- I understand that that would be produced. MR. CASS: Yes, Madam Chair. MS. DeMARCO: Thank you, Madam Chair. Q. The resulting list of proposed, if I can shorten the term, SQIs for service quality indicators, resulted in a list of critical SQIs, I wonder if you can give us your definition of critical? MR. McCLINTOCK: A. Critical ones which -- are ones which give strong indications of how -- the effectiveness of the operation in terms of customer service and pipeline integrity. Q. When you say "customer service", of course you're speaking of retail customers? A. That was primarily the focus. Yes, customer service levels as it applied to our traditional end-use customer. Q. In any part of this analysis was there consideration or contemplation of the changing regulatory environment and increased competition? MR. McGILL: A. I believe that we're all aware that there's change happening, but I don't think that McGill,Grant,McClintock 922 cr ex (DeMarco) there was any explicit analysis done to determine how these service quality indicators would be affected by that. Q. Was there any analysis to consider the unique nature of the Ontario gas market, a gas market with a significant number of contract carriage customers or direct purchase customers in it? Was there any consideration of that included in the selection of the service quality indicators? A. Well, the service quality indicators that we have selected to go forward with are, in our view, the ones that are appropriate for the market in which we serve. Q. I don't believe that answers my question. Was there a -- A. Well, we serve the Ontario market, or a good portion of it, and that's what we had in mind in deriving these service quality indicators. Q. So there was no definite consideration of the interests or needs of direct purchase customers and ABMs in that analysis? A. Our focus was on what we believed the needs to be of the end-use customers, whether they be a system gas customer or buy/sell customer or a T-service customer. Q. So there was little focus, if any, on the transmission customer? A. You're going to have to define "transmission customer" for me. I'm not quite sure what you mean by McGill,Grant,McClintock 923 cr ex (DeMarco) that. Q. A customer who pays transmission rates such as the producer, the broker, the agent, the marketer. A. Well, at the moment I'm not aware of any agents, brokers or marketers that are paying Enbridge Consumers' transmission rates. Q. Certainly the producer pays transmission rates? A. I think they may or may not, depending on the nature of the upstream arrangements they have in place. Q. So they may pay transmission rates? A. Yes. DR. HIGGIN: I think, Ms. DeMarco, Union is the only one that has producer-based transmission rates. Consumers Gas has no such rate that I'm aware of. MR. McGILL: Not that I'm aware of either. DR. HIGGIN: Union does have such a rate. MS. DeMARCO: Thank you, Dr. Higgin. Q. Can you give me an indication of some of the service quality indicators that were weeded out during and following the analysis or review? MR. McCLINTOCK: A. I can talk to one. One was damages per -- as a common denominator, housing starts. So a relationship between pipeline damages to housing starts. So we did take a look at that and weeded that one out. Q. Any others? McGill,Grant,McClintock 924 cr ex (DeMarco) MR. McGILL: A. With respect to the telephone service levels, we considered things like the average call wait time, the abandonment rates, but we believe that the telephone service factor is the best overall indicator of performance. Q. And that's the extent of what was weeded out? A. Yes. Q. Just so I understand the exact scope of the group, in order to be one of the company's proposed service quality indicators it has to be, first - and I say first because I see this as a bit of a threshold test - the performance measure must deal with either customer service levels or pipeline integrity; is that correct? A. Yes. I believe that, in general, would be correct. Q. And then, from your interrogatory responses, I take it that the proposed measure must also be quantifiable, objective and under the control of the company; is that correct? A. Yes. Q. Is there a third level of filtering, that it must be a high-level measure? A. I don't think high level is the right way to characterize it. I think relevant is a better way of characterizing it. We were looking for things that, although they were easily understood and relatively easy to measure and maintain the measurement and quantify, we were seeking McGill,Grant,McClintock 925 cr ex (DeMarco) things that were relevant, in that they give us a good indication of how we're performing in areas that affect the customer. Q. It's funny that you indicate you don't think high-level measure is a way to characterize the measure because in response to several interrogatories, specifically CEED Interrogatory No. 7, sub 3, Board Staff Interrogatories No. 56 and 57, the term "high-level measure" is consistently used, and I wasn't exactly sure what that meant. I wonder if you could enlighten me? A. Well, I think what we were trying to convey there was that these aren't micro measures. Q. And a micro measure would be....? A. It could be the average call handle time for an individual CSR. Q. Do all of the proposed -- the five proposed SQIs meet the criteria you've set out, specifically the initial threshold - what I've characterized as the initial threshold; secondly, quantifiable objective under control of the company; and, thirdly, high level or, as you've just redefined it, not a micro measure? A. Yes, I believe they do. Q. Just following up on a question that Dr. Higgin asked, specifically, is the survey quantifiable and a high-level measure? MR. McCLINTOCK: A. This is the customer survey? Q. This is the distribution system integrity McGill,Grant,McClintock 926 cr ex (DeMarco) survey. A. Yes, that is. That is a very critical measure of how we are doing opposite assessing the health of the distribution system. Q. The quantification is: Yes, it's been done; or, no, it hasn't? A. That's correct. Q. And that's a quantification, not a qualification? A. Well, if it hasn't been done, then you haven't -- we will not have met the conditions of the service quality indicator in this PRB submission. Q. And you see that as a quantity thing, a number? A. Yes. Q. I have just a few questions about the five SQIs that managed to filter its way through the company's selection process. You've indicated that they were directed toward the retail customer. Specifically, the telephone service factor. On page 4 of 16, Exhibit C, section 3, you indicate that: 'Recent polls indicate that only half of customers are satisfied with the company's telephone answer time.' MR. McGILL: A. Yes, that's correct. Q. Who was polled? McGill,Grant,McClintock 927 cr ex (DeMarco) A. People that have had recent telephone contact with the company. Q. So this wasn't a random analysis? This was just specific to people who have had recent contact? A. Yes, that's correct. Q. So it's safe to say on the whole these customers were less than satisfied with the service quality of the company? A. I think the evidence speaks for itself, that the polls indicated that the customers were only about -- that only about half of the customers polled were satisfied with the company's telephone answer time at that point in time. I think that coincides with what I said earlier today. Q. Mr. McGill, you indicated to Mr. Janigan - I am moving on to the standards themselves, not the choice of the measures - that the company wants to ensure that, by and large, the company's delivering service that meets its customers' expectations generally. A. Yes, that's fair. Q. I'd like to ask you a few questions about ABMs' perception of the service generally. Is it fair to say that a noteworthy number of transmission and distribution customers are not satisfied with some of the company's current service levels? A. When you say "transmission distribution customers", you mean ABMs? McGill,Grant,McClintock 928 cr ex (DeMarco) Q. I mean all of customers including ABMs, contract carriage customers, producers. A. Are you speaking specifically to the telephone service factor, or-- Q. No, in general. A. --overall company performance? Q. Overall. A. I think, by and large, most end-use customers or the majority of end-use customers are reasonably satisfied with the overall level of service the company provides. I only know -- I guess I have second-hand knowledge with respect to ABMs. I know that there have been some concerns with some of our reporting ability with respect to gas bank account information over the past year. We've experienced some difficulties there and we've got an ongoing effort aimed at alleviating those problems. But beyond that, I'm not aware of any specific concerns or any general concerns beyond that, or at least that have been expressed to me. Q. Is there a member of the panel who is aware of any other concerns of ABMs, specifically issues regarding transition time for customers from the companies, say, for example system supply to direct purchase, or from a buy/sell arrangement to ABC-T? A. Well, I think... Like, I've got some history with respect to that issue, I used to head up the group that put those contracts together. McGill,Grant,McClintock 929 cr ex (DeMarco) I can go back as far as 1987 and comment on that. And at that point in time, you know, in the late '80s or around 1990, we were hitting about eight weeks turnaround time from the time we got notice that a customer wanted to move onto a direct purchase arrangement to the time we could actually flow that contract. And we undertook a lot of efforts over the last seven or eight years to try and alleviate that and streamline the process as best we could, and we've improved on that significantly. It does ebb and flow with the volume of work, and that volume of work shifts throughout the year, and we would like to make that process faster than it is. But my current understanding that, on average, we're probably at around a four- to five-week turnaround time and, as I indicated earlier, I'm not aware of any specific or general issues in this regard that have been raised by ABMs. Q. Would you have difficulty believing that currently it can take up to three months to transfer customers? A. That might happen, but I would believe that that would be an exceptional case. Q. Would it be a surprise to you to hear that ABMs feel that customer information systems are less than adequate? A. As I indicated earlier, we have experienced some problems in bank gas reporting and that could be, I McGill,Grant,McClintock 930 cr ex (DeMarco) guess, perceived as inadequacy in customer information systems. And as I indicated, we're undertaking to correct that. Q. Specifically, information regarding customers' availability for direct purchase, the lack of information available to the ABM for that. Do you agree that that could be a problem, an information problem as well? A. I'm not aware of any specific problems that we have in that regard. Q. Would it be possible to incorporate these type of, I'll call it, alternate service provider, energy service provider directed performance measures into a PBR plan generally? A. I think it may be possible to do that in general. I don't know how appropriate it would be. Q. I wonder if I can turn you to, or refer you to CEED's book of materials at tab 2, page 32. Again, this is the article that we have referred to several times throughout the hearing that was prepared for the National Association of Regulatory Utility Commissioners. Under the heading: Service Quality to Other Providers, I'm wondering if you could just read those two paragraphs. THE PRESIDING MEMBER: Ms. DeMarco, can we just take them as read and you can ask your questions as McGill,Grant,McClintock 931 cr ex (DeMarco) pointing to the terms that you're specifically interested in finding out about? MS. DeMARCO: Q. Specifically, Mr. McGill, is it safe to assume, from reading these two paragraphs, that it's certainly possible to incorporate the concerns? Specifically in the second paragraph, it says: 'The service requirements will revolve around service ordering, provision of timely accurate data, and prompt transmittal of funds for collection as part of the distribution service.' Is it fair to conclude that it's possible to incorporate these into a PBR plan? MR. McGILL: A. As I indicated earlier, it's probably possible to incorporate them, but I don't know how meaningful they would be. At the present time it is the end-use customer that is paying the distribution rate and I believe that that's where our focus should be. Perhaps in the future it may be the ABMs that are providing service to the utility and it's them that should be making the service quality commitments. Q. So the future customer? A. Well, they may be -- in the future, they could be a service provider to the utility. As I indicated earlier, we're not certain what the future is going to bring. Q. I wonder if I can just touch on an area McGill,Grant,McClintock 932 cr ex (DeMarco) discussed by Mr. Warren and Mr. Thompson and ask you a few questions about a proposed service quality measure that would ensure that the company would transfer customers from service supply to direct purchase and from a buy/sell arrangement to ABC-T within 21 days of being notified by the ABM. So the next series of questions refer to that proposed or hypothetical service quality measure. Would you agree that this proposed measure deals with the company's service of contract carriage customers including ABMs? A. Yes, I guess it would be relevant to that. Q. So it deals with service levels regarding this aspect of your customer base? A. Yes, service levels around that standard could be developed. Q. Is it measurable? A. In general, it is. I think there would be a number of conditions and exceptions and things we would have to factor into that kind of measure, the principle one being how we deal with customers that are already signed up with another entity and what kind of processes are going to be in place to transfer them. This is the issue of customer mobility that has been the subject of great debate with the Task Force. And, again, I think it's premature to prejudge the outcome of that process. Q. Is the potential measure objective? McGill,Grant,McClintock 933 cr ex (DeMarco) A. Yes. I expect we could probably develop fairly objective measure in that regard. Q. And is customer transfer time generally within the control of the company, subject to the exception that you've just given? A. Subject to that and potentially some other issues, it would be generally within the control of the company. Q. So if this Board, at the end of the case, were to conclude that a customer transfer time of less than 21 days is an appropriate and recommended service quality measure to be included in the plan, would Enbridge Consumers want to proceed with the targeted plan? A. Not without giving some careful consideration and putting some analysis to the viability of 21 days and what the costs associated with meeting that target would be. We are going forward with a PBR base that supports today's environment, not the one you're proposing. MR. GRANT: A. The Board would need to know what the cost to the utility is of meeting that requirement and I would presume would approve a factoring in, in some way, of reasonably incurred costs to achieve such a thing. Q. So it wouldn't necessarily prevent the company from going forward with its targeted PBR proposal? MR. McGILL: A. No. But, as I indicated, there would be a lot of work involved in trying to determine McGill,Grant,McClintock 934 cr ex (DeMarco) what the right targets were and what the right values for them were, what the costs associated with them were and how those costs were to be recovered. Q. Mr. Warren and Mr. Thompson have covered several of the next series of questions that I would have asked regarding the situations that arise when service qualities are not met and, specifically, questions regarding process in that event and the absence of customers' input and the absence of penalties. So I'll try and constrain this next series of questions just to highlight questions that they haven't asked in those areas. Specifically regarding process; i.e., the Board's process in the event that a service quality indicator has not been met. I would like to try to reconcile the process that the company has put forward with the other processes that the company has put forward for specifically 'Z' factors and off-ramps, so just to understand the distinction between the three proposed processes. So just to refresh my memory, with off-ramps, the company has proposed six categories of off-ramps, all triggered by the company, not at the customers' discretion, and it's done to minimize the risk to the company and ensure there's no change in the company's risk profile. And the process associated with that would be an application to the Board. The company would make an McGill,Grant,McClintock 935 cr ex (DeMarco) application to the Board and the customers or intervenors would have the ability to provide input or scrutinize. Is that correct? MR. GRANT: A. You're speaking about off-ramps? Q. That's right? A. Yes. If we recall the discussion yesterday, we're basically now down to three categories of off-ramps: No. 1, discontinuance of a published economic index used in the PBR agreement; No. 2, change in CPI of more than a predetermined percentage; and, No. 3, regulatory change inconsistent with the provisions of the PBR agreement; i.e., bringing forward a comprehensive PBR plan. And we're down to those three, subject to there being an understanding that the other three could be dealt with without having to invoke an off-ramp. So that's where we're at now. And with respect to the first two items I raised, I think I testified the other day that the probability of that being necessary is quite low, but we need to have it in there just in case it happens because those two things are very important to the PBR formula. So that's why they're there. So really what we're down to is an off-ramp dealing with the situation where the company brings forward a comprehensive PBR plan, that that plan is approved by the Board and becomes effective on a certain date. And it's on that certain date that the off-ramp mechanism, in effect, would take place. McGill,Grant,McClintock 936 cr ex (DeMarco) So I viewed the processes around that comprehensive PBR plan; again, we discussed that the other day, so I won't plough that ground again. But that's really where we're at right now with off-ramps. Q. Just to be clear, not in terms of the content of the off-ramp proposal, but the process associated with off-ramps, it's an application to the Board. The company would make an application to the Board and then the customers and intervenors, or intervenors representing customers would have the ability to provide input and scrutinize; is that correct? A. I think what I was saying the other day is that we need to do a lot of work in this area. We would complete that work, obtain all internal approvals. I foresee some kind of a process after that where intervenors and interested parties have an ability to comment and come forward with ideas of their own and we can have a discussion around that. And then, only after that point in time, would we actually make an application to the Board. Q. I'm sorry. I'm just reading from section 6, page 4 of 4. And my reading of that was to invoke an off-ramp you must make an application to the Board. Is that correct, or am I wrong? A. No, that's correct, we would make an application. But my point is that we would have some processes prior to making the application. Q. And that's specific to comprehensive PBR? McGill,Grant,McClintock 937 cr ex (DeMarco) A. Yes. Q. And the customer groups represented by intervenors could participate in the application? A. Yes, they'll have a chance to review our proposal prior to us making an application. Q. Prior to you making an application -- sorry, they would not be involved in the application itself? A. No, they would be consulted prior to the company's application. MR. CASS: Madam Chair, I don't want to be too technical about the different issues that have been addressed by different panels. As well, I appreciate that what Ms. DeMarco wants to do is to compare the process for off-ramps to the process perhaps for the subject that's being actually discussed with this panel which is service quality indicators. However, the record stands as it is on these issues that have been addressed by other panels. If Ms. DeMarco wants to do the type of comparison that she's now trying to do between what was discussed on another panel with respect to off-ramps and what might be discussed here on service quality indicators, she's got the record, she can do it in argument. I think it's not a very efficient use of time for her to go back and have Mr. Grant reaffirm things that are clearly on the record from another panel. Again, I appreciate what she's trying to do in McGill,Grant,McClintock 938 cr ex (DeMarco) terms of making a comparison, but I think it would be much more efficient for her to work with the record and do it in argument rather than having Mr. Grant rehash it here and now on another panel. MS. DeMARCO: Actually I don't propose to do this in argument or don't propose to make a comparison myself. I'd like to see the panel reconcile the differences and the processes. So, subject to the Board's indulgence on this matter, I'd like to proceed. THE PRESIDING MEMBER: One moment please. ---Off the record discussion. THE PRESIDING MEMBER: Ms. DeMarco, I think the record does clearly state what the processes are for the off-ramps and 'Z' factors. We went through that in some detail in the last few days. I think it's quite fair if you want to find out what this panel considers to be the process related to the service quality indicators and then, if you wish to argue that they're inconsistent, that would be open for you to do that. You can ask them about the process for this and ask them any questions you like about that process. MS. DeMARCO: Thank you, Madam Chair. Q. I wonder, Mr. Grant, if you could just address the distinctions in the processes between the proposed mechanisms, specifically the distinction in what you've discussed with Mr. Janigan, Mr. Thompson and Mr. McGill,Grant,McClintock 939 cr ex (DeMarco) Warren about the process for -- the process when service quality indicators are not met and the process associated with 'Z' factors and off-ramps. I wonder if you can just discuss the differences and justify them? MR. GRANT: A. Let me start with service quality indicators. As I was discussing earlier today, we foresee a monitoring process for service quality indicators and it would focus on the annual performance of the company for those service quality indicators. It would be a process wherein we report to Board Staff, we have discussions with them and there's a good exchange of information. And I think at the end of that process if there are issues that need to be dealt with, then it would be incumbent upon us to pursue that. I think earlier cross-examiners were discussing the concept of whether the Board -- whether I felt the Board had the discretion to order us to make corrections, if those corrections were necessary and, indeed, expend shareholders' dollars to do that. And I agreed that that was something that they could do. So I foresee that as a process that is handled between the Board, in particular the Board Staff and the company. I also indicated that we would provide high-level information in the rates case reporting information to interested parties and they, of course, are free to ask McGill,Grant,McClintock 940 cr ex (DeMarco) questions in that process, keeping in mind that we're all trying to drive to more efficient rate hearing processes. So that's how the service quality side of it will work. Q. Actually I'll stop you there and, following the direction of the Board, I will leave the other two matters to argument. I wonder in the process that you set out regarding the Energy Returns Officer, section 109 of the Act, in the new Ontario Energy Board Act -- A. I have the Bill in front of me. Q. I'll read it: 'Section 109 indicates the Energy Returns Officer shall notify the Board of all matters he or she thinks relevant to the Board proceedings or possible future Board proceedings.' Do you agree with me that this section imports a level of discretion to the Energy Returns Officer? MR. CASS: Well, Madam Chair, that is a legal question. It's a matter of interpreting this statute. But I immediately noticed that the word "shall" is used in this section, so as a lawyer I have difficulty with the question. But, in any event, I don't think the witness should be answering a legal question of that nature. THE PRESIDING MEMBER: Ms. DeMarco? MS. DeMARCO: I'll point you to the term "relevant" in the section. McGill,Grant,McClintock 941 cr ex (DeMarco) THE PRESIDING MEMBER: Are you asking him for a legal opinion? MS. DeMARCO: No, I'm not, Madam Chair. Q. I wonder if you can agree with me that it's not certain that concerns voiced to the Energy Returns Officer will get to the Board? MR. GRANT: A. Well, I'm not a lawyer, but the way I read it, it seems to me that relevant concerns would be. Q. And I have a few last questions regarding penalties, specifically that haven't been covered by the other intervenors to this point. Is it fair to say that many jurisdictions have PBR plans that include service quality penalties? A. There are some jurisdictions, a number of jurisdictions that do and we touched on those a little earlier. Q. And many regulatory commissions have imposed or required plans to include penalties; is that correct? A. Yes. And I discussed earlier, in my view, the circumstances that might have led those commissions or boards to do that, not the least of which is comprehensive PBR plans; and, secondly, service quality concerns. Q. Would you agree that balancing the risk/reward of a PBR scheme could also import the measure of a penalty or require the measure of a penalty? A. As I said earlier, not in the context of this utility and this application in front of the Board. McGill,Grant,McClintock 942 cr ex (DeMarco) I think that it's only fair if the Board were to pursue penalties -- material penalties in this or any PBR plan, that there be a review on the implications of both risk and return to the shareholder of the utility, and that might include a review of an ROE formula. Q. I wonder, Mr. Grant, if you could turn to tab 3 of CEED's book of materials, specifically at paragraph 4. Based on that paragraph, would you agree with me that the Public Utility Commission of Texas has imposed service quality penalties? A. You're talking with respect to Entergy Gulf States? Q. Yes. A. Yes. It says they slapped them with a rate reduction for poor service. Q. And in the next paragraph, the Oregon Public Utility Commission has also utilized penalties or required penalties in this scheme. A. It says there: 'Although penalties are not associated with the three maintenance programs, four of the five annual performance measures do cite specific cost penalties for poor performance.' Then they talk about a tiered structure. Q. And in the next paragraph down it says: '...has set up for the reliability indices SAIFT, SAIDI, MAIFI....' McGill,Grant,McClintock 943 cr ex (DeMarco) And the next sentence, sorry... A. Yes, I see that. Q. In the next paragraph, would you agree with me that the New York Public Utility Commission has also contemplated and required, in the paragraph following that, Niagara Mohawk to have a penalty mechanism? A. Yes, it says: 'The consequences of not meeting the new performance standards is substantial.' Q. Right. A. Then they go on to discuss it. MS. DeMARCO: Those are my questions. Thank you, panel. Thank you. THE PRESIDING MEMBER: Thank you, Ms. DeMarco. The Panel will take a short break, fifteen minutes, please. ---Recessed at 3:50 p.m. ---On resuming at 4:10 p.m. THE PRESIDING MEMBER: Please be seated. The Board has some questions. Dr. Higgin. DR. HIGGIN: Thank you, Madam Chair. EXAMINATION BY DR. HIGGIN: Q. I'd like to cover a few areas on the performance measures. One is the scope of the proposed measures, i.e. what is there and what may not be there; flexibility that's inherent in the measures and the plan, McGill,Grant,McClintock 944 ex (Higgin) is there an ability to change, modify measures mid-plan or is that an off-ramp or so on. And also a little bit on quantification. I still have some concerns specifically about the leak survey quantification; and, finally, just to complete the record, regarding penalty reward systems in terms of what some other schemes have proposed. We will try and be very fast. In terms of scope, without discussing how you arrived at what is in the plan, the one thing that's puzzling me with respect to scope specifically is the absence of any measure about response to new service requests. Specifically, customer growth is a driver for the PRB formula and several plans that I'm aware of have some measure - there is a number of possible measures - about response to new service requests. Did you look at that and, if so, why did you reject it? MR. GRANT: A. We didn't look to, in any significant degree, the issue of service requests. And I presume there you're speaking of, for example, one measure might be cycle time from the point of request to the point of -- Q. Yes, broadly it could cover the whole gamut or it might have been limited to conversions, for example, conversion customers. That would be a discrete subset. A. Yes. McGill,Grant,McClintock 945 ex (Higgin) Q. Which may be more manageable than response to builders' requests which are always difficult. And, yes, some sort of measure of the response time between a customer phoning and saying: I want to convert, for example, to gas and actually have the service installed and operational. A. Yes. I believe that that is an important service quality indicator from the point of view of customer service. We believe it's most relevant in a comprehensive PRB environment that would include capital because the vast majority of the processes that we undertake to actually get service to the customer are related to laying the pipe in the ground, hanging the meter and then eventually turning on the meter, all of which are capitalized costs, if you will. So to that extent it's an important measure, but I would view it more in the context of a comprehensive PRB that would take account of capital. Q. The other component, though, is the company's administrative processes related to fulfilling a new service request and that is potentially isolateable? A. It is isolateable. In an accounting sense, a good portion of those processes would be capitalized and charged into capital. Q. Eventually because that's what the regulatory and tax treatment allows? A. Yes, that's correct. Now, that doesn't mean McGill,Grant,McClintock 946 ex (Higgin) to say that -- you made reference to customer growth being in the formula, in our formula now that's before us. Really, what the customer growth variable in the formula is doing is making provision for processes that happen after when we hook the customer up. So we may have greater calls coming in, greater inquiries about bills and so on, and that is a part of O&M. So I would sort of delineate the two processes. And the process that takes us up to the point of actually getting the customer hooked up I view it more as related to capital. Q. Okay. The other measure that's not in there which might be considered, and is in other plans, is something related to the percentage of accurate bills rendered, i.e., bills that don't need adjustment, and especially with the changing environment there are those that believe that's a reasonable measure as you change your billing systems and so on, that per cent of accurate bills is a good measure. MR. McGILL: A. The reason that we haven't set out a separate billing accuracy standard is the reason that -- the reason is that the vast majority of billing problems or exceptions arise out of the meter reading process. It's either, you know, the index that's come in through the reading is less than the one from the prior month or we've had an instance where the meters had been crossed across accounts. McGill,Grant,McClintock 947 ex (Higgin) We have high/low screens or filters on the billing system that kick out volumes or bills that seem to be normally high or abnormally low. Those are things that cause to us rework the bill. So by targeting on meter reading we believe that we can get at the root cause of a lot of the things that drive problems in billing. Q. Yes, but your standard on meter reading is how many of the meters you read. It's not whether you read them accurately. A. Well, the standard goes to -- I guess affects how long we go without reading a meter. Q. Yes. A. And the longer the period of time elapses that the meter is unread, the larger -- the more estimates have been billed-- Q. More estimates. A. --and the larger the resulting adjustment when we do finally get an actual reading and the bigger the impact, be it positive or negative, on the customer. Q. The point about this particular measure is particularly -- it says the literature indicates that for utilities in transition this is an important service quality standard to maintain and also it is very difficult to maintain as you unbundle the bill and so on. This is the reason it is felt to be a very important measure because nothing gets customers madder than inaccurate bills. McGill,Grant,McClintock 948 ex (Higgin) A. That's one thing that gets them upset, yes. Q. So I'll leave that one with you. It's obvious that at the moment it hasn't been considered. The other one, then, to move to flexibility in general, if it was found that any of the five measures was deemed to be perhaps less relevant, for example, during the term of the plan, you move to wholesale billing systems or something like this, is there an ability to drop or modify a measure or would that require an off-ramp for the whole plan? That's the issue. Just how do we deal with flexibility on the performance measures during the plan, generally? MR. GRANT: A. I think that we can deal with the issue of flexibility by being flexible. Q. Good. A. For instance, if one of the five measures we found was not relevant in the environment within the next three years and we needed to drop it and replace it with another one, I think that we can invoke some sort of a process that would get that done. I don't necessarily think that it would have to be an off-ramp. You wouldn't have to just go completely off the ramp, off the highway, if you will, the PRB highway. We can be flexible to say: Okay, look, things have changed, we do need to address this and there needs to be a process for that. That process could be a consultative process amongst interested parties -- McGill,Grant,McClintock 949 ex (Higgin) Q. Stop right there. A. Okay, sorry. Q. Just address that, and could you by way of transcript undertaking tell me what you might propose as a process. You've said you want to avoid an off-ramp, you want to have the flexibility. So just give some thought to that, just a gap in the process side of the plan, how to change or modify one of the performance indicators. A. Yes. Q. Could you do that? A. I will do that. Q. Thank you. MR. SWEET: Madam Chair, that will be undertaking H6.3. ---UNDERTAKING NO. H6.3: Enbridge Consumers Gas undertakes to provide the method by which they may change or modify one of the performance indicators during the plan. DR. HIGGIN: Q. Just coming back to the old chestnut of the leak survey and the corrosion survey, could you also then look up Schools' Exhibit D, section 4.38. Sorry, it's section 4 of the interrogatory responses and specifically it was your response, Mr. McClintock. MR. McCLINTOCK: A. Schools' interrogatory No. 38? Q. Yes. A. Yes. Q. The first question is: If you have a plan McGill,Grant,McClintock 950 ex (Higgin) which has this rather vague factor, to me anyway -- a number of survey areas - but anyway it may mean more to you - which has quantitative numbers in it, why would you not transfer those quantitative numbers or some baseline number like at least 831 survey areas and at least 8,628 to the indicator? That's the first question. A. I think the reason that we didn't -- the reason we did not put it in the actual indicator was the fact that over the course of the PRB term the amount of pipe in the ground would change. And it didn't seem relevant to try to pin it down at this point in time when we didn't know what pipe would be installed and what pipe would be removed in the future. The key element was that we would, in fact, have a man in place, which we would set up at the beginning of the year, and we would complete it. Q. I understand the response, but commonly in plans that use this type of integrity measure they either base it on a per cent of certain type of steel pipe, because the plastic is usually dealt with separately, or so many kilometres of pipe will be "surveyed for leaks" or so many kilometres of pipe will be surveyed for cathodic protection. I've seen those measures. I just wonder why this great reluctance to put a quantitative measure in especially when you have a specific plan measure in mind. I assume that you, as manager of this piece of business, will have these as your performance objectives? McGill,Grant,McClintock 951 ex (Higgin) A. The idea of the survey areas is that we visually separate out the distribution system on a map and we have codes for the maps and we're able to track it semi -- with a semi-mechanized system. It is not a completely mechanized system. We're able to identify what the areas need to be done and then we are able to record that it's completed. But the whole foundation of this is a pictorial view of what has to be done. And the reason for that is it allows the individual to drive a route and, in fact, walk the areas that need to be walked so that they can complete the survey. So we actually haven't taken these survey areas and pinned down the exact amount of pipe that's in it because there hasn't been a need from a practical standpoint. Q. No, I understand. You could have used just the survey areas since you have a plan. That was my first question. A. Yes. Q. Do you have a specific objection to incorporating either the plan numbers or some - we'll call it - minimum level which is below the actual plan numbers? Do you have a specific objection to including that measure in? A. Well, we deliberately left them out because we knew that over the three years the survey areas may change, and the presumption was that at the beginning of McGill,Grant,McClintock 952 ex (Higgin) the area we could state that this is what has to be done according to the criteria of the schedule and we'll complete it. Q. In the reporting and monitoring, then, is it your intent to give in the report the plan for the following year? A. Yes. Q. That's a new piece -- the light just went on. I was not aware that you were going to establish the target as part of the monitoring program. That is your intent? A. Yes, we can do that. Q. Okay. Thank you. That answers the question of measurability. We'll have to work out the mechanism, but thank you. Lastly, just to complete the record, Mr. Grant, I know that you don't have Mr. deJongh with you, but are you aware that there are reward/penalty systems - I prefer not to call them that, we call them sharing incentive plans - that don't rely on a penalty on a return on equity, but rather like the SSM plan, they set up the standard and then there is an agreed dollar amount which goes into a special account, a credit or a debit, for exceeding or not the standard? Are you aware of plans that have done that? MR. GRANT: A. I'm not. You're quite right. I don't have Mr. deJongh with me and I wish I did. I generally am. I'm only generally aware of such McGill,Grant,McClintock 953 ex (Higgin) plans, but I don't know the specifics. Q. You get the idea of the concept? A. Yes, I do. Q. There's a specific dollar amount attached to exceeding or not the particular standard by, you know, a sliding scale. And then a credit or debit is put into an account and then at some future point, it's discussed as to how that credit or debit should be allocated? A. Yes. That sounds like a fair symmetric approach to the issue. DR. HIGGIN: Right. Thank you. That was all my questions. Thank you. THE PRESIDING MEMBER: Thank you. Mr. Vlahos? MR. VLAHOS: Thank you, Madam Chair. EXAMINATION BY MR. VLAHOS: Q. Panel, just a few questions. Mr. McGill, on page 7 of Exhibit C, section 3, the very bottom paragraph, I believe that instead of "decline", it should be "increase". Can you just confirm that with me? Page 7 of 16, the very last paragraph, first line? MR. McGILL: A. Yes, I think you're right. It's a decline in performance, but -- Q. Yeah. Decline in performance or if you're going to leave it in percentages, an increase in the percentages? A. Yes. Thank you. McGill,Grant,McClintock 954 ex (Vlahos) Q. I wasn't sure whether that was correct in the record or not. A. Thank you. Q. Mr. McGill, I'll stick with you for a minute. On the next page, page 8-- A. Yes. Q. --the meter-reading service quality indicator; there is nothing there to speak to the continuing practice of reading meters every second month and I'm just wondering whether that is something that is left out intentionally? A. I don't think it was left out intentionally. As far as I'm aware, it's our plan to continue to read meters every second month for the residential and general service market. Q. Because one could read this as the company may go to a reading every three months and still satisfy the service quality indicator? A. I guess that could happen, but it would become much more difficult to satisfy that service quality level if we did that. Q. But I understand there is no objection if the language changes to ensure that that would be the case, though? A. No. It's not our plan to change our present meter-reading practice. Q. Okay. Mr. McClintock, if you go to page 15 of the same exhibit, that's the service quality indicator? McGill,Grant,McClintock 955 ex (Vlahos) MR. McCLINTOCK: A. Yes. Q. It just seems to me that it's an incomplete undertaking. I expect to see something more. Are you going to complete the annual leak and corrosion survey programs each year? What does that mean? It left me with the question as to, well, what happens if there's corrective action necessary? A. Yes. There's a number of fundamentals to this whole concept of distribution system integrity and what you are looking at, as I mentioned earlier, you're really looking at the health of the distribution system and it allows to you make decisions about maintaining it and making any replacements to sections of the pipe. When you make those decisions and you do that analysis, you take into account the results of the survey. That's the key element of it, not the repairs or the remedial action; it's the results of this. That then feeds into the analysis which takes into account the age of the pipe and its location, its material, its size, other municipal work that may be taking space, and that allows you to make those decisions about should you continue to repair, let's say, a section of pipe or should you replace it. The fact that you find problems during your leak survey and through your corrosion survey and you make repairs is very important, but that's not the essence of what we're trying to measure here. It's the fact that you did a program which is McGill,Grant,McClintock 956 ex (Vlahos) critical to allowing you to make these decisions about the overall long-term health of the system. Q. All right. So if I were to continue with what you have there, say, '...and that all that corrective action will be taken into accordance with whatever laws apply, rules and regulations of this province,' you're saying that this is not a really complete picture; that there's more than just corrective action. There's a reflection of that survey into your plans as to what you ought to do with a specific result that came out of the survey? A. That's really what we're focusing on here. There's no question we want to repair leaks. That goes without saying. But what we're trying to do here is ensure that we have a system and we follow that system, so that we can then properly use the results. To further indicate that we will take remedial action in accordance with regulations and company procedures is fine. We would do that. Q. Mr. Grant, there was some discussion today about the imposition of penalties by the Board and I guess from a non-lawyer to a non-lawyer, I can ask you this question. Your counsel won't jump at it. But are you aware of any legal issues surrounding the imposition of penalties by the Board? In your discussions over the years, are you aware of whether there are any legal issues; not what they are? MR. GRANT: A. I am not aware of any legal McGill,Grant,McClintock 957 ex (Vlahos) issues. MR. VLAHOS: I expect Mr. Cass will address that in the argument. MR. CASS: (Nodding head) MR. VLAHOS: Q. And this goes to either Mr. McGill or Mr. McClintock. In the production or reporting of the service quality indicators, the numbers we're going to get, can you help me understand as to how much judgment is involved in terms of the number that comes out? Is it something very mechanical, that something comes in here without any judgment by anyone and it comes out and that's golden or there is some review, I guess, of the reasonableness? And to the extent there will be numbers coming out, I guess my question is to what extent we can take those as no judgment having been applied to the results that we see? MR. McGILL: A. With respect to the two indicators that I am responsible for, they would be basically numbers right out of monitoring systems that we have in place right now. There would be no means for qualitative adjustment or none undertaken, so TSF is something that's reported out of the systems we have in place and we have reporting in place as part of the Customer Information System that we use that provides us with summaries of our percentage meters unread. So those would be the numbers McGill,Grant,McClintock 958 ex (Vlahos) that we would be picking up and providing in the reporting. And with respect to the others, I would have to defer to Mr. McClintock. MR. McCLINTOCK: A. Yes. I would expect that we would produce the numbers and if they meet the target, that would be -- we would have met our requirements. If there's some reason for not meeting the target, then there would be some discussion about what the factors are. Q. My question went to the number that comes out and comes to the Board from the areas that you're responsible for; say, emergency response time, okay? A. Yes. Q. That number that comes out of your -- I guess you have some kind of a software package? A. Yes. Q. Okay. So the number that comes out; that's the number you are going to send to the Board? A. Yes. Q. And in all cases, we are talking about sophisticated software programs where nothing has to be done other than some clerk inputting data? A. It's not quite as user-friendly as that. It does take some work with the program. But the same criteria that was used to develop the target of 83 per cent, we would use that same formula in the program to determine how we are doing in future years. McGill,Grant,McClintock 959 ex (Vlahos) Q. So once someone is trained then to use the program, there's a reliance on that person or persons, so that whatever input is there is not changeable? A. Yes. It would be reviewed by the person extracting the information. The person running the program would have to know how to manipulate it, if that's a concern. But it's not just pushing a button. You have to do some inputting and stuff to run it. So, you know, the manager who is running it could attest to the fact that it hasn't been manipulated or the parameters changed. Q. And how do you see, if this review is undertaken, say, by Board Staff, that they're going to receive the number and if it satisfies the benchmark, then that's the end of the review or should Staff have a better understanding as to how the whole process works that generates that number? A. I guess I presume that throughout this process we're going through, we would go through the exercise of explaining how the numbers were developed here and we would agree upon that. You are suggesting that there may be some discussion about what transpired during the year, how these numbers, whatever the number was, what drove it to that particular result? Q. No, no. I'm not suggesting that necessarily Staff have to go through that process. McGill,Grant,McClintock 960 ex (Vlahos) What I'm suggesting is that Staff may like to have some understanding of the mechanics of arriving at that number. A. Yes. That could be explained, yes. Q. Is it something that can be explained easily or...? MR. McGILL: A. Well, I think we would want to provide Board Staff with a clear enough understanding of the process so that they would be confident in the numbers they're receiving. I guess that's the best way I can put it. Q. Okay. MR. GRANT: A. Sorry. Along those lines, I would think that there would be some initial discussions about things and ongoing phone calls, if need be, and meetings and that sort of thing. In other words, once again coming back to flexibility, whatever Board Staff felt they needed in order to get comfortable with the programs and the process, then we would be working with them very closely. MR. VLAHOS: Okay. Thank you for those answers, Panel, Madam Chair. THE PRESIDING MEMBER: Thank you. I have no questions. Mr. Cass, do you have any re-direct? MR. CASS: No, I don't, Madam Chair. Thank you. THE PRESIDING MEMBER: So, Mr. Thompson, we turn to you and your request for mercy which may be somewhat McGill,Grant,McClintock 961 cr ex (Thompson) strained by the fact that we haven't been in the Canary Islands. [Laughter] MR. THOMPSON: Well, you were lucky. There was a hurricane. Thank you very much for your indulgence. CROSS-EXAMINATION BY MR. THOMPSON: Q. Panel, I think that the quickest way to do this is, if you wouldn't mind, to turn up -- THE PRESIDING MEMBER: Now, Mr. Thompson, I understood you just to be going to put your questions on the record. Am I right? MR. THOMPSON: Yes. I was going to put the references on the table first. THE PRESIDING MEMBER: Okay. All right. MR. THOMPSON: Put the questions. My suggestion is, if they can be answered now, that the panel answer them. THE PRESIDING MEMBER: The Board is unable to sit late today, so we would like this to be as expeditious as possible. MR. THOMPSON: Yes. That's what I'm trying to do. THE PRESIDING MEMBER: Secondly, it wasn't my understanding that we were going to have a sort of give-and-take cross-examination. MR. THOMPSON: No, no. THE PRESIDING MEMBER: I understood you were going to put some clarification questions on the record McGill,Grant,McClintock 962 cr ex (Thompson) and that the company was going to clarify. MR. THOMPSON: I can do that, yes. I just need to find the testimony. Sorry. MR. THOMPSON: Q. I'm looking for your prefiled evidence, Mr. Grant, where you have the O&M base. I had it open here and now I've... THE PRESIDING MEMBER: Mr. Thompson, we're having difficulty hearing you. MR. THOMPSON: Q. I'm looking for Mr. Grant's prefiled evidence with the O&M base number of 240... MR. GRANT: A. It would be at Exhibit C, section 4.1, page 4. Q. Turn that up, please, and also turn up IGUA Exhibit D, section 10.37 which is IGUA 37 or, panel... Hopefully everybody has it. And if I could just quickly in terms of preamble, the $250.4-million which is the total unbundled budget shown at line 3, section 4.1, page 4 appears in line 9 of page 8 of section 10.37. Then on Exhibit C, section 4.1, page 4 there are three deductions from this item that produces the company's O&M base of $240.6-million. The two of them, the Y2K program expense and DSM expense, appear in specific lines in Exhibit 37. The rental wind-down adjustment of $1.1-million does not appear there. And my question is if I look at Exhibit D, section 10.37, page 6, where the rental program direct McGill,Grant,McClintock 963 cr ex (Thompson) costs at line 2.10 are shown at $19.6-million, can I assume that the rental wind-down adjustment of $1.1-million comes out of that line item? A. We'll undertake to respond. Q. Thank you. MR. SWEET: Undertaking H.6.4. ---UNDERTAKING NO. H6.4: Enbridge Consumers Gas undertakes to respond to Mr. Thompson's series of questions arising out of Exhibit D. MR. THOMPSON: Q. Actually just give this one undertaking number, a series of questions arizing out of this exhibit. The point here just so you're aware of where IGUA is coming from is that if the rental program comes out do we correctly assume that the O&M base would reduce from 240.6 by the net of 19.6 and 1.1 being $18.5-million? That's the point of that question. On the rental program topic, we had asked you in Exhibit 10.37 in sub item (f) to identify in effect whether there were any other rental program costs in any other line items other than this 2.10. And I take the answer to be no and perhaps you'd undertake to tell me if that is accurate? A. Yes, we will do that too. Q. Turning then if I might to the question that we asked at Question 37(e). Here we were looking for all line items which relate to functions which will be performed by the CIS system when it is implemented. The answer to this at pages 3 and 4 was to McGill,Grant,McClintock 964 cr ex (Thompson) identify five line items; do you see that: customer support, credit and collection, uncollectible accounts, information services, Customer Legacy Systems. And we were told that these line items may be affected by the Customer Information System when it is implemented. Do I correctly understand that that means that those line items are not constrained by the formula? A. I think I can answer the question, that particular question, now and I won't take long. In the transcript over the last couple of days we've indicated, Mr. Thompson, and you don't have the benefit of this I appreciate, but any incremental cost reductions associated with delivery of CIS we're proposing be 'Z' factored back to ratepayers. And I would presume that it would be affecting some of the five areas that are shown here in this response. Q. So if these go up or down, that'll be tested in the next case? My understanding is that these lines are not constrained by the formula? A. No, no, any incremental cost reductions from the PBR base that result from the delivery of CIS will be flowed to ratepayers by way of 'Z' factor and all of that information, that amount will be brought forward in the next case. Q. Now, in terms of line items in the O&M expense presentation that's listed in this exhibit, what we were trying to get was a list of those line items not McGill,Grant,McClintock 965 cr ex (Thompson) if you will constrained by the formula. This would be line items that fall within your description of 'Z' factors. My question is with Y2K, DSM and these other line items that you've described at pages 3 and 4, have we got them all and, if not, could you give me any other line items that are not constrained by the formula? Okay, understand that question? A. Yes. Again I think there's probably testimony on that but we will answer it. Q. If you want to expand on it in the undertaking response it would be much appreciated. Another objective of this interrogatory was to have you identify the proportion of your O&M expenses that are impacted by customer growth. You've done that by providing Xs opposite various line items on pages 6 through 8. And my question is would you take subject to check that the total of the line items that you've Xed is about $104.8-million or about 42 per cent of the total of $250.4-million? Give a response to that, please? A. Yes, we will respond to that. Q. Another objective of the questions was to get the proportion of the O&M expenses that related to employee costs and you've done that by again an X and you've Xed every line. Now, I don't think 100 per cent of your O&M costs McGill,Grant,McClintock 966 cr ex (Thompson) are fairly characterized as employee-related. Would it be possible to give us the salaries and benefits total for employees in the $250.4-million budget expressed as a percentage of the total? A. I think that information is already in evidence. It's 60 per cent. Q. It will be IGUA's position in argument you cannot exclude from your formula an employee change factor and we've asked some questions about that. And I just want to confirm in the responding information at page 3 of 8 you forecast that employees of '99 to 2000 will reduce from 3,458 to 3,388, a reduction of 70 which is slightly in excess of two per cent; would you accept that subject to check? A. Yes. Q. And in the following period 3,388 to 3,312, a reduction of 76 and I would ask if you would accept subject to check that's 2.3 per cent reduction? A. Fine. Q. And the last area relates back to identifying the line items that are captured in your description of 'Z' factors. It's not clear to me what impact the 'Z' factor feature of the formula has on the company's right to seek accounting orders? A. That's the subject of an undertaking that I have for the Panel. MR. THOMPSON: Thank you. Those are my questions. McGill,Grant,McClintock 967 Procedural Matters THE PRESIDING MEMBER: Thank you, Mr. Thompson. MR. VLAHOS: Mr. Grant, you have to remind me of that one. MR. GRANT: It was one of the longer ones and I think I had to take account of the Board's Decision in 497 in responding to the request. MR. VLAHOS: But there was a much bigger discussion on that and I guess, Mr. Thompson, there is many, many pages of the transcript on that issue. MR. THOMPSON: I'm sure there was but I just wanted to make sure of it. MR. VLAHOS: But the undertaking I guess goes to a specific issue that we as a Board had but there's plenty of discussion on that issue. MR. THOMPSON: Thank you very much for your indulgence, Madam Chair and Members of the Board. THE PRESIDING MEMBER: Thank you, panel, for your assistance. We meet tomorrow for the intervenor panels. The Board will not be sitting between twelve and two again tomorrow but I expect that we will be able to get through the intervenor panels in the time remaining. So thank you very much and we'll see you tomorrow. ---Whereupon, the hearing was adjourned at 4:50 p.m., to be reconvened on Thursday, February the 4th, 1999 at 9:00 a.m. 968 I_N_D_E_X___O_F___P_R_O_C_E_E_D_I_N_G_S _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ Page_No. ____ ___ Preliminary matters 802 STEVE McGILL, JIM GRANT; Recalled JOHN WILLIAM McCLINTOCK; Sworn. 802 Direct Examination by Mr. Cass 803 Cross-Examination by Mr. Warren 805 Cross-Examination by Mr. Thompson 829 Cross-Examination by Mr. Brett 852 ---[Luncheon Recess 11:50 - 2:10 p.m.] 888 Preliminary Matters 888 Cross-Examination by Ms. Lea 892 Cross-Examination by Mr. Janigan 901 Cross-Examination by Ms. DeMarco 910 Examination by Dr. Higgin 943 Examination by Mr. Vlahos 953 Cross-Examination by Mr. Thompson 961 Procedural Matters 967 969 I N D E X O F U N D E R T A K I N G S No. Description Page No. H6.1 Enbridge Consumers Gas undertakes 835 to file a copy of the most recent telephone customer satisfaction survey summary data. H6.2 Enbridge Consumers Gas undertakes 854 to provide their call abandonment rate for the last three years. H6.3 Enbridge Consumers Gas undertakes 949 to provide the method by which they may change or modify one of the performance indicators during the plan. H6.4 Enbridge Consumers Gas undertakes 963 to respond to Mr. Thompson's series. of questions arising out of Exhibit D. MC/BV/LJ [(c) Copyright 1985].