E.B.R.O. 497-01 E.B.O. 179-14 E.B.O. 179-15 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 an order or orders approving rates to be charged for the sale, distribution, transmission and storage of gas for its 1999 fiscal year; AND IN THE MATTER OF an Application by the Consumers' Gas Company Ltd. for all necessary approvals of trans- actions related to the transfer of certain customer information systems to an affiliate; AND IN THE MATTER OF an Application by The Consumers' Gas Company Ltd. for all necessary approvals of trans- actions related to the transfer of certain businesses and activities to one or more affiliates; 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 Friday, September 25, 1998 commencing at 10:05 a.m. -------------------------- PROCEDURAL AND MOTIONS DAY -------------------------- B E F O R E : H. GAIL MORRISON Presiding Member PAUL VLAHOS Member ROGER M. HIGGIN Member 2 A P P E A R A N C E S STEVE McCANN Board Technical Staff FRED CASS ) The Consumers' Gas Jim Grant ) Company Ltd., Applicant Judy Allan ) ROBERT WARREN Consumers Association of Canada (CAC) GUY PRATTE Industrial Gas Users Association (IGUA) MICHAEL JANIGAN Ontario Coalition Against Poverty (OCAP) DAVID POCH Green Energy Coalition (GEC) THOMAS BRETT Ontario Association of School Business Officials (OASBO); Metropolitan Toronto Separate School Board CAROL STREET Alliance of Manufacturers and Exporters, Canada PETER F. SCULLY Association of Municipal- ities of Ontario; ECNG Inc., on behalf of its other clients MURRRAY KLIPPENSTEIN Pollution Probe MICHAEL PENNY Union Gas Limited MARK MATTSON Energy Probe MICHAEL MORRISON Ontario Association of Physical Plant Administrators (OAPPA) JOHN WONG Municipal Electric Association (MEA) GLEN MacDONALD ) Ontario Hydro GARRY SCHNEIDER ) 3 ---Upon commencing at 10:05 a.m. THE PRESIDING MEMBER: Please be seated. Good morning. MR. McCANN: Good morning, Madam Chair. THE PRESIDING MEMBER: The Ontario Energy Board is sitting today to hear procedures and motions in Phase 2 of proceedings under Board File Nos. EBRO 497, EBO 179-14, and EBO 179-15. These proceedings relate to applications by Consumers Gas for rates, for certain approvals under its undertakings, and for incentive mechanisms in relation to certain components of its costs of service for fiscal Years 2000 through 2002. Phase 1 of the proceedings dealt with rates for the 1999 test year. The Board's decision on Phase 1 was issued on August 31st, 1998. By Notice of Motion dated September 15th, the Consumers Association of Canada, the Industrial Gas Users' Association, and the Ontario Coalition Against Poverty requested the Board to adjourn to a generic proceeding that portion of the company's application in EBRO 497-01 seeking approval of incentive mechanisms in relation to operations and maintenance expense and demand-side management. We will begin our proceedings this morning by hearing that motion. We will wish to address the schedule for the remainder of these proceedings later this morning. It is Preliminary Matters 4 my understanding that a proposed schedule has been circulated by the company for discussion purposes and I would ask that parties be prepared to provide their comments in due course. With me this morning are Mr. Vlahos and Dr. Higgin. May I have appearances, please? MR. McCANN: Steve McCann appearing on behalf of Board Staff, Madam Chair. MR. WARREN: Robert Warren for Consumers Association of Canada. THE PRESIDING MEMBER: Good morning. MR. JANIGAN: Michael Janigan for the Ontario Coalition Against Poverty. MR. PRATTE: Guy Pratte for the Industrial Gas Users' Association. MR. POCH: David Poch for the Green Energy Coalition. MR. CASS: Good morning, Madam Chair. Fred Cass for Consumers Gas. For the Board's information, I would explain, I have with me Jim Grant and Judy Allan from Consumers Gas. The Board would be aware that Mr. Grant is the case manager generally for EBRO 497. He is also proposed to be a prominent witness in respect of the 497-01 proceeding, and so for that reason, Ms. Allan is the case manager in relation to EBRO 497-01. Thank you Madam Chair. THE PRESIDING MEMBER: Thank you, Mr. Cass. Preliminary Matters 5 MR. BRETT: Good morning, Madam Chair. My name is Tom Brett. I'm representing the Metro Toronto Separate School Board and the Ontario Association of School Business Officials. MS. STREET: Good morning, Madam Chairman. My name is Carol Street. I'm here from Beth Symes' firm. I'm here on behalf of the Alliance of Manufacturers and Exporters. MR. KLIPPENSTEIN: Good morning, Madam Chair, Members of the Panel. Murray Klippenstein for Pollution Probe. MR. SCULLY: Good morning, Madam Chairman, Panel. Peter Scully for the Association of Municipalities of Ontario and ECNG's other clients. MR. PENNY: My name is Michael Penny, counsel to Union Gas. MR. MATTSON: Yes. Good morning, Madam Chair. Mark Mattson, counsel for Energy Probe. MR. MORRISON: Good morning, Madam Chair. Michael Morrison for the Ontario Association of Fiscal Plant Administrators. MR. WONG: Good morning, Madam Chair. My name is John Wong. I'm with the Municipal Electric Association. MR. MacDONALD: Glen MacDonald and Gary Schneider for Ontario Hydro. THE PRESIDING MEMBER: Are there any other appearances? Seeing none, we will begin with the discussion of the Motion being brought on behalf of Preliminary Matters 6 Consumers Association of Canada, the Industrial Gas Users Association, the Ontario Coalition Against Poverty, unless there are other matters that should be dealt with first. MR. McCANN: No, I don't believe there are other matters, Madam Chair. THE PRESIDING MEMBER: Mr. Warren, are you going to be speaking to this? MR. WARREN: I am, Madam Chair. Late yesterday afternoon, I heard a rumour that there might be some interest in cross-examining the deponent of the Affidavit filed in support of it. I had raised the issue, or the issue had been raised earlier with Mr. Cass and with Ms. Lea, both of whom had indicated ultimately that they did not. The rumour I heard was that Mr. Klippenstein might be interested in cross-examining. So at about four-thirty yesterday, not having heard from him, I called him and was told by him that he intended to cross-examine Dr. Bauer, and before we begin submissions on the Motion, I suppose we should hear from him as to whether he wants to do that and any submissions as to whether that's necessary. MR. POCH: Madam Chair, just on that point, I should say I was involved with the Jewish holidays at the beginning of this week. But immediately thereafter, I was at the Board seminar and I spoke with Ms. Girvan, case manager for the CAC, and indicated that I had some brief questions for Dr. Bauer. And I think I can assure you, I Preliminary Matters 7 would like to have that opportunity, but that it would be quite brief. THE PRESIDING MEMBER: Mr. Klippenstein? MR. KLIPPENSTEIN: I do have some questions for Dr. Bauer, Madam Chair. THE PRESIDING MEMBER: As I understand it from the Board's Rules, particularly Rule 8.06, the Board may permit oral evidence in addition to supporting documents in circumstances such as this. Is there a specific reason that you would like to put forward for why you need to question Mr. Bauer and is there any objection from Mr. Warren? MR. WARREN: Well, there is, Madam Chair. I mean, first of all, I would appreciate -- I understand that Mr. Poch spoke to Ms. Girvan earlier, but with respect to Mr. Klippenstein, I didn't get any notice of this, and so was able to reach Dr. Bauer late last night about this. But in my respectful submission, Rule 8.06 is the apposite Rule in this case; that unless there's a clear need to cross-examine that is established by Mr. Klippenstein, that there should be submissions on the Affidavit material without cross-examination. THE PRESIDING MEMBER: Mr. Poch or Mr. Klippenstein? MR. POCH: Madam Chair, first of all, I should hasten to point out that Dr. Bauer is, as we speak, in the building fortunately on business with the Board, and so I Preliminary Matters 8 would suggest that while there is certainly some inconvenience to Board Staff in such an interruption, I would that think in the circumstances, it's not a great problem for my friend's witness. The reason for cross-examination is that Dr. Bauer makes a simple assertion -- our concern is primarily with respect to the SSM aspects here. He makes a simple assertion in his Affidavit that it's linked to PBR and ought to be heard together. He doesn't elaborate on the rationale. I have had the benefit of sitting at Dr. Bauer's knee the last few days, learning from him and, indeed, we have discussed some of these points in a more generic sense and it's apparent to me that the matter is not that clear cut. I don't want to give evidence, but I think that this is a bold assertion which speaks to the very issue before the Board on SSM and I think we should have the opportunity to hear from him a little more fully on that point. Secondly, my friend's motion is to delay SSM and the aspect of PBR proposed 'til such time as we can have not just a generic hearing with the other gas utility, but with the electric sector. And Dr. Bauer, indeed in materials which we can provide the Board, has indicated that there are some different circumstances that apply there; that we would like to have him speak to that briefly because I think the Preliminary Matters 9 Board will want to understand to what extent that argument is persuasive. So I think if Dr. Bauer is -- the points that we would like to cross on are the ones directly in issue. THE PRESIDING MEMBER: Mr. Klippenstein? MR. KLIPPENSTEIN: Yes. Thank you, Madam Chair. I think I must say I find it a bit odd that the assumption would be that a motion of this gravity and substance with this amount of evidence could proceed on the assumption that there would be no cross-examination. And to the extent that seems to be the mover's assumption, I find it a bit odd. But in any case -- and everybody knew that Dr. Bauer was in town, as it were, and so, you know, if the suggestion is somehow that I should be ashamed of myself for wishing to cross-examine, I guess I don't buy that. But in any case, in terms of the substance, Mr. Poch has mentioned the issue of the relationship between shared savings mechanism and PBR. I should note that in the Notice of Motion, the applicants have tried to define away that issue by actually specifying and defining PBR as including shared saving mechanism. That, I think is pretty problematic in itself. But in terms of the Affidavit material, in addition to the SSM issue, Dr. Bauer makes the assertion that the savings from postponing matters and having a generic hearing are likely to outweigh the costs. That's Preliminary Matters 10 a statement made, buried away in a paragraph which doesn't have any backing for it, and I wanted to question Dr. Bauer whether that is a highly impressionistic point of view, the way it appears to be, or whether he is asserting something more than that. I also notice on the issue of, on the critical issue, in my submission, of the role of public electric utilities, there is a certain amount of unclarity in Dr. Bauer's Affidavit. He categorizes the issue of public utilities as an advantage of holding a generic hearing, but it's not clear why he says it is an advantage. He then says it's an issue. I think that it is, indeed, an issue, a huge issue, how almost 300 publicly owned utilities relate in any way to two major experienced gas companies who propose to engage in PBR. So those, I would submit, are issues that merit a little more clarification from Dr. Bauer. THE PRESIDING MEMBER: Are there any other comments before I ask Mr. Warren for his views? ---(No verbal response) THE PRESIDING MEMBER: Mr. Warren? MR. WARREN: Madam Chair, at the end of the day, it is the Board's discretion and I leave it to the Board to decide how they want to handle it. I would make only one observation. Dr. Bauer's assertion in his Affidavit that SSM and PBR are linked Preliminary Matters 11 exactly mirrors or tracks the Board's own assertion to that effect in its decision with reasons in the EBRO 495 decision that was issued two years ago in which the Board - I quote the decision - at section 4.2.20 at page 105: If and when a more general move is made toward performance based regulation, such a mechanism - that is SSM - may be a part of that move. And so that's where the linkage is. It wasn't invented by Dr. Bauer. But as I say, at the end of the day, it's in the Board's discretion and I leave it to you to decide. THE PRESIDING MEMBER: Thank you, Mr. Warren. Sorry. Mr. McCann. MR. McCANN: If I could just have the panel's indulgence for one minute. THE PRESIDING MEMBER: The Board is prepared to allow questions of Dr. Bauer although we would like them to be (a) as brief as possible and (b) confined to matters which are clearly matters which have been raised in the affidavit. I gather Mr. Bauer is available? MR. McCANN: Yes, I think if we could have a brief adjournment, Madam Chair, we could arrange to -- if we could have a very brief adjournment. I don't know even whether it's necessary to leave this room but if we just have a brief adjournment so can make arrangements to get him down here. THE PRESIDING MEMBER: Okay. I think we'll just wait here. Bauer 12 dr ex (Warren) MR. McCANN: Thank you. ---Off the record discussion. THE PRESIDING MEMBER: Good morning, Dr. Bauer. JOHANNES BAUER, Ph.D; Sworn. MR. McCANN: I believe that Dr. Bauer is now here and has been sworn in, Madam Chair, so we can recommence. THE PRESIDING MEMBER: Thank you, Mr. McCann. Mr. Warren, do you want to introduce Dr. Bauer or do you want to just go ahead with questions? MR. WARREN: I have actually about an hour of examination-in-chief. DIRECT EXAMINATION BY MR. WARREN: Q. Dr. Bauer, very briefly are you the deponent of an affidavit that was sworn the 15th day of September and was filed in relation to a motion by the Consumers Association of Canada, the Industrial Gas Users Association and the Ontario Coalition Against Poverty? DR. BAUER: A. Yes, I am. Q. And I wonder, Dr. Bauer, just before we begin it if you could briefly, that is very briefly, describe your present position and your interest in and expertise in relation to issues of performance-based regulation? A. I'm an associate professor at Michigan State University, currently in the department of telecommunications where my specialization is regulatory economics, including telecommunications but also other network-based industries and also an associate of the Institute of Public Utilities in a place that I was the Bauer 13 dr ex (Warren) director of until recently until I decided that my research is more pressing than my administrative skills. I'm engaged in research and educational activities with this institute and focus on energy issues and regulatory reform issues and have also published in the areas that are at stake here. MR. WARREN: Thank you, Dr. Bauer. There are some questions for you apparently. THE PRESIDING MEMBER: Who would like to begin? Mr. Poch? MR.POCH: That's satisfactory, Madam Chair. CROSS-EXAMINATION BY MR. POCH: Q. Dr. Bauer, my concern is primarily with the proposal to delay the consideration of shared savings mechanism until such time as there's a generic hearing on broad PBR for both gasline utilities and I'm going to ask you to just assume what I'll inform you of, that is, that the Board has in previous proceedings taken a stance that it wishes to promote DSM and I'm not going to ask you for your views on that or on SSM as the preferred mechanism but rather let's just assume that for the moment. You've said in your affidavit that the SSM and PBR is linked. First of all, do I understand your position correctly that in selecting say between two PBR mechanisms such as price caps and revenue caps that that choice may bear on the question of the need for lost revenue mechanism but wouldn't directly bear on the need for SSM? Bauer 14 cr-ex (Poch) A. That is correct. Lost revenues, for instance, are treated in a different way by revenue caps than they are by price caps. But it depends also on the specification of the revenue caps. Q. But neither of these mechanisms have a DSM promotion tool in the basic mechanism? A. Let me put it this way: The price caps are weakest, actually they do not promote at all most types of DSM. Revenue caps have some positive impact on DSM but in most cases it will be necessary to have an additional mechanism in place for DSM. Q. So when you say they're linked do you mean that, for example, in designing an SSM you might want to have a time horizon that fits with the regulatory schedule that would spill out of implementation of broad PBR or do you mean something more? A. I mean more. For instance, if you have a cap on revenues of the company, losses in the sales of the utility that emanate from DSM activities will already be counted or taken care of in the revenue cap, so therefore to have an additional savings mechanism in place that perhaps would reward the utility for savings would lead to double counting. And that's the type of links that I'm referring to that need to be considered in thinking about the relationship between a specific DSM mechanism and then overall incentive plan. Q. All right. And I think what your answer as I heard it was really about that you are discussing LRAM and Bauer 15 cr-ex (Poch) SSM in the same breath and that there is a potential redundancy between the LRAM component and PBR. But can we agree that if we already have LRAM as you may or may not be aware in the case of Consumers we do, we'll need to wrestle with that question when we get to PBR but that the SSM module, if you will, distinct from LRAM is in a different category? A. Well, yes and no. I mean you know if you refer to sort of hidden efforts or sort of indirect efforts to improve energy efficiency, it is very likely that these are also captured by a revenue cap mechanism and therefore again there's a risk that such activities will lead to double benefits for the utility if you don't think about these two mechanisms together. That doesn't necessarily mean that one cannot you know think about one and the other at separate points in time as long as one is aware of those linkages and let's say if a PBR plan is put into place at a later stage, one reopens essentially the discussion on the SSM too. Q. Okay. So if we were to consider SSM and set a time horizon for it, as is the proposal a year at a time, would it be fair to say then that we have maintained the flexibility to amend that should we at some subsequent point adopt broad PBR? A. I think that's a possible strategy as long as it is understood at the time that PBR is being discussed one would have to look into the SSM too and those linkages. I mean I just mentioned two. There could be Bauer 16 cr-ex (Poch) more than those. Q. Now, another point entirely, I had the advantage of learning from you the last couple of days and do I understand your position correctly that when you get to publicly held entities, rather than privately held utilities, the considerations for PBR may be quite different because the incentive is going to have a significantly different level of impact? A. One of the key issues is that most incentive plans have really been designed based on the understanding of private ownership and therefore they place a great emphasis on increased profitability as an incentive for management and employees to be more conscious about efficiency of operations. Under public ownership conditions that sometimes doesn't work as well because there may be a tendency to demand other objectives than just pure profits from the company that interfere with the purity of incentives and the experience is that under public ownership it's sometimes difficult to create incentive mechanisms that are as strong although, you know, it is not impossible. I think there are different issues that need to be addressed in addition to the basic issues. Q. Would you agree in selecting a performance-based technique, one of the issues is the baseline you start from and that that would be another distinction between the gas utilities which are under cost of service before this Board now and the 275 municipals Bauer 17 cr-ex (Poch) where we don't have that record to start from? A. I agree with that. I think - if I'm allowed to say that - I think there are three categories of issues that need to be addressed, some issues that are generic that apply to electricity, gas and perhaps others who may come into the fold of these industries in the future. Then you have issues that are specific to all gas utilities, issues that are specific to all electric utilities, and then there issues that are really unique to the individual case. And it's largely a question of the regulatory process, how you want to address those things, whether you would like to look at the individual cases but then you have to branch out into generic issues because you have to keep the larger picture in mind or whether you are for instance -- issues of expediency and efficient handling of issues, rather look at the generic issues first and then go into the more specific issues. MR. POCH: Well, I guess that captures the issue in a nutshell. Thank you very much. THE PRESIDING MEMBER: Thank you, Mr. Poch. Mr. Klippenstein? MR. KLIPPENSTEIN: Thank you, Madam Chair. And some of the issues I had raised were addressed by Mr. Poch and Dr. Bauer. CROSS-EXAMINATION BY MR. KLIPPENSTEIN: Q. Dr. Bauer, if I could refer you to your Affidavit, in particular, Paragraph 9 where you list some Bauer 18 cr-ex (Klippenstein) of the possible disadvantages of the generic approach to PBR. Okay. The first disadvantage you referred to is up-front costs. Can you tell me what type of costs you refer to in that paragraph when you say: 'A generic process causes up-front costs that will be compensated by later savings of regulatory costs.' What sort of costs do you mean? A. Well, largely the costs of meetings like this one, of similar meetings that would take place in the context of exploring these issues. So the costs of, you know, of expertise, of creating the data necessary to review issues, things we call typically transactions costs; in other words, the cost of finding consensus. Q. I don't see anywhere in your Affidavit, in your list of disadvantages, an assessment of potential costs that come from a PBR process being delayed; in other words, supposing a PBR process is intended to provide bill savings to customers and the adoption of the PBR is delayed by six or eight months by a generic hearing. I don't see any mention of those kinds of disadvantages or costs. Am I wrong? Have you mentioned those in your Affidavit? A. I didn't mention those and there's very strong reasons for it. I think they're very difficult to quantify. Actually, my -- you know, it's difficult to really come up Bauer 19 cr-ex (Klippenstein) with a quantitative number for such possible indirect costs. It is my, sort of at a higher level of not being able to see all of the potential data, I think that these costs, the costs of rating, so to speak, will be very low. Assuming that the current regulatory framework actually is a framework that is effective, it has been in place for a while, that the idea of moving to PBR promises certain benefits. It also, I think, promises that nobody will be worse off than the status quo. But the magnitude of those potential benefits is difficult to assess and I think that the cost of waiting therefore, taking these considerations into account, is relatively low. Q. I don't see mention in your Affidavit of, in the list of possible disadvantages to waiting and having a generic approach, the state of the present Board's schedule with all its hearings and considerations that it's confronted with because of all the many changes, which everyone recognizes are straining the Board's ability to process the changes. Would you agree that's another disadvantage of holding a generic hearing? A. This is beyond the kind of information that was available to me. I couldn't say that. Q. Now, you said in Paragraph 9(a) when you considered the up-front costs, that later efficiency gains will likely outweigh the costs of a more generic proceeding. Bauer 20 cr-ex (Klippenstein) It sounds like you didn't really compare numbers on either side. Would it be fair to say that's a highly impressionistic assessment? A. It's not a highly impressionistic statement. It is based on, you know, the experience in other jurisdictions where we see that PBR proposals are submitted by utilities one at a time and it seems that every hearing addresses the same basic issues over and over which, you know, leads me to conclude that the cost of the experts that are brought in to talk about these issues, you know, not once, but two, three, four times essentially are excessive costs that could have been avoided had certain basic rules been established up front. That's what I'm referring to. And such basic rules could relate to, let's say, disclosure and data reporting requirements to the review procedures that have to be in place on a semi-annual or annual basis; basic things like this, that I think where it would be advantageous to clarify the issues ahead of time. Q. In your list of advantages of a generic hearing, you mention, sub-paragraph (g), the reduction of regulatory costs through reasonable standardization. Now, in the gas sector, we basically have two large companies now when it comes to PBR issues. Is that fair? A. Yes. Q. So in the gas sector when you talked about Bauer 21 cr-ex (Klippenstein) having, you know, two, three, four five, six hearings, we are not in that situation partly because the merger of Centra and Union has, in a sense, partly standardized things already. Is that fair? A. That's true. Q. And the disadvantages that you list under subparagraphs (e) and (f), which refer to minimization of avoidable mistakes and the realization of learning curve advantages, I think it's fair to say that the two large gas companies, which are the main subjects of gas PBR, have had a tremendous amount of regulatory experience and have access to information and have a great deal of experience and are not likely to do a bad job of a PBR plan. Is that fair? A. This is beyond what I could assess. But I can tell you that the experience in the other jurisdictions shows that despite long-standing experience with cost of service regulatory tools, people commit mistakes that seem utterly ridiculous in hindsight, but, you know, go unnoticed at the time of discussion of the plan. Let me say one more thing, though, to this point. Reasonable standardization refers to one of the features of performance-based regulation; that is, there are many different design options in plans. Not only, you know, can we go the route of revenue caps or price caps or we can design revenue caps that are focused on operations and maintenance or revenue Bauer 22 cr-ex (Klippenstein) caps that include the cost of capital the way we specify flow-throughs, what kind of factors will be considered for external adjustments, what kind of quality of service parameters we would like to include in a plan. All these are sort of features of plans that can be defined in quite different ways. And it seems to be clear, from jurisdictions where many utilities came in at different points in time, they proposed quite different plan features, that the regulatory process really becomes increasing complicated because you have now different sets of rules and criteria that you have to monitor in each and every case. And that was what I had in mind, that reasonable standardization would be advantageous because it reduces -- even if you only have two utilities, you know, there can be quite -- and even if they decided to go for a revenue cap model, in detail, these plans could look quite different, leading to quite different reporting requirements and, in the longer run, an increased regulatory burden because you have to spread yourself broader in monitoring those parameters. Q. Would you agree that those concerns are much reduced by the fact that we have two major players basically in the gas PBR situation? A. They are reduced by the fact that there are only two; there's no doubt about it, compared to the situation where you would have six or eight. But nevertheless, I think, you know, it is something to Bauer 23 cr-ex (Klippenstein) consider. MR. KLIPPENSTEIN: Okay. Thank you. Those are all my questions. Thank you, Dr. Bauer. Thank you, Madam Chair. THE PRESIDING MEMBER: Thank you, Mr. Klippenstein. Mr. Warren, are you prepared to proceed with the submissions on your Motion? MR. WARREN: I am. Might Dr. Bauer be released, so he can return to his...? THE PRESIDING MEMBER: Yes. Thank you, Dr. Bauer. ---(Witness withdraws) SUBMISSIONS BY MR. WARREN: Madam Chair, this is a motion which was filed by the CAC in its own right and acting as an agent for esteemed Ottawa counsel representing the Industrial Gas Users Association and the Ontario Coalition Against Poverty. We were the modest agents for the delivery of that and they are present here today to argue the Motion in their own right. The relief sought by this motion is the adjournment of those portions of Consumers' application which seek approval of incentive mechanisms in relation to the O&M component of the costs of service and in relation to DSM. The suggestion in the prayer for relief is that the consideration of those issues be adjourned to a Submissions 24 (Warren) generic proceeding considering the principles of performance-based regulation. At such a generic proceeding, the principles of PBR would be considered for Consumers, for Union, and for the distribution utilities constituted under the restructured electricity sector. We are not, however, Madam Chair and Members of the Panel, asking this Board to now direct such a generic proceeding. We are asking simply that the PBR portion, if I may encapsulate it that way, of the Consumers application be adjourned. It is our view and it is the evidence, we submit, the weight of the evidence derived from Dr. Bauer that there should be such a generic proceeding, but this Board does not have to order that at this stage. I want to spend a few minutes, Madam Chair and Members of the Panel, on what I submit is the relevant background. We have pending before you an application by Consumers for approval of a form of PBR. In addition, Union has given notice that it may apply for approval of some form of incentive mechanism, as well. When that application will be crystallized and what it will consist of are matters that we don't now know. It is, in my respectful submission, the stated policy of the Government that the restructured electricity sector will have PBR as a central component. Exhibit C to Dr. Bauer's Affidavit contains - it's at page 35 of the Submissions 25 (Warren) Motion Record - contains an excerpt from the White Paper produced by the Government that was the precursor, if you wish, to the restructuring exercise. And at page 19 of the White Paper, the Government observes as follows: 'The Government proposes to direct the Board to examine, advise on, and subsequently implement a performance-based approach to regulation that ensures efficiencies are achieved in the monopoly parts of the industry and result in benefits to customers.' It is, in my respectful submission, clearly the policy of the Government that PBR should form a central part of the new regulatory scheme and the legislation that has been introduced in the House reflects that. Beyond that, in my respectful submission, it is the intention or the policy of the Board itself to implement PBR and, as well, to achieve greater regulatory consistency in the regulation of the natural gas and electricity sectors. If you would turn up page 38 of the Motion Record, which is the Hansard transcript of the submissions that were made on behalf of the Board by the Chair, Mr. Laughren. And at page 38 of the Motion Record, Mr. Laughren makes the following observations: 'One of our responsibilities is to try and bring greater regulatory consistency between these two sources of energy - gas and electricity - and to establish rulemaking authority, so that Submissions 26 (Warren) there is consistency.' That, in my respectful submission, is the policy direction of the Board to which we should give heed. It is, I think, important also to note the next sentence in Mr. Laughren's submission. He says, and I quote: 'For example, it is not inconceivable to think that in the future, people will buy energy as opposed to having the mindset that they are either gas or electricity. They will be buying energy, so we need to have consistency in treatment.' And one of the themes that I suspect you may hear from my friends in opposition to the motion is that these are discrete sectors and can and should be treated discretely. And the burden of Mr. Laughren's observation, in my respectful submission, indeed, the burden of the Government's policy is that there should be as much consistency as possible, and that the distinctions, I will submit at the end of the day, should at least be examined. We should not now assume that there is a divide between the two sectors that can never be crossed, and holding separate utility-specific PBR hearings is premised on such an assumption which I submit is an incorrect assumption. The background, in my respectful submission, is important for two reasons. First, PBR will form a central part of the regulation of both the natural gas and Submissions 27 (Warren) electricity sectors and, secondly, harmony or at least achievable consistency between the two is an important policy goal. Turning then to the grounds for the motion. Dr. Bauer is a recognized expert on PBR. He has submitted an Affidavit which, in my submission, is a balanced and fair assessment of the considerations for and against a generic as opposed to a utility-specific consideration of PBR. At page 8 of the Motion Record, in Paragraph 6 of his Affidavit, he observes that there are a number of common features to all PBR plans and also observes that there are some approaches to PBR that differ on a utility-specific basis. In my submission, the value of considering on a generic basis what components of the common features and which of the different approaches would be appropriate for all utilities in Ontario is significant. In contrast to that approach of weighing and considering what components of the common features should be adopted, the alternative approach is to adopt one approach for one utility in one set of circumstances and then, after the fact, continuously in effect revisit that, the appropriateness of those in each succeeding proceeding. At page 9 of the Motion Record in Paragraph 7, Dr. Bauer sets out what he characterizes as the disadvantages of the diversity of several models of PBR. Submissions 28 (Warren) He lists those as follows: 'The learning costs of the stakeholders to understand the implications of the PBR plan, increasing regulatory complexity as the number of plans increases, and a lack of standardized review procedures and reporting requirements.' And those review procedures and reporting requirements are particularly important, in my respectful submission, if the, in particular, the consumer protection aspects of the PBR plans or the consumer benefit of those, are to be grasped and understood and monitored by the consumer sector. Page 9 of the Motion Record beginning at Paragraph 8, Dr. Bauer sets out what he described as the advantages of a generic approach. First is the establishment of clear objectives and priorities. In my respectful submission, establishing those clear objectives and priorities is particularly important in the context of a fundamental restructuring of the energy sector in Ontario, and where there is a stated goal of achieving regulatory consistency. Clear objectives and priorities are, in my respectful submission, a necessary first addition for achieving a measure of regulatory consistency. The second advantage noted by Dr. Bauer is the co-ordination of PBR with other policy goals. And, again, this is particularly important, in my submission, in the context of a wholesale restructuring. Submissions 29 (Warren) Dr. Bauer observes, beginning at the bottom of page 9 of the Motion Record: 'A piecemeal process of considered individual applications by utilities creates the danger that the nexus to the overall restructuring process will be neglected or lost.' And there are clearly articulated policy goals in the White Paper and, again, in the legislation and that link, that link of PBR, individual cases to those policy goals is important. And it is a way - perhaps not a perfect way - a way of trying to ensure that that nexus is maintained, that one has a generic consideration of the important first principles. The third issue is the compatibility of PBR with public ownership. Clearly this is an important issue in a sector that is being fundamentally restructured. The fact that it applies only to the electric sector is not, in my respectful submission, a reason to separate them out either gas on one side and electricity on the other or to do it individual utility by individual utility because as Dr. Bauer pointed out, there are common points. Whether it's publicly owned or privately owned, there are points of difference. My submission simply is we should not assume from the outset today that the differences are so fundamental that they can never be considered together. The important consideration is the opposite. Consider them together, identify the differences, and then allow whatever Submissions 30 (Warren) different schemes are appropriate to evolve. The fourth point raised by Dr. Bauer is the importance of consensus building on basic principals of PBR. And at page 10 of the motion record, he lists the areas where agreement would simplify later proceedings. They are: the role of earnings monitoring, if any; the degree of flexibility afforded to the utility under PBR; risk mitigation methods, if any; evaluation criteria for success or failure of the plan; and the treatment of transition costs. As a realistic matter, Members of the Panel, consideration of Consumers PBR proposal would inevitably and necessarily involve consideration of these what I'll call building block issues and whether the approach to those building block issues should be adopted generally. It would be naive on our part to assume that Consumers will be a discrete narrowly focussed consideration of one little modest PBR plan. It will inevitably involve a consideration of all of these general issues and the importance of linkage to other utilities. We cannot avoid that reality and the effective way to deal with it is to deal with it now. There would have to be a consideration, in my submission, of the general implications of the approach followed in Consumers and this is consistent with the Board's practice in the past where it has attempted to the extent possible to achieve uniformity on important policy issues, at least between the two natural gas utilities. Submissions 31 (Warren) And now that uniformity must stretch and include the gas distribution utilities. The minimization of avoidable mistakes is the fifth point raised by Dr. Bauer and he uses the example in his affidavit, which I will not read to you, but mistakes can be costly and there will be some honeyed words delivered to you no doubt by my friends later that we can always fix problems. Well, the idea of fixing problems -- it's difficult to do, it's time consuming, and it's much more costly, in my respectful submission, in addition to which as Dr. Bauer points out there are benefits which may be lost in the process. The sixth point made by Dr. Bauer is the realization of learning curve advantages. All that has been learned about PBR in other sectors and in other jurisdictions will be brought to bear in the Consumers case, however modest a proposal it may be. And then it will be brought to bear again in the case of Union and again in the case of the electric distribution utilities. And as a matter of pure efficiency alone, that information should be used to maximum effect once for all utilities. The seventh point made by Dr. Bauer is the reduction of regulatory costs through reasonable standardization. This is the point he was stressing in response to questions from my friends, Mr. Poch and Mr. Klippenstein. Cost saving is clearly an important component of the efficiency argument. If there is a solid core of generally accepted and commonly applied principles Submissions 32 (Warren) which are developed and applied, then regulatory supervision and public comprehension are enhanced. It is easier and cheaper to achieve these principles once in a generic proceeding. Page 12 of the motion record of Dr. Bauer in his affidavit sets out the areas where standardization is desirable. They are: information reporting and disclosure requirements, procedures for price changes, and filing requirements during plan periods, timing and process of planned review, and the establishment of criteria to allow a fast track treatment of PBR proposals. That last point speaks to the issue of the efficiencies to be gained by dealing -- establishing a set of common principles first which makes consideration of subsequent PBR plans on an individual utility specific basis faster and more efficient because you don't have to revisit every time the great cosmic issues. Overall efficiency is, in my respectful submission, a very important consideration. The Board will have to consider separately and in rapid succession PBR proposals from Consumers, Union, the electric utilities as a whole, and then individual utilities. Each case would have to cover the same ground which is the point made by Dr. Bauer in cross-examination this morning. It is surely, in my respectful submission, more efficient to do so once. And it certainly places for what it's worth, less of a burden on intervenors. Dr. Bauer also points to the disadvantages of the Submissions 33 (Warren) generic approach and they are set out at page 12 of the motion record. They are, in my reading of Dr. Bauer's affidavit, essentially two. The first is that a generic proceeding - and these are my words, not his - can be a large shapeless consideration of issues which amounts to an attempt to impose artificial rules on the unique circumstances of individual utilities. The problem, in my respectful submission, is that we cannot know that in advance until the Board tries it. In other words, the Board needs to seek commonality before it can say that it can't be achieved or isn't appropriate anyway. We shouldn't assume that it can't be achieved. In my respectful submission, the Board should pursue the public policy goal of regulatory consistency before abandoning it. The second disadvantage is that a long costly process won't achieve consensus anyways and we acknowledge, I acknowledge that that is a risk, however remote it may be. What it requires is focus and a discipline on the key issues and control of the process which is what the Board does every day. The Bauer affidavit indicates that experience in other sectors and other jurisdiction has identified key issues and reasonable variables. That is an important first step in achieving a focussed generic consideration. The key is that the Board controls the process and that if it doesn't work it can direct that any individual application be brought on for decision. Submissions 34 (Warren) Now, a concern about a long process appears to be part of at least my friend, Mr. Cass's, opposition to this motion. I don't know, Fred, whether you've delivered up your materials. Mr. Cass was kind enough to deliver to me yesterday a booklet of materials which he intends to rely on in his submissions this morning. If I may be so bold as to give a prequel of his argument on some of the points, at tab 11 of his material, Mr. Cass has timelines for two generic proceedings, EBO 169 and EBO 188, which if they are to be believed are generational in their links. And I was reminded - if the Board will excuse me for a somewhat coarse analogy - I was reminded in reading it last night that if one looks at this and one were to analogize and ask how long it took someone to make love, the analogy would be, well, it went from dinner and a movie to the graduation from university of the child. The fact, the reality is that the core issues are now known and that's the first principle. The second principal is that there is a real drive to getting these principles established because of the timeline of the government in establishing rules for the electricity sector. And the key if you look at these, both EBO 169 and EBO 188, these were, with great respect, issues that were though important on the margin of the regulatory process. PBR is at the centre of the regulatory regime which is to be created in this province. That gives an Submissions 35 (Warren) urgency and a drive and an importance which the other issues lacked. In my respectful submission, these timelines are not helpful and that the Board can achieve in a relatively short period of time what admittedly these processes took longer to achieve. Consumers also suggests by necessary implication from these materials that theirs is a very modest proposal and how modest I suspect - I'm guessing at what Mr. Cass would say - but I suspect during the course of his submissions it may become more modest with each passing moment, and, secondly, that it has been considered and approved on a cautious step-by-step approach in British Columbia. If I could ask you to turn up tab 7 of his materials you will see and this is a passage from Consumers' prefiled evidence. 'The proposed O&M PBR formula recognizes the unique characteristics of the company's operation. It is similar to the one that has been employed since 1994 by B.C. Gas in British Columbia, a step-wise approach to performance-based regulation with each step being a discrete incentive mechanism has evolved over the years' and so on and so forth. And I take it that the implication we are to take from that is that it's all been done safely somewhere else, so it's okay for you just to go ahead and consider Submissions 36 (Warren) this modest proposal. It's all quite safe. This did not take place in the context of the kind of wholesale restructuring which is taking place in Ontario. But with great respect to British Columbia, PBR must be considered in the context of Ontario's policy goals and especially in the context of the restructuring of the entire sector and the stated desire to achieve a measure of harmony or consistency between them. The same is true of your adoption or you're to take comfort from the fact that the NEB has done the same thing and the same analysis applies. The argument about modesty - as T.S. Elliott's wonderful phrase, this PBR application comes to you "on little cat feet" - the argument about that, of course, cuts both ways. If it is so modest what is the harm in the delay? We, of course, have no evidence of what harm would be and you heard Dr. Bauer this morning say it is very difficult to try and calculate what the lost benefits would be, particularly in the context where you have an effective regulatory system in place now. Cost of service regulation has been in place for a very long time. There may or may not be achievable benefits from this modest PBR plan. We don't know how much. Whether those benefits are of such a magnitude to risk pushing through PBR for one utility now and miss the benefits which Dr. Bauer identifies of the generic process is, in my respectful submission, very unlikely. It is also important to remember that the PBR proposal if Submissions 37 (Warren) approved would not be implemented until 2000. The Board given the centrality and importance of PBR may very well be able to complete this process in time to have that PBR plan in place in any event. Consumers also argues that it has off-ramps as a safety valve and that is reflected at tab 10 of Mr. Cass's materials. But I would ask you to turn up Dr. Bauer's affidavit at page 10 of the motion record where Dr. Bauer talks about the availability of -- by necessary implication, excuse me, the effect of these PBR plans and he observes that it is possible - I'm looking at the third line on page 10 of the motion record - it is possible to put contingency reopener clauses - for which I will read off-ramps - in PBR plans should this become necessary in the interests of the overall restructuring process. However, for practical purposes it seems more likely that plans negotiated early on will remain locked in for some time. The resulting inertia could slow down the industry transition. There is a related issue, in my respectful submission, of the cost and confusion going back to reopen a PBR plan when we didn't need to do it in the first place if we had followed a sensible generic process. Related to this is the issue which my friend, Mr. Poch, put in cross-examination which is that an SSM can always be revisited later and the point that Dr. Bauer made in response to the question is that that is costly and time consuming and I ask the question: What's the Submissions 38 (Warren) value in a matter of public policy? The more important safety valve, in my respectful submission, is that the Board controls the timing. If it feels that it is in the interest of the public to have Consumers or Union or anybody else's PBR in place now, it can bring this application on and to do it quickly. The Board has in the past deferred PBR proposals -- sorry, SSM proposals to a time when PBR generally was to be considered and that was the effect of its decision as I pointed out earlier in EBRO 495. SSM is, in essence, a form of PBR and should, in my respectful submission, be considered as part of the larger generic process. There is no evidence that the adverse effect from the slight possible delay in the implementation of the SSM. You will see - you don't need to turn it up - it's a commonplace reflected in the prefiled evidence that the purpose of SSM is to provide Consumers with a positive incentive to continue to build and pursue DSM. Just as positive of an incentive exists in the existing ratemaking process. The prospect of having Mr. Poch and Mr. Klippenstein and Mr. Gibbons in their face on DSM is a very powerful incentive to do it right and that will continue without having an SSM in place. In conclusion, the considerations, in my respectful submission, in favour of the generic consideration are overwhelming. By contrast there is no Submissions 39 (Warren) evidence before you that anyone would be prejudiced by the delay. The Board can and indeed must proceed quickly to a generic consideration of PBR in the electricity sector. It must do so if the government's timetable is to be met. The Board can control its processes and make a generic consideration focussed and can if necessary order a utility-specific PBR to be considered. The risks of a utility-specific approach are equally clear in Dr. Bauer's Affidavit. In my respectful submission, the application should be granted. Thank you. THE PRESIDING MEMBER: Thank you, Mr. Warren. Are there others who are wishing to speak on behalf of the Motion -- in support of the Motion? MR. JANIGAN: Yes. THE PRESIDING MEMBER: Mr. Janigan. MR. JANIGAN: Thank you, Madam Chair. I will attempt to be brief. SUBMISSIONS BY MR. JANIGAN: MR. JANIGAN: My friend, Mr. Warren, has canvassed, I think very succinctly, the arguments in support of this motion and I wish to emphasize some additional points. I think, first of all, with respect to the position that this may be a small or modest improvement upon the way in which the regulatory process goes forward in relation to the Consumers rates case, I would suggest that it is important for two reasons: One, in terms of Submissions 40 (Janigan) giving a general direction in terms of a policy and setting a precedent in terms of the way in which the policy can be implemented. It has implications for regulatory fairness and efficiency and, as well, as is acknowledged in the Consumers application, it involves somewhat over a quarter of a billion dollars in revenue requirement per year. I would suggest it is a major policy initiative. Secondly, while the company obviously would wish a company-specific remedy or the attention of the Board on a company-specific basis, I would suggest that attitude is a product of a different era of regulation. I believe it is a product of the cost of service era of regulation, and as we progress to the era of PBR regulation, it should be discarded. I think their own evidence states, in part, the reasons why this kind of attitude that problems have to be addressed on a company-specific basis should be discarded. In their section dealing with the policies of the FERC, they indicate that the progress or the migration of regulatory bodies can be analogized to that of the difference between a baseball umpire and a tennis linesman: a baseball umpire making the specific calls that affect the game that involves a specific player while a tennis linesman essentially ensures that the ball does not -- makes the out-of-bounds calls, but the rules are established and the players play within that game. In the context of this case, I would suggest that Submissions 41 (Janigan) what we are attempting to do is fashioning rules for all to operate and, in the context of a generic proceeding, those rules would be fashioned. Any specific elements that are common to the utility or common to, on a company-specific or particular to a company could be determined at a later date. It is important, first and foremost, that the general rules are fashioned, and that is the role for the Board in the PBR era, as it were. As well, the process of fashioning these rules benefits from having before the rulemaking authority more views from the industries that it regulates than simply the company itself. There is likely to be different takes on how PBR should be accomplished by the different companies and it is very useful for the rulemaker to have before it those different versions to decide what elements should be used, what elements of the evidence can safely be believed in terms of attempting to fashion those standards which are common to all. The company in this case has proposed a version of total factor productivity analysis - I believe they term it multi-factor productivity analysis - in order to arrive at the X-factor for productivity. Now, their plans also include the consideration of exogenous factors known as Z-factors. Such factors have best been fashioned in previous determinations involving utilities in generic proceedings. Submissions 42 (Janigan) In particular, I call the Board's attention to the proceedings that involved the CRTC for price caps for local telephone service and in the FCC in determining the access rates payable by the long-distance companies. In both cases, generic proceedings were convened and extensive evidence was offered, particularly on those elements of productivity factors or exogenous factors that might affect the particular equation. I think in the CRTC's case, it's particularly noteworthy in that efforts were made by several companies; in particular, Telus and MTS, to attempt to distinguish the position of their company in relation to the application of a generic formula. And, in particular, MTS, as I recall, wished to emphasize the different economies of scale and scope that it had in relation it to Bell Canada. And, as well, Telus advanced the position that their efforts to date in enhancing productivity were such that they should not be penalized for that by now having to endure the same X-factor as the other companies would have to labour under in a price capped regime. It's important to note that for the most part, the efforts of companies to distinguish themselves from the application of a specific formula were unsuccessful. And the CRTC, in fact, in their price cap regime imposed a formula and a productivity number which was common to all companies. Now, as my friend Mr. Warren has touched upon, it Submissions 43 (Janigan) is true that B.C. has embarked on a company-specific framework, but it is important to note that some of the components of the framework are different than what are proposed here. Yes, it is true that it does contain similar elements insofar as it considered productivity, but as far as I'm aware, there was no total factor productivity analysis that was used to arrive at those figures. As well, it also seems apparent that at no point in time was the B.C. UC given the opportunity to consider whether or not a generic hearing might have been appropriate in terms of the utilities that it regulates. As well, is it reasonable to expect, after we have performed the analysis that arrives at a productivity factor or an X-factor or a Z-factor, is it reasonable to expect that the two LDCs will labour happily under two different productivity numbers? In particular, will that company having the higher number willingly labour under or accept the higher productivity number? As well, is it reasonable to expect that service quality standards will differ markedly by company and can they be different realistically, given the responsibilities of the Board to administer? Is it a reasonable assumption that if you do the companies "in seriatim", that the companies will have different evidence with respect of productivity and quality standards? I would suggest that it is. At a minimum, I would also suggest that Dr. Submissions 44 (Janigan) Bauer's contention that you will hear the same issues addressed over and over will take place before the Board if there are multiple company-specific proceedings with respect to PBR. And finally, as my friend Mr. Warren has touched upon, how do you fix problems that may arise either from exogenous factors or problems in the way in which the model has been fashioned for an individual company? In the company-specific model, it envisions a multiple of hearings in order for that to take place, or, what might happen is the PBR equivalent of EBO 188 which occurs, which in effect re-examines the issue and attempts to rationalize the different processes of the company. As my friend Mr. Cass' evidence shows, that was a long process, but it is important to know why it was long. It was long in part because of the differences that had evolved between the two companies and how they treated system expansion. That process that took place in EBO 188 was, in part, an effort to try to harmonize that process and to evolve a policy that made sense for both companies. I would suggest that if problems occur in the implementation, you will have to repeat that process and that process will likely be longer in a hearing that would be the PBR equivalent of EBO 188. Finally, we would suggest that logic and efficiency in implementation and in making the necessary adjustments and the precedents before the Board would appear to favour a generic proceeding. Submissions 45 (Janigan) In fact, we would suggest that the evidence is overwhelming and that in the circumstances, we would submit that the onus should be on the parties wishing to depart from the assumption that this issue should be dealt with in a generic fashion and that they should address that onus in their submissions. Thank you. THE PRESIDING MEMBER: Thank you, Mr. Janigan. Mr. Pratte? MR. PRATTE: Thank you, Madam Chair. SUBMISSIONS BY MR. PRATTE: IGUA supports the positions as articulated by my eloquent friends just ahead of me. We chose our agent well. It is obvious, Madam Chair, that this is not a black-and-white issue. As most interesting problems are, it is an issue of balance. And, indeed, in Dr. Bauer's own Affidavit - surely one of the most fair Affidavits ever filed - you could see that he has been forthright and put forth factors on both sides of the balance. The balance that you have to strike, in my respectful submission, is, on the one hand, the implicit or test assertion that the financial benefits of immediate consideration of the Consumers plan will outweigh the comprehensive rational consideration of PBR in its generic aspect, in a generic hearing, informed by all the relevant actors who might be affected by a PBR plan. Now, my friend Mr. Warren, in particular, has, Submissions 46 (Pratte) when he went through Dr. Bauer's Affidavit, identified a number of factors that he and we asked you to weigh, and I would like to perhaps focus on four, they're not necessarily different factors, but to give emphasis to four points, and they are as follows: First, the significance of the introduction of PBR regulation; secondly, the perspective of the customers resulting from the introduction of PBR; thirdly, the question of whether it's premature at this stage of our understanding of PBR regulation to jump into this issue right away; and fourthly, the question of prejudice. And I will be brief on each of those four points. Let me start then with the nature and the significance for Ontarians and this Board of introduction of PBR. In my respectful submission, it is self-evident that PBR represents a very significant shift in the form of regulation that has been known hitherto. It could be described almost as a paradigm shift, certainly equal in significance to the introduction of direct purchase. It is self-evidently not a utility-specific shift or problem and it is certainly not limited in its impact to gas utilities. And it's important in that regard, in my respectful submission to consider the context. This is happening at a time where, by all accounts, we're moving to what is called an energy market where the distinction between gas and electricity is becoming more and more blurred. Both those forms of energy are becoming Submissions 47 (Pratte) increasingly fungible and we see gas companies wanting to move into the electric market and vice-versa. It's also happening at a time where the Board's mandate will be both expanded and restricted. It will be expanded because it will have within its purview electric municipal utilities, but it also is going to be restricted in the sense that the hands-on regulation is likely or is intended to be significantly lessened, as well as in the context of utilities, moving out competitive components of their businesses outside of the purview of the Board. So we have a coincidence of many factors which make the energy market, both from the suppliers' point of view, the consumers' point of view, and the regulators' point of view, an integrated marketplace. In that context, PBR will become, to a degree, a form of surrogate regulation where the Board entrusts, when certain mechanisms are implied, to the marketplace the task of ensuring that rates and so on are optimum and fair to all. Now, in that context, in my respectful submission, what we are engaged in doing is constructing a platform. PBR principles are to serve as a platform upon which we will build specific regimes to suit specific utility companies, whether they be publicly or privately owned. It is not unlike a company that sets out -- a car company that sets out to develop a platform to be used for various models of cars. That's exactly what we are doing. Submissions 48 (Pratte) We know now that that platform, the basic principles, will serve for Union Gas, Consumers Gas, and for the municipal electric utilities. And, in my respectful submission, that's really what Dr. Bauer was referring to when he said there's no question that there's a part of PBR that are generic principles that will affect gas utilities and electric utilities. That's the platform I am talking about and, in my respectful submission, when you design that platform, you should look at all of the utilities that will be erected or built around that platform; not the other way around. Let me move on to my second point, the customer perspective. IGUA members stand to benefit from the introduction of performance-based rates, but it's also -- or performance-based regulation. It's also important, in an increasingly integrated energy marketplace, that the same rules and principles prevail from the perspective of the customers who will be purchasing energy from a variety of suppliers. Those customers want uniform rules and principles and only want distinctions if they're absolutely necessary. It is clearly a hindrance to a well-functioning marketplace to have various regimes unless it is absolutely necessary that it should be so. Customers are less and less interested in the specific supplier. They are interested in uniform rules and principles that they can understand. And whether or not you're in Union Gas' Submissions 49 (Pratte) franchise or Consumers' franchise, it would be nonsensical to have basic principles differ when you are purchasing energy from either supplier. The third point I want to make has to do with the premature nature of embarking immediately and, in the context of the specific Consumers' hearing on this, we're all still learning about PBR, as could not be more evident by the fact that Dr. Bauer is otherwise engaged in this building so as to sensitize us to what that regime entails. And as I understand it, the Board itself is mulling over what kind of policy it should have, and that will come out in due course. So in my respectful submission, the time line is not long to complete our understanding, but surely we should inform ourselves, a complete opportunity to have informed views before we embark on the kind of exercise Consumers advocates. I want to touch in that context, as well, on the issue of the lack of consensus which Dr. Bauer touches on in his Affidavit. It may well be that in a generic hearing there will be no consensus among the intervenors. But in the end, the Board will, in effect, issue a decision which will be a consensus-building exercise and which will enunciate a uniform view. In that context, everyone will have had their say who has a direct interest in that process. So it doesn't follow from the fact that all the parties or intervenors Submissions 50 (Pratte) may not agree when they go into the hearing that the result can't be a consensus-building exercise and a result with which everyone with can live with. We have had this every time we have had a hearing, basically. The last point I want to make before concluding has to do with prejudice. To a degree, Dr. Bauer alluded to this in his cross-examination when he was being cross-examined, but it is surprising to hear or at least from the tone of the Motion Record that was filed by Consumers, that we can anticipate how keen they are to proceed immediately, as if the regime we have lived under for decades is completely broken and must absolutely be thrown out today or next month. It's a sense of urgency which surely can't be warranted. There is no cost, at least that's identifiable, as Dr. Bauer has said, which could possibly warrant implementing the proposal of Consumers immediately rather than waiting a few months until we can have a proper generic hearing. So, in the end and to conclude, in my respectful submission, we are on the cusp of a new era. In the Year 2000, it's intended that both gas utilities and electric utilities be subject to some form of PBR. In that context, there is no possible doubt that all these utilities will be affected to a degree by PBR and what we are asking for is a forum on which the platform which needs to be constructed and will affect, to a degree, all of these utilities must be constructed. Submissions 51 (Pratte) As very significant potential beneficiaries from the introduction of PBR, IGUA - and it's interesting that it's not the only group of consumers, CAC is there, too - asks this Board to defer consideration of PBR to a forum where the generic issues can be addressed promptly and comprehensively once and for all. Those are my submissions on behalf of the Industrial Gas Users Association. Thank you, Madam Chair. THE PRESIDING MEMBER: Thank you, Mr. Pratte. How many others wish to speak in support of the motion. I think we'll take a short break before we hear those submissions. We'll be back, fifteen minutes. ---Recessed at 11:25 a.m. ---On resuming at 11:46 a.m. THE PRESIDING MEMBER: Please be seated. Mr. Brett? MR. BRETT: Thank you, Madam Chair. SUBMISSIONS BY MR. BRETT: I would like to speak in support of the motion and I would like to make six points. The first is that as we learned over the last couple of days here, PBR is a major change from cost of service regulation and it is complicated. There are many different varieties of it. You need to be concerned with inflation measures, measuring productivity. I'm told that when the CRTC first had their generic hearing on PBR, they spent several days simply Submissions 52 (Brett) trying to get at the appropriate productivity index to use. It wasn't an obvious or simple matter. There are Z-factors and off-ramps and the like and I think the Board's first task, as Mr. Bauer spoke of yesterday, was to decide in which circumstances PBR is appropriate. It may make more sense for certain parties than others, given the amount of information we have about those parties, the history of the regulation of those parties. We have three rather disparate groups. We have a pair of gas utilities with several years of cost of service regulation. We have a Servco on the electric side which has been unregulated for all practical purposes and we have a group of municipal utilities who have been regulated in a rather quick and dirty fashion, for want of a better way of putting it, by Ontario Hydro under the Power Corporation Act for many years. The amount of information that we have available on these various companies and their costs and the quality of that information as you know varies considerably. So I think that's the first issue that a generic hearing would need to look at. My second point, and I think it's closely related, is that there is no stakeholder consensus at the moment as to the best form of PBR should PBR be introduced for the group of companies. There are as you know a number of different types that were discussed over the last couple of days. There are revenue caps; there are Submissions 53 (Brett) price caps, there are bonusing plans; there are O&M incentive schemes; there are piecemeal schemes and general schemes. There's clearly at the moment no consensus among parties as to what would be best. My clients, for example, would very much want to see any kind of PBR plan that applied to the gas utilities, take account of capital costs, not simply O&M costs. That would be a fundamental precept at the beginning. It would need to be comprehensive and it's difficult in the context of a Consumers' proposal to really analyze a plan which deals with capital in a comprehensive way because theirs does not and what we're going to be met with is the practical necessity to examine their proposal and their plan and critique it and see whether it's right or wrong and that really isn't the question. The question is what are the various alternative plans, forms of PBR that might be applied to the gas utilities and what are the strengths and weaknesses of them. And then having decided on a general sort of plan that seems to make the most sense, then to ask the companies to come in with specific proposals that are tailored to those general principles. My third point really is that I think we should try and take maximum advantage of the Board's own work in this area. I mean, I think it's reasonably common knowledge that the Board is in the process of preparing a detailed paper on performance-based regulation, that they Submissions 54 (Brett) plan to have some sort of proceeding, some sort of at least discussions or workshops later on this year. It seems to me it just makes sense, given the complexity of it and given the range of potential plans to get that work under our belt first. And I would add I think that having done that though, it makes sense to go the next step to a generic hearing because I think it's only in a hearing that you get the kind of detailed examination of positions and scrutiny that you need to really settle on what is the best sort of plan for the gas and/or the electric transmission company and the electric distribution companies. My fourth point is that you have a precedent in the manner in which the CRTC looked at this issue. And Mr. Janigan alluded to this morning that you have a clear precedent -- when the CRTC began to exam performance-based rates in the telecommunications industry, they did it first by way of a generic hearing in 1994. And at that time they considered all of the possible alternative plans, and out of that hearing they decided that price caps would be the appropriate general form of performance-based plan to use. And having done that, they then called in subsequent proceedings for specific price cap proposals for each of the telco companies. So you have a clear example there of how that worked and I think they did it for the same sorts of reasons that you've heard from my colleagues here a few Submissions 55 (Brett) minutes ago. It just makes a lot of sense to start with a generic inquiry. My fifth point would be that you do have precedents of a sort here. I mean, you have the inquiries that dealt with DSM and dealt with system expansion. They had their strengths and their weaknesses but you've gone through that experience. You have the ability to craft some kind of a general proceeding that can build on those strengths but not necessarily take the same amount of time to complete. My sixth point - and I have seven points, rather than six - my sixth point is that I think there is validity to the proposition that's been stated by your Chairman and I think by the government, that to the extent possible and feasible there should be congruence between the regulation of gas and electric transportation companies. Now, granted we're only talking here about a portion of the cost and in the case of electricity by far the smallest portion of the cost of the delivered product. We're talking only about a part of the transportation of cost of gas because you don't regulate the pipelines, but nonetheless, within those constraints, you know it would be odd I think -- and I guess finally there would be -- the different industries are at different stages in terms of their regulatory history as I outlined at the beginning. It may not be possible to move into PBR in Submissions 56 (Brett) exactly the same way for each of those three segments, the two gas utilities, the municipals and Servco. There is a lot of merit to where possible trying to have principles of general application and, as an aside on that, I don't think we ought to confuse, I would suggest we not confuse the issue of a streamlined form of regulation for the distribution companies of some sort which is obviously necessary at the outset of the deregulated market in the Year 2000, with necessarily having to have a full PBR system with bells and whistles for those companies. It may be possible that we don't have the total cost history to do that but my point is that I think that issue needs to be examined. To the extent that it is feasible to apply some common principles across the board, it should be done. To the extent that one has to defer the application of principles to a particular sector for, you know, for practical reasons or for theoretical principled reasons, that could be done too. That can be the output of a generic hearing. And then finally, I think there are some purely practical considerations and these may go more to the scheduling of this particular proposal than to the issue of principle, but we've got a very heavy schedule in front of us. You have a very heavy schedule in front of you. We've been told informally that we should try and settle the Union case if possible. As you know, it's a massive case. It's larger than the Consumers case in Submissions 57 (Brett) terms of the evidence and the IRs. And the link I think here is it's not a good -- to do the Consumers -- to start doing PBR in a hurry by some sort of quasi-settlement conference and short hearing sandwiched in between other proceedings I don't think is the right way to start. I think it's an issue that, as my friends have mentioned there's no great prejudice here in the short run I don't think. Cost of service has been refined and it works for these companies. It has some liabilities that we're all aware of but it basically has worked reasonably well and so there isn't great, great urgency on the one hand. And on the other hand to try and do this quickly and sort of squeeze it in, I think would get us off on the wrong foot. Thank you very much. Those are my points. THE PRESIDING MEMBER: Thank you, Mr. Brett. Ms. Street? MS. STREET: Thank you, Madam Chair, Panel Members. SUBMISSIONS BY MS. STREET: The Alliance supports the motion which is before you for the reasons already given and I won't repeat them. The Alliance's only additional point is procedural only and that is a concern that the substance of the motion before you is, in fact, a reconsideration of your prior decision and that in asking for such a reconsideration the Board must have reference to its own Submissions 58 (Street) rules of procedure to assess when it is appropriate to do a reconsideration of that nature. You've already been referred to your prior decision in EBRO 495 and, in particular, to paragraphs 4.22.19 and .20 of that decision. I think that they were already reviewed by Mr. Warren and I won't read them again, but to paraphrase them, the Board concluded that it was not prepared at that time to approve the introduction of SSM. Secondly, that the forecasts that were the basis for SSM at that time were not considered sufficiently reliable. Thirdly, that the uncertainty of the long-term validity of the calculations was a concern and, as a result of those factors, the Board said that it was skeptical that the discussed savings would, in fact, be realized. In 4.2.20, the Board went on to say that: 'An incentive mechanism such as the SSM was premature at that time and said if and when a more general move is made toward performance-based regulation, such a mechanism may be part of that move but in the present regulatory framework the Board is not convinced that such a mechanism is required.' Now, in response to the Consumers application, the Alliance filed written interrogatory asking for the factual basis for Consumers' request that this Board reconsider its decision. The response was as follows and Submissions 59 (Street) this has been filed as Exhibit 1, tab 2, schedule 2. It said: 'The basis for the company bringing forward a proposal for a DSM shared savings mechanism "SSM" in its application is that it will be brought forward together with the company's proposal for a performance-based incentive mechanism for the operations and maintenance component for cost of service.' In its EBRO 495 decision - that's the decision I've just made reference to - the Board stated that: 'If and when a more general move is made towards performance-based regulation, such a mechanism may be part of that move.' It would appear that although the Board's prior decision I submit to you was talking about a general move in a broad context of all various aspects of the energy sector, Consumers is considering it to be a general move with respect to it alone is sufficient for it to bring it forward to you again. So I suggest to you that the company is, in effect, asking you to reconsider your prior decision. You are, of course, entitled to do that. Section 21.2 of the Statutory Powers and Procedure Act gives this Board the right to review all or a part of a prior decision provided that the Board's rules set out this right. So, in my submission, you must have reference to your rules of procedure which specifically deal with Submissions 60 (Street) reconsideration and those Rules are found in section 62 and 63 of your Rules. Rule 62.01 provides that a person may bring a motion to review, rehear, or rescind or vary an order. I don't believe that Consumers has brought any such motion. And secondly, Rule 63.01 sets out the grounds for such a motion and a review of the six grounds enumerated indicates in summary, in my submission, that the Board must be convinced there is a significant reason to review a decision. The enumerated grounds are: error of law or jurisdiction, error of fact, a change in circumstances, new facts that have arisen, facts that were not previously placed in evidence and could have been discovered by reasonable diligence, and finally an important matter of principle that has been raised by the Order of the Board Decision. So I suggest, in conclusion, that the response given by Consumers that it is entitled to have you review your prior ruling simply because SSM is part of an overall package, PBR package, in the operations and maintenance context of its operation, does not meet the test of establishing that there are significant reasons for you to go back and review your Decision at this time. Certainly as matters progress and as all of my friends who have spoken before me have referred to in the context of the restructuring and the paradigm shift, if I can borrow a phrase, eventually there will be a need to reconsider that prior Decision. Submissions 61 (Street) In the Alliance's submission, it is premature to do it at this time and the Board's own rules of procedure support that position. Those are my submissions, subject to any questions you might have. THE PRESIDING MEMBER: Thank you very much. Is there anyone else who wishes to speak in support? Mr. Scully? MR. SCULLY: Thank you, Madam Chairman. SUBMISSIONS BY MR. SCULLY: Our support might have been tempered by two items, one of which I have established through discussing the matter with Consumers Gas's counsel is toast, and that would have been if Consumers Gas could have brought to the table this morning some indication that they had digested the Board's Phase 1 decision and were in a position to indicate some range of possible consumer rate savings. I understand that unfortunately just isn't the case. The second one would lead us to, say, falter in our support of the full motion, and that is with respect to what the Board and Board Staff may intend to produce, if there is to be a reasonably definitive paper on the question of performance-based regulation, there's the possibility in our minds that that might provide enough of a context to get on with the Consumers' case. But subject to those qualifications, we would support the Motion for the reasons already advanced. Thank you. Submissions 62 (Scully) THE PRESIDING MEMBER: Thank you, Mr. Scully. Mr. Cass, are you going first? MR. MORRISON: Excuse me, if I may. THE PRESIDING MEMBER: Yes. Sorry, Mr. Morrison. SUBMISSIONS BY MR. MORRISON: MR. MORRISON: Madam Chairman, I would just like to say that OAFPA is also in support of the Motion. THE PRESIDING MEMBER: Okay. Thank you. MR. MORRISON: And my friends have eloquently stated the arguments. In that support, we agree with those and we won't take up the time of this Board in reiterating those at this time. Thank you. THE PRESIDING MEMBER: Thank you very much. MR. CASS: Madam Chair, if it suits the Board's pleasure, I would prefer to proceed now with my argument. THE PRESIDING MEMBER: I should just tell you, Mr. Cass, that I may be the only one here old enough to think this way, but a modest proposal means to me Jonathan Swift. [Laughter] MR. WARREN: That's exactly the way you should think about what they're doing, Madam Chairman. [Laughter] SUBMISSIONS BY MR. CASS: Madam Chair, I have quite a number of submissions to make in opposition to the Motion. And in an effort to keep my argument as coherent as possible and to proceed as quickly as possible, I will endeavour to gather them under a couple of headings. Submissions 63 (Cass) The first heading that I propose to address I will just call fairness, which I think is an important, if not the most important consideration on any request for an adjournment. And then I will group a number of my points under submissions which will essentially compare and contrast what the moving parties are proposing to you with what Consumers Gas is proposing to you. Before I come to those two areas, I would like to digress for a moment and just get a couple of things out of the way. As Mr. Warren has already done for me, I had intended to identify a brief that I have provided to all the participants and the Board. I think it's safe to say that for the purposes of my argument, all of my references will come either in from that brief or from Mr. Warren's Motion Record which, of course, was the very purpose for preparing the brief, in order to simplify the references. The second thing I wanted to talk about at the outset before I come to the main part of my argument is the shared savings mechanism. I have just listened to an argument on behalf of the Alliance to the effect that Consumers Gas is requesting a reconsideration of the EBRO 495 decision. Madam Chair, Consumers Gas is not requesting a reconsideration of the EBRO 495 decision in the sense that I understand counsel for the Alliance is using that word. Consumers Gas is not in any way asking this Board Submissions 64 (Cass) to re-open EBRO 495 and change the determination that it made for the test year under consideration in that decision. In my respectful submission, this is not a reconsideration of the 495 proceeding such as that contemplated in the Rules referred to by counsel for Alliance. Consumers Gas is putting to the Board or proposes to put to the Board an SSM mechanism. In my experience before the Board, it has been well established that the Board considers that one Panel is not fettered by the discretion of another Panel, so it can hear an issue that it has heard previously. That does not constitute a reconsideration or a re-opening of the previous case. It's a hearing on the facts and the test year of a new case. But in this circumstance, I don't think we're even talking about an issue of fettering of discretion because in the EBRO 495 decision, the Board explicitly contemplated that the SSM mechanism might come back again, and that, as has already been alluded to more than once, is in Paragraph 4.2.20 of the EBRO 495 decision. There, the Board said: 'In the present regulatory framework, the Board is not convinced that such a mechanism is required.' And just prior to those words, the Board said: 'Such a mechanism may be part of a move toward performance-based regulation.' Submissions 65 (Cass) So in summary on this point, Madam Chair, Consumers Gas has a proposal before the Board for a continued move to a different regulatory framework, and I emphasize the words "continued move" which I will come back to. In that context, Consumers Gas is very much in line with the comments made by the Board in the paragraph I have just referred to, that the SSM may be revisited under a different regulatory framework. Aside from that, Madam Chair, I don't intend to direct any more specific submissions to SSM. The balance of my submissions will be generally related to the issue of whether there should be a deferral or adjournment as requested by the moving parties. For present purposes, for today's purposes, I am prepared to accept what Dr. Bauer said, which is that PBR and SSM should be treated together. I am prepared to accept that because obviously my fundamental submission to the Board is that there should not be a deferral of anything, and that's what I will be focusing on. I will not direct any more specific comments to SSM than I have already. To come then, Madam Chair, to the first topic which I said I would address, and that is fairness. A reading of the company's evidence for the case that's before the Board I think makes it clear - and this has already been alluded to - that the company puts in front of the Board what has been called a step-wise approach or Submissions 66 (Cass) a continued step-wise approach to PBR. And, in fact, I submit to the Board that this step-wise approach is one that has already been embarked upon. As the Board is well aware, we already have a sharing mechanism for transactional services and we already have a formulaic approach to the determination of the appropriate return on common equity. And just in relation to the latter of those two, the formulaic approach to common equity return, at Tab 9 of the small brief that I prepared is an excerpt from the prefiled evidence in this case of Consumers Gas, and in the highlighted portion there, you will see the statement: 'The Board's adoption of a formulaic approach to determine the appropriate return on common equity for regulated utilities also reduces regulatory complexity and costs. At the time of introducing the formula, the Board noted its expectation that this methodology would generate benefits to the hearing process and attendant regulatory costs due to reduced time in the hearings and the elimination of the need for expert consultants, as well as that it may provide a first step towards formulaic ratemaking, such as incentive rates.' The submission of Consumers Gas then, Madam Chair, is that the targeted O&M incentive mechanism is the next step in a continued step-wise approach to a PBR regime. Submissions 67 (Cass) In fact, the submission of Consumers Gas which I will develop as I go along later in this argument is not only is it the next step, but it's the logical and timely next step for the Board to be taking. So at the conclusion of the hearing of the 497-01 proposal, Consumers Gas hopes that the Board will be persuaded to continue on this step-wise approach to PBR. Of course, during the process of the 497-01 proceeding, it is open to the intervenors to argue against the Consumers Gas proposal. It is open to the intervenors to call Dr. Bauer or any other witness to give the evidence he or she may see fit as to the steps which the Board should follow before proceeding further along the road to PBR. The important principle that I want to get across to the Board, Madam Chair, though, is that the Board should not reach a decision today to defer an application by Consumers Gas before there has been a hearing of that application in accordance with the Board's due processes. To defer the application, as requested by the moving parties, is essentially to prejudge the applicant's contention for a continued step-wise approach to PBR by deciding that we have to have an adjournment to a generic proceeding before we can go any further. The applicant puts before the Board a proposal to continue on a step-wise approach and, in my submission, the Board should hear that proposal before coming to a judgment that a generic hearing is preferable to the Submissions 68 (Cass) step-wise approach. To put it very simply, Madam Chair, deferral of the application as requested by the moving parties is denial. Deferral is denial because if the Board decides that there cannot be any more movement on PBR until there's a generic hearing, it will have denied the proposal by Consumers Gas that there be a continuation of the step-wise approach. And there's another reason, Madam Chair, why I say that deferral is denial. This is where I bring in the timelines for EBO 169 and EBO 188 that have already been referred to. These are at Tabs 10 and 11 -- I am sorry. These are at Tab 11 of the brief that I passed up. Madam Chair, one may quibble about what dates should be included in a timeline. One may quibble about the presentation at Tab 11. The simple fact is, Madam Chair, that in Ontario experience, generic hearings take time. They take considerable time. Based on the timeline for EBO 169, at Tab 11, we're looking at something in the order of seven years to get implementation into rates. The timeline for EBO 188 shows a number of years to get implementation in rates, and I point out that with respect to Union Gas, as far as I am aware, the implementation of EBO 188 in rates has not yet occurred. So the simple point is that notwithstanding the optimism of those who have argued ahead of me, experience tells us that generic proceedings take time. Submissions 69 (Cass) In fact, in that context, I was intrigued to hear Mr. Brett's comments which I took to mean that on the understanding that there is a paper to come from the Board, we can wait for that paper. On the understanding that the Board is going to have workshops, we can wait for those workshops. And then he said, and I am quoting from my notes of his argument: 'Then it makes sense to go to the next step to a generic hearing.' In my submission, Madam Chair, one need only think about that and about Ontario experience to know that if we have to wait for all of those things, by the time we could reasonably expect to see anything implemented in rates for Consumers Gas, we would have passed or, at the very least, come very close to the end of the time period for which Consumers Gas proposes its O&M mechanism. So it's for that reason, as well, Madam Chair, that I submit to you that deferral, as requested by the applicant, by the moving parties is essentially denial of the application. I should make clear to the Board, Madam Chair, that Consumers Gas does not accept the notion that is implicit in the moving parties' request for relief, that if the Board feels a generic proceeding is appropriate, the Board must defer the Consumers Gas proposal to such a proceeding. I will get into this more later, but my submission is that the Board may choose to allow the Submissions 70 (Cass) Consumers Gas application to proceed and, in fact, choose to allow the PBR proposal and hold a generic hearing or such other consultation process that the Board deems appropriate. Obviously, the moving parties don't see it this way. On the assumption that there will be a generic hearing, they say that the applicant's proposal must be deferred to that assumed proceeding. This does not leave the Board, the way the moving parties have framed their relief, with the option of continuing with the step-wise approach and proceeding with some other stakeholder process. We suggested that the Board has that option if it sees fit. The Board has the option of continuing on the step-wise approach which has already been started regardless of what other process it may see fit to follow. We say further that the Board should not close off the option of proceeding with the step-wise approach at the start of this hearing and thereby prejudge what Consumers Gas is asking for. On this basis alone, Madam Chair, I submit that the motion should be dismissed; that the Board, before it has put the Consumers Gas application through all the usual processes - ADR and, to the extent necessary, a hearing - it should not decide that a generic hearing is preferable to Consumers' submission for a step-wise approach. However, still on the theme of fairness, I ask Submissions 71 (Cass) the Board to consider just some of the history of the proposal by Consumers Gas for an O&M incentive mechanism. The application disclosing the intent of Consumers Gas to request this mechanism was filed with the Board and served in January of this year. I grant that it was clear that the O&M incentive mechanism was not to be dealt with until Phase 2. That's not in any way disputed; however, I suggest to you, Madam Chair and to the Board, that simple fairness would suggest that if any party intended to argue that the Board not proceed with the hearing of the O&M proposal, one would reasonably expect that to be raised sooner rather than later. Even more specifically, Madam Chair, I don't think it was any secret to any of the parties in this room that after the filing of the application in January, Consumers Gas was working to complete and file the prefiled evidence for Phase 2. If any party intended to suggest that the PBR mechanism should not even proceed in the usual way to a hearing, it's my submission that that should have been raised before Consumers Gas invested the time and effort in the research and writing that obviously went into the preparation and completion of that prefiled evidence. This was not done, Madam Chair. Indeed, on the contrary, and not only was there no indication during Phase 1 that intervenors were going to stand in the way of a hearing of the O&M proposal, if anything, they conducted themselves as if they fully expected that proposal to go Submissions 72 (Cass) before the Board. And in that regard, Madam Chair, I ask you to look at Tab 2 of the brief that I have passed up to you. This is an extract from submissions by Mr. Warren on Issues Day, which I believe was March the 12th of this year. In the highlighted portion of that page, you will see the following argument: 'Now, with respect to the O&M budget generally, this is a $281-million budget item and, as Mr. Poch has pointed out, it will be used as the base year for performance-based regulation. Now, I am a simple-minded thinker, but I would have thought that that is, in and of itself, sufficient reason to dictate that the Board itself explore on a line item basis the legitimacy, the rationale for every single penny in that budget if it is going to be the basis for performance-based regulation. I'm frankly astonished that Consumers Gas would take any other position. Perhaps Mr. Farrell won't in his response.' Similarly, Madam Chair, at Tab 3 of the brief is an extract from the final argument of OCAP in Phase 1. And at this point, I will only be referring to the first part of the highlighted portion of the extract. There, the argument is made: 'It should also be noted that it is Submissions 73 (Cass) particularly important to ensure that the 1999 O&M budget is no higher than necessary because the 1999 budget approved in this proceeding may well become a reference point for an incentive mechanism resulting from the company's Phase 2 applications. The company clearly has a strong incentive to establish as high an O&M budget as possible at this time in order to maximize the potential for reducing costs for the benefit of shareholders in future years.' Then just quickly at the next tab, Madam Chair, a similar point in the submissions of the CAC from Phase 1. 'CAC submits that the Board should recognize, in its assessment of the 1999 O&M level, that this case represents the base year for the proposal to implement performance-based regulation. The significance of this point is that Consumers this year, more than any other year, has an incentive to overstate its O&M forecast.' So, Madam Chair, when it served the purposes of certain parties in Phase 1 to rely upon the O&M incentive proposal, they did not hesitate to do so. They used it in support of submissions that the O&M budget should be closely scrutinized by the Board. They used it in support, as we saw on Issues Day, of the notion that there should be as much as a line item review of O&M. Submissions 74 (Cass) Now, once we have Phase 2 behind us, we hear an argument from parties that the Board should not even proceed to hear that same O&M proposal that in July they were relying on for the basis of their Phase 1 arguments. My simple point on fairness, Madam Chair, is that these parties have been aware of the Consumers proposal since January. They have been aware of the Union application since May. They relied on the existence of the Consumers proposal for their own purposes in Phase 1. And at this point, in September of this year, as we're about to or would otherwise be embarking on the hearing of the Consumers proposal, the Board, from a fairness point of view, should not be receptive to arguments that the Consumers Gas proposal be adjourned indefinitely. Having addressed those submissions on fairness, Madam Chair, I will now move to the second part of my argument where I propose to compare what the moving parties put before you by way of an alternative and what Consumers Gas has put before you. To begin with, Madam Chair, in my submission, the moving parties take far too much for granted in their motion. If one looks at the request for relief which is at the top of page 2 of the Notice of Motion - it's also page 2 in the Motion Record - we see what is being asked for here. To begin with, the request is that this proposal, this application be adjourned to a generic proceeding. We all know, Madam Chair, that no such generic proceeding Submissions 75 (Cass) exists. The moving parties are assuming the existence of a proceeding that does not exist. Mr. Warren was quite frank in his submissions in saying that they aren't even asking the Board to direct the establishment of that generic hearing. The relief requested by the moving parties fundamentally assumes something that does not exist and is not being requested. If I may, Madam Chair, I would like to just digress for a moment at this point, too. Before coming back to some of the assumption that are built into the Motion, I would just like to digress and point out, an adjournment often comes up because a party appears before a court or a tribunal and needs some time; needs some time to get a lawyer for, example. That's a very common context for an adjournment. Although this motion has been styled as an adjournment, Madam Chair, I suggest to you it's really much more than that. It's much more like a stay. It's not these parties coming here and saying, 'Put it off for a month or two weeks. That's the amount of time I need.' It's a request for an indefinite adjournment to a proceeding that does not exist. If the Board makes that adjournment and the proceeding never comes into existence, a perfectly proper and concrete application by Consumers Gas will be sent into an indefinite abeyance by an adjournment of the nature requested by the applicants. It's like a stay and although it's been framed as Submissions 76 (Cass) an adjournment I think that the Board should approach it as if the applicants are requesting a stay. In my submission, the appropriate way to proceed would be if there was some sort of generic proceeding, at that time to bring a motion for an adjournment to the proceeding. In my submission, it's not appropriate to suggest that an applicant has to stand by and have its application adjourned to something that doesn't exist and that the moving parties are not requesting the Board to direct. With that little digression, Madam Chair, I'd just want to come back and talk some more about the assumptions built into the motion. In Dr. Bauer's affidavit in the motion record - and I don't know that you need to turn it up. Mr. Warren has already gone through it - but he talks about advantages of a generic approach. What strikes one though when one thinks about it, Madam Chair, is that when he talks about these advantages of a generic approach, he's making assumptions about what the Board would look at if it had a generic proceeding. These are all assumptions on Dr. Bauer's part that the Board would look at these things, so not only does the motion assume a generic proceeding that doesn't exist, it assumes to some extent at least how that generic proceeding would be structured by the Board. And the next assumption which has already been alluded to and this also is from the top of page 2 of the motion record that I was referring the Board to is that Submissions 77 (Cass) this generic proceeding would involve not only the natural gas but the electric utilities. I was going to take the Board to the reference from Mr. Laughren's comments that there are something like 270 of these electric utilities but I don't think that's necessary. It's already been alluded to and I don't suppose that anybody disputes it. So another assumption built into the motion is that not only would there be a generic hearing structured in a way to address the things Dr. Bauer is assuming it will but that generic hearing will sweep in some 270 electric utilities who, by the way, are not here today expressing their opinion as to this approach being suggested by the moving parties. And, finally, another very important assumption in the motion and it came up repeatedly in arguments is that a generic hearing would be the more efficient way to proceed and that assumption is laid out quite specifically again in the Notice of Motion, paragraph F of the grounds for the motion, very specifically sets out this assumption that a generic hearing would be more efficient. I'll come back to this efficiency issue but just to sum up, in my submission, the motion takes far too much for granted. It assumes a proceeding that doesn't exist, assumes the format and structure of that proceeding, assumes the participation of all these electric utilities, and assumes that this is going to be more efficient than the proposal put forward by Consumers Gas. Submissions 78 (Cass) And just to come right back to efficiency, I asked the Board to visualize, if it would, this proceeding. We would surely have the gas utilities and the usual large group of participants in the cases of the gas utilities. We would have something like 270 electrical utilities and the group of intervenors that they might attract. Mr. Laughren's comments at page 39 of the record - I don't know whether you need to turn it up - but very explicitly reveal the Board's expectation that PBR will apply to electricity transmitters as well as distributors. That's in the middle of page 39. Mr. Laughren has quoted -- the record shows him as saying: 'You can have abuse of market power, not just at the generation end of the spectrum, but also in the distribution and transmission end. So we'll be setting up performance-based regulation for that.' So it's clear that this performance-based regulation is not just the 270 electric utilities, it includes the other parts of the electricity business as well and the proceeding would necessarily involve the intervenors that they would attract. And on top of all those parties, there's no telling, Madam Chair, what other parties might want to come forward because this would be a generic hearing addressing fundamental rate-setting principles for both gas and electric utilities. I suggest to the Board that one need only think Submissions 79 (Cass) about this, try to visualize it. There would be a serious challenge to keep this proposed - I shouldn't even say proposed - to keep this assumed generic hearing within manageable proportions. Efficiency is far from the first word that would come to mind in trying to look forward to the operation of this generic hearing. Dr. Bauer in his affidavit in paragraph 9 talked about as we know some of the disadvantages of a generic hearing. And in paragraph 9B, he alluded to the possibility that a generic hearing may degenerate into a prolonged debate about fundamental issues. I suggest, Madam Chair, that to the extent that we have experience in Ontario to go by and we do have experience with generic proceedings, that experience has shown Dr. Bauer's concern to be very much a real one, that even without the complexity of the large group that I've described that would be thrown together for this generic hearing, there has been an experience in Ontario that these tend to generate into prolonged debates. Another point made by Dr. Bauer is that the generic hearing would be a failure if minimal consensus could not be reached. That's paragraph 9C. Again Ontario experience, if it tells us anything, tells us that consensus is difficult to achieve in generic proceedings. From the experience we have here in Ontario, we know that ADR is relatively successful in rates cases and in matters involving concrete applications before the Board but consensus is much more difficult when Submissions 80 (Cass) you bring parties forward in a context where they believe they are fighting over principles. It is very difficult I submit - experience tells us - to get parties to reach consensus when they believe that principles are at stake. And then the further point about the efficiency issue is that Ontario experience also tells us that even when issues are determined generically the parties will return to those issues in the next concrete case before the Board where they can put them forward on concrete facts, so, for example, we went through a lengthy process in EBO 188 where consensus was very difficult to achieve, if any was ever achieved - it may depend on one's interpretation of the result and when I say if any was ever achieved I mean prior to the Board's decision of course, the Board's report - but we went through that lengthy process in EBO 188 where consensus was very elusive and, of course, in phase one of this very case, EBO 188 issues were revisited. I don't say there was anything wrong with that but it, in my submission, runs completely contrary to any suggestion that a generic proceeding is an efficient or a more efficient way to proceed. Mr. Warren has already on my behalf referred to the excerpts at the brief dealing with experience in B.C. and at the NEB, so I don't want to repeat things on the record by taking you back to that and reading the extracts I had intended to. They are highlighted and Mr. Warren Submissions 81 (Cass) has taken you to the B.C. example. Suffice it to say that the step-wise approach has been followed in B.C. according to the prefiled evidence in this case and a generic hearing has not been necessary. In the NEB example there was some sort of consultative process but a generic hearing was not necessary. Now, Mr. Janigan talked a bit about what has happened at the CRTC and he has me at a disadvantage there. I don't have anything on the record that I can point the Board to in respect of the CRTC but his comments with respect to the CRTC have I think removed an apprehension I had about referring the Board to what's happened in Quebec. Mr. Janigan has referred to matters of record before another tribunal. I think in like manner I can refer to Board to matters of record in Quebec. It's my understanding in Quebec that both GMI and Gazifere have PBR proposals as a matter of public record, that the Board is proceeding with those in the individual cases although my understanding is that the Board intends to proceed with GMI first. There's no generic hearing in Quebec that I'm aware of. Also while I'm addressing Mr. Janigan's comments, and this applies to other counsel as well, I couldn't help but notice that counsel are quite well-versed in what is happening with respect to PBR in different places. So insofar as this scare tactic about the learning curve is concerned, I submit to the Board that you can take great comfort that parties are well up the learning curve, not Submissions 82 (Cass) only as a result of what the Board has done in the last couple of days, but as a result of what the Board has heard from submissions that counsel are very much up the learning curve on PBR. So we say that to keep the PBR ball rolling, Madam Chair, the next logical step is a mechanism in relation to O&M. In an attempt to anticipate my argument, Mr. Warren and others as well repeatedly suggested that I was going to argue to you that it's a modest step. The word "modest" was not one that I ever intended to use before the Board until these submissions were made and I've now obviously used it. The submission that I intended to make to the Board, Madam Chair, is that the next step to PBR proposed by Consumers Gas, the O&M incentive mechanism is a logical and a timely move at this time and not at some time three or five years from now when we have a generic hearing concluded. The groundwork has been laid for this step because O&M was looked at carefully in EBRO 495. I believe it was something in the order of three hearing days in that case. It was looked at even more carefully in Phase 1 of this case this year. I think it was something in the order of five hearing days on O&M. Parties have had a very close look at O&M in two successive cases and the timing is right, if there's going to be a continued movement to PBR, to use O&M as the vehicle for that next step. Submissions 83 (Cass) Also if one looks at how O&M was addressed in Phase 1 of this case, one will see that in the process we're already incorporating the very types of concepts that are inherent in the Consumers Gas proposal and for this purpose I would take the Board back to the same extract from the OCAP submissions from Phase 1 in the brief at tab 3. I referred the Board previously to the first paragraph of that abstract and I'll now take the Board to the second paragraph: 'OCAP therefore submits that using the envelope basis, the company's O&M expenses should increase by no more than the rate of inflation plus one half of the rate of customer growth. OCAP considers that one half of the rate of customer growth provides reasonable recognition of the natural productivity gains that result from the economies of scale benefits when a natural monopoly grows combined with a reasonable level of productivity gains in the company. It is therefore proposed that the O&M budget for 1999 should increase by more than 3.9 per cent over the Board-approved 1998 budget.' Similarly, Madam Chair, in my submission, the Board's own decision on O&M is very much in line with the type of proposal that is before you in EBRO 497-01. And for that purpose I've included an extract at tab 5 of the brief from the Board's decision and I've Submissions 84 (Cass) highlighted a portion of that extract at page 37. At page 37 it is stated in the highlighted portion: 'For the purposes of this calculation the Board begins from the 1998 approved O&M budget of $250-million. To the base amount the Board adds an amount to reflect the costs related to customer additions for the test year. An amount for inflation at the agreed upon rate of 1.9 per cent. From the resulting total of $259.7-million, the Board's subtracts an amount to reflect productivity improvements.' And then further down in the same paragraph: 'For the purpose of setting rates in the test year, the Board deems a $1-million reduction in the base of amount for productivity savings. The basic expenditures budget for 1999 is therefore 258.7-million.' And then the Board goes on to discuss some adjustments which for simplicity I would just call special or one-time adjustments. So then, Madam Chair, at tab 6 of the brief is an extract directly from the Consumers Gas evidence with respect to the nature of the targeted PBR formula: 'A general form of the proposed O&M PBR formula is as follows: Test year O&M equals base year O&M times a formula which takes into customer growth and productivity and then inflation and Submissions 85 (Cass) then Z-factors.' And Z-factors are exogenous cost offsets. So in my submission, Madam Chair, the Board has started on the step-wise approach to PBR. In light of what happened in Phase 1 of this case, a very logical and timely next step towards PBR is an O&M mechanism. The time is ripe with the experience and the knowledge gained in the last two rate cases but particularly Phase 1 of this case with respect to the company's O&M budget. In fact, Madam Chair, I submit to the Board it would be a backward step at this point in time to say that rather than going ahead and building on where we have reached with EBRO 497, Phase 1, that now we have to stop before we can go any further or even consider, even consider going any further with PBR and hold a generic hearing together with a large group of electric utilities that have never previously been regulated by the Board. And in that context, Madam Chair, I would like to ask the Board to think about where the electricity - electric utilities are right now in the scheme of all these things. And for that purpose, I think we can refer usefully to Mr. Laughren's comments and specifically at page 40 of the Motion Record. I think it would be the third paragraph on page 40 of the Motion Record, Mr. Laughren is shown as having said the following: 'All the municipal electric utilities are going Submissions 86 (Cass) to be licensed. In order to be licensed, they will, as a condition of the licence, have to determine what their business activities are and tell us. They will have to determine what their geographic service is.' If I can stop quoting at this point, Madam Chair. In other words, the electric utilities are still at the point, if they have even reached it, of making some very fundamental determinations, such as the nature of their business activities and the scope of their service areas. And then to go on: 'They will have to prepare a cost of service study.' Departing from the quote once again, Madam Chair. In other words, it will be necessary in the case of the electricity utilities for the Board to be sure that it has the right starting point for a PBR regime. And carrying on: 'Their rates will have to be approved by the Ontario Energy Board. They must separate their monopoly services from their competitive services; in other words, the wires from other aspects of their business.' And so on. And then further down on the same page, Madam Chair, it would be... I think about the eight paragraph, in the last line Mr. Laughren is saying: 'We have to develop the rates for Servco. They're going to need to know their rates for Submissions 87 (Cass) rating purposes by the bond rating agencies, those wonderful folks, as I recall, and the rates for Genco, as well.' Well, one would assume, Madam Chair, that those rates will be relevant to rate-setting for the electric utilities. In my submission, Madam Chair, the electric utilities have a long, long way to go insofar as rate-setting is concerned. And as I have already said, it would be a step from the wrong direction to say that a specific targeted O&M mechanism for Consumers Gas cannot even by considered by the Board, should be prejudged by way of an adjournment until there has been a generic hearing with the electric utilities. The other point that I want to make in looking at what the moving parties are proposing is what I will call for lack of a better word, Madam Chair, a disconnect in the position that is being presented to you. As we all know, the Board is giving more and more consideration to PBR issues. That has been alluded to today. Mr. Laughren has made comments about, if I can call it the importance of PBR, and that also is on page 40 of the Motion Record at the top of the page. There, it is said: 'I want to say a word about, I keep using the term "performance-based regulation". What we really mean is that rather than setting rates based on costs to the utilities and so forth, we will say to the utilities, 'You can have some Submissions 88 (Cass) flexibility, but you must achieve certain performance levels and standards,' and if you do that, okay, you're fine, and the Board will monitor that. It's incentive-based, so that they have incentives to provide quality service and reasonable prices, as well. It will mean fewer hearings; no question about that. Can you imagine us holding hearings on 270 some municipal electric utility licences? I know we couldn't handle it.' This is emphasizing I think, Madam Chair, very strongly the importance of getting on to PBR. And, indeed, on the previous page, page 39 - I don't know that I need to read it - but the second-last paragraph, Mr. Laughren makes the point that: 'The Board is shifting from a very prescriptive regulatory process to a much more flexible one.' That's in the second-last paragraph on page 39. So I think it's clear that as a matter of Board policy, the Board has a very high level of interest in getting on with PBR. But the disconnect that I am describing to you is that this high level of interest is being turned around, being flipped around somehow as an argument that the Board should defer indefinitely specific, logical, well-timed PBR proposal sitting in front of the Board. In my submission, it's not a logical argument. Now, the comments that I just quoted from Mr. Submissions 89 (Cass) Laughren I think could be characterized as a concern about regulatory burden; his comments about not being able to handle the 270-some hearings for municipal electric utilities. In my submission, if the Board compares regulatory burden insofar as the proposal for a generic hearing is concerned, bearing in mind the history we have had in this province with generic hearings and the scope of the hearing that is being assumed, in fact, the regulatory burden argument tends to suggest that now is not the time for the Board to be embarking on what would be a very ambitious and very all-encompassing proceeding. However, I say again that Consumers Gas is not submitting that the Board cannot have a generic hearing together with the Consumers Gas PBR proposal. And it's in that context that I included in the brief an excerpt from the Consumers Gas prefiled evidence dealing with off ramps. Again, Mr. Warren has already referred to this in advance of my argument, but the extract simply describes what off ramps are. 'They are extraordinary events and certain conditions or cost increases... ' Skipping ahead: '...that would trigger a mid-period review process involving the utility, the regulator, and the interested parties.' If it was thought to be necessary, if there was Submissions 90 (Cass) actually a generic hearing rather than an assumed proceeding, an off ramp could be structured from the Consumers Gas PBR proposal so that it would be triggered in the event that a generic hearing resulted in some comprehensive PBR formula. But I think that gets beyond the fundamental point, Madam Chair. The fundamental point is we shouldn't be discussing that today in advance of a fall process with respect to the Consumers Gas proposal. That is something that should be dealt with in due course in the proposal, in the Board's handling of the proposal before it by Consumers Gas. We shouldn't be assuming today what the off ramps might or might not be. Again, that is prejudging the case before the Board has even fully heard it. The point for today, Madam Chair, in my submission, is that Consumers Gas is not saying that its proposal is an either/or proposition in relation to a generic hearing or in relation to any consultative process the Board might want to embark upon. The Consumers proposal, by its very nature, is flexible and can accommodate and work in conjunction with whatever process the Board deems appropriate. I had wanted to refer to one other extract from Mr. Laughren's comments, Madam Chair, still at page 40, and it's a brief one. Just a little more than halfway down the page, there are two paragraphs, one starting with the word Submissions 91 (Cass) "first" and one starting with the word "second". And in the second of those two, he says: 'Second, and this is an important challenge, as well. We have to manage all this change and the growth in the Board with an aggressive implementation timeline, much more aggressive than any other jurisdiction we know. We're being asked to do this very quickly.' In my submission, Madam Chair, that is reflective of government policy and I think also Board policy to get on very quickly with the challenges that the Board is facing because of its new role. Mr. Warren, I think, seemed to accept that in his argument because I understood him to be arguing that there is an urgency to dealing with PBR. Obviously, where I part company with Mr. Warren is in the notion that a generic proceeding is the way to deal with a matter of urgency. So in conclusion, Madam Chair, the Board should not decide in favour of a generic hearing before it has dealt fully with the Consumers Gas proposal for a continued step-wise approach. The Consumers Gas proposal for an O&M incentive mechanism is logical and timely and preferable to a generic hearing; however, these are not mutually exclusive options. There is no reason why the Board could not go so far as to allow the Consumers Gas proposal and maintain the flexibility to proceed in due course with a generic Submissions 92 (Cass) hearing or some other process. A continued move towards PBR is in the public interest. It has distinct advantages for the Board. It has advantages in relation to the objectives of the province, as Mr. Laughren has talked about, and it advances stakeholder interest. Mr. Pratte said here today IGUA members believe they stand to benefit from PBR. This is in the public interest. One might go so far as to say that maintaining the momentum that has been developed towards a PBR regime is not just necessary; it's desirable at this point in time -- I'm sorry -- it's not just desirable, but necessary at this point this time, given the challenges that the Board has to face with. The Consumers Gas proposal allows the Board to move the PBR agenda forward in a logical, manageable way. It is not logical to require the gas side of the Board's regulatory responsibilities to be held up while the electricity side catches up from a long, long way back. On the contrary, it is much more logical to think that if the gas side is allowed to continue with its progression towards PBR, this will only help the Board in its job of quickly coming to grips with the task of regulating these electric utilities. The experience that the Board has built up with the gas utilities will undoubtedly be valuable to it in regulating electric utilities. I think Mr. Laughren even Submissions 93 (Cass) refers to that. Continued experience with PBR can do nothing but continue to help the Board in this task of quickly coming to grips with regulation of electric utilities, and deferring a concrete, specific PBR proposal now before the Board will not accomplish that, at all. So in conclusion, Madam Chair, as you will have divined from my argument, the Consumers Gas Company submits that the Motion should be dismissed. Thank you. THE PRESIDING MEMBER: Thank you, Mr. Cass. I think we will take our lunch break. Now, how much people wish to speak in opposition? MR. PENNY: Madam Chair, Michael Penny representing Union Gas. Madam Chair, my client has another matter underway right now which is calling for my attention and it may be that I will not be able to return after lunch. And if that does happen, may I simply say at this -- if I am able to, I will have probably 10 minutes' worth of submissions. And if I'm not able to, may I simply say to the Board, in brief, that we agree with everything that Mr. Cass has said and agree that the Motion should be dismissed. THE PRESIDING MEMBER: Would you like to go ahead now, Mr. Penny? MR. PENNY: I would be happy to do that, Madam Chair. I don't believe I would be more than five or ten minutes. THE PRESIDING MEMBER: All right. We could do Submissions 94 (Penny) that. MR. PENNY: Thank you. SUBMISSIONS BY MR. PENNY: Madam Chair, Union is opposed to the Motion for two reasons. First, the need for a generic hearing, in our submission, simply has not been established. And, second, the use of a generic hearing will only add to the cost of and delay moving to more efficient and beneficial methods of regulation of natural gas. As to the need for a generic hearing, in my submission, it has simply not been established through the evidence that the achievement of any of the objectives that are listed in Dr. Bauer's Affidavit require a generic hearing to be achieved. In Consumers' case, the PBR proposal is restricted to the company's operations and maintenance expense. The Board is not being asked to forego traditional rate base cost of service regulation. The Consumers proposal is within the ambit of current legislation and does not depend upon Bill 35 for its implementation. In Union's case, there is, as yet, no proposal that is being worked on now. Union has filed evidence in its pending rate case at Exhibit J2.43 that it intends to take its proposal, once developed, and to have extensive consultations and negotiations with all stakeholders and to ensure acceptance and alignment of interests concerning Submissions 95 (Penny) the proposal before that proposal is ever brought forward for regulatory approval. So concerns, in my submission, about developing an understanding and a consensus can and, in my submission, will be met through consultation without the need for a generic hearing. The underlying assumption on the Motion is that an overall understanding of PBR will be enhanced by a generic hearing. Union does not necessarily agree with that assumption. In our experience, generic hearings more often than not do not enhance real understanding or create benefits precisely because they are detached from practical realities and the realities of application. The better way, it seems to Union, is to proceed incrementally as Consumers has done. In the context of Consumers' proposal, the Board will have the opportunity not only to consider the underlying objectives and principles, but also their practical application. It will have the opportunity to see a PBR mechanism in action. If and when Union comes forward with a proposal, the Board will have the benefit of its prior consideration in the Consumers case and will, of course, remain in a position to consider whatever matters of principle, experience or constraint it feels are necessary to bring about its mandate for just and reasonable rates. There are other ways, in my submission, to become Submissions 96 (Penny) educated in the fundamentals of PBR and to ensure a reasonable level of consistency. This includes workshops, seminars, research studies and the like. Dr. Bauer does not say and it is obviously not the case that a generic hearing is the only or even the best way to achieve all of his stated understandings and objectives about PBR. Indeed, as the Board knows, the very man who has sworn the Affidavit in support of this Motion, Dr. Bauer, has just been here, meeting with the Board and other parties to instruct and advise on PBR. So there is living proof that the groundwork and the fundamentals can be reviewed and determined by means other than public hearings. And, indeed, in our submission, the history, the instruction of history is that public hearings are not necessarily the best way to bring about those fundamental understandings and consensuses. PBR has been implemented in other contexts without a generic hearing and, indeed, other even more serious and significant matters have been dealt with by this Board without generic hearings. Union, for example, and now Consumers are dealing with the separation of ancillary business. In Union's case, 15 per cent of its undertaking, a $500-million business, was dealt with by this Board without the need for generic consideration of issues surrounding ancillary business, fully allocated costs, and the principles and Submissions 97 (Penny) standards for the separation of those ancillary businesses. The Board was able to do a perfectly adequate job with the case it had at hand. One of the grounds cited in support of a generic hearing is the avoidance of mistakes, and Dr. Bauer cites an example from the FCC where they got the productivity input wrong and it had to be readjusted later. But there's no evidence, and Dr. Bauer doesn't even suggest that any generic review of the matter would have resulted in the prior identification of that specific flaw, in the specific input that led to the problem. Indeed, in my submission, an incremental learn-by-doing approach, such as the one that you have today in Consumers' case, is far more likely to result in the identification and remediation of problems of this kind than a generic hearing about standardization of PBR models. Now, on the question of delay and cost, Dr. Bauer has himself conceded that a generic hearing results in high up-front costs which may not be recaptured. Generic hearings may and, in fact, do degenerate into prolonged debates about fundamental issues with little tangible content or consensus on outcome. We know this because it has happened before. The moving parties rely in part on the changes to the electricity market and their desire for consistency. Now, whatever may be the merits of that kind of convergence, the two industries are currently very Submissions 98 (Penny) different and, more importantly, are at very different stages of their evolution. For example, in the gas market, the commodity has been deregulated now for 13 years. That is just beginning in the electricity market. It would not be in anyone's interests, I submit, to hold up the evolution of more efficient and beneficial regulation of natural gas because the electricity market is at a much earlier stage of its evolution. The essential problem, in my submission, with a generic hearing is that it duplicates the regulatory process. You have the generic hearing or the generic inquiry and then you still have to have another hearing for each utility to deal with the specific application in which all of the issues get raised again. It is wrong, in my submission, for the moving parties to talk about an adjournment of Consumers' or Union's application to a generic hearing. That's not how it works. It will not be adjourned to; it will obviously be adjourned until after. In our submission, this duplication is unnecessary and the need for this type of bifurcated process in this case has simply not been demonstrated. So in summary, Madam Chairman, I urge you not to succumb to the superficial and, in my submission, illusory comfort that the offer of a generic hearing presents. Generic hearings are costly and will delay a more effective pragmatic and incremental introduction of Submissions 99 (Penny) alternate modes of regulation. These proposal will not be final. They will not be written in stone. The Board and all stakeholders will have a full and complete opportunity to consider the implications at both a theoretical and a practical level, whatever the means adopted. The Motion calls for a process that is unnecessary, burdensome and costly. I therefore submit that it should be dismissed. Thank you, Madam Chair. THE PRESIDING MEMBER: Thank you, Mr. Penny. ---Off the record discussion. THE PRESIDING MEMBER: Mr. Penny, if you're not coming back after the break, is there going to be someone here from Union to address the scheduling issue which we're going to try and deal with this afternoon? MR. PENNY: Mr. Bryan will stay. THE PRESIDING MEMBER: Thank you very much. Can I just see who else will be wanting to speak in opposition to the Motion after lunch? Mr. Mattson. MR. POCH: I will be in opposition to the Motion, Madam Chair. THE PRESIDING MEMBER: Mr. Poch, Mr. Klippenstein. Anyone else, just so we have an idea of how we're going on here? ---(No verbal response) THE PRESIDING MEMBER: All right. We will take our lunch break. We will resume at quarter past two. ---Luncheon recess at 1:16 p.m. Submissions 100 (Poch) ---On resuming at 2:21 p.m. THE PRESIDING MEMBER: Please be seated. Any preliminary matters? MR. McCANN: I don't believe so, Madam Chair. THE PRESIDING MEMBER: Mr. Poch? MR. POCH: Thank you, Madam Chair. SUBMISSIONS BY MR. POCH: I'll try to limit my comments to the SSM matter. Of course there is an interconnection which I'll deal with. I sit here feeling that the fate of SSM as an issue on the Issues List in this proceeding is somehow just being drawn along on the coattails of the PBR issue and I'll be suggesting that may not be appropriate although I have some sympathy for Mr. Cass' arguments that the delay inherent in a generic hearing for PBR alone is problematic. He didn't feel the need to distinguish the SSM issue from the PBR issue because his primary argument on PBR and the delay encompasses that, but I will make that distinction. First some background on the SSM issue: It first arose in the context of the 169-3 report in 1993 and the Board at that time said at paragraph 10.3.2, I quote: 'The Board realizes that since the Ontario gas utilities are privately owned, it is not reasonable to expect that they should be driven by altruism.' The Board did not go for SSM at that time but did endorse Submissions 101 (Poch) the approach of shared savings and suggested it would be up to the utilities to come back in the context of rate cases if they wanted to obtain an SSM. The other thing I think that's worth noting about 169 while we're there is, that throughout that report, and I think we've heard it today from counsel for Union, we hear the phrase 'learn by doing'. Perhaps there was some wisdom there that we might want to import into the discussion of PBR today. In any event, the matter proceeded in May '95 in the 490 case. In the ADR, Consumers Gas agreed to bring forward an SSM and LRAM proposal in the next rates case. Consequently, there was nothing for the Board to consider in that rates case. And in 492 then, they brought forward a proposal. All parties agreed that it was an issue to go, properly that the Board ought to hear in that rate case; however, in the triage that the Board engages in managing the Issues List, it didn't make it on to the Issues List in that year. Consequently, it was in '97 in 495, after Consumers Gas had engaged in an extensive consultation with the interested parties that they brought forward SSM and LRAM proposals and it was only then that they first were heard by the Board. And I observe that my friend Mr. Warren for CAC at that time supported the SSM both in the ADR and in his final argument. The Board, as you'll be aware, of course, endorsed the LRAM aspect. It declined to put in place an Submissions 102 (Poch) SSM noting some specific problems with the proposal that was before it at that time. I think the Board focused specifically on the very long 30-year period for benefits that were being considered and that was too unreliable in the Board's view. And the Board, as we've heard, noted its preference that consideration of SSM occur in future along with the consideration of PBR, which at that point, I guess, was on the radar screen. And it's that finding my friends have pointed to, to argue that we must now defer SSM in this hearing along with PBR if they're successful in their motion to some generic process. However, going back to 169 at paragraph 10.3.6, the Board specifically -- it was there that the Board made the finding that if SSM should be brought forward, it should be brought forward, and I quote, "in the context of a rates case", and that this would require a concurrent assessment of the need for penalties. The Board in 169 in a generic proceeding said, we don't want to deal with this now. We want to deal with it with specifics in the context of a rates case. I sometimes get the feeling I'm never in the right hearing room. It reminds me of my days trying to battle Ontario Hydro when we often had that problem. The Alliance also today argued -- made a more technical argument that what's being called for here is somehow a reconsideration. I think Mister -- I'll simply adopt Mr. Cass' argument. This is not a reconsideration contrary -- without a motion contrary to the rules for the Submissions 103 (Poch) reasons that Mr. Cass put. Well, moreover, it's somewhat ironic because here we have a situation where the Alliance has not brought a motion to vary your decision in this proceeding that SSM be on the Issues List and they didn't give notice, as my friends did here, of their intent to bring a motion at that time and reserve the matter. So if we're going to get technical, I sling a little of that back, but I think rather than engage in that, I'll address the more substantive point, which is the Board's earlier stated preference, that there is some -- the Board saw some advantage in dealing with SSM in the context of PBR. First of all, I think to deal with that, I want to point to some facts and some evidence that have arisen post-495 when the Board made that observation. And at the same time, I think I'll try to answer Mr. Warren's question where he said: What's the value in dealing with the SSM now if it may need to be reconsidered somewhat - or at least kept in mind I think was the thrust of Dr. Bauer's point today - later should we go to a consideration of broad PBR? I think the first point is, at the time of 495, I think with all due respect to the Board, all of us were in a bit less educated position with respect to PBR mechanisms - what's in, what's out and the relationship to SSM. And I think that we've all been subject to an education process since then and I think that the distinctions are a little clearer and Dr. Bauer elaborated Submissions 104 (Poch) on that today. The severability to some extent of SSM from PBR although not so with LRAM, but LRAM is not an issue here. Second, we've seen a continued underachieving of DSM forecasts by Consumers Gas. This is a great concern to my client for I haven't bothered to dig up references for that, but I would just point the Board to Mr. Neme's evidence in phase 1, which is Exhibit L11.1, where he summarizes that at the beginning of his evidence. We have the publication of Bill 35, where I think clearer than ever before, the Board is -- the writing is on the wall. The Board is being given a pro-efficiency objective. Indeed it is section 2 of the Act under Board Objectives, Gas, item 5, 'to facilitate opportunities for energy efficiency consistent with the policies of the Ontario Government', a very clear indication that the government places a high value on this aspect of the Board's work. Whether or not that's passed in law, I think it's certainly a statement of government policy. Fourth, and this is really in answer to Mr. Warren's inquiry, what's the problem with delaying given that there might be some slight potential for having to revisit the matter. The GEC in phase 1 of this proceeding filed Mr. Neme's evidence, L11.1, and you'll recall he looked at just a few measures in the DSM program, the ones that were lost opportunity situations, and found that there were some 60-million cubic metres per year of economic potential there that was not being harvested. Submissions 105 (Poch) Now, if SSM doesn't work, it won't have cost customers anything. Indeed, if there's a penalty structure involved, they might reap some benefit at the company's expense. I think the expectation is, of course, if SSM is approved, it's because the Board will have been persuaded that they can have some confidence that it will improve things. We will capture some of that potential. Remember that 60-million cubic metres per year was only in the few measures he considered. So there's some larger number of potential out there, some proportion of which we might be able to capture and we're talking significant sums of money associated with that. Leaving aside the environmental benefits which are the primary motivation of my client, just from the customer's narrower pecuniary perspective, Consumers has put a price on itself. I recall a number something like $25-million in TRC benefits, not SCT, TRC benefits, from its program and we're talking about enhancing that by some percentage. So we're talking about millions of dollars of benefits that we might be able to harvest for customers over the next few years if we can put in place an SSM that has some effect. And I note, before I leave Mr. Neme's evidence, that the Board's observation about it appears at paragraph 3.5.8 in its recent phase 1 decision: 'The Board finds the evidence tendered by GEC that there are untapped potential DSM savings which may be achieved by the company through more Submissions 106 (Poch) effective screening techniques to be sound and convincing.' Well, that focused on the -- on, of course, through more effective screening techniques, but I would suggest SSM is yet another tool. Now, of course, the Board went on to say, in the context we find ourself in of changing regulatory context-changing policy context, the Board is hesitant to start tinkering with the minutiae of a DSM program and budget at this time and I have some sympathy for that position. So it seems to -- what this suggests is, SSM may be the perfect solution and timely solution to this dilemma, not wanting to spend the time given the Board's regulatory burden right now delving into program specifics to try to tweak DSM that way, a simple possibility at least that we would ask there be of a discussion of for a simple technique to try to harvest some of those savings, a simple, and I would suggest, a flexible technique. The alternative is, we fear, stagnation of the DSM program while we await some generic proceeding, at which point we'll be able to bring on SSM or maybe go back and revisit program details. I think we've heard my friend, it could be some time until we get through that process, again, millions of dollars, much -- avoidable environmental harm may be avoided. I would argue that SSM is analogous to the transactional services situation. It's a somewhat Submissions 107 (Poch) voluntary endeavour for the utility, that where we have an opportunity to reap - for there to be a win-win situation - to reap some rewards for the customers. And in the 492 case, I notice that my friend -- again, I'm picking on Mr. Warren. I didn't have time to go through and get everybody else's arguments. But in 492, my friend Mr. Warren didn't oppose a shared savings incentive for that. And indeed, when he was confronted in that case by - I think it was Ms. Chown's concern - that it best be dealt with in a generic way, I'm going to quote Mr. Warren at page 4 and 5 of his argument in that case. The quote is: 'Ms. Chown's recommendation that the question of whether and under what circumstances the LDCs should be permitted to engage in transactional services at other than cost-based rates should be decided in a generic proceeding.' It goes on: 'Ms. Chown does concede that if Consumers is to be permitted to engage in transactional services, the revenue from those savings should be shared between ratepayers and Consumers' shareholders. CAC is sympathetic Ms. Chown's concerns.' And it goes on in the next paragraph to say: 'The problem for the CAC with Ms. Chown's approach, however, is with the delay and cost entailed in a generic proceeding.' That's the situation we find ourself, certainly with SSM, and as you've heard from my friend, that's the position Submissions 108 (Poch) that he adopts with respect to PBR more generally. We heard from Dr. Bauer about the relationship of SSM to PBR. He agreed it is a somewhat serverable module. It can be dealt with first. He just cautions us that we must then be cognizant of it when we turn to PBR. We may want to tinker with it or tinker with PBR in light of it. The proposal that's on the table for your consideration in this hearing is a flexible proposal. It's got a one-year horizon before adjustment at a time. And, indeed, again I'll look for high precedent here and cite Mr. Warren's comments from EBO 495 in his argument, Paragraph 191, where he notes the CAC support for the introduction of a shared savings mechanism and goes on in the following paragraph to say: 'The mechanism should not be viewed as being "set in stone". To the extent that it needs to be adjusted in the future, the Board should make it clear that it will keep that possibility open.' So my friend has acknowledged that it's not beyond the pale to put in place a mechanism with the appreciation that we may need to change it in the future, and I think that's an appropriate observation. I won't dwell on the fact that if we have to await PBR discussion on electricity for SSM, we may have a long wait. We don't even have passage of Bill 35 yet. The Board technically doesn't have all the jurisdiction I believe it would need to do that discussion by way of a Submissions 109 (Poch) formal hearing certainly, all of which leads me to urge the Board to reject the motion at least with respect to SSM. And if the Board feels it cannot do that, then certainly if it is persuaded to go with a generic hearing, we would urge the Board to find some way to expedite that, perhaps by not waiting for electricity, but constraining such a generic process to gas. I think, though, I don't want to detract from my primary point which is whatever you choose to do with PBR today, I urge the Board to consider the situation of SSM, the lost opportunities we're facing, the availability of a flexible method, the evidence you've heard about the severability of SSM for PBR, and to leave SSM on the agenda for this year's proceeding. Thank you. Those are my submissions. THE PRESIDING MEMBER: Thank you, Mr. Poch. Mr. Klippenstein? MR. KLIPPENSTEIN: Thank you, Madam Chair. SUBMISSIONS BY MR. KLIPPENSTEIN: I would just like to make three points, if I might. First, on the issue of the benefits that will be lost by delay; secondly, on how public ownership in the electric utilities is a factor in your decision, in my submission; and, thirdly, what do we make of the fact that we are basically in a two-player world in the gas situation. Submissions 110 (Klippenstein) My first point, lost benefits. It's quite simple to deduce from the fact that the PBR is government policy for a reason. It is believed that there will be benefits that flow from an incentive structure to regulation. And if that is true, as the Government believes, then delaying this aspect of PBR means delaying and perhaps losing whatever benefits the customers would receive in the meantime. So the bill savings that hopefully would result from Consumers' proposal will be lost, and Pollution Probe thinks those bill savings and hopefully the more competitive economy that in small part may result and environmental benefits shouldn't be forgotten about. Dr. Bauer this morning did agree that he hadn't mentioned in his Affidavit those costs of delay and I'm not so sure they should be shuffled out of the equation quite so easily. So by accepting this alleged adjournment, my submission is there will be benefits lost. Secondly, I would also submit that the public ownership status of most of the 2- or 300 utilities is a very, very important factor. Dr. Bauer this morning agreed that most incentive plans so far have been designed for private ownership and Dr. Bauer this morning agreed that under public ownership, it's difficult to create an incentive. These are fundamental problems in applying PBR to publicly owned utilities. There's not much experience and it's conceptually difficult. Submissions 111 (Klippenstein) Now, those may make it a good candidate for a generic hearing. Somebody needs to think about how PBR applies to publicly-owned utilities, but these factors clearly don't apply to gas. As privately-owned utilities, there's a wealth of precedent that Dr. Bauer and others have referred to, and the task of the incentive mechanism is well-known. So to link these two, the publicly-owned utilities and the privately-owned gas utilities, into one generic hearing is really shackling the gas companies with some really difficult issues that clearly don't apply to gas. Dr. Bauer mentioned this morning three categories, three types of issues that could be dealt with in a generic hearing. One was generic that applied to both electric and gas. The second category was either gas-specific issues or electric-specific issues. And the third category was issues for individual utilities. So Dr. Bauer this morning separated out, without prompting, generic issues from sector issues. And, in my submission, the public ownership question really is something that it would be unnecessary to tangle up the gas companies with at this point so as to lose the benefits I mentioned earlier. Thirdly and finally, in my submission, what is really the issue here from a practical point of view is the realization that this is a two-player world in the gas sector. There are other utilities in the gas field which, Submissions 112 (Klippenstein) you know, are there and are real, but in terms of size, overwhelmingly, it's just two players. So to speak about the dangers of the diversity and these sorts of factors, it's just not applicable when you've got only two players. It's something that is easily managed, in my submission. Dr. Bauer agreed this morning that concerns about standardization are reduced when you have only two major players and, in my submission, some of these concerns seem to just assume four, five or ten companies. Well, that's not the case here. So in my submission, because of the benefits of PBR that would be lost to the customers and because of the difficult public ownership issue, among others, that a generic hearing would involve and, thirdly, because of the two-player formation in gas, it is not wise or necessary or even beneficial to delay this PBR any further. Thank you. THE PRESIDING MEMBER: Thank you, Mr. Klippenstein. Mr. Mattson? MR. MATTSON: Thank you, Madam Chair. SUBMISSIONS BY MR. MATTSON: At the outset, just after all the comments of my friends on both sides of this issue, I should make it clear that my client is not arguing that going forward with the proposal of PBR at this time is wise on the part of Consumers Gas. Submissions 113 (Mattson) In fact, we see the Consumers Gas' proposal facing a large evidentiary onus of demonstrating to this Board that it will, in fact, benefit its customers. But at least that process is clear and the role of the parties and the Board are well-known. We have a proponent, we have an independent decision-maker, we know who the beneficiaries are, who are the customers of Consumers Gas, and we know the repercussions and the consequences of acceptance and denial. On the other hand, Madam Chair, I would argue that the motion, although well-meaning and potentially prescient of the final disposition of Consumers' PBR proposal, risks sending the process of gas and electricity regulation down the wrong road. First of all, we would argue that the motion places too much faith in the idea that there are public policy benefits from regulatory consistency. The policy of regulatory consistency must be considered and balanced against the weaknesses of standardization, as Mr. Bauer notes in his Affidavit. When that balancing is done on the facts before you, there are clear reasons to believe that the forced consistency between gas and electricity will only hurt gas customers. The biggest separation of the OEB's activities over the past 20, 25 years has been the different regulatory treatment between gas and electric utilities. Gas regulation is dependent on cost of service regulation, it's a quasi-adjudicative form, independent Submissions 114 (Mattson) binding decisions, full public disclosure of costs and rates, and limitations on LDC spending and profits; whereas, with respect to the electricity utilities, they've been controlled by government policy with input from the OEB through references in opinion to the Government, but also with other little hands such as the Power Corporation Act, their Board of Directors, the AECB, the Ontario Municipal Board, and the Environment Assessment Board. The process of these several small hands controlling this rather large elephant that had its own idea of where it wanted to go made it very difficult for the Ontario Energy Board to have a great deal of say into that regulatory structure. And if we look at how well or, conversely, how poorly the public was served by these two models in gas and electricity, I think it's important that you note that in the gas utility situation, we do not have taxpayer debt; we have expensive and sufficient infrastructure, we have competitive rates, and we have efficient and relatively clean energy. With respect to electricity, we have a very large debt. We have old and insufficient structure, noncompetitive rates, and non-efficient energy use. The differences are stark and dramatic and any form of PBR should ensure that the implementation and application of it protect the gas customers from having their regulatory system weakened by the inclusion of the Submissions 115 (Mattson) electricity sector under the Board's expanded mandate. If the Board and the parties place regulatory consistency as the priority in PBR, it can only dumb down the regulatory effectiveness of the OEB and Consumers Gas' customers, in other words, would be not well-served. Standardization should not be the Board's priority here. Secondly, adjourning Consumers' PBR proposal to a generic hearing would leave Consumers' ratepayers open to the risk of a more confused and less considered process. The traditional role of the OEB places the onus on the LDC - that is, Consumers Gas - to demonstrate the benefits of its PBR proposal before you would accept it. Again, this would involve full disclosure, review and hearing on the issues and there's no predetermination that PBR will be accepted. On the other hand, what process does the motion anticipate? Who will be proponent? Is there a reference or an Order from the Government? And who will bear the onus of demonstrating the benefits to customers and how will those benefits be defined? Will they be Consumers' customers or will there be a broader public interest involved? Those questions have to be answered, in my opinion, before the Board could accept the motion of my friends. Further, I should note, just in rebuttal to a number of comments from my friends, the prior generic hearings that the Board has been involved with, prior to Submissions 116 (Mattson) those generic hearings on those issues - and I'm speaking specifically of the IRP in EBO 188 - the Board heard specific rate applications and issues where those issues were dealt with in specific rate applications prior to the generic hearings. You will note that H.R. 21 with respect to Hydro's rates dealt with DSM and it came up again in H.R. 22 and ultimately, due to a decision of the Government that there was a general public interest there, came before the Board as a generic hearing. EBO 188; Consumers Gas and Union Gas were -- for many years, we were discussing the issue of a PI of 1. And, in fact, there was evidence heard in EBO 485, in Consumers' case, at any rate, there was a decision made. And, again, somewhere along the line, the utilities and the Government urged the -- to have a reference before the Board and cause a generic hearing to come about. But I think the Board should know that there were earlier hearings that dealt with the issues prior to the generic hearing, and I think that there's nothing wrong with that. And it certainly does not shut off the potential for a generic hearing at a later date; at least historically, it has not and I don't know why it would now, just because some parties suggest it may. Finally, a third concern that we have with the Motion is that it assumes that PBR is necessary; it is necessarily going to be applied to gas and electricity regulation. Submissions 117 (Mattson) We would argue that this is clearly premature. It is true that the White Paper recommended PBR to help facilitate some form of light regulation of the electricity sector. Mr. Laughren, the new Chair of the Ontario Energy Board, speaks to it to the Standing Committee in the context of the difficult regulatory burden that his Board faces due to the electricity restructuring. And finally, we have the two gas applications from Consumers and Union Gas, requesting implementation of PBR. But it will still be, in my submission, Madam Chair, up to the utilities under the Ontario Energy Board Act to demonstrate the benefits of PBR to its ratepayers. In that regard, PBR is not a given. If that were the case, the Ministry should have issued an Order-in-Council or a reference under Section 36 of the Ontario Energy Board Act to this Board. And pursuant to Section 15(3) and Section 15(4), the Board would have had to hold a hearing. And then after the Government received the decision of the Board, the Government could have ordered the Board to implement PBR. Now, I acknowledge that the new Ontario Energy Board Act in Section 26 gives the Government the opportunity to just order the Board to implement certain things without a hearing, but it should be noted that in the recent amendments, that is being challenged by the Liberals and the NDP. And, of course, that Act is not yet in force and there is no such order from the Government Submissions 118 (Mattson) that this Board go ahead with PBR. So it's premature to assume that PBR is a necessary part of regulation and, accordingly, it should be dealt with in the context of whether the Board feels the application will benefit Consumers' customers in a Consumers Gas rate case. If no benefits are demonstrated by Consumers Gas, the parties will argue that the proposal should be denied, and if it is denied, it will probably not be dead. But like EBO 188 and 169, the utilities could go out and seek other opportunities to bring forward the issue. But I don't think that the Board should take that step prematurely, as the Motion requests. So in conclusion, while Consumers' PBR proposal raises many complex and difficult issues, it is properly before the Board as part of the rate case. The onus is on the utility to demonstrate the benefits to the ratepayer. And this will, indeed, be a difficult test, but it will also ensure that Consumers' ratepayers are protected from being forced into a new model of regulation or a generic process because of the arrival of Ontario Hydro as a utility under the regulatory authority of the Board. Gas customers has been served exceedingly well by the level of regulation and scrutiny by this Board and the Board should not throw the model out and hold a generic into PBR where the proponent is lacking -- or it should not throw the model out where the Government has not given the Board specific orders to do such or the Board has not Submissions 119 (Mattson) held some reference or some hearing into the appropriateness of PBR as a necessary element of regulation. So those are my submissions, Madam Chair, unless you have any questions. THE PRESIDING MEMBER: Thank you, Mr. Mattson. Mr. Warren, can we assume that you will respond on behalf of all of those who supported the Motion? MR. WARREN: You can, but that would be incorrect. Mr. Pratte is going to do it for us, Madam Chair. [Laughter] THE PRESIDING MEMBER: All right. Thank you. Mr. Pratte. MR. PRATTE: Thank you, Madam Chair. REPLY SUBMISSIONS BY MR. PRATTE: I intend to deal with Consumers' lengthy argument last and make some brief comments right off the bat with respect to the arguments that were made in support of the Consumers' position. Although, in respect of Mr. Mattson's submissions, so far as I understood his points, I think I will be dealing with them when I deal with the Consumers'. In respect of Mr. Klippenstein, though he made three points, it's my understanding that really all turned on the proposition that there are benefits to immediate consideration of the PBR regime. And in that respect, he seems to have forgotten the answers he got on cross-examination this morning after Reply Submissions 120 (Pratt) he had requested to cross-examine Dr. Bauer who clearly stated that while he had not quantified precisely those benefits - indeed, they may not be precisely quantifiable - in his judgment, the disadvantages of not proceeding to a generic process would outweigh whatever potential short-term benefits there may be to considering the Consumers application immediately. So in terms of the evidence on that point, there is only coming from Dr. Bauer and it contradicts Mr. Klippenstein's position. And he didn't put forth any other evidence, so in my submission his position just founders on that notion. In terms of Mr. Poch's argument, his was focused specifically on SSM and I really have two points to make there. First of all, Consumers does not distinguish between the two. It sees it clearly as a form of incentive regulation. And both in his argument, counsel for Consumers was clear that he didn't want to distinguish. And, indeed, if you look at the application which was attached to material circulated by Mr. Cass, Consumers treats both the SSM and the so-called targeted PBR plan as of the same nature and to be treated together. The second point in respect of Mr. Poch's argument is that there is no evidence that the DSM savings cannot be achieved if SSM is slightly delayed. And, indeed, that was Dr. Bauer's point this morning. The existing regulatory process can very well achieve the same Reply Submissions 121 (Pratt) types of benefits. So, again, there's a lot of conjecture as to whether or not benefits will be foregone if there's a generic hearing. But to the extent there's any hard evidence, it neither supports Mr. Poch's argument nor Mr. Klippenstein. Let me move then to the presentation of Consumers Gas' counsel. Now, in his hour-long presentation, my friend Mr. Cass really made two points; one - and I'm using his labels - one on fairness, one on I think he called it comparison. Really, it was a comparison of regulatory burdens, as I understood his presentation. I will deal with these in a moment. Let me say something about what he did not say. I didn't hear from my friend anything about whether or not a generic process was an inherently better or worse process to look at PBR. There was nothing in what he said which challenged the proposition that inherently, putting aside fairness or delays and regulatory burden, but he never challenged the proposition that inherently a generic hearing that would bring in all the interested intervenors and actors that might be impacted by PBR, as it's implemented, that would not yield, at least on the general principles, a better result. He didn't take that position. His position was, 'Well, you have notified us too late. We have prepared this evidence and now what are we going to do with it? And it's going to be too cumbersome Reply Submissions 122 (Pratt) and you're going to delay this too long.' But on the issue, fundamental issue, I submit, 'Will a generic hearing yield a better framework,' what I've called a regulatory platform, that is not taken issue with by my friends who oppose this motion. And, indeed, they concede, in effect, that a generic process would be better because they say, 'Why can't we run a parallel generic hearing with a case-specific hearing?' How that squares with the regulatory burden argument, I'm not sure, but that certainly does at least this: It concedes - and Mr. Mattson is on the same boat on this issue - it concedes that a generic hearing has inherent advantages that a case-by-case process would not. So I start then from the premise that it is conceded that, everything else being equal, a generic hearing on PBR would be advantageous. And so the issue is whether the disadvantages that counsel for Consumers, in particular, has focused on in terms of the fairness issues and the regulatory burden are so great as to require that we forego the benefits of a generic process. Let me deal then with some of the points Mr. Cass specifically made in terms of fairness. Under this rubric and I think, as well, under the second category, he kept coming back to this theme that it's logical and timely. Well, nobody argues with the proposition that it's logical to move to PBR and nobody argues with the proposition that it should be done as soon as feasible, but timely does not mean it's urgent. Reply Submissions 123 (Pratt) Nobody would have said, reading Consumers' application, if they hadn't asked for this PBR in this particular application, saying, 'Why didn't you do it this year? There's something missing in your application.' Nobody would have said that. And let me say, as well, on the timeliness issue that it seems all consumer groups wish this issue to be deferred to a generic process. There's nothing in it for the customers to delay this issue any longer than possible. It's the customer, after all, that are supposed to benefit at least equally with the companies through the implementation of PBR. So delay for delay's sake is not in their interest. What is in their interest is not to have case after case to refight the general principles. And so, yes, it's timely, but let's not waste time rearguing the issues. Let's have a generic process as soon as feasible so that this logical step will not be a flawed step. Now, also in the rubric of fairness, my friend complained, I think, about this lack of timely notice. Somehow Mr. Thompson managed not to say anything on the record that got him caught up on this issue because only other parties were referring to this. But really, the bottom line hear is this: What is the prejudice? None is alleged. The only prejudice that's alleged is, 'We have prepared this evidence. What are we going to do with it?' Well, hold it in your back pocket and present it Reply Submissions 124 (Pratt) at the generic hearing. It's not a wasted effort by any stretch of the imagination. So there's no prejudice whatsoever in context of the submissions advanced under the fairness rubric. Now let me move briefly to the second branch of the argument advanced by Consumers and supported by Mr. Penny as well, as I understand, which is the regulatory burden comparison. Under this rubric, my friend started mentioning a number of mistaken assumptions, and he seemed to put a lot of stock in one that we were adjourning to a non-existing hearing. That seems, to me, to be just complete sophistry. What the parties moving here are seeking is simply to find a way to deal with these important issues affecting myriad parties once and for all to the extent possible. So we need the imagination of doing what has been done several times in this Board's history; have a generic hearing on issues that are sort of cross-border issues. He also under this rubric of mistaken assumptions said, 'Well, the movers...' I won't say the movers and shakers. '...the moving parties are assuming incorrectly that you can't have a dual track process.' Well, we are not assuming that. We're saying if you are concerned about regulatory burden, surely you wouldn't do at the same time a generic hearing and a utility-specific hearing. How are you going to draw the Reply Submissions 125 (Pratt) line at that stage between what is generic and not? And so to us, what we say is let's do what's logical first; the general principles. Once those are settled, we will apply them in a case-by-case basis. This way, you avoid duplication. The third point he made in terms of the regulatory comparison is invited you to see, in an utterly and completely unmanageable process, where you had 275 municipal electric utilities. Well, my first reaction to that is, if that is what we must visualize, that shows something. There are a lot of people who are not in this room who will be affected by the implementation of PBR. And to say in one utility-specific case will, in effect, set down the rules to the exclusion of the participation of all those other parties who should be here is, in my respectful submission, not wise. And if those parties are going to be affected by the rules that are set, general principles which inevitably will have to be established in this case, then those other parties will have to either get involved in this particular case more than they have to date for fear that the principles established in the Consumers' case will affect them down the road or will have to take the position when their own cases appear that there's no, as it were, res judicata here that all the issues can be argued anew. Now, either way, in my respectful submission, it's the least efficient way to go about it. Reply Submissions 126 (Pratt) Mr. Cass quoted from Mr. Laughren saying that he wanted to avoid 275 specific hearings including dealing with PBR. The best way to avoid that is to have a generic hearing so that the principles and everything that can be established as this regulatory platform can be settled once and for all. That, indeed, is consistent with the government's policy. A fourth point he made as I understood it was that we'll have a lack of consensus. I touched upon that in my submissions at the outset and in my respectful submission, it's a bit of a non-issue. If there's to be a lack of consensus at a generic hearing, you'll have the same lack of consensus at every hearing seriatim. If there were a consensus on PBR, we probably wouldn't need a hearing. We could all agree on the principles. The fact that the views may be debated and various points of view articulated forcefully will not in any way, shape or form preclude this Board any more than it has on direct purchase issues in the past or the code of conduct or what have you, the fact that there will be vigorous debate will not in any way preclude this board coming to a single framework applicable to everyone that henceforth is likely to be affected by this implementation of this new era. So to conclude, in my submission, it's conceded, in effect, that a generic hearing is superior; secondly, no true prejudice has been demonstrated, certainly not in terms of costs and alleged benefits to the customers of Reply Submissions 127 (Pratt) the utilities involved and indeed, in that respect, I have to underscore that the customers are opposed to the way the utility proposes to go. It is not impossible that with a generic process PBR might not be implemented in the year 2000 time frame. And in any event, it cannot be critical as we embark under this new era whether we start as of July, 1999, or January 1, the year 2000, any more than it was critical to embark upon deregulation on October 31, 1986, or six months later or six months before. What's important is that we start on the right foot and that is the only purpose of supporting a generic process certainly insofar as IGUA members are concerned and I believe that is shared basically by all the customer groups of the consumers. Those are my submissions. Thank you very much, Panel. THE PRESIDING MEMBER: Thank you, Mr. Pratte. ---Off the record discussion. THE PRESIDING MEMBER: The Board is just considering the difficulties of considering the scheduling matter without an answer to the motion. And I think what we would like to do is ask parties if they think they can address the scheduling sort of taking both views; that is, whatever the answer is to the motion, can we have your views on the scheduling and do you need a short break in order to sort of organize your thoughts in that respect? No? You could go right ahead with that? Mr. Cass? Discussion re 128 Scheduling MR. CASS: Speaking only for myself, Madam Chair, I do find it a little more difficult to address the scheduling issue without knowing the status of the PBR/SSM proposals. And if we are to argue it in that sort of context, I, myself, could use perhaps just a few minutes to gather my thoughts as to how I would deal with the scheduling in the absence of a decision on the motion. THE PRESIDING MEMBER: I guess I should clarify, when we want your views on the scheduling, we're not necessarily sort of looking at it as kind of a legal argument on how the scheduling should come out; more, we're just trying to get from parties what they see as the difficulties and the ways in which they might cope with various proposed schedules. And we, ourselves, of course, have our own difficulties with whatever schedules are proposed, so the end result of the scheduling discussion may not necessarily reflect any particular party's position on that. But perhaps the sensible thing would be to take a short break now and come back in a few minutes and discuss the scheduling as best we can at that point. MR. POCH: Madam Chair, just before you rise, I would ask you to consider one thing: I think -- I'm a bit concerned that if we even discuss scheduling before your motion, you're going to get arguments with a bit of gaming involved. And I can just anticipate my friends saying, well, you know, if PBR is not in, you know, we don't have a problem here. It's all going to be smooth as can be. But if it's in, you're going to have a problem. And you Board Ruling 129 on Motion may not get the best information -- THE PRESIDING MEMBER: We won't be convinced by that, Mr. Poch. We don't believe it will be smooth either way. MR. POCH: All right. THE PRESIDING MEMBER: In any case, we're aware of the possibility of the arguments about scheduling piggybacking, if you like, on the arguments about the motion. But I think if we take a short break now and come back perhaps in ten minutes, we would just like to have the parties' views about the proposed schedule and any other proposals they might have that they think can smooth that route. Thank you. ---Recessed at 3:17 p.m. ---On resuming at 3:45 p.m. BOARD RULING: THE PRESIDING MEMBER: Please be seated. In an effort to expedite these proceedings and not to be the cause of any further delay, the Board has the following to say: The motion before the Board requests that the Board defer the hearing of those portions of Consumers' applications which seek approval of incentive mechanisms in relation to operations and maintenance expense and demand side management until a generic proceeding has been held to consider incentive regulation of the energy industry generally. Having considered the parties' submissions and having applied the usual considerations relating to Board Ruling 130 on Motion fairness, possible prejudice to any party and the balance of convenience, the Board is not prepared to grant the motion. The issue will be reviewed in phase 2 of these proceedings. Any arguments that parties may wish to make concerning the consistency of the proposal with general PBR principles can be made at that time. And if it appears then that developments in other aspects of energy regulation require postponement of its implementation, it will be open to parties to make that submission. Thank you. Now I think we would like to hear what parties have to say about the schedule. Mr. Cass? SCHEDULE: MR. CASS: Madam Chair, at the risk of trying everyone's patience on a Friday afternoon, I wonder if I might lead off and basically speak in support of the schedule that has been passed around by Consumers Gas. THE PRESIDING MEMBER: Can I just check, Mr. Cass, if we have that before us correctly? Just one second. Would that be a schedule which requires interrogatories on the 6th of October? Would I be talking about the right schedule? MR. CASS: Yes, Madam Chair. THE PRESIDING MEMBER: Okay. Go ahead. MR. CASS: Madam Chair, at the outset, I do wish Schedule 131 to say that the Applicant is very much aware of the Board's busy schedule obviously. The Applicant is aware that things may only get worse in the future and the Applicant is sympathetic particularly to the position of the Board but to that of all participants in dealing with what's on the calendar in upcoming months. The Applicant's primary point in support of this schedule, Madam Chair, would be that delay is not an answer to whatever difficulties there may be in dealing with the heavy calendar ahead of us. As I said, things may only get worse in the future and for that reason alone, the Applicant does not see delay as an answer. The Applicant thinks that what needs to be done is for all participants to work together cooperatively to find a way to make this work and the Applicant is confident that that can happen. I know that you're not looking for legalistic submissions, Madam Chair, and at the risk of making you think that that's where I'm going, I do just want to point out that the Board's own rules in paragraph 1.01 contemplate that the rules themselves are to be construed to secure the most expeditious, just and least expensive determination on its merits of every proceeding before the Board. Now, I realize that there's no particular rule that is in need of being construed for these purposes, but I do think that does give us some guidance. Really, what needs to be done is for everybody to work together to find Schedule 132 the most expeditious way of fitting within this schedule. I might say the schedule has been reviewed with Union and Union and Consumers have agreed on the dates and are comfortable that, obviously from the point of view of those companies, what you have in front of you is achievable. There are three primary points that I would ask the Board to think about and all the intervenors to think about as to why this schedule is important. The first point is in relation to the necessary transition that has to occur should the company's applications be successful. The Board will realize that in the event of successful applications, 1999 will become a watershed year for Consumers Gas. There will be a very important transition that would have to occur because of the unbundling and, of course, the PBR that's been discussed today. There will be a need to plan, to communicate, to implement the transition plan with a customer base and with employees. And in that connection, I want to emphasize, Madam Chair, the position even of the employees of the company. There's something like 600 of them affected by this proposed change. And to leave that hanging any longer than is necessary over the heads of the 600 employees -- I don't mean over the heads in any sense of risk, but it's an uncertainty in their lives, it's an uncertainty for ratepayers and customers and the sooner that can be resolved and the transition can be done, the Schedule 133 better. So that's one reason why this schedule is very important. The second reason is in relation to year 2000 rates. The Board will be aware that for at least the last five cases, the company has tried to file its application in December or January and to proceed on a schedule which will allow timely implementation of rates. I think everyone has worked very hard to see that happen so that we don't effectively end up with retroactive rates. I know the Board's worked very hard and participants have. And it's an important objective from the point of view of customer service and effective operation of the utility. So the concern is in relation to year 2000 rates. In order to stay on track, Madam Chair, with the usual sort of schedule, the application for year 2000 rates will have to be in December or January coming and would have to proceed in a manner that we could have an issues day perhaps in mid-March and an interrogatory process in late March of 1999. This would be consistent with the timetable in EBRO 497 for example. The problem is, if, of course, the current matters before the Board are delayed beyond this year, then that whole schedule for year 2000 rates is thrown into jeopardy. A Board decision on phase 2 matters in early March of 1999 for example would allow the company to reflect the impacts of that decision in its year 2000 case without significantly disrupting the process for getting the year 2000 rates into place in a timely manner. But to Schedule 134 move back phase 2 into 1999 just puts that all into jeopardy insofar as year 2000 rates are concerned. And then finally, just briefly, Madam Chair, again, I don't want to appear in any way insensitive to the heavy schedule and the things that must be achieved, but in the Applicant's perception, major hearings have proceeded simultaneously before the Board previously. It means the parties have to work to make that feasible, but it has been done. There are, of course, ways that that can be achieved. I think we had a demonstration of that on the motion earlier today. We had Mr. Warren bring a motion as agent for two of the other counsel in Ottawa. That was a very good way of achieving an efficiency. We had Mr. Pratte here on behalf of Mr. Thompson. So we had more than one counsel from the same firm able to participate and make things work. So I believe it can be achieved and the Applicant believes it can be achieved and we think that delay, as I said, is not the answer. The answer is for all of us to find ways to make the schedule work and we believe with a good ADR process, the schedule will work. Thank you, Madam Chair. THE PRESIDING MEMBER: Thank you, Mr. Cass. I guess I should just make one point before I hear from the intervenors; that is the importance that the Board puts on good interventions and the importance of good interventions to a good ADR process which I think those are where I see the concerns with the schedule Schedule 135 really being difficult. And yes, we want to be aware of the year 2000 application and so on, but we also want a good result in this case and we need good interventions if we're to get a good result. So having said that, perhaps I can hear what some of the intervenors have to say. MR. WARREN: Madam Chair, with apologies because it's late in the day and my apology that bluntness, I think, is the order of the day, the schedule that's presented, Madam Chair, is simply unworkable, profoundly unworkable for the intervenors, and will result in ineffective interventions and, therefore, an unfairness. We now bear with the change in Board staff, particularly Mr. Thompson, Mr. Janigan and I, primary responsibility for the interventions. If I could just take the Board to the schedule that's before you to look at the details of it. Exactly a month from today, we have to have intervenor evidence in on the PBR matters. I mean no disrespect to the Board's decision which I respect, but the fact is, it's very complicated issues. We have to have that evidence in. If I can then take you first to the following schedule: The Union ADR runs from October 27th to November 12th. The ADR process -- and remember, and we respect the Board's desire, that that ADR process be as effective as possible. It's a very time-consuming process. Much is expected of us in a very complex case. One business day later, we are to begin the Schedule 136 settlement conference in the Consumers' case. That is to run to November 20th. On November 20th, it's the same day as the Union Procedural Motions Day. We have, therefore, no business days before the hearing is to begin in the Union case. We then get to the end of the Union case and we have one business day before the beginning of the Consumers case. Now, simply putting those numbers together, Madam Chair, will illustrate what I talk about the virtually intolerable burden that is placed on intervenors. We don't have anywhere near the resources that the applicants have. And then the final point, Madam Chair, is that while the EBRO 497-01 hearing is running, we have to be arguing the Union case. You just can't do it. Writing an argument that does respect to the intelligence and capacity, the demanding intelligence and capacity of this Board, and to do justice to the evidence is impossible while you're running a hearing. Now, we have other obligations. Professionals have other obligations. I appreciate that there's a lot that we will have to put aside in order to meet the Board's schedule. To the suggestion we can simply get other counsel to participate, from my point of view it's impossible for me now to instruct somebody in my firm on the extraordinary complexities of these cases. I've got to do it. Schedule 137 I don't believe, Madam Chair, looking at this schedule that we can possibly do the kind of job these important issues need under this schedule. Now, to turn to the points that are made by my friend Mr. Cass about 600 employees being affected by this change, surely if we were to attenuate this schedule by 30 to 45 days, that's no real prejudice to those employees. Surely, it would not fundamentally delay the imposition of Year 2000 rates to do that. My suggestion is that we build some more breaks into this to at least allow us a few days transition from one settlement conference to the next and one hearing to the next and then to allow the Union case to be completed and argued before we begin the 497. Having seen this today, I don't have a suggestion but my request to the Board would be that in order to allow a fair and effective process that we build at least a few days' buffer between the main events in these activities and not run the argument and the EBRO 497 hearing together, that the hearing in 497 simply be delayed until we have completed in its entirety the Union case. Those are my submissions on behalf of my client. ---[Building appears to rumble] MR.POCH: Is that an earthquake happening here? MR. WARREN: No, they're earth-shattering submissions. [Laughter] THE PRESIDING MEMBER: Dr. Higgin? Schedule 138 DR. HIGGIN: Just a question of clarification, Mr. Warren, I thought I heard you say that you would be hearing the Consumers' evidence at the same time as argument was due on Union and I just wondered whether -- if I'm correct in what I heard, I don't get that from this schedule. MR. WARREN: Well, what I'm looking at, Dr. Higgin, is the bottom left-hand corner, the hearing on 499 is to run from November 23rd to December 7th. DR. HIGGIN: Normal procedure would be about a week later for the argument in-chief to arrive from the applicant. MR. WARREN: I understand that, Dr. Higgin, but the reality is that with the volume of evidence you've got to start off the mark right away as soon as the hearing ends to prepare your argument. It takes a long time to prepare these arguments. As much as we say, I'd like to think I'd like to go home and do my argument every night on every issue, we simply don't do that, and so that while there is a gap, I appreciate, sir, in the scheduling of the hearing, the reality is you've got to start right away and you'll end up trying to do both which in my experience is very difficult. I think it would be impossible to do. That's the only way I can put it. DR. HIGGIN: In your view, just as supplementary, is there any portions of the hearing that can run in parallel or are you advocating, in essence, series because Schedule 139 this is evidently a parallel proceeding in large part? MR. WARREN: The other issues on the agenda today -- I haven't thought about this in the detail that your question deserves but I think if we were to build some breaks - we can run them simultaneously, if you just build a few break points into the schedule. That's the critical point to allow us to readjust, prepare for a proper settlement conference. Going one day from one settlement conference to the next, just won't work. DR. HIGGIN: Obviously there's a few things like that in this schedule. Anyway, thank you for clarifying your points. Thank you very much. THE PRESIDING MEMBER: Mr. Janigan, did you have anything to add? MR. JANIGAN: No, I think I'm certainly in support of the position that's been advanced by Mr. Warren. I just also wanted to point out that in the proposed schedule on October the 6th we have interrogatories to the applicant due. Well, frankly, most of the intervenors are going to be in a position of starting to think about what kind of additional evidence to offer in the proceeding and as often is the case the expert or the person that will be offering the evidence will want to fashion some of those interrogatories for the purpose of the composition of that evidence which means that we're going to have about a -- we would have about a ten-day window to determine what experts we need, find those individuals, retain them and Schedule 140 give them the evidence, have them review it, and come up with the interrogatories that they may require to compose the evidence in that time window which -- have to be some pretty extraordinary witnesses that we would be able to round up in that period of time. So as Mr. Warren says there has to be some kind of cushion built into this proceeding, at least another 30-day window put in to allow for us to effectively intervene in the Consumers case and as a consequence to make sure that the intervention in the Union case is not prejudiced by scrambling in the Consumers case. THE PRESIDING MEMBER: Thank you, Mr. Janigan. Mr. Pratte, do you have anything to add? No? Anyone else have anything that's specifically different from what's been raised already? Mr. Brett? MR. BRETT: Yes, I do have one thing to add. I agree with what Mr. Warren said, Madam Chair, and particularly I guess in respect of the PBR portion of the hearing. The only thing I can think of that would be of assistance in addition to that is that portion of the Consumers case that deals with the separation is in my view a different kettle of fish to some extent. First of all, the separation proposal and the PBR proposal have really nothing to do with one another. They're hobbled together simply as a matter of convenience and the separation proposal of Consumers is very similar Schedule 141 to Union's proposal except with respect to the water heater rental business. So one would expect a number of those issues in the separation proposal to be settled. It would be rather surprising if they weren't. Therefore, I could see some argument for having that part of the hearing come a little earlier if it were absolutely essential. I think Consumers' proposal was to have that transition start October 1st of '99. Well, of course, we're going to be beyond October 1st anyway and the evidence -- I would just note the evidence, both in respect to PBR and the separation, wasn't filed till July. So that having said that, that would be my only further comment. But I believe in respect of the PBR most certainly it's of a complexity and a range that it needs to be deferred 30 days or 40 days or something of that nature until after the end of the previous hearing. Thank you. THE PRESIDING MEMBER: Thank you, Mr. Brett. Does anyone else have anything distinctive to add? MR. MATTSON: Madam Chair, if I might just for a moment. I agree with my friend Mr. Warren's comments and I also might add that a couple of the consultants - I know Ms. Girvan and Mr. Adams - they're also involved in the Market Design Committee so not only do we have these two hearings but we also have that other process that's going on at the same time and if there was an opportunity to Schedule 142 build 30 days into this 497-01 process, it certainly would be helpful or 45 days at that. THE PRESIDING MEMBER: Thank you. MR. VLAHOS: Gail was asking me if I have any questions and I guess my only question is where do the Board members figure into the schedule. The same three of us have to do both and has anybody thought of that? THE PRESIDING MEMBER: Aside from getting very tired of looking at the same three Board members day in and day out. Mr. Cass, do you have any response to the suggestion of a 30-day window or do you have any suggestions as to how some of Mr. Warren's concerns could be met? MR. CASS: Yes, Madam Chair, the 30-day window does cause me some trouble. I'm not sure just what the 30-day window is frankly. But the suggestion Mr. Warren made of building a few days' buffer in between different steps I think is a reasonable suggestion. I think it's something that we could well work with. Our concern for all the reasons I've already explained is that the closer we push this up to the Christmas break, then the further we end up into 1999 with all these issues. So I think we're quite receptive to the notion of building those buffers in there while at the same time hoping that it won't build up to something like 30 days so that we're assuring ourselves of being well Schedule 143 into 1999 with the resolution of Phase 2. THE PRESIDING MEMBER: If you end up with Board members who buckle under the pressure you'll never get a decision at all so.... Mr. Pratte? MR. PRATTE: Thank you, Madam Chair. I wonder if my friends and Mr. Cass might simply put together a proposal, having heard the concerns on this side with the breaks and circulate it on Monday morning and we can reply in writing if people have any disagreement to the Board Monday night or something like that, Tuesday morning, and if there's any disagreement I guess we can actually talk amongst ourselves and hopefully spare the Board the burden of actually having to adjudicate on specific days. THE PRESIDING MEMBER: I think that's a good idea, Mr. Pratte. I think I would just like to say that the Board would like to send out a schedule, probably on Tuesday, and it's fine to get input from the companies and to extent that you can agree that would be wonderful. We can't necessarily commit that we'll implement exactly what's proposed. MR. PRATTE: I didn't imply that, Madam Chair. THE PRESIDING MEMBER: No, I understand that. And I think we are anxious to get something out so that we have a starting date whatever the duration of the gaps and so on are. So perhaps it would be a good idea if you could Schedule 144 get something to parties by Monday and if parties could talk on Monday, try and resolve as many of the issues as they can, and send us the results of all that by late Monday, we'll try and get something out Tuesday to get this ball rolling. MR. VLAHOS: Mr. Cass, you heard Mr. Brett about his hopes for the separation part of the application that it may be largely settled and if that is the case that would leave the PBR. Now, I'm just wondering when you rethink that schedule over the weekend, to what extent - and I haven't had time to turn my mind to it - but to what extent do you need all that evidence that you usually file early on shortly after the application when it comes to the O&M? If you are successful in the PBR proposal, then isn't it something that the filing of the numbers can be delayed at a later time closer to the hearing as opposed to having the evidence say in March as is usually the case? I just haven't thought of it. It just occurred to me but you may want to turn your mind to it. And if that is the case, then there is some room. There is some breathing space there. MR. CASS: Yes, Mr. Vlahos. I frankly hadn't thought of it either, but it's a reasonable proposition, so we will give that consideration. THE PRESIDING MEMBER: With that, that will conclude our proceedings for today. Thank you to all the parties for their 145 submissions and their assistance on the Motion, and thank you in advance for your consideration of the schedule and whatever suggestions you have to assist us in that. ---Whereupon, the Procedural and Motions Day hearing was concluded at 4:10 p.m. 146 I N D E X o f P R O C E E D I N G S Page No. Preliminary Matters . . . . . . . . . . . . . . 3-12 Appearances . . . . . . . . . . . . . . 4-5 JOHANNES BAUER, Ph.D; Sworn 12 Direct Examination by Mr. Warren 12 Cross-Examination by Mr. Poch 13 Cross-Examination by Mr. Klippenstein 17 MOTION brought by CAC: Submissions by Mr. Warren 23-39 by Mr. Janigan 39-45 by Mr. Pratte 45-51 by Mr. Brett 51-57 by Ms. Street 57-61 by Mr. Scully 61 by Mr. Morrison 62 by Mr. Cass 62-93 by Mr. Penny 94-99 LUNCHEON [1:16 p.m./2:21 p.m.] . . . . . . . 99/100 by Mr. Poch 100-109 by Mr. Klippenstein 109-112 by Mr. Mattson 112-119 by Mr. Pratte in reply 119-127 BOARD RULING ON MOTION . . . . . . . . . 129-130 Schedule . . . . . . . . . . . . . . . . 130-144 JB/LJ/BV [ Copyright 1985]