194 1 RP-1999-0001 2 3 THE ONTARIO ENERGY BOARD 4 5 IN THE MATTER OF the Ontario Energy Board Act, 1998; 6 7 AND IN THE MATTER OF an Application by The Consumers 8 Gas Company Ltd., carrying on business as Enbridge 9 Consumers Gas, for an order or orders approving or 10 fixing rates for the sale, distribution, transmission 11 and storage of gas for its 2000 fiscal year. 12 13 14 15 16 B E F O R E : 17 P. VLAHOS Presiding Member 18 S.K. HALLADAY Member 19 20 21 Hearing held at: 22 2300 Yonge Street, 25th Floor, Hearing Room No. 1, 23 Toronto, Ontario on Tuesday, August 24, 1999, 24 commencing at 1300 25 26 VOLUME 2 27 28 195 1 APPEARANCES 2 JENNIFER LEA/ Counsel, Board Technical 3 HIMA DESAI/ Staff 4 JAMES WIGHTMAN 5 J.H. FARRELL/ Enbridge Consumers Gas 6 F. CASS/ 7 H. SOUDEK 8 ROBERT WARREN Consumers Association of 9 Canada. 10 TOM BRETT Ontario Association of 11 School Business Officials of 12 the Metropolitan Toronto 13 Separate School Board. 14 IAN MONDROW Heating, Ventilation and Air 15 Conditioning Contractors 16 Coalition Inc., HVAC 17 Coalition 18 GEORGE VEGH Coalition for Efficient 19 Energy Distribution 20 MARK MATTSON Energy Probe 21 MURRAY KLIPPENSTEIN Pollution Probe 22 DAVID POCH Green Energy Coalition, GEC 23 MICHAEL JANIGAN Vulnerable Energy Consumers 24 Coalition 25 STAN RUTWIND TransCanada PipeLines 26 Limited 27 28 196 1 APPEARANCES (Cont'd) 2 MICHAEL MORRISON Ontario Association of 3 Physical Plant 4 Administrators 5 JOEL SHEINFIELD Enbridge Services Inc. 6 MARK ANSHAN Canadian Association of 7 Energy Service Companies 8 MARK STAUFT TransCanada Gas Services 9 DAVID BROWN/ Coalition of Eastern Natural 10 RICHARD PERDUE Gas Aggregators and Seller 11 (CENGAS) 12 PETER THOMPSON Industrial Gas Users 13 Association (IGUA) 14 BETH SYMES Alliance of Manufacturers & 15 Exporters Canada 16 LYNDA ANDERSON Union Gas Limited 17 GLEN MacDONALD Ontario Hydro Services 18 Company 19 20 21 22 23 24 25 26 27 28 197 1 INDEX OF PROCEEDINGS 2 PAGE 3 4 Preliminary Matters 200 5 Motion on behalf of HVAC Coalition Inc. 6 by Mr. Mondrow 216 7 Submissions by Mr. Warren 243 8 Submissions by Mr. Brett 246 9 Submissions by Mr. Mattson 252 10 Submissions by Mr. Jannigan 255 11 Submissions by Mr. Thompson 256 12 Upon recessing at 1443 265 13 Upon resuming at 1510 265 14 Submissions by Mr. Farrell 265 15 Reply submissions by Mr. Mondrow 275 16 Questions by the Board 280 17 Upon recessing at 1600 295 18 Upon resuming at 1606 295 19 SWORN: HOLLY REYNOLDS 295 20 SWORN: STAN KOKOTKA 295 21 SWORN: SCOTT DODD 295 22 Examination-in-Chief by Ms Soudek 295 23 Cross-Examination by Mr. Warren 301 24 Cross-Examination by Mr. Brett 316 25 Cross-Examination by Mr. Thompson 329 26 Re-Examination by Ms Soudek 348 27 Hearing adjourned at 1720 350 28 198 REYNOLDS/KOKOTKA/DODD, in-ch (Soudek) 1 UNDERTAKINGS/OBJECTIONS 2 3 NO. DESCRIPTION PAGE 4 5 J2.1 Breakdown of assets and O&M 321 6 costs (found at Exhibit C3, 7 Tab 6, Schedule 1) associated 8 with the rate setting 9 component and the non-rate 10 setting component of the 11 NGV program. 12 13 J2.2 Enbridge Consumers Gas 343 14 undertakes to provide the 15 equivalent of Exhibit C3, 16 Tab 6, Schedule 1, page 1, 17 with ABC out but CIS in under 18 the old method. 19 20 21 22 23 24 25 26 27 28 199 REYNOLDS/KOKOTKA/DODD, in-ch (Soudek) 1 EXHIBITS 2 NO. PAGE 3 4 K2.1 Detailed resume of 215 5 Mr. Stevens 6 7 K2.2 Two documents entitled 217 8 "Motion Materials HVAC 9 Coalition Affiliate 10 Transactions Motion" and 11 "Revised Prayer for Relief" 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 200 REYNOLDS/KOKOTKA/DODD, in-ch (Soudek) 1 Toronto, Ontario 2 --- Upon resuming on Tuesday, August 24, 1999 at 1300 3 THE PRESIDING MEMBER: Good 4 afternoon, everyone. 5 Mr. Farrell, welcome back. 6 MR. FARRELL: Good afternoon, 7 Mr. Chair. 8 THE PRESIDING MEMBER: Are there any 9 preliminary matters, Mr. Farrell? 10 Ms Lea? 11 MR. FARRELL: Yes, I have a couple of 12 preliminary matters, Mr. Chair. 13 First of all, I would like the Board 14 to extend the date for interrogatories on the 15 intervenor CIS witnesses to Thursday -- well, actually 16 Friday, to be on the safe side. 17 We got Mr. Stevens evidence last 18 Thursday, which was the day before the deadline, and we 19 feel we could have our interrogatories available by 20 midday on Thursday. 21 At this point it is not anticipated 22 that we would have any interrogatories for Ms Williams, 23 but I would like to reserve on that until at least the 24 end of the afternoon. 25 So, with the Board's permission, we 26 would then make the interrogatories available after the 27 specified deadline, but before the end of the week. 28 THE PRESIDING MEMBER: Any concerns, 201 REYNOLDS/KOKOTKA/DODD, in-ch (Soudek) 1 anyone? 2 MS LEA: When would the responses be 3 in, sir? 4 MR. FARRELL: I think there was a 5 week gap between the due date and the response date, 6 but we are anticipating that CIS witnesses, both ours 7 and the intervenor's, at the earliest would be at the 8 end of next week if not into the following week. 9 Perhaps I'm being pessimistic. 10 MR. THOMPSON: My only comment on 11 that, Mr. Vlahos, is, Mr. Stevens resides in Calgary, 12 so if there is any possibility that Mr. Farrell could 13 get the information requests to us earlier it would be 14 much appreciated and we will do our best to respond to 15 them as quickly as we can. 16 MR. FARRELL: We will do our best to 17 get them to you, if not by the end of tomorrow, 18 Thursday morning. 19 MR. WARREN: Mr. Chairman, the issue 20 of Ms Williams, I think it is probably necessary that I 21 just note on the record discussions which I have had 22 with Enbridge and with Board staff. 23 The availability of Ms Williams is a 24 problem. She is here this week and next. She is not, 25 however, available the following two weeks. 26 I haven't discussed with Mr. Janigan 27 and Mr. Thompson, whose clients are jointly sponsoring 28 her, their willingness to put her on ahead of the other 202 REYNOLDS/KOKOTKA/DODD, in-ch (Soudek) 1 witnesses, and I will do that. So that is one 2 possibility. 3 But she is not available for the two 4 weeks after next week, and I thought I should alert the 5 Board to that reality. 6 THE PRESIDING MEMBER: Mr. Farrell, 7 any comments on that? 8 Perhaps Mr. Warren, we have noted 9 that and we will see how it -- 10 MR. FARRELL: I wasn't looking for a 11 solution today, sir, I simply wanted to let you know. 12 THE PRESIDING MEMBER: Yes. 13 Anything else? 14 MR. FARRELL: I asked Ms Lea to put 15 up on the dias a paper-clipped two-page document. 16 These two pages are excerpts from what will be the 17 settlement -- excuse me, the scoping proposal, and they 18 deal with two of the issues you will be hearing this 19 afternoon. Late notice, but better than none. 20 When we are finished with the 21 preliminary matters, including Mr. Mondrow's motion, I 22 will leave the hearing room and go away and continue 23 work on the scoping proposal in accordance with the 24 discussions that I had with Mr. Thompson yesterday. 25 --- Pause 26 MR. FARRELL: I am advised that I may 27 have clipped a bit too much from the second page on the 28 home gas appliance inspection program. HVAC was 203 REYNOLDS/KOKOTKA/DODD, in-ch (Soudek) 1 reserving the right to deal with the business activity 2 category. 3 Maybe we can leave it on this basis: 4 If Mr. Mondrow is successful in his motion it would be 5 added to the scoping document and if he is not then it 6 becomes a moot point. 7 MR. MONDROW: I'm not sure that I 8 agree with that approach, sir, if I may. 9 The reason being that the motion 10 requests information and whether or not the Board sees 11 fit to direct that information be provided it would be 12 our position that the right to ask the Board at the end 13 of the day to find that the HGAI Program no longer 14 belongs in the utility by virtue of the 1998 15 undertaking remains. 16 So that I don't agree at first 17 instance that the caveat that was originally in the 18 draft that was inadvertently removed hinges on the 19 outcome of today's motion. 20 MR. FARRELL: We can have that 21 discussion perhaps off the record. 22 Just for the record, I thought that 23 you were seeking an order making business activities an 24 issue, and it was in that respect if you failed that I 25 thought that was a moot issue. 26 MR. MONDROW: I can deal with 27 Mr. Farrell on this at the break and we can advise 28 subsequent to the break. 204 REYNOLDS/KOKOTKA/DODD, in-ch (Soudek) 1 THE PRESIDING MEMBER: Thank you, 2 Mr. Mondrow. 3 Mr. Farrell, anything on the ADR? Do 4 you have anything to report? 5 MR. FARRELL: Yes, Mr. Chair. 6 The amendments or revisions that 7 would be required are few in number. 8 The only outstanding item I think on 9 which there has not yet been agreement on the text is 10 the description of the short term -- the cost of 11 short-term debt, which begins on page 23. 12 I can articulate the other changes 13 that will be made, there just hasn't been time to do so 14 for the purposes of the Board's comments. But I know 15 what the issue is, and Mr. Thompson knows what the 16 issue is, and we haven't quite got it down in writing 17 yet. 18 THE PRESIDING MEMBER: So it is 19 contemplated there will be an addendum or a document? 20 MR. FARRELL: I think what I was 21 contemplating, and I think what Mr. Thompson was 22 contemplating, that there would be revised pages to put 23 into the settlement proposal that at the end of the 24 day, so to speak, you would have an exhibit updated or 25 corrected, if you will, that was part of -- that would 26 remain within Exhibit N1, Tab 1, Schedule 1. 27 THE PRESIDING MEMBER: All right. 28 I'm sorry, what is the expected 205 REYNOLDS/KOKOTKA/DODD, in-ch (Soudek) 1 timing of that, Mr. Farrell? 2 MR. FARRELL: Tomorrow morning. 3 THE PRESIDING MEMBER: Tomorrow 4 morning. 5 MR. FARRELL: But the other issues, 6 if I could just take a moment to indicate to you what 7 they are and then you may judge whether it would have 8 any effect on the comments that you and your colleague 9 would have on the settlement proposal. 10 On page 10, the last sentence of the 11 final bullet near the end of the page would be deleted 12 and it would be added to the scoping proposal. In 13 other words, the scope of what you are going to be 14 hearing when we reach the transactional services panel. 15 --- Pause 16 MR. FARRELL: Page 18. 17 THE PRESIDING MEMBER: Since we are 18 going by pages, Mr. Farrell, on page 12, just for the 19 record, the K1.1 was submitted and I guess that is 20 satisfactory to the parties because there are no 21 other -- 22 MR. FARRELL: That is a good point, 23 Mr. Chair. 24 I can update this to make specific 25 reference to K1.1. 26 --- Pause 27 MR. FARRELL: The next was page 18 28 and it was a minor one, but since Ms Symes is here I 206 REYNOLDS/KOKOTKA/DODD, in-ch (Soudek) 1 will indicate what it is. 2 At the bottom of the page where it 3 lists the parties agreeing with the settlement, AMEC 4 would have in parentheses after it the three specific 5 deferral or variance accounts that Ms Symes client was 6 interested in. So that would just add a slight degree 7 of specificity to that particular line. 8 Page 19, under 3.3.2, it would then 9 become a complete conditional settlement -- 10 "conditional" in the sense that there are a few items 11 to be examined during the hearing. 12 Page 20. The first bullet appearing 13 below the middle whole in the page, the one that deals 14 with the class action suit deferral account. The third 15 line of that particular bullet you would delete "during 16 the oral hearing". So it would read: 17 "So it will be examined by means 18 of argument." (As read) 19 Page 21. There is now, as I 20 understand it, an agreement by all parties to the 21 settlement, so the parties that disagree with the 22 settlement would read "none". Adjustments would be 23 made accordingly. 24 It would also indicate that HVAC has 25 no position on the last bullet just above where I am 26 referring. That is the company's response. 27 I won't read you all the precise 28 changes, but you can consider it as a settled issue 207 REYNOLDS/KOKOTKA/DODD, in-ch (Soudek) 1 with no position on one topic in relation to HVAC, that 2 HVAC would otherwise be in agreement with the 3 settlement, and the list of supporting evidence would 4 be omitted to add the written direct that dealt with 5 the deferral account criteria. 6 THE PRESIDING MEMBER: Mr. Farrell, 7 while we are at this point, was it the company's view 8 that there are ratemaking implications that affect 2000 9 rates? It is something that I have to pay attention to 10 in that specific agreement by the parties as to what 11 terms for ratemaking purposes for year 2000 rates. 12 MR. FARRELL: I don't think there 13 are any. 14 THE PRESIDING MEMBER: Okay. 15 MR. FARRELL: For the rates. There 16 may be implications for the deferral account mechanics, 17 but there are no ratemaking implications that I am 18 aware of that arise from this particular issue 3.3.2. 19 THE PRESIDING MEMBER: Okay. Please 20 continue. 21 MR. FARRELL: Page 23 to page 25 in 22 terms of text is subject to further work on the actual 23 text, but I will try to articulate for the Board's 24 benefit, hopefully, the disagreement. 25 The parties talked about the cost of 26 short-term debt without getting into, in that 27 particular conversation, the difference between 28 short-term debt with a negative value or short-term 208 REYNOLDS/KOKOTKA/DODD, in-ch (Soudek) 1 debt with a positive value. So when the agreed upon 2 interest rate in the intervenor's view applied to 3 short-term debt with a positive value but not 4 short-term debt with a negative value, as is the 5 company's proposal for the test year. 6 So it is the latter that at this 7 point would be the subject of examination. 8 When we -- and I don't think I'm 9 breaching any confidences from the settlement 10 conference, but when the issue was discussed we also 11 didn't discuss -- from our perspective we didn't think 12 it was an issue, but it wasn't discussed and therefore 13 the intervenors didn't focus on it -- what is written 14 in the third bullet on page 23, and that is a six basis 15 point adjustment to reflect the costs of the company's 16 committed lines of credit. 17 That may or may not be an issue with 18 the intervenors, and the text that I do revise will 19 reflect input from Mr. Thompson and his colleagues. So 20 what you get will be what the argument is about. 21 I don't think it is a big job to 22 rewrite this; it is just that I ran out of time, 23 Mr. Vlahos. 24 I am told that the only other item 25 that somehow got -- there must have been a glitch or 26 something in the computer system. If you look at the 27 bottom of page 28 and then look at the first line on 28 page 29, you will realize that some text went missing. 209 REYNOLDS/KOKOTKA/DODD, in-ch (Soudek) 1 It is nothing controversial; it is just that somewhere 2 along the line a line of type got dropped, and perhaps 3 it was when we were doing the pagination. The DSM 4 enthusiasts probably would have read the document with 5 those lines in. Mr. Klippenstein was the one who 6 discovered that it went missing. 7 I hope that is helpful. The only 8 thing that we really have to do now on the settlement 9 proposal, to finalize it, is to deal with the cost of 10 short-term debt. And I have intervenor comments 11 through Mr. Thompson on the scoping proposal, and I 12 would hope that both would be available in the morning. 13 THE PRESIDING MEMBER: Okay, 14 Mr. Farrell. Just give me a second. 15 There was some comment from you 16 yesterday regarding Issue 5.1 on page 26. This has to 17 do with the bank gas account balances. You were to 18 receive parties' comments. Is there an issue there? 19 MR. FARRELL: No. The issue was that 20 at the end of the settlement conference it wasn't clear 21 to us that there was a consensus that Issue 5.1 be 22 settled, and when the settlement proposal was in its 23 draft stage and was circulated for comment I had a 24 number of comments from people that they thought that 25 Issue 5.1 had been settled. So I reversed the text, if 26 you will, to turn it into a settled issue. All I was 27 trying to indicate to the Board yesterday was that 28 someone could pop up and say "No, I did not agree with 210 REYNOLDS/KOKOTKA/DODD, in-ch (Soudek) 1 that." We have heard nothing, so I am assuming that 2 5.1 is settled. 3 THE PRESIDING MEMBER: Lastly, on 4 page 33 of 33, the average use trend data, and that is 5 under the DSM general heading -- 6 MR. FARRELL: My understanding is 7 that Ms Fraser for the Company and Mr. Rubin for Energy 8 Probe are engaged in discussions, and I will have to 9 track down where they are at. Hopefully this is 10 something that would simply be added to the package, if 11 we can get hold of them this afternoon. 12 Either it is a non-issue and could be 13 removed or it is an issue which, hopefully, would be 14 settled. If not, we will advise the Board accordingly. 15 Perhaps Mr. Mattson could help out. 16 I will track down Ms Fraser if he will do likewise for 17 Mr. Rubin. 18 MR. MATTSON: Mr. Chairman, my 19 understanding is that this issue may need to be settled 20 by the Board. However, I am looking at speaking with 21 Mr. Farrell about the evidence that might be relied 22 upon in argument. 23 So if there is no need for 24 cross-examination we can just argue the issue. 25 It goes back three or four years, so 26 there is a long evidentiary basis, but I need to get 27 Mr. Farrell's agreement on including that evidentiary 28 basis in order to argue, just in written argument. 211 REYNOLDS/KOKOTKA/DODD, in-ch (Soudek) 1 MR. FARRELL: Mr. Mattson and I will 2 hopefully come to grips with that sometime this 3 afternoon or tomorrow so that we can put Issue 6.1.4 to 4 bed one way or the other. 5 THE PRESIDING MEMBER: Before we 6 leave the ADR, Mr. Farrell -- and I guess for the 7 benefit of the other parties -- there are just a couple 8 of questions that we had, and it may help to put those 9 now, or some comments, so that the parties will address 10 them. There are only two or three areas. 11 The first one is on page 18. It is 12 the second bullet point from the bottom of the page, 13 starting at "The balance record and the share services 14 mechanism". Do you see that? 15 MR. FARRELL: Yes. 16 THE PRESIDING MEMBER: It makes 17 reference to the DSM consultative process, and the 18 issue has to do with the allocation and appearance of 19 the balance in the share services mechanism variance 20 account. I was just wondering about the timing of this 21 consultative -- its findings, its reports to the Board 22 and the Board issuing a decision and an order, and I 23 just wasn't clear as to what was contemplated there; 24 whether we are going to have that information before a 25 decision is made or, alternatively, before an order is 26 made by the Board. 27 Can someone help? 28 MR. FARRELL: My recollection is that 212 REYNOLDS/KOKOTKA/DODD, in-ch (Soudek) 1 the settlement proposal in E.B.R.O. 497-01 treated the 2 balance in the SSMVA in terms of clearance differently 3 than other deferral accounts and, in effect, delayed it 4 by a year. So the mechanics of the SSMVA are such that 5 when the year closes it doesn't get cleared like the 6 other deferral accounts into 2000 rates, but rather is 7 examined against the independent audit of the DSM 8 program and then brought forward for the Board's 9 consideration for disposition at the end of fiscal 10 2000. So it would have a ratemaking effect in fiscal 11 2001. 12 The mechanics, for the record, are in 13 E.B.R.O. 497-01, Exhibit C, Section 9, which was the 14 settlement proposal, page 9, and that is where we deal 15 with B.4 SSM Variance Account, and it deals with the 16 mechanics, and it goes on for two and a half pages. 17 I believe I have stated the mechanics 18 properly in terms of the ratemaking implications of 19 clearing the balance, but I will leave it to Mr. Poch 20 to correct me if I am wrong. 21 MS SYMES: Yes, I think that Mr. 22 Farrell has been absolutely accurate, and it has been 23 further elaborated on page 32 of the ADR agreement. 24 But it is not of concern in this particular rate case 25 because the disposition -- or the argument about how 26 much it is and the disposition will not take place 27 until the following rate case. 28 THE PRESIDING MEMBER: That is 213 REYNOLDS/KOKOTKA/DODD, in-ch (Soudek) 1 helpful, thank you. 2 On page 20, at the last bullet 3 point -- and this is the Company's proposal to 4 establish a market restructuring/systems development 5 deferral account. I was just wondering whether this is 6 something that has to be dealt with here or as part of 7 the group of seven. 8 MR. FARRELL: When the parties 9 discussed this particular deferral account in the 10 settlement conference there was agreement that the need 11 for it and everything else was related to the seven 12 series of issues, and so any discussion or examination 13 of it in a hearing process would be with those issues. 14 So, at least from the Company's 15 perspective, this element would be moving to phase two 16 along with the seven series of issues. 17 THE PRESIDING MEMBER: Those are all 18 the questions I had, Mr. Farrell. 19 The problem, Mr. Farrell, is that we 20 have to hear from you further in terms of the new pages 21 that we will insert before we can finally pronounce on 22 the ADR. 23 I know that does not help Mr. Poch 24 today, but I guess we will go out on a limb, Mr. Poch. 25 We have read the DSM section and we haven't identified 26 any questions so far. I guess it is your call whether 27 you catch a flight or drive this afternoon. 28 MR. POCH: Mr. Chairman, just in the 214 REYNOLDS/KOKOTKA/DODD, in-ch (Soudek) 1 interests, if nothing else, of saving of our costs, 2 with the Board's permission I will take my leave, in 3 that you don't have any questions now. I will read 4 about it and jump for joy or weep in due course. 5 If the Board does have any questions, 6 perhaps I could invite Board staff to relay that, and I 7 can confer with Mr. Farrell and either have to come 8 back or convey, through him, any comment. 9 In the hopes that none of that will 10 be necessary, with the Board's permission, I will take 11 my leave. 12 THE PRESIDING MEMBER: That will be 13 fine, Mr. Poch. Thank you. 14 MR. POCH: Thank you, Mr. Chairman. 15 Any other matters? 16 MR. THOMPSON: Yes, Mr. Chairman, I 17 just have a couple. 18 I don't know that Mr. Stevens' 19 prefiled evidence has been marked yet. It had not been 20 marked, I didn't think, as of yesterday. 21 Does it have an exhibit? 22 MR. FARRELL: I think in one of the 23 company's transmittal letters it was indicated that it 24 was Exhibit L12.1. But to second guess my client, I 25 was wondering whether it really should have been L25.2; 26 L25 being the number assigned to Ms Williams on behalf 27 of the three intervenors, and I would have thought 28 likewise for Mr. Stevens. 215 REYNOLDS/KOKOTKA/DODD, in-ch (Soudek) 1 MR. THOMPSON: I don't mean to hold 2 up the hearing for the number, but which one is it, 3 please? 4 MS DESAI: We will discuss that with 5 Mr. Farrell and obtain the right number. 6 MR. THOMPSON: The copies that were 7 circulated last week were in black and white. There 8 are some colour exhibits which we are unable to print 9 last week. So I have left a series of copies of the 10 colour printed version of the exhibit with Board staff, 11 so that Board members will be able to consult the 12 coloured version if they wish. 13 I have a few additional copies 14 available. I have given some to the company, and I can 15 bring more if necessary. 16 There is another document that I 17 would like to file and have marked in connection with 18 Mr. Stevens' testimony, and that is a more detailed 19 resume of Mr. Stevens. 20 With your permission, I would like to 21 mark that now. There are copies over here on the 22 exhibit desk. 23 MS DESAI: That would be Exhibit 24 K2.1. 25 EXHIBIT NO. K2.1: Detailed 26 resume of Mr. Stevens 27 MR. THOMPSON: Thank you. 28 THE PRESIDING MEMBER: Are there any 216 REYNOLDS/KOKOTKA/DODD, in-ch (Soudek) 1 other matters? 2 MS SYMES: Mr. Chairman, subject to 3 your approval of the portions of the ADR agreement 4 dealing with DSM and the other issues that the Alliance 5 participated in, I would ask to be excused. 6 The only other issue we were 7 interested in you have hived off into Phase II, and we 8 will return at that time. Thank you. 9 THE PRESIDING MEMBER: Thank you, 10 Ms Symes. 11 Are there any other matters? 12 Mr. Farrell, are you going to stay 13 with us? 14 MR. FARRELL: Yes, I am. I am the 15 one who will be responding on behalf of the company to 16 Mr. Mondrow's motion. 17 After the motion, Ms Soudek will 18 return with the next panel. 19 THE PRESIDING MEMBER: Will the next 20 panel be NGV or will it be HGAI? 21 MR. FARRELL: NGV, followed by HGAI. 22 I will distribute, at the appropriate time, an update 23 to the hearing schedule. This will probably be a daily 24 occurrence, as I mentioned at the outset. We will try 25 to keep it all current. 26 THE PRESIDING MEMBER: Mr. Mondrow? 27 MOTION 28 MR. MONDROW: Thank you, sir. Just 217 MONDROW, motion 1 one more piece of paper before I start, and I will 2 provide copies to you through Board staff. 3 I will explain this as soon as it is 4 distributed. 5 In connection with the motion then, 6 sir, you should have by now two documents before you. 7 One is a cerlox-bound book of materials, dated August 8 21st, and entitled "Motion Materials HVAC Coalition 9 Affiliate Transactions Motion". The second is the 10 single sheet that I have passed up today, which is 11 entitled "Revised Prayer for Relief". 12 It is dated today, and I will explain 13 that in a moment. 14 Perhaps it would be appropriate to 15 mark the two packages together, if you wish, as 16 exhibits. 17 MS DESAI: That will be K2.2. 18 EXHIBIT NO. K2.2: Two documents 19 entitled "Motion Materials HVAC 20 Coalition Affiliate Transactions 21 Motion" and "Revised Prayer for 22 Relief" 23 MR. MONDROW: The essence of our 24 request today, sir, is that we are seeking a response 25 to certain of HVAC Coalition's interrogatories which 26 requested information with respect to affiliate 27 transactions. 28 As originally scoped, the motion 218 MONDROW, motion 1 sought this information for two reasons. The first was 2 to assess compliance by the company with the new 3 Affiliate Relationships Code for gas utilities. The 4 second reason for which we sought this information was 5 to assess compliance by the company with the new LGIC 6 undertakings, which I will refer to as the 1998 7 undertakings. 8 In respect of this latter reason, it 9 was HVAC Coalition's intention to be able to make at 10 least a preliminary assessment of whether there are 11 activities carried out within the regulated entity 12 which constitute other business activities as that term 13 is used in the 1998 undertakings. 14 The subject interrogatories 15 requested, among other things, information on 16 anticipated affiliate transactions and their pricing 17 for the test year. 18 I have, in discussions with 19 Mr. Farrell and with his assistants, determined that 20 Enbridge has not yet determined, but is in the process 21 of determining, precisely which affiliate transactions 22 will occur during the test year and the method for 23 pricing of those transactions. 24 As I understand it, the company is 25 working with Pricewaterhouse to develop a market -- I'm 26 sorry, Ernst & Young; one of their consultants -- to 27 develop a market pricing methodology in order to comply 28 with the new affiliate code. 219 MONDROW, motion 1 It therefore, sir, appears that the 2 information requested with respect to the test year and 3 requested in order to address the first of the two 4 interests I spoke to at the top -- that is, compliance 5 with the Affiliate Relationships Code -- is not yet 6 available. 7 In this respect then, with respect to 8 compliance with the Affiliate Relationships Code, the 9 interrogatories and the motion as originally scoped is 10 essentially premature. 11 Therefore, the submissions today will 12 be limited to the second issue raised on the motion; 13 and that is, as I said off the top, assessment of 14 compliance by the company with the 1998 undertaking. 15 In light of the information now 16 provided by the company, the Prayer for Relief set out 17 in the original Notice of Motion is, with your leave, 18 being amended, and that is the reason for the loose 19 sheet which I passed up today. 20 If I could ask you to turn in the 21 motion material to page 1, which is the initial Notice 22 of Motion, and have beside you the one-page revision 23 that I handed up today, the first aspect of our Prayer 24 for Relief, as we seek to amend it, therefore, is that 25 "the Board provide an order directing that", and we 26 replaced paragraph 1 in the initial Notice of Motion 27 with the information request scoped out on the single 28 sheet. 220 MONDROW, motion 1 So what we are now asking the Board 2 to direct the company to provide is the following 3 information: 4 A list of affiliates' non-utility 5 activities and ancillary businesses with whom 6 transactions are occurring during the 1999 fiscal year; 7 and in the case of the affiliates, a brief description 8 of the business activities of each such affiliate. 9 With respect to each affiliate 10 non-utility or ancillary business transaction during 11 the 1999 fiscal year, a description of the product or 12 service provided by, or procured by, the utility. 13 For each product or service provided 14 by the utility to one or more affiliate's non-utility 15 activities or ancillary businesses, the total cost to 16 the utility of undertaking the activity underlying the 17 product or service provided, and the total excluded 18 from cost of service in fiscal 1999 on account of 19 provision of that product or service to affiliates' 20 non-utility activities or ancillary businesses. 21 To the extent that any information is 22 currently available to indicate anticipated changes to 23 the nature, scale or scope of affiliate transactions 24 from the 1999 fiscal year to the 2000 fiscal year, a 25 description of the change that is anticipated. 26 And finally, corporate organization 27 charts for the Enbridge group of companies as of 28 October 1, 1998 and October 1, 1999. 221 MONDROW, motion 1 The information that we are now in 2 the revised form seeking should, it is hoped by HVAC 3 Coalition, provide at least a snapshot of any 4 particular services provided from within the utility 5 that extend significantly beyond services to the 6 utility itself; that is, the issue of other business 7 activities. 8 We submit that with respect to this 9 issue, the request for relief is not premature. 10 I will submit that there are two 11 reasons that the issue is appropriately addressed in 12 this proceeding. 13 The first reason is that the Board 14 has already recognized the issue as appropriate at this 15 time and for this case, and I will come back to that. 16 The second is that intervenor scrutiny of this issue in 17 this case and at this time is in the public interest, 18 and I will come back to that as well. 19 I should note, in closing my 20 introductory comments -- and I would like to 21 underscore -- that HVAC Coalition cannot, as I sit here 22 today, assess whether there is in fact an issue to be 23 raised in this proceeding with respect to particular 24 other business activities. Without the information 25 requested, it is impossible for us, and indeed we 26 submit for anyone save for the company, to assess that. 27 The affiliate transaction evidence in 28 the past has been very sparse, in our submission, but 222 MONDROW, motion 1 HVAC Coalition has identified at least a few concerns 2 that it would like more information on, and I will come 3 back to that in a moment as well. 4 Finally, it is our submission that 5 the issues list in this case is already broad enough to 6 cover this issue under the affiliates transactions 7 issue as approved by the Board at the outset of this 8 proceeding. 9 I would like to step back for just a 10 moment and review the interrogatories requested and the 11 responses to those interrogatories that give rise to 12 this motion. 13 I would ask you to turn up, starting 14 at page 6 in the motion materials, if you would allow 15 me to do that. 16 As you are turning that up, I should 17 note that in the initial prayer for relief we included 18 HVAC Interrogatory 5, which is Exhibit I, Tab 11, 19 Schedule 5, as an interrogatory for which we were 20 seeking further and better response. I will note for 21 the record that upon review of that particular response 22 we are satisfied and are not seeking any additional 23 relief in respect of Schedule 5, which leaves then 24 Schedules 4, 6, 7 and 8 of HVAC Coalition series of 25 interrogatories for which we are seeking -- were 26 initially seeking a better response. 27 I would just like to review those as 28 initially posed and answered by way of context to the 223 MONDROW, motion 1 scoped information requests that we are now placing 2 before the Board for its consideration. 3 If we can start, then, with 4 Schedule 4 at page 6 of the motion materials, we 5 requested affiliate transactions, essentially, a report 6 for the test year -- a prospective report, that is, for 7 the test year -- and we used the precise format 8 provided for in the affiliate code. For the record, 9 the reference in the affiliate code is articles 2.8, 10 2.8.2 and 2.8.3. 11 Therefore, we requested: a list of 12 affiliates with whom transactions are expected to 13 occur, a description of each such affiliates' business, 14 a brief description of the product or service in 15 question, the form of price or cost determination for 16 each such product or service, the start date and 17 expected completion date, and a revised corporate 18 organization chart and the current costing and transfer 19 pricing guidelines. 20 Then, in interrogatories given 21 schedule numbers 6, 7 and 8, we requested subsets of 22 this information with respect to particular services. 23 So Schedule 6 deals with fleet services, Schedule 7 24 deals with human resource services, and Schedule 8 25 deals with information services. In each case, the 26 company's response is essentially as follows: 27 First of all, the information was not 28 provided and there were four grounds provided by the 224 MONDROW, motion 1 company for not responding to the information request 2 as posed. 3 First, the company, as I understand 4 it, responded that the information is not relevant for 5 ratemaking purposes. 6 Second, and related to the first 7 response, given the PBR regime now approved by the 8 Board with respect to O&M expense, the issue is not 9 relevant in calculating O&M expense for the test year. 10 Third, the company states that there 11 is no prior approval requirement at present for 12 affiliate transactions. 13 Fourth, there is no requirement to 14 record or report transactions with affiliates on a 15 budgeted basis. 16 In fact, the last rationale provided 17 by the company has, with Mr. Farrell's assistance, now 18 been elaborated on and not only does the company state 19 that it is not required to provide the information, but 20 in fact we are now told the information is not 21 available yet on a budgeted basis and cannot be made 22 available reasonably during the currency of this case. 23 Now, HVAC coalition still believes 24 that the issue of compliance with the Code still needs 25 to be addressed. Reporting and monitoring in order to 26 assess that compliance, as is reflected in the scoping 27 document that you were handed today, we do not intend 28 to pursue that issue on this motion, as I have already 225 MONDROW, motion 1 said, but we do intend to pursue it in the normal 2 course of the case as that issue has been scoped out 3 for you. 4 However, pursuit of the specific 5 information with respect to the test year at this point 6 would, as I noted earlier, be fruitless and so we are 7 not pursuing that in this motion. Thus, we have 8 presented our revised information request which, in 9 summary, is limited to ongoing transactions and 1999 10 figures which should be obtainable. 11 Again, it is our submission that the 12 information now requested will at least provide a 13 better snapshot of the nature, scale and relative scope 14 of current affiliate activity, and we have requested, 15 to the extent it is available, an update anecdotally 16 even with respect to the future of any such activities. 17 Quite frankly, sir, if there is an 18 issue, we don't expect it can be resolved completely in 19 this case for the test year, but it may at least be 20 identified and the Board be requested to provide some 21 direction for how it can be resolved, on what time 22 frame and through what mechanism. That is why we are 23 seeking the information at this time. 24 Turning, then, to the appropriateness 25 of the issue of compliance with the 1998 undertakings 26 in respect of other business activities in this case, I 27 would like to ask you to turn up page 36 of the motion 28 materials. As you have already divined, I trust the 226 MONDROW, motion 1 numbers I'm referring to -- the page numbers are in 2 circles at the top right-hand corner of the pages to 3 distinguish them from other page numbering on the page. 4 Now, just by way of context, the 5 Board will be familiar with the fact that the 1998 6 undertakings were released on the eve of commencement 7 of the separation case, as I will refer to it, which 8 was E.B.O. 179-14/15, the eve of commencement of the 9 hearing, the oral hearing in that case. Following 10 initial consideration by the Board and submissions by 11 the parties of the impacts of the new undertakings on 12 the case, and the consequently scoping by the company 13 of its prayer for relief in that case, the case 14 proceeded. 15 Of course the new undertakings 16 provide -- and I will just refer to this quickly. If 17 you turn to page 37 of the motion materials in 18 article 2, entitled "Restriction on Business 19 Activities", provision 2.1, which states: 20 "Consumers, now Enbridge, shall 21 not, except through an affiliate 22 or affiliates, carry on any 23 business activity other than the 24 transmission, distribution or 25 storage of gas without prior 26 approval of the Board." 27 (As read) 28 I will refer to what is termed here 227 MONDROW, motion 1 "any business activity other than", et cetera, as other 2 business activities for the purposes of the motion. 3 Now, we got to the hearing itself. 4 If I could ask you to turn to page 41 of the motion 5 materials, I have provided a relatively lengthy, for 6 the sake of completion and fairness, excerpt from the 7 transcripts of Ms Lawson's cross-examination on behalf 8 of, then OCAP, and now VECC, wherein Ms Lawson sought 9 to explore the issue of what other activities, other 10 than those directly in issue in the subject case, 11 i.e. the ancillary businesses, being carried on within 12 the utility at the time. 13 If I could ask you, then, to turn to 14 page 41 of the motion materials you will see the 15 cross-examination by Ms Lawson starting -- and I'm just 16 going to leaf through this and quickly read in a few 17 portions -- starting with page 44 of the materials, 18 which is page 248 of Volume 3 of the transcript in that 19 proceeding. 20 Starting at line 16, Ms Lawson's asks 21 Mr. Hills, the company's witness, if he could explain 22 which of the three business activities -- transmission, 23 distribution and storage -- Mr. Hills considered each 24 of the following six activities to fall under and in 25 each case explain as well as he could the reasoning 26 behind that. Ms Lawson sought to start with NGV and 27 Mr. Farrell interjected at that point to raise an issue 28 as to the relevance of the line of questioning. 228 MONDROW, motion 1 If you turn over, then, to page 45 of 2 the motion materials, which is page 249 of the 3 transcript, Ms Lawson, addressing the Chair, stated 4 that OCAP was interested in the company's reasoning 5 behind the whole bundle of activities and transfers 6 that it is proposing in this general proceeding. 7 Ms Lawson said: 8 "We are interested in comparing 9 ... the Company's reasoning for 10 ... maintaining certain 11 activities within the utility." 12 Then she elaborated again at page 250 13 of the transcript, which is page 46 of the materials, 14 starting at line 9, where she stated: 15 "Madam Chair, we think the 16 Company's understanding of the 17 undertakings require some kind 18 of understanding of the 19 definitions of these terms and 20 how the other aspects of its 21 business fall into these terms, 22 and that's what I'm trying to 23 get at." 24 Then I interjected, sir, at the 25 bottom of that same page, starting at line 26, and 26 expressed the concern, if you flip over to page 47 of 27 the materials, which is page 251 of the transcript, 28 after noting that I was not privy to where Ms Lawson 229 MONDROW, motion 1 was going with her questions, I stated, starting at the 2 end of line 1: 3 "...it strikes me that parties 4 may argue that there are 5 activities currently being 6 carried on within the utility 7 that aren't properly part of one 8 of those three core businesses 9 as now named in the 10 undertakings. 11 And given that the kick-in 12 date of the undertakings is the 13 end of the first quarter of the 14 current calendar year, it is not 15 clear to me where, if not here, 16 parties will be able to seek 17 clarification and ask questions 18 with respect to those." 19 Then if we skip down to line 18 on 20 the same page, I continued: 21 "I doubt very much that 22 those..." 23 Referring to the other business activities: 24 "...are part of the Company's 25 request and yet parties might 26 well argue those are in fact 27 diversified activities." 28 In this respect, I'm referring back 230 MONDROW, motion 1 to lines 15 through 17 where I mentioned such 2 activities as billing service, suite services by way of 3 example. 4 Then continuing at line 21 I stated: 5 "The problem is, there will be 6 no proceeding to review that, 7 and if we don't ask questions to 8 that effect here I'm not sure 9 where intervenors will be 10 entitled to raise those issues." 11 Now, if we just flip over -- and I'm 12 almost through this but I think the context is 13 important, sir -- if you flip over to page 48 of the 14 motion materials, which is page 252 of the transcript, 15 Mr. Farrell gave us his initial reaction and states: 16 "My initial reaction, 17 Madam Chair, if there is a 18 business activity for which we 19 have not applied for the Board's 20 prior approval to continue, the 21 risk is ours. 22 So I'm not too sure whether, 23 that being the case, we need to 24 get into other areas such as 25 Mr. Mondrow is alluding to." 26 Then the Chair observes: 27 "When you say the risk is yours, 28 can you just address that a 231 MONDROW, motion 1 little bit for me. What would 2 you see that risk as being? 3 If no one knows whether 4 you're carrying them on or not 5 carrying them on, what risk are 6 you referring to?" 7 That, in our submission, sir, is 8 precisely the issue that we are raising before you 9 today, if no one knows what risk is the company 10 referring to and how is this matter going to be 11 appropriately dealt with. 12 If you could, by way of conclusion, 13 flip to page 56 of the motion materials, which is 14 page 260 of the transcript, starting at line 18. The 15 Chair, in attempting to provide some order to that 16 proceeding in the context of this issue states, 17 starting at line 18: 18 "If the company had other 19 activities which it felt were 20 business activities within the 21 meaning of the undertaking, we 22 would, of course, expect them to 23 bring them forward for approval 24 either with or without a 25 hearing. 26 Mr. Mondrow's question I 27 think is what if they don't do 28 that? And I think that that 232 MONDROW, motion 1 question would be addressed in 2 the context of the next rates 3 case, the October 1st 4 proceeding, in which it would be 5 open to intervenors to come 6 forward and say: `What about 7 this activity? Isn't this a 8 business activity and doesn't 9 the Company need approval to go 10 forward with it? 11 I guess we are all in a 12 transition period and we are all 13 going to have to, to some 14 extent, learn as we go along 15 because these things are new 16 definitions, new to us and new 17 to intervenors. We don't wish 18 to be unfair to anybody's 19 opportunity to bring forward 20 questions about how these should 21 apply, but we can't do 22 everything today." (As read) 23 Sir, HVAC Coalition would like a 24 response to the interrogatories as reshaped in the 25 revised information request in order to enable it to 26 assess whether there is a legitimate issue to bring 27 forward with respect to other business activities in 28 this case. 233 MONDROW, motion 1 This is not just a fishing 2 expedition. There are some smoking guns. Now, the 3 phrase might in fact be a bit of an overstatement, but 4 to illustrate the point, I would like to take you to 5 page 62 of the motion materials. Starting at page 62, 6 I have reproduced 13 pages of Exhibit B, section 5.2 in 7 the separation case, the 179-14/15 proceeding, where 8 the company provides some evidence on shared services. 9 I would like to note a few things about this evidence. 10 First of all, in the first paragraph, 11 in the second sentence, the company notes, near the end 12 of that sentence, that some of these activities are 13 supported through the addition of resources. 14 Then, if we skip down to the first 15 bullet, by way of an aside, for the moment, the human 16 resources service is mentioned there -- and I will come 17 back to that. 18 Then, if we look at the paragraph 19 following the bullets, in the third sentence, the 20 company says: 21 "... services will be provided 22 on an ongoing basis." (As read) 23 I will come back in a moment and 24 summarize this. I just want to point you to certain 25 excerpts here. 26 If I can ask you, then, to flip over 27 to page 63 of the motion materials and I ask you to 28 look at the paragraph preceding the bullet points at 234 MONDROW, motion 1 the bottom of that page, the company states, in its 2 evidence: 3 "The separation process required 4 an extensive look at the current 5 source of services and where 6 they should logically reside in 7 the future; i.e., shared from 8 within the utility or provided 9 independently outside the 10 utility." (As read) 11 The company took a first crack at 12 this issue and made a determination, but that hasn't 13 been reviewed anywhere. It is our submission that it 14 has to be reviewed, and it should be reviewed here. 15 Then, if we flip over to page 64 of 16 the motion materials, which is the third page of this 17 exhibit, and we look at the third paragraph on the page 18 that begins, "The services to be provided following 19 unbundling" -- and, of course, this exhibit speaks only 20 to those services to be provided or shared with 21 Consumersfirst, now Enbridge Services, but if we look 22 at the last sentence in that paragraph, right before 23 the 5.2.2 heading, the company states: 24 "These services are fairly 25 consistent with the existing 26 services provided to 27 Consumersfirst. However, some 28 additional services related to 235 MONDROW, motion 1 the businesses to be transferred 2 and an increased quantity of 3 service required have been 4 reflected." (As read) 5 Then, if you flip the page again, to 6 page 65 of the materials, we see a list of items with 7 dollar figures beside them, and I just want to point 8 out the human resources item, the information 9 technology item and, for in excess of a million dollars 10 in that year, the fleet services item -- that would be 11 the test year. The test year in this proceeding. 12 Then we have a discussion of the 13 human resources service. You will see, as you flip 14 through pages 65 and 66 of the materials, there are 15 four headings to describe the nature of those services. 16 Then if you flip to page 67 of the 17 materials, you will see a discussion on the information 18 technology services. 19 Finally, if you flip to page 69, you 20 will see a discussion of the fleet services. 21 I neglected to mention, back on page 22 67, under the information technology services 23 discussion, the first sentence reveals that information 24 technology services will be limited to application 25 support for SPAHR, the human resources payroll system. 26 So, again, we see the human resources sharing of 27 services mentioned. 28 Now, the point of me taking you to 236 MONDROW, motion 1 these excerpts, sir, is the following. 2 First, the services to be shared with 3 Consumersfirst, which is what is described in this 4 exhibit, are, in some instances, permanent and, in some 5 instances, increasing in scale and scope -- and that is 6 just with respect to Consumersfirst. We don't know 7 about the other services to the other affiliates. 8 Second, the evidence reveals the 9 utility's intention to add resources within the utility 10 to provide these services to Consumersfirst, an 11 affiliate. 12 Third, as I pointed out, services in 13 each of the three specific areas initially identified 14 by HVAC Coalition, in its interrogatory, the fleet 15 services, human resources and information systems, are 16 referred to in this evidence. 17 So, in summary, sir, it is our 18 submission that the request before you today is brought 19 on some basis in past records. 20 It is HVAC Coalition's submission 21 that provision of the information contained in the 22 revised request for review and enquiry by intervenors 23 is appropriate -- and we have three bases for these 24 submissions, which I will come to right now. After 25 noting that it is appropriate for us to be able to 26 review this information and for the Board to have the 27 benefit of this information, in this case in 28 particular -- and they say that because unbundling is 237 MONDROW, motion 1 imminent and we are on the eve of establishing the 2 "white line", as Dr. Bauer has referred to it in the 3 past, between monopoly and competitive services. So 4 the issue is timely; it has come to a head. 5 The first basis that we say it is 6 appropriate for the Board to order the information to 7 be provided for review in this case is that it has been 8 amply demonstrated, historically, in our submission, 9 that intervenors' scrutiny has protected the public 10 interest. I need throw up only a few examples -- cost 11 allocation changes and diagnostic services -- to 12 underscore the fact that while the company may not like 13 this form of scrutiny, there can be no doubt that the 14 process has served to protect the public interest. 15 The second basis on which we say it 16 is appropriate for the Board to grant the relief 17 requested is that part of the regulatory process is 18 accessibility; that is, the public should be able to 19 see regulation working, not just be told that it will 20 be taken care of. This has, traditionally, been 21 referred to as the "right to be heard", and this Board 22 has always held the principle of public participation 23 and input as important, indeed crucial, to its 24 findings. 25 The third basis that we submit it is 26 appropriate to order the relief requested is, in fact, 27 related to the first two points. I ask, rhetorically, 28 "Who is better placed to evaluate the impact of 238 MONDROW, motion 1 affiliate transactions in the organizations 2 representing other participants in the energy services 3 marketplace? Who is more sensitive to these issues 4 than HVAC Coalition, CEED and CENGAS, and the customer 5 groups, CAC, IGUA and VECC and, indeed, the other 6 initiated and expert intervenors before you?" 7 With great respect to the Energy 8 Returns Officer and staff, in our submission, we have 9 to be out there to really know what is going on and 10 what is important and what isn't important, and you 11 have to know -- you have to be out there to know what 12 gives one competitor an advantage over another, which, 13 after all, is the basis of the provision of the 14 undertakings that I took you to, along with the other 15 side of the same coin, which is protection of 16 ratepayers with respect to cross-subsidy issues. 17 In our submission, the Board has 18 recognized the two sides of that coin within the scope 19 of its new mandate. 20 So, in conclusion, sir, it is our 21 submission that the information requested, as outlined 22 in the revised request which we put before you today, 23 should be directed to be responded to as quickly as 24 possible so that HVAC Coalition and other interested 25 parties can assess whether there is an issue that they 26 feel should be pursued, in this case, with respect to 27 other business activities. Without the information, we 28 have no basis for assessing the issue, at all -- and 239 MONDROW, motion 1 that is inappropriate. We refer back to the references 2 by the Chair of the Panel, in the separation case, that 3 recognized the importance of the issue and recognized 4 the utility, if you will pardon the pun, as having the 5 intervenors explore the issue with the appropriate 6 information. 7 Finally, and just briefly, with 8 respect to costs, we are requesting an award of our 9 costs on this motion, but under the usual Board process 10 and at the end of the proceeding. I will just note, 11 quickly, that HVAC Coalition has been qualified, in 12 this proceeding, for recovery of its 13 reasonably-incurred costs. The motion seeks relief on 14 what we submit is important and, as should be clear, a 15 novel issue related to the new governing structure of 16 the industry and this Board's mandate. It is not 17 frivolous or vexatious, in our submission. 18 I would like to underscore 19 appreciation for Mr. Farrell and, in the context of my 20 costs submissions, note that we approached the company, 21 prior to argument of this motion, to clarify and scope 22 the dispute and, with Mr. Farrell's assistance, we were 23 able to do that and focus just on the issue that, in 24 our view, is, to coin a phrase being used lately, ripe 25 and relevant to the proceedings today. 26 Thank you very much, sir. Those are 27 my submissions. 28 THE PRESIDING MEMBER: Thank you, Mr. 240 MONDROW, motion 1 Mondrow. 2 We will go out to those generally in 3 support of the motion and then -- 4 MR. FARRELL: I was just asking Mr. 5 Mondrow a clarifying question off the record. If you 6 could just give him a moment. It might affect other 7 parties' submissions, Mr. Chair. 8 MR. MONDROW: Mr. Chairman, Mr. 9 Farrell has re-raised an issue that, in a different 10 context, was kind of alluded to off the top today and 11 that is, in our Notice of Motion, with respect to the 12 second paragraph on page 1 of that motion, in the 13 Prayer for Relief, we are asking the Board to direct 14 that the other business activity issue is an issue that 15 parties are entitled to address as part of issue 3.9, 16 "Affiliate Transactions", in this proceeding. 17 I suppose to be quite fair to Mr. 18 Farrell and to recognize why he raised this issue off 19 the top, we did include that in our Prayer for Relief. 20 We are not, in fact, taking the 21 position that absent an express ruling from the Board 22 parties are precluded from arguing that issue in their 23 final argument. The undertakings, in our submission, 24 form a legislative and regulatory context, just like 25 any other policy directive or piece of legislation or a 26 company regulation that the Board has to concern itself 27 with. So, it is not our submission that we need an 28 express ruling from the Board to be able to refer to 241 MONDROW, motion 1 the 1998 undertakings in argument and, I guess to be 2 fair, we inserted this aspect of our Prayer for Relief 3 as a redundancy. If the Board is going to turn its 4 mind to this and order the information sought, it would 5 be appropriate, in our submission, to do so within the 6 context of recognition of the scope of that issue for 7 the hearing. 8 But we do not take the position that 9 absent an express ruling from the Board parties are not 10 entitled to refer to the issue at the end of the day. 11 I think the scoping document that has been put before 12 you, but will be revised, will reflect that position as 13 well. 14 Mr. Farrell may wish to argue that 15 without an express ruling from the Board we are not 16 entitled to address that issue, in which case I will 17 have brief submissions in reply. 18 Frankly, we don't see it as a 19 necessary precondition to proceeding with the case, 20 other than in any other fashion other than the 21 provision of this information. I hope that is 22 clarified. 23 MR. FARRELL: Yes, it does. 24 I would just like to add one 25 clarification. What I handed the Board members earlier 26 were just excerpts from the scoping proposals, so they 27 don't have the proposal yet. I just wanted the record 28 to be clear. 242 MONDROW, motion 1 MR. MONDROW: The excerpts will be 2 revised, I am told by Mr. Farrell, so that the caveat 3 that we wanted included with respect to this issue at 4 the end of the day will be reinserted so that the Board 5 will understand the scope. I believe Mr. Farrell has 6 consented to that already. 7 MR. FARRELL: Yes. 8 THE PRESIDING MEMBER: Thank you, 9 gentlemen. 10 We will go first with those who 11 generally supported the motion and then to those 12 generally in opposition. I don't know, the staff could 13 go after I guess if they have anything to add and then 14 go to the company. 15 MR. FARRELL: Mr. Chair, I was going 16 to ask if I just might have a moment to consult with 17 Mr. Ladanyi. Something has occurred to me in the 18 context of Mr. Mondrow's remarks in relation to final 19 argument that may or may not obviate the need for any 20 further argument on this motion. 21 THE PRESIDING MEMBER: Certainly. 22 --- Pause 23 MR. FARRELL: Thank you. 24 I am sorry for the interruption. I 25 think you should proceed to hear the other parties, Mr. 26 Chairman. 27 THE PRESIDING MEMBER: Thank you, Mr. 28 Farrell. 243 MONDROW, motion 1 Those in support of the motion. 2 SUBMISSIONS 3 MR. WARREN: Mr. Chairman, the CAC 4 supports the request. We adopt the reasoning of my 5 friend, Mr. Mondrow. I will confine myself to 6 submissions which are either unique to the CAC or which 7 are supplemental to those of my friend, Mr. Mondrow. 8 To begin with, with respect to the 9 CAC position, the CAC was a participant in the 10 separation case. Our understanding, Mr. Chairman, of 11 the production of information is embodied in the 12 exchanges to which my friend, Mr. Mondrow, has referred 13 you in the transcript. 14 Page 48 of his motion record, when 15 the Board framed the dilemma in its question to Mr. 16 Farrell, namely, quote: 17 "If no one knows whether you are 18 carrying them on or not carrying 19 them on what risk are you 20 referring to?" (As read) 21 And then I think more pointedly at 22 page 56 of the motion record, where the Board said at 23 the bottom of the page: 24 "Mr. Mondrow's question I think 25 is what if they don't do that 26 and I think that that question 27 would be addressed in the 28 context of the next rates case, 244 WARREN, submissions 1 the October 1st proceeding, in 2 which it would be open to 3 intervenors to come forward and 4 say, 'What about this activity? 5 Isn't this a business activity 6 and doesn't the company need 7 approval to go forward with 8 it?'" (As read) 9 So my point simply is that the CAC 10 understood those transcript references to be in effect 11 a direction from the Board that the area of inquiry 12 raised by my friend, Mr. Mondrow, would appropriately 13 be raised in this case. 14 Then question then turns to if you 15 are going to pursue that area of inquiry what is the 16 information base on which you can do it? That's a 17 question of overcoming what is traditionally referred 18 to as the information asymmetry in the regulatory 19 field. 20 The problem is that the intervenors 21 do not have the information necessary in order to make 22 that determination of whether there is a business 23 activity and the governing consideration, in our 24 respectful submission, should be the wording of the 25 1998 undertakings, which Enbridge Consumers itself 26 negotiated. 27 Article 2.1 is a direct proscription 28 that the consumers shall not accept through an 245 WARREN, submissions 1 affiliate or affiliates carry on any business activity 2 other than the transmission, distribution or storage of 3 gas without the prior approval of the Board, and it 4 strikes me as being perverse if the company could avoid 5 that obligation by hiding information. That surely 6 would be a distortion of the purpose of the 7 undertakings of that very proscription. 8 I finally want to turn to what I 9 understand from the HVAC interrogatory responses to be 10 the arguments of the company contrary. To that end I 11 would ask if the Board would turn up page 7 of Mr. 12 Mondrow's motion record. I take the company's response 13 to really be three rather than four. 14 The first response to the request for 15 information is that as the information requested is not 16 relevant for ratemaking purposes. That, in my 17 respectful submission, is an irrelevant response. 18 As the Board direction to which Mr. 19 Mondrow and I referred you to, this is an appropriate 20 issue to be raised in this case and whether or not is 21 relevant for ratemaking purposes doesn't matter. It's 22 an inquiry legitimately raised pursuant to the 23 undertakings, as the Board in the last case said it 24 could be raised. 25 The second point in the interrogatory 26 response is that the O&M expense base, of which the 27 costs were moved from the utility cost of service 28 related to non-utility activities are a component, is 246 WARREN, submissions 1 calculated in accordance with the Board's E.B.R.O. 2 497-01 decision with reasons. 3 I say, with respect, so what. That's 4 not an answer for the importance to the need to 5 disclose the information in order to allow the inquiry 6 under the undertakings to proceed. 7 The final, and in many respects the 8 most important of the responses which is embodied in 9 two different ways in the interrogatory response, is 10 that Enbridge's relationships with its affiliates are 11 governed by the affiliate relationship code and that 12 code does not require prior approval. 13 With respect, they are also governed 14 by the undertakings and not just by the Code. The 15 undertakings which Enbridge voluntarily negotiated with 16 the government and it is those undertakings, rather 17 than the Affiliate Relationships Code which demand, I 18 say with respect, the production of this information. 19 Those are my submissions. Thank you. 20 THE PRESIDING MEMBER: Thank you, 21 Mr. Warren. 22 Mr. Brett. 23 SUBMISSIONS 24 MR. BRETT: Thank you, Mr. Chairman. 25 I just have two points to make in 26 addition to what my friends have said. I am in 27 support, generally, of Mr. Mondrow's motion. I have 28 one small caveat that I would enter at the end, but in 247 BRETT, submissions 1 terms of support I think my first reason is why it 2 would be reasonable for the company to provide this 3 information and for the Board to ask them to provide 4 this information in this case is the Affiliate Code 5 itself. 6 If you look at the wording of the 7 Code, first of all the objectives, it talks about the 8 minimization of the potential for the utility to 9 cross-subsidize. If you look at section 8 of the Code, 10 which is -- sorry, section 2.8, which is page 18 of the 11 motions book, where it talks about record keeping and 12 reporting requirements, the information there that the 13 Board is entitled to ask for is really the information, 14 pretty much the information that Mr. Mondrow is asking 15 be released in his motion. 16 2.8.2, for example, at the bottom of 17 page 7 says: 18 "In addition to any other 19 reporting requirements contained 20 in this Code, a utility shall 21 provide the following 22 information in a form and manner 23 and at such times, (my emphasis) 24 as may be requested by the 25 Board." (As read) 26 Then it goes on over the page to list 27 this information, list of affiliates, corporate 28 organization chart, specific costing and transfer 248 BRETT, submissions 1 pricing guidelines. 2 Then, if you go down to 2.8.3 it 3 talks about: 4 "Where the total cost of the 5 transactions with an affiliate 6 exceeds on an annual basis 7 $100,000, the utility shall 8 maintain and make available, 9 upon request by the Board, 10 separate records showing the 11 name, the product, the form, the 12 price or cost determination and 13 the start date and expected 14 completion date of the 15 transaction." (As read) 16 Well, that last piece, (d), is a 17 forward looking document. It is a forward looking 18 idea. 19 So I would say at least insofar as 20 any transactions in excess of $100,000 are concerned, 21 what Mr. Mondrow is asking be preferred is really very 22 much parallel to what this Code says you have the right 23 to ask for and request in a manner and timing and in a 24 fashion that you choose. 25 Given that fact, it seems to me it is 26 appropriate for you to effectively ask for it in the 27 context of this case because, number one, it is very 28 efficient. It is an efficient way to get the 249 BRETT, submissions 1 information out. What information is available you can 2 get it out easily and get it filed with intervenors. 3 You don't then have to have a separate proceeding of 4 any sort under the Code, the provisions of the Code 5 itself. 6 Secondly, as my friend Mr. Mondrow 7 touched on, I think it is a fair point that you get 8 that out into the public arena so intervenors can look 9 at it and people who are involved in these various 10 commercial pursuits who are customers of the utility 11 can scrutinize it. They will flag for your information 12 very quickly whether there is anything that may be of a 13 troublesome nature there, and then you can go on to 14 decide whether there is a substantive issue worth 15 dealing with. 16 But you could be sure that anything 17 that is troublesome or problematic will get flagged by 18 one or more of the various intervenors. 19 Without any disrespect to the Board 20 staff or the ERO or anybody else, they have a very 21 heavy load, they are not necessarily as familiar with 22 the intimate details of how these various companies 23 relate to the utility cousin company and it is just not 24 fair to expect them to do all that. 25 Now, the final point I would make is 26 that with respect to the question of -- this doesn't go 27 to the information. I believe I am in support of the 28 information being asked for and being brought forward. 250 BRETT, submissions 1 I have one question in my mind with 2 respect to the issue of how this might be used in the 3 case. 4 The Affiliate Relationships Code is 5 at issue in the case, there is no question about that, 6 and that is one of the reasons why I am supportive of 7 this motion. "Affiliate relationship" has to mean 8 something. 9 On the other hand, if the issue 10 arises down the road of: Well, of all of the 11 activities that the utility is pursuing, including ones 12 that Mr. Mondrow mentioned, and others that we will 13 examine in this case such as NGB and HGAI, and so on, 14 if the issue arises as to which of any of these 15 services are appropriate services for the utility to 16 carry on under the undertakings, that issue may require 17 some evidence at some point. 18 If, for example, the utility really 19 hasn't addressed the issue of whether, for sake of 20 argument, the fleet service is a unique business -- is 21 part of the utility business or isn't. If, therefore, 22 the issue we are going to be litigating in this case as 23 to whether or not a particular service should come out 24 over and above the things we already have on the issues 25 lists like NGB and HGAI, which people are prepared to 26 address in this context, and I assume the utility is 27 prepared to address, that may require some further 28 filings. 251 BRETT, submissions 1 So that is my only caveat in the 2 sense that -- but I think what I hear Mr. Mondrow 3 saying is that he is not at that stage yet. He just 4 wants to see the ongoing transactional information 5 filed so that we can determine whether or not there is 6 an issue with one of these other activities. Because 7 the issue will arise ultimately, you know: Does the 8 activity constitute part of the distribution activity 9 or not? 10 So with that caveat I just register 11 that concern. 12 That said, I am supportive of the 13 motion to provide the information. 14 Thank you very much. 15 THE PRESIDING MEMBER: Thank you, 16 Mr. Brett. 17 Mr. Brett, can I just clarify? 18 You spoke of efficiency to get 19 information on a rates case and also can serve as a 20 flag, very quickly. 21 I am just thinking ahead, if we have 22 a five-year comprehensive PBR plan, there ought to be 23 some other avenue I guess. 24 MR. BRETT: Yes. I think that is 25 fair, although there will be -- you are thinking ahead. 26 I'm thinking in terms of the 27 Consumers plan itself it is limited. So there would be 28 still the opportunity with the annual rate case. 252 BRETT, submissions 1 If we get into the Union-style five 2 year price cap plan where -- I suppose there will be 3 some filings in the context of those, even then, I 4 think having to do with SQIs and certain limited -- 5 whether there are "Z" factor considerations. I think 6 there is an annual -- normally those plans contemplate 7 some sort of a review, at least of service quality and 8 maybe other things, and it could be, for example, that 9 this material could be filed as part of that process on 10 an ongoing basis. 11 Since this doesn't really relate 12 per se to -- I mean, unlike -- this doesn't relate to 13 costs per se, it relates more, as I see it, to the 14 relationship between the utility and the affiliates. 15 THE PRESIDING MEMBER: All right. 16 Thank you. 17 Mr. Mattson? 18 MR. MATTSON: Thank you, 19 Mr. Chairman. 20 SUBMISSIONS 21 MR. MATTSON: I believe I am next. 22 Energy Probe supports the motion 23 brought forward by HVAC. Certainly we feel that 24 Mr. Mondrow has done an excellent job of following up 25 on what was the newness of the Order in Council in 26 December of last year which approved the new 27 undertakings. 28 I note, and Mr. Mondrow did draw the 253 MATTSON, submissions 1 Board's attention to considerable discussion that went 2 on in the course of the separation hearing around this 3 issue, and the Board's concerns about being in a 4 transition period, being asked to define new 5 definitions, there were new intervenors, they couldn't 6 do everything all at once. 7 I note, Mr. Chairman, that it might 8 be lost in the pace of change, but under the old Act 9 when an Order in Council came into effect the Board was 10 required by law to have a hearing and to ultimately 11 have the intervenor's input into how those changes 12 would affect the process, highlight the concerns that 13 may be apparent to intervenors so that the Board would 14 have an opportunity to assess the Order in Council and 15 advise the government back as to what consequences 16 might flow from that and what concerns there may be and 17 then the government could obviously do what it wanted. 18 It wasn't a binding decision. 19 But at least under the old Act there 20 was an opportunity to assess what changes may occur and 21 what concerns may arise as a result of the Order in 22 Council. 23 Under the new Act that is no longer 24 required. So once the Order in Council was filed with 25 the Board, the parties had to begin to define these new 26 definitions and to determine what concerns may have 27 arisen on their own. In the separation hearings 28 certainly the Board didn't have time to delve into 254 MATTSON, submissions 1 those issues. 2 However, at this hearing -- and the 3 Board did note that this would be the time, the 4 appropriate time maybe to consider these issues. This 5 is the first opportunity, in other words, for the 6 intervenors to really assess the Order in Council and 7 the undertakings and what consequences there are for 8 the regulatory process. 9 So my friend Mr. Mondrow's request in 10 his interrogatory seem to me -- maybe I'm being 11 simplistic here, but they seem not only relevant, but I 12 would say Mr. Mondrow should be commended for keeping 13 track of this issue and spending a great deal of time 14 and putting a lot of thought into this issue so as to 15 hopefully avoid what may be some fairly significant 16 consequences if the parties and the Board aren't aware 17 of the changes that will occur as a result of the 18 undertakings. 19 I don't see how my friend Mr. Farrell 20 could argue that this information -- and we haven't 21 even gotten to the argument stage, but that the 22 information shouldn't at least be made available so 23 that the parties and the public can at least understand 24 the ramifications of the new undertakings and to 25 determine whether or not Consumers is abiding by those 26 undertakings and also to determine how the Board is 27 going to go forward in the future and fulfil its public 28 interest role in ensuring that Consumers Gas abides 255 MATTSON, submissions 1 with those undertakings in the future. 2 With PBR in place -- you have already 3 asked the question of Mr. Brett, I think that 4 complicated question, I certainly couldn't answer it 5 and Mr. Brett did a fine job on the spot answering your 6 question -- but I'm not so sure my client knows how 7 some of these issues are going to be resolved in the 8 future. 9 I think it is a good time at least to 10 begin to get the company's responses to the 11 interrogatories on the record and to begin to probe 12 these issues and hopefully get an understanding of them 13 and deal with them in due course. 14 So we support Mr. Mondrow's motion. 15 Thank you. 16 THE PRESIDING MEMBER: Thank you, 17 Mr. Mattson. 18 Mr. Janigan. 19 MR. JANIGAN: Thank you, Mr. Chair. 20 SUBMISSIONS 21 MR. JANIGAN: VECC also supports the 22 motion of HVAC for disclosure. We believe that this 23 disclosure is in keeping with, first of all, the role 24 of intervenors in the context of a rates proceeding. 25 Secondly, it is in keeping with the 26 role of the Board in particular in ensuring that 27 appropriate information is before the public interest 28 intervenors the intervenors in this proceeding. 256 JANIGAN, submissions 1 We also believe that the disclosure 2 of the information is appropriate as it relates to 3 issues that are at play in this particular proceeding 4 and I believe the statements made by the Board Chair in 5 the last case, which has been referred to earlier, are 6 particularly pertinent in making that conclusion. 7 So we would support this motion for 8 disclosure and request that the Board give relief in 9 accordance with the page that Mr. Mondrow has put 10 before you. 11 THE PRESIDING MEMBER: Thank you, 12 Mr. Janigan. 13 Mr. Thompson. 14 SUBMISSIONS 15 MR. THOMPSON: Yes. Thank you, 16 Mr. Chairman. IGUA supports the motion. 17 My submissions are a little bit 18 different than what the others have made. 19 Mr. Mondrow, in our submission, seeks 20 information about the manner in which the Company is 21 pricing/costing affiliate transactions. I believe he 22 is seeking information in this context with respect to 23 1998 actuals, 1999 estimates and for the test year 24 2000. 25 The questions asked go to the issue 26 of cross-subsidization by the utility of its affiliates 27 and its ancillary and/or non-utility business 28 activities. These topics are the proper subject of 257 THOMPSON, submissions 1 scrutiny in any rate case, in my respectful submission. 2 In response to questions of this 3 nature I think it is important to look at the Company's 4 response, as Mr. Warren has done and others have done, 5 because the response -- taking the motion record at 6 page 6 as an example, the first paragraph of every 7 response says: "The requested information is not 8 relevant for ratemaking." That implies that it is not 9 relevant for an issue to be considered in a rate case 10 and, in the context of this case, in this particular 11 rate case. That, in my submission, is quite wrong, and 12 I will come to that in a moment. 13 The other aspect of the response, 14 though, is the Company's transactions with affiliates 15 now being governed by the Affiliate Relationships Code. 16 The implication of that response is: "We are no longer 17 bound to follow the costing/pricing rules that have 18 been established by this Board in past decisions." Mr. 19 Mondrow implied that Mr. Farrell told him that the 20 Company now has KPMG working on new rules. We have 21 been through these rules ad nauseam in this case. If 22 the Company is in effect saying "We are no longer 23 complying with those old rules and don't intend to in 24 the future", that is something that you should be aware 25 of. So that response is interesting. 26 The other aspect of the responses 27 makes reference to the Board's 497-01 Decision with 28 Reasons. The Company says that they own an expense 258 THOMPSON, submissions 1 base of which the costs removed from the utility cost 2 of service related to non-utility activities, our 3 component, is calculated in accordance with the Board's 4 E.B.R.O. 497-01 reasons. That response implies that, 5 therefore, we don't have to tell you what we are doing 6 in terms of affiliate transactions costing/pricing in 7 the context of ongoing rate reviews, and that, I 8 submit, is clearly incorrect, as I will explain in a 9 moment. 10 These topics of cross-subsidization 11 and information pertaining to cross-subsidization have 12 relevance, I submit, not only to compliance with the 13 undertakings, which Mr. Mondrow has referred to, not 14 only with respect to compliance with the Affiliate 15 Transaction Code, not only with respect to compliance 16 with past decisions, but also to the monitoring and 17 reporting requirements under the PBR regime established 18 by the Board in E.B.R.O. 497-01. 19 In the scoping document, which you 20 have yet to see, it has been accepted by the parties 21 that the topics of monitoring and reporting 22 requirements under the PBR regime established by the 23 Board in 497-01 fall within the ambit of the O&M 24 expenses topic, Issue 3.2, and also within Issues 3.8 25 and 3.9, non-utility eliminations and affiliate 26 transactions. 27 It is clear, I submit, from the 28 497-01 decision that the topic of monitoring and 259 THOMPSON, submissions 1 reporting requirements, and the report on the operation 2 of the PBR plan generally, is to be part of ongoing 3 rate reviews. I would just like to draw your attention 4 to the relevant portions of that decision. 5 Under the topic "Monitoring and 6 Reporting Requirements", at page 26 of the decision, in 7 paragraph 2.5.1, the Board noted as follows: 8 "The Company did not prefile a 9 proposal for a monitoring and 10 reporting protocol, but during 11 the hearing a number of related 12 matters were discussed." 13 The Board then went on: 14 "Since the proposed O&M PBR plan 15 is a partial plan addressing 16 only one component of the cost 17 of service, the Company 18 indicated its expectation that 19 `traditional' cost of service 20 filings and rate reviews will 21 continue. There would therefore 22 be an opportunity to report on 23 the Plan and respond to 24 questions about it as part of 25 the rate reviews." 26 One of the most important features, I 27 submit, of reporting on the plan is: How have you 28 allocated costs with respect to affiliate transactions? 260 THOMPSON, submissions 1 Have you complied with the rules? Have you complied 2 with undertakings given to the Lieutenant-Governor? 3 That is the essence of the questions 4 which Mr. Mondrow is, in effect, asking, and the 5 Company says "irrelevant". I submit that they are 6 clearly not irrelevant. 7 A further paragraph in the Board's 8 decision pertaining to this information, and 9 submissions might be based on such information, is 10 paragraph 3.0.22. The Board said -- and this is under 11 the topic of monitoring and reporting requirements: 12 "The Board will expect to review 13 specific results and any 14 proposed changes during main 15 rates cases and determine what, 16 if any, remedial action is 17 appropriate." (As read) 18 How can anyone make any submissions 19 as to the nature of the reporting and changes that 20 ought to be made if the Company refuses to provide any 21 information about what it is doing about non-utility or 22 affiliate transaction pricing and costing elimination 23 and what it plans to be doing in not only the bridge 24 but the test year? 25 The full disclosure of this type of 26 information, in my respectful submission, is critical 27 to the monitoring and reporting of the plan. 28 There is another paragraph in the 261 THOMPSON, submissions 1 Board's decision that implies that information on its 2 operation will be forthcoming in rate proceedings, and 3 that, in my submission, is paragraph 3.0.25, under the 4 heading of "Off Ramps", where the Board accepted that 5 situations may arise which would warrant the 6 abandonment of the PBR plan, viewed the types of 7 situations justifying such action as speculative, and 8 said: 9 "The Board will not comment 10 further in this decision in 11 respect of this issue, except to 12 note that a party could request 13 the Board to consider whether a 14 situation constitutes 15 justification to abandon the PBR 16 plan." (As read) 17 If you can't get any information on 18 how affiliate transactions, non-utility eliminations 19 and ancillary business eliminations are being treated, 20 that right, I would suggest, is pretty much 21 meaningless. 22 So I would respectfully submit that 23 the information that is being requested is relevant to 24 a number of issues that are to be explored during the 25 course of this proceeding. The information ought to be 26 provided and full disclosure of information pertaining 27 to the actual, estimated and budget year O&M expenses 28 in the context of monitoring and reporting, and the 262 THOMPSON, submissions 1 regime that ought to be in place, is a critical 2 component of this rate case. 3 Let me just give you a for instance. 4 The company refuses to provide the 5 information. We have been told, but we have never seen 6 a document that they are only planning to report O&M 7 expenses in a single line to the Board. Let's assume 8 that the company changes the way that it reports 9 affiliate transaction costing/pricing and/or 10 non-utility eliminations and/or ancillary transactions. 11 The result there would be that the 12 reported O&M expense to the Board would be overstated, 13 the benefits of the PBR in terms of enhancing returns 14 would be understated, and the Board would be misled, I 15 would submit, about the operation of the plan. 16 So you need the actual information, 17 at least in this year and perhaps in the next few 18 years, in order to gain confidence that this plan and 19 the monitoring and reporting of it is a just and 20 reasonable plan. 21 Consider, for example, if there is an 22 inappropriate reporting of O&M expenses on a one-line 23 basis and therefore understating the impact of the 24 benefits of PBR and the enhanced return on equity that 25 could result, you could have an understated return on 26 equity. Whereas if the reporting was accurate and the 27 equity return was accurate, it might be to a point 28 where it would justify intervenors saying: "That's too 263 THOMPSON, submissions 1 high an actual return on equity." 2 Some sort of off ramp relief is 3 appropriate or perhaps some sort of sharing beyond that 4 excessive level of return is appropriate. 5 That is the kind of concept, as I 6 understand it, that is reflected in the Board's PBR 7 rate handbook for electricity distributors. 8 Crucial to this analysis is 9 information about the actuals and the estimates and the 10 budget and whether the rules are being complied with or 11 not being complied with. 12 In summary, the information is 13 relevant to issues before the Board, and it ought to be 14 ordered to be produced so that Mr. Mondrow and others 15 can properly present their case. 16 I should say that information of this 17 nature is also likely to come up during the course of 18 the examination of the O&M expense panel where this 19 monitoring and reporting topic is going to be canvassed 20 and others, in addition to Mr. Mondrow, have been faced 21 with this refusal to provide any information on 22 actuals. 23 Certainly IGUA will be seeking 24 direction, when we get to that topic, that if those 25 refusals persist in the witness stand this information 26 be ordered to be produced, that this kind of 27 information pertaining to actual performance be 28 produced. 264 THOMPSON, submissions 1 Thank you very much. 2 THE PRESIDING MEMBER: Thank you, 3 Mr. Thompson. 4 Mr. Farrell, did you wish to break 5 now? 6 MR. FARRELL: Yes, I would. I was 7 prepared to go ahead until I heard Mr. Thompson's 8 arguments, which didn't seem to address Mr. Mondrow's 9 motion in the least. 10 So I would like a bit of time to 11 check his references and respond to his quasi motion. 12 THE PRESIDING MEMBER: That is fine, 13 Mr. Farrell. 14 Mr. Thompson, if I could follow up, 15 the original questions by HVAC dealt with questions of 16 test year data, and the amended Prayer for Relief 17 speaks of the 1999 fiscal year. 18 I am a little confused. You also 19 extend it to actuals, bridge and test year. 20 I wonder whether you are introducing 21 an amendment to the motion or you are simply noting 22 that the actuals may become an issue when we visit the 23 affiliate transactions issue. 24 MR. THOMPSON: It's more in the 25 nature of a heads up. When I first read Mr. Mondrow's 26 questions, in the context of the unanswered 27 interrogatories, I guess I read into them more than he 28 was asking. I thought it was actual bridge and test 265 THOMPSON, submissions 1 year. 2 I appreciate that this afternoon he 3 narrowed his request to bridge year information. 4 All I am saying is that whether it is 5 actual, whether it is bridge, whether it is test year, 6 it is all relevant in the context of this case. That 7 is the view that you should take of this kind of 8 information when you are considering Mr. Mondrow's 9 motion. 10 THE PRESIDING MEMBER: Thank you. 11 Mr. Farrell, the clock on the wall 12 says 17 minutes to three. We will return at 3:10. 13 MR. FARRELL: Thank you, Mr. Chair. 14 --- Upon recessing at 1443 15 --- Upon resuming at 1510 16 THE PRESIDING MEMBER: Mr. Farrell. 17 SUBMISSIONS 18 MR. FARRELL: Thank you, 19 Mr. Chairman. 20 As we understand the purpose of 21 Mr. Mondrow's motion on behalf of the HVAC Coalition, 22 it is that he is seeking information in regard to 23 certain of the company's activities that may lead him 24 to conclude that those activities may constitute a 25 business activity other than the transmission, 26 distribution and storage of gas for the purposes of 27 Article 2.1 of the 1990 undertakings. 28 He used, and I will use, the phrase 266 FARRELL, submissions 1 "other business activity" to connote that. 2 I would start my submissions-in-chief 3 by noting a simple fact; and that is that Issues 3.8 4 and 3.9 were put on an issues list that the Board 5 approved prior to two events: one was the publication 6 of the Board's decision in E.B.R.O. 497-01, which was 7 the PBR case; and the other event was the publication 8 as a rule, in final form, of the Affiliate 9 Relationships Code. 10 As we understand the purpose of the 11 Affiliate Relationships Code, it is to create a rule 12 book, if you will, to govern affiliate transactions by 13 gas utilities. It is a means, in other words, of 14 reducing regulatory burden. 15 It is therefore not surprising that 16 there are no references in the Code to proceedings 17 under the Code, which is a phrase that Mr. Brett used. 18 I will come back to that thought when 19 I deal with Mr. Brett's submissions. 20 Similarly, the Code, combined with 21 the new undertakings, which removed references to 22 affiliate transactions, was another means of reducing 23 the Board's regulatory burden. That, too, is a 24 consequence of the Board's decision in the 497-01 case, 25 where the Board approved a targeted O&M PBR plan that 26 fixed an O&M base for ratemaking purposes for fiscal 27 2000 and in doing so eliminated dollars associated with 28 non-utility eliminations and affiliate transactions. 267 FARRELL, submissions 1 It was for that reason that the 2 company, in certain of its responses, said that the 3 dollar value of those transactions have no effect for 4 ratemaking purposes. That, we thought, was 5 self-evident. 6 Mr. Mondrow's submissions focused on 7 the information he needs, and he also -- and I think 8 this is noteworthy -- was prepared to accept the 9 information that could be made available; that is to 10 say, bridge year or fiscal 1999 information as opposed 11 to test year information, because it was not a 12 reasonable approach in our view. 13 He made submissions to you on the 14 necessity for a public review. Here I am now focusing 15 my remarks on public review for the purposes of the 16 1998 undertakings, because his motion is confined to 17 that purpose. 18 I would just point out to you, using 19 Mr. Mondrow's motion record, that article 7.1 -- and 20 this is at page 38 of the motion materials -- 21 article 7.1 gives the Board the discretion in granting 22 an approval under the undertakings to proceed without a 23 hearing or by way of an oral, written or electronic 24 hearing. So that article suggests to me that the 25 Lieutenant Governor in Council did not contemplate 26 public review in all aspects but rather left it to the 27 Board to determine what process would be appropriate 28 under the circumstances. 268 FARRELL, submissions 1 Compliance with the Code would appear 2 to us to be the Board's concern. Compliance with the 3 undertakings insofar as they relate to things that the 4 Board must give approval to are also a matter of the 5 Board's concern. That was manifested in the case of 6 the undertakings by the Board's practices under the 7 previous undertakings. 8 Some applications under the previous 9 undertakings were processed by the Board outside of the 10 hearing room and others were brought into the hearing 11 room, typically in a rates case. So there was no 12 invariable rule that something happening under the 13 undertakings had to make it into a hearing room for 14 scrutiny by intervenors. 15 Now, I am going to, in some ways, 16 take an unusual approach. I'm going to respond to some 17 of the submissions made by individual counsel rather 18 than grouping them because their submissions tended to 19 vary. 20 I will start with Mr. Warren. 21 Mr. Warren was critical of our responses to the HVAC 22 interrogatories. He pointed out that the responses 23 made no mention whatsoever of the undertakings. 24 Well, with respect, neither did Mr. 25 Mondrow's interrogatories. They were all keyed off of 26 our evidence, plus a reference to what was then a draft 27 affiliate relationships code. The information, as 28 Mr. Mondrow told you earlier was he was mimicking, if 269 FARRELL, submissions 1 you will, provisions in the Code, and our responses 2 were made accordingly. The silence in our responses in 3 relation to the undertakings is therefore not 4 surprising, notwithstanding Mr. Warren's criticism. 5 Mr. Brett made the comment of "You 6 should do it in this hearing to avoid a separate 7 proceeding under the Code." I was taken with that. 8 First of all, the Code doesn't refer 9 to separate proceedings, but, then, in relation to a 10 favourite buzz word of the day as between the gas and 11 electricity industries that there be a level playing 12 field, I suppose Mr. Brett would have you convene 270 13 cases to scrutinize compliance by each of the MEUs with 14 the Code provisions. A veritable cottage industry for 15 intervenors. 16 I frankly didn't understand 17 Mr. Mattson's comments, so I really am not in a 18 position to reply to them, which takes me to 19 Mr. Thompson. 20 When you consider his submissions and 21 my reply to them, I would like you to keep in the back 22 of your mind this question: Is IGUA trying to reopen 23 the PBR decision? 24 Mr. Mondrow, as I mentioned earlier, 25 is prepared to accept information for the bridge year 26 fiscal 1999. Mr. Thompson opened his remarks by 27 commenting on historical data for the -- fiscal 1998 28 bridge year data for fiscal 1999 and a budget for 270 FARRELL, submissions 1 fiscal 2000. That is why I mentioned in my remarks it 2 seemed like he was making a quasi motion. 3 He then talked about the importance 4 of scrutinizing whether there was cross-subsidization 5 of affiliates or other non-utility activities. I was 6 puzzled by that because of the way in which the PBR 7 plan is structured for ratemaking purposes: 8 non-utility eliminations and affiliate transactions 9 have been backed out, so to speak, of the O&M base. 10 He then mentioned that, as he 11 understood it from my conversations with Mr. Mondrow, 12 the company was no longer going to comply with the old 13 rules. My note says we no longer considered ourselves 14 bound to follow the OEB's rules in past decisions. 15 That took us somewhat by surprise 16 because if Mr. Thompson were to read carefully the 17 Affiliate Relationships Code, it requires that 18 transactions of a shared service nature take place at 19 no less than fair market value, hence the role of Ernst 20 & Young in helping the company develop guidelines that 21 would comply with the Code. It's only when one can't 22 develop prices that are based on fair market value that 23 there is a default, if you will, to a cost-based price. 24 He then talked about the topic of 25 cross-subsidization. He mentioned the undertakings. 26 The undertakings don't say anything about 27 cross-subsidization. They talk about whether there are 28 other business activities that either should or 271 FARRELL, submissions 1 shouldn't be in the corporate entity Enbridge Consumers 2 Gas. 3 The issue of cross-subsidization, if 4 there is to be such a thing, is covered by the 5 Affiliate Relationships Code if something is moved out 6 of the corporate entity. I have already made my 7 comments in relation to the purpose of the Affiliate 8 Relationships Code and the guidelines that are provided 9 to ensure that cross-subsidization doesn't take place. 10 Therefore, I'm not too sure of the role the Board's 11 past decisions in the new era. 12 He took pains to talk about the 13 monitoring and reporting requirements with references 14 to the E.B.O. 497-01 decision as if the Board, in 15 making that decision, had left wide open the type of 16 monitoring and reporting requirements that were being 17 dealt with in that decision. So I think it is 18 important just to take a look at that decision. 19 One of Mr. Thompson's references was 20 section 2.5.1 on page 26, and he quoted the first 21 sentence: 22 "The company did not prefile a 23 proposal for a monitoring and 24 reporting protocol, but during 25 the hearing a number of related 26 matters were discussed." 27 (As read) 28 I don't doubt that that's an accurate 272 FARRELL, submissions 1 report, but if one looks at section 2.5.2 one will see 2 that the monitoring and reporting protocol was in 3 reference to performance standards or SQIs. That 4 interpretation is supported, if one looks at the second 5 citation by Mr. Thompson, in section 3.0.22 on page 40 6 entitled "Monitoring and Reporting Requirements", and I 7 will quote: 8 "The Board accepts that the 9 monitoring and reporting 10 requirements are related to the 11 performance and maintenance of 12 the SQIs relative to target. 13 The Board will expect to review 14 specific results and any 15 proposed changes during main 16 rates cases and determine what 17 if any remedial action is 18 appropriate." (As read) 19 So we weren't talking about 20 monitoring and reporting O&M expenses or whatever. The 21 Board was talking about performance standards. 22 He then made reference to reporting 23 O&M on a single line. That is in fact, as you, 24 Mr. Chair and Ms Halladay, would realize, the report in 25 the format required by the Energy Returns Officer, and 26 the company complies with the reporting protocol 27 established by the Energy Returns Officer. So if 28 Mr. Thompson is being critical of a one-line entry for 273 FARRELL, submissions 1 O&M expenses, he is not criticizing the company; he is, 2 in effect, criticizing the ERO and perhaps also the 3 Board. 4 Again, bear in mind, when you are 5 considering his submissions and mine, the question: 6 Does IGUA intend to try to reopen the PBR decision in 7 this case? 8 I now will go through Mr. Mondrow's 9 revised prayer for relief in terms of information that 10 can be made available if the Board sees fit to grant 11 his motion and the sources of the information that we 12 would provide. 13 The first bullet there, the main 14 source would be the response to HVAC No. 70 in last 15 year's case. It provides the 1999 then test year 16 affiliate transactions, just in terms of providing a 17 list of affiliates and so on. 18 His second bullet is a description of 19 the product or service provided for fiscal 1999 -- as 20 is provided by or procured by the utility from or to 21 affiliates. 22 I am advised that Appendix F of the 23 cost allocation manual filed in the 497 case provides a 24 description of what each department does. The 25 ancillary businesses are omitted from that transaction 26 because, at the time, and still at the moment, things 27 like the rental program are competitive businesses and 28 we don't intend, unless you compel us, to disclose any 274 FARRELL, submissions 1 information of a competitive nature that would be 2 damaging to those businesses. 3 Moving to the next bullet, the first 4 sub-bullet, the total cost to the utility of 5 undertaking the activity underlying the product or 6 service provided, this was provided, again, in HVAC 70 7 as the basis for determining the fully allocated costs. 8 We are not sure how readily available 9 something like the actual costs would be, in terms of 10 having it recorded, but the costs for these activities 11 were removed on a fully allocated cost basis. 12 The next sub-bullet is, again, the 13 non-utility elimination. A combination of the 14 non-utility elimination and the -- that covers 15 affiliates in non-utility activities, and then the 16 ancillary businesses, as a group, had, for them, 17 calculated a rate of return plus the imputation of 18 revenue. 19 Again, we would not provide 20 information on the individual ancillary programs, for 21 competitive reasons. 22 The second-last bullet on the page, 23 the source for the information is most likely to be 24 Exhibit B, Section 5.2, in the E.B.O. 179 14/15 25 hearing. That was a portion of the separate evidence, 26 or the unbundling evidence, as it was called then. 27 The last bullet is the corporation 28 organization charts. It is just a question, if they 275 FARRELL, submissions 1 don't exist, they are easily created. So that is not a 2 work problem, if you will. 3 So, in summary, to the extent that 4 you grant, or feel compelled to give, HVAC relief for 5 what they are requesting, we would ask you to give them 6 the relief requested and not the add-ons, if you will, 7 that some of the other intervenors, and in particular 8 IGUA, was inviting you to do. 9 We do not feel that the question of 10 the transactions related to the 1998 undertakings or, 11 put more properly, the determination of whether 12 something is an "other business activity" is 13 necessarily a question that falls under either 14 Issue 3.8 or Issue 3.9 because they don't, at least in 15 and of themselves, involve an affiliate -- that 16 determination does not necessarily involve an affiliate 17 transaction or a non-utility elimination. 18 Those are my submissions. 19 THE PRESIDING MEMBER: Thank you, Mr. 20 Farrell. 21 Mr. Mondrow, do you need any time? 22 MR. MONDROW: No, I don't think so, 23 sir. Thank you. I will just take one moment while he 24 is sitting here. 25 --- Pause 26 REPLY SUBMISSIONS 27 MR. MONDROW: In reply, sir, I would 28 just go to the Revised Prayer for Relief. 276 MONDROW, reply submissions 1 Mr. Farrell has gone through the 2 bullet points on that single page, which is part of 3 Exhibit K2.2, and has recited, with respect to many of 4 the bullet points, a source from one of two previous 5 hearings, most of them from the 497 hearing and, in at 6 least one instance, from the separation case. 7 Lest there be a misperception on the 8 Board's part, arising from Mr. Farrell's comments, I 9 would like to make clear that we, of course, reviewed 10 the information on the record from those proceedings 11 and if that information was adequate for the purposes 12 that we sought the information for, we wouldn't have 13 felt compelled to bring this motion. 14 Now, if Mr. Farrell was simply saying 15 that will be the source and the information will be 16 filled in in accord with the information request as we 17 have scoped it on the single page, then I have no 18 problem with that. If Mr. Farrell was saying, "We are 19 just going to reproduce that information in that form", 20 then I do have a problem with that because that is not 21 what we are asking. 22 I hope Mr. Farrell was simply saying 23 the former. 24 But, for example, with respect to the 25 second bullet in our Revised Prayer for Relief, we 26 request, with respect to each affiliate non-utility or 27 ancillary business transaction during the 1999 fiscal 28 year, a description of the product or service provided 277 MONDROW, reply submissions 1 by or procured by the utility. 2 Now, as I recall the cost allocation 3 manual appendix, it provides a general description of 4 the activities for each corporate department within the 5 utility -- I am probably not using the right term when 6 I say "corporate department" but I think you get the 7 gist of what I am describing. Our request is a little 8 more specific and, I might add, very carefully thought 9 out. 10 We would like a description of the 11 transaction, not a general description of what the 12 department does and doesn't do and may or may not do 13 with respect to any particular transaction. I cite 14 that by way of an example merely to illustrate the 15 point that the wording in the revised request for 16 relief is quite careful and if the company is directed 17 to respond and the response, in our view, is not 18 complete or there may be additional information we 19 require, we would certainly be very happy to work with 20 the company to try to address those particular 21 concerns. 22 So, as I say, I hope that Mr. 23 Farrell's comments were merely to illustrate where they 24 would go to get the information and that the skeleton 25 of the information available and the rest could be 26 supplemented. If that is the case, then I appreciate 27 his flagging that. But I would like to underscore that 28 the information on the record from past cases is not, 278 MONDROW, reply submissions 1 in our view, sufficient, it is not properly demarcated 2 and, as provided in as much of a -- it does not provide 3 as much of a description with respect to individual 4 transactions that we are seeking. 5 I guess my second comment, by way of 6 reply, is with respect to Mr. Farrell's reference to 7 competitive information, and I really have a couple of 8 things to say about that. 9 First, it doesn't strike me that a 10 description of what the utility provides to or procures 11 from an affiliate, in terms of a product or service, 12 can compromise anybody's competitive position. 13 Second, with respect to the third 14 bullet on our revised request for relief, the second 15 sub-bullet, where we seek the total excluded from cost 16 of service in fiscal 1999 on account of provision of 17 that product or service to affiliates' non-utility 18 activities or ancillary businesses -- and just to 19 clarify, for the company's benefit, as well as the 20 Board's -- it was not our intention to seek a specific 21 amount excluded in respect of each affiliate 22 non-utility activity or ancillary business that 23 received a certain type of service. It was, rather, 24 the aggregate exclusion for that particular service. 25 And the point of the third bullet, including its two 26 sub-bullets, which I hope is clear, is merely to make 27 an assessment of the percentage of total activity costs 28 that are, in fact, excluded and, we might well argue, 279 MONDROW, reply submissions 1 incurred for the purposes of providing services outside 2 the utility company. 3 So, we are not seeking an individual 4 breakdown for transactions but, rather, an exclusion on 5 account of like transactions for one or more 6 affiliates' non-utility businesses of ancillary 7 businesses. 8 Finally, to the extent that 9 competitive information becomes an issue if the company 10 is directed to respond and withhold certain types of 11 the information we have requested for that reason, I 12 suggest that the Board might deal with that by way a 13 non-disclosure direction or, alternatively, we might be 14 willing to deal with that by way of a non-disclosure 15 agreement for the purposes of receiving the information 16 as counsel assessing whether there is an issue and then 17 taking it as required from there. 18 My information is that there are 19 other tribunals that do this, including the CRTC, to 20 deal with precisely this type of concern. 21 I say that by way of an indication 22 that there are ways that in a regulatory context these 23 concerns are dealt with, but I don't wish that to 24 detract from my primary position indicated in my first 25 reply comment, that I don't see what the competitive 26 problem is. 27 If the company is directed to respond 28 and claims a competitive problem, then in that response 280 MONDROW, reply submissions 1 I trust they will address the touchstones for that and 2 describe precisely what prejudice is feared and 3 precisely what information cannot be provided. Then we 4 will deal with it as appropriate. 5 At first instance, I don't see how 6 that can be a problem when I requested a description of 7 products or services. 8 That's it by way of reply. Thank 9 you, sir. 10 THE PRESIDING MEMBER: Thank you, 11 Mr. Mondrow. 12 MEMBER HALLADY: Thank you, Mr. 13 Mondrow. I just have a couple of questions for you. 14 As I understand your initial prayer 15 for relief dealt with three aspects, generally 16 speaking. The first was a government undertaking for 17 1999 undertakings. The second was the Affiliate 18 Relationships Code and the third dealt in general terms 19 with affiliate relationships for the purposes of this 20 rate hearing. Is that a correct summary? 21 MR. MONDROW: I think that's a 22 correct summary. I hesitate with respect to the third 23 because with the PBR plan approval the departure from 24 what the Board considered and approved as part of that 25 proceeding would have to be quite significant, in my 26 view, for us to make a case that it should be 27 revisited. Although I do agree that, depending on the 28 information received, if the issue was significant 281 QUESTIONS 1 enough we might well raise it, but more so in the 2 context of if we felt and were able to convince the 3 Board at the end of the day that there was another 4 business activity that cost of service would have to be 5 adjusted if the Board accepted our submission, and to 6 that extent the information would ultimately relate to 7 the rates and the rates proceeding. 8 MEMBER HALLADY: You anticipated my 9 question as to what effect the PBR decision has had on 10 the issue of affiliate transactions within the scope of 11 PBR. 12 As I understand it, you have changed 13 your privilege, just to make sure I am following along, 14 and you are not concerned about the Affiliate 15 Relationships Code any more. Am I saying that 16 correctly for this motion? 17 MR. MONDROW: For the purposes of the 18 motion we are not arguing that as a ground for the 19 relief sought. 20 As I mentioned, for the purposes of 21 the proceeding in general and in line with the scoping 22 document that I now understand you will, but have not 23 yet received, HVAC Coalition agrees with a number of 24 parties who submit that monitoring and reporting of 25 affiliate transactions is an issue to be pursued in the 26 hearing, but we don't base our motion on that. 27 MEMBER HALLADY: But you can also 28 appreciate the fact that it is very difficult for us to 282 QUESTIONS 1 determine what the scope of the affiliate relationship 2 issues are, since we don't yet have the scoping 3 document to determine it. 4 MR. MONDROW: I appreciate that. 5 MEMBER HALLADY: Therefore, it seems 6 to me as though if we take for granted for instance now 7 that the issue of the quantum of the services is 8 outside the scope of this particular hearing because it 9 is dealt with in PBR by the PBR mechanism, then your 10 issue is more what activities are in fact being 11 performed? 12 MR. MONDROW: I guess I would agree 13 with the caveat that the quantum goes to an assessment 14 of whether this is just an occasional sharing of 15 services which the Board has canvassed in the past or 16 whether it really goes beyond that. 17 So for the purposes of this motion 18 and the 1998 undertakings, the quantum issue that we 19 are concerned with is to get some sense of proportion 20 with respect to the costs underlying the activity and 21 how much of those costs are really incurred for someone 22 other than the utility. 23 But for the purposes of ratemaking, I 24 would agree with you that in respect of this motion we 25 are not seeking quantum for the purposes of arguing an 26 adjustment in the test year because the test year 27 information isn't available yet, as I understand it. 28 That's the only reason we are not pursuing that 283 QUESTIONS 1 argument. 2 MEMBER HALLADY: I appreciate that. 3 So, in fact, the reason you are pursuing information as 4 far as quantum is concerned deals more with materiality 5 of the services performed. What services are being 6 performed, whether they are material, not for the 7 purposes of reopening up PBR and the whole ratemaking 8 process. 9 MR. MONDROW: That's fair. 10 MEMBER HALLADY: Thank you. 11 Mr. Farrell, I just had a couple of 12 questions for you. I guess my first question is that 13 you talk about the fact that the Affiliate 14 Relationships Code does not have a, quote, "proceeding 15 per se," but are you saying that, first of all, there 16 is a complaint process within the Affiliate 17 Relationships Code? Are you saying that, therefore, 18 there would be no relief to the Board if someone had a 19 complaint that there had been a breach of the Affiliate 20 Relationships Code? 21 MR. FARRELL: No, I wasn't saying 22 that, Ms Hallady. What I was trying to suggest is that 23 Mr. Brett seemed to be making his remarks or his 24 submissions in the context of a rate case process, not 25 a complaint process and I responded accordingly. 26 MEMBER HALLADY: Are you saying then 27 that the only issues that can be raised in this 28 proceeding must deal specifically with ratemaking and 284 QUESTIONS 1 not other issues that the other parties have raised, 2 such as the public interest, such as ensuring 3 compliance with the undertakings, the general public 4 interest within the view that this is the proceeding 5 that we have now and that the Board has a general 6 jurisdiction to ensure those sorts of compliances with 7 undertakings, et cetera? 8 MR. FARRELL: I am not saying the 9 Board cannot do it. I was trying to articulate the 10 Company's understanding of the purpose of having a 11 role-making power to begin with and then exercising it 12 specifically in relation to the Affiliate Relationships 13 Code. 14 My understanding of that was it was 15 to create what I called the rule book, whereby the 16 company and other gas utilities would comply with it 17 and the rule book was intended, as we understood the 18 process, to ease the Board's regulatory burden. 19 In the end result, it's the Board's 20 decision as to what you wish to canvass in the context 21 of a rates case such as this one. I wasn't suggesting 22 you were precluded by your own rule from doing it. 23 MEMBER HALLADY: So the issue still 24 then is is this the most expedient forum to pursue this 25 issue as far as the nature of the services that are 26 being performed? 27 MR. FARRELL: Are you back now to the 28 nature of the services Mr. Mondrow was speaking of? 285 QUESTIONS 1 MEMBER HALLADY: Yes, I guess so. 2 MR. FARRELL: Well, I don't mean to 3 be splitting procedural hairs here but, for example, 4 the Affiliate Relationships Code is silent in relation 5 to reporting requirements, other than what's written 6 there. There is no provision for intervenor 7 participation. 8 So I guess there are two forms, and 9 perhaps more than two. One is to revisit the 10 rule-making process and to propose amendments if you 11 were persuaded by the intervenors to include them in 12 some sort of monitoring reporting process because your 13 statute clearly allows you to amend the rules and there 14 is a comment process, if you will. It's a notice and 15 comment process. That would be one forum. So this is 16 not necessarily the only forum in which the intervenors 17 may have a voice. 18 If you were to determine that this 19 were to be a forum in which that could take place, then 20 I haven't thought through the procedural implications 21 of whether you would then have to publish an amendment 22 to the rule and allow everyone who wasn't here, in 23 theory, the ability to comment on any proposed changes. 24 MEMBER HALLADY: Correct me, Mr. 25 Farrell, I don't think that Mr. Mondrow is presuming 26 that there is going to be a change to the rule. I 27 thought that the whole issue just dealt with disclosure 28 of information. 286 QUESTIONS 1 In fact, what he is asking for is 2 disclosure of exactly what does Enbridge Consumers do. 3 MR. FARRELL: Maybe I misinterpreted 4 your question because I thought you were talking about 5 the Code and Mr. Mondrow was talking about disclosure 6 of information for the purposes of making a 7 determination whether a certain product or service 8 constituted a business activity other than the 9 transmission, distribution and storage of natural gas. 10 So I was responding in the nature of 11 a Code question and -- 12 MEMBER HALLADY: I think we are all 13 grappling with codes and undertakings and ratemaking 14 and PBR and trying to figure out where everything fits 15 in, so I appreciate whatever guidance you can give us 16 as far as that's concerned. 17 Perhaps you can also help me, I have 18 been trying to make notes and I think that a lot of the 19 issues that Mr. Mondrow has raised have been dealt 20 with, either directly or indirectly, by Mr. Farrell. I 21 guess it would be of assistance to me at some point in 22 time to try to limit exactly what issues are still in 23 dispute and not in dispute as far as disclosure is 24 concerned. 25 I appreciate Mr. Mondrow, that you 26 have gone through the previous documents and determined 27 that they are not satisfactory. I also appreciate 28 Mr. Farrell, that you have gone through them and 287 QUESTIONS 1 determined they are. 2 I guess it would be helpful for me if 3 we could try to narrow down the scope of the inquiry. 4 MR. FARRELL: I was trying to 5 indicate what I think is the source data for the 6 response that, if compelled to provide one, we would 7 use. 8 My understanding -- and I will be 9 corrected if I am wrong -- is that we wouldn't simply 10 regurgitate HVAC 70. But we were trying to indicate 11 where we were going to go to get the information. 12 To require a lot of grassroots work 13 that would be starting from scratch, so to speak, I am 14 informed would be a process that could take a very 15 long -- well, a relatively long period of time to 16 complete and the person who would be completing it is 17 scheduled to testify next. 18 So it is not simply a question of 19 going back to the shop and pulling some numbers off the 20 shelf and putting it onto a piece of paper. It could 21 be, if we don't have existing source documents, 22 something that could take, I am advised, up to a week 23 to do. 24 MEMBER HALLADY: Mr. Mondrow, do you 25 have any comments on that? 26 MR. MONDROW: I guess I do have one 27 comment. 28 To the extent that there are not -- 288 QUESTIONS 1 if what Mr. Farrell is saying -- and now I think I 2 understand what he is saying -- is that the numbers 3 that would be provided as responsive to part of our 4 information request would essentially be the same 5 numbers as were derived in the cost allocation study 6 for the purposes of 497, I don't have a big problem 7 with that if the company confirms that those are the 8 best numbers reasonably available. 9 I have no way of really assessing how 10 much work is or isn't involved. So my request and my 11 suggestion, should the Board be inclined, is to direct 12 response in accord with our revised prayer for relief 13 with whatever additional revisions the Board of course 14 considers appropriate and have the company provide its 15 best response. 16 If the company has to caveat that 17 response by these numbers, for example these numbers 18 from 497 are relatively accurate, to update the 19 accuracy would take a significant amount of work, the 20 time for which isn't available at present, then we will 21 likely accept that form of response. 22 I would hesitate, however, to wade in 23 and agree to what should and shouldn't be done by way 24 of work in response to this without knowing what is 25 reasonable because I don't know what the process would 26 be and what numbers are and are not available. 27 Frankly, and in fairness to Mr. Farrell, he might not 28 know precisely either because his information is coming 289 QUESTIONS 1 from someone else. 2 So in summary, I guess, I would 3 suggest if the Board deems it appropriate to direct a 4 response, let the company put its best foot forward, as 5 it were. If it is limited somehow it can certainly 6 explain that and whether that becomes an issue later 7 really depends on the explanation. 8 But as a matter of principle, I have 9 no objection to the company providing its best 10 reasonably available answer without having to, you 11 know, take weeks to run more models. That certainly 12 wasn't the intent of the request. Indeed, that is why 13 we scoped it for 1999. 14 I hope that is helpful. 15 MR. FARRELL: That is quite 16 acceptable to us in terms of the basis were you to give 17 the relief. 18 I am still opposing it. 19 MEMBER HALLADY: Oh, I see. 20 MR. FARRELL: Rather than having an 21 argument over what it is we are going to provide, I am 22 agreeing if you are of a mind to compel us to produce 23 it that we will do it on the basis Mr. Mondrow 24 described and avoid a fight now and hopefully a fight 25 later. 26 MEMBER HALLADY: But you won't do it 27 without an order. Is that what you are saying, 28 Mr. Farrell? 290 QUESTIONS 1 MR. FARRELL: Yes. 2 THE PRESIDING MEMBER: Gentlemen, I'm 3 just going to open the invitation to both of you to 4 discuss it overnight and tomorrow morning you can tell 5 us that the record stands as it is on the transcript 6 and therefore we have to make a decision based on the 7 record, or it seems to me that there are a lot of 8 things that have not been fully discussed as to such 9 information, what the information will show, and I 10 think it may be worth a try to just touch base again. 11 We can go through with the record as is in the 12 transcript, or perhaps you can limit the areas of 13 disagreement and then we could take it from there. 14 So we will give you the evening and 15 then tomorrow morning you just tell us as to what you 16 want us to do. 17 MR. MONDROW: If I could just ask -- 18 no, that's fine. 19 Thank you, sir. 20 THE PRESIDING MEMBER: Thank you. 21 Mr. Farrell. 22 MR. FARRELL: If we are finished with 23 this motion for now, before the next witness panel 24 appears I was wondering, Mr. Chair, whether you could 25 give us any indication on when the Board might comment 26 on the settlement proposal. Are you going to wait for 27 us to give you the revised 4.1 of the scoping proposal? 28 It affects whether I come at a 291 QUESTIONS 1 certain time to the hearing or not, since my witness 2 panels are at the very end. So I am just trying to 3 monitor my own whereabouts, if you will. 4 --- Pause 5 THE PRESIDING MEMBER: Mr. Farrell, 6 perhaps I can put the question back to you as to when 7 would be a good time, as far as you are concerned, to 8 have a response from the Board? 9 MR. FARRELL: Looking at the clock -- 10 THE PRESIDING MEMBER: Except 11 tonight. Don't look at the clock. 12 MR. FARRELL: That wasn't -- I just 13 happened to be gazing in that direction. 14 We have two things that I have a role 15 in -- three things, actually, I have a role in 16 producing. One is the revision to the settlement 17 proposal; the second is the scoping proposal, and the 18 third are the interrogatories to Mr. Stevens. 19 I had planned to work on the latter 20 in the morning, but I think that I can probably work on 21 the settlement proposal and perhaps scoping proposal 22 later today and first thing in the morning and I may be 23 in a position to bring it to you -- well, bring it here 24 so the other parties can see it before it gets filed 25 and then maybe has to have another revision. I would 26 like to avoid that fate -- sometime in the morning. 27 So I guess if I were to predict I 28 would be predicting we would be, hopefully, in a 292 QUESTIONS 1 position to file both with you when you resume tomorrow 2 afternoon, with the documents having been reviewed with 3 other parties so that they would then be a consensus 4 filing, for lack of a better term, and then not subject 5 to further revision. 6 THE PRESIDING MEMBER: I'm not sure 7 about the connection between the settlement proposal 8 and the second document, the scoping document. 9 The scoping document, as I understand 10 it, deals with issues that have not been settled, the 11 issues that would appear in the proposal as unsettled. 12 To the extent that there has been some agreement on 13 some issues that appear in the settlement proposal, the 14 scoping is already made. It is already done, right? 15 MR. FARRELL: Correct. 16 THE PRESIDING MEMBER: So it would 17 seem to me that other than having the scoping document 18 as early as possible so that it will guide us in going 19 through the cross-examination phase, and we can do that 20 in stages, as you already have done in the last couple 21 of days, I think it is crucial for us to have those 22 amendments or adjustments or inserts to the settlement 23 proposal before we give you the final pronouncement on 24 the ADR. 25 We gave you some of the questions 26 today and, frankly, I don't anticipate we will have any 27 more, subject to one area that I said that we need a 28 bit of time and that is the issue of the policy or the 293 QUESTIONS 1 deferral account practice of the company versus what 2 the Board had commented in the last decision. That is 3 the one area that we would like to spend a little bit 4 more time on. 5 MR. FARRELL: So I understand you, 6 Mr. Chair, you are telling me my priority should be the 7 settlement proposal and that's fine. We can make 8 that -- 9 But I'm not sure I understand your 10 second remark and perhaps I could ask you a question to 11 clarify it. 12 Are you saying that the Board is 13 looking at whether it wishes to examine the company's 14 response, notwithstanding that the parties at this 15 point are not of a mind to do so? 16 THE PRESIDING MEMBER: On the 17 specific issue that -- 18 MR. FARRELL: On the deferral 19 account. 20 THE PRESIDING MEMBER: We would just 21 like to understand what the words mean. 22 MR. FARRELL: Okay. 23 THE PRESIDING MEMBER: I would like 24 you to go back and see what the company's -- 25 MR. FARRELL: Yes. Sir, now I 26 understand. 27 THE PRESIDING MEMBER: -- the 28 company's commentary was on the Board's decision and I, 294 QUESTIONS 1 frankly, didn't have time to do those things. 2 MR. FARRELL: I misunderstood your 3 comment. 4 THE PRESIDING MEMBER: Does that 5 help? 6 MR. FARRELL: Yes, it does. 7 THE PRESIDING MEMBER: If we have 8 those revisions, then, on the settlement proposal by 9 tomorrow at some point, if you just give us just the 10 one evening then we will be able to give you the final 11 pronouncement. 12 MR. FARRELL: Well, I will do my very 13 best to have something that is available for filing 14 either when the Board commences tomorrow or, if not 15 then, at the midmorning break. 16 THE PRESIDING MEMBER: Thank you. 17 So next? 18 MR. FARRELL: Next I think is the 19 NGV Panel, so if we could just have a few minutes to 20 change over. 21 THE PRESIDING MEMBER: Certainly. 22 Do the reporters need a break? Do 23 you need a stretch? 24 No takers. 25 MR. FARRELL: Could we have maybe 26 five minutes just to get -- 27 THE PRESIDING MEMBER: Five minute 28 stretch, okay. 295 1 --- Upon recessing at 1600 2 --- Upon resuming at 1606 3 THE PRESIDING MEMBER: Ms Soudek? 4 MS SOUDEK: I would like to introduce 5 the witnesses who are here to speak to the issues 6 regarding the NGV program, more specifically issue 7 1.2.1 on the Board's list of issues, which is rate of 8 return, and Issue 1.2.2, which is the retention of the 9 NGV program. 10 First of all, sitting closest to you, 11 is Ms Holly Reynolds. She is Business Manager of 12 NGV's -- 13 THE PRESIDING MEMBER: Ms Soudek, 14 they have to come up first and be sworn. 15 MS SOUDEK: I apologize. I didn't 16 realize they had to be sworn. 17 SWORN: HOLLY REYNOLDS 18 SWORN: STAN KOKOTKA 19 SWORN: SCOTT DODD 20 EXAMINATION-IN-CHIEF 21 MS SOUDEK: Thank you, Mr. Chairman. 22 As I was saying, the three Enbridge witnesses are here 23 to speak to Issue 1.2.1, which is rate of return, and 24 Issue 1.2.2, which is retention of the NGV program. 25 Sitting closest to you is Ms Holly 26 Reynolds, who is Supervisor/Manager Accounting Policy. 27 Next to Ms Reynolds is Mr. Stan Kokotka, who is 28 Business Manager, NGV Business Development. And seated 296 REYNOLDS/KOKOTKA/DODD, in-ch (Soudek) 1 next to Mr. Kokotka is Mr. Scott Dodd, who is Manager, 2 Business Support, Financial Studies. 3 Ms Reynolds, I will start with you. 4 Is your curriculum vitae contained in 5 Exhibit A at Tab 17, Schedule 1? 6 MS REYNOLDS: Yes, it is. 7 MS SOUDEK: And are you responsible 8 for the exhibits that are germane to the NGV issues 9 that are listed opposite your name in Exhibit A, Tab 10 18, Schedule 1? 11 MS REYNOLDS: Yes. 12 MS SOUDEK: Are you also responsible 13 for the interrogatory responses in Exhibit I that bear 14 your name and that are germane to the NGV issue? 15 MS REYNOLDS: Yes. 16 MS SOUDEK: Was this material 17 prepared by you or under your direction and control? 18 MS REYNOLDS: Yes. 19 MS SOUDEK: And is this material 20 accurate to the best of your knowledge or belief? 21 MS REYNOLDS: Yes, with the following 22 corrections to Exhibit I, Tab 11, Schedule 12, and I 23 believe everybody now has a new copy in front of them. 24 It is a response to an interrogatory from HVAC. There 25 are three typographical errors on page 4 of this 26 exhibit. Under the "Allocable" column, the number of 27 566.6 for "NGV/Other" should be 566.5. Under "Home Gas 28 Appliance Inspection", under the "Allocable" column, 297 REYNOLDS/KOKOTKA/DODD, in-ch (Soudek) 1 the figure of 314.7 should be 317.4, which is -- 2 THE PRESIDING MEMBER: Ms Reynolds, 3 slow down a bit, please. I have the first change. 4 All right. The second change is? 5 MS REYNOLDS: The figure of 314.7 6 beside "Home Gas Appliance Inspection" should be 317.4, 7 and that has changed the total to 1696.8. 8 MS SOUDEK: Mr. Vlahos, there has 9 been a corrected exhibit handed out. I don't know if 10 you have had a copy made available to you. We can 11 certainly give one to you. 12 THE PRESIDING MEMBER: I wouldn't be 13 surprised if it is here somewhere. 14 Thank you. We now have it. 15 MS SOUDEK: Thank you. 16 Thank you, Ms Reynolds. Do you have 17 any other comments regarding Exhibit I, Tab 11, 18 Schedule 12? 19 MS REYNOLDS: Yes, I do. I wish to 20 clarify that the response to Exhibit I, Tab 11, 21 Schedule 12 includes details on the allocations to the 22 home gas appliance inspection service even though this 23 is a core utility program. This information was 24 provided to conform with the presentation in E.B.R.O. 25 497 of Exhibit I, Tab 12, Schedule 70, as requested in 26 the interrogatory. 27 The provision of this information was 28 not intended to imply that the Company views this 298 REYNOLDS/KOKOTKA/DODD, in-ch (Soudek) 1 service as anything other than core utility. 2 I also noted during my review of 3 evidence that this exhibit is referring to evidence at 4 Exhibit C1, Tab 6, Schedule 1, right at the top of that 5 IR, and I am not sure if this is a typographical error, 6 but I believe the correct reference is Schedule 3 7 rather than Schedule 1, and the response was provided 8 on that basis. 9 MS SOUDEK: Thank you, Ms Reynolds. 10 Finally, I understand that you also 11 wish to update and revise the response to HVAC 12 Interrogatory No. 13, which is Exhibit I, Tab 11, 13 Schedule 13. 14 MS REYNOLDS: Yes. 15 MR. MONDROW: I'm sorry, could you 16 give us one moment? 17 MS SOUDEK: Certainly. 18 MR. MONDROW: Thank you. 19 MS SOUDEK: I will give you a moment 20 to turn up HVAC-13. 21 --- Pause 22 MR. MONDROW: I am sorry to 23 interrupt. Thanks very much. 24 MS REYNOLDS: The response to Exhibit 25 I, Tab 11, Schedule 13 was provided prior to the 26 Company assessing its needs for fiscal 2000, and I wish 27 to amend the second paragraph of that response. 28 As a result of the PBR formula 299 REYNOLDS/KOKOTKA/DODD, in-ch (Soudek) 1 applying to O&M and the removal of all ancillary 2 programs except NGV, the Company is not anticipating 3 performing a cost allocation study in fiscal 2000 and, 4 as such, there are no costs to allocate. 5 THE PRESIDING MEMBER: Specifically, 6 how would you change the response, Ms Reynolds? 7 MS REYNOLDS: The second paragraph I 8 would have read: "As a result of the PBR formula 9 applying to O&M and the removal of all ancillary 10 programs except NGV, the Company is not anticipating 11 performing a cost allocation study in 2000 and, as 12 such, there are no costs to allocate." 13 THE PRESIDING MEMBER: Thank you. 14 MS SOUDEK: Thank you, Ms Reynolds. 15 Mr. Kokotka, is your curriculum vitae 16 contained in Exhibit A at Tab 17, Schedule 1? 17 MR. KOKOTKA: Yes. 18 MS SOUDEK: And are you responsible 19 for the exhibits that are germane to the NGV issues 20 that are listed opposite your name in that exhibit? 21 MR. KOKOTKA: Yes. 22 MS SOUDEK: Are you also responsible 23 for the interrogatory responses in Exhibit I that bear 24 your name and that are germane to the NGV issues? 25 MR. KOKOTKA: Yes. 26 MS SOUDEK: Was this material 27 prepared by you or under your direction and control? 28 MR. KOKOTKA: Yes, it was. 300 REYNOLDS/KOKOTKA/DODD, in-ch (Soudek) 1 MS SOUDEK: And is this material 2 accurate to the best of your knowledge of your belief? 3 MR. KOKOTKA: Yes, it is. 4 MS SOUDEK: Mr. Kokotka, I understand 5 that you wish to comment on Exhibit C1, Tab 5, Schedule 6 1. 7 MR. KOKOTKA: Yes. Just to avoid any 8 confusion, if we could look up Exhibit C1, Tab 5, 9 Schedule 1. This exhibit is the written evidence on 10 the combined ancillary program, prior to the E.B.O. 11 179-14/15 Decision, and in this written evidence we 12 included the ABC program as one of the ancillary 13 programs with NGV. Also, at that time the CIS project 14 was entirely in the evidence. 15 This has been updated now with 16 Exhibit C1, Tab 5, Schedule 2, which includes 1998 17 actual, 1999 bridge year and 2000 test year data. 18 So if we look at Schedule 2, all of 19 the pertinent NGV information is in that schedule. We 20 don't really need to reference Schedule 1. 21 MS SOUDEK: Thank you, Mr. Kokotka. 22 Mr. Dodd, is your curriculum vitae 23 contained in Exhibit A at Tab 17, Schedule 1? 24 MR. DODD: Yes. 25 MS SOUDEK: Are you responsible for 26 the exhibits that are germane to the NGV issues that 27 are listed opposite your name in that exhibit? 28 MR. DODD: Yes. 301 REYNOLDS/KOKOTKA/DODD, in-ch (Soudek) 1 MS SOUDEK: Are you also responsible 2 for the interrogatory responses in Exhibit I that bear 3 your name and that are germane to the NGV issues? 4 MR. DODD: Yes. 5 MS SOUDEK: Was this material 6 prepared by you or under your direction and control? 7 MR. DODD: Yes. 8 MS SOUDEK: And is this material 9 accurate to the best of your knowledge and belief? 10 MR. DODD: Yes. 11 MS SOUDEK: Thank you. 12 Mr. Chairman, the witnesses are ready 13 for cross-examination. 14 THE PRESIDING MEMBER: Thank you, Ms 15 Soudek. 16 Mr. Warren, you are the chosen one 17 again? 18 --- Laughter 19 CROSS-EXAMINATION 20 MR. WARREN: Yes. It is late in the 21 day and I will try to be as focused as I can. You have 22 been waiting a long time for this dubious pleasure. 23 Mr. Kokotka, I want to start with 24 you, if I can, just to understand where we are and what 25 relief is being sought in the application. As I 26 understand it -- and please correct me if I am 27 wrong -- and this is reflected in the Board's Decision 28 with Reasons in the 197-14/15 matter -- the status of 302 REYNOLDS/KOKOTKA/DODD, cr-ex (Warren) 1 the NGV program is that it has been retained within the 2 utility under the new undertakings by virtue of a 3 letter issued by the Board on March 24, 1999, and it is 4 retained within the utility until the end of the 5 current fiscal year. Is that correct? 6 MR. KOKOTKA: To summarize my 7 interpretation of that, the NGV program, unlike the 8 other ancillary programs, has a rate setting component 9 and a non rate setting component. The rate setting 10 component must remain in the utility by its nature, 11 being rate setting; and the ancillary part of the NGV 12 component, which is the non rate setting component, is 13 a component of the program. 14 The split that we have done, that was 15 agreed upon in the ADR settlement process last year, 16 was strictly for cost allocation and rate setting 17 purposes. 18 MR. WARREN: Maybe, Mr. Kokotka, you 19 could turn up the Board's Decision with Reasons in 20 E.B.O 179-14/15. I am looking at Section 2.2.3 on page 21 12. 22 MR. KOKOTKA: We will have to look 23 that up. 24 MR. WARREN: Section 2.2.3, page 12. 25 That section says: 26 "The retention of other 27 programs, including NGV, within 28 the utility from March 31, 1999 303 REYNOLDS/KOKOTKA/DODD, cr-ex (Warren) 1 until the end of the fiscal year 2 was requested by letter to the 3 Board dated December 17, 1998. 4 These requests have been 5 approved by the Board in a 6 letter dated March 24, 1999." 7 (As read) 8 As I read that, the current status of 9 the non-utility, if I can put it, portion of the NGV is 10 that it is governed by the undertakings and that there 11 has, if you wish, been interim relief granted by this 12 Board that it can be retained within the utility to the 13 end of this fiscal year. 14 Have I read that incorrectly? 15 MR. KOKOTKA: I think this is more a 16 legal matter. I can't answer the question. 17 MS SOUDEK: Mr. Warren, if you are 18 asking the witnesses to confirm that that is what the 19 decision says, they can give you that confirmation. 20 They can read it. 21 If you are going beyond that, perhaps 22 you can clarify your question and we will see if it is 23 appropriate for them to answer it. 24 MR. WARREN: What I am trying to get 25 to, Ms Soudek, is what is the relief being asked for. 26 Specifically, is there a request 27 before the Board in this case, pursuant to the 28 undertakings, that the non-utility part of the NGV 304 REYNOLDS/KOKOTKA/DODD, cr-ex (Warren) 1 program be retained within the utility? 2 Just to save time, Ms Soudek, so that 3 there is no cuteness about this, I don't see that 4 Prayer for Relief anywhere in the material. I admit 5 that there is a mountain of material, and I may have 6 missed it, but I don't see that Prayer for Relief. 7 Is that the relief being asked for? 8 What I wanted to do next, to try and 9 save time, is to get to the grounds upon which the 10 Board should grant that relief. 11 MS SOUDEK: Perhaps I can respond by 12 saying that we have not got an application before the 13 Board at this time, pursuant to the 1998 undertakings 14 regarding the NGV program. 15 What we are seeking here is Board 16 approval, from a ratemaking perspective, of the costs 17 related to the ancillary program, which is the NGV 18 program for the year 2000 test year. 19 MR. WARREN: Ms Soudek, if I may 20 pursue this for a moment through you, Members of the 21 Board, in light of the status of the interim relief 22 granted, is it not necessary to simultaneously ask the 23 Board for relief to retain this within the utility for 24 some period following the end of the fiscal year? 25 THE PRESIDING MEMBER: Ms Soudek? 26 MS SOUDEK: Perhaps, Mr. Chairman, we 27 can shortcut this by stating for the record that the 28 company certainly had intended to apply for the relief 305 REYNOLDS/KOKOTKA/DODD, cr-ex (Warren) 1 described by Mr. Warren. We haven't made that 2 application yet. I see it more as a technicality. 3 I don't know if that helps Mr. Warren 4 or not. 5 MR. WARREN: Thanks for that, 6 Ms Soudek. I will try and go at this another way, and 7 I will leave aside that question. 8 Leave aside, Mr. Kokotka, the 9 question of the undertakings, and let's deal with this 10 proceeding and what you are asking for. 11 The proposal to the Board is that the 12 NGV program -- currently, the NGV program is treated as 13 an ancillary program subject to fully allocated costing 14 with the imputation of revenue. 15 Have I got that right, Mr. Kokotka? 16 MR. KOKOTKA: That is correct. 17 MR. WARREN: That is, if I have it 18 right, historically, Mr. Kokotka, a result of the 19 Board's decision in E.B.R.O. 495; correct? 20 MR. KOKOTKA: What was the Board's 21 decision in 495? 22 MR. WARREN: I said the ancillary 23 program should be subject to fully allocated costing 24 with the imputation of revenue; correct? 25 MR. KOKOTKA: The fully allocated 26 costs was the 495 decision; that is correct. 27 MR. WARREN: And that that was 28 reasserted, if you wish, in the Board's decision in 306 REYNOLDS/KOKOTKA/DODD, cr-ex (Warren) 1 E.B.R.O. 497; correct? 2 MR. KOKOTKA: That is correct. 3 MR. WARREN: What you are seeking in 4 this hearing, if I understand it, is a reversal of that 5 position. 6 MR. KOKOTKA: That is correct. 7 MR. WARREN: To make it an ancillary 8 program which is subject to marginal costing. 9 MR. KOKOTKA: First of all, the NGV 10 was classified as an ancillary program many years ago 11 with the other ancillary programs. But I would like to 12 make it clear that NGV, unlike the other ancillary 13 programs, is involved in the sale of natural gas. 14 Under Rate 9 we sell natural gas for 15 resale at the retail stations. That is what we call 16 NGV, natural gas for vehicles. 17 Unlike other ancillary programs, we 18 are in the sale of gas business. I think that is part 19 of the confusion. That's why last year we went through 20 that process by which we separated, from a cost 21 allocation point of view, what components of NGV were 22 rate setting and which ones weren't rate setting. 23 MR. WARREN: I understand that that 24 split exists, Mr. Kokotka. 25 What I want to know is: In this 26 case, do you want the non-utility part of the activity 27 reclassified as an ancillary activity subject to 28 marginal costing, or do you want it classified as a 307 REYNOLDS/KOKOTKA/DODD, cr-ex (Warren) 1 core utility function? 2 MR. KOKOTKA: The NGV program, the 3 way it is operated right now, is one entity. From a 4 cost allocation point of view, we separate the two. It 5 is a utility program. Basically, that's the way I see 6 it moving forward because of the rate setting 7 component, which is the major component of the program. 8 THE PRESIDING MEMBER: What is the 9 answer to Mr. Warren's question, Mr. Kokotka? 10 Is the request to be part of the core 11 utility where you don't see separate financial 12 information? If it is part of the core utility, it is 13 going to be an ancillary program on a different costing 14 basis than before -- i.e., marginal costing -- for the 15 portion of the program that it was viewed by the Board 16 to be non-utility? 17 I am still not clear. I am puzzled 18 as to what the specific request is. 19 --- Pause 20 MR. KOKOTKA: Maybe to clarify the 21 evidence presented, the non rate setting portion of NGV 22 is under fully allocated cost right now. That is not a 23 question. 24 Basically, what we have is rate of 25 return as an ancillary program in the utility of 26 5.9 per cent, which is short of the requested rate of 27 return. We are asking that the difference not be 28 imputed. 308 REYNOLDS/KOKOTKA/DODD, cr-ex (Warren) 1 Does that help clarify? 2 THE PRESIDING MEMBER: Mr. Warren, 3 does that help? 4 MR. WARREN: So the issue for the 5 Board to decide is that it will be subject to fully 6 allocative costing for purposes of reporting, but there 7 will be no imputation of revenue. 8 That is what the Board has to decide. 9 Is that correct? 10 MR. KOKOTKA: That is correct. 11 MR. WARREN: And that is a change 12 from the existing state of affairs; correct? 13 MR. KOKOTKA: The existing state of 14 affairs last year -- the ancillary programs in 497 were 15 grouped together, and the shortfall was imputed. 16 MR. WARREN: Leaving aside the 17 grouping question, with respect just to NGV, the 18 shortfall last year -- there was an imputation of 19 revenue to make up the shortfall. 20 MR. KOKOTKA: That's correct. 21 MR. WARREN: And the position you got 22 before the Board in this case is that there should no 23 longer be an imputation of revenue with respect to the 24 NGV program; correct? 25 MR. KOKOTKA: That is what we are 26 asking for. 27 MR. WARREN: The rationale for that, 28 Mr. Kokotka, if I understand it, appears in Exhibit C1, 309 REYNOLDS/KOKOTKA/DODD, cr-ex (Warren) 1 Tab 5, Schedule 2, beginning at page 2 of 4. 2 Now, my attempts to shorten things 3 this afternoon have been entirely counterproductive, 4 Mr. Kokotka. 5 MR. KOKOTKA: I apologize. 6 MR. WARREN: No, it's okay. 7 I will stubbornly persist and see if 8 I can grasp the reasons that you are putting forward to 9 the Board why it is that there should be this change, 10 this reversal of the existing state of affairs. 11 Looking at that page, and then going 12 over to page 3, what we see is, beginning on page 3 at 13 question and answer sequence 10, that there have been 14 two significant events since the last rate case. 15 First of all, there has been the 16 reinstatement of the Natural Resources Canada incentive 17 payment. Correct? 18 MR. KOKOTKA: That's correct. 19 MR. WARREN: And do you say to the 20 Board that that is a reason why the Board should 21 reverse its position on the imputation of income? 22 MR. KOKOTKA: Well, there is 23 actually -- that is only one of many reasons. I guess 24 the reasons fall under one major classification, which 25 would be environmental issues. Lately, the 26 environmental issues have become more predominant in 27 Canada. As we know, Canada is committed to the Kyoto 28 CO2 reduction programs and that. 310 REYNOLDS/KOKOTKA/DODD, cr-ex (Warren) 1 Also, there has been a lot of local 2 things that have happened. Ontario has implemented a 3 drive clean program, and the federal governments and 4 provincial governments, municipal governments are all 5 on board trying to reduce vehicle emissions. 6 The Toronto taxi reforms, which I 7 mention in here, allows a natural gas taxi in the City 8 of Toronto a two-year extension on its life. So rather 9 than a five-year life, it would have a seven-year life 10 if it operates with natural gas. That extension was 11 granted on the environmental benefits of natural gas. 12 So what I'm asking the Board to do -- 13 and I know last year we brought in the DSM report where 14 we had the three different indices that were all 15 positive, however because NGV was considered load 16 building it wasn't granted DSM, but putting that aside, 17 knowing that those environmental benefits are there and 18 that environmental issues are key today, and we have 19 all levels of government trying to support 20 environmental issues, I'm asking the Board to consider 21 this. 22 MR. WARREN: Mr. Kokotka, may I 23 summarize it by saying that in your evidence, 24 Exhibit C-1, Tab 5, Schedule 2, you have given the 25 Board what you take to be two or three indicia of the 26 policy of the preservation of the environment and that 27 that policy of preservation of the environment is your 28 argument why the Board should reverse its position on 311 REYNOLDS/KOKOTKA/DODD, cr-ex (Warren) 1 the imputation of revenue? Have I got that correctly? 2 MR. KOKOTKA: It's correct. 3 Basically, the issues that we are up against as a 4 utility company is people come to us to help them with 5 their environmental issues in terms of transportation. 6 When the Toronto taxi reform was 7 looking at alternates, they came to Consumers Gas 8 because we are an energy provider. Just like you would 9 go to, you know, Sunoco or Esso for gasoline 10 assistance, they come to us as the fuel provider for 11 assistance. These people, the federal governments, the 12 provincial governments, all look towards the utility, 13 the natural gas utility, to help run these programs. 14 Basically, we can't turn them down. We have to do it. 15 It's our fuel and we are the fuel provider and, 16 basically, we have to work with these people if this 17 market is going to grow. 18 MR. WARREN: Mr. Kokotka, may I 19 observe, from having participated in these cases for a 20 number of years, that you have been admirably dogged in 21 bringing forward the issue of the benefits of NGV, but 22 is it not fair of me to say that this cluster of 23 arguments, the public policy arguments about the 24 benefit of the NGV program to the environment, have 25 been presented by you, in one form or another, year in 26 and year out for the entire existence of the NGV 27 program? Is that not fair? 28 MR. KOKOTKA: It's fair. But I would 312 REYNOLDS/KOKOTKA/DODD, cr-ex (Warren) 1 also like to say the environmental issues are bigger 2 today than they were historically. Environment is 3 becoming a bigger issue today. 4 Now, the Kyoto conference is an 5 example of global environmental problems and the issues 6 are real and they are being addressed now. You know, 7 we are seeing legislation like Bill S-7 at the federal 8 government where the federal government is trying to 9 run their vehicles on alternate fuels to reduce 10 emissions. You know, we have the Toronto taxi reform. 11 We have more incentive dollars today than we have 12 historically had to promote clean fuels, where as we 13 move into the new century the big issue is environment. 14 I think, you know, that is something 15 we didn't have historically. Historically, people only 16 converted vehicles for economic reasons. Now those 17 economic reasons are being influenced with incentives. 18 I think there is a difference between 19 three or four years ago and today, from an 20 environmental point of view. 21 MR. WARREN: Is there a difference 22 between this year and last year when the Board 23 confirmed in 497 that this was to remain a 24 fully-allocated costing ancillary program with 25 imputation of revenue? You say there has been a 26 difference from that decision to now and that is a 27 greater emphasis on the environment. 28 MR. KOKOTKA: Yes, and there has 313 REYNOLDS/KOKOTKA/DODD, cr-ex (Warren) 1 been. The Toronto taxi reform has happened since 2 there. The $2,000 federal grant has happened since 3 then. The Kyoto issues are new. So there are more 4 issues now with respect to environmental issues than 5 there was historically. 6 MR. WARREN: Can I ask you, 7 Mr. Kokotka or Ms Reynolds, just to give me the 8 numbers? 9 If I look at Exhibit C3, Tab 6, 10 Schedule 1, the projected rate of return for fiscal 11 2000 on the NGV program is 5.77 per cent. 12 MR. KOKOTKA: That was Exhibit C3, 13 Tab 6, Schedule 1? 14 MR. WARREN: Yes. 15 MR. KOKOTKA: Actually, that I think 16 has been updated; 5.90 it should be. 17 MS SOUDEK: For your information, 18 Mr. Warren, it was updated on the 21st of July. 19 MR. WARREN: So it's 5.90 per cent. 20 And the requested rate of return for the utility as a 21 whole is what? 22 MR. KOKOTKA: 8.90. 23 MR. WARREN: Now, I know that it 24 exists somewhere in the mountain of evidence, and I 25 have seen it, but for the life of me I couldn't find 26 it. Can you translate the -- if the Board were to 27 continue with this existing regime and require the 28 imputation of revenue, how much money is require for 314 REYNOLDS/KOKOTKA/DODD, cr-ex (Warren) 1 the NGV program to bring it up to the requested rate of 2 return? 3 MR. KOKOTKA: Yes. There is an IR on 4 that. 5 MR. WARREN: My recollection is it's 6 in the neighbourhood of $600,000. 7 MR. KOKOTKA: Yes. I think it is 8 $676,000. 9 THE PRESIDING MEMBER: It's 10 $0.7 million. 11 MR. WARREN: Okay. 12 At 20 to five can we just deal with 13 round numbers. It's about -- 14 MR. KOKOTKA: Okay. 15 MR. WARREN: Okay. 16 Now, the one other number I wanted to 17 get a handle on is can we agree, Mr. Kokotka, that in 18 order for the NGV program to be attractive to 19 consumers, small "c" consumers, there has to maintain a 20 differential in the price between natural gas and 21 gasoline of about 40 per cent? 22 MR. KOKOTKA: That's correct. From 23 an economics point of view the consumer needs to see 24 around 40 per cent differential between gasoline and 25 natural gas for it to be attractive. 26 MR. WARREN: Can we agree, at a high 27 level of generality, that if the Board does not require 28 the imputation of revenue, then the ratepayers of 315 REYNOLDS/KOKOTKA/DODD, cr-ex (Warren) 1 Consumers Gas would be subsidizing the NGV program to 2 the point of $675,000? Fair enough? You would agree 3 with that proposition? 4 MR. KOKOTKA: Yes. I guess so. 5 MR. WARREN: Yes. 6 And your proposition to the Board is 7 that, as a matter of public policy, that is an 8 appropriate thing to do? 9 MR. KOKOTKA: I think looking at 10 general numbers again, if we have 1.4 million customers 11 and we divided by the shortfall, it works out to 12 forty-something cents per customer per year. I think 13 you went out and polled customers and you asked a 14 customer, "For 45 cents would you support this 15 environmentally-friendly program?" I think you would 16 find a lot of support. 17 MR. WARREN: Can you tell me this? 18 Have you asked your shareholders if they think it's a 19 great program, if they are prepared to pay $675,000 for 20 it, being a generous-hearted, public-minded group as a 21 whole? 22 MR. KOKOTKA: Generally speaking, 23 they are not prepared to pay that type of money. 24 MR. WARREN: Thank you very much, 25 Mr. Kokotka. Thanks for your answers. 26 THE PRESIDING MEMBER: Thank you, 27 Mr. Warren. 28 Mr. Brett. 316 REYNOLDS/KOKOTKA/DODD, cr-ex (Warren) 1 MR. BRETT: Thank you, Mr. Chairman. 2 My questions will be quite brief. 3 CROSS-EXAMINATION 4 MR. BRETT: I would like you to turn, 5 ladies and gentlemen, to C3, Tab 6, Schedule 1, which 6 is the blue sheet updated. I just have a couple of 7 questions on the numbers. 8 I want to make sure I understand. 9 This statement of program, income and expenses and 10 profitability, is this for both parts of the NGV 11 program or just what you call the marketing part? 12 MR. KOKOTKA: No, it's for both 13 parts. 14 MR. BRETT: It's for the part that -- 15 MR. KOKOTKA: Yes. It's for the non 16 rate setting and the rate-setting component combined. 17 MR. BRETT: All right. Okay. 18 Now, could you just describe for us, 19 when you talk about the rate-setting portion of the 20 program -- first of all let me ask you, under the title 21 "Investment" on that sheet, is that equivalent to rate 22 base? Do you see the word "Investment"? That is the 23 rate base dedicated to these assets, that's provided to 24 these assets? 25 MR. DODD: Yes, that is correct. 26 MR. BRETT: How much of that 11,741 27 of rate base is the part of the program that is the 28 utility program, what you describe as the rate-setting 317 REYNOLDS/KOKOTKA/DODD, cr-ex (Brett) 1 component? Is any of it? Does that include the 2 compressors, for example, that are in the utility. 3 MR. KOKOTKA: Yes, it does. Actually, 4 the major component of that would be the rate setting. 5 The compression equipment is part of the plant. It 6 delivers natural gas in a usable form to the consumer. 7 MR. BRETT: How much of that 11,741 8 is compression equipment? 9 MR. KOKOTKA: We don't have a 10 document that shows that. However, generally speaking, 11 in round numbers, it is -- around 8.6 million is rate 12 setting. 13 MR. BRETT: Well, by "rate setting", 14 you mean exactly what? You have a -- 15 MR. KOKOTKA: There is actually a 16 definition of that in last year's 497 decision. We 17 broke down the NGV department into six groups and -- 18 MR. BRETT: In the decision? Or in 19 the evidence? 20 MR. KOKOTKA: It is actually in the 21 ADR process. It is in a few places. It was in my 22 written direct, last year, in 497, as well as -- we can 23 probably just go to the -- 24 MR. BRETT: Well, I know the 25 settlement agreement -- 26 MR. KOKOTKA: Yes. 27 MR. BRETT: -- describes, in very 28 brief terms -- 318 REYNOLDS/KOKOTKA/DODD, cr-ex (Brett) 1 MR. KOKOTKA: Yes, that is right. 2 MR. BRETT: -- it is two -- 3 MR. KOKOTKA: You have to basically 4 go back to the 497 evidence. I don't know if -- that 5 is probably not too handy. But, anyway -- 6 MR. BRETT: -- for reference -- 7 MR. KOKOTKA: -- C1, Tab -- 8 THE PRESIDING MEMBER: Mr. Kokotka, 9 there has to be a question and answer, otherwise it 10 will be very difficult trying to follow. 11 MR. KOKOTKA: Sorry. 12 MR. BRETT: If you could give me the 13 reference to the 497 evidence. 14 MR. KOKOTKA: It is Exhibit C1, Tab 15 7, Schedule 1. It is on pages -- well, actually, it is 16 the -- the Q and A5 details the different activities 17 within NGV and -- that is what the settlement was based 18 on. 19 MR. BRETT: Q and A5 of what? Of 20 that exhibit? 21 MR. KOKOTKA: Of that exhibit, 22 correct, that starts on page 1, at the bottom of page 23 1. 24 MR. BRETT: All right. I apologize. 25 I should have looked at that. 26 So, you are saying if I look at that 27 exhibit -- 28 MR. KOKOTKA: Yes. 319 REYNOLDS/KOKOTKA/DODD, cr-ex (Brett) 1 MR. BRETT: -- it will describe for 2 me the difference in the assets of the -- 3 MR. KOKOTKA: That is correct. I can 4 run through them, briefly, if you want me to. 5 MR. BRETT: Well, why don't you do 6 that. 7 You say compressors are part of it? 8 MR. KOKOTKA: Yes. Compressors 9 and -- 10 MR. BRETT: They are roughly 8.6 11 million? 12 MR. KOKOTKA: That is correct. 13 And then, the NGV marketing, where we 14 are marketing natural gas versus other fuels, not 15 sales. And then, the non-rate-setting component 16 includes the NGV sales systems, which is the design 17 package and sale of conversion equipment for vehicles. 18 MR. BRETT: Right. 19 MR. KOKOTKA: The cylinder rental 20 program -- we have a program where we rent cylinders to 21 customers to help reduce the upfront capital costs. 22 MR. BRETT: Right. Just to take you 23 back, the NGV marketing and sales, what cost is 24 involved there? Is that capital? Or O&M? Or both? 25 MR. KOKOTKA: It would be just O&M. 26 MR. BRETT: How much of the O&M cost 27 does that account for? 28 MR. KOKOTKA: I don't -- 320 REYNOLDS/KOKOTKA/DODD, cr-ex (Brett) 1 MR. BRETT: -- Exhibit C3, Tab 6, 2 Schedule 1. 3 MR. KOKOTKA: I don't have those 4 numbers in front of me. We would have to go back 5 and -- 6 MR. BRETT: Could you, as an 7 undertaking, to just give us a breakout of the costs of 8 the -- the part that you consider to be -- what you 9 have described as "rate setting" versus the part that 10 is outside, that is non-rate setting, could you give us 11 a breakdown of -- 12 MR. KOKOTKA: So, you are basically 13 asking for two schedules. 14 MR. BRETT: Well, I am really asking 15 for C3 -- yes. 16 MR. KOKOTKA: Broken into rate 17 setting -- 18 MR. BRETT: I want it broken -- 19 MR. KOKOTKA: -- and non-rate 20 setting -- 21 THE PRESIDING MEMBER: Gentlemen. 22 Gentlemen. Just slow down, please. There has to be a 23 question. Mr. Kokotka, you have to wait for the 24 question and then you respond, please. 25 MR. BRETT: Thank you, Mr. Chairman. 26 Sorry. 27 What I would like is if you would 28 give us an undertaking that breaks down this table into 321 REYNOLDS/KOKOTKA/DODD, cr-ex (Brett) 1 the assets and O&M costs associated with the two 2 components to the program; what you are calling the 3 rate setting component and the non-rate setting 4 component. 5 MR. KOKOTKA: Yes. We have that. 6 MS LEA: So, the undertaking -- 7 MR. BRETT: All right. Sorry. 8 MS LEA: Is that the end of it or -- 9 MR. BRETT: Yes, it is. 10 MS LEA: Okay. Undertaking J2.1. 11 UNDERTAKING J2.1: Breakdown of 12 assets and O&M costs (found at 13 Exhibit C3, Tab 6, Schedule 1) 14 associated with the rate setting 15 component and the non-rate 16 setting component of the NGV 17 program. 18 MR. BRETT: Thank you. 19 You have a Rate 9 under which -- you 20 have a rate under which you sell gas, you sell 21 compressed gas, to the station owners. Is that how 22 that -- 23 MR. KOKOTKA: That is correct. To 24 the retailers. 25 MR. BRETT: To the retailers. All 26 right. 27 But for purposes of assessing the 28 profitability of the NGV program as a program, you have 322 REYNOLDS/KOKOTKA/DODD, cr-ex (Brett) 1 all of that together, and that is what we see in C3, 2 Tab 6, Schedule 1? 3 MR. KOKOTKA: That is correct. 4 MR. BRETT: So, when you say, as you 5 have said here in your pre-filed evidence, that this 6 program -- that a part of this program, at least, is in 7 the utility because of the fact that you have a rate, 8 there is a rate involved, what you are meaning, in 9 effect, is that, as I understand you, you have some -- 10 you have had some compressors that in the utility rate 11 base which compress the gas that you then sell to the 12 public distribution centres under your Rate 9. Is that 13 the essence of what that -- 14 MR. KOKOTKA: Yes, that is correct. 15 MR. BRETT: Everything else beyond 16 that, downstream of that, as it were, is what you are 17 calling the non-rate setting component of this, the 18 cylinder rental business, the fuel systems, the VAR and 19 so on. 20 MR. KOKOTKA: The VRA, the vehicle 21 refuelling appliances, are part of the rate base, 22 actually. They supply compressed natural gas in a 23 usable form. It is the sales department that sells the 24 conversion kit and rents the cylinders, and the sale of 25 the kits and the rental of the cylinders, that is the 26 non-rate setting component. 27 MR. BRETT: But the VRA is not the 28 public fuel station -- 323 REYNOLDS/KOKOTKA/DODD, cr-ex (Brett) 1 MR. KOKOTKA: No. 2 MR. BRETT: -- part of it. It is -- 3 MR. KOKOTKA: No. It is a smaller -- 4 MR. BRETT: -- attachment at an 5 individual home or business which allows that business, 6 I guess, typically small business or business of some 7 sort, to privately sell on its premises compressed gas? 8 MR. KOKOTKA: The VRA is what we 9 refer to as the "home refuelling appliance". You have 10 probably seen advertising on it. It is where you 11 can -- 12 MR. BRETT: Right. 13 MR. KOKOTKA: -- fill at home. That 14 is the VRA. Well, the bulk of the capital is the large 15 compressors that supply compressed gas to the 16 retailers, such as Shell and people like that. 17 MR. BRETT: Right. So, you have your 18 distribution service to those retailers and, as part of 19 that, you sell a compressed gas stream to allow them to 20 resell it? 21 MR. KOKOTKA: That is correct. 22 MR. BRETT: But that aside, the home 23 business part of this, or the residential part of this, 24 is that you also supply a piece of hardware to the 25 consumer at his home that he uses? 26 MR. KOKOTKA: We have a limited 27 number of home units. Most of them are actually used 28 in arenas and plants and stuff like that. The 324 REYNOLDS/KOKOTKA/DODD, cr-ex (Brett) 1 economics aren't that good for the residential 2 homeowner. 3 MR. BRETT: And they are owned by the 4 individual or by the company? 5 MR. KOKOTKA: No, they are owned by 6 the company in our VRA rental program. 7 MR. BRETT: The company has no 8 interest in any of the retail distribution stations; 9 those are owned by independent business people -- 10 MR. KOKOTKA: They are typically 11 owned by retailers. The property is fairly extensive 12 and they -- you know, the typical gasoline station that 13 would dispense natural gas, as well. 14 MR. BRETT: Going back to C3, for a 15 moment, C3, Tab 6, Schedule 1, you have an item on line 16 2.2 called "Allocated Capital". What does that mean? 17 MR. KOKOTKA: What that is it is the 18 allocated capital cost of stuff that is allocated to us 19 under fully allocated costs. 20 MR. BRETT: Right. 21 MR. KOKOTKA: Under the fully 22 allocated costing methodology, we are not just charged 23 the O&M dollars, we are also charged for capital. 24 MR. BRETT: All right. So, that is 25 your share of capital under fully allocated costs other 26 than -- whereas the 2.1 is the direct -- that is the 27 direct charge, that is the direct equipment, the 28 compressor equipment, used in your business, under line 325 REYNOLDS/KOKOTKA/DODD, cr-ex (Brett) 1 2.1. Right? 2 MR. KOKOTKA: That is correct. 3 MR. BRETT: Okay. Now, Mr. Warren 4 took you through the number side of this, and I have 5 only a couple more questions. 6 Do you see this business growing into 7 a large business, Mr. Kokotka? 8 MR. KOKOTKA: With the environmental 9 issues on hand right now, I see -- the options in the 10 future are basically electric vehicles, steel cell 11 vehicles, natural gas vehicles, and I see a lot of 12 potential growth in this industry. Especially now with 13 gasoline prices starting to climb again, we will the 14 economic as well as the environmental benefits. 15 MR. BRETT: Well, eventually, 16 hopefully, this will turn into a major business for the 17 utility. 18 MR. KOKOTKA: We hope that this will 19 turn into a major source of gas sales in the future. 20 MR. BRETT: And profits, hopefully? 21 MR. KOKOTKA: Hopefully. 22 MR. BRETT: Now, if I turn you, just 23 briefly, to Board Staff 152, that is Board Staff 24 Interrogatory 152. Do you have that? 25 MR. KOKOTKA: Yes, I do. 26 MR. BRETT: And in there you -- I 27 apologize. What I want you to look at is Board staff 28 22. Do you have that one? 326 REYNOLDS/KOKOTKA/DODD, cr-ex (Brett) 1 MR. KOKOTKA: Yes, I do. 2 MR. BRETT: Now, in that Board staff 3 22 you do some speculating about how you would see the 4 components of this program disappear, I guess wither 5 and disappear would be the right way to characterize 6 it, as the market for these vehicles takes hold. 7 Particularly in the final paragraph there you talk 8 about: 9 "...moving into the future as 10 the NGV industry matures, more 11 OEM vehicles come onstream, the 12 non-rate setting components will 13 become less relevant. The 14 rental cylinders will not be 15 needed. The sales group will 16 become less relevant. Fuel 17 systems will downsize and the 18 non-rate setting component will 19 be insignificant in the future." 20 (As read) 21 MR. KOKOTKA: That's correct. 22 Basically, the non-rate setting 23 component consists of the cylinder rental program and 24 with the OEM vehicles coming onboard the cylinder is 25 already on the vehicle, so when the customer buys the 26 vehicle or leases it the cylinders are included. So 27 the need for the cylinder rental program will diminish. 28 The conversion kit business, which is 327 REYNOLDS/KOKOTKA/DODD, cr-ex (Brett) 1 what we use to convert the vehicle operating on natural 2 gas won't be required with an OEM vehicle because it 3 already runs on natural gas and the sales people that 4 promote those two won't be required because the vehicle 5 will be available at the dealership. So the need for 6 the non-rate setting component diminishes as we move 7 into the future. 8 MR. BRETT: How long has the program 9 been running for now? 10 MR. KOKOTKA: At the business unit we 11 have been operating since 1990. 12 MR. BRETT: How long has it been 13 running in the utility as something other than a 14 business unit but a component of another program? 15 MR. KOKOTKA: It probably started in 16 the utility somewhere back around 1981 or 1982 with our 17 own fleet vehicles and then was created as a business 18 unit in 1990. 19 MR. BRETT: And with respect to your 20 comments in response to Board staff 22, how long will 21 it be before you have these changes taking place in 22 your estimation that will allow the program -- until 23 the market effectively takes over the program? 24 MR. KOKOTKA: Well, we have seen some 25 of this already with the delivery of OEM factory built 26 Crown Victoria's for the Toronto Taxi Reform. The 27 vehicles come with the cylinders, so we don't need to 28 rent cylinders in that case. 328 REYNOLDS/KOKOTKA/DODD, cr-ex (Brett) 1 We have already reduced staff in the 2 sales group. In the conversion kits they are becoming 3 less dominant as more OEM vehicles are available as 4 well. We have seen Ford vans and Ford pick-ups, Crown 5 Vics and GM pick-ups and that being delivered so, 6 obviously, we are not supplying conversion equipment 7 for those. 8 It has already started happening, but 9 realistically it will be probably a five-year window 10 before -- 11 MR. BRETT: Realistically, you think 12 you will be in this business of pumping the market, 13 priming the pump for a further five years? 14 MR. KOKOTKA: At a diminishing rate 15 year after year. It is because of things like 16 forklifts and that. The forklift market, there is a 17 handful of OEM forklifts, but we are still supplying a 18 number of offroad forklift kits and things like that. 19 MR. BRETT: The concern I have I 20 guess is twofold. I put it to you this way: Why is it 21 if you genuinely expect this to be a large utility 22 business some day, why is it that you are asking the 23 shareholder -- sorry, why is it that you are asking the 24 ratepayer to continue to pump in several hundred 25 thousand dollars a year over the next several years, 26 certainly in the test year? Why isn't this viewed by 27 the company as a good investment? 28 MR. KOKOTKA: Well, in the future 329 REYNOLDS/KOKOTKA/DODD, cr-ex (Brett) 1 what the company will have is the rate-setting 2 component, which is the ability that may generate 3 revenue under Rate 9 for the sale of gas. The problem 4 we are having right now is just keeping the program 5 going. It's the non-rate setting component that we 6 need to subsidize to get the vehicles on the road, 7 basically the conversions and the SONA rental program 8 are all transitional vehicles to building enough 9 stations out there and building enough load so the OEMs 10 see a market. 11 MR. BRETT: Those are my questions. 12 Thanks. 13 MR. KOKOTKA: Thank you. 14 THE PRESIDING MEMBER: Thank you, Mr. 15 Brett. 16 Mr. Mondrow, do you have questions of 17 this panel? 18 MR. MONDROW: I don't have questions 19 for this panel, sir. 20 THE PRESIDING MEMBER: Mr. Thompson. 21 MR. THOMPSON: Yes, I do. I see it 22 is almost five o'clock and I probably would be about 15 23 minutes maximum. 24 THE PRESIDING MEMBER: Go ahead, Mr. 25 Thompson. 26 CROSS-EXAMINATION 27 MR. THOMPSON: I would just like to 28 follow-up by the preliminary to the change that was 330 REYNOLDS/KOKOTKA/DODD, cr-ex (Thompson) 1 made to HVAC Interrogatory 13. Ms Reynolds, as I 2 understand what you were saying is that no cost 3 allocation study will be done in the test year because 4 of PBR? 5 MS REYNOLDS: The company is not 6 anticipating performing a cost allocation study in 7 fiscal 2000. 8 MR. THOMPSON: I would like to make 9 sure I understand this. That cost study that you are 10 speaking of is the activity analysis that was the basis 11 for determining non-utility eliminations as well as 12 fully allocated costs to be assigned to ancillary 13 businesses. Is that what you are talking about? 14 MS REYNOLDS: That's correct. The 15 cost allocation study was originally implemented to 16 provide the fully allocated costs to the non-utility 17 activities. It also provided us the avenue to allocate 18 costs on a fully allocated basis to the ancillary 19 programs, as well as allowed us to do some work on 20 capitalized A&G costs. 21 MR. THOMPSON: Could you just explain 22 how you monitored actual costs? These activity 23 analysis were being provided to develop the elimination 24 from the budget -- for example, the non-utility 25 elimination and also developed to assign fully 26 allocated costs to ancillary programs. Right? 27 MS REYNOLDS: That's right. 28 MR. THOMPSON: And then we have an 331 REYNOLDS/KOKOTKA/DODD, cr-ex (Thompson) 1 actual number for each of those lines as the year 2 progresses. Correct? 3 MS REYNOLDS: The cost allocation 4 study, if we go back to E.B.R.O. 497 it would have been 5 completed for the 1997 actual year, the 1998 bridge 6 year and the 1999 test year. 7 MR. THOMPSON: All right. 8 And then you would do one, as I 9 recall it, a further activity analysis towards the end 10 of fiscal '98 and that would be the basis for 11 forecasting non-utility eliminations for '99 and 12 checking actuals for '98. Is that right? 13 MS REYNOLDS: The cost allocation 14 study is performed annually for the test year, which 15 then gives us the bench mark working backwards as to 16 what the actual year is. 17 MR. THOMPSON: So that it's important 18 in determining -- let's focus on non-utility 19 eliminations. For the 1999 year the Board fixed 20 non-utility eliminations in the budget, I think it's at 21 $12 million. 22 MS REYNOLDS: That's correct. 23 MR. THOMPSON: And ordinarily at the 24 end of fiscal 1999, that is as we are sitting, you 25 would be doing an activity analysis. Right? 26 MS REYNOLDS: That's right. And as I 27 provided in -- 28 MR. THOMPSON: And just so I 332 REYNOLDS/KOKOTKA/DODD, cr-ex (Thompson) 1 understand, you would use that activity analysis to 2 determine the actual non-utility eliminations. Right? 3 MS REYNOLDS: The study that was 4 performed for this rate hearing was performed solely to 5 provide the allocations to the ancillary programs and 6 at the point the study was performed the ancillary 7 programs were comprised of ABC, NGB and we also 8 provided allocations for the home gas appliance 9 inspection service. 10 MR. THOMPSON: I am just trying to 11 follow the process that ordinarily followed. 12 Ordinarily you would have done one now that you would 13 use to -- we hadn't gone to PBR -- to forecast the 14 non-utility eliminations for 2000 and to check the 15 eliminations for fiscal 1999. Right? 16 MS REYNOLDS: If we are talking about 17 the current rate case and if we are assuming that we 18 are not under PBR and we are presenting O&M and we are 19 presenting the non-utility elimination, then what I 20 would be preparing is a cost allocation study for the 21 1998 actual, the 1999 estimates and the 2000 budget. 22 MR. THOMPSON: And the one being done 23 now would give us the 2000 budget, but would also be 24 the base for looking back? 25 MS REYNOLDS: That's correct. It 26 would have looked at the 1998 actuals. 27 MR. THOMPSON: And that's the basis 28 that you would determine the actuals if we were under 333 REYNOLDS/KOKOTKA/DODD, cr-ex (Thompson) 1 the old regime? 2 MS REYNOLDS: That's right. 3 Historically, we have presented actuals for the 4 ancillary programs and the actuals are presented this 5 year as well as actuals on the non-utility. 6 MR. THOMPSON: So that the only basis 7 on which you can determine the actual non-utility 8 eliminations and the actual allocations to ancillaries 9 going forward is with an ongoing activity analysis? 10 MS REYNOLDS: No. The activity 11 analysis was designed to determine the fully allocated 12 cost. Right now, going forward, what we are looking at 13 is the code of -- well, the Affiliate Relationships 14 Code governing our affiliate transactions. That has 15 brought into play pricing mechanisms which weren't in 16 play before, that has changed the nature of the 17 information that we need to capture. 18 As well, under PBR, the non-utility 19 elimination is calculated as a component of O&M and O&M 20 is being calculated by the Board-approved PBR formula. 21 So as such there is no need to capture forecasted 22 non-utility activities. 23 We will still be capturing affiliate 24 transactions on an actual basis, because we currently 25 have an obligation to provide those to the energy 26 returns officer and we are doing that. 27 MR. THOMPSON: Just slow down. 28 A component of the 1999 334 REYNOLDS/KOKOTKA/DODD, cr-ex (Thompson) 1 Board-approved budget, that is the driver for PBR, is a 2 non-utility elimination of $12 million? 3 MS REYNOLDS: Yes. 4 MR. THOMPSON: All right. 5 Will the actual of that be reported 6 and, if so, where and when and to whom? 7 MS REYNOLDS: The actual, for our own 8 business management purposes we assess our actual 9 affiliate transactions and what we recover from our 10 affiliate transactions. However, historically the 11 Board has said that as long as we are removing the 12 fully allocated costs from cost of service related to 13 those transactions that there is no need for the Board 14 to have any oversight of our transfer pricing. 15 MR. THOMPSON: I'm sorry. Run that 16 by me again? 17 The Board has said there is no need 18 to have oversight of -- 19 MS REYNOLDS: Transfer pricing prior 20 to the Affiliate Relationships Code coming into effect. 21 MR. THOMPSON: When has the Board 22 said there is no need to have oversight of transfer 23 pricing or actual? 24 MS REYNOLDS: I believe it is in its 25 E.B.R.O. 492 decision. 26 I'm paraphrasing, but that was in the 27 decision. 28 MR. THOMPSON: Okay. Well, let's 335 REYNOLDS/KOKOTKA/DODD, cr-ex (Thompson) 1 just move forward, then, to -- 2 MS REYNOLDS: It may have been 495. 3 It is was when we came forward with uniquely 4 attributable methodology. 5 MR. THOMPSON: So it is not something 6 that you are reading into the -- 7 THE PRESIDING MEMBER: Mr. Thompson, 8 just one minute. The reporter had a problem with -- 9 MS REYNOLDS: I believe it was the 10 E.B.R.O. 495 decision that the Board indicated that 11 they weren't going to give us any guidance on transfer 12 pricing as long as we removed the fully allocated costs 13 from cost of service. 14 MS LEA: I think you mentioned your 15 uniquely attributable methodology. Is that right? 16 MS REYNOLDS: Yes, just to try to jog 17 my memory as to which decision it was. 18 MR. THOMPSON: I just want to 19 understand clearly this comment you made about you will 20 no longer be doing activity analysis in the future. 21 Because for my purposes -- at least 22 you will know where I'm coming from -- as I see it 23 these are essential to the reporting on an ongoing 24 basis of actual non-utility eliminations which is part 25 of the PBR driver. 26 So I just want to understand now, as 27 we move forward into the year 2000 we have -- under 28 PBR, and we have, for the purposes of the companies 336 REYNOLDS/KOKOTKA/DODD, cr-ex (Thompson) 1 reporting to the Board in fiscal 1999 the Board will be 2 advised of an O&M expense number, correct? 3 MS SOUDEK: Mr. Chairman, if I may 4 interject at this point. 5 I am becoming increasingly concerned 6 about where Mr. Thompson is going with this issue in 7 light of the issue we are here to discuss, which is the 8 NGV program, which is an ancillary program and not a 9 non-utility program and that is what we are applying 10 for. 11 So perhaps Mr. Thompson could inform 12 us as to the relevance of his line of questions to the 13 NGV issue. 14 MR. THOMPSON: Well, it was relevant 15 to the update to the HVAC interrogatory that 16 Ms Reynolds thought was appropriate to put before us 17 now. 18 Are you coming back, Ms Reynolds, on 19 another panel? 20 MS REYNOLDS: I can address what I 21 anticipate will be performed for the NGV program in 22 terms of replacing the cost allocation study. 23 MR. THOMPSON: Are you coming back on 24 another panel when we talk about O&M expenses? 25 MS REYNOLDS: I am coming back on 26 several panels. I am not quite sure which issue you 27 are looking for me -- 28 MR. THOMPSON: This O&M expenses I 337 REYNOLDS/KOKOTKA/DODD, cr-ex (Thompson) 1 think generally in monitoring and reporting. 2 MS REYNOLDS: Oh, okay. Yes. 3 MR. THOMPSON: You will be back? 4 MS REYNOLDS: That is my 5 understanding. 6 MR. THOMPSON: Okay, then I will -- 7 MS LEA: It is not listed. 8 MR. THOMPSON: Yes. Could we have 9 an -- 10 MR. WARREN: I don't want to 11 discourage you from coming back if you want, 12 Ms Reynolds, but you are not listed for it. 13 THE PRESIDING MEMBER: Ms Reynolds is 14 listed a couple of places, but as I hear her she can be 15 available for the appropriate panel and that may be -- 16 MR. THOMPSON: If I could have a 17 commitment that Ms Reynolds will be back on the O&M 18 expenses panel then I can clean up very quickly. 19 MS REYNOLDS: It is my understanding 20 that I will be back on that panel -- 21 MR. THOMPSON: All right. 22 MS REYNOLDS: -- even though my name 23 is not listed. 24 MR. THOMPSON: Well, you can now try 25 to figure out where I am coming from. You will have a 26 couple of days to get your act together. 27 MS REYNOLDS: I think I knew that. 28 MR. THOMPSON: Let's move quickly 338 REYNOLDS/KOKOTKA/DODD, cr-ex (Thompson) 1 to NGV. 2 Am I correct, first of all, that as a 3 result of the company's plan now to transfer the rental 4 program to an affiliate NGV is all that remains in the 5 utility as an ancillary program? I am leaving aside 6 for the moment the debate as to whether the home gas 7 appliance inspection program ought to be classified as 8 ancillary. 9 Is NGV all that is left? 10 MR. KOKOTKA: That's correct. That 11 is my understanding as well. 12 MR. THOMPSON: Okay. 13 And ABC is still in the ambit of 14 utility but now classified as non-utility? 15 MR. KOKOTKA: That's correct. It is 16 classified as non-utility. 17 MR. THOMPSON: Can we just confirm 18 for the record that ABC has been removed on a fully 19 allocated cost basis? That is what I read into 20 question and answer 5 of C1, Tab 5, Schedule 2. 21 MS REYNOLDS: The ABC program was 22 based on -- was removed from the O&M PBR base on a 23 fully allocated basis. 24 MR. THOMPSON: Thanks. 25 Now, in the testimony C1, Tab 5, 26 Schedule 2, you talk about the changes in approach as a 27 result of the plan to transfer rental to an affiliate 28 and as well as the change in approach to CIS. 339 REYNOLDS/KOKOTKA/DODD, cr-ex (Thompson) 1 That is referenced in question and 2 answer 4? 3 MR. KOKOTKA: Yes. That is what I 4 mentioned at the beginning. The original Exhibit C1, 5 Tab 5, Schedule 1 included ABC and CIS, and then when 6 ABC was classified as non-utility and the CIS was 7 changed, part of it was removed, it changed the 8 financials and that so we refiled this piece of 9 evidence. 10 MR. THOMPSON: Okay. 11 I just want to either get on the 12 record now or have you put on the record the impact of 13 the changes to the returns on NGV that flow from the 14 change in approach to CIS. 15 If you could just quickly look at 16 Board staff -- it is Exhibit "I", Tab 1, Schedule 15. 17 For the test year at page 3 in the 18 white sheets we had a calculation showing the rate of 19 return on investment for the NGV program of 5.77 per 20 cent. Do you see that? 21 MR. KOKOTKA: That's correct. 22 MR. THOMPSON: All right. 23 Then in the blue sheets the return 24 has increased up to 5.90 per cent. Do you see that? 25 MR. KOKOTKA: Yes. I think Mr. Dodd 26 can speak to why the change occurred there, but both 27 these schedules were filed after the ABC was removed, 28 as far as I remember. 340 REYNOLDS/KOKOTKA/DODD, cr-ex (Thompson) 1 MR. THOMPSON: I'm sorry, after CIS 2 was removed or -- 3 MR. KOKOTKA: Well, ABC and CIS were 4 removed at the same time, or part of CIS was removed at 5 the same time as ABC. 6 MR. THOMPSON: Is there any 7 exhibit -- the NGV was never shown, then, pre-CIS 8 removal, is that right, in any of these exhibits? 9 MR. KOKOTKA: No, there wasn't an NGV 10 schedule rate of return filed pre the -- there was only 11 a combined rate of return schedule. 12 MR. THOMPSON: You had them combined, 13 okay. 14 MR. KOKOTKA: Yes. And then we filed 15 NGV only after that. 16 MR. THOMPSON: All right. 17 Could I have NGV before CIS was 18 removed and after? 19 MS SOUDEK: Excuse me, Mr. Kokotka. 20 Again, Mr. Chairman, I wonder if 21 Mr. Thompson could explain the relevance of his request 22 for that undertaking to what we are asking the Board to 23 approve with respect to NGV in this proceeding. 24 MR. THOMPSON: I am interested in 25 learning whether the return in NGV went up or down as a 26 result of the different approach to CIS because we are 27 still dealing, in theory, with all of the same CIS 28 costs and one of the issues depends on what amount of 341 REYNOLDS/KOKOTKA/DODD, cr-ex (Thompson) 1 CIS costs ought to be either excluded from revenue 2 requirement -- and part of that may be CIS costs that 3 should properly be allocated to NGV, whether they are 4 inside or outsourced, or a combination of both. 5 I am looking for an undertaking to 6 provide exhibits comparable to Exhibit I, Tab 15, page 7 3 that will show NGV with the CIS under its original 8 treatment and the CIS under the changed treatment. 9 MS SOUDEK: Mr. Chairman, I still 10 object to the request for the undertaking on the basis 11 of relevance. I think that Mr. Thompson is on a 12 fishing expedition and I would ask for a ruling. 13 THE PRESIDING MEMBER: Mr. Thompson? 14 MR. THOMPSON: It seems to me -- 15 THE PRESIDING MEMBER: As I heard the 16 witness, there were no financial figures provided to 17 the Board prior to the CIS separation or removal 18 because they were provided on a combined basis for all 19 ancillary programs. 20 I am just not sure how difficult an 21 exercise it is. Can someone help us? 22 Mr. Dodd, what would you have to do? 23 MR. DODD: We would have to go back 24 to the original schedule and subtract out the ABC 25 portion of those to get to the NGV. 26 THE PRESIDING MEMBER: All right, so 27 there were only two programs combined, so it is just a 28 matter of subtracting the ABC. 342 REYNOLDS/KOKOTKA/DODD, cr-ex (Thompson) 1 MR. DODD: That is correct. 2 THE PRESIDING MEMBER: Will that do 3 it, Mr. Thompson? 4 MR. THOMPSON: The one that was filed 5 as Exhibit C3, Tab 6, Schedule 1, the white sheet, has 6 the combined returns before you separated -- 7 THE PRESIDING MEMBER: Just a second, 8 I only have the blue page and my colleague has the 9 white. 10 MR. THOMPSON: C3, Tab 6, Schedule 11 1 -- 12 THE PRESIDING MEMBER: What is the 13 date? 14 MR. THOMPSON: It is 1999-03-05. 15 MS LEA: We have that. 16 THE PRESIDING MEMBER: All right, we 17 do have that, and then we have a further update: 18 6-04 -- six month, four date. 19 Then we have another update -- 20 MR. THOMPSON: C6, Tab 3, Schedule 1. 21 The first one is the combined. So that includes NGV 22 and the rental program, as I understand it. 23 MR. KOKOTKA: No, it includes NGV and 24 ABC. 25 MR. THOMPSON: NGV, okay, and ABC. 26 And CIS, under the old approach. 27 MR. KOKOTKA: That's correct. 28 MR. THOMPSON: Then we have an update 343 REYNOLDS/KOKOTKA/DODD, cr-ex (Thompson) 1 that is 1999-06-04 that is NGV only. 2 MR. DODD: That's correct. 3 MR. THOMPSON: And not CIS new. 4 MR. DODD: That is correct. 5 MR. THOMPSON: What I am trying to 6 get is NGV only, CIS old, so I can compare how the 7 returns were affected by the different treatment of 8 CIS. Because I may argue that the appropriate return, 9 if it is lower, is that return which was used to derive 10 the amount to be imputed. 11 All I want from you is the equivalent 12 of C3, Tab 6, Schedule 1, page 1, with ABC out but CIS 13 in under the old method. 14 Is everybody clear? 15 THE PRESIDING MEMBER: In C3, Tab 6, 16 Schedule 1, the original, the third month, fifth day, 17 if you were to take out the ABC portion of it, I 18 believe that is what Mr. Thompson would need. 19 MR. THOMPSON: Could I have an 20 undertaking for that, please? 21 MS LEA: I gather the Board would 22 find that information useful and we should assign an 23 undertaking number. 24 THE PRESIDING MEMBER: Yes. 25 MS LEA: Thanks. J2.2. 26 UNDERTAKING NO. J2.2: Enbridge 27 Consumers Gas undertakes to 28 provide the equivalent of 344 REYNOLDS/KOKOTKA/DODD, cr-ex (Thompson) 1 Exhibit C3, Tab 6, Schedule 1, 2 page 1, with ABC out but CIS in 3 under the old method. 4 MR. THOMPSON: Thank you. 5 My last -- it is not really a 6 question, it is really just a note. The 676,000, Mr. 7 Kokotka, that you were referring to, is referenced in 8 IGUA-24, I believe. That is Exhibit I12, Schedule 24, 9 page 2 of 2. 10 MR. KOKOTKA: That's correct. 11 Exhibit I, Tab 12, Schedule 24, and it is the updated 12 version of 07-21. It indicates a shortfall of 676,000. 13 MR. THOMPSON: Thank you very much. 14 THE PRESIDING MEMBER: Thank you, Mr. 15 Thompson. 16 Ms Lea? 17 MS LEA: I have one big question of 18 clarification. I think it is probably to Ms Soudek. 19 And pardon me if I am the only one in the room who is 20 not clear. 21 Did I understand you to say in 22 response to Mr. Warren's initial questions that you had 23 or had not made an application for the continuation of 24 the NGV program within the utility beginning on October 25 1, 1999? 26 MS SOUDEK: We have not yet made that 27 application, but we do intend to make such an 28 application. 345 REYNOLDS/KOKOTKA/DODD 1 MS LEA: Thank you. 2 THE PRESIDING MEMBER: The Board has 3 one question, and that is -- perhaps Mr. Kokotka can 4 help me with this. 5 What are the practical reasons for 6 not being able to treat the NGV program, the 7 non-utility part of it, as a non-utility program? Is 8 it because of the splitting of the two? 9 MR. KOKOTKA: From a cost allocation 10 point of view, we separate the rate setting and the 11 non-rate setting, but we share staff between the two. 12 So if we wanted to move it to an affiliate, that would 13 create a lot of problems, especially under the new 14 affiliate code of conduct, where we wouldn't be able to 15 share staff. 16 Moving it to non-utility, it would 17 still be under fully allocated costs, so I don't really 18 see the benefit of that either. I would prefer to 19 leave it as a whole program. We have dramatically 20 downsized. We only have 12.5 employees now, and we are 21 trying to make this thing work, and it is a lot more 22 effective if everyone is together and it is treated as 23 one program and operated as one program. 24 From a cost allocation point of view, 25 it is easy enough to split; but from an operational 26 point of view, I wouldn't want to start splitting it. 27 It would increase my costs. 28 THE PRESIDING MEMBER: I am not sure 346 REYNOLDS/KOKOTKA/DODD 1 that my position would go as far as an operation or a 2 split, but, again, it is a financial treatment of a 3 non-utility program versus a utility program, but fully 4 allocated -- 5 MR. KOKOTKA: Apparently, the 6 non-rate setting is fully allocated, so as a 7 non-utility it would be fully allocated as well. It 8 really wouldn't change the financials. 9 THE PRESIDING MEMBER: There is 10 absolutely no revenue coming from the marketing side of 11 the non-utility part. 12 MR. KOKOTKA: The non-utility part is 13 actually more sales. I don't like calling it 14 marketing. 15 There is revenue there. Actually, we 16 will be providing the separate financials for the two 17 parts. There is revenue there. You have revenue from 18 the some of the rental programs. You have revenue from 19 the sale of kits. However -- 20 THE PRESIDING MEMBER: Okay, there is 21 marketing activity and there is the sales activity. Or 22 is it just one? 23 MR. KOKOTKA: Those are different 24 activities. The marketing activity is on the 25 rate-setting side; the sales activity is on the 26 non-rate-setting side. 27 THE PRESIDING MEMBER: Without an 28 operational split, if we were to say okay, this program 347 REYNOLDS/KOKOTKA/DODD 1 we don't care whether it is revenue side; all we care 2 is how many costs have been allocated to the 3 non-utility part of the total. 4 Why can't that be done? 5 MR. KOKOTKA: Well, financially then 6 you would treat it as two separate programs. 7 THE PRESIDING MEMBER: Financially. 8 MR. KOKOTKA: Yes. 9 THE PRESIDING MEMBER: Is that a 10 problem? 11 MR. KOKOTKA: The non-utility portion 12 doesn't make a lot of money. It is basically the 13 necessary evil we need to get there to get the OEMs 14 involved, and then basically there would be no funds 15 moving between the two, or whatever. 16 I guess from a logistics point of 17 view the costing wouldn't really change a lot, like you 18 are saying, as long as there doesn't have to be a 19 physical split. 20 It probably would add to paper work. 21 It is such a small program -- 22 THE PRESIDING MEMBER: I understand 23 that. I don't think I was even suggesting that there 24 would be -- not only there would not be operational 25 separation, financial separation; only in terms of 26 reporting to the Board non-utility versus fully 27 allocated costs, as they would be reported to the 28 Board, not necessarily a financial division with 348 REYNOLDS/KOKOTKA/DODD 1 separate records for auditing purposes. 2 In any event, thanks for those 3 answers. 4 Anything else before we adjourn for 5 the day? 6 Any redirect, Ms Soudek? I'm sorry. 7 MS SOUDEK: One question, 8 Mr. Chairman. 9 RE-EXAMINATION 10 MS SOUDEK: Mr. Kokotka, just 11 following up from what Mr. Vlahos was discussing with 12 you, if the Board directed that the non ratemaking 13 component of the NGV program were to be financially 14 separated, would the company continue to operate that 15 component of the program? 16 MR. KOKOTKA: I honestly don't know 17 the answer to that question. I know, as an affiliate, 18 they would not operate it. 19 So there is a possibility that, as a 20 non-utility entity, maybe they wouldn't as well. 21 MS SOUDEK: That is all I have, 22 Mr. Chairman. 23 THE PRESIDING MEMBER: Thank you, 24 Ms Soudek. 25 We are going to stand down, then. 26 Mr. Warren? 27 MR. WARREN: As a courtesy to the 28 Board, I wanted to advise them that I have tomorrow a 349 REYNOLDS/KOKOTKA/DODD, re-ex (Soudek) 1 long-standing obligation which I must attend to, which 2 may take me the better part of the day, in which case I 3 won't be here. Others, I am sure, will more than 4 admirably fill whatever small space I leave behind. 5 THE PRESIDING MEMBER: Thank you, 6 Mr. Warren. 7 This panel is excused, except for 8 Ms Reynolds, who I think will be back. Thank you. 9 MR. KOKOTKA: Thank you. 10 THE PRESIDING MEMBER: Ms Lea? 11 MS LEA: I may be the only one 12 confused, but we proceed tomorrow to HGAI program as 13 the first panel? 14 MS SOUDEK: That's correct, Ms Lea. 15 MS LEA: And then transactional 16 services, is there going to be a panel on that or not? 17 Or do we know? 18 MS SOUDEK: That is still under 19 discussion. Hopefully, can apprise you -- in fact, we 20 will be advising you in the morning. 21 MS LEA: Thank you. 22 THE PRESIDING MEMBER: And what else 23 after that? 24 MS LEA: The O&M costs? 25 THE PRESIDING MEMBER: The H -- let's 26 call it the inspection program. It's easier for the 27 tongue rather than HGAI. 28 If we don't hear from transactional 350 1 services, then we go to O&M costs? 2 MS SOUDEK: That's correct, 3 Mr. Chairman. 4 After home inspection, perhaps we 5 will hear from transactional services. In any event, 6 after that we would be going to the O&M costs, which is 7 Panel 7. 8 THE PRESIDING MEMBER: Thank you. 9 With that, we will stand down until 10 tomorrow morning at 9 o'clock. 11 --- Whereupon the hearing adjourned at 1720, 12 to resume on Wednesday, August 25, 1999 13 at 9:00 a.m.