586 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 B E F O R E : 16 P. VLAHOS Presiding Member 17 S.K. HALLADAY Member 18 19 20 Hearing held at: 21 2300 Yonge Street, 25th Floor, Hearing Room No. 1, 22 Toronto, Ontario on Thursday, August 26, 1999, 23 commencing at 0905 24 25 RATES HEARING 26 27 VOLUME 4 28 587 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 28 588 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 28 589 1 INDEX OF PROCEEDINGS 2 PAGE 3 Preliminary Matters 592 4 Decision 606 5 SWORN: LLOYD CHIOTTI 614 6 PREVIOUSLY SWORN: JOANNE GOULD 614 7 Examination-in-Chief by Mr. Cass 614 8 Cross-Examination by Mr. Warren 615 9 Upon recessing at 1030 649 10 Upon resuming at 1053 649 11 Cross-Examination by Mr. Brett 649 12 Cross-Examination by Mr. Mattson 662 13 Cross-Examination by Mr. Thompson 671 14 Luncheon recess at 1215 703 15 Upon resuming at 1402 703 16 Preliminary Matters 705 17 Hearing adjourned at 1410 710 18 19 20 21 22 23 24 25 26 27 28 590 1 UNDERTAKINGS/OBJECTIONS 2 NO. DESCRIPTION PAGE 3 J4.1 Ms Gould to report back as 679 4 to the practicality of 5 providing the numbers regarding 6 the extent to which the revenue 7 requirement increment of $41.44 8 million, shown in column 2 of 9 Exhibit I, Tab 12, Schedule 41, 10 would decline if the regulatory 11 approach that the company took 12 was to retain the rental program 13 but classify it as non-utility. 14 J4.2 Mr. Chiotti to provide amount 681 15 of separation costs that will be 16 left as costs for the 2000 test 17 year or subsequent test years 18 An objection can be found at page 665 19 20 21 22 23 24 25 26 27 28 591 1 EXHIBITS 2 NO. PAGE 3 K4.1 Two-page document entitled 700 4 "The Schools Interrogatory #2" 5 K4.2 Three letters related to the 706 6 NGV Program, two from the 7 City of Toronto and one is 8 from the Associated Toronto 9 Taxi Cab Co-operative Limited 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 592 1 Toronto, Ontario 2 --- Upon resuming on Thursday, August 26, 1999 3 at 0905 4 THE PRESIDING MEMBER: Good morning, 5 everyone. 6 Mr. Farrell, do you have any 7 preliminary matters? 8 MR. FARRELL: Yes, Mr. Chairman. 9 PRELIMINARY MATTERS 10 MR. FARRELL: You should have a copy 11 of the scoping proposal, which we have designated as 12 Exhibit N1, Tab 1, Schedule 2. 13 In the interests of getting it before 14 you, I did not ask for comments from the intervenors. 15 I thought I had them, and I tried to embody them. I 16 realize that you and your colleague were anxious to 17 have this document. 18 Mr. Thompson has since given me some 19 comments that may cause a change to it, but I don't 20 think it will affect the panel that is about to be 21 examined. So if we file a revision to include his 22 comments -- I am just eyeballing them, so to speak, and 23 they don't seem to be a problem. 24 In any event, it may be revised. But 25 for the purposes of going forward, the essence of what 26 you have now is the company's view and the intervenors' 27 view of the scoping of the issues. I apologize for the 28 delay. 593 Preliminary Matters 1 The second thing I would like to 2 mention -- you have a copy of it, and it need not be 3 marked as an exhibit -- is the interrogatories that the 4 company has given to Mr. Stevens. That was the work 5 product of yesterday afternoon's efforts. 6 I took heed of Mr. Thompson's request 7 that we make interrogatories available as soon as 8 possible. I put that higher on my priority list than 9 the scoping proposal; and if I had my priorities 10 reversed, I apologize. 11 In any event, they have been faxed 12 directly to Mr. Stevens and copies have been given to 13 Mr. Thompson and Mr. Warren. There will be other 14 copies, when the machine finishes running, for others 15 in the hearing room if they wish to see what questions 16 we are asking of Mr. Stevens. 17 In regard to the settlement proposal 18 itself, I am advised that the company has sent a 19 proposal to Energy Probe, that Mr. Rubin has examined 20 it, and he finds it acceptable. So we will prepare an 21 amendment to the settlement proposal which will resolve 22 Issue 6.1.4. 23 I am trying to get the details of 24 that in order to prepare the revision to the document. 25 In that regard, in the scoping 26 proposal, on the last page, the text varies from what 27 was in the settlement proposal by referring directly to 28 the Board's ruling on the opening day of deferring the 594 Preliminary Matters 1 seven series of issues to a separate phase. Unless 2 anyone has an objection, I would revise the settlement 3 proposal to track the language on page 12 of 12 of the 4 scoping proposal. 5 The last preliminary matter I would 6 like to deal with at this point is simply the panels 7 that will be appearing over the next couple of days. 8 The panel that Mr. Cass will be 9 leading is Mr. Chiotti and Ms Gould -- 10 THE PRESIDING MEMBER: Mr. Farrell, 11 before you do that, the issue with Energy Probe on 12 6.1.4, you say it has been resolved. Is it going to 13 come to the hearing or not? 14 MR. FARRELL: No. It is settled, as 15 I understand it. 16 What we will be doing, when I can get 17 my hands on the proposal that the company sent to 18 Energy Probe -- the discussions between Ms Fraser and 19 Mr. Rubin -- I would propose to file a revision to the 20 settlement proposal that embodies the settlement of 21 Issue 6.1.4. Hopefully, that can be done today. I am 22 told that there is a resolution of the issue. 23 It will reach you in the form of an 24 agreement to settle, and then you and your colleague 25 would decide whether you are prepared to accept the 26 agreement. 27 THE PRESIDING MEMBER: Mr. Farrell, I 28 am not sure what status the scoping proposal has. It 595 Preliminary Matters 1 is definitely not part of the ADR. 2 Is it a guiding document in the same 3 fashion as you provided us with a hearing schedule 4 document? Is that the status that we should give it? 5 MR. FARRELL: Mr. Ladanyi is telling 6 me it is to be of assistance to the Board. 7 I had prepared it as if it was to be 8 a companion, if you will, of the settlement proposal. 9 The reason I did that was that when discussions about 10 trying to scope the issues first arose -- and this is, 11 I am told, the first time this particular effort has 12 been undertaken. We had at one point -- we being 13 certain of the intervenors and the company -- had 14 talked about trying to build the scoping proposal right 15 into the settlement proposal. So you had one document 16 that for unsettled issues scoped the unsettled issues 17 for you. 18 We ran out of time to do that. I 19 guess I carried on with the thought that it would be a 20 companion to the settlement proposal. 21 That is not a firm recommendation. I 22 never looked at the header again, if you will, after we 23 got into the text of the document. 24 I am in the Board's hands. The 25 company would have you use it as guidance. We could 26 remove it from the "exhibit" category, if that is what 27 you are inquiring about. I don't know what the 28 intervenors think of it. 596 Preliminary Matters 1 We had, as I say, initially intended 2 that it would be part and parcel of the settlement 3 proposal, but we just ran out of time to make it fit 4 that category. 5 THE PRESIDING MEMBER: One moment, 6 please. 7 --- Pause 8 THE PRESIDING MEMBER: Ms Lea, do you 9 have any guidance on this? 10 MS LEA: I had understood that the 11 scoping proposal was a document prepared to assist the 12 Board in knowing what was coming on any given day and 13 helping the Board to understand what issues the 14 intervenors might address with respect to both their 15 cross-examination and their argument. 16 I did not believe, however, that it 17 was intended to specifically restrict people to 18 anything in particular, nor is it a form of evidence, 19 such as a settlement proposal containing evidence. I 20 don't think the scoping document has the status of 21 evidence. 22 I think it is marked as an exhibit 23 for reference. I don't think giving it an exhibit 24 number indicates that it has any particular weight. 25 THE PRESIDING MEMBER: Mr. Farrell, 26 why don't we leave it on that basis, then. An exhibit 27 number is fine, but it is for reference purpose only. 28 We just didn't have a chance to go through it. Perhaps 597 Preliminary Matters 1 that can guide us for the future as to how this 2 document should be treated. 3 MR. FARRELL: That is fine, 4 Mr. Chair. I agree with Ms Lea's comments that the 5 fact that it has an exhibit number doesn't by virtue of 6 that fact alone give it any particular weight. It was 7 intended to be of guidance to the Board, to the company 8 and the intervenors in terms of trying to scope the 9 issues for the Board's consideration. 10 We thought it was a step forward in 11 trying to fine tune the hearing process. Although 12 there have been frustrations on all sides in terms of 13 trying to produce this, we still think that the end 14 result is useful. 15 THE PRESIDING MEMBER: Thank you, 16 Mr. Farrell. 17 You were on the scheduling. 18 MR. FARRELL: Yes. When I leave, I 19 will go back and try to make available an update, if 20 you will, of the hearing schedule. 21 The panel that you are about to hear 22 is dealing with the consequences of the 23 E.B.O. 179-14/15 decision. In the previous version, or 24 the existing version, I guess, of the hearing schedule, 25 No. 3, dated August 24th, this panel would appear as 26 panel No. 11. 27 It will be followed by the 28 transactional services panel. We are trying now to 598 Preliminary Matters 1 finalize Mr. Rahn's written evidence, and we will make 2 that available well before he appears. 3 After transactional services, it will 4 be the cost allocation and rate design panel that will 5 speak to Issue 5.1.2, which is the proposed Rate 125. 6 That will be tomorrow. Ms Duguay is not available 7 today. 8 That panel will be followed by the 9 capitalization of A&G overheads panel, consisting of 10 Ms Reynolds and Mr. Riccio. 11 As I say, I will go back and make the 12 changes to the hearing schedule to put this in a final 13 form, for now, and bring it back to the hearing room 14 when that is completed. 15 MR. WARREN: Mr. Chairman, before 16 Mr. Farrell leaves, did I understand you to say that 17 there was some evidence being prepared from Mr. Rahn, 18 and that that was going to be delivered in respect of 19 the transactional services matter? 20 MR. FARRELL: Yes. That was 21 discussed yesterday. 22 MR. WARREN: Sorry, I wasn't here. 23 MR. FARRELL: We will get that as 24 soon as possible. I anticipate that this panel will be 25 longer than an hour or two. So, hopefully, Mr. Rahn's 26 evidence will be in intervenors' hands in time for them 27 to review it prior to his appearance. If there area ny 28 objections, we will deal with it at the time. 599 Preliminary Matters 1 MR. WARREN: Thank you. 2 THE PRESIDING MEMBER: Mr. Farrell, 3 to the extent that the intervenors were not aware of 4 such developments, we should give them an opportunity 5 to cross-examine this panel at another time, if they so 6 wish? 7 MR. FARRELL: Yes. 8 THE PRESIDING MEMBER: I don't think 9 they have had adequate notice about the change. 10 MR. FARRELL: That's what I meant by 11 if there are objections to proceeding with the 12 transactional services panel, we could deal with it at 13 the time. I take your point, Mr. Chair; thank you. 14 With the Board's permission, I will 15 leave, and Mr. Cass will take my place in relation to 16 this panel. 17 THE PRESIDING MEMBER: Mr. Farrell, 18 you may want to stick around just for a few minutes. 19 Mr. Cass is also welcome to come forward. 20 I just want to make sure we are -- to 21 take stock as to where we are in terms of the 22 outstanding issues on the record. 23 The Energy Probe issue, that has been 24 dealt with today. That is settled. 25 I asked yesterday whether the company 26 could advise, through Ms Gould, I understand, whether 27 the company intends, in future filings, to incorporate 28 the financial performance of historic and bridge years. 600 Preliminary Matters 1 Has there been any -- 2 MS GOULD: I spoke briefly with 3 Mr. Bourke last night and he will be addressing that 4 when he appears on the cost of capital panel. 5 THE PRESIDING MEMBER: That would be 6 probably not until next week. 7 Is it possible to get that response 8 -- it is a yes or a no -- sometime early today? 9 MS GOULD: I can follow up with them 10 again this morning. 11 MR. FARRELL: We will follow up with 12 Mr. Bourke while Ms Gould is occupied in the hearing 13 room, Mr. Chair. 14 THE PRESIDING MEMBER: Mr. Farrell, 15 anything to advise on developments on the discussions 16 with Mr. Mondrow? 17 MR. FARRELL: Nothing further than 18 yesterday. 19 Ms Reynolds is now working on, I 20 understand, the responses to his revised prayer for 21 relief, the first paragraph, so we will be preparing 22 that information. It is not an instantaneous exercise. 23 It is going to take her some work to prepare it. So 24 Mr. Mondrow is now in the position of waiting for us to 25 produce something to see whether he finds it 26 acceptable. If it is acceptable, it will be filed. 27 If we disagree, we will file what we 28 are prepared to give and then both he and I will speak 601 Preliminary Matters 1 to any lingering dispute we may have. It was left I 2 think that way, that the next step is ours and that is 3 to produce what we said we would produce. 4 I understand that Mr. Mondrow does 5 not plan to re-attend until Monday. I don't know, 6 because I haven't spoken to Ms Reynolds, how long it 7 will take her to produce this information, but I do 8 know enough to say that it is not something she could 9 produce over the course of one morning, for example. 10 It is going to take a couple of days before we have 11 something to show to him. 12 THE PRESIDING MEMBER: I understand. 13 We just wanted to know the status of that. 14 Also, with respect to Mr. Thompson's 15 issue of yesterday, I believe Ms Reynolds said that in 16 the process or in conjunction with the work to get that 17 information for Mr. Mondrow that she may have been able 18 to address some of Mr. Thompson's issues. 19 MR. FARRELL: I understand that we 20 are preparing a written response to the undertaking to 21 advise as to how much work and time it would take. 22 When that response is finalized sometime this morning, 23 we will bring it to the hearing room and file it. 24 THE PRESIDING MEMBER: Thank you. 25 That is all from us. 26 Mr. Thompson. 27 MR. THOMPSON: Yes. I would just 28 like to follow up, if I might, Mr. Chairman, on the 602 Preliminary Matters 1 points you have raised about my request that there be a 2 ruling in this case about the disclosure in this case 3 of the 1999 actual and estimated operating expenses and 4 the related rate of return on equity for the bridge 5 year, all of which we discussed yesterday with some 6 indication of the going-in benefit of the PBR regime. 7 I asked you to make a ruling on that 8 disclosure, but it is apparent that Mr. Bourke has 9 evidence to offer on this topic. A lot of questions 10 about the surveillance report filing and other topics 11 were deferred to him by Ms Gould. So I thought perhaps 12 in fairness it might not be appropriate to make the 13 ruling until Mr. Bourke has been cross-examined. 14 I appreciate your desire to get it 15 promptly or to get a response from the company 16 promptly. That is certainly my desire as well. The 17 undertaking response that we get today and any further 18 examination on it may help us there. 19 But I wanted to just, in terms of the 20 discussions yesterday -- when we were discussing the 21 relevance of this evidence, in effect the going-in 22 benefit to test year ratemaking, I failed to mention 23 yesterday, and I wanted to put it on the record, now 24 that the intervenors take the position with respect to 25 the transactional services sharing proposal -- and you 26 can see this in the scoping document that Mr. Farrell 27 has provided, it is on page 5, item 1.4, the last 28 paragraph -- the intervenors position is that the 603 Preliminary Matters 1 two-tiered sharing, 90/10 and then 75/25, for credit 2 balances in the TDSA should no longer continue because 3 of the PBR plan that the company has adopted with the 4 Board's approval. 5 So this fact of the going-in benefit 6 which relates to the generosity of that plan does have 7 bearing for the test year ratemaking pertaining to the 8 transactional services forecast. I wanted to bring 9 that to your attention. 10 The other aspect of relevance for 11 test year ratemaking, where this topic may have a 12 bearing, is with respect to the company's request to 13 recover separation costs, because there again the 14 going-in, if you will, apparent benefits of the regime 15 is a fact that has some relevance, we submit, to 16 whether there should be any grant of the company's 17 request to recover further costs by way of deferral 18 account arising out of the separation. 19 So my proposal to you is that you 20 consider withholding your ruling until Bourke has 21 finished. I would propose at that time, subject to 22 your direction, to just summarize our points about 23 relevance with respect to ratemaking as well as 24 monitoring and reporting and invite a ruling at that 25 point. 26 I thought I ought to put that on the 27 record as a preliminary, because it was something that 28 I had overlooked yesterday when we were discussing this 604 Preliminary Matters 1 topic at some length towards the end of the day. 2 Thank you. 3 THE PRESIDING MEMBER: Mr. Cass. 4 MR. CASS: Yes. Thank you, 5 Mr. Chairman. 6 If I might respond to that. 7 To begin with, although I have had 8 really no time to consult with respect to 9 Mr. Thompson's proposal that we await Mr. Bourke's 10 evidence before the Board rules, I think I can safely 11 say that that proposal itself would be acceptable to 12 the company. I think it does make some sense. 13 However, Mr. Thompson has already, in advance of that, 14 started rearguing what the Board heard extensive 15 submissions on yesterday. We have now heard some new 16 arguments in support of the request for this 17 information. I am just troubled by those and I don't 18 want to sit here and allow those to stand on the record 19 unchallenged. 20 The company, as the Board is aware, 21 does not, by any stretch of the imagination, accept 22 Mr. Thompson's arguments around the relevance of this 23 information. We are now into a new regime, a PBR 24 regime. This information is not relevant in the PBR 25 regime. The intervenors may well try to make it so by 26 picking at different elements of the case, such as 27 transactional services, and say, "We are unhappy with 28 what the company is doing here", and therefore it is 605 Preliminary Matters 1 relevant for us to look at the actual numbers under the 2 PBR plan. 3 In my submission, that does not make 4 it relevant at all. That is not the regime that we are 5 operating under now. It is a targeted PBR regime 6 insofar as O&M is concerned and it would be contrary, 7 in my submission, to the very purpose of that regime to 8 start saying well now we can reopen that in relation to 9 what the company is doing on all the other aspects of 10 its case, such as transactional services. 11 That is not PBR at all, Mr. Chairman; 12 that is the worst of all possible worlds. That is a 13 PBR regime with a continuing cost of service review. 14 That is what Mr. Thompson is really arguing for. 15 So I didn't want to allow that to 16 stand on the record unchallenged. I think the company 17 would accept that we can await Mr. Bourke's evidence 18 and I think Mr. Thompson is suggesting that we can then 19 revisit the arguments at that time, as I understood 20 what he said. I think he indicated he would want to 21 sum up his submissions, and we can revisit it at that 22 time. I believe that would be acceptable. 23 But I certainly don't in any way 24 accept the statements that Mr. Thompson is now making 25 to try to support his submission of relevance. 26 THE PRESIDING MEMBER: Thank you, 27 Mr. Cass. 28 We will wait for Mr. Bourke's 606 Preliminary Matters 1 evidence, Mr. Thompson, and another opportunity, a 2 brief one I would hope, to readdress that issue. 3 Thank you. 4 Thank you, Mr. Farrell. 5 Mr. Cass, back to you. 6 MR. CASS: Yes, thank you, Mr. 7 Chairman. 8 If you don't mind, I will just get my 9 briefcase -- 10 THE PRESIDING MEMBER: Mr. Cass, I am 11 wondering whether it would be an opportune time, since 12 Mr. Farrell is here in the room, for the Board to 13 pronounce on the ADR agreement. 14 Would that assist, Mr. Farrell? 15 MR. FARRELL: Yes, thank you, Mr. 16 Chair, that would. 17 THE PRESIDING MEMBER: I have to dig 18 out my notes. 19 MR. FARRELL: Should I be sitting 20 down? 21 --- Laughter 22 --- Pause 23 DECISION 24 THE PRESIDING MEMBER: The Board has 25 finalized its review of the settlement proposal dated 26 August 23rd and the corrections dated August 25th. The 27 Board also notes the comments today with respect to the 28 settlement of the Issue 6.1 -- somebody can help me? -- 607 Preliminary Matters 1 6.4.1 -- 2 MR. FARRELL: 6.1.4. 3 THE PRESIDING MEMBER: Thank you, Mr. 4 Farrell. 5 -- related to average day use -- 6 average use trend data. 7 Subject to the usual caveats 8 regarding significant events and possible connectivity 9 of unsettled issues that may affect the settled issues, 10 the Board accepts the settlement proposal, subject to 11 the following comments: 12 First, the unbundling series of 13 issues under Category 7 have been deferred, in 14 accordance with the Board's ruling on August 23rd -- 15 and that was pointed out today by Mr. Farrell in filing 16 the scoping document. 17 Second, the agreement among 18 participating parties, except HVAC, or the company's 19 response to the Board's commentary in E.B.R.O. 497 on 20 the criteria used by the company in determining when to 21 apply for a deferral or variance account is viewed by 22 the Board as commentary on the Board's commentary. As 23 such, it is simply noted by the Board. This matter 24 does not need to be examined at the hearing. 25 Third, the Board notes that the -- 26 okay, this was my comment on the average use trend 27 data, and that has been addressed this morning. 28 There is a question that I would like 608 Preliminary Matters 1 to ask of -- on page 24/25, just some clarification. 2 The issue starts on page 23. It is 3 the cost of capital issues. There is certain agreement 4 on cost of capital issues by a number of parties, 5 participating parties, except IGUA. 6 I am not sure as to whether the 7 scoping document assists as to what is going to be -- 8 MR. FARRELL: That is my mistake, Mr. 9 Chair. That is my mistake. That was just a carry 10 over. I didn't realize that. I think with the rewrite 11 of the cost of capital issues 4.1 and 4.2 IGUA should 12 have been added to the parties who agree. I apologize 13 for that oversight. The revisions were made in order 14 to accommodate IGUA. 15 THE PRESIDING MEMBER: Thank you. 16 That -- 17 MR. FARRELL: My mistake. I 18 apologize. 19 THE PRESIDING MEMBER: That helps. 20 MR. FARRELL: We will re-file a page 21 25 that corrects that. My apologies. 22 If you notice, on page 23 -- and this 23 is, I guess, the contradiction you would have seen -- 24 underneath the listing of the issues, it says a 25 "complete conditional settlement". That was intended 26 to bring IGUA on board and I simply overlooked changing 27 page 25. 28 So, page 25, it should read: IGUA 609 Preliminary Matters 1 should be in the list of parties who agree with the 2 settlement. And "The following parties disagree with 3 the settlement" should read "none". 4 We will correct that page and file 5 it. 6 THE PRESIDING MEMBER: Thank you, Mr. 7 Farrell. 8 MR. FARRELL: And perhaps, at the 9 same time, we will also add the agreement to settle 10 issue 6.1.4. 11 So, we will re-file page 33, 12 accordingly, that would then set out the agreement to 13 settle that issue. 14 I would also propose, just to round 15 things off, that we modify the last paragraph under the 16 "7" series of issues to reflect the Board's ruling to 17 defer those issues to Phase II. 18 THE PRESIDING MEMBER: Thank you. 19 Now, in terms of implementation, Mr. 20 Farrell, before we are able to direct the company to 21 submit a draft rate order on the gas costs side, I 22 think it has to be clarified on pages -- on page 16, 23 the language, the way I read it I am not sure whether 24 it precludes the Board of directing the company to file 25 for the new rates that incorporate the gas costs as 26 agreed to. The language reads as what are the changes 27 of the cost of gas sent to operations, which appears in 28 a sort of typical financial statement, and I hope that 610 Preliminary Matters 1 language does preclude the Board directing, now, that 2 the company ought to revise its rate schedules to 3 reflect the new gas costs and submit that draft rate 4 over to the Board. 5 MR. FARRELL: No, it was not intended 6 to do that. It was just intended to say that the 7 parties had agreed that, with the adjustment mentioned 8 that an interim rate order was acceptable to the 9 parties and we would go through the normal process of 10 filing a draft rate order for the Board's approval and 11 it would then -- the usual process would apply. 12 THE PRESIDING MEMBER: I will tell 13 you where the confusion is. If you look at the top 14 bullet point of that page, page 16, it talks about 15 possible adjustments as the Board reviews certain other 16 issues that may impact the cost of gas, but I take that 17 as the impact being the cost of gas expense not 18 necessarily the unit change that is reflected in the 19 new rate schedules. Because, Mr. Farrell -- and Mr. 20 Ladanyi can speak to this; he doesn't have to be sworn 21 -- we are just looking for some assistance here -- 22 MR. FARRELL: May I return, at the 23 break, to answer your question. I think it is over 24 both of our heads, in terms of just the -- I think we 25 understand your concern; we are just not clear now to 26 respond to it. We would like to come back and respond 27 to make sure that we do what you are expecting us to 28 do. 611 Preliminary Matters 1 THE PRESIDING MEMBER: Okay. So I 2 read that as there is nothing to stop the Board from 3 directing the company, today, to draft the new set of 4 rate schedules to reflect the change to the cost of gas 5 as agreed by the parties. Any change to the cost of 6 gas that may stem from some of the unsettled issues may 7 only go to the cost of gas charge to operations; that 8 is, the financial statements. 9 MR. FARRELL: I believe -- that is 10 correct, Mr. Chair. 11 THE PRESIDING MEMBER: Mr. Thompson, 12 can you assist whether that is your understanding? The 13 Board is not prevented from issuing a direction, today, 14 based on the language of this? 15 MR. THOMPSON: That is my 16 understanding, yes. 17 THE PRESIDING MEMBER: And the reason 18 that it is an interim order is -- can someone help? 19 MR. FARRELL: Yes. What we had in 20 mind, Mr. Chair, when it appeared that perhaps the 21 hearing was going to last longer than it may now last 22 is that we would implement an interim order on October 23 1st to capture the gas cost increase, but anything 24 dealing with gas costs, such as the clearance of the 25 PGVA, for example, and the effect of your decision on 26 normalized average uses for Rates 1 and 6, would be 27 contained in the final order so that gas costs, per se, 28 may be adjusted again, but we wanted to get the first 612 Preliminary Matters 1 -- the step-up on the commodity cost, if you will, 2 implemented on October 1st, so we didn't have a large, 3 in the customers' minds, retroactive change. So it was 4 going to be a two-step process: October 1 on an 5 interim basis and then whatever the date of your final 6 order would be would capture any lingering gas cost 7 issues, together with your decisions on the other 8 issues, other than gas costs in this proceeding. 9 THE PRESIDING MEMBER: That is where 10 the confusion may be, Mr. Farrell, because, in my mind, 11 I don't think that if the Board were to find some 12 further adjustments after it reviews the unsettled 13 issues, I am not sure that would actually change the 14 rates change to the cost of gas in the future rate 15 schedules. Simply go down to the difference in margin 16 for the company. The two are independent. 17 Maybe the company can help just clear 18 my thinking on this. 19 MR. FARRELL: I am told by Mr. 20 Ladanyi that you are correct. 21 THE PRESIDING MEMBER: All right. So 22 if, on the other hand, the word "interim" is there to 23 ensure that if there is retroactivity we can go back 24 and make rates effective the first of the fiscal year 25 that we can do so but not on behalf of new gas cost 26 changes but, rather, of revenue deficiency, then I can 27 accept that. I understand the language. 28 MR. FARRELL: That's what we 613 Preliminary Matters 1 intended, I am advised. 2 THE PRESIDING MEMBER: I don't think 3 we have to wait then. We can direct now that the 4 company should prepare that draft rate order and send 5 it to the Board with the usual documentation that 6 accompanies a draft rate order, including customer 7 notices. 8 MR. FARRELL: We will do that as 9 promptly as we can. 10 THE PRESIDING MEMBER: And those new 11 rates to be effective October 1st of this year. 12 MR. FARRELL: Thank you. 13 THE PRESIDING MEMBER: We would also 14 request, Mr. Farrell, that usually a set of impact 15 statements accompany the settlement proposal and those 16 should also be produced as soon as available. 17 MR. FARRELL: I am advised they will 18 be filed today. 19 THE PRESIDING MEMBER: With a new 20 meaning of the definition. 21 Just to avoid any complexes we had 22 last year, the starting point going to the calculation 23 of any revenue deficiency or sufficiency, what we need 24 is the base now should incorporate the new gas costs 25 pursuant to the order to be issued, so that would be 26 the starting column if you like. The adjustment column 27 to reflect the issues agreed to in the settlement 28 proposal. That will be the basis upon which the Board 614 Preliminary Matters 1 will make further adjustments, if necessary, after the 2 end of the case. 3 I believe that should be clear to Mr. 4 Ladanyi. 5 MR. LADANYI: Yes, sir. 6 THE PRESIDING MEMBER: That is all we 7 have on the settlement proposal, unless there are any 8 questions. 9 There being none, Mr. Cass back to 10 you. 11 MR. FARRELL: Thank you, Mr. Chair. 12 MR. CASS: Thank you, Mr. Chairman. 13 The Board, of course, has before it 14 the witness panel which we have been describing as the 15 separation cost panel. Mr. Chiotti is sitting closest 16 to the Board and he needs to be sworn. Of course, Ms 17 Gould is also on the panel. 18 SWORN: LLOYD CHIOTTI 19 PREVIOUSLY SWORN: JOANNE GOULD 20 EXAMINATION-IN-CHIEF 21 MR. CASS: Mr. Chiotti, just by way 22 of introduction, I understand that you are Director of 23 Operations Services for the company. Is that correct? 24 MR. CHIOTTI: Yes, it is. 25 MR. CASS: And you were responsible 26 for the company's evidence, including answers to 27 interrogatories on what has been called separation 28 costs. Is that correct? 615 CHIOTTI/GOULD, in-ch (Cass) 1 MR. CHIOTTI: Yes, that's correct. 2 MR. CASS: And was that evidence 3 prepared by you or under your direction or control? 4 MR. CHIOTTI: Yes, it was. 5 MR. CASS: Are there any corrections 6 that should be made to the evidence? 7 MR. CHIOTTI: No. 8 MR. CASS: Is the evidence accurate 9 to the best of your knowledge or belief? 10 MR. CHIOTTI: Yes, it is. 11 MR. CASS: Thank you. 12 Mr. Chairman, those are my questions. 13 Thank you. 14 THE PRESIDING MEMBER: Thank you, Mr. 15 Cass. 16 Who would like to go first? Mr. 17 Warren, welcome back. 18 MR. WARREN: Thank you, sir. 19 I am not sure if the verb "like" is 20 appropriate in the circumstances, but I'll go over the 21 top of the trench anyway. 22 CROSS-EXAMINATION 23 MR. WARREN: Panel, just as a point 24 of clarification from me, the issue of the consequences 25 of the E.B.O. 179-14/15 decision are in, really in two 26 parts. One is the separation cost and the second is 27 deferred taxes. Correct? 28 MS GOULD: That's my understanding, 616 CHIOTTI/GOULD, cr-ex (Warren) 1 yes. 2 MR. WARREN: But you are only going 3 to deal with the separation costs and some other panel 4 will deal with deferred taxes. Is that right? 5 MS GOULD: That's correct. 6 MR. WARREN: Panel -- Mr. Chiotti, it 7 would help me if you would turn up, please, your 8 prefiled evidence, Exhibit D1, tab 8, Schedule 3. Just 9 so I am clear, and I may be the only one in the room 10 who requires this clarification, but the separation 11 costs we are talking about arise out of the separation 12 of the rental program alone, or is there something else 13 that is involved? 14 MR. CHIOTTI: No. The separation 15 costs don't relate to the rental program at all. 16 MR. WARREN: Then what do they relate 17 to? 18 MR. CHIOTTI: These are a subset of 19 the original transition costs that were filed in the 20 unbundling case. They are a subset that we put 21 together in response to the Board's decision with 22 regard to transition costs in the unbundling case. 23 MR. WARREN: Perhaps you could turn 24 up then Exhibit D1, tab 8, Schedule 3, page 2. 25 MR. CHIOTTI: Yes. 26 MR. WARREN: In question and answer 27 sequence 6 you are there referring to the Board's 28 decision in the 179-14/15 matter, breaking the 617 CHIOTTI/GOULD, cr-ex (Warren) 1 transition costs into three distinct categories. The 2 first is, are those costs directly related to the 3 transfer of assets to Consumersfirst, for which the 4 Board's approval was sought in the original 5 application. 6 Those assets being transferred, Mr. 7 Chiotti, just to refresh my memory, were what? 8 MR. CHIOTTI: They were the service 9 business, the HIP and HIP Plus Program, the MFP 10 Program. Those were the programs being transferred to 11 Consumersfirst. 12 MR. WARREN: And as I understand your 13 evidence, the transition costs that we are talking 14 about in this hearing and discussing today do not 15 relate to the transfer of any of those assets to 16 Consumersfirst? 17 MR. CHIOTTI: That is correct. 18 MR. WARREN: Category No. 2, again 19 returning to page 2 of your evidence, is related to the 20 wind-down of the rental program which is now a matter 21 of historic interest only. 22 Then, No. 3 related to the 23 realization of further savings through a reduction of 24 172 employees. Those transition costs are included in 25 the $11.4 million that we are talking about in this 26 case. Correct? 27 MR. CHIOTTI: Yes, they are. 28 MR. WARREN: Are there any other -- 618 CHIOTTI/GOULD, cr-ex (Warren) 1 how do the other transition costs that are included in 2 $11.4 million, how do they arise? 3 MR. CHIOTTI: Well, as we in fact 4 indicated in the evidence, there are three categories 5 of costs included in the $11.4 million that we are 6 applying for. One relates to this reduction of our 7 costs as a result of eliminating these positions. 8 There are also costs associated with 9 what we have categorized as ensuring a smooth 10 transition into this unbundled environment, both for 11 our customers and our employees. 12 Then there is a third category, 13 costs, ,that relates to regulatory requirements and 14 meeting the requirements of the Code. 15 MS GOULD: If I could just add one 16 additional category, in the Board's decision the 17 reduction of staff positions was identified as one of 18 the benefits that was reflected in the unbundled 19 budget, but there are also benefits associated with 20 lease cost savings by undertaking a lease optimization 21 strategy and relocating employees. 22 The company identified the potential 23 to reflect approximately $1.7 million in annual savings 24 in the 1999 unbundled budget. 25 MR. WARREN: Ms Gould, you are away 26 ahead of me. I am still trying to crawl before I stand 27 in this case. 28 I simply want to understand how it is 619 CHIOTTI/GOULD, cr-ex (Warren) 1 that these benefits arise. They are not transition 2 costs, Mr. Chiotti, that are directly related to -- let 3 me go at it this way. Let's flip through the prism, if 4 you wish, of the communication strategy to let 5 customers and employees know about unbundling. 6 Are we letting them know about, for 7 example, the effect of the transfer of programs to 8 Consumersfirst? 9 MR. CHIOTTI: The communications plan 10 that we have put together is intended to communicate 11 factual information to our customers with respect to 12 the changes that are occurring as a result of 13 unbundling. 14 MR. WARREN: And those changes 15 include, Mr. Chiotti, the transfer of certain assets to 16 Consumersfirst? 17 MR. CHIOTTI: That is part of 18 unbundling and, yes, they do include a discussion of 19 the fact that businesses are transferring. 20 MR. WARREN: So to go at it then, 21 these are not costs which are directly related to the 22 transfer of assets to Consumersfirst, but may I 23 describe them as costs which are collateral to that 24 transfer. Is that fair? They arise indirectly, if you 25 want to use that -- is that fair? 26 MR. CHIOTTI: They arise as a result 27 of unbundling. 28 MR. WARREN: Which includes the 620 CHIOTTI/GOULD, cr-ex (Warren) 1 transfer to Consumersfirst? 2 MR. CHIOTTI: Yes. 3 MR. WARREN: Are any of these costs, 4 for example the communication costs, related to the 5 disposition of the rental program? Is that considered 6 part of unbundling? 7 MS GOULD: No. None of the costs in 8 the $11.4 million relate to the transfer of the rental 9 program. 10 MR. WARREN: Even the communication 11 costs, Ms Gould? You are not telling your customers 12 about that as part of the unbundling package? 13 MS GOULD: No. I think, as 14 Mr. Chiotti said, educating customers on what 15 unbundling involves and what will be the changing 16 services provided by the core utility is part of the 17 overall communications effort. 18 MR. WARREN: Okay. 19 Now, as a result of the unbundling, 20 Ms Gould, can you tell me globally what is the impact 21 on the revenue sufficiency or deficiency of the 22 company? 23 MS GOULD: If I could just clarify 24 what is included in the unbundling. The unbundling of 25 the rental program? 26 MR. WARREN: No, the unbundling in 27 respect of which we want costs in the transition costs, 28 Ms Gould. We are sort of chasing one another around in 621 CHIOTTI/GOULD, cr-ex (Warren) 1 a circle. 2 You have some costs here which you 3 describe as transition costs. The transition costs 4 arise from taking certain things out of the utility, 5 transferring them to an affiliate, okay. 6 I want to look at those things that 7 were taken out of the utility, transferred to the 8 affiliate. As a result of taking them out is there an 9 impact on the revenue deficiency or sufficiency and, if 10 so, what is it? 11 MS GOULD: Yes. If I could answer it 12 first by what the impact on O&M is and then we can 13 translate that into an impact on the deficiency. 14 As we mentioned, concurrent with the 15 unbundling effort there were opportunities that were 16 identified to allow the company to restructure not only 17 its labour force but its facilities and lease 18 requirements to make better use of its own facilities. 19 So those savings were identified and 20 they total $4.5 million annually. That would serve as 21 a direct reduction to O&M and a direct reduction to the 22 revenue deficiency. I think that is the number you 23 were seeking. 24 MR. WARREN: Those businesses that 25 were transferred out, did they earn income for the 26 utility? 27 MS GOULD: Did they -- 28 MR. WARREN: Earn income for the 622 CHIOTTI/GOULD, cr-ex (Warren) 1 utility? 2 MS GOULD: To serve to reduce the 3 revenue deficiency? 4 MR. WARREN: Yes. 5 MS GOULD: I think some did and some 6 didn't, depending on what basis the performance was 7 evaluated on. 8 MR. WARREN: They are no longer 9 there? 10 MS GOULD: That's correct. 11 MR. WARREN: They no longer have that 12 impact -- 13 MS GOULD: That's right. 14 MR. WARREN: -- one way or another? 15 What you are saying is that there is 16 a net decrease in the deficiency as a result of moving 17 them out? That is the only impact there is? 18 MS GOULD: No. What I'm saying, the 19 basis -- or where we feel the costs that we are seeking 20 recovery today are appropriate is on the basis of the 21 benefits they generate. It really is a cost benefit 22 evaluation looking at generating the savings. 23 MR. WARREN: I will try to come back 24 to this later in another context, Ms Gould. 25 THE PRESIDING MEMBER: Mr. Warren, 26 can I just follow that up. 27 I may be wrong where you are heading, 28 but the removal of the rental program does certain 623 CHIOTTI/GOULD, cr-ex (Warren) 1 things to the cost of service, okay. You are moving 2 revenues and you are moving costs. Rate base also 3 becomes smaller. What is the net impact of that 4 removal to the revenue requirement? 5 Mr. Warren said revenue deficiency or 6 sufficiency, which is fine. Do you have that number? 7 Then we can go to the additional 8 savings to the utility because of, I guess, the number 9 of people or positions also would have been reduced. 10 So two parts to it. I think the 11 $4.5 million, Ms Gould, relates to the second point 12 that I have raised, not the first. 13 MS GOULD: That's correct. 14 THE PRESIDING MEMBER: Okay. 15 I believe, Mr. Warren, you wanted the 16 first as well. 17 MR. WARREN: I'm trying to get at the 18 first, sir. 19 Thank you. 20 MS GOULD: In response to 21 Mr. Warren's question to the first part and the impact 22 of the deficiency, and this would not be part of, 23 unfortunately, our business separation costs. 24 I think in response to IGUA 25 Interrogatory No. 41 Mr. Bourke had identified the 26 impact of the deficiency on the removal of the rental 27 program. 28 I can pull that. Just one second. 624 CHIOTTI/GOULD, cr-ex (Warren) 1 --- Pause 2 MR. WARREN: Ms Gould, if it helps 3 you, Mr. Thompson has been kind enough to provide me 4 with Exhibit I, Tab 12, Schedule 41, which is his 5 Interrogatory Response No. 41. 6 Page 6 of 7 of that document, 7 Exhibit I, Tab 12, Schedule 41. 8 The impact shown in column 2 on that 9 page, the impact of E.B.O. 179-14/15 decision, is an 10 increase in the revenue requirement of $41.44 million. 11 MS GOULD: That is correct. 12 MR. WARREN: Okay. Now, am I wrong, 13 Ms Gould, in saying that the benefits to the ratepayers 14 that you talk about in -- or Mr. Chiotti talks about in 15 his prefiled evidence, have to be weighed against the 16 increase in the revenue requirement if we are going to 17 measure the net benefit or loss to ratepayers. Is that 18 not fair? 19 MS GOULD: No, I don't think it 20 is fair. 21 I think -- and we need to look at 22 what is the impact on the deficiency as a result of 23 overall unbundling, but at the same time we need to 24 look at what are the impacts on utility O&M and the net 25 ongoing benefits to utility ratepayers. 26 I think that is what we have 27 identified and are looking for in our proposal. 28 MR. WARREN: I'm going to come back 625 CHIOTTI/GOULD, cr-ex (Warren) 1 to that question a little later in another context, 2 Ms Gould. 3 At the moment, Mr. Chiotti, I just 4 want to understand your evidence. 5 If I can ask you to turn to 6 Exhibit D1, Tab 8, Schedule -- I'm sorry, Exhibit D4, 7 Tab 3, Schedule 1. 8 --- Pause 9 MS GOULD: This is the evidence of 10 Mr. Noble and Mr. Knautz? Is that -- 11 MR. WARREN: Yes. I appreciate that 12 it's not your evidence, but I just want to -- 13 MS GOULD: That's all right. 14 MR. CHIOTTI: I didn't have it here 15 in front of me. 16 MR. WARREN: I just want to 17 understand notionally the unbundling business 18 activities deferral account. 19 As I understand D4, Tab 3, 20 Schedule 1, this is intended to capture the transition 21 cost. Is it intended to capture the $11.4 million? 22 MS GOULD: Yes, it is. 23 MR. WARREN: Now, I'm sorry to make 24 you bounce around, panel, but if I could just get you 25 to return to the D1, Tab 8, Schedule 3. If you take a 26 look at page 2, question and answer sequence number 5. 27 So we understand where I'm going, 28 panel, I want to know if the unbundling business 626 CHIOTTI/GOULD, cr-ex (Warren) 1 activities deferral account, the UBADA account, will 2 just be $11.4 million or if there will be more money 3 that may be recorded in that, more amounts that may be 4 recorded in that? 5 You refer in question and answer 6 sequence 5, Mr. Chiotti, in the second paragraph of 7 your answer: 8 "The Company will await further 9 developments around the issue of 10 transition costs as more 11 experience is gained with 12 respect to Municipal Electric 13 Utilities and Ontario Hydro as 14 they continue to restructure. 15 As further clarification is 16 received the Company will 17 consider the appropriateness of 18 reapplying for any remaining 19 costs not forming part of this 20 application." 21 Now, I deduce from that two things: 22 Number 1, that UBADA will be just the $11.4 million. 23 Is that right? 24 MS GOULD: Yes, that's my 25 understanding, with just costs associated with the 26 $11.4 million and the activities underpinning the 27 $11.4 million will be recorded in the unbundling 28 business. 627 CHIOTTI/GOULD, cr-ex (Warren) 1 MR. WARREN: Okay. Thank you for 2 that. 3 Now, Mr. Chiotti, perhaps you could 4 then explain what it is that is meant by the second 5 paragraph of A.5? 6 MR. CHIOTTI: I'm sorry. Give me 7 that reference again. 8 MR. WARREN: D1, Tab 8, Schedule 3, 9 page 2, question and answer sequence 5. 10 MR. CHIOTTI: Okay. 11 The transition costs that were 12 originally filed in the unbundling case in fact 13 totalled $19.3 million. Our current estimates are that 14 we will still expect to incur roughly that amount of 15 total cost in effecting this transition. 16 We are, in response to the Board's 17 decision, only asking for $11.4 because we think that 18 is consistent with the Board's decision and relevant to 19 this rate case. 20 We are still tracking all of those 21 other costs, however. We, I think, simply want to 22 acknowledge that we will be anxious to see that there 23 is a level playing field when it comes to the treatment 24 of transition costs for ourselves and for other 25 utilities, as they go through transition, and that we 26 will certainly be monitoring that situation. If the 27 situation is different and other utilities are awarded 28 transition costs of the nature that we have excluded 628 CHIOTTI/GOULD, cr-ex (Warren) 1 from this case, then we may decide to bring those costs 2 forward in a future case. 3 MR. WARREN: Thanks for that. 4 We don't have to worry about those 5 issues in this case. They may arise in a future case. 6 MR. CHIOTTI: Right. 7 MR. WARREN: I ask you, then, in the 8 same evidence, D1, Tab 8, Schedule 3, if you would go 9 to page 4 please, question and answer sequence 12. We 10 are dealing -- so that you understand where I am going, 11 panel, which I can see may be mystifying to everyone, 12 including me at times -- I want to deal with the 13 various constituent elements of the $11.4 million. 14 I want to deal first with the 15 employee positions. 16 Looking at answer 12, Mr. Chiotti, 17 what the evidence says -- your answer says: 18 "In determining the Unbundled 19 Budget an evaluation was 20 performed by each department as 21 to their ongoing resource 22 requirements. Based on this 23 evaluation, the utility was able 24 to rationalize 172 positions 25 over and above that which was to 26 be transferred to 27 Consumersfirst." 28 Then it goes on: 629 CHIOTTI/GOULD, cr-ex (Warren) 1 "This reduction, in conjunction 2 with the reduction in the 3 workforce associated with 4 employee transfers to 5 Consumersfirst, also provided 6 the utility the opportunity to 7 restructure the office space and 8 optimize the use of Company 9 owned facilities and therefore 10 reduce annual lease costs." 11 Now, my parsing of that text, Mr. 12 Chiotti, is that there were certain employees that were 13 transferred over to Consumersfirst. Subsequent to that 14 you determined that you didn't need 172 employees in 15 the utility. Is that fair? 16 MR. CHIOTTI: We determined that by 17 restructuring we could reduce our positions by another 18 172. 19 MR. WARREN: But, as I understand the 20 text of that, these aren't employees that were 21 transferred over to Consumersfirst in relation to 22 whatever businesses were being -- you just found that 23 the utility could operate with 172 fewer employees. Is 24 that not what the text tells me? 25 MR. CHIOTTI: In moving these 26 businesses out of the utility, it gave us an 27 opportunity to look at how we might be able to reduce 28 our requirements for employees in various departments. 630 CHIOTTI/GOULD, cr-ex (Warren) 1 As an example, as a result of this we 2 have less office space that needs to be maintained, so 3 we could reduce our cost of maintaining that office 4 space. 5 We have less work stations with 6 computers on them that require support activities, and 7 we were able to reduce some in that department, and so 8 on. 9 MS GOULD: I think those 10 employees -- and I get the sense there is some view 11 that there may be potential excess capacity -- those 12 individuals were supporting the infrastructure and the 13 employees as they existed within the integrated core 14 utility. 15 With the removal of approximately 600 16 employees, those requirements changed and there were 17 opportunities, then, to say "Can we streamline 18 processes? Can we focus on just those ongoing utility 19 operations and do them more cost effectively?" 20 MR. WARREN: Am I to conclude from 21 that answer, Ms Gould, that you needed 172 people to 22 support 600 people? Is that the appropriate ratio? 23 You need one employee to support 24 every four other employees? 25 MS GOULD: No, I don't think that is 26 what I am saying. The elements of the 172 employees 27 was discussed, it is my understanding, through E.B.O. 28 179-14/15. That would include employees throughout our 631 CHIOTTI/GOULD, cr-ex (Warren) 1 infrastructure in the IT, HR area. It would also 2 include some individuals within our call centre. So it 3 does recognize that there would be a lower volume of 4 activity as well with the removal of some of our 5 businesses. 6 MR. WARREN: Let me ask you two 7 questions deriving from that, panel. The first is that 8 one interpretation -- and I want to put this to you to 9 see if it is a reasonable interpretation -- is that the 10 Company discovered after the transfers that it just had 11 too many employees; that it was, to use a term favoured 12 by my friend Mr. Thompson, just too fat by 172 13 employees. Is that not a reasonable interpretation? 14 MS GOULD: No, I would not agree with 15 that. I would say that the needs of the utility 16 changed post-unbundling. 17 MR. WARREN: All right. Now, the 18 second issue is that this unbundling arose as a result 19 of a conscious decision by the parent company to 20 transfer these businesses out to Consumersfirst, 21 correct? 22 MS GOULD: Yes, it was a conscious 23 decision in response to where the marketplace was 24 heading. 25 MR. WARREN: And they did it, 26 presumably -- presuming rationale, they did it because 27 they felt there was going to be a benefit to the 28 shareholders of their doing that, correct? 632 CHIOTTI/GOULD, cr-ex (Warren) 1 MS GOULD: I was not involved in what 2 the basis of the decision might have been. 3 But, Mr. Warren, the costs that we 4 are looking at here did not result from unbundling. If 5 unbundling had taken place and no other action had gone 6 on, these costs would not have been incurred. They are 7 being incurred, given an opportunity that was 8 identified, to generate savings at the point of 9 unbundling and deliver those, at that time, to 10 ratepayers in our PBR base. 11 MR. WARREN: Why shouldn't the Board 12 conclude, Ms Gould, that the ratepayers have simply 13 been overcharged these 172 employees in the past? 14 Really, that is the obvious conclusion for the 15 severance. 16 MS GOULD: No, I don't think that is 17 the obvious conclusion at all. 18 A large part of the 172 employees and 19 the reduction in the overall employee base of the 20 utility is largely related to our service business, and 21 that has been operated as an element of the four 22 utility operations. Any services the customer received 23 from that would have been charged through a JC rate. 24 We would have reported that as an offset to O&M and 25 there would be no burden on ratepayers. It was part of 26 the overall service being provided. 27 MR. WARREN: We have a total in these 28 labour related costs of $3.7 million. Is that right, 633 CHIOTTI/GOULD, cr-ex (Warren) 1 Mr. Chiotti? 2 MR. CHIOTTI: Yes, that's right. 3 MR. WARREN: Could I ask you to turn 4 up, please, Board Staff Interrogatory No. 178? That is 5 Exhibit I, Tab 1, Schedule 178. 6 MR. CHIOTTI: Yes. 7 MR. WARREN: On page 2 of that 8 exhibit there is a breakdown of the separation costs. 9 Now, under the heading of "Human 10 Resources", you have severance costs of 172 employees 11 that were severance costs associated with letting those 12 folks go. Is that right? 13 MR. CHIOTTI: Yes, there were costs 14 anticipated in letting those people go. 15 MR. WARREN: And a relocation 16 allowance. How does that relate to 172 employees, if 17 at all? 18 MR. CHIOTTI: As part of effecting 19 these changes, in some instances employees have to be 20 relocated to an office that is sufficiently distant 21 from their current workplace and a relocation allowance 22 is required. 23 MR. WARREN: But these aren't the 172 24 folks that were let go, correct? 25 MR. CHIOTTI: No. The 172 people 26 being let go account for the severance costs. 27 MR. WARREN: And that is the $2.656 28 million. 634 CHIOTTI/GOULD, cr-ex (Warren) 1 MR. CHIOTTI: Right. 2 MR. WARREN: Now, there is a separate 3 category as a result of this: "Rationalization of the 4 Workforce". There were some employees that had to be 5 moved elsewhere, correct? 6 MR. CHIOTTI: That's right. 7 MR. WARREN: That is in the category 8 of $500,000. Is that right? 9 MR. CHIOTTI: That was our forecast, 10 yes. 11 MR. WARREN: Now, the next category 12 is "Employee Communication, Education, Assistance, 13 Training and Miscellaneous". Can you tell me what is 14 in that category? 15 MR. CHIOTTI: As stated here, there 16 are certain costs associated with specific 17 communications that had to be made to employees with 18 respect to their options and their choices in the 19 restructuring process. Certain employees might need to 20 be retrained in order to fill positions in the 21 restructured organization. There is a certain 22 accounting for the fact that this is a stressful time 23 for employees and they may need some assistance and 24 support to deal with those stresses. Those kinds of 25 items. 26 MR. WARREN: Let me see if I can get 27 this right. The parent company makes the decision to 28 unbundle. I am presuming, because it is perceived to 635 CHIOTTI/GOULD, cr-ex (Warren) 1 be a benefit to the shareholders, that this has certain 2 impacts on the employees which are covered in this 3 category and you want the ratepayers to pay $524,000 to 4 assist the employees in making a transition that 5 resulted from a senior management decision. 6 Have I got that right? 7 MR. CHIOTTI: I think that the 8 decision to unbundle is related to a whole direction 9 that is occurring in the marketplace. So to say that 10 it was strictly a senior management decision, in light 11 of no other circumstances, I don't think is fair. 12 MR. WARREN: But I have the expense 13 category right. You and I may quarrel about who made 14 you make the decision, but I have got it right. This 15 was a decision that was made by senior management for 16 whatever reason. 17 It has, you perceive, an effect on 18 employees and you want the ratepayers to pay certain 19 money, $524,000, to help employees deal with those 20 effects. 21 Have I got that right? 22 MR. CHIOTTI: Unbundling is a major 23 change to the organization. It has the significant 24 potential for impact on a number of constituents, 25 customers, employees, et cetera. It is important that 26 this transition be carried off in a way that minimizes 27 those impacts. 28 It is important for employees for 636 CHIOTTI/GOULD, cr-ex (Warren) 1 impacts to be minimized, because the employees 2 ultimately serve the customer. To the extent that 3 employees are dealt with appropriately in the course of 4 this transformation, that has an impact on our customer 5 service down the line. 6 MR. WARREN: If you could just turn 7 over the next page in the Board staff interrogatory 8 that I referred you to, 178, there we have a category 9 of communications expenses that has a subtotal of 10 $1.3 million. 11 Included in that $1.3 million in 12 communications expenses is a category, 3.5, employee 13 presentation and Q&As. 14 Is this something different from the 15 $524,000 in employee communication, education 16 assistance on the previous page? 17 MR. CHIOTTI: Yes, it is. This is 18 specifically to ensure that our employees, who have to 19 interact with customers, understand unbundling and are 20 in a position to be able to respond to customers 21 appropriately, given the change that is occurring in 22 our business. 23 MR. WARREN: I'm sorry to keep you 24 bouncing around, but I would like to take you back to 25 your prefiled evidence, Exhibit D1, Tab 8, Schedule 3, 26 page 5. 27 MR. CHIOTTI: Yes, I have it. 28 MR. WARREN: Question and answer 637 CHIOTTI/GOULD, cr-ex (Warren) 1 sequence 14: 2 "To ensure that the transition 3 from an integrated to a core 4 distribution utility is managed 5 to ease the adjustment for 6 customers, employees and the 7 public..." 8 The words are "ease the adjustment 9 for customers, employees and the public". 10 "...the Company must incur 11 certain communication and 12 transition planning costs." 13 You are saying that the $30,000 on 14 page 3 of the Board staff's interrogatory is not 15 related to easing the transition for employees but 16 simply informing them so that they can be better 17 employees. Is that right? 18 They can deal with the public better. 19 Is that right? 20 MR. CHIOTTI: I think to that extent 21 it also eases the transition of the employees in the 22 sense that employees need to understand what business 23 we are now in and what the nature of that business is, 24 and how they now have to interact appropriately with 25 customers, and so on and so forth. 26 To that extent, I think that 27 reference is valid. 28 MR. WARREN: I want to deal then with 638 CHIOTTI/GOULD, cr-ex (Warren) 1 the category of the moving expenses, including moving 2 the desktop computer and communications equipment. 3 There is a total of some $3.1 million and change in 4 that category. 5 These, as I understand it, are simply 6 facilities -- first of all, the facilities are simply 7 no longer needed to do business as a result of the 8 shrinking towards a core utility. Is that right? 9 MR. CHIOTTI: Yes. We vacated space 10 in a number of our facilities as a result of moving 11 employees out to the affiliate. 12 MR. WARREN: What are those 13 facilities being used for now? 14 MR. CHIOTTI: All of those facilities 15 are currently occupied by employees that were 16 conducting the business of the utility. We are 17 transferring a number of employees to the affiliate. 18 In the process, we are vacating pockets of space in a 19 number of facilities. 20 We have specifically adopted a lease 21 absorption strategy that allows us to relocate our 22 employees back into our own premises, thereby 23 eliminating the need for leased space. This entire 24 category of expense is really associated with executing 25 that lease absorption strategy, thereby producing the 26 benefits of lower lease costs, as we have indicated in 27 the evidence. 28 MR. WARREN: Can I ask you to turn to 639 CHIOTTI/GOULD, cr-ex (Warren) 1 the communication and transition planning costs. We 2 dealt with them in passing a moment ago. 3 This is particularly broken out, as I 4 have indicated, panel, at Exhibit I, Tab 1, Schedule 5 178. 6 Do I understand this category, at a 7 high level of generality, to be a communications 8 strategy to inform the public about the unbundling? 9 MR. CHIOTTI: Yes, that is correct. 10 MR. WARREN: Can you tell me -- 11 MR. CHIOTTI: Sorry, the 12 communications portion of that is intended to do that, 13 yes. I was not referring to the other transition 14 planning. 15 MR. WARREN: I am talking about 16 communications -- the $1.3 million which is shown on 17 page 3 of 6 of the Board staff's interrogatory, do I 18 understand that that communications strategy is an 19 outward looking strategy intended to inform the public 20 about the transition? 21 MR. CHIOTTI: To inform customers, 22 yes. 23 MR. WARREN: Customers. Is there, to 24 your knowledge, Mr. Chiotti, a comparable expense 25 incurred by what was then Consumersfirst and is now 26 called Enbridge Services Inc., I think? 27 Is that right? 28 MR. CHIOTTI: Enbridge Services, yes, 640 CHIOTTI/GOULD, cr-ex (Warren) 1 that is correct. 2 MR. WARREN: Is there a comparable 3 communications strategy being undertaken by 4 Consumersfirst? 5 MR. CASS: Excuse me, Mr. Chairman. 6 Perhaps Mr. Warren could help me 7 through you. I am not sure how a communications 8 strategy by an affiliate is really relevant to the 9 issue we are now dealing with. 10 MR. WARREN: Let me get to that, 11 Mr. Cass. If you just bear with me for a couple of 12 minutes, we can get to that. It is a future question, 13 but I want to get to it. 14 MR. CASS: I will take your 15 assurance, Mr. Warren, that you are going to do that. 16 MR. WARREN: Thank you, Mr. Cass. 17 THE PRESIDING MEMBER: So we will 18 wait. 19 MR. CHIOTTI: I'm sorry, but I am not 20 aware of specific communications plans that Enbridge 21 Services has with respect to launching their new 22 business, and so on. 23 MR. WARREN: You got to my point, 24 thanks, Mr. Chiotti, which is that surely you and I can 25 agree that one of the benefits of this $1.3 million 26 communications strategy is to let the public know that 27 Consumersfirst is engaged in a whole bunch of 28 businesses that have been transferred over from the 641 CHIOTTI/GOULD, cr-ex (Warren) 1 utility. 2 Would you not agree with that? 3 MR. CHIOTTI: The intent of the 4 communications plan is strictly to communicate factual 5 information with respect to the unbundling. That is 6 the focus of that communications plan. 7 MR. WARREN: My question, 8 Mr. Chiotti, is: Why is this not an expense that is 9 more appropriately borne by the company that has 10 purchased these assets; namely Consumersfirst, now 11 Enbridge Services? 12 MR. CHIOTTI: The issue of customers 13 potentially being confused by unbundling is not really, 14 I think, a concern that -- well, it is a concern of the 15 utility and needs to be dealt with by the utility. 16 MR. WARREN: You use in your prefiled 17 evidence the analogy to the experience of Union Energy 18 and Union Gas; correct? 19 MR. CHIOTTI: We certainly observed 20 the Union experience, since it occurred in advance of 21 our own experience. We tried to learn from that 22 experience, yes. 23 MR. WARREN: That experience, sir -- 24 was the difficulty that was incurred, from what you 25 gathered from it, a difficulty for Union Energy or for 26 Union Gas or for both? 27 MR. CHIOTTI: I think our 28 understanding was that Union Gas' customers did not 642 CHIOTTI/GOULD, cr-ex (Warren) 1 sufficiently understand the unbundling that they went 2 through. We wanted to learn from that experience to 3 ensure that our own customers, the utility's customers, 4 had a better understanding of unbundling as it occurred 5 for us. 6 MR. WARREN: Let me summarize it, 7 Mr. Chiotti, with this question: To your knowledge, 8 did you ask then Consumersfirst to absorb any portion 9 of these communications costs? 10 MR. CHIOTTI: Not that I am aware of, 11 because none of these communications costs directly 12 relate to Consumersfirst, or Enbridge Services per se. 13 MR. WARREN: Salaries and related 14 costs for the project management office staff, that is 15 broken out on page 3 of 6 of Exhibit I, Tab 1, Schedule 16 178. 17 MR. CHIOTTI: Yes. 18 MR. WARREN: That project management 19 staff, as I understand it from your evidence, is a 20 staff within the utility that is overseeing this entire 21 transition. 22 MR. CHIOTTI: That's correct. 23 MR. WARREN: Those salaries and 24 related costs are not absorbed in any other category, 25 for example, employee communication or the 26 communications strategy. They are simply salaries that 27 are required, as I understand it, to effect the 28 transition which has been directed by the senior 643 CHIOTTI/GOULD, cr-ex (Warren) 1 management of the parent. 2 Is that right? 3 MR. CHIOTTI: No. This is a group 4 that is charged with the responsibility for managing 5 this entire complex project of unbundling. 6 The actual costs of this group are in 7 fact higher than this amount. We have prorated this 8 amount to reflect the fact that a set of original 9 transition costs have been removed from this request to 10 recover the $11.4 million. 11 MR. WARREN: Have I got it wrong 12 somehow, generally, that this a project management 13 office which is required in order to effect the 14 transition which was directed by the management of the 15 parent company? 16 That is what it is there to do, isn't 17 it, carry out the direction of the management to effect 18 this transition? Correct? 19 MR. CHIOTTI: It is to oversee the 20 unbundling project, yes. 21 MR. WARREN: All right. 22 Now, the final category of expense I 23 wanted to deal with is the Code compliance and 24 regulatory. I want to deal with the category of the 25 $1.1 million in expenses. Let's see if I can get a 26 breakout of that. 27 You refer to it as -- and I am 28 looking at Exhibit I, Tab 1, Schedule 178, page 3. 644 CHIOTTI/GOULD, cr-ex (Warren) 1 That $1.1 million is an expense which is required, as I 2 understand it, to comply with the Affiliate 3 Relationships Code. Correct? 4 MR. CHIOTTI: Yes. In transferring 5 the businesses we also have to transfer data, and that 6 data has to -- we have to effect that transfer in 7 compliance with the Code. 8 MR. WARREN: The need to comply with 9 an Affiliate Relationships Code, Mr. Chiotti, can you 10 and I agree it arises from the fact that a choice was 11 made to transfer these assets to an affiliate rather 12 than to an arm's-length party? Correct? 13 MR. CHIOTTI: No. I believe that the 14 need to do what we are doing here in terms of 15 transitioning data would still hold true, regardless of 16 who we were transferring these businesses to. If we 17 were selling them to another market competitor, I 18 presume that we would still have to adhere to the Code 19 to not provide information that might give that 20 marketer an undue advantage. 21 MR. WARREN: If you decide to sell 22 the business to anybody, why is it appropriate for the 23 ratepayers to pay for the cost of regulatory compliance 24 for a decision that is made to benefit the shareholders 25 of the company? That is what I don't understand about 26 it, Mr. Chiotti. Perhaps you can help me with that. 27 MR. CHIOTTI: I think the Code is in 28 place in fact to ensure that the customer is protected 645 CHIOTTI/GOULD, cr-ex (Warren) 1 in terms of confidentiality of information, and so on 2 and so forth, so we are doing something here that is, 3 in the end, intended to protect the customer. 4 MR. WARREN: All right. We can argue 5 the point, Mr. Chiotti. 6 Finally, Ms Gould, because I know 7 that you would be disappointed if I didn't keep my 8 promise, I want to return back to the first category of 9 questions that I asked you about, the impact on the 10 revenue requirement. 11 The context for my question, 12 Ms Gould, is this. I don't know that you need to turn 13 it up, but the context is provided by the decision of 14 this Board in the matter of E.B.O. 177-17, which was, 15 under the old regime, the approval by the Board for the 16 transfer of certain of the ancillary businesses of 17 Union Gas to an unregulated affiliate. 18 I don't think you need to turn it up, 19 because nothing turns on the specific wording of the 20 text, but for your reference, Ms Gould, the relevant 21 portion of the Board's decision appears on page 51 in 22 section 3.2.34. 23 Let me try and summarize it this way, 24 Ms Gould. In deciding whether to accept Union's 25 request that the ratepayers bear certain transition 26 costs, what the Board did in that case was it looked at 27 the question of whether or not ratepayers would be held 28 harmless, and as part of that equation they analyzed 646 CHIOTTI/GOULD, cr-ex (Warren) 1 what would be a comparison of the benefits to the 2 revenue requirement, the increase in the revenue 3 requirement. 4 My question, with that somewhat wordy 5 preamble, Ms Gould, is: Can you tell me, not from an 6 argumentative perspective but from a factual 7 evidentiary perspective, what makes you different from 8 Union? Why should the Board, Ms Gould, arrive at a 9 different conclusion with a different analysis on the 10 hold harmless test in this case than it did in that 11 case? 12 MS GOULD: We certainly have taken 13 the Board's decision in the Union case in consideration 14 in putting together our proposal. 15 I think one of the tests as well was 16 looking at the transfer price with respect to the net 17 book value, and looking at that and what that meant as 18 far as what harm that may impose upon ratepayers. 19 In our proposal, as we have before 20 the Board right now, there are no costs associated with 21 the transfer of assets. Those all go and would be 22 parged, I assume, in applying this test, as being part 23 of the transfer of those assets and looking at what the 24 net proceeds would be. 25 The costs that are within the 26 $11.4 million are not associated with the unbundled 27 business. The benefits associated with the spending of 28 the $11.4 million remain within the utility and are 647 CHIOTTI/GOULD, cr-ex (Warren) 1 reflected as an ongoing reduction to the cost of the 2 utility. I don't think any other third party sale or 3 purchaser would be expected -- or would pay the cost to 4 allow the remaining utility, for which they don't enjoy 5 any benefits of the assets, to operate on a more 6 cost-effective basis. 7 MR. WARREN: Do you think that the 8 transition costs that you are talking about are 9 different from the -- I'm sorry, Mr. Cass? 10 MR. CASS: I just wanted to add one 11 caveat, Mr. Warren; and thank you for the opportunity. 12 I don't know to what extent or 13 whether this will assume any importance at all in 14 argument, but you did ask about differences from Union 15 and I simply wanted to observe that the Union 16 undertaking in effect at the time of the 177-17 case 17 had wording that expressly incorporated the hold 18 harmless test. I don't have the precise wording in 19 front of me. 20 But you did ask about differences and 21 I wanted to observe that. Whether it will make any 22 difference when we come to argument, I don't know at 23 this point. 24 MR. WARREN: That is a fair enough 25 observation. Thank you for that, Mr. Cass, and indeed 26 we may argue that. But I wanted to get from Ms Gould 27 what was the factual underpinning for them. 28 Do I understand your answer to be, 648 CHIOTTI/GOULD, cr-ex (Warren) 1 Ms Gould, that the transition costs that you are 2 talking about in this case are a different kind of 3 transition costs than the ones that were talked about 4 in the Union case in that these are not directly 5 related to the transfer of the assets that are certain 6 economies or efficiencies which are derived within the 7 company after the transition? Have I got that right? 8 MS GOULD: Yes. I can't say on a 9 cost-by-cost basis, but they are related to the ongoing 10 operation and do result in a net benefit of reduction 11 to ongoing operating costs. 12 MR. WARREN: Just taking your 13 analysis, though, Ms Gould, surely you and I can agree 14 that the $1.3 million which is spent on communication 15 costs is directly related to the fact of the 16 transition. Is that not fair? 17 MS GOULD: No. I think as 18 Mr. Chiotti said, it is directly related to allowing 19 the utility to continue to operate throughout this 20 environment and through this transition period. 21 MR. WARREN: I have your answer. 22 Thank you very much. 23 Thank you, Mr. Chairman. I am sorry 24 I took longer than I expected. 25 THE PRESIDING MEMBER: Thank you, 26 Mr. Warren. 27 It is 10:30. Perhaps we can take the 28 break now. We will return at 10 minutes to 11:00. 649 CHIOTTI/GOULD, cr-ex (Warren) 1 --- Upon recessing at 1030 2 --- Upon resuming at 1053 3 THE PRESIDING MEMBER: Okay. Mr. 4 Brett or Mr. Mattson? Mr. Brett. Go ahead, sir. 5 MR. BRETT: Thanks, Mr. Chairman 6 CROSS-EXAMINATION 7 MR. BRETT: Good morning, panel. I 8 just have a few questions for you, in light of Mr. 9 Warren's comprehensive coverage of the issue. 10 Could you turn up, for a moment, 11 Board Staff IR-182, please. I just have a preliminary 12 question relating to these alleged savings that -- do 13 you have that with you? 14 MS GOULD: Yes, we do. 15 MR. BRETT: Now, I am just going to 16 refer to these savings as "alleged savings", for the 17 moment, because I guess we will have to determine, 18 eventually, whether there are savings or not. 19 But in that IR-182, you have alleged 20 savings there of $2.8 million in labour costs, and that 21 is associated, as you say, with the reduction of staff 22 in the utility triggered by the, or occasioned by the 23 move, the transfer out from the utility of these 24 various services that took place in 179-14/15. 25 I would like you to turn up Schools 26 -- an interrogatory of ours, my client's, from 27 179-14/15. I have provided copies of it to your 28 counsel and, Mr. Chairman, I have left copies on the 650 CHIOTTI/GOULD, cr-ex (Brett) 1 dias for you. This was from last year's case. 2 I would just read you the first part 3 of it. The question was: 4 "With respect to the 172 5 positions that 'will eventually 6 be eliminated from the core 7 utility as a result of the 8 proposed unbundling'," -- 9 And I was quoting your evidence there: 10 "-- please provide a schedule 11 for the next five years showing 12 the rate of elimination and the 13 estimated O&M savings in each 14 year associated with the 15 reductions." 16 In your answer, you say that: 17 "The Company forecasts that 96 18 positions will be removed in the 19 first year of unbundled 20 operations and that the 21 remaining 76...are expected to 22 be eliminated in the second 23 year. ...the full...impact of 24 the staff reductions would not 25 be seen until the third year." 26 Now, do I take it -- do I understand 27 that answer correctly, when viewed against the move 28 into the PBR regime, that although the reduction in the 651 CHIOTTI/GOULD, cr-ex (Brett) 1 base that you have alleged is 2.4, or 2.8 I guess you 2 now have, that you won't have -- because this process 3 that you are talking about is going to take place over 4 a period of time, you are going to have further 5 reductions in O&M costs of, according to this response, 6 2 million in the year 2000/2001, fiscal 2001, rather, 7 and another 1.6 million in the subsequent year, so that 8 you are basically -- and would you confirm those 9 savings in the subsequent year would be savings that 10 would flow to the shareholder, under PBR? 11 MS GOULD: First, if I could just 12 clarify my understanding of this response, based on my 13 discussions with Mr. Charleson -- I understand he was 14 the witness at the time. At the time that the 15 unbundled budget was put together, there was a 16 potential identified to reduce 172 positions and the 17 utility was restructured to support that reduced base. 18 The positions here that are extending to the transition 19 period are primarily within the company's call centre, 20 and with the understanding that during unbundling there 21 would still be a fair amount of confusion and the 22 utility will still continue to receive a fair number of 23 calls, there is a fair amount of uncertainty as to how 24 long this transition period will take. 25 This IR, as it suggests, has taken 26 the overall reductions that we are hopeful that we can 27 achieve and assumed that they are done evenly, I think, 28 on a quarter-by-quarter basis, but there is no 652 CHIOTTI/GOULD, cr-ex (Brett) 1 guarantee that any savings will be generated from this. 2 Also, in putting together the 3 severance provision in 11.4, we have assumed that there 4 are no severance costs associated with any further 5 reductions either. 6 So I think we need to look at any 7 potential benefit as: is the timing realized; and are 8 there any costs on behalf of the company to actually 9 receive those. 10 MR. BRETT: I take it, though, these 11 are still -- these are the same 172 positions that you 12 talk about in your evidence? 13 MS GOULD: That is correct. 14 MR. BRETT: All right. Going back to 15 my question, though, in the event these alleged savings 16 come to pass, in subsequent years, it is fair to say 17 that they would accrue to the shareholder, under PBR -- 18 under the targeted PBR that you now have in place. 19 MS GOULD: If there any -- the 20 benefits associated with the 96 positions -- and, as 21 you mentioned, the 2.4 has been reflected in the 1999 22 unbundled budget -- to the extent that a further 23 reduction in positions results in a net benefit, that 24 would not have been reflected in the PBR base, no. 25 MR. BRETT: Can I just briefly take 26 you back to your evidence in the case, B1, Tab 8, 27 Schedule 3 -- and you probably have available to you, 28 as well, your evidence in the previous case, in 653 CHIOTTI/GOULD, cr-ex (Brett) 1 179-14/15; I am thinking here of Exhibit B, Section 2 5.3. 3 MS GOULD: Could I ask what section 4 that is? I may not have it with me. 5 MR. BRETT: That is the section 6 entitled, "Transition Costs". That was your transition 7 costs section from the previous -- really, what I 8 wanted to do was simply have a look at the costs that 9 you put forward there relative to what you are putting 10 forward here. If you don't have it, I can read out the 11 appropriate pieces to you. 12 MS GOULD: I do have that reference. 13 MR. BRETT: Okay. All right. 14 Just by way of introduction to that, 15 in the 179-14/15 case -- and I can't recall whether 16 this passage has been read to you yet or not, but as 17 you well know, at paragraph three point -- Section 3.6, 18 which is that part of the Board's decision that deals 19 with transition costs, the Board notes, in 3.6.1, that 20 -- you have identified 18.4 million O&M and 900,000 21 capital costs associated with your application to 22 transfer out the other services and you didn't break 23 down, in that case -- you made no breakdown of the 18.4 24 among costs directly associated with the transfer out, 25 the wind down, future savings and the like. Correct? 26 I mean the Board notes that there is 27 no breakdown provided -- and that, I believe, was the 28 case. Is that fair? 654 CHIOTTI/GOULD, cr-ex (Brett) 1 MS GOULD: The evidence was not 2 presented in those classifications, to the best of my 3 understanding. 4 MR. BRETT: Right. And then the 5 Board noted that any part of that related to the 6 transfer programs would not -- they signalled that it 7 would not be allowed because it would violate the hold 8 harmless test. Correct? 9 MS GOULD: Yes, the Board, in 3.6.2, 10 in the decision, did not allow the recovery of those 11 costs -- 12 MR. BRETT: Right. And, therefore, 13 as a corollary to that, it said it is premature or it 14 is -- 15 "We see no need, at this time, 16 to have a deferral account 17 because of the uncertainty 18 surrounding what costs there 19 might be, if any, that would 20 flow into such an account. (As 21 read) 22 Right? That is the third part. 23 MS GOULD: That was my 24 interpretation, that until the company came forward 25 with its proposal in response to the decision that the 26 need for an account, at that point, was premature and 27 unwarranted. 28 MR. BRETT: Would it be fair to say, 655 CHIOTTI/GOULD, cr-ex (Brett) 1 then, that all of the costs which you have come forward 2 with now were really costs that were triggered by or 3 occasioned by the decision to transfer out the previous 4 services? 5 MS GOULD: No, I would not agree with 6 that. I think as I mentioned previously, if all the 7 company had done was unbundle its businesses, it would 8 not have incurred a large proportion of these costs. 9 These really are to facilitate the remaining core 10 utility operations to continue to operate effectively 11 and, really, I think it is a good business decision to 12 take advantage of the opportunities and to reduce those 13 costs at the point of unbundling and coincident with 14 establishing our PBR base. 15 MR. BRETT: But they were -- for 16 example, the costs that you were able to -- the cost 17 reductions that you are alleging that you can achieve 18 by way of reconfiguring the ownership and leasing of 19 your facilities, those were made possible, they were 20 occasioned by, they were made possible by the decision 21 to transfer out the various services that you 22 transferred out. You wouldn't have done that absent 23 that decision to transfer out those services. Indeed, 24 you wouldn't have been able to make that 25 reconfiguration. 26 MS GOULD: It certainly provided the 27 opportunity, but I think when we talk about the 28 savings, those savings are reflected as reductions in 656 CHIOTTI/GOULD, cr-ex (Brett) 1 our unbundled budget. And even looking at the costs 2 that the company needs to incur to realize those 3 savings, there is a net benefit to ratepayers. 4 MR. BRETT: Let me ask you, if you 5 turn to -- I want to look at two of the categories of 6 your transition costs from your original application in 7 179-14/15. By the way, I note in passing that these 8 seem to be the very same categories of cost. They are 9 the same break down of costs. If I compare the table 10 on page 2 of 6 of your Exhibit B in the 179-14/15 case, 11 you have costs under the heading of customer 12 communication, systems modifications and data 13 extraction. Customer communications, $9 million; 14 systems modifications and data extraction, $5 million; 15 human resources/employee support, $4 million; office 16 relocation/facility restoration, $3.6 million; these 17 are the O&M costs, consulting and regulatory, $2.1 18 million and transition planning $2.8 million. 19 Now, those are the same categories of 20 costs that you show in the response to Board staff 182. 21 Right? 22 MR. CHIOTTI: Well, as we indicated 23 in our evidence, the $11.4 million of costs that we are 24 applying for in this case is just a subset of the 25 original transition costs that we applied for in 26 179-14/15. 27 However, we have also regrouped those 28 into the specific categories that I think the Board 657 CHIOTTI/GOULD, cr-ex (Brett) 1 referenced in their decision. That is, to get to the 2 $11.4 million we remove the category of costs that the 3 Board refers to in its decision that is cost related 4 directly to a transfer of the asset, and then we took 5 that remaining $11.4 million and further grouped it 6 into those three major categories, the ones that 7 contribute directly to the savings that we have 8 indicated, the ones that relate to our need to ensure a 9 smooth transition for our customers and employees, and 10 then the costs associated with complying with the Code. 11 MR. BRETT: Let me just test that 12 principle with reference to two of these categories of 13 costs. The first one is the system modifications in 14 the extraction of data. You have $5 million in your 15 original proposal 179-14/15 and in 182, in the Board 16 staff IR182 I believe you reduced it to about a million 17 dollars. 18 MR. CHIOTTI: That's correct. 19 MR. BRETT: The question I have for 20 you there is, you are extracting data because you are 21 transferring your business out. Correct? 22 MR. CHIOTTI: Yes. 23 MR. BRETT: If you hadn't transferred 24 your business out you wouldn't be extracting data? 25 MR. CHIOTTI: That's correct. 26 MR. BRETT: Then that cost is a cost 27 directly associated with the transfer of your business. 28 MR. CHIOTTI: Except that we have 658 CHIOTTI/GOULD, cr-ex (Brett) 1 taken that original $5 million cost and we have now 2 separated out all of the costs that are directly 3 related to the actual transferring of the assets. The 4 $1 million are only costs that are associated with 5 complying with the Code in that process. 6 MR. BRETT: In what manner? 7 MR. CHIOTTI: The $1 million is 8 related to the work that has to be done in essentially 9 scrubbing the data and preparing the data and auditing 10 the data to make sure that we are not sending any data 11 that is restricted by the Code as we transfer these 12 businesses out. 13 MR. BRETT: And the previous systems' 14 work was what in a nutshell? 15 MR. CHIOTTI: Well, in transferring 16 these businesses, these businesses are reliant on a set 17 of computer systems to operate. In transferring these 18 businesses or selling these businesses those computer 19 systems are part and parcel of the asset and work has 20 to be done in order to be able to transfer those 21 systems. That was the majority of the $5 million that 22 we originally included in transition costs, but we have 23 now pulled those out because, as the Board directed, 24 those we felt were directly related to the transfer of 25 the asset. 26 MR. BRETT: But basically there is 27 the cost that remains, the cost that you are claiming 28 now, the $1 million that you are coming back to claim, 659 CHIOTTI/GOULD, cr-ex (Brett) 1 the $1 million residual if you will, are simply costs 2 that you are incurring to comply with the law in 3 connection with -- but they are occasioned by the fact 4 that you previously transferred your assets out. 5 If you weren't transferring your 6 assets out, the issue of the Code wouldn't arise, would 7 it? 8 MR. CHIOTTI: I guess I would say 9 that this is part of the regulatory environment that we 10 are operating in. If we were disposing of these assets 11 and selling them to another party in a non-regulatory 12 environment, the issue of having to deal with this data 13 and scrub the data, et cetera, probably wouldn't exist. 14 So we are complying with the 15 regulatory environment. 16 MR. BRETT: You are complying with 17 the law, but if you weren't selling them at all, if you 18 weren't transferring them at all, if you were keeping 19 them within the utility the issue wouldn't arise at 20 all, would it? 21 MR. CHIOTTI: If we were keeping them 22 within the utility, yes, we would not have to transfer 23 the data, but we are unbundling and, therefore, we 24 can't keep them in the utility, so we have to transfer 25 the data. 26 MR. BRETT: On the question of 27 regulatory costs, you have $2.1 million in your 28 previous submission. As I understand your new 660 CHIOTTI/GOULD, cr-ex (Brett) 1 submission you still have the same amount of money or 2 have you changed that? 3 MR. CHIOTTI: No. We have changed 4 that as well. 5 MR. BRETT: You show a total of $2.5 6 million in the response to Board staff 178. You show 7 $2,050,000 for the combined total of regulatory and 8 information technology. 9 MR. CHIOTTI: That's right. 10 MR. BRETT: And in the previous 11 filing you showed $2.1 million for consulting and 12 regulatory costs. So you have reduced that you are 13 saying. 14 MR. CHIOTTI: Yes. If we look at the 15 category referred to as Code compliance and regulatory 16 in the current filing, that's broken out in our 17 response to Board Interrogatory 178. 18 MR. BRETT: Yes, I see that. 19 MR. CHIOTTI: There is a component, 20 the $1.1 million, which is data transition, which 21 relates to the $5 million. 22 MR. BRETT: Yes, we have spoken about 23 that. 24 MR. CHIOTTI: And then the regulatory 25 component, which adds up to -- I think if you add up 26 those figures on page 4 of that Interrogatory Response 27 it comes to $950,000. 28 MR. BRETT: Right. 661 CHIOTTI/GOULD, cr-ex (Brett) 1 MR. CHIOTTI: That is the proportion 2 of the consulting and regulatory costs that we arrived 3 at when we removed all costs that we felt were 4 associated with the transfer of the actual assets. 5 These are just regulatory costs, not the full $2.1 6 million that was originally filed. 7 MR. BRETT: Well, the regulatory 8 costs -- these are still the regulatory costs 9 associated with the hearing. I take it these are costs 10 associated with the hearing 179-14/15, not this 11 hearing. This was the unbundling hearing. 12 MR. CHIOTTI: That's correct. 13 MR. BRETT: And consultants, 14 intervenors and the like, it seems to me there was just 15 one hearing and those were the costs associated with 16 that hearing. Are you telling me that you somehow 17 divided the cost of the hearing into two pieces, 18 notionally? 19 MR. CHIOTTI: Well, included in the 20 $2.1 million that was originally filed were a number of 21 other costs, including consulting fees and so on, 22 associated with preparing for the unbundling and 23 associated with the actual transfer of the assets. 24 Those costs were removed from that $2.1 million, 25 resulting in the $950,000. 26 MR. BRETT: So what we are left with 27 is the cost of the hearing itself, essentially? 28 MR. CHIOTTI: Yes. 662 CHIOTTI/GOULD, cr-ex (Brett) 1 MR. BRETT: Which was occasioned 2 because of the unbundling proposal. I mean it was the 3 unbundling hearing. 4 MR. CHIOTTI: It was the unbundling 5 hearing, that's correct. 6 MR. BRETT: Which you want the 7 ratepayers to pay for. 8 Well, that's fine. I have my 9 answers. That completes my questions. Thanks very 10 much. 11 THE PRESIDING MEMBER: Thank you, Mr. 12 Brett. 13 Mr. Mattson, do you have any 14 questions? 15 MR. MATTSON: Thank you, Mr. 16 Chairman. 17 Just two brief areas, panel. 18 CROSS-EXAMINATION 19 MR. MATTSON: I think we addressed 20 this at the earlier hearing in January, but in terms of 21 your program to reduce leased space, and this is for 22 you, Mr. Chiotti, the company, I take it, just reduced 23 the leased space. You did not reduce any utility owned 24 office space. Is that fair? 25 MR. CHIOTTI: Well, essentially what 26 we have been able to do is to move employees who are 27 currently occupying leased space into company space and 28 fully utilize that space, yes. 663 CHIOTTI/GOULD, cr-ex (Mattson) 1 MR. MATTSON: Did the company 2 ascertain from a ratepayer's perspective whether it 3 would have been better to reduce those utility assets 4 as opposed to reducing lease space or whether it was 5 cheaper, or better I mean, for the ratepayer to reduce 6 the lease base and move those employees into 7 utility-owned assets? 8 MR. CHIOTTI: I'm not personally 9 aware of those calculations being done, but the bottom 10 line is that we reduce our O&M by $1.7 million. 11 I'm sorry. I'm just not privy to the 12 calculations that were done in that case and whether 13 those specific comparisons were done. I'm sorry. 14 MR. MATTSON: By reducing the lease 15 space it's a one-time -- or it's continuing, but it's a 16 reduction in O&M costs there, as opposed to if you took 17 some of your utility-owned office space out of your 18 rate base, that may also have benefitted ratepayers, 19 correct? 20 MS GOULD: Perhaps I can add to this, 21 because what you are suggesting is was there potential 22 to sell utility-owned facilities and move the entire 23 operations. 24 I have spoken with our facilities 25 group and they do, on an ongoing basis, look at our 26 overall space planning and how to best optimize our 27 facilities. 28 I have not viewed the calculation, 664 CHIOTTI/GOULD, cr-ex (Mattson) 1 but it is my understanding that selling our own 2 buildings at this point would not be financially 3 beneficial. 4 MR. MATTSON: To ratepayers or 5 shareholders? 6 MS GOULD: Depending on who shared in 7 the loss I would suppose. 8 So I would say to ratepayers. 9 MR. MATTSON: You have that 10 calculation somewhere? 11 MS GOULD: No, I don't. 12 MR. MATTSON: Can I get an 13 undertaking to have that made available to the Board? 14 MR. CASS: Well, Mr. Chairman, I have 15 a problem with where this is going. 16 The company's evidence obviously is 17 that it incurred certain costs to deliver benefits. 18 Mr. Mattson now seems to be pursuing the notion that 19 you could have done it in a different way and let's 20 look at what the benefits might have been. 21 In my submission, that is not what is 22 before us here today. 23 Further, even to the extent that this 24 ever was an appropriate issue, it strikes me as much 25 more of an interrogatory-type of question than 26 something to raise for the first time at the hearing. 27 By that I mean raising for the first time at the 28 hearing an issue as to what other ways this might have 665 CHIOTTI/GOULD, cr-ex (Mattson) 1 been accomplished. 2 Surely, if that was relevant at all 3 there might have been an interrogatory on that. 4 Objection 5 MR. MATTSON: Unfortunately, 6 Mr. Chairman, I can move on if they are not going to 7 provide that. However, this was an issue at the prior 8 hearing. 9 THE PRESIDING MEMBER: Mr. Mattson, 10 could you put the microphone before you, please? 11 MR. MATTSON: Oh, yes. 12 THE PRESIDING MEMBER: Thank you. 13 MR. MATTSON: This was an issue at a 14 prior hearing. It was cross-examined and the 15 utility -- and it was in argument in the prior hearing 16 with respect to the transition costs and the company is 17 fully aware of our concern that lease space only has 18 been reduced and that the company, to date at least, 19 has not made public any analysis that would suggest 20 that they also looked at reducing their own rate base. 21 But I will leave that. I think that 22 can be something for argument. 23 Moving to the second issue that I 24 just had a brief question on. Again, Mr. Chiotti, this 25 was for you. 26 You indicated that in addition to the 27 $11.4 million you are asking for in this hearing you 28 are also keeping track of the other costs. I take it 666 CHIOTTI/GOULD, cr-ex (Mattson) 1 that was the approximately $7 million that would have 2 added up to the $19.3 million transition costs. Is 3 that fair? 4 MR. CHIOTTI: Yes, that's correct. 5 MR. MATTSON: You indicated that you 6 are keeping track of those costs because you want to -- 7 in the hopes of seeing a level playing field you want 8 to see how the other utilities are treated with respect 9 to their transition costs. 10 MR. CHIOTTI: Yes, that's -- 11 MR. MATTSON: When you speak of a 12 level playing field, who are you speaking of a level 13 playing field with? Are you speaking of it with just 14 Union Gas? 15 MR. CHIOTTI: No, I think we would 16 include in particular the municipal electric utilities 17 in that regard. 18 MR. MATTSON: Would you also agree 19 with me, however, that there is a fundamental 20 difference between your private regulated utility and 21 those public electric utilities that to date have not 22 been regulated. Is that fair? 23 In terms of your analysis of a level 24 playing field, you would have to take into account that 25 fundamental difference, wouldn't you? 26 MR. CHIOTTI: I'm sorry, I'm not 27 quite sure how to answer that question. I'm not sure I 28 understand the question. 667 CHIOTTI/GOULD, cr-ex (Mattson) 1 MR. MATTSON: Well, if we are looking 2 at the costs of the transition from a bundled utility 3 to an unbundled, there certainly is a lack of symmetry 4 if we are trying to compare the private utilities to 5 the public utilities. Is that not fair? 6 MR. CHIOTTI: Well, I think in my 7 comments in this evidence I was specifically referring 8 to the issue of transition costs, because that is the 9 issue we are trying to deal with here. 10 I think all I was trying to indicate 11 in the evidence is that to the extent that transition 12 costs may ultimately be handled differently for other 13 utilities that, you know, we would be interested in 14 those decisions when they come forward and we would 15 want to take another look at the costs that we have 16 taken out of our transition costs and re-evaluate 17 whether there was some merit in re-applying for those 18 costs. 19 So I have restricted my comments to 20 strictly the issue of transition costs, not other 21 potential aspects of comparing gas utilities and 22 municipal electrics. 23 MR. MATTSON: But in looking at those 24 transition costs certainly the Board should take 25 account that you are a private utility and you have 26 undergone -- you are undergoing these changes as a 27 result of a shareholder's decision. Is that fair? 28 MR. CHIOTTI: Well, here again, you 668 CHIOTTI/GOULD, cr-ex (Mattson) 1 know, to categorize this as strictly a shareholder's 2 decision I think is unfair. 3 There are market developments 4 occurring, there is government policy, all of which is 5 contributing to the need for us to unbundle our 6 utility. 7 So I would not characterize this as 8 strictly a shareholder decision, any more than I'm sure 9 the municipal electrics would characterize their 10 situation as strictly a decision of their senior 11 managements, or whatever. 12 MR. MATTSON: So if a ratepayer 13 called my client and asked, "Well, why should we be 14 picking up these costs?" We can say, "Well, it wasn't 15 really up to the Board and it wasn't up to the utility, 16 really these were government policy issues that forced 17 these costs to come about." Is that something the 18 utility is suggesting? 19 MR. CHIOTTI: Well, here again, our 20 whole application has indicated that there are benefits 21 that flow from these costs. We are not simply asking 22 for a set of costs that in no way benefit the 23 ratepayer. 24 So my answer to your ratepayer would 25 be, "Yes, we are incurring these costs, but this is a 26 prudent decision that generates benefits to you, the 27 ratepayer." That is why we are asking for these. 28 MR. MATTSON: Finally, with respect 669 CHIOTTI/GOULD, cr-ex (Mattson) 1 to a level playing field, should the Board take greater 2 weight from a level playing field as applying it to 3 Union, or should the Board take greater notice of a 4 level playing field as it applies to the 200-or-so new 5 publicly-owned regulated utilities in the electric 6 field? 7 MR. CHIOTTI: I don't think I would 8 presume to make any suggestion on that issue. That is 9 asking me to advise the Board. 10 MR. MATTSON: You use the word 11 "level", that your company is seeking a "level playing 12 field" with other utilities and I'm just wondering in 13 terms of your viewpoint on "level playing field" that 14 certainly mine would certainly seem that we should be 15 looking at a level playing field between Union and 16 Consumers, at least to a greater extent than we would 17 be trying to compare your company with the new 18 214 electric utilities. Is that fair? 19 MR. CHIOTTI: I think I used the term 20 "level playing field" in this case to refer broadly to 21 the market that we are going to be functioning in, 22 whether it is us or Union or the municipal electrics, 23 or whatever. We are in the energy marketplace and 24 fairness would suggest that there should be a level 25 playing field in that marketplace and that as this 26 marketplace unfolds we are simply going to be observant 27 to see if that level playing field would alter our 28 submission on these transition costs. 670 CHIOTTI/GOULD, cr-ex (Mattson) 1 MR. MATTSON: If taxpayers in fact 2 pick up some of the costs of the -- some of the 3 transition costs for the electric utilities, are you 4 suggesting, then, that your company will be back to 5 this Board to seek some of those transition costs -- or 6 if ratepayers, I mean, pick up some of the transition 7 costs as opposed to taxpayers from the electric utility 8 on transition, are you suggesting that your company 9 will then come back -- bring these costs back to the 10 Board and seek ratepayers to pick up those costs that 11 the Board has found shareholders should pick up at this 12 time? 13 MR. CHIOTTI: I think my evidence 14 only indicates that we would re-evaluate our position 15 under those circumstances. That is not to say we would 16 necessarily bring them back to the Board. It would 17 depend on the circumstances and what actually 18 transpired. 19 All we are saying is that we face an 20 uncertain future and until that future is clear for us, 21 however that evolves, it may cause us to want to 22 re-evaluate these costs that we have pulled from our 23 request for recovery. 24 MR. MATTSON: Thank you. 25 Those are all my questions. 26 Thank you, Mr. Chairman. 27 THE PRESIDING MEMBER: Thank you, 28 Mr. Mattson. 671 CHIOTTI/GOULD, cr-ex (Mattson) 1 Mr. Thompson. 2 MR. THOMPSON: Thank you, 3 Mr. Chairman. 4 CROSS-EXAMINATION 5 MR. THOMPSON: Panel, like Mr. Warren 6 I appreciate you are here only to speak to some of the 7 consequences of the E.R.O. 179-14/15 decision and that 8 Panel 10 is going to deal with others. 9 I have four topics that I want to 10 address with you. One is the revenue requirement 11 impact of the proposals that the Company has made 12 arising from the 179-14/15 Decision, and there has been 13 some reference to IGUA No. 41, which I will come to in 14 that connection. 15 The second topic is trying to get 16 from you people, if I can -- and I appreciate that this 17 may have to be put over -- is some indication of the 18 change in the impact on revenue requirement if the 19 Company retained rental but classified it as 20 non-utility for test year ratemaking purposes. 21 The third topic is separation costs. 22 I have some further questions in that area. 23 The fourth topic in connection with 24 consequences of the 179-14/15 Decision relates to the 25 sharing of utility services with the rental business 26 and their rate implications, if any, for the test year. 27 That is the subject of an HVAC interrogatory, but it is 28 referenced in your material I believe. 672 CHIOTTI/GOULD, cr-ex (Thompson) 1 So let me start with the first, and 2 perhaps we can do that by turning up IGUA No. 41 at 3 page 6. This is Exhibit I, Tab 12, Schedule 41. 4 Do you have that, panel? 5 MS GOULD: Yes, I do. 6 MR. THOMPSON: As Mr. Warren noted, 7 the revenue requirement impact of your proposals 8 compared to the benchmark of existing Board-approved 9 rates is to increase the revenue requirement payable by 10 ratepayers by $41.44 million, correct? 11 MS GOULD: That is what is reflected 12 in this exhibit. 13 Mr. Thompson, I will apologize at the 14 outset. This is the evidence of Mr. Bourke. Our 15 evidence is primarily on separation costs and not the 16 specific calculations, so he may be the better person 17 to speak to it. 18 MR. THOMPSON: Okay, I will accept 19 that. I just wanted, though, if I could, to highlight 20 with you -- and, again, if you can't help me with this 21 I will understand. The major ingredients of that 22 impact I identify as being three in number. First, 23 because of the backing out of the rental program and 24 the change in capital structure that you are proposing, 25 the rate of return increases from 8.57 per cent, shown 26 in this exhibit at line 2, to 8.96, insofar as the 27 rental program only is concerned, but overall, over in 28 column 6, to 8.90 per cent. That increase in rate of 673 CHIOTTI/GOULD, cr-ex (Thompson) 1 return is applied to the existing rate base and has a 2 rate of return impact that is significant. 3 Are you able to confirm that, or 4 should I confirm that with Mr. Bourke? 5 MS GOULD: I would prefer that it be 6 Mr. Bourke and, I think, Mr. Boyle on the cost of 7 capital panel. 8 MR. THOMPSON: All right. Thank you. 9 The second major impact, I suggest, 10 under this proposal is, the costs that you remove at 11 line 5, pertaining to the rental program and the ABC-T 12 program, totalling $24.5 million, in effect shifts $10 13 million of costs that were allocated to the rental 14 program back to ratepayers. Can you confirm that cost 15 of service component? 16 MS GOULD: No, and I don't agree with 17 your statement either, that that is a component of what 18 is driving the increase of the deficiency from the 89 19 to the 164.1. 20 MR. THOMPSON: You can't comment on 21 it, but then you disagree with me. 22 MS GOULD: No. Mr. Bourke is a 23 better person to talk about the details, but we have 24 been through the various components, and I am looking 25 at the removal of the rental program from the point of 26 filing the original application for the 2000 test year 27 and removing the direct revenues and expenses and 28 marginal costs. There is a minimal impact on the 674 CHIOTTI/GOULD, cr-ex (Thompson) 1 deficiency as a result of that, but the rental program 2 was, in fact, earning a rate of return on a marginal 3 cost basis that required return. 4 MR. THOMPSON: The reality -- and I 5 thought we went through this yesterday and I didn't 6 think I was getting into a problem area. The reality 7 is that the fully allocated costs associated with the 8 rental program are $34.5 million. That is direct, 9 marginal and fully allocated. They total $34.5 10 million. 11 Do you agree? 12 MS GOULD: I think that was the 13 number we discussed yesterday. 14 MR. THOMPSON: Fine. You are only 15 reducing in item 5, on account of the rental program, 16 $21.5 million. Are we right there? 17 MS GOULD: Yes, we are. But in the 18 Company's original application the rental program was 19 considered a component of the core utility and the 20 allocated costs were merely a notional allocation for 21 the purposes of evaluating the program and not 22 eliminated from cost of service. 23 MR. THOMPSON: I'm sorry. I am using 24 as the benchmark current rates; not your classification 25 of the rental program as core, but the existing 26 classification reflected in E.B.R.O. 497 of ancillary 27 with an additional $10 million of costs assigned to the 28 rental program under the fully allocated cost 675 CHIOTTI/GOULD, cr-ex (Thompson) 1 methodology. 2 Do you understand where I am coming 3 from? 4 MS GOULD: Yes, I do. You are making 5 reference to imputed revenues coming out of E.B.R.O. 6 497 and, if I remember correctly, that would have been 7 on a combined and a separated program basis. 8 MR. THOMPSON: Fine. So is the 9 transfer of the $10 million to ratepayers, which is a 10 byproduct of your proposal in E.B.O. 11 179-14/15 -- sorry, as a consequence of the decision in 12 179-14/15 -- is that an amount that is contributing to 13 the revenue requirement increase of $41.44 million? 14 Or, is it another item that needs to be taken into 15 account? 16 MS GOULD: The specific details of 17 the 41.44, unfortunately, I think Mr. Bourke will have 18 to give you. 19 MR. THOMPSON: The other item that is 20 in this impact column is item 8, the recovery of 21 deferred taxes, and that is the $12 million with 22 gross-up that I believe will be covered by Mr. Bourke 23 or Mr. Boyle on panel 10? 24 MS GOULD: That's correct. 25 MR. THOMPSON: Would you agree with 26 me that if the burden of the rate increases shown in 27 this exhibit are taken into account in assessing 28 whether what you propose does or does not create 676 CHIOTTI/GOULD, cr-ex (Thompson) 1 benefits that there are no net benefits? 2 MS GOULD: I can't confirm that 3 without having an analysis of the deficiency. 4 MR. THOMPSON: So I should direct 5 that to the next group? Is that what you are saying? 6 MS GOULD: Yes. 7 MR. THOMPSON: All right. Let's move 8 to the second topic. 9 Is there anywhere in the evidence 10 that shows the extent to which the $41.44 million would 11 decrease if the approach that the Company took was to 12 retain the rental program but classify it as 13 non-utility for test year ratemaking? 14 MS GOULD: That is certainly not part 15 of any of my evidence. I am personally not aware if it 16 is anywhere else, but that doesn't mean, as part of 17 another interrogatory, that it may have been requested. 18 MR. THOMPSON: Could I ask that an 19 undertaking be given to provide that and that it be 20 brought forward when panel 10 testifies? 21 THE PRESIDING MEMBER: Mr. Thompson, 22 could you repeat the request, for my benefit. 23 MR. THOMPSON: Yes. I would like an 24 exhibit which reveals the extent to which the revenue 25 requirement increment of $41.44 million, shown in 26 column 2 of Exhibit I, Tab 12, Schedule 41, would 27 decline if the regulatory approach that the company 28 took was to retain the rental program but classify it 677 CHIOTTI/GOULD, cr-ex (Thompson) 1 as non-utility. 2 MR. CASS: Mr. Chairman, off the top, 3 I don't know how much work would be involved in doing 4 that or, speaking only for myself, whether it can be 5 done. I don't know whether the witnesses are even in a 6 position to comment on that. 7 I gather where Mr. Thompson is going 8 is to get this number, which is the difference between 9 a non-utility treatment envisaged in the 179-14/15 10 decision and the transfer out which is actually 11 occurring, and he is going to somehow tie that into 12 separation costs. 13 Assuming that that is where he is 14 going in relation to separation costs, I would be 15 troubled, if it is a lot of work, that the value that 16 it adds to the overall argument is perhaps outweighed 17 by the amount of effort required to produce the number. 18 Again, I think we would need to know 19 more about what is required to produce an answer to 20 that question. 21 THE PRESIDING MEMBER: Ms Gould, if 22 there is a high level answer to that, would that take 23 any time? 24 MS GOULD: I think it would take 25 considerable time, and I don't know if it would be of 26 any help. 27 I think in E.B.O. 179-14/15, there 28 was considerable analysis done on rentals and potential 678 CHIOTTI/GOULD, cr-ex (Thompson) 1 alternatives under various different costing scenarios. 2 Perhaps that could provide, at least from an order of 3 magnitude or directionally, what the impact might be. 4 I don't know if that would be of any 5 help. If I remember correctly, it was a response to 6 CAC interrogatory No. 16, but I would have to check. 7 MR. WARREN: But you are not real 8 sure of the detail; right? 9 MR. CASS: Could we perhaps leave it, 10 Mr. Chairman, on the basis that we will try to see what 11 can be done and what work would be involved and report 12 back as soon as we can? 13 THE PRESIDING MEMBER: That is fine, 14 Mr. Cass. 15 I believe the numbers may be readily 16 available and may be on the record already. It is just 17 a matter of: If you are not going that route, what has 18 been added by going the other route? 19 MR. CASS: Then if they are readily 20 available, then that is of course what we will come 21 back with. I am just not comfortable, sitting here 22 right now, that I would want to say that. 23 MR. THOMPSON: Yes, I am happy that 24 the company take it under advisement and report back. 25 THE PRESIDING MEMBER: Could we have 26 an undertaking number? 27 MS LEA: The undertaking, then, is to 28 report back as to the practicality of providing these 679 CHIOTTI/GOULD, cr-ex (Thompson) 1 numbers. It is undertaking J4.1. 2 UNDERTAKING NO. J4.1: Ms Gould 3 to report back as to the 4 practicality of providing the 5 numbers regarding the extent to 6 which the revenue requirement 7 increment of $41.44 million, 8 shown in column 2 of Exhibit I, 9 Tab 12, Schedule 41, would 10 decline if the regulatory 11 approach that the company took 12 was to retain the rental program 13 but classify it as non-utility. 14 MR. THOMPSON: On the point of the 15 causes for the company's proposal, there has been some 16 discussion about the unbundling atmosphere, and this 17 kind of thing, in your responses to other witnesses. 18 But you will agree with me that the company applied to 19 retain the program and reclassify it as core and that 20 it obtained permission to retain the program for the 21 time being but to classify it as non-utility? 22 That was the effect of the Board's 23 E.B.O. 179-14/15 decision? 24 MS GOULD: I'm afraid I missed the 25 beginning of your question. 26 But yes, the Board's decision 27 classified the rental program as a non-utility 28 activity. 680 CHIOTTI/GOULD, cr-ex (Thompson) 1 MR. THOMPSON: And it allowed you to 2 retain it. You were applying for retention for the 3 long term, and I believe the Board allowed you to 4 retain it for the time being. 5 So you did have a retention order, to 6 a degree. 7 Would you accept that, subject to 8 check? 9 MS GOULD: No, I -- 10 MR. CASS: I'm sorry, Mr. Thompson, I 11 am just a little worried about your use of the word 12 "order" in that. 13 MR. THOMPSON: I'm sorry. 14 THE PRESIDING MEMBER: Retention 15 option, Mr. Thompson? 16 MR. THOMPSON: Retention signal? 17 Anyway, let's move on to separation 18 costs. 19 You have told others that these are a 20 subset of the transition costs you asked for in the 21 last case, dressed up a little differently. Could you 22 just tell us when these costs are going to be incurred. 23 MR. CHIOTTI: Well, they are being 24 incurred as we speak. They are being incurred 25 throughout the length of the project. Most would be 26 incurred in fiscal 1999. Some will carry over into 27 fiscal 2000. 28 MR. THOMPSON: So the bulk of the 681 CHIOTTI/GOULD, cr-ex (Thompson) 1 costs will be actually incurred in the 1999 test year? 2 MR. CHIOTTI: Yes, I would say so. 3 MR. THOMPSON: What would be left 4 over as, if you will, 2000 test year or subsequent test 5 year costs, approximately? 6 MR. CHIOTTI: I'm sorry, I don't have 7 that breakdown. 8 MR. THOMPSON: Could you undertake to 9 give us that amount? 10 MR. CHIOTTI: Yes. 11 MS LEA: Undertaking 4.2. 12 UNDERTAKING NO. J4.2: Mr. 13 Chiotti to provide amount of 14 separation costs that will be 15 left as costs for the 2000 test 16 year or subsequent test years 17 MR. THOMPSON: Looking at the 2000 18 test year -- and these really are out of period costs, 19 substantially. 20 MS GOULD: No, I wouldn't 21 characterize them as out of period costs. Given the 22 nature of the costs that we are asking for, what we are 23 looking for in our proposal -- and one reason for the 24 amortization of the $11.4 million over a three-year 25 period is to ensure that there is a matching of these 26 costs with the benefits that they are generating. 27 MR. THOMPSON: They are costs that 28 would substantially be incurred in the 1999 test year. 682 CHIOTTI/GOULD, cr-ex (Thompson) 1 MS GOULD: They will be incurred in 2 1999 with benefits flowing throughout the next three 3 years, and ongoing for that matter. 4 MR. THOMPSON: All right. We will 5 argue whether they are out of period or not. 6 In terms of the portion that will be 7 incurred in the 2000 test year and beyond, these are 8 O&M costs. Is that right? 9 They are classified as O&M expenses? 10 MS GOULD: If the expenditures have 11 been incurred in the normal course of business, they 12 would have been classified as O&M, yes. 13 MR. THOMPSON: You are seeking their 14 recovery in rates as an add-on to the PBR allowance. 15 MS GOULD: No, I would not say we are 16 seeking an add-on to the PBR allowance. The company 17 took forward its original proposal with respect to 18 transition costs. At the same time, it put forward its 19 1999 unbundled budget. 20 I think throughout E.B.R.O. 497 in 21 the unbundling case, the 1999 budget was a business as 22 usual budget. The transition costs have been 23 separately identified and monitored all the way along. 24 While the budget itself has been approved and the 25 benefits underpinning our PBR base, an ultimate 26 decision on these transition costs is still pending. 27 So I think it is really just finding 28 this matching of the two. 683 CHIOTTI/GOULD, cr-ex (Thompson) 1 MR. THOMPSON: Well, I suggest that 2 you sought recovery of these costs in the last case, as 3 others have discussed. Their recovery, I suggest, was 4 rejected. 5 On the other hand, the elements of 6 the PBR allowance which the Board made were quite 7 generous to the company, and that is a topic that ought 8 to be taken into account when assessing whether you 9 should be permitted to recover these costs as an 10 add-on. 11 Do you agree? 12 MR. CASS: Mr. Chairman, that brings 13 me right back to the same objection I made this morning 14 to Mr. Thompson's argument on the issue from yesterday. 15 The company objects to this notion 16 that now that there is a PBR regime in place for a 17 certain element of the company's cost of service, that 18 can now be taken as something that bears on and should 19 be looked at in the context of all the other elements 20 of the company's rate case. 21 In my submission, that is just 22 contrary to the purpose of the whole PBR proposal as 23 approved by the Board. 24 THE PRESIDING MEMBER: Mr. Thompson, 25 can you move on to the next area, please. 26 MR. THOMPSON: Let me turn then to 27 the sharing of services topic. 28 Perhaps the appropriate way to start 684 CHIOTTI/GOULD, cr-ex (Thompson) 1 with this is with HVAC No. 11, which is Exhibit I, Tab 2 11, Schedule 11. 3 I want to understand clearly -- I'm 4 sorry. 5 MS GOULD: Mr. Thompson, excuse me. 6 I need the tab number again. I'm sorry. 7 MR. THOMPSON: Oh, I'm sorry. 8 Tab 11. Exhibit I, Tab 11, Schedule 11. 9 --- Pause 10 MR. THOMPSON: Do you have it? 11 MS GOULD: Yes, I do. I'm sorry. 12 MR. THOMPSON: This question relates 13 to resources or products to be provided by the utility 14 to the separated rental program. In the response, we 15 are told that the rental program business apparently is 16 not going to use the company's billing system. Is that 17 right, that this CIS business -- that the rental 18 business is going elsewhere for CIS services? 19 MS GOULD: I don't think that is what 20 the response to this interrogatory says. 21 As is indicated in this 22 interrogatory, given the lead time and the size of the 23 rental program, there was some inability on the part of 24 an affiliate of Enbridge Consumers Gas to provide this 25 type of service. So there is the need to provide 26 additional billing services and that will be done 27 through the non-utility ABC program. 28 MR. THOMPSON: But it says near the 685 CHIOTTI/GOULD, cr-ex (Thompson) 1 bottom, "Alternate billing arrangements are being 2 investigated", which suggested to me that the rental 3 program, it may be getting its billing services 4 elsewhere and that this is some sort of short-term 5 arrangement. Can you help us with that? 6 MS GOULD: Yes, this is a 7 transitional arrangement. 8 I may suggest, though, and you will 9 notice Mr. McGill's name is also on this exhibit, that 10 he may be the best person and certainly would have the 11 most up-to-date information as to the status of that 12 situation. 13 MR. THOMPSON: So he will be back 14 with CIS? Is that -- 15 MS GOULD: Yes, he will. 16 MR. THOMPSON: All right. Okay. 17 But in terms of the cost of service 18 implications of sharing of the provision by the utility 19 of services to the rental program in the 2000 test 20 year, first of all, can you tell me whether there has 21 been any estimate of the value of services that the 22 utility will provide to the rental program in the test 23 year? 24 MS GOULD: As noted in the exhibit, 25 there will be no services provided on an ongoing basis. 26 As there will be no ongoing services, we have 27 eliminated the costs, as we mentioned yesterday, on a 28 marginal cost basis and that there was -- any 686 CHIOTTI/GOULD, cr-ex (Thompson) 1 additional cost to provide that service, as it wasn't 2 anticipated, will be on the account of the shareholder. 3 MR. THOMPSON: Will be on what? 4 MS GOULD: The account of the 5 shareholder. 6 MR. THOMPSON: I thought we were told 7 by somebody at some point that the rental program was 8 going to acquire services from the utility at a cost of 9 $500,000 a month. Does that ring any bells with you? 10 MS GOULD: No. The services that we 11 identified in here being provided by the utility were 12 some plant recordkeeping and call centre activities. I 13 think Mr. McGill mentioned the other day the call 14 centre activities will extend no longer than a 15 six-month period and potentially as short as three 16 months; and the plant recordkeeping, again, it's 17 minimal, involves less I think than one individual. 18 The marginal costs associated with those services are 19 not reflected in cost of service. 20 MR. THOMPSON: What I just want to 21 understand is, am I correct that services will be 22 provided by the utility to the rental program on a 23 short-term basis at an estimated cost of $500,000 per 24 month? 25 MS GOULD: No, I don't know what the 26 costs associated with the plant recordkeeping and call 27 centre activities are. 28 MR. THOMPSON: Who can tell me that? 687 CHIOTTI/GOULD, cr-ex (Thompson) 1 Mr. McGill? 2 Somebody told us this at some point 3 and I'm just trying to get it confirmed. 4 MR. CASS: Mr. Chairman, I am at a 5 disadvantage not having been present at ADR, but I do 6 have a concern that the number Mr. Thompson is alluding 7 to may have been a number that was discussed during the 8 settlement negotiations. That is the only time at 9 which I'm aware of that such a number might have been 10 discussed. 11 But, again, I wasn't there and 12 Mr. Thompson was. He can correct me if I'm wrong. But 13 I do have a concern about that. 14 MR. THOMPSON: Well, it was an 15 informational number and it may well have been provided 16 during the course of the settlement conference. I 17 have, quite frankly, forgotten. 18 Certainly there was no big secret 19 about it. I will raise the amount with Mr. McGill, but 20 let's just focus on the principle. 21 This interrogatory response indicates 22 that some services will be provided by the utility to 23 the rental program of a temporary nature during the 24 test year. Am I right? 25 MS GOULD: Yes. I mentioned 26 specifically some plant recordkeeping and call centre 27 activities. 28 MR. THOMPSON: All right. And the 688 CHIOTTI/GOULD, cr-ex (Thompson) 1 value of those services will be something. 2 Now, I just want to understand, for 3 ratemaking purposes, in the ordinary course, whatever 4 that value was. Let's say, for the sake of argument it 5 was $1 million. That $1 million would operate to 6 reduce ratepayer exposure in the test year. 7 As I understand your position with 8 respect to the significance of the PBR approach and the 9 PBR envelope, the fact that those services will be 10 provided does nothing to reduce the ratepayers' 11 obligation. They continue to pay the full PBR envelope 12 plus the percentage mark up. 13 MS GOULD: No, I don't think that is 14 what we are saying. 15 I think what we are saying is this is 16 a unique situation, that there are certain costs that 17 in order to facilitate a transition will need to be -- 18 services, I'm sorry, that will need to continue. But 19 as those services weren't anticipated at the time the 20 PBR base was set, there are no at least marginal costs 21 associated with those services envisioned in there. So 22 there is no costs being borne by the ratepayer to 23 provide these services. 24 MR. THOMPSON: Let's just take, then, 25 a hypothetical so I can understand this. 26 Let's assume that we are in the PBR 27 regime and that the envelope is $216 million, as you 28 suggest, and it has been grossed up, and that in a 689 CHIOTTI/GOULD, cr-ex (Thompson) 1 year, when that regime is operating, the utility 2 company provides services to the rental program of a 3 value of, let's say, $2 million. Do the ratepayers get 4 the benefit of the sharing of services? 5 MS GOULD: The transitional services 6 that we have identified here -- 7 MR. THOMPSON: Forget about 8 transitional services. Just focus on the hypothetical. 9 MS GOULD: Well, specifically, you 10 are asking concerning the rental program and we have 11 said that there are no ongoing services for the rental 12 program, so I'm not sure -- 13 MR. THOMPSON: Don't try and evade 14 the question, please. 15 MS GOULD: I'm not. I'm not sure if 16 your question is generic -- 17 MR. THOMPSON: Just answer in the 18 hypothetical. 19 MS GOULD: Mr. Thompson, I am trying 20 to answer your question. I am not sure if you are 21 asking me generically as to what would happen with 22 these costs, or what specifically is happening with the 23 costs associated with these particular -- 24 MR. THOMPSON: I am asking 25 generically. That is why I put it as a hypothetical. 26 MS GOULD: -- with respect to the 27 rental program. But I can answer it in a generic 28 sense. 690 CHIOTTI/GOULD, cr-ex (Thompson) 1 The billings to affiliates is a 2 component of our operating and maintenance expense and 3 would be a component of our PBR base. So to the extent 4 that there are credits, that would go into -- against 5 the PBR base; but, at the same time, to the extent that 6 there are any incremental costs associated with 7 providing that service, that would also be a component 8 of our PBR base. 9 MR. THOMPSON: How does it flow into 10 the PBR base and when does it flow into the PBR base? 11 Take my $2 million example. You have 12 your base of $240 million and then in year 2000 the 13 utility in fact provides services to an affiliate that 14 has a value of $2 million. How do the ratepayers get 15 the benefit of that $2 million? 16 My understanding is you will simply 17 report that in some way, but the benefit of that 18 $2 million will flow to the shareholder. Is that 19 right? 20 MS GOULD: To the extent that there 21 was a benefit, as I mentioned, there would also be 22 costs. I think, as we spoke yesterday, the billings to 23 affiliates is a component of utility O&M and at the 24 time that both the 1999 budget was set and the 1999 25 unbundled budget was set all services were identified, 26 the fully allocated costs related to those services 27 were removed from utility cost of service, and that set 28 the foundation for our PBR base going forward. 691 CHIOTTI/GOULD, cr-ex (Thompson) 1 MR. THOMPSON: Let me make it clear. 2 It is an incremental $2 million over the base, over 3 whatever is reflected in the development of your base. 4 In that situation, those affiliate transactions, if you 5 will, will be reported, as I understand it, so that 6 your actual O&M reported to the Board for utility 7 purposes will be lower than the base, but the benefit 8 of the $2 million accrues to the shareholder. Is that 9 how it works? 10 MS GOULD: I agree, the $2 million 11 will be a credit against utility O&M. Whether that 12 will be higher or lower at the end of the day it will 13 depend, I assume, on the transaction. 14 MR. THOMPSON: If the amount, for 15 whatever reason, isn't reported accurately -- you 16 provide these services, incremental services, to an 17 affiliate of $2 million, and because you are not 18 keeping your activity analysis and all this kind of 19 thing it is not reported accurately to the Board -- or 20 to intervenors, depending on the protocol that is 21 established -- the benefit of that $2 million will 22 accrue over in the affiliate; will, in effect, have the 23 utility providing services to an affiliate for which 24 the utility has not been properly compensated or 25 recorded. 26 Either way it goes to the 27 shareholder. Right? 28 MS GOULD: I guess I need -- I have 692 CHIOTTI/GOULD, cr-ex (Thompson) 1 to disagree to your premise that if it is recorded 2 inaccurately I think the onus is on the company to 3 ensure that it is recorded accurately and that there is 4 a proper reflection of what those transactions are and 5 that they have been accurately reflected. 6 MR. THOMPSON: I am just coming back 7 to Dr. Bauer's point of how efficiency gains can be 8 shifted to the affiliate through inadequate reporting 9 or inadequate record keeping. It is going to be very 10 difficult to, I suggest, to keep track of these types 11 of transactions if you stop doing your activity 12 analysis. So maybe my premise isn't that shaky. 13 In any event, I think I have your 14 answers here. Now I understand how this works. Those 15 are my questions and my speeches. 16 THE PRESIDING MEMBER: Thank you, Mr. 17 Thompson. 18 Ms Lea? 19 MS LEA: My advisors are attempting 20 to come to a consensus as to whether I have any 21 questions or not. If I could just allow them to do 22 that. 23 THE PRESIDING MEMBER: We will give 24 you a few minutes. 25 MS LEA: While they are doing that, 26 can someone update me as to whether the evidence of Mr. 27 Rahn, for the next panel, has yet been delivered. 28 MR. CASS: No, it has not. 693 CHIOTTI/GOULD 1 MS LEA: So are you still proposing 2 to proceed with that panel? 3 MR. CASS: I think the proposal 4 remains that we will try, yes. 5 THE PRESIDING MEMBER: If there is 6 evidence, Mr. Cass, it had better be given before the 7 lunch break. 8 MS LEA: Maybe we had better have a 9 longer lunch break in order to review it. Anyway, we 10 can deal with that at the end of this panel, but I was 11 just trying to understand whether or not -- 12 --- Pause 13 THE PRESIDING MEMBER: Ms Lea, any 14 other questions? 15 MS LEA: I think we did have a 16 question but, frankly, I don't know that it will of 17 assistance to the Board. It had to do with how 18 different programs, how the costs were treated in the 19 removal of different programs between ABC-T and the 20 rental program, but I think that that area has probably 21 been covered by Mr. Thompson. 22 THE PRESIDING MEMBER: Does it go to 23 the issue whether they are done on a fully-costed 24 basis? 25 MS LEA: Yes. 26 THE PRESIDING MEMBER: I believe, Ms 27 Gould, you are on the record, or your previous panel, 28 that they were done on a fully-costed basis. 694 CHIOTTI/GOULD 1 MS LEA: Well, perhaps it would just 2 be easiest if I asked the question and maybe we can 3 stop debating that. 4 We just wanted clarification 5 regarding the costs removed from the utility with 6 respect to, you know, when the separation occurred. 7 As we understood the evidence -- 8 correct us if we are wrong -- ABC-T was removed on a 9 fully-allocated cost basis. Is that right? 10 MS GOULD: I apologize. I do not 11 have my evidence from yesterday with me today. 12 MS LEA: Yes, I thought it was 13 yesterday's evidence. 14 MS GOULD: But given that the ABC 15 program, as it was identified as a non-utility 16 activity, will continue to operate within Enbridge 17 Consumers Gas at the same level of service it was 18 receiving as an ancillary program. It was removed on a 19 fully-allocated cost basis. 20 MS LEA: And the rental program was 21 removed on a direct and marginal cost basis? 22 MS GOULD: Yes, it is, and that 23 recognizes the fact that there will be no ongoing 24 sharing of services with the rental program and there 25 really was no need to allocate costs for those 26 services. 27 MS LEA: All right. That is fine. 28 That is how I understood it. Thank you. 695 CHIOTTI/GOULD 1 THE PRESIDING MEMBER: Thank you, Ms 2 Lea. 3 The Board has some questions, Mr. 4 Cass. 5 Ms Halladay? 6 MEMBER HALLADAY: I just have a few 7 questions. I may be the only one in the room who 8 doesn't quite understand it. I am having difficulty 9 with the categorization of these transitional costs. 10 Why are they not considered Z-factors 11 in the PBR formula as sort of one-time costs that have 12 been incurred? Why are they -- 13 MS GOULD: That is certainly a 14 question that we asked ourselves, as well, in putting 15 together this application, the appropriate 16 classification, whether it would be a Z-factor or, as 17 we have shown it here, a component of amortization 18 expense. Certainly, either would have been an option 19 and would have resulted in the same impact on cost of 20 service. 21 One of the reasons that led us to our 22 decision to record it the way we have is we are showing 23 it as an asset or a regulatory deferral account pending 24 approval by the Board that we would amortize that and 25 match that against the O&M. So it really is just to 26 show the drawdown of the asset. But, certainly, an 27 alternative would have been a Z-factor treatment. 28 MEMBER HALLADAY: My next question is 696 CHIOTTI/GOULD 1 -- you talked about the ongoing benefits of some of 2 these transitional costs, particularly with employees 3 -- can you help me to determine -- those transitional 4 costs were not included in the base for PBR. That is 5 correct? And, therefore -- two parts. The next part 6 is: Would, therefore, the benefits in those 7 transitional costs, therefore, because they would 8 relate to ongoing O&M expenses and benefits relating to 9 the ongoing O&M expenses, would they not then be, under 10 PBR, to the benefit of the shareholder and not the 11 ratepayer? 12 MS GOULD: No. Given the way the 13 unbundled budget was put together -- and as I mentioned 14 before, it was brought forward at the same time that 15 the transition costs were brought forward -- those 16 benefits were identified and removed from the 1999 17 budget and reviewed as part of 179-14/15. So the 18 benefits have been identified and they are underpinning 19 our PBR base. As the transition costs were a separate 20 proposal -- a decision on which was not received in 21 179-14/15 -- we are bringing those forward now. And as 22 I mentioned previously, right now, we don't have a 23 match between the benefits within our PBR and the costs 24 as another element of our cost of service. 25 MEMBER HALLADAY: Bear with me, 26 for -- 27 MS GOULD: I am sorry. 28 MEMBER HALLADAY: -- I may be a 697 CHIOTTI/GOULD 1 little slower than everyone else. 2 So you are saying that the benefits 3 of the transitional costs, even though the transitional 4 costs were not approved in that decision, the benefits 5 were, in fact, taken into account in your unbundled PBR 6 base? 7 MS GOULD: Yes, they were. 8 MEMBER HALLADAY: So, therefore, you 9 are not now asking for the ratepayers to approve this 10 -- and they were not taken into account -- let me 11 backtrack. 12 Notwithstanding the fact the 13 transitional costs had been approved, you took into 14 account the benefits that would derive from as a result 15 of these transitional costs but you didn't take into 16 account those transitional costs at all? For the 17 original PBR base. 18 MS GOULD: No, because, at that 19 point, they were brought forward in a separate proposal 20 which was part of the unbundling and the transition 21 costs that were identified at that time. They were 22 brought forward at the same time under two separate 23 proposals. 24 MEMBER HALLADAY: So you are saying, 25 then, that these transitional costs that you are asking 26 the ratepayer to pay in no way relates to the increased 27 benefit -- or have already been taken into account, as 28 far as the PBR base, O&M and -- 698 CHIOTTI/GOULD 1 MS GOULD: That is right. And these 2 are the costs that are necessary to realize those 3 benefits, so they do go hand-in-hand. 4 MEMBER HALLADAY: Thank you. 5 THE PRESIDING MEMBER: Ms Gould, just 6 to follow up on this. I believe the discussion today 7 revealed that what was reflected in the base O&M was 8 only $2.4 million of the labour-related benefits, not 9 the benefits that would accrue in Year 2 and 3. It was 10 only the first-year benefits. 11 MS GOULD: Yes, only the benefits 12 associated with the 96 positions that we could actually 13 eliminate in Year 1 were included. As I mentioned 14 before, I think there is still a lot uncertainty as to 15 whether those additional 76 will be realized. 16 THE PRESIDING MEMBER: I appreciate 17 that Ms Gould. I guess one of the challenges as we 18 move towards a targeted PBR for O&M is that one of the 19 consequences or impacts of a decision in one particular 20 year where that impact may flow over three years, 21 whether it is a cost or a revenue, that is where, I 22 guess, caution has to be exercised on the part of the 23 Tribunal. 24 But the answer to Ms Halladay's 25 question was that only a portion of those benefits were 26 reflected in the O&M base, not all of it because they 27 were staggered over three years, the people-related 28 savings. 699 CHIOTTI/GOULD 1 MS GOULD: That's right, the savings 2 that are reflected in the PBR base are the $2.4 3 million, if I could refer back to the Schools 4 Interrogatory No. 2 that Mr. Brett referred us to. 5 THE PRESIDING MEMBER: So everything 6 else being equal, if rates are set this year the 7 shareholder would benefit from the $2 million in year 8 two of the PBR plan and $1.6 million a year in year 9 three of the PBR plan, everything else being equal? 10 MS GOULD: Everything else being 11 equal. As I said, with the uncertainty and to the 12 extent that there is more confusion and we are not able 13 to realize these benefits, then they may not be 14 realized. 15 THE PRESIDING MEMBER: Subject to 16 that uncertainty. 17 MS GOULD: That's right. 18 THE PRESIDING MEMBER: Thank you. 19 Those are all the questions, Mr. 20 Cass, the panel has. Any re-direct? 21 MR. CASS: No, thank you, Mr. 22 Chairman. 23 THE PRESIDING MEMBER: Thank you, 24 panel. 25 Ms Lea, there were two pages of the 26 Schools Interrogatory of the last -- of 497-01 27 submitted by Mr. Brett, and it has been referred to a 28 number of times. I just wonder whether it would be 700 1 easier to have an exhibit number? 2 MS LEA: Sure. Why don't we give it 3 an exhibit number in this proceeding just for 4 reference. It's K4.1, please. 5 EXHIBIT NO. K4.1: Two-page 6 document entitled "The Schools 7 Interrogatory #2" 8 THE PRESIDING MEMBER: Mr. Cass, 9 what's the plan? 10 MR. CASS: I have just been told, Mr. 11 Chairman, that that evidence that people have been 12 awaiting will be available within 15 minutes. 13 MR. WARREN: May I just add to the 14 mix at this point. My client's initial view of this 15 issue was that it was one that was going to go to 16 argument. Mr. Girvan is not here. I don't know 17 whether I can get the evidence to her over the lunch 18 break and get her to make an assessment about whether 19 or not we need any cross-examination. 20 I say, with respect, that the 21 sensible solution, it seems to me, is to deliver the 22 evidence, let us look at it overnight and do it 23 tomorrow, rather than do it on a rush basis. 24 I say that, Mr. Chairman, cautioning 25 that we may adhere to our initial position that this is 26 an issue appropriate for argument only. But looking at 27 it selfishly, I am going to have to scramble to try and 28 get this stuff to Ms Girvan to see whether or not it 701 1 affects our position on the matter. 2 I am not sure that anything is served 3 by shoehorning this thing in this afternoon, rather 4 than doing it tomorrow. 5 The other issue, Mr. Chairman, is 6 that there are people in the room -- there are certain 7 people not in the room who may be affected by this. I 8 don't know what Mr. Janigan's position on this is, for 9 example. 10 My suggestion, Mr. Chairman, is that 11 we just get this stuff out in any way we can, any way 12 Enbridge can, and then we will deal with it tomorrow 13 morning. 14 MR. CASS: Mr. Chairman, it is 15 certainly the company's desire to shoehorn things in 16 and prejudice anyone. So if there is any concern about 17 a prejudice arising from lack of time to review the 18 material, then that's fine. 19 It is simply an attempt to find a 20 panel to make use of the time this afternoon and that's 21 what the company was trying to do. But if there are 22 concerns about the need for time to review this 23 evidence, then the company doesn't have a problem with 24 that. 25 THE PRESIDING MEMBER: We won't know 26 until I guess the parties have had an opportunity to 27 look at maybe just one page. I don't know. 28 Perhaps we can use the luncheon break 702 1 to receive that document. The parties can receive the 2 document and then perhaps you can advise the Board 3 whether you are ready to proceed or not. 4 As for the disadvantage to the other 5 parties who are not here, Mr. Warren, we did 6 contemplate that this morning. We did allow that 7 should other intervenors who are not here today have 8 questions of this panel, then we have to bring that 9 same panel back again at some point. 10 Ms Lea. 11 MS LEA: I was going to make a 12 suggestion. I don't think it is now as useful. I was 13 going to say is there still some doubt as to whether we 14 even need a panel on this issue? I understood from Mr. 15 Warren's comments that perhaps as people review the 16 evidence -- did anybody know for sure if they have 17 questions or are you waiting for the evidence to 18 determine whether or not you have questions, because we 19 don't have questions arising out of what we have so 20 far. 21 MR. WARREN: Well, neither do we, Ms 22 Lea, but what we have is fresh evidence which we 23 haven't seen. 24 MS LEA: Yes, exactly. 25 MR. WARREN: It is possible, looking 26 at the evidence, that we may not have any questions. 27 THE PRESIDING MEMBER: Why don't we 28 just go back to the panel then. We are going to break 703 1 for lunch. We will give the parties an opportunity to 2 look at what is new and then we can resume and you can 3 advise the Board whether you would like to proceed or 4 not. 5 I guess the objective, Mr. Warren, 6 was to try to fill something in the day, but if it is 7 not going to be possible then we will have to live with 8 it. 9 It is 12:15. We will take a bit 10 longer today. Let's call it for two o'clock. 11 --- Luncheon recess at 1215 12 --- Upon resuming at 1402 13 THE PRESIDING MEMBER: Please be 14 seated. 15 Ms Soudek, welcome back. 16 MS SOUDEK: Thank you, sir. 17 THE PRESIDING MEMBER: Any 18 preliminary matters? 19 MS SOUDEK: I have none, sir, before 20 we move on to canvas intervenors about the 21 transactional service panel. 22 I don't know if Mr. Thompson has any. 23 THE PRESIDING MEMBER: Let's do the 24 canvassing then. 25 Mr. Thompson? 26 MR. THOMPSON: Yes. 27 I'm speaking on behalf of myself and 28 Mr. Warren. We have reviewed this testimony and we do 704 1 not intend to cross-examine on this further material. 2 We are prepared to proceed with the transactional 3 services issue by dealing with it in argument. 4 THE PRESIDING MEMBER: Mr. Brett? 5 MR. BRETT: I am of the same view, 6 Mr. Chairman. 7 Thank you. 8 THE PRESIDING MEMBER: Thank you. 9 Ms Lea? 10 MS LEA: Thank you. We have no 11 questions. 12 I have one preliminary matter, thank 13 you. 14 THE PRESIDING MEMBER: Okay. Then 15 what we should do is put it to argument, Ms Soudek. 16 Just to be fair to the other parties 17 who were not here and didn't have adequate notice, I 18 guess we will use -- can we use a negative option, 19 Ms Lea? 20 Unless we hear from those parties we 21 will assume that it only goes to argument and perhaps 22 Ms Desai can point that out in the hot line today. 23 MS LEA: Thank you. 24 THE PRESIDING MEMBER: Mr. Ladanyi 25 wants your attention, Ms Soudek. 26 MS SOUDEK: Mr. Ladanyi is pointing 27 out that the date on the document -- it says "Filed on 28 the 31st of May, 1999". Clearly it was not. 705 1 That date should read 1999/08/26. So 2 the 26th of August, 1999. 3 THE PRESIDING MEMBER: Thank you. 4 Ms Lea. 5 PRELIMINARY MATTERS 6 MS LEA: Thank you. 7 One matter that Ms Soudek raised with 8 us before, and that had to do with some letters of 9 comment that have been received by the Board in 10 connection with the NGV Program. 11 Letters of comment are received by 12 the Board, put on the public record and are available 13 to all intervenors and interested parties. 14 However, Ms Soudek indicated that she 15 wished to refer to one or more of these in argument. 16 Given that, we thought that we should 17 bring it forward and give these letters an exhibit 18 number in this proceeding and make copies available for 19 anyone who wants to see them. 20 These are three letters related to 21 the NGV Program. Two of them are from the City of 22 Toronto and one is from the Associated Toronto Taxi Cab 23 Co-operative Limited. 24 So I think that what I would like to 25 do is make these exhibits, all three of them as a 26 package, K4.2, and it is the letters related to 27 NGV Program. 28 Copies will be available on the 706 Preliminary Matters 1 window sill or on the table. 2 Thank you. 3 EXHIBIT NO. K4.2: Three letters 4 related to the NGV Program, two 5 from the City of Toronto and one 6 is from the Associated Toronto 7 Taxi Cab Co-operative Limited 8 THE PRESIDING MEMBER: Thank you, 9 Ms Lea. 10 THE PRESIDING MEMBER: If there are 11 no other matters then we can adjourn. 12 Mr. Thompson. 13 MR. THOMPSON: Yes. I just wanted to 14 alert the Board. 15 I was speaking with Mr. Ladanyi at 16 the luncheon break about where we go from here. My 17 understanding is that tomorrow we deal with the 18 rate 125 issue and the capitalization of administrative 19 and general overheads. 20 Mr. Ladanyi tells me that Panel 10 is 21 not going to be available until Thursday of next week, 22 which does give me some concern, I guess, because that 23 is the panel on which Mr. Bourke and Mr. Boyle sit and 24 so we are not going to get through the 25 cross-examination of that panel until towards the end 26 of the case. 27 I understand Mr. Boyle is just not 28 available until Thursday, so we will have to do as best 707 Preliminary Matters 1 we can. 2 But the other implication of the 3 unavailability of Panel 10 until Thursday is that we 4 will start with IS and CIS Monday and Tuesday. I just 5 wanted to alert the Board that that may make it 6 difficult for IGUA to get responses done to all of 7 these questions that have been asked of Mr. Stevens who 8 will be engaged in the examination of witnesses. 9 So my suggestion is going to be that 10 we will do our best to get those delivered before the 11 end of next week and that Mr. Stevens be empanelled as 12 a witness some time in the following week, just because 13 of these logistical problems of getting responses to 14 interrogatories done, completing the cross-examination 15 of CIS. 16 I understand that Ms Williams is only 17 available for testimony next week, so that current 18 expectation is she would be reached Wednesday of next 19 week. We then have Panel 10 on Thursday and that could 20 spill into Friday, then Mr. Stevens the following week. 21 I just wanted to alert the Panel of 22 that sort of outlook. 23 MS LEA: Mr. Thompson, could I ask 24 you a couple of questions? 25 Is Mr. Stevens available to testify 26 next week? Is it just a problem of getting the 27 interrogatories answered? 28 MR. THOMPSON: I expect he will be 708 Preliminary Matters 1 here to assist us in the cross-examination. 2 So he is going to be here, but 3 whether we can get everything done to have him 4 available to testify, I doubt it. 5 MS LEA: I think the question in my 6 mind, and others can tell me whether they think this is 7 realistic, is I thought we would probably be finished 8 before the end of next week with this case as a 9 possibility. 10 So, consequently, we may be -- it's 11 not a big problem, I just wanted to understand whether 12 it was a question of witness availability or lack of 13 time, and you are telling me it is lack of time but I 14 can see that being a problem. 15 MR. THOMPSON: Yes, it is primarily 16 lack of time in preparing him for his testimony. 17 I believe I will be asking that he be 18 scheduled in that week, recognizing that may be the 19 only item of business that week. 20 THE PRESIDING MEMBER: Why don't we 21 turn our attention to it tomorrow then, Mr. Thompson. 22 In the meantime, we do have two 23 issues tomorrow. It is only a half day tomorrow. 24 Perhaps we can finish with both, perhaps not. 25 Assuming that we do finish tomorrow 26 with those two panels, then what? 27 MR. THOMPSON: Then it's IS and CIS 28 on Monday for the company that I expect will -- 709 Preliminary Matters 1 THE PRESIDING MEMBER: You have no 2 problem with going ahead with that? 3 MR. THOMPSON: Oh, no. No, no. 4 THE PRESIDING MEMBER: The expert 5 witness will be here to do both things, to assist 6 you -- 7 MR. THOMPSON: Yes. 8 THE PRESIDING MEMBER: -- as well as 9 to respond to interrogatories? 10 MR. THOMPSON: That's right. Yes. 11 THE PRESIDING MEMBER: Okay. That's 12 fine then. 13 You look puzzled. 14 MS LEA: No, no, I'm not puzzled. 15 Maybe that is a permanent expression. 16 --- Laughter 17 THE PRESIDING MEMBER: Okay. 18 MS LEA: I am just taken aback, 19 that's all. 20 THE PRESIDING MEMBER: My Panelist 21 may have some further thoughts on that. 22 --- Pause 23 MS LEA: This may not be helpful, 24 but -- 25 THE PRESIDING MEMBER: Just a second, 26 Ms Lea. 27 MS LEA: Okay. Thank you. 28 --- Pause 710 Preliminary Matters 1 THE PRESIDING MEMBER: I'm sorry, 2 Ms Lea. 3 MS LEA: Is the company the only 4 party that has asked interrogatories of Mr. Stevens? 5 MR. THOMPSON: Yes. 6 MS LEA: And the company does 7 definitely require the answers to these interrogatories 8 before the witness testifies? They cannot be answered 9 as part of his testimony? 10 I haven't read them. It may not be a 11 practical suggestion. I'm just wondering if we could 12 reduce his workload, that's all. 13 MS SOUDEK: No, Ms Lea. I think it 14 would be much more expeditious to get those answers and 15 consider them and then design our cross-examination on 16 the basis of those responses. 17 MS LEA: Thank you. 18 THE PRESIDING MEMBER: All right. 19 Well, we will decide those things tomorrow then. 20 Thank you. Thank you, Mr. Thompson. 21 If there is nothing else, then we 22 will adjourn until tomorrow morning at nine o'clock. 23 Tomorrow is a half day. Hopefully we 24 can finish by one o'clock. I don't mean both issues, 25 Ms Soudek. We will have to adjourn at one o'clock 26 tomorrow because parties have to exit town. 27 --- Whereupon the hearing adjourned at 1410, to 28 resume on Friday, August 27, 1999 at 0900