711 1 RP-1999-0001 2 3 THE ONTARIO ENERGY BOARD 4 5 IN THE MATTER OF the Ontario Energy Board Act, 1998; 6 7 AND IN THE MATTER OF an Application by The Consumers 8 Gas Company Ltd., carrying on business as Enbridge 9 Consumers Gas, for an order or orders approving or 10 fixing rates for the sale, distribution, transmission 11 and storage of gas for its 2000 fiscal year. 12 13 14 15 16 B E F O R E : 17 P. VLAHOS Presiding Member 18 S.K. HALLADAY Member 19 20 21 Hearing held at: 22 2300 Yonge Street, 25th Floor, Hearing Room No. 1, 23 Toronto, Ontario on Friday, August 27, 1999, 24 commencing at 0900 25 26 RATES HEARING 27 28 VOLUME 5 712 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 MIKE HILSON 22 MURRAY KLIPPENSTEIN Pollution Probe 23 DAVID POCH Green Energy Coalition, GEC 24 MICHAEL JANIGAN Vulnerable Energy Consumers 25 Coalition 26 STAN RUTWIND TransCanada PipeLines 27 Limited 28 713 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 28 714 1 INDEX OF PROCEEDINGS 2 PAGE 3 4 Preliminary Matters 717 5 SWORN: MALINI GIRIDHAR 723 6 SWORN: MARIE PASCALE DUGUAY 723 7 SWORN: JOYCE POON 724 8 Examination-in-Chief by Ms Soudek 724 9 Cross-Examination by Mr. Warren 729 10 Cross-Examination by Mr. Brett 743 11 Cross-Examination by Mr. Thompson 745 12 SWORN: ROCCO RICCIO 756 13 PREVIOUSLY SWORN: HOLLY REYNOLDS 756 14 Examination-in-chief by Ms Soudek 757 15 Cross-Examination by Mr. Janigan 758 16 Upon recessing at 1040 777 17 Upon resuming at 1100 777 18 Cross-Examination by Mr. Brett 777 19 Cross-Examination by Mr. Thompson 790 20 Hearing adjourned at 1205 815 21 22 23 24 25 26 27 28 715 1 UNDERTAKINGS/OBJECTIONS 2 3 NO. DESCRIPTION PAGE 4 5 J5.1 Ms Duguay to confirm that 746 6 a member of the Enbridge 7 group is out in the marketplace 8 as a bidder for MEU electric 9 facilities that are for sale. 10 J5.2 Ms Soudek agrees to provide 813 11 an explanation for the issues 12 under discussion that flow from 13 the questions of the Chairman. 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 716 1 ERRATA/ADDENDA 2 REFERENCE DESCRIPTION 3 RP-1999-0001 - Volume 2 4 08/24/99 P. 302 L. 12 5 "NGV component" S/B "NGV program" 6 08/24/99 P. 319 L. 16 7 "NGV sales systems" S/B 8 "NGV fuel systems" 9 08/24/99 P. 324 L. 11 10 "property is fairly extensive" S/B 11 "property is fairly expensive" 12 08/24/99 P. 325 L. 13 13 "steel cell vehicles" S/B "fuel 14 cell vehicles" 15 08/24/99 P. 325 L. 13 16 "we will the economic" S/B "we will 17 have the economic" 18 08/24/99 P. 327 L. 10 19 "at the business unit" S/B "as a 20 business unit" 21 08/24/99 P. 329 L. 7 22 "SONA rental program" S/B "the 23 cylinder rental program" 24 25 26 27 28 717 1 Toronto, Ontario 2 --- Upon resuming on Friday, August 27, 1999 at 0900 3 THE PRESIDING MEMBER: Good morning. 4 Please be seated. 5 MS SOUDEK: Good morning, 6 Mr. Chairman. 7 THE PRESIDING MEMBER: Ms Soudek, are 8 there any preliminary matters? 9 Mr. Farrell is here too. 10 MS SOUDEK: Mr. Farrell is 11 indicating -- 12 PRELIMINARY MATTERS 13 MR. FARRELL: What you should have 14 before you and what is available in the hearing room, 15 Mr. Chair, is the Hearing Schedule No. 4 dated today. 16 This is the updated version of it. The numbers 17 assigned to each witness panel stay the same, 18 referring, for example, to Panel 10, but this has the 19 witness panels sequentially in the order in which they 20 have appeared before you. 21 If you could turn to page 3 of 5, the 22 bottom two boxes are the panellists you will hear 23 today. First, Panel No. 8 on cost allocation in 24 relation to Rate 125. 25 Mr. Maclure will not be on the panel. 26 In the next version of this hearing schedule I will 27 remove his name. 28 Then to be followed by capitalization 718 Preliminary Matters 1 of A&G overheads. 2 The first panel on Monday, if you go 3 to page 4 of 4, will be the first instalment of 4 Panel 10 with Mr. Bourke and joined by Mr. Grant to 5 speak about monitoring and reporting. Then the second 6 instalment of Panel 10 will appear later in the week, 7 and that will be Mr. Bourke, Mr. Dodd and Mr. Boyle, to 8 deal with cost of capital, deferred taxes and the other 9 issues that are described for Panel 10. 10 Following the first instalment of 11 Panel 10, we will then bring on our Panel 12 to speak 12 to IS capital expenditures and CIS. 13 Then the other document you should 14 have, and we are still running copies for people in the 15 room, is a letter to Mr. Pudge dated today filing, in a 16 formal way, Exhibit C1, Tab 7, Schedule 2 which was 17 filed yesterday, that was the additional evidence of 18 Mr. Rahn; and, the final version of the scoping 19 proposal which has an exhibit for reference purposes. 20 For your information, the scoping 21 proposal now indicates it is for reference purposes. I 22 have added that after your comment, and it has a couple 23 of other changes that Mr. Thompson requested that have 24 now been made. 25 So this is the scoping proposal in 26 its final form. 27 Finally, in the package are four 28 revised pages for the settlement proposal. One page 719 Preliminary Matters 1 corrects the mistake you had uncovered yesterday, 2 Mr. Chairman. Page 25 of 33 now shows IGUA as agreeing 3 with the settlement. That was the mistake or the 4 oversight I had yesterday. The next two pages just 5 correct clerical errors. The last page, page 33 of 33, 6 now contains the agreement to settle issue 6.1.4. 7 So as I understand it, the settlement 8 proposal is now completed and includes the settlement 9 of the issue that was being discussed by the company 10 and Energy Probe. 11 THE PRESIDING MEMBER: Thank you, 12 Mr. Farrell. 13 MR. FARRELL: With that, Mr. Chair, I 14 would propose to excuse myself. 15 MR. WARREN: I wonder, Mr. Chairman, 16 just before Mr. Farrell -- 17 THE PRESIDING MEMBER: I'm sorry, 18 Mr. Warren. 19 Just to make sure on the dates here 20 are. Mr. Stevens, I guess will be here -- is this for 21 Monday the 7th? That is the very last box on page 5 22 of -- 23 MR. FARRELL: Mr. Stevens would be 24 Tuesday, I think it is the 7th. I haven't put dates in 25 because -- I guess that is a date certain for 26 Mr. Stevens, assuming we get through everything else 27 next week. I put dates in for what we knew for sure, 28 so to speak. But Mr. Stevens would be last in the 720 Preliminary Matters 1 current thinking as he would appear after Labour Day. 2 THE PRESIDING MEMBER: Ms Williams, 3 of course, she is only available next week, right, 4 Mr. Thompson? 5 MR. FARRELL: Yes. That is the 6 reason, Mr. Chair, I mentioned that Panel 10 would be 7 in two instalments. The first would be reporting and 8 monitoring, then followed by Panel 12, Panel 13 and 9 Panel 14. Then the second instalment of Panel 10 would 10 come on to deal with their issues that relate to things 11 other than reporting and monitoring, which would take 12 us to the end of the week. Then Mr. Stevens would 13 follow after Labour Day. That is the current schedule. 14 THE PRESIDING MEMBER: Yes. I just 15 couldn't see the break of Panel 10, Mr. Farrell, on 16 those sheets. It is August 30th, the first time 17 Panel 10 will appear. 18 MR. FARRELL: The reason I didn't 19 break them out is that it was going to be an exercise 20 to see whether there was anything in the list of 21 exhibits that pertained to monitoring and reporting. I 22 just, frankly, didn't want to take the time to try to 23 split the exhibits out. 24 THE PRESIDING MEMBER: That's fine. 25 MR. FARRELL: If he would like that 26 done, it can be done. 27 THE PRESIDING MEMBER: No, no. 28 That's fine, sir. No. As long as it is understood 721 Preliminary Matters 1 that it will be on two different dates. That's fine. 2 Okay. Mr. Warren. 3 MR. WARREN: I just have a technical 4 question before Mr. Farrell leaves. 5 With respect to the CIS panels, the 6 issue of the services agreement is a cost of service 7 issue. May I assume that that is going to be dealt 8 with in the second of the two panels on CIS, that is, 9 Mr. Diamond? 10 The reason I inquire is I am going to 11 ask if Ms Williams can be here with me for the purpose 12 of cross-examination on that, and I just -- 13 MR. FARRELL: It would be the first 14 panel. It would be Panel 12. 15 MR. WARREN: Panel 12. 16 MR. FARRELL: Yes. 17 MR. WARREN: Okay. Thank you very 18 much. 19 The plan, I think, Mr. Vlahos, is 20 that, as I have discussed with Ms Williams, she would 21 be here Wednesday. That is the tentative plan, 22 Wednesday of next week. 23 --- Pause 24 THE PRESIDING MEMBER: Mr. Thompson, 25 you were going to say something? 26 MR. THOMPSON: Yes. I was just 27 speaking to Mr. Farrell and would like to inform the 28 Board that Mr. Stevens is going to be here next week 722 Preliminary Matters 1 and I think there is a realistic prospect that we can 2 get these interrogatories answered by Tuesday and 3 probably at the latest Wednesday. If that is the case, 4 then I think it is conceivable he could -- assuming we 5 have finished other business, he would be available to 6 testify at the end of next week rather than having 7 everybody come back after Labour Day. 8 THE PRESIDING MEMBER: Thank you, 9 Mr. Thompson. That's fine. 10 We will leave it on the basis, then, 11 that we want to hear the CIS from the company first and 12 the company's witness, Mr. Diamond, I believe, to be 13 followed by Ms Williams and Mr. Stevens. As to where 14 the second panel will fit in on Panel 10, then we will 15 just have to play it by ear. 16 MR. FARRELL: Yes. I think the plan 17 was that when Ms Williams was finished, that is when 18 the second instalment of Panel 10 would take place. I 19 think what Mr. Thompson is suggesting, if we finish 20 that in enough time to deal with Mr. Stevens at the end 21 of the week we would. 22 THE PRESIDING MEMBER: All right. 23 I guess the point, Mr. Farrell, was 24 that if it is possible to have all the CIS -- the CIS 25 issue just continues as opposed to breaking it. That 26 was my point. 27 MR. FARRELL: Let's see how it 28 transpires. That may be quite possible, too, depending 723 Preliminary Matters 1 upon the timing of the responses to the 2 interrogatories. If we can digest those and be ready 3 for Mr. Stevens, such that you could hear him directly 4 after Ms Williams, and Mr. Stevens is prepared to go in 5 that time frame, then we will do what we can to 6 accommodate the totally sequential treatment of CIS, 7 and then we would finish up with Panel 10. That is 8 subject to me confirming that there would be no 9 scheduling difficulties if Panel 10 gets spilled over, 10 if you will, to the post-Labour Day week, but I will go 11 away and do that now. 12 THE PRESIDING MEMBER: Okay. Thank 13 you, Mr. Farrell. 14 Anything else? 15 Being none, Ms Soudek, over to you. 16 MS SOUDEK: Thank you, sir. 17 This panel is here to speak to the 18 cost allocation and rate design issues. The three 19 witnesses have not been sworn, but I will introduce 20 them first. 21 Ms Melanie Giridhar is sitting 22 closest to you, sir, and she is Manager of Rate 23 Research for the company; Ms Pascale Duguay is Manager 24 of Rate Research and Rate Design; and, next to 25 Ms Duguay is Ms Joyce Poon who is Manager of Rate 26 Design. 27 SWORN: MALINI GIRIDHAR 28 SWORN: MARIE PASCALE DUGUAY 724 GIRIDHAR/DUGUAY/POON, in-ch (Soudek) 1 SWORN: JOYCE POON 2 EXAMINATION-IN-CHIEF 3 MS SOUDEK: Ms Giridhar, I would like 4 to start with you. 5 Is your curriculum vitae contained in 6 Exhibit A, at Tab 17, Schedule 1? 7 MS. GIRIDHAR: Yes. 8 MS SOUDEK: Are you responsible for 9 the exhibits that are germane to the cost allocation 10 and rate design issues that are listed opposite your 11 name in that exhibit. 12 MS GIRIDHAR: Cost allocation, yes. 13 MS SOUDEK: Are you also responsible 14 for the interrogatory responses in Exhibit I that bear 15 your name and that are germane to your issues? 16 MS GIRIDHAR: Yes. 17 MS SOUDEK: Was the material prepared 18 by you or under your direction and control? 19 MS GIRIDHAR: Yes. 20 MS SOUDEK: Is it accurate, to the 21 best of your knowledge and belief? 22 MS GIRIDHAR: Yes, with one 23 correction, and that is interrogatory response to 24 VECC-60; that is Exhibit I, Tab 24, Schedule 60, page 2 25 of 2. It is the sentence beginning on the fourth line, 26 which starts as follows -- I will just read the 27 sentence: 28 "As shown in column 4, in the 725 GIRIDHAR/DUGUAY/POON, in-ch (Soudek) 1 absence of incremental loads, 2 there is no impact on general 3 service customers and large 4 volume customers." (As read) 5 I would like to add, "excluding 6 Rate 115". 7 MS SOUDEK: Thank you, Ms Giridhar. 8 MS LEA: Which rate was that? Sorry. 9 MS GIRIDHAR: Rate 115. 10 MS SOUDEK: Ms Duguay, is your 11 curriculum vitae contained in Exhibit A, at Tab 17, 12 Schedule 1? 13 MS DUGUAY: That is correct. 14 MS SOUDEK: Are you responsible for 15 the exhibits that are germane to the cost allocation 16 and rate design issues that are listed opposite your 17 name in that exhibit? 18 MS DUGUAY: Yes, I am. 19 MS SOUDEK: Are you also responsible 20 for the interrogatory responses in Exhibit I that bear 21 your name? 22 MS DUGUAY: Yes, I am. 23 MS SOUDEK: Was the material prepared 24 by you or under your direction and control? 25 MS DUGUAY: That is right. 26 MS SOUDEK: The material is accurate, 27 to the best of your knowledge and belief? 28 MS DUGUAY: Yes, it is. 726 GIRIDHAR/DUGUAY/POON, in-ch (Soudek) 1 MS SOUDEK: Thank you. 2 Ms Poon, your exhibit is in -- your 3 curriculum vitae is in Exhibit A, at Tab 17, 4 Schedule 2? 5 MS POON: Yes, it is. 6 MS SOUDEK: Are you responsible for 7 the exhibits that are germane to the cost allocation 8 and rate design issues that are opposite -- listed 9 opposite your name in that exhibit? 10 MS POON: Yes. 11 MS SOUDEK: Are you also responsible 12 for the interrogatory responses in Exhibit I that bear 13 your name and are germane to the issues? 14 MS POON: Yes. 15 MS SOUDEK: The material was prepared 16 by you or under your direction and control? 17 MS POON: Yes, it was. 18 MS SOUDEK: It is accurate, to the 19 best of your knowledge and belief? 20 MS POON: Yes. 21 MS SOUDEK: Ms Duguay, I would like 22 to go back to you for a few moments. I have some 23 questions for you that are intended to just summarize 24 the issue of Rate 125 which is the only issue that has 25 not been settled in this proceeding. 26 Could you explain why the company is 27 opposing Rate 125 in this proceeding. 28 MS DUGUAY: Certainly. The company's 727 GIRIDHAR/DUGUAY/POON, in-ch (Soudek) 1 proposal is in response to anticipated market demand 2 mainly attributable to the deregulation of the 3 electricity market in Ontario. 4 As a matter of fact, the 5 opportunities for natural gas fuel cogeneration and 6 power generation are expected to grow significantly, as 7 a result of deregulation. Such customers are expected 8 to take or consume a very high volume of natural gas at 9 a very high pressure and at a very high load factor, as 10 well, which, as such, displays different customer 11 service characteristics in comparison to the existing 12 rates that the company currently has in place. 13 As a result, and in accordance to the 14 Board's previous decision in Centra's case, which was 15 E.B.R.O. 467, the company proceeded to develop a rate 16 which reflects these distinct characteristics that 17 those customers have, in terms of their high load 18 factor, high pressure requirements, all year round. 19 So, basically, the reason why the 20 company is coming forward today is to propose a rate 21 that is reflective and fair to those customers rate 22 classes and to avoid that those customers would come 23 before the OEB and request that the company introduces 24 a rate that is, here again, reflecting of their 25 characteristics. 26 MS SOUDEK: Thank you, Ms Duguay. 27 In one or two sentences only, could 28 you explain how Rate 125 was derived. 728 GIRIDHAR/DUGUAY/POON, in-ch (Soudek) 1 MS DUGUAY: Yes. Rate 125 was 2 derived in a manner that is consistent with the 3 derivation of all existing rate classes. By that, I 4 mean that Rate 125 was derived using an imbedded cost 5 approach and, as such, it reflects its fully-allocated 6 cost. 7 MS SOUDEK: Thank you. 8 Again, briefly, what is the rate 9 impact in fiscal 2000 stemming from the introduction of 10 Rate 125? 11 MS DUGUAY: There is no impact in the 12 test year for the Board to grant the approval of Rate 13 125, given that there are no customers that are 14 anticipated to take service under that rate. 15 However, in terms of cogeneration 16 customers, which is the main target group for that 17 rate, they require a significant lead time in order to 18 plan for -- well, to plan to assess the economic 19 viability to proceed with their plans. 20 MS SOUDEK: Finally, is Rate 125 a 21 bypass rate? 22 MS DUGUAY: No, it is not. The way 23 that Rate 125 was derived was based, as I mentioned 24 earlier, on an imbedded cost approach. It is 25 reflective of class rate-making principles, together 26 as -- or well as postage stamp principles. So it is 27 not a bypass rate. However, the customers that are 28 anticipated to take service under that rate could be 729 GIRIDHAR/DUGUAY/POON, in-ch (Soudek) 1 potential candidates for bypass. So, as such, Rate 125 2 was designed to pre-empt bypass. 3 MS SOUDEK: You mentioned earlier a 4 Centra decision of the Board. E.B.R.O. 467. I had 5 understood it to be E.B.R.O. 484. 6 Did you misspeak, Ms Duguay? 7 MS DUGUAY: No, I did not. It 8 is 467. 9 MS SOUDEK: It is. Okay. 10 MS DUGUAY: Yes. 11 MS SOUDEK: Thank you. 12 The witnesses are available for 13 cross-examination, sir. 14 THE PRESIDING MEMBER: Thank you, 15 Ms Soudek. 16 Mr. Warren, are you first? 17 CROSS-EXAMINATION 18 MR. WARREN: Ms Duguay, I would 19 like -- or the panel, generally. I would like to 20 understand the relief that is requested in this case 21 and why it is requested. 22 As you have confirmed, Ms Duguay, in 23 your examination-in-chief, there will be no customer 24 that will be taking up this rate in the test year. 25 Correct? 26 MS DUGUAY: That is correct, yes. 27 MR. WARREN: From the perspective of 28 your ability to serve customers, there is, can we 730 GIRIDHAR/DUGUAY/POOL, cr-ex (Warren) 1 agree, no requirement that the Board grant the approval 2 in this case? 3 MS DUGUAY: Well, I tried to explain 4 that even though -- 5 MR. WARREN: Ms Duguay, I want you to 6 listen to my question. 7 From your ability to serve your 8 customers in the test year, the Board does not have to 9 approve the rate. 10 MS DUGUAY: To serve the customers, 11 that is correct. 12 MR. WARREN: Okay. Now, I want to 13 get to your explanation. 14 As I understand your 15 testimony-in-chief, this morning, it is that these 16 customers -- and we will get to who these customers 17 are -- need to know in advance what the cost of the 18 delivery of gas is in order to be able to plan 19 economics of their plants. Is that it? 20 MS DUGUAY: Well, the customers need 21 to know in advance the burnertip price so they can 22 assess the feasibility or the economic viability of 23 their project. As well, in terms of their planning 24 cycle, they need a lead time once they decided that the 25 project is feasible. They need to have contracts in 26 place for their commodity and transportation. They 27 need to have contracts in place to sell their power. 28 They need confirmation of going ahead, or not, with the 731 GIRIDHAR/DUGUAY/POOL, cr-ex (Warren) 1 project to potentially purchase equipment. So the time 2 line is fairly long. It could take between 18 months 3 to 24 months. 4 So, as a result of that, even though 5 we are not anticipating any customer to take service in 6 fiscal 2000, we would require the Board to approve the 7 rate so that the customers know what the burnertip 8 price is, at least in terms of the distribution, and 9 after that proceed, or not, with their project. 10 MR. WARREN: Ms Duguay, can you and I 11 agree, you certainly will have a far greater command of 12 your prefiled evidence and interrogatory responses than 13 I do, but I don't see anywhere in the evidence that we 14 have information from any of the six projects. Can we 15 agree we are talking about six projects here? 16 MS DUGUAY: Correct. Yes. 17 MR. WARREN: We don't have any 18 information in the evidence from any of the proponents 19 of these six projects about their time line. Correct? 20 MS DUGUAY: Basically, what we have 21 indicated is that the projects are anticipated to 22 materialize in the fiscal 2001 to 2004 period, at least 23 the projects that have been identified at this stage. 24 MR. WARREN: Ms Duguay, I know I am 25 characteristically sloppy in the way I ask my 26 questions, but I did ask that with some precision. I 27 would like you to listen to it, please. Can you and I 28 agree that there is nothing in the evidence from the 732 GIRIDHAR/DUGUAY/POOL, cr-ex (Warren) 1 proponents of the projects about the time line of the 2 development of those projects? 3 We have your statements about what 4 you think of the time lines, but there is nothing in 5 there from the proponents themselves as to the time 6 lines. Can we agree on that? 7 MS DUGUAY: Well, I think the 8 information that is confined in the evidence is based 9 on the information we received from the proponents. 10 MR. WARREN: I take it my answer is 11 yes, but you want to qualify that by saying that you 12 believe that the times lines you have said in there are 13 reliable. Is that a fair gloss on the answer you have 14 just given me? 15 MS DUGUAY: I would agree with that. 16 MR. WARREN: Now, can you tell me, 17 Ms Duguay, with respect to these six projects, in terms 18 of the overall economics of the projects what is the 19 percentage -- let me see if I can get this 20 accurately -- what is the relative importance of a 21 transmission cost of the commodity to the overall 22 economics of these projects. Do you know that? 23 MS DUGUAY: I don't know that, but I 24 would imagine that that would be an important or 25 significant component in the feasibility assessment. 26 MR. WARREN: But you don't know that, 27 do you? 28 MS DUGUAY: No, I don't know that. 733 GIRIDHAR/DUGUAY/POOL, cr-ex (Warren) 1 MR. WARREN: Ms Duguay, would you 2 have been aware of the Board's recently completed 3 proceeding, or I shouldn't say that, that one phase of 4 the recently completed proceeding on the standard 5 supply issue? Are you familiar with that issue? 6 MS DUGUAY: Vaguely, I would say. 7 MR. WARREN: And would you accept, 8 subject to check from me, that in that proceeding there 9 was a substantial discussion of, among other matters, 10 the viability of the Lakeview Generating Project? 11 Would you accept that? 12 MS DUGUAY: Subject to check. 13 MR. WARREN: And the Lakeview 14 Generating Project is one of your six projects. 15 Correct? 16 MS DUGUAY: That's correct. Yes. 17 MR. WARREN: And would you accept, 18 subject to check, that the various references to the 19 Lakeview Generating Project in that proceeding all said 20 that unless the Board gets the standard supply rate 21 correctly, which translates into a fixed price for 22 standard supply at a sufficiently high level, Lakeview 23 will never go ahead. Will you accept that from me, 24 subject to check? 25 MS DUGUAY: I will accept that. 26 MR. WARREN: So, at least with 27 respect to the Lakeview Generating Project, can you and 28 I agree, Ms Duguay, that there are a substantial number 734 GIRIDHAR/DUGUAY/POOL, cr-ex (Warren) 1 of uncertainties, including the cost or the terms and 2 the cost of standard supply which will affect whether 3 or not these projects go ahead on the time line or at 4 all? 5 MS DUGUAY: I am sorry, Mr. Warren, 6 but I fail to understand your line of questioning in 7 the sense that Rate 125 is a point-to-point 8 distribution rate, so I don't know why transportation 9 standard supply is being taken into consideration. 10 Maybe you can clarify that for me. 11 MR. WARREN: I won't take a lot of 12 time on this, Ms Duguay, but you have come before the 13 Board this morning and you have taken the trouble to 14 say in examination-in-chief that notwithstanding the 15 fact that there will be no customers for this rate in 16 the test year that the Board has to make a decision, 17 and they have to make a decision because the 18 transmission costs of this commodity is critical to 19 these plants. 20 I am trying to explore, Ms Duguay, 21 the evidentary basis for the assertion that the Board 22 has to make a decision in this case about a rate that 23 will have no effect in the test year. Along those 24 lines I am trying to get from you what evidence we have 25 or you have that would indicate that transmission rates 26 are critical, a critical factor in the timing of the 27 decision to proceed with these plants. So that's where 28 I am going. 735 GIRIDHAR/DUGUAY/POOL, cr-ex (Warren) 1 I would suggest to you that the 2 information which is on the public record in the 3 standard supply case suggests that by necessary 4 inference, Ms Duguay, that the transmission cost of gas 5 is not the tail that wags the dog of these projects, 6 that there are a lot of variables, principally the cost 7 of electricity that are going to be determinative of 8 whether these projects are built at all or when they 9 are built. Can you and I agree on that? 10 MS SOUDEK: A clarification, 11 Mr. Warren, are you now expanding your comments to 12 projects beyond the one that you specifically mentioned 13 was Lakeview because it seems that you were. 14 MR. WARREN: Thank you for the 15 clarification. I will stick with Lakeview for the 16 moment. 17 Do you understand where I am going 18 and why I am asking the questions, Ms Duguay? 19 MS DUGUAY: I would like to answer 20 your previous question. I think the parameters in 21 which you introduce the price of electricity will 22 definitely be a variable for a project to determine 23 whether or not they think that it is viable to proceed 24 with the project. 25 However, I think that in terms of 26 what I said earlier in your response to expanding upon 27 lead time and so on, what I said with regard to 28 transmission and commodity-related costs, I said that I 736 GIRIDHAR/DUGUAY/POOL, cr-ex (Warren) 1 think that those are variables that are important in 2 the feasibility equation, but those -- Rate 125 is an 3 unbundled rate. It's a pure distribution rate. 4 Anything that happens upstream of citygate, these 5 customers are large, sophisticated customers. I would 6 imagine they are all T-service. They will manage their 7 commodity and transportation. 8 So here again I fail to see where 9 their standard service option seems relevant in your 10 questions. 11 MR. WARREN: But you and I do agree 12 that the price of electricity will have a significant 13 factor in when these projects go ahead, if at all, not 14 just Lakeview, but all of them. Is that not fair? 15 MS DUGUAY: I would accept that, yes. 16 MR. WARREN: And I just want to get 17 back, so that the record is clear in the case, 18 Ms Duguay, is there any evidence on the record in this 19 case or that you are prepared to give us this morning 20 about the significance to the overall feasibility of 21 these projects of the transmission costs of a 22 commodity? 23 MS DUGUAY: I don't have any numbers. 24 I don't think I can provide that. You are asking me to 25 provide information that those customers will make 26 their own arrangements in the marketplace. So 27 definitely, I am not in a position -- it's as if you 28 were asking me what type of -- what are the gas supply 737 GIRIDHAR/DUGUAY/POOL, cr-ex (Warren) 1 prices that the various brokers offer in the 2 marketplace. I don't know. 3 MR. WARREN: Thanks, Ms Duguay. 4 Can I then ask you -- 5 THE PRESIDING MEMBER: Mr. Warren, I 6 am sorry, but when you said "transmission" do you mean 7 "distribution"? 8 MR. WARREN: Distribution. I am 9 sorry, sir. 10 THE PRESIDING MEMBER: Is that how 11 you answered, Ms Duguay? 12 MS DUGUAY: No, because for me 13 transmission -- I was thinking about commodity upstream 14 costs. So really you are talking about distribution 15 costs for transmission on our distribution system. 16 MR. WARREN: Do you have any 17 evidence -- is there any evidence on the record or do 18 you have any evidence this morning about the 19 significance of the distribution cost to the 20 feasibility of these projects? 21 MS DUGUAY: No. 22 MR. WARREN: Thanks. 23 Now, can I ask you to turn up an 24 interrogatory that was delivered by my friend 25 Mr. Thompson's client. It's IGUA Interrogatory No. 37. 26 It's Exhibit I, tab 12, Schedule 37. The question that 27 you were asked was: 28 "Are any companies in the 738 GIRIDHAR/DUGUAY/POOL, cr-ex (Warren) 1 Enbridge group involved in any 2 of the cogeneration projects to 3 which the company refers in its 4 evidence?" (As read) 5 The answer is: 6 "There is no direct involvement 7 of the Enbridge group of 8 companies in any of the listed 9 projects." (As read) 10 You then go on to say in the second 11 paragraph: 12 "The role of Enbridge Consumers 13 Gas in these projects...." 14 (As read) 15 First of all, when you say there is 16 no direct involvement of the Enbridge group of 17 companies, can you tell me is there any indirect 18 involvement of the Enbridge group of companies in any 19 of these projects? 20 MS DUGUAY: No, there are not. 21 Basically, what is meant by that sentence is that there 22 are no business interests or business partnership in 23 any of those projects. 24 MR. WARREN: Would you agree with me 25 at the level of principle, Ms Duguay, that it would be 26 inappropriate for Enbridge Consumers Gas to set a rate 27 like Rate 125 for a project that had any involvement, 28 direct or indirect, from one of the Enbridge group of 739 GIRIDHAR/DUGUAY/POOL, cr-ex (Warren) 1 companies? 2 MS DUGUAY: As I said, this is a 3 hypothetical question because, as I mentioned earlier, 4 there are no -- Enbridge doesn't have any business 5 interests in Rate 125 per se. But if there were, one 6 customer as long as it doesn't create undue impact on 7 existing and potential customers, I don't see at first 8 glance any problem with that. 9 MR. WARREN: Can this panel give the 10 Board assurance that none of the Enbridge group of 11 companies will ever have any involvement in any 12 business arrangements? 13 MS DUGUAY: I can answer that, 14 Mr. Warren. 15 I am not aware of any business 16 relationship now or any potential relationship in the 17 future. But that's all I can say. 18 MR. WARREN: I want to move on, 19 Ms Duguay. I'm sorry to have jumped around a bit on 20 you, but I want to move on to sort of a corollary of an 21 earlier line of questions about the evidence you had of 22 the impact on these projects. 23 I want to ask you this: Can you tell 24 me what evidence there is in the record or you can give 25 us this morning that these projects would bypass if 26 they were required to use the existing Rate 115? 27 MS GIRIDHAR: I would like you to 28 turn to Board Staff Interrogatory No. 103, which is at 740 GIRIDHAR/DUGUAY/POOL, cr-ex (Warren) 1 Exhibit I, Tab 1, Schedule 103. 2 MR. WARREN: I'm sorry, I didn't get 3 the number. Schedule -- 4 MS GIRIDHAR: Schedule 103. 5 MR. WARREN: Yes, I have it. 6 Thank you. 7 MS GIRIDHAR: Okay. 8 I would just like to briefly 9 summarize what is in that response. 10 It says here that of the six projects 11 we have considered for inclusion under this proposed 12 Rate 125, three are within five kilometres of an 13 alternate transmission source of supply. I think of 14 the rest, one is on a high voltage transmission line 15 right away, which could make it feasible to construct 16 an alternative pipeline. 17 We know that all of these are large, 18 sophisticated customers who have the ability to 19 construct and maintain a pipeline and perhaps build it 20 as cheaply the company given their expertise in these 21 areas. On that basis we think a number of them are 22 bypass trunks. 23 MR. WARREN: I understand that. I 24 read the response. My question was a different one, 25 with respect. 26 My question was: Do you have any 27 evidence in the record or to give us here this morning 28 that they would do this if they had to take the 741 GIRIDHAR/DUGUAY/POOL, cr-ex (Warren) 1 existing Rate 115. I take it the answer is no, you 2 don't. 3 MS GIRIDHAR: I think that 4 constitutes -- well, that is the evidence we have on 5 the record. 6 MR. WARREN: That's the evidence you 7 have, okay. 8 Perfect. Thank you. 9 Now, my final question, I guess, 10 panel, is this: That you will understand -- even if 11 you don't agree with, you will understand that the 12 Board has in the past expressed a concern on a number 13 of occasions about rates of this kind which seem -- 14 this is my gloss and not the Board's -- seem to be 15 designed to respond to the pressure of large 16 consumers -- small "c" consumers -- for special rates. 17 That's my gloss on the Board's decisions. 18 I'm wondering what assurance you can 19 give the Board and the intervenors in this case that 20 this proposed Rate 125 is not simply a capitulation to 21 customers who have a large volume of the commodity to 22 purchase? 23 MS DUGUAY: Well, basically in terms 24 of the rate and in terms of previous decisions that 25 have been issued by the Ontario Energy Board, I can -- 26 well, this is not a quotation per se, but I have a 27 statement here that says that the OEB has encouraged 28 Ontario utilities to develop appropriate rates which 742 GIRIDHAR/DUGUAY/POOL, cr-ex (Warren) 1 are based on consumption characteristics such as 2 Centra's Rate 100 which was approved by the Board in 3 its decision in E.B.R.O. 484 rather than having 4 customers individually apply for special rate. 5 I think we need to keep in mind here 6 that this proposal, it is not an end-use rate, it is a 7 rate that has been derived in a manner that is 8 consistent with all those that we currently have in 9 place right now. It reflects its fully allocated costs 10 which it recovers entirely given that it has a 11 revenue-to-cost ration of 1.05. 12 So that rate, having said that, does 13 not create any undue or any negative impact on any of 14 the existing customer rate classes and we are not 15 giving a break to these customers. The way in which it 16 was developed is identical to what we have today. 17 So I don't know -- in terms of 18 assurance to the Board I think that would be 19 consistency is warranted. 20 MR. WARREN: In your response you 21 referred me a Centra case E.B.R.O. 484. In response to 22 my friend Ms Soudek's question in-chief you said 484 is 23 not the reference for it, it is 467. 24 MS DUGUAY: It's 467, but that was -- 25 the comment of the Board was included in 467, but 26 Rate 100, which basically was derived in the fashion 27 similar to Rate 125, was approved in 484. 28 MR. WARREN: Those are my questions. 743 GIRIDHAR/DUGUAY/POOL, cr-ex (Warren) 1 Thank you, panel. 2 THE PRESIDING MEMBER: Thank you, 3 Mr. Warren. 4 Mr. Brett. 5 MR. BRETT: Thank you, Mr. Vlahos. 6 CROSS-EXAMINATION 7 MR. BRETT: Good morning, Ms Duguay. 8 My name is John Brett. I am 9 representing some Rate 6 customers of the utility and I 10 just have a couple of questions. 11 The first is, as I understand the 12 rate that you have developed, the new Rate 125, it is 13 not restricted in any way to cogeneration customers, 14 that is to say, any customer, whether it is a 15 powerplant or a petrochemical facility or a glass 16 manufacturer or a fertilizer manufacturer, whatever, if 17 it meets the load factor and volume requirements, it 18 will qualify for that rate? 19 MS DUGUAY: That's correct. As long 20 as any type of customers meet the applicability 21 criteria of the rate, meaning annual consumption 22 greater than 200 million cubic metres per year with a 23 minimum load factor of 90 per cent, they would qualify 24 for the rate. 25 MR. BRETT: Could I ask you to just 26 turn up -- I want to make sure I understand clearly the 27 reply to VECC Interrogatory No. 60. That is Exhibit I, 28 Tab 24, Schedule 60. Do you have that? 744 GIRIDHAR/DUGUAY/POON, cr-ex (Brett) 1 MS DUGUAY: I have that. 2 MR. BRETT: It deals with the impact 3 of the introduction of this proposed Rate 125 on the 4 various rate classes. It's a two-page IR. If I look 5 over on the second page, it is Exhibit I, Tab 24, 6 Schedule 60. On page 2 of that you lay out the impact 7 of introducing this Rate 125 on the other rate classes. 8 Could you just explain briefly 9 column 4 and column 6? 10 You show the impact as being neutral 11 for Rate 6 in the event of what you call "migration 12 only", which is, I take it, a situation -- this is 13 rhetorical. You can confirm this. 14 I take it "migration only" refers to 15 a situation where you don't have a new load that comes 16 on to take up the rate but you have a switch, a 17 customer or customers switching from Rate 115 to 18 Rate 125, or from some other rate to 125 because they 19 qualify. 20 Then in column 6, which is 21 "incremental loads", that shows the impact in the event 22 that you have a new customers that comes in directly to 23 Rate 125 -- 24 MS DUGUAY: Yes. 25 MR. BRETT: -- was not a switch. 26 MS DUGUAY: That's correct. 27 I would like to add that column 6 28 shows the impact on all customer rate classes of all 745 GIRIDHAR/DUGUAY/POON, cr-ex (Brett) 1 identified six projects. It is kind of the end sate. 2 MR. BRETT: I see. Okay. 3 So that shows the impact would be, in 4 that event, a reduction in Rate 6, the minus 1 per 5 cent? 6 MS DUGUAY: That's right. 7 MR. BRETT: In the case of the 8 "migration only" it would be a neutral impact? 9 MS DUGUAY: Correct. 10 MR. BRETT: Okay. Thank you. 11 Those are my questions. 12 THE PRESIDING MEMBER: Thank you, 13 Mr. Brett. 14 Mr. Janigan. 15 MR. JANIGAN: I have no questions for 16 this panel, Mr. Chair. 17 THE PRESIDING MEMBER: Mr. Thompson. 18 MR. THOMPSON: Thank you, 19 Mr. Chairman. 20 CROSS-EXAMINATION 21 MR. THOMPSON: IGUA still has an open 22 mind about this rate, Ms Duguay, so don't assume I am 23 opposing it with these questions. 24 In terms of eligibility and 25 Enbridge's interest, or potential interest in this 26 rate, you have identified in IGUA No. 34 one and 27 perhaps two municipally-owned electric utilities. Can 28 you confirm that a member of the Enbridge group is out 746 GIRIDHAR/DUGUAY/POON, cr-ex (Thompson) 1 in the marketplace as a bidder for MEU electric 2 facilities that are for sale? 3 MS DUGUAY: I would have to undertake 4 that. I don't know. 5 MR. THOMPSON: Could you do that? 6 MS DUGUAY: Yes. 7 MS DESAI: Undertaking J5.1, please. 8 UNDERTAKING NO. J5.1: Ms Duguay 9 to confirm that a member of the 10 Enbridge group is out in the 11 marketplace as a bidder for MEU 12 electric facilities that are for 13 sale. 14 MR. THOMPSON: In IGUA 34, this is 15 Exhibit I, Tab 12, 34, you identify the specific six 16 projects. 17 You indicated to Mr. Brett that in 18 Exhibit I, Tab 24, Schedule 60 you had calculated the 19 impact on the delivery component of all rate classes if 20 the volume in these projects all came onstream. Do I 21 understand that correctly? 22 MS DUGUAY: Yes, that's right. 23 MR. THOMPSON: What is the total 24 volume? 25 MS GIRIDHAR: The total volume is 26 3,000 million cubic meters. 27 MR. THOMPSON: Three -- 28 MS GIRIDHAR: Thousand million cubic 747 GIRIDHAR/DUGUAY/POON, cr-ex (Thompson) 1 metres. It is approximately 25 per cent of our current 2 deliveries. 3 MR. THOMPSON: Three thousand 4 10(3)m(3)? 5 MS GIRIDHAR: 10(6)m(3). 6 MR. THOMPSON: 10(6)m(3), okay. 7 MS DUGUAY: Or three billion cubic 8 metres. 9 MR. THOMPSON: These are all cogens? 10 MS GIRIDHAR: Cogen and powergen I 11 believe. 12 MR. THOMPSON: Thank you. 13 The rationale that you use for the 14 rate, even though it is not specifically targeted to 15 cogen, is to serve special end users. Are they all 16 likely to be cogen as a matter of fact? 17 MS GIRIDHAR: It is my understanding 18 that at the six projects identified we have a 19 combination of cogeneration and power generation. 20 MR. THOMPSON: Further rationale that 21 you use is the threat of bypass, and we have heard that 22 before in cases of this nature. Would you agree? 23 MS DUGUAY: Basically, I think that 24 what the evidence is saying is that we believe that 25 those identified customers are credible candidates for 26 bypass, and the rationale for saying that is based on 27 the three-part test that the Board has used in its 28 previous decisions either to approve or reject a bypass 748 GIRIDHAR/DUGUAY/POON, cr-ex (Thompson) 1 application. 2 Just to expand a little bit more on 3 that, one of the subcriteria to establish whether an 4 applicant is credible is to determine its proximity to 5 a transmission line, and I think one of the 6 interrogatories certainly demonstrated that those 7 applicants are certainly in fairly close proximity to 8 transmission lines. 9 Is there a threat to the existing or 10 incremental loads? We have mentioned in our prefiled 11 testimony, I believe it was -- 12 MR. THOMPSON: Don't go on too far. 13 You might shoot yourself in the foot when somebody 14 comes in and applies for bypass, because no one has 15 really succeeded in those kinds of applications to 16 date. Are you anticipating a change in Board policy? 17 MS DUGUAY: I think the environment 18 today is very much different and I think that the 19 opportunities, as I mentioned in the direct testimony, 20 as a result of the deregulation that is occurring in 21 Ontario in the electricity market, that the cards may 22 indeed have changed. 23 I might add that I have here two 24 references -- 25 MR. THOMPSON: I am not here to argue 26 bypass, so let's wait until somebody tries it and then 27 you can support them. That sounds to me like what you 28 are up to, but -- 749 GIRIDHAR/DUGUAY/POON, cr-ex (Thompson) 1 MS SOUDEK: If you want to complete 2 an answer, Ms Giridhar, go ahead. 3 MS GIRIDHAR: I just wanted to add 4 something that is a historical fact. It is my 5 understanding that in 1988 and 1989 there were two 6 instances where bypass rates were approved by this 7 Board. 8 MR. THOMPSON: I am aware of those 9 as well. 10 In terms of the practical 11 implications of what you are doing, this is an 12 unbundled rate? 13 MS GIRIDHAR: Yes. 14 MR. THOMPSON: And it is, in effect, 15 a subdivision of Rate 115? 16 MS DUGUAY: What do you mean by a 17 subdivision? 18 MR. THOMPSON: You are adding a layer 19 of -- you are subdividing the eligibility criteria for 20 115, so that some customers currently served on 21 Rate 115 could qualify for this new service. 22 MS DUGUAY: In the same fashion that 23 we added Rate 115 back in 473 to Rate 110, yes, I agree 24 with you. 25 MR. THOMPSON: But Rate 115 is a 26 bundled rate, correct? 27 MS DUGUAY: It is a bundled rate, 28 yes. 750 GIRIDHAR/DUGUAY/POON, cr-ex (Thompson) 1 MR. THOMPSON: So this is, in effect, 2 an acceleration of unbundling for a particular subset 3 of an existing rate class. 4 MS DUGUAY: We do have unbundled 5 rates right now, such as Rate 300, which is also -- 6 MR. THOMPSON: I appreciate that. So 7 it is a modification, if you will, of Rate 300 for a 8 particular subset that would be eligible for service on 9 that rate. 10 MS DUGUAY: I think the way I would 11 characterize it is, it is an upgrade to Rate 115, in 12 the sense that the minimal load factor requirement has 13 been jumped from 80 per cent to 90 per cent. And the 14 way in which we designed the rate was keeping in mind 15 what is going on with the further unbundling of rates 16 and services. So we didn't want to come before this 17 Board and apply for a rate that would become obsolete 18 in the very near future. 19 MR. THOMPSON: But does it not have, 20 as a matter of fact, a sort of advance unbundling 21 aspect to it? You plan to unbundle rates for all rate 22 classes, as I understand it. 23 MS DUGUAY: That's correct, yes. 24 MR. THOMPSON: And this is sort of a 25 little advance for a particular group. 26 MS DUGUAY: I would agree with that. 27 As I said, we didn't want to come forward, given that 28 we have already filed evidence with regard to the 751 GIRIDHAR/DUGUAY/POON, cr-ex (Thompson) 1 further unbundling of rates and services, and all of a 2 sudden, two years down the road, the rate is no longer 3 valid, that we need to change the terms and conditions. 4 So we kept that in mind when we developed the rates. 5 MR. THOMPSON: Let's just talk about 6 migration, because many of my clients are served on 7 Rate 115. Or, many of the members of my clients. We 8 don't have any cogens in our constituency. At least, I 9 don't think we have. 10 The number of customers served on 11 Rate 115, either sales or T, I believe, according to 12 the C exhibit, for the test year, is 54? Would you 13 agree with that? 14 MS DUGUAY: That sounds right. 15 MR. THOMPSON: In your testimony you 16 indicate that if one of those customers migrates to 17 this new rate there will be an 11 per cent increase in 18 the delivery component for the remaining 53. 19 MS GIRIDHAR: Yes, and that is 20 because there is only one customer that could migrate. 21 There is only one customer on Rate 115 that currently 22 meets the requirements of Rate 125, as defined. 23 MR. THOMPSON: But the impact of 24 that -- and you give numbers in your testimony at H1, 25 Schedule 1, page 8. You say that the proposed rate is 26 cost-based rated and would yield 8 cents per GJ for a 27 typical customer, and that compares to virtually double 28 that for existing customers served on Rate 115, which 752 GIRIDHAR/DUGUAY/POON, cr-ex (Thompson) 1 is noted at page 9, answer 15. 2 MS DUGUAY: Yes, that's right. 3 MR. THOMPSON: So the delivery charge 4 for, if you will, 53 of the 54 customers on Rate 115, 5 if this rate is approved, is likely to double, based on 6 the migration of the one currently eligible for this 7 service. 8 MS DUGUAY: No, that is not right. 9 MR. THOMPSON: The delivery component 10 of the rate. 11 MS DUGUAY: No, because the .3 cents 12 per cubic metre is the delivery unit rate under 13 Rate 125. However, the same profile, for instance, 14 under Rate 115 is .6 cents per cubic metre. So 15 definitely the delivery component of Rate 115 is more 16 expensive than Rate 125. 17 The reason for that is that, given 18 that Rate 125 customers will take service under 19 transmission pressure lines, they are only allocated 20 these costs, whereas your customers, under Rate 115, 21 the bulk of them, take service under low pressure 22 mains. You have, as I recall it, one customer that 23 takes service under high pressure and one customer over 24 54, if that is the number you mentioned earlier, taking 25 service under transmission pressure mains. So, as a 26 result of that, Rate 125 is cheaper than Rate 115. 27 MR. THOMPSON: Yes. I was confusing 28 two things. You are quite right. Service on 125 is 753 GIRIDHAR/DUGUAY/POON, cr-ex (Thompson) 1 cheaper for a customer who qualifies, and on 115 -- the 2 evidence I was thinking about but not questioning you 3 about is at H1, Tab 1, Schedule 1, page 11, where the 4 unit distribution cost for the remaining 115 customers 5 goes from .71 cents per cubic metre to .79 cents per 6 cubic metre, the increase of 11 per cent. 7 MS DUGUAY: That's right, and that 11 8 per cent, if you go back to Interrogatory IGUA No. 38, 9 we explained that based on the total bill, recognizing 10 that most customers under Rate 115 are T-service 11 customers. The impact on the total bill is roughly 12 3 per cent, and that is basically, approximately, a 13 $90,000 increase over a total bill of $2.6 million. 14 MR. THOMPSON: $90,000? 15 MS DUGUAY: $90,000 over a total bill 16 of $2.6 million. 17 But I would like, Mr. Thompson, to 18 clarify that the migration from Rate 115 to Rate 125 19 will only occur after we realign the allocation of 20 upstream transportation costs, because there is an 21 incentive, for the time being, for Rate 115 customers 22 to stay bundled. 23 MR. THOMPSON: Yes, you make that 24 point in your testimony. I don't disagree with it. 25 But if you had 53 companies who got a $90,000 increase 26 shouting at you, you would be like me, asking questions 27 about it. 28 What communication have you made with 754 GIRIDHAR/DUGUAY/POON, cr-ex (Thompson) 1 the customers on Rate 115 who will be affected by this 2 migration, if it occurs, pertaining to their reaction 3 to the proposal? 4 MS DUGUAY: We have not communicated 5 the effect on Rate 115. I think you have an 6 interrogatory to that effect, which was IGUA No. 35; 7 that is, Exhibit I, Tab 12, Schedule 35. 8 I think at this stage, at least in my 9 view, it would be premature, given that the rate has 10 not yet been approved by the Board. 11 Going back to the point I made 12 earlier, I think the effect on Rate 115 is not really 13 being experienced as a result of Rate 125. It's 14 because those customers are in Rate 115 now. As you 15 may recall, they were taking service under Rate 300 16 prior to E.B.R.O. 465 when we allocated transmission 17 costs on a volumetric basis. 18 Were that the situation today, those 19 customers would go back to Rate 300. 20 MR. THOMPSON: But you changed the 21 design of 115, so everybody jumped into it. I can't 22 help you there. 23 Now that they are into it, I guess we 24 differ. I would suggest that it might have been 25 helpful had you solicited the support of the 53 who 26 might be affected, because you are essentially saying 27 to them: If you take the short-term pain, there will 28 be long-term gain. And you may well make that sale. I 755 GIRIDHAR/DUGUAY/POON, cr-ex (Thompson) 1 don't know. 2 For some reason, you don't wish to 3 communicate with your customers in advance of these 4 proposals. 5 MS DUGUAY: No, that's not the point, 6 Mr. Thompson. Really, when that customer migrated, or 7 TransAlta, which is I believe one of your customers, 8 migrated from Rate 300 to Rate 115 -- 9 MR. THOMPSON: Are they in IGUA? 10 MS DUGUAY: Yes, they are. 11 MR. THOMPSON: Good. 12 MS DUGUAY: And 53 customers received 13 the benefit from that when we introduced Rate 115 back 14 in 473. Those in Rate 110 were negatively impacted as 15 a result of that migration. Conversely, Rate 115 16 customers got a better deal or a better rate that 17 reflected their operational characteristic. This is 18 exactly what we are doing with Rate 125. 19 MR. THOMPSON: Thank you very much. 20 Those are my questions. 21 THE PRESIDING MEMBER: Thank you, 22 Mr. Thompson. 23 Does anybody else -- I'm sorry, sir, 24 we don't recognize you. 25 MR. HILSON: Mike Hilson, for Energy 26 Probe, sitting in for Mark Mattson. 27 THE PRESIDING MEMBER: All right. Do 28 you have any questions? 756 GIRIDHAR/DUGUAY/POON, cr-ex (Thompson) 1 MR. HILSON: No, not at this time. 2 THE PRESIDING MEMBER: Ms Lea? 3 MS LEA: No questions; thank you. 4 Sorry, what was your last name, sir? 5 Was it Hilson? 6 MR. HILSON: Yes. 7 MS LEA: H-I-L-S-O-N? 8 MR. HILSON: Yes. 9 MS LEA: Thank you. 10 THE PRESIDING MEMBER: The Board has 11 no questions. 12 Ms Soudek, do you have any redirect? 13 MS SOUDEK: No, sir. 14 THE PRESIDING MEMBER: This panel is 15 excused, with our thanks. 16 MS SOUDEK: Could we have a few 17 moments, sir, to reshuffle our panels? 18 THE PRESIDING MEMBER: Certainly. 19 --- Pause 20 THE PRESIDING MEMBER: Ms Soudek, I 21 believe Mr. Riccio has to be sworn. 22 MS SOUDEK: That is correct, sir. 23 Perhaps we can swear Mr. Riccio now. 24 SWORN: ROCCO RICCIO 25 PREVIOUSLY SWORN: HOLLY REYNOLDS 26 MS SOUDEK: Mr. Chairman, Ms Reynolds 27 is known to you from testimony on previous panels, I am 28 sure. 757 RICCIO/REYNOLDS, in-ch (Soudek) 1 Mr. Riccio is Manager of Financial 2 Statement Forecasts. 3 Both of these witnesses are here to 4 speak to the issue related to the capitalization of A&G 5 overheads, which is Issue 2.4 on the Board's list of 6 issues. 7 EXAMINATION-IN-CHIEF 8 MS SOUDEK: Ms Reynolds, I will start 9 with you. 10 Is your curriculum vitae contained in 11 Exhibit A at Tab 17, Schedule 1? 12 MS REYNOLDS: Yes, it is. 13 MS SOUDEK: Are you responsible for 14 the exhibits that are germane to the capitalization 15 issues that are listed opposite your name in that 16 exhibit? 17 MS REYNOLDS: Are you responsible for 18 the interrogatory responses in Exhibit I that bear your 19 name and are germane to the issues? 20 MS REYNOLDS: Yes. 21 MS SOUDEK: Was the material prepared 22 by you or under your direction and control? 23 MS REYNOLDS: Yes. 24 MS SOUDEK: And is the material 25 accurate to the best of your knowledge and belief? 26 MS REYNOLDS: Yes, it is. 27 MS SOUDEK: Mr. Riccio, the same 28 questions for you. Is your curriculum vitae contained 758 RICCIO/REYNOLDS, in-ch (Soudek) 1 in Exhibit A at Tab 17, Schedule 1? 2 MS SOUDEK: And you are responsible 3 for the exhibits that are germane to the capitalization 4 of A&G overheads that are listed opposite your name in 5 that exhibit? 6 MR. RICCIO: Yes. 7 MS SOUDEK: You are responsible for 8 the interrogatory responses in Exhibit I that bear your 9 name and that are germane to the issue? 10 MR. RICCIO: Yes, I was. 11 MS SOUDEK: The material was prepared 12 by you or under your direction and control? 13 MR. RICCIO: Yes, it was. 14 MS SOUDEK: The material is accurate 15 to the best of your knowledge and belief? 16 MR. RICCIO: Yes, it is. 17 MS SOUDEK: Thank you. The witnesses 18 are available for cross-examination. 19 THE PRESIDING MEMBER: Thank you, 20 Ms Soudek. 21 Who would like to lead? 22 Mr. Janigan? 23 MR. JANIGAN: Yes, thank you very 24 much, Mr. Chairman. 25 My friends have been kind enough to 26 allow me to go first. 27 CROSS-EXAMINATION 28 MR. JANIGAN: I would like to deal 759 RICCIO/REYNOLDS, cr-ex (Janigan) 1 with a couple of pages of interrogatory materials in my 2 examination. The first is VECC interrogatory Exhibit 3 I, Tab 24, Schedule 15, at page 2; and as well, the 4 IGUA interrogatory, Exhibit I, Tab 12, Schedule 41, 5 page 6. 6 I wonder if I could turn, first, to 7 the VECC interrogatory, Tab 24, Schedule 15. 8 I want to make sure that I have an 9 understanding of how the numbers were derived 10 concerning the capitalized A&G. 11 In column 1 of that interrogatory it 12 shows that for 1999 the total capitalized A&G was 13 $25.1 million. That is correct? 14 MR. RICCIO: Yes, that's correct. 15 MR. JANIGAN: To derive the Year 2000 16 budget there was an amount taken out as a result of 17 separation. I take it that that amount was then 18 increased by the PBR adjustment factor, producing the 19 number $24.9 million. 20 Is that how that number was derived? 21 MS REYNOLDS: That number was 22 derived, as can be seen in Exhibit B1, Tab 6, Schedule 23 2, where we have looked at the 1999 Board-approved 24 capitalized A&G overheads of $20.8 million. The 25 unbundling adjustments of .2 and the impact of the 26 rental program wind-down of $1.9 million were taken 27 into account to come up with an A&G base amount of 28 $19.1 million, to which the PBR factor was applied, to 760 RICCIO/REYNOLDS, cr-ex (Janigan) 1 come up with $20.1 million. 2 To the $20.1 million was added the 3 customer attachment amount which is flowing directly to 4 capital now. 5 MR. JANIGAN: Was the customer 6 attachment amount subject to the PBR adjustment factor? 7 MR. RICCIO: No, it was not. 8 MR. JANIGAN: The reason why I have 9 directed you to this interrogatory, the one with that 10 Schedule 15, is that it contains the capital that is 11 associated with the customer attachment amount. Isn't 12 that correct? 13 MR. RICCIO: Yes, that's correct. 14 MR. JANIGAN: If we look at that 15 particular interrogatory, am I correct in my notes that 16 using this particular set of numbers, what occurred 17 here is that the net amount of $1.3 million was taken 18 out of capital as a result of separation, and the base 19 was then increased by the PBR adjustment factor, 20 producing the $24.9 million. 21 Are those notes correct? 22 MS REYNOLDS: Correct except for the 23 customer attachment group, which the PBR factor was not 24 applied to. 25 MR. JANIGAN: Okay. If we exclude 26 that particular element from that calculation, 27 $24.9 million was derived by applying the PBR factor to 28 all items, with the exception of the customer 761 RICCIO/REYNOLDS, cr-ex (Janigan) 1 attachment group, after the $1.3 million was taken out. 2 MR. RICCIO: Yes, that's correct. 3 MR. JANIGAN: I want to understand, 4 first of all, what the A&G services that were included 5 in the $25.1 million that was capitalized consist of. 6 I think you at Tab 1, Schedule 81, 7 page 2, if I am not mistaken, have some guidelines 8 associated with this. 9 MS REYNOLDS: Yes. The purpose of 10 the capitalized A&G is to ensure that all costs of 11 putting constructed capital assets are capitalized to 12 those assets. That includes costs that would otherwise 13 reside in our O&M. 14 So Exhibit I, Tab 1, Schedule 81 goes 15 through the criteria that we looked to in determining 16 what are capitalizable overheads. 17 MR. JANIGAN: Yes. 18 It gives some examples at the bottom 19 of the page of what some of these activities are: 20 preplanning and feasibility analysis; regulatory and 21 budgetary approval process for a leave to construct 22 addition; approving and paying invoices to contractors 23 for work performed; ordering and approving the receipt 24 of capital goods, materials and services; monthly 25 reviews and monitoring of capital addition activities 26 including work-in-progress; close-out processes; 27 taxation and auditing; assessing risk and taking 28 appropriate measures for insurance, liability, resource 762 RICCIO/REYNOLDS, cr-ex (Janigan) 1 protection that relate to new capital additions; and, 2 targeting specific natural gas expansion and 3 environmental issues for governmental authorities and 4 communities. 5 Would you agree with me that all of 6 this consists of avoidable time? 7 MS REYNOLDS: Avoidable time in what 8 context? 9 MR. JANIGAN: All of this work is 10 work which could be considered in a cost allocation 11 process as time that could be avoided if the work was 12 eliminated. 13 MS REYNOLDS: If we weren't putting 14 any capital in place we would not incur much of these 15 activities. 16 I just want to caution you, because 17 part of the capitalized A&G amount does flow from our 18 human resources and IS department, so not all of those 19 costs would go away if we weren't putting capital in 20 place. 21 MR. JANIGAN: Yes. 22 So, in a sense, this work is 23 reflective of A&G costs that were caused by, first of 24 all, capital investment activity. Do you agree with 25 that? 26 MS REYNOLDS: Yes. 27 MR. JANIGAN: And managing the 28 existing capital that has been invested. Do you agree? 763 RICCIO/REYNOLDS, cr-ex (Janigan) 1 MS REYNOLDS: The management of 2 existing capital is not part of the capitalized A&G. 3 It looks specifically to the activities that we 4 undertake to actually put capital in place in any one 5 year. 6 MR. JANIGAN: So in terms of looking 7 at some of the examples here, any approving and paying 8 of invoices to contractors for work performed, that 9 would not deal with maintenance upon the capital? 10 MS REYNOLDS: That's correct. That 11 is where we are paying contractors for actually putting 12 capital in place. 13 MR. JANIGAN: Okay. 14 Now, what proportion of the total 15 costs in these categories are capitalized? In 16 particular, $25.1 million, what percentage of total A&G 17 is that? 18 MS REYNOLDS: I don't know. I can't 19 give you a total percentage because A&G is a subset of 20 our O&M and I don't have the details by A&G category. 21 But I can tell you, the percentages 22 that we apply to the various GL accounts, as was 23 determined through our unbundled study for our 721 24 series of accounts, were capitalizing 7.5 per cent of 25 those accounts. The 725 accounts, which are our human 26 resources accounts, were capitalizing 24.4 per cent. 27 In our 905 series of accounts, which are our IS, we are 28 capitalizing 16.2 per cent of those. That is the 764 RICCIO/REYNOLDS, cr-ex (Janigan) 1 unbundled budget. 2 MR. JANIGAN: Is that the year 2000 3 unbundled budget or 1999? 4 MS REYNOLDS: The percentages are the 5 same because the percentages were developed out of the 6 unbundled budget, which determined the amount of 7 capitalizable A&G. Through the PBR period, because 8 capitalizable A&G is a component of O&M, there is no 9 specific calculations being performed on those 10 individual components through PBR because it is being 11 calculated through the PBR formula. 12 MR. JANIGAN: I would like to now 13 understand what adjustments gave rise to the net 14 $1.3 million reduction that I have referred to in the 15 capital? 16 MS REYNOLDS: Can I ask you to tell 17 me how you came up with $1.3 million? 18 MR. JANIGAN: Okay. That is what I 19 have -- they are based on notes that had been exchanged 20 and information exchanged earlier. That is why I 21 wanted to confirm how -- using the number that is in 22 our interrogatory -- how that figure relates to the 23 calculation. 24 If you would turn up the VECC 25 interrogatory. 26 MS SOUDEK: I'm sorry, just for my -- 27 MR. JANIGAN: Tab 24. 28 MS SOUDEK: Excuse me, Mr. Janigan. 765 RICCIO/REYNOLDS, cr-ex (Janigan) 1 Just for my clarification, is the $1.3 million figure 2 you are referring to on the record somewhere? 3 MR. JANIGAN: That is how I derived 4 the calculation going from 25.1 to 24.9. If I 5 understand the calculation from 25.1 is that you take 6 25.1, you back out 1.3, you apply the PBR factor to 7 everything with the exception of customer attachments, 8 and you get 24.9. 9 MS REYNOLDS: Can I just ask if your 10 1.3 is the net of the unbundling adjustments and the 11 impact of the rental program wind-down? 12 MR. JANIGAN: That's correct. 13 MS REYNOLDS: Okay. So that would be 14 $1.7 million. 15 MR. JANIGAN: Okay. But I think it 16 is 1.3 that is applied to this particular number in 17 order to get 24.9. 18 MS REYNOLDS: Maybe you had better 19 take us through it, then. 20 MR. JANIGAN: Okay. 21 My understanding is, and you can 22 correct me if I'm wrong, that you take the 25.1 number, 23 you back out 1.3 in the form of net adjustments, you 24 apply the PBR adjustment factor to everything with the 25 exception of the customer attachments and you get 24.9. 26 Do you want to take that under 27 advisement, perhaps, to either confirm or give me 28 another number that should be applicable in that case 766 RICCIO/REYNOLDS, cr-ex (Janigan) 1 associated with this interrogatory? 2 I want to remain with these figures, 3 because there is a number of sets of figures that are 4 associated with this particular matter and I would like 5 to keep it with these numbers, if I could. 6 MS REYNOLDS: Well, perhaps I can 7 clarify, because I think I know what you are trying to 8 calculate. I still don't know where your 1.3 has come 9 from, but if I can assist I will. 10 MR. JANIGAN: Yes. 11 MS REYNOLDS: The $25.1 million in 12 column 1 on Exhibit I, Tab 24, Schedule 15, includes 13 the customer attachment cost, which are detailed in 14 another interrogatory, in Exhibit I, Tab 1, 15 Schedule 82, as $4.3 million. 16 So if I take $4.3 million from the 17 $25.1 million, I come up with the $20.8 million which 18 is described in the written direct evidence at B1, 19 Tab 6, Schedule 2, which is the 1999 Board-approved 20 capitalized A&G overheads. 21 MR. JANIGAN: Okay. 22 MS REYNOLDS: To the $20.8 million, 23 we have adjustments for unbundling and the impact of 24 the rental program wind-down to give us the A&G 25 overhead amount of $19.1 million. That amount is 26 increased by the PBR formula to make it $20.1 million. 27 To the $20.1 million, we add 28 $4.8 million for the customer attachment group, which 767 RICCIO/REYNOLDS, cr-ex (Janigan) 1 is detailed in Exhibit I, Tab 1, Schedule 82 at Note 1, 2 which then gives us the $24.9 million. 3 MR. JANIGAN: Okay. 4 So the 4.8 of the customer 5 attachments is not the 4.3 with the PBR factor applied, 6 it is an actual number that is associated with -- 7 MS REYNOLDS: It is a forecasted 8 number. 9 MR. JANIGAN: A forecasted number. 10 Okay. 11 So the figure that really I should be 12 looking at is the 1.7. When I'm referring to 1.3, it 13 really should be 1.7? 14 MS REYNOLDS: That is what I think 15 you are trying to refer to. 16 MR. JANIGAN: Okay. All right. 17 Now, how did you go about determining 18 this $1.7 million? 19 MS REYNOLDS: Those amounts were 20 determined in the various hearings that they applied 21 to. They were presented and examined in those 22 hearings. 23 The unbundling adjustments of .2 were 24 identified in E.B.O. 179-14/15, and those unbundling 25 adjustments occurred because of changes in our 26 underlying O&M accounts which resulted in the -- well, 27 the removal of FTEs from the company resulted in an 28 increase in cost per FTE for some of our HR and IS 768 RICCIO/REYNOLDS, cr-ex (Janigan) 1 costs, which then -- when we took that cost per FTE and 2 applied it to the capital FTE it resulted in a slight 3 increase in the capitalized A&G amount. 4 MR. JANIGAN: If I could put that in 5 plainer terms. 6 What I understand you are telling us 7 is that the reduced workload that was associated with 8 the separation did not necessarily result in an 9 equivalent number of reduced FTEs. 10 MS REYNOLDS: In the unbundling, the 11 programs that are being unbundled are the merchandise 12 business unit, our HIP program and our merchandise 13 finance program. None of those programs had any 14 capital impact. There were no capital additions 15 associated with those programs -- constructed capital 16 additions. So there was no impact to the level of 17 activities which supported constructed capital. 18 THE PRESIDING MEMBER: Ms Reynolds, 19 could you explain for us what is constructed capital? 20 What is the definition of "constructed"? 21 MR. RICCIO: Basically, it includes 22 your services, mains, meter installations and meters 23 associated with customer additions, as well as rental 24 equipment. We categorized that as "constructed 25 capital", in the sense that it is capital that is built 26 to add customers. Or upgrades and improvements to 27 those plant accounts. 28 MS REYNOLDS: When we refer to 769 RICCIO/REYNOLDS, cr-ex (Janigan) 1 "constructed capital assets", it is those assets that 2 we have put in place ourselves rather than if we go out 3 and, you know, purchase a computer and put it on a 4 desk. We don't consider that constructed capital. 5 THE PRESIDING MEMBER: All right. 6 Thank you. 7 MR. JANIGAN: Now, in terms of the 8 rental equipment program, was there -- obviously, it 9 would have been a reduction of costs, or A&G costs 10 associated with the rental program? 11 MS REYNOLDS: That is right. When 12 the company decided to wind-down the rental program, 13 the A&G amount was revisited in E.B.R.O. 479-01, and 14 that is the amount of 1.9 million. The company 15 identified a reduction in capitalizable overheads of 16 $1.9 million. 17 MR. JANIGAN: Now, the reduced 18 workload that was associated with the removal of the 19 rental program, that is not necessarily reflected in 20 that number? In terms of reduction of FTEs, for 21 example. 22 MS REYNOLDS: That 1.9 million is 23 borne out by O&M reductions that were identified by the 24 company. In E.B.R.O. 479-01, the company identified 25 $1.7 million of O&M reductions related to the rental 26 program. Those reductions were in the nature of 27 processing and purchasing rental information, so they 28 were capital activities that would have been part of 770 RICCIO/REYNOLDS, cr-ex (Janigan) 1 the 1.9 million. 2 The difference between the 3 1.9 million that would have been capitalized and the 4 1.7 that was actually removed from O&M relates to 5 certain HR and IS costs that don't necessarily 6 fluctuate, that wouldn't go away with the removal of 7 the activity of putting rental capital in place. 8 MR. JANIGAN: There is not 9 necessarily a direct one-to-one relationship between 10 the O&M that was reduced as a result of the -- or, 11 let's say, the workload that was in place as a result 12 of the rental program being in place and the reduction 13 in that workload, expressed in FTEs, that occurred 14 after the separation? 15 MS REYNOLDS: I think there is a 16 direct relationship. 17 MR. JANIGAN: But it is not a 18 one-to-one relationship? 19 MS REYNOLDS: It is not a one-to-one 20 because of the overheads that I mentioned that the 21 company will still have to incur. 22 MR. JANIGAN: Now, does this figure 23 recognize any rationalization of the A&G activities 24 that can take place as a result of the reduced workload 25 with the rentals separated? 26 MS REYNOLDS: Yes. At the point that 27 the wind-down of the rental program was determined, 28 every department was revisited as part of the 771 RICCIO/REYNOLDS, cr-ex (Janigan) 1 unbundling cost allocation study and departments were 2 asked to make sure that they had identified the costs 3 to make sure that there were no additional amounts that 4 could be removed -- and this is identified in the 5 $1.7 million of O&M cost reductions. 6 MR. JANIGAN: Now, I would assume 7 that there will be further rationalization of and 8 reassignment of the freed-up staff time to avoid new 9 hires over the next three-year period? 10 MS REYNOLDS: The FT reductions were 11 identified in, I believe it was E.B.O. 179-14/15 and I 12 believe the company's plans for how those FTEs will be 13 removed from the company was identified at that point. 14 MR. JANIGAN: Okay. But what I am 15 asking you is, I would assume that there will be 16 additional rationalization or reassignment of the 17 freed-up staff time over the next three years. 18 MS REYNOLDS: Well, the $1.7 million 19 related to the activities to put rental capital in 20 place has been removed from O&M. So, to the extent 21 that the company doesn't, then, you know, terminate the 22 people that would have been performing those 23 activities, those costs are on account of the 24 shareholder. 25 MR. JANIGAN: Okay. Now, I want to 26 ask you to turn up the interrogatory of IGUA, at 27 Exhibit 1, Tab 12, Schedule 41, at page 6. 28 I just want to understand, in terms 772 RICCIO/REYNOLDS, cr-ex (Janigan) 1 of the adjustments, in terms of what has occurred. 2 You have at your top number, line No. 3 1, the rate base. You have the impact of the 179-14/15 4 decision. 5 Would I be correct in calculating the 6 impact of the removal of the rental program, in terms 7 of a percentage, by putting 545.42 over 3405.7 to 8 calculate a percentage? 9 Is that about the percentage of 10 capital that has been removed? 11 MR. RICCIO: That would be the 12 percentage of rate base that has been removed, 13 associated with the rental program, which is a net 14 number, net of the cumulated depreciation. 15 MR. JANIGAN: So, that is about 16 15 per cent, by the looks of it. Would you agree? 17 MR. RICCIO: It seems about right, 18 subject to check. 19 MR. JANIGAN: If we take your 20 figure -- once again, if I could refer you back to the 21 VECC interrogatory. Looking at the 1999 capitalized 22 A&G, it would look as if -- looking at the rental 23 equipment number -- the rental equipment program 24 represented about 36 per cent of new investment for 25 that year. Would you agree? 26 MR. RICCIO: That is taking the 27 9.1 in column 1 and dividing it by 25.1? 28 MR. JANIGAN: That is right. 773 RICCIO/REYNOLDS, cr-ex (Janigan) 1 MR. RICCIO: That represents the 2 amount of A&G capitalized or allocated to the rental 3 program in that particular year, based on additions in 4 that particular year. It really has no relationship to 5 the rate base because the rate base is a net amount 6 over time, net of accumulated depreciation, and it 7 includes all other capital accounts, mains and 8 services, which are, for instance, depreciated at a lot 9 slower pace than, say, rental adds are. 10 MR. JANIGAN: All that percentage 11 would be would be the percentage of new -- or would be 12 a rough percentage of new capital investments, in that 13 year, represented by the rental program? 14 MR. RICCIO: The 36 per cent, 15 roughly? 16 MR. JANIGAN: Yes. 17 MR. RICCIO: That is correct. 18 MR. JANIGAN: Okay. Now, as I 19 understand, the total percentage reduction in the 20 overhead that was capitalized is the 1.7 million. If 21 we take that over the 25.1 figure, that comes out to be 22 about 6 per cent. Would you agree with me? Subject to 23 check. 24 MR. RICCIO: Yes, subject to check. 25 MR. JANIGAN: The PBR adjustment 26 increases the cost category for this particular figure 27 of 20.8, I think, that is derived after you reduce 28 the -- make the reduction. It increases by 774 RICCIO/REYNOLDS, cr-ex (Janigan) 1 approximately about 4.6 per cent. Am I correct? 2 MR. RICCIO: Which is the million 3 dollar increase, from 19.1 to 20.1, that we described 4 on Exhibit B1, Tab 6, Schedule 2? 5 MR. JANIGAN: Yes. 6 MR. RICCIO: So that is 4.6 per cent. 7 Yes. 8 MR. JANIGAN: Now, what you are 9 proposing, then, and the net result is, that in the 10 circumstance where the rental equipment amounted to 11 approximately 36 per cent of the A&G capitalized, you 12 are proposing a net reduction of approximately 6 per 13 cent. Isn't that correct that is what it amounts to? 14 And this is due to the factors that 15 you have set forth before, that it is not possible to 16 reduce costs because of HR expenses and things like 17 that? 18 MS REYNOLDS: In fiscal 2000 we have 19 applied the historic allocation methodology of 20 allocating our capitalizable A&G overheads to various 21 constructed capital asset groups based on proportionate 22 capital adds in the periods. So we haven't changed the 23 way we are doing things at all. 24 MR. JANIGAN: But in terms of -- you 25 don't have the rental equipment program any more? 26 MS REYNOLDS: That's right. There is 27 no rental capital adds, so in terms of their 28 proportionate share there is no allocation to them 775 RICCIO/REYNOLDS, cr-ex (Janigan) 1 because there is nothing to allocate to. 2 MR. JANIGAN: And up until the test 3 year, by taking 1999 as an example, they contributed 4 somewhere between 30 to 36 per cent of the capitalized 5 A&G, depending on the investment? 6 MR. RICCIO: That was an arbitrary 7 allocation and saying arbitrary allocation capitalized 8 A&Gs are allocated to the various capital accounts 9 prorated on the relative dollars spent in each of those 10 categories. 11 For instance, in '99 if mains 12 expenditures were to double, capitalizing A&Gs for 13 rental program would go down without even changing the 14 activity within the rental program. So the 9.1 isn't 15 representative of the activities that the company is 16 undertaking in O&M to add rental capital. It is an 17 arbitrary allocation -- a prorated allocation based on 18 capital expenditures alone, whereas the 1.7 represents 19 actual costs incurred by the company to add rental 20 program capital adds. 21 MR. JANIGAN: But the net effect of 22 what you have done here is that you have had one year 23 where the rental program contributed in 1999 36 per 24 cent, or amounted to 36 per cent of the capitalized 25 A&G. We have taken it out of the system and that 26 reduction to capitalized A&G amounts to only 6 per cent 27 of the total. Am I correct? 28 MS REYNOLDS: Mathematically, yes. 776 RICCIO/REYNOLDS, cr-ex (Janigan) 1 MR. JANIGAN: Would you agree with me 2 that the implication of the PBR formula -- I think that 3 is best something for another panel. 4 Those are all my questions of this 5 panel, Mr. Chairman. 6 THE PRESIDING MEMBER: Thank you, 7 Mr. Janigan. 8 Perhaps we can break now. It's 9 twenty minutes to eleven. We will return at eleven 10 o'clock. 11 MR. WARREN: Mr. Chairman, just 12 before you leave, I am going to defer to my elders and 13 betters for the purpose of cross-examination on this 14 issue and I will rely -- 15 MR. THOMPSON: Who is that? 16 MR. WARREN: Mr. Thompson and 17 Mr. Brett are running for the elevator. I am sorry, I 18 didn't mean to trigger this foolishness around the 19 table. 20 THE PRESIDING MEMBER: I am just 21 worried about the reporters and what they are going to 22 record. 23 MR. WARREN: I just wanted to ask if 24 I might be excused. I will return for the panel on 25 Monday morning. 26 Thank you. 27 THE PRESIDING MEMBER: Thank you, 28 Mr. Warren. 777 1 We will return at eleven o'clock. 2 --- Upon recessing at 1040 3 --- Upon resuming at 1100 4 THE PRESIDING MEMBER: Mr. Brett, are 5 you next? 6 MR. BRETT: Yes. I would like to 7 start. 8 CROSS-EXAMINATION 9 MR. BRETT: I am going to work mostly 10 from Board staff IR-82 and 81 which you probably 11 already have out there from Mr. Janigan's 12 cross-examination. That's Exhibit I, tab 1, Schedules 13 81 and 82. I won't have many questions because 14 Mr. Janigan covered a lot of territory. 15 I did want to come back to, if you 16 look at Exhibit I, tab 1, Schedule 82, that's Board 17 staff 82 on page 2, this question of -- the first 18 footnote there to the first table, I want to add just 19 briefly about customer attachment activity, just to 20 make sure I am clear on the status of that. It says: 21 "Beginning in 1999 the cost of 22 the customer attachment activity 23 is charged directly to the 24 services constructed capital 25 asset group. Previously, it had 26 been part of capitalizable A&G 27 overhead allocation." (As read) 28 We can see that if we look at the 778 RICCIO/REYNOLDS, cr-ex (Brett) 1 total line 8. It goes from 25.1 down to 20.8. 2 Obviously, a large part of that is from '98 to '99 and 3 a large part of that is seeking out the customer 4 attachment activity. 5 Now, that really is quite a separate 6 matter now. That no longer is part of capitalizable 7 general overhead. As I recall, that was some marketing 8 activity that had to do with bringing on new customers 9 and the like and it has been shifted out of capitalized 10 A&G and it is now directly assigned to one particular 11 capital asset group. Is that -- 12 MR. RICCIO: Yes, that's correct. 13 It's directly assigned or charged to the services 14 account. 15 MR. BRETT: So that's really no 16 longer part of this discussion as such about 17 capitalized general A&G overhead? 18 MR. RICCIO: Yes, that's correct. 19 MR. BRETT: That said, you mentioned 20 in passing that you are not marking that amount up, 21 that capitalized amount up by the PBR factor for the 22 test year. Is that correct? 23 MR. RICCIO: That's correct because 24 the customer attachment group is charged -- or is a 25 capital account. It's charged to capital and it 26 doesn't fall under their PBR formula. So an actual 27 budget for the year 2000 was developed for that 28 particular category of expenditure. 779 RICCIO/REYNOLDS, cr-ex (Brett) 1 MR. BRETT: So it's a budgeted -- 2 it's O&M type activity, but it's a capital account? 3 MR. RICCIO: Well, it's a capital 4 activity by O&M type. What do you mean by that? 5 MR. BRETT: Well, it's capitalized? 6 MR. RICCIO: It's capitalized. 7 MR. BRETT: To a specific account. 8 MR. RICCIO: Yes, it's a capital 9 activity. 10 MR. BRETT: And then it goes into 11 capital and it eventually gets into rate base. Right? 12 MR. RICCIO: That's correct. 13 MR. BRETT: And you don't apply the 14 PBR adjustment factor to it? 15 MR. RICCIO: In arriving at it, no, 16 we did not. 17 MR. BRETT: And you don't apply it in 18 the test year or in subsequent years? 19 MR. RICCIO: That's correct. 20 MR. BRETT: But you do apply the PBR 21 factor to the capitalized A&G overhead? 22 MR. RICCIO: That's correct. 23 MR. BRETT: Why do you make the 24 distinction? 25 MR. RICCIO: Capitalized A&Gs is a 26 result of O&M costs, so the O&M cost is arrived at 27 through the PBR formula and then a portion of it is 28 credited to O&M and charged to capital. So the 780 RICCIO/REYNOLDS, cr-ex (Brett) 1 original amounts are derived through O&M before they 2 are charged to capital. 3 MR. BRETT: So what you do is -- I 4 understand the process that you have to describe it in 5 Board staff 81 in the response for establishing the PBR 6 impact of the A&G is that you take the base amount of 7 A&G for 1999 and then you apply -- I mean, essentially, 8 you then apply the PBR formula to it. 9 I guess, effectively, you are 10 applying -- what's the difference, I guess, really is 11 my question? In both instances you have got 12 operating-type costs that are being capitalized. In 13 one case they are general A&G costs and in the other 14 case they are other types of operating-type costs. In 15 one case they are being capitalized directly to a 16 specific account and in the second case they are being 17 capitalized to a general category, which is termed 18 capitalizable A&G overhead. Why do you apply the PBR 19 adjustment factor to one and not the other? 20 MR. RICCIO: I think the biggest 21 difference is that A&G costs are originally charged to 22 O&M accounts and the credit, which is used to remove 23 them from O&M and charge them to capital is within O&M. 24 In order to prepare the O&M budget 25 you need to not only calculate or use the PBR formula 26 to arrive at the total original costs, but also the 27 credit. 28 MR. BRETT: What credit are you 781 RICCIO/REYNOLDS, cr-ex (Brett) 1 speaking of here? 2 MR. RICCIO: The credit of the 3 capitalized A&G amount is really a credit or a 4 reduction to O&M in order to charge it to capital. So 5 the $20.8 million is a credit to O&M, operating and 6 maintenance costs, a reduction to operating and 7 maintenance costs and charged to capital. 8 MR. BRETT: All right. 9 It is initially included in an 10 operating and maintenance account in the standard 11 system of accounts, as opposed to being initially 12 included in a capital account. Is that what you are 13 saying? 14 MR. RICCIO: Yes, that is correct. 15 MR. BRETT: So it is a function of 16 how it is entered and dealt with in the accounting 17 system? 18 MR. RICCIO: Yes. 19 MR. BRETT: You have gone over with 20 Mr. Janigan the nature of these costs and they are 21 outlined in Board staff 81, I believe, so I won't go 22 through that again with you, the engineering and 23 monitoring and billing and so on and so forth. 24 The Board has had a historical policy 25 on allocating capitalizable A&G overheads, as you know. 26 This issue was debated at some great length last year 27 in 497. 28 I would like you to turn up the 782 RICCIO/REYNOLDS, cr-ex (Brett) 1 decision in 497 just to focus for this part of our 2 discussion. Page 69, paragraph 3.8.9. 3 You will recall in general terms the 4 issue in that debate was what the incidence of the 5 capitalized A&G overheads was going to be. How much 6 was going to be assigned to each class of asset. 7 Historically the Board had assigned 8 roughly 60 per cent to distribution, 40 per cent -- and 9 I will come to the precise numbers in a moment -- to 10 the rental assets. 11 You had done a study emanating from 12 your cost allocation study -- I'm sorry, not your cost 13 allocation study but your allocation of costs for 14 non-utility and ancillary services. You had included 15 in that study an element looking at this and you had 16 concluded or put forward the proposition that the 17 distribution should be something like 85 per cent gas 18 distribution, 10 per cent ancillary. The Board didn't 19 accept that. 20 If we look at paragraph 3.8.9 on 21 page 68, the Board said: 22 "Given the relevant size of 23 constructed capital additions in 24 the test year, that is about 25 $148 million of distribution 26 assets and $94 million in rental 27 equipment, the Board finds that 28 an allocation of 86 per cent to 783 RICCIO/REYNOLDS, cr-ex (Brett) 1 distribution resulting from the 2 study compared to the historic 3 approximately 60 per cent is 4 questionable." (As read) 5 It goes on to talk about NGV a bit. 6 In the last sentence: 7 "The Company provided no 8 satisfactory explanation for 9 these apparent anomalies." 10 (As read) 11 Then at 3.8.10: 12 "The Board finds that the 13 proposed 1999 allocation to 14 ancillary constructed capital 15 assets groups..." (As read) 16 That is rentals essentially, NGV: 17 "...is too low and rather than 18 substitute an arbitrary 19 allocation will revert to the 20 historical pro rata allocation 21 for the test year." (As read) 22 The historical pro rata allocation 23 was roughly the notion of allocating in proportion to 24 the capital costs incurred in that year of each type of 25 capital, right? Main services, rentals, and so on and 26 so forth? 27 MR. RICCIO: That's correct. That's 28 for the historical proration. 784 RICCIO/REYNOLDS, cr-ex (Brett) 1 MR. BRETT: Okay. And the Board 2 didn't change that. They said: 3 "The Board expects that the new 4 methodology will be reviewed and 5 tested during the test year so 6 that there will be greater 7 confidence in and support for 8 the result for application in 9 the next rates case." (As read) 10 Now, my understanding of your 11 evidence in this case, your evidence in-chief, is that 12 you have not proposed any revision. You did discuss 13 this, I believe, with Mr. Janigan. 14 But at page 2 of B1, Tab 6, 15 Schedule 1, which is your evidence in-chief, you say: 16 "The Company is not proposing 17 any revision to the existing 18 Board-approved methodology." 19 (As read) 20 Correct? 21 MS REYNOLDS: That's correct. 22 MR. BRETT: Okay. 23 Now, if I take you for a moment back 24 to Board Staff IR No. 82, you can see there on page 2 25 of 3 that in 1999 you have $9 million in A&G overhead 26 allocated to the rental equipment. 27 You then move the rental equipment 28 out of the utility. In the test year you are still 785 RICCIO/REYNOLDS, cr-ex (Brett) 1 proposing essentially the same amount, or very nearly 2 the same amount of capitalizable A&G overhead in total. 3 That doesn't change. It changes a little bit. 4 But what changes is that you take the 5 $9 million that was previously allocated against the 6 rental equipment and you reallocate that, you reshuffle 7 that amongst the components of the other components of 8 capital expenditure. I take it you reallocate it 9 roughly in proportion to the size of those components. 10 So when we look at rental equipment 11 under the 2000 column we see 0.1. Excuse me. That is 12 what has been done there essentially, correct? 13 MS REYNOLDS: That's not correct. 14 We are not reallocating the 15 $9 million that was allocated to rentals in 1999. 16 What we did was establish what the 17 capitalizable A&G would be in an unbundled environment 18 with the rental program in a wind-down. 19 So we determined what activities 20 would still be in place in the company with there being 21 no rental adds. That was the amount that was then 22 grossed up for the PBR formula and then allocated based 23 on the Board's historic allocation methodology of 24 proportionate capital adds. 25 MR. BRETT: But you have subsequent 26 to that, subsequent to the proposal to wind-down the 27 utility, to wind-down the rental, you then changed the 28 game plan and came in with a proposal, following 786 RICCIO/REYNOLDS, cr-ex (Brett) 1 174-14/15, to take the rental out completely of the 2 utility and put it into an affiliate. 3 But what appears to have happened 4 here is that very few of the costs associated with the 5 costs that would have been normally allocated against 6 that activity have followed that activity out, as it 7 were. They all remain, or very nearly all remain. 8 MS REYNOLDS: From a capital 9 perspective, whether the rental program is in a 10 wind-down mode or removed from the utility the impact 11 is the same because under either scenario there would 12 be no capital adds in place. 13 So in E.B.R.O. 497-01 we identified 14 the impact to the rental program wind-down and our O&M 15 was adjusted for that. 16 MR. BRETT: Yes. My question is: 17 Doesn't this violate -- if it doesn't violate the 18 letter of the existing policy, doesn't it violate the 19 spirit of the existing policy? 20 I mean, basically you have a set of 21 costs here that have to do with analysis, feasibility 22 studies, financial projections, planning costs of all 23 sorts associated with constructing assets of various 24 types, including rental assets. 25 You have another sets of costs that 26 have to do with paying the bills, monitoring the 27 construction work, monitoring the installations, 28 keeping track of the contractors. These are costs you 787 RICCIO/REYNOLDS, cr-ex (Brett) 1 have described in Board Staff 81. 2 Then you have some other indirect 3 costs, information service, human relations, legal, and 4 so on, that you allocate -- that you layer on top of 5 those first two categories of what I will call 6 engineering costs and implementation contract costs, 7 for sake of simplicity. Surely a good portion of those 8 costs have to follow the rental program when they leave 9 the utility. They don't just sit there. 10 MS REYNOLDS: No. The costs 11 associated with putting rental capital in place, or the 12 impact of no longer putting rental capital in place, 13 was identified in E.B.O. 497-01 and was adjusted at 14 that point. 15 When we made the decision to remove 16 the rental program from the utility we made sure that 17 we were happy with that conclusion that no further 18 adjustment was required and we came to that conclusion 19 that we had captured the impact of removing the rental 20 program from a capital addition perspective. 21 MR. BRETT: I think you told 22 Mr. Janigan the number that you arrived at in 497-01, 23 but would you mind repeating it, please? 24 MS REYNOLDS: The amount of 25 capitalizable A&G was reduced by $1.9 million. 26 MR. BRETT: By $1.9 million in 27 497-01. 28 So that is in setting the base, the 788 RICCIO/REYNOLDS, cr-ex (Brett) 1 base amount of capitalizable A&G overhead for purposes 2 of the PBR plan. 3 MS REYNOLDS: As a component of O&M, 4 yes. 5 MR. BRETT: As a component of O&M, 6 you took out $1.9 million. 7 Now, these costs -- if I may just 8 come back for a moment to the costs that are -- they 9 begin as a component of O&M, they then get capitalized, 10 they then get into rate base and you earn a return on 11 them. Is that correct? This is the capitalizable A&G. 12 MR. RICCIO: Yes, that's correct. 13 MR. BRETT: So that is the sequence 14 of events. 15 So for regulatory purposes they 16 become -- they are transformed into capital costs, as 17 it were? 18 MR. RICCIO: Yes. 19 MS REYNOLDS: It's an issue of -- 20 MR. BRETT: And they are treated as 21 capital costs? 22 MS REYNOLDS: It's an issue of timing 23 and trying to match the expenditures of the company 24 over the period which the benefits will be received. 25 So the purpose of capitalizing A&G is to ensure that 26 the entire cost of putting a constructed capital asset 27 in place is recovered over the life of that capital 28 asset. 789 RICCIO/REYNOLDS, cr-ex (Brett) 1 MR. BRETT: That would be the same 2 policy that relates to the capitalization of other what 3 I will call O&M-type expenditures, in layman's 4 language, that are also -- that are charged to capital 5 and also find their way into the rate base, right? 6 Is that the same theory of matching? 7 MS REYNOLDS: Direct capital? Yes. 8 MR. BRETT: Direct -- O&M-type 9 expenditures that are associated with a capital 10 expenditure. 11 I am assuming that what you have said 12 here is that the capitalizable A&G overhead is a subset 13 of the O&M-type expenditures that are capitalized. 14 There are others that are also capitalized specifically 15 into specific capital accounts, right? 16 MS REYNOLDS: Yes, we do capitalize 17 some expenditures to our IS development. That would be 18 the other big example that I am aware of. 19 MR. BRETT: Okay. And once 20 capitalized they then effectively are a part of rate 21 base, or get into rate base subsequently, in the 22 subsequent year. 23 I guess the question I am posing to 24 you is: It appears to me that in some respects this 25 policy of indexing these amounts by the PBR factor 26 amounts to indexing capital items. 27 MS REYNOLDS: I don't agree with that 28 because the way the capitalizable A&G overheads are 790 RICCIO/REYNOLDS, cr-ex (Brett) 1 determined is based on the underlying O&M amounts, 2 which are subject to the PBR formula. So if we have $1 3 of O&M that is part of the accounts that become part of 4 capitalizable A&G, that dollar in O&M during the PBR 5 period would be multiplied by the PBR formula. 6 So in order to maintain consistency 7 with the derivation of O&M the capitalizable A&G is 8 subject to the same PBR formula. 9 MR. BRETT: All right. Thank you. 10 Those are my questions. 11 Thanks, Mr. Chairman. 12 THE PRESIDING MEMBER: Thank you, 13 Mr. Brett. 14 Mr. Hilson, do you have any questions 15 for this panel? 16 The answer is no. 17 Mr. Thompson? 18 MR. THOMPSON: Yes. Thanks. 19 CROSS-EXAMINATION 20 MR. THOMPSON: Panel, could you turn 21 up, first of all, the scoping proposal? It is 22 Exhibit N1, Tab 1. 23 MS REYNOLDS: We don't have a copy of 24 that document. 25 MR. THOMPSON: Schedule 2, page 6. 26 I would just like to work primarily 27 from this document. 28 You will see in the second paragraph 791 RICCIO/REYNOLDS, cr-ex (Thompson) 1 there that the parties and the Company agree that the 2 starting point for the capitalization of A&G overheads 3 is the Board-approved capitalized A&G OH for the bridge 4 year, and then we part company in terms of the proper 5 approach. 6 You have had a lot of discussion 7 about the Board-approved capitalized A&G OH for the 8 test year as being $20.8 million. That is reflected in 9 Board Staff Interrogatory 82 that you have been 10 referred to on a number of occasions. 11 MS REYNOLDS: That's correct. 12 MR. THOMPSON: The amount actually 13 showing in the Board-approved budget -- and you don't 14 need to turn this up. It is marked in this case as 15 Exhibit K3.3. But the amount shown for Board-approved 16 capitalized A&G was $21.3 million. Can you reconcile 17 the two amounts? 18 MS REYNOLDS: Mr. Thompson, I can't 19 do that without looking at that exhibit. I'm not 20 sure -- 21 MR. THOMPSON: It is K3.3. I am just 22 looking at the capitalized A&G line in the 23 Board-approved -- if it is something that should be 24 done by undertaking, I am happy with that. 25 --- Pause 26 MR. RICCIO: You are talking about 27 line 5.8, the $21.3 million Board-approved 1999 budget? 28 MR. THOMPSON: Yes. 792 RICCIO/REYNOLDS, cr-ex (Thompson) 1 MR. RICCIO: Compared to the 2 $20.8 million, which we are saying is the 3 Board-approved budget here? 4 MR. THOMPSON: Yes. 5 MR. RICCIO: The $21.3 million 6 included in Exhibit K3.3 includes a 0.5 amount that is 7 charged to rebillable projects. So there are two 8 components included in the 5.8; a smaller amount of 9 about $.5 million for amounts that are charged directly 10 to rebillable projects. 11 MR. THOMPSON: So that the 12 $20.8 million figure that we have been using and is 13 reflected in these various interrogatory responses and 14 exhibits is the correct number? 15 MR. RICCIO: Yes, it is. 16 MR. THOMPSON: Thanks. Based on the 17 Board's 1999 approved budget, the rate base 18 responsibility of ratepayers for capitalized A&G 19 overheads was $11.7 million, being the difference 20 between the $20.8 million shown in Exhibit I, Schedule 21 82, page 2 and the $9.1 million of rate base that was 22 allocated to the rental program. Is that correct? 23 MR. RICCIO: What year were you 24 referring to first? What was the first part of your 25 question? 26 MR. THOMPSON: Board-approved 1999 27 allocated $9.1 million of the $20.8 million to the 28 rental program. 793 RICCIO/REYNOLDS, cr-ex (Thompson) 1 MR. RICCIO: Yes, that's correct. 2 MR. THOMPSON: So the ratepayer 3 responsibility -- the distribution ratepayer 4 responsibility -- for capitalized overhead, based on 5 that decision, was $11.7 million. That is the 6 difference between $20.8 million less $9.1 million. 7 MR. RICCIO: Yes, that's correct. 8 MR. THOMPSON: In the E.B.R.O. 497 9 decision the Company had put forward an activity 10 analysis and it was advocating an approach based on 11 that analysis where it would allocate more of the 12 $20.8 million to ratepayers, correct? 13 MS REYNOLDS: Yes. That study was 14 performed last year and the results of that study 15 determined that the effort required to put distribution 16 capital into place was significantly greater than the 17 effort to put rental capital in place. That was the 18 basis for the determination. 19 MR. THOMPSON: Right. But the Board 20 rejected the application of that study in E.B.R.O. 497 21 and said "If you want to try it, come back again." 22 MS REYNOLDS: In the Board's 23 decision, what the Board specifically talked about was 24 the fact that they were not satisfied with the 25 allocation methodology. 26 MR. THOMPSON: And if you wanted to, 27 in effect, change it, "Come back again." Words to that 28 effect. 794 RICCIO/REYNOLDS, cr-ex (Thompson) 1 MS REYNOLDS: That's right, and we 2 are not changing the allocation methodology. 3 MR. THOMPSON: No. But what the 4 Board did was that it rejected that approach and the 5 end result was that ratepayer responsibility was fixed 6 at $11.7 million and not the higher number that the 7 Company advocated. Is that fair? 8 MS REYNOLDS: In the 1999 test year 9 the capital that would have been allocated to the 10 distribution accounts would have been $11.7 million. I 11 disagree with your term "fixed". It was fixed for the 12 1999 test year. 13 MR. THOMPSON: Correct, but that is 14 the base -- 15 MS REYNOLDS: That is not the base. 16 MR. THOMPSON: Sorry. The 1999 17 Board-approved bundled budget is the base from which we 18 are to derive ratepayer responsibility. 19 I understand that you are proposing 20 different adjustments. I just want to get the number. 21 MS REYNOLDS: No, I'm not proposing 22 any adjustments at all. The base was determined 23 through E.B.O. 179-14/15 and E.B.R.O. 497-01. 24 MR. THOMPSON: Excuse me. So we come 25 forward, then -- as of E.B.R.O. 497, ratepayer 26 responsibility for capitalized A&G overheads is 27 $11.7 million. This excludes customer attachments, 28 which you have discussed with Mr. Brett. 795 RICCIO/REYNOLDS, cr-ex (Thompson) 1 MS REYNOLDS: That's right. That is 2 for the 1999 test year. 3 MR. THOMPSON: And then you came 4 forward in E.B.O. 179-14/15 and you are proposing a 5 rental wind-down, right? 6 The Company was proposing a rental 7 wind-down. 8 MS REYNOLDS: Yes, it was. 9 MR. THOMPSON: And as part of that 10 rental wind-down proposal, you took the total of 11 $20.8 million, as it is described in the second 12 paragraph here of the scoping proposal -- and it's also 13 described in the new evidence that you filed recently 14 under the "B" tab; I forget which one it is -- and made 15 an upward adjustment and a downward adjustment, which, 16 as you say, is to account for the rental program 17 wind-down. Right? 18 MS REYNOLDS: One adjustment was for 19 the impact on underlying O&M as a result of unbundling 20 adjustments, and the second adjustment was for the 21 rental program wind-down. 22 MR. THOMPSON: The rental program 23 wind-down was based on an assumption or a request that 24 the rental program would be classified as core; 25 correct? 26 MS REYNOLDS: From a -- 27 MR. THOMPSON: And that's why you 28 only backed out $1.9 million, because that would be the 796 RICCIO/REYNOLDS, cr-ex (Thompson) 1 direct costs associated with the rental program. 2 MS REYNOLDS: Those are the costs 3 plus HR and IS costs that are associated -- 4 MR. THOMPSON: What does that stand 5 for? 6 MS REYNOLDS: Sorry; Human Resources 7 and Information Services. 8 Those are the costs that are incurred 9 for activities which are used to put rental capital in 10 place. 11 MR. THOMPSON: But the reality here 12 is this: The current rates in force today, based on 13 E.B.R.O. 497, permit the recovery from ratepayers of 14 the return and depreciation on $11.7 million. 15 That is the reality. 16 MS REYNOLDS: In the 1999 test year. 17 MR. THOMPSON: The current rates, 18 based on the 1999 test year, allow the recovery in 19 rates of return and depreciation for capitalized O&M 20 overheads of $11.7 million. 21 MS REYNOLDS: That is correct. 22 MR. THOMPSON: You are not proposing 23 to ramp that up by the PBR formula. You are proposing 24 to shift $9.1 million less $1.9 million of the rental 25 program rate base responsibility to ratepayers and then 26 ramp it up. 27 MS REYNOLDS: We are not proposing to 28 shift anything. As part of E.B.O. 179-14/15 and 797 RICCIO/REYNOLDS, cr-ex (Thompson) 1 E.B.R.O. 497-01, the company determined what would be 2 the capitalizable A&G overhead based on Board-approved 3 percentages for the O&M which exists to support an 4 unbundled utility with no rental capital adds being 5 performed. 6 So we have applied the Board-approved 7 methodology in the unbundled budget. 8 MR. THOMPSON: Are you suggesting 9 that the E.B.O. 179-14/15 decision authorized the 10 transfer of some $7 million of increased rate base from 11 the rental program to ratepayers? 12 Is that what you are saying? 13 MS REYNOLDS: There is no transfer. 14 It is -- 15 MR. THOMPSON: Certainly there is a 16 transfer if you are going from $11.7 million of rate 17 base responsibility to, in your proposal, $20.1 million 18 of rate base responsibility. 19 MS REYNOLDS: It's a reality of the 20 allocation methodology based on proportionate capital 21 adds. We have gone through O&M and determined what 22 dollars need to be removed from O&M as a result of 23 there no longer being rental capital in place. That 24 has been reflected in our unbundled budget. 25 We adjusted the capitalized A&G for 26 the amount of rental activities that were no longer 27 going to take place, and the resulting amount equates 28 to the O&M activities that are required to put 798 RICCIO/REYNOLDS, cr-ex (Thompson) 1 utility-constructed capital assets in place, plus a 2 small amount for NGV. 3 To that amount we then apply the 4 Board-approved historic methodology of allocation based 5 on proportionate capital adds. 6 MR. THOMPSON: The bottom line, I 7 suggest to you, is this, panel: Based on the rates 8 that flow out of E.B.R.O. 497, the ratepayers had a 9 responsibility of $11.7 million; and based on your 10 proposal, that gets increased not by the amount of the 11 PBR adjustment, but gets increased to $20.1 million. 12 That is the bottom line. 13 MS REYNOLDS: The amount that is -- 14 MR. THOMPSON: Is that not the bottom 15 line? 16 MS REYNOLDS: The O&M base was set 17 through E.B.O. 179-14/15 and E.B.R.O 497-01 through an 18 in-depth analysis of the O&M costs that are required to 19 put utility assets in place. 20 We are asking the ratepayers, through 21 capital, to pay for the total cost of putting those 22 capital assets in place. 23 MR. THOMPSON: Ratepayers, in terms 24 of existing rates -- if we take E.B.R.O. 497 rates as 25 the benchmark, your proposal, which is tied to the 26 removal of the rental program, will increase ratepayer 27 responsibility on account of capitalized A&G by over 28 $7 million. 799 RICCIO/REYNOLDS, cr-ex (Thompson) 1 Is that fair? 2 MS REYNOLDS: Based on the 3 methodology that the Board has approved and we have 4 applied, yes. 5 MR. THOMPSON: We will argue whether 6 it is approved or not. 7 That is the measure of the harm to 8 ratepayers compared to existing Board-approved rates. 9 MS REYNOLDS: There is no harm to 10 ratepayers because ratepayers -- 11 MR. THOMPSON: Give me a break. 12 MS SOUDEK: Mr. Thompson, let her 13 finish her response, please. 14 MR. THOMPSON: Fine; sorry. I 15 apologize. 16 MS REYNOLDS: What we are 17 capitalizing to capital is the cost that resides in our 18 O&M for putting constructed capital assets in place. 19 They would be the utility constructed capital assets 20 and, as I mentioned, a small portion of NGV. 21 That was the mindset of individual 22 departments when they went through their O&M and 23 determined what they would require in O&M to support 24 the company's construction initiatives. 25 MR. THOMPSON: Isn't that essentially 26 a replay of the activity analysis approach? 27 MS REYNOLDS: The cost allocation 28 study was used to assist in developing the unbundled 800 RICCIO/REYNOLDS, cr-ex (Thompson) 1 budget. 2 MR. THOMPSON: That approach was 3 rejected by the Board in E.B.R.O. 497. 4 MS REYNOLDS: It was not rejected by 5 the Board. The Board, in its decision on capitalized 6 A&G, in 497 stated that they believed that there may be 7 some inherent problems in the cost allocation study 8 that may have been transferred to the capitalization 9 study, but they still felt that the lead responsibility 10 for the capitalization study should rest with the 11 accounting studies group, which should conduct the work 12 activity analysis and interviews with operating 13 departments, as necessary, to develop or confirm their 14 input assumptions. 15 The Board also accepted in principle 16 that a specific allocation of capitalizable A&G perhaps 17 would be superior to a pro rata method. 18 So that is what we did in developing 19 our unbundled budget. We went back to each department, 20 had discussions, reviewed their activity analysis to 21 ensure that the dollars they had identified to put 22 utility constructed capital assets in place were truly 23 reflective of those activities, and that there was no 24 overstatement of those costs. 25 MR. THOMPSON: Are you in effect 26 asking the Board now to endorse your activity analysis 27 approach? 28 You are trying to true up the 801 RICCIO/REYNOLDS, cr-ex (Thompson) 1 E.B.R.O. 497 decision? Is that what you are trying to 2 do? 3 MS REYNOLDS: No, I am not doing 4 anything to that effect. 5 MR. THOMPSON: Are you asking the 6 Board to approve now, to endorse in this case the 7 approach that it, for the purposes of setting rates, in 8 E.B.R.O. 497 rejected? Is that part of the 9 proposition? 10 MS REYNOLDS: No. The Board in its 11 decision stated that they wanted the allocation 12 methodology reverted to the historic pro rata 13 methodology, which the company has done. 14 MR. THOMPSON: I think I am 15 descending into argument. 16 Thank you very much. Those are my 17 questions. 18 THE PRESIDING MEMBER: Thank you, 19 Mr. Thompson. 20 Ms Lea, do you have any questions? 21 MS LEA: Thank you; no. 22 THE PRESIDING MEMBER: I have just a 23 couple of questions. I am just trying to understand 24 something, Ms Reynolds. 25 If you look at Exhibit I, Tab 1, 26 Schedule 82, I want to understand some basics of 27 ratemaking that go into this schedule. 28 At line 6, rental equipment, over the 802 RICCIO/REYNOLDS 1 years 1995 to 2000, if you look at 1995 there is an 2 amount of $7.8 million as an example. That is 3 recognized in rate base in that year. 4 MS REYNOLDS: That's correct. 5 THE PRESIDING MEMBER: The same would 6 happen in 1996, with $7.5 million, and so on. 7 MS REYNOLDS: Correct. 8 THE PRESIDING MEMBER: What happens 9 now if you remove the rental program? What happens to 10 those old amounts that have been capitalized? 11 MS REYNOLDS: The rental program 12 assets are being removed at their net book value. So 13 to the extent that capitalizable A&G has been allocated 14 to the rental program in the past, those amounts will 15 be removed from rate base. 16 THE PRESIDING MEMBER: That will 17 include the $9.1 million that Mr. Thompson was 18 referring to? 19 MS REYNOLDS: Yes. I guess I should 20 clarify that some of these amounts relate to NGV. So 21 if we ignore the NGV component and just assume that it 22 is all rental, then yes, the amount that gets removed 23 from rate base when the rental program is removed is 24 $9.1 million for 1999. 25 THE PRESIDING MEMBER: So there 26 should be nothing in rate base for the year 2000 that 27 will pertain to the rental program -- 28 MS REYNOLDS: That's correct. 803 RICCIO/REYNOLDS 1 THE PRESIDING MEMBER: -- associated 2 with the capitalization of A&G. 3 MS REYNOLDS: Right, with the 4 previous allocations. That's correct. 5 THE PRESIDING MEMBER: When the rates 6 were set for 1999 -- that was in E.B.R.O. 497 -- there 7 would have been an amount that will reflect all the 8 capitalization over the years, when the rates were set 9 in the 497 case. 10 MS REYNOLDS: That's right. Rates 11 would have included depreciation on all of those assets 12 and the return on those assets. 13 THE PRESIDING MEMBER: Right. 14 MS REYNOLDS: But I am not a rate 15 base expert. 16 THE PRESIDING MEMBER: It would 17 include a portion of those amounts, the undepreciated 18 portion, if you like. 19 MS REYNOLDS: Yes. 20 THE PRESIDING MEMBER: Okay. Going 21 forward now to 2000, you say that you have removed all 22 those things from rate base. 23 MS REYNOLDS: Related to rental 24 assets, yes. 25 THE PRESIDING MEMBER: The rates 26 themselves, then -- the revenue deficiency, because we 27 don't have the rates yet. The revenue deficiency or 28 revenue requirement would reflect lower for rate base, 804 RICCIO/REYNOLDS 1 everything else being equal, of course. 2 Mr. Riccio, I think probably I should 3 address these questions to you. 4 MR. RICCIO: Yes, rate base would be 5 lower. 6 I think we were referred to a 7 schedule earlier, IGUA Exhibit I, Tab 12, Schedule 41, 8 page 6. Column 2 had the impact of E.B.O. 179-14/15 9 decision, and there is a rate base adjustment there of 10 $545.42 million. That would include the rental program 11 in there. 12 THE PRESIDING MEMBER: I want to hear 13 again the information you gave to Mr. Thompson as to if 14 the current rates were based on -- I'm sorry, what 15 happens to the $11.7 million? I think that is the 16 question that Mr. Thompson had asked. 17 I am not sure that I followed the 18 answer. Could you give it to me again? 19 Mr. Thompson came from the 20 $20.8 million. He subtracted $9.1 million, and 21 $11.7 million is -- the revenue requirement is 22 overstated by that amount, if you like. That is how I 23 read his questions. 24 MS REYNOLDS: We are saying that the 25 $11.7 million was the portion of the capitalized A&G 26 that got allocated to utility assets in utility rate 27 base. 28 THE PRESIDING MEMBER: Right, because 805 RICCIO/REYNOLDS 1 you are starting from the total of $20.8 million, which 2 includes the utility plus the rental program. Then if 3 you back out the $9.1 million that is associated with 4 the rental program, the rate -- the gas distribution 5 customers were responsible for $11.7 million. 6 MS REYNOLDS: That is correct. 7 THE PRESIDING MEMBER: And that is 8 reflected in the rates that are currently in place. 9 MS REYNOLDS: That's correct. 10 THE PRESIDING MEMBER: All right. 11 What was your explanation for that? 12 MS REYNOLDS: In determining what 13 would be an appropriate amount in our O&M to support 14 capital activities, we went to each department and 15 ensured that the dollars that were in the O&M were 16 supporting putting utility capital in place; that there 17 was no additional ability. This was in conjunction 18 with identifying the impact of the rental program 19 wind-down. 20 But there were no additional costs 21 that the department could reorganize or rationalize 22 that truly the costs that they currently have 23 identified with capital activities are those that they 24 will reasonably incur in the 2000 test year to put -- 25 THE PRESIDING MEMBER: I'm sorry, 26 Ms Reynolds. My question is more basic than that. 27 Why doesn't the $20.8 million become 28 something like $11.7 million? 806 RICCIO/REYNOLDS 1 MS REYNOLDS: It's because the 2 underlying activities to put utility capital in place 3 are much more complicated and complex and extensive 4 than those activities involved in putting rental 5 capital in place. 6 It is what we saw in last year's 7 study and it is again what we saw when we went back to 8 the departments as part of the unbundling budget and 9 assessing the impact of the rental program wind-down. 10 The results that we saw in E.B.R. 497 11 were borne out by the discussions with departments and 12 the analysis of the underlying O&M required to put 13 utility constructed capital assets in place. 14 THE PRESIDING MEMBER: I am going to 15 leave it transferred, Ms Reynolds, but I must say that 16 I just -- I don't find it convincing that, now, going 17 forward, you don't have the rental program, and the O&M 18 expenses do not change that materially to justify a 19 capitalized A&G that would be the same as the previous 20 year. 21 Maybe there is an explanation there 22 which I have to find in your answer in the transcript. 23 I just don't understand it. I think that is what 24 Mr. Thompson's problem is as well. 25 MR. THOMPSON: I understand, but I 26 don't like it. 27 THE PRESIDING MEMBER: Do you 28 understand my question, Mr. Thompson? 807 RICCIO/REYNOLDS 1 MR. THOMPSON: Yes, I do -- 2 THE PRESIDING MEMBER: All right. 3 Why wouldn't the 20.8 become 4 something substantially less for the year 2000, and the 5 substantial less would accommodate or would reflect 6 something like 9.1, leaving NGV aside, okay? That is 7 where I have a problem. 8 The answer may be in the transcript, 9 but it just doesn't come to me right now. 10 MS REYNOLDS: The answer is the 11 underlying activities that were identified by the 12 departments in the company. 13 THE PRESIDING MEMBER: I know, 14 Ms Reynolds. That is the same answer you gave me 15 before. 16 Can you find a different way to 17 explain it to me? 18 MR. RICCIO: Let me try and just add 19 a little bit here. 20 We are focussing on the $9.1 million 21 that was allocated to the rental program in the 1999 22 Board-approved budget. That $9.1 million was arrived 23 at by a calculation based on capital expenditures 24 incurred in the various accounts listed there. 25 So 9.1 is the amount that was arrived 26 through the rental program. It has no relationship to 27 the actual amount of O&M expense that the company is 28 incurring to add the rental equipment in that 808 RICCIO/REYNOLDS 1 particular year. 2 The amount that we are saying is 3 attributable to that is $1.9 million, and it was used 4 to arrive at the base. 5 So we are confusing the $9.1 million 6 as being the amount of capital or A&G overhead incurred 7 by the company to add rental equipment. That is why 8 there is the expectation that the $9.1 million will 9 disappear. It won't. We are saying 1.9 is the number. 10 THE PRESIDING MEMBER: It would not 11 disappear because you are saying those are fixed costs? 12 MR. RICCIO: Well, no. It is, to use 13 a loose term, an arbitrary allocation. 14 The $9.1 million is just an 15 allocation made to the rental equipment based on the 16 relative expenditures within the various capital 17 accounts. 18 I used an example earlier that if we 19 were to change -- or say in fiscal 1999 the mains were 20 to double, it would change the amount that the rental 21 program would attract, even though the rental program 22 has not added a single dollar more than it had 23 originally budgeted. 24 So it is simply a mathematical 25 calculation and doesn't represent the activities, the 26 O&M activities, that the company has undertaken to add 27 rental program additions. That amount is $1.9 million, 28 the amount that the company is incurring, costs, O&M 809 RICCIO/REYNOLDS 1 costs it is incurring to add rental equipment capital, 2 and that is what we are adjusting the base by. And 3 then come fiscal 2000 we are allocating it based on the 4 approved methodology of proration. 5 THE PRESIDING MEMBER: If you are 6 staying with 20.8, but you no longer have to worry 7 about the rental program, shouldn't the total A&G for 8 the year 2000 be something smaller, then, the A&G 9 overheads -- 10 MR. RICCIO: Yes, that's correct. It 11 is smaller by $1.9 million. 12 THE PRESIDING MEMBER: I'm saying 13 that may not be enough and that is what my problem is. 14 It shouldn't be substantially less than -- the 15 adjustments should be more than 1.9, like the 16 $9 million. 17 MR. RICCIO: Again, we are comparing 18 it to a $9 million which is an arbitrary allocation. 19 Again, I use that term "arbitrary" because it is a 20 prorated amount. 21 I think someone earlier referred to 22 the earlier years, for instance, 1995, 1996 and 1997, 23 where rental equipment was only attracting 7.8 and 24 $7.5 million in 1995 and 1996, respectively, with the 25 total being 22.8 and $23.5 million. 26 It got a lower allocation in years 27 where we had higher total capitalized A&G. The reason 28 for that was, from looking at this, that services and 810 RICCIO/REYNOLDS 1 mains were higher in those years. 2 THE PRESIDING MEMBER: Okay, 3 Mr. Riccio. I want to leave it on that basis. I will 4 read the transcript carefully. I must say, I still 5 don't fully understand it and I have to understand it 6 by the end of the hearing. So any assistance that you 7 can provide on paper, an undertaking, or even in 8 argument in-chief, it would be appreciated. 9 MEMBER HALLADAY: I am having 10 difficulty in understanding. 11 I understand conceptually that the 12 allocations based on the 1999 were in fact based on 13 capital expenditures incurred. So you took all of your 14 O&M-related expenses to put those capital assets in 15 place, and then you arbitrarily allocated that in 16 accordance with the capital expenditures in each 17 category. That is what you did. 18 MR. RICCIO: That's correct. 19 MEMBER HALLADAY: Okay. 20 Now, you are saying that in order to 21 put capital assets in place in 2000 you have taken out 22 the rental program, so you don't have to put it in 23 capitalized for the rental program, and you have 24 determined that lo and behold it costs more -- the 25 allocation in 1999 was in fact wrong as a practical 26 matter in that costs more to put capital assets in 27 place for the other assets, like the services, metres, 28 et cetera, than it did to put the capital assets in 811 RICCIO/REYNOLDS 1 place for the rental program. 2 Am I following along what you are 3 saying? 4 MR. RICCIO: Yes. We are not saying 5 that it is wrong, it is just those accounts are 6 attracting more A&G than it previously did. 7 MEMBER HALLADAY: Okay. 8 Now you have taken out the cost of 9 the rental program. I guess what I am having trouble 10 understanding conceptually is why there is such a 11 difference, from a practical point of view -- not an 12 accounting point of view but a practical point of 13 view -- why there is such a difference in putting in 14 the O&M capitalized expenses -- the A&G capitalized 15 expenses, I guess it is, for the rental program assets 16 versus the other capital assets of the utility, from a 17 practical point of view. 18 MR. RICCIO: We are getting I guess 19 into a lot of the more technical side of the business, 20 but installing, I guess, mains and services involves a 21 lot of pre-work in terms of drafting and approvals that 22 are required. There is a significant amount of effort 23 to put in main services and metres as opposed to rental 24 equipment where basically it is an installation of a 25 unit and there is no, I guess, drafting costs or costs 26 of that nature. I think we have described some of them 27 there. It is basically just an administrative cost of 28 paying the bills and ordering the water heaters and 812 RICCIO/REYNOLDS 1 arranging for it to get installed. 2 So there is a big difference between 3 installing a water heater and installing a main and a 4 service. 5 THE PRESIDING MEMBER: That was the 6 reason that last year you proposed to change the 7 methodology and the Board said, "No. Go back to the 8 previously approved methodology." 9 MS REYNOLDS: The previously approved 10 allocation methodology, yes. 11 THE PRESIDING MEMBER: So you 12 identified those differences in the effort between 13 distribution capital and rental capital, you came 14 forward, and I believe there was also some so-called 15 double counting with respect to the rental program 16 which you tried to address. 17 MS REYNOLDS: That's right, through 18 the previous cost allocation study, E.B.O. -- 19 THE PRESIDING MEMBER: But those were 20 the two -- I'm sorry. 21 Those were the two main reasons, and 22 the Board said no, which means that the issue that 23 there is more effort, more expenses shared with 24 distribution capital than rental capital, that issue 25 has gone away. 26 But now I hear that that issue is 27 again into the determination of the capitalized A&G in 28 this year. I am totally confused now. 813 RICCIO/REYNOLDS 1 MS LEA: You are right. 2 THE PRESIDING MEMBER: I am right I'm 3 confused? 4 --- Laughter 5 MS LEA: I mean, I don't think you 6 are confused, Mr. Chair. 7 THE PRESIDING MEMBER: In any event, 8 I am not saying we can take this further today, but 9 perhaps, then, you can -- anything you can offer by way 10 of explanation, through an undertaking I guess, to 11 better understand those, Mr. Thompson, if you -- I 12 guess the panel's questions will be appreciated now. 13 Ms Halladay may have some more 14 questions. Do you? 15 MEMBER HALLADAY: No. 16 THE PRESIDING MEMBER: We don't have 17 any more questions, but an explanation would be 18 appreciated, and perhaps you can follow it up with 19 argument as well. 20 MS REYNOLDS: Certainly. 21 MS SOUDEK: We agree to provide an 22 explanation for the issues under discussion that flow 23 from your questions, Mr. Chairman, and you, 24 Ms Halladay, by way of undertaking. 25 UNDERTAKING NO. J5.2: Ms Soudek 26 agrees to provide an explanation 27 for the issues under discussion 28 that flow from the questions of 814 RICCIO/REYNOLDS 1 the Chairman. 2 MS LEA: Would the witnesses be 3 available for cross-examination on that undertaking if 4 questions still remain? 5 MS SOUDEK: Yes, they will. 6 MS LEA: Thank you. 7 In those circumstances, then, 8 Undertaking J5.2. 9 Ms Soudek, I guess if you wish to 10 leave it for argument that is also an option that the 11 Panel Members were suggesting. 12 MS SOUDEK: Perhaps, Ms Lea, we could 13 consider and advise you, through Mr. Farrell on Monday, 14 what we feel is most appropriate: undertaking or 15 argument. Is that fair? 16 THE PRESIDING MEMBER: That is fine, 17 yes. Thank you. 18 Ms Soudek, over to you. Any 19 re-direct? 20 MS SOUDEK: No, sir. 21 THE PRESIDING MEMBER: Okay. 22 Panel, thank you very much. You are 23 excused. 24 Any matters before we adjourn for the 25 day? 26 MS SOUDEK: I have -- oh, sorry, 27 Ms Lea. 28 MS LEA: Go ahead. 815 1 MS SOUDEK: I have one matter, 2 Mr. Chairman. 3 We would like to file a letter to 4 Mr. Pudge, dated the 27th of August. It's the second 5 letter of today's date. That letter files Exhibit 6 J2.1, which is the response to an undertaking given 7 earlier this week, and Exhibit N1, Tab 2, Schedules 1 8 to 7, which is entitled, "The Effect of the Settlement 9 Proposal", as well, the letter files with Mr. Pudge, 10 Exhibit I, Tab 12, Schedule 56, which is an updated 11 response to an interrogatory. We have copies 12 available. 13 MS LEA: Thank you. 14 So we start on Monday with Part 1 of 15 Panel 10. Is that the plan? 16 MS SOUDEK: That's correct, Ms Lea. 17 MS LEA: Thank you. 18 THE PRESIDING MEMBER: Thank you very 19 much. We will see you Monday, at nine, then. 20 Have a good weekend. 21 --- Whereupon the hearing adjourned at 1205, 22 to resume on Monday, August 30, 1999 at 0900