1994 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 Gas 8 Company Ltd., carrying on business as Enbridge Consumers 9 Gas, for an order or orders approving or fixing rates 10 for the sale, distribution, transmission and storage of 11 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 Thursday, September 9, 1999, 24 commencing at 0902 25 26 RATES HEARING 27 28 VOLUME 12 1995 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 T. LADANYI 8 H. SOUDEK 9 ROBERT WARREN Consumers Association of 10 Canada 11 TOM BRETT Ontario Association of 12 School Business Officials of 13 the Metropolitan Toronto 14 Separate School Board 15 IAN MONDROW Heating, Ventilation and Air 16 Conditioning Contractors Coalition 17 Inc., HVAC Coalition 18 GEORGE VEGH Coalition for Efficient 19 Energy Distribution 20 MARK MATTSON/ Energy Probe 21 MICHAEL 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 1996 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 1997 1 Toronto, Ontario 2 --- Upon resuming on Thursday, September 9, 1999 at 0902 3 PREVIOUSLY SWORN: JIM G. STEPHENS 4 THE PRESIDING MEMBER: Good morning everyone. 5 MR. FARRELL: Good morning. 6 THE PRESIDING MEMBER: Any preliminary 7 matters, Mr. Farrell? 8 MR. FARRELL: Yes. 9 PRELIMINARY MATTERS 10 MR. FARRELL: You and Ms Halladay should have 11 two documents that I put up there. One is the template, 12 the E.R.O.'s template, for the monitoring reports. 13 This is what you asked for, Mr. Chair, in 14 Volume 10 of the transcript, page 1773. So, on behalf 15 of Board Staff, we are filing it. 16 MS LEA: Well, thank you very much, sir. 17 That will be K12.1, please. 18 EXHIBIT NO. K12.1: E.R.O.'s template for 19 the monitoring reports 20 MR. FARRELL: The other is just another -- the 21 other document, rather, is just another update to the 22 hearing schedule to keep us current. At least to this 23 morning. 24 Another preliminary matter, Mr. Chair, is the 25 Undertaking J8.1. This is Mr. Janigan's undertaking 26 that we discussed yesterday. Mr. Ladanyi was able to 27 speak with Mr. Janigan yesterday afternoon and he has 28 consented to our ending our inquiries. 1998 STEPHENS, Preliminary Matters 1 So I think, just so it's on the record, I will 2 read an answer for Undertaking J8.1 and it will then be 3 deemed to be answered on the transcript. 4 The response is as follows: 5 "As a result of the passage of time since 6 the BPR work was done, there have been 7 numerous personnel changes at each of 8 these consulting organizations. The 9 company has not been able to determine, 10 to date, whether or not these 11 organizations would object to filing 12 their respective consulting contracts 13 with the company. With Mr. Janigan's 14 consent, no further inquiries will be 15 made." (As read) 16 There is an outstanding matter from page 481 17 of the transcript. I thought I would just have this 18 recorded. It was a question that Mr. Brett asked of 19 Ms Gould, having to do with telecommunications 20 deregulation, and Mr. Brett is checking into the 21 accuracy of this comment and will advise us, either 22 today or in writing, whether it is accurate or needs to 23 be changed, and that's quite acceptable to us. 24 That's all I have. 25 THE PRESIDING MEMBER: Mr. Farrell, just a 26 couple of items. 27 Is it necessary to change the argument 28 schedule because of a one-day delay? 1999 STEPHENS, Preliminary Matters 1 I guess it all depends on the company, whether 2 they will be able to file their in-chief by September 3 22nd. 4 MR. FARRELL: I was just consulting with 5 Mr. Ladanyi. 6 I think that we would be more comfortable if 7 we just then keyed off the 9th so it would then become a 8 series of Thursdays for argument. The last day of the 9 hearing, presumably, is today. Argument-in-chief would 10 be Thursday, September 23rd, intervenor argument, 11 Thursday, October 7th, and reply argument Thursday, 12 October 21st. 13 THE PRESIDING MEMBER: Okay. The second item. 14 Here we are middle of September. Fiscal year commences 15 October 1st. Is there any thought of the company filing 16 for interim rates for the commencement of the fiscal 17 year? 18 MR. FARRELL: We have the request for an 19 interim rate to pick up the gas costs that were settled 20 and our thinking, at the time, that those were the rates 21 that would come into force on October 1st, adjusted for 22 the gas costs which have been settled, and then it would 23 be followed by a final rate order which would pick up 24 the effects of your decision on the outstanding issues. 25 So that was our plan, in terms of staging it 26 through one interim, having to do with the settled gas 27 costs. 28 THE PRESIDING MEMBER: Okay. So the new 2000 STEPHENS, Preliminary Matters 1 rates, then, are interim rates? 2 MR. FARRELL: Yes. 3 THE PRESIDING MEMBER: All right. That's 4 fine. That addresses -- 5 MR. FARRELL: And we have -- I'm assuming we 6 are working on what you requested; and that is, an 7 interim rate order to be filed with the Board for 8 processing and approval. 9 We haven't done that yet, but I'm assuming 10 that it's in the works and will be filed with the Board 11 in enough time for you to review it and then have it 12 come into force, on an interim basis, on October 1st. 13 MS LEA: Yes, we will need some time to review 14 it, Mr. Farrell. So we will need that in advance, 15 considerably in advance, of October 1st. 16 MR. FARRELL: Yes, we understand that. 17 MS LEA: Thank you. 18 THE PRESIDING MEMBER: All right. Thank you. 19 Mr. Farrell, over to you. 20 MR. FARRELL: I don't know whether 21 Mr. Thompson has any preliminary matters. 22 MR. THOMPSON: Yes, thank you, Mr. Farrell, 23 Mr. Chairman. 24 I have some preliminaries concerning some of 25 the undertaking responses that were filed yesterday. I 26 thought I would leave those until Mr. Stephens is 27 finished. I just mentioned them to Mr. Farrell off 28 line, and I will discuss them further, but I don't want 2001 STEPHENS, Preliminary Matters 1 to interrupt the flow dealing with those at the moment. 2 We are in a position to respond to one 3 interrogatory and part -- sorry -- one undertaking and 4 part of a second. 5 Undertaking J11.1, at transcript 1940. 6 Mr. Stephens undertook to check and advise when he asked 7 Mr. Galluzzi to produce the documents entitled, "A 8 Customer System Industry Perspective Position Paper", 9 dated August 9, 1999, which is attached as Appendix 8 to 10 his testimony. 11 Could you provide the response to that 12 undertaking, please, Mr. Stephens? 13 MR. STEPHENS: Yes. After checking through my 14 schedule, here is what I determined -- and it's not dead 15 accurate, because of voice mail sometimes you miss 16 people. 17 My first discussion with Greg Galluzzi was 18 July 12th or 13th. Following that, I met with 19 Mr. Thompson, in Ottawa, and we talked about whether we 20 should, in fact, hire him and bring him here. It was 21 probably not going to be allowed, according to his 22 schedule, so, instead, we had this position paper 23 created. 24 The second was July 19th or 20th. I know, at 25 that time, we talked about, you know, what I wanted in 26 the paper. 27 The third was August 3rd, where we talked more 28 specifics about what was in that paper. 2002 STEPHENS, Preliminary Matters 1 The report, I got the evening of August 9th, 2 while in the hotel, and reviewed it there. 3 And the morning of August the 11th, Greg 4 Matwichuk -- who is a person I used from Stephen Johnson 5 in Calgary -- and I talked to Greg Galluzzi, on the 6 phone, about the report and what was in it and, you 7 know, some questions I had about it. 8 Is that satisfactory? 9 MR. FARRELL: Yes, I think it is. 10 I'm just looking at the transcript page where 11 the undertaking is recorded. 12 --- Pause 13 MR. FARRELL: I had asked you, on page 1940, 14 starting at line 4, whether you knew if the report was 15 an original work after you spoke to him or is it 16 something he took off the shelf. And I'm just reading 17 your answer to me and I'm prepared to accept it, so 18 that's fine. 19 MR. THOMPSON: The next one was Undertaking 20 J11.2, which is recorded in the transcript, at page 21 1983, but there was some discussion about it after that. 22 My understanding is that this undertaking 23 really has two parts to it. The first was to clarify 24 whether the next release of Enlogix' SCT, scheduled for 25 the autumn of 1999, will be the existing version of the 26 software currently being used to serve 280,000 customers 27 of Union, formerly the Centra customers, and also being 28 used, as I understand it, to serve Union Energy, or an 2003 STEPHENS, Preliminary Matters 1 enhanced version of the software. 2 I believe we are in a position to answer that 3 part of the question. 4 Could you help us there, Mr. Stephens? 5 MR. STEPHENS: Yes. I talked to John Roberts, 6 who is the VP of Enlogix' customer service and he 7 confirmed that, for nearly all transactions, terminal 8 response time is subsecond with what were the 280,000 9 Centra Gas Ontario customers. 10 He also confirmed that to be true at Union 11 Energy Inc. 12 He went on to explain that the Enlogix is 13 adding significant function in what they term Phase II, 14 which will be implemented at the original 795,000 Union 15 Gas customers. This additional function provides 16 service order and dispatch function. 17 It's also needed at Centra Gas Manitoba and is 18 being implemented, in the next month, there, as well. 19 Now, I was not able to talk to Kalim Sheikh, 20 who is the technical director, and he might be able to 21 give me some of these things you want from -- or sort of 22 a benchmark indicator. 23 MR. THOMPSON: Yes. I was going to say the 24 second part of the undertaking response, as I interpret 25 it, was that we were asked to determine the database, 26 on-line transaction parameters, batch volume demands, 27 concurrent users and hardware capacity; and parameters 28 of the development or test environment which 2004 STEPHENS, Preliminary Matters 1 Mr. Stephens witnessed operating at Enlogix. 2 And we were also asked, as I understood it, to 3 determine whether the response time on the production 4 environment was subsecond. I believe Mr. Stephens has 5 answered that. 6 We have not been able to reach Mr. Sheikh, is 7 it? 8 MR. STEPHENS: Yes, he was out of town. 9 MR. THOMPSON: We will try again this morning. 10 He is supposed to be back today, so hopefully we will be 11 able to answer that question at the break. 12 But in terms of the response time in the 13 production environment, you have provided information on 14 that this morning, have you? 15 MR. STEPHENS: Yes, I did. 16 MR. FARRELL: Just to be clear, Mr. Stephens, 17 is the existing application -- 18 MR. STEPHENS: Its function is an add-on 19 module, and it is still the same SCT version. 20 MR. FARRELL: Okay. It is the one that is 21 serving the 280,000 Centra customers, and you said also 22 Union Energy. 23 MR. STEPHENS: Agreed. 24 MR. FARRELL: Not to belabour this, but one of 25 the other things, in addition to the technical 26 information you were going to obtain, is whether the 27 demonstration you saw was running in a test environment 28 or a development environment. 2005 STEPHENS, Preliminary Matters 1 MR. STEPHENS: Until I talk to Kalim, I do not 2 know that. 3 MR. FARRELL: I appreciate that. I just 4 wanted to confirm that that is something you are going 5 to ask him when you do talk to him. 6 MR. STEPHENS: The more I think about it, I 7 don't think he is going to know the answers to these 8 questions. We just walked over to this person that was 9 a developer as one of many developers in that area, and 10 he showed me this function. 11 MR. FARRELL: Let's see what you can do. 12 MR. THOMPSON: We will speak to him first and 13 then we will report back. 14 The only other point on the topic of Enlogix, 15 Mr. Chairman, that I wanted to draw your attention to 16 and the attention of others is that in Professor 17 Trebilcock's prefiled evidence in this case, which is 18 evidence filed on behalf of Cengas -- I don't happen to 19 have the exhibit number, but I have borrowed staff's 20 version of the evidence. 21 This is the evidence of Michael J. Trebilcock. 22 The exhibit number is L7.2. It is entitled "Unbundling 23 of LDC Merchant and Distribution Functions in Ontario". 24 In Appendix B of this testimony, he has 25 detailed Internet information on selected revenue cycle 26 function suppliers, and there is in that information the 27 Web site for Enlogix which describes both the release 28 for the 280,000 former Centra customers and also the 2006 STEPHENS, Preliminary Matters 1 900,000 Union Energy users. 2 I thought I should flag that in connection 3 with this discussion of Enlogix. 4 Thank you. Those are my preliminaries. 5 THE PRESIDING MEMBER: Thank you, 6 Mr. Thompson. 7 Mr. Farrell? 8 MR. FARRELL: We will look at the Enlogix 9 promo material in due course. 10 CONTINUED CROSS-EXAMINATION 11 MR. FARRELL: Could you turn to page 13 of 12 your evidence, Mr. Stephens. 13 MR. STEPHENS: Yes. 14 MR. FARRELL: Bear with me while I read my 15 notes, because at this point I was going to discuss with 16 you your impressions from the two demonstrations, which 17 appear under 4.8, CIS Solution Demonstrations. But I am 18 not sure that we can have a fruitful discussion without 19 the responses to the undertaking that you need to speak 20 with the technical director about. 21 Could I have a moment, Mr. Chair? 22 THE PRESIDING MEMBER: Certainly. 23 --- Pause 24 MR. FARRELL: Mr. Stephens, we had a 25 discussion yesterday about the variability of CIS 26 solutions, and we went through these factors that I then 27 asked you to find out from Enlogix. I don't think it 28 would be fruitful to go through the same factors again 2007 STEPHENS, cr-ex (Farrell) 1 in relation to the demonstration you saw until you have 2 the information from the technical director. It may be 3 sufficient to put that on the record in writing 4 depending on when you are able to get hold of him. 5 Before I leave this point, would you agree 6 with me that in terms of a customer service function, 7 the important thing overall is the total response time 8 it takes a CSR to respond to a customer's inquiry or 9 inquiries in any given phone call? 10 MR. STEPHENS: Yes, absolutely. 11 MR. FARRELL: If the customer makes a number 12 of inquiries or one inquiry that requires the CSR to 13 call up a lot of data -- and here I am sort of venturing 14 into a technical area. I hope you will bear with me. 15 My understanding is that, depending upon the 16 amount of data that is called up, the packet size may 17 determine how many packets are needed to bring the data 18 from the database to the screen. 19 MR. STEPHENS: It depends how you have 20 designed and written the application. 21 We went into this yesterday. 22 MR. FARRELL: The point I was trying to direct 23 your attention to -- and we did talk about a denser 24 screen with more data on it. 25 The point that I was seeking your assistance 26 on is -- using an analogy of the postal system: If you 27 need 100 pages of data but their packet size is only 25 28 like an envelope, you would need to take the 100 pages, 2008 STEPHENS, cr-ex (Farrell) 1 divide them into four, put 25 in each envelope, call 2 them up, and then on the screen they would be 3 re-assembled. 4 Is that a fair analogy? 5 MR. STEPHENS: Well, it might work. 6 MR. FARRELL: My point is that if you have a 7 screen that has more information on it to answer the 8 customer's inquiry, it then may take less inquiries to 9 satisfy the customer's needs and so the overall response 10 time could be less than if you needed only two screens 11 compared to six. 12 Is that fair? 13 MR. STEPHENS: Yes, I would agree with that. 14 Also in screen design, when you are designing 15 the screens if you put too much information on them, 16 they are usually somewhat confusing to the operator. So 17 when you are going through this design, you make these 18 trade-offs when you are designing and implementing the 19 system. 20 MR. FARRELL: Okay, I take your point. 21 MR. STEPHENS: You and I are pretty technical 22 right now. 23 MR. FARRELL: I am told that I am, yes. 24 I think that -- I will just check my notes on 25 your answer. I had a question for you about your third 26 bullet point on page 13, in Section 4.8, about the 27 Enlogix solution being operational and the ECG solution 28 being developed. 2009 STEPHENS, cr-ex (Farrell) 1 I think you might have addressed this 2 yesterday but just to confirm: Your comment is that it 3 is operational because it is serving, in its current 4 version, the 280,000 Centra customers. This is the 5 Enlogix SCT solution. 6 MR. STEPHENS: Yes. And maybe just as 7 importantly, it allows both the inquiry and the update 8 of information. ECG gets to that in November when they 9 get that capability added to their application. 10 MR. FARRELL: Yes, and I am not quibbling with 11 you over that. But you would agree, I take it, that 12 with the first release, the ECG solution is also 13 operational. It is in production mode. 14 You saw it. 15 MR. STEPHENS: Well, whatever you want to 16 interpret. It is difficult to think that if I want the 17 application to do this much and all I have done is 18 replace the technology, so it kind of does what it did 19 before -- whether that is operational is your 20 interpretation. 21 MR. FARRELL: And yours. 22 MR. STEPHENS: And mine. 23 MR. FARRELL: I think you touched on this 24 yesterday, but I just want to make sure that I 25 understood your answer. 26 You say the Enlogix SCT solution was less 27 technically complex than the ECG solution, and then you 28 made reference to the ECG solution being a four-tier 2010 STEPHENS, cr-ex (Farrell) 1 system. 2 MR. STEPHENS: Yes. 3 MR. FARRELL: I am advised that that is not 4 the case, that the ECG solution is a three tier system 5 consisting of the mainframe, a Unix server and the PC 6 and that the Intel server that you referred to has no 7 role whatsoever in relation to CIS. 8 MR. STEPHENS: If that's true, then it is 9 three tier. I understood that they put on to the Intel 10 server some of the display formats -- is that 11 correct -- so that would make it a four tier, but 12 anyway, if you say its only three. 13 MR. FARRELL: Mr. Kent is confirming that it's 14 three. If this is a point in dispute, we will have to 15 see whether we need Mr. Kent to be a rebuttal witness. 16 Maybe the two of you can speak off line at the break. I 17 would hate to have to call rebuttal evidence just to 18 deal with this point, but we regard it as an important 19 one. 20 MR. STEPHENS: But just to clear up the 21 complexity, you also move part of the database from the 22 DB2 B frame server on to the Unix cybase server, so you 23 have two separate databases. You move a piece of that 24 in order to improve response time out of the terminal. 25 The other is basically take it from the 26 database server out through that other Unix server to 27 the terminal. It's certainly not as complicated, I 28 don't think. And maybe complicated is good because it 2011 STEPHENS, cr-ex (Farrell) 1 might improve response time some time. 2 MR. FARRELL: Okay. I have your answer. Now, 3 can I take you to page 18. 4 MR. STEPHENS: I have it. 5 MR. FARRELL: This is your functionality 6 summary which you say the chart summarizes at a high 7 level the characteristics of the three solutions we have 8 been discussing. 9 You might have mentioned this yesterday in 10 your examination-in-chief, and if you did, forgive me 11 for taking you back there. Can you tell me which of 12 these characteristics are the significant ones in terms 13 of identifying differences between or among the three 14 systems that you are showing or depicting in this chart? 15 MR. STEPHENS: Well, I would say the 16 significant ones are the fact that the other two use a 17 package solution versus this tool set that you 18 customized. And then the fact that the functionality 19 inside of the ECG solution is not as complete as those 20 in the others. 21 MR. FARRELL: Where do I see that on the 22 chart? 23 MR. STEPHENS: Oh, under function -- well, 24 technology is the top line, under technology there, and 25 functionality are the bottom three points, so the fifth 26 4D deregulated business model, the flexible billing 27 options and the Internet access and bill payment. 28 MR. FARRELL: Okay. We will deal with that. 2012 STEPHENS, cr-ex (Farrell) 1 We have dealt in part with the fifth 4D regulated 2 business model and we had our discussion of Mr. 3 Galluzzi's unregulated business model versus the state 4 of the deregulated market in Ontario and what may be 5 coming. Do you recall that discussion? 6 MR. STEPHENS: Yes. 7 MR. FARRELL: And is it fair of me to say that 8 you have simply assumed that Mr. Galluzzi's or TMG's 9 deregulated business model is in fact a model that is 10 applicable to the Ontario market now and the Ontario 11 market as it's envisioned, at least in -- 12 MR. STEPHENS: I think I said, you know, I 13 couldn't be sure, but it seemed to make sense. 14 MR. FARRELL: That's your assumption. 15 MR. STEPHENS: Yes. 16 MR. FARRELL: Thank you. In terms of flexible 17 billing options, what do you mean by that? 18 MR. STEPHENS: Well, there are a number of 19 billing options that are described, I guess, best in the 20 P software solution at BC Gas, but more importantly, the 21 program that today does the billing at ECG and that will 22 do it in the future is an older system that's mainframe 23 based. When it was designed, it wouldn't have used the, 24 you know, table driven structures that are in today's 25 more modern software products. 26 MR. FARRELL: The table -- 27 MR. STEPHENS: Table driven. 28 MR. FARRELL: I didn't hear the "driven". 2013 STEPHENS, cr-ex (Farrell) 1 Thank you. 2 You describe the BC Gas flexible billing 3 options on page 15. 4 MR. STEPHENS: Yes. 5 MR. FARRELL: That's the second last 6 paragraph. 7 MR. STEPHENS: Agreed. 8 MR. FARRELL: The first is summary billing. 9 MR. STEPHENS: Yes. 10 MR. FARRELL: Are you familiar with the term 11 "statement billing"? 12 MR. STEPHENS: No, I'm not. 13 MR. FARRELL: But you accept, subject to 14 check, that it's the same thing as you are describing as 15 summary billing. 16 MR. STEPHENS: Yes. 17 MR. FARRELL: Can you confirm or do you know 18 whether Enbridge now offers summary billing, to use your 19 term? 20 MR. STEPHENS: Well, I haven't seen the 21 system. I assume that since they wrote it that way, it 22 must. They said they were going to provide that kind of 23 function. 24 MR. FARRELL: Well, maybe to see whether we 25 can do this, do you know whether or not Enbridge 26 currently provides and can continue to provide each of 27 these billing services that you have described here? 28 MR. STEPHENS: I do not believe that they can 2014 STEPHENS, cr-ex (Farrell) 1 do the electronic billing, nor the on demand billing. 2 MR. FARRELL: What do you mean by on demand 3 billing? 4 MR. STEPHENS: Basically that someone requests 5 that they get a bill right now and that it's produced. 6 MR. FARRELL: I am advised that Enbridge can 7 do that, for example, when a customer changes locations, 8 sells his house, for example, and that it's also done 9 for large volume customers. Are you disagreeing with 10 that? 11 MR. STEPHENS: If they say that, that's true. 12 MR. FARRELL: In terms of electronic billing, 13 I have been advised that it is a function that can be 14 added at a reasonable cost. Would you confirm that? Is 15 that your experience? 16 MR. STEPHENS: I don't know the answer to 17 that. 18 MR. FARRELL: You don't know the answer to 19 that. All right. Would you regard equal billing as a 20 desirable billing option? 21 MR. STEPHENS: You mean the same bill each 22 month to the consumer? 23 MR. FARRELL: Yes. 24 MR. STEPHENS: And adjusted at the end of the 25 year. 26 MR. FARRELL: Yes. 27 MR. STEPHENS: Yes, they have that today at BC 28 Gas. 2015 STEPHENS, cr-ex (Farrell) 1 MR. FARRELL: Yes. 2 MR. STEPHENS: So most utilities have that 3 capability. 4 MR. FARRELL: And third party billing. 5 MR. STEPHENS: That someone else would send 6 out the bill? 7 MR. FARRELL: No, just the reverse. The 8 utility would send out a bill, for example, of gas 9 marketer. 10 MR. STEPHENS: Good. What's the question? 11 MR. FARRELL: Would you regard third party 12 billing as I have defined it as a desirable billing 13 option? 14 MR. STEPHENS: Absolutely. 15 MR. FARRELL: It is not included here, I take 16 it. 17 MR. STEPHENS: They have that capability. 18 MR. FARRELL: I see, so it's a billing service 19 previously provided, is that what you are telling me? 20 MR. STEPHENS: I don't know the answer to 21 that, but -- 22 MR. FARRELL: Okay. I didn't know who you 23 meant by "they". Sorry. 24 MR. STEPHENS: Sorry. That's one of my 25 faults. It appears to happen to me quite often. 26 MR. THOMPSON: Who are you speaking of, BC 27 Gas? 28 MR. STEPHENS: BC Gas. 2016 STEPHENS, cr-ex (Farrell) 1 MR. FARRELL: You are saying they do have that 2 function now. 3 MR. STEPHENS: Yes. 4 MR. FARRELL: And are you aware that Enbridge 5 does as well? 6 MR. STEPHENS: No. 7 MR. FARRELL: The Board is and that's good 8 enough at this point. 9 Back to page 18, Mr. Stephens, please. You 10 have discussed Internet access. I think you were 11 probably in the room at Mr. Thompson's side when he 12 asked Mr. Kent about Internet access. Mr. Kent's answer 13 was that the system as power system as it is currently 14 in service does not have Internet capability, but we 15 believe that this capability can be added at a 16 relatively low cost. That's from Volume 8, page 1490. 17 Do you agree or disagree with Mr. Kent's 18 comment that the capability can be added at a relatively 19 low cost? 20 MR. STEPHENS: I don't know the answer, but if 21 he has researched it right and they figured out how to 22 do it and he says that, why would I not, you know, agree 23 with it? 24 MR. FARRELL: I take that to be a qualified 25 "Yes, I agree". 26 MR. STEPHENS: The real issue is if these 27 other products have them built in, you know, like the 28 maintenance of those other products and their 2017 STEPHENS, cr-ex (Farrell) 1 enhancement adds to these capabilities, it's just an 2 additional cost to add it to the ECG solution. 3 MR. FARRELL: I think we have conceded that, 4 Mr. Stephens. 5 But my point in asking the question is 6 Mr. Kent has described it as a relatively low cost and I 7 was asking whether you knew enough about the ECG system 8 to agree or disagree. I take it you have given me a yes 9 you agree with the qualifier you expressed. 10 MR. STEPHENS: Although I don't know what ECG 11 means as a relatively low cost because, based on what I 12 have seen, they are quite significant sometimes. 13 MR. FARRELL: On page 19 you give us your 14 functionality conclusions and you say, in the middle 15 paragraph just by the middle ring in the -- well, you 16 don't have a three-ring binder -- in the middle of the 17 page, your conclusion that the fair market value of the 18 ECG solution should be approximately 25 per cent below 19 other competitive solutions such as those at BC Gas and 20 Union Gas. Correct? 21 MR. STEPHENS: Yes. 22 MR. FARRELL: When you say "the ECG solution", 23 are you talking about the outsourcing to Newco? 24 MR. STEPHENS: No. I'm talking about the 25 application itself. 26 MR. FARRELL: Let me put it another way. 27 Are you speaking outside the demarcation 28 point, inside the demarcation point, or both? 2018 STEPHENS, cr-ex (Farrell) 1 MR. STEPHENS: As you have described it, if 2 the application gets moved outside the demarcation point 3 that is where we will run. 4 MR. FARRELL: Okay. 5 So on this page we are talking about outside 6 the demarcation point? 7 MR. STEPHENS: We are really talking about the 8 application, the functionality of the application 9 itself. 10 Now, I agree it runs outside the demarcation 11 point, but -- 12 MR. FARRELL: Okay. Let me go at it this way. 13 What is the fair market value of BC Gas? 14 MR. STEPHENS: The fair market value? 15 MR. FARRELL: Yes. 16 MR. STEPHENS: The fair market value is 17 determined by looking at either arm's-length 18 relationships in the marketplace -- 19 MR. FARRELL: No. I'm not asking you how you 20 got it. I'm asking you to give me a number that I can 21 write under "BC Gas" on this page. 22 MR. STEPHENS: The answer is $6 to $8. 23 MR. FARRELL: Okay. 24 Is it the same for Union Gas? 25 MR. STEPHENS: Yes. Outside the demarcation 26 point. 27 MR. FARRELL: Right. 28 What about the cost inside the demarcation 2019 STEPHENS, cr-ex (Farrell) 1 point, or are you not considering that on this page? 2 MR. STEPHENS: This page did not consider 3 that, no. 4 MR. FARRELL: Thank you. 5 Can I take you to page 20. This is your Fair 6 Market Test No. 1, CIS Project Costs. 7 MR. STEPHENS: Yes. 8 MR. FARRELL: If I understood what you told 9 Mr. Thompson yesterday, this is an indicator as opposed 10 to a measure of fair market value. This is a way you 11 test your fair market value conclusions. 12 MR. STEPHENS: Basically, I tried to find as 13 many ways as I could to see if this cost was in 14 relationship or comparable to others. 15 MR. FARRELL: Are you quibbling with my use of 16 the term "indicator"? 17 MR. STEPHENS: No. 18 MR. FARRELL: Okay. 19 MR. STEPHENS: It's fine. 20 MR. FARRELL: Is this test outside the 21 demarcation point, inside the demarcation point, or 22 both? 23 MR. STEPHENS: This is outside the demarcation 24 point. It is in fact the project costs to implement the 25 solution inside the relative gas utility companies. 26 MR. FARRELL: Can we go to Appendix 2. 27 MR. STEPHENS: Yes. 28 MR. FARRELL: Excuse me. I wanted to go to 2020 STEPHENS, cr-ex (Farrell) 1 Appendix 1. I'm ahead of myself. 2 This is perhaps, and I indicate that I'm not 3 all that technically astute -- but the total project 4 costs you show for BC Gas for Program Mercury is 5 $26,444,510. 6 MR. STEPHENS: Yes. 7 MR. FARRELL: The reason that I want to have 8 you confirm this is, in the Program Mercury excerpts 9 that I handed out yesterday, on page 6 of that 10 document -- this is part of Exhibit K11.2 -- 11 MR. STEPHENS: I have it. 12 MR. FARRELL: Yes. As you will see, just 13 about a little bit more than halfway down page 6, it's 14 the first page after the title page, Mr. Stephens, in 15 the excerpt, it talks about implementation costs of 16 $28.2 million and then a revenue requirement of 17 $33.2 million. I take it that you have calculated a 18 subset of those two numbers to derive your $26,444,510? 19 MR. STEPHENS: Right. They had within that 20 Program Mercury two applications, so they had their call 21 centre application and they had their CIS application. 22 So in order to try and get to apples and apples I took 23 out the implementation costs for the call centre 24 technology. 25 MR. FARRELL: Did you take out the -- still 26 looking at page 6 -- $500,000 or the $0.5 million for 27 anticipated inflation? 28 MR. STEPHENS: I will have to go through the 2021 STEPHENS, cr-ex (Farrell) 1 details. 2 --- Pause 3 MR. FARRELL: Maybe we can do it an easier 4 way, Mr. Stephens, rather than have you take the time to 5 read through a lot of numbers. 6 I would like to know whether you eliminated 7 the item I just mentioned, and following down on page 6, 8 whether you eliminated the $3.5 million for the 9 Pathfinder pilot and whether you eliminated the 10 $1 million in deferred Theseus costs. 11 MR. STEPHENS: What I eliminated was 12 $1,925,784 plus those costs -- $1,925,784, which is the 13 call centre -- 14 MR. FARRELL: Right. 15 MR. STEPHENS: -- plus those costs. 16 MR. FARRELL: Plus the other three that I just 17 mentioned to you? 18 MR. STEPHENS: Does that add up correctly? 19 I'm not sure. 20 MR. FARRELL: I guess if you eliminated that 21 and you have a capital cost, a total project cost of 22 almost $26.5 million, I would just assume that you did 23 eliminate the Pathfinder pilot and the Theseus costs. 24 --- Pause 25 MR. STEPHENS: I would have to check. 26 MR. FARRELL: Will you take it, subject to 27 check, what you did? 28 MR. STEPHENS: Fine. 2022 STEPHENS, cr-ex (Farrell) 1 MR. FARRELL: The reason I am pursuing this is 2 that you didn't eliminate the $30.3 million of BPR 3 costs, analysis phase costs and so on in showing the 4 total project costs for ECG. In other words, you didn't 5 eliminate Theseus from BC Gas, subject to check, but you 6 didn't make an elimination of anything from the Enbridge 7 costs. Is that correct? 8 MR. STEPHENS: If I did that, I made a 9 mistake. 10 MR. FARRELL: The BC Gas costs should be 11 higher. Is that what you are saying? 12 MR. STEPHENS: If that's true, yes. I took it 13 off this one schedule and I don't think that schedule 14 does have those Theseus costs in it. It does have the 15 contingency, though. 16 MR. FARRELL: Yes. All right. 17 So then, that being the case, the total 18 project cost per customer would be higher by whatever 19 amount. 20 MR. STEPHENS: Agreed. 21 MR. FARRELL: My rough calculation, which you 22 might take subject to check, would then become $45.17. 23 MR. STEPHENS: That would be quite a bit, 24 but -- that would be $7.35 million. That would be quite 25 a bit. 26 MR. FARRELL: Never trust my arithmetic. It 27 would be higher by whatever amount. 28 MR. STEPHENS: Okay. 2023 STEPHENS, cr-ex (Farrell) 1 MR. FARRELL: Okay. 2 And your methodology was to take whatever 3 amount is correct, divide it by the number of customers 4 and that gives you the per-customer cost. 5 MR. STEPHENS: Agreed. 6 MR. FARRELL: Thank you. 7 Would you agree that the dollars that you are 8 using here from the Program Mercury application is the 9 initial filed estimate? 10 MR. STEPHENS: Agreed. 11 MR. FARRELL: And only time will tell how 12 accurate it is? 13 MR. STEPHENS: Agreed. 14 MR. FARRELL: Now, for the Union Gas, you show 15 an in-house option? 16 MR. STEPHENS: Agreed. 17 MR. FARRELL: And as events have transpired, 18 that's really hypothetical? 19 MR. STEPHENS: Yes. Agreed. 20 MR. FARRELL: And the amount that you took as 21 project cost, the $35,679,000, that was also from a 22 filing, in this case, with the Ontario Energy Board? 23 MR. STEPHENS: Yes. 24 MR. FARRELL: And that filing was made a 25 couple of years ago? 26 MR. STEPHENS: It was made September, 1997. 27 MR. FARRELL: And you don't know what the 28 current amount may be because that's -- the project is 2024 STEPHENS, cr-ex (Farrell) 1 now with Enlogix? 2 MR. STEPHENS: Yes. 3 MR. FARRELL: And Enlogix is currently working 4 and has a little bit more work to do to complete the 5 application to accommodate 1.05 million customers? 6 MR. STEPHENS: Yes. 7 MR. FARRELL: So there would be additional 8 costs? 9 MR. STEPHENS: Not -- I don't agree with that, 10 but -- 11 MR. FARRELL: Are you saying you don't know 12 whether the 35.6 -- I guess it's 35.7, with rounding -- 13 million dollars is a good estimate today? You don't 14 know that, do you? 15 MR. STEPHENS: I don't know for sure, but they 16 have indicated, at Enlogix, that it's less than 40 17 million. So I don't know the answer. 18 MR. FARRELL: Do you know whether that 19 includes Y2K remediation costs? 20 MR. STEPHENS: No. 21 MR. FARRELL: But, again, like BC Gas, only 22 time will tell how accurate the estimate is? 23 MR. STEPHENS: Yes. 24 MR. FARRELL: And then, only if Enlogix 25 chooses to disclose it? 26 MR. STEPHENS: Yes. 27 MR. FARRELL: Now, moving to the ECG in-house 28 option. 2025 STEPHENS, cr-ex (Farrell) 1 You have included the $30.3 million of BPR and 2 analysis phase costs, SIM start-up and overhead costs 3 and IDC. That's just that lump sum: 119.9 million. 4 Correct? 5 MR. STEPHENS: Yes, and I told you why most of 6 that, if not all, should be there. 7 MR. FARRELL: I understand that. But for the 8 sake of argument, if we were to remove that 30.3 million 9 and follow your methodology by dividing the number of 10 customers into the reduced amount, would you accept, 11 subject to check, that the per-customer cost becomes 12 approximately $61.00? 13 MR. STEPHENS: I answered that in one of your 14 interrogatories. So the answer should be here 15 somewhere. 16 MR. FARRELL: My recollection is that we asked 17 you -- 18 MR. STEPHENS: It's No. 17. Okay. So it 19 would become 60.98 per customer. Is that what you -- 20 MR. FARRELL: I see. Just let me read it. 21 --- Pause 22 MR. FARRELL: Yes. I'm sorry. We overlooked 23 that. Thank you. 24 For the record, that's Exhibit I, Tab 25, 25 Schedule 46, Question 17, on page 8. 26 Now, the "ECG replace in-house cost for 27 customer", that's also hypothetical? 28 MR. STEPHENS: Yes. 2026 STEPHENS, cr-ex (Farrell) 1 MR. FARRELL: And it's based on TMG's rules of 2 thumb? 3 MR. STEPHENS: It's based on those rules of 4 thumb, but in discussions I had with some other software 5 suppliers, when I was working on the Centra Gas Manitoba 6 case, I believe those to be pretty accurate. 7 MR. FARRELL: All right. Well, you have 8 relied on TMG's rules of thumb, as I understand your 9 evidence? 10 MR. STEPHENS: Absolutely. 11 MR. FARRELL: And those are at page 49 of 12 Appendix 8? To your evidence. 13 MR. STEPHENS: Yes, I didn't use those ones. 14 I then uplifted them to get them to Canadian funds. 15 MR. FARRELL: Okay. So, this is the starting 16 point? 17 MR. STEPHENS: That is the starting point. 18 Page 49, actually. 19 MR. FARRELL: Right. And using the starting 20 point, you paid attention to Mr. Galluzzi's introductory 21 sentence, on page 49, which reads: 22 "Regardless of the size of the utility, 23 the out-of-pocket costs appear to range 24 from $20.00 to $50.00 per customer." (As 25 read) 26 And then he breaks them down in the table on page 49? 27 MR. STEPHENS: Yes. 28 MR. FARRELL: You are comfortable with those? 2027 STEPHENS, cr-ex (Farrell) 1 Mr. Galluzzi's disclaimer doesn't bother you? 2 MR. STEPHENS: No. 3 MR. FARRELL: So, could we move to -- I think 4 to get into the ones that you uplifted, as you said, as 5 opposed to the ones you didn't, we need to go to 6 Appendix 7. 7 Now, you have, at the first box of categories, 8 "Utility SIC Characteristics". Do you see that? 9 MR. STEPHENS: Yes. 10 MR. FARRELL: What do you mean by "number of 11 services for Enbridge's gas only" and then for "in-house 12 product" it's "single" and -- excuse me -- "in-house 13 product low", which is column 2, it's "single", and 14 "in-house product high", it's "multiple". 15 What do all those terms mean? 16 MR. STEPHENS: Okay. If a utility has both 17 gas and electric, or gas-electric-water, they are 18 multiple. If they have only gas or only electric or 19 only water, they are single. So I described ECG as "gas 20 only". 21 MR. FARRELL: Right. But you are not -- I 22 just wanted to follow up on this. 23 Are you implying that a gas distribution 24 utility has only one service? 25 MR. STEPHENS: No, I'm implying that they only 26 have gas. They only have one meter. 27 MR. FARRELL: Okay. 28 MR. STEPHENS: It's the gas meter. 2028 STEPHENS, cr-ex (Farrell) 1 MR. FARRELL: Okay. Well, we were just 2 confused by your use of the term "services", 3 Mr. Stephens, so we just wanted to make sure that 4 this -- so, basically, it's one type of energy versus 5 either multiple types of energy or another function, 6 such as water I think you said? 7 MR. STEPHENS: Right. And that's the term 8 Mr. Galluzzi uses, so I followed his -- 9 MR. FARRELL: All right. You also have, as 10 the last row under this heading "utility CIS 11 characteristics", "user PCs part of project". "No" for 12 "ECG replace". "No" for "in-house product low". "Yes" 13 for "in-house product high". 14 We didn't understand what you meant by that. 15 MR. STEPHENS: Under "project cost category", 16 there was the "desktop/network solution"; so if you had 17 to replace all of your PC technology in order to 18 implement the application and put in, you know, the 19 servers and whatever, you would need an additional $5.00 20 per customer to do that. 21 MR. FARRELL: And just while we are at that, 22 that's $5.00 U.S.? 23 MR. STEPHENS: That's $5.00 U.S. or -- I 24 probably should have uplifted that. 25 MR. FARRELL: I don't know. I wanted to take 26 you through your uplifting exercise. 27 It appears to be selective. In other words, 28 if you look under "project cost category", the first two 2029 STEPHENS, cr-ex (Farrell) 1 rows have been uplifted, to use your term, using a 1.5 2 factor? 3 MR. STEPHENS: Yes. 4 MR. FARRELL: And if you go down to 5 "application software", which is a little over halfway 6 down the rows under "project cost category", you uplift 7 "application software" but you use a factor of 1.25? 8 MR. STEPHENS: Yes. 9 MR. FARRELL: And for the categories -- just 10 to use this as an example -- below it, "application 11 services", "project vendor/expenses", "project 12 contingency/IDC" and "quality management", the figures 13 in column 1, in "ECG replace", I take it, are all 14 Canadian dollars? 15 MR. STEPHENS: Yes. 16 MR. FARRELL: And the figures for "in-house 17 product" low, I take it they are U.S. dollars? 18 MR. STEPHENS: No. They have been uplifted. 19 MR. FARRELL: You don't indicate that in 20 "application services" or the last four rows under -- 21 MR. STEPHENS: Oh, well, let me explain that. 22 Mr. Diamond filed this information where he 23 lifted the "customer support costs" by .69, and I said I 24 didn't agree with that. I talked to several 25 associations to determine that -- and I knew this from 26 working at SHL. If I hire a project manager from the 27 U.S., they will come at, let's say, 1600 to 2,000 a day, 28 U.S. If I hire a project manager in Canada, the same 2030 STEPHENS, cr-ex (Farrell) 1 rules will apply, only it's Canadian dollars. And IBM 2 confirmed that for me. I talked to Diversified Staffing 3 and they confirmed that. And I talked to a company 4 Telebackup or Veritas and they confirmed that. And we 5 have had some -- 6 MR. FARRELL: They confirmed what? 7 MR. STEPHENS: That the costs -- if I had been 8 a consultant from the U.S. -- 9 MR. FARRELL: Yes, I got that part. I got the 10 $1,600 to $2,000. 11 Are you telling me that if you hired someone 12 locally, it would be $1,600 to $2,000 Canadian? Is that 13 your point? 14 MR. STEPHENS: Yes. Therefore, I don't uplift 15 the costs. 16 Mr. Galluzzi didn't uplift these at all when 17 he has been doing work in Canada. I suggest that he had 18 to uplift the server and database solutions. 19 I know, from my experience as an SAP buyer, 20 that we don't uplift them the whole 50 per cent when we 21 move from Canada to the U.S. That was also somewhat 22 true when we were at IBM. 23 MR. FARRELL: SAP and Peace are both non North 24 American companies; correct? 25 MR. STEPHENS: That's true. 26 MR. FARRELL: If you were to bring one of 27 their people in, would you pay them in Canadian dollars? 28 MR. STEPHENS: If you had brought them from 2031 STEPHENS, cr-ex (Farrell) 1 Germany -- 2 MR. FARRELL: New Zealand? 3 MR. STEPHENS: Or New Zealand. Well, you 4 would hope you could pay New Zealand dollars, but they 5 would probably nick you a little more. 6 MR. FARRELL: What about Germany? 7 MR. STEPHENS: I don't know the answer for 8 Germany. But for SAP, there are lots of resources in 9 Canada. 10 MR. FARRELL: Mr. Kent is telling me that I 11 should have asked you about SCT. 12 MR. STEPHENS: SCT? I believe they have staff 13 primarily out of the U.S., and I don't know the answer. 14 MR. FARRELL: They would be paid in U.S. 15 dollars, I take it. 16 MR. STEPHENS: I don't know what the 17 arrangement is with Enlogix. 18 MR. FARRELL: Just coming back to this table, 19 I want to make sure we are able to read it. 20 Certainly all of the costs, as I understand 21 it, in the ECG column, ECG replace column, are all in 22 Canadian dollars. 23 MR. STEPHENS: That whole table is in Canadian 24 dollars, everything here. 25 MR. FARRELL: Everything is in Canadian 26 dollars. So when you don't have an uplift factor -- 27 let's just take desktop network solution. If you have 28 zero Canadian dollars for ECG replace, you have zero 2032 STEPHENS, cr-ex (Farrell) 1 whatever dollars for in-house product low, and you have 2 $5.00 for in-house product high, are you telling me that 3 that $5.00 is Canadian dollars? 4 MR. STEPHENS: That's what I put down. 5 MR. FARRELL: I see. If you go back to page 6 49 of Appendix 8 -- this is TMG's report, which I 7 presume was stated in U.S. dollars -- he has the same 8 value: $5.00. 9 MR. STEPHENS: And I said I maybe should have 10 uplifted that one. 11 The point is ECG has no -- they have all the 12 PCs and the network in place, so there is no cost in 13 there. 14 MR. FARRELL: I would like to know whether all 15 of these are in the same currency; and if they are not, 16 I would like to ask you to put them in the same 17 currency. 18 So if we argue about whether or not the 19 applicable comparator is in-house product high, I want 20 to have a Canadian dollar amount to compare to ECG 21 replace. 22 MR. STEPHENS: I would have to ask 23 Mr. Galluzzi about the desktop network solution. If it 24 should be uplifted, I will correct that. 25 MR. FARRELL: I am talking about the other 26 values, the ones that you show a zero value for ECG 27 replace, but in the in-house product high you are 28 showing some value. My reading of page 49 of Appendix 8 2033 STEPHENS, cr-ex (Farrell) 1 to your evidence would indicate that these are U.S. 2 dollar values. 3 All I am trying to get, so I can have a 4 comparison and so the Board can have a comparison, is 5 the values expressed in Canadian dollars. 6 MR. STEPHENS: Mr. Galluzzi is comfortable 7 that those will represent Canadian dollars. 8 MR. THOMPSON: I don't know if I can be of any 9 assistance to you, Mr. Farrell, but I think the only -- 10 they are all Canadian dollars on the premise that none 11 of them need to be uplifted, except those that 12 Mr. Stephens has uplifted, shown on lines 1, 2 and the 13 application software. There are three of them. 14 I think what he is saying is that perhaps I 15 should have uplifted one more line, which was the 16 desktop network solution. 17 MR. FARRELL: Are you saying then, 18 Mr. Stephens, that the "project/vendor expenses" row, 19 which is the third-last under "Project Cost Category", 20 they are all expressed in Canadian dollars? 21 MR. STEPHENS: Yes. 22 MR. FARRELL: And likewise Project 23 Contingency? 24 MR. STEPHENS: Yes. 25 MR. FARRELL: So if it costs three bucks in 26 Mr. Galluzzi's table, if we were doing this in the 27 States and you brought it to Canada, it would cost three 28 bucks in Canadian currency. 2034 STEPHENS, cr-ex (Farrell) 1 MR. STEPHENS: Yes. 2 MR. FARRELL: Notwithstanding that you may be 3 paying a U.S. vendor or an offshore vendor. 4 MR. STEPHENS: You might be. 5 MR. FARRELL: It is your evidence that the 6 offshore vendor or the U.S. vendor would take Canadian 7 dollars. In the States he would get three bucks, and if 8 he came to Canada he would get three Canadian and would 9 be happy to take it. 10 Is that your evidence? 11 MR. STEPHENS: Let me give you an example from 12 SAP, since I know it well. 13 The SAP costs in Canada -- and there are lots 14 of people who support that application in Canada, so it 15 depends if there is any support at all in Canada. 16 If I am a remarketer in Canada and I use 17 Canadian resource, I will charge about the same in 18 Canadian dollars that they do in the U.S. for U.S. 19 dollars. 20 For example, if you are Thintex Services, we 21 would charge between $800 and $1,200 per day Canadian, 22 depending whether they were a programmer or a project 23 manager. 24 MR. FARRELL: We don't agree with you, but I 25 think we are reaching the stage of arguing with one 26 another. 27 I think, to remain with this page notionally, 28 I want to talk to you a little bit about whether 2035 STEPHENS, cr-ex (Farrell) 1 Enbridge is properly compared to in-house product low or 2 in-house product high. 3 To facilitate our discussion, could you go to 4 your interrogatory responses, Exhibit I, Tab 25, 5 Schedule 46, interrogatory no. 26, on page 14. 6 As we understand this response, you are in 7 effect saying that Enbridge is properly compared to 8 in-house product low. Correct? 9 MR. STEPHENS: I uplifted those because -- 10 based on the experience and what you have been through, 11 I uplifted them some. 12 MR. FARRELL: That's not my point. My point 13 is -- 14 MR. STEPHENS: It's closest compared to low. 15 MR. FARRELL: You are confirming that. 16 So if we look at page 14, there are four 17 bullet points that you have there that would produce an 18 in-house product high value. 19 MR. STEPHENS: Yes. 20 MR. FARRELL: You did not ascribe those 21 solutions to Enbridge. 22 MR. STEPHENS: I said that those typically 23 were included in the high costs. 24 MR. FARRELL: Right. And that wouldn't apply 25 to Enbridge. I am just trying to have you confirm that. 26 MR. STEPHENS: I didn't -- I answered the 27 question, and I didn't directly compare those to 28 Enbridge. 2036 STEPHENS, cr-ex (Farrell) 1 MR. FARRELL: Let me come at it this way, 2 Mr. Stephens. If we look at the values you show in this 3 Appendix 7, which is the better comparison, in your 4 view: to compare the Enbridge replace cost per customer 5 to in-house product cost per customer low or in-house 6 product cost per customer high? 7 MR. STEPHENS: Low. Do you want me to explain 8 why? 9 MR. FARRELL: We are going to get there. 10 Going back to page 14, is that because you say 11 these features -- beneath the first column or bullet 12 point you say: 13 "These functions should meet the needs of 14 ECG." 15 Then you go on to say: 16 "Solutions to be added to produce the 17 inhouse product high values included." 18 Then you list four more. 19 MR. STEPHENS: Yes. 20 MR. FARRELL: I take it you are saying that 21 those four more are not applicable to Enbridge. 22 MR. STEPHENS: Well, you have told me they do 23 third party bill management, right? 24 MR. FARRELL: Right. 25 MR. STEPHENS: So I guess that does apply to 26 ECG. What I'm saying is maybe I should take you through 27 and explain the major factors that say whether you are 28 low or high. 2037 STEPHENS, cr-ex (Farrell) 1 MR. FARRELL: Before we get off that, do you 2 know whether Enbridge can perform the complex billing as 3 it's described in Mr. Galluzzi's material? 4 MR. STEPHENS: I'm not sure. 5 MR. FARRELL: And retail management, would 6 your answer be the same? 7 MR. STEPHENS: Yes. 8 MR. FARRELL: And just for the record, what 9 I'm referring to here is appendix 8, which is the TMG 10 position paper, page 18. On page 18 through 19, 20, 21 11 and 22 the section numbers correspond to the numbers in 12 parenthesis on page 14. 13 MR. STEPHENS: Yes. 14 MR. FARRELL: Okay. So it would be there we 15 would go to, those pages in appendix 8, to find the 16 description for each of these titles, I will call it. 17 MR. STEPHENS: Yes. 18 MR. FARRELL: Okay. If it were the fact that 19 Enbridge can qualify, as it were, for third party bill 20 management complex billing and retail management, then 21 you would adjust appendix 7 accordingly. 22 MR. STEPHENS: If they had those functions in 23 there, we should put in some add-on solutions. 24 MR. FARRELL: I don't know what you mean by 25 that. 26 MR. STEPHENS: In the table in appendix 7 27 there's something called add-on solutions. Basically, 28 if you add on solutions, right, you can start to 2038 STEPHENS, cr-ex (Farrell) 1 increase the costs of implementing the solution. 2 MR. FARRELL: Okay. But if we can do it now, 3 is that where you would make the adjustment in the line 4 you just mentioned to me? 5 MR. STEPHENS: In all likelihood, yes. 6 MR. FARRELL: Where would you make the 7 adjustment that Mr. McGill was just mentioning to me. 8 It would seem to me if Enbridge could do the 9 last three things on page 14, wouldn't you be using the 10 values that appear in inhouse product cost high? In 11 other words, it would just move Enbridge from being 12 compared to inhouse product low to being compared 13 inhouse product high? 14 MR. STEPHENS: No. 15 MR. FARRELL: And why is that? 16 MR. STEPHENS: The major definer of the 17 inhouse product low and the inhouse product high is the 18 number of customers in the utility and whether or not 19 they have what Greg Galluzzi calls number of services or 20 number of meters. 21 MR. FARRELL: On page 49 of appendix 8, which 22 is the TMG report, in the introduction to the table that 23 presents the inhouse product low and high costs, Mr. 24 Galluzzi has written: 25 "Regardless of the size of the utility, 26 the out of pocket costs appear to range 27 from $20 to $50 per customer." (As read) 28 I took that to mean that the number of 2039 STEPHENS, cr-ex (Farrell) 1 customers didn't matter. It was whether or not these 2 functions, if you will, that are listed in section 5 of 3 Mr. Galluzzi's position paper were applicable to a 4 utility or not. 5 MR. STEPHENS: Yes, and I asked him very 6 specifically about that. He went through and explained 7 that they differentiate them into three different size 8 groups, those that are more than 500,000 customers, 9 which they call large, medium is between 25,000 and 10 500,000 customers and small is below 25,000 customers. 11 Now, if you go to page 48 of his -- 12 MR. FARRELL: Appendix 8 now? 13 MR. STEPHENS: Of his position paper, right. 14 That's appendix 8. You have a couple of examples. 15 That's why I called them "gas only" or "electric only". 16 If there are single meters, single service, as he terms 17 them, then their costs are lower than the ones on the 18 next page where they have multiple services. That's 19 something that they see in general. 20 MR. FARRELL: I see. So you are telling me 21 that the table on page 49 is a multiple service utility 22 only. Is that what you are saying? 23 MR. STEPHENS: The table at the top of 49. 24 MR. FARRELL: Yes. 25 MR. STEPHENS: That's the one with four 26 examples. 27 MR. FARRELL: No. The table in the middle of 28 page 49. 2040 STEPHENS, cr-ex (Farrell) 1 MR. STEPHENS: No. I'm not saying that. 2 MR. FARRELL: Okay. Then back to the 3 regardless of the size of the utility statement. 4 MR. STEPHENS: And I asked him about that 5 because, you know, I said well, is there no economy of 6 scale? I think quite a few people, including Stuart 7 Diamond, have referenced that an economy of scale does 8 happen as you get larger utilities. 9 His experience here is that if you have a 10 large utility with a single service, their costs are 11 lower and they go to the low side of this table. 12 MR. FARRELL: Now, this is a very good example 13 of why Mr. Galluzzi has a disclaimer. 14 MR. THOMPSON: What was that? 15 MR. FARRELL: It's a good example of why Mr. 16 Galluzzi has his disclaimer. 17 MR. STEPHENS: Everybody will put a disclaimer 18 on their consulting work. I probably should have one 19 somewhere. 20 MR. FARRELL: I have never seen it on filed 21 evidence before, Mr. Stephens. 22 MR. STEPHENS: Fortunately it was an appendix. 23 MR. FARRELL: Can you agree with this 24 proposition, Mr. Stephens, that if Enbridge was in the 25 middle of TMG's range, using your approach, the total 26 project cost per customer would be approximately $60, 27 using your mixed bag of currencies. 28 MR. STEPHENS: Yes, I can live with that, half 2041 STEPHENS, cr-ex (Farrell) 1 way between 80 and 40. 2 MR. FARRELL: Can we move to your fair market 3 value test No. 2, the CIS operating costs, which is at 4 page 21 of the main body of your -- 5 MR. STEPHENS: Yes, I have it. 6 MR. FARRELL: Okay. Is this similar to the 7 first test, that is it's an indicator and it 8 applies -- I have forgotten what you responded to me in 9 the first test. Is it outside of the demarcation point, 10 inside the demarcation point, or both? 11 MR. STEPHENS: This one shows both because 12 they now have operating costs on them. 13 MR. FARRELL: Okay. Thank you. 14 So the BC Gas we have discussed. It's an 15 inhouse rate based solution. The Union Gas, if inhouse, 16 is hypothetical. The estimated ECG replace is a 17 hypothetical. 18 The two columns on the right hand side, if we 19 were to compare Union and Enbridge, they are both -- I 20 take it you have Union Gas outsourced. I take it I 21 could add to that "through an affiliate". 22 MR. STEPHENS: Yes, you could. 23 MR. FARRELL: And, similarly, the title of the 24 Enbridge column could read "ECG outsourced through an 25 affiliate". 26 MR. STEPHENS: The reason I differentiate 27 these two, I don't consider the ECG through the period 28 to really be an outsourcing arrangement. It's really a 2042 STEPHENS, cr-ex (Farrell) 1 financial arrangement. They are not serious about 2 getting into the business of being an outsourcer. 3 MR. FARRELL: How do you know that? 4 MR. STEPHENS: How do I know that? Because it 5 sure looks like a financial transaction to me. 6 MR. FARRELL: But you didn't speak to anyone 7 who told you that Newco or the entity that will be 8 providing this service wasn't serious about getting into 9 the business. That's your supposition, I take it. 10 MR. STEPHENS: Well, let's see. 11 No one would directly say they were not going 12 to get into the business. But everybody thought it 13 would be very difficult to, you know, sell their 14 solution to other people, and I would suggest that makes 15 a lot of -- you know, it does make a lot of sense. 16 Now, the other thing, the only thing in this 17 case you have talked about is moving I think 10 people 18 from ECG to this affiliate and -- 19 MR. FARRELL: In the test year? 20 MR. STEPHENS: In the test year, too. 21 MR. FARRELL: I don't think we are going to 22 gain anything by quibbling over the headings. I have 23 your answer. 24 Could we move to Appendix 2. 25 MR. STEPHENS: I have it. 26 MR. FARRELL: Do you have Appendix 2? 27 MR. STEPHENS: Yes. 28 MR. FARRELL: For the purpose of this 2043 STEPHENS, cr-ex (Farrell) 1 discussion I'm just going to focus on the right-hand 2 column, so I'm notionally if not really just drawing a 3 bright line down there, down between columns, the third 4 column and the fourth column, and we are going to 5 examine the fourth and the fifth columns. 6 Starting with the estimated number of CIS 7 users, you show 300 for Union and 800 for Enbridge. 8 Correct? 9 MR. STEPHENS: Yes. 10 MR. FARRELL: What do you mean by the term "CS 11 system users"? 12 MR. STEPHENS: Those are the people within the 13 customer support services department that have a 14 terminal that accesses the CIS function. So it does not 15 include all the people inside the company. 16 MR. FARRELL: Do you know -- let me go at it 17 this way. 18 One category of user or one tier of user would 19 be the customer service reps. 20 MR. STEPHENS: Yes. 21 MR. FARRELL: And they would be using it all 22 the time, that's their job. 23 MR. STEPHENS: Yes. 24 MR. FARRELL: Would you agree that another 25 category or tier of users would be people in the credit 26 collection functions of billing support? 27 MR. STEPHENS: Yes. 28 MR. FARRELL: Would you agree that they do not 2044 STEPHENS, cr-ex (Farrell) 1 use it 100 per cent of the time? They go, for example, 2 in to adjust for metering problems or whatever. They 3 are not full-time users. 4 MR. STEPHENS: I didn't visit with them, 5 but -- 6 MR. FARRELL: Does it sound reasonable? 7 MR. STEPHENS: -- if you say that's true it's 8 true. 9 MR. FARRELL: And then there would be 10 occasional users, someone like Mr. McGill, for example. 11 MR. STEPHENS: Yes. 12 MR. FARRELL: Okay. 13 Now, are all three tiers of users included in 14 your 800 number? 15 MR. STEPHENS: I have the total CSS cost -- or 16 number of people in that number. 17 MR. FARRELL: Okay. 18 Have you had a chance to review Exhibit J8.4, 19 which was a response to an undertaking given by 20 Mr. McGill? 21 MR. STEPHENS: J8.4? 22 MR. FARRELL: Yes, J8.4. 23 MR. STEPHENS: Yes, I have. 24 MR. FARRELL: That shows that customer support 25 equates to 416 full-time positions which will be reduced 26 in the test year to 363 FTEs. 27 MR. STEPHENS: Yes. 28 MR. FARRELL: Should I be using 363 instead of 2045 STEPHENS, cr-ex (Farrell) 1 your 800? 2 MR. STEPHENS: No. 3 MR. FARRELL: Why is that? 4 MR. STEPHENS: First of all, I can't reconcile 5 the response in J8.4 with information I was given when I 6 visited ECG and with the information contained in some 7 other filed information -- so E.B.R.O. 497, Exhibit D5, 8 Tab 9, Schedule 1 -- and some information that was sent 9 in answer to a question of Mr. Kent that allowed me to 10 try and line up the costs in the customer support 11 services area with the information in the CISWorld 12 article that Stuart Diamond referenced. I was actually 13 working on this last night and I just cannot reconcile 14 it. 15 But do you want me to tell you what I was told 16 by each? 17 MR. FARRELL: Are you just going to tell me 18 why -- the information that led you to write in "800"? 19 MR. STEPHENS: Right. It's the same in all 20 the companies. Like, I haven't -- you know, I have used 21 apples to apples as well as I could. 22 MR. FARRELL: Did you talk to the others? 23 MR. STEPHENS: Have I talked to the other 24 companies? 25 MR. FARRELL: Yes. 26 MR. STEPHENS: Yes. I have talked to Union 27 Gas. The BC Gas information is contained within their 28 Program Mercury application. 2046 STEPHENS, cr-ex (Farrell) 1 MR. FARRELL: May I have a moment, Mr. Chair? 2 --- Pause 3 MR. THOMPSON: I was just going to say, 4 Mr. Farrell, if you don't ask him to give you the 5 information, then I will be asking him in reply. So you 6 might want to deal with it now. 7 I have the material that was sent to 8 Mr. Stephens which I propose to file because it also 9 relates to some of the concerns I have with the 10 responses to undertakings, one of which is the one you 11 have referenced. 12 So one way or another we are going to get the 13 information on the record. 14 MR. FARRELL: That's fine. I'm not trying to 15 keep it off the record, Mr. Thompson. I just was 16 consulting with Mr. Kent who informed me that he spoke 17 with someone at BC Gas within the past week who 18 confirmed to him that the 200 number for BC Gas is 19 customer service reps only and that he spoke with 20 Mr. Bell at Union Gas who confirmed to him that the 300 21 number is the number applicable to -- the number of 22 customer support FTEs applicable to the customer base of 23 Centra only, that is to say the customer base in respect 24 of which the Enlogix solution is currently running. 25 I take it that is at odds with your 26 information, Mr. Stephens. 27 MR. STEPHENS: That is at odds with what I 28 understood. 2047 STEPHENS, cr-ex (Farrell) 1 Let me just bring up the BC Gas information. 2 MR. FARRELL: I'm wondering whether -- not to 3 preclude something on the record, but I am wondering 4 whether this is something that might be done best off 5 line, Mr. Chair, so as not to take your time. 6 If this is quibbling over numerical sources, 7 maybe we can iron out the quibbles or not and at least 8 focus the issue for you, if we can't come to some 9 agreement on this, because it does -- I am going to ask 10 Mr. Stephens at some point to accept a lower number than 11 800, subject to check or otherwise, and maybe we will 12 have to argue the point just in order to see, based on a 13 lower number, what adjustment he would make to some of 14 the values he has on the ECG outsource affiliate column, 15 which is the right-hand column of Appendix 2. 16 THE PRESIDING MEMBER: Mr. Farrell, it appears 17 that it may be worthwhile to take a longer break today. 18 We will break now. We will return at 10 minutes to 19 11:00. 20 MR. FARRELL: Thank you, Mr. Chair. 21 --- Upon recessing at 1022 22 --- Upon resuming at 1054 23 THE PRESIDING MEMBER: Any preliminary 24 matters? 25 MR. FARRELL: No. 26 THE PRESIDING MEMBER: Mr. Thompson? 27 MR. THOMPSON: Yes. 28 MR. THOMPSON: I believe we have distributed a 2048 STEPHENS 1 document -- I hope it's on the dias. It's a fax -- 2 sorry, it's an e-mail. It's actually from Mr. Stephens, 3 to me, but it's a transmission of what the company sent 4 to Mr. Stephens to enable him to prepare what is 5 contained in Appendix 5 I believe it is. This was one 6 of the documents that Mr. Stephens referenced in his 7 response to Mr. Farrell about FTEs. 8 So could we have that marked, please. 9 MS DESAI: Exhibit K12.2 10 MR. THOMPSON: Thanks very much. 11 EXHIBIT NO. K12.2: Copy e-mail message 12 from Mr. Stephens to Mr. Thompson 13 THE PRESIDING MEMBER: Thank you, 14 Mr. Thompson. 15 Mr. Farrell? 16 MR. FARRELL: Thank you, Mr. Chair. 17 I think that rather than argue about what the 18 right number should be, I will just ask Mr. Stephens a 19 few questions, in terms of Appendix 2, and we will sort 20 out a way to resolve our differences of opinion, in 21 relation to the number of CIS system users. I think, 22 before the break, Mr. Stephens had agreed that there 23 were three tiers, in effect, of users. So I just want 24 to come back to that. 25 CONTINUED CROSS-EXAMINATION 26 MR. FARRELL: Mr. Stephens, would you agree 27 with me that in today's environment most office workers, 28 such as Mr. McGill or Mr. Kent, or the people that would 2049 STEPHENS, cr-ex (Farrell) 1 be in the billing support function, would have a PC of 2 their own, regardless of the CIS solution? 3 MR. STEPHENS: Yes. 4 MR. FARRELL: Would you also agree that the 5 people who need a PC in order to use the CIS solution 6 are the customer service reps? 7 If you need another service -- if you have 10 8 service reps and you need to add five more, you need to 9 buy five more PCs for them to do their job? 10 MR. STEPHENS: Yes. And the credit people 11 will need them and -- 12 MR. FARRELL: To the extent they don't already 13 have one. Which is what I thought you had agreed with 14 me a moment ago. 15 MR. STEPHENS: Fine. 16 MR. FARRELL: Now, if we go to the -- I will 17 just stop there and take a slight detour. 18 The outside demarcation costs that you show in 19 the Union Gas outsource and the ECG outsource, for the 20 five-, seven- and 10-year amortization period, those are 21 the fees that fall out of, so to speak, the two services 22 agreements? 23 In other words, that is what the affiliate 24 bills each of the two utilities, annually? 25 MR. STEPHENS: In the right column? 26 MR. FARRELL: In the right column -- in the 27 second-from-the-right column. 28 MR. STEPHENS: Yes. 2050 STEPHENS, cr-ex (Farrell) 1 MR. FARRELL: And just to make clear the -- 2 the contracts, with their various terms, could be relied 3 on for the five-year amortization period, but you have 4 assumed that the same fees would pertain to, presumably, 5 a hypothetical extension of those contracts for seven 6 years and for 10 years. Correct? 7 MR. STEPHENS: That's what I have shown. 8 MR. FARRELL: Okay. Now, coming back to the 9 inside demarcation costs, if you look at the fourth row 10 underneath the title "Inside Demarcation Costs", and 11 going out to the two right-hand columns, you show -- 12 well, first of all, it's "desktop solution and support 13 3,000 per user per year"? 14 MR. STEPHENS: Yes. 15 MR. FARRELL: And if you will accept this 16 assumption, for the purposes of my question, that the 17 persons to whom that line should apply are the ones who 18 wouldn't otherwise have a PC, namely, the customer 19 service representatives, and if you were to accept that 20 and if -- and I'm asking you to make this assumption for 21 the purposes of my question -- we were to use the 363 22 FTEs that appears in Exhibit J8.4 instead of your 800, 23 the $2,400,000 figure in the far right-hand column would 24 be reduced to -- and I ask you to accept this number, 25 subject to check -- $1,089,000. 26 MR. STEPHENS: Okay. 27 MR. FARRELL: And that would be -- again, 28 subject to check -- an amount, that one million and 2051 STEPHENS, cr-ex (Farrell) 1 change amount would be equivalent to 89 cents per 2 customer? 3 Assume my arithmetic is right. I have divided 4 the 1,089,000 by 1.47 million customers. 5 MR. STEPHENS: Can I, so I can explain why -- 6 MR. FARRELL: I'm told I misspoke myself. 7 Just a moment. 8 --- Pause 9 MR. FARRELL: I'm told that I jumped a step in 10 my assumption, Mr. Stephens. I apologize. 11 The 363 FTEs times 3,000 a year, for desktop 12 solution and support, is $1,089,000 and that if one 13 takes the difference between your 2.4 million and the 14 amount that I have referenced, that amount, divided by 15 the number of customers, works out to 89 cents -- a 16 reduction of 89 cents per customer. 17 MR. STEPHENS: Right. And if we did that, 18 right, you would also have to adjust the BC Gas, Union 19 Gas in-house option and my estimated ECG replace option, 20 just to support the numbers in terms of the estimated 21 number of CIS system users -- 22 MR. FARRELL: I take your point. 23 MR. THOMPSON: Let the witness finish, please. 24 MR. FARRELL: I'm sorry. 25 MR. STEPHENS: First, let me start with the BC 26 Gas one. It's pages 35 and 36 of their Program Mercury. 27 They do an "as is" cost analysis and they define 28 "customer care function", at BC Gas, as including meter 2052 STEPHENS, cr-ex (Farrell) 1 reading and meter data upload, consumption usage and 2 bill calculation, payment processing, handling of 3 customer enquiries and requests for service, and credit 4 and collection activities. And they go on to say that 5 there are 220 full-time equivalent staff in those 6 customer care processes and they say that the total 7 annual cost per customer is $36.70, and that they are 8 going to reduce that because they have basically 9 benchmark targets, on page 36, that would say they are 10 probably $3.00 or $4.00 per customer higher than the 11 industry best practice benchmarks indicate. 12 So I rounded the 220 to 200, and that $36.70, 13 which is the cost today, is the cost that compares to 14 the $53.90 that ECG expects to be at and it kind of is 15 a -- it flies in the face of Mr. Diamond's evidence and 16 is a good Canadian example of that. 17 Now, in terms of the Union Gas numbers, when I 18 talked to Bob Bell, I agreed with him that I would not 19 submit exact numbers until he had confirmed them to me, 20 and I had asked for that confirmation, and I have not 21 done that, but I have taken what was a much lower number 22 and rounded it up so I'm comfortable and it includes all 23 of the customer care process functions. 24 And for ECG, I got these numbers off Andy 25 Wingrove, and whether they are accurate of not I'm not 26 positive, but there are 400 CSRs -- in fact, that's on a 27 bulletin board in a customer service area -- there are 28 150 in collections, 150 in what is called "mass 2053 STEPHENS, cr-ex (Farrell) 1 marketing and billing" and 100 in customer attach, which 2 I understand could move to the distribution business 3 soon, and that that represents 796 as the customer 4 support services head count as it's to be on October 1, 5 1999, and he thought that would move down to 6 approximately 700 over the next year as 100 people were 7 transferred to ancillary programs. 8 Now, the information we just submitted as 9 evidence would also help collaborate that information, 10 although it does show 735 and not the 800 that I have 11 used. 12 So those are how I got the numbers. I think 13 they are for equivalent functions in what's called 14 "customer care" over at Enbridge Consumer Gas customer 15 support services and that's why I used the numbers and 16 not yours. But if you want to reduce that number, you 17 have to reduce them all. 18 MR. FARRELL: I understand your answer, 19 Mr. Stephens, and I think we are approaching the point 20 that maybe we are going to be arguing, so there's 21 nothing to be gained from it. 22 Let me ask you this -- and Mr. Kent has 23 contrary information for BC Gas and we will have to sort 24 out a way to resolve our differences, in terms of what 25 the 200 represents and what the 300 represents for 26 Union. But let me ask you this: You have assumed that 27 everyone who is shown as "user", given the numbers you 28 just put on the record from Mr. Wingrove, you have 2054 STEPHENS, cr-ex (Farrell) 1 assumed, I take it, in your analysis, that each of those 2 people needs to have a desktop solution and support 3 worth $3,000 per user per year? 4 MR. STEPHENS: Right. To access the primary 5 coded application for that business unit, which is the 6 CIS application. 7 MR. FARRELL: And it follows, I take it, from 8 what you are saying that if they already have a PC, they 9 get another one. 10 MR. STEPHENS: No, it doesn't. 11 MR. FARRELL: Does it mean that they need a 12 replacement? 13 MR. STEPHENS: What it says is that -- you 14 replace PCs about every four years, and you replace 15 about 25 per cent per year. That is normal in 16 organizations, because the technology changes very 17 quickly. 18 In terms of that $3,000, I included all of the 19 costs that normally would be associated with an 20 outsourcing service to support those PCs and their 21 technology replacement. 22 So it includes the technology replacement 23 costs inside there. That is supported by the Gartner 24 Group again, who estimate $6,000 to $7,000 a year, but 25 it includes things that I didn't think belonged in 26 there. 27 I think in your information you filed, it is 28 about $6,000 a year inside of Consumers Gas. 2055 STEPHENS, cr-ex (Farrell) 1 So I may have underestimated by a factor of 2 50 per cent. 3 MR. FARRELL: I understand your explanation, 4 and I think we are now at the point of quibbling 5 about -- maybe not quibbling; we are disagreeing about 6 the people who should be included in that row and the 7 basis on which they should be included. I think that is 8 about as far as we can take it at this point. 9 Going back, I have one last question here. 10 You have included in the 800 everyone in the three tiers 11 that we discussed earlier: the CRS, the billing support 12 people, and the occasional users. 13 MR. STEPHENS: Yes. By the way, I ran a check 14 just out of luck, while I was sitting here last week, 15 and when I take the ECG outsource and multiply that 16 $17.11 by the number of customers, it comes to 17 $25,152,419. 18 When you look at Appendix 5 -- which again are 19 your numbers -- that say what is the CIS cost, in the 20 2000 budget year it turns out to be $25,182,012. So 21 even though I estimated this information, I got lucky 22 and it came within about $30,000 of what you actually 23 project the cost will be for CIS in the budget year 24 2000. 25 MR. FARRELL: Coincidences do happen. 26 MR. STEPHENS: Yes. 27 MR. FARRELL: Could we move on, then, to the 28 first row under "Inside Demarcation Costs". 2056 STEPHENS, cr-ex (Farrell) 1 I take it that the $1.6 million that you show 2 for ECG is simply 320 per cent of the $500,000 you show 3 for Union. 4 MR. STEPHENS: That's how I got it. 5 MR. FARRELL: And your explanation is in 6 interrogatory no. 22 in Exhibit I, Tab 25, Schedule 46, 7 at page 11. 8 MR. STEPHENS: Yes, I have it. 9 MR. FARRELL: The reason there is that ECG has 10 several older systems, such as the work order system, 11 which you have probably updated, and require interface 12 development and maintenance. 13 MR. STEPHENS: Yes. 14 MR. FARRELL: On the basis of that sentence, 15 you came up with a nice precise 320 per cent. 16 MR. STEPHENS: That's what it worked out to 17 be. 18 MR. FARRELL: Could you just explain how you 19 translated the reason I read into the record into 320 20 per cent? 21 MR. STEPHENS: Am I wrong again? 22 MR. FARRELL: No. It is not an arithmetic 23 exercise. It is a value judgment, it would seem, that 24 you had Union at $500,000. And I have read you the 25 reason that you gave for the 320 per cent. I am just 26 wondering whether you had specific things in mind and 27 attributed certain percentages and built up to 320 per 28 cent, or whether you just said: Well, ballpark, 320 2057 STEPHENS, cr-ex (Farrell) 1 sounds fine. 2 MR. STEPHENS: Basically, I started with the 3 Union Gas number that is in their information. 4 MR. FARRELL: Yes. 5 MR. STEPHENS: They have a more modern one; 6 and I guess, as I talked about this morning, they are 7 adding new function inside the CIS function to support 8 their work order system. 9 So if they have a more modern one, and I know 10 yours is an older one based on what was given to me, 11 then I suspect you are going to have to redevelop that. 12 It will basically be replaced, and the interfaces will 13 have to be redeveloped. 14 The other thought that came into my mind as I 15 did this was that, for whatever reasons, your IT costs 16 also seem to be about double the industry. 17 MR. FARRELL: We will come to that. But go 18 ahead. 19 MR. STEPHENS: If those are kind of double -- 20 and I don't know what Union's are, but there is probably 21 something to that as well. 22 MR. FARRELL: So what you have said to me in 23 effect translates into $1.1 million, the difference 24 between ECG and Union. 25 MR. STEPHENS: Yes. 26 MR. FARRELL: And that is about as precise as 27 you can get, your explanation? 28 MR. STEPHENS: Yes. 2058 STEPHENS, cr-ex (Farrell) 1 MR. FARRELL: I don't see any line that 2 accounts for the $3,569,000 of hosting revenue. 3 MR. STEPHENS: Right. At the top of the page 4 this chart is titled "CIS Operating Costs". So if I 5 have costs and only costs for all the other cases, with 6 no benefits, why would I put a benefit in there? 7 The benefit basically is to the IT department. 8 It is not the cost of the service. 9 I guess Mr. Kent also explained that in some 10 other example the other day. When you are looking at 11 costs, you are looking at costs and you probably don't 12 want to mix them with benefits unless you do it for 13 everybody. 14 MR. FARRELL: I am not talking about a 15 cost-benefit analysis. I am talking about dollars that 16 the utility will receive as an offset. You have not 17 shown it as an offset to the outside demarcation costs, 18 so I just assumed that it had to be in the inside 19 demarcation costs. 20 MR. STEPHENS: It's a benefit. Like, it still 21 costs that. It will reduce the IT budget, but it will 22 not reduce the CIS operating costs. 23 MR. FARRELL: Would you go this far with me, 24 Mr. Stephens: that it may not reduce CIS operating 25 costs but it does have an effect on rates because it 26 reduces Enbridge's revenue requirement via the CIS 27 Z-factor? 28 MR. STEPHENS: Yes, I agree. 2059 STEPHENS, cr-ex (Farrell) 1 By the way, in Appendix 3, when I looked at IT 2 costs I did include that benefit in the year 2000. 3 So it has reduced the IT costs but not the 4 cost of delivering the CIS system. 5 MR. FARRELL: As I understand it, that is your 6 explanation for why you wouldn't show it here. You are 7 developing a cost per customer that is based on one 8 piece of the CIS puzzle, if I could put it to you that 9 way; that the hosting revenue is taken into account in 10 effect as an offset to the CIS fees for ratemaking 11 purposes. 12 MR. STEPHENS: Yes, I agree. 13 MR. FARRELL: And similarly the IS O&M 14 reduction, which is a staff reduction of $437,000 in the 15 test year. 16 That's in the Z-factor as well. Can you 17 confirm that? 18 MR. STEPHENS: It's within the Z-factor, 19 correct. 20 MR. FARRELL: I am advised that if one takes 21 into account the hosting revenue, our version of how one 22 calculates the desktop solution and support and the IS 23 staff reduction -- if those were shown as a credit in 24 the inside demarcation cost component of Appendix 2, 25 Enbridge's inside demarcation cost per customer would be 26 $2.87. 27 Would you accept that subject to check? 28 MR. STEPHENS: Yes. But I don't know how that 2060 STEPHENS, cr-ex (Farrell) 1 relates to this chart or to the other companies on the 2 chart. 3 MR. FARRELL: I understand your point. Now, 4 the third FMB test is this IT costs. I will go back to 5 page 24 of your written evidence. 6 MR. STEPHENS: I have it. 7 MR. FARRELL: Is this an indicator outside the 8 demarcation point or inside the demarcation point or 9 does it have anything to do with the demarcation point? 10 MR. STEPHENS: Well, it has something to do 11 with the demarcation point. It says: 12 "Compared to other utilities from these 13 G2R benchmarks, for four years you have 14 been double the industry average." 15 (As read) 16 In total IT spending, how that relates to this 17 fair market value, first of all, from a project cost 18 point of view, for some reason again you are double. 19 From an operating cost, you are nearly double. When I 20 look at the, you know, inside demarcation costs, again 21 you are high. 22 MR. FARRELL: So you regard this as something 23 that is an indicator. 24 MR. STEPHENS: It's an indicator. Right. 25 MR. FARRELL: You mentioned the G2R reports 26 and the benchmarks and you filed those as appendix 2 for 27 Canada and as appendix 3 for the U.S. in your response 28 to our interrogatories. 2061 STEPHENS, cr-ex (Farrell) 1 MR. STEPHENS: Yes. 2 MR. FARRELL: And can you agree with me if we 3 look at appendix 2 with the Canadian G2R report, and we 4 look at page 2 of that appendix, the heading is 5 "Interview targets". 6 MR. STEPHENS: Yes. 7 MR. FARRELL: The second sentence says: 8 "Most of the end users were electric 9 utilities in order to better reflect the 10 distribution of IT spending in the 11 utilities industry." 12 MR. STEPHENS: Yes. 13 MR. FARRELL: So you are taking electrics as a 14 proxy for gas. Is that how you have interpreted this 15 report? 16 MR. FARRELL: No. On page 7 of my evidence 17 under 4.3 -- 18 MR. FARRELL: Yes. 19 MR. STEPHENS: I wrote: 20 "The reports were based on surveys of 16 21 Canadian and 40 US gas and electric 22 utilities. The mix of the utilities was 23 about 1/3 gas and 2/3 electric in order 24 to reflect the IT spending in the 25 utilities industry." 26 So if you look at the actual companies in 27 those surveys, they turn out to be about one third gas 28 and two thirds electric. They focus it on the electric 2062 STEPHENS, cr-ex (Farrell) 1 because they represent a higher percentage of spending 2 within the utilities industry. 3 MR. FARRELL: And this is IT spending as a 4 percentage of their revenue. 5 MR. STEPHENS: As a percentage of revenue. 6 MR. FARRELL: Can you confirm for me that the 7 revenue of electric utilities includes commodity costs, 8 the electricity itself? 9 MR. STEPHENS: Yes. 10 MR. FARRELL: Are you aware that gas 11 distributors -- I will make it specific -- that Enbridge 12 provides what's known as T service, someone else 13 provides the commodity and Enbridge provides the 14 delivery system. 15 MR. STEPHENS: Yes. 16 MR. FARRELL: Do you have any idea of how much 17 commodity less throughput Enbridge has from a revenue 18 perspective? 19 MR. STEPHENS: Yes. Mr. Kent told me about 50 20 per cent. 21 MR. FARRELL: It's a little higher than that, 22 but I will take that. Did you take that into account, 23 that is to say the fact that, say, 50 per cent of the 24 throughput does not include revenue attributable to 25 commodity costs? 26 MR. STEPHENS: No, but there are some 27 transmission companies in the Canadian utilities 28 averages, so that probably, you know, accounts for some 2063 STEPHENS, cr-ex (Farrell) 1 of it, plus the other gas utilities in the Canadian 2 would be experiencing some T service as well. 3 MR. FARRELL: Okay. You just thought it was 4 just all placed into the mix. No Enbridge specific 5 adjustment was required in your view. 6 MR. STEPHENS: Yes, and I even thought about 7 the trucking industry. 8 MR. FARRELL: I see. Are you saying that the 9 IT profile, the IT spending profile, for a distributor 10 is the same as a transmission company such as 11 TransCanada Pipelines, which is one of the companies 12 included in the Canadian survey. 13 MR. STEPHENS: Could you give me that again? 14 MR. FARRELL: Yes. Are you saying that the IT 15 spending profile or the types of -- for the amounts that 16 a transmission company like TransCanada Pipelines or 17 Nova Gas Transmission might spend is similar to what the 18 distributors such as Consumers Gas would spend? 19 MR. STEPHENS: The mix of applications will be 20 quite different. You would expect their IT spending as 21 a percentage of revenue to probably be lower. 22 MR. FARRELL: Thank you. Now, at page 25 of 23 your written evidence you then compare Enbridge's IT 24 spending against the CSS total broken down into business 25 office costs and IT costs. You compare Enbridge to the 26 CIS World or TMG's breakdown. 27 MR. STEPHENS: Yes. 28 MR. FARRELL: Are you saying that TMG's split 2064 STEPHENS, cr-ex (Farrell) 1 between IT costs and business office costs, which I 2 take -- is that labour, business office costs? 3 MR. STEPHENS: Business office costs, well, 4 they take the whole customer support services area 5 equivalent. 6 MR. FARRELL: Right. 7 MR. STEPHENS: That's what they 8 call -- business office plus IT is the whole of that, so 9 I think that if we go to appendix 5 in 1999, that was 10 66.95 at ECG and 80.09 in 2000. 11 MR. FARRELL: Yes. I was focusing more on the 12 percentage splits. What you seem to be saying is that 13 it's a good thing to have a split of business office 14 costs approximating 87 per cent and 13 per cent for IT 15 and it's a bad thing to have approximately 66 per cent 16 or 75 per cent, depending on whether you look at 1999 or 17 2000 for Enbridge. 18 In other words, you are saying that the IT 19 percentage that Enbridge shows is bad because it's 20 higher than the CIS World per cent. 21 MR. STEPHENS: Well, first of all, let me 22 explain, and you probably know where I got the CIS World 23 numbers from. They are out of the evidence of Mr. 24 Diamond. 25 MR. FARRELL: Yes. 26 MR. STEPHENS: All it says again -- 27 MR. FARRELL: He explained what he used to Mr. 28 Thompson. 2065 STEPHENS, cr-ex (Farrell) 1 MR. THOMPSON: Let him finish, please. 2 MR. FARRELL: Yes, I'm sorry. 3 MR. STEPHENS: It's an indicator again. Like 4 these are all indicators. The only problem is they are 5 all out of whack. If just one was out of whack, maybe 6 it would be okay. 7 What it does show though on that table is that 8 if this proceeds at the, you know, the pricing that you 9 have got in it, you then rise to 34 per cent of your 10 customer support services total budget is IT. I know of 11 no industry that spends that much on computing in a 12 business function area like that. 13 Again, all the CIS World says is from their 14 experience and the companies that have provided 15 information to them, it's more like, you know, 13 per 16 cent. 17 MR. FARRELL: All right. Am I getting your 18 drift that you're saying that it's wrong -- well, let me 19 back up one step. Do you know of companies who have 20 leveraged technology in order to reduce labour costs? 21 MR. STEPHENS: Yes. 22 MR. FARRELL: Are you saying it's wrong to do 23 that? 24 MR. STEPHENS: No. 25 MR. FARRELL: Bear with this one, Mr. 26 Stephens. If you had a choice of flying on two 27 airlines, one of which spent 2 per cent on maintenance 28 and another that spent 4 per cent on maintenance, which 2066 STEPHENS, cr-ex (Farrell) 1 one would you choose? 2 MR. STEPHENS: Myself? 3 MR. FARRELL: Yes. 4 MR. STEPHENS: The most convenient one, but -- 5 MR. FARRELL: You don't have to answer that. 6 MR. STEPHENS: We will never know the answer 7 to that because I don't think they would publish those 8 numbers. 9 MR. FARRELL: Okay. I want to move to your 10 conclusions now. They appear on pages 27 and 28 of your 11 written evidence. We sort of covered off things you 12 have dealt with on page 27. I wanted to go to page 28 13 and deal with paragraph numbers 4 and 5. 14 You gave me an answer earlier when I asked you 15 what the fair market value of BC Gas and Union was, and 16 that was the $6 to $8 range. That appears in the second 17 line of paragraph 4. 18 MR. STEPHENS: That is because I believe that 19 to be true for, you know, any CIS solution. 20 MR. FARRELL: No, I understand. We are going 21 to go to how you derived it. I just wanted to make the 22 link. 23 This is outside the demarcation point, as you 24 say? 25 MR. STEPHENS: Right. 26 MR. FARRELL: Now, as I understand what you 27 did is -- in the response to Interrogatory No. 2 in 28 Exhibit I, Tab 25, Schedule 46, we asked you about the 2067 STEPHENS, cr-ex (Farrell) 1 $6 to $8 and you referred us to the TMG position paper 2 and you quoted from the bottom of page 51: 3 "Annual fees are typically based on a 4 customer `per click' charge every month. 5 This is the number of active customers 6 billed every month. The per click charge 7 ranges from $.50 to $2.50 depending on 8 the size of the utility and the number of 9 outsourced services." 10 In the $0.50 and $2.50 range. 11 You then say in the response to Interrogatory 12 No. 2 that you took that and you uplifted certain items, 13 as we discussed earlier, to derive a Canadian dollar 14 range of $6 to $8. 15 Have I fairly well summarized what you did? 16 MR. STEPHENS: Yes. 17 MR. FARRELL: Would you turn to page 51 of 18 Appendix 8 to your evidence, to the TMG position paper. 19 MR. STEPHENS: I have it. 20 MR. FARRELL: Okay. 21 Now, the part that I quoted -- that you quote 22 in your interrogatory response and that I repeated -- 23 starts at the second last line on page 51 -- 24 MR. STEPHENS: Yes. 25 MR. FARRELL: -- and it goes over to the next 26 page. 27 Now, it seemed to us that in talking about the 28 per click charge this report, or Mr. Galluzzi as its 2068 STEPHENS, cr-ex (Farrell) 1 author, was referring to the per click charge after he 2 describes the implementation of an outsourced solution. 3 Is that your understanding? 4 MR. STEPHENS: Yes. 5 MR. FARRELL: And, if you look near the top of 6 the page, said: 7 "The utility may spend 60% less to 8 implement an outsourced solution than it 9 would on an in-house solution." 10 (As read) 11 Then he gives cost categories "Outsourced 12 Low", "Outsourced High". 13 MR. STEPHENS: Yes. 14 MR. FARRELL: And it gives a range of vendor 15 costs of $12 to $30 U.S. Correct? 16 MR. STEPHENS: Yes. 17 MR. FARRELL: Then he adds something to 18 account for "Utility Costs/Salary", a range of $10 to 19 $30 U.S., so he has a total project of $22 -- excuse 20 me -- a total project cost range of $22 to $60. 21 MR. STEPHENS: Yes. 22 MR. FARRELL: Where have you accounted for 23 this $22 to $60 range? 24 MR. STEPHENS: In the $6 to $8? 25 MR. FARRELL: Yes. I understood your previous 26 evidence was you built the $6 to $8 on the $0.50 to 27 $2.50. 28 MR. STEPHENS: Well, as I explained in 2069 STEPHENS, cr-ex (Farrell) 1 response to your Interrogatory No. 2, since it was a 2 wide range I asked about requests for proposals that he 3 had been involved in. For the CIS application 4 outsourcing he had seen returns of less than U.S. $0.40 5 per customer and he thought that for a $1.5 million 6 gas-only utility it would be $0.50 per customer. 7 So if I uplift those by -- if I use 25 per 8 cent I get to $0.50; and the other one is 62.5, and I 9 said that is $6 to $8 Canadian based on RFPs. 10 MR. FARRELL: I'm not sure I'm following your 11 answer, Mr. Stephens. 12 Are you telling me that you have done 13 something with the $22 to $60 range of project costs? 14 MR. STEPHENS: No, I have not. 15 MR. FARRELL: Where does that money go? I 16 mean, presumably the utility has either spent or paid 17 someone a range of $22 to $60. 18 MR. STEPHENS: No. What they are saying is 19 that is the cost the vendor is going to have to build 20 into their outsourcing charge. Right? So if I go 21 through this outsourcing exercise, I have to pick up 22 those costs and allocate them out over time. 23 MR. FARRELL: What do you do with the $10 to 24 $30 range of utility costs? 25 MR. STEPHENS: You would probably add that 26 into the outsourcing cost or you could keep it inside 27 the company. It doesn't matter. 28 MR. FARRELL: Let me ask you this question. 2070 STEPHENS, cr-ex (Farrell) 1 Does the $6 to $8 Canadian range reflect the 2 $22 to $60 range, in U.S. dollars, and the $0.50 to 3 $2.50 range? 4 MR. STEPHENS: I really based it on this RFP 5 information because what are the arm's-length 6 relationship, you know, exercises that we can relate to. 7 So I based it on that, but it must include this other. 8 By the way, I should tell you that in talking 9 to the president of Enlogix, I bounced that number of $6 10 to $8 off him and he didn't think that was unreasonable 11 in terms of a CIS application. 12 MR. FARRELL: I'm still having some -- 13 MR. STEPHENS: Only, only. You know, it 14 didn't include the call centre or outsourcing metering 15 or whatever else you want to outsource. 16 MR. FARRELL: I am still having some 17 difficulty. Maybe I am just being thickheaded here. 18 Are you telling me that -- your building 19 block, I thought, or the first step, was the U.S. $0.50 20 to the U.S. $2.50 range of per click charges. 21 MR. STEPHENS: That is the only one I used. 22 MR. FARRELL: And that range, is that the 23 range that becomes the $6 to $8? 24 MR. STEPHENS: Yes. 25 MR. FARRELL: Okay. 26 So you didn't take into account the total 27 project $22 to $60 U.S. range or the subset of that, the 28 utility costs in the range of U.S. $10 to U.S. $30. 2071 STEPHENS, cr-ex (Farrell) 1 That is not factored into your fair market value 2 assessment. 3 MR. STEPHENS: It must be included in the 4 $0.40 to $0.50. Right? 5 MR. FARRELL: Well, I can only know -- I 6 didn't write this. 7 At the bottom of page 51 it says: 8 "While outsourcing installation costs are 9 less - the annual operating costs are 10 usually more." 11 Then he goes on: 12 "Annual fees are typically based on the 13 customer `per click' charge every month." 14 And he goes on to find that is $0.50 to $2.50. 15 I read this as saying after you take into 16 account the $22 to $60, then you go to the per click 17 charge. 18 You have obviously interpreted it differently. 19 MR. STEPHENS: Yes. 20 Those annual costs go up, as he has indicated 21 at the bottom of the previous page. So he is saying, in 22 general, those costs don't decrease, they increase with 23 the new application. 24 MR. FARRELL: I understand that. It is just 25 that you have not included in your fair market value 26 assessment, you have not taken into account, the total 27 project cost range and the subsets of it that are shown 28 in the top two-thirds of page 51. 2072 STEPHENS, cr-ex (Farrell) 1 MR. STEPHENS: I did not consider that, but I 2 believe they are included in the $0.40 to $0.50. 3 MR. FARRELL: Do you know that or do you think 4 that? I don't mean -- that is not to -- 5 MR. STEPHENS: No, I don't know that for sure. 6 MR. FARRELL: Could you undertake to find out? 7 MR. STEPHENS: Yes. 8 MS DESAI: J12.1. 9 UNDERTAKING NO. J12.1: Mr. Stephens to 10 determine and advise if the total project 11 cost range and the subsets of it that are 12 shown in the top two-thirds of page 51 of 13 Appendix 8, the TMG position paper dated 14 August 9, 1999, are included in the $0.40 15 to $0.50 16 MR. FARRELL: Thank you. 17 Now, if we could go back to the last page -- 18 second last page, rather, of your written evidence, 19 page 28, paragraph 5. You say: 20 "...a competitive CIS solution will allow 21 ECG to provide service inside the 22 demarcation point for $2.25 - $2.50..." 23 Canadian, I take it: 24 "...per customer during the year 2000." 25 MR. STEPHENS: Yes. 26 MR. FARRELL: Okay. 27 I don't mean to quibble here, but are you 28 talking about the test year which is not equivalent to a 2073 STEPHENS, cr-ex (Farrell) 1 calendar year? You are talking about a 12-month period? 2 MR. STEPHENS: Yes. 3 MR. FARRELL: Okay. 4 Where does that number come from -- or that 5 range, rather? 6 MR. STEPHENS: Okay. If you turn to 7 Appendix 2, I performed an estimated ECG replace 8 in-house cost per customer. I estimated the cost 9 inside. It came to $2.65. And I just thought, since 10 your IT costs seem to be high, there's room for 11 improvement and you can probably make it 2.25 to 2.50. 12 Now, the reason that the current ECG costs are 13 so high is you have this 4.3 million you are trying to 14 recover from rates and it has to go inside the 15 demarcation costs. So I basically said, you know, 16 that's all part of the application, that 4.3 million, 17 and the inside demarcation costs should be in that 18 range. 19 And by the way, you know, the $68.00 that you 20 supported with the BC Gas in-house, the Union Gas 21 in-house option, and that $2.00 that I think it will 22 eventually get to is supported by those two cases, as 23 well 24 MR. FARRELL: In giving me that answer -- 25 well, first of all, it doesn't answer the question, 26 though, what Mr. Galluzzi's methodology was, and you 27 have given an undertaking to find out. 28 In showing the Union Gas in-house option to BC 2074 STEPHENS, cr-ex (Farrell) 1 Gas in-house option here, you are referencing, I take 2 it, the 10-year amortization? 3 MR. STEPHENS: For inside demarcation costs? 4 Those are basically the annual operating 5 costs. 6 MR. FARRELL: I'm sorry. May I just have a 7 moment, please? 8 --- Pause 9 MR. FARRELL: No; I'm back outside the 10 demarcation point. 11 MR. STEPHENS: Okay. 12 MR. FARRELL: And I'm back in the $6.00 to 13 $8.00 range. 14 And so, I'm asking you to look on Appendix 2, 15 to the outside demarcation cost per customer per year. 16 You show three rows: the first is a five-year 17 amortization; the second is a seven-year amortization; 18 and the third is a 10-year amortization. 19 MR. STEPHENS: Right. And for sure, it's -- 20 at the 10-year you are inside the six-to-eight; with the 21 seven-year you are slightly above the six-to-eight; and 22 when you go to the five-year, they were way above it. 23 MR. FARRELL: They are all above it? 24 MR. STEPHENS: At 25 per cent above it. 25 MR. FARRELL: So, that's fine. We have had 26 our discussion about the validity, if you will, of a 27 10-year amortization rate for an outsourced solution 28 and -- 2075 STEPHENS, cr-ex (Farrell) 1 MR. STEPHENS: When did we have that? 2 MR. FARRELL: We had that when we were talking 3 about this appendix and I was asking you to recall the 4 discussion about a 10-year amortization, for rate base 5 purposes, being the economic equivalent of a 10-year 6 contract. 7 MR. STEPHENS: And I didn't quite agree. 8 Right? 9 MR. FARRELL: No; I know. But we are not 10 going to argue about it, so that's why I said we have 11 had our discussion and I don't need to ask -- 12 MR. STEPHENS: Well, can I just put on the 13 record why I think 10 years is reasonable? 14 MR. FARRELL: Well, if I don't let you, 15 Mr. Thompson will ask you, so why don't you go ahead 16 now. 17 --- Laughter 18 MR. STEPHENS: Basically, you are putting in a 19 piece of infrastructure for your company. And when 20 companies take major applications like their energy 21 resource planning applications, they buy it from a 22 reputable supplier -- that's the one thing you have to 23 make sure is you pick the right supplier -- and then 24 they pay this annual maintenance and, basically, 25 improvement cost of 15 per cent a year on the licence 26 cost. So this thing continually gets renewed. 27 Now, many companies choose to take that 28 infrastructure -- they call it kind of the guts of their 2076 STEPHENS, cr-ex (Farrell) 1 IT infrastructure for the business -- and they write it 2 off over a longer period, because it's continually 3 getting renewed and maintained. 4 MR. FARRELL: But in this case, Mr. Stephens, 5 BC Gas may be doing that because it retains the 6 application as part of its own assets and part of rate 7 base; whereas, both Union Gas outsourced and ECG 8 outsourced do not. They have contracts with an 9 affiliate supplier. Correct? 10 MR. STEPHENS: That's true. 11 MR. FARRELL: Those are my questions. Thank 12 you, Mr. Stephens. 13 Thank you, Mr. Chair. 14 THE PRESIDING MEMBER: Thank you, Mr. Farrell. 15 Mr. Stephens, just a question from the Board. 16 There was a lot of discussion, in the last 17 couple of days, about the subsecond response which you 18 have reported in the case of the Union system versus the 19 one to two seconds response in the case of the ECG 20 system. 21 In the demonstration that you attended at 22 Consumers Gas, for example, ECG, do you recall how long 23 it took for one of those two calls -- I believe you were 24 present while two calls were responded to. Do you 25 recall what would be the average time that the operator 26 was on line with the customer? 27 MR. STEPHENS: Well, the first one was very 28 short because she couldn't handle the call and 2077 STEPHENS 1 transferred to I think a rentals area; so a different 2 person in the call centre. 3 The second one, which I wouldn't think would 4 be very typical, probably took at least 10 minutes while 5 she got this woman calmed down over the phone about -- 6 they had moved from one location to another and they had 7 discontinued the rental of a furnace or something, so 8 she was really excited about that and the fact that her 9 husband was really going to be excited if this didn't 10 get back to so much a month rather than billed all at 11 once. So she handled all of that, and she did it really 12 well, but I don't think that would be too typical. 13 THE PRESIDING MEMBER: Can you give me an 14 idea -- well, did you have a discussion with ECG 15 personnel as to what would be the duration of a typical 16 call taken by an operator? 17 MR. STEPHENS: Less than three minutes is what 18 I recall. 19 THE PRESIDING MEMBER: Less than three 20 minutes. 21 So, in your view, should the regulator be 22 concerned about -- in light of the fact that if the 23 typical call would be three minutes whether the response 24 time to the screen would be a second or subsecond or two 25 seconds, from an economic point of view, from an 26 economic regulator's point of view, should we be 27 concerned about it? 28 MR. STEPHENS: Well, first of all, I didn't 2078 STEPHENS 1 think it was that big of an issue because you might be 2 able to fix this response time. But what happens is if 3 it's slow, it can -- and you have to go to several 4 screens, you just slow, --you know, the customer support 5 representative just takes a little bit more time on the 6 phone than if it's subsecond. 7 THE PRESIDING MEMBER: Again, in terms of 8 subseconds again? 9 MR. STEPHENS: Right. 10 THE PRESIDING MEMBER: Okay. Now -- 11 MR. STEPHENS: But in terms of that three 12 minutes, I don't think it's, you know, it's not an 13 enormous issue. It's frustrating if it's slower. And 14 it can probably get fixed. 15 THE PRESIDING MEMBER: It would be frustrating 16 for? 17 MR. STEPHENS: All the customer service 18 representatives, because they have to chat while this 19 thing is coming back displaying the information. 20 THE PRESIDING MEMBER: All right. Thank you. 21 Now, there was some discussion about the 22 ability to interface with the ECG system through the 23 Internet, and I believe that there was some discussion 24 about the added costs that may be required. 25 You did say -- I tried to make a note of 26 that -- that "Based on what I have seen, they can be 27 quite significant sometimes and those were the added 28 costs", and this was in response to Mr. Kent's evidence 2079 STEPHENS 1 that the added costs would not be significant. 2 So, "Based on what I have seen", can you just 3 elaborate on that? 4 MR. STEPHENS: Well, I'm saying, based on what 5 I have seen with the ECG, the information, they seem to 6 spend a lot of money on keeping their computing systems 7 operating and updating the applications. Like there 8 was -- 9 THE PRESIDING MEMBER: Maybe I wasn't clear in 10 my question. 11 One of the points that you made in your 12 evidence is that the system would not be able to 13 accommodate Internet interaction with the customer, such 14 as paying bills through the Internet, unless there's 15 some additional expenditures. 16 MR. STEPHENS: Yes. 17 THE PRESIDING MEMBER: Okay. 18 In that connection, you made reference to 19 Mr. Kent's evidence that this feature can be added to 20 the system at a cost that would not be significant. You 21 came back, in an answer to Mr. Farrell, saying that -- 22 and that is almost a quotation: Based on what I have 23 seen, they can be quite significant sometimes. 24 And those are the expenses, the additional 25 expenses. 26 Are you with me now? 27 MR. STEPHENS: Yes. 28 THE PRESIDING MEMBER: I am just asking you: 2080 STEPHENS 1 What have you seen? How can you assist the Board as to 2 what you have seen out there in terms of additional 3 expenditures to make the system able to operate in the 4 Internet mode? 5 MR. STEPHENS: Directly relating to what I 6 will call electronic commerce projects and building that 7 into an application, the costs vary from, let's say, 8 less than a million dollars to multiple millions of 9 dollars, depending on how far you take it and how much 10 you integrate it into the business processes. 11 My statement related to the fact that ECG in 12 the past, for things that are additional functions with 13 these applications, seems to spend more than one would 14 expect. 15 That is what I was referring to, not to that; 16 to my experience with e-commerce solutions. 17 THE PRESIDING MEMBER: Maybe I did not hear 18 you correctly at that time. 19 My third and final question is: In discussion 20 of release no. 2 scheduled for some time this fall, you 21 talked about a risk of delay. Do you recall that? 22 MR. STEPHENS: Yes. 23 THE PRESIDING MEMBER: Is it a risk of 24 unbundling the whole project? 25 MR. STEPHENS: In my opinion, I don't think 26 so, because they have been working on this for a long 27 time. 28 I guess Mr. Kent mentioned that if they missed 2081 1 the November date, they would have to move it to next 2 year because we are not going to try anything in the 3 year 2000 changeover. 4 So it will be a delay. 5 THE PRESIDING MEMBER: You mentioned that 6 release 2 is the critical one; that releases 3 and 4 are 7 not so critical. 8 MR. STEPHENS: Yes. And it is actually 9 referred to as 1B at ECG. 10 THE PRESIDING MEMBER: The risk is only one of 11 delay. It is only a matter of time before the system is 12 fully operational to do all of the functions that it is 13 meant to do. 14 MR. STEPHENS: Yes, I would believe that. 15 THE PRESIDING MEMBER: Can you assist the 16 Board as to what, in your view, is the probability of 17 the delay? 18 MR. STEPHENS: No. I never looked at anything 19 in that kind of detail. 20 THE PRESIDING MEMBER: Thank you very much. 21 Those are the Board's questions. 22 Mr. Thompson, do you have any re-examination? 23 MR. THOMPSON: Just a couple of points, if I 24 might, Mr. Chairman, and they are not major ones. 25 RE-EXAMINATION 26 MR. THOMPSON: Mr. Stephens, this morning you 27 were having a debate with Mr. Farrell about whether the 28 ECG system was operational or non-operational. 2082 STEPHENS, re-ex (Thompson) 1 Do you recall that? 2 MR. STEPHENS: Yes. 3 MR. THOMPSON: It just wasn't clear to me 4 whether, in your opinion, you regard it as operational 5 at this stage. Could you clarify that for us, please. 6 MR. STEPHENS: The most significant function 7 that will be added to this application and its highest 8 risk from a technology point of view is 1B, and that is 9 where you finally get to update customer records as well 10 as look at them, customer and premise records. 11 Until that happens, not much has happened. 12 MR. THOMPSON: Does that mean that until that 13 happens, it is not operational in your view? 14 MR. STEPHENS: Yes. 15 MR. THOMPSON: There was some discussion about 16 your Appendix no. 7 with Mr. Farrell, and this reflects 17 the numbers you derived from Mr. Galluzzi's appendix and 18 your discussions with him. 19 You were having a debate with Mr. Farrell 20 about whether the comparison should be to the in-house 21 low versus the in-house high. 22 Do you recall that? 23 MR. STEPHENS: Yes. 24 MR. THOMPSON: He was looking at your in-house 25 low column, where you show the total project cost per 26 customer at $33. This is after your adjustments for 27 making those items that you feel should be adjusted in 28 U.S. dollars to Canadian dollars. 2083 STEPHENS, re-ex (Thompson) 1 MR. STEPHENS: Yes. 2 MR. THOMPSON: Then you had said you had 3 uplifted Consumers from that. 4 Could you just explain what you meant when you 5 said that. 6 MR. STEPHENS: If you will note, I basically 7 said from an applications services point of view. Like, 8 you are going to have to have people help you make this 9 happen. I put this in the middle. 10 The program contingency and interest during 11 construction I put above the high, because that seems to 12 be the experience at ECG itself. 13 I said the utility costs and salaries would be 14 a little bit higher. Therefore, I uplifted from $33 to 15 $40. 16 MR. THOMPSON: So the uplift you were talking 17 about was from the $33 for the low to the $40 per 18 customer which you have used. 19 MR. STEPHENS: Yes. And that ties into what 20 we have seen at BC Gas and the Union Gas in-house 21 option. 22 MR. THOMPSON: Mr. Farrell put some questions 23 to you about some mathematical conclusions, and you said 24 you could live with that. 25 Did you mean you could live with his 26 mathematical calculations? 27 MR. STEPHENS: I can't remember what -- 28 THE PRESIDING MEMBER: That is always 2084 STEPHENS, re-ex (Thompson) 1 dangerous. 2 MR. STEPHENS: I can't remember what the 3 context was. 4 MR. THOMPSON: Do we know? 5 MR. FARRELL: Yes, I think if I look at my 6 notes. 7 This was at the end of our discussion of 8 Appendix 1, and Mr. Stephens and I had been discussing 9 the response to our interrogatory 26, on page 14 of 10 Exhibit I, Tab 25, Schedule 46. 11 We were talking about -- 12 MR. THOMPSON: The $61. Is that it? 13 MR. FARRELL: Yes. And I think the 14 proposition I put to him was that if ECG was in the 15 middle of TMG's range, using your approach, the total 16 project cost per customer would be approximately $60. I 17 think I said that, even with what I called his mixed bag 18 of currencies. 19 I think it is there that he said "I can live 20 with that". That is my recollection. 21 MR. STEPHENS: If I remember what I said -- if 22 I said I can live with that, it is because it is halfway 23 between $40 and $80. 24 MR. THOMPSON: But you could live with the 25 mathematics, not the -- 26 MR. STEPHENS: The mathematics, right. 27 MR. THOMPSON: Mr. Farrell was talking with 28 you about the TMG benchmark of IT costs to business 2085 STEPHENS, re-ex (Thompson) 1 costs. 2 MR. STEPHENS: Yes. 3 MR. THOMPSON: He was putting a suggestion to 4 you about leveraging IT costs to achieve labour savings. 5 Do you recall that? 6 MR. STEPHENS: Yes. 7 MR. THOMPSON: Is there any evidence that you 8 have seen that ECG is leveraging IT costs to reduce 9 labour costs in a major way? 10 MR. STEPHENS: Well, I have been through the 11 benefits of actually the BPR case and even though they 12 claim they have taken these 26 and 52 head counts out in 13 that series, a simple example, this head count just 14 keeps growing and growing, although there is some 15 productivity improvement in that they handle more 16 customers per year. 17 MR. THOMPSON: And their head count compared 18 to the information you obtained from others indicated 19 what in terms of comparative head count for this IT CIS 20 customer support services area? 21 MR. STEPHENS: Well, you can look at it in 22 several ways, but if I look at the customer care 23 function at BC Gas, as I understand it, and that at 24 Union Gas, as I understand it, there is something out of 25 whack again and it's out of whack about a factor of two. 26 There seems to be about twice as many people 27 in customer support services at ECG as there is, you 28 know, for the equivalent number at BC Gas and Union Gas. 2086 STEPHENS, re-ex (Thompson) 1 Those are certainly subject to us not agreeing since you 2 have raised that. 3 I did have a look at one other area. Whenever 4 we looked at a business that we were buying at SHL or 5 when we were looking at basically organizations, we 6 would look at the core versus non-core head count and 7 that core and non-core operations of maintenance dollars 8 or operating costs. 9 Again, at ECG relative to the petroleum 10 industry, they don't seem anywhere close. Like they are 11 about three to one, so core to non-core would be about 12 three to one, both operating and head count in the 13 petroleum business or in the IT consulting and systems 14 integration business. It's something like one and a 15 half to one at ECG. 16 There's a number of indicators that say "I 17 don't think this is effective as it should be". 18 MR. THOMPSON: You had a discussion with Mr. 19 Vlahos about the response time. 20 MR. STEPHENS: Yes. 21 MR. THOMPSON: He asked you whether the 22 regulator should be concerned about response time. Does 23 the response time relate to the quality of a CIS or IT 24 solution and its fair market value? 25 MR. STEPHENS: Yes, it does in two ways. You 26 can usually fix response time with money. If you spend 27 more money, you can usually fix response time in that 28 you put more hardware in and you tune the system better. 2087 STEPHENS, re-ex (Thompson) 1 That again relates to fair market value. If 2 it's inherent in the design of the application and its 3 technology, you can have a bigger issue. 4 MR. THOMPSON: Everything else being equal 5 with two CIS solutions, if one has a slow response time 6 and the other has a very rapid response time, is the one 7 with the rapid response time better than the slower from 8 a technological and value perspective? 9 MR. STEPHENS: Yes. 10 MR. THOMPSON: All right. Thank you. Those 11 are my questions. 12 THE PRESIDING MEMBER: Thank you, Mr. 13 Thompson. 14 Mr. Farrell, where do we stand now? 15 Mr. Thompson, I understand there is still a 16 part of the undertaking that has to be responded to. 17 MR. THOMPSON: Yes. We are going to have a 18 time. Mr. Stephens tried to reach the technology 19 director at Enlogix again at the break and we were 20 unsuccessful. We will try again. I am hoping to be 21 able to put that on the record today in some fashion. 22 The other one that's outstanding we have to 23 check with Mr. Galluzzi about what was in the 40 to 50 24 cents in the RFP, whether it included these costs. I'm 25 not so sure I will be able to do that today. 26 That's what's outstanding from me. I have 27 these comments I wanted to make about some of the 28 undertaking responses. Mr. Farrell may have something 2088 STEPHENS, re-ex (Thompson) 1 he wishes to add. 2 MR. FARRELL: Mr. Thompson, I might just speak 3 off the record for a moment. 4 --- Off the record 5 MR. THOMPSON: Subject to your directions, Mr. 6 Chair, Mr. Farrell and I -- I believe it might be 7 appropriate for me to put on the record the concerns 8 that I have with some of these undertaking responses and 9 then have a luncheon adjournment. We can try and clean 10 everything up and come back and deal with these 11 concerns, if they need to be addressed, on the record. 12 Mr. Farrell, I believe, still wants to 13 consider whether he is going to lead some reply 14 evidence. That will allow us time to try and clean up 15 our Enlogix and other outstanding undertakings. 16 THE PRESIDING MEMBER: Mr. Thompson, I was 17 just wondering. Why do we need to hear about those 18 concerns now until we have an opportunity to touch base 19 with Mr. Farrell over the next hour and a half. Perhaps 20 the concerns could be reduced. 21 MR. THOMPSON: I'm happy to do it that way as 22 well. 23 Thank you. 24 MR. FARRELL: Before we adjourn, Mr. Chair, I 25 have responses to two additional undertakings. J4.2 and 26 Exhibit J6.2. I will check on the status of the other 27 outstanding undertakings that we have. I believe there 28 are less than five now, but we can do that over the 2089 STEPHENS 1 break so I can advise the Board whether we will have 2 them today or whether we will have to file them after 3 the hearing is concluded. 4 THE PRESIDING MEMBER: Okay. Depending on the 5 outstanding concerns of Mr. Thompson then, we may or may 6 not conclude the oral hearing today. 7 MR. FARRELL: My sense is that we have a very 8 good chance of concluding it today because I think most, 9 if not all, of Mr. Thompson's concerns relate to 10 responses to undertakings given by either Mr. Kent or 11 Mr. McGill, who are both here. 12 If we were to decide to call any rebuttal or 13 reply witnesses, it would be Mr. Kent and Mr. McGill. 14 The issues are really narrow. I would not imagine, at 15 least not in chief, there would be any long stretch of 16 examination-in-chief. I'm hopeful that we can conclude 17 today. 18 THE PRESIDING MEMBER: The decision to call 19 rebuttal evidence is independent of Mr. Thompson's 20 concerns. 21 MR. FARRELL: No. It's dependent upon my 22 discussion with Mr. Kent and Mr. McGill over the 23 luncheon break. If necessary, if we can't resolve Mr. 24 Thompson's concerns off the record, if it could 25 facilitate the process to have Mr. Kent and Mr. McGill 26 re-impanelled, we will do that. 27 THE PRESIDING MEMBER: Okay. Why don't we 28 break for an hour and a half. We will return at 1:30. 2090 STEPHENS 1 Mr. Stephens, you are excused with our thanks. 2 --- Luncheon recess at 1205 3 --- Upon resuming at 1331 4 PREVIOUSLY SWORN: DUNCAN KENT 5 PREVIOUSLY SWORN: STEPHEN McGILL 6 THE PRESIDING MEMBER: Please be seated. 7 We are back. 8 Mr. Farrell. 9 MR. FARRELL: Yes, Mr. Chair. 10 Mr. Thompson has spoken to me. He wishes to 11 ask these witnesses some questions relating to two 12 undertaking responses, plus Exhibit K12.2 that 13 Mr. Thompson filed this morning. 14 I have some examination-in-chief that is in 15 the nature of reply evidence, very brief, and then 16 Mr. Thompson will -- 17 THE PRESIDING MEMBER: If someone can give us 18 the numbers of the "J" exhibits, please? 19 MR. FARRELL: Yes. I'm sorry. 20 It is J7.7 and J8.4, and Exhibit K12.2, which 21 was distributed this morning. 22 Mr. Brett has spoken to me about Exhibit J9.5. 23 The undertaking was Mr. Diamond's and he was going to 24 run the 10 largest U.S. pure gas utilities to arrive at 25 an industry average. 26 Neither Mr. Brett nor Mr. Diamond defined 27 "largest" in relation to what. In J9.5 Mr. Diamond 28 sorted them by operating revenue. Mr. Brett has asked 2091 KENT/McGILL 1 me if we could sort them by number of customers, and, 2 subject to getting a hold of Mr. Diamond and having him 3 do that, we are prepared to do another run. Although, 4 as I say, the transcript itself was silent. 5 Mr. Thompson has asked whether we can produce 6 the article that Mr. Diamond refers to in Exhibit J9.7, 7 and we have agreed to do that as well. 8 THE PRESIDING MEMBER: Do we need an exhibit 9 number for that, Ms Desai, the -- 10 MR. FARRELL: If I might? 11 I think that perhaps we could just maybe 12 refile the one page of Exhibit J9.7 that says "Update - 13 Article Attached", so we could maintain the same exhibit 14 number. 15 Similarly, for the resort according to number 16 of customers for Exhibit J9.7. It would just be a 17 question of adding a second page with an indication on 18 the first, if that is satisfactory. 19 THE PRESIDING MEMBER: That's fine. 20 MR. FARRELL: There are, at the moment, by our 21 count, five undertaking responses that are still 22 outstanding. If we can't get them by the time we are 23 finished today, then we will simply file them with the 24 Board and distribute them in the ordinary course. 25 FURTHER EXAMINATION-IN-CHIEF 26 MR. FARRELL: So, gentlemen, you were both 27 here this morning and yesterday during my 28 cross-examination of Mr. Stephens. 2092 KENT/McGILL, further in-ch (Farrell) 1 MR. KENT: Yes. 2 MR. McGILL: Yes. 3 MR. FARRELL: Do you recall the discussion 4 that we had about the amount of data on any particular 5 screen, or what I call the density of the screen, 6 because you told me to, Mr. Kent -- 7 MR. KENT: Yes, I recall that. 8 MR. FARRELL: -- and the response time? Then 9 Mr. Chair asked Mr. Stephens about the duration of the 10 calls that he listened in to. 11 Could you tell us what is the average call 12 handling time? 13 MR. KENT: Mr. Stephens' estimate actually 14 wasn't that far off. The call handling time was 15 approximately three minutes and 45 seconds in total. 16 MR. FARRELL: And that is the average call 17 handling time today? 18 MR. KENT: It is the average call handling 19 time both before and after implementation of our new 20 CIS. 21 Now, as you have heard quite a bit about, what 22 is currently implemented is only Phase 1A. I don't 23 disagree with Mr. Stephens' characterization of it as 24 not having the update capability. Things like that will 25 come later and will add productivity improvements and 26 help us reduce the average call handling time. 27 But when we implemented Phase 1A we were 28 naturally concerned that the response time of the system 2093 KENT/McGILL, further in-ch (Farrell) 1 is longer than it was with the old system. It is, as 2 Mr. Stephens suggests, in the order of one to two 3 seconds. So it varies with the type of screen that 4 people are calling up and the amount of information on 5 it. 6 The old system, as a mainframe one, did 7 respond faster, so we have been monitoring the average 8 call handling time with the old system and with the new 9 and it has not changed. That to us is very important, 10 that it should not increase. 11 The reason that it hasn't increased is that we 12 have been able to reduce the total number of screens 13 from almost 60 in the old system to 41 in the new 14 system. We have been able to pack more information on 15 each screen and make it more easily understandable by 16 the CSRs so they don't need to go to so many screens and 17 they can work more efficiently with it. 18 So the result of that is, though, that the 19 time required to pull up the screen is, on average, 20 longer. You get more out of it, basically, and you need 21 to go to fewer screens to respond to customer calls. 22 I hope that clarifies it, Mr. Farrell. 23 MR. FARRELL: Thank you, Mr. Kent. 24 Then I had a discussion with Mr. Stephens this 25 morning about the number of CIS users, his figure of 800 26 for Enbridge, 300 for Union Gas, and 200 for BC Gas. 27 Would you give us your understanding of what 28 you understand to be the appropriate numbers for BC Gas 2094 KENT/McGILL, further in-ch (Farrell) 1 and Union? 2 MR. KENT: Yes. I appreciate again that this 3 isn't sort of information from the source. 4 Mr. Stephens made inquiries and came up with 5 numbers. When we saw his evidence we wanted to follow 6 up and understand the numbers and try to make sure they 7 were comparable. 8 I contacted BC Gas and spoke to several people 9 there over the phone and got an estimate from a lady by 10 the name of Edna Katchachak(ph), whose last name 11 unfortunately I do not know how to spell, but she is 12 very much involved in the project, and I asked her how 13 many CSRs were going to be using the system when they 14 had all of their customers on that same single system 15 brought back from BC Hydro and the inland customers. 16 She told me that their current estimate of the 17 number for the two call centres that they will be 18 putting in is that there would be between 200 and 250 19 CSRs using the system. 20 Though I have no further information, my 21 understanding is that a CSR in their system is 22 essentially the same as ours. 23 So that, then, is a number that I believe to 24 be comparable to the 363 that appears at Exhibit J8.4. 25 The number of 300 from Union Gas was the one 26 that I followed up with Bob Bell. Both Mr. Stephens and 27 I, I think, have been trying to reach Mr. Bell over the 28 lunch break. But my understanding is that Mr. Stephens' 2095 KENT/McGILL, further in-ch (Farrell) 1 characterization is correct with one exception. 2 My understanding from Bob is that 300 people 3 is the number that are using Banner 1 as it is currently 4 in service to support the 280,000, approximately, 5 customers that were the old Centra Gas Ontario 6 customers. So that is a subset of their total number of 7 customer support services people and it is relative only 8 to those Centra Gas Ontario customers. 9 Now, I don't know how to manipulate that 10 number or whether it is relevant to the total number 11 carrying out that function at Union Gas for the entire 12 customer base, but the number of 300 that I understood 13 that Bob had given to Jim Stephens was, in the way that 14 I heard the story, relative only to the old Centra Gas 15 Ontario customers. 16 I, in fact, left messages with Bob asking if 17 he could possibly be here today to help us with this 18 matter, but he had other commitments I gather and was 19 unable to be here. 20 MR. FARRELL: Thank you, Mr. Kent. 21 Those are my questions, Mr. Chairman. 22 THE PRESIDING MEMBER: Thank you, Mr. Farrell. 23 Mr. Thompson. 24 MR. THOMPSON: Yes, thanks. 25 FURTHER CROSS-EXAMINATION 26 MR. THOMPSON: Just with respect to the 27 response time issue, Mr. Kent, you are agreeing, as I 28 understood you, that the response time at the moment for 2096 KENT/McGILL, further cr-ex (Thompson) 1 query is longer on the new system than it was under the 2 old? 3 MR. KENT: Yes, that is correct, because the 4 new system is a client/server system that 5 characteristically takes longer than an old mainframe 6 system. 7 The Enlogix SCT system is also a client/server 8 system and with any appreciable load on it would also 9 likely have a response time lower than a comparable 10 mainframe system. 11 MR. THOMPSON: I'm sorry? The response time 12 where? At Enlogix, you said? 13 MR. KENT: I'm saying it is characteristic of 14 client/server systems to have a somewhat slower response 15 time than mainframe dumb terminal systems. 16 MR. THOMPSON: But I'm just talking about your 17 system at the moment. 18 MR. KENT: Fine. 19 MR. THOMPSON: It is one to two seconds. You 20 would agree with that now? 21 MR. KENT: It varies. I don't think we ever 22 disagreed with it, Mr. Thompson, but it varies according 23 to the particular screen that is being called up and the 24 amount of data that is on that screen. 25 Some screens are that long. Others are 26 significantly faster because if they contain only a 27 small amount of data, the characteristic of our 28 infrastructure -- which is based on an IBM token ring 2097 KENT/McGILL, further cr-ex (Thompson) 1 technology -- is that the packet size on the network 2 limits the data transmission speed. And there's a 3 degree of latency in client/server systems, as well, 4 that tends to slow them, in relation to mainframe 5 systems. 6 MR. THOMPSON: I'm just trying to make sure I 7 understood what you were saying. 8 Do you agree that the response time is, as 9 estimated, one to two seconds? 10 MR. KENT: I would agree that in our 11 production environment, for our system, the average time 12 for our screens is probably on that order; though there 13 are variations around that average. 14 I would also say that it's characteristic of 15 client/server systems to be somewhat slower, in 16 response, than mainframe systems. 17 MR. THOMPSON: Do you agree that there's a 18 risk that the response time would be even longer when 19 Phase IB is introduced, as Mr. Stephens indicated was a 20 risk? 21 MR. KENT: I agree with Mr. Stephens that it 22 is a risk. It's one that we are aware of and that we 23 have been doing performance testing of to -- 24 stress-testing the system -- to ensure that when we do 25 put it in production, the response time is going to be 26 acceptable for CSRs. 27 MR. THOMPSON: Do you agree that the length of 28 the response time is a reflection on the quality of the 2098 KENT/McGILL, further cr-ex (Thompson) 1 CIS solution? 2 MR. KENT: I think there's a lot of factors 3 that need to be measured -- and I believe Mr. Stephens 4 has attempted to measure a number of factors -- to judge 5 the quality of the CIS system. 6 I think that, ultimately, for the operator of 7 the gas distribution utility and a call centre, what is 8 important is the total length of time that you have to 9 spend on the phone to reasonably satisfy a customer's 10 request or whatever they need; and that is: a factor of 11 response time for screens; the acceptability of data; 12 the ease with which CSRs can comprehend the data that's 13 presented to them. It's a factor -- it's a function of 14 a great many factors, of which response time is one. 15 MR. THOMPSON: Right. But in terms of the 16 value of the CIS or IT solution, do you agree or 17 disagree that response time is a factor? 18 MR. STEPHENS: I agree that it is a factor. 19 And if everything else was exactly the same between two 20 systems, if you had two systems that were precisely 21 identical in every respect and the only differentiator 22 was response time, I would agree that the one with the 23 slower response time would be less desirable than the 24 one with a faster response time. 25 MR. THOMPSON: And worth less? Like not 26 "worthless" but "worth less". 27 MR. STEPHENS: I hope the court reporter gets 28 that down accurately. It's going to be a challenge. 2099 KENT/McGILL, further cr-ex (Thompson) 1 I think we are talking about something that's 2 so hypothetical here, Mr. Thompson, that it's difficult 3 for me to give any real-world value to it, because there 4 are so many other things that would differentiate one 5 CIS from another. 6 MR. THOMPSON: Now, in your response to one of 7 my questions, you slipped into the Enlogix system, as I 8 understood you. My question is -- Mr. Stephens has 9 confirmed with an individual at Enlogix, today, as I 10 understood it, that the response time, in a production 11 environment, for Centra, and for Union Energy, is 12 subsecond. 13 Are you challenging that? 14 MR. KENT: Well, we haven't had the 15 opportunity of finding out exactly the parameters that 16 we asked Mr. Stephens about. I would be very interested 17 in that, particularly since, in a development 18 environment, you would appear, even in the situation at 19 Enlogix, to have fewer people using the system than we 20 do our in production system. In addition to that, 21 developers, when they are accessing a system, are doing 22 different things than someone is doing in production. 23 So, to have, simultaneously, 50 developers using a 24 system isn't necessarily the same as having 50 25 production users using the system. 26 MR. THOMPSON: I understand that. But 27 Mr. Stephens relayed, at your company's request, 28 information about the response time, in the production 2100 KENT/McGILL, further cr-ex (Thompson) 1 environment. He did that this morning. 2 Do you recall -- 3 MR. KENT: In that case, I misunderstood. I 4 didn't realize that Enlogix -- the developers at the 5 Enlogix site were using Union Gas production data. 6 Are you saying that's the case, Mr. Thompson? 7 MR. THOMPSON: I think what he said was -- and 8 correct me if I'm wrong -- that the individual at 9 Enlogix that he spoke to indicated that the Union Gas 10 use for the 280,000 Centra customers -- which is a 11 production environment -- 12 MR. KENT: Yes, I agree with that. 13 MR. THOMPSON: The response -- 14 MR. KENT: -- Banner 1 system or Phase 1 of 15 Banner. 16 MR. THOMPSON: Just let me get the question 17 out. 18 The response time, he was told, was subsecond. 19 MR. KENT: Yes, I do recall Mr. Stephens 20 recounting that he had been told that. I agree. 21 MR. THOMPSON: All right. Do you accept that? 22 Or are you questioning that? This is what I couldn't 23 understand. 24 MR. KENT: No; I do accept that Mr. Stephens 25 said that and that that was what was recounted to him. 26 I don't know enough about Phase 1 of Banner, which I 27 understand to be a different system than Phase 2 -- 28 which is what I believe Mr. Stephens was comparing to 2101 KENT/McGILL, further cr-ex (Thompson) 1 our solution -- I don't know enough about the 2 differences between those two systems to know whether 3 that's relevant. I don't know what the impact is of 4 scaling from 280,000 customers to 1.1 million customers 5 might be. But if the current system is recounted by 6 Mr. Stephens to have in its current application 7 subsecond response time, I do not have information to 8 contradict that. 9 MR. THOMPSON: All right. You don't have 10 information to contradict what I understood him to say, 11 which is that the response time for the Union Energy 12 use, which is for 900,000 customers, is subsecond? 13 MR. KENT: That's correct. Though I believe 14 that the Union Energy application is using a more 15 limited subset of the system than would be contemplated 16 for Union Gas. I'm not sure, but I believe that to be 17 the case. 18 MR. THOMPSON: I think Mr. Stephens said as 19 much. 20 Okay. Let's turn, then, to your information 21 you say you got from BC Gas. I think, probably, we are 22 going to have to mark -- and I will have to undertake to 23 do this, Mr. Chairman -- the pages in the BC Gas filing 24 to which Mr. Stephens referred in his evidence. These 25 are pages 35 and following. 26 Mr. Kent, have you reviewed this application? 27 MR. KENT: Yes, I have. 28 MR. THOMPSON: Okay. And as Mr. Stephens 2102 KENT/McGILL, further cr-ex (Thompson) 1 indicated, this morning, the section of this application 2 which describes the "as is" cost analysis indicated 220 3 full-time equivalent staff involving -- involved in 4 supporting direct customer care processes, including BC 5 Hydro staff (estimated). 6 MR. KENT: Yes, I read that at page 35. And 7 it was in order to get some confirmation of this number, 8 or to understand it better, that I called 9 Ms Katchachak(ph). 10 MR. THOMPSON: Are you suggesting that number 11 is wrong? 12 MR. KENT: I'm suggesting that she gave me 13 information that differs from this number -- and the way 14 that I recounted her description is, I believe, accurate 15 and correct. I saved her voice mail message and, over 16 the lunch break, I reviewed it -- and Mr. McGill had an 17 opportunity to hear her message, as well -- and I hope I 18 have characterized it correctly. 19 If that's not the case, perhaps Steve can -- 20 MR. McGILL: No; I heard it, and the figure 21 she quoted was 200 to 250 CSRs. 22 MR. THOMPSON: And you have assumed that those 23 are FTEs, are you? Or what is the assumption you have 24 made about CSRs and FTEs? 25 MR. KENT: My question to her was how many 26 simultaneous users there would be of the system, and she 27 responded with an estimate of 200 to 250 CSRs. So it 28 may be that the total is actually even higher, in terms 2103 KENT/McGILL, further cr-ex (Thompson) 1 of FTEs. 2 MR. McGILL: In terms of positions. 3 MR. THOMPSON: Did you ask her how many 4 full-time equivalent staff are involved in supporting 5 the direct customer care processes, including BC Hydro 6 staff estimates? 7 MR. KENT: No, I did not. Though, over lunch, 8 I left a voice mail message asking for that information, 9 as well, if they felt able to provide it to us. 10 MR. THOMPSON: Did you draw her attention to 11 the application that had been filed in your questions to 12 her? 13 MR. KENT: I did, originally, but in the 14 material -- in my voice message today I did not. She is 15 not in the office today, or tomorrow, so I was forced to 16 leave a voice mail. 17 MR. THOMPSON: But what Mr. Stephens has used 18 is as described in the BC Program Mercury application. 19 Do you accept that? 20 MR. KENT: There is a number, of 220 FTEs, 21 including an estimate of the BC Hydro staff. 22 MR. THOMPSON: With respect to Union Gas, I 23 think perhaps what we should do is leave it this way: 24 Perhaps jointly we could attempt to resolve this with 25 Mr. Bell and inform the Board as to what the facts are 26 in terms of the number of about -- well, Mr. Stephens 27 said he actually got less than 300 from Mr. Bell. 28 We can try and nail that down. Would that be 2104 KENT/McGILL, further cr-ex (Thompson) 1 satisfactory? 2 MR. FARRELL: Yes. 3 MR. THOMPSON: Maybe we should get a number 4 for that. 5 MS DESAI: Undertaking J12.2. 6 UNDERTAKING NO. J12.2: To confirm how 7 many full-time equivalent staff are 8 involved in supporting the direct 9 customer care processes, including BC 10 Hydro staff estimates 11 THE PRESIDING MEMBER: I hope, whatever the 12 answer is, that we don't need to resume, Mr. Thompson. 13 MR. THOMPSON: No. That's why I suggest we do 14 it jointly. 15 We will be done today, Mr. Chairman. 16 THE PRESIDING MEMBER: That's okay. It 17 doesn't have to be done today, as long as we can 18 complete today the oral part of the hearing. 19 MR. THOMPSON: Thank you. That concludes my 20 cross-examination on the reply material. 21 MR. FARRELL: I was inquiring through you, 22 Mr. Chair, whether Mr. Thompson wanted to get a "K" 23 exhibit for pages 35 to whatever, or whether he wanted 24 those pages added to K11.2, which contains some excerpts 25 from Program Mercury. 26 MR. THOMPSON: It would probably be convenient 27 if you could just undertake to add them to what has been 28 filed. I suggest we put the whole of the Financial 2105 KENT/McGILL, further cr-ex (Thompson) 1 Analysis section, which would be pages 35 to 42. 2 MR. FARRELL: That's fine by me. 3 THE PRESIDING MEMBER: If we could have those 4 now, we can just attach them to Exhibit 11.2. 5 Does somebody have them? 6 MR. THOMPSON: We haven't got them copied. 7 THE PRESIDING MEMBER: That's fine. We will 8 wait for them. I thought they were already produced. 9 MR. THOMPSON: I don't know if Mr. Farrell has 10 any re-examination on the reply evidence. Otherwise, I 11 will just go into these undertaking issues. 12 MR. FARRELL: Go ahead. 13 MR. THOMPSON: Thank you. 14 Panel, first of all, would you turn up Exhibit 15 K12.2, which is material that I believe Mr. Kent sent to 16 Mr. Stephens by e-mail in response to a telephone 17 message from him where he asked that the customer 18 support costs shown in IGUA 44 be broken down into 19 business office costs and IT costs. 20 Is that a reasonable paraphrase of the 21 request? 22 MR. KENT: It is. I think it is an example, 23 as Mr. Stephens was kind enough to point out, of our 24 being forthcoming in the provision of information. I 25 think another time I might be more careful to qualify 26 the information more carefully before providing 27 information of this nature. 28 MR. THOMPSON: Is there something wrong with 2106 KENT/McGILL, further cr-ex (Thompson) 1 it? 2 MR. KENT: No. The numbers are accurate. I 3 think the question is whether or not we were 4 sufficiently clear in explaining what the numbers meant 5 and where they came from. I am sure you will give us an 6 opportunity to go through that now. 7 It might have saved some aggravation if we had 8 done it as a formal interrogatory response and taken our 9 usual care in providing explanations of the data that go 10 on interrogatory responses. 11 MR. THOMPSON: Let me move on. I think it 12 would be helpful also if we just -- this information has 13 been displayed in Mr. Stephens' Appendix 5. But the 14 numbers at the bottom of page 2, the $66,965,265 and the 15 $80,091,903, were the calculations of total customer 16 support costs that Mr. Diamond used in his exhibit. 17 MR. KENT: They were, and they were prepared 18 for that purpose with the knowledge that Mr. Diamond was 19 going to be matching them with costs obtained from other 20 utilities. 21 MR. THOMPSON: If we could then jump quickly 22 to the last page, Mr. Diamond in his evidence indicated 23 that what he had done was attempted to select the 24 company's accounts that were comparable to the FERC 25 accounts that he was using. 26 MR. KENT: Yes. 27 MR. THOMPSON: In his evidence he had 28 indicated that there were numbered accounts that he had 2107 KENT/McGILL, further cr-ex (Thompson) 1 used from your system, and then he had a note to the 2 effect that information costs, including customer 3 information costs, were not captured in particular 4 account numbers, or words to that effect. 5 Do you recall that? 6 MR. KENT: Not segregated in that fashion. So 7 we had to do this to give him an allocation or an 8 estimate of our costs, yes. 9 MR. THOMPSON: So what we have on the last 10 page, as I understand it, running down the second column 11 we have the account numbers where specific information 12 was captured by Mr. Diamond from accounts, totalling 13 $54,347,736 in the 1999 revised estimate? 14 MR. KENT: Yes. I think we actually provided 15 Mr. Diamond with the data directly. 16 MR. THOMPSON: Okay. So this was your work. 17 Then the ones that were not segregated in any 18 particular accounts are shown at the bottom, for 1999, 19 totalling $17,746,547, and then in 2000 these are I 20 think just grossed up by the PBR factor, if I am not 21 mistaken. 22 MR. KENT: Those are -- 23 MR. FARRELL: Did you say 17? 24 MR. THOMPSON: I'm sorry, $15,746,547. 25 MR. KENT: Yes, I see that. 26 MR. THOMPSON: Okay. Then these numbers, 27 those totals, find their way to page 3 of this exhibit, 28 under Total IT Customer Care O&M Expenditures. 2108 KENT/McGILL, further cr-ex (Thompson) 1 MR. KENT: I believe that the transcription is 2 accurate, yes. 3 MR. THOMPSON: The totals being the 4 $15,746,547 for 1999 and then the $16,472,463 for 2000. 5 MR. KENT: Yes. 6 MR. THOMPSON: Then there is a footnote at the 7 bottom here. It is slightly smudged, but it reads: 8 "IS customer care costs include direct 9 application hosting support and 10 development costs, allocation of voice 11 network costs for the customer support 12 services, personnel based on FTEs, 13 allocation of desktop service costs for 14 customer support personnel based on 15 FTEs." (As read) 16 MR. KENT: Yes. 17 MR. THOMPSON: Then we go to the next page and 18 we see the customer support services IT costs. We also 19 have the allocation data that was used to do this 20 allocation that is described in the footnote previously. 21 Correct? 22 MR. KENT: Yes. 23 MR. THOMPSON: And we see under CSS, FTEs 743. 24 CSS means customer support services. Is that 25 correct? 26 MR. McGILL: That is correct. 27 MR. THOMPSON: So the total FTEs encompassed 28 by the customer support services costs are 743. 2109 KENT/McGILL, further cr-ex (Thompson) 1 MR. McGILL: Yes. There are 743 FTEs in the 2 customer support. What is supplied there is the cost 3 per desktop to that head count to come up with a total 4 of $4.4 million. 5 So that would include people like myself, in 6 addition to CSRs and others that perform customer 7 support services. 8 MR. THOMPSON: Then we have 416 under CSC. 9 That is call centre only? 10 MR. McGILL: That is correct. 11 MR. THOMPSON: Then we come to, if we could, 12 undertaking -- I probably should start with J8.4 13 undertaking response. 14 This arose at transcript 1432, if you could 15 turn that up. 16 Do you have that? 17 MR. McGILL: The transcript or the 18 undertaking? 19 MR. THOMPSON: Yes, the transcript. 20 MR. KENT: That was 14...? 21 MR. THOMPSON: Page 1432 is where the 22 discussion starts and the undertaking is actually 23 recorded on page 1433. 24 MR. KENT: Okay 25 MR. THOMPSON: If you look at 1432, what we 26 were trying to have confirmed, Mr. McGill, was the 27 number of full time equivalents that were in the 800 28 positions that we have been discussing that were covered 2110 KENT/McGILL, further cr-ex (Thompson) 1 by customer support services. 2 You made reference at page 1432 to our 3 interrogatory schedule No. 44 where we broke out the $80 4 million. Then I said: 5 "Yes, those are the costs, but I was 6 trying to find the people reflected in 7 the numbers." 8 Then you said: 9 "As we indicated, there are approximately 10 800 positions there; something less in 11 terms of FTEs." 12 The undertaking response over on the next 13 page, as I understood it, was for you to provide the 14 FTEs reflected in the 800 positions. 15 If we look at your undertaking response, 16 Exhibit J8.4, you really didn't answer the question 17 because you have provided us with call centre positions 18 only. Correct? 19 MR. McGILL: Well, the way the question was 20 recorded and the question that I answered was that I was 21 to provide the FTE number referenced in the previous 22 year's evidence. 23 The evidence that I recalled was what was 24 filed in 179 14/15, the unbundling application. That's 25 where we indicated that for customer support, and it's 26 in the table on the second page of the undertaking 27 response, and the customer support area basically refers 28 to the call centre. 2111 KENT/McGILL, further cr-ex (Thompson) 1 We were showing that in the 1999 budget we had 2 517 positions. What I did was I took the 252 part time 3 positions that make up that 517 total, multiplied that 4 by a factor of .6 to convert it to a full time position 5 number and the result is that you end up with the 416 6 positions which corresponds with what is shown in the 7 material that we provided to Mr. Stephens. 8 Now, in addition to that, and it was in 9 response to Board staff 57, we indicated that the number 10 of FTEs associated with the $1.9 million Z-factor 11 empirical reduction or component of the CS Z-factor due 12 to the incremental benefits of implementing CIS was that 13 there would be a 53 FTE reduction. 14 What I did was I took the 416 FTEs and reduced 15 it by 53 to come up with the 336. I believe that I was 16 answering the undertaking. Sorry, it should have been 17 363. 18 THE PRESIDING MEMBER: There are 743 FTE 19 positions within the costs described in Exhibit I-12, 20 schedule 44. 21 MR. McGILL: Yes. We agree on that. I think 22 both numbers are correct. They just represent different 23 things. 24 MR. THOMPSON: Have you got page 1432 in front 25 of you of the transcript? 26 MR. McGILL: Yes. 27 MR. THOMPSON: We talked about those costs in 28 that exhibit and then I said: 2112 KENT/McGILL, further cr-ex (Thompson) 1 "Yes, those are the costs, but I was 2 trying to find the people reflected in 3 the numbers." 4 You said: 5 "As we indicated, there are approximately 6 800 positions there; something less in 7 terms of FTEs." 8 I asked: 9 "Is the FTE numbered in the record 10 somewhere?" 11 You said: 12 "I don't believe it is. The details of 13 O&M aren't in issue in this case." 14 And so on. Then I say: 15 "Would it be possible --" 16 You said: 17 "It would presumably be in last year's 18 evidence --" 19 I say: 20 "Okay. Would it be possible for you to 21 give me the reference in last year's 22 evidence?" 23 You said: 24 "We will have to make inquiries?" 25 Then we gave an undertaking number. Now, how 26 did you construe that you were only to come back with 27 the call centre component of what was covered by those 28 costs? 2113 KENT/McGILL, further cr-ex (Thompson) 1 MR. McGILL: Again, I indicate that my reading 2 of the undertaking request was to give a reference to 3 the previous year's evidence. The reference that I 4 recalled was this reference that we have provided, 179 5 14/15, Exhibit D, section 5.5, page 2 of 11. That's 6 what we have come back with. 7 Now, in terms of the 800, I think what I said 8 on the transcript at 1432 is correct, that it's 9 approximately 800 positions overall, the actual number, 10 and the number that we provided to Mr. Stephens earlier 11 is the 743. 12 I think the issue here is what numbers are 13 comparable to the numbers that have been brought forward 14 to compare ECG to. 15 MR. THOMPSON: I thought you were trying to 16 discredit his use of 800 for the total customer support 17 services within Consumers Gas and it seems to me he's 18 very close there. It's 745 FTEs. 19 MR. McGILL: As long as we are using the same 20 definition across all the companies, then we have a 21 representative comparison, but if we are not, then we 22 don't have that. 23 MR. THOMPSON: Could you just tell me where 24 the other FTEs are in this Exhibit B, section 5.5, apart 25 from the call centre that go to make up the 745, what 26 line we would find those in? 27 MR. McGILL: Yes. They are on the third page 28 of the undertaking. At the bottom of the table there is 2114 KENT/McGILL, further cr-ex (Thompson) 1 an entry. It's called "Remainder of the organization". 2 The difference between the 743 and the 636 FTEs would be 3 in that figure of 616, or pardon me, I guess 2,036 if we 4 were to convert that to an FTE equivalent. 5 MR. THOMPSON: All right. Thank you. 6 Turning then, if I might, Mr. Kent to Exhibit 7 J7.7. This is where you provide, as I understand it, 8 the fully allocated costs of hosting. 9 MR. KENT: Hosting the CIS application. 10 That's correct. 11 MR. THOMPSON: And again, the number, and this 12 turns up as a credit to the calculation of the Z-factor. 13 MR. KENT: Yes, it does. 14 MR. THOMPSON: In the material that was 15 provided to Mr. Stephens, I noted the footnote that your 16 customer care costs included hosting costs. 17 Then if we go to page 4 of this document, and 18 we also see it on page 5 of the document, we see a line 19 "Application hosting and support $6.7 million", not $3.6 20 million. Can you explain the differences, please. 21 MR. KENT: Yes. I would be pleased to, Mr. 22 Thompson. I apologize for any confusion that may have 23 arisen through what would appear to be two discordant 24 pieces of information. 25 What's happened is that in an attempt to 26 compare our total costs with the total customer care 27 costs of other utilities, because you must remember we 28 put these numbers together for Mr. Diamond to then match 2115 KENT/McGILL, further cr-ex (Thompson) 1 to the stuff that he had already gotten from other 2 utilities. 3 What we wanted to do was to make sure that we 4 didn't in any way understate the costs associated with 5 our customer care function. 6 We took what were admittedly somewhat crude 7 estimates, but we thought very conservative estimates, 8 of all of the costs that could be associated with 9 customer care functions. I think I said on the record 10 when we first talked about this several days ago now, 11 Mr. Thompson, I said we threw everything, including the 12 kitchen sink, in here. 13 There are other applications being hosted 14 aside from CIS. There are things like an application 15 that provides on each CSR's desktop our customer's care 16 policies. That's not part of CIS. It's an application 17 that gives them immediate access online to the current 18 version of policies like "When do you disconnect 19 customers, under what circumstances", that sort of 20 thing. 21 We have to host that application as well. 22 It's part of our overall customer care function. So we 23 threw all of that stuff in as far as we could determine 24 it, made a very rough estimate, grossed it up, 25 essentially by a safety factor so we had everything in 26 there, and ended up with an estimate of $6.7 million. 27 It's not a precise number, Mr. Thompson. It's 28 a number that we thought could never be challenged as 2116 KENT/McGILL, further cr-ex (Thompson) 1 understating our customer care costs because we 2 anticipated that we would be questioned about our 3 comparison. 4 We wanted to make sure that if anyone thought 5 that we might have hidden some costs somewhere and not 6 included it in the numbers we gave to Mr. Diamond -- 7 MR. McGILL: It was our -- 8 MR. KENT: -- we would be able to defend it. 9 MR. McGILL: It was our intention to make the 10 figures we were quoting as comparable as possible to the 11 information that Mr. Diamond had acquired out of the 12 FERC surveys. 13 As Mr. Kent has indicated, there's a number of 14 applications that customer support utilizes outside of 15 CIS. 16 There are meter reading applications; there 17 are reporting applications; there is bank gas accounting 18 with respect to T-service customers; large volume 19 measurement systems that we use to correct meter 20 readings for pressure and temperature; systems that 21 monitor curtailment compliance and non-authorized 22 overrun for contract customers. 23 Those are examples of the kinds of things that 24 are included in the costs that we are quoting, apart 25 from the cost of hosting CIS. 26 MR. THOMPSON: Well, hosting, to me, means 27 providing -- it is the utility providing service to 28 someone other than the utility. 2117 KENT/McGILL, further cr-ex (Thompson) 1 Is that right? 2 MR. McGILL: In terms of what we are saying 3 here, there are a number of customer support 4 applications that the IS department hosts for customer 5 support. One of them is CIS, and we have removed the 6 cost of hosting it through the Z-factor. 7 There are other applications that the IS 8 department hosts for the customer support group, and 9 those are the things that I just mentioned. 10 MR. THOMPSON: Are the costs that you are 11 suggesting are the costs for hosting services for Newco 12 included in the $6.7 million? 13 MR. McGILL: Yes, they are, and then they are 14 removed by way of a Z-factor. 15 MR. THOMPSON: But they are in this number 16 now. 17 MR. McGILL: Yes. Well, in the $80 million 18 total, they are removed through the Z-factor. So they 19 go in through the allocation of IS cost, and then the 20 hosting costs, which are specific to the CIS application 21 that is being outsourced, come out through the Z-factor. 22 MR. THOMPSON: In the $6.7 million, or are 23 they out? 24 MR. KENT: They are in that number. 25 MR. THOMPSON: All right. 26 MR. McGILL: They are in that number but out 27 of the $80 million. 28 MR. THOMPSON: Are they in there as 2118 KENT/McGILL, further cr-ex (Thompson) 1 $3.6 million or some higher figure? 2 MR. McGILL: They would be less than that, 3 because the $3.6 million includes allocations of 4 overheads. 5 MR. THOMPSON: Who is Bruce Campbell? 6 MR. KENT: Bruce Campbell heads up the CIS 7 project management office, and he reports to me. 8 MR. THOMPSON: Could you provide us with a 9 breakdown of the $6.7 million, between all the things 10 that you say it supposedly covers? 11 MR. KENT: I don't know if it exists. I can 12 ask. But it wasn't ever intended to be a proper cost 13 allocation study. It was intended to be a reasonable 14 representation, on the conservative side, of every cost 15 that we could reasonably or should reasonably associate 16 with the customer care function. 17 MR. THOMPSON: What does it matter if it 18 doesn't exist? Can you not recreate it and tell us what 19 it is? 20 MR. FARRELL: Why is it necessary? 21 MR. THOMPSON: I am just trying, I guess, to 22 verify that what you have provided by way of a hosting 23 credit is reasonable. 24 It appears to me that it is not in the face of 25 this $6.7 million. But you are telling me that there 26 are other things in there. 27 So I am just asking to -- 28 MR. McGILL: We have given you the detail of 2119 KENT/McGILL, further cr-ex (Thompson) 1 how the hosting credit was calculated in 7.7. 2 MR. THOMPSON: So you can't provide the 3 breakdown. Is that what you are saying? 4 MR. McGILL: I think what we are saying is 5 that I don't think there is a breakdown of the 6 $16 million figure that was prepared for the work that 7 CSC did. It was an allocation of the company's IS 8 costs. 9 MR. KENT: But I think allocation may imply 10 more science than was actually used. 11 I think you are ascribing something to this 12 exercise that is more precise and more detailed than was 13 ever undertaken. 14 MR. THOMPSON: So you cannot provide the 15 breakdown requested. 16 MR. KENT: I have never seen one. I am not 17 aware if one exists. 18 MR. THOMPSON: If you can't provide it, fine; 19 I will move on. 20 In terms of the line item that is in this 21 customer support that is called Application Development, 22 this supposedly has costs allocated of $2,325,000 per 23 Bruce Campbell. 24 Again, my understanding -- and I may be 25 mistaken. I thought that any application development 26 that the utility does for Newco, that the utility should 27 get a credit for that. 28 Is that right? 2120 KENT/McGILL, further cr-ex (Thompson) 1 MR. KENT: Excuse me, Mr. Thompson, I am not 2 sure I am following you. 3 Application development that the utility does 4 for Newco. The corporate entity is finishing CIS and 5 will transfer it to Newco at net book value. So 6 anything that is being spent now on CIS will be assumed 7 by Newco. 8 These numbers were based on an allocation of 9 our fiscal 1999 budget but would not, I believe, have 10 included the CIS development cost. 11 MR. McGILL: Again, I think it is similar to 12 what was identified here as the hosting and support 13 cost. We have $3.3 million here. That effectively is 14 being reduced by $400,000-odd through the application of 15 the Z-factor. And then as I indicated again, there are 16 a number of applications that the customer support 17 business unit uses that still need to be supported and 18 continually developed. 19 Those costs stay behind, because those 20 applications are not moving to Newco. 21 MR. THOMPSON: Whether the utility is doing 22 some application development for the corporation that 23 still owns this product or for Newco when it owns it, I 24 am trying to find out what is in the $3.325 million for 25 that exercise. 26 MR. KENT: My understanding is that it was a 27 very rough split of the total budget within information 28 services to be spent on application development and 2121 KENT/McGILL, further cr-ex (Thompson) 1 support. 2 I don't know if Bruce broke it down to 3 specific projects that were being undertaken for 4 customer support or whether he just said arbitrarily 5 that it is X per cent on it. 6 It may have been 320 per cent of the number, 7 or something like that. 8 MR. THOMPSON: So there is something in this 9 number for application development being provided by the 10 utility either to the corporation or to Newco for the 11 ongoing development work for CIS? 12 MR. McGILL: Well, to the extent anything 13 would be provided for Newco, that would be removed 14 through the Z-factor. We are taking a number of FTEs 15 out of IS, and their dollar value is being removed in 16 the Z-factor. 17 MR. THOMPSON: That doesn't answer my 18 question. There is something in there, is there, 19 pertaining to application development work with respect 20 to CIS being provided by the utility either to the 21 corporation or Newco? 22 MR. KENT: I do not believe that there is, 23 Mr. Thompson, but I don't know. Frankly, these numbers 24 are, at the very best, rough percentage allocations -- I 25 wouldn't even use the word allocations. They are 26 guestimates of cost levels. 27 They are not rules of thumb; we haven't based 28 them on any kind of rule of thumb. But they are very 2122 KENT/McGILL, further cr-ex (Thompson) 1 rough numbers, and they are not intended to be a precise 2 representation of actual costs. 3 They are estimates intended to be on the 4 conservative side to be used for that specific purpose 5 of making sure that in the basket of costs that 6 Mr. Diamond was comparing with other utilities we did 7 not, in any way, shape or form, understand our actual 8 costs. 9 MR. THOMPSON: There is another view of them, 10 which is that there is about $10 million of costs for 11 hosting an application development. You can't tell us 12 how much of that relates to hosting with respect to CIS 13 or development of CIS. You are only crediting the 14 customers $3.6 million. 15 You are telling us that your $3.6 million is 16 very precise and the other we don't need to worry about. 17 MR. KENT: I am not saying you don't need to 18 worry about it. I am saying you need to understand how 19 much precision was put into the calculations and what it 20 represents. 21 The hosting fee is done as a fully allocated 22 cost, and we were very careful in determining the 23 volumes of different kinds of transactions, the amount 24 of data storage that was required for CIS, all of those 25 things, in developing the hosting fee. 26 We didn't do anything like the same level of 27 analysis to put together our estimate of $6.7 million 28 that was used for this purpose, again because what we 2123 KENT/McGILL, further cr-ex (Thompson) 1 were trying to do was an entirely different thing. 2 If I could, Mr. Thompson, I will give you 3 another number. 4 The desktop services cost -- I don't know if 5 you were going to inquire of us about that, but I think 6 the number that was used there was the Gartner Group 7 number that Mr. Stephens referred to before. I don't 8 think that number even comes out of our costs. 9 We wanted, again, to make sure that we had 10 everything in there. We used the Gartner Group number 11 that is twice the number that Mr. Stephens has used, 12 because we believed that we wanted to make sure that we 13 had everything in there, including the kitchen sink. 14 MR. THOMPSON: That number, just for the 15 record, you will find on page 4 of this exhibit, 16 opposite "desktop services" -- 17 MR. KENT: That's correct. 18 MR. THOMPSON: -- 5,976 per FTE -- 19 MR. KENT: That's correct. I believe that's 20 the Gartner Group study number that Mr. Stephens 21 referred to. 22 MR. THOMPSON: Just on the point of whether 23 this is fully-allocated costs or not, if you look at 24 page 3 of this document, you will see, at the bottom, 25 "fully-allocated customer care costs per customer", and 26 then the footnotes describe the costs that are included 27 in the "customer care costs" line. 28 So the phrase "fully-allocated costs" was used 2124 KENT/McGILL, further cr-ex (Thompson) 1 to describe what this document reflects? 2 MR. McGILL: I think what we were trying to 3 indicate there was that where we had direct costs out of 4 our customer support 1999 O&M budget that's what we gave 5 to Mr. Diamond. Where we didn't have absolute dollar 6 numbers in the budget that we could specifically tie to 7 the customer support activity, we went through this 8 estimating process -- as Mr. Kent has described -- to 9 ascribe IS costs to that activity, so that when we 10 bundled up the package in dollars, we had an equivalent 11 bundle to what was coming out of the FERC information. 12 That was the whole purpose of this. 13 So, we didn't -- we wanted to make certain 14 that we weren't underestimating anything, so we were 15 very generous in what we took from the IS accounts and 16 used as estimates to assign to the customer support 17 activities. 18 MR. THOMPSON: Thank you. 19 Let me move on. There's just one other item; 20 that is, with respect to Undertaking J9.2. Mr. McGill, 21 this was an undertaking response that you provided. And 22 there's another one coming from Mr. Grant: J10.2. And 23 this question related to what's left behind the programs 24 that are removed. 25 You tell us that the direct and marginal costs 26 of all programs removed from the company have been 27 eliminated from the company's cost structure. 28 MR. McGILL: Yes. 2125 KENT/McGILL, further cr-ex (Thompson) 1 MR. THOMPSON: And so, the difference between 2 direct and marginal and the fully-allocated costs of 3 what's been removed from the company are, in my 4 parlance, left behind. 5 And Mr. Grant, I believe, is going to give us 6 the number? 7 MR. McGILL: That's my understanding. He is 8 supposed to be trying to quantify that. 9 MR. THOMPSON: And then, you tell us 10 fully-allocated costs have been removed for those 11 non-utility activities remaining within Enbridge 12 Consumers Gas; and that's, for example, the ABC T -- 13 MR. McGILL: That's correct. 14 MR. THOMPSON: Thank you. Those are my 15 questions. 16 THE PRESIDING MEMBER: Thank you, 17 Mr. Thompson. 18 Any re-examination, Mr. Farrell? 19 MR. FARRELL: No, thank you, Mr. Chair. 20 THE PRESIDING MEMBER: The Board has no 21 questions. So this panel is excused, with our thanks. 22 MR. FARRELL: We will distribute, now, the 23 additional pages to be added to Exhibit K11.2; that's 24 pages 35 to 42 from the Program Mercury application. 25 --- Pause 26 THE PRESIDING MEMBER: Subject to receiving, 27 then, the answers to the remaining undertakings, we can 28 stand down for the oral part of this hearing. 2126 1 I want to thank all the parties for their 2 participation; Board staff, court reporters, for their 3 endurance. 4 If there is nothing else, we can conclude. 5 I want to remind parties that when they do 6 file their argument, please ensure that the references 7 are shown in the proper places. It has helped the Board 8 tremendously since we have followed that practice, and 9 we would like to be assisted in the same way this time. 10 It has been a tremendous help. 11 With that, then, I thank you very much. I am 12 looking forward to your arguments. 13 --- Whereupon the hearing adjourned at 1430 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 2127 1 INDEX OF PROCEEDINGS 2 PAGE 3 4 Preliminary Matters 1997 5 6 PREVIOUSLY SWORN: JIM G. STEPHENS 1997 7 Continued Cross-Examination by Mr. Farrell 2006 8 Recess at 1022 2047 9 Resumed at 1054 2047 10 Continued Cross-Examination by Mr. Farrell 2048 11 Questions by the Board 2076 12 Re-Examination by Mr. Thompson 2081 13 Luncheon recess at 1205 2090 14 15 Upon resuming at 1331 2090 16 PREVIOUSLY SWORN: DUNCAN KENT 2090 17 PREVIOUSLY SWORN: STEPHEN McGILL 2090 18 Further Examination-in-Chief by Mr. Farrell 2091 19 Further Cross-Examination by Mr. Thompson 2095 20 Hearing adjourned at 1430 2126 21 22 23 24 25 26 27 28 2128 1 UNDERTAKINGS/OBJECTIONS 2 3 NO. DESCRIPTION PAGE 4 5 J12.1 Mr. Stephens to determine and 2072 6 advise if the total project 7 cost range and the subsets of 8 it that are shown in the top 9 two-thirds of page 51 of 10 Appendix 8, the TMG position 11 paper dated August 9, 1999, 12 are included in the $0.40 13 to $0.50 14 15 J12.2 To confirm how many full-time 2104 16 equivalent staff are involved 17 in supporting the direct 18 customer care processes, 19 including BC Hydro staff 20 estimates 21 22 23 24 25 26 27 28 2129 1 EXHIBITS 2 3 NO. DESCRIPTION PAGE 4 5 K12.1 E.R.O.'s template for the 1997 6 monitoring reports 7 8 K12.2 Copy e-mail message from 2048 9 Mr. Stephens to Mr. Thompson 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 2130 1 ERRATA/ADDENDA 2 3 REFERENCE DESCRIPTION 4 5 RP-1999-0001 - Volume 1 6 08/23/99 P. 119 L. 7 7 "brought towards" S/B "brought forward as" 8 9 Volume 8 - 09/01/99 10 P. 1355 L. 7 11 "1991" S/B "2001" 12 P. 1396 L. 23 13 "MR. McGILL:" S/B "MR. KENT:" 14 P. 1402 L. 22 15 "independently of" S/B "independently for" 16 P. 1409 L. 28 17 "MR. THOMPSON:" S/B deleted 18 P. 1444 L.14 19 "metro" S/B "natural 20 P. 1445 L. 13 21 "hardcoated" S/B "hard coded" 22 P. 1450 L. 2 23 "changed" S/B "change" 24 P. 1483 L. 5 25 "P" S/B "Peace" 26 P. 1487 L. 18 27 "mock" S/B "market" 28 2131 1 ERRATA/ADDENDA (Cont'd) 2 3 REFERENCE DESCRIPTION 4 5 Volume 9 - 09/02/99 6 P. 1534 L. 16 7 "ethicacy" S/B "efficacy" 8 P. 1561 L. 16 9 "IBR" S/B "IVR" 10 P. 1645 L. 18 11 "a specialist" S/B "specialists" 12 P. 1652 L. 16 13 "day" S/B "data" 14 P. 1655 L. 19 15 "fairly incremental cost" S/B 16 "fairly small incremental costs" 17 (see p. 1699, lines 7 -11) 18 P. 1656 L. 28 19 "applies to apples" S/B "apples to apples" 20 P. 1656 L. 28 21 "MR. KENT:" S/B "MR. McGILL:" 22 P. 1690 L. 27 23 "write-back" S/B "report back" 24 25 Volume 10 - 09/03/99 26 P. 1789 L. 11 27 "their" S/B "they" 28 2132 1 ERRATA/ADDENDA (Cont'd) 2 3 REFERENCE DESCRIPTION 4 5 Volume 10 - 09/03/99 (cont'd) 6 P. 1822 L. 8 7 "M exhibit" S/B "N exhibit" 8 P. 1836 L. 20 9 "not historically" S/B "and historically" 10 P. 1837 L. 4 11 "by" S/B "but at" 12 P. 1844 L. 25 13 "incurring" S/B "occurring"