1 1 RP-1999-0001 2 3 THE ONTARIO ENERGY BOARD 4 5 IN THE MATTER OF the Ontario Energy Board Act, 1998; 6 7 AND IN THE MATTER OF an Application by The Consumers 8 Gas Company Ltd., carrying on business as Enbridge 9 Consumers Gas, for an order or orders approving or 10 fixing rates for the sale, distribution, transmission 11 and storage of gas for its 2000 fiscal year. 12 13 14 15 16 B E F O R E : 17 P. VLAHOS Presiding Member 18 S.K. HALLADY Member 19 20 21 Hearing held at: 22 2300 Yonge Street, 25th Floor, Hearing Room No. 1, 23 Toronto, Ontario on Monday, August 23, 1999, 24 commencing at 0900 25 26 VOLUME 1 27 28 2 1 APPEARANCES 2 JENNIFER LEA/ Counsel, Board Technical 3 HIMA DESAI/ Staff 4 JAMES WIGHTMAN 5 J.H. FARRELL/ Enbridge Consumers Gas 6 F. CASS/ 7 H. SOUDEK 8 ROBERT WARREN Consumers Association of 9 Canada. 10 TOM BRETT Ontario Association of 11 School Business Officials of 12 the Metropolitan Toronto 13 Separate School Board. 14 IAN MONDROW Heating, Ventilation and Air 15 Conditioning Contractors 16 Coalition Inc., HVAC 17 Coalition 18 GEORGE VEGH Coalition for Efficient 19 Energy Distribution 20 MARK MATTSON Energy Probe 21 MURRAY KLIPPENSTEIN Pollution Probe 22 DAVID POCH Green Energy Coalition, GEC 23 MICHAEL JANIGAN Vulnerable Energy Consumers 24 Coalition 25 STAN RUTWIND TransCanada PipeLines 26 Limited 27 28 3 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 4 1 INDEX OF PROCEEDINGS 2 PAGE 3 4 Preliminary Matters 6 5 SWORN: TERRY PASHER 28 6 SWORN: DWIGHT WILLETT 28 7 SWORN: STEVE NOBLE 28 8 SWORN: DOUG LAPP 28 9 Examination-in-Chief by Ms Soudek 29 10 Cross-Examination by Mr. Warren 33 11 Cross-Examination by Mr. Brett 62 12 Short recess at 1045 75 13 Upon resuming at 1115 75 14 Cross-Examination by Mr. Mondrow 76 15 Cross-Examination by Mr. Mattson 84 16 Cross-Examination by Mr. Janigan 93 17 Cross-Examination by Mr. Thompson 111 18 Cross-Examination by Ms Lea 127 19 Lunch recess at 1245 134 20 Upon resuming at 1430 134 21 22 SWORN: MICHAEL MEES 135 23 SWORN: JOANNE GOULD 135 24 Examination-in-Chief by Mr. Cass 135 25 Cross-Examination by Mr. Warren 137 26 Cross-Examination by Mr. Brett 151 27 Cross-Examination by Mr. Thompson 169 28 Hearing adjourned at 1600 193 5 1 UNDERTAKINGS/OBJECTIONS 2 3 NO. GIVEN BY PAGE 4 5 J1.1 Mr. Noble 114 6 J1.2 Mr. Mees 140 7 J1.3 Mr. Mees 151 8 J1.4 Mr. Mees 167 9 J1.5 Mr. Mees 178 10 11 12 - - - 13 14 15 EXHIBITS 16 NO. PAGE 17 18 K1.1 Document entitled "Update to 14 19 E.B.R.O. 497, Undertaking 20 J6.2 using 1999 Bridge Year 21 estimates" 22 23 24 25 26 27 28 6 1 Toronto, Ontario 2 --- Upon commencing on Monday, August 23, 1999, 3 at 0900 4 THE PRESIDING MEMBER: Good morning 5 everyone. 6 The Board is sitting today to 7 commence the oral hearing of Enbridge's application for 8 test year 2000 rates. The Board file number for this 9 proceeding is RP-1999-0001. 10 My name is Paul Vlahos. With me is 11 Sheila Hallady. 12 Ms Lea, I assume that we are properly 13 constituted to commence this hearing? 14 MS LEA: Yes. As I understand it, 15 the affidavits of service have been received and the 16 Board Orders for publication and service have been 17 complied with. 18 THE PRESIDING MEMBER: Thank you, Ms 19 Lea. 20 Could I have appearances, please. 21 MR. FARRELL: Jerry Farrell. On 22 behalf of the Applicant, Enbridge Consumers Gas. 23 Appearing with me will be Fred Cass, 24 surname spelled C-A-S-S, and Helen Soudek, surname 25 spelled S-O-U-D-E-K. 26 THE PRESIDING MEMBER: Thank you, Mr. 27 Farrell. 28 MR. WARREN: Robert Warren. For the 7 1 Consumers Association of Canada. 2 MR. BRETT: Tom Brett. For the 3 Association of -- Ontario Association of School 4 Business Officials of the Metropolitan Toronto Separate 5 School Board. 6 MR. MONDROW: Good morning, sir. 7 Ian Mondrow. For HVAC Coalition; 8 that is, Heating, Ventilation and Air Conditioning 9 Contractors Coalition Inc. Thank you. 10 MS LEA: Jennifer Lea. For Board 11 Staff. 12 MR. VEGH: George Vegh. For the 13 Coalition for Efficient Energy Distribution. 14 MR. MATTSON: Mark Mattson. Good 15 morning, sir. For Energy Probe. 16 MR. KLIPPENSTEIN: Good morning, Mr. 17 Chair, Ms Hallady. 18 Murray Klippenstein. Appearing for 19 Pollution Probe. 20 MR. POCH: Good morning. 21 David Poch. For the Green Energy 22 Coalition; the GEC. 23 MR. JANIGAN: Good morning. 24 Michael Janigan. Appearing for the 25 Vulnerable Energy Consumers Coalition. 26 MR. RUTWIND: Good morning. 27 Stan Rutwind, R-U-T-W-I-N-D. 28 Appearing for TransCanada PipeLines Limited. 8 1 MR. MORRISON: Good morning, Mr. 2 Chair. 3 Michael Morrison. For the Ontario 4 Association of Physical Plant Administrators. 5 MR. SHEINFIELD: Good morning, Mr. 6 Chair. 7 Joel Sheinfield. For Enbridge 8 Services Inc. -- 9 THE PRESIDING MEMBER: Just speak to 10 the mike, Mr. Sheinfield. 11 MR. SHEINFIELD: Joel Sheinfield. 12 That is S-H-E-I-N-F-I-E-L-D. Representing Enbridge 13 Services Inc., formally Consumersfirst. 14 MR. ANSHAN: Good morning. 15 Mark Anshan. For Canadian 16 Association of Energy Service Companies. 17 MR. STAUFT: Good morning. 18 Mark Stauft. For TransCanada Gas 19 Services. 20 MR. BROWN: Good morning, Mr. Chair. 21 David Brown. For CENGAS, the 22 Coalition of Eastern Natural Gas Aggregators and 23 Sellers. Mr. Richard Perdue will joining me and, 24 indeed, he will be spending most of the time before 25 you, at the hearing. 26 MR. THOMPSON: Peter Thompson. For 27 the Industrial Gas Users Association. 28 MS SYMES: Beth Symes. For the 9 1 Alliance of Manufacturers & Exporters Canada. 2 MS ANDERSON: Lynda Anderson. For 3 Union Gas Limited. 4 MR. MacDONALD: Glen MacDonald. For 5 Ontario Hydro Services Company. 6 THE PRESIDING MEMBER: Anyone else? 7 There being none. 8 In the opening remarks, I intend to 9 deal with the following topics: the unbundling 10 issue -- 11 Mr. Farrell, we anticipate that we 12 are going to receive an update on the ADR. 13 MR. FARRELL: Yes. You should have 14 the settlement proposal on the dias -- and I will 15 explain the process when you wish me to. There are a 16 few what I will call anomalies in the settlement 17 proposal. I would like to point them out to you and 18 parties in the room. 19 THE PRESIDING MEMBER: Thank you. 20 The housekeeping matters, like 21 sitting days and hours, order of cross-examination and 22 the scoping of the issues to be heard, we are going to 23 deal with that this morning. 24 Before I do so, other than the HVAC 25 Coalition, which we will hear their motion at the end 26 of my opening remarks, are there any other preliminary 27 matters, Ms Lea? Are you aware of any matters we have 28 to deal with right now? 10 1 MS LEA: I am not aware of any, sir. 2 THE PRESIDING MEMBER: Mr. Farrell? 3 MR. FARRELL: Neither am I. 4 THE PRESIDING MEMBER: Anybody else? 5 There being none. 6 Turning to the topic of unbundling -- 7 Give me a second, please. 8 --- Pause 9 THE PRESIDING MEMBER: On behalf of a 10 number of parties to the settlement conference, 11 Enbridge provided, by way of a letter dated August 12 10th, a refined version of the unbundling issues 13 enumerated under Issue 7 in the Board's approved issues 14 list and sought direction as to the next steps. 15 In response, by letter to the Board 16 dated August the 12th, Union raised concerns that any 17 decision on the timing and process of unbundling issues 18 in the Enbridge proceeding may impact the timing and 19 scope of Union's proceeding, in respect of matters of 20 unbundling. 21 As it is Union's plan -- which was 22 further confirmed in its letter of August 19th -- to 23 enter into settlement negotiations with stakeholders 24 starting September 13th, Union proposes that the Board 25 create a second phase to Enbridge's current proceeding, 26 which would take place after Union's negotiations 27 regarding its unbundling proposals. 28 By a letter, August the 13th, to all 11 1 parties, the Board requested comments on the issues 2 raised. 3 Having reviewed the parties' 4 submissions, the Board finds as follows: 5 Issues relating to unbundling are 6 deferred to a separate phase. The Board does not see 7 any issue arising from Enbridge's stated condition if 8 the Board chose a phasing option. That the Board be 9 able to approve or fix rates for the test year without 10 waiting for the subsequent phase. 11 Also, Enbridge's stated condition 12 that Union's process would not pre-empt a complete 13 examination of the unbundling issues in the subsequent 14 phase of Enbridge's hearing, irrespective of the 15 outcome of Union's process, appears a reasonable 16 request. 17 There are, however, some 18 modifications. 19 The Board has been persuaded that it 20 would be assisted if intervenors have the opportunity 21 to file evidence for the second phase. However, 22 intervenors who have already filed evidence would be 23 given an opportunity to file reply evidence. 24 Also, parties are expected to 25 participate in a new settlement conference. 26 The scheduling of these matters, 27 including an interrogatory process, would be 28 co-ordinated by Board Staff and will be communicated to 12 1 parties through a procedural order. 2 The Board recognizes that the parties 3 would be assisted if they had Board guidance as to what 4 is contemplated in the so-called access code which the 5 Board may need to develop under its rule-making powers. 6 The Board is not able to, at this time, provide this 7 guidance. In fact, the Board expects to be assisted by 8 the parties' deliberations and negotiations going 9 forward, which issues may be appropriate for inclusion 10 in the subject code. 11 Now, at this stage, Mr. Farrell, I 12 would ask you to speak to the ADR, please. 13 MR. FARRELL: Thank you, Mr. Chair. 14 I apologize for the late filing of 15 the document. There was some conflict in schedules 16 such that we didn't have all intervenor comments until 17 mid-week last week and then there was another round of 18 drafts and comments. 19 The last draft -- that is to say, the 20 document in a form prior to what I have given you as 21 Exhibit N1, Tab 1, Schedule 1 -- was the subject of 22 comments by intervenors, in stages, and so, there are 23 some intervenors who have agreed to issues that other 24 intervenors now have either not agreed to, or 25 otherwise, and so this document will require some 26 revision and I thought I would just indicate on the 27 record the anomalies, as I called them, earlier, for 28 your benefit, Mr. Chair, and for the benefit of parties 13 1 in the room. 2 First of all, with the settlement 3 proposal I left with you a document called "Update to 4 E.B.R.O. 497, Undertaking J6.2 using 1999 Bridge Year 5 estimates". 6 This was a document that was prepared 7 for the purposes of the settlement conference during 8 the preparation of the settlement proposal. It was a 9 recommendation of IGUA, which the company and others 10 have accepted that this document be referred to in the 11 settlement proposal, and it is referred to on page 12 12 in the context of the capital expenditures issues, all 13 of which have been settled, with the exception of the 14 information systems capital budget. 15 You will see at the third bullet 16 point on page 12 there is a reference to this document. 17 I intended to put it into the record by just filing it 18 as a hearing day exhibit. 19 So perhaps if I could have an exhibit 20 number for it now. 21 MS LEA: K1.1, please. 22 EXHIBIT NO. K1.1: Document 23 entitled "Update to 24 E.B.R.O. 497, Undertaking J6.2 25 using 1999 Bridge Year 26 estimates" 27 MR. FARRELL: Thank you. 28 The next page I take you to, 14 1 Mr. Chair, is page 21. 2 This is the last part of the 3 agreement to settle Issue 3.3.2, fiscal 2000 accounts. 4 In the second bullet from the top of the page -- 5 THE PRESIDING MEMBER: I'm sorry, 6 Mr. Farrell, your page what? 7 MR. FARRELL: Page 21. 8 THE PRESIDING MEMBER: Page 21, okay. 9 I'm sorry, the title appears on 10 page 19. 11 MR. FARRELL: Yes, I'm sorry. 12 The issue begins midway through 13 page 19, but it is the last bullet point on page 21. 14 In the draft that went out this was 15 an issue to be examined in the hearing. We then had 16 comments from CAC and IGUA to the effect that they did 17 not wish to examine this particular topic in the 18 hearing. 19 There, therefore, was a partial 20 settlement, but I just leave it if other parties are of 21 like mind with CAC and IGUA then it may be a prospect 22 of having that particular issue completely settled. 23 Otherwise, there are parties listed that had accepted 24 the earlier version of the text and so they should 25 be -- they are shown as having disagreed with the 26 settlement. Hopefully that will change. 27 Similarly, if you turn to page 23, 28 Issues 4.1 and 4.2 have been combined, the cost of 15 1 short-term debt and the cost of long-term debt and 2 preferred shares. 3 Parties had agreed with this text 4 that when Mr. Thompson examined it he disagreed with 5 it, so if you turn to page 25 you will see that IGUA is 6 shown as having disagreed with the settlement. 7 Other parties may wish to confer with 8 Mr. Thompson. I'm not inviting them to join his camp, 9 but that was an anomaly, in our view. 10 The next, Mr. Chair, is page 26, 11 Issue 5.1. 12 When we left the settlement 13 conference it wasn't clear whether this issue had been 14 settled. I described it in the initial draft as an 15 unsettled issue. A number of parties took exception to 16 that, feeling that it had been settled, so we wrote it 17 up as if it was settled and that everyone agreed with 18 the settlement. 19 If my information is incorrect, I'm 20 sure parties will make their views known. 21 The last item is on page 33. It is 22 Issue 6.1.4, average use trend data. 23 This was an issue raised by Energy 24 Probe in last year's rates case and there were some 25 discussions on an off-the-record basis, so to speak, 26 during the settlement conference. 27 Ms Fraser for the company and 28 Mr. Rubin for Energy Probe had discussions. 16 1 Unfortunately, they both left on vacation before we 2 could get instructions. I am told they are going to 3 continue to speak, so hopefully the no agreement to 4 settle this issue will turn into an agreement to settle 5 and I will keep the Board apprised of progress in that 6 regard. 7 I should say that if intervenors are 8 interested in knowing the specific revisions or the 9 individual revisions between the last document that was 10 faxed out and the document that I have now filed, I 11 would be happy to sit down with them at the break or 12 another time off the record and indicate just exactly 13 what are the precise changes, if someone wants to get 14 into that much detail. 15 I should mention also that last week, 16 beginning with CAC and then IGUA, the Company had 17 discussions with those intervenors about the prospect 18 of making what I'm calling a scoping proposal wherein 19 the parties would indicate to the Board what the 20 disagreements were in relation to the unsettled issues 21 so the Board would have an idea of -- to use the 22 vernacular -- where everyone was coming from. 23 Mr. Thompson was good enough to take 24 a first crack at that and I have now circulated a 25 document called a "Scoping Proposal" in draft form. I 26 am requesting the parties to review it and then I would 27 meet with them during a break or at another time, so as 28 not to disrupt the Board's hearing schedule, with a 17 1 view to finalizing it for filing. 2 Most parties have seen it this 3 morning for the first time, so I wouldn't anticipate we 4 would reach the filing stage today, although I will 5 keep my fingers crossed. 6 THE PRESIDING MEMBER: Okay. It is 7 your hope that this will be done right after the break? 8 MR. FARRELL: Yes. I think if we can 9 meet at the break and at least -- perhaps the parties 10 would take the time at the break to read it. I realize 11 they have to get ready to speak to Mr. Mondrow's motion 12 and then also to cross-examine the first panel. But 13 hopefully throughout the day I would get some 14 indication of whether we were going in the right 15 direction as the scribe of this document. 16 I think there is a willingness among 17 intervenors to scope the issues for the Board's 18 convenience and for their own as well, so I am hopeful 19 that the process will lead to something that will prove 20 to be useful to the Board. 21 THE PRESIDING MEMBER: Thank you, 22 Mr. Farrell. 23 Perhaps at the same time, when you do 24 report back, we can look at the hearing schedule that 25 you provided us, or the company has provided us, and 26 any changes that may be required in that document. 27 The only other comment that I have 28 with respect to the issues, the scope issues, whether 18 1 there is any opportunity for any room for some of those 2 issues to be going to only submissions as opposed to 3 cross-examination. I'm not sure whether that was 4 contemplated or was discussed. 5 MR. FARRELL: Yes, Mr. Chairman, it 6 is. There is one and perhaps two, and perhaps more 7 once we have some discussions, that could be left for 8 argument only and we will discuss that as well. 9 I should mention that the hearing 10 schedule that was filed last week, we intend that to be 11 a work-in-progress. I don't intend to have it be an 12 exhibit number. 13 What we thought we do is, as 14 mistakes -- and there are some, I think, in terms of 15 what precise exhibits each panel will speak to, but we 16 thought we would keep that current on an ongoing basis, 17 so that at the end of the hearing the exhibits for 18 which each witness panel is responsible, including 19 responses to undertakings during the hearing, would 20 appear on that list so when people left for argument 21 purposes they would have a complete list of exhibits 22 that pertain to each of those issues. 23 THE PRESIDING MEMBER: That sounds 24 very helpful. 25 I guess it is important to decide 26 today, or early this morning, at some point this 27 morning, whether the volumes or average use is still an 28 issue to be for cross-examination so that you can 19 1 arrange your panel. 2 MR. FARRELL: The first panel that we 3 intend to call is the Y2K Panel. 4 THE PRESIDING MEMBER: Do you think 5 that would take the full day? 6 MR. FARRELL: I don't know. I didn't 7 have a chance to canvass intervenors to get some 8 indication of how long they might expect to be. 9 We have some difficulty if the panel 10 takes more than today with the witness availability. I 11 was going to ask the Board to consider standing down 12 Mr. Mondrow's motion to allow the Y2K panel to proceed. 13 Mr. Mondrow has indicated that he doesn't have any 14 objections to that. 15 An added benefit of the stand down, 16 if I might call it that, would be I have some 17 information now about the availability of the material 18 that Mr. Mondrow is seeking, were the Board to grant 19 his request, that I would like an opportunity to speak 20 with Mr. Mondrow about. It may affect the way he would 21 choose to argue his motion. I didn't get the material 22 until late yesterday. 23 THE PRESIDING MEMBER: Mr. Mondrow, 24 is that okay? 25 MR. MONDROW: That is satisfactory to 26 me, sir. I don't mind deferring that. Mr. Farrell and 27 I will have a chance to discuss it and I will be ready 28 to go whenever the Board wishes me to start. So that 20 1 is fine. 2 MR. FARRELL: That would shorten my 3 opening remarks quite a bit. 4 THE PRESIDING MEMBER: Just the 5 housekeeping items, then: the sitting dates and hours. 6 Should the hearing not finish by Friday, September 10, 7 we will have to stand down until September 28. Monday, 8 September 6, of course, is Labour Day. This will give 9 us 14 hearing dates. 10 We will start out this week with 11 sitting full days, except Friday, and we may look at 12 the schedule and see how it goes after the first week. 13 But I thought it important for parties to know the 14 period of time that the Board cannot sit. 15 With the unbundling issue off the 16 table, then, it seems to us that it is quite doable. 17 How long do you need, Mr. Farrell, on 18 the break in order to talk to the parties? I am sure 19 it will be beyond the usual 15 minutes. 20 MR. FARRELL: I will be guided, I 21 guess, by how much time they think they require to read 22 the scoping proposal and to react or to talk amongst 23 themselves about the anomalies that I mentioned in the 24 settlement proposal. 25 The break itself perhaps could be the 26 normal break for that purpose, and then I would be 27 prepared to meet with them after lunch. Maybe we could 28 delay the start of the hearing and have a slightly 21 1 longer luncheon adjournment so that we could then 2 discuss it. I don't know how fruitful it would be to 3 start discussions if they haven't had an opportunity to 4 read the document. 5 THE PRESIDING MEMBER: With that, 6 then, are there any other matters? It seems to me that 7 we can go to the hearing of the evidence. 8 MR. POCH: Mr. Chairman, if I might, 9 just briefly, I appreciate that apparently the Board 10 has just received the settlement agreement, so I don't 11 expect the Board is in a position yet to tell the 12 parties if it has any -- 13 THE PRESIDING MEMBER: We just 14 received it, Mr. Poch. 15 MR. POCH: Yes, I understand that. 16 I was attending today, should the 17 Board have any concerns, but also just to advise the 18 Board that GEC was active really only in the area of 19 the DSM portion of the document, section 6. We have 20 filed evidence. One of the concerns that has been 21 resolved in the agreement was the concern with respect 22 to the transparency of the material, of the numbers 23 basically. It shows up under issue 6.1.3, starting on 24 page 31 and carrying on on page -- it actually appears 25 as a settled item at the second bullet on page 32. 26 The mechanism by which this was 27 settled was that the GEC's expert, Mr. Neme, whose 28 evidence was pre-filed, sat down with the Company and 22 1 has worked for a number of days with them and they have 2 satisfied themselves. As a result of that, we 3 understand that there will be a filing forthcoming from 4 the Company just clarifying the numbers and a couple of 5 errors which were uncovered. 6 So that is the only caveat I wanted 7 to note on the record. I don't anticipate there will 8 be any problem. We will certainly advise the Board 9 should there be a problem, but I think the Board can 10 assume there is no problem, unless they hear otherwise. 11 I would just ask the Board, then, 12 whether -- GEC did play kind of a lead role in the DSM 13 part. I am not sure if the Board would prefer my 14 attendance here at the time the Board deals with the 15 agreement as a whole or not, and what the timing of 16 that might be. 17 THE PRESIDING MEMBER: Mr. Poch, I 18 guess you plan to head back. 19 MR. POCH: I can certainly be present 20 when the Board visits this document with the parties, 21 if the Board would appreciate that. I am readily 22 available. It is just that if I could understand the 23 timing, that would help me personally with my agenda. 24 THE PRESIDING MEMBER: My hope is to 25 be able to spend the evening tonight -- and I am making 26 the commitment here for both of us -- and perhaps 27 pronounce it tomorrow morning. 28 Does that help? 23 1 MR. POCH: Certainly, and I will 2 assume that the Board would prefer to have counsel on 3 hand should there be any questions, and I will make 4 plans to be here in the morning then. 5 THE PRESIDING MEMBER: Of course, we 6 will need Mr. Farrell to report on certain things that 7 he spoke of this morning regarding this document, the 8 settlement proposal. 9 MR. FARRELL: Yes. I was wondering, 10 Mr. Chair, if we could tentatively schedule that for 11 the mid-morning break tomorrow. I was the one of the 12 three counsel representing the Company -- I was counsel 13 in the preparation of this document, so I would like to 14 be here. I am not scheduled to be counsel for any of 15 the panels until we get to CIS, which is near the end, 16 and we have scheduled a meeting with one of our CIS 17 experts in order to review IGUA's filing last week on 18 behalf of CAC, IGUA and VECC. So I am requesting an 19 accommodation for my schedule in that regard. The 20 meeting is scheduled for 8:30, so it would be very 21 difficult for me to be here by 9:00. If we could defer 22 that until the mid-morning break, I will keep you 23 apprised through Ms Lea of our progress in discussing 24 the scoping proposal and any outstanding matters of the 25 settlement proposal with intervenors and perhaps you 26 could maybe deal with everything at once. 27 Is that satisfactory to you and your 28 colleagues? 24 1 THE PRESIDING MEMBER: Mr. Poch, is 2 that okay? 3 MR. POCH: I am in your hands, Mr. 4 Chairman. Of course, it being an ideal world, I would 5 have known that I wouldn't have to be here until 6 tomorrow, but I appreciate that the Company and some of 7 the parties have been working until the last hour. I 8 trust that Mr. Farrell will be accommodating when it 9 comes to costs. 10 THE PRESIDING MEMBER: Thank you, Mr. 11 Poch. 12 That is fine, Mr. Farrell. We will 13 defer it until after the morning break tomorrow. 14 MR. FARRELL: Thank you very much, 15 Mr. Chair. 16 THE PRESIDING MEMBER: At least that 17 is the plan. 18 MR. FARRELL: Thank you very much. I 19 appreciate it. 20 MR. RUTWIND: There is an additional 21 matter. Stan Rutwind from TransCanada. It deals with 22 the anomalies issues and, although it isn't, in effect, 23 an anomaly, TransCanada wishes to specify that the 24 turnback proposal, in relation to issue 3.1 of the 25 settlement document, that it does support the Enbridge 26 turnback proposal, but as it relates to Year 2000 only. 27 I think that is clear in any event, 28 but perhaps Mr. Farrell can assist us there. 25 1 MR. FARRELL: That is understood for 2 everything in the settlement proposal. They all 3 pertain to fiscal 2000, unless otherwise stated. 4 MR. RUTWIND: Thank you, sir. 5 MR. FARRELL: For example, there is a 6 statement of intention in the DSM issues as to the 7 future, but the other ones that have no such statement 8 would be confined to fiscal 2000. 9 THE PRESIDING MEMBER: Is there 10 anything before we proceed with the hearing of the 11 evidence on the first issue? 12 MR. KLIPPENSTEIN: Mr. Chairman, I am 13 Murray Klippenstein for Pollution Probe. 14 Pollution Probe's issues were 15 resolved in the ADR process, so, with the Board's 16 permission, I will excuse myself, for a brief re- 17 attendance when that is dealt with tomorrow. But we 18 have no other outstanding issues at the moment. 19 THE PRESIDING MEMBER: Thank you, Mr. 20 Klippenstein. 21 MR. MATTSON: Mr. Chairman, could I 22 just ask the Board to clear on the record if there is a 23 hot-line that intervenors may be able to use to update 24 the progress of the hearing? 25 THE PRESIDING MEMBER: Ms Lea? 26 MS LEA: Yes, I can help with that. 27 I am informed that the hot-line 28 number is 440-7608. 26 1 MR. MATTSON: Thank you. 2 THE PRESIDING MEMBER: Are there any 3 other opening remarks? 4 MR. JANIGAN: I take it, Mr. 5 Chairman, that we are going to deal with any problems 6 associated with the settlement proposal after the 7 break, in terms of any anomalies? I believe I heard 8 Mr. Farrell say that. 9 THE PRESIDING MEMBER: Mr. Farrell? 10 MR. FARRELL: What I was suggesting 11 was that during the break the intervenors discuss the 12 ones that I identified and any others that they might 13 choose to, and also look at the scoping proposal, and 14 then we would meet with them during an extended lunch 15 hour to see whether or not we had any problems that 16 needed to be reported to the Board and go from there. 17 That is my intention. 18 MR. JANIGAN: That's fine, Mr. 19 Chairman. 20 THE PRESIDING MEMBER: Okay, Mr. 21 Farrell. That is probably a record in terms of 22 finishing with preliminary matters before we go to the 23 hearing of evidence for a main rate case. 24 MR. FARRELL: Perhaps it can stay 25 that way if the settlement proposal is as 26 uncontroversial as I hope it will be. 27 THE PRESIDING MEMBER: Perhaps we can 28 bring forward the first panel? 27 1 MR. FARRELL: Yes. Ms Soudek will be 2 counsel for the first panel, so I will excuse myself 3 now, if I may, Mr. Chair. 4 SWORN: TERRY PASHER 5 SWORN: DWIGHT WILLETT 6 SWORN: STEVE NOBLE 7 SWORN: DOUG LAPP 8 THE PRESIDING MEMBER: Welcome, 9 Ms Soudek. 10 MS SOUDEK: Good morning, Mr. Vlahos, 11 Ms Hallady. 12 I had the pleasure this morning of 13 introducing the Enbridge witnesses who will speak to 14 the year 2000 issue. 15 Those issues include the disposition 16 of the balance of the fiscal year 2000 variance 17 account, which is issue 3.3.1 on the Board's list of 18 issues. 19 The second issue is the company's 20 request for a fiscal 2000 year 2K variance account, 21 which is issue 3.3.2 on the Board's list of issues. 22 Finally, the third issue being the 23 year 2000 costs, which is issue 3.5. 24 Sitting closest to you is 25 Mr. Terry Pasher, who is the Director of the Corporate 26 Year 2000 Program. Beside Mr. Pasher is Mr. Dwight 27 Willett, who is Vice-President, Information Services. 28 Next to Mr. Willett is Mr. Steve Noble, who is Manager 28 1 of Financial Reporting. Next to Mr. Noble is Mr. Doug 2 Lapp, Manager of Business Continuity Planning. 3 EXAMINATION-IN-CHIEF 4 MS SOUDEK: Mr. Pasher, I would like 5 to begin with you. 6 Is your curriculum vitae contained in 7 Exhibit A at Tab 17, Schedule A? 8 MR. PASHER: Yes, it is. 9 MS SOUDEK: Are you responsible for 10 the exhibits that are germane to the Y2K issues that 11 are listed opposite your name in Exhibit A, Tab 18, 12 Schedule 1? 13 MR. PASHER: Yes. 14 MS SOUDEK: Are you also responsible 15 for the interrogatory responses in Exhibit 1 that bear 16 your name and that are germane to the Y2K issue? 17 MR. PASHER: Yes, I am. 18 MS SOUDEK: Was this material 19 prepared by you or under your control and direction? 20 MR. PASHER: Yes, it was. 21 MS SOUDEK: Is this material accurate 22 to the best of your knowledge or belief? 23 MR. PASHER: Yes. 24 MS SOUDEK: Do you have any 25 corrections at all, Mr. Pasher? 26 MR. PASHER: I do have one 27 correction. 28 At Exhibit D1, Tab 9, Schedule 1 in 29 PASHER/WILLETT/NOBLE/LAPP, in-ch (Soudek) 1 my prefiled evidence, the answer in Question 8 at D-1, 2 Tab 9, Schedule 1, page 5 of 6, the answer to 3 Question 8 there -- 4 MS LEA: Can you please give us the 5 citation again? 6 MS SOUDEK: Yes, Ms Lea. That's 7 Exhibit D1, Tab 9, Schedule 1, page 5 of 6. 8 MS LEA: Thank you. 9 MR. PASHER: At the point A.8 where 10 it refers to Tab 5, that should read Tab 4. 11 MS SOUDEK: Thank you, Mr. Pasher. 12 Mr. Willett, is your curriculum vitae 13 contained in Exhibit A at Tab 17, Schedule 1? 14 MR. WILLETT: Yes, it is. 15 MS SOUDEK: Thank you. 16 Are you responsible for the exhibits 17 that are germane to the Y2K issues that are listed 18 opposite your name in Exhibit A, Tab 18, Schedule 1? 19 MR. WILLETT: Yes. 20 MS SOUDEK: Are you also responsible 21 for the interrogatory responses in Exhibit 1 that bear 22 your name and are germane to the Y2K issues? 23 MR. WILLETT: Yes. 24 MS SOUDEK: Was this material 25 prepared by you or under your direction and control? 26 MR. WILLETT: Yes, it was. 27 MS SOUDEK: Is this material accurate 28 to the best of your knowledge or belief? 30 PASHER/WILLETT/NOBLE/LAPP, in-ch (Soudek) 1 MR. WILLETT: Yes, with the 2 correction that Mr. Pasher described. 3 MS SOUDEK: Thank you. 4 Mr. Noble, is your curriculum vitae 5 contained in Exhibit A at Tab 17, Schedule 1? 6 MR. NOBLE: Yes, it is. 7 MS SOUDEK: Are you responsible for 8 the exhibits that are germane to the Y2K issues that 9 are listed opposite your name in that exhibit? 10 MR. NOBLE: Yes. 11 MS SOUDEK: Are you also responsible 12 for the interrogatory responses in Exhibit 1 that bear 13 your name and are germane to the Y2K issues? 14 MR. NOBLE: Yes, I am. 15 MS SOUDEK: Was this material 16 prepared by you or under your direction and control? 17 MR. NOBLE: Yes, it was. 18 MS SOUDEK: Is this material accurate 19 to the best of your knowledge or belief? 20 MR. NOBLE: Yes, with two minor 21 corrections. 22 At Exhibit D3, Tab 3, Schedule 1, 23 this exhibit describes the year 2000 variance account, 24 and the third paragraph of page 18 of 29 of that 25 exhibit, the reference to Exhibit D1, Tab 8, Schedule 1 26 should be changed to read D-1, Tab 9, Schedule 1. 27 Also, the reference to Exhibit D2, 28 Tab 5, Schedule 1 in the same paragraph should read 31 PASHER/WILLETT/NOBLE/LAPP, in-ch (Soudek) 1 D-2, Tab 4, Schedule 1. 2 MS SOUDEK: Thank you, Mr. Noble. 3 Mr. Lapp, is your curriculum vitae 4 contained at Exhibit A at Tab 17, Schedule 1? 5 MR. LAPP: Yes, it is. 6 MS SOUDEK: Are you responsible for 7 the exhibits that are germane to the Y2K issues that 8 are listed opposite your name in that exhibit? 9 MR. LAPP: Yes, I am. 10 MS SOUDEK: Are you also responsible 11 for the interrogatory responses in Exhibit I that bear 12 your name that are germane to the Y2K issues? 13 MR. LAPP: Yes, I am. 14 MS SOUDEK: Was this material 15 prepared by you or under your direction and control? 16 MR. LAPP: Yes, it was. 17 MS SOUDEK: Is this material accurate 18 to the best of your knowledge or belief? 19 MR. LAPP: Yes, it is. 20 MS SOUDEK: Thank you, Mr. Lapp. 21 Mr. Chairman, that completes my 22 examination-in-chief and the witnesses are available 23 for cross-examination. 24 THE PRESIDING MEMBER: Thank you, 25 Ms Soudek. 26 One thing we did not discuss is the 27 order of cross-examination. We tend to be flexible. I 28 will leave it to the parties as to who wishes to take 32 PASHER/WILLETT/NOBLE/LAPP, in-ch (Soudek) 1 the lead. There may be some discussion amongst the 2 parties. 3 Mr. Warren, you are the first one I 4 see there. Do you have any preference? Have you 5 discussed that at all? 6 MR. WARREN: We haven't discussed it, 7 Mr. Chair. Perhaps what we should do is just for this 8 one we will do it in the order of appearances and then 9 we can be flexible after that, if that's all right with 10 the Board. 11 THE PRESIDING MEMBER: Order of 12 appearances or order of sitting order? 13 MR. WARREN: Nothing turns on it from 14 my perspective. If somebody wishes to proceed me, I'm 15 happy to have them do it. 16 THE PRESIDING MEMBER: You can go 17 first, Mr. Warren. But I would ask the parties kindly 18 if they can turn their minds to the remaining issues as 19 to who would like to lead. As we are flexible on our 20 side staff will go last as generally they do. 21 CROSS-EXAMINATION 22 MR. WARREN: Good morning, panel. 23 I would like to begin, if I can, to 24 go through the three issues that are before us and just 25 get some clarification on the record in terms of the 26 relief that the company is asking for in relation to 27 those issues. The first issue that my friend, 28 Ms Soudek, mentioned was the disposition of the Y2K 33 PASHER/WILLETT/NOBLE/LAPP, cr-ex (Warren) 1 variance account. What relief is the company asking 2 for in relation to the issue? 3 MR. NOBLE: That would be disposition 4 of the 1999 Y2K variance account. The total dollar 5 forecast for the fiscal year ended September 30, 1999 6 is $8,327,000. 7 The company has filed an exhibit at 8 G-3, Tab 8, Schedule 4, which highlights the forecast 9 balance of that account. 10 MR. WARREN: Mr. Noble, just on that 11 question and the relief being asked for, what is the 12 relationship between that forecast $8.3 million and the 13 amount which the Board approved in the last main rates 14 case? 15 MR. NOBLE: As you can see by that 16 schedule, the Board did not allow the clearing of the 17 1998 Y2K costs. However, they did allow the carryover 18 of those costs and they formed the opening balance for 19 the 1999 Y2K VA account. 20 MR. WARREN: And the carryover 21 opening balance is what amount? 22 MR. NOBLE: It's $4,467,000. 23 MR. WARREN: Is there, then, in the 24 $8.3 million an amount which is more than the company 25 anticipated it would spend for the Y2K account of 1999? 26 MR. NOBLE: No, I don't believe the 27 company has exceeded the forecast provided in 28 E.B.R.O. 497 in relation to fiscal 1999 expenditures. 34 PASHER/WILLETT/NOBLE/LAPP, cr-ex (Warren) 1 The second part of that schedule that 2 I referenced shows the costs anticipated to be spent in 3 1999, in total $10,060,000. From that we have deducted 4 the $6.2 million allowed by the Board for recovering 5 sales rates in E.B.R.O. 497 to arrive at a net amount 6 for fiscal 1998 -- sorry, fiscal 1999 of $3,860,000. 7 It is when you add that balance to 8 the opening balance carried forward that you arrive at 9 the $8,327,000 that we are seeking relief for in this 10 proceeding. 11 MR. WARREN: And the $3.6 million, is 12 that in excess of what you anticipated that you would 13 spend in the last main rates case? 14 MR. NOBLE: No, that is not in excess 15 of what we thought we would spend. The amount applied 16 for in E.B.R.O. 497 was $11.7 million related to O&M 17 expenditures. 18 MR. WARREN: The second form of 19 relief you have asked for is the Y2K variance account. 20 What is the relief you have asked for in relation to 21 that? 22 MR. NOBLE: I am assuming you are 23 speaking about the year 2000, the fiscal 2000 Y2K 24 variance account. 25 MR. WARREN: Yes. 26 MR. NOBLE: We are looking to capture 27 in that account the difference between what the company 28 actually spends in fiscal 2000 on the Y2K issue as 35 PASHER/WILLETT/NOBLE/LAPP, cr-ex (Warren) 1 compared to the $2.6 million said factor that we have 2 applied for. 3 If we spend more than the $2.6 4 million, we would capture that in the variance account. 5 If we spend less than the $2.6 million, we would also 6 capture that in the variance account. 7 MR. WARREN: The final item is issue 8 3.5, Y2K costs. What relief are you asking for in 9 relation to that? 10 MR. NOBLE: I am assuming you are 11 speaking to the $2.6 million said factor amount 12 included in the company's rate application? 13 MR. WARREN: Yes. 14 MR. NOBLE: That is the amount we are 15 seeking to include in sales rates in the year 2000. 16 MR. WARREN: Mr. Pasher, as I 17 recollect your testimony -- and you will correct me if 18 I am wrong -- when we were here last in the main rates 19 case, you were confident that you had the Y2K problem 20 under control and that your spending would be as you 21 would have predicted it. 22 I would like an update on your 23 confidence assertions in that case. 24 Have your expenditures been 25 approximately what you forecast; and if not, why not? 26 MR. PASHER: Yes, Mr. Warren. I am 27 still very confident about the program and having 28 almost a year behind us since the last hearing. We had 36 PASHER/WILLETT/NOBLE/LAPP, cr-ex (Warren) 1 asked for $11.7 million in O&M last year, and we 2 subsequently reduced the O&M estimate. While the 3 individual line items had adjustments throughout the 4 year as we went in and started addressing remediation 5 in certain areas, we overspent for some of the line 6 items and underspent for others in the way that we 7 approached the program. 8 All of the milestone tasks that we 9 had identified were finished on schedule. We have 10 completed all of our critical systems and processes for 11 the June 30th date that we have scheduled. As of the 12 end of July and going to the end of this fiscal year, 13 we will finish within the $10 million O&M estimate that 14 I filed. 15 MR. WARREN: The amount that you 16 asked for last year was $11.7 million in O&M expenses. 17 It was the Board that reduced that amount to $6.2 18 million. 19 Is that right? 20 MR. PASHER: Yes, it was. 21 MR. WARREN: Have you spent more over 22 and above the $6.2 million? 23 MR. PASHER: Yes, we have. 24 MR. WARREN: By how much? 25 MR. PASHER: At the end of July our 26 actuals were $8.44 million. That is with two months 27 remaining. I am projecting that we will spend about 28 $10 million this fiscal year on O&M. 37 PASHER/WILLETT/NOBLE/LAPP, cr-ex (Warren) 1 MR. WARREN: It is the relationship, 2 Mr. Pasher, between the $6.2 million and the $10 3 million that I wanted to explore. 4 Am I wrong in characterizing the 5 difference between those two numbers as an overspending 6 from the Board's $6.2 million? 7 MR. PASHER: From the Decision with 8 Reasons, yes, we used the $6.2 million. We reduced the 9 supervisory salaries by the $4 million from the 10 decision, and we took out the $1.5 million for CIS and 11 looked at the budget that would remain to determine 12 whether in fact we could do the program for that. We 13 determined we couldn't. 14 I think as we testified last year, we 15 were given more information as the weeks and the months 16 rolled on. We were in a better position to fine tune 17 the estimates as we moved forward. 18 We took the $6.2 million, complied 19 with that decision and then because we also have to 20 track the total cost of the program as part of due 21 diligence, as well as a good understanding for what we 22 pay to accomplish the program, we put together an 23 estimate for what it would take to do. That turned out 24 to be $10.06 million. 25 MR. WARREN: You are clearly much 26 more familiar with your evidence than I am, Mr. Pasher. 27 It isn't clear to me from the 28 evidence -- and again you will correct me if I am wrong 38 PASHER/WILLETT/NOBLE/LAPP, cr-ex (Warren) 1 -- what the rationale is for the additional, I will 2 say, roughly $4 million in spending. Why was that 3 additional amount required? 4 MR. PASHER: In order to perform the 5 task that we had in front of us, it required that 6 amount of funding in order to complete the program, to 7 satisfy the four criteria that we were using to ensure 8 that we had covered all aspects of the program, being 9 operational sustainability, safety, financial and legal 10 responsibilities as well. 11 It was on that basis that we 12 determined how much it would cost to perform the 13 program in fiscal 1999. 14 MR. WARREN: Is it fair of me, 15 Mr. Pasher, to say that it costs more to do this than 16 you anticipated it would originally? 17 Is that a fair assumption? 18 MR. PASHER: No, it is not a fair 19 assumption. It cost less than we initially filed for 20 last year. We filed at $26.4 million, $22 million in 21 1998 and fiscal 1999. This program will finish for 22 less than the $26.4 million that we originally 23 anticipated. 24 MR. WARREN: Would it be fair of me, 25 Mr. Pasher, to say that the Board -- you asked for 26 $11.7 million. The Board reduced you to $6.2 million, 27 and what you want to do is recapture in effect the lost 28 ground. You want to recapture what it is the Board 39 PASHER/WILLETT/NOBLE/LAPP, cr-ex (Warren) 1 disallowed in the last case. 2 Is that unfair? 3 MR. PASHER: We would like to recover 4 the costs that we legitimately spent in a prudent 5 fashion to perform the program. 6 MR. WARREN: Those were the costs 7 that the Board disallowed the last time. Is that not 8 fair? 9 MR. NOBLE: If I could jump in here, 10 the Board disallowed from inclusion in sales rates the 11 $5.5 million, reflecting the reduction from $11.7 12 million to $6.2 million, which they allowed in recovery 13 and sales rates. That was never intended as a 14 permanent disallowance. 15 The Board had concerns with respect 16 to the double counting of supervisory labour salaries, 17 and the Board also directed the company to remove from 18 the Y2K funding $1.5 million. That is the forecast 19 balance of that activity, but costs related to the 20 remediation of legacy customer systems, which were 21 identified as resulting from the delay in delivery of 22 CIS. 23 MR. WARREN: I understand the 24 categories, Mr. Noble. That is clear from the Board's 25 decision. 26 I am simply asking you to explain the 27 apparent -- and I underscore the word apparent -- 28 anomaly that the Board moved you back from $11.7 40 PASHER/WILLETT/NOBLE/LAPP, cr-ex (Warren) 1 million to $6.2 million, and we are back up just a 2 shade under $11.7 million. 3 It strikes me intuitively, at the 4 crude level at which I operate, that what you are 5 seeking to do is to recapture what the Board 6 disallowed. I take it that you disagree with that. 7 MR. NOBLE: I do disagree with that. 8 I believe we are trying to recover the costs that the 9 company has prudently incurred to remediate this very 10 serious problem. 11 MR. WARREN: On the issue of the 12 amount, as I read the evidence, the largest single 13 category of expenditure is for contractors. Is that 14 right? 15 MR. PASHER: Yes, it is. 16 MR. WARREN: Can I take it that those 17 are outside contractors? 18 MR. PASHER: Yes, they are. 19 MR. WARREN: Were they retained 20 because they have a set of skills that the company 21 didn't have and/or because the company didn't have the 22 bodies to deal with the problem? Which one was it? 23 MR. PASHER: Yes to both of those, 24 partially because they had unique skills in some cases 25 that we required, and also to supplement the staff that 26 the company had onboard; that we required more of those 27 kinds of resources in order to do the year 2000 program 28 while still run the day to day business. 41 PASHER/WILLETT/NOBLE/LAPP, cr-ex (Warren) 1 MR. WARREN: Could I ask you, panel, 2 if you could turn up your original pre-filed evidence, 3 which is at Exhibit D1, Tab 9, Schedule 1. I am 4 looking at page 3 of 6. 5 MR. PASHER: Yes, Mr. Warren. 6 MR. WARREN: Now, if I look at the 7 second-to-last full paragraph, beginning with the 8 words: 9 "Awareness in communication is 10 turning out to be a much more 11 time-consuming activity than 12 originally envisaged..." (As 13 read) 14 you go on to say: 15 "...customers, all levels of 16 governments, suppliers, media, 17 et cetera, are all aggressively 18 seeking detailed information 19 pertaining to all aspects of our 20 program and we are having to 21 take appropriate measures to 22 ensure that a proper balance is 23 achieved so as not to jeopardize 24 the forward motion of the 25 program." (As read) 26 I confess I don't understand what you 27 mean by striking a proper balance. What does that 28 mean? 42 PASHER/WILLETT/NOBLE/LAPP, cr-ex (Warren) 1 MR. PASHER: What I am intending to 2 get across here is that we did not want to divert our 3 attention and our focus from doing the program and 4 completing the activities as scheduled, sacrifice those 5 parts of the program in having a number of the people 6 involved in a lot of the communication unawareness. So 7 we saw that there was going to be a lot of activities 8 required in this area and we ensured that there was 9 only a couple of people that were involved in the 10 communication and in responding to the various 11 suppliers, the levels of government, so that we were 12 delivering a consistent message while, at the same 13 time, keeping everybody else focused on the job they 14 were doing. That is all that that meant to convey. 15 MR. WARREN: Can I reduce this, Mr. 16 Pasher, to this: that you required an allocation of 17 resources in order to assure your various audiences 18 that you have listed here that Enbridge had a handle on 19 its Y2K problem. Is that a fair summary? 20 MR. PASHER: We did not hire anybody 21 or have anybody full time in this communication role. 22 So, if that was the front part of 23 your question -- 24 MR. WARREN: It wasn't the front part 25 of my question. 26 You needed resources to deal with 27 addressing the problems, the concerns of your various 28 audiences. Is that fair? 43 PASHER/WILLETT/NOBLE/LAPP, cr-ex (Warren) 1 MR. PASHER: Part-time resources. 2 But we also used internal and external communications 3 within the company. 4 MR. WARREN: What I am trying to get 5 a handle -- sorry, Mr. Pasher. 6 What I am trying to get a handle on 7 is, if we look at the additional expenditure of some 8 $4.4 million dollars, how much of that was on fixing 9 problems within the company and how much of that was 10 spent to assure your various audiences, or 11 constituents, that you did fix the problem? 12 MR. PASHER: Virtually all of it was 13 spent on fixing the problem, testing the fixes and 14 redeploying them into the production environment. 15 The interaction that I am indicating 16 here that we are having externally was through 17 presentations and through forums and seminars that we 18 were invited to attend -- and, in fact, volunteered to 19 attend, in some cases -- to give the various parties a 20 level of assurance that we had the program in place, 21 that we were tracking as scheduled, and to convey that 22 level of confidence out there for the people we were 23 dealing with. 24 MR. WARREN: My last question in this 25 area, Mr. Pasher, is this -- and, again, it may be in 26 the evidence but I can't find it. 27 I am going to make a distinction, Mr. 28 Pasher, which you may not agree with -- and tell me if 44 PASHER/WILLETT/NOBLE/LAPP, cr-ex (Warren) 1 you don't. The distinction is between testing your 2 existing systems to see if they are Y2K compliant, on 3 the one hand, and, on the other hand, fixing problems 4 within the system because they are not Y2K compliant. 5 Can you live with that distinction? 6 MR. PASHER: Yes, I can. 7 MR. WARREN: Okay;. Can you tell me, 8 of the money you spent on the Y2K problem, how much has 9 been spent in actually fixing problems? 10 MR. PASHER: I would say at least 75 11 to 90 per cent would have been spent on fixing and 12 testing and redeploying problems. 13 Now, I had better qualify your 14 initial comment there about testing versus testing and 15 remediation. 16 A lot of the testing we had to do -- 17 if I can use an example: the distribution technology, 18 for instance, that distributes our gas to our 19 customers, Early in 1998, the Gartner Group, who is an 20 industry watcher and publishes information for 21 technology-related issues, was predicting that 7 to 10 22 per cent of the imbedded chips within technology would 23 likely fail for year 2000. That was taken fairly 24 seriously by companies, and by ourselves as well, at 25 that time, and one of the issues that we had to deal 26 with was that, in order to determine whether in fact we 27 were going to have failures in that equipment, we had 28 to test the equipment. 45 PASHER/WILLETT/NOBLE/LAPP, cr-ex (Warren) 1 There was vendor and manufacturers' 2 statements out there that some companies, in the 3 business that they do, could live quite comfortably 4 with those statements and say, "Well, ABC Company says 5 that this technology is going to work. They have 6 tested it in their labs. So I am pretty comfortable 7 and I don't have to do it." 8 In our case, we can't live with that. 9 In the distribution of natural gas. So what we had to 10 do was invest a lot of time and, yes, money into 11 testing technology, determining if in fact there was a 12 point of failure in it and then remediating it. So 13 even though we were determining that less than 1 per 14 cent of the imbedded chips --, not 7 to 10 per cent, 15 but less than 1 per cent of the imbedded chips -- had 16 problems, we still had to go through the exercise of 17 testing it. So there was no remediation involved in 18 the vast majority of it, but there was the assurance 19 that we had to reach in testing and certifying the 20 technology, so I am differentiating between testing -- 21 which was a lot of the remainder of the funding that I 22 just answered you on -- and the actual testing, fixing, 23 remediating and getting it back out into production. 24 So, those are the two kinds of 25 testing. 26 MR. WARREN: Among other things I 27 take from your answer is that we should be careful, 28 when you have to listen to the Gartner people again, 46 PASHER/WILLETT/NOBLE/LAPP, cr-ex (Warren) 1 about whether the sky is falling. Is that fair? 2 MR. PASHER: Well, I think that the 3 Gartner people -- and anybody else out there, a couple 4 of years ago, that was talking about year 2000 -- 5 served us very well as a society and that they ensured 6 that companies and businesses alike were taking the 7 year 2000 problem seriously -- and that is what we did. 8 MR. WARREN: I want to get back to 9 this if I can, just briefly, Mr. Pasher. 10 The 75 to 90 per cent you indicated, 11 in response to my question, was actually fixing 12 problems. Now, would the balance of 25, between 10 and 13 25 per cent have been just testing to see whether there 14 are problems? 15 MR. PASHER: Other than some program 16 administration and due diligence activities that had to 17 be taken in place, yes, the remainder of that would 18 have been testing, not just the distribution system but 19 also the infrastructure, hardware and software that we 20 had, so that, as we got compliant documentation from 21 vendors and manufacturers and suppliers, there was a 22 certain amount of testing that we had to do for some 23 types of equipment and if it was a high-risk critical 24 process to us, we did full-blown testing against it to 25 ensure that it, in fact, was compliant. 26 MR. WARREN: Now, of the 75 per cent 27 to 90 per cent spent on fixing problems, how much, if 28 any, of that can be recovered from people who gave you 47 PASHER/WILLETT/NOBLE/LAPP, cr-ex (Warren) 1 software/hardware that should have been Y2K compliant 2 to begin with? Any? 3 MR. PASHER: None of it is 4 recoverable. Basically, what happened in those 5 situations, with us, as well as with other 6 organizations, is, when we bought the software, we 7 either entered into a licence agreement -- in which 8 case, we could perform an upgrade of that software to a 9 year-2000-ready version or release. That was normally 10 taken care of, either under the licence or maintenance 11 agreement, or a lot of companies just provided the 12 software to you gratis. That didn't take away from the 13 fact that there was a significant amount of effort, in 14 lot of cases, in performing the testing on the new 15 release, if you had a lot of applications, your process 16 was tied to that software, you had to re-test it and 17 then re-implement it back in to the production 18 environment, but we have not recovered any of the 19 costs, and we have pursued that with manufacturers but 20 we cannot recover costs from them. 21 MR. WARREN: Is this a question, Mr. 22 Pasher, of your having received a legal opinion to the 23 effect that you cannot recover any of these costs? Or 24 is it just a practical matter than you can't-- 25 MR. PASHER: We have reviewed every 26 contract -- our legal department and the party that 27 they use have reviewed every contract, every service 28 agreement, maintenance agreement, that we have 48 PASHER/WILLETT/NOBLE/LAPP, cr-ex (Warren) 1 regarding technology across the company and those 2 reviews were conducted in light of trying to determine 3 whether we had any recourse or what recourse we had and 4 what the responsibilities of the manufacturers and the 5 vendors and service providers were, in light of what we 6 were doing. 7 MR. WARREN: And the answer, as a 8 result of that, is that you do not have any basis for 9 recovering any of those costs? 10 MR. PASHER: Yes. 11 MR. WARREN: All right. The second 12 issue I want to turn to is the treatment panel of non- 13 utility eliminations -- and if you turn up the most 14 recent pre-filed evidence which arrived, I believe, 15 last Friday, and that is Exhibit G1, Tab 1, Schedule 5. 16 First of all, at a basic level I want 17 to understand the allocation to non-utility businesses. 18 If you look at page 2 of that 19 prefiled evidence, question and answer sequence 7, the 20 question was: 21 "Has the company attributed any 22 of the 1999 Y2K costs of the 23 ancillary programs or 24 non-utility activities?" (As 25 read) 26 The answer is: 27 "You allocated $1.5 million to 28 the ancillary programs and 49 PASHER/WILLETT/NOBLE/LAPP, cr-ex (Warren) 1 $0.3 million to non-utility out 2 of the total forecast level of 3 the 1999 Y2K expenditures of 4 $11.7 million." (As read) 5 Now, the actual forecast expenditures 6 will be something in the neighbourhood of $10 million, 7 I think you have said, Mr. Pasher -- 8 MR. PASHER: Yes. 9 MR. WARREN: -- and change. 10 Now, is the figure of $1. -- I'm 11 sorry. 12 Sir, what is the total figure, then, 13 for allocation to non-utility activities? 14 MR. NOBLE: Are you looking for an 15 actual or the amount filed in 497? 16 MR. WARREN: I'm looking for an 17 actual. 18 MR. NOBLE: The actual amount to date 19 is approximately $100,000 of indirect costs. In 20 addition to that, there has been $1.3 million of direct 21 costs charged directly to the non-utility companies. 22 MR. WARREN: Mr. Noble, how was that 23 $1.3 million arrived at? 24 MR. PASHER: The affiliate companies 25 with which we have responsibility for reporting and 26 monitoring have their own programs in place. So they 27 put into place their own program management office, 28 following an accepted methodology for the year 2000 50 PASHER/WILLETT/NOBLE/LAPP, cr-ex (Warren) 1 program, and they in fact fund those programs. 2 Our only role in the programs of the 3 affiliate companies is to take monthly reporting 4 information from them and consolidate it into an 5 overall report for our parent company, for 6 Enbridge Inc. 7 So any of the time that we, myself or 8 any of the staff on Y2K for Enbridge Consumers Gas, 9 spend on affiliate-related activities is charged 10 back -- tracked and charged back to the affiliate 11 company. 12 We do have one person on board the 13 program whose full-time responsibility it is to monitor 14 and gather this recording, this reporting on behalf of 15 the affiliate companies, and that person is charged 16 totally to the affiliate programs. 17 MR. WARREN: Based on that 18 methodology you have come up with the $1.3 million? 19 MR. WILLETT: No. 20 Just to respond quickly, the 21 $1.3 million of direct costs, those are charged 22 directly to the utility companies. In some cases those 23 are invoices that are received and sent to them for 24 payment. We do not even deal with those invoices. 25 MR. WARREN: Then what is the 26 relationship between that and the time recording which 27 Mr. Pasher just referred me to? Is it a combination of 28 direct invoices and the time records that come up with 51 PASHER/WILLETT/NOBLE/LAPP, cr-ex (Warren) 1 the $1.3 million? 2 MR. PASHER: It is the time that my 3 staff spends on any activity. So if they have a two 4 hour meeting with one of the affiliate companies, they 5 track that time and we charge that out. 6 MR. WARREN: Is it -- 7 MR. PASHER: That is part of the 8 $1.3 million, or part of the -- yes, part of the 9 $100,000. 10 MR. WILLETT: The $1.3 million, 11 Mr. Warren, is all third party costs that are charged 12 directly. They pay those bills directly. If one of 13 them arrives on my desk by mistake, or Terry's desk by 14 mistake, then we forward them on to those companies for 15 direct payment. 16 But we are tracking them so we 17 thought you should see that they are paying their 18 direct costs so you could understand they are actually 19 incurring expense and paying for it. 20 MR. WARREN: Okay. So if that is the 21 case where there are expenses that are incurred 22 directly, in effect, by the affiliates, they simply pay 23 the amount for that expense. Is that right? 24 MR. PASHER: Yes. 25 MR. WARREN: Now, the traditional 26 non-utility elimination, if I can use that term, where 27 you have, for example, staff within Enbridge Consumers 28 Gas that are spending time on matters related to 52 PASHER/WILLETT/NOBLE/LAPP, cr-ex (Warren) 1 affairs of the affiliate, that amount is $100,000. Is 2 that right? 3 MR. NOBLE: That is correct, yes. 4 MR. WARREN: Now, let me take you to 5 question and answer sequence 8. The question is -- on 6 the same page, or that Exhibit G1, Tab 1, Schedule 5: 7 "Does the company believe a 8 further allocation of 1999 costs 9 to the non-utility companies is 10 warranted?" (As read) 11 Answer: 12 "No. The non-utility companies 13 have borne an appropriate share 14 of the 1999 Y2K cost provided 15 the company does not exceed the 16 $0.3 million threshold in 17 indirect costs. If the actual 18 amount exceeds the threshold the 19 excess will be removed from the 20 1999 Y2K variance account." (As 21 read) 22 I don't understand that answer. 23 Could somebody explain it to me? 24 MR. NOBLE: Well, it's part of the 25 1999 cost allocation study that was filed in 26 E.B.R.O. 497. There was an allocation of $300,000 made 27 against the non-utility companies reflecting the 28 company's forecasts of costs to support that activity. 53 PASHER/WILLETT/NOBLE/LAPP, cr-ex (Warren) 1 The actual number turns out to be 2 less than the $.3 million, in other words the actual to 3 date has been approximately $100,000, and given that 4 the $300,000 was eliminated from the company's cost of 5 service for rate-making purposes in 497 I don't believe 6 it is appropriate to allocate any additional amount to 7 the non-utility companies unless the actual effort on 8 non-utility exceeds $300,000. 9 MR. WARREN: All right. 10 Now, the final category of questions 11 I have is with respect to the $2.6 million forecast for 12 fiscal 2000. 13 Mr. Pasher, is that a forecast with 14 an additional $2.6 million which you feel will be 15 required to finally close the book on the Y2K problem? 16 MR. PASHER: That is part of it, yes. 17 That is from October 1st to March 31st, which is the 18 termination of the program. 19 The last three months of this 20 calendar year we have some remediation tasks that we 21 are completing, more lower priority activities. 22 We have a fair amount of integration 23 testing that we are doing among all of the applications 24 that prior to that point we were doing a lot of 25 individual application remediation so we have some more 26 extensive integration testing to do between 27 applications. 28 As well, we have the planning that we 54 PASHER/WILLETT/NOBLE/LAPP, cr-ex (Warren) 1 are doing for the transition centre, command centre if 2 you will, that is going to take us into the next 3 century. 4 We also have some continuing, ongoing 5 due diligence activities that we are doing as we 6 complete the year. 7 With respect to the first three 8 months of next year, we have the support of the 9 year 2000 transition that we are handling during that 10 time period. 11 The staffing on the program is 12 ramping down as I speak and will continue to ramp down 13 through to the end of January and then we will have a 14 minimal number of staff on board for February and March 15 in order to complete all of the due diligence and 16 basically close the program down. 17 So that is what those costs relate to 18 for fiscal 2000. 19 MR. WARREN: Is there anything in 20 that for non-utility businesses? 21 MR. PASHER: No, there isn't. 22 MR. WARREN: Is it anticipated that 23 there will be no more expenditures for non-utility 24 businesses? 25 MR. PASHER: There will just be the 26 co-ordination activities involved. For instance, we 27 will want to know how they are doing during the 28 transition so we will have reports coming into us, 55 PASHER/WILLETT/NOBLE/LAPP, cr-ex (Warren) 1 verbal reports coming into us through communications so 2 that we can convey the results to the people that we 3 have to report to. 4 MR. WARREN: There would be no costs 5 associated with that? 6 MR. PASHER: Maybe a few hours. We 7 are not doing any other of their transition centre 8 planning. They are independent companies and have 9 their own programs and they will do all of their own 10 planning. 11 MR. NOBLE: If I could just jump in 12 here. For ratemaking purposes it is my understanding 13 that there is still an allocation to the non-utility 14 companies embedded in the non-utility elimination for 15 fiscal 2000 included as part of the rate-setting 16 process. 17 MR. WARREN: I am not sure that I 18 understand that answer, Mr. Noble, or that observation. 19 What do you mean by that? 20 MR. NOBLE: What I am saying is that 21 $300,000 was eliminated from the cost of service in 22 1999 for ratemaking purposes related to the Y2K 23 activities of the non-utility companies. By its nature 24 and by determination of how the PBR formula works and 25 the calculation of the non-utility adjustment for 26 fiscal 2000, embedded in that calculation is an ongoing 27 allocation to the non-utility companies related to Y2K. 28 MR. WARREN: And are you saying that 56 PASHER/WILLETT/NOBLE/LAPP, cr-ex (Warren) 1 you haven't spent all of that? 2 MR. NOBLE: We are saying that for 3 fiscal 1999 we certainly have not spent all of the 4 $300,000, yes. 5 MR. WARREN: Mr. Pasher, just 6 returning to the point, after I began my questions of 7 you, asking whether or not you were confident that you 8 had dealt with the problem, and I took your answer to 9 be "yes", in light of that, I am puzzled as to why you 10 believe that another $2.6 million is required to deal 11 with a problem which I thought had been dealt with. 12 MR. PASHER: The problem continues to 13 be dealt with. This was a three-year program -- three 14 fiscal years -- 1998, 1999 and the first half of 2000. 15 There are still activities under way. While we 16 completed the critical systems for June 30, we are 17 still doing the mediation on less critical activities, 18 and we are still interacting and joint testing is going 19 on with some of our key and critical suppliers. 20 So there is still a lot of work to be 21 done between now and the transition, and this company 22 is not alone in the amount of work that it has to do 23 between now and the end of the year and immediately 24 following, into the new century. So we can't do that 25 for no cost, and it wasn't indicated last year that we 26 wouldn't have any costs in 2000. 27 MR. WARREN: Mr. Pasher, the all-in 28 bill at the end of the day to deal with the Y2K problem 57 PASHER/WILLETT/NOBLE/LAPP, cr-ex (Warren) 1 will be what? 2 MR. PASHER: We are projecting in the 3 evidence that was filed on Friday, at G-1, Tab 1, 4 Schedule 5, page 3 of 3, about $23.8 million. 5 MR. WARREN: And the proposal of the 6 Company is that all of that will be recovered from the 7 ratepayers, right? 8 MR. PASHER: Yes, it is. 9 MR. WARREN: Mr. Pasher, looking at 10 this issue as dispassionately as one can, would it not 11 be reasonable for me to suggest, Mr. Pasher, that some 12 portion of this should be borne by the Company's 13 shareholders in the category of a problem that should 14 have been anticipated and wasn't? 15 MR. WILLETT: If I can, Mr. Warren, I 16 would like to speak to that one. 17 I guess there is a part of me that is 18 the individual who likes to believe that we can foresee 19 as managers those major problems that are going to 20 arise on the horizon and be well prepared for them. 21 But if you look at this particular issue, while its 22 existence has been known since the late eighties -- and 23 you would find people who would argue today that they 24 knew about it even before that. No one would listen to 25 them. Who knows, they may be correct, because we 26 weren't listening to them. But today we would all, I 27 think, in the position of senior managers and 28 executives in corporate Canada, look around and say 58 PASHER/WILLETT/NOBLE/LAPP, cr-ex (Warren) 1 "None of us recognized this problem", including the 2 banks, which will tell you that they have been working 3 on it for five to eight years. 4 Most organizations have the 5 opportunity, through setting up finances for their 6 products and services, to recover expenses that they 7 incur, and if you look at Y2K costs as those kinds of 8 expenses and you look around the non-regulated world, 9 you will see that in fact most corporate profits have 10 gone up over the time that they have been dealing with 11 the Y2K issue. 12 We do not have that free market 13 capability to set our prices, without coming here to 14 the OEB and getting those rates set appropriately, and 15 we are simply attempting to accomplish what the 16 marketplace does through setting its prices in the way 17 that is allowed us, coming before the Board to ask for 18 the necessary adjustment so that we can recover those 19 costs. 20 If you go to a retailer who has had 21 to deal with Y2K costs, they have established within 22 their prices the necessary margin for them to make the 23 money they need to make, and that would include what 24 they have spent on Y2K, and we are asking to do the 25 same. 26 MR. WARREN: Mr. Willett, you don't 27 want this Board to believe that every single 28 manufacturer and retailer out there is able to recover 59 PASHER/WILLETT/NOBLE/LAPP, cr-ex (Warren) 1 100 per cent of his or her Y2K costs from customers? 2 Is it not reasonable to assume that some companies, 3 simply to remain competitive in the marketplace, are 4 going to have to absorb some of those Y2K costs 5 internally? Is that not fair? 6 MR. WILLETT: It is fair to assume 7 that some have not been able to recover all of their 8 costs. I guess I look at my bank service charges and 9 assume that they are recovering their costs. If I look 10 at what I am paying for other goods and see the 11 companies that I am paying making more profits than 12 they made five years ago, I would have to assume that 13 they have recovered the costs that are associated with 14 all of their work, including Y2K, in their prices. 15 MR. WARREN: I am clear, though, Mr. 16 Willett, that in the final analysis every single cent 17 of expenditure by Enbridge Consumers Gas to make itself 18 Y2K compliant will be recovered, under your proposal, 19 from your ratepayers. 20 MR. WILLETT: I will let Mr. Noble 21 address that. 22 MR. NOBLE: I don't agree that the 23 Company has been able to recover 100 per cent of their 24 costs. You will see in the evidence at G-1, Tab 1, 25 Schedule 5 -- and I am looking now at page 3 of 3 -- in 26 discussing the allocation made to the ancillary 27 programs for fiscal 1999, again as part of the non- 28 utility study completed for E.B.R.O. 497, that the 60 PASHER/WILLETT/NOBLE/LAPP, cr-ex (Warren) 1 Company had allocated $1.5 million against the 2 ancillary programs. 3 Further to that, the Board imputed 4 revenues in 497 of $8.4 million to the ancillary 5 programs. And to the extent that the $1.5 million of 6 Y2K costs contributed to the imputation of revenue, I 7 believe that the shareholder, or the Company in this 8 case, has absorbed $1.5 million of costs related to 9 Y2K. 10 MR. WARREN: Costs which may be 11 recovered, presumably, by the ancillary businesses. 12 Is that right, Mr. Noble? 13 MR. NOBLE: I am not sure that I can 14 comment on the recovery side from the ancillary 15 programs. I don't believe that to be the case. I 16 believe the Board imputed revenue in 497 based on a 17 pricing structure that was put before the Board and 18 those funds, for ratemaking purposes, have been paid 19 for by the Company. 20 MR. WARREN: The final question, Mr. 21 Willett, is -- and I just want to make this clear on 22 the record -- it is your view that the shareholders -- 23 the managers and shareholders of the Company -- acting 24 prudently, could not have anticipated any of these 25 expenditures and, therefore, it would be unfair for the 26 shareholders to absorb any of these Y2K costs. Have I 27 understood that correctly? 28 MR. WILLETT: It is my position that 61 PASHER/WILLETT/NOBLE/LAPP, cr-ex (Warren) 1 we, like the rest of corporate Canada, dealt with this 2 issue as soon as we understood its magnitude. We have 3 dealt with it in a prudent fashion. We have dealt with 4 it as responsible managers in an industry where we 5 cannot afford to make trade-offs on the public safety; 6 the delivery of gas to homes and businesses that might 7 be interrupted in the middle of a cold winter. 8 We don't have the ability to trade 9 off. We don't have the risk profile of a company that 10 can decide whether it might spend a bit less in order 11 to maintain its profits. 12 I believe we have done what a prudent 13 manager should do and that the ratepayer is going to 14 provide the relief that we need. 15 MR. WARREN: Those are my questions. 16 Thank you, Mr. Chairman. 17 THE PRESIDING MEMBER: Thank you, Mr. 18 Warren. 19 Mr. Brett, would you like to go next? 20 MR. BRETT: Yes, thank you, Mr. 21 Chairman. 22 CROSS-EXAMINATION 23 MR. BRETT: Good morning, panel. 24 Just before I get into my questions generally, I want 25 to clarify -- and this may be for you, Mr. Noble. 26 With respect to the Y2K fiscal 2000 27 variance account, are you seeking in this proceeding 28 the Board's approval for the disposition of that 62 PASHER/WILLETT/NOBLE/LAPP, cr-ex (Brett) 1 account to ratepayers, or just the creation of the 2 account? I wasn't clear on that. 3 MR. NOBLE: Just the creation of the 4 account for fiscal 2000. 5 MR. BRETT: Okay. 6 For purposes of my question you will 7 want I think to have in front of you the interrogatory 8 of my client, which is Exhibit I, Tab 19, Schedule 26. 9 This is a blue sheet that was filed on the 21st of 10 July. I think this represents the most recent 11 statement of your costs relative to your budget 12 approval in 497. So if you would have that in front of 13 you. 14 Also, I want to refer to the Board 15 Decision in 497, and in particular page 43 of that 16 decision. 17 --- Pause 18 MR. BRETT: Do you have that handy, 19 gentlemen? 20 MR. PASHER: Yes, Mr. Brett. 21 MR. BRETT: Okay. 22 I want to refer you to 23 paragraph 3.3.12 first of all on page 43. This 24 pertains to the fact that in E.B.R.O. 497 you had asked 25 for $11.7 million in O&M costs and you had received 26 6.2. The Board, in turning down the remainder, in 27 paragraph 3.3.12, first of all talked about work with 28 respect to CIS and they said that they would not 63 PASHER/WILLETT/NOBLE/LAPP, cr-ex (Brett) 1 include the cost of a CIS delay in rates, so they 2 disallowed the $1.5 million. 3 Leaving that aside and going on to 4 the next part of that paragraph the Board says: 5 "In addition, in light of the 6 `double counting' for staff, and 7 the fact that the Company could 8 have acted earlier, given the 9 state of its knowledge in the 10 summer of last year, and might 11 therefore have required a lower 12 level of expenditure, the Board 13 further reduces the O&M portion 14 of the program expenditures by 15 $4 million. The Board therefore 16 accepts O&M expenditures of 17 $6.2 million relating to Y2K for 18 the purposes of the test year." 19 As I read that paragraph, there are 20 two reasons the Board is giving for the disallowance of 21 the further $4 million. One is the double counting 22 issue. The second is the fact that the Board felt that 23 you might have acted earlier and therefore not have had 24 to spend as much money as you were proposing to spend. 25 The inference being here that because you didn't act as 26 early as you might have you paid more money for some of 27 the services. 28 First of all, the Board doesn't break 64 PASHER/WILLETT/NOBLE/LAPP, cr-ex (Brett) 1 down the $4 million into those two reasons. But with 2 respect to the second reason, what I will call the late 3 action, relatively late action, is it a fair inference 4 on my part that that is what the Board appears to be 5 saying there? 6 MR. PASHER: It appears that that is 7 what the Board is saying. 8 We reduced the supervisory salaries 9 by the $4 million. 10 I would like to make a comment with 11 respect to the suggestion or the belief that the 12 overall program would have cost less if we had started 13 earlier. I would propose that it would have cost more 14 had we started earlier. 15 The last two years we have been able 16 to take advantage of the automation that was developed 17 in support of year 2000 programs. We have been able to 18 get fairly earlier in with the vendors with respect to 19 their delivery of year 2000 products. Starting a lot 20 earlier in this process would have left us spinning our 21 wheels like a lot of other companies had to do in 22 waiting for year 2000 solutions to come across from 23 their various vendors and suppliers and manufacturers. 24 However, that's just my comment about 25 that, your assumption that we may have done it less 26 expensively. 27 MR. BRETT: So you are disagreeing 28 with what the Board said there, essentially? 65 PASHER/WILLETT/NOBLE/LAPP, cr-ex (Brett) 1 MR. PASHER: Well, if I may be so 2 bold, I'm just saying from experience, that's what my 3 experience is telling me, that if we had started 4 earlier the net result of this program would cost 5 significantly more than what it's costing us. 6 I'm not being disrespectful here. 7 You asked me a question. I'm just -- 8 MR. BRETT: No, I understand. You 9 are re-arguing the case, in a sense. 10 MR. WILLETT: Might I add, if you 11 don't mind? 12 I think that, again, to speak with 13 the voice of experience, not just from my current job 14 but from my past experiences, you will note from my 15 resume that I was a partner with a large consulting 16 company and as part of that role had, for one of their 17 larger clients, responsibility of establishing that 18 company's Y2K initiative which was done a bit earlier 19 than what we have done. They find themselves in the 20 same position as we have found ourselves for the past 21 year, waiting for our vendors and suppliers to complete 22 work that, in our opinion, they should have started 23 earlier on. 24 We have not been able, for example, 25 to get certain software patches, as they are called, in 26 the industry that were promised us at a certain time 27 until sometimes as much as six to nine months later. 28 In a few cases we have had to -- I will call it -- go 66 PASHER/WILLETT/NOBLE/LAPP, cr-ex (Brett) 1 to the max with our vendors and threaten to pull the 2 contracts and find alternative suppliers if they do not 3 hasten their efforts; and we have been successful in 4 most of those cases. 5 So I think what Terry is alluding to 6 is the fact that if we had started earlier -- and this 7 is hindsight as opposed to where the Board was dealing 8 with trying to look at things from what they knew at 9 that time -- we would not have been able to do some of 10 the things we have been able to do less expensively. 11 We would have had to spend more money to do them. 12 I think that is a common finding 13 amongst companies that are dealing with this issue, is 14 there are certain things you can't do until your 15 vendors and suppliers are done with their efforts, and 16 they have been not as fast. There are several 17 newspaper articles about how Microsoft has not been 18 able to provide some its patches as to timeliness. 19 They are a pretty big, well-recognized company. 20 MR. BRETT: Are you comfortable, 21 then, Mr. Pasher, Mr. Willett, that in your evidence 22 here you have addressed thoroughly the reasons that the 23 Board decided to not approve the $4 million of the 24 $11.7 million that you had asked for? You are 25 satisfied that you, in your evidence, either your 26 prepared evidence or your IR responses, that you have 27 addressed the issues the Board raises here? 28 MR. PASHER: Well, it was certainly 67 PASHER/WILLETT/NOBLE/LAPP, cr-ex (Brett) 1 our intention, Mr. Brett, based on the decision of the 2 Board, to comply, in that: we removed the $1.5 million 3 from appropriate line items for CIS; we took the 4 $4 million to be our interpretation on supervisory 5 salaries and the discomfort around the potential for 6 double counting, double dipping, whatever one may refer 7 to it as, and removed that $4 million from supervisory 8 salaries. 9 MR. BRETT: Maybe I haven't been 10 clear, Mr. Pasher. I'm sorry. I don't mean to suggest 11 you haven't done that. You covered that with 12 Mr. Warren. 13 I think what you have done, 14 essentially, is substituted consultants for salaries, 15 to a very large extent. Your final total bill here 16 that you estimate for 1999 for O&M is $10.060 million 17 versus a Board-approved $6.2 million, and a sought 18 after, a requested $11.7 million. This is just O&M. 19 We are not talking capital here. 20 So it's not that so much. It's just 21 the bottom line is that you have effectively put back 22 in here and are seeking the Board's approval to charge 23 ratepayers for most of what the Board declined to put 24 in last time round. You have put back in most of that. 25 I think as you have said yourself to 26 Mr. Warren, the broad prospects or outlines of the 27 programs are the same. I mean they are similar. It's 28 the same basic program that you are carrying out. So I 68 PASHER/WILLETT/NOBLE/LAPP, cr-ex (Brett) 1 view this as simply a restitution of the funds, albeit 2 in a somewhat different form. 3 My question really to you was: Given 4 that, that that is what you are doing, are you 5 satisfied that you have met, in your evidence, each of 6 the Board's reasons here for declining to approve the 7 $4 million at that time? 8 MR. PASHER: Based on the information 9 that was filed in E.B.R.O. 497 and the testimony that 10 the panel gave at that time, and the decision that was 11 made by the Board based on that information, we took 12 that and applied what we felt was the appropriate 13 interpretation to the reasons for that decision. 14 While our overall methodology or 15 framework for the program has remained constant 16 throughout the life cycle of the program, what has been 17 highly variable -- and we indicated on the stand last 18 year that this would be the case; that a lot of the 19 issues and the tasks that we were tackling as part of 20 remediating for year 2000 was not knowing the total 21 amount of effort you would have to spend on any one 22 thing until you got there. 23 The one thing that we knew for sure 24 was that the date was not changing. We knew that we 25 had to accomplish a lot of parallel activities -- not 26 serial activities, but a lot of parallel activities -- 27 in order to get the job done. 28 What actually happened was that as we 69 PASHER/WILLETT/NOBLE/LAPP, cr-ex (Brett) 1 got into more of the remediation, while some of the 2 tasks were less than anticipated, some of the tasks 3 were much more than anticipated. When we put together 4 the E.B.R.O. 500 evidence, we took all of that into 5 consideration for moving forward in 1999. 6 MR. BRETT: Thank you, Mr. Pasher. 7 The last area I wanted to ask you 8 about is the issue identified by Mr. Warren with 9 respect to the responsibility for these costs as 10 between the ratepayer and the shareholder. 11 I would like again to refer you to 12 page 43 of the E.B.R.O. 487 decision. 13 In paragraph 3.3.11 -- I will just 14 read you a part of that to focus our minds here: 15 "The Company has argued that it 16 is 'dedicated and determined to 17 prevent Y2K issues from 18 impacting its customers'. The 19 Board applauds this approach, 20 but believes that there is an 21 issue as to whether some of the 22 costs might reasonably be borne 23 by shareholders, a circumstance 24 that will no doubt prevail in 25 unregulated companies, and act 26 to reduce expected rates of 27 return for those companies. The 28 Board does not agree with the 70 PASHER/WILLETT/NOBLE/LAPP, cr-ex (Brett) 1 Company's implication that in a 2 regulated company the 3 shareholder should necessarily 4 be insulated from all risks of 5 this unusual problem." 6 In that connection, Mr. Willett, you 7 talked a bit about the fact that profits were up in the 8 last several years widely across industry, and this was 9 evidence to you that none of the companies in the 10 unregulated business sector had to absorb any of the 11 Y2K costs because they were able to pass them on to 12 their customers because their profits were up. 13 Would you not agree with me, though, 14 that profits would be up over the last couple of years 15 for many companies for a variety of reasons, one of 16 which would be that the economy has been booming by 17 most accounts, and profit levels are high across a wide 18 variety of industries. Y2K costs may not have been a 19 large cost overall in large companies' cost structure. 20 So it doesn't follow, does it, from 21 the fact that some of these companies may very well 22 have absorbed some Y2K costs themselves as shareholder 23 and still been able to show substantial profits. 24 There is not a direct link between 25 those two things, surely. 26 MR. WILLETT: I guess the argument 27 that I was trying to make is that these companies have 28 not allowed the Y2K costs to reduce their profits. 71 PASHER/WILLETT/NOBLE/LAPP, cr-ex (Brett) 1 They have made either the tradeoffs which they can make 2 because they are not an essential service as we are, or 3 they have found ways to incorporate those costs in the 4 prices. I would agree with you that it would be very 5 difficult for me to make a direct link with the fact 6 that their profits are up, that the Y2K costs have not 7 had any impact. It would be speculation on all our 8 parts to say whether if Y2K costs had not been there, 9 their profits would have been even higher or whether 10 the market would have acted to keep profits at about 11 the same level. 12 MR. BRETT: I wondered whether some 13 of these companies might have absorbed some of those 14 costs themselves. 15 MR. WILLETT: Again, I will go back 16 and state once more that I believe we face a situation 17 that is different than the unregulated market, because 18 we don't have those options. We do not have the option 19 of incorporating at our prices. We do not have the 20 option of making tradeoffs and saying well, it's okay 21 if 50 per cent of our systems don't work for a couple 22 of days on January 1st until we get them fixed. 23 We have made very sure that our 24 systems that control the flow of gas will operate. We 25 have done everything possible to ensure that that will 26 happen. If we did not do that, I am sure the Board 27 would be very unhappy with us if we made that tradeoff. 28 We have never proposed to do that, nor do we do that 72 PASHER/WILLETT/NOBLE/LAPP, cr-ex (Brett) 1 now. 2 MR. BRETT: No, nor am I suggesting 3 that you do that. I think my suggestion was -- and I 4 think the Board's suggestion here in 3.3.11 might be 5 that you might accept a slightly lower rate of return 6 as a result of not charging all of the Y2K costs 7 through to the ratepayer. 8 I don't think they are suggesting 9 that you not do it and have the distribution system 10 stop the function, Mr. Willett. 11 MR. WILLETT: And I would argue that 12 our shareholders would then look to companies whose 13 rates of return are not impacted by Y2K costs operating 14 in the unregulated world and would depart. Our share 15 price would drop, and that would not be something that 16 would allow us to continue to make the kinds of 17 investments that would be appropriate for the company. 18 I just view this as circumstantial. 19 We are trying to do the same things as others, and we 20 capture our costs through the price-setting mechanism 21 that is allowed us. 22 MR. BRETT: All right. Do you have 23 any precedents at all with respect to how this has been 24 treated, these Y2K costs have been treated? Do you 25 have any precedents to offer, other U.S. utilities or 26 other Canadian utilities? 27 MR. WILLETT: Not directly in terms 28 of how they are being treated by the regulators. We 73 PASHER/WILLETT/NOBLE/LAPP, cr-ex (Brett) 1 are fairly early on in this. 2 MR. BRETT: All right; thank you very 3 much. 4 One last question; I'm sorry. 5 Turning briefly to a question of 6 clarification on your capital expenditures -- and these 7 are set out on the last page, page 12 of D-2, Tab 4, 8 Schedule 1, which is your Y2K budget. It is part of 9 your year 2000, Y2K program report. 10 I take it you have that in front of 11 you. 12 You started off 1999 with an approved 13 capital budget of $2.3 million, and you are now 14 estimating an increase of $1.5 million, as I read this, 15 to $3.8 million. This is for 1999. 16 There is a further $500,000 in 17 capital for 2000. 18 What regulatory treatment are your 19 proposing for that additional capital? That is simply 20 treated as a capital overage which will flow into rate 21 base at some point? 22 MR. NOBLE: Yes, that is my 23 understanding of how this would work. 24 MR. BRETT: That $1.5 million 25 increase, is that all the costs of the back-up power 26 generators for the various gate stations and other 27 sensitive spots on the distribution network? Are there 28 capitalized O&M costs in that $1.5 million, for 74 PASHER/WILLETT/NOBLE/LAPP, cr-ex (Brett) 1 example? 2 MR. LAPP: No. Those costs refer to 3 primarily the back-up generators that were referred to 4 in the evidence earlier. There are some other minor 5 capital expenditures for the business continuity 6 planning project. 7 MR. BRETT: So those would be 8 expenditures of individuals doing that planning which 9 are capitalized. Is that right? 10 MR. LAPP: No. That is for capital 11 acquisitions for the purpose of business continuity. 12 MR. BRETT: Thank you. Those are my 13 questions. 14 THE PRESIDING MEMBER: Thank you, 15 Mr. Brett. 16 Perhaps this is an opportune time to 17 take a break. The clock on the wall says quarter to 18 eleven. We will return at five minutes after eleven. 19 --- Upon recessing at 1045 20 --- Upon resuming at 1115 21 THE PRESIDING MEMBER: Mr. Mondrow, 22 would you like to go next? 23 MR. MONDROW: Thank you, Mr. Chair, I 24 will, and I hope to be very brief with this panel. 25 Before I start, I will just note for 26 the Board and the parties, I will discuss with Mr. 27 Farrell, again, the timing of return of HVAC 28 Coalition's motion, subject of course to the 75 PASHER/WILLETT/NOBLE/LAPP, cr-ex (Brett) 1 information available connected with the request. 2 I understand however that tomorrow 3 morning, when the Board commences at 9:30, there is a 4 motion in a parallel proceeding, the electricity 5 proceeding. There may be parties in attendance here 6 today who would have an interest in the motion of HVAC 7 Coalition who might also have an interest in the other 8 proceeding, so I will attempt to talk about it and 9 invite anyone who has a position to advise Mr. Farrell 10 and I regarding scheduling and we will get back to you 11 on that. 12 Mr. Farrell is not available after 13 one today but he will be available tomorrow morning and 14 I will find out if his availability extends beyond that 15 and try to work it out. 16 THE PRESIDING MEMBER: That is fine, 17 Mr. Mondrow. 18 MR. MONDROW: Thank you. 19 CROSS-EXAMINATION 20 MR. MONDROW: Good morning, panel. 21 Mr. Noble, I just have a few 22 questions and I expect they are for. I just want to 23 clarify this issue of non-utility and utility program 24 allocations with respect to Y2K costs. Just to clarify 25 something you discussed with Mr. Warren, as I 26 understand it -- and I am just going to talk about the 27 1999 budget, the approved budget. 28 As I understand it, there was a 76 PASHER/WILLETT/NOBLE/LAPP, cr-ex (Mondrow) 1 direct allocation out of moneys expected to be spent on 2 expenditures incurred on behalf of affiliates, $1.3 3 million. Those expenditures would have been paid by 4 Enbridge Consumers Gas, eliminated from cost-of-service 5 and then recovered by Enbridge. Is that correct? 6 MR. NOBLE: That was not the plan in 7 the beginning. We would never -- in filing E.B.R.O. 8 497, none of the affiliates' costs were included in any 9 of those unless they were at that time outside of our 10 program and continue to be so. None of those costs are 11 included in the estimates in E.B.R.O. 497. 12 MR. MONDROW: Fair enough. We spoke 13 this morning about costs that aren't included in the 14 variance account that had been excluded off the top, as 15 it were. Those costs you were referring to were the 16 direct allocations. Fair? 17 MR. NOBLE: This is going back to the 18 question you asked previously and I am confused as to 19 exactly what you are asking, with respect to the non- 20 utilities and -- 21 MR. MONDROW: Really, I am trying to 22 clarify the mechanism. 23 My understanding is that the one -- 24 you mentioned the number, I think it was you, Mr. 25 Noble, of $1.3 million, which were costs incurred on 26 behalf of affiliates and not included in the variance 27 account dollars. 28 MR. NOBLE: Those are actual costs 77 PASHER/WILLETT/NOBLE/LAPP, cr-ex (Mondrow) 1 incurred in 1999 related to the affiliates and excluded 2 from the forecast balance of the various account, yes. 3 MR. MONDROW: Great. And the 4 mechanism of those expenditures, as I understand it, is 5 they are actually incurred by Enbridge Consumers Gas, 6 not put in the variance account and recovered from the 7 affiliates on whose behalf they were incurred. Is that 8 right? 9 MR. NOBLE: I believe that is the 10 case, yes. The affiliates are actually paying those 11 dollars related to the Y2K remediation efforts. 12 MR. MONDROW: I am just trying to 13 clarify whether the affiliates are paying that directly 14 or whether Enbridge pays and recovers it. If the 15 affiliates pay it directly, I am not sure what you are 16 excluding. I just don't understand that. 17 MR. WILLETT: I think I will attempt 18 to clarify our -- I think we have gotten -- there are 19 two numbers. One is the 1.5 million that was 20 eliminated on the basis of the cost allocation study in 21 1999. That is a different number than the 1.3. 22 MR. MONDROW: Okay. 23 MR. WILLETT: The 1.3 million are 24 costs being incurred directly by the affiliates and, in 25 a couple of cases, they are, call it, subcontracts to 26 master agreements that we the utility -- so these are 27 similar. But they would receive those bills directly. 28 These are all third-party costs. We included it to 78 PASHER/WILLETT/NOBLE/LAPP, cr-ex (Mondrow) 1 show that they are paying for their own programs and 2 that we are not paying for their programs and then 3 incurring costs and allocating them. So, as a example, 4 we have a contract with a major consulting firm that we 5 use for hardware and software provision; as a 6 subschedule, we contracted with them to provide project 7 management office services for one of our affiliates. 8 But they now bill that affiliate directly, and that 9 would be incorporated within that 1.3 million -- 10 MR. MONDROW: Okay. So as I 11 understand it now, this isn't a question of dollars 12 paid by the utility but excluded from your actual 13 expenditures. They were never paid by the utility? 14 MR. WILLETT: That 1.3 million -- 15 MR. PASHER: No, they weren't paid by 16 the utility. 17 MR. WILLETT: -- all them were not. 18 I just wanted to make sure of that. 19 MR. MONDROW: Okay. Thank you. 20 And then, in addition to the direct 21 allocations you have described, I think with reference 22 to the 1.5, on a budget basis at least, the indirect 23 allocations, which are the cost allocation exercise 24 numbers that are excluded from costs incurred by the 25 utility and allocated out to the ancillary programs for 26 non-utility businesses and, therefore, removed from 27 both the budget number and as you go forward, on a 28 natural basis, you have removed $100,000 on account of 79 PASHER/WILLETT/NOBLE/LAPP, cr-ex (Mondrow) 1 those types of allocations. Is that accurate? 2 MR. NOBLE: For rate-making purposes, 3 yes, there was 1.5 allocated against the ancillary 4 programs and .3 million allocated against the non- 5 utilities. The .3 million was used to reduce the cost- 6 of-service in 1999. The 1.5 million related to the 7 ancillaries led to the imputation -- or at least part 8 of it related to the imputation of revenue. 9 MR. MONDROW: Okay. Now, in -- you 10 have already covered with other counsel -- in the 497 11 case, you asked for 11.7 million recovery, in 1999, for 12 Y2K costs, and the Board reduced your requested amount 13 to the allowed amount of 6.2 million. The 11.7 million 14 that you initially requested was the cost remaining 15 following the allocations performed and eliminated for 16 ancillary and non-utility businesses. Is that correct, 17 Mr. Noble? 18 MR. NOBLE: I would suggest that that 19 was prior to allocation. There is a direct link -- the 20 11.7 million was allocated to the various programs, of 21 which 1.5 million was ancillary and .3 million non- 22 utilities. 23 MR. MONDROW: The total amount you 24 were actually requesting, or actually included in 497, 25 in Y2K costs, was 14 million, and then there was an 26 exclusion for ancillary and non-utility, which brought 27 it down to the requested amount of 11.7? 28 MR. NOBLE: No, that is not my 80 PASHER/WILLETT/NOBLE/LAPP, cr-ex (Mondrow) 1 understanding. The requested amount was 11.7, of which 2 1.5 was attributed to ancillary and .3 million to non- 3 utility. 4 In addition to that, there was $2.3 5 million of capital costs to bring the total applied for 6 amount in 497 to the 14 million that you referred. 7 MR. MONDROW: I am sorry; I am 8 confusing you. 9 And the reason you asked for the 10 whole 11.7 million in 497 is that you were not planning 11 to allocate costs on a fully allocated basis to the 12 ancillary and non -- well, to the ancillary programs, 13 at that time. 14 MR. NOBLE: I am sorry. I am not 15 sure I understand your question. 16 MR. MONDROW: Give me a second. 17 --- Pause 18 MR. NOBLE: If it would help you, Mr. 19 Mondrow, at Exhibit I, Tab 12, Schedule 70, in 20 E.B.R.O. 497, it shows how the costs were allocated, 21 the 11.7 million of costs, were allocated between the 22 various programs. 23 MR. MONDROW: I will follow up on 24 that but I am just after the concept here, and I am 25 obviously getting mired in the numbers. But the 11.7 26 million that you initially requested, then, was prior 27 to eliminations on account of ancillary and non-utility 28 activities. And then, out of the 11.7, as you are 81 PASHER/WILLETT/NOBLE/LAPP, cr-ex (Mondrow) 1 explaining it to me, there was, at one point, $5 2 million elimination on account of ancillary activities. 3 Correct? And an additional elimination on account of 4 non-utility activities? 5 MR. NOBLE: That is correct. 6 MR. MONDROW: It is the company's 7 position in this proceeding, and with respect to the 8 amount in the variance account, that up to $11.7 9 million in Y2K expenditures, for 1999, the ancillary 10 and non-utility allocations out of that amount are 11 already -- out of those expenditures -- are already 12 covered off by virtue of the Board's decision in 497. 13 MR. NOBLE: I think that is a fair 14 characterization. I was focusing primarily on the non- 15 utility activities and the .3 million that was 16 allocated through 497, and we have tracked actuals 17 against that number. But I guess it would be fair, 18 also, to use the 11.7 as a bench mark for determining 19 whether an appropriate allocation has been made to 20 ancillary non-utility activities. 21 MR. MONDROW: So, in the company's 22 position, only if you exceed total expenditures before 23 allocation of $11.7 million does the issue of an 24 additional allocation out of your expenditures to the 25 ancillary or non-utility activities arise, in your 26 view. Is that fair? 27 MR. NOBLE: That is fair. And I 28 don't think it would be appropriate if we don't exceed 82 PASHER/WILLETT/NOBLE/LAPP, cr-ex (Mondrow) 1 those two thresholds that I have mentioned. 2 MR. MONDROW: And that position 3 assumes, doesn't it, Mr. Noble, that when the Board 4 adjusted the O&M expenditures associated with Y2K and 5 497 and, indeed, other O&M expenditures, it did not 6 make a parallel adjustment for the ancillary and non- 7 utility allocations. That is your assumption. 8 MR. NOBLE: That is our assumption. 9 There was nothing in the 497 decision to suggest 10 otherwise. In fact, in the decision, the Board 11 increased the level of the non-utility elimination from 12 10.8 to $12 million. And we have taken the position, 13 and our interpretation is, that, again, provided we do 14 not exceed the $11.7 million or the 0.3 million non- 15 utility amount that the company has -- or that those 16 programs have absorbed an appropriate share of the Y2K 17 costs. 18 MR. MONDROW: If the Board, in coming 19 to its decision and its final numbers in the 497 case, 20 had made an adjustment to the Y2K -- or had made an 21 implied adjustment to the Y2K elimination due to its 22 reduction of O&M expenditures, then would you agree 23 with me that any expenditure above $6.2 million in Y2K 24 would in fact require a revisiting of allocation of 25 those costs to ancillary and non-utility? 26 MR. NOBLE: Taking your hypothetical 27 that the Board outlined that as part of the decision, I 28 believe it would have changed the threshold upon which 83 PASHER/WILLETT/NOBLE/LAPP, cr-ex (Mondrow) 1 we are determining that the appropriate costs have been 2 allocated today. Again, that is taking your 3 hypothetical there. 4 MR. MONDROW: Thank you very much, 5 sir. 6 Thank you, Mr. Chairman. 7 THE PRESIDING MEMBER: Thank you, 8 Mr. Mondrow. 9 Mr. Mattson, would you like to go 10 next? 11 MR. MATTSON: Thank you, 12 Mr. Chairman. 13 CROSS-EXAMINATION 14 MR. MATTSON: Just a few questions, 15 Panel. 16 Staying with Mr. Willett, I believe 17 it was your evidence where, in your words, you said 18 that the company has done everything possible to ensure 19 that gas will flow. 20 Oh, I'm sorry. Mr. Willett, I 21 believe it was your evidence today, or your words, 22 where you indicated that the company has done 23 everything possible to ensure that gas will flow. I 24 take it that is on January 1st, 2000. Is that fair? 25 MR. WILLETT: Well, I would like to 26 assume that we are doing everything -- I do assume that 27 we are doing everything possible to keep the gas 28 flowing all the time. 84 PASHER/WILLETT/NOBLE/LAPP, cr-ex (Mattson) 1 But as it relates to the Y2K problem 2 specifically, yes. Over the transition from 3 December 31st, 1999 to January 1st, 2000 we are doing 4 everything we can, as reasonable management and prudent 5 management, to making sure the gas will flow. 6 MR. MATTSON: That begs the question, 7 then, of how sure is the company now that there will be 8 no problems on January 1st, 2000? 9 MR. WILLETT: I would respond by -- 10 first of all, as with everyone who is dealing with 11 these issues in a public company, I have to be 12 cognizant of disclosure requirements that have been -- 13 and constraints that have been placed on us both in the 14 Canadian context and the U.S. context. 15 Given that no one can ensure that on 16 January 1st there will not be some unforeseen events of 17 any nature, including Y2K, that there would be 18 something that would interrupt the flow of gas, we have 19 done everything we can, given prudent management 20 decisions and looking at all of the facts that we have 21 in our possession, to ensure that we will be ready as 22 it relates to the Y2K problem and that gas will flow on 23 January 1st. 24 I would hope I haven't caveated that 25 too much, but I want to make sure that people 26 understand that there are things outside the control of 27 anyone that could happen that would prevent that from 28 occurring. 85 PASHER/WILLETT/NOBLE/LAPP, cr-ex (Mattson) 1 But as far as it relates to the Y2K 2 problem, we have done everything we can. 3 MR. MATTSON: So if, for example. 4 ratepayers did pick up the entire Y2K bill, it wouldn't 5 be like an insurance policy or anything where 6 ratepayers would be free from all future liability if 7 anything occurred. The shareholder would still be 8 seeking any liability that might occur as a result of 9 failures on January 1st, 2000 from the ratepayers as 10 well, or is this sort of an indemnity for ratepayers? 11 MR. WILLETT: Well, again I will use 12 the phrase taking your hypothetical that if something 13 did indeed occur. I think we would have to understand 14 why it occurred and if we had made the correct 15 decisions as management and it was outside the control 16 of prudent management decisions and such a thing 17 occurred, then we would be looking for, at the very 18 least, some sharing with the ratepayer. 19 MR. MATTSON: Wouldn't you agree, 20 Mr. Willett, then, in terms of the money that has been 21 spent to date with respect to the Y2K problem, some of 22 it certainly has been spent in order to help protect 23 shareholders from liability in case of unforeseen 24 problems as well? Would you agree? 25 MR. WILLETT: It has been done to 26 protect all stakeholders from liability, including the 27 ratepayer, the shareholder, the Board, and all of those 28 people who have a stake in making decisions that will 86 PASHER/WILLETT/NOBLE/LAPP, cr-ex (Mattson) 1 let us be Y2K-ready. So I would argue that we have 2 made those decisions to protect all stakeholders, and 3 the shareholder being one of those stakeholders, yes. 4 MR. MATTSON: Why should the 5 ratepayer pay all of the costs of Y2K if really the 6 money is being spent to protect both shareholders and 7 ratepayers from future liability? 8 MR. WILLETT: I would have to return 9 to the argument that I made earlier, that we are simply 10 doing what any other company does, look to its 11 price-setting mechanisms and ensures that its rates of 12 return are adequate to attract capital. In order to do 13 that in a regulated company we are doing that here. 14 It is our view that if we weren't in 15 a regulated company we would have other avenues to do 16 that and, therefore, the shareholder would make those 17 decisions. Here we cannot make those decisions without 18 the Board's approval, so that is why we are here. 19 MR. MATTSON: After spending the 20 $20 million or so on trying to find and correct the Y2K 21 problems, does the company recognize that there are 22 greater risks for some customers in your -- there are 23 greater risks for some customers on January 1st, 2000 24 than others, or is that something that -- for example, 25 are there people who may be more susceptible to 26 problems on that date than other customers of Consumers 27 Gas? 28 MR. WILLETT: If I could, just for a 87 PASHER/WILLETT/NOBLE/LAPP, cr-ex (Mattson) 1 moment confer with Mr. Lapp. 2 --- Pause 3 MR. WILLETT: If I could just get a 4 clarification? 5 The reason we were conferring is we 6 were trying to understand if you are looking at it from 7 a business continuity perspective or a Y2K issue, and 8 they are interrelated. 9 So if I could just get a 10 clarification. Are you trying to discriminate with 11 some classes of customers, if we had an issue, not 12 receive gas and others receive gas or all customers -- 13 is that what you are asking? 14 MR. MATTSON: In your search and in 15 your investigations over the past two or three years 16 have you identified where certain equipment may be more 17 susceptible to Y2K problems and that equipment is 18 directly going to affect certain customers as opposed 19 to other customers? For example, have you found areas 20 in your business operations that may be more 21 susceptible than others and, if so, where are they and 22 who may they affect? 23 MR. PASHER: If I could respond to 24 that. 25 MR. MATTSON: Yes. 26 MR. PASHER: We looked at every 27 aspect of the business, particularly in the area of 28 operational sustainability. I talked earlier about 88 PASHER/WILLETT/NOBLE/LAPP, cr-ex (Mattson) 1 ensuring that all of the equipment was ready and was 2 tested out. So a lot of the technology does have 3 embedded systems in it. 4 So we ensured that all of the 5 technology across the distribution system, if we are 6 just talking distribution for now, was in fact ready 7 through testing, through remediation. 8 We didn't uncover any significant 9 area of concern across the distribution system other 10 than ensuring that we could continue to operate in the 11 event of loss of electricity, for instance, with backup 12 generators, and we also operate under contracts as well 13 to our customers. We didn't find any segment of our 14 customer base that was more exposed or at higher risk 15 due to potential failures than others. 16 MR. WILLETT: I guess I would just 17 add that in common with the rest of the industry we 18 have been dealing with the issue of what happens if 19 somewhere in the network, so to speak, we have an issue 20 and we do not receive the commodity in the quantities 21 that we are expecting and we get into emergency 22 curtailment kinds of situations. What would the order 23 of curtailment become. 24 Mr. Lapp, as well as Mr. Pasher and 25 I, sit on an industry-wide subcommittee of the CGA to 26 discuss those kinds of issues and we are working on 27 that approach. 28 As far as it relates to our system -- 89 PASHER/WILLETT/NOBLE/LAPP, cr-ex (Mattson) 1 that was why my discussion with Mr. Lapp. 2 As it relates to our system, we do 3 not see anything that would lead us to believe that any 4 one part of the system is more vulnerable than any 5 other part. Therefore, the customers would not see any 6 difference from a normal cold weather day. 7 MR. LAPP: I guess another way of 8 looking at it is, there is no item that specifically 9 impacts one group of customers versus another group of 10 customers. 11 MR. MATTSON: In terms of that 12 emergency preparedness plan, has that -- 13 THE PRESIDING MEMBER: Mr. Mattson, 14 we can hardly hear you. 15 MR. MATTSON: I'm sorry. 16 In terms of that emergency 17 preparedness plan, has that been finalized as to who 18 would be curtailed and when? 19 MR. LAPP: No. We have a practice of 20 curtailing interruptible customers that they have used 21 previously. 22 One issue we are looking at is what 23 the shortfall -- if there was a shortfall in supply, 24 how would we respond to that. We have been looking at 25 various scenarios of shortages on how we would deal 26 with that. 27 One issue that we have a problem with 28 is, once you get into the firm market, apparently there 90 PASHER/WILLETT/NOBLE/LAPP, cr-ex (Mattson) 1 is no legislation that allows us the power to manage 2 supplies during emergencies. We have been lobbying 3 through ONGA with the ministry to change this 4 legislation, but there is nothing as yet. 5 MR. MATTSON: Finally, Mr. Willett, 6 if the ratepayers are indeed -- or they have been asked 7 to, and if the Board finds that they should pick up the 8 Y2K costs, is there anyone at the Company who can now 9 give the Board and ratepayers and idea as to what the 10 chances are that the system will work, with no 11 problems, on January 1, 2000? Or, is that something 12 you are not prepared to give; a clear indication as to 13 what the risks are at this time? 14 MR. WILLETT: I will have to 15 reiterate that we have done everything we can, and we 16 believe we are ready. As it is defined in sort of the 17 public domain, readiness implies that we have 18 undertaken all of those reasonable steps that would be 19 expected, that we have done the kinds of work that 20 Terry's group has been working on, in terms of testing 21 the systems, remediating. All of our mission critical 22 systems have been through that process as of June 30. 23 We are now working on what would be called high- 24 priority systems that need to be working but are not 25 going to put either the public safety or the Company's 26 integrity at risk. 27 So we have those kinds of assurances 28 we can give you that we have done a very good job. I 91 PASHER/WILLETT/NOBLE/LAPP, cr-ex (Mattson) 1 guess, as a person who has been around the program, 2 other than the one that I currently have executive 3 responsibility for at Enbridge Consumers Gas, I can 4 assure you that we are doing most things that are 5 industry standards or, if possible, if we are not ahead 6 of the curve, which we are on a few things, we are 7 taking best practices that have been learned by others 8 and applying those. There is no pride of ownership on 9 our part. We are attempting to do everything we can to 10 meet industry standards and best practices, and I think 11 we have done a good job of doing that. 12 MR. MATTSON: I am sorry, but there 13 is still the $20 million question: How confident are 14 you? 15 MR. WILLETT: I am very confident 16 that, if it relates to what we have, under our control, 17 we have done everything we can and, therefore, there 18 will be as few issues as one would expect under that 19 circumstance. 20 But I just cannot provide absolute 21 assurance. Even if I weren't under constraint from the 22 legal ramifications of providing that, I could not 23 provide absolute assurance that there will not be some 24 issues that arise, regardless of how much money you 25 spend. I think we have spent the appropriate amounts 26 to provide as much assurance as we can. 27 MR. PASHER: If I could add to that, 28 we have worked very closely the last two years with the 92 PASHER/WILLETT/NOBLE/LAPP, cr-ex (Mattson) 1 Canadian Gas Association. We are members of the task 2 forces that the Canadian Gas Association has 3 established. We are not internal-looking in what we 4 are doing. We are sharing experiences across local 5 distribution companies and transportation companies 6 across Canada. We are learning from one another's 7 experience. So that brings some additional confidence 8 to bear in the overall program that we are doing the 9 best that we possibly can, under the circumstances, to 10 ensure that we are ready. 11 MR. MATTSON: Those are all of my 12 questions, Mr. Chairman. 13 THE PRESIDING MEMBER: Thank you, Mr. 14 Mattson. 15 Mr. Thompson, would you like to go 16 next? Or Mr. Janigan? 17 CROSS-EXAMINATION 18 MR. JANIGAN: Thank you, Mr. Chair. 19 First of all, panel, I would like to 20 reconcile something that Mr. Willett indicated, I 21 believe, in his examination by Mr. Brett with something 22 Mr. Pasher indicated in the examination by Mr. Warren. 23 I believe, Mr. Willett, you indicated 24 that the software suppliers had been delinquent in 25 their delivery of product which was Year 2000 26 compliant, that they had been rather unresponsive to 27 requests and, in fact, that there had been a fair 28 amount of activity directed in an attempt to get them 93 PASHER/WILLETT/NOBLE/LAPP, cr-ex (Janigan) 1 to comply with their contract, including threatening 2 the dismissal or the recision of the contract. I am 3 attempting to reconcile what you have indicated, Mr. 4 Willett, with Mr. Pasher's earlier comments that the 5 company has no recourse against software suppliers for 6 their failure to deliver Year 2000 product in an 7 appropriate fashion. 8 Could somebody help me with that? 9 MR. WILLETT: I will take a stab at 10 it. 11 The difference between what I was 12 relating and what Mr. Pasher was relating is that we 13 always have the recourse of choosing an alternate 14 supplier, but Mr. Pasher was referring to the recourse 15 of going to those suppliers and taking legal action if, 16 indeed, something that they provided to us does not 17 meet our needs in terms of Y2K readiness. 18 I think that we all are aware that in 19 the media we are hearing a lot about how the legal 20 profession is going to experience a great boon from law 21 suits post-Y2K for those that fail, and while we don't 22 intend to do more than is necessary to contribute to 23 that, if, indeed, we see something that leads us to 24 believe we were given assurances that were not met by a 25 software supplier, I am certain that we would look at 26 recourse if it caused us and the ratepayers economic 27 harm. 28 Of course, if that arises, then we 94 PASHER/WILLETT/NOBLE/LAPP, cr-ex (Janigan) 1 would put that into the appropriate means of dealing 2 with it. 3 It is not our belief that we would 4 have much hope, but that might be something we would 5 attempt to do if we received significant harm from 6 something failing. 7 That is the difference. What I was 8 talking about, wrestling with our suppliers -- what we 9 are saying to them is, "If you can't meet these needs, 10 there are other people we would switch to." That is 11 the kind of recourse that I was speaking of. 12 MR. JANIGAN: Presumably, the reason 13 that you are requesting new product or re-designed 14 product is that their initial product is not meeting 15 Year 2000 compliance. 16 MR. PASHER: In some cases that is 17 true, Mr. Janigan. I think the earlier discussion that 18 Mr. Willett and I were responding to, at least part of 19 that discussion, was around, if we had started earlier, 20 could we have reduced the costs. That was one aspect 21 of it. And a lot of the manufacturers and vendors just 22 weren't ready early in the game to deliver Year 2000 23 ready product. 24 I will say this on behalf of our 25 suppliers and manufacturers and service providers that 26 we have been working with. None of them have let us 27 down to date. They may not fit within our time 28 schedule, but we are one of many, many customers they 95 PASHER/WILLETT/NOBLE/LAPP, cr-ex (Janigan) 1 have. Most of our critical suppliers, if not all, 2 treat us as a very significant customer, because of the 3 product that we supply and the essential service that 4 we deliver. However, the availability of Year 2000 5 ready releases that we require to do the job is based 6 largely on whether a vendor or a manufacturer could 7 deliver according to our schedule, and in some cases we 8 had to revamp schedules. 9 This is important for everybody to 10 understand. Until you have an operating environment, 11 with all of your hardware and software, until all of 12 that environment is Year 2000 ready, you can't really 13 have the degree of assurance that you need with your 14 application systems until they are actually running in 15 a Year 2000 ready operating environment. Then you can 16 do your forward testing and you will know that come 17 January 1, 2000 you can respond appropriately to all of 18 the dates that are coming up. 19 It was very important to have the 20 supplier chain, the people supplying us the hardware 21 and software, on board as soon as possible and 22 delivering product as soon as they could. But 23 delivering something premature wouldn't have satisfied 24 us, in that we probably would have found problems with 25 it and would have been going back there. 26 We have been getting quality product 27 from our vendors and suppliers. 28 MR. JANIGAN: Mr. Pasher, that seems 96 PASHER/WILLETT/NOBLE/LAPP, cr-ex (Janigan) 1 to indicate that the sooner you started on the process, 2 the quicker and the least expensive solution for the 3 Y2K problem would have been met. 4 MR. PASHER: No, I don't believe that 5 at all. I think that the understanding is that 6 remediating your applications -- that we have total 7 control over our applications that we develop in-house. 8 The applications that we have bought externally, 9 purchased from third parties, and all of the 10 infrastructure -- hardware, software and network 11 components -- upon which we operate, it wouldn't have 12 done us any good to remediate applications and sit 13 there waiting on compliant releases of software and 14 hardware to come along. 15 It's only this past year or less that 16 a lot of the major manufacturers have been able to 17 deliver ready releases of hardware and software. It's 18 not that they were behind. They just had so many 19 releases and versions that they had to get out to 20 people. 21 MR. JANIGAN: But, Mr. Pasher, I 22 think you have indicated that you have to get your 23 internal applications in order before these external 24 applications would have been affected. I'm suggesting 25 to you that if you had been aware of the year 2K 26 problem sooner you would have had your internal 27 applications in order sooner. 28 MR. PASHER: And we would have lost 97 PASHER/WILLETT/NOBLE/LAPP, cr-ex (Janigan) 1 focus on the year 2000 program at that time. 2 I also indicated earlier that a lot 3 of what we are doing and what other companies are 4 having to do is a lot of parallel activities. So at 5 the same time that you are remediating your 6 applications with one team, you have another team 7 focussed on various types of infrastructure and another 8 team focussed on other pieces of the year 2000 program. 9 So elongating this into a series of serial projects 10 wouldn't have served the company or the customer as 11 well as taking it over a relatively short term and 12 focussing on it and remaining focussed until we got the 13 job done. 14 MR. JANIGAN: Now, the conduct of 15 your software suppliers that Mr. Willett described 16 seemed to amount to delinquency on their part. 17 MR. WILLETT: If I could respond to 18 that? I will just go back and perhaps clarify. 19 The types of things I was referring 20 to are places where we have had a very small percentage 21 of our suppliers suggesting that perhaps they would not 22 have products that would meet our needs until 23 post-June 30th, 1999. That was unacceptable to us and 24 it meant that we would either have to develop a 25 contingency plan to deal with that or find an 26 alternative supplier. That is the way we presented it 27 to those particular vendors. That is a small number, 28 but those examples do exist. 98 PASHER/WILLETT/NOBLE/LAPP, cr-ex (Janigan) 1 If you are wanting to suggest that 2 they are delinquent, I suppose in my opinion in a 3 couple of those cases I felt that they should have been 4 earlier in the process than they were given who they 5 are and the kind of product that they sell. 6 We, in a couple of those instances, 7 know that we were not the only people having this same 8 discussion with them. So there was pressure coming to 9 bear in those particular instances. They were on a 10 schedule that suited their purposes which, for most 11 cases, the people that have not chosen the June 30th 12 date have chosen the September 30th date. We were not 13 prepared to live with the September 30th date, which 14 was the date that those vendors had chosen in the 15 specific examples that I was thinking of. 16 So while in my opinion they should 17 have been ready for June 30th, in the opinion of their 18 management September 30th was good enough and therefore 19 we had a conflict. We have been able to work through 20 that conflict by suggesting to them that we needed 21 product at an earlier date or we have developed a 22 contingency plan that removed the need for that 23 product. 24 MR. PASHER: If I could add? 25 In fact, both of those vendors that 26 we were dealing with delivered for the June 30th date, 27 in time for us to do the testing and the assurance we 28 needed, and those products were implemented for 99 PASHER/WILLETT/NOBLE/LAPP, cr-ex (Janigan) 1 June 30th. 2 MR. JANIGAN: Has there been any 3 delay in delivery of product by software suppliers that 4 has caused the company to incur additional costs? 5 MR. PASHER: I would say not. 6 MR. JANIGAN: I want to turn once 7 again to the passage that my friend Mr. Brett referred 8 to you in the decision of E.B.R.O. 497 at 3.3.12. I 9 want to deal once again with the reasons the Board gave 10 for the reduction and what evidence you have put 11 forward today to meet those particular points. 12 First, with respect to the double 13 counting of staff, and I will deal with that point 14 later, you have filed in, I believe, Board Staff 15 Interrogatory 87 your guidelines for backfilling staff. 16 Is that correct? 17 MR. PASHER: Yes, it is. 18 MR. JANIGAN: Okay. I will come to 19 that later. 20 The Board also found that the fact -- 21 and the fact that the company could have acted earlier, 22 given the state of its knowledge in the summer of last 23 year and, therefore, have required a lower level of 24 expenditure, the Board further reduces this O&M portion 25 of the program expenditures by $4 million. 26 First, as I recall your evidence from 27 last year, Mr. Pasher, I believe it was to the effect 28 that the state of readiness of Enbridge Consumers Gas 100 PASHER/WILLETT/NOBLE/LAPP, cr-ex (Janigan) 1 parallelled that of most industries that were engaged 2 in customer-intensive programs and that there was no 3 lack of prudency shown by the date that you started. 4 Would that be a fair summary of your evidence? 5 MR. PASHER: Yes. That was our 6 belief and it's our belief to this day. 7 MR. JANIGAN: Yes. 8 Today both yourself and Mr. Willett 9 had indicated that, I suppose, in the event that you 10 were imprudent and you started too late it wouldn't 11 have mattered any way. Is that a fair summary? 12 MR. PASHER: I don't believe that 13 it's a fair summary. I think the point was made and I 14 attempted to make it that just by saying that starting 15 earlier would have meant for a reduced cost overall 16 doesn't necessarily mean that that would have been the 17 case, because there is a lot of things that just could 18 not be done until this past year or year and a half in 19 order to get to the point of being able to say that we 20 were even close to having a ready environment. 21 Until such time as you can take 22 remediated applications and run them in a clean year 23 2000 forward environment, which means that you have 24 that environment running as it was January 1st, 2000 25 and beyond, then you can't prove any of your year 2000 26 remediation testing out until that point. I'm saying 27 that that was not possible for ourselves or for any of 28 the other major corporations until this past year. 101 PASHER/WILLETT/NOBLE/LAPP, cr-ex (Janigan) 1 MR. JANIGAN: Forgive me if I once 2 again try to paraphrase it, but the point is, even if 3 you should have started earlier, your submission is it 4 would have cost the same. 5 MR. WILLETT: I guess what I would 6 say is given the knowledge that people had at the time 7 of the E.B.R.O. 497 hearing it would not have been an 8 unreasonable assumption to look and say: Couldn't you 9 have started earlier and wouldn't that make it cheaper? 10 I guess what we are saying is, given 11 hindsight, given what we know today, if we had started 12 earlier we would not have been able to take advantage 13 of some of the technologies we have taken advantage of 14 around software remediation factories, we would not 15 have been able to take advantage of some of the -- what 16 I will call -- reduced pricing that third parties have 17 started to give in the last year or so as they have 18 realized that the much heralded boom in cost was not 19 going to occur as it relates to paying for those 20 services. 21 So given hindsight, we know that if 22 we had started a year earlier we probably would have 23 spent more, not less. 24 I think the way that you have 25 characterized leaves not the correct perception, that 26 in the time period when the Board ruled on this it 27 might have looked like starting earlier would have 28 saved money. We now know, looking backwards, that 102 PASHER/WILLETT/NOBLE/LAPP, cr-ex (Janigan) 1 starting any earlier would not have saved this money, 2 in our opinion. 3 MR. JANIGAN: Okay. I'm just 4 following up on one of your points. 5 We have gone now from the point that 6 if you started earlier you would not have saved money. 7 I believe I heard you say, Mr. Willett, if you had 8 started earlier it would have cost more money. 9 MR. WILLETT: Might have, yes. 10 MR. JANIGAN: Might have cost more 11 money. 12 MR. WILLETT: Yes. 13 MR. JANIGAN: Now, have you done any 14 study as a result of this decision comparing what the 15 cost might have been at an earlier start date? 16 MR. PASHER: No, there hasn't been a 17 formal study around that. 18 We know from the maturity of the 19 products that are available to us as part of the 20 program. We also know the steps that you have to go 21 through from identifying that you have to make changes 22 right through until the time you redeploy. For 23 instance, there are multiple test steps that you have 24 to go through when you remediate product in order to 25 put it into -- get it ready to redeploy. 26 If we had done a lot of that some 27 time ago, like, other than the past year and a half or 28 so, we would have been able to take things to a certain 103 PASHER/WILLETT/NOBLE/LAPP, cr-ex (Janigan) 1 degree, but we would also had to have gone back and 2 retest that whole environment again when we were at the 3 point of being able to have a year-2000-ready 4 environment, because one of the issues that we face, 5 like other companies, is you can't freeze the whole 6 company like an iceberg for a year and a half or two 7 years and just do Y2K, leave every application as it 8 was when you made the changes and then have January 1st 9 roll around. 10 By compressing it into a time frame 11 that we just freeze up the application, do the Y2K 12 remediation, test it into a forward environment and 13 then release that application back into a production 14 environment, and at the same time have a rigorous 15 change and clean management process in place, which we 16 do have, we would only address this whole process once, 17 from start to finish. 18 We would remediate it, we would test 19 it, we would redeploy it, and then we would have 20 effective clean management processes in place, and we 21 would not be revisiting testing. 22 MR. JANIGAN: When you received the 23 E.B.R.O. 497 decision, were you aware of the facts you 24 have indicated today? 25 MR. PASHER: I didn't sit down and 26 think about the facts in the same way that I am 27 responding to the questions today. What the company 28 did when it received the decision was to act on that 104 PASHER/WILLETT/NOBLE/LAPP, cr-ex (Janigan) 1 decision, interpreting it the way we felt that it was 2 laid out here. 3 What I did in a step beyond that was 4 given the number of months that had lapsed from putting 5 the first evidence together, testifying, until it was 6 time to do a revised 1999 estimate, we knew a great 7 deal more than we did at the time that we had set the 8 original 497 evidence together. 9 What we tried to depict here was the 10 true cost and effort involved in continuing with the 11 program in 1999. 12 MR. JANIGAN: I wonder if I could 13 have you turn up interrogatory of the Schools, Exhibit 14 I, Tab 19, Schedule 25. 15 MR. PASHER: Yes, Mr. Janigan. 16 MR. JANIGAN: I believe you set out 17 in the answer to this interrogatory the Y2K staffing 18 figures, which I believe are 78 staff members. 19 MR. PASHER: Yes, at that point in 20 time that was true. 21 MR. JANIGAN: That may consist of 20 22 backfills. 23 MR. PASHER: Yes. 24 MR. JANIGAN: Thirty-six incremental 25 staff. 26 MR. PASHER: Yes. 27 MR. JANIGAN: And 22 that are not 28 paid for by the Y2K program. They are on loan, I 105 PASHER/WILLETT/NOBLE/LAPP, cr-ex (Janigan) 1 assume. 2 MR. PASHER: That is correct. They 3 were being paid for by the business unit. 4 MR. JANIGAN: What is the cost of the 5 22 staff that are not included in the Y2K variance 6 account, approximately? 7 MR. PASHER: The total program costs 8 would be their monthly salaries, taken at $6,000 per 9 month per employee, which would be an average number. 10 MR. JANIGAN: This cost is not 11 included in the O&M costs that appear on D-2, Tab 4, 12 Schedule 1, at page 12. 13 MR. PASHER: In the revised estimate? 14 MR. JANIGAN: Yes. 15 MR. PASHER: Yes, it is included. 16 Let me turn that up. 17 The ones that the business unit are 18 paying for are not included. The ones that are being 19 backfilled, we are paying the backfill costs in Y2K and 20 the business continues to pay the salaries of the 21 people who -- 22 MR. JANIGAN: I am just dealing with 23 those 22. 24 MR. PASHER: The 22 that were -- 25 MR. JANIGAN: On loan. 26 MR. PASHER: They were not in the Y2K 27 cost. 28 MR. JANIGAN: If we included them in 106 PASHER/WILLETT/NOBLE/LAPP, cr-ex (Janigan) 1 the Y2K costs, the cost of staff that have been 2 reassigned to Y2K but not backfilled, that budget would 3 have been much higher, I assume. 4 MR. PASHER: Yes, if we were going to 5 have to pay for them. 6 MR. JANIGAN: In Board staff 7 interrogatory Exhibit I, Tab 1, Schedule 87, you set 8 out the guidelines for Y2K variance account inclusions. 9 MR. PASHER: Yes. 10 MR. JANIGAN: Under several items, 11 that include supervisory and other salaries, business 12 unit conversion and testing, it makes it clear to your 13 managers that if a person from his or her department is 14 working on Y2K and not backfilled, salary costs are 15 borne by the department, since the costs are already 16 budgeted. 17 Is that correct? 18 MR. PASHER: Yes. 19 MR. JANIGAN: And if the position is 20 backfilled, the cost of the backfill labour is charged 21 to the Y2K variance account. 22 MR. NOBLE: That is correct, yes. 23 MR. JANIGAN: On page 6 of this 24 document, it appears that the business unit makes the 25 decision as to whether to backfill or permanently 26 replace or leave a position vacant, looking at the 27 first bullet on page 6. 28 MR. NOBLE: That is correct, yes. 107 PASHER/WILLETT/NOBLE/LAPP, cr-ex (Janigan) 1 MR. JANIGAN: Would you agree that 2 the implication is that if a manager has a person 3 assigned to Y2K, the position can be backfilled without 4 the cost being charged to the departmental budget? 5 MR. WILLETT: The original salary 6 costs would still be charged to their departmental 7 budget. Y2K would pick up the backfill costs. 8 MR. JANIGAN: Isn't this a strong 9 incentive for business unit managers to backfill all 10 positions? 11 MR. WILLETT: There is an incentive 12 for the business unit managers to ensure that the work 13 for which they have budgeted is completed. Therefore, 14 they are going to look at it and see whether it is 15 possible to do without that person. 16 Of course, I would assume that they 17 are going to have a bias to say "I have budgeted for 18 this work and I need to have some way to get it 19 completed". 20 That is one of the reasons we 21 required executive management team member sign-off. 22 These are the people who report directly to our 23 president, have an obligation to him and the rest of us 24 to ensure that any work that is being done is work that 25 is required. Before we would accept any of the costs 26 into the Y2K variance account, that signature had to be 27 obtained, Terry's signature had to be obtained, and I 28 was advised of it, as the executive sponsor, if it was 108 PASHER/WILLETT/NOBLE/LAPP, cr-ex (Janigan) 1 not in my business unit that the person came from. 2 A number of these people did come 3 from within the IS area, and we did, wherever possible, 4 attempt to not backfill them. 5 MR. JANIGAN: But what incentive is 6 there for the executive management not to backfill? 7 MR. WILLETT: We do feel a 8 responsibility to the shareholder, and to the ratepayer 9 as well as to the shareholder, to ensure that all costs 10 are prudent and should be incurred in order to keep the 11 business running. 12 It is our job, and I think all of us 13 take it seriously. We did have cases where it was not 14 backfilled because the executive management team 15 members said we can do without this for the period of 16 time that the person will be working in Y2K. 17 MR. JANIGAN: In an ordinary company 18 situation, where there is competition for resources, 19 ordinarily a business unit manager would want to have 20 those additional resources on staff, would he not? 21 MR. WILLETT: Once again, I can only 22 say that we have established, as an executive 23 management team, a budget for fiscal 1999 that included 24 an amount of work that should be done. The Board 25 approved that budget, which makes the assumption that 26 the Board felt that that work should be done as well. 27 Therefore, if we couldn't get the 28 work done, we would not be fulfilling the mandate as 109 PASHER/WILLETT/NOBLE/LAPP, cr-ex (Janigan) 1 managers that we have been given. 2 So yes, there is inherently a look at 3 this to say: "How do I get the work done? If I can't 4 get it done, I will backfill it". 5 I don't know how else to answer your 6 question, Mr. Janigan. 7 MR. JANIGAN: I have just a couple of 8 clean-up questions. 9 Could you confirm that the reason 10 that there are Y2K costs in the year 2000 is because 11 you are keeping the Y2K office in operation until 12 March 31, 2000. 13 Am I correct on that? 14 MR. PASHER: That is the three months 15 following January the 1st, yes. So that is where part 16 of the cost factors in. 17 MR. JANIGAN: As well, the 18 remediation of customer Legacy systems which was 19 referred to in the paragraph of the decision that I 20 just cited, of remediation costs of $1.465 million -- 21 and I take that from Board staff interrogatory 89(a) -- 22 this amount has been transferred to CIS work in 23 progress, has it? 24 Can you confirm that? 25 MR. NOBLE: Yes, it has. 26 MR. JANIGAN: Am I correct in saying 27 that you intend to recover all of the costs of this 28 account from ratepayers? 110 PASHER/WILLETT/NOBLE/LAPP, cr-ex (Janigan) 1 MR. NOBLE: I see that more as a CIS 2 issue. I am not sure we are the best panel to help you 3 with how that amount would be recovered. 4 MR. JANIGAN: Okay. Thank you, 5 Mr. Chair, those are all of my questions for this 6 panel. 7 THE PRESIDING MEMBER: Thank you, 8 Mr. Janigan. 9 Mr. Thompson, before we get to you, 10 do any other counsel have any questions of this panel? 11 Ms Lea, you will have some. 12 Mr. Morrison...? 13 MR. MORRISON: No. 14 THE PRESIDING MEMBER: No other 15 counsel; that's fine. 16 Mr. Thompson, how long will you take? 17 MR. THOMPSON: Probably 20 minutes. 18 THE PRESIDING MEMBER: Do you want to 19 continue now? 20 MR. THOMPSON: Thank you. 21 CROSS-EXAMINATION 22 MR. THOMPSON: Panel, could you turn 23 up Exhibit G3, Tab 8, Schedule 4, page 1. 24 This, as I understand it, gives us 25 the breakdown of the 1999-year-2000 variance account. 26 MR. NOBLE: Yes, that is the forecast 27 balance of the 1999 Y2K variance account. 28 MR. THOMPSON: The amount in the 111 PASHER/WILLETT/NOBLE/LAPP, cr-ex (Thompson) 1 opening balance 1998 is $4,467,000. Is that correct? 2 MR. NOBLE: Yes, it is. 3 MR. THOMPSON: What was the amount 4 forecast in E.B.R.O. 497 for that component? 5 MR. NOBLE: I believe it was 6 $5,370,000 forecast in E.B.R.O. 497. 7 MR. THOMPSON: What is the reason for 8 the difference? 9 MR. PASHER: The $1 million underage 10 was caused by not starting some of the activities in 11 the time frame within the 1998 budget, but it was also 12 attributable to some reduced costs that we had in 13 running the program, as well as the negotiations that 14 we had for the on-sight factory. 15 MR. THOMPSON: Am I correct to assume 16 that there is interest accumulated in this number of 17 $4,467,000? 18 MR. NOBLE: No, the interest amounts 19 are not included in any of these numbers. 20 MR. THOMPSON: Where do they appear? 21 MR. NOBLE: They appear as part of 22 the regular clearing of the deferral account. 23 MR. THOMPSON: All right. In terms 24 of the scope of the Y2K program, Mr. Pasher, it is 25 described as a "corporate program". Is that right? 26 MR. PASHER: Yes. 27 MR. THOMPSON: All right. And what 28 company are we talking about? 112 PASHER/WILLETT/NOBLE/LAPP, cr-ex (Thompson) 1 MR. PASHER: We are talking about 2 Enbridge Consumers Gas. 3 MR. THOMPSON: All right. And the 4 business activities that this program encompasses 5 includes distribution? 6 MR. PASHER: Yes. 7 MR. THOMPSON: Rental programs? 8 MR. PASHER: Indirectly, through the 9 customers, there is some. 10 MR. THOMPSON: Merchandise sales? 11 MR. PASHER: Yes. 12 MR. THOMPSON: MGV? 13 MR. PASHER: Yes, if there were any 14 applications there. 15 MR. THOMPSON: Merchandise finance? 16 MR. PASHER: Yes. 17 MR. THOMPSON: ABCT? 18 MR. PASHER: Yes. 19 MR. THOMPSON: And the systems that 20 are being made compliant are systems that are being 21 used to serve all of these business activities? 22 MR. PASHER: Yes, that is true. 23 MR. THOMPSON: All right. Now, do I 24 understand correctly that in the 4,467,000 recorded in 25 the 1998 opening balance there has been no adjustment 26 to that amount for ancillary programs or non-utility 27 business activities carried on by the Consumers Gas 28 Company? 113 PASHER/WILLETT/NOBLE/LAPP, cr-ex (Thompson) 1 MR. PASHER: Other -- go ahead, 2 Steve. 3 MR. NOBLE: No, that is correct, 4 there has not been any removal of costs related to 5 those activities from the opening balance. 6 MR. THOMPSON: All right. Can you 7 tell me approximately, in 1998, the value, the book 8 value, of assets in the company, for the purposes of 9 these ancillary and non-utility business activities, 10 compared to the total company assets. 11 My calculations indicated about 20 12 per cent but I just want to get that confirmed. 13 MR. NOBLE: I don't think any of us 14 here on the panel would have those numbers with us. 15 MR. THOMPSON: Could we have an 16 undertaking to just give us that proportion, based on 17 the 1998 financial statements? 18 MR. NOBLE: Yes. 19 Undertaking J1.1 20 MS SOUDEK: Mr. Thompson, can you 21 just repeat the undertaking that you -- 22 MR. THOMPSON: Yes. We are looking 23 for the total value, book value, of the company's 24 assets pertaining to the ancillary/non-utility business 25 activities carried on by the company in fiscal 1998 26 expressed as a proportion of the total 27 MS SOUDEK: Fiscal 1998? 28 MR. THOMPSON: That is right. And I 114 PASHER/WILLETT/NOBLE/LAPP, cr-ex (Thompson) 1 will also be asking for fiscal 1999, as well. 2 MS SOUDEK: Expressed as a total of 3 the total company assets, Mr. Thompson? 4 MR. THOMPSON: Yes. 5 THE PRESIDING MEMBER: Just to be 6 abundantly clear, Mr. Thompson, you want a net book 7 value, do you? 8 MR. THOMPSON: Yes. 9 MS SOUDEK: You are making a 10 distinction -- 11 THE PRESIDING MEMBER: Because 12 depreciation may play some weird games here. I don't 13 know. I don't know if anything turns on it, but do you 14 have a preference? 15 MR. THOMPSON: I will take it both 16 ways: gross and net. 17 THE PRESIDING MEMBER: All right. 18 MS SOUDEK: One further 19 clarification, Mr. Thompson. 20 Are you asking for company assets or 21 utility assets? The total company assets or the -- 22 MR. THOMPSON: I am asking -- the 23 corporate Y2K program encompasses the corporation, as I 24 understand it. So, I am asking for the proportion that 25 the non -- in effect, the non-distribution related 26 activities of the asset proportion of the total 27 company. 28 MR. PASHER: In the corporate part of 115 PASHER/WILLETT/NOBLE/LAPP, cr-ex (Thompson) 1 the program, it involved Enbridge Consumers Gas, the 2 utility. That was the scope of the program that we 3 were doing. Other than having reporting in from the 4 affiliates. 5 MR. THOMPSON: All right. So that is 6 the whole. What I want is the proportion of the whole 7 that is non-distribution related. 8 Are we clear? 9 MR. WILLETT: I believe so. But if I 10 might ask a clarifying question as to the intent behind 11 your request. Is it because you believe that there is 12 some relationship to the value of the assets versus the 13 amount of time that was spent working on those assets? 14 Because I have no idea whether there is some 15 correlation or not. I actually suspect there is not, 16 given the nature of the system. So, I just would 17 caution that if that is the intent, I do not believe 18 that that is the best way to look at the level of 19 effort spent on the various systems. 20 MR. THOMPSON: Well, I want the 21 undertaking, first of all, on the record. 22 Could we have a number for it? 23 MS LEA: Okay. Thank you. 24 J-1.1, as described, relating to the 25 Y2K assets. 26 MR. THOMPSON: Related to the company 27 assets. 28 MS LEA: Company assets. 116 PASHER/WILLETT/NOBLE/LAPP, cr-ex (Thompson) 1 MR. THOMPSON: In the utility. 2 Well, it is obvious, I think, Mr. 3 Willett, that what I am suggesting is: there needs to 4 be an adjustment made to the opening balance, in 1998, 5 on some reasonable basis, for ancillary/non-utility 6 business activities. 7 MR. NOBLE: And I am not disagreeing 8 with you, Mr. Thompson. 9 If you look at E.B.R.O. 497, Exhibit 10 J12.5, the company filed an undertaking to allocate the 11 forecast balance of the 1998 Y2K variance account. 12 That may get you to the number which you are looking 13 for. 14 MR. THOMPSON: And what is that 15 number? 16 MR. NOBLE: Based on a forecast 17 balance of 5,370,000, the forecast -- the allocation 18 was .9 million. 19 MR. THOMPSON: What does that 20 translate into in percentage terms, approximately? 21 MR. NOBLE: Approximately 17. 22 MR. THOMPSON: Seventeen per cent? 23 MR. NOBLE: Per cent. 24 MR. THOMPSON: All right. Thank you. 25 Now, moving forward, if I could, to 26 the 1999 estimated costs, which we have in this Exhibit 27 G3, Tab 8, Schedule 4, they are shown there as 28 10,060,000. 117 PASHER/WILLETT/NOBLE/LAPP, cr-ex (Thompson) 1 That is the actual and estimated, as 2 I understand it, for fiscal 1999? 3 MR. NOBLE: That is the forecast 4 balance of fiscal 1999, yes. 5 MR. THOMPSON: But does it include 6 actuals to a certain point and then estimates beyond 7 that point? 8 MR. NOBLE: Yes, it would. 9 MR. THOMPSON: And what is the point? 10 MR. PASHER: At the end of July, we 11 had actuals of $8.4 million. 12 MR. THOMPSON: All right. So about 13 80 per cent of it is actual? 14 MR. PASHER: Yes. 15 MR. THOMPSON: And about 20 per cent 16 forecast? Big picture? 17 MR. WILLETT: Yes. Big picture. 18 MR. THOMPSON: And, again, those 19 expenditures encompass systems being made compliant 20 which serve the rental business, the sales business, 21 the merchant -- sorry -- the financing business, 22 natural gas vehicles, ABCT and other non-distribution 23 business activities? 24 MR. PASHER: Yes. The systems are 25 only part of the program but, yes, in direct answer 26 your question. 27 MR. THOMPSON: And there has been no 28 adjustment made to any portion of the $3,860,000 that 118 PASHER/WILLETT/NOBLE/LAPP, cr-ex (Thompson) 1 you are seeking ratepayers to pay for a non- 2 utility/ancillary business activities elimination? 3 MR. NOBLE: No, I don't agree with 4 that, Mr. Thompson. 5 As part of the cost of allocation 6 study filed in E.B.R.O. 497, there was an allocation of 7 the forecast balance of $11.7 million and, as mentioned 8 earlier, that allocation was 1.5 million against the 9 ancillary programs and .3 million for non-utility. 10 MR. THOMPSON: Let me come at it this 11 way: you started out, last year, budgeting $11.7 12 million for 1999 Y2K. Right? 13 MR. NOBLE: Correct. 14 MR. THOMPSON: And that included 15 making the systems compliant for the distribution 16 business activity and the other ancillary business 17 activities? 18 MR. NOBLE: That is correct, yes. 19 For which an appropriate allocation was made. 20 MR. THOMPSON: Fine. You now are -- 21 and the Board allowed recovering rates of $6.2 million 22 of that budget, $11.7 million? 23 MR. NOBLE: That is correct, yes. 24 And they disallowed certain portions. As I mentioned 25 earlier, $4 million related to supervisory salaries and 26 1.5 million related to the remediation of Legacy 27 customer systems. The company, as directed by the 28 Board in its 497 decision, have come back and have 119 PASHER/WILLETT/NOBLE/LAPP, cr-ex (Thompson) 1 presented the financial information related to Y2K that 2 you see in this schedule, in accordance with that 3 decision. I am looking specifically at page 82 of the 4 Board's decision, at paragraph 5.23. The decision 5 basically said: 6 "The balance in the 1998 account 7 shall be brought towards the 8 opening balance in the 1999 9 account. Any amount in the 1999 10 account to be brought forward 11 for disposition, in the future, 12 shall be the sum of the amount 13 carried forward from 1998 and an 14 amount recorded during 1999 over 15 the 6.2 million amount allowed 16 by the Board rates for fiscal 17 1999." (As read) 18 MR. THOMPSON: I know you are trying 19 to get it all, as Mr. Warren illustrated in his cross- 20 examination. I just want to make sure we all 21 understand that you started out at a budget of $11.7 22 million, in the last case. The Board allowed recovery 23 based at $6.2 million. 24 We agree on that? 25 MR. NOBLE: Yes. 26 MR. THOMPSON: All right. Now, the 27 1999 estimate is 10,060,000. Right? 28 MR. NOBLE: That is correct, yes. 120 PASHER/WILLETT/NOBLE/LAPP, cr-ex (Thompson) 1 MR. THOMPSON: That is less than what 2 you budgeted in E.B.R.O. 497 of $11.7 million. 3 MR. NOBLE: It is less because in 4 that $11.7 million was forecast the $1.5 million 5 related to the remediation of the Legacy systems. The 6 $10,060,000 forecast for 1999 excludes the 7 $1.5 million. 8 MR. THOMPSON: Just the big picture. 9 The estimated amount is actually below the budgeted, 10 and yet through your interpretation of the Board 11 decision you are going to be permitted to recover 12 $10,060,000. 13 MR. NOBLE: Less the $6.2 million 14 that has already been recovered in sales rates. 15 MR. THOMPSON: Right. The 16 $6.2 million and the $3,860,000 adds up to $10,060,000, 17 right? 18 MR. NOBLE: Yes, it does. 19 MR. THOMPSON: Right. And your 20 budget last year was $11,700,000, of which the Board 21 said you could recover in rates $6.2 million. Through 22 the machinations of the interpretation of the decision 23 it seems to me you have somehow enhanced your position 24 by $3.860 million, even though the estimate is below 25 the budget. 26 MR. WILLETT: Is that a question? 27 MR. THOMPSON: Yes, it is a question. 28 Do you agree? 121 PASHER/WILLETT/NOBLE/LAPP, cr-ex (Thompson) 1 MR. WILLETT: No. 2 I guess once again I would say that 3 we have taken the view -- and I believe it is 4 substantiated by the words that Mr. Noble read from the 5 decision -- that the Board at that time felt that the 6 forecasts could not be made accurate. They made some 7 requests that we disallow certain things with which we 8 have complied and then said come back with what you 9 actually spend and it will be disposed of. We have 10 done exactly that. 11 I do not view that as machinations, I 12 view that as responding to what the Board requested us 13 to do. 14 MR. THOMPSON: In terms of the 15 legality in the total of $10,060,000 estimated to be 16 spent, which you seek to recover on the basis of the 17 $6.2 million and your view of the deferral account 18 treatment, within that total there is in fact money 19 being used to make systems compliant where those 20 systems are being used to serve ancillary businesses. 21 Those are the facts. 22 MR. WILLETT: Yes, and an appropriate 23 allocation has been made against that number based on 24 the $1.5 million that we talked about earlier 25 MR. THOMPSON: Well, we will argue 26 that later. 27 Just moving to the 2000, the test 28 year, essentially what -- let me come at it this way: 122 PASHER/WILLETT/NOBLE/LAPP, cr-ex (Thompson) 1 We agree, I assume, that costs associated with the Y2K 2 program are outside the O&M PBR envelope. They are 3 classified as a "Z" factor I believe. 4 MR. NOBLE: That is correct, 5 Mr. Thompson. 6 MR. THOMPSON: Okay. So that for the 7 purposes of the test year what you are suggesting is 8 that an amount of $2.6 million be recovered in rates 9 and that a variance account be established to capture 10 over and unders around that fulcrum? 11 MR. NOBLE: That is correct, yes. 12 MR. THOMPSON: I'm sure you have 13 sensed from the questioners that there is concern about 14 that from intervenors. 15 The suggestion that intervenors, at 16 least my client, puts forward is this: Simply 17 establish a deferral account, don't have the advance 18 recovery of $2.6 million -- because you folks will 19 invariably spend it and probably more -- but just have 20 a deferral account related to year 2000 costs in the 21 test year. Now, what is the problem with that 22 approach? 23 MR. NOBLE: Well, the problem I'm 24 having with that is that in the E.B.R.O. 497-01 hearing 25 the company sought "Z" factors of which the Board 26 approved in that proceeding. 27 In my mind, the Y2K application, in 28 this instance for the $2.6 million, fits very well with 123 PASHER/WILLETT/NOBLE/LAPP, cr-ex (Thompson) 1 the "Z" factors outlined in 497-01. In fact, the 2 company discussed the use of the "Z" factor for Y2K in 3 fiscal 2000, and it is our interpretation of the 4 Board's decision in 497-01 that they had accepted the 5 list of "Z" factor categories. 6 Specifically the Board said in that 7 decision that they will expect to consider the amounts 8 proposed for such unusual expenditures as Y2K costs and 9 CIS expenditures. 10 MR. THOMPSON: But under your 11 proposition, you are not prepared to live with a 12 forecast "Z" factor of $2.6 million. Under your 13 proposal, you want variance account protection over the 14 forecast. What we are suggesting is that you first 15 have a deferral account and bring forward any amounts 16 recorded for disposition at the next case. I really 17 have difficulty as to why the company is troubled with 18 that proposition. 19 MR. WILLETT: I guess we could live 20 with the $2.6 million as an absolute and, in the spirit 21 of PBR, keep any that we are able to do under. 22 MR. THOMPSON: Well, are you 23 saying -- 24 MR. WILLETT: I'm saying -- 25 MR. THOMPSON: Would you just repeat 26 that? 27 MR. WILLETT: I guess I said what -- 28 I guess we are prepared to accept the $2.6 million as 124 PASHER/WILLETT/NOBLE/LAPP, cr-ex (Thompson) 1 an absolute for fiscal 2000, an absolute "Z" factor if 2 you will, and live within that in the spirit of PBR. 3 As long as we are understood to keep the underages, I'm 4 sure we will do everything we can to keep it under 5 $2.6 million and we will live with the overages. 6 MR. THOMPSON: Are you prepared to 7 accept what the Board determines is reasonable for the 8 year 2000 without the variance account protection? 9 MR. WILLETT: I am prepared to accept 10 $2.6 million because I believe I can make that budget. 11 MR. THOMPSON: Let's assume you 12 can't. Let's assume the Board sets it at something 13 lower. Are you prepared to live with that? 14 MR. WILLETT: Then I would have to 15 suggest that we would need to have the variance account 16 because that is a number that we have developed based 17 on some experience and we are pretty comfortable with 18 $2.6 million. If we are asked to do it for something 19 less than that, then I think we would still request the 20 variance account. 21 MR. THOMPSON: Whether it is our way 22 or your way or something in between, what happens if 23 the company is wrong, that Y2K costs in the test year, 24 we have another disaster scenario, does the company 25 accept shareholder responsibility for any of these 26 costs, that there ought to be shareholder 27 responsibility for any of these costs? 28 MR. WILLETT: What kind of disaster, 125 PASHER/WILLETT/NOBLE/LAPP, cr-ex (Thompson) 1 if I might ask? Are you contemplating something where 2 we find we have to expend money well beyond in order to 3 ensure that we fix something we missed? 4 MR. THOMPSON: Yes. Sort of the CIS 5 thing all over again in Y2K? 6 MR. WILLETT: I think as it relates 7 to those kinds of costs we would want to be able to 8 demonstrate it was something outside our control. If 9 it was outside our control then we should have the 10 ability to get relief for that from the ratepayers. 11 I think, as always, we would have to 12 demonstrate that it is prudent and that we did not make 13 a mistake that we should have caught, and provided we 14 can demonstrate that we should be allowed to get 15 relief. 16 Management has always been willing to 17 accept the responsibility for those things for which it 18 is found to be negligent, but I can't think that in 19 this particular case we have done anything to date that 20 we would view that way. 21 MR. THOMPSON: We never know what the 22 future holds, as CIS has demonstrated. 23 Thank you. 24 Those are my questions. 25 THE PRESIDING MEMBER: Thank you, 26 Mr. Thompson. 27 We have lost Ms Lea. 28 --- Pause 126 PASHER/WILLETT/NOBLE/LAPP, cr-ex (Thompson) 1 MS LEA: Thank you, Mr. Chairman. 2 I'm sorry, but I was speaking to 3 Mr. Janigan at the time. 4 CROSS-EXAMINATION 5 MS LEA: I have one question of 6 clarification that relates to what Mr. Thompson was 7 just discussing with you and that is the variance 8 accounts for the year 2000. 9 Pardon me if this is obvious in the 10 evidence, perhaps it isn't obvious to me. 11 At Exhibit D3, Tab 3, Schedule 1, at 12 page 25 of that exhibit -- that is D3, Tab 3, 13 Schedule 1, page 25 -- you talk about the generic "Z" 14 factor deferral account. Are any of the Y2K items 15 going to be included in that "Z" factor account? 16 MR. NOBLE: No. In fact -- I'm 17 sorry. 18 That "Z" factor deferral account, the 19 Board did not allow the creation of that account in 20 E.B.R.O. 497-01. The company withdrew its application 21 for that account and in the updated evidence filed on, 22 I believe, May 31st, that account is no longer there. 23 MS LEA: Okay. That has been removed 24 as of the updated evidence? 25 MR. NOBLE: Yes. 26 MS LEA: Okay. 27 Now, so the issue about the $750,000 28 threshold is not an issue with respect to the deferral 127 PASHER/WILLETT/NOBLE/LAPP, cr-ex (Lea) 1 account that you are proposing now? 2 MR. NOBLE: That $750,000 threshold 3 was in specific reference to in period requests for 4 deferral accounts and was included as part of the 5 proposal for the generic "Z" factor deferral account. 6 MS LEA: Okay. Thanks very much. 7 That is helpful. 8 THE PRESIDING MEMBER: Thank you, Ms 9 Lea. 10 Mr. Willett, I have one question. 11 You talked about the 22 employees who were not 12 backfilled, and that was a decision by the senior 13 management group. I just wonder as to what numbers 14 went up to the management group, the senior management 15 group. 16 MR. WILLETT: What numbers -- 17 THE PRESIDING MEMBER: There were 22 18 positions for employees that were not backfilled. 19 MR. WILLETT: That's correct. 20 THE PRESIDING MEMBER: I am just 21 wondering if those were the numbers that went up to the 22 senior management group as a proposal. 23 MR. WILLETT: Actually, it was on an 24 individual basis that we identified what the numbers 25 were that Terry needed in order to complete the work. 26 THE PRESIDING MEMBER: Terry being 27 Mr. Pasher? 28 MR. WILLETT: That's right. Excuse 128 PASHER/WILLETT/NOBLE/LAPP, cr-ex (Lea) 1 me, that Mr. Pasher needed to do the work. We spent a 2 lot of time together this year. I am very familiar 3 with him. My apologies. 4 We would look at what particular work 5 needed to be done for a specific project and identify 6 the skill set. Those skill sets Terry would then 7 use -- Mr. Pasher would then use through our resourcing 8 process internally to identify candidates. We would 9 approach their direct manager and then their executive 10 management team member for them to be assigned to the 11 project. So it was not done on a total of 22; it was 12 done -- although Terry did provide those kinds of 13 estimates. They are very similar to the estimates he 14 provided in total, the 78 staff that we had on at the 15 date that the evidence was filed. 16 So that number fits within that total 17 number, but 22 would not be backfilled, it was part of 18 the total number of 78. 19 MR. PASHER: If I could just add to 20 that. I think, generally speaking, we were seeking to 21 bring people from the business units for shorter 22 periods of time, and that was necessary in a lot of 23 cases to test out their applications and have them work 24 with us. Business units were living quite comfortably 25 within that kind of a timeframe, where we were taking 26 people out for one, two or three months. 27 We had a number of people from the 28 business units for the full duration of the program, 129 PASHER/WILLETT/NOBLE/LAPP, cr-ex (Lea) 1 and those are the cases where, I think, they made the 2 case, quite legitimately, for backfilling. I think 3 that is kind of a rule of thumb. Generally, we didn't 4 see backfilling occurring for short periods of time. 5 It was generally where we had somebody for the duration 6 of the year. 7 THE PRESIDING MEMBER: And when you 8 refer to the senior executive group, that would be 9 yourself, Mr. Pasher -- 10 MR. PASHER: No. 11 THE PRESIDING MEMBER: Or that would 12 be -- 13 MR. PASHER: Mr. Willett. 14 MR. WILLETT: Myself and the 15 other -- I guess today's number is 8 -- the vice- 16 president and Mr. Riedl. 17 THE PRESIDING MEMBER: Thank you. 18 Those are the Board's questions. 19 Ms Soudek, do you have any re-direct? 20 MS SOUDEK: No re-examination, thank 21 you, sir. 22 THE PRESIDING MEMBER: Thank you. 23 Ms Lea, do you have something before 24 we excuse the panel? 25 MS LEA: Just one administrative 26 matter. I wonder if the Company could just briefly 27 help us at the beginning of the lunch break with 28 respect to the evidence I asked you about. 130 PASHER/WILLETT/NOBLE/LAPP, cr-ex (Lea) 1 I don't know whether we are missing 2 something, but we just need to talk to you about it. 3 But that can be done off the record and we can inform 4 the panel, if there is any problem. Thanks. 5 THE PRESIDING MEMBER: All right. 6 The panel is excused, with our thanks. 7 We were just looking at the clock and 8 we were wondering whether a two o'clock resumption 9 would give adequate time for the parties to look at the 10 two documents they have to look at. 11 Does anybody want to offer a time? 12 MR. MATTSON: Two-thirty? 13 MS LEA: Let's compromise at 2:15. 14 MR. MATTSON: As I understand it, Mr. 15 Chairman, from speaking to Mr. Farrell earlier, in the 16 context of the HVAC motion, Mr. Farrell is planning to 17 come back about now, I guess, to meet with intervenors 18 after the intervenors have a chance to speak 19 internally, and then to speak with intervenors about 20 adjustments, if any, to the scoping documents, so 21 perhaps a little extra time beyond two o'clock would be 22 appropriate. 23 THE PRESIDING MEMBER: All right. 24 Let's make it 2:30 then. Then, I guess, Mr. Cass will 25 be on board, Ms Soudek? 26 MS SOUDEK: That's correct. 27 THE PRESIDING MEMBER: I just wasn't 28 sure -- and I know that Mr. Farrell is not here, so it 131 PASHER/WILLETT/NOBLE/LAPP, cr-ex (Lea) 1 may not be totally fair, but maybe some other counsel 2 can help me. 3 Was there any question about the 4 volumes not being an issue? Average use? Maybe I 5 misheard. I misheard, Mr. Thompson? 6 MR. THOMPSON: Yes. I think he was 7 only referring to that section of the settlement 8 proposal dealing with DSM. 9 THE PRESIDING MEMBER: DSM, okay. 10 MR. THOMPSON: It has nothing to do 11 with the ratemaking volumes. 12 THE PRESIDING MEMBER: All right. 13 That would explain it, yes. 14 MR. WARREN: Mr. Chairman, may I ask 15 a question on an unrelated matter? 16 As the Board may be aware, there is a 17 motion which is returnable before the Board tomorrow 18 morning dealing with the scheduling of the PBR 19 Handbook. 20 THE PRESIDING MEMBER: Yes. Ms 21 Mondrow just pointed out that I guess there are some 22 counsel who would be there for that motion? 23 MR. WARREN: I certainly will be 24 there and I believe others will be as well. 25 THE PRESIDING MEMBER: What time is 26 that scheduled for? 27 MR. WARREN: I believe 9:30, sir. 28 THE PRESIDING MEMBER: Nine-thirty? 132 PASHER/WILLETT/NOBLE/LAPP, cr-ex (Lea) 1 MS LEA: It is 9:00 or 9:30. I'm 2 sorry, I don't know which of the two. 3 THE PRESIDING MEMBER: Can I get an 4 indication as to how many counsel plan to be there for 5 that motion? 6 All right. We will put our attention 7 to it over lunch. I will want to speak to my 8 colleagues as well. 9 So it is Mr. Warren, Mr. Janigan, Mr. 10 Mattson and Ms Lea. All right. 11 Yes, Mr. Mattson? 12 MR. MATTSON: My understanding is 13 that this afternoon when we return we will be cross- 14 examining on the average uses, and I will not be here 15 for that. So I will just return tomorrow morning, with 16 your permission. I don't believe there will be 17 anything covered after that this afternoon. 18 THE PRESIDING MEMBER: Our position 19 is that we won't, Mr. Mattson, although if by any good 20 fortune we reach 332, that is the deferral account, the 21 so-called -- the late payment charges, in a sense. I 22 don't anticipate that to be a long issue. In fact, 23 that is one of the issues I had in mind when I invited 24 parties to turn their attention to whether some of 25 those things could be dealt with in argument. 26 Actually, it will be your call, Mr. 27 Mattson. Thank you. 28 Mr. Mattson, you may not want to 133 PASHER/WILLETT/NOBLE/LAPP, cr-ex (Lea) 1 leave right away, though, until Mr. Farrell comes back 2 into the room. 3 MR. MATTSON: That's fine, Mr. 4 Chairman. I will stay. I just won't be back, that's 5 all. 6 THE PRESIDING MEMBER: All right. We 7 will be back at 2:30. 8 --- Lunch recess at 1245 9 --- Upon resuming at 1430 10 THE PRESIDING MEMBER: Mr. Cass, 11 welcome. 12 MR. CASS: Good afternoon, 13 Mr. Chairman. 14 We have the next panel sitting here. 15 The witnesses I believe need to be sworn. 16 They are Mr. Michael Mees and 17 Ms Joanne Gould. 18 THE PRESIDING MEMBER: While they are 19 being sworn, Mr. Cass, about tomorrow, any discussion 20 amongst parties? We will ask Ms Lea to -- 21 MR. CASS: You mean apropos the 22 motion tomorrow morning, sir? 23 THE PRESIDING MEMBER: Yes. I 24 understand that -- I guess, Ms Desai, in the absence of 25 Ms Lea, can you just advise us as to what is going to 26 happen tomorrow morning? Was there any discussion 27 amongst parties? What is your understanding. 28 MS DESAI: My understanding is there 134 PASHER/WILLETT/NOBLE/LAPP, cr-ex (Lea) 1 is an agreement amongst all the parties and the company 2 that we would start at one o'clock to allow parties to 3 attend the motion next door as well as finalize the 4 scoping document and that. 5 MR. MONDROW: It is my understanding, 6 sir, that Mr. Farrell will be available at one o'clock 7 and his understanding as well, I believe, is that we 8 would proceed with the HVAC motion, subject to the 9 Board's directions at that time. So he is available 10 for that at one o'clock tomorrow. 11 THE PRESIDING MEMBER: Okay. So 12 everybody agrees to -- we can step down tomorrow, we 13 can stand down for half a day and resume at one 14 o'clock. 15 Whether we proceed with the motion 16 right away or we finish today's panel -- just in case 17 they are not finished today, I guess we can talk about 18 that later at the end of the day today. 19 Okay. We will do that. 20 Also, by way of preliminary matters? 21 There being none, Mr. Cass. 22 SWORN: MICHAEL MEES 23 SWORN: JOANNE GOULD 24 EXAMINATION-IN-CHIEF 25 MR. CASS: Thank you, Mr. Chairman. 26 As the Board is aware, this panel 27 will be addressing the outstanding item from issue 1.1, 28 which is average uses. 135 MEES/GOULD, in-ch (Cass) 1 Ms Gould, if I may start with you. 2 You are the company's Director of 3 Budgets and Forecasts. Is that correct? 4 MS GOULD: Yes, that's correct. 5 MR. CASS: Mr. Mees, you are the 6 Manager of Volume and O&M Budgets. Is that correct? 7 MR. MEES: Yes, it is. 8 MR. CASS: Mr. Mees, together with 9 Ms Gould, were you responsible for the company's 10 evidence on volumes and in particular for today's 11 purposes on average uses? 12 MR. MEES: Yes, we were. 13 MR. CASS: That would be including 14 answers to interrogatories? 15 MR. MEES: Yes. 16 MR. CASS: Thank you. 17 Was that evidence prepared by the two 18 of you or under your direction or control? 19 MR. MEES: Yes, it was. 20 MR. CASS: Are there any corrections 21 that should be made to the evidence? 22 MR. MEES: None at this time. 23 MR. CASS: Is the evidence accurate 24 to the best of your knowledge or belief? 25 MR. MEES: Yes, it is. 26 MR. CASS: Thank you, Mr. Chairman. 27 Those are my questions. 28 THE PRESIDING MEMBER: Thank you, 136 MEES/GOULD, in-ch (Cass) 1 Mr. Cass. 2 Mr. Warren. 3 MR. WARREN: Thank you, Mr. Chairman. 4 CROSS-EXAMINATION 5 MR. WARREN: I wonder, panel, if you 6 could turn up Exhibit C3, Tab 3, Schedule 7. 7 --- Pause 8 MR. MEES: Yes, we have that. 9 MR. WARREN: This is an update of an 10 exhibit which was delivered approximately two weeks 11 ago, just after the conclusion of the ADR process. I 12 wonder, Mr. Mees, if you could tell me first why this 13 document was prepared -- why it was prepared and when 14 it was prepared? 15 MR. MEES: This was updated to 16 reflect -- there were two areas that were in the 17 calculation of gas sales revenue at that time. It has 18 been corrected for the -- an update to or correction to 19 Rate 200 and a correction to the interruptible rates. 20 It didn't include the capacity repurchase credits. So 21 that's what this -- that was done at that time. 22 MR. WARREN: You will agree with me, 23 Mr. Mees, that neither of those errors are pointed out 24 on the face of the document? 25 MR. MEES: Yes, I would agree, 26 although it was in Impact Statement No. 1. An 27 explanation was given at that time. 28 MR. WARREN: Okay. 137 MEES/GOULD, cr-ex (Warren) 1 While we have the document in front 2 of us, can we turn to -- I think you said in Rate 200 3 there is a change. Is that what you said? 4 MR. MEES: Yes, I did. 5 MR. WARREN: Can you tell me what the 6 nature of the change is? 7 MR. MEES: It was reduced from 8 $20.7 million to $20.5 million, as listed at 9 Exhibit C3, Tab 3, Schedule 1. 10 MR. WARREN: And the other change, 11 I'm sorry, was? 12 MR. MEES: Was for an update to the 13 capacity repurchase credit, which was not included in 14 the original calculation by error. 15 THE PRESIDING MEMBER: I'm sorry? 16 MR. MEES: Capacity repurchase 17 credit. 18 THE PRESIDING MEMBER: Thank you. 19 MR. WARREN: While you have that 20 document in your hand, can you turn up an interrogatory 21 delivered on behalf of my client, which is Exhibit I, 22 Tab 4, Schedule 1? Do you have that? 23 MR. MEES: It was Exhibit I, Tab 4, 24 Schedule 1? 25 MR. WARREN: Yes. 26 MR. MEES: Yes, we have that. 27 MR. WARREN: On the third page you 28 have a normalized average use per customer. Can you 138 MEES/GOULD, cr-ex (Warren) 1 tell me if Exhibit C3, Tab 3, Schedule 7 has an impact 2 on the numbers which appear on Exhibit I, Tab 4, 3 Schedule 1? 4 MR. MEES: The adjustments that we 5 made for gas sales revenue was just for rates only. 6 Volumes did not change at that time. 7 MR. WARREN: Okay. Thanks. 8 Now, panel, if you look at the CAC 9 interrogatory which you just turned up, Exhibit I, 10 Tab 4, Schedule 1, these are, as I understand it, and 11 please correct me if I'm wrong -- although this 12 interrogatory response was delivered in the early part 13 of June, these are numbers that were prepared sometime 14 earlier. Is that correct? 15 MR. MEES: These numbers in this 16 interrogatory reflect the update to the gas sales 17 volumes that was made just before ADR, which is around 18 June 2nd. 19 MR. WARREN: Okay. 20 What I want to know is whether or not 21 there have been any changes to that. In particular, if 22 you look at the 1999 figures, you have a bridge year 23 estimate included. Has there been any changes in any 24 of these numbers which appear on this exhibit? 25 MR. MEES: The numbers that are 26 included in there are the bridge year estimate numbers 27 as filed in the evidence. Given the fact that we have 28 10 months of actuals that have happened since then, we 139 MEES/GOULD, cr-ex (Warren) 1 do have a pretty good indication of where we are going 2 to be at year end for 1999, but we have not reflected 3 that in -- 4 MR. WARREN: Do you have those with 5 you? 6 MR. MEES: I do not have the -- 7 MR. WARREN: Can I get an 8 undertaking, please, to deliver the most current 9 information to update Exhibit I, Tab 4, Schedule 1? 10 MR. MEES: Certainly. Yes, we can do 11 that. 12 MS DESAI: That would be undertaking 13 J1.2. 14 Undertaking No. J1.2 15 MR. WARREN: Either, Ms Gould or 16 Mr. Mees, could you tell me, at a sort of general 17 level, how the average use numbers are produced? In 18 particular, is there any level of subjectivity that has 19 gone into the production of the forecast? 20 MR. MEES: The process that is 21 involved in preparing the general -- average use is a 22 very comprehensive and detailed approach. We take a 23 look at all customer groupings, we call them -- there 24 are 78 different customer groupings within the 25 company -- and we look at a detailed level at the 26 volumetric drivers that are impacting each of those 78 27 customer groups. 28 So once we -- I call it a building 140 MEES/GOULD, cr-ex (Warren) 1 block approach -- we take a look at all these 2 individual drivers and come up with a total change in 3 average use, we do look at the overall average use at 4 that time to make sure that it is reasonable. So from 5 a reasonable check I guess I would look at that as some 6 subjectivity. 7 MR. WARREN: When you say that you 8 subject it to a -- I guess reasonability is not a word 9 -- reasonableness test, what is involved in that check? 10 MR. MEES: We look at the overall 11 impacts of each of the individual volumetric drivers, 12 such as DSM, furnace turnovers, the turnover of 13 furnaces in our franchise area, we look at vacancy 14 rates for the commercial and industrial sectors. We 15 look at all those individual components and make sure 16 that we are comfortable with the overall trend that it 17 provides us to make sure that it is consistent with 18 historical trends that we are seeing. 19 MS GOULD: If I could add to that, in 20 looking at the 2000 budget in particular, we begin with 21 our 1998 actual volumetric levels, and from that we 22 look at what changes are we anticipating going into 23 both 1999 and the 2000 budget year, reflecting, as 24 Mr. Mees mentioned, the various factors that will 25 generate reduced volume consumption from LARDSM 26 initiatives, but also areas where we are seeing growth 27 in the marketplace with some of our natural gas 28 appliances. 141 MEES/GOULD, cr-ex (Warren) 1 So it really is focusing in on things 2 that we know, looking at our projections for the 3 future, and looking at that over time as to: Is that 4 reasonable, given what we have observed? 5 MR. WARREN: Using that test, 6 Ms Gould, can you turn up again my client's 7 interrogatory Exhibit I, Tab 4, Schedule 1. 8 MR. MEES: Yes, we have that. 9 MR. WARREN: Can I just take a look 10 from 1994 forward, in particular with respect to Rate 11 6. Can we not agree that your estimates of the 12 normalized average use per customer have been off? 13 I won't add a modifier to it yet, but 14 they have been off. 15 MR. MEES: I would agree that if you 16 looked at 1994 through 1998, there has been a variance 17 in the Rate 6 area, but I do believe that it is 18 important to look at just half the picture, I would 19 call it. In particular for Rate 6, we see a lot of 20 transfer between large volume and general service. 21 You can understand that one large 22 volume customer or a couple of large volume customers 23 that switch from general service -- I would call them 24 borderline large volume -- switch and it has an impact 25 on the actual average use because they switch from 26 large volume to general service. 27 MR. WARREN: If you see that year 28 after year, Mr. Mees, would you not conclude that the 142 MEES/GOULD, cr-ex (Warren) 1 prospect of switching is something that should go into 2 your forecast? 3 MR. MEES: And we do. We do, as I 4 mentioned, a comprehensive look at and make sure that 5 the overall variances, we do adjust our general service 6 volumes to reflect changing for large volumes. In some 7 cases it can be greater than we anticipated, but I 8 think it is important to know that you are looking at 9 these variances, the company's overall budget accuracy. 10 From 1991, if I incorporate the latest numbers that we 11 have in 1999, on a normalized basis, we are within a 12 quarter of a per cent. So we do a very good job at 13 budgeting. 14 MR. WARREN: Thank you for that, 15 Mr. Mees. I didn't ask about that. I was asking about 16 Rate 6. 17 You and I can agree that there is a 18 consistent pattern from 1994 on of the company 19 overestimating average use, which is reflected in the 20 variances annually. Isn't that correct? 21 MR. MEES: I would agree that there is 22 a variance in that area. But as I indicated to you, we 23 make sure that we are capturing the total volume. So 24 if there is an overage in Rate 6, there would be a 25 corresponding underage in -- 26 MR. WARREN: This year -- sorry to 27 interrupt, Mr. Mees. 28 This year, do I understand it that 143 MEES/GOULD, cr-ex (Warren) 1 you are forecasting a drop in the normalized average 2 use per customer for Rate 6? 3 MR. MEES: Can I understand where you 4 are getting that from? 5 MR. WARREN: Are you forecasting a 6 drop? 7 MR. MEES: If you look at Exhibit C3, 8 Tab 3, Schedule 4, page 2 of 2 -- 9 MR. WARREN: I will have to turn that 10 up, Mr. Mees. 11 Can you give it to me again, please. 12 MR. MEES: Exhibit C3, Tab 3, 13 Schedule 4. 14 MR. WARREN: Yes. 15 MR. MEES: If you look at column 4 16 for rates -- 17 MR. WARREN: On which page? 18 MR. MEES: On page 2 of 2. 19 MR. WARREN: I have it. 20 MR. MEES: Line item 1.2. If you 21 look at column 4, the total change in average use, it 22 is positive. We are anticipating an increase in the 23 average use in 2000, on a normalized basis. 24 MR. WARREN: What is the basis for 25 that forecast increase? 26 MR. MEES: As I mentioned, it is 27 based on a detailed analysis of DSM programs, taking a 28 look at the commercial vacancy rates. We also take a 144 MEES/GOULD, cr-ex (Warren) 1 look at switching some large volumes. So it is a very 2 detailed comprehensive calculation. 3 MR. WARREN: Could you turn up Board 4 staff interrogatory No. 6, which is Exhibit I, Tab 1, 5 Schedule 6. 6 MR. MEES: Yes, we have that. 7 MR. WARREN: In that interrogatory 8 response, you indicate that there are a number of 9 factors that are affecting the forecast usage. I would 10 like to go through those seriatim, if I could. 11 First of all, you talk about a 12 decrease in the forecast degree day. 13 Is there a new methodology being used 14 to forecast degree days? 15 MR. MEES: No, there is not. We 16 still use the Board approved methodology that has been 17 since Year 4-64, I believe. 18 MR. WARREN: What is the relative 19 significance of that factor to your forecast? 20 MR. MEES: As you can see, on line 21 item no. 2, there is a significant reduction of 172.8 22 10(6)s in the general service market. 23 MR. WARREN: You refer then to 24 customer conservation. First of all, is customer 25 conservation different from a DSM program? 26 MR. MEES: As shown here, yes, it is. 27 We separate the DSM. 28 MR. WARREN: Why is that? 145 MEES/GOULD, cr-ex (Warren) 1 MR. MEES: By far, DSM is the largest 2 component of our conservation. In the total general 3 service market, it represents 22 10(6)s of the 22.8 4 listed on line item no. 3. 5 MS GOULD: And I think the 6 distinction recognizes the fact that some conservation 7 will be customer driven. To the extent that a customer 8 takes it upon themselves to upgrade their furnace, for 9 instance, from a mid efficiency to a high efficiency, 10 that would deliver conservation that is not necessarily 11 attributable to a specific program undertaken by the 12 company. 13 MR. WARREN: What is the impact -- is 14 DSM, as you suggest, the largest single factor? 15 MR. MEES: Of reduction and average 16 use, yes, it is. 17 MR. WARREN: How would you decide 18 among which rate classes -- how would you allocate, if 19 you wish, the reduction attributable to DSM among the 20 rate classes? 21 MR. MEES: We work with the DSM group 22 very closely, and they provide a detailed forecast at 23 the level that we require for a volumetric budget. 24 MR. WARREN: Do you forecast DSM 25 being a significantly greater factor this year than it 26 has been in the last several years? 27 MR. MEES: Yes, we do. 28 MR. WARREN: Why is that? 146 MEES/GOULD, cr-ex (Warren) 1 MR. MEES: I guess in the latest ADR 2 agreement, for example, there is an increase to the 3 point, to 42 10(6)s, I believe. So we are seeing an 4 increase from 1998 through to 1999 to that 2000 number. 5 MR. WARREN: DSM has been in place 6 for a number of years now. Can we agree with that? 7 MR. MEES: It has been a constant 8 factor in your forecasting for usages for the last 9 several years; correct? 10 MR. MEES: I am not sure if I would 11 agree with the "constant". It is increasing over time, 12 I believe. 13 MR. WARREN: As a factor, it has been 14 a constant, whether the percentage has been the same. 15 But it has been a factor; correct? 16 MR. MEES: Yes, I would agree with 17 that. 18 MR. WARREN: It has been a factor 19 certainly since 1994? 20 MR. MEES: I am not sure if it is 21 1994. It might be 1995 when it first began. 22 MR. WARREN: Notwithstanding the 23 presence of DSM as a constant factor, indeed can we 24 agree that customer conservation has been a constant 25 factor at least since 1994? 26 MR. MEES: One of the things that we 27 are seeing over time is what I would call a reduction 28 in the amount of customer generated conservation. By 147 MEES/GOULD, cr-ex (Warren) 1 that, I mean the amount where people are going out of 2 their way to try to conserve energy. 3 We are seeing a change to a turnover 4 in furnaces, things that they are doing without even 5 really trying, a DSM program. It is changing as a 6 factor. 7 Does that answer your question? 8 MS GOULD: And I think our delivery 9 on our budget around DSM, as well, has changed 10 significantly over the years. 11 In the early years, I think we were 12 very much in a learning curve. I think as noted in the 13 DSM evidence, particularly in the commercial and 14 industrial sectors, that realizing savings took a lot 15 longer than was anticipated at the outset and that 16 there was some lag time and to the extent that we may 17 have anticipated receiving that earlier rather than 18 later, we did see a greater degree of volatility, in 19 those early years, than we either saw in 1998 or 20 anticipate to see in 2000 either. 21 MR. WARREN: What puzzles me about 22 your answer, Ms Gould, is that the one constant in all 23 of these factors, again from 1994 on, is that, with 24 respect to Rate 6, you are mis-estimating every year; 25 and that is the puzzlement to me about why you 26 consistently get that wrong every year when you know 27 the factors, you know that they are increasing, you say 28 you know that individual customer conservation is 148 MEES/GOULD, cr-ex (Warren) 1 increasing, you know that the effect of DSM is 2 increasing. Why do you always get it wrong? 3 MR. MEES: As I indicated earlier, I 4 don't think we do get it wrong. As I mentioned, if you 5 look at over time, 1991 through 1999, we were within 6 .26 per cent of Board-approved amount on a normalized 7 basis. 8 MR. WARREN: But not Rate 6. 9 MR. MEES: As we have already 10 indicated, there are transfers between large volumes 11 and Rate 6 and we try to accommodate that from -- 1998 12 were some excellent examples where we saw, particularly 13 in the apartment sector, a big transfer from large 14 volume to general service. 15 And perhaps I can take you to Exhibit 16 C, Tab 3, Schedule 10, to show you that. 17 MR. WARREN: Exhibit C3 or C? 18 MR. MEES: Sorry. Did I say -- C5, 19 Tab 3, Schedule 10. I am sorry. 20 MR. WARREN: Sorry, Mr. Mees, C3, Tab 21 10? 22 MR. MEES: Tab 3, Schedule 10. 23 C3, Tab -- C5, Tab 3, Schedule 10. 24 MR. WARREN: C5. Yes. Go ahead. 25 MR. MEES: If you take a look at the 26 apartment sector, for example, you can see that it is a 27 very volatile sector. There is consistent transfer 28 between large volume and general service. And, in 149 MEES/GOULD, cr-ex (Warren) 1 particular, in 1998, under Column 8, you can see that 2 there is an increase of 3.24 per cent. So, it is 3 substantial. And when we are putting together our 4 apartment sector budget, for example, we make sure that 5 we have captured the overall trends. 6 Yes, there may be some ups, there may 7 be some downs, but I think we did, as I have indicated, 8 a pretty good job of budgeting. 9 MR. WARREN: My last question, with 10 respect to the Board Staff interrogatory, Exhibit I, 11 Tab 1, Schedule 6, is you have reference to continued 12 turnovers of low-efficiency furnaces and, again, what 13 is the distinction between that, on the one hand, and, 14 on the other hand, continued conservation and demand 15 side management? 16 MR. MEES: The turnover of furnaces 17 that we are capturing here is the turnover from what I 18 might call convention, or low-efficiency, furnaces to 19 mid-efficiency furnaces. So, really, there we are 20 seeing an elimination of the pilot light and we are 21 seeing a great deduction due to that. 22 When you look at DSM, for example, we 23 try to ensure that we are not duplicating the 24 conservation and so that the DSM is capturing the 25 impact from medium to high. 26 MR. WARREN: Now, if I look at -- 27 going back to my client's interrogatory, Exhibit I, Tab 28 4, Schedule 1. If I were simply to take the data from 150 MEES/GOULD, cr-ex (Warren) 1 1994 on, for the Rate 6 data, what would be the impact, 2 panel, on the revenue requirement if you were to 3 increase the forecast for your average -- your 4 normalized average use per customer by 400 cubic 5 metres? 6 If you don't have the answer, can you 7 give me an undertaking to answer that? 8 MR. MEES: Yes, we can do that. 9 Undertaking J1.3 10 MR. WARREN: Those are my questions. 11 Thank you. 12 MS LEA: That is undertaking J1.3. 13 THE PRESIDING MEMBER: That last 14 undertaking is clear, Mr. Mees? 15 MR. MEES: It is. 16 THE PRESIDING MEMBER: It is clear? 17 MS GOULD: Yes, that is fine. 18 THE PRESIDING MEMBER: Thank you, Mr. 19 Warren. 20 Mr. Brett, do you want to go next? 21 MR. BRETT: Yes, thanks, Mr. 22 Chairman. 23 CROSS-EXAMINATION 24 MR. BRETT: Just a preliminary 25 question. I noticed on that interrogatory Board Staff 26 No. 6, panel, that Mr. Warren was asking you about, you 27 have an item for conservation there: -22.8. 28 Now, you may have given this answer 151 MEES/GOULD, cr-ex (Brett) 1 but I didn't hear it clearly. Is demand side 2 management within that? 3 MR. MEES: Yes, it is. 4 MR. BRETT: It is a part of that? 5 MR. MEES: Yes, it is. It is the 6 most -- it makes up a majority of that. 7 MR. BRETT: Okay. How big a part of 8 it is it? 9 MR. MEES: DSM would be approximately 10 22 10(6)s of the 22.8. There are other -- 11 MR. BRETT: Okay. So it is 95 per 12 cent, give or take? 13 MR. MEES: Yes. But there are other 14 things going up and down: general conservation; 15 increased economic activity. But, generally, DSM is a 16 big factor. 17 MR. BRETT: I understand that. But 18 what you are calling "conservation" is really mainly 19 the DSM program with a little bit of other activity 20 going on, which you say is customer-driven activity? 21 I just want -- I am not arguing with 22 you. I just want a quick sense of that. That is what 23 I hear you say. 24 MR. MEES: Yes, that generally is 25 that. 26 MR. BRETT: Okay. If I can ask you 27 to look over, again, at the CAC interrogatory No. 1. 28 That is Exhibit I, Tab 4, Schedule 1. You were just 152 MEES/GOULD, cr-ex (Brett) 1 looking at that. 2 In looking at Rate 1, for a moment, 3 on page 3 -- if you would turn to page 3 of that 4 exhibit, with the tables -- in 1999, you show -- these 5 are normalized numbers, I take it? All of the numbers 6 on this table. 7 MR. MEES: They are normalized to 8 the -- 9 MR. BRETT: To the year in question. 10 MR. MEES: Yes, that is correct. 11 MR. BRETT: So, in 1999, for example, 12 you have normalized consumption of 3310, for Rate 1. 13 Three thousand three hundred and ten cubic metres. 14 Right? 15 MR. MEES: Yes. That is for the 16 bridge -- 17 MR. BRETT: Right. For 1999. 18 MR. MEES: As I indicated, the bridge 19 -- the current estimate of -- we are going to provide 20 that in an undertaking, but it will be significantly 21 below that what we are seeing -- 22 MR. BRETT: It will -- I see. But 23 based on that 3310, you are proposing a reduction down 24 to 3218. Now I hear what you are saying about there 25 being a difference on your latest information. But if 26 I look at these numbers, that is a difference of about 27 3 per cent, or so. Right? Very roughly. 28 MR. MEES: Roughly, it is 3 per cent, 153 MEES/GOULD, cr-ex (Brett) 1 and we are seeing a reduction in number of degree days 2 of about 3.2 per cent. 3 MR. BRETT: Yes, I was going to -- 4 that was going to be my next question, Mr. Mees. You 5 are ahead of me. 6 If we go over to page 1 of that 7 response to CAC, you show -- and these, again, are 8 normalized to the degree day assumptions approved by 9 the Board. So, in 1999, you show degree days of 4060. 10 And then, for 2000, you predict degree days of 3929. 11 Right? 12 MR. MEES: That is based on the 13 Board-approved methodology. 14 MR. BRETT: Yes, no, that difference 15 I make to be somewhere in the area of -- is that about 16 -- what is that, in percentage terms? That is about 5 17 per cent? 18 MR. MEES: No; as I indicated, I 19 believe it is about 3 per cent of --. 20 MR. BRETT: All right. Well, it is 21 between -- yes, maybe a little over 3 per cent. 22 MR. MEES: Three point two, I 23 believe. 24 MR. BRETT: You say it is according 25 to -- you calculate that based on Board-approved 26 method, but can you tell me, if I look at that table of 27 degree days, and I see, on a normalized basis, the 28 degree days over 4000 for four years and then dropping 154 MEES/GOULD, cr-ex (Brett) 1 to 3929 -- forecast to drop to 3929, in year 2000. 2 Can you just tell me, at a basic 3 level, how you get there? How do you get to that 4 reduction after four years of significantly higher 5 degree days? 6 MR. MEES: You have to appreciate I 7 am not the expert in this area. But what we are 8 reflecting in the forecasts for 2000 budget is the 9 latest information, so it takes into account weather 10 from -- up to 1998 in calculating the number. 11 MS GOULD: And the numbers that are 12 presented in that particular interrogatory were the 13 Board-approved degree days not the actual degree days, 14 and it would be the actual degree days that would go 15 into the formula to determine budgeted degree days for 16 fiscal 2000. 17 MR. BRETT: All right. So you base 18 your forecast budgeted degree days on recent actual 19 days. 20 Would you mind, just for purposes of 21 clarification -- I have read the evidence that Mr. 22 Taylors files every year on the methods, and so on and 23 so forth, but it would be helpful if you took that -- 24 gave an undertaking to simply apply those principles to 25 this situation and show how you get to the 3929. Could 26 you do that, please? 27 MS GOULD: We can provide the 28 calculation, but I think, if we can use -- the way the 155 MEES/GOULD, cr-ex (Brett) 1 methodology works is that there would be the most 2 heaviest weighting to the most recent two years of 3 actuals. So if you looked at 1998, for example, we had 4 a budgeted or a Board-approved number of 4,079 degree 5 days. We experienced actual degree days of 3,382. So 6 it would be that number that is having a significant 7 influence in looking at what is the projection for 8 fiscal 2000. 9 MR. BRETT: That is fair enough, but 10 if you could just take -- whatever numbers you used, if 11 you wouldn't mind just taking those and applying the 12 formula to the relevant numbers to show how you get to 13 the 3929. That I don't think is in the evidence 14 anywhere. 15 MS GOULD: If I could just draw your 16 attention -- and this is Mr. Taylor's evidence, and we 17 will do our best to walk through it -- to Exhibit D2, 18 Tab 2, Schedule 1. 19 MR. BRETT: Exhibit D2, Tab 2, 20 Schedule 1? 21 MS GOULD: That's correct. 22 MR. MEES: Do you have the evidence? 23 MR. BRETT: No, I don't. 24 Exhibit D2, Tab 2, Schedule 1. 25 All right, I have it here. 26 MR. MEES: If you turn to page 3 -- 27 which is what has been listed there as 3929. 28 MR. BRETT: Right. I don't see a 156 MEES/GOULD, cr-ex (Brett) 1 3929 on this page 3. 2 MR. MEES: I will do my best to show 3 you how we get there. 4 MR. BRETT: All right. 5 MR. MEES: If you look at note No. 2, 6 it explains how the 2,000 number was taken on a 7 weighted average of the last five, based on the 8 regression equation shown on note No. 3, and we come 9 out with a number of 3997. 10 MR. BRETT: What are the weighting 11 years for those years? 12 MR. MEES: For example, 1998 would 13 have a weighting of five, and 1997 would be four. 14 MR. BRETT: And so on, back for three 15 more years? 16 MR. MEES: Back through to the 17 corresponding year. As indicated in Mr. Taylor's 18 evidence, this 3997 is then converted to what we call 19 gas supply degree days, which is how we take our 20 readings, on an average of 24 hourly readings, and it 21 is converted, on page 9 I believe, to the 3929, based 22 on the regression equation of the environmental degree 23 days. 24 MR. BRETT: That is how you get from 25 3997 down to 3929? 26 MR. MEES: That's correct. 27 MR. BRETT: All right. So you have 28 used the last five years of actuals weighted. Starting 157 MEES/GOULD, cr-ex (Brett) 1 in 1998 you use it with a three-year lag and you go 2 back five years and you weight them 5, 4, 3, 2, 1. Is 3 that it, in essence? 4 MR. MEES: Yes, that is my 5 understanding. 6 MR. BRETT: And then you make the 7 conversion into the gas degree days. 8 MR. MEES: Gas supply degree days, 9 that's correct. 10 MR. BRETT: All right. Now, if I 11 look again back at the same interrogatory, CAC's, and I 12 look at the Rate 1 experience, you had it looks like 13 something of a history of under-forecasting Rate 1. Is 14 that fair? 15 MR. MEES: No. I would agree that 16 there are some ups and some downs and, in particular, 17 if you look at fiscal 1996 and 1997, we did 18 overestimate the amount of reduction in average use. 19 As we indicated at the time, that was primarily due to 20 the learning curve that we had with DSM. DSM savings 21 were not to the extent we had hoped during those two 22 years, and that did cause a lot of the variance. 23 MR. BRETT: If you go back in these 24 numbers, it looks like 1991, 1994, 1995, 1996, 1997, 25 1998 -- all of those years you had under-forecast Rate 26 1. You are saying, basically, that the main reason was 27 you were getting some learning experience with the 28 impacts of DSM? 158 MEES/GOULD, cr-ex (Brett) 1 MR. MEES: If we look at 1996 and 2 1997, in particular. 3 We also did overestimate the amount 4 of, as I indicated before, customer-generated 5 conservation. That has declined and we have reflected 6 that in our 2000 budget. 7 MS GOULD: I think in looking at the 8 trend, as well, in the variances, and in particular 9 looking at 1996 and 1997, as we identify those 10 variances -- and that is largely as we receive actual 11 results and get a better sense of what is 12 happening -- we analyze those variances and do take 13 them into consideration and reflect them in our 14 budgets, and I think that is why you are seeing 15 declines as we get into 1998 and into 1999 of the size 16 of that variance. 17 MR. BRETT: All right. Now, you also 18 have shown -- as I understand it, on a normalized 19 basis, if you normalize all of your years to the same 20 degree day base -- and this, I think, you show in C-5, 21 Tab 3, Schedule 10, which was the exhibit you were 22 looking at with Mr. Warren a moment ago -- you are 23 looking for a further decrease of about 24 10-cubed. 24 Is that fair? 25 MR. MEES: Yes, that's correct. 26 MR. BRETT: That is the large chart 27 that we were looking at a few minutes ago, and that 28 normalizes every year to the same number of degree 159 MEES/GOULD, cr-ex (Brett) 1 days. That is the balanced point methodology? 2 MR. MEES: Yes, it does. 3 MR. BRETT: And on that basis, kind 4 of a neutral basis, you are looking at a further 5 reduction -- you are projecting a further normalized 6 reduction of 24 cubic metres. 7 MR. MEES: Yes. If you take a look 8 at that exhibit, the average reduction in average use 9 in Rate 1 or residential from 1991 through to 1998 was 10 22 M3. Even though DSM is picking up a little bit over 11 that timeframe, we are only at 24 for the 2000 budget. 12 MR. BRETT: I have a bit of a 13 conundrum here. Effectively, you have had this history 14 of over-forecasting -- or under-forecasting 15 rather -- but you still are recommending or proposing 16 or budgeting a further 24 cubic metre reduction in Year 17 2000. I take it, again, that the main reason for that 18 is that you see the DSM program continuing to bite 19 somewhat -- beginning to take hold? 20 MR. MEES: Yes. For example, if you 21 look at the 2000 budget for residential, of the 24 over 22 13 of it is due to the DSM program, and an additional 23 11 would be due to the turnover of premises in that 24 area. 25 So we are seeing 3 per cent of our 26 furnace stock turn over each year and that has been 27 reflected in there. 28 MS GOULD: I should explain that the 160 MEES/GOULD, cr-ex (Brett) 1 numbers as presented here are our actual performance. 2 So, regardless of our budget variances, we have 3 historically seen conservation and will continue to see 4 conservation as the Company undertakes DSM initiatives 5 and as customers do. But I think in looking at 2000 it 6 is important to note that this is nowhere near the 7 extent of declines in average uses that we are actually 8 experiencing in 1999. So it certainly isn't, from our 9 perspective, unrealistic as to what we should expect to 10 see in 2000. 11 MR. BRETT: What I did was a small 12 exercise, taking your -- and you will need two pieces 13 of paper for this, just to understand what I have done. 14 I did it both for Rate 1 and Rate 6, and I will go 15 through it briefly with you. 16 If you take Exhibit C3, Tab 3, 17 Schedule 1, first of all, that is your number of 18 customers in the test year. That is a blue sheet, C-3, 19 Tab 3, Schedule 1. That gives us the number of 20 customers in each rate class, more or less, in the test 21 year. 22 All right? 23 MR. MEES: Yes. 24 MR. BRETT: Then, if you take, 25 secondly -- now, you are going to have to pull up 26 Exhibit D2, Tab 3, Schedule 1. That is your DSM 27 evidence: "Program Plans and Targets", Table No. 4-1. 28 Exhibit D2, Tab 3, Schedule 1. That gives you your 161 MEES/GOULD, cr-ex (Brett) 1 target savings by type of customer; your targeted 2 savings from DSM activities. 3 MR. MEES: Where is the reference? 4 MR. BRETT: It is D, as in "dairy", 5 Tab 3, Schedule 1, and then it is page (iv)-1 of 53. 6 It's a blue sheet. It is your most recent -- I think 7 it is your most recent estimate of DSM savings. 8 What I am trying to get at here, of 9 course, is the projected DSM savings per existing 10 house. 11 This will be a little rough, but let 12 me take a run at this with you and you can tell me if 13 we are in the same ballpark. I don't think we are very 14 far apart here, but let's just -- 15 If you look at the Year 2000 -- 16 Do you have that? 17 MR. MEES: I just want to get it in 18 front of me. Exhibit D2, Tab 3, Schedule 1? 19 MR. BRETT: Yes. Right. Page IV-1 20 of 53. It is entitled "Program Plans and Targets". 21 This is a corrected exhibit. It is corrected as of 22 1999/03/05. I hope it hasn't been corrected again. 23 THE PRESIDING MEMBER: We tried to 24 locate that ourselves. Is it the part of the evidence 25 that has some green tabs? 26 MR. BRETT: I have taken it out of my 27 basic volume, so -- 28 THE PRESIDING MEMBER: Okay. Let's 162 MEES/GOULD, cr-ex (Brett) 1 try it a different way. 2 This is the DSM evidence? 3 MR. BRETT: Yes, sir. 4 THE PRESIDING MEMBER: Okay. All 5 right. So we have D2, Tab 3, Schedule 1. 6 MR. BRETT: Right. 7 THE PRESIDING MEMBER: Then we are 8 starting at page Roman (i)-1 of 4. 9 MR. BRETT: Right. 10 THE PRESIDING MEMBER: That is the 11 starting point. Now, what page would you like us to go 12 to? 13 MR. BRETT: I'm up one page, Roman 14 (iv)-1. 15 THE PRESIDING MEMBER: Okay. Right. 16 MR. BRETT: What the page consists of 17 is some projected -- 18 THE PRESIDING MEMBER: Mr. Brett, 19 just give the witness a chance to turn it up. 20 MR. BRETT: Yes. I was just going to 21 try and help them by describing what was on the page. 22 THE PRESIDING MEMBER: You are 23 welcome to ours. 24 MS GOULD: Unfortunately, we don't 25 have any updates in ours. 26 THE PRESIDING MEMBER: Just ignore 27 the notes. 28 --- Pause 163 MEES/GOULD, cr-ex (Brett) 1 MR. MEES: Page 1, Mr. Brett? 2 MR. BRETT: Yes, right. Roman 3 numeral (iv)-1. Do you have it there now? 4 MR. MEES: Yes, we do. 5 MR. BRETT: Okay. 6 Do you see opposite the item, I guess 7 it is number 3, "Existing Homes", item number 3? I 8 guess item number 4, along the left-hand column, "Net 9 Savings", under column 3, move over to column 3, "2000 10 Budget Year", and there is a number 14,699,000 cubic 11 metres. Do you have that number? 12 MR. MEES: Yes, we do. 13 MR. BRETT: Okay. 14 Now, if you turn to the other sheet I 15 gave you, which is the number of customers, the Rate 1 16 customers -- 17 MR. MEES: Yes. 18 MR. BRETT: -- and I said this would 19 be rough. But if you look at on that sheet C3, Tab 3, 20 Schedule 1, under "Total Rate 1" you see customers of 21 1,328,659. 22 MR. MEES: Yes. 23 MR. BRETT: If I divide one by the 24 other, the first by the second, I get roughly 11 cubic 25 metres, which is to say I think that what they are 26 predicting here is that the DSM program for the year 27 2000 will result in savings of about 11 cubic metres on 28 average for the average home. Does that sound 164 MEES/GOULD, cr-ex (Brett) 1 reasonable to you? Is that a reasonably correct 2 exercise? 3 MR. MEES: I can understand how you 4 get there, but I think there is something that you have 5 to understand. 6 In looking at DSM there is the impact 7 -- I will use 2000, for example. 1999 programs are 8 fully effective into 2000 and then we have the impact 9 of the 2000 program in 2000. So what I believe is 10 being shown here is just the impact of what the 2000 11 programs are and then you would have to take into 12 account the effectiveness, the full effectiveness of 13 the 1999 programs in the year 2000. 14 MR. BRETT: If that is what is being 15 shown here it is not very clear. I would have thought 16 what is being shown here is the savings that they 17 expect to get in the year 2000 from whatever programs 18 happen to be in place in that year. 19 If you have an undertaking that you 20 can make or take that demonstrates to us that that 21 isn't the case, then I would be delighted to have it, 22 but -- 23 MR. MEES: Perhaps I had better make 24 sure it is clear. 25 MR. BRETT: -- I see that as 26 something different. 27 MR. MEES: Yes. This again is the 28 full year impact of 2000, and that is not the real 165 MEES/GOULD, cr-ex (Brett) 1 impact -- 2 MR. BRETT: Yes. I see this number 3 of fourteen-six-ninety-nine as the impact in the year 4 2000 of whatever programs you have addressing the 5 single family residential sector. You are saying it's 6 something different than that or it is leaving 7 something out? 8 MR. MEES: I do believe it is not 9 entirely clear. 10 MR. BRETT: All right. 11 In the event my interpretation is 12 right, though, you would agree that you roughly get a 13 saving of about 11 cubic metres per house, which is 14 about half -- and my point really I want to get at here 15 is it's about a little under half of what you are 16 projecting per Rate 1 customer as a reduction. It's 17 about 45 per cent or so. 18 MR. MEES: As I indicated, the impact 19 that we have for Rate 1 is 13. 20 MR. BRETT: Oh, you have 13; I have 21 11 here. So we are not that -- 22 MR. MEES: Because you also have to 23 take into account the amount on the new homes too, 24 which is accounted for. 25 MR. BRETT: All right. 26 THE PRESIDING MEMBER: Do you still 27 need the undertaking, Mr. Brett? 28 MR. BRETT: Yes, please. Yes. 166 MEES/GOULD, cr-ex (Brett) 1 MS DESAI: J1.4. 2 Undertaking No. J1.4 3 MR. BRETT: To clarify what that 4 number represents. 5 MR. MEES: And the exact number that 6 you are looking for is the line item number 4? 7 MR. BRETT: Yes. That's right. 8 That's right. 9 Okay. Now, I did the same exercise 10 without going through all of the bells and whistles. I 11 did the same exercise for Rate 6, taking out the number 12 of Rate 6 customers, the 138,574 from your C3, Tab 3, 13 Schedule, 1, okay -- Rate 6 sales, Rate 6 T-service, 14 total Rate 6, 138,574. 15 MR. MEES: Yes. 16 MR. BRETT: Then I looked at the 17 volumes, and I think I was generous here. I took 18 basically a combination of the commercial and the 19 multifamily residential volumes that are set out in 20 lines 8 and 10 of those -- in other words, I added up 21 roughly the 209,300 from line 8, which is the net 22 savings projected for commercial for year 2000, okay? 23 MR. MEES: Okay. 24 MR. BRETT: And I added to that the 25 net savings projected for multifamily residential also 26 for the year 2000, all right, the 2,538,000 cubic 27 metres? I put those two together and I'm not sure all 28 of those volumes in fact are in Rate 6. Some might be 167 MEES/GOULD, cr-ex (Brett) 1 in the Rate 100. 2 But for the sake of the argument 3 let's keep it simple. I assume those represent the 4 Rate 6 volumes. If I divide that sum by the 138,574, I 5 get about 33 cubic metres and I make that to be only 6 about 5 per cent of what you are proposing as a 7 decrease in Rate 6 consumption. You are going down in 8 Rate 6, as I understand your conversations with 9 Mr. Warren, from -- go back to the CAC interrogatory at 10 CAC Schedule 1. Do you have that again? 11 MR. MEES: Yes, we have that. 12 MR. BRETT: You show normalized in 13 1999 a Rate 6 consumption of 23,523 metres and you are 14 proposing to reduce that in 2000 to 22,844. So my 15 calculation of the impact of DSM on that is about -- 16 and I may be a little bit off here, but it's relatively 17 small. I take it to be around 5 per cent. Does that 18 seem fair? Does that seem a reasonably accurate number 19 doing what I have done, doing the -- 20 MR. MEES: It does appear to be a 21 little low, although I would acknowledge that the 22 impact of DSM in rates is smaller than in Rate -- 23 MR. BRETT: Say in the 5 to 10 per 24 cent level? 25 MR. MEES: I think that is a little 26 low. The total impact of DSM for Rate 6 would be in 27 the neighbourhood of about 4.5 10(6)s on the 2000 28 budget. 168 MEES/GOULD, cr-ex (Brett) 1 MR. BRETT: The calculation I have 2 given you leads to a result that is not too far off 3 what in fact is happening here as far as you can tell? 4 MR. MEES: Yes, it's not too far off. 5 MR. BRETT: All right. 6 Thanks very much, Mr. Chairman, 7 panel. Those are my questions. 8 THE PRESIDING MEMBER: Thank you, 9 Mr. Brett. 10 Mr. Mondrow, do you have any 11 questions? 12 MR. MONDROW: No. Thank you, 13 Mr. Chairman. 14 THE PRESIDING MEMBER: Mr. Thompson? 15 MR. THOMPSON: Yes, please. 16 CROSS-EXAMINATION 17 MR. THOMPSON: Panel, could I just 18 get confirmed for the record -- I'm looking at the CAC 19 Exhibit I, Tab 4, Schedule I, page 3. At the bottom of 20 the page under "Rate 1" the Board was seeking approval 21 of a normalized average use for Rate 1 of 3,218 metres 22 cubed? 23 MR. MEES: Based on the Board 24 approved methodology, yes, that is correct. 25 MR. THOMPSON: That is what you are 26 asking this Board to approve. 27 MR. MEES: Yes. 28 MR. THOMPSON: That number is down 169 MEES/GOULD, cr-ex (Thompson) 1 from the 1999 Rate 1 shown in this exhibit, the next 2 line up under actual normalized average uses. It is 3 down from 3310; correct? 4 MR. MEES: Although they are on two 5 different sets of degree days, yes, that is correct. 6 MR. THOMPSON: The average use you 7 are seeking -- we know it's a product of degree days, 8 but it is 3218 down from 3310; right? 9 MR. MEES: Yes, that is correct. 10 MR. THOMPSON: And that is a decline 11 of 92 metres that you are forecasting; correct? 12 MR. MEES: Subject to check, yes, 13 that is correct. 14 MR. THOMPSON: 3218 subtracted from 15 3310, I make to be 92 metres. Would you take that 16 subject to check? 17 MR. MEES: Yes. 18 MR. THOMPSON: All right. If you 19 look at the CAC Exhibit I, Tab 4, Schedule 1, page 3, 20 and ask yourself what has been the rate of change, the 21 average rate of change in normalized average uses for 22 Rate 1, you can see that from 1991 to 1992 it went from 23 3530 down to 3508; correct? 24 MR. MEES: Yes, I can see that. 25 MR. THOMPSON: And that is a 22 26 metered cubed rate of change? Would you take that 27 subject to check? 28 MR. MEES: Subject to check, yes. 170 MEES/GOULD, cr-ex (Thompson) 1 MS GOULD: Could I just make one 2 clarification on the use of "rate of change". I think 3 it is important to note that the information that is 4 presented on the CAC IR is the comparison of the 5 Board-approved average use to the actual results that 6 the company saw in average use. 7 I think to get a clearer picture of 8 rate of change, we need to look at the average use 9 trends that we presented at Exhibit C5, Tab 3, Schedule 10 10. That really highlights the rate of change between 11 one year and the next and specifically from the 12 company's 1998 actuals to its estimate to its proposed 13 budget. 14 MR. THOMPSON: Would you just stick 15 with me on this exhibit. 16 What this shows is from 1991 to 1992, 17 a decline in average uses in Rate 1 of 22; 1992 to 18 1993, an increase in average uses of Rate 1 of 79. 19 Would you take that subject to check? 20 Sorry, it's a decrease of 79. 21 MR. MEES: Can I ask how you are 22 getting that? 23 MR. THOMPSON: 3429 subtracted from 24 3508. 25 MR. MEES: So you are looking at the 26 actual -- 27 MR. THOMPSON: Normalized average use 28 per customer. 171 MEES/GOULD, cr-ex (Thompson) 1 MR. MEES: Based on the degree days 2 in 1992 and 1993 -- 3 MR. THOMPSON: Based on the 4 methodology that the company uses to forecast revenues. 5 MR. MEES: Yes. 6 MR. THOMPSON: I can go from line to 7 line in each case and, if you would agree with me 8 subject to check, from 1993 to 1994 it goes up nine; 9 from 1994 to 1995, down 97; from 1995 to 1996, up 64; 10 from 1996 to 1997, down 85; from 1997 to 1998, up 16; 11 from 1998 to 1999, down 25. 12 If I add all of those up to get an 13 average rate of change in actual normalized average 14 uses, would you take subject to check that the total is 15 397 divided by eight, which works out to about 49.6 or 16 50 M3? 17 Would you take that subject to check? 18 MR. MEES: Subject to check. 19 MR. THOMPSON: So what you are 20 forecasting for 2000, being a 92-metre decline from 21 1999 to 2000, exceeds the average rate of change, using 22 this exhibit, by 42 cubic metres. 23 Would you take that subject to check? 24 MR. MEES: Yes, although as Ms Gould 25 has already indicated, it is not based on the degree 26 days in the 2000 budget. It is based on the degree 27 days it has in each of the Board-approved volumes for 28 each of the years. 172 MEES/GOULD, cr-ex (Thompson) 1 MR. THOMPSON: Based on the 2 methodology that you are using -- which has its degree 3 day component; there is no doubt about it -- I put it 4 to you that that change where you are seeking a 5 92-meter cubed decline in average uses compared to the 6 average rate of change from year to year appears 7 excessive. That is why intervenors are challenging 8 your forecast. 9 MS GOULD: Again, I think we do need 10 to clarify. 11 If I could draw your attention back 12 to C5, Tab 3, Schedule 10, we -- 13 MR. THOMPSON: What exhibit is this, 14 then? 15 MS GOULD: It would be the average 16 use put on a comparable degree day basis, because we 17 have taken the degree day methodology. We have divided 18 the method 1 fallout with the second average uses. 19 But I think if you look at the trend that we have seen 20 year over year, after allowing for those changes and 21 average uses, you can see declines year over year that 22 range from a decline of 56, or 1.64 per cent, down to 23 it being somewhat neutral. 24 I think we need to compare that to 25 what we are looking or predicting for fiscal 2000, 26 which is a decline of 24, or .74 per cent. That is 27 consistent with what we have seen over the 1991 to 1998 28 time frame. 173 MEES/GOULD, cr-ex (Thompson) 1 MR. THOMPSON: I will argue that with 2 you. 3 The reality is that your forecasts 4 are not based on a constant degree day methodology. 5 They are based on a change in degree day. 6 So the reality for actual normalized 7 average uses is presented in CAC No. 1; correct? 8 MR. MEES: We don't agree. I think 9 you are trying to combine two factors there when we are 10 looking at one consistent set of degree days as shown 11 in C5, Tab 3, Schedule 10 and the degree day 12 methodology as already indicated. 13 MR. THOMPSON: In terms of the impact 14 of an increase in the average uses from what you 15 forecast, if the Board subscribes to our position that 16 it should be no more than 50 reduction, then that would 17 result in an increase of 42 cubic metres in the average 18 use for Rate 1. 19 Is the undertaking that you gave 20 before going to tell us what impact an increase of 10 21 cubic metres in the average use of Rate 1 will have on 22 the revenue requirement? 23 MR. MEES: It was just Rate 6, but we 24 can include Rate 1 if you want it. 25 MR. THOMPSON: Would you do that. 26 Provide the revenue requirement impact of an increase 27 in average use on Rate 1 of 10 cubic metres? 28 THE PRESIDING MEMBER: Mr. Thompson, 174 MEES/GOULD, cr-ex (Thompson) 1 just so that I can follow it, I have here the answer to 2 your interrogatory 23. 3 --- Pause 4 THE PRESIDING MEMBER: That is 5 I12-23. You have an answer there. You want something 6 in addition to that as far as the residential sector is 7 concerned? 8 MR. THOMPSON: I think that is 9 slightly different. What I was trying to do was just 10 to get it on a -- what this I believe tells me is that 11 if the average use was 310, which would be 92 -- 12 Well, I am not sure what it tells me. 13 MR. MEES: Perhaps I can clarify. 14 This response assumes that there is no reduction in 15 average use in 2000. The 2000 budget would not have 16 the reduction of 24. 17 THE PRESIDING MEMBER: I see. Okay. 18 Could you live with the proportionality issue? 19 MR. MEES: It will be based on most 20 of that. 21 MR. THOMPSON: This number has been 22 provided to us in another process, so it shouldn't be 23 difficult for the company to produce it. 24 MR. MEES: We can provide it. As 25 Mr. Thompson already indicated, we do have the 26 information available. 27 THE PRESIDING MEMBER: Could you 28 repeat that, Mr. Thompson, please? 175 MEES/GOULD, cr-ex (Thompson) 1 MR. THOMPSON: Yes. It is providing 2 the impact on revenue requirement of an increase in the 3 average use for Rate 1 customers of 10 cubic metres of 4 the forecast of 3,218. 5 THE PRESIDING MEMBER: Mr. Mees, 6 could I add something to Mr. Thompson. Mr. Thompson 7 will be assisted by having the bottom number for 8 argument, but if the Board were inclined to make a 9 change what we need is a change to the revenue line and 10 a change to the cost-of-gas line. The rest I don't 11 need to see because the model will do it for us. Do 12 you understand? 13 MR. MEES: Yes, I do. 14 THE PRESIDING MEMBER: Okay. So 15 maybe you could just send an addendum to it, 16 whatever -- 17 MR. MEES: We will provide that 18 breakdown. 19 THE PRESIDING MEMBER: All right. 20 MS LEA: In Undertaking J1.3, did you 21 also wish, Mr. Vlahos, to have those figures for the 22 Rate 6 customers? It sounds to me like that would be 23 of assistance also to the Board. 24 MR. THOMPSON: I was going to get to 25 that in a minute. 26 MS LEA: Oh, I beg your pardon, 27 Mr. Thompson; I'm leaping ahead. 28 So is all that under J1.3? Is that 176 MEES/GOULD, cr-ex (Thompson) 1 what I understand, it is all in the one undertaking? 2 MR. THOMPSON: Just Rate 1 was under 3 J1.3. 4 MS GOULD: That would be the simplest 5 to respond to, but I will -- 6 MR. THOMPSON: There is an earlier 7 undertaking dealing with Rate 6. 8 MS LEA: All right. Thanks. Thank 9 you. 10 MR. THOMPSON: Just before I turn to 11 Rate 6, is there anywhere in the evidence where we have 12 the actual average use for 1998 Rate 1? Not actual 13 normalized, but just actual. 14 --- Pause 15 MR. MEES: No, I don't believe we do 16 have that explicitly in our evidence. We do have the 17 1998 actual volumes and the 1998 actual customers, but 18 we never divided it out. 19 MR. THOMPSON: Is it just a case of 20 dividing one into the other? 21 MR. MEES: We do it on a monthly 22 basis, but it would be a pretty close approximation by 23 doing it -- 24 MR. THOMPSON: Could I ask, by way of 25 undertaking, that you give us the actuals unnormalized 26 for Rates 1 and 6 for 1998? 27 MS LEA: J1.5 28 Undertaking No. J1.5 177 MEES/GOULD, cr-ex (Thompson) 1 MR. THOMPSON: Because 1998, we are 2 told somewhere, was the warmest year on record ever. 3 Is that right? 4 MR. MEES: I'm not sure if it was 5 ever, but it was pretty hot. The warmest in recent 6 memory, that's for sure. Although 1999 is coming very 7 close. 8 MR. THOMPSON: On the 1999 situation, 9 the company's evidence and the ADR process all 10 proceeded on the basis of the forecasted average use 11 for Rate 1 being 3,310. Do I understand you to be 12 saying you are going to update that? 13 MS GOULD: No, I don't think that 14 was -- I think what we are saying is we continued to 15 monitor average use trends. That is part of what we 16 did as our major review process. To the extent that we 17 saw anything that would question our budget for 2000, 18 we would have done so at that point, but it is not our 19 intention. 20 MR. THOMPSON: All right. 21 So the point of departure, then, 22 remains the 3,310 for the purposes of measuring the 23 reasonableness of your 3,218. Have I got that 24 straight? 25 MR. MEES: It is the point of 26 departure from 2000, although we do use the 1998 27 actuals as our ultimate starting point. 28 MR. THOMPSON: But you seem to be 178 MEES/GOULD, cr-ex (Thompson) 1 implying or suggesting to Mr. Warren that you have done 2 a last minute check of your 1999 average uses and they 3 are coming in much lower, and you implied that we would 4 be getting some sort of update, which suggested to me 5 you are now changing this 3,310. 6 MR. WARREN: Gentlemen, I wonder if 7 we could just check the record on the undertaking 8 because I thought I asked for an undertaking for 9 exactly that number. 10 MR. MEES: Yes. We will be providing 11 that, but we will not be updating our evidence to 12 reflect the revised 1999 estimate. 13 MR. THOMPSON: Just so I'm clear. 14 Thanks very much for that. 15 MS GOULD: I will just clarify. As 16 Mr. Mees noted we are experiencing trends in average 17 use that are coming below our 1999 estimate and our 18 1999 Board approved. 19 We have undertaken significant study 20 and we plan on -- we are actually about to embark on a 21 study with the Gas Research Institute so that we get a 22 better understanding of what is driving that decline, 23 but at this point don't have sufficient empirical 24 evidence for us to come forward with an update at this 25 point in time. 26 MR. THOMPSON: Thank you. 27 Could I turn, then, now to Rate 6 and 28 again back to CAC No. 1, page 3. You were discussing 179 MEES/GOULD, cr-ex (Thompson) 1 this with others. This is the over-forecasting of 2 Rate 6. But just to get the average uses for Rate 6 3 from the bridge year to the test year, this exhibit -- 4 and I'm looking at the bottom of the page in the second 5 column -- shows Rate 6 for 1999 average use of 23,523. 6 Correct? 7 MR. MEES: Yes, that's correct. 8 MR. THOMPSON: And the forecast for 9 2000 is 22,844 for Rate 6. Correct? 10 MR. MEES: That's correct, based on 11 the 2000 budget -- 12 MR. THOMPSON: And that is a decline. 13 Correct? 14 MR. MEES: Yes, it is. 15 MR. THOMPSON: And you told 16 Mr. Warren you were forecasting an increase for Rate 6 17 and that just didn't reconcile with these numbers. 18 MR. MEES: As we previously 19 indicated, on a normalized basis we are forecasting an 20 increase. 21 MR. THOMPSON: All right. 22 MR. MEES: Holding degree days 23 constant, reflecting the 2000 budget degree days, we 24 are showing an increase. 25 MR. THOMPSON: But you don't hold 26 degree days constant. On the basis that you are 27 forecasting the revenue requirement, we are going from 28 23,523 to 22,824. Right? That's what appears -- 180 MEES/GOULD, cr-ex (Thompson) 1 MR. MEES: We are showing a drop 2 based on the degree days -- 3 MR. THOMPSON: Now, in terms of the 4 extent to which you have over-forecast this Rate 6 5 since 1994 -- we can see that if we take 1994. The 6 Board-approved number was 23,148. I'm sorry, you are 7 under-forecasting this average use. The actual was 8 23,343, a variance of 195. We see that over in the 9 right-hand column. Right? 10 MR. MEES: Yes, I do, for 1994. 11 MR. THOMPSON: And then 1995, the 12 under-forecast was 471 M(3). Right? 13 MR. MEES: Yes. As I have already 14 indicated, this can be a little misleading because it 15 does not take into account any transfers from large 16 volume. 17 MR. THOMPSON: I will come to that in 18 a minute. I just want to get the numbers straight. 19 195 was the extent to which you 20 under-forecast in 1994; 471 was the extent to which 21 under-forecast in 1995; 421 was the extent to which you 22 under-forecast in 1996; 623 was the extent to which you 23 under-forecast in 1997; 309, the extent to which you 24 under-forecast in 1998; and, 428, the extent to which 25 you under-forecast in 1999. Correct? 26 MR. MEES: We are over in the Rate 6 27 category on average use, but, as I indicated, you need 28 to look at the bigger picture. The total gas sales 181 MEES/GOULD, cr-ex (Thompson) 1 volumes on a normalized basis which includes the 2 customer gross, which includes the large volume, we are 3 within, between 1991 to 1999 up to date, we are within 4 .26 per cent. 5 MR. THOMPSON: Take it one step at a 6 time. 7 On Rate 6 the under forecast, in 8 those last six years I make to be a total 2,447 cubic 9 metres or about 407.8 cubic metres on average. Would 10 you take that subject to check? 11 MR. MEES: Subject to check, yes. 12 MR. THOMPSON: All right. 13 And the undertaking that you gave 14 about revenue requirement, gross margin revenues and 15 gas costs with respect to Rate 6, will it tell us the 16 -- what I call -- revenue requirement impact of an 17 increase of 100 cubic metres on Rate 6? If it 18 wouldn't, would you please add that to that earlier 19 undertaking you gave about Rate 6? 20 MR. MEES: I believe the other 21 undertaking was 400, was it not? 22 MR. THOMPSON: Okay. Well, then, I 23 just need to divide it by four. That's fine. 24 Then that undertaking doesn't need 25 any change. 26 Now, you have given us a lot of 27 evidence about transfers. The margins on Rate 6, I 28 assume, are higher than the margins on the industrial 182 MEES/GOULD, cr-ex (Thompson) 1 rates. 2 MR. MEES: I believe they are 3 slightly higher, yes. 4 MR. THOMPSON: It is fairly glib, I 5 suggest, to say, "Well, we underestimated on Rate 6, 6 but we overestimated somewhere else." Is that what you 7 are, in effect, telling us? 8 MR. MEES: Although we do go back to 9 try to ensure that we put things in the right 10 categories, we are dealing with 1.5 million customers 11 and there are switches back and forth. In particular, 12 the large volume rates are very volatile. 13 For example, in 1997 we added a 14 tremendous amount of large volume actual customers in 15 the apartment sector, and in 1998 we had a bit of a 16 shakeout. They didn't have the volumes necessary and 17 they moved into our general service rate. We saw that 18 impact in 1998 and we are reflecting that in 1999. 19 MS GOULD: As part of our process, as 20 Mr. Mees mentioned, we have met with our account 21 executives and we do look at those customers that are 22 on the border line to try to get an idea of what 23 initiatives they have under way that may impact their 24 consumption. A lot of the switches we saw and 25 reflected in the 1999 estimate were in health and 26 education, where a lot of our customers undertook 27 specific conservation efforts that actually moved them 28 from a large volume to a Rate 6 classification. 183 MEES/GOULD, cr-ex (Thompson) 1 So I don't think we are saying, 2 "Don't worry, it goes from one class to another." We 3 attempt, to every degree possible, to measure that at 4 the outset. 5 MR. THOMPSON: The evidence suggests 6 that you are 400 metres, on average, light in your 7 forecasts on Rate 6. Now, as I understood your 8 responses to others, you took us to Exhibit C5, Tab 3, 9 Schedule 10 and somehow had us conclude that this 10 evidenced transfers. Did I understand you correctly? 11 MR. MEES: It is one place where I 12 can show you that it is fairly evident that there are 13 large increases and decreases over time, particularly 14 in the apartment sector. 15 MR. THOMPSON: But it doesn't say 16 anything about transfers. 17 MR. MEES: We have talked about that 18 in the evidence. In this exhibit we do talk about the 19 factors that are driving the average use, and we 20 mention, in particular, that large volume transfers 21 have a large impact on the apartment sector and, 22 therefore, the overall Rate 6. 23 MR. THOMPSON: What this exhibit 24 shows me is -- first of all, it talks about apartments, 25 and that is not just Rate 6, right? Because the Rate 6 26 average use, we have been told, is 24 -- I'm sorry. 27 You are forecasting it at 22,844, and here under 28 apartment we are talking about average uses almost four 184 MEES/GOULD, cr-ex (Thompson) 1 times that amount. 2 So this is not Rate 6 only under the 3 category "apartment". 4 MR. MEES: What is shown here is the 5 general service rate, which is Rate 6. So the Rate 6 6 number of the year we are referring to includes both 7 apartment commercial and industrial for the general 8 service market. 9 MS GOULD: That's right. There would 10 be no large volume customers reflected in this 11 particular C5, Tab 3, Schedule 10 exhibit, or the 12 associated variance discussion. 13 MR. THOMPSON: There is no evidence 14 here, then, of transfers to large volume? Is that what 15 you are saying? 16 MR. MEES: No, I did not say that. 17 If I could take you to that same exhibit, but at page 18 5 -- 19 MR. THOMPSON: I am talking about C5, 20 Tab 3, Schedule 10. 21 MR. MEES: Yes, and I am saying, if 22 you could turn to that exhibit, at page 5, under the 23 heading "Apartment Sector Trend", indicated in the top 24 paragraph there it shows you that large volume rates 25 have a big impact -- a significant impact on average 26 uses as they move back and forth between general 27 service rates and large volume rates. 28 MR. THOMPSON: No, but there is 185 MEES/GOULD, cr-ex (Thompson) 1 nothing in the numbers that shows the transfers that 2 you are talking about to an industrial rate. Because I 3 thought you just told me this C5, Tab 3, Schedule 10 is 4 limited, I thought you said, to general service and 5 Rate 6 combined and does not include industrial rates. 6 Is that correct? 7 MR. MEES: This does not include any 8 large volume rate. 9 MR. THOMPSON: Does this exhibit, C5, 10 Tab 3, Schedule 10, show any transfers about which you 11 were speaking? I can't find them. 12 MR. MEES: It doesn't specifically 13 show the amount that is transferring between each year, 14 but it does, in general, show you the trend that is 15 happening -- the ups and downs we have just 16 discussed -- that this has a large impact. 17 MR. THOMPSON: So it shows a trend 18 in -- let's just take the apartment line. What is the 19 change line telling us there? Is that some evidence of 20 under-forecasting? Because that trend line isn't the 21 same as what we saw in the CAC exhibit, where we had 22 consistent under-forecasting in the years 1994 on. 23 MS GOULD: That's right. This isn't 24 a reflection of a comparison against forecast; it is a 25 comparison against actual average use in one year to 26 actual average use in another year. 27 So if we were to compare 1995 to 28 1996, for instance, we actually experienced and 186 MEES/GOULD, cr-ex (Thompson) 1 measured an increase in average use in the apartment 2 sector of 1.91 per cent. That reversed in the next 3 year and we saw a decline in that particular sector in 4 average use of 1.24 per cent. So that illustrates, 5 within this particular class, the shifting between Rate 6 6 and large volume, as average use is very susceptible 7 and volatile as these large customers move in and out 8 of this particular rate class. 9 THE PRESIDING MEMBER: Ms Gould, 10 those are normalized. You said "actual", but they 11 are -- 12 MS GOULD: I'm sorry. Actual 13 normalized, that's right. 14 MR. THOMPSON: Is there anywhere that 15 we see how many move in and out? I can't find it. 16 You tell us that, but the evidence 17 strikes me as being equally consistent with forecasting 18 errors in two categories of account, the industrial and 19 the apartment. And you tell us, "That's because there 20 were transfers", but there isn't any evidence that I 21 can see of who moved in and who moved out. 22 MR. MEES: No, we don't have the 23 specific number of customers there moving in or the 24 amount of volume that is moving in, although in 1998, 25 for example, in the apartment sector, there was in the 26 neighbourhood of 20 10(6)s. 27 MR. THOMPSON: Thank you. Those are 28 my questions. 187 MEES/GOULD, cr-ex (Thompson) 1 THE PRESIDING MEMBER: Thank you, Mr. 2 Thompson. 3 Ms Lea? 4 MS LEA: No questions. Thank you. 5 THE PRESIDING MEMBER: The Board has 6 no questions. 7 Mr. Cass, do you have any re-direct? 8 MR. CASS: No, Mr. Chairman. Thank 9 you. 10 MS LEA: I have one announcement, in 11 the nature of a public service announcement, whenever 12 that is appropriate. 13 THE PRESIDING MEMBER: All right. 14 MS LEA: Thank you. There are two 15 matters. 16 Mr. Cass, is Mr. Farrell going to let 17 us know whether the scoping document and the ADR 18 document -- 19 I am just wondering what we do now, I 20 guess. I gather that the next panel, deferral 21 accounts -- it is still under discussion as to whether 22 that is going to be necessary to hear evidence upon. 23 MR. CASS: Yes, I think that's 24 correct, Ms Lea. Mr. Ladanyi has indicated to me that 25 Mr. Farrell will be able to deal with the scoping 26 document tomorrow. 27 MS LEA: All right. Thank you. 28 The public service-type announcement 188 MEES/GOULD, cr-ex (Thompson) 1 that I have is that, for those counsel who are 2 interested in the motion in the electricity proceeding 3 tomorrow, when I spoke on the record earlier I didn't 4 know whether it was at 9:00 or at 9:30. It is actually 5 at 9:00 that that motion begins tomorrow. I thought I 6 would put that on the record. 7 THE PRESIDING MEMBER: All right. We 8 are going to stand down until one o'clock tomorrow, but 9 I was hoping that Mr. Cass and Mr. Farrell would give 10 us some assistance today as to the ADR document, so 11 that we don't spend a lot of time on it -- the 12 Board -- to find out, "Oh, disregard it. There is a 13 brand new document coming in", and we have to read from 14 page 1. 15 Do you have any guidance? 16 MR. CASS: I am sorry, Mr. Chairman. 17 I am told that Mr. Farrell has had to go out of town, 18 and I am afraid that I can't offer any more than that 19 at this point. I apologize for that. 20 THE PRESIDING MEMBER: Mr. Thompson 21 was conversing with him and -- 22 MR. THOMPSON: Yes, thank you, Mr. 23 Chairman. 24 The intervenors met and developed 25 their responses to very few points in the settlement 26 proposal, which have been communicated to Mr. Farrell. 27 So I would be optimistic that we will have those items 28 solved. 189 MEES/GOULD, cr-ex (Thompson) 1 The same thing with the scoping 2 document. The intervenors met and we provided Mr. 3 Farrell with our comments, which he is considering. 4 I am hopeful that that is also a 5 document that will be finalized tomorrow. 6 THE PRESIDING MEMBER: Okay. Thank 7 you, Mr. Thompson. 8 So apart from the motion, then, 9 Mr. Mondrow's motion tomorrow at one o'clock, can we 10 venture to say what issues may be coming forward? 11 I know, Mr. Cass, it is not one of 12 your issues, other than the KASZDA, it's Ms Soudek's 13 issue, but can anybody give us some guidance as to what 14 not to read? 15 MR. WARREN: Yes, Mr. Chairman. I 16 think you should be aware that with respect to KASZDA I 17 think that it is an argument-only matter. So there 18 won't be any evidence on that at all. 19 THE PRESIDING MEMBER: All right. 20 That helps. 21 MR. CASS: I think, Mr. Chairman, we 22 would be moving to the NGV program. That is the next 23 panel. 24 THE PRESIDING MEMBER: So NGV will be 25 on, then. 26 I'm sorry. I didn't hear you, 27 Mr. Cass. 28 MR. CASS: Yes. The next panel after 190 MEES/GOULD, cr-ex (Thompson) 1 the conclusion of the motion, I believe, Mr. Chairman, 2 would be the NGV program. 3 THE PRESIDING MEMBER: Okay. And the 4 retention is still an issue there, Mr. Mondrow? 5 MR. MONDROW: We don't take any issue 6 with the NGV program at all, Mr. Chairman. Our issue 7 is with respect to the HGAI program, the issue 8 following that. 9 THE PRESIDING MEMBER: Okay. 10 Mr. Thompson or Mr. Warren? 11 MR. BRETT: We have some 12 cross-examination on the NGV program, but I don't 13 expect it will be more than 10 or 15 minutes maximum, 14 sir. 15 THE PRESIDING MEMBER: I'm sorry? 16 MR. BRETT: I have a brief one, but 17 it will be no more than 10 minutes. 18 THE PRESIDING MEMBER: Mr. Thompson? 19 MR. THOMPSON: I just wanted to know 20 whether the issue is on the rate of return or it is 21 retention within the company. Is that what "retention" 22 means? 23 MR. MONDROW: Yes. 24 THE PRESIDING MEMBER: That's what it 25 means. All right. 26 MR. MONDROW: I think what it 27 means -- on the issues list it is a classification 28 under the undertakings, the 1998 undertakings, as 191 MEES/GOULD, cr-ex (Thompson) 1 another business for which prior approval is required 2 for retention. 3 THE PRESIDING MEMBER: All right. I 4 guess that will be enough for half a day tomorrow. 5 Thank you very much. 6 MR. CASS: Mr. Chairman, I do have an 7 updated version of the hearing schedule now that could 8 be passed around. I think Mr. Farrell indicated this 9 morning that it would be a work-in-progress and I think 10 this is the second version now. 11 THE PRESIDING MEMBER: All right. 12 That would reflect the discussion this afternoon, 13 Mr. Cass, as to what issues may be going to argument? 14 MR. CASS: I don't think it does. 15 THE PRESIDING MEMBER: You don't. 16 All right. 17 MR. CASS: I don't think it is that 18 fully up to date, Mr. Chairman. I'm sorry. 19 THE PRESIDING MEMBER: Maybe we 20 should just -- 21 MR. CASS: Not bother? 22 THE PRESIDING MEMBER: Maybe just 23 wait, then, for tomorrow. 24 MR. CASS: Okay. Thank you. 25 MS LEA: Thank you. 26 MR. THOMPSON: Mr. Chairman, on the 27 NGV program, because it is not a contentious part of 28 the scoping document, it might be helpful if I just 192 MEES/GOULD, cr-ex (Thompson) 1 read into the record what part you see the issue as 2 being here. 3 THE PRESIDING MEMBER: Well, that 4 would definitely help the Board, Mr. Thompson. 5 Mr. Cass, do you have a problem with 6 that? 7 MR. CASS: No, not at all, 8 Mr. Chairman. 9 MR. THOMPSON: Under the topic 10 headings "Natural Gas Vehicle Program", "Rate of 11 Return" and "Retention" the scoping document reads as 12 follows: 13 "The following parties 14 participated in the discussion 15 of this issue: the Company, 16 CAC, Energy Probe, HVAC, IGUA, 17 OAPPA, Schools, and VECC. 18 There is no agreement to 19 settle these issues. The 20 Company and the other parties 21 cannot agree on the imputation 22 of revenue to the NGV Program if 23 the marketing component is 24 retained and, if it is not, on 25 the basis for removing the 26 marketing component. 27 The Company proposes to 28 retain the NGV Program, as an 193 MEES/GOULD, cr-ex (Thompson) 1 ancillary activity, but not 2 impute revenue. The other 3 parties propose to impute 4 revenue. 5 On the other hand, if the 6 marketing component of the NGV 7 Program were transferred to a 8 non-subsidiary affiliate, the 9 Company would propose to remove 10 the marketing component on the 11 basis of direct and marginal 12 costs. The other parties would 13 propose to remove the marketing 14 component on the basis of fully 15 allocated costs." 16 So that is the issue with respect to 17 NGV. 18 THE PRESIDING MEMBER: Thank you, 19 Mr. Thompson. 20 Any other matters before we adjourn 21 for the day? 22 Thank you very much, then, and we 23 will see you tomorrow at one o'clock. 24 --- Whereupon the hearing adjourned at 1600, to resume 25 on Tuesday, August 24, 1999 at 1300