Rep: OEB Doc: 128RB Rev: 1 ONTARIO ENERGY BOARD Volume: 1 04 APRIL 2002 BEFORE: M. JACKSON PRESIDING MEMBER G. DOMINY VICE CHAIR AND MEMBER P. SOMMERVILLE MEMBER 1 RP-1999-0017 TRANSCRIPT VOLUME #1 2 IN THE MATTER OF the Ontario Energy Board Act, 1998, S.O. 1998 c.15 (Sched. B); AND IN THE MATTER OF an Application by Union Gas Limited for an order or orders approving or fixing just and reasonable rates and other charges for the sale, distribution and transmission and storage of gas as of January 1, 2001 and January 1, 2002; AND IN THE MATTER OF the Performance Based Rate mechanism provided by the Ontario Energy Board through proceeding RP-1999-0017. 3 RP-1999-0017 TRANSCRIPT VOLUME #1 4 04 APRIL 2002 5 HEARING HELD AT TORONTO, ONTARIO 6 APPEARANCES 7 PAT MORAN Board Counsel JAMES WIGHTMAN Board Staff CHRIS MACKIE Board Staff MICHAEL PENNY UNION GAS MARCEL REGHELINI UNION GAS TOM BYNG UNION GAS DAVID DENT UNION GAS ROBERT WARREN CAC MURRAY KLIPPENSTEIN POLLUTION PROBE MALCOLM ROWAN CME TOM MOUTSATSOS CME GEORGE VEGH CEED ALICK RYDER CITY OF KITCHENER DWAYNE QUINN CITY OF KITCHENER MICHAEL JANIGAN VECC SUE LOTT VECC TOM BRETT "THE SCHOOLS" VINCE DeROSE IGUA PETER THOMPSON IGUA DAVID POCH GREEN ENERGY COALITION RANDY AIKEN LPMA & WGSPG AARON DETLOR LPMA & WGSPG RICHARD KING LPMA & WGSPG TIBOR HAYNAL TRANSCANADA PIPELINES BARBARA BODNAR ENBRIDGE CONSUMERS GAS ROBERT ROWE ENBRIDGE CONSUMERS GAS 8 TABLE OF CONTENTS 9 APPEARANCES: [18] PRELIMINARY MATTERS: [54] DECISION: [564] PRELIMINARY MATTERS: [569] 10 EXHIBITS 11 EXHIBIT NO. F.1.1: EVIDENCE BINDER FROM EB-2001-0041 [504] 12 UNDERTAKINGS 13 14 --- Upon commencing at 9:40 a.m. 15 MR. JACKSON: Good morning, please be seated. 16 Good morning, ladies and gentlemen, my name is Malcolm Jackson and to my right is Mr. George Dominy and at my left is Mr. Paul Sommerville. We're sitting this morning in respect to file RP-2001-0029 to hear matters arising out of a customer review process requested by Union Gas and approved by the Board as part of a PBR plan set out in the Board's decision of July 2001 in RP-1999-0017. 17 May I have appearances, please. 18 APPEARANCES: 19 MR. PENNY: Mr. Chairman, my name is Michael Penny and I appear for the applicant, Union Gas. 20 MR. JACKSON: Thank you, Mr. Penny. 21 MR. WARREN: Robert Warren, Consumers' Association of Canada. 22 MR. JACKSON: Thank you, Mr. Warren. 23 MR. KLIPPENSTEIN: Murray Klippenstein for Pollution Probe. 24 MR. JACKSON: Thank you. 25 MR. BRETT: Mr. Tom Brett for the Ontario Association of School Business Officials. 26 MR. JACKSON: Mr. Brett. 27 MR. RYDER: Alick Ryder for the City of Kitchener, and Mr. Dwayne Quinn will be joining me. 28 MR. JACKSON: Thank you, Mr. Ryder. 29 MR. VEGH: Good morning, sir. George Vegh, counsel for the Coalition for Efficient Energy Distribution. 30 MR. JACKSON: Good morning, Mr. Vegh. 31 MR. MOUTSATSOS: Tom Moutsatsos for the Canadian Manufacturers & Exporters Inc.. 32 MR. JACKSON: Thank you, Mr. Moutsatsos. 33 Next. 34 MR. AIKEN: Randy Aiken for the London Property Management Association and the Wholesale Gas Services Purchasers Group. 35 MR. JACKSON: Thank you, Mr. Aiken. 36 MR. KING: Richard King, counsel for the Wholesale Group. 37 MR. JACKSON: Mr. King. 38 MR. POCH: David Poch, counsel for the Green Energy Coalition. 39 MR. JACKSON: Good morning, Mr. Poch. 40 MR. JANIGAN: Michael Janigan, for the Vulnerable Energy Consumers Coalition; with me today is Sue Lott who will also be acting as counsel for the Vulnerable Energy Consumers Coalition. 41 MR. JACKSON: Thank you, Mr. Janigan. 42 MR. DEROSE: Vince Derose, for the Industrial Gas Users Association, and Mr. Peter Thompson will be joining me here, in all likelihood, next week. 43 MR. JACKSON: Thank you, Mr. Derose. 44 MR. HAYNAL: Good morning. Tibor Haynal for TransCanada PipeLines. 45 MR. JACKSON: Thank you, Mr. Haynal. 46 MR. FARRELL: Good morning, Mr. Chair. My name is Jerry Farrell; I represent Enbridge Consumers Gas. 47 MR. MONDROW: Ian Mondrow for HVAC Coalition. 48 MR. JACKSON: Thank you, Mr. Mondrow. 49 MR. MORAN: Mr. Chair, Pat Moran, Board counsel. 50 MR. JACKSON: Thank you, Mr. Moran. 51 You have two people with you, Mr. Moran. 52 MR. MORAN: Mr. Mackie and Mr. Wightman. 53 MR. JACKSON: Thank you, good. Key members of the team. 54 PRELIMINARY MATTERS: 55 MR. JACKSON: There are a few little administrative matters that I was asked to point out to you. The on-air light will stay on all the time, whether we are on air or not, so we needn't be worried about that. What's important is somebody reminds me to turn off this little button up here, otherwise we'll be on-air during the break. So we hope that everything works fine. 56 Two weeks from now, we're scheduled to have some maintenance work done on the sound system, so let us know if anything isn't working so we can fix it at that time. 57 I was also told to remind you that the microphones can actually be put away under that little cover that lifts in this hearing room. This is my first occasion in this hearing room, so if you haven't noticed that but would like to make sure that only one of the group of you has the microphone, you could put the others away. 58 And one other matter which I will deal with briefly, I guess is sitting hours. The Board will sit similar hours to what it did in the enabling unbundling proceeding that is coming to a conclusion. And by that I mean when we are sitting in the morning and the afternoon; we will sit from 9:30 until 12:00 and from 1:30 until 4:00 and we will have that sort of a day today and Monday and I guess we'll just see what happens tomorrow, but we would try to sit a shorter day tomorrow. We would sit from 9:30 in the morning until 1:00 unless after the first day we discover we're terribly behind. 59 Next Monday, I can perhaps make another announcement. Monday we'll sit the morning and the afternoon sessions; tentatively, for now. Let me just tell you that Tuesday, we would aim to sit the 9:30 to 1:30 -- 1:00 schedule and Wednesday, because there's a full Board meeting, we would also sit 9:30 until 1:00 and that gets us a fair way out into the future. 60 We've booked this room for 7 days right now. We'll have to evaluate things early next week and see how we're doing, whether we need to go over into the following week or not because there are some, as I said, some timetabling problems with some maintenance people to do some construction in both hearing rooms. 61 Now to some more substantive preliminary matters, perhaps, let me just canvass on this: We're here to deal primarily, at the beginning of this proceeding, with the proposal for settlement, but I have on my list here a notice of motion from the Consumers' Association of Canada and a letter withdrawing that notice of motion, I believe. But I think Mr. Warren might just comment on the status of that for us and then we could end this, if there isn't any other preliminary matters, before getting to the settlement proposal. 62 MR. WARREN: It is withdrawn, sir. 63 MR. JACKSON: Is there -- there's no more light that needs to be shed on that at all, we need not be able to -- will you be intending to use some of that background during the proceeding or -- I think there were some people anticipating its arrival in the proceeding and I just -- 64 MR. WARREN: I can't account for the enthusiasm that others may feel for the motions, Mr. Chairman. For example, Mr. Farrell may encourage me to go ahead but I doubt -- I don't know. 65 I'm happy to shed what light the Board feels it wants on the matter. I'm happy to explain the background to the motion and to the withdrawal if you would like that to happen. The issue of how we conduct the -- how we deal with this issue, the Alliance-Vector issue, we will deal with it without any evidence being before the Board in contra. That does not mean that we are abandoning our examination of the prudence of issue, but we will deal with it on the basis of the material that is before the Board. But, as I say, if the Board would like more information on background to the motion of the withdrawal I'm more than happy to provide it. 66 MR. JACKSON: Thank you. If that's all you feel that we should know at this time, we'll leave it like that and I'll canvass it with my colleagues at the break to see if they have any questions about it. 67 Then I take it -- are there any other preliminary matters, Mr. Moran, that come to your attention? 68 MR. MORAN: I wonder if you wanted to mark the settlement agreement as an exhibit. 69 MR. JACKSON: Yes, thank you. 70 MR. MORAN: That would be Exhibit F.1. 71 MR. JACKSON: Thank you. 72 MR. PENNY: Mr. Chair, Mr. Byng has just pointed out to me that in the revised index to Union's evidence which was set out yesterday -- parties may not have received it -- there are additional copies in the back of the room. In the exhibit list that Union prepared, we assigned the settlement agreement already the number A.6, so it would be part of the administrative section of the filing. So it may not be necessary to give the F.1 designation. 73 MR. MORAN: That would seem to be the case, Mr. Chair. 74 MR. JACKSON: Yes, that's fine. Actually, the revised exhibit list that I have before me this morning has exhibits listed only down to A.4. 75 MR. PENNY: You may not have the most recent revised list, which was only sent out yesterday, Mr. Chairman. 76 MR. JACKSON: Thank you. I have two new pieces of paper before me and one is more up to date than the other. Thank you. 77 MR. PENNY: Perhaps -- I think the first order of business today should be the ADR agreement, but just in case there's confusion about this update, let me just address that. 78 MR. JACKSON: Thank you. 79 MR. PENNY: There was a series of -- or a package of material set sent out by courier to the Board and all intervenors yesterday. As I said, if people did not receive that there are additional copies at the back of the room. That package consists of a number of different things: there is the revised Exhibit A that I just referred to; there are some updates to Exhibit B tab 13, Exhibit B, tab 19; and then some updates to three specific interrogatories. So -- and one of the packages in that is all the CVs of -- the curriculum vitae of the various witnesses that, in light of the settlement, we propose to call to deal with the outstanding issues. 80 MR. JACKSON: Thank you for that explanation, that's helpful. 81 MR. PENNY: Now, Mr. Chairman, there will, no doubt, be a few additional procedural matters with respect to the hearing itself which I would propose we deal with after we've gone through the ADR agreement. So with your leave, I would propose that Mr. Reghelini address the Board on the ADR agreement. 82 MR. JACKSON: That seems fine. I guess I take it then that this settlement proposal which has been agreed upon, everyone is agreed that Union should make the presentation as to its content and the rest of you are here and you will speak up as necessary if there's any clarification that you feel is required. So with that and -- Mr. Penny, I wonder what you would suggest, but I was thinking that perhaps if we have questions at the end of each issue, that that might be the appropriate time to deal with them and I would invite Board staff to ask any questions that they think might be necessary by -- that would assist clarification for the record for the Board, and Board members will do so at that time then too, if that's okay. 83 MR. PENNY: Mr. Chairman, Mr. Reghelini had a conference with Board staff and was advised as to some of the areas in which the Board might have questions. So in order to avoid just mechanically going through every section, Mr. Reghelini was proposing to focus on the areas that had been highlighted by Board staff as areas of potential concern to the Board. 84 MR. JACKSON: Okay, I think that -- I think that should work and if we have any others, we can raise them. 85 MR. PENNY: Absolutely. Absolutely and I think that it probably does make sense that with respect to the issues that Mr. Reghelini is going to give some explanation of that if the Board has additional questions, that we do it on an issue-by-issue basis as opposed to waiting until the end. 86 MR. JACKSON: Thank you very much on that. Let me just check with my colleagues very briefly so that that keeps the record as clean as possible. 87 [The Board confers] 88 MR. JACKSON: Now Mr. Reghelini, were you proposing on the issues you were going to touch on to at least to do them in the order in which they appear in the settlement agreement? 89 MR. REGHELINI: That's correct. 90 MR. JACKSON: Okay, good. Then maybe if you pause between issues, if we do have a clarification question, that is -- that I would anticipate perhaps is not anything more than minor clarification if you weren't alerted about it, we might nonetheless get it in there in the right order. 91 MR. REGHELINI: Sure. 92 MR. JACKSON: Thank you. So when you're ready. 93 MR. REGHELINI: Mr. Chairman, panel members, between March 5th and March 18th, settlement discussions concerning this proceeding took place between Union and interveners and that resulted in the settlement of several issues. And as a result, the hearing which starts today is necessary only to resolve a limited subset of issues raised by Union's application. As Mr. Penny indicated, Union has had discussions with Board staff and they identified the number of issues with respect to the settlement for which the Board may have questions of clarification and I propose to first identify what those issues are and then to deal with each of those in turn. 94 So beginning, the first issue that was identified to Union had to do with issues 4.1 and 4.2 of the settlement agreement which are identified as the issues concerning deferral account balances, 4.1 being for the year 2000 and 4.2 being for the year 2001. And specific question that was raised was to get an understanding of the timing that Union had proposed for its inventory revaluation accounting change and the impact that that had on the deferral account balances. 95 The next issue raised was issue 4.3 which is risk management strategy and activities, and specifically seeking explanations and clarification of Exhibit C.1.4 which is an interrogatory response which quantifies the impact of Union's risk management activities. 96 The next issue is issue 7, delivery point flexibility service extension, the clarification asked for here is what is an understanding of what is a permanent solution to deliver point flexibility. On issue 12, the inventory revaluation methodology, the question here is clarification with respect to some specific wording in two of the sentences which, as I say, I'll return to when we get to the specific issue. 97 Issue 14.5 which is some changes to rate schedules, and the question concerned clarification of the rationale for removing definitions from the rate schedules. 98 The final area that had been identified to us by Board staff concerned issue 16.2, the rate impact for 2002, and the clarification requested there is further clarification of what the parties are actually agreeing to under that issue. 99 That was my understanding of the main areas that the Board may have -- may be seeking clarification on. 100 MR. JACKSON: Yes, I think those are generally the areas in which we do have some questions, Mr. Reghelini, so that would be -- that would be appropriate then, I guess for you to start that. Under 3.3 in the first paragraph, that reference, I think, in the second last sentence should be -- at the end of the sentence, to 2001; is that correct? "A decrease in the 7,000, 10 cubed, M cubed, from a level of recovery proposed for," I think it's 2001, isn't it? 101 MR. REGHELINI: That's correct, that should be 2001. 102 MR. JACKSON: Okay, good. So then, I think, 4.1 was that first area that you were going to speak to. 103 MR. REGHELINI: That's correct. 104 MR. JACKSON: And I think, if I recall, indeed the question was whether the timing of changes could create the transfer of benefits either from ratepayer's generally to shareholders or alternatively from system gas customers to non-system gas customers. But if the Board staff has outlined any other aspects of that question, please address them. 105 MR. REGHELINI: That was the primary context of the issue raised there. 106 First of all, Union's proposal is aimed at ensuring that only gas available for sale to system customers is revalued, and to ensure that system customers are not exposed to impacts associated with the balancing of direct-purchase customer needs. 107 Ideally, when Union identified that the current accounting order and inventory re-evaluation method was being applied in a way that impacted direct-purchase balancing gas, Union would have preferred to have made the change as soon as possible upon determining that a change was necessary. 108 What drove the recognition of the need for the change was the unprecedented volatility in gas prices, the run up and the reduction in price that was experienced over the 2000-2001 period. Prior to that, the impacts of revaluing inventory on the total gas instead of what was just specific to that system sales customers was not a significant impact. So, ideally we would have liked to have made the change as quickly as possible in 19 -- affecting the 1999 balances. However, at that time, the Board had before it Union's proposals for getting acceptance of the 1999 deferral account balances which flowed, in part, from the existing accounting methodology and it had -- by July 2001, it had approved Union's 1999 balances. So, from that perspective, the earliest at which Union could implement the change was January 2000. 109 That being said, it's important to recognize that, given the unprecedented rise and fall in prices during 2000-2001, that you need to treat those two years on the consistent basis. And that would be true if you had a -- whether you had a period where you had a significant run up in price followed by a drop off in price or whether you had a period where you had a significant drop off in price first followed by a significant run up in price. By treating 2002 and 2001 on a consistent basis, what happens is, under our proposal, direct-purchase balancing gas is not revalued and a consistent treatment ensures that both the system customers and Union are kept whole, and neither are receiving a benefit or a disbenefit as a result of the change in the treatment of direct-purchase balancing gas through the transition to the new methodology. 110 If you were to step back and look at what would happen if you made the change in January of 2001, let's say for argument's sake, what would happen is the run up in price that had occurred prior to January 1, 2000, would have generated significant credits calculated on the direct-purchase balancing, gas that would then get disposed of to system customers. But then when prices came back down to a normal -- a more normal level in 2001, because you'd have made the inventory revaluation accounting change, you wouldn't have generated the offsetting debits and so what that results is in actually a disbenefit to Union, because it pays out cash for those credits without actually -- system customers consuming the gas at the higher revalued price to ensure that Union is kept whole. 111 So, Union gets a disbenefit and then system customers get a benefit that has nothing to do with the provision of system gas because they get the cash credit on the disposition. Or, if you looked at the inverse situation happening, if we had a year in which we had first a significant price decline and then the following year a price increase, what would happen is system customers would experience a charge from the inventory revaluation debit that had nothing to do with the provision of systems service and Union would then receive cash on disposition which would be a benefit that had nothing to do with provision of system service and system customers would be out. 112 So in conclusion, the appropriate time we think is consistent with our proposal and with the agreement, is to do it January 1, 2000. And you need, when you have events of unprecedented market volatility, to make sure that you treat the price rise and the price decline consistently. If you want to ensure that neither system customers nor Union receive any benefit or disbenefit during the transition to the new accounting method. 113 MR. JACKSON: I think that helps. I think just for clarification, I should ask: Was the -- did the inappropriate volumes which were being considered and revalued only include a volume of gas that was used for balancing, for delivery to direct customers, or did it actually include some gas which direct customers would have held title to? Was the count off by including gas which direct customers actually held title to as well? 114 MR. REGHELINI: No, this would just be gas that was Union's gas, that Union held title to but was needed for direct-purchase balancing purposes. 115 MR. JACKSON: Thank you. That's just important to nail down, but thank you. 116 MR. DOMINY: Mr. Reghelini, I understand the description you've given me. If one were to go backwards and say one had used the new method as opposed to the old method for 1999, 1998, would there be a benefit to one side or the other in that balance or would they zero out? 117 MR. REGHELINI: I don't have the specific calculations, but I believe in Exhibit C.1.4 there is a schedule that shows -- it's a figure which shows the market prices that have occurred over a number of years and you can see that the pricing is relatively flat prior to 2000. So generally, these impacts were negligible, prior to 2000. 118 Mr. Dominy, I can add a bit more to that. I'm looking at the evidence in Exhibit B, tab 13, schedule 1, page 1 of 2. Excuse me, that reference only takes us to the year 2000. We'll dig up 1999. 119 MR. DOMINY: It was in the ADR settlement agreement, too. It was attached. Those numbers were at the bottom of the -- of appendix A of the ADR. 120 Mr. Reghelini, would it be very difficult just to give an -- to provide that information? I would find it helpful, to have an understanding. I understand what you're telling me, that when the swings are low then the numbers are going to be low; it would be nowhere the range of the numbers shown in note 1, at the bottom of the page, tab 13, but I just -- to get a feel for what would be making the difference. 121 MR. REGHELINI: I can perhaps give you an indication. I've got an evidence reference now, it's from the PBR case, so the RP-1999-0017 case. I'll give you the reference it's Exhibit B, tab 5, appendix C, page 1 of 2 updated -- so it's a blue page update. At line 5 of that exhibit, there is an inventory revaluation credit identified of $45,992,000. 122 While I don't have in front of me a calculation that identifies what the net impact of the change in methodology would have been if we had applied it to the 1999 year, what I can say from looking at this exhibit is that the inventory revaluation credit shown at this exhibit would have been smaller had we -- the credit would have been smaller had we used the new methodology. And as a result, to the extent there was any benefit or disbenefit that occurred in 1999, system gas customers received a benefit through a credit on gas that really should not have been revalued but was direct-purchase balancing gas, and Union received a disbenefit because it paid out that cash. 123 MR. JACKSON: And it would have been smaller, I take it, by an amount. In very rough terms, might it be the percentage annual delivery volumes represented by direct purchase in that year, or no? 124 MR. REGHELINI: No, it would have been considerably smaller than that because it's only on the inventory associated with balancing direct purchase customers and for direct purchase customers whose contracts began April 1, that inventory is zero because they are in balance at the start of their contract. And depending on where -- depending on the profile -- 125 MR. JACKSON: So it wouldn't reflect the year-to-date numbers then it -- what you're essentially saying of their -- where would they be in their contract? 126 MR. REGHELINI: It would reflect the inventory that Union carries, either physically or financially, to support direct-purchase balancing that is a function of the profile of contract renewal dates. For instance, a contract that starts November 1 would have a significantly greater volume of balancing gas required because they would start consuming without having built up a storage inventory. So they would be relying on Union to balance that kind of a contract. 127 MR. JACKSON: And so, for that reason, the balancing requirements of system gas customers as opposed to direct-purchase customers might bear no relationship at all to sort of annual volumes delivered; it would be more dependent upon when the contracts were started or deemed to start with the use of any of the system-use customers. 128 MR. REGHELINI: Correct. 129 MR. JACKSON: Okay. 130 Mr. Reghelini, I think that over the top of the next page, page 9 of the settlement agreement, we had a question with respect to the flexibility component that is mentioned there, the flexibility component of the other purchased gas cost deferral amount. And we were wondering how is it determined what costs go into the cost flexibility component and which costs, for example, would go into load balancing. 131 MR. PENNY: Mr. Chairman, Mr. Byng is the deferral account man, so he's going to speak to that. 132 MR. JACKSON: Thank you. 133 MR. BYNG: The load-balancing and flexibility costs really reflect the non- TCPL supplies. The load-balancing amounts represent, basically, the difference between the winter and summer spot prices applied to winter spot purchases, and then all other supplied -- all other non- TCPL supply is considered to be flexibility. 134 MR. JACKSON: Okay. And is this just a convention that everyone has bought into over the years or would you say there's a good rational basis for this? Because it's not coming through clear to me. 135 MR. BYNG: It's a methodology that goes back to 493-04/494-06; that's the methodology that was put in place at that time in response to a directive coming out of the 493/494 hearing. 136 MR. JACKSON: Would it be fair to say that that was a first approximation with, perhaps arbitrariness, but was there a logic that I can go back and read? 137 MR. BYNG: There was a logic provided at that time. It was -- it was one of the main subjects at that particular hearing. It was a gas cost hearing, the 493-04/494-06 hearing and one primary focuses was on the determination of what to do with costs of non- TCPL supply. 138 MR. JACKSON: But they would have grown substantially over time, wouldn't they? Because although maybe there was some way of linking those to the flexibility or load-balancing costs at that time, they're in far larger proportion today, aren't they than they would have been at that time? I'm just -- I don't want to go too far into this, but I'm just tying to see what the logical link is that says those costs should be load-balancing costs or flexibility costs. 139 MR. BYNG: It really goes back to how -- the methodology goes back to how direct purchase was facilitated using TransCanada a displacement of TransCanada supplier, an allocation of TransCanada capacity through direct-purchase customers which meant that you had to take a look at how you would handle the non- TCPL supply-related costs. 140 MR. JACKSON: So correct me if I am wrong on this, but it seems to me that as TCPL supply then becomes a smaller and smaller proportion of the total supply for Union, that that would be very ripe for review; is that correct? And I gather we're going to hear about it sometime after 2003. 141 MR. BYNG: That's right. That's getting into the directive that has been raised in the enabling unbundling application. It's also referenced, I think, under the first section of the ADR agreement. 142 MR. JACKSON: Right. I think that helps a little bit and I now know where to go back and do some more reading. Thank you 143 MR. DOMINY: May I ask a supplementary question on that and that is the -- as I understand it, there is no TCPL capacity available for system gas customers in the Union -- whatever you call it, the Union supply area. 144 MR. BYNG: In the southern operations area? 145 MR. DOMINY: Yes. 146 MR. BYNG: That's correct. The system-supply customers in the south are -- direct purchase has, basically, in the south used up all the remaining TransCanada capacity. 147 MR. REGHELINI: There is, however, TransCanada capacity in Union's portfolio which is used to serve the northern and eastern delivery areas. 148 MR. DOMINY: What I was wondering is when you work out the firm gas PGVA balances, how do you deal with this supply to the southern area if you say that the differences for non- TCPL gas are all put into the other purchased gas cost deferral account? 149 MR. BYNG: The firm PGVA really captures just the variances in the commodity on firm supply arriving on TransCanada, the other purchased gas cost captures the rest. 150 MR. REGHELINI: So between the two deferral accounts, the total supply is dealt with. 151 MR. DOMINY: So a portion of the other purchased gas cost account was also part of the firm supply for the southern customers? When you allocate the balances in that other purchased gas cost account, does part of it get attributed to firm gas supply for southern customers? I'm not sure -- I'm trying to understand. 152 MR. REGHELINI: I think what we'll need to do is speak with Mr. Packer actually and provide that answer to you on the break, just to make sure to make sure that we are explicitly correct. 153 MR. DOMINY: Thank you. It's just that I'm trying to understand the physical relationship with the financial relationship with the sourcing relationship. Thank you. 154 MR. JACKSON: And it may be helpful at that time too just to confirm for us what the reference price calculation is, whether there are effectively two different reference prices for calculating -- that effectively calculate those variances in those two different accounts or whether it's all done off one reference price that was perhaps determined off the cost of gas forecast coming down the TCPL line, and again these are things that I probably should remember but I haven't done them enough times or repeated them enough times to have them firmly implanted in my mind. 155 MR. BYNG: The reference price for the firm PGVA is the Alberta border WACOG. We have deferral accounts to capture variances in TransCanada tolls and fuel. 156 MR. JACKSON: Yes. 157 MR. BYNG: And the other purchased gas costs, the reference price for that deferral account is really the sum of the reference price for the firm PGVA and the TransCanada toll and fuel reference prices. So other purchased gas costs are referenced against the same effective landed price. 158 MR. JACKSON: Which could then lead to substantial variances if it turned out that the landed price coming in down the system was quite different. 159 MR. BYNG: That's true. What happens is during the course of the year, when we have a QRAM and our firm PGVA reference price changes, we change the other purchased gas cost price by the same amount on the assumption that generally, the cost of -- to the extent that the price of gas in Alberta changes by a dollar that it will be seen North America-wide as well, so that the price of other supplies, non- TransCanada supplies, will change by roughly a dollar as well. It's not exact, but they generally move together. 160 MR. JACKSON: Yes. Yes. I understand that possibility, thank you. 161 MR. BYNG: So when you look at the balances that we had in the deferral accounts, you'll see that during 2000 and 2001 we had some debits in the firm PGVA and we also had some debits in the other gas purchased cost account, and a good chunk of that was just driven by the fact that our WACOG was lagging behind the market on the way up. 162 MR. JACKSON: Yes. 163 I think that we have no further questions until we get to 4.3. So if you were going to say something with respect to 4.3, then perhaps you could go ahead. Thank you. 164 MR. REGHELINI: Yes. Issue 4.3 is -- involves Union's risk management strategy and activities, and there was the question seeking clarification of what was shown in interrogatory response, Exhibit C 1.4. And just to put that in context, I would start by saying it needs to be read in context with interrogatory response Exhibit C.1.5. And -- what C.1.5 does is it explains Union's risk management or price management program and Exhibit C.1.4 provides a quantification of impacts that flow from that program. 165 So in C.1.5, it identifies the goals of the risk management program as to smooth the volatility that is experienced in the natural gas commodity market and to achieve a market-sensitive price and not to speculate as to where natural gas prices may be going at any point in time. And the way that is done is by using a disciplined process of buying gas throughout the year using several contracts in each month that are actually entered into at different points in time during the year. So you're layering-in your purchases throughout the year, so that you experience the average prices throughout the year, while shaving off the volatility. You also purchase a combination of fixed-price supplies as well as supplies that are variable and you -- your price management program really is centered around two aspects. You will fix your prices either by entering into a contract that is a fixed-price contract or you will enter into a variable-price contract and, subsequent to entering into that contract, purchase a financial instrument that fixes that price for -- fixes the price for that gas. 166 So, it's important to keep in mind that risk management has those two impacts: to what degree are you purchasing the fixed-price gas; to what degree are you using financial instruments to achieve the same aim. And then there's a portion of the gas purchases which are left variable and exposed to the variability of prices throughout the year. It's the use of this disciplined process no matter what the market is doing that ensures that, over time, you achieve that market-sensitive price and you don't get trapped into saying, "Today I think the market's about to turn so I'm going to change what I'm doing." 167 So that being said, the policy itself is also attached in that Exhibit C.1.5 and there's some descriptions of the different kinds of financial instruments and how they work on the financial risk management side that will help you in the -- see the context of what's in Exhibit C.1.4. 168 Then, turning to Exhibit C.1.4, I think -- the best place to start would be for me to walk through one of the schedules; specifically schedule 2, page 1 of 2. And I'll describe what's on that schedule and then describe the rest of that exhibit. 169 So, schedule 2, page 1 of 2 shows the purchase activity and the price-management activity for the calendar year 2000. And if we start on the left-hand side of that schedule, you will see a column that says, "delivery months." So the items -- if we just pick the month, the first month, the month of January, the items on the line, on line 1, that deal with the delivery month of January pertain to gas that was delivered to Union in January 2000. 170 Moving to the right, the column immediately to the right is identified as "dates of purchases," and that identifies that, in that -- for deliveries in January of 2000, we were entering into -- Union was entering into contracts during the period of March 3rd, 1999 to December 21st, 1999 to secure its January 2000 supply. So each month you're actually arranging for the supply for that month over an extended period of time and, again, that's part of smoothing out the volatility. 171 So the next two columns identify the high price and the low price that Union realized, these are unit prices now, that Union realized on the contracts that it entered into for January 2000 supply. And to the right of that is the number of transactions or number of contracts that make up the January 2000 supply, and you can see that there are 26 contracts that make up that January 2000 supply. 172 The next column to the right is the total volume of January supply, and following that is the total cost. So this is not a unit price here now, this is the total cost, $32.1 million, that is represented by those 26 contracts and provides the January supply. So that's the purchase cost. 173 Now, the balance of the schedule to the right of the purchase cost column is a calculation that attempts to isolate the impact of price-management activities. So, what's shown there are the unit prices of our price-management activities and then those unit prices are used to derive -- at the far right of the schedule -- what the total dollar cost for each month is of the impact of the price-management program. So, starting with column G, what's shown is the unit price without physical hedges, or for that matter financial hedges, so with no price-management activity at all. What would be Union's price if the supply had all been variable. 174 Then as we move to the right, we identify the benefit or cost of engaging in what are identified as physical hedges in column H, which are -- physical hedges are just entering into a fixed-price contract. And in column I -- 175 MR. JACKSON: For anything greater than what period of time? 176 MR. REGHELINI: That would be entering into a fixed-price contract for supply in that month, in that January 2000 time frame. 177 MR. DOMINY: Sorry, but that contract may have been entered into way back in January '00, if I look at that line. 178 MR. REGHELINI: The contracts for January 2000 -- 179 MR. DOMINY: Sorry, March the 3rd, 1999. Sorry, I was looking at the wrong column. 180 MR. REGHELINI: That's correct. That average unit price is represented by the combination of contracts which are fixed-price contracts that were entered into between March 3rd, 1999 and December 31st, 1999 for delivery in January of 2000. 181 MR. DOMINY: Okay, I just wanted to -- that was my understanding. 182 MR. REGHELINI: Then in column I are the unit-price impacts of the financial hedges that were entered into subsequent to the contract being entered into on contracts that were entered into on a variable-price basis and were subsequently fixed through a financial hedge. 183 Column -- 184 MR. DOMINY: Sorry, may I just ask a question? Coming back to column G. In effect, am I correct in assuming that if you entered into a contract and your contract specified that the settlement price will be the settlement price for the month defined by some NYMEX number for a certain number of days, that's what average price without physical hedges is -- it's the sort of market price in the month of January? 185 MR. REGHELINI: Right. Right. 186 MR. DOMINY: So that -- and then the financial hedge that you're dealing with under I is the financial arrangements you've made to put a collar on it or to cap it or whatever arrangements you have. 187 MR. REGHELINI: Correct. It's the impact of that. 188 MR. DOMINY: Thank you. 189 So then to get to Union's total unit prices for the January delivery month, column J adds column G, the price without any price management, to column H, which is the impact of physical fixed-price buys, and column I, which is the impact of the financial instruments entered into, to get a total Union average unit price. And for the deliveries in January 2000, that's approximately $129 per 10 cubed, m cubed. 190 MR. JACKSON: That would also be called F divided by column E; is that correct? 191 MR. REGHELINI: That's correct. That should be column F divided by column E. 192 So then column K is just a restatement of the impacts of Union's price management program. So it's just -- column K is column H and column I added together again, and then that unit price is used to derive the total dollar impact of Union's risk management activities for the month at column L which -- for the month of January 2000, the impact was some 4.2 million, and that was, for that month, an increase in cost. So then in total when you look down this schedule which is calendar year 2000, for deliveries for the calendar year 2000 the total impact of Union's price management program in calendar year 2000 was a net reduction in cost $30.1 million and that's shown at line 13, column L. 193 Now, schedule 2, page 2 of 2, is the same analysis but for the calendar year 2001 and that shows the net impact of Union's price management activities, being the net cost of 39.4 million for calendar year 2001. And then when we go to schedule 3, what we have for -- on schedule 3 then is sort of a score card of how did Union do compared to its objectives in price management. The objectives, again, being to reduce volatility, smooth the volatility, and achieve a market-sensitive price. 194 So the first line of schedule 3 looks at the two-year period, January 2000 to December 2001. Column A shows Union Gas's average unit-gas purchase cost realized; column B shows the market price as represented by the Empress settle price. 195 MR. JACKSON: Those are spot prices, right, essentially; is that correct? It's back to the same -- I guess same issue involved in the description, column G on schedule 2, but there we refer to a market price. We discussed it with Mr. Dominy, and I want to be clear that I've got the right impression. It was a spot market price; is that correct? 196 MR. REGHELINI: Well, it's based on the spot market price but it's the settlement price for that month. 197 MR. JACKSON: But settlement prices in that month, could they be settlements of contracts entered into many months before? 198 MR. REGHELINI: It's not the settlement of Union's contracts, it's the settlement price at Empress based on the Empress market. It's everything at Empress. So it's an index price; so it's the -- it's the settlement price for the index for that month. 199 MR. JACKSON: I think I understand that. Thank you. 200 MR. REGHELINI: And floating-price contracts that Union would enter into would be pegged and referenced to the settlement prices for the respective indexes. 201 MR. JACKSON: Yes. 202 MR. REGHELINI: So then, getting back to schedule 3, column C is just the calculated difference between the Empress settled price, average settled price, and Union Gas's achieved cost. 203 And what that shows is when you take those unit prices and you apply them to the volume which is shown in column G, you get the impact of Union's price-management program or the impact of Union's purchases, being the 9.3 million represented at column H on a total purchase cost of 899 million. And column J shows that as being within one per cent -- in other words, Union achieved a total purchase cost that is within of one per cent of the market. And we would view being within one per cent of the market as having achieved our second objective which -- our objective of a market-sensitive price. And that would be a fairly good result, whether we were one per cent above or one per cent below. 204 Now, the first line in that schedule 3 is looking at the calendar-year period. We also, on the second line, show the same information but calculated based on the price, the price cycle that occurred over 2000 and 2001, so at the start of the run-up and the fall-back of prices. And when you look at the price cycle, again it shows that Union's within one per cent of the market price. It shows we're slightly below the market price at 1.3 below market price, but in any event, whether Union would say -- whether you're above or below being within one per cent of the market price, you are achieving our objective. 205 The second objective is centered around smoothing the volatility and that's shown at columns D and E through the standard deviation of Union's average purchase cost and the standard deviation of the Empress settled prices. And you can see that the numbers shown in column D are significantly smaller than the numbers shown in column E, which demonstrates that the second objective was achieved: that the volatility was, in fact, smoothed. 206 Now, there is a couple of lines below that and that is just the same information presented, but instead of using units of dollars per gJ, it's using dollars per 10 cubed, m cubed, in case you wanted consistent comparisons with the other schedules. 207 Then schedule 4 is a graphical demonstration of the impact of Union's risk management, again being both the impact of fixing prices through financial instruments, or fixing prices through entering into fixed-price contracts. So the two-year period, January 2000 to December 2001, is shown, and you can see that we started out the period with price management resulting in a net cost during the months of January through May which was reduced almost to zero by the time June rolled around. 208 And then as prices started to run up, there became a cumulative net benefit that was growing up until it had achieved its maximum in February of 2001 which was approximately 80 million. And then as prices came down, that net benefit was chewed into and was essentially back to even in the October time frame. 209 Then schedule 5 is a similar graphical presentation and it looks on a price cycle as opposed to the calendar year. 210 Schedule 6 I referred to earlier this morning, and what it shows is a graphical representation of Union's average realized cost versus the market price, the Empress market price. I think the heading on that is incorrectly titled; it's the Empress settle versus the Union averaged realized. 211 And the Union average realized is the dotted line whereas the Empress settle is the solid line. And you can see that for the most part, Union's prices are very close to the market price and what happens is that the peaks are shaved off. And in 2000, and 2001 where we had the unprecedented level of volatility, the peaks and the valleys that are shaved off are quite significant. 212 So in conclusion, again, I would say we need to look at C.1.4 and C.1.5 together. C.1.5 describes risk management, why we do it, how we do it, the instruments that you use, and provides the policy. And C.1.4 was an attempt to look at the impacts of risk management on the firm PGVA. 213 MR. MACKIE: Dr. Jackson, I think Board staff may have a few clarifying questions on this issue. With your permission, we could proceed. 214 MR. JACKSON: Yes, that would be helpful. Thank you. 215 MR. MACKIE: Perhaps I could kick off, then. And I raise these questions particularly in reference to the Board's previous QRAM decision an order to which Mr. Reghelini referred, quite appropriately and prudently, in his covering letter of March 22nd. And a quotation there refers to the risk-management costs incurred in the preceding six-month period up to December 31 of 2001. And the Board stated that the Board is particularly concerned about costs identified as risk-management costs incurred over that period. 216 "Union is advised that the justification for these costs will be examined in depth at the customer review process, along with the other gas supply and transportation costs, before hearing the appropriate deferral accounts for fiscal 2001." 217 And in respect of that quotation, in that six-month period I wonder if Union could advise the Board of the total of its risk-management costs incurred over the period July through to December 2001, and that information should be apparent from schedule 2, page 2 of 2. 218 MR. REGHELINI: That's correct. The history of this information response is connected with the Board's order and from the QRAM referenced by Mr. Mackie. 219 And what the total impact of risk management would be for the July 2001 to December 2001 period can be identified from the sum of the numbers shown in column J for those months. And the sum of those numbers are 74.7 million and that's a net increase in cost and I just -- I just point out, the Board was concerned because -- or I guess -- I guess the Board's concern may have arisen from the fact that it was looking at a limited time frame, and we would submit to the Board that the appropriate way to assess risk management is really over an extended period of time. And essentially, ideally, the price cycle which includes both the run up and the fall back in prices so that the true net impact of price management can be seen. 220 MR. MACKIE: Thank you, Mr. Reghelini. And if I look then at the column, total of the risk management costs incurred in the year 2000, that's a figure of $39.4 million; is that correct? 221 MR. REGHELINI: Yes, for 2001. 222 MR. MACKIE: 2001, I'm sorry, I'm referring to the 2001 balance. And would I be correct in assuming that if that risk management cost for 2001 had not been incurred, that would reduce the balance in the gas cost purchased deferral accounts shown at Exhibit B, tab 13, schedule 1, page 1 of 2, and that accompanies the back of your -- of the settlement, proposed settlement agreement. That would result in reducing the balance shown of $93.7 million. It would be reduced, correspondingly, by $39.4 million; would that be correct? 223 MR. REGHELINI: Sorry, are we just talking about the risk management activities for the 6-month period or for the full year? 224 MR. MACKIE: No. No, I'm taking the 12-month period in relation to clearing the 2001 deferral accounts. 225 MR. REGHELINI: If Union did not engage in risk-managment activities in respect of its 2001 gas deliveries, the impact on the deferral account would be a reduction in the cost of some 39.4 million as if Union did not engage in risk management activities in the calendar -- for the calendar year 2000 deliveries, the deferral balances would have been increased by some $30.1 million. 226 MR. MACKIE: And, therefore, we have to conclude there's a net cost to ratepayers of $9.3 million in that two-year period? 227 MR. REGHELINI: That's correct. There is a net cost to ratepayers over that two-year period, and that net cost is roughly one per cent of the total cost of total supplies in this deferral account. And it's, again, important to look at the plan in context. Unless a price cycle was exactly symmetric on the way up and on the way down, you would not necessarily expect that the net impact of your price-management activities was going to be zero. On some price cycles, it may be a net benefit and some price cycles it may be a net cost, but the importance is -- what you're trying to achieve is a market-sensitive price with smoothed volatility. And Union would submit that achieving a market price within one per cent on $800 million to $900 million worth of supply is achieving the objective. 228 MR. MACKIE: Thank you. Dr. Jackson, those are my questions. 229 MR. JACKSON: Thank you. 230 MR. SOMMERVILLE: I wonder if the reporter could just read back -- is it possible to do that? The first answer that Mr. Reghelini gave to the first question that Mr. Mackie asked. 231 I think you referred us to the wrong column, Mr. Reghelini. And just to make sure that the record, the transcript, reflects the -- I believe Mr. Mackie asked you how one would discern the cost of the risk-management activities for the six months, July to December of 19 -- of 2001. And I think he referred us -- I think, in error -- to column J, and I would have thought that the appropriate column is, in fact, column L. Is that right? 232 MR. REGHELINI: Oh, sorry, I mis-spoke myself. That is column L. 233 MR. JACKSON: Thank you. 234 MR. REGHELINI: I'm a victim of our own tiny printing. 235 MR. SOMMERVILLE: I just wanted to be sure, as we go back over the transcript, that we'll have the appropriate column. Thank you. 236 MR. REGHELINI: Sorry, I may have -- I will check the transcript. I may have mis-spoke myself a couple of times. 237 MR. SOMMERVILLE: I don't -- I think you got the rest of them right. 238 MR. JACKSON: Thank you. Mr. Reghelini, if we take a long enough time period, wouldn't we expect though that the average unit cost with risk management would be higher than the average unit cost without risk management? I take your point if we choose short periods of time it could fall either side, but wouldn't you expect risk management to have a cost, I guess, is what I'm saying? 239 MR. REGHELINI: I think that's fair in the sense that what risk management amounts to is, in some respects, a bit of an insurance policy that caps your exposure, so there would likely be a net cost over time. 240 MR. JACKSON: And quite fortuitously here; 24 months seems to be long enough to get things to work out the way we would intuitively think that they should. That there is a slight cost to risk management and you've, fortunately, achieved a price which is not too much higher than the volume-weighted settle price. 241 MR. REGHELINI: I'm not sure I could even, at this point, sort of accept that it's indicative of the net cost of the price management in terms of the insurance because the price cycle is not exactly symmetric. The fall off in prices hasn't come down -- hadn't come down to the same level from which it started at. 242 MR. JACKSON: Right. No, I think that's a good point. 243 Mr. Moran. 244 MR. MORAN: Yes, Mr. Chair, Mr. Wightman has a couple of questions also that arise out of the explanation of 4.1 and 4.3. 245 MR. JACKSON: I think, given the attention that this has had in previous proceedings, this is important to get some comfort on. So Mr. Wightman, thank you, if you'd go ahead. 246 MR. WIGHTMAN: Yes, thank you. Did I understand when you were talking about balancing direct purchase that it would be physical or financial gas used to balance direct-purchase accounts? 247 MR. REGHELINI: Well, let me step back a bit and explain. The volume of gas that balances direct purchase during the year will either be physical, in other words, it's sitting in storage, in Union's storage, available to balance direct purchase volumes -- direct purchase customers -- or, when it's actually being used for the balancing, what is happening is customers are consuming it and it gets withdrawn out of storage. So it's not physically in the storage field anymore, it's been consumed by direct-purchase customers and will be returned to Union Gas as the direct-purchase customers or their agent delivers their gas at 100 per cent load factor through the year. So it gets returned to us. 248 So, for the period of time that it's been consumed but hasn't yet been returned to us, it is a -- it's still Union's inventory, it's just a financial inventory though, because it's not physically in the storage field. It's gas that we own that will be returned to us by direct-purchase customers. 249 MR. WIGHTMAN: So there are no gains or losses on that kind of financial gas? 250 MR. REGHELINI: No, it just -- over time, it's some combination of physical gas in storage or financial inventory and it oscillates back and forth from year to -- as we go seasonally through the year. 251 MR. WIGHTMAN: Thank you. Can I just then ask you one other sort of general question with respect to 4.3, and that is if your risk-management activities -- if you focused on that period, July 2001 to December 2001, and compare it to all your previous periods in which you've undertaken risk management what is the difference with respect to the number of transactions used to underpin gas supply in that period, compared to previous periods? And I mean historically, too. Was there an increase or a decrease in activity, generally, or pretty well the same level? 252 MR. REGHELINI: I'm not aware of any change in the sort of number of contracts that we used to underpin supply. 253 MR. WIGHTMAN: And are you aware of any significant change in composition with respect to financial versus physical components used to underpin supply in that period, as compared to any other periods? 254 MR. REGHELINI: To my knowledge, there wasn't anything unusual about that period. What we were doing is we were engaging in the disciplined application of the policy. 255 MR. WIGHTMAN: And just finally then on that note, if you just look at the financial gas arrangements made for that period, are you aware of any significant change in composition with respect to whether they were swaps, calls, callers or whatever, futures, or whether -- did this pretty well reflect the same type of activity that had been undertaken earlier, it was just that the high volatility made the outcomes look a little different? That's all I'm trying to get at. 256 MR. REGHELINI: My understanding is that the only thing that's impacting that period is the unprecedented volatility that occurred over that time frame, and we were following our policy from month to month to maybe slightly different numbers of contracts entered into, based on the prices offered from month to month, but the application of the policy is the same. 257 MR. WIGHTMAN: Thank you. Those are my questions. 258 MR. JACKSON: Thank you for those answers. 259 Mr. Reghelini, let me just check with the reporter because I've gone a little bit past when I would normally break. But would you appreciate a break? Yes? Okay. I think we will take our morning break and if everyone is a little flexible, we'll try to get back here in 15 minutes. And perhaps then we'll break at 12:15 instead, so we will have a bit of a run before we break for lunch. We will return at 11:25. Thank you. 260 --- Recess taken at 11:10 a.m. 261 --- On resuming at 11:35 a.m. 262 MR. JACKSON: Please be seated. 263 MR. DOMINY: Mr. Reghelini, there was one question that was going through my mind, and that is we're talking volumes here, could you explain to me in terms of C.1.4 what are the volumes we're dealing with? Is it all gas purchased by Union? 264 MR. REGHELINI: The volumes are the volumes identified at schedule 2 under column E. Those are the volumes that are for supply delivered under firm gas purchases on TCPL. 265 MR. DOMINY: So where -- is there a risk-management program, or how do we deal with gas that is coming down the transportation that's available to the southern area, i.e. the Alliance-Vector source supply? Source may be the wrong word, but transportation supply? 266 MR. REGHELINI: The cost of supply purchased on other -- other than firm TCPL deliveries are found in the other purchased gas costs accounts. 267 MR. JACKSON: And are these subject to a risk-management program? 268 MR. REGHELINI: We apply the same discipline process to all of our purchases. 269 MR. JACKSON: Thank you. 270 MR. DOMINY: Mr. Reghelini or maybe Mr. Byng, when I looked at some of the information supplied under EB-2201-0078, which was the application to increase the rate rider, I was wondering, is all the information that I have in front of me -- that's part of the public record, isn't it? I have correspondence from -- which I took from the public file, so it's on the public record. And there's a letter, I believe it's dated December 14th, to the Board Secretary about the quarterly rate adjustment providing additional information on the risk-management program, and some of the information in that attachment has been reproduced or reflected in C.1.4, but the whole of that is on the public record, isn't it? 271 MR. BYNG: Yes, that's my understanding. 272 MR. DOMINY: So at the end of that, there's a whole list of transactions by month of the layers, if you call it layering, of the supply for that month of firm gas. 273 MR. BYNG: That's correct. 274 MR. DOMINY: So that would be giving me an indication of the number of transactions, not necessarily in the month, but the number of transactions that relate to the supply of the month. 275 What I'm trying to get at is that the risk-management activity, say to the month of July, may have been undertaken in January, of the preceding January, or even the preceding July. 276 MR. BYNG: That's correct. And in the interrogatory response that Mr. Reghelini walked you through, it indicated that, and I think as you had pointed out as well, that that first month of January deliveries encompassed several transactions that were entered into as far as back as March of '99. I think it was 26 transactions, if I remember correctly; the first one that he walked you through. 277 MR. DOMINY: So if I was to try and understand the level of the activity of your committee that does risk management, I would have to look through a series of monthly statements and pick the date of the deal to get an indication of the amount of activity that went on each month on risk management. In other words, if you entered into -- according to the information that was provided in that proceeding, they listed the transactions by a thing called "deal date" and it had a specific date it in it, and that would be the date in which the risk-management activity or the activity was taken or the contract entered into or the price fixed. 278 MR. BYNG: Yes. 279 MR. DOMINY: So in order to understand the level of activity of that committee or the person in charge of it, you'd have to look at -- add up all the deal dates or the activity of deal dates for that month. 280 MR. BYNG: Yes, and I think basically what that represented was a break-out of line items that we have in C.1.4. So -- and I am going by memory here which is why I'm hesitating a little bit, but I believe that schedule would have shown, for example, for the month of July, it would have shown all the arrangements that we entered into for those July deliveries. And what you're seeing in C.1.4 is basically a summary for that, on one line. 281 MR. DOMINY: Is that -- is there something you want to add, because I really was just trying to confirm my understanding of what that information was. 282 MR. BYNG: Yes, that's generally what that is is -- the information that's provided in that QRAM application is a break-out of the individual line items, so the transactions that we have been entered into for a particular month. 283 MR. DOMINY: Thank you. 284 I had one question that came out -- sorry? 285 MR. BYNG: Sorry, I just wanted to add that the risk management that shows up on here is strictly the financial -- sorry. The schedules that were provided in support of the QRAM application focused only on the financial risk management, and in C.1.4 in this proceeding we brought in both the financial and the physical risk management. 286 MR. DOMINY: Yes, I had tried to relate the two and I came to the conclusion, because what you referred to as commodity costs in that proceeding was fixed -- was physical risk-management plus the settlement price was deferred to as the commodity costs. No, I understood that. 287 MR. BYNG: Okay. 288 MR. DOMINY: I was going to ask a question and this is really -- not really related to the settlement agreement, but it just was puzzling me at the time of the QRAM and it's still there. And that was the question that, in fact, you changed the volumes between the November QRAM and the December application. And my understanding was because you said had you used forecast volumes from the November and they were much different than the ones that were shown up when you came to the December QRAM in trying to calculate what the inventory rate should be. And I was wondering if you could just, for the record and for my clarification, explain what was the difference in methodology between the November and the December. I don't know whether you're the person to answer that. 289 MR. BYNG: The volumes that we had provided in the November -- the QRAM for November 1st -- let me just back up. I think your question is: Why did the volumes change from the November QRAM to the January QRAMs. 290 MR. DOMINY: That's correct. 291 MR. BYNG: And I think it really comes down to the fact that for the November QRAM, we had -- that data was that much older. It was more than a couple months older, too. We had only had actuals to a point in time. By the time we got to the next QRAM we had the benefit of more months of actual information, as well as a much better idea as to what we were purchasing during the balance of the year. And that's why we reflected that when we got to the January QRAM. 292 MR. DOMINY: If we are to receive another QRAM in the future, what will be the volumes shown for the months going forward from the date of the QRAM application? Would it be, again, a forecast? 293 MR. BYNG: It will be the best information that we have. It will be a combination of actuals, to the extent that we've already lined up actual purchases, as well as forecast for the purchases that we wouldn't have lined up. But, going forward, we're going to take more care in reflecting as much actual information as we can in doing the -- deferral account projections. 294 MR. DOMINY: Thank you, Mr. Byng. 295 MR. JACKSON: I think the -- before we get to the next area which I think was around issue number 7, the Board just wanted to ask Mr. Ryder to clarify the situation with respect to question number 5. And, I take it that Mr. Ryder just moves in CEED and CME in terms of grouping of parties, so he's with parties that do not agree. There's not really a category for opposing, is there? But -- and you're not just -- not taking a position. But I think it has to do with the -- whether or not you are willing to endorse Union's use of the new methodology for operational and planning purposes. And maybe Union could shed some light on this, too, but they were seeking the Board's approval of this which, I guess, might then have been taken to be the Board's approval of -- or acceptance of the cost consequences of doing that. And now it's prepared to do it and take the cost consequences itself; is that basically what Union is saying? 296 MR. PENNY: Mr. Chairman, the original proposal of course, at the very beginning, was to seek rate adjustments based on this. Union decided not to do that quite some time ago but was in an interim period in which it was seeking, if you can describe it, as a soft endorsement of at least the adoption of this for operational purposes but not seeking any cost consequences of that at all, simply explaining to the Board this is what we're doing and seeking some endorsement of that as a result of the settlement process, there's no consensus around that. So Union withdrew its proposal, we're not -- Union is no longer seeking any endorsement at all, of any kind, whether it's soft other otherwise. It's going to manage its business as it sees fit within the parameters of the PBR, and if and when rate adjustments or cost consequences of the change -- which may be adopted or not adopted, whatever -- are sought, those will be, of course, brought forward either in this type of process or whenever it may be. And there will be an opportunity for a full hearing on it. 297 So the -- it was on the basis, as I understand it, on the basis that Union was no longer seeking anything from the Board, that this issue effectively falls off the table. I believe -- 298 MR. JACKSON: So that the settlement really is almost an acquiescence that it's off the table; is that it? 299 MR. PENNY: For the time being, yes. As an issue for the Board to make any determination on. 300 MR. JACKSON: Yes. 301 MR. VEGH: Sir, if I may, just to say why CEED has joined issue on this. I'll tell you what CEED's issue is on this, and frankly CEED believes that this issue is on the table. 302 What Union is proposing is that by using its proposed new weather methodology, the storage allocations for unbundled customers be physically reduced. And CEED's position is that it is inappropriate to reduce those storage allocations, and that it does not fall out of the new weather methodology. So from CEED's perspective, this is an issue, and is what is the impact on the storage allocations resulting from the use of this new methodology. And that's an issue in this hearing. We'll be cross-examining on that and making submissions on that. My understanding is that City of Kitchener views this issue the same way. 303 MR. JACKSON: Thank you, then. Mr. Ryder, does that sum it up. 304 MR. RYDER: Yes, that is so. 305 MR. JACKSON: Thank you for that. 306 I think we're on to -- 307 MR. RYDER: Just before we leave that, when we get to the issues list and the allocation of the issues among the panels that have been established, we will be asking that issue 5 be inserted into one of those panels. 308 MR. JACKSON: Thank you for that notice. 309 MR. PENNY: As indicated to you earlier, Mr. Chairman, at the outset, that after dealing with the ADR agreement we'd be dealing with a number of procedural issues before the actual commencement of the evidence. Obviously the issue of the issues list is one of those things, so we'll get to that in due course. 310 MR. JACKSON: That's fine, thank you. 311 Number 7, then. And I think that -- am I correct that this was just a clarification question which had been highlighted for you dealing with the question of permanent solution? 312 MR. REGHELINI: That's correct. My understanding is the question is, really, what is meant by a permanent solution to delivery-point flexibility. As the panel may be aware, coming out of the RP-1999-0017 case, there was a settlement agreement on unbundling issues, part of which included the provision of delivery-point flexibility for a three-year period for up to 20 per cent of the deliveries of all customers, system wide. That was facilitated by Union securing a turn-back of M-12 capacity from TransCanada PipeLines for that three-year period and it was acknowledged that when that agreement expired, for delivery point flexibility to continue in the future at that level, there would be a need for some other solution. By permanent solution, what we meant was putting something in place which once put in place it would be there forever or permanently so that this issue would not have to be addressed every time a -- as in this instance, the turn-back agreement of the M-12 agreement of the TCPL would have expired. 313 So a permanent solution can be one of two things: it could either be obtaining a permanent turn-back of M-12 capacity from some M-12 customer and having that cost then reflected in rate on a permanent basis; or it could be actual construction of facilities to provide capacity that would give a 20 per cent delivery-point flexibility solution. 314 In any event, there was no consensus among the parties that an extension of delivery-point flexibility was a desirable thing, and as a result, Union withdrew its proposal to extend the delivery-point flexibility beyond the current three-year arrangement. 315 MR. JACKSON: The only other query I had is more a matter of interest at the moment than anything, that I don't think will lead to a need to do anything. And it's the question of -- it arises out of the second full paragraph on the next page and I was just wondering, when delivery-point flexibility in excess of 20 per cent is needed, could you just remind me how that is charged for? I think you said you will honour your commitments to try to provide additional delivery-point flexibility if it's needed. And when you do provide it in excess of the 20 per cent, how do you charge for that? 316 MR. REGHELINI: That would be where a customer is seeking additional flexibility and we would try to facilitate that. Generally, what we would be looking to see -- to work with the customer to see if there was M-12 capacity, that an M-12 customer was prepared to assign on a temporary or permanent basis and what -- all that Union would be doing would be acknowledging the assignment, and the customer that's taking on that responsibility would then be subject to the M-12 terms and conditions. 317 MR. JACKSON: Right. That's fine then. That clarifies that. Thank you. 318 MR. REGHELINI: Before moving on to issue 12, Mr. Mondrow asked me to make a clarification with respect to issue 11.3, as he was unable to stay for the balance of this morning. 319 Mr. Mondrow informs me that the agreement at 11.3 inadvertently has reflected HVAC as taking no position on this issue when, in fact, HVAC is agreeing with the settlement of this issue. So they should just be reflected under the parties that agreed with the settlement. 320 MR. JACKSON: Thank you for that. 321 Mr. Reghelini, just before we go on to 12 as well, I just wanted to check with my colleagues, but I'm trying to recall whether there was a question with respect to question 10. 322 I think we did have a question with respect to 11.2. 10, I think we've cleared up any questions we have there. But under 11.2, I see a note here to raise the question as to where the revenues would be credited when a payment is made under the provision that Union would be proposing to charge -- that the charge reflect the highest non-delivered gas supply price in either the month of expiry or the following month and I take it whichever is greater; correct? 323 MR. REGHELINI: Correct. 324 MR. JACKSON: And then where would that charge be credited? Is that just credited to general revenues or does it go into one of the deferral accounts? 325 MR. REGHELINI: No, it serves to reduce the balance in the other purchased gas cost deferral account. 326 MR. JACKSON: I think we thought that it would, just thanks for clarifying that. 327 So again, given that it's unsettled, thank you for that clarification and I think we can move on. 328 MR. REGHELINI: The next issue I had identified was at issue 12, and that's the issue concerning the inventory revaluation methodology which we have discussed to some degree this morning. My understanding of the clarification that's requested here is it has to do with the third paragraph of this issue in the last -- specifically the last two sentences of that paragraph, although I would ask for a bit of clarification as to where the -- what the question is that's arising around those two sentences. 329 MR. DOMINY: Perhaps a simple clarification would be, how do you determine the amount of the inventory that is allocated to balanced direct purchase and the amount of inventory that would be regarded as system gas inventory. 330 MR. REGHELINI: So the question is how do we determine the amount of inventory -- 331 MR. DOMINY: Because it says Union is proposing that the accounting order be changed to record the gas required to balance direct-purchase customers separately from gas inventory that is available for sale. So how is that split determined? 332 MR. JACKSON: What does "required to balance" mean, I guess, is one subsidiary question there? 333 MR. REGHELINI: That's the amount of gas inventory that Union holds continually in inventory, either physical or, at times, financial, that is used to balance the direct purchase customers. 334 MR. JACKSON: I think from the other discussion we had this morning, perhaps I might infer that your analysis or assessment looks at monthly balances in order to try to come up with a notion of what the direct purchase requirement is for balancing; is that correct? 335 I think we're just curious as to how you would determine an amount that was required to balance, because at the end of that paragraph, you mention that Union will annually assess the inventory for balance and direct purchase and adjust the inventory accounts as necessary. So what sort of an assessment do you have in mind? 336 MR. REGHELINI: Well, what we're looking at is we're looking at what our gas purchases are, what our inventories are and what our sales are, and the inventory supports the system sales and the incremental inventory that we carry through the year, including the difference between our actual, physical inventory. And when we've got inventory that we're carrying on a financial basis, that's what gives us the identification of what inventories it is that are supporting direct-purchase balancing. 337 The assessment that is referenced in this paragraph is the fact that we will have direct-purchase activity throughout the year. In some years, the number of direct-purchase customers goes up, in some years it goes down, and so there will be a need to do an analysis each year just to make sure that the level of inventory reflects -- the direct-purchase balancing inventory remains relevant or remains valid. 338 MR. JACKSON: You see, what occurs to me is that maybe there is some very different attributes between system gas requirements for balancing and direct-purchase requirements for balancing. It occurs to me that that might be true and I just don't know whether it is. So what kind of analysis might you do in order to determine those different needs? And I think we touched on it briefly this morning, so maybe we don't need to go further at this point. But my understanding this morning was that you would have to look at when contracts started or, in the case of system gas, were deemed to start, and that those would lead to possibly very different requirements for balancing in two different cases, system gas and direct purchase. 339 MR. REGHELINI: Well, with respect to system gas, Union provides all of the balancing for system gas. 340 MR. JACKSON: Yes. 341 MR. REGHELINI: With respect to direct purchase, the balancing that Union provides, the annual balancing that Union provides, is dependant upon the contract start date. And therefore, the balancing that Union provides for direct purchase will be, to some extent, different than what it would be providing for its system portfolio. But that is just a reflection of those contract start dates and it's looking at the amount of inventory that gets recorded as financial inventory, and the differences between financial and physical allow Union to isolate the direct purchase balancing inventory. 342 MR. JACKSON: I think perhaps I've gone far enough with my question on it. It begs a couple of other questions but I'm going to spare you. Thank you. 343 MR. DOMINY: I have a question that's nothing to do with the inventory evaluation, it's to do with the future review of system gas, which is the last paragraph. And it says: "This review is expected to occur in conjunction with the next Consumers Gas rate case, following ECG's fiscal 2002 or in a generic proceeding held specifically for that purpose subsequent to ECG's fiscal 2000." I wonder if you could just explain to me what that sentence suggests? 344 MR. REGHELINI: Well, there is -- Enbridge Consumers Gas has agreed to a review of its system gas through the settlement of its previous case, through their ADR agreement. There was a discussion among a number of parties wanting Union to participate in a similar review and there was a feeling that it would be useful, because these are common issues among Enbridge and Union, for that review to be held in conjunction; that Union would participate in that review. 345 The Enbridge ADR didn't -- the Enbridge ADR identified that that review was going to take place following their -- the fiscal 2002 case or in a generic proceeding. And all we were trying to identify is that Union was going to participate in that same process. 346 MR. DOMINY: Thank you. 347 MR. JACKSON: And so that review might very well look at the question of load-balancing requirements then for system gases among other questions; would it? 348 MR. REGHELINI: Potentially, although we have a direction to address that issue within our own proceedings. 349 MR. JACKSON: Yes, I guess that's a timing question then, in part. 350 MR. REGHELINI: Right. 351 MR. JACKSON: Thank you. 352 MR. REGHELINI: The next issue that was identified to me had to do with issue 14.5 and some rate schedule changes. 353 MR. JACKSON: Let's just -- I'll pause briefly at 13.1, if you could, Mr. Reghelini, and then get to 14.5. 354 13.1 -- two minor questions of clarification there, but one is the last sentence. It says: "As this information will have no impact on the customer review process for 2001-2002, there's no issue for resolution by the Board." The "no impact" situation, is that because there are no earnings to share or is it because of a timing question as to when it can be dealt with? 355 MR. REGHELINI: It's a timing issue, more, in that the normal cycle would be that we would be dealing with the assessment of financial results from a prior year in the customer review process that would happen in the summer subsequent. 356 MR. JACKSON: Yes. 357 MR. REGHELINI: And it just so happens that this process has taken some time that -- that has actually occurred after 2001 that -- there's an acknowledgment that those results are available but they really will be considered in the 2003 process. 358 MR. JACKSON: Now, have you filed something with respect to paragraph 1? It says: "Union agrees to file actual 2001 financial information prior to the commencement of the hearing." But that -- were you not -- you were not thinking then of this hearing? You were thinking of the 2003 customer review process hearing? 359 MR. REGHELINI: Well, we agreed to distribute it, the material, because we had it and that was sent out in a package as well. I'm not sure if it wasn't -- it was also sent out in a package yesterday to all intervenors and to the Board as well. 360 MR. JACKSON: Okay. I think possibly we don't have that so we'll check over the lunch break and see if we can locate that. 361 MR. REGHELINI: We have additional copies as well, that we can make available to you if you would like them. 362 MR. JACKSON: Thank you, that might be helpful and a good way to deal with it. 363 Fine. As is convenient, they will no doubt appear before us, thank you. So, when we've looked at those, I may have another question which the panel members wanted to put to you as well, but let's have a look at those first and we'll get back to you. 364 So, we're now on to issue 14 and I think you were -- we maybe had mentioned 14.5, but just as we go by 14.4, I wondered if you could just define for us this phrase "deliverability inventory" and again it's a matter of getting a concept of how it's determined. It's in the second paragraph of 14.4. 365 MR. REGHELINI: I should -- actually this is an unsettled issue. We will be talking to this directly. 366 MR. JACKSON: I'm prepared to wait on that. It's just that gives you notice that we would like to know what that is. 367 Okay, 14.5, I guess it was just -- if you could just elaborate a little bit, in order to explain two things to us. What might have been your thought process behind mentioning that the wording was made consistent with the Ontario Energy Board Act, what changes were necessary to do that, and also the benefit you saw in moving definitions out of the rate schedules where they could be read by all into the contract, some of which might not be read by very many. 368 MR. REGHELINI: I can do that. 369 Dealing with the definitions piece first, perhaps the best way to look at that is under Exhibit B, tab 14. 370 MR. JACKSON: Yes. 371 MR. REGHELINI: Appendix A. 372 MR. JACKSON: Yes. Thank you, I've got that now. 373 MR. REGHELINI: And if at appendix A we turn up the rate -- M-4 rate schedule, just to use that as an example. 374 MR. JACKSON: Yes, thank you. 375 MR. REGHELINI: On page 2 of 2 of the M-4 schedule, you see that there are -- there's a section G, definitions, which has been removed. And what we're doing is, to the extent the definition was more operational in nature, we were moving to reflecting those in the contract. And to the extent the definition had to do with actual -- really a term of service, we were going to reflect that in the rate schedule. So you will see that there is one definition of the -- fourth one, the overrun definition is struck out from this section G definitions. But if you flip back to page 1 of 2, it's inserted in the middle of the first paragraph under item 2, overrun charge. 376 MR. JACKSON: Yes. That's perhaps -- I can see that could be an improvement. 377 MR. REGHELINI: And the other definitions defining what a month is, what a day is, what the contract demanded, we viewed this as more operational in nature and more appropriately in the contract and also -- 378 MR. JACKSON: Thank you. 379 MR. REGHELINI: And a number of our schedules didn't have these definitions in, so -- but they were reflected in the contracts under those rate schedules. So we were just trying to make everything consistent. 380 MR. JACKSON: I think that's helpful, thank you. And just to maybe give us an example of the changes that you thought were necessary to make it consistent with the Act? 381 MR. REGHELINI: If I could take you to the T-1 rate schedule under 2, diversion of gas. So the T-1 rate schedule, page 5 of 5. There's an item 2, diversion of gas. 382 MR. JACKSON: Yes, I have that, thank you. 383 MR. REGHELINI: What we're trying to reflect is that, prior to the new Act coming into place, the only parties able to sell or only firms able to sell gas in Ontario to consumers were distributors. And the diversion clauses that are being struck out really were centered around Union as being the only one that could sell gas. And now that the Act allows other parties to sell gas within Ontario, these restrictive clauses are no longer necessary. 384 MR. JACKSON: Right. Thank you very much. That's helpful. I appreciate the example. 385 I think we were moving to 16.2. I think there was just one little question with respect to 14.7. I guess Union having the option to request, probably you mean to require? 386 MR. REGHELINI: I think that's a fair statement, that we would have the -- what we are seeking is the option to require. And again, that's an issue for which there is no settlement for which we'll have a witness speaking to. 387 MR. JACKSON: Okay. And then 16.2. So I think the Board's questions there were in respect of the first paragraph. What does "as soon as possible" mean? 388 MR. REGHELINI: Well, in the package that was filed yesterday and that was placed in -- 389 MR. JACKSON: Yes, I believe that's taken care of. Those are the sheets we saw this morning. 390 MR. REGHELINI: Correct, with the blue page update. 391 MR. DOMINY: The question that the Board had in mind on that issue -- which is 16.1, 16.2, also applies to 17.1, 17.2 -- there's a statement at the top which says "complete settlement" and it wasn't clear to me what it is the parties had agreed as the complete settlement. 392 MR. REGHELINI: Generally, what was going to be captured in here was that there was an acknowledgment that Union's original proposal, the timing for dealing with the disposition -- the timing of disposition of deferral accounts and the method for disposing of them, the timing for implementing the rates that would flow from this process, that -- our original proposal was centered around April 1. And it was clear by the time we were negotiating and having settlement discussions that that date could not be met. So Union acknowledged that it would need to come forward with a new proposal, a new plan, and that parties would have the opportunity to look at that and comment on it. That's the main crux of what the agreement is centered around, on that. 393 Of course, to the extent that elsewhere in the agreement, parties are agreeing on the settlement of an issue, if it's a balance or if it's a dollar amount, that aspect is agreed to in those sections. But to the extent that there are unsettled issues, Union will need to take the output of the hearing and put together a draft order, rate order, that parties will have the opportunity to comment on for the complete determination of those rate impacts and implementation plan. 394 MR. DOMINY: I think it's illustrated by the information you filed today, because when I read the material that was previously filed, you were going to collect deferral account balances through a charge going forward on delivery rate. 395 MR. REGHELINI: Right. 396 MR. DOMINY: And what I read today is you're going to do it on a one-time charge basis. 397 MR. REGHELINI: Correct. 398 MR. DOMINY: That was my reason. I didn't understand when you said complete settlement whether they had settled the methodology that Union would use to clear the balances or not. Basically, what they settled was to review it. 399 MR. REGHELINI: Correct. They were acknowledging that we would come forward with a new proposal as quickly as we could. 400 MR. DOMINY: Thank you. 401 MR. JACKSON: That takes care of 16.2, and I think the Board just had some other minor questions. With respect to the late-payment policy, you're aware that we've issued an order at your request, expeditiously, and I think if I may though we should just clarify some of the wording around the settlement agreement with respect to 18. And, I take it that the -- in reducing from 5 per cent to 2 per cent, you assume there would be no change in the sort of dollars that would be outstanding; was that correct? In other words, there would be no price elasticity of demand associated with going with a lower rate? Was that your assumption in estimating the revenue impact? 402 MR. REGHELINI: There may or may not be a change in dollars. Our revenue impact doesn't attempt to identify that because, under the PBR plan, that's not an impact that would be available. 403 MR. JACKSON: Fair enough. So it's just in here sort of for informational purposes but it was calculated probably on the basis of assuming there would be no change in the dollars that would be subject to a late-payment penalty. Is that, perhaps, a fair assumption? 404 MR. REGHELINI: It was calculated on the basis of what the rate is based on the 499 forecast, and therefore, because we're under the PBR plan, what needs to be adjusted is the amount that was included in rates. Because under the PBR plan, all adjustments of the PBR revenue base are done on that 499 base as adjusted by the Board through the PBR decision. 405 MR. JACKSON: I take your point, which is another reason why the number of dollars outstanding wouldn't change; isn't that correct? That were subject to a late-payment penalty. 406 MR. REGHELINI: The number of dollars subject to a late-payment penalty or the revenue from late-payment penalties will go up and down depending on how customers behave. 407 MR. JACKSON: Right, but I guess what you've done is -- sorry? 408 MR. REGHELINI: But our rate adjustment will go on the 499 rate. 409 MR. JACKSON: No, I understand what you're saying. 410 Another question we're just curious about, what would have been the minimum reduction that would have been required in order to ensure that the rate was not criminal as discussed in the Supreme Court decision? 411 MR. REGHELINI: I don't have the exact number in front of me, but it was included in Union's submission to the Board on the late-payment penalty issue when we had that consultation previously. It's just marginally above 2 per cent. 412 MR. JACKSON: Okay. Thank you. 413 MR. REGHELINI: It may have been 2.03 per cent or something like that. 414 MR. JACKSON: Thank you. I think that the questions we had with respect to the schedules have been taken care of as we've moved through the document, and you might just remind us, but the footnote with respect to rate riders, those rate riders as I -- as I think we recall them, applied only to system gas; is that correct? Or were they rate riders that in some cases applied to distribution service? 415 MR. REGHELINI: No that was a -- 416 MR. JACKSON: System gas only, yes. 417 MR. DOMINY: Mr. Reghelini, I just have a follow up question. Earlier on, you were going to consult with Mr. Packer to get an understanding of how the southern customers, for example, M-2 customers, how their firm supply or system supply is handled in the context that they don't have any TCPL transportation. And you said that you would consult with Mr. Packer. Maybe it is something he can address separately later, but it was a question. 418 MR. REGHELINI: We have put that question to him and he's been given notice of that and he's working on it. 419 MR. DOMINY: Thank you. 420 MR. POCH: Mr. Chairman, just before you leave this document, just a minor matter. In items 10 and 11.1, GEC is noted in being in agreement, we are in respect to the LRAM aspects that we've participated in. The Board should simply note that GEC takes no position on the other deferral accounts. 421 MR. JACKSON: Thank you, Mr. Poch. 422 MR. RYDER: Mr. Jackson, I wonder if I could be allowed to clarify one concern I have with Mr. Reghelini's description of the issues in 14.5 and 14.4. When he was -- 14.4 deals with the word changes to the rate schedules, and when Mr. Reghelini was describing an example of that, he referred to the language respecting diversions in the T-1 contract, and the diversion issues in the T-1 and T-3 contract is a specific, unresolved issue under 14.4. So it may have been an inappropriate example that was used. 423 MR. JACKSON: I appreciate you making that known to us, or pointing that out. 424 Mr. Reghelini, is that okay with you, or do you have any comments you wish to make? 425 MR. REGHELINI: I understand that the diversion issue with respect to 14.4 is alive; however, I don't think that changes the rationale or the response that I was giving with respect to that particular wording change to the rate schedule. 426 MR. JACKSON: I think I understand. Mr. Ryder, your point is noted. 427 Thank you very much. So we will try to return at 1:30 and Mr. Penny, can you just give us a preview of what you would anticipate we would be doing at that time? 428 MR. PENNY: Mr. Chairman, with respect to the ADR agreement portion of this, I think the practice is, and the agreement provides for, the Board's ruling on the ADR agreement prior to the commencement of evidence. So that would be the first order of business. And because the -- certainly the applicant and, I think, the parties want to know where they stand before we proceed on the basis of the more limited issues. 429 I think what we need to do -- there will be a few procedural -- minor, relatively short procedural issues, one of which we have already highlighted for you which is what's on the issues list, and then what we would propose is to go straight into the first panel that's shown on our proposed list, which is Mr. Packer addressing the various rate issues. 430 MR. JACKSON: Thank you for that preview and we will get back to you with the decision with respect to the proposed settlement issues from the customer review process as soon as we can, and we can all hope that it is very soon. 431 MR. PENNY: Thank you, sir. 432 While I've got access to the mike, we will say as soon as we break, we'll take a bit of a straw pole with the parties to see how long they think they might be with Mr. Packer; that will assist us in planning for the next panel. 433 MR. JACKSON: I think that's a good idea too. Perhaps if you will, if not immediately, then return to give us an idea of issues that are particularly difficult to proceed with unless you have the Board's answer. And I realize you'd like the Board's answer in total, not in part, but if you could do that for us or be prepared to do that for us if we're not prepared to announce our decision immediately. I think we're going to move as quickly as we can for you. So we'll rise now until 1:30. 434 MR. WARREN: Mr. Chairman, I just might note, with respect to the issues in panel 1, CAC has some interest in them, but it's our understanding that others in the room have a deeper interest. Our greater interest is with the issues with the panel 2, and so with the Board's permission, I will not be here this afternoon. And if I miss cross-examination of panel 1, there's no great loss to anyone. But I will be here tomorrow for panel 2. Thank you. 435 MR. JACKSON: Thank you, Mr. Warren. We'll rise then. Thank you. 436 --- Luncheon recess taken at 12:37 p.m. 437 --- On resuming at 1:40 p.m. 438 MR. JACKSON: Please be seated. 439 The Board will not be in a position this afternoon to issue anything definitive with respect to the settlement proposal, but as I say, we will do so as soon as possible. 440 Mr. Penny. 441 MR. PENNY: With respect to that issue, Mr. Chairman, the -- there's -- I guess there's both a technical and perhaps an underlying substantive issue that the agreement itself provides that the agreement will be null and void if the Board does not, prior to the commencement of the hearing of the evidence, accept the agreement in its entirety and that's the technical issue. 442 MR. JACKSON: Yes. 443 MR. PENNY: There is an underlying substantive issue which I alluded to earlier this morning, which was that both the applicant and, I believe, the parties, having compromised their positions on certain areas to achieve the settlement, really need to know whether that compromise is acceptable to the Board before proceeding with the hearing. Because if the settlement is not acceptable, then parties' compromises that they -- you know, people cut all kinds of different -- or trade different checks and balances or positives and negatives in coming to a settlement which reflect -- or affect, I should say, their positions on other issues. So it -- this presents at a certain level a technical problem in that, because what was agreed to by all parties was that there was no agreement if it wasn't accepted before the commencement of the evidence, then proceeding with any evidence at all would require all of the parties to the agreement to agree to that. And I'm not even sure in this room if we are in a position to do that, because I'm not sure everyone who's a party to the agreement is in the room. And then the more substantive issue is -- I think, on the substantive issue, I think I could say that Union's certainly very strong preference would be to know where it stands with respect to the agreement before the commencement of any evidence, although I think we would be prepared to proceed with Mr. Packer's evidence specifically if we had to but that is not our preference. 444 So -- and the only reason I say that is because Mr. Packer's issues tend to be more discrete and, if for some reason the agreement wasn't acceptable and the settlement was off, Mr. Packer can always come back and speak to all of the other issues that would no longer be settled, but that is not our preference. So, I'm sorry to put you in a difficult position on this but it's not just a question of Union and Union's preferences, it's also a question of what was agreed to. 445 MR. JACKSON: So we have -- so we do have a technical issue and it could -- it could be patched up again tomorrow morning or as you put it in May -- it may -- or as I infer, it may create the out for anyone who wants out. 446 MR. PENNY: That's what it boils down to, sir. 447 MR. JACKSON: Right. And so, what do you think about hearing from Mr. Packer with respect to the questions that Mr. Dominy had? We could probably go that far without impairing the agreement as to the settlement proposal. 448 MR. PENNY: Mr. Reghelini's actually in a position to deal with that right now so that -- and if for some reason the Board felt it wanted actual evidence on this issue, then Mr. Packer could also speak to it. That's certainly true, because that's an issue that arises out of the Board's questions around the agreement itself. That, obviously, we can deal with. 449 MR. JACKSON: Yes. And, I should just ask you, we didn't exactly accept the late-payment penalty settlement proposal either. We went a little bit further and said it was interim. Have you polled -- 450 MR. PENNY: We took that as an acceptance, the fact that the order was issued. 451 MR. JACKSON: Okay. 452 [The Board confers] 453 MR. JACKSON: Are there any other submissions with respect to the technical and/or substantive problems that Mr. Penny has addressed? Do any other parties wish to address these matters? 454 Mr. Vegh. 455 MR. VEGH: Yes, Mr. Chairman, I agree with Mr. Penny's submissions on this issue. I'd like to know what the issues are before we get into the substantive portion of the case. 456 MR. JACKSON: Thank you. 457 Anything, Mr. Moran, that you can offer? 458 MR. MORAN: Mr. Chair, I guess one comment that I would make is that it might be something that the Board wants to comment on, in terms of settlement agreements in general as to whether it's appropriate to try and raise an interim argument like this, in order to whittle down the issues. I think the Board is obligated as a result of its statutory mandate to carefully consider any settlement agreement before it accepts it, to understand it fully before it accepts it, and it's certainly not bound to accept any or all of it and the parties can always organize themselves accordingly at any point when any of those things change. 459 And, I think you've already alluded to one item which is that the Board's order on late-payment penalty already constitutes, to some extent, a minor non-acceptance of part of the settlement agreement. So, according to the technical argument that's been put forward, it's already null and void. I'm not sure that -- what turns on this except that the Board, obviously, has its own obligation to satisfy itself on the appropriateness of this agreement. 460 MR. JACKSON: Well I -- yes, Mr. Penny? 461 MR. PENNY: I just wanted to say in response to that, that of course the Board does nothing in this agreement, in any way seeks to take away from that, but it is a practical issue that arises out of -- if the Board wants, and the parties, for that matter, and the Board staff, want the benefit of ADR procedures, they have to be done in away that protects the interests of the parties to go back to their original position if the agreement is not acceptable to the Board. And that's an inherent problem with all settlement procedures in any form of litigation. So this is not an issue of trying to force the Board to do something it doesn't want to do or to take a way jurisdiction or anything of that nature. Of course the Board is entirely within its rights to satisfy itself that the agreement is in the public interest. The issue is: How you deal with that in relation to proceeding with the hearing? And, I think I -- I think the way I've characterized it is an accurate one so I return to that. 462 The only other issue I wanted to say in terms of the bigger picture was that if it was a -- if the Board felt that it were a matter of an hour or so's or two's further consideration and deliberation, then I think Union's position would be we'd prefer that the time be spent out getting that issue resolved so that then we can then proceed, knowing where we stand vis-a-vis the agreement, as opposed to proceeding with evidence and not knowing where we stand. If -- so I say that only by way of an option, if the Board was thinking that it didn't need a long time but only a relatively short period of time that it might be better to use that time to resolve it. 463 MR. JACKSON: I think that the Board would like to hear the comments in response to Mr. Dominy's questions, and I think that is where we may be able to do something to speed up this process. It may be accepting your suggestion of taking the time immediately to address any further aspects of our deliberation. So let's hear the clarification and then let's do what we can to move this forward. 464 MR. REGHELINI: Mr. Dominy's question concerned how the PGVA was allocated. And the PGVA is allocated in proportion to the total system sales volume and the reason why it's allocated on that basis is to align the allocation with the allocation of the inventory revaluations that are captured in the other purchased gas costs and when we do the allocation in that manner, we look at the impact on the north and the south. The result we get is a reasonable result that reflects what we would expect in terms of the costs underlying the north and south. 465 MR. DOMINY: The question occurred to me that if indeed the supply for the southern area is based on Alliance-Vector Pipeline transportation and those costs are not reflected in the calculation of the PGVA firm past PGVA account, how are those costs passed through to the southern customers? 466 MR. REGHELINI: Those costs are captured in the outer purchased gas cost account and those costs are allocated based on looking at demands in excess of the demands that are served by TCPL, and they are allocated on the proportion of those demands. 467 MR. DOMINY: Do I infer from that that the southern gas customer is in fact receiving gas from the TCPL transportation? 468 MR. REGHELINI: Well, certainly for 2000 and 2001, the answer is yes. We only recently in the summer of 2001 ran out of the TCPL capacity serving the southern operations area. 469 MR. DOMINY: So if I am in the south and I've got my gas cost for system gas and I pay the price that's in the WACOG which you calculated, am I being charged a price that is inconsistent on a permanent basis with the actual cost to serve the southern area, because it's not reflecting in the gas supplies to serve me, after you've run out of TCPL and for a large portion before then, because only a portion is obviously coming from TCPL. 470 MR. REGHELINI: I think what I've said is that we've allocated the costs on a certain basis looking at how we allocate both the other purchased gas costs account and the firm PGVA and we've looked at the result versus north and south, and the result we get is -- looks reasonable to us in terms of what we would expect for the cost of serving the north and south. 471 But if your question is have we tried to explicitly take the firm PGVA and isolate how much of the firm PGVA is purely north and purely south and do that with all of the allocation, that is not what we have done. What we've looked at is the allocation of all of the gas supply for all accounts in total and looked at a reasonableness check on the total result. 472 MR. JACKSON: Yes, I had the impression that you pooled all of the gas costs that the difference in price that people would pay in the north versus in the south would relate to sort of a convention of accepting a price differential related to the TCPL transportation but I hope I haven't said something silly when I say that. Is there truth in what I've said? 473 MR. REGHELINI: Sorry, can you rephrase that? 474 MR. JACKSON: Am I right that the TCPL transportation into the north is less than the TCPL transportation to the south? Were you to be transporting on the TCPL system as far as Parkway, say? 475 It's been a while since I've looked at TCPL tolls, but I didn't think they were the same to all destinations in Ontario. 476 MR. REGHELINI: That's correct, they vary. 477 MR. JACKSON: By zone or by area? 478 MR. REGHELINI: Distance. 479 MR. JACKSON: So in the north, you're not taking TCPL deliveries in the same zone as you are in the south and the east, correct? The south and the east, you are all in the eastern zone, aren't you, the so-called eastern zone of TCPL. 480 MR. REGHELINI: That's correct. 481 MR. JACKSON: So I thought that the difference that then came into pricing the commodity, the Union Gas system between the north and the south was essentially just the difference in the TCPL transportation toll to take the gas into those two regions. But maybe there's something else that you need to add to refine how that difference is determined. I thought it was basically that; then you would pool all of your gas costs for the entire company and you'd still make sure that that price differential was represented, whether or not the gas was being taken in the northern area or in the so-called TCPL eastern zone. 482 MR. REGHELINI: The TransCanada tolls are captured in a specific account for transportation. So in the firm PGVA, we are just dealing with the commodity. 483 MR. JACKSON: No, I understand that; that's the Alberta border price for the commodity, and we've got a very -- the word that comes to mind is funny -- way the doing these deferral accounts so that for the TCPL supply coming into the Union system we break out transportation from the Alberta border to the Union Gas system but for all other purchased gas, we do not. The other purchased gas costs deferral account takes the full landed cost of those other supplies. So, I take your point. 484 For a TCPL supplies you separate out the transportation from Alberta to Ontario. But, I guess where I was going with all of this was that, I was trying to just probe my understanding that of -- there's nonetheless still a pooling of gas costs over the entire Union system as I thought I understood it. And that somehow, you deem a price differential between the north and the south and that historically that related to the TCPL toll difference between those two zones. But, just help me with that because as I say, I'm a little fuzzy and I'm having to reach back into impressions I had about how this was done many years ago. 485 Board staff was just drawing to our attention your submissions in the QRAM proceeding and that was the EB-2001-0788 case, appendix A, page 1 of 20. And, it does set out some of the component costs of the commodity there. This may be something that, again, you could just update us on after we take a break but I think that it does go to the question of how the variances in the other purchased gas costs account are dealt with which Mr. Dominy was querying you about and I -- sorry, but like so many questions that come from up here, one question sparks another so I was curious then whether that -- whether your response was, maybe going against my understanding of the general pooling of these costs that I thought occurred and that the difference was only related to some treatment of transportation costs between north and south. 486 So with those comments, I think it leaves you something to think about and see if you can refine that for us or clarify that, because although I maybe should be able to get that from your material, it shows you that I haven't gone over it enough times. 487 So, let's leave that. Let me just consult then on what we do about how far we can go and if we told you that we were close with respect to accepting the agreement and just would like to make it subject to a little better understanding of, say, one issue, would that be helpful or do you not want us to come back until we've got a definitive answer? 488 MR. PENNY: Sorry, when you say "some more help on one issue," you're referring to the issue we were just talking about -- and help from others not -- not help internally? 489 MR. JACKSON: No, it would be help from Mr. Packer or help from Union as a whole. I think one question we did have and I can share this with you too, perhaps you could tell us how long it might take to produce this for us. But the risk management analysis that you did with respect to the TCPL supplies was of assistance to us in better understanding that, and we did have Mr. Reghelini's assurance that the risk management program was implemented in a similar way with respect to the purchase of supplies coming in through the south-west of Ontario. Have you done a similar analysis and set of schedules for supplies coming in through that route and if not, how long would it take you to put together a schedule like that so that we might see what the difference over the same time period was in the landed cost of gas, risk-managed and unrisk-managed, as we saw in the other schedule, and what the implied costs of risk management were for those sources of gas. 490 MR. REGHELINI: We don't have that analysis or schedules done so it would take us some time to go and prepare those and I'll have to consult just to find out exactly how long it would take to prepare those. 491 MR. JACKSON: That might be useful to do because if you could do that in a relatively short period of time, that might help us get over the other hurdle too. I mean, you might be able to say more definitively that we could tell you first thing in the morning. 492 MR. REGHELINI: The reason why Exhibit C.1.4 focused on the firm PGVA account was because the question was focused on that. And the issue that went back to the previous QRAM was centered around the costs in the firm PGVA, so that's why that analysis was done in the detail it was because it was in response to the Board's concerns. 493 MR. JACKSON: I appreciate that. Would you be able to consult briefly on that if we just paused for a moment right now? We don't need to rise. 494 MR. PENNY: Mr. Chairman, we're going to consult certainly on the first -- on the first issue about the allocations to the south and determine whether we can make additional information available to you on that right away because I don't think we need to rise. 495 MR. JACKSON: Thank you. 496 MR. PENNY: And we'll make some calls with respect to the second issue in a moment and see what the time frame of that might be. 497 MR. JACKSON: Good. 498 MR. PENNY: Because at this point we really don't have any idea so I wouldn't want to guess. And we'll try to work around what you find out too, but it could be very helpful. And, I think we would want to know that and then you may find that by breaking, we can resolve the rest of the issue. There is one procedural issue, but this is a purely technical matter. But you may recall that the evidence that was filed in this case, dealing with gas supply, when it got to the issue of the Alliance and Vector contracts incorporated by reference the evidence that was filed in the earlier -- what we described as the vertical slice proceeding that took place in August and September of 2001 -- 499 MR. JACKSON: Yes. 500 MR. PENNY: And so in order to save the trees and keep our friends at GEC et cetera happy, we didn't reproduce all of that material again. So two things: It may be appropriate for the purposes of this proceeding to assign an exhibit number to that material; and secondly, as a practical matter, parties probably, if they haven't already figured this out, will want to have those binders from that proceeding available to them because that's really where the evidence on the background to the Alliance-Vector contracting comes from. The docket of that was EB-2001, matter 0041. 501 And I wonder if we could notionally say that that evidence is Exhibit F.1 in this proceeding, so we have a formal -- have it formally brought in. 502 MR. JACKSON: Is that F.1.1, then? 503 MR. MORAN: It would be F.1.1, yes. 504 EXHIBIT NO. F.1.1: EVIDENCE BINDER FROM EB-2001-0041 505 MR. MORAN: I wonder if Mr. Penny would have the title for this evidence or are you talking about all of the evidence in that proceeding? 506 MR. PENNY: Most of that evidence in fact deals with this issue so I think -- and it's simpler just to use the whole binder because it's all collected in one place. I'm holding up what was submitted at that time, it's November 2001, vertical slice, it says; and then, as I said, the docket was EB-2001-0041, and it contained the evidence, the interrogatory responses and there were, of course, submissions made at the time and the parties will have those. 507 MR. JANIGAN: So the binders will include the argument and the decision? 508 MR. PENNY: No, it will have just the evidence. The binders that were circulated will just have the evidence. And then there were also interrogatories. 509 MR. JACKSON: Mr. Penny, I think -- I took it that you were saying that the interrogatories would have had a spot to be filed in that binder -- it should be the responses to the interrogatories should be included under F.1.1. 510 MR. PENNY: I think so because the -- that would be part of the evidence, whether people physically put it in that binder or not, the intention was that it would go with that evidence. 511 MR. JACKSON: It stops at excluding the argument then, by excluding the argument. 512 MR. PENNY: Yes; I don't think there's any reason to have the arguments go in as evidence. 513 MR. JANIGAN: Mr. Chairman? 514 MR. JACKSON: Yes, Mr. Janigan. 515 MR. JANIGAN: I wonder as well in that proceeding note the evidence of Mr. Stauft was filed in that proceeding by CEED and I expect that that should also be available for filing. 516 MR. PENNY: Well, no, that was not evidence in that proceeding. 517 MR. JANIGAN: Well, the Board described it as evidence. 518 MR. PENNY: It was submitted, but it wasn't evidence. 519 MR. JANIGAN: It says in paragraph 5.5, this in this proceeding CEED filed evidence of Mr. Stauft that had been filed at the Enbridge rate proceeding -- 520 MR. PENNY: It was evidence in the Enbridge proceeding; it is not in this proceeding. 521 MR. JANIGAN: It doesn't seem to make that distinction in the paragraph. Perhaps it is up to -- the Board could take a look at that paragraph to determine whether or not that was evidence. 522 MR. JACKSON: Mr. Janigan, I think the distinction is that it certainly wasn't evidence that was attested to or tested through examination in the proceeding, but it was filed as information, and we sort of label every piece of paper that comes in. Were you wanting to make specific use of it? 523 MR. JANIGAN: Potentially. I'm just wondering whether, Mr. Chairman, in terms of the attestation of the evidence, was there any testing of the evidence in the proceeding apart from interrogatories? I think it was only a written proceeding. 524 MR. JACKSON: Yes, that's right. 525 MR. PENNY: But my point is, Mr. Chairman, that will be -- that Union will be testifying to that evidence in this proceeding, to its evidence. That's why it's being included as an exhibit in this case. But the material that Mr. Janigan is referring to was filed as part of a submission, an argument, by CEED, not filed as evidence. 526 MR. JACKSON: Yes, I think your point is well taken. Let us get back to you on that point too before we commence the evidentiary portion. 527 MR. PENNY: Thank you, Mr. Chairman. That will give us the opportunity in the mean time to see about the time frame for the other issue that you raised. 528 MR. JACKSON: Good. I think that's very wise. Let's make it 20 minutes. Mr. Dominy actually may have a question that will be helpful to us all. 529 MR. DOMINY: Mr. Penny, I was looking at the partial settlement of the gas supply deferral account balances and the partial settlement excludes, it appears to be the cost impacts of the Alliance-Vector pipelines. A lot of my questions related to gas that was using those pipelines or other pipelines and is, in fact, that whole issue subject to -- is it the whole issue unsettled? I mean I'm not sure what -- 530 MR. PENNY: Mr. Dominy, my understanding is that the issue of whether it was reasonable for Union to have contracted for that capacity is the unsettled issue but that, assuming that that -- and so it's the cost recovery issue and the reasonableness of the costs that's in issue but if the Board found that the costs were reasonably incurred, then all other issues relating to that were settled. 531 MR. DOMINY: And the cost recovery relates to the cost of delivered gas? 532 MR. PENNY: The reasonableness of Union having entered into the contracts for that, but it's just transportation, not delivered gas, it's the transportation only. So, I think your question will still be -- it's not contemplated that your question would be addressed in that context so I still think we need to look at that. 533 MR. JACKSON: So let's take 20 minutes and call it our afternoon break as well. We'll see where we are at the end. Thank you very much. 534 --- Recess taken at 2:17 p.m. 535 --- On resuming at 2:54 p.m. 536 MR. JACKSON: Please be seated. 537 Mr. Penny, I think we should probably hear from you first. 538 MR. PENNY: Yes, Mr. Chairman, Mr. Packer is here with us and is prepared to give an overview and -- of the issue of the gas supply deferral accounts that were raised by Mr. Dominy's questions, and so we can proceed immediately to that. With respect to the risk management questions, we believe that we can have information of the kind that you were asking about available tomorrow morning. So we'll do our best to have that available and for the moment, the only other thing -- just so I don't forget about it, is before -- whatever we do for the balance of the afternoon, before we leave, we would like to address the issue of your sitting schedule for tomorrow because that has implications for witnesses and so on. 539 MR. JACKSON: Yes. 540 MR. POCH: Mr. Chairman, I just want to note -- I have a couple of minor, I think not contentious procedural matters. I just feel it would be possible to get to them at some point today, that would be great too. 541 MR. JACKSON: That might be a very practical use of today as well. Thank you. 542 MR. JACKSON: Mr. Packer, then. 543 MR. PACKER: Thank you. I thought I'd just start by providing a general overview of the gas supply related deferral accounts that exist. There's really three categories of -- or types. There's the deferral account that captures variances in TransCanada tolls and that's deferral accounts are maintained on a separate basis for the north and the south, there's the other purchased gas cost account and there's the firm PGVA. The other purchased gas costs account is -- the balances in that account are allocated between the operating areas by looking at the proportion of the demands in each operating area that are served by something other than TransCanada pipeline capacity. 544 The split that results from that review is as follows: For 2001, 91 per cent of the other purchased gas costs deferral account balance goes to the south and 9 percent goes to the north. And that's identified on Exhibit B, tab 4, page 2 of 2, update. 545 Similarly, the allocation that resulted from looking at the 2000 balances was as follows: 96 percent of the cost in the other purchased gas costs deferral account were attributed to the southern operations area and 4 percent were attributed to the northern and eastern operations area. So it's that account that would capture things like the tolls for Alliance-Vector. 546 The last category being the firm PGVA, we took a look at that account and we allocated the balance of that account between the operating areas in proportion to system sales volume. And that was really to align the allocation of those dollars with how we've treated inventory revaluation entries. 547 That was the -- my overview. I'm open to any questions that that may have prompted. 548 MR. JACKSON: So this notion of pooling that I was reaching back in my memory and asking about doesn't really happen. It's -- there's a specific tracking, you're saying? 549 MR. PACKER: Well, there's a specific tracking with respect to the TransCanada tolls account. With the other purchased gas costs and the other firm PGVA, you look at it as two separate pools and you have to allocate those pools of dollars between the operating areas and that's done on the basis that I outlined. 550 MR. JACKSON: For both north and south and east? It's the same cost of gas that's reflected in the rate that is set but the variation is the difference in the TCPL transportation, the different regions of north, the northern zone; is that it? So when I -- if I got my system supply gas commodity rate is the same gas rate that is used in all the -- in all your delivery regions; is that correct? In a rating system itself, not in the transference accounts, but in the rate it is set, there is one common WACOG used through them. 551 MR. PACKER: On the rate schedule itself and as a result of that in the bill, there's one Alberta border WACOG that underpins our commodity charge. We add actual fuel to that, which would make it different by zone, but that answers your question; that is true. Although the -- the rest of the supply costs that were originally allocated to the south and the other costs that were allocated to the north and east in EBRO 499, those would have been different and that would have been reflected in either the gas supply transportation rates or, in the case of the south, in the costs that are moved over and put in the delivery rates, the gas supply load balancing flexibility costs that we talk about from time to time. 552 MR. JACKSON: So are you saying the difference in the commodity rate between the north and the south is essentially the difference which arises from the difference in fuel costs of transportation and the totals, transportation totals from Alberta to Ontario in those two regions? 553 I'm sorry, we're just trying to just -- I think we understand what you've told us about the allocation of the variances of the different deferral accounts and that's one thing. Then we were just trying to remember back how the rates are set for the commodity in essentially two areas that Union Gas serves, the north being one of them and the south and the east being the other. And the rate difference between those two, I think you said, they both have the same Alberta border reference price in them, but they would differ because of the fuel costs that might be -- of transportation from Alberta to Ontario that might be different coming into the north from the fuel costs of transportation coming into the southern area and that it would also differ because of the TCPL tolls into those two different areas. 554 Do they differ in any other respects? 555 MR. PACKER: I want to just make -- you are specifically referring to the initial rate design and cost allocation process or to any deferral aspect? 556 MR. JACKSON: Yes. 557 MR. PACKER: When rates were designed in EBRO 499, what would have been done is that the cost that -- it would have dictated or determined what supply was serving the north and what supply would have been serving the south, and that would have been based on a determination of how the different supplies should have been split. 558 Once the dollars are defined between the north and the south, then the rate design process would have taken the dollars related to the commodity -- and when I used the term commodity a minute ago, it was the -- when we look at the bill, there is a commodity line, a gas supply commodity line, a gas supply transportation line. The only difference in the gas supply commodity line is related to the fuel ratio related to each of the areas. Everything else that got allocated to each of the operating areas then finds its way into the gas supply transportation rate in the north and in the south, it's split between the gas supply transportation rate and those dollars that we move over to delivery, which are related to the gas supply flexibility and load-balancing components which is really any cost above the TransCanada toll. 559 MR. JACKSON: Okay. So I think -- I know it's more complicated and is closer to the way in which the deferral accounts are then dealt with as well. 560 MR. PACKER: Yes. 561 MR. JACKSON: Thank you. You were hesitant to say no to that. Thank you. 562 So we have that. And let me just confer briefly as -- thank you very much for agreeing to do that other analysis for tomorrow morning and that may just solve everything. 563 [The Board confers] 564 DECISION: 565 MR. JACKSON: I still think that schedule is going to be helpful to the Board, if you can produce it as soon as possible, Mr. Penny; however, I think that we are prepared to go forward on a fairly safe basis and to accept the proposed settlement as agreed to by the parties as the basis for our decision on those matters on which there has been settlement. 566 In making that statement, the Board would note that the prudence of the Alliance-Vector costs is still at issue and is still unsettled and we will be looking very carefully at its impact on operations and on its connection to other issues which are in this proceeding. 567 There's just one other matter that the Board wanted to address briefly. It's to express its concern about the requirement that the settlement proposal be accepted by the Board prior to the commencement of hearing of the evidence, and we realize that this message goes out to all parties, not just to Union. But we've had experience with other proceedings where one certainly could proceed with some of the evidence without affecting the settlement agreement. We find it a little discomforting to be faced with the technical problem which Mr. Penny has raised today and we'd ask you to consider very carefully before imposing that kind of a technical problem on a panel. 568 So I think that's enough said on those issues and I think that should free us up to go forward. 569 PRELIMINARY MATTERS: 570 MR. JACKSON: Mr Vegh. 571 MR. VEGH: Thank you, Mr. Chairman. 572 Just apropos of the general issue that you just commented on. One of the -- we were just reflecting on that very issue ourselves and the original procedural order, I think, contemplated a separate day for the discussion of the agreement and I think perhaps a lot of the discomforture that you feel may arise because of the compressed time frame that we had to deal with, ultimately. 573 It does seem to me, from a systemic point of view of future processes, that it probably does make a lot of sense for there to be some time allowed between the review and approval of the ADR agreement and the commencement of the hearing and then the Board wouldn't feel that kind of -- and for that matter the parties, because we're here, ready to start a hearing not being sure whether we need to call evidence or not. So I think everybody would be better off if the process contemplated a step in which the agreement -- there would be a enough time for the Board to consider it, ask questions, have this type of a conference without the hearing breathing down our necks. 574 MR. JACKSON: I think that's a very useful comment, in a generic sense. I would just note that although the agreement was dated March 22nd, I explicitly put a note on my copy that I received it late Monday, March 25th, and that time was already compressed at that point and that influenced us to some extent to think that we were probably making parties happy by not sitting on the Thursday before Good Friday. So we were trying to be as helpful as we could be too with a compressed timetable, and I think your point is well taken and we'll certainly consider that as well. 575 Okay. Let's move on. 576 MR. PENNY: Mr. Chairman, I think the next -- 577 MR. JACKSON: Mr. Penny, would it help to deal with Mr. Poch's issues? I don't know. Now that we can move on, I was going to say I'm in your hands. 578 MR. PENNY: I don't think there is any particular order that we need to deal with any of the issues in, so if Mr. Poch wants to raise his now that's fine. 579 MR. POCH: That's fine, Mr. Chairman. 580 This pertains to the DSM section of the evidence currently scheduled to be the last panel of Union's presentation of evidence. I just wanted to alert the Board and the parties to the situation there. 581 The GEC has taken the lead on the issue of the LRAM balances, that is, the DSM volumes verification process as opposed to the LRAM methodology, which Mr. Gibbons' evidence, filed on behalf of Pollution Probe, speaks to, although the GEC evidence does provide another piece of evidence which combines the effect of all that so that the Board can understand the implications of the methodology issue in the context of the volume questions. 582 There was a difficulty that we had with a lack of information that was -- has at least been partially responded to by an agreement that Mr. Penny and I reached at the end, and following in the week following the EDR, where we came to a protocol with respect to the exchange of confidential information. That in turn precipitated meetings between the experts. 583 There was a meeting yesterday and there is a meeting tomorrow and I am happy to report that there appears to be some progress being made on the various technical issues going to this DSM volumes and therefore LRAM level question. But I cannot give you any final report on that yet. It's possible that some of those issues will still be issues when we get to it. 584 Therefore, it's possible we may have to place before the Board some of the reports which are subject to this confidentiality protocol, in which case we would be asking the Board to -- I think Mr. Penny would be asking the Board, with our agreement, that the Board sit in camera for that. So I wanted to alert all other parties that if you have any interest in being involved in the minutia of that, should it become necessary, you will want to be sure to obtain from Mr. Penny a confidentiality agreement so that you can receive copies of that material. I assume that's satisfactory to the Board. 585 I don't think we need to go any further at this point. I think we can be optimistic that much of that problem may go away and it may be that the outstanding issues if any can be dealt with without reference to those documents. We'll do our best in that regard. 586 Mr. Neme, the witness for GEC, has some difficulties with his schedule. I have obtained from him reservation dates. He would be available -- the best time for him is the 15th and 16th, which is the Monday and Tuesday following next week. He could also be available on Thursday and Friday of next week, the 11th and 12th, if this hearing proceeds at a good pace. And I have asked him to reserve those dates and I would ask that we have the Board's indulgence, that you could try to fit him into one of those slots. I will be in touch with Board staff to find out how the hearing is proceeding, assuming that is satisfactory to the Board. 587 Finally, presuming that we continue to make progress in discussions with the experts amongst themselves, it satisfies the parties, either Union or GEC will want to provide some kind of an update of the evidence going to the LRAM balances, and of course we're not in a position to do that now and I would expect if it's to happen, it would happen early next week. That would be presumably not be a problem for either GEC or Union since we're both involved in these discussions. Just again, if any other parties have any particular interest in participating in those parts of the hearing, they will want to be aware of that because it will be kind of short notice. 588 I hope that's satisfactory. We're doing our best, Mr. Chairman, to try and resolve as much of this as possible in the short time available. 589 MR. JACKSON: I take it that if you're in communication with Board staff that we can probably resolve a lot of these matters that way. Thank you for putting that information on the record. We will try to accommodate Mr. Neme. 590 When would you -- if we were to try to set a time for him on the 11th or 12th, would it be satisfactory to let you know Monday or would you need to know tomorrow? 591 MR. POCH: No, Monday would certainly be -- as I said, I'll -- I'm having him hold those dates. Monday would certainly be soon enough. You can see how -- understand, you want to see how the hearing is progressing. That would be great. Thank you, Mr. Chairman. 592 MR. JACKSON: Thank you. Mr. Penny. 593 MR. PENNY: Yes, Mr. Chairman, just dealing with that point, which was the second of Mr. Poch's submissions, that ties neatly with the question that I posed to you just before the break, or maybe it was a little while ago, in terms of the sitting schedule. 594 The likelihood of Union finishing its evidence and Mr. Neme testifying next week will depend, in some measure, upon the Board's sitting schedule. From what I heard you say at the outset, it sounded to me as if tomorrow afternoon was more of the nature of a voluntary wish just to be free earlier on a Friday, whereas the Tuesday was a fixed commitment that if I've got the day right -- 595 MR. JACKSON: Actually, it's Wednesday that's a fixed commitment. 596 MR. PENNY: Is a fixed commitment where the Board is already committed to -- the Panel members are already committed to be at another meeting. I'm speaking for Union at least. We appreciate the concern, particularly because most of the Union witnesses come from out of town, but we are anxious to try and finish the hearing within the time allotted, and things being what they are, it always takes longer than you think. So we're certainly prepared and indeed wish to -- quite strongly wish to sit for a full day tomorrow in order to try and get as much of this -- of the testimony under our belts as possible. 597 MR. JACKSON: Okay. The Board is trying, in this schedule, to allow some time for preparation and catching up and I imagine the parties are well up to speed if they've participated in the ADR process, and you know who in this room hasn't. So do parties have any concerns about sitting a full day tomorrow? I think the Board is willing to do its best to be available. Would you like to -- anyone like to address that? 598 I think that we will try to front-end this by sitting a full day tomorrow, and we'll still hope that maybe the Tuesday we can break at 1:00. 599 MR. PENNY: Quite so -- fixed commitments are one thing and obviously they have to be honoured and we understand that, but the reason I focused on Friday was because I had the sense that that was -- 600 MR. JACKSON: No, I think we have a concern that in terms of the material to cover and our desire to read the written evidence again before your witnesses appear that a full day is probably three and a half to four hours, if you work a lot of preparation time into it, it ends up at 12 hours very fast. So we'll do our best for you and we're front-ending it so we'll see where we are on Monday. 601 MR. PENNY: Thank you. 602 I've raised with you the Union's vertical-slice evidence from matter 441; I've advised you of the evidence updates. I think the only preliminary issue that's left is the question of the issues for this hearing, and I know Mr. Vegh and Mr. Ryder have something to say about that, perhaps others. But let me start by giving the background and outlining to you what Union's position or proposal is. 603 This is a slightly unusual case in that, unlike most cases, there is not a Board -approved issues list. A draft list was prepared by Board staff for the purposes of the settlement conference and those -- as a result of the settlement conferences you've heard, of course, a number of the potential issues for the hearing were settled. What Union has done, and I hope you have this, is prepare a document. It's on landscape format rather than portrait to fit it in. 604 MR. JACKSON: I see that, Mr. Penny, I just have to find it. 605 MR. PENNY: There was a letter from Mr. Reghelini attached to the front of it. Mr. Dominy has it. 606 MR. JACKSON: We have a copy of it here. 607 MR. PENNY: All right. What we've done here is list what we apprehend to be the issues to be dealt with in this hearing, and again, I know Mr. Vegh and Mr. Ryder will have a submission. Well, you already know what the issue is; it has to do with the weather normalization. But what we've done here is list the unsettled issues, the issues about which there still remain dispute, and then simply for cross-reference purposes to assist the parties who participated in the settlement conference, we've put under the heading "Settlement Agreement Issue Numbers" the numbers that appear in the settlement conference agreement that relate to those issues. 608 And then, because of the proximity of the preparation of this list to the actual hearing, we took the additional step of putting on who we anticipated would be testifying to those issues. 609 So it's our proposal and request to the Board that this list be adopted as the issues list for the purposes of this hearing. 610 MR. JACKSON: Thank you, Mr. Penny. 611 So do other parties wish to propose some amendments to this issues list? 612 Mr. Vegh. 613 MR. VEGH: Thank you, sir. 614 What I propose actually is Mr. Penny referred to the issues list that was circulated by Board staff and I made some additional copies for Board staff and I wonder if they could pass them up to the panel. It's under cover of a letter dated March 1st of this year. 615 This letter was circulated -- and there are additional copies on the back shelf -- this list was circulated to intervenors and as you'll see on the cover letter, Board staff did receive comments from people so this incorporated the views of the parties or -- this list incorporated the views of the parties and frankly, until I saw the document that Mr. Reghelini issued yesterday, I treated this as the issues list. And I'll speak only for myself, but for all practical purposes, this was the issues list until yesterday. True, it did not come out of a Board process to issue an issues list, but neither did what Mr. Reghelini circulated yesterday, and I do propose that we use this issues list, the one under the cover of the letter dated March 1st, as the issues list because, in my submission, it's more complete. It does include issues that were addressed in the ADR and it's also, I think, a better description of the issues. So for scoping purposes, I think it functions better as an issues list. 616 There are two issues in particular that my clients have an interest in that are either not included in Mr. Reghelini's list or not included very clearly in that list and their treatment is, I think, much clearer in the Board staff issues list. If I could just take a couple of moments I'd like to highlight those issues so you can see the practical effect of using this list. 617 The first issue that my clients are interested in, that is addressed in this issues list, is issue 4D under gas supply. If I could take a moment to -- you could take a look at the ADR, you will see there's a fuller description of the issues that come up under 4D. And these are captured, I submit, in the Board staff issues list that are not captured in Union's issues list. And in page 12 in particular of the ADR agreement, there's a discussion of some of the issues around the Alliance-Vector -- or the gas-supply portfolio. 618 The issue that my clients are particularly interested in around the transportation portfolio is addressed in the ADR agreement under -- on page 12 under the heading 4.4 in the last two sentences of the first paragraph. You will see there's a statement there that approximately 52 percent of the current transportation portfolio is scheduled to expire November 1. And you'll remember that under the vertical slice methodology that the Board approved in the unbundling case, the transportation portfolio follows a customer when that customer moves from system gas to direct purchase. So 52 percent of that portfolio is expiring this year in November. And the next centres of the ADR agreement indicates that during the course of the ADR, Union advised that it must make a decision on how to replace any or all of that capacity in May or June of this year. 619 So 52 percent is coming open, the decision has to be made fairly soon, and my clients take the position that the replacement of 52 percent should be an issue in this proceeding. So we shall be looking at what is the composition of the vertical slice starting in November 2002. 620 When you go to the Board staff issue list, that is captured in 4 sub D, because 4 sub D refers to the 2002 gas supply plan portfolio prudence of Alliance-Vector arrangements and upstream transportation allocation vertical slice. And it was understood by all parties that that meant the composition of the vertical slice for 2002. So my clients have been treating that as issue in this case. That's more clearly captured in 4D. When you compare that to the Union issues list, I believe the only thing that's captured in Union's issues list are the cost implications of Alliance-Vector. And my client's concerns go well beyond the cost implications of Alliance-Vector, they go into the make-up of the portfolio. 621 So that's the first issue that I say is more adequately covered in the Board staff issues list in 4-D than is covered in the Union issues list. 622 The second issue that is covered more effectively in the Board staff issues list is what we talked about this morning, issue 5 sub A, the weather normalization methodology and its impact on storage allocations. I don't want to repeat what we said this morning, Mr. Ryder and I, but again, perhaps just to take you to the ADR agreement so you can see how this issue was addressed. Go to page 13 of the ADR agreement, page 14 of the ADR agreement. 623 In the first -- up at the top there's the first full sentence in the top paragraph, Union states that the new weather methodology would be used to allocate transportation capacity to the direct purchase customers, and storage capacity to customers electing unbundled service. So that's the issue that's joined in this case and that's the issue that's captured in 5A. 624 As I look at the Union list, that issue isn't even addressed, and I'm frankly not sure which of the panel -- witness panels that are listed are supposed to address this issue, but certainly one of them should be designated to address this issue. 625 So in conclusion, my submission is that the Board staff issues list is more appropriate and with respect to the two issues that I'm particularly concerned about, 4D and 5A, the Board staff issues list provides a better scoping of those issues than the Union document that came out yesterday. 626 MR. JACKSON: Thank you, Mr. Vegh. 627 Were there any other submissions on the issues list that we should hear? 628 MR. RYDER: Mr. Vegh captures the position. 629 MR. JACKSON: Then back to you, I guess, Mr. Penny. 630 MR. PENNY: Thank you, Mr. Chairman. It, of course, is true that there was an issue -- that there was a list prepared by Board staff. That was prepared before the settlement conference and indeed was prepared for the settlement conference as it indicates on its face. And with respect to Mr. Vegh's general point, that is, let's just use the pre-ADR issues list and -- in its entirety, I say what is the point of putting something on an issues list that we know is settled? So in my submission, there's absolutely no sense in going back to something that everyone agrees, unambiguously, which is most of the things that are in the settlement agreement are not issues for this proceeding because they've been resolved. As I indicated in my opening outline, this case differs from a case where there is an issues list approved by the Board because as things currently stand, there is no issues list and the Board can adopt whatever issues list it sees fit for the purposes of this hearing. 631 Dealing specifically with the two issues raised by Mr. Vegh -- well, no, let me say by way of just finally on the generic issue, by way of conclusion that, in our submission, to the extent that Mr. Vegh or Mr. Ryder are unhappy with the particular wording of the -- or description of what the issue is or to the extent that the Board agrees that there's something missing that ought to be on it, our submission is that we simply added it to this list rather than go back to a draft that was prepared for the ADR before the settlement conference took place, which really bears into relationship now to the issues that are before you. 632 With respect to the two specific issues, first 4.4, and that has to do with Mr. Vegh's concern, is the process that Union will follow with respect to the replacement of that capacity that's going to come due. That is clearly, clearly, in my submission, an issue. It says so right in the ADR agreement at page -- at 4.4. If you have that, that's at page 12. If you look at the last sentence of the description under 4.4 near the bottom of the page: "Some parties believe that Union's vertical slice should be reviewed prior to being implemented and that Union should obtain prior Board approval before entering into long-term contracts," et cetera. So it's absolutely clear that that is an issue. So Mr. Vegh doesn't need to worry about that. And to that extent, I would say to you, to the extent that there were any apparent discrepancy between the compendious words that are used to notionally try and describe what an issue is and what's in the agreement itself, obviously the agreement prevails. So Mr. Vegh doesn't need to worry about that but if it would make him happier, we can add language to deal with that point. 633 but the -- Mr. Vegh's second point has to do with weather normalization and the impact on storage allocations. And on that one, I do differ with Mr. Vegh and with Mr. Ryder. It's our submission that this issue is not an issue for this proceeding. The only reason, the only reason, that Union came forward with weather normalization was in respect of, originally, in respect of rate implications and then, in a more intermediate basis, looking at least for an endorsement of that methodology. Union's no longer seeking that so there is no issue before the Board for determination. Union is, in my submission, at liberty during at any time, much less during the course of the PBR, to manage its business and to anticipate what its gas purchasing and related needs are going to be based on customer profiles. And that -- the reason for that is that on a year-to-year basis, how Union allocates storage is pursuant to a methodology which they have which does exchange, but the fixed amount of storage that any one customer has from one year to the next does change for any number of reasons and has without review by this Board. 634 The ADR settlement from RP-1999-0017 dealt with space allocation. I don't think you need to turn it up, but I'll refer you to it, it's 1.3.3, space allocation. There was a complete settlement on this issue and in that settlement, it was agreed that the methodology that would be used to allocate storage space on the associated costs was on an aggregate access basis, which means the difference between winter demand and average annual demand for a 151-day winter period. That hasn't changed. Union will continue to allocate storage on the basis of the aggregated access methodology. 635 The agreement did go on to say, though, to reflect the point I just made, that -- it said to simplify the determination of storage, Union calculated a fixed amount of storage per residential customer. That was for exemplary purposes only. But then it went on to say that Union will examine and adjust, as necessary, the annual storage allocation to reflect changes in the underlying aggregate access profile. Union also confirmed its intent to grandfather, et cetera, et cetera. So it was clearly contemplated that there would be changes, not changes to the methodology, but changes to the underlying facts or inputs into the methodology that would result in a different customer profile. And nothing has changed. The customer profiles have changed year over year since 1999. Mr. Vegh's had clients, any customers of Union have received different storage allocations, and it's simply the fact that Union is now going to try and forecast more accurately what its customer profile is going to look like. To the extent that Union chooses to more accurately forecast customer profiling, that, in my submission, is not -- we're not asking for anything in this hearing and Union doesn't need anything in order to do that. The other point Mr. Reghelini has just made is that the -- any impacts would be for unbundled small-volume customers and there are -- as the Board knows, there are no such services as yet. So there will be no impact on anyone. 636 Just to be clear on that, to date there's no impact. It's expected that at some point during the year some of those services may become available. 637 So in my submission, we're happy to accommodate Mr. Vegh with respect to 4.4, although I said that it seems to me beyond pure adventure that the issue of the replacement of that 52 percent is on the table. But with respect to the weather normalization and its impact on storage allocation, in my submission, it does not belong on the issues list. Thank you, sir. 638 MR. RYDER: Mr. Chairman, I wonder if it would be appropriate to reply to that. Because I think the point has to be made that Mr. Vegh and I dispute the factual contentions that Mr. Penny is making. We say that the allocation of assets and rates were based has been reduced so that people are paying for assets that they are not using and that Union is getting the benefit of those assets. 639 Now, that may be disputed, so let the dispute be aired as an issue. Now, this is a customer review process, and customers are concerned with that point. And the customer review process, I say, is the appropriate place to air that issue. 640 MR. JACKSON: Thank you, Mr. Ryder. Where would you see that falling in terms of witness panels that Mr. Penny is suggesting? Where might you find it appropriate to deal with that. 641 MR. VEGH: If I may, sir, our clients asked several interrogatories around the storage allocations and Board staff asked some interrogatories as well. I see that Mr. Packer answered an interrogatory dealing with the -- the interrogatory is given C.1.40, which asked Union to advise on what its view was on the -- of the impact of the new methodology on storage allocation and Union's answer referred to witnesses of A. Fogwill, B. Goulden, and Mr. Packer. That's -- so that's C.1.40. 642 My clients also asked some questions on -- well, that's -- that question was right on point so -- 643 MR. PENNY: Mr. Chairman, I can perhaps cut to the chase on that one. 644 If the Board were of the view that questions ought to be asked about this issue, Mr. -- I don't think there's any doubt in my mind that Mr. Packer's the appropriate person given that it involves an allocation issue. So we would propose that if you disagree with me and are proposing that it go on the list, we would see it as going -- as an additional issue under the list that Mr. Packer is going to speak to. 645 MR. JACKSON: All right, Mr. Penny. I think that might be a useful way to deal with it. 646 I think my colleagues remind me of the importance of bearing in mind what the objectives are we're here to serve in the public interest. So I think that we should hear something on this issue and I think that we would appreciate it if, indeed, then, Mr. Packer would attempt to deal with this and you can let us know if that seems to be a satisfactory way of getting the issue out before us. 647 We're not sure just how far we want to go with this at this point, but it may go to the question of the importance of access as it relates to fostering competitive markets for gas in the province. So let's hear a little bit about it and we'll listen carefully. 648 And I think we have to bear in mind any constraints that the settlement agreement put on it as well. But I would observe here that I think those Panel members that went through the 17 case that are sitting before you today had an idea about this customer review process, that it was somehow more in the hands of the utility and that would be one reason why we haven't gone through a formal process of developing an issues list. So I think we're quite happy to see that staff has played an important role in moving the process forward. But I think I can say that for one, I thought that the customer review process would be very much something led cooperatively by the utility with its customers and stakeholders. So I think it is important that if issues are unresolved in that process, that the Board hear about them in this forum. 649 My colleague has just reminded me that the specific words on the issues list put forward by Union may not be as determinative as the evidence which has been filed in the discussions which have arisen out of the process, some of which are captured in the summaries that are put forward in that settlement agreement. So we will just treat the cryptic issue headings as a guide and move forward on that basis. 650 MR. PENNY: Mr. Chairman, I think that's absolutely right. I was trying to make that point earlier, that this wasn't an attempt to limit the issue, it's simply in order to keep the headings as short as possible. 651 What I was going to propose in light of your ruling on that was that we would simply add -- we'll redo this list and make it available tomorrow morning. But I will add as item 6 to the first panel the impact of weather normalization methodology on storage allocation, which I think is consistent with your ruling. 652 MR. JACKSON: I think so, except that I see 6 there already. 653 MR. PENNY: Sorry, I thought I said 7. If I said 6, I meant to say 7. 654 MR. JACKSON: Thank you. 655 MR. VEGH: And maybe Mr. Penny could just add 9 here, the composition of the transportation portfolio. 656 MR. PENNY: I took what, Mr. Chairman, you just said a moment ago to mean that under 8, that would include the composition of the portfolio going forward since that's what the agreement says. 657 MR. JACKSON: Yes, although I don't think it would be definitive. If you want to help us all to remember that by adding those words to it, that's fine. 658 MR. PENNY: I will add words to number 8; that leaves that open. 659 MR. JACKSON: I saw the 4.4 in the next column and I think that it's implicitly there. 660 MR. PENNY: Thank you, sir. 661 Given the hour, and you indicated that you wanted to sit only until 4:00, I don't think it makes sense to start the evidence. So my proposal would be that we rise for the day and we start with Mr. Packer first thing tomorrow morning. 662 MR. JACKSON: That is fine with us. Thank you very much. We will meet tomorrow at 9:30. 663 --- Whereupon the hearing adjourned at 3:45 p.m.