Rep: OEB Doc: 128Rj Rev: 0 ONTARIO ENERGY BOARD Volume: 5 April 10, 2002 BEFORE: M. JACKSON PRESIDING MEMBER G. DOMINY VICE CHAIR AND MEMBER P. SOMMERVILLE MEMBER 1 HEARING RP-1999-0017 2 IN THE MATTER OF the Ontario Energy Board Act, 1998, S.O. 1998 c.15 (Sched. B); 3 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; 4 AND IN THE MATTER OF the Performance Based Rate mechanism provided by the Ontario Energy Board through proceeding RP-1999-0017. 5 APPEARANCES 6 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 7 TABLE OF CONTENTS 8 PRELIMINARY MATTERS: [16] UNION GAS - PANEL 3 [84] QUESTIONS FROM THE BOARD: [86] RE-EXAMINATION BY MR. PENNY: [180] UNION GAS - PANEL 4 [205] EXAMINATION BY MR. PENNY: [209] CROSS-EXAMINATION BY MR. ROWE: [313] CROSS-EXAMINATION BY MS. DEMARCO: [389] 9 EXHIBITS 10 EXHIBIT F.5.1: UNION'S SOUTHERN OPERATIONS AREA SYSTEM PORTFOLIO LANDED COST OF GAS TO ONTARIO [26] EXHIBIT F.5.2: EXTRACTS FROM MATERIALS FROM RP-1999-0017 [38] EXHIBIT F.5.3: EXTRACTS FROM EVIDENCE OR OTHER MATERIALS FILED IN EBRO 499 AND RP-1999-0017 [42] 11 UNDERTAKINGS 12 UNDERTAKING NO. G.5.1: TO PROVIDE MAXIMUM VOLUME IMPLIED BY THE CONTRACTED DAILY DEMAND AND ACTUAL VOLUME [119] UNDERTAKING NO. G.5.2: TO PROVIDE CALCULATION OF RETROACTIVE CHARGES TO CUSTOMERS [177] 13 --- Upon commencing at 9:35 a.m. 14 MR. JACKSON: Good morning. Please be seated. 15 Mr. Penny, I see some new paper here this morning so I presume there are a few preliminary matters. 16 PRELIMINARY MATTERS: 17 MR. PENNY: There are a few preliminary matters, Mr. Chairman. 18 MR. MORAN: Mr. Chairman, the microphone. 19 MR. PENNY: I guess in no particular order, we have -- Mr. Packer has now provided answers to four of the outstanding interrogatories and has continued to work on the balance so we now have G.2.1, G.2.2, G.2.4 and G.3.3 available to the Board and those have all been distributed and made available. 20 There was, on day two, Mr. Chairman, a request, I think originating with you and Mr. Dominy, for some information on the Alliance-Vector landed costs in the other gas cost deferral account and splitting those out. I was able to review a draft schedule last evening after we'd finished the hearing so that's now been finalized and made available to the Board. So the panel that is testifying to the Alliance-Vector contracts will speak to that and we can either assign it an exhibit number now or wait for the panel. 21 MR. JACKSON: I think we should give it a number and we might as well do that now. I've just got to find my copy of it here. 22 MR. PENNY: It's a three-pager, it starts Union's southern operations area system portfolio landed cost of gas to Ontario, schedule 1. 23 MR. JACKSON: I have it, thank you. 24 MR. MORAN: That would be F.5.1. 25 MR. JACKSON: Thank you, Mr. Moran. 26 EXHIBIT F.5.1: UNION'S SOUTHERN OPERATIONS AREA SYSTEM PORTFOLIO LANDED COST OF GAS TO ONTARIO 27 MR. PENNY: The Board had asked about the Barnett Construction letter the other day and the letter itself doesn't comply with the technical requirements for seeking intervenor status. But because Barnett is a customer of Union's, and they obviously are entitled to put their position before the Board, we're not putting up any opposition to that company being granted intervenor status. We do propose, however, to file some correspondence that tells the full story and once that's assembled, I will be making that available to the Board. 28 MR. JACKSON: I think that the Board will just reserve on whether or not to make Mr. Barnett a full intervenor until we've had the additional information, because it might be appropriate for that information to accompany his letter even if it's just a letter of comment. 29 MR. PENNY: I think that is appropriate, Mr. Chairman. 30 MR. JACKSON: Thank you. 31 MR. PENNY: It seems to me, frankly that that's what the company wants because they haven't put in an appearance in any of these proceedings. 32 MR. JACKSON: Yes. 33 MR. PENNY: Another preliminary -- two other preliminary matters, Mr. Chairman. Yesterday, Mr. Moran had put to, I believe it was Ms. Elliott, some statements from the RP-1999, matter 17 proceeding, and given the short nature, the short notice we had of that we, as I mentioned yesterday, weren't able to deal with other evidence extracts. Over the evening we found a few others and I will be examining Ms. Elliott to comment on that in re-examination. Just so everyone knows there are some additional extracts from the evidence that I'm giving parties notice of, that we'll be making reference to. 34 MR. JACKSON: That's fine. We have those, I think, too, don't we? 35 MR. PENNY: Yes. 36 MR. JACKSON: And I think, again, just for tracking paper, since we numbered the extracts yesterday we can number those as well, F.5.2, would that be, Mr. Moran? 37 MR. MORAN: Yes. 38 EXHIBIT F.5.2: EXTRACTS FROM MATERIALS FROM RP-1999-0017 39 MR. PENNY: Then this is, again, just by the way of providing notice to the parties, there is a bundle of material which we're providing in advance that relates to one of the outstanding DSM issues; that's Mr. Gibbons' issue about the LRAM methodology. This is -- none of this is new in the sense of it being a new document, these are simply -- this is a bundle of extracts from evidence or other materials that were filed in 499 and matter 17. So we'll be relying upon those in responding to Mr. Gibbons' position in the evidence of our DSM Panel. 40 MR. JACKSON: Unless anyone has any additional advice for me on it again -- it's nice if I can always file this somewhere, so could we have a number for that? 41 MR. MORAN: 5.3. 42 EXHIBIT F.5.3: EXTRACTS FROM EVIDENCE OR OTHER MATERIALS FILED IN EBRO 499 AND RP-1999-0017 43 MR. PENNY: And I had a discussion with Mr. Mackie about the scheduling of some other witnesses, so perhaps Mr. Mackie could speak to that, or Board staff, and then I think that would complete the preliminaries that at least I'm aware of at this point. 44 MR. JACKSON: Thank you, Mr. Penny. 45 Mr. Mackie. 46 MR. MACKIE: Yes, Mr. Jackson, good morning. We have the outstanding evidence from Mr. Neme on behalf of the Green Energy Coalition and also pre-filed evidence from Mr. Gibbons. I believe that Mr. Poch has been in contact with my colleague, James Wightman, and staff is suggesting and we're putting this on the record now for your consideration, that we give a pre-emptive date to both those witnesses and their respective evidence to be heard on Monday at 9:00 or at least some time on Monday morning. 47 MR. JACKSON: Thank you, Mr. Mackie. 48 So that's a suggestion on the record. We could leave it and let people discuss it at the break this morning and perhaps you could get back to us if there is any consensus. 49 Mr. Penny, do you have any immediate views on that? 50 MR. PENNY: Well, I did discuss this with Mr. Mackie before and that's acceptable to Union. I rather suspect the way it looks now, we might be comfortably finished Union's DSM evidence on Friday, but we don't know that for a fact. So it seems for -- it seems from the point of view of convenience and, particularly Mr. Neme who is coming in from out town. We asked for this indulgence on behalf of our witnesses and we're prepared to grant it to others, that it's probably more favorable to him to know for certain that he will be heard on the day he comes rather than sit around on Friday and not be reached. So that proposal is acceptable to us but I haven't canvassed it with other parties in the room. 51 MR. JACKSON: If there's no one else that wishes to comment on that scheduling, I think that it's acceptable to the Board and it does seem efficient so let's proceed on that basis. Thank you. 52 Mr. Penny, just thinking ahead, then, to next week, would you be prepared to do oral argument in this case? 53 MR. PENNY: That is our intention, yes. 54 MR. JACKSON: And would -- right now, things could change, of course, but would you want to start that Monday afternoon or would you like Tuesday for that? 55 MR. PENNY: Could I reflect on that and respond to that at the break? 56 MR. JACKSON: Yes. 57 MR. PENNY: Or after the break? 58 MR. JACKSON: Yes, absolutely. 59 MR. MORAN: Mr. Chair, Mr. Mackie made reference to 9:00 on Monday but I believe he meant 9:30. 60 MR. JACKSON: Yes, thank you, Mr. Moran. I think that we'll keep with that timetable. Yes, 9:30 Monday morning. 61 MR. PENNY: As I think on it, Mr. Chairman, there is he a one other issue that I want to alert the Board and the parties to that relates to DSM; it's a matter I discussed with Mr. Poch. The Board will be aware that there had been a request by GEC for some background reports that underpinned the DSM projects that Union undertakes. There was initially some dispute about that and that dispute was resolved on the basis that, in exchange for a confidentiality agreement from any party who wanted to see those reports, Union was prepared to make redacted versions of those reports available. The agreement, and Mr. Poch, Mr. Millyard and Mr. Neme all signed those agreements, the agreement provides that in the event that it becomes necessary for any of those reports to be referred to in the oral hearing, that there would be a joint submission on the parties to the agreement, which would be Union and the signatory to the confidentiality agreement, that the report be filed on a confidential basis. 62 Mr. Poch has indicated to me that with respect to one of the two outstanding issues on which GEC and Union are in disagreement that he may want to refer to one of those reports. So I just wanted to let the Board and the parties know that pursuant to the agreement that we entered into with GEC on confidentiality, the request will be made jointly by GEC and Union that if that report needs to be tendered to the Board, that it be filed on a confidential basis. And by that I mean that our request will be that it not go into the public record but rather be but -- once you're done with it -- that the copies be in a sealed enveloped that wouldn't be opened without further order of the Board. If other parties want to see that report, then the report is available to them as long as they're prepared to sign the confidentiality agreement. 63 MR. JACKSON: Right. And Mr. Penny, would there be any need for us to brush up on our in-camera procedures? 64 MR. PENNY: We've discussed that and I think it's not necessary for us to go the full route in this case. It's sufficiently -- it's confidential, but it's not that -- we don't need the full Cadillac version so it's not necessary, in our view at least, that we go into a full in-camera proceeding. I think it's sufficient if the report itself simply doesn't become part of the public record. 65 MR. JACKSON: Good. Thank you. 66 I think maybe the next thing is to deal with a few questions which had occurred to the Board for comments that may assist in the furtherance of this proceeding. 67 And the first matter I should address then is an issue that we think could be dealt with simply in argument, but we thought it would be useful to have the comments of parties on a topic that might be captioned as follows: PBR progress since July 2001, comments and suggestions for improvement focussing on both process and content and principally focussing on the remainder of this PBR term. 68 It occurred to the Board that it would be useful to hear from stakeholders whether they think they're getting sufficient information to make this PBR process work and whether they're getting sufficient opportunity for meetings to address their issues in a forum outside of the Board. And again, if they wish, they can comment on whether or not they're getting enough time before the Board. I mention those as some things but there are other aspects of the process which will be obvious to all too that they may or may not wish to comment on. This is all with a hope to improving our process and making the PBR scheme, which Union has applied for and thinks is an improvement over any of the various previous cost-of-service models that have been tried, work. 69 Now the next item. It's occurred to us, as we sort of come back over some of this material again and reflect on the flexibility that was added to Union's ability to determine rates for service which it provides, that it would be useful to know how this flexibility is being used, at least in a very general sense. So we were wondering if -- well, more than wondering, we think and we'll hear comments from you on this, whether or not it's possible, but we think it should be possible, to put together a spreadsheet with all of the different rate schedules or, where appropriate, where a rate schedule covers several different services and there are different rates posted for those different services, then subcategories of the schedule and showing for all of these just the number of customers taking that service where the term is greater than a year and the rate is greater than the cost-of-service-based rate. 70 The next line or next column, depending on how you lay out this spreadsheet, would show the number of customers less -- having contracts for a year or less, where the rates are less than the cost-of-service-based rate. I should just insert an item between those last two items. I guess we also have the possibility of a situation where customers have rates fixed under a contract for more than a year where the rate is less than the cost-of-service-based rate. 71 So there's three different possibilities under each of those rate schedules where the cost-of-service rate is now said to be a maximum and yet the situation also covers the possibility that rates may be negotiated for more than a year and may simply be either above or below the cost-of-service-based rate. So we're looking for a number of customers taking service in each of those categories, just to get an indication of how many have moved away from a cost-based rate. 72 I guess, where appropriate, you could give us totals on the numbers of customers by rate class or subcategory, and the cross total of those totals will be more than the total number of customers, obviously. 73 Okay. Perhaps if you have any questions immediately or after the break on that, you can let me know. 74 MR. PENNY: Yes, Mr. Chairman, this is obviously something that we'll take up with Mr. Packer. This is his area. 75 MR. JACKSON: Yes, of course. 76 MR. PENNY: I think you've described what it is that you're looking for and if we have -- if we feel that some clarification or further information is necessary, we'll come back to you, otherwise we'll take all of this under consideration and see what Mr. Packer can do. 77 MR. JACKSON: All right. I think maybe just for completeness, I should add a suggestion that you include one more line, if it turns out to be a line, indicating the number of customers whose rates are at the cost-based rate. I think that just might be helpful for reconciling the table. 78 Next we come to a few questions of clarification and a couple of comments that may assist all parties with respect to the filing of financial information. So I think it would be useful if you could turn to F.2.1. 79 MR. PENNY: Mr. Chairman, are you referring to Exhibit F.1.2, the actual financial information? 80 MR. JACKSON: Maybe I have dyslexia, yes. 81 MR. PENNY: I may have written it down wrong. 82 MR. MORAN: It's 1.2. 83 MR. JACKSON: Thank you very much, gentleman. I had written it down wrong. 84 UNION GAS - PANEL 3 85 P.ELLIOTT; Sworn. 86 QUESTIONS FROM THE BOARD: 87 MR. JACKSON: Mr. Penny, I think it might be just useful, and I'm not absolutely sure how this will relate, but it does appear that it may relate to our question with respect to experience on the use of the new flexibility in rates, and it's at page 133 of the decision. The Board had said, in paragraph 2471: "The Board accepts Union's submission that individual negotiated rates need not receive prior approval of the Board. For the trial PBR period the Board requires Union to provide a summary of negotiated rates and associated service volumes annually through the customer review process, and at the end of each PBR period there will be an opportunity to ensure that there are not unreasonable relationships or undue discrimination or cross-subsidization." 88 Now, just help us if you can by telling us if you have satisfied that requirement in your current filings in the customer review process. And I still think that, although that goes into a bit more detail with respect to identifying volumes as well, that the summary table that we've described might also be of assistance. 89 The first matter with respect to F.1.2 that we wanted to deal with was the comment that Union has not filed weather normalized data, and we'd had a heads up from the ERO on this as well. And, just because the earnings sharing mechanism is based on actual data, and I probably don't need to remind people that that may be an easier set of data to work with and less controversial, and hence burden the PBR workings over the PBR term less than other prescriptions for earnings sharing might have done. Even given that, I should point out that the weather normalized data is useful for other purposes that the Board has in assessing its regulation of utilities and the performance of those utilities under that regulation. So we do want the weather normalized data as well as the actual data. 90 I guess without the weather normalized data we can't really see what the full effect is of the first sentence of the second paragraph, for example. 91 I'd like to jump ahead to schedule 5, if I could for a minute, just to clarify the meanings of volumes and revenues in that schedule. Would you just clarify for me that the volumes and hence, I presume, the revenues, would include all delivered volumes; all transmitted volumes; all stored volumes; and, I guess, all volumes otherwise serviced by Union and service charged for. 92 MS. ELLIOTT: These are really the delivered volumes to the extent that, for example, the T-1 or the T-3 customer class has volumes stored; those volumes are also delivered, so we only count a volume once when we do this schedule. So the fact that the volume may have been injected into storage, withdrawn from storage and delivered, it doesn't get counted three times; it only gets counted as a delivery volume. 93 MR. JACKSON: Okay. That's certainly helpful and that means that, for example, under a T-1 firm or -- I don't see T-3 on here. 94 MS. ELLIOTT: T-3 is up on line 6 with rate M-9. 95 MR. JACKSON: Thank you, yes. But where there's both transportation and storage, as you're saying, the volumes would only be counted once? 96 MS. ELLIOTT: The volumes would be counted once. The revenue would be the total revenue from the storage and transportation. 97 MR. JACKSON: Okay. Thank you for that clarification. 98 Sorry, M-12 on this. Where is that? 99 MS. ELLIOTT: No, these are only in-franchised -- this is the in-franchised delivery volume and revenue. This is the revenue that aligns with the operating revenue from gas sales and in-franchise T-service. 100 MR. JACKSON: Okay. Which then means that this schedule goes forward to where, I'm sorry? 101 MS. ELLIOTT: If you go forward to schedule 1. 102 MR. JACKSON: Yes. 103 MS. ELLIOTT: This schedule is a break down of line 3. 104 MR. JACKSON: Yes, I see it now. Thank you. 105 MR. DOMINY: Is there an equivalent volume statement for line 6 of the schedule 1? 106 MS. ELLIOTT: There isn't. In most cases in line 6, those contracts are demand contracts, so the amount of volume that we handle isn't really -- doesn't really generate revenue. The commodity revenue is offset by commodity costs. 107 MR. JACKSON: Would it be enlightening perhaps to see a schedule, nonetheless, that would break out the revenue or is there transportation and storage of gas occurs under which rate schedules, first of all? 108 MS. ELLIOTT: Transportation and storage of gas on line 6 will be rate M-12 services, C-1 services and M-13 services. 109 MR. JACKSON: Okay. So Ms. Elliott, I do not like to ask for information which will not be useful, but it looks like it would be pretty easy to do a schedule showing those three rate schedules for us, just showing similar data so we would see a break down of line 6; Am I right? It would not be a lot of work to do that, 110 MS. ELLIOTT: A break down of the revenue on line 6 between the rate schedules? We could do that. 111 MR. JACKSON: right. 112 MS. ELLIOTT: We could do that. 113 MR. JACKSON: Okay. And could you set out for us also the maximum volume implied by the contracted daily demand and actual volume just for information purposes? 114 MS. ELLIOTT: It's not information that I track, but I think I can probably get access to it. 115 MR. JACKSON: Okay. And we're just wondering, I guess -- I'll leave that with you, but I guess we were just wondering too whether some of those volumes tend to cycle through your system more than once, but I'm not sure enough about the operation of those rate schedules. So let me just leave that with you and if what we've asked for doesn't exactly conform with how you would look at the situation, you can inform us if there's something more relevant that you can provide. 116 MR. MORAN: Shall we mark that as an undertaking, Mr. Chairman? 117 MR. JACKSON: Yes, please. 118 MR. MORAN: G.5.1. 119 UNDERTAKING NO. G.5.1: TO PROVIDE MAXIMUM VOLUME IMPLIED BY THE CONTRACTED DAILY DEMAND AND ACTUAL VOLUME 120 MR. JACKSON: The next area where we had a couple of questions just for clarification or further enlightenment related to schedule 1 and footnote 2. Again, that's the adjustment with respect to the transportation and storage of gas. Does that take care of all of the revenue sharing that relates to storage and T and S service, or is there somewhere else I should be looking too? 121 MS. ELLIOTT: Well, here are two components. In column A at line 7, there is 600,000 which was the sharing on the approved revenue forecast from EBRO 499. 122 MR. JACKSON: Yes. 123 MS. ELLIOTT: And then at line 6, in column B, which has got the footnote number 2, that's the 25 percent of the deferral account balances, so the deferred margin from S and T services for the year 2001. 124 MR. JACKSON: Okay. And the corresponding 75 percent has gone to a deferral account, has it? 125 MS. ELLIOTT: Yes, it has. 126 MR. JACKSON: Just help me this morning with the effect of the adjustment which deducts the 600,000. 75 percent had gone to a deferral account, as I take it, and the 2001.9 had included the utility portion of those revenues; is that correct? 127 MS. ELLIOTT: That's correct. 128 MR. JACKSON: So that if we wanted to assess how the utility was performing under the Board's regulatory methodology at the moment, wouldn't the right utility number to look at be the 2001.9 -- 201,000, excuse me. 129 MS. ELLIOTT: The reason the 600,000 from the 2001 activity has been deducted is because in the Board's decision the earnings sharing was calculated excluding the 25 percent of the deferral account balances. So this schedule is really intended to calculate the of impact the earnings sharing so that revenue is deducted. 130 MR. JACKSON: Okay. Maybe -- now just help me on this because I perhaps haven't digested this well enough to know whether I think all of the sort of road signs are here for the reader to tell them that. Again, we're getting to a column that's headed up utility, not utility as a adjusted for revenue sharing, where it's headed up utility and that's the immediate difficulty I'm having when I look at that schedule. I think it should represent the revenues and costs of the utility, not the adjusted revenues and costs that may be appropriate for calculating a revenue-sharing amount or an earnings-sharing amount. Do you see the difficulty I'm having? 131 MS. ELLIOTT: Yes. Our intent was to prepare this schedule for the purposes of calculating earnings sharing. 132 MR. JACKSON: I understand that. Did you say that in the text so I would have known it? 133 MS. ELLIOTT: The first paragraph really addresses the fact that the approach has been consistent with the earnings-sharing mechanism, but we specifically -- 134 MR. JACKSON: By not being weather normalized. 135 MS. ELLIOTT: We specifically addressed the weather normalized adjustment but didn't address the S and T adjustment. 136 MR. JACKSON: Thank you. I think that what the Board would need to see, and I presume stakeholders would need to see, is measures of performance of the utility under this new approach to regulation, as well as selective measures of performance that may be used to calculate some of the performance incentives. So I think it may mean that you're going to have to prepare schedules with another couple of columns, but there has to be a way to see how well the utility performs under this form of regulation. 137 Ms. Elliott, if you want to get back to me with any comments on that, again, I'd invite you to do so just as I had invited you to do so with respect to our desire for the statistics relating to rate flexibility. So I'll let you get back to us on that. I think we've got to try to show sort of the overall performance, make sure we're showing it and labeling it clearly, as well as the subsidiary calculations that may be necessary to calculate sharing. I have a few other ideas on that too, I'm not going to try to redo this. I think maybe you could think about it a little bit and get back to us. 138 Okay, and while we're looking at this Ms. Elliott, I can see the gas margin but, in terms of a line that might help me understand how the performance and sale of gas business is doing, I don't see a line; do I? The costs that might be associated with that, other than the purchased gas costs, are all mixed up in operating expenses, aren't they? 139 MS. ELLIOTT: I'm sorry I'm not sure that I follow you. The -- 140 MR. JACKSON: If we wanted to know what Union thought its revenues and costs were, related to the purchased sale gas business, so that one might have an idea of what it was costing Union to do that and what revenues it was getting on it, even though I think all of the costs are supposed to flow through I couldn't get it from this schedule; could I? 141 MS. ELLIOTT: The cost of gas at line 4 is the cost of our purchased gas. 142 MR. JACKSON: That's what I understood. 143 MS. ELLIOTT: The revenues are equal to that line, so -- although the revenues in line number 1 include both the revenue from the sale of the commodity as well as the revenue from the delivery. 144 MR. JACKSON: Right. But do you not have any other costs other than the purchased gas costs that are associated with the fact that you buy and sell gas? 145 MS. ELLIOTT: There would be some operating costs associated with the people. Those aren't separately identified or tracked as the business of selling gas. Those are part of the operating costs of the company. 146 MR. JACKSON: Right, and I guess that's my point. Is it not possible to think of that as a separate business? Maybe the supplier of last report -- but is it not possible to think of that as a separate business, make some ongoing allocations of other costs to that business? I'm not saying that you don't ever borrow staff from one business and let it serve another business, but on an ongoing basis is there no way we can get a reasonable idea of what it was costing Union Gas, the utility, to be involved in the purchase and sale of gas? 147 MS. ELLIOTT: It isn't information that we track through our systems. I'm not saying it's impossible to make some judgements and assumptions to get at some of those numbers, but our current processes or our systems don't track costs on that basis. 148 MR. JACKSON: No, I understand that. This might be something you might do for a management purpose if you were thinking of getting out of the purchase and sale of gas business, you might want to know how much your costs would go down other than just the purchased gas costs. You may have done this internally, so that you sort of have an idea of where you would be if you got out of that business. 149 I guess if we're looking at ability of the market to be competitive with respect to the purchase and sale of gas, it's pretty hard to get a handle on whether or not one part of the utility is providing assistance to the purchase and sale of gas function, and if that were going on, whether anybody could ever compete with the utility's operation of this business. That's the purpose that I think might be served from being able to see a reporting by this line of business. And, similarly, I understand that Union has had discussions with others about the extent to which the storage business is competitive; hence, I would think perhaps, able to stand on its own or even be sold off. 150 Again, in terms of what others then are competing against, it would be useful maybe to see the statements for the storage business alone as well. Or put another way, I think without that information we may be at a loss to ever know whether that business can stand alone and be separated. So that it might be useful to both the Board and Union to start trying to see whether or not we could look at it as a separate business. Maybe it's not separable, but that's what the Board was thinking of when it asking about -- making some attempts to report by line of business. And I know that some of these allocations, if you like, are part of the functionalization when you do your cost-of-service studies, but the thing was that -- at sort of a very minimum we were interested in seeing what the company's costs were associated with the purchase and sale of gas. 151 I'd invite you on the public record to come back and ask us some questions if that's not clear, but if that's relatively clear then I think we would like to see Union move forward with trying to report on that basis. 152 MS. ELLIOTT: For the sale of gas? 153 MR. JACKSON: The purchase and sale of gas. Let's see if you can make some reasonable allocation of your operating and maintenance costs to that line of business. And, let's get some discussions going with Board staff with respect to whether or not that can be done for storage as well. 154 MS. ELLIOTT: I think until we were -- our rates designed so that we have separate storage rates for customers in our in-franchise markets, we're not going to be able to do a storage line of business. What we provide is a bundled service that includes everything. The commodity cost of gas, the commodity rate, is a separate charge so that although my systems don't currently capture it it's something that we can get access to. 155 MR. JACKSON: I think you're going to have to make reasonable allocations, so I'm not suggesting that you track all of these common costs in a way that would indicate that they are not common but separable. 156 So, fair enough, at that point. And, with respect to storage, I think what you're telling us is that some of the storage revenues, especially from bundled services might have to be imputed at this point, but you're not saying you couldn't make reasonable allocations of cost on the cost side. So again, I think it's a matter of trying to lay out a document where some alternatives for doing the allocations are set forward and you could, perhaps, critique them and tell us how dangerous it would be to use them. 157 My colleague is just pointing out to me that it would be most helpful if we make it clear to you that this is considered to be information that should help to make the PBR scheme work. It's not within the context of outstanding issues in this proceeding, save and except for the issue of financial reporting in a very general sense that was part of the ADR agreement document, but I think that the sooner we get to sort of some use of the information being provided for -- some more useful information, excuse me, being provided for stakeholders, the sooner the Board can sit back and relax and let its hands become light. So that's the context. 158 Okay. Ms. Elliott, as I say, you're welcome to come back and ask us any questions of clarification and thank you very much for the clarifying information you've provided us today, for the opportunity for us to talk to you on this. And if Mr. Penny has no questions of you at this moment, we could -- oh, yes, Mr. Dominy has one more question before we move on. 159 MR. DOMINY: I'm changing topic and I'm taking advantage of you being here. 160 MS. ELLIOTT: Okay. 161 MR. DOMINY: And that's -- of concern, I think, to everybody is the concern that there's a large retroactive collection that is going to result from the end of this proceeding if everything's approved. I think the number is in the order of $100, $120 per residential customer; at least that's the number that has been quoted. And I was wondering in terms of schedule 19, which is the way it's collected, where you aggregate them all up and it shows that the -- I will turn to schedule 19 because I've got to make sure I use the right language. 162 It's on -- schedule 1 is the one I was looking at as an example, and in that they sort of summarize all the accounts that contribute to arriving at the net recovery that is required. And in it, I look at it and I see that there's the 2000 delivery and gas-supply related transportation deferrals, there's delivery rate retroactivity and there's delivery and gas supply transportation deferrals. And if I look down the columns, a large amount of the costs arise in M-2 from delivery and gas supply transportation rate deferrals, delivery rate retroactivity, which is 15.8 that I'm looking at, is not the -- I'm looking at M-2 as an example. And then delivery and gas supply-related deferrals, 71, 103. 163 I was trying to think of how much of this is a result of the fact that we have had delays in the processing and the finalization of the rates for the delivery component, and by delivery I mean the cost that the O and M that Union incurs to run the pipeline system, and how much of this recovery really arises from the fact that the gas costs went through a very high peak and then a decline. I know that some of those gas costs are recovered through the delivery rate because of load balancing and flexibility, and I was wondering to what extent one can attribute this large recovery that may fall on customers to adjust the fact of the gas costs, and to what extent it is because there have been delays in the processing of the, could we call it the normal monopoly costs related to the pipes in customer service. I suppose what I'm really looking for is, I would wonder what is the story you're going to tell customers as to how this retroactivity has arisen. 164 MS. ELLIOTT: You probably needed that answer from Mr. Packer. You may have -- I'm not as familiar with this material as he is. I can answer part of the question in reference to what portion of the amount is related to the rate -- the delivery rate changes for 2001 and that's in column E. 165 MR. DOMINY: Yes. 166 MS. ELLIOTT: So the 15.8 million for M-2 would be the delivery rate component. What I can't tell you from this schedule is how much of the deferral account balances, which is the 42 million and the 71 million, what the split there between gas costs and non-gas cost deferral accounts is. And I'm not familiar enough with this evidence to actually point you there. 167 MR. DOMINY: Maybe it will all come clear when, at the end of the proceeding, we get a rate order and a communication package. 168 MS. ELLIOTT: Definitely, the customer communication package that accompanies the rate order will put the message on paper as to what that message is that we're going to tell customers. 169 MR. JACKSON: Would it be helpful, Mr. Dominy, if Mr. Packer could put a paragraph on paper just responding to this very issue? 170 MR. DOMINY: Mr. Penny, would that be possible? 171 MR. PENNY: I think what we can do on a current basis is, in effect, answer the question that Ms. Elliott couldn't answer, so we can provide you, I think, with the numbers. I don't think we'd be in a position to give you a draft customer communication piece at this point, because we're just not there yet. 172 MR. DOMINY: The numbers would be helpful, then I'd have an impression of exactly how these things have arisen. I know that there are a lot of contributing factors and that's what I was trying to understand. 173 MR. PENNY: We'll try and break out that and provide whatever information we can on a current basis. 174 MR. DOMINY: And I recognize that when the rate order is ultimately produced there will be an opportunity to review the customer notice at that time. 175 Thank you. Could we have a number for that? 176 MR. MORAN: That would be G.5.2. 177 UNDERTAKING NO. G.5.2: TO PROVIDE CALCULATION OF RETROACTIVE CHARGES TO CUSTOMERS 178 MR. DOMINY: Thank you very much, Mr. Penny. Thank you, Ms. Elliott. 179 MR. PENNY: Mr. Chairman, just before -- if the Board's questions are finished I have one question in re-examination as a result of the examination that -- of cross-examination that involved Ms. Elliott on the prior Panel. And that simply had to do with Exhibit F.5.2. 180 RE-EXAMINATION BY MR. PENNY: 181 MR. PENNY: Have you had the opportunity to review Exhibit F.5.2, Ms. Elliott? 182 MS. ELLIOTT: Yes, I have. 183 MR. PENNY: And can you comment on the -- well, first of all, let me describe it. What's in this exhibit, Mr. Chairman, is an extract from Mr. Bauer's evidence, Exhibit D.3 in the matter-17 proceeding, a passage that we're focusing on are the sentence or two that are underlined on that passage. The sum and substance of which is summarized in the bottom of page 33, where Dr. Bauer said: "The main legitimate non-routine adjustment factors are related to legislative and regulatory changes, as well as in generally accepted accounting principles. However only changes affecting specifically gas distribution utilities and not changes effecting the entire economy should be considered." 184 The next extract is -- comes from a piece of Mr. Janigan's cross-examination of Mr. Birmingham at page 448 in which Mr. Birmingham commented on what would happen if there was not a fixed inflation factor. And then finally there is an extract from Volume 6, page 1020 of Mr. Thompson's cross-examination of Dr. Hemphill, who was here the other day, also indicating that, in item 2 of the underlying passage, that Z-factors apply under two conditions, the second of which is if it is not something that would be recovered by the escalation in the inflation, the inflation adjustment factor. 185 Now, Ms. Elliott, I simply wanted to ask you in view of those additional comments and evidence that were in the record in the matter-17 proceeding to comment on the passage that Mr. Moran had put to you earlier when you were testifying. 186 MS. ELLIOTT: Yes. As I had indicated yesterday, in the 1999-0017 proceeding, it was our position that we were fixing the inflation factor and, as a result, would need to pass through tax adjustments as a non-routine adjustment. In fact what we had also said, if the inflation factor is adjusted annually, that is it's not fixed, then the tax changes of the general economic nature would not be passed through. And, that was my response to Mr. Moran yesterday. 187 MR. PENNY: Are these passages from Mr. Birmingham and the other extracts consistent with that explanation? 188 MS. ELLIOTT: Yes, they are. 189 MR. PENNY: Thank you. Thank you, Mr. Chairman, those are all my questions. 190 MR. JACKSON: Thank you, Mr. Penny. Mr. Penny, would it make sense to break at this point in the morning and, I think it would actually, given that we may not go right through until 1:00, that it would make sense to break now. And, then you could start fresh with your other Panel. 191 MR. PENNY: That's absolutely right, Mr. Chairman and this is a good time for a break. 192 MR. JANIGAN: Mr. Chairman? 193 MR. JACKSON: Oh, Mr. Janigan? 194 MR. JANIGAN: I just had a small follow up arising out of -- for Ms. Elliott arising out of Mr. Dominy's questions. I realize this is not -- it would have to be asked with the indulgence of the Chair. But it was just a question arising from the -- the source of the rather large clearance that we currently have and I was trying to square up the answer of Ms. Elliott with what we received from Union earlier. 195 MR. JACKSON: I think we should ask whether Mr. Penny would indulge your putting the question on the record, too. And it may be that once you put the question, it could be better dealt in some other manner, even informally. 196 MR. PENNY: Frankly, my preference is that we speak to Mr. Janigan about this off -- over the break. 197 MR. JACKSON: At the break. Let's do that. Let's do that. If the two of you feel it would assist the Board, I'll let you put any clarification on the record after the break. 198 MR. JANIGAN: That's fine, Mr. Chairman. 199 MR. JACKSON: Thank you. 200 --- Recess taken at 10:39 a.m. 201 --- On resuming at 11:00 a.m. 202 MR. JACKSON: Please be seated. 203 Mr. Penny, then, we're in your hands. 204 MR. PENNY: Thank you, Mr. Chairman. We're now proceeding to what was originally scheduled as panel 2 dealing with issues 1.1, 4.1, 4.2, and 4.4. The witnesses are here and ready to start so perhaps they could be sworn. 205 UNION GAS - PANEL 4 206 J.BREMNER; Sworn. 207 S.BAKER; Sworn. 208 D.SIMPSON; Sworn. 209 EXAMINATION BY MR. PENNY: 210 MR. PENNY: Thank you, Mr. Chairman. 211 I'll speak to each of you in alphabetical order. So Mr. Baker, you are currently the vice-president of gas supply services for Union Gas? 212 MR. BAKER: That's correct. 213 MR. PENNY: And your responsibilities include the acquisition of upstream transportation. 214 MR. BAKER: That's correct. 215 MR. PENNY: And you've been involved in a number of different roles with Union, and those have included responsibility for asset management, products and pricing, regulatory affairs, forecasts and budgets and regulatory accounting and rate-case administration. 216 MR. BAKER: That sounds complete. 217 MR. PENNY: You were also employed for a few years by Clarkson Gordon as an accountant. 218 MR. BAKER: Yes, I was. 219 MR. PENNY: And you are a chartered accountant, sir? 220 MR. BAKER: Yes. 221 MR. PENNY: As well as a certified management accountant. 222 MR. BAKER: Yes. 223 MR. PENNY: And you haves both your BA and masters in accounting from the University of Waterloo. 224 MR. BAKER: I do. 225 MR. PENNY: You have testified on a number of occasions before the Board, but most recently in RP-1999 matter 0017. 226 MR. BAKER: That's correct 227 MR. PENNY: And the evidence that has been prepared in this case and also the evidence that has been incorporated by reference from the matter 441 proceeding, those were prepared either by you or with your participation? 228 MR. BAKER: With my participation, that's correct. 229 MR. PENNY: And do you adopt that evidence for this proceeding? 230 MR. BAKER: I do. 231 MR. PENNY: Thank you. Mr. Bremner, you're the director of asset acquisitions. 232 MR. BREMNER: That's correct. 233 MR. PENNY: And part of your responsibilities include upstream capacity. 234 MR. BREMNER: That's correct. 235 MR. PENNY: And you have been with Union Gas since 1982. 236 MR. BREMNER: Yes, I have. 237 MR. PENNY: And over the course of your career with Union Gas you've been involved as the director of asset yield, the manager of business transformations, the manager of energy delivery, you've been a sales manager and an operations manager, as well as some other roles with Union Gas. 238 MR. BREMNER: Yes, I have. 239 MR. PENNY: You've got an engineering degree, I understand, from the University of Western Ontario. 240 MR. BREMNER: Yes, I do. 241 MR. PENNY: And you have also your commerce degree from the University of Windsor. 242 MR. BREMNER: That's correct. 243 MR. PENNY: And you are a member of the Professional Engineers of Ontario? 244 MR. BREMNER: Yes, I am. 245 MR. PENNY: And you've testified before the Board on several occasions, but most recently in EBO 1177-17. 246 MR. BREMNER: That's correct. 247 MR. PENNY: And that was the ancillary business case, as I recall. 248 MR. BREMNER: Yes. 249 MR. PENNY: And you assisted in the preparation of the evidence that has been filed both in this proceeding and incorporated by reference from prior proceedings. 250 MR. BREMNER: That's correct. 251 MR. PENNY: And do you adopt that evidence? 252 MR. BREMNER: I do. 253 MR. PENNY: Mr. Simpson, you are currently the manager of asset acquisition. 254 MR. SIMPSON: Yes, I am. 255 MR. PENNY: And that responsibility includes involvement in upstream capacity. 256 MR. SIMPSON: Correct. 257 MR. PENNY: You've been a group manager for key industrial and energy accounts. 258 MR. SIMPSON: Yes, I have. 259 MR. PENNY: And as well, you've been involved in a number of other roles including industrial market planning, industrial marketing and sales, and processing innovation. 260 MR. SIMPSON: That's correct. 261 MR. PENNY: You've - I understand, have a bachelor of engineering from the University of Western Ontario. 262 MR. SIMPSON: Yes, I do. 263 MR. PENNY: And you are also a member of the Professional Engineers of Ontario. 264 MR. SIMPSON: Right. 265 MR. PENNY: And you've, I believe, filed evidence in both the RP-1999 matter-17 proceeding and in EBRO 499 relating to gas cost issues. 266 MR. SIMPSON: Yes. 267 MR. PENNY: And you were involved in the preparation of evidence for this proceeding, both the pre-filed and the evidence that was incorporated by reference from the prior proceedings? 268 MR. SIMPSON: Yes, I was. 269 MR. PENNY: And do you adopt that evidence? 270 MR. SIMPSON: I do. 271 MR. PENNY: Thank you, gentlemen. 272 Now, Mr. Chairman, this panel is addressing the issue of the prudence and cost consequences of the Alliance and Vector upstream pipeline contracts. The ADR agreement, as you'll recall, in issues 4.1 and 4.2 pertained to Union's 2000 and 2001 gas supply deferral account balances. And, those balances were settled in their entirety with all parties, with the sole exception of the cost impact of the Alliance-Vector contracts. And so that is the principle issue that this panel will be addressing today. 273 Mr. Bremner, can you begin by describing more specifically the precise issue that the Board is being asked to rule on in respect of the Alliance-Vector contracts? 274 MR. BREMNER: Yes, I can. 275 We believe that the decision that the Board needs to rule on is the prudence of Union's decision to contract for Alliance-Vector capacity. This is a commitment that Union Gas made to source western Canadian supply by the Alliance transportation route in 1997. Union made this commitment based on the best information available at the time and, in addition to the evidence filed in this proceeding, detailed evidence has been filed and reviewed in Union's unbundling proceeding RP-1999-0017 and Union's vertical-slice proceeding, EB-2001-0041. 276 A determination of prudence should be made based on the circumstances that Union saw at the time it made its commitment to the Alliance-Vector capacity. Having said that, the cost consequences of this decision, capacity commitments to Alliance-Vector, are manifested in Union's deferral account balances that we are seeking to recover. The deferral account balances flow from a comparison to TCPL landed reference price. This is a historical practice given that the majority of Union's supply has been made up in the past of TransCanada supply, so therefore it's been convenient to use the TransCanada -based reference price. 277 However, we do not believe that a TransCanada landed reference price is an appropriate basis on which -- for this Board to make an determination of the prudence of Alliance-Vector for the simple reason that TransCanada capacity was not an option that was available to Union Gas at the time it made its commitment. 278 The TCPL reference price is merely the current basis for determining the cost recorded in Union's deferral accounts. In addition, Union has provided an analysis of the cost comparison or the economic analysis that was done back in 1997 when we took the decision -- contract for Alliance-Vector. This is provided at reference C.5.25 in EB 2001-004 (sic). However, having said that, using current market comparisons of the differential between TransCanada landed supply and Alliance-Vector landed supply, in our view, amounts to hindsight with respect to Union's decision to contract in 1997, and as such, we don't believe that's an appropriate approach. 279 MR. PENNY: Thank you. Now, earlier on in the hearing, the Board had made a request for information with respect to the landed cost differentials within Union's supply portfolio and that was filed -- the response to that request was filed as Exhibit F.5.1. Do you have that, Mr. Bremner? 280 MR. BREMNER: Yes, I do. 281 MR. PENNY: Can you perhaps explain to the Board what you have shown in schedule 1 and schedule 2 of Exhibit F.5.1. 282 MR. BREMNER: Yes, let me just begin by saying that we reviewed the evidence that we'd already filed in these past proceedings. We felt the most meaningful way to respond was to update Exhibit C.3.5 from EB-2001-0441. This is a schedule that shows the landed cost differentials for the various components of the Union's supply portfolio relative to TCPL landed supply. 283 What we have essentially done is updated this comparison to reflect the -- again, the differentials for all our supply routes for the period December 2000 through December 2001. And the reason we picked that period is because that corresponds with when Alliance-Vector capacity started up, December 2000. 284 Also underpinning these comparisons or differentials, the gas costs that are utilized in this schedule are indexed gas or gas costs, absent of risk management impacts. I would make note that. In looking at this schedule, you will see that in addition to the Alliance-Vector cost or supply landing at a premium, there are also supply landing on other routes that are landing at discounts to TransCanada. 285 As we've already indicated, TCPL tolls are merely a convenient reference point for deferral accounting process and not an appropriate basis on which to make a determination of prudence, in our view. Incremental TCPL capacity was not available to Union at the time we made our decision and, as evidenced in the TCPL correspondence which Union filed at Exhibit C.39.6 in RP-2001-0029, you will note that Union did enter the TCPL queue in 1996 for capacity to begin in November '98 and November '99. 286 TCPL was unable to satisfy Union's 1998 requests in '98 and, in fact, essentially moved our request to '99. And further, TCPL did deny our 1999 request to be in the queue. 287 MR. PENNY: Thank you. Now, you've mentioned what is, in your view, or in Union's view, not an appropriate basis for evaluating the reasonableness of Alliance-Vector. What does Union say is the basis that the Board should assess the reasonableness of the Alliance-Vector contract? 288 MR. BREMNER: We believe that the prudence of our contracting commitment should be judged based on the options and the information that was available at the time Union made the commitment in the fall of 1997. The commitment was based, first and foremost, on market conditions at the time and second, on a long-run view or a long-term view of the key variables given the length of the commitment which we were making, which was 15 years. 289 All of this supported the selection of Alliance as the most appropriate option, and just to summarize for the Board the key points from our pre-filed evidence that supported our decision, we had demands, forecast demands in excess of our existing supply arrangements. TCPL capacity was not an option for us, given our inability to get a high enough position in TCPL's queue, or in fact any position in the '99 queue. 290 Alternatives to TransCanada were only available at a premium to TransCanada landed supply, and this includes Dawn delivered supply and U.S. landed supply. And Union's own analysis showed, based on the information that we had available at the time, that Alliance-Vector would land somewhere between an 8 cent premium, 8 cents per gJ premium, to an 11 cents per gJ discount to the then current TCPL rates. 291 In addition, it -- Union's commitment to the Alliance capacity was entirely consistent with Union's practice of underpinning supply arrangements with firm transportation and with the variety of terms and supply sources. 292 MR. PENNY: Thank you, Mr. Bremner. And finally, Exhibit 5.1 also contains a schedule 3 which is a graph labelled TCPL market value versus tolls, can you explain what that is and what it shows? 293 MR. BREMNER: Yes, I can. We prepared this graph to show the TransCanada transportation values -- this is marked schedule 3 -- over the period 1990 to present -- and essentially the transportation value represents the difference between the Empress price and the Dawn price or the differential between those two prices. 294 This graph is similar to Exhibit F.8.1 which was filed in RP-1999-0017, the main difference being that we have just increased the time frame over which the graph is shown just to illustrate some points. The point that we'd like to illustrate or the relevance of this graph is that it shows the cyclical nature of transportation values over time. Over the past 12 years, you can see that the value of TransCanada transportation has cycled between premiums and discounts to tolls many times and, in fact, some fairly dramatic premiums or discounts at times. 295 During this time period, Union held firm TCPL transport at times up to a Bcf a day, with terms ranging up to 15 years. The market will continue to drive these cycles in the future, continuing to impact transportation values in the landed cost of supply. Union's consistent approach to underpinning its supply portfolio with firm transportation arrangements ensures security of supply for the supply, the portfolio, entering times of constrained capacity and also minimizes the exposure to the cycles in transportation values. 296 Currently, we're at a point where the existing capacity, excess capacity to Ontario from Alberta, has depressed transportation tolls along those routes. As demand and supply increase, existing capacity will be taken up by the market and transportation values will increase. I mean, this is consistent with the cycles that we have seen as illustrated in the graph. So over the long run, transportation values should tend towards tolls. 297 The last schedule that I would like to just comment on is schedule 2. This schedule is intended to illustrate the impact that a long-term recovery and -- or a recovery in the Alliance-Vector transportation value will have on the cost differential between Alliance-Vector and TCPL -landed supply. This schedule assumes that there are -- there's no change in TransCanada tolls and it assumes that there will be no improvement in the exchange rate, as well, so it's at the current value which is roughly 1.58. 298 The schedule shows that in spite of assuming no recovery in exchange rate, that when transportation values do cycle and recover, that Alliance-Vector will land within a range that is comparable to TCPL. And in fact it lands in a range that was originally estimated by Union which was the plus 8 cents per gJ and minus 11 cents per gJ. This analysis shows that it would be in the plus 6 gJ range. 299 The final comment that I would like to make with respect to this is that if the exchange rate were to recover to a 1.48 from the now current 1.58, this would bring the two transportation routes on a landed-cost basis into complete parity. Those are my comments. 300 MR. JACKSON: Just before you move on, the range was .08 to point -- sorry. 301 MR. BREMNER: It was 8 cents per gJ to minus 11. 302 MR. JACKSON: Minus 11, thank you. And the settle prices, how are they determined? The settle prices are -- where is the settlement done, what is the market we're looking at? 303 MR. BREMNER: Empress. 304 MR. JACKSON: Empress. Okay. Well, AECO, I guess. Thanks for that. 305 MR. PENNY: Just again, a question of clarification, Mr. Bremner, with respect to schedule 2. You said that this assumed no change in TCPL tolls? 306 MR. BREMNER: That's correct. 307 MR. PENNY: And so to the extent that TCPL tolls were to go up in the future, what impact would that have on the comparison? 308 MR. BREMNER: All other things being equal, that would tend to increase the cost of TransCanada relative to Alliance-Vector and narrow the differential. 309 MR. PENNY: All right. Thank you. Mr. Chairman, those are all my questions in examination-in-chief. 310 MR. JACKSON: Thank you. 311 Mr. Rowe. 312 MR. ROWE: Thank you Mr. Chairman. 313 CROSS-EXAMINATION BY MR. ROWE: 314 MR. ROWE: Panel, I have a few questions that are intended to elicit information of a clarifying nature. They go to Union's alternatives at the time Union made its commitment to contract with Alliance. The first reference, it's part of the package that was filed in this case as F.1 and it's a response to an interrogatory from VECC, C.36.5. 315 MR. JACKSON: Mr. Rowe, the reference if you would; was it from the vertical-slice proceeding? 316 MR. ROWE: Yes, EB 2001-0441. 317 MR. PENNY: We assigned on the first day, Mr. Chairman, Exhibit F.1 to that binder from the vertical-slice proceeding. That's what Mr. Rowe referred to. 318 MR. JACKSON: Thank you. 319 MR. ROWE: Do we have that? 320 MR. SIMPSON: Yes. 321 MR. ROWE: Which of you is responsible for that response or for my questions on that response? 322 MR. BAKER: I think all of us will answer as the questions come. 323 MR. ROWE: Item B in that response asks about Union's alternatives. The response at page 2 in the first sentence says that market area supply was not a viable alternative at the time the Union's decision was made. 324 You said in -- are you still looking for it? 325 MR. JACKSON: No, that's all right, Mr. Rowe. I think we've caught up. 326 MR. ROWE: Are you okay? 327 MR. JACKSON: Yes, thank you. 328 MR. ROWE: You said in chief examination, the Alliance decision was made in 1997. Can you be more specific as to when in '97? 329 MR. BREMNER: It was made in the fall of 1997. 330 MR. ROWE: Thank you. Can you define for me what the term "market area supply" means? 331 MR. SIMPSON: Perhaps I could answer that. What that's essentially referring to is service or a supply that would be arranged without an underpinning transportation arrangement on the utility's behalf. 332 MR. ROWE: The answer here talks about those kind of services or that service being available at Dawn; is that kind of service also available at Parkway, the market area supply? 333 MR. BAKER: Yes, typically when we look at our market area we've got an option of either a Dawn delivery service or a Parkway delivery service. 334 MR. ROWE: Okay, thank you. That response goes on to say that there was not enough gas actively moving through Dawn on a daily basis to purchase 80,000 decatherms per day. The response then says that title transfers make that evident. A couple of points. First of all, can you tell me what the phrase, "gas actively moves through Dawn" means. 335 MR. SIMPSON: What that point is trying to bring across, although not quantitatively, is that Dawn was not an established a or liquid trading point in that time frame, back in 1996/1997. In terms of flowing through Dawn, in fact, at that juncture, most of the activity was in fact intended for end-use customers, either our own in-franchise customers or ex-franchise customers. 336 MR. ROWE: Okay. Can you tell me how title transfers at Dawn make it evident that there was not enough gas actively moving through Dawn on daily basis to purchase 80,000 decatherms per day? 337 MR. SIMPSON: Perhaps to speak to that, the title, to better understand the title transfer, that is really just a proxy in the intent of including that in this interrogatory response was to demonstrate that the levels from extremely low in '96 and have grown over time and that, perhaps, speaks to the -- Dawn is in fact developing. But, title transfers should not be construed as available gas at a point in time. In fact, title transfers often can be underpinned by one physical trade, but have up to 15 or 20 multiple exchanges amongst parties of that physical trade of which there is only one. So you'll -- these numbers again may reflect 15 to 20 times the amount that was actually transacted. 338 MR. BAKER: Just to say it another way, the volume of title transfers does not mean that there is a Bcf a day of uncommitted supply that's there available to be purchased, it's not a quantification of the amount of physical uncommitted gas. It's the amount of financial trades on some level of underpinning physical gas. It's certainly not, in that case, back in '95, '96, there's not a Bcf a day of uncommitted supply. 339 MR. ROWE: So it's fair to say that the physical gas available would always be less than the amount of title transfers? 340 MR. BAKER: Yes. 341 MR. BREMNER: Yes. 342 MR. ROWE: Thank you. 343 MR. JACKSON: And the title transfers are known to you how? Must they be recorded with Union or can title transfer not be recorded by Union and yet have occurred? 344 MR. BAKER: Typically, title transfers on our system have to be nominated. So we have to know who's got title to the gas on our system to know who's got it at Dawn, and then when they nominate to move those molecules away from Dawn we know who's got title at that point in time. 345 MR. JACKSON: Okay. Well then, the reference to a number of different trades in the background, but only seeing one title transfer, could you just help us to understand that? It seemed to me what you were saying was there were actually transfers of title or entitlement going on behind what you saw as one title transfer. But, maybe I misunderstood you, it seems. 346 MR. SIMPSON: I will attempt to clarify that. What I was trying to describe was one physical transaction could lead to multiple, 15 to 20 title transfers. So, while I may initiate the physical purchase, I may transfer that title to a second party who then tries to sell that to a third party, and so on, and so on, and so on, up to 15 or 20 parties actively participating in the marketplace but only one physical trade or transaction initiated. 347 MR. JACKSON: Okay. So that -- let me see if I've got this clear. It's the same gas but all 15 or 20 title transfers would be known to you because they'd have to be recorded with you, too? 348 MR. SIMPSON: That's correct. 349 MR. JACKSON: Okay. That's what I needed to clarifying. Thank you. 350 MR. ROWE: Thank you, Mr. Chairman. 351 MR. DOMINY: And I believe you collect a fee for the title transfer. 352 MR. BAKER: Yes, we do. 353 MR. DOMINY: So that would be a means by which you would know, sir. 354 MR. BAKER: That's correct. 355 MR. DOMINY: Thank you. 356 MR. ROWE: Moving on, panel. Response C.36.5 refers us to an Exhibit C.1.1 which is also part of that same F.1 package that was from the vertical-slice case. That exhibit is Union's response to an interrogatory from Board staff that also talks about alternatives. 357 MR. JACKSON: Sorry, I was just showing my own inability to follow all the small administrative matters in this case, but is it F.1.1 that we're talking about as opposed to F.1? 358 MR. ROWE: Sorry. I'll shoot Mr. Farrell. 359 Do we have Exhibit C.1.1 from the vertical slice case? 360 MR. JACKSON: Yes. 361 MR. ROWE: On page 2, the last line on the page, there's a reference to "increased liquidity at Dawn." Can you define for me what the term "liquidity" means? 362 MR. SIMPSON: Liquidity is, although difficult to define, intended really to imply that there is a strong ability to buy or sell at a point, whenever you want to. So if a point is liquid, you can transact there as you please. 363 MR. ROWE: Okay. What data is available to measure liquidity, specifically at Dawn? 364 MR. SIMPSON: The conversation we had with respect to the title transfers is certainly a proxy. Again, it is not a measurement of liquidity, it is simply an indicator of activity. So, liquidity itself is probably extremely difficult to measure. 365 What is worthy of noting, relevant to this issue, is in 1996 -- to this point there's been significant development in, certainly, storage in addition to Vector connecting into Dawn, so elements like that that make physical gas either available through storage or through the incremental transport will notionally have an increasing element of liquidity brought to Dawn. And without these elements, what I was trying to demonstrate with the title transfers, was that in 1996, Dawn was fairly immature, but with these additions is maturing. 366 MR. BREMNER: Just for clarity if I could just, perhaps, add to Mr. Simpson's response. 367 Back at that point in time, most of the gas that was at Dawn, there was a lot of gas at Dawn, but most of it was contracted or there to serve firm markets such as Union's market, GMI's market, Enbridge's market, for other customers that had arranged their supplies. So, as such, it's really not available on the market for parties to purchase. 368 As Mr. Simpson said, the key ingredients that make that supply available, to create the market for Dawn-delivered supply, are the storage so that parties that provide those services like marketers can have the assets to provide those storage -- those services and so -- and the transportation capacity to bring more supply to Dawn in excess of the needs of the GMIs, the Enbridges, and the in-franchise customers. 369 MR. ROWE: Thank you for that. 370 Is a liquid market the same thing as a deep market? Is there a distinction between those terms? 371 MR. SIMPSON: There's perhaps a distinction and maybe it's a term of relativity. A market that is deep is able to sustain the very high level of transaction, that there's a lot of buyers and sellers like a stock market, for example. Dawn, on the other hand, is -- as Mr. Bremner just alluded to -- in '96, while there were a lot of users of the system, they were not actively trading at Dawn. They were purchasing gas upstream, transporting it to Dawn, using the Dawn storage facility to take to their burner tip. That doesn't constitute liquid trading. But since that point, I would say Dawn is starting to mature through the evolution of storage and Vector and marketers playing a more active role. So I think that helps define when a market starts to deepen. 372 MR. ROWE: Okay, thank you. 373 Is there a way of measuring market depth? Or is your answer similar to the liquidity? 374 MR. SIMPSON: I would suggest that I've attempted to answer that. 375 MR. ROWE: Okay. 376 Can we refer back now to C.36.5 and the chart that's attached to that. Do you have that? 377 MR. SIMPSON: Yes. 378 MR. ROWE: Can you tell me when, in your view, Dawn became a liquid market? 379 MR. SIMPSON: Given the difficulty in defining "liquid," I would suggest it would be equally difficult to say when or if Dawn is liquid. I would point back, again, to the title transfers that are in proxy for activity in liquidity. I think the fact that marketers are now starting to take storage positions at Union, that there is, physically-connected, more pipe, more assets available, points that Dawn is maturing. 380 I think an equally important point, in our opinion, is in '96/'97 these elements didn't exist. So we can say with certainty that it was not liquid; parties were not requiring 365-days-per-year service, firm service at Dawn. We're starting to see some evolution but it was not in 1996/'97. 381 MR. BAKER: Just one other point to put that maybe in a bit of perspective. You recall back in -- the winter of '95/'96 was probably the last time we had a colder-than-normal winter on record, and at that point in time weather-induced demands were extremely high all across the continent and we saw a huge demand for incremental-delivered gas at both Dawn and also in Chicago. At that time prices were extremely high because of the fact that we were in a pipeline-constrained market; there was generally not a widely-available amount of a gas to be purchased on a given day. You saw that manifested in terms of very high, very volatile prices, not only at Dawn but in Chicago as well. 382 MR. ROWE: Okay, thank you for that. 383 Would your response be any different if I asked you when Dawn became a deep market? 384 MR. SIMPSON: No, I think it would be the same as I've defined. 385 MR. ROWE: Okay. Thank you, Panel. 386 Thank you, Mr. Chairman. Those are my questions. 387 MR. JACKSON: Thank you. 388 Ms. DeMarco? 389 CROSS-EXAMINATION BY MS. DEMARCO: 390 MS. DEMARCO: Good morning, Mr. Chairman. Elisabeth DeMarco here on behalf of George Vegh and the Coalition for -- I'm here in Mr. Vegh's place on behalf of the Coalition for Efficient Energy Distribution, or CEED>. I have just a few questions for this Panel. 391 Just by way of background, I wonder if you can just take me through your business planning cycle and the time lines surrounding transportation/acquisition decisions. 392 MR. BAKER: Well, perhaps I could respond to that. I guess generally speaking, we would update our supply plan would bring forward and communicate what its portfolio composition was on that November so that marketers would have an idea as to Union's portfolio and the composition of the vertical slice. 393 MS. DEMARCO: But again it's still fair to say that for a customer to sign up this November 1, marketers would not now be in a position to know what 52 percent of the transportation capacity would be to back up that offering; is that correct? 394 MR. BAKER: That's correct, and neither would Union know exactly what its portfolio is going to be for this November. 395 MS. DEMARCO: That being six months from now. 396 MR. BAKER: That's correct. 397 MS. DEMARCO: So you're fairly underway with the planning process by what we've discussed to date? 398 MR. BAKER: We are in the middle of it. 399 MS. DEMARCO: So you have an idea, a good idea? 400 MR. BAKER: No, I would say that we're in the middle of it. We've come through -- as everyone knows, we've come through a very, very warm winter, where demands have been very much less than what was budgeted or forecast, and we are trying to -- we are still seeing some winter weather. So we are trying to look at the gas that we still have in inventory coming out of the winter with the portfolio that we've got that's expiring come this November, and trying to get a handle on exactly what position we're going to be in and, therefore, what portfolio we will need effective November 1. 401 MS. DEMARCO: So would it be fair to say you're in one of the iterations of the iterative process that we discussed? 402 MR. BAKER: Yes, I think that's fair. 403 MS. DEMARCO: So is it also fair to say, then, that a marketer in this position of signing up commerce for November 1, 2002 will not now be able to know the source from which it must purchase 52 percent of that customer's gas? 404 MR. BAKER: That's right. Because we have not landed on what Union's portfolio will be as of November 1. 405 MS. DEMARCO: Would you agree that both the transportation route and the source are both very important pieces of information that would go into any offering? 406 MR. BAKER: No, I wouldn't agree with that. 407 MS. DEMARCO: They're not important to someone who wants to make an offer to the market? 408 MR. BAKER: My understanding is that the offers that marketers are making to the customers are in large measure longer term, fixed-priced offerings. Yes, the marketer is going to need to make some consideration in terms of where that gas is going to come from, but I don't think that's a firm determination in terms of their being either able or unable to market to customers. 409 MS. DEMARCO: But again, simply, where the gas comes from is important, the source is important. 410 MR. BAKER: Well, it's important from the perspective of that's where the marketer, to the extent that he brings on new direct-purchase customers and gets allocated a portion of capacity through the vertical slice, that will be where the marketer will need to arrange supply. 411 MS. DEMARCO: That's right. So both the capacity, the pipeline location or the pipeline choice and the source will be relevant issues going into the offering; is that fair? 412 MR. BAKER: I guess I'll step back and say I'm not sure I can say with certainty what factors a marketer takes into account in putting an offer to a prospective direct-purchase customer. He may or may not. I don't know. 413 MS. DEMARCO: Let me rephrase then. Would these pieces of information be important to Union were it to make an offer? 414 MR. BAKER: I'm not following the question. 415 MS. DEMARCO: Would the source of gas and the transportation route be important to Union in making any offer to the market? 416 MR. BAKER: We're not making offers to the market. 417 MS. DEMARCO: If it were? 418 MR. BAKER: I don't know, because we're not in that business. It would depend on what business we were in. It would depend on the kind of offers we were looking to put to customers, and it may have more relevance or less relevance, depending on what we were actually doing, but it's very much a hypothetical. 419 MS. DEMARCO: So more or less relevance, but nonetheless some relevance. 420 MR. BAKER: Yes. 421 MS. DEMARCO: So given that a marketer may have to take on your transportation contracts, it wouldn't be unreasonable for a marketer to seek some input of what your portfolio looks like; do you agree? 422 MR. BAKER: I totally disagree. 423 MS. DEMARCO: On what basis? 424 MR. BAKER: On the basis that the customers that we're looking to serve right now are Union system customers. They are Union's customers, they aren't direct purchase customers or customers of a particular retail energy marketer. 425 MS. DEMARCO: Given, however, that a marketer has to take on your transportation contracts, and would be required to serve customers who've moved to a direct purchase option on November 1, would you not agree that it wouldn't be unreasonable for marketers to seek some input into those obligations and into what your portfolio looks like? 426 MR. BAKER: Again, I'll repeat my answer: I don't agree that it's reasonable or practical for marketers to have input into the portfolio that Union is constructing to serve its system customers. The construct that we are under today, which we have always been under, is that Union comprises -- puts together a portfolio to serve its system customers. And that portfolio and the costs that flow from that portfolio are reviewed by this Board. And nothing has fundamentally changed in terms of that process or the way we facilitate direct purchase other than now marketers, instead of getting allocated only TransCanada FD Transport, as has been the historical case, they are now getting allocated different sources of supply through the vertical slice. 427 MR. JACKSON: I'm sorry, Ms. DeMarco, did you ask whether it would be appropriate for marketers to have input into the determination of that upstream capacity portfolio or did you ask whether it was appropriate for marketers to have knowledge of the likely outcome as the date approaches for determination of what the upstream portfolio will be. 428 MS. DEMARCO: The question was that broadly phrased in terms of, would it be reasonable for a marketer to seek some input and/or information into what the portfolio looks like. 429 MR. JACKSON: Thank you. I hadn't recalled whether the word "input" was there. Thank you. 430 MS. DEMARCO: I wonder if we could just follow up. 431 Can I ask you to turn to an excerpt from the RP-1999-0017 decision and I believe Mr. Vegh has excerpted that for you in his book of materials entitled, "The References for the Coalition for Efficient Energy Distribution Cross-examination of Union," dated April 4th, specifically, tab 2 of those materials. 432 MR. MORAN: It's Exhibit F.3.5. 433 MR. JACKSON: Thank you. 434 MR. BAKER: Sorry, we're referring to the RP-0017 decision? 435 MS. DEMARCO: RP-1999-0017 decision, an excerpt therefrom, and I believe the exhibit reference number, as Mr. Moran said, was Exhibit F -- 436 MR. MORAN: 3.5. 437 MS. DEMARCO: -- 3.5. 438 MR. BAKER: And what page or paragraph number? 439 MS. DEMARCO: Specifically, paragraph 6.1.10 -- sorry, 6.110, which is on page 308 of the decision. 440 Is it fair to say that in paragraph 6.110 the Board said that Union should take steps for achieving greater flexibility with respect to customer choice and that it expects Union to build greater flexibility into its portfolio? 441 MR. BAKER: Yes, that's what the decision says. 442 MS. DEMARCO: And again, the Board went on to say that it expects you to continue these efforts and to present these in the customer review process. 443 MR. BAKER: Yes. And what I was trying to distinguish was it's the customer review process that normally provides the rates that are set for the forward year. So typically that would be the 2003 customer review process. 444 MS. DEMARCO: Can you show me where on the decision it specifies that? 445 MR. BAKER: It would happen in the summer. 446 It doesn't explicitly say it in the decision, but that is the entire basis and the timetable by which Union put forward for the customer review process in PBR. The fact that we are in the customer review process now for 2001/2002 is a function of the timing of the Board's decision and the fact that this is the earliest that we could get to 2001/2002. In a typical year, that process would have already been completed and we would have been proceeding to the 2003 customer review process this summer. 447 MS. DEMARCO: Is that codified anywhere else, other than in what you've just said? 448 MR. BAKER: It would be in the evidence that Union filed in its PBR application and evidence. 449 MS. DEMARCO: So as we have -- in the decision right now, we have nothing expressed that indicates that the Board is tying us, or you, to that timing. 450 MR. BAKER: I agree, it's not explicit. 451 MS. DEMARCO: So, if the parties and the Board had the opportunity to review your proposed portfolio prior to Union entering into any commitments, then it's possible that your proposal could be evaluated against that flexibility criteria; is that correct? 452 MR. BAKER: The Board's decision, in my view, does not go as far as to say that Union is expected to bring forward its portfolio for review or any kind of prior approval before we enter into it. 453 My read of the Board's decision is they are expecting us going forward when we are constructing our portfolio to look at the flexibility that's in there and try and build in as much flexibility as we can. But I don't read into the decision that the Board has stated that before we make any decisions on our transportation portfolio, we should bring that forward through the customer review process for some sort of input or approval. 454 And again, that's consistent with, when we had talked about bringing forward our portfolio through the customer review process. The way that was contemplated was that was a communication to marketers and to everybody who participates in the process in terms of what our portfolio is going to look like for the upcoming year and what the vertical-slice components would be. 455 MR. PENNY: Mr. Chairman, just to interject for a second, apropos of a question that Ms. DeMarco asked a few minutes ago whether it was explicit what the process was. Ms. DeMarco, I don't think was a participant in the proceeding and Mr. Baker himself wasn't testifying to this aspect of it, it was other witnesses. 456 But the Board may recall that at pages 205 and 206 of the decision there is a specific contemplation of the time frame for what the customer review process would be. So what Mr. Baker said is explicitly in -- Mr. Baker's description of the process is explicitly in the Board's decision at pages 205 and 206 of Volume 1. 457 MS. DEMARCO: Let me just address that then. Pertaining to the flexibility criteria as the Board has enunciated them in paragraph 6.110 there is nothing explicit in that paragraph tying the Board or the customers to the process in timing -- to the timing specifically -- strike process -- that you have enunciated; is that fair? 458 MR. BAKER: Will you repeat the question? 459 MS. DEMARCO: There's nothing explicit in paragraph 6.110. 460 MR. BAKER: It doesn't say a specific date. 461 MR. PENNY: Mr. Chairman, it says, "to prevent these in the customer review process." 462 MS. DEMARCO: Which customer review process, I believe, Mr. Chairman, appears to be in dispute, so back to paragraph 6.110. 463 MR. JACKSON: I think Mr. Penny was trying to help and I haven't found the exact wording that I'm sure he's thinking of on pages 205 or 206 that would mean that the information for November 1 should be presented no earlier than the June filing of that year. I'm just missing the -- 464 MR. PENNY: The issue wasn't -- the -- my only point, Mr. Chairman, was that the process that Mr. Baker described is set out at pages 205, 206. I wasn't suggesting that it specifically addresses paragraph 6.110. I was simply pointing out that the process Mr. Baker described is specifically set out in the Board's decision. 465 MR. PENNY: Right. No, thank you for pointing that out. I would also say that Union's thinking around the time of that customer review process was always in contemplation of the fact that we know we have differences as we move through the winter in terms of either warmer or cooler weather that will dictate, on some basis, a change in our portfolio and we need some time when we come out of the winter to understand that and get that in place. And the timing was then we would file a June customer review package and we would present that information to customers in that time frame, June or July. 466 MR. JACKSON: Do you see on a going forward basis that there -- that 52 percent might be a fairly typical amount that would be unknown six months before this contracting date? 467 MR. BAKER: I really can't predict that because it will depend on what -- it will depend on what Union's portfolio is, going forward. It will depend on what the options are in the marketplace in any given year. So it's a tough question to predict. 468 MR. JACKSON: Thank you for that. And that's what you are wrestling with right now, I take it, as you approach next November 1. 469 MR. BAKER: That's correct. 470 MR. DOMINY: Mr. Baker, could I ask about a clarifying process, you talked about the customer review process for 2003. And therefore if one looks at the timetable that Mr. Penny's referred to, therefore your thinking is that you will be following that sort of a timetable for 2003? 471 MR. BAKER: Yes, it is. 472 MR. DOMINY: Thank you. 473 MR. JACKSON: That's good. Ms. DeMarco, please carry on. 474 MS. DEMARCO: I wonder, you've said June/July this year, customers will have an idea, or be able to look at the transportation portfolio for November 1, 2002. I wonder if you can give us your best estimate as when this summer that will happen other than -- if you have something more precise than June or July? 475 MR. BAKER: Again, I'm not sure I can be any more precise at this point other than the June/July time frame is what we're shooting for. 476 MS. DEMARCO: So under your current proposal, customers will not be able to have a look at the transportation portfolio for November 1st until approximately three months before November 1st. 477 MR. BAKER: That's correct. 478 MS. DEMARCO: And by that time, would it be too late, or would you agree with me that it would be too late for customers to have any input into the makeup of that portfolio? 479 MR. BAKER: Again, in my -- from my perspective, the timing is irrelevant to whether we're seeking input from parties or pre-approval from parties in terms of putting together a portfolio to serve Union's system customers. That's not the construct around the way we plan and the way we operate the business, and there's nothing that I see in the Board's decision or anything that I've seen from the Board that would suggest that we are to do something different. 480 MS. DEMARCO: But again, is it fair to say that customers will not have any input into the makeup of that portfolio? 481 MR. BAKER: Retail energy marketers have never had input into Union's portfolio, based on the portfolio that Union puts together to serve its system customers. They are our customers at this point in time and we have the obligation and the accountability to put together a portfolio to serve those customers. 482 MS. DEMARCO: Just as a point of clarification, our discussions today have been phrased or discussing, largely, customers who move to direct purchase as of November 1st, 2002. So, again with that precursor, the customer would not have any -- that customer would not have any input into the makeup of the portfolio. 483 MR. BAKER: Again, respective direct purchase customers or customers that choose direct purchase have never had any input into Union's portfolio in advance or on a pre-approval basis, and there's no change to that. 484 MR. JACKSON: And there's no plan to change that? 485 MS. DEMARCO: In line with the flexibility criteria that we've discussed, will they have the ability to have any input in relation to this offering, i.e., the November 1st, 2002 offering, will they have any ability to set the transportation arrangements aside? 486 MR. BAKER: Again, we are not contemplating or seeking any input. What we are doing is clearly recognizing the Board's comments in the decision that they're looking to us to structure, as reasonably as we can, a flexible portfolio. And we know that that's a comment the Board made in the decision, and clearly that's in our mind as we move forward this summer to put together and to structure a portfolio. 487 Again, it's no different than any other year to the extent we've put together a portfolio, again, typically post-facto that the Board> considered was not prudent and did not build enough flexibility into it, we would have to answer to that. 488 But the process, going forward, is we put together a portfolio to serve our customers based on the market and the options we see, and we know that we will be held to task at the end of the day to explain and justify and speak to the decisions that we made in terms of that portfolio. 489 MS. DEMARCO: I'd like to ask a few questions about that justification and speak to process. 490 In June or July, when the portfolio is released, what will customers or the Board be able to do if they're not satisfied entirely with it? 491 MR. BAKER: Again, the way the process will work is that if they're not satisfied, I guess they can express those views to the Board. But in terms of the way the process works right now, we will be reviewing the consequences of that -- of those contracting decisions when we go to clear deferral accounts related to, I guess, the tail-end of 2000 (sic) and into 2003. 492 MS. DEMARCO: So it's fair to say nothing in advance? 493 MR. BAKER: That's true. And I would also say that that's no different than the current situation that we're under right now. The Board has approved a vertical slice that includes Alliance-Vector in that slice, and retail energy marketers that have brought forward new direct purchase customers are operating under that slice which has Alliance-Vector and Panhandle-Trunkline capacity. We're sitting here today, after some of those direct purchase agreements have been processed and have flowed, and we are sitting here today and talking about the prudence of the Alliance-Vector component of that vertical slice. 494 MS. DEMARCO: Again, the prudence of that vertical slice, the Alliance-Vector component and 52 percent of some unknown other arrangement. 495 MR. BAKER: No, what we are here to talk about is the prudency of Alliance-Vector. 496 MS. DEMARCO: I think that concludes my questions. 497 MR. JACKSON: Thank you, Ms. DeMarco. 498 Mr. Penny, I think it might be appropriate, then, to adjourn for the day because we have this meeting at 1:00, unless you can think of something that we could use two or three minutes for, something very brief. 499 MR. PENNY: The only administrative matter that we have is that the -- I had alluded earlier that as a result of the negotiation that took place over the past week or so with the -- sorry, I have to withdraw what I just said. I was about to say that we were going to file with the Board before we broke the updated DSM evidence, but I've just been advised that there is one typo that now needs to be corrected so we'll -- that will be available this afternoon. 500 So I guess as a practical matter, if anybody's desperate for it, we can arrange for them to get it this afternoon even though we're not sitting. But otherwise it will be here in the room and available to parties tomorrow morning. We can certainly, because of your proximity, deliver it to the Board this afternoon. 501 MR. JACKSON: Yes, thank you. 502 Mr. Moran, no other matters? 503 MR. MORAN: Not from me, sir. 504 MR. JACKSON: Thank you. 505 We'll adjourn now until 9:30 tomorrow morning. 506 MR. PENNY: Thank you, sir. 507 --- Whereupon the hearing adjourned at 12:10 p.m.