Rep: OEB Doc: 128RL Rev: 0 ONTARIO ENERGY BOARD Volume: 6 April 11, 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: [14] UNION GAS - PANEL 4 [40] CROSS-EXAMINATION BY MR. WARREN: [44] CROSS-EXAMINATION BY MR. JANIGAN: [617] CROSS-EXAMINATION BY MR. MORAN: [946] QUESTIONS BY THE BOARD: [978] RE-EXAMINATION BY MR. PENNY: [1027] 9 EXHIBITS 10 EXHIBIT NO. F.6.1 EXCERPT FROM EBRO 493/494 [686] EXHIBIT F.6.2: DOCUMENT RELATED TO MR. STAUFT'S APPEARANCE [783] EXHIBIT F.6.3: ARTICLE DATED JANUARY 13, 1997 [921] EXHIBIT F.6.4.: ARTICLE DATED AUGUST 23, 1996 [923] EXHIBIT F.6.5: ARTICLE DATED JUNE 25, 1996 [925] EXHIBIT F.6.6: AMENDMENT TO APPLICATION OF NORTHERN BORDER PIPELINE COMPANY FOR CERTIFICATE OF PUBLIC CONVENIENCE AND NECESSITY [1045] EXHIBIT NO. F.6.7: MARKET EFFECTS FROM UNION GAS LIMITED'S HIGH-EFFICIENCY FURNACE REPLACEMENT PROGRAM [1077] 11 UNDERTAKINGS 12 UNDERTAKING NO. G.6.1: TO PROVIDE COST CONSEQUENCES OF UNION'S ALLIANCE-VECTOR ARRANGEMENTS [53] UNDERTAKING NO. G.6.2: TO PROVIDE CLARIFICATION OF UNION'S COMMITMENTS UNDER THE TRISTATE PROJECT [155] UNDERTAKING NO. G.6.3 TO PROVIDE A COMPARISON OF FORECAST PAID TO ALLIANCE-VECTOR WITH WHAT ACTUALLY TRANSPIRED IN THE SECONDARY MARKET [537] UNDERTAKING NO. G.6.4: TO PROVIDE WRITTEN MATERIAL BETWEEN UNION AND WESTCOAST REGARDING ALLIANCE AND VECTOR [586] UNDERTAKING NO. G.6.5: TO PROVIDE THE LEVEL OF TCPL FOR UNDERPINNING THE CAPACITY FOR SYSTEM SALES CUSTOMERS FROM THE TIME OF EBRO-493/494 UP TO THE PRESENT [706] 13 --- Upon commencing at 9:30 a.m. 14 PRELIMINARY MATTERS: 15 MR. JACKSON: Good morning, please be seated. 16 Mr. Penny, there's just one question I wanted to ask you this morning before we started. I was asked the question last night when you -- as to when you do provide the normalized financial information whether you would be using the new normalization methodology or the old. And, I suppose, I assumed you'd probably be using the new, but, sort of, the follow-up question was, well then will that be different from the normalization adjustment that would have been used with the old methodology. So, it might help, actually, in understanding why the intervenors that were opposed to the settlement in issue number 5 opposed it. If we could see both of these sometime, so that we could see why they didn't want it used for either operational or forecasting. Why they didn't want the new methodology used for either. 17 MR. PENNY: With respect to that issue, Mr. Chairman, it was because they didn't like the storage allocation issue. 18 MR. JACKSON: Yes, and that came through clearly, but when I reread it I was left with the impression that maybe they just didn't like it period. So -- 19 MR. PENNY: Probably lots of things will fall into that category, Mr. Chairman. 20 MR. JACKSON: So, if you could just for this time around give it to us both ways so that we could see what difference that makes for forecasting purposes, that would be appreciated. Given that it may effect number 5, is it possible to get it before you do your final argument or -- not your final argument, excuse me, before you do your argument-in-chief? 21 I'd just like to see if we could complete the record before we start argument. 22 MR. PENNY: I'll have to make inquiries about that, Mr. Chairman. Based on what -- the discussion I had yesterday, I think that may not be possible because it's just because of the time available, but let me check on that and I'll find out. 23 MR. JACKSON: And we are available Wednesday morning if taking Tuesday off would allow you to do it, we could do that. 24 MR. PENNY: All right. On that issue, Mr. Chairman, I was going to say you'd ask me the other day whether -- if I wanted to start argument on Monday or go over to Tuesday and I think our preference would be to go over to Tuesday and just use whatever time we have left Monday to assist in the preparation for that. 25 MR. JACKSON: I understand, and what we're saying is if it assists you in completing the record first, we could do it Wednesday morning. 26 MR. PENNY: Thank you, Mr. Chairman. We'll see if it makes a difference. 27 MR. JACKSON: Yes. And Tuesday, if we do it Tuesday, would be a 10:30 start because we do have another commitment for one of our members. 28 MR. PENNY: All right. Thank you, Mr. Chairman. 29 MR. JACKSON: Mr. Penny, when you're ready, then, with their Panel. 30 MR. PENNY: Just to cut -- one other preliminary matter just has to do with updated material. The Board will have, and the parties will have, answers to a number of interrogatories, they are all stapled together, but there is 3.4, 3.5, 4.1, 4.2 and 4.3 and 4.4. I am advised that all but two of the undertakings, and those were the two that were taken yesterday will likely be available by the end of the day today, and we think in all likelihood the ones that were taken yesterday will be available tomorrow. 31 The other piece of paper or one other piece of paper the Board and the parties will have is two schedules, tab 15, schedules 1 and 3 updated. This is -- there was also an undertaking for that information so the undertaking cross-references these schedules but these are updated to reflect the most recent deferral account balances. 32 MR. JACKSON: Thank you, Mr. Penny. 33 MR. PENNY: It has to do with the changes in Ontario income tax rates on the deferral account balances and it's simply reflecting the updated deferral account balance information. 34 MR. JACKSON: Okay, thank you. 35 MR. PENNY: And then the third item is -- I had mentioned yesterday that Ms. Platis had prepared updated demand-side management evidence to, largely to reflect the progress that was made with respect to the outstanding issues with the Green Energy Coalition and to, more specifically, address the two remaining issues that are in dispute. So that evidence was actually sent to the GEC people last night electronically, but it's now available in hard copy to everyone and Union will be sending it out, of course, to all the intervenors who aren't present in the ordinary course. 36 MR. JACKSON: Thank you. 37 MR. PENNY: So those are all the preliminary matters that I have, Mr. Chairman, so the cross-examination of the Alliance-Vector Panel can continue. 38 MR. JACKSON: Mr. Warren, were you intending to lead off this morning? 39 MR. WARREN: Yes, thank you. 40 UNION GAS - PANEL 4 41 J.BREMNER; Resumed. 42 S.BAKER; Resumed. 43 D.SIMPSON; Resumed. 44 CROSS-EXAMINATION BY MR. WARREN: 45 MR. WARREN: Panel, my name is Robert Warren and I appear in this proceeding for the Consumers' Association of Canada. I apologize in advance, I was not present yesterday. I tried to read the transcript last night, but I apologize if there is any duplication from what you covered yesterday. I would like to begin, Panel, and I should advise you, I am going to deal exclusively with the Alliance-Vector issue. 46 I'd like to begin, Panel, with simply defining or understanding, if I can, the relief which is sought in this case. Now, I -- in reading the transcript from last night, Mr. Penny asked Mr. Bremner to describe the precise issue the Board is being asked to rule on, and the answer that was given was that the Board needs to -- this appears at Volume 5 of the transcript, paragraphs 275 to 276 -- according to Mr. Bremner he says, you say, we believe that the decision that the Board is to rule on is the prudence of Union's decision, the contract for Alliance-Vector capacity. And then in paragraph 276, you say, having said that the cost consequences of this decision, passing commitments to Alliance-Vector, are manifested in Union's deferral account balances that we are seeking to recover. 47 Now, to try and refine that latter point a little more, can you tell me the cost consequences of the Alliance-Vector arrangements that you are seeking to recover in this case are what, what are the amounts? 48 MR. BREMNER: We haven't stated what the amounts were at this point, but based on the deferral accounting mechanisms which use a TCPL reference price, you could calculate an amount. 49 MR. WARREN: Do you have that number at your finger tips or can I get an undertaking to calculate it and tell me what it is? 50 MR. BREMNER: We'll undertake to provide you that number. 51 MR. MORAN: That would be G.6.1, Mr. Chair. 52 MR. JACKSON: Thank you. 53 UNDERTAKING NO. G.6.1: TO PROVIDE COST CONSEQUENCES OF UNION'S ALLIANCE-VECTOR ARRANGEMENTS 54 MR. WARREN: And just as a corollary of that question, the recovery period being covered is what, what years? 55 MR. BREMNER: The period would be the period during which the Alliance-Vector transportation actually flowed, or the cost consequences flowed, which would begin in December of 2000 and end, for these purposes, in December of 2001. 56 MR. WARREN: Now in order to grant the relief that you're asking for, namely the recovery of costs, you've indicated that the Board has to make a decision on the prudence of the Alliance-Vector arrangements. Can I -- am I correct in understanding that once the Board makes a decision on the prudence of those arrangements, that you will be recovering an amount annually for a period of some 15 years hereafter; is that fair? 57 MR. BAKER: I would say, not exactly. The current deferral accounting mechanism, the threshold by which we look at Alliance-Vector is against the TransCanada FT benchmark price. So there may, in fact, not necessarily be recoverable amounts going forward in the future. That price could well be below TCPL benchmark. There could be credits that get generated from that. 58 MR. WARREN: Thank you, Mr. Baker, that's a fair answer. The issue I was really getting at is that one way or another, having made the decision about prudence, that decision does not need to be made year in and year out thereafter, it's made this year for the duration of the contract. 59 MR. BAKER: That's correct. 60 MR. WARREN: Okay. 61 Now I'd just then on a second point, really, of administrative clarification. If I would ask you to turn up your pre-filed evidence which appears at Exhibit B, tab 4, page 21 and 22. The only issue I wanted to deal with, the only matter I wanted to deal with arising out of that pre-filed evidence is that, am I correct in understanding that Union did not file any fresh evidence on Alliance-Vector in this case, save and except for the responses to interrogatories; is that fair? 62 MR. BREMNER: That's fair. 63 MR. WARREN: Now you indicate in your pre-filed evidence that you are incorporating by reference the record in two earlier proceedings, one is RP-1999-0017 and the second is EB-2001-0441; is that correct? 64 MR. BREMNER: That's correct. 65 MR. WARREN: Now just to refresh my memory, in RP-1999-0017, the issue before the Board was the approval of the vertical slice methodology for the allocation of the upstream transportation portfolio; is that correct? 66 MR. BAKER: That's correct. 67 MR. WARREN: And the Board did not decide in that case the prudence of the Alliance-Vector arrangements; is that correct? 68 MR. BAKER: Correct. 69 MR. WARREN: In EB-2001-0441 -- I will refer to that by the shorthand the 0441 case -- you were seeking approval OF the inclusion of the Alliance-Vector in the vertical slice; is that correct? 70 MR. BAKER: And as well the prudency of the Alliance-Vector. 71 MR. WARREN: That's right, you were also seeking that. And their -- that was a written proceeding in which there was no cross-examination on your evidence; is that correct? 72 MR. BAKER: My understanding was no, none of the parties requested to cross-examine Union in that case. 73 MR. WARREN: My question wasn't whether there was anybody who asked about it, the fact is there was no cross-examination of your evidence; correct? 74 MR. BAKER: That's correct. 75 MR. WARREN: Okay. Now just then to turn to the terms of these contracts. First of all, with respect to the Alliance contract, Union signed a precedent agreement in November of 1997; is that correct? 76 MR. BREMNER: That's correct. 77 MR. WARREN: And it was for a period of 15 years; is that correct? 78 MR. BREMNER: I'm sorry, the actual precedent agreement was signed in September of 1997. 79 MR. WARREN: And it was for a period of 15 years? 80 MR. BREMNER: The term of the contract was to be 15 years, that's correct. 81 MR. WARREN: And the volume under the contract was what? 82 MR. BREMNER: 80,000 MMBTUs. 83 MR. WARREN: And was it a fixed price for the term of the contract or was it a variable price? 84 MR. BAKER: The toll would be set, based on for the Canadian portion by the NEB and the U.S. portion by FERC, so it was cost-of-service tolling methodology. 85 MR. WARREN: The Vector contract, your precedent agreement was signed when? 86 MR. SIMPSON: I'm just flipping to reference C.39.10 in the 0029 proceeding. And, to be consistent to that, the answer for the Vector agreement was that it was signed January 19, 2000. 87 MR. WARREN: The volume under that 15-year agreement was what? 88 MR. BAKER: 80,000 MMBTU. 89 MR. WARREN: And again -- am I correct that the price was to be -- the cost-of-service tolling, same methodology? 90 MR. BAKER: Cost-of-service tolling, but the Vector arrangement was subject to a cap, a capped price. 91 MR. WARREN: Now if you would please turn up Exhibit C.3.7 in the 0441 case. 92 Mr. Chairman, if I can just pause at this point. I'm wondering what would be the best way for the record to refer to the exhibits in the 0441 case. They have been introduced as a blanket exhibit, I believe, F.1.1. For purposes of the record and everybody following this in the transcript, what's the best way? Would you prefer if I were to say on each occasion, Exhibit C.3.7 in the 0441 case? 93 MR. JACKSON: I think that's preferable. We do know it's F.1.1 in this case, but our binders aren't labelled that way and so on. So I think your first suggestion is more helpful. Do you agree, Mr. Penny? 94 MR. PENNY: I do, Mr. Chairman. I think this is the only Panel in which this issue will arise. So I don't think it will be unduly burdensome, so if people are referring to an interrogatory -- if they can just make clear whether they are referring to a interrogatory either in this matter-17 case, the 441 case or the matter-29 case, I think that will make it clear. 95 MR. JACKSON: Yes, I do too. Thank you, Mr. Warren. 96 MR. WARREN: I'll do my best, Panel to keep them straight. 97 I'm referring then to Exhibit C.3.7 in the 0041 case. Now just by way of sort of broad overview, am I correct in my understanding that Alliance is a pipeline project whereby Alberta gas is transported to Chicago; that's fair? 98 MR. BAKER: That's correct. 99 MR. WARREN: Now when I look at the Exhibit C.3.7, I see in the question was from my client, the CAC, and if I look at the second paragraph it says, among other things, that Union signed its precedent agreement in November of 1997. That's slightly at variance with the answer you gave me a moment ago. I'm not sure much turns on it, but is it September '97 or November of '97 when the precedent agreement was signed? 100 MR. BAKER: We signed the PA in September. I think it was formally executed in November. 101 MR. WARREN: Now to look at the chronology of the development of Alliance. First, according to Exhibit C.3.7 in the 0041 case, Westcoast took an interest, an ownership interest in Alliance to the extent of 11 percent in September of '97; correct? 102 MR. BAKER: Correct. 103 MR. WARREN: And that was, I take it, according to the information you've given me this morning, simultaneous with your entering into the Alliance agreement but prior to its formal execution; correct? 104 MR. BAKER: It happened around the same time that we had signed the precedent agreement. 105 MR. WARREN: And Westcoast increased its ownership interest to 14.5 percent, according to this answer, in January of 1998; correct? 106 MR. BAKER: Correct. 107 MR. WARREN: And to its current level of 23.6 percent in December of 1998; correct? 108 MR. BAKER: Correct. 109 MR. WARREN: Now, this interrogatory response was given about nine months ago. Is it still the case that the ownership interest of Westcoast in Alliance is 23.6 percent? 110 MR. BAKER: Yes, it is. 111 MR. WARREN: Now, my understanding of the information in the public record is that the -- 112 MR. BAKER: Just to clarify, I can see people whispering. We're now obviously part of Duke Energy, but I think for the purposes of the proceeding we'll continue to refer to Westcoast if that's -- probably just makes it cleaner with the record that we have before us. 113 MR. WARREN: Thank you for that. As I understand the information in the public record, Mr. Baker, the Alliance pipeline project was approved by the National Energy Board in December of 1998; is that correct? 114 MR. BAKER: I believe that's correct. 115 MR. WARREN: And can you tell me, Mr. Baker, at the time that the agreement was entered into in September of 1997, what was the planned commencement date of actual operations under Alliance; do you remember? 116 MR. BAKER: It was November 1, 1999. 117 MR. WARREN: And the actual commencement date of operations under Alliance, as I understand it, was December of 2000. 118 MR. BAKER: That's correct. 119 MR. WARREN: So if I'm correct, just doing the simple math, it's about two and a quarter years after the precedent agreement was signed into that you actually began operations using Alliance; correct? 120 MR. BAKER: That's approximately right. 121 MR. WARREN: Now the Vector pipeline project, just to get the background on that, the precedent agreement you've indicated was signed in January of 2000, and again, according to Exhibit C.3.7 in the 0041 case, Westcoast took a 30 percent interest in Vector in September of 1999; correct? 122 MR. BAKER: Correct. 123 MR. WARREN: So Westcoast took an ownership interest, indeed nearly a one-third ownership interest, in Vector some three or four months prior to the signing of the precedent agreement; correct? 124 MR. BAKER: Correct. I think that was actually the Vector contract, not a precedent agreement. I don't believe there was a precedent agreement for Vector. That was just a contract. 125 MR. WARREN: Now, my understanding of the information, again, of the public record is that Vector applied to the NEB for approval of the construction of the Vector pipeline, and do you recall when it sought the approvals? Was it sometime in 1998? 126 MR. BAKER: I'm just trying to look for that. 127 MR. BREMNER: You were inquiring about when Vector applied for the NEB certificate? 128 MR. WARREN: Right. 129 MR. BREMNER: That would be July of 1998. 130 MR. WARREN: My understanding is the NEB approved the project in March of 1999; is that correct? You can take it subject to check, Panel, I'm not sure much turns on it. 131 MR. BREMNER: I can't confirm that, but I will take that subject to check. I'm sorry, the date you said was -- 132 MR. WARREN: March of 1999 was when NEB approval was given. 133 My understanding as well is that Vector advised the NEB in December of 1998 that the in-service date was being moved from November of 1999 to October of 2000. Again, will you take that subject to check? 134 MR. BAKER: Yes. 135 MR. WARREN: And when did Vector actually begin operations? 136 MR. BAKER: December 2000. 137 MR. WARREN: December 2000. Now, again looking at Exhibit C.3.7 in the 0441 case, you indicate in the second paragraph, I'm sorry, third paragraph of the answer, you say: "To bring Alliance gas to Dawn, Union initially supported the TriState project but that," and then the next sentence says, "when it became apparent that the TriState would not be in service for the Alliance start date, Union became a shipper on Vector." 138 Now, my understanding, Panel, is that TriState was a pipeline project that was to operate roughly from Chicago to a point on or near the international boundary; is that correct? 139 MR. BAKER: Yes, basically going from Chicago to Dawn. 140 MR. WARREN: And TriState, as I understand it, sought approval from the Federal Energy Regulatory Commission in the United States in roughly November of 1998. Do you have any reason to quarrel with that? 141 MR. BAKER: No. 142 MR. WARREN: And that in that application, the indication, as I understand it, was that Union was to build a connecting facility from the international boundary to a facility at or near Dawn; is that correct? 143 MR. BAKER: I'm not sure that's the case. We'd have to check on that in terms of whether that was Union or, in fact, St. Clair Pipelines. 144 MR. WARREN: Will you check that for me, sir, to determine, apropos the TriState facility, whether -- to what extent Union was to build a pipeline for the Canadian portion of it. 145 Now, Panel, I don't want to catch you by surprise by this, but my reference point for this and I didn't, Mr. Chairman, make copies of it or provide it because I didn't think it would be in controversy, but just to ease the process I'm referring to the Federal Energy Regulatory Commission's decision in respect of TriState which is in docket numbers CP-99-61-001 and CP-99-62 and CP-99-63 and 64. And the reference in there, the recital in there is, and I quote from the second full paragraph: "The border facilities would connect with facilities to be constructed separately by TriState Canada and Union Gas Limited extending from that location to the Dawn hub in Dawn, Ontario. 146 MR. BAKER: I think all that's a reference to is the fact that when TriState came into Dawn, Union would obviously have to construct some facilities for that pipeline to interconnect into Dawn, so Union would be effected by that pipeline going into Dawn. We would need interconnecting facilities at Dawn. 147 MR. WARREN: Can you just tell me, geographically, how far is Dawn from the border? 148 MR. BAKER: Twenty miles maybe. 149 MR. WARREN: So you would describe as interconnect facilities the 20 miles that would run from Dawn from the international boundary; is that fair? 150 MR. BAKER: No, I think there's a couple of pieces. There's pipeline that would go from the international border to Dawn which would not have been constructed or owned by Union. And then, once the pipeline made it to Dawn, to Union's facilities at Dawn, Union would then have to construct interconnecting facilities for that pipeline. 151 MR. WARREN: The clarification that I wanted, Panel, and perhaps we can do this by undertaking, is my reading of that is that, and this is my term and not the decision's term, was that the TriState project from Chicago to Dawn was a kind of joint venture among TriState, TriState Canada and Union; Union building a portion of the pipeline from the international boundary to Dawn. Am I incorrect in that understanding? 152 MR. BAKER: This has been a while back but that's not my understanding. 153 MR. WARREN: Perhaps I could get an undertaking so that the witness could clarify that issue; sir? 154 MR. MORAN: G.6.2. 155 UNDERTAKING NO. G.6.2: TO PROVIDE CLARIFICATION OF UNION'S COMMITMENTS UNDER THE TRISTATE PROJECT 156 MR. JACKSON: Is that agreeable? 157 MR. PENNY: It might assist us, Mr. Chairman, since -- I appreciate that Mr. Warren isn't trying to sand bag us and -- in speaking about this decision, but I think since he has it, it would assist us in having a copy of that decision. 158 MR. WARREN: I'll provide it to them momentarily. I just have one more question on this issue. Is that -- at the time that TriState was applying, my understanding is that Westcoast U.S. had a one-third interest, ownership interest, in the TriState project; is that right? 159 MR. BAKER: I believe that's correct. 160 MR. BAKER: Correct. 161 MR. WARREN: And just to follow the chronology through, September of 1999, Westcoast withdrew its ownership interest from TriState; is that your understanding? 162 MR. BAKER: Correct. 163 MR. WARREN: Okay. While the Federal Energy Regulatory Commission gave its approval to TriState in September of '99, subsequently, TriState withdrew its application in its entirety; correct? 164 MR. BAKER: Correct. 165 MR. WARREN: Now I want to turn, if I can, from that sort of history of the various pipeline projects to a question about Westcoast's interests in the Alliance and Vector projects, very briefly. Can we agree that Westcoast as having a 30 percent in Vector and a 26.3 percent interest in -- I'm sorry, 23.6 percent interest in Alliance, that the interest of an investor in a pipeline project is, among other things, an interest in securing regulatory approval; do you agree with that? 166 MR. BAKER: Can you just repeat it again, please? 167 MR. WARREN: Can we agree that Westcoast, as an investor in Alliance and Vector, has an interest in securing regulatory approval for those pipeline projects; is that not fair? 168 MR. BAKER: I think it's fair. When you support a project, you have an idea that there's a probability that it will be approved and then it will go. Your equity investment practically doesn't happen until that project is a project and you invest capital to construct. 169 MR. WARREN: Can we agree as well that in securing that regulatory approval, one of the essential means by which you do that is to demonstrate to the regulator that you have long-term transportation contracts for that pipeline project? 170 MR. BAKER: The regulators look at the contracts underpinning an expansion; that's correct. 171 MR. WARREN: And can we also agree that the interest of an investor in a pipeline project is to secure as high a rate of return as they can for it? 172 MR. BAKER: I would say that an investor attempts to get a fair rate of return on their investment. 173 MR. WARREN: And can we also agree that having long-term commitments is a way of helping to ensure that you're going to get a reasonable rate of return or a fair rate of return, to use your term, on your pipeline project? 174 MR. BAKER: I think any new pipeline expansion, I think across North America, is typically underpinned by long-term contracts. 175 MR. WARREN: Now, again at Exhibit C.3.7 in the 0441 case the indication in your answer is, and I'm looking at the second paragraph, full paragraph of that answer, that your discussions with Alliance commenced in early 1997, prior to any involvement by Westcoast as a partner. 176 Now, if I could ask you to turn up, please, Exhibit C.36.5 in the 0441 case. 177 MR. BAKER: In which case, sorry? 178 MR. WARREN: In the 0441 case, Exhibit C.36.5 in the 0441 case. This is an answer to a question asked by my venerable friend, Mr. Janigan's client, the Vulnerable Energy Consumers' Coalition. 179 MR. PENNY: Is that venerable or vulnerable? 180 MR. WARREN: We'll see later in the morning. Exhibit C.36.5 in the 0441 case. And this is a discussion, roughly, about your dealings with TCPL. And the indication you've given in the answer is that you wrote to TCPL in September of 1996 asking for capacity commencing service in November 1 of 1998; is that correct? 181 MR. SIMPSON: That's correct. 182 MR. WARREN: And you were told by TCPL in February of 1997 that they were unable to satisfy your request; is that correct, according to that answer? 183 MR. BAKER: That's correct. 184 MR. WARREN: Now, there is also an indication in the answer, looking at the third or second paragraph and then the third paragraph, that TCPL was proposing to serve demands through something called the Nexus project; is that correct? 185 MR. SIMPSON: Yes. 186 MR. WARREN: And am I correct in my understanding to assume that the Nexus project was to be a pipeline project that would essentially be a competitor to Alliance. 187 MR. BAKER: I think that's a fair summary; it was a response to Alliance. 188 MR. WARREN: Now -- and the answer, looking again at C.36.5 in the 0441 case, was that Nexus was to be phased into service sometime between November '98 and November of '99; correct? 189 MR. SIMPSON: That's correct. I might just clarify my understanding of the Nexus project, and they use the word project quite often because it was not a single initiative, Nexus was TCPL's portfolio to be a combination of builds and compression over periods of time. So as such, Nexus was a series of builds and expansion and not a single initiative. 190 MR. WARREN: Thank you for that clarification but, still, the exchange between Mr. Baker and me a moment ago is essentially correct. That Nexus, however it was configured, was intended to be a competitor to Alliance; is that correct, is that fair? 191 MR. SIMPSON: I think that's fair. 192 MR. WARREN: And is it not fair that, in essence, it was to be a competitor to Alliance-Vector; it was a way to get Alberta gas, more Alberta gas, into Ontario? 193 MR. BAKER: I think they were looking at it much more broadly than just Ontario. It was to serve demands that they had -- a lot of demand that was stemming in the U.S. north-east as well. So it was export demand as well as domestic. 194 MR. WARREN: I want to focus, if I can Panel, as precisely as I can, on the state of -- the state of your understanding in let's say the first quarter of 1997. You'd asked TCPL for additional capacity and you were told in February of '97 that they could not give you additional capacity beginning November 1, '98; correct? 195 MR. BAKER: Correct. 196 MR. WARREN: But that they anticipated having additional capacity some time between February 1, 1998 and November 1999 through the Nexus project; correct? 197 MR. BAKER: I don't think it was between it, I think it was in November of 1999. 198 MR. WARREN: I'm looking at your answer to C.36.5 in the 0441 case where you say in the second paragraph: "The project proposed to serve these demands with the Nexus project, a 2.3 Bcf pipeline to be phased into service between November '98 and November 1, '99. The TCPL filed phase one with the NEB at the end of May 13, 1997." 199 So, I took it from that answer that there was going to be additional TCPL capacity through Nexus sometime in the period between November 1, '98 and November 1, '99. 200 MR. BAKER: I think when it says "phased-in" there would be a chunk of capacity that would start November 1, '98 and a chunk of capacity that would start November 1, '99. There's typically not expansion or capacity that comes midway through the contract. 201 MR. WARREN: I guess what I was trying to get at, Panel, with just juxtaposing the various dates is that you were told in November -- sorry -- you were told in February of 1997 that you couldn't get additional TCPL capacity in November 1, '98 but there would likely be additional capacity some time in the following year. And that at about the same time, you began discussions with Alliance about entering into a 15-year contract. Have I got the timing correct? 202 MR. BAKER: You've got the timing correct and, I guess, just to add to what was going on at the time, is that we were very much trying to get some assurance from TransCanada that, in fact, our '98 request that was now moved to '99 would, in fact, be satisfied and we weren't at all comfortable that it would. TransCanada was, at the time, I think, had a number of concerns, one of them being contract renewals. They had a number of contracts in their portfolio that were short-term, that were one-year renewable contracts, and just say that there was a lot of other things going on with TransCanada at that time that were going to, at least directionally, impact whether they were prepared to build incremental facilities or not. 203 MR. WARREN: Mr. Baker, I want to know what's on the record to, if you wish, underpin the answer you've just given me. I see C.36.7 which suggests to me, I must say in reasonably clear terms, that TCPL was saying there was going to be additional capacity available between November 1, '98 and November 1, '99, but you're telling me that there is other information which would cast doubt on the certainty of the availability of that capacity. Is that what I'm hearing from you? 204 MR. MORAN: Mr. Chair, does Mr. Warren mean 36.7 or 0.5? 205 MR. WARREN: C.36.5 in the 0441 case. I'm still, I'm sorry, with that. 206 Are you telling me, Mr. Baker, that notwithstanding it says in 36.5 in the 0441 case, that there is other information somewhere that would suggest that there was doubt in the availability of additional TCPL capacity in the period of November 1, '98 to November 1, '99? 207 MR. SIMPSON: Yes, I'm just trying to find the interrogatory that responded to TCPL correspondence. I do know that it is the letter dated February 24, 1997, which was letter number 7. I believe that was in the 0029 case, interrogatory 39.6. 208 MR. WARREN: The date of that correspondence, I didn't catch that. 209 MR. SIMPSON: The date of that correspondence was February 24, 1997, which is the time frame we're speaking to. 210 MR. WARREN: I have that exhibit, so we're looking at Exhibit C.39.6 in the 0029 case. 211 MR. SIMPSON: That's correct. And, if I could just try to answer the question you posed, within that letter there's -- 212 MR. WARREN: I'm sorry, I don't mean to -- I just want to -- this is the letter of November 24, 1997 -- sorry, February 24, 1997 that is referenced in the C.36.5 answer in the 0441 case; is that right? 213 MR. SIMPSON: Yes, it is. 214 MR. WARREN: Okay, thank you. Go ahead, please. 215 MR. SIMPSON: The context of this letter brings a few things to Union's attention. The first is that the Nexus project is very significant and will be ultimately TransCanada's intention of supporting future growth. The -- page 2, the first sentence says, "We expect a November 1, '99 in-service date for each of Union's requests." And those requests were our 1998 requests. So at this point, in my opinion, TCPL has identified that they will not meet our 1998 request and expect, which is not a commitment, to meet it at November 1, 1999. 216 The other points that Mr. Baker was perhaps eluding to, to speak to on page 3 of that February 24, 1997 letter where, in the second paragraph, TransCanada is identifying that they will be proposing some tariff amendments to the National Energy Board that speak to things as they've mentioned like contract renewal provisions. So this, again, was new information at that time. 217 MR. WARREN: Mr. Baker, is there anything else you'd like to refer to when you talk about the uncertainty surrounding the availability of extra TCPL capacity? 218 MR. BAKER: I think that was the piece of correspondence that I had in my mind given that there were other circumstances around TransCanada at that time. 219 MR. WARREN: Now I just want to stay with the first issue that was raised by the Panel in referring us to this exhibit, that is that you had additional need as of November 1, 1998. And what this letter told you was that there was going to be a year, at least a year before that need could be met; correct? 220 MR. SIMPSON: With this -- again, what this letter said was that 1998 requests would not be met, that maybe in 1999, those requests would be met and that there would be incremental demands that TransCanada was going to suggest to the National Energy Board about the contracts themselves. 221 MR. WARREN: Now I'm just dealing with dates at this point. And what this letter says is, "We expect --" this letter being C.39.6 in the 0029 case -- "We expect a November 1, 1999 in-service date for each of your requests." 222 So, dealing with dates, you are told in February of 1997 that your 1998 demands will be met one year later, they expect to meet them on November 1, 1999; is that correct? 223 MR. BAKER: I think -- I don't think we're quarreling with what's in the correspondence, that's what it says. But I think all we're really saying is you've got to take that in the context of the entire piece of correspondence in that letter. So while it initially says we expect the demands to be met by November 1, 1999, there are clearly some other things in that letter that speak to some of the other concerns that TransCanada had at that time that, in our view, had some bearing on whether, in fact, that capacity would be there to serve our requirements for November 1, 1999. That's all we're saying. 224 MR. WARREN: And the element of doubt, just so that we're clear on the record, on page 3 of that exhibit, is they're proposing, TCPL says they are proposing other tariff amendments. And the element of risk, perhaps you could explain the element of risk or uncertainty that creates in your mind. 225 MR. BAKER: The concern TCPL had at the time was that they had a number of short-term, one-year renewable contracts and there was a concern about expanding their system incremental capacity. Even though those might be underpinned by long-term arrangements, there was a certain amount of risk associated with their portfolio. That parties that were under one-year renewable contracts, they at least had the ability to not renew, de-contract those contracts. So there was a concern about building new incremental facilities while they had a large number of contracts that were short-term in nature. 226 MR. WARREN: Are you then saying that you read that letter and this tribunal should today read the letter, looking at page 3, that if they didn't get the tariff changes that NEB -- that Nexus might not proceed? 227 MR. BAKER: I'm just saying that it was a factor and it was a large factor in our mind at that time. 228 MR. WARREN: That Nexus might not proceed. That's the way you read the letter? 229 MR. BAKER: That TransCanada was concerned about building large amounts of incremental facilities while they had a portfolio that had a large portion of short-term contracts. 230 MR. WARREN: Now getting back to the chronology, I take it that we're to understand that upon receipt of this letter from TCPL, at or about the same time you then began negotiations with Alliance that would then involve a 15-year commitment. As you said, sometime in February of '97, you began discussions with Alliance. 231 MR. BAKER: Our intent throughout this whole period was that we had a demand for incremental capacity to put through our franchise. We initially sought to get that requirement satisfied by TransCanada. We've talked about the correspondence that was going on at the time. We felt it prudent, not knowing what was going to happen, to also enter into discussions with Alliance which was another alternative at that time. 232 MR. WARREN: I understand that, sir, but have I got the dates right? That TCPL says there's going to be capacity, we expect, available one year later than you thought. There are some tariff changes that we're seeking that created some doubt in your mind about the project, and then at about that time you began discussions with Alliance that involved 15-year commitment. What am I missing? 233 MR. BAKER: You're not missing anything. I'm agreeing with you. Whether it was a contract on TransCanada or Alliance, both of those contracts, given that they were for new incremental facilities, would have necessitated long-term contracts. 234 MR. WARREN: Are you saying that a TCPL arrangement beginning November 1, 1999 would have required a 15-year commitment? 235 MR. BAKER: Absolutely. 10-year commitment. 236 MR. WARREN: Is there any evidence on the record to support that? 237 MR. BAKER: There's lots of evidence that we can find where the National Energy Board requires evidence of long-term commitments before they will authorize expansions on the TransCanada system, and if you look in history, I don't think that TransCanada has ever had an expansion that has been underpinned by any long-term contracts under 10 years. And they've also had some that have been longer term than that, 15 or 20 years for some expansion. 238 MR. SIMPSON: If I could just add to that as well, Union has had contracts with TransCanada in the past up to 15 years, so that is not new to the portfolio. And in the letter, it's referring to Nexus as potentially a 10-, 15- or 20-year contractual arrangement as well. 239 MR. WARREN: Now the negotiations with Alliance began in February of 1997 and the expected in-service date with Alliance, you have told me earlier this morning, was originally expected to be November of 1999; correct? 240 MR. BAKER: Correct. 241 MR. WARREN: So that, is it fair so say that when you began your discussions with Alliance in February of '97, and looking at the letter we've just looked at, C.39.6 in the 0029 case, that you -- that your information in February of 1997 was that Alliance was going to come on stream in November of '99 and TCPL was going to say it was going to have its Nexus project available in November of '99. That's the state of your understanding then; correct? 242 MR. BAKER: That's correct. The other thing I would point out, just on the exhibit that we were just looking at, C.36.5, is that you can see on that piece of correspondence that on June 27th of 1997, TransCanada notified the NEB of its intention to revise its Nexus project. 243 MR. WARREN: Fair enough. We'll get to that, Mr. Baker. The other factor though, dealing with your discussions in February of '97, is we've just agreed that the incept. date for the two projects would be the same based on the information you had then. The difference, however, is that Alliance would only get your gas to Chicago and Nexus would get it to Dawn; fair? 244 MR. BAKER: Correct. 245 MR. WARREN: So you had an additional leg, which at that point was the TriState leg, correct, that was going to get you gas from -- if you went to Alliance you were going to rely on TriState to get the gas from Chicago to Dawn? 246 MR. BAKER: At that time, whether it was TriState or another project, Vector, we felt that there would be pipeline expansion out of Chicago to Dawn that would move that gas to Dawn. 247 MR. BREMNER: I think there's another important factor that needs to be considered in the context of where our mind was at this time. You are focussing on the 1998 capacity that TCPL was going to provide us in 1999 which was some 58 million at that time. Union's requirement was -- our forecast requirement was well in excess of the 58 million. We had made a request for '99 capacity in addition to our '98 request which, in that same time frame, was denied by TCPL. So we had requested in-capacity in '98 and in '99 which was building up to meet our full requirement. 248 MR. WARREN: You're getting ahead of me, Panel and I'm going to give you an opportunity to go over the entire chronology. Because in fairness, the Nexus project never did come to fruition, did it? 249 MR. BAKER: No. 250 MR. WARREN: And the -- is it fair for me to say that the reason the Nexus project never came to fruition is that it just didn't get sufficient support? 251 MR. BAKER: That's one factor. 252 MR. WARREN: Now did TCPL at any point, '98, 99, 2000, increase its capacity out of Alberta into Ontario? 253 MR. BAKER: Just talking, I believe TransCanada did bring on incremental capacity for November 1, '98. I can't remember the specific amount. Union's request, Union's '98 Q request for capacity did not get satisfied through that expansion. 254 MR. SIMPSON: And I believe that that was again in the February 24, 1997 correspondence. TransCanada expects increase at Empress will be 1/98 by some 4 to 5 million per day and what Mr. Baker's referring to, I believe, was an element of that which I also believe, in large part, was satisfied by export demands. 255 MR. WARREN: Certainly, looking at it from the perspective of 1997, it -- as we've established thus far, you weren't likely to get TCPL capacity through Nexus until November 1, 1999. And as I've understood your answer, the additional TCPL capacity other than Nexus was not going to help you in 1998 either; correct? 256 MR. BAKER: Correct. 257 MR. WARREN: And Alliance, the earliest Alliance was going to come on stream was in November of 1999; correct? 258 MR. BAKER: Correct. 259 MR. WARREN: And Vector, the earliest that either the TriState -- at that point TriState wasn't going to come on until some time in late '99 either; was it? 260 MR. BAKER: That's correct. 261 MR. WARREN: So what you were looking at in February, the early part of 1997, was the certainty that you were going to have to make short-term arrangements for 1998 and 1999; correct? Because you weren't going to have Alliance or TriState and you weren't going to have TCPL. 262 MR. BAKER: We were looking at having to put other arrangements in place up until what was, at that time, the expected flow-date of November 1, 1999; that's correct. 263 MR. WARREN: Now, Mr. Chairman, I'm about to turn to another portion of the cross-examination and I'm just wondering what you want to do about your morning break. I'm happy to plow into it if you want or -- 264 MR. JACKSON: I think this is an appropriate time. Thank you, Mr. Warren. So we will break for a little more than 20 minutes and return at five to 11:00 a.m. 265 --- Recess taken at 10:33 a.m. 266 --- On resuming at 11:00 a.m. 267 MR. DOMINY: Please sit down. We'll be with you in a moment. 268 MR. JACKSON: Mr. Warren. 269 MR. PENNY: Mr. Chairman, just before we begin, -- Mr. -- in a moment, I'll have a paper answer to undertaking G.6.1, which we did at the coffee break, and Mr. Baker can answer G.6.2 orally and would propose to do so now. 270 MR. JACKSON: All right, thank you. That's good to hear. 271 MR. BAKER: And the question was whether Union was going to construct any pipeline in terms of the TriState project and, in fact, Union would have constructed approximately 10 miles of pipeline from the Pickford storage field to Dawn. And so, there was that, plus the interconnect at Dawn, so that's a correction to what I had said earlier. 272 MR. JACKSON: Thank you. 273 And Pickford is how close to the border? 274 MR. BAKER: I think, looking at that decision, there's about 15 miles from the border to Dawn and so Pickford's probably five miles from the border and then the Pickford-to-Dawn line would have been the ten miles from there to Dawn. 275 MR. JACKSON: Good. Thank you. 276 MR. WARREN: Thank you for that, Panel. I want to -- just before I move on to the next area, I just want to seal off, if I can, our discussion of the TCPL capacity and make sure I understand, Mr. Baker, the -- an answer that you gave me. I asked you the question of whether or not you understood that additional -- notwithstanding the cancellation of the Nexus project, TCPL did build additional capacity. And, I think your answer to me was that you understood that there was some additional capacity available as of November 1, 1998 but that that was taken up by -- for other purposes. Have I understood that correctly? 277 MR. BAKER: That's correct. Union did not get any capacity in that expansion. 278 MR. WARREN: Can you tell me, Panel, just as a follow up on that, whether to your knowledge in the time period from November 1, '98 through '99 and 2000, whether there was, in addition to that, whether there was any additional TCPL capacity constructed? 279 MR. BAKER: There was some additional capacity that TransCanada brought on effective November 1, '99. We can't recall exactly what the specific amount of that capacity was but, in fact, Union at that time got, I think it was 20 million cubic feet per day of capacity through that expansion. 280 MR. WARREN: And the 20 million cubic feet was less, I take it, than you needed; is that fair? 281 MR. BAKER: That's correct. 282 MR. WARREN: Now, and that's -- sorry -- November 1, '99 that that came on? 283 MR. SIMPSON: Perhaps I can help tie a couple of these time lines together. Again, the November 1, 1998 requirement was not going to be met, so effectively that was bumped until November '99. The capacity Mr. Baker referred to is several time frames down the line in terms of the 20. So by the time we got to the November 1, 1999 capacity that was given to us of 20 million a day, that was in conjunction then with the 80 that was on Alliance and Vector. So, the step that was missed was that when Nexus -- ultimately we weren't granted the 1999; it was bumped to '99. Following that, then Nexus was delayed in the summer and then pulled completely, all of that, prior to the Alliance commitment. So again, the mood was, not only was Nexus ultimately not meeting our needs, it was subsequently delayed and subsequently completely pulled prior to the Alliance commitment, of which we took 80. The 20 that arrived in 1999 from TransCanada was in addition to the 80 on Alliance and Vector. 284 MR. JACKSON: And did you say what the term of the contract was for the 20? 285 MR. SIMPSON: That would have been 10 years. 286 MR. WARREN: Do I take it, or can I take it, Panel, that in -- from the time of the receipt of the February 1997 letter from TCPL that you had continuous and ongoing discussions with TCPL about meeting your capacity needs over the next two or three years, or did you just stop talking to TCPL at that point and start talking to Alliance? 287 MR. SIMPSON: No, I believe, again back to the interrogatory from the case 0029, C.39.6, which had extensive TCPL correspondence provided and as requested, demonstrates that there was some correspondence on a continued basis and that is all provided in that response. 288 MR. WARREN: Okay. I want to turn then, Panel, to a discussion of the alternatives that were available to you in 1997. And can we take it, Panel, that the relevant time frame for an analysis of those alternatives was roughly the period from February of 1997, when you got the TCPL letter that we've referred to, and September of 1997 when you made your agreement with Alliance; is that fair? That's the relevant period for consideration of what the alternatives were that were before you? 289 MR. SIMPSON: I think it's correct to say that during that time frame we were analyzing the options that did exist and potentially might not exist during that time frame. 290 MR. WARREN: Now, Mr. Chairman, my point of reference for the next number of questions is the -- or are the reply submissions in the 0441 case. And in the pre-filed evidence in this case, I understood that they were to form part of the record in this case but I also understand that Mr. Penny, in introducing Exhibit F.1.1, may not have included the submissions as part of the record in this case. And I just -- to make sure that the record is complete, I intend to refer to those submissions and I'm wondering what their status is. Are they -- should they be included in F.1.1 since they were part of the pre-filed evidence of the record or should they be filed as a separate document under a different exhibit number? 291 MR. PENNY: Mr. Chairman, we did have a discussion about that when F.1.1 was marked and it was decided that the submissions would not form part of F.1.1 because they are not evidence, they are submissions. 292 MR. JACKSON: These are the submissions in argument, are they? 293 MR. PENNY: Yes. 294 MR. JACKSON: Is that what you were referring to, Mr. Warren? 295 MR. WARREN: They simply summarize the position, as I understand it, with respect to the alternatives. I appreciate that they're not evidence but I intend to refer to them and so -- 296 MR. JACKSON: Yes. 297 Mr. Penny, do you have any objection to that? 298 MR. PENNY: Oh, absolutely not. Mr. Warren is entitled to refer to them, I just make the point that they're not evidence. 299 MR. WARREN: It would assist everyone I think, Panel, if you could turn up the reply submissions in the 0029 case -- I'm sorry, 0441 case. We are not yet to the reply submissions in this case. 300 I'm sorry, Mr. Penny has correctly pointed out, I only need Union's reply submissions in the 0441 case. 301 MR. DOMINY: Mr. Warren, this is the submission that was submitted on August 24th; is that the one? 302 MR. WARREN: Let me just check the date, sir. I believe, yes, that's right, sir. 303 MR. DOMINY: Thank you. 304 MR. WARREN: Do you have them, Panel? 305 MR. BAKER: Yes, we do. 306 MR. WARREN: I don't believe the Board has them yet. 307 MR. PENNY: Mr. Chairman, I have a loose copy here. Would it assist the Board if we were to quickly make a few copies? 308 MR. JACKSON: It could. Actually, if you have an extra copy, we would only need one. 309 MR. PENNY: I can either make a copy or you're certainly welcome to use mine because we have -- 310 MR. DOMINY: Mr. Mackie says he'll make a copy, I think. I gave him a copy that I had. 311 MR. WARREN: Mr. Penny carries around copies of his reply submissions in the event that any would-be biographer looks for notes. 312 MR. JACKSON: He's better prepared than most. 313 MR. PENNY: Only of the electronic version, Mr. Chairman. 314 MR. JACKSON: Mr. Mackie, do you have an estimate of how long that will take. 315 MR. MACKIE: Union has actually taken over the copying job from me so it will be just a few minutes. 316 MR. JACKSON: Thank you. 317 MR. DOMINY: I hope I haven't doodled on it. 318 MR. PENNY: The staff is sworn to secrecy, Mr. Dominy. 319 MR. WARREN: I apologize for the delay, Mr. Chairman, I'd assumed that this document would be part of everyone's bedside reading and would have been available readily. 320 MR. JACKSON: All right. I think -- Let's just see how we can get along without it then. If you would like to start. 321 MR. WARREN: Sure, sir. 322 MR. JACKSON: Thank you. 323 MR. WARREN: Panel, looking at the reply submissions in the 0441 case, I'd ask you to look at paragraph 45 to begin. 324 MR. BAKER: 45? 325 MR. WARREN: 45. And in paragraph 45, it is stated, beginning with the second sentence, "The alternatives available to Union were additional TCPL capacity; potential new pipeline construction to Ontario; capacity from U.S. sources; Panhandle and Trunkline; secondary market capacity or daily delivered supply." And it says, "Each of the alternatives is discussed below." And I'd like to deal with those if I can seriatim. 326 We've talked about the TCPL capacity in the last few moments so I'd like to go to number 2 of the alternatives that you've listed, and that is "potential pipeline capacity." I'd like you to look at paragraph 47 of the reply argument -- reply submissions which states, "The only incremental capacity out of Alberta planned was Alliance pipeline combined with projects proposed for moving gas from Chicago to Dawn. Ultimately the Vector pipeline became the only option for moving gas from Chicago to Dawn." 327 Now my understanding, Panel, is that in the period from roughly '96/'97, the pipeline called the Northern Border Pipeline which, I'm given to understand, essentially was pipeline that transported gas from Alberta into Chicago, that an expansion was approved of the Northern Border facility; is that your understanding? 328 MR. SIMPSON: I'm just trying to see if I have any particulars on the Northern Border expansion. If you'll bear with me for a moment. 329 Okay. We've located a few details. The Northern Border expansion project was an expansion project coming out of the western sedimentary basin with a projected in-service target date of November 1997. 330 MR. BAKER: I think the critical thing to note at that time frame, though, in 1996, was that the Northern Border expansion, there was no certainty that, in fact, that project was going to make its way all the way to Chicago. There was opposition to that pipeline and it was not a certainty in 1996 that it would, in fact, make its way all to Chicago. 331 MR. WARREN: My information, Panel, is that the Federal Energy Regulatory Commission approved the last link, which was to get into Joliet which is just outside Chicago as I understand it, some time in late 1996. Do you have different information? My point being that my understanding was that at the relevant time period, which is November of -- I'm sorry, February of '97 to September of '97, that the Northern Border expansion had already been approved all the way to Chicago; do you disagree with that? 332 MR. BAKER: I think what we're saying is that the paragraph that you referenced in our reply submission says in '96 we had forecasted a demand. At the time we were looking at that in early 1996, the Northern Border expansion was in front of FERC, but at the time we were looking at it FERC had not yet ruled that it would, in fact, be going all the way to Joliet. 333 MR. WARREN: But -- can we agree Panel -- I thought we had agreed that the relevant period for consideration of these alternatives, these five alternatives, was the period from February of '97 to September of '97. That is, the date from when TCPL said we don't have additional capacity to when you signed or you made the deal with Alliance. Can we not agree that during that time period, it was known that the Northern Border expansion into Chicago had been approved? 334 MR. SIMPSON: We don't have record of when it was approved. What I am drawing attention to is that the Northern Border, the target date of November 1, 1997, was not a viable option as it was not a project that would line up with our requirements, which were '98 and '99. And our projected period for analyzing this was in the '96/'97 time frame. 335 MR. WARREN: Well, sir, the relevant dates as I understand them from the public record are that as of August -- that the FERC's decision -- that FERC's decision approving the Northern Border expansion into Chicago was issued on August 1, 1996. That was the public convenience and necessity decision to be followed by the environmental approvals. And my only point in this, sir, is can -- first of all, I guess by way of preliminary, we're dealing with two separate agreements. We have an Alliance agreement which gets you from Alberta into Chicago, and can we not agree that if I'm right that Northern Border expansion had been approved, effective the middle of 1996, that it was an alternative to Alliance at the time you were talking -- in entering into contract negotiations with Alliance? 336 MR. BAKER: Again, I think one of the difficulties we're having, because we're sitting here today is trying to recall from our memories everything that was going on at that time. What I can't recall, again, is what the commitment, what the capacity commitments were on Northern Border at that time and therefore, whether it was, in fact, an option. I don't know whether, in fact, the Northern Border was fully subscribed, underpinning the construction of that capacity or not. 337 MR. WARREN: May I ask this question, Union, would you have regarded it as a necessary part of your decision-making process in 1997 to examine whether or not there was additional capacity on the Northern Border expansions and what the prices and availability were; is that not fair, Panel? 338 MR. BAKER: I'm sure it was something that we were aware of. 339 MR. WARREN: Can you tell me whether or not you looked at it? 340 MR. BAKER: I can't. 341 MR. WARREN: There's certainly no evidence on the record in any of the proceedings including this one that you ever examined Northern Border; is that fair? 342 MR. BAKER: I would agree that there's nothing on the record in terms of whether we examined Northern Border. 343 MR. WARREN: Can I look then, sir, at the third of the alternatives. 344 MR. JACKSON: Can you just remind us what was the ownership of the Northern Border. TCPL had an ownership in it, didn't it? And I'm trying to recall who else, or was TCPL the owner of the Northern Border? It was discussed back in the days when Dome still existed. 345 MR. SIMPSON: I believe TCPL was an the owner in the order of magnitude of 30 to 40 percent but I cannot comment on -- as to who the other participants were. 346 MR. WARREN: Sorry, Mr. Chair. I don't know the answer to your question either. 347 MR. JACKSON: Thank you, though. 348 MR. PENNY: Mr. Chairman, just since we're passing out things, I mentioned to you that there was a written version that was being printed of G.6.1 and that's also been brought in so perhaps we could pass that out now as well. 349 MR. JACKSON: Yes, thank you. 350 MR. WARREN: Could we just interrupt the flow of things for a moment, Panel? G.6.1, the question I'd asked was the amount of money that the Board was being asked to approve. You said it was December 1, 2000 to December 31, 2001 and the amount is some $17.8 million; is that right? 351 MR. BREMNER: That's correct. 352 MR. PENNY: 17.18. 353 MR. WARREN: Sorry, 17.18. Now, set out in paragraph 45 was the capacity from U.S. sources, Panhandle and Trunkline. And if I look at paragraph 48 of the reply submissions it states that "At the same time, Panhandle and Trunkline supply at Dawn was landing at approximately" -- and then you set out the prices, and it was higher than the TCPL landed supply. Again the time frame we're talking about, I take it Panel, is the 1997 time period when these alternatives were being considered. 354 Now, I want to step back, Panel, and my understanding is that in this time period, and again we're referring to the, roughly speaking, the first nine months of 1997 that Alberta prices were low relative to other prices from other sources of supply in some substantial measure because there was insufficient pipeline capacity to get it out of Alberta. It was, in effect, trapped; is that fair? 355 MR. BAKER: That's correct. 356 MR. WARREN: And that was one of your major drivers for the Alliance project which, as I understand it, was originally a producer-driven way to get the gas out of Alberta in order to try and jack up the prices; is that fair? The prices were too low because it was trapped. They wanted to untrap it in order to increase prices; is that fair? 357 MR. BAKER: I think that may have been one of the drivers, but I think at that time, as well, again to lose sight of the fact that there were extremely high demands going on in the marketplace at that time. So there was a lot of demand that was being projected to come on. Parties were subscribing through Q requests for a lot of capacity out of Alberta to meet that demand, so I wouldn't say that that was the only driver. 358 MR. WARREN: I didn't say that. I said that was a major driver for the Alliance project, which was a producer-driven project; we can agree on that, wasn't it? 359 MR. BAKER: I think what you said was a producer-driven project to jack up prices, and all I was saying was that there were other factors clearly to support those projects. 360 MR. WARREN: Fair enough. Would I be right, sir, at a very crude level of analysis, the only one at which I'm comfortable functioning, is that if more gas is available out of Alberta flowing into Chicago, that one of the effects of that would be to make gas from other sources available at Chicago more competitive? Those prices would likely go down as a result of competition from Alberta gas; is that a reasonable conclusion on my part? 361 MR. BAKER: You're going to have to repeat it again for me. 362 MR. WARREN: If there is more competition -- I'm rephrasing the question -- Alliance is going to make more gas available from Alberta in the Chicago market, does it not follow that prices in the Chicago market are likely to become more competitive as a result of the availability of the alternative for Alberta gas? 363 MR. BAKER: I think the difficulty is it's -- one thing that I've learned over the years is it's very tough to speculate on what gas prices are going to do in a market at a point in time. So some parties might have, directionally, a view on that's what's happened, but it really depends on everything that's going on in the marketplace and the demand for gas, and to the extent that there is still a demand that outstrips supply at a particular point, you go you can still have significant price pressure at a point. 364 MR. WARREN: That's a fair gloss, but we can agree that it's one possibility that you would have to consider in making your planning arrangements that Chicago-area prices may go down as a result of additional supply being made available from Alberta? It's a possibility, isn't it? 365 MR. BAKER: There are many possibilities. 366 MR. WARREN: Now if you would turn up, please, Exhibit C.3.5 in the 0441 proceeding. And if you look at page 2 of 3 of that, there's a comparison in the period November 1, 2001 to October 31, 2002, of landed costs from various sources. And can we agree that in relation to Alliance-Vector as of the date of this exhibit, that U.S. sources were cheaper; correct? 367 MR. BAKER: That's correct. 368 MR. WARREN: And if I turn back to the text of C.3.5 in the 0441 proceeding on page 1, I'm just looking for my reference. It says on the third paragraph, "in the recent past, U.S. supply landed more cheaply than TCPL." Can we not agree, Panel, that one of the reasons why U.S. supply may have been landing more cheaply than TCPL and is -- 369 I would ask Mr. Thompson to stop breathing, I guess. 370 MR. JACKSON: That's a surprise to all of us. 371 I don't know what made the sound system go wild on us so if it does it again we'll call Mr. Pudge. 372 MR. WARREN: My question, Panel, was can we agree that one of the facts that may have influenced the fact that U.S. sources of supply were cheaper at that period in time was the additional competition in Chicago as a result of making more gas available? 373 MR. BREMNER: I would agree that that was one of the factors but there were several factors besides that that contribute to that. One has to look at the market circumstances since the time that we took the Alliance decision. As Mr. Baker indicated, north-east demand at that point and demand east of Dawn and Chicago was forecast to be very robust, it was driven by a very strong electric-generation market. And a lot of this gas at that time was anticipated to be pulled east of Chicago and Dawn. There were competing pipeline projects to take that gas east of Dawn, Millennium Independence. And since that time, we've had several events such as an economic downturn in the U.S., such as high inventories that have resulted from several warm winters, you have the impact of the price shock during that time period that destroyed some industrial demand. So there are many factors besides just the spectre of supply from Alliance landing Chicago that can account for that circumstance. 374 MR. WARREN: My point, Panel, is that you have repeatedly directed us that the only relevant time period for considering prudence is in the period of 1997 when you were making the decision about going to Alliance. And is it not fair, sir, that one of the likely possibilities of Alliance, and if I am right about Northern Border, would be more competitive U.S. gas prices? And if that's the case, I'm wondering, sir, why it is that you would have decided in September of 1997 to enter into a 15-year contract on Alliance when there was a possibility of declining U.S. market prices? 375 MR. BAKER: Your exact point that you said, there's a possibility. There are many, many possibilities that are out there in the market. You've got Northern Border, you've got Alliance-Vector, you've got TransCanada. And in the marketplace, that time frame in the marketplace, people weren't exactly sure exactly what was going to get built or what was going to come on when. But I can say that, as Mr. Bremner indicated, demands were extremely strong. We go back and say we've got a requirement in our franchise and our approach has always been that when we have a demand in our franchise, we underpin that demand with firm upstream pipe and our approach was to not speculate on what may or may not get built, what prices may or may not be in various supply basins. Our approach was to underpin our firm demand requirements with the firm pipe we thought we needed. 376 MR. WARREN: May I say, just following up on that answer, Mr. Baker, you said you weren't going to speculate on what was going to be built. Westcoast made an investment in Alliance, presumably confident that it was going to go ahead. You made a contract with Alliance, presumably confident that it was going to go ahead. So it was more than speculation. In addition to which, I have suggested to you that Northern Border expansion had been approved so you knew that there was something to be, I am going to suggest, significant expansion of flow into the Chicago area. It wasn't speculation. 377 MR. BAKER: And as I said, there was a lot of momentum in the marketplace, that that expansion was going to underpinned by demand for that capacity. 378 So the reason that we've had some price decline is the fact that for all the circumstances that Mr. Bremner just went through, we have a mismatch where we are today, where we've got excess pipeline capacity into the marketplace relative to the demand that's there to soak it up. And what we're saying is at the time we were looking at the decision in '96 and '97, those weren't the situations that were in anybody's mind. We did not think that there was going to be significant pipeline expansion built into Chicago or built into Dawn just for the sake of building the pipeline expansion and there not been demand there to utilize that capacity. What's happened since that time that demand for a number of reasons have dropped off we have had excess capacity and you have the market conditions that exist at this present time. That was not known, that was not the collective wisdom at that period of time because as I said, demands were extremely strong. 379 MR. WARREN: But you can't even tell me, as you sit here today, whether, or to what extent you consider the Northern Border option or its impact on the market; right? You don't know. 380 MR. BAKER: What we need to do, and again because of the interest of time, is we need to go back, probably at the break, and refresh our collective memories on Northern Border and the size of that expansion and what capacity was committed in respect to that expansion to better know what we were looking at. Obviously, we would have known the Northern Border expansion was something that was on the books and was a possibility. What we need to do is refresh our collective memories in terms of what the circumstances around that expansion were. 381 MR. WARREN: Well, just on the question of refreshing your memory, Panel, as I understood the argument that was very forcefully, characteristically, very articulately put in the reply submissions in the 0441 case, was that all of the evidence that was necessary for the Board to make a decision of prudency was available in that case. And there is no reference, in that case, and indeed no reference in evidence -- reference in the evidence to this point in time to the Northern Border option. 382 MR. BAKER: And again, I'll go back to the response that I just made which is that while we would have no doubt been aware of Northern Border if, in fact, that capacity expansion was fully subscribed, at the time that was going forward, that may well not have been a viable option for Union to look at. 383 MR. WARREN: But as you sit here today, you don't know that. 384 MR. BAKER: That's correct. 385 MR. WARREN: Now just to -- finally on this point, I'd ask you to turn up the undertaking response which has just been filed a few moments ago, Exhibit G.6.1. I'd like you, while you're looking at that, if you wouldn't mind simultaneously turning up Exhibit C.3.5 in the 0441 case, the one we were just referring to. 386 Now you're clearly more familiar with these documents than I am, but am I reading this correctly that from Exhibit C.3.5 in the 0441 case to Exhibit G.6.1 which was filed today, the differential between Alliance-Vector and the U.S. sources Panhandle and Trunkline has increased to the point where there is, variably, the U.S. sources are -- vary between 62 cents and 83 cents a gJ cheaper than Alliance. Am I reading that correctly? 387 MR. BAKER: I think the reference is relative to TransCanada. 388 MR. WARREN: Well, I'm looking at the comparison between -- you're right, I'm sorry. If I look at the comparison between Alliance-Vector and, for example, the most expensive, Panhandle, which is a difference between $8.40 a gJ on Alliance-Vector and $7.27. It's $1.13 a gJ cheaper on the most expensive, Panhandle, source; am I reading it correctly? 389 MR. BAKER: You're reading the schedule correctly. Again, what needs to be put into perspective is that is the current market situation of circumstance, as we sit here today, and what Exhibit C.3.5 in the 0441 proceeding was doing was comparing the market conditions at that point in time with what we were looking at in the November '97 to '98 period. 390 MR. WARREN: But you disagree with my proposition, and I want to be fair to you, Panel, so you have an opportunity to respond to this on the record. You would disagree with my proposition that what we see reflected in Exhibit G.6.1, the difference between Alliance-Vector and U.S. sources of supply could have been predicted in 1997 as a result of, among other things, the increase in capacity flow from Alberta to Chicago? 391 MR. BAKER: I totally disagree with that. 392 MR. WARREN: Now can I then go, sir, to the fourth of the factors which you considered in 1997, which is the secondary market. 393 MR. BAKER: Are we back to the submission? 394 MR. WARREN: We are, thank you. It is -- the particular reference point in the reply submissions in the 0441 case is Exhibit 49. 395 MR. BAKER: Excuse me, was that paragraph 49? 396 MR. WARREN: Paragraph 49, I'm sorry. Now as I understand, what is being said in paragraph 49 is that the secondary market for TCPL capacity was trading at a significant premium over TCPL -approved tolls; correct? 397 MR. BAKER: Correct. 398 MR. WARREN: And your argument was that, as I take it, that because of that premium it was simply not an attractive alternative going into the future; is that fair? Have I understood it? 399 MR. BAKER: Sorry, what wasn't an attractive -- 400 MR. WARREN: That the secondary market was not an attractive going forward because of the premium. 401 MR. BAKER: That's correct. 402 MR. WARREN: Can we agree that the premium in the secondary market is, in large measure, a direct result of the short fall in upstream transportation capacity? 403 MR. BAKER: That's correct. 404 MR. WARREN: And that once that upstream transportation capacity increases that the premium is likely to disappear; correct? 405 MR. BAKER: That's generally correct. Again, that's assuming all other conditions remain constant and that the pipeline capacity is sufficient for the demands in the market. 406 MR. WARREN: Now can you tell me, looking forward from the date of -- as we go into 1998 and then in 1999 and this -- I apologize Panel, this may well be in the various records in the various cases, I just can't find it. Can you tell me if we look at, say, November 1, 1998, what was TCPL's secondary capacity trading at; do you know? 407 MR. BREMNER: If -- actually if this -- you can see this information from the Exhibit F.5.1, which is schedule 3 that was filed yesterday. 408 MR. WARREN: Just give me a moment, Panel, I can turn that up. I've got it, thanks. 409 MR. BREMNER: Yes. So if you refer to that graph you see that in November of '98, that TransCanada was trading below tolls at that point. 410 MR. WARREN: And it has, with the exception of a couple of brief periods thereafter, continued to trade below tolls; is that correct? Am I reading the graph correctly? 411 MR. BREMNER: With the exception of the four price spikes that exceed tolls, that's correct. 412 MR. WARREN: Now, Panel, would it not be the case that it could have been reasonably predicted -- the time period we're talking about is the first nine months of '97 -- that what we see in this schedule would have happened as a result of the increased capacity from Alliance and Vector? 413 MR. BAKER: Absolutely not. 414 MR. WARREN: Couldn't have predicted that the secondary market would become more attractive as a result of increased capacity? 415 MR. BAKER: Absolutely not, for all of the reasons that we had just indicated earlier that have transpired subsequent to that period of time. We've had four to five winters that have been warmer than normal, we have seen an economic downturn, we've seen things happen in the power market, that was driving a lot of the demand at that for new power plants as a result of California situation, et cetera. The price spikes that happened in the 2000/2001 winter that destroyed a lot of the industrial demand, particularly the industrial feed stock demand. So to say back at that period of time all those things were predictable and we were going to end up in a situation where there was a significant mismatch between available capacity and end-to-end demand is not accurate. 416 MR. WARREN: But let's just stay within one narrow framework. I asked you the question whether or not the trade in secondary capacity in TCPL was a function of available pipeline capacity and you said, yes. Now does it not follow, Panel, when you're doing, your predictions out into the future, that when you look at Alliance and Vector that one of the effects of that will be to reduce the premium in the secondary market? There may be off-setting factors, Panel, and you've just articulated what those off-setting factors are, but it can reasonably be predicted that one of the effects will be a decline in the premium in the secondary market; is that not fair. 417 MR. BAKER: I agree that there will be a decline in the premium from the price spikes that you see on schedule 3 of Exhibit F.5.1, but the proposition that you put to us was, was it not reasonably predicted that the value of TransCanada toll capacity would trade below toll over that period of time. And my answer is the same; no, it wasn't predicted. I agree that bringing on additional capacity would have reduced the premium and brought the value of capacity generally down more in line with toll, but I don't agree that you could have predicted that it would have been trading below toll at the time we made those decisions. 418 MR. WARREN: And I then turn to the fifth of the alternatives which you say you -- 419 MR. JACKSON: Could you indulge me for just one minute because I'm not sure I heard one of the answers to one of the questions you posed. I think, although I may be paraphrasing, it was something to the effect of, at the time that you were entering into your contract for -- with Alliance, you were aware that Westcoast had invested in the Alliance pipeline. And I think Mr. Warren asked you if there was any doubt as to whether or not the pipeline, at that point, then would go forward, and I didn't hear whether you addressed that. I think you did talk about a number of things around it which might lead me to infer that your answer was no, there was no doubt, but I didn't hear that clearly. And I think it might be important in trying to understand the issue in the circumstances of the time. 420 Did you, at that time, think that after Westcoast had invested and others had invested in the pipeline that there was still doubt as to whether or not the pipeline would be built, given all of the other things you've said about the perceived high levels of demand and so on? 421 MR. BAKER: I guess two things to respond to that question. The first is when we, as Union, started looking at Alliance as an option, that was well before Westcoast had taken an equity interest in that project. So when we stepped back again, we're -- I think it's well on the record that we had a requirement. We went into the TransCanada queue, we didn't think that was going to work out for us and then that led us to ultimately make the commitment on Alliance. In terms of your question, in terms of were we -- did we have some confidence that it would go, I think at that time we did think that there was a likelihood that it was going to go. It seemed to have momentum mind behind it and we felt that that was, at the time, our best option to satisfy our incremental requirement for that capacity. But as I say, you're never sure when facilities applications are before the regulator exactly what's going to happen. It was not approved at that time, but I think we felt that it did have momentum behind it. 422 MR. JACKSON: And that even if you had found an alternative that the project would still likely go ahead; is that what I can conclude from what you've said? An alternative other than the Alliance system. Your contract was not the make or break as to whether or not it would go forward; is that a fair comment? 423 MR. BAKER: I think that's probably fair. 424 MR. JACKSON: Thank you. 425 MR. WARREN: Can I just follow up, Mr. Baker, to make sure that we've got an apples-to-apples comparison of time frames. You said in response to the Chair's question that you began your negotiations, discussions, with Alliance well before Westcoast made its investment; correct? 426 MR. BAKER: That's correct. 427 MR. WARREN: Do you know, sir, when it is that Westcoast began its negotiations with the other partners in Alliance to make its initial 11 percent investment? 428 MR. BAKER: No, I don't. 429 MR. WARREN: And is it possible that the time frames may overlap, that Westcoast may have been negotiating to take a position in the pipeline at the same time that Union was negotiating its contract? 430 MR. BAKER: That may or may not be the case; I don't know. 431 MR. WARREN: Thank you, sir. 432 And I return to the fifth of the options that you considered which is discussed at paragraph 50 of the reply submissions, and that is the daily delivered supply at Dawn. And, what the reply submissions state is, and I quote, "The market for daily delivered supply at Dawn was not developed sufficiently at the time to allow Union to rely on the daily market at Dawn for incremental deliveries." 433 Now, the -- I apologize if I jump around in time frame. If you could turn up Exhibit C.36.5 in the 0441 case, and if you look at the attachment to that, it is a graph which looks roughly like this. 434 MR. BAKER: We have it. 435 MR. WARREN: Okay. And it's entitled, "Union hub market activity - average daily title transfers, billions of cubic feet a day." 436 And, what I see here is -- and what I'm going you to ask to do for me is if you can just translate for me. What would be a sufficient volume of daily transfers for you to have confidence in the market at Dawn? My point of reference is that in September of -- sorry, in the relevant time period in '97, "the daily delivered supply at Dawn was not developed sufficiently." What would you need, what volumes would you need per day in order to conclude that it had developed sufficiently? 437 MR. SIMPSON: That question is somewhat akin to the discussion that took place yesterday with respect to this graph. And what I tried to demonstrate yesterday was that in the 1995-6-7 time frame in which this graph has relatively low levels of title transfer trade, I tried to define on a few occasions that title transfers are just a proxy for what I will call trading liquidity. And you find that one trade may in fact lead to up to 15 or 20 title transfers, and that, I think it's important to recognize, is on an average basis. So during some extreme conditions, such as maybe a very cold day in February when storage levels are starting to decline and the deliverability is declined and all of a sudden a very strong demand comes along, that would by no means be a typical, average day in terms of what's available. 438 On top of that, I had some discussion around what's changed since that time frame of '96, '97 to date and several important factors. '96, '97, very much the large majority of gas that was flowing through Dawn was intended for end-use customers. There was firm transport brought into Dawn, and storage played a balancing role, and then gas was delivered to in-franchise and ex-franchise customers. There was not much title transfer activity and, when certainly looked at on an underpinning transaction basis, extremely low. Since that point, there's been an incremental storage that's been added, incremental transport that's been added, which I would say which would have led to now today that there is some availability. Again, very much minimized on those February scenarios that I alluded to. 439 MR. WARREN: Thanks for that -- actually I'm not going to thank you for that, because it doesn't answer my question. So can I get you back to my question, which is, when I look at this graph, are 3.7 Bcf per day -- is that volume sufficient for you to say that the market is sufficiently developed at Dawn? 440 MR. BAKER: I think the difficulty we're having, and back to the discussion is that it's -- it's very difficult to say definitively whether it is or it isn't. Title transfer activity is an indication of liquidity in the ability to get into the market and acquire physical gas. And, what this is showing is, clearly, as title transfer activity goes up your comfort level in being able to acquire supply goes up. But I don't think it's possible for us, sitting here today, to pinpoint exactly some threshold title transfers today that magically give you comfort to buy some volume on a given day. 441 MR. WARREN: Let me try and get at it a different way. If I could ask you to turn up C.3.5 in the 0441 case. In that case, in the second paragraph, you say, and I quote, "For the next year," and remember the relevant time frame for this answer is August 15th, 2001, some nine months ago. "For the next year," I guess gas year, "Dawn spot gas is the cheaper source of supply and therefore pipe values are generally depressed." 442 As of August 15th, 2001, am I wrong in concluding that supply at Dawn was at that point a viable alternative supply point? 443 MR. BAKER: We would agree with that and the reason that it's a supply point is for all of the factors that we've just been talking about. We have had incremental supply in transportation coming to Ontario. We've had storage development that's built by marketers and, in fact, we've seen a lot of things happen on the demand side of the market over that period of time which has led to there being no shortage of available gas at Dawn. 444 MR. WARREN: If I could ask you to turn up, in the context of the answer you've just given me, paragraph 50 of the reply submissions in the 0441 case where you say -- I'm sorry, counsel says on your behalf in the second sentence: "It was, in fact, the construction of Alliance-Vector that led to the development of that market," that market being Dawn; correct? 445 MR. BAKER: That's what that says, correct. 446 MR. WARREN: Do you agree with that? 447 MR. BAKER: I agree it's one of the factors; there are others. 448 MR. WARREN: Now, my point simply, Panel, is that from the perspective of 1997, that wouldn't have been a surprise to you. You would have been able to predict, I suggest, that the significant increase in supply on the -- as a result of the Alliance-Vector system would have resulted in a more liquid, more attractive market at Dawn, is that not fair? 449 MR. BAKER: The reason I don't agree with that is, again, you can't just look at incremental supply coming into Dawn and say that's going to drive down Dawn prices and make them attractive. You've got to look at what's going on in the marketplace in terms of the demand. So if you get an incremental hundred units of supply per day coming in at Dawn, and the market requirement is still 150 units a day, then I would say that -- just because you've got the incremental supply coming in does not necessarily mean that you can go and buy and trade gas every day at Dawn. So it's broader than just the fact that volumes are coming in at Dawn. You need to look at really what's going on, what's the demand, what's the firm demand in the marketplace and how does it all factor into the bigger picture. 450 MR. WARREN: Let's just stay with that answer if we can for a moment, Panel, and I'd like you to help me if you wouldn't mind with a return, if you would, of Exhibit C.36.5 in the 0441 case and just look at that chart. 451 Now, that chart, in conjunction with the answer in the preceding page, page 2 of 2 of that exhibit, where you say -- this is B under subsection B: "Market area supply was not a viable alternative at the time the Alliance decision was made. There simply was not enough gas activity moving through Dawn on a daily basis to purchase 80,000 units a day. This is evident through the title transfers for the volume of gas transferring between parties at Dawn." 452 So you make a link between these title transfers and the strength of the market there. And the strength of the market, I suggest to you, your counsel in his argument said that the increase in the activities is a direct result of Alliance-Vector. 453 So you have asked the Board, in your argument and in this evidence, to conclude that it's the volume of gas flowing through Dawn and therefore the transactions which make up the market, and all I'm suggesting to you is that on your own analysis, it could have been predicted, and arguably should have been predicted in the first nine months of 1997, that exactly this result would happen as a result of Alliance-Vector. 454 MR. BAKER: Again, we -- I disagree with that and we clarified that in the examination yesterday where he indicated that it's not so much the volume of gas moving into Dawn that's critical, it's the amount of uncommitted supply that is there and is available to be purchased either on a physical basis or to be traded. So again I go back to my example. Just because you have another 100 units of gas coming into Dawn, if it's fully committed by firm markets, then that may do very little to the liquidity in your ability to purchase physical gas. It's a combination of what's physically coming into Dawn and what the market requirements are. 455 MR. WARREN: I have your answer. Thank you, sir. 456 It's certainly the case today, looking at the data that you presented yesterday, that Dawn is -- looking at it from today's perspective, that Dawn is an attractive alternative for your source of supply; fair enough? 457 MR. BAKER: In today's market it is. But again that has to be put in perspective again in terms of the fact that the market cycles -- that's the point of that graph that we had presented in Exhibit F.5.1. 458 Again, going back to the time frame when we are making -- when we are looking for firm pipe into Ontario, I spoke about this yesterday as well. We had just come through the winter of '95/'96. It was a cold winter, demands were high, and there was extreme volatility at all major basins, in particular, Chicago and Dawn. And that was evident at the time that there was not a lot of liquidity, not a lot of physical volume that could be purchased. 459 MR. WARREN: Could I ask you, Panel, to turn up -- just to complete this area of my examination, could you return to Exhibit 3.7 in the 0441 case. 460 Now, in that answer, Panel, I'd like you to look at the very last sentence. "Union's interest was to ensure that Alberta gas made its way to Dawn to serve the Ontario market." 461 What do you mean by that? 462 MR. BAKER: It simply means that we had identified a requirement to firm upstream capacity to Ontario to serve our market requirements and that was our interest in making sure that we had firm upstream capacity to satisfy the market demands in our franchise. 463 MR. WARREN: But is it not the case, sir, that Union's interest, in part, on behalf of the its rate payers, is important to get the cheapest gas supply whether that's Alberta or somewhere else? 464 MR. BAKER: Our accountability is to ensure that we structure a reasonable portfolio to serve our customers. And at that time it was not -- it's never been our philosophy in putting a portfolio together to try to speculate on what may or may not happen in the marketplace four or five years down the road and what spot gas prices at Dawn may or may not be. 465 I think the other important thing to remember is that we always have -- we can always have a requirement for spot gas at Dawn in our portfolio. If demands in winter, weather-induced demands are higher, our option, typically, is to go and purchase spot gas. So just because -- what we're really talking about here is, in our point of view, it's not appropriate or prudent to have a big portion of your base-supply portfolio tied to spot or delivered gas, because no one can predict with any certainty what that's going to be going forward in the future. Because we know that if we do get that run on demand because of weather, that then puts another increment of spot gas that we have going to go out into the marketplace and buy. So if we put a big portion of the base portfolio into delivered gas and we get into a situation where weather is colder than normal and we have to go into the market, we are now exposed, effectively, to a very large portion of delivered gas in the portfolio. And that's never been our approach in structuring a portfolio. It wasn't then and it isn't now. 466 MR. WARREN: Mr. Chairman, I'm about -- I have -- I should apologize to everybody. I'm much longer than I anticipated I would be. I'm just about to embark on a discrete area and I'm wondering if this is an appropriate time to break rather than getting a few steps into it and then breaking off. 467 MR. JACKSON: I think that's satisfactory. So, we will break until 1:30 and resume at that time for the afternoon. 468 --- Luncheon recess taken at 12:08 p.m. 469 --- On resuming at 1:35 p.m. 470 MR. JACKSON: Please be seated. 471 Mr. Penny, we were just discussing with Board counsel the timetabling and whether or not we would get to DSM this afternoon. And it might be appropriate just to canvass parties with respect to this Panel and see how much time we think we have left and what the efficient use of time is. 472 Mr. Warren, do you have a rough idea? I know you are only asking the questions, not answering them. 473 MR. WARREN: I would anticipate no more than 15 minutes, sir. 474 MR. JACKSON: Mr. Janigan, do you have any idea how long you might be? 475 MR. JANIGAN: I'd say about an hour, Mr. Chairman. 476 MR. JACKSON: Okay. Are there any other parties here that would like to question this Panel? No? The Board counsel may have -- 477 MR. MORAN: A few questions but not -- about 15 minutes, probably, at the most. 478 MR. JACKSON: So we're up to about two hours. And how long might the DSM Panel be, if you were to lead with Union's Panel on DSM? 479 MR. PENNY: Well, I haven't canvassed Mr. Poch or Mr. Klippenstein on their cross-examination, but in terms of the examination in chief, we've got a number of developments, both resolved and disputed elements that occurred post the filing of our evidence so it would perhaps be a little longer than usual; I might be half an hour. 480 MR. JACKSON: All right. And then I think Mr. Poch, have you any idea, I guess it's pretty hard to say when you haven't heard this portion of the direct, but have you any idea how long you might want to question the Panel? 481 MR. POCH: Well, Mr. Klippenstein and I have chatted and we've kind of divided who is taking the lead on what. That should help a bit because the remaining items are quite complicated ones. So, I'm anticipating at least an hour and a half, maybe more. 482 MR. JACKSON: Okay. I think that helps me a lot. Then it's no longer marginal for today. We were wondering if we sat a bit longer if we might finish today, but I don't think that's in the cards. 483 MR. POCH: Mr. Chairman? I was just going to say, though, that if Union could put its evidence in chief in this afternoon, we -- I'm here in any event. We were just going to excuse ourselves and go to the room next door and we could be available should it get reached. And that might assist us since the -- Union's update really just came out last night. 484 MR. PENNY: Well -- 485 MR. JACKSON: Mr. Penny, what's your preference on that? 486 MR. PENNY: Well, frankly there is a number of things that we've just been given as well, and, if -- and there are still some outstanding undertakings so I think, frankly, my preference would be -- it sounds like we are going to be most of the afternoon with this Panel and I'd just as soon break, have the opportunity to review the material on the DSM Panels that we've just been given as well and then start tomorrow. 487 MR. JACKSON: That's -- 488 MR. PENNY: I don't think we will have any difficulty finishing DSM tomorrow. 489 MR. JACKSON: That's fine with the Board then, so let's just say the DSM will start tomorrow morning on the assumption that we are going to finish this Panel today. 490 MR. POCH: Thank you, Mr. Chairman. 491 There were just two minor matters if I could put them on the record. One was, in light of the fact that we aren't going to get to DSM, if I could just ask Mr. Penny if he could get word to his witnesses that we have produced a number of tables which summarize the impact of the combined effect of the issues we are disputing on volumes and the LRAM methodology questions. And I was proposing to ask Union's witnesses just to verify the mathematics. The numbers are right; obviously they are not going to agree on the hypotheses for the '99 and 2000 years, I know they're not going to be the same with Union's on the 2001. But I think if his witness -- I don't know if she'll have it a chance, but if she had a chance to look at things tonight that will speed things up tomorrow. 492 MR. PENNY: That's one of the very items I was referring to, Mr. Chairman, that we need to regroup and review because we've got a number of these updated several times in the few days. 493 MR. POCH: We've been trading updates with Union and it's a scramble for both sides. I appreciate that. I think that would be helpful. 494 The other item, just to alert the Board, there's one issue that turns -- may turn on one confidential document. I think I've -- on a couple of occasions I have told the parties on the record if they are going to be interested, they need to speak to Mr. Penny and sign an agreement. I don't know that any party -- parties are content to let us take the lead on that and I understand Mr. Penny is going to be kind enough to provide the Panel with copies of that so you'll have that today or tomorrow. 495 I should say from my part I don't believe it would be necessary for the Panel to read through it in advance. We will be looking at very selected portions. 496 MR. JACKSON: All right. And since there's been no objection from anyone else, I think the Panel is prepared to keep that document confidential, no problem. 497 MR. PENNY: Thank you, sir. 498 MR. JACKSON: Okay. Back to you, Mr. Warren. 499 MR. WARREN: Panel, I just have two mercifully brief areas to cover off with you. 500 The first is to try and get some information about the actual transportation arrangements that were made in the period from November 1, '98 to the commencement of the Alliance service in December of 2000. The first point of reference I'd like you to turn up is Exhibit C.1.8 in the 0441 decision. 501 MR. JACKSON: That reference again, Mr. Warren? 502 MR. WARREN: Exhibit C.1.8 in the 0441 case. 503 Panel, the question posed to you by Board Staff in that interrogatory was about contracting to TCPL in the secondary market, and your answer in the first line is: "Yes, Union did contract for supply in 1998-99 to bridge its transportation shortfall." 504 Now, it may well be the case that somewhere in the record, there is information about what arrangements you made to bridge those two years, and if it is, I'd be certainly pleased if you would just refer me to it. But if it is not, can you tell me in the period November 1, '98 when TCPL capacity was not available, when Alliance began in December 2000, what arrangements did you make? 505 MR. SIMPSON: If you will just bear with me for one minute, please. 506 The reference that I'd like to speak to is in 0029 and it is Exhibit 39.7. 507 MR. WARREN: I'm sorry, Panel, that's Exhibit C.39.7 in this case, 0029? 508 MR. SIMPSON: Yes. 509 MR. WARREN: Go ahead, Panel. I now have it. 510 MR. SIMPSON: I think your question was trying to articulate what we're calling the bridging period between our requirement date and the commencement of Alliance and Vector, and C.39.7 of the case 0029 describes that. 511 MR. WARREN: Perhaps you could just walk us through it, sir, rather than my just reading it. The shortfall, the requirement as of November 1, 1998, was what volume? 512 MR. SIMPSON: I'm sorry, could you repeat the question? 513 MR. WARREN: The shortfall as of November 1, 1998 was what? I use that date as the date when you had been trying to get additional TCPL capacity and you couldn't so I presume you had a shortfall as of that date that you needed to make up in some way. Was it 58 Mmcf per day? 514 MR. SIMPSON: Yes, I'm sorry, the combined paragraphs in part A describe that there was 40 of -- bridging 40 million cubic feet per day bridging arrangements ascertained and 18 was not purchased. So the combined shortfall was 58 million cubic feet per day. 515 MR. WARREN: And you were purchasing that 58 where? 516 MR. BAKER: Let me just clarify: The initial shortfall was 58 million cubic feet a day, as this response indicates. Due to weather fluctuations, we determined that we didn't need 18 million cubic feet a day so we arranged 40 million cubic feet a day of bridging. 517 MR. WARREN: That was arranged where? Where did you get that from? 518 MR. SIMPSON: Yes, that was arranged in the secondary market. 519 MR. WARREN: Okay. Now, beginning in November 1, 1999, your need was for 142 million cubic feet a day; is that right? 520 MR. SIMPSON: I'm sorry, could you repeat the question? 521 MR. WARREN: Beginning in November 1, 1999, your need was for a total volume of 142 million cubic feet a day? 522 MR. SIMPSON: The requirement for November 1, '99, unfolded to be 108 million cubic feet per day -- 523 MR. WARREN: Okay. 524 MR. SIMPSON: -- Of which, in answer of B to C.39.7, 70 million cubic feet per day of that was arranged in the secondary market. 525 MR. WARREN: Now, could you then turn up, Panel, Exhibit C.5.25 in the 0441 case. 526 MR. JACKSON: Mr. Warren, what was the reference again? 527 MR. WARREN: C.5.25 in the 0441 case. 528 My question on this one, Panel, is this: Would it be possible to recast C.5.25 by adding a column which would compare the Alliance-Vector toll comparison in your assessment of October '97 with each of '98 and '99 so that we get a comparison of what Alliance-Vector, your assessment was then, and what you actually paid in the succeeding two years; is it possible to do that? 529 MR. BAKER: You're referring to the '98/'99 secondary capacity? 530 MR. WARREN: Right. I don't need you to do it now, just can it be done? If it can be, can I get an undertaking to have it done? 531 MR. SIMPSON: I'm just trying to understand the context of the question. In C.5.25 is a detailed analysis of the options available in 1997 or what we considered long-term comparison to Alliance and Vector. The arrangements described in C.39.7 of 0029 are for a discrete bridging period. 532 MR. WARREN: I understand that, sir, that there's a difference in what the data says. All I'm trying to get at, and if you tell me it's not possible to do then that's fine, I'll have to live with that, but what I'm trying to get at is a comparison of what it is that you forecast you would have to pay, assumed you would have to pay with Alliance-Vector, with what actually transpired at least in the secondary market in the succeeding two years. 533 MR. BAKER: We'll undertake to try and provide that. 534 MR. WARREN: Thanks very much. 535 MR. MORAN: G.6.3, Mr. Chair. 536 MR. JACKSON: Thank you. 537 UNDERTAKING NO. G.6.3 TO PROVIDE A COMPARISON OF FORECAST PAID TO ALLIANCE-VECTOR WITH WHAT ACTUALLY TRANSPIRED IN THE SECONDARY MARKET 538 MR. WARREN: Panel, my final area of examination is on the subject -- is trying to understand the processes or process by which the decision to contract on Alliance-Vector was made. 539 Now, first of all, sir, the one text reference that you might turn up to assist in this exchange is Exhibit C.3.7 in the 0441 case. 540 Do you have it, Panel? 541 MR. BAKER: Yes, we do. 542 MR. WARREN: The answer which appears in the second paragraph, first of all -- sorry -- the question which is posed to you is: "To what extent did that ownership affect Union's decision to contract on the two pipelines?" 543 Now, if I look at the third paragraph of your answer, in the second last sentence you say, and I quote: "Again, Westcoast's equity state in Vector was not the predominant factor in Union's decision to contract with Vector." 544 Can I read that, sir, fairly, that it was a factor in the decision to contract with Vector, though not the predominant factor; is that fair? 545 MR. BAKER: I think there's a reference to -- that one that you just read was in reference to Vector. 546 MR. WARREN: No, I understand that, sir, and my questions are just about Vector. Do I read that correctly, sir, that by necessary implication, Westcoast's equity state was a factor in Union's decision to contract with Vector? 547 MR. BAKER: That's -- my own view is it was very little, very little of a factor because we had made the commitment to Alliance so that there was gas arriving in Chicago. We need to move that gas from Chicago to Ontario and therefore our predominant factor as Union was to arrange connecting transportation from Chicago to Ontario. 548 MR. WARREN: Now, your answer, sir, doesn't, I say with respect, answer the question with respect to Alliance. To what extent was Alliance's ownership interest -- sorry, Westcoast's ownership interest in Alliance a factor in Union's decision to enter into an arrangement with them? 549 MR. BAKER: It wasn't. 550 MR. WARREN: Can you tell me, sir, from the Union side who was involved in the analysis and decision-making processes to enter into the Alliance contract? 551 MR. BAKER: Specific personnel? 552 MR. WARREN: Yes, please. 553 MR. BAKER: At the time, at Union, that would have been Mike Stedman and Jim Bracken. 554 MR. WARREN: Were any of the Panel members involved in the decision analysis and decision-making process? 555 MR. BAKER: None of us were directly involved. 556 MR. BREMNER: No. 557 MR. WARREN: Can you tell me, sir, on the Union side of it, was therefore -- was the decision made by Bracken and Stedman? Or was it made by somebody further up the -- 558 MR. BAKER: Well, the decision was Union's to make. Because we've walked through the chronology this morning, we were in the TransCanada cue we went through the chronology where we got the communication from TransCanada in early '97 and we started to look at other options. 559 It's always Union's responsibility to look at the kind of transportation and the portfolio that are required so we started to look at Alliance. And when it became clear that we thought that that was the best option to pursue, that's when the decision would be made by Union to go with Alliance. 560 If I can just finish, the connection to Westcoast, from our point of view, is that because of the size of that commitment, we clearly have to communicate with Westcoast that we are in fact considering a commitment on Alliance because corporate approval would have been required for a contract of that size. 561 MR. WARREN: Thanks for that, Mr. Baker, but you've answered a question I hadn't yet asked. My question was just within Union, the management structure within Union. Who would have signed off within Union system on the Alliance contract? 562 MR. BAKER: I think I answered that, that was Jim Bracken and Mike Stedman. 563 MR. WARREN: That's all I asked. Now, in order for those two individuals to make a decision, was there written, internal analyses or study that supported the recommendation that Union sign this agreement? 564 MR. BAKER: I think what we've tried to indicate through the interrogatories in 0441 is the analysis that we went through. 565 MR. WARREN: That doesn't answer my question, sir. I'm asking you whether there was an internal, written analysis or report or study that underlay the decision by Union management to sign the Alliance contract; do you know? 566 MR. BAKER: To the best of our knowledge, there's no written agreement or other analysis other than what we've laid out in the interrogatories. 567 MR. WARREN: And if I asked you the same question with respect to the Vector process, is the answer the same? 568 MR. BAKER: Yes. 569 MR. WARREN: Are you certain of that, sir, or do you have to undertake to determine whether or not there's any written, internal analysis or study that underlay the decision of Union with respect to either Alliance or Vector? 570 MR. BAKER: No, we're certain. I just checked with both of my colleagues. We've undertaken a fairly extensive comb through all of the files that we have on the subject, most of which has been filed, in terms of the correspondence in this hearing. 571 MR. WARREN: Now, I did indicate in responding to an earlier question that given the size of the contract, that this would have had to go to Westcoast management in order to -- for them to approve it; is that right? 572 MR. BAKER: That's correct. 573 MR. WARREN: Now, was Westcoast or anyone from Westcoast involved in the analysis of the factors within Union as they were analyzing them? 574 MR. BAKER: No, that's Union's analysis decision to make. 575 MR. WARREN: And when the recommendation -- I presume that Union would have recommended to the Westcoast management that these contracts be signed; is that right? 576 MR. BAKER: It's not recommending; we'd be saying we'd be looking to make a commitment on Alliance and we'd be looking for Westcoast to provide its corporate approval. 577 MR. WARREN: Now, is that done in written form? Do you seek Westcoast's written approval in written form for either one of those contracts? 578 MR. BAKER: I don't believe that would have been sought in written form. 579 MR. WARREN: Do you know, sir, whether or not there was anything in writing that went to Westcoast seeking their approval for either one; do you know that? 580 MR. BAKER: I don't know that. 581 MR. WARREN: Can you undertake to determine if there is; and if there is such a written approval, can you provide us with copies? 582 MR. BAKER: You're seeking -- just so I'm clear what you're asking, whether there was a piece of written correspondence between Union and Westcoast or Westcoast signed off on our decision. 583 MR. WARREN: I don't want to narrow it as to whether it was a piece of correspondence, sir. What I'm asking is whether or not, when Union sought the approval of Westcoast to enter into the both the Alliance and Vector, whether there was any written analysis or report or other form of document that went from Union to Westcoast seeking its approval, whatever form it might be, and if -- I'm asking you to undertake to determine if such material exists, and if so, if you'll produce it? 584 MR. BAKER: I don't believe there was, but we'll undertake and check. 585 MR. MORAN: G.6.4. 586 UNDERTAKING NO. G.6.4: TO PROVIDE WRITTEN MATERIAL BETWEEN UNION AND WESTCOAST REGARDING ALLIANCE AND VECTOR 587 MR. JACKSON: Thank you. 588 Was that an undertaking to just check to see if there was, or was it also an undertaking if there was, to file the correspondence -- or the written material, excuse me. 589 MR. WARREN: If you're looking at me, sir, the undertaking -- the request was for both. The answer was somewhat softer. 590 MR. JACKSON: Okay. Do you have any difficulty with doing both components of the -- 591 MR. PENNY: No, Mr. Chairman, I mean, subject to some unforeseen issue of confidentiality or privilege or something, but other than those kinds of qualifications, I think the answer is yes. 592 MR. JACKSON: Thank you. 593 MR. WARREN: My final question is really just a corollary of this. Earlier on this morning, I asked you a number of questions, Panel, about the nature of the interest that Westcoast, as an investor in the Alliance and Vector contracts, would have with respect to both maximizing the return on its investment and it seeking regulatory approval. Would you, Panel, agree that there is at least the potential for a conflict of interest between Westcoast's interest as an investor in Alliance and Vector and Union's as a utility signing those long-term contracts? 594 MR. BAKER: No, I don't believe there's a conflict of interest. I think the record's clear, the path that we went down and the chronology that we went down in terms of looking at our commitments to contract on those pipelines. In the case of Alliance, Westcoast wasn't an equity with the owner when we made our commitment, and our commitment was not with Westcoast, it was with the Alliance partnership, and the same as they are with Vector. 595 MR. WARREN: Can you tell me, sir, if, as part of the decision-making process within Union and/or Westcoast, if any measures were taken, for example, having a committee of independent directors review it, to ensure that there was no conflict of interest in Union entering into these contracts? Do you know if any measures were taken to examine that issue and satisfy both Union and Westcoast that there was no conflict of interest? 596 MR. BAKER: Certainly, Union's board is accountable for looking at the activities of Union and making sure what Union is doing is appropriate and there are no conflicts there, so that is the function of the board. 597 MR. WARREN: So I didn't ask you what the function of the board was, I asked you a narrower question. Are you aware if any steps were taken within Union and/or Westcoast to ensure that there was no conflict of interest in -- between Westcoast's investments and Union's entering into these contracts? 598 MR. BAKER: Again, I'll answer it. We were not contracting with Westcoast so there's no conflict of interest there. We were contracting with the Alliance pipeline and Vector pipelines. So it was not a -- it was not an affiliate transaction. 599 What Westcoast chooses to do from an equity investment point of view on either Alliance or Vector is not a concern to Union; it's not a concern to our board. I think you can see in terms of the Alliance pipeline in that exhibit that you referred us to, Exhibit 3.7, Westcoast has increased its equity ownership in Alliance after the initial investment of 11 percent and that has nothing to do with Union, it has nothing to do with any capacity that Union had on that pipeline. So their decisions to make an equity investment are theirs to make. 600 MR. WARREN: May I take it, sir, that in that response what you are saying to me is no, you are not aware of any measures that were taken within Union or Westcoast to address the issue of a potential conflict of interest. 601 MR. BAKER: That's right, because we were not contracting with Westcoast. 602 MR. WARREN: Finally, sir, one last question. Are you aware, sir, of whether or not, other than Union and Enbridge Consumers Gas, there are any LDCs that have contracted for transportation on Alliance or Vector? 603 MR. BAKER: Subject to check, I believe we're the only two LDCs committed to capacity. 604 MR. WARREN: Thank you, sir, those are my questions. 605 MR. JACKSON: Thank you, Mr. Warren. 606 Mr. Janigan? 607 MR. JANIGAN: Yes, thank you, Mr. Chairman -- 608 MR. BAKER: If I can just add one comment to that, that last response is that we are, as the Board knows, the only two major utilities in this province, as well. 609 MR. SIMPSON: I believe as well, for completeness, there was a listing of shippers provided in 00 -- first I apologize, 0441, interrogatory 36.2. 610 MR. PENNY: Mr. Chairman, I was making a note when Mr. Warren asked his question. Could I ask, through you, if Mr. Warren could repeat that last question. Was it with respect to Alliance or just Vector or both? 611 MR. WARREN: I'm sorry. It was with respect to both. 612 MR. JACKSON: And the last response, then, pointing out Exhibit 36.2, was that intended to just indicate other long-term shippers when it says "firm Alliance shippers"? I'm just wondering about the length of those contracts for shipment. 613 MR. BAKER: All the Alliance contracts would have been standard, at least 15-year contracts. 614 MR. JACKSON: Good. Thank you, Mr. Baker. 615 All right, Mr. Janigan. Thank you. 616 MR. JANIGAN: Thank you, Mr. Chairman. 617 CROSS-EXAMINATION BY MR. JANIGAN: 618 MR. JANIGAN: Good afternoon, Panel. 619 I'd like to start with looking at Exhibit F.5.1 that was handed up yesterday. And I'd like you also, if you could, to turn up Exhibit C.39.8 in this proceeding. 620 Do you have that material now? 621 MR. BAKER: I believe we have it. 622 MR. JANIGAN: First of all, what is the date for which this exhibit has been prepared? 623 MR. BAKER: You're referring to C.39.8? 624 MR. JANIGAN: I'm sorry, Exhibit F.5.1. 625 MR. BREMNER: F.5.1? 626 MR. JANIGAN: F.5.1. 627 MR. BREMNER: So what time period are these comparisons valid for, is that your question? 628 MR. JANIGAN: That's correct. 629 MR. BREMNER: These comparisons are valid for December 2000 to December 2001. 630 MR. JANIGAN: And what is the exchange rate that underpins this analysis? 631 MR. BREMNER: The exchange rate underpinning this analysis is the exchange rates in effect, the actual exchange rates for the period. 632 MR. JANIGAN: Okay. And I take it if we were to -- on schedule 1, we wished to compare apples to apples, we would add the 4 cents that appears in Exhibit 39.8 to the Alliance-Vector number for the landed cost at delivery point at Parkway? 633 MR. BAKER: I think to do that, you would add the 4 cents to the TransCanada number, not the Alliance. 634 MR. JANIGAN: Yes. But in order to -- that's what you've done on page 2 or schedule 2, I understand. 635 MR. BAKER: That's correct. 636 MR. JANIGAN: Now, in actual fact, on that case, it's likely that particular amount wouldn't apply because TCPL would not ship -- would just elect to ship lesser volumes of gas under the M-12 rate. 637 MR. BAKER: No, what we were trying to do was make the point of comparison between Dawn which, in our view, is a more appropriate point of comparison. So, TransCanada would actually have to physically ship volumes east from Parkway to Dawn. 638 MR. JANIGAN: Where do you want shippers to predominantly deliver; is it Parkway or Dawn? 639 MR. BAKER: Where do we want shippers to deliver? 640 MR. JANIGAN: Yes. 641 MR. BAKER: Well, we have, obviously, delivered contractual arrangements in our contracts in terms of where shippers have to deliver. But what we are doing here was really reflecting the fact that the shippers, particularly over the last few years, have indicated a preference to want to be at Dawn as opposed to Parkway. 642 MR. JANIGAN: But if you did the comparison to Parkway, I take it you would apply the 4 cents that you -- the other way that you've -- as you've indicated in this interrogatory? 643 MR. BAKER: The 4 cents is an easterly rate on Dawn-Trafalgar to move -- or a westerly rate, sorry. 644 MR. JANIGAN: What would be the easterly rate? 645 MR. BAKER: Approximately 11 cents, including fuel. 646 MR. JANIGAN: Have there been any additional facilities or expenses incurred by Union as a result of the preference for delivery at Dawn rather than Parkway? 647 MR. BAKER: No. 648 MR. JANIGAN: I wonder if you could turn up in this proceeding CEED interrogatory 66.1. And this response provides the southern systems portfolio forecast for November 1st, 2001. And the way I read that, there is basically no TCPL capacity remaining for the systems sales customers, according to this table. 649 MR. BAKER: That's correct. 650 MR. JANIGAN: Okay. And the Panhandle and Trunkline contracts were to expire on November 1st? 651 MR. BAKER: November 1st, 2002. 652 MR. JANIGAN: 2002. Will Union be renewing those contracts? 653 MR. BAKER: This relates back to an exchange we had yesterday, where we are currently in the process of looking at what exactly our composition of our portfolio will be effective this November. 654 MR. JANIGAN: So at this point in time you can't tell. 655 MR. BAKER: That's right. 656 MR. JANIGAN: In the event that these contracts expire without renewal, I would take it that you would have to go out and get the same amount of volumes, presumably, on Alliance? 657 MR. BAKER: No, I wouldn't make that assumption at all. I think we're doing two things. First and foremost we are looking at the capacity that we need within our portfolio effective this November and as part of that decision are looking at what are the options, what are the transportation supply options to fulfil that requirement. 658 MR. SIMPSON: What I think as well, to add to that, there's been a few interrogatories, without specifically referring to them, that have recognized Union's desire with respect to portfolio -- creating a diverse portfolio as well as understanding from the Board's decision. So in combination with what Mr. Baker said, I think that would evolve to how that would or would not be replaced. 659 MR. JANIGAN: Are you able to say whether or not at this time Alliance-Vector will have a higher percentage share of the systems sales portfolio? 660 MR. SIMPSON: No, we're not, at this time. 661 MR. BAKER: The exchange that we had yesterday was, obviously, when we go to make a portfolio decision this fall we will obviously look at the market conditions that are there, today as we now look at it. And I think we had a lot of exchange over yesterday and today to know that there are options out there in the marketplace, given the status of the market and given the fact that there is excess pipe in Ontario. 662 MR. JANIGAN: So at this point in time you can't tell us whether or not you will be requiring a greater percentage of capacity in Alliance-Vector, nor a greater amount of capacity per se on Alliance-Vector. 663 MR. BAKER: We haven't made those decisions yet in terms -- to the extent we need capacity and supply, what that supply portfolio will consist of at this point in time. To the point on flexibility, I think directionally, we would -- to the extent we need capacity, obviously we're in a circumstance where the likelihood of a 10- or 15-year contract is not likely. 664 MR. JANIGAN: Will you still need the same volumes, though? 665 MR. BAKER: Same question I've been trying to ask. We don't know. We've come through an extremely warm winter and that is what we are trying to do at the present time, is look at where we are in terms of our inventory levels and exactly what firm supplies we need this fall. 666 MR. JANIGAN: Now, I take it there is no way of getting out of the 15-year Alliance-Vector contract without incurring a major penalty. 667 MR. BAKER: That's correct, it's a binding contract. 668 MR. JANIGAN: And what are the cancellation fees associated with the Alliance-Vector deals? 669 MR. BAKER: I don't know. 670 MR. JANIGAN: Is it something that you can find out? Is it something straightforward, that you can find out? 671 MR. SIMPSON: I think, relatively speaking, the demand charge is a component that is imbedded from the term of the contract, much like it would be for a TransCanada contract and any other long-term contract. 672 MR. JANIGAN: And I take it as well that the term of the contract cannot be reduced? 673 MR. BAKER: That's correct. 674 MR. JANIGAN: And once again, the penalties associated with the demand are built into the contract at the beginning, for the 15-year period? 675 MR. BAKER: I think just to back up, we have a long-term agreement. It's a 15-year contract; it's a demand-charge based contract. Last time I looked, I don't believe there was any cancellation penalties or clauses within the contract, to the extent that it would be no different than any other commercial contract, that to the extent that you wanted to extract yourself from it, it would be a commercial settlement in terms of what you were trying to get out of, relative to the value that's in that contract. 676 MR. JANIGAN: Now, Panel, I'd like to go to the decision of the Board in EBRO 493/494. I have an extract I'd like for you to look at. 677 MR. BAKER: I believe we're going to have to try and track it down. 678 MR. JANIGAN: I'd like to draw your attention to paragraph 11.5.7 where it states: "The Board notes Union's forecast of direct purchase activity in 1997, Union's forecast of additional TCPL capacity for 1997, and the possibility of Union acquiring more TCPL capacity in 1998. Assuming that these forecasts are realized, the Board is not convinced by Union's argument that if the proposed direct-purchase displacement policy is not approved for 1997 Union's system supplies will be seriously diminished. In this regard, the Board notes Union's forecast that in 1997 firm TCPL capacity will underpin 65 percent of its system supplies up from 50 percent in 1996." 679 So, it would appear that when your TCPL capacity that underpins system sales fell 50 percent, Union became concerned and initiated what was, I suppose, the first vertical slice proceeding or the equivalent of the vertical slice proceeding. 680 MR. BAKER: I think the level of TransCanada FT capacity in our portfolio was one factor. The Board's probably aware that there were other factors that led Union to propose, at that time, the proportionate displacement methodology in the 493/494 proceeding. But that was one factor. 681 MR. MORAN: Mr. Chair, for tracking purposes, did you want to mark this page? 682 MR. JACKSON: I think that is helpful. So that's an excerpt from EBRO-493/494; is that correct? 683 MR. BAKER: That's correct. 684 MR. JACKSON: That would be F -- 685 MR. MORAN: 6.1. 686 EXHIBIT NO. F.6.1 EXCERPT FROM EBRO 493/494 687 MR. JACKSON: Thank you. 688 MR. JANIGAN: But obviously, Mr. Baker, the fact that TCPL capacity that underpins system sales had fallen 50 percent was a principal factor in the bringing forward -- in the application in this proceeding? 689 MR. BAKER: We're going back into the archives here, and I'm trying to get my mind oriented. But the principal factor that we were aware of at that time, again, was that TransCanada firm capacity was the least expensive component of our portfolio and that was what was being used to facilitate all incremental direct purchase. So the concern Union had at the time was that, as we continued to displace TransCanada FT capacity only, it was leaving the system portfolio with what were, at that time, the higher components of our portfolio. And at the time we didn't think that that was a fair approach. And we had proposed the proportionate displacement methodology. And the Board's decision was to continue to facilitate direct purchase with TransCanada FT and that subsequently led, I believe, to the 493-04, 494-06 proceeding where we developed the load balancing and flexibility proposal. 690 MR. JANIGAN: But the Board's decision didn't preclude you from coming back with a similar proposal if TCPL capacity continued to fall; would you agree? 691 MR. BAKER: I agree that's what led to 493-04, 494-06. 692 MR. JANIGAN: And you would also agree with me that, in fact, based on the record of this decision, it would appear that TCPL capacity that underpinned system sales was projected to increase to 65 percent of system supplies; is that correct? 693 MR. BAKER: I think at that point in time we had probably projected that the capacity that we were in the TCPL queue for would, in fact, be satisfied. And as we've heard today, it wasn't. 694 MR. JANIGAN: And given that fact, the Board was not convinced that that TCPL capacity was significantly diminishing for system sales. 695 MR. BAKER: I think that's fair. I think the Board had a different perspective in terms of the amount of direct purchase activity we were likely to see and if, and how fast, Union was going to run out of that capacity. 696 MR. JANIGAN: Now, in 1997, did the firm TCPL actually rise from 50 to 65 percent for system sales customers? 697 MR. BAKER: I don't believe it did because we didn't get our capacity requests. 698 MR. JANIGAN: I wonder if you could provide, by way of an undertaking, what was the level of TCPL for system sales customers from the time of EBRO-493/494, year by year, to bring us up to the situation today where there is no TCPL capacity for system sales customers. 699 MR. SIMPSON: Could you repeat what it was that you were trying to extract through that undertaking? 700 MR. JANIGAN: What I would like to have is what was the level of TCPL capacity underpinning system -- sorry, what was the level of TCPL for underpinning the capacity for system sales customers from the time of EBRO-493/494, year by year, to bring us up to the situation today where there is no longer TCPL capacity for system sales customers. 701 MR. BAKER: We'll try to pull that together. 702 MR. PENNY: We should get a number to that. 703 MR. JACKSON: Thank you. 704 Mr. Moran, help us, G something. 705 MR. MORAN: G.6.5, Mr. Chair. 706 UNDERTAKING NO. G.6.5: TO PROVIDE THE LEVEL OF TCPL FOR UNDERPINNING THE CAPACITY FOR SYSTEM SALES CUSTOMERS FROM THE TIME OF EBRO-493/494 UP TO THE PRESENT 707 MR. JACKSON: Thank you, Mr. Moran. 708 MR. JANIGAN: Now, by the time of EBRO-493/494, given that firm TCPL was declining in terms of its capacity to serve system sales customers, Union must have had, at the time, a portfolio that relied upon more short-term commitments in the market to serve system sales customers. In other words, it was increasingly relying on short-term commitments because of this reduction of TCPL capacity. 709 MR. BAKER: I don't follow the logic trail there. You'll have to help me. 710 MR. JANIGAN: When you applied -- made application under 493/494, one of the reasons that you made that application was that TCPL capacity underpinned system supply had diminished to 50 percent. That 50 percent, I take it, was being made up by short-term commitments or more short-term commitments to serve system sales customers. 711 MR. BAKER: I think that was -- I think that's probably directionally right; that by virtue of displacing TCPL FT only, the other components in our portfolio would take on an increasing proportion of the remaining portfolio. 712 MR. JANIGAN: Now, did the Board at any point in time indicate -- 713 MR. BAKER: Just before I leave that, though, that doesn't necessarily mean that there's a greater proportion of short-term contracts. At that period of time we had a lot of TransCanada capacity that was under -- that was firm TransCanada capacity but was under one-year rolling renewable arrangements so the definition of "term," I don't think's quite right. 714 MR. JANIGAN: Now, did the Board at any point in time indicate that Union should go out and get additional long-term firm capacity, the back-up serving system supply customers? 715 MR. BAKER: I can't recall there ever being a decision where the Board has specifically mandated Union as to how to underpin its portfolio. I think what I had said this morning was, consistently, ever since I have been at Union, we have always had a portfolio which has been underpinned primarily by firm, upstream transportation arrangements. 716 MR. JANIGAN: I wonder if you could turn up, in this proceeding, a VECC interrogatory under 39.6, C-6; that's correspondence from TransCanada dated February 18th. I'm just curious to see how this fits into the chronology of events, particularly given the first paragraph where Mr. Parnell, who's the manager of transportation services, indicates: 717 "Thank you for your interests in obtaining firm transportation service on the TransCanada system. Respective FT shippers in the 1999-2000 contract year queue were requested to provide by December 31st, 1996, all PS/ES documentation required to support a facilities application. TransCanada did receive your request for November 1st, 1999, service but the required PS/ES documentation was not received prior to the cut-off date. In accordance with the procedure, you were refused." 718 Now, I take it that Union is familiar with this PS/ES procedure, is well-versed on the procedures for obtaining capacity on TCPL? 719 MR. BAKER: We are. 720 MR. JANIGAN: Now, by not providing this information in a timely manner, was Union not, in effect, pulling itself out of the queue? 721 MR. BAKER: If what you are referring to is what was a major point of disagreement between ourselves and TransCanada, and in our view we had provided the ES/PS information to satisfy both our '98 and our '99 queue request. 722 MR. JANIGAN: But was this the triggering cause of why capacity wasn't granted to Union in 1998? 723 MR. BAKER: Well, it's one event in a sequence of many, but clearly, TransCanada took the position that we had not provided sufficient ES/PS information and therefore denied our '99 queue request and basically took us out of the queue. And for us to re-enter, we would have been at the back of whatever their then-current '99 queue was at that time. 724 MR. SIMPSON: And if I could just add to that. I think that you finished your comment with respect to, was this why we were moved from the 1998 queue and that is not the case. The 1998 queue we were in and presumably satisfied TransCanada's complete requirements and were subsequently moved to 1999, separate and distinct. 725 MR. JANIGAN: Thank you. 726 I wonder if you could turn the page and look at the letter that Mr. Warren spent some time discussing with you. And I seem to recall from your discussions with Mr. Warren that one of the concerns that Union had as a result of this letter was that you were uncertain about getting a firm commitment from TCPL for the November 1st, 1999 in-service date. Did I get that correctly? 727 MR. SIMPSON: Yes. On the top of page 2, it reads: "We expect a November 1, 1999, in-service date." So to us, given the point in time, I think it's very valid to reflect upon the market conditions which we were in an environment that was trading at extreme toll premiums. We had just been told that the 1998 request would not be met and our 1999 was a maybe. So that is, no doubt, how it was interpreted at the time. 728 MR. BAKER: I think what we were referring to this morning was on page 3 of that letter, which talked about TransCanada's concern on its renewal rights, in association with its contracts. 729 MR. JANIGAN: Just getting back to the problem with expectation versus a firm date, did you get a firm commitment from Alliance for the November 1st, 1999, in-service date? 730 MR. BAKER: I don't believe that we had a firm date from Alliance for November 1. There were some -- there was some language in the contract that gave certain remedies if the project were to get deferred past a certain date but I don't believe there was a firm commitment for November 1, 1999. 731 MR. JANIGAN: Okay. And I believe you indicated you had some concerns about turn-back capacity, that existing shippers would turn back existing capacity on TCPL and it might, I guess, jeopardize the TCPL commitment to build Nexus. 732 MR. BAKER: We weren't concerned about it; TransCanada had that concern. 733 MR. JANIGAN: So from your standpoint, the fact that they might not need to build and serve you with existing facilities, that would have been fine. 734 MR. BAKER: I think the concern that TransCanada had at the time was that they were seen to be uncomfortable wanting to commit to build incremental new facilities despite the fact that there was market demand and people had committed in their queue for that demand, and they were sitting with a large portion of their portfolio in short-term, one-year renewable contracts. 735 MR. JANIGAN: I'd like to deal with an issue that came up earlier in Mr. Penny's discussion with Mr. Dent about risk management, where it seemed clear that Union was obviously expecting a specific in-service date, I take it that being November 1st, 1999, from Alliance. Have I got that correct? 736 MR. PENNY: My recollection of the discussion with Mr. Dent, which I remind Mr. Janigan is not -- was not evidence, Mr. Dent wasn't testifying, but my recollection of that discussion was that he said that because of the uncertainty of the actual commencement date, there was no risk management associated with the commencement of those volumes because they weren't going to hedge against something that -- unless they knew it was going to be flowing. 737 MR. JANIGAN: And I take it you adopt that answer of counsel, to avoid being unsworn evidence? 738 MR. BREMNER: I'd like to just add one point to what Mr. Penny said and that is as part of our risk-management policy, we do not hedge in the absence of having supply arrangements underpinning it. So just as a point of clarification for what Mr. Penny said. 739 MR. JANIGAN: And when did you find out that the pipeline date was going to be moved -- in-service date was going to be moved back, or moved ahead I guess would be more appropriate? 740 MR. BREMNER: Which shift are you speaking of? 741 MR. JANIGAN: From November 1st, 1999, to November 1st, 2000. 742 MR. SIMPSON: I believe it was around March of 1998 that there was an announcement that it appeared the November '99 start date would slip until probably some time in the second half of 2000. 743 MR. JANIGAN: Okay. 744 MR. BAKER: I think just -- I think one of the largest issues that had precipitated that delay, there were certainly a lot of issues and different opinions around Alliance and there was some regulatory delays that pushed that in-service date off. 745 MR. JANIGAN: Actually it might be useful to turn up what Mr. Dent told Mr. Penny, even though it wasn't under oath. It was volume 2 of the transcripts, paragraphs 82 to 83. It starts with: "Mr. Dent, we roughly -- when we're hedging, whether we're buying physically or hedging financially," have you got that point? 746 MR. BREMNER: We've found the reference. 747 MR. JANIGAN: "We're generally doing it in relatively small pieces of 5 to 10,000 gJs per transaction. What I think the difference is reflecting is the fact that primarily Alliance-Vector, because it came on as I previously described late in November, that there was some of that volume that we might have hedged had we known for sure that that pipe was going to be on line. And because it wasn't hedged, there were fewer transactions. Conversely, because we weren't sure about when that was starting, we probably hedged a little more in the firm than what we would have had had we known that Alliance-Vector was going to be in November. Consequently, we have a little more weighing towards the hedging in the firm and, consequently, I think, you see that reflected in the transactions in the firm versus the ones in the other purchased gas." 748 Now, am I correct in saying that because of the delay of the operational date and the lack of certainty pertaining to the operational date, Union appears to have done things a little bit differently; am I correct? 749 MR. BREMNER: I think we need to be clear what the context of this remark is, and I believe the context here is the shift in the dates from November 2000 to December 2000. So it was the final fine-tuning of the start-up of the Alliance capacity; this is not in reference to the shift from November '99 to November 2000. 750 MR. JANIGAN: And was there anything else that Union may have done a little differently as a result of the delay in coming on in-service of Alliance-Vector? 751 MR. PENNY: Well, Mr. Chairman, that's a pretty broad question. This Panel -- the disputed item is Alliance-Vector. Risk management is a settled item. And I must say I'm at a loss to understand what any of these questions, relating to what Mr. Dent said, have to do with Alliance-Vector and the reasonableness of the contracts that were entered into in September of 1999. 752 MR. JANIGAN: Mr. Chairman, all I'm fishing for is whether there were any additional costs incurred as a result of the delay in coming into service of Alliance-Vector, without asking that question directly. 753 MR. JACKSON: And which delay are you referring to? 754 MR. JANIGAN: We can take it in sequence but primarily I'm looking at the category of delay as one big category and attempting the costs associated with it, if any exists. 755 MR. JACKSON: So, if I've been following this correctly, there's one long delay and there's one short delay from November to December. You'd like the witnesses to consider both periods and tell you whether there have been any additional costs that were incurred because of the delay. 756 MR. JANIGAN: That's correct. 757 MR. JACKSON: Or were there any savings, alternatively. And I guess the focus is specifically with respect to costs and/or savings related to upstream transportation. And then, I'll let you tell me, whether that's an appropriate place to take an afternoon break, Mr. Janigan. 758 MR. JANIGAN: It would be an excellent spot, Mr. Chair. 759 MR. BREMNER: So, perhaps you could just restate your question so it's clear what we're responding to. Thank you. 760 MR. JANIGAN: I'll cut to the chase. 761 Were there any additional costs associated with either the first delay from November 1st, 1999, to November 1st, 2000, or the second delay of November 1st, 2000, to December 1st, 2000, associated with the delay in coming on service of Alliance-Vector. Or were there any savings associated with that? 762 MR. BREMNER: I would say generally speaking that there were no significant costs or savings. 763 MR. JANIGAN: That's fine. 764 MR. JACKSON: Thank you. Let's break for 20 real minutes. 765 --- Recess taken at 2:45 p.m. 766 --- On resuming at 3:05 p.m. 767 MR. JACKSON: Please be seated. 768 Mr. Janigan, when you're ready. 769 MR. JANIGAN: Yes, thank you very much. 770 I'd like now to deal with a document which is the pre-filed evidence of Mark P. Stauft that's been filed on behalf of the Consumers' Association of Canada in Enbridge Consumers Gas general rates application case RP-2001-0032, and I would like to ask the Panel some questions arising from some of the material contained therein. 771 MR. JACKSON: Now, Mr. Penny, help us on this one, have we admitted that into this proceeding? 772 MR. PENNY: No, and, in my submission, you shouldn't. But let me explain my position. 773 Mr. Janigan has advised the Panel that he was going to ask questions about this document and as a result, the Panel has obtained copies of it and reviewed it, or at least had the opportunity to look at it. I believe that the proper legal position is that Mr. Janigan is entitled to ask this Panel questions about the document but the contents of the document do not become evidence in this proceeding. And so it can be given -- from my perspective, it can be given a number for identification purposes just as we track other pieces of paper, but my submission to you is the legal position is it does not become evidence in these proceedings unless members of this Panel agree with statements that may come out of it. 774 In that case, if they -- just like any other cross-examination question, if a proposition is put to the witness and the witness agrees with it, then that answer becomes evidence in the proceeding. But it is otherwise not evidence in this proceeding, for the obvious reason that it hasn't been tested in cross-examination or anything -- and we've not had the opportunity to ask interrogatories about it. 775 I think Mr. Janigan agrees with me about that. 776 MR. JANIGAN: Yes, I do, and I may add additionally, Mr. Chairman, that in the event that the Board feels that there is any unfairness or any problems associated with the admission of the evidence at this stage, that the Board may on its own motion, under section 21, elect to have Mr. Stauft present his evidence in this proceeding, which he is apparently willing and capable of doing so. And in fact as well, preparing any additional evidence that would make the Consumers' Gas evidence applicable to Union's proceedings. 777 MR. JACKSON: I was just going to say, Mr. Janigan, that there you have referred to it again as evidence, before it has been adopted by Mr. Stauft and testified to by him in this proceeding. And it's perhaps just a slip of the tongue, but that was what caught me the first time and I guess caught Mr. Penny too. 778 So if it's just coming in as a document which you wish to refer to, then unless there's no other objection from anyone else, I think that's a reasonable way to proceed. Mr. Penny seems to be content with that. 779 MR. PENNY: I believe that's the right way to proceed, yes, Mr. Chairman. 780 MR. JANIGAN: Thank you, Mr. Chairman. 781 MR. JACKSON: Mr. Moran, I'm sorry, did we give this a number or should we? 782 MR. MORAN: It would be Exhibit 6.2. 783 EXHIBIT F.6.2: DOCUMENT RELATED TO MR. STAUFT'S APPEARANCE 784 MR. JACKSON: Thank you, that's an F. 785 MR. MORAN: F.6.2, yes, Mr. Chairman. 786 MR. JANIGAN: And Panel, you have this document before you, I take it? Yes? 787 MR. BAKER: Yes, we do. 788 MR. JANIGAN: And you understand that the purpose of this document was to be offered in evidence in the Enbridge rates proceeding concerning the prudency of ECG's contracting for long-term capacity on the Alliance-Vector pipeline. 789 MR. BAKER: Correct. 790 MR. JANIGAN: And can you indicate, briefly, if there are any differences in the position of Union and Enbridge in terms of the issue of prudency? 791 MR. PENNY: Mr. Chairman, in my submission, that is a completely improper question and it is in -- that is not the role of cross-examination, in my submission. If Mr. Janigan wants to put a proposition from this document to the witnesses, he's entitled to do that. But to ask them whether there's anything that they disagree with in it is, in my submission, simply silly. 792 MR. JANIGAN: I'm content to withdraw the question. I'm not content with the characterization of silly. 793 Now, Mr. Stauft, on page 12, identifies the range of options that are available to ECG in 1996 to obtain incremental capacity. Do you agree that he has listed all reasonable alternatives? 794 MR. BAKER: I agree he's listed four alternatives; we wouldn't agree they are reasonable. 795 MR. JANIGAN: And Stauft concludes that the first three were preferable. I take it you disagree with that? 796 MR. BAKER: Again, I think we've covered a lot of this territory and I can go back through it and address each one of these in the context of Union. But your question, I believe he says anything other than Alliance-Vector would be preferable. 797 MR. JANIGAN: Now, do you agree that Mr. Stauft is -- notwithstanding you may disagree with his opinion, do you agree that Mr. Stauft is qualified to give an opinion in this case? 798 MR. PENNY: Again, Mr. Chairman, that's a completely irrelevant question, since Mr. Stauft is not giving an opinion in this case. This is not evidence. This is -- this document has no more status than a newspaper article or someone's grocery list at this point in time. And so whether or not Mr. Stauft was qualified to testify in some other case is completely irrelevant. 799 MR. JANIGAN: Well, I'll qualify that by excising the last few words of my question. My question, though, still stands whether or not the Panel still believes that Mr. Stauft is qualified to give an opinion as to the prudency of ECG's actions, given his previous experience. And this Panel is experienced in gas supply and I think that answer might be useful for the Board. 800 MR. PENNY: My other objection to the question, Mr. Chairman, is that it's a legal question. I can advise the Board that had he testified in this case, that our position would be that he is not qualified 801 MR. JACKSON: I think that certainly is helpful but really don't see the relevance since we haven't decided to have him testify. 802 MR. JANIGAN: I won't proceed, Mr. Chairman. 803 I wonder if you could comment on the -- in Mr. Stauft's document, he describes the situation in 1996, on page 18 of his evidence, that in fact the almost universal view in the gas market at that time was that if all the proposed pipeline projects went ahead, the Empress-NYMEX differential would be reduced, Alberta prices would increase by more than the amount that would render both TransCanada and Alliance-Vector capacity uneconomic. I take it from your discussion with Mr. Warren that you disagree with that proposition. 804 MR. BAKER: We totally disagree with that proposition. 805 MR. JANIGAN: You also disagree that that was a view that was in the gas market at that time? 806 MR. BAKER: Again, to have us comment, I'm sure there are hundreds of people that are out there in the gas market, and if you ask anybody at a point in time you'll get 100 different views in terms of what's going on in the market and what may or may not go on in the market. So to say this is a view, I guess we say yes, it is. Do we agree that it's a universal view that was subscribed by everybody in the marketplace? Absolutely not. 807 MR. JANIGAN: Further on page 20 of this document, Mr. Stauft indicates in response to the question "How, in fact, did the market react to the commencement of service on the new capacity out of Alberta." 808 MR. BAKER: Sorry, what page are you on? 809 MR. JANIGAN: Page 20. 810 MR. BAKER: I've got it. 811 MR. JANIGAN: It indicates that the market reacted exactly as had been predicted commencing with the in-service date of the Northern Border expansion extension project in November of 1998. Alberta prices rose dramatically and price differentials between Alberta and down-stream market centres, Dawn, Chicago, collapsed. Is that a correct description of what occurred? 812 MR. BAKER: I believe that the graph that we've shown earlier on does show that the differentials fell; the value at TransCanada FT capacity was, at that point in time, below toll. But I would disagree that it was exactly what had been predicted. And, again, I'll go back to all the comments that we made earlier on about the things that were happening in the marketplace at that time in terms of demands, warm weather, all those things impacted. So to say that the impact on Chicago prices and the price differentials was totally related to Northern Border and this was predicted, I don't agree. 813 MR. JANIGAN: But the view that you've characterized as not being universal earlier in an answer, in fact, was borne out by events? 814 MR. BAKER: Again, what's going on here is the application of hindsight to a situation and it's an application of looking at a snapshot of the market at one particular point in time. 815 MR. JANIGAN: But those in the industry that predicted that this would happen, obviously, were borne out by the events. And this is the view that Mr. Stauft refers to as the universal view; would you not agree? 816 MR. JACKSON: I missed the last qualifier, because at first it was a tautology, wasn't it? 817 MR. JANIGAN: It was. Mr. Stauft indicated that the view in the market was universal that this would occur. You've indicated that that might have been a view but you've disagreed that it was a universal view. My point at this time is that this particular view was borne out by events. 818 MR. BAKER: You see, it's very easy to prepare some evidence in 2001 and look at what's actually happened and say that was a universal view and gee, look, it actually came to be. 819 MR. JANIGAN: I wonder if I could turn you to page 26 of the Stauft document. And I'm looking at the question that starts on line 14: "If Alliance capacity was unlikely to be economic, why did other shippers subscribe for it?" Mr. Stauft indicates: "All of the initial primary Alliance shippers other than ECG and Union were either producers or marketers who were affiliated with the owners of Alliance. All or most of the producer/shippers were at one time affiliated with owners as well." 820 Is that statement correct? Are those two statements correct? 821 MR. BAKER: I guess I take -- the difficulty I'm having with this is I take exception to the first question, which is -- it assumes that it was, again, the universal view that if it was unlikely to be economic, why did shippers subscribe for it. I think we've gone through the chronology this morning as to why we subscribed for capacity. We've gone through the chronology of why we were in the TransCanada queue. Our position, that we underpinned the requirements in Ontario with firm upstream transportation capacity, so irrespective of what was going on on Alliance and who their shippers were and whether they were affiliates of producers, when Union looked at it, we had the view that was consistent all the way through this time period that we needed firm transportation capacity, and that's the basis upon which we made our commitment to Alliance. 822 MR. JANIGAN: Let's ignore the question if it upsets you. How about the first two statements of the answer itself? Would you agree that that factually sets out the circumstances? 823 MR. BAKER: I agree that's probably directionally correct. 824 MR. JANIGAN: Mr. Stauft continues: "That I do not believe that as a group, Alliance shippers ever believed, or at least should have believed, that Alliance capacity was economically attractive on a stand-alone basis. That situation, however, was mitigated for most shippers by equity returns from ownership positions. Owner entitlement to the value of liquids entrained in the Alliance gas system and the benefit, from a producer perspective, of higher market prices for Alberta production that was not committed to Alliance." 825 Is that factually correct as far as you are aware? 826 MR. PENNY: Mr. Chairman, the statement is an expression of belief so it's an opinion, so it seems to me that it is inappropriate to ask whether it is factually correct when the statement, on its face, is an opinion. 827 MR. JANIGAN: Well, do you subscribe to that opinion? 828 MR. BAKER: I don't think I subscribe to the opinion, but again, I'll come back and say what Union was looking for is capacity, firm upstream capacity on pipe. Why other people were making -- were either taking equity positions in that pipeline or firm shipper positions on that pipeline was not something that we concerned ourselves with. 829 MR. JANIGAN: In terms of -- 830 MR. BAKER: And again, I would say that in terms of -- I believe that it was always going to be economically unattractive, that's not true. 831 Again, if you go back to the environment at that time we contracted for Alliance, there was extreme market demand all over the country, U.S. northeast, U.S. midwest. There were pipeline projects that were going to take capacity -- not just stopping at Dawn but were going to take capacity away from Dawn and move it to eastern markets. So again, to go to the point of view to say you've got a bunch of sophisticated parties there out in the marketplace that are going to pour billions of dollars into a pipeline that's going to be economic and that's a universal view, I don't accept it. 832 MR. JANIGAN: Let me deal specifically with some of the benefits that he mentions for the ownership position, and in particular, the first two benefits that he says accrue to ECG under the Alliance arrangement. Those were the equity returns for ownership positions and the owner entitlement to the value of liquids entrained in the Alliance gas stream. Do these two benefits also obtain for Westcoast? 833 MR. BAKER: I not -- can't be up here speaking for why Westcoast made the investment in Alliance and what their economics were that underpinned their investment. 834 MR. JANIGAN: I don't think that was my question, but the question was simply a factual one. 835 MR. BAKER: Well, what it's saying is Union is a shipper. We don't have an equity interest in Alliance. 836 MR. JANIGAN: But does Westcoast? 837 MR. PENNY: Well, Mr. Chairman, Mr. Baker is an employee of Union Gas. He's in charge of the group that did the contracting. He doesn't work for Westcoast. Nothing in his qualifications indicates that he's in a position to comment on this. He's already indicated that he doesn't know what Westcoast's decisions were based on in terms of their equity position and what choices they make. It seems to me that it's highly inappropriate for the question to be put to Mr. Baker or any of these Panel members. 838 MR. JANIGAN: Mr. Chairman, I don't think my question was given with the motivation that Westcoast was making the investment, it was simply dealing with whether or not, as a factual matter, the two benefits that were -- that have been set out by Mr. Stauft actually accrue to the parent Westcoast. And if Mr. Baker does not know the answer to that question that's fine he can just say that he doesn't know the answer to that question. But in order -- if I wished an answer, if I wish evidence on the record on this matter, I have to ask Mr. Baker whether or not that is factually true. 839 MR. JACKSON: I think that he has -- I think he has spoken to both points. He said he can't speak for Westcoast about their possible or hypothetical improvement in equity return, and I take it you don't know whether Westcoast would have benefited under the arrangement from entitlement to the value of liquids in the gas that was being transported, do you? 840 MR. BAKER: I am not an expert on the Alliance pipeline or the economics or the way that works in terms of liquid in Chicago. 841 MR. JACKSON: I think that does it, then, Mr. Janigan. 842 MR. JANIGAN: That's fine. 843 Finally, on page 27, and this is something which you covered, I believe, in your discussion with Mr. Warren, that no other local distribution company, Canadian or American, subscribed for Alliance capacity even though there are numerous U.S. LDCs in the midwest that in physical terms could reasonably have done so. Is that factually correct, as far as you know? 844 MR. BAKER: It's a loaded question, in a way, because I don't have detailed knowledge of what the capacity positions were for LDCs in the midwest. I believe Enbridge asked some interrogatories of Mr. Stauft to back up that statement, and I think he responded that he didn't have any and that he hadn't canvassed those shippers. So just to say that somebody didn't subscribe for capacity on Alliance I don't think means anything unless you go underneath that and look at the specific situations of those LDCs, to see what their portfolio and what their position was. It may very well be that they had sufficient capacity in their portfolio and they didn't need any. 845 MR. JANIGAN: So you can confirm that they did not subscribe, but you cannot speculate as to the reason that they did not subscribe. 846 MR. BAKER: Correct. 847 MR. JANIGAN: Okay. 848 MR. BAKER: Just to that point, the balance of that paragraph describes a reasonable inference and what I am saying is that's not a reasonable inference to draw for that fact. 849 MR. JANIGAN: On page 29 of the document, on line 12, it's indicated: "Finally, it is noteworthy that no shippers other than affiliates of the owners of Vector have subscribed for long-term capacity on the system." Is that a factually correct statement, as far as you are aware? 850 MR. PENNY: Mr. Chairman, there's a legal component to that question, which is why I speak up. But the legal definition of an affiliate is a 50-percent interest and so I just indicate to the Board and to Mr. Janigan that the evidence, at least so far, is that Westcoast is not an affiliate because -- I'm sorry, that Vector is not an affiliate because Westcoast's position is not 50 percent. 851 MR. JACKSON: So that with that definition, Mr. Penny, would you have any objection to Mr. Baker answering the question? 852 MR. PENNY: No. 853 MR. JACKSON: No. 854 MR. MORAN: Just on that point, I would point out that Union is an affiliate of Westcoast, though, by definition because it's 100 percent owned by Westcoast. 855 MR. BAKER: Again, what I would say is Union has contracted with the Alliance pipeline and with the Vector pipeline. We have not contracted with Westcoast in any of those situations. 856 MR. JACKSON: I think you were just asked to comment on the validity or voracity of the statement that it's noteworthy that no shippers other than the affiliates or the owners of Vector have subscribed for long-term capacity on the system. 857 Is that the question, Mr. Janigan? I thought it was. 858 MR. JANIGAN: That's correct. Yes it is. 859 MR. JACKSON: That's right. 860 MR. BAKER: I'm just trying to look at a list that we have for firm Vector shippers and we see that this was as of August 10th, 2001, that Northern Indiana Public Service Company was a shipper on Vector for 200 million cubic feet a day. I don't believe that they are an affiliate of any of the owners or the equity investors in Vector. 861 MR. JANIGAN: Are there any other examples that contradict that statement? 862 MR. SIMPSON: The listing of shippers is found in Exhibit 36.2 in the case 0441. 863 MR. JACKSON: Mr. Penny, I think that definition of affiliate is within the Income Tax Act, isn't it? 864 MR. PENNY: No, the Ontario Business Corporations Act is what I was referring to and that is the definition that is incorporated by reference into a number of different Board documents, such as the Affiliate Transactions Code, and that was the definition that was used to be incorporated by reference under the old undertakings that the utilities used to have when it -- when that dealt with affiliate transactions. 865 MR. JACKSON: All right. Thank you, then, for clearing up the source of that definition. Thank you. 866 MR. PENNY: So I take it that the assumption, the going-in assumption given my qualification to the answer to this question was that there's some kind of ownership relationship but not necessarily an affiliate one in the legal sense of the word. That is what I took your qualification to be. 867 MR. JACKSON: Yes, that's right. I thought that possibly the witnesses would deal with it within that narrow framework. Maybe Mr. Janigan would like to come back and use another word and extend it, I don't know. I leave that to him, but we can move along. 868 MR. JANIGAN: On your invitation, Mr. Chair, I would replace the concept of affiliates with -- 869 MR. MORAN: Mr. Chair, I think there might be some confusion on this point and hopefully I can clarify it a bit. 870 As I understand the question that's being posed - I'm not taking sides here at all, I'm just trying to add some clarity - it's with respect to the sentence on page 12 -- line 12 of page 29. There's a reference to: "No shippers other than affiliates of the owners of Vector," so we're not talking about affiliates of Vector. If we were, Mr. Penny is absolutely correct, Vector would not be an affiliate of Union. It's in reference to affiliates of the owners of Vector. The owners of Vector include Westcoast. Westcoast owns Union and so, by definition, Union is an affiliate of one of the others. And I think that's the framework for the question. 871 MR. PENNY: Mr. Chairman, Mr. Moran is quite correct in that regard. 872 MR. JACKSON: Thank you. 873 I think Mr. Baker answered it in that context, didn't he? 874 MR. PENNY: I think that's right. 875 MR. BAKER: And that's why I was trying to reference C36.2, which listed all of the Vector shippers. 876 MR. JACKSON: Right. Thank you. 877 MR. JANIGAN: Of those shippers, as far as you are aware, Northern Indiana Public Service Company is not affiliated with the owners of Vector? 878 MR. BAKER: That's my understanding. 879 MR. JANIGAN: I wonder if you could turn the page to page 30 of the document and the second paragraph: "As I have explained, the principal economic driver of the Alliance project was producer concern about inappropriately low gas prices. I agree that it was proper for that concern to be addressed, but it is difficult to believe that ECG would have considered itself under a duty to assist producers in that endeavour." 880 Do you agree with that statement? 881 MR. BAKER: You're asking me to agree to a statement that's in Mr. Stauft's evidence related to Enbridge Consumers Gas. I'm not in a position to comment on it related to Enbridge. 882 MR. JANIGAN: Would you agree with this statement that -- to modify a statement to the Union position, would you also agree that Union should not have considered itself to be under a duty to assist producers in that endeavour when it made that decision to? 883 MR. BAKER: We were clearly under no duty, no misconception that what we were doing was in some way assisting producers. Again, all the testimony that we've given up to this point in time has been we needed firm transportation capacity. To the extent that there was a pipeline project out there, of which Alliance was one that we felt could satisfy our requirement, we felt it was prudent for us to secure that capacity. Any shipper that commits to capacity always has different economic motivations and to try to pigeonhole shippers into one or the other, I can't comment on. 884 MR. JANIGAN: Now, at any time did Union take any steps to protect itself with the exchange-rate risk associated with Alliance-Vector? 885 MR. BAKER: To my knowledge, we have done no hedging or exchange-rate risk management. 886 MR. JANIGAN: Why was that? 887 MR. BREMNER: I believe at the time that we were in a period where, if you look at the exchange rate history, the exchange rate had been fairly stable for almost a period of four years at a rate of around $1.38. I think we also looked at the fact that the transportation tolls for Alliance were not all in U.S. dollars; a portion of the toll was in Canadian dollars. So the exposure to U.S. exchange rates both in the context of our commitment to Alliance-Vector but further in the context of our total transportation portfolio was quite small. 888 MR. JANIGAN: What is that exposure that you are referring to explicitly, in dollars? 889 MR. BREMNER: I'm not sure what you're asking me. But our exposure was essentially, as I said, on the U.S. toll, so exposure over whatever period of time you'd want to quantify would simply be the U.S. toll times the capacity. 890 MR. JACKSON: Did I hear you say earlier that that toll was 100 percent demand charge? I just can't recall whether it had a commodity component. 891 MR. BREMNER: Yes, it's 100 percent demand charge. 892 MR. JACKSON: Thank you. And the only commodity component would be provision of fuel, I expect. 893 MR. BREMNER: That's correct. 894 MR. JACKSON: Thank you. 895 MR. JANIGAN: Finally, I have provided you with four articles which I believe were provided to counsel and I'm not going to ask you questions about the articles. But I wonder if you could undertake to provide me with a response as to whether or not you believe that these articles are generally representative of the discussion in the industry concerning the Alliance-Vector pipeline process, its construction and effects; and if not, why not. 896 MR. PENNY: Mr. Chairman, Mr. Janigan's right, he did provide this to us in advance and I don't object to questions being put to the witness about it, although they go back to 1996 and I guess the -- again, the issue as the question is put is whether these are generally representative views that were held, and I'm not sure it's is a fair question for this Panel. 897 MR. JANIGAN: Well, if there are views that are in there that are not representative of the industry and the industry discussion that would take place at the time -- 898 MR. JACKSON: Mr. Janigan, you're fading out on us up here. 899 MR. JANIGAN: It may not be the microphone, Mr. Chair. 900 MR. JACKSON: Fair enough. I give you notice to push a little harder with your voice. 901 MR. JANIGAN: Okay. 902 MR. JACKSON: Thank you. 903 MR. JANIGAN: In general terms, if there is -- if there are -- if they feel that the discussion contained therein was not generally representative of the discussion in the industry at the time that the articles were written, then I would be happy to receive their response to the same. I don't want to go through individually the statements contained from different individuals and put to them individually whether or not they believe or not believe. I'm not -- our position with respect to this issue is not dependent upon this but I thought it might be of assistance in looking at the entire question of prudency. 904 MR. JACKSON: I trust the responses will be duly qualified, or Mr. Penny will speak up and register his concern when you ask a question; is that appropriate, Mr. Penny? 905 MR. PENNY: My concern is simply, the question is whether this is representative of industry views in 1996. I'm not sure that these witnesses are in a position to comment on -- I mean, I think that they're in newspapers, I think we're prepared to concede that these were views that were expressed at the time. We're not contradicting the fact that people held these opinions; but whether these were generally representative or not is, first of all, a rather vague question and, secondly, I'm not sure that anyone sitting here five or six years after the fact is in a position to comment on that. 906 MR. JACKSON: Fair enough. 907 Mr. Janigan, I'm sorry, I may have misheard you. Have you asserted that these were generally-held views that are represented in these or -- 908 MR. JANIGAN: Frankly, I'm -- 909 MR. JACKSON: Have you asserted anything yet? 910 MR. JANIGAN: I'm content with Mr. Penny's admission that these were views that were part of the discussion concerning the Alliance-Vector pipeline at the time that these articles were written, and I'll leave it at that. 911 MR. PENNY: That isn't what I said, Mr. Chairman, but I'll let the record speak for itself. 912 MR. JACKSON: Thank you. Well, I think I heard you. We'll look at the record again. 913 Go ahead, Mr. Janigan, I think you should ask your questions. 914 MR. MORAN: Do we want to mark these for tracking purposes? 915 MR. JACKSON: Yes, I think that's also a good idea. 916 MR. MORAN: There's three documents. We can do it as a package or individually. 917 MR. JANIGAN: There are four articles, I believe. 918 MR. MORAN: Sorry, four. I have three. I only have three. 919 MR. JACKSON: So, do I only have three? And let's just put them in chronological order and number them sequentially. What is the fourth one that we need to gather? 920 MR. MORAN: Maybe I'll just give them sequential ones with the identifiers from the documents themselves then. The next exhibit number is F.6.3 and that would apply to the one that's dated January 13th, 1997. 921 EXHIBIT F.6.3: ARTICLE DATED JANUARY 13, 1997 922 MR. MORAN: 6.4 would be the one that has August 23, 1996. 923 EXHIBIT F.6.4.: ARTICLE DATED AUGUST 23, 1996 924 MR. MORAN: And F.6.5 is the one that has June 25th, 1996. 925 EXHIBIT F.6.5: ARTICLE DATED JUNE 25, 1996 926 MR. JACKSON: Thank you. 927 MR. JANIGAN: I was hoping that my questions could be captured by way of the answer to the undertaking but I'm prepared to put some questions. I just -- 928 MR. JACKSON: Sorry, which undertaking? 929 MR. JANIGAN: The undertaking to provide whether or not, or confirm that these articles represent views that were held in the industry at the time that the articles were written. 930 MR. BAKER: I think the question that was asked was, can you confirm that these were generally accepted or widely held views in the industry. And I guess the difficulty that I'm having is without going out there and canvassing retrospectively everyone out in the industry, I can't comment. It's a view, and as we've said there were a lot of views. And if you ask 100 people, you get 100 different views. So is it a view? Yes. Is it a widely held view that is subscribed by everyone? I would say no, and that I can't subscribe or confirm whether it was because I cannot go out and ask everybody that's out there in the marketplace. 931 MR. JACKSON: So did you just want to put them on the record, then, and ask no questions, Mr. Janigan? What are we doing? 932 MR. JANIGAN: I don't think I'm in a position to effectively go through these articles and put the propositions that are contained therein to each of the industry spokesmen, to the Panel, and ask them their views on it. I think we've had their views in terms of what was -- they thought to be prudent in terms of the actions of Union at the time. I would simply like to have them confirm that this -- these appear to be articles that appeared in the media around the time of which these decisions were made and they're reflective of some but perhaps not all of the views in the industry. 933 MR. JACKSON: I think you have Mr. Penny's acknowledgment of that or acceptance of that. Do you want Mr. Baker to adopt Mr. Penny's answer, is that what we're looking for? 934 MR. JANIGAN: That would be fine. 935 MR. BAKER: Certainly. 936 MR. PENNY: That was done with confidence. Uncharacteristic, I might add. 937 MR. JANIGAN: Thank you, Mr. Chairman. And that concludes VECC's examination of this Panel. 938 MR. JACKSON: Thank you, Mr. Janigan. 939 Is there any other business this afternoon? I see no one jumping up. 940 MR. PENNY: Mr. Chairman, did we want to finish with this Panel so they can go home? I don't know if the Board has questions of this Panel. If not, I have a few questions in re-examination. 941 MR. JACKSON: I think we may. 942 MR. PENNY: Sorry. And the Board Staff had indicated that they had questions. 943 MR. JACKSON: I'm too eager to get out of here this afternoon. 944 Yes, Mr. Moran. 945 MR. MORAN: Mr. Chair, I note your eagerness and I can confirm that I have only a couple of clean-up questions to ask here. 946 CROSS-EXAMINATION BY MR. MORAN: 947 MR. MORAN: They are in no particular order so don't look for a complete pattern here. The transportation capacity from Alliance and Vector, is that used exclusively in the southern operations area, to service the southern operations area? 948 MR. BAKER: I would say primarily the southern operations area. I believe -- I believe Mr. Packer earlier on discussed a bit about the allocation of the components of the other purchased-gas costs. Certainly the vast majority of it is allocated to the southern operations area. There may be a small component of it that is allocated to the north and east. 949 MR. MORAN: Is it used to serve just system customers or both system customers and direct-purchase customers? 950 MR. BAKER: It's part of the system-gas portfolio. 951 MR. MORAN: So just system customers. 952 MR. BAKER: System customers at the present time. When new direct-purchase customers go through the vertical slice, they are allocated a component of Alliance-Vector -- 953 MR. MORAN: In proportion to the -- 954 MR. BAKER: In proportion to the vertical slice that was approved effective November of 2001. 955 MR. MORAN: Thanks. 956 In the pre-filed vertical slice evidence, I don't think it's necessary to turn up the reference but it's at page 4 of 9 if you need to, there's a reference to the higher energy content of the Alliance gas stream compared to other pipeline gas. I wonder if you could explain how this occurs. 957 MR. SIMPSON: The higher energy content is reflecting a higher BTU amount in the stream of gas that is put into Alliance, and when we have our receipt into Chicago, because we flow on a volumetric basis, this higher BTU content gas is somewhat extra, if you will, at Chicago. And we undertake to optimize that benefit and put that back into the effective transportation toll altogether. 958 MR. MORAN: Now, since entering into these contracts with Alliance-Vector, has the value of the TCPL capacity come down? As I understand it, there may have been a number of people who didn't recontract with TCPL which might have affected this value. 959 MR. BREMNER: I think we have addressed that point in schedule 3 Exhibit 5.1, which shows the value of TransCanada transportation over the time period that you're referring to. 960 MR. BAKER: Just to clarify, are you looking for the value of TCPL capacity in the marketplace or TransCanada's toll? 961 MR. MORAN: In the market. 962 MR. BAKER: In the marketplace, then, the schedule 3 graph illustrates that. 963 MR. MORAN: All right. 964 Mr. Baker, when you're talking about covering off the capacity that's about to expire, that 52 percent in the next little while, would one of the options be to look to TCPL capacity to replace that, to the extent that it needs to be replaced? 965 MR. BAKER: Again, at this point in time, I wouldn't -- I wouldn't rule out any options, as I said. Once we determine the requirements, which is the first step, then we will look and see what is available in the marketplace and what's the most economic. 966 MR. MORAN: So that would be one of the options you are looking at; is that true? 967 MR. BAKER: Right. 968 MR. MORAN: Do you know if there's any plans by Union to harmonize gas rates across the areas previously served by Centra and Union? 969 MR. BAKER: Can you define it a bit in terms of which component of the gas rate? 970 MR. MORAN: Transportation. 971 MR. BAKER: I think the transportation tolls right now reflect the tariffs in place in the north and the east, the tariffs on TransCanada system. 972 MR. MORAN: And there's no plan to change that at the moment? 973 MR. BAKER: No. 974 MR. MORAN: No. 975 Thank you. Those are all my questions. 976 MR. JACKSON: Thank you, Mr. Moran. 977 Mr. Penny, then. No, the Board first. 978 QUESTIONS BY THE BOARD: 979 MR. DOMINY: Mine are very simple questions of trying to understand some of the numbers you've provided and just see how I understand it. 980 When I look at Exhibit 39.6 in this proceeding, and looking at the attached table, 39.6B is the page identifier, a comparison of landed costs, and if I look across -- I'm sorry, have you got it? 981 MR. BAKER: Yes, I think we've got it. 982 MR. DOMINY: If I look across Alliance-Vector, the line that says Alliance-Vector tolls, and they vary from month to month, is that a function of the number of days in the month, the load in the month; is this is a single-dollar number divided by a number, another number I assume, is that what causes the variation? Because I was looking at February, 2.02 Canadian dollars per gigajoule, February 2001. And that compares to different numbers on that line. 983 MR. BREMNER: I think there are two factors that are making that variant. And one is the point that you've made which we're charged a monthly demand charge so it has to be unitized on a daily basis, and I think that exchange rate may also be causing a little bit of variation as we go from month to month. 984 MR. DOMINY: Thank you. Then if I go to 5.25 in 0441, and it's page 2 of 2. 5.25 in 0441, C.5.25. And I look at the Alliance-Vector toll calculation, which is the bottom half of that table, and I was wondering if you could explain to me what the second line, "Alliance AOS toll impact (10 percent original, 16 percent current)" meant. 985 MR. BAKER: The -- that what is authorized overruns on service which all shippers on Alliance have access to. So in addition to your contract in entitlement, you're able to ship what was initially, when Alliance was conceived, a 10 percent AOS entitlement which is now currently 16 percent. So it gives you the entitlement to ship 16 percent more gas under your contract based on your contractual entitlement. So Union has a contract of 80,000 million cubic feet a day and we're able to ship under that AOS provision 16 percent of our contracted demand. 986 MR. DOMINY: For no additional cost? 987 MR. BAKER: For no additional cost except fuel. And then we're able to market that -- sell that gas in Chicago and that differential serves to reduce the landed cost of the Alliance toll. 988 MR. BREMNER: If I might add to Mr. Baker's comment, I think the important point to remember about this is that the value of the AOS and the heating value will increase as the transportation value increases or the differential between the basins increase. 989 MR. DOMINY: And the line below it is the question that Mr. Moran raised with regard to the difference in energy content; is that where it's captured? 990 MR. BAKER: That's correct. 991 MR. DOMINY: And then if I go back to the original line, Alliance toll goes from 1.09, which was expected in '97, to 1.43, August 9th, '01. I was wondering, and I recognize part of that will be the exchange rate, but I was wondering if you could perhaps explain what factors led to the increase in that number. 992 MR. BREMNER: Yeah, the exchange rate was one of the factors. The increase in capital costs for the Alliance project in excess of the original estimate was also a major factor. There were some offsets, however. Alliance's contract did contain an ROE incentive mechanism that incented the owners to try and contain the capital costs. So the ROE did get degraded based on the fact that their capital costs for the project exceeded the original estimate. So there was an offset there. 993 MR. DOMINY: The ROE was a number fixed by the -- is this -- let me back up one step. The Alliance toll is approved by two jurisdictions or one? 994 MR. BAKER: Two. 995 MR. DOMINY: The NEB and FERC. 996 MR. BAKER: That's correct. 997 MR. DOMINY: And the ROE that's embedded in this, I think I looked through in 441, I think you filed contracts. And I think in that one, there was a number of 12 percent ROE. 998 MR. BAKER: I believe that's correct. 999 MR. DOMINY: So -- and that was for both components. 1000 MR. BAKER: Yes, it was originally 12 on both components, that's right. 1001 MR. DOMINY: So it was degraded to something less, I assume. 1002 MR. BAKER: That's correct, to approximately 10.7 percent on the U.S. side and 11.25 percent on the Canadian side. 1003 MR. DOMINY: Thank you. 1004 MR. BREMNER: That return is actually degraded for the entire term of the contract, plus any subsequent renewal periods. 1005 MR. DOMINY: Okay. 1006 MR. JACKSON: Was it implied that all of the overrun was financed with equity, or was it accepted that it was a pro-rata share of debt and equity? 1007 MR. BAKER: It was pro rata in terms of the capital structure. 1008 MR. JACKSON: Okay. Thank you. For the overrun? 1009 MR. BAKER: Yes. 1010 MR. JACKSON: And the AOS service, is that limited to off-the-seasonal peak? I'm trying to recall how that works. Do you have to take those additional volumes at a time other than, say, the high-winter-demand time of year? I just can't remember how it works, whether the AOS service has any limitations. 1011 MR. BREMNER: If you're asking whether the -- and I think you are, the AOS is a seasonal service? 1012 MR. JACKSON: Yes. 1013 MR. BREMNER: No, it's not. There's AOS generally offered each day the pipeline is running, and on average we are close to 15, 16 percent. 1014 MR. JACKSON: How is the amount determined, then, for AOS? Is that a contracted amount that's just specified? What's the AOS stand for again? 1015 MR. BAKER: Authorized overrun service. 1016 MR. JACKSON: Authorized overrun service, okay. 1017 MR. BAKER: It's a contractual entitlement and there is some -- my recollection is that there's some -- you nominate the AOS if you want to move on a certain day and it can be -- it may not flow at 16 percent every day; there may be a day that it's 14. But, generally, Alliance runs the pipeline and they try to satisfy all of the AOS requests that have been nominated on a day. And to the extent that they can't, they prorate that nomination down. 1018 MR. JACKSON: Okay, thank you. 1019 MR. DOMINY: I have one more question: We're back on C.5.25. Again, I'm trying to understand the table and that's discounting to Alliance from AECO, point 03. Perhaps you can explain to me what that is. 1020 MR. BREMNER: The discount into Alliance from AECO is essentially recognizing the fact that there is a receipt toll that needs to be paid for gas to enter the Nova system and, as such, for gas that's entering the Alliance system the gas cost will be discounted relative to Nova. 1021 MR. DOMINY: Okay. 1022 MR. BAKER: Typically, if a producer, rather than supplying into Alliance if they wanted to move their gas into AECO, they would pay the Nova receipt toll to move that gas to AECO, and then a Nova delivery toll to move it out of AECO to Enbridge. 1023 MR. DOMINY: Thank you. Thank you, Dr. Jackson. 1024 MR. SOMMERVILLE: No, thank you. 1025 MR. JACKSON: Okay. And I have no further questions for you on this matter. 1026 MR. PENNY: Thank you, Mr. Chairman, I'll try and be brief. 1027 RE-EXAMINATION BY MR. PENNY: 1028 MR. PENNY: I apologize if I bounce around a little bit, Mr. Chairman, but my notes are in chronological order so I'll just go back through them. 1029 In Mr. Warren's cross-examination, there was mention of a delay from the plant commencement date, I think it was roughly a year and I wanted to ask you what was the cause of that delay. 1030 MR. BAKER: The principal cause of that delay was regulatory delays in getting Alliance certificated. 1031 MR. PENNY: And what was the principal cause of that regulatory delay? 1032 MR. BAKER: There were a probably a number of them, but I think it was generally just the number of parties that had an interest in Alliance and the length of the proceeding and the corresponding decision that authorized the certificate. 1033 MR. PENNY: All right. Thank you. 1034 There was also some discussion with Mr. Warren about Northern Border, and you had indicated that you wanted to go back at the break and refresh your memory on the circumstances. I don't think that was ever given an undertaking number or anything, so I'll ask you whether you did review any further information or obtain some further information about the Northern Border issue and why that was not listed as one of the potential options for Union in the February, 1997, time period. 1035 MR. BAKER: What we tried to do in the time frame that we had was look at -- was to try to dig up the FERC certificates associated with Northern Border and I have a hard time reading the data on here. I think it's sometime in 1995 and this is the certificate of public convenience and necessity for Northern Border. 1036 MR. PENNY: Mr. Chairman, we had a copy faxed from Union at the break and we made some copies so we can make those available. I passed one to Mr. Warren earlier. 1037 MR. JACKSON: Thank you. 1038 MR. BAKER: Just briefly, the points I'd emphasize in this regard is that there was an open season held on Northern Border in and around mid-1995 and all the capacity for the Northern Border expansion was fully subscribed, with contract terms ranging from 10 to 15 years. It looks like most of the Northern Border supply was there to serve the Chicago market. And so the conclusion that I draw from that is that at the time we were looking for our options in '96 and '97, well, Northern Border was clearly an expansion that was proceeding; it was fully subscribed under the contracts that are within this certificate of public convenience. 1039 MR. PENNY: And just to perhaps flog the point so there's no uncertainty, what is the consequence for Union of that having been fully subscribed prior to February 1997? 1040 MR. BAKER: The consequence would be is that there was really no option for us to try and seek additional capacity on Northern Border. 1041 MR. PENNY: Thank you. There was also some discussion -- 1042 MR. MORAN: Mr. Chair, do we mark that as an exhibit? 1043 MR. JACKSON: I think yes, just to track it. 1044 MR. MORAN: This would be F.6.4, amendment to application of Northern Border Pipeline Company for certificate of public convenience and necessity. Sorry, F.6.6. 1045 EXHIBIT F.6.6: AMENDMENT TO APPLICATION OF NORTHERN BORDER PIPELINE COMPANY FOR CERTIFICATE OF PUBLIC CONVENIENCE AND NECESSITY 1046 MR. PENNY: There was also some discussion with Mr. Warren about the liquidity at Dawn and taking delivered gas at Dawn as an alternative to contracting for firm upstream capacity. Even today, in today's market with attractive differentials, if Union were looking for 80 MMcf to underpin the requirements of system gas customers, would it in Union's view be prudent to rely on spot prices for delivered gas at Dawn rather than firm upstream capacity? 1047 MR. BAKER: Again, in our view it wouldn't be appropriate the way we try to structure a portfolio. It goes to some of the points that I was trying to illustrate earlier, where Union is the swing provider in the territory so when, particularly, weather-induced demand happens in the wintertime, it's Union that has to go out and buy the supply, keep the system whole, basically load balance the entire system, for system and direct purchase customers through the winter. So we know there is always a potential if we see an increase in the demand that Union will have to go out into the spot market and buy incremental supplies which is why we don't, as a philosophy, earmark a substantial piece of our base supply portfolio with delivered spot gas at Dawn because to the extent that the conditions are there and we have to go out into the market, that would expose that entire portion of our portfolio to the spot prices that exist at that portion of time. So I'm not saying that we would never have any Dawn-delivered supply in our base portfolio, it's just that we would not rely on conversion of 80,000 gJ's or MMcfd is around 30 Bcf and we would not advocate that with 30 Bcf under Dawn delivered gas. 1048 MR. PENNY: Thank you, Mr. Baker. 1049 There was also -- I think it was, again, Mr. Warren who asked you the question about who was involved in -- who were the front line people involved in the Alliance negotiations and you had indicated that it was Mr. Stedman and Mr. Bracken and just lest there be any uncertainty about why Mr. Stedman and Mr. Bracken aren't here to tell us about that can you confirm that neither Mr. Stedman or Mr. Bracken have been employed at Union Gas for sometime. 1050 MR. BAKER: That's correct. 1051 MR. WARREN: Because of the contract? 1052 MR. PENNY: Having nothing to do with the contract, I hasten to say, Mr. Chair. 1053 Were -- 1054 MR. JACKSON: What was Mr. Bracken's position at that time? I have seen reference to Mr. Stedman's position. 1055 MR. BAKER: I believe at that time he was vice-president of gas supply and the storage and transportation market. 1056 MR. JACKSON: All right. Thank you. 1057 MR. PENNY: With respect to the contracts with both Alliance and Vector, the contracts themselves, were the terms and conditions of these contracts negotiable in the sense that different parties ended up with different terms and conditions are is there really only one percent agreement that's the same for? 1058 MR. BAKER: They were standard contracts and standard precedent agreements. 1059 MR. PENNY: So Alliance is all for 15. 1060 MR. BAKER: That's correct and the Alliance precedent agreement had a most favoured nations clause in it such that to the extent that there was won any negotiation and a party got a different arrangement that that would be offered to Union. 1061 MR. PENNY: Thank you. And -- my final question to you has to do with Mr. Janigan's question and it was the proposition that was put to you about the fact that the -- the suggestion that there were no shippers other than affiliates of owners on Vector and there was then reference to Exhibit C36.2. I just make sure that that was the right case, that was 441. My question is: Are there any other substantial natural gas distributors besides Enbridge Consumers Gas and Union with an interest in transportation capacity into southwestern Ontario? 1062 MR. BAKER: Not within Ontario, that's correct. 1063 MR. PENNY: Thank you. 1064 Thank you, Mr. Chairman, those are all my questions. 1065 MR. JACKSON: Thank you, Mr. Penny. So we will start with the DSM Panel at 9:30 tomorrow morning. 1066 MR. PENNY: Yes. I told Mr. Poch that I would file those agreements that reference was made to today so we have copies of those available for the Board. 1067 MR. JACKSON: Thank you. Do you want to mark them before we go, Mr. Moran? 1068 MR. MORAN: F.6.7, Mr. Chair. How many do we have, just one? One agreement? 1069 MR. PENNY: We have three, one or each member of the Board. 1070 MR. JACKSON: I guess it should be described as a confidential document. Is that a sufficient description? 1071 MR. PENNY: I think that would be appropriate. I mean there's nothing confidential about the title of the document so we can identify it by its title. 1072 MR. MORAN: Perhaps Mr. Penny could provide the title again. 1073 MR. PENNY: Mine isn't sitting here but I'll give Mr. Moran that information. 1074 MR. JACKSON: Could we help in that regard? 1075 MR. PENNY: Absolutely. 1076 MR. JACKSON: It's a long title, "Market Effects from Union Gas Limited's High Efficiency Furnace Replacement Program." 1077 EXHIBIT NO. F.6.7: MARKET EFFECTS FROM UNION GAS LIMITED'S HIGH-EFFICIENCY FURNACE REPLACEMENT PROGRAM 1078 MR. JACKSON: Thank you, Mr. Penny. 1079 MR. DOMINY: Excuse me, could I ask this question: Is this document confidential? Because it has been blacked out. 1080 MR. PENNY: Yes. 1081 MR. DOMINY: The document itself that I've got is confidential. 1082 MR. PENNY: Yes. 1083 MR. JACKSON: He is wondering that even though there is -- 1084 MR. PENNY: There is two layers of confidentiality that we're dealing with here, Mr. Dominy. 1085 MR. DOMINY: Thank you. 1086 MR. JACKSON: So tomorrow morning at 9:30. We are adjourned for now. Thank you. 1087 MR. WARREN: Mr. Chairman, before you rise, I am instructed that our client will take what position it will on the DSM issues from the record as established by more competent counsel than me so I will not be here for the DSM process, sir. 1088 MR. JACKSON: Thank you, Mr. Warren. 1089 Any other comments before I try to adjourn this again? Okay, we're adjourned until 9:30 tomorrow morning. Thank you. 1090 --- Whereupon the hearing adjourned at 4:35 p.m.