Rep: OEB Doc: 128RM Rev: 1 ONTARIO ENERGY BOARD Volume: 7 12 APRIL 2002 BEFORE: M. JACKSON PRESIDING MEMBER G. DOMINY VICE CHAIR AND MEMBER P. SOMMERVILLE MEMBER 1 RP-1999-0017 TRANSCRIPT VOLUME #7 2 IN THE MATTER OF the Ontario Energy Board Act, 1998, S.O. 1998 c.15 (Sched. B); AND IN THE MATTER OF an Application by Union Gas Limited for an order or orders approving or fixing just and reasonable rates and other charges for the sale, distribution and transmission and storage of gas as of January 1, 2001 and January 1, 2002; AND IN THE MATTER OF the Performance Based Rate mechanism provided by the Ontario Energy Board through proceeding RP-1999-0017. 3 RP-1999-0017 TRANSCRIPT VOLUME #7 4 12 APRIL 2002 5 HEARING HELD AT TORONTO, ONTARIO 6 APPEARANCES 7 PAT MORAN Board Counsel JAMES WIGHTMAN Board Staff CHRIS MACKIE Board Staff MICHAEL PENNY UNION GAS MARCEL REGHELINI UNION GAS TOM BYNG UNION GAS DAVID DENT UNION GAS ROBERT WARREN CAC MURRAY KLIPPENSTEIN POLLUTION PROBE MALCOLM ROWAN CME TOM MOUTSATSOS CME GEORGE VEGH CEED ALICK RYDER CITY OF KITCHENER DWAYNE QUINN CITY OF KITCHENER MICHAEL JANIGAN VECC SUE LOTT VECC TOM BRETT "THE SCHOOLS" VINCE DeROSE IGUA PETER THOMPSON IGUA DAVID POCH GREEN ENERGY COALITION RANDY AIKEN LPMA & WGSPG AARON DETLOR LPMA & WGSPG RICHARD KING LPMA & WGSPG TIBOR HAYNAL TRANSCANADA PIPELINES BARBARA BODNAR ENBRIDGE CONSUMERS GAS ROBERT ROWE ENBRIDGE CONSUMERS GAS 8 TABLE OF CONTENTS 9 PRELIMINARY MATTERS: [18] UNION GAS - PANEL 5 [62] EXAMINATION BY MR. PENNY: [65] CROSS-EXAMINATION BY MR. THOMPSON: [252] CROSS-EXAMINATION BY MR. KLIPPENSTEIN: [424] CROSS-EXAMINATION BY MS. LOTT: [702] CROSS-EXAMINATION BY MR. POCH: [730] CROSS-EXAMINATION BY MR. MOUTSATSOS: [1171] CROSS-EXAMINATION BY MR. MORAN: [1294] QUESTIONS FROM THE BOARD: [1357] RE-EXAMINATION BY MR. PENNY: [1390] 10 EXHIBITS 11 EXHIBIT F.7.1: IMPACT OF DISPUTED ISSUES ON LRAM BALANCE [35] EXHIBIT F.7.2: EXCERPT FROM THE EXECUTIVE SUMMARY OF QUANTEC REPORT - MARKET EFFECTS FROM UNION GAS LIMITED'S HIGH-EFFICIENCY FURNACE REPLACEMENT PROGRAM [52] EXHIBIT NO. F.7.3: REDACTED VERSION OF QUANTEC REPORT - MARKET EFFECTS FROM UNION GAS LIMITED'S HIGH-EFFICIENCY FURNACE REPLACEMENT [57] EXHIBIT F.7.4: UNREDACTED VERSION - MARKET EFFECTS FROM UNION GAS LIMITED'S HIGH-EFFICIENCY FURNACE REPLACEMENT PROGRAM [608] EXHIBIT F.7.5: CROSS-EXAMINATION MATERIALS OF THE GREEN ENERGY COALITION [735] EXHIBIT F.7.6: EXCERPT FROM EBRO 499 EVIDENCE, EXHIBIT K.11.1 [774] 12 UNDERTAKINGS 13 UNDERTAKING NO. G.7.1: TO PROVIDE REPORTED FINANCIAL INFORMATION FROM THE CASE SETTING UP THE CUSTOMER REVIEW PROCESS [970] 14 --- Upon commencing at 9:35 a.m. 15 MR. JACKSON: Please be seated. 16 Mr. Penny, are there preliminary matters this morning? 17 MR. PENNY: There's just one, Mr. Chairman. 18 PRELIMINARY MATTERS: 19 MR. PENNY: It has to do with the discussion we had the other day about the confidential document that was filed. Mr. Poch brought to our attention this morning that the executive summary of that document, which was passed out probably a couple of years ago to the DMS consultative, contained the information that was giving rise to Ms. Platis's concerns. The fact is that the information that we are concerned about was already released. The bottom line is that the document need not be redacted and the information that has been redacted is essentially the information that was in the executive summary which the members of the DSM consultative have had for some time. 20 The only reason I raise this is that I don't think we need to worry about the confidentiality of that document, and to the extent that anyone wants an unredacted copy, we're prepared to make it available. We're just trying to hunt down -- all Ms. Platis had was a redacted version herself so we're just trying to track down the original. 21 MR. JACKSON: Thank you. 22 MR. PENNY: I apologize for the confusion. It's just everyone overlooked this. 23 MR. JACKSON: Yes. No, that's fine. These things happen. I think that given that there is a copy that is not blacked out out there in circulation, that the Board should not be the only group that does not have it. So, we'll take it when you find it. 24 MR. POCH: Mr. Chair, we've given you the one page that we have that was unredacted; it should be in front of you and we'll use that. But I guess the only procedure difficulty this gives rise to is, of course, we will want to see this -- the full study, with parts not redacted. We've never seen that. We just had the four-page executive summary in the past. Now it sounds as if Mr. Penny is going to provide the whole study without parts removed. I assume the actual questionnaires will be removed because they would disclose the customers' identities. 25 I guess what I propose is if we -- you know, we'll do what we can on cross this morning, assuming we get reached this morning, and then, hopefully, by the break, somebody at Union will have faxed up or gotten us copies of the full document. And maybe later this afternoon or, if necessary, Monday morning we can do any cross that arises from seeing that document, if that's acceptable. 26 MR. JACKSON: That's acceptable to the Board. 27 Mr. Penny, I guess that's appropriate, is it? 28 MR. PENNY: We're doing our best. 29 MR. JACKSON: Of course. 30 MR. POCH: Thank you. 31 MR. JACKSON: Thank you. 32 MR. PENNY: The only other preliminary matter, Mr. Chair, is that there -- in an effort to simplify for the Board what is in issue on the DSM-specific issues, that is, not the allocation methodology but just the DSM program itself, we've prepared a table which shows at least our version of the economic impact of the two programs that are in issue -- or the two issues, I should say; that one being the information furnace program and the other being the timing and that should be available to the Board. It's a one-page document that's entitled "Impact of Disputed Issues on LRAM Balance." 33 MR. JACKSON: Mr. Moran, would it be a good idea to mark this? 34 MR. MORAN: That would be F.7.1. 35 EXHIBIT F.7.1: IMPACT OF DISPUTED ISSUES ON LRAM BALANCE 36 MR. JACKSON: Thank you. And when we get the unredacted form of the study or report, we can number that at that time. 37 MR. MORAN: Should we, perhaps, assign an exhibit number, given that we have at least one page of it right now? 38 MR. PENNY: I think we should wait until we have it, frankly. 39 MR. JACKSON: I think that's probably advisable. 40 MR. PENNY: Mr. Moran, I heard him say 7.5, but that -- 41 MR. MORAN: One. 42 MR. PENNY: One. All right. 43 MR. POCH: We can wait until cross, Mr. Chairman. I will want to refer to the redacted version and the one page we do have of the unredacted version in my cross a little later this morning. If you wanted to give them numbers now, I think that would be easier. 44 MR. MORAN: I think, Mr. Chair, that's why I was suggesting assigning the exhibit number to this one page and add the unredacted copy when it comes in. 45 MR. PENNY: No. It's two separate things so they should each have an exhibit number. What Mr. Poch has provided is one page from the executive summary of that report. What we're looking for is the unredacted version of the actual report so they will -- 46 MR. JACKSON: Which will contain the -- 47 MR. PENNY: Which will also have the executive summary. 48 MR. JACKSON: So I do understand Mr. Moran's suggestion, I don't mind if these things get two different exhibit numbers as we go along. So if you're going -- if Mr. Poch is going to use this in cross-examination this morning, let's just let them have two different exhibit numbers and let's let Mr. Poch's document have the number F.7.2. When we get the unredacted form, we can give that a number. Perhaps at that time, if we all remember, we'll give the redacted form a number, because I don't think we did, did we? 49 MR. POCH: No, Mr. Chairman. And I think we should probably do that now if we didn't do that yesterday because we did -- did we do it yesterday? Perhaps we will check the transcript and deal with it when that comes up. 50 MR. MORAN: Mr. Chairman, just for the purposes of the record, F.7.2 would be a one-page excerpt from the executive summary of a report by Quantec, "Market Effects From Union Gas Limited's High-Efficiency Furnace Replacement Program." 51 MR. JACKSON: Thank you. 52 EXHIBIT F.7.2: EXCERPT FROM THE EXECUTIVE SUMMARY OF QUANTEC REPORT - MARKET EFFECTS FROM UNION GAS LIMITED'S HIGH-EFFICIENCY FURNACE REPLACEMENT PROGRAM 53 MR. MORAN: F.7.3 would be the redacted portion of the same report. 54 MR. JACKSON: Unless we gave it a number last night. Can we just check that? 55 MR. POCH: F.6.7. 56 MR. JACKSON: So I'll just label mine as F.6.7, and that's the redacted version of the final report with the title, market effects from Union Gas Ltd.'s high-efficiency furnace replacement program. 57 EXHIBIT NO. F.7.3: REDACTED VERSION OF QUANTEC REPORT - MARKET EFFECTS FROM UNION GAS LIMITED'S HIGH-EFFICIENCY FURNACE REPLACEMENT 58 MR. JACKSON: Back to you, Mr. Penny. 59 MR. PENNY: I think those are all the preliminary matters for this morning. 60 So, Mr. Chairman, today we're dealing with the DSM issues. The Panel is available. Mr. Baker is returning for a second appearance. He's already been sworn but perhaps Ms. Platis could be sworn. 61 MR. JACKSON: Thank you. 62 UNION GAS - PANEL 5 63 S.BAKER; Previously Sworn. 64 H.PLATIS; Sworn. 65 EXAMINATION BY MR. PENNY: 66 MR. PENNY: Ms. Platis, you are currently the manager for planning and marketing for Union Gas? 67 MS. PLATIS: Yes. 68 MR. PENNY: And you have a bachelor of arts in economics from Queen's University? 69 MS. PLATIS: Yes. 70 MR. PENNY: You have a masters degree in economics from the University of Toronto? 71 MS. PLATIS: I do. 72 MR. PENNY: And you have your masters in business administration from the Rotman School of Management at the University of Toronto. 73 MS. PLATIS: Yes. 74 MR. PENNY: You have appeared before this Board, testifying to the DSM matters previously in RP-1999, matter 17? 75 MS. PLATIS: Yes. 76 MR. PENNY: And the evidence that's been filed in this case relating to DSM issues was prepared either by you or under your supervision. 77 MS. PLATIS: Yes, it was. 78 MR. PENNY: And do you adopt that evidence? 79 MS. PLATIS: Yes, I do. 80 MR. PENNY: Thank you. 81 Now, Mr. Chairman, I propose to lead some evidence from both Ms. Platis and Mr. Baker. I thought I would start with what's in the LRAM account first and then deal with how it should be allocated. So I will first ask Ms. Platis some questions to deal with the disputed issues and what should actually be in the LRAM account, and then I'll ask Mr. Baker about the issues about the allocation from that account. 82 Ms. Platis, as a result of the resolution of a number of various issues with respect to the various DSM projects, what is the updated LRAM deferral account balance that Union is seeking to clear, up to and including 2001? 83 MS. PLATIS: The updated balance is 9.269 million. 84 MR. PENNY: And is that reflected in your updated evidence? 85 MS. PLATIS: Yes, it is. If you turn to Exhibit B, tab 10, table 1. 86 MR. PENNY: That would be the yellow -- the yellow pages, Mr. Chairman. 87 MS. PLATIS: Yellow pages from April 10th. 88 MR. PENNY: And you are referring to table 1? 89 MS. PLATIS: Table 1, yes. We looked at the cumulative total, which is line 8, and the year 2001. That value appears as 9.269 million. 90 MR. PENNY: And so that number reflects the resolution of all the various issues that were originally in dispute between the Green Energy Coalition and Union Gas? 91 MS. PLATIS: Yes, it does. 92 MR. PENNY: And does it also reflect what Union is seeking with respect to the two disputed issues? 93 MS. PLATIS: Yes, it does. Now, one thing we probably need to clarify there is this includes the 2001 results, which are unaudited. If you turn -- 94 MR. PENNY: Are there further -- under the practice that Union proposes to follow for the clearance of the LRAM deferral account, are there any further adjustments contemplated to that number? 95 MS. PLATIS: Yes, there are, and that is with respect to the 2001 results. As I identified, those results are currently unaudited. If you turn to tab 10, schedule 3, which identifies the 2001 savings -- again, the yellow copy -- you will see a net volume savings, which is line 13, of 51,000,575 metres cubed. 96 MR. PENNY: This is the last page in the package? Yes. 97 MS. PLATIS: Yes. That associated LRAM balance is 2.279 million, that's the same amount that you'll find in table 1 for 2001 or line 3 on that table, which is part of our cumulative amount. 98 MR. PENNY: And is Union seeking clearance of that amount in this case? 99 MS. PLATIS: Yes. 100 MR. PENNY: And then that will be subject to what adjustment subsequently? 101 MS. PLATIS: We report these savings in the 2001 DSM evaluation report. Part of the annual process is to issue the report to the DSM consultative for comments. The report is then reviewed by an independent third-party auditor. The finalized savings and the 2001 LRAM amount will then be part of this year's customer review process, as will be a forecast for the 2002 LRAM amount. 102 MR. PENNY: Right. So just to summarize, Union is seeking clearance of the full amount, including the amount for 2001, but that would be subject to a true-up that would occur in the next review process for 2003. 103 MS. PLATIS: Yes. 104 MR. PENNY: Thank you. 105 Let's turn, then, to the two disputed issues. Can you, first of all, identify for us what the two disputed issues are. 106 MS. PLATIS: There are two issues. The first issue is the number of -- the number of high-efficiency furnaces reported for the information program. The second issue is around timing or the portion of year-one savings that should be included in the LRAM amount. 107 MR. PENNY: Right. Can you just explain -- let's turn to the information furnace program. Can you, first of all, explain briefly what the information furnace program is. 108 MS. PLATIS: The program provides information to customers and then those customers purchase a high-efficiency furnace. The issue is how many customers who did not participate in the program and receive an incentive were still influenced by the information provided by Union when they made the decision to purchase high-efficiency furnace. 109 MR. PENNY: So what is the issue, then, that -- just stated briefly, what is the issue that's in dispute in connection with this particular program? 110 MS. PLATIS: How many furnaces should be claimed as part of the information component of the program is open to question. 111 MR. PENNY: And what is the amount that's in issue with respect to -- the full amount that's in dispute -- 112 MS. PLATIS: The monetary amount at issue is 1.261 million. 113 MR. PENNY: And that's reflected in Exhibit F.7.1 that was marked this morning? 114 MS. PLATIS: Yes. It is 9-3, the cumulative amount. The impact of removing the information furnaces is 1.261 million. 115 MR. PENNY: Now, since filing your original evidence, you have received a copy of Mr. Neme's evidence filed on behalf of the GEC? 116 MS. PLATIS: Yes. 117 MR. PENNY: And what is the essence of Mr. Neme's criticism of Union's claim to LRAM recovery for this particular program? 118 MS. PLATIS: Mr. Neme's criticism is that Union did not provide sufficient evidence to be able to claim savings for these information furnace purchases. 119 MR. PENNY: And you've addressed this issue in your updated written evidence, in the yellow pages, at pages 6 to 9. But I wonder if you could just explain briefly why Union does not agree with Mr. Neme's criticism. 120 MS. PLATIS: Union's program influences a purchase of high-efficiency furnaces directly with customers and through the heating contractors. Some of the examples of the information provided include bill inserts, which tell people about the benefits of purchasing a high-efficiency furnace; cost comparison sheets which identify the amount of money you'd save over the lifetime of the furnace by installing high-efficency; a wise energy-use guide which promotes the benefits of high efficiency furnaces among other high-efficiency improvements; and sell sheets that we provide the contractors which they can hand out to identify why one would want to buy a high-efficiency furnace. 121 Now, as it turns out, not all high-efficiency furnace purchases are reported. Union commissioned a study to investigate this, what we call, spill-over effect for the percentage of customers who purchase a high-efficiency furnace as a result of this information but do not get reported as participants in our program. These customers, in the industry, are called free drivers. 122 MR. JACKSON: Ms. Platis, did you say free riders? 123 MS. PLATIS: No, free drivers, and they are different from free riders. 124 MR. PENNY: And perhaps you can just, for the benefit of the Board, explain -- I know you gave some explanation in the answer you gave, but why don't you just focus on that and explain to us what a free rider is and what a free driver is and what differentiates it. 125 MR. JACKSON: Ms. Platis, I would certainly appreciate that. I think I'm having just a little bit of trouble with my hearing. It could be the microphones and the sound system as well. So thank you very much for adjusting the mikes. Others have had this problem making me hear, too. 126 MS. PLATIS: Okay, I'll lean forward. 127 A free rider is someone who had intended to do this anyway, but claimed an incentive from the utility. So when the utility does the final analysis of the number of participants in the program, the savings from these people are reduced. And in this case, with the furnaces, it was a 60-percent reduction. 128 Free drivers are customers who benefited from the information that Union Gas provided, either to them directly or the contractors, but were not claimed as a participant so they're not participants. However, they did make the decision, based on the influence of the information provided by Union Gas, and that percent was established at 15 percent. 129 MR. SOMMERVILLE: Can you just go over that free driver definition again, please. 130 MS. PLATIS: Okay. A free driver is a customer who was influenced by the information provided in the program -- 131 MR. SOMMERVILLE: Right. 132 MS. PLATIS: -- But was not paid an incentive to purchase the high-efficiency furnace in this case. So really what it comes down to in this example, we provided incentives for some furnaces, those are the regular participants, we discounted some of them as free riders because they would have done it anyway, and we're also taking credit for a portion who were influenced by the utility but who did not participate. Three different adjustment factors. 133 MR. PENNY: And so -- 134 MR. JACKSON: So what are they driving? 135 MS. PLATIS: Well, some of them are getting a free ride because they get the money and they were going to do it anyway, and the rest of them are just driving along, having a good time with their high-efficiency furnace. 136 MR. JACKSON: That's good. It's that concept of driving rather than -- 137 MS. PLATIS: Riding. 138 MR. JACKSON: Rather than slave driver. 139 MS. PLATIS: It's also referred to in the industry as a spill-over effect. 140 MR. JACKSON: Thank you. 141 MR. PENNY: And just to summarize that, I take it that the reason that Union takes a -- takes, in your example, a 15 percent factor in that regard is because you are not claiming credit for everyone who gets a -- who is not a non-participant but nevertheless gets a high-efficiency furnace. 142 MS. PLATIS: No, it would be unreasonable to assume that every furnace out there is influenced by Union Gas. 143 MR. PENNY: So can you summarize for us, then, briefly, why Union believes that it has provided sufficient information to the Board to be satisfied that the 15 percent free-driver factor for this program is adequate and appropriate? 144 MS. PLATIS: All right. What we've done is we commissioned a study that concluded the free-driver rate as 15 percent. Copies of that study were provided, including a copy of the survey instrument; the details of the sample size, the modelling framework, and the findings, which all supported a 15-percent, free-driver rate. 145 MR. PENNY: All right, thank you. Let's then turn to the timing issue. 146 Can you, first of all, explain how Union has treated the effect of its DSM programs in connection with the year in which they were introduced? 147 MS. PLATIS: Could you repeat the question, please. 148 MR. PENNY: Yes, I want to turn to the timing issue and I want you to, first of all, just describe how Union has determined what the -- determined the effect of a program in the year that it's introduced. 149 MS. PLATIS: Union, in our evidence, identified that the full effect of savings should be claimed in the first year, as a simplifying assumption, because it's clear that participants will come on in the course of the program. 150 MR. PENNY: And can you explain, again briefly, and we'll come back to it in a moment, but explain what the dispute is around this issue. 151 MS. PLATIS: All right. The dispute is the portion of savings that should be collected in that first year. 152 MR. PENNY: And what is the amount in issue depending on the methodology for determining the timing of the introduction of the effective programs? 153 MS. PLATIS: The amount at issue is 2.543 million. 154 MR. PENNY: And is that number shown on Exhibit F.7.1? 155 MS. PLATIS: Yes, it is. It is line 7, "Impact of Timing - GEC Method." 156 MR. PENNY: All right. Now, we'll come back to line 5 in a moment. But can you -- again, since filing your original evidence on this issue, you've seen Mr. Neme's evidence and his criticism of your methodology. Can you again just summarize for us what Mr. Neme's criticism is? 157 MS. PLATIS: Mr. Neme identified that not all savings are introduced in January. He states that most projects are implemented throughout the year, or mid-year on average, and the impacts of 1999 are partially realized in 1999 and the other half are realized in 2000, so that the year-one impact should be 50 percent. 158 MR. PENNY: All right. And again, you've responded to this in your updated evidence at pages 12 and 13, but I would like you to tell the Board, briefly, why Union believes that this is -- that the criticism of Mr. Neme is not -- or why Union disagrees with that criticism, excuse me. 159 MS. PLATIS: Union's simplifying was to include all savings in the year that the DSM project was implemented. The simplifying assumption produces a comparable LRAM impact. Using the GEC method, they've identified that half the year should be recorded in the year that it happened and half the year should be recorded in the following year. 160 If you follow that logic, then half of the savings from 1998 would have been realized during 1999. LRAM was in place in 1999 and the 1998 DSM impacts were not included in rates. So, according to the -- sorry -- 499 ADR. And the accounting order, it clearly states that all revenue impacts realized effective January 1st, 1999, means half of '98 should be in there. 161 MR. PENNY: So in -- that's a description of what you've described as the alternate timing method? 162 MS. PLATIS: Exactly. 163 MR. PENNY: Is there a significant difference between the simplifying assumptions that you made in our original evidence or the alternative timing method that you've just outlined? 164 MR. BAKER: In our original evidence, if you turn to table 4 -- 165 MR. PENNY: That's table 4 of your updated, yellow-page evidence? 166 MS. PLATIS: Of the yellow pages. You'll see our original LRAM amount, using the simple method, was 9.269 million. 167 MR. PENNY: That's at the top of the table. 168 MS. PLATIS: Right. It's line 1 of the new table. 169 MR. PENNY: Simple method under 2001? 170 MS. PLATIS: Simple method under 2001 appears under the timing option in line 4. The simple method assumes 100-percent savings in year one for all of 1999 activity. The alternate timing method, using the GEC concept of a half year, includes half of the '98 savings in year one and half of the '99 savings. 171 MR. PENNY: And the net effect of those two approaches is what on the ultimate balance in the LRAM deferral account? 172 MS. PLATIS: As you can see from the two approaches here, the difference is -- 173 MR. PENNY: You're now referring to F.7.1? 174 MS. PLATIS: I'm looking at F.7.1, and you'll see that the difference is the difference between 9.269 million, using the simple method, and 9.374, using the alternate method. 175 MR. PENNY: All right. 176 MS. PLATIS: Now, we've also identified the GEC method there for a comparison. 177 MR. PENNY: And how would you derive the GEC method from table 4? 178 MS. PLATIS: Looking at table 4, if you were to remove the impacts of what we have in line 9 as year zero or 1998 actual, which is half of the DSM activity resulted in 1998 and the LRAM balance, then this method would result in $6.726 million or removing the impact of 883 times 3, the first line. 179 MR. PENNY: All right. 180 MS. PLATIS: And we're looking up to 2001 only at this point. 2002 through 2004 are just illustrative. 181 MR. PENNY: And again, that's reflected in line 6 of your summary, Exhibit F.7.1. 182 MS. PLATIS: Yes. 183 MR. PENNY: All right, thank you. Thank you, Ms. Platis. 184 Mr. Chairman, I'm now going to turn to the bigger picture issue of the disposition of the account. 185 Mr. Baker, you were the director of regulatory affairs in 1998 when the EBRO 499 ADR agreement was negotiated? 186 MR. BAKER: Yes, I was. 187 MR. PENNY: And you participated in the 499 ADR settlement conference and the resolution of the issues in this case? 188 MR. BAKER: I did. 189 MR. PENNY: And can you describe, briefly to start, the basis upon which Union has determined the amount in the LRAM deferral account? 190 MR. BAKER: Union has reported in the LRAM deferral account the actual DSM savings effective January 1, 1999, through to December 31st, 2001, and that corresponds to the balances that Ms. Platis just went through. 191 MR. PENNY: Is there any forecast DSM lost revenue embedded in Union's rates for 1999 or any subsequent year? 192 MR. BAKER: No, there isn't. 193 MR. PENNY: Now, since Union's evidence was filed in this case, Pollution Probe has filed a statement of Mr. Gibbons claiming that Union is not calculating the LRAM amounts properly in that Union is assuming that the Board approved what's described as an asymmetric LRAM mechanism. Can you comment on this Pollution Probe claim. 194 MR. BAKER: Yes. 195 The intent of the LRAM, which I believe is well understood by all parties, is to operate to ensure that the utility is financially indifferent to the actual level of DSM savings that are achieved in a particular year. The fundamental principal underneath the LRAM is that variances in actual DSM savings, relative to what was included in rates, and that is the key criteria as captured in the LRAM deferral account, so the only way that a utility can be financially indifferent in terms of DSM is to compare to what was actually in rates. So as I said, the LRAM function is irrespective of the specific amount of DSM that's included in rates. 196 I thought it might be helpful just to illustrate by way of a simple example. If you take a scenario, one where forecast DSM savings in a given year are $10 and that amount is built into rates - so customers will pay and the utility will recover that $10 through rates - if the actual DSM savings that year turn out to be $15, the operation of the LRAM account will capture the difference between the $15 actual savings and the $10 included in rates. So the LRAM balance would have a $5 balance. Subsequently, that balance would be recovered by the utility through the clearing of the LRAM account. 197 So in total in that example, customers have paid and the utility has recovered $15; $10 initially in rates and $5 through the operation of the LRAM account. 198 So if you look at that same fact in a second scenario, so assume the DSM savings that are forecast are $10 but assume in that scenario there's no amount built into rates so customers don't pay anything through rates and the utility, it doesn't recover anything through rates; and again if the actual savings turn out to be $15, the LRAM captures the difference between the $15 of actual savings and the amount that was included in rates, in this case, zero, so the LRAM account would have a balance of $15. And again, that balance would be subject to the audit result and the DSM savings would be recovered through the disposition of the LRAM deferral account. So in both cases customers have paid, and the utility will have recovered $15. 199 Again, the point I really wanted to emphasize is the functioning of the LRAM does not hinge on a specific amount of DSM savings included in rates in this scenario I just provided where there's no DSM savings built into rates. It does not create any issues and, in my view, it's not an asymmetric account as has been propositioned by Pollution Probe. 200 MR. PENNY: Right. And you, I take it, are aware that Pollution Probe takes issue with the amount of the DSM savings reflected in the 1999 base rates from EBRO 499, and takes the position that Union's evidence supports the fact that DSM savings were reflected in rates for 1999. 201 MR. BAKER: Yes, I'm aware that's the position that they're taking, and as I stated earlier, we don't agree with that. 202 MR. PENNY: And are you also aware that Pollution Probe is claiming that Union now appears to be taking the view that -- this is the claim, that Union forgot to include the DSM savings in 1999, and that even if this were the case, there should be no retroactive adjustments to the deferral accounts because that would, as they say, simply insulate Union or its shareholder from the so-called errors? 203 MR. BAKER: Again, I understand that is the position by Pollution Probe and Union doesn't agree. 204 MR. PENNY: All right. Can you explain why Union doesn't agree with those propositions that have been advanced by Pollution Probe in this matter. 205 MR. BAKER: Yes. 206 First, and most importantly, there were never any DSM -- 1999 DSM planned savings incorporated into Union's forecast for its 1999 rates. Union's 1999 volume forecast was based on actual historical consumption normalized for 30-year weather, and there was no adjustment in Union's 1999 volumes or margins for the 1999 projected DSM planned savings. 207 If there was to be an adjustment for those 1999 forecast DSM savings, this would not have been done or incorporated into the normalized average consumption methodology which was the underpinning of Union's forecast. It would have been a separate and explicit adjustment to Union's volumes, revenues and margins in that case. And in the 499 ADR agreement, where the LRAM was established, and I thought it might be helpful to turn that up -- 208 MR. PENNY: That would be in Exhibit 5.3? That we marked yesterday, Mr. Chairman. It was -- these were all pieces that were in that record but -- so we don't need to fuss with big binders, we put all the pieces together in a small package. It's called "LRAM materials" and it was marked yesterday as Exhibit -- no, I guess, two days ago as Exhibit F.5.3. 209 MR. JACKSON: Thank you. I think we have it. 210 MR. SOMMERVILLE: Yes, I've got it here somewhere. I've got it. 211 MR. BAKER: And what I wanted you to turn up was page 19 of that package which was an excerpt from the ADR agreement. 212 MR. JACKSON: Thank you. 213 MR. BAKER: In the first paragraph, again on page 19 of that package, you can see that the parties agree that a lost revenue adjustment mechanism should be established for DSM. The LRAM tracks distribution margin impacts attributable to DSM activities by rate class as compared to the forecast levels, and it's a revenue-neutral mechanism designed to keep the utility indifferent to the level of energy efficiency that is achieved. And that's consistent with what I described earlier. 214 If you flip the page to page 20, in the last paragraph of that section, it reads: "The parties agree that a deferral account will be established to record the margin impact of all" - and I emphasize the word "all" - "DSM savings realized effective January 1, 1999." 215 If you then refer to page 28 of that package, which is an excerpt from the 499 -- EBRO 499 rate order, dated March 22nd, '99, you can see, again, in paragraph 21 of the Board's order, reads: "Union shall establish deferral account number 179-75 to record the margin impact of all DSM savings realized commencing January 1, '99, in accordance with appendix AH." 216 And again, if you flip to page 31 of that package, which is the appendix on the accounting order, again the notation under the first accounting entry section refers to the margin impact of all DSM savings realized. 217 MR. PENNY: Now, did this issue come up before the Board in -- again in the RP-1999 matter-17 proceeding? 218 MR. BAKER: Yes, it did, and I wanted to refer the Board to the oral testimony of Mr. Fogwill in that case. And you can turn to page 37 of the package, which are some transcript excerpts from the RP-1999-0017 case. 219 Starting on line 20, there is a question from the Presiding Member, really exploring what would have been built into the forecast in respect of forecast 1999 DSM volumes. And I think there was a presumption that those volumes would have been reflected in some way and Mr. Fogwill's response on line 26 is: "No, they are not." 220 If you turn to page 38, the next page of that package, again, a question from Member Jackson starts on line 9. But if you look at the last part of that question, starting at line 11, it reads: "The lost margin with respect to an excess over a planned amount, if the planned amount isn't already in your cost of service." And Mr. Fogwill goes on to respond on line 17: "The benchmark where we would start the lost revenue adjustment calculations is zero." And again, consistent with the fact that there was no amount built into rates for 1999. 221 Again, flipping the page, at page 39 of the package, again a question from Member Jackson which reads: "And the reference point for the latter," and that's referring to the LRAM, "is zero, isn't it?" And Mr. Fogwill's response at line 10 is: "That's right, because the savings energy is not included in the forecast." 222 So it's clear from the oral testimony of Mr. Fogwill that the reference point for the LRAM is zero because there are no 1999 DSM planned savings in the base 1999 forecast. 223 Now, at Exhibit B, tab 5, appendix C, page 2 of the 0017 material, and that's found at page 32 of Exhibit F.5.3, the package; that's a listing of Union's deferral account balances in the 0017 proceeding. At line 16, you can see that the lost revenue adjustment mechanism balance for calendar 1999 is $1.612 million. This represented Union's, I believe it was, unaudited 1999 DSM actuals at that time. Again, it represents the full deferral from a base amount at rates of zero. And it's clear when I look at this that that represented the full amount of the 1999 DSM savings at that time and the LRAM threshold was in fact zero. 224 And had parties assumed something different at the time, the only way that balance would have been justified is if the 1999 DSM actual results were twice that level, such that they were actually roughly 3.2 million net of 1.6 million that wasn't recovered in rates, and that was clearly not the case. And I think that all parties knew that Union's '99 DSM savings were the $1.6 million. 225 Also, at page 42 of that package, there is a transcript undertaking based on a question from Mr. Dominy on how the LRAM would work over the PBR plan. And again, it shows the proposed five-year plan for years 2000 to 2004 which correspond to the five-year term of the PBR term. 226 MR. PENNY: And what is illustrated on page 42 in answer to that transcript undertaking from Mr. Dominy? 227 MR. BAKER: It simply illustrates the impact from 2000 going through to 2004 on the LRAM. At the time of the 0017 proceeding, Union was proposing to recover the 1999 LRAM amount and we ultimately, in that case, decided not to seek recovery because we didn't have the final audit results. 228 MR. PENNY: And your point here is that this shows that it's the full amount of the LRAM deferral account that's being sought? 229 MR. BAKER: That's correct. 230 MR. PENNY: Pollution Probe, in its statement that's been filed, references some excerpts from Union's evidence in EBRO 499 which they say support their claim that Union did incorporate 1999 DSM-planned savings into the forecast, and they refer to Mr. Fogwill's evidence that was at Exhibit D.1, tab 5, appendix E, and Mr. Byng's evidence that was at Exhibit D.1, tab 8, page 7, in the 499 proceedings. 231 Can you comment on the claim that's made by Pollution Probe in that respect? 232 MR. BAKER: Yes. 233 Those references are found again in that package. The first one, Exhibit D.1, tab 5, appendix E, that's at pages 5 to 14 of the package that you have in front of you, and the excerpt from Mr. Byng's evidence, which was Exhibit D.1, tab 8, page 7, the update is at page 15 of your package. 234 Those excerpts which were pulled from pieces of Union's evidence, in my view, aren't taken in context. What I mean by that is that at the time of EBRO 499, that was the first case where we were introducing the LRAM account and internally it was expected that the LRAM would operate around a threshold level based on a level of DSM savings that were incorporated into rates. 235 So the DSM evidence referenced at Exhibit B.1, tab 5, appendix E, was prepared assuming that the DSM savings would be reflected in the forecast at some point. As I've described earlier, the DSM savings were never reflected in the 1999 volume forecast and therefore there was nothing as well in the ADR agreement that adjusted those forecast volumes or margins in 1999 for the forecast '99 DSM savings. 236 Similarly, the reference from Mr. Byng's evidence at Exhibit D.1, tab 8, page 7, updated, that's page 15 in your package, that's an excerpt on the LRAM deferral account, and it was based on setting a deferral account that would capture variances up or down. But clearly that would only be the case if there was some level of DSM savings that were actually built into rates because, practically, if there's nothing built into rates, the account really can only work in one direction. 237 So given, again, that there was no DSM savings embedded in rates, the LRAM account only operates in one direction but the end result is still the same in terms of what we're trying to capture, either through rates or through the LRAM account. 238 MR. PENNY: And in respect of this claim by Pollution Probe that Union just somehow made a mistake or forgot to adjust its forecast, in your view, the 499 ADR agreement, does it accurately reflect what the parties agreed to? 239 MR. BAKER: In my view, it reflects what the parties agreed to. And what I can add is if, as has been inferred by Pollution Probe, there was some level of DSM savings in the 1999 base plan, I can assure the Board that that would have been specifically referenced both in the ADR agreement and the accompanying accounting orders. And, in my view, it would not only have been Union that would have pushed for that documentation but other parties as well. And parties would never have agreed, in my view, to language that an LRAM would capture all DSM savings effective January 1, 1999, if, in fact, parties believed that there was some amount already incorporated in base rates. And typically when we establish a deferral account, we're always quite clear on the threshold around which a deferral account operates. 240 MR. PENNY: Now, you've told us that there was not, in fact, any DSM-plan-related lost revenues embedded in the 1999 rates. Have any DSM plan savings been incorporated into any rates subsequent to 1999? 241 MR. BAKER: No, they haven't. As the Board is aware, 1999 was the starting point for PBR. As I said, there's been no specific DSM forecast amounts or margins in either 2000 or 2001 as well, and I think members of this Panel will be well aware of this fact, that there was no adjustment made in 2000 in the rates that were determined in RP-1999-0017. Similarly, the Board will be aware in this case that there's no request for agreement to adjust 2001 rates for the 2001 DSM-plan savings. 242 MR. PENNY: All right. Thank you, Mr. Baker. 243 Thank you, Mr. Chairman, those are all my questions in examination-in-chief. 244 MR. JACKSON: Thank you, Mr. Penny. 245 Is there any agreement amongst parties who will lead off the questioning? 246 MR. KLIPPENSTEIN: I believe, Mr. Chairman, the agreement is that I will proceed on behalf of Pollution Probe. I'm sorry. Mr. Thompson can certainly proceed first if he wishes. 247 MR. JACKSON: And Mr. Thompson, you've consulted with -- 248 MR. THOMPSON: I wasn't consulted and I didn't consult them, but I moved up here in the hopes that I could, on and off -- 249 MR. JACKSON: All right. Could I just ask first, are there any other parties with any special needs? Dr. Rowan, you're okay? 250 Mr. Thompson, then, go ahead. 251 MR. THOMPSON: Thanks. 252 CROSS-EXAMINATION BY MR. THOMPSON: 253 MR. THOMPSON: And let me just preface by saying that IGUA is a bit of a sleeping giant when it comes to DSM issues but we're now awake. I want to preface this carefully because this 1999 agreement was one that I was involved with and, historically, IGUA has sort of quarterbacked the position of intervenors, so I'm not sure I'm entirely in agreement with what Mr. Baker has said about the evolution of that document. 254 So let me come at the issues in this fashion. First of all, with respect to this free-driver issue, do I understand that correctly as the company attributing lost revenues to certain customers who were not participants in the program? 255 MS. PLATIS: They are not paid an incentive but that doesn't mean that they're not participants in the program. 256 MR. THOMPSON: So, they're not paid an incentive but they are somehow classified as participants? Help me with how you determine who is a participant and who is not a participant in the program. 257 MS. PLATIS: These are participants in an information-based program. A traditional participant would be paid an incentive and the results of whatever they have implemented are classified as savings and captured in the LRAM amount. 258 In addition to that, in 1998, Union Gas commissioned a study to review the impacts of the significant portion of funds spent every year on information through our marketing efforts to promote energy efficiency. This study was conducted by independent experts specializing in this field. We have individuals that worked on the survey construction, on survey implementation, and the statistical analysis. They used the raw data collected in a survey of our customers, both participating and non-participating customers, to identify the influence of the Union Gas marketing activities. 259 MR. THOMPSON: Well, I'm just trying to understand this. The LRAM account, it strikes me, is one that can be prone to abuse in the sense that there's a lot of information out there about energy-efficiency savings that can be achieved through high-efficiency products. You seem to be taking the position if we sent out a piece of information and somebody installed a high-efficiency service, we should get some recovery from that through the LRAM account. Do I understand it correctly? 260 MS. PLATIS: A portion of that, yes. If we can turn to the evidence on furnaces, which is page 6 to 13, we identify specifically -- this is Exhibit B, tab 10 -- we identify specifically how the calculation is done and how it is relevant. I'm now on page 8 where we go through and identify that there are approximately 50,000 furnaces replaced in any given year. Union Gas is not claiming a large number of those. We're not saying that every piece of information we sent out led to the purchase of a high efficiency furnace. 261 MR. THOMPSON: All right. Well, I just want to understand the concept, and I'll let others take you through the numbers. 262 Now, on the timing issue again, I just want to understand this. It sounds to me like what you do is you annualize savings. You sign somebody up in December of one year on a high-efficiency furnace; you treat that person as having been on savings for the entire year; have I got that right? 263 MS. PLATIS: There are people that participate through the course of the year but, yes, as a simplifying assumption, we have claimed all the savings in the year in which the person participates. 264 MR. THOMPSON: That's not just a simplifying assumption, that's putting money in your pockets under LRAM. As you say, it operates because in fact these people did not produce savings for the entire year; isn't that correct? 265 MS. PLATIS: For a customer that participates in December, a portion of that would be in '99; the balance would be in 2000. But when we did the analysis the other way, the numbers are comparable. 266 MR. THOMPSON: Well, you say, if we brought '98 savings into '99, we'd be fine. But you didn't have an LRAM in '98, did you? 267 MS. PLATIS: But the ADR, in the accounting order, identified all DSM savings realized effective January 1st and the 1998 rates did not include DSM. 268 MR. THOMPSON: So it's tied to this precise language in the agreement, is it? This is explaining why you are doing this annualizing? 269 MS. PLATIS: Yes. 270 MR. THOMPSON: Okay. Well, then, that brings me to this business of what was in the deal. And the evidence supporting the adoption of LRAM was the ADR agreement; do I understand that correctly, Mr. Baker? The 1999 -- we didn't have an LRAM before '99 and it was accepted as part of the ADR backing. 271 MR. BAKER: That's correct. 272 MR. THOMPSON: And upon the basis of that it was implemented by the Board. 273 MR. BAKER: That's correct. 274 MR. THOMPSON: And in terms of whether DSM savings were embedded in '99 rates or not embedded, I'd like to start, if I could, by drawing your attention to paragraph 2.9 of the Board's decision in 0017. That's paragraph 2.617 on page 165. 275 MR. BAKER: What was the page number again? 276 MR. THOMPSON: Page 165, Steve. 277 And the paragraph reads: "Command-side management's programs were introduced by Union in the 1990s and saving targets were related to the adoption energy efficiency measures on existence for measuring performance under these programs. These targets include customer participation measures with respect to various program aimed at conserving gas consumption. The targets for reduced consumption have been reflected in volume forecasts for rate-making in past rate cases." 278 Just stopping there. Is that correct in Union's case? 279 MR. BAKER: No, it's not. 280 MR. THOMPSON: They have never been reflected in Union's forecasts? 281 MR. BAKER: It would have only been reflected by virtue of DSM measures being incorporated in actual results that were used to establish the normalized average consumption for a given year. 282 MR. THOMPSON: All right. So just so I nail this down, in fact, did you have DSM programs in years prior to '99? 283 MR. BAKER: Yes, we did. 284 MR. THOMPSON: And and how far back did they did go? 285 MS. PLATIS: Formally, back to 1993. But there was energy-efficiency programs done before that. 286 MR. THOMPSON: So '93, '94, '95, '96, '97, and '98, Union had DSM programs? 287 MS. PLATIS: Yes. 288 MR. THOMPSON: And are you telling me that in none of those cases were the targets reflected in the volume forecasts? 289 MR. BAKER: No. There was never a specific adjustment to the forecast for the DSM targets. 290 MR. THOMPSON: Okay. And then we come to the 1999 evidence, first of all. 291 MR. JACKSON: Mr. Thompson, can I just ask for some clarification at this point, just to be at the same place in the record. 292 There were never specific adjustments, but are you telling me the people internally that do the forecasting would not have had in their mind the effects of programs that were either Union's or were out there in the marketplace, calling for more efficient consumption? Your forecasters can somehow just put blinkers on about that? 293 MR. BAKER: No, I think it's fair to say that we were, during that time, through the early days of DSM, we are aware that DSM programs were, in fact, in place and that would likely have a declining trend in terms of consumption. There's also other factors out there, you know, other factors that you would take into account that might take consumption the other way; for instance, people building bigger houses or something of that nature. So I think it was a factor that was known and was accounted for and known at a high level, but was not explicitly built into the forecast. 294 MR. JACKSON: I think that clarification is important. It's not that I'm saying there aren't going to be some mistakes in the Board's attempt to write up what it thinks it's heard in a hearing, but I think that that's perhaps a very important distinction. Thank you. 295 MR. THOMPSON: Thanks, Mr. Chairman. 296 Well, let's move, then, forward to the evidence in the 499 case because it's on the basis of that evidence that the subsequent negotiations take place and we ultimately get an ADR agreement. 297 You've attached that evidence in -- excerpts in Exhibit F.5.3. The lost-revenue adjustment mechanism starts -- it's described as starting at page 5 of this pre-filed evidence; have I got that right? 298 MR. BAKER: That's correct. 299 MR. THOMPSON: All right. 300 MR. JACKSON: Mr. Thompson, we need the reference here again. 301 MR. THOMPSON: Exhibit F.5.3. 302 MR. JACKSON: Thank you. Page 5. 303 MR. THOMPSON: Page 5, yes. 304 This is the description in the evidence of the mechanism. If you go over to page 7, we see the text describe the mechanism, "Test-year utility revenues decreased to the extent that DSM activities are successful. If forecast DSM savings are incorporated directly into the test-year forecast, utility revenues can be decreased," and so on. And it describes the mechanism. On page 8 it says: "An LRAM is a simple mechanism, an approach to determine the amount of money lost or gained by the utility when actual natural-gas savings differ from savings forecasted and built into rates." And then we drop down towards the bottom of the page, about five lines up, and it says, and I'm quoting: "In 1999, the DSM-plan forecast savings of 35.4 million cubic metres, the natural-gas savings forecast in the DSM plan, are reflected in the forecast of the 1999 demand for natural gas by end-use consumers." That's plainly what it says. 305 MR. BAKER: And what I was trying to indicate earlier, to put it into some context, is that the basis on which this evidence was prepared in 499 was on the basis that there was -- as I said, this was the first time that an LRAM was being introduced. I think there was an expectation or an assumption that there would ultimately be some amount built into rates for 1999. But the fact is, when you go back to Union's evidence, the revenue, the volumes, the margins, there was no explicit adjustment in that forecast for the 1999 forecast DSM savings. So, we had the DSM evidence, we had the deferral accounts, we knew what was going on in terms of the Enbridge account where there was a sum amount built into rates and then people had on their minds how it was going to work and it was going to work around a threshold amount that was incorporated into the rates, but that was ultimately not what was built into the forecast. 306 MR. THOMPSON: Well, this pre-filed evidence says it's in there. There's no ifs, ands, or buts about that. That's what it says. 307 MR. BAKER: And what I'm trying to say is that the evidence and -- that really is the primary evidence that deals with Union's revenue. There is no adjustment in there for the DSM. 308 MR. THOMPSON: All right. But, again, we're coming to an agreement, and if parties weren't ad idem on what was in and what was out, maybe we don't have any agreement, which is where I'm heading. But we then go to the next page and we see how the LRAM is illustrated to operate and here it's clearly shown as illustrating around a savings estimate; correct? 309 MR. BAKER: Yes, this is an illustrative calculation. 310 MR. THOMPSON: No, I understand that, but it's not illustrative of an LRAM account that operates at a zero threshold, it's illustrative of an LRAM account that operates off a certain level of target savings. 311 MR. BAKER: I'm not disagreeing with you that. It's consistent with, I think, the basis or the assumption or expectation when this evidence was prepared. 312 MR. THOMPSON: All right. And so we then go further into the evidence. At page 15 of this handout, we're again told, and this is some updated evidence in this case: "The LRAM is a revenue-neutral mechanism designed to keep the utility indifferent to the level of energy savings that are achieved. To the extent that DSM savings exceed the forecast target, the reduction in utility margin will be recorded in the deferral account and recovered from customers. To the extent that the DSM savings are lower than forecast, the increase in utility margin will be recorded in the deferral account and rebated to customers." 313 Here again we're being told it's to operate around a target; correct? 314 MR. BAKER: I think what it says is to the extent that the DSM savings exceed the forecast -- 315 MR. THOMPSON: Target. 316 MR. BAKER: The entire underpinning of an LRAM is not based on what's in a DSM plan or a target but it's what's based on what is reflected in rates. And that's really the only way an LRAM can function because the entire intent is to hold the utility to be financially neutral to the impacts in DSM. 317 MR. THOMPSON: Now, I understand the rationale for it and, again, it comes back to what was the agreement, though, and there may be some fundamental misunderstanding. But the evidence was telling us it would operate around a target and the evidence was -- the written evidence was telling us the DSM savings were in the volume or in the forecasts; correct? 318 MR. BAKER: The DSM evidence says that the revenue evidence in Union's filing, there was no adjustment for it. 319 MR. THOMPSON: Then let's go to page 22 because this is the excerpt. This is what was appendix E to the ADR agreement on normalized annual consumption, because the volumes here that were reflected in '99 rates were the result of a negotiation between the parties; correct? 320 MR. BAKER: That's correct. 321 MR. THOMPSON: All right. And in terms of PBR, are these -- these are the volume levels that are governing the operation of PBR? 322 MR. BAKER: That's correct. 323 MR. THOMPSON: So any increases in through-puts since 1999, whatever advantages or disadvantages they bring, they're captured in the PBR program? 324 MR. BAKER: Ninety-nine is the base for the PBR, that's right. 325 MR. THOMPSON: And this was a negotiated level of consumption. Just to put it in context, traditionally, the DSM gang does their thing and the other parties are working away on normalized, annualized consumption processes and we come together at the end of the piece. And if we can reach agreement on numbers, we reach agreement on numbers, including volume numbers. 326 MR. BAKER: That's correct. 327 MR. THOMPSON: That a fair description, Mr. Baker. Okay. 328 In terms of the way we arrived at the volume agreement for this ADR, there's some description of that and maybe we could just -- we should read that first before I go to the schedule, because it starts at pages 17 and 18 of the -- of this package. The first sentence is: "Union's normalized annual consumption (NAC) for 1990 to 1999 is provided at C.3, tab 2, schedule 6." 329 Just stopping there, for the years that were historic, those numbers were actual, were they not? I guess normalized actual consumption? 330 MR. BAKER: Normalized actuals, that's right. 331 MR. THOMPSON: And then it goes on, and you say: "During the settlement conference, Union provided intervenors with the revised interrogatory, J-2, 3.C.17, which provided a comparison of actual and Board -approved NAC for years 1990 to 1997 on the same aggregated basis as in previous filings." And then a copy of that document was attached at appendix D. 332 Just stopping there. My recollection is that around this time frame, we had to convert Union's forecast from a fiscal-year period that ended March 31 to a calendar-year presentation; is that right? The reason I raise that is because appendix D, which is not in your package, and the context of appendix E, which is at page 22, reflects some different numbers for each year. In speaking with Mr. Byng last night, I was told that appendix E represents converting the numbers to a calendar year as opposed to the prior fiscal years. 333 MR. BAKER: I believe that's correct, because we were dealing with calendar years, yes. 334 MR. THOMPSON: Right. So appendix E has some actuals and then appendix D also has actuals but converted to a calendar year basis, and we find those at page 22 of this package. Is that right? 335 MR. BAKER: That's correct. 336 MR. THOMPSON: Okay. And so if we then look at page 22, taking the M-2, for example, the normalized actual on a calendar-year basis for '92 was 3130 and then reducing down to 3022 as of 1997; correct? 337 MR. BAKER: That's correct. 338 MR. THOMPSON: And then there was a forecast, I think, for 1998 that would be some actual and some forecast, I think, at that point in time. 339 MR. BAKER: '98 was the bridge year, that's right. 340 MR. THOMPSON: Okay. So this -- to the extent there were savings in -- sorry, reduction in volumes in those years caused by DSM activities, they would be reflected in those numbers; correct? 341 MR. BAKER: To the extent that they were energy-efficiency initiatives in those actual years, that's correct. 342 MR. THOMPSON: So what parties then did was they took -- I'm suggesting to you what they did was they took the reductions, their reductions in, I think, five of the six years and increases in one of them and determined a five-year average. So my recollection is we added up the minuses and the pluses for each column, divided it by five and got an average change for the residential class of minus 22; is that your recollection? 343 MR. BAKER: That's correct. 344 MR. THOMPSON: And the five numbers we added would be the '93 to '97 numbers; is that correct? 345 MR. BAKER: That's correct. 346 MR. THOMPSON: So we then, on the basis of that five-year average change of residential class for 22 M-3, reduced that from -- took that off the 1997 normalized, actual use per customer to produce for 1998 an average use per customer of 3,000, which we can see below there on the left-hand side. 347 MR. BAKER: That's correct. 348 MR. THOMPSON: And then we did it again to bring it forward to 1999, to bring it down to 2978. 349 MR. BAKER: That's correct. 350 MR. THOMPSON: And that's the number that was reflected in the agreement and we did this for each rate class. 351 MR. BAKER: That's correct. 352 MR. THOMPSON: And so that the volumes that were used as the basis for the agreement were these normalized, actual volumes up to 1997, and then reduced further by the rate of decline that had occurred, the average rate of decline that had occurred in prior years. 353 MR. BAKER: That's correct. 354 MR. THOMPSON: So I suggest to you that those volumes did have embedded in them because they were driven-off actuals, they did have some efficiency savings reflected in them. 355 MR. BAKER: Yes, I'm not disputing that fact, that, based on the methodology that we followed, there would have been some energy-efficiency impacts in those years from 1992 to 1997. What's in dispute here is that we had a forecast 1999 amount of DSM savings in the plan and the position that's being taken is that that 1999 forecast amount was reflected in the forecast. And just walking through the methodology that we just did, and I would agree with you that there would be some efficiency impacts in the '92 to '97, but there's not in terms of a forecast 1999 amount for the DSM savings. 356 MR. THOMPSON: Well, I guess you may not agree with this, but intervenors could be forgiven for thinking that there were, based on the pre-filed evidence and the way we worked at developing the volumes? 357 MR. BAKER: My view is that to the extent that we had -- and there was a view that we were trying to recover a projected amount for DSM savings in our rates, that parties would have been aware of that and parties who were paying for that in rates would have wanted to know what that impact was. And similarly, as I indicated, in terms of a deferral account, it was clear in all the preceding evidence in RP-1999-0017. And the oral testimony of Mr. Fogwill, I think, clearly indicates that there was no amount built into rates. 358 MR. THOMPSON: Well, that's two -- a few pages out of a transcript that's extremely voluminous. Let me put it this way: The statements that are contained in the pre-filed evidence about the natural-gas savings forecast in the DSM plan are reflected in the forecast of the 1999 demand for natural gas by end-use consumers. Nowhere did Union Gas ever say that was not the case explicitly, did they? That I recall. 359 MR. BAKER: Again, I've been at this a while as well, and I know the DSM has always been exactly as you've described it. It tends to go on its own path and come together, but I'd suggest that parties in this room that are actually paying their rates that come out of a negotiation, it would be a very important point for them to know what is actually included in rates. 360 So if we're forecasting DSM savings in 1999 of a certain amount, and that is going to translate into basically an increase into the revenue requirement, then that's something that parties would drill down on and know. As I said, we would have that as a specific threshold for a deferral account, because obviously people that are paying for that in rates and are not going to want us to set up an LRAM account based on the way we did that, would operate to capture all savings effective January 1, 1999, because they would know that they're already paying something in rates. And therefore the only thing that that LRAM should capture is any variance off that amount that's in rates. 361 MR. THOMPSON: Well, I -- you are, in effect, saying that we should have caught, in this document, the ADR document which the company drafts and then parties screen it and eventually we get sign-off on it, you're in effect saying to someone, if they thought that the LRAM was going to operate off targets as opposed to zero base, someone should have caught this word "all." That's basically what you're saying. 362 MR. BAKER: Again, I go back to all the history in terms of the way Union has always put a forecast together and our forecast has always been based on actual -- normalized, actual results, actual consumption over a period of time, normalized for 30-year weather. We've never built specific adjustments on top of that regression econometric forecast for anything, including DSM. 363 So, the history of everything that we've always done in terms of the way we've put our forecast together has always been based on that, and the evidence in this case, in our revenue and the revenue section of the evidence, clearly points to that as well. There was no explicit adjustment. 364 MR. JACKSON: Mr. Baker, when you talk about regressions here, I'm not sure whether you would have factored in this trend of declining use per customer, then, would you have? 365 MR. BAKER: The trend of declining use per customer is really a fallout of looking at the actual consumption over a period of time. That is the trend that we see. 366 MR. JACKSON: Right. And that is something that does go into your forecasting, you're saying? 367 MR. BAKER: That's correct. And I think that goes back to the point that -- the discussion that Mr. Thompson and I had when we looked at the methodology that we followed in 499. It was clearly -- I'm accepting the fact that there was clearly efficiency measures that would have been incorporated in these actuals, but the issue that we're talking about here is specifically the forecasted 1999 DSM-planned savings, and those weren't in the forecast. 368 MR. JACKSON: But aren't you saying, effectively, when you say that the trend would have been used, aren't you effectively saying that for 1999, your forecasting group would have used a use per customer of 2978, or something similar, by virtue of having taken it from some sort of a regression analysis? 369 MR. BAKER: That's what I'm hearing so I need some help identifying that. 370 The history of our volumes in those prior years would have clearly pointed to a downward trend. So, it would have basically said what we we've seen happen over a historical period, directionally, on a trend line, is going to continue to happen. But it wouldn't explicitly account for any new incremental energy-efficiency initiatives that we're pursuing as a result of the DSM plan, so it wouldn't pick up that new incremental piece in terms of what we're trying to accomplish through the DSM plan. 371 MR. JACKSON: Mr. Dominy has just commented to me, wouldn't it pick up the increment that was implied by whatever regression analysis you were using? It just wouldn't pick up any increment over and above that. In other words, if you're planning to spend another $100,000 on getting the message out for people that hadn't converted to more efficient equipment, that it would capture that 100,000 but it might not capture -- if the 100,000 was implied by carrying past patterns forward, it would capture that but it wouldn't capture the effect of another 50. 372 MR. BAKER: It wouldn't capture the increment which is really -- I think when you look even at the DSM evidence on the way the LRAM worked, it's cumulative over time. So once you get an amount of DS savings in, say, year '98, it continues into the future for each of those years, and then the next year you roll in, you have your program again and there's another increment. It's really that increment in 1999 that we're talking about. 373 MR. JACKSON: Okay. Well, I think that's what Mr. Dominy and I are thinking about, too; that the basic increment would continue, it just wouldn't -- it would be implied that it would continue in the forecasting methodology you are describing using this regression analysis over a number of years, but that any acceleration of that would not be representative. 374 MR. BAKER: Well, any acceleration. But I think when you look at the methodology that we used in the ADR agreements, we picked up actuals until 1997. That's the basis by which we adjusted that '97 actual to get down to a '99 amount. So there wouldn't have been -- following that logic, there wouldn't have been any increment for the '98 DSM activity, nor would there have been any increment for the 1999 DSM activity. 375 MR. JACKSON: Sorry. I thought to get to '90 -- I thought you were saying to get to '99 you took '97 and carried it forward two years. 376 MR. BAKER: But the basis on the adjustment, the 22-metre-cubed adjustment, was based solely on the differentials that we saw in the years '92 to '97. 377 MR. JACKSON: I'm with you on that. But the '99 amount which would have worked into your forecast for '99 would have taken into account some further reduction of 22 each year, which, as you say, was a reduction implied by looking at a historical trend only up to '97. But it would still include the 22 each year after '97. It's just that maybe the 22 could have been updated to 23 had you put in actual 1998 information, but you didn't have it at that point. So yes, indeed, the 22 is based on '93 to '97, but you don't make the 22 zero in going forward; it's 22 taken off for '97 and 22 taken off for '98, isn't it? 378 MR. BAKER: I think what I'm really trying to say, obviously not very clearly, is that the 22 would reflect the level of energy-efficiency activities and perhaps the increasing level of activity in terms of the DSM programs over those years, but it would not explicitly pick up the plan, the DSM planned savings or actual savings for '98 or '99. 379 MR. JACKSON: Okay. I guess that is where we're having trouble. And we -- I'm just failing to understand why it would not. But maybe this is something, even if you just reflect on for a little while, you'll find a way to come at it just slightly differently and explain it to me but it seems to me that the whole methodology assumes that it would. But I -- therein lies a problem and I don't want to hold up -- you may want to take another run at it right now, but in terms of explaining it to us, you might want to reflect on it for a few minutes and then come back because we seem to be at a bit of an impasse. 380 MR. BAKER: I'll reflect on it and see if I can find a little bit better way of -- 381 MR. JACKSON: I recognize we may be missing something that we should be picking up from your evidence and I'm just telling you that we are not there yet. So let's carry on. 382 MR. THOMPSON: I just have a few more questions, Mr. Chairman, and I'll conclude. 383 Mr. Baker, when I shake this all down, it sounds to me that the situation is this, and I'd ask you if you'd agree. If intervenors thought that the DSM savings were reflected in Union's forecasts as the pre-filed evidence stated in words, we were mistaken; is that correct? That's step one. 384 MR. BAKER: That's probably true. 385 MR. THOMPSON: Okay. And if intervenors thought that when they negotiated a final resolution of the volume levels, if they thought that included a reduction of -- well, a change of everything including the -- their belief that DSM had been reflected in your original forecast, they really didn't have a deal on that point, is what you're telling us? 386 MR. BAKER: I guess what I'm saying is I just can't accept that that would have been the case. As I said, for parties that are paying for amounts in rates, there would have been an explicit identification of the specific amount, that it was in rates for DSM for that year. 387 MR. THOMPSON: Well, I'm not so sure I agree with that, but anyway -- and if we thought that LRAM was to work around a target, the targets that you were forecasting we were also mistaken. 388 MR. BAKER: No. I think the target that was clearly identified in the ADR agreement was the zero base and that's why it referred to all DSM savings. 389 MR. THOMPSON: Well the targets that were identified in the evidence weren't zero, were they? The targets that were identified in the evidence were the targets in the DSM plan. 390 MR. BAKER: That were targets in the DSM plan but they were not specifically adjusted in respect of Union's 1999 volume forecast. 391 MR. THOMPSON: No, but when the word target was used in the evidence, it was a savings target. My recollection was you had them for five years. 392 MR. BAKER: Again I come back -- the only way an LRAM makes sense, you can refer to targets that's in a DSM plan, but the only way that the LRAM makes any sense philosophically is that it goes around the threshold level that is included in rates is the entire intent of the LRAM is to keep the utility financially indifferent. So that was the point of my earlier example where it doesn't matter, to certain extent, what's in the DSM plan for the functioning of the LRAM, it depends and hinges on what is included in rates and that's the threshold around which the LRAM works. 393 MR. THOMPSON: Well, I'll try it one more time. You come forward with a forecast of let's say 100 units per annum for a particular rate class and you tell us in words that that forecast includes the impact of DSM savings, that's what the words say. 394 MR. BAKER: That's what the DSM evidence says that's not what our evidence on Union's 1999 forecast says. 395 MR. THOMPSON: Well, so maybe there's confusion, I don't know, but the words I read tell me that. Then we negotiate, we think you've low-balled your 100 based on your various things, and we end up at 102 for that original item of 100 that we were told, in words, reflected DSM savings. So we land on 102; it's a negotiated deal. And you're now telling us what the word said was in there wasn't in there and I'm saying -- well, just stopping there, is that a correct description of what's happened here? 396 MR. BAKER: I think that's maybe your impression what's happened. It's not mine. 397 MR. THOMPSON: All right. Okay. Well I don't know what we do with this mistake but we'll address it in argument. Thanks very much. 398 MR. BAKER: Again, I wouldn't agree with the comment that it was a mistake. 399 MR. THOMPSON: What is it, if it's not a mistake? 400 MR. BAKER: I thought you were referring to the mistake in terms of the impact in the ADR agreement and my position is that the ADR agreement reflected what was understood. 401 MR. THOMPSON: All right. Well, I wouldn't argue with you anymore. Thanks very much. 402 MR. JACKSON: Thank you, Mr. Thompson. 403 Let's take a break and we're a little late in starting. I can't quite see that clock; is it about five after eleven? Thank you. So let's take a 20-minute break and, as in the past, when we've been a little bit late taking our break, if there's no objection, we will run until 12:15 then for the morning session, so you can plan accordingly. So we'll be back then at 25 after 11. Thank you. 404 --- Recess taken at 11:05 a.m. 405 --- On resuming at 11:35 a.m. 406 MR. JACKSON: Please be seated. 407 There was a suggestion at the break that maybe we could actually sit till 12:30. Would that inconvenience anyone? Let's give that a try and see how far we can get. 408 All right, Mr. Dominy has actually just suggested to me that it might be good for parties to start thinking about an argument schedule as well. And, we have heard from Mr. Penny that we're likely to get oral argument sometime in the first half of next week, but do any other parties wish to give their argument orally? Do they have any strong feelings or can we proceed on the basis that it would be written argument and then let's have some suggestions for dates. So I just toss that out and maybe the parties would talk about it. 409 Mr. Moran. 410 MR. MORAN: Thank you, Mr. Chair. 411 Mr. Klippenstein has asked me to file something on his behalf for his cross-examination. It's transcript excerpts, it doesn't say which proceeding it's from. 412 MR. KLIPPENSTEIN: These are a few pages of transcript excerpts from 0017 case and they are a continuation of transcripts we reviewed earlier today in the cross-examination, namely the transcripts of Mr. Fogwill which are in the LRAM materials of Exhibit F.5.3, so this is a continuation of that transcript excerpts. 413 MR. MORAN: That would be Exhibit F.7.3, excerpts from RP-1999-0017 transcript filed by Pollution Probe. 414 MR. PENNY: Mr. Chairman, Mr. Baker indicated to me at the break that he thinks that he can put together something to answer your question, but it will take a little more time than had at the 20-minute break. So, I don't know if you wanted to give that an undertaking number whether we would come back, perhaps after lunch, and try to speak to that. Which ever you prefer. 415 MR. JACKSON: I think -- I'll take Mr. Moran's advice on that. Are we okay just leaving it if it's going to be dealt with the same day? 416 MR. MORAN: I think that will be fine if Mr. Baker is coming back same day with this, it will just be part of his evidence. 417 MR. JACKSON: That's fine. Thank you, Mr. Penny. 418 Mr. Klippenstein, are you next? 419 MR. KLIPPENSTEIN: I think I'm next. I think I'm safe that Mr. Thompson's gone that I can step up. 420 MR. JACKSON: Thank you. 421 He's actually behind you. 422 MR. KLIPPENSTEIN: That's even worse. 423 MR. THOMPSON: Not for long. 424 CROSS-EXAMINATION BY MR. KLIPPENSTEIN: 425 MR. KLIPPENSTEIN: Thank you, Mr. Chairman and Members of the Panel. I have a number of questions that follow on some of the materials Mr. Thompson was questioning about. 426 Mr. Baker and Ms. Platis, I would appreciate if you, I guess, would put yourself in the frame of mind to deal with the question of the DSM and LRAM materials in terms of the role of the forecast versus the role of the totals. In other words, Mr. Thompson identified an issue about whether the LRAM deals with total DSMs, DSM volumes or the variance of DSM volumes from the forecast target. So it's that total versus variance from forecast target issue that I'd like to continue with. 427 I believe you referred, Mr. Baker, to some of the transcripts from the evidence of Mr. Fogwill in the 0017 case to suggest that the DSM forecast volume savings had not been included in the volume forecast and -- have I got that right? 428 MR. BAKER: That's correct. 429 MR. KLIPPENSTEIN: The LRAM materials which the company kindly compiled and filed as Exhibit F.5.3 include some of the Fogwill transcripts as I'll call them, beginning at page 33 of the LRAM materials. And I wonder if you could turn that up. And then if you could also pull up the materials I've provided to you, I believe yesterday, which are the continuation of that transcript and that's just been marked as an exhibit, as Exhibit F.7.3, I believe. Do you have that available? 430 MR. BAKER: Yes, I have it. 431 MR. KLIPPENSTEIN: And F.7.3 is pages 2147 of the transcript to page 2150, which follows after the transcripts in the company's compilation. 432 If you could turn to transcript page 2149, so that's transcript page 2149 of Exhibit 7.3 which is the handout that Mr. Moran just distributed. And that follows after Mr. Fogwill's statement about DSM volumes not being included in the volume forecast; is that correct? 433 MR. BAKER: That's correct. 434 MR. KLIPPENSTEIN: And if you look at the middle of the page, line 11, the transcript says, the Presiding Member says: "And the last is just a simple information question. That is, I looked at the ADR for 499 and the references all there are to the D.1.T5 DSM plan et cetera. So if I wish to do some background reading into this DSM plan as the base of this program, that's the document that I would extract from the public file." Is that correct? 435 MR. BAKER: That's what it says. 436 MR. KLIPPENSTEIN: And Mr. Fogwill says, "Just a minute," and Ms. Platis identifies a document and then the Presiding Member continues: "That's in the decision in 499 which attaches to the 499 settlement agreement, they talk about evidence references. Their evidence reference is a D.1.T5, DSM plan; D.1.T5, appendix E, DSM plan; and then three other references on the direct evidence of Mr. Byng and the written evidence of Mr. Cherniak and Mr. Neme. That's page 41 of the --" and then Ms. Platis says, "Yes that is the five-year DSM plan that was presented in 499." And Presiding Member says, "But that's the document, if I wish to investigate, that I would look into?" And Mr. Fogwill says, "Actually, Mr. Chairman, was your reference D.1, tab 5?" The Presiding Member says, "That's what it says, Mr. Fogwill." And Mr. Fogwill says, "Okay." 437 Now, I'd just like to look at this exchange, and keep in mind this comes just after Mr. Fogwill saying that the DSM forecast volumes are not in the volume forecast. Now, would you agree with me that the Presiding Member is asking whether the place to look for background reading into the DSM plan is D.1.T5 and appendix E? 438 MR. BAKER: Yes, that's what Mr. Fogwill has indicated. 439 MR. KLIPPENSTEIN: So Mr. Fogwill is indicating that if the Board wishes further clarification or further understanding of this evidence and the DSM plan, those are the documents to look at; is that a fair reading of that exchange? 440 MR. BAKER: I think, in addition to the 499 ADR agreement. 441 MR. KLIPPENSTEIN: Yes. 442 Now, Mr. Thompson this morning looked at some quotes within those documents, and I want to take you back to some other quotes. I won't repeat the ones that Mr. Thompson directed your attention to but again -- so a Board member, it seems to me that a Board Member who wants further clarification on Mr. Fogwill's evidence, and in general about the DSM plan and the LRAM, would, based on Mr. Fogwill's comments here, go back to those documents. 443 And so if you could turn up one of those documents mentioned, namely D.1 tab 5, appendix E which, in the Board's -- excuse me, in the company's LRAM material compilation is at page 5. Now, -- if you go to page 8 of that appendix E, I do want to refer to something that Mr. Thompson identified and that's in the third paragraph, the last sentence which says, "The natural-gas savings forecast in the DSM plan are reflected in the forecast of the 1999 demand for natural gas by end use consumers." Do you see that? 444 MR. BAKER: Yes, I see that. 445 MR. KLIPPENSTEIN: Would you agree with me that it would be fair for a member of the Board just having heard Mr. Fogwill refer them back to appendix E for that Board Member to look into what I just said, what I just referred to, look at that sentence and conclude that, in fact, with respect to Mr. Fogwill's evidence, it appeared that he was incorporating the statement that natural-gas savings forecast in the DSM plan are reflected in the forecast of the 1999 demand for natural gas. Would that be a fair thought process by a Board Member? 446 MR. BAKER: I think when you look at it, you would look at it in the totality of what's there. So you would look at Mr. Fogwill's testimony where he said there was nothing included in the base forecast, you'd look at the reference to the EBRO 499 ADR agreement and you would like at this piece of evidence that we're just looking at. So I would look at it to say a Board Member would be looking at all three pieces of those information, not one in isolation. 447 MR. KLIPPENSTEIN: All right. I appreciate that one would want to look at it in the totality and I agree with that. 448 Now, can you point me out anything in the 499 evidence other than those two or three comments by Mr. Fogwill in the transcript -- excuse me, 0017, anything which says that the DSM savings were not included in the volume forecast? 449 MR. BAKER: As I was trying to indicate earlier, Union did not change the methodology by which it was forecasting normalized average consumption and that methodology, ever since I've been at Union, has been one that looks at actual results over a period of time, progresses that against 30 year normal weather and that's it. It's a regression analysis and does not build in specific adjustments. I say that combined with the wording in terms of the LRAM deferral account would indicate that there was, in fact, no amounts in the forecast. 450 MR. KLIPPENSTEIN: Well, my question is again, specifically, can you point to me anything in that evidence where a Board Member who's following up on Mr. Fogwill's document reference here, where that Board Member will say, "Ah, all of this written evidence does, in fact, say somewhere that the DSM volumes were not in the forecast." Can you point to anything in writing anywhere in that evidence? I think the answer is no, actually. 451 MR. BAKER: I'm saying you have to read the evidence -- you don't read one specific piece of evidence in isolation of all the rest. So you would look at all of Union's evidence and, as I just indicated, all of our revenue forecasts have been made on a consistent basis. When you look through that, there's no specific adjustment for DSM in any of the volume revenue forecasts and, again, you'd look at it in the context of the ADR agreement. So, you're trying to get me to say would a Board Member look at one piece of evidence in isolation, and I wouldn't agree with that. 452 MR. KLIPPENSTEIN: I've done the opposite. I've said: Let's look at the totality of the information; can you point to me on a page, in black and white, anything that would tip off the Board Member that the DSM forecast were not in the volume forecast. I don't think you can point out a single sentence anywhere in there. And we've asked in our interrogatory and so when you say look at the totality, I want to do that. But can you -- I'm going to move on but, can you point me to anything? 453 MR. PENNY: Mr. Chairman, could I just ask for clarification, through you, if Mr. Klippenstein, whether he's talking about appendix E or about the entirety of the evidence? 454 MR. KLIPPENSTEIN: I'm asking about the entirety of the evidence. 455 MR. BAKER: Typically, when we do our forecast, we say what's in the forecast, we don't put a laundry list together to say 50 things that aren't in the forecast. So will you find an answer in black and white that says there's no DSM savings in the forecast in terms of Union's revenue forecast evidence? No. 456 MR. KLIPPENSTEIN: All right. Well, then, let's look at another piece of the totality, and if you could look at the LRAM materials. I want to look at the materials regarding the load forecast and look at page 1 of the LRAM materials compiled by the Board which is -- by the company, which is Exhibit F.5.3. If you look at page 1, you'll see that that's the pre-filed evidence regarding revenue forecast; is that fair? 457 MR. BAKER: That's correct. 458 MR. KLIPPENSTEIN: Okay. And then look at page 2 of the LRAM materials, which is page 14 of 23 of Exhibit C.1 in the 499 case. And the top paragraph does talk about statistical regression analysis, but the last sentence of paragraph 1, and I'm putting myself in the mind of a Board Member who's looking backwards to try and understand the evidence, the last sentence of the first paragraph says: "End-use analysis is also used in the residential model to provide additional understanding of certain key under-use applications, e.g., the increasing penetration of high-efficiency furnaces." 459 Now, let me also drop down to the heading 4.3 entitled "Other Factors"; do you see that? 460 MR. BAKER: Yes. 461 MR. KLIPPENSTEIN: And if you turn the page to page 15 of 23, at the top you see the sentence: "These factors are not contained in the statistical regressions"; do you see that? 462 MR. BAKER: Yes. 463 MR. KLIPPENSTEIN: But then drop to the third paragraph and let me read that: "On the other hand, factors that foster the declining usage trend include, A, increased customer awareness and acceptance of energy-efficient technologies resulting from demand-side management initiatives and promotions." Let me stop there. 464 I'm suggesting to you, Mr. Baker, that a Board Member who has heard Mr. Fogwill say, you can look at the DSM plan and you can look at appendix E to understand the DSM plan, and if that Board Member, indeed, looked at those and then looked at the revenue forecast and load forecast here that talk about other factors, including a DSM forecast, that that Board Member could quite reasonably conclude that, indeed, the DSM volumes were included in the load forecast; wouldn't that be a fair conclusion? 465 MR. BAKER: No, it's not a fair conclusion. 466 MR. KLIPPENSTEIN: So you're telling me that it would not be reasonable for a Board Member to read what I just read to you and conclude that DSM had been accounted for in the load forecast; that wouldn't be reasonable? 467 MR. BAKER: It's not reasonable because what the evidence says is that, and I'm on page 2 of the package, at the very bottom he's talking about other trends, it says that these are not included in the statistical regression and these factors are not -- and on the top of page 3 it again states that these factors are not contained in the regression. 468 What you see in the following two paragraphs is a discussion of trying to get an understanding of the fact that you have a declining trend; what are some of the things that would be tending to influence use in an upward direction, and what are the kinds of things that would be tending to move it in a downward direction. Those specific things aren't specifically factored in. To the extent that they exist in the historical data, they are picked up in the regression analysis and this is a statement trying to give a perspective in terms of what some of the factors would be that would generally move it up or down. 469 MR. KLIPPENSTEIN: Now, if I look at the top of page 2, I see a reference to statistical regression, and it says: "Statistical regression analysis is the main analytical tool used to prepare the monthly and annual usage forecast." When I see the word "main" and then I see a heading down below that says "other factors," which refers to DSM, isn't it fair for myself or a Board Member to conclude that even if the statistical regression doesn't include those factors, the other factors are, in fact, taken into account? Isn't that a fair conclusion for a Board Member to reach? 470 MR. BAKER: I don't think it's fair. It does not say in this evidence that there's been any specific adjustment to the regression analysis for these factors. 471 MR. KLIPPENSTEIN: All right. 472 MR. JACKSON: I'm sorry, I'm doing my best to follow this and/or catch up. Notwithstanding that this was all available when we did the 17 case, this was evidence in EBRO 499 which I take it was the basis of the settlement agreement and this material was not part of the hearing -- sorry, was not examined as part of the hearing process, was it? Do recall, Mr. Klippenstein, if it was? 473 MR. KLIPPENSTEIN: I don't recall, but that may well be the case. 474 MR. JACKSON: I'm just looking at that for context and as I read this statement, "other positive and negative demand factors," that is other than the ones that would have been picked up in the regression analysis, Mr. Baker; is that what it's referring to? 475 MR. BAKER: Can you just tell me where you are? 476 MR. JACKSON: At the bottom of page 2 where it refers to other positive and negative demand factors. That's, I take it, actually from the adjoining clause that I'm right to assume that that is other than those that would have been picked up in the statistical regressions; correct? 477 MR. BAKER: I think what it's referring to is that you're going to pick up certain things in the trend. There may be other things in the market that would generally be looking to move -- maybe move that trend upward or downward relative to what's in that historical analysis. I think that's what it's referring to. 478 I'm trying to say you use the actual data and you get a trend in terms of what consumption is going to be and as you move forward, you are likely to see -- we've seen in some variation from that trend and here's some of the factors that would contribute to a variation so there's some things in the marketplace that would tend to move off the trend line in an upward direction and there's some things that would tend to move off of that trend line in a downward direction. That's what that is trying to say. 479 MR. JACKSON: Right. And then the last paragraph says, "On the other hand, other factors that foster the declining usage trend," and these are factors that are other than the other factors then, I take it, are increased customer awareness, acceptance of energy-efficiency technologies resulting from demand-side management initiatives and promotions so those are the kinds of things that are included in the trending analysis, aren't they? 480 MR. BAKER: They're included, this gets back to the discussion we were having this morning. They're included in -- to the extent that you had those activities going on, they are included in the actuals by which we've done the trend line for use. And what this is really trying -- and that's, I think we've agreed with that, that is built into the actual data. 481 MR. JACKSON: Right. And Mr. Fogwill, though, has said that the target from which the deferral amounts will be calculated is effectively zero, so a large amount goes into the deferral account and I take it that part of what the customer-review process would have addressed is how much of that amount in the deferral account relates to the efficiencies that were already included in the forecast and how much wasn't. We just deferred a larger chunk of work, didn't we, by saying that you could put all into the deferral account and it would be fought over later; or is that not a possible or likely interpretation? I'm doing a little catching up here, but just help me. 482 Mr. Thompson this morning suggested that he and his advisors might have been a mistake in their understanding, but another interpretation might have been that the company was just saying rather than trying try to figure out how much was in the demand forecast right now, we'll set a target of zero and defer everything and we'll fight over how much is in the demand forecast later in terms of coming up with a factor that should be applied to the deferred amount for recovery; is that a possible interpretation? 483 MR. BAKER: I think that our interpretation was that while there were energy efficiency or DSM or other things that were clearly in the historical data that we used to set our use per customer in 1999, it did not reflect the incremental activity, DSM activity that we were going to have in '99. And therefore that wasn't in the forecast. 484 I agree with you, from our perspective, from Union's perspective, it was whether we had explicitly built that amount into rates or let it go into the LRAM deferral account. Our view was that it would be a discussion on the amounts in the LRAM deferral account to make sure that there was agreement amongst the consultative and the audit report to make sure that that was a valid amount, but it was clearly that that amount was what we would recover over and above the rates. 485 MR. JACKSON: Okay. I do understand what you're saying; I'm still wrestling with it though. Don't presume because of the question I ask that I've made up my mind on anything; I haven't, I'm just trying to probe this a little bit. But you're basically saying that the total amount in the deferral account is what you expected to recover and what I was saying might have been a possible understanding, and I'm just -- this is purely hypothetical, was that a total amount was put into the deferral account and one would have to assess later whether a portion of that was to be recovered and a portion of it was to be associated with an amount that happened because you were already forecasting DSM effects in your volume forecast. 486 So, it's just to put -- it's just to put another alternative or an alternative view on the table. I still am wrestling with what the right interpretation might be. 487 MR. BAKER: I think it goes back to -- we're going to try to put some information together that can try to hopefully explain our position a little bit more clearly, and we'll work on that over the lunch hour. 488 MR. JACKSON: Good. Thanks very much, Mr. Baker. 489 MR. PENNY: Mr. Chairman, I don't want to keep giving Mr. Klippenstein the back seat, but there was something you said a moment ago that I just wanted to follow up on. It had to do with your reading of this page. I thought I heard you say that the third paragraph that starts "On the other hand" was other than the other factors, and I think that's not what it means. I think that the other factors are both positive and negative and then the other factors are -- the positive other factors are first dealt with in the middle paragraph, and then the negative other factors are dealt with in the final paragraph of that page. 490 MR. JACKSON: Thank you for that, Mr. Penny. That may very well -- 491 MR. PENNY: In other words, these are both things that are not contained in the statistical regressions that's referred to above. And then there is a positive and a negative, there is a paragraph dealing with the positives and a paragraph dealing with the negatives. 492 MR. JACKSON: But it doesn't say there the factors that foster the variations on the down-side of the trend, it says factors that foster the declining usage trend itself. And that's, I think, where I had trouble reading it. But you're saying that it probably should have said "factors that foster the negative variations from the trend"? 493 MR. PENNY: Both paragraphs start the same way, is really my only point. These are other factors and one is positives which tend to show the declining trend in usage and negative factors that tend to foster the decline in usage trend. 494 MR. JACKSON: Okay. Maybe "On the other hand you had" should be moved up before the second last paragraph, then, because it seems to me it's changing -- 495 MR. SOMMERVILLE: It's too late. It says, "is capable of both," and I think other interpretations. That's the difficulty that we have. 496 MR. JACKSON: Yes. I'll leave it with you, Mr. Penny. I think it's -- I think maybe it can be read more than one way, but that's the trouble with this. We used to talk about making these things lawyer-proof and now that we have a couple of ex-mathematicians on the Panel, I guess we have to make them mathematics-proof. Thank you. 497 MR. KLIPPENSTEIN: Thank you, Mr. Chairman. 498 MR. SOMMERVILLE: Just so that I'm clear on the references as well, the appendix E that starts on page 5 of F.5.3, that is, in fact, the DSM agreement. It was adopted by the parties as part of the ADR in the 499 case. So that's a document that was accepted by the parties in that case? 499 MR. KLIPPENSTEIN: Yes. Although it wasn't attached as part of the agreement, it was referenced in the agreement. It began its life as part of Union's pre-filed evidence. 500 MR. SOMMERVILLE: So my question is: Does appendix E reflect the agreement of the parties in the 499 case or not? 501 MR. KLIPPENSTEIN: It does. 502 MR. SOMMERVILLE: It does. 503 MR. KLIPPENSTEIN: From my client's point of view, there's no question about that. 504 MR. PENNY: There are two appendix Es. Can I just clarify which appendix E you were talking about? There's appendix E that's evidence in the proceeding; that's Exhibit D, tab 5, appendix E. 505 MR. SOMMERVILLE: Right. That starts at page 5 of the materials that you filed. 506 MR. PENNY: Is that the appendix E that Mr. Sommerville was referring to? 507 MR. SOMMERVILLE: That was the one I was referring to, so that does represent the agreement of the parties in the 499 case. 508 MR. PENNY: That represents the evidence that was filed -- 509 MR. SOMMERVILLE: Right. 510 MR. PENNY: -- in that case. 511 MR. SOMMERVILLE: But when Mr. Dominy asked his question about what reference he ought to make or what reading he ought to do in order to understand the agreement, he was referring to this document. 512 MR. KLIPPENSTEIN: That's correct. 513 MR. SOMMERVILLE: And the parties agreed that that's the right reference. 514 MR. KLIPPENSTEIN: That's correct. 515 MR. SOMMERVILLE: Thank you. 516 MR. KLIPPENSTEIN: As part of that reference; namely, appendix E -- 517 MR. BAKER: I just wanted to clarify before every -- again, when I go back to those transcript references, the way I read it and what was being asked by the Panel Members were not so much -- if I want to get some background on specifics of the LRAM and how it relates to the agreement, it was -- if I'm looking for some background into the DSM plan itself so the totality of the DSM plan, where do I look in Union's evidence. And that was the reference back to appendix E. I think the point we were trying to make earlier was in terms of the LRAM itself, that you would really need to look at what was in appendix E along with the ADR, both of those together, to look at that. 518 MR. KLIPPENSTEIN: All right. Well, let's do exactly that. Let's look at appendix E together with what's in the ADR agreement, as you've just suggested. If you turn to page 19 of the LRAM materials, Exhibit F.5.3, we have an excerpt from the ADR agreement; is that correct? 519 MR. BAKER: That's correct. 520 MR. KLIPPENSTEIN: And if you look at, two-thirds of the way down the page of page 19, those materials, and this is an excerpt from the ADR agreement we're looking at, there's a heading, "Lost Revenue Adjustment Mechanism," LRAM; is that correct? 521 MR. BAKER: That's correct. 522 MR. KLIPPENSTEIN: And let me read the next paragraph. It says: "The parties agree that a lost revenue adjustment mechanism should be established for DSM. The LRAM tracks distribution-margin impacts attributable to DSM activities by rate class as compared to the forecast levels. It is a revenue-neutral mechanism that is designed to keep the utility indifferent to the level of the energy efficiency that is achieved." 523 Now, do you see the reference to the comparison to the forecast levels? 524 MR. BAKER: Yes. 525 MR. KLIPPENSTEIN: And that reference incorporated in the ADR agreement is compatible with several references in the appendix E DSM plan; do you agree with that? 526 MR. BAKER: No, I don't. That's what turns on the discussion. 527 MR. KLIPPENSTEIN: All right. Well, then, let me go backwards then and let's look at the reference incorporated specifically into the ADR agreement which says that "The LRAM tracks distribution-margin impacts attributable to DSM activities by rate class as compared to the forecast level." And I identify the forecast level as opposed to the zero base that you've referred to. 528 Okay, if you could turn now to appendix E -- actually before we do that, while we're looking at that page, look at the bottom, if you will, of that page 19 of the ADR agreement. It says: "The parties agree that the LRAM as shown in the pre-filed evidence at D1, T5, appendix E, is designed to mitigate actual revenue impacts." 529 Now, would you agree with me that that appendix E referred to is the appendix E in -- that's found at page 5, I believe, of the LRAM materials? 530 MR. BAKER: Yes, and again it comes back to that evidence talks about the philosophy and the approach behind an LRAM, which is to keep the utility financially indifferent to the level of DSM. So you have to get back to look at the fact of what is in your base forecast, what is in the rates that you are going to have going forward. That's the basis on which the LRAM operates. It does not operate against what's in a DSM plan and that really gets back to the example that had I earlier this morning. You can have an amount in your plan but if that doesn't correspond to what's in rates, then that's the nub on which the LRAM works. 531 MR. KLIPPENSTEIN: Well, let me walk through a chain again and put myself, perhaps for a moment, in the -- for a moment only, in the chair of a Board Member who looks at the ADR agreement and walks backward from the ADR agreement to appendix E, and turn to page 8 of the LRAM materials. 532 MR. BAKER: Just before we do that, I want to remind you that the next page of that ADR agreement states - and I know you haven't referred to it but if we're going to look at it, we should look at it in totality -- it states: "The parties agree that a deferral account will be established to record the margin impact of all DS savings realized effective January 1, 1999." 533 MR. JACKSON: Could I just ask a clarifying question in here. It seems to me that maybe the dispute now is over the word "forecast" and what that was referring to, whether that was forecast DSM savings levels or whether that was forecast levels of consumption for the rate class. Can you help me with that, which of the two forecasts I should be focussing on? Let me just put a third one on which is related to the second, and that would be forecast levels of consumption per customer per rate class that perhaps is the -- is what Union is focussing on here. 534 What I think Mr. Klippenstein and his clients are focussing on is that the forecast referred to is a forecast level of DSM savings. So maybe both of could you could comment on that. Have I got it right in what Union is saying, and is it per customer, essentially, that I should be taking or is it a forecast for the whole rate class of consumption? 535 MR. BAKER: This gets a little bit -- what we do in terms of our forecast is forecast normalized average consumption per customer, multiply that by the average number of customers and that produces our forecast. And where I was trying to go earlier is we would not try to explicitly change or modify that approach. If we were going to explicitly put DSM impacts into rate, we would let the normalized average consumption be what it is. We would take the total revenues per rate class and then we would deduct off of that the DSM forecast that's in the plan. If we were going to put it into rates, that's the way we would do it. 536 But when I read the ADR agreement it's clearly compared to a forecast level. Again, because we are dealing with an LRAM and the whole fundamental underpinning of an LRAM is to capture differences relative to what's in rates, when I look at the forecast level, it's clearly around what was in rates irrespective of what was in the DSM plan. 537 MR. JACKSON: Okay, so -- I'm sorry, you are now closer to where I thought Mr. Klippenstein was. It's not as opposed to the forecast level of consumption for that class without DSM, it's as opposed -- sorry, forecast level of consumption for that class, however that forecast is determined. You're saying, as I think Mr. Klippenstein is saying, that the forecast levels that are referred to are forecast levels of DSM savings; is that correct? 538 MR. BAKER: It's trying to -- I think it's a bit of both. You look -- again, if I go back, if you take a rate class like M-2 and if the DSM plan says that it's going to save 10 units for that rate class, we've in fact built the 10 into the rates. That's the basis on which the LRAM would operate off of. If you don't build the 10 units into rates then it's really the zero threshold, the zero level. 539 MR. JACKSON: And the forecast levels that you would use for these purposes are forecasts made for the 1999 year, or are they updated for subsequent years? 540 MR. BAKER: We're just dealing with 1999 here. 541 MR. JACKSON: Okay, yes, right. Because that's all the agreement was addressing, and at the time of that agreement, neither parties nor the Board would have known for sure that we'd be going into a PBR plan, of course, too. 542 Okay. I think that helps a very little bit, thank you. And Mr. Klippenstein, since I raised the questions that I would ask you next as to the interpretation, was I correct in assuming, though, that you were indeed focussing on forecast levels of DSM savings? 543 MR. KLIPPENSTEIN: That's correct, although I would point out I'm not under oath so you have to take that for what it's worth. 544 MR. JACKSON: Well, I give it high value if it comes from a lawyer who is a member of the Ontario bar. 545 MR. KLIPPENSTEIN: I don't mean to make light of it -- 546 MR. JACKSON: No, not at all, and I'm sure you could have Mr. Gibbons say that if you wanted to give it extra weight. 547 MR. KLIPPENSTEIN: You are correct, Mr. Chairman, in your understanding. And it may be useful to pick up the thread that I was angling toward a minute ago on that question; namely, what is the forecast that is being referred to. And it might be useful to turn to page 15 of the LRAM materials, which is Exhibit F.5.3. That is evidence from EBRO 499, Exhibit D.1, tab 8, page 7 of 8, updated. And it has a heading, a quarter of the way down the page, of "LRAM/SSM." 548 The first paragraph speaks of the LRAM and then says in the last sentence: "Further details regarding this proposal are included at Exhibit D.1, tab 5, appendix E, and then it continues: "The LRAM is a revenue-neutral mechanism designed to keep the utility indifferent to the level of energy savings that are achieved. To the extent that DSM savings exceed the forecast target, the reduction in utility margin will be recorded in the deferral account and recovered from customers. To the extent that DSM savings are lower than forecast, the increase in utility margin will be recorded in the deferral account and rebated to customers." 549 I think perhaps that may be helpful, and Mr. Baker, I put it to you, would you agree with me that the sentence which says, "To the extent that DMS savings exceed the forecast target," the forecast target referred to is the DSM forecast; is that correct? 550 MR. BAKER: No, I would totally disagree with that. 551 MR. KLIPPENSTEIN: So when you're telling me that that evidence says, quote, "The extent the DSM savings reduces that forecast target, the reduction in the utility margin will be recorded in the deferral account and recorded from customers," the forecast target is not the DSM forecast target? 552 MR. BAKER: No, the forecast target is what is included in rates, because the only way you can have the LRAM be a revenue-neutral mechanism is to go and underpin that relative to what's in rates. If there's nothing in rates, irrespective of what the LRAM says, we would not be held neutral. 553 MR. KLIPPENSTEIN: You can perhaps forgive me, Mr. Baker. I just have to rely on the words as they appear on the page. So when I read that and it says the forecast target, it doesn't mean the forecast target of DSM, it means, in your view, the forecast target of DSM to the extent that is included in rates. 554 MR. BAKER: Certainly, because that's the basis on which the account -- it's based on what's in rates that you want to ensure that the utility neither wins or loses in terms of the level of DSM. So if we include $10 in rates and we do nothing in DSM, it's not appropriate that we would have collected $10 from customers when we didn't do anything. So we would record that in the account and we would actually pay that back to customers. 555 MR. KLIPPENSTEIN: Now, my problem with that, Mr. Baker, is if I look at that same page, where it says "Further details are in appendix E," and I look at appendix E, there is the statement that both Mr. Thompson and I raised which says: "The natural gas savings forecast in the DSM plan are reflected in the forecast of the 1999 demand for natural gas by end-use customers." 556 So I guess, you know, I follow that chain and I'm at a loss to understand how either the parties or the Board Members who were following Mr. Fogwill's advice could anywhere in the evidence determine that those DSM forecasts were not included in the load forecast and shouldn't be the basis of the LRAM. 557 MR. BAKER: Again, the principal piece of evidence in Union's pre-filed evidence in any given rate case that determines what is or is not in revenue, not the DSM evidence, Union's evidence on what is -- on revenue, volumes, and margins. We've been over that evidence, and clearly there's been no explicit adjustment in that '99 forecast that takes the forecast DSM savings for 1999 and explicitly adjusts our 1999 volume forecast. 558 MR. KLIPPENSTEIN: Well, if you could, again, now turn with me to -- if you could turn with me to appendix E, which is -- I'd like to refer you to page 8 of the LRAM materials, F.5.3. And at the bottom of the page, that's page 8 which is part of appendix E, the evidence says: "For each of the columns showing the lost revenues, the dollar amounts are determined by multiplying the distribution margin by the difference between the amount of savings forecast and that actually achieved. As table E-1 shows, this would be tracked by market sector and allocated to rate classes based on where the savings are realized." 559 Now, I don't see in that any kind of qualifying or explanatory statement that says the forecasts will be dealt with in this way only to the extent that they are included in the load forecast. 560 MR. BAKER: If you go up to the first full sentence of page 8 in that package, it reads: "The LRAM is a simple mechanism and approach to determine the amount of money lost or gained by the utility when actual natural gas savings differ from the savings forecast and built into rates." 561 MR. KLIPPENSTEIN: And so is it your suggestion that the phrase "differ from savings forecasted and built into rates" should be the tip-off to the parties and to the Board that somehow the amounts forecasted were not built into rates, despite what's on the rest of the page? 562 MR. BAKER: As I've tried to indicate earlier, the principal evidence in Union's evidence is what is in our revenue evidence, not the DSM evidence. So I see what it says here and what I'm trying to say is at the time this evidence was put together, there was a notion, and we had the Enbridge LRAM precedent that was out there, there was a notion that there would be an amount included in rates. We didn't do it. We didn't put it into rates. And stepping back from Union's position, the reason that we didn't do it and the reason that we didn't think it was critical was because of the fact that we had the LRAM. 563 So whether we had an amount in rates and the LRAM was going to capture a variance around that threshold, or whether we had no amount in rates and it was going to capture the full amount of the DSM savings, either way you would be protected from the actual level of DSM savings that were generated in a particular year. So we didn't view that it was -- we were going to be into the debate that we have now. 564 MR. JACKSON: When you referred to the revenue evidence in your answer right now, which evidence were you thinking of there? 565 MR. BAKER: That's the evidence at Exhibit C.1, tab 1, that we were referring to earlier. 566 MR. JACKSON: Right. Okay, thank you. 567 The distribution margin at the bottom of page 8, without my having to scan this document, well, scanning it might not do any good without my having to read it in detail, can you just help me with the definition of distribution margin there? 568 MR. BAKER: It would be generally the delivery margin, so net of gas costs. 569 MR. JACKSON: Okay, thank you. Net of purchased gas costs; right? 570 MR. BAKER: Net of the WACOG that is embedded in our rates. 571 MR. JACKSON: Right. Because I had a discussion yesterday with Ms. Elliott as to whether there were any other gas costs. Thank you. 572 Mr. Klippenstein. 573 MR. KLIPPENSTEIN: Thank you, Mr. Chairman. 574 Mr. Baker, I'm going to ask you something that I think is not a difference between you and I. But as I understand it, the LRAM, as presented in appendix E with that table, envisions, as the table shows, that it's possible for the LRAM to produce either a payout to the company or a payout to the customers. 575 MR. BAKER: As long as there is an amount built in and incorporated into rates, the LRAM account will capture variances up or down from that amount; that's correct. 576 MR. KLIPPENSTEIN: I think you and I disagree about your qualifying statement. But the table clearly shows that the LRAM, as described in that table, could, in fact, result in a rebate to customers; is that fair? 577 MR. BAKER: In fairness, my qualifying statement is consistent with our evidence which is the first sentence I referred you to at the top of page 8 which describes what the LRAM is, and the fact that it records variances from the savings that are forecast and built into rates. 578 So, again, you have to take the evidence in its totality in terms of what it's saying. That's the first piece, that is the first, and that's the fundamental premises of an LRAM. The evidence that follows in the table is meant to further describe that and provide an illustration as to how it works, assuming that there is an amount that is built into rates. 579 MR. KLIPPENSTEIN: Well, just to be clear on this, if you could look at that table, that's appendix E, table E-1 -- it's found at page 9 of the LRAM materials -- if you look at the column entitled "Percent of Target Achieved" and go down the column to 100 percent; do you see that? 580 MR. BAKER: Yes, I do. 581 MR. KLIPPENSTEIN: And I read those figures to mean that if 100 percent of the target is achieved, there will be no rebate to customers and no payout to the company from the LRAM; is that fair? 582 MR. BAKER: What this table is showing is that, assuming that $2.431 million was incorporated into rates as the target and, in fact, Union achieved that target, there would be neither a rebate nor a recovery from customers. 583 MR. KLIPPENSTEIN: Well, leaving aside some of your assumptions for the moment, again, doing the same thing, looking at the percent of target achieved and looking at the row of 50 percent, in other words, if 50 percent of the target was achieved, then the total amount identified is approximately 1.2 million and that would be rebated to the customers; is that right? 584 MR. BAKER: Again, I'll repeat what I just said: It is based on, and the fundamental underpinning of this schedule, is that the initial amount incorporated into rates was 2.431 million. And that goes back to the premise of the LRAM at the top of page 8 in the package of materials that we were referring to, that is the basis on which the LRAM operates. You can't ignore that when you are talking about this table. I agree with you totally. I think we're saying the same thing; you are starting from a different point. Clearly, the $2.431 million incorporated into rates is the underpinning assumption with respect to this table. 585 MR. KLIPPENSTEIN: And that had a premise that Union was aware of when it presented this evidence; is that fair? 586 MR. BAKER: Yes, our evidence says that that -- it will differ from savings forecast and built into rates. 587 MR. JACKSON: In terms of the component of that $2.431 million allocable to the residential customers, does that work out to anything near the 22 -- does that correspond with the 22 we saw the trend line estimated savings in '97 and '98? 588 MR. BAKER: My understanding is this is not a table that corresponds to any of Union's actuals. It's an estimated, sort of an illustrative example. 589 MR. JACKSON: Illustrative only. So the $2.431,126, with that precision, was just an illustrative number? I guess it was, is what you're saying. 590 MR. BAKER: As far as I know, we didn't have -- as far as I'm aware, the amounts that we're dealing with right now for 1999 are in the 1.6 or $1.3-million range. 591 MR. JACKSON: So there's no relationship between that and the trend-line-derived amount of 22, whatever those units were, and that might have been volume; is that correct? 592 MR. BAKER: The 22 that you're referring to is the normalized average consumption per customer so that would be 22 cubic metres per customers. 593 MR. JACKSON: Right. And that wouldn't have been used to derive the 2.431,126, obviously, if it was just an illustrative number. 594 MR. BAKER: No, it was not used. And to reinforce that, Mr. Chairman, this table was put together before we did the ADR agreement where we landed on the 22-metre-cubed decline 595 MR. JACKSON: Good. That certainly makes it even more clear. Thank you. No, I'm sorry, I wasn't doubting it, I just was trying to make sure that, in my mind, it was absolutely clear. Thank you. 596 MR. KLIPPENSTEIN: Mr. Chairman, I look at the clock and I am mindful that you mentioned 12:30 as a possible break time. I don't think I will be less than 15 minutes more, and I'm happy to break now or continue, as you wish. 597 MR. JACKSON: Fair enough. I think we should break. Are you the last questioner this afternoon, or could we take a poll here. Mr. Poch will be asking some questions. 598 MR. MOUTSATSOS: I will be asking questions on behalf of the CME as well, and I estimate probably about 20 minutes to 30 minutes for my questions. 599 MR. JACKSON: Okay, thank you. Let's -- 600 MS. LOTT: I also have about ten minutes worth of questions, possibly, assuming it's not covered. 601 MR. JACKSON: So let's say we're going to take an hour for lunch, but that's going to bring us back at 25 to two, okay? Thank you. 602 --- Luncheon recess taken at 12:35 p.m. 603 --- On resuming at 1:37 p.m. 604 MR. JACKSON: Please be seated. 605 Has the time come to number a new document? 606 MR. PENNY: Oh, yes, the copying took a bit longer than I thought so we didn't have it at the coffee break this morning, but this is the document that I referred to earlier. So I think we were -- I can't remember if we gave it a number. 607 MR. MORAN: We were going to wait until it came, and the number will be F.7.4. 608 EXHIBIT F.7.4: UNREDACTED VERSION - MARKET EFFECTS FROM UNION GAS LIMITED'S HIGH-EFFICIENCY FURNACE REPLACEMENT PROGRAM 609 MR. PENNY: And Mr. Chairman, I think Mr. Baker was just going to give a quick update on the question that you had asked with the progress we've made, and then Ms. Platis wants to correct a statement that she made earlier this morning 610 MR. JACKSON: Certainly. Let's do that. 611 MR. BAKER: Given the question that I think, I will try to paraphrase it, that you posed was that to the extent that we are looking at normalized consumption in a test year like 1999 which is based on some historical information actuals in terms of a trend, is they're not something in terms of the DSM that was in those actual years that would have, in fact, get trended through and be in, say, a 1999 forecast. And at this point in time we think that there may be something to that. It's a little more complicated and we're trying to go back and get all of sort of the DSM impacts in those years and all the volumes, so we're following up on that. But there may be some impact in terms of 1999. 612 Now, if you look at the DSM amounts, the LRAM amounts that we are claiming for 2000, 2001, clearly there's no amounts in rates for either of those two years because we haven't been in seeking any rate adjustments for those two years. But for 1999 we are looking into that. 613 So it's a matter of trying to look at specific DSM information that were in the five years that we used and the trend analysis for purposes of the ADR agreement, to see what were the DSM impacts in those years and how does that carry forward in terms of the ultimate NAC number that we had agreed to in the 499 ADR agreement. So notionally is there some amount of DSM savings that is in the forecast by virtue of what we agreed to in the ADR. 614 MR. JACKSON: Thank you for that update. So we may hear further at some point. Thank you. 615 MR. MORAN: Mr. Chair, again, just for the purposes of the record, I don't think we specifically mentioned the document when we gave it that number. So that there's no confusion at least on the transcript, F.7.4 is the unredacted version of a report entitled "Market Effects From Union Gas Limited's High-Efficiency Furnace Replacement Program," dated January 26th, 1999. 616 MR. JACKSON: Good, I think that's useful, to have the full title in the record. Thank you. 617 MS. PLATIS: And the correction that I'd like to make, earlier I identified that formal DSM at Union Gas began in 1993. In fact, I've gone back and checked that and we had DSM at Centra in 1995 for the first year. Nothing was happening in 1993 or 1994 and Union Gas did not start until 1995. 618 MR. JACKSON: So Centra -- 619 MS. PLATIS: Sorry, I got it wrong again. Centra began in 1995 and Union and Centra both combined, had DSM starting in 1996. The period before that there was no formal DSM at either of those companies. 620 MR. JACKSON: Yes, I've got it. Thank you very much. 621 Mr. Klippenstein, then, yes. 622 MR. KLIPPENSTEIN: Thank you, Mr. Chairman. 623 Mr. Baker or Ms. Platis, I'd like to refer you to an excerpt from Mr. Gibbons' testimony submitted on behalf of Pollution Probe. And I'll just read two short sentences from it so you may want to turn it up or if it's not handy. It may not be that big of a deal. 624 MR. BAKER: Do you have a page number? 625 MR. KLIPPENSTEIN: Yes, page 5 of Mr. Gibbons' testimony. 626 MR. JACKSON: What would be the exhibit number in this proceeding be? 627 MR. KLIPPENSTEIN: D.34, I believe. 628 MR. JACKSON: Thank you. 629 MR. KLIPPENSTEIN: And I'd like to ask you about the sentence or two sentences just under the first heading on the page which says: "In its RP-1999-0017 pre-filed evidence, Union proposed to continue with its status quo LRAM methodology. Quote, "The lost-revenue adjustment revenue (LRAM) will be continued during the PBR period as it is currently operating." And then there is the citation from the 0017 evidence. 630 Do you see that? 631 MR. BAKER: Yes. 632 MR. KLIPPENSTEIN: Would you agree with that statement in Mr. Gibbons' testimony? 633 MR. BAKER: Yes. 634 MR. KLIPPENSTEIN: Okay. Thank you. If you then continue with Mr. Gibbons' testimony on the next page, page 6, at about the middle of the page, Mr. Gibbons' evidence states: "Second, even if the DSM volumes were not factored into the 1999 load forecast, it is not a generally accepted regulatory principle that the methodologies for deferral accounts should be retroactively adjusted to insulate a utility's shareholders from management decisions, including errors." 635 Would you agree with that statement? 636 MR. BAKER: No. 637 MR. KLIPPENSTEIN: How would you disagree with it? 638 MR. BAKER: In two respects. A, we don't view it at all. There was an error in terms of what was included in the 1999 demand forecast. And secondly, it was our view that there was no specific amounts explicitly incorporated into the forecast. So again, there was no error. And the LRAM account, as I had indicated earlier, the entire premise of the LRAM account was to operate on a threshold based on what was included in rates. We're not asking for retroactive treatment or adjustment. 639 MR. KLIPPENSTEIN: In your answer to some previous questions, I believe you said that at the time of the evidence in 499, it was expected that the LRAM would operate around a threshold level, and it was assumed that savings would be reflected in the forecast and you've, on a number of occasions, drawn a distinction between the DSM evidence and the volume forecast evidence. It seems to me this may be a case of where the left hand of the company is not knowing what the right hand of the company is doing; is there some truth to that? 640 MR. BAKER: I wouldn't characterize it that way at all. I think there may very well be timing differences between when the company puts its forecast together in a normal case and when the DSM evidence comes together. I think we do tend to, and have been trying over the past few years to make sure that we have some consultation with the DSM consultative before evidence goes in. And quite clearly, I think, in the case of 499, we would have started our forecasting process back in 1997 and that was probably before we had the 1999 DSM plan that we would have filed and done. 641 So I wouldn't say it's the right hand not knowing what the left hand is doing, but it's a function of timing differences between those two things coming together. 642 MR. KLIPPENSTEIN: If you look at Mr. Gibbons' evidence, he says at one point that the only off-ramp in the PBR system as it applies to the RP-1999-0017 PBR plan is an unduly low or high return on equity; is that your understanding? 643 MR. BAKER: It's my understanding in terms of the way an off-ramp was positioned in PBR. 644 MR. KLIPPENSTEIN: All right. And does Union believe that a continuation of the LRAM methodology in this case, where the LRAM pivots or operates around the DSM target and forecast level rather than the total DSM volumes, do you believe that that scenario would trigger the off-ramp provision? 645 MR. BAKER: This issue has nothing to do with an off-ramp at all. What we are talking about is an LRAM. It's our clear view that the LRAM operates and should operate around the amount that's included in the rates. That's the premise of the off-ramp; that's the basis by which a utility is financially harmless. So this, in my opinion, has nothing to do with the off-ramp position in PBR. 646 MR. KLIPPENSTEIN: Supposing the Board Members came to the conclusion that the evidence at various points from Union had been that the LRAM would operate around the forecast level as Pollution Probe believes, it's stated repeatedly in the evidence, and the Board concluded, that that should be the basis of the calculation on LRAM variance account effects in this case rather than, as Union proposes, that there be a payout, if you will, from LRAM based on total DSM savings. 647 Given that scenario of the decision by the Board on that basis, would that trigger the off-ramp provisions, in Union's view? 648 MR. BAKER: Again, I'm going to come back to the fact that in our evidence, at appendix E, that has been referred to a number of times. It's clear the way that we, and I believe all parties, have understood the LRAM to operate. And that is, and again I quote from the top of page 8 of the package, "For where gas savings differ from forecast and built into rates." 649 MR. KLIPPENSTEIN: Supposing the Board instead goes with the quote later on in the page, where the evidence says that the forecast was in fact built into rates and the Board says that's the governing provision and it in fact matches with the quote you just read; suppose the Board comes to that conclusion or concludes that at a minimum, Union should have clarified this matter before now. In this case, would Union view that the off-ramp provision kicks in? 650 MR. BAKER: I'm not in a position to assess or speculate on whether it would or wouldn't at this point. 651 MR. KLIPPENSTEIN: Thank you. 652 Finally, I would ask if Union would perform some calculations for us taking into account some slightly different assumptions than the present calculations and assumptions that are in line with some of the suggestions I've made to you today. 653 In answer to interrogatories from Pollution Probe, Union did do some calculations. They're found at Exhibit C.34.2, page 2. That's C.34.2, page 2. 654 I wonder if you could do that calculation at Exhibit 34.2, page 2, with slightly different assumptions. First of all, do it for the three years -- excuse me, it might be useful for me to point out that that calculation differs from what is in the evidence because it does in fact compare or base the LRAM calculation on variance from the DSM target rather than on the total savings. So it gets back to what I said at the very beginning, the difference between variance around forecast versus total DSM savings, and that is the basis of the calculation in your response to Pollution Probe's interrogatory. 655 I wonder if you could do the same calculation but this time do it, first of all, with updated volume calculations since that chart was prepared. And I understand that Union has updated calculations for volume and that Mr. Neme also has updated calculations for volume, so I wonder if you could do it with those two sets of numbers. 656 And secondly, do it not only for 1999 as in this chart but do it for 1999 and 2000 and 2001. 657 And thirdly, also change it by incorporating DSM savings only from the half-way point of the year rather than from January 1 as the issue was raised by Mr. Thompson. 658 I wonder if you would agree to do those calculations for us. 659 MR. BAKER: I would say that we don't agree to do the calculations specifically for 2000 and 2001 on that basis because there are no amounts that are in rates for either of those two years. 660 The intent of this question is to look at the LRAM balances for various years and what this Exhibit C.34.2, page 2, shows is that it assumes that the full DSM target savings in 1999 was reflected in rates, fully reflected in rates, and that's 37.574 million cubic metres on that page. And for purposes of illustration, we answered it in terms of the '99 impact for what it is. 661 But in my opinion, it does not make any sense to do this schedule for 2000 and 2001, again, assuming that the 2000 DSM plan amounts and the 2001 DSM plan amounts are embedded in rates; therefore, what we are trying to do in terms of an LRAM balance is assume that those amounts are recovered in rates and then compare what the variance is between what's in rates and what is in the DSM plan. 662 I mean clearly the 2000 and 2001 DSM planned targets are not in rates. 663 MR. KLIPPENSTEIN: Well, Mr. Baker, I understand your position, it's consistent with the number of comments you've made, but you can appreciate that I've spent some time suggesting that in fact the totality of the evidence makes it clear that at a minimum, the parties and the Board Members could reasonably have expected that the LRAM would not involve total savings but would involve variance from forecast savings. So I would ask that you -- you don't have to agree with those calculations, but I think it's reasonable to ask that they be made. If the Board happens to see the evidence our way, these numbers are essential. So I wonder if you could reconsider your answer. 664 MR. JACKSON: Yes or no? 665 MR. BAKER: We can do any number of calculations, but my view is that these calculations do not make sense. I mean, it's clear how the LRAM is supposed to function relative to what's in rates. 666 MR. KLIPPENSTEIN: You can do the calculations, bring out your rubber stamp that says we don't agree, stamp it on there, and that will be all right. 667 MR. PENNY: Well, Mr. Chairman, with respect, I can't put it any better than Mr. Baker so I'm not going to make any further submissions on that issue. In a sense we're in your hands on what to do. 668 But the other concern I have is that while we're trying to be as helpful as possible on generating these kinds of things, we received yesterday some updated tables from Mr. Neme's evidence which I think largely capture the kind of thing that Mr. Klippenstein has just asked for in addition to what Mr. Baker has said. I wonder, it does seem to me not a useful use of Union's time to needlessly generate these tables if that information is already available to Mr. Klippenstein. I wonder if Mr. Klippenstein could address why what is in the corrected and updated tables of Mr. Name's evidence is not satisfactory for his purposes. 669 MR. JACKSON: I think if it's done one place, the Board could then rely on Mr. Neme's calculations if it were to buy your submissions on methodology. But please do elaborate if Mr. Neme's evidence is going to show these same calculations. 670 MR. KLIPPENSTEIN: We have just received Mr. Neme's calculations but we're not sure exactly about the methodology and are not satisfied at this moment that it, in fact, followed the procedure that I asked for in my requested undertaking; in other words, for example, the three points, the three separate year calculations, the adjustment for volumes and, thirdly, the half-year take-up point. So we're not convinced that it answers those. And if it can -- so we would ask that the calculation be done so we can see how it's done. 671 MR. POCH: Mr. Chairman, I might be able to be of some assistance here. I've just consulted with Mr. Millyard, who understands these tables better than, perhaps, anybody. Mr. Neme has provided a number of tables and my expectation is that the witness will confirm that for 1999 and 2000 the numbers are in the ballpark, but all of Mr. Neme's tables look at scenarios where the adjustments that we're advocating in our two issues, the 6 versus 12 months' timing for the first year of a program and the furnace free-drivers issue, go our way or one does or the other, we don't -- we haven't done -- I believe we have not done the impact of just going, as Mr. Klippenstein's advocating, with the variance LRAM through the period as opposed to the company's position. So that's the statement we -- we could provide that, but I'm not sure if that's the way to go in any event. 672 MR. KLIPPENSTEIN: So I understand, Mr. Poch, it doesn't actually deal with the main point that I've been asking questions about. 673 MR. JACKSON: And what sort of time are we considering in this one undertaking? Have you any idea, Mr. Baker? I understand your objection and I think it's appropriate that you have opposed this on the record, but if we were to ask you to do it, what sort of time are we looking at to update this under that assumption? 674 MR. BAKER: I think practically, given that we're going to be presumably on the stand for the rest of today, we're probably looking at doing it over the weekend and having it on Monday. And if, in the Board's view, they think it would be helpful to do that, we would undertake it do it despite my objection in terms of the relevance of what it is in this case. 675 MR. JACKSON: Right. But we're not saying that this is going to take your full-time commitment for all your waking hours over the weekend, are we? We're just saying that we can have it by Monday, and it might take something less than 48 hours to do it; right? 676 MR. BAKER: Yes. 677 MR. JACKSON: That's good. 678 Let's confer for a minute. 679 MR. DOMINY: Could I just ask one question, and I was looking at Exhibit B.10, tab 10, schedules 1, 2, and 3, and that gives you a column that is net volume savings for the three years after your adjustments through GEC; is that correct? 680 MS. PLATIS: Yes. 681 MR. DOMINY: And the delivery rate impact, well, you've also got that in column B on each of those tables. 682 MS. PLATIS: Yes, we do. 683 MR. DOMINY: So the one thing that's missing is the DSM target rates for the years 2000 and 2001; the rest of them are extensions of those three numbers. 684 MS. PLATIS: Yes. What you would do is you would take this table and then layer in the targets that were set in the DSM plan and then do the calculations. 685 MR. DOMINY: And where would those targets be visible in the evidence that's filed in this hearing? Under the audit evaluations or in tab -- I can't remember the number, but the one that was referred to in 499? 686 MR. BAKER: That would be D.1, tab 5. 687 MS. PLATIS: That plan would have all the details in it, yes. 688 MR. DOMINY: So all I was trying to do was get an idea of the effort involved and so basically it is, if all you've got is that number, it's a question of a number of extensions and formatting it. 689 MS. PLATIS: Yes. What you'd have to do is you'd have to do a line by line for every measure, which would take a little bit of time, but it can be done. 690 MR. DOMINY: Thank you. I just wanted to understand the scope of it. 691 [The Board confers] 692 MR. JACKSON: Okay. We've deliberated more on this one than we do on some matters so I'm going to give you a little preamble in the ruling on it. We think that it's a very easy job and that the spreadsheets are probably set up within Union. But we're going to ask Mr. Klippenstein, since it's such an easy job, to do it and put it in through one of his witnesses. 693 I just want to assure you, Mr. Klippenstein, that your people who will be working over the weekend will be in good company because to keep Mr. Penny's pace of these proceedings, we're certainly working every waking hour. So maybe Union can put its mind to some of the other tasks, and we have a lot for them to do. 694 So, Mr. Klippenstein, we're going to ask you to do the calculation and put it in through your witnesses. We think it looks straightforward to us. 695 MR. KLIPPENSTEIN: If a mathematician is asking a lawyer to do some calculations, that's treading into dangerous territory. But as I understand your suggestion, we can see what we can do. I'm not sure what we can do, but we'll follow up on what you've directed. 696 MR. JACKSON: Good. Thank you very much. And if you are missing some information which we've overlooked in trying to assess this, then let us know on Monday and we will do our best to make sure that you can do the calculation. 697 MR. KLIPPENSTEIN: Okay, thank you very much. I think that's all my questions for this afternoon. Thank you, Mr. Baker and Ms. Platis, and thank you, Mr. Chairman and Panel Members. And if I might be excused for the rest of the afternoon, I would appreciate that indulgence. 698 MR. JACKSON: Yes. 699 MR. KLIPPENSTEIN: Thank you. 700 MS. LOTT: Mr. Chairman, I have just a couple of questions. I wonder if I could go ahead of anyone else. 701 MR. JACKSON: If there's no objection from anyone else, that's fine with me. 702 CROSS-EXAMINATION BY MS. LOTT: 703 MS. LOTT: Sue Lott, from the Vulnerable Energy Consumers' Coalition, and as I indicated, I just have a couple of questions. 704 I had earlier handed out to the other party copies of material that I now realize is contained in the Exhibit F.5.3, the LRAM materials, so I'll just be making reference to pages within that document. 705 Mr. Baker, if I could ask you initially, based on your opening remarks that you made right after the lunch break, you had said something about doing some analysis over the five-year history of the normalized actual usage decline that was carried out in the ADR agreement. Is it the company's view that there may be some notional DSM savings already embedded in the EBRO 499 base rates? 706 MR. BAKER: That's what we're trying to investigate, that's correct. 707 MS. LOTT: So you don't have a response at this point about that, you don't know if that is the case or not? 708 MR. BAKER: I can't confirm whether there is or isn't, but I think we're saying that there may be and we understand the question that the Board Panel had for us and we're investigating that. But there may be some notional amount that's in there. 709 MS. LOTT: Okay. Thanks very much for that. 710 I wanted to make reference now to the -- in the LRAM materials, to page 17, if you could have a look at that. I'm looking at the -- near the bottom of the page, around the issue of the normalized annual consumption. This is the reference to the EBRO 499 ADR agreement. My question is that Union didn't explicitly indicated in its NAC forecast that the 1999 DSM volume forecasts were not in the volume forecast numbers negotiated; is that correct? 711 MR. BAKER: That's correct, because they were never in there to begin with so therefore when we defined the ADR agreement in terms of the adjustment to NAC, it was similarly not there. 712 MS. LOTT: Okay, thanks. 713 Now, my final question is just simply: Assuming you were back operating in a cost-of-service regime as you were before, when you forecasted revenues associated with customer additions, do you, in that scenario, assume for simplicity's sake that when new customers come on to the system that they provide Union with a full year of revenues? 714 MR. BAKER: No, I think for both customer additions and the capital that would go along for those customer additions, we assume a timing in terms of when those loads would come on. It's roughly mid-year. 715 MS. LOTT: So why not do that for the DSM? Why is there a difference with the DSM programs? 716 MR. BAKER: As I understand what's happening, it's that we may not have any disagreement with that methodology. But the fact is if you're going to go to a half-year methodology, it's not fair just to start in 1999 with that year and therefore ignore the half-year impact from the year prior in '98 which is now impacting '99. So we made a simplifying assumption to take the DSM savings in 1999 and assume they're there for the full year. 717 MS. LOTT: So the simplifying assumption only works for the DSM but not for the customer additions. That's what I understand you are saying. 718 MS. PLATIS: It's because we've had DSM in place, and so that half year did take effect January 1 of '99. 719 MS. LOTT: But how long have you had customer additions in place? That's certainly been a -- 720 MR. BAKER: I'm not sure I'm following. 721 MS. LOTT: That practice, with respect to customer additions. 722 MR. BAKER: I don't think we're having any disagreement here. Whether you take a simplifying assumption and include all of the DSM savings in '99 and assume they're there for a full year, or you say we should really refine this calculation more and only take a half year of the '99 DSM savings, then to be fair, you need to also pick up the other half of the 1998 DSM savings that are now in 1999. And I think the exhibit that Ms. Platis handed out earlier showed the impact of that and there was basically no difference between the two, or a small difference. I think that was the difference between line 4 on Exhibit F.7.1 and line 5 on Exhibit F.7.1. 723 MS. LOTT: And you had no LRAM for 1998? 724 MR. BAKER: There was no LRAM for 1998. But again, I go back to the ADR agreement that says the LRAM is to capture the DSM impacts from those included in rates effective January 1, 1999. So if you're going to adopt the argument that we are going to have to have a half-year rule, clearly half of the 1998 DSM savings would be effective January 1, 1999, on that methodology. 725 MS. LOTT: Okay. We've heard your evidence on that earlier today. Thank you. 726 That's it for my questions, Mr. Chairman. 727 MR. JACKSON: Thank you, Ms. Lott. 728 Mr. Poch. 729 MR. POCH: Thank you, Mr. Chairman. 730 CROSS-EXAMINATION BY MR. POCH: 731 MR. POCH: Panel, I'm just going to start with this LRAM methodology that we've been dealing with for the last hour or two. I have very few questions left. 732 First of all, Mr. Neme's provided updated tables 3 and 4 from his evidence, his evidence being D.18. Perhaps -- Mr. Chairman, I don't know that we have a number for this. It might be convenient to get a reference number for the cross-examination materials of the Green Energy Coalition. Do you have that in front of you? 733 MR. JACKSON: Just a minute. Yes, I have it now, thank you. And Mr. Moran, should we now number this? 734 MR. MORAN: F.7.5, Mr. Chair. 735 EXHIBIT F.7.5: CROSS-EXAMINATION MATERIALS OF THE GREEN ENERGY COALITION 736 MR. POCH: This is actually a blue page update to D.18 but we have included it in these materials at page 6 of these materials, which are Exhibit F.7.5. 737 I took it from your filing earlier today, Ms. Platis, that at least for 1999 and 2000, Mr. Neme's calculations and yours seem to be in accord for the impact of the two outstanding DSM volume issues. 738 MS. PLATIS: Yes. 739 MR. POCH: All right. And I appreciate that the 2001 numbers, Mr. Neme's and yours, will differ somewhat because you've updated your 2001 forecast a little. 740 MS. PLATIS: Yes, we did some review of the information that was provided in advance and have checked the mathematics, and all of the mathematics seem to work. 741 MR. POCH: Okay, that's great. And just so we're clear, Mr. Chairman, the company's asking only for the '99 and 2000 to be finally cleared at this point. We're not concerned about the slight -- if there's any fuzziness in the 2001 numbers, we'll have an opportunity to deal with that in a subsequent proceeding, so nothing turns on that. 742 Now, the bottom half of that table gives the same calculations with the variance method. I take it your comments apply -- that you looked at the math. I know that you don't agree with the hypothesis, but the math checks out, as far as you can tell? 743 MS. PLATIS: Yes, it does. 744 MR. POCH: All right. So just to be clear, this is the scenario that Mr. Klippenstein was getting at. We assume that LRAM throughout the 30-year period is done on a variance basis, that is, that the volume forecast did or is deemed to include the DSM volumes, and this table shows what the impact is of the two issues -- GEC's position on the two issues, I should say, in that scenario; correct? 745 MS. PLATIS: Yes. What we were able to identify is GEC has made some assumptions about how much money would have been built into rates for '99, 2000, and 2001, and these are all different from that amount. 746 MR. POCH: Right, okay. 747 If you could turn to page 8 of these materials. I guess, in fact, just a few moments ago, Mr. Baker was making the point that whatever people say about '99, it's the company's position that for 2000 and 2001, DSM volumes aren't built into rates. And Board Staff asked us to, since we had that spreadsheet all up and running, to run that scenario and it's been entitled "Option 3." Have you had a chance to look over this material? 748 MS. PLATIS: Yes, I have. 749 MR. POCH: So this is a situation where the '99 -- for the '99 year, the LRAM is on the variance method; that is, DSM volumes were included in the gas-load forecast or are deemed to have been, and for post-'99 for the -- well, that would be true for the '99 volumes throughout the period of the PBR. But for the added volumes from programs from the 2000 program and 2001 program and so on, they would all be treated as all savings method, your method. Do you understand that to be the case here? 750 MS. PLATIS: Yes, we reviewed the mathematics and that is in fact the case. We also observed that in the scenario, the timing was done with the GEC methodology as was the assumption that the furnaces are not in table 3. 751 MR. POCH: Right. 752 MS. PLATIS: At the top. 753 MR. POCH: All right, thank you. Well, that's great. We don't have to argue about what the numbers are. We can just get to the actual issues. 754 Now, just on -- before I leave the LRAM matter, in your cross materials, which is Exhibit F.5.3, at page 19, this is the 499 ADR agreement, settlement agreement, and this is what created the LRAM account; correct, Mr. Baker? 755 MR. BAKER: Correct. 756 MR. POCH: The evidence cited there refers to evidence of Mr. Cherniak. Just so we have the complete picture of what was in everybody's minds when this was being discussed, I just wanted to file if I could, Mr. Chairman, a two-page excerpt from Mr. Cherniak's evidence. This was EBRO 499 Exhibit K.11.1. 757 MR. PENNY: Mr. Chairman, Mr. Poch has been is sitting here all day, presumably sitting on this piece of paper, and this is the first time that we're seeing it so -- 758 MR. JACKSON: Mr. Poch, is that so? Have you had this -- 759 MR. POCH: Well, Mr. Chairman, my friend has had this piece of paper for about three years. 760 MR. PENNY: That is not the point, Mr. Chairman, as you well know. 761 MR. JACKSON: No, I think, Mr. Poch, that you know the difficulty in keeping up with all of this paper. I can certainly testify from the bench that it's pretty hard to remember what we saw three years ago. 762 MR. POCH: I should say so, Mr. Chairman. I should explain we got this an hour ago. We were following the proceedings, noticed this reference to Mr. Cherniak and wanted to make sure the reference is complete, and Board Staff was kind enough to provide it from their copy. I'm not sure a lot turns on this, Mr. Chairman. 763 MR. JACKSON: And you've pointed out, you're saying that you were not sitting on this for any great length of time, that you -- it is in response to something that happened within the last couple of hours. So let's just proceed carefully and see whether the witnesses need any more time to have a look at this and -- 764 MR. POCH: That's fine. 765 MR. JACKSON: It may be over-dramatizing the importance and the difficulty of this document, but let's see. 766 MR. POCH: Mr. Chairman, I just want it on the record because it's referred to and Mr. Cherniak, at page 2 there, in his explanation, he says: "The LRAM proposed by Union properly reflects the purpose of such mechanisms by providing for," and he says, "symmetrical treatment. When lost margins are greater than projected, the LRAM would compensate shareholders for the additional losses; when lost margins are less than projected, the LRAM would compensate ratepayers for the amount they overpaid by the company." 767 Mr. Baker, does that accord -- 768 MR. JACKSON: In reading that out as you read that, I guess you are assuming that I know exactly where you are reading from. 769 MR. POCH: I apologize, Mr. Chairman. The paragraph numbered 1, half way down the page, under the heading. 770 MR. JACKSON: Thank you. 771 MR. MORAN: Should we mark this as an exhibit? 772 MR. JACKSON: Yes, I think we'll mark it. 773 MR. MORAN: F.7.6; excerpt from EBRO 499, evidence Exhibit K.11.1. 774 EXHIBIT F.7.6: EXCERPT FROM EBRO 499 EVIDENCE, EXHIBIT K.11.1 775 MR. JACKSON: Could you just distinguish for us, Mr. Poch, as we've been trying to do with some of the other evidence, that this was evidence that went forward to the formal hearing or whether this was evidence that essentially supported the negotiations and the settlement agreement that was arrived at. 776 MR. POCH: This was pre-filed evidence in the hearing by the GEC that supported the settled issue and is cited as such in the ADR agreement, and there was no further testing of this evidence. 777 MR. JACKSON: Thank you for that. 778 MR. POCH: And I just wanted really to have that filed on the record in the same part of the transcript. I'm not sure I have any questions to Mr. Baker other than if he could confirm that this -- to the best of his knowledge, this reflects -- this is indeed what was referred to in the ADR agreement. 779 MR. BAKER: Well, I think it's clearly what's referred to in the ADR agreement because it is labelled Exhibit K.11.1. And I guess, trying to read it very quickly as we've got it up here, the first full paragraph on the second page, midway down, that paragraph speaks to adjusting rates. So again, I just refer the Board to that given that it clearly contemplates rate adjustments in the context of the LRAM methodology. 780 MR. POCH: Thank you, Mr. Baker, that's fine. And we can -- in argument, I'm sure your counsel can deal with that and I won't take any more of your time with it, especially in that you haven't had any chance to review it. 781 Now, I'd like to turn to the -- well, first of all, before I turn to the two outstanding issues, just one clarification, Ms. Platis. Mr. Neme has filed an update to his evidence which is also reproduced in the cross-examination materials F.75, starting at page 4. One of the items there, two-thirds down the first page, is the furnace whistle, furnace filter upgrade, furnace whistle. And he notes that the distribution of that particular technology is being discontinued and you didn't mention that in your update. I just wanted to confirm that, indeed, you are in the process of phasing that out from your program. 782 MS. PLATIS: Yes, those furnace filter alarms or furnace whistles were continued in 2001 but they will be phased out in 2002. 783 MR. POCH: Turning to the first of the two issues, the free-driver, high-efficiency furnaces, I'd ask you to take out -- this we didn't reproduce in our cross materials, but in your materials at Exhibit B.10, appendix C, there is the 2000 evaluation report. Can you pull that out. 784 MS. PLATIS: Yes, I have that in front of me now. 785 MR. POCH: Now, I have to find the reference. Yes, very -- half a dozen pages, five pages or so before the back of the document - unfortunately they aren't page-numbered - there is table D1, and I'd ask you to go to that. 786 MS. PLATIS: Yes, I have that in front of me now. 787 MR. POCH: Has the Board been able to locate that? 788 MR. DOMINY: Table D1. 789 MR. POCH: D1, yes. 790 I just direct your attention to the middle of that page, under the heading "Home Equipment Replacement." There are two programs listed there; furnace high-efficiency and furnace high-efficiency information. Those are the programs that we've been talking about, and most particularly the second of the two; correct? 791 MS. PLATIS: Yes, they are. 792 MR. POCH: And in the column second from the right, it's the participant's column, you show 4,223 participants, this is in 2000, for high-efficiency furnaces. These would be the participants in the program that involved some kind of an incentive? 793 MS. PLATIS: Yes. That and the 277 participants in the line above that combined were the paid participants. 794 MR. POCH: Okay. And then in the line below, we have 3,870 participants and they would be the ones that are the free drivers in our discussions today. 795 MS. PLATIS: Yes, they would be. 796 MR. POCH: All right. And I understand the number has changed slightly since this table, but that's the ballpark; correct? 797 MS. PLATIS: That number has changed. We do have it front of me, if you'd like me to bring it up. 798 MR. POCH: If you want to put it in the record, I gather -- by all means. I gather it's a slight change. 799 MS. PLATIS: That number was changed to 3,746. 800 MR. POCH: The other numbers I wanted to pull off this table were the first column after the name which is entitled FR. I take it that stands for free riders? 801 MS. PLATIS: Yes, it does. 802 MR. POCH: And I'm reading this correctly that for the participants, the incentive participants, you're using a 60-percent, free-rider rate? 803 MS. PLATIS: Yes, we are. 804 MR. POCH: And zero percent for the free drivers program? 805 MS. PLATIS: Yes. It would be unreasonable to have free riders for people that were not paid an incentive to participate in the program. 806 MR. POCH: Yes, I understand. So you have these -- let's just use 4,223 because that's the number that was on the table. I appreciate there's this other 277, and they are participants. Is it by virtue of having applied for a rebate? 807 MS. PLATIS: In 1999, the rebate was given directly to the customers. In 2000, that rebate was actually provided to heating contractors, some of which passed it on to the customer, some of which did not. 808 MR. POCH: That's the characteristic that puts them in that pot as opposed to the other? 809 MS. PLATIS: Yes. 810 MR. POCH: And so by having a 60-percent, free-rider rate, you're saying you've assumed that 60 percent of those participants that received an incentive, or their contractor received the incentive, would have gone high efficiency in any event; correct? 811 MS. PLATIS: Yes. 812 MR. POCH: All right. So when you get to your volumes number, you've discounted the volumes number by 60 percent. 813 MS. PLATIS: Yes, we have. 814 MR. POCH: All right. Now, if we go back to the free drivers, high-efficiency information folks, I'm not going to call them participants because I'll confuse matters, let's call them free drivers, they did not claim any rebate; correct? 815 MS. PLATIS: No, they did not. 816 MR. POCH: They didn't have to register for a program in any sense, did they? 817 MS. PLATIS: No. As I said, these participants were calculated based on the findings of the market effects study. 818 MR. POCH: And you, in fact, don't know who they are or where they live. 819 MR. POCH: We know where some of them are, the ones that we contacted through that study in that particular year but they were not 2000 participants. 820 MR. POCH: We'll come to that. But I gather that study contacted some 200 of these folks; is that correct? One-hundred in the Centra territory and 100 in Union territory? 821 MS. PLATIS: Yes. 822 MR. POCH: And just looking at the volumes that flow from these two groups, the participants that received -- and we're still on table D1 here -- the participants in the right-most column, the participants that then participated in the rebate program account for 1.161 million cubic metres; correct? That's after deducting free riders. 823 MS. PLATIS: If you were to add the number above it of 77,879, then those two combined would be the actual number, yes. 824 MR. POCH: And the free drivers are credited with just over 2.5 million cubic metres? 825 MS. PLATIS: Yes, they are. 826 MR. POCH: Okay. So of your lost-revenue adjustment mechanism claim that flows out of the high-efficiency furnace issue, roughly two-third of your claim arises out of these free drivers. 827 MS. PLATIS: Is there a question in that? 828 MR. POCH: I'm asking that you confirm my understanding. 829 MS. PLATIS: For that particular program element, yes. 830 MR. POCH: All right. Now, let's just be clear. We've been looking at 2000. I take it the numbers would be different, but the descriptions we have given here also apply in 1999. There's a parallel story, although the numbers are a little different in 1999. 831 MS. PLATIS: Yes, and also in 2001. And in 2001, in fact, the majority of the participants are paid participants. 832 MR. POCH: Okay. Now, so what you're saying here is that for every participant who responds to the incentive program, participants in the incentive program -- and those high-efficiency that you're taking credit for, you're also taking credit for two, call them participants, two free drivers who weren't going to go high efficiency. And you're saying they went high efficiency because of your information programs but they did not claim any rebate. 833 MS. PLATIS: That's not completely the way these numbers shake out. 834 MR. POCH: Tell me where I went wrong. 835 MS. PLATIS: If you were to compare the participants that were paid participants and those that were information participants, in fact, it would be the case that less than one, rather than the two that you've identified. So there are, if you will -- just give me one moment -- 45,000 paid participants in 2000 in the incentive furnace program. 836 MR. POCH: I'm sorry, 45,000, yes, I see that. And those are the participants before free ridership; correct? 837 MS. PLATIS: Free ridership does not affect participants, it affects savings. 838 MR. POCH: I'm sorry if I wasn't clear in my question. I'm asking for the number of participants that you're taking credit for. So if we were to apply the free ridership percentage to the participants rather than just doing it to the volumes. 839 MS. PLATIS: But it is not appropriate to apply it that way. What I was going to say is we have 45,000 paid participants. In addition, 86 percent of those are information participants. And yes, the savings from the paid participants is less because of those that we've identified would clearly have gone on to do this without the influence of Union Gas and so we're not claiming credit for those savings and they would not be included in our LRAM amount. 840 MR. POCH: In effect, you're saying you're doing it on a volume basis but you're taking credit for 40 percent of -- on average, 40 percent approximately of those participants; that's the effect of a 60-percent, free-rider rate? 841 MS. PLATIS: I'd like to say again that the free rider rate doesn't affect participation, it affects savings. 842 MR. POCH: Just earlier today, in Exhibit F.7.1, you were kind enough to file an impact analysis and I just want to make sure I understand it. The impact on your LRAM of these free drivers is $1.261 million over the course of the three years; is that correct? 843 MS. PLATIS: Over the course of the three years, yes. 844 MR. POCH: All right. Okay. Now, in interrogatory C-19.3, we asked you, and I'm not sure you need to bring it up, I can probably just read it in, but I'll give you a chance -- I'm sorry, it is in our cross materials. 845 MS. PLATIS: I need one second to find it. 846 MR. POCH: Page 2, I'm told. So F.7.5, page 2. We asked you for the rationale behind your -- 847 MR. PENNY: Can you just hang on for a minute, Mr. Poch, while Ms. Platis locates her piece of paper in the pile that she's got. 848 MR. JACKSON: Sorry, Mr. Penny, I missed that. 849 MR. PENNY: I was just asking Mr. Poch to pause while Ms. Platis found something that he wants to ask her about. 850 MR. JACKSON: Thank you. 851 MR. POCH: Do you have that in front of you now? 852 MS. PLATIS: I have it in front of me, yes. 853 MR. POCH: We asked you there to provide the rationale and complete copies of all supporting studies and calculations for counting free-driver or information-only, high-efficiency furnace replacement participants. In your answer, you mention -- talk about some of the materials you distribute and you do mention there that the -- executive summary of what it would have come to, what I refer to as the Quantec study, which is the -- is filed in three forms in front of you today, Mr. Chairman; redacted, unredacted, and excerpted. 854 You mention that that had been given out and in fact we didn't notice until I guess it was last night that we could go back and look at that. It's that study that you base your assessment of free ridership on; correct? 855 MS. PLATIS: Yes, it is. 856 MR. POCH: Free drivers, excuse me. And, Mr. Chairman, I should just pause to explain a little of the chronology here and -- 857 MR. PENNY: Well, Mr. Chairman, Mr. Poch isn't here to explain anything, he's not under oath. If he wants to explain something to the witness so that she understands a question, I suppose that's appropriate. But I don't know why else we're hearing explanations from Mr. Poch. 858 MR. POCH: Ms. Platis, we asked for a number of evaluation studies in our interrogatories; correct? 859 MS. PLATIS: Yes, you did. 860 MR. POCH: And Union's response was that they did not wish to provide those studies because of concerns about confidentiality. 861 MS. PLATIS: Yes, there were, and subsequent to that we came to an agreement where we did share copies of all of the studies that were requested by GEC. 862 MR. POCH: That was in an agreement Mr. Penny and I agreed following the ADR; correct? 863 MS. PLATIS: Yes, it was. 864 MR. POCH: And following the execution of that agreement, you sent out a number of studies that included this redacted version of the Quantec study; correct? 865 MS. PLATIS: Yes, we provided copies of all of the studies on that interrogatory list that were requested by Mr. Millyard, Mr. Neme, and yourself, Mr. Poch. 866 MR. POCH: Thank you. And can you -- can we look at that -- first of all, can we look at the redacted -- it might be easiest just to look at the redacted version of the study. Can you show me where the 15 percent conclusion is supported? 867 MS. PLATIS: Well, it's in both the executive summary that you distributed and also in the conclusions on page 7.1. 868 MR. POCH: I just want to refer you to the version F.6.7 which is the full study redacted, full study with black-outs. 869 MS. PLATIS: Yes. F.6.7. The conclusions and recommendations on page 7.1 identify that the estimated free driver rate is 15 percent. It goes on to say that nearly four high-efficiency furnaces are purchased outside the program for every high-efficiency program participant. 870 MR. POCH: Okay. There was a phone survey research piece? 871 MS. PLATIS: Yes, it was. 872 MR. POCH: And the -- if you just turn to page 2.2 of it, 2-2, that summarizes who the study interviewees were; correct? 873 MS. PLATIS: That is the sampling strategy, yes. 874 MR. POCH: And the 200 number I gave -- we spoke of earlier, that's the bottom line in the table, that's the non-participants, that's what they're calling -- not the -- the bottom line in each section, Union Gas and Centra Gas, it would be the non-participants' lines? 875 MS. PLATIS: Yes. You see the -- 876 MR. POCH: And the high-efficiency portion of those in each case; correct? 877 MS. PLATIS: Yes. You will see the way the sample was constructed. Non-participants were contacted in both the former Union and Centra Gas franchise area, and we had a sample that included 100 people who identified that they purchased a high-efficiency furnace and a 100 people who identified they purchased in a mid -- in both areas, for a grand total of 400 non-participants that were surveyed. 878 MR. POCH: And of the 400, 200 were the ones that went high-efficiency; correct? 879 MS. PLATIS: Yes. 880 MR. POCH: So the sample size of the free drivers, the high-efficiency free drivers, would be 200 in total? 881 MS. PLATIS: I don't think you can actually look at it that way. I think you have to look at the sample as an entirety and then identify it from that, that the analysis was conducted to identify how many of those people were free drivers. 882 MR. POCH: Fair enough. And just so we can understand what the nature of the study was, the questions are reproduced in the appendix to the study, and am I correct that the relevant questions were the ones, I think, commencing at question 24, where they ask: "Did you rely on Union Gas bill inserts a little, some, or a lot?" And so on. I think there's three or four questions in a row there; is that correct? 883 MS. PLATIS: This survey was designed by experts to be able to identify through various kinds of questions, at different points in the instrument, the influence of the programs. So it's not just one question that asks, did you rely on Union Gas, that was used to conduct the final analysis to determine 15 percent. 884 MR. POCH: No, I'm not suggesting it was one question. I'm just wondering if I'm putting my finger on the stream of questions that ask about whether Union Gas played a role. 885 MS. PLATIS: I'm sorry, will you remind me, then, what question you wanted us to refer to? 886 MR. POCH: I was looking at questions 24 through 27. 887 MS. PLATIS: These are the questions where Union Gas's involvement was specifically questioned. That's not to say that the items before that, that talk about the financing, were not part of the influence. 888 MR. POCH: Okay. So the 15 percent number is based on the fact that, at least in part, some of these interviewees responded positively to questions like these here that asked if they agreed, that suggests to them that as a possibility, that Union's information was a factor in their decision. 889 MS. PLATIS: Partially the information and partially the other services that were provided. 890 MR. POCH: Okay. Now, -- 891 MS. PLATIS: Would you like to go into some examples, because we do talk about the advertising campaigns, marketing material we provide. 892 MR. POCH: Right. Okay. Now, in the redacted version which we're looking at, is there anything left that the company feels -- I know that you've since decided to release it because some of it was released earlier. Was there anything that remains confidential? 893 MS. PLATIS: In the redacted version? 894 MR. POCH: In the redacted version. 895 MR. JACKSON: Not any more. 896 MR. POCH: That's fair. 897 MS. PLATIS: I feel you're mocking me. 898 MR. POCH: Not at all. 899 MS. PLATIS: The redacted version removed information about specific customers and the demographics of the sample. In addition to that, it removed information on the penetration of high-efficiency furnaces and programmable thermostats for this sample. 900 MR. POCH: So you're explaining why you redacted certain parts. We'll come back to that in a minute. On what's left that isn't redacted, I know your counsel was trying to be cautious yesterday, but from your perspective, the person that has to deal with this, is any of this non-redacted material of concern to you, that it gets out in the open? Is there anything here that you view as confidential? Or are you satisfied that when you went through with the black marker you got it all? 901 MS. PLATIS: These studies were never intended to be released to the general public. 902 MR. POCH: I can appreciate that. It's not my idea of bedtime reading either. But is there anything in here that you feel after you went through with the black marker, that you still feel was confidential, would compromise confidentiality; and if so, could you explain why? 903 MS. PLATIS: I think we've explained why we blacked out what we blacked out. 904 MR. POCH: I understand that and I was talking about the balance of it now. 905 MS. PLATIS: Clearly, we've released it to everybody now so it's no longer confidential. 906 MR. POCH: I know. But when you -- before you had released it and before it was public information when you assumed it hasn't been released and you blacked out some material, and I'm saying now the material that you didn't black out, what was it about that material you didn't black out that you felt was confidential, if anything? 907 MR. PENNY: Mr. Chairman, I'm happy to have Ms. Platis answer the question but I'm not sure how this is going to assist the Board in deciding whether the free drivership measure in this program is supported by the evidence or not. We've given the final document; Mr. Poch now has it and indeed has had the effective summary that had the information in it for a couple of years. 908 MR. POCH: Mr. Chairman, my issue here is not simply what we're going to do with free drivers in this case. We will be arguing before the Board that there is a problem with the system right now, Union's approach towards disclosure. Our concern is that even -- that this wasn't provided, and I'm -- I can't understand why this couldn't have been provided earlier in answer to an interrogatory redacted as it was. Is there anything else left confidential? Why do we have to go through these hoops? And we are going to be asking the Board to deal with that issue directly so I think it's important that you hear from Union directly on that issue. 909 MR. JACKSON: I think you have perhaps put that question very clearly to us at this time, and if you would put the question to the witnesses, Mr. Penny says he doesn't object to them answering, I think that would be fastest way to get through this. 910 MR. POCH: I'm asking, in its redacted form, why could this not have been provided in response to the interrogatory? 911 MS. PLATIS: At the time we had not come to an agreement to release redacted versions of the studies. 912 MR. POCH: Now, our interrogatory, if you will recall, specifically invites you to consider that option, and I'm referring to interrogatory C.19.5 which contains a long list of these studies. The second paragraph says: "If the company believes that any of these studies contains confidential material, please indicate, in each case, the nature of the confidentiality claimed. If the concern is with respect to information that is confidential from the perspective of the customer, please provide a redacted copy that excludes identifying references. If necessary, GEC is prepared to sign a confidentiality agreement in order to review these studies." 913 I'm wondering what it was at the time that you felt you couldn't release under those -- with those -- with all those offers? 914 MS. PLATIS: Can you remind me: The piece you just read, where was that from? 915 MR. POCH: It was in our interrogatory, the one that lists most of these requests which was C-19.5. 916 MS. PLATIS: At the time, we had not gone through and identified how much of these studies were confidential. We did, after Mr. Poch proposed this once again, we went through, we redacted the relevant information, we identified that, yes, you could still draw valuable conclusions from these studies even without the information that we blacked out. And so under the confidentiality, we did distribute all of them, including some that were not listed here, that were identified later as being relevant. 917 MR. POCH: Now, the kinds of concerns you have about confidentiality, I take it they certainly include -- if there was specific customer information that would reveal a customer by name and their -- or by context, it would be obvious who they were. And if it would reveal private information about that customer or information that might compromise a supplier's position vis-a-vis other suppliers, I take it those are two situations you would be concerned about? 918 MS. PLATIS: Yes, any information that's collected in confidence either from our customers or the manufacturers and other trade allies that we work with would compromise our ability to go forward and collect information from them in future. 919 MR. POCH: No, I understand that. Is there any other confidentiality concern? 920 MS. PLATIS: Yes, there is. The company is concerned about sharing information about the penetration of these technologies in our customer base. 921 MR. POCH: Why is that? 922 MS. PLATIS: It's commercially-sensitive information and valuable and if it were to be made available in a public forum, it would no longer be valuable. 923 MR. POCH: And valuable to who? 924 MS. PLATIS: To the utility and to the people that we work with. 925 MR. POCH: Okay. 926 MS. PLATIS: For example, this is the kind of information that is not collected and made public in industry associations. So in some of our dealings with the manufacturers, we have, in the past, shared information on the penetration of, for instance, fireplaces, in our franchise area to help them understand how much of their customer base is there and the potential that might be available for future sales. 927 MR. JACKSON: Mr. Poch, I'm going to ask you if this would be an appropriate time to take an afternoon break. 928 MR. POCH: Sure. 929 MR. JACKSON: Is that okay with you? 930 MR. POCH: That's fine. We can pick up. 931 MR. JACKSON: Good. Thank you very much. 932 --- Recess taken at 2:50 a.m. 933 --- On resuming at 3:18 p.m. 934 MR. JACKSON: Please be seated. 935 Mr. Penny, just before we start up again, there's just one little housekeeping matter. 936 When I was talking with Ms. Elliott the other day about changes she might consider making to the financial statements that had been filed, I don't think we gave an undertaking number to that that would permit us to sort of track what she might do. And then I talked to you briefly about whether or not we might be able to see the weather normalization changes, possibly, before you did your argument-in-chief. So it might be just helpful to make a comment on that. 937 We talked about a number of different changes and how some of them might be more difficult than others and might require a little bit of exchange of views back and forth. So let me first suggest that we give an undertaking number to something we might call "Financial Statements With Initial Changes," and whatever you agree you can do before argument, you would do under that category. And then we could discuss at some other point in time, perhaps between Staff and with Union staff, whether we could exchange some other information in terms of changed formats and a break-out of information differently. 938 So, under the first category, what we were hoping we could get, at a minimum, would be the financial statement information with the weather normalizations done under the old methodology and under the new methodology. I'd be very hopeful that possibly the calculation for the purpose of earnings sharing mechanism could be done as a subsidiary schedule, but that on the front page of the financial information you could show the full earnings that would be attributable to the utility. 939 Now, that doesn't take us into the next question of whether or not any of the lines of business could be reported on separately, and, quite frankly, I think my optimism would be running fairly high if I even asked if you could do that for the purchase and sale of gas function before you do your argument-in-chief. So why don't we cut things off before that point and say that we'd like to get on with seeing what you can do on the latter later. 940 I hope that will be clear and that that will be helpful and that you'll then be in a position to give us something and we won't have put ourselves in a position of having asked for the impossible and hence got nothing. 941 MR. PENNY: Yes, Mr. Chairman, I hadn't forgot about that. I was indeed mindful -- sorry. 942 MR. DOMINY: Dr. Jackson was going to ask something. 943 MR. JACKSON: Yes, that's fine. Go ahead, Mr. Penny. We'll deal with that later. Sorry for that interruption. 944 MR. PENNY: No, I was just going to respond. But if you wanted to speak to Mr. Dominy about -- 945 MR. JACKSON: No, I think we can take care of that separately. 946 MR. PENNY: I was just saying that I hadn't forgotten about your request and I was, indeed, mindful of responding today. Ms. -- I'm afraid the optimism of the expectation may be high. Ms. Elliott has advised me that it -- to do -- leaving aside the lines-of-business issue which is huge, in fact, the weather normalization, in sitting down and regrouping and thinking through what needs to be done, she believes that she will not be able to do that before the end of the month. 947 Now, I say that -- I would say, by way of follow-up, that the -- as I think we indicated at the outset, the financial information for 2001 is not related to anything that we're asking for in this case. And of course normally, if we were on cycle with our rate hearings under PBR, we would have been doing this back in October and that information wouldn't have been available. We would actually be doing it in the next customer-review process, which is coming up. 948 And so it would be my proposal that we proceed with the -- because, in my submission, at least, the fallout from the additional -- the reworking of those statements that the Board asked for does not have a direct impact on anything we're asking for in this particular proceeding, that we proceed with the argument. And we'll obviously -- Union will obviously work on those statements as quickly as it can. But that is the time frame that I've been given, that that's realistic. 949 MR. JACKSON: The difficulty I have on this, Mr. Penny, is that we registered some of our needs for information in the decision in the middle of 2001, and I guess my knowledge of the history of the Board is we're reluctant to proceed on our own motion in most situations. We sort of ask and ask again and hope we'll eventually get these things. We've been informed by the ERO that Union has told the ERO that since the Board's introduced an earnings sharing mechanism it will no longer be filing normalized information with the ERO. And I'm not going to get a chance to talk to Union again for a while unless I convince my peers here to do something on our own motion and bring you back in and have a chat. So I don't know when we'll see this stuff. It's stopped flowing, as I understand it. Will you be even giving us the updated -- the schedule that we asked for about your filings with the ERO? 950 MR. PENNY: Yes. Certainly that was a clear -- that is not something that takes the kind of time that re-working the financial statements with the different weather methodologies takes. 951 MR. JACKSON: And I'm having trouble with this weather normalization concept. Did you just jettison it some months ago and you can't pull it back together again? 952 MR. PENNY: The old methodology is, I'm sure, still around. The issue has to do with the new. 953 MR. JACKSON: Okay. Could we get it with the old methodology and then as soon as you can you'll update it with the new? 954 MR. PENNY: I'll have to speak -- I mean, obviously the answer is yes, but the answer to that is already yes. Union feels that it is doing this as soon as it can. With that -- specifically, with respect to that, I'll have to ask Ms. Elliott whether that -- whether that presents a different proposition time-wise. 955 MR. JACKSON: Perhaps you could do that, Mr. Penny, and get back to us because we could take it in two tranches. 956 MR. PENNY: Yes, I shall. 957 MR. JACKSON: Thank you. 958 MR. PENNY: Now, coming to the second part of your question about argument. I realize the two are not -- 959 MR. JACKSON: Should we give that a number, though, just to track it? Is that okay? And maybe we could, nunc pro tunc, give it a number for the right day? 960 MR. PENNY: I guess I'm only wondering, Mr. Chairman, I'm only wondering whether this is a request that really has to do with this case and the issues in this case or whether this is a more generic request of the Board? 961 MR. JACKSON: Well, it was an item in the ADR settlement agreement which you gave us and you -- the settlement was to provide the financial information and the financial information doesn't seem to conform to what our understanding was of the financial information that should be reported based on our understanding coming out of the case that set up the customer review process. So, to that extent and, might I also say, to the extent that the customer review process is supposed to satisfy information needs of not only stakeholders to the customer review process but, I believe, it's supposed to satisfy the information needs of the Board so it can lighten its hands of regulation, so to speak, so I'm telling you that we don't have the information we need to feel comfortable. 962 MR. PENNY: I just wanted to understand the connection. I mean, obviously if the Board feels that it's significant in this case, then we should give it a number and we'll track it that way. 963 MR. JACKSON: Absolutely, yes. Let's do that. 964 MR. PENNY: Thank you. 965 MR. MORAN: Mr. Chair, if we're assigning a number to confirm something from day 4, do you want to give it an F.4 number? 966 MR. JACKSON: Actually, I'm not particular about that. Seeing as how we are assigning the number today, go ahead and give it today. 967 MR. PENNY: Speaking on behalf of the company here, I mean I think today is fine. 968 MR. JACKSON: It just reflects when the question was asked. 969 MR. MORAN: G.7.1. 970 UNDERTAKING NO. G.7.1: TO PROVIDE REPORTED FINANCIAL INFORMATION FROM THE CASE SETTING UP THE CUSTOMER REVIEW PROCESS 971 MR. JACKSON: Thank you. 972 Mr. Dominy was just asking me if we'd given an undertaking number to the request that we made through you, Mr. Penny, that you said you would direct to Mr. Packer about the experience with respect to rate flexibility, and I don't recall whether we gave that a number either. 973 MR. PENNY: Mr. Packer, I know, is working on that. So I think it was given a number because it's on his list and in fact it's -- I think there's three or four or maybe it's just two now. 974 MR. JACKSON: Let's just say that if it needs a number, we can give it one on Monday. 975 I've actually had experience at hearings before where if these things don't get numbers, it's too easy to forget them and they do get forgotten. 976 MR. PENNY: I don't know whether it has a number so why don't we give it one. 977 MR. JACKSON: I think we'll check and we'll remember to give it a number if it doesn't have one, okay? Thank you. 978 MR. PENNY: Now, I was about to go on to address the issue of argument, Mr. Chairman. Altogether apart from the issue that you and I have just discussed and which I'll -- a part of which Union will get back to the Board on, I think it would be our -- it looks as if we're not likely to finish today Union's evidence, and then we still have the intervenor evidence Monday, which I think would contribute to a better argument if I had Tuesday. Therefore, I would ask, with the Board's indulgence, if we could do the argument Wednesday. 979 MR. JACKSON: Let me just ask the court reporter. Does that look all right. Are you available Wednesday? I believe she is available only Wednesday morning so we will be -- I think if we start at 9:30, it's just your argument, so that should be fine. 980 MR. PENNY: I think so. 981 MR. JACKSON: Good. 982 MR. PENNY: Now, I haven't -- not everyone's here, obviously, so in terms of the schedule going out, I don't know what other parties are thinking of, but perhaps they could -- if we were -- I brought a calendar out. If we were starting on the Wednesday, I wondered if parties could think in terms of a week- to ten-day schedule going out and then another week to ten days for Union's reply. It may not be appropriate to ask for commitments now since there's not many people in the room. 983 MR. JACKSON: No, but I think putting it on the record, as you have, is a good idea. 984 MR. POCH: Mr. Chairman, I could maybe just put on the record that I understand a number of counsel have a concern that the Consumers Gas ADR starts on Monday, a week Monday. 985 MR. JACKSON: Yes. 986 MR. POCH: And people physically can't be in two places at once and they're concerned if they have to -- 987 MR. JACKSON: So ten days sort of becomes a minimum if it takes us to the following Monday. But maybe they need a little bit more time than that. Yes, I think that's a consideration that we should address on Monday. 988 MR. POCH: I should just say, just to help you in your thinking, I think from the few counsel I spoke to, most people feel the written argument would be appropriate. 989 MR. JACKSON: Thank you. 990 Mr. Dominy is just pointing out that this does become difficult for the Board and for Union in terms of implementing rates, but we'll again try to discuss that on Monday. I think we've got a lot of the considerations on the record. Thank you. 991 MR. POCH: Mr. Chairman, are you ready for me to proceed? 992 MR. JACKSON: Yes, thank you. 993 MR. POCH: I'm going to ask you to have open what we were looking at before which is table D1 from Union's pre-filed appendix C to Exhibit B.10. 994 MR. JACKSON: Mr. Poch, I'm going to ask you to repeat that. 995 MR. POCH: That was Exhibit B.10, appendix C, table D1, which is about -- I'm sorry, it's appendix -- 996 MR. DOMINY: Mr. Poch, is it the same table that we were looking at previously? 997 MR. POCH: Yes. And it's -- the tab is appendix C and then there are appendices within that and there's a table D1, which is about half a dozen pages from the back. 998 MR. JACKSON: Thank you. We have it. 999 MR. POCH: All right. And I'm also going to ask everyone if they could have in front of them the two versions of the Quantec study F.5.6, being the redacted version, and F.7.4, being the full version. 6.7 and 7.4 are the numbers. I might have misspoke myself. 1000 We're going to be specifically looking at, in each of those, page 7.1, which is the first page of the conclusions and recommendations section, and I'm going to ask you to have both of them in front of you so we can compare. 1001 Now, earlier, Ms. Platis, where I asked you, "Where's the support for the 15 percent," you noted that in both the executive summary and the conclusion in the sentence -- I think in the same sentence appears, and it's the middle part of the third paragraph under the conclusions; correct? 1002 MS. PLATIS: Yes. 1003 MR. POCH: All right. And you'd agree with me, in fact, all that does is give the conclusion, it doesn't actually provide the analysis. 1004 MS. PLATIS: The analysis is in the balance of the report. 1005 MR. POCH: Right. Now, comparing the redacted version to the full version, I notice that you had to black out the first part of the sentence which reads: "The estimated free rider rate is 79 percent." Can you tell me why you felt it appropriate to black that out? 1006 MS. PLATIS: The free rider rate, in this case, is based on the penetration of high-efficiency furnaces in this sample which goes to a proxy for our market share for those customers that purchased a high-efficiency furnace in that particular year, and that's part of what the company has already identified we were unwilling to release. 1007 MR. POCH: Now, you're not in the furnace business; right? 1008 MS. PLATIS: Not anymore, no. 1009 MR. POCH: Why are you concerned about that getting out? 1010 MS. PLATIS: As I identified before, this information is only valuable if it's not widely known. We have used information about our penetration to broker relationships with manufacturers and other what we call allies that do promote these products. And in the case of high-efficiency furnaces, we've fostered a good relationship with the heating contractor that has helped us to enlarge the scope of these particular programs. 1011 MR. POCH: Can you just for a minute look at table D1. Doesn't the column free riders there report your free rider rate for every single program that you are offering publicly? 1012 MS. PLATIS: Yes, it does. 1013 MR. POCH: And what's the difference? 1014 MS. PLATIS: These free-rider rates were calculated based on a consensus built as part of the five-year DSM plan. These are not our market shares or the penetration of these technologies, and this actually goes to the point of why we were unwilling to release this. Because if we start to use the actual penetration as the free rider rate, then everybody will know that information, and even if we keep the reports confidential, still, publicly acknowledge that the free-rider rates are the penetration rates. 1015 MR. POCH: Ms. Platis, this study from Quantec explicitly says it's the free rider rate that they found, 79 percent; correct? 1016 MS. PLATIS: Yes, that's what the study says. 1017 MR. POCH: All right. And so it's a free rider rate that they're reporting. 1018 MS. PLATIS: Based on what they found the penetration of high-efficiency furnaces to be in a particular sample. 1019 MR. POCH: But this particular conclusion, as opposed to perhaps some data in the study, this conclusion reports a free rider rate and you blacked that out, and I'm wondering why you felt you wanted to black out the free rider rate. 1020 MS. PLATIS: I think I've answered that. Because it is based on the penetration of high-efficiency furnaces in this particular sample. 1021 MR. POCH: Aren't all free-rider rates, in part, based on penetration rates? 1022 MS. PLATIS: The difference would be, if it were the market share for the entire province of Ontario or Canada, then it would be fine because it is a widely-held piece of information. This is about our particular customer base. 1023 MR. POCH: So if you have a free rider rate that's developed specifically for the Union Centra region, you believe that's a secret? 1024 MS. PLATIS: That's not what I said. I said that if it were the penetration of this technology in our customer base, we would not use it to set a free rider rate. 1025 MR. JACKSON: Mr. Poch, I know you're going to argue that the process isn't working properly. Is this because the Green Energy Coalition, for example, may have insufficient confidence in the independent reviewers of this material, or why is it you think that you need more information in the ultimate hands of the -- those advancing these DSM? 1026 MR. POCH: Well, Mr. Chairman, I think there's a number of reasons. First of all, as Mr. Neme will speak to, or has spoken to in his evidence, the narrow mandate offered to the auditors by Union precludes them from comment on the adequacy of these numbers, and he'll address that. Second of all -- so the audit, as it's presently done, is of no assistance. 1027 Secondly, as the witness just said, these free-rider rates are done by a consensus in the consultative process, I think something that the Board encourages, and we need to know that we have the information if we are going to participate in a meaningful exercise to try to reach some agreement with the company as to what's a reasonable basis to go forward both in a planning mode. 1028 But certainly, Mr. Chairman, when we are at the point where we are and they are asking for millions of dollars of LRAM, I think the Board needs to know that it's based on a -- that the DSM impacts are real and this number, the free rider rate, directly impacts that, what the actual impact is on the company and on its revenues. 1029 MR. JACKSON: So what you are basically saying is that unless we decide that these measures should not be done by the utility, if they're going to be done by the utility and there's going to be money put into a deferral account which is going to be recovered through rates, we have to know that you've had all the information you need in order to negotiate what, appropriate targets and other -- 1030 MR. POCH: To both negotiate targets, but more importantly, I think in the context of the question you ask, is to confirm or have others confirm that the impacts are as claimed; that the LRAM balance is appropriate. 1031 Now, Mr. Chairman, I'm not suggesting they have to give up any claim for confidentiality, just to flesh this out. We certainly appreciate some things are confidential and there needs to be a process to protect confidentiality. Our concern here is that Union has gone too far in hiding behind that valuable information which need not be hidden. 1032 MR. JACKSON: And that it wouldn't be provided to the independent reviewers; is that correct? 1033 MR. POCH: Well, it either hasn't been provided or it hasn't been mentioned by them. I think Mr. Neme will speak to that directly. 1034 MR. JACKSON: Do you -- I'm just trying to see where -- I guess you're looking for an admission from Ms. Platis that there's very important information that's been withheld; is that it? And you're not getting very far. 1035 MR. POCH: I don't need that admission, Mr. Chairman. I think that's apparent. I'm just trying to understand why she withheld it and I think we've gone as far as we can on that one. 1036 MR. JACKSON: I think we've got to make as efficient use of hearing time as we can. 1037 MR. POCH: Now, Ms. Platis in the bottom half of this paragraph -- 1038 MS. PLATIS: Before we leave that, I would like to address the mandate of the auditor because you have identified -- the auditor does get all of these reports. The scope of the audit at the time that these terms of reference were identified assumes that the DSM plan planning assumptions were held fixed because that was the decision to that point. 1039 More recently, we have agreed to use the best available information to clear the LRAM account which means we are changing the scope of the terms of reference for the auditor to go back and review all of these planning assumptions, and perhaps even go as far as to identify areas where they think we should do some additional research. 1040 Mr. Poch is aware of this, Mr. Millyard is aware of this, and in fact Mr. Neme is aware of this, because we have always provided the copy of the terms of reference to them and we are proposing to set up an evaluation committee that will actually work together to develop the terms of reference. So we are trying to make this process better. 1041 MR. POCH: I'm sorry, Ms. Platis, are you saying there is a new proposed terms of reference that will no longer hold that assumption? 1042 MS. PLATIS: We determine a new terms of reference every year, and one of the things we're going to do as soon as we finish the evaluation report is to create a new terms of reference. 1043 MR. POCH: So they don't exist yet. So when you say we should know, we will know presumably once you publish it. 1044 MS. PLATIS: But you do know that we are setting up an evaluation committee and we have agreed in our discussions in the DSM consultative that we will be expanding the terms of reference for the auditor to identify and use the best available information, because that's what we committed to in the ADR for LRAM. 1045 MR. POCH: For the current LRAM balances in this hearing, though, the auditor was not asked to go and look at this -- the free rider rate. The auditor wasn't asked to comment on whether you should use this 79 percent as opposed to 60 percent. You just explained the auditor was told you're treating that as fixed. 1046 MS. PLATIS: Yes, those assumptions were fixed. Now, do you want to talk about the other information that's in this report, because the way Mr. -- 1047 MR. POCH: Can I get to my questions? It's all right. 1048 MS. PLATIS: Sorry. 1049 MR. POCH: We're kind of short for time. 1050 At the bottom half of that paragraph it reads: "Two separate calculation methods suggestion that will overall net to gross ratio is 75 percent." First of all stopping -- well let me read the next sentence and then ask you: "This means that for each high-efficiency participant Union can take credit for 75 percent of expected energy savings." Is my understanding of net-to-gross ratio the combined effect of free drivers and free riders and how -- taking those -- both effects into account, how you adjust your participation numbers for the combined group? 1051 MS. PLATIS: That is one interpretation of this. The study used two methodologies. That is one of the methodologies that could have been applied. 1052 MR. POCH: I'm asking you: What does the net-to-gross ratio mean? What's that term of art mean? 1053 MS. PLATIS: I'm not sure I understand what you're asking me. 1054 MR. POCH: The paragraph in your conclusions, your consultant has given you two numbers: The 79 percent number and the 15 percent number and concludes, saying, "With two separate methods, we come to this conclusion that the net-to-gross ratio is 75 percent." And I'm asking you what is a net-to-gross ratio? 1055 MS. PLATIS: The portion of the savings that the utility can take credit for. 1056 MR. POCH: And it -- I take it it takes account of both free drivers and free riders? 1057 MS. PLATIS: We didn't think so when we read this, no. 1058 MR. POCH: What did you think it meant? 1059 MS. PLATIS: That under a different methodology, you had the option of using 75 percent so that there were two methodologies proposed. One of them said: Take the free rider rate for your existing furnaces and you have a free driver rate for the other proportion. Now, the fact that this rate is 79 percent and the one that we're using is 60 percent goes to the influence of DSM programs that Union Gas has been running. As we said before, we've been running programs since 1995. So clearly, there has been some influence on the market between 1995 and '99 when the study was done. So this is not what you would call a pure free rider rate because we have been doing things that would have influenced that original 60 that we all agreed to. And I think if you read the literature in the industry, you'll identify that that does happen. That is what the concept of market transformation is about. 1060 MR. POCH: Ms. Platis, I think you're getting at a different point than I'm getting at. I'm just trying to understand -- you provided -- we asked you for the study supporting the free driver assumptions. You provided a redacted copy that blacked out both the free rider rate and this comment by the study in the conclusion that combines the two effect to give you a net effect; correct? 1061 MS. PLATIS: We blacked out the portion on the free rider rate and that last sentence, yes, we did. 1062 MR. POCH: Okay. And you blacked that out because you're concerned that this was valuable information as you've explained? 1063 MS. PLATIS: Yes. 1064 MR. POCH: All right. Thank you. There was one other thing you could perhaps clear up for me. In that paragraph, the Quantec folks note that as nearly four high-efficiency furnaces are purchased outside the program. For every high-efficiency program participant, this free drivership is important. I just -- taking that as its face, said there is -- I just did a little numerical analysis you had listed some 4,200 participants. 1065 MS. PLATIS: Mm-hm. 1066 MR. POCH: That's before taking account of free ridership, so that's gross participants. And they say there's -- for every one you've got there's another four out there. So I just multiplied that number by five to get a total number of high-efficiency furnaces being put in place annually at just over 21,000. Do you understand how I did that, just flowing from the comment of Quantec? That math's clear to you? 1067 MS. PLATIS: Yes. I would have used the 4,500 from 2000 that we've got identified and multiplied that by five to get 22,500, but yes. 1068 MR. POCH: 22,500. Okay. And, in your yellow page update at page 8 in the middle paragraph, third line up, you indicate that you think there's more like over 30,000 customers buying high efficiency. 1069 MS. PLATIS: Yes. What our analysis here does, if I may draw your attention to page 8, is identifies there are approximately 1 million customers in our franchise area. Of that, 4.5 are likely to replace their furnace annually and that's based on an equipment life between 20 to 25 years. For that, approximately 60 percent of those furnaces will be high efficiency, giving us a number that is as the information indicates, 30,705, yes. 1070 MR. POCH: You differ from Quantec in how you go about, and therefore in your conclusion, about how many high-efficiency furnaces are out there? 1071 MS. PLATIS: Well, let me draw to your attention that in that particular year, that program had 7,460 participants. So if you multiply that by five which is the math you just did, you get a number that's even higher than the 30,000 that we've approximated at 37,300. Can I do that math again slowly? 1072 MR. POCH: No, I'm just trying to understand, what was it, the 7460? 1073 MS. PLATIS: So that evidence goes on to say on that same page, after deducting those customers who are already counted as participants at 7,460, so using the Quantec methodology, 7,460 times 5 gives you 37,300 high-efficiency furnaces that were -- likely, based on this calculation that was done -- based on the findings of this study -- 1074 MR. POCH: So the 7,460 is the combined participants both that are participants in the incentive program and the free driver? 1075 MS. PLATIS: No, if I misled you -- the 7,460 is actually paid participants in that program in 2001. 1076 MR. POCH: I'm sorry, in 2001? 1077 MS. PLATIS: Yes. This is an example for 2001 because it goes on to explain the balance of that piece, "The number of information -- furnaces based on 15 percent free-driver rate is calculated to be 3,487 in 2001." 1078 MR. POCH: Thank you. I think that clarifies that. 1079 MS. PLATIS: The numbers are internally consistent with what the study provided. 1080 MR. POCH: Now, you go on to say on that page of your -- yellow pages this is page 8 of 13: "Union has reviewed information from similar research conducted in other jurisdictions. The research indicates that free-driver numbers are similar in magnitude to free-rider values." 1081 First of all, I take it that Quantec -- let me stop there, hang on a second. You didn't disclose any such study of other jurisdictions in answer to the interrogatory we asked you, so I take it that those studies weren't available at the time and you didn't rely on them for the purposes of the LRAM calculations for '99 and 2000. 1082 MS. PLATIS: No. This is something that we have recently commissioned and we're hoping to have the findings shortly. 1083 MR. POCH: All right. So it's not finished and you don't have the findings. 1084 MS. PLATIS: No, and that's why it says review some similar information in other jurisdictions. There is not a study that is completed yet. 1085 MR. POCH: So it's nothing we can really talk about today. 1086 MS. PLATIS: No. It simply directionally identifies that this is a conservative estimate, because with three more years of experience, other jurisdictions are including higher numbers. 1087 MR. POCH: That's nothing we can test, is all I'm saying today. You're saying this is the kind of research you are doing. 1088 MS. PLATIS: Yes. 1089 MR. POCH: With that, let's turn to the other issue, and that is the timing issue, that is, your use of twice actual volumes in the year of implementation for purposes of LRAM rather than the 100 percent of actual volumes. I think you've agreed elsewhere that the LRAM is intended, and we've heard earlier today, probably ad nauseum, that the LRAM is intended to adjust utility revenues for actual impacts of DSM; is that correct? And that's been agreed to in at least one ADR. 1090 MS. PLATIS: I think the actual term is to make sure that the revenue is revenue neutral in their DSM activities. 1091 MR. POCH: And I notice you have about 167,000 participants in '99 and nothing turns on the exact number. I think you've already agreed that they didn't all put their efficiency measure in place on January 1st; correct? 1092 MS. PLATIS: Yes, we never said that they did. 1093 MR. POCH: Now, some of them might have installed a measure in November and you would have had, in fact, actual lost gas volumes, and therefore revenues, for about six weeks in that example. 1094 MS. PLATIS: Inasmuch as we knew that they -- they installed in November, yes. 1095 MR. POCH: In the example of someone who put something in mid-November. All right. So why, in that case, is the company claiming lost revenues for the other 46 weeks? 1096 MS. PLATIS: As we identified, we are using a simplifying assumption and when we did the analysis using the methodology that GEC proposed, the numbers are comparable. 1097 MR. POCH: Well, we did not propose you take '98 volumes. Did you assume we proposed that? 1098 MS. PLATIS: The evidence the way it's written is that half the savings happened in the first year and the others happened in a subsequent year. 1099 MR. POCH: Could you point me to that? 1100 Were you thinking of Mr. Neme's evidence? 1101 MS. PLATIS: Yes, we're talking about Mr. Neme's evidence. 1102 MR. POCH: Mr. Chairman, that would be Exhibit D.18, and he's discussing a timing issue, just so I can help you here at page 5 of 9. Was that the reference you were thinking of? 1103 MS. PLATIS: He says, on page 5 of 9, "Absent better information, it is reasonable to assume that on average, the measures are installed in the year and generate 6 months of savings in that year and produce a full year of savings the following year." 1104 MR. POCH: It did not produce a full year of savings until the following year. Is that -- first of all, on average, that's, in fact, the case; correct? 1105 MS. PLATIS: Participants do come on throughout the course of the year. 1106 MR. POCH: On average, six months through the year is not a crazy assumption for taking an average. 1107 MS. PLATIS: We haven't done the analysis to identify specifically when, but this is a simplifying assumption. 1108 MR. POCH: Sure. So carry on, where are you saying that -- the -- there's another half year of -- that comes in in the next year? I'm not sure -- 1109 MS. PLATIS: He goes on to say that the six months of savings in that year did not produce a full year of savings until the following year. So, as we interpret that methodology, the ADR and the accounting order identified clearly that we were to take all revenue impacts of DSM effective January 1. That suggests that the '98 activity will have an impact in 1999. 1110 MR. POCH: Let me -- first of all -- you put in a furnace in November, it's there for six weeks, then it's there for 12 months the next year, and can we agree that it's there for 12 months for each of the next 15 or 20 years? 1111 MS. PLATIS: Yes, based on the equipment life of the technology. 1112 MR. POCH: Now, is it not clear to you that what Mr. Neme is suggesting is that, in the approach GEC's proposing, that you get -- sorry -- that you get six months, because on average, a measure will be in place in six months in its year of implementation and you will get 12 months LRAM for that implementation each and ever year following until rates are rebased. 1113 MS. PLATIS: Yes, and that's why we took half of '98 or our example that showed that they are comparable. 1114 MR. POCH: You're aware that the Board specifically denied you an LRAM in -- for 1998. The reference is the Board's decision in the EBRO-493/494, paragraph 4.5.53, page 116 of the decision and I quote: "The Board is not persuaded of the need for a deferral account to track DSM expenditures or that a LRAM or shareholder incentive is needed at this time." You're aware of that decision? 1115 MS. PLATIS: Yes, you have brought that to our attention here in the package. 1116 MR. BAKER: What year did you say that was for? 1117 MR. POCH: That was the decision in 493/94 for 1998 rates. 1118 Now, you've pointed out, to this language, which talks about in the 499 ADR, which talks about a deferral account -- to record the margin impact of all DSM savings realized effective January 1st, '99. Are you now interpreting that to mean any DSM that is still saving us energy on January 1st, '99 even though it was installed in a prior period? 1119 MR. BAKER: I think what we're saying, Mr. Poch, is you are being rather selective in terms of trying to start your half-year rule in one particular year which is 1999. And I think all we're saying is in fairness, to be fair, it's clear that we had DSM activities in 1998. So if you want to apply a half-year rule, I think it only makes sense that you're going to take the half year were the savings -- second half of savings in '98 that under your methodology would not have happened in '98 and attribute those to 1999. 1120 MR. POCH: I keep having trouble understanding this notion of a second half-year of savings. Where do you get this idea of a second half-year of savings if the measure's only been physically in place for six months of the year. 1121 MR. BAKER: The exact same way that you are getting the second year. You're saying: We are going to start this in '99 and you are going to get half of the savings in 1999 -- 1122 MR. POCH: Excuse me, we've said repeatedly we haven't said that. We've said you get six months of savings in '99; you get 12 months of savings in each subsequent year. I'm trying to understand where you get this notion of another half year? That's what I'm trying to get at. 1123 MR. BAKER: Six months is the same as half. 1124 MR. POCH: Well, do you understand that there's physically, when you put in a measure for six months, there is no savings in the first half of the year? Physically, in the real world, there is no savings. 1125 MR. BAKER: I'm totally agreeing with you. I think we're going by each other in the wind here. 1126 MR. PENNY: Mr. Chairman, we've been listening, for the last 10 minutes, to Mr. Poch arguing with the witnesses and I really think it's not advancing the Board's fact-finding exercise to have this carry on any further. 1127 MR. JACKSON: Well, on this last matter I agree that this could be dealt with, Mr. Poch, in argument. 1128 MR. POCH: Thank you, Mr. Chairman, I will move on. 1129 MR. DOMINY: Before you move on, Mr. Poch, I believe 493/494 was the 1997 rate. 1130 MR. BAKER: That's what I was thinking as well but I realize it was late in the day and my mind might be failing me. 1131 MR. POCH: I'm sorry, then. Let me ask Mr. Baker; was there an approval for LRAM for 1998 rates? 1132 MR. BAKER: No, we weren't in for rates for '98. 1133 MR. POCH: My apologies. But that was the rate order standing in place for '98 then? 1134 MR. BAKER: That rate order pertained to rates for 1997. 1135 MR. POCH: Right, and there was no rate order supplanting that for 1998 so rates remained in place as set out in that decision. 1136 MR. BAKER: Yes. 1137 MR. JACKSON: But the way the LRAM account works, wouldn't it be necessary to set up a deferral account so there was no accounting order for the setting up for a deferral account for LRAM in 1998? Isn't that really what you needed to know? 1138 MR. POCH: That would be helpful to get an answer to that. And I take it the answer was there was no deferral account. 1139 MR. JACKSON: I have inferred that too but it's -- 1140 MR. BAKER: It's clear that there was no -- sorry. 1141 MR. JACKSON: Indeed, that's what I infer but I think it goes to the question of whether there was a deferral account set up, not whether there is a rate-making approval for something to be done with LRAM dollars. 1142 MR. BAKER: That's correct, and there was no deferral account set up in 1998. 1143 MR. JACKSON: Right. 1144 MR. POCH: Just this wording that you've referred us to in 499 about LRAM treatment for DSM revenues, DSM effective January 1st, '99. My earlier question was you're not suggesting that means that you get LRAM treatment for all DSM that's put in place prior to that date, are you? 1145 MR. BAKER: We're saying that under your half-year methodology, we should be entitled to the remainder of the 1998 savings that in your example -- let me step on an example. If you've got $10 worth of DSM savings in 1998, under your methodology, $5 of those savings should hit 1998 and then when you roll into 1999, the full $10 of savings is there. All we're saying is to be consistent with your methodology, that second piece or the increment to move from 5 to 10 which now falls into 1999, we say you are going to go to that half-year methodology and should be dually considered as a 1999 DSM savings. 1146 MR. POCH: Never mind what we're proposing. If the Board -- can we agree that the Board has never suggested that you get LRAM protection for DSM measures put in place as a part of your '97 or '98 or '96 or '95 programs? 1147 MR. BAKER: What the rate order says is that the LRAM will capture DSM savings effective January 1, 1999. To the extent that there was a measure put in place which you now say only, in 1998 which only got a half-year treatment, we would say that effective 1999, the second piece of that 1998 DSM measure came into being. 1148 MR. POCH: And the third piece, when would that come in? 1149 MR. BAKER: There is no third piece, the full amount of then is in 1999. 1150 MR. POCH: Mr. Baker, I'm having trouble understanding. You put in a furnace that has a 20-year life. 1151 MR. BAKER: Exactly, and it would continue on. 1152 MR. POCH: And you would get LRAM treatment on a continuous basis for that? 1153 Let me put it another way. What is the distinction between something put in place in '98 and something put in place in '97? That high-efficiency furnace put in place in '97 would also be existing in January of '99. 1154 MR. BAKER: We may well go back and debate that point and I may have some different views on that as well. And all I was trying to do, in fairness, was to be consistent to the half-year methodology and I think in our view, it is not appropriate to, what I would call cherry pick of the timing of when you are going to implement the half-year rule and say we are going to implement that in 1999 and ignore the previous -- 1155 MR. POCH: Let me ask my one final question then. For a measure, were measures put in place in '99 -- do you understand that the GEC's proposal would have you collect for six months of impact in the '99 LRAM, because on average measures will have been in place for six months of that year, a rough approximation you've already agreed to, and that you will get 12 months of impact on each subsequent year, and if we stayed with PBR and never rebased, you'd get right through and you'd get each and every cubic metre saved from all of those measures. 1156 MR. BAKER: Yes, we agree with that, Mr. Poch. 1157 MR. POCH: Okay. And -- well thank you. Those are my questions. 1158 MR. JACKSON: Good, Mr. Poch. It was worth our patience. I was fearing you might have to go over to Monday so thank you very much, Mr. Poch, for finishing. 1159 What is your plan? 1160 MR. MOUTSATSOS: Mr. Chairman, with respect to whether or not you want me to proceed this afternoon or whether you want me to start first thing on Monday, I anticipate that we would probably be about 30 minutes, to be safe. 1161 MR. JACKSON: Yes. Do I have your agreement to go forward, Mr. Penny, if I check with my fellow Members and see whether we can get it done tonight? 1162 MR. PENNY: Absolutely. 1163 MR. POCH: Mr. Chairman, I have been remiss. 1164 MR. JACKSON: Just one second, Mr. Poch. I am just going to canvass Mr. Moran. Mr. Moran, how long might you be with this Panel? 1165 MR. MORAN: Not more than ten minutes. 1166 MR. JACKSON: Now, we did give the witnesses and Mr. Neme -- I guess it's just Mr. Neme that needs the special time on Monday. Mr. Penny, what would you think if we interrupted him on -- sorry if we interrupted this Panel on Monday and took Mr. Neme. That's not very good, is it? 1167 MR. POCH: Mr. Chairman, I was just going to say he could wait the hour if that's what it is on Monday morning. 1168 MR. PENNY: Just so I'm clear on the proposal, we're prepared to continue today if the Board so chooses and to finish with this Panel. Indeed, they may prefer it but that's your choice. Not -- we're here to fulfil our obligations and to present our case as best we can and so we'll do what best suits the Board in that regard. 1169 If indeed they were -- the completion of the examination is put over to Monday, I do think it's better if we just proceed and finish them because it's clear it won't be long. I don't think it will inconvenience Mr. Neme, and, as the Board knows, my cross-examinations on these issues tend to be relatively short. I don't think there's any risk that we won't finish on Monday at all. 1170 MR. JACKSON: Okay. Let's carry on, then. 1171 CROSS-EXAMINATION BY MR. MOUTSATSOS: 1172 MR. MOUTSATSOS: Thank you, Mr. Chairman. 1173 We had a number of questions for this Panel that we feel have been addressed and explored by Mr. Thompson and Mr. Klippenstein so in order that we -- for the purposes of expediency, we won't re-cover those areas and we will, as I said, rely on what is currently on the record and will deal with those issues in argument. 1174 MR. JACKSON: The Board wants you to feel that you're not squeezed on this, though, because of the timing, so just let me be clear. 1175 MR. MOUTSATSOS: Thank you, Mr. Chairman. 1176 If I could please ask the Panel to turn to CME interrogatory, Exhibit C.4.3. Do you have that in front of you, Ms. Platis? 1177 MS. PLATIS: Yes. 1178 MR. MOUTSATSOS: In your answer to CME's interrogatory, if I can direct you to the second sentence of your answer. "Union has proposed integrating the DSM consultative with the customer review process since the parties sitting at the DSM table are also a part of the broader customer review process. It is intended to increase customer value and reduce costs by eliminating the duplication of services and increase costs of a two-part review process. The company intends to continue working with the DSM consultative members to address annual updates to the target-setting process as per the guidelines in the RP-1999-0017 decision with reasons, page 18." 1179 CME was wondering if you could please elaborate on what reduced costs would be and advise of Union's expectations for these reduced costs. 1180 MS. PLATIS: As you know, the DSM consultative meets and the utility pays the attendees to attend the meeting and for an equal amount of prep time. So there are costs associated with the DSM consultative meeting. That having been said, we are still holding those sessions. 1181 MR. MOUTSATSOS: Is that a quantifiable figure? Is there a dollar amount that could be put on the reduced costs? And if so, could Union undertake to make that information available? 1182 MR. PENNY: Mr. Chairman, maybe I'm -- maybe it's the time of the day, but I'm struggling with why this is relevant to the issues that are before you. 1183 MR. JACKSON: Mr. Moutsatsos. 1184 MR. MOUTSATSOS: Mr. Chairman, if I can explain. 1185 Union is proposing to integrate the DSM consultative process with the customer review process and it's the position of the CME that these processes should be kept separate and are, indeed, best kept separate and that's what we want. We want to explore the reasons behind Union's proposals and whether or not that would indeed be an efficient way to conduct these processes. 1186 MR. JACKSON: Can I just seek clarification here. I think they were separate but concurrent recently; is that right? Or were they separate, non-concurrent? 1187 MS. PLATIS: The company identified that we're still going to work with the DSM consultative and then the cost implications would be dealt with in the CRP. 1188 MR. JACKSON: And the CRP would be held at a different time so that these people that participate in the consultative would not be prevented from attending the CRP; is that correct? I just wanted to be absolutely clear that these things weren't run concurrently. 1189 MS. PLATIS: No, the DSM consultative meetings are held at different times from the CRP and they deal with different issues. 1190 MR. JACKSON: Thank you. And there's a proposal -- I'm sorry, it may be late Friday afternoon, too, if I can't remember all these proposals. 1191 MS. PLATIS: At the time the company had proposed to combine the two, the decision clearly said that there was a value to continue with the DSM consultative to assist in updating the annual targets. And so we have met with them. As a matter of fact, we met with them in November of 2001 and again in January of 2002 to work through target setting for 2002. 1192 MR. JACKSON: Good. And Mr. Moutsatsos, is it your concern that Union may still combine them, and when combined, they may be concurrent and may somehow prevent you from having input into both processes? Just remind me because I've gone blank on what your concern is here. 1193 MR. MOUTSATSOS: What our concern is, Mr. Chairman, is essentially that the DSM consultative process and the customer review process are kept separate for the reason that CME would want these -- their interests represented to the fullest and best ability that's possible. I understand from the answer in the interrogatory that Union proposes integrating the DSM consultative with the customer review process and the word -- the use of the word "integration" to me means something other than what Ms. Platis suggests. 1194 The answer to this interrogatory is dated January 28, 2002, which is after the period of time that Ms. Platis refers -- that the parties met. And they are still proposing that as of January 28th, 2002. 1195 MS. PLATIS: I'm sorry, perhaps the answer to that was unclear. That was a proposal that was part of the PBR, but the Board clearly identified that they saw value in both -- in the decision, and so Union has continued to work with the DSM consultative. 1196 MR. JACKSON: And you, I take it, intend to continue to work with the DSM consultative which does not meet at the same time that the CRP meetings are held; correct? 1197 MS. PLATIS: Yes. And in fact we've had some great success with some of our meetings lately, getting through a lot of these issues. 1198 MR. JACKSON: Okay. So, Mr. Moutsatsos, does that -- I think that maybe satisfies you, if I understand what your concern was. I'm sorry to be intervening here. I started off just trying to understand what was going on. 1199 MR. MOUTSATSOS: Well, possibly if Ms. Platis could explain to me how Union envisages the DSM consultative process being integrated with the customer review process, if we could understand how the processes would run together. 1200 MS. PLATIS: We are not proposing to do that anymore. 1201 MR. JACKSON: Right, yeah. 1202 MS. PLATIS: Was that unclear? 1203 MR. JACKSON: The integration is null, if I understand it correctly. That's its best description. 1204 MS. PLATIS: Yes, perfect. 1205 MR. JACKSON: Thank you. 1206 MR. MOUTSATSOS: So, just for the purposes of the record, then, the answer to this response therefore no longer applies; is that correct, Ms. Platis? 1207 MS. PLATIS: Yes, that is correct. 1208 MR. MOUTSATSOS: Thank you. That will shorten my questions, although I do have some more, Ms. Platis. 1209 If I may direct the Panel to RP-1999-0017 decision with reasons, page 180. You made reference to it in the answer to Exhibit C.4.3. 1210 MS. PLATIS: I'm sorry, what page did you say? 1211 MR. MOUTSATSOS: Decisions with reasons, page 180, the RP-1999-0017 decision. You mentioned in your answer that you intended to continue working as per the guidelines in that decision. What is the company's interpretation of those guidelines, and if you'd also identify, I guess, the specific reference on page 180 which Union believes constitutes those guidelines. 1212 MR. PENNY: I wonder if it would speed up the process if you could be more specific. 1213 MR. MOUTSATSOS: What I'm asking, Mr. Chairman, is an explanation, I guess, or an elaboration of the answer to the interrogatory. Ms. Platis in the answer, the last sentence, states that: "The company intends to continue working the DSM consultative members to address annual updates to the target-setting process as per the guidelines in the decision, page 180." I guess what I'm looking for is clarification as to what paragraph on 180 she's referring to and then what the interpretation of Union is with respect to those guidelines. I wish I could be more specific but I'm unaware of what paragraph that actually is. 1214 MS. PLATIS: All right. If you look -- what we were referring to is page 180, second paragraph. So 2668, line 7, from the decision reads: "The Board recognizes that the DSM consultative process is the appropriate forum for developing DSM plans and programs." And so we will continue to have a DSM consultative. 1215 MR. MOUTSATSOS: I asked the question, then: Is that a guideline? Or is there, I guess, something that Union -- does Union have a list of guidelines that it follows? 1216 MR. BAKER: I will try to be helpful, hopefully will be. I think when we referred to the interrogatory Exhibit C.4.3 to the guidelines in RP, I think we were simply referring not so much specifically to guidelines. But what the Board had referenced in the decision was that they still find value in the DSM consultative and would like to see it continue in addition to the CRP. 1217 MR. MOUTSATSOS: And that it is to promote the form for developing DSM plans and programs. 1218 MR. BAKER: That's correct. 1219 MR. MOUTSATSOS: Now, would the Panel please advise what the company's position is with respect to DSM assumptions and, specifically, what the company believes DSM assumptions, such as free riders attributions, the free drivers that we've spoke of, whether or not they should be reviewed each year and changed if necessary or, whether they should be held constant throughout the period of the DSM plan, in this case, the three years? 1220 MS. PLATIS: When the Board approved the current energy-efficiency plan, it identified that the plan should be the basis for the annual target setting. In that plan, there are assumptions about equipment life, equipment cost, energy savings and there are annual targets set based on that information. 1221 The LRAM requires us to use the best available information, so it is the company's position as information becomes available, to update the savings for our LRAM, we'll apply those same pieces of new information to targets going forward. And so, new information will constantly be introduced into the existing five-year plan. 1222 MR. MOUTSATSOS: So the assumption -- I'm correct then when I take you to mean that the assumptions will not be held constant throughout the period of the plan? 1223 MS. PLATIS: Not inasmuch as new information becomes available, no. 1224 MR. MOUTSATSOS: And when was that decision made? 1225 MS. PLATIS: That has always been the guidelines for LRAM as identified in the ADR; it's the best available information. 1226 MR. MOUTSATSOS: So is it Union's intention then to change assumptions when the information becomes available retrospectively as well as prospectively in the future? 1227 MS. PLATIS: The new information will be applied to the targets going forward, yes. 1228 MR. MOUTSATSOS: Okay. That takes care of prospectively but retrospectively, is it Union's intention to re-evaluate the prior years with the new information? 1229 MS. PLATIS: Which prior years would be you referring to, just so that I'm clear? 1230 MR. MOUTSATSOS: For example, 1999, but any prior year in which -- was prior to the new information becoming available? 1231 MS. PLATIS: As a result of the discussions that we have had in the last few months with members of the DSM consultative, and our efforts in the 2001 evaluation to review some of the assumptions that had, perhaps, needed reviewing based on some of the new information that had been raised, we went back and we changed the savings assumptions for the measures that we had new information on back from '99, 2000, and 2001. 1232 MR. MOUTSATSOS: May I ask who was there as far as the intervenors, because this is the first CME is hearing of this and they are part of the DSM consultative. 1233 MS. PLATIS: We had a meeting in November where some DSM consultative members raised concerns about specific elements of the evaluation report and some of the assumptions that were in there. Union Gas subsequently set up meetings with both CME and GEC to review this information. We then provided copies of all of the discussion that happened, full documented answers for all of their questions to the DSM consultative as a whole in our January meeting. And at that time, there was a commitment to continue working to get the best available information. 1234 MR. JACKSON: And that was January of which year? 1235 MS. PLATIS: January of this year. 1236 MR. JACKSON: Year 2002. 1237 MS. PLATIS: And we will be including all of that information in the 2001 evaluation report. It was also the information that was used to update our evidence for 1999, 2000, and 2001 LRAM balances. 1238 MR. JACKSON: And I take it the concerns expressed by some of the participants in the consultative were that your estimate of savings were too large; is that correct? 1239 MS. PLATIS: In some cases, that was the case, but in an example that we have not dwelled on here today, that they were too low. Mr. Neme agreed that the assumptions for infrared heaters, which are commercial technology were, in fact, conservative and should probably be higher. And, I'm sure that if we wanted to address that with him -- 1240 MR. JACKSON: Yes. Thank you. And so those adjustments, then, you have made; is that correct? 1241 MS. PLATIS: Yes, for '99, 2000, and 2001. 1242 MR. JACKSON: Thank you. 1243 MR. MOUTSATSOS: Mr. Platis, were intervenors implicitly or expressly advised of this change? Because the CME maintains that it hasn't and didn't receive anything. 1244 MS. PLATIS: It is in our updated evidence of April 10th. I'm sorry, let me get the reference for you. That's unfair. 1245 Table 2 in our evidence outlines specifically, if I may draw your attention, identifies the measure, the applicable year, the changes that may have taken place in either participants, free-rider rates, adjustment factors or the actual savings. It also goes on to identify the LRAM impact and whether it was an increase or a reduction. 1246 The previous pages -- and I'll just get the details for you -- starting on page 3 where it says, highlights the 2001 DSM evaluation findings. We identify all of the changes made on the particular technologies, going through each one identifying what new information we have and what we've changed it to. 1247 MR. MOUTSATSOS: If I take your evidence, though, if I can just back up for a moment, it was my understanding that you were implying that there was a consultative that was taking place and that was, in fact, working and that was effective. But you're pointing now to the updated evidence that you filed in April, which took place -- which was obviously filed after the meetings had taken place. 1248 MS. PLATIS: I'm not sure I understand where the question is in that. 1249 MR. MOUTSATSOS: I guess what I would -- what I'm trying to do here is essentially put it on the record that the process is not, in fact, working, and that it hasn't worked. Because if I took your evidence correctly, you were suggesting that the process, the DSM consultative was, in fact, being successful and it's our position that, quite frankly, it's not. 1250 MS. PLATIS: I'd like to remind you that Mr. Rowan was representing the CME in both the September and January and he did meet with representatives from Union to identify his concerns and he identified some items that we have addressed. Mr. Rowan's concerns did not largely revolve around individual assumptions and he did not have recommendations for changes on unit impacts but he did have recommendations for improving the quality of the evaluation report which we are addressing by adding some tables that he wanted and making some other modifications to the format and content. 1251 MR. MOUTSATSOS: Mr. Rowan advises me that he was present at both of these meetings; however, he was under the impression and understanding when he participated in those meetings that the assumptions were to be held constant throughout the period of the five-year DSM plan and not changed as you're saying they are now today. In other words, other than for the April evidence that you referred us to just a moment ago, Mr. Rowan, who participated in those two meetings, was under the impression of continuing until this evidence was filed, that the DSM assumptions were going to be held constant still. 1252 MS. PLATIS: We addressed the requirement of the ADR that identified for LRAM. We're supposed to use the best available information and so we have gone back and reviewed what the best available information is and in some areas we have made changes. Now, in areas where we don't have updated information, we are keeping those planning assumptions constant. 1253 MR. DOMINY: Could I ask a question? Ms. Platis, I think you made a comment that basically you had a meeting in November and then a meeting in January and that you, in fact, circulated to members of the consultative the minutes of the meeting and what you were doing; was that correct? 1254 MS. PLATIS: The November meeting, minutes were distributed in addition to discussions that happened with members of CME and GEC in December without the full consultative present. So we had a meeting with Mr. Rowan and another meeting with Mr. Millyard and we documented all of the discussions that happened in those meetings and distributed all of that to the DSM consultative. 1255 MR. DOMINY: What I was wanting to make sure was that the various meetings were provided to all the members. 1256 MS. PLATIS: Yes, the information was provided to all the members. 1257 MR. MOUTSATSOS: But were the changed assumptions circulated? 1258 MS. PLATIS: They were circulated in our April 10th update of the evidence; as a matter of fact, a number of those changes were made only very recently, and there has not been a DSM consultative meeting since January. 1259 MR. MOUTSATSOS: So would I be correct in saying, though, that there was no discussion with the CME prior to your filing in April, your updated evidence, excuse me, that the CME was not advised of these changed assumptions prior to April of this year? 1260 MS. PLATIS: The CME had the opportunity to meet with the company in December and then we had the January meeting, but since then, yes, we did not have any additional discussion with the CME since the January consultative meeting. 1261 MR. MOUTSATSOS: Am I correct in saying that the CME was told that the assumptions wouldn't change, however, and could that be the reason why they didn't meet? My understanding is Mr. Rowan was told that the assumptions would not change, and they would be held constant during the term of the five-year DSM plan. 1262 MS. PLATIS: Only in areas where we didn't have better information would we stay with what was in the plan. The ADR requires us to use the best available information. 1263 MR. MOUTSATSOS: I don't know if the -- I'll explore this area further. I think its probably best left for argument, Mr. Chairman, and I'll move on with just a few more questions. 1264 MR. JACKSON: Thank you. 1265 MR. MOUTSATSOS: If I could now direct the Panel to appendices A and B of its pre-filed evidence; appendix A is the 1999 evaluation report, the draft, and appendix B is the final report, the independent audit of Union Gas's 1999 DSM evaluation report. 1266 MS. PLATIS: We have the pre-filed evidence. What would you like to look at? What should we be looking at? 1267 MR. MOUTSATSOS: Actually, if I could -- actually, if I could ask the Panel to first look, I guess, at appendix A. 1268 MS. PLATIS: Yes. 1269 MR. MOUTSATSOS: Actually, I won't necessarily be referring to any particular excerpts from the evaluation report, but I was wondering if the Panel could advise which person within Union Gas was primarily responsible for the preparation of the '99 DSM evaluation report? 1270 MS. PLATIS: We have an evaluation team that is responsible for putting together this report. We also used consultants that specialize in evaluation to help us prepare the document and many of the studies conducted as part of the evaluation. 1271 MR. MOUTSATSOS: Who heads that team, though, Ms. Platis? 1272 MS. PLATIS: I do. 1273 MR. MOUTSATSOS: And would you please advise, who negotiated the contract with Quantec, the auditor of the 1999 DSM evaluation report? Would it once again be the team or could I safely say that it was you? 1274 MS. PLATIS: We have an RFP that we send out that is reviewed by the DSM consultative. We then send out the request for proposal. The proposals come in. We have a selection criteria, the team reviews them, and we decide which one we're going to use. 1275 MR. MOUTSATSOS: And to whom does the auditor report to, the team or to the leader of the team? 1276 MS. PLATIS: It is -- if you want a lead client, yes, I am the lead client. But yes, it is the team. The auditor has contact with a number of participants depending on whether they're interested in the residential, commercial or industrial activities. 1277 MR. MOUTSATSOS: I think I understand. But could the Panel please advise how it would define the term "independent auditor," then, in this situation, I guess? Is it someone external, for example, to the organization? 1278 MS. PLATIS: When we say "independent third party auditor," it is someone that is not part of Union Gas, is not part of the Union Gas team, and can offer a perspective that will add value to future evaluations while verifying that what we have, in fact, stated is what the findings of the selected studies have undertaken and what is, in fact, tracked in our system. 1279 MR. MOUTSATSOS: But the independent auditor does report back to Union, and takes its directions from Union. 1280 MS. PLATIS: In as much as we are the client, yes, we pay the bills. 1281 MR. MOUTSATSOS: I have just a couple more questions, Panel. This is the only area I'm going to explore as far as the answers that were elicited from the colleagues that went before me with respect to the evidence Mr. Baker was involved in. 1282 If I could ask the Panel to turn to its LRAM package, Exhibit F.5.53, page 9. I don't want to go down the road again, Mr. Baker, of pointing out the quotes that we've had pointed out ad nauseum today. 1283 MR. BAKER: That's appreciated. 1284 MR. MOUTSATSOS: However, I was wondering if we could look at the sample calculation of the lost revenue amount on page 9. I was just wondering why Union didn't file a sample chart where the LRAM starts at zero if it was, essentially -- since such a chart would clearly have made it clear to intervenors your belief that DSM 1999 planned savings were not embedded into 1999 rates. 1285 MR. BAKER: I guess our view is that there was no need to file a chart. We had a DSM plan that had projected 1999 savings, and, to the extent that the threshold was zero, the chart on the 1999 savings was in fact the chart. 1286 MR. MOUTSATSOS: But could you point anywhere within this document, I guess, at appendix E that begins on page 5, where it is stated that the LRAM starts at zero? 1287 MR. BAKER: Again, this is going back to what we went through and it really goes -- it has its underpinnings in the EBRO-499 ADR agreement, where it says the LRAM will capture all DSM savings effective January 1, 1999. 1288 MR. MOUTSATSOS: Would you agree, then, if I can rephrase the question, that a chart that would have shown the LRAM starting at zero would have been helpful to intervenors to understand Union's position that DSM savings were not reflected in the 1999 volume forecasts and that DSM planned savings were not embedded into 1999 rates. 1289 MR. BAKER: I can't speak whether it would or wouldn't, but I think it was -- again, the fact with the 499 ADR, it was clear that we are starting from a zero base. Every dollar that you see when we get the 1999 DSM savings audited in the final report, every dollar of savings would go into the LRAM account. 1290 MR. MOUTSATSOS: Thank you, Panel, no further questions. 1291 Thank you, Ms. Platis, Mr. Baker, Mr. Chairman. 1292 MR. JACKSON: Thank you, Mr. Moutsatsos. 1293 Mr. Moran. 1294 CROSS-EXAMINATION BY MR. MORAN: 1295 MR. MORAN: Thank you Mr. Chair. 1296 MR. JACKSON: It's hard to be last on a Friday afternoon. 1297 MR. MORAN: I'm aware of the burden, Mr. Chairman. 1298 Mr. Baker, maybe I'll just -- I'm just going to quickly run through something with you and see where that takes us. As I understand it, the 1999 volume forecast was done using historical data, right? That was your evidence earlier. 1299 MR. BAKER: That's correct. 1300 MR. MORAN: Which, of course, would have reflected the actual results of any DSM activities that had been carried out during that historical period? 1301 MR. BAKER: Yes, in that period up to and including 1997. 1302 MR. MORAN: And the data showed a declining usage trend; right? 1303 MR. BAKER: That's correct. 1304 MR. MORAN: And therefore, of course, the 1999 forecast volume would reflect or incorporate that declining usage trend, right? 1305 MR. BAKER: Yes, and the exhibit on the ADR agreement illustrated that. 1306 MR. MORAN: And when you break it down into the different classes, the residential customer classes also showed this decline in usage trend specifically in that class. 1307 MR. BAKER: That's correct. 1308 MR. MORAN: And in that class, the major driver was identified as being increased penetration of high-efficiency furnaces? 1309 MR. BAKER: That's correct. 1310 MR. MORAN: Which also happens to be -- a major component of the DSM program; right? 1311 MR. BAKER: Again, we're referring to historical data. 1312 MR. MORAN: Right. So when to comes to DSM, the idea here is that Union is going to take steps to encourage people to reduce consumption through the use of information and through the use of giving cash incentives, right? Is that correct? 1313 MS. PLATIS: I am sorry, one more time please. 1314 MR. MORAN: When it comes specifically to the DSM program, how that works is Union takes steps to encourage people to reduce consumption and that's done through information programs and cash incentives, and so on, right? 1315 MS. PLATIS: We like to refer to it as promoting energy efficiency, but yes. 1316 MR. MORAN: And if Union is successful there is a risk that those forecast volumes will have declined at an even greater rate and the idea here is the LRAM will reimburse you for that increased rate of decline. 1317 MR. BAKER: That's correct, keep us financially indifferent. 1318 MR. MORAN: Good. I'd like you to turn, then, to the 0017 decision, volume 1, if you could just turn up page 168, please. 1319 What you see on page 168 is a continuation of a portion of the decision that starts on page 167 and it's entitled Union's reply, DSM base plan and targets. And when you get to paragraph 2.627 on page 168, there is the statement: "Union argued that while the Board might not have explicitly approved the DSM plan in EBRO 499 except for its impacts on 1999 rates, it would be wasteful if the Board were to require annual target-setting since annual target-setting would require ..." and then it carries on. 1320 I'm interested particularly in the phrase "except for its impacts on 1999 rates." There's been obviously considerable discussion about how to interpret many different things that are involved in this process, and adding this to the hopper, what would your comment be? 1321 MR. BAKER: I think my comment would be is, I would likely need to go back and reread the argument to ensure that I had the full context of what we were trying to say. 1322 MR. MORAN: All right. Well maybe the best way to leave this is, I can give you the reference in the argument. It's page 187, it's in the reply submissions dated August 14th, 2000 under a section called targets. 1323 MR. JACKSON: What page or paragraph was that? 1324 MR. MORAN: Second paragraph on page 187 of the reply argument. 1325 MR. JACKSON: Thank you. 1326 MR. BAKER: I don't have it in front of me, I'm sorry. 1327 Again, to me it says "except for the impacts on 1999 rates"; it's not explicit in terms of what those are and again our view is that there was no impact, essentially, on 1999 rates. 1328 MR. MORAN: All right. Now, when the company gets a decision -- 1329 MR. BAKER: -- Just, the other thing I would say there as well is that there is a cost component to the DSM in terms of the O & M that is in 1999 rates as well so that is another component. 1330 MR. MORAN: All right. The last area I just want to touch on with you, then, is that when Union gets a decision, I assume everybody at Union who is involved in it will sit down and review it; right? 1331 MR. BAKER: That's correct. 1332 MR. MORAN: And first of all you want to see what you got; right? 1333 MR. BAKER: We're all curious, yes. 1334 MR. MORAN: Secondly, you want to see if there's any mistakes or problems or maybe the Board had an interpretation problem, right? Or made a mistake on a fact or something like that; you want to make sure it's an accurate decision? 1335 MR. BAKER: We review the decision so that it's clear that we understand what's in it; that's correct. 1336 MR. MORAN: All right. And to the extent that there might be a problem that you identify in the decision, then you might consider whether you're going to come back to the Board for -- on a review motion, right, and that happens sometimes. 1337 MR. BAKER: Yes, I think that's fair. 1338 MR. MORAN: So if you then take a look at page 165 of the decision, in -- under the heading "Demand Side Management" in paragraph 2.617, when you go through that paragraph, it includes the sentence the starting on the fifth last line, "The Board approved a lost revenue adjustment mechanism, LRAM, to adjust for margins the company loses if its DSM programs are more successful during the period after rates are set than was planned in setting the rates." And there's been lots of discussion about what that means. 1339 Did that -- when you read that, was there any thought that perhaps you might want to come back to the Board for clarification because your current interpretation would suggest that there was nothing planned in the rates? 1340 MR. BAKER: No. When I read that, it's entirely consistent with our understanding and our reading of -- 1341 MR. MORAN: So you weren't concerned that -- 1342 MR. BAKER: Again, when I read it, it's a generic -- I read it as a generic type of a sentence which is talking about the LRAM and how it functions relative to what is included in the rates. 1343 MR. MORAN: If you could just turn up L5.3. Do you have it? 1344 MR. BAKER: Any particular page? 1345 MR. MORAN: Page 19 and page 20. On page 19 we've got the last paragraph, the parties agree that the LRAM as shown in the pre-filed evidence at D.1, T5 appendix E is designed to mitigate actual revenue impacts. And then it goes on, "Union agrees to use the best available estimates," et cetera. 1346 So you have that paragraph and if you look at the second paragraph on page 20, "The parties agree that a deferral account will be established to record the margin impact of all DSM savings realized effective January 1, 1999." 1347 Now, as I understand your evidence on this point, you're pointing to the second paragraph on page 20 and saying that Board obviously intended us to put all the DSM savings into the LRAM; right? 1348 MR. BAKER: That's correct. 1349 MR. MORAN: And you're saying that you have to start there in order to interpret the pre-filed evidence which -- as its described in the previous paragraph; right? 1350 MR. BAKER: I think what I would say is that the reference on the bottom of page 19 was generally, through our evidence, which described the mechanics of an LRAM, and as I had indicated, it's clear in that evidence and that appendix there's a reference that there was forecasting included in rates, and that's the theoretical underpinning of the LRAM. 1351 MR. MORAN: So to get back to the question, then, you're saying that the second paragraph on page 20 has to be used in order to interpret the last paragraph on page 19. That would be the order in which -- 1352 MR. BAKER: No, that's not what I'm saying. I'm saying the last paragraph on page 19 is a reference that describes the mechanics and the philosophy around an LRAM in the last paragraph, and that section on page 20 describes the basis on which that LRAM will work effective January 1, 1999. 1353 MR. MORAN: I'll leave it at that, and thank you very much. 1354 Those are all my questions, Mr. Chairman. 1355 MR. JACKSON: Thank you very much, Mr. Moran. 1356 Okay, we may have a couple of Board questions. 1357 QUESTIONS FROM THE BOARD: 1358 MR. DOMINY: I have a very simple question just to understand. As I understand it, Union incurs certain costs when doing DSM programs? 1359 MS. PLATIS: Yes. 1360 MR. DOMINY: Those costs are included in the revenue requirement for 1999. 1361 MR. BAKER: Yes. 1362 MR. DOMINY: And in doing the DSM programs, one would expect there would be some value in them; therefore, you would get a reduced consumption or something because the of the DSM programs? 1363 MR. BAKER: I believe that's the philosophy, that's correct. 1364 MR. DOMINY: So one would expect then that there would be an offset to the costs that are included in the revenue requirement to reflect that the DSM program activity. 1365 MR. BAKER: Can you just go at that -- 1366 MR. DOMINY: What I'm trying to get at is you incur some costs to do something and that has an effect, the effect is reduced consumption. 1367 MS. PLATIS: Yes. 1368 MR. DOMINY: So if the system is consistent, you put in costs to do something, then the expectation is that the effect that is reflected in the revenue forecast or the demand forecast, et cetera. 1369 MR. BAKER: I think in this case, though, with DSM we are actually spending money to put less volume through our system so both of the adjustments go one way. 1370 MR. DOMINY: I understand, but the costs go in and they are effected in the revenue requirement because you are allowed to recover the costs, because in cost of service model that would be the case. 1371 MR. BAKER: That's correct. 1372 MR. DOMINY: Okay. And then the offset is an adjustment to the revenue because it has an effect to the volumes. 1373 MR. BAKER: That's correct, it takes -- directionally takes volumes down. 1374 MR. DOMINY: So if you have a balanced system included in the model that's brought forward, both elements are reflected. 1375 MR. BAKER: Again, I think generally that's right under cost of service, and I think what -- in the context of an LRAM, I don't necessarily distinguish at a point in time between what's at rate at a specific point in time, but to the extent that there is an account like we have a LRAM now that captures that and that gets trued up and put in rates at a future point in time, that still works at a cost of service. But I agree at a high level, if you had the perfect match, you'd have the costs in and revenue impacts at exactly the same time. 1376 MR. DOMINY: So before you had an LRAM and had you a DSM program, I believe you had a DSM program before 1999. In developing that cost of service model, for rates in 1999, you would have had included both those elements in designing the data on which you are developing 1999 rates. 1377 MR. BAKER: And again what I'm saying is what we did in 1999 when we were putting the case together is clearly we had the O and M costs and cost of service. That case was the first case that we were proposing an LRAM, and I think there was an expectation that it would get captured in the forecast but it did not get explicitly put in the forecast save and except for the issue that we had talked about earlier that we've undertaken to follow up on. 1378 MR. DOMINY: Well, let me move back a year to 1997, see 493/494. In that case will you have had the costs of the DSM program and an adjustment to volumes in that cost of service? There was no LRAM at the time. 1379 MR. BAKER: And I think to the extent that we had the costs in the forecast, and we had not exclusively reflected the volume reduction, that was something that Union took a hit for in that year. 1380 MR. DOMINY: Thank you. Those are my questions. 1381 MR. JACKSON: But you are saying if you hadn't reflected the volumes, not you don't know at this point in time that the effect of your DSM programs running from '95 in the case of Centra and '96 in the case of Union wouldn't have been known to your forecasters when they were forecasting and doing their regression analysis, I take it. 1382 MR. BAKER: That's, in fact, what we're going back and trying to do. We're trying to look at the DSM plans in those years, what was saved, and what impact would that have had directionally on the basis on which we did the forecast in the 499 agreement. 1383 MR. JACKSON: Right. I think we understand. 1384 Good, then I think we will all go and have a good weekend. 1385 MR. PENNY: Mr. Chairman, I'm sorry -- 1386 MR. JACKSON: Redirect, I forget. 1387 MR. PENNY: I seem to always be the bad guy on this one but I do have a few questions for Mr. Platis and Mr. Baker, and all will be pleased to know, and I promise you, I will be very short. I think there's only four. 1388 MR. JACKSON: That's quite all right. I'm sorry I forget you, Mr. Penny. 1389 MR. PENNY: Not at all. It's happened before. 1390 RE-EXAMINATION BY MR. PENNY: 1391 MR. PENNY: Ms. Platis, I want to ask you first of all about the information furnace program and this arises out of Mr. Thompson's cross-examination. How much does Union spend on the information program of relevance to the high-efficiency furnace issue approximately? 1392 MS. PLATIS: The budget for this item is about $500,000, and most of our marketing efforts in promoting energy efficiency are geared towards the residential customers. 1393 MR. PENNY: Is that amount of $500,000, has that been vetted by the president the DSM consultative in your process? 1394 MS. PLATIS: Yes, in the plans on file, it appears as a market support line item. 1395 MR. PENNY: And the DSM consultative agrees to the expenditure at that level. 1396 MS. PLATIS: They actually encouraged us to spend money on these elements, and we have done so and built them into our plan. 1397 MR. PENNY: And my question for you was would Union be spending that kind of money on information programs if it thought it was having no impact on the market with respect to people actually going out and getting high-efficiency furnaces. 1398 MS. PLATIS: No, there would be no value to spending that money. 1399 MR. PENNY: Could you turn up the GEC cross-examination book, please. 1400 MR. MORAN: Exhibit 7.5. 1401 MR. JACKSON: Thank you. 1402 MR. PENNY: Turn to page 6. 1403 MS. PLATIS: Yes. 1404 MR. PENNY: And with -- you were asked some questions about the 2001 numbers, and I simply wanted to clarify are the 2001 numbers that you have used that are comparable to the numbers at line 4 of these tables, are they actual -- the numbers that you have used, are they actual or forecast? 1405 MS. PLATIS: The number that is identified here in the GEC evidence does not reflect the fact that there was an update to the 2001 amount. 1406 MR. PENNY: All right. Perhaps I'm -- perhaps I came at this badly. My only question to you, Ms. Platis, and maybe we find it somewhere else, are your numbers for 2000 forecast or actual? 1407 MS. PLATIS: For which year? 1408 MR. PENNY: For 2001. 1409 MS. PLATIS: For 2001, it is our preliminary results. They are subject to an audit and true-up. 1410 MR. PENNY: But are they actual or forecast? I appreciate they are subject to an audit, but are they actual numbers or are they forecast number? 1411 MS. PLATIS: They are actual numbers. 1412 MR. PENNY: And where would we find those or are those comparable numbers in your updated evidence? 1413 MS. PLATIS: The 2001 savings? 1414 MR. PENNY: Yes. 1415 MS. PLATIS: Are in schedule 3. 1416 MR. PENNY: Thank you. 1417 MS. PLATIS: And that is the value of 51,575,000 metres cubed. 1418 MR. PENNY: So that's, in your view, that's an actual unaudited. 1419 MS. PLATIS: Unaudited, but an actual. 1420 MR. PENNY: Thank you. Sticking with page 6 for a moment in that cross-examination book, in table 4 of page -- on page 6 of the cross-examination book, it's 3 of 4 on the typed version, can you tell me, and this is what they've called a variance from forecast method, can you tell me what amounts are assumed to be in rates for the purposes of lines 3, 4 and 5, that is, 1999, 2000, and 2001. 1421 MS. PLATIS: In order to develop an understanding for this, I needed to back out what that number would be. 1422 MR. PENNY: Just tell us what the numbers are. 1423 MS. PLATIS: For 1999, I estimate that it's 1.4 million; for 2000, it's 1.69 million; and for 2001, it's 1.728 million. 1424 MR. PENNY: Were those amounts actually in your rates for 1999, 2000 or 2001? 1425 MS. PLATIS: No. 1426 MR. PENNY: Thank you. 1427 My final question is -- relates to some questions Mr. Poch asked you about the Quantec report and you'll recall there was a discussion of 79 percent and of 60 percent. Why do you not use the free rider rate from the Quantec report in your DSM plan for purposes of a value and for purposes of evaluating the effectiveness of the information furnace program? 1428 MS. PLATIS: The numbers that came out of the Quantec study were after the utility had been operating energy efficiency for a number years so it would be inappropriate to assume that that free rider rate has not been affected by all of our marketing efforts since 1995 and 1996 respectively so it's, in fact, inflated. 1429 MR. PENNY: So do you change the free rider rate over the course of the plan? 1430 MS. PLATIS: No. 1431 MR. PENNY: All right. Thank you. 1432 Those are all my questions, Mr. Chairman. Thank you for your indulgence. 1433 MR. JACKSON: Not at all, Mr. Penny. Thank you for your understanding of how I miss these niceties. Normally I wouldn't, but for some reason at this hour on a Friday afternoon, I did. 1434 MR. PENNY: I also, on behalf of the company and specifically on behalf of Mr. Baker and Ms. Platis, thank you for sitting extra time today so they could finish. It's most appreciated. 1435 MR. JACKSON: I think it's benefited us all. So we will adjourn now until 9:30 on Monday morning. Thank you. 1436 --- Whereupon the hearing adjourned at 5:05 p.m.