###CaseId: RP-1999-0017 ###Title: OEB Transcript of RP-1999-0017; Vol. 05:00 ###Section: Transcript Header ###Author: Dominy, Jackson (OEB) ###PubDate: 06/17/00 ###LFileId: VOL0500 ###[ 700 RP-1999-0017 THE ONTARIO ENERGY BOARD 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, transmission and storage of gas in accordance with a performance based rate mechanism commencing January 1, 2000; AND IN THE MATTER OF an Application by Union Gas Limited for an order approving the unbundling of certain rates charged for the sale, distribution, transmission and storage of gas. B E F O R E : G.A. DOMINY Vice-Chair and Presiding Member M. JACKSON Member Hearing held at: 2300 Yonge Street, 25th Floor, Hearing Room No. 1 Toronto, Ontario on Monday, June 17, 2000, commencing at 0904 HEARING VOLUME 5 Les Services StenoTran Services Inc. 613-521-0703 701 APPEARANCES JENNIFER LEA/ Board Staff MICHAEL LYLE/ JAMES WIGHTMAN MICHAEL PENNY/ Union Gas Limited MARCEL REGHELINI ROBERT B. WARREN Consumers Association of Canada (CAC) THOMAS BRETT Ontario Association of School Business Officials PETER THOMPSON Industrial Gas Users' Association (IGUA) MICHAEL JANIGAN Vulnerable Energy Consumers Coalition (VECC) MURRAY KLIPPENSTEIN Pollution Probe IAN MONDROW Heating, Ventilation and Air Conditioning Contractors Coalition Inc. BETH SYMES Alliance of Manufacturers and Exporters Canada Les Services StenoTran Services Inc. 613-521-0703 702 APPEARANCES (Cont'd) MARK MATTSON/ Energy Probe THOMAS ADAMS GEORGE VEGH Duke Energy, Coalition for Efficient Energy Distribution (CEED), TransCanada Gas Services, PanCanadian Petroleum, Dynegy Canada, Suncor/Sunoco, CanEnerco Limited ZIYAAD E. MIA Coalition for Efficient Energy Distribution (CEED), TransCanada Gas Services, PanCanadian Petroleum, Dynegy Canada, Suncor/Sunoco, CanEnerco Limited DAVID WAQU COMSATEC INC. STANLEY RUTWIND TransCanada PipeLines Limited RICHARD KING/ The Wholesale Group and the CHARLES KEIZER/ Major Energy Consumers And PETER BUDD Producers (MECAP) Les Services StenoTran Services Inc. 613-521-0703 703 APPEARANCES (Cont'd) PETER SCULLY Association of Municipalities of Ontario TANYA PERSAD Enbridge Consumers Gas ANDREW DIAMOND/ Enron Capital Corp. JOHN ROOK DWAYNE QUINN/ City of Kitchener Utilities ALICK RYDER DAVID POCH Green Energy Coalition (GEC) MICHAEL M. PETERSON Nova Chemicals RANDY AIKEN London Property Management Association VALERIE YOUNG Ontario Association of Physical Plant Administrators MARY ANNE ALDRED HYDRO ONE NETWORKS Les Services StenoTran Services Inc. 613-521-0703 704 Toronto, Ontario --- Upon resuming on Monday, June 17, 2000 at 0904 THE PRESIDING MEMBER: Good morning. Please be seated. --- Pause PREVIOUSLY SWORN: RICK BIRMINGHAM PREVIOUSLY SWORN: PAT ELLIOTT THE PRESIDING MEMBER: Are there any preliminary items? PRELIMINARY MATTERS MR. PENNY: Yes, Mr. Chairman, there are some filings for this morning. Just to quickly overview the proceedings for the day, for those who perhaps weren't around on Friday, I understand that we are going to commence -- we are going to finish the cross-examination on the second group of issues, Mr. Vegh being the only remaining person to cross-examine, Board questions and re-examination on those issues. We then propose to proceed with the third group of issues, which is "Off-Ramp(s)", "System Expansion " and "Additional Risks and Benefits". Then I understand we were to sit until the lunch break today, about one o'clock, covering PBR issues. We will then break and after the lunch break there will be a briefing session for the Board on unbundling -- on the unbundling agreement, excuse me, which will be a briefing session only for the assistance Les Services StenoTran Services Inc. 613-521-0703 705 Preliminary Matters of the Board, no cross-examination. Then tomorrow the Board is not sitting and Wednesday we will be bringing our experts from Christensen and Associates. THE PRESIDING MEMBER: That's my understanding. MR. PENNY: What I have for filing this morning, Mr. Chairman, is G2.1, G2.7, G2.8; G2.4 with a correction that Ms Elliott will speak to; G3.3, G3.7 and then we typed Mr. Thompson's handwritten document and that bears the same Exhibit No. F2.2. I also understand that Ms Elliott is in a position to speak to G2.5 and G2.6, and those will be answered orally on the record. THE PRESIDING MEMBER: Thank you, Mr. Penny. Before Ms Elliott starts, are there any other administrative matters? MR. MATTSON: Just one, Mr. Chairman. Mark Mattson, counsel for Energy Probe. I was unable to attend late Thursday afternoon and Friday, and reviewing the record we may -- with the Board's indulgence, we may have 5 to 10 minutes of questions of this panel, and with Mr. Penny's indulgence. THE PRESIDING MEMBER: I hear you Mr. Mattson. Mr. Penny, I think that can be fit in. MR. PENNY: Yes, sir. THE PRESIDING MEMBER: Thank you. Les Services StenoTran Services Inc. 613-521-0703 706 Preliminary Matters I don't know whether Board staff may have a few clarification questions as well. MR. PENNY: Fair enough. THE PRESIDING MEMBER: Okay. Mr. Penny. MR. PENNY: Yes. MR. PENNY: Ms Elliott, we have had some filings this morning and I gather that you have something you want to say about G2.4 and then speak to G2.5 and G2.6. MS ELLIOTT: Thank you. As we were going through answering or responding to undertakings to provide utility statements, I became aware of an adjustment or a correction that was required for G2.4. In the original forecast I had indicated we had not impacted that forecast by the results of the PBR filing, and in doing so I realized that what we did not include in the cost of gas was the higher cost due to the proposed change to the weighted average of the ratios as opposed to the weighted average of the volume. So in Column D of 2.4 corrected you will see $8.2 million. That is the impact of the change in the proposed recovery of UFG for 1.9 and the balance of that is an increase in unaccounted for gas due to the change in WACOG. The original forecast -- and this goes to the response to G2.6. The WACOG, or weighted average cost of gas in the original forecast was $136.615 per Les Services StenoTran Services Inc. 613-521-0703 707 Preliminary Matters thousand cubic meters. We had not increased the UFG to reflect the proposal. So both those items have been included in the cost on Column D to match up with the proposed revenues. The response to G2.6 is that the weighted average cost of gas in that forecast is that which was approved in E.B.R.O 499, the $136.616 per thousand cubic meters. I also have a response to G2.5, the question about the number of vacancies we currently have. As I had indicated, we had 210 vacancies at the end of last year. We currently have 132 vacancies, which is 5 per cent of our workforce. Normally we would include a vacancy rate of about 3 per cent in the forecast. So we have more vacancies than we had planned by about 2 per cent or 57 roles, and the dollar value, if we maintain the current level of vacancies for the balance of the year or for a full year, that is worth approximately $2.5 million in salaries. --- Pause THE PRESIDING MEMBER: Thank you, Ms Elliott. Any questions on the details? Okay. Mr. Penny, it must be Mr. Vegh who now takes us into cross-examination. MR. WARREN: I'm sorry, Mr. Chairman, I apologize, I was asleep at the switch. Can I just ask, through Mr. Penny, one Les Services StenoTran Services Inc. 613-521-0703 708 Preliminary Matters question? Is G3.3 the response to my -- or our agreement reached last Thursday about the O&M for the 2000 budget and the attempt of the comparison to 1999? MR. PENNY: Yes. MR. WARREN: I wonder just as a sort of note, Mr. Chairman -- I obviously just got it this morning, I will review it as soon as I can and will indicate to Mr. Penny, as soon as I can, what, if any, questions I have about it. THE PRESIDING MEMBER: Thank you, Mr. Warren. I think that was our understanding when we had that undertaking made. THE PRESIDING MEMBER: Mr. Vegh. MR. VEGH: Thank you. Good morning, Mr. Chair. Good morning, Dr. Jackson. CROSS-EXAMINATION MR. VEGH: Good morning, panel. I have questions today on issues relating to the gas cost passthrough, which is Item 2.2.4.1 and issues respecting "Monitoring and Reflecting Changes in the Gas Supply Portfolio Under QRAM", Issue 2.2.2.5. In terms of the "Monitoring and Reflecting Changes" in QRAM, this is addressed, panel, in your evidence which I would ask you to turn up at Exhibit B, Tab 2, page 1 of 6, Supplemental B. MS ELLIOTT: That's correct. The schedules Les Services StenoTran Services Inc. 613-521-0703 709 ELLIOTT/BIRMINGHAM, cr-ex (Vegh) that accompany that are found at Appendix I. MR. VEGH: That's right. Turning to the text of your evidence, at page 1, line 15 you break out supply costs into three components. There is the commodity cost, the gas supply transportation rates, and the third component is the delivery rates. Panel, I would like to address each of these components separately. First, on the commodity component, I understand that this is proposed to be addressed in the QRAM process as it has been in the past. Is that right? MS ELLIOTT: That's correct. MR. VEGH: Panel, you know that my clients have filed some evidence on this matter, Union has filed a motion and we have addressed that in the ADR, so subject to the treatment of the ADR I don't propose to ask any questions on the commodity component. I would like to turn to the second component, which is the gas supply transportation rates. The gas supply transportation, I believe that -- the introduction of that treatment is on pages 2 to 3 of Supplemental B. I am referring in particular starting at line 18 of page 2. As I understand it, you say that each year Union will provide its customers with vertical slice information for its transportation contracts and that the information on the vertical slice that you provide Les Services StenoTran Services Inc. 613-521-0703 710 ELLIOTT/BIRMINGHAM, cr-ex (Vegh) is similar to that at Exhibit B, Tab 1, Appendix 3, in the evidence in this proceeding. Is that right? MS ELLIOTT: I think the reference is to Appendix C. MR. VEGH: Yes. MS ELLIOTT: Yes. So can you please turn up Appendix -- I'm sorry, Exhibit B, Tab 1, Appendix C. --- Pause MS ELLIOTT: I have that. --- Pause MR. VEGH: This evidence is filed as an exhibit to your unbundling evidence. The chart at Appendix C, as I understand it, sets out a summary of transportation contracts as of November 1998. MS ELLIOTT: That's correct. MR. VEGH: And these transportation arrangements were approved by the Board. MS ELLIOTT: These were the transportation contracts included in our weighted average cost of gas during 1998 and 1999, yes. MR. VEGH: Well, this summary, as I understand it, this is a summary that was filed with the Board in 499. MS ELLIOTT: For 1998. There is also an exhibit that's found in Exhibit B, Tab 2, Appendix I which presents the transportation contracts for the year ending December 31, 1999. That exhibit was the exhibit filed Les Services StenoTran Services Inc. 613-521-0703 711 ELLIOTT/BIRMINGHAM, cr-ex (Vegh) in E.B.R.O. 499 for the 1999 test year. --- Pause MR. VEGH: Okay. Now, the exhibit you just referred to, does that consist of different transportation contracts than those set out in the summary at Appendix C? MS ELLIOTT: The contracts may be the same. The amounts are different. I'm just going -- comparing the first group of transportation contracts under TCPL, and while there are 19 contracts in both exhibits the total amount of the contracts is different. MR. VEGH: In terms of the -- If we could look at Appendix C -- Exhibit B, Tab 1, Appendix C, which is the one that is referred to in your prefiled evidence on this matter. I would like to get an understanding of the vertical slice arrangement. Did I see that there were 29 contracts in Appendix C. MS ELLIOTT: Yes. MR. VEGH: Now, as I understand your proposal, though, for the vertical slice, customers won't be taking on a vertical slice of each of these 29 contracts, are they? MR. BIRMINGHAM: No, they won't, Mr. Vegh. Maybe I should just ask, before we get too far into this, we have our unbundling panel coming up, we Les Services StenoTran Services Inc. 613-521-0703 712 ELLIOTT/BIRMINGHAM, cr-ex (Vegh) hope later this week. Would it be more appropriate to deal with that there or is this strictly reported -- or limited to the reporting aspect of it? MR. VEGH: My questions have to do with the process, so the reporting, and the implications of that process and the rights of my client or other REMs under that process. I won't be asking you questions looking at a critical examination of your particular vertical slice that you propose, I will save that for the unbundling panel, but I just want to understand the process as you proposed it in this section of the case. MR. BIRMINGHAM: All right. MR. VEGH: You do appreciate that there is going to be some overlap, so you could just let me know when it is more appropriate to be asking another panel on this. But I was asking about how these 29 contracts translate into a vertical slice and my understanding is that the actual translation of this into a vertical slice, of these 29 contracts into a vertical slice, will reflect more a summary of these contracts, in a sense, as that summary is set out at page 19 of Exhibit B, Tab 1. Keep your hand at Appendix C, but also turn back to Exhibit B, Tab 1, page 19. --- Pause MR. VEGH: So page 19 has a summary of the Les Services StenoTran Services Inc. 613-521-0703 713 ELLIOTT/BIRMINGHAM, cr-ex (Vegh) system portfolio, and you see just above the chart setting out the summary it stating that: "The details of each contract is attached at Appendix C." (As read) So how I understand these two pieces of information working together is that in your QRAM annual updates you advise the customers of the contracts that are set out, this list of 29, but what you really did -- or the relevance to them will be that you will be advising them of the proposed vertical slice portfolio, and that is summarized at page 19. MR. BIRMINGHAM: That's right, Mr. Vegh. I think it really becomes evident when you look at the TCPL FT contracts in Appendix C. Those are items 2 through 19, and yet they are grouped into a single item and the intent was to provide, through the vertical slice, a piece of Union's system portfolio that would represent all of those contracts from that supply base and under those terms and conditions. MR. VEGH: So when a customer -- just to finish with this, then, when we look at the summary chart on page 19, a customer -- if the vertical slice had been provided on the basis of this system portfolio as at November 1998, when a customer moves to an unbundled service from system gas, from system supply, their vertical slice would reflect the proportions or the percentages of the portfolio set out. So they would get the combined 40 per cent of TCPL, about 33 per cent Les Services StenoTran Services Inc. 613-521-0703 714 ELLIOTT/BIRMINGHAM, cr-ex (Vegh) Panhandle and 33 per cent exchanges. MR. BIRMINGHAM: That's right. On the basis of the November 1998 portfolio, that's right. MR. VEGH: Under your QRAM process, then, once a year your customers would be advised of what the system portfolio is for the upcoming year in November? MS ELLIOTT: That's correct. I guess I would say that it's through the customer review process, not the quarterly rate adjustment mechanism. It's an annual process done in conjunction with the rest of the price cap proposal. MR. VEGH: So the QRAM is part of that process. It's not a separate process. Is that your point? MS ELLIOTT: No. The QRAM is a quarterly adjustment that we file currently under written proceedings every quarter dealing with the commodity. In addition to that, there will be an annual customer review process that will deal with the transportation load balancing charges and the price cap parameters. MR. VEGH: Okay. So to be more accurate, you supply -- the process for monitoring changes in the supply arrangement will be addressed in the annual customer review process. MS ELLIOTT: Yes. MR. VEGH: In that process customers will be informed of your proposed vertical slice starting in Les Services StenoTran Services Inc. 613-521-0703 715 ELLIOTT/BIRMINGHAM, cr-ex (Vegh) November of each year? MS ELLIOTT: Yes. MR. VEGH: So they will be informed of the relative percentages for each transportation contract? MS ELLIOTT: Yes. MR. VEGH: And you will be informed of what Union is paying for that transportation contract? MS ELLIOTT: The costs of that portfolio will be part of the process, yes. MR. VEGH: Then, once that process is set, as I understand it, if a customer moves -- let's say an REM moves 10 per cent of system customers to unbundled services. Then, for the quantity reflected by those customers there will be a pro rata -- those customers will be -- in a sense, there will be a downloading of this portfolio for that percentage of customers. So if the marketer takes 100 customers to an unbundled service, then 40 per cent of the transportation portfolio that goes with those customers will be TCPL, 33 per cent Panhandle, and the rest through these exchanges, at least based on the 1998 portfolio. MS ELLIOTT: That's correct. MR. VEGH: So in a sense, then, when Union is building up its transportation portfolio, it is effectively taking on these arrangements on behalf of both its system customers and on behalf of future unbundled customers. Is that right? MS ELLIOTT: I would agree we are taking on Les Services StenoTran Services Inc. 613-521-0703 716 ELLIOTT/BIRMINGHAM, cr-ex (Vegh) the portfolio on behalf of our system customers, to the extent that the system customers then choose a direct purchase option. The proportion of the portfolio that is used to serve them remains with them whether they choose bundled or unbundled services. MR. VEGH: Right, and if they choose unbundled services, the percentage of the system portfolio moves to the provider of unbundled services, and that is the REM, isn't it? MS ELLIOTT: If the customer chooses an unbundled service through an REM, then the capacity that is used to serve them as a system customer would then transfer to the REM, yes. MR. VEGH: So when putting together this portfolio, you are effectively putting together a portfolio on behalf of REMs, aren't you? MS ELLIOTT: We are putting the portfolio together to serve the system customers. Those system customers have options. One of their options is to choose a direct purchase option using an REM. MR. VEGH: Right. And the REM would not have options, right? The REM would take on this percentage of the system portfolio for their unbundled customers. MS ELLIOTT: The proposal is that the customer maintains his allocation of the capacity that is used to serve him as a system customer, yes. MR. VEGH: I am not sure that we are disagreeing; all I am saying is that one of the Les Services StenoTran Services Inc. 613-521-0703 717 ELLIOTT/BIRMINGHAM, cr-ex (Vegh) implications of putting together your system portfolio is that that is the portfolio that will be passed off to an REM when the REM takes on system customers and moves into unbundled services. MS ELLIOTT: Or bundled services, yes. MR. VEGH: It is within that context that I would like to address some of the impacts of this process on REMs, including my clients, and the rights that REMs and my clients will have in this process. Now, we have been looking at November 1998. I understand that the first allocation will be made in November 2000. MS ELLIOTT: That's correct. MR. VEGH: You could leave the summary of the system portfolio for November 1998 handy, but move it to the side. I would like to take a look at the system portfolio for November 2000, and I believe that is at Appendix A of the ADR agreement. MS ELLIOTT: We have that. MR. VEGH: Appendix A sets out your vertical slice for November 1, 2000. Is that right? MS ELLIOTT: For Union South, yes. MR. VEGH: Yes, for Union South. Just to be clear, there is Appendix A, which sets out the system portfolio, and Appendix B, which also sets out the Union South portfolio, but Appendix B makes a few things clear. The one thing I would like to focus on with Les Services StenoTran Services Inc. 613-521-0703 718 ELLIOTT/BIRMINGHAM, cr-ex (Vegh) you, just for now, is that in Appendix B you separate out the direct purchase portfolio from the system portfolio, right? MS ELLIOTT: Appendix A is the system portfolio. Appendix B adds to that portfolio the system to direct purchase transportation. MR. VEGH: Yes. They are about the same. They both make up approximately 50 per cent of the total portfolio. MS ELLIOTT: Approximately, yes. MR. VEGH: All right. So when we look back to Appendix A and you talk about the Union South portfolio, just to be clear, direct purchase is excluded from this. MS ELLIOTT: That's correct. MR. VEGH: So the customers who have direct purchase arrangements in place get to keep their deals. They are not covered by your proposed vertical slice proposal. MS ELLIOTT: That's correct. MR. VEGH: Again, if REMs move customers in Union South from the system to unbundled services, then, for example, they will take 10 per cent -- or a reflection of 10 per cent -- or those customers will be accompanied by 10 per cent of the TCPL portfolio. I'm sorry, 10 per cent TCPL transportation. MS ELLIOTT: That's true for existing system customers whether they move to a bundled service or an unbundled service. Les Services StenoTran Services Inc. 613-521-0703 719 ELLIOTT/BIRMINGHAM, cr-ex (Vegh) MR. VEGH: I understand that, but it is true when they move to an unbundled service. MS ELLIOTT: Yes. MR. VEGH: If you could just compare the 10 per cent of TCPL transportation to the summary at Exhibit B, page 19, what is obvious is that at some point this portfolio changes from 40 per cent TCPL to 10 per cent TCPL. Is that right? MS ELLIOTT: As customers have moved from system to direct purchase through 1998, 1999 and 2000 we have been allocating those customers TransCanada transportation. So the TCPL proportion of the portfolio does decrease as more customers go direct purchase. MR. VEGH: But one of the factors, then, is the amount of customers going from -- But does that account for the change from 40 per cent to 10 per cent? MR. PENNY: Mr. Chairman, Mr. Vegh has said a number of times that he is going to get to the issue that this panel is here to address, which is really the process for ongoing change under the plan. Every question Mr. Vegh has asked this panel has gone to the merits of the vertical slice methodology, which is clearly the subject of evidence to come from the unbundling panel, subject to your review of the ADR agreement, and that is principally the issue that is in dispute. This panel is not here to speak to those Les Services StenoTran Services Inc. 613-521-0703 720 ELLIOTT/BIRMINGHAM, cr-ex (Vegh) issues. Those issues will be dealt with by those who have formulated the unbundling plan. If Mr. Vegh has questions, in my submission, about the process for ongoing review, which is really the subject of the supplemental evidence, those questions should not be asked of this panel. The questions that he has been asking, in my submission, are more appropriately directed to the unbundling panel. MR. VEGH: I haven't asked one question on the merits of the vertical slice proposal. I'm trying to get an understanding of how that -- so far, the only questions I have asked about how that information is communicated to unbundle to REMs who will be providing unbundled services to customers. THE PRESIDING MEMBER: Mr. Vegh, I think that up until the last question I would have agreed with you. The last question, when you were trying to get an explanation of the change, I am not sure whether this is the right panel to ask. I think the fact that it has changed is the fact you are identifying. How or why it changed I'm not sure whether this panel can answer. It may be but I'm not sure that they can answer. MR. VEGH: Well, maybe I could just get a clarification from the last answer that was provided and then I will ask, express, a protest question. I would just like a clarification because the last answer that you provided, I think, was that the Les Services StenoTran Services Inc. 613-521-0703 721 ELLIOTT/BIRMINGHAM, cr-ex (Vegh) reason that the TCPL has moved from 40 to 10 per cent was because of increased movement to direct purchase. I would like some clarification on that because the summary of the system portfolio for Union South at page 19, I believe, is also just the system and does not include direct purchase. Am I wrong? MS ELLIOTT: The summary at page 19 is the summary of the system portfolio in Union South. It does not include direct purchase. MR. VEGH: So this is the relevant comparison, page 19, to Appendix A? MS ELLIOTT: Yes. MR. VEGH: So the movement from 40 per cent to 10 per cent isn't reflected by or isn't caused by the moving from customers from system to direct purchase, is it? MS ELLIOTT: Well, in 1998 there would have been more customers in the system portfolio. Over the two year period from November 1998 to November 2000 any customers who went from system gas to direct purchase would have taken with them 100 per cent of their TransCanada capacity, so they moved from the system portfolio into the direct purchase portfolio. So that is one of the reasons why there is a change between 1998, TransCanada at 40 per cent, and November 2000 with TransCanada at 10 per cent. MR. VEGH: Okay. Well, perhaps I will explore this further with the unbundling panel on Les Services StenoTran Services Inc. 613-521-0703 722 ELLIOTT/BIRMINGHAM, cr-ex (Vegh) transportation. But can you tell me -- just one more question on the difference between Appendix A and Exhibit B, page 19? Appendix A includes a 34 per cent Alliance/Vector transportation. Do you see that? MS ELLIOTT: Yes. MR. VEGH: That is a 15 year contract? MS ELLIOTT: Yes. MR. VEGH: In your system portfolio for November 1998 there is no Alliance/Vector transportation, is there? MS ELLIOTT: That's correct, the Alliance/Vector contract starts November 2000. MR. VEGH: So the 1998 portfolio that we are discussing and the 1999 portfolio that you referred to in the exhibit that we discussed earlier, neither of those refer to the -- include Alliance/Vector transportation. Is that right? MS ELLIOTT: That's correct. MR. VEGH: Though at some point Alliance/Vector moved from zero to 34 per cent and in your proposal process-wise, where do REMs get the opportunity to question this change from Alliance at zero per cent to Alliance to 34 per cent? MS ELLIOTT: During the customer review process, and in this case would be for setting the rates January 1, 2001, we will present the portfolio of transportation for that year in terms of the amount, the Les Services StenoTran Services Inc. 613-521-0703 723 ELLIOTT/BIRMINGHAM, cr-ex (Vegh) mix of the supplies and the costs that would go into the proposed rate for 2001. It would be during the customer review process for setting 2001 rates that evidence would be reviewed. MR. VEGH: I'm sorry, in January 2001? MS ELLIOTT: For setting rates January 2001 which -- it is our proposal that the customer review process would begin with a filing in the summer and a review early fall for a decision, or for the approval in time to implement January 1, 2001 to the extent that we didn't get consensus agreement among parties on the various aspects of the rate changes. There is a potential, though, there could be a hearing in that time frame as well. MR. VEGH: But when you say for January 2001 you are talking about a hearing this summer to set transportation -- or to set this portion of your portfolio for rates to be in effect January 2001? MS ELLIOTT: To the extent that we had approval of this process at this time, we would in fact be preparing a customer review package for July of 2000 for the January 1, 2001 rate changes. At this point in time, I guess that package would be on hold pending the decision in this case. MR. VEGH: So you are not asking the Board to approve in this case the Union South portfolio forecast for November 1, 2000 that is set out in Appendix A? MS ELLIOTT: No. Les Services StenoTran Services Inc. 613-521-0703 724 ELLIOTT/BIRMINGHAM, cr-ex (Vegh) MR. VEGH: So as of today this Alliance/Vector contract is not approved and you are saying we don't have to approve it in this case because we will get the opportunity to approve it in the next case? MS ELLIOTT: The proposal is that the portfolio would be reviewed during the customer review process later this summer or early fall for 2001. What we are looking for approval in this case is the process. MR. VEGH: Now, in terms of the process is there any difference in the approval sought in this process than the approval that would have been sought in the cost of service process with respect to your supply arrangements. MS ELLIOTT: No, essentially it is our intent to provide the same type of information in the customer review process that we would have provided under a cost of service hearing to approve the rates for gas supply transportation and load balancing. The one exception is if the results of the portfolio will impact the customers by less than $20 on an annual basis. We wouldn't be proposing a change to those rates. MR. VEGH: I understand. Can you flip back to Appendix B then of the ADR? I have a question for you on one of the notes. It says exchange Panhandle and trunkline tolls are confidential to Union. Will this information as to what these tolls are or what Union's financial obligations are be provided as part of the customer Les Services StenoTran Services Inc. 613-521-0703 725 ELLIOTT/BIRMINGHAM, cr-ex (Vegh) review process? MS ELLIOTT: The costs of the U.S. transportation are provided in aggregate. The exact tolls for the specific contracts are not provided, no. MR. VEGH: But the vertical slice that you are proposing in this case, is that an aggregate or is that by a specific contract? MS ELLIOTT: It's an aggregate of the contracts. MR. VEGH: So you will tell customers, as part of this customer review process, what are the aggregate costs of the Panhandle and trunkline contracts and -- Panhandle and trunkline contracts, but just not break it out for them. Is that right? MS ELLIOTT: That's right. MR. VEGH: What about the exchanges? MS ELLIOTT: They would be treated the same way. There would be an average cost for exchanges, but the specific exchange arrangements wouldn't be provided. MR. VEGH: Now, if a customer wanted to review the prudency of the exchange arrangements that you have in place or that you propose for next year, how would they do that? MS ELLIOTT: They would really have to do it by looking at the average cost of all the exchanges, not the specifics of any individual deal. MR. VEGH: So then they wouldn't be in a position -- Union wouldn't be in a position to justify Les Services StenoTran Services Inc. 613-521-0703 726 ELLIOTT/BIRMINGHAM, cr-ex (Vegh) and customers wouldn't be in a position to challenge the individual to tell us the prudency of the individual deals that underline Panhandle, trunkline and exchanges. MS ELLIOTT: No, those capacities are being aggregated so that the costs charged through will be the average of the individual deals. MR. VEGH: Let me ask you another question on the process at it relates to this change in your portfolio forecast for November 2000 with respect to the TCPL moving from 40 per cent to 10 per cent. TCPL capacity is used as a benchmark in a number of your costing arrangements, isn't it? MS ELLIOTT: TCPL capacity is used as a benchmark for the transportation. Commodity cost in Alberta is used to determine the commodity cost on the system. The difference between our actual portfolio and those benchmark costs is captured in the load balancing charge. MR. VEGH: So there are -- My point is that there are wider-ranging implications in various rates with TCPL being the benchmark moving from 40 per cent of your capacity to 10 per cent of your capacity, aren't there? At one point the tail becomes the wagging of the dog here. MS ELLIOTT: I'm not sure what implications you are referring to. The total portfolio is costed out. The cost of transportation, we benchmark that against the Les Services StenoTran Services Inc. 613-521-0703 727 ELLIOTT/BIRMINGHAM, cr-ex (Vegh) TransCanada transportation from western Canada. The commodity is the western Canadian price and the difference is the load balancing costs. MR. VEGH: I will have some more questions on this and I will leave to the transportation unbundling panel. I would like to move from the transportation component of gas supply to the delivery component of gas supply. If we go back to your supplemental evidence on this, Exhibit B, Tab 2, Supplemental B, at page 1, when you refer to the gas supply component in your delivery rates -- that's starting at line 15 -- you indicate in brackets that with respect to delivery: "Delivery rates include the cost of load balancing and gas supply flexibility costs for the southern operations area." (As read) Right? MS ELLIOTT: That's correct. MR. VEGH: Now, I understand that load balancing has been removed from unbundled distribution rates. --- Pause MR. VEGH: And my basis for that is -- my evidentiary reference is Exhibit B, Tab 4, page 20, where I believe that that is stated. --- Pause Les Services StenoTran Services Inc. 613-521-0703 728 ELLIOTT/BIRMINGHAM, cr-ex (Vegh) MS ELLIOTT: Could you repeat your question, now that I have had a chance to read the evidence? MR. VEGH: I asked you to confirm my understanding that load balancing has been removed from unbundled distribution rates. MS ELLIOTT: The unbundled distribution rates do not include the costs of gas supply related to load balancing. Those customers are required to provide their own load balancing. MR. VEGH: Right. So they don't pay for the cost of Union providing load balancing in their delivery rates? MS ELLIOTT: That's correct. MR. VEGH: Because they are responsible to provide their own load balancing. MS ELLIOTT: Yes. MR. VEGH: And to provide their own load balancing, presumably they would use a variety of assets -- storage, commodity -- right? MS ELLIOTT: Right. MR. VEGH: Now, for Union's rate-setting purposes, I understand load balancing -- the cost of load balancing to be the difference between purchasing gas in the summer and purchasing gas in the winter. Is that right? MS ELLIOTT: I'm afraid you are entering into an area where I don't have enough knowledge to be able to answer these questions. Les Services StenoTran Services Inc. 613-521-0703 729 ELLIOTT/BIRMINGHAM, cr-ex (Vegh) --- Pause MR. VEGH: Okay. Can you turn, please, to Exhibit B, Tab 4, page 20, which is a description of what is involved on load balancing. MR. PENNY: Again, Mr. Chairman, this is -- we are into Tab 4, that is rate design. We are proposing to call witnesses to speak to rates later in the process. That will involve Mr. Packer, who is the person who is most knowledgeable about rate design. Ms Elliot has already indicated that she is not the person to address these questions to. I again make my submission that these questions do not as yet relate to the process as the ongoing review once the proposal is met -- or has been approved, if it is. MR. VEGH: Well, one of the components of this proposal is that delivery rates continue to include an element of load balancing. I'm just asking what goes into that component. MR. PENNY: That's a question for the rate panel, surely. That goes to the merits, not to the process, in my submission, Mr. Chairman. MR. VEGH: The merits of having this a passthrough -- the merits of maintaining this as a passthrough item as proposed by the Applicant is an issue in this case in this part of the application. --- Pause MR. VEGH: My question, panel -- and you can Les Services StenoTran Services Inc. 613-521-0703 730 ELLIOTT/BIRMINGHAM, cr-ex (Vegh) tell me if I should ask -- if someone else can address this -- is that it seems to me -- MR. PENNY: Just a moment, Mr. Vegh. I have asked for a ruling from the Chair. THE PRESIDING MEMBER: What I was thinking is, I am having difficulty, and I'm sure Mr. Vegh is having difficulty and I'm sure the witness is having difficulty, because we have here an issue which crosses several panels. In order to understand the process you need to know what is being calculated. I think that is what I understand Mr. Vegh is trying to identify. Here is a process to review and change or set a rate or adjust a rate and, therefore, what are the components that are adjusted or adjustable. The problem then becomes, as well, what is the value and what is the merit and how is that value is determined. That may be a different panel that is able to answer the specifics, for instance, for example, the question of the Alliance component of the transportation portfolio. The reasons for the Alliance portfolio components, et cetera, is another panel that can do it. So it is a difficult issue. I think we will let Mr. Vegh go on a little bit to make sure that his concerns related to process are addressed, but if the panel can't address the question because it is clearly an area of someone else's responsibility, then I think they should just say, "Look, that is an issue I can't Les Services StenoTran Services Inc. 613-521-0703 731 ELLIOTT/BIRMINGHAM, cr-ex (Vegh) deal with." Perhaps you could try that for a moment. MR. VEGH: Thank you. --- Pause MR. VEGH: Can you answer this, panel? Can you answer this, panel: Am I correct that maintaining load balancing in delivery rates for bundled customers includes in those rates an element of gas supply commodity, an element of gas supply transportation? MS ELLIOTT: Yes, that's correct. MR. VEGH: And these are the types of costs that unbundled customers, or the providers of unbundled services will have to take on for themselves and are not included in their distribution rates. MS ELLIOTT: There is an element of gas supply in the unbundled rates further down on page 20 at lines 8 and 9. The unbundled rates do continue to recover gas supply related short-term flexibility costs. MR. VEGH: And I will get to those in a moment. Just looking at the load balancing costs -- no. My question was that load balancing -- or the question that you confirmed to me is that load balancing contains, in the delivery rate, an element of gas supply transportation and gas supply commodity. Right? MS ELLIOTT: Yes. MR. VEGH: And my question for you is: Why is the cost of gas supply transportation -- or why are Les Services StenoTran Services Inc. 613-521-0703 732 ELLIOTT/BIRMINGHAM, cr-ex (Vegh) these costs not reflected in gas supply transportation rates, in gas supply commodity rates? MS ELLIOTT: The way our current rates are designed, those costs are included in the delivery rates for bundled delivery service. They are not included in the delivery rates for the unbundled services. MR. VEGH: Right. And my question to you is: Why are they included in the delivery rates for bundled services when the components of these costs are gas supply transportation and commodity? MS ELLIOTT: It's really a question for the rates panel. MR. VEGH: Okay, I will address that with the rates panel. Is one of the results of including some commodity and gas supply transportation rate for costs in delivery rates, is one of the results of that is that rates for delivery customers -- I'm sorry, for bundled delivery customers will be subject to retroactive adjustments through the PGVA clearance mechanism? MS ELLIOTT: Yes. The treatment of the gas supply related costs, we will continue to maintain the deferral accounts. To the extent that those deferral accounts have balances in them that will disposed of, those customers are subject to the impact of the disposition of the balances in those accounts. MR. VEGH: So the delivery rate will be subject to retroactive adjustment through the PGVA Les Services StenoTran Services Inc. 613-521-0703 733 ELLIOTT/BIRMINGHAM, cr-ex (Vegh) mechanism, not just the gas supply commodity and transportation rates. MS ELLIOTT: Yes, that's correct. I'm not sure that it's the PGVA, but there is a deferral account impact. MR. VEGH: Okay. Now, one of your objectives for PBR is to provide predictable and stable rates, isn't it? MS ELLIOTT: To the extent that we can, yes. MR. VEGH: So this is one of the objectives that Union has decided to set out for itself, and that's at Exhibit B, Tab 2, page 4, isn't it? The objective of predictable and stable rates is one that Union puts forward as being the objective for its PBR framework. MS ELLIOTT: Yes. Recognizing that the cost of gas will continue to be a passthrough and that we are not going to achieve predictability or stability in that component we set out to achieve as much as we can through the delivery rates. MR. VEGH: To achieve as you can. Wouldn't your delivery rates be more stable and more predictable if you removed load balancing from delivery rates for bundled customers? MS ELLIOTT: The delivery rates, as they impact through the PBR, we hope to achieve the objective of predictability and stability. We recognize, however, that with respect to the cost of gas we haven't achieved that objective yet. Customers will be subject to the Les Services StenoTran Services Inc. 613-521-0703 734 ELLIOTT/BIRMINGHAM, cr-ex (Vegh) impact of deferral account disposition. MR. VEGH: So you are distinguishing between delivery rates and cost of gas. You are the one putting the cost of gas in delivery rates. MR. PENNY: I think we are at the stage of argument here, Mr. Chairman. MR. VEGH: Your evidence on the objectives of PBR also states that the PBR framework should minimize retroactivity. Do you agree that PBR should minimize retroactivity? MS ELLIOTT: Yes. Again, to the extent that that's possible we are attempting to minimize the amount of retroactivity the customers are subjected to. That really goes to the annual cost of service review and the timing of rate changes. Our effort here is to have delivery rate changes implemented effective January 1 of each year without a retroactive adjustment. MR. VEGH: Wouldn't retroactivity be further minimized if you removed load balancing from delivery rates? MS ELLIOTT: Again, you are combining the cost of gas impact with the PBR proposal. As I indicated earlier, PBR proposal is designed to deal with the delivery related costs. We do recognize that the cost of gas will continue to have the impact of retroactive adjustment. MR. VEGH: I don't want to argue with you, but Les Services StenoTran Services Inc. 613-521-0703 735 ELLIOTT/BIRMINGHAM, cr-ex (Vegh) by deciding to include the cost of gas in delivery rates, then you are not minimizing retroactivity in delivery rates, are you? MS ELLIOTT: The PBR plan minimizes the impact on the customers. Whether or not the charge is in the delivery rate, the customers will still be impacted by the retroactivity of the gas supply components. MR. VEGH: So the relevance is really, where is this charge included? Is it delivery or is it gas supply? Because, as you are saying, from a customer perspective they will end up paying the same amount. It is a question of where do they pay it. MS ELLIOTT: The impact on the customer will be the same whether it is in a gas supply charge or in a delivery rate. MR. VEGH: Right. And so the question is: What is the appropriate rate to include this component? MS ELLIOTT: Which is a question for the rates panel. MR. VEGH: Right. MEMBER JACKSON: Mr. Vegh? MR. VEGH: Yes. MEMBER JACKSON: Are you basically getting at the fact that if the rates panel were to get information which led the Board to say that load balancing should not be specifically tracked to the cost of gas, that then you would want to come back and re-address what happens in the customer review process? Les Services StenoTran Services Inc. 613-521-0703 736 ELLIOTT/BIRMINGHAM, cr-ex (Vegh) Are you concerned about that linkage, instead of just the basic design of rates? Are you concerned that if you argue something later and we accept your argument that you will need to come back to this question of the customer review process? I am trying to see what the linkage is; why you are concerned about nailing this down today. MR. VEGH: The customer review -- the annual customer review process and what is included goes beyond just the scheduling of the process, for example. I am also dealing with what is an appropriate passthrough in the cost of gas. I am not sure whether the rates panel -- I am not sure what the rates panel is going to do. The point I am trying to make in my cross-examination is that the delivery rate should not include a cost of gas element, and I don't know where in this process the rates panel makes that point. MEMBER JACKSON: I am inclined to think that that might better be dealt with by the rates panel, but whether a decision on that matter would then affect what gets adjusted in the customer review process is another question, I think, if I am understanding it correctly. MR. VEGH: Let me ask a question on the customer review process and how it would address this issue. Does the customer review process contain any Les Services StenoTran Services Inc. 613-521-0703 737 ELLIOTT/BIRMINGHAM, cr-ex (Vegh) mechanisms to address what is an appropriate component of a commodity rate versus a distribution rate? MS ELLIOTT: As part of the customer review process Union will be presenting its rates for the next year that will include the components of those rates. So, to the extent that there are demand charges, commodity charges, delivery charges -- those will all be presented in the customer review process. Changes will be reviewed. Parties will have an opportunity to examine proposals, as they will impact customers rates. MR. VEGH: Right. So changes will be reviewed, but the basic methodology that you are proposing in this case will not be removed. Will it, in the customer review process? MS ELLIOTT: We are starting with the 1999 rates as a base and moving forward. We will see load balancing. We will see unbundling. In the unbundling of rates there have been a number of proposals put forward in the rates evidence. Those are the proposals that will be examined in this proceeding. MR. VEGH: If we don't address in this proceeding what gas cost components are included in delivery rates, doesn't your proposal cast the current delivery rates in stone and make a future analysis of what is appropriately in delivery rates impossible? MS ELLIOTT: No. The rate structure isn't cast in stone from this point out. Through the term of Les Services StenoTran Services Inc. 613-521-0703 738 ELLIOTT/BIRMINGHAM, cr-ex (Vegh) the agreement and along with continued unbundling proposals, the rate structures will be changed, and there will be an opportunity to review those rates and the components of the rates in the future. MR. VEGH: What will be the forum to review the issue of whether gas supply commodity and transportation costs should be included in your delivery rates? Where do I get to address this issue? MS ELLIOTT: You can address it in this proceeding with the rates panel. MR. VEGH: Are you asking the Board to make a substantive determination in this case that your delivery rates for bundled customers should include gas supply transportation and commodity? MS ELLIOTT: The delivery rates, as they exist today, include a portion of gas supply and transportation costs. As I understand it, we are not proposing to change the delivery rates. We are also not proposing that those costs be captured under the price cap. They will continue to be subject to passthrough. The impact of doing that will be addressed annually in the customer review process. MR. VEGH: Is it accurate to say that you are not addressing the costs in delivery rates? You are addressing the costs of those components for unbundled delivery rates. You are addressing those costs, whether those costs should be in rates, and you are proposing that Les Services StenoTran Services Inc. 613-521-0703 739 ELLIOTT/BIRMINGHAM, cr-ex (Vegh) those costs be removed from unbundled rates, but, for some reason, maintained in bundled delivery rates. MR. PENNY: With great respect, Mr. Chairman, it is Mr. Vegh who is proposing changes through his questions, not the company, so he is standing the issue on its head. The company's position is clear. It is proposing to use Board-approved 499 rates. If Mr. Vegh wants to say that there is something wrong with that, I suppose he is entitled to go at that, but he is standing the matter on its head, with great respect. MR. VEGH: Mr. Penny, just for your own benefit, the panel has already acknowledged that for unbundled rates these elements are being removed. That is all I said. THE PRESIDING MEMBER: Then, Mr. Vegh, is this sort of questioning more appropriate to discuss with the rates panel? MR. VEGH: I suppose it is. MEMBER JACKSON: Mr. Vegh, am I understanding you correctly? You are essentially now coming to the question of what should be bundled in a particular bundled rate, aren't you? MR. VEGH: What should be included in the delivery rate for bundled customers, yes. MEMBER JACKSON: You may want to propose that there should be two different bundlings. But, again, that would be something, I think, you should propose Les Services StenoTran Services Inc. 613-521-0703 740 ELLIOTT/BIRMINGHAM, cr-ex (Vegh) when we are dealing with the issues that the rates panel will deal with. I think Union, at the moment, in this area, seems to have only one bundled rate that it is putting forward. Is that correct, Mr. Penny? Or panel? MR. BIRMINGHAM: That's right, Dr. Jackson. But to answer Mr. Vegh's process question, just to be clear, at Exhibit B, tab 2, page 81, lines 5 through 7, clearly the customer review process is intended to address any proposed rate structure changes as well. So there will be a forum to deal with this going forward. MEMBER JACKSON: It will be a subsequent forum in this case. MR. BIRMINGHAM: That's correct. To the extent that there are questions of substance around where particular charges should be allocated within the rate structure, then that would be better addressed to Mr. Packer. MR. VEGH: Okay. Maybe I will just turn, then, to my final area, panel. And if you say I should be addressing this with the delivery rate panel, I will come back and do that. I would like to ask questions -- Ms Elliott, you referred to unbundled delivery rates including a commodity component. That would be the flexibility cost? MS ELLIOTT: Yes, that's correct. I think Les Services StenoTran Services Inc. 613-521-0703 741 ELLIOTT/BIRMINGHAM, cr-ex (Vegh) there was short-term flexibility included in the unbundled rates. MR. VEGH: As I understand it, flexibility cost include the gas supply related costs in excess of the cost of supply entertained by TCPL transportation capacity and gas supply related load balancing. Is that what has occurred with flexibility cost? MS ELLIOTT: That is the evidence at Exhibit B, Tab 4, page 20, lines 9 through 11. MR. VEGH: If I could take you to that reference then, Exhibit B, Tab 4, page 20, it says that the unbundled rates continue to recover gas related -- sorry -- gas supply in the short term flexibility costs 1.63 million. Now, is this 1.63 million fixed in rates or is this a pass through that varies? MS ELLIOTT: This is part of the pass-through adjustment so it will vary. MR. VEGH: Okay. So the 1.63 million, I believe that is 1998 approved. Can you tell me what it is now? MS ELLIOTT: Sir, that would be 1999 approved. MR. VEGH: All right. MS ELLIOTT: And it is the same amount. There has been no proposals to change those components for 2000. MR. VEGH: Will it be changed as part of the clearance of deferral accounts? MS ELLIOTT: There are deferral accounts on Les Services StenoTran Services Inc. 613-521-0703 742 ELLIOTT/BIRMINGHAM, cr-ex (Vegh) all these components. The deferral accounts will be disposed of, but there is no proposal to change these components of the rate for the 2000 year. MEMBER JACKSON: So when you say those deferral accounts will be disposed of you mean through the customer review process do you, annually? MS ELLIOTT: Yes, annually. In fact, in this case there is a proposal to dispose of the deferral account balances as at the end of 1999. MEMBER JACKSON: Yes, thank you. MR. VEGH: Okay. So this 1.63 million is a pass through? MS ELLIOTT: Yes. MR. VEGH: And if I have specific questions on the components of this pass through should I save that to the rate panel? MS ELLIOTT: Yes. MR. VEGH: So I will do that and just ask you some questions and it is very high level. If I am going too much into detail you can let me know or you can correct that with another panel. Can you tell me what is included in these flexibility costs? MS ELLIOTT: I'm afraid I'm not even going to be able to answer the first question. It is probably a question that is better asked of Mr. Packer on the rates panel. MR. VEGH: I will defer questions in this Les Services StenoTran Services Inc. 613-521-0703 743 ELLIOTT/BIRMINGHAM, cr-ex (Vegh) area. I hope that when I get to that area of the rate panel Mr. Penny isn't telling me that I should have asked this question of the other panel. MR. PENNY: We will have to wait and see what your question is, Mr. Vegh. MR. VEGH: Okay. Finally, panel, I would just like some clarification. I am turning now to the issue of the S&T deferral account. Panel, we had some discussion with Mr. Thompson about deferral accounts. What I would like to clarify is the treatment of the revenues that currently makes their way into these accounts. Part of the difficulty I have is that sometimes we talk about how these accounts operated in the past, and when we talk about how they operate in the future I'm not sure if I have a clear idea of how to conceptualize the revenues going into the accounts under your proposal. In the past or under the current system -- I shouldn't call it the past yet -- in the current system these revenues and costs appear to me to be sort of like silos of cost of revenue for a particular activity. Under your proposal I don't think this conception of silos really captures it any more, does it, silos of costs and revenues? MS ELLIOTT: The current methodology is to defer what we refer to as the net margin or 75 per cent of the net margin, which is the revenue realized from S&T transactional services above the forecast amount Les Services StenoTran Services Inc. 613-521-0703 744 ELLIOTT/BIRMINGHAM, cr-ex (Vegh) less the costs incurred to provide that service. So it is a matter of incremental revenue less the incremental costs to come up with the margin and 75 per cent of that is deferred -- is recorded in the deferral accounts. Our proposal is to eliminate the deferral accounts so there is no further accounting treatment that would take the revenues or the costs. MR. VEGH: Right. So the extent of your commitment really to these accounts or services is that we are prepared, the company is prepared, to make a $5.5 million contribution in a sense to the ratepayers, but that is the extent of your commitment to these costs and revenues and these services? MS ELLIOTT: Our proposal maintains the existing rates and included in the existing rates is an amount of S&T transactional revenue of $5.5 million. We are not proposing to alter existing rates to reflect a reduction in that level. S&T transactional revenue above that amount is part of this proposal in that we are proposing to eliminate the deferral accounts and use that revenue to manage the risks that we are taking on under the price cap plan, including the risk or the costs associated with expansion, and the expansion for storage that was committed to as part of the unbundling proposal to continue to maintain the existing allocation of storage for new customers on the system at the posted tolls. So we will incur costs to develop storage but Les Services StenoTran Services Inc. 613-521-0703 745 ELLIOTT/BIRMINGHAM, cr-ex (Vegh) we will provide to customers in the future at the posted tolls. The S&T revenues will help mitigate some of those costs. MR. VEGH: When we think about the future treatment of this it doesn't even make sense, really, does it, to be talking any more about S&T revenues? If your proposal is approved this would just be business revenues that Union will have as a company, profits or losses depending on how the market works and how affected you are operating in that market? MS ELLIOTT: These are revenues. Just like the revenues from the distribution service they are revenues generated while providing storage and transportation services. They are regulated rates and subject to the price cap. But you are right, all of the revenues will be treated the same way, recorded on the company's financials as revenue. MR. VEGH: And as you mentioned, if your proposal is approved you will shut down these deferral accounts, that the deferral accounts won't exist any longer? MS ELLIOTT: That's correct. MR. VEGH: Subject to your existing contractual obligation you wouldn't even have an obligation to provide all of your existing -- what are called S&T -- services. Right? MS ELLIOTT: I'm not sure what you refer to by Les Services StenoTran Services Inc. 613-521-0703 746 ELLIOTT/BIRMINGHAM, cr-ex (Vegh) having an obligation. Clearly, we have a financial obligation to ensure that we are managing the risks and mitigating our costs. So to the extent that we can provide loan services to mitigate the cost of carrying higher inventory in warmer than normal weather, we do in fact have an obligation to do that. MR. VEGH: Well, you have an obligation to maximize your revenue, perhaps, but you don't have an obligation to the particular loan service as it is structured today. You could change that loan service just to make it one that is more commercially attractive. You could just operate it on a competitive basis, right? If you determine that it is no longer worth it for you as a company to offer the loan service, to say the example, then you simply don't offer the loan service any more, isn't that right? MS ELLIOTT: If the service isn't an economically viable service you could be right that we may decide that it isn't appropriate to offer it any longer. MR. VEGH: Or you could replace some existing S&T services -- again subject to your contractual obligations you may have -- but you could replace existing S&T services with new services. MS ELLIOTT: Yes, and we could supplement existing S&T services with new services to the extent that the customers are looking for service from us, but Les Services StenoTran Services Inc. 613-521-0703 747 ELLIOTT/BIRMINGHAM, cr-ex (Vegh) we will continue to develop services to respond to those customer requests. MR. VEGH: That's how I understand it as well. There was some discussion about whether these new services that may replace existing S&T services are regulated or unregulated, and I would just like some clarification on that. So can you turn, please, to Exhibit B, Tab 2, page 54, where you address new services? MS ELLIOTT: I have that. MR. VEGH: Now, there was a discussion about whether these new services will be regulated or -- the prices for these new services will regulated or unregulated. As I read your evidence on page 54, starting at line 11 it says: "Where no competitive alternative to a service exists, these services will be placed into one of the defined service baskets and will be priced subject to the price cap parameters." So if there are no competitive alternatives, then the services are covered by price caps. Right? MS ELLIOTT: That's right. MR. VEGH: And if there is a competitive alternative to the service, then the service is removed from the price cap or not included in the price cap? MS ELLIOTT: Yes, that's correct. Les Services StenoTran Services Inc. 613-521-0703 748 ELLIOTT/BIRMINGHAM, cr-ex (Vegh) MR. VEGH: And that is true whether or not you used your existing storage transportation or -- I'm sorry, storage, transmission or distribution assets to provide that service, isn't it? MS ELLIOTT: The rates for storage, transmission and distribution services are regulated. MR. VEGH: Yes. MS ELLIOTT: They will be included in the service baskets and priced under the price cap. To the extent they can be negotiated with customers, there is a provision in our proposal to negotiate rates for those services with customers. MR. VEGH: Yes, but that's not what this section is talking about. This section is talking about new services, which in the second sentence says: "These services will be in addition to the storage, transportation and distribution services priced under Union's current rate schedules." MS ELLIOTT: The next sentence refers to these services as enhancing those basic services. MR. VEGH: Right. MS ELLIOTT: To the extent that the service is storage, transportation or delivery, they are regulated services. MR. VEGH: But you have your basic storage, transportation and delivery services which are regulated and covered by the price cap. You are not talking about Les Services StenoTran Services Inc. 613-521-0703 749 ELLIOTT/BIRMINGHAM, cr-ex (Vegh) enhancing those services. Right? That's what the new services talk about. MS ELLIOTT: Yes. MR. VEGH: I understood you to say that in terms of these enhanced services, as I understand your evidence, the question is whether these enhanced services face competitive alternatives. And if these enhanced services do face a competitive alternative, then they are not regulated by the Board and not in the price cap. It's only when there is no regulated -- there is no competitive alternative that these services are regulated by the Board and included in the price cap. MS ELLIOTT: That's right. MR. VEGH: And that has nothing to do with whether you use storage, distribution or transmission assets to provide these services. MS ELLIOTT: The use of assets to provide service makes the service, storage, transmission or delivery, distribution, that makes it a regulated service MEMBER JACKSON: Price regulated or just regulated in some way. MS ELLIOTT: Certainly price regulated. There are other regulations around the storage service. MEMBER JACKSON: So I'm a little bit confused too, because I thought you linked two things, Mr. Vegh, in your question. Les Services StenoTran Services Inc. 613-521-0703 750 ELLIOTT/BIRMINGHAM, cr-ex (Vegh) You talked about something being both outside the price cap and unregulated. And I thought up to this point in the discussion I was hearing that things could be outside of the price cap but still be under the Board's general jurisdiction of price regulation. I must say that the answer that Ms Elliott gave me to the last question confused me when she agreed with you that things could be -- excuse me, that services which had competitive alternatives could be both outside the price cap and outside of the Board's jurisdiction to price regulate. Up to that point I thought she was saying that all the time they would remain within the Board's jurisdiction to price regulate, even though the Board might refrain from that kind of price regulation under situations of competition. You see the distinction I'm having trouble with? Ms Elliott, I'm sure you are listening to everything I'm saying too and trying to help. But, in other words, if you have a storage service and you were selling it against some competitive -- its services against some competitive alternative, I think there are two separate questions: Will the rates that are set competitively somehow be treated under the price cap or in relation to the price cap? That's one question. And the second question is: Given those services are provided from the storage assets, does the Les Services StenoTran Services Inc. 613-521-0703 751 ELLIOTT/BIRMINGHAM, cr-ex (Vegh) Board not still have the authority to set those prices if it wishes to do so? MR. BIRMINGHAM: Maybe I can try to help you, Dr. Jackson. MEMBER JACKSON: Thank you. MR. BIRMINGHAM: I think in response to your first question an example might be exfranchise storage. So this is storage that we are developing or have developed and are selling to customers outside of our franchise area. MEMBER JACKSON: So it's not exfranchise storage in the sense of it being developed by Union Gas Limited outside of Ontario. MR. BIRMINGHAM: That's right. It's located in Ontario. MEMBER JACKSON: Thank you. MR. BIRMINGHAM: Yes. And there is an example where in this application we are asking for the Board to allow us to sell that storage at market prices, whatever the market will bear. It would still be the requirement to the extent that new assets are developed with respect to that storage that we would need the Board's approval with respect to the leave to construct those facilities, but we are asking for the ability to sell that storage at a market price. I would distinguish that from something that is like a low-profiling service, which is something that we talked about earlier in the proceeding, where Les Services StenoTran Services Inc. 613-521-0703 752 ELLIOTT/BIRMINGHAM, cr-ex (Vegh) customers may elect the unbundled service and want somebody to provide them different scenarios with respect to their supplies and demands. That's an informational-type service that others could provide and we would set a fee for that and that wouldn't be regulated -- price regulated by the Board. But to the extent that it is an infranchise storage or transmission or distribution service, those will continue to be rate regulated by the Board. And if there are amendments to the type of service or enhancement to the type of service that still qualifies it as a transmission or a distribution or infranchise storage service, we would be defining that service and bringing a rate forward to the Board for approval. MEMBER JACKSON: So we have a distinction between infranchise and exfranchise, and we also have a distinction between services which have no competitive alternative and services which have competitive alternatives and they aren't necessarily one and the same. But you are saying that all infranchise, even if it has a competitive alternative, you will come to the Board for approval of that rate? MR. BIRMINGHAM: For infranchise storage, the Board will continue to regulate those rates and those rates are subject to our price cap parameters. For our transmission and our distribution services, those are also regulated services and we will Les Services StenoTran Services Inc. 613-521-0703 753 ELLIOTT/BIRMINGHAM, cr-ex (Vegh) continue to bring those forward to the Board. MEMBER JACKSON: Even if the service provided on those transmission facilities is for exfranchise customers? MR. BIRMINGHAM: Not for storage, but for -- MEMBER JACKSON: For transmission -- MR. BIRMINGHAM: -- transmission -- MEMBER JACKSON: -- for exfranchise customers you would still come to the Board. MR. BIRMINGHAM: Our M12 Rate is still subject to the Board's regulation and will be subject to the price cap parameters, that's right. MEMBER JACKSON: And with respect to storage, the very fact that you are asking the Board to refrain from price regulating that, you are accepting that the Board would have the authority to price regulate it, you just think there's a good reason for us to refrain from setting that rate and letting you negotiate it in the marketplace. Is that correct? MR. BIRMINGHAM: That's a very accurate characterization, yes. MEMBER JACKSON: Thank you. THE PRESIDING MEMBER: I'm sorry, Mr. Vegh. Please carry on. MR. VEGH: Okay. Well, let me just pick up on a couple of points, then. Thank you, sir, for that clarification. I think I benefitted from it. Les Services StenoTran Services Inc. 613-521-0703 754 ELLIOTT/BIRMINGHAM, cr-ex (Vegh) So if we go back to Exhibit B, Tab 2, page 54, then, panel, at line 11, where you say in your evidence: "Where no competitive alternative to a service exists, these services will be placed into one of the defined service baskets and will be priced subject to the price cap parameters." Do I hear you saying now that you what really mean here is not by reference to a competitive alternative, but whether or not you are using the utility assets. So I should read this evidence to say: "Where no storage, transportation or delivery assets are used..." I'm sorry: "Where storage, transportation or delivery assets are used to provide these services, then they will be placed into a price cap..." Is that what you mean to say in this evidence? MR. BIRMINGHAM: No, I wouldn't agree with that, Mr. Vegh. I think what we are saying is that if it is an infranchise storage service, a transmission service or a delivery service, then they will be placed into one of the defined service baskets and subject to the price cap parameters. That is, they meet the definition of a regulated service. Les Services StenoTran Services Inc. 613-521-0703 755 ELLIOTT/BIRMINGHAM, cr-ex (Vegh) MR. VEGH: And how will we know if they meet the definition of a regulated service? MR. BIRMINGHAM: Whether they are infranchise storage, transmission or distribution. MR. VEGH: I'm sorry. I am not clear on this at all, but I will just move on. Also in answer to a question from Dr. Jackson, you referred to market prices and you agreed that you were in fact asking the Board to refrain from setting rates for exfranchise storage. I don't want to involve you in a legal debate, Mr. Birmingham, but I take it when you agreed with Dr. Jackson that you were asking the Board to refrain you were referring to the Board's power to refrain under section 29 of the OEB Act? MR. BIRMINGHAM: Yes. MR. VEGH: Section 29 says: "On an application or in a proceeding, --" -- and we are now in a proceeding, so I guess this is what you are relying on -- " -- the Board shall make a determination to refrain, in whole or part, from exercising any power or performing any duty under this Act if it finds as a question of fact that a licensee, person, product, class of products, service or class of services is or will be subject to competition sufficient to protect the Les Services StenoTran Services Inc. 613-521-0703 756 ELLIOTT/BIRMINGHAM, cr-ex (Vegh) public interest." Is that what you are saying, that exfranchise storage should not be price regulated because it will be subject to competition sufficient to protect the public interest? MR. BIRMINGHAM: There are already exfranchise customers who purchase storage from us at market prices, and the Board has permitted that. We are asking for the continuation of that and the expansion to include all exfranchise customers, including those customers who currently have storage under contract with Union. MR. VEGH: The Board permitted what it permitted prior to its refraining power under section 29, didn't it? MR. BIRMINGHAM: With respect to the different dates of the implementation of the legislation, I believe that is correct. MR. VEGH: You never applied to the Board under section 29 for an order to refrain from determining rates for exfranchise storage. MR. BIRMINGHAM: That's correct. MR. VEGH: Are you doing that in this case? MR. BIRMINGHAM: We are asking the Board to use those powers with respect to the exfranchise storage. MR. VEGH: Will you be bringing forward evidence, then, to demonstrate that exfranchise storage is or will be subject to competition sufficient to Les Services StenoTran Services Inc. 613-521-0703 757 ELLIOTT/BIRMINGHAM, cr-ex (Vegh) protect the public interest? MR. BIRMINGHAM: No, sir. We are asking the Board to allow us to price storage sold to exfranchise customers in the way they have done it before, and that allows us to do a number of things. In particular, it allows us to develop new storage pools, because the cost of those new pools is sufficiently above the embedded cost-based rate. We would not be able to develop new pools if we did not have the market price. MR. VEGH: I understand you to be saying that, but I'm just asking what is your evidence that you are bringing in under section 29 asking the Board to refrain. MR. BIRMINGHAM: The infranchise customers will continue to be protected from a public interest standpoint because Union is committed for all existing infranchise customers as well as any new infranchise customers to provide storage at cost-based rates, and those rates will continue to be regulated by the Board. MR. VEGH: That is fine, Mr. Birmingham. This is your application and I am just giving you the opportunity to state your evidence -- or to point me to your evidence where you say that exfranchise storage is or will be subject to competition sufficient to protect the public interest. Because that is the test that you have to meet, and I am just asking you where your evidence to meet that test -- MR. PENNY: The question assumes a legal Les Services StenoTran Services Inc. 613-521-0703 758 ELLIOTT/BIRMINGHAM, cr-ex (Vegh) issue. Perhaps the whole problem with this discussion is that the entire discussion assumes a legal underpinning. THE PRESIDING MEMBER: Mr. Penny, are you saying by that, that that is a legal question, as opposed to a factual question? Is there evidence dealing with this? And the answer to that is no. Is that -- MR. PENNY: I'm sorry, Mr. Chairman. There were two questions involved in what Mr. Vegh said. Part of what he said was that that section of the Act is the test we have to meet. I am saying that is a legal issue, whether we have to meet that test or not. If Mr. Vegh wants to ask whether we have evidence that meets the requirements of that section, that is a factual question and he can ask that. MR. VEGH: I did ask that question. So what is the answer, Mr. Birmingham? MR. PENNY: With great respect, you did not. MR. BIRMINGHAM: We do not have evidence that deals with the competitiveness of the storage market outside our franchise area, but we believe that the public interest is protected with respect to infranchise customers because they continue to get cost-based storage for all existing and new customers. MR. VEGH: Why don't we leave it at that, then. Thank you, panel, those are my questions. Les Services StenoTran Services Inc. 613-521-0703 759 ELLIOTT/BIRMINGHAM, cr-ex (Vegh) MR. PENNY: I just might say, Mr. Chairman, apropos of that issue, that perhaps I should have interjected at the beginning, and I apologize for not doing so. The company's application, as I think Mr. Birmingham has now made clear, is not in fact founded on that particular provision of the legislation, and there is evidence on C5.17 which explains the basis for the company's request. THE PRESIDING MEMBER: Thank you, Mr. Penny. MEMBER JACKSON: I am not sure that one should look back at these things, but I guess Mr. Vegh has raised the question of what the Board's authority was to do it prior to this current form of the Ontario Energy Board Act. I am curious, but I don't know what we can do about it if we found we did something wrong in this area. I think we would have to be very practical. However, I wonder if it might be related to the old provision of "the Board may set rates" for these various things. It was a permissive word that was used in section 19 of the Act previously, but that is just a suggestion. I won't trouble myself much about it until the lawyers decide that it is an important issue to resolve. MR. PENNY: I am sure the Board has not done anything wrong, Mr. Chairman, in the past, in that it was fully within their jurisdiction. We will obviously look at this issue and it will be addressed in argument, which is, I say, where it should be. Les Services StenoTran Services Inc. 613-521-0703 760 ELLIOTT/BIRMINGHAM MEMBER JACKSON: Thank you. THE PRESIDING MEMBER: Thank you, Mr. Penny. Mr. Mattson, would you like to start? MR. MATTSON: Yes, Mr. Chairman. I shouldn't be more than 10 minutes. Should I go ahead now? THE PRESIDING MEMBER: How long are you going to be? MR. MATTSON: I should just be 10 or 15 minutes, maximum. THE PRESIDING MEMBER: Maybe we should see whether we can finish this panel, then have a break and then come back and start the next set of topics. CROSS-EXAMINATION MR. MATTSON: Thank you. There are four areas -- productivity, inflation, the term and the integrated proposal -- panel. If I could start on the heading of productivity, throughout the course of the evidence the last few days you have stated that the negative historical productivity factor relates to declining use per customer. Is that fair, Ms Elliott? MS ELLIOTT: Yes, that's correct. I think if you look at the two calculations that were done you will see, if you measure output based on the number of customers, that you get a .1 per cent positive productivity average over the last 10 years. When you move to measure the output on volume, you get minus .8 per cent -- a negative productivity for the term, which Les Services StenoTran Services Inc. 613-521-0703 761 ELLIOTT/BIRMINGHAM, cr-ex (Mattson) would tell me that, on average, the decline in use over the last 10 years has been approximately 1 per cent or .8 per cent contributing to the negative productivity. MR. MATTSON: What evidence have you relied on with respect to future trends and use per customer? MS ELLIOTT: We are really looking at the last 10 years and seeing it average about a 1 per cent decline over that period of time, and looking at some of the recent experience. In fact, last year's decline was somewhere between 2 and 3 per cent for the year. We are really continuing to -- and, I think if you look at the risks, we have identified one of the risks at Appendix "G", which has been the continued decline in use per customer. We are really just projecting about a 1 per cent decline, although recent experience would suggest that that may be somewhat light. MR. MATTSON: Okay. So, then, Ms Elliott, other than the historical data, there is no other evidence that you are relying on with respect to future trends. Is that fair? MS ELLIOTT: We are really relying on the trends that have been created in the past and supported by the historical trend analysis. MR. MATTSON: And that is all? MS ELLIOTT: Yes. MR. MATTSON: Thank you. MS ELLIOTT: With respect to inflation, you Les Services StenoTran Services Inc. 613-521-0703 762 ELLIOTT/BIRMINGHAM, cr-ex (Mattson) have made reference to the necessity of Z factors to cover certain risks that the company does not wish to manage in your proposal and that, in the absence of non-routine adjustments, a risk premium would be necessary to compensate Union for such risks. Is that fair? MS ELLIOTT: Yes, that's correct. MR. MATTSON: You don't need to look it up, but in response to an interrogatory, C13.18, Union stated that the assumption by Union of the risks of inflation over five years is offered without an implicit risk premium. Do you recall that, or do you need to look that up? MS ELLIOTT: Yes, that's correct. We have fixed the inflation forecast for the term at 1.6 per cent without building any explicit risk premium into the plan. MR. MATTSON: Why is that, Ms Elliott, that you can accept this risk without any charge? MS ELLIOTT: It really goes to the combination of planned parameters, the price cap planned, the associated passthrough items, and the proposal to eliminate the S&T deferral accounts, all of those in combination were reviewed and the risks that Union was taking on under those terms were viewed to be something we could manage without an associated risk premium. Now, changing any of those particular components would go back to revisit whether or not it was necessary to Les Services StenoTran Services Inc. 613-521-0703 763 ELLIOTT/BIRMINGHAM, cr-ex (Mattson) introduce a risk premium into the planned parameters. MR. MATTSON: Is it fair to say that if, and let's hope it doesn't, but if inflation increased more than you are predicting here, let's say 3 or 4 per cent per year over the five-year plan, that would have a significant impact on your company, would it not? MS ELLIOTT: There would be an impact if inflation was 3 or 4 per cent per year. As we set about looking at the inflation forecast and looked at sort of a number of forecasts over the five-year term and didn't see that inflation was going to get to the 3 or 4 per cent. If you look at our recent inflation forecast, it is increasing, but the average of the inflation forecast at April produces an average for the term of 1.9 per cent. So, in this case, we are taking on a .3 per cent variability in that forecast. We don't see it increasing to the 3 or 4 per cent that you indicated. MR. MATTSON: But if it did, Ms Elliott, would you agree with me or is it possible that Union would likely seek relief from the Board and would trigger the off ramp mechanism in the proposed plan if we saw inflation of 3 or 4 per cent that you indicated. MR. PENNY: Mr. Chairman, this precise question was asked by Mr. Thompson and answered all ready. We are covering ground that had been covered in detail previously. MR. MATTSON: If there is any latitude, Les Services StenoTran Services Inc. 613-521-0703 764 ELLIOTT/BIRMINGHAM, cr-ex (Mattson) Mr. Penny, I would appreciate it. THE PRESIDING MEMBER: I think the panel can answer the question very quickly by saying yes or no. MS ELLIOTT: The off ramp deals with the company's inability to raise capital. Whether or not an inflation increase in the range that you are discussing would trigger that would depend upon all of the other circumstances that existed at the time and how well the company was able to manage the impact. MR. MATTSON: So just to put the question, then, you would agree it may be possible? Is that fair? It may be possible that inflation may increase such that it would make it difficult for your company to raise capital and that you would trigger the off-ramp mechanism. MS ELLIOTT: I'm not sure I know the answer to that question because it assumes -- I don't know what the other planned parameters or what the impact of all of the various risks are. Inflation alone my not trigger an off ramp. MR. MATTSON: May not. So you are saying it may not be possible. MS ELLIOTT: Without knowing how the company is managing its risks in response to that. I can't tell you whether we would be in a position where inflation would create the circumstance that the company would not be able to raise capital and that we would have to trigger the off ramp. Les Services StenoTran Services Inc. 613-521-0703 765 ELLIOTT/BIRMINGHAM, cr-ex (Mattson) MR. MATTSON: So in terms of your plan, where does that leave us if you don't know? If the inflation risk may in fact trigger an off-ramp mechanism, where does that leave us? It may be possible, it may not. Are customers being protected from this risk? MS ELLIOTT: The company's proposal is that if they set these price cap parameters, the non-routine adjustments, the components of the passthrough and the elimination of the S&T deferral accounts, the company will be able to manage the risk that it is taking on by fixing the inflation forecast. MR. MATTSON: I was just looking at the risk that you may not be able to manage that. I will go to the next one which is term. Is the term of the plan critical to any other part of your proposal, that is, if the term wasn't -- it was changed from your proposed five-year plan. You have mentioned, I think, to another questioner that it may affect your stretch factor. Is there anything else that that term is critical to? MR. BIRMINGHAM: Not directly, Mr. Mattson. I think the testimony that I gave before and that is in the evidence is that the term is really necessary for Union to prepare to operate under PBR, to train our staff, to make new investments so that we can in fact attempt to increase our productivity and recover the costs that are required to obtain those higher levels of productivity. Therefore, what is tied directly to the Les Services StenoTran Services Inc. 613-521-0703 766 ELLIOTT/BIRMINGHAM, cr-ex (Mattson) term I think is the amount of the stretch factor, that is, you are not going to -- Union would not be in the position of making longer-term investments to try to improve its productivity under a short-term agreement. The other aspect of this, though, is the criteria that are used to set the second generation of price cap parameters. To the extent that we know how those parameters are going to be set, then that can help mitigate some of the concerns about the term. MR. MATTSON: Thank you. That's helpful. Finally, with respect to the integrated proposal, you have testified in both your prefiled and orally here of the various parts of the proposal that tend to benefit Union and, in particular, just following Mr. Vegh, that is the upside of the absentee revenues from the ratepayer. In balancing that, and just to summarize again, you have indicated the compensation is that Union will be managing the risks under the PBR plan. Is there any analysis that you have provided where you have looked at what the risks to Union are versus what the benefits are and linked those up logically? MR. BIRMINGHAM: There is a fairly detailed piece of evidence at pages 64 to 79, Mr. Mattson, and those impacts are summarized at Exhibit B, Tab 2, Appendix "G". MR. MATTSON: Yes. Les Services StenoTran Services Inc. 613-521-0703 767 ELLIOTT/BIRMINGHAM, cr-ex (Mattson) MR. BIRMINGHAM: And there are some additional explanations provided on those items at Exhibit C1.155. MR. MATTSON: Okay. I'm familiar with them. That would be the extent of the efforts to try and link up where the benefits versus the risks are, how they interrelate, is that fair, those pieces of evidence? MR. BIRMINGHAM: That captures most of the differences from the current situation, yes. --- Pause MR. MATTSON: Just following up on that, I take it, then, you have not done any analysis of the estimated ratepayer impacts and their variability of the changes to the status quo. Is that fair? MR. BIRMINGHAM: That's what that analysis does, Mr. Mattson. MR. MATTSON: Looking at it from the ratepayer impact? MR. BIRMINGHAM: Yes. The attempt here, as you can see at Exhibit B, Tab 2, Appendix "G", over in columns "D", "E" and "F" of that table is that we made an assessment of what the impacts would be under cost-of-service regulation, and that is column "A" and column "B". Under column "C" we applied a probability factor knowing that not all of those items were likely to occur in a given year, so we made an assessment about what the likelihood might be and then we allocated those impacts to the different baskets. That is summarized at Les Services StenoTran Services Inc. 613-521-0703 768 ELLIOTT/BIRMINGHAM, cr-ex (Mattson) line 16 of columns "D", "E" and "F". MR. MATTSON: Thank you. Thank you, panel. Thank you, Mr. Chairman. Those are the questions. THE PRESIDING MEMBER: Thank you, Mr. Mattson. Dr. Wightman, do you have any questions? MR. WIGHTMAN: I have had a chance to review the expert testimony sponsored both by the Applicant and by one of the intervenors and I think it's clear, so any questions we have we may direct to one of the expert witnesses. THE PRESIDING MEMBER: Thank you, Dr. Wightman. I have one very -- it may not be a simple question but it is a question that I'm just having difficulty with, and it comes from some of the cross-examination of Mr. Vegh and others. Naturally, it is to this treatment of competitive and non-competitive infranchise/exfranchise, and then another category which I think you identified as called load profiling. The question that comes to me is, as Mr. Vegh was saying, who judges when a service is competitive? Is it a question that comes to the Board for clarification, for a definition or decision? MR. BIRMINGHAM: Ultimately, I think that would be the case, Mr. Chairman, but it wasn't my intention to deal with whether a service was necessarily competitive or not competitive. Our view is, to the Les Services StenoTran Services Inc. 613-521-0703 769 ELLIOTT/BIRMINGHAM extent that a service is storage, transmission or distribution it is, by regulation, within the purview of the Board that we would need to bring that forward. To the extent that it is not one of those services, then we would be charging a fee that would not be regulated by the Board and load profiling was only an example of what one of those services might be. THE PRESIDING MEMBER: If I took load profiling, what assets would be used to undertake the load profiling? MR. BIRMINGHAM: It's primarily computer hardware and software. It's a software program that takes various inputs and is basically an optimization model that allows customers to look at how they could best operate under services. THE PRESIDING MEMBER: So the rate isn't set, but what happens to the revenues that result from the provision of that service? MR. BIRMINGHAM: They would accrue to the company in our proposal. To the extent that we have developed those services in the past and they currently exist, that revenue stream has been accounted for within the storage and transportation transactional revenue deferral account. THE PRESIDING MEMBER: So it's in the $5.5 million, or whatever the number is, that you say are already reflected in rates? MR. BIRMINGHAM: That's right. And any Les Services StenoTran Services Inc. 613-521-0703 770 ELLIOTT/BIRMINGHAM additional revenue streams, to the extent that they were earned over and above that in 1999 would be sitting in the deferral account balance now. THE PRESIDING MEMBER: When it comes to the question of in-house services, the company decides that there is a customer requirement for new services, those go to the Customer Review Committee? If you wanted to introduce a service that doesn't exist in your current rate documents, how would that get introduced? MR. BIRMINGHAM: If it was a regulated service we would be bringing it forward in the customer review process, and hopefully with a settlement through that, then bring it to the Board for approval. In the event that we were unable to obtain a consensus on the service, then we would bring it forward to the Board for their approval in any event. THE PRESIDING MEMBER: Now, a separate question, and it's a very simple question, is on these non-routine adjustments. Those can be incorporated into the rate and subject to the price cap and some are just one-time adjustments. Is that what they are? It depends on the nature of the non-routine adjustment? MR. BIRMINGHAM: It would depend on the nature of the non-routine adjustment as to whether it was a one-time charge or a credit or an ongoing charge or a credit. As an example, to the extent that the Income Tax Act legislation is reflected, that would be an Les Services StenoTran Services Inc. 613-521-0703 771 ELLIOTT/BIRMINGHAM ongoing reduction and we would put it into our base rates at the time. THE PRESIDING MEMBER: On the Appendix "G" that we have just looked at, I see it as an annual percentage change. MR. BIRMINGHAM: Yes, sir. That's right. THE PRESIDING MEMBER: So the expectation of that document would be as opposed to a 1.9 per cent escalation, these would result in the number at the bottom. MR. BIRMINGHAM: That's correct. THE PRESIDING MEMBER: In your view, that's what the cost of service would have resulted in as opposed to the PBR mechanisms? MR. BIRMINGHAM: Yes, sir. That's our estimate including the likelihood of the events occurring and, in particular, occurring in a given year, that could happen under cost of service to the extent that those risks and the other benefits would materialize. THE PRESIDING MEMBER: There is nothing subsumed in the cost of service numbers that are, in effect, non-routine Z factor adjustments. I'm trying to compare this against the PBR plan forecasting going forward. You have an adjustment which is 1.9 per cent there, and then you have non-routine adjustments and things that are added in. Are those directly comparable with just the 1.9 or are there things that would Les Services StenoTran Services Inc. 613-521-0703 772 ELLIOTT/BIRMINGHAM actually be reflected in the Z factors included in these cost of service numbers? MR. BIRMINGHAM: It is an apples-to-apples comparison, sir, with respect to the 1.9 per cent. The non-routine adjustments by their nature are unforeseeable and so they would be unforeseeable both under cost-of-service regulation, under price cap regulation. We haven't reflected anything else in the cost of service regulation with respect to the non-routine adjustments. So the numbers that you see there are directly comparable to the 1.9 per cent. THE PRESIDING MEMBER: Thank you. Dr. Jackson. MEMBER JACKSON: Just one follow-up question, Mr. Birmingham, if I may, with respect to the discussion on load profiling. I think it comes to the question of how you separate the utility and non-utility probably, but I take it, then, perhaps the computers and staff that you would use to generate that service are allocatable already between utility and non-utility and you are just saying this is some of the non-utility operations that could be expanded and, hence, should not be subject to price regulation by the Board or treated as an opportunity to manage under the price cap? Is that the way I should interpret the load profiling? MR. BIRMINGHAM: If I gave you that impression, sir, then I apologize. That wasn't my Les Services StenoTran Services Inc. 613-521-0703 773 ELLIOTT/BIRMINGHAM intent. We really don't look at the assets that are used to provide a particular service. In the example of load profiling, my expectation in fact would be that the individuals as well as the hardware and software that will be used to provide that service are probably already in Union's cost of service, the regulated cost of service. It really goes to the nature of the service that the utility is providing and whether that meets the definition of a regulated service or whether it doesn't. MEMBER JACKSON: Let me think about that response. Thank you very much. MR. BIRMINGHAM: I will be here for a while. --- Laughter THE PRESIDING MEMBER: Thank you. Those are the Board's questions and I think maybe we should take our break now. How long do you need, Mr. Penny, to set up your -- I know it's the same people, but I don't know whether you have any preparation before they -- MR. THOMPSON: Mr. Chairman, just before Mr. Penny speaks, I have some questions about the documents that were delivered this morning by way of undertaking responses. I would just like to get some direction as to when I should pose those to this panel. THE PRESIDING MEMBER: Mr. Warren made the same request, yet he wasn't sure whether he had Les Services StenoTran Services Inc. 613-521-0703 ###Next: 1 ###] <<<>>> ###CaseId: RP-1999-0017 ###Title: OEB Transcript of RP-1999-0017; Vol. 05:01 ###Section: Preliminary Activities ###Author: Dominy, Jackson (OEB) ###PubDate: 06/17/00 ###LFileId: VOL0501 ###[ ###Prev: 1 [ELLIOTT/BIRMINGHAM Page: 774] 774 ELLIOTT/BIRMINGHAM questions. The agreement, then, was that Mr. Warren would speak with Mr. Penny to work out when would be the best time for those questions. So if you could join Mr. Warren -- thank you -- in trying to find an appropriate time. I would like to break now, and maybe the perfect time is when you come back. I will leave it to Mr. Penny. Mr. Penny, how long do you need? MR. PENNY: Just the regular break is fine. THE PRESIDING MEMBER: Let's come back at 20 to 12:00. MR. PENNY: Thank you. --- Upon recessing at 1111 --- Upon resuming at 1140 THE PRESIDING MEMBER: Thank you. Please be seated. Mr. Penny. MR. PENNY: Yes, Mr. Chairman. There are two issues that need to be addressed before we can proceed. I gather Mr. Thompson wants to make representations about dealing with some of the exhibits that were handed out this morning and undertaking answers. I have probably five to 10 minutes of re-examination. But let's decide what to do about some of the answers to interrogatories first. I gather Mr. Thompson's proposal is that he Les Services StenoTran Services Inc. 613-521-0703 [ELLIOTT/BIRMINGHAM Page: 775] 775 ELLIOTT/BIRMINGHAM wishes to ask some questions on some of the paper that was handed out this morning now. My reservation on that is two-fold. First of all, not everyone is here and not everyone has that paper as yet. Mr. Warren has advised that he hasn't had yet the opportunity to review it, so he is not in a position to ask his questions. My preference, from the point of view of both the record and in fairness to the witnesses, would be to have questions on outstanding undertakings all dealt with at once, as opposed to being dealt with piecemeal. Mr. Thompson, I think, takes a different view. THE PRESIDING MEMBER: Mr. Thompson. MR. THOMPSON: Yes, Mr. Chairman. My suggestion is that we deal with Exhibit G2.4 Corrected, G3.3, G3.7 and then G2.1, G2.7 and G2.8 while it is fresh in the witnesses' minds. I understand that in evidence in-chief this morning, Ms Elliott did put some information on the record about the G2.4 Corrected exhibit. I have questions. I wouldn't think they would be any longer than 10 minutes or 15 minutes on all of these documents. Very few on G3.3, which is the document that I understand Mr. Warren wants to ask some questions about. But my suggestion is, insofar as my examination is concerned, that it be dealt with now rather than later, if that is acceptable to the Board. Les Services StenoTran Services Inc. 613-521-0703 [ELLIOTT/BIRMINGHAM Page: 776] 776 ELLIOTT/BIRMINGHAM MR. PENNY: Mr. Chairman, if I could just take 30 seconds of reply to Mr. Thompson. THE PRESIDING MEMBER: Yes. MR. PENNY: I would be entirely happy with Mr. Thompson's proposal but for the concern that we will be faced with five or six other people that want to come along later, at various times and places when they may feel it convenient to be here, and also ask additional questions. I have no problem with proceeding now. The only concern I have is breaking it all up. If we were reasonably comfortable that this would be the extent of the questioning on these documents, I would have absolutely no hesitation in agreeing that Mr. Thompson should ask them now. THE PRESIDING MEMBER: Mr. Penny, as I understand it, Mr. Thompson's focus is primarily on interrogatories other than G3.3, which is the one that Mr. Warren is interested in. MR. PENNY: Yes. THE PRESIDING MEMBER: And G3.3 is essentially the prime interrogatory of where we -- I made something that if parties have questions they wish to ask on that one they should be given an opportunity to do so. So maybe what we can do is proceed with Mr. Thompson's questions now and then set a time when G3.3 questions that Mr. Warren wants to raise, and any other party who wishes to can do it, and that can be put on the voice mail or whatever it's called. Les Services StenoTran Services Inc. 613-521-0703 [ELLIOTT/BIRMINGHAM Page: 777] 777 ELLIOTT/BIRMINGHAM MEMBER JACKSON: The hotline. THE PRESIDING MEMBER: Hotline. MR. PENNY: If any other party wishes to, with respect to G3.3. THE PRESIDING MEMBER: To G3.3. MR. PENNY: Yes. That's acceptable. THE PRESIDING MEMBER: So we will proceed that way. Then Mr. Warren, you will still have to consult us on what is an appropriate time, and then other people through the hotline will know when that is taking place. MR. PENNY: Thank you. THE PRESIDING MEMBER: Thank you. Mr. Thompson. MR. THOMPSON: Thank you, Mr. Chairman. CROSS-EXAMINATION MR. THOMPSON: Panel, I would like to start with G2.4. And I would ask you to turn up the original G2.4 and then G2.4 Corrected. MS ELLIOTT: I have that. MR. THOMPSON: I would also ask you to turn up, if you wouldn't mind, the transcript, Volume 2, page 215 and following. --- Pause MS ELLIOTT: Yes, I have that. MR. THOMPSON: All right. MEMBER JACKSON: Mr. Thompson, what is the page reference for the transcript? MR. THOMPSON: It's 215 -- two-one-five. Les Services StenoTran Services Inc. 613-521-0703 [ Page: 778] 778 ELLIOTT/BIRMINGHAM, cr-ex (Thompson) MEMBER JACKSON: Thank you. MR. THOMPSON: Just starting with the transcript, Ms Elliott, at line 17, you indicated: "The actual unaccounted for gas volume cost for the year are recorded in the corporate financials." And I think you indicated the same thing to Dr. Jackson a little earlier in the transcript. Do you recall that? MS ELLIOTT: Yes. MR. THOMPSON: All right. So if we could just take a look, then, at G2 before correction. This is G2.4, at line 2. We start out with the cost of gas in the original budget of $679 million. Correct? MS ELLIOTT: Yes. MR. THOMPSON: And then, if you go over to G2.4, page 2, it drops to $648 million in line 2. MS ELLIOTT: Yes. MR. THOMPSON: Could you just explain what happened between the budget normalized and the first quarter to cause that? Is that the weather change? MS ELLIOTT: That's the impact of the warmer than normal weather in the first quarter of 2000, yes. MR. THOMPSON: All right. And when you testified at transcript 215, did you believe that all actual unaccounted for gas costs were in the numbers of 679 and 648? Les Services StenoTran Services Inc. 613-521-0703 [ Page: 779] 779 ELLIOTT/BIRMINGHAM, cr-ex (Thompson) MS ELLIOTT: Yes. At the time I responded to those questions it was my belief that the actual -- or the cost of gas in the budget included the actual unaccounted for for 1999 and a projection of unaccounted for for 2000. In coming up with the utility statements and identifying for Dr. Jackson the amount of the gas measurement normalization adjustment between and utility, I became aware of the fact that we had not reflected in the unaccounted for gas number in the budget the impact of the PBR proposal. So to the extent that our proposal was to change the methodology for recording unaccounted for gas, that cost was not reflected in 2000 and we had not reflected the impact of the WACOG on the unaccounted for gas in the original budget, because that amount was based -- as I indicated this morning, the budget was set at a time when the WACOG was $136. MR. THOMPSON: All right. But just tracking that through slowly, you were careful to use the word "recorded". Is this a recording change that you are bringing forward in G2.4? Is that the extent of it? MS ELLIOTT: There are two changes. One is an accounting change. The accounting change relates to Union's proposal to change the methodology for recovering unaccounted for gas prospectively. To the extent that the Board approves the proposal to move to a Les Services StenoTran Services Inc. 613-521-0703 [ Page: 780] 780 ELLIOTT/BIRMINGHAM, cr-ex (Thompson) ratio for the recovery, it will be Union's plan to record that amount as revenue and record an offsetting amount as an expense. So there would be no impact on the bottom line. The change in WACOG is an actual cost to the company in the year 2000. Part of our proposal here is to recover that increase. As I indicated, the original budget was not based on the current WACOG. MR. THOMPSON: All right. Well, then, just if we could move forward to G2.4 Corrected. On page 1 of this document, in Column D at line 2, you are now adding in there $8.2 million for an increase in the cost of gas. MS ELLIOTT: That's correct. MR. THOMPSON: On both pages 1 and 2? MS ELLIOTT: Yes. MR. THOMPSON: And the 8.2 consists of what items? MS ELLIOTT: Approximately $2 million to reflect the proposal to change the recovery for the unaccounted for gas volume, so to move from the current methodology to the weighted average of the ratios, and it is $6 million for the increase to the current WACOG. The $6.1 million was found in response to Undertaking G2.3. MR. THOMPSON: All right, that was G2.3 or 2.1? The one you gave to Dr. Jackson, is that the one you are thinking of? Les Services StenoTran Services Inc. 613-521-0703 [ Page: 781] 781 ELLIOTT/BIRMINGHAM, cr-ex (Thompson) MS ELLIOTT: Right. MR. THOMPSON: I don't have 2.1. MS ELLIOTT: There is a calculation of the impact of using the most recent WACOG and that is a response to 2.3. No, 2.1 is the utility income statement. MR. THOMPSON: Well, I think I know the one you mean. I just don't have it in front of me. But relating back to, if you wouldn't mind, Exhibit F2.2, this was the IGUA guide, a magnificent document, if I might say. --- Laughter MR. THOMPSON: I think the items that you are describing as going into the $8.2 million -- I believe they are -- first of all, the item shown at line 29 on page 2 of this exhibit. Is that right, the UFG, but that has now been updated to the most recent UFG? MS ELLIOTT: Yes, that's correct. MR. THOMPSON: And that is about 6 million and some odd? MS ELLIOTT: Yes, $6.1 million. MR. THOMPSON: All right. Then the remaining piece of the 8.2 million, I believe, is the difference shown as line 34, being the difference between the 3.7 and the 5.6? MS ELLIOTT: Yes, that's correct. MR. THOMPSON: The sum of those two items you have now added as a cost at line 8.2 and they are also Les Services StenoTran Services Inc. 613-521-0703 [ Page: 782] 782 ELLIOTT/BIRMINGHAM, cr-ex (Thompson) part of the rate relief request that we see at line 7 of G2.4? MS ELLIOTT: Yes. MR. THOMPSON: Correct. Is that right? And you are saying of those two pieces in the $8.2 million one is an accounting -- were you segregating between those two pieces of the $8.2 million when you described one being an accounting change and one being another type of change? MS ELLIOTT: Yes, the proposal is to reflect the change in recovery for the UFG methodology. To the extent that the Board doesn't approve the methodology change we would continue to expense UFG for utility statement purposes. Under the existing methodology there would continue to be a variance between the utility cost and the corporate cost because in actual fact the corporate records would expense a higher amount of UFG. MR. THOMPSON: That is the 1.9 million? MS ELLIOTT: Yes, right. MR. THOMPSON: Then the 6.2 million -- 6.3 million -- of WACOG change, that is business as usual except the number is slightly higher than it would be under the old methodology. Looking at IGUA -- sorry, at F2.2 of line 29 we see the 5.6 and 5.1? MS ELLIOTT: Yes, that's correct. MR. THOMPSON: On that exhibit you referred to Les Services StenoTran Services Inc. 613-521-0703 [ Page: 783] 783 ELLIOTT/BIRMINGHAM, cr-ex (Thompson) those numbers were updated, as I recall, up to the current WACOG? MS ELLIOTT: Yes. MR. THOMPSON: And they became 6.3 and what? What is the WACOG number under the existing methodology? MS ELLIOTT: I'm sorry, under the existing methodology it is 6.1. Under the proposed methodology it is 6.6. MR. THOMPSON: What methodology have you assumed in the 8.2? It's 6.6 and 1.9. I make it 8.5. MS ELLIOTT: The computer had some rounding in those numbers. MR. THOMPSON: Well, rounding down, this is not typically Union's approach, but I guess we will take it where we can find it. --- Pause MR. THOMPSON: Who is it that brought this change to your attention? MS ELLIOTT: In response to the Undertaking G2.1. You know, in determining the amount in the gas measurement normalization in the corporate statements versus what would appear in the utility statements it became apparent that we had not reflected the change in methodology in the corporate budget, in that we had taken out or removed the impact of our proposal. We had removed the costs as well as the revenue component. The 2.4 added back the revenues. What I realized at that Les Services StenoTran Services Inc. 613-521-0703 [ Page: 784] 784 ELLIOTT/BIRMINGHAM, cr-ex (Thompson) point was that I had failed to add in the costs to match against those revenues. So we had added back revenues into a financial statement that the costs didn't exist in. MR. THOMPSON: Okay. Well, then, let's just reconcile this -- or if you wouldn't mind then jumping to G2.1? With G2.7 and G2.8 this is all part of the statement of the utility picture for the year ending December 31, 2000 derived from the corporate budget? MS ELLIOTT: Yes, that's correct. MR. THOMPSON: This G2.1 at line 6 is the item, I believe, you were referencing a moment ago. This is the cost of the gas. We have the normalized corporate, and then the reduction in that cost to reflect the amount in that number that was actual compared to utility was $4.5 million? MS ELLIOTT: Yes, that's the amount of the gas measurement normalization adjustment that is in the corporate statements. MR. THOMPSON: It is when you saw that number was so low that you then realized we hadn't, or you hadn't, included what, both the 6.6 and the 1.9 in your corporate statements? MS ELLIOTT: It was when I was reconciling the utility statements to the corporate statements, yes, that I identified that we had not included in the corporate statements those costs that were part of the proposed pass-through recovery. We basically didn't Les Services StenoTran Services Inc. 613-521-0703 [ Page: 785] 785 ELLIOTT/BIRMINGHAM, cr-ex (Thompson) include the revenue or the costs. MR. THOMPSON: In where? MS ELLIOTT: In the original corporate budget. What I realized in doing these statements or in looking at these statements is when I added up the evidence of what we were proposing to recover, I had added in revenues for which there were no corresponding costs in the forecast. MR. THOMPSON: Okay. Now, just following on if I might with G2.1. What prompted this discussion about the cost of gas was the reference to Exhibit B, Tab 2, Appendix H, if you wouldn't mind turning that up, please, Schedule 1. MS ELLIOTT: I have that. MR. THOMPSON: In the Note 3 you have made reference in your evidence on the record to the gas measurement normalization adjustment of 11.6 million in 1999? MS ELLIOTT: That was the actual adjustment in 1999, yes. MR. THOMPSON: My recollection is you anticipated an adjustment of that order of magnitude when you came forward to your corporate of 2000. You wanted to check the numbers but that --- MS ELLIOTT: Yes. MR. THOMPSON: --- is in essence what you said at transcript 215 and following? Les Services StenoTran Services Inc. 613-521-0703 [ Page: 786] 786 ELLIOTT/BIRMINGHAM, cr-ex (Thompson) MS ELLIOTT: I think I was having difficulty figuring out what that adjustment was in 2000 and we needed to check the numbers. In 2000 in the current budget that is the $4.5 million at Exhibit G2.1, line 6. MR. THOMPSON: Now, just at Exhibit B, Tab 2, Appendix H, in that Note 3 there is a second line, "Amortization of Gas Measurement Normalization" -- what is that -- of $9 million? Does that appear somewhere in the corporate budget? MS ELLIOTT: What this note does -- I will have to go back and correct myself, but the difference between the 11.6 is the actual variance for 1999. The 9.1 is the amortization of the balance sheet account that is recorded in the actual financials. So when you go up to line 7 in this income statement you take the corporate cost of gas and it has been increased by $2.6 million. The 2.6 is the difference between actual unaccounted for gas in 1999 and the amount that was expensed for corporate financial statement purposes, which is the amortization of the balance sheet account. So to get a utility statement across the cost of gas of $742 million that includes the 1999 UFG. The total amount of unaccounted for gas for 1999 is included in the utility statement on an actual basis. MR. THOMPSON: Right, but I am just coming forward to the corporate statements. Is there something Les Services StenoTran Services Inc. 613-521-0703 [ Page: 787] 787 ELLIOTT/BIRMINGHAM, cr-ex (Thompson) in there for that amortization? I had understood the answer is no. MS ELLIOTT: The corporate statement has the 9.1 million in it, which is then increased by 2.6 so that the utility statements have the 11.7 in it. MR. THOMPSON: All right. Well, now, I think I am getting more confused, talking about the corporate 2000 amounts. Is there something in there for amortization of the gas measurement normalization? MS ELLIOTT: In the corporate statements for 2000 that is the $4.5 million that is showing on line 6 of Exhibit G2.1, column D. MR. THOMPSON: So how does this all -- I guess what I'm really asking is does the amortization of gas measurement normalization that appears in Exhibit B, Tab 2, Appendix H, Schedule 1 have any impact on this additional gas cost item that you have now brought into account of the $8.2 million? MS ELLIOTT: No, it doesn't. The 9.1 million is the amortization of the account in 1999. The 8.2 deals with the costs expected to be incurred in the year 2000 for unaccounted for gas. Based on our proposal that we increase the rates to recover the increased cost of unaccounted for gas there would be a revenue component and a cost component which offsets the revenue. MR. THOMPSON: Let me ask it this way. Is there an amortization of gas measurement normalization Les Services StenoTran Services Inc. 613-521-0703 [ Page: 788] 788 ELLIOTT/BIRMINGHAM, cr-ex (Thompson) item in 2000 that would have an impact on the bringing forward into 2000 of this additional cost of $8.2 million? MS ELLIOTT: The gas measurement normalization amount in the year 2000 is the $4.5 million at Exhibit G2.1. That is the further amortization of the amounts on the balance sheet. That amount can be related to the proposed recovery of the accumulated historic variances. So these are further adjustments to income, to continue to write down that balance sheet account. That is really associated with the proposed recovery of the $4 million of historic variances. MR. THOMPSON: Well, now, I'm really getting confused. I thought the proposed recovery of historic variances was showing up in Exhibit G2.4 in column C, "Base Adjustments." You can reconcile that number to Exhibit F2.2, Section D. MS ELLIOTT: Yes, that's correct. In the proposal before the Board there is a revenue amount of $4 million to recover, a portion of what has been historically accumulating in the balance sheet for unaccounted for gas. That is the same account that for corporate financial statement purposes we write off over a period of time, so there is -- the $4.5 million of amortization is an offset to the proposed recovery of $4 million, but neither one have an impact on the costs that we are projecting for the year 2000. MR. THOMPSON: All right. In this Exhibit Les Services StenoTran Services Inc. 613-521-0703 [ Page: 789] 789 ELLIOTT/BIRMINGHAM, cr-ex (Thompson) G2.4 updated, the impact of ejecting -- of including -- this 8.2 million now as an item of cost at line 2, is leading to a reduction in the earnings applicable to common. That is the bottom line of all of this from an accounting perspective? MS ELLIOTT: Yes, that's correct. MR. THOMPSON: It is reducing the indicated return of your claim from 11.40 rate of return equity which we see in G2.4 at line 23 and 24 on page 1, down to 11.14 per cent. MS ELLIOTT: Yes, that's correct. MR. THOMPSON: But the reality is, as I understand it, you are still seeking to recover in rates the 35 million we discussed on the record on earlier days and the 7 million from the closing of deferral accounts. Is that right? MS ELLIOTT: That has not been changed in the corrected version of G2.4. The only change has been to increase the cost of gas to reflect costs that were not previously recorded to make sure that there was a match between the revenue and the costs. MR. THOMPSON: Well, if I could then just go on with respect to G2.1, G2.7 and G2.8? This is, as I understand it, a statement of December 31, 2000 for the utility. Does it assume changes to UFG or is it under the old methodology? --- Pause MS ELLIOTT: It does not include the 8.2 of Les Services StenoTran Services Inc. 613-521-0703 [ Page: 790] 790 ELLIOTT/BIRMINGHAM, cr-ex (Thompson) costs for UFG, nor does it include any recovery of those costs that is subject to this proceeding. MR. THOMPSON: Does it include the 4 million in catchup? MS ELLIOTT: No. There has been no -- the impact of the PBR proposal has been excluded from the statements. MR. THOMPSON: Could you then calculate for me the return on equity for the utility? I am sure I could do it myself from these numbers, but it would be best if you did it. MS ELLIOTT: The return that is generated -- MR. THOMPSON: For the utility. MS ELLIOTT: -- for the utility -- MR. THOMPSON: Based on the amounts that you provided in response to these undertaking responses. MS ELLIOTT: Certainly. MR. THOMPSON: G5.1. I have a couple of other questions. THE PRESIDING MEMBER: Mr. Thompson, are you still on these charts, 2.4, 2.1, 2.7 and 2.8? MR. THOMPSON: I'm sorry, sir? THE PRESIDING MEMBER: Are you still examining on these? Because there was a question I wanted to raise on them, just for clarification. I will flag it right now. On the corrected 2.4, line 2 is 8.2, but all of the numbers under the total line have been calculated Les Services StenoTran Services Inc. 613-521-0703 [ Page: 791] 791 ELLIOTT/BIRMINGHAM, cr-ex (Thompson) using 6.2, so I am not quite sure which is the right number. If you go to the bottom and add it across, 94.2 to 115.7 would make that 8.2 at the top 6.2. If you follow it across you will find that 6.2 is the number. So there is obviously an arithmetic thing in there that needs to be sorted out. MS ELLIOTT: Thank you. I will have to take a look at that. I suspect what has happened is the footnote indicated as a minus 2 has been included in the sale additions. THE PRESIDING MEMBER: I just wanted to make sure that we got the right numbers. MS ELLIOTT: Yes. THE PRESIDING MEMBER: I just wanted to make sure it was 8.2 and not 6.2. MS ELLIOTT: Yes. THE PRESIDING MEMBER: Thank you. I'm sorry, Mr. Thompson. MR. THOMPSON: Thank you, Mr. Chairman. If it is 6.2, what are the pieces in it? We have now rounded somewhere else. MS ELLIOTT: No, it is 8.2. MR. THOMPSON: It is 8.2. Okay. If you look at G3.7, this was a response to Dr. Jackson about the interest savings on refinancing of long-term debt. Looking at line 1, you tell us -- at Les Services StenoTran Services Inc. 613-521-0703 [ Page: 792] 792 ELLIOTT/BIRMINGHAM, cr-ex (Thompson) least I think this is what you are telling us -- that on the basis of the actual rate for the long-term debt issued by Union during 2000 your savings over the term of the PBR will be $11.201 million? MS ELLIOTT: Associated with the refinancing of this particular issue, yes. MR. THOMPSON: Yes. And that I take to be the difference between the current rate of 13.75 per cent and the forecasted rate of 7.20 per cent, which I make to be 6.45 per cent times the $36 million for 57 months. MS ELLIOTT: That's correct. MR. THOMPSON: Is that how that is derived? MS ELLIOTT: Yes. MR. THOMPSON: I make that 6.45 per cent times the $36 million to be about $2.3 million per annum. Would you take that, subject to check? MS ELLIOTT: Yes. MR. THOMPSON: Do I understand, then, that the return component in existing 499 rates, as of April 1, 2000, is over-recovering interest on account of this particular issue by about $2.3 million per annum? That is part of the head room in 499 rates. MS ELLIOTT: I wouldn't refer to it as head room. Certainly, all other things being equal, Union's interest expense has decreased as a result of the refinancing of this debt, but in fact we are carrying more inventory, we are financing current expansion and we have an increase in our short-term borrowing levels Les Services StenoTran Services Inc. 613-521-0703 [ Page: 793] 793 ELLIOTT/BIRMINGHAM, cr-ex (Thompson) and our short-term borrowing rate. So that the savings have been offset in increased costs during 2000 as a result of that. MR. THOMPSON: Does that savings show up in G2.4 at line 15, "Interest Expense"? MS ELLIOTT: The $173 million is our projected interest expense for the year. It will include the refinancing of that issue, yes. MR. THOMPSON: In both the original G2.4 and the update, the normalized budget for interest was $173 million, which increased to $175 million at the end of the first quarter. So, in spite of that savings of $2 million and some odd per annum, your interest expense is increasing? MS ELLIOTT: Yes. MR. THOMPSON: And that is because of all of the factors you just mentioned? MS ELLIOTT: It is largely due to warmer than normal weather, higher inventory costs and the higher interest expenses that we are incurring on our short-term borrowing levels. MR. THOMPSON: Okay. So this interest expense line in your corporate has a number of sub-components, one of which would be interest on long-term debt. Is that right? MS ELLIOTT: That's right. MR. THOMPSON: Is it fair to say that the interest on the long-term debt component is decreasing? Les Services StenoTran Services Inc. 613-521-0703 ###Next: 2 ###] ###Pages: 774-794 <<<>>> ###CaseId: RP-1999-0017 ###Title: OEB Transcript of RP-1999-0017; Vol. 05:01A ###Section: ###Author: Dominy, Jackson (OEB) ###PubDate: 06/17/00 ###LFileId: VOL0501A ###[ ###Prev: 2 [ Page: 794] 794 ELLIOTT/BIRMINGHAM, cr-ex (Thompson) MS ELLIOTT: You could actually see that by comparing the response at Exhibit G2.7, which is the utility rate of return calculation for 2000, and the same schedule at Exhibit B, tab 2, Appendix H of Schedule 7, which shows the required rate of return for 1999. The long-term debt portion has gone from $159 million in 1999 to $156 million in the year 2000. The total has been offset, however, by an increase in the short-term debt expense and the common equity component. MR. THOMPSON: What does the common equity component have to do with interest expense? MS ELLIOTT: We are managing a higher investment through 2000. MR. THOMPSON: I see. This is the interest component of the incremental investment that Mr. Birmingham was discussing the other day? MS ELLIOTT: Both the incremental investment, yes, and the existing investment. MR. THOMPSON: No, but in terms of its impact on interest expense, I think what you are telling me is that there is an interest expense associated with the debt component of incremental equity that is finding its way into the $175 million. But would that not be reflected in the -- MS ELLIOTT: The $175 million -- you are right, the equity component is excluded from the $175 million. MR. THOMPSON: All right. Thanks. So the Les Services StenoTran Services Inc. 613-521-0703 [ Page: 795] 795 ELLIOTT/BIRMINGHAM, cr-ex (Thompson) incremental equity has nothing to do with the $175 million. MS ELLIOTT: That's right. MR. THOMPSON: Lastly, with respect to G3.3, at page 2 of this document we have, as I understand it, in column A, the 1999 -- is that the Board approved budget? MS ELLIOTT: Yes. This is the 1999 budget, but you will see that it totals to the 1999 approved O&M level. This is after recognizing the impact of the ADR reductions, the separation and the affiliate revenue transactions. MR. THOMPSON: Just out of curiosity, how did you assign that to these various items of expense? Did you allocate it over all of them? MS ELLIOTT: After the 499 hearing was complete and our O&M was set at $258 million, all of the administrators -- MR. PENNY: Mr. Chairman, I thought that we were not going to have any questions on this exhibit today. Mr. Thompson, in fact, represented to you that he had no questions on this document. MR. THOMPSON: No, no. Excuse me. I said I had a few on this document and that I was allowed to -- THE PRESIDING MEMBER: I think perhaps the solution here is to let Mr. Thompson ask his questions and this area of the transcript is identified on the hotline so that parties are aware of the questions he Les Services StenoTran Services Inc. 613-521-0703 [ Page: 796] 796 ELLIOTT/BIRMINGHAM, cr-ex (Thompson) has asked so they will not repeat the same questions that have been asked. That may be the best way to deal with it. Dr. Wightman, will you make sure that this is highlighted? MR. WIGHTMAN: Yes, I will. MR. THOMPSON: Yes. Okay, Ms Elliott, you were telling us how you allocated the Board's -- the ADR settlement agreement amount to the 1999 budget. MS ELLIOTT: It wasn't actually allocated. It was each administrators' efforts to manage their costs and identify amounts that could be reduced to achieve that target, and that's what you see in column "A" is really the point at which we started our 1999 year after the Board's decision or after the ADR agreement. MR. THOMPSON: Just in passing, on the pension amount, what was that amount? There is a lot of debate about how you treated actuals as budget, but -- MS ELLIOTT: You can actually compare this to the schedule at Exhibit B, Tab 2, Appendix "H", Schedule 4. The Board-approved column on that schedule is really the submission by administrator with a number of lines at the bottom of the schedule to get to the Board-approved number. What you will see on this schedule is the elimination of those adjustment lines, and each administrator had identified where they could reduce costs. You will see the impact of the pensions. If Les Services StenoTran Services Inc. 613-521-0703 [ Page: 797] 797 ELLIOTT/BIRMINGHAM, cr-ex (Thompson) you compare line 16 on Appendix "H", Schedule 4, the human resources submission for 1999 was $47.8 million. Line 16, at Exhibit G3.3, page 2, the human resources budget for 1999 was $42.3 million. MR. THOMPSON: All right. Thank you. You have displayed the 1999 budget in the subsequent columns on page 2 of 2 here to remap it to your new organization, and we see the remapped amounts for each of the components of the new organization at lines 26 and 29. Is that right? MS ELLIOTT: Yes, that's correct. MR. THOMPSON: Okay. If we move that forward to the first page, what we have in the first column, as I understand it, are the amounts that appear at line 26. Have I got this right? MS ELLIOTT: That's right. Then that takes us -- if we look at line 44 we see the gross amount there, 305,982, and that is the same number that appears at line 26 in the total column on the second page. MS ELLIOTT: Yes. MR. THOMPSON: Then you deduct the items that appear in the total column at 27 and 28 to get the -- and we find those at lines 45 and 47, I think, of your page 1. MS ELLIOTT: Yes, that's correct. MR. THOMPSON: Then you have added in there, at line 46, the Y2K amortization which was a separate line item, as I recall it, in the Board-approved budget. Les Services StenoTran Services Inc. 613-521-0703 [ Page: 798] 798 ELLIOTT/BIRMINGHAM, cr-ex (Thompson) Is that right? MS ELLIOTT: Yes, that's correct. MR. THOMPSON: Okay. MS ELLIOTT: So this is telling us that your 2000 forecast O&M, taking into account Y2K of $7.6 million, is about $4.4 million above Board approved. Is that right? MS ELLIOTT: Yes, that's right. MR. THOMPSON: In that 269,569 at line 48, which was, when the year started, $274 million. MS ELLIOTT: Yes, that's correct. MR. THOMPSON: And the $274 million for your 2000 normalized budget which you dropped down to $269 million in the 2000 forecast, was that primarily as a result of not filling vacant positions? MS ELLIOTT: That's certainly a component of it after the first quarter results were in and again our revenues were lower than expected due to the warmer than normal weather. Management undertakes efforts to look at the O&M expenses, and certainly in the first quarter we had not filled all the vacancies that we had following the restructuring, those savings will be reflected in that number. And some forecast of what other costs will be managed for the balance of the year is included in the $269 million. MR. THOMPSON: All right. As of the first quarter, a decision was made not to fill some vacancies and the other items making up this $5 million were what? Les Services StenoTran Services Inc. 613-521-0703 [ Page: 799] 799 ELLIOTT/BIRMINGHAM, cr-ex (Thompson) MS ELLIOTT: The other items that are typically managed when the weather gets warm would be employee expenses, consulting dollars and other general expenses. MR. THOMPSON: So a decision was made not to fill vacancies in 2000, as I understand it, and these other employee expenses and consulting fees produced $5 million of reductions in your total O&M budget forecast as of the end of March 2000? MS ELLIOTT: That's correct. MR. THOMPSON: Okay. I think you indicated to us at the opening today, you gave me this information at the break, that there were 132 vacancies unfilled as of June 2000. MS ELLIOTT: That's correct. MR. THOMPSON: And we started out, as I recall it, at year end with 2010 vacancies. MS ELLIOTT: Yes. MR. THOMPSON: And 177 eliminated positions. MS ELLIOTT: Yes. MR. THOMPSON: The decision that was made not to fill vacancies in 2000 as of the end of the first quarter took how many of those outstanding vacancies off the table? MS ELLIOTT: I can't specifically tell you which or what level of vacancies aren't going to be filled this year. We have a commitment from our management to work at reducing costs by a further Les Services StenoTran Services Inc. 613-521-0703 [ Page: 800] 800 ELLIOTT/BIRMINGHAM, cr-ex (Thompson) $5 million in response to the warmer than normal weather. One of the ways they will do that is to delay when vacancies are filled, each in their own respective areas. I know we are actively looking to fill those vacancies. The fact of the matter is that they will all not be filled immediately so that there will be opportunities to reduce costs during 2000 as a result of the timing of filling those vacancies? MR. THOMPSON: Did I understand you to say you have committed to reduce costs by a further $5 million? MS ELLIOTT: The difference between the $274 million in the budget and the $269 million in the forecast is $5 million. Some of that will be the actual reductions in the first quarter as a result of the vacancies and some will be further commitments to manage costs for the balance of the year, in response to the fact that our revenues are below forecast. MR. THOMPSON: In terms of, I guess, additional -- This kind of activity you describe as managing earnings, I believe, in your interrogatory responses and elsewhere. Is that what we are talking about here? MS ELLIOTT: Yes. To the extent that the revenues aren't coming as planned, we look to manage our costs in response to that. MR. THOMPSON: And of the 132 vacancies, I think you indicated to me at the break that 57 are Les Services StenoTran Services Inc. 613-521-0703 [ Page: 801] 801 ELLIOTT/BIRMINGHAM, cr-ex (Thompson) budgeted to be filled currently. Is that the way to phrase that? MS ELLIOTT: That's correct, yes. They would be budgeted to be filled. I don't know how many of them contribute to the $5 million that is being forecast to manage earnings. MR. THOMPSON: I'm sorry. Well, if they are not filled, that would be -- I had understood you to say a $2.5 million -- a further $2.5 million avoidance of costs, if I could put it that way. Do I misunderstand that? MS ELLIOTT: It would be $2.5 million off the $274 million in the budget, and that would only arise if the vacancies were unfilled for the entire year. MR. THOMPSON: But I'm trying to drive off the $269 million now and the vacancy issue. What additional amount can be avoided if vacancies are not filled throughout 2000? --- Pause MS ELLIOTT: If $2.5 million is the annual impact of those vacancies, my calculations would suggest that $600,000 of those savings have been realized in the first quarter. That would put $1.9 million into the last three quarters of the year, if the positions remained vacant for the balance of the year. MR. THOMPSON: All right. Thank you very much. Thank you, Mr. Chairman. Les Services StenoTran Services Inc. 613-521-0703 [ Page: 802] 802 ELLIOTT/BIRMINGHAM, cr-ex (Thompson) THE PRESIDING MEMBER: Thank you, Mr. Thompson. We will record the questions you have asked into the hotline so that people will at least know that they have been asked and so that people know that this ground has been covered and they can take that into consideration when they ask their own questions. Mr. Penny, do you want some re-direct? MR. PENNY: Yes. Thank you, Mr. Chairman. THE PRESIDING MEMBER: Could I ask a question before we go on? MR. PENNY: That was a long 10 minutes. Do you have any re-direct or even any further re-direct or just leave that until -- MR. PENNY: I have about five or 10 minutes of re-examination on the issue that we have just covered. I was not proposing to lead any further evidence on the next issue. THE PRESIDING MEMBER: But you will do that after the other people have asked their questions. MR. PENNY: No. THE PRESIDING MEMBER: On this panel, okay. MR. PENNY: The subject that we have just finished, which is the second bundle of issues. THE PRESIDING MEMBER: I'm sorry. I'm getting confused here. MR. PENNY: I have re-examination on -- THE PRESIDING MEMBER: Please go ahead, then. Les Services StenoTran Services Inc. 613-521-0703 [ELLIOTT/BIRMINGHAM Page: 803] 803 ELLIOTT/BIRMINGHAM MR. PENNY: -- that bundle of issues. In fact, Mr. Chairman, on reading the transcript I had one very brief issue arising out of the first bundle, so with your indulgence I will just ask that. RE-EXAMINATION MR. PENNY: Dealing with the first group of issues, Ms Elliott, which included the adjustments to 1999 rates, there was a good deal of examination from a number of parties on the cost -- on the restructuring in 1999 and the cost of restructuring. The cost of the 1999 restructuring was what? MS ELLIOTT: The restructuring costs are in evidence at Exhibit B, Tab 2, Appendix H, Schedule 1. In Note 4, $15.8 million is the cost of restructuring that was incurred in 1999. MR. PENNY: And is that cost included in the 1999 actual information showing a sufficiency? MS ELLIOTT: No, that cost has been removed from the corporate statements and is not included in the utility costs, and it is the utility costs that go to calculate the sufficiency of $8.2 million. MR. PENNY: And if 1999 actuals were to be used for any purpose in making adjustments, what should happen to the $15 million in cost? MS ELLIOTT: To the extent that it's determined that the benefits of restructuring should go to the account of the ratepayer, there should be an Les Services StenoTran Services Inc. 613-521-0703 [ Page: 804] 804 ELLIOTT/BIRMINGHAM, re-ex (Penny) examination and review of the costs of restructuring and a recognition that we did incur $15.8 million worth of costs to generate the savings. MR. PENNY: Thank you. Now, coming to the next group of issues, dealing first with the storage and transportation and revenues in long-term premium, you received a number of questions from Mr. Thompson, among others, about the effect of the S&T revenues on the price cap proposal and you were asked about the fact that the proposal does not cover the contingency of the Board denying your request for the elimination of the S&T and long-term storage deferral accounts. Does your proposal deal with every combination and permutation of the Board rejecting or accepting various portions of your proposal? MS ELLIOTT: No, in fact, we put a proposal together that is a combination of the price cap parameters and the elimination of the deferral accounts which will balance the risks, and we identified those risks at Appendix G we were looking at earlier. We did not attempt to present all of the combinations that could result with respect to two price cap parameters and the deferral account elimination. MR. PENNY: If storage and transportation or long-term storage revenues were not available to Union to manage the business within the price cap during the term of the PBR, what would have done differently in the Les Services StenoTran Services Inc. 613-521-0703 [ Page: 805] 805 ELLIOTT/BIRMINGHAM, re-ex (Penny) proposal? MS ELLIOTT: In looking at the risks that we were managing under the proposal, we would have been looking at introducing a premium within the context of the price cap parameters, probably in order to manage the system growth. The storage and transportation revenues are available to manage the impact of our unbundling proposal. The fact that we are committing to provide infranchise customer storage at posted prices into the future, in absence of the S&T revenue, we would be looking most likely for a growth factor within the formula to be able to offset that revenue loss. MR. PENNY: Thank you. Now, you were asked some questions by a number of parties about -- which suggested that your 1.9 per cent price cap index should not apply to passthrough items or costs arising from non-routine adjustments. And your response, I think, was to the effect that the price cap applies to prices, not to costs. If the price cap were only to apply to that portion of the 1999 revenue requirement which is not subject to passthroughs or costs arising from non-routine adjustments, would the price cap be 1.9 per cent? MS ELLIOTT: No. Again, in order to manage the risks under the term of the plan we would have, in that case, had to come up with a price cap which applied Les Services StenoTran Services Inc. 613-521-0703 [ Page: 806] 806 ELLIOTT/BIRMINGHAM, re-ex (Penny) to a much smaller base. So the cap would have been higher than the 1.9 per cent that we have proposed in order to generate sufficient revenues to offset the risks. MR. PENNY: A number of parties as well have examined with respect to your total factor productivity and you have answered a number of questions about declining use per customer. Specifically, Ms Symes asked you a series of questions that related to the impact of DSM on declining use per customer. Is DSM the principal contributor to -- Let me put it this way: Are Union's DSM initiatives the principal contributor to the declining use per customer? MS ELLIOTT: Well, DSM initiatives do contribute to the declining use. We are seeing much more of a decline than the DSM programs have identified, simply due to the fact that appliances are becoming more efficient, housing stock is more efficient, smaller, more energy-efficient houses use less gas and more efficient appliances use less gas as we move forward. That is being reflected in our declining use. MR. PENNY: Now, you were asked some questions and gave some evidence about the fact that during the course of the 10 years that were the subject of the total factor productivity study, the average decline in use per customer was in the order of 1 per cent. Les Services StenoTran Services Inc. 613-521-0703 [ Page: 807] 807 ELLIOTT/BIRMINGHAM, re-ex (Penny) What is the margin impact of that level of decline in use? MS ELLIOTT: We estimate the margin for a 1 per cent decline in use to be about $5 million a year. And there is an accumulated impact of that, so it would be $5 million that would accumulate over the term of the agreement. MR. PENNY: And what would the impact be on margin of your most recent decline in use per customer experience? MS ELLIOTT: We actually, in the 1999 year, saw an estimated $10 million to $13 million reduction in use per customers. MR. PENNY: Thank you. Finally, Mr. Birmingham, I think in answer to some questions from Mr. Vegh about the proposal for market-based pricing for storage, I think we clarified that Union is not seeking the exercise of the Board's forbearance power in respect to this proposal. But can you please outline what is the process by which Union would seek approval of storage renewal contracts with exfranchise customers? MR. BIRMINGHAM: At Exhibit A, Tab 2, Union's application to the Board is filed and that is only pursuant to section 36 of the Act. With respect to our current market price contracts, what Union does is, it seeks the Board's approval with respect to the pricing and also seeks the Les Services StenoTran Services Inc. 613-521-0703 [ Page: 808] 808 ELLIOTT/BIRMINGHAM, re-ex (Penny) approval of the contracts as they relate to parties' term and space. That's our intention going forward as well, that is, we will continue to use the existing process where we are asking the Board to approve market prices for that storage and, as well, to approve the contracts as they relate to parties' term and space. That is described as Exhibit C5.17. MR. PENNY: Thank you, Mr. Birmingham, and thank you, Mr. Chairman. Those are all the questions I have in re-examination. THE PRESIDING MEMBER: Thank you, Mr. Penny. It's 10 to 1:00. What do you suggest we do? MR. PENNY: Well, we were going to break at 1:00. THE PRESIDING MEMBER: Is there any direct -- MR. PENNY: It seems, for the sake of 10 minutes, hardly worth -- unless Mr. Warren can blast through his cross-examination on this bundle of issues. MR. WARREN: I might want to blast Mr. Thompson's time estimates, but I don't think it is really worth starting. I have substantially more than 10 minutes, Mr. Chairman. Just if we are not going to start now, I guess the estimated start time for my cross-examination is now Thursday afternoon? MR. PENNY: That would be dependent on how much cross-examination there is for the witnesses from Les Services StenoTran Services Inc. 613-521-0703 [ Page: 809] 809 ELLIOTT/BIRMINGHAM, re-ex (Penny) Christensen and Associates. MR. WARREN: That answers my question. So if Christensen is finished early, we will resume this panel. MR. PENNY: I think we are back to the uncertainty arising here out of the ADR Agreement. The proposal would be, if we know where we are going on that front, to start the unbundling panel after the Christensen witnesses. If we don't know about that, then in all likelihood we would be resuming with the DSM panel. THE PRESIDING MEMBER: Mr. Penny -- MR. PENNY: Yes, sir. THE PRESIDING MEMBER: -- I know this question that depends on lawyers, but we may want to consider as to when G3.3, if there is any cross-examination, should be handled. You may want to talk with Mr. Warren about the scheduling of that. MR. PENNY: Yes. We could certainly do that. Although my suspicion is, given Mr. Thompson's 10 minutes, that there won't likely be that much left to be dealt with. THE PRESIDING MEMBER: I understand also that Mr. Birmingham and Ms Elliott are not available on Friday. MR. PENNY: That's a fact. So it's either going to be unbundling or DSM on Friday. THE PRESIDING MEMBER: Mr. Warren, I'm afraid Les Services StenoTran Services Inc. 613-521-0703 [ Page: 810] 810 ELLIOTT/BIRMINGHAM, re-ex (Penny) I can't go much clearer than that in terms of your understanding of what is happening is probably as much as mine in terms of the timing of these things, so I think we have to leave it at that. --- Pause THE PRESIDING MEMBER: My understanding is that unbundling would only start on Friday -- is that correct -- or did it start immediately after Christensen, if we go that route? MR. PENNY: I perhaps should clarify. I believe it was our hope that the unbundling panel would be the next panel following Christensen. So if we were finished Christensen before the full time allotted for Thursday, which is, as I recall, a half day, that we would have the unbundling panel available to start on Thursday afternoon. --- Pause THE PRESIDING MEMBER: Dr. Wightman and Mr. Penny and Mr. Warren, and others, if you can sort of finalize what the -- I understand there is an uncertainty with regards to the unbundling agreement, but if you can finalize the schedule so that Mr. Warren has some indication of when he is likely to come up. Because I don't want to force Mr. Warren to be in attendance if he is not going to get an opportunity to cross-examine. MR. PENNY: Yes, certainly. We will regroup on the scheduling issue off the record and we see if can Les Services StenoTran Services Inc. 613-521-0703 [ Page: 811] 811 ELLIOTT/BIRMINGHAM, re-ex (Penny) sort it out. THE PRESIDING MEMBER: Thank you. And also, the other thing is, I know that it is very difficult, but I did ask on Friday if anyone could give me an estimate of when they think the hearing -- the evidentiary portion of this hearing might conclude. I'm not writing a book, but some indication of what the expectation would be might be helpful to planning. Thank you. We will resume at two o'clock. Is that correct? MR. PENNY: If that's acceptable to the Board, yes. And Mr. Baker and Mr. Birmingham will be available to answer the Board's questions. THE PRESIDING MEMBER: Thank you. --- Whereupon the hearing adjourned at 1250, to resume on Wednesday, June 21, 2000 at 0900 Les Services StenoTran Services Inc. 613-521-0703 [ Page: 812] 812 INDEX OF PROCEEDING PAGE Upon resuming at 0902 704 Preliminary Matters 704 PREVIOUSLY SWORN: RICK BIRMINGHAM 704 PREVIOUSLY SWORN: PAT ELLIOTT 704 Cross-Examination by Mr. Vegh 708 Cross-Examination by Mr. Mattson 760 Upon recessing at 1111 774 Upon resuming at 1140 774 Cross-Examination by Mr. Thompson 777 Re-Examination by Mr. Penny 803 Upon adjourning at 1250 811 Les Services StenoTran Services Inc. 613-521-0703 ###] ###Pages: 794-812