1621 1 RP-1999-0017 2 THE ONTARIO ENERGY BOARD 3 4 IN THE MATTER OF the Ontario Energy Board Act, 1998, 5 S.O. 1998, c. 15 (Sched. B); 6 AND IN THE MATTER OF an Application by Union Gas Limited 7 for an order or orders approving or fixing just and 8 reasonable rates and other charges for the sale, 9 distribution, transmission and storage of gas in 10 accordance with a performance based rate mechanism 11 commencing January 1, 2000; 12 13 AND IN THE MATTER OF an Application by Union Gas Limited 14 for an order approving the unbundling of certain rates 15 charged for the sale, distribution, transmission and 16 storage of gas. 17 18 B E F O R E : 19 G.A. DOMINY Vice-Chair and Presiding Member 20 M. JACKSON Member 21 22 Hearing held at: 23 2300 Yonge Street, 25th Floor, Hearing Room No. 1 24 Toronto, Ontario on Tuesday, June 27, 2000, 25 commencing at 0903 26 27 HEARING 28 VOLUME 10 Les Services StenoTran Services Inc. 613-521-0703 1622 1 APPEARANCES 2 JENNIFER LEA/ Board Staff 3 MICHAEL LYLE/ 4 JAMES WIGHTMAN/ 5 STEPHEN MOTLUK 6 7 MICHAEL PENNY/ Union Gas Limited 8 MARCEL REGHELINI 9 10 ROBERT B. WARREN Consumers Association of Canada 11 (CAC) 12 13 THOMAS BRETT Ontario Association of School 14 Business Officials 15 16 PETER THOMPSON Industrial Gas Users' 17 Association (IGUA) 18 19 MICHAEL JANIGAN Vulnerable Energy Consumers 20 Coalition (VECC) 21 22 MURRAY KLIPPENSTEIN Pollution Probe 23 24 IAN MONDROW Heating, Ventilation and 25 Air Conditioning Contractors 26 Coalition Inc. 27 28 Les Services StenoTran Services Inc. 613-521-0703 1623 1 APPEARANCES (Cont'd) 2 BETH SYMES/ Alliance of Manufacturers 3 CAROL STREET and Exporters Canada 4 5 MARK MATTSON/ Energy Probe 6 THOMAS ADAMS 7 8 GEORGE VEGH Duke Energy, Coalition for 9 Efficient Energy Distribution 10 (CEED), TransCanada Gas 11 Services, PanCanadian 12 Petroleum, Dynegy Canada, 13 Suncor/Sunoco, CanEnerco 14 Limited 15 16 ZIYAAD E. MIA Coalition for Efficient Energy 17 Distribution (CEED), 18 TransCanada Gas Services, 19 PanCanadian Petroleum, Dynegy 20 Canada, Suncor/Sunoco, 21 CanEnerco Limited 22 23 DAVID WAQU COMSATEC INC. 24 25 STANLEY RUTWIND TransCanada PipeLines Limited 26 27 28 Les Services StenoTran Services Inc. 613-521-0703 1624 1 APPEARANCES (Cont'd) 2 RICHARD KING/ The Wholesale Group and the 3 CHARLES KEIZER/ Major Energy Consumers And 4 PETER BUDD Producers (MECAP) 5 6 PETER SCULLY Association of Municipalities 7 of Ontario 8 9 TANYA PERSAD Enbridge Consumers Gas 10 11 ANDREW DIAMOND/ Enron Capital Corp. 12 JOHN ROOK 13 14 DWAYNE QUINN/ City of Kitchener Utilities 15 ALICK RYDER 16 17 DAVID POCH Green Energy Coalition (GEC) 18 19 MICHAEL M. PETERSON Nova Chemicals 20 21 RANDY AIKEN London Property Management 22 Association 23 24 VALERIE YOUNG Ontario Association of Physical 25 Plant Administrators 26 27 MARY ANNE ALDRED HYDRO ONE NETWORKS 28 Les Services StenoTran Services Inc. 613-521-0703 1625 1 Toronto, Ontario 2 --- Upon resuming on Tuesday, June 27, 2000 3 at 0930 4 THE PRESIDING MEMBER: Good morning. Please 5 be seated. 6 Anything before we start? 7 MR. PENNY: I have no preliminary matters, 8 Mr. Chairman. 9 THE PRESIDING MEMBER: Ms Lea, anything? 10 PRELIMINARY MATTERS 11 MS LEA: Good morning. 12 The only matter I have has to do with 13 scheduling for next week. There are some fixed panels, 14 I now understand. 15 At present, for July 4 we have the Energy 16 Probe panel at 9:00 a.m., the TCPL panel at 2:00 p.m. 17 On Wednesday, July 5, we have the CEED panel 18 at 9:00 a.m., and at 1:00 p.m. -- 19 --- Off record discussion 20 MS LEA: I guess then in the afternoon we 21 would be having the panel from the GEC. 22 Thursday, July 6, as we know, is Dr. Bauer 23 starting at 9:00 a.m. 24 On Friday, July 7, Dr. Norsworthy is coming 25 and also, if necessary, the COMSATEC panel. I 26 understand that there is a panel from COMSATEC. We are 27 not yet sure if there are cross-examination questions 28 for them. Les Services StenoTran Services Inc. 613-521-0703 1626 Preliminary Matters 1 As I understand it, there is only the one 2 panel outstanding, which is the IGUA panel and 3 Mr. Thompson is going to let us know when he hears from 4 them. 5 MR. PENNY: Mr. Chairman, with respect to that 6 schedule, my only concern about that is the scheduling 7 for the 9:00 and 2:00 time slots. I don't see the 8 necessity for that. If we have panels available on 9 days, in my submission they should be available and 10 ready to go so if we finish the first panel that starts 11 at 9:00 and we finish them at 10:00 or 11:00, then the 12 next panel should be there and ready to go so that we 13 don't need to have several hours of down time before we 14 then have to come back and do the other panel. 15 That is how the Company operates its case and, 16 in my submission, the intervenors have known about this, 17 have known roughly the time frames that they would be 18 required to testify for some time and they ought to just 19 be ready to go. 20 Unless there is some compelling reason why 21 they can't do that, my submission would be that they 22 should be available and ready to go on the days 23 assigned. We are giving them a great benefit by telling 24 them specifically the day that they are going to have to 25 be here and, in my submission, it is overly generous to 26 say that -- and will result in a considerable waste of 27 time if we end up losing time waiting for the afternoon. 28 MS LEA: Thank you, Mr. Penny. Les Services StenoTran Services Inc. 613-521-0703 1627 Preliminary Matters 1 With respect to the GEC panel, I'm sure they 2 can accommodate us and be ready to go. I haven't 3 actually spoken to them, but I would assume that they 4 would be here during the day. 5 The reason for the 2:00 p.m. start for the 6 TCPL panel is, I think, fairly obvious. They are coming 7 in from out west and we had thought that we would start 8 Tuesday, July 4 at 2:00 p.m., partly to accommodate 9 those who are coming in from out of town, both counsel 10 and witnesses alike. 11 The Energy Probe panel has indicated that 12 Mr. Adams is available whenever he is needed, so that we 13 slotted him in there to use the morning so as not to 14 waste it. 15 So I don't think we can move the TCPL panel, 16 but we will certainly speak to the GEC and let them know 17 that they should be ready to go when the CEED panel is 18 completed. 19 MR. PENNY: Thank you, Mr. Chairman. 20 THE PRESIDING MEMBER: Thank you, Mr. Penny. 21 I am sympathetic with the need to move as 22 quickly as we can, and one of the comments I was going 23 to make that I think sends a fairly strong signal to 24 parties that we are trying to get the Union panel done 25 this week, if that is any indication. 26 MR. PENNY: Yes, thank you. 27 THE PRESIDING MEMBER: But that shouldn't 28 prevent people from asking the questions they need to Les Services StenoTran Services Inc. 613-521-0703 1628 Preliminary Matters 1 ask. Thank you. 2 Mr. Klippenstein. 3 MR. KLIPPENSTEIN: Thank you, Mr. Chairman. 4 PREVIOUSLY SWORN: RICK BIRMINGHAM 5 CONTINUED CROSS-EXAMINATION 6 MR. KLIPPENSTEIN: Mr. Birmingham, I finished 7 yesterday asking questions about the profitability index 8 in general and I would like to start this morning by 9 asking a few questions about the profitability index and 10 contributions in aid of construction. 11 I take it that Union sometimes uses 12 contributions in aid of construction to raise the PI of 13 particular system expansion projects. Correct? 14 MR. BIRMINGHAM: That's right. 15 MR. KLIPPENSTEIN: This could be in the case 16 of a residential subdivision or a large industrial plant 17 or other types of expansion projects. Is that right? 18 MR. BIRMINGHAM: That's right. Generally 19 before new subdivisions or some other discrete project 20 we would be looking to apply a market contribution to 21 get the project to at least meet a profitability index 22 of 0.8. 23 For individual industrial projects in 24 particular where there are single lines going to that 25 plant, we typically use a contribution in aid of 26 construction to bring the profitability index to 1.0. 27 MR. KLIPPENSTEIN: Now, in theory a 28 contribution in aid of construction could be used to Les Services StenoTran Services Inc. 613-521-0703 1629 BIRMINGHAM, cr-ex (Klippenstein) 1 raise the profitability index of a project above 1.0 as 2 well. Is that correct? 3 MR. BIRMINGHAM: In theory that's right, but 4 Union has made the commitment that we won't do that. To 5 the extent that it meets the profitability index 6 threshold we will not charge a market contribution or a 7 contribution in aid of construction. 8 MR. KLIPPENSTEIN: Union, you tell me, has 9 made that commitment. I wonder if Union would object to 10 the Board making that a term of an order specifically 11 that Union would not use a contribution in aid of 12 construction to raise the PI of a system expansion 13 project above 1.0? 14 MR. BIRMINGHAM: No, that would be fine. 15 MR. KLIPPENSTEIN: Thank you. 16 THE PRESIDING MEMBER: Mr. Klippenstein, can I 17 just ask a question of Mr. Birmingham. 18 Mr. Birmingham, as I understand it, on EBO 188 19 there was a sort of request that the companies, Union 20 and Consumers, file a contribution in aid policy. Do 21 you know if that has ever been done? 22 --- Pause 23 MR. BIRMINGHAM: I don't know that, 24 Mr. Chairman. 25 THE PRESIDING MEMBER: Perhaps you could 26 check? 27 Could you give an undertaking to that? 28 DR. WIGHTMAN: G10.1. Les Services StenoTran Services Inc. 613-521-0703 1630 BIRMINGHAM, cr-ex (Klippenstein) 1 UNDERTAKING NO. G10.1: Mr. Birmingham 2 undertakes to find out if the companies 3 Union and Consumers filed a contribution 4 in aid policy 5 THE PRESIDING MEMBER: Thank you. 6 I'm sorry, Mr. Klippenstein. 7 MR. KLIPPENSTEIN: Thank you, Mr. Chairman. 8 I would then like to ask a number of questions 9 about the profitability index and the inputs and the 10 parameters with respect to that calculation. 11 MR. KLIPPENSTEIN: As I understand it, for 12 residential system expansion projects PIs are calculated 13 by estimating Union's incremental revenues and costs 14 over -- it's a 40-year time horizon that is used. Is 15 that right? 16 MR. BIRMINGHAM: That's right. 17 MR. KLIPPENSTEIN: Now, as I understand just 18 the simple mathematics of it, that assuming for the 19 moment Union's policy or Board requirement that 20 contributions in aid of construction could not be used 21 to increase PI for a project above 1.0, it nevertheless 22 would be true, would it not, that Union could increase 23 the absolute dollar value of its contributions in aid of 24 construction by shortening its time horizons used in the 25 calculations from 40 years to 20 years or to 10 years? 26 In other words by shortening the time frame 27 used you increase the absolute dollar values, is that 28 fair? Les Services StenoTran Services Inc. 613-521-0703 1631 1 MR. BIRMINGHAM: Shortening the time frame 2 over which a project is evaluated would typically worsen 3 the profitability index or reduce the net present value 4 because your revenue stream is less. But the capital 5 that is needed to be invested in the project would still 6 be needed up front in the project. So typically that 7 would reduce the economics of the project, yes. 8 MR. KLIPPENSTEIN: So if you reduce the time 9 horizons then you worsen the PI. Is that the way it 10 works? 11 MR. BIRMINGHAM: That would typically be the 12 effect, yes. 13 MR. KLIPPENSTEIN: And conversely if you 14 lengthen the time horizons then you increase the PI? 15 MR. BIRMINGHAM: That's generally the case, 16 yes. 17 MR. KLIPPENSTEIN: So if you shorten the time 18 horizons that would worsen the PI and therefore the 19 contribution in aid of construction that would be 20 required to bridge the gap would be larger, right? 21 MR. BIRMINGHAM: To the extent that the 22 economics were reduced, and that individual project then 23 fell below a profitability index of 0.8, then the market 24 contribution would be required, or to the extent that it 25 was already required would increase. That's right. 26 MR. KLIPPENSTEIN: And whether it's is 0.8 or 27 1.0 the principle or direction would be the same. If 28 you shorten the time horizon then you need a larger Les Services StenoTran Services Inc. 613-521-0703 1632 1 contribution in aid to bring it up to the designated PI. 2 Correct? 3 MR. BIRMINGHAM: That is generally right, yes. 4 MR. KLIPPENSTEIN: And similarly if you 5 increase the O&M costs in the calculation or the 6 discount rate that is used in the calculation, that 7 would worsen the PI number and therefore would require a 8 larger contribution in aid of construction to bring the 9 PI up to say 1.0. Is that right? 10 MR. BIRMINGHAM: Well, generally if you change 11 the parameters that are included in the evaluation of 12 the project it will have the effect of increasing or 13 decreasing the profitability index and therefore would 14 have a corresponding impact on the market contribution 15 or a contribution in aid one way or the other. 16 MR. KLIPPENSTEIN: If the OEB were to require 17 that Union's contributions in aid of construction for a 18 project can't raise the project's PI above 1.0, would 19 Union object to a provision from the Board or a ruling 20 from the Board that Union cannot change the input and 21 parameter values of its system expansion test for a 22 project without first getting Board approval? 23 MR. BIRMINGHAM: Union would object to that, 24 Mr. Klippenstein. We currently have the flexibility to 25 use the parameters that are best associated with the 26 project. Those parameters change on a year-to-year 27 basis, on a project-to-project basis, and in our view 28 there is no reason why we shouldn't be able to continue Les Services StenoTran Services Inc. 613-521-0703 1633 1 that practice. 2 The only parameter that I would see as 3 possibly being fixed is the horizon over which a 4 distribution project might be evaluated that is 5 currently 40 years, and it is our plan to continue to 6 use a 40-year horizon for those investments. But beyond 7 that, we still need the flexibility to be able to apply 8 the costs and the revenue streams to the individual 9 project that best fit that project. 10 MR. KLIPPENSTEIN: Focusing on that time 11 horizon then, I understand you to be saying you wouldn't 12 mind if the Board fixed that at 40 years just so that 13 was stable in the calculation subject to change if Union 14 obtained Board approval for a project. 15 MR. BIRMINGHAM: That is the only parameter in 16 evaluating our distribution expansion projects that 17 doesn't change on a project to project or year to year 18 basis. That's right. 19 MR. KLIPPENSTEIN: One of the other inputs or 20 parameters is the discount rates and that's part of the 21 calculation of the PI of a project. Correct? 22 MR. BIRMINGHAM: That's right. 23 MR. KLIPPENSTEIN: And why does that change 24 from project to project? And why couldn't that be fixed 25 by the Board to insure that the calculation method is 26 understandable and transparent? What is wrong with 27 having the same discount rate for all projects subject 28 to getting Board approval for changes? Les Services StenoTran Services Inc. 613-521-0703 1634 1 MR. BIRMINGHAM: Well the discount rate 2 changes for a couple of reasons. One of the main 3 reasons is because the Board approved return on equity 4 percentage will change by virtue of the application of 5 the Board-approved formula. So that would be 6 incorporated in the economics when those projects are 7 brought forward and the return on equity is changed. 8 Beyond that there are changes in our debt 9 costs either with respect to new long-term debt issues 10 or refinanced issues, and then there are changes in the 11 short-term debt rate as those rates fluctuate. 12 So to the extent that those things change we 13 want to be able to incorporate those into the economics. 14 Otherwise I think you will get a false reading on what 15 the economics of those projects really are. 16 MR. KLIPPENSTEIN: Those are changes which are 17 identifiable and would be relatively easy to put before 18 the Board to justify a change in the discount rate for a 19 particular project I would suggest. In other words, if 20 those are the only reasons the discount rate changes, 21 those are easily explained and could be easily put 22 before the Board. 23 In other words, if those are the only reasons, 24 is there any reason beyond those why Union would object 25 to having a discount rate fixed provided the factors you 26 mention could be taken into account? 27 MR. BIRMINGHAM: The only other one with 28 respect to the return calculation, Mr. Klippenstein, is Les Services StenoTran Services Inc. 613-521-0703 1635 1 there are exceptional projects which because of the risk 2 that's associated with them, may be risk adjusted when 3 it comes to adjusting the discount rate for those 4 projects. 5 So an example of that might be where there 6 would be a small subdivision that runs down a road to a 7 dead end. There is only a certain number of homes that 8 are going to be piped there and we would want to adjust 9 the discount rate to reflect the risk of that project, 10 and the fact that there is little likelihood for future 11 growth on that line. So that would be incorporated, but 12 there aren't a large number of those projects. But 13 nonetheless that would still have to be a consideration 14 when we are applying the discount rate. 15 MR. KLIPPENSTEIN: If in fact the discount 16 rate is changed, other than the changes in debt and 17 return on equity factors that you mentioned, if in fact 18 the discount rate is changed the result could be a 19 profitability index -- rather not a profitability index 20 but it could result in a contribution in aid of 21 construction for one of those projects that raises the 22 return on equity rates above the Board-approved level, 23 all other things being equal. Is that accurate? 24 MR. BIRMINGHAM: As the parameters change the 25 profitability index will change and that may result in a 26 different market contribution, or a market contribution 27 where there wasn't one previously. That's right. 28 MR. KLIPPENSTEIN: And the effect of that Les Services StenoTran Services Inc. 613-521-0703 1636 1 market contribution for that project, all other things 2 being equal, would be to raise the return on equity 3 rates above the Board-approved rate for Union. Correct? 4 That's what follows mathematically. 5 MR. BIRMINGHAM: I'm sorry, can you say that 6 again, Mr. Klippenstein? 7 MR. KLIPPENSTEIN: The effect of a market 8 contribution in that situation would be to raise the 9 rate of return on equity for Union as a whole, all other 10 things being equal, above the Board-approved rate. 11 MR. BIRMINGHAM: Is this just in the 12 circumstance where the parameters change or where we 13 risk adjust it? 14 MR. KLIPPENSTEIN: Well, this is in the 15 situation where you changed the discount rate and you 16 have said that you would do that because of a risk 17 adjustment. But assuming you change it for the discount 18 rate, the result still would be -- excuse me, you change 19 it for the risk adjustment, the result still would be a 20 larger market contribution, and that would result in a 21 rate of return on equity, all things being equal, higher 22 than the Board-approved rate. Right? 23 MR. BIRMINGHAM: I guess there are two things 24 there, Mr. Klippenstein. 25 The first one is, if I set aside the 26 relatively small number of projects where we may need to 27 risk adjust the discount rate, the way that the 28 economics work is that, in fact, over the life of the Les Services StenoTran Services Inc. 613-521-0703 1637 1 project we would be recovering our costs including the 2 Board-approved return level. So a market contribution 3 in that circumstance would in fact allow Union an 4 opportunity to earn its Board-approved return, not to 5 exceed it. 6 The second thing is, with respect to the 7 contributions themselves the market contributions or 8 contributions in aid of construction are recorded as a 9 reduction to the capital of the project. They don't 10 flow through the utility's income statement. So in that 11 respect they just simply go to reduce the net investment 12 that we put into a project. 13 MEMBER JACKSON: Are they sort of an advance 14 on accumulated depreciation? Are they recorded as an 15 offset to the original cost which you don't modify? 16 MR. BIRMINGHAM: We do keep them in a separate 17 account, Dr. Jackson, but generally we view them as a 18 reduction of capital. So if you take a look at a 19 project that is $10 million and it needed a $1 million 20 contribution in aid, we really see that as the utility 21 supplying $9 million of capital and the customer 22 supplying $1 million of capital to be able to do the 23 project. 24 MEMBER JACKSON: Indeed. 25 I was just wondering if it was tracked to the 26 project so that if those assets were ever retired there 27 would be a debit to the contribution account as well. I 28 just was curious as to how it was tracked. Les Services StenoTran Services Inc. 613-521-0703 1638 1 Perhaps, do you know or could you get back to 2 me on it? 3 MR. BIRMINGHAM: On the tracking, my 4 understanding is that we generally group it in an 5 account. We do go back and sort out the contribution 6 when a particular project is retired. So we don't track 7 it in the accounts on a project-by-project basis, but we 8 do keep the information that we need so that when we do 9 retire a project we are able to identify the 10 contribution in aid. 11 MEMBER JACKSON: Thank you. 12 I'm sorry, Mr. Klippenstein. 13 MR. KLIPPENSTEIN: Thank you, Dr. Jackson. 14 MEMBER JACKSON: Mr. Klippenstein, just remind 15 me, you used the term "market contribution". Can you 16 help me with that? I think I may have just been 17 instantly distracted when you dealt with it. 18 But what is the difference between that and 19 the contribution in aid of construction, or are we 20 talking the same thing? 21 MR. KLIPPENSTEIN: I understand that to mean 22 the same thing. I meant contribution in aid. If I'm 23 wrong, maybe Mr. Birmingham you could correct me, but I 24 understand those two in this context to mean the same 25 thing. 26 MEMBER JACKSON: Mr. Birmingham? 27 MR. BIRMINGHAM: At a high level, Dr. Jackson, 28 they are the same thing. Typically though, they are Les Services StenoTran Services Inc. 613-521-0703 1639 1 implemented in a different way. A contribution in aid 2 of construction is something that we would technically 3 receive from an industrial customer, and that would 4 usually be an upfront payment that would then reduce the 5 net cost to the project. 6 The market contribution has tended to be more 7 in distribution expansion projects where we are 8 expanding the gas distribution system to residential and 9 small commercial, small industrial customers. And that 10 tends to be a monthly charge that runs up to roughly 11 $20 a month, and typically doesn't exceed anything 12 longer than five years, and can be shorter depending on 13 the economics of the project. 14 But it is typically a monthly charge rather 15 than an upfront payment and that just allows the 16 residential customers and the small business customers 17 to be able to afford to go to natural gas, but have what 18 is effectively a payment option for the contribution 19 in aid. 20 MEMBER JACKSON: So you would propose this and 21 then does that come forward to the Board for approval? 22 It's sort of like a rate rider for five years, is it 23 then, or something like that? 24 MR. BIRMINGHAM: That's right. Typically, 25 customers have the option so they can pay their 26 contribution upfront or they can pay it over a number of 27 months. So we give them that choice. And that forms 28 part of the economics that would be identified when the Les Services StenoTran Services Inc. 613-521-0703 1640 1 project is brought forward for Board approval. 2 MEMBER JACKSON: So it's not thought of as a 3 rate rider, per se. It's just, if you like, a financing 4 option on their contribution in aid of construction. Is 5 that a better way to look at it? 6 MR. BIRMINGHAM: That's right. 7 MEMBER JACKSON: Okay. 8 And just for a very minor amount of history, 9 is this something that came out of the Centra system, or 10 did Union use this as well? 11 MR. BIRMINGHAM: It's been used both in the 12 Union south and in the north and eastern operations 13 areas. 14 MEMBER JACKSON: Thank you for that again, 15 Mr. Klippenstein. 16 MR. KLIPPENSTEIN: Thank you, Dr. Jackson. 17 That's helpful. 18 Again, Mr. Birmingham, on a given project if 19 Union uses a higher discount rate, or looks at two 20 scenarios, discount rate A and discount rate B, and uses 21 the higher discount rate, then the market contribution 22 or contribution in aid for that project will increase as 23 compared to the other option with the other discount 24 rate. Is that correct? 25 MR. BIRMINGHAM: All other things being equal, 26 and assuming that that project already had a market 27 contribution associated with it, that would be right. 28 MR. KLIPPENSTEIN: Now, why shouldn't Union be Les Services StenoTran Services Inc. 613-521-0703 1641 1 required to bring the input parameters, including the 2 discount rates, before the Board for Board approval on 3 system expansion projects when the discount rate or 4 changes in it, or the selection of the discount rate can 5 have that effect, namely of increasing the contributions 6 in aid of construction or the market contributions. 7 MR. BIRMINGHAM: For a couple of reasons, 8 Mr. Klippenstein. 9 The first one is that from a practical 10 standpoint what we need the ability to do is adjust the 11 parameters so that we can properly match the parameters 12 to the individual project and to the timing of that 13 project. And that is going to change based on each 14 project that we do. 15 The second thing is that this is an economic 16 evaluation test that Union undergoes. 17 Because a project passes one of a couple of 18 thresholds doesn't necessarily mean that it will get 19 done, it means that it can be done. And there are 20 number of things that go into the timing of when a 21 project is done. One of those would include the ability 22 for the utility to finance that, given all of its other 23 capital projects, so this is the first test and the 24 economics of the projects will change. 25 To be able to bring that forward to the Board 26 simply for an evaluation of the project, to me would be 27 a tremendous administrative burden for the Board and is 28 unnecessary. Les Services StenoTran Services Inc. 613-521-0703 1642 1 In addition, most of the parameters that we 2 are using -- and the discount rate would be a typical 3 one -- at least incorporate some of the Board's approved 4 input. So, as I said before, we use the Board-approved 5 return on equity as part of the discount rate for those 6 projects. 7 MR. KLIPPENSTEIN: Now, another parameter is 8 the O&M costs that is used in the calculation of PI, 9 and, therefore, has an effect on what the calculated 10 contribution in aid of construction for a project would 11 be. Is that right? 12 MR. BIRMINGHAM: That's right. It might be 13 helpful, Mr. Klippenstein, if I referred you to the 14 response to Exhibit C21.145. There is an illustration 15 of the expansion economics on the second page of that 16 response and you can see the different parameters that 17 would go into the calculation of the first-year 18 economics of an expansion project that, in this case, 19 was to a hypothetical 30,000 residential customers. 20 MR. KLIPPENSTEIN: Yes, thank you. 21 And just like the issue that we just reviewed 22 with the discount rate, if the O&M costs figure for a 23 project calculation is increased, then the contribution 24 in aid of construction that would be required to bring 25 the project to an acceptable PI would also increase. Is 26 that right? 27 MR. BIRMINGHAM: If a project has a market 28 contribution and the O&M expenses are increased, then Les Services StenoTran Services Inc. 613-521-0703 1643 1 there would be a corresponding impact on the market 2 contribution, that's right. 3 MR. KLIPPENSTEIN: And I take it that it 4 follows from what you said earlier that it is possible 5 in some of these projects that Union may plan a project 6 that has a PI of greater than 1.0, and that includes a 7 contribution in aid of construction? 8 MR. BIRMINGHAM: No. I said there are 9 projects that will have a profitability index of greater 10 than one simply by their nature and we would not charge 11 a market contribution in those circumstances. 12 MR. KLIPPENSTEIN: Yes, I'm sorry. I 13 apologize. That's correct. 14 What I was intending to ask was that given 15 that situation and a PI of 1.0, you -- or Union might 16 have calculations of PI that would vary the discount 17 rate and vary of the O&M cost rate and that would, in 18 turn, affect the contribution in aid of construction for 19 that project? 20 MR. BIRMINGHAM: Varying any of the input 21 parameters to the economic evaluation of the project can 22 impact the need for or the amount of the market 23 contribution, that's right. 24 MR. KLIPPENSTEIN: All right. Thank you. 25 The illustration of expansion economics that 26 Union has given in its evidence at Exhibit B, Tab 2, 27 Appendix F -- is this the one you just referred to? 28 MR. BIRMINGHAM: That was Exhibit C21.145. Les Services StenoTran Services Inc. 613-521-0703 1644 1 MR. KLIPPENSTEIN: Right. At Exhibit B, 2 Tab 2, Appendix F we have another illustration of an 3 expansion calculation for a $30,000 residential customer 4 project. Is that right? 5 MR. BIRMINGHAM: That's right? 6 MR. KLIPPENSTEIN: And the incremental storage 7 and delivery and O&M costs for a commercial or 8 industrial or power generation customer new project 9 would be different than the incremental costs of a 10 residential project, as we have seen in this particular 11 illustration. Is that right? 12 MR. BIRMINGHAM: Well, they definitely have a 13 different load profile. They typically have different 14 costs associated with them. Usually, looking at those 15 types of projects, it will be a single line to a single 16 customer. 17 MR. KLIPPENSTEIN: So the storage and delivery 18 and O&M costs used in those calculations for those 19 incremental commercial, industrial and power generation 20 customers would be different. Is that right? 21 MR. BIRMINGHAM: Typically, yes. 22 MR. KLIPPENSTEIN: Has Union in fact filed all 23 of its Board-approved input values and parameters for 24 the system expansion projects for residential and 25 commercial and industrial and power generation projects? 26 MR. BIRMINGHAM: We don't file the parameters 27 for Board approval, Mr. Klippenstein. 28 What we have done is, where a project needs Les Services StenoTran Services Inc. 613-521-0703 1645 1 leave to construct approval from the Board we include 2 the economics of those projects and those project 3 economics would show the parameters that are used to 4 calculate the economics. 5 MR. KLIPPENSTEIN: So those are the parameters 6 such as the O&M costs, discount rates and others? 7 MR. BIRMINGHAM: The customer attachment 8 rates, yes, all of that. 9 MR. KLIPPENSTEIN: And you said that is filed 10 where a lead to construct is required? 11 MR. BIRMINGHAM: That's right 12 MR. KLIPPENSTEIN: And, forgive me, what 13 percentage of new projects would that cover, 14 approximately? 15 MR. BIRMINGHAM: It varies, Mr. Klippenstein. 16 It really depends on the nature of the project, but to 17 the extent that they do need Board approval we do file 18 them and it changes from year to year. 19 MR. KLIPPENSTEIN: Would Union agree to file 20 those input parameters, namely the O&M costs, discount 21 rates and other input values and parameters, for all its 22 system expansion projects, including residential and 23 commercial and industrial and power generation? 24 MR. BIRMINGHAM: No, only for those that 25 require leave to construct from the Board. 26 MR. KLIPPENSTEIN: And given that those 27 parameters can, in fact, affect the size of the 28 contribution in aid or market contribution, why would Les Services StenoTran Services Inc. 613-521-0703 1646 1 Union object to filing that, or those input values and 2 parameters? 3 MR. BIRMINGHAM: I'm sorry, Mr. Klippenstein, 4 I thought I had already answered that one. 5 MR. KLIPPENSTEIN: Forgive me, if you did. 6 MR. BIRMINGHAM: The reasons is that they do 7 change from project to project and we need the ability 8 to properly match the revenues and the costs that go 9 along with each of those projects. 10 They do use some of the input parameters that 11 are already approved by the Board, like the return on 12 equity calculation and, beyond that, given that fact 13 that we are going to be attaching, we hope, something in 14 the order of 20,000 to 25,000 customers a year and, 15 hopefully, some additional large industrial customers, 16 the administrative burden for the Board to look at all 17 of that to me would outweigh the benefits of doing so. 18 MEMBER JACKSON: Mr. Klippenstein, what were 19 you suggesting might be useful? Were you just 20 suggesting that the input parameters that are common 21 from one project to another be somehow available for the 22 public to look at, or were you going beyond that and 23 asking for the detailed input parameters for every 24 project to be available for the public to look at? 25 MR. KLIPPENSTEIN: The question I have in my 26 mind, Dr. Jackson, is that the market contribution, or 27 contribution in aid is sensitive to these input 28 parameters and changing some of them can affect -- Les Services StenoTran Services Inc. 613-521-0703 1647 1 increase, for example, the contributions in aid. So 2 that raises the question of whether changes in those 3 input parameters perhaps should be, if not scrutinized 4 by the Board or the public, at least be filed so that 5 they can be seen. 6 So that was may question. And it does mean, 7 to answer you question directly, that all of them would 8 have to be filed for all projects. 9 MEMBER JACKSON: I, then, had misunderstood 10 you. I didn't think you were going that far. But the 11 witness obviously understood you. 12 Thank you. 13 MR. KLIPPENSTEIN: Those are all my questions, 14 Mr. Birmingham and Mr. Chair and Dr. Jackson. 15 Thank you very much. 16 THE PRESIDING MEMBER: Thank you, 17 Mr. Klippenstein. 18 I think it's Mr. Quinn next. 19 CROSS-EXAMINATION 20 MR. QUINN: Thank you, Chair Dominy. 21 Just as a preface to our cross-examination, I 22 was informed by Union ahead of this this morning that 23 they were unable to provide some of the information that 24 we are looking for today in terms of system expansion 25 projects, forecast and actual capital expenses, volumes 26 and resulting PIs. 27 That lack of information -- I'm going to try 28 to go at it different way, but that lack of information Les Services StenoTran Services Inc. 613-521-0703 1648 BIRMINGHAM, cr-ex (Quinn) 1 is a concern to us in terms of either party's ability to 2 either prove of disprove where we are going in terms of 3 Union's ability to forecast future productivity. 4 So I'm going to try a line of questions which 5 may include some of what Mr. Klippenstein just covered 6 and hopefully it is beneficial to the Board in terms of 7 directionally setting where PBR is going for Union Gas. 8 MR. PENNY: I am not sure what that means, 9 Mr. Chairman. If Mr. Quinn is telling us that he is 10 going to ask the same questions that Mr. Klippenstein 11 just asked, I have a great concern about that as you 12 know because there is already a good deal of repetition. 13 If he needs to cover the same ground from a different 14 slant, I suppose that is fair game. So I am not sure 15 what he is telegraphing to us. 16 MR. QUINN: With fairness to Mr. Penny, if I 17 do delve into an area that was completely covered in 18 your perspective, I will withdraw the question. 19 THE PRESIDING MEMBER: Let's see how he gets 20 along. 21 MR. QUINN: Thank you, sir. 22 From our cross-examination of your experts, 23 Christensen Associates, we understand that they have 24 recommended a productivity factor which was negative 0.8 25 is now negative 0.7. Is that correct? 26 MR. BIRMINGHAM: I believe the number that you 27 are referring to, Mr. Quinn, is with respect to the 28 product -- the historical productivity study using Les Services StenoTran Services Inc. 613-521-0703 1649 BIRMINGHAM, cr-ex (Quinn) 1 volumes as the output measure for the distribution 2 business. 3 MR. QUINN: Okay. Well, let me just say that 4 the number isn't as important, I guess, as the 5 direction. I guess we are all trying to grapple with 6 why that number is negative, and I addressed two areas 7 in our cross the other day, rental water heater program 8 and the changes in the company there and also system 9 expansion projects and that is where I will constrain my 10 questions to today. 11 Just as a point of clarification, and this is 12 where maybe I did miss it, but I understood you to say 13 in talking -- in referring to your system expansion 14 projects that market contribution was used by Union to 15 increase the product -- the PI to 1.0. Is that correct? 16 MR. BIRMINGHAM: No, typically what would 17 happen is with respect to a distribution system 18 expansion project we would use a market contribution to 19 raise the profitability index to 0.8. The contribution 20 in aid of construction, which as I was saying at high 21 levels is pretty much the same, is typically used for 22 large industrial customers where we are expanding our 23 system and running a single line to that customer. And 24 it is in those circumstances that a contribution aid 25 would be used to raise the profitability index to 1.0. 26 MR. QUINN: Thank you for the clarification. 27 Then it is Union's intent that that 0.8 would remain for 28 market contribution going forward? Les Services StenoTran Services Inc. 613-521-0703 1650 BIRMINGHAM, cr-ex (Quinn) 1 MR. BIRMINGHAM: That is right. 2 MR. QUINN: Okay. Thank you. 3 So in the past and for the period that was 4 measured by your consultants, Union had a policy of 5 0.8 and also 0.7 during that period? This is in the 6 undertaking that Ms Elliott provided. 7 MR. BIRMINGHAM: That is right, Mr. Quinn, and 8 that is also in the response to C7.27 whereas of the 9 Board's E.B.R.O. 486 decision, which was for fiscal 10 1996, that is the year ended March 31, 1996, a 11 distribution new business project profitability index 12 was 0.8 and prior to that time it was 0.7. 13 MR. QUINN: Thank you. And so to just 14 complete our understanding this was -- those were 15 allowed as long as the rolling PI was 1.0. So to 16 maintain a minimum of 1.0 in the portfolio there had to 17 be capital expansion projects that were above 1.0? 18 MR. BIRMINGHAM: That is correct. 19 MR. QUINN: Okay. Thank you. 20 During that cross-examination, I guess there 21 was some discussion and Union's experts even submitted 22 that there is a line of thinking that under cost of 23 service regulations that utilities can be incented to 24 use and the phrase they used was "gold plate" their 25 system because of the incentive. I guess what I am 26 concerned about in going forward is the changes in these 27 incentives under PBR may have a resulting change in how 28 Union views its capital expansions and I guess -- I have Les Services StenoTran Services Inc. 613-521-0703 1651 BIRMINGHAM, cr-ex (Quinn) 1 a question in terms of the establishment of the initial 2 PI to let the project go forward. 3 We covered with Mr. Klippenstein in the areas 4 of discount rate the years that would be used and you 5 had indicated there was some flexibility in parameters. 6 Would you also suggest that there is a level of 7 uncertainty related to the originator's ability to 8 forecast actual results? 9 MR. BIRMINGHAM: Well, certainly. When we are 10 looking at customer attachments in particular for a 11 distribution expansion project, one of the ways that we 12 try to manage the uncertainty of being able to forecast 13 those attachments is to go into the new community and 14 survey customers to try and get an implication as to how 15 many customers would switch to natural gas if it was 16 available. So definitely there is that uncertainty in 17 the forecast and there are ways that we try to manage 18 that uncertainty. 19 MR. QUINN: What would those ways be? 20 MR. BIRMINGHAM: Well, for instance, as I say, 21 with respect to the customer attachments which tends to 22 be the most uncertain variable in doing the economic 23 analysis, that is managed by being in the community 24 surveying the customers or the potential customers in 25 that community to try and get a sense of a couple of 26 things. 27 One is if natural gas was available would they 28 switch to natural gas. The second thing would be if Les Services StenoTran Services Inc. 613-521-0703 1652 BIRMINGHAM, cr-ex (Quinn) 1 natural gas was available and they were interested in 2 switching to natural gas, when could that switching take 3 place. And the third thing is to the extent that a 4 market contribution was required, what level of market 5 contribution would be acceptable to the customers that 6 would not prevent them from switching. 7 MR. QUINN: Okay. So that is an area of 8 uncertainty. To the extent that these customers 9 actually do follow through on what they had suggested 10 they would, then if there was a complete commitment, 11 then the forecast would be actual -- sorry -- the 12 forecast would be closer to the actuals. But there is 13 still a volume estimation depending on how much 14 equipment they do in fact put in? 15 MR. BIRMINGHAM: Yes. The use per customer 16 for those projects is -- is also one of the variables 17 that goes into forecasting the revenue stream and to the 18 extent that a customer uses a high efficiency furnace 19 rather than a mid-efficiency furnace, or to the extent 20 that they maintain their water heating using some other 21 fuel, those will impact the volumes that would then be 22 used for the valuation of the project itself. 23 MR. QUINN: Okay. Thank you. 24 In terms of the risk with this uncertainty, 25 Union has suggested they manage the risk by some 26 proactive measures. How about retrospective measures? 27 Where there any things in place to ensure that 28 forecasted was close to actual? Les Services StenoTran Services Inc. 613-521-0703 1653 BIRMINGHAM, cr-ex (Quinn) 1 MR. BIRMINGHAM: There are internal processes 2 that we look at that is typically after the first year 3 or two when a project is put in place. But we don't 4 generally track those over the long-term life of the 5 project. There are also post-construction reports for 6 particular projects that require the Board's leave to 7 construct approval and we file those with the Board 8 afterwards. 9 MR. QUINN: Are those post-construction now 10 related to the capital? 11 MR. BIRMINGHAM: That is right. 12 MR. QUINN: Okay. So in terms of the number 13 of customers and the volumes then, you said there is 14 some internal processes. This is administrated through 15 your internal audit department, is it? 16 MR. BIRMINGHAM: No, typically it is 17 administered through the people who actually are 18 responsible for the expansion. 19 MR. QUINN: Okay. Maybe I can refer you to -- 20 in trying to look at whatever information may be 21 available, I was directed toward E.B.R.O. 188, and there 22 was a Board staff interrogatory in that proceeding which 23 asked about: 24 "Does Union monitor individual system 25 expansion projects? If yes, what 26 information is maintained at the project 27 level and over what period of time?" 28 I don't know if it is appropriate to enter Les Services StenoTran Services Inc. 613-521-0703 1654 BIRMINGHAM, cr-ex (Quinn) 1 this specific exhibit from that time or if it is just 2 sufficient for me to read the response? 3 THE PRESIDING MEMBER: Why don't you read the 4 response and we will see, as long as it is not going to 5 take an hour to read the response. 6 MR. QUINN: No. It is three sentences, sir. 7 Union's response was: 8 "Union performs an internal audit of new 9 expansion projects to compare actual 10 performance against the estimate. 11 Projects are randomly selected and 12 reviewed over a 5-year period and 13 performance feedback is provided the 14 project originator. The forecaster is 15 then able to adjust the balance of the 16 forecast if required." 17 Now, I guess my question is: These types of 18 internal audit procedures would help Union manage some 19 of that, I guess, retroactive look at the project. Is 20 this information available to us and can we have it 21 provided for that period of time 1986 to 1996? 22 MR. BIRMINGHAM: What that response is 23 referring to, Mr. Quinn, is the internal audit 24 department as part of its annual internal audit plan 25 does a sampling of distribution projects to take a look 26 at how the actual performance has been against the 27 forecasted performance. 28 That isn't a complete population by any means. Les Services StenoTran Services Inc. 613-521-0703 1655 BIRMINGHAM, cr-ex (Quinn) 1 It's a small sampling that they do to test whether those 2 projects in fact are close to forecast or are varying 3 from forecast. As the response indicates the intent of 4 them is to be able to provide some feedback with respect 5 to the people who are forecasting what the attachments 6 and the volumes might be to be able to incorporate into 7 their estimates going forward, not just for that 8 particular project but for, more importantly, new 9 projects as they come out. 10 MR. QUINN: So this would be a measure to try 11 to improve the accuracy of future project estimates? 12 MR. BIRMINGHAM: It does have that 13 impact, yes. 14 MR. QUINN: But it would also ensure that 15 there was not some systemic overstating of customers or 16 volumes? 17 MR. BIRMINGHAM: To the extent that there are 18 findings that seem to indicate there is some 19 overestimation or underestimation of some of the 20 parameters, then that feedback would be used on a 21 going-forward basis in the evaluation of future 22 projects. 23 MR. QUINN: Why would Union want to ensure 24 that to be the case? 25 MR. BIRMINGHAM: It's simply evaluating our 26 ability to look at the marketplace, look at how 27 customers are using natural gas, and to be able to 28 incorporate the best information that we can as we go Les Services StenoTran Services Inc. 613-521-0703 1656 BIRMINGHAM, cr-ex (Quinn) 1 into the next project for the purpose of forecasting 2 whether customers in fact are going to attach to natural 3 gas and if they do attach what their use might be. 4 MR. QUINN: Okay. I guess my area of concern 5 that I'm trying to address is: In terms of the lack of 6 certainty involved with estimating there is some 7 discretion that the originator or the salesperson who 8 was originating the project would have. What I guess I 9 would like to ask is: Were your salesmen at that time 10 incented by either customer attachments or volumes to 11 make certain quotas to meet performance objectives? 12 MR. BIRMINGHAM: During that time my 13 recollection is that there are individuals or were 14 individuals that had some of their individual 15 performance metrics based on customer attachments. 16 The individual projects themselves, Mr. Quinn, 17 go through an internal process that is not limited to 18 the originator, but goes through both technical and 19 economic ratification where internally there is an 20 independent assessment made on the parameters of the 21 project to ensure that what is being proposed in fact is 22 reasonable and is also the best technical solution to 23 attaching the customers. 24 MR. QUINN: But the originator would still be 25 reasonable to estimate the customers and the volumes 26 that would be derived from the project? 27 MR. BIRMINGHAM: They would provide the 28 original input for those parameters, yes. Les Services StenoTran Services Inc. 613-521-0703 1657 BIRMINGHAM, cr-ex (Quinn) 1 MR. QUINN: Okay. 2 Back to the earlier question: How long does 3 Union keep internal audit reports on file? 4 MR. BIRMINGHAM: These are the internal audit 5 reports with respect to the sample of distribution 6 projects that the internal audit group would look at? 7 MR. QUINN: Correct, in this specific area. 8 MR. BIRMINGHAM: I don't know. My guess would 9 be a couple of years, but not more than that. I can't 10 imagine why there would be any reason to keep them 11 longer than that, but I'm not certain. 12 MR. QUINN: So you don't believe that for any 13 of the period, the later years of the period review by 14 Christensen, that you would even be able to assess the 15 accuracy or level of accuracy of estimates versus 16 actuals? 17 MR. BIRMINGHAM: I don't believe that the work 18 that the internal audit group did would be available, 19 nor would it be particularly useful for the purpose that 20 you are trying to use it for. 21 MR. QUINN: How do you define that 22 purpose then? 23 MR. BIRMINGHAM: I thought you told me that 24 what you were trying to do was understand how the 25 forecasting of these projects then could be impacted in 26 the future. 27 MR. QUINN: Relative to how they were 28 performed in the past. Les Services StenoTran Services Inc. 613-521-0703 1658 BIRMINGHAM, cr-ex (Quinn) 1 MR. BIRMINGHAM: Right. 2 MR. QUINN: Okay. I guess what I'm hearing 3 is, that information is not there so that ourselves nor 4 the Board can make a judgment as to the success or the 5 accuracy in the past, which leads again to the question 6 of uncertainty. 7 In the discussions with your experts the other 8 day, through the cross-examination I understood them to 9 say that the earning share mechanisms are used when 10 "there is uncertainty in terms of what actually the 11 outcome is going to be over the term of the price cap 12 program". 13 Does it not concern -- maybe that is an 14 argumentative question. 15 In terms of our ability to say what was in the 16 past and what is going to be in the future, is there not 17 a significant level of uncertainty going forward? 18 MR. BIRMINGHAM: Well, there is definitely 19 uncertainty going forward into the future, but the use 20 of an earnings sharing mechanism, as I said before, is 21 really put in place where the Board finds that the price 22 cap parameters in total would generate some range of 23 unacceptable outcomes from their standpoint, both from a 24 regulatory and a public interest standpoint. 25 To the extent that the parameters could result 26 in those unacceptable outcomes, then an earnings sharing 27 mechanism could be put in place to deal with that range 28 of unacceptable outcomes. Les Services StenoTran Services Inc. 613-521-0703 1659 BIRMINGHAM, cr-ex (Quinn) 1 MR. QUINN: Okay. I guess it is our 2 submission that those originators have some discretion, 3 or using past experience they are going to try to make 4 an estimate going forward. You have indicated that 5 there is a lot of flexibility in some of the parameters 6 that are going to be used in the development of the PI, 7 but one of the major inputs is volumes in customers, 8 which again is subject to some discretion of the 9 originator. 10 If the incentives change for Union, is the 11 originator not in the position of being -- if Union 12 aligns them with their objectives, being more 13 conservative in their estimates for the future? 14 MR. BIRMINGHAM: Well, the individuals who 15 originate a project are going to take into account a 16 number of pieces and information. One will be what 17 their past experience has been in being able to forecast 18 the customer attachments and the volumes that those new 19 customers would use. 20 Another one would be the individual area that 21 they are going into and the resulting customer survey 22 that was does as a result of examining the economic 23 feasibility of expanding into that area. 24 All of those would go into the original 25 economics, and those still have to pass both economic 26 and technical ratification within the utility. 27 MR. QUINN: Okay, I can appreciate there is a 28 level of oversight, but the individual is still going to Les Services StenoTran Services Inc. 613-521-0703 1660 BIRMINGHAM, cr-ex (Quinn) 1 be accountable for the results? 2 MR. BIRMINGHAM: Yes. 3 MR. QUINN: Thank you. 4 Just a follow-up question. As I understood it 5 there was a specific project discussed yesterday 6 assigning a cogen unit, 500 megawatts. Do you know 7 offhand, or would you be able to check as to what the PI 8 was on that project? 9 MR. BIRMINGHAM: Well, we don't have the 10 project yet. I can take a look at the most recent 11 economic run that we may have done and provide that to 12 you, if that's helpful? 13 MR. QUINN: That would be helpful. Thank you. 14 DR. WIGHTMAN: We can make that G10.2. 15 UNDERTAKING NO. G10.2: Mr. Birmingham 16 undertakes to look at the most recent 17 economic run that may have been done and 18 provide that to Mr. Quinn 19 MR. QUINN: Without further hard data, I think 20 more of my questions get into speculation and 21 potentially argument. So I think those are my questions 22 for today. 23 Thank you. 24 THE PRESIDING MEMBER: Thank you, Mr. Quinn. 25 Mr. Mia. 26 MR. MIA: Good morning, Board Members. 27 CROSS-EXAMINATION 28 MR. MIA: Good morning, Mr. Birmingham. Les Services StenoTran Services Inc. 613-521-0703 1661 BIRMINGHAM, cr-ex (Mia) 1 MR. BIRMINGHAM: Good morning. 2 MR. MIA: I just have a few questions. 3 Hopefully it will go quickly. Most of them are service 4 quality indicators, and I have a couple of questions 5 just on the risk profile under the price cap. 6 If you turn to Exhibit B, Tab 2, page 56, that 7 is the service quality indicator spec. In outlining the 8 need for service quality indicators your evidence 9 suggests that the introduction of PBI incentives may 10 lead to declines in service quality. You would agree 11 with that? 12 MR. BIRMINGHAM: Well, in reading through some 13 of the PBR precedents there seem to be some concern 14 based on I think, oh, conception -- conceptual concerns 15 and on some practical experience that the incentives 16 under PBR may cause an individual company to try to 17 maximize its profit. And one of the reasons or one of 18 the ways that they could maximize that profit 19 potentially was to reduce the level of service to its 20 customers. 21 MR. MIA: Your evidence and the PBR proposal 22 that is before us attempts to outline the mechanism that 23 measures service quality at a basic threshold. Is that 24 correct? 25 MR. BIRMINGHAM: Well, it measures service 26 quality on a couple of different fronts, and we have 27 used the criteria that are outlined at page 57 including 28 things like relevance to customers, simplicity, ease of Les Services StenoTran Services Inc. 613-521-0703 1662 BIRMINGHAM, cr-ex (Mia) 1 administration and tracking and availability of 2 historical results or reasonable standards. And we 3 worked with Enbridge Consumers Gas to develop some level 4 of consistency around these. 5 MR. MIA: Okay. And on page 56 your evidence 6 states that -- I will get the line for you, but you can 7 find that. It is: 8 "SQIs are primarily intended to provide 9 assurance to customers and other 10 stakeholders that certain operating 11 stands will remain in place during the 12 term of the price cap." 13 I think you will find that at -- 14 MR. BIRMINGHAM: That is line 6 to 8. 15 MR. MIA: Line 6. That is right. Thank you. 16 Obviously, you would agree with that? 17 MR. BIRMINGHAM: Yes, that is our evidence. 18 MR. MIA: I'm just trying to go smoothly here. 19 Do you, Mr. Birmingham, do you view retail 20 energy marketers or REMs as being customers of your 21 system? 22 MR. BIRMINGHAM: Yes. 23 MR. MIA: And given that they are -- the REMs 24 are customers of your system, are they entitled to the 25 protection afforded by the SQIs? 26 MR. BIRMINGHAM: To the extent that retail 27 energy marketers are concerned about the degradation of 28 service because of the different incentives a utility Les Services StenoTran Services Inc. 613-521-0703 1663 BIRMINGHAM, cr-ex (Mia) 1 might have under the price cap proposal, then the retail 2 energy marketers should also have service quality 3 indicators that would deal with their particular 4 concerns, yes. 5 MR. MIA: And you mentioned earlier at 6 Exhibit B, Tab 2, page 58, you have a table, Table 7, 7 which lists some of the SQIs and the parameters. Is 8 this an exclusive list? 9 MR. BIRMINGHAM: The table that is on page 58 10 is the complete list of the service quality indicators 11 as we propose them in the context of this PBR plan. 12 What we have indicated though is that we recognize that 13 there are or may be other service quality indicators 14 that parties would want to put in place either in the 15 context of the initial PBR term or in the subsequent PBR 16 term and we have committed to defining those and 17 implementing them through the customer review process. 18 MR. MIA: With respect to REMs, would you 19 agree that there are services that they would use of 20 your system that wouldn't be listed here, and in terms 21 of the first generation PBR we would -- would you be 22 willing to identify some of those service quality 23 indicators that apply to REMs and also identify 24 parameters whereby we may measure Union's sort of 25 effectiveness in meeting those goals? 26 MR. BIRMINGHAM: We would be willing to do 27 that through the customer review process. The 28 definition of a service quality indicator does take some Les Services StenoTran Services Inc. 613-521-0703 1664 BIRMINGHAM, cr-ex (Mia) 1 time. It does take some time to define exactly what the 2 indicator is, how to gather it, how to properly measure 3 it and report it. And in that context that is one of 4 the reasons why we made the commitment because we 5 recognize that those types of service quality indicators 6 may change over time. 7 MR. MIA: You have mentioned the customer 8 review process. As I understand it and you can correct 9 me if I am wrong, that takes place on an annual basis? 10 MR. BIRMINGHAM: That is right. 11 MR. MIA: So we wouldn't be looking at one of 12 those for another year once the PBR kicks off? 13 MR. BIRMINGHAM: Once the -- 14 MR. MIA: Assuming it kicks off say January 1, 15 2001, we would be waiting until 2002? 16 MR. BIRMINGHAM: No, we would be planning to 17 hold a customer review process starting in 2001. So the 18 call for an agenda and the submission of a report would 19 happen roughly in the second quarter of 2001. 20 MR. MIA: And do you envision that those SQIs 21 that would relate to REMs would then be implemented in 22 2001 and be effective? 23 MR. BIRMINGHAM: They could be implemented 24 later on in 2001 or beginning in 2002. I think it will 25 depend on the indicator itself, the ability to gather 26 data, the type of system that will be needed to track 27 the information and be able to report on the service 28 quality indicators. So the time at which we would be Les Services StenoTran Services Inc. 613-521-0703 1665 BIRMINGHAM, cr-ex (Mia) 1 able to implement it, I think, will be a function of 2 just exactly what is going to be required to support the 3 reporting and the service quality indicator. 4 MR. MIA: So it is possible then that the REMs 5 may face some sort of service declines or problems in 6 dealing with your system which may not be measured and 7 may not be resolved within 2001? 8 MR. BIRMINGHAM: Well, from our standpoint, if 9 you look at the response to Exhibit C21.137, one of the 10 key considerations for us is that it is a lot easier to 11 keep customers happy if they are already happy. To the 12 extent that customers get upset, it is a lot easier -- 13 it is a lot more difficult to then re-earn that trust. 14 So certainly it is in the utility's best interest to 15 maintain the service quality that customers are looking 16 for and to develop those. 17 Now, having said that, if there is a 18 particular indicator that we need to begin working on 19 earlier because retail energy marketers are interested 20 in having something different, then we would be prepared 21 to do that. Through the customer consultation process 22 that proceeded the regulatory process, we had asked a 23 number of other parties whether there was a particular 24 service quality indicator that they would like to see 25 incorporated and unfortunately we didn't get any 26 feedback at that time. 27 But given that parties have gone through this 28 process, they may have some other ideas about what they Les Services StenoTran Services Inc. 613-521-0703 1666 BIRMINGHAM, cr-ex (Mia) 1 would like to see and we would be prepared to start 2 working on those. 3 MR. MIA: I mean I have a long list, laundry 4 list I could give to you. But would you be willing to 5 provide us with a list of what you think could apply to 6 REMs are at this point and we can move forward from 7 there or would you like to take my list and run with 8 that? It is just in terms of securing some sort of 9 certainty of where we are going in terms of REMs dealing 10 with Union's system. 11 MR. PENNY: Well, I am not sure, Mr. Chairman, 12 what the direction of this is going. Mr. Birmingham has 13 indicated that what the application is asking for, for 14 the four, subject to the DSM issue, for the four that 15 are listed on page 58 and has indicated that the company 16 will work with parties including REMs to identify and 17 bring forward for approval others very early in the 18 process. And I am not sure of what assistance it would 19 be to the Board now to have a long shopping list of 20 things that the REMs might want to bring forward in the 21 process. 22 I note that CEED has filed evidence in this 23 proceedig but has not filed any evidence on the 24 necessity for the immediate implementation of some other 25 service quality indicator. 26 --- Pause 27 THE PRESIDING MEMBER: Mr. Penny and Mr. Mia, 28 I mean I have no idea of how lng this list is. It Les Services StenoTran Services Inc. 613-521-0703 1667 BIRMINGHAM, cr-ex (Mia) 1 would be quite impossible, I would imagine, for 2 Mr. Birmingham to respond if it is a 30 item list. But 3 if there are one or two items in there that are relevant 4 in some way, you might want to ask Mr. Birmingham 5 specifically as to whether he believes there was an 6 indication that might be worth examining. But I don't 7 think we are going to go very far if we have a very, 8 very long list. 9 MR. MIA: I think all I'm looking for is an 10 assurance that this will move forward in a timely 11 fashion when Union deals with REMs. I don't want to go 12 through every single item on the list. 13 As an example, there is title transfer, 14 Mr. Birmingham, transfer of storage, nominations, 15 telephone responses to imbalances, those sorts of 16 things. 17 THE PRESIDING MEMBER: Are you looking for an 18 indicator which says that certain activities will be 19 conducted within a certain period of time? Is that 20 what -- 21 MR. MIA: Yes, that's what we are trying 22 to get. 23 THE PRESIDING MEMBER: It might be useful to 24 explore the type of indicator, just so that we 25 understand and Mr. Birmingham understands what you are 26 interested in, but I think what you have said already is 27 you hope you are getting assurance that there will be a 28 timely consideration of suitable indicators for Les Services StenoTran Services Inc. 613-521-0703 1668 BIRMINGHAM, cr-ex (Mia) 1 the REMs. 2 If that is any help, perhaps we can proceed 3 from there. 4 MR. MIA: Yes. No, that's helpful. I don't 5 think we will nail down the exact parameters here, but 6 just that we will move forward in a timely fashion. 7 Again on page 56 of Exhibit B, Tab 2 -- I 8 think you have answered this question, but I take it 9 there are no incentives to ensure compliance with SQI 10 standards. 11 --- Pause 12 MR. BIRMINGHAM: No, I would disagree with 13 that. There are incentives for compliance. 14 The first one is, to the extent that we don't 15 meet the service quality indicator we have to file a 16 report with the participants in the customer review 17 process, which will end up going to the Board. We have 18 to put in remediation to be able to deal with the fact 19 that if this has been amiss then we need to rectify that 20 situation. 21 And to the extent that we don't comply with 22 that service quality indicator, parties are free to 23 argue for other courses of action, and as we have 24 indicated in the evidence that can include financial 25 penalties. 26 MR. MIA: But there are no financial penalties 27 at the outset? 28 MR. BIRMINGHAM: That's right. Les Services StenoTran Services Inc. 613-521-0703 1669 BIRMINGHAM, cr-ex (Mia) 1 MR. MIA: And you agreed earlier that the 2 basis behind SQIs is founded on the possibility that PBR 3 may provide some incentives to reduce service quality 4 and that SQIs provided basic threshold for maintaining 5 service quality at certain levels. 6 Therefore if there are incentives to reduce 7 costs which may harm service quality, wouldn't you think 8 that naturally should be offsetting incentives that 9 balance this downward pressure on service? 10 MR. BIRMINGHAM: I think our process allows 11 for that, Mr. Mia. 12 My previous testimony had indicated that what 13 I object to is the thoughtless application of penalties 14 when there are -- or can be mitigating circumstances 15 with respect to whether the utility has met the service 16 quality indicated or not. 17 And further than that, to the extent that 18 there is going to be a financial penalty I think that 19 has to be measured against the potential harm that is 20 done. I think the example that I used is, with respect 21 to, for instance, a pipeline system integrity survey, 22 that might have a different impact on customers and 23 might attract a different financial penalty than 24 something like emergency response. 25 MR. MIA: I understand that you are suggesting 26 that it's possible at the end of the customer review 27 process to go to the Board and they may impose financial 28 penalties, but you also agree that this is an annual Les Services StenoTran Services Inc. 613-521-0703 1670 BIRMINGHAM, cr-ex (Mia) 1 process. So problems could go on for a year before any 2 penalty is imposed. 3 MR. BIRMINGHAM: With respect to our process 4 that's true but, frankly, I think that if customers are 5 having a difficult time with the utility, the utility 6 and the Board would be hearing about it much sooner than 7 the timing of the customer review process. 8 MR. MIA: Is it possible then to design a 9 financial penalty which could be triggered during the 10 year -- say there is a problem with customer service -- 11 and you go to the Board at any point during the year. 12 And in that sense it wouldn't be thoughtless, the Board 13 would be there to vet the issue and assess the ethicacy 14 of the penalty. Is that fair? 15 MR. BIRMINGHAM: I don't think so, Mr. Mia. 16 These are minimum standards that we have applied on an 17 annual basis. For different reasons they may be higher 18 or lower at particular times of the year, but this is 19 the minimum standard that we have committed to. 20 MR. MIA: However, those minimum standards 21 were prior to the PBR regime? 22 MR. BIRMINGHAM: That's right. They are based 23 on the five year history that we provided in response to 24 Exhibit C36.24. 25 MR. MIA: And PBR may provide incentives to 26 deteriorate service quality? 27 MR. BIRMINGHAM: Not in my view. As I say, 28 it's a lot easier to keep customers satisfied when they Les Services StenoTran Services Inc. 613-521-0703 1671 BIRMINGHAM, cr-ex (Mia) 1 are already satisfied. Once you break their trust it is 2 very, very difficult to re-earn that. 3 And when you look at the service quality 4 indicators that we have listed on page 58, you can see 5 that those are fairly fundamental services that 6 customers rely on from the utility. 7 So, in my view, regardless of the type of 8 regulatory framework that we have, Union is going to 9 meet or exceed those standards. 10 MR. MIA: I understand with respect to the 11 process for dealing with SQI assessment, we discussed a 12 minute ago, you are proposing that a report be prepared 13 with respect to service quality which will then be 14 presented during the customer review process. And this 15 takes place on an annual basis. I take it you agree to 16 that, we won't be repetitive. 17 And I take you back to an earlier statement. 18 If there are problems in this system during the year, 19 since it's an annual process, how would problems that 20 crop up during the year or persist be dealt with? 21 MR. BIRMINGHAM: Well, typically they are 22 dealt with between the customer and the utility itself. 23 Now, obviously that mechanism will still be in place. 24 This is a reporting mechanism to insure that the utility 25 isn't causing a degradation in service below some 26 minimum standard and using that as a way to improve its 27 financial position. 28 And I would suggest to you that to the extent Les Services StenoTran Services Inc. 613-521-0703 1672 BIRMINGHAM, cr-ex (Mia) 1 that there is some minor variation in those indicators 2 through the course of the year, that that isn't going to 3 be a sufficient driver to have the financial position of 4 the utility improved. The utility is better off meeting 5 these standards and keeping customers satisfied with 6 respect to these standards. 7 MR. MIA: Would it be fair then -- if we go to 8 the customer review process -- there has been a problem 9 and not a minor problem, a significant problem in 10 service quality deterioration. Presumably the company 11 would have benefited from that in a financial way. 12 Would you agree, then, that the Board would be 13 rightfully placed to impose a penalty that was equal to 14 the profit that was gained from that deterioration in 15 service? 16 MR. BIRMINGHAM: Well, I think in the first 17 instance, Mr. Mia, what I would expect is that to the 18 extent that a customer is having any difficulty with the 19 Union that we would work that out between the customer 20 and the utility. 21 But certainly it is our intent that to the 22 extent that Union isn't meeting the minimum standards 23 that have been defined under these service quality 24 indicators that that in fact is dealt with in the 25 customer review process. Parties are able to argue for 26 whatever alternative remedy they think is appropriate, 27 and that would include a financial penalty and the 28 assessment of that financial penalty would depend on the Les Services StenoTran Services Inc. 613-521-0703 1673 BIRMINGHAM, cr-ex (Mia) 1 indicator itself and the circumstances that existed at 2 the time. 3 In your example, to the extent that it can be 4 proven that the service degradation and some increased 5 profitability were directly tied, that may be one way to 6 assess the amount of the financial penalty, yes. 7 MR. MIA: And you just mentioned that where 8 there are problems sort of a practical approach is that 9 Union and the customer deal with it directly. In the 10 case of a small customer and a large corporation, if 11 that problem isn't resolved to the satisfaction of the 12 customer, what would you propose as the next step? 13 MR. BIRMINGHAM: That typically hasn't been 14 our experience, that we are able to resolve those. But 15 the next step in terms of the service quality indicators 16 clearly is through the customer review process and to 17 the Board. 18 MR. MIA: With respect to determining problems 19 with service quality, are these determinations made by 20 Union alone? Do you sort of make an assessment of the 21 parameters when you go to your customer review process 22 or would you take input from others? 23 MR. BIRMINGHAM: I'm sorry, Mr. Mia, I don't 24 understand the question. 25 MR. MIA: Okay. 26 In terms of determining problems with service 27 quality, you have your parameters here on Table 7, 28 whether you have met them or not, et cetera, how is that Les Services StenoTran Services Inc. 613-521-0703 1674 BIRMINGHAM, cr-ex (Mia) 1 determination made? Is that solely made by Union? 2 MR. BIRMINGHAM: Yes. We have systems that 3 track all of these indicators and we would simply 4 provide the information that supports whether we have 5 met those or not. 6 MR. MIA: And is there a process for customers 7 and stakeholders to put forward their opinions or data 8 on service quality? 9 MR. BIRMINGHAM: With respect to these 10 indicators, yes, that is through the customer review 11 process. 12 MR. MIA: And I understand that you will 13 present the remediation plan if there a problem with 14 service quality. And if the plan is implemented, do you 15 provide for a follow-up process to assess the 16 effectiveness of the implementation plan and whether it 17 has met its goals? 18 MR. BIRMINGHAM: Yes. I think that's in 19 lines 1 to 3 on page 57 where we will not only issue a 20 report but implement the proposed remediation subject to 21 the final comments that are received through the 22 customer review process and send a follow-up report once 23 the remedial action is in place. 24 MR. MIA: Thank you. 25 And can that follow-up report then be reviewed 26 by the Board as well? 27 MR. BIRMINGHAM: Yes. 28 MR. MIA: I understand that where there isn't Les Services StenoTran Services Inc. 613-521-0703 1675 BIRMINGHAM, cr-ex (Mia) 1 an agreement with respect to the report or the 2 remediation plan the matter can be referred to the Board 3 for review? 4 MR. BIRMINGHAM: Yes. 5 MR. MIA: And can any participant in the 6 customer review process refer this matter to the Board? 7 MR. BIRMINGHAM: Yes. 8 MR. MIA: And, Mr. Birmingham, do you foresee 9 the Board's decision on the matter with respect to the 10 customer review process and the remediation plan as 11 being binding upon Union? 12 MR. BIRMINGHAM: Yes. 13 MR. MIA: I just have a couple of questions 14 with respect to risks, the risk profile. 15 Under the price cap at page 64, Exhibit B, 16 Tab 2, your question on yesterday. 17 You have the list of risks and on page 67 of 18 Exhibit B, Tab 2 -- I believe it was Mr. Warren, if I'm 19 correct, and Mr. Thompson, as well as Mr. Brett, that 20 discussed the IPPs and the deregulation of the 21 electricity industry in Ontario with you and the risks 22 that were posed. 23 Would you agree that some of the risks 24 outlined -- and again I'm sorry to interrupt the 25 questioning -- I will refer to Exhibit B, Tab 2, 26 Appendix G. That is your list of the risks. 27 Would you agree that some of those risks, or 28 let's call them factors, present both risks and Les Services StenoTran Services Inc. 613-521-0703 1676 BIRMINGHAM, cr-ex (Mia) 1 opportunities to Union? 2 MR. BIRMINGHAM: Some of them clearly do 3 represent some opportunities. As an example, the items 4 that are listed at lines 14 and 15 are opportunities. 5 That is lines 14 and 15 of Appendix G. 6 MR. MIA: Would you agree with me that the 7 IPPs and the restructuring of the electricity industry 8 also presents both risks and opportunities for Union? 9 MR. BIRMINGHAM: I would say generally that a 10 restructuring of the electricity industry may have some 11 growth opportunities for Union. Whether those growth 12 opportunities present themselves during the first term 13 of the PBR, I don't know. 14 MR. MIA: Therefore, would it be fair to say 15 that at Tab G are a list of risks, as well as in the 16 text of the material that we just referred to a second 17 ago, that Union has taken the position to highlight all 18 of the downside risks and none of the upside 19 opportunities that are associated with these factors? 20 MR. BIRMINGHAM: What we have attempted to do 21 is, to the extent that there are exposures -- as an 22 example, at line 9 of Appendix G is a declining use for 23 customer. There is no opportunity for Union there. That 24 has been our experience over the last many years and, in 25 fact, our most recent experience is worse than that. 26 All we are saying is that exposure compared to cost of 27 service is something that we are prepared to manage 28 within the price cap parameters. Les Services StenoTran Services Inc. 613-521-0703 1677 BIRMINGHAM, cr-ex (Mia) 1 To the extent, though, that with respect to 2 something like additional independent power producers 3 coming into the province in the Union's franchise area, 4 or to the extent that Union is able to exceed the 5 stretch factor that is included in the productivity 6 factor within the pricing formula, then those would 7 represent opportunities. 8 MR. MIA: If you look at item 2 -- I will take 9 you back to the IPPs -- you suggest in the text of your 10 evidence, page 67, Exhibit B, Tab 2, that the 11 restructuring of the IPP contracts represents a risk, 12 and you quantify that at $12.3 million. 13 I believe Mr. Brett -- and my apologies if it 14 is the wrong person -- suggested to you yesterday that 15 this matter is up in the air and, in fact, there is a 16 letter from the Minister of Energy suggesting that these 17 contracts will be honoured. So in that sense the IPP 18 risk isn't really a risk. 19 MR. PENNY: Mr. Chairman, we have been over 20 precisely this and Mr. Birmingham's response to this 21 very question is on the record with Mr. Brett from 22 yesterday. 23 THE PRESIDING MEMBER: Mr. Mia, I'm not sure 24 what perspective you are following on this one. 25 MR. MIA: Oh, I will take you back to the 26 original question, Mr. Birmingham. 27 Some of the items on the list at Tab G do not 28 represent pure risks, they represent risks or Les Services StenoTran Services Inc. 613-521-0703 1678 BIRMINGHAM, cr-ex (Mia) 1 opportunities and, therefore, they may cancel each 2 other out. 3 MR. BIRMINGHAM: In my view, they will not 4 cancel each other out. They won't even come close to 5 cancelling each other out. 6 There are some items on here where there may 7 be some opportunity for the utility, but most of these, 8 if I take a look at line 1, "alternate fuel loss"; 9 number three, "water heater market share"; number four, 10 "municipal franchises", the best that we can do is the 11 situation that we currently right now, and there is only 12 downside to those items. 13 I do agree that there may be some opportunity 14 for the independent power producers to the extent that 15 additional plants are put in and Union can service those 16 plants on an economic basis. Then there is some 17 opportunity for growth, clearly. But most of these are 18 downside items -- potential downside items that Union 19 will manage under the price cap where those same items, 20 should they manifest themselves, would be a ratepayer 21 attribution under cost of service regulation. 22 MR. MIA: Those are my questions. 23 Thank you, Mr. Birmingham. 24 THE PRESIDING MEMBER: Thank you, Mr. Mia. 25 MEMBER JACKSON: Mr. Mia, just before we 26 close, there was one point where maybe I didn't hear the 27 answer, but perhaps you could just confirm for me, 28 Mr. Birmingham, was it established that the customer Les Services StenoTran Services Inc. 613-521-0703 1679 BIRMINGHAM 1 review process could be activated any time during the 2 year if a customer thought there was a serious problem 3 of an SQI being out of line? Was that established or 4 did you say that no, it would only be once a year? 5 MR. BIRMINGHAM: Typically it was our 6 expectation that it would be just once a year. As you 7 can see, the customer review process in fact has two 8 dates, roughly, the June-July time frame and then the 9 fall time frame where parties would get together. So to 10 that extent there are at least the possibility for two 11 meetings during the year. 12 Beyond that, there is the opportunity to deal 13 with individual items by circulating to the participants 14 in the customer review process beyond the scheduled 15 meetings, so the example that we had thought of would be 16 something like a non-routine adjustment where that would 17 potentially impact rates. We may want to circulate a 18 report on the description of and the impact of a 19 non-routine adjustment in advance of something like the 20 scheduled customer review process meetings. 21 MEMBER JACKSON: I realize there is another 22 panel struck to deal with this matter in the proceeding, 23 but given that it came up in Mr. Mia's examination, I 24 guess I had the question whether -- reading between the 25 lines, and you are saying that you would go to the Board 26 after -- one would go to the Board after having been to 27 the customer review process. It seems necessary to 28 somehow be able to activate the customer review process Les Services StenoTran Services Inc. 613-521-0703 1680 BIRMINGHAM 1 so that one could get on the way to the Board if that 2 were necessary? 3 I guess what we are saying is that perhaps in 4 law there would be an opportunity to come to the Board 5 at any time with an application and the Board could 6 decide on whether or not it would accept it, but within 7 a broader context of economic regulation we try to sort 8 of establish rules and methods of operation that we say 9 we will live within and if what we are trying to do is 10 set up parameters for a PBR environment and we say that 11 the Board would not likely entertain an application 12 unless it had first gone to the customer review process, 13 then I think we would like to stick by that and so we 14 would like maybe some comfort to know that the customer 15 review process could be activated. 16 Perhaps it's a little bit hypothetical because 17 I'm sort of speculating on what might come out of this 18 proceeding, but we would want to know the applicant's 19 view with respect to that sort of a thing happening. 20 MR. BIRMINGHAM: I know one of the individuals 21 who is going to be on the next panel, Dr. Jackson, so I 22 can speak to the customer review process a little bit 23 now. 24 It was our intent to have a fairly 25 well-structured or well-defined process so that parties 26 knew and could anticipate when we would be dealing with 27 the different issues that need to be brought forward 28 through the customer review process. Les Services StenoTran Services Inc. 613-521-0703 1681 BIRMINGHAM 1 As you say, that doesn't restrict parties at 2 any time from going to the Board. That certainly isn't 3 the intention. 4 To the extent that there is something unique 5 that happened, then we could activate the customer 6 review process, either formally or informally. That is, 7 we could get together in terms of a meeting or have some 8 sort of written process that could deal with that 9 particular item. But it wasn't our intention to suggest 10 that up front. That would really be done on an 11 exception basis. 12 Now, my response to Mr. Mia about the service 13 quality indicators in particular is that my concern is 14 that I wouldn't want parties approaching the Board 15 saying "In the last three weeks of March we didn't like 16 the service that Union provided on this particular 17 indicator" when these are annual ones and there may be 18 some variations through the year. But it is our 19 commitment to make sure that we meet or exceed these on 20 an annual basis. So I just didn't want to be dealing 21 with very short-term variations where the commitment for 22 the year would be met or exceeded. 23 MEMBER JACKSON: Thank you. 24 Mr. Mia, I just wanted to ask you quickly too, 25 we are listing you in the transcript separate from 26 Mr. Vegh and the distinction is that it appears you do 27 not represent Duke Energy, or is that correct? 28 MR. MIA: Yes. I'm here for CEED. Les Services StenoTran Services Inc. 613-521-0703 1682 BIRMINGHAM 1 MEMBER JACKSON: For CEED only? 2 MR. MIA: CEED only. Mr. Vegh is here for 3 CEED and Duke. 4 MEMBER JACKSON: All those other companies 5 listed after CEED are also members of CEED, are they? 6 MR. MIA: I don't have a list. 7 MEMBER JACKSON: I just want you properly 8 described in this proceeding. 9 MR. MIA: I don't have the list in front of 10 me, but yes, it's a coalition of several companies. 11 MEMBER JACKSON: Okay. Thank you. 12 THE PRESIDING MEMBER: Mr. Birmingham, before 13 we go on I know I could ask this question during Board 14 questions, but I might as well ask it now, and that is 15 in relation to the questions from Mr. Mia. It seems to 16 me there are two issues here, one is the issue of 17 service quality indicators and overall performance. It 18 seems to me that he seems to be tending towards 19 complaints or concerns that specific action or group of 20 actions does not -- how did you put it? In the area of 21 March there were three weeks when you didn't meet a 22 particular time line or something. 23 I just wanted to ask a question of you, and 24 that is: Is this issue of distributor/retailer 25 relations one of the issues that is being discussed in 26 the distribution access task force? I believe it was on 27 the list of items in the letter that the Director of 28 Licensing sent us suggesting it would be an issue that Les Services StenoTran Services Inc. 613-521-0703 1683 BIRMINGHAM 1 would be discussed there. 2 MR. BIRMINGHAM: I think that's right, 3 Mr. Chairman. There are -- or it is our expectation 4 that when the Board does issue the distribution access 5 rules that there will be some indicators of how the 6 distributor and the retailer will interact and, as I 7 understand, one of those things might be something like 8 the contract turnaround time or the time that customers 9 can switch between contracts. I think there have been 10 some of those discussions. 11 Clearly that was one of the points of our 12 previous testimony, where to the extent that the Board 13 did rule on those and there were implications for 14 something like service quality indicators, then we would 15 incorporate those directly. 16 THE PRESIDING MEMBER: Thank you, 17 Mr. Birmingham. 18 I just wanted to record that fact. Thank you. 19 I believe it is now Mr. King. 20 I ask parties -- Mr. King, how long 21 approximately are you going to be? 22 MR. KING: I went over the transcripts last 23 night and some people have asked questions this morning, 24 so I will be, I think, very short. 25 THE PRESIDING MEMBER: Okay, that's fine. 26 Let's carry on then. 27 CROSS-EXAMINATION 28 MR. KING: I think all my questions relate to Les Services StenoTran Services Inc. 613-521-0703 1684 BIRMINGHAM, cr-ex (King) 1 utility risk. I would like to start with the addition 2 of new facilities. 3 I'm looking at page 69, lines 8 through 10. 4 You say: 5 "Union's risk results from unfavourable 6 variances in the project costs or 7 incremental revenue after the project has 8 been completed. These variances will be 9 managed by Union and not visited on 10 ratepayers..." 11 And here are the words that concern me: 12 "...during the term of the price cap 13 agreement." 14 What happens at the end of the term? 15 MR. BIRMINGHAM: Well, it's our proposal, 16 Mr. King, that we reset the parameters of the pricing 17 formula, and that evidence, even though it will be dealt 18 with by another panel, is found at -- beginning at 19 page 87 of Exhibit B, Tab 2. 20 So to the extent that our criteria to reset 21 the PBR parameters is accepted by the Board, then in 22 fact those variances would not be visited on ratepayers 23 at all. But, at a minimum, to the extent that the price 24 cap proposals are put in place for the five-year term, 25 then the ratepayers would not be affected by the 26 unfavourable variances, either in project costs or lower 27 than forecasted revenues. 28 MR. KING: Yesterday we spoke a bit about Les Services StenoTran Services Inc. 613-521-0703 1685 BIRMINGHAM, cr-ex (King) 1 customers being able to negotiate rates. I take it a 2 customer could negotiate a rate that would be less than 3 the rate to other customers in the same rate class? 4 MR. BIRMINGHAM: Well, the intent was that 5 they could negotiate rates that were higher or lower. 6 The considerations would be a number of things, 7 including the term or the period to which they were 8 prepared to commit to that rate. 9 MR. KING: Under what circumstances would you 10 negotiate a lower rate? 11 MR. BIRMINGHAM: For instance, one of the 12 circumstances might be where a customer is going to 13 bypass our system and we would risk the loss of that 14 load and loss of the utilization of that asset. That 15 might be a circumstance wherein a lower rate might be 16 negotiated. 17 MR. KING: When you say would bypass, do you 18 mean already having received approval to bypass or 19 simply filed an application to bypass or thinking about 20 bypass? 21 MR. BIRMINGHAM: It's hard to know what the 22 specific circumstances would be, but my guess is 23 typically what would happen is to the extent that a 24 customer who is currently using natural gas would be 25 looking to bypass Union's system that we would be 26 working with that customer to see if we couldn't keep 27 them on our system. We would be assessing the economics 28 of that bypass, and to the extent that we viewed that Les Services StenoTran Services Inc. 613-521-0703 1686 BIRMINGHAM, cr-ex (King) 1 bypass risk as real, that is that the economics of the 2 bypass would, in fact, be more favourable for the 3 customer than staying on Union's system, we would be in 4 the situation where we would be negotiating a rate at 5 that point. 6 So my expectation would be that that would be 7 in advance of the Board having to deal with an 8 application or evidence with respect to bypass. 9 MR. KING: I take it under PBR a reduced rate 10 for one customer wouldn't result in the others paying 11 more? 12 MR. BIRMINGHAM: That's right. Customers 13 would be insulated from the effects of negotiated 14 prices. 15 MR. KING: Looking at page 77, the final 16 paragraph, "price cap situation". You talk about your 17 choice, sir, or your view that producing your rates 18 would be preferable in order to meet customers' 19 competitive alternatives and absorb the earnings 20 reduction or sell the distribution line to the customer. 21 The "distribution line" you are referring to 22 here, is that a distribution line on a customer's 23 property or could it also be extended to a dedicated 24 distribution line to the customer's property? 25 MR. BIRMINGHAM: It could be both. 26 MR. KING: I think yesterday you said that 27 sale would take place at whatever market value would be? 28 MR. BIRMINGHAM: Yes. Presumably if the Les Services StenoTran Services Inc. 613-521-0703 1687 BIRMINGHAM, cr-ex (King) 1 assets were going to be disposed of they would be 2 disposed of at whatever the fair market value would be. 3 MR. KING: The first line of that last 4 paragraph, Mr. Thompson referred to it yesterday, and I 5 think he was getting at the point of how all 6 encompassing this was, and he used the example of 7 Sudbury or Kingston being a major asset disposition and 8 whether that would be covered and whether Union would 9 receive all the proceeds. 10 Thinking even maybe bigger that, would this 11 include something like sale of storage assets or even 12 the Dawn-Trafalgar transmission system to its Westcoast 13 affiliate? 14 MR. BIRMINGHAM: No. The intent here was that 15 when we -- we were setting out a position with respect 16 to how gains and losses would be accounted for. But, as 17 I mentioned yesterday, under the pooled method of 18 accounting any of the proceeds from an asset 19 disposition, whether they be above or below net book 20 value, will be accounted for in the accumulated 21 depreciation reserve for that class of assets and there 22 wouldn't be any recognition of the gain or loss until 23 that entire class of assets was disposed of. 24 MR. KING: How would the PBR term be affected 25 by something like a significant change in your assets? 26 MR. BIRMINGHAM: Just to make sure I have the 27 question, Mr. King: How would the length of the price 28 cap term? Les Services StenoTran Services Inc. 613-521-0703 1688 BIRMINGHAM, cr-ex (King) 1 MR. KING: No. I will give you an example. 2 You said in your evidence that you are going to keep 3 storage for infranchise customers at cost over the PBR 4 term. What would happen if the storage assets were 5 somehow separated from the distribution assets for 6 example? 7 MR. BIRMINGHAM: Then we would require the 8 approval of the Board to be able to do that and there 9 would be a proceeding that happened if that -- in that 10 hypothetical case and I suspect that in the context of a 11 significant change to the utility's regulated operations 12 that the Board may well want to revisit the regulatory 13 framework at that point as well. 14 MR. KING: A defacto offering. 15 MR. BIRMINGHAM: Pardon me? 16 MR. KING: Sort of a Board-imposed offering, 17 if you will. 18 MR. BIRMINGHAM: I think that's right. 19 Clearly there isn't anything about the price cap 20 proposal that goes to reduce the Board's legislated 21 authority. 22 MEMBER JACKSON: Mr. Birmingham, this may be 23 something that the company wants to address in argument 24 too, I'm not sure, but let's just explore briefly to see 25 what size of an issue it is. 26 But it seems to me that what you are saying is 27 that the company could sell off small portions of its 28 assets and probably do that without an application to Les Services StenoTran Services Inc. 613-521-0703 1689 BIRMINGHAM, cr-ex (King) 1 the Board. For example, if we are looking at the 2 customers you have on the northern system for 3 TransCanada, there are little spur lines coming off and 4 serving them and you may own the spur lines but under 5 certain circumstances you might sell those spur lines at 6 fair market value to the customer. I take it I'm 7 correct in that? 8 MR. BIRMINGHAM: That's right. 9 MEMBER JACKSON: Yes. And then there is 10 probably a spectrum of the size of these kinds of sales 11 that could happen, and Mr. King is taking you to the 12 question of: Well, could you sell off your entire 13 storage system or could you sell off a portion of the 14 system that is far more than a spur line, it is the 15 Dawn-Trafalgar system, and you are saying that you think 16 you would have to come to the Board for that. 17 What triggers that and where is the 18 demarkation between those kinds of sales that would 19 require Board approval and those that wouldn't? 20 MR. PENNY: I think the starting point for 21 that is really a legal question, Dr. Jackson -- 22 MEMBER JACKSON: Yes, it probably is. 23 MR. PENNY: -- which arises out of section 43 24 of the legislation. The legislation requires that there 25 has to be approval of the Board: 26 "...an order granting leave..." 27 is what it says: 28 "...if the utility wants to sell, lease Les Services StenoTran Services Inc. 613-521-0703 1690 BIRMINGHAM, cr-ex (King) 1 or otherwise dispose of its gas 2 transmission, distribution or storage 3 system as an entirety or substantially as 4 an entirety; or 5 (b) sell, lease or otherwise dispose of 6 that part of the system described 7 previously that is necessary in serving 8 the public." (As read) 9 So any time the utility were to be disposing 10 of assets that fell within the framework of section 43, 11 either under (a) or (b), it requires a Board Order 12 granting leave to do so. 13 MEMBER JACKSON: Thank you very much for 14 helping me on that. 15 So that under 43.1(b), I take it that if you 16 are just serving one customer it wouldn't be viewed as 17 serving the public. Is that what we are saying? 18 MR. PENNY: I'm not sure that I want to answer 19 that question right now because I don't know what the -- 20 I haven't thought about it and I'm not sure what the 21 answer to that is. 22 MEMBER JACKSON: Fair enough. It's just that 23 might be helpful in distinguishing the two types of 24 situations. 25 Thank you very much. 26 MR. BIRMINGHAM: Just further to that, 27 Dr. Jackson, as a practical matter it would be my 28 expectation that if we were going to sell, lease or Les Services StenoTran Services Inc. 613-521-0703 1691 BIRMINGHAM, cr-ex (King) 1 otherwise dispose of some aspect of the transmission 2 distribution or storage system, even a single line, it 3 would be my expectation that Union, at a minimum, would 4 be letting the Board know. And beyond that, to the 5 extent that we needed the explicit approval through a 6 proceeding, then we would go through that as well. 7 MEMBER JACKSON: Thank you for that. 8 I expect you would too, assuming sort of good, 9 workable relationships between the utility and the 10 overseer. But, nonetheless, maybe I just have to get up 11 to speed again and I'm just trying to understand how 12 this works and whether there is a technical fall-back to 13 cover your need to come to the Board. 14 So thank you for that help. 15 THE PRESIDING MEMBER: Mr. King. 16 MR. KING: My final question is on the 17 Exhibit C24.39, the MECAP interrogatory. 18 --- Pause 19 MR. BIRMINGHAM: I have it. 20 MR. QUINN: The last paragraph reads: 21 "The potential sale of Union's facilities 22 on the customers property to the customer 23 would be considered only under 24 circumstances where the utility and the 25 customers cannot come to an agreement on 26 a competitive price for delivery to the 27 plant." (As read) 28 So I take it Union's preference to either sell Les Services StenoTran Services Inc. 613-521-0703 1692 BIRMINGHAM, cr-ex (King) 1 the distribution line or negotiate a rate -- there is a 2 hierarchy, you are going to try to negotiate a rate 3 first -- if that is unsuccessful then sell the line? 4 MR. BIRMINGHAM: It is our preference to be 5 able to negotiate a rate for service in the first 6 instance, that's right. 7 MR. QUINN: How would you define "competitive 8 price" on the last line? 9 MR. BIRMINGHAM: The circumstance that I used 10 before where a customer can bypass Union's system, to 11 the extent that becomes an economical alternative for 12 them ultimately there will be a price for putting in 13 those facilities and receiving the service on the bypass 14 line and it would be that price that is their 15 competitive alternative that would determine whether we 16 could meet that price or not. 17 MR. QUINN: Thanks. Those are my questions. 18 THE PRESIDING MEMBER: Thank you, Mr. Quinn. 19 I believe that is all the parties who wish to 20 ask questions. Is that correct? 21 Ms. Lea, do you have any questions? 22 MS. LEA: No. 23 Dr. Wightman indicated, I think, that the 24 question that he wanted to ask had been answered already 25 by another party. I will just check with him on the 26 break, but I believe we have no questions. 27 THE PRESIDING MEMBER: Dr. Jackson? 28 MEMBER JACKSON: I don't believe I have any Les Services StenoTran Services Inc. 613-521-0703 1693 BIRMINGHAM 1 questions at this time. 2 Thank you. 3 THE PRESIDING MEMBER: Do I have any? 4 There is just one question, it is related to 5 the SQIs, and we have been talking about them and the 6 customer review process developed new ones. 7 I was just wondering whether, Mr. Birmingham, 8 you could speculate on: An SQI -- or range of 9 possibilities for an SQI that deals with this question 10 that there seems to be have been a lot of debate as to 11 the extent to which Union will continue to operate its 12 system expansion policies consistent with its practices 13 it had before under the PBR regime. 14 I think there have been a lot of questions 15 asked and there seems to be two sides to the discussion 16 going on. 17 One is, whether under PBR the productivity 18 will improve because Union not attach the type of 19 customer -- or undertake the type of project that they 20 had previously been doing in the past which was less 21 economic. That's one side. 22 The other side is whether in fact customers 23 will continue to receive the same level of connection 24 that they were receiving before a PBR scheme. 25 So if one comes to this concern, and it is 26 probably an unfair question at the moment, but have you 27 any ideas to what sort of an SQI could be imagined that 28 would keep control of this aspect of concern. Les Services StenoTran Services Inc. 613-521-0703 1694 BIRMINGHAM 1 MR. BIRMINGHAM: I think there is probably a 2 couple of ways you could go at it, Mr. Chairman. 3 One of them, for instance, might be a service 4 quality measure that was dealing with customer request 5 turnaround time. So that could deal with a couple of 6 aspects. I suspect what we would want to do is split it 7 into a couple of categories. 8 One could be customers who request service 9 from Union where a main already runs by their home or 10 their business and we could measure the time that it 11 takes from the time that the customer requests the 12 service to the time they are actually hooked up. 13 You could do a similar thing, I think, for new 14 customers -- that is when you are going into a new 15 community -- when a customer requests service how 16 quickly do they get it? So that could be one way to go 17 at it. 18 I suspect you would want to add something else 19 onto that with respect to the economic feasibility, but 20 in truth, sir, I haven't turned my mind to it. 21 THE PRESIDING MEMBER: I thought it was a 22 question that would be difficult to answer, but it was 23 certainly a thought that was going through my mind as I 24 was listening to the questioning. 25 MR. BIRMINGHAM: Just on that, Mr. Chairman, 26 with respect to new service quality indicators the very 27 question that you have posed is exactly my concern about 28 agreeing to anything more at this point. That is, it Les Services StenoTran Services Inc. 613-521-0703 1695 BIRMINGHAM 1 does take a while to think through exactly what we are 2 trying to measure, how we measure it, how it is going to 3 be reported and what the ramifications for that are. 4 I think one of the real benefits of the 5 customer review process is going to deal with exactly 6 those types of measures. Frankly, over the course of 7 time we haven't had service quality indicators that have 8 dealt with specifically the concerns of retail energy 9 marketers and I think we will have an opportunity to 10 do that. 11 THE PRESIDING MEMBER: That is the only 12 question I had. 13 Does Mr. Penny have any re-direct? 14 MR. PENNY: No, I have no questions on 15 re-examination. 16 Thank you. 17 THE PRESIDING MEMBER: Thank you, Mr. Penny. 18 I think we should take our break now and start 19 the new panel, which again is Mr. Birmingham I believe. 20 MR. PENNY: Yes. He will be joined by 21 Mr. Byng. 22 THE PRESIDING MEMBER: Will we be seeing 23 Ms Elliott again? 24 MR. PENNY: It depends. I think perhaps not, 25 the way that the panels are currently constructed. 26 THE PRESIDING MEMBER: I just wanted to record 27 on the transcript our thanks to her for her attendance 28 and diligence, patience and for her responses. Les Services StenoTran Services Inc. 613-521-0703 1696 1 MR. PENNY: Thank you, sir, on her behalf. We 2 will bring that to her attention. 3 THE PRESIDING MEMBER: Let's come back at 4 25 after 11:00. 5 Thank you. 6 --- Upon recessing at 1056 7 --- Upon resuming at 1125 8 THE PRESIDING MEMBER: Any preliminary 9 matters? 10 MR. PENNY: Yes, Mr. Chairman. Thank you. 11 Before we introduce the next panel, there are 12 two interrogatory answers available, and, in fact, 13 three, G8.1 and G8.2 and 8.3 -- 8.2 and 8.3 are combined 14 in one answer. 15 In terms of where we are going, the next panel 16 is the panel that will be responding to the issues of 17 reporting and monitoring customer review process in 18 second generation. We have set aside tomorrow for the 19 DSM panel. If in the event that this panel is finished 20 today before the end of the day, my suggestion is simply 21 that we break and then proceed with DSM in the morning. 22 If DSM does not take the day tomorrow, however, we will 23 be in a position to start right away with pricing 24 flexibility, which would be the final panel of the Union 25 case. 26 THE PRESIDING MEMBER: Thank you, Mr. Penny. 27 MR. PENNY: And if DSM does take the day, or 28 slightly more, we will start with the pricing Les Services StenoTran Services Inc. 613-521-0703 1697 1 flexibility panel on Thursday. 2 THE PRESIDING MEMBER: Thank you. 3 Any other comments or issues that need to be 4 addressed? 5 Mr. Penny, then, I think you have your witness 6 to bring forward. 7 MR. PENNY: Thank you. 8 Yes, Mr. Chairman, we are joined, again, by 9 Mr. Birmingham, and he will be assisted by Mr. Tom Byng. 10 Perhaps Mr. Byng can come forward and be sworn. 11 PREVIOUSLY SWORN: RICK BIRMINGHAM 12 SWORN: TOM BYNG 13 EXAMINATION-IN-CHIEF 14 MR. PENNY: Now, just briefly, Mr. Byng, you 15 are currently the manager of regulatory applications for 16 Union Gas? 17 MR. BYNG: Yes, I am. 18 MR. PENNY: And you have been with Union Gas 19 in various capacities, principally relating to financial 20 matters and regulatory accounting, since 1986? 21 MR. BYNG: That's correct. 22 MR. PENNY: You have a Masters of Business 23 Administration? 24 MR. BYNG: Yes. 25 MR. PENNY: And a Bachelor of Commerce? 26 MR. BYNG: Yes. 27 MR. PENNY: And you have testified before this 28 Board on a number of occasions as outlined in your CV? Les Services StenoTran Services Inc. 613-521-0703 1698 BIRMINGHAM/BYNG, in-ch (Penny) 1 MR. BYNG: Yes, I have. 2 MR. PENNY: And you were involved, Mr. Byng, 3 in the preparation of certain aspects of the evidence in 4 this application? 5 MR. BYNG: Yes, I was. 6 MR. PENNY: And the answering interrogatories 7 from time to time, which bear your name? 8 MR. BYNG: Yes. 9 MR. PENNY: And do you adopt that evidence? 10 MR. BYNG: Yes, I do. 11 MR. PENNY: Thank you, Mr. Byng. 12 Mr. Chairman, I have no examination in-chief, 13 for this witness panel in particular, so we can proceed 14 directly to cross-examination. 15 THE PRESIDING MEMBER: Thank you, Mr. Penny. 16 I don't see Mr. Warren, so I think it's 17 Mr. Brett. 18 MR. BRETT: Thank you, Mr. Chairman. 19 Good morning, Mr. Chairman, Dr. Jackson. 20 CROSS-EXAMINATION 21 MR. BRETT: Good morning, panel. 22 I want to deal first with the customer review 23 process, and that's contained in pages 82 to 88 of your 24 evidence, and also in C1.160. And I would just like to 25 go over briefly the items that you indicate here will be 26 filed as part of the customer review package in June of 27 each year. 28 And the first of these is proposals for Les Services StenoTran Services Inc. 613-521-0703 1699 BIRMINGHAM/BYNG, cr-ex (Brett) 1 non-routine adjustments, if any. And I notice in the 2 first category here -- and you outline this at page 84 3 of your evidence -- is stranded costs, that you will be 4 able to come forward in June with your stranded costs. 5 You make reference on page 84 to assets that you have 6 that might be stranded as a result of the unbundling 7 process particularly, and I'm reading here from the 8 middle of the large paragraph at the top of page 84: 9 "...particularly as Union continues 10 through the unbundling transition, is the 11 stranded cost implications of unbundling 12 the customer billing function." 13 So one of the things that you are going to 14 bring forward are any stranded costs that you have 15 incurred as a result of unbundling that you wish to get 16 approval to pass through to -- as a passthrough item or 17 a Z factor for customers. Correct? 18 MR. BIRMINGHAM: That's right, Mr. Brett, and 19 that's consistent with the definition of the non-routine 20 adjustments that's found at page 36, which also talks 21 about the fact that Union's request to recover these 22 from customers would be after reasonable attempts to 23 mitigate any stranded costs. 24 MR. BRETT: Right. 25 And another example of a stranded cost related 26 to your facility's utilization, as I understand it, 27 would be that in the northern and eastern service 28 area -- and this is found or is referenced at paragraph Les Services StenoTran Services Inc. 613-521-0703 1700 BIRMINGHAM/BYNG, cr-ex (Brett) 1 1.2.8 of the Settlement Agreement -- that you have 2 stated that Union will manage up to a 30 per cent move 3 from -- to unbundled service and straight T-service in 4 that area. But anything above that you reserve the 5 right to bring forward as a -- if unbundling proceeds 6 beyond that threshold, you reserve the right to bring 7 forward any costs that are caused by that into this 8 process. Is that fair? 9 MR. BIRMINGHAM: We would want to take a look 10 at what the implications were of unbundling once we hit 11 that threshold, that's right. 12 MR. BRETT: Right. 13 And then you go through and list the other 14 items here and gas cost changes, proposals with respect 15 to gas cost changes. I don't think there is anything 16 there. That is because gas costs are a flowthrough 17 item. Correct? 18 MR. BIRMINGHAM: That's right. 19 MR. BRETT: And then a formula passthrough 20 items, report of previous year's performance against 21 SQIs -- I'm just reading from C1.160 here -- and 22 forecasts of year-end deferral account balance and 23 proposed dispositions. 24 Now, I have it here -- and it may have come 25 from an interrogatory, I can't recall -- were you also 26 going to file in June a financial information package -- 27 my note says here at the same level of detail as in the 28 company's annual report? Now, that would be something Les Services StenoTran Services Inc. 613-521-0703 1701 BIRMINGHAM/BYNG, cr-ex (Brett) 1 along the lines of Undertaking F2.1, which sets out some 2 financial information at a high level. Was that your -- 3 was your intent to file that, as well? 4 MR. BIRMINGHAM: That response is in 5 Exhibit C1.156, where it indicates that we would prepare 6 a financial information package that would contain the 7 previous year's annual utility financial performance and 8 compare that against the actuals for the prior year. 9 MR. BRETT: Now, would that be in the format 10 that's laid out in Appendix H to Exhibit B, Tab 2, that 11 we have been discussing? Is that the format that you 12 are talking about there? That's Appendix H -- Exhibit 13 B, Tab 2, Appendix H, Schedules 1 through 6 or 7, I 14 believe. Schedules 1 through 7 -- 1 through 8 -- I'm 15 sorry, actually, there are 10 schedules there. 16 But, anyway, that's the document that we have 17 been spending a lot of time discussing as a financial 18 reference point in looking at the PBR plan. And is the 19 idea that you would file something approximating that, 20 something analogous to this Appendix H? 21 MR. BIRMINGHAM: That would be the intention, 22 Mr. Brett. I would mention that the schedules that are 23 noted as Schedule -- I guess, Schedules 7, 8 and 9, 24 which deal with revenue deficiency, really, are 25 duplicable under the price cap proposal. But the intent 26 is that we file the information package that is similar 27 to the information that's found in Appendix H of 28 Exhibit B. Les Services StenoTran Services Inc. 613-521-0703 1702 BIRMINGHAM/BYNG, cr-ex (Brett) 1 MR. BRETT: Okay, I take your point there. 2 But in terms of items like the O&M and other items of 3 expense, it would have the same degree of breakdown as 4 we have in Appendix H? 5 MR. BIRMINGHAM: That's the intention, yes. 6 MR. BRETT: Now, is it your intent to also 7 file an itemization of the new services that you propose 8 to introduce? 9 You have a note on C1.160 that you will 10 prepare information about new regulated services. But I 11 think you told me earlier, in effect -- and correct me 12 if I'm mistaken -- as part of the June review, you would 13 file your intentions to any new services that you 14 propose to introduce, be they, in your view, regulated 15 or unregulated, you would give notice of them and 16 describe them and, effectively, ask for input or comment 17 on them. Is that fair? 18 MR. BIRMINGHAM: Only to the extent that they 19 are regulated services. We would be providing the 20 information as it is indicated at the bottom of 21 Exhibit C11.60 with respect to the new service, the rate 22 structure. 23 MR. BRETT: So that if the services that you 24 are talking about introducing and this would be, I 25 guess, a prospective item -- it would be an item looking 26 forward -- what you were intending to do in the 27 following year. Correct? 28 MR. BIRMINGHAM: It would be a prospective Les Services StenoTran Services Inc. 613-521-0703 1703 BIRMINGHAM/BYNG, cr-ex (Brett) 1 item in that because it is a regulated service we 2 couldn't offer it until we had the Board's approval. 3 MR. BRETT: But if you were also -- if you 4 were going to introduce some other services that in your 5 view were not -- shouldn't be regulated, you would be 6 indicating -- at that point you would be listing those 7 and describing those as well as part of that review 8 process? 9 MR. BIRMINGHAM: It wasn't our intention to, 10 Mr. Brett. It was simply our intention to introduce 11 them. 12 MR. BRETT: Well, how is it then that there 13 would be any -- I thought we had discussed the other day 14 the ideal -- let me ask you. 15 If that were the case, where would we have the 16 opportunity to -- where would intervenors or customers 17 and the like have the opportunity to discuss with you 18 whether or not those services are or should be 19 regulated? I thought that we had discussed the other 20 day the idea that that form would exist in part for a 21 discussion of it, that that issue could be raised in 22 that review form and if necessary then adjudicated on by 23 the Board if there were a dispute as to whether a 24 service was regulated or not. I thought you said that 25 the other day. 26 MR. BIRMINGHAM: Yes. But that is different 27 than the first question that you asked me. 28 I agree that to the extent that we introduced Les Services StenoTran Services Inc. 613-521-0703 1704 BIRMINGHAM/BYNG, cr-ex (Brett) 1 a new unregulated service, and I think the example we 2 were talking about at the time was load profiling, if 3 that was to be introduced, obviously we would be talking 4 to customers about the fact that we are prepared to 5 offer this service. If there were some concern about 6 whether they felt that that service should be regulated 7 or defined as a regulated service and receive the 8 Board's approval, then it would be appropriate that it 9 be raised in the customer review process and then 10 brought to the Board for disposition. 11 MR. BRETT: Okay. So you are effectively 12 saying you are leaving it for the customer to raise or 13 for another party to raise in the customer review 14 process if they have an issue with it? 15 MR. BIRMINGHAM: That is right. 16 MEMBER JACKSON: And if they know about it? 17 And if it comes to their attention, right. 18 MR. BRETT: If they don't -- yes, that 19 presumes that they -- 20 MEMBER JACKSON: I know that is a statement of 21 the obvious, Mr. Brett. I am sorry. But it just seems 22 to me that what you are getting at, which might be 23 useful, is how do we know if any new services are being 24 provided using the existing staff of the utility and 25 possibly using the computer systems of the utility, 26 et cetera. 27 Like is there a situation where there might be 28 a reasonable allocation of cost between utility and Les Services StenoTran Services Inc. 613-521-0703 1705 BIRMINGHAM/BYNG, cr-ex (Brett) 1 non-utility, notwithstanding that it is the company's 2 view that it is a non-priced regulated service. And how 3 would -- how would anybody know about that service being 4 offered? Mr. Birmingham, maybe you could help me on 5 that and then we can go back to Mr. Brett. 6 MR. BIRMINGHAM: The customers will know that 7 we are offering the service because presumably they will 8 be the ones that are requesting it. We develop that 9 service in that respect. So it wasn't our intention to 10 necessarily bring forward a listing of new services that 11 are unregulated fees in the context of the customer 12 review process because that was really dealing with 13 things that in fact were regulated and dealt with the 14 parameters of the price cap plan. 15 MEMBER JACKSON: But this view about 16 regulated/unregulated, help me understand what sorts of 17 unregulated services we might be talking about. I think 18 you mentioned load profiling as an example. But could 19 you start using excess capacity in your computer system 20 to do runs for some external company that just needs 21 some more computer time. I mean could it be something 22 that is totally outside of the utility business but you 23 are using utility assets to get that additional revenue? 24 MR. BIRMINGHAM: It couldn't, Dr. Jackson, and 25 that is by virtue of our undertakings where we can't 26 engage in any activity that isn't related to storage, 27 distribution or transmission without the explicit 28 approval of the Board. And in fact, when I come up on Les Services StenoTran Services Inc. 613-521-0703 1706 BIRMINGHAM/BYNG, cr-ex (Brett) 1 my next panel, we will be dealing with some of those 2 very approvals. 3 For instance, the agency going and collection 4 service that we offer to retail energy marketers is an 5 example of I think that type of service that you are 6 speaking to which is something that customers might want 7 but it isn't -- but is in the core of the activities 8 that we do when we ask for the Board's express approval. 9 So in your example, if we were to have excess 10 computer capacity that we were going to offer a service 11 to some insurance company or financial institution, we 12 couldn't do that without the express approval of the 13 Board. 14 MEMBER JACKSON: Okay. Thank you for 15 clarifying that. I better start reading ahead a bit I 16 guess. 17 Thank you. 18 MR. BRETT: In light of all of that, 19 Mr. Birmingham, wouldn't it be -- just as a purely 20 practical matter, wouldn't it be faster and more 21 efficient to simply list all of the services that you 22 are proposing to introduce so that people aware of them, 23 all customers are aware of them? 24 Why leave it -- why leave it up in the air 25 such that, you know, you offer a service to one 26 industrial and no one else knows about that? As a 27 practical matter, wouldn't it be just simpler and more 28 efficient and lead to more credibility in the process Les Services StenoTran Services Inc. 613-521-0703 1707 BIRMINGHAM/BYNG, cr-ex (Brett) 1 for you to file that information? Any new service that 2 you are proposing, be it competitive -- even if it is a 3 competitive service? 4 MR. BIRMINGHAM: Well, that is a practical 5 matter, Mr. Brett. What we would want to do is to be 6 able to provide the service at the time the customer 7 requests it if it is not a regulated service and there 8 is no need to delay until we go through the customer 9 review process. 10 Now, again as a practical matter, if parties 11 were interested in the utility just filing a listing of 12 their services that it has introduced on an unregulated 13 basis, that is something that we would be agreeable to. 14 MR. BRETT: All right. Well, that would be 15 helpful. So here what you are saying is that in some 16 cases you would have already introduced those, but they 17 would be then filed and people could at that point see 18 whether they had any issue with respect to those 19 services in terms of there being something that ought to 20 be regulated or not or whether it is something that 21 would raise any, for want of a better word, competitive 22 issue? 23 MR. BIRMINGHAM: If the concern is that not 24 all parties are going to have the same information with 25 respect to the services that the utility is offering, 26 even though they are not regulated services, then one of 27 the ways that we can deal with that is simply to provide 28 a listing of any new unregulated services that we have Les Services StenoTran Services Inc. 613-521-0703 1708 BIRMINGHAM/BYNG, cr-ex (Brett) 1 introduced since the last customer review process. 2 MR. BRETT: Did you -- just going back to the 3 discussion of Appendix H a few minutes ago that we had, 4 I take it that you would be filing sufficient 5 information that we would be able to -- you mentioned it 6 wouldn't be under cost service regulation, it wouldn't 7 be under performance-based regulation but you would be 8 supplying sufficient information that one would be able 9 to calculate the return on equity of the utility, the 10 earnings of the utility during that period? 11 You worried me a bit there when you said you 12 wouldn't be filing any information on -- analogous to 13 items, Schedules 5, 6 and 7. I know -- I am not so 14 concerned with the precise form as just with the 15 assurance that there would be sufficient information 16 there to allow and that you would provide a calculation 17 of what the effective -- what the rate of return -- what 18 the earnings of the utility were and what the return on 19 equity was -- effective return on equity was for the 20 previous year. 21 MR. PENNY: I thought Mr. Birmingham's 22 evidence was that they wouldn't be filing 7, 8 and 9. 23 It wasn't -- I don't think it was 5, 6 and 7. 24 MR. BRETT: I may have -- leaving aside the -- 25 over and above the issue of exactly what pieces of 26 paper, and I may have misstated -- quoted you there, 27 could you give me -- is it your intention to do what I 28 have suggested? Les Services StenoTran Services Inc. 613-521-0703 1709 BIRMINGHAM/BYNG, cr-ex (Brett) 1 MR. BIRMINGHAM: The actual return on equity 2 on the utility basis will be provided in those 3 statements. 4 MEMBER JACKSON: When you say on a utility 5 basis, does it include the -- what you are 6 characterizing as the revenue from the unregulated 7 services? 8 MR. BIRMINGHAM: Yes, just as it does now, 9 Dr. Jackson. 10 MEMBER JACKSON: Good. Okay. 11 MR. BRETT: And it will include basically 12 the -- maybe I am just repeating the question. But it 13 will include the revenues from the new services that are 14 being introduced? 15 MR. BIRMINGHAM: Yes, on both counts. 16 MR. BRETT: Now, will you also be introducing 17 some material? 18 There was an interrogatory of Mr. Thompson's 19 C21.98, which essentially -- I don't know that you need 20 to turn it up. It was that IR that asked for cost 21 allocation, or revenue to cost ratios. You did provide 22 those to Mr. Thompson. I believe they were the excerpts 23 of the working papers that you had filed with the rate 24 order coming out of 499. It gives the basic information 25 relating revenues to costs for the various customer 26 classes. 27 Is it your intent to continue to file that 28 information, or that level of information? Les Services StenoTran Services Inc. 613-521-0703 1710 BIRMINGHAM/BYNG, cr-ex (Brett) 1 --- Pause 2 MR. BIRMINGHAM: No, it isn't, Mr. Brett. 3 Under price cap regulation, as we have said 4 before, the unit prices are decoupled from the unit cost 5 so filing cost allocation information in a PBR regime 6 isn't necessary. 7 MR. BRETT: Will you have computed that 8 information -- whether or not you have filed, are you 9 going to have that information computed internally in 10 the normal course? 11 MR. BIRMINGHAM: I think that's going to 12 depend on a number of things. It is not our intent to 13 maintain that information, no. 14 The only circumstance I can see us continuing 15 to calculate the typical cost allocation studies is if 16 the Board was to find that after the first price cap 17 term that there should be some sort of return to cost of 18 service, in which case we would have to maintain the 19 capability to prepare for that. Beyond that it is not 20 our intention to continue to compute cost-of-service 21 types of calculations when we are under a 22 performance-based regulation framework. 23 MR. BRETT: What if the Board were not to 24 say -- or were to say "Well, we are not sure whether we 25 will go back to cost-based cost-of-service after five 26 years. We are not really sure what will happen after 27 five years, we have to assess the course of the program, 28 but we want to have the option of looking to see at the Les Services StenoTran Services Inc. 613-521-0703 1711 BIRMINGHAM/BYNG, cr-ex (Brett) 1 end of five years where costs and revenues -- how costs 2 and revenues are lining up, taking into account that 3 distribution is still a monopoly function, and that it's 4 worth" -- well, for whatever reason they decide that 5 they want to at least have the option of looking at 6 that. 7 If they do, does that not mean that you need 8 to effectively have an annual trail of the costs to 9 revenues and this basic information? Otherwise, how are 10 you going to do that at the end of the five years? 11 Don't you have to have a trail in your own books each 12 year that you can arrive at where you end up at the end 13 of five years? 14 MR. BIRMINGHAM: If there is a chance that the 15 Board was going to return to some cost of service 16 regulation then we could meet that in a couple of 17 respects. 18 I would suggest that one of them would not be 19 an annual cost allocation study. We might have to wait 20 until we get some indication from the Board, and then 21 try to prepare some sort of catch-up with respect to 22 that cost allocation. 23 MR. BRETT: Well, we are going to get into 24 actually what will happen at the end of the five-year 25 period as another separate subject in a moment. 26 But what about forecasts of capital 27 expenditure? Are you going to be able to say anything 28 in those June reviews about capital expenditure in the Les Services StenoTran Services Inc. 613-521-0703 1712 BIRMINGHAM/BYNG, cr-ex (Brett) 1 previous year and upcoming capital expenditures? 2 MR. BIRMINGHAM: There will be no forecast 3 information provided. The schedules that are contained 4 under Appendix H do provide some summary information 5 with respect to our actual capital expenditures and we 6 would be providing that. 7 MR. BRETT: All right. So you do have capital 8 expenditure information in Appendix H in addition to -- 9 as part of your rate base information? 10 MR. BIRMINGHAM: Yes, I think that in fact is 11 Schedule 10, and there are six pages there, Mr. Brett, 12 that outline the different projects that are there. We 13 would be providing it on an actual basis only. 14 MR. BRETT: So you would be providing actuals, 15 but no forecasts going forward -- 16 MR. BIRMINGHAM: That's right. 17 MR. BRETT: -- of any capital expenditure? 18 Your view, I take it, is that you provided all 19 of the necessary information on interest rate, on 20 refinancings. You have given an undertaking in this 21 case where you have laid out what refinancings you 22 contemplate doing over the term of the PBR. Therefore, 23 you would have information -- there would be additional 24 information on actual -- on the financing of new capital 25 expenditure. Correct? 26 Or do you include that in that interrogatory 27 that you had previously filed? I thought that just was 28 the refinancing of existing debt issues. I'm sorry, not Les Services StenoTran Services Inc. 613-521-0703 1713 BIRMINGHAM/BYNG, cr-ex (Brett) 1 the interrogatory. I'm sorry, the undertaking. 2 MR. BIRMINGHAM: Well, the impacts of 3 financing our capital, both existing and new, will be 4 contained in the actual numbers that we file in the 5 customer review process. 6 MR. BRETT: Those are the actual capital 7 expenditures? 8 MR. BIRMINGHAM: As well as the cost of 9 financing that capital, whether that is by virtue of 10 refinancing or by virtue of incurring new debt to 11 finance the new capital. 12 MR. BRETT: All right. So the terms of the 13 debt would be laid out as part of that? 14 MR. BIRMINGHAM: They will be included in the 15 effects from the -- on an actual basis. 16 MR. BRETT: But again, nothing as far as 17 forecasts? 18 MR. BIRMINGHAM: Nothing for forecasts. This 19 isn't cost of service regulation. 20 MR. BRETT: No, but it's -- all right. Let's 21 not argue about it. 22 I take it this process is a funded process, 23 that you would be funding this customer review process 24 in a manner roughly analogous to your funding this case? 25 MR. BIRMINGHAM: That's right, Mr. Brett. We 26 want to make sure that all parties who want to 27 participate in the customer review process are able to 28 participate and we wouldn't want funding to be any sort Les Services StenoTran Services Inc. 613-521-0703 1714 BIRMINGHAM/BYNG, cr-ex (Brett) 1 of obstacle to that participation. 2 That was the intent of the evidence that is 3 filed at page 22 of Exhibit D, Tab 2, and that is at 4 lines 10 and 11 where we continue to offer intervenor 5 funding to eligible parties who attend the customer 6 review meetings. 7 MR. BRETT: I apologize, I should have picked 8 that up. Thank you. 9 MR. BIRMINGHAM: No not at all. It's just one 10 of the reasons why we reduce the rate hearing cost by 11 60 per cent rather than a larger amount. 12 MR. BRETT: I will refrain from replying to 13 that, Mr. Birmingham, since I'm asking questions and you 14 get to make the comments. 15 All right. Just if I may now, you would agree 16 with me that as a general proposition, Mr. Birmingham, 17 the way to get maximum creditability for the process in 18 the eyes of all parties is to put forward enough 19 information that parties can understand the key 20 financial repercussions of moving to PBR relative to 21 staying on cost of service. Is that a fair summary? 22 MR. BIRMINGHAM: That is, in fact, what this 23 proceeding is doing, Mr. Brett. 24 With respect to the customer review process, 25 though, what we are committed to is ensuring that 26 adequate information is provided to parties which allow 27 the rates to flow out of the price cap mechanism, that 28 parties understand how we have applied the price cap Les Services StenoTran Services Inc. 613-521-0703 1715 BIRMINGHAM/BYNG, cr-ex (Brett) 1 parameters, and that to the extent that there are other 2 significant matters which are outside of the price cap 3 parameters there is a forum to deal with those as well. 4 That is the intention that the tax on page 80 5 on lines 13 to 15. 6 MR. BRETT: Now, if I can move for a moment to 7 criteria for resetting prices. This is the rebasing or 8 the end of period process. 9 You have a very brief summary here of what you 10 intend to do on page 88 of your evidence. You propose a 11 few considerations. 12 Now, do you agree with me that cost of service 13 regulation has to be an option at the end of a five-year 14 period? 15 In other words, we don't decide now what is 16 going to happen at the end of five years. People don't 17 have enough information to really decide that. But is 18 there any -- do you agree with that returning to cost of 19 service should be an option? Or why shouldn't it -- if 20 not, why shouldn't it be an option after the end of a 21 five year price cap? 22 MR. BIRMINGHAM: I don't agree that we should 23 return to cost of service. We have tried to explain 24 that on the bottom of page 87 and then further in the 25 response to Exhibit C1.161. 26 MR. BRETT: So you don't agree that it should 27 even be an option? 28 MR. BIRMINGHAM: No, I don't. And the reasons Les Services StenoTran Services Inc. 613-521-0703 1716 BIRMINGHAM/BYNG, cr-ex (Brett) 1 for that, Mr. Brett, really are the fact that the 2 reasons why we are moving to a lighter-handed form of 3 regulation I think are still going to be prevalent, in 4 fact will be more prevalent in the marketplace. And 5 there are other jurisdictions that have moved to price 6 cap regulation and have continued that for a second 7 generation. 8 What I do agree, however, is that I don't 9 think it would appropriate to continue with the approach 10 to the productivity offset that has been used in this 11 case. I think that was contained in the testimony of 12 Christensen Associates as well. We believe that what we 13 should do is move to a productivity offset that in fact 14 reflects the Canadian natural gas distribution industry. 15 The commitment to develop that is found on page 88, at 16 sub-point (b). 17 MR. BRETT: You do agree with -- and I will 18 come back to that regional index or industry index in a 19 moment. 20 But you do agree with me, though, that at the 21 end of the day, at the end of the five year period, it 22 is important to be able to see the variation between 23 costs and prices in the sense that -- in the sense that 24 the distribution business is a monopoly business? It 25 remains a monopoly business. 26 You are not suggesting that at the end of the 27 five-year period the distribution business is suddenly 28 going to transmogrify itself into a competitive business Les Services StenoTran Services Inc. 613-521-0703 1717 BIRMINGHAM/BYNG, cr-ex (Brett) 1 and that there is no need to be aware of the 2 relationship between costs and prices. I mean, Union 3 Gas will still be its fundamental distribution business, 4 which is what we are talking about here today, is still 5 going to be a monopoly business in five years looking 6 very much like it looks today, is it not? 7 MR. BIRMINGHAM: Over the next five years I 8 don't expect that the scope of the activities in which 9 Union Gas is engaged will change very much. 10 I don't agree that there has to be a return to 11 cost of service regulation. 12 I do agree that the services that Union 13 provides, that is the storage, transmission and 14 distribution services, will likely contain -- or, sorry, 15 continue to be regulated. So we aren't proposing that 16 there be no regulation, we are simply proposing a 17 different form of regulation, and that is the 18 continuation of the price cap. 19 MR. BRETT: Would you turn up Dr. Bauer's 20 evidence, page 43 for a moment? I just want to read you 21 one paragraph and ask you to comment on it. 22 --- Pause 23 MR. BIRMINGHAM: Can you give me the section 24 of this evidence, Mr. Brett? 25 MR. BRETT: Yes. It is the section that is 26 entitled 6.2, "Planned Term Customer Review Process and 27 End of Term Review". On my copy, it's the middle of 28 page 43. Les Services StenoTran Services Inc. 613-521-0703 1718 BIRMINGHAM/BYNG, cr-ex (Brett) 1 MR. BIRMINGHAM: I have it. 2 MR. BRETT: He says there: 3 "Only in an effectively competitive 4 environment is there no reason to worry 5 about variations in the nexus between 6 costs and prices. Over time such 7 deviations will be eliminated through the 8 forces of competition. The situation is 9 quite different in a monopolistic 10 industry such as gas distribution where 11 competitive forces will not exert such 12 pressure. PBR plans accept the trade-off 13 between assuring that the prices are 14 cost-oriented and the higher affects on 15 operational efficiency stemming from 16 temporary increased profits. In other 17 words, short-term efficiency gains are 18 achieved at the cost of prices tracking 19 costs. In the long run, such a situation 20 is neither efficient nor equitable." 21 Do you agree with that comment, that principle 22 he lays out there? 23 MR. BIRMINGHAM: Which one, Mr. Brett? He 24 makes a number of statements. 25 MR. BRETT: Well, that if you are in a 26 monopoly situation -- first of all, that this is not -- 27 that we have in the distribution business, as you have 28 just agreed with me I think, is not an effective -- it's Les Services StenoTran Services Inc. 613-521-0703 1719 BIRMINGHAM/BYNG, cr-ex (Brett) 1 not a competitive environment, it's a monopoly service. 2 It will remain a monopoly service. And we are talking 3 here about pricing services provided by that monopoly. 4 MR. BIRMINGHAM: That's right. It is my 5 expectation at this point that the services for storage, 6 transmission and distribution will remain regulated 7 services by this Board. 8 MR. BRETT: Do you agree that when he says "in 9 the long run", referring to his description of a 10 monopoly -- that where you have a continuing monopoly it 11 is not appropriate to have continuing deviations between 12 costs and prices. He says at the bottom of the 13 paragraph: 14 "In the long run, such a situation is 15 neither efficient nor equitable." 16 Do you agree with that, that sentence? 17 --- Pause 18 MR. BIRMINGHAM: I think the way that the 19 price cap can be set in the second term, Dr. Brett, will 20 address most of those concerns and, that is, to the 21 extent that the productivity offset gets put in place in 22 a way that deals with the Canadian gas distribution 23 industry and that an inflator for costs which is used is 24 the Canadian GDPPI, I think we will be able to continue 25 with a reasonable relationship between prices and costs 26 and revenues and costs. 27 MR. BRETT: Are you anticipating that there 28 will be some rebasing of rates at the end of the Les Services StenoTran Services Inc. 613-521-0703 1720 BIRMINGHAM/BYNG, cr-ex (Brett) 1 five-year period to more carefully reflect -- to more 2 truly reflect costs, reduce costs at that point. It is 3 not clear from what you have written here whether you 4 see any form of rebasing whatsoever or if you simply 5 want to carry on from where you leave off after five 6 years with this revised approach to the price cap. 7 MR. BIRMINGHAM: When you say "rebasing" you 8 mean some form of cost of service determination? 9 MR. BRETT: Some form of -- no, some form of 10 reduction of rates to -- choosing a new starting point 11 that reflects in part the cost deficiencies that have 12 been realized over the last five years. 13 In other words, some after-the-fact sharing of 14 some of the productivity gains with ratepayers, but 15 bearing in mind that as you currently proposed the plan 16 there is no earning sharing mechanism, so that there is 17 no sharing of productivity gains over the term of a 18 plan. 19 Some people have discussed and some 20 jurisdictions have looked at the idea of starting afresh 21 with a new start point. I think that is what is 22 generally meant. That is generally what is referred to 23 as rebasing. 24 So it gives back to ratepayers some of the 25 gains or a share of the gains that you made over the 26 five-year period. 27 MR. BIRMINGHAM: That is contemplated in our 28 proposal, Mr. Brett, and that is for a couple of Les Services StenoTran Services Inc. 613-521-0703 1721 BIRMINGHAM/BYNG, cr-ex (Brett) 1 reasons. 2 The primary one being that those productivity 3 gains, to the extent that we are going to be successful 4 in getting them, are going to require additional 5 investment for us to make and we are going to need some 6 time to recover those costs to be able to continue to be 7 successful. Our approach here is to simply reset the 8 parameters, but reset it on an industry basis. 9 Now, with respect to other jurisdictions what 10 I have seen done is taking some portion of the utilities 11 earnings if there is a variance from the Board-approved 12 level, and taking that portion and then incorporating it 13 into the second generation of price caps over some 14 period of time. 15 MR. BRETT: Is that what is known as the 16 "glide path" method in making the adjustment? 17 MR. BIRMINGHAM: It is. 18 MR. BRETT: And are you saying that you would 19 be prepared to accept that kind of a modification? 20 MR. BIRMINGHAM: No, I just recognize that 21 that is one approach that other regulators have taken. 22 MR. BRETT: Now, you have talked about 23 preparing an index such as the one the Board used in the 24 municipal distribution case, an industry wide 25 productivity TFP index, and you said that you would, I 26 think, produced that in 2003 or 2004. 27 Would it not be worthwhile to begin working on 28 that index earlier? In other words, would you consider Les Services StenoTran Services Inc. 613-521-0703 1722 BIRMINGHAM/BYNG, cr-ex (Brett) 1 trying to put that -- commencing work on that index much 2 earlier on so that you could have some review of it, 3 discussion of it to insure that it's an index that meets 4 the needs of parties and conceivably might even be 5 introduced -- although this is a separate point -- might 6 even be introduced into this plan? 7 I guess the point is this, that everyone seems 8 to agree -- including your consultants in a number of 9 points in their testimony -- that a industry index is 10 the way to go, and that they went with a Union-specific 11 set of data here only because the appropriate data 12 wasn't available. Why wouldn't it make sense to try to 13 immediately develop this industry data, this industry 14 index, and then try to incorporate it into this plan? 15 MR. BIRMINGHAM: Let me take that in two 16 parts, Mr. Brett. 17 The first part is: It is our intention to get 18 working on this as soon as we can. The comment at the 19 bottom of page 88 was really intended to say that we 20 would be bringing that forward in a time period which 21 would allow it to be incorporated in the next 22 generation. But that is not to suggest that the work 23 would begin there, it would have to begin well in 24 advance of that. 25 So I definitely agree with that and there 26 shouldn't be any misinterpretation about our intent 27 there. Our intent is to begin work as soon as we 28 possibly can, because it will take some time to develop Les Services StenoTran Services Inc. 613-521-0703 1723 BIRMINGHAM/BYNG, cr-ex (Brett) 1 that. 2 The second piece, then, is the timing of the 3 implementation. With respect to that, it is going to 4 take some time to develop this and work it through the 5 customer review process. So practically I don't think 6 it could be implemented much earlier than the second 7 generation of the price cap parameters. 8 The other point to that is, with respect to 9 this proceeding, knowing what the price cap is going to 10 be with respect to the pricing formula is something that 11 we want to have approved by the Board, so we don't want 12 to be changing that in midstream. 13 MR. BRETT: It would be possible for you, do 14 you think, in terms of the scheduling of the work, to 15 have the draft of the new index ready for the customer 16 consultation process about a year from now, that would 17 be June of 2001? 18 MR. BIRMINGHAM: I would be very surprised if 19 we could get it done that quickly. My guess is, it is 20 going to take us a couple of years to develop it, but I 21 just don't know at this point. 22 MR. BRETT: If it were ready it would be 23 something that you could file I suppose. 24 MR. BIRMINGHAM: Pardon me? 25 MR. BRETT: If it were ready it would be 26 something that in the normal course you would want to 27 seek some input on? 28 MR. BIRMINGHAM: I think to the extent that we Les Services StenoTran Services Inc. 613-521-0703 1724 BIRMINGHAM/BYNG, cr-ex (Brett) 1 can develop and work with others on an industry standard 2 that we would want to file it in the customer review 3 process as soon as the draft is ready, yes. 4 MR. BRETT: Now, I wanted to just question you 5 on one last aspect of this. You have a point on page 88 6 where you say that, if the price cap approach is to be 7 discontinued, the onus is on the party seeking 8 discontinuance to justify the position. Is that really 9 a fair approach? 10 I mean, I'm not sitting here at the moment 11 postulating that my client would want to terminate the 12 price cap program, and I know there is a wide range of 13 opinion that, for a variety of reasons, thinks price 14 caps or PBR at least -- not price cap, but PBR broadly, 15 it could be revenue cap, it could be price cap, it could 16 be benchmarking et cetera -- has merit and is worth at 17 least trying and making a major effort. 18 But is it really fair to say at this point 19 that someone has an onus on them? Isn't it simply the 20 fact that this matter is going to be discussed with the 21 Board and the Board is going to make a decision? 22 I mean, conceivably we could switch to revenue 23 cap, we could switch to some high rated price in revenue 24 cap, we could decide to go back to cost of service if it 25 just didn't work. 26 Why should there be an onus? Why shouldn't it 27 be simply like any other case, the matter is discussed 28 and the Board decides? In fact, in most cases the Les Services StenoTran Services Inc. 613-521-0703 1725 BIRMINGHAM/BYNG, cr-ex (Brett) 1 utility has the onus to justify their position. In a 2 rates case you would be coming back and proposing a 3 specific -- in the event of a failure of a settlement -- 4 hopefully we would settle this, but in the event of a 5 failure of a settlement conference you would come back 6 and have to make a proposition. 7 Are you saying the onus would reverse in 8 that case? 9 MR. BIRMINGHAM: I'm simply saying that our 10 proposal is to continue the price cap approach and that 11 is for a couple of reasons. 12 One is that if there is any possibility that 13 we will return to cost of service regulation or some 14 form thereof, that does blunt some of the incentive that 15 happens under the productivity pricing formula under the 16 price cap. So that if we are going to return to cost of 17 service the incentive for productivity gains really is 18 limited to what can be achieved in a fairly short period 19 of time. 20 The second thing is that we are going to have 21 to do some additional work. The Canadian standard for 22 the gas distribution industry with respect to 23 productivity is going to require the input from a number 24 of parties -- it is not just going to be Union doing 25 this -- and if we are going to invest the time and the 26 resources and the money in doing that, then it would be 27 nice to know that we are doing it for a real purpose. 28 The language at line 8 really is to suggest Les Services StenoTran Services Inc. 613-521-0703 1726 BIRMINGHAM/BYNG, cr-ex (Brett) 1 that if the price cap approach isn't working it is 2 really up to the party who is saying it isn't working to 3 say why it isn't working, that's all. But we are simply 4 not going to throw it over because we want to have a 5 look at other things, but that there has to be some 6 reason. They may be perfectly legitimate ones, it is 7 simply that the parties who are saying that the price 8 cap shouldn't be continued, that there should be some 9 other form of regulation either on an ongoing basis or 10 on a one-time basis there should be some reasons for 11 that, that's all. 12 MR. BRETT: Thanks, Mr. Birmingham. 13 Thank you panel. 14 Those are my questions, Mr. Chairman. 15 THE PRESIDING MEMBER: Thank you, Mr. Brett. 16 Mr. Thompson next. 17 MR. THOMPSON: Yes. Thank you, Mr. Chairman. 18 CROSS-EXAMINATION 19 MR. THOMPSON: Panel I want to get a clear 20 understanding of the process and the information that 21 you propose to make available. 22 Based on your prefiled evidence, and I'm 23 looking at page 82 -- Exhibit B, Tab 2, page 82 -- it 24 appears you are contemplating a distribution of two 25 information packages during the course of the year, one 26 in June and one in October. Is that correct? 27 MR. BIRMINGHAM: That's right. 28 MR. THOMPSON: All right. Would you please Les Services StenoTran Services Inc. 613-521-0703 1727 BIRMINGHAM/BYNG, cr-ex (Thompson) 1 just give us a list of everything you propose to contain 2 in the June package? 3 MR. BIRMINGHAM: I think the best list is 4 found at the response to Exhibit C1.160, Mr. Thompson. 5 It's consistent with the language that is at the top of 6 page 82, but the addition that has to be made to that is 7 the response to C1.156, which is the provision of actual 8 utility financial information compared to the actuals 9 for the prior year. 10 MR. THOMPSON: All right. Well, I just want 11 to try and track this through, because if we were in PBR 12 now, as I understand it, we would -- "we" the 13 customers -- would have received a package for the 14 purpose of setting rates for 2001. Is that right? 15 MR. BIRMINGHAM: That's right. 16 MR. THOMPSON: Okay. And there is nothing in 17 your filing here that tells us about the setting of 18 rates in 2001. All of the filing deals with 2000 rates. 19 MR. BIRMINGHAM: The financial information 20 would be dealing with the financial performance from the 21 past year. 22 MR. THOMPSON: All right. 23 So in terms of historic year information, we 24 will be getting the 1999 actuals, and you told Mr. Brett 25 they will be in the format of Appendix H -- Exhibit B, 26 Tab 2, Appendix H, and then, as I understood you, you 27 said excluding Schedules 7, 8 and 9. Did I understand 28 that correctly? Les Services StenoTran Services Inc. 613-521-0703 1728 BIRMINGHAM/BYNG, cr-ex (Thompson) 1 MR. BIRMINGHAM: I'm simply saying that the 2 calculation of the revenue deficiency really doesn't 3 have any meaning under price cap regulation, so that 4 wouldn't be required. But we would provide the actual 5 return on equity for the utility. 6 MR. THOMPSON: I just want to understand. 7 Will we get Schedule 1 as it appears here in Appendix H 8 showing "Corporate Actual", "Non-Utility Adjustments", 9 "Weather Adjustments" and "Utility"? 10 MR. BIRMINGHAM: Yes. 11 MR. THOMPSON: All right. 12 And then Schedule 2 again has "Actual", 13 Board-approved and "Different". Will we get that 14 format? 15 MR. BIRMINGHAM: That one would change, 16 Mr. Thompson. We would be filing the "Actual" column. 17 In place of the "Board-Approved", we would file the 18 actual from the previous year. So in the example that 19 you had given me in the customer review process during 20 the year 2000 we would be filing the 1999 actuals, and 21 that would be compared to the 1998 actuals. 22 MR. THOMPSON: Will we get 1999 budget? 23 MR. BIRMINGHAM: No. 24 MR. THOMPSON: And why not? 25 MR. BIRMINGHAM: We are not providing any 26 forecast information under price cap. 27 MR. THOMPSON: All right. Well, I will come 28 back to that in a minute. Les Services StenoTran Services Inc. 613-521-0703 1729 BIRMINGHAM/BYNG, cr-ex (Thompson) 1 So it's going to take a Board direction to 2 require the historic information to be compared to the 3 historic budget. That's not part of your proposal and 4 you will have to be told to do that? 5 MR. BIRMINGHAM: That's right. 6 MR. THOMPSON: All right. Okay. 7 Now, will we get what's in Schedule 3, which 8 is the summary of throughput for the historic year? 9 MR. BIRMINGHAM: Yes. But, again, Columns A, 10 B and C would be the actual for 1999 in your example, 11 and Columns D, E and F would be the actuals for 1998. 12 MR. THOMPSON: And if we are to get the budget 13 for the historic year, that is going to require 14 direction from the Board? 15 MR. BIRMINGHAM: That's right. 16 MR. THOMPSON: Schedule 4 is the "Operating 17 and Maintenance Expense by Administrator". 18 Will we get that in that format? 19 MR. BIRMINGHAM: There will be two changes on 20 this one, Mr. Thompson. The first was the one I have 21 already mentioned, which is the Column A would be the 22 actual for 1999, Column B would be the actual for 1998. 23 Then the lines would be changed to reflect the new 24 organization structure, so similar to the 25 Undertaking 3.3 where we had redone the organization 26 structure and the corresponding O&M budget, but 27 generally it would be in that format, yes. 28 MR. THOMPSON: Schedule 5, "Statement of the Les Services StenoTran Services Inc. 613-521-0703 1730 BIRMINGHAM/BYNG, cr-ex (Thompson) 1 Utility Rate Base". Will we have that in the format 2 subject to your same comments, Column B will be the 3 preceding year's actual? 4 MR. BIRMINGHAM: That's right. 5 MR. THOMPSON: And again, if we want the 6 budget for the historic year, that will require 7 direction? 8 MR. BIRMINGHAM: That's right. 9 MR. THOMPSON: All right. 10 Schedule 6, we will get that in that format, 11 subject to the same comments? 12 MR. BIRMINGHAM: Yes. 13 MR. THOMPSON: And now Schedule 7 is one that 14 you say we won't get. Now, why won't we get the capital 15 structure for the historic year? 16 MR. BIRMINGHAM: Schedules 7, 8 and 9 really 17 start to go to the calculation of a revenue deficiency, 18 simply saying that with respect to price cap regulation 19 it isn't really relevant, but it could be provided. 20 MR. THOMPSON: Well, it also gives normalized 21 earnings, does it not? 22 Let me ask the question this way: Suppose we 23 have an earnings sharing mechanism, will these schedules 24 become necessary? 25 MR. BIRMINGHAM: Yes. 26 MR. THOMPSON: All right. 27 And you indicated to -- what these schedules 28 give us, as I understand it, are actual normalized Les Services StenoTran Services Inc. 613-521-0703 1731 BIRMINGHAM/BYNG, cr-ex (Thompson) 1 earnings. In addition to this, will we have the actual 2 unnormalized earnings as part of the filings? 3 MR. BIRMINGHAM: You would, because that in 4 fact is contained in Schedule 1, in Column C, where we 5 make the weathered adjustments. 6 MR. THOMPSON: All right. 7 So with earnings sharing mechanism, 8 Schedules 7, 8 and 9 will be provided? 9 MR. BIRMINGHAM: They would be provided under 10 that scenario, yes. 11 MR. THOMPSON: All right. 12 Now, Schedule 10 is some details of historic 13 capital expenditures. And I understood that your plan 14 is to provide this, but comparing it to the prior year. 15 Is that -- well, tell me, will you be providing this? 16 MR. BIRMINGHAM: We will be providing page 1, 17 which would be the actual for 1999 against actual of 18 1998, and then we would provide the detail that is 19 contained in pages 2 through 6, but we would have to do 20 that on a year-by-year basis, comparing, for instance, 21 Century Pools Phase I in 1999. Where there isn't one in 22 1998 I don't think it would be very useful, but we would 23 provide the listings of the project for each year. 24 MR. THOMPSON: And the dollars? 25 MR. BIRMINGHAM: And the dollars, yes. 26 MR. THOMPSON: Now, when this information used 27 to be provide in cost of service format -- and I'm 28 thinking of the budget -- there used to be in the text a Les Services StenoTran Services Inc. 613-521-0703 1732 BIRMINGHAM/BYNG, cr-ex (Thompson) 1 calculation of the PI for the various capital 2 expenditure projects. Do you recall what I'm 3 discussing? I think it would be in the capital budget 4 section of the cost of service filing. 5 MR. BIRMINGHAM: Yes, there were some 6 schedules that dealt with economic feasibility and the 7 profitability indices were contained on those schedules, 8 is my recollection. 9 MR. THOMPSON: Right. And can that be added 10 to this Schedule 10, which would help people with 11 getting some information on how the PI of the various 12 projects are tracking in the PBR regime? 13 MR. BIRMINGHAM: Clearly, we will do the 14 calculation. It would be available. I'm not sure what 15 use it would be. 16 MR. THOMPSON: Well, let's just say, for the 17 sake of argument, that as we go forward with PBR 18 projects that used to get included with a PI of one or 19 less are now showing up at a PI of 1.5. It seems to me 20 that would be of some value to customers to know what 21 you are actually proceeding with. 22 But it goes to Mr. Klippenstein's point and 23 the point that Mr. Dominy was addressing: How are we 24 going to monitor the PIs of projects going forward? I 25 thought this might be a way to do it. 26 MR. BIRMINGHAM: I'm sorry, Mr. Thompson. I'm 27 just trying to understand how that would help you. If I 28 took a particular project and it showed that the PI was Les Services StenoTran Services Inc. 613-521-0703 1733 BIRMINGHAM/BYNG, cr-ex (Thompson) 1 1.05 -- 2 MR. THOMPSON: Right. 3 MR. BIRMINGHAM: -- how would that -- how 4 would that address the particular concern? 5 MR. THOMPSON: Well, it seemed to help us 6 under cost of service to address the economic 7 feasibility of the projects you were undertaking. 8 Perhaps you are suggesting that is a budgeted number? 9 MR. BIRMINGHAM: Well, there are certainly 10 aspects of that PI calculation that are forecast. That 11 is for sure. The reason that it was helpful for parties 12 under cost of service is because the profitability 13 indices, in particular, the revenue deficiencies that 14 came out of those profitability indices would in fact 15 influence your rates and under the price cap program it 16 won't. 17 MR. THOMPSON: Well, in any event, the PIs are 18 available and I guess what I will have to do is extract 19 the exhibit that we had under cost of service and I will 20 leave it to argument, I suppose, as to whether it may or 21 may not be of some assistance. 22 In any event, the PIs will be available for 23 these projects? 24 MR. BIRMINGHAM: Yes. 25 MR. THOMPSON: Okay. Now, in addition you 26 tell us in the response to -- so that is the historic 27 information we are going to get. And then in response 28 to C1.160, you tell us we are going to get documents Les Services StenoTran Services Inc. 613-521-0703 1734 BIRMINGHAM/BYNG, cr-ex (Thompson) 1 similar to Exhibit B, Tab 4, Schedules 1, 2, 5, 8 and 9. 2 Will we get that in June? 3 MR. BIRMINGHAM: No, that is in the October 4 package. 5 MR. THOMPSON: All right. So what else do we 6 get in the June package in addition to historic 7 information? Do we get current year information? 8 MR. BIRMINGHAM: No, there is the listing of 9 the items that are at Exhibit C1.160. So to the extent 10 that any non-routine adjustments are being proposed that 11 would then influence the rates for the next year, those 12 would be included. That would include the support for 13 the adjustment and the actual calculation of it. It 14 would include any of the gas cost flowthrough items. It 15 would include a report on any of the formula-based 16 passthrough items. 17 So you can see the listing there, the 18 unaccounted for gas volume changes the WACOG impacts on 19 delivery rates through unaccounted for gas, the 20 inventory carrying costs, compressor fuel and company 21 used gas and performance reports on the service quality 22 indicators. And finally a forecast of the year end 23 deferral account balances and how we would propose to 24 dispose of those. But there is no forecast or budget 25 financial information. 26 MR. THOMPSON: So when Mr. Brett suggested to 27 you that we would get information similar to 28 Exhibit G2.4, I hear you telling me, "No, we won't." Les Services StenoTran Services Inc. 613-521-0703 1735 BIRMINGHAM/BYNG, cr-ex (Thompson) 1 MR. BIRMINGHAM: That is right. 2 MR. THOMPSON: And why won't we get any 3 current year information? 4 MR. BIRMINGHAM: The only current year 5 information that we could provide, Mr. Thompson, would 6 be whatever our actual results were to that point. So 7 to the extent that we had a customer review meeting in 8 June, we would have our first quarter results available 9 compared to the prior years. So we could provide that. 10 And similarly in October if parties are 11 interested, at that point we would have probably just 12 the six month results available compared to the prior 13 year so we could provide that. But we aren't providing 14 forecast information because it is not needed under 15 price cap regulation. 16 MR. THOMPSON: Well, that may be your view. 17 Others may take a different view. 18 But just in terms of what is available, in 19 June you do have, as I understand it, your normalized 20 2000 -- well, it would be the normalized current year 21 budget that exists at that point. 22 MR. BIRMINGHAM: We would have an operating 23 budget that exists at that point, that is right. 24 MR. THOMPSON: And you would also have the 25 equivalent of what is Exhibit G2.4, page 2, which is the 26 forecast being the three and nine? 27 MR. BIRMINGHAM: That is right. We would have 28 our operating budget adjusted for the actual events that Les Services StenoTran Services Inc. 613-521-0703 1736 BIRMINGHAM/BYNG, cr-ex (Thompson) 1 occurred to date. That is right. 2 MR. THOMPSON: And that information could be 3 presented in the utility format and we have some 4 examples of that in this case, Exhibit G2.7, G2.8 and I 5 think there is another one that calculates the equity 6 return. It could be presented in a format similar to 7 the historic information? On a utility basis is what I 8 am trying to say? 9 MR. BIRMINGHAM: That is right. 10 MR. THOMPSON: And why are you refusing or 11 reluctant to provide that kind of information? What is 12 the harm? 13 MR. BIRMINGHAM: It is not a question of what 14 is the harm, it is what is the point. The information 15 isn't needed to regulate the rates under the price cap 16 plan. 17 And I think further to that, Mr. Thompson, one 18 of the things that we have been struggling with as an 19 organization is trying to get our employees to change 20 their view of the company and change the way that we 21 operate under price cap regulation. To the extent that 22 we continue to provide forecast information, it is going 23 to be more difficult to get parties to move away from a 24 cost of service mindset. 25 MR. THOMPSON: Well, do we not need to -- 26 something like G2.4 to move the base forward from year 27 to year? 28 MR. BIRMINGHAM: No. The units rates have Les Services StenoTran Services Inc. 613-521-0703 1737 BIRMINGHAM/BYNG, cr-ex (Thompson) 1 been set. They get adjusted by virtue of the pricing 2 formula and you will see how the utility is doing in 3 applying that pricing formula by virtue of the actual 4 information that will be get filed in the format that is 5 similar to Appendix H. 6 MR. THOMPSON: So if we are going to have a 7 road map of the type that I think you provided in 8 response to an undertaken to Mr. Ryder, I am just trying 9 to find the -- yes, it is Exhibit G3.6. If we are going 10 to have a road map of that sort, it is going to take a 11 direction from the Board. Is that right? 12 --- Pause 13 MR. BIRMINGHAM: There is a number of the 14 components of that exhibit, Mr. Thompson, which we will 15 be dealing with in the customer review process. One 16 will be the application of the price cap formula and how 17 we prove compliance with the parameters of the price cap 18 formula. So that will be provided. 19 To the extent that there are passthrough 20 items, as we have indicated, we are going to provide 21 appropriate support and calculation for those items. So 22 the customers will have that information available to 23 them. 24 With respect to this road map, I can't see 25 anything else that is here that would apply to future 26 years other than some of the adjustments that we have 27 proposed going forward, that is the Y2K cost recovery 28 and the reduction at regulatory costs, which we would Les Services StenoTran Services Inc. 613-521-0703 1738 BIRMINGHAM/BYNG, cr-ex (Thompson) 1 incorporate into our rate proposals for those years. 2 MR. THOMPSON: Well, I won't argue with you on 3 that point. 4 Could you do this for me? 5 You know the 1999 information. You have the 6 1998 information. You know the passthroughs that you 7 are proposing for 2000. And we are a little bit late in 8 the day for doing them for 2000. This kind of thing 9 would have been done back in June of 1999, am I right, 10 if we were under PBR? Developing the passthroughs for 11 2000. 12 MR. BIRMINGHAM: For 2000, that is right. 13 MR. THOMPSON: All right. So when dealing 14 with these passthrough items in this case, it is 15 really -- well, it would have been, I guess, different, 16 would they, in the -- had they been doing this back in 17 1999? 18 MR. BIRMINGHAM: No, Mr. Thompson, we have set 19 the calculation of the passthrough items on the same 20 basis as if we had been doing it last year. So one of 21 the examples would be the return on equity passthrough. 22 We use the interest rate consensus forecast that was 23 developed last fall and that is what is in the 24 $5.7 million passthrough number. We haven't updated 25 that for a more current interest rate forecast. 26 MR. THOMPSON: But the WACOG related 27 passthroughs would be -- would have been done a little 28 bit differently? Les Services StenoTran Services Inc. 613-521-0703 1739 BIRMINGHAM/BYNG, cr-ex (Thompson) 1 MR. BIRMINGHAM: The evidence has the 2 passthrough items even for the weighted average cost of 3 gas related items based on the WACOG that existed last 4 fall, so it was consistent with that timing. We had 5 provided, I think, some undertakings at your request 6 that did provide an update to those passthrough items if 7 the more recent weighted average cost of gas was to be 8 used. 9 MR. THOMPSON: Well, let's do it this way. 10 Could you put together a package based on the 11 1999 information, the 1998 actuals and the passthrough 12 items that were vintage 1999 so we would see what it is 13 that you are planning to provide us in the June package? 14 Just dress this up the way it is going to look 15 as we go forward. 16 MR. BIRMINGHAM: All right. 17 DR. WIGHTMAN: G10.3. 18 UNDERTAKING NO. G10.3: Mr. Birmingham to 19 provide a package based on the 1999 20 information, the 1998 actuals and the 21 passthrough items that were vintage 1999 22 in order to see what it is that will be 23 provided in the June package 24 MR. THOMPSON: And the process then it appears 25 to me involves in June really a discussion about the 26 overall dollars. Is that a fair way to put it? 27 MR. BIRMINGHAM: No, in June I think what it 28 deals with is some of the other price cap parameters so Les Services StenoTran Services Inc. 613-521-0703 1740 BIRMINGHAM/BYNG, cr-ex (Thompson) 1 the non-routine adjustments, the gas cost changes, the 2 deferral account dispositions, any reporting against -- 3 or the reporting against the service quality indicators, 4 that is really what the June package does. It is not 5 until we go to the October package that we then 6 incorporate any non-routine adjustments and passthrough 7 items into the rate proposals. And it is at that time 8 that we show the effect of all those passthrough items 9 and the compliance with the price cap parameters as it 10 relates to the unit prices. 11 So in terms of looking at the total dollars as 12 you put it, Mr. Thompson, I think that is really in the 13 October package, not in the June package. 14 MR. THOMPSON: Okay. Well, perhaps it is 15 becoming clearer to me now. Looking at, if you wouldn't 16 mind, Exhibit G2.4. This is this format. Do I 17 understand you to be saying that as we go forward, what 18 we would be determining in June are the items in 19 Column D only? I suppose we would be determining what 20 is in Column E as well as long as those dollars stay in 21 revenue deferral accounts? 22 MR. BIRMINGHAM: To the extent that they were 23 included in the deferral account balances and had some 24 proposed dispositions for them, that is right. But you 25 are right, it would be Column D plus any impact of 26 non-routine adjustments. There aren't any non-routine 27 adjustments proposed as a separate column here on G2.4 28 and then they are reporting on the service quality Les Services StenoTran Services Inc. 613-521-0703 1741 BIRMINGHAM/BYNG, cr-ex (Thompson) 1 indicators as well. 2 MR. THOMPSON: And then in your text you 3 contemplate some sort of written process with the Board. 4 To the extent there are any disputes, could you just 5 give me a list of the kinds of things that might be in 6 dispute? 7 MR. BIRMINGHAM: Well, as an example, to the 8 extent that there is a non-routine adjustment caused by 9 change in legislation, we would bring forward the change 10 in the legislation, do the calculation, come up with the 11 amount. Parties may have a different view as to how 12 that impacts a utility. So that could be the potential 13 for or that could give rise to the potential for some 14 dispute and the need for dispute resolution. 15 MR. THOMPSON: All right. Suppose there is a 16 dispute over the volumes to be used to recover 17 passthrough items. Does that come up in June or is that 18 in October or do you expect that dispute to be resolved 19 by the Board's decision in this case once and for all? 20 MR. BIRMINGHAM: We expect it to be resolved 21 in this case because we are proposing to use the 22 Board-approved volumes from E.B.R.O. 499. 23 MR. THOMPSON: Yes, I understand that and we 24 have discussed that at length. 25 And to the extent that the Board rules in this 26 case you should be using the historic year actual 27 normalized. For example, that ruling would then be 28 implemented, as I understand what you are saying, in the Les Services StenoTran Services Inc. 613-521-0703 1742 BIRMINGHAM/BYNG, cr-ex (Thompson) 1 October package. 2 MR. BIRMINGHAM: Just so I make sure I have 3 got the scenario right. 4 To the extent that the Board -- the Board's 5 decision included a direction to use the prior year's 6 actual volumes to determine the base on which 7 passthrough items should be determined, those volumes 8 would be included in the actual financial information. 9 So they would be available in the June package, but they 10 would be incorporated in the rate proposals in October. 11 MR. THOMPSON: Okay. Thanks. I understand 12 that. 13 Okay. Let's then move forward -- well, is 14 that everything that is in the June package? The report 15 of previous year's performance against SQIs is going to 16 look like what? If we answered our telephone calls 17 within the time limits or we didn't, what is that going 18 to look like? 19 MR. BIRMINGHAM: That is right. We would show 20 whatever the actual percentage was. So the standard 21 calls for 65 per cent of the calls to be answered in 22 20 seconds and we would report the actual percentage 23 that was answered in 20 seconds. 24 MR. THOMPSON: And the information pertaining 25 to the passthrough of gas cost changes, is that going to 26 look like what we find at Exhibit B, Tab 2, Appendix I? 27 Is that sort of the traditional QRAM package? 28 MR. BIRMINGHAM: I think that is generally Les Services StenoTran Services Inc. 613-521-0703 1743 BIRMINGHAM/BYNG, cr-ex (Thompson) 1 right, Mr. Thompson. 2 The one other item that I wanted to make sure 3 we don't forget, it is at the bottom of page C1.160, is 4 to the extent that any new regulated services were going 5 to be introduced, then we would be providing that in the 6 package as well. 7 MR. THOMPSON: In the June package? 8 MR. BIRMINGHAM: If we knew about them in June 9 we would provide them in the June package, yes. 10 MR. THOMPSON: I understood you to say to 11 Mr. Brett, regulated or unregulated, you are prepared to 12 report on them. 13 MR. BIRMINGHAM: Yes. What I had indicated is 14 that if parties were interested in knowing what 15 unregulated services were being offered then we could 16 provide a listing, and provide that in the June package 17 to the extent that they were being offered or we knew 18 about them at that time. 19 MR. THOMPSON: Then in your text to the extent 20 there -- you plan to then have a meeting in August, 21 sorry, you plan to meet in July as I understand it to 22 attempt to achieve a consensus? 23 MR. BIRMINGHAM: That's right. 24 MR. THOMPSON: Is the company prepared to 25 answer questions that people have on this information as 26 part of the process? When I say that I mean an 27 interrogatory type of process. 28 MR. BIRMINGHAM: Over on page 83 at line 10 we Les Services StenoTran Services Inc. 613-521-0703 1744 BIRMINGHAM/BYNG, cr-ex (Thompson) 1 weren't proposing a formal interrogatory process. We 2 thought given the nature of the items and the type 3 definition of those items, that it would be easier if we 4 simply got together and had discussion face to face. To 5 the extent that there's a need for some written process, 6 then that could be incorporated. 7 MR. THOMPSON: Then the game play under your 8 proposal is you will submit a report to the Board. Is 9 that what you plan? 10 MR. BIRMINGHAM: We would prepare a report for 11 submission to the Board, Mr. Thompson. But in our view 12 the determination of the non-routine adjustments, and 13 all of the other items, including the compliance with 14 the price cap parameters, because they are the subject 15 of the customer review process it's the equivalent of a 16 settlement agreement in our view, and would require the 17 support of the parties. To the extent that some parties 18 didn't agree, then we would be moving to some process 19 before the Board. 20 MR. THOMPSON: Right, but the compliance comes 21 later. It's in October. In terms of the June process 22 your text suggests a written process. Are you married 23 to that, or do you allow that a normal process may be 24 more efficient in some situations? 25 MR. BIRMINGHAM: I think to the extent that 26 the Board had to hear one of the disputed issues that 27 came out of the June proceeding, or the June customer 28 review process, it could be an oral proceeding as well Les Services StenoTran Services Inc. 613-521-0703 1745 BIRMINGHAM/BYNG, cr-ex (Thompson) 1 as a written process. 2 MR. THOMPSON: So have I got everything that's 3 in the June package listed? 4 MR. BIRMINGHAM: Yes. 5 MR. THOMPSON: We then turn to the October 6 package. And this, I think you are telling us in 160, 7 is going to be similar to what we find at Exhibit B, 8 Tab 4. 9 MR. BIRMINGHAM: That's right there is a 10 number of schedules that we have filed there that we 11 would continue to file in support of the October 12 package. 13 MR. THOMPSON: Can I just get you to turn that 14 up to help me out. 15 Just in terms of 2001, do you anticipate as a 16 result of the Board's decision in this case that we will 17 have an October package for 2001? 18 MR. BIRMINGHAM: I would like that to be the 19 case, Mr. Thompson. It will depend somewhat on the 20 timing of the Board's decision, but that would be our 21 hope. 22 MR. THOMPSON: Well, I guess you can't have an 23 October package until you have the decision. I think 24 that's what you are saying. 25 MR. BIRMINGHAM: That's right. 26 MR. THOMPSON: All right. 27 MR. BIRMINGHAM: But it's our intent to have a 28 fall customer review package, yes. Les Services StenoTran Services Inc. 613-521-0703 1746 BIRMINGHAM/BYNG, cr-ex (Thompson) 1 MR. THOMPSON: Which will follow the Board's 2 decision, and it will deal specifically with any changes 3 that you plan in 2001. Is that right? 4 MR. BIRMINGHAM: Yes, the Board's decision 5 will set the price cap parameters. 6 MR. THOMPSON: Now, if I could just back up 7 for one second. 8 In terms of cost information, we have in the 9 record, I think it's C21.98 the cost of service study. 10 It's sort of a high level study as I understand it that 11 the company prepared following the Board's decision in 12 E.B.R.0. 499. Is that a fair description of that 13 document? 14 MR. BIRMINGHAM: Yes, these are the working 15 papers that summarize the cost allocation study that was 16 filed in support of the Board's decision in 17 E.B.R.O. 499. 18 MR. THOMPSON: Coming forward to 2000, is the 19 information available for 2000? This was done based on 20 the Board's approval of the budget you presented in 21 E.B.R.O. 499. Correct? 22 MR. BIRMINGHAM: That's right. 23 MR. THOMPSON: So coming forward to 2000 you 24 have a company budget. 25 MR. BIRMINGHAM: Right. 26 MR. THOMPSON: My question is, do you also 27 have in the company some sort of high level cost 28 allocation of this nature? Les Services StenoTran Services Inc. 613-521-0703 1747 BIRMINGHAM/BYNG, cr-ex (Thompson) 1 MR. BIRMINGHAM: No, we haven't prepared a 2 cost allocation study. 3 MR. THOMPSON: But can it be done? 4 MR. BIRMINGHAM: I just want to make sure I 5 catch the question properly, Mr. Thompson. 6 Does Union have the capability of doing it? 7 MR. THOMPSON: Yes. 8 MR. BIRMINGHAM: Yes, it does. But preparing 9 cost allocation studies is a very time consuming 10 process, and it's a process that takes a number of 11 months to be able to complete. 12 MR. THOMPSON: Well, it can be done in various 13 levels of detail, can they not? 14 MR. BIRMINGHAM: Well, they can. But what 15 typically happens is we do them in detail, and then we 16 summarize them and that's what you are seeing at Exhibit 17 C1.98. So these are the high level summary, but it 18 represents a summary of all of the detail work that goes 19 underneath that. 20 MR. THOMPSON: Let me ask you, can you produce 21 revenue to cost ratios for delivery rates going forward 22 on an annual basis, really for all -- for the delivery, 23 and the non-delivery components of rates? 24 MR. BIRMINGHAM: We would have to maintain the 25 capability to do the cost study as we do now. 26 MR. THOMPSON: If you maintain that capability 27 then you can produce these revenue to cost ratios? 28 MR. BIRMINGHAM: That's right they flow from Les Services StenoTran Services Inc. 613-521-0703 1748 BIRMINGHAM/BYNG, cr-ex (Thompson) 1 the cost study work. 2 MR. THOMPSON: If they are done, to the extent 3 backup is necessary, it will be there. Because I think 4 you are telling me you have to do the study to get the 5 revenue to cost ratios. 6 MR. BIRMINGHAM: That's right. 7 MR. THOMPSON: Are you prepared to provide 8 revenue to cost ratios as part of the reporting? 9 MR. BIRMINGHAM: No. 10 MR. THOMPSON: Why not? 11 MR. BIRMINGHAM: Because costs are not related 12 to revenues when it comes to price cap regulation. It's 13 not a question of whether we can do them, it's a 14 question of whether they are necessary or not and in our 15 view they aren't. 16 MR. THOMPSON: So that will take a direction 17 from the Board to obtain that information as part of 18 this process? 19 MR. BIRMINGHAM: That's right. 20 MR. THOMPSON: Could I then take you to 21 Exhibit B, Tab 4, Schedule 1 for starters. 22 My understanding is what we have here is in 23 effect the equivalent of an October 1999 package. 24 MR. BIRMINGHAM: That's right. 25 MR. THOMPSON: When we move it forward to the 26 October 2000 package will it be tracked to the 1999? In 27 other words will we have another spreadsheet or will 28 it -- will we have this information in front of us as Les Services StenoTran Services Inc. 613-521-0703 1749 BIRMINGHAM/BYNG, cr-ex (Thompson) 1 well as the 2000? Or will 2000 be a fresh start? 2 --- Pause 3 MR. BIRMINGHAM: I'm not sure I got your 4 question yet, Mr. Thompson. 5 We would be providing this schedule for each 6 year, so to the extent that we showed this proof for the 7 year 2000 it would then be available when we do the 2001 8 rates. 9 MR. THOMPSON: What I'm trying to get at is 10 this: If you go to Mr. Ryder's road map that we were 11 talking about earlier, G3.6. 12 MR. BIRMINGHAM: Correct. 13 MR. THOMPSON: And you will see under Union's 14 position for 2001, the base delivery revenue is 15 $819.4 million. That's at column -- that's at line 5. 16 It runs through the price cap passthroughs and comes up 17 with 819.4. 18 MR. BIRMINGHAM: Yes, I see that. 19 MR. THOMPSON: Now, when we get to 2000, and 20 we are dealing with the equivalent of Exhibit B, Tab 4, 21 Schedule 1, is the number that we are dealing with in 22 line 22 on page 2 under your proposal, 819.4, or are we 23 always working back to 787,204? 24 Should I be asking this of Mr. Packer? 25 MR. BIRMINGHAM: We could ask Mr. Packer ask 26 well, Mr. Thompson, but as I understand the way that the 27 road map is laid out, we would be working to the 819.4. 28 That is, we would be applying the price cap parameters Les Services StenoTran Services Inc. 613-521-0703 1750 BIRMINGHAM/BYNG, cr-ex (Thompson) 1 to the unit prices and accounting for the passthrough 2 items and non-routine adjustments as we go. 3 MR. THOMPSON: Okay. I just want to reflect 4 on that for a moment. 5 Would this be a convenient time to break, 6 Mr. Chairman? 7 THE PRESIDING MEMBER: It would be a good time 8 to break. 9 We will come back at two o'clock. 10 Thank you. 11 --- Upon recessing at 1300 12 --- Upon resuming at 1400 13 THE PRESIDING MEMBER: Thank you. Please be 14 seated. 15 Mr. Klippenstein. 16 MR. KLIPPENSTEIN: Thank you. 17 I would like to start, if I could, panel, with 18 G3.1. And, first, just to assist you with this, to 19 explain that the purpose of this exhibit is, really, to 20 clarify the effect of the different combinations of net 21 and gross billing at the customer and the LDC meters. 22 And, I understand, Dr. Poray, you have had a chance to 23 speak with one of my clients some time ago about these 24 matters -- I'm acting for TransAlta. 25 First, let's just start with the diagrams on 26 the left-hand side. In the first LDC example, we have 27 here an LDC with two customers, each 100 megawatts. 28 There's no embedded generation, so the total load at the Les Services StenoTran Services Inc. 613-521-0703 1751 BIRMINGHAM, cr-ex (Klippenstein) 1 LDC meter is 200 megawatts; would you agree? 2 MR. BIRMINGHAM: Yes. 3 DR. PORAY: Yes. 4 MR. KLIPPENSTEIN: Thank you. 5 In the second LDC, below that, a neighbouring 6 LDC with two identical customers, these each have a 7 hundred megawatts, but there's 50 megawatts of merchant 8 generation, which we shall assume to be efficient 9 generation, so a total load at the LDC meter would be 10 150 megawatts. Do we agree? 11 MR. BIRMINGHAM: Yes. 12 MR. KLIPPENSTEIN: Thank you. 13 In the third LDC example -- this would be 14 another neighbouring LDC -- the same situation as 15 example number two, except that customer number two, as 16 you can see, has 80 megawatts of generation behind the 17 customer meter -- and, again, we shall assume that the 18 generation is efficient generation -- so the total load 19 at the LDC meter would be 70 megawatts. 20 MR. BIRMINGHAM: Is the assumption G1 is a 21 merchant plant? 22 MR. KLIPPENSTEIN: Yes. Thank you. 23 Now, are you okay with the diagrams? 24 MR. BIRMINGHAM: Yes. 25 MR. KLIPPENSTEIN: Good. Let's move on to the 26 table under the right-hand side here. 27 This is a table of charge determinants, and 28 there are three columns, as you probably can see there Les Services StenoTran Services Inc. 613-521-0703 1752 BIRMINGHAM, cr-ex (Klippenstein) 1 at the top. The first column is based on OHNC's 2 proposal for gross billing at both the customer and the 3 LDC meter. 4 MR. BIRMINGHAM: By our proposal, you are 5 talking about there's 50 per cent on the network side 6 and then full gross on the network -- 7 MR. KLIPPENSTEIN: Yes, sir. 8 MR. BIRMINGHAM: -- on the connection, rather? 9 Yes. 10 MR. KLIPPENSTEIN: Yes. 11 MR. BIRMINGHAM: Okay. 12 MR. KLIPPENSTEIN: The second column is based 13 on net billing of both the customer and the LDC meter, 14 and the third column is TransAlta's proposal for net 15 billing at the customer meter and gross billing at the 16 LDC meter. Are we on the same wavelength? I know we 17 are on the same planet. 18 Now, let's just look at the first LDC example, 19 if we can -- and we will remember this one has just the 20 two customers, but no generation -- there's no 21 difference, would you agree, between the three columns. 22 Each customer is charged 100 megawatts, so the total 23 customer load is 200 megawatts. 24 --- Pause 25 MR. KLIPPENSTEIN: The other issue I wanted to 26 deal with with respect to service quality indicators is 27 where the gain or loss on the sale would flow to the 28 income statement. The first circumstance is when an Les Services StenoTran Services Inc. 613-521-0703 1753 BIRMINGHAM, cr-ex (Klippenstein) 1 individual asset is in a category by itself, so you 2 could actually measure the amount of the gain or sale 3 based on that individual asset disposition. 4 The second circumstance is where the last 5 asset in a group of assets is disposed of, and so that 6 you could then determine how much the accumulated 7 depreciation was off, so to speak, so that, again, you 8 could determine the overall net loss or gain for that 9 class of assets. But, beyond that, we are still in the 10 circumstance where we would be following the pooled 11 method of accounting, and to the extent that some of the 12 assets were contained within a category, then, you are 13 quite right, the gain or loss would then go to that. 14 THE PRESIDING MEMBER: Anything preliminary, 15 or do we move straight on to Mr. Thompson? 16 Mr. Thompson, please. 17 FURTHER CROSS-EXAMINATION 18 MR. THOMPSON: When we broke, Mr. Birmingham, 19 we were looking at Exhibit B, Tab 4, Schedule 1. 20 MR. BIRMINGHAM: Right. 21 MR. THOMPSON: Do you recall that? Just so 22 that I can understand this exhibit, if you go to page 2, 23 at line 22, we have the grand total delivery of 787,205. 24 Do you see that? 25 MR. BIRMINGHAM: Right under Columns A and B. 26 MR. THOMPSON: Yes, right. What I was trying 27 to do was just reconcile this exhibit with Exhibit B, 28 Tab 2, Schedule 1 which we had discussed previously. Les Services StenoTran Services Inc. 613-521-0703 1754 BIRMINGHAM, cr-ex (Thompson) 1 This was sort of the beginning of the road map 2 discussion as to steps that one followed to develop 3 price cap claim and as well the other claims made to 4 Union's rates. 5 Could you turn that up, please. 6 MR. BIRMINGHAM: Right, and that same 787 is 7 found in footnote 4. 8 MR. THOMPSON: Right. Then there are a number 9 of adjustments to get to 783,832 which at line 9 of B, 10 Tab 2, Schedule 1 was described as applicable revenue. 11 Do you see that? 12 MR. BIRMINGHAM: Yes. 13 MR. THOMPSON: When we were discussing Exhibit 14 B, Tab 2, Schedule 1 before you indicated that you 15 reduced that number further by the amount of the Y2K 16 cost elimination. So it became 776,232, I believe. 17 Would you take, that subject to check? 18 MR. BIRMINGHAM: No. That's right, yes. 19 MR. THOMPSON: Okay. It was then to that 20 number 776,232 that you applied the 1.9 per cent price 21 cap to come up with the 14,893 in Exhibit B, Tab 2, 22 Schedule 1. Is that correct? 23 MR. BIRMINGHAM: That's right. 24 MR. THOMPSON: The number is 14,748 now, I 25 think, corrected. 26 MR. BIRMINGHAM: Right, that also -- the 27 14,748 incorporated both the removal of the Y2K cost of 28 $7.6 million and the adjustment from the 2 per cent to Les Services StenoTran Services Inc. 613-521-0703 1755 BIRMINGHAM, cr-ex (Thompson) 1 1.9 per cent price cap. 2 MR. THOMPSON: Just looking at then back at B, 3 Tab 4, Schedule 1 the price cap amount in Column G at 4 line 23 is 15,676 which leads me to conclude that this 5 Exhibit B, Tab 4, Schedule 1 has not been updated to 6 reflect either the reduction from 2 per cent to 1.9, or 7 this further adjustment to applicable revenues? 8 MR. BIRMINGHAM: That's right. 9 MR. THOMPSON: Will it be updated for that? 10 MR. BIRMINGHAM: I think Mr. Packer was going 11 to update the schedule after we received the Board's 12 decision for all of the impacts, but that's certainly 13 something that could be done. 14 MR. THOMPSON: Could I have an undertaking 15 over that just so that we could -- I'm really hopeful 16 that it can reconcile with B, Tab 2, Schedule 1 as 17 corrected. Could that be done, please? 18 DR. WIGHTMAN: G10.4. 19 UNDERTAKING NO. G10.4: Mr. Birmingham 20 undertakes to update the schedule after 21 all the impacts 22 MR. THOMPSON: Thanks. Just so that we can 23 follow this Exhibit B, Tab 4, Schedule 1, in Column, I 24 think it's, I, we have the one time adjustment and 25 passthrough items which I believe are detailed further 26 at Schedules 5 and 6 -- sorry, Schedule 5. 27 MR. BIRMINGHAM: That's right. The 28 $25,662,000 appears in both places. Les Services StenoTran Services Inc. 613-521-0703 1756 BIRMINGHAM, cr-ex (Thompson) 1 MR. THOMPSON: Yes, what we have at Exhibit B, 2 Tab 4, Schedule 5, page 1, at the bottom right-hand 3 corner in this, is $737,000 which I believe should now 4 be $537,000 to reconcile it with Exhibit B, Tab 2, 5 Schedule 1, line 4. 6 MR. BIRMINGHAM: That's right. That 7 represents the pension and post-retirement benefits 8 adjustment from $7 million estimate to $6.8 million. 9 MR. THOMPSON: So can we include in the 10 undertaking an update of these backup schedules? When I 11 say backup, I mean they feed into Column 1 in B, Tab 4, 12 Schedule 1. 13 MR. BIRMINGHAM: Yes, we will update 14 Schedules 1, 2 and 5 for all of the changes, 15 Mr. Thompson, so it will give you the complete package 16 to date. 17 MR. THOMPSON: Thanks very much. 18 THE PRESIDING MEMBER: So we will keep that 19 with the same undertaking number? 20 MR. THOMPSON: Yes. Would that be 21 satisfactory? 22 Then just coming back to B, Tab 4, Schedule 1 23 and the notion of pricing flexibility. You may have 24 answered this before, but I just want to be clear on 25 what lines in this schedule relate to your pricing 26 flexibility proposal? Is it line 10, for example? Is 27 it line 15? Can you help me with that? 28 Sorry, I should start on page 1 rather than Les Services StenoTran Services Inc. 613-521-0703 1757 BIRMINGHAM, cr-ex (Thompson) 1 page 2. Line 14 on page 1 has a delivery total for 2 basket 1A and has a number there of 2.46 per cent over 3 in Column G. Do you see that? 4 MR. BIRMINGHAM: Yes. 5 MR. THOMPSON: And your pricing flexibility 6 proposal as I understand it now for basket 1A is 1.5 7 times the price cap which comes to a figure of 2.9 per 8 cent? 9 MR. BIRMINGHAM: That's right. 10 MR. THOMPSON: But as you then go forward, if 11 you don't use some of that price cap in year one you can 12 accumulate the unused portion in years following? 13 MR. BIRMINGHAM: Yes, to a maximum. 14 MR. THOMPSON: And to a maximum of two times 15 the price cap which is 3.8 per cent. 16 MR. BIRMINGHAM: That's right. 17 MR. THOMPSON: And so is it only the number at 18 line 14 that relates to the proof of compliance with the 19 price cap? 20 MR. BIRMINGHAM: That's right. The total at 21 line 14 in Column N will show the compliance with the 22 price cap parameters. 23 MR. THOMPSON: And that we will get into this 24 in more details when the Pricing Flexibility Panel 25 arrives, but that number is applicable to something that 26 is called Average Revenue. Is that right? 27 MR. BIRMINGHAM: Sorry, where are looking, 28 Mr. Thompson? Les Services StenoTran Services Inc. 613-521-0703 1758 BIRMINGHAM, cr-ex (Thompson) 1 MR. THOMPSON: Well, the price cap applies to 2 what you call Annual Average Revenue. I believe that is 3 in your testimony and I just wondered if there is 4 something in the language "Annual Average Revenue" that 5 is significant. It doesn't apply to the actual charges 6 in the rates. It applies to something called "Average 7 Annual Revenue". 8 MR. BIRMINGHAM: I think have that straight. 9 It would be in the price cap update information. 10 MR. THOMPSON: I am happy to defer this if it 11 would be best. 12 THE PRESIDING MEMBER: I think that might be 13 easier and in the meantime we will look for your 14 reference. 15 MR. THOMPSON: In terms of big picture, let us 16 assume the Board were to do something like it did in the 17 Electricity Distribution Handbook Case and said price 18 cap 1 per cent no pricing flexibility. What line items 19 would that affect in this presentation at B, Tab 4, 20 Schedule 1? 21 Do you want to do it by way of undertaking or 22 defer it? 23 MR. BIRMINGHAM: I was going to say that we 24 got in this in the first place because you started 25 asking questions before the lunch break about what it is 26 that people would see in the customer reprocess which 27 was squarely within the parameters of what this panel 28 was addressing. They have just indicated that Les Services StenoTran Services Inc. 613-521-0703 1759 BIRMINGHAM, cr-ex (Thompson) 1 Mr. Packer is really the person to address these kinds 2 of questions on this schedule. 3 I wonder whether it would not be better to 4 defer this last question to Mr. Packer as well. 5 MR. THOMPSON: Well, this panel says in its 6 testimony there is going to be a demonstration in 7 October that there is compliance with the price cap. I 8 am trying to focus on what line items -- and you tell us 9 this schedule is going to be part of our October 10 package. I am trying to focus on what are the line 11 items we should be looking at for the purpose of a 12 demonstration that there is compliance. It doesn't 13 appear to be all of them. It appears to be but a few of 14 them. 15 MR. BIRMINGHAM: Well, for example, 16 Mr. Thompson, you should be looking at line 14, column 17 N. It says 2.46 per cent as compared to the 2.9 per 18 cent pricing flexibility that we would have under the 19 price cap proposal. Under your hypothesis if the Board 20 was to determine there should be no pricing flexibility, 21 then we would see that line reduced to 1.9 per cent as a 22 maximum. 23 MR. THOMPSON: So based on your proposal, 24 pricing flexibility applies to line 14, the 1.9 on 25 delivery; is that right? 26 If it applies to line 14 for delivery, total 27 basket 1A? 28 MR. BIRMINGHAM: Yes. Les Services StenoTran Services Inc. 613-521-0703 1760 BIRMINGHAM, cr-ex (Thompson) 1 MR. THOMPSON: Does it apply to line 19 which 2 includes, as I understand it, some passthrough items as 3 well as the amount that appeared at line 14? 4 MR. BIRMINGHAM: It does and you can see that 5 in column G that there is some application of the price 6 cap escalator to those items. 7 MR. THOMPSON: That's what I'm trying to 8 understand. So if you have a passthrough item, the 9 amount of it still has to fall within the limits of your 10 price cap, but still is that your proposal? 11 MR. BIRMINGHAM: No. The passthrough items 12 are in addition to the price cap pricing formula, if you 13 will, that's been the proposal all the way along. You 14 can see the passthrough items as determined in column I. 15 But the dollar amount is determined through the price 16 cap parameters are in column G. And we have determined 17 the percentage just from applying the price cap 18 escalator over in column N. 19 MR. THOMPSON: All right. Thank you. 20 For basket 1B, then the applicable line item 21 to measure compliance would be line 10. Is that 22 correct? Well, you tell me which of the line items to 23 which we should be looking at to check compliance. 24 MR. BIRMINGHAM: The corresponding line for 25 basket 1B is line 14, and again that would be column N. 26 MR. THOMPSON: And for basket 2? 27 MR. BIRMINGHAM: Line 21, again column N. 28 MR. THOMPSON: Now Union in developing Exhibit Les Services StenoTran Services Inc. 613-521-0703 1761 BIRMINGHAM, cr-ex (Thompson) 1 B, Tab 4, Schedule 1 is the proposal for 2000 rates, has 2 come up with a range of changes to the various charges 3 that appear in each rate class within the basket. Is 4 that fair? Going back to page 1, for example, 01 is 5 1.39 per cent, M2 commercial, industrial is 3.52 per 6 cent. There's a range of percentages in there. 7 MR. BIRMINGHAM: Yes. That's right. 8 MR. THOMPSON: All right. 9 And what information has Union used to come up 10 with those pricing changes? 11 MR. BIRMINGHAM: I think with respect to how 12 those are determined, they would probably be better if 13 Mr. Packer was here to speak to that. But the things 14 that we have considered in applying that are not just 15 the price cap proposals, but there's a number -- or, 16 sorry, the price cap parameters, but there's a number of 17 other things that go into the consideration of how we 18 set prices. For instance, the relationship between 19 certain rate classes that we want to maintain. 20 MR. THOMPSON: Is there a hard copy of the 21 information that Union has used to determine the prices 22 that it's proposing for these various rates? Or is it 23 all subjective? 24 MR. BIRMINGHAM: It is all there, but with 25 respect to incorporating the other considerations, like 26 the relationship between rate classes, what might happen 27 under certain rate adjustments and area for low loss for 28 customers who have alternate fuels. All of that is the Les Services StenoTran Services Inc. 613-521-0703 1762 BIRMINGHAM, cr-ex (Thompson) 1 is the judgement of the people who design our rates. 2 MR. THOMPSON: And what information will 3 customers have to review, to determine whether Union's 4 pricing decisions in each of these rate classes are 5 reasonable? 6 MR. BIRMINGHAM: The information that is on 7 schedules 1, 2 and 5. 8 MR. THOMPSON: And will those that are making 9 these decisions provide us with anything in writing as 10 to the considerations that have motivated them? 11 MR. BIRMINGHAM: To the extent that parties 12 are interested in knowing what other considerations were 13 put into applying the price cap parameters, in 14 particular where there's a circumstance where it is less 15 than the amount of the pricing flexibility. That 16 information can be provided. Yes. 17 MR. THOMPSON: But in what kind of a format? 18 Is it description? 19 MR. BIRMINGHAM: By preference, it would be to 20 do it in the customer review process on a face-to-face 21 basis. But to the extent that that had to be done 22 through some sort of written process, that could be 23 accommodated as well. 24 MR. THOMPSON: Okay. 25 Now in terms of the October demonstration, and 26 the October information package, it's in October that we 27 will see the formula-based return on equity adjustment. 28 We don't see that in June. Is that right? Les Services StenoTran Services Inc. 613-521-0703 1763 BIRMINGHAM, cr-ex (Thompson) 1 MR. BIRMINGHAM: That's right. We could give 2 an early indication as to what it might look like based 3 on the consensus forecast at that time. But it's really 4 our intention to do that in the October package because 5 you are going to use the September consensus forecast 6 for the purpose of applying the Board-approved formula. 7 MR. THOMPSON: Are all of the passthrough 8 items that were put forward in June updated in October? 9 MR. BIRMINGHAM: With respect to the 10 passthrough items, that are affected by a change in the 11 weighted average cost of gas, we would be using the 12 weighted average cost of gas that would come out of the 13 October quarterly rate adjustment mechanism. So -- 14 MR. THOMPSON: And it will all be updated? 15 MR. BIRMINGHAM: It would be updated for the 16 more recent member. That's right. 17 MR. THOMPSON: All right. And the final 18 deferral account dispositions -- when you talk about 19 deferral account dispositions, assume that the revenue 20 deferral accounts remain, that is the market-based 21 storage and transactional services. 22 In October, are you talking about October of 23 2000 -- let's take it as an example -- are you talking 24 about clearing those balances at the end of 2000? Is 25 that a forecast that we are talking about clearing then? 26 Could you help me with that? 27 MR. BIRMINGHAM: That's right. We would be, 28 as you can see at point E in the response to Exhibit Les Services StenoTran Services Inc. 613-521-0703 1764 BIRMINGHAM, cr-ex (Thompson) 1 C1.160, there is a forecast of the year and deferral 2 account balances in the proposed disposition, and then 3 in October we would actually include those dispositions 4 in the rate package. 5 So it is a forecast just to the end of the 6 year for those analyses. 7 MR. THOMPSON: So there is an update component 8 of the October information? 9 MR. BIRMINGHAM: That's right. The idea with 10 the June package was to give parties an idea of what the 11 items might look like and then in October to do the 12 update for the actual numbers that we would be using. 13 MR. THOMPSON: A few other items of 14 information. To the extent that there are -- let me 15 just ask this. In terms of the earnings sharing, if you 16 assume an earnings sharing mechanism is there -- and you 17 told me you will have documents equivalent to what is 18 filed in Appendix H available if the Board adopts an 19 earnings sharing mechanism -- is there anything else we 20 need by way of information to administer an earnings 21 sharing mechanism in the customer review process? 22 MR. BIRMINGHAM: Just a couple of things, 23 Mr. Thompson. 24 The first thing is that we had indicated that 25 we would provide the actual financial information in a 26 format similar to Appendix H in the customer review 27 process regardless of whether there was an earnings 28 sharing mechanism or not. Les Services StenoTran Services Inc. 613-521-0703 1765 BIRMINGHAM, cr-ex (Thompson) 1 But if we were to assume that an earnings 2 sharing mechanism was in place, the actual results for 3 the prior year would be known at the time of the June 4 customer review meeting and that would, therefore, be 5 included in the package that would be given to the 6 customer review participants and that would support the 7 calculation of the earnings sharing, deal with the 8 proposed disposition so that we could incorporate it 9 into our rate proposals for the October package. 10 MR. THOMPSON: Thank you. 11 MR. BIRMINGHAM: So I don't think you would 12 need any more information other than the commitment that 13 it would be filed on that kind of timing. 14 MR. THOMPSON: Now, let's just take in terms 15 of revenue from market-based storage and transactional 16 services. Under your proposals, the company will 17 realize that revenue and under your proposal, as I 18 understand it, it's outside the cap. 19 MR. BIRMINGHAM: It's not outside the cap, 20 Mr. Thompson, to the extent that the transactional 21 services represent regulated services, the price of 22 those services are adjusted by the pricing formula. 23 MR. THOMPSON: Okay. Sorry. I will come back 24 to it in a minute. In terms of its reporting, are you 25 prepared to report it even if your proposal is accepted? 26 Identified separately, it will show up in earnings, will 27 it not? 28 MR. BIRMINGHAM: It will show up in earnings, Les Services StenoTran Services Inc. 613-521-0703 1766 BIRMINGHAM, cr-ex (Thompson) 1 it will be part of the revenue stream for the company. 2 MR. THOMPSON: Are you prepared to show it as 3 a separate item? 4 MR. BIRMINGHAM: To show a separate line for 5 storage and transportation, transactional revenue, and a 6 separate line for any sort of premium or discount for 7 storage against the imbedded cost rate? 8 MR. THOMPSON: Yes. 9 MR. BIRMINGHAM: We weren't planning to, but 10 that could easily be done. 11 MR. THOMPSON: There is some discussion in 12 your testimony about negotiating prices with long-term 13 customers. People are prepared to go for more than a 14 year? 15 MR. BIRMINGHAM: That's right. 16 MR. THOMPSON: And how do you plan to report 17 those arrangements? 18 MR. BIRMINGHAM: We weren't planning to report 19 them other than to deem them to be priced at the price 20 cap so that the remaining customers are insulated from 21 the effects of those negotiations. 22 MR. THOMPSON: Would you be prepared to report 23 them on some sort of bundled basis, for example a 24 minimum of five contracts? 25 MR. BIRMINGHAM: They could be. I don't know 26 what the purpose would be, but certainly as long as 27 there is some sort of minimum like that to protect the 28 individual customers then that could certainly be done. Les Services StenoTran Services Inc. 613-521-0703 1767 BIRMINGHAM, cr-ex (Thompson) 1 MR. THOMPSON: And those types of things would 2 be reported, I guess in June and October, would they? 3 MR. BIRMINGHAM: Yes. I think to the extent 4 that we were doing something like reporting on 5 negotiated prices, we would file that in June and then 6 to the extent that there was any change to that, we 7 would file an update in October. 8 MR. THOMPSON: Now, there has been talk -- 9 Mr. Brett, I think, might have touched on this with 10 you -- this business of compliance with the 11 relationships with your affiliates. The company is 12 obliged, I think you mentioned, to comply with the 13 pricing rules of the Affiliate Relationships Code for 14 gas utilities? 15 MR. BIRMINGHAM: That's right. 16 MR. THOMPSON: And this goes to non-utility 17 eliminations and that kind of thing. How do you propose 18 to report that information so customers will have an 19 opportunity to evaluate whether there is or is not 20 cross-subsidy? 21 MR. BIRMINGHAM: (Off microphone) filing 22 information that is consistent with that found at 23 Appendix H of Exhibit B, Tab 2 on Schedule 4. The total 24 amount of the non-utility allocations is shown there 25 with respect to the affiliate transactions. Beyond that 26 we weren't planning to file anything else. 27 The issue of cross-subsidization really arises 28 under cost of service regulation where the utility may Les Services StenoTran Services Inc. 613-521-0703 1768 BIRMINGHAM, cr-ex (Thompson) 1 price things differently to an affiliate and have the 2 ratepayers assume some responsibility for that. That 3 can't happen under price cap by virtue of the fact that 4 prices are not tied to costs. What we are going to do, 5 though, is comply with the Affiliate Relationships Code. 6 MR. THOMPSON: How do you demonstrate that to 7 -- how do you demonstrate it, first of all, to the 8 Board or do you? 9 MR. BIRMINGHAM: It's rule-making on behalf of 10 the Board, so to the extent that they want us to prepare 11 a report or have the Energy Returns Officer visit our 12 location to ensure compliance, then the Board is able to 13 do that. 14 MR. THOMPSON: But at the moment is there any 15 sort of routine filing that demonstrates compliance with 16 the Code -- routine filing with the Board or Energy 17 Returns Officer? 18 MR. BIRMINGHAM: No, there isn't, 19 Mr. Thompson. We are required to keep track, obviously, 20 of the affiliate transactions, but there isn't any sort 21 of regular reporting that goes on at this point. 22 MR. THOMPSON: So if we need something 23 specific in connection with customer review, we will 24 have to ask the Board to direct it. Is that what it 25 boils down to? 26 MR. BIRMINGHAM: That's right. 27 MR. THOMPSON: Okay. In terms of monitoring 28 and reporting, this is a process that is really separate Les Services StenoTran Services Inc. 613-521-0703 1769 BIRMINGHAM, cr-ex (Thompson) 1 from the customer review process. 2 Your evidence indicates you do provide 3 periodic reports to the Board and you are proposing to 4 deal with any changes that are necessary there by 5 dealing directly with Board staff, as I understand it, 6 or the Energy Returns Officer, and customers won't be 7 involved in that process. Is that correct? 8 MR. BIRMINGHAM: That's right. 9 MR. THOMPSON: Thanks. 10 Then, in addition, you do propose to provide 11 some periodic reporting to stakeholders, as I understand 12 it, customers, and this is related to trigger 13 mechanisms, if I read the evidence correctly. Is that 14 the extent of it? 15 MR. BIRMINGHAM: I think there are two things 16 there, Mr. Thompson. The first one is the deferral 17 account trigger with respect to the gas supply deferral 18 accounts, and we have proposed to increase that 19 threshold but that trigger letter will continue to be 20 issued. 21 Then the second piece is, then on a monthly 22 basis we provide a summary of our landed gas costs and 23 we have categorized them in four ways: long-term fixed, 24 long-term indexed, short-term fixed and short-term 25 indexed, and we continue to do that as well. 26 MR. THOMPSON: But will that information go to 27 customers, or just to the Board? What is the practice 28 now? Les Services StenoTran Services Inc. 613-521-0703 1770 BIRMINGHAM, cr-ex (Thompson) 1 MR. BIRMINGHAM: The gas supply pricing 2 information, I think, basically goes to anyone who 3 requests it. I think that has mostly been marketers to 4 date. But to the extent than anybody wanted it, we 5 could put them on the list. 6 The deferral account trigger I think generally 7 is submitted to the Board, but it is my understanding 8 that all intervenors from our most recent proceeding 9 would have been copied on that letter. 10 MR. THOMPSON: Finally, with respect to the 11 second generation price cap, suppose the customer review 12 process requires rebasing, is the company prepared to 13 rebase in those circumstances or is it going to take a 14 Board direction to rebase? 15 MR. BIRMINGHAM: I'm sorry, this would be -- 16 going through the customer review process the 17 participants in the process come to the conclusion that 18 we should move back to cost of service regulation for 19 some time period. 20 MR. THOMPSON: Or rebase on the basis of 21 costs, at the very least. 22 When I suggest the participants, I assume 23 Union disagrees. 24 MR. BIRMINGHAM: That's right. 25 MR. THOMPSON: But everybody else says "We 26 have to rebase". Would that be sufficient to persuade 27 the company to respond to the people for whom it's 28 supposed to be performing? Les Services StenoTran Services Inc. 613-521-0703 1771 BIRMINGHAM, cr-ex (Thompson) 1 MR. BIRMINGHAM: I think in the event, 2 Mr. Thompson, that we had all of the participants in the 3 customer review process saying that we should move to 4 some sort of rebasing, I suspect that the utility would 5 then look at that. And rather than have the Board try 6 to stand between all of the customer review process 7 participants and the utility that we would agree to 8 doing some form of rebasement. 9 MR. THOMPSON: And a follow-up on that. 10 Dr. Bauer, in his testimony, suggested if you get a 11 five-year term for your PBR, there should be a thorough 12 review, I believe is the way he puts it, at the end of 13 the third year. Again, if everybody but Union felt 14 rebasing was called for at the end of the third year, 15 would Union rebase? 16 MR. BIRMINGHAM: No. 17 MR. THOMPSON: And why not? 18 MR. BIRMINGHAM: Because our proposal is for a 19 five-year period. We have set the parameters of our 20 price cap plan based on a five-year term. To the extent 21 that there is some sort of review process that happens 22 at some point during that initial term, it would be my 23 view that we would have proposed different parameters 24 for the price cap proposal. 25 MR. THOMPSON: My last question deals with 26 this business of costs and pricing flexibility, and I 27 will put it to this panel. 28 I don't know if it's the right place or not, Les Services StenoTran Services Inc. 613-521-0703 1772 BIRMINGHAM, cr-ex (Thompson) 1 but I wanted to draw your attention to section 4.5 of 2 the Board's Decision with Reasons in the Electricity 3 Rate Handbook case. 4 MR. BIRMINGHAM: Yes, sir, this is on page 44 5 of their Decision with Reasons. 6 MR. THOMPSON: Yes. The paragraph that I 7 wanted to draw your attention to was on page 45, 8 paragraph 4.5.5. And this goes to symmetry between gas 9 and electrics as well. 10 But in this paragraph of the decision the 11 Board said: 12 "The Board, however, accepts that a 13 utility may wish to confirm the 14 reasonableness of class rates relative to 15 cost causality in proposing realignment 16 of rates. To better align rates with 17 costs, the Board expects the utility to 18 file an appropriate cost allocation 19 study." (As read) 20 Now, that paragraph and that section of the 21 Board's Decision suggested to me that under PBR the 22 Board expected prices for monopoly services to remain 23 aligned with cost. 24 Do you interpret it in that fashion? And, if 25 not -- well, first of all, do you interpret the Decision 26 in that fashion? 27 MR. BIRMINGHAM: I interpret the Decision in 28 that fashion for the municipal electric utilities, Les Services StenoTran Services Inc. 613-521-0703 1773 BIRMINGHAM, cr-ex (Thompson) 1 Mr. Thompson, but I don't necessarily suggest that that 2 can be transferred to the natural gas utilities. 3 You are looking at utilities that have never 4 been regulated by the Board. They don't have any sort 5 of approved rate design. They are going through -- 6 there has been an assumption that their initial rates 7 are aligned with costs. They are going through a 8 separation of the power cost and the distribution charge 9 and then making some assumptions about how the 10 distribution rates should be allocated between fixed and 11 commodity-type charges. 12 I just think they are in a completely 13 different situation than we are, so I don't take that 14 the Board's ruling there would necessarily translate to 15 the natural gas utilities. 16 MR. THOMPSON: Well, I take your point. You 17 are further along the road of cost-based rates than the 18 municipal electrics are, but you are proposing to, in 19 effect, get off that road and go wherever the heck you 20 want to subject to the price cap, and that strikes me as 21 being somewhat inconsistent with the Board's Decision in 22 the Electric Handbook case. 23 Do you find it to be inconsistent? 24 MR. BIRMINGHAM: I don't for the very reasons 25 that I just said. It isn't Union going everywhere it 26 wants to go, there are very tightly defined parameters 27 within the context of this plan. We have had cost-based 28 rates for many, many, many years where the municipal Les Services StenoTran Services Inc. 613-521-0703 1774 BIRMINGHAM, cr-ex (Thompson) 1 electric utilities have never been regulated by this 2 Board. I just don't think that you can look at one 3 segment of the decision and suggest that that should be 4 dropped on to the natural gas utilities when they are a 5 markedly different position. 6 MR. THOMPSON: Well the point is, and Mr. John 7 Johnson makes it and Dr. Bauer makes it, is you have to 8 maintain where monopoly services are involved, some 9 linkage with cost causality and you disagree with that 10 point of view. 11 MR. BIRMINGHAM: Yes. 12 MR. THOMPSON: Thank you, those are my 13 questions and I thank the Board. 14 THE PRESIDING MEMBER: Thank you, 15 Mr. Thompson. 16 Mr. Janigan. 17 CROSS-EXAMINATION 18 MR. JANIGAN: Thank you, Mr. Chair. 19 My friends, Mr. Brett and Mr. Thompson have 20 covered many of the points that I was to raise, and I 21 just had some clean up questions for this panel. 22 Now, did I understand you to say, panel, that 23 Union will not be providing a comparison of actual 24 results to the PBR parameters that are set for the year? 25 Is that my understanding of what the -- in the package 26 and the information that you won't be comparing the 27 actual results to PBR parameters, or will you? 28 MR. BIRMINGHAM: I don't understand that Les Services StenoTran Services Inc. 613-521-0703 1775 BIRMINGHAM, cr-ex (Janigan) 1 comparison, Mr. Janigan. Maybe you can help me out 2 there. 3 MR. JANIGAN: Well, in particular, if -- 4 during the operation of the plan there will be certain 5 parameters that are set out for the PBR plan to be 6 achieved during the course of the year under the price 7 cap, will you be comparing the results that you have 8 actually received, the actual results to the parameters 9 as set by the PBR price cap or not? 10 MR. BIRMINGHAM: Well, for instance the 11 pricing formula is applied to unit prices, and we are 12 going to show compliance with those parameters before 13 the beginning of the year, and it will -- then we will 14 be reporting our actual results as a result of using the 15 prices that had been adjusted by virtue of those 16 parameters. 17 MR. JANIGAN: But in terms of the anticipated 18 results under the -- let me just go back to something 19 you said. 20 You will be producing the actual results based 21 upon the price cap plan, and then the following year 22 there will be adjustments to the price cap plan again 23 which will produce revenues in accordance with the price 24 cap formula. 25 MR. BIRMINGHAM: It will produce prices in 26 accordance with the price cap formula, that is right. 27 MR. JANIGAN: Which will eventually produce 28 revenues and expenses in accordance with that formula. Les Services StenoTran Services Inc. 613-521-0703 1776 BIRMINGHAM, cr-ex (Janigan) 1 MR. BIRMINGHAM: They will be used to generate 2 the revenues for that period, yes. 3 MR. JANIGAN: Now, will you be providing 4 explanations with respect to any variances from year to 5 year associated with revenues or expenses? 6 MR. BIRMINGHAM: No, that wasn't our 7 intention. 8 MR. JANIGAN: Now, in the event -- and 9 particularly with respect to expenses -- in the event 10 the costs are recovered under different accounts for 11 whatever reason, will there be any explanation on the 12 changes in which these costs are being recorded? 13 For example, if you have reorganizations for 14 example or any changes internally that cause costs to be 15 recorded in other accounts rather than the accounts that 16 they were formally recorded, will there be any 17 explanation provided for those changes? 18 MR. BIRMINGHAM: What do you mean by recording 19 in accounts, Mr. Janigan? I'm not catching what you are 20 asking me, sir. 21 MR. JANIGAN: Well, in terms of the 22 information that you will be providing, and I think we 23 have referenced Appendix H. If there expenses, for 24 example, that are shifting or are a change within those 25 individual categories, or shifting within those 26 individual categories as a result of reorganizations, 27 for example, or as a result of efficiencies that are 28 gained, will you be filing any information that reflects Les Services StenoTran Services Inc. 613-521-0703 1777 BIRMINGHAM, cr-ex (Janigan) 1 or explains those changes? 2 MR. BIRMINGHAM: Well, to the extent that for 3 instance business process improvements resulted in 4 certain changes in a year to a particular component of 5 our O&M expenses that will show up in our actual results 6 and that would be filed in the schedules under 7 Appendix H of Exhibit B, Tab 2. 8 MR. JANIGAN: Let's say the Westcoast 9 Corporate Centre took on more of the Union operations or 10 started to play a bigger role in Union operations, would 11 that be noted anywhere in terms of changes in the costs 12 that are recorded? It wouldn't be noted in an 13 explanation, I trust. 14 MR. BIRMINGHAM: To the extent that a party 15 was providing us services, it would be -- any party for 16 that matter, it would be categorized within our 17 operating maintenance expenses and would show up in the 18 actuals, but it wouldn't be identified as a separate 19 item, no. 20 MR. JANIGAN: So the information that we are 21 going to be getting in the customer review process won't 22 necessarily provide a trail, or a sense of continuity 23 for these expenses. 24 MR. BIRMINGHAM: It will show the revenues and 25 the costs and the capital on an actual basis for each 26 year. So to that extent, there will be the continuity. 27 MR. JANIGAN: But to the extent that there are 28 variances from year to year, there won't be any Les Services StenoTran Services Inc. 613-521-0703 1778 BIRMINGHAM, cr-ex (Janigan) 1 information that will allow us to discover the causes 2 for those variances, 3 MR. BIRMINGHAM: No. That's not our intent, 4 mainly because there isn't any use for that information 5 under price cap regulation. 6 MR. JANIGAN: During the operation of the 7 price cap is in the -- 8 MR. BIRMINGHAM: During the term of the price 9 cap plan. Correct. 10 MR. JANIGAN: At the end of the price cap, or 11 I suppose we can disagree on this, but we may want to 12 have that information to evaluate the effectiveness of 13 the price cap? 14 --- Pause 15 MR. BIRMINGHAM: I just want to understand the 16 scenario, Mr. Janigan. This is where if we are to reset 17 based on cost of service, parties might want to 18 understand the causes for some of the changes on an 19 actual basis during the term of the price cap? 20 MR. JANIGAN: Let's say if we were going to 21 reset based on costs, we will want to (off microphone) 22 ... and what the level of costs should be upon which we 23 put in rates and presumably the history of these 24 expenses from year to year would be useful to that 25 extent. 26 MR. BIRMINGHAM: You will be seeing the actual 27 results as we have presented them under Appendix H for 28 each year within the term, within the initial term of Les Services StenoTran Services Inc. 613-521-0703 1779 BIRMINGHAM, cr-ex (Janigan) 1 the price cap. And to the extent that there is some 2 sort of rebasing under cost of service, that would 3 presumably be done on a forecast basis. So you would 4 have all that information available. 5 MR. JANIGAN: Now, the information you would 6 have available on a forecast basis, would that be based 7 on cost of service review? 8 MR. BIRMINGHAM: We aren't providing any 9 information on a forecast basis. My comment was that if 10 there is to be some sort of rebasing based on cost of 11 service, presumably that would follow the normal 12 forecast test year type of approach. 13 MR. JANIGAN: Presumably when we set cost of 14 service based on a test year approach, we also have 15 historical results as a guide, do we not? 16 MR. BIRMINGHAM: Yes. And you will have the 17 historical results for all of the years under the price 18 cap term to the extent that they have been completed at 19 the time that any sort of rebasing was done. 20 MR. JANIGAN: But we won't have them to the 21 extent of the detail that you ordinarily have them, 22 obviously. 23 MR. BIRMINGHAM: You won't have a cost of 24 service file for each of those years. That's right. 25 MR. JANIGAN: If you were asked to the 26 Board -- by the Board at the conclusion of the price cap 27 plan to demonstrate the superiority of the price cap 28 plan over cost of service, how would you do that? Les Services StenoTran Services Inc. 613-521-0703 1780 BIRMINGHAM, cr-ex (Janigan) 1 MR. BIRMINGHAM: There wouldn't be a direct 2 comparison available, Mr. Janigan, because we wouldn't 3 have been regulated under cost of service at that point. 4 I think one thing that the Board can look at 5 is to the extent that the Board -- that the utility has 6 been able to achieve returns that are above the 7 Board-approved level, that would suggest that the 8 utility has been able to meet the stretch factor that 9 was included in the pricing formula, and also be, you 10 know, to do something better than that. So customers 11 would have received the benefit of the stretch factor 12 that wouldn't have been available under cost of service 13 regulation. 14 MR. JANIGAN: So in effect you can demonstrate 15 that, in fact, the company has been able to meet the 16 stretch they have put into the price cap plan and 17 flowing from that by looking at your earnings, they 18 might wish to put in a more healthy stretch factor than 19 the subsequent period of plan. Is that what you are 20 saying? 21 MR. BIRMINGHAM: Well, there is two different 22 things there. What you are asking me was how you would 23 do the -- how would you assess the success of the price 24 cap plan against cost of service regulation. What you 25 are proposing is in the setting, or resetting of the 26 price cap parameters for the second generation, would 27 the Board look at the return on equity that the utility 28 achieved during the first term and potentially include Les Services StenoTran Services Inc. 613-521-0703 1781 BIRMINGHAM, cr-ex (Janigan) 1 that as one of the considerations for a potential 2 stretch factor in the second generation. I think that's 3 probably true. 4 MR. JANIGAN: Getting back to your initial 5 answer, I think what you indicated to me was -- company 6 rather than ratepayers. The ratepayers have already 7 been given, at least in your evidence, the benefits 8 upfront in the price cap plan. How would you be able to 9 compare those benefits to the benefits (off microphone) 10 or can you do that? 11 MR. BIRMINGHAM: You can't. 12 THE PRESIDING MEMBER: Mr. Janigan, can you 13 make sure you speak into the microphone. Apparently 14 it's difficult recording. 15 THE COURT REPORTER: Thank you. 16 MR. JANIGAN: Now, just so I'm clear on this 17 concept. I wonder if you could revisit an interrogatory 18 I brought up earlier in the proceeding, the Board staff 19 Interrogatory No. 88. 20 --- Pause 21 MR. JANIGAN: And this illustrates a cost 22 saving or efficiency measure that you put in place in 23 May of 1999, which is not supposed to be captured in the 24 base rates that are going forward. And it will result, 25 I think, in a cost saving, when you put it over the full 26 year basis, of about $1.1 million. Have I got that 27 right? 28 MR. BIRMINGHAM: That's right. Les Services StenoTran Services Inc. 613-521-0703 1782 BIRMINGHAM, cr-ex (Janigan) 1 MR. JANIGAN: Okay. 2 And are you saying that this saving of 3 $1.1 million which will fall to the company under the 4 price cap plan will never come back into rates because 5 we will never make an adjustment for this saving. Is 6 that what this means? 7 MR. BIRMINGHAM: No. I wouldn't agree with 8 that description. Customers receive an upfront 9 commitment to higher productivity than would otherwise 10 be achieved under cost of service. This type of 11 initiative is one of the ways that we look to try to 12 meet that higher level of productivity. So to that 13 extent, you can't say that it's not included in rates 14 because some portion of whatever productivity gains we 15 are able to achieve are going to incorporated directly 16 in rates by virtue of the stretch factor. 17 MR. JANIGAN: Okay. 18 MR. BIRMINGHAM: I will agree, however, that 19 there -- it is our proposal that cost not be adjusted to 20 reflect this type of savings. 21 MR. JANIGAN: Yes. So at the end of the plan, 22 we don't get $1.1 million off of rates, at the end of 23 the price cap plan? Is that -- have I got that right? 24 MR. BIRMINGHAM: To the extent that at the 25 beginning of the next price cap plan, the second 26 generation plan, that there is a stretch factor included 27 in there, customers continue to receive the benefit of 28 higher levels of productivity. Les Services StenoTran Services Inc. 613-521-0703 1783 BIRMINGHAM, cr-ex (Janigan) 1 MR. JANIGAN: Yes, but if we don't the amount 2 of the cost in any kind of a detailed fashion, how would 3 we know how to set the stretch factor? 4 MR. BIRMINGHAM: Well, there is a number of 5 ways to do it and I'm suggesting that one of the 6 considerations that would go into that is how successful 7 the utility was based on its return on equity during the 8 first term of the price cap plan. 9 MR. JANIGAN: And I would, as you are 10 proposing, I think, to set the productivity factors 11 based on Union results for this time, and industry 12 results for the next time, presumably we can't be 13 confident that your productivity increases during the 14 course of the price cap plan will be captured in the 15 X factor for the next period of the price cap plan. Do 16 you understand what I'm saying? 17 MR. BIRMINGHAM: Let me give it a try. In the 18 second generation, what we are proposing is that the 19 productivity offset be determined using a Canadian 20 standard for the gas distribution industry. That would 21 include Union's productivity during the term of the 22 price cap plan. So it will be incorporated in that 23 average. So it will be used directly in determining the 24 productivity offset and then maybe increased to the 25 extent that there is a stretch factor that was added 26 to it. 27 MR. JANIGAN: But to the extent that you have 28 outperformed the gas industry in the first term, that Les Services StenoTran Services Inc. 613-521-0703 1784 BIRMINGHAM, cr-ex (Janigan) 1 productivity will only be captured as a result of 2 Union's results being factored in with everybody else's. 3 MR. BIRMINGHAM: That's right. 4 MR. JANIGAN: Okay. 5 Now in the -- under the price cap plan, will 6 the utility still be producing costs of service analysis 7 for corporate management? 8 MR. BIRMINGHAM: No. 9 MR. JANIGAN: Will you be producing forecasts 10 analysis for corporate management? 11 MR. BIRMINGHAM: We do produce operating 12 budgets in the regular course of business. 13 MR. JANIGAN: Now, as I understand the PGVA 14 mechanism, it will require gas costs and upstream 15 transportation and storage costs to be allocated by rate 16 class on a cost of service basis, will it not, or have I 17 got that wrong? 18 MR. BIRMINGHAM: No, that is right. The 19 deferral account balances will be disposed of to 20 different rate classes, and the amounts that are in the 21 deferral accounts, whether they be charges or credits, 22 would be allocated to the different classes. 23 MR. JANIGAN: Now, does the percentage of 24 allocated costs by rate class change dramatically each 25 year for distribution costs? 26 --- Pause 27 MR. BIRMINGHAM: I am not sure, Mr. Janigan. 28 We might want to wait until Mr. Packer is here and he Les Services StenoTran Services Inc. 613-521-0703 1785 BIRMINGHAM, cr-ex (Janigan) 1 might be able to help you with that one. 2 MR. JANIGAN: I guess my question is -- well, 3 I will wait until -- I will wait and put the second half 4 of that question to Mr. Packer. 5 The question deals with why it is not possible 6 to create an estimated revenue-to-cost ratio by rate 7 class analysis for the customer review process given the 8 fact that you are still required to do cost of service 9 analysis for PGVA cost basis. 10 Would you prefer I put that question to 11 Mr. Packer? 12 MR. BIRMINGHAM: You can, but I think what I 13 had responded to, to Mr. Thompson in the same vein is 14 that it is not that we can't do it. If we needed to 15 maintain the capability, we would and we could produce 16 those -- that type of information. 17 My only point is that we don't do it and we 18 won't do it because it isn't needed under the price cap 19 form of regulation. And beyond that what those types of 20 comparisons start to do is they compare one year of 21 revenues and costs compared to what might happen under 22 the parameters of a price cap plan that has been set on 23 a five-year term. And that by its very nature is going 24 to give variations. That is one of the outcomes of the 25 price cap regulations that tends to give higher 26 variability and earnings than you would see under cost 27 of service regulation. 28 MR. JANIGAN: Now, Dr. Bauer's evidence talks Les Services StenoTran Services Inc. 613-521-0703 1786 BIRMINGHAM, cr-ex (Janigan) 1 about an actual price index and at minimum to have the 2 rates adjusted annually to reflect the changing 3 composition of Union's output. Do you agree with him? 4 MR. BIRMINGHAM: No. What we are doing is we 5 have used a long-term assessment of what those input 6 prices should be and we are going -- and we have used 7 those for the determination of our productivity offset. 8 We have added a stretch factor to that and we would like 9 to fix it at 1.9 per cent. That is what our 10 proposal is. 11 MR. JANIGAN: Now, with respect to the 12 customer review process, I believe you indicated that 13 -- an earlier response, I believe, to Mr. Thompson, 14 that to the extent -- and I am dealing with the 15 interrogatory process -- but to the extent that there 16 was a written process, IRs could be incorporated. Have 17 I got that right? 18 MR. BIRMINGHAM: No. What I was speaking 19 about was with respect to the information packages that 20 were filed, it was our intention to hold meetings with 21 individual -- with the participants in the customer 22 review process to answer any questions in that type of 23 forum. But to the extent that parties wanted some sort 24 of written question and answer process rather than a 25 face-to-face meeting, that could be accommodated in the 26 process. 27 MR. JANIGAN: Okay. And in the event that 28 there is a disagreement, the matter goes to the Board. Les Services StenoTran Services Inc. 613-521-0703 1787 BIRMINGHAM, cr-ex (Janigan) 1 Would there be an interrogatory process then? 2 MR. BIRMINGHAM: I think at that point there 3 would be sufficient information for the Board to deal 4 with the topic. But I think depending on what it is, 5 that would be up to the Board to do. 6 MR. JANIGAN: Well, the problem is, is that 7 we -- the previous proceeding, presumably was face to 8 face exchange of information with the customer and 9 stakeholder groups. There would be nothing on the 10 record apart from what you have initially filed for the 11 Board to deal with. Wouldn't that be the case? 12 MR. BIRMINGHAM: Yes. But as I had indicated 13 earlier, the report to the Board with respect to some of 14 these items, let me take an example that I was using 15 earlier which is a non-routine adjustment that is 16 created by some type of legislative change, and let's in 17 this example assume that Union having provided the 18 support for that non-routine adjustment and the 19 calculation and the impact, that there was a dispute 20 that came about as a result of filing that information 21 in the June package in the customer review process. 22 To the extent that we couldn't get agreement, 23 there would be a report sent to the Board and I think it 24 would be our hope that given the limited nature of the 25 items that are covered in the customer review process 26 with respect to the price cap plan that parties would be 27 able to put out their positions in that report so that 28 the Board should deal with it at that point. Les Services StenoTran Services Inc. 613-521-0703 1788 BIRMINGHAM, cr-ex (Janigan) 1 Now, if -- I think if the issue was broad 2 enough that the Board saw fit to have some longer type 3 or broader type of proceeding around it, then there may 4 well be some sort of interrogatory process. 5 MR. JANIGAN: I think I have furnished your 6 counsel a copy of a consolidated settlement document of 7 BC Gas utility in 1998, 2000 revenue requirements. 8 DR. WIGHTMAN: Can we give that Exhibit F10.1. 9 EXHIBIT NO. F10.1: Consolidated 10 settlement document of BC Gas utility in 11 1998, 2000 revenue requirements 12 MR. BIRMINGHAM: Yes, sir, this is the same 13 settlement agreement that was included in the binders of 14 precedence that we had filed in the Ontario Energy Board 15 library and is also summarized at Exhibit D, Tab 3, 16 Appendix B, page B3. 17 MR. JANIGAN: And I note on page 13 that it 18 provides that: 19 "Prior to each annual workshop, BC Gas 20 will provide interested parties and the 21 Commission advance information regarding 22 the projections and forecasts to be 23 presented by BC Gas at the workshop. 24 This should be done three weeks prior to 25 the workshop to allow parties to submit 26 information requests and receive 27 responses prior to the workshop." 28 (As read) Les Services StenoTran Services Inc. 613-521-0703 1789 BIRMINGHAM, cr-ex (Janigan) 1 So it seems as if this process accommodates 2 interrogatories. 3 MR. BIRMINGHAM: Well, the process that has 4 been included in the Settlement Agreement has to include 5 that type of process because it is cost of service 6 regulation. A settlement agreement provides for a 7 formula adjustment to operating and maintenance expenses 8 and a formula adjustment for the unit costs for some of 9 the -- for the items that are in the utilities capital 10 budget. 11 But it isn't a comprehensive performance-based 12 regulation proposal. There is still the need to 13 forecast revenues, forecast customer additions and 14 because it is under a cost of service framework, they 15 have to make some sort of allowance for that type of 16 process. So I think it is properly included there to 17 support that type of regulatory framework. 18 MR. JANIGAN: So you would distinguish this 19 process as peculiar to what -- the kind of PBR plan they 20 put in place. 21 MR. BIRMINGHAM: It is a different type of 22 framework altogether, yes. 23 MR. JANIGAN: Now, Dr. Bauer's evidence notes, 24 and I believe as well Mr. Johnson's evidence notes, that 25 there needs to be a cost review of rates to ensure that 26 there is no cross-subsidization between rate classes. 27 How do you propose to deal with this under 28 your current plans? Les Services StenoTran Services Inc. 613-521-0703 1790 BIRMINGHAM, cr-ex (Janigan) 1 MR. BIRMINGHAM: The PBR by its nature has 2 unit prices and costs which are decoupled. So we are 3 trying to maintain the same types of cost relationships 4 that currently exist. 5 In addition, with respect to a rate design, 6 cost is only one item that we used to determine whether 7 a rate should be set at a particular level. All of the 8 other ones are listed in Mr. Packer's evidence and we 9 are going to continue to maintain those ones. What we 10 aren't going to continue to maintain is a relationship 11 between the unit prices and the costs. 12 MR. JANIGAN: How will we or the Board be able 13 to determine if the monopoly service of distribution is 14 cross-subsidizing other services -- other services such 15 as transportation or storage? 16 MR. BIRMINGHAM: Well, the storage services, 17 the transmission services and the distribution services 18 are all regulated, and those prices are going to be set 19 by virtue of the pricing formula. 20 MR. JANIGAN: Well, without the revenue to 21 cost ratios, how will we tell? 22 MR. BIRMINGHAM: You can't and you won't and 23 you shouldn't. 24 --- Pause 25 MR. JANIGAN: Thank you, panel. Those are all 26 my questions. 27 THE PRESIDING MEMBER: Thank you, Mr. Janigan. 28 Mr. Klippenstein. Les Services StenoTran Services Inc. 613-521-0703 1791 BIRMINGHAM, cr-ex (Janigan) 1 FURTHER CROSS-EXAMINATION 2 MR. KLIPPENSTEIN: Thank you, Mr. Chairman. I 3 propose to rely on one document which was delivered to 4 my friend yesterday, and which is from the record in 5 RP-1999-0001 -- and unless my friend has any objections 6 I will make some copies available to the Board and other 7 members. 8 --- Pause 9 MR. PENNY: Sorry, Mr. Chairman. 10 Mr. Klippenstein and I were -- the confusion was that 11 when Mr. Klippenstein gave us the package yesterday it 12 was principally it was almost DSM related. I had 13 assumed that he was proposing to put these documents to 14 the DSM panel. 15 I think Mr. Birmingham did look at the package 16 yesterday, and also concluded it was all DSM related. 17 This is -- these are some pages that come from that, and 18 I now understand Mr. Klippenstein has some questions for 19 Mr. Birmingham about this. It may be that we could 20 determine when we know what Mr. Klippenstein wants to 21 ask if Mr. Birmingham would like a bit of extra time, 22 say over the break or something, to look at it. 23 THE PRESIDING MEMBER: Before we move on, 24 Dr. Wightman, I think I forgot to add an exhibit number 25 for the previous Consolidated Settlement Agreement from 26 B.C. The one that was just handed out. 27 DR. WIGHTMAN: I believe it was F10.1. 28 THE PRESIDING MEMBER: The one that has just Les Services StenoTran Services Inc. 613-521-0703 1792 BIRMINGHAM, cr-ex (Klippenstein) 1 been handed out? If we could we just check tomorrow 2 that we have got the right numbers? We need to add a 3 number for this Exhibit. 4 DR. WIGHTMAN: I think this is the second 5 exhibit today. It would be F10.2, but we will check. 6 THE PRESIDING MEMBER: Thank you. 7 Well, Mr. Penny, do you want to break now for 8 twenty minutes and then come back and then 9 Mr. Birmingham will have had a chance to read 10 Mr. Klippenstein's information, or do you want to 11 proceed? 12 MR. PENNY: Could I find out what the question 13 is first? 14 MR. KLIPPENSTEIN: Yes, certainly. I 15 apologize for the potential confusion. This is an 16 excerpt from the Enbridge Settlement Agreement and I 17 wanted to compare, or refer to the monitoring evaluation 18 provisions in there. There are basically two or three 19 pages here that would be applicable, and was simply 20 going to ask to what extent some of these concepts 21 would -- were being contemplated by Union, or would be 22 acceptable to Union. 23 THE PRESIDING MEMBER: Mr. Birmingham. 24 MR. BIRMINGHAM: I'm happy to answer the 25 questions as long as they aren't related to the DSM or 26 SSM, in which case we have a panel coming up to deal 27 with that. 28 MR. KLIPPENSTEIN: Thank you. That raises the Les Services StenoTran Services Inc. 613-521-0703 1793 BIRMINGHAM, cr-ex (Klippenstein) 1 question of to what extent questions which might 2 potentially be applicable to this panel should be kicked 3 over to the DSM panel because I have a number of 4 questions that pertain to how the -- how DSM is going to 5 be reported and monitored on. And if I'm advised that I 6 should hold them for the DSM panel, I'm happy to do 7 that. I just don't want to fall between two chairs. 8 MR. BIRMINGHAM: The DSM/SSM panel can deal 9 with all of those, and to the extent, Mr. Klippenstein, 10 that they can't we can do them by undertaking. But my 11 expectation is that they will be able to deal with all 12 of them. 13 MR. KLIPPENSTEIN: Then presumably I should 14 just hold on for tomorrow. My only concern would be 15 that I was hoping to ask how some of the DSM details 16 would be reviewed in their reporting and monitoring 17 process. Assuming that the DSM panel has some thought 18 on that, or the authority to speak on that I'm happy to 19 wait. 20 MR. BIRMINGHAM: They do. 21 MR. KLIPPENSTEIN: I was also hoping to get 22 answers from both panels and look for contradictions 23 between the two, but I guess not. 24 MR. PENNY: Not today, Mr. Klippenstein. 25 MR. KLIPPENSTEIN: That's all my questions 26 then. 27 THE PRESIDING MEMBER: Thank you, 28 Mr. Klippenstein. Les Services StenoTran Services Inc. 613-521-0703 1794 BIRMINGHAM, cr-ex (Klippenstein) 1 I think if we are going to have an afternoon 2 break we should have it now. I don't know how many 3 other people have questions. I see Mr. Mondrow. 4 MR. PENNY: By our tally, Mr. Reghelini went 5 around and asked, and it looks like about another hour 6 to -- another hour, hour and fifteen minutes perhaps an 7 hour and a half of questions. 8 THE PRESIDING MEMBER: I think we should take 9 a break for twenty minutes now and then come back and 10 maybe we can complete it. Thank you. 11 --- Upon recessing at 1520 12 --- Upon resuming at 1540 13 THE PRESIDING MEMBER: Mr. Mondrow. 14 CROSS-EXAMINATION 15 MR. MONDROW: When I first read the evidence 16 on the customer review process, I had read it as 17 indicating a very Union controlled process, but the 18 additional evidence that you have given today has 19 moderated that view. 20 So I just want to explore a couple of the 21 aspects of the process not yet covered by my friend, and 22 then re-evaluate the proposal going forward into 23 argument. And I will ask you just to bear with me, I 24 have tried to capture the developments of this proposal 25 as it's been talked about today, and hopefully I won't 26 duplicate. 27 Let me ask you first about the parties to the 28 process. How will you determine, gentlemen, who Les Services StenoTran Services Inc. 613-521-0703 1795 BIRMINGHAM, cr-ex (Mondrow) 1 receives the customer review information in any given 2 year? 3 MR. BIRMINGHAM: We are going to start with 4 the parties who are intervenors in the rates 5 proceedings, Mr. Mondrow. But to the extent that 6 anybody wanted to participate, then we would add them to 7 that list. 8 MR. MONDROW: So my client HVAC Coalition 9 shouldn't be overly concerned with the rubric customer 10 review given that they are not actually customers, or at 11 least not here in that capacity? 12 MR. BIRMINGHAM: I think that's right to the 13 extent that your client has an interest in some of these 14 items that are being raised in the customer review 15 process, and they will be able to participate. 16 We didn't appreciate that we called it a 17 customer review process, but it really was intended to 18 include not just customers, that is customers who take 19 service from Union and pay for them, but also other 20 stakeholders. 21 MR. MONDROW: The stakeholder of course as it 22 always has to be responsible and address issues of 23 legitimate concern, but will be entitled to all the same 24 information and the participation rights that have 25 historically been afforded. Is that fair? 26 MR. BIRMINGHAM: They will be afforded the 27 same participation rights as all of the other 28 participants. Les Services StenoTran Services Inc. 613-521-0703 1796 BIRMINGHAM, cr-ex (Mondrow) 1 MR. MONDROW: Fair enough, okay. 2 MR. BIRMINGHAM: This is the nondiscriminatory 3 treatment of customer review participants. 4 MR. MONDROW: Well, we may call it stakeholder 5 review going forward, but I just want to make sure that 6 we are talking about the same thing. So I am satisfied 7 that we are, thank you. 8 Let me just take you to an excerpt that's 9 probably been quoted to you already today. I will just 10 ask you one quick question about it. It's at page 80 of 11 Exhibit B, Tab 2. It's a discussion of the information 12 to be provided to the parties in this customer review 13 process. I will just read the sentence commencing at 14 line 13. It says: 15 "Union is committed to ensuring adequate 16 information is communicated to parties to 17 allow rates flowing out of the price cap 18 mechanism to be understood, and to 19 address all new material matters which 20 fall outside of the predefined price cap 21 parameters." 22 I take it the last phrase in the sentence, 23 "which fall outside of the predefined price cap 24 parameters" is a reference to passthrough items. Is 25 that right? 26 MR. BIRMINGHAM: Certainly passthrough items, 27 and nonroutine adjustments are some of those matters. 28 But it was intended to be a little bit broader than that Les Services StenoTran Services Inc. 613-521-0703 1797 BIRMINGHAM, cr-ex (Mondrow) 1 to the extent that, for instance, we were going to 2 introduce a new regulated service. I think the example 3 I used yesterday was to introduce an interruptible 4 service that had different tiers of interruptibility 5 that would also be a matter which we would bring forward 6 in the customer review process. 7 MR. MONDROW: And if there were issues of 8 concern to the parties to the process that positively 9 had a legitimate nexus or connection with the form of 10 regulation you were under as going forward in the plan, 11 would they be able to raise these issues for discussion 12 at the customer review process? Could other parties 13 throw issues on the table for the company's 14 consideration? 15 MR. BIRMINGHAM: Yes, to the extent that 16 parties wanted other items raised in the customer review 17 process, they would have the ability to do that. 18 MR. MONDROW: Now, as I understand your 19 discussion with Mr. Janigan, it's not currently the 20 company's proposal to have an interrogatory process but 21 rather to provide information to interested parties more 22 directly, presumably in the course of meetings or 23 discussions. Is that right? 24 MR. BIRMINGHAM: That's right, and that's for 25 a couple of reasons, Mr. Mondrow. When you look at the 26 items that are included in the customer review process, 27 most of those things are fairly straightforward. 28 So to the extent that, for instance a Les Services StenoTran Services Inc. 613-521-0703 1798 BIRMINGHAM, cr-ex (Mondrow) 1 non-routine adjustment was brought forward, it's our 2 belief that that will be a fairly straightforward 3 calculation that parties to the extent that if they had 4 any questions, we would be able to respond to those 5 orally. So it would be better dealt with in a 6 face-to-face meeting. 7 I am also reluctant to introduce something 8 called an "interrogatory process", because it starts to 9 sound like cost of service regulation, which clearly we 10 aren't going that way. 11 MR. MONDROW: I guess the other thing that 12 interrogatories eventually become -- as does prefiled 13 evidence, prefiled written testimony as evidence, and 14 combined with cross-examination it has an evidentiary 15 weight for the Board to consider. 16 But as I understand your proposal there is 17 going to be a written report to the Board identifying 18 any areas, any lack of consensus, and hopefully from 19 your perspective identifying most areas of consensus. 20 And the Board is to proceed on the basis of that report 21 and essentially sanctioning the consensus areas and then 22 determining what to do about the non-consensus areas, 23 that's the proposal. Have I got that generally right? 24 MR. BIRMINGHAM: Yes, that's right, and it was 25 in the context of preparing that report that we thought 26 other parties would be able to document their positions 27 to the extent that they were different from those of the 28 utility. Les Services StenoTran Services Inc. 613-521-0703 1799 BIRMINGHAM, cr-ex (Mondrow) 1 It may well be that in our view that would be 2 sufficient for the Board to rule on the matters or there 3 could be some other process, either through a written 4 process or something more formal. 5 MR. MONDROW: And do you think even at the 6 report to the Board stage, if the Board were to accept 7 the report, much like the ADR Agreement in this 8 proceeding and previous proceedings, wouldn't that 9 document have to have some evidentiary weight of some 10 sort? How would you propose to deal with that? 11 MR. BIRMINGHAM: Well, there would have to be 12 sufficient support for the different positions, I agree 13 with that. So the opportunity to include support for 14 the different positions would be available prior to the 15 submission to the Board. To the extent that the Board 16 needed additional evidence with respect to the 17 resolution of those items, then that would form part of 18 the process, and that may well include some sort of 19 written question and answer process. 20 MR. MONDROW: And another area in which 21 written question and answer process -- if you want to 22 use a descriptor other than interrogatory -- might be 23 useful, it strikes me as you raised the example of new 24 services. If you had a description of a new service and 25 parties wanted to get more information about that, one 26 way to do that would be to ask you to provide an 27 additional description or an expanded description which 28 could then be attached to the document that goes to the Les Services StenoTran Services Inc. 613-521-0703 1800 BIRMINGHAM, cr-ex (Mondrow) 1 Board. Is that within the realm of contemplation from 2 your perspective? 3 MR. BIRMINGHAM: Yes. 4 MR. MONDROW: Now, let me just ask you a 5 couple of questions about the proposal if we are going 6 to the second generation price cap? Following the 7 customer or the stakeholder review process, Union, as I 8 understand it, will bring forward the second generation 9 proposal. It will go through the stakeholder review, 10 and then a report would go to the Board for acceptance 11 or adjudication. 12 Would you agree with me that the onus is on 13 the company, on Union, to justify its second generation 14 proposal at first instance? That is it's your proposal, 15 you are the applicant, and you have to satisfy the Board 16 that it's an appropriate proposal. 17 MR. PENNY: I think that's a legal question, 18 Mr. Chairman, as to who bares the onus in that 19 circumstance. 20 MR. MONDROW: Well, with respect, 21 Mr. Chairman, the company had dealt in its evidence with 22 the onus being -- as I read it -- flipped to a party to 23 justify discontinuance of the proposal and so that's the 24 context of my question. If it's a legal, it shouldn't 25 have been in the evidence to begin with. So I beg to 26 differ with Mr. Penny with great respect. 27 I would like to know what the company's 28 position is on whether they have an onus to satisfy the Les Services StenoTran Services Inc. 613-521-0703 1801 BIRMINGHAM, cr-ex (Mondrow) 1 Board that its next proposal is an appropriate one? 2 MR. PENNY: Well, Mr. Chairman, in that 3 context I'm happy to have Mr. Birmingham answer the 4 question as to the company's position. 5 MR. MONDROW: That's clarified then, 6 Mr. Birmingham, and I thank Mr. Penny for his 7 assistance. Could you tell me whether you agree that 8 it's the company's onus to satisfy the Board that its 9 second generation proposal is appropriate? 10 MR. BIRMINGHAM: The onus is on the company to 11 support the details of the parameters as it would be 12 applied to the price cap plan for the second generation. 13 MR. MONDROW: If I can parse your answer, I 14 gather that it's the company's position that the 15 mechanism of a price cap going forward is not something 16 that you feel you would have to justify a second time 17 when we get to the end of five years because you have 18 justified it in this proceeding, but the specific new 19 parameters would have to be justified. Is that a fair 20 characterization? 21 MR. BIRMINGHAM: I think that's right. I 22 think the response I had given a little bit earlier was 23 that to the extent that the price cap approach is not 24 going to be continued, then what we are asking is that 25 the onus be on the party to provide reasons why this -- 26 with reasons why this framework should be discontinued. 27 MR. MONDROW: So essentially if the Board is 28 satisfied in this proceeding that price cap is Les Services StenoTran Services Inc. 613-521-0703 1802 BIRMINGHAM, cr-ex (Mondrow) 1 acceptable and in the public interest and the ratepayer 2 interest, that issue is being covered off and only a 3 change of regulatory approach from the price cap to 4 something else would require justification? 5 MR. BIRMINGHAM: That's what we are asking the 6 Board to make a finding on. But I think from a 7 practical standpoint, Mr. Mondrow, we are really looking 8 at the Board making two findings. One being that the 9 price cap approach is appropriate for the first term, 10 and then second, that the criteria for resetting the 11 parameters under the price cap plan should be continued 12 for a second term. 13 MR. MONDROW: Would it be legitimate in your 14 view for the Board to require Union to demonstrate that 15 its first generation PBR has achieved the objectives set 16 forward at the outset? That is the objectives that the 17 Board is considering today? 18 MR. BIRMINGHAM: Yes, and in fact that's the 19 tax data at lines -- begins at line 5 and runs to line 7 20 on page 88, where the price cap should be continued 21 after the initial period subject to an assessment of the 22 plans operation in light of the objectives for the plan. 23 So clearly in that respect to the extent that the price 24 cap plan isn't meeting those objectives, then I think we 25 have a different circumstance. 26 MR. MONDROW: But then having demonstrated 27 that the objectives have been met, it's your position 28 and you are asking the Board to accept this. In this Les Services StenoTran Services Inc. 613-521-0703 1803 BIRMINGHAM, cr-ex (Mondrow) 1 case that a price cap will, by definition, remain in the 2 best interests of ratepayers going forward if the Board 3 determines it's in the best interest of ratepayers as we 4 sit here today. 5 MR. PENNY: Mr. Chairman, that's a very 6 different issue from the question of onus. As 7 Mr. Mondrow knows, onus is just the determination of who 8 bares the burden of proof. What Mr. Mondrow now seems 9 to be suggesting is that this is going to be decided for 10 all time, which is clearly not the proposal. If parties 11 want to raise the fact that it should change, they have 12 every right to do so, and I think that has been made 13 very clear. 14 And so I guess what I'm saying in my 15 submission, Mr. Mondrow, has confused the issue of onus 16 with what may be on the table at a future proceeding. 17 MR. MONDROW: Let me try again and try to 18 clarify my questions, Mr. Birmingham. I am happy to do 19 that. 20 I think you agreed with me that it's 21 legitimate to require Union to demonstrate that the -- 22 its performance during the price cap period has achieved 23 the objectives set for that performance at the outset. 24 You agreed with me on that, right? 25 MR. BIRMINGHAM: Yes. 26 MR. MONDROW: And then having demonstrated 27 that, is there anything else that the company feels it 28 would have to demonstrate to convince the Board to move Les Services StenoTran Services Inc. 613-521-0703 1804 BIRMINGHAM, cr-ex (Mondrow) 1 to a second generation price cap, or is that it? 2 MR. BIRMINGHAM: No, it would be our view that 3 provided that the plan meets the objectives as we have 4 laid them out at page 4 of Exhibit B, Tab 2, that the 5 only remaining responsibility would then be to bring 6 forward the parameters that would then go into the price 7 cap plan for the next generation of the plan. 8 MR. MONDROW: And as Mr. Penny has clarified 9 for me, it's the company's position that any party could 10 raise the issue of whether a second generation price cap 11 was appropriate and if they feel that it wasn't, then 12 the onus would be on them as it were to convince the 13 Board that it wasn't. Is that the company's position? 14 MR. BIRMINGHAM: That other parties, to the 15 extent that they felt that the price cap plan wasn't 16 meeting the objectives or had some other reason to 17 advocate the discontinuation of the price cap plan, then 18 they would be able to have an opportunity to bring that 19 forward. 20 MR. MONDROW: And in order to bring that 21 forward, they would, presumably, have an opportunity to 22 get information from the company as to both its 23 performance under the cap and its anticipated business 24 plan moving forward into the second generation period? 25 MR. BIRMINGHAM: I agree with the first part 26 of that question, Mr. Mondrow, in that parties will have 27 the actual information available to them, and that 28 information, on an actual basis, will be provided in the Les Services StenoTran Services Inc. 613-521-0703 1805 BIRMINGHAM, cr-ex (Mondrow) 1 annual customer review process. But what we wouldn't be 2 doing is providing any forecast going forward. 3 MR. MONDROW: Fair enough. You have covered 4 that with other parties, so I won't belabour that point. 5 Now, as I understand it, Union is proposing 6 that there be no cost of service rebasing at the end of 7 the first period and moving into the second period. You 8 have been very clear about that. 9 And it seems me, or I gather that Union's kind 10 of philosophy or justification for that is to the effect 11 that if the base is set properly in this proceeding and 12 the formula is set properly, then the jumping-off point 13 for the relationship between prices and costs is 14 appropriately fixed. And after that, costs don't matter 15 because you have the prices right at the beginning. If 16 you stick to a formula the prices will remain the right 17 prices. Is that a fair characterization? 18 MR. BIRMINGHAM: I would say that the prices 19 will be set by an appropriate methodology that then 20 results in just and reasonable rates, but that doesn't 21 include the unit prices as they relate to costs. 22 MR. MONDROW: But the going-in prices relate 23 to costs, we are agreed on that. That's the starting 24 point. 25 MR. BIRMINGHAM: The Board-approved rates do 26 consider costs as one of the factors in determining the 27 level of the rates. 28 MR. MONDROW: As a major factor in determining Les Services StenoTran Services Inc. 613-521-0703 1806 BIRMINGHAM, cr-ex (Mondrow) 1 the level of those rates, will you go with me that far? 2 MR. BIRMINGHAM: I would say it's one of the 3 key considerations. There is a handful of them, and 4 that's one of them. 5 MR. MONDROW: And Union's proposing to use 6 those prices at the starting point, presumably, because 7 they are just and reasonable vis-a-vis costs for 1999? 8 MR. BIRMINGHAM: Well, they are just and 9 reasonable by virtue of the Board's decision. And one 10 of the things that they relate to is cost, but that's 11 not the only one. 12 MR. MONDROW: Okay. But it's a "key" one, to 13 use your words? 14 MR. BIRMINGHAM: It's one of a number, yes. 15 MR. MONDROW: I thought you used the word 16 "key", but the transcript will reflect that. 17 MR. BIRMINGHAM: I said there's a handful of 18 them, so -- 19 MR. MONDROW: It's one of the "key" ones, 20 let's leave it at that. 21 MR. BIRMINGHAM: In fact, it's one of several 22 "key" considerations. 23 MR. MONDROW: Well, doesn't that mean that the 24 going-in prices have to, among other things, be 25 proportionately, appropriately related to the going-in 26 costs? Isn't that your justification for using the 27 Board-approved rates for 1999? 28 MR. PENNY: As we seem to be quite a ways away Les Services StenoTran Services Inc. 613-521-0703 1807 BIRMINGHAM, cr-ex (Mondrow) 1 from the customer review process, in my respectful 2 submission, Mr. Chairman, and it sounds to me like this 3 is a cross-examination on the first issue that we had in 4 this case, which was the beginning point or the 5 establishment of the base. 6 MR. MONDROW: It's a generation issue. The 7 2.9 second generation price cap is an issue for this 8 panel. I am talking about what happens when we get 9 there, and, if Mr. Penny will allow me to get an answer 10 to my first question on this line, my second question 11 will reveal my objective. I would like to get an answer 12 to the first question. 13 THE PRESIDING MEMBER: Let's proceed. 14 MR. MONDROW: Mr. Birmingham, the question is: 15 will you agree with me that on a going-in basis, the 16 company's justification of its price cap proposal, or 17 one of the justifications, is that the proposed prices, 18 having been struck based on costs for 1999, are just and 19 reasonable because they bear a reasonable relationship 20 to those costs? 21 MR. BIRMINGHAM: That's one of the 22 considerations, yes. 23 MR. MONDROW: Okay. And how long does that 24 relationship maintain, in your view? If we went out 20 25 years before we rebase, or 25 years, would that still be 26 true, that the Board could be assured that at the 27 outset, because prices related to costs, everything was 28 ticking along as it should? Or do we get to a point Les Services StenoTran Services Inc. 613-521-0703 1808 BIRMINGHAM, cr-ex (Mondrow) 1 where you have to rebase? 2 MR. BIRMINGHAM: No, I think with respect to 3 unit prices and unit costs, they will not necessarily 4 continue in the ongoing relationship that they have 5 under the E.B.R.O 499 rates, and I would expect that 6 those relationships would start to change even in the 7 first term of the price cap plan. 8 MR. MONDROW: So when you say that the Board 9 should be assured that the prices going into the second 10 generation remain just and reasonable under a price cap 11 proposal, what is the bench mark -- just and reasonable 12 with respect to what? 13 MR. BIRMINGHAM: They use a methodology to 14 determine the price cap formula and the other parameters 15 of the plan that is well accepted. They use a well 16 accepted escalator with respect to inflation. And for 17 the second generation, they use a productivity offset 18 that is specific to the gas distribution industry. That 19 offset will include Union's actual experience, as it is 20 operating under its price cap plan, and, I suspect, that 21 as we go into a second generation the Board would be 22 looking at Union's actual experience under the price cap 23 plan with respect to its return on equity, and that will 24 be one of the things that they consider in determining 25 the need for a stretch factor in the productivity 26 component of the pricing formula. 27 So, to that extent, at a company level, the 28 revenues and the costs are being considered by the Board Les Services StenoTran Services Inc. 613-521-0703 1809 BIRMINGHAM, cr-ex (Mondrow) 1 in determining the pricing formula going forward to the 2 second generation? 3 MR. MONDROW: Okay, that's helpful. Thank 4 you. 5 Now, just to come back to the process -- and I 6 apologize, I may have missed this; Mr. Janigan may have 7 ask you -- is it anticipated that the work that you are 8 going to undertake to achieve consensus will take place 9 in a ADR-type group meeting, where information is 10 exchanged and discussion is had? 11 MR. BIRMINGHAM: It's the intent that there be 12 a broad-based discussion forum where parties can get 13 information from the utility, discuss some of the items 14 that are in the filing, and get the answers to the 15 questions that they have. 16 MR. MONDROW: Okay. That's helpful, too. 17 Thank you. 18 And I understand from one reference at least, 19 in your prefiled evidence, that the anticipated billing 20 and bundling application will follow this same process, 21 that is there will be a document put out by Union, they 22 will be some kind of stakeholder meeting, some exchange 23 of information, and then a report will go to the Board 24 with, or without perhaps, some supporting documentation, 25 but it's that process that you are going to use for the 26 application that you are going file, I guess it's next 27 month. Is that right? 28 MR. BIRMINGHAM: That was our original Les Services StenoTran Services Inc. 613-521-0703 1810 BIRMINGHAM, cr-ex (Mondrow) 1 intention, Mr. Mondrow. There are some parties who 2 would prefer us to forego any type of stakeholder 3 consultation process but rather file the application, 4 which we have committed to doing in July and proceed 5 with filing the evidence. 6 MR. MONDROW: So we won't be using the 7 stakeholder review process. For that application it 8 will be a standard pre-filed evidence, interrogatories, 9 written or oral hearing at the discretion of the Board 10 process. Is that what is currently envisioned? 11 MR. BIRMINGHAM: I think to the extent that 12 parties are anxious to deal with some of the issues that 13 are in that particular application we may have to forego 14 it just in the interest of trying to put the -- put the 15 new or the enhanced ABC service in place in time for 16 some of the marketers to use the unbundled services. 17 MR. MONDROW: Yes. Fair enough. I guess I am 18 just trying to be clear and establish that we are 19 talking about a traditional hearing process rather than 20 the new process under the PBR process. 21 MR. BIRMINGHAM: Yes, I think that is fair 22 based on the timing of the application and when parties 23 want the service in place, we will be pursuing it 24 through the more formal process rather than through the 25 customer review process. 26 MR. MONDROW: Okay. Thank you. 27 Now, let me just move for a minute to the 28 issue of costs, that is intervenor costs for the Les Services StenoTran Services Inc. 613-521-0703 1811 BIRMINGHAM, cr-ex (Mondrow) 1 stakeholder review process. 2 Will you be using the Board's guidelines and 3 rules with respect to the eligibility for cost recovery? 4 MR. BIRMINGHAM: Yes. 5 MR. MONDROW: And will there be a mechanism by 6 which the costs are to be assessed by the Board if they 7 are not agreed to as between the party affected and 8 Union? 9 MR. BIRMINGHAM: Yes. That would be one of 10 the issues. To the extent that Union provided funding 11 and there was some disagree about the level of funding 12 that should be provided, that would be an issue that we 13 would want to bring to the Board for resolution. 14 MR. MONDROW: Mr. Poch, who has taken his 15 leave, left with me one question that he wanted me to 16 put to you on this topic. 17 During the ADR processes as of late there has 18 been a DSM breakout session where the DSM parties would, 19 sometimes includes an interest of HVAC, go off and talk 20 about DSM issues and those feed back into the primary 21 process and eventually get reflected in the document, 22 the ADR document going to the Board. 23 In the context of the stakeholder review to 24 the extent that there are DSM issues, monitoring and 25 reporting presumably raised, will the same rules apply? 26 That is, DSM parties could get together and feed back 27 into the main group and still have their costs covered 28 in the same way that they would be covered in the Les Services StenoTran Services Inc. 613-521-0703 1812 BIRMINGHAM, cr-ex (Mondrow) 1 traditional ADR approach? 2 MR. BIRMINGHAM: I think that is one approach, 3 Mr. Mondrow. To the extent that all parties were 4 agreeable to that approach and that was a most efficient 5 way to go at it, we would certainly be able to 6 accommodate that. 7 I wouldn't want any parties to feel like they 8 were hard done by or didn't have an opportunity to 9 participate in some of the DSM discussions if it was 10 kind of hived off and then brought back to the group as 11 a completed task. But to the extent that parties were 12 agreeable to that process, that is certainly a way that 13 it could be done. And if that was the approach, then we 14 would be providing the funding for those parties, yes. 15 MR. MONDROW: Okay. I think that is what he 16 wanted to have you answer. 17 Let me move for a minute then to the issue of 18 pricing of affiliate transactions. I gather this is the 19 panel for me to ask this and we have had some discussion 20 on this with Union. 21 And we are agreed, I think that affiliate 22 transaction pricing for the period of the PBR proposal 23 or until the rules are changed, is covered by the 24 Board's affiliate relationship's code for gas utilities 25 dated July 31st 1999. We are agreed on that? 26 MR. BIRMINGHAM: Yes. That is section 2.3 27 with respect to transfer pricing? 28 MR. MONDROW: Right. Let me just take you Les Services StenoTran Services Inc. 613-521-0703 1813 BIRMINGHAM, cr-ex (Mondrow) 1 right to 2.3.3 if you have got a copy of the code in 2 front of you. 3 MR. BIRMINGHAM: I do. 4 MR. MONDROW: Which provides: 5 "...that where a fair market value is not 6 available for any product, resource or 7 service that a utility shall charge no 8 less than a cost-based price and shall 9 pay no more than a cost-based price." 10 (As read) 11 And then the next sentence is: 12 "A cost-based price shall reflect the 13 costs of producing the service or 14 product, including a return on invested 15 capital." (As read) 16 And then it specifies what the return 17 component would be. 18 Now, in the 499 presentation, in the 499 ADR 19 Agreement, the company agreed that it would use fully 20 loaded or I suppose that is somewhat akin to fully 21 allocated costs. And my question for you is: going 22 forward, what cost base would the company use to comply 23 with paragraph 2.3.3 of the Affiliate Code? 24 MR. PENNY: Well, just for clarification, 25 Mr. Chairman, that provision that Mr. Mondrow just read 26 applies to both the sale of and the purchase of 27 services. And so if Union is buying services from a 28 competitive firm, an affiliate which is a competitive Les Services StenoTran Services Inc. 613-521-0703 1814 BIRMINGHAM, cr-ex (Mondrow) 1 firm, there has to be a cost base associated with that 2 as well. So one assumes from that, that this is not -- 3 that the cost base of the price isn't exclusive to a 4 regulated monopoly. 5 THE PRESIDING MEMBER: As a comment -- 6 MR. PENNY: Well, it really -- I guess there 7 is an assumption, I think, built into Mr. Mondrow's 8 question which obscures that distinction. Or put 9 another way, and perhaps the way I should have put this 10 in the first place is, that there are two components to 11 that test and I guess the real question is, is 12 Mr. Mondrow asking for both sides of that equation or 13 only with respect to Union Gas? 14 MR. MONDROW: Let's do a side at a time, 15 Mr. Birmingham. 16 For goods or services sold by the utility to 17 an affiliate, what cost base are you going to use? 18 MR. BIRMINGHAM: Well, we are going to comply 19 with the affiliate relationship's code obviously and in 20 particular section 2.3. In the past we had to use the 21 methodology that we called fully loaded cost. That 22 methodology was determined in advance of the Board's 23 rule making provision with respect to the code. Now 24 that the code and the rule making is in place, we will 25 comply with the transfer pricing provisions of that 26 code. 27 In the near term I suspect that we may use 28 fully loaded costs only because given that we have been Les Services StenoTran Services Inc. 613-521-0703 1815 BIRMINGHAM, cr-ex (Mondrow) 1 busy defining the unbundled services, moving towards 2 performance based regulation, trying to begin our 3 business restructuring, we haven't turned our minds to 4 what other costing methodology we might want to use that 5 would continue to comply with the code. But I wouldn't 6 want to restrict our options in that regard. 7 MR. MONDROW: When you say comply with the 8 code, does the code or any associated rule define the 9 cost base that the utility is to use for goods or 10 services it sells to an affiliate? 11 MR. BIRMINGHAM: Beyond the definition that 12 you see in section 2.3.3 which indicates that a 13 cost-based price shall reflect the cost of producing the 14 service or product, including a return on invested 15 capital, there isn't any further definition of that 16 term. 17 MR. MONDROW: So I take it you would read that 18 reference to cost base to include, among other 19 methodologies, potentially marginal cost base? 20 MR. BIRMINGHAM: To the extent that it is a 21 methodology that identifies the marginal cost of 22 producing the service or product, then that could be 23 included. But it would need to include a return on the 24 invested capital. 25 MR. MONDROW: So if the Board's intention is 26 that the utility continue to price the goods or services 27 it sells to an affiliate at a fully allocated or fully 28 loaded cost base, some clarification in that respect Les Services StenoTran Services Inc. 613-521-0703 1816 BIRMINGHAM, cr-ex (Mondrow) 1 would be helpful for Union at least? 2 MR. BIRMINGHAM: Well, some clarification to 3 the extent that it would be needed, may be helpful. But 4 it would only be helpful if it was applied to all 5 utilities to put Union in the position where it was 6 required to follow a single costing methodology where 7 others didn't. Certainly I don't think it would be in 8 the spirit of why the code was put in place in the first 9 instance. 10 MR. MONDROW: With respect to Enbridge 11 Consumers Gas, it was my understanding that the Board 12 has, in its previous decisions, directed Enbridge to use 13 a fully allocated methodology. Is that your 14 understanding, Mr. Birmingham, for non-utility 15 eliminations and affiliate transactions where goods or 16 services are sold to an affiliate? 17 MR. BIRMINGHAM: And these were decisions that 18 were made subsequent to the introduction of the 19 affiliate relationships code, Mr. Mondrow? 20 MR. MONDROW: Well, that's an interesting 21 question. I'm not sure. I would have to check the 22 date. Let's try to simply this and maybe we are trying 23 to be a little too cute with each other. 24 My understanding of the Board's current 25 directives in respect of costing for non-utility 26 eliminations and the selling of goods or services to 27 affiliates is that fully allocated costing is the 28 appropriate methodology. Enbridge has had two cases Les Services StenoTran Services Inc. 613-521-0703 1817 BIRMINGHAM, cr-ex (Mondrow) 1 under that methodology and been directed to comply 2 repeatedly with that methodology. Union never had a 3 case that raised the issue because of the timing of your 4 separation. 5 You always did fully allocated costing for 6 non-utility eliminations, correct me if I'm wrong. So 7 far, I'm right. 8 MR. BIRMINGHAM: It has been our practice and 9 it has been the Board's decision in the last couple of 10 proceedings where a version of fully allocated cost was 11 used to price services that we provided to affiliates. 12 Yes. 13 MR. MONDROW: But Union is not willing to 14 adopt a position that the reference to cost based under 15 the current affiliate relationships code for a natural 16 gas LDCs is necessarily a reference to fully allocated 17 costs. And you may or may not use fully allocated costs 18 in going forward. That's your position. 19 MR. BIRMINGHAM: I think that's right. I 20 think to that extent the rule making provides certain 21 flexibility that we wouldn't want to foreclose at this 22 point. 23 MR. MONDROW: In your response to some 24 questions from Mr. Thompson about cross-subsidy from 25 ratepayers, if you don't use fully allocated costing, I 26 took your position to be that once prices are fixed, if 27 the price base is right, there are no extra firms 28 extractable from ratepayers under those prices to Les Services StenoTran Services Inc. 613-521-0703 1818 BIRMINGHAM, cr-ex (Mondrow) 1 cross-subsidize anything. So the board needn't be 2 concerned about cross-subsidization by ratepayers going 3 forward under the price cap. 4 MR. BIRMINGHAM: Under price cap regulation, 5 we can't adjust our prices to reflect costs that would 6 otherwise be attributed to the provision of services to 7 affiliates. 8 MR. MONDROW: Would you agree? -- I'm sorry. 9 MR. BIRMINGHAM: Sorry. I was done. 10 MR. MONDROW: Would you agree with me that 11 neither objective of the affiliate code is to ensure not 12 only that ratepayers are protected, but that the 13 competitive market is protected in respect of at least 14 transfer pricing from affiliate to utility and vice 15 versa? I refer you to section 1 of the code where that 16 objective is spelled out. 17 MR. BIRMINGHAM: Yes. 18 MR. MONDROW: Okay. 19 And so from the perspective of the marketplace 20 and the competitors whether or not you can extract extra 21 money from ratepayers, the pricing of goods or services 22 you sell to affiliates is still a concern. 23 MR. BIRMINGHAM: Yes. In fact, that's why I 24 would suggest that the transfer pricing section of the 25 code was put in place to do exactly what that concerns. 26 MR. MONDROW: So even under a fixed price 27 regime such as that you are proposing, the issue of 28 affiliate transaction pricing is legitimately of concern Les Services StenoTran Services Inc. 613-521-0703 1819 BIRMINGHAM, cr-ex (Mondrow) 1 to the Board from the perspective of the marketplace, 2 that its objective is to protect. 3 MR. BIRMINGHAM: I think the pricing of 4 affiliate services continues to be something that the 5 Board wants to deal with. It doesn't have to be 6 concerned about the issue of cross-subsidization 7 underneath the price cap framework. But I agree that it 8 continues to be something that the Board will give some 9 consideration to. Yes. 10 MR. MONDROW: Finally let me ask you, there 11 was issue raised with Mr. Baker, I don't recall whether 12 it was yesterday or the day before, and indeed 13 Dr. Jackson, I think, raised it in the context of 14 unbundling. And it was respect to the Alliance/Vector 15 projects and whether that would be impacted by the 16 affiliate transaction pricing rules. And I think 17 Mr. Baker's response was well, no, it's not an 18 affiliate. 19 And I wonder if I could just ask you for 20 clarification of that. Can you tell me how Westcoast's 21 interest in Alliance/Vector is held? Or maybe when I 22 make it easier for you, can you possibly tell me why 23 it's the company's position that Alliance/Vector is not 24 an affiliate of the utility? 25 MR. PENNY: Well, that is a legal question, I 26 can tell you that. It's because they don't have more 27 than 50 per cent of the company. Their interest is 28 lower than 50 per cent in both Alliance and Vector, and Les Services StenoTran Services Inc. 613-521-0703 1820 BIRMINGHAM, cr-ex (Mondrow) 1 they therefore do not meet the definition of an 2 affiliate. 3 MR. MONDROW: That's very helpful. Thank you, 4 Mr. Penny. 5 And I guess I'm going to step back just to 6 cover up, because Mr. Penny raised this distinction and 7 I forgot to deal with you on it. The cost base for 8 goods and services from an affiliate to a utility, 9 what's the intention, at least in respect to the Union 10 which has to comply with this code, in respect of that 11 cost base? 12 MR. BIRMINGHAM: Generally speaking, if 13 there's a service that the utility is looking to 14 provide, or to receive -- sorry, from an affiliate. 15 That would typically be, given the scope of our 16 operations, something that we could also get from other 17 service providers. So we would be using the other 18 provisions where we need to determine a market value to 19 compare to that. 20 MR. MONDROW: Okay. Thank you very much, 21 panel. Thank you, Mr. Chairman. 22 THE PRESIDING MEMBER: Thank you, Mr. Mondrow. 23 Mr. Mia, is it Mr. Mia, next? 24 I don't think Mr. Quinn is here, is he? No. 25 Mr. Mia. 26 CROSS-EXAMINATION 27 MR. MIA: I just have perhaps a few questions 28 left. Will the REMs be included in the customer review Les Services StenoTran Services Inc. 613-521-0703 1821 BIRMINGHAM, cr-ex (Mia) 1 processes for price participants as well? 2 MR. BIRMINGHAM: Yes. To the extent that they 3 are already intervenors either directly or through an 4 association like CEED. They would be included 5 automatically to the extent that other marketers were 6 interested in participating in the review process then 7 they are able to participate as well. 8 MR. MIA: And I take it that the answer you 9 gave to Mr. Mondrow with respect to his clients in terms 10 of the rights of participation are the same for REMs? 11 MR. BIRMINGHAM: Yes. 12 MR. MIA: In your evidence at page 81, Exhibit 13 B, Tab 2, at line 14 it talks about "consensus", that: 14 "A consensus arrived at through the 15 customer review process should, except in 16 unusual circumstances, require no 17 specific or further action by the Board 18 other than endorsement and/or approval." 19 Do you consider a consensus in that case to be 20 unanimity? 21 MR. BIRMINGHAM: Yes. The same way that a 22 consensus in a settlement negotiations are generally 23 need to be unanimous if they are going to go forward to 24 the Board without any further action, to the extent that 25 there are parties, really even a single party, who 26 disputes a particular position that the utility is 27 taken, then that will end up having to go to the Board 28 for resolution. Les Services StenoTran Services Inc. 613-521-0703 1822 BIRMINGHAM, cr-ex (Mia) 1 MR. MIA: Just a question about adding issues 2 to the agenda and issues -- if you want to call it 3 that -- Mr. Mondrow discussed earlier. Just to take 4 that one step further, if I take it that Union will 5 frame the issues and if another party wanted to add an 6 issue you suggested and would -- who would then decide 7 whether that issue was added or rejected? 8 MR. BIRMINGHAM: I think it's going to depend 9 on the issue itself, Mr. Mia. As an example, to the 10 extent that they really required a fundamental change to 11 our rates, or a fundamental change to the way that we 12 operate, I think that may end up being the subject of a 13 separate application. So I wouldn't want to try to jam 14 it through the customer review process. So I think 15 there will be some considerations of the proper 16 procedure to be used to deal with the particular issues. 17 Beyond that, to the extent that there is an 18 issue and the utility is saying you shouldn't be dealing 19 with this in the customer review process, again, I think 20 the Board needs to be alerted to that. 21 MR. MIA: Do you foresee that in the event 22 that Union thinks an issue shouldn't be on the list and 23 a participant does that, you could at that point take a 24 break, go to the Board and decide whether an issue 25 should be on or off? 26 MR. BIRMINGHAM: Yes. 27 MR. MIA: Okay. 28 Just one last question. In terms of, Les Services StenoTran Services Inc. 613-521-0703 1823 BIRMINGHAM, cr-ex (Mia) 1 Mr. Mondrow again raised the issue of evidence and 2 evidentiary record, do you foresee a process whereby the 3 customer review process or forums or meetings will be 4 transcribed or recorded in some way to assist the Board 5 when something goes to the Board for resolution? 6 MR. BIRMINGHAM: I don't see the processors, 7 the discussions themselves being transcribed. I do see 8 a report being written that would represent the 9 conclusions that came out of that customer review 10 discussion, and those items can be in the range of 11 either consensus on particular items, and a proper 12 support for that consensus, or it might be a dispute 13 over certain items, and we would use the report to lay 14 out the different positions of the parties with respect 15 to the disputed item. 16 MR. MIA: In that case, would -- if it came to 17 the point where a party thought that its position wasn't 18 reflected in the report going to the Board, would they 19 be able to submit something as well and append it to the 20 report to reflect their views? 21 MR. BIRMINGHAM: To the extent that they are 22 disputing the item, they can write the language that 23 goes into the report that represents their position. 24 MR. MIA: Okay. Thank you. 25 THE PRESIDING MEMBER: Mr. Mia, are you 26 finished? 27 Mr. Waqu‚, have you any questions? 28 MR. WAQU: No, I don't. Les Services StenoTran Services Inc. 613-521-0703 1824 BIRMINGHAM, cr-ex (Mia) 1 THE PRESIDING MEMBER: Thank you. 2 Mr. King. 3 CROSS-EXAMINATION 4 MR. KING: Just a couple of questions to 5 follow up on the last two examinations. 6 You described the customer review process to 7 Mr. Mondrow as being an ADR-type broad-based meeting. I 8 take it that means that there will be no meetings with 9 individual customers or stakeholders? 10 MR. BIRMINGHAM: Oh, no. There are always 11 meetings with individual customers or stakeholders 12 depending on the issues that are being dealt with, 13 depending on customers' needs. So those will continue. 14 They have happened in the past and they will continue. 15 This is one other form where parties can bring 16 forward their issues. 17 MR. KING: And will there be -- I take it 18 there won't be minutes. Will there be reports from 19 those individual meetings made available to other 20 intervenors? 21 MR. BIRMINGHAM: No. 22 MR. KING: Finally, maybe to pick on another 23 of Mr. Mondrow's point. On page 87 -- and we have been 24 over this -- your evidence states: 25 "Once a utility uses the limited pricing 26 flexibility available under price cap 27 regulation, the relationship between 28 customer-specific allocated costs and Les Services StenoTran Services Inc. 613-521-0703 1825 BIRMINGHAM, cr-ex (King) 1 rates quickly disappears". (As read) 2 My question is: Does Union view this as a 3 positive or a negative outcome of the price cap 4 regulation? 5 MR. BIRMINGHAM: I think from our view, 6 Mr. King, it would be viewed as a positive aspect of 7 price cap regulation because indeed it's that 8 relationship that no longer exists that then gives the 9 utility the incentive to deliver higher productivity, 10 and that higher productivity is shared with the 11 customers through the stretch factor. 12 MR. KING: Thank you. Those are my questions. 13 THE PRESIDING MEMBER: Thank you, Mr. King. 14 Has Board staff any questions? Ms Lea? 15 MS LEA: No, thank you. 16 Dr. Jackson? 17 MEMBER JACKSON: No thank you, Mr. Chair. 18 THE PRESIDING MEMBER: I have a couple of 19 questions. 20 We have been talking about the customer review 21 process -- or alternatively talked about it -- in the 22 form of something like a settlement agreement, something 23 like a consultation, no transcript, et cetera. 24 And so I wonder whether, Mr. Birmingham, you 25 had some views as to what might be the role of Board 26 staff and how does this review process relate to the 27 sort of rules that exit with regard to settlement 28 procedures, with regard to confidentiality, et cetera, Les Services StenoTran Services Inc. 613-521-0703 1826 BIRMINGHAM 1 with regard to the Board's -- ultimately a document 2 coming to the Board for possible approval or rejection 3 or revision or modification? 4 MR. BIRMINGHAM: I will try to deal with all 5 the dimensions, Mr. Chairman. Correct me if I missed 6 any. 7 With respect to the role of Board staff, I 8 think they have a role to play that is similar to the 9 one that they play in the settlement negotiation 10 process, and one of those is to ensure that when there 11 is a consensus agreement on a particular issue -- and 12 let me take again the example of a non-routine 13 adjustment -- one of the things that is very helpful is 14 that the staff can let us know whether, in their view, 15 there is in fact sufficient support for that adjustment 16 and to the extent that there isn't, they can suggest 17 other things that can be added to help with that 18 support. So I see staff still playing a role in that 19 settlement or in the customer review discussions. 20 With respect to the confidentiality, given the 21 limited nature of the items that are going to be dealt 22 with in the customer review process as it relates to the 23 price cap plan, I don't see the need for confidentiality 24 as strongly as I do in the normal settlement 25 negotiations to the extent that parties are talking 26 about, for instance, the balances that have been 27 forecast for the deferral accounts or the implications 28 for some of the non-routine adjustments, if there are Les Services StenoTran Services Inc. 613-521-0703 1827 BIRMINGHAM 1 any, or discussions with respect to the service quality 2 indicators. I don't think those things have -- there 3 isn't as much concern about confidentiality. 4 Where I do see the same level of 5 confidentiality then coming into the customer review 6 process is when there are other issues that are added to 7 the agenda and I think parties may well want to protect 8 their rights in discussing just what those issues are 9 and what positions they may want to take on some of 10 those issues ultimately with the issue coming before the 11 Board. 12 THE PRESIDING MEMBER: So basically a set of 13 procedures or rules would have to be developed about 14 participation in the customer review process. The rules 15 of the game will have to be developed as to how you 16 distinguish or how do you define that this is an issue 17 which is "confidential" or this is an issue that is 18 "open"? 19 MR. BIRMINGHAM: I think it would be my 20 preference, Mr. Chairman, to use the existing rules for 21 the settlement negotiation process. I didn't intend to 22 say that the concern about confidentiality should mean 23 different rules or saying that I think there are some 24 items where parties wouldn't necessarily be as concerned 25 about the need for confidentiality. But I think overall 26 if we simply said that we are going to follow the rules 27 of the settlement negotiation process, including the 28 confidential nature of those discussions, that protects Les Services StenoTran Services Inc. 613-521-0703 1828 BIRMINGHAM 1 all parties' interests including those positions that 2 they are taking on some of the unsettled issues, and 3 even though there may not be the need for 4 confidentiality for certain issues, at least all of that 5 will be protected under that single umbrella. 6 THE PRESIDING MEMBER: A somewhat different 7 question, but the way it comes out of EBO 188 and there 8 was some reporting requirements in that, and I am 9 assuming that those will continue or will they modify, 10 because there is supposed to annual reports of how the 11 Board has performed and there is supposed to be 12 recording of information so that if the Board wishes to 13 it can go and investigate a specific project or 14 projects. Those sort of rules will still continue? 15 MR. BIRMINGHAM: Yes, sir, they will. 16 THE PRESIDING MEMBER: There is a question 17 which is sort of not really related to this section of 18 the evidence, and it's a section called Monitoring and 19 Reporting, and it's on page 85, and at the paragraph 20 under the Deferral Accounts Trigger, the second 21 paragraph, do you see where it says: 22 "Union proposes to increase the threshold 23 to $20.00 for a residential customer to 24 be consistent --". (As read) 25 Now throughout the evidence, there are 26 references to items like that and I wondered for the 27 purpose of this Board, this panel, are we expected to 28 make a ruling on this as an item in this hearing? Les Services StenoTran Services Inc. 613-521-0703 1829 BIRMINGHAM 1 MR. BIRMINGHAM: That was our intention. Yes, 2 sir. 3 THE PRESIDING MEMBER: Because I suppose the 4 point I am trying to get at there are maybe a number of 5 these sorts of references that exist in this evidence 6 which don't really fit under the heading of the types of 7 issues which we are dealing with, but need to be 8 collected. 9 So if there are these sorts of decisions you 10 are expecting of the Board that are buried in the 11 evidence, if I might put it that way, or a PBR plan, it 12 would be helpful to the Board to have them identified, 13 whether you do it in argument or somewhere, but as long 14 as we know that these are issues, that we are not 15 approving something without recognizing we are approving 16 it because we don't comment. 17 That's the concern I have on all these rates 18 applications. An application is made. It contains a 19 whole lot of evidence, and then it's assumed that the 20 Board accepted it though the Board may not even turn its 21 mind to it. 22 MR. BIRMINGHAM: We do want an explicit 23 identification of those things, yes, sir. I appreciate 24 the concern. And maybe the best way to do that would be 25 through argument or if you would want it sooner we could 26 prepare that. 27 THE PRESIDING MEMBER: Ms Lea? 28 MS LEA: I was going to suggest. I don't know Les Services StenoTran Services Inc. 613-521-0703 1830 BIRMINGHAM 1 if the applicant can undertake to do this, but put it in 2 the transcript, an undertaking to create such a list. 3 This could, of course, be fulfilled on the last day of 4 the hearing or even during the argument phase, just so 5 it doesn't get overlooked. 6 Is that agreeable? 7 MR. BIRMINGHAM: Sure. 8 THE PRESIDING MEMBER: I think that would be 9 helpful. I just didn't want to miss something that I 10 was supposed to have considered. 11 MS LEA: G10.5 then. We will give it a 12 number. Thanks. 13 UNDERTAKING NO. G10.5: Mr. Birmingham 14 undertakes to create a list of decisions 15 that are expected of the Board 16 THE PRESIDING MEMBER: I am coming back to 17 this question of the second generation PBR and whether 18 or not there is rebasing. 19 I was wondering whether you could give me some 20 of your thinking as to what are the conditions you think 21 that could possibly lead to -- I was going to say a 22 decision, but it's not quite that -- to the rating of a 23 concern that the first generation PBR, it it's an 24 approved plan, should be drastically revised for second 25 generation? What sort of -- I know one of them is has 26 it met the objectives that have been set up for it, and 27 those objectives are things like improving the ability 28 of the company to seek productivity improvements -- I Les Services StenoTran Services Inc. 613-521-0703 1831 BIRMINGHAM 1 would have to turn back to B2. But I am just wondering 2 if you could elaborate on that. 3 Is that the only set or are there another set 4 of circumstances that could arise? I will tell you 5 where I am coming from purely and simply. 6 I asked a question of your expert witnesses 7 with regard to what would happen to this whole approach 8 of incentive regulation in PBR if the world in which we 9 were operating changed from a world at the present time 10 of relatively low inflation -- so stability, et 11 cetera -- back to one of very high inflation and 12 volatility, and whether that would lead to some 13 reassessment over the appropriate form of regulation? 14 MR. BIRMINGHAM: I think in that specific 15 circumstance, Mr. Chairman, I wouldn't see that that in 16 and of itself would require a complete overhaul of the 17 regulatory framework. I think the price cap approach 18 can accommodate that. As an example, the Board might 19 find that there should be a more frequent setting of the 20 escalator. 21 So to the extent that inflation was volatile, 22 there may be an annual setting of the inflation rate or 23 maybe even something more frequent or, to the extent 24 that inflation is higher and quite volatile, there may 25 be an even stronger case for a fixed price cap at that 26 point. So I think there are parameters within the price 27 cap that can be modified to accommodate the changed 28 circumstances, would be my view. Les Services StenoTran Services Inc. 613-521-0703 1832 BIRMINGHAM 1 THE PRESIDING MEMBER: So your view would be 2 to stay with this methodology of regulation, but you 3 might want to have a significant review of the 4 parameters themselves? 5 MR. BIRMINGHAM: I think that's right, sir. 6 And particularly, you might want to look at something 7 like service quality indicators where four or five years 8 from now you are looking at a different circumstance 9 that the utility is operating in, different customer 10 needs, different needs of the regulator, and you might 11 want to incorporate markedly different service quality 12 indicators than we have now. 13 THE PRESIDING MEMBER: Thank you. 14 I think those are the Board's questions. 15 Thank you. 16 Mr. Penny, do you have any redirect? 17 MR. PENNY: No, Mr. Chairman, I have no 18 re-examination for this panel. So that, I think, brings 19 today's proceedings to an end. 20 Tomorrow, on our straw poll, it looks as if we 21 have probably a full day on DSM, and perhaps a little 22 more, so it's likely that we would only deal with DSM 23 tomorrow, and then, with any luck, we will be on to the 24 Pricing Flexibility and Rates Panel on Thursday. 25 THE PRESIDING MEMBER: Thank you. 26 So Mr. Birmingham gets a day off, a day away 27 from the hearing, right? 28 MR. PENNY: A day off the witness stand, Les Services StenoTran Services Inc. 613-521-0703 1833 1 anyway. 2 THE PRESIDING MEMBER: Thank you. 3 We will see you tomorrow, then, on DSM. 4 Thank you. 5 THE PRESIDING MEMBER: Thank you, sir. 6 --- Whereupon the hearing adjourned at 1644 7 to resume on Wednesday, June 28, 2000 at 0900 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Les Services StenoTran Services Inc. 613-521-0703 1834 1 2 3 INDEX OF PROCEEDING 4 PAGE 5 Upon resuming at 0903 1625 6 Preliminary Matters 1625 7 PREVIOUSLY SWORN: RICK BIRMINGHAM 1628 8 Continued Cross-Examination by Mr. Klippenstein 1628 9 Cross-Examination by Mr. Quinn 1647 10 Cross-Examination by Mr. Mia 1660 11 Cross-Examination by Mr. King 1683 12 Upon recessing at 1056 1696 13 Upon resuming at 1125 1696 14 PREVIOUSLY SWORN: RICK BIRMINGHAM 1697 15 SWORN: TOM BYNG 1697 16 Examination-in-Chief by Mr. Penny 1697 17 Cross-Examination by Mr. Brett 1698 18 Cross-Examination by Mr. Thompson 1726 19 Upon recessing at 1300 1750 20 Upon resuming at 1400 1750 21 Cross-Examination by Mr. Klippenstein 1750 22 Further Cross-Examination by Mr. Thompson 1753 23 Cross-Examination by Mr. Janigan 1774 24 Further Cross-Examination by Mr. Klippenstein 1790 25 Upon recessing at 1520 1794 26 Upon resuming at 1540 1794 27 Cross-Examination by Mr. Mondrow 1794 28 Cross-Examination by Mr. Mia 1820 Les Services StenoTran Services Inc. 613-521-0703 1835 1 Cross-Examination by Mr. King 1823 2 3 INDEX OF PROCEEDING (Cont'd) 4 PAGE 5 6 Questions by the Board 1825 7 Upon adjourning at 1644 1833 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Les Services StenoTran Services Inc. 613-521-0703 1836 1 2 EXHIBITS 3 4 NO. DESCRIPTION PAGE 5 6 F10.1 Consolidated settlement document 1788 7 of BC Gas utility in 1998, 2000 8 revenue requirements 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Les Services StenoTran Services Inc. 613-521-0703 1837 1 UNDERTAKINGS 2 3 NO. DESCRIPTION PAGE 4 5 G10.1 Mr. Birmingham undertakes to find 1630 6 out if the companies Union and 7 Consumers filed a contribution 8 in aid policy 9 10 G10.2 Mr. Birmingham undertakes to look 1660 11 at the most recent economic run 12 that may have been done and provide 13 that to Mr. Quinn 14 15 G10.3 Mr. Birmingham to provide a 1739 16 package based on the 1999 17 information, the 1998 actuals 18 and the passthrough items that 19 were vintage 1999 in order to 20 see what it is that will be 21 provided in the June package 22 23 G10.4 Mr. Birmingham undertakes to 1755 24 update the schedule after all 25 the impacts 26 27 28 Les Services StenoTran Services Inc. 613-521-0703 1838 1 UNDERTAKINGS (Cont'd) 2 3 PAGE 4 5 G10.5 Mr. Birmingham undertakes to 1830 6 create a list of decisions that 7 are expected of the Board 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Les Services StenoTran Services Inc. 613-521-0703