1839 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 Wednesday, June 28, 2000, 25 commencing at 0907 26 27 HEARING 28 VOLUME 11 Les Services StenoTran Services Inc. 613-521-0703 1840 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 1841 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 1842 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 1843 1 Toronto, Ontario 2 --- Upon resuming on Wednesday, June 28, 2000 3 at 0907 4 THE PRESIDING MEMBER: Good morning. Please 5 be seated. 6 PRELIMINARY MATTERS 7 THE PRESIDING MEMBER: Before we start -- good 8 morning, et cetera -- there is an issue the Board would 9 like to add to the issues list. We are in receipt of a 10 letter from Union dated May the 23rd talking about 11 harmonization of non-energy charges. These are charges 12 related to connection/reconnection and other services or 13 activities that are undertaken. And they wish to change 14 the rates in order to harmonize the charges in the 15 northern and eastern region with those in the southern 16 region. 17 And we believe it was useful to put this on 18 the issues list so that when the Rates Panel comes up if 19 anyone has any questions or comments they can be raised 20 at that time. And so I will ask Board staff to make 21 sure copies of this letter are available for all 22 intervenors and Dr. Wightman or Ms Lea if you can 23 appropriately amend the issues list with a title called 24 "Harmonization of Non-Energy Charges". 25 MS LEA: Harmonization of Non-Energy Charges. 26 Thank you. 27 THE PRESIDING MEMBER: Dr. Wightman, I have 28 copies of the -- two copies of the letter here if you Les Services StenoTran Services Inc. 613-521-0703 1844 Preliminary Matters 1 need it. 2 DR. WIGHTMAN: Thank you. 3 MS LEA: I will take one copy now, sir. 4 THE PRESIDING MEMBER: Any other preliminary 5 matters? 6 MR. PENNY: Yes, Mr. Chairman, there is a 7 couple of filings before we start today's proceedings 8 from the last couple of days. 9 We have -- I am sorry. There is one filing 10 from a transcript interrogatory and then there is one 11 document, which I gather Mr. Mondrow will be identifying 12 in his questions of this panel. The interrogatory from 13 yesterday is 9.2 dealing with the 30-year weather data 14 and trend line. 15 THE PRESIDING MEMBER: And the other filing 16 will be raised by Mr. -- 17 MR. PENNY: Mr. Mondrow. 18 THE PRESIDING MEMBER: When he comes to his 19 cross-examination. 20 MR. PENNY: Yes. The understanding is 21 Mr. Mondrow has a very, very brief issue that he wants 22 to deal with and he will go first and then he will be 23 allowed to retire. 24 MR. MONDROW: Permanently. 25 THE PRESIDING MEMBER: Oh, no, Mr. Mondrow. 26 Are there any other preliminary matters? 27 Ms Lea. 28 MS LEA: I wanted to make the matter that you Les Services StenoTran Services Inc. 613-521-0703 1845 Preliminary Matters 1 referred to, Mr. Chairman, an exhibit, just give it a 2 number so people know what it is. 3 It is a letter dated May 23rd, 2000 to 4 Mr. Garner from Tom Byng, B-Y-N-G, of Union Gas. We 5 will make that Exhibit F11.1. 6 I will copies made and they will be on the 7 windowsill. 8 EXHIBIT NO. F11.1: A letter dated 9 May 23, 2000 to Mr. Garner from Tom Byng 10 of Union Gas 11 THE PRESIDING MEMBER: Thank you. Any other 12 preliminary matters? 13 Mr. Penny, it is your -- 14 MR. POCH: Sorry. Mr. Chairman, just on 15 behalf of Mr. Warren he can't be here this morning and 16 he may have a few questions but he is quite content to 17 follow me this afternoon. 18 THE PRESIDING MEMBER: Thank you, Mr. Poch. I 19 assume the parties will have sorted out their own order 20 of cross-examination this morning and will advise me 21 when you get to there. 22 Mr. Penny. 23 MR. PENNY: We have two new witnesses today, 24 Mr. Chairman, to speak to the shared savings mechanism 25 as part of the PBR evidence, and that is Mr. Fogwill and 26 Ms Platis. I wonder if they could come forward and be 27 sworn. 28 THE PRESIDING MEMBER: Thank you. Les Services StenoTran Services Inc. 613-521-0703 1846 Preliminary Matters 1 Please come forward. 2 SWORN: ALLAN FOGWILL 3 SWORN: HELEN PLATIS 4 EXAMINATION-IN-CHIEF 5 MR. PENNY: Mr. Fogwill, you are the manager 6 of market knowledge for Union Gas Limited? 7 MR. FOGWILL: That is correct. 8 MR. PENNY: And you have been with Union Gas 9 or its predecessor, Century Gas, for how long? 10 MR. FOGWILL: Century Gas Ontario, three and a 11 half years. 12 MR. PENNY: And I gather that you have held 13 various positions in energy and energy economics with 14 Century Gas British Columbia Inc.? 15 MR. FOGWILL: Yes. 16 MR. PENNY: And British Columbia Energy 17 Council? 18 MR. FOGWILL: Yes. 19 MR. PENNY: The Energy Research Group at Simon 20 Fraser University? 21 MR. FOGWILL: That is correct. 22 MR. PENNY: And with the B.C. Ministry of 23 Energy, Mines and Petroleum Resources? 24 MR. FOGWILL: That is correct. 25 MR. PENNY: I understand you have a Masters of 26 Resource Management from the School of Resource and 27 Environmental Management at Simon Fraser? 28 MR. FOGWILL: Yes. Les Services StenoTran Services Inc. 613-521-0703 1847 FOGWILL/PLATIS, in-ch (Penny) 1 MR. PENNY: And you have a Bachelor of Science 2 from the University of Saskatchewan? 3 MR. FOGWILL: Correct. 4 MR. PENNY: You are the Chairman and CEO of 5 the Canadian Energy Efficiency Alliance? 6 MR. FOGWILL: Yes. 7 MR. PENNY: And you are a member of the 8 National Advisory Council on Energy Efficiency? 9 MR. FOGWILL: Yes. 10 MR. PENNY: How long have you been involved 11 with DSM planning at Union? 12 MR. FOGWILL: For three and a half years. 13 MR. PENNY: Can you describe your 14 responsibilities for and your involvement in Union's 15 last DSM plan, which was accepted in E.B.R.O. 499? 16 MR. FOGWILL: I was the manager of the 17 department responsible for developing the plan, 18 coordinating the consultative process and was engaged in 19 the negotiations to reach a settlement in E.B.R.O. 499. 20 MR. PENNY: Thank you. And were you involved 21 in the preparation of the DSM-related evidence in this 22 proceeding? 23 MR. FOGWILL: Yes. 24 MR. PENNY: And do you adopt that evidence? 25 MR. FOGWILL: Yes. 26 MR. PENNY: Ms Platis, you are currently the 27 Manager of Market Planning and Evaluation for Union? 28 MS PLATIS: Yes. Les Services StenoTran Services Inc. 613-521-0703 1848 FOGWILL/PLATIS, in-ch (Penny) 1 MR. PENNY: And you have held a number of 2 positions relating to energy and energy conservation 3 with Cognitive Solutions, Ontario Hydro -- sorry -- and 4 Ontario Hydro? 5 MS PLATIS: Yes, I have. 6 MR. PENNY: And you, I gather, have a Masters 7 of Business Administration from the University of 8 Toronto? 9 MS PLATIS: Yes, I do. 10 MR. PENNY: And you have a Masters in 11 Economics from the University of Toronto? 12 MS PLATIS: Yes, I do. 13 MR. PENNY: And you hold a BA in Economics 14 from Queen's University? 15 MS PLATIS: Yes, I do. 16 MR. PENNY: And you, I understand, are a 17 member of the Canadian Energy Efficiency Alliance? 18 MS PLATIS: Yes. 19 MR. PENNY: And of the Consortium for Energy 20 Efficiency? 21 MS PLATIS: Yes. 22 MR. PENNY: And you were -- you have a 23 position with the Consortium for Energy Efficiency? 24 MS PLATIS: Yes, I chaired the Natural Gas DSM 25 Committee. 26 MR. PENNY: All right. Thank you. 27 And you were involved today in the preparation 28 of the DSM evidence that has been filed in these Les Services StenoTran Services Inc. 613-521-0703 1849 FOGWILL/PLATIS, in-ch (Penny) 1 proceedings? 2 MS PLATIS: Yes. 3 MR. PENNY: And do you adopt that evidence? 4 MS PLATIS: Yes, I do. 5 MR. PENNY: Mr. Fogwill, can we start by you 6 telling the Board what Union is asking for in connection 7 with DSM in this case? 8 MR. FOGWILL: Union is seeking a -- the 9 approval of a shared savings mechanism for DSM. 10 MR. PENNY: And what is a shared savings 11 mechanism? 12 MR. FOGWILL: A shared savings mechanism is an 13 incentive that provides a financial reward to a utility 14 for exceeding an expected level of performance on its 15 DSM activities. 16 MR. PENNY: And why is Union's evidence 17 focused on this particular aspect of DSM in this case? 18 MR. FOGWILL: It is a logical progression of 19 where we have come from. Union has developed a 20 comprehensive DSM plan, an evaluation strategy, we have 21 produced annual evaluation reports. We have an audit 22 process in place. And these form the basis of our 23 activities. And at this time we think it is appropriate 24 for the Board to consider a performance-based mechanism 25 to provide an incentive to the company to pursue 26 additional DSM activities. 27 MR. PENNY: So what is the starting point or 28 the foundation upon which Union proposes to add on the Les Services StenoTran Services Inc. 613-521-0703 1850 FOGWILL/PLATIS, in-ch (Penny) 1 shared savings mechanism? 2 MR. FOGWILL: Well, Union, as I mentioned, 3 Union has developed a comprehensive plan. It's a five- 4 year plan that has been reviewed and agreed to by the 5 intervenors in the settlement process for E.B.R.O. 499 6 and that settlement agreement was accepted by the Board. 7 MR. PENNY: What was the process that Union 8 followed to develop that DSM plan? 9 MR. FOGWILL: The process was really in two 10 parallel processes. One dealt with the analytical 11 component and the other one was the public involvement 12 or the consultative component. The analytical component 13 dealt with the company conducting market research into 14 energies in technologies, market dynamics, consumer 15 behaviours, government regulations. And from that we 16 developed a list of technologies or measures that we 17 would consider for promoting in the marketplace. 18 We put that into a plan and piece, and we 19 screened the measures and the programs through a 20 computer model that uses the standard DSM test that we 21 use across North America, either as a total resource 22 cost test, rate impact measure test, utility cost test, 23 things of that nature. During that process, we engaged 24 a consultative group and brought to their attention the 25 plan in various stages of completion to give them the 26 opportunity to discuss and comment on the document. And 27 that allowed us to further refine documents based on an 28 understanding of where their concerns were. Les Services StenoTran Services Inc. 613-521-0703 1851 FOGWILL/PLATIS, in-ch (Penny) 1 Both the article process and the consultative 2 process continued over a number of years and at each 3 step in the evolution in the plan, it changed. And we 4 think we are at the point now where we believe that the 5 current plan is a comprehensive and well developed 6 template for implementing our DSM programs into the 7 future. 8 MR. PENNY: With respect to the consultation 9 process, who were the principal participants in that 10 process? 11 MR. FOGWILL: There are 19 organizations 12 involved in the consultative process but there are five 13 key organizations that have provided input. Those 14 include the Green Energy Coalition, Energy Probe, 15 Pollution Probe, the Consumers Association of Canada and 16 the Alliance of Manufacturers and Exporters. 17 MR. PENNY: Why, in Union's view, is the DSM 18 plan accepted by the Board in E.B.R.O. 499, the 19 appropriate starting point or base for the introduction 20 of the shared savings mechanism? 21 MR. POCH: Excuse me, Mr. Penny. 22 Mr. Chairman, not to be difficult here, but 23 just so we know what we are litigating today, a number 24 of times now, Mr. Penny and the witness have referred to 25 this five-year plan having been accepted. Mr. Penny has 26 spelled that out each time, each way. This was an 27 issue, as the Board will recall, we made it an issue in 28 our preliminary motion with respect to compelling Les Services StenoTran Services Inc. 613-521-0703 1852 FOGWILL/PLATIS, in-ch (Penny) 1 interrogatories and the Board had replied in 2 paragraph 2.1 of that quote: 3 "The Board in E.B.R.O. 499 did not give 4 unqualified approval to a five-year DSM 5 plan. It simply accepted the 6 implications of the said plan on the 1999 7 test year information as it related to 8 the applications before it." (As read) 9 Now, I just ask my friend, just to clarify, is 10 he taking the position in this case that he is or is not 11 now asking for approval for a five-year plan or he is 12 trying to rely on that. I just think if we had clarity 13 at this point we will avoid a problem later. 14 MR. PENNY: Mr. Chairman, Mr. Poch will get to 15 ask all the questions he likes about that. It is not my 16 intention to characterize that one way or the other. 17 The only point of this examination-in-chief is to give a 18 brief overview of what we are dealing with. The 19 intention is to clarify what the issue is and what the 20 issue in dispute is. 21 So it is not my intention to characterize one 22 way or the other. The plan was, as I understand it, 23 accepted. That is what the Board said in that ruling 24 and I am not taking it any further than that. I am not 25 suggesting that the Board approves a five-year plan or 26 any such thing. That is open to Mr. Poch to explore. 27 So I am not attempting to steer us one way or the other. 28 My only purpose in this examination is to get an Les Services StenoTran Services Inc. 613-521-0703 1853 FOGWILL/PLATIS, in-ch (Penny) 1 overview of what the issue is and really to -- what I am 2 about to do is ask the witnesses to comment on some of 3 the criticisms of the SSM mechanism, and I thought it 4 would be helpful to the Board to clarify precisely what 5 it is we are asking for in this case and what the SSM 6 mechanism is. 7 MR. POCH: I am sorry, Mr. Chairman, I was 8 simply asking is my friend asking the Board in its 9 application for approval of a now five years, 2000 to 10 2004 inclusive -- 11 MR. PENNY: -- we are not asking for approval 12 of a five-year DSM plan. We are asking for approval of 13 the shared savings mechanism that has been carried in 14 the evidence. 15 Now -- 16 THE PRESIDING MEMBER: Mr. Poch, I assume that 17 satisfies you. 18 Let us proceed and see where we go and take 19 the opportunities to raise questions when you get your 20 chance. 21 MR. POCH: Thank you, Mr. Chairman. I thought 22 I was going to shorten things, but obviously I have not 23 been very effective. 24 THE PRESIDING MEMBER: Please carry on, 25 Mr. Penny. 26 MR. PENNY: Yes. My question to you, 27 Mr. Fogwill, is simply to outline briefly why you chose 28 the DSM plan that was subject of the settlement in 499 Les Services StenoTran Services Inc. 613-521-0703 1854 FOGWILL/PLATIS, in-ch (Penny) 1 case as the starting point for the introduction for your 2 shared savings mechanism. 3 MR. FOGWILL: The DSM plan is a product of 4 years of research and analysis into the marketplace, 5 combined with extensive public review process. It has 6 gone on since 1996 and has culminated in the acceptance 7 of the plan 499. So we think that is an appropriate 8 base to review the shared savings mechanism problem. 9 MR. PENNY: All right. Can you describe 10 briefly the shared savings mechanism that Union is 11 proposing in this case? 12 MR. FOGWILL: The shared savings mechanism has 13 several components. 14 It is a symmetrical penalty and reward system. 15 It is based on a total resource cost test net benefits, 16 forecast to be generated by the DSM plan. It has a 17 15 per cent incentive so the penalty or the reward would 18 15 per cent around the pivot point of 75 per cent of the 19 plan targets. That 75 per cent pivot point has a 20 penalty or a reward of zero so that is a zero point. 21 And there is no debt then around the pivot point and 22 therefore the payment or penalty would start 23 immediately, moving away from that pivot. 24 MR. PENNY: So just dealing with the three 25 elements that I think you touched on, how are the 26 planned targets determined for levels of DSM 27 achievement? 28 MR. FOGWILL: Oh, I think -- a minute ago the Les Services StenoTran Services Inc. 613-521-0703 1855 FOGWILL/PLATIS, in-ch (Penny) 1 process that went through, the analysis we conducted and 2 the consultation we were engaged in over a number of 3 years. And the levels were based on a consideration of 4 many factors, including the business objectives of the 5 company, the public benefits that are generated by 6 demands like management and the concerns of intervenors, 7 and we think that the plan strikes a balance between 8 those. 9 MR. PENNY: And why is the pivot or the 10 fulcrum around which the penalties or rewards are 11 triggered set at 75 per cent of the targets? 12 MR. FOGWILL: We are defining the pivot point. 13 We are establishing at a point where we think is a 14 reasonable level of performance and this determination 15 considers the historic activities of the company, the 16 current program designs, the fact that they are mature 17 and the assessment indicated from that was that 75 per 18 cent was an appropriate point to set the pivot at. 19 In addition, Union was guided by the precedent 20 of B.C. Gas which also has a pivot at 75 per cent. And 21 we have also since become aware that since we developed 22 this at Gas Metropolitan, have an agreement with there 23 intervenors where 75 per cent pivot, although that 24 hasn't been accepted by the Board yet. 25 MR. PENNY: Do you know what the incentive 26 rate of 15 per cent -- can you first of all explain the 27 function of an incentive rate and what impact it has on 28 the operation of the shared savings mechanism? Les Services StenoTran Services Inc. 613-521-0703 1856 FOGWILL/PLATIS, in-ch (Penny) 1 MR. FOGWILL: Well, the incentive rate is used 2 to determine the amount of the penalty or reward based 3 on what the net benefits would be. 4 MR. PENNY: Then why is the incentive rate for 5 Union's shared savings mechanism set at 15 per cent? 6 MR. FOGWILL: Again, it comes back to the 7 competing objectives, and in this case, the competing 8 objectives are a sufficient incentive to encourage the 9 company to provide or to seek additional energy savings 10 opportunities and also to minimize rate impacts because 11 in a position where we would be collecting a reward, the 12 rate impacts could be significant. Higher levels of an 13 incentive would give the company a larger reward and 14 have a greater increase on rates to customers. 15 MR. PENNY: And can you, Mr. Fogwill, briefly 16 outline the monitoring evaluation contemplated for 17 measuring the application and impact of the SSM under 18 the plan and the PBR proposal? 19 MR. FOGWILL: Yes. The current DSM plan has 20 an evaluation strategy attached to it. That strategy 21 calls for ongoing monitoring evaluation of Union Gas' 22 programs and the tracking of participants throughout 23 that are using computer model. 24 Also, during the year, the company conducts 25 research into markets and technologies that will enhance 26 our understanding of how the programs are performing. 27 And Union also conducts select evaluations of custom 28 projects to get an understanding of how those projects Les Services StenoTran Services Inc. 613-521-0703 1857 FOGWILL/PLATIS, in-ch (Penny) 1 have worked out. 2 The results of this process are collected in 3 an evaluation report and that report is produced at the 4 end of the first quarter each year. The evaluation 5 report is then provided to an independent auditor and a 6 consultative group and the auditor reviews that, as well 7 as the consultative group, and the auditor produces a 8 report on the appropriateness of the findings in our 9 evaluation report. 10 And then both the company's finalized 11 evaluation report and the auditor's report provide the 12 documentation that Union thinks would be considered for 13 the determination of the benefits or penalties of the 14 SSM in the customer review process. 15 MR. PENNY: Now, Mr. Fogwill, have you 16 reviewed the evidence of Johannes Bauer that has been 17 filed in this case? 18 MR. FOGWILL: Yes, I have. 19 MR. PENNY: And at page 19 of Dr. Bauer's 20 evidence, he comments that or makes the observation that 21 given the relatively warm winters in the recent past, 22 cold winters are statistically more likely during the 23 next five years unless a rapid general warming trend is 24 expected. That is the risk if additional warm weather 25 does not seem to be significant. Do you agree with that 26 observation? 27 MR. FOGWILL: No, I don't. 28 MR. PENNY: And why not? Les Services StenoTran Services Inc. 613-521-0703 1858 FOGWILL/PLATIS, in-ch (Penny) 1 MR. FOGWILL: For two reasons. One, we have 2 conducted an analysis of the heating degree day trend 3 over the last 30 years and I believe that has been filed 4 this morning. 5 MR. PENNY: That was D9.2? 6 MR. FOGWILL: Yes, that is correct. 7 And in that we note that a regression analysis 8 of the weather data over the last 30 years fits the data 9 better than the simple average does. 10 The second reason why we don't think his 11 statement is correct is that both Environment Canada and 12 the U.S. National Oceanographic Atmospheric 13 Administration predict warmer winters for 2000-2001 and 14 they only go forward 12 months. 15 So if you look at the Union Gas trend line, 16 that predicts a 3.5 per cent warmer winter coming up. 17 Environment Canada's prediction is based -- in the 18 southern Ontario region -- is based on the weather being 19 at least 10 per cent warmer and NOA's prediction is for 20 a winter that is at least 5 per cent warmer. So all 21 three of these indicate a warming trend. 22 MR. PENNY: Thank you, Mr. Fogwill. 23 And I gather that you have received and 24 reviewed the evidence of Paul Chernick, which has been 25 filed in this proceeding? 26 MR. FOGWILL: Yes, I have. 27 MR. PENNY: And would you turn to page 13 of 28 Mr. Chernick's evidence, please, which contains the Les Services StenoTran Services Inc. 613-521-0703 1859 FOGWILL/PLATIS, in-ch (Penny) 1 recommendations? 2 Sorry, my apology. I have not finished with 3 Dr. Bauer. 4 Would you turn to page 40 of Dr. Bauer's 5 evidence? 6 And Dr. Bauer, on page 40, lists five 7 recommendations or comments on your proposal for an SSM. 8 He says: 9 "First Union should not be rewarded for 10 achieving 75 per cent of the target 11 savings." (As read) 12 and suggests they should be calibrated around 100 per 13 cent of the target. 14 Can you comment on that criticism? 15 MR. FOGWILL: Yes, I can. 16 I think I have already indicated that we, and 17 that the company considers the 75 per cent target to be 18 a reasonable level of achievement, and that the 100 per 19 cant actually incorporates a stretch in our performance. 20 In the case of 1999, the company did achieve 21 close to the 100 per cent energy savings target, but it 22 was through the employment of resources at a level that 23 we do not consider sustainable in the long run and 24 therefore we think the 75 per cent pivot point is 25 appropriate. 26 MR. PENNY: And the second observation made by 27 Dr. Bauer is that the DSM planned target did not seem to 28 be based on transparent estimates and that it would be Les Services StenoTran Services Inc. 613-521-0703 1860 FOGWILL/PLATIS, in-ch (Penny) 1 more appropriate to fix those targets on an annual 2 basis. 3 Can you comment on that observation please? 4 MR. FOGWILL: Yes. 5 Union has been engaged in a public involvement 6 process over many years and has had numerous discussions 7 with this group on the analysis of the market. The 8 years of work has produced a sizeable document that 9 provides more than sufficient support for all the 10 planning estimates we use. The level of detail on the 11 plan is significant and this is enhanced with a detailed 12 itemization of measures and programs, the avoided costs, 13 calculations and the documentation of the consultative 14 process. 15 MR. PENNY: Now, the third comment made by 16 Dr. Bauer relates to the incentive rate and he comments 17 that it does not reflect a relationship between DSM 18 effort, an affect that has been shown in recent studies. 19 And he references an article by Mr. Eto -- have you 20 reviewed that article? 21 MR. FOGWILL: Yes, I have. 22 MR. PENNY: And can you comment on Dr. Bauer's 23 observation regarding the incentive rate and the 24 relationship between DSM effort and effect? 25 MR. FOGWILL: Yes, Dr. Bauer takes the 26 recommendations from the Eto paper and the principle 27 assumption in that study is that the overriding 28 regulatory objective is the maximization of social value Les Services StenoTran Services Inc. 613-521-0703 1861 FOGWILL/PLATIS, in-ch (Penny) 1 or societal benefits -- and that is a quote right from 2 the paper itself -- to the exclusion of all else. 3 We don't see that this is the only thing that 4 should be of concern to the regulation of gas utilities. 5 High incentives can create bigger payments and bigger 6 payments can create larger rate impacts and therefore we 7 don't think the higher incentive rates are warranted. 8 THE COURT REPORTER: Excuse me, Mr. Penny. 9 MR. PENNY: Yes. 10 THE COURT REPORTER: Are we still on 11 microphone? I am sorry, the microphones have turned off 12 and this is no longer being recorded just for the last 13 30 seconds. 14 THE PRESIDING MEMBER: Maybe we should have a 15 break at the moment. 16 --- Upon recessing at 0935 17 --- Upon resuming at 0940 18 THE PRESIDING MEMBER: Well, it all looks 19 okay. Let's hope it is. 20 MR. PENNY: Chairman, we have determined in 21 speaking to the reporter that we haven't lost anything. 22 I think I was about to turn to Dr. Bauer's fourth point 23 on page 40 which comments on the lack of a variance 24 account because it does not allow tracking of the actual 25 DSM expenditures. 26 Mr. Fogwill, does Union agree that the lack of 27 a variance account does not allow tracking of the actual 28 DSM expenditures? Les Services StenoTran Services Inc. 613-521-0703 1862 FOGWILL/PLATIS, in-ch (Penny) 1 MR. FOGWILL: No. The lack of a variance 2 account does not hinder the tracking of the DSM 3 expenditures. The company actually tracks those 4 expenditures using two systems. 5 One is the common financial system that we use 6 for all our costs and the other is a DSM tracking system 7 that tracks participants, savings and costs. 8 MR. PENNY: Dr. Bauer's final point is that 9 the proposed plan did not foresee an independent review 10 of the actual performance of the DSM program. Do you 11 agree with that? 12 MR. FOGWILL: No, I don't. 13 MR. PENNY: Why not? 14 MR. FOGWILL: Well, the company has actually 15 indicated on page 63 of 88 of Exhibit B, Tab 2 that 16 there would be a review of the evaluation report by an 17 independent auditor and the consultative group. 18 MR. PENNY: Then I had asked you whether you 19 had reviewed the evidence of Mr. Chernick and you 20 indicated you had, and I had then asked you to turn to 21 page 13 of his evidence where he lists five 22 recommendations. 23 His first recommendation is that Union should 24 institute a variance account for DSM expenditures. 25 Are Mr. Chernick's reasons for wanting a DSM 26 variance account the same as Dr. Bauer's? 27 MR. FOGWILL: No, they are not. 28 MR. PENNY: And can you respond to -- first of Les Services StenoTran Services Inc. 613-521-0703 1863 FOGWILL/PLATIS, in-ch (Penny) 1 all, indicate what you understand Mr. Chernick's concern 2 is and comment on that please? 3 MR. FOGWILL: My understanding of 4 Mr. Chernick's concern is that without a variance 5 account, once the company reached its budgeted level of 6 expenditures, it would stop doing any more DSM 7 activities. 8 We believe that there are sufficient resources 9 available to achieve the 75 per cent expected level of 10 performance in the plan, and also with some stretch, to 11 get us to the 100 per cent level. 12 A variance account would reduce the motivation 13 and control costs, and deliver the expected savings in a 14 cost efficient manner. Expenditures above the budgeted 15 amount would be recovered in each of the programs in the 16 current incentive structure of the shared savings 17 mechanism. 18 MR. PENNY: With respect to the second 19 recommendation listed in Mr. Chernick's evidence, that 20 relates to the development of initial SSM targets and 21 the resolution of a potential dispute around those 22 issues by the Board and perhaps the use of outside 23 experts to do so. 24 Can you comment on this recommendation? 25 MR. FOGWILL: Yes. Union believes that their 26 current plan does have an appropriate target. This was 27 set in consultation with interveners over many years and 28 the current product of that effort is a balance between Les Services StenoTran Services Inc. 613-521-0703 1864 FOGWILL/PLATIS, in-ch (Penny) 1 the business objectives of the company and the public 2 benefits of DSM. 3 Mr. Chernick seems to ignore the fact of all 4 that effort and the time we have spent developing these 5 targets. It is our opinion that it is not cost 6 efficient to have to redo all this work and have a 7 hearing before the Board. 8 If such a process, if it were to occur, would 9 not likely have a different outcome because we don't 10 anticipate a change in the balance between the business 11 objectives and the public benefits. 12 MR. PENNY: The third recommendation is a 13 comment on the inputs assumption studies and evaluations 14 and computations becoming -- all leading to the SSM 15 targets becoming part of the public record. 16 What is that issue? Can you respond to this 17 recommendation? 18 MR. FOGWILL: Well, the issue relates to the 19 concern of Mr. Chernick of not getting additional 20 information such as the raw data and computer models. 21 We believe that there is extensive public 22 record of the key assumptions and inputs. The 23 information currently available is more than sufficient 24 to make it a determination on the appropriateness of the 25 SSM for Union Gas. We don't believe that there is any 26 requirement to provide this additional information, nor 27 have we ever produced this level of detail in the past. 28 MR. PENNY: The fourth recommendation Les Services StenoTran Services Inc. 613-521-0703 1865 FOGWILL/PLATIS, in-ch (Penny) 1 discusses the recommendation to reset SSM targets 2 annually. First of all, is that part of your proposal? 3 Secondly, can you respond to the suggestion that the 4 targets be reset annually? 5 MR. FOGWILL: The proposal is that the plan 6 will be maintained as is for the five-year period. 7 There are three reasons why Union does not believe that 8 it is appropriate to reset them every year. 9 One is that annual resetting would mute the 10 incentive of the SSM because any gain in one year would 11 be reset in the targets for the following year. 12 Two is that the premise behind performance- 13 based mechanism as a shared savings mechanism would be a 14 lighter handed regulation. An annual resetting process 15 would violate that concept. 16 Third, by having an annual planning process, 17 significant resources would have to be applied to this 18 and those resources would have been assigned to program 19 implementation rather than planning. This would reduce 20 the cost effectiveness of implementing the DSM 21 activities. 22 MR. PENNY: Finally, with respect to the fifth 23 recommendation, it appears to be that the recovery of 24 funds under the SSM or the cost revenue adjustment 25 mechanism should be contingent upon receipt by the Board 26 of a consensus filing from the consultative order report 27 of a Board auditor. 28 Can you comment on that recommendation? Les Services StenoTran Services Inc. 613-521-0703 1866 FOGWILL/PLATIS, in-ch (Penny) 1 MR. FOGWILL: Yes. Union Gas is of the 2 opinion that we would contract with an auditor and 3 administer the activities to ensure the auditor would 4 carry out their duties in accordance with the terms of 5 reference. 6 These terms of reference would be reviewed by 7 the consultative group in advance of the audit process. 8 The company would make amendments to the terms of 9 reference as appropriate. The scope of the audit would 10 be to ensure that the evaluation report -- the claims 11 and evaluation report are substantiated. 12 This would then be considered -- the 13 evaluation report, and the audit report would be 14 considered in the customer review process, and if 15 interveners were not satisfied with the outcome, they 16 still retain the right to bring their concerns to the 17 attention of the Board. 18 MR. PENNY: Thank you. Would you turn then 19 finally to page 7 -- sorry, first of all, you have also 20 received the evidence of a Chris Neime. 21 MR. FOGWILL: Yes. 22 MR. PENNY: Maybe I don't have the 23 pronunciation right. 24 Are you familiar with the recommendations that 25 Mr. Neime has put forward in his evidence? 26 MR. FOGWILL: Yes, I am. 27 MR. PENNY: Would you turn to page 7 of his 28 evidence, please. Les Services StenoTran Services Inc. 613-521-0703 1867 FOGWILL/PLATIS, in-ch (Penny) 1 The first recommendation, I think you have 2 already spoken to, it deals with annual resetting. 3 The second recommendation you have, I think, 4 partly spoken to already. He suggests that -- he 5 expresses the opinion that the SSM pivot point should be 6 set at a higher level. 7 He then indicates that the best one can do is 8 to forecast future net benefits by examining recent 9 trends. He notes three trends that he would consider. 10 The first is, he suggests that Union -- that 11 one indicator of where the pivot should be set should 12 derive from a consideration of Union's ten per cent 13 increase in net benefits under its DSM plan for 1998 to 14 1999. 15 Can you comment on the use of that particular 16 fact as an indicator of a trend that might inform the 17 establishment of a pivot point? 18 MR. FOGWILL: Yes. The comment of the trend 19 between 1998 to 1999 of an increase of 10 per cent does 20 not consider the significant drop from 1997 to 1998 of 21 about 50 per cent. In fact, the change over one year is 22 not a trend at all. If you look at the results over the 23 three-year period 1997 to 1999, they vary significantly. 24 MR. PENNY: Can you comment on his suggestion 25 that there is a trend worthy of consideration arising 26 out of Enbridge's 15 per cent increase in net benefits 27 from 1998 to 1999? 28 MR. FOGWILL: Yes. The comparison with Les Services StenoTran Services Inc. 613-521-0703 1868 FOGWILL/PLATIS, in-ch (Penny) 1 Enbridge is problematic. The market characteristics of 2 Union and Enbridge differ significantly. Enbridge has a 3 greater urban and core market. In addition, the 4 business objectives of the two companies differ and the 5 resources applied to the DSM activities also vary 6 between the two companies. 7 Finally, Enbridge takes credit for electricity 8 and water savings associated with their natural gas DSM; 9 Union gas does not do this. 10 MR. PENNY: And the third point he suggests as 11 worthy of consideration as a trend is the observation 12 that Union's average annual increase in gas savings of 13 9.7 million cubic metres over 1996 to 1999, if all 14 realized in 2000 would represent a total 26 per cent in 15 gas savings. 16 What is your observation on the utility of 17 that information as a trend to inform the establishment 18 of a pivot point for the operation of your SSM? 19 MR. FOGWILL: I think it is important to 20 understand that we are at a change in the way that the 21 programs have developed over time. 22 The 1996 to 1999 period was a period of 23 growth, evolution of program design, expansion of 24 activities. We are at a stage right now where there is 25 no significant change in the scope or extent of the 26 programs anticipated and therefore the significant 27 growth that he has identified between 1996 and 1999 is 28 not likely to be duplicated. Les Services StenoTran Services Inc. 613-521-0703 1869 FOGWILL/PLATIS, in-ch (Penny) 1 Furthermore, it is important to understand 2 that the forecast variance to the actual results for 3 Union Gas is getting smaller. In 1999, Union achieved 4 99 per cent of its forecast in terms of energy savings. 5 As such, there is a history to show the Board that they 6 can rely on the forecast that Union provides about its 7 future activities. 8 MR. PENNY: I gather that the third 9 recommendation in Mr. Neime's evidence is similar to the 10 observations made by Dr. Bauer and Mr. Chernick? 11 MR. FOGWILL: That's correct. 12 MR. PENNY: And you have dealt with those? 13 MR. FOGWILL: That's correct. 14 MR. PENNY: Thank you, Mr. Fogwill. 15 Thank you, Mr. Chairman, those are my 16 questions in the examination-in-chief. 17 THE PRESIDING MEMBER: Thank you, Mr. Penny. 18 MR. PENNY: I think the arrangement was that 19 Mr. Mondrow was going to go first. 20 MEMBER JACKSON: I was just wondering if 21 perhaps by way of direct evidence you could just remind 22 me how this fits under the PBR plan in terms of-- 23 MR. PENNY: Oh, absolutely, Mr. Chairman. 24 Mr. Fogwill, can you explain where the SSM 25 fits in relation to the PBR plan as a whole and why it 26 is under the category of a service quality indicator as 27 presented in the evidence? 28 MEMBER JACKSON: And where the incentive will Les Services StenoTran Services Inc. 613-521-0703 1870 FOGWILL/PLATIS, in-ch (Penny) 1 be measured, under the context of the price cap or 2 outside of it? 3 MR. FOGWILL: In terms of the last point, 4 Dr. Jackson, it would be separate from the price cap. 5 Demands on management in this case fits under the 6 service quality indicators because it is a -- as a 7 service provision to the customers and the community. 8 The shared savings mechanism is one of the 9 original performance-based mechanisms that was developed 10 for the regulation of energy utilities. So it is an 11 appropriate opportunity to combine this unique mechanism 12 with the overall PBR filing that the company has. 13 MEMBER JACKSON: Thank you very much. 14 THE PRESIDING MEMBER: I believe Mr. Mondrow 15 is leading off, with the agreement of the others. 16 MR. MONDROW: Thank you, Mr. Chairman. 17 Good morning, panel. 18 MR. FOGWILL: Good morning, panel. 19 CROSS-EXAMINATION 20 MR. MONDROW: Perhaps to start with, we could 21 get an exhibit number for the document that we are to 22 discuss. And this is a one-page narrative, to which is 23 attached three pages of a Union Gas plan for promotion 24 of higher efficiency residential-type water heaters, 25 which was handed around this morning. 26 DR. WIGHTMAN: F11.2. 27 EXHIBIT NO. F11.2: One-page narrative 28 with three page Union Gas plan for the Les Services StenoTran Services Inc. 613-521-0703 1871 FOGWILL/PLATIS, cr-ex (Mondrow) 1 promotion of higher efficiency 2 residential-type water heater attached 3 MR. MONDROW: Thank you, Dr. Wightman. 4 Let me take you, Mr. Fogwill, if I could, 5 then, to the document itself. And if I just start by 6 way of explanation with the first sentence of the second 7 paragraph of text, which reads: 8 "As part of Union Gas DSM activities, the 9 company employs contract arrangements 10 with third parties to deliver some energy 11 efficiency services." (As read) 12 Pausing there, by way of background in the 13 ADR Agreement for E.B.R.O. 499, it was agreed -- 14 Mr. Fogwill, I will ask you to acknowledge -- 15 essentially that where Union Energy is one of the 16 parties that transacts with the utility in respect of a 17 DSM program, there would be, at least for this case, a 18 report of the relationship between utility and its 19 affiliate, Union Energy, in the context of that DSM 20 program. Do you acknowledge that agreement from last 21 year? 22 MR. FOGWILL: Yes. 23 MR. MONDROW: And for reference, you have 24 actually placed the paragraph number at the top of this 25 first page of the exhibit. It's paragraph D.7.3(i)2 of 26 last year's ADR Agreement. 27 And reading on, then, where I left off in the 28 document, the next sentence says: Les Services StenoTran Services Inc. 613-521-0703 1872 FOGWILL/PLATIS, cr-ex (Mondrow) 1 "Union Energy was a party to one of those 2 processes..." 3 -- referring back to DSM, 4 "...that of promoting higher efficiency 5 residential-type water heaters through 6 procurement policies." (As read) 7 And so you have filed, at our request in this 8 hearing, this one-page report. And can I just ask you 9 to -- I will do that at the end. Let me drop down, 10 then, to the second-last paragraph of text. What 11 happened, which is described in the interim, is that 12 there was a request for proposals distributed. The 13 first last year was distributed prior to the ADR 14 session, Mr. Fogwill? 15 MR. FOGWILL: Correct. 16 MR. MONDROW: And than as result of the ADR 17 session, a second RFP was distributed a little bit more 18 broadly, and with the participation of, I guess, its 19 heating, refrigeration and air conditioning institutes. 20 Correct, Mr. Fogwill? 21 MR. FOGWILL: That's correct. 22 MR. MONDROW: And HRAI is a sister 23 organization to HVAC Coalition. They share the same 24 constituents, is your understanding? 25 MR. FOGWILL: That's my understanding. 26 MR. MONDROW: Roughly -- 27 MR. FOGWILL: Yes. 28 MR. MONDROW: Okay. So let me, then, go to Les Services StenoTran Services Inc. 613-521-0703 1873 FOGWILL/PLATIS, cr-ex (Mondrow) 1 the second-last paragraph, which is one sentence. It 2 says: 3 "In combination, the 2 RFP process 4 generated three responses that the 5 company could consider." 6 And reading on, 7 Contracts were successfully negotiated 8 with two firms, one of which was Union 9 Energy." (As read) 10 Now, just pausing there, there were three 11 responses which generated two contracts, and my 12 understanding is that the party that responded, but did 13 not contract, submitted an incomplete, in Union Gas's 14 view, RFP response. Is that your understanding? 15 MR. FOGWILL: That's my understanding. And we 16 actually contacted them to get additional information so 17 that the proposal could be completed, but they failed to 18 respond. 19 MR. MONDROW: Okay. So, then, you were left 20 with two complete proposals. And looking at the second- 21 last sentence of this document, of the two contracts, 22 one was completed successfully, and this was with Union 23 Energy; the second contractor failed to implement the 24 agreement. 25 And as I understand it, there's a bit of a 26 confidentiality concern, but Union Gas will acknowledge 27 that concerns were raised with this second company about 28 the management commitment to the project, and, in the Les Services StenoTran Services Inc. 613-521-0703 1874 FOGWILL/PLATIS, cr-ex (Mondrow) 1 end, it was agreed, or the result was, that the contract 2 that was not with Union Energy, the second contract, 3 wasn't proceeded with. Is that fair? 4 MR. FOGWILL: The second contract wasn't 5 proceeded with because of the support within that 6 contracting firm wasn't there to implement the agreed-on 7 activities. 8 MR. MONDROW: Okay. And as you have stated in 9 the response, in the result Union Energy was the sole 10 contractor that qualified under this particular aspect 11 of your DSM programming for the 1999 year. Correct? 12 MR. FOGWILL: You are referring to which 13 point? 14 MR. MONDROW: Yes, the essential conclusion 15 from this description is that Union Energy was the only 16 party that participated in this particular DSM water 17 heater procurement program. 18 MR. FOGWILL: In 1999 it was the only party 19 that completed the contract. 20 MR. MONDROW: Okay. And I simply want to ask 21 if -- I understand that Union Gas is prepared to agree, 22 indeed as our interpretation is of last year's ADR 23 Agreement, that it will file a very high level report 24 analogous to that we have just quickly gone through, 25 annually during the PBR period if one is granted as part 26 of the customer review package. So that HVAC Coalition 27 and other interested parties can just keep track of 28 Union Energy's involvement in your DSM programs vis-a- Les Services StenoTran Services Inc. 613-521-0703 1875 FOGWILL/PLATIS, cr-ex (Mondrow) 1 vis the rest of the industry. Will you commit to that? 2 MR. FOGWILL: Yes. The company has agreed 3 that going forward it will file these updates on an 4 annual basis where it deals with the DSM activities and 5 Union Energy. 6 MR. MONDROW: Okay. And those updates will be 7 generally in the level of detail that we have before us 8 as supplemented by my two brief clarifying inquiries? 9 MR. FOGWILL: Subject to any confidentiality 10 or sensitive information concerns. 11 MR. MONDROW: Okay. Thank you very much, 12 Mr. Fogwill. Thank you, Mr. Chairman. 13 THE PRESIDING MEMBER: Thank you, Mr. Mondrow. 14 Now, is it Mr. Poch or Mr. Klippenstein who is 15 next up. 16 CROSS-EXAMINATION 17 MR. KLIPPENSTEIN: Before I begin my cross- 18 examination, I just wanted to mention the point that I 19 think perhaps I will need to discuss with my friend 20 Mr. Penny a bit. 21 I would like to, after the large body of my 22 cross-examination, ask a number of questions related to 23 a presentation made by the Honourable Dan Newman, the 24 Minister of the Environment for Toronto City Council a 25 week ago, which was the subject of a press release from 26 the government and also contained in a release to text. 27 The problem I have is that, because of the 28 fast moving events, I was not able to give a copy of Les Services StenoTran Services Inc. 613-521-0703 1876 FOGWILL/PLATIS, cr-ex (Klippenstein) 1 those two documents to my friend before this morning, 2 which he might quite rightly object to. I will be 3 asking an indulgence from him and/or the Board to cross- 4 examine on those public documents. 5 I am quite happy to have those questions occur 6 at the end of the panel, or at end of the day, or 7 whatever after he has had a chance to review those 8 documents which I have given to him with the panel and 9 discuss it. It is no secret that I intend to ask 10 questions about the more aggressive position that the 11 Ontario government is taking on certain pollution issues 12 and its view of partnering on these issues and so forth. 13 I don't know if my friend wants to comment 14 now, but I am happy to discuss it with him first later 15 on, or if the Board has any directions on that at this 16 point. If not, I am happy to proceed with the body of 17 my cross-examination. 18 THE PRESIDING MEMBER: There are two questions 19 that come to mind. One is clearly this information -- I 20 am not sure whether the witnesses are even aware of it 21 or have seen it. That is something you would have to 22 establish with Mr. Penny. 23 And the second one is that I am assuming that 24 these witnesses are not in a position to respond to the 25 content of that document, which is not really a Union 26 document. From what you are telling me, it is a 27 government document. 28 So the only thing they could respond to is Les Services StenoTran Services Inc. 613-521-0703 1877 FOGWILL/PLATIS, cr-ex (Klippenstein) 1 implications, if they can judge on the basis of this 2 document. 3 MR. KLIPPENSTEIN: The first point is correct. 4 I actually don't know if it's correct. It is a public 5 document. Mr. Bob Reid, the President of Union Gas is a 6 member of special committee announced in this process. 7 So, although I cannot know whether or not these 8 particular witnesses are aware of the content, there is 9 a direct connection to Union Gas, and it is a public 10 announcement. 11 But as I say, I am happy to postpone my 12 questions on that point, and to be specific about what 13 my questions are. 14 Mr. Chairman, the second question, which is 15 the relevance, this announcement by the minister 16 specifically calls for the importance of partnership in 17 moving towards pollution goals which I think would 18 include Union Gas and even the official government 19 regulatory tribunal, such as the Board. So, it has 20 implications on both those angles, which, in my 21 submission, would directly feed into Union's 22 consideration of its DSM plant and these Board's 23 deliberations. 24 So it is quite relevant, in my submission. 25 Thank you. 26 THE PRESIDING MEMBER: Obviously, Mr. Penny 27 will have to see the documents to make sure that his 28 witnesses are -- Les Services StenoTran Services Inc. 613-521-0703 1878 FOGWILL/PLATIS, cr-ex (Klippenstein) 1 MR. PENNY: Mr. Chairman, I do appreciate 2 Mr. Klippenstein's solicitude about this matter in 3 raising it with me as early as he could. 4 He gave me the documents when we broke, when 5 the electricity failed. The witnesses have not really 6 had the opportunity to look at it. 7 I agree with the comments you have made. I am 8 not going to take exception to it. 9 I would suggest, however, that we give the 10 opportunity to the witnesses to review it at the morning 11 break and determine whether they feel that they need 12 further time or need to consult with anyone else before 13 they are in a position to respond to the type of 14 questions that Mr. Klippenstein has outlined he would 15 have. 16 But subject to that, I don't take exception to 17 it. But if we could just leave it for the moment and 18 determine whether there is any issue around their 19 ability to respond on short notice. 20 I frankly doubt there will be, but maybe we 21 could be given that opportunity. 22 THE PRESIDING MEMBER: Well, that sounds as if 23 you have got a working arrangement, then, 24 Mr. Klippenstein. So you will give us an indication of 25 when you wish to break during your cross-examination so 26 we can have the break and the parties can look at it. 27 MR. KLIPPENSTEIN: Thank you, Mr. Chairman. I 28 did not explicitly appeal to the Board's experience of Les Services StenoTran Services Inc. 613-521-0703 1879 FOGWILL/PLATIS, cr-ex (Klippenstein) 1 fast moving events in the recent days. 2 As we all know, things seem to move quickly 3 sometimes. 4 I have prepared, hopefully for the convenience 5 of the Board and the parties, a Pollution Probe DSM 6 cross-examination document reference book, which I have 7 made available and was made available a few days ago to 8 my friend, which does not really contain any new 9 material, except for one or two documents from other 10 cases. This is just for convenience. 11 But with the leave of the Board, and subject 12 to my friend's objections, I would ask that be made an 13 exhibit. 14 DR. WIGHTMAN: F11.3. 15 EXHIBIT NO. F11.3: A Pollution Probe DSM 16 cross-examination document reference book 17 MR. PENNY: We have no problem with this, 18 Mr. Chairman. 19 THE PRESIDING MEMBER: Thank you, Mr. Penny. 20 --- Pause 21 MR. KLIPPENSTEIN: Mr. Chairman, members of 22 the panel, I first propose to ask a number of questions 23 related to the pivot point. And you have dealt with 24 some of the concerns -- I shouldn't say dealt with -- 25 you have attempted to deal with some of the concerns 26 related to the pivot point. And the first question 27 relates to the comparison between the pivot point, or 28 rather the target and comparison to past plans of Union. Les Services StenoTran Services Inc. 613-521-0703 1880 FOGWILL/PLATIS, cr-ex (Klippenstein) 1 If you could take the reference -- the 2 document reference book and turn to page 3. This is 3 page 3 of the document reference book, which is page 62 4 of Exhibit B, Tab 2. 5 That shows in the table, when you look at the 6 left-hand column showing percentages and go to the 7 row of 100 per cent, it shows the lifetime net benefits 8 based on TRC at just over $192 million, right? Do you 9 see that? 10 MR. FOGWILL: Yes. 11 MR. KLIPPENSTEIN: And I would like to compare 12 that to the previous plan of Union, and that's contained 13 at page 6 of the document reference book. 14 Now, this is a summary of the five-year plan 15 of Union Gas that was filed in E.B.R.O. 499. Is that 16 right? 17 MR. FOGWILL: That's correct. 18 MR. KLIPPENSTEIN: And if I look at the table 19 to get a comparable number to what I have just reviewed 20 with you, the first box near the top, the column 21 entitled "Net Benefit", with the row entitled "Societal 22 Cost Test ($0), I get a net benefit of $187 million. 23 Right? 24 MR. FOGWILL: That's correct. 25 MR. KLIPPENSTEIN: So that was the forecast 26 net present value of the savings in Union's five-year 27 plan, as of E.B.R.O. 499. Is that correct? 28 MR. FOGWILL: No, that's not correct. Les Services StenoTran Services Inc. 613-521-0703 1881 FOGWILL/PLATIS, cr-ex (Klippenstein) 1 Actually, what happened was the filing that's on page 6 2 is the original documentation that Union filed for the 3 499 proceedings. Subsequent to the ADR Agreement, there 4 were two amendments to the plan, which included the 5 increase target for the number of high efficiency 6 furnaces we would pursue, and also an adjustment to an 7 assumption associated with low inactivity windows. 8 Those two changes resulted in the change in net 9 benefits, among other things, which would take us from 10 the 187 to 192. 11 MR. KLIPPENSTEIN: And the 192 that you have 12 just mentioned, as adjusted, was the final DSM plan for 13 five years that came out of 499? 14 MR. FOGWILL: That's correct. 15 MR. KLIPPENSTEIN: Okay. So the plan we have 16 now from Union for five years has pretty much exactly 17 the same targets as the plan we saw in 499. 18 MR. FOGWILL: The targets have been adjusted 19 to cover the time period of the years 2000 to 2004. 20 MR. KLIPPENSTEIN: But the projected net 21 savings are pretty much the same for the five-year plan? 22 MR. FOGWILL: There is a slight increase. 23 MR. KLIPPENSTEIN: All right. 24 MEMBER JACKSON: A "slight increase" being .5, 25 is that what we are saying? 26 MR. FOGWILL: The increase as related to the 27 addition of the year 2004 and the application in the 28 growth rate of savings on that from the year 2003 and Les Services StenoTran Services Inc. 613-521-0703 1882 FOGWILL/PLATIS, cr-ex (Klippenstein) 1 they dropping off for the year 1999. 2 MEMBER JACKSON: I was just trying to relate 3 from page 6 of this document that we were just given 4 back to page 3, and you had mentioned that the net 5 benefit now was 192. I looked for 192 on page 3 -- is 6 that appropriate -- in trying to follow this? And I 7 found 192.5. So then when you mentioned a slight 8 increase, I asked you if the slight increase was the .5 9 and you gave me an explanation for what the increase 10 was. But is the increase .5? 11 MR. FOGWILL: No, I should have been clearer 12 with my original response. It's the 192.5 which is the 13 complete adjustment for the ADR additions of E.B.R.O 14 499. 15 MEMBER JACKSON: Okay. Thank you. 16 So that the increase is what dollar amount? 17 And when you tell us there is an increase, what dollar 18 amount am I looking for? 19 MR. FOGWILL: It would be $5.5 million in 20 lifetime net benefits from the 187.0 to the 192.5. 21 MEMBER JACKSON: Okay. I see. So it's an 22 increase from before the ADR to after the ADR, not an 23 increase from the ADR to what you are representing in 24 this proceeding? 25 MR. FOGWILL: There was an adjustment in this 26 proceeding that was made after this was filed that took 27 into account the change in the time period from 1999 to 28 2003 to the 2000-2004 period. Les Services StenoTran Services Inc. 613-521-0703 1883 FOGWILL/PLATIS, cr-ex (Klippenstein) 1 MEMBER JACKSON: That dollar amount is what? 2 MR. FOGWILL: That dollar amount is shown in 3 IR response -- yes, C18.24. 4 MEMBER JACKSON: You are probably wise not to 5 assume that I have memorized everything I have read. 6 Thank you. 7 MR. FOGWILL: And the dollar amount there at 8 the 100 per cent level is $202,793,000. 9 MEMBER JACKSON: Thank you very much. 10 MR. KLIPPENSTEIN: Yes. Thank you for that 11 clarification. 12 So the adjusted figure for the E.B.R.O. 499 13 five-year DSM plan would be the $202,793,000 that you 14 have mentioned. Is that right? 15 MR. FOGWILL: No, that's not correct. 16 MR. KLIPPENSTEIN: Oh! 17 MR. FOGWILL: There was one adjustment made 18 for the additional commitments through the Settlement 19 Agreement, and that would have changed the number from 20 187.0 to 192.5. 21 There was a second adjustment for these 22 proceedings to account for the change in the time 23 period, which would have brought it up to the 24 $202,793,000. 25 MR. KLIPPENSTEIN: All right. So the adjusted 26 final figure for the 499 five-year plan is 192.5? 27 MR. FOGWILL: Correct. 28 MR. KLIPPENSTEIN: And the final figure for Les Services StenoTran Services Inc. 613-521-0703 1884 FOGWILL/PLATIS, cr-ex (Klippenstein) 1 the present five-year plan is the 202.793? 2 MR. FOGWILL: That's correct. 3 MR. KLIPPENSTEIN: Good. Thank you. 4 Now, as I understand it -- I think I have this 5 right -- the proposal from Union is that Union will 6 receive a bonus if it achieves 75 per cent of the 7 targeted DSM savings of $202 million? 8 MR. FOGWILL: The bonus would start above 9 75 per cent. 10 MR. KLIPPENSTEIN: Correct. Thank you. 11 So that strikes me as quite odd. Would it be 12 fair to say that Union is proposing to get a bonus for 13 failing to meet its target? 14 MR. FOGWILL: No. I think that the more 15 appropriate characterization is that we believe that the 16 75 per cent level is the reasonable level of performance 17 that should be expected by the company. 18 MR. KLIPPENSTEIN: But the circumstances are 19 that Union would be getting a bonus, even though it fell 20 significantly short of its target. That's -- 21 MR. FOGWILL: There would be a bonus above 22 75 per cent and below the 100 per cent that's listed in 23 the plan. 24 MR. KLIPPENSTEIN: Supposing you do achieve 25 100 per cent of your target, then, as I understand it, 26 Union would get a bonus of $7.2 million. Is that right? 27 MR. FOGWILL: No, that's incorrect. If you 28 refer to C18.24, at 100 per cent that five-year value Les Services StenoTran Services Inc. 613-521-0703 1885 FOGWILL/PLATIS, cr-ex (Klippenstein) 1 would be 7.6 -- 2 MR. KLIPPENSTEIN: That's 7.6. Thank you. 3 Let me just ask about the fact that we are now 4 looking at a new PBR world, compared to the previous 5 cost-of-service world. Is it fair to say, generally, 6 that a key part of the whole idea of PBR is to motivate 7 a utility to improve its performance with incentives; is 8 that right? That's the theory behind the PBR strategy? 9 MR. FOGWILL: It's to motivate a utility to 10 exceed expected performance. 11 Well, the problem I'm having here -- and this 12 doesn't seem to make sense to me -- because under your 13 proposal Union would get a bonus of several million 14 dollars merely for achieving roughly the level of a 15 performance that it was planning to achieve under cost- 16 of-service regulation. 17 The targets proposed under cost-of-service 18 regulation in 499 are quite close to the targets 19 proposed under PBR. A key difference is that under PBR 20 Union gets millions of dollars of bonus -- $7.6 I think 21 is the figure -- for merely achieving the targets it was 22 going to achieve for free before. Isn't that a problem? 23 MR. FOGWILL: No, again, I will go back and 24 identify the fact that Union believes that the 75 per 25 cent is a reasonably expected level of achievement over 26 the five-year period given the resources we have 27 available, given the market conditions; and that the 100 28 per cent is a stretch. It's an aggressive target. And Les Services StenoTran Services Inc. 613-521-0703 1886 FOGWILL/PLATIS, cr-ex (Klippenstein) 1 in achieving that 100 per cent will require an 2 additional level of effort. 3 It is the company's position that the 100 per 4 cent would be a good level of performance and, 5 therefore, should be rewarded as a result. 6 MR. KLIPPENSTEIN: Isn't the ratepayer paying 7 $7 million for something it would have got for free 8 before? 9 MR. FOGWILL: Again, the expectation that the 10 company has is that we will be achieving going forward 11 over a five-year period, we think we will be achieving a 12 75 per cent level. 13 MR. KLIPPENSTEIN: Can I draw your attention 14 to the Enbridge SSM? I take it you would be aware that 15 under the Enbridge SSM from E.B.R.O. 497 and the 16 1999-001 Rates Decision, Enbridge receives a bonus only 17 if it's actual DSM savings exceed 100 per cent of the 18 target? Are you aware of that? 19 MR. FOGWILL: Yes, I am. 20 MR. KLIPPENSTEIN: What would be the harm if 21 Union's SSM were modified similarly to ensure that a 22 bonus would only occur if the DSM savings exceeded 100 23 per cent of its target? What would be the harm if that 24 modification happened? 25 MR. FOGWILL: With the company's expectation 26 that we will be achieving a 75 per cent level, expecting 27 the company, or setting the pivot point at 100 per cent 28 would be exposing the company to an increase penalty Les Services StenoTran Services Inc. 613-521-0703 1887 FOGWILL/PLATIS, cr-ex (Klippenstein) 1 between the 75 per cent and the 100 per cent that it 2 doesn't face right now. 3 So there is a definite financial risk to the 4 company in that region if you were to adjust the number 5 upwards. 6 MR. KLIPPENSTEIN: And why should the Union 7 situation with respect to the 100 per cent be any 8 different than Enbridge which the Board has found 9 acceptable in the two previous decisions? 10 MR. FOGWILL: Well, it's difficult to comment 11 on the Enbridge situation because we don't know what 12 their business objectives are. The discussion that went 13 on within their ADR process may have dealt with other 14 issues that they would have discussed in relation to 15 this. So there is a context that's missing. 16 In our case, as I have indicated before, we 17 think the 75 per cent level is a reasonable level of 18 performance that should be expected and that's why we 19 set the pivot point at 75 per cent. 20 MEMBER JACKSON: Cutting through this, are you 21 just saying that the targets you negotiated at the 100 22 per cent level you would now like to reduce by 25 per 23 cent? Is that another way of looking at it? 24 MR. FOGWILL: No. The 100 per cent target is 25 an understanding of what we would consider to be a 26 reasonable expectation of performance, plus a stretch. 27 That's why we have always considered them to be 28 aggressive targets. Les Services StenoTran Services Inc. 613-521-0703 1888 FOGWILL/PLATIS, cr-ex (Klippenstein) 1 MEMBER JACKSON: Ah! 2 MR. FOGWILL: When we get to the point of 3 having a penalty associated with that, there's a need to 4 have a clear recognition of what is the expected level; 5 and that's the only difference. 6 MEMBER JACKSON: Okay. 7 MR. KLIPPENSTEIN: Just to follow up on that 8 and not to interrupt your questioning, Dr. Jackson -- 9 MEMBER JACKSON: No, I'm finished. 10 MR. KLIPPENSTEIN: -- you have mentioned a 11 penalty, but my understanding is you don't get a penalty 12 for not reaching 100 per cent; you just don't get a 13 bonus, right? 14 MR. FOGWILL: It's a symmetrical mechanism 15 which has a penalty and reward around the pivot point. 16 So if we were to get 74 per cent, the company would face 17 a financial penalty. If we were to get 76 per cent, the 18 company would get a financial reward. 19 So I actually don't understand your comment. 20 MR. KLIPPENSTEIN: What penalty is there for 21 achieving 99 per cent of your target? 22 MR. FOGWILL: Under your scenario if we were 23 to change the number from 75 per cent up to 100 per 24 cent, I was making the assumption that the whole thing 25 would move. If you are considering the fact that 26 there's a dead band between 75 per cent and 100 per 27 cent, then that would alleviate the financial risk for 28 the company. Les Services StenoTran Services Inc. 613-521-0703 1889 FOGWILL/PLATIS, cr-ex (Klippenstein) 1 MR. KLIPPENSTEIN: I guess I'm not quite sure 2 I understand your reference to a penalty. At 99 per 3 cent of target under your proposal, Union gets a bonus. 4 Correct? 5 MR. FOGWILL: That's correct. 6 MR. KLIPPENSTEIN: So Union does not get a 7 penalty at 99 per cent of target? 8 MR. FOGWILL: In the Union proposal there's no 9 penalty because the pivot point is set at 75 per cent. 10 Your original line of questioning identified a 11 scenario moving the 75 per cent pivot up to 100 per 12 cent; that would drag the penalty up. Therefore, the 13 penalty would start at 99 per cent and not 74 per cent, 14 unless you are considering the option of having a dead 15 band around some area where there is no penalty or 16 reward within the given range, for example, between the 17 75 per cent and 100 per cent. So the penalty could stop 18 at the 75 per cent and the reward could start at 100 per 19 cent under that scenario and, therefore, there wouldn't 20 be a penalty at 99 per cent. 21 MR. KLIPPENSTEIN: As far as I know no one is 22 proposing any kind of a dead band. My question is just 23 why not set the pivot point to 100 per cent? 24 Supposing we set the pivot point at 100 per 25 cent and just moved it up on your table so that the zero 26 that now appears at 75 per cent would instead appear at 27 100 per cent. 28 Would you agree with me in doing that Union Les Services StenoTran Services Inc. 613-521-0703 1890 FOGWILL/PLATIS, cr-ex (Klippenstein) 1 would not suffer a penalty at achieving 100 per cent of 2 its target, nor would it suffer a penalty achieving 99 3 per cent of its target? 4 MR. FOGWILL: No, I would not agree with that. 5 If you look at the current system at 75 per 6 cent, which is the pivot, there is no penalty or reward; 7 but the minute you move away from that pivot, there is a 8 penalty or reward, depending on the direction. 9 If you move that pivot up to 100 per cent, 10 that symmetrical arrangement would still exist. So, 11 therefore, under your scenario, 99 per cent would see a 12 penalty. 13 MR. KLIPPENSTEIN: Yes, that's correct. I'm 14 sorry. At 100 per cent there would be no penalty, 15 obviously. Is that -- 16 MR. FOGWILL: That's correct. 17 MR. KLIPPENSTEIN: That's correct. 18 Now, when you say that Union is concerned 19 about a penalty, I take it we can agree that did not 20 appear to be a sufficient reason for the Board not 21 accepting 100 per cent as a pivot point for the Enbridge 22 situation? 23 MR. FOGWILL: I can't comment on the Enbridge 24 situation. 25 THE PRESIDING MEMBER: Mr. Klippenstein, could 26 you just help me understand. As I understand it, the 27 SSM in Enbridge was a result of an ADR settlement 28 agreement, was it not? Les Services StenoTran Services Inc. 613-521-0703 1891 FOGWILL/PLATIS, cr-ex (Klippenstein) 1 MR. KLIPPENSTEIN: Yes. 2 THE PRESIDING MEMBER: Okay. I just wanted to 3 clarify that. 4 MR. KLIPPENSTEIN: Yes, and that was, of 5 course, accepted by the Board, but it hasn't had the 6 status of an ADR settlement. 7 Thank you for that clarification. 8 MEMBER JACKSON: And given that this one has 9 arisen out of an ADR Agreement as -- no, okay, everybody 10 is shaking their heads. 11 --- Laughter 12 THE PRESIDING MEMBER: Dr. Jackson -- 13 MR. KLIPPENSTEIN: That would certainly be an 14 important point. 15 MEMBER JACKSON: So this target then was not 16 anything discussed in 499 ADR. You see, I thought it 17 was -- the numbers were being adjusted forward from that 18 -- I will ask the witness to help me on that. The 192.5 19 was an adjustment up from 187 that came out of the ADR 20 process, and what was the status of the 187 in the ADR 21 process? 22 Was it -- I take it from this that it was 23 accepted for purposes of the ADR process and the 24 settlement of the rates coming out of that -- as we have 25 described in our decision just recently -- but now we 26 are hearing that there was no acceptance that that was a 27 reasonable target. Is that correct? 28 MR. FOGWILL: Through the ADR process we did Les Services StenoTran Services Inc. 613-521-0703 1892 FOGWILL/PLATIS, cr-ex (Klippenstein) 1 agree on a set of targets that the company would pursue 2 and the company had always characterized those as 3 aggressive targets. So if we were to get 100 per cent 4 of those targets, it would be our opinion that that is a 5 greater than expected performance because of the 6 resources available and the market characteristics that 7 we would have to deal with. 8 When it comes to overlaying on top of that a 9 shared savings mechanism, we used as a definition of a 10 pivot point of what would be reasonably expected for the 11 company to deliver on a going forward basis over a five- 12 year period. And the 100 per cent was an aggressive 13 target billed in a stretch and the 75 per cent is the 14 reasonable level. 15 So that if we were to get 80 per cent we would 16 be pleased that we did well. 17 MEMBER JACKSON: So I hope I am not part of 18 the delay at this point in this proceeding, but it seems 19 to me that we are moving very slowly to this issue if 20 the issue is whether the target is appropriate. We are 21 dealing with arithmetic relationships that describe 22 moving the pivot point but we are not getting to the 23 issue of whether the target is correct, are we? 24 Mr. Klippenstein, were you going to get there? 25 MR. KLIPPENSTEIN: As a matter of fact I was, 26 yes. 27 MEMBER JACKSON: Okay. Thank you. 28 I am sorry, it just seemed to be very slow in Les Services StenoTran Services Inc. 613-521-0703 1893 FOGWILL/PLATIS, cr-ex (Klippenstein) 1 moving there and I was not sure whether you were having 2 trouble with their arithmetic formula or their target. 3 MR. KLIPPENSTEIN: Well, you are absolutely 4 and obviously right in identifying the target level as 5 key, but unfortunately it does not appear that these 6 issues can be totally wrapped up in that because the 7 evidence from the company is a stretch factor and a 8 reduced pivot point. 9 MEMBER JACKSON: But they have been trying to 10 make a comparison are we not to Enbridge, and I guess 11 what I don't know sitting here, is whether in the 12 Enbridge case there was some sort of consensus that the 13 target was reasonable because then we would have a 14 situation of comparing apples and oranges. But it was 15 also a stretch factor of approximately 33.3 per cent 16 stretch, then perhaps we have got apples to apples. 17 But could we establish that -- what is going 18 on in Enbridge? 19 MR. KLIPPENSTEIN: I wasn't intending and I 20 hadn't filed that information. I think -- 21 MEMBER JACKSON: Because I just want you to 22 know the Board doesn't -- I don't have that information, 23 okay. 24 Carry on, please, Mr. Klippenstein. 25 MR. KLIPPENSTEIN: Yes, thank you, 26 Dr. Jackson. 27 The relevance of the previous question 28 pertains particularly to the comparison of the targets Les Services StenoTran Services Inc. 613-521-0703 1894 FOGWILL/PLATIS, cr-ex (Klippenstein) 1 that existed under "cost of service" and now when we are 2 talking a bonus. So that is in my view a sort of 3 apples-to-apples comparison issue that we will intend to 4 address in argument. 5 But turning to the target level issue. If you 6 could, witnesses and members of the panel, turn to the 7 document reference book, page 7, which is Exhibit C31.2 8 attachment page 7 of 7 corrected. Do you have that? 9 And that shows the target levels for DSM 10 volume savings in Union's presently proposed plan, is 11 that right? If I look at the bottom row entitled, 12 "total savings", and the first five columns entitled, 13 "year one through year five", is that right? 14 MR. FOGWILL: That's correct. That's the 15 amended version for the years 2000 to 2004. 16 MR. KLIPPENSTEIN: And the figures are for 17 year one, 38.3 million cubic metres, the next year is 18 39 million, 39.8 approximately, 40.5 million and 19 41.3 million cubic metres total savings targets, 20 correct? 21 MR. FOGWILL: That is correct. 22 MR. KLIPPENSTEIN: If I look at the actuals, 23 or some actuals anyway for comparison to those target 24 levels, if you return to the documents off pages 8 and 25 9, those are part of the 1999 evaluation report draft 26 from Union, is that right? 27 MR. FOGWILL: That's correct. 28 MR. KLIPPENSTEIN: And if I turn to the Les Services StenoTran Services Inc. 613-521-0703 1895 FOGWILL/PLATIS, cr-ex (Klippenstein) 1 document book page 9 which has a table of savings and 2 costs, I see that for 1999 under the column entitled 3 "savings", I drop down to the row entitled "total 4 programs" and there's the figure of 47.3 million cubic 5 metres, do you see that? 6 MR. FOGWILL: Yes, I do. 7 MR. KLIPPENSTEIN: And that's the actual DSM 8 savings from Union in 1999, is that right? 9 MR. FOGWILL: That's correct, that's the 10 unaudited number. 11 MR. KLIPPENSTEIN: I know, thank you. 12 Now, I compare that to the figure we just 13 looked at and your forecast DSM savings growth rate is 14 only 2 per cent per year between 1999 and 2004, isn't 15 that right? 16 MR. FOGWILL: That is correct. 17 MR. KLIPPENSTEIN: If I go back to 1998 by 18 comparison, and that's a document book page 10, so this 19 is now a year previous and the actuals. Document book 20 page 10 is Exhibit C31.1, issue 2.5.2.5, page 1 and 2. 21 There's a table at the bottom including a row called 22 "savings, actual" and for 1998, the savings are 27.5 23 million cubic metres. Is that right? 24 MR. FOGWILL: That's correct. 25 MR. KLIPPENSTEIN: So the savings jump from 26 1998 or the actual savings in 1998 were 27.5 million 27 cubic metres and that's a growth of 36 per cent over the 28 previous year. Is that right -- sorry, 1999 went up 36% Les Services StenoTran Services Inc. 613-521-0703 1896 FOGWILL/PLATIS, cr-ex (Klippenstein) 1 from 1998. That's comparing the 37.3 million cubic 2 metres we just looked at with the 27.5 million cubic 3 metres from 1998. 4 In other words, from the 1998 savings of 5 27.5 million to the 1999 savings of 37.3 million, we 6 have an increase of about 36 per cent. 7 MR. FOGWILL: That's correct. 8 MR. KLIPPENSTEIN: Now, what are we suppose to 9 make of the fact that your five-year plan only increases 10 savings by about 2 per cent per year for five years when 11 we have seen a jump of 36 per cent in savings in the 12 year previous? 13 Now, I know that every year is different, and 14 so forth, but doesn't two per cent per year seem quite 15 low given those actually achieved numbers? 16 MR. FOGWILL: Actually, there's three points I 17 would like to make there. 18 One is that if you were to look back at the 19 1998-2002 plan, the forecast for the growth in the four 20 following years from 1998 were of similar methodology to 21 this. So it's a standard methodology that we have used. 22 In addition-- 23 MR. KLIPPENSTEIN: Just to clarify, what do 24 you mean by similar methodology? How does that -- 25 MR. FOGWILL: Well, I'm just making several 26 points here. One is that the approach that we have used 27 to look at future years has been to increase the future 28 years by roughly the inflation rate from previous plans. Les Services StenoTran Services Inc. 613-521-0703 1897 FOGWILL/PLATIS, cr-ex (Klippenstein) 1 So I just want to identify that. 2 The second point is I had mentioned earlier 3 that if you look at the time period, 1996 to 1999, we 4 have gone through some significant improvements and 5 significant evolution, changes in the program design and 6 implementation, and that was evidenced by the fact that 7 we had significant savings growth over that time period. 8 I think we are in a period of a mature set of 9 programs and we don't think that level of savings of 10 growth can be duplicated into the future. 11 The other point I would like to make in terms 12 of the 1999 achievement is that we applied additional 13 resources to the achieving low savings targets, and over 14 a five-year period, that level of effort is just not 15 sustainable. 16 MR. KLIPPENSTEIN: Just to ask you some 17 questions about those points, beginning with your third 18 point. 19 You said additional resources were applied, 20 and they achieved results, correct, apparently. 21 MR. FOGWILL: Yes. 22 MR. KLIPPENSTEIN: The results were savings to 23 the customer of real dollars net, correct? 24 MR. FOGWILL: They resulted in natural gas 25 savings and resource benefits. 26 MR. KLIPPENSTEIN: So it was worth it. 27 MR. FOGWILL: It was something that the 28 company considered was important to achieve at that Les Services StenoTran Services Inc. 613-521-0703 1898 FOGWILL/PLATIS, cr-ex (Klippenstein) 1 particular time. 2 MR. KLIPPENSTEIN: I mean you applied 3 additional resources and there was a net financial 4 benefit to the customers. 5 MR. FOGWILL: There was a net benefit to 6 society on the -- there is a negative rate impact 7 associated with all natural gas DSM activities. So for 8 those customers that did not participate in the 9 programs, there was actually -- you have to look at what 10 their portion of the net societal benefits were and 11 compare that to their increased rate impact and see if 12 they were better off. 13 MR. KLIPPENSTEIN: This is an important point, 14 and it is a very, very important point. 15 The number on page 9 of the document reference 16 book which we just reviewed of the total savings of 17 $37 million, that is a net bottom line savings to the 18 customers as a group, correct? 19 So I am concerned when you talk about other 20 sort of impacts because that shifts things away. The 21 $37 million was an actual net -- sorry, that's cubic 22 metres -- but the savings was actual net savings to the 23 customers, correct, as a group? 24 MR. FOGWILL: As a group, yes, but some in the 25 group will have increased levels of benefits and some in 26 the group will actually have costs associated with these 27 activities as a result of the rate impact. 28 MR. KLIPPENSTEIN: Well, let's look at the Les Services StenoTran Services Inc. 613-521-0703 1899 FOGWILL/PLATIS, cr-ex (Klippenstein) 1 actual cost. 2 If you turn to the document reference book 3 page 9 for 1999, the last column shows costs. At the 4 bottom, it seems to me Union actually spent less than 5 budgeted on DSM and still got those pretty good savings. 6 Correct? Union spent less than budgeted? 7 MR. FOGWILL: The costs associated here do not 8 reflect some of the additional resources that we put on 9 the demand side to management activities in the last 10 quarter of last year. Some of those resources were some 11 of our sales staff that we redirected to dedicate 12 dedicated resources to this, and it would have had a 13 somewhat of a negative impact on our other marketing 14 goals because they had a complete focus on this 15 activity. 16 MR. KLIPPENSTEIN: So the information in this 17 1999 evaluation report is wrong? 18 MR. FOGWILL: This report addresses the direct 19 costs associated with the programs. For example, it 20 doesn't reflect the administrative support behind the 21 financial systems that the employees and the company 22 deal with. It doesn't deal with the HR benefits and 23 compensation that the employees are entitled to. There 24 are things about other costs that the company incurred 25 to manage its operations that are not reflected in these 26 dollars. 27 MR. KLIPPENSTEIN: I will tell you what I'm 28 going to do is I'm going to forget all that because I'm Les Services StenoTran Services Inc. 613-521-0703 1900 FOGWILL/PLATIS, cr-ex (Klippenstein) 1 going to just assume that the costs listed in this 2 evaluation report are the costs. If Union wishes to 3 provide revised evidence to say that there's other 4 costs, that would be appropriate for review, but I am 5 going to stick with what is available now. 6 Would you agree with me that the costs as 7 shown in this evaluation report for 1999 DSM were less 8 than budget? 9 MR. FOGWILL: That's correct. 10 MR. KLIPPENSTEIN: Thank you. So when you 11 said that it might not be wise to look at the results 12 from 1999 as a yardstick in any way -- I'm putting some 13 words in your mouth, I realize -- but as a yardstick for 14 the future five years in the present plan, and when you 15 said that because of the additional resources that were 16 put in the 1999, can you tell me why it is not possible 17 to put in such additional resources in the future five- 18 year plan if it appears that they have such a 19 significant benefit? 20 MR. FOGWILL: The resources that were applied 21 to the demand side to management activities, in addition 22 to the ones that were on a dedicated basis, were applied 23 in the last quarter of 1999. 24 Those resources are also used for the 25 achievement of other objectives for the company. If we 26 were to draw them away from those other objectives on a 27 sustained period, we would be facing some under 28 achievement of these other business objectives, so as I Les Services StenoTran Services Inc. 613-521-0703 1901 FOGWILL/PLATIS, cr-ex (Klippenstein) 1 mentioned before it is not a sustainable approach. 2 MR. KLIPPENSTEIN: Well, in fact if what you 3 are saying is correct, it seems to me that the 4 additional resources you mentioned weren't necessary for 5 achieving the results that are shown on page 9 because 6 if they were only put in place in the last quarter, and 7 if you allow some time lag for effect, it seems to me 8 that maybe the results shown here that I have referred 9 to in a big jump, or the increase of 36 per cent, were 10 perhaps achieved mainly without the additional resources 11 you mentioned. Isn't that fair? 12 MR. FOGWILL: No, that's not correct. 13 The resources that we used in the fall of 1999 14 were to go out and deal with the market players and to 15 get them actively involved in these programs. 16 We mobilized the sales force in large measure 17 in that quarter because we had some concerns about 18 falling significantly short of our targets in that year. 19 And when we put all that effort into it, we took them 20 away from our other activities in marketing and sales. 21 It was a significant resource allocation, but it was a 22 concern that we had that we wanted to achieve a specific 23 level, or get up to a level of savings that we thought 24 was appropriate. 25 It just so happened as a result of putting all 26 those resources into it we got to close to 100 per cent. 27 But going through this, we were concerned 28 whether we were actually going to get to the level or Les Services StenoTran Services Inc. 613-521-0703 1902 FOGWILL/PLATIS, cr-ex (Klippenstein) 1 somewhere between, in that range of 75 per cent level 2 which we were expecting to get. 3 MEMBER JACKSON: You overshot your target but 4 it's not sustainable in an economic manner. I had the 5 last point because it sounds to me like you could be 6 expanding your marketing staff if this were an important 7 target to achieve. 8 On an ongoing basis, you have overshot for 9 1999; right? 10 MR. FOGWILL: That's correct. 11 MEMBER JACKSON: Thanks. I just want to make 12 sure I understand. 13 MR. KLIPPENSTEIN: Let me go back to the 14 second reason, as I understand it, which you gave why 15 the good results for 1999 should not be used as some 16 sort of yardstick for the future. And you mentioned 17 that as a result of the efforts from 1996 to 1999, you 18 now have a mature set of programs and it is not 19 realistic to expect the same kind of results in the 20 future. 21 Let me compare that with the first reason you 22 gave which was the methodology, and I think you said 23 something like your approach was roughly to use an 24 inflation amount for forecasting. 25 I would suggest to you that there is no 26 particular logic that I can see in using inflation as 27 some sort of forecaster for DSM performance, 28 particularly when you have shown this 36 per cent Les Services StenoTran Services Inc. 613-521-0703 1903 FOGWILL/PLATIS, cr-ex (Klippenstein) 1 increase in 1999. 2 I just would suggest to you maybe there's 3 something wrong with your methodology, aside from the 4 basic logical problems, as far as I can see, and that 5 the results of 36 per cent increase for 1999 at least 6 suggests that you should revisit the 2 per cent per year 7 for each of the next five years in your present proposed 8 plan. 9 MR. FOGWILL: I think it is important to come 10 back to the point I made before about the maturity of 11 the programs. And the fact is that we think that they 12 are at a point right now where they are well developed. 13 We have the marketing tools available for that. We have 14 communications pieces and other vehicles for the 15 implementation of these programs. And we see them being 16 set in that mould with no significant change over a 17 period of years. And as a result, we think that we are 18 going to have a sustained level of activity that we will 19 be able to reasonably achieve over that time period. 20 And that is why we think that the projection 21 of 2 per cent is a reasonable forecast methodology. 22 MR. KLIPPENSTEIN: Just a few questions on 23 another topic, Mr. Chairman, and I will ask whether the 24 Board has intentions for break or now is fine to press a 25 few more questions with -- 26 THE PRESIDING MEMBER: We will have a few 27 questions and then we will break. 28 MR. KLIPPENSTEIN: Let me make the dreaded Les Services StenoTran Services Inc. 613-521-0703 1904 FOGWILL/PLATIS, cr-ex (Klippenstein) 1 comparison to Enbridge again and I know in your chief 2 you mentioned that there's some reasons why Enbridge is 3 different and I want to ask you about that. 4 But first I want to compare some numbers 5 with you. 6 If you turn to the document book, page 11, and 7 if you look under the heading DSM, go to the first 8 bullet point, this is the Board-approved ADR Agreement. 9 Is that right? 10 I will put it to you that it is subject to 11 check, if you will. 12 MR. FOGWILL: Yes, subject to check. 13 MR. KLIPPENSTEIN: And in the second line of 14 the first bullet point you will see that the forecast of 15 gas savings in the DSM plan is set at 42.1 million -- 16 I'm sorry, 42 million. Do you see that? 17 MR. FOGWILL: Yes. 18 MR. KLIPPENSTEIN: And I compare that to -- 19 that's for the year 2000. Correct? It just says for 20 the test year which is 2000. 21 MR. FOGWILL: Subject to check, yes. 22 MR. KLIPPENSTEIN: So Enbridge's target for 23 the year 2000 is 42 million cubic metres in DSM savings. 24 Now compare that to the numbers we looked at just 25 previously on page 7 of the document book with respect 26 to Union, where the target for Union for 2004 is 27 41.3 million cubic metres. So that Enbridge has set a 28 target for 42 million for 2000, but even by the year Les Services StenoTran Services Inc. 613-521-0703 1905 FOGWILL/PLATIS, cr-ex (Klippenstein) 1 2004, Union doesn't even reach that target. 2 Now, you mentioned that comparison with 3 Enbridge must be done with caution, and I certainly 4 accept that, but let me suggest to you that Union's 5 total infranchise volume is greater than Enbridge's. 6 Would you agree with that? 7 MR. FOGWILL: I don't have those numbers right 8 off the top of my head, so I would have to check on that 9 one. 10 MR. KLIPPENSTEIN: Well, just based on your 11 general familiarity with the volumes that the two 12 companies would -- would you agree, subject to check, 13 that Union's total infranchise volume is greater than 14 Enbridge? 15 MR. FOGWILL: Yes, subject to check. 16 MR. KLIPPENSTEIN: Okay. So you will let me 17 know if I'm mistaken on that. 18 Wouldn't you also agree that Union's total 19 industrial volumes are greater than Enbridge? Could you 20 take that subject to check? 21 MR. FOGWILL: I believe that is the case, yes. 22 MR. KLIPPENSTEIN: And wouldn't you agree that 23 the industrial sector is one of the areas where the 24 largest, or at least significant potential DSM savings 25 exist and most cost effectively? 26 MR. FOGWILL: The industrial is a significant 27 area for achieving energy savings but so are the 28 residential and the commercial sectors. They are in Les Services StenoTran Services Inc. 613-521-0703 1906 FOGWILL/PLATIS, cr-ex (Klippenstein) 1 balance. 2 MR. KLIPPENSTEIN: Sure. 3 So my suggestion to you is given those volume 4 comparisons to Enbridge, and as particularly the 5 industrial sector, that it is not unreasonable to ask 6 you why Union takes several years more to even try for 7 the same target that Enbridge now has. And can you tell 8 me actually any specific reasons why I shouldn't say, 9 "Enbridge suggests you can do better"? 10 MR. FOGWILL: I'm not able to compare Union to 11 Enbridge because of the significant difference between 12 the two companies, their business objectives, their 13 marketplaces. I am also drawn to the point in that 14 first bullet that they increased their savings targets 15 from 34 million to 42 million through their ADR process. 16 That's my understanding in this agreement. That 17 increase is -- there's not context to how that was 18 increased. It may have just been a number pulled out of 19 the air that was agreed to as a result of the overall 20 ADR process. 21 So being able to compare that 42 to our 22 numbers is not possible. 23 MR. KLIPPENSTEIN: I would have thought that 24 given that number is out there and Enbridge, you know, 25 is no sort of dilatant in this business of DSM, that it 26 would be incumbent upon Union to say, "Wait a minute, 27 are we missing something?". 28 And so I'm just asking you, can you actually Les Services StenoTran Services Inc. 613-521-0703 1907 FOGWILL/PLATIS, cr-ex (Klippenstein) 1 identify any or several of the specific factors you have 2 suggested which would allow Pollution Probe to say, 3 "Okay, this is reasonable" because you haven't 4 identified any specific factors that I can recall that 5 differentiate Union from Enbridge and suggest that 6 Enbridge is a significantly more ambitious target. It 7 shouldn't send a signal to Union. 8 MR. FOGWILL: I can't comment on the 9 comparison. What I can say is that our targets were set 10 based on our business objectives and our understanding 11 of the public benefits that would be achieved by these 12 programs. And we have put those in balance from our 13 perspective. 14 MR. KLIPPENSTEIN: Thank you. I wonder, 15 Mr. Chairman, this might be an appropriate time to break 16 if the Board is so interested. 17 THE PRESIDING MEMBER: That is a good idea. 18 And in light of the fact that you have some material for 19 the parties to review and determine how you want to 20 proceed, I think we should come back at half past 21 eleven. 22 So we will resume at half past eleven. 23 --- Upon recessing at 1101 24 --- Upon resuming at 1130 25 MR. PENNY: ... (off microphone) this morning. 26 So my position on it is quite simple. We regard the 27 document as being of little or no relevance, but we are 28 prepared to have the witnesses asked questions about it. Les Services StenoTran Services Inc. 613-521-0703 1908 FOGWILL/PLATIS, cr-ex (Klippenstein) 1 THE PRESIDING MEMBER: Thank you, Mr. Penny. 2 And thank you for a copy, Mr. Klippenstein. Carry on, 3 please. 4 MR. KLIPPENSTEIN: Thank you. Mr. Chairman, 5 and thank you, Mr. Penny. I apologize for the delay. I 6 am not hurt by the fact that he called me irrelevant. 7 MR. PENNY: Mr. Klippenstein, I didn't call 8 you irrelevant. 9 MR. KLIPPENSTEIN: My wife called me worse 10 this morning. 11 I would like to ask about the target setting, 12 specifically the annual feature of target setting. 13 As I understand it in this application, Union 14 is asking the Board to approve in this particular 15 proceeding the annual DSM targets for the five years, 16 2000, 2001 and so forth, each to 2004. Is that right? 17 MR. FOGWILL: We are -- the proposal is for a 18 five-year target which has got annual values to it that 19 would not be adjusted every year. 20 MR. KLIPPENSTEIN: Would you agree with me 21 that there is considerable uncertainty as to the level 22 of DSM savings as we go out into the years 2002, 2003, 23 2004? 24 MR. FOGWILL: I think there is some 25 uncertainty associated with the DSM activities, yes. 26 MR. KLIPPENSTEIN: What would be the harm in 27 that context if the Board chose to fix the DSM volume 28 targets at this time only for the years 2000 and 2001 Les Services StenoTran Services Inc. 613-521-0703 1909 FOGWILL/PLATIS, cr-ex (Klippenstein) 1 and then for the subsequent years decided to handle the 2 targets on an annual basis based on Union's results. In 3 other words, the actual performance and the 4 recommendations of the DSM consultant approved and/or 5 the customer review process. In other words, what would 6 be the harm in that approach? 7 MR. FOGWILL: I think I have already indicated 8 that what the -- an annual setting in this case is a 9 two-year period and then an annual setting would do is 10 mute the incentive that we are seeking because in any 11 given time period, any benefit or any incentive that we 12 would get would then be gathered back in the 13 readjustment of the target. So you are going to mute 14 the incentive in the long term. And that the objective 15 of the performance mechanism is to incent higher levels 16 of performance echoes counter to that objective. 17 The second thing was that the shared savings 18 mechanism as a performance-based mechanism, is really 19 designed to be a mechanism for lighter-handed regulation 20 and some sort of annual setting of targets, it just 21 violates that concept. 22 And the third point that I would raise and 23 relate it to that is that it takes a lot of effort to 24 put these plants together. And the activities or the 25 resources that would have to be put to this planning 26 process would be taken away from implementation 27 activities, and as a result, it would reduce the cost 28 effectiveness or the overall performance of achieving Les Services StenoTran Services Inc. 613-521-0703 1910 FOGWILL/PLATIS, cr-ex (Klippenstein) 1 the DSM targets. 2 MR. KLIPPENSTEIN: Thank you. And we will 3 address those in argument. 4 I have some concerns about the incentive rate 5 as it is proposed. 6 The incentive rate as proposed by Union is 7 15 per cent as I understand it. That is if Union's 8 actual DSM savings exceed 75 per cent of the target, 9 then Union gets 15 per cent of the incremental or 10 additional TRC benefits. Is that right? 11 MR. FOGWILL: The incentive rate is 15 per 12 cent. That is correct. 13 MR. KLIPPENSTEIN: Yes. Now, it seems to me 14 there is a distinction to be made with respect to that 15 15 per cent on a gross versus net basis. And I am -- I 16 mean this, and as I understand it, if Union has to make 17 additional or incremental expenditures to achieve the 18 additional DSM, then those expenditures, those 19 incremental expenditures come out of Union's 20 shareholders' pocket, right, to achieve that incremental 21 DSM? 22 MR. FOGWILL: If it was spending above the 23 budgeted number, yes, that would come out of the 24 shareholders. 25 MR. KLIPPENSTEIN: So one could fairly say 26 that if there is that incremental saving with 27 incremental expenditure, that the expenditures, I guess, 28 should be deducted from the 15 per cent benefits so that Les Services StenoTran Services Inc. 613-521-0703 1911 FOGWILL/PLATIS, cr-ex (Klippenstein) 1 actually in that situation the net benefit is less than 2 15 per cent. Is that fair? 3 MR. FOGWILL: Yes, that is correct. 4 MR. KLIPPENSTEIN: Okay. Thank you. 5 I have a number of questions that kind of 6 follow from that benefit level issue as well. And some 7 of them relate to a DSM variance account. So as I 8 understand it, Union is not seeking DSM O&M variance 9 account? 10 MR. FOGWILL: We have indicated in our 11 evidence that we don't see a need for it. So Union is 12 not asking for a variance account for its DSM 13 expenditures. 14 MR. KLIPPENSTEIN: Given the present 15 calculation method, as I understand it, as long as Union 16 stays out of the penalty range in the SSM, Union can 17 actually increase its profits by decreasing DSM 18 expenditures. In other words, savings in DSM 19 expenditures go to the benefit of the company and the 20 shareholders. Is that accurate? 21 MR. FOGWILL: The impact would be the case, 22 but the ability to control that level of dollar spending 23 for benefits achieved is not that precise or refined. 24 And therefore, it is -- when we put the programs 25 together, we assign budgets to them and resources to 26 them and we go forward with those programs and sometimes 27 we will have a great program and good resources assigned 28 to it but it doesn't -- it doesn't work, it doesn't fit. Les Services StenoTran Services Inc. 613-521-0703 1912 FOGWILL/PLATIS, cr-ex (Klippenstein) 1 Sometimes we will be in a situation where our 2 fuel resources actually will generate higher benefits. 3 And so it is depending on the situation and it will vary 4 between program and program and also the elements within 5 the program. So it is not really clear whether a dollar 6 for dollar reduction is going to equate directly to a 7 dollar for dollar benefit change. 8 MR. KLIPPENSTEIN: Well, let's look at the 9 trend and some examples. If you could turn to the 10 document reference book, page 10, which is 11 Exhibit C31.1, issue 2.5.2.5, page 1. We have looked at 12 this before. There is a table at the bottom of the page 13 and the last column or two columns in the table show the 14 total costs for DSM in a series of years. 15 Now, I am going to suggest to you that there 16 is quite a few years in which DSM expenditure was less 17 than forecast. For example, 1995 forecast was 18 $0.38 million, actual was 0.1. In 1996, the reverse 19 happened, but in 1997, again, actuals less than 20 forecast; 1998, actuals less than forecast. So in other 21 words, DSM expenditures were less than forecast. 22 Now, continuing the trend in 1999, if you turn 23 back a page to page 9 of the document reference book, 24 again, in the last column entitled, "Costs", I drop down 25 to the row entitled, "Total Programs", and I see that 26 actuals were -- this is thousands -- $2,243,000 and 27 budget was $2,779,000. So there's quite a few years 28 here where DSM expenditures were less than forecast. Les Services StenoTran Services Inc. 613-521-0703 1913 FOGWILL/PLATIS, cr-ex (Klippenstein) 1 And isn't that, then, applying the logic we just 2 discussed, the case that those DSM expenditure savings 3 have gone to the benefit of the shareholder? 4 MR. FOGWILL: Well, I don't think it is 5 correct to just look at the program cost sheet because 6 you have to look at the overall budget for the 7 activities. And if you look at the overall total from 8 1995 to 1999, the actual costs, on a total basis, are 9 not much less than the forecast that is identified in 10 that table. 11 MR. KLIPPENSTEIN: In other words, you looked 12 at the exception year of 1996 and you say take that into 13 account in your overall totals. The DSM expenditures 14 are somewhat less than forecast but not quite as much as 15 if you look at individual years? 16 MR. FOGWILL: Just a minute. 17 Actually, we have just done a quick 18 calculation and I think I misspoke because it seems that 19 we actually have overspent over the five-year period. 20 The total comes out to 13.01 million for actual spending 21 and the forecast budget was 12.74 million. So, in 22 effect, the shareholders have out of pocket 23 approximately $270,000. 24 MR. KLIPPENSTEIN: Wouldn't you agree with me 25 that the overspending occurred in only one year, that's 26 1996? Is that right? 27 MR. FOGWILL: That's correct. 28 MR. KLIPPENSTEIN: And isn't it true that for Les Services StenoTran Services Inc. 613-521-0703 1914 FOGWILL/PLATIS, cr-ex (Klippenstein) 1 that year there was some pretty stiff comments from the 2 Board directed specifically to the adequacies of Union's 3 DSM programs, and so that one could reasonably infer 4 that that bump or blip in spending was as a result of a 5 nudge from the Board for that one year? 6 MR. FOGWILL: It's my understanding that the 7 additional spending was a result of my company 8 conducting more detailed planning activities which goes 9 to the indication that the cost of planning is not a 10 trivial expense. 11 MR. KLIPPENSTEIN: In any case, for four of 12 those five years the DSM expenditures were less than 13 budgeted and the result would be that that, in those 14 years, would have gone to the benefit of the company. 15 Is that right? 16 MR. FOGWILL: That's correct. 17 MR. KLIPPENSTEIN: Now, if in that situation, 18 or in a situation where the company overspent on DSM, a 19 variance account would mean that the company could 20 recover those expenses from ratepayers, provided they 21 were prudently incurred. Is that right? 22 MR. FOGWILL: A recovery of those expenditures 23 would be, I'm assuming, based on the approval by the 24 Board. 25 MR. KLIPPENSTEIN: Right. 26 And so if Union had a DSM variance account, 27 then the shared saving mechanisms, the gross marginal 28 incentive rate would equal the net marginal incentive Les Services StenoTran Services Inc. 613-521-0703 1915 FOGWILL/PLATIS, cr-ex (Klippenstein) 1 rate? 2 MR. FOGWILL: That's correct. 3 MR. KLIPPENSTEIN: Now, Enbridge actually had 4 a DSM O&M variance account, I understand. Is that your 5 understanding, as well? 6 MR. FOGWILL: That's my understanding, yes. 7 MR. KLIPPENSTEIN: But would there be any harm 8 if the Board established a DSM variance account for 9 Union? 10 MR. FOGWILL: The issue with the establishment 11 of a variance account is that reduces the motivation of 12 a company to control costs. So as a result, you would 13 have the potential of escalating costs in that variance 14 account. 15 MR. KLIPPENSTEIN: Is Union strongly opposed 16 to the establishment of a DSM variance account? 17 MR. FOGWILL: Union doesn't see any 18 requirement for the establishment of a DSM variance 19 account. 20 MR. KLIPPENSTEIN: A question, or several 21 questions about the actual level of the incentive or 22 penalty rate -- and this is the 15 per cent rate, as now 23 proposed by Union. 24 Supposing the Board actually approved these 25 rates, as suggested by Union, do you think that it is 26 actually likely that Union's actual DSM savings would 27 significantly exceed the target? 28 MR. FOGWILL: It is our expectation that over Les Services StenoTran Services Inc. 613-521-0703 1916 FOGWILL/PLATIS, cr-ex (Klippenstein) 1 the five-year period we are going to get roughly in the 2 75 per cent range, which is why we set the pivot point 3 there. 4 MR. KLIPPENSTEIN: Enbridge's SSM has a 5 marginal incentive and penalty rate of 35 per cent, 6 which is significantly different from the 15 per cent 7 Union proposes. Why should Union be subject to weaker 8 DSM incentives and penalties than Enbridge? 9 MR. FOGWILL: Union Gas has a different 10 balance between its business objectives and the public 11 benefits, and also the that fact that Union has a 12 different level of concern related to the rate impacts 13 that would possibly be generated as a result of 14 collecting a benefit from the assured saving mechanism. 15 In addition, there are other utilities, such as B.C. Gas 16 and Gaz M‚tropolitain, that have 15 per cent incentive 17 rates so it is not unusual. 18 MEMBER JACKSON: Sorry, there was one point in 19 there I didn't understand in your answer. I just wonder 20 if you would help me. 21 You were saying there as a Union concern about 22 the rate impact of having a higher number than 15. 23 MR. FOGWILL: Yes. 24 MEMBER JACKSON: Are you essentially saying 25 that the DSM group within Union working on benefits 26 might be to aggressive? Is that what we are saying or 27 what are we saying? 28 MR. FOGWILL: Well, it's the rate impact of Les Services StenoTran Services Inc. 613-521-0703 1917 FOGWILL/PLATIS, cr-ex (Klippenstein) 1 collecting on the award that would be generated by the 2 shared savings mechanism. Right now, for example, if we 3 were to achieve the 100 per cent level over the five- 4 year term, the award would be 7.6 million, and that, in 5 total, would be about a one and a half per cent rate 6 impact, and that we consider significant. 7 MEMBER JACKSON: So it wasn't the rate impact 8 of seeing lower volumes, it was the rate impact of 9 subsequently having to collect the reward, if you like. 10 MR. FOGWILL: Well, that's another point, 11 which is that the lost revenue adjustment mechanism, 12 which gathers the -- or tracks the lost revenues which 13 would be collected from the customers as well would have 14 a rate impact in addition to the reward from the shared 15 savings mechanism. And I believe the value in the year 16 2000 is $1.6 million for the 1999 year. 17 MEMBER JACKSON: I am sorry. 18 The $1.6 compares to what sort of a reward if 19 you achieve the $1.6? 20 MR. FOGWILL: No, the $1.6 is a recovery for 21 lost revenues so it is separate from the reward system. 22 THE PRESIDING MEMBER: It's the balance in the 23 deferral account, $1.6 million for the 1999 Lost Revenue 24 Adjusting Mechanism. 25 MR. FOGWILL: That's correct, Mr. Chairman. 26 MR. KLIPPENSTEIN: Just looking at that rate 27 impact issue. 28 Again, even if the incentive were 35 per cent Les Services StenoTran Services Inc. 613-521-0703 1918 FOGWILL/PLATIS, cr-ex (Klippenstein) 1 and Union was able to collect that, or put in a position 2 to earn it, that 35 per cent is 35 per cent of the net 3 total benefits that flow to the customers as a whole as 4 a result of the DFM, right? So it is a reduction in the 5 total benefits would be one way of looking at it? 6 MR. FOGWILL: Can you just rephrase the 7 question? 8 MR. KLIPPENSTEIN: Sure. The 35 per cent is 9 35 per cent of something and that something is the 10 benefits to the customers of DSM in net financial terms. 11 So it would be fair to say that the 35 per cent which is 12 a payment to the company, if you will, is a reduction of 13 the benefits, 65 per cent of which still accrue to the 14 customers financially, right? 15 MR. FOGWILL: No, that's not correct. The net 16 benefits would still be the same. You are just 17 transferring a portion of those specifically to the 18 company. 19 MR. KLIPPENSTEIN: Instead of the customers 20 keeping them. 21 MR. FOGWILL: Well, going back to the idea of 22 what the Total Resource Cost test defines, and that is 23 the net societal benefits, so the company is an integral 24 component; so it's just a transfer. The net benefits 25 stay the same. You are just transferring it to the 26 company as compared to others in society. 27 MR. KLIPPENSTEIN: If I could direct your 28 attention to page 15 of the document reference book, Les Services StenoTran Services Inc. 613-521-0703 1919 FOGWILL/PLATIS, cr-ex (Klippenstein) 1 which is Dr. Bauer's answer to Pollution Probe's 2 Interrogatory No. 2, and particularly the second 3 sentence in his answer where he says: 4 "As the hidden costs of DSM measures tend 5 to increase more than proportionately 6 with net benefits, an increasing marginal 7 incentive rate seems appropriate." 8 (As read) 9 Do you have a position on whether you agree or 10 disagree with Dr. Bauer's statement? 11 MR. FOGWILL: Well, Dr. Bauer's statement 12 comes from the paper of Mr. Eto, et al. So in terms of 13 that statement, the concern about, or the issue of 14 hidden costs is very problematic. It's a contentious 15 issue. It's debated back and forth. 16 So in terms of being able to apply the hidden 17 cost as an idea to the statement of an increasing 18 marginal incentive rate to fix the hidden cost is 19 difficult to comment on. 20 MR. KLIPPENSTEIN: Okay. Well, let me put a 21 somewhat revised benefit incentive structure to you. 22 Would you then be opposed to the following 23 type of three-step incentive structure, if I will: a 24 rate of incentive or penalty of 15 per cent with respect 25 to DSM savings that are within plus or minus 10 per cent 26 of the Board approved targets? So that's step one, 27 within plus or minus 10 per cent of penalty or incentive 28 rate of 15 per cent. Les Services StenoTran Services Inc. 613-521-0703 1920 FOGWILL/PLATIS, cr-ex (Klippenstein) 1 Then on either side of that, a marginal 2 incentive rate of 35 per cent for savings that exceed 3 the Board approved target by 10 per cent or more. 4 Then on the other side, a marginal penalty of 5 35 per cent for savings that fall short of the Board 6 approved target by more than 10 per cent? 7 How would Union feel about that which 8 incorporates some of Union's rates and also leans a bit 9 toward the principle suggested by Dr. Bauer? 10 MR. FOGWILL: Union has gone through an 11 extensive evaluation process to determine what an 12 appropriate share savings mechanism should be and it 13 balances a number of competing concerns, including our 14 own business objectives, what we consider is the 15 benefits generated -- the public benefits generated 16 through this activity and the potential rate impacts of 17 the shared savings mechanism structure. We feel that 18 the proposal that we have put forward for consideration 19 is the appropriate one. 20 MR. KLIPPENSTEIN: I have a couple of 21 questions then about the actual calculation of the TRC 22 net benefits and the inputs and parameters. 23 If you look at the document book, page 3, the 24 target figure of $192.5 million, which has now been 25 increased to the $202 million approximately, as I 26 understand it is based on a certain number of 27 assumptions used as input and parameter values. 28 Let me ask, by way of suggestion, that some of Les Services StenoTran Services Inc. 613-521-0703 1921 FOGWILL/PLATIS, cr-ex (Klippenstein) 1 the input assumptions would include the following: 2 avoided costs, discount rates, energy savings per 3 measure, program costs, free-rider rates, participation 4 rates. Would you agree, or am I correct in 5 understanding that those are some of the assumptions 6 that would be inputs into that number, to the target 7 number? Is that fair? 8 MS PLATIS: Yes, that is correct. 9 MR. KLIPPENSTEIN: Thank you. 10 Now, if those input parameter values change, 11 then the net present value of the DSM savings changes as 12 well? 13 MS PLATIS: Yes. 14 MR. KLIPPENSTEIN: Now, some of those input 15 parameters, however, seem to me to be factors that are 16 not within Union's control, for example, the discount 17 rate or changes in your avoided cost of gas. Is it fair 18 to say that those aren't really within Union's control? 19 MS PLATIS: Yes, that would be case. 20 MR. KLIPPENSTEIN: That raises a question in 21 my mind whether, basing a target and thus, indirectly, a 22 bonus, or penalty on those input factors that are not in 23 Union's control, whether that is actually an appropriate 24 procedure? In other words, should your bonus vary on 25 factors that are not in your control? 26 MR. FOGWILL: The way the -- the way the 27 calculation works is that there are a number of planning 28 assumptions built into the planning document. And those Les Services StenoTran Services Inc. 613-521-0703 1922 FOGWILL/PLATIS, cr-ex (Klippenstein) 1 assumptions are for the most part fixed over the time 2 period. The only ones we do have control on are costs 3 and our participants. And those are the ones that would 4 cause the lifetime net benefits to vary, and cause a 5 resultant change in the amount of gas that we would 6 save. So the avoided cost in most of the other factors 7 do not change when we go to true-up the SSM calculation. 8 MR. KLIPPENSTEIN: Can you tell me which of 9 the factors I have mentioned, plus any other factor you 10 think of would vary over the course of time, and 11 wouldn't be in Union's control? I think you agree the 12 discount rate, or changes in the avoided cost of gas 13 would vary, and therefore might affect the bonus. Are 14 there any others that would? 15 MR. FOGWILL: Well just to correct you, they 16 wouldn't change the calculations because those input 17 parameters will be fixed over the life of the plan. 18 But in terms of which ones do vary on a 19 regular basis, or would vary would be the avoided cost, 20 the discount rate, the energy savings by the 21 technologies would change as a result of changing 22 technology evolution. Those would be the ones that 23 would vary in an uncontrollable manner, and the ones 24 that we would control are of course our participation in 25 the programs and the costs. 26 MR. KLIPPENSTEIN: Would it be possible for 27 you to take into account when calculating a bonus the 28 factors you have mentioned which do vary, and which are Les Services StenoTran Services Inc. 613-521-0703 1923 FOGWILL/PLATIS, cr-ex (Klippenstein) 1 not in your control? 2 MR. FOGWILL: Well what that would do then is 3 it would get to a point where you would do a retroactive 4 adjustment to an incentive when business plans or 5 procedures were set in place based on a certain 6 expectation. So you would be coming back and changing 7 the rules of the game after you played the game. 8 MR. KLIPPENSTEIN: I may have not fully 9 understood you. Is your answer that it's only the 10 changes in the participation rate and the costs that do 11 in fact affect your bonus given the way you have 12 calculated it? 13 MR. FOGWILL: Yes. 14 MR. KLIPPENSTEIN: Okay, thank you. That's 15 helpful, and I apologize for not getting it immediately. 16 Have all the inputs and parameter values that 17 you used to estimate the net present value of the TRC 18 test benefits for your five year DSM plan been filed 19 with the Board in this docket number? 20 MR. FOGWILL: The demand side management plan 21 is a document that was filed in E.B.R.O. 499 that's the 22 one we refer to. 23 MR. KLIPPENSTEIN: But, it's not formally 24 evidence in this proceeding. It hasn't been filed in 25 this proceeding. I don't mean to get legally technical 26 here, but I guess it hasn't been separately filed in 27 this evidence in this proceedings. 28 MR. FOGWILL: That's my understanding it has Les Services StenoTran Services Inc. 613-521-0703 1924 FOGWILL/PLATIS, cr-ex (Klippenstein) 1 not been formally filed in this proceeding. 2 MR. KLIPPENSTEIN: I wonder if you could 3 undertake to do that. In other words, to have all the 4 inputs and parameter values that you have used to 5 estimate the net present value of the TRC benefits of 6 the five year DSM plan have them filed in this 7 proceeding. 8 MR. FOGWILL: We can file the DSM plan from 9 E.B.R.O. 499. 10 MR. KLIPPENSTEIN: I take it there would be 11 some differences in the inputs and parameters between 12 that one and this one. It's obviously this DSM plan 13 that we are interest in. 14 MR. FOGWILL: Well, the adjustments would only 15 relate to the ones that are shown in response to -- 16 MR. KLIPPENSTEIN: I just want all of the 17 input for this plan, and however we get there. 18 MR. FOGWILL: The reference I'm looking for is 19 C31.2 which has got the adjustment for the years 2000- 20 2004. And the basis of that adjustment is from the plan 21 that was filed in E.B.R.O. 499. So together they form a 22 complete record. 23 MR. KLIPPENSTEIN: Just so I understand it 24 then if I take the DSM plan as filed in 499 plus the 25 adjustments in C31.2 then I have got the whole picture 26 of all the input parameters including the avoided costs, 27 participation rate, discount rates, and so forth. 28 MR. FOGWILL: That's correct. Les Services StenoTran Services Inc. 613-521-0703 1925 FOGWILL/PLATIS, cr-ex (Klippenstein) 1 MR. KLIPPENSTEIN: Okay. Thank you. 2 A question or two, or three about the 3 evaluation process, and the DSM plan. 4 MEMBER JACKSON: Mr. Klippenstein, can you 5 just remind me what sort of a document this plan is. Is 6 it one inch, two inches, three inches? 7 MS PLATIS: I can help there. I can show it 8 to you. 9 MEMBER JACKSON: I'm sure that -- okay. Thank 10 you very much, Ms Platis. 11 Okay, so then administratively I think it's 12 probably not a good idea to make it an exhibit in this 13 proceeding and try to distribute it. But anyone who 14 doesn't have a copy of it who is new to this proceeding, 15 how do they get it? How would you suggest, Mr. Penny, 16 that they get it? 17 MR. PENNY: Well, I think anyone who wants a 18 copy of this 499 DSM plan can ask the company. We would 19 provide it to them. I think most people who have an 20 interest in this subject have it, including all the 21 members of the DSM consultative process that Mr. Fogwill 22 spoke of earlier. 23 MEMBER JACKSON: I better not admit that I 24 don't have a copy right now then. 25 THE PRESIDING MEMBER: That's on the public 26 file. 27 MEMBER JACKSON: I can get one though, thank 28 you. Les Services StenoTran Services Inc. 613-521-0703 1926 FOGWILL/PLATIS, cr-ex (Klippenstein) 1 MR. PENNY: We are certainly happy to make 2 copies available if it's of assistance to the Board. 3 MEMBER JACKSON: It makes very interesting 4 reading. 5 MR. PENNY: Yes, thank you. 6 MR. KLIPPENSTEIN: I'm not sure whether to ask 7 for an undertaking number, or an exhibit number. I 8 probably think it would not be necessary, but if that's 9 convenient for administrative purposes. 10 Maybe we should identify it as an exhibit, and 11 simply incorporate what is already on the record in 449. 12 I don't know. 13 MEMBER JACKSON: I can't say whether it's 14 clearly identifiable in 499, but if it had an exhibit 15 number from that and it's in the transcript that will be 16 fine. Do you want to just tell us what it is, then we 17 will find it as we review the transcript? 18 MR. KLIPPENSTEIN: I'm not sure if I have that 19 number at my disposal instantly. Maybe we can go-- 20 MS PLATIS: I believe it's Exhibit D1, Tab 5. 21 MEMBER JACKSON: From E.B.R.O. 499? 22 MR. KLIPPENSTEIN: From E.B.R.O. 499, that's 23 correct. 24 MEMBER JACKSON: That is fine. Thank you for 25 that. 26 MR. KLIPPENSTEIN: Obviously Pollution Probe 27 is concerned about the process by which the DSM plan is 28 reported on and monitored over the course of five years. Les Services StenoTran Services Inc. 613-521-0703 1927 FOGWILL/PLATIS, cr-ex (Klippenstein) 1 As I understand your evidence, or Union's evidence, 2 Union is proposing to have the DSM performance reviewed 3 and monitored in a certain way on an annual basis. Is 4 that fair? 5 MS PLATIS: That is correct. 6 MR. KLIPPENSTEIN: I think you actually spoke 7 a little bit this morning about the details of that. I 8 understand that the plan, correct me if I'm wrong, is to 9 have -- is somebody within the company prepare the 10 Annual Evaluation Report? 11 MS PLATIS: The company prepares an annual 12 evaluation report, as we have since 1997. That report 13 is distributed in draft form to the members of the 14 consultative for reviews. A terms of reference is 15 prepared for a third-party auditor. Terms of reference 16 are then shared with the consultative group. 17 Recommendations are made on modifications to 18 the terms of reference. We then send an amended terms 19 of reference out for RFP. A consultant is chosen. That 20 consultant audits our evaluation report and provides a 21 series of assessments on whether we have in fact 22 represented our input assumptions correctly, whether we 23 have tracked and reported what is in our systems, 24 whether we have correctly identified the research that 25 we have conducted and whether, in fact, it is a fair 26 assessment of what was developed and conducted in Union 27 Gas in whatever year it is. 28 That is the process that has been replaced Les Services StenoTran Services Inc. 613-521-0703 1928 FOGWILL/PLATIS, cr-ex (Klippenstein) 1 since 1997. The audit was added in 1998, and the 1999 2 audit was nullified, based on some recommendations in 3 consultative group. That process will continue. 4 MR. KLIPPENSTEIN: Right. Thank you. That's 5 very helpful. 6 The customer review process that's foreseen in 7 the PBR plan, would that also be a forum in which the 8 DSM -- that a party could take the reports to for 9 discussion with Union? 10 MR. FOGWILL: Yes, that's correct. 11 MR. KLIPPENSTEIN: Now, suppose that the Board 12 saw fit in this particular proceeding to approve the 13 targets only for the years 2000 and 2001, using that 14 assumption, do you think it would be possible or 15 reasonable for Union to use the customer review process 16 to attempt to build a consensus on DMS plans and targets 17 for subsequent years? 18 MR. FOGWILL: It's possible, yes. 19 MR. KLIPPENSTEIN: If you could, then, turn 20 with me to the documents I provided this morning -- and 21 I will ask that the two of them be made one exhibit, and 22 that is a document entitled, "Notes for Remarks by the 23 Hon. Dan Newman, Minister of the Environment", dated 24 June 21, 2000; and a document entitled -- it's a news 25 release entitled, "Newman Announces Executive Committee 26 to Lead the Province's Smog Reduction Efforts", and 27 that's also dated June 21, 2000. I wonder if I could 28 have an exhibit number for that. Les Services StenoTran Services Inc. 613-521-0703 1929 FOGWILL/PLATIS, cr-ex (Klippenstein) 1 DR. WIGHTMAN: F11.4. 2 EXHIBIT NO. F11.4: Document entitled, 3 "Notes for Remarks by the Hon. Dan 4 Newman, Minister of the Environment", 5 dated June 21, 2000; and news release 6 entitled, "Newman Announces Executive 7 Committee to Lead the Province's Smog 8 Reduction Efforts", dated June 21, 2000 9 MR. KLIPPENSTEIN: Now, this presentation by 10 the Minister of the Environment and the press release 11 speak about a new anti-smog action plan, referred to as 12 "ASAP". Is that fair? 13 MR. FOGWILL: That's my understanding of 14 reading these two documents. 15 MR. KLIPPENSTEIN: Now, among other things, 16 this anti-smog action plan deals with nitrogen oxides, 17 which are one of the emissions or -- yes, emissions 18 resulting from the burnings of natural gas. Is that 19 fair? 20 MR. FOGWILL: That's correct. 21 MR. KLIPPENSTEIN: And these documents also 22 speak about an original goal. Let me ask you to turn to 23 page 3 of the presentation by the Minister of the 24 Environment. On the third full paragraph, the minister 25 stated: 26 "ASAP's original goal was to reduce 27 oxides of nitrogen and volatile organic 28 compound emissions in Ontario by 45 per Les Services StenoTran Services Inc. 613-521-0703 1930 FOGWILL/PLATIS, cr-ex (Klippenstein) 1 cent of 1990 levels by the year 2015. 2 But as many of you know, Ontario agreed 3 to move up the target date for achieving 4 these reductions, subject to the 5 successful negotiation of similar 6 reductions from the United States." 7 End of quote. 8 Would you agree with me that the minister's 9 announced plans and, indeed, acceleration of those plans 10 for reduction of nitrogen oxides, may be relevant to 11 Union's DSM plans, in the sense that DSM can help reduce 12 nitrous oxide -- nitrogen oxide emissions. Is that 13 fair? 14 MR. FOGWILL: Demand side management 15 activities will reduce or allow for the improvement in 16 efficiency of energies and technologies which will 17 reduce the amount of gas consumed. 18 MR. KLIPPENSTEIN: Would you agree that the 19 levels -- well, I guess I don't -- before I say that, 20 the second last paragraph on the page begins with the 21 minister's comment that, "ASAP is an aggressive plan" -- 22 and I see the word "aggressive" used several times 23 throughout this and in the first two paragraphs on 24 page 2. 25 Would you agree with me that the nitrogen 26 oxide and smog emission goals that the government is 27 speaking about here and committing itself to are 28 "aggressive" and may be difficult to reach? Les Services StenoTran Services Inc. 613-521-0703 1931 FOGWILL/PLATIS, cr-ex (Klippenstein) 1 MR. PENNY: Well, Mr. Chairman, in fairness, I 2 think Mr. Klippenstein's prior question to the witnesses 3 about this document was fair insofar as it asks whether 4 there was any relevance to Union's DSM plan. But this 5 question, it goes to the substance of this article and 6 asks these witnesses to comment on that. They have only 7 just seen the document this morning for the first time. 8 I don't know of what assistance it could be to the Board 9 to have Mr. Fogwill's or Ms Platis' view on whether they 10 think that something the minister has done that they 11 read about for the first time this morning is 12 "aggressive" or not. 13 MR. KLIPPENSTEIN: Well, let me -- 14 THE PRESIDING MEMBER: I agree with you. 15 MR. KLIPPENSTEIN: Sorry. 16 THE PRESIDING MEMBER: Sorry. You were going 17 to say something? 18 MR. KLIPPENSTEIN: Mr. Chairman, I was going 19 to withdraw the question, anyway, thank you, 20 Mr. Chairman, on reflection. 21 Assuming, though, that the province has 22 identified these goals as "aggressive", using their own 23 words, would you agree with me that promoting fuel 24 switching to gas and using gas as efficiently as 25 possible -- cost effectively, of course -- could help, 26 assuming an aggressive and difficult target? 27 MR. FOGWILL: Demand side management 28 activities improve the energy efficiency of Les Services StenoTran Services Inc. 613-521-0703 1932 FOGWILL/PLATIS, cr-ex (Klippenstein) 1 technologies, and, as a result, will decrease the 2 requirement for gas or a particular service and reduce 3 the emissions generated by that service. 4 MR. KLIPPENSTEIN: I would like to ask another 5 question related to the potential role of Union Gas, 6 and, indeed, of the Energy Board, in the plans and the 7 targets mentioned by the minister. 8 If you could turn to page 3, and the second 9 full paragraph, the minister says: 10 "ASAP features a mix of regulations, 11 policy and voluntary actions to ensure we 12 have effective ways of reducing smog 13 related emissions. Under the plan, 14 Ontario is committed to making 15 significant progress in the fight against 16 smog." 17 End of quote. 18 The minister has referred to a mix of 19 regulations and policy and voluntary actions. I notice 20 that Mr. Bob Reid, the president of Union Gas, is listed 21 as a member in the executive committee set up by the 22 minister, and this is contained in the second document, 23 the press release. I guess Mr. Reid is a CEO. I don't 24 know if he is president. 25 So can you take it, either from your personal 26 knowledge, or subject to check, that Mr. Reid is a 27 member of the ASAP executive committee? 28 MR. FOGWILL: I will have to check on that. Les Services StenoTran Services Inc. 613-521-0703 1933 FOGWILL/PLATIS, cr-ex (Klippenstein) 1 This is the first time I have seen this mentioned. 2 MR. KLIPPENSTEIN: Would you agree with me 3 that, given the minister's statement, that the mix of 4 regulations and policies and the role of Union Gas that 5 it is appropriate for not only Union Gas, but the Board, 6 this Board, as an agency of regulation and policy, to 7 pay attention to the smog reduction plans when it 8 reviews the Union's DSM plan. 9 MR. PENNY: Surely, Mr. Chairman, that is a 10 matter of argument, nor a matter of evidence. 11 THE PRESIDING MEMBER: I think you are right 12 there, Mr. Penny. 13 I think you can ask questions if the witness 14 is aware of what steps Union may be taking, in light of 15 the fact that its CEO is a member of this committee and 16 the witness may or may not know, that that sort of 17 question, I think, is appropriate. 18 MR. KLIPPENSTEIN: Thank you, Mr. Chairman. 19 Finally, with respect to these documents, if 20 you could turn to page 4 of the Minister's statement, 21 and the paragraph in the middle that begins with: 22 "I am confident ..." 23 I will just read that and the next paragraph 24 to you: 25 "I am confident that today's summit will 26 make a valuable contribution to the 27 environmental progress we all want. Smog 28 is one of our most significant Les Services StenoTran Services Inc. 613-521-0703 1934 FOGWILL/PLATIS, cr-ex (Klippenstein) 1 environmental health problems. And as 2 I've said, we need strong leadership and 3 many partners to reduce both its causes 4 and effects. 5 In the past, Ontario has devoted 6 considerable resources to becoming a 7 provincial and Canadian leader in 8 environmental protection, and in the 9 battle to improve air quality. We've 10 also sought out and found a broad range 11 of strong and resourceful partners to 12 help us achieve our goals." 13 And reading the next paragraph: 14 "In the future, we plan to continue our 15 balanced approach to environmental 16 protection, while seeking to broaden the 17 dialogue on air quality, and encouraging 18 our many partners and allies to take 19 effective action." 20 I would just draw your attention to the 21 Minister's stated goal of strong leadership, and of 22 encouraging both the provinces' partners to take 23 effective action. I would just suggest to you that 24 given this indication very recently from the Minister, 25 it would appropriate for Union to revisit its DSM plan 26 and to attempt to put in place aggressive targets and a 27 bonus and incentive structure that really more fully 28 motivates Union Gas. And I would just suggest that to Les Services StenoTran Services Inc. 613-521-0703 1935 FOGWILL/PLATIS, cr-ex (Klippenstein) 1 you in light of this recent news. 2 MR. PENNY: Mr. Chairman, I'm happy to have 3 Mr. Fogwill respond to that. But again it seems to me 4 that this is really entirely in the realm of argument. 5 MR. KLIPPENSTEIN: Mr. Chair, I'm just 6 suggesting that this is a relevant part of the mix in 7 that it's no surprise that Pollution Probe thinks the 8 plan isn't aggressive enough. But I'm giving the panel 9 an opportunity to respond to this. And that is my final 10 question. 11 THE PRESIDING MEMBER: It sounds as though the 12 question I had suggested you might ask and maybe the way 13 in which the witness may wish to respond, in other 14 words, what actions in light of this change or position 15 is Union contemplating or may contemplate, I think is 16 what I think you are getting at, too. 17 MR. KLIPPENSTEIN: That's not only a much 18 better question, but it's much shorter. Thank you, 19 Mr. Chairman. I will adopt it. 20 MR. FOGWILL: Mr. Chairman, Union has always 21 considered these targets to be aggressive. We have been 22 working on these activities for many years and it's 23 interesting to note that there are other organizations 24 in Ontario that are finally coming to realize that there 25 are ways of dealing with these issues. 26 We have even indicated in our Exhibit B, Tab 27 2, on page 61, line 21, that the targets are aggressive. 28 So in light of that, we don't anticipate any changes to Les Services StenoTran Services Inc. 613-521-0703 1936 FOGWILL/PLATIS, cr-ex (Klippenstein) 1 our current activities or proposal. 2 MR. KLIPPENSTEIN: Thank you, members of the 3 panel. And thank you, Mr. Chairman. Those are all my 4 questions. 5 THE PRESIDING MEMBER: Thank you, 6 Mr. Klippenstein. 7 Is Ms Symes next? 8 CROSS-EXAMINATION 9 MS SYMES: Yes, Mr. Chair. 10 --- Pause 11 MS SYMES: Mr. Chair, Dr. Jackson, I have 12 prepared some materials and provided them to Mr. Penny 13 on Monday to hopefully assist with respect to my cross- 14 examination of this panel. I have handed up to you the 15 decision in the E.B.R.O. 497-01, the ADR portion. I 16 don't believe that it's necessary to mark it as an 17 exhibit because it's part of the public record, but it's 18 a more user-friendly way of receiving it. 19 The second document that I have handed up is 20 additional information from this 1999 draft evaluation 21 report that was, I believe, prepared by Union Gas in 22 March of 2000. And I'm wondering if that could be the 23 next exhibit? 24 DR. WIGHTMAN: F11.5. 25 THE PRESIDING MEMBER: Why don't we mark all 26 three of them as one exhibit unless you need to -- 27 MS SYMES: That's perfectly agreeable. 28 Then the second part of 11.5 are certain Les Services StenoTran Services Inc. 613-521-0703 1937 FOGWILL/PLATIS, cr-ex (Symes) 1 references to DSM energy savings and calculations of 2 SSM. 3 THE PRESIDING MEMBER: The three-part exhibit, 4 Exhibit No. F11.5. 5 EXHIBIT NO. F11.5: E.B.R.O. 497-01, the 6 ADR portion and 1999 draft evaluation 7 report that was prepared by Union Gas in 8 March of 2000 and DSM energy savings and 9 calculations of SSM 10 MR. PENNY: And just so I'm clear, 11 Mr. Chairman, I think I followed that, that is, can I 12 ask through you for a confirmation that everything that 13 was given to us in Ms Symes' package is the same as the 14 three that she just described. 15 MS SYMES: Yes. 16 MR. PENNY: All right, thank you. 17 MS SYMES: Although, I think it's agreed that 18 the decisions or the ADR portion in the Enbridge need 19 not be an exhibit. 20 MEMBER JACKSON: I think that might be agreed, 21 but nonetheless it has been adopted as part of the 22 exhibit so that we know where to file it. 23 MS SYMES: That's fine. 24 Members of the panel, in 1999, when you 25 prepared Exhibit D1, Tab 5, the 1999 DSM plan, you told 26 the Board, or it was on the basis that you would achieve 27 those results without an SSM. Is that correct? 28 MR. FOGWILL: The plan that was accepted by Les Services StenoTran Services Inc. 613-521-0703 1938 FOGWILL/PLATIS, cr-ex (Symes) 1 the Board in E.B.R.O. 499 was -- identifies a set of 2 targets that we pursued in 1999. 3 MS SYMES: But that's not my question. My 4 question, Mr. Fogwill, is you set out in this 1999 DSM 5 plan, four tested volumes that you said you would 6 achieve. 7 MR. FOGWILL: That we said that we were going 8 to work towards achieving, yes. 9 MS SYMES: And you set them out saying that 10 you were going to try and achieve them without an SSM. 11 MR. FOGWILL: That's correct. 12 MS SYMES: And now you are saying -- I am 13 going to come to in fact what you have achieved -- but 14 now what you are saying is now that we are moving into 15 PBR regulations, we need an SSM as an SQI, a service 16 quality indicator. Is that correct? 17 MR. FOGWILL: I think you are confusing the 18 two terms there. Service quality indicator is -- would 19 be in this case the identification of demand side 20 management as an activity. Shared savings mechanism is 21 a performance-based mechanism to encourage additional 22 levels of energy savings. 23 MS SYMES: So perhaps you might turn up your 24 prefiled evidence with respect to service quality 25 indicators, it begins on page 56 of Exhibit B, Tab 2, 26 Section 2.5.3, service quality indicators. 27 MR. FOGWILL: In that area -- 28 MS SYMES: Are you there on that page? Les Services StenoTran Services Inc. 613-521-0703 1939 FOGWILL/PLATIS, cr-ex (Symes) 1 Page 56. 2 MR. FOGWILL: Yes. 3 MS SYMES: And would you agree with me that 4 DSM is part of the service quality indicators? 5 MR. FOGWILL: Yes. 6 MS SYMES: And in particular, the SSM is a 7 reward penalty SQI. 8 MR. FOGWILL: It's not how I would 9 characterize the relationship between the SQI and the 10 SSM. The SQI, the service quality indicator is the 11 demand side management activity. A shared savings 12 mechanism is a penalty reward system for the service 13 quality. 14 MS SYMES: Perhaps we are talking about the 15 same thing but using different words. Could you turn 16 please to page 58 of your prefiled evidence, Table 7? 17 MR. FOGWILL: Okay. 18 MS SYMES: And would you agree with me that in 19 the PBR proposal Union is proposing five service quality 20 indicators? 21 MR. FOGWILL: Yes. 22 MS SYMES: And DSM is one of them. 23 MR. FOGWILL: Yes. 24 MS SYMES: And with respect to the five 25 service quality indicators, there are minimum standards 26 proposed. 27 MR. FOGWILL: Correct. 28 MS SYMES: For example, telephone response Les Services StenoTran Services Inc. 613-521-0703 1940 FOGWILL/PLATIS, cr-ex (Symes) 1 time is measured as the percentage of calls responded to 2 within 20 seconds, yes? 3 MR. FOGWILL: The minimum standard is 65 4 per cent in 20 seconds. 5 MS SYMES: Right. 6 And the DSM standard is 75 per cent of the 7 target volume savings over the life of the five year DSM 8 plan? 9 MR. FOGWILL: Correct. 10 MS SYMES: And whereas the four other SQIs are 11 to be taken to the customer service review process, DSM 12 is the only one that is actually quantified with rewards 13 and penalties. 14 MR. FOGWILL: That's my understanding of the 15 proposal. 16 MS SYMES: And so for example if Union under 17 PBR fails to respond to telephone inquiries in 65 18 per cent within 20 seconds, that failure to meet the 19 standard will go to customer response -- the customer 20 response process and Union will be given an opportunity 21 to explain why there was not -- why they were unable to 22 meet the minimum standard. 23 MR. FOGWILL: I am only familiar with the 24 process for the demand side management piece so I'm not 25 exactly sure of what the process will be for the other 26 service quality indicators. 27 MS SYMES: Well, will you take it subject to 28 check then that the other service quality indicators if Les Services StenoTran Services Inc. 613-521-0703 1941 FOGWILL/PLATIS, cr-ex (Symes) 1 Union fails to meet the minimum standards set out in 2 Table 7 will then go to a process of customer service 3 review -- customer review process? 4 MR. PENNY: Well, Mr. Chairman, Ms Symes knows 5 what the evidence is. She cross-examined the other 6 panel about this. I don't know what is to be gained by 7 asking Mr. Fogwill to comment on things that we have 8 already heard evidence on from the other panels, 9 particularly when he says his specialty is the DSM. 10 MS SYMES: Mr. Chair, I am trying to compare 11 and contrast the SQI, with respect to DSM, with the SQI 12 of the other four pipeline system integrity, telephone 13 response, emergency response and gas utilization. 14 THE PRESIDING MEMBER: Is that why you wanted 15 his answer, yes, the process is different and this is 16 the process, and I think it's in the evidence. So I 17 think they know that difference in the process. But I 18 don't think they can go into the details of the 19 justification of that process to the other quality 20 indicators. All you can do is establish there is a 21 different process. That's what you are trying to do, is 22 it? 23 MS SYMES: Yes. 24 THE PRESIDING MEMBER: So I think it is done 25 then. 26 MS SYMES: Mr. Fogwill then-- 27 MR. PENNY: Well, that was my point, 28 Mr. Chairman, I thought that was done, I think that is-- Les Services StenoTran Services Inc. 613-521-0703 1942 FOGWILL/PLATIS, cr-ex (Symes) 1 THE PRESIDING MEMBER: No, it's being done 2 now. 3 MS SYMES: It has been done now. 4 THE PRESIDING MEMBER: She just wanted to 5 establish it now so that when they come to respond to 6 the questions she's got a base on which this panel knows 7 where she is coming from. So I think it's fine. 8 MS SYMES: So, Mr. Fogwill and Ms Platis, 9 given what you achieved in 1999 with respect to DSM gas 10 volume saved; and given that you have established what 11 your minimum standard for the SQI of DSM, why couldn't 12 you simply go to the same process -- the customer review 13 process -- and explain to them why you haven't achieved 14 the minimum standard that you set for DSM? 15 MR. FOGWILL: The company has got a history of 16 consulting interested parties over the last five years 17 and it's an informed group that can provide comment and 18 suggestions that can benefit the overall process. All 19 we are indicating here is that the evaluation and audit 20 components would be precursors to the customer review 21 process. So it's an enhancement of the customer review 22 process that we are identifying. 23 MS SYMES: That's not the question though. I 24 am not in any way trying to diminish the input that you 25 have in reviewing what you have achieved or not achieved 26 in the DSM plan from 2000 to 2004. But what I'm asking 27 you is if pipeline system integrity can be dealt with in 28 terms of the customer review process, why can't DSM be Les Services StenoTran Services Inc. 613-521-0703 1943 FOGWILL/PLATIS, cr-ex (Symes) 1 dealt with in exactly the same process? 2 MR. FOGWILL: It is dealt with in the process, 3 in the customer review process. All I indicated was 4 that there was an additional component to that. 5 MS SYMES: But Mr. Fogwill, in terms of the 6 first four SQIs, you have agreed with me that there is 7 no built-in penalty if Union fails to achieve the 8 minimum standard with respect to pipeline system 9 integrity. Do you agree? 10 MR. FOGWILL: Yes. 11 MS SYMES: And what is anticipated then is 12 that if during the PBR process Union fails to meet the 13 SQI, that that will be taken to the customer review 14 process, discussed, and if a party is not -- or if party 15 or parties are not satisfied with the explanation that 16 that matter can be brought back before the Board to be 17 dealt with? 18 MR. FOGWILL: Yes, that is my understanding of 19 the process. 20 MS SYMES: Now, let's just look at DSM. You 21 have identified and Ms Platis has identified that Union 22 has prepared a DSM plan in 1999 that set out what it 23 expected from 1999 to 2002. Is that correct? 24 MR. FOGWILL: No, it was 1999 to 2003. 25 MS SYMES: I am sorry, 2003. 26 MR. FOGWILL: It is a five-year plan. 27 MS SYMES: Okay. And in that then, there were 28 targets with respect to forecasted volumes? Les Services StenoTran Services Inc. 613-521-0703 1944 FOGWILL/PLATIS, cr-ex (Symes) 1 MR. FOGWILL: Correct. 2 MS SYMES: Forecasted expenditures? 3 MR. FOGWILL: Correct. 4 MS SYMES: And forecasted benefits? 5 MR. FOGWILL: Correct. 6 MS SYMES: All right. And you would agree 7 with me that there would be no reason why if Union did 8 not achieve the minimum standard for the last SQI/DSM 9 that it could be taken to the customer review process in 10 exactly the same way as pipeline system integrity? 11 MEMBER JACKSON: You mean there is no reason 12 why it could not be taken. 13 MS SYMES: I'm sorry. I had forgotten the 14 negative. I apologize, Dr. Jackson. 15 MEMBER JACKSON: And I think he has told you 16 that it is going to be taken. Hasn't he told you that? 17 MS SYMES: No. 18 MEMBER JACKSON: I'm sorry. I thought I had 19 heard that. Just help me, Mr. Fogwill. Let's deal with 20 that direct question. Will it be taken to the customer 21 review process? 22 MR. FOGWILL: Yes, it will be taken to the 23 customer review process. 24 MEMBER JACKSON: Okay. 25 MS SYMES: Mr. Fogwill, the DSM whether Union 26 meets the minimum standard will be dealt with by a 27 quantification in terms of under performance or over 28 performance? Les Services StenoTran Services Inc. 613-521-0703 1945 FOGWILL/PLATIS, cr-ex (Symes) 1 MR. FOGWILL: The evaluation report will 2 provide the quantification of the performance for a 3 given year. 4 MS SYMES: Right. So therefore, DSM is the 5 only SQI that the under performance or over performance 6 will result in either a bonus or a penalty as compared 7 to the other four SQIs? 8 MR. FOGWILL: That is correct. 9 MS SYMES: All right. So let me try and 10 rework it because I haven't been precise enough, 11 Dr. Jackson. 12 Take away the reward penalty portion of DSM as 13 you are proposing in your PBR, take that away, would you 14 agree with me that there would be no reason then that 15 the underachievement of Union with respect to the 16 minimum standard in DSM could not be taken to the 17 customer review process just like pipeline system 18 integrity? 19 MR. FOGWILL: No, I can't agree with that 20 because the company has developed a consultative process 21 over a number of years and that is how it informs 22 stakeholders that do provide a sounding board for the 23 company in terms of its evaluation activity. So what I 24 have indicated before is that the process for the review 25 of the demand side management activities includes 26 production of the evaluation report, review and comment 27 of the evaluation report by the consultative group and 28 an independent auditor and the completed evaluation Les Services StenoTran Services Inc. 613-521-0703 1946 FOGWILL/PLATIS, cr-ex (Symes) 1 report along with the audit report would then be 2 submitted to the customer review process. 3 MS SYMES: But, Mr. Fogwill, whether or not 4 that is done as a subgroup of the customer review 5 process or done as part of the customer review process 6 in whole, you would agree with me that it could be done 7 at that point to determine whether or not Union had 8 achieved the minimum standard and if not, why not? 9 MR. FOGWILL: Yes, that is correct. 10 MS SYMES: And looking at the four -- the five 11 SQIs, I presume you would agree with me that pipeline 12 system integrity is certainly a vital service quality 13 indicator, that is a bit of an oxymoron, but it is vital 14 with respect to the operation of Union? 15 MR. FOGWILL: The integrity of our pipeline 16 system? 17 MS SYMES: Yes. 18 MR. FOGWILL: Yes, that is important to Union 19 Gas. 20 MS SYMES: And it certainly is as important as 21 achieving under DSM? 22 MR. FOGWILL: The weight given to the 23 different service quality indicators are based on a 24 number of factors, not all of which that I am privy to 25 so I can't make that comparison. 26 MS SYMES: But would you agree with me that 27 how quickly Union responds to an emergency is also vital 28 -- a vital measurement as we go into a five-year PBR Les Services StenoTran Services Inc. 613-521-0703 1947 FOGWILL/PLATIS, cr-ex (Symes) 1 period? 2 MR. FOGWILL: Yes, it is an important factor 3 for Union Gas. 4 MS SYMES: As important as DSM? 5 MR. FOGWILL: Again it goes to the point I 6 made before that I am not privy to all the issues and 7 concerns of the executive of Union Gas, so I cannot make 8 that comparison in terms of which is more important and 9 which is less important in terms of achieving certain 10 levels of service quality. 11 MS SYMES: And in terms of number 2 and 4, 12 that is when something goes wrong either with a line or 13 with an appliance, would you agree with me that Union's 14 response with respect to those is an important service 15 quality indicator as we go forward? 16 MR. FOGWILL: Yes, they are important to Union 17 Gas. 18 MS SYMES: But notwithstanding that, one of 19 those four SQIs have a reward or penalty built into 20 them? 21 MR. FOGWILL: That is correct. 22 MS SYMES: And you say that in order for Union 23 to achieve 75 per cent of the target volume savings, it 24 must have an SSM? 25 MR. FOGWILL: No, what we are indicating in 26 this proposal is that a shared savings mechanism is an 27 incentive tool to encourage the company to achieve 28 higher levels of energy savings. Les Services StenoTran Services Inc. 613-521-0703 1948 FOGWILL/PLATIS, cr-ex (Symes) 1 MS SYMES: Now, let's just look at then the 2 five-year plan. You have said in your evidence and your 3 evidence is quite brief. It is that you believe that 4 the DSM programs that Union has been developing are now 5 mature? 6 MR. FOGWILL: Yes. 7 MS SYMES: I gather that you say that you 8 think that you have reached a plateau in terms of 9 incremental gas savings that you can achieve under these 10 DSM programs? 11 MR. FOGWILL: The way we have got the programs 12 designed right now are broken out into the three major 13 markets: the residential and commercial and industrial. 14 We have got elements within each of those markets to 15 address particular concerns. And at this point we think 16 that we have got all the elements in place and certain 17 levels of activities assigned to those elements that are 18 going to be sustainable in the long term. So that is 19 why we have got the -- I have identified that it is a 20 mature -- a mature set of programs. 21 MS SYMES: And you are saying then to this 22 Board that it is unlikely that you are going to be able 23 to achieve similar savings in 2000 to 2004 that you 24 achieved in 1995 to 1999? 25 MR. FOGWILL: I believe what I indicated was 26 that the growth in savings between 1995 and 1999 was 27 through a period of change and evolution of the program 28 designs and development of the marketing tools Les Services StenoTran Services Inc. 613-521-0703 1949 FOGWILL/PLATIS, cr-ex (Symes) 1 associated with that. And what I have indicated is that 2 we are at a stage now where they are mature enough that 3 that growth rate will not be duplicated in the future. 4 MS SYMES: No, but I'm actually asking a 5 tougher question. Mr. Fogwill, you actually told the 6 Board, to Mr. Klippenstein's cross-examination, that you 7 don't expect to achieve the same gas savings in 2000 to 8 2004 as you achieved in 1995 to 1999. 9 MR. FOGWILL: No. What the point of our 10 evidence is is that the growth between 1995 and 1999 11 won't be repeated into the future. In terms of the 12 savings levels, the savings levels are different, and 13 are in fact higher going forward 2000 and 2004. 14 MS SYMES: Let's just look at the actual 15 numbers -- and perhaps you could look at Exhibit F11.5, 16 and that is the DSM energy savings. Well, it's derived 17 from Pollution Probe Exhibit C31.1, which was on 18 Mr. Klippenstein's page 10 of Exhibit F11.3 -- and in 19 particular using pages 9, 10 and on of the page that is 20 hard to read. 21 MR. FOGWILL: Are you referring -- 22 MR. PENNY: Sorry, page of what, Ms Symes? 23 MS SYMES: I'm sorry -- of Mr. Klippenstein's 24 11.3. And I'm trying to cross-reference so people don't 25 have to actually turn up the interrogatories, okay? So 26 I'm just trying to save people's time. 27 MR. PENNY: So you want them to have pages 9, 28 10 and some other page of Mr. Klippenstein's stuff? Les Services StenoTran Services Inc. 613-521-0703 1950 FOGWILL/PLATIS, cr-ex (Symes) 1 MS SYMES: Yes, 7. 2 MR. PENNY: That's 7, 9 and 10. 3 MS SYMES: Yes, 7, 9 and 10. 4 Now, in terms then of the actual energy 5 savings achieved, would you agree with me that as the 6 programs matured, Union became more accurate, in terms 7 of forecasting the actual gas savings from DSM? 8 MR. FOGWILL: Yes, I would agree with that. 9 MS SYMES: And that if we look at page 10 of 10 Mr. Klippenstein's Exhibit F11.3, that the gas savings 11 for 1999, then, are 37.33 -- we should take out the "not 12 available" and put "37.33"? 13 MR. FOGWILL: Yes, that's correct. 14 MS SYMES: Right. 15 MR. FOGWILL: Right. It's actually on page 9 16 for people's reference. 17 MS SYMES: Yes, that comes from page 9. And 18 so therefore in terms of your accuracy, your gas savings 19 for 1999, you were at 99 per cent of you forecast. 20 MR. FOGWILL: That's correct. 21 MS SYMES: And in 1998, you were ahead of what 22 you forecast, as you were in the two previous years? 23 MR. FOGWILL: That's correct. 24 MS SYMES: All right. 25 And so if we look, then, at Exhibit F11.5, DSM 26 energy savings, we now have the actuals for 1995 to 27 1999, and those are the number 0.66, 8.55, 16.31, 27.50 28 and 37.33, 10(6)m(3). Those are correct? Les Services StenoTran Services Inc. 613-521-0703 1951 FOGWILL/PLATIS, cr-ex (Symes) 1 MR. FOGWILL: Yes. 2 MS SYMES: Okay. 3 And in terms, then, of the next column, if you 4 remove "percentage", those then represent the increase 5 over the prior year. In other words, for 1999, it's 136 6 per cent of the 1998 volumes? 7 MR. FOGWILL: Yes, it's 36 -- 8 MS SYMES: For a 36 per cent increase. 9 MR. FOGWILL: -- per cent higher. 10 MS SYMES: Right. 11 MR. FOGWILL: Yes. 12 MS SYMES: That's why I took out the 13 percentage. Okay. 14 And so, therefore, you know, in terms of your 15 achievements, taking off the percentage, between 1999 16 and 1996, of course, it was a huge jump, a 295 per cent 17 increase, then a 91 per cent increase, a 69 per cent 18 increase and a 36 per cent increase. Is that correct? 19 MR. FOGWILL: That's correct. 20 MS SYMES: Okay. 21 Now, going forward, then, you said for the 22 year 2000 that you expect to achieve 38.287 10(6)m(3). 23 That is your forecast. 24 MR. FOGWILL: That's correct. 25 MS SYMES: And that comes off page 8 of 26 Mr. Klippenstein's Exhibit 11.3? 27 MR. PENNY: I think it's page 7. 28 MS SYMES: Page, 7, I'm sorry. Page 7. Les Services StenoTran Services Inc. 613-521-0703 1952 FOGWILL/PLATIS, cr-ex (Symes) 1 And the other number, then, in that column, 2 39.015, 39.756, 40.511 and 41.281 are simply taken as 3 the total savings that you are forecasting in the five- 4 year plan? 5 MR. FOGWILL: That's correct. 6 MS SYMES: All right. 7 And calculating those then that is in 2000 a 8 1.03 per cent increase over 1999? 9 MR. FOGWILL: The increase from 1999 to 2000? 10 MS SYMES: Yes. 11 MR. FOGWILL: That's correct. 12 MS SYMES: And the remaining increases are 13 only .02 per cent increases -- pardon me, 2 per cent 14 increases? 15 MR. FOGWILL: That's correct. 16 MS SYMES: And I think you told Mr. 17 Klippenstein that the reason that you set them at 2 per 18 cent was it was somehow the rate of inflation? 19 MR. FOGWILL: Yes. 20 MS SYMES: And is there any other reason, 21 other than rate of inflation? 22 MR. FOGWILL: Well, as I identified before, 23 the programs are mature and we don't think there's going 24 to be a significant change in the relative performance 25 one year to the next because we're not anticipating any 26 significant program design changes. So as a result, we 27 are taking an inflation factor, which is sort of a proxy 28 for the market dynamics and the growth in the Les Services StenoTran Services Inc. 613-521-0703 1953 FOGWILL/PLATIS, cr-ex (Symes) 1 marketplace. 2 MS SYMES: But Mr. Fogwill, you told 3 Mr. Klippenstein -- and I think you told Mr. Penny -- 4 that those numbers in the first column are in fact 5 stretch numbers? 6 MR. FOGWILL: That's correct. 7 MS SYMES: And you said that a realistic or an 8 accurate forecast was 75 per cent of those numbers. 9 MR. FOGWILL: I indicated that the expectation 10 is that Union Gas would achieve 75 per cent of the 11 targets over five years. 12 MS SYMES: Okay. Let me try it again. Using 13 my words, you are telling the Board then that an 14 accurate forecast of what Union will achieve in the next 15 five years is 75 per cent of those numbers? 16 MR. FOGWILL: Yes. 17 MS SYMES: And you are telling us -- and we 18 know that you have become -- Union has become better at 19 forecasting as it gets more experience with DSM? 20 MR. FOGWILL: That's correct. 21 MS SYMES: Let's just look at those numbers -- 22 and perhaps you could write them into this exhibit. For 23 the year 2000 then, you are actually expecting your real 24 forecast is 28.715. Is that correct? 25 MR. FOGWILL: No that's not correct because we 26 will still try to achieve the 100 per cent level. 27 MS SYMES: I understand, but your most 28 accurate forecast is 75 per cent of 38.287 which is Les Services StenoTran Services Inc. 613-521-0703 1954 FOGWILL/PLATIS, cr-ex (Symes) 1 28.715 2 MR. FOGWILL: That's correct. 3 MS SYMES: For 2001 your most accurate 4 forecast is 29.261 10(6)m(3). 5 MR. FOGWILL: Again, I have to indicate that 6 what we are trying to do is to target the 100 per cent 7 level. That's the stretch. But, given that the company 8 is expecting a 75 per cent performance your number is 9 correct. 10 MS SYMES: And for 2002 the most accurate 11 forecast then is 29.817. 12 MR. FOGWILL: Again, my previous statement is 13 that we would try to achieve the 100 per cent level, but 14 the 75 per cent, which is the expected level, I will 15 assume your math is correct. 16 MS SYMES: Ms Platis, am I right? 17 MS PLATIS: Yes, that was the correction 18 calculations. 19 MS SYMES: Let's just do the last two, 30.383 20 10(6)m(3) for 2003? Is that correct? 21 MS PLATIS: Yes that is the 75 per cent level. 22 MS SYMES: And for the last year 2004 it's 23 30.960 10(6)m(3)? 24 MS PLATIS: If you are going to get technical 25 in your rounding it's 30.961. 26 MS SYMES: Let's give you the point 001. 27 Let's look then at real numbers. What you are telling 28 the Board then that in 1999 you actually achieved a Les Services StenoTran Services Inc. 613-521-0703 1955 FOGWILL/PLATIS, cr-ex (Symes) 1 savings of 37.33 10(6)m(3). Is that correct? 2 MR. FOGWILL: That's correct. 3 MS SYMES: And what you are saying is that a 4 realistic forecast for the year 2000 is a 23 per cent 5 decrease in the gas savings achieved in 1999. 6 MR. FOGWILL: What I am saying is that over 7 the five year period we are expecting to achieve the 8 75 per cent level. In each given year that may vary 9 significantly. 10 MS SYMES: Okay. But, Mr. Fogwill, you are 11 telling the Board that in this year, the year 2000, you 12 are expecting that your gas savings will decrease by 13 23 per cent compared to actuals in 1999. 14 MR. FOGWILL: As I indicated before, one of 15 the reasons why we were able achieve such a high level 16 in 1999 was the application of additional resources 17 that's not sustainable into the future. 18 MS SYMES: Am I right that you are expecting 19 to achieve 23 per cent less in 2000 than you got in 20 1999? 21 MR. PENNY: Mr. Chairman, I think the question 22 has been asked a couple of times, and answered a couple 23 of times. What Mr. Fogwill has said is that it's 24 projected over the five-year period. I don't know if he 25 can do any better than that. 26 MS SYMES: That, with respect, is not 27 responsive to my question. 28 MEMBER JACKSON: But he has told you that the Les Services StenoTran Services Inc. 613-521-0703 1956 FOGWILL/PLATIS, cr-ex (Symes) 1 numbers that you read off to him and which he confirmed 2 are the expected levels of savings for those five years. 3 I guess we can all do the math to see that your number 4 is or is not correct as a percentage of 37.33. Would 5 you leave it to us to do that math? 6 MS SYMES: Perhaps if could just simply -- we 7 can agree upon the math. 8 MR. FOGWILL: I can agree upon the math. 9 MS SYMES: All right. And we are now five 10 months -- I guess we are into the sixth month of 2000, 11 yes? 12 MR. FOGWILL: Yes. 13 MS SYMES: All right. And by now you will 14 have -- 15 MEMBER JACKSON: Is that a qualified yes? 16 --- Laughter 17 MR. FOGWILL: That's my understanding, 18 Dr. Jackson. 19 MS SYMES: Will you take it subject to check 20 that we are the sixth month of the year 2000. 21 MR. FOGWILL: Yes, I will. 22 MS SYMES: Okay. You have the results then on 23 your DSM to May 31st. 24 MR. FOGWILL: We track on a continuous basis, 25 yes. 26 MS SYMES: Please, can you tell me then what 27 are your gas savings to date on a 5 plus 7 basis? 28 MR. FOGWILL: The 5 plus 7 forecast developed Les Services StenoTran Services Inc. 613-521-0703 1957 FOGWILL/PLATIS, cr-ex (Symes) 1 is about 86 per cent of the target. 2 MS SYMES: Wait a second. I have to 3 understand what you mean by target. Look at my numbers 4 on Exhibit F11.5. Are we at 86 per cent of 38.287? 5 MR. FOGWILL: Yes. 6 MS SYMES: Okay. So as of today, June 28th, 7 Union is currently tracking at 86 per cent of 38.287? 8 MR. FOGWILL: Yes. 9 MS SYMES: All right. 10 THE PRESIDING MEMBER: Could I just confirm? 11 That's the forecast of 5 plus 7 for the year-end 12 savings. 13 MR. FOGWILL: Yes, Mr. Chairman. 14 THE PRESIDING MEMBER: It's not what you have 15 achieved in the first five months. 16 MR. FOGWILL: No, Mr. Chairman. 17 THE PRESIDING MEMBER: Okay, thank you. 18 Sorry, Ms Symes. 19 MS SYMES: But 5 plus 7 incorporates what you 20 have achieved in the first five months and says having 21 achieved that let's look forward to the balance of the 22 year. 23 MR. FOGWILL: That's correct. 24 MS SYMES: So I know, Ms Platis, you would 25 have done the math. What's your new number? 26 MS PLATIS: Based on what we have performed to 27 date and our forecast for the balance of the year, we 28 expect to achieve 33 million metres cubed by year-end. Les Services StenoTran Services Inc. 613-521-0703 1958 FOGWILL/PLATIS, cr-ex (Symes) 1 MS SYMES: Okay. So obviously you are 2 significantly above the 75 per cent pivot point already. 3 MR. FOGWILL: That's the five months of 4 actual, and seven months of forecast. So we are above 5 the 75 per cent by 11 percentage points. 6 MS SYMES: Would this be a good time to break, 7 Mr. Chair? 8 THE PRESIDING MEMBER: Yes, Ms Symes. It's 9 now ten past one. I always think one hour is a 10 reasonable time, so ten past two. 11 MR. KLIPPENSTEIN: Mr. Chairman, I wonder if I 12 could be excused for the afternoon, and certainly follow 13 closely in the transcript? 14 THE PRESIDING MEMBER: That's fine, 15 Mr. Klippenstein. Thank you. 16 --- Upon recessing at 1310 17 --- Upon resuming at 1411 18 THE PRESIDING MEMBER: Ms Symes. 19 MS SYMES: Just to try and illustrate the 20 dimensions of this SSM, could you take your answer of 21 the last question which is that to date your five plus 22 seven forecast for gas volume savings in the year 2000 23 will be 86 per cent of your forecast, that is 33 million 24 10(6)m(3), and I am wondering if you could calculate 25 what the SSM would be on that amount, assuming that your 26 pivot point is in fact 28.715? 27 MR. FOGWILL: Yes, just gives me a minute, 28 Ms Symes. Les Services StenoTran Services Inc. 613-521-0703 1959 FOGWILL/PLATIS, cr-ex (Symes) 1 --- Pause 2 MR. FOGWILL: The rough calculation would be 3 that if we achieved 85 per cent for this year, the 4 incentive to the company would be around $610,000. 5 MS SYMES: And that's for one year. 6 MR. FOGWILL: One year. 7 MS SYMES: Okay. 8 Now you had said that one of the reasons that 9 you are projecting these -- or forecasting, sorry -- 10 these savings in the years 2000 to 2004 was that you 11 thought it unlikely that you could achieve or sustain 12 the savings that had been achieved in -- the rate of 13 increase of the savings achieved in 1995 to 1999. 14 MR. FOGWILL: Yes, that is correct. 15 MS SYMES: Okay. Now I just wanted to explore 16 that and if you could go back to Exhibit 11, F11.5 -- 17 and I pulled together then certain distribution volumes. 18 These are your infranchise volumes in the years 1995 to 19 1999 and I believe that the source of this is Exhibit 20 C31.1. Those are correct, are they? 21 MR. FOGWILL: The DSM volume numbers are 22 correct. 23 MS SYMES: And the distribution volumes are 24 correct? 25 MR. FOGWILL: I would have to check that 26 interrogatory, but subject to check. 27 MS SYMES: Okay, why don't you look at it -- 28 31.3. Les Services StenoTran Services Inc. 613-521-0703 1960 FOGWILL/PLATIS, cr-ex (Symes) 1 --- Pause 2 MR. FOGWILL: Yes, they are correct. 3 MS SYMES: And, therefore, the DSM volumes as 4 a percentage of the distribution volumes have been 5 growing on a yearly basis. 6 MR. FOGWILL: Yes, that's correct. 7 MS SYMES: And I'm sure that if my mathematics 8 is wrong you will correct me with respect to that. 9 You expect that the distribution volumes will 10 continue to grow in the years 2000 to 2004? 11 MR. FOGWILL: Yes. 12 MS SYMES: And then obviously the question is: 13 Why will the DSM volumes, as a percentage of those 14 distribution volumes, not continue to grow at the same 15 rate? 16 MR. FOGWILL: The DSM activities are based on 17 a set of programs. They are based on a set of 18 activities that the company undertakes and we think that 19 we are at a point where the maturity of the programs is 20 not likely to have a significant change in the DSM 21 volumes over the next five years, and as a result, at 22 that stage costs and the distribution volumes increase 23 you are going to get a decreasing percentage. 24 MS SYMES: Okay, so what you are saying then 25 on the bottom of that sheet is that you expect for the 26 years 2000 and 2004, that the percentage of the DSM 27 volumes to the distribution volumes will now begin to 28 decrease. Les Services StenoTran Services Inc. 613-521-0703 1961 FOGWILL/PLATIS, cr-ex (Symes) 1 MR. FOGWILL: Yes. 2 MS SYMES: And I think I heard either you or 3 Mr. Klippenstein, in terms of the questions asked and 4 the answers given comparing Union and Enbridge. Are 5 Union's infranchise volumes greater or lesser than 6 Enbridge's? 7 MR. FOGWILL: Well, I believe I indicated to 8 Mr. Klippenstein that I accepted that subject to check. 9 I haven't checked on that yet. 10 MS SYMES: In fact I think I wrote it down 11 wrong. Which did you think he said? 12 MR. FOGWILL: Oh, that the Union ones were 13 higher. 14 MS SYMES: Then I clearly wrote it down wrong. 15 So you say that Union's infranchise volumes 16 are greater than Enbridge's and that Union's industrial 17 volumes are greater than Enbridge's industrial volumes? 18 MR. FOGWILL: My understanding is that Union's 19 industrial volumes are greater than Enbridge's 20 industrial volumes. In terms of the overall, I would 21 have to check on that. 22 MS SYMES: All right. 23 And so if we are looking then still at this 24 table. If you are looking at the DSM volumes then, you 25 would agree that Union then has a greater opportunity in 26 terms of achieving DSM gas volume savings than Enbridge 27 because you are starting with the bigger number? 28 MR. FOGWILL: It's as I have indicated before, Les Services StenoTran Services Inc. 613-521-0703 1962 FOGWILL/PLATIS, cr-ex (Symes) 1 comparing the Enbridge activities to the Union 2 activities is problematic because of the difference 3 between our two marketplaces and the business objectives 4 of the company. But in this case, it's related to the 5 marketplace make-up and I would say that the potential 6 that Union has is somewhat in the -- let me step back 7 one and say that the Union potential is I would say in 8 the relative range of the Enbridge potential. 9 MS SYMES: But are you saying that the Union 10 DSM programs are more mature than Enbridge. 11 MR. FOGWILL: It has to do with the 12 marketplaces as well as the program designs themselves, 13 because the programs will be designed to the specific 14 market. And in our case, we think that our programs are 15 mature for our marketplaces. 16 I'm not able at this point to say whether our 17 fit in terms of maturity of our programs compared to our 18 market is worse or better than the Enbridge fit with 19 their programs and their market. 20 MS SYMES: So you make no assessment one way 21 or the other. 22 MR. FOGWILL: Any comparison, no. 23 MS SYMES: Right. 24 I wanted to refer you to the evidence of Chris 25 Neime. Your counsel took you to it. And in particular, 26 I'm asking if you would turn to page 2. And on page 2, 27 Neime essentially says that -- and I'm reading the last 28 paragraph: Les Services StenoTran Services Inc. 613-521-0703 1963 FOGWILL/PLATIS, cr-ex (Symes) 1 "First this assumption is contrary to all 2 of DSMs -- Union's prior DSM experiences, 3 as the following table illustrates, 4 Union's actual DSM savings have increased 5 by an average of 9.7 million m(3) over 6 each of the past three years. The 7 increase in the last year, from 1998 to 8 1999, was 10.1 million m(3) comparable to 9 the increased realized in previous two 10 years, but more than 10 times the annual 11 increase Union is proposing for the next 12 five years. In percentage terms, the 13 increase from 1998 to 1999 was 37 per 14 cent, roughly 20 times the annual 15 increase Union is proposing for the next 16 five years." (As read) 17 And there is nothing -- I presume that there 18 is nothing factual that you would disagree with on that? 19 THE PRESIDING MEMBER: Haven't we just already 20 been through this? 21 MS SYMES: I'm coming to a different topic. 22 MR. FOGWILL: Just a minute. I am going to 23 check on the 1998 number and compare that. 24 MS SYMES: I believe we had gone through this. 25 THE PRESIDING MEMBER: I thought you were 26 going through all the numbers, previously going down, 27 showing how much they saved from 1995 to 1999 in your 28 Exhibit F11.5. And the numbers there are the same as Les Services StenoTran Services Inc. 613-521-0703 1964 FOGWILL/PLATIS, cr-ex (Symes) 1 the numbers in the years here 1996 to 1999. 2 MS SYMES: You found them in a very different 3 way, but -- 4 THE PRESIDING MEMBER: Okay. Fair enough. 5 MS SYMES: I wanted to come to another part of 6 his report, that's why I am referencing that before I 7 come to the other part of the report. 8 MR. FOGWILL: I believe there is one error in 9 that the full sentence of the increase in the last year 10 from 1998 to 1999 was 10.1 million. 11 MS SYMES: The correct answer is -- 12 MR. FOGWILL: Looking at the actual numbers, 13 and the actual number in 1998 was 27.5, and in 1999 was 14 37 -- 9.8. 15 MS SYMES: 9.8, okay. 16 Other than that, do you agree with that 17 paragraph? 18 MR. FOGWILL: It is factually correct. 19 MS SYMES: Moving then to page 3, what he said 20 in the second paragraph in essence is that, "Union's 21 program..." and I am reading the last line: 22 "Union's programs have failed to achieve 23 even a 10 per cent market share in nearly 24 all of the critical lost opportunities 25 market that should market -- that should 26 be the focus of market transformation 27 efforts." (As read) 28 On the next page: Les Services StenoTran Services Inc. 613-521-0703 1965 FOGWILL/PLATIS, cr-ex (Symes) 1 "Put it simply, there is far too much 2 uncapped savings potential in the market 3 to justify an acceptance of the status 4 quo with respect to annual gas savings." 5 (As read) 6 Do you agree with that statement? 7 MR. FOGWILL: No, I do not. 8 MS SYMES: And what is your estimate as to the 9 percentage of market share that Union has captured with 10 respect to lost opportunities? 11 MR. FOGWILL: I think we have indicated before 12 that the level of savings that we are targeting is based 13 on a balance between the business objectives of the 14 company and the public benefits. 15 MS SYMES: But Mr. Fogwill, my question is -- 16 Union says, "Look, Union has captured less than 10 per 17 cent of the market share of lost opportunities." What 18 do you say the share is? 19 MR. FOGWILL: I don't have the number of what 20 that share is. 21 MS SYMES: What is your estimate? 22 MR. FOGWILL: I don't have enough information 23 to provide you an estimate of what that percentage of 24 potential is. 25 MS SYMES: Is it fair to say then, other than 26 the evidence of Chris Neime, there is no evidence before 27 this board as to what is the market share that Union has 28 captured with respect to lost opportunities in DSM? Les Services StenoTran Services Inc. 613-521-0703 1966 FOGWILL/PLATIS, cr-ex (Symes) 1 --- Pause 2 MR. FOGWILL: Union hasn't characterized its 3 activities in this manner so in terms of answering your 4 question, there's no comparable evidence in Union Gas' 5 filing that would be directly comparable to the 6 statements that Mr. Neime is making. 7 MS SYMES: Mr. Fogwill, I'm just trying to be 8 fair. 9 The Board has got to establish if it is going 10 to order an SSM, it has to establish the formula. And 11 one of the parameters of the formula is the percentage 12 increase -- pardon me, the incentive factor. You are 13 asking for 15 per cent. The other is that it has got to 14 pick a pivot and you are suggesting 75 per cent of the 15 forecast. And the third thing it's got to do is 16 determine whether or not your forecast is fair and 17 reasonable. 18 Do you agree that all of those have to be 19 determined? 20 MR. FOGWILL: I agree that the Board has the 21 -- has to consider the proposal that Union Gas has put 22 forward in terms of the incentive rate, what the pivot 23 point is, I believe -- or let me rephrase that -- Union 24 has put on record its activities with respect to DSM 25 which went through extensive public consultation and 26 extensive market research over a period of many years, 27 and now is accepted by, or agreed to by the consultative 28 group and accepted by the Board in E.B.R.O. 499. So at Les Services StenoTran Services Inc. 613-521-0703 1967 FOGWILL/PLATIS, cr-ex (Symes) 1 this point, it is not our expectation that the Board 2 would rule on the targets themselves but rather the 3 appropriateness of the shared savings mechanism. 4 MS SYMES: Mr. Fogwill, the 1999 DSM plan had 5 the forecast of gas savings that was going to be 6 37 10(6)m(3) -- 37.574 10(6)m(3) -- that was the 7 forecast; right? 8 MR. FOGWILL: Correct. 9 MS SYMES: That is the forecast that was 10 discussed in the consultative group. 11 MR. FOGWILL: Correct. 12 MS SYMES: That's the forecast that came to 13 the Board for approval. 14 MR. FOGWILL: That and the other four years 15 attached to that. 16 MS SYMES: Mr. Fogwill, you presented a budget 17 for 1999, didn't you? 18 MR. FOGWILL: We presented a five-year plan 19 with budget dollars identified in the first year. 20 MS SYMES: Mr. Fogwill, the only thing that 21 the Board dealt with with respect to the 1999 rates was 22 the cost for the DSMs that were going into rates based 23 on the 1999 forecast. 24 MR. FOGWILL: I can't speak for what the Board 25 actually considered in that case. 26 MS SYMES: Now in your -- 27 MEMBER JACKSON: The court decision was pretty 28 clear on it, if it helps you to move ahead, Mr. Fogwill. Les Services StenoTran Services Inc. 613-521-0703 1968 FOGWILL/PLATIS, cr-ex (Symes) 1 And I don't know whether your counsel has drawn your 2 attention to that decision but it was given orally and 3 is part of the transcript, but we tried to make it clear 4 that we had done essentially what Ms Symes said. So I 5 think that is pretty reliable. So I don't really want 6 to repeat your question. 7 Oh, you were just asking whether he knew that 8 -- okay, you can go on from there. I am just trying to 9 tell him he could rely on that point. 10 MS SYMES: Yes. 11 THE PRESIDING MEMBER: Can I clear the record, 12 please? 13 There is a decision which was made in 499, and 14 that is were the Board accepted in Settlement Agreement 15 which has caused a Settlement Agreement, the parties the 16 settlement agreement, accepted a DSM plan which included 17 a five-year plan, and the Board accepted the Settlement 18 Agreement. 19 The separate issue that Dr. Jackson is dealing 20 with is the comments made by the panel which was in 21 response to a motion brought by GEC, in which there was 22 a reference which I think Mr. Poch referred to this 23 morning. So there were two pieces of information here. 24 I just wanted to clear the record, thank you. 25 MEMBER JACKSON: Thank you. 26 MR. PENNY: Dr. Jackson, I took Mr. Fogwill's 27 response simply to mean that he wasn't purporting to put 28 himself in the mind of the Board. I think he is aware Les Services StenoTran Services Inc. 613-521-0703 1969 FOGWILL/PLATIS, cr-ex (Symes) 1 of the decision in 499. He is aware of the decision in 2 the motion certainly. 3 MEMBER JACKSON: Thank you for that. I just 4 wanted to see if I could help him. 5 MS SYMES: Mr. Fogwill, as you look at Exhibit 6 F11.5, there is the distribution volume in 1999 of 7 14,602 10(6)m(3) can you tell me what percentage of that 8 is industrial? 9 MR. FOGWILL: No, I can't. 10 MS SYMES: Any idea of what your industrial 11 volumes are? 12 MR. FOGWILL: Not at this point. 13 MS SYMES: Could you give me an undertaking to 14 determine either -- well, the absolute amounts in 1999 15 and the percentage? 16 MR. PENNY: Sorry, can we have clear which 17 number you are referring to that you are working on. 18 MS SYMES: It's 14,602 10(6)m(3) distribution 19 volumes in 1999. 20 MR. PENNY: This is under the -- on the 21 document that starts under the heading "DSM energy 22 savings". 23 MS SYMES: Yes. 24 MR. PENNY: And it is under the DSM volume 25 header. 26 MS SYMES: Yes. 27 MR. PENNY: And it is the 1999 distribution 28 volume number. Les Services StenoTran Services Inc. 613-521-0703 1970 FOGWILL/PLATIS, cr-ex (Symes) 1 MS SYMES: Yes. 2 MR. PENNY: Thank you. 3 MS SYMES: Will you give me your undertaking 4 to do that? 5 MR. FOGWILL: Yes. 6 MS SYMES: Thank you. 7 DR. WIGHTMAN: G11.1. 8 UNDERTAKING NO. G11.1: Mr. Fogwill 9 undertakes to look at Exhibit F11.5 to 10 determine what percentage of the 11 distribution volume in 1999 of 14,602 12 10(6)m(3) is industrial 13 MS SYMES: Now I am asking if you could please 14 turn to Exhibit F11.3 on page 9 which is the interim or 15 draft report prepared for 1999. 16 MS PLATIS: On page 9? 17 MR. FOGWILL: Table 33 1999 -- 18 MS SYMES: Yes. 19 MR. FOGWILL: -- savings and cost, yes, I have 20 it. 21 MS SYMES: Looking then at the achievements in 22 1999 with respect to DSM, the industrial volumes account 23 for 14,189 10(3)m(3) of 37,332 10(3)m(3). Subject to 24 check, would you agree with me that DSM volumes then are 25 38 per cent of the total volumes saved? 26 MR. FOGWILL: The industrial volume saved is 27 38 per cent of the total volume saved? 28 MS PLATIS: That would be correct. Les Services StenoTran Services Inc. 613-521-0703 1971 FOGWILL/PLATIS, cr-ex (Symes) 1 MS SYMES: And that in terms of the budget in 2 program costs, you spent $173,000 out of $2.243 million, 3 that is 7.7 per cent of the program costs on industrial 4 DSM. 5 MR. FOGWILL: That's correct. 6 MS SYMES: Although you had budgeted $358,000 7 for industrial DSM, you in fact spent only 48 per cent 8 of it. 9 MR. FOGWILL: That's correct. 10 MS SYMES: Based on those numbers, would you 11 not agree with me that at least with respect to 12 industrial DSM, there is a lot of potential left in the 13 years 2000-2004? 14 MR. FOGWILL: I think it would be fair to 15 categorize the potential in industrial as variable and 16 difficult to forecast. So it is really depending on the 17 business cycle of the customers we are dealing with, and 18 to a certain extent, on the economy so the potential 19 will vary from year to year. 20 MS SYMES: Would you agree with me that given 21 the throughput volumes for industrial customers, and 22 given the amount of money spent on industrial DSM to 23 date, that there is a lot of untapped potential? 24 MR. FOGWILL: Yes. 25 MS SYMES: When you said in the fourth quarter 26 of 1999, you pulled sales resources in order to achieve 27 the 1999 forecast, were those resources deployed to 28 industrial DSM? Les Services StenoTran Services Inc. 613-521-0703 1972 FOGWILL/PLATIS, cr-ex (Symes) 1 MS PLATIS: Yes, they were. 2 MS SYMES: So that incremental assistance then 3 was what brought Union's DSM achievements to forecast. 4 MR. FOGWILL: The additional resources 5 assisted with achieving the savings targets, yes. 6 MS SYMES: So I am going to ask once again the 7 obvious question I guess Dr. Jackson asked is: as you 8 move forward into the PBR regime where costs are not 9 tied to place, what would prevent you from redeploying 10 sales people from your marketing to achieve greater 11 savings in DSM? 12 MR. FOGWILL: Probably one of the reasons 13 would be because we would want to generate some revenues 14 and demand size management in and of itself does not do 15 that. It is not one of the objectives of that activity. 16 MS SYMES: You would agree with me that it was 17 within Union's power to redeploy these resources, and if 18 they do so, it appears to be quite effective. 19 MR. FOGWILL: Yes. 20 MS SYMES: Now in terms of the Board approved 21 amount, I just want to look at DSM expenditures. The 22 Board then approved -- continuing to look at the same 23 page which is Exhibit F11.3, page 9 -- the Board 24 approved three $3.794 million for DSM in 1999. 25 MR. FOGWILL: That is correct. 26 MS SYMES: That went into the base? 27 MR. FOGWILL: That is correct. 28 MS SYMES: The actual of $3.663 million was 97 Les Services StenoTran Services Inc. 613-521-0703 1973 FOGWILL/PLATIS, cr-ex (Symes) 1 per cent of the budget? 2 MR. FOGWILL: That is correct. 3 MS SYMES: Now let me try and understand this 4 going forward. On page 9, you had a breakout of what 5 you had budgeted for the various programs in terms of 6 residential, commercial, agricultural and industrial. 7 Is that correct? 8 MR. FOGWILL: That is correct. 9 MS SYMES: Okay. Now under the PBR price cap 10 mechanism, am I to understand then that for the purposes 11 of revenue that the $3.794 million will be increased 1.9 12 per cent each year of the PBR plan? 13 MR. FOGWILL: That is the forecast, yes. 14 MS SYMES: So therefore the DSM costs in 2000 15 budget will be $3.86 million? 16 MR. FOGWILL: That is correct. 17 MS SYMES: In 2001, $3.94 million? 18 MR. PENNY: Sorry, the exercise we are going 19 through is multiplying numbers by 1.9 per cent. Is that 20 what you are after? 21 MS SYMES: I am trying to look at the rate --I 22 am trying to pull this into what the rate impact will 23 be. 24 MR. PENNY: Well, Mr. Chairman, we have been 25 over this at great length with Ms Elliott, and Mr. 26 Birmingham. I am not sure what is added by going 27 through it again with another subset of numbers, 1.9 per 28 cent times 3.794 produces a number. If you multiply Les Services StenoTran Services Inc. 613-521-0703 1974 FOGWILL/PLATIS, cr-ex (Symes) 1 that by 1.9 per cent again it produces another number. 2 THE PRESIDING MEMBER: The thing that occurs 3 to me is it in fact the correct statement that the 4 budget for DSM is going to be increased by 1.9 per cent 5 per year because that is what Ms Symes is pursuing. 6 The first answer I heard from the witness was 7 that in fact that would be the case. 8 MS SYMES: That was the answer. 9 MR. PENNY: Well, perhaps the confusion is 10 that I certainly thought was being was, what happens 11 when you multiply this number by 1.9 per cent? 12 THE PRESIDING MEMBER: So I think there is a 13 question here that Ms Symes is asking is: is there any 14 information that the witness can provide as to what the 15 DSM budget will be going forward five years ahead, is 16 she is trying to do a calculation. I am not sure where 17 she is going but she seems to be wanting to do some sort 18 of calculation that might lead to an assessment of the 19 SSM parameters. Is that where you are going, Ms Symes? 20 MS SYMES: Yes. 21 THE PRESIDING MEMBER: But I'm not sure 22 whether the witness' answer is consistent with that. 23 MR. PENNY: I think the evidence has been, 24 Mr.Chairman, quite consistent, from Ms Elliott and Mr. 25 Birmingham, that the 1.9 per cent is applied to the 26 prices which is really derived from the amount of 27 revenue that is required -- or it is the other way 28 around, you derive the prices from the revenue times 1.9 Les Services StenoTran Services Inc. 613-521-0703 1975 FOGWILL/PLATIS, cr-ex (Symes) 1 per cent. And I don't think that there is any evidence 2 on -- I guess I am confused if the issue is going to the 3 application at the SSM, because, as I understand it, it 4 doesn't have anything to do with the DSM budget. 5 MS SYMES: Mr. Chair, I wanted to ask the 6 question as to what will be the tools that the DSM group 7 will have within Union moving forward from 2000 to 2004, 8 partly to assess the reasonability of the forecast and 9 the pivot point, and so one of the questions is budget. 10 THE PRESIDING MEMBER: So that is a question 11 that can be asked. 12 But I think what Mr. Penny's point is he is 13 not sure whether that the actual arithmetic on those 14 numbers is relevant or correct. I note that 1.9 per 15 cent times something is something, but what that number 16 is -- 17 MS SYMES: I'm sorry. I thought that the 18 first answer I got said, yes, I was right, and then I 19 was moving forward. Maybe, in fairness, I should ask 20 the question again. 21 THE PRESIDING MEMBER: Maybe you should do 22 that. 23 MS SYMES: All right. 24 MR. PENNY: Yes, I think that is right. 25 MS SYMES: Your 1999 Board-approved budget for 26 DSM was $3.794 million? 27 MR. FOGWILL: That is correct. 28 MS SYMES: In order to determine what your Les Services StenoTran Services Inc. 613-521-0703 1976 FOGWILL/PLATIS, cr-ex (Symes) 1 forecasted budget is for 2000 and subsequent years, do 2 we take the Board-approved budget for 1999 and multiply 3 it by 1.9 per cent? 4 MR. FOGWILL: Yes. 5 MEMBER JACKSON: Mr. Penny's surprised too. 6 --- Laughter 7 MR. PENNY: I continue to labour under the 8 impression that Mr. Fogwill is misunderstanding the 9 question, but if his answer is, his answer is, so. 10 MS SYMES: Okay. 11 MEMBER JACKSON: Yes, Ms Symes, you have got 12 an answer. So now you have budget information for the 13 years going out to the end of the PBR in this area and 14 no one has achieved that in any other area in this 15 hearing so one for you. 16 --- Laughter 17 MS SYMES: Okay. Would you look at Exhibit 18 G3.3? This is the famous mapping by Ms Elliott -- or 19 remapping. 20 MR. FOGWILL: I have it. 21 MS SYMES: Mr. Fogwill, can you tell me on the 22 first page where does DSM fit? 23 MR. FOGWILL: The DSM expenditures exist in 24 portions of three lines: the sales and marketing line, 25 line 32; the channel management sales and marketing 26 line, line 34; and the market knowledge line, line 36. 27 MS SYMES: Now, looking at lines 32, 34 and 28 36, can you tell me what amount of those lines are DSM? Les Services StenoTran Services Inc. 613-521-0703 1977 FOGWILL/PLATIS, cr-ex (Symes) 1 MR. FOGWILL: No, I don't have that breakdown, 2 but -- 3 MS SYMES: Okay, but you give me an 4 undertaking? 5 MR. FOGWILL: Yes, I can. 6 DR. WIGHTMAN: G11.2. 7 UNDERTAKING NO. G11.2: Mr. Fogwill 8 undertakes to provide what amount of 9 lines 32, 34 and 36 are DSM 10 MS SYMES: Would you turn to page 2 of the 11 same exhibit, G7.3, please? Line 5 is "Marketing/DSM", 12 and in the 1999 budget, we see that that is 10 -- I 13 guess, $10.952 million. I gather of that 3.794 of that 14 would have been DSM. Is that correct? 15 MR. FOGWILL: That is correct. 16 MS SYMES: Now, dot, dot, dot to the market 17 management remap, of the 10.23, which is, I think, the 18 only place that that number -- sorry, I'm wrong. That 19 maps to asset management/asset operations and market 20 management, I apologize. Do you see it is in three 21 spots? 22 MR. FOGWILL: Yes. 23 MS SYMES: Can you please give me an -- I 24 presume you don't know this, but could you give me an 25 undertaking to tell me how much of the asset 26 management/asset operations and finance and business 27 services are attributable to DSM, under line 5? 28 MS PLATIS: As a matter of fact, we don't have Les Services StenoTran Services Inc. 613-521-0703 1978 FOGWILL/PLATIS, cr-ex (Symes) 1 to do an undertaking. We know the answer to that. 2 MS SYMES: Oh, great. Okay. 3 MS PLATIS: The full amount is in market -- 4 the full 3.794 for 1999 was allocated to market 5 management. 6 MS SYMES: Okay. So then, the 3.794 million 7 of the 10.023. Thank you. 8 And you are now, once again, six months into 9 the year. Can you give me your actual cost on a 5-plus- 10 7 basis for DSM for 2000? 11 MR. FOGWILL: We don't have those available 12 right now. 13 MS SYMES: Would you give me an undertaking, 14 please? 15 MR. FOGWILL: Yes. 16 DR. WIGHTMAN: G11.3. 17 UNDERTAKING NO. G11.3: Mr. Fogwill 18 undertakes to provide the actual cost of 19 a 5-plus 7 basis for DSM for the year 20 2000 21 MS SYMES: And as we go forward then, with 22 respect to the DSM expenditures, can you also give me a 23 breakdown as to -- you have given me an undertaking with 24 respect to that -- can you give me a breakdown with 25 respect to residential, commercial, industrial and 26 agriculture? 27 MR. FOGWILL: Are you asking for the 5-plus-7 28 forecast of cost to be broken down? Les Services StenoTran Services Inc. 613-521-0703 1979 FOGWILL/PLATIS, cr-ex (Symes) 1 MS SYMES: Sure. I actually would like the 2 2000 and the 5-plus-7 costs. 3 MR. FOGWILL: We can give you a breakdown in 4 terms of the cost for the 5-plus-7. Are you just asking 5 for the year 2000 -- 6 MS SYMES: Yes. 7 MR. FOGWILL: -- forecast broken down? 8 MS SYMES: Yes. Is that in Exhibit C31.2? 9 MR. FOGWILL: Just a minute. We will provide 10 that. 11 MS SYMES: Okay. 12 Could I have an undertaking number, please? 13 DR. WIGHTMAN: G11.4. 14 THE PRESIDING MEMBER: Mr. Reporter, you are 15 getting all this because the voices are very low. You 16 are receiving them, aren't you? 17 THE COURT REPORTER: Yes. 18 THE PRESIDING MEMBER: Thank you. 19 MS PLATIS: Can we get a clarification as to 20 what that last undertaking was? 21 MS SYMES: I asked for two things. If you 22 could provide a breakdown of the 2000 numbers for the 23 five categories, residential, commercial, industrial and 24 agriculture, as well as the 5-plus-7. 25 UNDERTAKING NO. G11.4: Mr. Fogwill 26 undertakes to provide a breakdown of the 27 residential, commercial, industrial, 28 agricultural and 5-plus-7 costs for the Les Services StenoTran Services Inc. 613-521-0703 1980 FOGWILL/PLATIS, cr-ex (Symes) 1 year 2000 2 MS SYMES: Now, I'm having some difficulty 3 translating between gas volume saved and the SSM reward 4 or penalty, just because I can't move readily based on 5 the material that you have filed, and so I have asked 6 you for certain information with respect to the SSM. 7 First of all, as you look at the SSM and you 8 compare it to the Enbridge's SSM, would you agree with 9 me that so long as Union achieves 120 per cent or less 10 of its forecasted volume, it will be ahead under the SSM 11 that you are proposing as compared to Enbridge. 12 Let me take it in two pieces, okay. I can do 13 it positive or negative. 14 The Enbridge incentive rate is 35 per cent but 15 it kicks in at 100 per cent of forecast. Right? 16 MR. FOGWILL: Correct. 17 MS SYMES: You are proposing an SSM at 15 per 18 cent but it kicks in at 75 per cent of forecast. 19 MR. FOGWILL: Correct. 20 MS SYMES: And so would you agree with me that 21 looking at Union, as Union achieves from 75 per cent to 22 I think the crossover is 120 per cent, Union will always 23 achieve more than Enbridge under the SSM that you have 24 proposed? First of all, your number will always be 25 positive. 26 MR. FOGWILL: The number will be positive if 27 we are over 75 per cent. 28 MS SYMES: Right. Whereas -- Les Services StenoTran Services Inc. 613-521-0703 1981 FOGWILL/PLATIS, cr-ex (Symes) 1 MEMBER JACKSON: What was that last point? I 2 am sorry, I am having a lot of trouble hearing you two, 3 and I don't know whether there's something wrong with 4 our mikes at our witness stand. But the closer you get 5 it seems the softer you speak, and the two effects 6 offset each other and I don't hear. 7 So I'm sorry, do you remember your answer, 8 because I would like you to repeat it. 9 MR. FOGWILL: I believe what I had indicated 10 was that we would have positive benefits if we were over 11 the 75 per cent. 12 MEMBER JACKSON: Thank you. 13 And Ms Symes, I'm sorry, but you referred to 14 the 75 per cent of forecast, and I thought you had 15 established earlier the forecast was the 75 per cent and 16 target was the 100 per cent low. The target was 17 ambitious and their best forecast was that they would 18 achieve 75. Notwithstanding the way you put it, you got 19 a "yes" from the witness but it just confused me in the 20 context of the previous evidence. 21 MS SYMES: Well, let me make sure, because I 22 don't think Mr. Fogwill and I are -- I think we are on 23 the same page. The Union SSM is 15 per cent of the 24 difference between what is achieved and 75 per cent of 25 what is forecast. 26 MR. FOGWILL: That's correct. 27 MS SYMES: And obviously it can be plus or 28 minus. Les Services StenoTran Services Inc. 613-521-0703 1982 FOGWILL/PLATIS, cr-ex (Symes) 1 MEMBER JACKSON: So what you are forecasting 2 now is that you will achieve 100 per cent, is that what 3 you are saying? 4 MR. FOGWILL: No, what we have indicated is 5 that the 100 per cent is a stretch target. What the 6 expected achievement level over the five-year period is 7 that we will get 75 per cent of that stretch target. 8 MEMBER JACKSON: Okay. What I need to clarify 9 is whether if you were asked to forecast today, you 10 would forecast to get what you expect or you would 11 forecast to get your aggressive target. 12 MR. FOGWILL: Well, we have applied a stretch 13 to the target in consideration of the concerns of some 14 of the consultative group. So if we did it in isolation 15 we would probably revise it to the 75 per cent level. 16 MEMBER JACKSON: It is terminology I'm having 17 trouble with. 18 When you use the word "forecast", I think you 19 are talking about the same thing as estimate. When you 20 talk about "target", which you have already described as 21 being aggressive, I think you are talking about 22 something which is not forecast. 23 Now, if I am way off base and you have been 24 using different terminology tell me, but if that's what 25 the terminology was that you started out with, let's see 26 if we can stay with it. 27 MR. FOGWILL: I guess the terminology that I 28 used, Dr. Jackson, is that the 100 per cent is the Les Services StenoTran Services Inc. 613-521-0703 1983 FOGWILL/PLATIS, cr-ex (Symes) 1 planned target. The expected value is set at the pivot 2 point which is 75 per cent of that planned target. 3 MEMBER JACKSON: Okay, and all I ask you is if 4 you were asked to forecast today, uncertain as the 5 future is, what do you think you would come in at? Your 6 aggressive target or 75 per cent thereof. 7 MR. FOGWILL: Seventy-five (75) per cent 8 thereof. 9 MEMBER JACKSON: So could we call that the 10 forecast from here on in? 11 MS SYMES: Unfortunately that's not -- 12 MEMBER JACKSON: I don't mean it is the 13 company's forecast that has great certainty but it is 14 the closest thing we have to what this witness would say 15 was his forecast today if we pinned him down and made -- 16 MR. PENNY: I think that's fair in connection 17 with the way you put the question, Dr. Jackson, which 18 was if he was doing it without an SSM or anything of 19 that nature. But certainly, I think it is correct to 20 say that for the purposes of the operation of the SSM, 21 the 100 per cent is the forecast. 22 MS SYMES: Dr. Jackson-- 23 MR. PENNY: For the purposes of the SSM. 24 MEMBER JACKSON: Thank you for that 25 distinction. In other words, once this is approved, 100 26 per cent will be relatively easy to get. 27 MR. PENNY: No, I think -- well, I don't want 28 to give evidence here and perhaps we are into argument, Les Services StenoTran Services Inc. 613-521-0703 1984 FOGWILL/PLATIS, cr-ex (Symes) 1 but I think what Mr. Fogwill was -- 2 MEMBER JACKSON: I think you have got me 3 thoroughly confused and I will have to read the 4 transcript. Thank you. 5 MS SYMES: Dr. Jackson, perhaps if you and Mr. 6 Fogwill would turn up page 62 of the prefiled evidence, 7 Exhibit B, Tab 2? 8 Mr. Fogwill, the SSM then is to create an 9 incentive or a penalty starting at 45 per cent of the 10 targets contained in the current plan, that's what you 11 filed. 12 MR. FOGWILL: That's correct. 13 MS SYMES: And the targets contained in the 14 current plan are your forecasts. 15 MR. FOGWILL: That's correct. 16 MS SYMES: And those are the ones that you 17 have described to us that you consider to be ambitious. 18 MR. FOGWILL: Aggressive and a stretch is the 19 terms I used. 20 MS SYMES: Aggressive and a stretch. 21 And what you are telling us -- or you told us 22 earlier -- is that you know bottom line you think you 23 are going to achieve 75 per cent of that number. 24 MR. FOGWILL: Over the five-year period, 25 that's correct. 26 MEMBER JACKSON: Even with an SSM? 27 MR. FOGWILL: With the SSM in place, it's 28 designed to encourage higher levels of achievement. So Les Services StenoTran Services Inc. 613-521-0703 1985 FOGWILL/PLATIS, cr-ex (Symes) 1 if we had an incentive in place, that balance that we 2 have right now between the business objectives and the 3 public benefit will change because of the financial 4 reward associated with the SSM. 5 MEMBER JACKSON: So is your answer to Ms 6 Symes, that the 100 per cent level is your forecast? Is 7 that based on your assumption of having this SSM with 8 the incentives that it has? 9 MR. FOGWILL: No, the forecast was developed 10 in isolation of the consideration of a shared savings 11 mechanism and took into account concern of some of the 12 consultative members of having Union try to achieve 13 more. 14 MEMBER JACKSON: So then how do I reconcile 15 this word "forecast" with expectation? You see you 16 expect to get one thing but you are forecasting another 17 and I'm not seeing the distinction. 18 MR. FOGWILL: Well, I guess the distinction is 19 is that the forecast includes some stretch to it which 20 may or may not come true. And that if we were looking 21 at a symmetrical reward and penalty system, is it 22 equitable to have the company face a penalty in an area 23 where we think we are doing well? And the Union's 24 position is that that's not the case. 25 So we thought where is a reasonable pivot 26 where the company is achieving reasonable levels of the 27 forecast, and reasonable levels of the forecast, in our 28 view, is at the 75 per cent level. Les Services StenoTran Services Inc. 613-521-0703 1986 FOGWILL/PLATIS, cr-ex (Symes) 1 MEMBER JACKSON: So you are basically telling 2 me, and I'm going to say this once and then let's move 3 on, but you are basically telling me that you don't 4 forecast but you will achieve your forecast. And that's 5 all I'm having trouble with. 6 MR. FOGWILL: Well, no that's not entirely the 7 case. In terms of the forecast when it was developed, 8 the stretch was put in there as a means of addressing 9 some concerns of the consultative members. With the 10 application of the penalty on top of that, that would 11 change how we would look at is the expected level, what 12 is the risk associated with achieving that high level 13 between 75 and 100 per cent. 14 And that's the reason why we have got the 15 difference between 100 per cent, which is the forecast 16 target in the plan, and the 75 per cent which was what 17 we think is an expectable level of performance over the 18 five-year period. 19 MEMBER JACKSON: Let's move on then. Thank 20 you very much. 21 MS SYMES: All right. Could we continue 22 though to use the words as you have filed them in terms 23 of forecast and the pivoting 75 per cent of the 24 forecast, okay, just in terms of this discussion. 25 Union has filed, or seeking an SSM that would 26 give you a bonus, a reward, if you achieve 75 per cent 27 or more of your forecast. 28 MR. FOGWILL: It's above 75 per cent, yes. Les Services StenoTran Services Inc. 613-521-0703 1987 FOGWILL/PLATIS, cr-ex (Symes) 1 MS SYMES: Yes. 2 And Enbridge SSM provides a reward if they 3 achieve greater than 100 per cent of their forecast. 4 MR. FOGWILL: That's my understanding of their 5 proposal. 6 MS SYMES: Their rate of incentive penalty is 7 35 per cent as opposed to your 15 per cent. 8 MR. FOGWILL: That's correct. 9 MS SYMES: I you look -- if you compare and 10 contract the two incentives and as to what it will do 11 for Union, would you agree with me that from 75 per cent 12 of your forecast forward, you will be in a better 13 position in your SSM as proposed than Enbridge would be? 14 MR. FOGWILL: Definitely between the 75 per 15 cent and 100. 16 MS SYMES: And between and 100 and 120 per 17 cent as well. 18 MR. FOGWILL: There's likely to be a cross of 19 a point there, I'm not exactly sure if it's 120 per 20 cent. 21 MS SYMES: I would like to take it subject to 22 check. It's 120 per cent. 23 Now, let's look at negatively. Enbridge 24 starts getting penalized at -- as soon as it achieves 25 less than 100 per cent of forecast. 26 MR. FOGWILL: That's my understanding. 27 MS SYMES: And Enbridge gets a penalty of 35 28 per cent of underachievement. Les Services StenoTran Services Inc. 613-521-0703 1988 FOGWILL/PLATIS, cr-ex (Symes) 1 MR. FOGWILL: That's correct. 2 MS SYMES: So its penalty slope is much 3 steeper than Enbridge's? The slope of the line -- 4 MR. FOGWILL: For Enbridge -- 5 MS SYMES: -- is much steeper than the slope 6 of Union's line. 7 MR. FOGWILL: That's correct. 8 MS SYMES: So for any underachievement, Union 9 is penalized less than Enbridge? 10 MR. FOGWILL: Yes, that is the case, but the 11 reward is less when we get into the higher range. 12 MS SYMES: The reward is less only beyond 120 13 per cent. And you say that you think it's extremely 14 unlikely that you will even achieve 100 per cent of 15 target. 16 MR. FOGWILL: I don't think have I used those 17 terms but I would think it's an aggressive and a stretch 18 target. 19 MS SYMES: Now, trying to look then at the 20 potential magnitude of this SSM, could you look at the 21 second page of F11.5, the forecasted DSM savings? 22 And what I tried to do is to look at the 23 materials that you had filed and then asked you if you 24 could determine what the SSMs would be corresponding to 25 those increases. 26 So the first one then is on the right hand 27 side, and I said, assume that rather than achieving what 28 you have proposed for 2000, you actually achieved 10 per Les Services StenoTran Services Inc. 613-521-0703 1989 FOGWILL/PLATIS, cr-ex (Symes) 1 cent more. 2 Have you been able to calculate what the SSM 3 reward would be to Union? 4 MR. FOGWILL: Yes. The number that I 5 calculated was approximately 9.6 million. 6 THE PRESIDING MEMBER: Sorry. I didn't hear 7 that. 8 MR. FOGWILL: 9.6 million. 9 THE PRESIDING MEMBER: Thank you. 10 MR. FOGWILL: That would be for the five-year 11 period. 12 MS SYMES: So that's the second line. 13 MR. FOGWILL: Yes. The actual DSM savings 14 increase at 10 per cent per year? 15 MS SYMES: Yes. 16 MR. FOGWILL: Yes. 17 MS SYMES: If the next one then, which is the 18 column 2, is if the gas saved is actually 20 per cent 19 more in 2000 over 1999, what will be the SSM? 20 MR. FOGWILL: It's going to be approximately 21 12.7 million. 22 MS SYMES: So that's the third line you should 23 fill in. 24 MR. FOGWILL: Right. 25 MS SYMES: And that would give gas savings of, 26 in 2000, of 44.8. 27 MR. FOGWILL: Yes. 28 MS SYMES: Okay. Les Services StenoTran Services Inc. 613-521-0703 1990 FOGWILL/PLATIS, cr-ex (Symes) 1 And if we assumed that gas savings are 36 per 2 cent more than in 1999, what will be the SSM? 3 MR. FOGWILL: That 36 per cent is maintained 4 over the full five-year period, it will be $22.8 5 million. 6 MS SYMES: So that's the third line. 7 THE PRESIDING MEMBER: Ms Symes, could you 8 just repeat those numbers for me because I was looking 9 for my form? 10 MS SYMES: Mr. Fogwill? 11 MR. PENNY: While we are doing that, can you 12 tell us again which documents you are looking at? 13 Because I was looking through my package and -- 14 MS SYMES: 11.5. 15 MR. PENNY: Yes. 16 MS SYMES: And it's the forecasted DSM 17 savings. 18 MR. PENNY: Yes. 19 MS SYMES: And there are three blanks -- 20 MR. PENNY: Yes. 21 MS SYMES: -- which Mr. Fogwill just filled 22 in. 23 MR. PENNY: Thank you. 24 MS SYMES: Can you just read, Mr. Fogwill? 25 MR. FOGWILL: Mr. Chairman, it's 9.6 for the 26 first one, 12.5 for the second and 22.8 for the third. 27 THE PRESIDING MEMBER: Thank you. Thank you. 28 MS SYMES: Now, you have obviously, in Les Services StenoTran Services Inc. 613-521-0703 1991 FOGWILL/PLATIS, cr-ex (Symes) 1 preparing your forecasts, which are set out in Exhibit 2 11.3 at page 7. It's the bottom line: 3 "...set the forecast for 2003, 2004 based 4 on this 2 per cent increase per year..." 5 (As read) 6 Would you agree with me that other than your 7 own evidence there is no other evidence on the record, 8 like no expert evidence, reviewing Union's performance 9 that confirms those numbers? 10 MR. FOGWILL: There's no other evidence on the 11 record that confirms those numbers. 12 MS SYMES: And there's no other expert 13 evidence that confirms that your DSM achievements have 14 in any way plateaued? 15 MR. FOGWILL: There is no other evidence from 16 other parties to indicate -- there is no other evidence 17 on the record to indicate that the DSM programs have 18 plateaued aside from Union's own evidence. 19 MS SYMES: I think I may have asked you this 20 question and not recorded the answer. 21 If the SSM had been in place for 1998, can you 22 tell us what it would have been? 23 MR. PENNY: What would have been? 24 MS SYMES: What the reward would have been. 25 THE PRESIDING MEMBER: To do that you would 26 have to establish a pivot point for 1998. 27 MS SYMES: Seventy-five per cent of forecast. 28 MEMBER JACKSON: What is the forecast again, Les Services StenoTran Services Inc. 613-521-0703 1992 FOGWILL/PLATIS, cr-ex (Symes) 1 what number? 2 MR. FOGWILL: In 1998, the planned targets 3 were 24.9 million cubic metres, and the actual that was 4 achieved was 27.5 million cubic metres. 5 MS SYMES: Right. What would the SSM have 6 been? 7 MR. FOGWILL: Assuming that the net benefits 8 would be directly corresponding to the savings numbers 9 which isn't always the case because you can get some 10 variation, the achievement is 110 per cent. So -- and 11 it was, say one-third of -- sorry, two-thirds of what 12 the -- I'm just trying to make the calculations in my 13 head quickly. 14 --- Pause 15 THE PRESIDING MEMBER: Do you want to take an 16 undertaking and provide the figure? 17 MR. FOGWILL: Well, actually I think we are 18 almost there, Mr. Chairman. 19 I think as an estimate I would say that for 20 the one year it would be somewhere in the range of a 21 million to a million and a half as a rough estimate. 22 MS SYMES: If the SSM had been in place for 23 1999, what would Union have achieved as a reward? 24 MR. FOGWILL: It would have been roughly the 25 same amount, million to million and a half. 26 MS SYMES: So somewhere between two and three 27 million dollars then Union would have got, had the SSM 28 been in place for the past 1998-1998? Les Services StenoTran Services Inc. 613-521-0703 1993 FOGWILL/PLATIS, cr-ex (Symes) 1 MR. FOGWILL: That's a rough estimate, but 2 yes. 3 MS SYMES: If you want to refine it, would you 4 give me an undertaking if you can fine it? 5 MR. FOGWILL: I think at this point it is a 6 reasonable approximation that we can carry forward with. 7 MS SYMES: I want to try and figure out what 8 is happening to this money with respect to DSM. Let's 9 just look at 1999 dollars -- I mean, 1999 plan, and 10 let's -- assuming that an SSM was in place, the DSM 11 costs with -- I want to look at the impact on rate 12 payers. 13 The costs then with respect to DSM were 14 approximately $3.8 million? 15 MR. FOGWILL: Yes, that's correct. 16 MS SYMES: The LRAMs that you are proposing 17 would be approximately $1.6 million? 18 MR. FOGWILL: Yes, for 1999, yes. 19 MS SYMES: Okay. And both of those numbers go 20 into rates? 21 MR. FOGWILL: They get collected as a -- the 22 expenditures are part of the operating costs so that 23 they go into rates. The LRAM is going to be collected 24 as a separate item. 25 MS SYMES: Then the SSM that you have told us 26 is somewhere between one and $1.5 million. 27 MR. FOGWILL: For the year if that was in 28 place, that's correct. Les Services StenoTran Services Inc. 613-521-0703 1994 FOGWILL/PLATIS, cr-ex (Symes) 1 MS SYMES: So therefore, for 1999, it would 2 have been somewhere between -- DSM would have been 3 somewhere between $6.4 million and $6.9 million that the 4 rate payer would have to pay. 5 MR. FOGWILL: In 1999? 6 MS SYMES: Yes. 7 MR. FOGWILL: Well, if we take the loss 8 revenue adjustment mechanism of 1.6, add on to that the 9 short savings mechanism of -- 10 MS SYMES: Of 1 to 1.5. 11 MR. FOGWILL: -- 1 to 1.5, we are getting 2.5 12 to 3. 13 MS SYMES: And then the 3.8 million in DSM 14 costs. 15 MR. FOGWILL: Right, yes. 16 MS SYMES: Okay. Now, in terms then of gas 17 savings you will agree with me that if any of the 18 customers who participate in the DSM program actually 19 get the DSM benefits in terms of gas savings? 20 MR. FOGWILL: In terms of the direct savings 21 that's correct. But there are net benefits that are 22 applicable to society as a whole that all customers, and 23 actually other non-gas rate payers in Ontario would get. 24 MS SYMES: I'm interested in direct savings. 25 I have looked, but I can't see anything in 26 your evidence that breaks out how these costs are going 27 to be broken down between residential, commercial, 28 industrial, and agricultural customers. The three ones Les Services StenoTran Services Inc. 613-521-0703 1995 FOGWILL/PLATIS, cr-ex (Symes) 1 I have just gone through: the DSM costs; the LRAM 2 costs; and the SSM. 3 MR. FOGWILL: In terms of the operating costs, 4 I'm not sure how they are treated in terms of rate 5 making purposes, how they are allocated to the different 6 marketplaces. 7 MS SYMES: Maybe I can save time on that. Are 8 you proposing a change with respect to that? 9 MR. FOGWILL: No, no. 10 MS SYMES: Okay. Now what about the LRAM? 11 You are asking for an LRAM. How do you propose to 12 allocate the $1.6 million? 13 MR. FOGWILL: The LRAM would be allocated to 14 the rate classes that we could determine it came from. 15 Where we can't determine where the savings comes from a 16 particular rate class, it would be allocated across the 17 group of rate classes that could be linked to that 18 savings. 19 MS SYMES: Okay. Is that going to be done on 20 a volumetric basis or on a budget basis? I'm going back 21 to ask you to look at what happened in 1999, and it's on 22 page 9. 23 MR. FOGWILL: It's on a volumetric basis. 24 MS SYMES: On a volumetric basis, okay. Now 25 what about this SSM? How are you going to allocate the 26 costs of the SSM? 27 MR. FOGWILL: The collection of the costs, or 28 the rebate to the customers as a result of a penalty -- Les Services StenoTran Services Inc. 613-521-0703 1996 FOGWILL/PLATIS, cr-ex (Symes) 1 MS SYMES: Or reward. 2 MR. FOGWILL: -- or reward would likely -- 3 would follow the same approach where if we could 4 allocate it to the customer classes where the benefits 5 were generated from, we would apply that to those 6 customer classes. Where we couldn't and there was a 7 linkage between several customer classes we would make 8 an allocation across that group. 9 MS SYMES: So the record just isn't complete 10 with respect to how these costs are going to be dealt 11 with. Are you going to file anything more about that? 12 MR. PENNY: That's a question that's perhaps 13 more preferably addressed to Mr. Packer. 14 MS SYMES: Sure I will then, that's fine. If 15 the Board were to order an earning sharing mechanism in 16 this PBR, is the SSM reward part of that earning sharing 17 mechanism or is it outside, that is, over and above the 18 earning sharing mechanism? 19 MR. FOGWILL: I really can't answer that 20 because I don't know how a potential earning sharing 21 mechanism would work. So I really can't link that to 22 whether it would be within or without. 23 MS SYMES: What is the appropriate -- 24 MR. PENNY: Well, Mr. Chairman, given that 25 Union isn't proposing what -- I'm not sure how the 26 question can be answered. 27 THE PRESIDING MEMBER: I think that is a 28 correct statement. Union has not proposed an earnings Les Services StenoTran Services Inc. 613-521-0703 1997 FOGWILL/PLATIS, cr-ex (Symes) 1 sharing system, so I don't think -- 2 MR. PENNY: I think in order to -- if Ms Symes 3 wanted to formula some kind of theoretical question, 4 we'd have to have a bunch of parameters about what the 5 assumptions were about how the earnings sharing 6 mechanism would work and certainly Mr. Fogwill is not in 7 a position to answer those questions in any event. 8 THE PRESIDING MEMBER: I think the question 9 could be, if this is what Ms Symes is after, is if the 10 Board were to consider an earnings sharing mechanism, 11 what is Mr. Fogwill's opinion as to whether the SSM 12 savings should be part of that mechanism, and if it is 13 part of the mechanism, how it should be addressed, 14 something along those lines, might be something that Mr. 15 Fogwill could answer. 16 MR. PENNY: Fair enough, sir. 17 MS SYMES: Yes. 18 MR. FOGWILL: Mr. Chairman, I'm not familiar 19 enough with the different types of earnings sharing 20 mechanisms and parameters that would be put in place to 21 be able to answer that question, so at this point I 22 don't have an opinion on -- 23 THE PRESIDING MEMBER: Fair enough. 24 MR. FOGWILL: -- on what that would be. 25 MS SYMES: As we were to ask all our DSM 26 questions to this panel, Mr. Penny, can now indicate as 27 to who they might ask. The next panel? 28 MR. PENNY: Well, Mr. Fogwill is giving you Les Services StenoTran Services Inc. 613-521-0703 1998 FOGWILL/PLATIS, cr-ex (Symes) 1 his answer, that he's not familiar with earnings sharing 2 mechanisms and doesn't have an opinion. I'm not in a 3 position to help you any further. 4 THE PRESIDING MEMBER: Ms Symes, you can try 5 the question with the rates panel in the context of: if 6 this is regarded as a deferral account, how would it be 7 clear, and you might be able to work it that way around, 8 if you talk to the next panel, which is the rates -- Mr. 9 Penny? 10 MR. PENNY: That was my comment before. I 11 think that's a good suggestion. Mr. Chairman, actually, 12 as I think of it, because that was my comment before, 13 that to the extent that Ms Symes had questions about the 14 technical clearance of the deferral account that would 15 be holding the SSM panel, these are rewards, that Mr. 16 Packer could possibly address that, and perhaps he could 17 speak to this issue, as well. I'm not sure. 18 THE PRESIDING MEMBER: And I also understand 19 that Mr. Birmingham is a member of the same panel? 20 MR. PENNY: Yes, he is. 21 MS SYMES: Thank you. 22 --- Pause 23 THE PRESIDING MEMBER: Ms Symes, you are 24 finished, are you now? 25 MS SYMES: Yes, I am. 26 THE PRESIDING MEMBER: Sorry, I didn't realize 27 that. 28 Mr. Poch, I believe you are up next. And you Les Services StenoTran Services Inc. 613-521-0703 1999 FOGWILL/PLATIS, cr-ex (Symes) 1 advise me what you want to do, whether you want to start 2 and then break, or break and take it straight from -- 3 MR. POCH: Oh, I'm sorry, did you mean break 4 for the afternoon recess or break for the day? 5 THE PRESIDING MEMBER: Break for the afternoon 6 recess, not for the day. 7 MR. POCH: I'm in your hands, Mr. Chairman. 8 It's fine either way, whatever the Board would prefer. 9 THE PRESIDING MEMBER: I think probably the 10 best bet would be to have a break then for 15 minutes 11 and then you come back and then you have a straight run 12 at this. 13 Thank you. 14 --- Upon recessing at 1532 15 --- Upon resuming at 1555 16 THE PRESIDING MEMBER: Mr. Poch. 17 MR. POCH: Thank you, Mr. Chairman. 18 Mr. Chairman, as you appreciate, this is our 19 key issue -- we rely up to the other parties on some 20 other issues we are concerned about, but this is our key 21 issue -- and I do need to spend some time on it. 22 Unfortunately, it doesn't appear I can finish today. I 23 apologize to the Board if this is taking longer than you 24 had hoped, but I hope that at least I will try to do it 25 in an orderly fashion and try not to be too repetitive. 26 CROSS-EXAMINATION 27 MR. POCH: We placed before you cross- 28 examination materials, all of which come from the record Les Services StenoTran Services Inc. 613-521-0703 2000 FOGWILL/PLATIS, cr-ex (Poch) 1 or were provided to my friends -- provided to the 2 company in advance and it might be convenient to have an 3 exhibit number for that. 4 THE PRESIDING MEMBER: Well, I think we have 5 been using exhibit numbers. That's 11.6, is it? 6 DR. WIGHTMAN: F11.6. 7 MR. POCH: All right. And I will be referring 8 to the C18, G-C series of interrogatories. 9 EXHIBIT NO. F11.6: Cross-examination 10 materials 11 MR. POCH: Now, I just wanted to start picking 12 up on something that Ms Symes was discussing with you, 13 which is DSM as an SQI. And I just want to see if you 14 agree with my assumption on this. 15 For some of the SQIs, let's take an example, 16 how fast a telephone is answered, it seems clear, does 17 it not, that at a given point there is a diminishing 18 value in having the phone answered quicker, and hence we 19 can view some of those SQIs as levels that, although 20 minimums, and in effect, maximums, that is, the purpose 21 of the SQI is to simply assure everyone that the 22 appropriate level is achieved and it would not be 23 particularly appropriate to spend a lot of money and 24 design a complicated incentive program to get you 25 increasingly beyond that level of performance. I won't 26 speak about the need for penalties, let's just stay to 27 the positive fact. 28 Would you agree that that's a distinction Les Services StenoTran Services Inc. 613-521-0703 2001 FOGWILL/PLATIS, cr-ex (Poch) 1 between that and what you are proposing for DSM, where 2 what you are proposing an incentive because there is 3 value, both for the company and the customers in 4 encouraging better performance? 5 MR. FOGWILL: Well, I think it's difficult to 6 answer that question because, again, I'm not privy to 7 the other service quality indicators. I don't know what 8 the business impacts of the different indicators are so 9 unfortunately I can't make that comparison for you 10 MR. POCH: Let's stick to the DSM, then. DSM, 11 you are proposing an SSM, I take it, in part because you 12 agree that it's a situation where, within limits, and 13 out of constraints which may come into place, there is 14 benefit in improved performance and the proposal to 15 incent that improved performance? We wouldn't be 16 incenting it if there was no such benefit? 17 MR. FOGWILL: There is a public benefit to 18 demand side management activities and the incentives 19 tries to encourage the company to increase those 20 societal benefits 21 MR. POCH: And by tying the incentive 22 structure around one of the tests, in this case TRC, we 23 are ensuring that we are only incenting cost-effective 24 conservation. Correct? 25 MR. FOGWILL: That's correct 26 MR. POCH: All right. And TRC, as opposed to 27 SCT, so in this case we are taking cost-effective and 28 the narrower sense of the word, we are not counting such Les Services StenoTran Services Inc. 613-521-0703 2002 FOGWILL/PLATIS, cr-ex (Poch) 1 things as externalities? 2 MR. FOGWILL: That's correct 3 MR. POCH: All right. Okay, then let's move 4 on. 5 I wanted to discuss with you a little bit 6 about the clearance of the LRAM and SSM accounts, and 7 appreciate that the fine accounting aspect of it may be 8 in for another panel, but let's see if we can discuss 9 some of the principles that should inform how this 10 works. You already have an LRAM. Is it your proposal 11 that it will be cleared simultaneously with the 12 clearance of the SSM account as we go forward? 13 MR. FOGWILL: The clearance of the accounts 14 would be done in the same manner 15 MR. POCH: And I take it we are talking about, 16 in your proposal, the five-year SSM, will that clearance 17 await the end of that five-year period, or will you be 18 doing that on some annual basis with some kind of a -- 19 MR. FOGWILL: The proposal is to wait to the 20 end of the five-year period and then apply to the next 21 PBR term 22 MR. POCH: And so you would propose doing the 23 same for the LRAM? 24 MR. FOGWILL: That's correct 25 MR. POCH: All right. And we agree that for 26 both of these accounts, you will need to achieve either 27 agreement or otherwise be able to persuade the Board 28 that the savings, the DSM savings, the gas savings, were Les Services StenoTran Services Inc. 613-521-0703 2003 FOGWILL/PLATIS, cr-ex (Poch) 1 real. That's how you are going to satisfy the Board 2 that the account will be cleared, that the "x" level of 3 savings had been achieved, and therefore, the accounts 4 should be cleared, as follows? 5 MR. FOGWILL: Yes. Mr. Poch, I think I would 6 like to go back and check some notes to -- just to 7 confirm that the answer I gave just previously was 8 correct about the LRAM and waiting for the full five 9 years before we cleared it. I was just thinking that 10 that might not actually be the case so if I can respond 11 to that at a later time. 12 MR. POCH: Okay, that is fine. Indeed, I was 13 a little uncertain of that myself. Perhaps we could 14 just get an undertaking to track this. How the LRAM 15 account -- the frequency of the LRAM account clearance. 16 DR. WIGHTMAN: G11.5. 17 UNDERTAKING NO. G11.5: Mr. Fogwill to 18 undertake to provide the frequency of the 19 LRAM account clearance 20 MR. POCH: Okay. I think you have agreed that 21 in both the cases, the LRAM and the case of the SSM, the 22 burden is going to be on the company to satisfy the 23 Board that the savings occurred. Correct? 24 MR. FOGWILL: That is correct. 25 MR. POCH: And the LRAM, which is intended to 26 hold the company harmless from changes in gas throughput 27 caused by the DSM programs, when we -- when it was put 28 in place in the 499 case, the ADR Agreement spoke of the Les Services StenoTran Services Inc. 613-521-0703 2004 FOGWILL/PLATIS, cr-ex (Poch) 1 intent of being to achieve revenue neutrality from the 2 DSM activity for the company and specifically used the 3 phrase that Union agrees to use the best available 4 estimates for savings resulting from energy efficiency 5 measures in the calculation of the LRAM. Do you recall 6 that? 7 MR. FOGWILL: Yes, I do. 8 MR. POCH: All right. So if between the start 9 of your plan, whether it is one year, five years, 10 whatever, some of the assumptions turned out to have 11 been, well, perhaps good forecasting at the time, have 12 been wrong for whatever reason and those inputs changed, 13 you would make that adjustment before you have cleared 14 the LRAM because the LRAM is intended to deal with the 15 actual changed GAAP throughputs? 16 MR. FOGWILL: That is correct. 17 MR. POCH: And such inputs might be such 18 things as measure savings or free riders. Correct? 19 MR. FOGWILL: Yes, that is correct. 20 MR. POCH: Obviously participants too, amongst 21 other things. 22 All right. So just to be clear, if Union knew 23 that free ridership had gone up because say the market 24 had embraced a given technology on its own, if the 25 company didn't disclose that fact, it would get credit 26 in its LRAM for gas sales margins that were supposedly 27 lost due to DSM that in fact had not been the result of 28 company activity in my hypothesis. Correct? Les Services StenoTran Services Inc. 613-521-0703 2005 FOGWILL/PLATIS, cr-ex (Poch) 1 MR. FOGWILL: That is not quite accurate. The 2 free rider concept is based on an activity happening in 3 the marketplace where there is no, for example, utility 4 operations going on. And for example, let's say that in 5 the market 10 per cent of customers are choosing high 6 efficiency furnaces without the company being involved 7 at all, that is the free rider number that we would 8 apply to the overall participants. And that number 9 would stay fixed while the company was active in the 10 marketplace. 11 Even if you had a number of participants start 12 to understand the message that Union Gas was giving him 13 and embracing the idea, all that influence is the result 14 of the company activity. So the original free rider 15 number is fixed and doesn't change. 16 MR. POCH: And what about -- well, my example 17 is where the free ridership number does change, in other 18 words, the underlying market activity changes not as a 19 result of the company's activity. 20 Let's say you had assumed it was 10 per cent 21 and some study shows up on your doorstep and in the 22 province next door where they don't have any utility 23 activity, 25 per cent of people are doing this and there 24 is no reason to think it should be any different here, 25 for example. And you are satisfied at that point. In 26 that scenario, it would be incumbent upon you to 27 disclose that fact and adjust so that you don't get LRAM 28 compensation for activities that you were, in fact, not Les Services StenoTran Services Inc. 613-521-0703 2006 FOGWILL/PLATIS, cr-ex (Poch) 1 the author of; correct? 2 MR. FOGWILL: Well, it is a little bit more 3 complicated than that because let's say, for example, in 4 another province there was 20 per cent of the market 5 that was going to high efficiency furnaces. Let's say 6 this is Manitoba, for example. Well, the market 7 dynamics of the Manitoba market are different than the 8 Ontario market so it is kind of difficult to extrapolate 9 the Manitoba experience to Ontario. 10 So if we had some reasonable numbers for 11 Ontario, we would use those as opposed to applying some 12 external factor from another marketplace. 13 MR. POCH: I thought I had made it clear. My 14 question was assuming you are satisfied that your number 15 that you thought was reasonable for it, is no longer 16 reasonable, the best number has changed in Ontario, not 17 as a result of company activity, it would be incumbent 18 upon you to disclose that before clearing the LRAM? 19 MR. FOGWILL: Yes. 20 MR. POCH: Okay. Similarly, if you learn from 21 an impact study that a program or measure wasn't really 22 saving as much gas as you initially forecast, unless 23 that change was made to the calculations, the LRAM would 24 over-reward the company? 25 MR. FOGWILL: Or under reward depending on the 26 situation, yes. Yes. 27 MR. POCH: Now, you have that LRAM at present 28 for 1999 rate year. It holds, I think we have heard, Les Services StenoTran Services Inc. 613-521-0703 2007 FOGWILL/PLATIS, cr-ex (Poch) 1 $1.6 million. You have not yet had an audit of those 2 1999 results, I take it? 3 MR. FOGWILL: The audit is currently under 4 way. 5 MR. POCH: Are you seeking the Board's 6 clearance of that account in this case? 7 MR. FOGWILL: I would have to -- I would have 8 to go back and confirm that. 9 MR. POCH: My understanding is the company is. 10 Perhaps you can just advise us if that is not the case. 11 Now, let's turn to the clearance of the SSM 12 account. 13 Should clearance of the SSM account be on that 14 same basis as the LRAM, that is, the most recent data? 15 Or should it be cleared based on the assumptions used 16 when the SSM target was set? 17 MR. FOGWILL: The shared savings mechanism is 18 designed to encourage the company to increase its 19 performance. There are elements of that performance 20 that the company can control and elements that we 21 cannot. I believe I addressed this question earlier 22 today saying that for those elements that we would be 23 able to control, such as participation and our own 24 costs, that would effect the calculations of the shared 25 savings mechanism. 26 For all the other things, for example, the 27 savings of a technology or the avoided costs, those 28 would stay fixed because they have no bearing on the Les Services StenoTran Services Inc. 613-521-0703 2008 FOGWILL/PLATIS, cr-ex (Poch) 1 performance of the company in delivering the demand side 2 management programs. 3 MR. POCH: Okay. Could you turn up CEP.41. 4 In that question we asked you -- you give a 5 whole list of inputs, some of which you can influence, 6 some of which you can't presumably, and asked whether 7 they would be subject to update during the period of the 8 plan. 9 And your answer, if I can paraphrase it was, 10 you would see if there were significant changes. If 11 there were, they would go under evaluation report and a 12 determination would be made whether or not to -- if they 13 were significant -- if there was a significant impact on 14 the cost effectiveness of the programs or measures, and 15 if that were the case, adjustment would be considered; 16 absent which if there were just slight refinements, you 17 would recognize them in subsequent periods, SSM periods. 18 Have I paraphrased that adequately? 19 MR. FOGWILL: Yes, the intent here is that for 20 the most part the assumptions will be fixed. However, 21 if there are items that have potential, huge impacts on 22 the overall viability of the plan, what we have 23 indicated here is that we would take those under 24 consideration but not necessarily change them. 25 MR. POCH: What about if there was a change in 26 a measure related input? It didn't effect if I bill 27 your whole plan, just for that measure or that program, 28 it turns out it is no longer cost effective. Are we Les Services StenoTran Services Inc. 613-521-0703 2009 FOGWILL/PLATIS, cr-ex (Poch) 1 saying we leave it alone? Deal with it in five years? 2 Or deal with it in year two when we learn of this? 3 MR. FOGWILL: I can't -- I can't see any 4 example that we have got in place right now where that 5 actually would occur. 6 But given that the impacts of that would be 7 relatively small, we would probably leave it the way it 8 is. 9 MR. POCH: So for example if the government 10 rate, the efficiency standard for hot water tanks. If 11 it just effected that one measure you would say, "Leave 12 it on, just carry on"? 13 MR. FOGWILL: No, in a case like that that 14 would be a significant market impact and we would have 15 to take that under consideration and see if there was 16 something we would have to do to adjust the plan. 17 MR. POCH: Who is going to decide all this? 18 MR. FOGWILL: Well, as I have indicated here, 19 we would be reporting in the evaluation reports and 20 those evaluation reports would be going to the customer 21 review process. So I'm assuming at that point the 22 participants in that customer review process would have 23 the opportunity to comment on that. 24 MR. POCH: Right. We will come back later to 25 what you are disclosing in your evaluation reports. 26 How do we -- what safeguards will be in place 27 to guard against the company, not that one, obviously in 28 that example, everybody would know about it. But in Les Services StenoTran Services Inc. 613-521-0703 2010 FOGWILL/PLATIS, cr-ex (Poch) 1 another example where you have done a study or some 2 information comes to your attention which suggests that 3 a measure isn't as effective say as it once was or is 4 more effective than it once was, how do we guard against 5 the company gaining the recognition of that information 6 so that it improves its SSM outcome? 7 MR. FOGWILL: Well, all the information we 8 gather in the DSM activities are subject to the 9 independent auditor, and as such the auditor may comment 10 on elements of that nature. 11 MR. POCH: So basically it's a question of 12 that you were going to disclose this to your auditor. 13 MR. FOGWILL: The auditor has access to all 14 our DSM activities, all our DSM files and documentation. 15 MR. POCH: Well, you are not suggesting that 16 the auditor is going to go through your files and search 17 to see what you have done. You are telling me that the 18 answer is -- are you not -- that your undertaking that 19 you are going to advise the auditor of all these studies 20 and you are going to provide it to him? 21 MS PLATIS: The auditor would have access to 22 all of those studies and be able to identify if it was 23 something that wasn't represented appropriately in the 24 evaluation report. 25 MEMBER JACKSON: Sir, I'm sorry but I didn't 26 hear that answer. 27 MS PLATIS: The auditor would have access to 28 all of the research studies and be able to identify if Les Services StenoTran Services Inc. 613-521-0703 2011 FOGWILL/PLATIS, cr-ex (Poch) 1 anything was not represented appropriately in our 2 evaluation report. 3 MEMBER JACKSON: He wouldn't do an exhaustive 4 audit though, would he, he's going to do a sampling type 5 audit? 6 MS PLATIS: As far as the research goes, they 7 will actually review all of our research, it's an 8 important element of the audit. 9 MEMBER JACKSON: Thank you. 10 MR. POCH: Again I have some cross on the 11 audit function which I will -- and I will come back and 12 revisit that then. 13 Can we agree that the longer the period of the 14 SSM -- and I should telegraph to the Board where I'm 15 going here -- which is that our position is you should 16 put in place a one year target and that the target 17 should be reset thereafter; the company is asking for 18 five. With the company's approach of a five-year SSM, 19 obviously there is more risk that some assumptions may 20 have changed over that period than there would be of 21 significant change during the one year period. 22 MR. FOGWILL: Yes, that's correct. 23 MR. POCH: And if we have a long SSM period, 24 if appropriate changes to inputs aren't recognized on a 25 timely basis, either because the company views them as 26 not significant enough or the company is unaware of 27 them, or the company chooses not to disclose them I 28 suppose in extreme, we could end up incenting activities Les Services StenoTran Services Inc. 613-521-0703 2012 FOGWILL/PLATIS, cr-ex (Poch) 1 that have become non-cost effective due to such changes. 2 Perhaps due to the combined effect of a number of such 3 changes, gas costs have changed, and thus avoided costs 4 have changed, measure lifetimes have changed a little 5 bit and so on. Isn't that the case? 6 MR. FOGWILL: I suppose it's possible but in 7 our estimation it's not likely that would be the case. 8 MR. POCH: If you do decide to recognize a 9 change -- just let me understand -- you update the, 10 let's call it "the pivot point" in your SSM, or do you 11 update the calculation of net benefits, or is it both? 12 MR. FOGWILL: Well first of all it's extremely 13 unlikely that we would change the DSM plan for the five 14 year period. If we were to do that we would have to 15 look at updating the SSM calculation but likely leaving 16 the pivot point at the spot it's at. 17 MR. POCH: So if you found that something was 18 significant to require updating, say we had this water 19 heater situation, the government acted and changed the 20 efficiency standard, a big chunk of your program you 21 don't have to do any more, we would -- when you say 22 change the SSM calculation, we would no longer give you 23 credit for the savings from that point forward. 24 Correct? 25 MR. FOGWILL: That's correct. 26 MR. POCH: Would you also then be asking that 27 the same savings in essence get taken out of the 28 forecast or the pivot point so that you are not Les Services StenoTran Services Inc. 613-521-0703 2013 FOGWILL/PLATIS, cr-ex (Poch) 1 penalized for not achieving the volumes that are 2 otherwise getting achieved? 3 MR. FOGWILL: It would flow right through the 4 document, so whatever adjustment was made towards the 5 shared savings mechanism it would flow back to the 6 target. So it would all either come down or go up 7 depending on the change. 8 MR. POCH: They would both be adjusted I think 9 is the common answer. 10 MR. FOGWILL: Readjusted, yes. 11 MR. POCH: Okay. 12 You said in 18.41, evaluation reports would 13 report significant changes. I take it from context then 14 that these evaluation reports will be annual affairs. 15 MR. FOGWILL: That's correct. 16 MR. POCH: We asked a supplemental 17 interrogatory numbered -- supplemental to 18.2, and we 18 have included it in our materials. It appears at page 2 19 of Exhibit F11.6. And don't spend a great deal of time 20 digesting the questions right now, in the interest of 21 time I'm not going to ask you to parse them and give us 22 an answer. 23 There is a series of questions that ask about 24 how you would implement mid-course changes if they were 25 deemed appropriate, significant and necessary? For 26 example, you get a study that shows something has been 27 -- a study in year three finds that a trend in free 28 ridership that implies assumptions were off by Les Services StenoTran Services Inc. 613-521-0703 2014 FOGWILL/PLATIS, cr-ex (Poch) 1 increasing amounts in percentage terms through the 2 course of the plan. How would you apply that and how 3 would we resolve that? 4 I take it you don't have any of those details 5 at this time. 6 MR. FOGWILL: Again, as I have indicated 7 before, our proposal is that the plan will be fixed over 8 the five-year period. If there was significant changes 9 that we would have to address, we would likely take it 10 to the customer review process and deal with it from 11 that point. 12 MR. POCH: Well, turning then to this question 13 of a five versus a one-year SSM more directly, just so 14 we understand how that will work, we would, in this 15 hearing, set a target for 2001, perhaps 2000 and 2001, 16 we are part way through 2000. We would be, next summer, 17 back in the customer consultation process. And -- I'm 18 sorry, this is in a one-year, if we went with a one-year 19 scenario which might have to be more than one-year in 20 the initial period, just because of the timing of this 21 case. 22 We would get, next summer we would have year 23 2000 results to look at. Correct? And part year 2001? 24 MR. FOGWILL: The evaluation report will be 25 available for 2000 at that customer review process 26 meeting. 27 MR. POCH: Right. 28 And we would be in a position if we were Les Services StenoTran Services Inc. 613-521-0703 2015 FOGWILL/PLATIS, cr-ex (Poch) 1 setting one-year targets of discussing the year 2002 2 target. Correct? 3 MR. FOGWILL: That's one option for the 4 process. Again, I would go back to the point that we 5 have a five-year plan in place, we intend to have it 6 fixed over the five-year period and that's the way our 7 shared savings mechanism has been designed to take into 8 account the five-year period. 9 MR. POCH: I won't repeat the motions here, as 10 I'm sure the Board is well aware of our position, and I 11 believe I can speak for other parties that were a party 12 to that document. It was not the intention of any 13 parties that that was in any way approval of your five- 14 year targets. Certainly not for this purpose. And I 15 will leave it there and I won't ask you to adopt my 16 position. 17 Let me ask you if we limited SSM to doing this 18 annual target resetting, could we not at least avoid the 19 likelihood of dealing with the complexity of mid-course 20 changes? Certainly there would be -- it would be 21 extremely unlikely that there would be such significant 22 changes that after one year we would have to go back and 23 reset the target end formula for that one year, except 24 in the most extreme of cases. 25 MR. FOGWILL: I think this morning I had 26 indicated in that the idea of the shared savings 27 mechanism is an incentive for the company to perform or 28 to encourage, or to increase its level of DSM activities Les Services StenoTran Services Inc. 613-521-0703 2016 FOGWILL/PLATIS, cr-ex (Poch) 1 and that, having a one-year resetting is going to be 2 detrimental for three reasons. 3 One is that it would meet the incentive 4 because going forward into the next year any benefits 5 that you would have achieved you are going to be losing 6 those in the rebasing. The second was that that the 7 shared savings mechanism is a performance-based 8 mechanism which is designed to be a lighter-handed 9 regulation and an annual target setting process violates 10 that lighter-handed approach. And the third thing is 11 it's resource intensive to develop new plans every year, 12 and as such those resources will be taken away from the 13 implementation of the DSM activities. 14 MR. POCH: Having gotten that off your chest, 15 I promise to come back to each of those. First, let's 16 get an answer to my question. 17 If we limit it to one year, we certainly avoid 18 any significant of having to go in mid-course or 19 retroactively start making adjustments because the world 20 has changed too much. 21 MR. FOGWILL: Adjusting on a shorter term 22 period would be -- would have smaller adjustments each 23 year, but again it would -- 24 MR. POCH: No -- 25 MR. FOGWILL: -- have detrimental impacts to 26 the shared savings mechanism. 27 MR. POCH: I'm asking you, is it likely we 28 would have to make adjustments in the middle of the one- Les Services StenoTran Services Inc. 613-521-0703 2017 FOGWILL/PLATIS, cr-ex (Poch) 1 year SSM period for that period? 2 MR. FOGWILL: Middle of -- within one calendar 3 year? 4 MR. POCH: Yes. 5 MR. FOGWILL: Well, our position is that we 6 wouldn't adjust it for the middle of the full five-year 7 period. 8 MR. POCH: So it's even less likely that we 9 would need to adjust it in the middle of a one-year 10 period? 11 MR. FOGWILL: It is even less likely that the 12 company would want to consider that position. 13 MR. POCH: Sure. Right. 14 So it's even less likely that we would end up 15 incenting you for something that turned out not to be 16 particularly cost effective. 17 MR. FOGWILL: Again, we come back to the point 18 what the shared savings mechanism is for. It is to 19 reward the company's performance. The company's 20 performance is based on two key elements which is 21 participation for the various measures and programs and 22 the costs that they use to achieve those. It's not 23 related directly to whether or not a furnace saves 750 24 or 800 cubic metres per year. 25 MR. POCH: Isn't that exactly what we are 26 going to reward you for in the SSM? The difference 27 between 750 and 800 is -- whatever it is? --10 per cent, 28 6 per cent, whatever it is. And that's exactly the Les Services StenoTran Services Inc. 613-521-0703 2018 FOGWILL/PLATIS, cr-ex (Poch) 1 difference that you are going to get in your reward. 2 MR. FOGWILL: The variance within each of the 3 measures can be plus or minus, whatever the estimate is. 4 The company and the participants are unable to control 5 that. So it could be 800. It could 700. We don't know 6 what it's going to be. What the company is being 7 rewarded on is its performance. And its performance is 8 not based on whether the furnace saves 750 cubic metres 9 a year or 800 metres a year, it based on whether we get 10 10,000 people buying a high efficiency furnace or 11,000 11 people buying a high efficiency furnace. 12 MR. POCH: We are not proposing to reward you 13 on participation, are we. We are proposing to reward 14 you on TRC. Isn't that correct? 15 MR. FOGWILL: TRC is based in large part on 16 the participation of people within each of the programs. 17 MR. POCH: Well, active those to a number of 18 inputs, is it not? 19 MR. FOGWILL: The product of the inputs that 20 we can control, which are the participants, and the 21 inputs that we cannot control, which are the technology 22 savings, for example. 23 MR. POCH: What you are saying to me is you 24 are going to fix that input at the front of the period, 25 that unit saved, gas saved per furnace, and then -- 26 MEMBER JACKSON: He's not talking about gas 27 volumes at this point which is what puzzles me. He's 28 talking about customers. Les Services StenoTran Services Inc. 613-521-0703 2019 FOGWILL/PLATIS, cr-ex (Poch) 1 MR. POCH: Yes. 2 So let me see if I understand too. You are 3 proposing that you are going to fix inputs that affect 4 such things as gas saved per measure put in place, and 5 the TRC, the reward then is going to say that element of 6 the TRC is frozen at the outset and the company's reward 7 at the end of the day is going to vary based only on the 8 multiplier of the number of participants. And the -- 9 well you tell me and what else. 10 MR. FOGWILL: And costs and the company is -- 11 or the variance around that number for the savings is 12 not part of the shared savings mechanism calculation 13 because it has no bearing on the company's performance. 14 MR. POCH: All right. So that brings me back 15 to my point that in the real world where we know things 16 change, where, you know, Lennox's high efficiency is 17 incrementally getting better every year and any number 18 of things changing. Gas costs are changing every year 19 or even more frequently, quarterly and so on. 20 In the real world if we have a five-year 21 period, isn't it quite likely that for a number of 22 measures, the overall cost effectiveness will have 23 changed and not insignificantly, whereas in any one-year 24 period, it's pretty safe to say, well that won't have 25 changed that much, and we are going to update our inputs 26 for any that have changed. For the next year, we will 27 catch it then. Isn't that true? 28 MR. FOGWILL: The change over the five-year Les Services StenoTran Services Inc. 613-521-0703 2020 FOGWILL/PLATIS, cr-ex (Poch) 1 periods is going to be greater than the change over the 2 one-year period. The company accepts the risk 3 associated with whether those changes are up or down. 4 MR. POCH: Whether or not the company accepts 5 that is a matter of public policy. What we are 6 incenting is you do more of these things and the wisdom 7 of doing more of them may be greater or lesser for any 8 given program. 9 MR. PENNY: Is that a question, Mr. Poch, or 10 are you making argument? 11 MR. POCH: Now, just in terms of again getting 12 back to one versus five years, with a one year situation 13 we wouldn't have to worry about the company timing the 14 recognition of changes to improve its SSM, would we? 15 This issue just doesn't come up. 16 MR. FOGWILL: Timing the recognition of 17 changes. You will have to explain that to me. 18 MR. POCH: Well you have got some study in 19 progress you could see it coming down the pipe. It's 20 going to tell you that the measure effectiveness of 21 things has changed. 22 In a multiple -- in a long period SSM you 23 might want to not budget as much resources for the 24 completion of that study because it's going to be bad 25 news. And what is this going to do to your SSM? You 26 will recognize it next time around, or towards the end 27 of the SSM. Whereas in a one year this isn't an issue 28 within the period. We don't have to worry about that Les Services StenoTran Services Inc. 613-521-0703 2021 FOGWILL/PLATIS, cr-ex (Poch) 1 kind of thing. 2 MR. FOGWILL: Well, first of all we our 3 proposal is going to be fixed over the five year period 4 so regardless if we find the information out in year one 5 or year four it wouldn't have an impact. 6 MR. POCH: We just went through this and you 7 said if it was significant you would change things. 8 MR. FOGWILL: No, I said if it was significant 9 we would consider it. 10 MR. POCH: Okay, thank you. 11 Now, in terms of the target setting exercise 12 contrasting these -- comparing these one year versus 13 five year options wouldn't it be a little easier in a 14 one year situation? We don't have results that are from 15 the year prior already in evaluation report. We will 16 have the immediate -- the test year we are in the middle 17 of, will have a five and seven. We can largely 18 extrapolate from past performance. If there is any big 19 changes the company or the parties can bring those to 20 the table. 21 Whereas in a five year scenario we are going 22 to be back to -- after five years we are going to be 23 back there sort of rebuilding a whole plan from scratch, 24 are we not? 25 MR. FOGWILL: No, we are not. In addition I 26 think it's important to restate that the company is 27 seeking approval of a particular shared savings 28 mechanism which is based on certain planning Les Services StenoTran Services Inc. 613-521-0703 2022 FOGWILL/PLATIS, cr-ex (Poch) 1 assumptions. One of those planning assumptions is that 2 we have a five year plan that sticks in place. 3 If we were to address concern of doing one 4 year planning cycles that would not only disrupt the 5 intention of the shared savings mechanism to incent the 6 company to do more, we would have to consider what 7 design changes to the shared savings mechanism would be 8 appropriate under that one year scenario. 9 MR. POCH: We will get to that in a minute. 10 But what you are really saying is, to us, give us a five 11 year SSM based on the 1999 plan, or 75 per cent of the 12 1999 plan -- and that was the plan you wrote in 1998, I 13 take it, first of all. Correct? 14 MR. FOGWILL: That's correct. 15 MR. POCH: All right. Then let's base it on 16 the 1998 plan, let's take it out to 2004. Let's assume 17 that the assumptions about where technology is going to 18 be at in 2004 that we made in 1998 they are good enough. 19 We should incent the company a few million bucks perhaps 20 to go after that. And you are telling me that we should 21 all be comfortable with that. 22 MR. FOGWILL: Well, I'm not sure if I can 23 speak for your comfort level, Mr. Poch. What I'm saying 24 is that the company's proposal is that we would want the 25 Board to consider an incentive mechanism for a five-year 26 period with a fixed plan, and a fixed set of targets, 27 and a fixed set of assumptions for that five-year 28 period, understanding that there are probably going to Les Services StenoTran Services Inc. 613-521-0703 2023 FOGWILL/PLATIS, cr-ex (Poch) 1 be some changes throughout that period. This is a 2 reasonable approach. The plan is a reasonable document 3 on which to base a performance assessment. The shared 4 savings mechanism is a reasonable mechanism in order to 5 encourage the company to do more DSM activities. 6 MR. POCH: Mr. Fogwill, in 18.41 you 7 specifically reserved the right to change the inputs if 8 you wished if you felt they were significant. Of course 9 we are concerned that in this scenario you might do that 10 in a asymmetrical fashion. 11 Are you saying you are withdrawing that 12 answer, that you don't reserve that right? Or are you 13 maintaining the right to change things? 14 MR. FOGWILL: I think in C18.41 what we said 15 was adjustments to the plan would be considered, but for 16 all intents and purposes we believe that the plan will 17 be fixed over the five year period. 18 MR. POCH: Are you reserving the right though 19 to do that if you so choose? 20 MR. FOGWILL: It's not the intention of the 21 company to conduct changes that would be asymmetrical. 22 MR. POCH: I understand that, but you are 23 reserving the right to make changes midstream. 24 MR. FOGWILL: We are reserving the right to 25 consider significant impacts on the plan. 26 MR. POCH: And you are reserving the right to 27 make changes, correct? You are not just considering it 28 in the abstract, you are considering because you are Les Services StenoTran Services Inc. 613-521-0703 2024 FOGWILL/PLATIS, cr-ex (Poch) 1 considering whether to make changes. 2 MR. FOGWILL: Yes. 3 Mr. POCH: All right. And if you do want to 4 make changes, are you proposing that's going to require 5 Board approval? 6 MR. FOGWILL: I'm proposing that it would go 7 through some consultative process first, and at that 8 point we would likely have to seek Board approval of 9 that. 10 THE PRESIDING MEMBER: Can I just clarify 11 that, Mr. Posh? From what I understand, what I have 12 heard is that basically if a change is proposed it would 13 go to this customer review process assuming that that is 14 the way it goes. And if the parties did not agree to 15 it, then it would have to come to the Board for 16 approval. If the parties agree to, it would come to the 17 Board for endorsement if the Board chose to endorse it. 18 Is that the process? 19 MR. POCH: I am asking--I think the witness is 20 saying yes. Is that correct? 21 MR. FOGWILL: Yes. Yes, that's correct, 22 Mr. Chair. 23 MR. POCH: Thank you. We had asked you in 24 C18.43 to list all other utilities which Union Gas is 25 aware of that have DSM incentive based on shared 26 savings, and to state what the -- whether they use a 27 five year period or other. And you have listed B.C. 28 Gas, West Kootenay and Enbridge. You have indicated Les Services StenoTran Services Inc. 613-521-0703 2025 FOGWILL/PLATIS, cr-ex (Poch) 1 that West Kootenay does it annually. B.C. every three 2 years, and Enbridge four years. And I just think that 3 that -- I mean I know that's an error. So can we just 4 correct the record? 5 I understand, can you confirm the situation 6 with Enbridge is we reset targets annually although 7 there is a mechanism by which the company can amortize 8 any penalties it happens to up run against over the 9 subsequent three years just to smooth rate impacts or 10 shareholder impacts. Is that your understanding? 11 MR. FOGWILL: I guess my understanding is that 12 there is a mechanism therefore, to look at it over a 13 four year period and that is what I was referring. 14 MR. POCH: That mechanism isn't the one that I 15 just described, that is the amortization of penalties. 16 But the target is being reset annually, correct? 17 MR. FOGWILL: Yes the target is being reset 18 annually. 19 MR. POCH: All right. And with the target 20 being reset annually, B.C. Gas is in an annual target, 21 and I can assist you somewhat in F10.1 which was filed 22 yesterday. We have a copy of the B.C. Gas. B.C. 23 Utilities Limited 1998-2000 revenue requirement. I 24 assume this is an ADR Settlement Agreement that was 25 accepted? 26 It's referred to as a multi-year settlement, 27 although when you get to -- on page 5 it's talking about 28 DSM achievement incentives, and it says: Les Services StenoTran Services Inc. 613-521-0703 2026 FOGWILL/PLATIS, cr-ex (Poch) 1 "A threshold level of 75 per cent of the 2 annual forecast gas savings must be 3 achieved before any incentive is earned." 4 (As read) 5 Have I read that right? 6 --- Pause 7 MR. POCH: To be fair my information is they 8 may have gone ahead and set more than one annual target. 9 MR. FOGWILL: The statement here says: 10 "A threshold level of 75 per cent of the 11 annual forecast cost savings must be 12 achieved before any incentive is earned." 13 (As read) 14 MR. POCH: All right. While we are here, can 15 you confirm for me, at paragraph 6, it says that they 16 are going to be allowed to ship resources around the 17 discontinued programs, but that the company -- the last 18 sentence is, "The company will apply to the Commission 19 for program changes where required." So if they make 20 changes, presumably mid-course, they would require 21 Commission approval. That's your understanding? 22 MR. FOGWILL: That's my understanding of 23 reading that paragraph 24 MR. POCH: Thank you. 25 Now, with a one-year versus a five-year 26 period, would it be true that the downside for the 27 company is better contained because you will be in a 28 position to reset the target a year later, having regard Les Services StenoTran Services Inc. 613-521-0703 2027 FOGWILL/PLATIS, cr-ex (Poch) 1 to what may have been disappointing performance, and not 2 face four more years, perhaps, of penalty? 3 MR. FOGWILL: The company has considered the 4 risks associated with this proposal, so it would be a 5 different risk profile if we did it on a one-year versus 6 a five-year basis. 7 MR. POCH: And one aspect of that different 8 profile would be that the company's downside risk would 9 be contained in the way I have spoken of. Correct? 10 MR. FOGWILL: That's correct 11 MR. POCH: Great. And similarly, the upside 12 risk to the company, but the downside risk to customers, 13 of what some might consider a windfall to the company, 14 is constrained. If we have missed the mark and grossly 15 underestimated what the pivot point should be, for 16 example, well, the customers will pay the bill for a 17 year, but then there's an opportunity to contain that, 18 too. Correct? 19 MR. FOGWILL: Well, I guess it comes back to 20 my point I raised before, in that a one-year resetting 21 of the target is going to mute any incentive for the 22 company to overachieve its expected performance, and 23 that if the company was considering putting additional 24 resources to this program, or these activities, knowing 25 full well that in the next year those gains would be 26 taken away by a higher target setting, and, therefore, 27 the likelihood of a penalty being imposed on the 28 company, I'm sure that the company wouldn't be Les Services StenoTran Services Inc. 613-521-0703 2028 FOGWILL/PLATIS, cr-ex (Poch) 1 considering that level of savings. 2 MR. POCH: You are saying that the marginal 3 incentive wouldn't be as great for the company? 4 MR. FOGWILL: The marginal incentive would be 5 very small for the company. 6 MR. POCH: So in the scenario where we got a 7 one year, there might be some wisdom in considering 8 something like Consumers has, which is a higher marginal 9 incentive rate? 10 MR. FOGWILL: Well, in the case of Consumers, 11 that higher marginal incentive rate has a definite rate 12 impact that the company is concerned about. 13 MR. POCH: Okay. So you have identified rate 14 impact as a concern. Let me ask you two things. 15 First of all, if we did what Consumers did, 16 which is have some either automatic or at the company's 17 discretion voluntary -- or optional, rather, 18 amortization of how this pay out get's made, it gets 19 charged into rates, we can smooth the impact on rates, 20 can we not? 21 MR. FOGWILL: You can reduce the impact on an 22 annual basis, but you are still going to face a 23 cumulative impact that's significant, sure. 24 MR. POCH: And with the five-year, if we have 25 missed the mark, we are going to face five years, 26 potentially, or four, depending whenever it happens, of 27 somebody getting taken to the cleaners, you or me. Am I 28 not right? There's a rate impact concerned with that? Les Services StenoTran Services Inc. 613-521-0703 2029 FOGWILL/PLATIS, cr-ex (Poch) 1 MR. FOGWILL: There's a rate impact concerned 2 with the shared shavings mechanism. That's why we have 3 considered that the 15 per cent is a reasonable 4 incentive rates because it balances out the ability to 5 encourage the company to do more with the rate impacts. 6 MR. POCH: Now, in broader PBR, we have heard 7 a discussion over the years, and in this case, too -- 8 and I think you just gave it to us in a different 9 version for DSM -- that a multi-year approach tends to 10 improve efficiency gains because it -- well, it gives 11 the company more incentive. And one of the reasons it 12 does it in a broader PBR is because it allows the 13 company to make capital investments that reduce O&M and 14 have the benefit of that reduced O&M for a few years, in 15 other words to be able reap the benefits of that capital 16 investment. 17 First of all, can we agree that concern 18 doesn't arise with DSM because in the SSM approach, we 19 use a TRC measure that takes the net present value of 20 all costs and benefits in that test so that at least 21 this concern over capital and OM&A trade-off just 22 doesn't arise in this context. Correct? 23 MR. FOGWILL: That's correct 24 MR. POCH: All right. 25 In other words the multi-year efficiencies are 26 captured in the one-year SSM? Whether it's a one-year 27 or a five-year SSM, multi-year efficiencies are 28 captured, in any event. And what you are talking about Les Services StenoTran Services Inc. 613-521-0703 2030 FOGWILL/PLATIS, cr-ex (Poch) 1 is simply that early on in a five-year SSM period the 2 company will be able to harvest SSM for longer for any 3 given measure. Is that fair? 4 MR. FOGWILL: Well, I wouldn't characterize it 5 quite like that because, as I have identified before, a 6 company thinks that their reasonable expectation is that 7 we are going around 75 per cent and that we will 8 endeavour to pursue higher levels, given a certain 9 incentive, but the harvesting notion is, I would call 10 it, problematic. 11 MR. POCH: You just raised this as a 12 concerned. You said that it would be less of an 13 incentive for the company. I'm just trying to 14 understand what you mean. In year one of an SSM, if you 15 go and put in place some new way to get more 16 participation, you are going to reap the benefit of five 17 years delivering and participation and you are going to 18 multiply that at the end the SSM period and get a 19 reward. 20 So that's what you were talking about, that 21 you wouldn't have that if we said, no, we are going to 22 reset the target. After a one year, we would take 23 account of this new method of delivering the program and 24 you would no longer have that same care. Correct? 25 MR. FOGWILL: It all relates to the 26 effectiveness of the existing designs. For example, in 27 one year to the next, you could get changes in the 28 number of custom projects. That doesn't change, Les Services StenoTran Services Inc. 613-521-0703 2031 FOGWILL/PLATIS, cr-ex (Poch) 1 necessarily, the design of the programs -- 2 MR. POCH: It's an example. 3 MR. PENNY: Let him finish, would you, 4 Mr. Poch. 5 MR. FOGWILL: So the characterization that you 6 are talking about is one element, one possible element, 7 of the overall. 8 MR. POCH: What else did you mean when you 9 said a multi-year SSM gives the company more incentives? 10 MR. FOGWILL: Well, for example, if we were to 11 pursue additional activities in a given year that 12 started to generate additional projects of a particular 13 type, keeping with the same design, or applying new -- 14 more resources to that because we can capture more 15 benefits, we might consider doing that if we had the 16 incentive in place for a longer period of time. 17 If we didn't have that incentive in place for 18 a longer period of time, we might not pursue. Because 19 if we were successful in one year, we reset the targets 20 at the end of that year, then we will be in a position 21 where that higher level of activity, that stretch 22 activity, if we drew back from that at all, we would be 23 facing a penalty. 24 MR. POCH: Right. Well, isn't one of the 25 implications of what you just said that at the beginning 26 then -- that at the beginning of a five-year SSM, you 27 are going to have a strong incentive, but at the end, in 28 the fourth and fifth year, you are going to be Les Services StenoTran Services Inc. 613-521-0703 2032 FOGWILL/PLATIS, cr-ex (Poch) 1 scratching your head and saying, "Maybe I ought not to 2 introduce this new aggressive behaviour. I will hold it 3 off until two years from now"? 4 MR. FOGWILL: That wouldn't be the intention 5 of the company to operate under the incentive that way. 6 We would be looking at -- 7 MR. POCH: I thought -- 8 MR. FOGWILL: We would be looking at the 9 potential -- or the opportunities in the marketplace, 10 and considering those with respect to our business 11 objectives, the rate impacts and taking a case-by-case 12 decision on whether we would pursue these extra 13 activities. 14 MR. POCH: And what are you going to decide 15 on? Aren't you going to decide and you are going to 16 look at the opportunity and you are going to say, "Can I 17 deliver this cost-effectively and get a reward?" Isn't 18 that -- 19 MR. FOGWILL: That would be one part of the 20 consideration, yes. 21 MR. POCH: So the fact that, you know, you are 22 not going to get a reward for doing that in future, why 23 is that going to reduce your willingness to do it? If 24 it is cost effective, you will have cleared the risks of 25 uncertainty after that first period. You will get 26 rewarded if it paid off. It won't be so uncertain in 27 future. 28 MR. FOGWILL: Again, it goes back to an Les Services StenoTran Services Inc. 613-521-0703 2033 FOGWILL/PLATIS, cr-ex (Poch) 1 earlier statement I made, which is balance of the 2 business objectives in the public benefits. If we were 3 to have an incentive in there, that would change the 4 balance. If we weren't to have an incentive in there, 5 then it would stay at a lower level. 6 MR. POCH: So all you are really saying is if 7 we move to a one year SSM you would think that to have 8 the same effective management incentive it would be 9 important to raise the margin on incentive rate? We 10 would want -- there would need to be some balancing 11 there? 12 MR. FOGWILL: There would be have to be a 13 consideration of what the new balance would be. I don't 14 know if that would require an additional higher 15 incentive rate. 16 MR. POCH: All right. 17 THE PRESIDING MEMBER: Mr. Poch, I am having a 18 bit of a problem, not with you, but with the whole 19 concept of this calculation of this SSM as you go 20 forward. And perhaps if I could ask a few questions. 21 MR. POCH: Of course, Mr. Chairman. 22 THE PRESIDING MEMBER: I apologize for 23 interrupting, just so I am not going to get lost in this 24 thing. 25 As I understand it, you have a plan, a five- 26 year DSM plan? 27 MR. FOGWILL: That is correct. 28 THE PRESIDING MEMBER: Now, there is an Les Services StenoTran Services Inc. 613-521-0703 2034 FOGWILL/PLATIS, cr-ex (Poch) 1 estimate in there or a target for the savings in year 2 one. 3 MR. FOGWILL: Correct. 4 THE PRESIDING MEMBER: And at the end of year 5 one certain savings are achieved? 6 MR. FOGWILL: Correct. 7 THE PRESIDING MEMBER: Now, you go to year 8 two, what are the base against which the savings in year 9 two will be? 10 MR. FOGWILL: The forecast in year two. 11 THE PRESIDING MEMBER: So that is the two 12 per cent increase that Ms Symes was talking about? 13 MR. FOGWILL: That is correct. 14 THE PRESIDING MEMBER: Now, as I understand 15 it, there is a total resource cost test measure. You 16 somehow work out what the savings over the life of the 17 program is and you project a cost and you project a 18 dollar value for the gas cost and you bring it back. 19 MR. FOGWILL: That is correct. 20 THE PRESIDING MEMBER: So it doesn't matter 21 really in which year you get that saving if you are 22 adding up all the total resource costs, except you go -- 23 don't they go over the same period? Year one is 30 24 years and year two is another 30 years and year three it 25 is another 30 years. So the total resource cost saving 26 is independent of the year in which it occurs. Is that 27 correct? Or is it all brought back to year one so that 28 they are discounted if it is in year five? Les Services StenoTran Services Inc. 613-521-0703 2035 FOGWILL/PLATIS, cr-ex (Poch) 1 MR. POCH: Mr. Chairman, my assumption if this 2 is of any assistance -- 3 MR. PENNY: Sorry. I thought that the 4 Chairman was asking the witness a question. 5 THE PRESIDING MEMBER: Well, Mr. Poch may be 6 able to clarify it here. 7 MR. POCH: I was just trying to be -- yes, 8 trying to be helpful. I am not trying to make the 9 witness' life more difficult; quite the contrary. 10 But my assumption, and the witness can maybe 11 deal with it at the same time, was that the company 12 would enter into its SSM variance account the reward it 13 associated with that little chunk of TRC in the year 14 that it is put in place and that way -- and so it would 15 accrue interest or pay interest, if it was a penalty. 16 THE PRESIDING MEMBER: So they would lose -- 17 if it wasn't done in year one, they would lose the 18 interest accumulation. If it is done in year two -- you 19 would go one year's interest if it is done in year one? 20 I don't know. Perhaps you could explain it 21 would work. That might help me. 22 MR. FOGWILL: The way it would work is you 23 would have the evaluation completed for the year and 24 that would determine what the total resource cost test 25 benefits were for the life of the technologies that were 26 installed in that one year. So you would get a number 27 which is a subset of the overall five year total. It is 28 roughly about -- what? -- $40 million because it is Les Services StenoTran Services Inc. 613-521-0703 2036 FOGWILL/PLATIS, cr-ex (Poch) 1 roughly one-fifth of the total. And then that -- that 2 performance would be based on what the forecast 3 performance in the initial year was. 4 So let's say for the sake of argument the 5 company was at 85 per cent so there would be that 10 6 per cent difference between the 75 and 85. That reward 7 would be booked into the shared shavings account and 8 accrue interest. And then that process would continue 9 each year where a penalty -- let's say we got 10 65 per cent in year two, that penalty would go in the 11 net value of that shared savings mechanism account would 12 carry forward until the end of the five-year period. 13 THE PRESIDING MEMBER: But the measurement is 14 the energy savings that are made in the year? The level 15 of energy savings you expected your DSM program to 16 create. 17 MR. FOGWILL: Within the year, yes. 18 THE PRESIDING MEMBER: Within the year. 19 And that is measured how? 20 MR. FOGWILL: The calculations are based on 21 costs, equipment costs, other participant costs. 22 THE PRESIDING MEMBER: But that is in terms of 23 the costs. But the cubic metres or gigajoules, how is 24 that measured? 25 MR. FOGWILL: There are assumptions built into 26 the plan about what a technology will say. So we go in 27 within the plan saying there is an agreement that high 28 efficiency furnace saves, for example, 800 cubic metres Les Services StenoTran Services Inc. 613-521-0703 2037 FOGWILL/PLATIS, cr-ex (Poch) 1 a year. So we just count the number of furnaces that we 2 track through our program and multiply that number of 3 furnaces by the estimate that is in the plan and that 4 gives you the total savings for the furnaces. 5 THE PRESIDING MEMBER: And you aggregate that 6 over all the different programs and assumptions that are 7 being made in the plan to work out an assumption of what 8 the activity would generate if all the other assumptions 9 stayed constant. And that is where Mr. Poch was 10 questioning that whether those -- all those other 11 assumptions would stay constant and whether there was an 12 ability for either you losing because the technology 13 didn't develop as expected or you gaining because the 14 technology was more efficient or there was -- government 15 brought in a regulation which required some sort of 16 activity which wasn't previously brought in. 17 So this is really where the debate is. 18 MR. POCH: About the change in the assumptions 19 based on -- 20 THE PRESIDING MEMBER: Changes in the 21 assumptions. 22 MR. POCH: -- some significant changes. 23 THE PRESIDING MEMBER: That helps me. I am 24 sorry for interrupting. 25 MR. POCH: Feel free, Mr. Chairman. It is an 26 arcane area. 27 THE PRESIDING MEMBER: My problem is that, you 28 know, based on the evidence filed in this proceeding, Les Services StenoTran Services Inc. 613-521-0703 2038 FOGWILL/PLATIS, cr-ex (Poch) 1 without referencing 499, the plan, if I might describe, 2 a little thin on how these mechanisms work. So that is 3 why I was asking the questions. 4 Sorry. Mr. Poch, carry on. 5 MR. POCH: Thank you, Mr. Chairman. 6 Perhaps I will just start in on the next topic 7 and find a point to break. 8 And I wanted to talk a bit about the 9 relationships of disclosure and the target setting 10 exercise. And I want to stress at the outset that I 11 don't propose to reargue our motion we brought at the 12 outset. The Board, I think was very clear. It said, if 13 I can paraphrase, that it was leaving up to the 14 companies to decide what to disclose and the company 15 will have to decide what was needed to meet its burden 16 of proof having been put on notice. And if it couldn't 17 clear its SSM account at the end of the day, they might 18 end up paying a penalty. Tough luck. 19 MR. PENNY: The ruling says what it says. 20 There is no need to argue about it now. 21 MR. POCH: So I want to distinguish that 22 concern from the question of -- that is the concern of 23 what you also, if you choose to disclose, if and when 24 you are in a position to claim a reward or pent-up 25 penalty, from the question at hand now in this hearing 26 which is with respect to setting the target or judging 27 the appropriateness of the pivot point and whether it is 28 one year or five years. Les Services StenoTran Services Inc. 613-521-0703 2039 FOGWILL/PLATIS, cr-ex (Poch) 1 Would you agree that to set -- to judge that, 2 the reasonableness of the target for the purposes of 3 incenting it, or the reasonableness of the pivot point 4 to be more precise, it is appropriate to have regard to 5 the company's recent experience. That is an important 6 consideration. Recent experience with DSM -- getting 7 DSM results. 8 MR. FOGWILL: It is a consideration, yes. 9 MR. POCH: And would you also agree that 10 another key consideration in deciding whether a 11 particular target is going to be too easy to reach or 12 too hard to reach is some sense of what the 13 opportunities are for conservation, for DSM induced 14 conservation? 15 MR. FOGWILL: Well, I don't think the issue at 16 this point is the difficulty of achieving the targets, 17 it is rather what is the balance between the business 18 objectives of the company and the public benefits 19 associated with these activities. 20 MR. POCH: Could you tell me what you mean by 21 the business objectives of the company? You have said 22 that a few times today. 23 MR. FOGWILL: Revenue generation, cost 24 control, rate impact, mitigation. 25 MR. POCH: So are you saying that setting the 26 target is something which if -- whether -- I apologize 27 for the inarticulate wording. 28 The difficulty of obtaining conservation Les Services StenoTran Services Inc. 613-521-0703 2040 FOGWILL/PLATIS, cr-ex (Poch) 1 results in the marketplace is not a relevant 2 consideration or an important consideration? 3 MR. FOGWILL: It is a consideration but it has 4 got to be put into the context of what are the -- what 5 is the trade-off between the level of effort the company 6 will put towards these activities to achieve a balance 7 between its business objects and the public benefit. 8 MR. POCH: I guess I am having a little 9 trouble understanding that. You are saying it's a 10 relevant consideration, it's just not the only one? 11 MR. FOGWILL: It's a consideration, it's not 12 the only one, yes. 13 MR. POCH: Now, we asked you, you don't need 14 to turn them up, but in 18.26 and 18.27, you made clear 15 and in the response to the motion you clear, you are not 16 willing to disclose studies on such things as free 17 ridership and economic potential. Is that right? You 18 view that as proprietary and confidential and strategic 19 information. 20 MR. PENNY: Well, Mr. Chairman, I'm not sure 21 the question put that broadly is a fair one. My 22 recollection from that motion is there were a number of 23 different types of studies and the reasons for why they 24 were or weren't appropriately disclosed was different in 25 each case. 26 MR. POCH: Let me narrow it then to the -- to 27 studies about free ridership -- first of all, are you 28 prepared to disclose studies about free ridership that Les Services StenoTran Services Inc. 613-521-0703 2041 FOGWILL/PLATIS, cr-ex (Poch) 1 are in your possession? 2 MR. FOGWILL: The studies of free ridership or 3 issues related to the marketplace we will provide the 4 results of those studies. But there are data behind 5 that that would provide information related to consumer 6 behaviour and market dynamics, we consider as 7 proprietary and we are not willing to release the full 8 document. The full document is however available to the 9 auditor. 10 MR. POCH: When you say results, will you tell 11 us what the economic potential for a given measure is in 12 your franchise area? 13 MR. FOGWILL: The economic potential results 14 that we conducted for several measures were included in 15 a previous version of the DSM plan. We haven't done any 16 additionally. 17 MR. POCH: We have asked you if you have done 18 any other such studies will you disclose them? And I'm 19 asking you that today, whether you happen to have done 20 any? If you have any studies now, or in the course of 21 -- well let's just say now. Do you have any studies 22 disclosing economic potential? 23 MR. FOGWILL: If the results of the studies 24 bear in any way on the parameters and the demand side 25 management plan, we would disclose the results of those 26 studies. 27 THE PRESIDING MEMBER: And I understood you to 28 have said that the studies that had been done were Les Services StenoTran Services Inc. 613-521-0703 2042 FOGWILL/PLATIS, cr-ex (Poch) 1 disclosed in the previous DSM and the results of them. 2 Is that correct? 3 MR. FOGWILL: The economic potential studies 4 that I referred to, yes, Mr. Chairman, those are in I 5 believe it's the 1998 to 2002 demand side management. 6 MR. POCH: The two studies I believe disclosed 7 it given at that time. Correct? 8 MR. FOGWILL: Yes. 9 THE PRESIDING MEMBER: Mr. Poch, when we have 10 an appropriate time to break. 11 MR. POCH: We could break right now, that's 12 fine. 13 THE PRESIDING MEMBER: Can we do that? 14 MR. POCH: Sure. 15 THE PRESIDING MEMBER: And then maybe we can 16 get back to this tomorrow and -- 17 MR. PENNY: Before we leave, Mr. Chairman, if 18 I could ask through you, just for the purposes of 19 alerting the next panel, could we have a rough estimate 20 from Mr. Poch on how long he thinks he might be? I 21 won't hold you to it of course. 22 MR. POCH: I know. Certainly an hour, and you 23 are safe telling them not to show up until ten, beyond 24 that it's -- 25 MR. PENNY: Thank you. 26 THE PRESIDING MEMBER: You might get an hour 27 from the Board for all you know. 28 So tomorrow we will meet again at nine o'clock Les Services StenoTran Services Inc. 613-521-0703 2043 1 and Mr. Poch will start. I don't believe there are any 2 other questions other than the Board staff and the 3 panel's own questions. 4 MR. POCH: I haven't heard back from 5 Mr. Warren but my impression was if he had any questions 6 they would be few. 7 THE PRESIDING MEMBER: Well he may be here 8 tomorrow, he may want the next panel. 9 Thank you. 10 --- Whereupon the hearing adjourned at 1700 11 to resume on Thursday, June 29, 2000 at 0900 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 2044 1 INDEX OF PROCEEDING 2 PAGE 3 Upon resuming at 0907 1843 4 Preliminary Matters 1843 5 SWORN: ALLAN FOGWILL 1846 6 SWORN: HELEN PLATIS 1846 7 Examination-in-Chief by Mr. Penny 1846 8 Upon recessing at 0935 1861 9 Upon resuming at 0940 1861 10 Cross-Examination by Mr. Mondrow 1870 11 Cross-Examination by Mr. Klippenstein 1875 12 Upon recessing at 1101 1907 13 Upon resuming at 1130 1907 14 Cross-Examination by Ms Symes 1936 15 Upon recessing at 1310 1958 16 Upon resuming at 1411 1958 17 Upon recessing at 1532 1999 18 Upon resuming at 1555 1999 19 Cross-Examination by Mr. Poch 1999 20 Upon adjourning at 1700 2043 21 22 23 24 25 26 27 28 Les Services StenoTran Services Inc. 613-521-0703 2045 1 EXHIBITS 2 3 NO. DESCRIPTION PAGE 4 F11.1 A letter dated May 23, 2000 1845 5 to Mr. Garner from Tom Byng 6 of Union Gas 7 8 F11.2 One-page narrative with three 1870 9 page Union Gas plan for the 10 promotion of higher efficiency 11 residential-type water heater 12 attached 13 14 F11.3 A Pollution Probe DSM 1879 15 cross-examination document 16 reference book 17 18 F11.4 Document entitled, "Notes for 1929 19 Remarks by the Hon. Dan Newman, 20 Minister of the Environment", 21 dated June 21, 2000; and news 22 release entitled, "Newman 23 Announces Executive Committee 24 to Lead the Province's Smog 25 Reduction Efforts", dated 26 June 21, 2000 27 28 Les Services StenoTran Services Inc. 613-521-0703 2046 1 EXHIBITS (Cont'd) 2 3 NO. DESCRIPTION PAGE 4 5 F11.5 E.B.R.O. 497-01, the ADR portion 1937 6 and 1999 draft evaluation report 7 that was prepared by Union Gas 8 in March of 2000 and DSM energy 9 savings and calculations of SSM 10 11 F11.6 Cross-examination materials. 2000 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 2047 1 UNDERTAKINGS 2 3 NO. DESCRIPTION PAGE 4 5 G11.1 Mr. Fogwill undertakes to look 1970 6 at Exhibit F11.5 to determine 7 what percentage of the 8 distribution volume in 1999 9 of 14,602 10(6)m(3) is 10 industrial 11 12 G11.2 Mr. Fogwill undertakes to provide 1977 13 what amount of lines 32, 34 and 14 36 are DSM 15 16 G11.3 Mr. Fogwill undertakes to provide 1978 17 the actual cost of a 5-plus 7 basis 18 for DSM for the year 2000 19 20 G11.4 Mr. Fogwill undertakes to provide 1979 21 a breakdown of the residential, 22 commercial, industrial, agricultural 23 and 5-plus-7 costs for the year 2000 24 25 G11.5 Mr. Fogwill to undertake to 2003 26 provide the frequency of the 27 LRAM account clearance 28 Les Services StenoTran Services Inc. 613-521-0703 2048 1 ADDENDA/ERRATA 2 MOTIONS - RP-1999-0017 3 PAGE LINES(S) 4 21 6 "is already" s/b "has already" 5 21 7 "floating" s/b "floated" 6 21 8 "forms" s/b "forums" 7 23 28 "he was" s/b "we are" 8 63 22 "view" s/b "review" 9 65 7 "2.1" s/b "2.2.1" 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 2049 1 ADDENDA/ERRATA 2 ADR AGREEMENT TECHNICAL REVIEW - RP-1999-0017 3 PAGE LINES(S) 4 8 2 "wholesome" s/b "wholesale" 5 10 9 "cold in" s/b "cold days in" 6 13 3 "tolled down" s/b "Dawn" 7 13 20 "M(12)" s/b "M12" 8 14 2 "M(12)" s/b "M12" 9 15 13 "M(12)" s/b "M12" 10 15 18 "M(12)" s/b "M12" 11 16 5 "M(12)" s/b "M12" 12 16 6 "M(12)" s/b "M12" 13 16 22 "M(12)" s/b "M12" 14 16 27 "M(12)" s/b "M12" 15 17 18 "TCPL would up the capacity" s/b 16 "TCPL capacity" 17 20 26 "M(12) s/b "M12" 18 20 27 "enfranchised" s/b "infranchise" 19 20 28 "enfranchised" s/b "infranchise" 20 21 22 "daily" s/b "delivery" 21 26 12 "of our N2 storage" s/b "of storage" 22 27 10 "approve" s/b "of that" 23 31 20 "of the" s/b "of that" 24 37 20 "of it" s/b "with it" 25 41 26 "M(12) s/b "M12" 26 42 1 M(2) s/b "M2" 27 42 6 M(2) s/b "M2" 28 44 17 "stored attached" s/b "storage is" Les Services StenoTran Services Inc. 613-521-0703 2050 1 ADDENDA/ERRATA (Cont'd) 2 ADR AGREEMENT TECHNICAL REVIEW - RP-1999-0017 3 PAGE LINES(S) 4 45 7 "exfranchised" s/b "exfranchise" 5 45 17 "Union's" s/b "Union" 6 45 20 "that" s/b "they" 7 45 24 "MR. BAKER: But" s/b "But" 8 46 25 "market" s/b "marketer" 9 46 27 "Bcf" s/b "1 Bcf" 10 46 27 "ex" s/b "X" 11 47 11 "want" s/b "wanted" 12 48 18 "this" s/b "his" 13 48 18 "may not" s/b "made" 14 48 19 "time, so" s/b "time. So" 15 49 1 "as" s/b "his" 16 49 22 "of contractual or" s/b 17 "of the contractual" 18 52 6 "the north" s/b "in the north" 19 52 9 "service" s/b "serve" 20 57 8 "in" s/b "than" 21 57 19 "page in" s/b "page 28 in" 22 57 21 "in" s/b "into" 23 58 12 "it's a" s/b "it's" 24 59 22 "contract" s/b "contracts" 25 66 2 "and" s/b "in" 26 69 17 "market" s/b "marketer" 27 75 12 "TCPL's" s/b "TCPL" 28 77 9 "customers" s/b "customer" Les Services StenoTran Services Inc. 613-521-0703 2051 1 ADDENDA/ERRATA (Cont'd) 2 ADR AGREEMENT TECHNICAL REVIEW - RP-1999-0017 3 PAGE LINES(S) 4 78 1 "propose" s/b "proposal" 5 78 2 "delimit" s/b "limit" 6 80 16 "t do" s/b "to do" 7 82 4 "immediate" s/b "metered" 8 82 18 "list. It was" s/b "list as" 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 2052 1 ADDENDA/ERRATA 2 VOLUME 1 - RP-1999-0017 3 PAGE LINES(S) 4 17 2 "recognizes" s/b "recognized" 5 18 11 "will" s/b "would be" 6 21 14 "return in equity" s/b 7 "return on equity" 8 24 15 "enfranchised" s/b "infranchise" 9 24 17 "enfranchised" s/b "infranchise" 10 24 20 "enfranchised" s/b "infranchise" 11 25 12 "their" s/b "our" 12 25 13 "their" s/b "our" 13 25 27 "past few" s/b "pass-through" 14 25 28 "improving" s/b "proving" 15 26 19 "chairing" s/b "during" 16 28 13 "market" s/b "marketer" 17 28 21 "end franchise" s/b "infranchise" 18 28 26 "peeking" s/b "peaking" 19 29 18 "Don" s/b "Dawn" 20 PAGE 68 LINE 20 THROUGH PAGE 77 LINE 5 - REPETITIVE 21 88 7 "Warren" s/b "Union" 22 97 12 "gas, the" s/b "gas, to the" 23 100 6 "of vocation" s/b "for pension" 24 100 10 "GAP" s/b "GAAP" 25 110 28 "at least to" s/b "at leave to" 26 111 20 "who staff the" s/b "staff, the" 27 121 14 "perspective" s/b "prospective" 28 121 16 "perspective" s/b "prospective" Les Services StenoTran Services Inc. 613-521-0703 2053 1 ADDENDA/ERRATA (Cont'd) 2 VOLUME 1 - RP-1999-0017 3 PAGE LINES(S) 4 124 5 "that and you may indeed"" s/b 5 "that Union may need to" 6 126 1 "O&Ms" s/b "O&M" 7 126 5 "rules" s/b "roles" 8 126 8-12 REDUNDANT 9 130 23 "yearly" s/b "early" 10 131 2 "What is the relationship" s/b 11 "MR. WARREN: What is the 12 relationship" 13 132 19 "location" s/b "relocation" 14 141 17 "from" s/b "for" 15 141 25 "roles" s/b "rules" 16 141 27 "GAP" s/b "GAAP" 17 153 4 "ADR-0499" s/b "EBRO 499" 18 153 20 "level you" s/b "level you are" 19 173 17 "their" s/b "the" 20 177 12 "our" s/b "the" 21 22 23 24 25 26 27 28 Les Services StenoTran Services Inc. 613-521-0703 2054 1 ADDENDA/ERRATA 2 VOLUME 2 - RP-1999-0017 3 PAGE LINES(S) 4 192 89 "Mr. Chairman, Mr. Thompson" s/b 5 "Mr. Chairman, before Mr. Thompson" 6 196 1 "notes" s/b "rates" 7 198 21 "$14,802" s/b "14,802" 8 198 25 "$14,560" s/b "14,560" 9 203 6 "demands charge" s/b 10 "demand charges" 11 203 7 "commodities" s/b "commodity" 12 224 27 "returned component" s/b 13 "return component" 14 230 16 "1.6 per cent fuel factor"" s/b 15 "1.6 per cent Total factor" 16 241 16 "The issue is one of timing. If you 17 assume" s/b "The issue is one of 18 timing if you assume" 19 250 2 "weight average" s/b 20 "weighted average" 21 264 9 "sponsor" s/b "sponsored" 22 264 13 "sense or what" s/b "sense of what" 23 270 6 "youth" s/b "use" 24 283 20 "$14,802" s/b "14,802" 25 284 23 "ex-franchised" s/b "ex-franchise" 26 284 24 "enfranchised" s/b "infranchise" 27 285 2 "enfranchised" s/b "infranchise" 28 Les Services StenoTran Services Inc. 613-521-0703 2055 1 ADDENDA/ERRATA 2 VOLUME 3 - RP-1999-0017 3 PAGE LINES(S) 4 301 20 "Tab," s/b "Tab 2," 5 319 2 "1990" s/b "1999" 6 320 21 "499 as" s/b "499 rates as" 7 340 15 "struck" s/b "historical" 8 341 21 "PBR-04-99" s/b "EBRO 499" 9 342 17 "factor" s/b "caps" 10 342 21 "gap" s/b "cap" 11 342 23 "gap" s/b "cap" 12 342 19 "first" s/b "price" 13 343 19 "view" s/b "review" 14 353 18 "process" s/b "processes" 15 355 7 "utilities" s/b "utility's" 16 363 11 "characterized." s/b 17 "characterized it" 18 375 5 "Board-approved for" s/b 19 "Board-approved rates for" 20 375 8 "2000?" s/b "2000." 21 375 14 "rates in the interim" s/b 22 "rates interim" 23 375 23 "form" s/b "forum" 24 376 3 "of" s/b "on" 25 377 20 "retrospective that" s/b 26 "retrospective view that" 27 377 21 "those." s/b "those items." 28 382 15 "mark" s/b "marked" Les Services StenoTran Services Inc. 613-521-0703 2056 1 ADDENDA/ERRATA (Cont'd) 2 VOLUME 3 - RP-1999-0017 3 PAGE LINES(S) 4 383 17 "section?" s/b "section." 5 385 22 "designed" s/b "design" 6 393 21 "billings" s/b "billing" 7 393 28 "retailed" s/b "retail" 8 395 16 "MR. BIRMINGHAM" s/b "MR. PENNY" 9 400 3 "has cross-examining" s/b 10 "has been cross-examining" 11 404 10 "GAAP" s/b "gas" 12 404 11 "GAAP" s/b "gas" 13 404 12 "GAAP" s/b "gas" 14 407 12 "some bundled" s/b "the unbundled" 15 411 20 "unbundled" s/b "bundled" 16 412 13 "mode" s/b "load" 17 413 23 "use in" s/b "using" 18 413 24 "user. Then" s/b "user, then" 19 418 24 "are the what" s/b "are what" 20 420 24 "supplied" s/b "supply" 21 427 12 "speaking WGS" s/b 22 "speaking to WGS" 23 427 17 "storage, rates" s/b 24 "storage, with rates" 25 427 17 "hot" s/b "off" 26 428 15 "in meeting" s/b "below" 27 429 13 "reason. Why" s/b "reason why" 28 442 2 "As" s/b "Yes. Les Services StenoTran Services Inc. 613-521-0703 2057 1 ADDENDA/ERRATA (Cont'd) 2 VOLUME 3 - RP-1999-0017 3 PAGE LINES(S) 4 442 6 "crate" s/b "create" 5 443 10 "better" s/b "that are" 6 444 6 "exceed a" s/b 7 "exceed one and a half" 8 444 20 "change were" s/b "change where" 9 446 10 "combination" s/b "accommodation" 10 448 8 "forecast as" s/b "forecast, as" 11 451 7 "valuate" s/b "evaluate" 12 451 24 "plant" s/b "plan" 13 452 2 "parameters specified"" s/b 14 "parameters are specified" 15 457 4 "customers" s/b "customer" 16 457 19 "efficiency" s/b "efficient" 17 456 16 "document" s/b "documents" 18 471 12 "reclass" s/b "rate class" 19 472 13 "have viewed" s/b 20 "have been viewed" 21 22 23 24 25 26 27 28 Les Services StenoTran Services Inc. 613-521-0703 2058 1 ADDENDA/ERRATA 2 VOLUME 4 - RP-1999-0017 3 PAGE LINES(S) 4 532 18 "$5.2" s/b "$5.5" 5 532 20 "they are" s/b "they are not" 6 542 24 "their" s/b "there are" 7 542 25 "risks continue" s/b 8 "risks that continue" 9 545 19 "return" s/b "return on" 10 546 18 "there is a" s/b "there isn't" 11 547 17 "TSP" s/b "TFP" 12 550 7 "activity" s/b "productivity" 13 551 19 "to use it" s/b "to view it" 14 558 18 "accumulated" s/b 15 "for accumulated" 16 563 25 "MS. ELLIOTT" s/b "MR. THOMPSON" 17 571 21 "charges" s/b "charge is" 18 575 2 "would involve" s/b 19 "would not involve" 20 578 15 "the best thing" s/b "the things" 21 578 21 "will" s/b "was" 22 582 8 "built" s/b "billed" 23 582 14 "costs. What" s/b "costs, what" 24 584 20 "component that" s/b 25 "component what" 26 584 21 "escalated" s/b "escalated," 27 588 8,12 "MR. BIRMINGHAM" s/b 28 "MEMBER JACKSON" Les Services StenoTran Services Inc. 613-521-0703 2059 1 ADDENDA/ERRATA 2 VOLUME 4 - RP-1999-0017 3 PAGE LINES(S) 4 591 19 "bundled" s/b "unbundled" 5 606 17 "infranchised" s/b "infranchise" 6 607 12 "detrimental" s/b "decremental" 7 608 15 "uniprices" s/b "unit prices" 8 609 13 "contacts" s/b "context" 9 614 28 "imbedded" s/b "embedded" 10 615 2,28 "imbedded" s/b "embedded" 11 617 28 "end" s/b "in" 12 618 22 "not be" s/b "be" 13 618 25 "WGS maintained" s/b 14 "wasn't maintained" 15 619 16 "a" s/b "this" 16 620 21 "regulatory" s/b "regulator's" 17 620 24 "4/99" s/b "499" 18 623 22 "want it" s/b "want to" 19 624 12 "would unacceptable" s/b 20 "would be unacceptable" 21 633 3 "party" s/b "parties" 22 633 9 "get her" s/b "get together" 23 633 10 "her" s/b "here" 24 633 11 "Members" s/b "Members'" 25 639 19 "product" s/b "productivity" 26 639 20 "1999, would" s/b "1999. Would" 27 648 15 "to -- if" s/b "to compete if" 28 677 9 "there" s/b "it" Les Services StenoTran Services Inc. 613-521-0703 2060 1 ADDENDA/ERRATA 2 VOLUME 4 - RP-1999-0017 3 PAGE LINES(S) 4 5 681 4 "Yes. I" s/b "MS. ELLIOTT: Yes, I" 6 683 14 "use for" s/b "use per" 7 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 2061 1 ADDENDA/ERRATA 2 VOLUME 5 - RP-1999-0017 3 PAGE LINES(S) 4 706 18 "cost of gas was the" s/b 5 "cost of gas the" 6 714 20 "transportation" s/b 7 "transportation, 8 716 1 "customers to" s/b 9 "customers. To" 10 716 3 "option the" s/b "option, the" 11 724 20 "basis. We" s/b "basis, we" 12 724 25 "exchanges, Panhandle and trunkline" 13 s/b "Exchanges, Panhandle and 14 Trunkline" 15 725 12, 13 "trunkline" s/b "Trunkline" 16 726 3 "trunkline" s/b "Trunkline" 17 734 24 "PBR" s/b "the PBR" 18 751 27 "low-profiling" s/b 19 "load profiling" 20 762 21 "planned (2)" s/b "plan (2)" 21 763 1 "planned" s/b "plan" 22 764 18 "planned" s/b "plan" 23 764 19 "my" s/b "may" 24 802 13 "Do you" s/b 25 "THE PRESIDING MEMBER: Do you" 26 804 23 "two" s/b "the" 27 807 13 "customers" s/b "customer" 28 808 1 "parties'" s/b "parties," Les Services StenoTran Services Inc. 613-521-0703 2062 1 ADDENDA/ERRATA (Cont'd) 2 VOLUME 5 - RP-1999-0017 3 PAGE LINES(S) 4 808 6 "parties'" s/b "parties," 5 809 26 "That's a fact" s/b 6 "That's correct." 7 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