1 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 Monday, June 19, 2000, 25 commencing at 1405 26 27 BOARD BRIEFING 28 VOLUME 1 Les Services StenoTran Services Inc. 613-521-0703 2 1 APPEARANCES 2 JENNIFER LEA/ Board Staff 3 MICHAEL LYLE/ 4 JAMES WIGHTMAN 5 6 MICHAEL PENNY/ Union Gas Limited 7 MARCEL REGHELINI 8 9 ROBERT B. WARREN Consumers Association of Canada 10 (CAC) 11 12 THOMAS BRETT Ontario Association of School 13 Business Officials 14 15 PETER THOMPSON Industrial Gas Users' 16 Association (IGUA) 17 18 MICHAEL JANIGAN Vulnerable Energy Consumers 19 Coalition (VECC) 20 21 MURRAY KLIPPENSTEIN Pollution Probe 22 23 IAN MONDROW Heating, Ventilation and 24 Air Conditioning Contractors 25 Coalition Inc. 26 27 BETH SYMES Alliance of Manufacturers 28 and Exporters Canada Les Services StenoTran Services Inc. 613-521-0703 3 1 APPEARANCES (Cont'd) 2 MARK MATTSON/ Energy Probe 3 THOMAS ADAMS 4 5 GEORGE VEGH Duke Energy, Coalition for 6 Efficient Energy Distribution 7 (CEED), TransCanada Gas 8 Services, PanCanadian 9 Petroleum, Dynegy Canada, 10 Suncor/Sunoco, CanEnerco 11 Limited 12 13 ZIYAAD E. MIA Coalition for Efficient Energy 14 Distribution (CEED), 15 TransCanada Gas Services, 16 PanCanadian Petroleum, Dynegy 17 Canada, Suncor/Sunoco, 18 CanEnerco Limited 19 20 DAVID WAQU COMSATEC INC. 21 22 STANLEY RUTWIND TransCanada PipeLines Limited 23 24 RICHARD KING/ The Wholesale Group and the 25 CHARLES KEIZER/ Major Energy Consumers And 26 PETER BUDD Producers (MECAP) 27 28 Les Services StenoTran Services Inc. 613-521-0703 4 1 APPEARANCES (Cont'd) 2 PETER SCULLY Association of Municipalities 3 of Ontario 4 5 TANYA PERSAD Enbridge Consumers Gas 6 7 ANDREW DIAMOND/ Enron Capital Corp. 8 JOHN ROOK 9 10 DWAYNE QUINN/ City of Kitchener Utilities 11 ALICK RYDER 12 13 DAVID POCH Green Energy Coalition (GEC) 14 15 MICHAEL M. PETERSON Nova Chemicals 16 17 RANDY AIKEN London Property Management 18 Association 19 20 VALERIE YOUNG Ontario Association of Physical 21 Plant Administrators 22 23 MARY ANNE ALDRED HYDRO ONE NETWORKS 24 25 26 27 28 Les Services StenoTran Services Inc. 613-521-0703 5 1 Toronto, Ontario 2 --- Upon commencing on Monday, June 19, 2000 at 1405 3 THE PRESIDING MEMBER: Before we start, 4 Mr. Penny, can I make a couple of comments? 5 This is somewhat unusual, the request we asked 6 for with regard to sort of a technical explanation of 7 the ADR Agreement and unbundling. 8 The reason that we have asked for it is that I 9 think you would recognize that Dr. Jackson and I were 10 not on the last Union 499 case. Dr. Jackson hasn't been 11 on a Union-related case for 15 years. 12 MEMBER JACKSON: Twelve. 13 THE PRESIDING MEMBER: Twelve, okay. I don't 14 want to age him more than that! 15 It is a technical document and we felt it 16 would be helpful for us to have just a technical 17 explanation. 18 We are not expecting someone to divulge 19 anything that happened in the negotiation or anything 20 with regard to ADR. We are not asking for, as it were, 21 rationale necessarily for where the decision is, but 22 what the ADR Agreement is and what technically it means. 23 That is the purpose of this. 24 I am quite upfront because I think Dr. Jackson 25 and I feel we need some education on it before we can 26 make an informed decision. Okay. 27 MR. PENNY: Yes. Thank you, Mr. Chairman. 28 That is very helpful. Les Services StenoTran Services Inc. 613-521-0703 6 1 So just by way of introduction, we are doing 2 this special briefing this afternoon. Mr. Birmingham 3 and Mr. Baker are here to give the explanations and to 4 answer your questions. 5 They are not under oath. We are transcribing 6 these proceedings only for the convenience of the Board 7 Members. I understand the reporters will prepare a 8 separate document, not part of the proceedings per se, 9 and on the basis of the arrangement the questions will 10 be addressed by the Board and Mr. Baker and 11 Mr. Birmingham will not be subject to cross-examination 12 or questions from the parties. 13 THE PRESIDING MEMBER: Could I add to that. 14 Dr. Jackson and I will do our best to make 15 sure the questions are technical, and if it looks as 16 though we are straying too far into an area of concern 17 from the ADR, I look to Ms Lea to control us and protect 18 the ADR. 19 MR. PENNY: Yes, sir. Thank you. 20 THE PRESIDING MEMBER: Thank you. 21 MR. PENNY: So with that, I will ask 22 Mr. Birmingham to just briefly outline who is before you 23 and what their roles were. 24 MR. BIRMINGHAM: Thank you, Mr. Penny. 25 Mr. Chairman, Dr. Jackson, you may recall in 26 the opening of the PBR testimony I described the process 27 that we went through for PBR. The process internal to 28 Union that began roughly in the spring of 1998 when we Les Services StenoTran Services Inc. 613-521-0703 7 1 started to form project teams internal to Union and then 2 in the fall of 1998 we began a customer consultation 3 process. 4 That same process happened with respect to 5 unbundling proposal. 6 In 1999, because of a number of changes within 7 Union, I was also given the executive responsibility for 8 the unbundling proposals. 9 And Steve Baker, who is Union's Director of 10 Products and Pricing was given the project lead 11 responsibilities for the unbundling proposal, and that 12 was developing all of the further details that were 13 going to be required for the evidence as we move forward 14 into the formal regulatory proceeding. 15 Mr. Baker led that group. He was also 16 instrumental in leading the discussions on Union's part 17 with respect to the settlement negotiations on 18 unbundling, and that is why we have asked him to appear 19 here today to lead you through a brief overview of each 20 issue and take you through the Agreement. We are happy 21 to answer questions as we go. 22 THE PRESIDING MEMBER: Thank you. 23 Mr. Baker. 24 MR. BAKER: What I intended to do was to cover 25 the settled issues as they are outlined in the Agreement 26 in the order that they appear in the Agreement. 27 I think some of my comments may be a bit 28 longer than others on some of the topics, or at least my Les Services StenoTran Services Inc. 613-521-0703 8 1 sense in terms of the ones that will need probably a bit 2 more wholesome technical explanation than some of the 3 others. 4 So the first issue is Issue 1.2.3, which is 5 for the southern operations area. This is the Parkway 6 commitment, the "22 Day Callback". 7 I think to start off we really need to look at 8 what is the current system operation and design. That 9 is probably best laid out in the evidence at pages 23 to 10 25. There is also a flow diagram at Appendix E that is 11 helpful in that regard. 12 In general, there has always been a reliance 13 on Parkway deliveries to meet design day firm demands on 14 Union's system. That is both infranchise and 15 exfranchise demands. 16 Historically, Union has always controlled the 17 TCPL FT capacity. This dates back to before there was 18 direct purchase, so Union had those TCPL FT firm 19 transportation contracts and nominated the delivery of 20 that gas on that TransCanada capacity 365 days a year. 21 So it would arrive on a firm basis at Parkway. 22 So again, the reliance on the gas that comes 23 in at the east end of Union's system has been factored 24 into the design and the operation of Union's system. 25 What it has had the effect of doing is minimizing the 26 size of the facilities that Union has had to invest in 27 in terms of its Dawn-Trafalgar system. And the existing 28 rates reflect the reliance on those firm Parkway Les Services StenoTran Services Inc. 613-521-0703 9 1 deliveries. 2 When you look at where we are today in terms 3 of existing bundled services, both system and direct 4 purchase, versus the new one, bundled service, taking a 5 look at the bundled service first. 6 Under the terms and conditions of the existing 7 bundled direct purchase service, there is a contractual 8 obligation to deliver firm supplies on TCPL firm 9 transportation at Parkway 365 days a year. So that has 10 been a term and condition of the direct purchase 11 arrangements that Union has facilitated. 12 Under that direct purchase contract, any 13 diversions by the direct purchase customer need to be 14 authorized in advance by Union. So Union still very 15 much ensures that, in order to provide that bundled 16 service, that the volumes and the gas continues to 17 arrive on the TCPL FT capacity. That is the capacity 18 that we have made available to direct purchase customers 19 to allow them to put the direct purchase agreement in 20 place. 21 For the new unbundled service, really Union's 22 intent or goal behind designing that service was to try 23 as much as possible to have as much flexibility in that 24 service as possible while still maintaining that the 25 system design and the integrity of the east end 26 deliveries. So rather than a 365-day firm obligation to 27 deliver gas, again under Union's assigned TCPL firm 28 transportation, we have proposed a 22 day callback or 22 Les Services StenoTran Services Inc. 613-521-0703 10 1 day call obligation at Parkway. 2 What that would provide is the ability for a 3 customer electing the unbundled service really the 4 freedom to divert gas away from Union's franchise for 5 all but 22 days, which would be at Union's discretion to 6 callback. 7 The thought there was, on the days when 8 Union's system was operating either at or near peak day 9 capacity, cold in the wintertime, those would be the 10 days where Union would need to call that capacity back 11 to make sure that that volume of gas arrived at the east 12 end of Union's system. 13 I think to gain a full understanding of the 14 issue of this whole delivery point flexibility issue, we 15 really need to step back and start with the TCPL 16 turnback policy that was put in place in and around the 17 spring of 1999. 18 At that time, again early 1999, the market 19 value of upstream transportation, and in particular TCPL 20 firm transportation, was trading below posted tolls. 21 That is in contrast to a couple of years earlier where 22 TCPL capacity was at a premium and was trading above 23 posted tolls. 24 What customers were looking for at that time 25 was the flexibility to be able to access discounted 26 capacity that was in the marketplace at that time. So 27 that really led to the development of the turnback 28 policy which is filed in Appendix D in the evidence at Les Services StenoTran Services Inc. 613-521-0703 11 1 Exhibit B1, Tab 1. 2 What that did was allow customers the 3 flexibility to turn back capacity to Union. So this is 4 capacity that Union had assigned to the direct purchase 5 customers under the direct purchase arrangements. These 6 were under one-year assignments. It allowed the 7 customers to turn that capacity back to Union in 8 increments where Union had the corresponding flexibility 9 to turn that capacity back to TransCanada. So in that 10 way there would be no stranded capacity or unabsorbed 11 demand charges. 12 Under that turnback policy, again going back 13 to the whole system design methodology and approach, 14 customers could access discounted capacity in the 15 marketplace, but they still had to maintain the 16 requirement to deliver at Parkway. 17 So, again, the system is designed in a way 18 such that Union relies on those volumes showing up on a 19 firm basis 365 days a year to meet all infranchise and 20 exfranchise firm demands. 21 Further into 1999, as part of the unbundling 22 consultation, customers were also seeking further 23 flexibility to not just be able to source discounted 24 capacity at Parkway, but to also have the flexibility to 25 source supplies at Dawn. Again, that was driven by the 26 fact that there was a differential in the marketplace 27 between Dawn delivered supplies and Parkway supplies 28 such that there was an economic driver for customers Les Services StenoTran Services Inc. 613-521-0703 12 1 wanting to bring in volumes at Dawn. That really 2 spurred on the whole issue, really, in terms of how 3 Union could facilitate or allow customers the 4 flexibility to deliver supplies at Dawn while at the 5 same time recognizing the fact that we still needed the 6 deliverability at Parkway to keep the system intact and 7 be able to serve all firm loads. 8 So we filed the supplemental evidence at 9 Exhibit B.1, tab 1, supplemental, and we outlined three 10 options at that time, and all of those options were 11 really variations on looking at different ways we could 12 try to get additional Dawn-Trafalgar capacity so that 13 instead of having the volumes show up at Parkway, 14 customers could bring in supply at Dawn and we would 15 have the physical capability to move the supplies down 16 to Dawn-Trafalgar's system and, again, meet all of the 17 firm demands. 18 So this issue, although it arose in the 19 context of the unbundling proposal, per se, it really 20 wasn't what I would term to be a pure unbundling issue 21 because we have existing bundled direct purchase 22 customers today who also want that flexibility to be 23 able to deliver at Dawn. 24 So it was flexibility that both existing 25 bundled customers and prospective unbundled customers 26 were looking for. 27 That really took us to the point where, just 28 prior to the ADR, and as a result of some de-contracting Les Services StenoTran Services Inc. 613-521-0703 13 1 that had happened on the TransCanada system, TransCanada 2 was in a position where they had excess capacity on 3 Union's system, and this is excess and tolled down to 4 Parkway capacity. 5 Just prior to the ADR, Union had negotiated 6 with TransCanada for a three year temporary turnback or 7 assignment of 150 million cubic feet a day of capacity 8 on an unconditional basis back to Union. So we would be 9 in a position to be able to have some capacity to 10 facilitate some delivery point flexibility in whatever 11 way the customers were looking for that. 12 In addition, because we weren't sure exactly 13 what the demand for delivery point flexibility was in 14 the marketplace, we had arranged with TransCanada for 15 the ability to also negotiate some amounts in addition 16 to that 150 million cubic feet a day as well, should 17 there be sufficient desire for that. 18 What the agreement reflects is a decision to 19 roll the costs of that 150 million cubic feet a day of 20 m(12) capacity into all infranchise rates, and that is 21 allocated on the basis of Union's approved Dawn- 22 Trafalgar designed day allocation. That is consistent 23 with the way Dawn-Trafalgar facilities and costs are 24 allocated infranchise. What that provides is, all 25 infranchise customers who have a Parkway daily contract 26 quantity showing up at Parkway, it gives them the 27 flexibility to move 20 per cent of those volumes to 28 Dawn. Les Services StenoTran Services Inc. 613-521-0703 14 1 Again, physically what will then happen is, 2 the volumes will show up at Dawn and, through the m(12) 3 capacity turnback from TransCanada, Union will be able 4 to physically move those volumes to Parkway and, again, 5 serve all firm demands. 6 MEMBER JACKSON: Does that let them consider 7 other sources of supply? Is that basically what it lets 8 me do with that 20 per cent of the volume? Are they 9 buying from other suppliers and it is coming in through 10 Great Lakes rather than through the northern system? 11 MR. BAKER: There is a number of different 12 options. They can arrange different supply with 13 different suppliers, and they have a number of different 14 options to bring the supply in at Dawn. Great Lakes is 15 one. There is U.S. capacity on Panhandle and trunkline 16 coming in to Ojibway, and there will be Alliance/Vector 17 capacity coming onstream in November of this year. 18 MEMBER JACKSON: I hope you didn't mind the 19 interruption. 20 MR. BAKER: No, I was just going to say, as I 21 am going through this, that I will try to watch as well. 22 I would rather do it like that as well. 23 Again, if you go through the evolution of this 24 issue, we have the TCPL turnback, where people were 25 allowed to turn back capacity and replace it, 26 essentially, with discounted capacity at Parkway, and 27 now we layer on the delivery point flexibility which 28 allows them to take 20 per cent of their Parkway DCQ and Les Services StenoTran Services Inc. 613-521-0703 15 1 move that to Dawn, again to capture whatever economic 2 differential there is at Dawn. 3 The agreement, then, also spells out, for 4 those customers who are looking for flexibility to move 5 in excess of 20 per cent of their Parkway DCQ to Dawn -- 6 the agreement outlines how we are going to facilitate 7 that, which is basically through a queue mechanism, 8 where we will establish a queue and, subsequent to a 9 Board ruling on the agreement, we propose to institute 10 the queue. Customers would express interest through the 11 queue. We would then consolidate all of the queue 12 requests, use that to go back to TransCanada, and we 13 would negotiate for some additional m(12) turnback 14 capacity. We would then put the arrangements in 15 place -- subject to negotiating that with TransCanada, 16 we would put arrangements in place, specific to the 17 customer, where they would agree to pay the costs of 18 that m(12) capacity for whatever term they wanted it. 19 This is basically a customer-specific solution 20 in excess of the 20 per cent, where Union will 21 facilitate it through a queue and through negotiating 22 with TransCanada, but again it is another mechanism to 23 access additional Dawn-Parkway capacity to allow 24 customers to move to Dawn and again maintain the overall 25 integrity and design of our system, in terms of being 26 able to meet all of the firm demands. 27 MEMBER JACKSON: So you look for a consensus 28 on the probable cost amount. Is that right? And if the Les Services StenoTran Services Inc. 613-521-0703 16 1 customers seem like they are willing to pick up those 2 costs, you will go and negotiate for further capacity. 3 MR. BAKER: The queue is really a way to 4 elicit interest in the amount of capacity. The cost 5 will be the posted m(12) rate. So I think people will 6 know what that is. It is basically our m(12) approved 7 rate now and whatever that rate escalates or changes in 8 the future. So they will know what that is. 9 MEMBER JACKSON: So if there are additional 10 costs, contracting for the short-term for capacity back 11 from TCPL, what happens to those costs in this process? 12 Does Union just absorb them and is there some 13 offsetting revenue? Or, do those costs somehow get 14 picked up on a consensual basis, perhaps through the 15 annual review process? 16 MR. BAKER: I will just step back. 17 To the extent that a customer was looking for 18 delivery point flexibility in excess of the 20 per cent, 19 they would express the interest through the queue, Union 20 would negotiate with TransCanada, and the customer would 21 agree at that time, through a contract, to pay for the 22 cost of that m(12) capacity for the term of that 23 arrangement. 24 MEMBER JACKSON: That is what I needed. That 25 was the missing link. Thank you. 26 MR. BIRMINGHAM: But, Dr. Jackson, the cost to 27 Union, really, is the forgone m(12) revenue that we 28 would otherwise be getting from TransCanada, and now we Les Services StenoTran Services Inc. 613-521-0703 17 1 will be getting that from the customer who wants to pay 2 for that incremental flexibility. 3 MEMBER JACKSON: Thank you. 4 THE PRESIDING MEMBER: Can I ask a question? 5 As I understand it, the customer who is currently on 6 direct purchase with a Parkway delivery component 7 continues to have that obligation for delivery at 8 Parkway. Is that correct? 9 I think it says somewhere in the ADR 10 Agreement: "Customers, however, are still required to 11 obligate the delivery of any replacement capacity at 12 Parkway." So even if they replace it, they still have 13 to deliver it there. Is that correct? 14 MR. BAKER: That is really in relation to the 15 turnback policy. That is why I think there are really 16 two steps in the evolution. There is the turnback 17 policy first, which allowed customers to turn back -- 18 TCPL would up the capacity with a Parkway delivery point 19 to Union and then Union would turn that back to 20 TransCanada. In that situation the customer would still 21 have an obligation to deliver those volumes at Parkway. 22 Then the second step is that customers were 23 looking for additional flexibility to not only be able 24 to replace that turnback capacity at Parkway, but they 25 were looking for flexibility to deliver it at Dawn. So 26 that is really the 20 per cent system-wide solution. So 27 that physically allows them to move 20 per cent of their 28 Parkway DCQ from Parkway to Dawn for the three year term Les Services StenoTran Services Inc. 613-521-0703 18 1 of that system-wide solution. 2 THE PRESIDING MEMBER: But the 22-day callback 3 applies to new direct unbundled service? The 22-day 4 callback, to whom does that apply? 5 MR. BAKER: That applies to any customer who 6 is electing the new unbundled service. 7 THE PRESIDING MEMBER: So it is unbundled 8 service. So if someone who has a direct purchase 9 bundled service now elects to go unbundled, they would 10 move from a Parkway delivery commitment to a 22-day 11 callback. Is that correct? 12 MR. BAKER: That is right. If you have a 13 bundled direct purchase customer today, say with 100 14 unit DCQ, the first step when they elect the unbundled 15 service is that they now have a 22-day callback 16 obligation on that 100 unit DCQ. What the 20 per cent 17 system-wide solution provides for is that they can now 18 move 20 units of that DCQ to Dawn. So they have 20 19 units at Dawn, 80 units at Parkway, and the 22-day 20 callback relates to the 80 units which are at Parkway. 21 THE PRESIDING MEMBER: I see. I wondered how 22 that worked. Thank you. 23 MEMBER JACKSON: And if they also take the 24 option of turning back some of the TCPL capacity, then 25 they are separately still responsible for delivery at 26 Parkway for either the 100 per cent or the 80, if they 27 have elected this other option. Is that correct? 28 MR. BAKER: That's right. Les Services StenoTran Services Inc. 613-521-0703 19 1 MEMBER JACKSON: Now, just to help me 2 physically, because it gets in my mind better if I can 3 think of the physical system, if they didn't need TCPL 4 capacity, presumably on the northern system to deliver 5 at Parkway, how would they deliver at Parkway? What 6 else is coming into Parkway? Would they be delivering 7 it from Dawn across? 8 MR. BAKER: There is a couple of different 9 ways to go, but I think because of some of the 10 contracting changes on TransCanada there was excess 11 capacity on the TransCanada system for deliveries at 12 Parkway. So they were able to, through the turnback 13 policy, turn back what was in essence full toll capacity 14 to Union and pick up the discount. 15 MEMBER JACKSON: Yes, thank you. Good. 16 Carry on. 17 MR. BAKER: That was really all I was going to 18 cover on Issue 1.2.3, again, not knowing whether there 19 was some other questions from the Board member. 20 THE PRESIDING MEMBER: There was a date 21 question. Subject to the Board's review and 22 consideration of the agreement, it is Union's intent to 23 initiate this queue process in June 2000. That is on 24 page 16. That is a timing question. 25 MR. BAKER: Sorry. I was really just saying 26 that before we would go out and initiate the queue for 27 any additional customer-specific request for 28 flexibility, in excess of a 20 per cent system-wide Les Services StenoTran Services Inc. 613-521-0703 20 1 solution, that we wanted to make sure that we had the 2 Board's ruling on the ADR Agreement before we initiated 3 that process. 4 But the intent was to initiate the queue 5 process shortly after any Board ruling on the agreement. 6 --- Pause 7 THE PRESIDING MEMBER: Thank you. Do you want 8 to move on? 9 MR. BAKER: I guess just a couple of things. 10 The agreement between TransCanada and Union on 11 both the 150 million cubic feet a day and the additional 12 potential 200 million cubic feet a day is filed at 13 Appendix D of the ADR Agreement. 14 The 150 million cubic feet a day is a three 15 year -- that is a three year term on that capacity so it 16 allows customers the flexibility to move 20 per cent of 17 their DCQ away from Parkway for three years. The 18 agreement also speaks to what I think is termed future 19 reversion to Parkway. So at the end of that three years 20 when that temporary assignment from TransCanada expires, 21 the customers then have the obligation to deliver back 22 at Parkway. 23 The other thing, just to emphasize it, is that 24 the cost of that -- if I didn't do it earlier -- the 25 cost of the 150 million cubic feet a day capacity -- 26 sort of what we have referred to as the "foregone m(12) 27 revenue", that is allocated to enfranchised customers 28 only because it is the enfranchised customers that are Les Services StenoTran Services Inc. 613-521-0703 21 1 benefiting from the delivery point flexibility. 2 THE PRESIDING MEMBER: Thank you. 3 MR. BAKER: The next issue is Issue 1.2.4, 4 again the southern operations area. This is the 5 delivery commitment credit elimination. 6 Currently, today Union pays a delivery 7 commitment credit to direct purchase customers who are 8 obligating their deliveries again at Parkway in 9 accordance with their direct purchase contract. The 10 delivery commitment credits had a fairly long history at 11 Union and it originated through the buy/sell pricing 12 methodology. Originally, I think it was referred to as 13 the obligated demand premium. That represented at that 14 time the difference between the Ontario firm buy/sell 15 price and Union's WACOG, weighted average cost of gas. 16 As Union introduced bundled T-service in 17 addition to the buy/sell, we had -- at that time we 18 extended the obligated demand premium payment to 19 T-service in order to avoid any differential or 20 discrimination between those two direct purchase 21 vehicles. It was at that time when we extended it to 22 T-service that it was referred to as a daily commitment 23 credit. 24 So we pay the delivery commitment credit to 25 bundled direct purchase customers, including Rate T1 26 customers. The cost of service associated with paying 27 that delivery commitment credit is recovered from all 28 customers through the delivery rates. So what the Les Services StenoTran Services Inc. 613-521-0703 22 1 agreement reflects is the elimination of both the 2 payment of the delivery commitment credit to direct 3 purchase customers and correspondingly removing the 4 delivery commitment credit cost recovery from delivery 5 rates. The principle on which that is done is on a 6 revenue-neutral basis so that customers are held revenue 7 neutral to that elimination. 8 THE PRESIDING MEMBER: Excuse me, could you 9 explain the revenue neutral? You say each individual 10 customer would be held? 11 MR. BAKER: I guess it's not each individual 12 customer when it comes to the small volume rate. If I 13 take Rate M2, for instance, what we will do there is 14 look at the delivery commitment credit that is paid out 15 for that rate class and we will reduce the commodity, 16 the delivery commodity rate, in that rate class 17 accordingly. For some of the larger customers it will 18 be done on a customer-specific basis. So those are 19 customers in Rate 7 and Rate T1, the larger industrial 20 customers. 21 Again, I think part of the rationale -- not to 22 go too far into the rationale -- but certainly, as I 23 mentioned, the delivery commitment credit has sort of a 24 long history at Union which is now called Union South. 25 It's never been part of the northern-eastern operations 26 area and it was certainly going to -- not really 27 consistent with the introduction of the unbundled 28 service and that is what has driven the rationale under Les Services StenoTran Services Inc. 613-521-0703 23 1 eliminating the delivery commitment credit. 2 THE PRESIDING MEMBER: May I ask a question 3 related to dates again? 4 In the agreement it says the elimination of 5 the delivery commitment credit will be affected --- 6 MS LEA: I'm sorry, sir, I can't hear you. 7 THE PRESIDING MEMBER: In the agreement it 8 says the elimination of the delivery commitment credit 9 will be affected April the 1st, 2001 in order to align 10 with the projected unbundling implementation rate. So 11 do I infer from that that the delivery commitment credit 12 is removed from that date, but the -- when do the costs 13 related to the flexibility start being charged? Is that 14 a fair question? 15 MR. BAKER: Yes, sir, that's a fair question. 16 The flexibility costs would be charged 17 effective November 1, 2000. That's when the capacity 18 from TransCanada comes back to Union. Most of our 19 contracts, direct purchase contracts, have a November 1 20 expiry date so customers can move their deliveries under 21 that proposal to Dawn starting November 1 of this year. 22 The April 1, 2001 date, again, we are trying 23 to project through the conclusion of this proceeding and 24 the next proceeding that we will need to go through on 25 retail unbundling, and our best projection right now is 26 that we are trying to have the unbundled service in 27 place with a small volume market in place and ready to 28 go for April 1, 2001. That is what has driven the DCC Les Services StenoTran Services Inc. 613-521-0703 24 1 elimination date of April 1, 2001. 2 --- Pause 3 MEMBER JACKSON: Yes, I did have a similar 4 question. I guess it just goes to the question of 5 comfort around the idea that it is revenue neutral to 6 all end users, but I take it that may be partly tied 7 with doing everything at the same date on this subject. 8 Is that correct? 9 Its projected unbundling date -- maybe I 10 should have asked this question first. But this 11 projected unbundling implementation date, you have 12 mentioned retail unbundling as well as other unbundling 13 for that date. Is that correct? 14 MR. BAKER: No. For customers that have daily 15 metered technology -- and these are primarily what I 16 would refer to as large end-use industrials -- they will 17 be able to access the unbundled service as proposed in 18 this proceeding as soon as there was a final decision 19 from the Board. So they don't need -- they don't need 20 any of the things that will come out of the retail 21 billing, unbundling proceeding in order to access the 22 unbundled service. So technically they could access the 23 unbundled service upon the Board's decision in this 24 proceeding. 25 For the small volume rate classes and the 26 small volume segment, they will need to be -- I think 27 what has been referred to as the Phase II proceeding, 28 the proceeding that deals with the whole issue of Les Services StenoTran Services Inc. 613-521-0703 25 1 unbundled retail billing. 2 That will need to happen practically before 3 customers and marketers will be able to access the 4 unbundled service, because they are going to take -- 5 they will contract for the unbundled service from Union. 6 So, for instance, they will contract for an unbundled 7 storage service and they will need a mechanism by which 8 to then bill the end-use customers that they are as 9 agent on behalf of for that service. 10 So there is that connection there in terms of 11 being able to practically access the unbundled service. 12 MEMBER JACKSON: Just remind me, because it 13 has been a long since I have looked at the rate 14 schedules, but the delivery commitment credit which is 15 given to all bundled direct purchase customers, does it 16 affect an unbundled customer in his rate schedule in 17 any way? 18 MR. BAKER: Because the proposal was to 19 eliminate the delivery commitment credit, the new 20 unbundled rate schedules that have been proposed have no 21 reference to the delivery commitment credit. Because we 22 don't have an unbundled service today. They are new. 23 MEMBER JACKSON: When you say that the cost of 24 giving the delivery commitment credit is essentially 25 charged against all other infranchise customers -- and I 26 don't have to worry about any unbundled infranchise 27 customers being in that pool, because you say you don't 28 have an unbundled service today? Les Services StenoTran Services Inc. 613-521-0703 26 1 MR. BAKER: That's right. 2 MEMBER JACKSON: Okay. I have to review some 3 of rate schedules. 4 Thank you. 5 MR. BAKER: Yes, I think there is -- the 6 closest thing we would have to an unbundled service, 7 which we still refer to as a bundled service, is Rate T1 8 where there is actually a storage allocation, but it is 9 not a -- our terminology for an unbundled is a service 10 where you nominate and control that service daily. You 11 have to nominate upstream transportation capacity and 12 nominate amounts out of our N2 storage on a daily basis 13 to meet your projected consumption at your plant or for 14 your group of customers. 15 MEMBER JACKSON: The T1 rate with the bundled 16 storage is paying for part of the cost of giving this 17 delivery commitment credit too at the current time, 18 is it? 19 MR. BAKER: The cost to pay the delivery 20 commitment credit currently is recovered from all rate 21 classes, all infranchise rate classes. 22 MEMBER JACKSON: Okay. Thank you. 23 --- Pause 24 MEMBER JACKSON: We were coming back to trying 25 to understand the revenue neutrality aspect. Perhaps 26 you could just help us with a few further comments. 27 As I understand it, the cost of dealing with 28 delivery commitment credits gives rise to a certain Les Services StenoTran Services Inc. 613-521-0703 27 1 forecast dollar amount which is then spread over all 2 other customers in terms of ratemaking, so that all -- 3 the amount that goes into the other rates will not 4 necessarily, on an individual rate, equal the delivery 5 commitment credit. It is a different amount on a 6 rate-by-rate basis, but in total the one cost offsets 7 the other cost. Is that correct? 8 MR. BAKER: Directionally, that's correct. 9 Maybe to try to clarify it a bit more, in the 10 approve rates in E.B.R.O. 499 -- again take rate M2 for 11 instance -- if there was, say, $10 million of delivery 12 commitment credit that was recovered within the M2 rate, 13 it is that $10 million that will be taken out of the M2 14 rate. So it goes back to the amounts that were approved 15 in E.B.R.O. 499 for recovery within those specific rate 16 classes. 17 MEMBER JACKSON: So I guess what we are 18 concerned about is that if some people leave the bundled 19 service and are no longer receiving the delivery 20 commitment credit, we are wondering how, under the new 21 scheme, that gets tracked. I guess it's done on a 22 forecast basis. The revenue neutrality is again on a 23 forecast basis, is it? 24 MR. BAKER: No. Again, today, as we sit here 25 today, we do not have an unbundled service. 26 MEMBER JACKSON: Right. 27 MR. BAKER: You may have some for April 1, 28 2001, but I don't think you will have much. Les Services StenoTran Services Inc. 613-521-0703 28 1 So the intent was to take the regime that we 2 have today, which is all bundled services, and to go 3 back to E.B.R.O. 499 and look at the amount of the 4 delivery commitment credit that was approved for 5 recovery in the delivery rates for all of the -- of all 6 of the rate classes, all of the bundled rate classes, 7 take that amount from each rate class, pull it out of 8 the delivery rates and recalculate the lower delivery 9 rate, so that there was a match between what was 10 approved for recovery in the delivery rates to what is 11 now coming out. 12 MEMBER JACKSON: Okay. 13 MR. BAKER: Those will then be the new 14 starting point for the delivery rates moving forward. 15 MEMBER JACKSON: I think that's what we -- 16 that was, again, the part that was missing from my mind. 17 The PBR process moves forward from not just 18 the 1999 rates, but the 1999 rates adjusted for, among 19 other things, this delivery commitment cost. 20 MR. BAKER: That's right. 21 MEMBER JACKSON: Which, I think, Mr. Penny, we 22 hadn't discussed yet in this hearing, although I expect 23 we were all expected to have learned about it in our 24 reading. 25 Thank you. 26 MR. BIRMINGHAM: In addition, Dr. Jackson, 27 Mr. Packer will be here later on to be able to help you 28 with some of that stuff as well. Les Services StenoTran Services Inc. 613-521-0703 29 1 Just to draw you attention to Exhibit B, 2 Tab 4, Schedule 1, Column D of those two pages will show 3 you how that delivery commitment credit is being pulled 4 out of each rate class, and that is the amount that is 5 currently in each class. 6 So from Union's standpoint, we aren't going to 7 pay it any more and we aren't going to charge it 8 any more. 9 MEMBER JACKSON: Got it. 10 Thanks very much for that. 11 --- Pause 12 MEMBER JACKSON: I'm just scanning down on 13 Schedule -- you said Schedule 1, didn't you? Was it 14 Schedule 4? No, it was Tab 4, Schedule -- 15 MR. BAKER: Schedule 1. 16 MEMBER JACKSON: Schedule 1, okay. No wonder 17 I couldn't find it. 18 Thank you. 19 --- Pause 20 THE PRESIDING MEMBER: Can I just ask one 21 other question? 22 From the period November 1 to April 1 there 23 will be included in rates, if everything is approved, a 24 cost adjustment to reflect the flexibility credit, 25 flexibility from getting 150 mmcf from TransCanada 26 PipeLines. Is that correct? 27 MR. BAKER: That's right. 28 THE PRESIDING MEMBER: And that the DCC will Les Services StenoTran Services Inc. 613-521-0703 30 1 be removed as of April 1. Is that correct? 2 MR. BAKER: That's right. 3 THE PRESIDING MEMBER: So there would be a 4 period of time from November to April when the rates 5 could be different, because from November to April they 6 include both the flexibility payment and the DCC, and 7 from April 1 the DCC is dropped. 8 MR. BAKER: They will, but in addition, we 9 will be continuing to pay the DCC for that period of 10 time as well. 11 THE PRESIDING MEMBER: No, I understand that. 12 I understand the other side of the equation as well. 13 But there is a difference in rate between November and 14 April. 15 MR. BAKER: That's right. That's right. 16 THE PRESIDING MEMBER: Thank you. 17 --- Pause 18 MR. BAKER: I'm just going to move on to 19 Issue 1.2.7. Again, the "Delivery/Redelivery Services" 20 for the northern and eastern operations area. 21 But I thought before I went into that issue I 22 would just take a few minutes and just speak, I think, 23 conceptually in terms of how demand is served in the 24 north and sort of the uniqueness of that northern and 25 eastern operations area. 26 Again, it is a fairly unique area. It is not 27 the easiest system in terms of how it operates. Today, 28 it relies on a portfolio of a number of different assets Les Services StenoTran Services Inc. 613-521-0703 31 1 in order to serve all the demands in the north on an 2 integrated basis. 3 What exists today is really, again, Union 4 controls the nominations of the TransCanada FT capacity 5 into each of the delivery zones in the north. Union 6 controls the diversions. We control the operation of 7 the storage transportation capacity on TransCanada. And 8 again, all these assets go together to operate to serve 9 the demand in the north on an integrated basis. 10 So different than the south, there is really 11 no direct relationship between the assets that may be 12 dedicated to a particular area and the demands in that 13 area, because they are operated on an integrated basis. 14 So that has created some challenges in terms 15 of trying to develop an unbundled service for the north. 16 The two challenges were outlined on page 39 of the 17 evidence, that is Exhibit B1, Tab 1. 18 We wanted to try to make sure that we were 19 allocating enough assets or enough capacity to allow an 20 unbundled customer to meet the majority of the 21 requirements, but also do that in a way that didn't 22 unduly jeopardize or cause cost increases on the 23 remaining customers that chose to still elect a bundled 24 service. So we have tried to balance those competing 25 things in trying to design the service. 26 So the assets that we have serving the north 27 are the TCPL firm transportation into each of the 28 various northern delivery areas. Les Services StenoTran Services Inc. 613-521-0703 32 1 We have what is referred to as storage 2 transportation service or STS service on TransCanada, 3 which basically moves gas from the delivery zones in the 4 north to Parkway and then from Parkway back onto those 5 delivery zones, and storage transportation pooling 6 rights which allows us to move that STS capacity into 7 various delivery zones at different points in time. 8 We then have Dawn-Trafalgar capacity, which 9 again takes gas through the STS capacity. In the 10 summer, it's moved to Parkway. The Dawn-Trafalgar 11 capacity takes that gas, moves it west into storage, and 12 then in the wintertime it takes that gas out of storage, 13 it moves on Dawn-Trafalgar to Parkway, and again we use 14 the TCPL STS capacity to move the volumes back into the 15 various delivery zones in the north. 16 So in the context of the delivery\redelivery 17 service, what it is that we are really referring to is 18 the STS capacity on TransCanada and the Dawn-Trafalgar 19 capacity. So that customers electing the unbundled 20 service would deliver gas under the TCPL FT capacity to 21 a particular delivery area. 22 They would then nominate the 23 delivery\redelivery service, which underpinning that is 24 the STS assets and Dawn-Trafalgar, so it would move gas 25 from a delivery zone all the way to Dawn, into the 26 storage, into their unbundled storage account. And then 27 in the wintertime when demands were high, they would 28 withdraw the gas of storage and nominate the Les Services StenoTran Services Inc. 613-521-0703 33 1 delivery\redelivery service to take the gas from Dawn 2 back up into the delivery area. 3 MEMBER JACKSON: Just remind me, the storage 4 transportation service, is it effectively a premium over 5 FT service? Does it come at a slightly higher cost? 6 MR. BAKER: No, it's -- 7 MEMBER JACKSON: It's a separate service. 8 MR. BAKER: A separate service. 9 MEMBER JACKSON: A separate service, okay. 10 It's sort of like, in a sense, a peaking 11 service. I'm trying to remember, is it just charged in 12 the winter although it has a summer component to it? 13 How does it -- 14 Just remind me that rate schedule, because I'm 15 not there in my reading. 16 MR. BAKER: It's a year-round service that, as 17 I said, in the summertime allows the movement of gas 18 that is required to meet the demands in a delivery zone. 19 It allows that gas to move from a particular northern 20 delivery zone to Parkway. And then in the wintertime, 21 when there is gas at Parkway, it allows the gas to move 22 back to the delivery zone. This is a service that 23 TransCanada administers. 24 MEMBER JACKSON: But the second component of 25 it at least is only a notional or a contractual 26 movement, isn't it? 27 MR. BAKER: That's right. That's right. 28 Union nominates the service and it is Les Services StenoTran Services Inc. 613-521-0703 34 1 TransCanada that looks after how the gas is going to be 2 delivered, either from the delivery zone or back to the 3 delivery zone. 4 MEMBER JACKSON: It will become clear. 5 Thank you. 6 MR. BAKER: There is a bit of an outline on 7 page 20 of the ADR Agreement on the delivery\redelivery 8 service, and also a description of why Union has been 9 unable to unbundle all of the components underlying that 10 delivery\redelivery service. 11 So there are some contractual limitations 12 today where currently the STS capacity and the 13 associated STS pooling rights are linked to the total 14 amount of Union's TCPL firm transportation contracts in 15 total. Operationally, we need to hold intact the STS 16 pooling rights in order to be able to serve all of the 17 customers and all of the delivery zones. 18 So for purposes of structuring the unbundled 19 service in the north, we have essentially kept those 20 components bundled together so that customers can take 21 their gas from the delivery zone, access Dawn storage 22 and then pull gas out of Dawn storage and pull the gas 23 back up into the delivery zone to meet their demands. 24 MEMBER JACKSON: Just remind me. STS pooling 25 rights. I think I did understand it when I read it the 26 first time and now I'm looking at it and I forget. 27 MR. BAKER: This is really where we would have 28 some STS contracts for a certain amount of capacity into Les Services StenoTran Services Inc. 613-521-0703 35 1 a delivery zone, so we would have STS capacity into the 2 northern delivery area, and the eastern delivery area. 3 At certain times of the year, although we had say 100 4 units in the north and 100 units in the eastern delivery 5 area, if we needed all 200 in the eastern delivery area, 6 we could nominate nothing for the northern delivery area 7 and all 200 in the east. So it allows us some 8 flexibility to move gas around to the different delivery 9 areas depending on where the demand is. 10 MEMBER JACKSON: And obviously vice versa? 11 MR. BAKER: That's right. 12 MEMBER JACKSON: Because that would use much 13 less capacity. The first case uses more capacity on a 14 TCPL system, doesn't it? They can accommodate it, 15 especially during this period of time when their system 16 is not full I guess. 17 MR. BAKER: They have been able to accommodate 18 in the past as well when we have contracted for the 19 service. These are rights that we have had for quite a 20 while associated with the STS capacity. 21 --- Pause 22 MR. BAKER: I wasn't going to say anything 23 else on the delivery/redelivery service, but I certainly 24 am prepared to answer any other questions you have. 25 THE PRESIDING MEMBER: As I understand, the 26 ADR agreement has agreed to continue operations as you 27 are currently undertaking. That is the way I read the 28 ADR agreement. Is that correct? Les Services StenoTran Services Inc. 613-521-0703 36 1 MR. BAKER: As we had proposed for this 2 service, that's right. 3 Just to clarify, the way we operate today is 4 that Union for bundled services is that Union manages 5 all those pieces and Dawn storage, so we manage that all 6 as a package. What the unbundled service does is it 7 keeps the delivery, redelivery assets in a bundle but it 8 provides access to an unbundled storage service at Dawn 9 for the customer who is electing that service, so they 10 will physically have a contractual entitlement to 11 storage at Dawn under the standard storage service 12 parameters that I will get to later. 13 So they will have an amount of storage 14 capacity with those parameters that is theirs to operate 15 as they see fit. The way they move gas from the 16 delivery zone into that storage and then out of the 17 storage back into the delivery zone is through the 18 delivery/redelivery service. 19 --- Pause 20 MR. BAKER: The next issue is Issue 1.2.8 and 21 this deals with the unbundling cost threshold level. 22 Again, I think this really goes back to the 23 uniqueness of the northern and eastern operations area, 24 the fact that it is a tightly integrated operation 25 today. As we looked and tried to look at how that 26 operation may be affected by the introduction of an 27 unbundled service, it was difficult to model that 28 because depending on who elects to either take a Les Services StenoTran Services Inc. 613-521-0703 37 1 T-service option or an unbundled service option and in 2 what delivery areas that increased demand happens, then 3 you could have different impacts on the operation in the 4 north. 5 The best example I think I can give to try to 6 illustrate that is -- currently, through the integrated 7 operation in the north, we operate at about I think it 8 is a 96 or 97 per cent load factor -- as you unbundle 9 and extract out pieces of assets and pieces of TCPL 10 transportation that is now going to be managed 11 separately by a customer, your ability to use all those 12 pieces and operate at as high a load factor will 13 diminish. You will lose some of those integration 14 benefits. 15 So that really drove a proposal to say let's 16 find a level, and we have landed on a 30 per cent level, 17 of incremental T-service and unbundled service whereby 18 we have an option to take a look at just what's 19 happening in the north, how the unbundled service is 20 taking shape, look at the experience of it. Again, it's 21 just the ability to check to make sure that there is not 22 something adverse happening on either side of the 23 equation I guess. 24 MR. BIRMINGHAM: One other comment just before 25 we move to storage. 26 If you sense a certain level of anxiety around 27 when the Board is going to rule on the agreement, it's 28 for a couple of reasons. It's not just how do we carry Les Services StenoTran Services Inc. 613-521-0703 38 1 on with this proceeding and building the systems that we 2 need to offer, the unbundled services, but with respect 3 to the additional delivery point flexibility -- this is 4 the amount beyond the 20 per cent, the amount that Steve 5 was speaking to about having customers enter a queue -- 6 the way that process will work, the way we envision that 7 now, is that we would set up a queue for any additional 8 amount. Parties would express interest in the amount of 9 flexibility that they would want. 10 We would aggregate those. We would have to go 11 back to TransCanada and negotiate that. We would have 12 to come back to the customers to let them know how much 13 delivery point flexibility they had. Presumably it 14 would be all of their requested amount. We would have 15 to make arrangements to bill them for that amount. 16 Those customers would have to make alternate supply 17 arrangements to be able to take advantage of that 18 delivery point flexibility. 19 So that is one of the more pressing issues in 20 terms of our ability to offer that additional delivery 21 point flexibility to customers for this fall. 22 --- Pause 23 THE PRESIDING MEMBER: Perhaps you could help 24 me a little bit. It says in here: "Union will manage 25 the risks associated with an incremental 30 per cent to 26 combine new T-service and unbundled service demand 27 representing" some number -- "830 10(6)m(3) of annual 28 demand, subject to November 1, 2000." I was wondering Les Services StenoTran Services Inc. 613-521-0703 39 1 whether you could elaborate a little bit on what 2 managing the risks associated with an incremental 30 per 3 cent means. What exactly are you managing? 4 MR. BAKER: Go back to the example I tried to 5 use to illustrate it, which is on load factor. So to 6 the extent that we do have unbundling take place, that 7 causes a deterioration in the load factor that is 8 embedded in current rates. We are managing that up to 9 that level. 10 So to the extent that we are starting off with 11 approved rates right now in 499, that had a load factor 12 embedded in it, assuming the full integration of all of 13 the assets providing the bundled service in the north 14 today -- to the extent that we saw unbundling up to that 15 30 per cent level, that had an impact on our ability to 16 manage to that level of load factor. Again, we are 17 managing that under PBR. 18 THE PRESIDING MEMBER: When you say 30 per 19 cent of combined use T-service, unbundled service, that 20 is the cubic metres of demand that has moved on to 21 unbundled service. 22 MR. BAKER: And T-service. 23 THE PRESIDING MEMBER: And T-service. 24 MR. BAKER: That's right. 25 THE PRESIDING MEMBER: So you can accommodate 26 an additional 830 10(6)m(3) annual demand on unbundled 27 and T-service before you think you need to have some 28 form of rate adjustment. Am I getting it correct? Les Services StenoTran Services Inc. 613-521-0703 40 1 MR. BAKER: Before we would want to at least 2 take a look at the experience, on what has happened. 3 MEMBER JACKSON: Because it might reduce your 4 load factor on the TCPL system below the 97 or 96 per 5 cent? Is that basically it? 6 MR. BAKER: That's right. There are different 7 things that can happen, again, depending on who chooses 8 to unbundle or elect the T-service option and in what 9 areas. The load factor is one example. There could be 10 other examples as well. 11 So it was at that level that we would at least 12 reserve the right to take a look at the experience and 13 what has happened in terms of the operation and what has 14 happened in terms of costs at that time. 15 MEMBER JACKSON: Has there been any 16 possibility of negotiating any relief from TransCanada 17 with respect to this issue, as well, if it impacts on 18 your load factor? Are they participating in giving you 19 any of this flexibility? Or, every time your load 20 factor drops do you incur more costs? 21 MR. BAKER: This is really an issue where we 22 have a contractual obligation to TransCanada, and it is 23 really our obligation to manage that capacity the way we 24 see fit. So this is really an area where there isn't a 25 lot of impact by TransCanada. This is really, 26 operationally, our obligation to manage that contract to 27 capacity. 28 MEMBER JACKSON: But am I right that if your Les Services StenoTran Services Inc. 613-521-0703 41 1 load factor drops from 97 to 96 you will incur more 2 costs? 3 MR. BAKER: That's right. We will incur more 4 costs relative to what has been built into and is 5 reflected in rates. 6 MEMBER JACKSON: Thank you. 7 THE PRESIDING MEMBER: Thank you. Carry on, 8 Mr. Baker. 9 MR. BAKER: The next topic is storage. I am 10 on page 22 of the agreement. This is issue 1.3.1, which 11 is the standard storage service, and 1.3.2, which is the 12 standard peaking service. 13 Just as a really brief overview, what we have 14 tried to do is design the unbundled storage services, 15 both the standard storage service and the standard 16 peaking service, in a way that reflects the physical and 17 operating characteristics of our pools -- the storage 18 and related deliverability that is currently reflected 19 and is underpinned by the existing bundled rates. We 20 tried to develop what we term a standard storage service 21 that would be consistent in both the northern and 22 eastern operations area and the southern operations 23 area, and also to have an unbundled storage service that 24 is consistent directionally with the structure of the 25 existing exfranchise storage services. So these are our 26 rate m(12) and rate C1 storage services. 27 There is a difference between the north and 28 the south, and I will deal with the south first. This Les Services StenoTran Services Inc. 613-521-0703 42 1 really is specific to the rate m(2) rate class, where 2 their demands today are served by a combination of both 3 base or standard storage service and peaking storage 4 service. And it is the peaking component that we have 5 reflected in the standard peaking service. Again, that 6 is only applicable to rate m(2) customers in the south. 7 But aside from the standard peaking service, 8 the structure and the terms and conditions of the 9 standard storage service are consistent in both the 10 north and the south. 11 Union's initial proposals were that -- or 12 filed proposals, were that both the standard storage 13 service and the standard peaking service in the south 14 would be a mandatory service under the unbundled 15 service, and that was the concern by certain parties on 16 those proposals. So what the agreement reflects is a 17 consensus that Union will make the standard storage 18 service optional in both the north and the south for 19 customers electing the unbundled service. 20 For the south, the standard peaking service 21 will be optional if certain conditions are met, and 22 those are largely around a physical Ontario 23 deliverability replacement and an associated Ontario 24 Energy Board approved rate order to provide that peaking 25 replacement service. 26 MEMBER JACKSON: What sort of an order would 27 you need for that? 28 MR. BAKER: I think what is really Les Services StenoTran Services Inc. 613-521-0703 43 1 contemplated here is that this would be another storage 2 operator in Ontario providing the peaking deliverability 3 service other than Union, and so it is just a 4 recognition that if there is another operator in the 5 province who is providing that service, they would need 6 to come forward and seek an order from the Board to 7 provide that service. 8 What flows from that, as well, is that, to the 9 extent that -- if a customer elected to take the 10 unbundled storage service -- or the unbundled service, 11 but they didn't want either the standard storage service 12 or the standard peaking service from Union, that would 13 constitute a permanent election on their part. That 14 would basically result in a situation where they would 15 be unable to access that unelected storage at cost-based 16 rates in the future. So it is a permanent election on 17 their part. 18 MEMBER JACKSON: Would that, then, put them in 19 the same situation as an exfranchise customer? 20 MR. BAKER: That's right. To the extent that 21 sometime in the future they had a requirement for 22 additional storage capacity from Union, they could 23 approach Union and they would be market-based rates at 24 that time. 25 THE PRESIDING MEMBER: I don't know whether we 26 have come to it, but you do have something about return 27 to service. If an unbundled customer decides to return 28 to system, he then has the same services provided to him Les Services StenoTran Services Inc. 613-521-0703 44 1 as the existing system customer who hadn't gone to 2 direct purchase -- hadn't gone unbundling and then came. 3 Is that what happens, he becomes a system 4 customer? 5 MR. BAKER: That's right. 6 MEMBER JACKSON: Then we mean bundled, do we? 7 THE PRESIDING MEMBER: I was assuming that a 8 system customer was a bundled customer, they are getting 9 all their services from Union. Is this correct? 10 MR. BAKER: That's right. I think the -- I 11 was going to come to it subsequently, but it may be 12 worthwhile coming to it here then. 13 The underlying premise under the unbundled 14 storage service is that the storage is attached to the 15 end user. So I will get into it in a minute in terms of 16 how we reallocate or redistribute storage every year, 17 but the underlying principle is it is stored attached to 18 the end user. So the extent that at end use a 19 residential customer is being served by a marketer under 20 the unbundled service and that customer wishes then to 21 come back to system to be served by Union as a system 22 gas customer, that storage will revert back to Union so 23 that Union can then have the assets by which to serve 24 that customer. 25 MEMBER JACKSON: But the residential customer 26 would be essentially getting a bundled transportation 27 service including a storage and would be in both cases. 28 Correct? Les Services StenoTran Services Inc. 613-521-0703 45 1 It is not a case of like a larger customer 2 opting for unbundled and then wanting to come back to 3 bundled. That is a very different circumstance, isn't 4 it, because when he wants to come back to bundled I'm 5 not quite sure what you will do. If he wanted access to 6 that storage after giving up the storage you tell him he 7 can only have it at market rates like an exfranchised 8 customer, but if he wants to come back to bundled can he 9 do so? Because implicitly he is coming back to bundled 10 and perhaps then getting storage that he would only have 11 been entitled to at market rates. Can he do that? 12 MR. BAKER: My first reaction is to say 13 probably not, or we would certainly have to look at 14 those circumstances carefully. 15 The concern underlying all of these topics was 16 that we didn't want to be in a position where a customer 17 elected not to take a Union's storage service in a 18 circumstance where there was a cheaper option in the 19 marketplace and then when the Union storage service at 20 cost was an attractive service in the marketplace that 21 can change the underlying nature of the arrangements and 22 come back. So that was the underlying premise. 23 MEMBER JACKSON: Yes, I can understand that. 24 MR. BAKER: But in this other case, I was just 25 trying to follow along. I hope I didn't interrupt your 26 line of questioning. 27 In the other case with the residential 28 customer he has always had a bundled -- he has a bundled Les Services StenoTran Services Inc. 613-521-0703 46 1 transportation service. In the two cases you are 2 talking about, whether he was taking system gas from you 3 or whether he was buying his gas from retailer, in both 4 cases if the bundled transportation service that he as a 5 small customer is getting, bundled storage and 6 transportation -- 7 MEMBER JACKSON: Will that likely change going 8 down the road? Are you looking at any proposals there? 9 MR. BAKER: I guess to be clear today, whether 10 a customer is on system or direct purchase they are a 11 bundled customer. They are taking a bundled delivery 12 service. 13 MEMBER JACKSON: Retailers are not asking to 14 buy their storage elsewhere at this point in time. 15 MR. BAKER: That's right. 16 As soon as we implement the unbundled 17 proposals contained in this application, a marketer will 18 then have the ability to, on behalf of the customers he 19 serves, elect the unbundled service. 20 To go to Mr. Chairman's comments, if a 21 marketer on behalf of a group of customers that he was 22 serving elected not to take all or a portion of Union's 23 storage, that is a permanent election that marketer has 24 made. In the future, depending on what group of 25 customers that market is serving, we will track and it 26 will be known at that point in time he had chosen not to 27 elect ex amount of storage, whether it's, you know, Bcf 28 or whatever the amount is. That will permanently follow Les Services StenoTran Services Inc. 613-521-0703 47 1 that marketer so that once that marketer has made the 2 election that he -- 3 MEMBER JACKSON: If he wants it back he would 4 have to pay market rates to get it. Right? 5 MR. BAKER: Yes, and then he would manage 6 whatever service he is managing with his end-use 7 customers accordingly. 8 Just to continue that for our residential 9 customer and, again, I will touch on it again when we 10 get to the return to system section, but if a 11 residential customer on their own accord want to leave a 12 marketer and come back to Union, we will take that 13 customer back as a system customer and we will serve 14 that customer under our approved bundled system rates. 15 MEMBER JACKSON: But unless the marketer finds 16 a replacement for that customer he has got a volume in 17 total that he is choosing but no change in the volume of 18 storage that he can get from Union. 19 MR. BAKER: There is a change to storage. 20 When a customer comes back to Union --- 21 MEMBER JACKSON: Well, he brings his storage 22 and the marketer is dropped by that amount then, okay. 23 MR. BAKER: The storage that we have 24 originally contracted with that marketer under the 25 unbundled service will come back to Union because we now 26 have that customer. Again, under the policy of storage, 27 it follows the end user. It will come back to us and we 28 will deal with the time frames on which that happens a Les Services StenoTran Services Inc. 613-521-0703 48 1 little later on. 2 --- Pause 3 THE PRESIDING MEMBER: Since we are on that 4 topic the last paragraph in the section before 5 identifies the five intervenors in support of the 6 agreement: 7 "Union shall continue to provide access 8 to cost-based storage and second to the 9 end users, customers move between REMs." 10 (As read) 11 So in effect, the customer moving from one REM 12 to the other is the same as a customer coming back to 13 the system and going out to another REM. That is the 14 way I can interpret that, the same rules apply? 15 MR. BAKER: That's right. What we were trying 16 to prevent, to be explicit, is that we did not want to 17 hold a particular residential customer to an election 18 that this particular marketer may not at a point in 19 time, so to the extent that customer went to a 20 subsequent marketer who wanted Union storage, cost-based 21 storage, we would provide the cost-based storage. 22 MEMBER JACKSON: But you would have to guess 23 at that amount of storage when a previous REM is leaving 24 so Union won't be hurt either in that situation. It is 25 just a matter of transferring that storage from one REM 26 to another, isn't it? 27 MR. BAKER: Storage was physically transferred 28 and that original marketer that made the election not to Les Services StenoTran Services Inc. 613-521-0703 49 1 take it would constantly have that underpinning as 2 unbundled service for however long he is in the 3 marketplace. 4 So if he elected not to take 100 units storage 5 regardless of what customers were being served at a 6 point in time, his entitlement would always -- we 7 calculated his entitlement under the unbundled service 8 to say be 1,000 units and we deduct off the 100 that 9 wasn't elected at that point in time because he has 10 permanently lost the entitlement to 100 units at cost. 11 I guess just to be clear before we leave this 12 one, the SPS service that is applicable to the M2 rate 13 class in the south, again, this is a high deliverability 14 service that is there to meet the peak day demands, 15 really, of that rate class. So it is a peak day 16 deliverability service and that is how we physically 17 satisfy the demands of the heat sensitive customers in 18 that rate class. 19 THE PRESIDING MEMBER: Can I just understand. 20 In paragraph 4, there is a statement there to the extent 21 there is no agreement by parties to the appropriateness 22 of contractual or replacement, the resolution may be 23 taken to the board for determination. 24 That is after the experienced low threshold 25 could occur. 26 MR. BAKER: That would likely occur in the 27 customer review process that would take place in the 28 year 2002. So a proposal would be brought forward. It Les Services StenoTran Services Inc. 613-521-0703 50 1 would be assessed or evaluated during that customer 2 review process, say, in the middle of 2002. 3 To the extent that there was no resolution 4 coming out of that review, that is when the issue would 5 potentially be brought forward to the board for 6 determination so that the board could make a 7 determination in time to allow potentially another 8 option to be put in place for April 1, 2003. 9 THE PRESIDING MEMBER: Thank you. 10 MR. BAKER: Those are all the comments that we 11 are going to make on that. Is that okay? 12 THE PRESIDING MEMBER: Thank you. We will 13 move on. 14 MR. BAKER: The next issue is Issue 1.3.3, 15 space allocation. 16 I will deal with the southern operations area 17 first. 18 Overall, the manner in which the unbundled 19 storage allocation will be determined is based on the 20 aggregate excess methodology, which is winter demand 21 minus the average annual demand for the 151-day winter 22 period. That does represent the existing board-approved 23 methodology for the southern operations area. 24 MEMBER JACKSON: Minus the average demand for 25 the 151-day period? Is that correct, or average demand 26 for the year? 27 MR. BAKER: We would take the total demand for 28 the year, divided by 365 to get an average daily demand, Les Services StenoTran Services Inc. 613-521-0703 51 1 and then multiply that by 151 days. 2 MEMBER JACKSON: That's right. I was just 3 wondering whether the average was over the year or over 4 the 151 days. 5 MR. BAKER: It is a yearly average taken for 6 151 days. 7 Again, there will be a 97.6 per cent factor 8 applied to that aggregate excess entitlement to 9 recognize the fact that there are customers within the 10 various rate classes that are summer peak customers that 11 are actually under the existing approach, a storage 12 provider in the wintertime. 13 So the 97.6 per cent factor is there to make 14 sure that Union does not end up in a position where it 15 allocates more storage than it physically has available. 16 What we have done for the non-contract rate 17 classes, the rate M2 for the residential, is we have 18 taken that storage allocation, determined under 19 aggregate excess, and converted that into a fixed amount 20 per residential customer. 21 For the rate M2 commercial industrial 22 customers we have structured the allocation by way of a 23 percentage: 23.6 per cent of a customer's normalized 24 annual consumption. 25 Those are to simplify the allocations because 26 you obviously can't go through individual residential 27 customer calculation of aggregate and excess. 28 For the northern and eastern operations area Les Services StenoTran Services Inc. 613-521-0703 52 1 the storage is allocated in proportion to what we term 2 peak day shortfall, which is peak day demand less the 3 amount of TCPL firm transportation that has been 4 allocated. 5 So again, recognizing the way load is served 6 the north, this allocation methodology really says: How 7 much TCPL firm transportation will a customer within a 8 particular delivery zone get? And then it looks at the 9 remaining requirement to service peak day demand and 10 attempts to allocate storage in proportion to that peak 11 day shortfall so that, in total, between the firm 12 transportation capacity and the storage capacity, there 13 is a bundle of assets that tries to serve as much of 14 that customer's peak day demand as possible. 15 For existing rate T1 customers in the south, 16 the agreement reflects grandfathering the storage 17 allocation to those customers. And similarly for 18 T-service customers in the north, the agreement reflects 19 grandfathering the storage deliverability associated 20 with those customers again under the premise of not 21 wanting the new unbundled service to unduly change or 22 affect the existing arrangements that are in place. 23 THE PRESIDING MEMBER: Thank you. 24 MR. BAKER: The next issue is Issue 1.3.4, 25 which is system integrity storage space. This deals 26 with the storage space and associated deliverability 27 that is set aside to manage three main areas that are 28 outlined on page 27 of the agreement. Les Services StenoTran Services Inc. 613-521-0703 53 1 Certainly system integrity storage space is 2 still needed to provide integrity coverage, even with 3 the movement to an unbundled service. This does relate 4 back to the unbundling principles outlined at the start 5 of the evidence, which is to maintain and not jeopardize 6 the integrity of Union's delivery system. 7 Under the unbundled service Union is still the 8 delivery company and needs to ensure that there is 9 protection for all firm customers, which is really 10 consistent with the way we operate the system today as 11 well. 12 What these three components attempt to outline 13 are again just to factor in the new unbundled service. 14 So the first one is to manage weather variances for the 15 non-metered customer. 16 Under the unbundled service the demand for 17 non-daily metered customers taking the unbundled service 18 will be projected by Union through a demand algorithm. 19 To the extent that the weather varies from what we have 20 projected for that next day, that is something that 21 Union will manage. Therefore, that is part of what this 22 integrity storage space will help to manage. 23 The other two components, which are backstop 24 supply failures and operational integrity, those are 25 things that do exist today and that we manage with the 26 integrity space that is available. 27 MEMBER JACKSON: There is currently 10.4 Bcf 28 of system integrity storage space underpinning the Les Services StenoTran Services Inc. 613-521-0703 54 1 existing bundled services. 2 Is that a number that was used for costing in 3 the last rates proceeding? 4 MR. BAKER: Not really, because there was -- 5 and that really goes to the last paragraph. 6 We have never specifically tracked or 7 identified the system integrity space separate from any 8 other space, because all of the storage space that we 9 had access to essentially underpinned all the bundled 10 rates. There was no separate identification or costing 11 or rate treatment. It was all part of the bundled 12 service. 13 MEMBER JACKSON: Does the 10.4 come from some 14 recent studies that have been done anticipating 15 unbundling? Where does that come from, when you make 16 that statement that you currently have that much system 17 integrity storage space? 18 MR. BAKER: This is just space that Union had 19 set aside to manage -- we always set aside to manage 20 seasonal variations so that we would have additional 21 space there if we had to accept more injection of the 22 gas toward the end of the storage season or more 23 withdrawals of gas near the end of the season. 24 MEMBER JACKSON: So it was sort of, if you 25 like, a reserve that you agreed amongst yourself, 26 amongst management, that you should not sell to 27 outsiders because you would probably need it for 28 managing the system. Les Services StenoTran Services Inc. 613-521-0703 55 1 MR. BAKER: That's right. 2 MEMBER JACKSON: Okay. And now you have 3 agreed to go down to 9.1 Bcf as part of this settlement. 4 Is that correct? And without getting into any of that 5 rationale, I'm just puzzling as I go by it whether we 6 have any duty to ask the question whether management 7 thinks that's enough. Why do you think you can now get 8 by on less? 9 MR. PENNY: Just for clarification, 10 Dr. Jackson, the 9.1 isn't an independent number that 11 was the product of the Settlement. That was part of the 12 original proposal. 13 MEMBER JACKSON: Thank you for clarifying 14 that. 15 MR. PENNY: So the evidence was that there was 16 10.4 notionally allocated previously under unbundling. 17 They have taken another look at it. It's at page 64 of 18 unbundling evidence. They have taken another look at it 19 and under unbundling felt they could manage with the 20 9.1, and then that is the number that has been reflected 21 in the ADR Agreement. 22 MR. BAKER: The other thing that you will see 23 on page 27 is that we have attempted to put ranges on 24 each of the components and tried to land on a level that 25 we thought that we could manage with under the new 26 unbundled proposal. 27 Directionally, there will be, by virtue of 28 customers electing the unbundled service, they will be Les Services StenoTran Services Inc. 613-521-0703 56 1 taking on some of the load balancing and daily 2 management that was previously a function that was 3 performed by Union under the bundled service. So I 4 think directionally that is in part why there is some 5 reduction from the 10.4 that exists today. 6 MEMBER JACKSON: I think that's fine. 7 Thank you. 8 MR. BAKER: The next issue is Issue 1.3.5, 9 "Pricing and Annual Storage Space Reallocation/ 10 Redistribution". 11 On the pricing issue, Union had proposed, and 12 it was agreed, that we would unbundle infranchise 13 storage at cost over the initial PBR term. So we are 14 continuing to stick with cost-based storage rates for 15 the infranchise unbundled service. 16 Dealing with the reallocation or 17 redistribution, this gets back to the concept that we 18 have talked about earlier, or the principle whereby 19 storage is attached to and follows the end-use consumer. 20 This really led to our proposal to allocate or 21 reallocate storage once a year, every April. And the 22 rationale underlying that was that April 1 is 23 traditionally when our storage levels are low, so it 24 would minimize inventory transfer issues. April 1 also 25 reflects the start of the injection season for the 26 unbundled storage service, so there was some alignment 27 there with the unbundled service. 28 Secondly, there is a difference in rates Les Services StenoTran Services Inc. 613-521-0703 57 1 between a bundled service and an unbundled service. 2 Under the bundled service, the storage -- the 3 costs of the underlying storage are, take again the 4 Rate M2 example, they are within the Rate M2 commodity 5 rate. So the recovery of those storage costs is linked 6 to the volumetric consumption by the end-use consumers, 7 whereas through the unbundled service, the unbundled 8 storage service is more of a demand in commodity 9 structured service. So having the transition occur at 10 times other than April 1 creates some transitional 11 issues. 12 The concerns expressed really related around 13 customer mobility and being able to facilitate customers 14 moving from one marketer to another or being able to 15 facilitate marketers taking customers who are currently 16 on system gas and moving them to the unbundled service 17 other than once a year every April. 18 That is what really led to the two amendments 19 on page in the Agreement, to try to recognize some of 20 the transitional or administration issues around 21 transitioning in the unbundled service at a date other 22 than April 1, but also trying to have some flexibility 23 to be able to facilitate customer mobility, either 24 between customers moving between two retail marketers at 25 a point in time or a customer to a marketer which he 26 could take from system gas to an unbundled service at a 27 point in time during the year other than April 1. 28 MEMBER JACKSON: What was the notion of Les Services StenoTran Services Inc. 613-521-0703 58 1 appropriate notice? How would you administer that? 2 MR. BAKER: How would we practically 3 administer it? 4 MEMBER JACKSON: What do you have in mind 5 about appropriate notice? That's under (a), about the 6 sixth line. 7 MR. BAKER: I think generally, that was -- I'm 8 not sure that there was a specific discussion there. It 9 was just to make sure that we didn't get a notice on the 10 30th of a given month saying that there was a desire for 11 a transfer to happen the next day. 12 So it was -- I think directionally, it's a 13 like a month's notice, so that if two marketers came to 14 us around the start of a month, say June 1st of the 15 month, and saying, you know: Effective July 1 we agree 16 that certain customers are going to transfer and a 17 certain amount of storage and inventory is going to 18 transfer that we would be able to facilitate that. 19 I think it is a recognition that there are 20 some differences here when, I think, you look to 21 electricity and the fact that there is gas, it is 22 stored, there is inventory and, therefore, it gives rise 23 to those types of transitional issues around customer 24 mobility and transferring either between marketers or 25 between services. 26 MEMBER JACKSON: And you don't anticipate any 27 great administrative problems in getting the agreement 28 that is referred to there too? Les Services StenoTran Services Inc. 613-521-0703 59 1 MR. BAKER: We don't. 2 MEMBER JACKSON: Fair enough. 3 I think you also mentioned that as a last 4 resort, there might be determination by the Board, but 5 you are going to try and work it out. 6 MR. BAKER: Yes, it is certainly our -- it's 7 certainly our intent through at least the customer 8 review process to deal with these types of 9 administrative issues and resolve them without having to 10 resort to the Board. 11 THE PRESIDING MEMBER: I'm wondering, in the 12 comments that are 1 and 2 -- one says that "the direct 13 purchase contract is changed completely". You can't 14 say, "These half of the customers want to go unbundled 15 and these half of the customers want to stay bundled." 16 You have to transfer your complete contract. 17 MR. BAKER: That's right. 18 THE PRESIDING MEMBER: REM would have to take 19 a complete -- 20 MR. BAKER: That's right. We weren't going to 21 get into administratively trying to split all of our 22 existing direct purchase contract, that's right. 23 THE PRESIDING MEMBER: So you couldn't -- REM 24 couldn't take half from one contract and half of another 25 contract as unbundled and the other two halves bundled? 26 MR. BAKER: That's right. 27 THE PRESIDING MEMBER: Because it identifies 28 the specific customers in one contract all go unbundled. Les Services StenoTran Services Inc. 613-521-0703 60 1 MR. BAKER: Yes, because administratively, you 2 would -- it could get very, very onerous in terms of 3 there is already a significant number of direct purchase 4 contracts which reflect the time and the pace by which 5 marketers sign up residential customers today. 6 So there is already a significant number of 7 bundled direct purchase contracts and we certainly 8 didn't want to do anything that would exponentially 9 increase that number. 10 Hopefully, with the move to the unbundled 11 service you may actually see some consolidation of a 12 number of contracts. 13 THE PRESIDING MEMBER: And then, if I go to 14 paragraph (b) above, where you say "existing bundled 15 direct purchase contracts with expiry dates other than 16 those will be extended to match up the above-noted 17 transition dates". 18 So the contracts will have, in the year 2001, 19 an April 1 and an October 1 date, and in the year 20 2000 -- the beginning of the month is April, June, 21 August or is it -- 22 MR. BAKER: That's what it would be. That's 23 right. April 1, June 1, August -- 24 THE PRESIDING MEMBER: So that the contracts 25 were never May or July. Those are out. It's April, 26 June, August. Every two months. 27 MR. BAKER: Every two months. And all that 28 point number 2 is trying to say is that to the extent Les Services StenoTran Services Inc. 613-521-0703 61 1 that an existing direct purchase contract came due on a 2 date other than those, we would do a transitionary 3 extension to the first available date. 4 THE PRESIDING MEMBER: Thank you. 5 MR. BAKER: Issue 1.3.6, "Future 6 standardization of storage contracts". I don't think 7 there was any significant issues here from my 8 perspective. 9 What this was meant to capture was that 10 directionally we want to move to structure all of our 11 storage services on a consistent basis. So there are 12 some existing exfranchise storage contracts today that 13 are a bit different structurally from the proposed 14 unbundled storage services, and this is just a 15 recognition of the fact that it is our intent to 16 directionally move to having storage contracts that are 17 structurally consistent so that it does provide the 18 transparency, and to the extent that there is some more 19 broader movement to a different pricing regime that you 20 have a structurally consistent storage service. 21 MEMBER JACKSON: I was just curious how many 22 contracts might be outstanding with something other than 23 the consistent approach; and, secondly, how many years 24 it might take to work through bringing them to 25 consistency? 26 MR. BAKER: There is not very many. It is 27 essentially our existing M12 contracts, which are with 28 Enbridge Consumers Gas, GMI and the City of Kingston. I Les Services StenoTran Services Inc. 613-521-0703 62 1 don't have, off the top of my head, when all of those 2 contracts expire but my recollection is that within 3 about the next five years I think most of those storage 4 contracts are up for renewal. 5 THE PRESIDING MEMBER: That raises a question 6 which I'm not sure whether I can ask here. I will leave 7 it to Mr. Penny or Ms Lea to tell me not. 8 You mentioned GMI, you mentioned Enbridge and 9 you mentioned Kingston. All I see directly, unless I 10 have to look at the intervenor list to find they are in 11 a group, is Enbridge. GMI and Kingston have or have not 12 participated in this proceeding? 13 MR. BAKER: They have not participated to my 14 knowledge. I don't believe either one intervened. 15 THE PRESIDING MEMBER: But they certainly had 16 notice of the proceeding. 17 MR. BAKER: That's right. 18 THE PRESIDING MEMBER: Thank you. 19 MR. BAKER: I would mention that this, like 20 all the storage contracts, it would be a negotiation 21 process around those contracts as well. I don't think 22 we are -- just to give you some sense -- I don't think 23 that we are talking about extreme changes to the current 24 structure that is there. It's really just around trying 25 to have what we have done with the unbundled service, 26 which is a standardized base level and to the extent 27 that there are any peaking requirements to deal with 28 that separately so that you have, across all the various Les Services StenoTran Services Inc. 613-521-0703 63 1 parties, contracting for storage on Union's business, at 2 least a standardized base, even if the peaking may vary 3 amongst the parties. 4 THE PRESIDING MEMBER: Which is a new 5 contract. There aren't renewal rights in these 6 contracts, are there? 7 MR. BAKER: That's right, it will be a new 8 contract. 9 --- Pause 10 MR. BAKER: Issue 1.3.7, "Future storage 11 development". This is Union's commitment to manage 12 infranchise storage requirements at cost under the 13 proposed PBR mechanisms, so for the initial term of the 14 PBR mechanism. So there are still live issues on this 15 in terms of the PBR portion of the proceeding, but it 16 was our proposal that we would continue to manage 17 growth, infranchise growth and the associated storage 18 requirements to serve that growth at cost over the 19 initial term of the PBR. 20 THE PRESIDING MEMBER: I understand that. 21 That means the rate is set at cost. 22 MR. BAKER: The rate is set at cost subject to 23 whatever escalation happens under PBR. 24 THE PRESIDING MEMBER: Okay. So you have a 25 current rate at the moment and your PBR is increasing 26 the price or the rate, so that goes up under the cap of 27 that price increase. 28 MR. BAKER: That's right. Les Services StenoTran Services Inc. 613-521-0703 64 1 THE PRESIDING MEMBER: And whatever the cost of 2 developing a new source to supply this it doesn't affect 3 it. 4 MR. BAKER: That's exactly right. 5 THE PRESIDING MEMBER: Okay. Please carry on. 6 MR. BAKER: Issue 1.4.1, "Title transfers". 7 The evidence in the discussion of this issue I think 8 really revolved around how title transfer transactions 9 are facilitated today versus how title transfer 10 transactions should be facilitated given the proposed 11 new unbundled service. 12 What the agreement reflects on pages 30 and 31 13 is an agreement to cap the monthly title transfer fee at 14 $850 per month per contract and to allow what has been 15 referred to as in-storage title transfers between 16 unbundled customers with no charge for storage injection 17 or withdrawal, simply the title transfer administration 18 fee. So parties that wanted to do -- 19 MEMBER JACKSON: They pay each other. Is that 20 right? 21 MR. BAKER: I'm sorry? 22 MEMBER JACKSON: They handle the penny 23 consideration for the title transfer outside of your 24 offices. 25 MR. BAKER: That's right. 26 MEMBER JACKSON: You are going to be paid by 27 the first party and if they want to transfer title to 28 someone else, they do a deal with him separately from Les Services StenoTran Services Inc. 613-521-0703 65 1 you and pay you a title transfer fee. 2 MR. BAKER: That's right, so that we know, at 3 any given point in time, who has title to the gas that's 4 in our storage facilities so that we can administer the 5 storage contracts. 6 MEMBER JACKSON: Is this related only to 7 storage, though, or is there any need for title transfer 8 with respect to gas that is being transported through 9 your system? 10 MR. BAKER: In fact, most title transfers 11 happen on gas that enters our system not gas that's in 12 storage. If a party is transporting gas to Union's 13 system and wants to title transfer it to another party, 14 that can happen with upstream transportation volumes 15 coming into the system, and that happens regularly. 16 This was specifically to address the unbundled 17 situation where there would be a storage entitlement and 18 the perceived need for two unbundled customers at a 19 point in time wanting to do a title transfer between 20 themselves on gas that they physically have in storage 21 at a point in time. 22 MEMBER JACKSON: Is there a similar fee 23 charged, though, for title transfer in transportation 24 situations as well? Is it a similar fee for both? 25 MR. BAKER: Yes. It's a third of a cent a GJ 26 for any -- that's the administration fee for any title 27 transfer. 28 MEMBER JACKSON: Good. Okay. Les Services StenoTran Services Inc. 613-521-0703 66 1 MR. BAKER: Issue 1.4.2, "Allocation of gas 2 and inventory". This is really again back to a 3 recognition of some of the transitional issues that will 4 arise when customers who are currently taking service 5 under a bundled service transition into an unbundled 6 service. 7 The example would be for an existing system 8 customer currently today who wants to transition into 9 the unbundled service, say, in that first transition 10 year on October 31st. At that point in time, Union will 11 have acquired gas for that customer and there will be a 12 lot of gas and inventory at that time and, therefore, 13 this is a recognition that to the extent that customers 14 want to transition from a bundled system service to the 15 unbundled service at that time, in addition to the 16 allocation of unbundled storage capacity there is also 17 an allocation of the gas that is in storage physically 18 at that time to serve that customer. 19 I believe the agreement also refers, on 20 page 30, to the storage true-up between the storage 21 costs that are recovered in the bundled rates versus the 22 unbundled rates that I spoke about earlier. 23 THE PRESIDING MEMBER: I understand from this 24 agreement that parties have agreed to the mechanism, the 25 methodology and the calculation of this transfer. 26 MR. BAKER: Yes. It is recognized that the 27 sale at a point in time would be at Union's board- 28 approved cost of gas at that point in time. It would be Les Services StenoTran Services Inc. 613-521-0703 67 1 deemed a system sale and therefore it would also be 2 eligible for any deferral account dispositions that 3 related to system sales that happened at the end of the 4 year when the deferral accounts were cleared. 5 MEMBER JACKSON: In some sections you mention 6 that if there is a dispute as to how the provisions are 7 carried out, any party is free to bring the dispute to 8 the board. And I don't see that in this section. 9 Is that implied? 10 MR. BAKER: I think that is implied -- 11 THE PRESIDING MEMBER: -- into this deferral 12 account someone might question the calculation. Is that 13 what you are implying? 14 MR. BAKER: They could. I am trying to 15 envision a situation where there would be a dispute on 16 the amount of the proposed transfer price. Again, it 17 would be based on the board-approved reference price at 18 that point in time. So I wouldn't suspect there would 19 be an issue at that point in time. 20 But you are quite right, there may be an issue 21 about deferral account disposition which would be dealt 22 with at the time we brought those forward through the 23 customer review process. To the extent that they were 24 not resolved there, they would then get brought forward 25 to the Board. 26 MEMBER JACKSON: Although the true-up to this 27 difference in storage cost recovery would occur at the 28 time of the transfer, wouldn't it. So there would be Les Services StenoTran Services Inc. 613-521-0703 68 1 some securely staggered mechanism which you would have 2 in place for doing that. 3 Again if we are fortunate, it wouldn't be 4 subject to any dispute. 5 MR. BAKER: That's right, on that one there. 6 There are really two components. There is 7 sort of the inventory transfer and the potential 8 deferral account disposition. Then there is the issue 9 of the storage cost true-up which was referenced in the 10 other section of the agreement, that that had not been 11 fully -- we had only contemplated when we filed the 12 evidence to do it April 1. So that had not been fully 13 scoped out yet. That was the recognition. 14 My view is that I think we will be able to 15 work it out. But there is always a chance. 16 THE PRESIDING MEMBER: The possibility for a 17 dispute probably arises more with the inventory and the 18 calculation of a deferral account, the possibility. 19 MR. BAKER: That may be right. 20 THE PRESIDING MEMBER: I'm sorry, I am 21 probably going -- 22 MR. BAKER: I would say it could probably 23 happen with either. I think one of the things that 24 would be there on the storage cost is that if there was 25 any dispute, that would happen early on. It certainly 26 would not be an ongoing type of dispute, because once 27 the mechanism and the methodology is determined, it will 28 be accepted; whereas the deferral account, because they Les Services StenoTran Services Inc. 613-521-0703 69 1 change and are potentially subject to different nuances 2 every year, that could be more of an ongoing type of 3 issue. 4 THE PRESIDING MEMBER: Do you mind continuing? 5 We could probably finish quicker than if we had a break. 6 MR. BAKER: No, not at all. I am okay to go 7 on. 8 THE PRESIDING MEMBER: Mr. Court Reporter, are 9 you okay? 10 THE COURT REPORTER: Yes. 11 MR. BAKER: Issue 1.4.3, return to system. 12 What I thought I would do is provide just a brief 13 overview in terms of how return to system has been 14 facilitated in the past. 15 In the past when customers were returned to 16 system, any upstream transportation that was under 17 assignment to the retail energy market or the customer 18 was returned to Union. So what Union's return to system 19 obligation in the past was was to arrange basically for 20 the supplier, the commodity, to fill that transportation 21 capacity that now came back to Union. 22 Today we are in a situation where return to 23 system is more complicated, both in terms of the 24 existing bundled service and the unbundled service, for 25 a couple of different reasons. 26 The first one relates back to the TCPL 27 turnback policy where customers now have the ability to 28 turn back capacity to Union, which we, in turn, turn Les Services StenoTran Services Inc. 613-521-0703 70 1 back to TransCanada and they make arrangements for their 2 own capacity. Absent the system-wide solution, they 3 would make arrangements for replacement capacity at 4 Parkway. 5 It creates a circumstance where customers can 6 be returned to system, and there may not be any upstream 7 transportation capacity that comes back to Union at that 8 time. So Union could be in a situation where it has to 9 go out and find not only the commodity but also the 10 associated upstream transportation to get the gas to the 11 franchise as well. 12 The other thing that is there again that 13 relates back to the Parkway commitment issue is that 14 Union has to make sure that when it arranges supply for 15 customers coming back to system, it can maintain any 16 associated Parkway deliveries that are embedded in the 17 system design and the system operation as well. 18 So it is not just a matter of arranging supply 19 and transportation to get gas to the franchise. There 20 is a high degree of Parkway deliveries that are 21 underpinning the way that customer is being served 22 today. 23 It is really commodity, transportation, with a 24 view to making sure that we can cover off the deliveries 25 at the east end of the system at Parkway. 26 That is why there is our proposal and 27 reflected in the agreement that, to the extent there are 28 any incremental costs that Union incurs to manage the Les Services StenoTran Services Inc. 613-521-0703 71 1 Parkway deliveries related to return to system, those 2 would be recorded in a new deferral account and brought 3 forward through the customer review process and 4 ultimately to the Board for disposition. 5 When you then layer on the proposed unbundled 6 service, the customer electing the unbundled service is 7 now allocated and manages storage as well. 8 So upon return to system, it creates the issue 9 in terms of how to transition the storage back to Union, 10 who is now serving those customers as a system customer; 11 again back to the principle that storage follows the 12 user. 13 There are really two scenarios that can arise 14 for customers returning to system who are on an 15 unbundled service. 16 The first scenario is where an end-use 17 customer returns on his own volition. He wants to leave 18 his current marketer and come back to Union on system 19 gas. 20 In this situation, what the agreement reflects 21 is that Union will manage that customer returning to 22 system and we will not require any return of the storage 23 or gas that the marketer has in that particular 24 situation. The time when that storage will revert to 25 Union will be the following April. 26 That is the date on which we do the annual 27 re-allocation or redistribution of the storage. We 28 would not do it mid-term. Certainly our thought process Les Services StenoTran Services Inc. 613-521-0703 72 1 is that we are hoping that there will not be significant 2 numbers of customers doing that. 3 The second scenario would be a situation where 4 a retail energy marketer wants to initiate return to 5 system themselves. So this is not a customer 6 initiating; it is a marketer that wants to return a 7 group of customers to Union. 8 This is outlined in the evidence where it is 9 really considered to be a breach of the unbundled 10 contract. We view the unbundled contract as an annual 11 contract which does recognize the annual injection 12 withdrawal cycle associated with the unbundled storage. 13 In this situation the storage and any 14 remaining upstream transportation capacity that is still 15 under assignment would come back to Union, so Union 16 would have the assets to serve those customers. 17 Again, this would potentially be a situation 18 where, for whatever reason, there's potentially a large 19 number of customers that are wanting to be returned to 20 system, and if that were to happen, either just prior to 21 entering into the winter or actually into the winter 22 season itself, we would need the assets that have been 23 allocated to that marketer, we need those assets to come 24 back to Union so that we could manage serving those 25 customers coming back on system. 26 THE PRESIDING MEMBER: On that one, we turned 27 over the page, to page 33, and there are three 28 paragraphs there. Les Services StenoTran Services Inc. 613-521-0703 73 1 Let's deal with the abnormal return to system. 2 It says: 3 "...Union has sought the ability to 4 propose an alternate disposition 5 methodology." 6 This is at the time that this circumstance 7 occurs. Is that when it is? 8 MR. BAKER: That's right. 9 THE PRESIDING MEMBER: There isn't one 10 proposed now; it's just -- 11 MR. BAKER: NO. 12 THE PRESIDING MEMBER: -- the ability to go to 13 the Board and ask for a different treatment. 14 MR. BAKER: That's right. 15 There would be two things that would happen 16 there; one is that even if there was a lag between this 17 event happening in either the customer review process or 18 the Board's consideration of the deferral accounts that 19 we would immediately inform the Board that something had 20 happened, in terms of an abnormal return, so that the 21 Board was aware of it and, in all likelihood, outline 22 the projected timing by which we would deal with that. 23 THE PRESIDING MEMBER: And the average annual 24 impact is $5.00 or greater for a typical residential 25 customers. That's the incremental costs you would incur 26 in order to handle this difficulty. 27 Is that what that $5.00 -- 28 MR. BAKER: That's right. Les Services StenoTran Services Inc. 613-521-0703 74 1 THE PRESIDING MEMBER: It says you sought the 2 ability. 3 Has there been agreement that you have the 4 ability? 5 MR. BAKER: That is the intent. 6 THE PRESIDING MEMBER: Okay. Thank you. 7 MR. BAKER: Anything else? 8 THE PRESIDING MEMBER: Next one. 9 MR. BAKER: Issue 1.4.4, nomination imbalance 10 fees. 11 In terms of a brief overview of this topic, 12 the unbundled service, as we have outlined, requires 13 daily management and daily nomination of both upstream 14 transportation volumes and storage to meet the forecast 15 demand or consumption on a daily basis, and associated 16 with that, certainly, Union's proposal in evidence that 17 there needed to be -- there needs to be some nomination 18 discipline both to schedule the nominations into our 19 system and to operate the system efficiently so this is 20 setting up our system to manage storage and to manage 21 compression along our system. 22 Union had proposed -- Union's proposal was 23 really to have nomination imbalance fees that were 24 linked to the existing TransCanada imbalance fees, given 25 that they were -- they were pre-existing fees that were 26 in place in the market and it would also allow a 27 consistent approach in structure to nomination imbalance 28 fees for both the southern operations area and the Les Services StenoTran Services Inc. 613-521-0703 75 1 northern operations area. 2 So what the agreement reflects is adopting the 3 TCPL daily balancing fee schedule, adjust it for two 4 items; the first one is to increase the deadband under 5 which no imbalance fees will apply, and the second 6 adjustment is to reduce the TCPL imbalance fees in 7 excess of that dead band to 50 per cent of the level of 8 TCPL fees. And there is a difference between the 9 northern and eastern area and the southern operations 10 area. I will deal with the north and the east first. 11 The northern and eastern area is closely tied 12 to TCPL's, just by the very nature and structure of that 13 system. So nomination variances that will occur or 14 arise from customers electing the unbundled service in 15 the north will have a direct impact on Union, in terms 16 of the balancing agreements that we have with 17 TransCanada. So that is why there is a smaller deadband 18 in the north, the plus or minus 4 per cent, as compared 19 to the south. 20 For the southern operations area, again, 21 there's a heavier reliance on storage to manage upstream 22 transportation. So, in the south, upstream 23 transportation generally flows at 100 per cent load 24 factor and it's storage that takes the swing at points 25 in time. 26 Though the tighter dead band in the southern 27 operations area is there to reflect the critical storage 28 injection withdrawal periods in the south. So it's the Les Services StenoTran Services Inc. 613-521-0703 76 1 months just leading up to the end of the storage 2 injection cycle and then the months at the storage 3 withdrawal cycle that are most critical from a system 4 operation point of view and of which we have the tighter 5 deadband, at that point in time. 6 So it's the same plus or minus 4 per cent 7 deadband tolerance in those critical injection 8 withdrawal periods. And for all other periods, it's the 9 plus or minus 8 per cent. 10 So, again, attempting to keep a similar 11 structure but having to adjust the fees somewhat to 12 recognize the operational differences in the two areas. 13 MEMBER JACKSON: Was the 50 per cent a 14 negotiated amount? Or, again, you may just be able to 15 point me to your proposal, but was the 50 per cent an 16 amount that was in your original proposal? I just don't 17 recall. 18 MR. BAKER: No. The original proposal did go 19 off the TCPL imbalance fees schedule as it exists in the 20 TCPL rates. 21 MEMBER JACKSON: So you agreed to reduce the 22 penalties? 23 MR. BAKER: That's right. 24 MEMBER JACKSON: Okay. Fair enough. 25 THE PRESIDING MEMBER: Thank you. 26 MR. BAKER: Issue 1.4.5 is unauthorized 27 storage overrun. 28 The background on this, really, the background Les Services StenoTran Services Inc. 613-521-0703 77 1 supporting the need for an unauthorized storage overrun 2 penalty, again, relates back to the system design and 3 system integrity and it's the desire to ensure that we 4 have got sufficient protection for all firm delivery 5 customers on Union's system. 6 The situation that we wanted to make sure was 7 avoided and didn't arise with the advent of the 8 unbundled service is a situation where an unbundled 9 customers doesn't have sufficient supplies, the 10 combination of upstream transportation and storage 11 withdrawal, to meet the demands, on a given day, through 12 the winter. So, this would be a situation where the 13 customer would actually pull more gas from storage than 14 they were contractually entitled to under their 15 unbundled storage service and the potential situation 16 that that would create is that we could be, in total, 17 short the amount of storage deliverability that we would 18 need on that particular day to meet all of our firm 19 delivery requirements. 20 So it was recognized that this is a winter 21 peak day concern, and this becomes important, really, 22 when your system is operating under extreme conditions, 23 so when you are at or close to a peak day condition and 24 everything is pulling hard on your system. So our 25 concern was to avoid having the situation arise, at all, 26 where there would be any firm demands that were 27 jeopardized. 28 So that led to the agreement on page 36, where Les Services StenoTran Services Inc. 613-521-0703 78 1 we have agreed to modify what was our initial propose in 2 three areas; one was to delimit the unauthorized storage 3 overrun penalty to the winter period, November 1 to 4 April 15, again, to recognize that that is the critical 5 period where demands are highest on our system. 6 It agreed to reduce the fee from $100 a GJ 7 down to $50 a GJ. This was based on the last time we 8 had extreme conditions, and that could be, fortunately 9 or unfortunately, depending on your perspective, but the 10 last time we had that was in 1996 and gas was trading as 11 high as around $35 U.S. a GJ in and around the Chicago 12 area. 13 So, again, we agreed to reduce the fee down to 14 $50 a GJ Canadian based on that amount. 15 And, again, this is to ensure that there's no 16 economic -- or trying to minimize an economic incentive 17 for customers to divert gas into a market where the 18 price is higher and leave customers in Ontario short. 19 Lastly, we agreed that, to the extent that we 20 ever got into the situation where we had to levy this 21 fee, we would put the money aside in a deferral account 22 because it was not Union's intent that this be any 23 source of revenue; we wanted to make sure that the 24 situation didn't happen. 25 So, again, if it was levied, the amount net of 26 any cost to correct the overrun situation would be 27 recorded in the deferral account. 28 THE PRESIDING MEMBER: And there are Les Services StenoTran Services Inc. 613-521-0703 79 1 precedents for these types of penalties in the TCPL and 2 in the other jurisdictions? 3 MR. BAKER: There are precedents in other 4 jurisdictions, that's right. The amounts vary but... 5 THE PRESIDING MEMBER: Just for information 6 purposes, if a customer was in this situation, what are 7 the options they have available to try to manage their 8 potential storage overrun. 9 MR. BAKER: There is at least a couple, 10 probably first and foremost what we wanted to make sure 11 is that there as much effort as there can be on both 12 parties to communicate the situation, so that if an 13 unbundled customer found himself in a situation where he 14 thought he would be into a storage overrun situation to 15 let us know, so that Union operationally knows it can 16 happen. 17 To the extent that the circumstances are such 18 that we could authorize the overrun we would. That's 19 probably the first course of action. 20 The second one would be that if the conditions 21 were extreme and that particular unbundled customer had 22 an insufficient amount of upstream transportation and 23 storage deliverability, that they would need to go out 24 and make arrangements in the marketplace to get a supply 25 of gas into the system. So that could come under a 26 variety of different forms, but it could be arranging 27 for a delivered source of supply delivered to Union. 28 So that that would supplement his firm Les Services StenoTran Services Inc. 613-521-0703 80 1 upstream transportation in the storage withdrawal, so 2 that he would have physically enough supply there on 3 that day to meet the demand. 4 THE PRESIDING MEMBER: And if the agreement is 5 approved, the Board has to approve a deferral account, 6 or is there one existing that would collect this? 7 MR. BAKER: No, there is not an existing 8 account now. It could go one of two ways. I am not 9 sure, I hadn't really turned my mind to it. It could be 10 approved as part of this application or it could be 11 applied for and approved at the time it were to arise. I 12 think either of those two options are available. 13 THE PRESIDING MEMBER: Thank you. 1.4.6. 14 MR. BAKER: Issue 1.4.6 is implementation 15 timing and we have touched a bit on this as we have gone 16 through, but what we were trying t do was distinguish 17 between the two different types of end-use customers, so 18 the first ones being access to daily metering and no 19 requirement for any billing capability. So these are 20 end use industrial customers, commercial industrial 21 customers that are taking on and managing the unbundled 22 service themselves. 23 As I said, those customers will from a 24 practical perspective be able to access the unbundled 25 service at the time this application or Board order is 26 received and we have rates in place. 27 For the small volume, end-use market that 28 relies on a daily demand forecast from the demand Les Services StenoTran Services Inc. 613-521-0703 81 1 algorithm and really requires the need to address rates 2 and services related to retail billing, which will be a 3 separate and subsequent application, that that timing we 4 are projecting to be in and around April 1, 2001. 5 THE PRESIDING MEMBER: On that sentence that 6 refers to it, I wonder if you could explain to me "by 7 July 2000"? Is that by the end of July 2000 or by the 8 start of July 2000? 9 MR. BAKER: By the end of July 2000. 10 Just further on that, that was just meant to, 11 I think, engrain the commitment that we wouldn't go 12 through this process and have sort of the structure of 13 an unbundled service, but delay in some way the 14 application necessary to really allow the small volume 15 market to access the unbundled service. 16 THE PRESIDING MEMBER: I am not sure whether 17 this is an appropriate question or not. Don't answer if 18 you think it is inappropriate. But if you say you have 19 the application by the end of July 2000 and you expect 20 the bundled services to be accessed by April 1, 2001, 21 and I am assuming that this would require the 22 preparation of some form of computer code or computer 23 system to enable this, when would you need a finding on 24 this subsequent application to be able to meet the April 25 1st date? 26 --- Pause 27 MR. BAKER: I am not sure we sort of outlined 28 a specific timetable, but obviously the sooner the Les Services StenoTran Services Inc. 613-521-0703 82 1 better in terms of the systems that would have to be put 2 in place, but we are proceeding with the development of 3 system changes to be able to offer the unbundled service 4 to the large daily immediate customers. So this would 5 be, basically, the Internet based interface to provide 6 consumption and volume information and communication on 7 imbalances and storage positions under the unbundled 8 service. 9 So there is some of that that is in process 10 now. Depending on what the outcome of that subsequent 11 application was, there may be some further system 12 changes that have to come of that. I think we probably 13 really have to deal with those at the time. They are 14 hard to speculate on I think at this point. 15 THE PRESIDING MEMBER: Thank you. 16 And 1.4.7, the last really. 17 MR. BAKER: 1.4.7, as you will know, wasn't on 18 the issues list. It was approved by the Board. 19 I think I would characterize this as an 20 acknowledgment of an issue that has arisen in the 21 context of this application. It has arisen at different 22 times in the past as well, but it's an acknowledgment of 23 an issue and a suggestion that the Board initiate a 24 review of the system gas pricing and associated terms 25 and conditions to address the issue. 26 THE PRESIDING MEMBER: Mr. Baker, I will turn 27 you back, there was one item that I should really have 28 asked at the time for an explanation. It's back on page Les Services StenoTran Services Inc. 613-521-0703 83 1 33. It's the reference to ABC-T. I wonder whether you 2 could explain the last two paragraphs to me as to what 3 the intent of that is? It starts, "Certain parties 4 sought clarification on Union whether...," et cetera. 5 MR. BAKER: There was some discussion and I 6 think it originated, the genesis of the issue was could 7 customers who were delinquent and not paying be returned 8 to system? What this was meant to clarify was that 9 under the existing -- under direct purchase the way it's 10 facilitated today under the ABC service, a marketer is 11 not exposed to credit risk. That is something that 12 Union takes on under the provision of that service. 13 So I think it is really saying that under the 14 existing bundled direct purchase today there shouldn't 15 be a situation where customers need to be returned to 16 system for non-payment because the utility, Union, is 17 managing the credit risk under the ABC service and also 18 trying to look forward to say to the extent that 19 circumstances change in the future that Union would 20 continue to take on the return to system management, but 21 again recognizing that we are going to need a return of 22 the associated assets when those customers come back as 23 well, so that we can manage those customers coming back. 24 MEMBER JACKSON: You are saying basically you 25 would take these customers back. You have all the tools 26 to deal with them, whatever those tools are. 27 MR. BAKER: To the extent that we get the 28 assets back. That's right. Les Services StenoTran Services Inc. 613-521-0703 84 1 MEMBER JACKSON: I think that covers all the 2 issues that have been settled, is that not right, 3 Mr. Baker? 4 MR. BAKER: The only final comment I was going 5 to make on 1.4.7 is that I don't think there is any 6 specific action required by the Board specific to this 7 proceeding on that issue, but it was again a 8 documentation, an acknowledgement of the fact that there 9 is an issue there in bringing that to the Board's 10 attention through this process. 11 THE PRESIDING MEMBER: Ms Lea, I think the 12 Board is satisfied with the presentation. 13 We thank Mr. Baker and Mr. Birmingham for this 14 presentation. It has certainly helped us understand the 15 agreement much more. Usually, there are some 16 difficulties we have, not because the agreement was 17 amok, but more because we had a lack of knowledge on 18 some of the issues that it was dealing with. 19 I would like to thank them very much for their 20 cooperation and the other parties who were here this 21 afternoon. We will try and make an early decision and 22 communication back to you so that we can get on with the 23 hearing, the outstanding issues. 24 I think that would be where we are at. What 25 is the next step, just to close the afternoon session? 26 MS LEA: Yes, I believe so. I don't think 27 staff have any questions. I have asked both Dr. 28 Wightman and Ms Litt. They also do not have questions Les Services StenoTran Services Inc. 613-521-0703 85 1 at this time. 2 We appreciate the information that we have 3 been able to get. 4 MR. THOMPSON: Thank you, Mr. Chairman. There 5 is one aspect of the matter that Mr. Baker described in 6 response to a question of Dr. Jackson. I would just 7 like to discuss with Mr. Baker to make sure that we are 8 on the same page. I just want to alert you to that and 9 I am quite happy to deal with it tomorrow if we are not 10 on the same page. I wanted to flag that at this moment. 11 It wasn't clear to me as to what he was 12 describing, whether that was my client's understanding 13 of the situation. 14 THE PRESIDING MEMBER: I hesitate to get into 15 something which would be a discussion of the ADR 16 agreement by the ADR participants. I'm cautious. Maybe 17 you can discuss that outside this and if there is a 18 technical inaccuracy in the description that we have 19 been provided, then I'm sure Mr. Penny can bring it to 20 us. 21 I wouldn't want to encourage absolute 22 discussion here. We have received a document which I 23 understand is an agreed to document by the parties. 24 MR. PENNY: I think that's exactly the way to 25 do it, Mr. Chairman. Thank you. 26 MR. MONDROW: Mr. Chairman, just before you 27 rise, if I could state off the record as it were, I'm 28 sure Mr. Penny will have noted our presence, coming back Les Services StenoTran Services Inc. 613-521-0703 86 1 to the hearing precisely at this time when unbundling is 2 discussed which is an issue I indicated on the first day 3 HVAC wasn't particularly interested in. 4 I'm here this afternoon for my own information 5 and it's not time that I will be recording and charging 6 to anyone. I did get the information from the hot line, 7 which I am very appreciative of, so I knew exactly what 8 was going on and no costs thrown away today. I just 9 thought I should note that for anyone who might be 10 watching. 11 Thank you. 12 THE CHAIRPERSON: Thank you, Mr. Mondrow. 13 I think we have closed until the appearance of 14 the Christensen -- All right. Wednesday morning. 15 Thank you. 16 --- Whereupon the hearing adjourned at 1640 17 18 19 20 21 22 23 24 25 26 27 28 Les Services StenoTran Services Inc. 613-521-0703