421 1 RP-1999-0040 2 3 THE ONTARIO ENERGY BOARD 4 5 IN THE MATTER OF ss. 57 and 70 of the Ontario Energy 6 Board Act, 1998, S.O. 1998, c. 15, Sched. B; 7 8 AND IN THE MATTER OF a proposed Standard Supply Service 9 Code for electricity distributors. 10 11 12 13 14 B E F O R E : 15 F. LAUGHREN Chair & Presiding Member 16 R.M. HIGGIN Member 17 A. BIRCHENOUGH Member 18 19 Hearing held at: 20 2300 Yonge Street, 25th Floor, Hearing Room No. 1, 21 Toronto, Ontario on Friday, August 13, 1999, 22 commencing at 0905 23 24 VOLUME 4 25 26 27 28 422 1 APPEARANCES 2 JENNIFER LEA Counsel, Board Technical 3 Staff 4 BRIAN HEWSON/ Board Technical Staff 5 UNA O'REILLY 6 JACK GIBBONS Pollution Probe 7 TOM ADAMS/ Energy Probe 8 MARK MATTSON 9 RICHARD STEPHENSON Power Workers Union 10 ROBERT POWER/ Various Intervenors 11 PETER BUDD/ 12 ALEXANDER GRIEVE 13 BRUCE MacODRUM/ Toronto Hydro-Electric 14 MAX CANANZI System Limited 15 ALAN MARK Municipal Electric 16 Association 17 TOM BRETT Independent Power Producers' 18 Society of Ontario, IPPSO 19 ELIZABETH DEMARCO Various interested parties 20 BRIAN McKERLIE Municipality of Chatham-Kent 21 ROBERT WARREN Consumers Association of 22 Canada. 23 DICK PERDUE/ Direct Energy and Enershare 24 DAVID BROWN Technology 25 DAVID POCH Green Energy Coalition, GEC 26 ZIYAAD MIA Coalition of Distribution 27 Utilities et al 28 423 1 APPEARANCES (Cont'd) 2 ALECK DADSON Enron Capital & Trade 3 IAN MONDROW Heating, Ventilation and Air 4 Conditioning Contractors 5 Coalition Inc., HVAC 6 Coalition 7 MARCEL REGHELINI/ Ontario Hydro Services 8 GRAHAM HENDERSON/ Company 9 MICHAEL MILLER 10 ROGER WHITE/ Energy Cost Management 11 RICK GROULX Incorporated, ECMI 12 MARK RONAYNE/ Competition Bureau 13 J.D. SUTTON 14 KEITH RAWSON TransCanada Power 15 BRUCE CAMPBELL Ontario Power Generation 16 Inc. 17 RICHARD BATTISTA Union Gas Limited 18 BARBARA BODNER Enbridge Inc. 19 AMIR SHALABY Ontario IMO 20 DAN PASTORIC Energy Advantage 21 JIM RICHARDSON/ Upper Canada Energy Alliance 22 PAUL FERGUSON 23 MICHAEL JANIGAN Vulnerable Energy Consumers 24 Coalition 25 KEN QUESNELLE Woodstock Public Utility 26 Commission 27 PETER CANNING/ Ontario Federation of 28 TED COWAN Agriculture 424 1 INDEX OF PROCEEDINGS 2 PAGE 3 4 Hearing resumed at 0905 425 5 Presentation by Mr. Gibbons 425 6 Presentation by Mr. Dyne 452 7 Presentation by Ms Girvan 455 8 Presentation by Mr. Warren 459 9 Short recess at 1042 485 10 Upon resuming at 1106 485 11 Presentation by Mr. Rawson 485 12 Presentation by Mr. Stephenson 492 13 Luncheon recess at 1204 516 14 Upon resuming at 1336 516 15 Presentation by Mr. Canning 516 16 Presentation by Mr. White 538 17 Hearing adjourned at 1437 552 18 19 20 21 22 23 24 25 26 27 28 425 1 Toronto, Ontario 2 --- Upon resuming on Friday, August 13, 1999 3 at 0905 4 THE CHAIRMAN: Good morning, ladies 5 and gentlemen. We are ready to wade right into the 6 presentations of this morning. The first presentation 7 is from Pollution Probe. I see Mr. Gibbons is ready 8 and able. 9 If you would introduce yourself and 10 your colleagues, Mr. Gibbons, we can proceed. 11 PRESENTATION 12 MR. GIBBONS: Thank you, 13 Mr. Laughren. I am Jack Gibbons from Pollution Probe 14 and with me is Pollution Probe's counsel, Murray 15 Klippenstein, who is actually going to do the talking. 16 MR. KLIPPENSTEIN: Thank you, 17 Mr. Chairman and Mr. Higgin and Mr. Birchenough. I am 18 pleased to be making the presentation this morning on 19 behalf of Pollution Probe. It is possible that 20 questions may be answered, if there are any, by either 21 myself or Mr. Gibbons. 22 As you know, Pollution Probe filed 23 materials consisting of a paper dated June 29th, 1999. 24 It's entitled "The Ontario Energy Board's Draft 25 Standard Supply Service Code: Effects on Air Quality" 26 by Jack Gibbons and Sarah Bjorkquist prepared under the 27 auspices of Ontario Clean Air Alliance, of which 28 Pollution Probe is a member. Pollution Probe has filed 426 GIBBONS/KLIPPENSTEIN, presentation 1 that in this hearing. 2 In addition, Pollution Probe filed 3 submissions dated August 3rd, 1999 and I will be 4 referring to a number of citations this morning. Those 5 are contained in the materials and I won't necessarily 6 give you detailed references this morning. 7 I would, on behalf of Pollution 8 Probe, want to make essentially three points this 9 morning or highlight the points that occur in the 10 materials. The points are, first of all, that the 11 present proposal of spot market purchasing will 12 increase air pollution in Ontario. The second point is 13 that the Board should consider, instead of a spot 14 market purchasing regime, a regime that allows 15 utilities to enter into longer-term generation 16 contracts for the air pollution benefit that would 17 result from that. 18 Thirdly, Pollution Probe submits that 19 if the Board decides to approve the spot market 20 purchase regime, it is critical that a linkage be 21 maintained to the emissions cap concept that has been 22 mentioned throughout the discussion of this pricing 23 regime, and I will comment later about that linkage, 24 which is obviously not fully within the mandate of this 25 Board. 26 The first point, as I mentioned, is 27 Pollution Probe's submission that adopting compulsory 28 spot market purchasing for utilities, as is proposed in 427 GIBBONS/KLIPPENSTEIN, presentation 1 this proceeding, will in fact increase air pollution in 2 Ontario compared to the present. Pollution Probe 3 believes that the evidence in this hearing shows that 4 putting in place such market power purchasing 5 requirement for utilities will increase the air toxins 6 that Ontarians breathe and the greenhouse gases that 7 Ontario emits. In other words, Ontarians are poised in 8 this hearing to take a significant and real step 9 backwards with their health and their environment. 10 At present, the level of coal-fired 11 toxins which Ontarians breathe and the greenhouse gases 12 which we create through electricity use are constrained 13 by the emissions caps on Ontario Hydro and by the 14 ability and the plans of various utilities to purchase 15 energy from natural gas and other toxin-reducing and 16 greenhouse gas-reducing energy plants. On the other 17 hand, the operation of the spot market, which is 18 proposed in this plan, does not recognize or even 19 tolerate any such limits on those pollutants. 20 Therefore, if the Board approves the 21 compulsory spot market purchasing proposal as the 22 replacement to the existing structure, these limits on 23 pollutants will disappear. In the spot market, the 24 race goes to whichever energy source can most cut the 25 prices by any means whatsoever, including by ignoring 26 public health and environmental damage or 27 externalities. 28 Tomorrow and for the foreseeable 428 GIBBONS/KLIPPENSTEIN, presentation 1 future, the energy source that will dominate the spot 2 market is and will be dirty coal-fired electricity. 3 Therefore, it follows that if this proposal is 4 approved, there will be an increase in the amount of 5 coal toxin in the air we Ontarians breathe and an 6 increase in the greenhouse gases we collectively emit. 7 The Ontario Medical Association last 8 year called air pollution in Ontario a public health 9 crisis. Pollution Probe is suggesting that if this 10 proposal is approved, that crisis will get worse. The 11 Ontario Medical Association also called for large 12 reductions in sulphur dioxide and nitrogen oxide 13 emissions in Ontario. If this proposal before you is 14 adopted, these emissions will, instead, increase. 15 According to the government of 16 Ontario, smog kills 1,800 people a year in our 17 province. We think it is reasonable to ask the 18 question: Will more people in Ontario die from smog if 19 this proposal passes? Unfortunately, that is probably 20 true. 21 It appears from the record that most, 22 if not all, parties in this proceeding who touch on the 23 topic of environmental emissions accept the validity of 24 the facts and the analysis which I have just described, 25 which lead to the conclusion that the present proposal 26 will increase air toxins and greenhouse gases. 27 The fact that the approval of the 28 proposal would cause an actual increase in Ontario air 429 GIBBONS/KLIPPENSTEIN, presentation 1 pollution over the present is, however, tangential to 2 the focus of most other parties. That is why the 3 imminent possibility of air pollution increase seems to 4 be not so much disputed in this hearing as it is 5 perhaps de-emphasized or set to one side. Pollution 6 Probe would urge the Board to consider the issue as one 7 of the core issues before it. 8 The words of the Market Design 9 Committee in its final report say much the same thing. 10 They say public acceptance of the electricity 11 restructuring initiative is tied intimately to the 12 adoption of measures to control power plant emissions 13 and to otherwise protect and improve the environment. 14 The real question could be said to 15 be: What should be done to avoid this increase in 16 pollution? Pollution Probe would suggest there are two 17 alternatives available to the Board in this proceeding. 18 One is to reject the concept of compulsory spot market 19 purchasing for utilities and, instead, allow the 20 utilities to enter into medium- and long-term supply 21 contracts with electricity generators; thus, allowing 22 the development of new electricity sources that would 23 replace dirty coal-fired generators. 24 The second option is to approve the 25 spot-market purchasing and pricing mechanism, but to 26 firmly link that approval to the simultaneous 27 implementation of emissions caps so that the two 28 proceed together or not at all. 430 GIBBONS/KLIPPENSTEIN, presentation 1 The first of those two options, as I 2 said, is allowing utilities the flexibility for 3 longer-term power purchase contracts. I won't repeat 4 the detailed argument set out in Pollution Probe's 5 submissions. Obviously, Pollution Probe submits that 6 utilities should be allowed to enter into medium- and 7 long-term contracts with generators as they would not 8 be permitted under the proposal before you. 9 There are obviously pros and cons and 10 these are reviewed in detail in Pollution Probe's 11 submissions. The key point, I would submit to you, is 12 that such a regime would partially address the problem 13 of increasing pollution, which I alluded to earlier. 14 The other option I mentioned, that of 15 conditional approval, would involve -- if the Board saw 16 fit in the overall context of the many complex issues 17 that you have to consider to approve the spot market 18 purchasing regime, then our submission is that it is 19 critical that that approval be conditional on the 20 simultaneous implementation of strict emissions caps 21 applicable to all relevant pollutants. 22 Emissions caps, which you will be 23 familiar with, in Pollution Probe's submission, play a 24 key role in a competitive market structure. Without 25 such emissions caps, deregulation can easily lead to 26 increased pollution, as would be the case, we submit, 27 in the proposal before you. Pollution Probe suggests 28 that it is critical that the Board preserve the 431 GIBBONS/KLIPPENSTEIN, presentation 1 integral link between emissions caps and the spot 2 market purchasing proposal before the Board. 3 There are some obvious jurisdictional 4 issues involved, which I will get to in a minute, but I 5 would point out that this linkage between emission caps 6 and spot market purchasing and that conditional or 7 necessary co-ordination between the two is already 8 recognized in and is a key part of government policy of 9 the recommendations of the MDC and of the economic 10 theory that underlies the competitive marketplace. 11 The government policy paper 12 "Direction for Change" makes that linkage. It says: 13 "The government will ensure that 14 the province's environmental 15 protection record is maintained 16 and improved." 17 That is at page 12 of "Direction for 18 Change". 19 In my submission, as alluded to 20 earlier, this proposal will increase air pollution in 21 Ontario without one of the two options that Pollution 22 Probe is submitting and thus would contravene this key 23 part of the government's policy paper. 24 The Market Design Committee says in 25 its final report on this issue between the linkage 26 between spot market purchasing and emissions caps at 27 page 1-9: 28 "In our view, an air emissions 432 GIBBONS/KLIPPENSTEIN, presentation 1 cap and trade program should be 2 launched at the same time as the 3 electricity market is opened to 4 the competition." 5 Further, at page 1-15 the MDC said in 6 its final report: 7 "It will be critical, as well, 8 to move ahead with determination 9 on an emissions standards 10 program and other environmental 11 measures. Done well, the 12 introduction of competitive 13 electricity markets will bring 14 many environmental advantages; 15 done poorly, the result could be 16 both higher emissions and new 17 anti-market forms of 18 intervention and control." 19 So in our submission the MDC 20 recognized that it was "critical", to use their word, 21 to link emission standards and the introduction of 22 competition. 23 Thirdly, with respect to this linkage 24 I would suggest that it is trite economic theory to say 25 that the presence of unaccounted for externalities such 26 as air emissions and pollution undercuts the validity 27 of market pricing because markets in such a situation 28 will not generate appropriate price signals. 433 GIBBONS/KLIPPENSTEIN, presentation 1 It would be ironic, in Pollution 2 Probe's submission, given the comments of the 3 government in its policy paper and given the comments 4 of the MDC, if this important positive linkage between 5 market restructuring and full and adequate emissions 6 caps, which has been recognized so explicitly 7 throughout the process at every stage, were to broken 8 here at the Energy Board. 9 I mentioned earlier that the linkage 10 between emissions caps and the proposal before you 11 obviously raises questions of jurisdiction and capacity 12 and role. 13 A number of parties have pointed to 14 the difference in role between the Energy Board and the 15 Ministry of Environment and suggested that these lines 16 are -- I don't want to put words in their mouth, but 17 seem to be suggesting that these lines are clear and 18 sharp and that there is limited or no overlap or 19 interrelation between the two. 20 In our view, that approach would be 21 overly simplistic and potentially dangerous. 22 It is clear that the Board continues 23 to have a public interest mandate. In this particular 24 case section 1 of the Ontario Energy Board Act, which 25 mandates promotion of cleaner energy, is specifically 26 applicable. 27 Therefore, although it is clear that 28 the Ministry of Environment in dealing with emission 434 GIBBONS/KLIPPENSTEIN, presentation 1 caps would have a more primary role than the Energy 2 Board. That does not mean that there is a gulf between 3 the two or that somehow a greater specialization on the 4 topic at the Ministry of Energy causes a complete 5 absence of that consideration at the Energy Board. 6 In my submission, the Board has the 7 tools to integrate its consideration of this proposal 8 with the important issue of emissions caps. 9 If the Board saw fit to link -- first 10 of all, saw fit to approve the spot market purchasing 11 plan, and also saw fit, as Pollution Probe submits is 12 critical, to link that approval in a conditional way to 13 emissions cap regulation, there are at least two tools 14 the Board could use. 15 First of all, it could, having 16 completed its hearing and its considerations, could 17 adjourn the hearing with an interim order resolving as 18 many issues as it saw fit, but adjourning the hearing 19 until such time as there was a clear direction from the 20 Ministry of the Environment and the government about 21 the implementation of emissions caps. 22 In that scenario the Board could 23 essentially resolve all issues but one. 24 It could adjourn for a specified 25 period, such as six months. 26 The Board could address the issue by 27 stating its views on the issue of emissions caps, for 28 example, by suggesting the linkage and the importance 435 GIBBONS/KLIPPENSTEIN, presentation 1 that the two aspects of competition be implemented in 2 tandem. 3 The Board could state a principle, 4 for example, that competition should proceed only with 5 full and adequate emissions caps governing all the 6 relevant pollutants. 7 A second tool the Board has would be 8 to make an order with conditions. 9 The Board could, if it saw fit to 10 approve the spot market purchasing regime, issue its 11 decision and build into it a condition that the regime 12 not be implemented or approved effectively until there 13 was a complementary implementation of an emissions cap 14 regime. 15 If the Board used one of those two 16 approaches, either an adjournment with an interim order 17 or an order with conditions, the Board would be able to 18 fully deal with the issues properly before it, but it 19 would not need to, in an artificial way, abandon a key 20 part of a competitive regime as was envisioned by the 21 government and as was envisioned by the MDC. 22 In our submission, some other parties 23 have perhaps overshot the mark in isolating the 24 emissions cap issue, isolating the environmental issue 25 and suggesting: That is over at the Ministry of 26 Environment. You don't need to deal with it and you 27 can't deal with it. 28 In our submission, that approach may 436 GIBBONS/KLIPPENSTEIN, presentation 1 be well-intentioned from a theoretical point of view in 2 terms of focusing on competitive markets but, frankly, 3 it smacks of intellectual cherry-picking. To pick the 4 competition aspect of the new regime and to ignore or 5 shuffle off or sidetrack the other half of the integral 6 package, namely the emissions cap regime, is neither 7 consistent from an intellectual and policy point of 8 view, nor, in our submission, helpful to the public of 9 Ontario. 10 In summary, in our submission the 11 record clearly shows that the proposal by itself, if 12 adopted, will increase air pollution in Ontario and 13 that that is certainly not in the public interest. 14 Secondly, Pollution Probe urges that 15 instead of the spot marketing purchasing proposal 16 before you, the Board favour an approach which allows 17 utilities to enter into longer term contracts because 18 of the beneficial environmental effects that will 19 result. 20 Thirdly -- and perhaps most 21 importantly of all -- Pollution Probe urges that if the 22 Board sees fit to approve the proposal before it, the 23 Board maintain its proper perspective and balanced 24 approach and link such approval explicitly and 25 effectively to the adoption of a full and adequate 26 emissions cap program. 27 This is a slightly unusual twist on 28 the Board's decision-making process, but it is well 437 GIBBONS/KLIPPENSTEIN, presentation 1 within its jurisdiction and mandate and capability. In 2 our submission, to do anything less unfortunately would 3 cause the public to pay an unfortunate price from 4 fragmented implementation. 5 Those are Pollution Probe's 6 submissions. Mr. Gibbons and myself are available to 7 answer any questions you might have. 8 THE CHAIRMAN: Thank you very much 9 for that submission. 10 Staff, are there any questions? 11 MS O'REILLY: I just have a couple of 12 questions. 13 You submit that LDCs should be 14 permitted to enter into medium- and long-term contracts 15 with electricity generators. I wonder if you could 16 speak to the potential risks that could be associated 17 with those kinds of contracts. I am thinking in terms 18 of forecasting prices over a long term and the 19 potential for stranding an asset and how those 20 potential risks could be mitigated. 21 MR. GIBBONS: Well, those risks 22 certainly do exist if they enter into long-term 23 contracts at a certain price. If the market price in 24 the future is lower than that, they can certainly have 25 costs that they may not be able to recover from their 26 customers and that would have to be borne by the 27 shareholder. 28 That is a risk, but that is a risk I 438 GIBBONS/KLIPPENSTEIN, presentation 1 believe companies should be allowed to undertake if 2 their shareholders, if their Board of Directors agree. 3 The Municipal Electric Utilities would now be a 4 business corporation under the Business Corporations 5 Act of Ontario. Other business corporations are 6 allowed to take risks. When you take risks, you can 7 win and you can lose. I think that is just part of a 8 competitive market. 9 There are risks, and if they make bad 10 decisions their shareholders will suffer the 11 consequences. 12 MS O'REILLY: The Consumers 13 Association of Canada, along with some other parties, 14 have suggested that it would be unfair to impose the 15 green power requirements on standard service supply 16 customers because of potentially higher costs 17 associated with that kind of power. 18 I wonder if you could speak to this 19 concern and address the question of why those 20 particular customers should have to bear the burden of 21 cleaner air. 22 MR. GIBBONS: Well, we don't think it 23 should just be those customers who should bear the 24 burden. Pollution Probe is advocating emissions caps 25 that would apply to all electricity consumers. 26 I guess what we are saying is that if 27 that doesn't get established as soon as the market 28 opens, that doesn't mean that we shouldn't go to other 439 GIBBONS/KLIPPENSTEIN, presentation 1 maybe second-best options which will still help protect 2 public health and the environment. 3 Again, as the Ontario Medical 4 Association has said, air pollution is a public health 5 crisis, and we have to deal with it. If the government 6 isn't going to establish right at the outset of 7 competition a full comprehensive set of emissions caps 8 as the MDC recommended, we have to look for other 9 alternatives. 10 Again, the residential customers 11 aren't necessarily saddled with it. They will all have 12 the option of going to some private sector retailer who 13 can offer, like American Electric Power or Detroit 14 Edison, or some other company, the very dirty and the 15 very cheapest coal-fired electricity. So no customer 16 will be forced to take it. 17 However, it is certainly our belief 18 that the vast majority of residential customers want 19 cleaner air and that they would be willing to pay a 20 small price to achieve it. 21 For example, according to the Ontario 22 Clean Air Alliance's analysis, we could reduce our 23 emissions from coal-fired power plants by up to 83 per 24 cent at a cost of only $1.86 a month for the typical 25 residential hydro customer. That is the cost of a cup 26 of coffee and a donut. It is a really trivial cost. 27 We did a public opinion polling in 28 the cities of Hamilton, Kitchener, Waterloo and London, 440 GIBBONS/KLIPPENSTEIN, presentation 1 and we found that 85 per cent of the voters we surveyed 2 are willing to pay that price. Many are willing to pay 3 significantly more than $1.86. 4 I think this is an option. It is a 5 pragmatic option of moving forward, and which is 6 acceptable to the vast majority of people. 7 MS O'REILLY: Could you address, 8 then, the issue of if people are willing to pay more, 9 why you would suggest that it be part of a standard 10 service offering instead of a competitive retail option 11 and why you would think it should be through a 12 portfolio and the LDC? 13 MR. GIBBONS: I think with the 14 standard service option what we are trying to do is -- 15 most residential customers will want to stay with their 16 municipal electric utility, for a number of reasons. 17 It could be just inertia, the transaction costs of 18 moving are high, or they actually may prefer buying 19 their power from a regulated utility where they know 20 they are not going to be suffering from price gouging. 21 I think we should try to give those 22 customers, who will probably be the majority of 23 residential customers, what they want the most. I 24 don't think the majority of residential customers want 25 the cheapest and the dirtiest form of electricity, 26 which is coal-fired power. 27 Even if we look at the White Paper, 28 the White Paper never promises the lowest possible 441 GIBBONS/KLIPPENSTEIN, presentation 1 financial price. It promises reasonable prices, and it 2 promises environmental protection and improvement. 3 I think that is really what the 4 government wants. It is what the people of Ontario 5 want, and we should give them that. 6 MS O'REILLY: Thank you. Those are 7 all of my questions. 8 THE CHAIRMAN: Thank you, 9 Ms O'Reilly. 10 Dr. Higgin? 11 MEMBER HIGGIN: Thank you. 12 I would like to go back to something 13 that was talked about, but expand on it, in your 14 discussion with Ms O'Reilly, and that is: In the big 15 picture, do you not think that either green power on 16 the one hand or pollution abatement incentives, or we 17 will call them offsetting economic measures, should be 18 administered at the wholesale level by the IMO in the 19 wholesale level market; for example, using mechanisms 20 of specifying a certain amount of green power, 21 specifying an adder to the uplift to deal with that? 22 These are options that other 23 jurisdictions have addressed at the wholesale level. 24 What you are trying to do is bring it down, in my view, 25 to the retail level. 26 MR. GIBBONS: Fundamentally, 27 Dr. Higgin, we agree with you. The ideal way to deal 28 with it, in Pollution Probe's view, is emissions caps, 442 GIBBONS/KLIPPENSTEIN, presentation 1 which are basically at the wholesale level. They could 2 be caps in quota systems that could be applied to each 3 generator, or they could be administered by the 4 independent market operator. 5 The independent market operator at 6 the moment is required to buy power on terms of least 7 financial cost. Its mandate could be expanded to buy 8 power at the least financial cost subject to the 9 constraint that emissions, in total, must be below a 10 certain level. And that could be done. 11 In my opinion, that is probably the 12 ideal way of doing it. 13 What we are just saying is that at 14 the moment, I think most informed observers would say 15 that is not likely to happen by the time of market 16 opening in the fall of the year 2000. We have to also 17 be aware of the bigger picture that the government 18 promised: that competition would lead to cleaner air, 19 not increased emissions. 20 If we are not going to get the 21 first-best solution, we believe that the OEB, given its 22 mandate, should try to get the second-best solution as 23 opposed to implementing an option which will give the 24 worst outcome in terms of air pollution and public 25 health, which is just the spot market option with none 26 of these wholesale protective measures. 27 MEMBER HIGGIN: You have made 28 reference to the Board's mandate as set out in the 443 GIBBONS/KLIPPENSTEIN, presentation 1 "Purpose" section of the Act. If we look into the Act 2 itself, the OEB Act, I would like either you or 3 Mr. Klippenstein, if you could, to give me your view as 4 to what you think are the implications of a couple of 5 sections for the Board in the area of licensing and 6 codes, which is the issue we are dealing with here, as 7 opposed to rates and so on. We are dealing with 8 licensing and codes. 9 Could I then ask you to give your 10 views, if you could, about the Board's role in section 11 70(2) -- 70(2)(i), which is their specifying 12 information reporting requirements relating to the 13 source of electricity and emissions caused by the 14 generation of electricity. 15 The key word is "reporting", because 16 it stipulates that is something the Board can do, under 17 its powers under section 70, with regard to licensing. 18 That is the first one. 19 How does that relate to your proposal 20 here? 21 The second one, of course, is the -- 22 in our Act -- the way the Lieutenant-Governor, under 23 section 88, may enact regulations related to the -- 24 determine from which generation facility, or 25 facilities, is deemed to produce, et cetera, and also 26 goes on with the Minister of Environment. This is 27 something that the Minister of the Environment is 28 empowered to do. 444 GIBBONS/KLIPPENSTEIN, presentation 1 So I just wanted to try to get 2 from -- your perspective how those sections of the Act, 3 and particularly the licensing provisions, relate to 4 your proposal and this Code. 5 MR. GIBBONS: Well, maybe I can give 6 sort of a general response, and then maybe Murray can 7 focus more on the legal aspects. 8 Clearly, if we are to have the 9 emissions caps and to reduce the emissions and to 10 effectively regulate the emissions, we are going to 11 have reporting from all the generators and all the 12 suppliers of what their emissions are. I mean that is, 13 obviously, key to achieving what Pollution Probe hopes 14 to achieve. 15 I guess the other point is: while 16 reporting is absolutely necessary to achieve what we 17 want, just reporting, in itself, won't solve the 18 problem. If you have reporting and just your spot 19 price pass-through, without any new environmental 20 emissions caps, it will help a bit, it will help 21 certain customers who want to pay a premium for, 22 really, pure green power to get it and that will be 23 worthwhile, but it really won't solve the problem 24 because, while some residential customers will 25 voluntarily pay a premium and buy green power, that 26 positive benefit will be offset by all the municipal 27 utilities and the large industrial customers who, even 28 if they know the emissions profile of what they are 445 GIBBONS/KLIPPENSTEIN, presentation 1 purchasing, will purchase just based on the lowest 2 price. 3 MEMBER HIGGIN: Right. Does anyone 4 have any views? 5 MR. KLIPPENSTEIN: I wonder if I 6 could just ask you to repeat your point, or question, 7 about section 88 because I didn't quite -- 8 MEMBER HIGGIN: Yes. In section 88, 9 it seems that the regulations will authorize the 10 Minister of the Environment regarding -- and to file 11 with the Board in such form and at times, with the 12 Board, the evidence that the electricities produced 13 meet standards for emissions filed with the Board to 14 its section 88(d). 15 The point, then, I am trying to make 16 is it seems to point the finger to the Minister of the 17 Environment that they file with the Board the results 18 as a result of the reporting requirements that are then 19 stipulated under the licensing section under 70. 20 So, all I am trying to get from you 21 is your view of how you see emissions caps being 22 administered and what the Board's role is, as stated in 23 the Act, as opposed to what you may like to think that 24 the Board should do. 25 How does it relate to what the Board 26 is asked to do, under the Act? 27 MR. KLIPPENSTEIN: Well, the Act, 28 clearly, doesn't specifically say that the Board shall 446 GIBBONS/KLIPPENSTEIN, presentation 1 design and implement emissions caps, obviously. There 2 isn't any clear, in our submission, delineation of a 3 role for the Board in overall emissions caps. 4 The reporting requirements you 5 pointed to, and the fact that this is to be filed with 6 the Board, are not particularly determinative of the 7 issue either, in my submission, although it does seem 8 to hint at some kind of involvement or, you know, 9 information flow. But, in my submission, the answer 10 just isn't clear from the Act. 11 But as we said earlier, we accept 12 that the primary role for emissions caps does not lie 13 with the Board. It lies with the Ministry of 14 Environment. At the same time, that doesn't amount to, 15 you know, a complete abdication on the part of the 16 Board, in our submission, nor a gulf between the two. 17 Perhaps it would be better if the delineation was more 18 clearly set out, but it is not. That is why we 19 suggested that this idea of a linkage needs to be dealt 20 with, and just because it is not clearly set out 21 doesn't mean it should be abandoned. 22 The Ministry of Environment is 23 subject to its own imperatives of politics and the 24 events of the day and competing priorities, and those 25 are what they are, and they could result in emissions 26 caps being delayed significantly, or forever. 27 There is some discussion, I 28 understand, of a couple of -- of emissions caps on a 447 GIBBONS/KLIPPENSTEIN, presentation 1 couple of pollutants, but it is far from clear whether 2 they will cover all the pollutants which we predict 3 will increase with competition. 4 Those things are not things that, in 5 our submission, the Board itself should necessarily be 6 a detailed watchdog for, either, you know, in terms of 7 a regulation-making role, obviously, or some kind of 8 detailed policy role. But we suggest it is not only, 9 you know, authorized but, logically, necessary for the 10 Board to have some role -- and maybe that is at the 11 level of principle -- in which the Board could say a 12 number of things. It could say there is a linkage. If 13 we authorize this kind of competitive regime, it 14 necessarily requires co-ordination with something that 15 the Ministry of Environment is working on. The danger, 16 as we submit, is that the Board would see itself in a 17 position -- and in our view it would be a mistaken 18 view -- that it must approve, for example, this regime 19 and not look at what is happening out there, not have 20 an eye to another part of the picture which is being 21 primarily dealt with outside the Board. 22 Maybe the references you have made 23 about information flow hint at the sort of -- or hint 24 that there is, clearly, a role in detail. 25 MEMBER HIGGIN: You have attached the 26 emissions cap proposal to, we will call it -- caveat to 27 the spot price or a spot -- 28 So that means, then, that under the 448 GIBBONS/KLIPPENSTEIN, presentation 1 alternative of a fixed price, emissions caps are not -- 2 counterview. Or have you -- or think they will happen 3 anyway, as a result -- 4 MR. KLIPPENSTEIN: Maybe Mr. Gibbons 5 has some comments but -- 6 MR. GIBBONS: No, no, actually not. 7 Our first best solution is emissions 8 caps, comprehensive emission caps -- 9 MEMBER HIGGIN: But for either 10 option. 11 MR. GIBBONS: Ah, for either option, 12 that is definitely the first step. And what we are 13 trying to signal to you is the absolutely worse 14 solution would be a spot market pass-through with no 15 emissions cap. And if we can't get emissions caps in 16 place, then the fixed price option would be better than 17 the spot pass-through option because the fixed price 18 option would allow certain utilities, like Toronto 19 Hydro and Hydro Mississauga, to contract with new, 20 cleaner supplies of gas-fired generation and build some 21 renewable energy facilities which would move us forward 22 in a positive direction. 23 MEMBER HIGGIN: I also think, in one 24 sense, if you -- they are linked, the issue of price, 25 what is the price that the customer will pay, and the 26 procurement are two separate issues. Is that right? 27 They are linked but they are two different methods. In 28 one case, there could be, for example, some sort of 449 GIBBONS/KLIPPENSTEIN, presentation 1 price cap and there may or may not be stipulations 2 regarding procurement. So the two things are separate. 3 I am trying to get from you whether 4 you think that the mischief here is related to the 5 price or the method of procurement. 6 MR. GIBBONS: I think the method of 7 procurement. 8 Under the Board staff's proposal, I 9 understand that the utilities have to buy it 10 exclusively on the spot market. The spot market will 11 mean coal. The Lakeview will not be able to compete on 12 the spot market -- won't be built. 13 MEMBER HIGGIN: So you are really 14 saying 2.2.5 is the mischief? 15 MR. GIBBONS: If that is the 16 procurement section, yes, sir. 17 MEMBER HIGGIN: Thank you. Thank you 18 very much. 19 THE CHAIRMAN: Thank you. 20 Mr. Birchenough. 21 MR. GIBBONS: But also, sir, again, 22 if you somehow make the price cap low enough, again 23 that could force out the cleaner alternatives. 24 MEMBER BIRCHENOUGH: I would just 25 like to explore your suggestion for price -- I'm 26 sorry -- emissions cap a little further. 27 Are you in favour of emissions 28 trading? I am looking particularly at the greenhouse 450 GIBBONS/KLIPPENSTEIN, presentation 1 gas component and the Ontario Clean Air Alliance 2 suggesting that we limit greenhouse gases to 3 15,000 tons per year -- I'm sorry -- kilotons per year. 4 Are you in favour of emissions trading? 5 MR. GIBBONS: If the question is 6 about the Ontario Clean Air Alliance, the Ontario Clean 7 Air Alliance has not, as of yet, taken a position on 8 emissions trading either pro or con. We are just 9 silent at the moment. 10 What we are doing is focusing on the 11 need to get emissions down, the need for a cap to get 12 the public health and environmental benefits. 13 So the Ontario Clean Air Alliance is 14 looking at the very big picture, public health 15 environmental big picture, and hasn't got into the 16 micro-management details of actually how to implement 17 it really. We haven't taken a position on that. So 18 that is really not our primary role. 19 Our primary role is to get emissions 20 down and leave it up to the government or industry 21 stakeholders to figure out how to do it. The micro 22 management is not our area of expertise or prime 23 concern. 24 In terms of Pollution Probe, I'm a 25 consultant of Pollution Probe, but I think it is fair 26 to say that Pollution Probe is certainly very willing 27 to consider emissions trading. I think it's fair to 28 say that Pollution Probe believes that emissions 451 GIBBONS/KLIPPENSTEIN, presentation 1 trading for greenhouse gases could be appropriate if 2 it's done right. Again, the devil is in the details. 3 While emissions trading can be very beneficial, I 4 believe, both to the environment and to the economy, if 5 it is done poorly it is not necessarily beneficial. 6 THE CHAIRMAN: Thank you. 7 Mr. Gibbons, as you understand, the 8 Board has not come to any conclusions whatsoever on the 9 pricing at this point. What would be the problem if 10 the Board did approve -- and it's a big "if" -- did 11 approve the spot price pass-through, and at the same 12 time there were rules or regulations on the proportion 13 of the power that went into the pool that gave you some 14 comfort? Would you see a problem with that? 15 MR. GIBBONS: No, sir. For example, 16 if a certain portion had to be, say, from natural gas 17 generation or small-scale renewable -- 18 THE CHAIRMAN: Some green label, yes. 19 MR. GIBBONS: -- some green label, 20 that could, I mean in principle, solve the problem. 21 If the portion is large enough, then 22 there would be a net reduction because there would 23 always be the hydraulic, the existing hydraulic, and 24 the nuclear; and, of the remaining portion, a 25 certain -- all the remainder, a high enough proportion 26 had to be natural gas and renewable, well, then that 27 could in principle solve the problem, yes, sir. 28 THE CHAIRMAN: Thank you. 452 GIBBONS/KLIPPENSTEIN, presentation 1 There are no more questions. Thank 2 you very much for your presentation and for your 3 response to our questions. 4 MR. GIBBONS: Thank you, sir. 5 MR. KLIPPENSTEIN: We wish you wisdom 6 in your deliberation. 7 THE CHAIRMAN: Thank you. We will 8 need it. 9 The next presentation is from the 10 Consumers Association of Canada. I see Dr. Dyne is 11 here along with Ms Girvan. If you would take your 12 place and introduce yourselves we will be able to 13 proceed. 14 PRESENTATION 15 MR. DYNE: Good morning. Thank you. 16 Briefly, Consumers Association is a 17 volunteer group which tries to speak for the general 18 interests of residential consumers. A primary interest 19 to the group is essentially economic: what consumers 20 pay for what they get and do they understand what they 21 are getting. 22 I will be speaking very briefly on 23 our general view of this issue. Ms Girvan, who is our 24 consultant, was also a member of the MDC while this 25 particular issue was being discussed and she will give 26 you some views on that. It turns out that there are 27 also some legal issues which have arisen in this 28 discussion and Robert Warren is here to deal briefly 453 DYNE/GIRVAN/WARREN, presentation 1 with those. 2 The definition of "standard supply" 3 is the key issue for residential consumers because it 4 will be their interface with the new electricity 5 market. 6 All consumers want to know, all 7 consumers want to know what their hydro bill is going 8 to be and is it the lowest possible bill. The 9 perception from the past is that the OEB regulated 10 rate, as they understood it, was in fact the lowest 11 bill. 12 Now, we are discussing two choices 13 for consumers who do not choose immediately to contract 14 the broker. The first, spot price, is a price which 15 varies from month to month but which is expected to 16 average out over the year to about what they are now 17 paying; or, a fixed rate which may cost more. 18 CAC clearly recognizes that under the 19 spot price there will be monthly variations in the 20 price of power. We know however that the average spot 21 price over a year will be 3.8 cents per kilowatt hour, 22 or thereabouts, and consumers should not therefore be 23 significantly disadvantaged or put at risk by a spot 24 price pass-through, that is certainly for the next 25 three and a half years. They can protect themselves 26 from larger monthly billing variations by choosing an 27 equal billing option. CAC would recommend that the 28 MEUs should be required to offer this billing option. 454 DYNE/GIRVAN/WARREN, presentation 1 Now, the problem to CAC in discussing 2 the fixed-price option is that no one tells us what the 3 cost of a fixed price might be. Premiums of the order 4 of 10 per cent have been quoted for the natural gas 5 residential market. Just to take a figure out of the 6 air, for the sake of discussion, a premium of between 5 7 to 10 per cent, which amounts to between $25 and $50 a 8 year on a $1,000 a year hydro bill, such an increase 9 would have to be clearly explained to customers. 10 The government has emphasized that 11 consumer choice, consumer choice, is one of the key 12 benefits of the reforms they are introducing, so that 13 consumers should be given a clear choice of whether or 14 not they want to pay the premium for a fixed price. 15 In addition, there have been no clear 16 descriptions, as far as I am concerned, of how a fixed 17 price might be set or, more importantly, how the Board 18 could endorse any fixed price without, in effect, 19 regulating the price. 20 Julie will be dealing with other pros 21 and cons of the options. 22 Now, CAC regards this issue as being 23 economic in showing that consumers get the best price 24 they can on conditions they understand. We see 25 environmental concerns as an entirely separate issue. 26 They are certainly a valid issue but they are a 27 separate issue. 28 If, for instance, Toronto Hydro wants 455 DYNE/GIRVAN/WARREN, presentation 1 to underwrite the conversion of Lakeview GS to gas, 2 they should offer the price of that conversion as an 3 option to their customers for their choice. 4 Having said that, nevertheless, we 5 are fully in agreement with what Pollution Probe has 6 been arguing with you just recently, and we would urge 7 the Board to ask the Ministry of the Environment to 8 enact emission caps on coal-burning stations forthwith; 9 and, I would go further, to ask them for a detailed 10 study of the complete phasing out of coal over the next 11 few years. If you are going to do it, do it properly. 12 So, in brief, CAC believes that the 13 spot price pass-through is, on the available evidence, 14 essentially the only option open to the Board. 15 Thank you. 16 PRESENTATION 17 MS GIRVAN: Good morning. I have a 18 couple of preliminary comments to make before 19 highlighting the major points in our submission 20 regarding the pricing proposals. 21 First, I would like to make it clear 22 that in no way did we have our minds made up before we 23 came into this process. We initially recognized the 24 difficulties associated with the spot price 25 pass-through model and those are explicitly set out in 26 our paper: the issue of volatility risk, the fact that 27 the price for consumers may not be known in advance, 28 and the challenges with respect to consumer education. 456 DYNE/GIRVAN/WARREN, presentation 1 We had expected that there would be a 2 number of detailed alternative proposals presented to 3 the Board, proposals that we could consider relative to 4 the spot price pass-through model. Since the MDC 5 initially recommended the spot price model, parties 6 have had, in our view, ample time to develop the 7 alternatives. Unfortunately, the models that have been 8 advanced to date are not sufficiently detailed, in our 9 view. We have not been convinced that any of the 10 proposals before the Board represent better pricing 11 alternatives for consumers in Ontario. 12 At one point there has been some 13 criticism advanced during the process by a number of 14 parties that the MDC process was, and I quote, 15 "incomplete and flawed" and that the Board should, 16 therefore, give little weight to the MDC 17 recommendations on these issues. In my view, this is 18 an inappropriate characterization of the MDC process 19 and the consideration of the standard supply or default 20 issues. 21 I was an MDC member, a member of the 22 Retail Technical Panel and a member of the subcommittee 23 that considered and assessed the alternatives. We 24 debated at length over a number of months the various 25 options available for default pricing. Participants in 26 that process were given every opportunity to bring 27 forward alternatives and personally I was very 28 interested in considering as many alternatives as 457 DYNE/GIRVAN/WARREN, presentation 1 possible. 2 At the end of day, however, the fixed 3 price options were, in my view, not workable. The MDC 4 reaffirmed its earlier recommendation of the spot price 5 pass-through following an assessment of alternatives 6 that, in my view, was neither "flawed" nor 7 "incomplete". 8 We realize that the Board will weigh 9 the outcome of the MDC process in the way it deems 10 appropriate. I am only saying this because I think the 11 process should be appropriately described and I wanted 12 to correct what I view as a mischaracterization. 13 I will not repeat the arguments that, 14 indeed, have been advanced for and against the various 15 alternatives before the Board. The record is clear and 16 the issues have been significantly debated. As 17 indicated by Dr. Dyne, we have assessed those arguments 18 and prefer the approach set out in the draft Standard 19 Supply Code. In essence, we believe it represents an 20 approach that provides small consumers with the full 21 benefits of a competitive wholesale market, while 22 minimizing regulatory burden and promoting retail 23 competition. 24 As set out in our paper, we have a 25 number of general concerns about a fixed price regime: 26 the risks to distributors in procuring power, something 27 they have no experience doing, the potential for 28 significant premiums in any fixed price model, they 458 DYNE/GIRVAN/WARREN, presentation 1 need to trade off mobility for price, the potential 2 disparities in the province, and the costs of 3 regulatory oversight. 4 Mr. Ronayne, on behalf of the 5 Competition Bureau, accurately described these problems 6 and I would concur with his analysis to a large extent. 7 I would add a further point, in that once you set a 8 fixed price, it immediately becomes stale. The price 9 above market has implications and a price below market 10 has implications. 11 With respect to regulatory oversight, 12 I am of the view that both Mr. Todd and Mr. Adamson 13 have not fully considered the regulatory burden 14 associated with each of their models. They have also 15 been unable to provide an assessment of what premiums 16 may be associated with their models. 17 The Ontario natural gas experience, 18 of which I have been involved for a long period of 19 time, has demonstrated the difficulties associated with 20 overseeing the supply portfolios of LDCs. What is 21 interesting in that context has been the movement over 22 the years to market-braced prices for gas LDCs, though 23 not entirely analogous, but similar to a spot price 24 approach. Through the MDTS process last year, we 25 explored fixed price proposals for a standard supply 26 offering and we were unable to develop one. 27 Regulatory oversight becomes 28 important in both the context of consumer protection 459 DYNE/GIRVAN/WARREN, presentation 1 and in terms of ensuring a level playing field for 2 competition. Minimizing cross-subsidization between 3 regulated entities and their unregulated affiliates has 4 also been a challenge in the gas industry and it's a 5 challenge that we are still struggling with. To the 6 extent the Board permits a fixed price model and also 7 allows it to be offered by the retail affiliates, 8 regulatory oversight represents a significant, if not 9 impossible, challenge for the Board. 10 This process has initiated 11 significant debate around the Standard Supply Code and, 12 more specifically, the pricing and procurement 13 provisions in that Code. On balance, we believe that 14 consumers in Ontario would be better served with the 15 spot price pass-through model. 16 We believe the problems with 17 potential volatility can be appropriately mitigated. 18 We see no explicit evidence to the contrary. We accept 19 that this model may represent a departure from the 20 status quo. It is important, however, to recognize 21 that changes are necessary in order to bring the 22 benefits of competition to small consumers. The spot 23 price pass-through model affords more consumers the 24 same benefits that large users in Ontario will have 25 under this regime. Thank you. 26 THE CHAIRMAN: Thank you. 27 PRESENTATION 28 MR. WARREN: Good morning, Members of 460 DYNE/GIRVAN/WARREN, presentation 1 the Panel. 2 There were two issues of jurisdiction 3 of the Board that have been raised during this 4 proceeding. The first dealt with the jurisdiction of 5 the Board to proceed without a hearing. We have 6 addressed that issue in our written submissions and we 7 don't believe anything need be added to what we have 8 said. 9 The second issue deals with the 10 jurisdiction of the Board to impose a spot price 11 pass-through regime on local distribution companies. 12 Whereas the first issue dealt with a matter of process 13 or procedure, the second goes to the heart of what the 14 Board may do about standard supply. We address it in 15 our written submission as we understood the submission 16 at that point. We have now had the benefit of reading 17 the MEA's written submission, which contains a fuller 18 statement of that position, and we wish to respond 19 briefly to it because of the importance of the issue. 20 The MEA's submission contains a very 21 detailed, very dense analysis of provisions of the 22 legislation and we don't propose to tire you this 23 morning with a line-by-line response. There are, 24 however, five points that we wish to make about the 25 analysis. 26 By way of overview, we observed that 27 the CAC believes that the MEA analysis represents a 28 misreading of the Act. The five points we want to make 461 DYNE/GIRVAN/WARREN, presentation 1 are the following. First, the MEA argument is that the 2 legislation sets out a detailed road map or plan for 3 the electricity market and that the OEB has a limited 4 function of implementing the "obvious" legislative 5 intent. 6 Our view is entirely to the contrary. 7 The legislation establishes a very broad framework and 8 gives very broad powers to this agency to implement or 9 design the basic elements of the legislation. In doing 10 so, the Board is required to resolve conflicting 11 interests and, indeed, to impose limits on what the 12 entities may do within the market. 13 Let me cite two examples. The 14 breadth of the Board's powers is apparent, in our 15 submission, in its power to license, including the 16 setting of Codes and the power to fix rates. The Board 17 must be able to resolve conflicts in the public 18 interest. 19 On the issue, for example, of 20 cross-subsidy, the Board will know how critical and how 21 complex it has been to regulate the issue of 22 cross-subsidy in the natural gas market. The 23 legislation, in our view, gives the Board the power to 24 do that and doing so will necessarily require the 25 imposition of constraints on what entities in the 26 market may otherwise be able to do and, in particular, 27 the local distribution companies. 28 In addition, this is, in our view, a 462 DYNE/GIRVAN/WARREN, presentation 1 critical point which is missed in the MEA analysis. 2 The Board must be able to make the system work. The 3 Board must be able to operate a regulatory system that 4 functions and is not burdened to the point where it 5 can't operate in the public interest and carry out its 6 broader legislative mandate. 7 The second point we want to address 8 is the argument that the legislation assures local 9 distribution companies the freedom to operate as 10 commercial entities in the delivery of standard supply. 11 For example, the MEA analysis is replete with words 12 like the legislation has forced them to commercialize. 13 In our view, the legislative intent is directly to the 14 contrary of what the MEA suggests. 15 The legislation gives the local 16 distribution companies a role as the monopoly 17 transmitters of electricity. They have a very limited 18 legislatively-required role in the sale of electricity 19 in the retail markets to end-use consumers under 20 section 29. 21 The legislation specifically allows 22 LDCs to make a choice to enter the commercial market, 23 the competitive market, through an affiliate, but the 24 legislation does not require them to do that. In our 25 respectful submission, the Board should not, through 26 some form of fixed price regime, compel them to do 27 something they are not required to do under the 28 legislation. 463 DYNE/GIRVAN/WARREN, presentation 1 So rather than the MEA view that this 2 is a kind of declaration of the rights of man in the 3 form of the declaration of a right of LDCs to compete 4 in the commercial market, it is a very limited, 5 circumscribed statutory obligation. They do not have 6 to make the choice to compete in the commercial market 7 and this Board should not, in our respectful 8 submission, do so. Doing so would, in our submission, 9 be contrary to the clear intent of the legislation. 10 The third point. The MEA argument, 11 reduced to its essence, is that section 29 customers 12 have a right to a full range of competitive options 13 from the local distribution company. We can find 14 nowhere in the legislation that that right is set out 15 either directly or by necessary implication. 16 What the legislation says is that 17 customers must be able to buy from their LDC. That is 18 what section 29 says. 19 What they buy and at what price is 20 determined by this Board. 21 In our view, it cannot be clearer 22 that the Board can impose licence conditions, codes and 23 can fix prices. 24 The fourth point is, as we understand 25 it, that constraints on the ability of the LDCs to sell 26 standard supply and to compete in the retail market are 27 not found in the legislation. We say that that is not 28 the case. 464 DYNE/GIRVAN/WARREN, presentation 1 There are explicit constraints. The 2 constraint is that they must, if they want to be active 3 in the commercial competitive market, do so through an 4 affiliate. 5 But even if that constraint were not 6 in the legislation, it is there by necessary 7 implication if the competitive market is going to be 8 allowed to develop. It is a basic rule of regulatory 9 economics. 10 I feel somewhat odd in bringing this 11 point to the attention of this expert regulatory 12 agency, but it is a basic regulatory rule of regulatory 13 economics that regulated monopoly supply cannot 14 cross-subsidize the competitive market. The Board will 15 know, it has wrestled with that issue and how to 16 implement that regulatory principle in the natural gas 17 sector. 18 The legislation allows the Board to 19 impose what constraints it feels are necessary and 20 appropriate in order to control that cross-subsidy in 21 the interest of developing a competitive market. 22 The final point. Spot price 23 pass-through. As we understand the argument to spot 24 price pass-through, it somehow runs contrary to the 25 legislative intent that customers have choices. 26 This is found not, in our view, on 27 the statutory analysis but on an economic analysis that 28 there will be no competitive options if the spot price 465 DYNE/GIRVAN/WARREN, presentation 1 pass-through model is implemented. 2 There is nothing about the spot price 3 pass-through model that prevents the development of 4 competitive fixed-price options. Indeed, if volatility 5 is as bad as some parties suggested it will be, those 6 options are bound to develop. 7 The important point, however, is that 8 the competitive market will be there and choices will 9 be available to consumers even if the Board uses the 10 spot price pass-through model. 11 In our respectful submission, the 12 Board should not adopt the analysis which is set out in 13 the MEA's paper. It is a limit -- a significant limit 14 on the Boards' freedom to control the market in the 15 public interest and it is, in our submission, directly 16 contrary to the intent of the legislation. 17 Thank you. 18 THE CHAIRMAN: Thank you. 19 Any questions? 20 MS LEA: One moment, please. 21 --- Pause 22 MS LEA: I think I do have a couple 23 of questions. 24 Thank you. 25 Mr. Warren, thank you for this 26 morning of further elucidating your position with 27 respect to the legislation. I have some questions 28 arising out of that I believe. 466 DYNE/GIRVAN/WARREN, presentation 1 Perhaps I misunderstood the MEA, 2 either in their position paper or in their oral 3 submissions. 4 I did not understand them to say that 5 they were suggesting that LDCs be forced to offer a 6 menu of choices to customers as part of their 7 section 29 obligation. 8 I understood them to be saying that 9 they wished the LDC to have the option of coming to the 10 Board with a menu of choices. 11 Did I misunderstand? Is that also 12 your understanding of their submission? 13 I don't know whether you are the 14 proper person to answer this or not. 15 MR. WARREN: As I read the MEA's 16 submission, it is first that the Board does not have 17 the jurisdiction to impose a spot price pass-through 18 regime. Therefore, there must be -- and if the Board 19 can't do that it is necessarily a requirement, as I 20 understand it, that there be some form of fixed-price 21 option which every LDC must offer. 22 There is a fundamental contradiction 23 of the position if you say the Board can't impose it 24 because spot price pass-through, they say, is contrary 25 to the legislative intent. 26 My reading of it is that the logic of 27 that is that they must have a fixed-price option, and 28 if there is a fixed-price option they must necessarily, 467 DYNE/GIRVAN/WARREN, presentation 1 as I understand all of the submissions to agree, be 2 engaged in a risky business. That, as I read the logic 3 of their paper, would require them necessarily to be in 4 what I would call the commercial or competitive or 5 risk-taking market. 6 MS LEA: Okay. So I think I 7 understand you to have more or less the same view as I, 8 that the MEA, as I understood it -- and I'm sure they 9 will forgive me if I don't quite put it right -- 10 MR. WARREN: They will forgive you, 11 but they won't forgive me. 12 MS LEA: Who knows. 13 Anyway, that an LDC can come forward 14 with a menu of choices, which might include a spot 15 price pass-through which might include fixed price, but 16 that the Board cannot impose a spot price pass-through 17 without the LDC's consent. That is how I understood 18 their submission. 19 MR. WARREN: That is what I have 20 understood. 21 MS LEA: I don't know whether you 22 were here yesterday, but when I discussed this with 23 them they thought that a price cap which set the top 24 level of the rate but allowed flexibility underneath it 25 was permissible within the scope of section 78 of the 26 legislation. Would you believe that that is also 27 possible within the scope of the legislation? 28 MR. WARREN: That is the first I have 468 DYNE/GIRVAN/WARREN, presentation 1 heard of that proposition, Ms Lea, and, frankly, I 2 think I would probably like a minute and-a-half to 3 think about it. 4 MS LEA: Okay. 5 MR. WARREN: If you could move on to 6 the next question. 7 MS LEA: Certainly. You don't have 8 to answer that today. 9 Perhaps neither you or Ms Girvan can 10 help me with the policy ramifications. 11 Do you see there being a policy 12 problem or danger that the Board should be addressing 13 in restricting the LDC's procurement options and 14 restricting the number of things they could offer under 15 section 29 service? Does the Board have to be so 16 concerned with the financial health of the utilities 17 that it restricts their procurement options, or can it 18 trust them to make wise decisions as we move forward 19 and perhaps learn as they go, but trust them to make 20 wise decisions about procurement? 21 MR. WARREN: Is that a "can" or a 22 "should" question? 23 MS LEA: I guess it's a "should". I 24 don't think it's a "can" question with respect to the 25 legislation, unless you have some particular views on 26 that. 27 I meant it as a "should" question. 28 MR. WARREN: The reason I raised the 469 DYNE/GIRVAN/WARREN, presentation 1 question is that it is our view that the Board can have 2 regard to that issue. 3 Ms Girvan and I, I don't think, have 4 talked about it, but I think they should have regard to 5 it. They should have regard to it because at the end 6 of the day the health of the local distribution 7 companies is intimately related to the price which 8 residential consumers pay for electricity and, 9 therefore, in our view, as a policy matter the Board 10 should have regard to that. 11 MS LEA: Thank you. 12 I wonder if I could ask you to 13 comment on another point made by the MEA, and that is 14 that the Board -- in section 78(3) of the legislation, 15 what they are supposed to be making an order about is 16 for the retailing of electricity under section 29 of 17 the legislation, not the supply of electricity. 18 I am looking at section 78(3) of the 19 Ontario Energy Board Act. The use of the word "retail" 20 in that context and in other contexts implies that 21 merely a spot price pass-through is not what is being 22 discussed here. We are talking about a retailing 23 function that involves a multitude -- or several 24 options. 25 MR. WARREN: One of the difficulties 26 which I have, Ms Lea, with the MEA proposal is that it 27 seems to it conflates or confuses two different terms. 28 "Retail" was defined by the Act in a 470 DYNE/GIRVAN/WARREN, presentation 1 very narrow way. it just means sale to end users. 2 Section 29 is the one exception to the general 3 proposition that LDCs will be restricted to their 4 monopoly function of transmitting. 5 "Retail" narrowly means, simply, sale 6 to a end-use customer. 7 It is not the same concept as 8 "commercial". What the MEA paper does is confuse those 9 two terms and run them together. 10 It says section 29 allows them to 11 engage in a commercial market, in a competitive market. 12 In other words, in effect, to get around the other 13 constraints. 14 So I don't see section 78 as an 15 indirect or direct authorization of them to engage in 16 the full commercial range of activities. What sections 17 29 and 78 read together mean is that the Board can -- 18 plus the code-making provisions of the Act and the 19 licensing provisions. They allow the Board to dictate 20 what the Board believes is the appropriate structure 21 for the delivery of section 29 service. 22 MS LEA: Thank you. I think I 23 understand your submission. 24 Then in the CAC's view -- and I heard 25 I think all of you comment on the balancing that this 26 Board will have to do in weighing the various 27 advantages between a spot price pass-through and a 28 fixed price. 471 DYNE/GIRVAN/WARREN, presentation 1 Would it be true to say that if the 2 Board accepts your submission, a customer would have to 3 leave section 29 service to get a fixed-price option 4 and therefore your submission results in customers of 5 utilities not being able to continue to have what they 6 have now, that is, a fixed price provided by an LDC 7 that they are familiar with? 8 MS GIRVAN: I have a couple of 9 comments. 10 In my submission today I mentioned 11 that I think the world is changing, and we feel that in 12 order for small consumers to benefit from a new 13 competitive market, things are going to have to change. 14 The world the way it was before is not going to be the 15 same. 16 I guess what we are saying is that we 17 think that spot price pass-through represents a 18 reasonably priced model for consumers, and those who 19 want a fixed-price model can go elsewhere. 20 We also have made the point that we 21 think that bill stability is more important from the 22 perspective of the customer, and that some people 23 confuse fixed-price models with bill stability. We 24 think that that is certainly more important from the 25 consumer perspective and the fact that there are ways 26 to mitigate that and ways to accomplish that, either 27 under a fixed-price model or under a spot price 28 pass-through. 472 DYNE/GIRVAN/WARREN, presentation 1 Does that help at all? 2 MS LEA: Yes, that is very helpful. 3 Thank you. 4 Yes, Mr. Dyne. 5 MR. DYNE: I would like to add to 6 that. 7 The big change to the residential 8 consumer is that the price of power is not regulated. 9 That is an entirely new world. They may or may not 10 like that -- we are not discussing that -- but that is 11 the reality. 12 It is, in my opinion, extremely 13 important that they understand that when they are 14 buying power, they are buying it on a completely 15 different basis from the way in which they have bought 16 it before. So while consumers, for a very good reason, 17 may not like or may not understand, et cetera, the 18 change which is being introduced by the legislation, I 19 do not think we are doing them a service by hiding that 20 change from them. 21 This is a philosophical point. If we 22 have a fixed-price option to standard supply, they will 23 see the fixed-price option as being the price regulated 24 by the OEB. That is not the world we are living in. 25 If we want to develop a market where 26 residential consumers are informed market participants, 27 they have to understand that it is a very new world. 28 MS LEA: Thank you very much. 473 DYNE/GIRVAN/WARREN, presentation 1 Ms O'Reilly, do you have any 2 questions? 3 MS O'REILLY: I have one question 4 that relates to the Market Power Mitigation Agreement 5 and some of the things that Ontario Power Generation 6 told us yesterday about that agreement. 7 It is really just to understand 8 better your view of how consumers will react to 9 volatility, and also to ask you a question about 10 whether you think the size of the spot market would be 11 important in terms of protection of consumer interest. 12 First, could you elaborate on your 13 concerns about volatility? 14 Second, Mr. Raffaele from Ontario 15 Power Generation noted yesterday that the average price 16 for the calculation of the rebates, the 3.8 per cent 17 cap, is based only on the spot price, and that under 18 the agreement OPGI is permitted to enter into bilateral 19 contracts, either financial or physical. 20 Then at the end of the year, if the 21 spot market price is above 3.8 cents, a rebate goes to 22 all of the consumers in the province, whether they had 23 entered into a bilateral contract or were purchasing 24 only from the spot market. 25 I wondered if you could address how 26 you would see that future of the agreement impacting on 27 standard service customers. 28 MS GIRVAN: To be perfectly honest 474 DYNE/GIRVAN/WARREN, presentation 1 with you, I think I would need some time to think about 2 that. That is the first time I have heard that. 3 I didn't have the liberty of looking 4 at the transcript yesterday. 5 One of the things I would like to say 6 is that when we had these discussions at the MDC, in 7 terms of volatility, I felt that even without the 8 Market Power Mitigation Agreement, through averaging 9 over the billing period and through averaging through 10 either a longer time or a quarterly time over the year, 11 the volatility could be mitigated. 12 I don't think that is helpful to your 13 question per se. I would have to take some time to 14 think about that. I am not quite sure what you are 15 asking in terms of the size of the market and in terms 16 of the impact on bilateral contracts. It is not clear 17 to me. 18 MS O'REILLY: It is a notion whether 19 standard supply customers are unlikely to leave and 20 enter the market initially, and they make up the bulk 21 of the spot market, and contracts are signed that say 22 3.8 cents and then there is some volatility in the 23 market. What you might think of as being there a 24 rebate because they have paid the higher average price 25 and consumed the volatility -- whether you have thought 26 about the implications of that rebate being shared 27 among everybody. 28 MS GIRVAN: I actually haven't 475 DYNE/GIRVAN/WARREN, presentation 1 thought about that. I'm sorry. 2 MR. DYNE: I think I would want to 3 distinguish between what I would call variability and 4 volatility. 5 Variability is the early variation in 6 the spot price which will go through quite 7 extraordinary oscillations based on what happens 8 elsewhere. Exactly what is going to happen in Ontario, 9 I know and I know I don't know, and nobody is able to 10 tell me. 11 The only thing that I am reasonably 12 sure about is that the average bill, the average over 13 the year, will come out to about or close to the 3.8 14 cents. 15 Having said that, I have no knowledge 16 about the way in which OPG is going to bid into that 17 market. They won't tell me and they won't tell anybody 18 else, as far as I can make out. They could very well 19 just be bidding 3.8 cents hour by hour and in fact not 20 develop a spot market. There is no incentive for them 21 to do that. 22 I'm afraid I can't deal with sort 23 surrealistic or academic questions of that sort. 24 The other question -- and the 25 variability in the sense that I have used it is, I 26 think, covered and should not be a concern for 27 consumers. 28 There is another concern, and that is 476 DYNE/GIRVAN/WARREN, presentation 1 volatility. If you have a circumstance, which we 2 almost had at the beginning of June -- very hot 3 weather, everyone turns on their air conditioners, one 4 or the other of the nuclear reactors was down because 5 it wasn't supposed to get hot, or something like that. 6 Under those circumstances, you may have pressure on the 7 generation market and demand exceeds supply. 8 Under those circumstances, you can 9 get extraordinary price variations. Instead of going 10 from 3.8 cents, you go to $3 or $30 per kilowatt-hour 11 for a period of time. 12 That is a function of the system that 13 can happen. 14 The MDC asked questions about that, 15 and they got advice to the effect -- and I am 16 paraphrasing -- that they did not think that the 17 situation which occurred in the mid-west would occur 18 here. Whether that is a pious hope or whether that is 19 based on fact and analysis, I can't say. 20 That is a concern, no argument about 21 it. 22 If such a variation were to happen, 23 there would be an impact on one or two monthly bills, 24 and there would certainly be many very unhappy campers. 25 I am prepared to take the MDC's 26 consultant's observation at face value and say that it 27 is a low probability and we have to accept that. That 28 possibility is, of course, the motivation for going to 477 DYNE/GIRVAN/WARREN, presentation 1 a broker to insure you against that hazard. 2 As to the business of the rebate, 3 again, this is a new thought. I can't quite see how 4 it -- it just complicates the matter. 5 MS O'REILLY: Nothing further. Thank 6 you. 7 THE CHAIRMAN: Thank you. 8 Dr. Higgin? 9 MEMBER HIGGIN: Thank you. 10 I would just like to explore with you 11 and get from you your views on this notion that whether 12 it is promised or whether -- promised by the 13 government, or whatever, or customers expect, they get 14 what they now have. That is the notion. 15 Now, Dr. Dyne, you have already said 16 we should disabuse them of that, in some way. 17 But, nonetheless, what they may 18 expect right now is, one, service from their LDC. 19 Okay? Two, that there would be a regulated, or 20 approved, power cost, or we might call it a price or 21 rate, which, in the past, has been stipulated by 22 Ontario Hydro and, laterally, of course, by the freeze, 23 has avoided the need for that, and, also, quality of 24 service considerations, we will call that, including, 25 as Mr. Warren has talked about many times in gas, their 26 ability to have things seamless, transparent, and 27 carrying on without the least bit of hassle. You know. 28 No hassle. We will call it the "no hassle approach", 478 DYNE/GIRVAN/WARREN, presentation 1 right, "to life" -- which we all like. 2 Then, could if you -- and if those 3 are -- in my characterization of consumer expectations, 4 how can you equate those to the two options before the 5 Board? Would you still, based on those considerations, 6 say that the lesser evil is the spot price and all of 7 the other aspects? Or would you still say, "Well, 8 there are some merits in a fixed price approach"? 9 MS GIRVAN: I think it is, I guess, 10 dependent on which way you interpret it. In my view, 11 people, consumers, will still have an opportunity to 12 obtain service from their LDC -- and we are not saying 13 that that is not an option -- and that is an option 14 that we support. 15 In terms of an approved power cost, I 16 think that that is sort of the trick, whether we say 17 that the Board approves the methodology on which the 18 price is determined, whether that is comparable to what 19 we have today, in fact, where we have somewhat of a 20 regulated price, if you can call it that, coming from 21 Ontario Hydro. And in terms of the quality of service 22 point, I think that that -- what my view is some of the 23 PBR initiatives aren't going to be there to deal with, 24 in terms of ensuring that quality of service is 25 maintained. 26 So I don't know if that fully answers 27 your question but -- I think, as I said earlier, that 28 consumers should realize that we are moving into a new 479 DYNE/GIRVAN/WARREN, presentation 1 regime and in order to get the benefits of that, they 2 have to accept some changes. 3 I mean I think we said, in our 4 earlier submission, consumers can expect to have fixed 5 price and the lowest possible price, and that is where 6 the tradeoffs come, because that is just not going to 7 happen, and that is, in our view, our assessment of the 8 various alternatives, why, in part, we have landed on 9 the spot price pass-through is we think we can still 10 achieve bill stability for consumers, which is what 11 they have now, and, at the same time, ensure that they 12 are getting the advantages of moving to a competitive 13 market. The same advantages that are afforded to large 14 consumers in the province. 15 MR. WARREN: I wonder if I might 16 supplement that with this observation: The essence of 17 the MEA argument -- to return to Banquo's Ghost at our 18 table -- the essence of the MEA argument is that all 19 section 29 means is that there will be a continuity of 20 your right to purchase from an entity. What that 21 entity does or how it sells it is not relevant to the 22 section 29 regime, as I understand what they are 23 saying. 24 My view, in response to your 25 question, is that the fundamental difference between 26 the two regimes is that if you want continuity, the 27 true continuity is that you are buying from your local 28 distribution company, which is neutral with respect to 480 DYNE/GIRVAN/WARREN, presentation 1 all of the market condition, it is not a commercial 2 entity like the other commercial entities, and that, to 3 me, is the fundamental difference: that under the spot 4 price pass-through, the residential consumer gets the 5 quality of service, has the identity of purchasing from 6 the LDC but is not purchasing from all of the other 7 folks in the marketplace who have a commercial interest 8 in the outcome of the transaction. And that is the key 9 continuity, in our view. In addition to the important 10 issues that Ms Girvan has raised about bill stability 11 and those kind of things. That is our view of the way 12 section 29 works and what the intention of the 13 government is. 14 I hope that is responsive to your 15 question. 16 MR. DYNE: I could -- 17 MEMBER HIGGIN: Just one follow-up -- 18 sorry, Dr. Dyne. 19 MR. DYNE: I could summarize one 20 portion of the argument: The Board should seriously 21 give consideration to the fixed price option because 22 that is what consumers are used to and that is what 23 they like, and I would agree with that sort of general 24 characterization. 25 Now, if the Board were to approve a 26 fixed price pass-through, every consumer has to be 27 told, essentially, "The wholesale price of electricity 28 varies and it varies by unpredictable amount. We, the 481 DYNE/GIRVAN/WARREN, presentation 1 Board, do not think that you consumers would like that. 2 Therefore, we have arranged an insurance program, which 3 will cost X cents a month, or X dollars a month, to 4 cover that." 5 The fact that the Board is, 6 essentially, taking out insurance on behalf of 7 consumers has to be explained to them -- and I leave it 8 up to you as to whether the Board wants to make a 9 statement like that -- and it has to also tell 10 consumers what the level of insurance is. 11 So to come back to what I was saying 12 earlier, the fact the wholesale price varies in a 13 competitive market is the central fact of life in the 14 new regime cannot be, should not be, I think, should 15 not be hidden or camouflaged from consumers. 16 They may not like it, but I didn't 17 write the Act. 18 MEMBER HIGGIN: Thank you. 19 Do you have a comment on the 20 contention that the spot price pass-through is not a 21 rate? 22 MR. DYNE: Me? 23 MS GIRVAN: No. 24 MEMBER HIGGIN: I think maybe one of 25 Ms Girvan or -- 26 MR. WARREN: We just disagree with 27 that, Dr. Higgin. We think that it is. 28 We went through this debate as you, 482 DYNE/GIRVAN/WARREN, presentation 1 Dr. Higgin, will recollect, in the natural gas side, 2 about whether or not the price of the commodity which 3 the LDC includes in its rates, as to whether it is a 4 degree or simply a formula, and in our view it is a 5 distinction without difference. It is a rate and it is 6 within the Board's jurisdiction to approve it. 7 If the Board were to -- to put the 8 matter another way -- you look at the incredible power 9 which the Act gives the Board, and that power has 10 incredible flexibility to structure this, the 11 operations of this industry, in a way which is in the 12 public interest and achieves various goals and the 13 power of the flexibility is such, in our view, to 14 accept that the spot price pass-through is a rate. 15 I can't see any court in the land 16 disagreeing with that proposition. 17 MEMBER HIGGIN: Thank you very much. 18 MS GIRVAN: I think the other thing 19 to add is that if, somehow, there was an interpretation 20 that the legislation restricted that, then maybe it 21 should be changed. 22 I mean it seems to me that, you 23 know -- 24 MR. DYNE: Well, that is another 25 option. 26 --- Laughter 27 MEMBER HIGGIN: We won't get into 28 that one. 483 DYNE/GIRVAN/WARREN, presentation 1 MR. DYNE: -- repeal the Act. 2 MEMBER HIGGIN: Thank you very much. 3 THE CHAIRMAN: Thank you. 4 Dr. Dyne, you didn't write the Act, 5 but you are recommending to this Board a pricing 6 structure which you seem to acknowledge that consumers 7 don't particularly like. 8 MR. DYNE: The simple answer to that 9 question is yes. 10 MS GIRVAN: I think it is a matter 11 of -- as I mentioned earlier, one of the difficulties 12 that we acknowledge is the education. I think if we 13 were able to educate consumers properly and you gave 14 them the choice as to whether or not they want a fixed 15 price at a premium with all the other associated 16 difficulties -- which include restricted mobility, 17 which include a stale price -- that in fact we think 18 that it may take some time. 19 As we see in the gas industry, we get 20 happy consumers and we get very unhappy consumers. But 21 what those consumers have had is the benefit of the low 22 price during low price times and now they are subjected 23 to some higher prices, but over time consumers have 24 adapted to that. Like I said, some of them aren't very 25 happy at times, but I think that that is the way that 26 you flow through the benefits of competition to small 27 consumers. 28 So it is something that we have 484 DYNE/GIRVAN/WARREN, presentation 1 struggled with, and I have struggled with it for a long 2 time now and, as I said, we hadn't made our mind up. 3 Even on the natural gas side, we 4 struggled with coming up with a market design task 5 force, a fixed price option. I was predisposed to that 6 because I thought initially it was the best thing for 7 consumers, but I have changed my views on that. I 8 think the education part is a difficult hurdle. 9 THE CHAIRMAN: Okay. Thank you very 10 much for that. Thank you for an interesting submission 11 and your responses to our questions. 12 As we prepare to take a short break, 13 I would ask the staff to think about the timing for the 14 rest of the submissions because they may not need to be 15 stretched out as far as they are presently scheduled. 16 MS O'REILLY: We have taken some 17 steps to ensure that we can finish earlier if we don't 18 take up the full hour for each person. 19 The Power Workers Union is here this 20 morning. They were originally scheduled to go this 21 afternoon. They are willing to present following 22 Mr. Rawson's presentation. The Ontario Federation of 23 Agriculture will be here at 1:30. So it is possible 24 that we could do the next two before we break for 25 lunch. 26 THE CHAIRMAN: Okay. I'm not trying 27 to restrict or change the rules of the game from the 28 one hour that was laid out in the schedule, but in case 485 DYNE/GIRVAN/WARREN, presentation 1 you don't need them, then we can accommodate that. 2 Okay. Thank you very much. 3 We will take our break and come back 4 at 11 o'clock. 5 --- Upon recessing at 1042 6 --- Upon resuming at 1106 7 THE CHAIRMAN: Please be seated. 8 We are ready to proceed. 9 I believe you must be Mr. Rawson -- 10 MR. RAWSON: That's correct. 11 THE CHAIRMAN: -- from TransCanada 12 Power. 13 We are willing to proceed if you are. 14 PRESENTATION 15 MR. RAWSON: Thank you. 16 Good morning. My name is Keith 17 Rawson from TransCanada Energy Limited, the company 18 name, and just a couple of words of background on us. 19 TransCanada Energy Limited is a 20 wholly-owned subsidiary of TransCanada PipeLines. 21 TransCanada Energy Limited has a number of different 22 interests in the marketplace in Ontario. We are a 23 large customer of Ontario Power Gen, we are a power 24 producer, and we are a marketer. So we have kind of 25 three different hats. 26 I just want to note that, with regard 27 to our power producer hat, our position does differ 28 from that of the Independent Power Producers Society. 486 RAWSON, presentation 1 They are essentially, in my opinion, in the portfolio 2 camp and we are essentially in the spot price camp. 3 Just a couple of words as well on my 4 personal background. 5 I spent about 23 years working for 6 Ontario Hydro, the first 16 of which were in a group 7 called Power System Operations Division. The closest 8 group to that that exists today is the IMO. Some of 9 the things that I was involved in is dispatch of 10 generation, transmission flows and inter-utility 11 transactions. 12 To summarize our submission, we are 13 essentially spot price pass-through supporters, but we 14 have one key proviso that we think is important which 15 is before the spot price is used as the reference for 16 standard there should be a liquid market. 17 A number of parties have made 18 presentations about liquidity or the lack thereof in 19 the marketplace, particularly after it opens. We are 20 concerned about the lack of liquidity and the dangers 21 that would impose on a spot price pass-through, so we 22 proposed that there be a pass-through of a price of 23 3.8 cents. This would be backstopped by Ontario Power 24 Generation, and we believe this would be a better 25 measure in the period while they are still a dominant 26 player in the marketplace. 27 Now, in theory, under a spot price 28 regime, the price could be higher or lower than 487 RAWSON, presentation 1 3.8 cents a kilowatt hour. There is no clear 2 indication exactly where the spot price will be. 3 However, realistically we feel that it is more likely 4 that the price will be higher than 3.8 cents for low 5 volume consumers. There were a number of, again, 6 presentations on that subject, including one I think in 7 particular by Mr. Todd on the danger there. 8 In the interim period, while Ontario 9 Power Generation is still dominant in the market, if we 10 looked to two particular options to spot that have been 11 presented, which is, in my opinion, the fixed that I 12 propose or the portfolio approach, I feel the portfolio 13 approach is far more dangerous than the fixed approach 14 because we would -- depending on a number of MEUs or 15 LDCs, their ability to procure power in an open market, 16 and, as we know, they have not had to perform that 17 function to date, or at least not for many years, there 18 would be some question as to their ability to do this 19 properly. 20 In addition, there would be a number 21 of other problems including limited price discovery and 22 a lack of multiplicity of suppliers that would make 23 that situation even worse. 24 In my opinion, in a liquid market, a 25 fully open and liquid market, the portfolio approach 26 proposed by many could work. In a liquid market there 27 tends to be very good price discovery. There tends to 28 be a very good reference for limits on, in particular, 488 RAWSON, presentation 1 a utility's ability to procure power and what they can 2 pass through to their standard supply customers. 3 I'm not sure that this would be 4 better than a spot price pass-through. I think it 5 would perhaps be worse but it could work. In a liquid 6 market, in my opinion, it works very badly. 7 Then, in the final part of my brief 8 presentation, I wanted to respond to some points raised 9 by Ontario Power Gen in their written submission. I 10 think they had three or four points, and I want to 11 respond to each of them. 12 Their first point is that we don't 13 understand the Market Power Mitigation Agreement, and I 14 agree with them 100 per cent on that point. In fact, 15 they have a lot more information about the Market Power 16 Mitigation Agreement than any other player in the 17 marketplace. 18 I'm glad to hear that they spent a 19 little bit of time with you yesterday explaining that. 20 I think even more than that time they spent would be 21 welcome by all participants. They clearly have a big 22 edge in their understanding of this agreement. 23 The second point is that our model 24 breaks down because the market price may vary, may be 25 different from 3.8 cents. My view is that, yes, the 26 market price will likely be different from 3.8 cents. 27 However, in our proposed approach it doesn't matter. 28 The price the small volume consumer would pay who 489 RAWSON, presentation 1 stayed on standard would be 3.8 cents, and they would 2 backstop it. So there might be a problem for them out 3 of that, but I don't see a problem for the customer. 4 The third point is that the 3.8 cents 5 per kilowatt hour standard ignores the fact that 6 customers have different load profiles and they might 7 justify a higher or lower price. I think that is 8 probably true. 9 We are saying, nonetheless, that the 10 price be 3.8 cents and would be just the straight 11 commodity price, regardless of low profile. We don't 12 think that that particularly introduces any problems 13 for the consumer. Whether or not it produces problems 14 for Ontario Power Gen I will leave to them to conclude. 15 Their final point is that should you 16 consider moving to something along the lines of what we 17 propose, that there need be a more fulsome review of 18 the measure and the implications, I'm not sure that is 19 really required. 20 We put in our submission for the 21 Technical Conference. They have had lots of time to 22 look at it. I don't know that there is really a clear 23 lack of time or opportunity to consider our proposal, 24 and so I wouldn't agree that more time is needed for 25 them. I think there has been lots of time for them to 26 look at this and consider the problems that may or may 27 not arise from it. 28 That is my brief submission and I 490 RAWSON, presentation 1 would be happy to answer any questions. 2 THE CHAIRMAN: Thank you very much 3 for that. 4 Do staff have any questions? 5 Dr. Higgin. 6 MEMBER HIGGIN: How do you deal, 7 under your approach, with the 3.8 cents? We won't 8 argue here what it is. How do you deal with the fact 9 that in hindsight the price may be too high or too low 10 for the fixed price or the rate that is charged to the 11 customers? 12 Do you see there being some sort of a 13 true-up mechanism for the next period, whatever that 14 period may be; and are you assuming, I guess, under 15 that that it is based on 3.8 cents averaged over a 16 year, in the first place? 17 MR. RAWSON: Well, actually, the 18 second question, do I see it as being an average, I see 19 it as being just a fixed number. So it's moot whether 20 it's an average or not. 21 With regards to true-up, I suppose we 22 have that issue with anything we choose. If we, for 23 example, went for a spot price and then found after 24 some period of time that it ended up being higher than 25 3.8, there is no provision for a true-up there. So I 26 guess, really, there is no provision, in my submission, 27 for a true-up, either. There is a danger that it would 28 be out of the market, there is a danger that spot price 491 RAWSON, presentation 1 would be above that -- in my opinion, a very 2 significant danger -- but, no, I don't propose a 3 true-up. 4 MEMBER HIGGIN: What kind of risk do 5 you think your proposal may pose to the LDC? 6 MR. RAWSON: I don't see any risk to 7 the LDC that would just pass it through to the ultimate 8 consumer because the implicit risk of fixing any price 9 in this case rests with Ontario Power Gen. So the LDC 10 has that reference. They don't have to worry about it 11 because the Ontario Power Gen essentially just passes 12 through that 3.8 to them and they, in turn, pass it 13 through with whatever mark-up for administration or 14 whatever else to their customers. 15 MEMBER HIGGIN: The assumption is 16 that the LDC is allowed to recover that cost from the 17 customer with or without some administrative 18 components. 19 MR. RAWSON: Yes. As they would for 20 any other price they would pass through, yes. 21 MEMBER HIGGIN: Okay, thank you very 22 much for your responses. 23 THE CHAIRMAN: Mr. Rawson, thank you 24 for your presentation. We appreciate it. 25 MR. RAWSON: Thank you. 26 THE CHAIRMAN: I understand that the 27 Power Workers are ready to proceed. We have Mr. Menard 28 here. 492 RAWSON, presentation 1 We welcome you here, Mr. Menard and 2 company. 3 PRESENTATION 4 MR. STEPHENSON: Good morning, 5 Mr. Chair and Members of the Board. My name is Richard 6 Stephenson. I am counsel for the Power Workers Union. 7 With me, as you know, Mr. Chair, is Mr. Menard. He is 8 a communications officer with the PWU and has been 9 actively involved in a number of capacities on behalf 10 of the Union in electrical industry restructuring 11 issues from a policy perspective. 12 A brief background on the PWU and its 13 role in this proceeding. As you may know, the PWU is a 14 trade union representing, in the old Ontario Hydro at 15 least, the largest employee group, currently represents 16 employees at all of the Ontario Hydro successor 17 companies and, in addition to that, represents 18 employees employed by a number of municipal electrical 19 utilities across Ontario, a number of municipalities in 20 Ontario and, in addition, at the Atomic Energy of 21 Canada Limited. 22 The PWU has been actively involved in 23 essentially all electrical industry restructuring 24 initiatives since prior to the White Paper. As you 25 know, Mr. Chair, we were involved in the legislative 26 select committee process dealing with Ontario Hydro 27 nuclear affairs and a number of the Board-sponsored 28 committees' hearings processes since that time. 493 STEPHENSON/MENARD, presentation 1 On behalf of PWU, I wish to express 2 my appreciation to the Board for the openness it has 3 displayed in terms of this hearing and its consultative 4 process, which we think has been extremely valuable. I 5 want to be brief in my presentation here to you today. 6 We filed a written submission, which I am sure you will 7 consider in the course of your deliberations on this 8 matter. Essentially, I want to do two things today. 9 One is to highlight, essentially, the essential 10 elements of our submission and, secondly, to comment on 11 one or two issues that have arisen during the course of 12 submissions this week. 13 In terms of the PWU's overall 14 position, I just want to say that at the outset of this 15 particular proceeding, we did not come here with a 16 preconceived notion about what the best structure of an 17 SSS scheme should be. We reviewed with great interest 18 the work of the MDC when it came out and the Board 19 staff proposal when it came out and considered it to 20 have considerable merit. 21 On the other hand, when we saw the 22 positions advanced by a number of the other 23 participants in this proceeding, we also saw the weight 24 that those positions carried. We realized that there 25 was in fact a very live issue for this Board to 26 consider in resolving this issue. 27 Ultimately, we see the Board's task 28 broadly in this proceeding as coming down to two broad 494 STEPHENSON/MENARD, presentation 1 questions. The first question is: How many standard 2 supply offerings should be made available? The short 3 answer is should it be one or more than one. For 4 reasons we will get to in a moment, the PWU's position 5 is the answer should be one and one alone. 6 The second question is: Assuming 7 that there is only one, what should it be? If there is 8 going to be more than one offering permitted -- in a 9 sense this great debate that has been ongoing about 10 spot price versus fixed all sort of goes away, in our 11 submission, because I would have thought that if you 12 are going to allow a menu approach for SSS providers, 13 even if there are only two items on the menu, it seems 14 probable to us that it would make sense that there be a 15 variable option and a fixed option. So in a sense, 16 it's not necessary to resolve that dispute. However, 17 we say, unfortunately, that there should be only one 18 option and you do get yourselves into having to decide 19 that very fundamental issue. 20 Why should there be only one option? 21 In our view, the concept of having multiple SSS 22 offerings by SSS suppliers is inconsistent with the 23 basic policy that is embodied in the new legislation 24 and from the White Paper and electricity restructuring 25 in general. In essence, we see the fundamental policy 26 objective set out in that legislation as the 27 introduction of competition and that where competition 28 is workable, it should be the model that is imposed. 495 STEPHENSON/MENARD, presentation 1 Only where competition is not a workable solution is 2 the Board's regulatory role required. 3 Legislation clearly embodies a policy 4 with respect to SSS that it is a monopoly-regulated 5 function. It is not a competitive function. It's very 6 explicit that in the sense of within a particular 7 service territory you are not going to have multiple 8 SSS suppliers. We think that to permit a menu approach 9 for SSS suppliers will result inevitably in the 10 disincentives and, essentially, difficulty in 11 establishment of the competitive retail marketplace. 12 The PWU sees as a policy perspective 13 for itself that there are enormous benefits for it and 14 its members in the advent of competition in its 15 marketplace. It is clear that the legislation seeks to 16 encourage the development of the competitive retailing. 17 That is the future of retailing in this province. 18 SSS is an exception to that and it 19 has been developed for very good and important reasons 20 about protecting consumers that either do not wish to 21 change or are unable to change because they cannot 22 obtain a competitive offering in their geographic area. 23 But the role of SSS as an exception 24 to the general rule about competitive retailing must 25 be, I think, recognized by this Board. 26 To that extent it should be 27 structured in a manner which is consistent with a 28 recognition of that limited role, and it should not be 496 STEPHENSON/MENARD, presentation 1 structured in a way which will inhibit or act as a 2 disincentive to the development of the competitive 3 retail marketplace. 4 That being said, we do not advocate 5 the development of an SSS offering which is so 6 unattractive to consumers that they are driven into the 7 clutches of competitive retailers who they would not 8 otherwise find to be attractive offerings. 9 There should be -- in one of the 10 papers there, I believe it was the VECC, talked about a 11 push versus a pull. There should be a pull to a 12 competitive marketplace and not a push. We agree with 13 that, and we think in fact it is fundamentally 14 important to this Board that any SSS offering be a just 15 and reasonable one. That is the fundamental principle, 16 we think, of it being a regulated rate. 17 So of course the goal isn't to impose 18 some terribly unattractive offering. It must be a just 19 and reasonable offering and, to that extent, it must be 20 one which is reasonably attractive to customers who do 21 not wish or are unable to change their supplier. 22 That all being said, we don't see 23 anything in either of the sort of basic formats of 24 either a spot price or a fixed-price model which have 25 been discussed in this proceeding to be so unattractive 26 to consumers that they will be fleeing for the exits 27 and trying to get off SSS. We think that that kind of 28 issue, that threshold issue about unattractiveness, 497 STEPHENSON/MENARD, presentation 1 just doesn't appear in any of the kinds of options 2 which have been discussed. 3 Lastly, on the issue about one 4 offering versus multiple offerings, I should just say 5 that multiple offering -- by definition, if you get 6 into this situation where the SSS supplier is allowed 7 to offer any number of offering, they will inevitably 8 begin to simply become a surrogate to the competitive 9 marketplace and one wonders at that point why anybody 10 would ever switch off SSS. We just don't see that as 11 being the goal here. 12 But just as a practical matter, as 13 Professor Dewees says, that intrinsic in the concept of 14 a default option is simply the fact that there are a 15 number of consumers, and one might imagine a very 16 substantial number of consumers, that no matter what 17 you do will not exercise an option. They will not 18 elect to do anything. They won't respond to anything. 19 The question then you are inevitably 20 faced with what do you do with such people. The notion 21 of default is, that is for people who don't elect, they 22 get something automatically. 23 So at some point in time the Board 24 has to decide what those people get. We say, obviously 25 if there is simply one offering then it is clear, those 26 people get it and everybody else gets it from an SSS. 27 We think that if the Board has to go 28 through the exercise of saying, "Well, you can have 498 STEPHENSON/MENARD, presentation 1 multiple SSS offerings but those who don't elect get 2 this particular one", we say, "Well, if the Board is 3 prepared to stipulate what the particular one is that 4 go to people who don't elect, and they are satisfied 5 that that has sufficient merit, then why shouldn't the 6 Board be equally satisfied that that proposal has 7 sufficient merit that everybody gets it and let all of 8 this option stuff go out into the competitive 9 marketplace." 10 So the intrinsic nature of default 11 is, we say, a very powerful, practical issue which 12 drives the Board towards permitting a single SSS 13 offering only for all suppliers. 14 Now, then the question is: If it is 15 to be only a single one, which is it to be? 16 We have come to the conclusion, after 17 much balancing, that we don't have an opinion on that 18 issue. So if you are looking for an answer to that, 19 for some wisdom on that question from our perspective, 20 I am afraid I am not going to be able to provide you 21 with assistance on that perhaps fundamental key issue 22 of fixed versus variable. 23 What I can say to you, however, is 24 this, that within those broad categories we do have 25 some thoughts as to the attributes of the appropriate 26 selection. 27 If we are talking about the spot 28 price option, from the PWU's perspective we see 499 STEPHENSON/MENARD, presentation 1 enormous merit in the basic structure of the SSS 2 proposal contained in the staff proposed Code. In 3 particular, we see there being substantial merit in the 4 smoothing mechanism over the billing period as opposed 5 to the MDC smooth proposal whereby you have forecasting 6 and true-ups. 7 In essence, we are of the view that 8 billing period provides a sufficient smoothing period 9 to deal with the volatility issue to a large extent, on 10 the one hand, and, on the other hand, eliminates a lot 11 of the complexity, confusion and baggage associated 12 with a forecast and true-up mechanism which is implicit 13 in the longer smoothing period that was discussed by 14 the MEC. 15 The second point is, on a spot price 16 pass-through model we think the Board should be 17 explicit in the Code in endorsing the use of equal 18 billing or budget billing mechanisms to deal with, 19 essentially, bill volatility. We believe that those 20 mechanisms are very powerful. 21 At the end of the day price 22 variability is not the key concern from consumers' 23 perspective, it is bill volatility on a month-to-month 24 basis. That mechanism should really be encouraged if 25 not made a mandatory option for SSS providers dealing 26 on a spot price model. 27 On the fixed price side, our 28 preferred option is not one that has really been 500 STEPHENSON/MENARD, presentation 1 broadly discussed in the context of the proceeding to 2 this point, although it was one which was discussed in 3 some respects by the MDC. 4 We favour what I call a modified 5 price cap mechanism. It is discussed in some detail in 6 our written submission and I commend that to you. 7 But in very summary form, the key 8 attributes of it are this: We recognize that in any 9 fixed-price model there is a risk being incurred by the 10 SSS provider in that they are legitimately entitled to 11 be compensated for incurring that risk. 12 The empirical data seems to suggest 13 that customers, end users, are prepared to pay for the 14 certainty of fixed price and, to that extent -- 15 prepared to pay a premium -- and we don't see anything 16 wrong with SSS providers being entitled to charge a 17 premium to compensate them for the risk they incur in 18 providing the fixed price. 19 The twist that we propose to a price 20 cap model is that it be essentially indexed or 21 benchmarked or referenced against spot price. 22 In essence, what we suggest would 23 happen is this: In advance of a billing year -- we 24 think the one-year fixed price is the way to go, 25 because it just has a lot of traditional appeal, that 26 it is the manner in which customers are used to being 27 billed and that they would have their bills varied on 28 an annual basis. 501 STEPHENSON/MENARD, presentation 1 So we believe that it will be 2 possible, and indeed the MDC foresees this, that you 3 will be able to generate in advance of the billing year 4 period a forecast average spot price, and we say that 5 the Board should be prepared to essentially designate a 6 premium that SSS providers are entitled to charge above 7 that to compensate them for the risks that they incur 8 in procuring power on a fixed price. 9 That would be a regulated premium 10 with a maximum mark-up. What that will be, I think has 11 to come out of essentially some form of a hearing 12 process. We say it is one premium for everybody, a 13 maximum, and it's a cap. 14 They are then allowed complete 15 flexibility or virtually complete flexibility in terms 16 of how they go about procuring power. That is up to 17 them. They would have to know that their fixed price 18 will be the forecast spot price plus the premium. How 19 they want to go about procuring it is up to them. 20 There is a protection we propose in 21 this as well, and that is that at the end of the year 22 it may be that the actual average spot price for the 23 year is different from the forecast spot price. We are 24 virtually certain that it will be. It may be that if 25 the actual spot price is significantly lower than the 26 forecast spot price, those SSS suppliers that have 27 charged the maximum premium will now have in fact an 28 actual premium over the actual average spot price, 502 STEPHENSON/MENARD, presentation 1 which exceeds the Board mandated premium. 2 We say, then, that there should be a 3 true-up in the following year; that in effect the 4 ultimate fixed price paid will be the actual average 5 spot price plus the premium. 6 In cases where the actual average 7 spot price is the same as the forecast, there is no 8 true-up obviously; and in cases where the actual 9 average spot price is higher than the forecast spot 10 price, that is at the risk of the SSS supplier. 11 Is it appropriate for them to face 12 that risk? We say yes. 13 That is, number one, one of the 14 things they are being compensated for by allowing to 15 charge a premium in the first place. And number two, 16 we have heard a lot through the course of this 17 proceeding about how LDCs are not unsophisticated and 18 they do have resources available to them through 19 ENERconnect and others that allow them to engage in 20 risk mitigation activities through procurement and so 21 forth. 22 So we think it is not unreasonable 23 that they face that exposure, whatever it might be. 24 We think this proposal does have two 25 advantages from the perspective of a fixed price 26 alternative, which is consistent with fixed-price 27 alternatives generally. One is that we see it having 28 very little regulatory burden on the Board: aside from 503 STEPHENSON/MENARD, presentation 1 setting the premium on an annual basis, very simply 2 policing the true-up function at the end of the day. 3 Those are really the two only functions that it 4 entails. The policing of the true-up function we don't 5 see as being intrusive at all. 6 The second item that we say is of 7 substantial advantage to this is that it provides the 8 SSS suppliers with the maximum degree of flexibility in 9 how they conduct their procurement. 10 For example, the John Todd model 11 about doing essentially a tendering process, we say 12 that's great; they can do the tendering process. 13 That's how they go out and procure. No problem. 14 If the SSS supplier has its own 15 generation source, we say that's fine too. They can 16 procure from there, subject to protections against 17 self-dealing and things like that, that are more 18 general issues. But they would not be prohibited from 19 using their own sources. 20 There is a broad degree of 21 flexibility for the SSS suppliers under that proposal, 22 and we think that provides significant merit. 23 The last thing I want to say relates 24 to one sort of notion, and it is not clear to me how 25 this actually affects the Board's consideration of this 26 issue at this point in time. There has been certainly 27 discussion in this proceeding about how the concept of 28 SSS is a temporary or transitional kind of structure 504 STEPHENSON/MENARD, presentation 1 that will disappear as we evolve into a fully 2 competitive market for retailing of electricity. 3 While on the one hand we certainly 4 recognize the important role that a competitive 5 electricity retailer is going to play in the future, we 6 don't have any confidence that SSS is going to be a 7 transitional issue at all. We think you are going to 8 be in the business of regulating SSS for the long haul. 9 We think that is true for a number of reasons. 10 If you look back at the policy 11 enunciated by the White Paper, you will recollect that 12 the whole concept of SSS came from the enunciation in 13 the White Paper that consumers should always have the 14 option of purchasing from their current supplier. 15 We think that that is very consistent 16 with the notion that SSS is here for the long haul. 17 Secondly, insofar as there is 18 anything in the legislation that deals with this, it is 19 simply a recognition that the Board might find at a 20 future date that sufficient competition exists in the 21 retail marketplace such that it will relieve an LDC of 22 its SSS obligations under section 29 of the Act. 23 That may or may not arise ever 24 anywhere. But even if it does arise, it is our view 25 that it is likely to arise only on an individual by 26 individual LDC basis. There may well be parts of the 27 province where there is robust competition amongst 28 electricity retailers, but we believe that in all 505 STEPHENSON/MENARD, presentation 1 probability there will be substantial areas of this 2 province where it is highly hypothetical to conceive 3 that there is going to be very robust competition 4 amongst electricity retailers. 5 To that extent, we think that that is 6 very unlikely. We think you should view this process 7 of regulating SSS as something that you are in for the 8 long haul, indefinitely. 9 I don't know, as I say, how that 10 affects the exercise of your judgment or discretion 11 with respect to this today, but it might. To that 12 extent, we want to certainly disabuse you of that 13 concept, that this is just some small transitional 14 matter that you have to put to bed before you move on 15 to dealing with more weighty regulatory issues. 16 Subject to any questions you may 17 have, those are our submissions. Thank you for this 18 opportunity. 19 THE CHAIRMAN: Thank you, 20 Mr. Stephenson. 21 Do the staff have any questions? 22 MS O'REILLY: I have one. 23 I was wondering about the notion of a 24 uniform price for all utilities. As I understand it, 25 you are saying that there should be one SSS option 26 within a utility and also one that should apply 27 uniformly across the province. 28 I just wondered if you could 506 STEPHENSON/MENARD, presentation 1 elaborate on your thinking for that. 2 MR. MENARD: The answer is yes. Our 3 view is that there should be one province-wide SSS 4 option. 5 There are a few things that deal with 6 that. 7 You are correct that you could have a 8 situation where an SSS supplier within a particular 9 service territory be permitted to offer only one 10 option, but that option might not necessarily be the 11 same option as a neighbouring SSS supplier could offer. 12 That, to some extent, would deal with our issue about 13 the entrenchment on the competitive marketplace. 14 We don't think it deals with it 15 overall. We don't think it is strong enough in terms 16 of keeping the distinction between the regulated 17 offering and the competitive offering as separate as 18 possible and thereby fostering -- or at least not 19 inhibiting the development of the competitive 20 marketplace. 21 Secondly, we also think that there is 22 real merit in a uniform approach across the province, 23 both from an equity perspective and also from a 24 perspective of customer acceptance. We think that the 25 border lines between service territories will become 26 increasingly irrelevant over time, and customers are 27 going to be confused by the fact that their neighbours 28 across the service territory line have a potentially 507 STEPHENSON/MENARD, presentation 1 completely different SSS regime in place, and it is 2 going to, we think, breed confusion, resentment, lack 3 of acceptance generally, and so forth. 4 So we think that there is real merit 5 in a uniformity of the approach, whatever it is, across 6 the province. 7 MS O'REILLY: Thank you. 8 THE CHAIRMAN: Thank you. 9 Dr. Higgin? 10 MEMBER HIGGIN: Thank you, 11 Mr. Chairman. 12 Could I just take you to page 8 of 13 your submission? How do you see the fixed price plus X 14 being determined, particularly when we start out on 15 this with no history? That is really something that I 16 think not many people are addressing, this question 17 that the chances are -- dealing with the fixed price 18 one, where do you get that forecast? Where do you get 19 those data in order to be able to set that fixed price? 20 Then there are the questions that 21 pertain to the risk and the premium. We will come to 22 those in a minute, but just dealing with the fixed 23 price, how do you do that? 24 MR. MENARD: We foresee this coming 25 out of the IMO. It was my recollection -- and I hope I 26 am correct about this -- that this concept about the 27 forecast and facility of the forecast is cribbed from 28 the MDC because it was under the MDC's initial proposal 508 STEPHENSON/MENARD, presentation 1 in terms of their smoothed spot price that there would 2 be a forecast, I believe, from the IMO. So that would 3 be our expectation of where the source is coming from. 4 As it turns out, the Board has the 5 enormous advantage or the market has the advantage, I 6 suppose, that in the short term before it has any 7 experience on this, the forecast spot price, I think we 8 all more or less expect, is going to be somewhere very 9 close to 3.8 cents, give or take some marginal amount. 10 I would have thought that, in the early stages, that is 11 going to be almost automatic and that by the time the 12 Market Power Mitigation Agreement ceases to have 13 effect, there will be a greater degree of 14 sophistication, both at the IMO and in the market 15 generally. 16 So in terms of the source of that 17 price, that is where we see it coming from. The next 18 question is: Where do you get X from? What we foresee 19 is X would be determined on an annual basis and, you 20 are right, there is going to some element of learning 21 around what X is. 22 We foresee that there would be some 23 form of a generic proceeding of some kind done on an 24 annual basis in advance of the year and I think it is 25 likely that -- it may well be that the Market Power 26 Mitigation Agreement is such that it permits X to be 27 relatively small at the initial years because the band 28 of price variability, even in an portfolio procurement 509 STEPHENSON/MENARD, presentation 1 approach, is likely to be heavily influenced by the 3.8 2 cent number. So it may well be that the premium could 3 be relatively small. 4 In addition to that again, you are 5 going to have the benefit of experience while the 6 Market Power Mitigation Agreement is going on to truly 7 understand and reflect the kinds of premiums that are 8 necessary to provide a reasonable cushion for obtaining 9 price certainty. 10 The key thing, from our perspective, 11 is we are not talking about here -- and I think there 12 is almost universal acceptance of this fact, that under 13 any fixed price regime for SSS you are not talking 14 about the two, three, five-year fixed price kind of 15 thing that you see in gas or elsewhere, that there is 16 an unacceptable degree of risk going beyond a year. We 17 think a year does provide a limit on the kind of risk 18 that should be entailed. 19 I think you are also going to be able 20 to benefit to a very large degree in terms of getting 21 expertise and submissions about this in the context of 22 some form of a generic proceeding by the market 23 participants themselves, that they will be able to tell 24 you that, in terms of going out through their risk 25 mitigation activities, their portfolio assembly 26 activities, their hedging activities, they find that 27 they need to incur X amount in order to assemble a 28 portfolio to provide this. 510 STEPHENSON/MENARD, presentation 1 The key part about it is that, of 2 course, under any fixed price scenario or virtually any 3 fixed price scenario other than, I believe, simply the 4 tender process, all of these SSS providers are going to 5 have to undertake this activity, in any event. They 6 are going to have to undertake it internally simply as 7 a matter of prudent portfolio management. So the point 8 simply is that they will be given the opportunity to 9 make a pitch about that sort of thing and it may be 10 that the Board can, over time, maybe quite quickly, 11 develop a fairly formulaic approach about some of these 12 sort of items. 13 It's not, in a sense, totally 14 dissimilar to some of the return on equity kind of 15 debates that are so well known up here and I would hope 16 that they would be far less painful than those 17 experiences have been. It's not entirely dissimilar in 18 the sense that it's intrinsically a risk-analysis 19 process. 20 MEMBER HIGGIN: Just on the issue 21 of X, can you relate that to the suggestion that there 22 should be a return component associated with service or 23 do you think that will be covered off within the X? 24 MR. MENARD: What we view X as is 25 not, per se, a margin on the commodity. What we view 26 it as is compensation for costs incurred. It's a 27 cost-recovery margin and the cost in this sense is not 28 the actual nuts and bolts, sweat and labour costs, but 511 STEPHENSON/MENARD, presentation 1 the risk as an intangible cost that has been attempted 2 to be quantified. 3 It may be -- and we think this is not 4 a negative feature of the proposal -- that, of course, 5 as soon as you set up a price cap mechanism, it 6 encourages SSS suppliers to be aggressive in their 7 portfolio procurement. It will be possible for them 8 to, in effect, obtain a margin on this because if they 9 are good procurers, relatively speaking, they will have 10 a relatively bigger spread between their actual 11 acquisition costs and the cap. 12 To some extent, that can also be 13 viewed as a compensation for risk factor as well 14 because it may be the intrinsic trade-off they incur by 15 attempting to obtain supply on more favourable terms is 16 incurring a higher degree of risk. 17 MEMBER HIGGIN: Implicit in the fixed 18 price option, you seem to have no restrictions with 19 respect to procurement, just the price, and the service 20 provider, the LDC directly or affiliate or whatever, 21 can proceed then without any restrictions and the risks 22 that are on the service provider and/or the 23 suppliers -- is that the assumption? 24 MR. MENARD: Yes, I think that is 25 essentially right. I can, I suppose, foresee some need 26 for prudential requirements that the Board might impose 27 in terms of the LDC cannot seek supply with a supplier 28 unless. 512 STEPHENSON/MENARD, presentation 1 The suppliers are all going to be 2 licensed, in any event, so whether there needs to be an 3 additional layer of prudence there or not, I can't say. 4 It might be, but I can't say that definitively. We 5 think there are, obviously, self-dealing issues that 6 have to be policed against, but I think that's easily 7 handled within the existing framework. 8 We do see one issue that we are very 9 sensitive about, and that is the whole issue about the 10 jeopardy towards LDC wire assets. 11 The mere fact that SSS suppliers are 12 incurring risk is, we say, not a surprising thing. 13 They are mandated to be a commercial enterprise and 14 they will be undertaking commercial activities of 15 various kinds and incurring risks. Whenever they do 16 that, the risk of default, or what have you, is always 17 going to be there. So that per se is not, from our 18 perspective, a concern. 19 We do say it is a concern if, as a 20 consequence of imprudent activities, somehow the wires 21 assets are exposed. We think that certainly some 22 restrictions should be placed on the ability of any SSS 23 supplier to expose wires assets to any kind of 24 financial failure or concern, and that is why we say 25 one restriction could well be that if the SSS supplier 26 chooses to -- I'm sorry, let's put it this way. 27 If the LDC chooses to deal with SSS 28 directly as opposed to any other corporate entity, then 513 STEPHENSON/MENARD, presentation 1 it has to do its portfolio management essentially 2 back-to-back with the actual fixed price to the end 3 user, because in that kind of circumstance the risk 4 from a portfolio management would seem to be a lot less 5 significant, because it is entirely possible that you 6 can have people buying long term and then selling short 7 term under some of these arrangements, and if a 8 third-party SSS supplier wants to do that, we don't see 9 that that is fundamentally a problem. 10 There are going to be failures in 11 this business and everybody has to understand that. 12 There are going to be failures and we shouldn't assume 13 that we can avoid that. 14 MEMBER HIGGIN: The concept of a 15 price cap for the SSS would seem to imply that the SSS 16 provider can price his offering or the offering from -- 17 below that and, therefore, would take account of some 18 "special circumstances" that are maybe historic, such 19 as Sault Ste. Marie's relationship with Great Lakes 20 Power and so on. How do you see those things being 21 dealt with within the proposal? 22 MR. MENARD: We certainly foresee 23 that the SSS supplier, the SSS provider, could choose 24 to offer a price at a premium less than X, less than 25 the maximum allowable. 26 MEMBER HIGGIN: X is negative of the 27 max. 28 MR. MENARD: You know, people being 514 STEPHENSON/MENARD, presentation 1 profit maximizers, it would likely be that that will be 2 the exception rather than the norm. 3 We would certainly I think -- and I 4 confess that we haven't thought this through 5 completely, but my instinct is this, that whatever the 6 price is, even if the SSS provider does not go to the 7 maximum markup permitted, it would nevertheless be a 8 uniform price within the service territory. There is 9 not going to be any price variability amongst customers 10 below the maximum. They can take everybody below the 11 maximum, but you can't do it selectively. 12 That does give rise to an issue which 13 has come up here a couple of times, which is the 14 recognition of customer classes amongst SSS suppliers. 15 I think our position on that is that, within a 16 particular SSS offering, if it can be established that 17 there is indeed a measurable cost causality kind of 18 difference amongst recognizable customer categories, if 19 you can establish the existence of difference in a 20 measurable way and then establish categories which are 21 meaningful and fair, we don't see, fundamentally, a 22 problem with that, and that might be one of the 23 circumstances where you deal with things under the cap. 24 MEMBER HIGGIN: So you are allowing 25 for a different rate that might be charged to different 26 customers. It has to be justified on some cost 27 causality regulatory -- 28 MR. MENARD: To be fair, this is 515 STEPHENSON/MENARD, presentation 1 something that we would want to see some pretty 2 significant evidence -- that it should be as few as 3 possible, and there has to be a real threshold of a 4 differential causality before the merit of uniformity 5 is forsaken. 6 But it might be that somebody can 7 make a case that it's fair to have a split. Let's put 8 it this way, we don't reject that as being at least a 9 possibility, but I think we would have to see that 10 demonstrated empirically. 11 MEMBER HIGGIN: Thank you very much 12 for your responses and also for the effort in setting 13 out your fixed-price proposal in the way that you have. 14 Thank you very much. 15 MR. MENARD: Thank you. 16 THE CHAIRMAN: I just wanted to give 17 you one last chance, Mr. Stephenson, as to whether or 18 not during your presentation you had talked yourself 19 into one of the options. 20 --- Laughter 21 MR. MENARD: I would be happy to 22 discuss that with you at another time and another 23 place, but the answer is no, Mr. Chair. As much as we 24 would like to give you our wisdom on that, sometimes 25 discretion is the better part of valour. 26 THE CHAIRMAN: I understand. 27 Thank you very much for your 28 presentation, Mr. Menard, Mr. Stephenson. We do 516 STEPHENSON/MENARD, presentation 1 appreciate it. 2 MR. MENARD: Thank you. 3 THE CHAIRMAN: We shall adjourn until 4 1:30, at which point the Ontario Federation of 5 Agriculture I believe is with us to be followed by 6 Energy Cost Management Inc. 7 We are adjourned -- yes? I'm sorry. 8 MS O'REILLY: Mr. Chairman, just in 9 case we haven't said this on the record. I would like 10 to point out that ONGA has stood down their 11 presentation and they won't be presenting this 12 afternoon. 13 THE CHAIRMAN: Okay. Thank you for 14 that. 15 We are adjourned until 1:30. 16 --- Upon recessing at 1204 17 --- Upon resuming at 1336 18 THE CHAIRMAN: Please be seated. 19 Good afternoon. We are going to hear 20 first from the Ontario Federation of Agriculture. 21 Gentlemen, welcome to the Board. If 22 you will introduce yourselves, we can get right into 23 it. 24 PRESENTATION 25 MR. CANNING: Thank you. My name is 26 Peter Canning. I am an executive member of the Ontario 27 Federation of Agriculture. I am a farmer from Bruce 28 County and perhaps I should clarify that I am not an 517 CANNING/COWAN, presentation 1 Ontario Hydro employee, although most people from Bruce 2 County are. 3 With me is Ted Cowan, who is a 4 researcher with the Ontario Federation of Agriculture. 5 THE CHAIRMAN: Could you each spell 6 your names for the record? 7 MR. CANNING: Peter Canning, 8 C-a-n-n-i-n-g. 9 MR. COWAN: And Ted Cowan, C-o-w-a-n. 10 MR. CANNING: Thank you very much for 11 inviting us here to speak to you today. The Ontario 12 Federation of Agriculture appreciates that the Energy 13 Board wishes to limit discussion to what it feels are 14 unresolved issues. The concerns of OFA go beyond those 15 of most intervenors. 16 The OFA has members who may become 17 generators with wind farm or gas cogenerated with 18 manure from their hogs. The OFA has members who buy 19 less than $1,000 of electricity a year and members who 20 buy over $50,000 per year. The OFA has members who see 21 high voltage transmission primarily as an intrusion on 22 their farmland. Yet, on balance, farmers and the OFA 23 feel that the high voltage system is a social asset 24 they are willing to assist in paying for. 25 Electricity deregulation affects all 26 OFA members and members who are involved as consumers 27 at different scales and potentially some as producers. 28 In order to speak to the wide needs and interests of 518 CANNING/COWAN, presentation 1 Ontario farmers, the OFA has interpreted the issues 2 liberally, always provided that the OFA interpretation 3 of an issue is of consequence not just to farmers, but 4 to other consumers or generators or the public at 5 large. 6 The OEB can actually use farming as a 7 litmus test of its policies. Our aim in this 8 presentation is to help Ontario arrive at a 9 fully-sustainable electric power system. If we get 10 there, farming will continue to be the mainstay in 11 Ontario and if farming can get by and prosper, then 12 everybody else can. We hope you will find their input 13 well-founded and of use in your deliberations. 14 Ontario has about 68,000 farmers who 15 produce about 50 different commodities valued at more 16 than $6.5 billion in product. It is one-quarter of the 17 Canadian farm total. They produce raw material from 18 more than $5 billion in agri-food exports and the 19 agri-food sector contributes more than $21 billion, 20 almost eight per cent, of Ontario's GDP. This makes 21 Ontario's agri-food industry the second largest 22 industry after car parts and auto assembly. 23 With more than 43,000 members, the 24 OFA is the largest voluntary farm organization. In 25 fact, OFA is the voice of Ontario agriculture. Farmers 26 use about $250 million of agriculture, both as 27 residents in their homes and as producers in their 28 businesses. Electricity underpins the incomes of 519 CANNING/COWAN, presentation 1 farmers and the fact that quality food is less costly 2 in Ontario than anywhere else on earth. This helps 3 keep Ontario's agri-food sector very competitive. Any 4 misstep in the way the electricity is priced may put 5 this at risk and the price of electricity on farms is a 6 critical aspect in Ontario's competitiveness. 7 Given the very small margins we have 8 in farming, any increase in price can have very serious 9 consequences for farm businesses. We believe that the 10 principles that have guided Ontario farmers are sound 11 and ought to also govern generating firms and vendors 12 of electricity. 13 Adhering to these principles has made 14 Ontario farmers intensely competitive, resilient, 15 prepared for the unexpected, as well as productive and 16 socially and environmentally responsible. By applying 17 these principles to pricing, production and sale of 18 electricity, the Ontario Energy Board will serve 19 Ontario, its residents and the industry well. 20 The OFA makes no apology for 21 endorsing a system of free markets and regulation, 22 which marries the market forces that farmers live with 23 to any social and environmental responsibilities that 24 farmers try to bring to all that they do. 25 There are physical factors that 26 affect the supply of electricity. The low rainfall of 27 the last three years affects farmers and also affects 28 hydro power generation. Before the lakes and rivers 520 CANNING/COWAN, presentation 1 return to higher levels, ground water must be recharged 2 and as farmers we can assure you this will take, at the 3 minimum, two years. 4 Therefore, it is assumed that high 5 rate production will be low peaked for at least two 6 more years and Ontario must use costly power from 7 imports or thermal plants. A remedy is to pump water 8 into elevated reservoirs at night for generation the 9 following day, similar to the Niagara system. If this 10 practice were more widely applied, Ontario might add up 11 to two gigawatts of low-cost hydro power. 12 So the OFA recommends as a first 13 principle in Ontario's pricing that a proportion of 14 revenue be allowed to be charged for increasing the 15 capacity of night pumping. The OFA believes that this 16 is needed to minimize the effects of changing water 17 levels. The OFA doesn't specify an amount for the 18 purpose, but asks that the method for the pricing of 19 electricity be provided for this. 20 Nuclear power is also subject to 21 "technical shifts in supply". Today 8 of the 18 22 nuclear generators in Ontario are idle for repairs. 23 Delayed nuclear maintenance has led to a diminished 24 generating capacity and courted environmental and human 25 disaster. Today Ontario pays a premium in dollars and 26 air pollution to imported thermal power from the U.S. 27 because we have failed to maintain our nuclear plants. 28 As a second principle of the pricing 521 CANNING/COWAN, presentation 1 of electricity, the OFA asks that the Ontario Energy 2 Board provide a component for nuclear and other system 3 maintenance within the price of electricity. As a 4 third aspect of pricing, the OFA endorses an interim 5 surcharge if this would allow for nuclear plants to be 6 returned to service more quickly. 7 In relation to generation costs, I 8 want to talk about demand meters. Electricity users 9 who use more than 50 kilovolts will be entitled to 10 install meters that will record energy use in 15-minute 11 increments and provide for the energy used to be billed 12 at a price that is set by supply and demand for each 13 quarter hour. These meters and method of billing will 14 provide the users who have them with the lowest cost of 15 power. 16 To maintain Ontario's competitive 17 position in farming and businesses which use Ontario 18 farm products, the OFA asks as a fourth principle of 19 power pricing the OFA or that the OEB extend the right 20 to elect for quarterly-hour metering to all registered 21 farm businesses in Ontario, regardless of their drawing 22 capacity. This is the most useful thing the OEB can do 23 to keep energy prices low in Ontario, particularly for 24 those who do not have quarterly-hour rated meters. 25 Quarterly-hour meter privileges would 26 assist farmers and it would shift demand from peak to 27 off-peak hours, making it more efficient for users of 28 all capacity. A shift away from the peak periods will 522 CANNING/COWAN, presentation 1 reduce the weighted average cost of power, a foundation 2 for the pricing of power, to consumers who do not have 3 quarterly-hour rated meter privileges. 4 As a fifth principle of the pricing, 5 the OFA believes that the standard supply price should 6 be based on the average of marginal prices of 7 electricity. An average marginal price can be 8 estimated by identifying the 12 15-minute periods in 9 the day when power use increases the most for each 10 tenth of a cent decrease in price and the 12 15-minute 11 periods during the day when power use decreases the 12 most for each tenth of a cent increase in price. 13 The average price of the 24 most 14 sensitive periods each day could be averaged over a 15 two-month billing period and should be a standard 16 supply price. With this price, people consuming 17 default electricity would be allowed to pay a 18 reasonable approximation of the marginal price for 19 electricity. 20 This marginal price is the price most 21 likely to: ensure a fair price for users and a fair 22 return for producers, avoid the "monopoly" abuses of 23 average cost pricing, reflect the price at which the 24 demand metered users shift their use and cause users 25 without quarterly-hour rated metered to use power 26 conscientiously, and to provide the IMO with important 27 price elasticity information. 28 The demand sensitive price, because 523 CANNING/COWAN, presentation 1 it is a marginal price, will provide better price 2 information, operational and investment guidance to 3 power producers than a price that is based on the 4 average of all time periods or sensitive times. 5 As the independents will be active 6 competitors of major generators, the majors will get a 7 clearer signal for their own investments and production 8 levels from this price as well. 9 The marginal price approximates what 10 is an "auction" price. This is the price that farmers 11 get for their crops. It is the proper price for bulk 12 electricity. To limit consumer risk, this price might 13 be constrained by a maximum allowed change between 14 billing periods. 15 The OFA believes there should be 16 consideration for captured social uses. It believes 17 there should be more than one class of standard supply. 18 Schools, hospitals, jails and old age homes are 19 constrained to using much of their power at peak 20 periods. 21 As a sixth principle, the OFA asks 22 that the Ontario Energy Board establish within the 23 standard supply price for public sector institutions 24 such as schools, hospitals, old age homes and other 25 public sector and charitable residential institutions 26 that cannot take advantage of quarter hourly rated 27 power. 28 This class of user would be entitled 524 CANNING/COWAN, presentation 1 to power at a reduced percentage, for example, 85 per 2 cent of the standard supply price. 3 Applying this principle recognizes 4 that power is an essential and its pricing for 5 essential for social services can be done in a way that 6 really overrides market considerations. 7 In fact, we believe there should be 8 more than one standard price. 9 We agree with Toronto Hydro in its 10 July 5th brief which suggested distribution firms could 11 offer more than one package. The OFA believes that one 12 of these should have a price determined use in the 13 average of the "price sensitive" periods. The standard 14 supply price should not preclude other contract prices. 15 A healthy market will have a mix of contract 16 arrangements, to meet a wide range of preferences. 17 This works very well for farm 18 products. Electricity producers and consumers should 19 not be treated less well. 20 A mix of competitive contracts 21 requires a mix of suppliers. The OFA agrees with the 22 Independent Power Producers view that independent 23 producers should have access to the default market. 24 In relation to transmission costs 25 there are some principles we have that I will quickly 26 go through. 27 We believe that the cost of existing 28 transmission systems should be shared by all users in 525 CANNING/COWAN, presentation 1 proportion to the electricity they consume. We believe 2 that those customers who do not benefit from new lines 3 should not have to share the cost of new transmission 4 lines. 5 One of the areas that we are very 6 concerned with is the Rural Rate Assistance. Rural and 7 remote residents have had the benefit of Rural Rate 8 Assistance. RRA a surcharge on electric power in 9 Ontario. It buys down the cost of power in areas where 10 power would otherwise be more than 115 per cent of the 11 average for residential users. With deregulation OFA 12 is concerned that Rural Rate Assistance may be less 13 effective in the future. 14 The OFA asks that the Energy Board 15 sustain the effects of the Rural Rate Assistance. 16 We propose, as the ninth principle, 17 the present Rural Rate Assistance cost for 18 12,500 kilowatts is approximately $1,100 in a year be 19 indexed to a standard supply price. 20 Customers eligible for Rural Rate 21 Assistance would pay $1,100, including service charges, 22 for 12,500 kilowatts in the first year. If the 23 standard supply price changed, the rural rate price 24 would change proportionately. The Rural Rate 25 Assistance could be paid for much as it is now from 26 what amounts to a tax on all power bills. 27 The OFA suggests that the Ontario 28 Energy Board may want to consider applying a tax only 526 CANNING/COWAN, presentation 1 to residential bills, as in this way the Rural Rate 2 Assistance would not be a tax on business inputs. 3 The OFA asks that the Ontario Energy 4 Board broaden the use of Rural Rate Assistance to maybe 5 cover "aids to construction" in rural gas lines. This 6 may accelerate rural gasification and bring competition 7 between gas and electricity to rural Ontario. Rural 8 gasification would then reduce the need for Rural Rate 9 assistance as users may switch from electric to gas 10 heat. This competition between energy types would 11 reduce the Rural Rate Assistance tax burden and energy 12 farm costs. 13 Farmers live with markets that pay 14 different prices for different quality. Soiled carrots 15 pay less than clean. But low quality power can 16 actually net more than good. This should change. 17 As a tenth principle, the Ontario 18 Federation of Agriculture believes that the Ontario 19 Energy Board should introduce price incentives to 20 ensure quality power. Brownouts, air pollution, 21 "tingle voltage" can all be reduced. A good incentive 22 is a revenue incentive. 23 The Ontario Energy Board should 24 include penalties which reduce the price of power where 25 quality faults exceed thresholds in its price regime. 26 In the standard supply price and demand metered price, 27 quality penalties should only pertain to 28 generation-related factors such as nuclear spills or 527 CANNING/COWAN, presentation 1 air pollution. Other faults could be penalized in 2 transmission and distribution revenues. 3 The Ontario Federation of Agriculture 4 supports the Clean Air Alliance's call for emission 5 caps. Clean air is a requirement. 6 Leaf bronzing of beans was a problem 7 until the Lambton generating plant had a scrubber 8 installed. Increases in bad air in southern Ontario 9 can be linked to coal power. Without emission caps 10 farm input and human health may suffer. 11 Regulation and market penalties work 12 for farm products. It may help safety, power quality 13 and environmental considerations in the power industry 14 as well. 15 In regard to service charges we 16 believe that a guiding principle should be in clear, 17 honest bills, where there is interest on overdue 18 accounts it should be limited to prime plus 3 per cent. 19 Service charges should be stated 20 separately. 21 Bills should provide customers with 22 line items for power consumed in the billing period and 23 comparable billing period a year earlier, with the 24 costs of transmission, distribution any taxes and 25 surcharges identified. 26 The OEB should require that any 27 customer can opt for standard billing once per quarter 28 with a regulated service charge. 528 CANNING/COWAN, presentation 1 Billing should provide customers with 2 more useful information. During the transition period, 3 bills should provide the customer with the price they 4 would have paid under the old and the alternate price 5 systems on offer as well as with the actual price. 6 In regards to the debt and the price 7 of power, if the debt stays with Hydro's successors or 8 is assumed by firms that buy parts of Hydro, consumers 9 will end up paying for the debt. This could amount to 10 a sixth of the cost of power. We believe the debt was 11 incurred in building a social asset. It should be paid 12 through taxes and not through power bills. People 13 should not be able to escape their share of the debt by 14 using off grid power. 15 As a twelfth principle of pricing, we 16 believe that the Ontario Energy Board should request 17 the Ontario government to assume responsibility for the 18 old Ontario Hydro debt. This would remove the debt 19 from power bills. 20 Ontario has assumed municipal debt. 21 Assuming this debt would put the OPG and OHSC on a 22 clearer footing. Transferring the debt to the tax base 23 would eliminate the prospect of power cost increasing 24 as a result of debt refinancing. Asset sales would be 25 for cash and could be understood by the public. Paying 26 the debt through taxes would remove incentives to build 27 uneconomic independent and cogeneration plants. 28 Assuming the debt would provide price advantages to 529 CANNING/COWAN, presentation 1 Ontario power uses which would attract new investment 2 and jobs in all sectors, including agriculture. 3 In conclusion, this recapitulates our 4 main requests. The OFA wants these key items reflected 5 in the price regime. With them the OFA believes that 6 electricity for farms, homes and business in Ontario 7 will be supplied economically and well. 8 We believe farmers should have access 9 to demand metered power. This is crucial to Ontario to 10 remain competitive in hogs, dairy and other farming 11 with high energy needs. 12 Schools and hospitals, et cetera, to 13 have "socially priced power", so that the needs of 14 students and patients can be met without undue concern 15 over electric bills. 16 Measures in the price and in the law 17 which promote sound maintenance, night pumping and 18 clean operations. Electricity should be reliable as 19 milk. 20 A price that reflects demand while 21 demand is changing. This is a marginal price and it is 22 an economic price. 23 We believe a rural rate assistance 24 that indexed rural rate prices to the standard supply 25 price, and that power prices be stripped of the debt 26 burden so Ontario can be more competitive and the debt 27 is shared more fairly in taxes. 28 Thank you very much for listening to 530 CANNING/COWAN, presentation 1 us. 2 THE CHAIRMAN: Thank you, 3 Mr. Canning. 4 To borrow a farm expression, you cut 5 a wide swathe with your presentation. 6 MR. CANNING: Yes, sir. 7 THE CHAIRMAN: Do the staff have any 8 questions? 9 MS O'REILLY: I just have one 10 question. 11 I wonder if you could elaborate on 12 the pricing scheme that you propose. I am not sure 13 that I understand the difference or perhaps the virtue 14 of just advertising those sensitive time periods. 15 I am also not clearly understanding 16 whether that would be a rate that would be charged for 17 all hours in the day as an average or whether it would 18 move along. I would ask for just a little bit of 19 elaboration. 20 MR. COWAN: If I may, what we propose 21 is to take 24 out of the 96 15-minute periods in a day, 22 choosing the 12 periods where quantity changes the most 23 with a fixed change in price -- a tenth of a cent, or 24 any unit would do -- and on the other side the 12 25 periods in the day where price decreases the most with 26 an increase in price. So it would have positive and 27 negative elasticities. 28 Those are the periods that we would 531 CANNING/COWAN, presentation 1 want to see averaged over a billing period. Whether it 2 is two months or a year is really indifferent. Those 3 periods are the periods when people are expressing 4 their marginal desire to consume more or less 5 electricity at those prices. That is the marginal 6 price for people on interval or demand meters. 7 So taking that price and averaging it 8 out for everyone who is on ordinary meters gives 9 essentially the marginal price for everybody, rather 10 than an aggregate price, demand-sensitive, for people 11 on interval meters and an average of all the prices for 12 everybody else. 13 It is as close as we could find to a 14 marginal price in that system, and that would be the 15 best price, in economic terms, to apply. It is an 16 auction price. It's what farmers get, so we think it's 17 what generating companies should get. 18 Now, there was another aspect to 19 this? 20 MS O'REILLY: I am trying to avoid 21 the temptation of asking about rural rate assistance 22 and respect the issues list. Thank you. 23 MR. COWAN: I take it you have a 24 burning question about rural rate assistance. We are 25 always happy to impress more firmly on people's minds 26 the need for rural rate assistance. 27 THE CHAIRMAN: That is not for debate 28 at this hearing, but it is something which the Board 532 CANNING/COWAN, presentation 1 has been charged to maintain -- to safeguard it. Let's 2 put it that way. 3 Are there any further questions? 4 MS O'REILLY: No, thank you. 5 THE CHAIRMAN: Dr. Higgin? 6 MEMBER HIGGIN: Thank you. 7 I would just like to understand a bit 8 better: Out of your members, or if you like the whole 9 agricultural, how many of the farmers are interval 10 metered, that have demands that are sufficient that 11 they can be interval metered, versus the others that 12 are not? 13 Do you have any idea at all? 14 MR. COWAN: We do not have a clear 15 answer. We have spoken to Hydro about it, and they say 16 about 80,000 people in the whole province. Among 17 farmers, we would think large greenhouse operators and 18 possibly some hog barns and some dairy barns. Farmers 19 generally have large sustained demands rather than high 20 peak demands, so they may not qualify at all in most 21 instances under the present rules. 22 MEMBER HIGGIN: Yes. I think you 23 have two things that I interpret. One is that you 24 should have a load profile which is based on the type 25 of load profile that you have just advocated in your 26 response to Ms O'Reilly. 27 Secondly, there should be an 28 extension of the opportunity for farmers to install 533 CANNING/COWAN, presentation 1 demand meters. Is that right? 2 MR. COWAN: Exactly. 3 MEMBER HIGGIN: Was that eligibility 4 criterion a criterion of Ontario Hydro Services 5 Corporation that services much of the rural community, 6 or was it also adopted by other municipal electric 7 utilities as to who is eligible for the demand based 8 criterion, I guess? 9 MR. COWAN: I don't know the source 10 of the 50 kilovolt rule. 11 MEMBER HIGGIN: Right. 12 MR. COWAN: Whether it is a Hydro 13 rule or a legislated rule, or just what. It is one 14 that has been explained to us. We would like demand 15 meters -- 16 MEMBER HIGGIN: I was just wondering 17 if you could explain where it came from. 18 You would like that changed, in other 19 words. 20 MR. CANNING: Yes. We would like the 21 access to demand meters to be -- you being able to 22 afford to pay for the meter and to pay for any 23 additional costs that may be incurred in reading that 24 meter being the only criteria to move into it. There 25 is no usage or no power figures that would develop a 26 criteria for using a demand meter. 27 If it costs $1,100 for a demand 28 meter, if you are prepared to pay the $1,100 and you 534 CANNING/COWAN, presentation 1 are prepared to pay any additional costs that may be 2 involved in reading that, you are entitled to have that 3 type of system. 4 MEMBER HIGGIN: To qualify you for a 5 demand-based rate. That is the bottom line. 6 I think I understand that aspect a 7 little better. Thank you. 8 The next one is on billing. You seem 9 to indicate that -- how can I put this. On the one 10 hand, you would like to have that opportunity extended 11 for farmers to install demand meters at a different 12 level. I assume that the policy has always been for 13 demand-metered customers that billed monthly. 14 Is that my understanding, or is that 15 not correct? 16 MR. CANNING: I am not sure exactly 17 how they are billed. 18 MEMBER HIGGIN: Then you have asked 19 to extend the billing period for the other customers 20 that haven't elected to go for a demand meter to 21 quarterly. 22 Is that the essence of your 23 submission? 24 MR. CANNING: We suggest that we 25 would like to have all of our people billed quarterly. 26 MEMBER HIGGIN: Quarterly. 27 MR. CANNING: Yes. 28 MEMBER HIGGIN: The only thing I am 535 CANNING/COWAN, presentation 1 trying to distinguish is whether you are distinguishing 2 the demand interval metered, or are you saying that 3 should apply only to those that are kilowatt-hour 4 billed? 5 MR. COWAN: On a quarterly -- what we 6 meant there was an analogy, I guess, with the phone 7 system. With the phone system any phone customer can 8 switch from Sprint to Bell to whomever, with a phone 9 call. We were suggesting that the limit on switching 10 from standard supply price to any other -- that you 11 could do it once a quarter but not once a day. 12 MEMBER HIGGIN: That is what you were 13 getting at. It is a question of customer mobility. 14 MR. COWAN: And that there might be a 15 fee that would limit that as well. 16 MEMBER HIGGIN: Right. 17 MR. COWAN: Sorry, my apologies for 18 interrupting. 19 MEMBER HIGGIN: Your response to 20 customer mobility is quarterly. That is how you would 21 see it. 22 MR. COWAN: Yes, sir. 23 MEMBER HIGGIN: Thank you. For the 24 general class of customers -- and really, in one sense, 25 you are a unique class -- do you support the marginal 26 or we will call it the spot price based pass-through 27 approach, or do you think that there should be an 28 option offered which would include a fixed price for 536 CANNING/COWAN, presentation 1 those that wished it? 2 Have you any view on that? 3 MR. COWAN: Within farm membership, 4 there is a great deal of division on that. Many, many 5 people would like a fixed price. Many people would 6 like a price which reflects the benefit that we hope 7 would be found in what we call our marginal floating 8 price. 9 So we hedged, I think. Later on we 10 pointed out that we would like more than one -- we 11 would like suppliers to have the option of offering 12 more than one kind of standard contract. 13 With respect to the billing, you may 14 note that we asked that more than one kind of -- the 15 price of power under more than one pricing regime be 16 reflected in the bill, as well as the price under 17 the -- the elected pricing regime, in order that people 18 could learn, in the transition period, how the 19 different systems might work had they opted for it. 20 MEMBER HIGGIN: Thank you very much. 21 MR. COWAN: But it is a hedge on 22 every -- 23 MEMBER HIGGIN: That's okay. 24 MR. COWAN: -- aspect, yes. 25 MEMBER HIGGIN: There's no problem 26 with that. There's a lot of people that are still on 27 the fence on the issue, so don't feel bad about it. 28 Okay. Thank you very much for you 537 CANNING/COWAN, presentation 1 responses. I appreciate it. 2 THE CHAIRMAN: I was going to, 3 following up on that, ask you about that, the 4 importance of farmers who are -- while they are, by 5 nature, risk-takers, they also need to know what the 6 rules are. I was interested in the way you came out 7 with the compromise. 8 I gather it means that you would 9 support the spot price pass-through, as it comes at 10 you, with some kind of smoothing, based on the way in 11 which the bills are sent out. Is that basically what 12 it is? 13 MR. COWAN: Yes. 14 THE CHAIRMAN: Do you think that 15 would give enough of a smoothing certainty to satisfy 16 your membership? 17 MR. CANNING: One of the problems we 18 had with that is, because we are such a large and 19 diverse organization, we have people who use 20 electricity in a very small way, people who use it in a 21 very large way. 22 So, as I say, the hedging is a matter 23 of trying to get -- to service -- to satisfy as many of 24 our members as we can. 25 THE CHAIRMAN: Well, thank you for an 26 interesting presentation. We enjoyed it. 27 MR. CANNING: Thank you. 28 THE CHAIRMAN: The next presentation 538 CANNING/COWAN, presentation 1 is from Energy Cost Management. 2 I believe the presenters are here. 3 --- Pause 4 THE CHAIRMAN: If you would introduce 5 yourselves, we can move ahead. 6 PRESENTATION 7 MR. WHITE: Yes. I am Roger White. 8 I am President of Energy Cost Management. 9 With me is Rick Groulx, who is one of 10 the other principals in Energy Cost Management Inc. 11 THE CHAIRMAN: I'm sorry. I didn't 12 get the -- yours is pretty clear, I think, White. 13 And Mister? 14 MR. GROULX: Rick Groulx, 15 G-R-O-U-L-X. 16 THE CHAIRMAN: Thank you. 17 MR. WHITE: We have been involved in 18 private sector business for a period that is very close 19 to six years, at this point, in serving the electricity 20 industry and customers within the province. Combined, 21 we have over 60 years' experience in the electricity 22 business. 23 For my own particular background, it 24 includes areas in the commercial markets for both 25 direct industrial customers, rural customers, municipal 26 contracts and, in fact, for not a small amount of my 27 time, I was responsible for regulatory policy within 28 Ontario Hydro. So I can empathize with the Board's 539 WHITE/GROULX, presentation 1 dilemmas as you try and deal with the questions before 2 you in an industry that is, clearly, in a state of 3 evolution or revolution, depending upon whether it is 4 happening to you or by you. 5 We are here presenting eight 6 municipal electric utilities who have some significant 7 and real concerns about the standard supply service. 8 Like the Board, we came here looking 9 for a solution that works for our clients and their 10 customers. 11 When we asked questions of the 12 participants, in the technical conference -- and it was 13 in a universal question we asked -- as to how to make 14 the spot price pass-through work, we got a unanimous 15 and resounding comment that they hadn't fully 16 considered how you might make that process work. 17 I need to preface the following 18 comments with: I am not lawyer, but we continue to 19 work with a number of clients to make the fallout of 20 Bill 35 work at a truly practical level. 21 The statute clearly gives the Board 22 the right to require LDCs to establish an affiliate to 23 fulfil the default supply responsibilities or 24 obligation -- and I will apologize now for using 25 "default supply" instead of "standard supply service". 26 I got accustomed to "default supply" and I have 27 difficulty changing languages sometimes. 28 The government clearly reserves the 540 WHITE/GROULX, presentation 1 right to preclude all LDCs from fulfilling their 2 standard supply obligations directly. 3 The concerns included in our July 30 4 submission identify some of the real implications 5 associated with employees if the Board precludes the 6 LDC from using the affiliate for the default or 7 standard supply option. 8 The affiliate obligation -- default 9 supply obligation alternative isolates the LDC from the 10 default supply risk and, as such, it may deal with the 11 concern the Board has. 12 Despite whatever desire the Board may 13 have to isolate the LDC from default supply obligation 14 risk, even the Board's introduction of a PBR system 15 will require the LDC to perform in a commercial, if not 16 competitive, way, even if it is only competing with 17 itself. 18 Customer information should be 19 permitted to flow to these affiliates to permit a 20 considered fulfilment of the standard supply 21 obligation. If the customer must sign approving the 22 transfer of their information to an affiliate involved 23 in the standard supply service obligation fulfilment, 24 then it is no longer truly a default supply option 25 because it requires specific action by the customers. 26 Price signal is only truly valid if 27 it occurs in advance so that the customer truly has a 28 choice about the economic impact of that price signal. 541 WHITE/GROULX, presentation 1 This reality is compounded by the nature of the product 2 that our customers, the municipal electric utilities, 3 deal with: the product is invisible; it travels at the 4 speed of light; it is hazardous. For those of you who 5 have grey hair, like myself, who may have seen some of 6 the older meters that were there in the marketplace 7 where half the dials on the meter go backwards, all 8 customers know that electricity cannot be measured. 9 So, not only do we, as an industry, have a history of 10 charging customers for how much of the product they 11 take but for how fast they take it, and if we don't 12 like the way they use it, we create something called 13 "imaginary power" or "reactive power" and we charge 14 them for that, too. 15 Customers, at the same time, have the 16 dilemma of having very little idea of where the energy 17 that they are paying for goes once it has gone beyond 18 the meter. 19 When you ask customers about 20 conservation, they come up with the standard answer 21 that "If I turn the lights off, I'm truly conserving", 22 where lights in a residential market are an incredibly 23 small component of the overall energy consumption. 24 When customers buy electricity, they are buying food 25 storage, they are buying climate control issues, and 26 customers seldom understand exactly where the energy 27 goes. 28 I have answered a lot of phone calls 542 WHITE/GROULX, presentation 1 from customers who understood in some way that 2 resistance power and resistance loads were a lot more 3 expensive to use. In fact, one of the customers who 4 called me who was somewhat elderly expressed the 5 concern about whether they could continue to use their 6 electric kettle to produce hot water so that they would 7 be able to have tea, or whether that was an expensive 8 application. 9 So the customer education process 10 that we face as an industry and that you share some of 11 the fallout of that education or lack of education, 12 whether it be performed by the government or by LDCs, 13 is going to be something that we are all going to have 14 to live with. 15 People often say that large-use 16 consumers are much more sophisticated. I would suggest 17 to you, having dealt with some customers who were 18 classed as direct industrial customers -- I had 19 occasion over a bridge game one night with a friend -- 20 and this was back in the early 1980s, who said that 21 their firm was a direct industrial customer, over 5,000 22 kilowatts of demand on the system. That means a power 23 bill probably in excess of $1 million a year. 24 He assured me that he had been 25 advised by the superintendent responsible for utilities 26 who authorized the payment of the utility's power bill 27 that as a customer they did not pay for energy, they 28 only paid for demand. This was even after Ontario 543 WHITE/GROULX, presentation 1 Hydro had introduced time-of-use rates, and over a 2 lengthy period of time they had shifted their emphasis 3 from the demand component to the energy component of 4 the power bill. 5 So even large "sophisticated" 6 customers who have electrical energy as a significant 7 component of their product costs don't well understand 8 the rules as they apply today, let alone the rules that 9 are going to apply tomorrow. 10 A lag of knowledge of the spot market 11 price may impose a greater than one month additional 12 cash flow burden on the LDC or standard service supply 13 provider. This is in part due to the fact that, as I 14 understand, the IMO will not have the spot market 15 prices available for at least 20 days after the end of 16 the month. 17 We would suggest the spot 18 pass-through bar, as it is currently contemplated, is 19 too high a standard for the standard supply provider to 20 meet for non-interval metered customers. 21 For one thing, we are not dealing 22 with a Greenfield situation. When the market goes from 23 the current market to an optional competitive market, 24 all the meters in the province will not be read at that 25 time. 26 To the extent that the proration 27 mechanisms that may be put in place to try and 28 recognize that produce an error in terms of one side or 544 WHITE/GROULX, presentation 1 the other of the demarcation date, this will explicitly 2 disadvantage or advantage -- and it is not clear which 3 at this time, and only sometime after the fact may we 4 ever be able to guess at what the true implications are 5 for the LDC or the standard supply service provider. 6 For the interval metered customers, 7 spot price pass-through, as contemplated by the Board 8 staff in their submission, is clearly doable, subject 9 to the time delay and reconciliation issues that may 10 have to be addressed depending upon how the process is 11 handled. 12 For an LDC fulfilling its default 13 supply or its standard service supply issues, the use 14 of the residual curve or non-interval metered customers 15 would be the only true alternative for billing these 16 non-interval metered customers. 17 Use of this curve could produce 18 different prices for different customers within the 19 same class, and indeed in the same building, based on 20 different meter reading dates, if they are trying to 21 apply a spot price pass-through that changes on a daily 22 basis and that use some algorithm somewhat similar to 23 that to allocate the cost against the time period 24 against the deemed energy for that period. 25 Use of class curves has the risk of 26 not meeting the cost of supply and does not recognize 27 periodic and material change in customer use patterns 28 within a class. 545 WHITE/GROULX, presentation 1 When I joined Ontario Hydro back in 2 1973, the average residential municipal consumption was 3 approximately 800 and -- residential consumption was 4 approximately 850 kilowatt hours a month. What 5 happened in -- and I'm sorry if my memory isn't good 6 enough to nail down the specific date, but I think it 7 was the early -- it was either in the very, very late 8 1970s or the early 1980s there was a step change in the 9 annual average that produced these numbers. 10 The residential consumption for a 11 municipal utility customers went from about 12 850 kilowatt hours a month to 950 kilowatt hours a 13 month, a step change of 100 kilowatt hours a month. 14 You say, well, fine, that deals with 15 the municipal residential sector. What about the rural 16 residential sector? 17 For the two main classes of the rural 18 year-round customers there was an identical 19 100 kilowatt hour per month step change. 20 So that if you are going to try and 21 use load patterns that are historical and carry them 22 forward into the future, some of these kinds of changes 23 which have never been satisfactorily explained to me or 24 others in the industry as to what precipitated it 25 remains there as part of the embedded customer use 26 program profile today. It's there. If you look at the 27 municipal utilities, you will find their average 28 residential consumption is about 950 kilowatt hours 546 WHITE/GROULX, presentation 1 today. 2 But the fact that the change came 3 along and it came across so discretely and specifically 4 in one year across the entire province indicates that 5 the use of load profiles by what some people may think 6 is an appropriate class may have some risks in it that 7 we don't well understand. 8 I used to use a phrase when people 9 talked about average price, and I think the same would 10 be true for the spot market price pass-through, that if 11 an individual customer pays the right bill based on the 12 perfect and true cost of power it would be either an 13 accident or a mistake without interval metering. 14 The use of a residual curve for a 15 spot market price pass-through would produce a 16 different price for one utility when compared with the 17 price in another utility. Within that group, an 18 individual small customer has little opportunity to 19 change the cost of the residual curve. 20 The use of selected class profiles or 21 sub-class profiles will be inherently inaccurate and 22 may be inherently discriminatory. As such, it may fail 23 more miserably to meet the fairness and reasonable 24 supply option which falls within the Board's 25 jurisdiction and in fact goals, I would hope. 26 It is our suggestion with respect to 27 the use of interval metering within a utility -- and I 28 think we agree with the Ontario Federation of 547 WHITE/GROULX, presentation 1 Agriculture in that regard -- that any customer or the 2 utility should have the right to require interval 3 metering for a particular customer, but it's our 4 position that if the utility who decides that interval 5 metering is appropriate, then they should pay the costs 6 and, on a similar basis, if the customer requests it, 7 they should pay the cost and, over the long term, pay 8 the ongoing costs of providing that kind of an option. 9 At the risk of making a suggestion as 10 to how you might weave your way out of the dilemma that 11 we clearly think you are facing, ECMI supports a fixed 12 price regime under rules established by the Board, with 13 a fallback spot price pass-through plus an 14 administrative margin based on a forward-looking 15 estimated average price, with true-ups to be done in 16 the event of a customer exiting the standard supply 17 service or annually as part of an approved flat 18 predictable rate with the carry forward either trued-up 19 with the annual adjustment or carried forward into the 20 following year for customers which are remaining on 21 standard supply service. 22 That process is somewhat similar to 23 what customers face today. These approaches may be 24 closest to what the customer is used to. I will put 25 some quotes around that. 26 I would like to thank the Members of 27 the Board and staff and others for hearing our thoughts 28 on this matter. 548 WHITE/GROULX, presentation 1 THE CHAIRMAN: Thank you, Mr. White. 2 Any questions from the Board staff? 3 MS O'REILLY: No, thank you, 4 Mr. Chair. 5 THE CHAIRMAN: Dr. Higgin? 6 MEMBER HIGGIN: Thank you. 7 Just give your thoughts, if you have 8 them, regarding what fixed price. In other words, you 9 articulated, I think, just now that you see a forward 10 average forecast being used as the mechanism for that. 11 Let's say we don't have history, this is year one after 12 D-Day. Where does one develop a price for the fixed 13 price offering? 14 MR. WHITE: We suggested there might 15 be two options. If the Board puts a fixed price regime 16 in place whereby the utility might look for RFPs from 17 suppliers, that would be an option. Providing the 18 rules of that regime were followed, that would produce 19 a price that would be fair and equitable and a 20 forward-looking price over the period. 21 MEMBER HIGGIN: You don't see, for 22 example, there being a price cap set. You leave it to 23 the utilities to come forward for approval of their 24 price based on, amongst other considerations, the 25 bidding process or some other process. So it's not a 26 uniform price and it is also not subject to a price 27 cap, as some people have suggested. 28 MR. WHITE: I have some confidence 549 WHITE/GROULX, presentation 1 that the Board, in its wisdom, would put forward a 2 process that would require a minimum number of bidders 3 to ensure that there is a truly competitive process and 4 that's why we suggested some form of modified spot 5 price pass-through as a fallback -- 6 MEMBER HIGGIN: As a fallback, yes. 7 MR. WHITE: -- if the utilities are 8 unable to secure a reasonably competitive standard 9 supply service through a bidding process. 10 MEMBER HIGGIN: Yes, I understood 11 that you had the two, thus moving on to the idea as a 12 fallback, and you have just articulated one of the 13 criterion by which you would think it might be 14 appropriate to use the fallback. Are there any other 15 thoughts that you have on when and how the fallback 16 option of some sort of spot-based option should be -- 17 MR. WHITE: Amongst our client group, 18 there may be individual distributors who would prefer 19 the spot price pass-through, as we have suggested it, 20 with an annual true-up because the notion of trying to 21 explain to customers is because -- like I said, when I 22 used the example of two customers in the same apartment 23 building getting different average prices for their 24 billing period because their meters are read a day 25 apart, that is not the thing that customers are going 26 to understand well or think is fair and reasonable or 27 equitable or other normal regulatory jargon for tests. 28 I think some of the utilities might opt for that 550 WHITE/GROULX, presentation 1 alternative without going to a competitive bidding 2 process. 3 MEMBER HIGGIN: Thank you very much. 4 Thank you, Mr. Chair. 5 THE CHAIRMAN: Mr. White, you make 6 reference to, under your sections on practical 7 implications, a delay of up to 130 days. I assume 8 that's because of the billing period on top of the 9 20-day delay. Is that correct? 10 MR. WHITE: What you can end up with 11 is a 40-day delay, depending upon when the meter 12 reading date is and the billing period might be as much 13 as three months prior to that. So that's how you get 14 to the 130. 15 THE CHAIRMAN: And it is your sense, 16 is it, that simply having a system with true-ups at the 17 end -- pure spot price pass-through with simply 18 true-ups would not be appropriate because it's not an 19 advance signal. Is that your main concern about it? 20 MR. WHITE: I think it has two issues 21 around it. It has the effectiveness of a price signal, 22 which is the economic argument; that customers can only 23 respond to a price signal if they get the signal in 24 advance. 25 The fact that customers can't 26 influence the price that the pool they happen to be in 27 may pay is also an important part of that 28 consideration. 551 WHITE/GROULX, presentation 1 There is a third component. Give me 2 just a second on that. 3 --- Pause 4 MR. WHITE: There is a significant 5 complexity in trying to track each customer 6 individually in terms of true-ups. That is an onerous 7 process, to say the least, in terms of administrative 8 costs, computer space. If I saw some real benefit and 9 consistency coming out of that for customers, 10 distributors or the energy market in total, I could 11 maybe justify the costs that that would produce. 12 I don't see the benefit, with the 13 inherent flaws in terms of dealing with the 14 non-interval metered customers, that are automatic. 15 THE CHAIRMAN: I have no further 16 questions. 17 Thank you very much for your 18 presentation and for your responses to our questions. 19 We appreciate it. 20 This concludes our hearing on the 21 Standard Supply Service Code. I would urge 22 participants who feel they are eligible for costs to do 23 their homework and get it into us. We have not made 24 all our decisions in that regard yet, but you would be 25 well-served to do that. 26 We will in due course arrive at a 27 decision, I am absolutely convinced. We will make sure 28 that we do. 552 WHITE/GROULX, presentation 1 Thank you all very much for your 2 attendance and your assistance in this regard. 3 We are adjourned. 4 --- Whereupon the hearing adjourned at 1437