205 1 RP-1999-0044 2 3 THE ONTARIO ENERGY BOARD 4 5 IN THE MATTER OF the Ontario Energy Board Act, 1998; 6 7 AND IN THE MATTER OF an Application by Ontario Hydro 8 Networks Company Inc., for an Order or Orders approving 9 year 2000 transmission cost allocation and rate design. 10 11 12 13 B E F O R E : 14 R.M. HIGGIN Presiding Member 15 P. VLAHOS Member 16 B. SMITH Member 17 18 19 Hearing held at: 20 2300 Yonge Street, 25th Floor, Hearing Room No. 2 21 Toronto, Ontario on Thursday, February 17, 2000, 22 commencing at 0905 23 24 HEARING 25 26 VOLUME 2 27 28 Les Services StenoTran Services Inc. 613-521-0703 206 1 APPEARANCES 2 JENNIFER LEA/ Counsel to Board Staff 3 MICHAEL LYLE 4 HAROLD THIESSEN/ Board Staff 5 NABIH MIKHAIL/ 6 COLIN SCHUCK 7 DONALD ROGERS/ Ontario Hydro Networks 8 BRYAN BOYCE Company Inc. (OHNC) 9 DAVID BROWN Independent Power Producers 10 Society of Ontario (IPPSO); 11 Ontario Natural Gas 12 Association 13 JAMES FISHER/ Association of Major Power 14 KEN SNELSON Consumers in Ontario (AMPCO) 15 MICHAEL JANIGAN Vulnerable Energy Consumers 16 Coalition (VECC) 17 ROBERT WARREN Consumers Association of 18 Canada (CAC) 19 BRUCE CAMPBELL/ Ontario Power Generation 20 JOEL SINGER/ (OPG) 21 JOHN RATTRAY 22 LLOYD GREENSPOON NorthWatch 23 DAVID POCH Green Energy Coalition (GEC) 24 MARK MATTSON Energy Probe 25 PETER BUDD Transalta Energy 26 MURRAY KLIPPENSTEIN Pollution Probe 27 RICHARD STEPHENSON Power Workers Union 28 Les Services StenoTran Services Inc. 613-521-0703 207 1 APPEARANCES (Cont'd) 2 MARK RODGER Toronto Hydro Electric 3 System 4 PAUL DUMARESQ Ontario Association 5 SHARON WONG Imperial Oil Ltd. 6 ERIK GOLDSILVER Electrical Contractors 7 Association of the Ontario; 8 Collingwood Public Utilities 9 Commission 10 ROGER WHITE Energy Cost Management Inc. 11 RICHARD KING Five Nations Energy Inc.; 12 Detroit Edison Co. 13 KENNETH LIDDON Suncor Energy Inc. 14 GEORGE VEGH/ Amoco Canada; Toromont 15 JEAN-PAUL Energy 16 DESROCHERS 17 KEITH RAWSON TransCanada Energy 18 PAUL VOGEL/ The Chiefs of Ontario 19 CAROL GODBY 20 KELLY FRIEDMAN/ Municipal Electrical 21 MAURICE TUCCI Association (MEA) 22 WENDY EARLE/ Brampton Hydro, Cambridge 23 JAMIE SIDLOFSKY and North Dumfries Hydro, 24 Guelph Hydro, Niagara Falls 25 Hydro, Oakville Hydro, 26 Richmond Hill Hydro, 27 Pickering Hydro and Waterloo 28 North Hydro Les Services StenoTran Services Inc. 613-521-0703 208 1 APPEARANCES (Cont'd) 2 RICK COBURN INCO Limited; Ontario Mining 3 Association 4 TED COWAN Ontario Federation of 5 Agriculture 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Les Services StenoTran Services Inc. 613-521-0703 209 1 Toronto, Ontario 2 --- Upon resuming on Thursday, February 17, 2000 3 at 0905 4 THE PRESIDING MEMBER: Good morning, 5 everybody. I hope we will be well served by the sound 6 system today and we will be able to get on a little bit 7 better. 8 Are there any preliminary matters, any filings 9 or anything? 10 PRELIMINARY MATTERS 11 MR. ROGERS: I have two matters to report on, 12 Mr. Chairman. First of all, you asked me at the close 13 of proceedings yesterday to clarify the so-called 14 settlement agreement. I spoke to my friend, Mr. Vogel, 15 and I think we are agreed and everyone's agreed that 16 both items 8 and 9 on the issues list are to be argued 17 in the case, but not cross-examined upon during the 18 hearing. 19 The second item that I undertook to look into 20 by way of an undertaking was the map which had caused 21 some confusion. I have checked and I am instructed that 22 this map does indeed show all Ontario Hydro Networks 23 Company's transmission lines and stations. The map that 24 Mr. Greenspoon had, the other map, was prepared for 25 another purpose and had other Ontario Hydro facilities 26 on it and other utilities, railways and so on it as 27 well. This map does contain all the information that 28 was requested in the interrogatory which spawned it. Les Services StenoTran Services Inc. 613-521-0703 210 Preliminary Matters 1 THE PRESIDING MEMBER: Thank you very much. 2 Are there any other preliminary matters? 3 Ms Lea has a preliminary or were you just 4 going to start cross? 5 MS LEA: No. I have a preliminary matter, 6 sir. 7 Mr. Rogers, sorry, just to be abundantly 8 clear, I'm not sure this is not necessary, when you 9 refer to "this map", you are referring to the map on the 10 wall, G1.4. 11 MR. ROGERS: That's right. 12 MS LEA: That's fine. Thank you. I notice 13 Mr. Greenspoon isn't here, so consequently you have to 14 read the transcript. I just wanted to be clear on this. 15 MR. ROGERS: I think he's out checking to see 16 whether the phantom system is really working. 17 MS LEA: He will be returning. I spoke to him 18 this morning. 19 My preliminary matter, sir, is merely to put 20 on the record the hot line number for anyone who doesn't 21 have it already. That is 440-7646. This is a line that 22 people can call after the close of the hearing and find 23 out where we are at on any given day. It's updated once 24 a day, but after the close of business, so you have to 25 call later in the evening, okay, or the following 26 morning. 27 Thank you very much. 28 THE PRESIDING MEMBER: Thank you. Les Services StenoTran Services Inc. 613-521-0703 211 Preliminary Matters 1 We just have a couple of things. Because the 2 transcript was a bit murky because of the sound system, 3 I just want to clarify the sitting hours. That is that 4 we will on Friday wrap up at 2:00 p.m. We would very 5 much like that. Four p.m. was what I said on the 6 Friday. 7 MS LEA: Wishful thinking. 8 THE PRESIDING MEMBER: We can always hope. 9 The other one was that it said that we would not be 10 sitting on Thursday, February 29. Since there isn't a 11 Thursday, February 29, we won't be sitting. I meant 12 Tuesday, February 29. 13 MS LEA: That's just in the afternoon, sir, 14 that we won't be sitting. 15 THE PRESIDING MEMBER: We will not be sitting 16 in the afternoon. Just to clarify that. This is 17 because the reporters had a lot of trouble understanding 18 me, as usual, but everybody else as well. 19 There is a possibility, if everybody has been 20 watching the weather forecast, that there might be a 21 winter storm come through tonight, so we will keep an 22 eye on that and will advise if it may be prudent to do 23 something different tomorrow if it's going to be a bad 24 day. We will just have to keep an eye on that. Okay? 25 That's the preliminaries. Then could I hand 26 over to you, Ms Lea, and you can resume cross on the 27 witnesses. 28 Thank you. Les Services StenoTran Services Inc. 613-521-0703 212 Preliminary Matters 1 MS LEA: Thank you very much, sir. 2 PREVIOUSLY SWORN: DAVID CURTIS 3 PREVIOUSLY SWORN: ANDY PORAY 4 CONTINUED EXAMINATION 5 MS LEA: Good morning. I think you were going 6 to get back to me with an answer to my question about 7 the number of customers who were directly connected to 8 an OHNC station, transformer station. 9 MR. PORAY: That is correct, and if we may 10 refer to response to interrogatory, Exhibit E, Tab 2, 11 Schedule 26, page 2 of 2. 12 MS LEA: Would you repeat that, sir? 13 MR. PORAY: It's Exhibit E, Tab 2, Schedule 14 26, page 2. 15 MS LEA: Yes. And what is the answer to that 16 interrogatory? 17 MR. PORAY: On that page there are a number of 18 tables and if I can focus you on the second table under 19 the heading "Service Pools on Delivery Point Basis per 20 Item, see definition". If we look up the first row 21 under the row direct, we will see under column three, 22 which says "Customers charged only for network, no line 23 or transformation charge", there are six delivery points 24 there. 25 If we look at column four, there are customers 26 charged for network and transformation and no line 27 charges, so there will be 14 altogether if we add the 28 two column numbers. There will be 14 direct delivery Les Services StenoTran Services Inc. 613-521-0703 213 OHNC PANEL 1, ex (Lea) 1 points that would not attract a line connection charge 2 for the direct customers. 3 MS LEA: And what about -- there's some MEUs 4 also that fall into that category. 5 MR. PORAY: That is correct. If we then go to 6 the next row, and again the numbers in columns three and 7 five, we will get the total of 83 delivery points for 8 the MEUs that would not attract a line connection 9 charge. 10 Then if we go to the last column, the last 11 row, which says "OHNCD", this is the distribution 12 company of Ontario Hydro Networks Companies. There will 13 be a total of 39 delivery points that would not attract 14 a line connection charge. 15 MS LEA: I'm sorry, sir. I counted eight 16 MEUs. 17 MR. PORAY: Eight, and in column five there is 18 a number 75 that also don't attract a line connection 19 charge, but attract network and transformation. 20 MS LEA: I understand. So it's a question of 21 adding down as opposed to across. 22 MR. PORAY: You add across. To sum up, if we 23 are to sum up, there will be 14 direct customers that 24 would not attract a line connection charge. There would 25 be 83 MEU delivery points that would not attract a line 26 connection charge and there will be 39 delivery points 27 of OHNCD that would not attract a line connection 28 charge. Les Services StenoTran Services Inc. 613-521-0703 214 OHNC PANEL 1, ex (Lea) 1 MS LEA: Thank you for that help. With 2 respect to the direct customers, 14 of them would not 3 pay -- how many of them would pay a line connection 4 charge? Do we add 62 and 36? 5 MR. PORAY: That is correct, yes. 6 MS LEA: Okay. I realize that a new 7 connection is for your second appearance here, but just 8 to understand the definition a little bit, I have to 9 stray into it. 10 How practical is it for a direct customer to 11 connect directly to a transformer station? Are there 12 lots of transformer stations around and where are they 13 located? 14 MR. PORAY: Our map would show the location of 15 all the transformer stations that are owned by OHNC and 16 depending where the direct customer wishes to connect 17 them and how far from that station. 18 MS LEA: I think you indicated to Mr. Rawson 19 that you are not indifferent as to the choice made by a 20 direct customer as to whether he pays a line connection 21 charge or whether he chooses to bypass that portion of 22 the system so as to avoid that charge. 23 MR. CURTIS: Yes, that is correct. 24 MS LEA: And you would prefer that customers, 25 of course, use your facilities and contribute to the 26 line connection pool. 27 MR. CURTIS: I think we expressed it as our 28 preference, but we acknowledge that the customer has the Les Services StenoTran Services Inc. 613-521-0703 215 OHNC PANEL 1, ex (Lea) 1 choice and the customer can make the choice. 2 MS LEA: Now, there was another piece of 3 evidence -- one moment -- there was another piece of 4 evidence I just wanted to clarify with you again to make 5 sure that we are reading the evidence right and it's not 6 inconsistent. 7 I wonder if you could look at Exhibit D, Tab 8 7, Schedule 1. That's Exhibit D, Tab 7, Schedule 1, 9 page 1. I want to look at -- thank you -- I would like 10 to look at lines 17 and 18. Now, again I know this is a 11 new load connection investment, but I'm just trying to 12 understand the definition. At lines 17 and 18 you say: 13 "Thus, as long as the beneficiaries do 14 not utilize any facilities of the OHNC 15 connection pool, these beneficiaries 16 would not pay connection pool charges." 17 The facilities of the OHNC connection pool, 18 that sounds to me like not network facilities but 19 connection pool facilities. Can you assist me there? 20 MR. PORAY: I think that's what we mean there. 21 MS LEA: I guess what I'm trying to 22 understand. As we discussed yesterday, a customer who 23 builds his own line to what is, let's call it for the 24 moment a network line, who builds his own line, pays for 25 it, he will still incur a connection pool charge if he 26 uses that network line to complete his circuit to a 27 transformer station. I think we agreed on that 28 yesterday. Les Services StenoTran Services Inc. 613-521-0703 216 OHNC PANEL 1, ex (Lea) 1 MR. PORAY: That was correct. 2 MS LEA: That's correct. Okay. My problem is 3 that when you are trying to categorize then that asset 4 which is that network line, I had assumed it was a 5 network asset and a network pool, not a line connection, 6 a facility, in other words, it was not a facility of the 7 connection pool. 8 Are you saying that the facility, that 9 particular line, fits in both pools? 10 MR. PORAY: In effect that is correct, but 11 there is a shared facility and we have identified I 12 think in our list that there are transmission lines that 13 can be both in the network and in the line connection. 14 MS LEA: Okay. So it's a question of 15 functionality then. In other words, as opposed to 16 merely assigning assets to three different pools which 17 are mutually exclusive, some assets cross over and are 18 in both pools, as I understand it? 19 MR. PORAY: Well, they are not in both pools. 20 I think what we have done is we have kept the network, 21 the ones that we have identified as primarily network. 22 We have kept them in the network pool, but we have also 23 recognized that they do perform a function of a line 24 connection as well. 25 MS LEA: Sir, are they a facility in the 26 connection pool if someone is paying a connection charge 27 on them? 28 MR. PORAY: They are physically not in the Les Services StenoTran Services Inc. 613-521-0703 217 OHNC PANEL 1, ex (Lea) 1 line connection pool. They are in the network pool 2 MS LEA: So what then is meant by line 17 and 3 18 here? Should it read instead, "As long as the 4 beneficiaries do not utilize any facilities that are 5 functionalized as having a line connection function," as 6 opposed to being assets in a line connection pool? 7 MR. PORAY: I think that would be clearer. 8 MS LEA: You understand where our confusion 9 comes and the difficulty we have had in understanding 10 the definition of these pools then? 11 MR. PORAY: I think so. 12 MS LEA: Thank you. 13 Now, when you developed this third pool, 14 partly in response to stakeholder concerns and also as a 15 response to the Board order you developed the line 16 connection pool, do you believe that the way that some 17 of the network lines have been also functionalized as 18 line connection lines -- connection pool lines, I have 19 got to get my words right here, has reduced the 20 difference between those pool? In other words, is it 21 still worth having this third pool or should we just go 22 back to two pools, network and transformation? 23 MR. PORAY: I believe that there is some value 24 in having that third pool because it does in fact 25 identify those assets that perform a function of a 26 connection, being a radial line away from the network 27 station. But there is -- 28 MS LEA: There is a lot of crossover though? Les Services StenoTran Services Inc. 613-521-0703 218 OHNC PANEL 1, ex (Lea) 1 MR. PORAY: We are trying to deal with a 2 system that was developed over a number of years as the 3 bundles are a vertically integrated utility. There are 4 some situations where it is not clear cut. You cannot 5 say that that facility is purely a network facility and 6 that facility is purely a connection facility. 7 If there was a way in which you could allocate 8 the costs of those facilities that perform dual 9 functions then you could say, okay, I will proportion a 10 portion of the costs to the line connection pool and the 11 rest I will leave on network, but we haven't found as 12 yet a way of allocating those costs. 13 MS LEA: Returning to our example of the 14 customer who constructs his own line to a network line 15 and pays a line pool connection charge for the use of 16 that network line, you have said he also pays a network 17 charge. How does OHNC avoid the double charging 18 problem? How is the network charge for that piece of 19 line and the line connection pool charge for that piece 20 of line, how is that dealt with? 21 MR. PORAY: Well, in essence there is no 22 double counting because the cost of the shared line is 23 in the network and it is spread amongst all of the 24 customers that used the network facility. That cost is 25 not also captured in the line connection pool. 26 MS LEA: But our hypothetical customer is 27 paying a line connection charge for that same piece of 28 wire? Les Services StenoTran Services Inc. 613-521-0703 219 OHNC PANEL 1, ex (Lea) 1 MR. PORAY: Well, he is only paying it through 2 the network charge, not through the connection pool 3 because in your example he is connecting directly to the 4 network station. 5 MS LEA: No. Perhaps I did not explain 6 properly. The customer I am thinking of has connected 7 to a network line. That network line serves him to get 8 to the network station, so he pays a line connection 9 charge for the piece of network line that carries 10 electricity to him from the network station. 11 MR. PORAY: That's correct. 12 MS LEA: Right. So does he also pay a network 13 charge for that same piece of line? 14 MR. PORAY: He also pays a network charge. 15 All of the cost of that line has been allocated in the 16 network. 17 As I said, if it was possible for us to 18 allocate a portion of that cost to the line connection 19 then it would be clearer, but we weren't able to do 20 that. 21 MS LEA: But as he pays both a network charge 22 and a line connection charge, maybe this question is 23 just too basic and it is blindingly obvious to everyone 24 else in the room, but if he pays a network charge and a 25 line connection charge why is he not paying twice? 26 MR. PORAY: Because the cost of that -- 27 MR. CURTIS: I am wondering if I could help in 28 that respect. Les Services StenoTran Services Inc. 613-521-0703 220 OHNC PANEL 1, ex (Lea) 1 MS LEA: Please. 2 MR. CURTIS: That customer is paying a network 3 charge because that customer is still making use of the 4 full network. We are talking about a potentially very 5 small portion of the network that he is also using to 6 supply his connection in terms of the functionalization 7 that we are describing. So he still pays the network 8 charge because he still gets the full benefit of the 9 network services. 10 MS LEA: Thank you. 11 I would like to turn to another question about 12 the questions I think that AMPCO was asking you, Mr. 13 Fisher was asking you yesterday about the open switch on 14 a line where there were two network stations, network 15 station A and B. 16 So again, I am looking at the AMPCO filing or 17 handout which was made G1.3 yesterday. There was some 18 discussion about whether or not there was a benefit to a 19 customer who was located such that the switch could be 20 closed and his service restored, possibly more quickly 21 than the customer who was not sitting between two 22 stations and did not have this option. Do you remember 23 that discussion? 24 Can you tell me what the time differential 25 might be, if you have this information, between 26 restoration of service for a customer in the example 27 given by AMPCO in their Example 2, that is where you can 28 close the switch, and a customer who does not have Les Services StenoTran Services Inc. 613-521-0703 221 OHNC PANEL 1, ex (Lea) 1 access to a second network station? Do you have any 2 information about that? 3 MR. PORAY: I don't have information on that. 4 MS LEA: One moment. 5 --- Pause 6 MS LEA: I guess all we are trying to do is 7 quantify any benefit that may exist and the only way we 8 could think of to quantify that was to understand the 9 time difference. You don't have any guess or estimate, 10 I don't want to put you to the work of going and doing a 11 survey. 12 MR. PORAY: I don't. It could vary between 13 locations and I just don't have that information. 14 MS LEA: Thank you. 15 Let's turn to something else then and this is 16 again an informational type of inquiry. I wonder if you 17 could turn up Exhibit E, that's the interrogatories, tab 18 1, Board staff interrogatories, No. 12, Schedule 12. 19 That's Exhibit E, tab 1, Schedule 12. 20 MR. PORAY: Yes. 21 MS LEA: Let's have a look, please, at page 12 22 of that answer. At page 12 of Exhibit E, tab 1, 23 Schedule 12, you talk about giving us the MS Access 24 Database file and in your second sentence on that page 25 you say: 26 "The actual asset numbers for the assets 27 submitted have been encoded for 28 confidentiality." (As read) Les Services StenoTran Services Inc. 613-521-0703 222 OHNC PANEL 1, ex (Lea) 1 What confidentiality are you protecting here? 2 MR. PORAY: This is the confidentiality of 3 customers who are connected, the specific asset. 4 MS LEA: So is the confidentiality then 5 related to dedicated assets? 6 MR. CURTIS: I guess we are not understanding 7 what the term "dedicated" means? 8 MS LEA: Sorry. I am using what might be a 9 gas term. Is the confidentiality concern related to 10 those customers who have facilities that are for their 11 sole use? 12 MR. PORAY: I think it would include all the 13 facilities that connect the customer to the transmission 14 system. 15 MS LEA: What confidentiality -- what's the 16 danger here that you are trying to protect against? 17 What's the harm that might be realized if such data was 18 revealed? 19 MR. CURTIS: We had several examples of what 20 we felt potentially could cause problems for customers. 21 If this information is available publicly now it will be 22 able to identify the age of facilities, some information 23 perhaps on their condition and in a commercial 24 competitive situation you may have an instance where you 25 have got two customers that are in the same basic 26 industry and one customer having knowledge about the 27 other customer's facilities may provide that customer 28 with some commercial advantage. Les Services StenoTran Services Inc. 613-521-0703 223 OHNC PANEL 1, ex (Lea) 1 For example, if one customer had facilities 2 that are reaching their end of life because there would 3 be information that they would have there in terms of 4 the depreciated life, then the other competing entity 5 would have that information and know that that customer 6 potentially may be incurring some additional costs. 7 Also, there is information -- 8 MS LEA: I want to hear the second part of the 9 answer. There is something I didn't understand in the 10 first part. Are we talking only about facilities owned 11 by OHNC in this table, or do we have -- 12 MR. CURTIS: Yes, we are. Yes, we are. 13 MS LEA: -- include just OHNC facilities. We 14 are not talking about facilities owned by the customers? 15 MR. PORAY: No. 16 MR. CURTIS: That's correct. 17 MS LEA: Okay. Now, please give me the second 18 part of your answer that I interrupted. 19 MR. CURTIS: Another aspect of it is that 20 there be information in terms of the actual size of, if 21 you will -- that is probably not a particularly good way 22 of expressing it, but it would give competitors 23 information about what actual delivery of services to a 24 customer is. They may then be able to determine what 25 that other customer is producing, what they are paying 26 in terms of charges. In other words, it is again 27 information that is specific to the individual customer 28 in terms of their production. Les Services StenoTran Services Inc. 613-521-0703 224 OHNC PANEL 1, ex (Lea) 1 MS LEA: Perhaps you can help me further. 2 Again, I don't want to be stupid about this. 3 If it is an OHNC facility that we are talking 4 about, and let's just deal with the age and the 5 condition of the facilities, what competitive advantage 6 is there for another person in the same field of 7 business to know the age and condition of the Ontario 8 Hydro facilities that are serving his competitor? 9 MR. CURTIS: What we have presented in this 10 application is that when an asset reaches its end of 11 life, a connection asset, that the customer then has to 12 make a decision in terms of taking over ownership or 13 reinvestment within that facility. So what that would 14 do for another competitor is signal that Competitor A is 15 probably going to have to be spending a certain amount 16 of money investing in reestablishing a connection 17 facility that is reaching the end of its life. 18 MS LEA: I guess -- 19 MR. CURTIS: That to us would mean that you 20 are revealing what that Customer A is going to have to 21 do to his competitors. 22 MS LEA: -- I guess what this data would 23 reveal, if I understand your explanation, is that the 24 decision time is approaching for one of the customers, 25 not that he is going to spend money, but that his 26 decision time is approaching? 27 MR. CURTIS: Well, his decision time is 28 approaching, but also it would give some indication Les Services StenoTran Services Inc. 613-521-0703 225 OHNC PANEL 1, ex (Lea) 1 about what the amount of money would be that individual 2 or that company may have to invest. 3 MS LEA: The second thing you talked about 4 was, I gathered, something -- information that would 5 reveal a customer's load to his competitors. Can I put 6 it that way, is it the services he received? 7 MR. CURTIS: Yes. 8 MS LEA: That might give some information 9 about the nature of his business. Is that the concern? 10 MR. CURTIS: Yes. 11 MS LEA: Thank you. 12 Now, I understand the explanation that you 13 have given me about that, and we will think about 14 whether we have a problem with that, but I understand 15 what your position is. 16 What I now don't understand is why the 17 confidentiality also applies to shared assets, that is 18 the network assets which are also part of the database 19 file. 20 MR. CURTIS: I think to some extent it is just 21 a matter of logistics. You have this large database and 22 to selectively go through and eliminate or blank out 23 particular fields is a very time-consuming effort. You 24 can understand that we are under a fair amount of time 25 pressure in terms of responding to these 26 interrogatories. 27 So for that particular purpose it was easier 28 to blank out all of that particular field than it was to Les Services StenoTran Services Inc. 613-521-0703 226 OHNC PANEL 1, ex (Lea) 1 spend the time and effort to try and go through and try 2 to blank out each individual connection field. 3 MS LEA: Thank you. 4 MR. CURTIS: And it did not, at least in our 5 opinion, mean that we were taking away information in 6 terms of responding to this interrogatory,. 7 MS LEA: Thank you. I understand then with 8 respect to multiple use network assets the concern is 9 not confidentiality, but it is merely the amount of work 10 that you would have to go through to protect the 11 confidentiality of some of the assets mentioned and 12 dividing those up from the others? 13 MR. CURTIS: That's correct. 14 MS LEA: One moment, please. 15 --- Pause 16 MS LEA: Thank you very much, gentlemen, for 17 your answers. 18 Thank you very much, Mr. Chairman. Those are 19 my questions. 20 THE PRESIDING MEMBER: Thank you. 21 Mr. Vlahos. 22 MEMBER VLAHOS: Gentlemen, good morning. 23 Just one question. You talked about some 24 economic considerations about a customer building its 25 own system to connect where there is a line or a 26 station. Just as a practicality of this, would that 27 customer have to obtain certain permits from certain 28 agencies? Les Services StenoTran Services Inc. 613-521-0703 227 OHNC PANEL 1, ex (Lea) 1 MR. CURTIS: Yes, it would. Under our 2 understanding, at least as far as the legislation is 3 concerned, if anyone is going to be constructing a 4 transmission facility it would have to be licensed as a 5 transmission owner and operator under the legislation. 6 Also, our understanding is that when such 7 section 92 is proclaimed there may be a requirement for 8 that customer to go before the Ontario Energy Board to 9 obtain a leave to construct. 10 They would also be under the market rules in 11 terms of the operation of those facilities, and there 12 would be the transmission system code considerations as 13 well when the system code is completed, in order to make 14 sure that the facility is designed to the standards that 15 would be required under that code. 16 MEMBER VLAHOS: So if a customer is 17 contemplating in making that investment it would have to 18 consider all those things you just mentioned? 19 MR. CURTIS: Yes. 20 MEMBER VLAHOS: All right, thank you. Those 21 are my questions. 22 THE PRESIDING MEMBER: Mr. Smith. 23 MEMBER SMITH: Just one question. In 24 developing this proposal do we have anything to learn 25 from other jurisdictions' experience with respect to how 26 they divided up pools, either things we should emulate 27 or things we should avoid? Or is too early to tell from 28 other experiences? Les Services StenoTran Services Inc. 613-521-0703 228 OHNC PANEL 1, ex (Lea) 1 MR. PORAY: I think there are a variety of 2 approaches and various jurisdictions that seem to 3 reflect what the local requirements are. In some 4 jurisdictions there is specific separation of the 5 connection assets from the network assets, not 6 necessarily transformation connection and line 7 connection, but just connection. In other jurisdictions 8 it is difficult to tell. We believe that they are all 9 lumped together. So it seems to be all over the place. 10 THE PRESIDING MEMBER: Okay. Thank you. 11 I would just like to follow up again on this 12 question of why you felt you couldn't find a methodology 13 to allocate the shared line connection facility one way 14 or the other. Maybe if we could look at G1.3 exhibit 15 number, which is a AMPCO diagram, and look at the first 16 one and just go through that. 17 MR. PORAY: Excuse me. I just have got one 18 diagram and this is the very first one. 19 THE PRESIDING MEMBER: Okay. We are looking 20 at the first example, which is sort of the normal 21 situation. 22 What you said, I believe, is that since the 23 customer Load 2 uses OHNC lines to connect to the 24 network station then he would incur charges related to 25 that and, as you have already said, some customers are 26 directly connected. 27 The question is in other cost allocation 28 studies that the Board is familiar with, gas, Les Services StenoTran Services Inc. 613-521-0703 229 OHNC PANEL 1, ex (Lea) 1 specifically gas, we have a similar situation where we 2 have a shared connection, if you like pipeline, and then 3 there is an allocation of that cost as to what type of 4 facility it is and then they carry that through into the 5 rate design as well. So the question is what methods 6 did you look at in trying to see if you could allocate 7 that part of the functionality, I will call it, of the 8 connection one way or other? 9 MR. PORAY: First of all, perhaps we should 10 envisage the picture that this line between Station A 11 and B is really one line and power load with the rest of 12 the network. So this is a network line to which 13 Customer 2 is connected. Now, under normal operating 14 conditions throughout the day the flows on that line 15 will change depending on how the generation and load 16 varies throughout the day. So you could have situations 17 where the flow could be from Station A to Station B and 18 at other parts of the day it could be from Station B 19 back to Station A. 20 So it is very difficult to come up with a 21 methodology as to how you should apportion -- at least 22 at this point in time, we haven't clearly thought 23 through how you would apportion the cost using -- would 24 it be flows or would it be connected megawatts to try 25 and allocate the costs which we feel are partly 26 connection and partly network. 27 THE PRESIDING MEMBER: That is because it is 28 bidirectional you are saying. Les Services StenoTran Services Inc. 613-521-0703 230 OHNC PANEL 1, ex (Lea) 1 MR. PORAY: Yes. 2 THE PRESIDING MEMBER: Now, what happens if it 3 was a -- if we go to Example (2) where the switch is 4 normally open and the floor is not bidirectional there, 5 how would that be dealt with? 6 MR. PORAY: Okay. This situation would 7 represent what we have done in our submission, and that 8 is that the 115 kV line is a connection line and it has 9 a number of customers connected to it, and we would 10 apportion the costs based on the ratio of the loads of 11 the customers connected. 12 THE PRESIDING MEMBER: So the first situation 13 is the one that is the most difficult. I think I have a 14 better understanding now of why you can't easily 15 allocate the costs. 16 Okay. Thank you. 17 Just to come back to contributions in aid, I 18 just would like to understand what methodology OHNC 19 will, on a going-forward basis, use for contributions in 20 aid and how that differs, if any, from the methodology 21 that Ontario Hydro used to use. If you can give me a 22 clearer understanding of what methodology and criteria 23 would be applied to charge the horizon for the customer, 24 the demand of the customer, the incremental demand, 25 those kind of parameters. How would they go into the 26 calculations? 27 MR. CURTIS: I believe that we will be using 28 this -- basically, the same methodology that was used by Les Services StenoTran Services Inc. 613-521-0703 231 OHNC PANEL 1, ex (Lea) 1 Ontario Hydro. It will be done on a case-by-case basis. 2 The customer that wants to connect into the 3 system, we would look at what the costs are for doing 4 that connection, we would look at what the future 5 revenue streams would be from those customers doing a 6 net present value analysis, then comparing the NPV of 7 the future revenue stream with the cost to determine 8 what capital contribution would be required by that 9 customer. 10 THE PRESIDING MEMBER: As you may know, the 11 Board is very familiar with those calculations -- 12 MR. CURTIS: Sure. 13 THE PRESIDING MEMBER: -- for system expansion 14 purposes like for gas. 15 MR. CURTIS: Right. 16 THE PRESIDING MEMBER: And you know that the 17 Board has standardized the policies regarding lifetime 18 and so on following a hearing under E.B.O. 188 for gas. 19 So the question I think is I'm not convinced that there 20 shouldn't be a standardized set of parameters which 21 would apply to this type of methodology to be fair to 22 customers. That is the question. 23 I know that circumstances, as in the gas case, 24 may vary. We get occasions where the new customer is to 25 be connected, there is some concern about the lifetime 26 of the plant, you know -- 27 MR. CURTIS: Yes. 28 THE PRESIDING MEMBER: -- and that sometimes Les Services StenoTran Services Inc. 613-521-0703 232 OHNC PANEL 1, ex (Lea) 1 there has to be an exception. 2 But that is one of the questions that I think 3 I would ask you to at least consider and maybe discuss 4 it in your argument, regarding how the methodology 5 should be applied universally to new line connection 6 costs. 7 MR. CURTIS: Yes. Thank you very much. 8 THE PRESIDING MEMBER: Thank you. 9 Mr. Vlahos has another question. 10 MEMBER VLAHOS: Gentlemen, I have followed 11 this. I did have two questions. 12 The second one deals with -- I have noted, at 13 least I have taken out of the AMPCO prefiled evidence, 14 that one of the desired results of their accommodation 15 is the end state that ultimately a customer would be 16 buying or building its own system. Did you get that 17 from their evidence? 18 MR. CURTIS: Yes, we certainly did. 19 MEMBER VLAHOS: Okay. I would just like to 20 get your input or your comments as to is that a desired 21 end state. 22 MR. CURTIS: Yes, we believe it is. 23 MEMBER VLAHOS: In that connection, I think 24 yesterday you mentioned, on a question from counsel, 25 "Forget book value if you want to buy our assets. It is 26 going to be market value." Do you recall that exchange? 27 MR. CURTIS: Yes. 28 MEMBER VLAHOS: I just want to follow that up. Les Services StenoTran Services Inc. 613-521-0703 233 OHNC PANEL 1, ex (Lea) 1 Who determines the market value? There is no 2 market for those things. 3 MR. CURTIS: I think there are probably a 4 variety of mechanisms that could be used. Again, in 5 terms of looking forward to the expected revenue stream 6 that could be derived from the continued use of those 7 assets as part of the regulated pool, that might be 8 considered to be one proxy, for example. That 9 represents the future value of those facilities. 10 MEMBER VLAHOS: Is it a policy now. Is there 11 a method that you calculate market value? 12 MR. CURTIS: No. No. 13 MEMBER VLAHOS: This all hinges on approval of 14 what you have -- 15 MR. CURTIS: That's correct. 16 MEMBER VLAHOS: So there is no provision now 17 for any specific customer to buy a portion of the system 18 that serves that specific customer? 19 MR. CURTIS: Well, there has been -- I think 20 if a customer came in and wanted to buy their facility 21 from us today, we would be prepared to sit down and 22 negotiate with that customer and come to some mutually 23 agreeable price for it. But it is not likely that we 24 would agree that it would be net book value 25 automatically. 26 MEMBER VLAHOS: I am just wondering now if -- 27 MR. CURTIS: I'm sorry. Just to continue on 28 with that -- Les Services StenoTran Services Inc. 613-521-0703 234 OHNC PANEL 1, ex (Lea) 1 MEMBER VLAHOS: Go ahead. 2 MR. CURTIS: -- I accept the fact that there 3 needs to be a better defined process and criteria set as 4 far as this is concerned. 5 MEMBER VLAHOS: That was my question actually. 6 Assuming that everything proposed goes through, should 7 this Board, should this Panel, worry about the absence 8 of such a policy in the calculation of a market value? 9 MR. CURTIS: I think that there would be other 10 avenues for this to be developed. For example, there is 11 the development of the transmission system code that is 12 under way right now. One of the aspects of it is system 13 expansion. To some extent, this is akin to that issue 14 as well. 15 MEMBER VLAHOS: All right. Thank you for 16 those answers, panel. 17 THE PRESIDING MEMBER: Thank you, Mr. Vlahos. 18 Thank you, gentlemen, for your answers now on 19 cost allocation. I gather that you have followed the 20 rounds and maybe Mr. Rogers has a few supplementary 21 questions for you. 22 MR. ROGERS: No, sir, I don't. Thank you very 23 much. I have no re-examination on this particular 24 topic. 25 THE PRESIDING MEMBER: So, then, the plan was 26 to move on to issue three, to charge determinants. 27 MR. ROGERS: I think that was generally 28 agreed. Les Services StenoTran Services Inc. 613-521-0703 235 OHNC PANEL 1, ex (Lea) 1 THE PRESIDING MEMBER: Did you want to 2 introduce anything more? 3 MR. ROGERS: No. Thank you. No. 4 THE PRESIDING MEMBER: So just the in-chief, 5 which was yesterday? 6 MR. ROGERS: Yes. Thank you. 7 THE PRESIDING MEMBER: Okay. 8 Then we will move on with that. Who is going 9 to lead? Is that you, Mr. Brown? 10 MR. BROWN: No. Mr. Fisher will lead on this 11 one. 12 THE PRESIDING MEMBER: Mr. Fisher. All right. 13 Would you like to start then, please, 14 Mr. Fisher. 15 FURTHER CROSS-EXAMINATION 16 MR. FISHER: Good morning, Mr. Chair, Panel 17 and witnesses. 18 In the new tradition of self-declaration, I 19 would like to declare that I'm about to undertake my 20 second cross-examination. 21 Before we get to specific questions on charge 22 determinants, I would like to confirm that one of the 23 policy directives in the white paper is that the 24 transmission tariff should be set as low as possible. 25 Is that correct? 26 MR. CURTIS: I'm afraid you will probably have 27 to refresh our memory. I don't -- 28 MR. FISHER: Okay. Well, in the white paper, Les Services StenoTran Services Inc. 613-521-0703 236 OHNC PANEL 1, cr-ex (Fisher) 1 on page 11, paragraph 3, it says: 2 "Under the government's proposal the 3 prices for transmission and local 4 distribution, as distinct from 5 electricity itself, would be 6 regulated to ensure that these 7 components of the total price are as 8 low as possible." (As read) 9 MR. CURTIS: I think, with the caveat through 10 the regulated arena, we would agree with that. 11 MR. FISHER: Okay. In addition, I would also 12 like to confirm that OHNC has stated in 13 Interrogatory E-1-6-1 that a 5 per cent increase in the 14 transmission charge on a customer's bill defines the 15 start of price impact. 16 Do you want to look at that? 17 MR. ROGERS: Probably we should look at it I 18 think, to make sure it's in context. 19 MR. FISHER: Yes. It's E-1-6. 20 MR. CURTIS: I'm sorry, could you give us the 21 reference again, please? 22 MR. FISHER: It's in the second paragraph. 23 MR. CURTIS: Yes. 24 MR. FISHER: Thank you. 25 Yesterday there was some discussion about 26 impacts and you were talking about the impacts related 27 to transmission rate. Is that correct? 28 MR. PORAY: That's correct. Les Services StenoTran Services Inc. 613-521-0703 237 OHNC PANEL 1, cr-ex (Fisher) 1 MR. FISHER: Can you confirm that the 5 per 2 cent intended in the answer in this interrogatory that I 3 just referred to is 5 per cent on the transmission rate 4 and not 5 per cent of the full bundled electricity rate? 5 MR. PORAY: That is correct. 6 MR. FISHER: Thank you. 7 Could I take you to Exhibit D, Tab 4, 8 Schedule 3, Table 4 -- I have to get there myself. 9 MR. PORAY: It's Tab 4? 10 MR. FISHER: Tab 4, yes, Schedule 3, Table 4. 11 That's on pages 6 and 7. 12 --- Pause 13 MR. PORAY: Okay. 14 MR. FISHER: This table shows the total 15 transmission revenues that will be collected from direct 16 customers, LDCs that were previously MEUs and OHNC 17 distribution. 18 MR. PORAY: That is correct. 19 MR. FISHER: Can you please confirm that the 20 power district base case, that is Option I, is the 21 closest to -- is the closest option to current 22 methodology for determining the rates? 23 MR. PORAY: That is correct. 24 MR. FISHER: Using the power district as a 25 reference point, is it not the case that all the 26 proposals set out in this table result in an average 27 increase in transmission charges to direct customers and 28 OHNC distribution customers? Les Services StenoTran Services Inc. 613-521-0703 238 OHNC PANEL 1, cr-ex (Fisher) 1 MR. PORAY: That is correct. 2 MR. FISHER: For example, if Option III was 3 chosen, as OHNC proposed in December 1998, the total 4 cost to direct customers would rise from $105 million to 5 $131 million. The arithmetic is that that is a 25 per 6 cent increase. 7 Similarly, if Option XVIII was selected, as 8 proposed by OHNC, the cost would increase from 9 $105 million to $120 million, and the arithmetic on this 10 one is 14 per cent on the transmission charge alone. 11 Given that you have agreed that price impact 12 starts to be unacceptable at 5 per cent, isn't this 13 increase inconsistent with your rate principle of 14 limiting impact on customers? 15 MR. PORAY: No. We believe that it is not, 16 because we believe that the dissolution of the power 17 district is not really an issue related to the 18 transmission rate design structure, that the dissolution 19 of the power district is a function of, in fact, there 20 is restructuring taking place in Ontario and therefore 21 the going forward position is that the power district is 22 not sustainable. 23 MR. CURTIS: I think to add also to that 24 response, the 5 per cent figure that we were talking 25 about is on the total package as far as what the 26 transmission rate change would look like. 27 We are looking at one component here when we 28 are looking at unbundling the power district. We are Les Services StenoTran Services Inc. 613-521-0703 239 OHNC PANEL 1, cr-ex (Fisher) 1 going to go on and we are going to talk about the net 2 versus gross load issue for example. And there are 3 other impacts that are going to be reflected on the 4 transmission rates as far as other choices around the 5 structure of the total tariff. 6 So although there may be one component in here 7 that exceeds or gets into this issue of the 5 per cent, 8 because all of these issues are intertwined and 9 collectively they make a change to the total 10 transmission rate, it is that end picture that we tended 11 to focus on, that overall what was the impact. 12 Mind you, having said that, there isn't 13 anything that we have come up with in terms of the 14 overall development of our transmission rate that 15 mitigates for, I want to point out specifically, the 16 OHNC distribution customers the impact of unbundling the 17 power district. 18 MR. FISHER: One moment, please. 19 --- Pause 20 MR. FISHER: Okay. Thank you for that. 21 We just wanted to, you know, make the Board 22 aware that there is this increase in excess of 5 per 23 cent for all the industrial customers. 24 I would like to confirm with you that the 25 reason for the increase in all the proposed options is 26 because the power district gave a more complete 27 recognition to the diversity benefits created by direct 28 customers and OHNC retail customers than it did to the Les Services StenoTran Services Inc. 613-521-0703 240 OHNC PANEL 1, cr-ex (Fisher) 1 diversity benefits of MEU loads. Is that correct? 2 MR. PORAY: Correct. 3 MR. FISHER: I would like to turn to the issue 4 of diversity and coincident and non-coincident peak 5 charge determinants. 6 I would first like to establish some general 7 properties of coincident peak and non-coincident peak 8 charge determinants. 9 Could you, please, turn to page 28 of the 10 AMPCO evidence. That is Exhibit H-2-1. 11 MR. PORAY: Which page, I'm sorry? 12 MR. FISHER: Page 28. 13 MR. PORAY: Okay. 14 MR. FISHER: I would like to direct you to the 15 second pair of bullets there. You see there is an open 16 diamond and a closed diamond and then another open one 17 and a closed one. 18 MR. PORAY: Yes. 19 MR. FISHER: That's what I'm referring to. 20 Would you agree with the first sentence in the 21 middle of the page, that's with the open diamond, that 22 the sum of the individual non-coincident peak loads of a 23 group of customers is not the same as the non-coincident 24 peak loads of the group considered as a whole? 25 MR. PORAY: I agree. 26 MR. FISHER: Following along, the coincident 27 peak of a group of customers is the sum of their 28 individual coincident peaks? Les Services StenoTran Services Inc. 613-521-0703 241 OHNC PANEL 1, cr-ex (Fisher) 1 MR. PORAY: That is correct. 2 MR. FISHER: I'm going to refer to this latter 3 property as the whole is equal to the sum of its parts. 4 If I could take you now to Exhibit D, Tab 4, 5 Schedule 1, page 30. 6 MR. PORAY: Okay. 7 --- Pause 8 MR. FISHER: Lines 16 to 25 list the 9 advantages of Option XVI. 10 Can you confirm that Option XVI is a form of a 11 coincident peak charge, charge determinant, and in 12 particular for a group of customers the whole is equal 13 to the sum of the parts? 14 MR. PORAY: I would agree, or confirm, I'm 15 sorry. 16 MR. FISHER: Lines 21 to 23 talk about the 17 LDCs being able to recover network charges from end-use 18 customers in a straight passthrough manner. 19 The straight passthrough reference, is that 20 because of this property that the whole is equal to the 21 sum of its parts? 22 MR. PORAY: Essentially what the straight 23 passthrough manner means is that they are able to pass 24 on the same rates to their embedded customers for 25 transmission charges. 26 MR. FISHER: So you can do this with a 27 coincident peak charge determinant but not with a 28 non-coincident peak charge? Les Services StenoTran Services Inc. 613-521-0703 242 OHNC PANEL 1, cr-ex (Fisher) 1 MR. PORAY: That is correct. 2 MR. FISHER: Thank you. At lines 17 and 18 it 3 states: 4 "This option provides equitable treatment 5 of diversity benefits between direct 6 customers and LDCs." 7 Is the reason for this because of the use of 8 the coincident peak charge determinant? 9 MR. PORAY: That is correct. 10 MR. FISHER: We have established with 11 non-coincident peak charge determinant the hull is not 12 the sum of its parts. Can you confirm that as a result 13 of this property associated with non-coincident peak 14 charge determinant that a customer will be charged 15 differently according to which other customers the 16 customer is grouped with as far as the purposes of 17 determining diversity benefits? 18 MR. PORAY: That is possible, yes. 19 MR. FISHER: No doubt you are aware that in 20 the existing rate structure set up by Ontario Hydro, 21 there is an adjustment called "The municipal large user 22 diversity adjustment"? 23 MR. PORAY: I believe there is. 24 MR. FISHER: Would you confirm that the reason 25 for the municipal large user diversity adjustment was to 26 equalize rates between direct customers and large users 27 supplied by MEUs? 28 MR. PORAY: That was my understanding. Les Services StenoTran Services Inc. 613-521-0703 243 OHNC PANEL 1, cr-ex (Fisher) 1 MR. FISHER: Is it also the case that without 2 this adjustment a large user in an MEU received on 3 average less credit for its diversity than did a 4 similarly situated direct customer supplied by Ontario 5 Hydro retail? 6 MR. CURTIS: Could you run that through again? 7 That was a fairly long sentence. 8 MR. FISHER: Sure. No problem. Without this 9 adjustment, a large user in an MEU received on average 10 less credit for its diversity than did a similarly 11 situated direct customer supplied by Ontario Hydro 12 retail? 13 MR. PORAY: I don't know. I'm not aware of 14 that. 15 MR. CURTIS: I don't know. 16 MR. FISHER: Is it not because of this that 17 the municipal large user diversity adjustment was 18 required? 19 MR. PORAY: I would have to defer to the fact 20 that probably that's the case, but I don't know the 21 actual details of that. 22 MR. FISHER: Okay. Thank you. 23 I would now like to turn to the practicality 24 of this, relating the various options for the rate 25 determinant. In Exhibit D, Tab 4, Schedule 1, page 25, 26 lines 22 to 24, it states: 27 "All six candidate options are considered 28 implementable. It should not difficult Les Services StenoTran Services Inc. 613-521-0703 244 OHNC PANEL 1, cr-ex (Fisher) 1 for the IEMO processes to be tailored to 2 suit the requirements of these options." 3 Can you confirm that the six candidate options 4 referred to above includes both AMPCO's preferred Option 5 XVI and OHNC's proposed Option XVIII? 6 MR. CURTIS: Yes. 7 MR. FISHER: Would you agree that Options XVI 8 and XVIII are both about the same degree of difficulty 9 in implementation? 10 MR. PORAY: I would agree, yes. 11 MR. FISHER: Returning to Exhibit D, Tab 4, 12 Schedule 1, on page 32, in lines 16 to 18 it's stated: 13 "Option XVIII will result in a relatively 14 high variability in transmission revenue 15 collected, thought not as much as in some 16 other options." 17 You also make a similar comment about Option 18 XVI on page 31, lines 6 to 8. Have you done any 19 numerical studies to show whether Option XVIII has lower 20 variability in revenue collected than Option XVI? 21 MR. PORAY: No, we didn't. 22 MR. FISHER: Okay. Thank you. 23 Those are my questions, Mr. Chair. 24 THE PRESIDING MEMBER: Thank you very much. 25 Mr. Brown, are you going to follow or are you 26 going to -- 27 MR. BROWN: Yes, I will follow, although I 28 will not duplicate what my friend has done. Les Services StenoTran Services Inc. 613-521-0703 245 OHNC PANEL 1, cr-ex (Fisher) 1 FURTHER CROSS-EXAMINATION 2 MR. BROWN: Gentlemen, if we could continue 3 the discussion on charge determinants a bit, I would 4 like to deal first with charge determinants for the 5 network and then I will get to the connection 6 transformation in the latter part of my examination. 7 In terms of the -- just stepping back perhaps 8 to look at the larger picture, in terms of the objective 9 that you were seeking to achieve in selecting a 10 particular charge determinant, I take it that the first 11 objective is that the charge determinant must recover 12 for you the revenue that has been approved by the Board. 13 MR. PORAY: That is correct. 14 MR. BROWN: Then in terms of the second group 15 of objectives, if you could turn -- we are still at the 16 same tab, Exhibit D, Tab 4, Schedule 1 -- if you could 17 go to page 23. At pages 23 through to 25 you 18 articulated certain additional principles that you have 19 brought to the selection process. Right? 20 MR. PORAY: That's correct. 21 MR. BROWN: In selecting a particular option, 22 in your case you are recommending Option XVIII, you have 23 tried to incorporate and balance those principles in 24 your selection process. 25 MR. PORAY: That is correct. 26 MR. BROWN: Can I suggest to you that in 27 addition to the principles that you set out here on 28 pages 23 and 25 that there is an additional principle Les Services StenoTran Services Inc. 613-521-0703 246 OHNC PANEL 1, cr-ex (Brown) 1 that should inform the selection of any charge 2 determinant and that is whether the charge determinant 3 will promote economic efficiency in the transmission of 4 electricity. Perhaps that's too general a question. 5 Let me break it down a bit and see whether you will 6 agree with the little baby steps leading up to that big 7 step. 8 We have got on the transmission system on a 9 system-wide basis, a network-wide basis, periods of time 10 which you have categorized as the peak periods and those 11 are the periods when there is the highest use by 12 customers of the system. Correct? 13 MR. PORAY: Correct. 14 MR. BROWN: And then you have got the non-peak 15 systems during the rest of the day. Is it a fair 16 statement to say that the charge determinant which is 17 selected should encourage customers to avoid using the 18 system during peak periods and encourage them to use the 19 system more during non-peak periods? 20 I might break it down even more. Is it not 21 the case that if you had consumers using their loads in 22 such a fashion that everyone was lining up and piling up 23 a higher and higher demand during the peak period that 24 that would require higher maintenance on the 25 transmission system and may well require an expansion of 26 the transmission system. 27 MR. PORAY: It's possible. 28 MR. BROWN: Probable, I think you would agree Les Services StenoTran Services Inc. 613-521-0703 247 OHNC PANEL 1, cr-ex (Brown) 1 with me. If all customers in Ontario said "Hey, I think 2 12 noon on every weekday is the period of time where I 3 am going to use the most electricity that I possibly 4 can, the inevitable result of that choice would be 5 higher maintenance on the system and probably a 6 requirement to expand transmission capacity. Correct? 7 MR. CURTIS: I think most customers use it at 8 that time anyway, so -- it has been designed that way. 9 MR. BROWN: But if your next group of 10 potential customers come along and say "Gee, we are 11 going to make sure that our loads peak at 12 o'clock", 12 that means that you are going to have to expand the 13 system and pay more to maintain the current system. 14 Correct? 15 MR. CURTIS: That's correct. 16 MR. BROWN: So one of the possible objectives 17 and desirable objectives of selecting a charge 18 determinant would be to encourage customers to use the 19 transmission system at some time other than the current 20 peak. That would be an efficient signal given by a 21 charge determinant, wouldn't it? 22 MR. CURTIS: I think we have heard that stated 23 from your client during our stakeholdering process. I 24 think the concern we had is that it has to be balanced 25 against the other concerns that were expressed by some 26 of the other stakeholders. 27 MR. BROWN: I appreciate that and I am going 28 to later on, just to let you know where I am going, look Les Services StenoTran Services Inc. 613-521-0703 248 OHNC PANEL 1, cr-ex (Brown) 1 at some of the advantages and disadvantages of Option 2 XVI which my client, IPPSO, and AMPCO are promoting as 3 the appropriate charge determinant and also Option XVIII 4 which you are promoting. 5 I am trying to start off more in the realm of 6 general principles and looking at the long term, as well 7 as where we are now. Under that perspective, the 8 long-term perspective, wouldn't you agree with me that 9 one of the objectives in selecting an appropriate charge 10 determinant would be to encourage customers to avoid 11 increasingly using the system during peak periods and 12 rather to move increased use over to non-peak periods? 13 MR. PORAY: I think there is a difficulty here 14 in terms of trying to establish a charge determinant for 15 the recovery of embedded costs or sunk costs, which tend 16 to invariant with the use of the system, as opposed to 17 trying to deal with the costs that are incurred in the 18 usage of the system which are in my mind two separate 19 things. 20 MR. BROWN: You would agree with me, however, 21 that the charge determinant does have many different 22 functions. One of the functions, as you fairly stated, 23 is that you have got to make sure that you recover the 24 revenue you need now to pay for this historic cost that 25 you have incurred for the system. That's one function, 26 is it not? 27 MR. PORAY: It is. 28 MR. BROWN: But equally so is a Les Services StenoTran Services Inc. 613-521-0703 249 OHNC PANEL 1, cr-ex (Brown) 1 forward-looking function of the charge determinant 2 inasmuch as it should signal to current and prospective 3 users of the transmission system how they should be 4 ordering their affairs in terms of when they use the 5 transmission system. That's an equally important 6 function of the selection of a charge determinant, is it 7 not? 8 MR. PORAY: As I say, in my mind the going 9 forward position in terms of the usage of the 10 transmission system is perhaps -- some of that is 11 captured in the charge determinant, but also the other 12 is in terms of the expansion of the system to meet the 13 increased demand, whether it's through congestion or 14 other reasons is signalled other ways. 15 MR. BROWN: It may well be, but one of the 16 ways this is signalled is through the selection of the 17 charge determinant? 18 MR. CURTIS: I think you can see the problem 19 we are having here is you are talking about an economic 20 determinant that focuses in on behaviour within a 21 marketplace environment, and what we are struggling with 22 is we are talking about establishing a charge 23 determinant that recovers costs of an existing 24 infrastructure. So I think the struggle we are having 25 is that what you are articulating is applicable on a 26 going forward basis for new facilities and the use of 27 those new facilities. 28 We are I think having a little bit of Les Services StenoTran Services Inc. 613-521-0703 250 OHNC PANEL 1, cr-ex (Brown) 1 difficulty accepting that as being applicable to the 2 existing infrastructure as a main driver, that you want 3 to elevate this to a full principle with the rest that 4 we have considered. 5 MR. BROWN: Well, Mr. Curtis, I did ask you to 6 agree that this would be an additional principle that 7 should be taken into account to those that are set out 8 on pages 23 and 25 of your evidence. I am not asking 9 you to say that it will be the only principle, but I am 10 asking you if you agree that it should be one of the 11 principles that is taken into account? 12 MR. CURTIS: Yes, and I think that is what 13 were trying to get across here is that at the moment on 14 pages 23 through 25 is not a principle. We had given 15 thought along the lines that you have been discussing 16 with us and the problem that we are having, as I tried 17 to explain, is that the principle that you are 18 enunciating is certainly applicable in a new marketplace 19 environment for new investments that are being made and 20 the utilization of those new investments. 21 What we are struggling with is the 22 applicability of that principle to an existing 23 infrastructure that was designed and developed under a 24 monopoly structure. The problem here is using these 25 market efficiency drivers that you are talking about in 26 that context. 27 MR. BROWN: Let me try and paint the picture a 28 different way. At the present time in Ontario we have a Les Services StenoTran Services Inc. 613-521-0703 251 OHNC PANEL 1, cr-ex (Brown) 1 transmission system of a certain size. Correct? 2 MR. PORAY: Correct. 3 MR. BROWN: And we anticipate that if all goes 4 well our economy is going to continue to increase and 5 our population will increase, so that over time in the 6 foreseeable future the amount of electricity that is 7 consumed in the province will increase as well. 8 Correct? 9 MR. PORAY: That's probably true. 10 MR. BROWN: And there are two different ways 11 you can deal with that growth in load in Ontario, are 12 there not? One way would be to say, well, if more 13 people are going to be using electricity, and they all 14 seem to be using it at the same time, we are probably 15 going to have to increase the size of the box, that's 16 the current transmission system in Ontario. right? 17 MR. CURTIS: That's not the only option. That 18 would be one of the options, yes. 19 MR. BROWN: It's one of the options. 20 Another one of the options would be to say, 21 well, let's try and keep the size of the system or the 22 size of the box the same, but ensure that new growth is 23 pushed into corners of the box which are not used as 24 much at the present time as other portions of the box, 25 that is during non-peak time. That's another option to 26 accommodate future growth in electricity load in this 27 province, is it not? 28 MR. PORAY: But that's where the dilemma is. Les Services StenoTran Services Inc. 613-521-0703 252 OHNC PANEL 1, cr-ex (Brown) 1 The problem with that is that the actual usage of the 2 system is not signalled through the charge determinants 3 that we are debating here. The usage of the system 4 comes as a result of the traffic that's caused on the 5 system by the dispatch of generation to meet the load. 6 In my opinion it will be through the marketplace and 7 through the locational marginal pricing of energy that 8 you will get indications of which part of the system are 9 congested and which are not and, therefore, those parts 10 of the system either require greater expansion in 11 transmission system or the addition of new generation. 12 MR. BROWN: Perhaps -- I mean there is a 13 difference of view here. Perhaps let me try and 14 summarize it. Mr. Poray or Mr. Curtis, do you see that 15 a charge determinant would play any role whatsoever in 16 encouraging users to avoid putting load demand on the 17 system during peak period and encourage them to use the 18 system during non-peak period? Is there any role for 19 the charge determinant to play in that kind of 20 behavioural signalling? 21 MR. PORAY: I think, potentially, there is. I 22 mean by using a peak demand obviously you are signalling 23 to customers that potentially they may alter their 24 behaviour. 25 MR. BROWN: But you aren't prepared to elevate 26 that to the level of a principle? 27 MR. PORAY: No. 28 MR. BROWN: Just a general question of Les Services StenoTran Services Inc. 613-521-0703 253 OHNC PANEL 1, cr-ex (Brown) 1 information. In section 1 of the OEB Act, 1998, as you 2 are aware, there are a whole bunch of objectives that 3 are set out in that section. One of the objectives 4 under section 1(4) is to promote economic efficiency in 5 the transmission of electricity. What is your 6 understanding, gentlemen, of what constitutes the 7 promotion of economic efficiency in the transmission of 8 electricity? Do you have any views on that? 9 MR. CURTIS: Could we have a chance to look at 10 that reference that you made? 11 MR. BROWN: Certainly. Section 1, Mr. Curtis, 12 you will see there is a point 4. 13 MR. ROGERS: Is your question in the context 14 of the section in the Act or is it a general question? 15 MR. BROWN: It's in the context of the section 16 of the Act, Mr. Rogers, and through these gentlemen 17 asking whether OHNC has formulated any view or 18 understanding as to the meaning of what would constitute 19 promoting economic efficiency in the transmission of 20 electricity. 21 MR. ROGERS: As it relates to the Board's 22 obligations, which is what this section deals with. 23 MR. BROWN: That's right and as it relates 24 generally under section 1 of the Electricity Act as 25 well. 26 MR. CURTIS: I guess the first thing is that, 27 I guess to quote it in its entirety, it says: 28 "To promote economic efficiency in Les Services StenoTran Services Inc. 613-521-0703 254 OHNC PANEL 1, cr-ex (Brown) 1 generation transmission and 2 distribution." 3 So there is the sense of collectivity amongst 4 all those functions. Our interpretation is that this is 5 in relationship to the operation of the electricity 6 marketplace and how those transactions are done, not 7 necessarily through the setting of transmission tariffs. 8 There is transmission -- 9 MR. ROGERS: Mr. Curtis, could you keep your 10 voice up, please. Mr. Brown is very close to you and 11 people at the back can't here you. 12 MR. CURTIS: Sorry. 13 MR. BROWN: Certainly, there is a high degree 14 of interconnectedness. 15 But just to close off this portion, does the 16 company have any view on specifically what the promotion 17 of economic efficiency and the transmission of 18 electricity would mean? If you don't, that is fine. I 19 would just like to find out. 20 MR. PORAY: I think our view in terms of the 21 promotion of transmission efficiency would be through 22 the regulatory compact which is used to regulate our 23 business. That is how I would understand it. 24 MR. BROWN: Moving on to a slightly different 25 aspect of this issue, does OHNC see any relationship 26 between the choice or definition of charge determinant 27 and the effect that would have on potential network 28 transmission needs over the long term? Do you seen any Les Services StenoTran Services Inc. 613-521-0703 255 OHNC PANEL 1, cr-ex (Brown) 1 linkage between those two? 2 MR. PORAY: No, I don't. 3 MR. BROWN: In terms of the selection process 4 that you went through, gentlemen, to come up with a 5 preferred option for a charge determinant, am I correct 6 that really what you are trying to do is go between 7 Scylla & Charybdis; that is, you want to avoid a 8 definition that is too narrow and you also want to avoid 9 a definition that is too broad? 10 MR. PORAY: I am not familiar with the 11 characters that you quoted, but -- 12 MR. BROWN: Rock and a hard place. 13 MR. PORAY: Thank you. 14 Our proposal, that is in our submission, was 15 really formulated following our consultation process 16 with stakeholders over the summer. We are trying to 17 strike a balance between the competing requirements of 18 the various stakeholders. 19 MR. BROWN: The process of balancing those 20 competing requirements, and I think it comes out in the 21 language that you have used in your evidence, is that on 22 the one hand if one selects the charge determinant which 23 is too narrow that might avoid -- that might invite 24 customers gaming the system, correct? 25 MR. PORAY: That's correct. 26 MR. BROWN: By "gaming the system" means by 27 changing your behaviour so that their peak use of the 28 system avoids the period of time covered by the charge Les Services StenoTran Services Inc. 613-521-0703 256 OHNC PANEL 1, cr-ex (Brown) 1 determinant. So basically they don't have to pay all 2 that much for using the network transmission system? 3 MR. PORAY: That is correct. 4 MR. BROWN: They are avoiding reasonable 5 charges which should be applied to them for use of the 6 system? 7 MR. PORAY: That is correct. 8 MR. BROWN: On the other hand, am I correct 9 that you were also trying to avoid a definition which 10 was too broad in the sense that a too broad definition 11 would discount the diversity benefits which customers 12 bring to the network transmission system? 13 MR. PORAY: Correct. 14 MR. BROWN: And those diversity benefits, am I 15 correct, are associated with when those customers 16 display their peak use of the network transmission 17 system? 18 MR. PORAY: That is correct. 19 MR. BROWN: The two proposals that I want to 20 ask you about are your proposal XVIII or Option XVIII, 21 and the one that AMPCO and IPPSO support, which is 22 Option XVI. 23 If we could turn first to your Option XVIII at 24 pages 31 and 32 of Tab 4. I am on Exhibit D, Tab 4, 25 Schedule 1, pages 31 and 32. It outlined there, at the 26 bottom of page 31 and the top of page 32, what in you 27 view are the advantages and disadvantages of that 28 particular option? Les Services StenoTran Services Inc. 613-521-0703 257 OHNC PANEL 1, cr-ex (Brown) 1 MR. PORAY: Correct. 2 MR. BROWN: And as you indicated to my friend 3 Mr. Fisher, both Option XVIII and Option XVI are 4 implementable by OHNC and by the IMO? 5 MR. PORAY: That is our understanding. 6 MR. BROWN: Now, in terms of the disadvantages 7 that you have listed here for Option XVIII, could I 8 suggest that there perhaps are two additional 9 disadvantages which should go into the list, and that 10 one of the additional disadvantages is that by using an 11 Option XVIII, a single hour coincident peak demand is 12 one of the factors, that you are not always going to 13 capture peak effects across the entire network system? 14 MR. PORAY: I am having a little difficulty in 15 understanding saying that there was one hour that is 16 selected in Option XVIII? 17 MR. BROWN: Well, as I understand the way you 18 would calculate the charge determinant under 19 Option XVIII is that it would be the higher of two 20 different elements? 21 MR. CURTIS: Yes. 22 MR. PORAY: That is correct. 23 MR. BROWN: And one of the elements is the 24 coincident peak demand? 25 MR. CURTIS: Yes, that's correct. 26 MR. BROWN: So that is what I was referring 27 to, that by using as one of your elements the 28 coincident, sort of the single-hour coincident, peak Les Services StenoTran Services Inc. 613-521-0703 258 OHNC PANEL 1, cr-ex (Brown) 1 demand, would it not? 2 MR. PORAY: That is correct. 3 MR. BROWN: Across the entire network system? 4 MR. PORAY: Yes. 5 MR. BROWN: By using that you would not always 6 capture the peak effect across the entire network 7 system? 8 MR. PORAY: What do you mean by not capturing 9 the peak effect? 10 MR. BROWN: That is the coincident peak demand 11 that you are referring to here is the coincident peak 12 demand of the load? 13 MR. PORAY: Of the system. 14 MR. BROWN: Oh, of the system. 15 MR. PORAY: Coincident with the system. 16 MR. BROWN: Okay. There is a possibility, 17 however, that even with the two components that you put 18 here in your definition of the calculation for charge 19 determinant, that there is still a possibility of gaming 20 within the system; it doesn't completely close the door 21 to gaming? 22 MR. PORAY: No, it does not. 23 MR. CURTIS: Okay. But certainly much less so 24 than Option XVI. 25 MR. BROWN: But it is, in terms of the larger 26 theoretical principles, that there is still a potential 27 disadvantage that some gaming would be possible under 28 Option XVIII? Les Services StenoTran Services Inc. 613-521-0703 259 OHNC PANEL 1, cr-ex (Brown) 1 MR. CURTIS: We think it would be quite a 2 challenge to game 18, but yes, theoretically possible. 3 MR. BROWN: Then the second part of your 4 element, the 85 per cent, you are using a window of 5 seven a.m. to seven p.m. each weekday, correct? 6 MR. PORAY: That is correct. 7 MR. BROWN: Is it fair to describe that seven 8 a.m. to seven p.m. period of time as your proxy for the 9 system peak? 10 MR. PORAY: It is not a proxy for the system 11 peak. It is our -- 12 MR. CURTIS: It is defined as the peak period, 13 not the system peak. The system peak will occur at some 14 point in time in those hours. 15 MR. BROWN: Correct, and you, through this 16 definition, are in a sense expanding the definition of 17 system peak to include this broad period of seven a.m. 18 to seven p.m.? 19 MR. CURTIS: I don't think we are expanding 20 the definition of system peak. We are just defining a 21 period in which the peak would occur, when the system 22 peak would occur. 23 MR. BROWN: Well, perhaps if you could let me 24 come at it in a slightly different way. 25 If you could get Mr. Fagan's evidence, which 26 is Exhibit H, Tab 6, Schedule 1. There is one portion 27 of his evidence I would like you to go through, 28 gentlemen. That is at page 19. There is a diagram Les Services StenoTran Services Inc. 613-521-0703 260 OHNC PANEL 1, cr-ex (Brown) 1 there or a chart. Do you have that? 2 MR. PORAY: Yes, we do. 3 MR. BROWN: I suggest we make some copies here 4 for people if they don't happen to have Mr. Fagan's 5 evidence with them. 6 I take it you have read this portion of 7 Mr. Fagan's evidence? 8 MR. CURTIS: We have indeed. 9 MR. BROWN: You have seen that what he has 10 done here in this particular diagram is to try and chart 11 out or map out an hourly load duration curve for 1998? 12 MR. PORAY: Yes, that's our understanding. 13 MR. BROWN: In terms of the numbers that he 14 has used on the access as far as the peak load, he has 15 used 22,403 megawatts as the maximum coincident peak for 16 that year? 17 MR. PORAY: Correct. 18 MR. BROWN: That is a number with which you 19 would agree? 20 MR. PORAY: Just excuse me for a minute. 21 MR. BROWN: No problem. 22 MR. PORAY: This is for the year 1990? 23 MR. BROWN: 1998. 24 --- Pause 25 MR. PORAY: I don't think I am in a position 26 to confirm that was the actual peak in 1998. 27 MR. BROWN: Could we do that subject to check? 28 Could you -- Les Services StenoTran Services Inc. 613-521-0703 261 OHNC PANEL 1, cr-ex (Brown) 1 MR. ROGERS: Does it matter? Does the 2 absolute number matter for the purpose of -- 3 MR. BROWN: Just as long as we are in the same 4 ballpark. I mean, if we are on different planets we 5 have -- 6 MR. ROGERS: No, I think we are in the 7 ballpark. 8 MR. BROWN: We are in the same ball park, 9 okay. Well, then, let's, subject to check, take that as 10 the -- 11 MR. ROGERS: Well, the same planet anyway. 12 MR. BROWN: You will see that one of the 13 things that he has done is indicated that with respect 14 to the maximum coincident peak, we have the maximum at 15 22,403 megawatts, and that 90 per cent of the maximum 16 that he has put down as 163 megawatts occurs in just 24 17 hours of that year. So in terms of the peak on the 18 system per year, we have some idea, by looking at this 19 load duration curve of what the amounts are, do we not? 20 MR. PORAY: That is your view of how the 21 peaks -- 22 MR. CAMPBELL: Excuse me, Mr. Chair, just so 23 that we can follow this, I thought the number in here is 24 274. 25 MR. BROWN: That is what I meant to say. If I 26 misspoke, that is what I meant to say. 27 MR. CAMPBELL: You said 24. 28 MR. BROWN: I misspoke, then. I do that Les Services StenoTran Services Inc. 613-521-0703 262 OHNC PANEL 1, cr-ex (Brown) 1 often, so just keep a check on me. Two hundred and 2 seventy-four. 3 Now, if we look at the chart that is on 4 page 19, the period of time which you were proposing to 5 calculate one of the elements in the charge determinant, 6 the 7:00 a.m. to 7:00 p.m. period, would result in, over 7 the course of the year, a period of 3,000 hours being 8 used as the basis for your charge determinant. Is that 9 fair? That is what it works out to be? 10 MR. PORAY: Well, we are not using the 11 annual -- 12 MR. BROWN: I appreciate you are doing this on 13 a monthly basis. 14 MR. PORAY: On a monthly basis, yes. 15 MR. BROWN: On a monthly basis. But if one 16 was to take that and spread that over the year, the 17 arithmetic works out to 3,000 hours a year. 18 --- Pause 19 MR. PORAY: In my estimation, it is actually 20 2,880 hours, yes. 21 MR. BROWN: So we are still within the 22 ballpark, not bang on. 23 But if you take a look at the chart that is 24 here on page 19, you will see that Mr. Fagan has mapped 25 out where that roughly 3,000 hours per year would end up 26 in terms of the percentage, and he has it a fair way 27 down the load curve, does he not? 28 MR. PORAY: That is what it appears to be, Les Services StenoTran Services Inc. 613-521-0703 263 OHNC PANEL 1, cr-ex (Brown) 1 yes. 2 MR. BROWN: I guess the simple point that I'm 3 trying to make is wouldn't you agree that by using that 4 7:00 a.m. to 7:00 p.m. period for your element of the 5 charge determinant it is simply too broad, and what we 6 should be trying to do is to push the result of the 7 charge determinant further up that load period, a load 8 curve, to try and really capture more of a peak period? 9 MR. CURTIS: No, I don't think we would agree 10 with that. 11 MR. BROWN: Why would you not agree with that, 12 sir? 13 MR. CURTIS: I think one of the aspects of 14 this is that the transmission network system which we 15 are trying to reflect here, to some extent there is a 16 geographical element that pertains here in terms of 17 usage of the network within the geographical area. So 18 although we are talking about the coincident peak for 19 the overall system as being the first measure, there 20 also has to be consideration about usage within some 21 large geographical areas within the province and so you 22 would want to make sure that the charge determinant 23 captured those periods of time as well. 24 MR. BROWN: Is there any other reason, sir, 25 that you would disagree? 26 MR. CURTIS: About narrowing the band. 27 MR. BROWN: Correct. 28 MR. CURTIS: The other aspect is around Les Services StenoTran Services Inc. 613-521-0703 264 OHNC PANEL 1, cr-ex (Brown) 1 gaming, the opportunity to game. 2 MR. BROWN: If we could turn, then, to 3 Option XVI to put it in perspective. 4 Mr. Chair, I don't know whether this would be 5 an appropriate time to break. 6 THE PRESIDING MEMBER: If you are just moving 7 on now, then it might be a good time to take the morning 8 break. 9 So could we come back in 20 minutes, at five 10 minutes to 1100. Thank you. 11 --- Upon recessing at 1035 12 --- Upon resuming at 1055 13 THE PRESIDING MEMBER: Okay. Mr. Brown, if 14 you would like to continue, please? 15 MR. BROWN: Yes. 16 Panel, I'm almost there. Just a few questions 17 in different areas. 18 Just going back to something that you seemed 19 to emphasize during some of the responses that you gave 20 to me, you appeared to focus on the role of the charge 21 determinant in collecting the revenue necessary to 22 recover historic costs of the transmission system. But 23 I take it you would agree with me that the charge 24 determinant also plays a role in connecting revenue to 25 recover the future costs that you plan to spend on the 26 system. You have to look forward as well as backwards. 27 MR. PORAY: To the extent that those future 28 costs have been approved by the Board in our revenue Les Services StenoTran Services Inc. 613-521-0703 265 OHNC PANEL 1, cr-ex (Brown) 1 requirement. 2 MR. BROWN: That is correct. 3 And in your 1998 application before this 4 Board, which was RP-1998-0001, you did put in your 5 evidence information regarding proposed capital 6 expenditures for transmission network development. You 7 didn't come before the Board and say, "Look, guys, we 8 aren't going to spend anything." You didn't come before 9 the Board and say to the Board that, "We aren't going to 10 spend anything in the next year on capital expenses." 11 You came before the Board and said, "Here is what we 12 plan to spend on capital expenses." Correct? 13 MR. PORAY: That is correct. 14 MR. BROWN: Certainly, in terms of the revenue 15 that you require to recover those expenses, the charge 16 determinant is going to play a role in helping you 17 recover that revenue. Correct? 18 MR. PORAY: Correct. 19 MR. BROWN: Going to Option XVI for the charge 20 determinant, which is the one that IPPSO and AMPCO and 21 members of the net load coalition are proposing. You 22 have set this out on Exhibit D, Tab 4, Schedule 1, 23 page 30. You have, as with the others, listed 24 advantages and disadvantages that you perceive with 25 respect to this particular option. 26 I just want to clarify the utility of this 27 option in reducing gaming. Perhaps in that respect, you 28 could turn to an interrogatory response that you gave to Les Services StenoTran Services Inc. 613-521-0703 266 OHNC PANEL 1, cr-ex (Brown) 1 IPPSO. It is Exhibit E, Tab 6, Schedule 32. 2 MR. CURTIS: Okay. 3 MR. BROWN: It is a three-part question and 4 you will see that part (c) says: 5 "Is OHNC concerned that customers may 6 game the charge determinant under Option 7 XV or XVI, compared to Option XVIII?" 8 In your response you say that although no 9 comparisons have been made it is your position that 10 there is relatively identical potential for gaming 11 between Options XV and XVIII if the latter didn't have 12 the 85 per cent clause: 13 "The potential for gaming is somewhat 14 reduced under Option XVI..." 15 On this issue of potential for gaming, then, 16 do I take it that it is your view that the potential for 17 gaming is somewhat reduced under Option XVI as compared 18 to Option XVIII? 19 MR. PORAY: No. What we meant in the response 20 in our interrogatory, if that Option XVIII didn't have 21 the 85 per cent backstop -- in other words, if it was 22 just focusing on coincident peak -- then there will be 23 more opportunities for gaming. 24 MR. BROWN: The 85 per cent plugs that hole? 25 MR. PORAY: That's right. 26 MR. BROWN: Okay. 27 Just one other aspect of the Option XVI 28 proposal which deals with the highest 50 hours over the Les Services StenoTran Services Inc. 613-521-0703 267 OHNC PANEL 1, cr-ex (Brown) 1 course of a month, I'm correct that it is not difficult 2 to identify after the fact the 50 hours in which system 3 coincident peak was the highest? 4 MR. PORAY: After the fact. That's correct. 5 MR. BROWN: Right. 6 If I could turn to charge determinants in the 7 connection of transformation and connection assets. 8 My only questions to you, gentlemen, are with 9 respect to the issue of connection charges for multiple 10 customers. I think this is found at Exhibit D, Tab 4, 11 Schedule 1, page 33 of your evidence. 12 As I understand the considerations that you 13 underwent to select a charge determinant here, you 14 really viewed that two options were available. One is 15 where the charge was based on the customer's 16 non-coincident peak and the second option was where the 17 charge would be based on the prorated demand in the hour 18 of the delivery point, the shared delivery point, if I 19 can put it that way, reached its non-coincident peak. 20 Those are the two options you were considering? 21 MR. PORAY: That is correct. 22 MR. BROWN: And you have indicated that you 23 prefer Option I, which is based on the customer's 24 non-coincident peak. 25 MR. PORAY: Because we propose to charge on 26 the basis of the delivery point per customer. 27 MR. BROWN: Perhaps you can help me out on 28 this, then. Les Services StenoTran Services Inc. 613-521-0703 268 OHNC PANEL 1, cr-ex (Brown) 1 In terms of the need to upgrade a facility 2 that multiple customers use, a connection or a 3 transformation facility that multiple customers use, is 4 it correct to say that the need to upgrade such a 5 facility would depend upon the demand at the hour the 6 delivery point reached its non-coincident peak? 7 --- Pause 8 MR. PORAY: Yes. I think that's correct, yes. 9 MR. BROWN: If that is the case, would you 10 agree that it would then be more economically efficient 11 to incent customers to reduce their demand at the time 12 the delivery point reaches the non-coincident peak? 13 MR. CURTIS: To incent customers? 14 MR. BROWN: Yes. In terms of the need to -- 15 if you have -- it's an extra transformation facility 16 that serves more than one customer, multiple customers. 17 There is the potential that in the future the 18 customer's loads may grow and as the customer's loads 19 grow there may be a need to actually upgrade the 20 facility which is used by a number of them to 21 accommodate that growth. Correct? 22 MR. CURTIS: Yes. 23 MR. BROWN: The point that I was trying to 24 make is that the need to upgrade that facility will 25 really depend upon the demand at the hour that that 26 delivery point reaches its non-coincident peak, which I 27 believe you agreed with. 28 MR. CURTIS: Yes. Les Services StenoTran Services Inc. 613-521-0703 269 OHNC PANEL 1, cr-ex (Brown) 1 MR. BROWN: That being the case, as a signal 2 to customers to behave in a certain way, wouldn't a 3 signal based upon a charge based on the demand in the 4 hour the delivery point reaches the non-coincident peak 5 send a better long-term signal to the customers as to 6 when they should be using that delivery point? 7 --- Pause 8 MR. PORAY: I think that is probably -- well, 9 it would depend on the customers. I think probably that 10 is correct. 11 MR. BROWN: So in the sense that I have 12 described it, the second option, Option II, would send a 13 more appropriate long-range price signal to customers 14 with respect to that common connection or transformation 15 facility? 16 MR. PORAY: I think that is probably correct. 17 MR. BROWN: Thank you, gentlemen. 18 Those are my questions. 19 Thank you, Mr Chair. 20 THE PRESIDING MEMBER: Mr. Budd, are you -- 21 MR. BUDD: I do have one brief area here. 22 Thank you, Dr. Higgin. 23 CROSS-EXAMINATION 24 MR. BUDD: Gentlemen, just picking up on what 25 my friend Mr. Brown was saying, I would like to ask you 26 a couple of questions respecting the OHNC proposal 27 prohibiting the aggregation of delivery points. You are 28 familiar, of course, with that? Les Services StenoTran Services Inc. 613-521-0703 270 OHNC PANEL 1, cr-ex (Budd) 1 MR. PORAY: Yes. 2 MR. BUDD: Perhaps you could just turn up 3 Exhibit E, Tab 2, Schedule 47. This is an AMPCO 4 interrogatory. 5 --- Pause 6 MR. BUDD: Just to confirm your response to 7 this interrogatory, that the current practice is to 8 allow aggregation of delivery points for individual 9 industrial customers with more than one delivery point 10 and, that is to say, for sites that are connected by a 11 contiguous piece of land. Is that correct? 12 MR. PORAY: I believe that is what we said. 13 MR. BUDD: Would you also confirm for me that 14 in fact the OHNC proposal would discontinue this 15 practice in the future? 16 MR. CURTIS: If they are served by different 17 delivery points, yes. 18 THE COURT REPORTER: I'm sorry, sir. If they 19 are served by -- 20 MR. CURTIS: Different delivery points, yes. 21 MR. ROGERS: Could I remind the witnesses to 22 please keep your voices up. You may need extended 23 microphones. 24 Keep your voice up. There are a lot of people 25 here who can't hear you. 26 MR. BUDD: I would like you to consider a 27 hypothetical situation with me, if you would, please. 28 This hypothetical situation involves a Les Services StenoTran Services Inc. 613-521-0703 271 OHNC PANEL 1, cr-ex (Budd) 1 hypothetical customer with two delivery points on one 2 site. The second point, will you accept, was installed 3 for the purpose of increasing reliability of supply? 4 Are you with me so far? 5 MR. PORAY: So far. 6 MR. BUDD: Good. 7 Now, let's just say that this customer takes 8 power from delivery point number one for 29 days of the 9 month and on the 30th day, for whatever the reasons are, 10 elects to take power from delivery point number two. 11 Okay? 12 MR. PORAY: Okay. 13 MR. BUDD: Can you confirm that under your 14 proposed charge determinant for network services based 15 on the non-coincident peak methodology, that this 16 customer is going to pay for the full month of network 17 services at delivery point number one. 18 Is that right? 19 MR. PORAY: That is correct. 20 MR. BUDD: And would also pay for a full month 21 at delivery point number two, effectively paying twice 22 for the same service. That is under your proposed 23 methodology. 24 Is that right? 25 MR. PORAY: No. I think in the case of a 26 customer being -- the same customer being supplied from 27 the two delivery points. 28 Under our proposal we would allow aggregation, Les Services StenoTran Services Inc. 613-521-0703 272 OHNC PANEL 1, cr-ex (Budd) 1 if it's the same customer. 2 MR. BUDD: Okay. That's fine. Thank you. 3 That may not have been clear. 4 Gentlemen, does your proposal, then, in your 5 view, fit with what the IMO rules are in respect of any 6 of this? 7 MR. PORAY: I believe what the IMO will do, it 8 will read the meters of the customer and calculate the 9 charges and then sum the charges for the total charge 10 for that customer. 11 MR. BUDD: So your proposal, then, maybe just 12 wasn't clear to us. 13 Are you suggesting that then it's not 14 discontinuation of the current practice for customers of 15 such like the kind I described? 16 MR. PORAY: I think our proposal -- what our 17 proposal tries to achieve is that you cannot aggregate 18 on the basis of different customers on different 19 delivery points but the customer is supplied from -- 20 Let me just think this through. I'm sorry. 21 MR. BUDD: Take your time. 22 --- Pause 23 MR. PORAY: I think our proposal is that we 24 would charge on the basis of the delivery point. 25 MR. BUDD: Is that a change in your answer, 26 then, to me just a moment ago? 27 MR. PORAY: I think, yes, but that is a change 28 that in effect the customer would be charged on delivery Les Services StenoTran Services Inc. 613-521-0703 273 OHNC PANEL 1, cr-ex (Budd) 1 point one and delivery point two. 2 MR. BUDD: Right. And that's a change from 3 your current practice. 4 Can you confirm that? 5 MR. PORAY: I believe that is the case, yes. 6 MR. BUDD: Right. And your new answer, if I 7 may call it that, then is -- let me ask you the question 8 with respect to the IMO again. 9 Having thought that through -- and I 10 understand you are on a technical panel so you will know 11 that perhaps better than I -- does what your proposal -- 12 is your proposal consistent with how the IMO is going to 13 do the billing? 14 MR. PORAY: I believe that it is. 15 MR. BUDD: You might want to think about that 16 and so will I. I may come back to it. 17 Thank you, Mr. Chairman. 18 THE PRESIDING MEMBER: Thank you, Mr. Budd. 19 Mr. Mattson, have you any questions for this 20 panel? 21 MR. MATTSON: Thank you, Mr. Chairman. 22 FURTHER CROSS-EXAMINATION 23 MR. MATTSON: Mr. Curtis, I believe on just 24 some general principle questions that my friend 25 Mr. Brown was asking you about the dilemma that your 26 corporation is facing right now. I believe you used the 27 word "dilemma" and that was on the one hand you are 28 setting these criteria with one eye on the user-pay Les Services StenoTran Services Inc. 613-521-0703 274 OHNC PANEL 1, cr-ex (Mattson) 1 principle and another eye on the embedded costs that 2 need to be recovered. Is that fair? 3 MR. PORAY: That is correct. 4 MR. CURTIS: Yes. 5 MR. MATTSON: If I could just understand that 6 problem again, are you familiar with the discussions and 7 the evidence that went on at the HR-22, 23 and 24 8 hearings with respect to Ontario Hydro's special rate 9 that came out in those hearings? 10 MR. CURTIS: Not particularly, no. 11 MR. MATTSON: My understanding of the base of 12 those hearings, the user-pay principle was used in order 13 to try to send some proper economic signals to the 14 customers so that they were encouraged to efficiently 15 use the transmission infrastructure. 16 Is that fair? Is that basically what the idea 17 was? 18 MR. PORAY: I must say, I'm not familiar with 19 those hearings. 20 MR. MATTSON: But if one was going to use the 21 user pay principle with respect to setting these rates, 22 what you were trying to do was to disincent customers to 23 put a greater onus on the system. 24 Is that fair? That is what Mr. Brown was 25 getting at in terms of the general principles? 26 MR. CURTIS: I guess we haven't studied those 27 hearings and we weren't part of those hearings. It's a 28 little difficult for us to know whether it was a user Les Services StenoTran Services Inc. 613-521-0703 275 OHNC PANEL 1, cr-ex (Mattson) 1 pay principle that was the foundation for Ontario 2 Hydro's -- 3 MR. MATTSON: I'm thinking about it in terms 4 of marginal costs, separating it from what the imbedded 5 costs are, if you were trying to come up with rates that 6 were based on a marginal cost principle. They were 7 trying to -- 8 MR. CURTIS: A marginal cost going forward 9 with the idea of installing new facilities and that. 10 MR. MATTSON: That's correct. And at that 11 time I can just indicate there was a lot of objection to 12 those rates. That was because many of the parties felt 13 that it would allow certain customers, maybe the more 14 experience and sophisticated customers, to avoid some of 15 the imbedded costs and the historic costs on the system. 16 You can understand how those concerns would have arisen. 17 MR. CURTIS: Yes. 18 MR. MATTSON: And if certain large customers 19 were able to avoid those imbedded costs, it would create 20 a larger burden on the remaining customers of the 21 system. Is that fair? 22 MR. PORAY: That is fair. 23 MR. MATTSON: My friend, Mr. Brown, put to you 24 the literary reference to Charybdis and Scylla, what he 25 called a rock and a hard place. Are either of you 26 familiar with that Greek story? 27 MR. PORAY: No, I'm not. 28 MR. CURTIS: Not me, no. Les Services StenoTran Services Inc. 613-521-0703 276 OHNC PANEL 1, cr-ex (Mattson) 1 MR. MATTSON: Charybdis was a whirlpool on one 2 hand and Scylla on the other hand was a six headed 3 monster. He had a choice to either go through those two 4 rocks where you would be sucked down by the whirlpool or 5 go by Scylla and you would lose six of your men, but you 6 would still get through. Guess which choice Odysseus 7 chose? He chose to lose six men as opposed to going 8 down in a death spiral. 9 MR. ROGERS: He studied Electrical 10 Engineering. 11 MR. MATTSON: But in terms of your choice 12 here, in terms of the imbalancing that you have been 13 discussing here, would you agree that if you went 14 forward just simply thinking of it in terms of a user 15 pay principle, there is a risk here that you may create 16 a greater and greater incentive for other of your 17 customers to try and bypass those avoided costs, 18 ultimately creating a greater and greater burden on your 19 remaining customers. Is that fair? 20 MR. CURTIS: I guess that's fair. What we had 21 heard when we were doing our stakeholdering process is 22 two interpretations of the user pay principle. I think 23 I tried to outline those in my direct. 24 There is the one user pay principle where a 25 user would only pay for the future use of the 26 transmission system. There is the other concept of the 27 user pay principle where the user continues to pay for 28 facilities that were installed to serve its original Les Services StenoTran Services Inc. 613-521-0703 277 OHNC PANEL 1, cr-ex (Mattson) 1 load and that's maybe a better articulation of the 2 dilemma that we find ourselves in when we have 3 stakeholders coming forth, both saying "We have to 4 follow the user pay principle", but depending on the 5 definition of the user pay principle, you are driven in 6 different directions. 7 MR. MATTSON: And by using the non-coincident 8 peak for network charges, you are in fact trying to 9 create a mechanism for recovering those imbedded costs, 10 maybe at the expense of creating an incentive that might 11 otherwise have been created through a user pay type 12 principle of coincident peak charges that would 13 encourage those not to use the system more. Is that 14 fair? 15 Your bounds may be shifted a little just to 16 ensure that the fairness principle with respect to all 17 customers that those historic costs need to be fairly 18 shared among all your possible customer base. 19 MR. CURTIS: To a large extent this is 20 reflective of the stakeholdering that we did. We had 21 representatives that represent about 80 to 85 per cent 22 of the customer base within Ontario saying that we 23 should slant it that way, to use your analogy. 24 MR. MATTSON: Right, and neither of you could 25 really tell the Board whether or not -- I mean I see 26 that as certainly a change. We see it as a change from 27 what at least what Hydro had been offering, the HR 22, 28 23 and 24. This is a change in principle in terms of Les Services StenoTran Services Inc. 613-521-0703 278 OHNC PANEL 1, cr-ex (Mattson) 1 putting greater emphasis on recovering the imbedded 2 costs at the expense, possibly, of creating an incentive 3 for some customers to bypass or not use those services 4 as much. Do you understand that? 5 MR. CURTIS: I guess we are in the unfortunate 6 position though of not knowing what went on in those 7 earlier proceedings to know whether this is -- 8 MR. MATTSON: You don't understand those real 9 type pricing options that they offered. 10 MR. CURTIS: Well, we have some understanding 11 of the options, but in terms of the principles or the 12 arguments that were used to promote those. 13 MR. MATTSON: We can get into those with the 14 AMPCO witnesses later in the hearing. I believe -- your 15 indulgence for a moment, Mr. Chairman. I believe those 16 may be my questions. 17 Yes, thank you. Thank you very much. 18 THE PRESIDING MEMBER: Mr. Greenspoon? 19 MR. GREENSPOON: Yes, I have two questions, 20 Mr. Chairman. 21 Thank you. 22 FURTHER CROSS-EXAMINATION 23 MR. GREENSPOON: Mr. Curtis or Mr. Poray, I'm 24 wondering just if you could confirm that there is no 25 analysis in this section of the consideration of impacts 26 of your proposal on efficient use of energy. 27 MR. CURTIS: Can you help us with your 28 definition of efficient use of energy? Les Services StenoTran Services Inc. 613-521-0703 279 OHNC PANEL 1, cr-ex (Greenspoon) 1 MR. GREENSPOON: The efficiency of the energy 2 that flows through the transmission system. 3 MR. CURTIS: You are talking in terms of 4 losses or congestion. 5 MR. GREENSPOON: Yes. 6 MR. CURTIS: All right. 7 MR. PORAY: No. Our proposal deals strictly 8 just with the costs associated with the infrastructure, 9 not actually the usage of the infrastructure. 10 MR. GREENSPOON: Okay. Lastly, and secondly, 11 could the same analysis and the same answer apply to the 12 issue of facilitation of competition? 13 MR. CURTIS: I guess again we are having a 14 little difficulty in terms of understanding what you 15 meant by the facilitation of competition. 16 MR. GREENSPOON: In its broadest sense. 17 MR. PORAY: Are you saying that you are 18 looking for an impact on the assessment of the options, 19 various options, for charge performance, how they would 20 impact competition in the energy market? 21 MR. GREENSPOON: That's right. 22 MR. PORAY: No, we have not done that. 23 MR. GREENSPOON: Neither of those analyses., 24 MR. PORAY: No. 25 MR. GREENSPOON: Thank you. Those are the 26 questions I have. 27 THE PRESIDING MEMBER: I have. 28 Mr. Campbell. Les Services StenoTran Services Inc. 613-521-0703 280 OHNC PANEL 1, cr-ex (Greenspoon) 1 CROSS-EXAMINATION 2 MR. CAMPBELL: Thank you, Mr. Chairman. 3 Gentlemen, if you could turn first to Exhibit 4 D4.1, page 30. In lines 11 and 12 you describe there 5 Option XVI which, as I understand it, is described as 50 6 hours of highest demand and average demand in this 7 option, as I understand it, is equivalent to energy. Is 8 that correct? 9 MR. PORAY: That is correct. 10 MR. CAMPBELL: And you note on the same page a 11 disadvantage for Option VI. At the top of that same 12 page, the list of advantages there is relating to Option 13 VI and the first disadvantage is that this option uses 14 energy as a charge determinant rather than demand and 15 you go on to explain that it's more appropriate for 16 transmission pricing since the transmission system is 17 generally designed to meet demand related requirements. 18 Would you agree that that same disadvantage 19 attaches to Option XVI, being energy based rather than 20 demand based? 21 MR. PORAY: Proportionately, I would say that 22 it is much smaller because the period over which you are 23 considering is now under the 50 highest hours in the 24 month. 25 MR. CAMPBELL: So the demand, as I understand 26 your answer -- the disadvantage applies. What you take 27 issue with is just the question of degree. 28 MR. PORAY: Yes. Les Services StenoTran Services Inc. 613-521-0703 281 OHNC PANEL 1, cr-ex (Campbell) 1 MR. CAMPBELL: Now, then if we could go back 2 to page 22 of that same Schedule 1 and there Option XV 3 is described as similar to Option XVI. Is that correct? 4 MR. PORAY: That is the way it is, yes. 5 MR. CAMPBELL: And in effect Option XV was 6 rejected in part on that basis, that it was similar to 7 Option XVI and should be rejected because of that 8 similarity. 9 MR. PORAY: That's correct. 10 MR. CAMPBELL: Now, there is, however, I would 11 suggest to you, an important difference between Options 12 XV and XVI. Sixteen you agreed earlier is an energy 13 based option while XV, as I understand it, is based on 14 the highest demand during the 50 hours. 15 MR. PORAY: That is correct. 16 MR. CAMPBELL: And for all the reasons you 17 have already outlined, I take it you would agree that a 18 demand based measure is more appropriate because the 19 transmission system is designed to meet demand related 20 requirements. 21 MR. PORAY: That is correct. 22 MR. CAMPBELL: All right. 23 Then, with respect to Option XV I want to ask 24 you to revisit the judgment you made about the potential 25 for gaming as between Option XVIII, on the one hand, and 26 Option XV on the other. I think my friend Mr. Brown 27 took you to that interrogatory where that is discussed 28 which is E6.32. Les Services StenoTran Services Inc. 613-521-0703 282 OHNC PANEL 1, cr-ex (Campbell) 1 There on Option XVIII you indicated that if 2 Option XVIII didn't have the 85 per cent feature it 3 would be based on the coincident peak in the single hour 4 of maximum system demand. Do I have that correct? 5 MR. PORAY: That's correct. 6 MR. CAMPBELL: And in contrast, Option XV 7 would be the customer's peak in the highest 50 hours of 8 system demand. Do I have that correct? 9 MR. PORAY: Just a minute, please. 10 --- Pause 11 MR. PORAY: That is correct. 12 MR. CAMPBELL: Now, in that circumstance isn't 13 it much more difficult to avoid consumption in the 14 highest 50 hours of system demand than in a single hour? 15 MR. PORAY: That is correct. 16 MR. CAMPBELL: And isn't that especially true 17 if you can't be sure which 50 hours are the maximum 50 18 hours until after the month is over? 19 MR. PORAY: That's correct. 20 MR. CAMPBELL: On Tuesday we sent out a 21 calculation dealing with the effects of charge 22 determinant, Option XVI, on embedded generators. I have 23 some extra copies of that here, but I would ask that 24 this be marked an exhibit. 25 MS LEA: Thank you. 26 That will be Exhibit G2.1, please. 27 EXHIBIT NO. G2.1: Calculation dealing 28 with the effects of charge determinant, Les Services StenoTran Services Inc. 613-521-0703 283 OHNC PANEL 1, cr-ex (Campbell) 1 Option XVI, on embedded generators 2 MR. CAMPBELL: Does everybody have copies? 3 Could I get the exhibit number again, please? 4 MS LEA: G2.1. 5 I think if you have an extra copy for the 6 public file box up here that would be useful. 7 MR. CAMPBELL: Gentlemen, as you will see, the 8 purpose of this exhibit is to compare the expected 9 payment for an embedded generator under Option XVI with 10 the existing pairs. I guess having had an opportunity 11 to look at this would you agree with me that the 12 assumptions are reasonable for the purposes of that 13 calculation, that is the assumption set out in section 14 (b)? 15 MR. PORAY: Yes, they seem reasonable. 16 MR. CAMPBELL: And then the method of 17 calculation is set out in section (c). Would you agree 18 with me that the calculation is appropriate for 19 calculating the expected payment that would result under 20 Option XVI? 21 MR. PORAY: I think the calculation appears to 22 be reasonable. 23 MR. CAMPBELL: And would you agree that the 24 result of the calculation is what an embedded generator 25 would pay per kilowatt month for its 3 per cent forced 26 outages? 27 MR. PORAY: I would disagree with the actual 28 result that you have shown. Les Services StenoTran Services Inc. 613-521-0703 284 OHNC PANEL 1, cr-ex (Campbell) 1 Two things I would point out. First of all, 2 it's not the generator that's paying. It's the load 3 that's associated with that generator. 4 MR. CAMPBELL: Yes. 5 MR. PORAY: Secondly, in coming up with your 6 answer of .09 dollars per kilowatt per month you have 7 used a network charge of 2.97 dollars per kilowatt per 8 month. The actual network charge should be 2.76. 9 MR. CAMPBELL: So subject to changing the 10 math, which we will do in just a minute here, the result 11 that comes out of that calculation you would agree with. 12 Have you done that calculation, done the .03? 13 MR. PORAY: In my reckoning it comes down to 14 0.08 dollars per kilowatt month. 15 MR. CAMPBELL: All right. 16 So with that correction you would agree that 17 that's what an embedded -- what a customer would pay per 18 kilowatt month given these assumptions? 19 MR. PORAY: The realities of that generator. 20 MR. CAMPBELL: Now, have you done a similar 21 calculation for Option XVIII? 22 MR. PORAY: I have scratched something on the 23 back of a paper. We haven't prepared a specific 24 calculation, no. 25 MR. CAMPBELL: Mr. Rogers, I am not going to 26 ask for scratches on backs of paper, but I would ask for 27 an undertaking that a calculation be done showing the 28 charges that would result in these circumstances with Les Services StenoTran Services Inc. 613-521-0703 285 OHNC PANEL 1, cr-ex (Campbell) 1 respect to Option XVIII, OHNC's preferred option. 2 MR. ROGERS: I take it that could be done 3 without too much difficulty, yes. 4 MR. PORAY: Yes, we can do that. 5 MR. ROGERS: We would agree to do that. 6 MS LEA: That would be Undertaking F2.1, 7 please. 8 UNDERTAKING F2.1: Undertaken by 9 Mr. Rogers to produce a calculation 10 showing the charges resulting with 11 respect to Option XVIII, OHNC's preferred 12 option 13 MR. CAMPBELL: Thank you, Mr. Chairman. 14 Those are my questions. 15 THE PRESIDING MEMBER: Thank you, Mr. 16 Campbell. 17 Mr. White. 18 MR. WHITE: Thank you. 19 FURTHER CROSS-EXAMINATION 20 MR. WHITE: Your proposed rate schedule are 21 monthly rates and charges? 22 MR. PORAY: That is correct. 23 MR. WHITE: And you would agree with me that 24 facilities are not constructed or removed for use on a 25 monthly basis? They are constructed for a longer term? 26 MR. PORAY: That is correct. 27 MR. WHITE: If you had, and I am going to 28 describe it, a situation, and come up with an answer and Les Services StenoTran Services Inc. 613-521-0703 286 OHNC PANEL 1, cr-ex (White) 1 ask for your comments on it. If you had two customers 2 served by a network facility and let's talk about, maybe 3 for the purposes of simplicity, we will talk about a 4 connection facility, a line connection facility. The 5 two customers in the first month of the year use 50 per 6 cent of the line capacity each. 7 Subsequent months of the year one of the 8 customers continues to use 50 per cent of the line 9 capacity. The other customer drops to 10 per cent of 10 the line capacity on a non-coincident basis. 11 Using that kind of analysis, the one customer 12 in terms of looking at the revenue that that line would 13 produce, one customer would pay something in the order 14 of three-fifteenths of the total revenue that the line 15 produces, in that they would pay 50 per cent for one 16 month and 10 per cent for the non-coincident demand for 17 the rest of the months of the year, and the other 18 customer would pay the balance of the revenue, the 19 majority of the revenue that was produced -- 20 THE PRESIDING MEMBER: Mr. White, could you 21 pull your microphone towards you. 22 MR. WHITE: I'm sorry. 23 That being the case, it seems to me that the 24 non-coincident demand proposal that you are putting 25 forward for those kind of facilities would at least 26 capture some of the responsibility created by the 27 customer who only appears on the line in a significant 28 way in one month of the year. Is that generally Les Services StenoTran Services Inc. 613-521-0703 287 OHNC PANEL 1, cr-ex (White) 1 correct, and let's not worry about whether the numbers 2 are correct to a decimal place or whatever? Do I 3 understand the concept? 4 MR. PORAY: Yes, I think that's correct. 5 MR. WHITE: So what really may be at issue 6 here is a question of fairness and whether 7 non-coincident demand as a cost allocation mechanism at 8 least causes the intermittent load, which comes and 9 requires that the facility be there for when it is 10 actually there. But that requires -- at least, using 11 the non-coincident demand method requires the customer 12 to make some contribution to the cost of having the 13 facility sitting there when they are not utilizing it. 14 MR. PORAY: That's correct. 15 MR. WHITE: So because we are dealing with 16 facilities that are long term in terms of capital 17 investment and they are there and they need to be there 18 for when they are going to be utilized, that the 19 non-coincident demand deals with something which has 20 traditionally been called the "free rider problem." 21 MR. PORAY: That's correct. 22 MR. WHITE: Thank you. 23 THE PRESIDING MEMBER: Anyone else now like to 24 come up? 25 Ms Godby. 26 --- Pause 27 CROSS-EXAMINATION 28 MS GODBY: Good morning, gentlemen, members of Les Services StenoTran Services Inc. 613-521-0703 288 OHNC PANEL 1, cr-ex (Godby) 1 the Panel. 2 I can pretty much guarantee you that I am not 3 going to be testing your knowledge with respect to Greek 4 mythology, so you can rest assured. 5 I am going to be asking you some questions for 6 one or two areas. They are general in nature. One is 7 the energy-based charge determinant and the other has to 8 do with the power district. 9 So if we can start with, first of all, the 10 energy-based demand or the energy-based charge 11 determinant concept. I think we have established in the 12 evidence that came forward yesterday that it is 13 important that the rate structure be fair and to the 14 extent practicable. The extent is to design a rate 15 structure that doesn't favour one group of customers at 16 the expense of the other, but that is an established 17 principle that we have agreed upon yesterday, correct? 18 MR. PORAY: That is correct. 19 MS GODBY: Would you agree with me that the 20 purpose of the transmission system is to deliver 21 electricity from one point to another? That is 22 essentially -- in its simplest form that is essentially 23 the purpose? 24 MR. PORAY: The purpose of the transmission 25 system is to provide infrastructure for the delivery of 26 the energy. 27 MS GODBY: For the delivery of the energy. 28 In the making of the rate design structure Les Services StenoTran Services Inc. 613-521-0703 289 OHNC PANEL 1, cr-ex (Godby) 1 would you agree, and perhaps I have missed it, but would 2 you agree with me that in the establishment of these 3 principles there isn't one that reflects the actual 4 purpose of the transmission system; that is, it doesn't 5 reflect the delivery of electricity from one point to 6 another? 7 MR. PORAY: I think this goes back to the 8 point that we were trying to make earlier on, that the 9 delivery of energy on the transmission system is really 10 a function of the dispatch of the generation to meet the 11 load. So the purpose of the transmission system as 12 viewed from the design of the rates and charges is 13 really for the provision of, if you like, the electrical 14 highways and biways for the energy to be delivered. 15 MS GODBY: If I can use a simple analogy then, 16 it is like if I buy a chocolate bar I am going to pay 17 twenty bucks for the wrapper and nothing for the 18 chocolate bar, essentially. I am paying all for the 19 infrastructure, is what you are telling me? 20 MR. PORAY: -- for the infrastructure. 21 MS GODBY: But nothing for the delivery? 22 MR. PORAY: No, because there are additional 23 costs that are associated with the delivery. 24 MS GODBY: But you would agree with me that 25 not all of the costs associated with the transmission 26 system are those capital costs, are capital costs? You 27 will agree with me that there are costs such as 28 operation, maintenance, administration, taxes, that are Les Services StenoTran Services Inc. 613-521-0703 290 OHNC PANEL 1, cr-ex (Godby) 1 not associated, that are not capital costs, correct? 2 MR. PORAY: That they are not capital costs, 3 yes. 4 MS GODBY: In fact, if we look at Exhibit C, 5 Tab 5, Schedule 1, page 4 -- if you look at that Table 3 6 that is on there. 7 MR. PORAY: Right. 8 MS GODBY: If we divide the capital costs 9 versus the variable costs we are looking at -- and if my 10 addition serves me correctly -- it is the capital costs 11 of the system are that 688.9 million compared to the 12 variable costs which are about 549 million. Is that 13 correct? 14 MR. CURTIS: Maybe you could help us with how 15 you did your arithmetic rather than -- 16 MS GODBY: Sure. The capital costs consist of 17 the 475.3. 18 MR. CURTIS: Yes. 19 MS GODBY: And the 213.6. 20 MR. CURTIS: Yes. 21 MS GODBY: And the variable is the 385. 22 MR. CURTIS: Yes. 23 MS GODBY: The 17 in taxes and the 139 in 24 taxes. 25 MR. CURTIS: I think that the taxes would end 26 up being split to between the taxes that would be paid 27 on the operational expenses and those on the capital 28 assets. Les Services StenoTran Services Inc. 613-521-0703 291 OHNC PANEL 1, cr-ex (Godby) 1 MS GODBY: Okay. But even so, we are looking 2 at a split between capital and other costs, correct? 3 MR. CURTIS: Yes. 4 MR. PORAY: Can I just clarify maybe one point 5 here? When you talk about variable costs there are 6 essentially no variable costs in providing a 7 transmission infrastructure? 8 MS GODBY: Well, explain that to me. 9 MR. PORAY: Basically, the cost of the 10 infrastructure is independent of how its used. So 11 whether our customer who is connected at a 100 megawatt 12 load places 100 megawatts demand on the system, or 13 whether at other times during the month they place 60 14 megawatts or some other value, the cost of the 15 infrastructure is still the same. 16 MS GODBY: Mr. Poray, in a document that was 17 circulated to stakeholders which was a Transmission 2000 18 document -- you recall that document? 19 MR. PORAY: I recall that. 20 MS GODBY: And that appears as Exhibit B, Tab 21 4, Schedule 1. 22 MR. PORAY: Excuse me. 23 --- Pause 24 MR. PORAY: We have it. 25 MR. ROGERS: What page? 26 MS GODBY: Page 29, page 29. 27 MR. PORAY: Okay, yes. 28 MS GODBY: Is it stated in that document that Les Services StenoTran Services Inc. 613-521-0703 292 OHNC PANEL 1, cr-ex (Godby) 1 the sound commercial management of a transmission 2 business would suggest that at least some portion of a 3 transaction charges be collected as energy based? Is 4 that correct? 5 MR. PORAY: Can you point us to that section 6 where that -- 7 MS GODBY: Did I give you a wrong reference? 8 MR. PORAY: I don't know. You were making 9 reference to this. 10 MR. ROGERS: At the bottom of page 28, top of 11 29 may be what you are referring to. 12 --- Pause 13 MS GODBY: Thank you, Mr. Rogers, yes. Thank 14 you, thank you. That's correct. 15 If you look to the very last paragraph at the 16 bottom of page 28 and the top paragraph of page 29. 17 MR. ROGERS: Take a minute to read that, 18 gentlemen, and then we can proceed. 19 --- Pause 20 MS GODBY: This is a document that was 21 prepared by OHNC, correct? 22 MR. PORAY: That is correct. 23 MS GODBY: And you would agree, therefore, 24 with the statements in that that are outlined that I am 25 pointing you to, then, Mr. Poray? 26 MR. PORAY: That's correct. 27 MR. ROGERS: Can I just interrupt? 28 Mr. Chairman, the Board may be well aware of Les Services StenoTran Services Inc. 613-521-0703 293 OHNC PANEL 1, cr-ex (Godby) 1 this, but my understanding is that this white paper that 2 has been referred to now and previously was prepared by 3 my client prior to the stakeholder process that you have 4 heard so much about. 5 MR. CURTIS: Yes, it was. 6 MR. ROGERS: And the witnesses have 7 explained -- I don't think it is germane to my friend's 8 questions now but just so you understand -- that some of 9 the positions have changed through the stakeholdering, 10 as you have heard. 11 MS GODBY: Well, in fact, actually, speaking 12 of stakeholders, First Nations had indicated their 13 preference, I understand, in the stakeholder process for 14 a charge that was partially based on energy. 15 MR. CURTIS: They did. 16 MS GODBY: Yes, they did. But that that was 17 dismissed as an option. 18 MR. CURTIS: I wouldn't say it was dismissed. 19 It was taken under consideration. But the end result 20 does not include that. 21 MS GODBY: What, if any, impact assessments 22 were done on the energy-based charge? 23 MR. PORAY: There were -- I mean, we examined 24 some 18 options, some of which included energy charging, 25 so we did look at the impacts. 26 MS GODBY: The energy-based charging that you 27 looked at, that wasn't tied, I gather, to a peak/off 28 peak. In fact, if I'm correct in reading your option, Les Services StenoTran Services Inc. 613-521-0703 294 OHNC PANEL 1, cr-ex (Godby) 1 the energy-based charges that you considered were not 2 tied to peak/off peak periods. Is that correct? 3 MR. PORAY: No. We did look at an option that 4 in fact had peak and off peak. 5 MS GODBY: And which option is that? 6 MR. PORAY: Excuse me for a minute. 7 --- Pause 8 MR. PORAY: It is Option XIV. 9 MS GODBY: Mr. Poray, I understand -- excuse 10 me for one minute. 11 --- Pause 12 MS GODBY: In Option XIV, Mr. Poray, can you 13 explain to me what "average demand" means? 14 MR. PORAY: It would be the average demand 15 during the peak period. And, similarly, the average 16 demand during the off peak period. 17 MS GODBY: I'm sorry, sir? 18 MR. PORAY: And, similarly, the average demand 19 during the off peak period. 20 MS GODBY: I understand that the metering, the 21 interval metering technology that is available today is 22 able to accurately measure the time of take and the 23 amount, is that correct, off the system? 24 MR. PORAY: That is correct. 25 MS GODBY: So if you had an energy-based 26 charge, you would be able to accurately measure these 27 things. It would be an accurate measurement of those 28 particular quantities that I am talking about. Les Services StenoTran Services Inc. 613-521-0703 295 OHNC PANEL 1, cr-ex (Godby) 1 MR. PORAY: That is basically what the IMO 2 will be using for energy charges. 3 MS GODBY: And that is somewhat less complex, 4 I would imagine, than using, for instance, a peak demand 5 based determinant. If you just had simply an 6 energy-based determinant, it would be less complex than 7 using a demand-based determinant. Correct? 8 MR. PORAY: Yes. Possibly, yes. 9 MS GODBY: If you had an energy-based charge 10 determinant, would you have to worry about things like 11 free ridership and gaming if it was tied also as well to 12 peak/off peak periods? 13 MR. PORAY: No. The energy charge determinant 14 would capture -- would prevent gaming. 15 MS GODBY: And if you had an energy-based 16 determinant that was tied, in effect, to these peak/off 17 peak periods, you would also incent customers to use the 18 system at off peak hours. Correct? 19 MR. PORAY: To the extent that they would be 20 avoiding transmission charges? 21 MS GODBY: Well, as a transmission customer, 22 if I was to use the system at peak hours, and I was 23 charged a premium based on my use of the system at the 24 peak hours, then it would incent me to not use the 25 system at those times. Correct? 26 MR. PORAY: Possibly, yes. But there may be 27 other incentives as well that you might take into 28 consideration, not just that. Les Services StenoTran Services Inc. 613-521-0703 296 OHNC PANEL 1, cr-ex (Godby) 1 MS GODBY: I am just going to put an example 2 to you. It is a very simple example. 3 If I had a customer who had a factory running 4 24 hours a day, seven days a week and their peak demand 5 was 50 megawatts, they ran at a constant 50 megawatts, 6 they pulled 50 megawatts off, and then I had another 7 customer who ran their factory for eight hours a day, 8 five days a week -- so I have one running their factory 9 for 168 hours a week, and I have another one running 10 their factory for 40 hours a week -- and their peak is 11 also 50 megawatt, is it the case that both customers are 12 going to be paying the same amount based on your peak 13 charge determinant, coincident peak charge determinant? 14 MR. PORAY: Based on not the coincident but 15 the higher of the coincident or 85 per cent? 16 MS GODBY: Yes. 17 MR. PORAY: Yes. 18 MS GODBY: Yes, they would be paying. 19 So, in effect, then, Customer A, which runs 20 its factory for 168 hours is paying less per kilowatt 21 hour, correct, than Customer B? 22 MR. PORAY: Yes, that's correct. 23 MS GODBY: Would you agree with me that that 24 is a type of subsidy? 25 MR. CURTIS: No, because they are making the 26 same use of the transmission system. 27 MS GODBY: But if Customer A is pulling off 28 more energy more often than Customer B, how could they Les Services StenoTran Services Inc. 613-521-0703 297 OHNC PANEL 1, cr-ex (Godby) 1 be using the transmission system the same? Customer A 2 is making more use of the transmission system than 3 Customer B. He is having more energy delivered to him. 4 MR. CURTIS: What I think we were trying to 5 describe earlier is that the -- 6 MS GODBY: Yes, I appreciate that. 7 MR. CURTIS: -- transmission system isn't 8 there. It is the vehicle for delivery of the energy, 9 and it is not built, if you will, with the mind of 10 delivering the energy, it is built with the intent of 11 being able to meet the customer's peak demand. 12 MS GODBY: Are you suggesting to me, then, 13 that if I use -- that a customer that uses the system -- 14 let me just get this straight here. Are you suggesting 15 to me that if I make less use of the system than a 16 person that runs his factory 24 hours a day, seven days 17 a week, that our requirements of the transmission system 18 are the same? 19 MR. PORAY: They are, because you are putting 20 the peak demand on the system. Your peak demand on the 21 system is the same. 22 MS GODBY: But that is not reflective of the 23 use at all. 24 MR. PORAY: It is reflecting on the costs that 25 are incurred in providing the infrastructure. 26 MS GODBY: I appreciate that, but I still have 27 Customer A and Customer B, you know, who are running 28 their factories at different times and they are paying Les Services StenoTran Services Inc. 613-521-0703 298 OHNC PANEL 1, cr-ex (Godby) 1 less -- one is paying less per kilowatt hour for energy 2 than the other which, in effect, amounts to a subsidy. 3 MR. PORAY: No, it doesn't amount to a 4 subsidy. I don't agree with that. 5 --- Pause 6 MS GODBY: Mr. Poray, if we were to go to an 7 energy-based charge determinant, who has the most to 8 lose in this scenario? 9 MR. PORAY: Based on our evaluation, the 10 customers who are most impacted are the large industrial 11 customers. 12 MS GODBY: I take it, then, conversely, the 13 people who have the most to benefit would be the small 14 users? 15 MR. PORAY: Let me just refer to -- our 16 evaluation just looked at the transmission customers. 17 We did not look at the impacts on small users. But what 18 we see from our evaluation is that the municipal or the 19 local distribution companies would benefit. 20 MS GODBY: Actually, I have one question with 21 respect to your definitions regarding the line 22 connections and the non-coincident peak and perhaps you 23 could clarify this for me. 24 Are we talking, when we talk about the 25 non-coincident peak for the connection, is that the sum 26 of the independent peak demands of the customers served 27 of that delivery point or is it the peak demand at that 28 delivery point? Les Services StenoTran Services Inc. 613-521-0703 299 OHNC PANEL 1, cr-ex (Godby) 1 MR. PORAY: It's per customer delivery point, 2 so it is the individual customer's non-coincident 3 demands. 4 MS GODBY: So the sum of the individual 5 customers, the first one? 6 --- Pause 7 MR. ROGERS: Do you understand the question, 8 Mr. Poray? 9 Let's be sure we get an answer that is 10 responsive to the question that was intended. 11 MR. PORAY: I think what you are asking is 12 that for the line connection facilities if you have, 13 say, two customers with two non-coincident demands, then 14 the allocation of costs would be based on those 15 non-coincident demands. 16 --- Pause 17 MS GODBY: I'm sorry, I'm just trying to find 18 the reference to the definition. I'm going to ask you 19 to explain that. 20 --- Pause 21 MS GODBY: Okay. I apologize, but I'm just 22 finding this a bit confusing. 23 If you go to Exhibit D, Tab 4, Schedule 1, 24 page 10. 25 MR. PORAY: Okay. 26 MS GODBY: If we go down to the non-coincident 27 peak demand, and your definition is the peak demand, say 28 at the delivery point for a transmission customer, is Les Services StenoTran Services Inc. 613-521-0703 300 OHNC PANEL 1, cr-ex (Godby) 1 not related to the time or system peak or a time as 2 defined by hours of the clock, that monthly 3 non-coincident peak refers to the peak demand for the 4 delivery point for the customer in the month, 5 irrespective of when it occurs. 6 MR. PORAY: That's correct. 7 MS GODBY: Okay. 8 If we take the example, then, of four 9 customers on the line, what is that according to this 10 definition? 11 MR. PORAY: Well, each customer will have a 12 delivery point. 13 MS GODBY: Yes. 14 MR. PORAY: So it will be the non-coincident 15 peak of each customer. 16 MS GODBY: What if four are served from the 17 same delivery point, Mr. Poray? 18 MR. PORAY: If four customers are served from 19 the same delivery point? 20 MS GODBY: Correct. 21 --- Pause 22 MR. PORAY: It's the non-coincident peak at 23 the delivery point. 24 --- Pause 25 MS GODBY: So I take it from your answer, 26 then, it's the non-coincident peak of this facility? 27 MR. PORAY: Of the facility to supply those 28 four customers. Les Services StenoTran Services Inc. 613-521-0703 301 OHNC PANEL 1, cr-ex (Godby) 1 MS GODBY: Okay. 2 If we can turn to the power district, turn 3 your minds to that for a couple of minutes. 4 If I understand your proposal correctly, what 5 it purports to do is dismantle the power district so to 6 speak, so that large customers over 5 megawatts would be 7 taken out of OHNCD, correct, and become transmission 8 customers? 9 MR. PORAY: First of all, let me clarify the 10 fact that our proposal doesn't intend to dismantle the 11 power district. The dismantling of the power district 12 is as a result of the restructuring of the industry in 13 Ontario. 14 MS GODBY: But your proposal is to take the 15 customers that are over -- the large customers that are 16 over 5 megawatts and make them transmission customers. 17 Correct? 18 MR. PORAY: That is what is in our proposal, 19 yes. 20 MS GODBY: Okay. Any other large customers in 21 any other LDC not owned by Ontario Hydro, are they going 22 to be taken out of their LDCs? 23 MR. CURTIS: In the long term, according to 24 our definition of transmission customer, yes. 25 MS GODBY: But in a short term, no? 26 MR. CURTIS: No. 27 MR. PORAY: Maybe just to clarify, when you 28 talk about other customers in the LDCs, those customers Les Services StenoTran Services Inc. 613-521-0703 302 OHNC PANEL 1, cr-ex (Godby) 1 would have to be connected to the transmission system. 2 MS GODBY: I'm talking about large customers 3 over 5 megawatts that are in LDCs other than OHNC 4 distribution, that no one else is moving. No other 5 large customers in any other LDC has to -- you know, is 6 going to be a transmission customer. Correct? 7 MR. PORAY: Well, there are some customers 8 today that are customers of LDCs that are actually 9 connected to the transmission system. 10 MS GODBY: Yes, I appreciate that. 11 MR. PORAY: Those customers will become 12 transmission customers. 13 MS GODBY: I appreciate that, but my question 14 was that whereas the direct customers of OHNC, the large 15 ones over 5 megawatts, they are automatically going to 16 become transmission customers. That is not the case for 17 large customers within other LDCs. Correct? 18 MR. PORAY: That's correct. 19 MS GODBY: So this means -- I mean, ultimately 20 what this means is that the customers of OHNCD will lose 21 the benefits of diversity that those large customers 22 provide them currently with? 23 MR. PORAY: That's correct. 24 MS GODBY: As we see from your example or your 25 analysis, it's Exhibit D, Tab 4, Schedule 3, page 6. 26 MR. ROGERS: I'm sorry, Ms Godby. What was 27 the reference? 28 MS GODBY: It's Exhibit D, Tab 4, Schedule 3, Les Services StenoTran Services Inc. 613-521-0703 303 OHNC PANEL 1, cr-ex (Godby) 1 page 6, Mr. Rogers. 2 MR. ROGERS: Thank you. 3 --- Pause 4 MS GODBY: So if we look down to 5 Option XVIII -- 6 MR. PORAY: Yes. 7 MS GODBY: -- and we compare that to the base 8 case, which is the power district -- I think my friend 9 actually, Mr. Fisher, went through this this morning -- 10 what we have is a shifting of costs onto OHNCD customers 11 of approximately $18 million. 12 MR. PORAY: That is correct. 13 MS GODBY: Okay. And according to our 14 mathematics, this results in an increase of 15 approximately 11.77 per cent to the customers of OHNCD. 16 MR. PORAY: That is correct. We show 12 per 17 cent on table 5 of Exhibit D, Tab 4, Schedule 3, page 8. 18 MS GODBY: And as stated earlier, I believe, 19 in your evidence, OHNC considered an impact of 5 per 20 cent as the beginning of something significant here. 21 MR. PORAY: That's correct. 22 MS GODBY: That's correct. 23 MR. ROGERS: Also, in fairness to the 24 witnesses, they also said that that was with respect to 25 the overall impact of all the package your proposals put 26 together. 27 MS GODBY: Was there an overall impact 28 assessment done? Les Services StenoTran Services Inc. 613-521-0703 304 OHNC PANEL 1, cr-ex (Godby) 1 MR. CURTIS: I think as you go through each 2 one of the steps that we are going to go through as part 3 of this that you will see the overall impact, the 4 overall rate impact. 5 MS GODBY: Is that compiled somewhere, Mr. 6 Curtis? 7 MR. CURTIS: Not in the evidence, no. 8 MS GODBY: Thank you. I understand that most 9 First Nations are customers of OHNCD. Do you have any 10 knowledge with respect to that? 11 MR. CURTIS: Basically there are two groups of 12 First Nations customers. Those that are directly 13 connected to the electricity system by and large are 14 served through OHNCD. 15 MS GODBY: Thank you. In your evidence 16 yesterday, you had indicated that you had undertaken 17 consultations with the various stakeholder groups. 18 Correct? 19 MR. CURTIS: Yes. 20 MS GODBY: And that you undertook 21 consultations with First Nations. 22 MR. CURTIS: Yes. 23 MS GODBY: And that First Nations are, 24 however, not to -- they are a little bit unique and they 25 are to be treated a little bit differently as a result 26 of the aboriginal relations policy. They have a 27 different type of relationship and that's to be 28 respected. Correct? Les Services StenoTran Services Inc. 613-521-0703 305 OHNC PANEL 1, cr-ex (Godby) 1 MR. CURTIS: Yes, and we did endeavour to do 2 that. 3 MS GODBY: I understand, however, Mr. Curtis, 4 that First Nations were never asked about the definition 5 of a transmission customer, about their views on having 6 $18 million, you know, having to shoulder part of the 7 burden for that. They were never asked about the 8 definition of a transmission customer in the stakeholder 9 process. Is that correct? 10 MR. CURTIS: Not in the way you have 11 characterized it, no, but we did ask them about the 12 definition for a transmission customer. You are 13 referencing Schedule B? 14 MS GODBY: I am referencing Schedule D 15 actually. 16 MR. CURTIS: Okay. 17 MS GODBY: Mr. Curtis, if you go to Exhibit D, 18 Tab 3. 19 MR. CURTIS: Yes, you are right. We did not 20 ask them about their understanding of load transmission. 21 MS GODBY: Thank you. 22 MR. CURTIS: I'm sorry. 23 MS GODBY: Those are my questions. 24 THE PRESIDING MEMBER: Good morning, Mr. 25 Rodger. 26 FURTHER CROSS-EXAMINATION 27 MR. RODGER: Thank you, Dr. Higgin. 28 Just one brief area of clarification, panel. Les Services StenoTran Services Inc. 613-521-0703 306 OHNC PANEL 1, cr-ex (Rodger) 1 Again, it's returning to the issue of aggregation of 2 delivery points. My recollection of your evidence 3 yesterday is that the reason that you gave why you don't 4 support aggregation of delivery points is that some 5 larger transmission customers which have many points 6 would gain an advantage over transmission customers with 7 fewer points and that would be, in your view, unfair. 8 Is that correct? 9 MR. PORAY: That's correct. 10 MR. RODGER: Is the fairness issue the sole 11 reason why you oppose the aggregation of delivery 12 points? 13 MR. CURTIS: I think one of the other aspects 14 was in terms of the actual operation of the transmission 15 system. We didn't want to incent activities that may 16 cause problems on the actual operation of the actual 17 transmission system by customers with multiple delivery 18 points. That would be the other 19 MR. RODGER: And the advantage we are talking 20 about is again the diversity issue as has been 21 characterized as the whole being less than the sum of 22 the parts. 23 MR. PORAY: That's correct. 24 MR. RODGER: Would you agree with me that what 25 the phenomenon of diversity does do is it does recognize 26 the actual amounts of activity on a particular facility? 27 MR. PORAY: In terms of the demand that it 28 places on the facility. Les Services StenoTran Services Inc. 613-521-0703 307 OHNC PANEL 1, cr-ex (Rodger) 1 MR. RODGER: That's correct. 2 MR. PORAY: I think that's correct, yes. 3 MR. RODGER: I guess I'm wondering if fairness 4 was the primary reason why you don't support aggregating 5 of delivery points. Why isn't it appropriate to have 6 aggregation of delivery points as a charge determinant 7 if at the end of the day you really are reflecting the 8 actual use of facility? It just seems to me that that 9 is a fair outcome by ultimately going to the user pay, 10 that you are only actually being charged for the actual 11 activity that you incur. 12 MR. PORAY: Well, I think the main problem we 13 had was that there are some customers that own -- that 14 have a large number of delivery points spread across the 15 province. If you aggregated those, you would be giving 16 them an unfair advantage in fact. It may not 17 necessarily reflect the demands that they are placing on 18 the system as a whole. 19 If you were to consider it on a local basis, 20 that perhaps would reflect it a little bit closer. 21 MR. RODGER: Is the one problematic utility 22 Ontario Hydro, distribution side, since it's the only 23 utility that has this kind of cross the province issue 24 that I think you are referring to. 25 MR. PORAY: It's one of the utilities, but 26 there are others that have a large number of delivery 27 points. 28 MR. RODGER: But is the primary concern of Les Services StenoTran Services Inc. 613-521-0703 308 OHNC PANEL 1, cr-ex (Rodger) 1 the, if you like, extreme diversity kind of 2 inter-regional issues that would arise under the Ontario 3 Hydro distribution system. 4 MR. PORAY: That's certainly a consideration, 5 yes. 6 MR. RODGER: If you took Ontario Hydro 7 distribution out of the scenario, would you have less of 8 a concern on aggregating delivery points? 9 MR. CURTIS: We may have less of a concern, 10 but there are aspects in terms of those other large 11 utilities that remain and where they are served from off 12 the OHNC transmission system. It would certainly lessen 13 the concern. 14 MR. RODGER: Thank you very much. Those are 15 my questions. 16 Thank you, Dr. Higgin. 17 THE PRESIDING MEMBER: Is there anyone else? 18 You're next. 19 FURTHER EXAMINATION 20 MS LEA: Thank you very much. 21 I have one issue, gentlemen, I wanted to ask 22 you about. That is a refinement, if I can call it that, 23 or a change to Option XVI which I think the Board -- 24 THE PRESIDING MEMBER: Sorry, Ms Lea. MEA has 25 some questions. 26 MS LEA: Oh, please go ahead. 27 FURTHER CROSS-EXAMINATION 28 MS FRIEDMAN: Kelly Friedman. Les Services StenoTran Services Inc. 613-521-0703 309 OHNC PANEL 1, cr-ex (Friedman) 1 Although you probably have it memorized, I am 2 going to be looking at, if you want to turn up, your 3 table 4, Exhibit D, Tab 4, Schedule 3, page 6. 4 MR. PORAY: Exhibit D, Tab 4, Schedule 3. 5 MS FRIEDMAN: Yes. That's your table of 6 annual transmission revenue by customer groups with the 7 options. 8 MR. PORAY: Okay. We are there. 9 MS FRIEDMAN: Did OHNC prepare the rate impact 10 analysis using historical load profiles? 11 MR. PORAY: No. The analysis was done in 12 examining the load based on 8,760 hours on each delivery 13 point for the year 2000. 14 MS FRIEDMAN: So it is historical? 15 MR. PORAY: No. It's a forecast. 16 MS FRIEDMAN: It's a forecast, sorry. 17 It doesn't, however, take into account any 18 potential shifts in behaviour due to the incentives to 19 shift load, does it? 20 MR. PORAY: Not that I am aware of. 21 MS FRIEDMAN: Would you agree that we can 22 expect that the actual numbers -- for example, if we are 23 looking at the column of direct, the actual numbers for 24 certain options will be lower if behaviour changes as a 25 result of the incentives? 26 Perhaps I will take you to specific options. 27 For example, if we look at Option IV, based on a monthly 28 coincident peak demand, for those customers who have Les Services StenoTran Services Inc. 613-521-0703 310 OHNC PANEL 1, cr-ex (Friedman) 1 flexible loads and can change the time at which they 2 incur their peak, would you expect that that number 119 3 would in actuality be less than this forecasted number? 4 MR. PORAY: It could vary, yes. 5 MS FRIEDMAN: And that would be the case for 6 Option XVI as well? 7 MR. PORAY: There could be some gaming or some 8 ability by those customers who can predict what those 50 9 hours are ahead of time and alter their behaviour, yes. 10 MS FRIEDMAN: And a possibility also exists 11 with respect to Option XVIII? 12 MR. PORAY: But to a much smaller extent. 13 MS FRIEDMAN: I understand that your 14 recommended Option XVIII is a compromise. Is that 15 correct? 16 MR. PORAY: That is correct. 17 MS FRIEDMAN: And that in fact OHNC's 18 preferred solution is Option II? 19 MR. PORAY: I think that was the case, yes. 20 MS FRIEDMAN: And would you agree that Option 21 XVIII allows more opportunity for gaming than Option II? 22 MR. PORAY: Yes, potentially. 23 MS FRIEDMAN: In the MEA Interrogatory 9.6 the 24 MEA asked you a question about evidence that was in your 25 revenue requirement application. I will just quote the 26 portion of the evidence that I want to ask you about 27 now. 28 "OHNC's evidence in the revenue Les Services StenoTran Services Inc. 613-521-0703 311 OHNC PANEL 1, cr-ex (Friedman) 1 requirement application was that it is of 2 the opinion that an aggregate network is 3 not homogeneous, but rather comprises a 4 number of geographically grouped network 5 facilities, local systems, for most of 6 which the specific requirements are 7 determined by the local area 8 non-coincident peak demand." (As read) 9 Your answer when we asked what that evidence 10 was based on was engineering judgment and experience. 11 Does this remain your view today? 12 MR. PORAY: Yes. I should just maybe clarify 13 that what we mean is the non-coincident peak demand with 14 the system peak, the local area non-coincident peak 15 designed with the system. 16 MS FRIEDMAN: Thank you. 17 Is it your view that fairness requires that 18 customers with similar peak demands should pay similar 19 charges? 20 MR. PORAY: Yes, because they place the same 21 demand or similar demand on the system. 22 MS FRIEDMAN: Under the restructuring the 23 power district concept would not continue as you have 24 explained previously. You would agree that a 25 significant cost shift occurred with the loss of the 26 power district? 27 MR. PORAY: That's correct. 28 MS FRIEDMAN: So under any of the options the Les Services StenoTran Services Inc. 613-521-0703 312 OHNC PANEL 1, cr-ex (Friedman) 1 direct customers are worse off? 2 MR. PORAY: No, the direct customers and 3 OHNC's distribution arm too. 4 MS FRIEDMAN: Would you agree that a problem 5 with fully recognizing diversity, as is done in the 6 power district concept, that it is inequitable to allow 7 a customer which uses, for example, 10 megawatts of 8 capacity to not pay any contribution to sunk costs? 9 MR. PORAY: That's correct, yes. 10 MS FRIEDMAN: And they would do this by 11 avoiding certain hours that they used the system? 12 MR. PORAY: That's correct. 13 MS FRIEDMAN: Do you agree that if we are not 14 at capacity right now for the transmission system then 15 there is no short-term savings for creating spare 16 capacity? 17 MR. PORAY: That's correct. 18 MS FRIEDMAN: In terms of long-term benefits, 19 a long-term benefit to the system would be if system 20 planners can use behaviour to build the system and 21 system planners can only use load shifting behaviour if 22 there is certainty that the customers who can be 23 expected to shift load will shift off at the system 24 peak, that that's the information the system planners 25 would require? 26 MR. CURTIS: Could you restate that again, I 27 am sorry? 28 MS FRIEDMAN: I can. I confused myself, so I Les Services StenoTran Services Inc. 613-521-0703 313 OHNC PANEL 1, cr-ex (Friedman) 1 will rephrase that. 2 Would you agree that load-shifting behaviour 3 is only relevant to system planners if they can be 4 certain that customers will shift off at the system 5 peak? 6 MR. PORAY: Yes, that's correct. 7 MS FRIEDMAN: Would you agree that if you use 8 a coincident charge determinant and as you have stated 9 there is an opportunity for gaming, there would be a 10 requirement for back-up rates to ensure that customers 11 who used the system in fact pay for some of the sunk 12 costs? 13 MR. PORAY: I don't think the term "back-up" 14 would necessarily be the right one because there may not 15 be sufficient revenues that can be recovered through a 16 back-up charge. 17 MS FRIEDMAN: But some charge would have to be 18 imposed to ensure that a customer who is using the 19 system, albeit not at the system peak, pays some portion 20 of sunk costs? 21 MR. PORAY: That's correct. 22 MS FRIEDMAN: Those are all my questions. 23 Thank you. 24 THE PRESIDING MEMBER: Thank you, Ms Friedman. 25 Ms Lea. 26 FURTHER EXAMINATION 27 MS LEA: As I was saying, gentlemen, I wanted 28 to talk about one issue with you and that has to do with Les Services StenoTran Services Inc. 613-521-0703 314 OHNC PANEL 1, ex (Lea) 1 a modification to Option XVI. I gather you developed 2 this option partly in response to the AMPCO proposal. 3 Is that right? 4 MR. CURTIS: This was done during the 5 stakeholdering process and AMPCO brought up the proposal 6 through the stakeholdering in advance of any of the 7 documentation that AMPCO subsequently has submitted. 8 MS LEA: I understand. Thank you. 9 Dol I gather from your evidence in which you 10 discuss this option that you have two concerns about it 11 and one is complexity? 12 MR. PORAY: That's correct. 13 MS LEA: Can you compare the complexity of 14 Option XVI to Option XVIII? 15 MR. PORAY: For Option XVI the complexity is 16 trying to determine what the 50 hours -- 17 MS LEA: When those occur? 18 MR. PORAY: When those occur ahead of the time 19 when you are trying to set the rates. So there is some 20 risk associated in terms of getting it right. 21 MS LEA: So there is an operational complexity 22 involved in Option XVI. 23 MR. PORAY: In terms of operationalizing -- 24 the complexity is really to try and obtain the 25 information that will allow you to set the rates; so in 26 other words, determine what the charge determinants or 27 the actual megawatts that you should be using for the 50 28 hours. You may predict what those 50 hours are based on Les Services StenoTran Services Inc. 613-521-0703 315 OHNC PANEL 1, ex (Lea) 1 say historical patterns, but they may in fact transpire 2 to be a different 50 hours after the fact. 3 MS LEA: So it is a difficulty in predicting a 4 flat rate? 5 MR. PORAY: That's right, yes. 6 MS LEA: What is the complexity involved in 7 Option XVIII? 8 MR. PORAY: The complexity is really in trying 9 to determine the higher of the coincident-peak demand 10 and the 85 per cent of the non-coincident peak demand of 11 the customers. 12 MS LEA: Is that also done on a predicted 13 basis? 14 MR. PORAY: Certainly, for setting the rates 15 that is what we would do, yes, and again, trying to 16 determine what the coincident peak is going to be ahead 17 of time and what the non-coincident peaks are going to 18 be. There is potential for variability. 19 MS LEA: Just hearing what you said it sounds 20 to me like there is more complexity in Option XVIII 21 because you have to make more predictions. 22 MR. PORAY: Well, in terms of predicting the 23 demand you would base the information on historical 24 forecasts and you would go from there. 25 MS LEA: Just as you would base the 26 information for setting Option XVI on historical use by 27 the customer? 28 MR. PORAY: That is correct. Les Services StenoTran Services Inc. 613-521-0703 316 OHNC PANEL 1, ex (Lea) 1 MS LEA: Another concern you had with respect 2 to Option XVI, as I understand it, was a potential for 3 gaming. Am I correct? 4 MR. PORAY: That is correct. 5 MS LEA: If instead of using a 50 hour -- 6 pardon me -- a 50-hour period and of 50 hours during the 7 month you used 100 or 150 hours, would that reduce the 8 potential for gaming in your view? 9 MR. PORAY: That would do that, yes. 10 MS LEA: Do you believe that the use of a 11 greater number of hours would improve Option XVI? 12 MR. PORAY: Yes, I believe so. 13 MS LEA: Would it also assist with the 14 complexity problem or not? 15 MR. PORAY: I think that there is perhaps less 16 a degree of complexity, in the sense that having a 17 larger base to work with the chances of getting it -- 18 MS LEA: Getting it right are better? 19 MR. PORAY: Yes. 20 MS LEA: So it improves both those aspects. 21 Is there any reason then to prefer 22 Option XVIII over a modified Option XVI, in your view? 23 MR. PORAY: We believe that in the interests 24 of trying to meet the diverse interests of the 25 stakeholders that Option XVIII is still the preferred 26 one. 27 MS LEA: Does Ontario Hydro Networks have a 28 view independent of the stakeholders as to which of Les Services StenoTran Services Inc. 613-521-0703 317 OHNC PANEL 1, ex (Lea) 1 those two options might be preferable? 2 MR. ROGERS: If we didn't care about the 3 stakeholders? 4 MS LEA: Yes, if you weren't taking into 5 account the -- you have told us about the great 6 divergence of views among the stakeholders. If you 7 weren't trying to come to a compromise that accommodated 8 all of that, from purely an analytical point of view, do 9 you have a view as to which of these options would be 10 better? 11 MR. PORAY: Neither. 12 MS LEA: Neither. And you would prefer 13 Option II in that circumstance? 14 MR. PORAY: Actually, if we had our 15 preference, we would prefer the non-coincident peak 16 option. 17 MS LEA: Yes, what number -- 18 MR. PORAY: It would be simpler. 19 MS LEA: -- was that? 20 MR. PORAY: It is Option III. 21 MS LEA: One moment. 22 --- Pause 23 MS LEA: Thank you very much for your answers, 24 gentlemen. 25 Thank you, Mr. Chairman. 26 THE PRESIDING MEMBER: So we will recess now 27 for lunch and come back at one o'clock. 28 MS LEA: Sorry, at what time? Les Services StenoTran Services Inc. 613-521-0703 318 OHNC PANEL 1, ex (Lea) 1 THE PRESIDING MEMBER: Two o'clock. 2 MR. BUDD: Mr. Chair, I know it is highly 3 unusual. I am just confused about something that 4 resulted from Ms Lea's last question. 5 I thought at the front end of this I heard 6 something like Option II was your preferred, and after 7 the process and so on you landed on XVIII, and I think I 8 just heard you say in answer to Ms Lea's question III. 9 Can I just ask you to clarify, is it II or III and if 10 so, why? 11 THE PRESIDING MEMBER: It is preferred option, 12 Mr. Poray. 13 MR. PORAY: I assume Ms Lea's question to be 14 purely hypothetical, but we didn't take anybody else's 15 interests into consideration. 16 THE PRESIDING MEMBER: Okay. 17 MR. FISHER: Mr. Chair, could you tell us 18 which issue is next, please? Is it transmission 19 customer or net versus gross? 20 THE PRESIDING MEMBER: No, it is net versus 21 gross. 22 MR. FISHER: It is net versus gross. 23 MS LEA: And that relates to a question I 24 think I asked Mr. Rogers off the record earlier, was: 25 The definition of transmission customer, is that for 26 this panel this time? 27 MR. ROGERS: It is for this panel this time, 28 and if the parties and the Board want that to proceed Les Services StenoTran Services Inc. 613-521-0703 319 OHNC PANEL 1, ex (Lea) 1 net versus gross I have no objection to it. It was my 2 opinion that charge determinants and net versus gross 3 were very closely related. I know that net versus gross 4 is a very important issue for everyone. That is why I 5 recommended this order. 6 It doesn't matter to us, I don't think. If 7 the people are more comfortable dealing with the 8 definition of transmission customer first, I think 9 that's fine. 10 MS LEA: I think the idea was we would do net 11 versus gross and then, as I understand it, we then would 12 proceed to issue no. 5 on the issues list and then panel 13 no. 2 would start with issue 4, and then go to 6. Is 14 that how I understand things now? 15 MR. ROGERS: Yes. 16 THE PRESIDING MEMBER: Yes. Are we are going 17 to carry on then with -- 18 MR. ROGERS: My original recommendation was to 19 go to net versus gross next. 20 THE PRESIDING MEMBER: Right. 21 MR. ROGERS: As I say, I am quite happy to 22 accommodate the consensus, subject to your approval. 23 THE PRESIDING MEMBER: Okay. So we will go 24 with -- Mr. Fagan was telling me -- 25 MS LEA: Does anybody have a problem with 26 doing net versus gross next? What would people prefer? 27 MR. BUDD: Yesterday there was some suggestion 28 made that was really going to be a Friday issue, so if Les Services StenoTran Services Inc. 613-521-0703 320 OHNC PANEL 1, ex (Lea) 1 you think about the three hours that are covered in the 2 hearing time some people may have missed it. 3 MR. ROGERS: It's a good point. We told 4 Mr. Poch yesterday -- 5 MS LEA: Yes, I am going to call Mr. Poch at 6 lunch. Actually, we had arranged -- 7 THE PRESIDING MEMBER: So if he is available 8 and somebody else -- the other person, I think, was -- 9 MS LEA: Mr. Janigan. 10 THE PRESIDING MEMBER: Mr. Janigan and Mr. 11 Warren, I am not sure about. But for sure, if we can -- 12 so let me know if you are ready to go on gross versus 13 net. 14 MS LEA: Mr. Poch, I can contact. No one else 15 has asked me to contact them. 16 MR. ROGERS: Would the Board be content if the 17 parties could reach consensus? Would you be content 18 with that consensus or do you prefer one or the other, 19 in which case we won't bother trying to reach a 20 consensus? 21 MS LEA: I mean, if people feel there is a 22 real problem it is no problem to do transmission 23 customer next. 24 MR. ROGERS: No. 25 --- Pause 26 THE PRESIDING MEMBER: I think we will deal 27 with gross versus net. 28 MS LEA: Okay. Les Services StenoTran Services Inc. 613-521-0703 321 OHNC PANEL 1, ex (Lea) 1 THE PRESIDING MEMBER: Because if we cannot 2 get hold of Mr. Poch, I think then we will reconsider, 3 but let's assume that you are able to reach him and he 4 is going to come, all right? 5 MS LEA: I have a number for him. I will 6 certainly do my best. 7 THE PRESIDING MEMBER: All right, thank you. 8 --- Upon recessing at 1240 9 --- Upon resuming at 1400 10 THE PRESIDING MEMBER: Do we have any news 11 regarding this afternoon's plan? 12 I see Mr. Poch is here. So are we all ready 13 to go? Yes? Very good. 14 Okay. So we are going to, then, move on now 15 to Issue No. 2. 16 Do we have any questions? That is where we 17 are. 18 I'm sorry. My colleague just reminds me you 19 might have some redirect, and we may have questions. 20 MR. ROGERS: Thank you very much, but I do 21 not. 22 MEMBER VLAHOS: Just a couple of various 23 clarifications, gentlemen. 24 In your exchange with Mr. Budd, on the issue 25 of the aggregation of billing, you recall that 26 discussion, I wasn't sure what the policy is proposed to 27 be in terms of contiguous properties. Can you help me 28 with that? Les Services StenoTran Services Inc. 613-521-0703 322 OHNC PANEL 1, ex (Lea) 1 MR. PORAY: I think the basis of our 2 submission is that we charge on the delivery point 3 basis. 4 MEMBER VLAHOS: So, say, a customer, a user as 5 opposed to an MEU, if there are two delivery points in 6 his property, then there is no aggregation permitted? 7 MR. PORAY: No. It is based on each delivery 8 point. 9 MEMBER VLAHOS: Okay. 10 Are you familiar with whether that is sort of 11 a standard accepted policy in other jurisdictions in the 12 electricity as well as gas markets? 13 MR. PORAY: I'm not aware off hand, no. 14 MEMBER VLAHOS: Mr. Greenspoon was asking you 15 about whether your policy or proposals for charge 16 determinants reflected any issues regarding competition. 17 You did provide a response and I believe it was that 18 your mandate did not go as far as that. 19 I'm not sure whether your response reflected 20 competition at the retail level for electricity or 21 competition amongst the users of the energy within the 22 same industry. I just wasn't sure what you responded 23 to. Do you recall? 24 MR. PORAY: The focus would be on the 25 competition in the electricity marketplace at the 26 wholesale level. 27 MEMBER VLAHOS: Okay. So that is what your 28 response was. Thank you. Les Services StenoTran Services Inc. 613-521-0703 323 OHNC PANEL 1, ex (Lea) 1 Ms Godby asked you about -- regarding the 2 energy charge, and I believe the question was who would 3 benefit. I wasn't clear whether this was asking who 4 would benefit from entering the system where an energy 5 charge would figure in your rate design or who would 6 benefit from your proposed rate design. Do you recall 7 that? 8 MR. PORAY: My recollection was that in 9 comparison to what we were proposed, if we were to use 10 an energy-based charge, who would benefit. 11 MEMBER VLAHOS: Right. In your answer I 12 believe you mentioned large customers and MEUs. 13 MR. PORAY: No. The large customers would not 14 benefit. They would be affected. They would be 15 impacted most. But the MEUs or the local distribution 16 companies would benefit. 17 MEMBER VLAHOS: They would benefit how? 18 MR. PORAY: In terms of the shift of the 19 revenues that would be collected under Option XVIII from 20 the local distribution companies. If you were to use an 21 energy-based, there will be a shift of those revenues to 22 larger users. In other words, more would be collected 23 from them than would be from the distribution companies. 24 MEMBER VLAHOS: I understand. But you 25 categorized all MEUs as just one category irrespective 26 of size, and that is what I was trying to get to. 27 MR. PORAY: All the local distribution 28 companies, yes. They would be separate customers, but Les Services StenoTran Services Inc. 613-521-0703 324 OHNC PANEL 1, ex (Lea) 1 they were grouped together as a group of LDCs. 2 MEMBER VLAHOS: Okay. So within that group of 3 LDCs size would matter, wouldn't it? 4 MR. PORAY: There may be winners and losers, 5 yes. 6 MEMBER VLAHOS: Does the load factor figure 7 into who benefits? 8 MR. PORAY: It would indeed. 9 MEMBER VLAHOS: All right. So the reason is 10 really we don't have enough data to conclusively 11 determine as to who precisely will benefit, unless you 12 have all the information about load factor, size -- 13 MR. PORAY: That's right. Yes. 14 MEMBER VLAHOS: In your discussion with Ms Lea 15 on the issue of the relative complexity of one option 16 versus another, you touched on the area of a revenue 17 requirement and the ability to generate or to recover 18 the costs of the transmission utility. I believe I read 19 somewhere in your prefiled evidence about the 20 institution of various accounts. Is that still your 21 proposal? 22 MR. CURTIS: Yes, it is. 23 MEMBER VLAHOS: True-up accounts? 24 MR. CURTIS: Yes, it would be true-up 25 accounts. 26 MEMBER VLAHOS: Your plan of true-up accounts, 27 does this relate only to the cost-of-service regulation 28 or would it be something that would be part of a PBR Les Services StenoTran Services Inc. 613-521-0703 325 OHNC PANEL 1, ex (Lea) 1 regime? 2 MR. CURTIS: I think it would be part of both. 3 If we are talking about using cost of service as the 4 basis for launching a PBR regime, then it would be part 5 of both. It would have to be done on an annual basis, 6 so certainly if a PBR regime was imposed covering a 7 number of years, then it would be an annual true-up 8 event that we would be talking about here. 9 MEMBER VLAHOS: Help me understand. 10 There may have been an inconsistency with the 11 principles of PBR and the institution of a variance 12 account that would keep the company whole. I'm not 13 clear on this. 14 Mr. Rogers, stop me if I'm going beyond -- 15 MR. ROGERS: Well, you are in charge, sir, so 16 I won't stop you. I think it is a good question and I 17 am curious to hear the answer myself. I hope they have 18 one. 19 --- Laughter 20 MEMBER VLAHOS: You see what I am trying to 21 get to is how important is this concern about mitigating 22 the risk of recovering your costs? 23 MR. CURTIS: Yes. Maybe that is a good place 24 to start. 25 Our sense is that if we adopted a plan like 26 Option XVIII the amount of variability that we were 27 talking about would be relatively small in terms of an 28 impact. Some of the other proposals, some of the other Les Services StenoTran Services Inc. 613-521-0703 326 OHNC PANEL 1, ex (Lea) 1 options, would lead to more variability in terms of the 2 collection of revenue and so the impact would be larger. 3 In terms of under a PBR regime, we were 4 contemplating this would be treated somewhat like a 5 Z-factor and that there would be a formula-based review 6 and that it would be passed through in terms of an 7 adjustment to customer rates. 8 MEMBER VLAHOS: Okay. It was the last point 9 that was not clear because maybe, then, you are not 10 talking about PBR, you are talking about a formulistic 11 approach in setting rates going forward as opposed to a 12 performance-based regulation because -- 13 MR. CURTIS: Yes. 14 MEMBER VLAHOS: -- performance-based 15 regulation and true-up, I don't think they go together. 16 MR. CURTIS: No. I think you are quite right. 17 This is more of a formula-based approach to true-up in 18 terms of the revenue that was collected. 19 MEMBER VLAHOS: All right, then. That 20 clarifies it. 21 MEMBER VLAHOS: Lastly, would you agree, based 22 on the discussion today, that it is not a right approach 23 to pick one method or another, it is a judgment call? 24 MR. PORAY: I think to a large extent, yes, it 25 is. 26 MEMBER VLAHOS: If so, there are certain 27 productivities with the other issues, some of them we 28 have discussed already, some we will discuss in the Les Services StenoTran Services Inc. 613-521-0703 327 OHNC PANEL 1, ex (Lea) 1 balance of the hearing, could you just assist us in 2 making those connections as far as you could now and 3 then perhaps as we go through the hearing we can 4 continue to make those connectivities on this issue 5 versus the other issues we talked about since yesterday, 6 i.e. the definition of pools, for example. 7 MR. CURTIS: In terms of our view of this, if 8 we look at the issue that we have just dealt with, the 9 main driver in this has been the requirement to unbundle 10 the power district. This has resulted in rate impacts 11 that affect customers differentially, and I think that 12 was brought out in some of the evidence and it is 13 certainly illustrated in our evidence. 14 We are now going to be entering into looking 15 at net versus gross, and a large element of our own 16 internal process in terms of coming up with our proposal 17 on net versus gross was to try and address some of the 18 rate impacts, implications that occurred as a result of 19 the unbundling of the power district. 20 And, similarly, in terms of defining the 21 pools, there is an implication as far as what happens 22 with customer rates, of different customer group rates, 23 in terms of how one defines the pools. The example of a 24 narrow connection pool versus a broad connection pool, I 25 think, focuses the issue on that. 26 So it is a combination of all of those three 27 that we were looking at in terms of coming up with our 28 proposal to this Board. Les Services StenoTran Services Inc. 613-521-0703 328 OHNC PANEL 1, ex (Lea) 1 Basically what we were aiming at was to make 2 sure that there was as little disruption in terms of the 3 rate that customers would be paying when this regime is 4 imposed versus what they would be paying now as far as 5 their transmission costs. 6 So I think we would have to try to take you 7 through some of these considerations as these other 8 issues are talked about this afternoon and going 9 forward. 10 MEMBER VLAHOS: Yes, thank you. 11 You can appreciate it's not a concern but 12 rather, I guess, lack of full understanding as to -- if 13 can just picture a tree, a flowchart as to "Well, we 14 have proposed this because we have proposed this up 15 here." 16 MR. CURTIS: Yes. 17 MEMBER VLAHOS: Now, "If, Board, you find 18 differently up here, then this does not hold as well. 19 The arguments might be different." 20 That is the kind of thing that hopefully by 21 the end of the hearing we can have a good understanding. 22 Thank you for those answers. 23 Thank you, Mr. Chair. 24 THE PRESIDING MEMBER: Mr. Smith. 25 MEMBER SMITH: I will join the ranks of those 26 making concessions and say this is also my second day of 27 this kind of proceeding. 28 I'm tempted to ask "How do you like it so Les Services StenoTran Services Inc. 613-521-0703 329 OHNC PANEL 1, ex (Lea) 1 far", but I won't. 2 I'm having trouble with the difference between 3 diversity and gaming and maybe you could fill me in. It 4 strikes me that in simple terms both have to do with 5 reducing peak load. 6 "Diversity", a smoothing of the load over a 7 series of peaks during the day or month. 8 "Gaming", an attempt to avoid a peak to 9 influence the bill. 10 But one being something you like and one being 11 something you don't like but, to my mind -- which is 12 being tutored rather rapidly -- both have the same 13 effect. 14 What is the matter with gaming? 15 MR. PORAY: It depends on which side of the 16 debate you are on. 17 I think your categorization is quite correct. 18 In terms of diversity, really it recognizes the fact 19 that not everybody's peak demand occurs at the same 20 time. 21 In the past there were allowances made to try 22 to capture that and to allow for that to be reflected in 23 the rates. 24 In terms of the proposal that we are putting 25 forward, based on the discussions that we have had with 26 our stakeholders and the fact that there are some 27 customers who are able to adjust demand on the system 28 and therefore move it from one part -- if it's the Les Services StenoTran Services Inc. 613-521-0703 330 OHNC PANEL 1, ex (Lea) 1 high-priced part or the peak part to an off-peak part, 2 but there are those customers who can't do that, who 3 have very little control on their demand and therefore 4 gaming, by those customers who are able to do that, 5 means that somebody else is bearing the cost at their 6 expense. 7 MEMBER SMITH: In the long run you were saying 8 if you could only look to the future rather than the 9 past you would like -- I took it you would like to see a 10 system that minimizes the amount of infrastructure that 11 would be required, and that is a direct function of 12 peak. So isn't it a good thing to get away from the 13 peak, even if you are trying to play a game, as it were. 14 MR. PORAY: Well, I think if in the long term 15 the move is away from uniform pricing towards more 16 specific pricing, then that would be taken care of 17 automatically. Because what we are dealing with on 18 uniform pricing is having to balance these 19 considerations. 20 MR. ROGERS: I would just interrupt you, sir, 21 if I could. 22 By "more detailed pricing" do you mean time of 23 use pricing on the transmission system? 24 MR. PORAY: No, what I am is actually going to 25 specific pricing by location. 26 THE PRESIDING MEMBER: Just before we leave 27 this I would just like you to capture in a nutshell what 28 the differences are between Option XVI and Option XVIII. Les Services StenoTran Services Inc. 613-521-0703 331 OHNC PANEL 1, ex (Lea) 1 If we could look at those just briefly in Exhibit D, 2 Tab 4, Schedule 4. 3 Do you have that in front of you, or do you 4 need it? 5 I just want you to highlight to us what the 6 fundamental differences are from your perspective 7 between those two, okay. 8 You first of all started earlier by saying 9 that you actually preferred Option No. II I think. 10 MR. PORAY: That is correct. 11 THE PRESIDING MEMBER: So can we just start 12 with that and perhaps you would tell us -- I know it's 13 not the company's position, it's a personal position -- 14 why you would prefer Option No. II. 15 MS LEA: Or is it III? 16 MR. ROGERS: It was I to begin with and then 17 he was asked quite a different question about what his 18 own personal selfish view was, the hang with all our 19 customers. 20 MS LEA: Yes, but that was III. 21 MR. CURTIS: Yes. 22 THE PRESIDING MEMBER: Okay. 23 MR. PORAY: I think our preferred option in 24 terms of No. II, which is that we would look at the 25 monthly peak demand during the peak period, was to try 26 to capture essentially the peak of the customers during 27 that period. 28 THE PRESIDING MEMBER: Why would that be Les Services StenoTran Services Inc. 613-521-0703 332 OHNC PANEL 1, ex (Lea) 1 particularly factive to you? Is it revenue certainty? 2 What are the factors that would say? 3 MR. PORAY: I think from our perspective is 4 that it would capture most of the demand placed on the 5 system by those customers who use the transmission 6 system. 7 THE PRESIDING MEMBER: Okay. So that would be 8 monthly peak during the peak period defined as from 7:00 9 until -- 10 MR. PORAY: Seven until seven, yes. That's 11 correct. 12 THE PRESIDING MEMBER: Okay. 13 Now, it goes on with one that you have thought 14 and if we look at the kind of shifts from the base case 15 then they are different but not directionally similar to 16 the other two. 17 MR. PORAY: Yes. 18 THE PRESIDING MEMBER: All right. So then can 19 we just go and have your view as to why you believe -- 20 as the company now -- that Option XVIII is the preferred 21 one relative to, now, just looking at two options, 22 Option XVI. 23 MR. PORAY: Okay. We arrived at Option XVIII 24 fairly close to the end of our stakeholding process, 25 having listened to our stakeholders, and tried to come 26 up with a balanced position between those stakeholders 27 who view that the non-coincident peak demand is the more 28 appropriate billing determinant with those who view that Les Services StenoTran Services Inc. 613-521-0703 333 OHNC PANEL 1, ex (Lea) 1 the coincident peak demand is the more appropriate. 2 We felt that by adopting the approach where we 3 chose the higher of would allow us to come somewhere 4 between those two and also mitigate this potential for 5 gaming as we discussed with Mr. Smith. That would then 6 ensure that we were minimizing the shifting in charges 7 between the different customers. 8 THE PRESIDING MEMBER: Why would you feel that 9 that was a preferable option to No. XVI, specifically 10 No. XVI? 11 MR. PORAY: I think it is mainly preferable 12 because we were trying to, as I say, accommodate the 13 opposing requirements of our customers in a more 14 accommodating manner. 15 THE PRESIDING MEMBER: All right. 16 If you look at the differences between XVI and 17 XVIII with respect to the revenue requirement and how it 18 is going to be collected, they aren't very large 19 differences relative to the base case, of course, which 20 was quite a bit difference to either of those. But 21 between XVI and XVIII, there isn't a huge difference. 22 Can you just tell me if there are some big 23 differences or the significances of the differences? 24 MR. PORAY: I think what is basically 25 happening is that the choice of the 50 hours, the 26 50 highest or the peak demand in the 50 hours is 27 somewhat similar to the effect of combining the higher 28 of the -- I'm sorry the coincident peak with 85 per cent Les Services StenoTran Services Inc. 613-521-0703 334 OHNC PANEL 1, ex (Lea) 1 of the non-coincident peak. 2 THE PRESIDING MEMBER: The two could be viewed 3 as somewhat similar in that regard. 4 Are there any other similarities or 5 differences that you would like to highlight between the 6 two? 7 MR. PORAY: Yes. I think in the 50 hours 8 there is still this possibility of gaining. 9 THE PRESIDING MEMBER: Yes. That's a big 10 factor for you. 11 MR. PORAY: Yes. 12 THE PRESIDING MEMBER: Is that, in your view, 13 also a strike at the issue of revenue certainty? 14 MR. PORAY: That's a factor too. 15 THE PRESIDING MEMBER: It's not only fairness 16 which you might think about gaining, but also revenue 17 certainty is lower with XVI because of gaming. 18 MR. PORAY: Potentially, that's right. 19 THE PRESIDING MEMBER: Okay. Thank you very 20 much. That's helpful. 21 Thank you. 22 Mr. Rogers, do you have any redirect now? 23 RE-EXAMINATION 24 MR. ROGERS: Just a follow-up, if I could, Dr. 25 Higgin, on your series of questions which really 26 answered the question I was formulating in my own mind 27 when I listened Mr. Vlahos too. 28 In view of your answers and in view of what we Les Services StenoTran Services Inc. 613-521-0703 335 OHNC PANEL 1, re-ex (Rogers) 1 see on this table, that there is relatively little 2 impact between XVI and XVIII unless the gaming threat 3 comes, and I understand you have just explained that's 4 important to you, are there some other repercussions 5 that we are not aware of that might affect some other 6 determinant to justify all the attention that this 7 received this morning? Why is it so important to 8 everybody if it only shifts a couple of million dollars? 9 Are you aware of any other reasons that might account 10 for other than what we have discussed? 11 MR. PORAY: No, I'm not aware. 12 MR. ROGERS: Thank you. 13 THE PRESIDING MEMBER: Thank you. 14 Let's now finish the cross-examinations on the 15 charge determinant issue and we will move on now to 16 gross versus net billing. Did you want to make any 17 opening statement or just rely on in your in-chief? 18 MR. ROGERS: Yes, sir. I will rely on what we 19 said yesterday. Thank you. 20 THE PRESIDING MEMBER: All right. Thank you. 21 So then who would like to lead? Mr. Fisher 22 would. Okay. Number three. 23 FURTHER CROSS-EXAMINATION 24 MR. FISHER: I'm just getting my things 25 organized. 26 Thank you, Mr. Chair. 27 Good afternoon. There are a few statements in 28 the IPPSO evidence that I would like OHNC to confirm as Les Services StenoTran Services Inc. 613-521-0703 336 OHNC PANEL 1, cr-ex (Fisher) 1 factually correct. 2 Would you please turn to page 19. There are 3 five bullets that appear on pages 19 and 20. If you 4 could please read these five bullets. If there's 5 anything in these five bullets that you consider as 6 factually incorrect, please let us know what they are. 7 Take your time, please. 8 --- Pause 9 THE PRESIDING MEMBER: I do think that it's a 10 bit broad, Mr. Fisher, to ask these witnesses if they 11 agree with everything in those bullets. 12 MR. FISHER: I'm just asking them, sir, if 13 there is anything in there that is incorrect. 14 THE PRESIDING MEMBER: Okay. 15 MR. ROGERS: The problem is they were in grade 16 school when this started. I don't know how they can -- 17 it goes back to 1950. We will try to be helpful. 18 THE PRESIDING MEMBER: Yes. They can say "to 19 our knowledge". 20 --- Pause 21 MR. FISHER: Okay. 22 MR. CURTIS: We have had an opportunity to 23 read them all over. I think the point of disagreement 24 that we have with the way that it has been characterized 25 is the conclusions that are drawn that -- I just think 26 that facilities were built on a net load basis. 27 The problem with this is that we are dealing 28 historically with Ontario Hydro and the negotiations Les Services StenoTran Services Inc. 613-521-0703 337 OHNC PANEL 1, cr-ex (Fisher) 1 that went on, went on on a bundled basis, so energy and 2 wire services were bundled together. 3 It is true that there were these contractual 4 arrangements that ended up with a price at the end. 5 That would be lower, if you will, than what other 6 customers would be paying. I think it's impossible to 7 say whether or not contained within that is the 8 assumption that the transmission services were billed on 9 a net load basis. That's our point I think of 10 disagreement. 11 --- Pause 12 MR. FISHER: The definition in footnote 35 13 helps. Would that clear up any difficulty, the 14 definition for net load value means. 15 MR. CURTIS: That helps and we would agree 16 with it in that context, but the problem will be in 17 terms of trying to carry it forward into what we are 18 going to be talking about in terms of the application 19 because then that definition will conflict with what we 20 are going to talk about, and that is just strictly 21 transmission rates and whether they should be billed on 22 a net basis or on a gross basis. 23 MR. FISHER: We are just talking about this 24 historical review. Given the way net load billing is 25 described in footnote 35, do you accept what it says in 26 those five bullets? 27 MR. CURTIS: As long as that's not construed 28 as accepting the definition then that we had net load Les Services StenoTran Services Inc. 613-521-0703 338 OHNC PANEL 1, cr-ex (Fisher) 1 billing of transmission services in the past, so we 2 should continue that on into the future. 3 MR. FISHER: Is it not the case that rates now 4 and in the past are on a net bundled -- 5 MR. CURTIS: On a bundled basis they are, yes. 6 MR. FISHER: The whole bundled rates are on a 7 net basis. 8 MR. PORAY: Perhaps I can clarify. What would 9 have happened is that in determining the rates, we would 10 have netted out the generation that was installed by 11 these customers and then that cost would be spread 12 amongst the remaining demand. 13 MR. FISHER: But the demand that was billed 14 was on a net demand though, was it not? 15 MR. PORAY: The demand that was billed would 16 have been billed on the basis of netting out that 17 generation. 18 MR. CURTIS: The energy component. 19 MR. PORAY: The energy component. 20 MR. FISHER: But each customer's bill would be 21 on that net demand. 22 MR. CURTIS: On the energy component. 23 MR. PORAY: I think just to clarify. The 24 transmission was not charged on a separate basis. It 25 was part of the bundled bill. 26 MR. FISHER: Right. That's understood. If 27 the whole bundle is on a net basis and the transmission 28 is part of the bundle, then isn't the transmission on a Les Services StenoTran Services Inc. 613-521-0703 339 OHNC PANEL 1, cr-ex (Fisher) 1 net basis as well? 2 MR. CURTIS: Well, I think as Mr. Poray 3 described, it's the energy component of it in terms of 4 the generation that's installed here that gets netted 5 out against what is left and that is what is billed. I 6 think we are talking about a different treatment in 7 terms of what we are going to be talking about in terms 8 of the net versus the gross load billing transmission 9 services. 10 MR. FISHER: Okay. I would like to move on 11 then. Could I take you to pages 24 and 25 of the AMPCO 12 evidence, please. 13 MR. PORAY: Yes, we are there. Sorry. I am 14 enjoying the view. 15 MR. FISHER: The OHNC proposal has different 16 scenarios in which net load and gross load apply -- 17 billing apply. Based on the proposal and OHNC answers 18 to several interrogatories that we received, would you 19 please confirm that the following points and the bullets 20 are correct. 21 The first bullet, if a plant was installed or 22 plans were approved by October 30, 1998 then the 23 facility receives net load billing? 24 MR. CURTIS: That is correct. 25 MR. FISHER: The second bullet then. If a 26 customer signed a co-generation deferral agreement with 27 Ontario Hydro that deferred construction of the 28 co-generation plant until after October 30, 1998, then Les Services StenoTran Services Inc. 613-521-0703 340 OHNC PANEL 1, cr-ex (Fisher) 1 if the customer builds the plant it will be gross load 2 billed if it does not fall within the Income Tax Act of 3 Canada criteria? 4 MR. CURTIS: That's correct. 5 MR. FISHER: For the third one, a customer who 6 installs a co-gen plant at the same time as the 7 corresponding load is increased will be net load billed 8 on the network charges. Is that correct? 9 MR. CURTIS: That's correct. 10 MR. FISHER: The fourth one, a customer who 11 owns a hydro-electric facility and replaces its turbine 12 runners will have a higher capacity from that station 13 because the new runners are more efficient and, as a 14 result, will be net load billed on the original capacity 15 and partial gross load billed on the additional 16 capacity. Is that correct? 17 MR. CURTIS: That's correct, yes. 18 MR. FISHER: We have some further questions as 19 to how that could be applied in the case of a 20 hydro-electric station. Consider a station with three 21 20 megawatt units, so that's with a total capacity of 60 22 megawatts. The customer decides to upgrade one unit 23 with new turbine runners to 25 megawatts, so the total 24 capacity is increased to 65 megawatts. Due to water 25 availability the entire plant on average only generates 26 40 megawatts. 27 Is it the case that in this hypothetical the 28 OHNC proposal would result in partial gross load billing Les Services StenoTran Services Inc. 613-521-0703 341 OHNC PANEL 1, cr-ex (Fisher) 1 for this facility? 2 MR. CURTIS: On the additional five megawatts, 3 in that one unit that you installed more efficient 4 runners, yes. 5 MR. FISHER: Will metering for the gross load 6 billing be installed on that particular generating unit 7 with the increased capacity or on the station as a 8 whole? 9 MR. CURTIS: On each unit. 10 MR. FISHER: So for the portion then that will 11 be -- what will be considered the existing capacity for 12 determining the portion that will be net load billed? 13 MR. CURTIS: That would be the 20 megawatts on 14 that one unit that was upgraded. 15 MR. FISHER: Okay. 16 Suppose the hydrological regime of the river 17 changed, resulting in an above-average flow in the river 18 for a few seasons. Given that there is considerable 19 freedom to move energy production between hydro electric 20 generating units, how would the 40 megawatts be 21 allocated to the operated unit compared to the others? 22 Sorry, I will retract that. So, the units 23 each have their individual meters and doesn't this 24 proposal give the station owner the perverse incentive 25 to use more available water in the old inefficient units 26 to avoid gross-load billing on the production from the 27 efficient units? 28 MR. CURTIS: You are talking about having Les Services StenoTran Services Inc. 613-521-0703 342 OHNC PANEL 1, cr-ex (Fisher) 1 water availability in a number of years that I thought 2 exceeded the demand. So, in that instance the owner 3 would be using all three units to their maximum 4 capability. 5 MR. FISHER: Even under normal water 6 conditions. 7 MR. CURTIS: Under normal water conditions, 8 again I think what you are saying is the owner could 9 produce 65 megawatts and there wouldn't be any shifting 10 amongst the units. 11 MR. FISHER: So we have the ability here for 12 each unit to run at 20 and the new one at 25, but if we 13 are going to be gross-load billed on that extra five, 14 wouldn't the owner be incented not to use that extra 15 five? 16 MR. CURTIS: I think the example that maybe 17 you were trying to get to is if they only had say 64 18 megawatts capability to allocate among the units, and 19 under that circumstance whether or not you would make 20 use of the full 25 megawatts of that extra unit and the 21 loading I think naturally would be to load the two 20 22 megawatt units and then load the third unit up to get to 23 say 65 megawatts. 24 MR. FISHER: I would like to ask Mr. Snelson 25 to continue on this part, please. 26 CROSS-EXAMINATION 27 MR. SNELSON: Let's consider average water 28 conditions, there is 40 megawatts. The new unit is more Les Services StenoTran Services Inc. 613-521-0703 343 OHNC PANEL 1, cr-ex (Snelson) 1 efficient than the old unit. I can generate that 40 2 megawatts by running the new unit at 25 megawatts, one 3 of the old units at 15 megawatts and I have the benefit 4 of the efficiency of the new unit, but in that case I 5 will be gross load billed on the extra five megawatts. 6 MR. CURTIS: Yes. 7 MR. SNELSON: I have another option, which is 8 to run the new unit at 20 megawatts, one of the other 9 units at 20 megawatts and I am making less use of my 10 efficient unit and I have the incentive to do that 11 because the last five megawatts on the new unit is going 12 to be gross-load billed. 13 MR. CURTIS: That's right. 14 MR. SNELSON: And that seems like a perverse 15 incentive to use the less efficient units rather than 16 the more efficient units. 17 MR. CURTIS: I guess, however, if you go back 18 to the original investment decision that that owner 19 made, his expectation was that he would be able to 20 generate 65 megawatts, and you are talking about a 21 situation, certainly not in the owner's original plans 22 that would transpire. I think that's what we are 23 getting at, as long as the system is operated as planned 24 there aren't any perverse signals in terms of how those 25 resources would be used. 26 MR. SNELSON: Let's go back to some of the 27 basics on this then. Isn't it true that water 28 conditions in a river often vary substantially within a Les Services StenoTran Services Inc. 613-521-0703 344 OHNC PANEL 1, cr-ex (Snelson) 1 year? 2 MR. CURTIS: Some of the river ones, yes. 3 MR. SNELSON: Even though it has some storage, 4 it has more water in the spring than in the summer or 5 winter? 6 MR. CURTIS: Definitely, yes. 7 MR. SNELSON: And isn't it normal for a 8 hydraulic generating plant to be built to a capacity 9 that is somewhere between the maximum flow in the river 10 and the average flow in the river? 11 MR. CURTIS: Yes. 12 MR. SNELSON: So isn't it quite normal for a 13 plant to be built for 60 megawatts to have an average 14 flow of 40? I mean the ratio may not be right, but the 15 average flow is often less than the capacity of the 16 plant? 17 MR. CURTIS: I think it is going to depend in 18 terms -- to build a hydro-electric plant requires a 19 considerable capital investment and the owner, if he is 20 going to make maximum return has to make that trade-off 21 in terms of what he wants to aim at. 22 MR. SNELSON: Yes. 23 MR. CURTIS: I think what you are getting 24 at -- I guess what I would like to say is that on 25 average there won't be any perverse behaviour on the 26 part of the customer because what happens is that during 27 some years he is going to have a greater flow on the 28 river and so he is probably exceeding what the capacity Les Services StenoTran Services Inc. 613-521-0703 345 OHNC PANEL 1, cr-ex (Snelson) 1 of his plant is in terms of being able to generate, and 2 so he will be using all of that capability. 3 On average, he should use that because that's 4 how he did his calculation and there may be some periods 5 where, as you were describing, there were low-water 6 conditions where in fact he would be allocating it in 7 the way you described earlier. 8 MR. SNELSON: So under some conditions he 9 would have this incentive? 10 MR. CURTIS: Some limited conditions, yes. 11 MR. SNELSON: Thank you. 12 Turning to the fifth bullet and that is -- 13 --- Pause 14 FURTHER CROSS-EXAMINATION 15 MR. FISHER: Sorry about the delay. The fifth 16 bullet on page 24 that if a customer that owns a 17 generator that was shut down and returns it to service 18 before October 30, 2003 will be subject to net load 19 billing, but if the facility comes in to service 20 November 1, 2003, the next day, it would be subject to 21 gross load billing. Is that true? 22 MR. CURTIS: I guess just to clarify, you have 23 put some dates in that aren't in the example that I 24 have. 25 I think what you are getting at is we have 26 said that if an existing facility that had net load 27 billing as its basis was shut down for a period of time 28 and not returned before -- until after five years -- Les Services StenoTran Services Inc. 613-521-0703 346 OHNC PANEL 1, cr-ex (Fisher) 1 then it would be gross load billed and it would be 2 treated as if it were a brand new unit. That is 3 correct. 4 I wasn't exactly sure when you put those dates 5 in there, but I think that's what you are getting at -- 6 MR. FISHER: Yes, I was just adding five years 7 to my -- 8 MR. CURTIS: Five year demarcation. 9 MR. FISHER: -- 1988. 10 MR. CURTIS: Yes. 11 MR. FISHER: Okay. Thank you. 12 So given the variety of outcomes that result 13 from the type of generation facility, the impact of the 14 dates of its service and return to service are all 15 customers receiving the same level of transmission 16 service treated the same way if the OHNC proposal is 17 accepted by the Board? 18 MR. CURTIS: Again, the focus of this five 19 years was on the transmission customers and the burden 20 that they would have to bear. The basis of the five 21 years is that is about the length of time that is 22 required to put in new transmission facilities or 23 additional transmission facilities. 24 So the situation that we are describing here 25 is that we have taken a unit out of service that had 26 been supplying either a local load or had been supplying 27 onto the system. The assumption would be that if this 28 was going to stay out forever, if you will, or for a Les Services StenoTran Services Inc. 613-521-0703 347 OHNC PANEL 1, cr-ex (Fisher) 1 very long period of time, then some adjustment would 2 have to be made to the transmission system to provide 3 services to the other transmission customers. 4 So the five years was aimed at respecting the 5 transmission customer requirement. 6 MR. FISHER: I would like to discuss a 7 hypothetical situation in the AMPCO evidence to 8 illustrate a point and determine if AMPCO has correctly 9 interpreted the OHNC proposal. Could you turn to page 10 25? It starts at the second paragraph where it 11 considered two companies. 12 MR. CURTIS: Yes. 13 MR. FISHER: So there is a scenario set out 14 for two companies each taking 100 megawatts of load, 15 both have two production lines using 50 megawatts of 16 load and the same number of employees per production 17 line. Both companies are in financial difficulty. If 18 Company A shuts down one line and reduces its load to 50 19 megawatts they will be charged for 50 megawatts of 20 transmission service. Is that correct? 21 MR. CURTIS: Yes. 22 MR. FISHER: If Company B decides to reinvest 23 to maintain jobs and improve its competitive position by 24 reclaiming waste streams and adds 50 megawatts of 25 embedded generation, it will have similarly reduced its 26 load but will be billed at 50 per cent gross load if the 27 generating facility meets the Class 43.1 criteria, and 28 therefore it billed for 75 megawatts of transmission Les Services StenoTran Services Inc. 613-521-0703 348 OHNC PANEL 1, cr-ex (Fisher) 1 services or 100 megawatts if it doesn't meet the Class 2 43.1 criteria. Is that correct? 3 MR. CURTIS: Yes, that's correct. But I guess 4 the problem that we were having with -- you started off 5 with the assumption that both companies were in 6 financial problems and I guess what we were finding 7 difficult to understand is where did Company B find the 8 money to invest in a new generator if it was having 9 financial problems? 10 I think what you were aiming at was to try and 11 point out the fact that if a company chooses to install 12 embedded generation that it is treated differently than 13 a company that either through economic conditions has to 14 reduce its requirement from the transmission company or 15 uses other means such as demand-side management, that 16 they are treated differently. We acknowledge that they 17 are treated differently. But they are treated 18 differently because of the business implications that we 19 are talking about. 20 In the instance where a firm decides they are 21 going to install embedded generation there is an element 22 there of trying to avoid transmission charges and 23 transmission charges would be shifted to other 24 customers. Whereas, if you are talking about a 25 situation where a business runs into problems, there 26 isn't any overt desire, if you will, on the part of that 27 company to avoid transmission charges and have those 28 transmission charges shifted to the other customers. Les Services StenoTran Services Inc. 613-521-0703 349 OHNC PANEL 1, cr-ex (Fisher) 1 MR. FISHER: Well, maybe the plant manager in 2 Company B convinced the parent to advance them the funds 3 for the whole generation facility. Would you agree that 4 the gross load billing penalizes Company B that is 5 prepared to reinvest in Ontario compared to the 6 treatment of Company A that reduces its operations in 7 Ontario? 8 MR. CURTIS: You are talking again about two 9 different situations. I think that -- 10 MR. FISHER: But as far as transmission 11 service it is the same, is it not, the same situation 12 for both? 13 MR. CURTIS: Well, no, it isn't. That is 14 another problem, I think, with the proposal here, is 15 that when Company A shuts down it is 50 megawatts. I 16 think the assumption here is it is going to be shut down 17 for a considerable period of time, if not forever. That 18 truly does reduce the demands on the transmission 19 system. 20 Company B, on the other hand, puts in a 21 generator, and we all know that generators don't run 22 continuously and at times they are going to be out of 23 service. During those periods of time you are going to 24 be back taking again the full 100 megawatt requirement 25 off the transmission system. 26 So they are different situations that we are 27 talking about here. 28 MR. FISHER: Okay. Les Services StenoTran Services Inc. 613-521-0703 350 OHNC PANEL 1, cr-ex (Fisher) 1 Can you confirm that when an embedded 2 generator or any other generator is added to the system 3 that can affect the planning of the transmission system? 4 MR. CURTIS: Yes, that's true. 5 MR. FISHER: I am interested in the timing of 6 when these plans might be adjusted. Could you confirm 7 that OHNC will know about the generating station at 8 least by the time the plant is committed for 9 construction? 10 MR. CURTIS: I would agree with that, yes. 11 They would have to do that in order to ensure that the 12 connection facilities would be going forward, yes. 13 MR. FISHER: So am I correct in saying that 14 this is going to be a considerable time before in 15 servicing, two years or so? 16 MR. CURTIS: Yes, we have seen some go in 17 service a lot faster than that, but two years maybe. 18 MR. FISHER: On average? 19 MR. CURTIS: Yes, okay. 20 There is quite a variation around that. I 21 just wanted -- it can be as early as say six months and 22 it can be as late as five years or ten years. 23 MR. FISHER: Am I correct to assume that OHNC 24 will start to adjust its transmission planning as soon 25 as it knows about the new generation? 26 MR. CURTIS: Yes. 27 MR. FISHER: I would just like -- 28 MR. CURTIS: I just wanted to make sure though Les Services StenoTran Services Inc. 613-521-0703 351 OHNC PANEL 1, cr-ex (Fisher) 1 that we talking about this still on a planning basis 2 until this unit actually goes in service. 3 MR. FISHER: Yes. 4 MR. ROGERS: Did you want to add something, 5 Mr. Poray? 6 MR. PORAY: I just wanted to add the fact that 7 in going forward with Ontario Hydro Networks Company is 8 not the only entity that is going to be involved in the 9 planning process. 10 MR. FISHER: Understood. 11 And the other one, of course, is the IMO, and 12 that leads to my next area. I would like to echo this 13 concern that the transmission tariff should be 14 consistent with the IMO operation of the energy market. 15 MR. CURTIS: We feel it is important that the 16 definitions be consistent and that the transmission 17 tariff can be calculated and billed using the metering 18 data that the IMO will collect for energy market 19 purposes. 20 With this in mind, AMPCO asked in 21 Interrogatory E-2, Schedule 45 -- 22 --- Pause 23 MR. FISHER: Are you there? 24 MR. CURTIS: Yes. 25 MR. PORAY: Yes, we are. 26 MR. FISHER: Thank you. 27 This interrogatory asked in part (b), whether 28 the placement of the meters for energy market purposes Les Services StenoTran Services Inc. 613-521-0703 352 OHNC PANEL 1, cr-ex (Fisher) 1 would be the same as for transmission tariff purposes. 2 The answer you gave was, yes, the meters will be the 3 same for energy transmission pricing purposes. 4 MR. PORAY: That's correct. 5 MR. FISHER: AMPCO also asked in Interrogatory 6 E-2-43 and -- do you have that? 7 MR. CURTIS: Yes. 8 MR. FISHER: This outlined the case where the 9 IMO does not require an embedded generator to have a 10 meter for energy market purposes. In this case you 11 indicated that a meter will be required by OHNC. 12 --- Pause 13 MR. PORAY: That's correct. 14 MR. FISHER: Could you please confirm for the 15 Board that with full or partial gross load billing 16 additional metering will need to be installed that will 17 not be required for the IMO for energy market purposes? 18 MR. PORAY: I think the metering that will be 19 required by the IMO will be for any generator that wants 20 to participate in the marketplace irrespective of what 21 the building or the charge determinant will be for a 22 network. 23 MR. FISHER: Okay. 24 If I could take you to the Interrogatory 43, 25 that is E-2-43, section 4.0 deals -- in Exhibit D, 26 Tab 13, Schedule 1, pages 2 and 3, section 4.0 deals 27 with -- do you want to turn that up? 28 MR. PORAY: Yes. Les Services StenoTran Services Inc. 613-521-0703 353 OHNC PANEL 1, cr-ex (Fisher) 1 MR. CURTIS: Yes. 2 MR. PORAY: So this is Exhibit D, Tab 13? 3 MR. FISHER: Tab 13. 4 MR. PORAY: Schedule 1? 5 MR. FISHER: Schedule 1. 6 MR. PORAY: Yes. 7 MR. CURTIS: Which page? 8 MR. PORAY: Which page? 9 MR. FISHER: Pages 2 and 3. 10 We are talking about consistency of market 11 rules. It is our understanding that an industrial 12 company with some embedded generation does not need to 13 register as a generator with the IMO under the market 14 rules if the company will never deliver net power into 15 the IMO-controlled grid. In this case, the IMO will 16 bill for energy on the net delivery from the 17 IMO-controlled grid and the IMO will not require a meter 18 to be installed on the output of the generator. 19 If this is a new embedded generator will 20 OHNC require a meter to be installed on 21 the generation and be read by the IMO 22 solely for the purpose of billing the 23 transmission rate on a gross load basis?" 24 The answer was yes. 25 MR. CURTIS: Was that a question? 26 MR. FISHER: So getting back to my first 27 question in this regard, can you confirm for the Board 28 that with a full or a partial gross load billing Les Services StenoTran Services Inc. 613-521-0703 354 OHNC PANEL 1, cr-ex (Fisher) 1 additional metering will need to be installed that will 2 not be required by the IMO for energy market purposes? 3 MR. PORAY: Yes. 4 MR. FISHER: In addition, can you confirm that 5 with full or partial gross load billing, the IMO will 6 have to collect and record data from the additional 7 metering solely for the purpose of calculating 8 transmission bills? 9 MR. PORAY: That's correct. 10 MR. FISHER: Thank you, Mr. Chair. Those are 11 my questions. 12 THE PRESIDING MEMBER: Thank you, Mr. Fisher. 13 Mr. Brown, are you going to follow next? 14 MR. BROWN: That's right, Mr. Chair. 15 FURTHER CROSS-EXAMINATION 16 MR. BROWN: Gentlemen, perhaps I will let you 17 know where I am going to go. 18 First, I want to deal with the issue of net 19 load billing in the context of network services. Then I 20 am going to deal with it in the context of 21 transformation and connection. In my third area, I want 22 to deal briefly with the area of exemptions, this issue 23 of your proposal to exempt generators under less than 24 1 megawatt. 25 So those are the three parts of the 26 cross-examination. 27 Perhaps starting off part one, dealing with 28 net load billing for network services, let me just step Les Services StenoTran Services Inc. 613-521-0703 355 OHNC, cr-ex (Brown) 1 back and put the matter in a slightly larger context. 2 What we are talking about here is, in part, 3 how you calculate the bill that is going to be sent out 4 to a load which takes part of its energy off of the 5 transmission service and part of its energy from an 6 embedded generator. 7 MR. CURTIS: Yes. 8 MR. PORAY: Correct. 9 MR. BROWN: Perhaps we can turn to certain 10 definitions that we are throwing around, but turning to 11 them may just help us understand certain practices. 12 If you could go to Exhibit D, Tab 5, 13 Schedule 1, page 7. 14 MR. CURTIS: Yes. 15 MR. BROWN: At the bottom of that page you 16 have a definition for "Net Load Billing", which is: 17 "...the charges for a transmission 18 customer are calculated on the basis of 19 [a] charge determinant that is measured 20 on the meter(s) reading the consumption 21 of the customer from the regulated 22 transmission system, or from the 23 regulated distribution system in the case 24 of an end-use customer within LDC..." 25 So what you are basing the billing on is what 26 the meter reads as coming in from the transmission 27 system. 28 MR. CURTIS: That's correct. Les Services StenoTran Services Inc. 613-521-0703 356 OHNC, cr-ex (Brown) 1 MR. BROWN: Then continuing on on page 8, you 2 have the definition for "Gross Load Billing", and under 3 it: 4 "...the charges for a transmission 5 customer are calculated on the basis of 6 charge determinant..." 7 Which we just went over for net load 8 billing -- 9 MR. CURTIS: Yes. 10 MR. BROWN: -- plus you are adding to that the 11 charge determinant for the load supplied by the embedded 12 generation. 13 MR. CURTIS: Yes. 14 MR. BROWN: So you are tacking on to what is 15 taken off the transmission system what the load is 16 taking from its embedded generation 17 MR. CURTIS: Yes. 18 MR. PORAY: Right. 19 MR. BROWN: That is what you are adding to the 20 bill -- or you are adding to the calculation for the 21 purposes of arriving at a bill? 22 MR. PORAY: That's correct. 23 MR. BROWN: Could you please turn to 24 Exhibit -- this is an IPPSO interrogatory -- Exhibit E, 25 Tab 6, Schedule 20. 26 MR. PORAY: Schedule what, sorry? 27 MR. BROWN: Schedule 20. It is the 28 Interrogatory 20: E-6-20, page 1. Les Services StenoTran Services Inc. 613-521-0703 357 OHNC, cr-ex (Brown) 1 MR. PORAY: Okay. 2 --- Pause 3 MR. BROWN: I want to sort of pin this area 4 down a bit, because sub question a) you will see says: 5 "Please confirm that the current Ontario 6 Hydro transmission tariff structure more 7 closely resembles a net load billing 8 mechanism rather than a gross load 9 billing mechanism." 10 And you give your answer, which is in item 11 (a), and you start off by what you told my friend 12 Mr. Fisher -- 13 MR. CURTIS: Yes. 14 MR. BROWN: -- "Look, guys, what we were 15 dealing in the past with was a bundled system. Now we 16 are dealing with an unbundled system. You can't really 17 compare apples and oranges." 18 MR. CURTIS: Yes. 19 MR. BROWN: That is paragraph one of your 20 response. 21 I want you to go to paragraph two of your 22 response which says: 23 "The effect of existing embedded 24 generation is taken into account in 25 setting the existing Ontario Hydro tariff 26 structure in the same way that OHNC's 27 proposed rates take into account the 28 existing embedded generation, namely by Les Services StenoTran Services Inc. 613-521-0703 358 OHNC, cr-ex (Brown) 1 netting it out from the total demand 2 served by the transmission system." 3 To put it in the vernacular, under the old 4 regime you did not add on to what the customer took from 5 the system, what the customer was taking from embedded 6 generation. 7 MR. PORAY: That is correct. 8 MR. BROWN: Right. And indeed, you are 9 proposing in the application before this Board that with 10 respect to existing loads that have existing generation 11 you are going to continue to calculate their bill on 12 that basis. That is, you are not going to add on to 13 what they take from the system what they take from the 14 embedded generation. 15 MR. PORAY: That is correct. 16 MR. CURTIS: Are you talking in terms of the 17 existing ones? 18 MR. BROWN: Existing loads with existing 19 generation. 20 MR. CURTIS: Yes. Yes, sir. 21 MR. PORAY: That is correct. 22 MR. BROWN: But your proposal contains a 23 second element which deals with existing or future 24 loads, let's say an existing load that puts on embedded 25 generation in the future. 26 MR. CURTIS: Yes. 27 MR. BROWN: You are proposing that for that 28 customer the way you calculate the bill is going to Les Services StenoTran Services Inc. 613-521-0703 359 OHNC, cr-ex (Brown) 1 change in as much as you are going to add to what the 2 customer takes from the transmission system, part of 3 what the customer gets from its embedded generator. 4 MR. CURTIS: That's correct. 5 MR. PORAY: That's correct. 6 MR. BROWN: And your proposal is that you are 7 going to tack on 50 per cent of what the customer takes 8 from the embedded generator to what the customer takes 9 from the system? 10 MR. CURTIS: That's correct. And you 11 understand the rationale for that. 12 MR. BROWN: I'm going to deal in large part 13 with the rationale during the balance of my 14 cross-examination in this part. 15 MR. CURTIS: All right. Very good. 16 MR. BROWN: But just so we understand what 17 perhaps some of the stakeholders are getting so excited 18 about, one of the things they are getting excited about 19 is that the way you calculated the bills in the past for 20 loads with embedded generation is not going to be the 21 way that you calculate bills in the future if a load in 22 the future puts on embedded generation? 23 MR. CURTIS: Again, we went over this whole 24 discussion a few minutes ago and the issue here, the 25 difficulty here is that we are talking about how things 26 were done historically and historically they were done 27 on a bundled basis. We are talking about now moving 28 forward in the new marketplace, having the commodity Les Services StenoTran Services Inc. 613-521-0703 360 OHNC, cr-ex (Brown) 1 completely unbundled from the wires. So now we have to 2 figure out how we are going to deal with the wires 3 charges. 4 MR. BROWN: But with the greatest of respect, 5 Mr. Curtis, that is really begging the question and 6 indeed is not consistent with the answer that you gave 7 to Interrogatory 20. 8 What people are getting excited about is not 9 that unbundling necessarily requires a different form of 10 billing for embedded generation. What people are 11 getting excited about is that in the past when you 12 calculated a load bill you didn't add on what they took 13 from the embedded generator and what you are proposing 14 for the future is that you are going to add on what they 15 take from the embedded generator. That's what people 16 are getting upset about. 17 And that, in fairness, Mr. Curtis and 18 Mr. Poray, is a change in practice that is taking place, 19 that you are proposing take place, is it not? 20 MR. PORAY: I think we have to put this in the 21 context that in the old Ontario Hydro regime, when we 22 netted out the generation from the demand, the effect of 23 allocating the cost would have been spread amongst all 24 the demand customers and therefore that spreading of 25 costs took place automatically so that the charges 26 already took that into account. 27 What we are doing here is trying to prevent 28 the costs spreading between the customers that put in Les Services StenoTran Services Inc. 613-521-0703 361 OHNC, cr-ex (Brown) 1 new generation. 2 MR. BROWN: We will get to the rate impact in 3 a minute. 4 But you will agree with me that from the 5 perspective of customers, on the perspective of loads, 6 there is a reasonable basis for them to perceive that 7 the way you were calculating bills in the past for loads 8 with embedded generation is going to be different from 9 the way that you are calculating bills in the future for 10 loads with new embedded generation. 11 MR. CURTIS: Perhaps we should just 12 acknowledge that your client has often expressed it that 13 way to us. 14 MR. BROWN: Well, I think the evidence is 15 there and I won't belabour the point. 16 I would like to move to something that both of 17 you alluded to, that is the principles of the rationale 18 underlying the proposal that you have brought before the 19 Board. 20 You would agree with me that the first 21 principle underlying your proposal is that it's a 22 compromise? 23 MR. CURTIS: Yes, it is. 24 MR. BROWN: The second principle, as I read 25 OHNC's prefiled evidence, is that the major concern 26 which has led you to select a 50 per cent gross load 27 billing mechanism is there is a potential for cost 28 reassignment amongst customer classes. Les Services StenoTran Services Inc. 613-521-0703 362 OHNC, cr-ex (Brown) 1 MR. CURTIS: Yes. 2 MR. BROWN: As far as a third principle 3 underlying your proposal, I take it you would agree with 4 me -- and I will take you to the evidence, but what you 5 are proposing is not an end state proposal. You have 6 described it in your application more as a short-term or 7 transitional proposal. 8 MR. CURTIS: That's correct. We were 9 proposing to move to a contracting mechanism in the 10 longer term. 11 MR. BROWN: Which is found at page 38 of 12 Exhibit D -- 13 MR. CURTIS: Yes. 14 MR. BROWN: -- Tab 5, Schedule 1, and you have 15 indicated that. 16 But if you could turn to page 2 of Exhibit D, 17 Tab 5, Schedule 1, the part dealing with the net versus 18 the gross load billing. 19 MR. PORAY: Page 2? 20 MR. BROWN: Yes, sir, page 2. 21 --- Pause 22 MR. BROWN: You will see in the second 23 paragraph, the second sentence reads: 24 "Future transmission investment in an 25 open market will likely be addressed..." 26 This is at line 7, I'm sorry. 27 "Future transmission investment in an 28 open market will likely be addressed Les Services StenoTran Services Inc. 613-521-0703 363 OHNC, cr-ex (Brown) 1 through mechanisms that are more 2 market-oriented and reflect the user-pay 3 approach." (As read) 4 That is what the company perceives the 5 long-term -- or the principle should be underlying a 6 long-term solution to this issue. Correct? 7 MR. CURTIS: Both long and short-term I would 8 suggest, but in terms of actually putting it in place, 9 it may take a few years in order to do that. 10 MR. BROWN: But at the end of the day is it 11 fair to say that from your perspective the end state 12 solution should be one which is market-oriented and 13 which does reflect the user-pay approach? 14 MR. CURTIS: That's correct. 15 MR. BROWN: Before dealing with some of the 16 concerns that you have raised in your evidence with a 17 pure net load billing approach, I would like to perhaps 18 go to the flip side of the coin and go through some of 19 the benefits that you perceive will be associated with 20 the pure net load billing approach. 21 In that regard, if I could ask you to turn to 22 page 24 of this tab -- I'm still at Exhibit D, Tab 5, 23 Schedule 1, page 24, starting at line 9. 24 I would just like to try to develop a shopping 25 list, an itemized shopping list of the benefits that 26 would be associated with a net load billing model. 27 The first one, as I read it at line 9, is that 28 net load billing would send signals and would provide -- Les Services StenoTran Services Inc. 613-521-0703 364 OHNC, cr-ex (Brown) 1 it would send signals and would provide incentives for 2 new and better generation in the province. That is one 3 benefit of net load billing. 4 MR. CURTIS: Yes. Certainly focusing in on 5 the future expansion of the system. 6 MR. BROWN: The second benefit I think is one 7 that you start listing on line 12. You say that: 8 "Further, net load billing would address 9 concerns that many stakeholders have 10 about the market power in generation in 11 Ontario, at least over the next 4 to 10 12 years, after which this market power is 13 expected to be reduced as envisaged by 14 the Market Power Mitigation Agreement." 15 (As read) 16 So net load billing has the advantage of 17 mitigating the concern about market power in generation? 18 MR. CURTIS: Yes. Several stakeholders have 19 brought that forward as a reason to us. 20 MR. BROWN: You agree that that is a very 21 reasonable view to take of one of the effects that net 22 load billing would have? 23 MR. CURTIS: I guess the problem that we have 24 in terms of evaluating that is that this is talking 25 about what is going to happen in the electricity 26 marketplace and we are a transmission company so we are 27 somewhat constrained in terms of being able to offer an 28 opinion about what net versus gross load billing would Les Services StenoTran Services Inc. 613-521-0703 365 OHNC, cr-ex (Brown) 1 do in the electricity marketplace. 2 MR. BROWN: Fair enough. But just at the 3 level of the most general of principles, a rate design 4 mechanism which would result -- a transmission rate 5 design mechanism which would result in a greater amount 6 of private generation being installed in Ontario would 7 have the effect of mitigating the market power position 8 of Ontario power generation. Correct? 9 MR. CURTIS: Yes. 10 MR. PORAY: I think that that's probably true 11 but, on the other hand, you have to take into account 12 the fact that those customers who are not able to put in 13 generation and to whom the costs would be shifted, as a 14 result of this may be impacted in terms of their 15 industry being competitive in the marketplace. 16 MR. BROWN: I want to get to the rate impact 17 in a minute. 18 If I can suggest that the third benefit that 19 would be associated with net load billing can be found 20 at line 17 of page 24 where you say: 21 "A related advantage of the net load 22 billing options is that the new embedded 23 generation is likely to be relatively 24 more environmentally friendly and in 25 general it would benefit technically with 26 respect to system operation." (As read) 27 So those are two additional benefits we see 28 from net load billing. Les Services StenoTran Services Inc. 613-521-0703 366 OHNC, cr-ex (Brown) 1 MR. CURTIS: Yes. 2 MR. BROWN: So net load billing is something 3 that would make our Green Energy friends happy? 4 MR. CURTIS: That's what they have told us, 5 yes. 6 MR. BROWN: I'm going to suggest to you that a 7 fourth benefit that should go on this shopping list is 8 that net load billing would result in a 9 non-discriminatory pricing scheme inasmuch as the same 10 charges would be billed to customers for the same level 11 of transmission service. Would you agree with that? 12 MR. CURTIS: I think we would probably have 13 some problems with that. 14 MR. BROWN: Well, perhaps I can give you an 15 example and through the example we can come to a common 16 agreement. Indeed, the example was one that my friend, 17 Mr. Fisher, alluded to. I want to take your answer a 18 bit further. 19 Again, assume the situation you have got two 20 loads. We will just pick a hundred megawatts for both 21 of them for sake of simplicity. Both reduced their 22 loads by ten megawatts. If one of the customers reduces 23 its load by ten megawatts as a result of instituting and 24 implementing, does that demand side management practices 25 or whatever -- at the end of the day its bill is going 26 to be calculated on the basis of 90 megawatts. 27 MR. CURTIS: Right. 28 MR. BROWN: If the neighbouring customer Les Services StenoTran Services Inc. 613-521-0703 367 OHNC, cr-ex (Brown) 1 reduces its load from a hundred to 90 megawatts but does 2 so by putting in a ten megawatt imbedded generation, 3 under your proposal part of that ten megawatts from the 4 imbedded generation is going to be added to the bill. 5 MR. CURTIS: Yes. 6 MR. BROWN: So we have got factory one taking 7 90 megawatts from the transmission system, we have got 8 factory two taking 90 megawatts from the transmission 9 system, but they aren't billed on the same basis, are 10 they? 11 MR. CURTIS: They are not billed on the same 12 basis, but the reason, of course, for that is the 13 difference between the impact of demand side management 14 on the transmission system versus installing an imbedded 15 generator. 16 MR. BROWN: Well, just on that point, Mr. 17 Curtis, under both scenarios that I put to you, there is 18 a reduction in use by the load of the transmission 19 system. In both cases there is a reduction in use by 20 the load of the transmission system under normal 21 circumstances. 22 MR. CURTIS: Right. 23 MR. BROWN: So to the extent that you are 24 raising the concern that imbedded generation might 25 result in reduced use of the transmission system and 26 thereby make it more difficult to recover historic costs 27 associated with the transmission system, that same 28 concern about responsibility for historic transmission Les Services StenoTran Services Inc. 613-521-0703 368 OHNC, cr-ex (Brown) 1 costs applies equally in the circumstance where the load 2 reduced its demand by ten megawatts by demand side 3 management practices in that part of the argument. 4 MR. CURTIS: Right. 5 MR. BROWN: In response to Mr. Fisher, I think 6 you tried to suggest that where a company encountered 7 financial difficulties and thereby reduced its load, it 8 wasn't doing so voluntarily and, therefore, you didn't 9 have the same concern as a load that was reducing its 10 transmission use by imbedded generation because one was 11 involuntary and the other was deliberate. It was a 12 deliberate choice. 13 MR. CURTIS: Yes. 14 MR. BROWN: You would agree with me that same 15 element of deliberate choice would apply where one 16 customer decides to reduce its load by demand side 17 management and the other decides to reduce its load, use 18 of the transmission system, by imbedded generation. 19 MR. CURTIS: That's correct. 20 MR. BROWN: Both of them are deliberate, 21 voluntary choices that they make. 22 MR. CURTIS: That's correct. 23 MR. BROWN: And the proposal that you are 24 putting forward would bill each one of those 25 differently. 26 MR. CURTIS: That's correct, and the reason, 27 to complete that scenario, is that the customer that has 28 decided to install the imbedded generator still will be Les Services StenoTran Services Inc. 613-521-0703 369 OHNC, cr-ex (Brown) 1 making use of the transmission system at times back to 2 its original load whereas the customer that installed 3 the demand side management initiative in all probability 4 won't. 5 MR. BROWN: Well, let me put a hypothetical to 6 you then. What if you had a customer who was able to 7 come to you and say "OHNC, I'm going to put in an 8 imbedded generator of ten megawatts. That will reduce 9 my take off your system to 90 and I can guarantee that I 10 will never, ever, ever have to make up or bump myself 11 over that 90 megawatts". Would you then be prepared to 12 bill them on a net load billing system? 13 MR. CURTIS: There won't be a customer that 14 will do that. 15 MR. BROWN: That concerns me a bit in terms of 16 your rationale because as I read your prefiled evidence, 17 your rationale for partial gross load billing was the 18 rate impact on other customer classes. 19 MR. CURTIS: That's right. 20 MR. BROWN: And are you now saying that you 21 have an additional concern about the need to provide a 22 backstopping, backup, whatever term you want, service to 23 the load? 24 MR. CURTIS: I guess it's even more than that. 25 I don't think this topic has been introduced, but there 26 is this concept of hum along or other services that are 27 delivered to the transmission wires. 28 MR. ROGERS: Excuse me, Mr. Curtis. Les Services StenoTran Services Inc. 613-521-0703 370 OHNC, cr-ex (Brown) 1 MR. CURTIS: Yes. 2 MR. ROGERS: Did you say hum along or come 3 along? 4 THE PRESIDING MEMBER: I haven't heard about 5 hum along. Maybe I have heard about sing along. 6 MR. CURTIS: I'm sorry. The transmission 7 wires, we have talked about it earlier in terms of what 8 they deliver. 9 MR. BROWN: You have got me at a disadvantage, 10 you know. I can sing, but I can't hum. 11 MR. CURTIS: Well, I can't even hum. 12 The transmission wires we have talked about up 13 to this point in time in terms of delivering energy, we 14 have talked about it in terms of capacity as well, but 15 there are other elements that are delivered through the 16 transmission system. These are services that 17 traditionally aren't charged or have not been charged, 18 but nevertheless are required by load customers. 19 They are things like voltage stability, in 20 other words making sure that the proper voltage level is 21 maintained. Frequency control, making sure that the 60 22 cycles that we normally experience are there. Reactive 23 support, that's the ability -- you require reactive 24 support in order to be able to start motors, electric 25 motors for example. 26 There are all of these other services that are 27 implicitly delivered by the transmission wires. The 28 issue here is if you have a generator that you are Les Services StenoTran Services Inc. 613-521-0703 371 OHNC, cr-ex (Brown) 1 installing to service that load, the load continues to 2 draw those other services off the transmission wires, 3 off the transmission system, because it's still 4 connected to the transmission system. 5 MR. BROWN: But, Mr. Curtis, how significant 6 are the considerations that you have just enumerated to 7 the proposal that you have made? Perhaps I missed 8 something in your prefiled evidence. I don't recall 9 OHNC saying that the inability to capture humming under 10 a net load billing system -- 11 MR. CURTIS: That's correct. 12 MR. BROWN: -- was one of the reasons you are 13 proposing a modified gross load billing system. 14 MR. CURTIS: No. Our interest in terms of the 15 modified gross load billing system has been in response 16 to what we have heard from stakeholders in terms of 17 trying to strike a balance between the interests of 18 different stakeholders. 19 MR. BROWN: But it's not a rationale that you 20 are resting your proposal on. 21 MR. CURTIS: No. I just wanted to bring that 22 forward as another aspect. This is a very complicated 23 situation that we are talking about. 24 When we get into these very specific examples 25 like the one that you were taking me through, I think 26 it's fair to discuss the fact that there are other 27 services that are provided by the transmission network 28 that haven't been billed up to this point in time in Les Services StenoTran Services Inc. 613-521-0703 372 OHNC, cr-ex (Brown) 1 order to complete the picture of what we are talking 2 about. 3 MR. BROWN: But I take it -- and those are all 4 services that are provided by OHNC? 5 MR. CURTIS: No. Again, we are talking about 6 the wires and the wires are the means of conveyance of 7 these services. These services that we are talking 8 about, there is some component that is delivered by the 9 transmission system, but by and large it's delivered by 10 all of the other generators that are hooked into the 11 transmission system. 12 MR. BROWN: Are you proposing in this 13 application that OHNC would bill any customer for any of 14 those humming services that you have just described? 15 MR. CURTIS: No. 16 MR. BROWN: Okay. If I could perhaps try and 17 finish off my shopping list here of benefits with a 18 fifth element. Would you agree with me that the 19 adoption of a net load billing rate structure which 20 resulted in increased investment, in new generation 21 facilities, would likely lead to a downward pressure on 22 energy prices by providing greater incentives to install 23 new imbedded generation? 24 MR. CURTIS: I don't think we would be in any 25 position to be able to tell you what would happen to 26 energy prices. 27 MR. BROWN: Well, I guess in fairness, I think 28 in your prefiled evidence you indicated that OHNC did Les Services StenoTran Services Inc. 613-521-0703 373 OHNC, cr-ex (Brown) 1 not consider the impact of net load billing or gross 2 load billing on energy commodity prices. 3 MR. CURTIS: That's correct, yes. 4 MR. BROWN: But you did in response to IPSO 5 19 -- perhaps you could turn that up, Exhibit E, Tab 6, 6 Schedule 19. Do you have that, gentlemen? 7 MR. CURTIS: Yes. 8 MR. PORAY: Yes, we do. 9 MR. BROWN: You will see that sub-question B 10 was: 11 "Would OPGI likely see increased or 12 decreased competition for energy sales 13 under a form of gross load billing for 14 network transmission service as compared 15 to full net load billing for network 16 service?" 17 The answer you gave: 18 "A full net billing for transmission 19 network services leads to more new 20 generation facilities being introduced 21 into the Ontario electricity market as 22 compared to some form of gross load 23 billing, then OPGI would likely see 24 increased competition for energy sales." 25 You could go that far in your answer. 26 MR. CURTIS: Yes, we could. 27 MR. BROWN: Would you also go as far as to say 28 that net load billing likely would result in a sea of Les Services StenoTran Services Inc. 613-521-0703 374 OHNC, cr-ex (Brown) 1 more embedded generation being put in in this province 2 than a gross load billing regime would see? 3 MR. PORAY: I think in all fairness, net load 4 billing and gross load billing is just one of the 5 elements in the consideration for putting in new 6 generation in the province. It's not the only element. 7 MR. BROWN: Would you agree with me, Mr. 8 Poray, in saying it's a very significant element that 9 loads or developers would take into account in deciding 10 whether to put in embedded generation in this province? 11 MR. PORAY: It's significant to the extent 12 that the average component of the electricity bill for a 13 customer is of the order of 15 per cent for 14 transmission, so I think we also have to keep that in 15 perspective. 16 MR. ROGERS: Is that 15? 17 MR. PORAY: Fifteen. 18 MR. BROWN: Would you agree with me, 19 gentlemen, that OHNC recognizes that distributed 20 generation should be a major source of new generation in 21 Ontario? 22 MR. CURTIS: I don't think we are in a 23 position to comment on what should be the new sources of 24 electricity generation within the province. Our mandate 25 is to provide open access to any generator that comes 26 into service in Ontario. 27 MR. BROWN: Perhaps, Mr. Chairman, we could 28 take the break there and I will continue with this point Les Services StenoTran Services Inc. 613-521-0703 375 OHNC, cr-ex (Brown) 1 after the break. 2 THE PRESIDING MEMBER: We will come back at 3 ten minutes to four, please. Thank you. 4 --- Upon recessing at 1540 5 --- Upon resuming at 1600 6 THE PRESIDING MEMBER: With that we will 7 resume. We will get on as fast as we can. 8 MS LEA: Dr. Higgin, just before we begin, I 9 wanted to introduce my colleague, Mike Lyle, who will be 10 co-counsel in this matter with me. 11 I am going to disappear for most of the rest 12 of the day, but Mr. Lyle will be here. Thank you. 13 THE PRESIDING MEMBER: All right. 14 Mr. Brown. Thank you. 15 MR. BROWN: Thank you, Dr. Higgin. 16 Gentlemen, just before the break we were going 17 through what I call the shopping list, and on point No. 18 6 I was trying to get you to agree with me that the 19 company recognized that distributed generation should be 20 a major source of new generation in Ontario. But 21 perhaps to assist you in that regard, can I ask you to 22 turn to Exhibit D, tab 5. This time I would like you to 23 go to Schedule 3, which is, I believe, the AGRA Monenco 24 Report. 25 MR. CURTIS: Yes. 26 MR. BROWN: And I am going to ask you to dig a 27 bit of the way through that. It's not easily numbered, 28 but if you go past the report and past some tables you Les Services StenoTran Services Inc. 613-521-0703 376 OHNC, cr-ex (Brown) 1 get to a page that says "Appendix A, Terms of 2 Reference," a number of pages in. 3 MR. CURTIS: Yes, we found that. 4 MR. BROWN: You have that. 5 And if you turn to the next page, which says 6 Appendix A and it is dated May 14, 1999, what we see 7 here is a copy of the request for proposal that OHNC 8 sent out to the market to ask for consultants to bid on 9 this job. Correct? 10 MR. CURTIS: That's correct. 11 MR. BROWN: An OHNC document. 12 MR. CURTIS: Yes. 13 MR. BROWN: If you turn to page 2 of that 14 document, the first full paragraph starts "OHSC 15 recognizes....". Do you see that paragraph? 16 MR. CURTIS: Yes. 17 MR. BROWN: And it says: 18 "OHSC recognizes that distributed 19 generation will, and should, be a major 20 source of new generation in Ontario for 21 the foreseeable future." 22 So that's certainly the public position 23 articulated by the company. Correct? 24 MR. CURTIS: That's as noted in the document, 25 yes. 26 MR. BROWN: I take it the company, that is the 27 OHNC, would be concerned if a transmission rate design 28 was adopted in this proceeding which would impede the Les Services StenoTran Services Inc. 613-521-0703 377 OHNC, cr-ex (Brown) 1 development of distributed generation as a major source 2 of new generation in Ontario? 3 MR. CURTIS: That may be one factor in it. I 4 would say it could be balanced by other factors that 5 would compete against it. 6 MR. BROWN: And we have learned from this 7 proceeding that there are a lot of factors one must take 8 into account. I am just trying to get my own shopping 9 list together that I can use at the end of the day. 10 I would like to try and put one final item on 11 that shopping list of benefits of net load billing, No. 12 7. Perhaps I can come at it this way. OHNC recognizes 13 that investment in small-scale generation might have 14 some impact on the need for future investments in the 15 transmission system. 16 MR. CURTIS: That is correct. 17 MR. BROWN: Indeed, one could postpone or 18 perhaps in a significant case eliminate certain classes 19 of network expansion, depending upon the quantity, size 20 or location of small distributed generation throughout 21 the province. 22 MR. CURTIS: I am not sure that would apply to 23 network. It would apply to connection. 24 MR. BROWN: Well, I am going to suggest to you 25 that it may well also apply to network, that is that the 26 investment in small-scale generation if done on a 27 significantly large enough size could have an impact on 28 the need for certain investments in network expansion? Les Services StenoTran Services Inc. 613-521-0703 378 OHNC, cr-ex (Brown) 1 MR. CURTIS: I think as we have tried to 2 articulate earlier on the network system has been put in 3 place to serve customers by and large across the 4 province. You are not able to specifically identify 5 network facilities connected with specific customers, 6 whether they be generators or loads, and so in that 7 sense it would be difficult to say that specific 8 distributed generation investment would necessarily 9 defer network investment. 10 MR. BROWN: I am dealing here I guess more at 11 the level of general principle than specific example, 12 but in the starkest terms you could really have two 13 different kinds of systems, couldn't you, Mr. Curtis? 14 You could have your traditional system where you have a 15 big generator located a significant distance from major 16 load market and you, therefore, need a transmission 17 system to link big generator in Bruce down to big load 18 in Toronto, and that is one model and function of a 19 transmission system. Correct? 20 MR. CURTIS: That's correct, yes. 21 MR. BROWN: And in the future another possible 22 model will be the need for big generators up in Bruce is 23 significantly diminished as technology allows small 24 generators to cluster around the loads in Toronto? 25 MR. CURTIS: I just didn't want to create the 26 impression that distributed generation necessarily would 27 defer network investment because equally as credible is 28 that distributed generation appears in areas of the Les Services StenoTran Services Inc. 613-521-0703 379 OHNC, cr-ex (Brown) 1 province that in fact then would require additional 2 bolstering of the transmission network in order to 3 deliver their power to load. 4 MR. BROWN: If I agreed with you, Mr. Curtis, 5 that may well be the result in certain areas of the 6 province. I take it you would agree with me that the 7 converse would be true in other areas? 8 MR. CURTIS: If we both agree, yes. 9 MR. BROWN: And to a certain extent what we 10 have going on here, sir, is really the old technology 11 based electricity system and we have to take a new look 12 at the new technologies that are emerging and the effect 13 that that will have on all components of the electricity 14 system, including the need for the traditionally long 15 haul transmission systems as came out in the past? 16 MR. CURTIS: I think that's correct, yes. 17 MR. BROWN: In terms of the transmission 18 planning that OHNC performs, do you perform your 19 transmission planning on the basis of net load forecast 20 or do you perform it on the basis of gross load 21 forecast? 22 MR. CURTIS: I guess at the moment in terms of 23 what you are talking about transmission planning is 24 being unbundled, if you will. We normally did, as 25 Ontario Hydro did, transmission planning. Now it is 26 going to be shared, if you will, amongst ourselves, the 27 IMO, and so it's a little difficult to say that the 28 basis that you proposed is the basis on which Les Services StenoTran Services Inc. 613-521-0703 380 OHNC, cr-ex (Brown) 1 transmission planning would be done. 2 MR. BROWN: Has OHNC formulated any internal 3 policy to date as to whether it will forecast for 4 transmission planning purposes on a net load basis or a 5 gross load basis? 6 MR. CURTIS: I don't think we have any 7 policies in place, no. 8 What is happening in this interim period is 9 that we are in fact responding to approaches by 10 individual customers in terms of what their requirements 11 are. So that I don't think the net versus gross load 12 planning comes into play at the moment. 13 MR. BROWN: If I could turn, gentlemen, to a 14 new area, still dealing with network service, but now 15 dealing more specifically with the particular proposal 16 that you have advanced before the Board and the reasons 17 for your proposal. 18 As I read your evidence is it fair to say that 19 one of the concerns which you are trying to address in 20 your proposal for 50 per cent gross load billing is the 21 concern that increased embedded generation will result 22 in a loss of demand to pay for historic transmission 23 costs? 24 MR. CURTIS: I think, actually, more to the 25 point the concern is that in terms of how the net versus 26 gross load issues is resolved on network services is 27 what degree of cost shifting is going to occur and what 28 customers are going to end up paying more or less as a Les Services StenoTran Services Inc. 613-521-0703 381 OHNC, cr-ex (Brown) 1 result of that, as opposed to any failure to recover the 2 revenues for the existing transmission system. 3 MR. BROWN: And that's a fair enough point and 4 I guess that gets me to the main point I wanted to make, 5 is that when one is dealing with the concerns that OHNC 6 has articulated in this proceeding, the actual stranding 7 of network transmission assets is not a concern, but 8 what your concern is shifting costs to recover historic 9 costs of the existing system will occur between customer 10 classes? 11 MR. CURTIS: That has been more the concern. 12 You are right. 13 MR. BROWN: You would agree with me that if 14 load leaves the system to now take its energy from an 15 embedded generator, there will be at some point of time 16 a replacement of that diminished load by an overall 17 increase in the load in the province? 18 MR. CURTIS: Yes, at some point. 19 MR. BROWN: Right, and from what I can see in 20 your evidence you have not put in any particular 21 calculation as to how long it takes the system load to 22 recover from 10 megawatts going over to embedded 23 generation or whatever the number might be? 24 MR. CURTIS: We have put into our calculations 25 the current forecast as far as load growth. Apart from 26 that, you are quite right. 27 MR. BROWN: So it may take some years to make 28 up the lost load, but at some point, you would agree Les Services StenoTran Services Inc. 613-521-0703 382 OHNC, cr-ex (Brown) 1 with me, the lost load will be made up? 2 MR. CURTIS: That would be our expectation, 3 yes. 4 MR. BROWN: Given that expectation, 5 Mr. Curtis, the proposal that you put before the Board 6 is that if a load decides to invest a new embedded 7 generation then it will be billed on the 50 per cent 8 gross load basis from now until eternity, as I 9 understand it. There is no cutoff date under which it 10 will be billed for that portion of the energy that it 11 sources from an embedded generator? 12 MR. CURTIS: No, I think that is a 13 misconception in terms of our proposal. 14 But we are proposing this 50 per cent as a 15 short-term measure until we can get to a contracting 16 base mechanism for doing that, for putting that in 17 place. Customers that we are talking about here that 18 would come under our current proposal would have the 19 opportunity, I think, to renegotiate at that point. 20 They are not locked in forever at the 50 per cent level. 21 MR. BROWN: Perhaps I could ask that you 22 explain that in more detail in two regards. 23 First, if I have a client, a potential -- a 24 load customer come to me and say, "Gee, I would really 25 like to put in an embedded generator but I hear that 26 there is this partial gross load billing around. How 27 long is it going to be in place so that I can do my 28 calculations to know whether I should put in embedded Les Services StenoTran Services Inc. 613-521-0703 383 OHNC, cr-ex (Brown) 1 generation", what answer can I give to my client? 2 MR. CURTIS: I think you have to give the 3 client the answer that he would have to wait until the 4 Board has decided in terms of when we can transition to 5 that. 6 MR. BROWN: But am I correct, sir, that in 7 this application you were not asking the Board to set 8 any time limit during which the gross load billing 9 method would be in place? 10 MR. CURTIS: We have not asked for that, no. 11 MR. BROWN: So the Board would not do anything 12 with respect to bringing in the gross load billing until 13 you, OHNC, came back before the Board to ask them to put 14 an end to it. 15 MR. CURTIS: Unless through your partitioning 16 in this proceeding the Board decided. 17 MR. BROWN: Well, the Board is going to make 18 up its mind in this decision. 19 MR. CURTIS: That's correct. 20 MR. BROWN: My assumption is that if the Board 21 adopts the applicant's proposal, your proposal in this 22 particular proceeding, when do you say you are going to 23 come back before the Board and say to the Board, "Fine, 24 the transition period is over and done with. We can get 25 rid of partial gross load billing"? 26 When are you going to do that, or do you have 27 any expectation or plan now as to when you are going to 28 do that? Les Services StenoTran Services Inc. 613-521-0703 384 OHNC, cr-ex (Brown) 1 MR. CURTIS: I don't think that we can state 2 or make a commitment right now in terms of when we would 3 come back to do that, no. 4 MR. BROWN: You appreciate, sir, that 5 uncertainty as to how long a form of gross load billing 6 will be in place in this province injects a significant 7 degree of uncertainty into the investment markets for 8 those who are contemplating investing in new forms of 9 generation? 10 MR. CURTIS: Well, we would only do that for 11 those embedded generators that require more than a 50 12 per cent net billing requirement. Any investment that 13 could go forward on an economic basis now based on our 14 proposal wouldn't have that uncertainty associated with 15 it. 16 MR. BROWN: I am going to deal with your 17 exemption categories in the second, but would you agree 18 with me that there is a certain unfairness in your 19 proposal in that the current proposal you have before 20 the Board for gross load billing is open ended, and yet 21 you have acknowledged that at some point of time overall 22 load growth is going to make up for the load that has 23 left the system to this energy from embedded generation? 24 MR. CURTIS: You have two thoughts in there. 25 MR. BROWN: You can agree with me twice then. 26 MR. CURTIS: No, I am not sure that I can 27 agree with either. 28 THE PRESIDING MEMBER: He can half agree with Les Services StenoTran Services Inc. 613-521-0703 385 OHNC, cr-ex (Brown) 1 you. 2 MR. ROGERS: Or you can disagree twice. 3 MR. CURTIS: Maybe I could. 4 MR. BROWN: Two wrongs don't make a right. 5 MR. CURTIS: Can you go over that again for 6 me, please? 7 MR. BROWN: I was trying to make the point 8 simply that there is an element of unfairness in your 9 current proposal before the Board, inasmuch as it is 10 open ended because you have conceded, and rightfully so, 11 that you expect that at some point overall load growth 12 in this province will make up for load that leaves the 13 system and takes its energy from embedded generation? 14 MR. CURTIS: No, I would rather link it the 15 other way, that we proposed at the moment an open-ended 16 50 per cent access fee basis for it to be replaced by a 17 more contract-based system. That would provide the 18 certainty that, I think, for example the clients that 19 you are representing would want to have. 20 MR. BROWN: The second element, this issue of 21 a contract system that you have just referred to and you 22 made reference to in your prefiled evidence, is a 23 contract system under which OHNC enters into separate 24 contracts with loads who are contemplating putting in 25 embedded generation, what you foresee as the desirable 26 end state? 27 MR. CURTIS: Yes, it is. 28 MR. BROWN: Could you describe, sir, how you Les Services StenoTran Services Inc. 613-521-0703 386 OHNC, cr-ex (Brown) 1 expect that system works? 2 MR. CURTIS: I don't know that I can explain 3 it in considerable detail at the moment because 4 obviously whatever we come up with as a scheme we would 5 have to bring back to the Ontario Energy Board in order 6 to get approval. 7 What we have in mind as a plan here is that we 8 would like to spend some time looking at what goes on in 9 other jurisdictions as far as a contract pricing scheme, 10 also spend some time with our stakeholders and customers 11 in terms of finding out what would be acceptable to them 12 before we develop our proposal to bring back to the 13 Board. 14 MR. BROWN: In these cases your contracts 15 would be with loads who are thinking of putting in 16 embedded generations? 17 MR. CURTIS: I think by and large, but I would 18 suggest there is probably also going to be a contractual 19 commitment with the generator as well, at least through 20 the transmission system code requirements. 21 MR. BROWN: I don't want to be too facetious 22 or too glib, but I think you have heard through the 23 course of the stakeholder process that the loads and 24 potential embedded generators are strongly desirous of a 25 pure net load billing system in this province. So don't 26 you therefore have enough information as to what they 27 want? You can now go out and strike the individual 28 contracts with them all on a net load basis. Les Services StenoTran Services Inc. 613-521-0703 387 OHNC, cr-ex (Brown) 1 MR. CURTIS: No, I don't believe so, because 2 again, what we would have to do is bring back the 3 proposed contractual framework to the Ontario Energy 4 Board to get approval before we could embark on the 5 actual contract. 6 MR. BROWN: Do you envisage, sir, that this 7 contracting regime would be one in which all loads who 8 wish to put in embedded generation would be treated the 9 same in terms of rate and in terms of the way in which 10 their bill is calculated, or do you envisage that there 11 might be differential treatment amongst loads? 12 MR. CURTIS: The latter. 13 MR. BROWN: So effectively you would have 14 special rates which would be negotiated on a 15 case-by-case basis? 16 MR. CURTIS: That's what we believe, yes. 17 MR. BROWN: Is that sort of the throw back to 18 the form of contracting that we saw under the load 19 retention and expansion rates? 20 MR. CURTIS: No, it is not. 21 MR. BROWN: Why sir, would you see as a 22 desirable end state a regime in which loads are treated 23 differentially under separately negotiated contracts 24 from an end state where all loads are treated the same 25 under a uniform rate design? 26 MR. CURTIS: I think that is the reflection in 27 terms of the evolution that we are talking about as far 28 as the electricity industry is concerned. We are Les Services StenoTran Services Inc. 613-521-0703 388 OHNC, cr-ex (Brown) 1 talking about, for example, moving from a pricing 2 structure now for services like transmission that are 3 based on a postage stamp basis to potentially one in the 4 future that is location based. 5 In terms of what you are talking about now, 6 there obviously would be differences in the contracts 7 with different load customers because each load customer 8 has different characteristics and there is different 9 implications as far as their moving to an embedded 10 generation alternative on the transmission system. 11 MR. BROWN: In terms of what else has to 12 happen in the development of the Ontario electricity 13 market before you could move to this individual 14 contracting basis, could you explain to me the other 15 pieces of the puzzle that would have to fall into place 16 before OHNC could act upon an individual contracting 17 regime? 18 MR. CURTIS: I explained to you a few minutes 19 ago that OHNC would like to look at the different 20 contracting regimes that have been put in place in other 21 jurisdictions. We would like to spend some time talking 22 with stakeholders in terms of understanding what they 23 would like. 24 We also talked in terms of our proposal about 25 other events that would have to occur; namely, that 26 there would be a decision made in our current 27 application so that at least we have a ground 28 established as far as the rules around shifting costs Les Services StenoTran Services Inc. 613-521-0703 389 OHNC, cr-ex (Brown) 1 from customers as a result of embedded generation 2 installation. 3 We also talked about having a transmission 4 system code put in place. That has some collateral 5 negotiations and requirements that would be attached to 6 it. 7 The market rules would have to be finalized. 8 That would help, I think, considerably in terms of this. 9 But those are other features of this. 10 MR. BROWN: You have applied and received 11 approval for your revenue requirements for 1999 and 12 2000, which means that in the not too distant future you 13 are going to have to come back before the Board with 14 another application to ask for approval for your revenue 15 requirements for year 2001 and, I don't know, perhaps 16 2002. I don't know the basis upon which you will do it. 17 Do you contemplate that by the time you bring 18 your next application for approval of revenue 19 requirements before the Board you will be making a 20 proposal for an individual contracting regime? 21 MR. CURTIS: I don't think I could make that 22 commitment now, but I think we would be trying to move 23 towards that. 24 MR. BROWN: Gentlemen, if I could move onto 25 another aspect of the concerns that I perceive that you 26 have with respect to a net load billing regime, that the 27 major impact, as I take it, is the impact which net load 28 billing would have on transmission rates amongst Les Services StenoTran Services Inc. 613-521-0703 390 OHNC, cr-ex (Brown) 1 classes. 2 MR. CURTIS: Yes. 3 MR. BROWN: Dealing with the issue of average 4 transmission rates, I am correct, am I not, that under 5 net load billing the average transmission rates for 6 network service would remain virtually constant? 7 Virtually? 8 Perhaps, let's go to -- 9 MR. CURTIS: I am a little uncomfortable 10 because again we are going to get into this situation of 11 rolling in other aspects of this overall application 12 besides just being implications around net versus gross 13 load billing. 14 MR. BROWN: Fair enough. 15 Let me take you to one of your own documents. 16 This is Exhibit D, Tab 5, Schedule 2. If you could 17 look, gentlemen, at page 7, please, which is Table 6. 18 Okay? 19 MR. CURTIS: Yes. 20 MR. PORAY: Yes, we are there. 21 MR. BROWN: We can use this as the starting 22 point. 23 What you have tried to identify here on 24 Table 6 is the forecast of change and aggregate 25 transmission rates from 2000 to 2008. 26 MR. CURTIS: Yes. 27 MR. BROWN: By way of background, what you 28 endeavoured to do in preparation for this proceeding was Les Services StenoTran Services Inc. 613-521-0703 391 OHNC, cr-ex (Brown) 1 to forecast the amount of embedded generation which 2 would be installed in Ontario from 2000 through 2008. 3 MR. CURTIS: That's correct. 4 MR. BROWN: You retained AGRA Monenco to do 5 that study, and their study I think is Schedule 3 at 6 this tab. 7 MR. PORAY: That's correct. 8 MR. BROWN: With the information that they 9 provided you, together with your own forecast of load 10 growth in Ontario, you then set about trying to figure 11 out what impact on aggregate transmission rates from 12 2000 to 2008 various billing scenarios would have. 13 MR. CURTIS: That's correct. 14 MR. BROWN: What we see in Table 6 is the 15 results of your analysis under four scenarios, the first 16 one being pure gross load billing for both network and 17 connection, and then we have your 50 per cent net load 18 for cogen -- well, your option, the second column is 19 your proposal, the Option IV(c). 20 MR. CURTIS: Right. 21 MR. BROWN: The third column is the pure net 22 load billing for network but growth load billing for 23 connection, and then the other is pure net load billing 24 for everything. 25 MR. CURTIS: Yes. 26 MR. BROWN: So if we take a look at the 100 27 per cent net load billing for network and 100 per cent 28 gross load billing for connection, the third column -- Les Services StenoTran Services Inc. 613-521-0703 392 OHNC, cr-ex (Brown) 1 MR. CURTIS: Yes. 2 MR. BROWN: -- you would agree with me that 3 under that scenario the average transmission rates for 4 network remain relatively constant from year 2000 to 5 2008. 6 MR. CURTIS: On an aggregate basis across all 7 customers, yes. 8 MR. BROWN: Correct, on an aggregate basis. 9 MR. CURTIS: Yes. 10 MR. BROWN: However, as I understand it, one 11 of the rationale for your proposal is that if we look at 12 column two, which represents your proposal, the forecast 13 change in aggregate transmission rates over that period 14 of time indicates that there would be a decline in the 15 average transmission rate. 16 MR. CURTIS: Yes. 17 MR. BROWN: So one of the concerns that you 18 have articulated with respect to net load billing is 19 that, fine, on an aggregate basis, transmission rates 20 might remain the same but under our proposal, the 50 per 21 cent proposal, what we would actually see is the rates 22 going down a bit. 23 MR. CURTIS: I think maybe more to the point, 24 if we move back to the previous table, Table 5, this 25 shows -- on Table 6 the problem here is that we are 26 looking at the aggregate of all customers together. One 27 of our concerns, looking at Table 5, is that there are 28 different groupings of customers, they get more or less Les Services StenoTran Services Inc. 613-521-0703 393 OHNC, cr-ex (Brown) 1 benefits out of different proposals around the net 2 versus gross issue, and that is more -- 3 MR. BROWN: You keep coming back to that and I 4 got that message loud and clear, and I am going to get 5 to that in a minute so we can deal with that. 6 What I am trying to identify truly are the 7 concerns which underlie your reservations about net load 8 billing and the favour that you have given to our 9 proposal. Does the fact that aggregate transmission 10 rates under the net load billing remain constant versus 11 a potential decline under your proposal factor at all 12 into your selection of the 50 per cent gross load 13 billing, or is it truly the effect on customers that is 14 the driver for you? 15 MR. CURTIS: More of our focus was on the 16 different customer groups than this aggregate 17 comparison. 18 MR. BROWN: In terms of the assumptions, 19 gentlemen that underlie Table 6, am I correct that this 20 table assumes that during this period of time 2,500 21 megawatts of embedded generation will be installed in 22 Ontario? 23 MR. CURTIS: By 2008. 24 MR. BROWN: By 2008. 25 MR. PORAY: I think in the option in column 26 two we were looking at the cogeneration being installed. 27 That is only 1,150 megawatts. 28 MR. BROWN: I want to make sure, at the Les Services StenoTran Services Inc. 613-521-0703 394 OHNC, cr-ex (Brown) 1 starting point, that we truly are comparing apples with 2 apples. 3 MR. CURTIS: Right. 4 MR. BROWN: As I understood AGRA Monenco, they 5 concluded that about 2,500 megawatts -- they forecast 6 that 2,500 megawatts of embedded generation would be 7 installed. My question is, have you used that forecast 8 by them to perform the analysis that we see in each of 9 these different columns? 10 MR. CURTIS: We have used their analysis, but 11 it has been the 1,150 number. 12 MR. BROWN: Okay. In each column? 13 MR. CURTIS: I believe so. Maybe we should 14 check that just to confirm, but I believe that is 15 correct. 16 MR. BROWN: Perhaps you could undertake to 17 check that for me. 18 MR. CURTIS: Yes. 19 MR. LYLE: We will make that Undertaking F2.2. 20 UNDERTAKING NO. F2.2: Mr. Curtis 21 undertakes to determine and advise 22 Mr. Brown if OHNC used the forecast 23 performed by AGRA Monenco to perform the 24 analysis shown in each of the different 25 columns in Table 6 found at Exhibit D, 26 Tab 5, Schedule 2 27 MR. BROWN: The other major assumption that 28 you have used for your analysis we find, I believe, in Les Services StenoTran Services Inc. 613-521-0703 395 OHNC, cr-ex (Brown) 1 Table 1, which is the forecast of load growth. 2 MR. CURTIS: Yes. 3 MR. BROWN: You have forecast load growth over 4 that period of time to be in the neighbourhood of 5 1,401 megawatts. 6 MR. CURTIS: I haven't done the calculation. 7 Do you want us to check your arithmetic? 8 MR. BROWN: No. I think my arithmetic may be 9 as good as my Greek mythology. Take it from me that the 10 difference between 2008 and 2000 is 1,401. You can 11 correct me if I am wrong. 12 But that is the other major assumption that is 13 underlying this Table 6 that you have -- the analysis 14 that you performed? 15 MR. CURTIS: That's right. Yes. 16 MR. BROWN: Would you agree with me that one 17 of the assumptions that you made in performing the 18 analysis that underlies Table 6 is that the same amount 19 of embedded generation would be installed over that 20 period of time under any of those four scenarios? 21 MR. PORAY: That's correct. 22 MR. BROWN: Would you agree with me that that 23 is a rather unlikely assumption inasmuch as the closer 24 one moves to a gross load billing regime the more likely 25 it is that there will be less embedded generation 26 installed? 27 MR. CURTIS: That's probably true. But in 28 terms of doing these assessments, we wanted to keep the Les Services StenoTran Services Inc. 613-521-0703 396 OHNC, cr-ex (Brown) 1 number of variables that we are changing to a minimum so 2 that in terms of presenting what we are presenting here, 3 we are showing what the implications are based on the 4 assumed embedded generation installation that we 5 received out of our AGRA Monenco report. 6 MR. BROWN: But wouldn't you agree with me 7 that there is a rather material sensitivity of the 8 forecast of the amount of embedded generation to the 9 type of billing regime that is adopted? They are 10 definitely interrelated. 11 MR. CURTIS: I think you and some of your 12 other clients have told us that repeatedly, yes. 13 MR. BROWN: Does OHNC have any view whatsoever 14 on whether or not there is that linkage? 15 MR. CURTIS: We don't do evaluations of 16 embedded generation projects so -- 17 MR. BROWN: You can't say? 18 MR. PORAY: I think I would just add to that 19 that the installation of the new generation, or the 20 construction of the new generation would not be based 21 solely on the bases of transmission pricing, that there 22 will be other considerations that would figure in. 23 This is one of the elements that we have tried 24 to evaluate in terms of the impact of the new 25 generation. 26 MR. BROWN: But you agree it would be one of 27 the elements? 28 MR. PORAY: It is one of the elements, yes. Les Services StenoTran Services Inc. 613-521-0703 397 OHNC, cr-ex (Brown) 1 MR. BROWN: Am I correct that another 2 assumption that you have made underlying Table 6 is that 3 the same transmission revenue requirement will occur in 4 each year shown there? 5 MR. CURTIS: Yes. We have done that, again, 6 to try to minimize the number of variables that change 7 throughout the forecast period. 8 MR. BROWN: Would you agree with me that there 9 may be some frailty to that assumption in as much as 10 that as over this period of time low growth is met by 11 embedded generation there will be less need to spend 12 money on network? 13 MR. CURTIS: Well, again in terms of trying to 14 present this assessment so that there weren't many 15 variables that were changing, we did not make 16 assumptions on terms of how our revenue would be 17 changed. 18 You are citing one reason why our revenue 19 requirement would change. There are, I think, quite a 20 number of other reasons why our revenue requirement may 21 change over that period of time and we chose, in terms 22 of doing this analysis, not to complicate it by that 23 factor. 24 MR. BROWN: But in a perfect world, in the 25 fullness of time, if you could stand the six months or 26 one year that you needed in order to do a full study of 27 the impact on aggregate transmission rates that the 28 various billing regimes would have, you would agree with Les Services StenoTran Services Inc. 613-521-0703 398 OHNC, cr-ex (Brown) 1 me that the sensitivity of revenue requirement and load 2 growth to the choice of billing regime would be two 3 variables that you want to factor into your impact 4 assessment? 5 MR. CURTIS: Yes, they could be. 6 MR. BROWN: Yes. 7 Now, you have referred many, many times to the 8 concern that you had about cost-shifting amongst 9 customer classes, indeed what you have, I think, 10 outlined -- on Table 5 -- 11 MR. CURTIS: Yes. 12 MR. BROWN: -- is it at this particular tab? 13 MR. CURTIS: Yes. 14 MR. BROWN: Just on this issue, is it fair to 15 say that when one looks at the billing method for 16 connection and transformation assets that the IPPSO 17 proposal for net load billing, coupled with a historical 18 floor for connection and transformation assets, to a 19 certain degree mitigates the cost-shifting concerns? 20 MR. CURTIS: I guess one of the elements that 21 we haven't really understood as far as the IPPSO 22 proposal is this historical floor concept. So I'm not 23 sure that we could agree with the statement that you 24 just made. 25 MR. BROWN: Let me frame it a different way 26 then. 27 Would you agree with me that if one bills the 28 network on a net load basis, but bills connection and Les Services StenoTran Services Inc. 613-521-0703 399 OHNC, cr-ex (Brown) 1 transformation assets on a gross load basis, that that 2 mitigates the concerns about cost-shifting amongst rate 3 classes. 4 MR. CURTIS: Can you give me the first one 5 again, billing network on a -- 6 MR. BROWN: Billing network on net and bill 7 connection transformation on growth, that that would 8 mitigate cost-shifting concerns? 9 MR. CURTIS: In comparison to the alternative 10 where both are billed on a net basis, that is correct. 11 MR. BROWN: Now, in terms of the impact on 12 customer classes, if we look at your Table 5, do I 13 understand that your main concern about an impact on a 14 customer class is to focus on the other LDCs? 15 MR. PORAY: No, the impact is on all 16 customers. 17 MR. BROWN: But isn't it fair to say that when 18 one reads your evidence the impact on other LDCs seems 19 to be foremost amongst your concerns about the impact on 20 particular customer classes? 21 MR. PORAY: To the extent that those entities 22 don't have, or may not have the ability to install 23 generation we were concerned that they are seeing a cost 24 shift. 25 MR. BROWN: Precisely on that point, if you 26 could turn to Table 3, this concern of the ability of 27 certain classes not to be able to put in embedded 28 generation. Les Services StenoTran Services Inc. 613-521-0703 400 OHNC, cr-ex (Brown) 1 When we look at the assumptions that you have 2 set out in Table 3, you have forecast zero embedded 3 generation of any kind for the other LDC class. 4 MR. CURTIS: AGRA Monenco forecast did that 5 for us, yes. 6 MR. BROWN: Fair enough. But you are relying 7 on that forecast. 8 MR. CURTIS: Yes. 9 MR. BROWN: Okay. 10 I think it's fairly obvious, but I'm correct 11 in saying that for the purposes of this hearing OHNC has 12 not done any tests to assess the outcome when other LDCs 13 actually install embedded generation to meet growth. I 14 think the answer is yes because you have assumed there 15 would be no -- 16 MR. CURTIS: We have assumed that there is no 17 generation that has been put in place, yes, that's 18 correct. 19 MR. BROWN: Is it a fair statement that to the 20 extent over the next eight years the customer class that 21 you have labelled as "Other LDCs" actually goes ahead, 22 takes advantage of the new market conditions and 23 installs some embedded generation, the cost-shifting 24 concerns that you have articulated with respect to that 25 class are going to be reduced? 26 MR. CURTIS: I guess we don't see that that 27 would be how it would evolve. 28 MR. BROWN: Why not? Les Services StenoTran Services Inc. 613-521-0703 401 OHNC, cr-ex (Brown) 1 MR. CURTIS: Some of the -- when you are 2 looking at that column "Other LDCs", many of these other 3 LDCs are very, very small and, consequently, the 4 economics aren't available to them to make use of 5 embedded generation to the same extent as the larger 6 ones that we have identified as the 10 LDCs, for 7 example, embedding. 8 That is really where the issue lies. 9 MR. BROWN: Well, you are certainly aware, 10 gentlemen of the new technologies and emerging 11 technologies surrounding distributed generation and that 12 distributed generation is now being made available on a 13 smaller and smaller basis to loads? 14 MR. CURTIS: It is being made available, yes, 15 but we haven't seen much evidence of it actually 16 penetrating the marketplace. So again, our problem here 17 is knowing whether or not the economics are there for 18 such generation to be installed. 19 MR. BROWN: But you have told us on day one of 20 this hearing that one of the reasons we are here is to 21 try to set new principles and new rate design for the 22 new market which is emerging -- 23 MR. CURTIS: That's correct. 24 MR. BROWN: -- and your forecast here for 25 embedded generation for other LDCs is zero over the next 26 eight years. 27 MR. CURTIS: Yes. 28 MR. BROWN: Well, the AGRA Monenco forecast Les Services StenoTran Services Inc. 613-521-0703 402 OHNC, cr-ex (Brown) 1 that you have put together -- 2 MR. CURTIS: Yes. 3 MR. ROGERS: Well -- 4 MR. BROWN: -- that you have adopted -- that 5 you have adopted -- and so I'm going to suggest that 6 wouldn't it be a reasonable assumption, as part of doing 7 any such forecast, to expect that some of the smaller 8 LDCs that you have put in this category may well respond 9 to the new market by taking advantage of the smaller 10 distributed generation opportunities. 11 MR. CURTIS: Well, we don't think so, no. 12 MR. BROWN: Have you read the evidence of the 13 IPPSO Panel, Mr. Barnstable, Mr. Anders and Mr. Andre? 14 MR. CURTIS: I think we reviewed it, probably 15 in a cursory manner. We haven't spent a lot of time 16 studying that, no. 17 MR. BROWN: Do you recall that in that 18 evidence they suggested that over the next eight years 19 there would likely be 300 to 400 megawatts of investment 20 in the system to 20 megawatt range? 21 MR. CURTIS: No, I don't recall seeing that. 22 MR. BROWN: We will tie that up, then, when 23 they come. 24 In terms of the proposal, gentlemen, that -- 25 MR. PORAY: Can I just intercede here, perhaps 26 to clarify something, and that is that the reason why we 27 chose AGRA Monenco to do this work is because of their 28 expertise in the field of generation and working on new Les Services StenoTran Services Inc. 613-521-0703 403 OHNC, cr-ex (Brown) 1 investment, and for them to give us an estimate, or the 2 most likely estimate of the potential for new generation 3 and where that generation may locate. So it is their 4 expertise that is reflected in this document. 5 MR. BROWN: Fair enough. 6 But just in terms of what they did -- and if 7 we could turn to their report which is Schedule -- what 8 is it -- 3 to this particular tab -- 9 Could you turn to Table 4-2 in the AGRA 10 Monenco report? There is no particular page number, it 11 is after the body of their report, but there is a 12 Table 4-2. 13 MR. PORAY: Yes. 14 MR. CURTIS: Yes. 15 MR. BROWN: Do you have that, gentlemen? 16 MR. PORAY: Yes, we do. 17 MR. BROWN: You can see at Table 4-2 they have 18 tried to forecast potential new cogeneration plants in 19 Ontario. 20 MR. CURTIS: Yes. 21 MR. BROWN: If you go right down to the bottom 22 line they come up with a Category C-10, "Ontario Small 23 Plant". Do you see that? 24 MR. CURTIS: Yes. 25 MR. PORAY: Yes, we do. 26 MR. BROWN: They are forecasting over the next 27 eight years the high of 450 megawatts through to a low 28 of 150 megawatts with a mid-point of 300 megawatts of Les Services StenoTran Services Inc. 613-521-0703 404 OHNC, cr-ex (Brown) 1 potential embedded generation in what they have termed 2 as "small plant". 3 MR. CURTIS: Yes. 4 MR. BROWN: And when one takes a look at the 5 plant size that the use for all of the other 6 cogeneration projects that they are forecasting on this 7 page, it sort of looks as if their notion of small plant 8 is something under the five megawatt level, but that's 9 the smallest level of plant that they have identified in 10 the rest of that chart. 11 MR. PORAY: Yes, I think that's probably true. 12 MR. BROWN: And I guess the reason, sir -- 13 gentlemen, I'm spending a bit of time on this for you to 14 make the assumption that the other LDCs, most of whom as 15 you have indicated are small loads, may not take 16 advantage of imbedded generation. It doesn't really 17 dovetail with what Agra is saying here, that there will 18 be a mid point of 300 megawatts the small plants put in, 19 many of which I suggest might be quite attractive to the 20 smaller MEUs throughout this province. Wouldn't you 21 agree with that? 22 MR. CURTIS: I don't think we would agree with 23 that because we are relying on the expertise that has 24 come from our consultant, Agra Monenco, and that does 25 not seem to be their view that it would end up within 26 the small LDCs that you have been talking about. 27 These other opportunities, we are talking 28 about small generation here, would appear in some of the Les Services StenoTran Services Inc. 613-521-0703 405 OHNC, cr-ex (Brown) 1 other larger LDCs, not necessarily in the small LDCs as 2 you are trying to -- 3 MR. BROWN: Get you to agree. 4 MR. CURTIS: Get me to agrees, yes. 5 MR. BROWN: Well, perhaps since you are basing 6 your position on the expertise of Agra Monenco, is there 7 any portion of their report that you can point me to 8 that would contain their expert view that small MEUs in 9 Ontario are not likely to take any advantage whatsoever 10 of the new opportunities in imbedded generation so that 11 over the next eight years they invest zero in imbedded 12 generation, or is the report silent on that? 13 MR. CURTIS: The report is silent on that. 14 MR. BROWN: In terms of the actual proposal 15 that you are putting before this Board, which is the 50 16 per cent one, I think the message that you have conveyed 17 fairly loudly and clearly is the primary rationale 18 supporting that proposal was that is the one that in 19 your view best reduces cost reassignments amongst 20 customer classes. 21 MR. CURTIS: Yes. 22 MR. BROWN: There is also an element beyond 23 that, is there not, however, inasmuch that another 24 rationale for your proposal is that you think it is one 25 that would promote efficient generation in this 26 province. 27 MR. CURTIS: There is a component of 28 efficiency in the generation that is associated with it. Les Services StenoTran Services Inc. 613-521-0703 406 OHNC, cr-ex (Brown) 1 Yes. We have brought that in. Yes. 2 MR. BROWN: So certainly from your 3 perspective, that is OHNC's perspective, the promotion 4 of what you have styled as efficient generation is a 5 desirable objective of the method of calculating the 6 bill for loads. 7 MR. CURTIS: The inclusion of the efficiency 8 component of it came about through our stakeholdering 9 process and we were listening to our stakeholders and 10 there were several of them that urged us to include the 11 efficiency in the generation component in that. 12 MR. BROWN: I take it you have put it in 13 because you agree that it is a reasonable thing to put 14 in. 15 MR. CURTIS: Again, what we have been trying 16 to do here in terms of putting together our proposal is 17 to balance all of the different issues of our 18 stakeholders. Some of our stakeholders have come 19 forward and suggested that there should be this 20 component of efficiency in the generation that should be 21 included and so that's the drive in terms of our 22 accepting this as in terms of reflecting the balance 23 across our stakeholders. 24 MR. BROWN: I would like to explore just a few 25 of the effects that your proposal might have. The first 26 one I would like to explore is the regulatory costs that 27 your proposal might incur. In that regard, if I could 28 ask you, gentlemen, to turn to a response that OHNC gave Les Services StenoTran Services Inc. 613-521-0703 407 OHNC, cr-ex (Brown) 1 to a Board staff interrogatory. You will find it in 2 Exhibit E, Tab 1, Schedule 62. Exhibit E, Tab 1, 3 Schedule 62. 4 MR. PORAY: Sixty-two? 5 MR. FISHER: Yes, Mr. Poray. 6 MR. PORAY: Okay, we have that. 7 MR. BROWN: The question that was posed of you 8 here was: 9 "Please indicate how a particular new 10 imbedded generation project would be 11 considered as efficient under the 12 proposal that you have put forward." 13 The response is: 14 "The proponent of new imbedded generation 15 would bring forward an application to the 16 Board as a request for approval under the 17 OEB Act, section 92. During that 18 proceeding, the OEB would determine if 19 the project was efficient or otherwise." 20 You have provided a definition of efficient 21 generation. I take it from that answer what you 22 envisage is that all of the projects that Agra Monenco 23 have forecast will take place in Ontario between 2000 24 and 2008 would have to come before this Board for 25 approval at some point in time. 26 MR. CURTIS: Yes, that's our understanding. 27 MR. BROWN: And this Board would have to 28 determine whether or not each particular project Les Services StenoTran Services Inc. 613-521-0703 408 OHNC, cr-ex (Brown) 1 qualified as efficient generation. 2 MR. CURTIS: Well, given the definition that's 3 approved by the Board, yes. 4 MR. BROWN: You recognize that that element or 5 that aspect of your proposal would result in rather 6 significant increased regulatory costs and regulatory 7 risks. 8 MR. CURTIS: It's our understanding of the 9 feature of how the industry is going to operate though. 10 MR. BROWN: Well, there is an element of 11 regulatory risk involved in it, is there not, inasmuch 12 as that from an investor's point of view, if an investor 13 decides that it wants to go ahead with the project in 14 connection with a load, it's really not going to know 15 whether its project qualifies or not until it has gotten 16 the approval of the Board that its project falls within 17 the definition that you set. 18 MR. CURTIS: Our understanding is that by 19 setting the definition that we have for efficient 20 generation that the proponent would know in advance 21 whether or not his project met that requirement. 22 MR. BROWN: So you don't think there would be 23 any risk involved then on the part of investors to know 24 in advance whether their project is going to qualify or 25 not. 26 MR. CURTIS: Well, these projects generally in 27 terms of the planning and development stage, you would 28 know at that particular point whether or not it would Les Services StenoTran Services Inc. 613-521-0703 409 OHNC, cr-ex (Brown) 1 qualify. 2 MR. BROWN: Well, in terms of the kinds of 3 projects that would qualify, the definition which you 4 have selected as part of your proposal is the one which 5 OHNC regards as best describing efficient generation. 6 MR. CURTIS: I'm sorry, could you run that by 7 me again. 8 MR. BROWN: I put it badly. The criteria for 9 efficient generation that are in your proposal are based 10 upon OHNC's view of what constitutes efficient 11 generation. They are your view of what constitutes 12 efficient generation. 13 MR. CURTIS: Yes. We have taken, I guess, the 14 effort here to try and draw upon other expertise in 15 terms of coming up with this definition, but we are 16 adopting it as our definition. Yes. 17 MR. BROWN: And you have acknowledged, I 18 believe, somewhere in your evidence, and quite frankly I 19 can't point you to chapter or verse, that the precise 20 definition that you are employing is not necessarily 21 identical in all respects to the Revenue Canada 22 classification under the Income Tax regs. 23 MR. CURTIS: That's correct. There are two 24 minor variations from that income tax definition. 25 MR. BROWN: And you have also, I think, in 26 response to one of Board staff's interrogatories, if you 27 turn to Interrogatory 44, which is Exhibit E, Tab 1, 28 Schedule 44, you see there that they have stated that Les Services StenoTran Services Inc. 613-521-0703 410 OHNC, cr-ex (Brown) 1 standards combined cycle systems are generally 2 considered to be one of the most efficient forms of 3 generation. Why are these systems excluded from the 4 efficient generation list? 5 You have answered that well. As a result of 6 the stakeholder consultation, you think you have a 7 middle of the road solution and that including standard 8 combined cycle systems covers a relatively larger cost 9 reassignment. 10 I take it the reason you are excluding this 11 form of efficient generation from your classification 12 has nothing to do with its inherent efficiencies. It 13 has to do with this other reason that you have of cost 14 reassignment. 15 MR. CURTIS: Well, there's that balance that 16 we are bringing in. Yes. 17 MR. BROWN: And your own expert, Agra Monenco, 18 in its report, which is at Exhibit D, Tab 5, Schedule 3, 19 page 2-2 of the report -- 20 --- Pause 21 MR. CURTIS: We are there. 22 MR. BROWN: Have you got that, gentlemen? 23 MR. CURTIS: Yes. 24 MR. PORAY: Yes, we have. 25 MR. BROWN: At the bottom of 2-2 your expert 26 has given four examples of -- I see it here -- what it 27 considers to be efficient generation from the provincial 28 economy viewpoint, the first being co-generation; the Les Services StenoTran Services Inc. 613-521-0703 411 OHNC, cr-ex (Brown) 1 second, renewable energy resources; the third, 2 generation in a location that would result in a 3 significant improvement in the efficiency of electrical 4 systems and, fourth, to displacing the generation by 5 cleaner fuels, such as natural resources. 6 MR. CURTIS: Yes. 7 MR. BROWN: And then it goes on to say: 8 "For the purposes of this report the 9 regulations defining income tax 10 regulations will be used to define 11 categories 1 and 2 above as the primary 12 components of the efficient generation 13 class." (As read) 14 MR. CURTIS: Yes. 15 MR. BROWN: And ones in categories 3 and 4 may 16 or may not fall in, into the definition of efficient 17 generation. 18 MR. CURTIS: They may or may not, depending on 19 what the specific technology is that is chosen. 20 MR. BROWN: So even in terms of those forms of 21 efficient generation identified by your expert, you are 22 not proposing that they all qualify for your 50 per cent 23 gross load billing? 24 MR. CURTIS: They may not, that's correct. 25 MR. BROWN: Another question in this area of 26 your definition of efficient generation, given that one 27 of your apparent objectives is to promote efficient 28 generation, as you have defined it, why then at the end Les Services StenoTran Services Inc. 613-521-0703 412 OHNC, cr-ex (Brown) 1 of the day are you still putting on a 50 per cent charge 2 on the generation that you have identified as efficient? 3 MR. CURTIS: Well, again, it's this balance 4 that we are trying to strike among different stakeholder 5 views and different stakeholder wishes, as well as what 6 the implications are as far as the transmission rights 7 that would come out of it. 8 MR. BROWN: One final area of questioning in 9 this first category of network services -- and that's 10 trying to find out what's going on in other 11 jurisdictions -- I provided your counsel with a copy of 12 a recent decision of the Alberta Board and copies are 13 available for the Board. Do you have those, gentlemen? 14 MR. PORAY: Yes, we do. 15 MR. BROWN: There are lots of copies on the 16 side there. 17 MR. LYLE: I will mark that as Exhibit T2.2. 18 EXHIBIT NO. T2.2: Decision of the 19 Alberta Board 20 MR. BROWN: Are you aware, gentlemen, that 21 over the last number of months that the Alberta Board 22 has had to consider an application brought by its 23 transmission administrator out there? 24 MR. CURTIS: Yes, we are broadly aware of 25 that. 26 MR. BROWN: And you are also aware that one of 27 the live issues in that proceeding was whether or not 28 billings should be done on a net load or a gross load Les Services StenoTran Services Inc. 613-521-0703 413 OHNC, cr-ex (Brown) 1 basis? 2 MR. CURTIS: Yes, intertwined with a lot of 3 other issues as well, 4 MR. BROWN: I hesitate to identify any 5 particular result of a Board decision because it is 6 intertwined, but since they did deal with the net and 7 gross load billing, what I have provided to you in 8 Exhibit G2.2 is that portion of an extract of that 9 portion of the decision dealing with the gross to net 10 billing issue. I take it you have had an opportunity to 11 review that? 12 MR. CURTIS: Yes, we have. 13 MR. BROWN: And you would agree with me that 14 the bottom line, so to speak, that we see on page 220 at 15 the end of section 14.4 is that the Alberta Board 16 accepted the transmission administrator's proposal that 17 pricing of transmission for energy transfers and dynamic 18 interchanges with the interconnected transmission system 19 be done on a net basis as requested in the application? 20 MR. CURTIS: Yes, it did, but it did that with 21 a view to a lot of other aspects of the application 22 which are not included -- which you haven't included in 23 this. 24 MR. BROWN: Right, because I think it is a 440 25 page decision, but -- 26 MR. CURTIS: And there are many other factors 27 that are entwined that we believe led to this decision. 28 It wasn't done in isolation on just a net versus gross Les Services StenoTran Services Inc. 613-521-0703 414 OHNC, cr-ex (Brown) 1 load issue. 2 MR. BROWN: Perhaps because Mr. Fagan, I 3 expect, when he testifies will be dealing in part with 4 this, perhaps you could identify for the Board those 5 other significant factors which you think the Alberta 6 Board took into account in arriving at its decision to 7 adopt a net load billing system? 8 MR. CURTIS: I don't know whether I could 9 outline them all, but there are some that I think are 10 quite apparent. 11 If you read through what you have provided 12 here, there were a number of appearances before this 13 Board to argue the case and each one of them supported 14 the net load billing alternative. Ontario, as I am sure 15 you are well aware, in terms of the stakeholdering that 16 has gone on, there are quite a number of proponents, 17 stakeholders, that have come forward that have supported 18 the gross load side of it as well. So we have a 19 different situation right from the very beginning in 20 terms of where various stakeholders are on this issue, 21 which doesn't seem to be apparent in this particular 22 decision that has been brought forward. 23 MR. BROWN: Are there any other factors that 24 you would point to? 25 MR. CURTIS: One of the other issues that I 26 don't think is brought out particularly well in this 27 document is in the area of expectations within the 28 Alberta economy versus expectations within the Ontario Les Services StenoTran Services Inc. 613-521-0703 415 OHNC, cr-ex (Brown) 1 economy. 2 MR. BROWN: Could you explain that? 3 MR. CURTIS: For example, centred around load 4 growth. Our understanding is that the load growth 5 expectations in Alberta are considerably higher than 6 what they are in Ontario, and as we have discussed 7 earlier, the points that I think you were trying to make 8 earlier are that load growth in some sense mitigates 9 concerns, at least on the network side, as far as net 10 load billing. 11 MR. BROWN: Are there any other factors? 12 MR. CURTIS: There is a different mechanism 13 that has been put in place in Alberta around line 14 connection contracting, that's our understanding, than 15 what we have available currently in Ontario. 16 There is also a contracting provision that 17 centres around the network portion of billing referred 18 to as ratcheting, which isn't documented in this. 19 There are aspects in terms of the various 20 rates that are available to loads in terms of back-up 21 services that we don't have in place in Ontario. 22 I think there are probably a number of other 23 ones, but that's a small list of concerns that I have in 24 terms of just taking what you presented here and then 25 saying that this should be applied to Ontario. 26 MR. BROWN: I haven't quite said that, but in 27 terms of the significant differences that you see 28 between the two provinces, have you given me as Les Services StenoTran Services Inc. 613-521-0703 416 OHNC, cr-ex (Brown) 1 comprehensive a list as you can at this point, 2 significant differences? 3 MR. CURTIS: I think probably we are kind of 4 put on the spot here in terms of trying to come up with 5 a list, but at this particular point, yes, this would be 6 the list. 7 MR. BROWN: Dr. Higgin, I am going to move on 8 to transformation and connection and then the exemption. 9 I expect I will be another 25 to 30 minutes and then we 10 will be complete. 11 THE PRESIDING MEMBER: This is a good time to 12 stop for the day. 13 With respect to tomorrow, as we know there is 14 some snow forecast, but it doesn't seem to be in the 15 category of a weather advisory or anything, so we will 16 plan to go ahead. If there is any change in that, then 17 you should consult the hot line or call in after 8:30 in 18 the morning if there is any concern. Otherwise, we will 19 plan if the hearing is going to be on tomorrow from nine 20 o'clock until about a four o'clock wrap up. 21 Mr. Campbell. 22 MR. CAMPBELL: Mr. Chairman, just in light of 23 my own remarks yesterday, I am going to live up to my 24 own admonition and I expect we well be referring 25 tomorrow in cross-examination to the precisely preceding 26 seven pages in the Alberta decision to the ones that Mr. 27 Brown referred to. We will be referring to that for 28 exactly the kind of reasons that Mr. Curtis referred to. Les Services StenoTran Services Inc. 613-521-0703 417 1 So that if people would like to pick up what 2 we will be referring to in cross-examination, we will 3 have that immediately at the close. It is a very 4 comprehensive decision. It's both available on the web 5 site in Alberta, but in people want an electronic copy 6 of the full version, the full text of the decision sent 7 to them, we would be happy to do so if they will leave 8 an e-mail address with us. It's a PDF file and we will 9 be happy to e-mail people the whole decision, but there 10 is a segment that we will be referring to morrow and I 11 have copies of that here. 12 THE PRESIDING MEMBER: That sounds good. 13 I think the Board has made plans to get a copy 14 of that decision, as far as I know, but should we need 15 one we will certainly avail ourselves of your offer. 16 Thank you. 17 Any other matters? 18 We will see everybody at nine o'clock. Thank 19 you. 20 --- Whereupon the hearing adjourned at 1658, to 21 resume on Friday, February 18, 2000 at 0900 22 23 24 25 26 27 28 Les Services StenoTran Services Inc. 613-521-0703 418 1 INDEX OF PROCEEDING 2 PAGE 3 Upon resuming at 0905 209 4 Preliminary Matters 209 5 OHNC PANEL 1 6 PREVIOUSLY SWORN: DAVID CURTIS 212 7 PREVIOUSLY SWORN: ANDY PORAY 212 8 Continued Examination by Ms. Lea 212 9 Questions by the Board 226 10 Further Cross-examination by Mr. Fisher 235 11 Further Cross-examination by Mr. Brown 245 12 Upon recessing at 1035 264 13 Upon resuming at 1055 264 14 Cross-examination by Mr. Budd 269 15 Further Cross-examination by Mr. Mattson 273 16 Further Cross-examination by Mr. Greenspoon 278 17 Cross-examination by Mr. Campbell 280 18 Further Cross-examination by Mr. White 285 19 Cross-examination by Ms Godby 287 20 Further Cross-examination by Mr. Rodger 305 21 Further Examination by Ms Lea 308 22 Further Cross-examination by Mr. Friedman 308 23 Further Examination by Ms Lea 313 24 Upon recessing at 1240 321 25 Upon resuming at 1400 321 26 Questions by the Board 321 27 Re-examination by Mr. Rogers 334 28 Further Cross-examination by Mr. Fisher 335 Les Services StenoTran Services Inc. 613-521-0703 419 1 INDEX OF PROCEEDING (Cont'd) 2 PAGE 3 Cross-examination by Mr. Snelson 342 4 Further Cross-examination by Mr. Fisher 345 5 Further Cross-examination by Mr. Brown 354 6 Upon recessing at 1540 375 7 Upon resuming at 1600 375 8 Upon adjourning at 1658 417 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Les Services StenoTran Services Inc. 613-521-0703 420 1 EXHIBITS 2 NO. PAGE 3 G2.1 Calculation dealing with the 282 4 effects of charge determinant, 5 Option XVI, on embedded generators 6 T2.2 Decision of the Alberta Board 412 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Les Services StenoTran Services Inc. 613-521-0703 421 1 UNDERTAKINGS 2 NO. PAGE 3 F2.1 Mr. Rogers undertakes to produce 285 4 a calculation showing the charges 5 resulting with respect to Option 6 XVIII, OHNC's preferred option 7 8 F2.2 Mr. Curtis undertakes to determine 394 9 and advise Mr. Brown if OHNC used 10 the forecast performed by AGRA Monenco 11 to perform the analysis shown in each 12 of the different columns in Table 6 13 found at Exhibit D, Tab 5, Schedule 2