753 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 B E F O R E : 13 R.M. HIGGIN Presiding Member 14 P. VLAHOS Member 15 B. SMITH Member 16 17 18 Hearing held at: 19 2300 Yonge Street, 25th Floor, Hearing Room No. 2 20 Toronto, Ontario on Tuesday, February 22, 2000, 21 commencing at 0902 22 23 HEARING 24 25 VOLUME 5 26 27 28 Les Services StenoTran Services Inc. 613-521-0703 754 1 APPEARANCES 2 JENNIFER LEA/ Counsel to Board Staff 3 MICHAEL LYLE 4 5 HAROLD THIESSEN/ Board Staff 6 NABIH MIKHAIL/ 7 COLIN SCHUCK 8 9 DONALD ROGERS/ Ontario Hydro Networks 10 BRYAN BOYCE Company Inc. (OHNC) 11 12 DAVID BROWN Independent Power Producers 13 Society of Ontario (IPPSO); 14 Ontario Natural Gas 15 Association (ONGA) 16 17 JAMES FISHER/ Association of Major Power 18 KEN SNELSON Consumers in Ontario (AMPCO) 19 20 MICHAEL JANIGAN Vulnerable Energy Consumers 21 Coalition (VECC) 22 23 ROBERT WARREN Consumers Association of 24 Canada (CAC) 25 26 27 28 Les Services StenoTran Services Inc. 613-521-0703 755 1 APPEARANCES (Cont'd) 2 BRUCE CAMPBELL/ Ontario Power Generation 3 JOEL SINGER/ (OPG) 4 JOHN RATTRAY 5 6 LLOYD GREENSPOON NorthWatch 7 8 DAVID POCH Green Energy Coalition (GEC) 9 10 MARK MATTSON/ Energy Probe 11 MIKE HILSON 12 13 PETER BUDD TransAlta Energy 14 15 MURRAY KLIPPENSTEIN Pollution Probe 16 17 RICHARD STEPHENSON Power Workers Union 18 19 MARK RODGER Toronto Hydro Electric 20 System Ltd. 21 22 PAUL DUMARESQ Ontario Association of Physical 23 Plant Administrators 24 25 SHARON WONG Imperial Oil Ltd. 26 27 28 Les Services StenoTran Services Inc. 613-521-0703 756 1 APPEARANCES (Cont'd) 2 ERIK GOLDSILVER Electrical Contractors 3 Association of the Ontario; 4 Collingwood Public Utilities 5 Commission 6 7 ROGER WHITE Energy Cost Management Inc. 8 9 RICHARD KING Five Nations Energy Inc.; 10 Detroit Edison Co. 11 12 KENNETH LIDDON Suncor Energy Inc. 13 14 GEORGE VEGH/ Amoco Canada (BP Amoco); 15 JEAN-PAUL DESROCHERS Toromont Energy 16 17 KEITH RAWSON TransCanada Energy 18 19 PAUL VOGEL/ The Chiefs of Ontario 20 CAROL GODBY 21 22 ALAN MARK/ Municipal Electrical 23 KELLY FRIEDMAN/ Association (MEA) 24 MAURICE TUCCI 25 26 27 28 Les Services StenoTran Services Inc. 613-521-0703 757 1 APPEARANCES (Cont'd) 2 WENDY EARLE/ Brampton Hydro, Cambridge 3 JAMIE SIDLOFSKY and North Dumfries Hydro, 4 Guelph Hydro, Niagara Falls 5 Hydro, Oakville Hydro, 6 Richmond Hill Hydro, 7 Pickering Hydro and Waterloo 8 North Hydro 9 10 RICK COBURN INCO Limited; Ontario Mining 11 Association 12 13 TED COWAN Ontario Federation of 14 Agriculture 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Les Services StenoTran Services Inc. 613-521-0703 758 1 Toronto, Ontario 2 --- Upon resuming on Tuesday, February 22, 2000 3 at 0902 4 THE PRESIDING MEMBER: Good morning. 5 Are there any preliminary matters? 6 Mr. Rogers? 7 PREVIOUSLY SWORN: DAVID CURTIS 8 PREVIOUSLY SWORN: ANDY PORAY 9 PRELIMINARY MATTERS 10 MR. ROGERS: Yes. Thank you, Mr. Chairman. 11 I would like to report to the Board on the 12 status of some open undertakings. 13 First of all, 3.2, in which the company was 14 asked to provide an impact analysis of extending the 15 exemption to 20 megawatts, is still under advisement. 16 It is a question of getting information from the 17 consultants, sir. They are doing their best. I will 18 keep the Board posted. I'm not sure we can answer it, 19 but they will do their best. 20 Secondly, I would like to deal with 21 Undertaking F4.1. Mr. Poch is not here this morning I 22 see, but I would like to address this now. I know he is 23 reading the transcript and if this causes him concern he 24 can revisit it. You may recall that he asked us or 25 asked the company to advise as to how many 26 municipalities the company, the applicant, was in 27 discussion with about acquisition and I took it under 28 advisement. Les Services StenoTran Services Inc. 613-521-0703 759 Preliminary Matters 1 Sir, with respect, I would like to decline to 2 answer that question on the basis that this is 3 commercially sensitive information. The applicant is in 4 discussion with some municipalities, in competition with 5 others, and it would be to their prejudice to have to 6 reveal those municipalities with whom they are in 7 discussion, even a number of them. It gives the 8 direction that I submit is commercially sensitive and 9 would prejudice my client, particularly when none of the 10 other participants would have to reveal the extent of 11 their activity in this area. So there is prejudice on 12 the one hand. 13 On the other side of the coin, it is my 14 submission that this information really has very limited 15 probative value. It is almost impossible to define what 16 discussions mean and when do serious discussions take 17 place. I must say that I have a hard time understanding 18 how this information could be probative or of any value 19 to the Board. 20 The last thing that I would say is that the 21 company, of course, does have to come forward to this 22 Board once these plans are solidified. I could advise 23 the Board and Mr. Poch that OHNC presently has three 24 applications before this Board and I understand that 25 there is another application by another entity, but my 26 client has three applications before the Board at the 27 moment. I hope that information will satisfy Mr. Poch. 28 Thank you, sir. Les Services StenoTran Services Inc. 613-521-0703 760 Preliminary Matters 1 THE PRESIDING MEMBER: Do you have the 2 information on the three? I think I know some of them: 3 Artemesia -- 4 MR. ROGERS: Yes. I can tell you. I have 5 that information. 6 THE PRESIDING MEMBER: -- and Chalk River. 7 MR. ROGERS: Yes. Correct. Artemesia, Chalk 8 River and Cobden. Cobden is the third. 9 THE PRESIDING MEMBER: Thank you. 10 MR. ROGERS: Now, the last undertaking I would 11 like to address this morning, sir, is F4.2 in which 12 Mr. Curtis was asked to recast Exhibit D, Tab 5, 13 Schedule 2, page 7, which was Table 6, I think. You 14 remember you got involved in the discussion. 15 THE PRESIDING MEMBER: Yes. 16 MR. ROGERS: The company will do that. It is 17 a little more complicated than I had realized and 18 requires some assumptions being made, but they will 19 indeed do that, recast that table as requested. 20 THE PRESIDING MEMBER: So just on that, you 21 are telling me that you will have to change the base 22 assumptions regarding, for example, the revenue 23 requirement and things like that? 24 MR. CURTIS: No, we will not do that. We will 25 keep the same base assumptions -- 26 THE PRESIDING MEMBER: Okay. 27 MR. CURTIS: -- so that it will be a 28 consistent comparison. Les Services StenoTran Services Inc. 613-521-0703 761 Preliminary Matters 1 THE PRESIDING MEMBER: Good. That is good. I 2 was going to suggest don't do that. Okay. 3 MR. ROGERS: Thank you very much, 4 Mr. Chairman. Those are the matters I wish to address. 5 THE PRESIDING MEMBER: Thank you, Mr. Rogers. 6 Any other preliminary matters from anyone? 7 No? 8 I did understand that Mr. White, Mr. Roger 9 White, has questions for this panel on the topic of net 10 versus gross billing but he is not here. Is there 11 anyone else, other than the Board has some questions, 12 who wishes to ask questions regarding the net versus 13 gross load billing issue? No? 14 Okay. Then with that we will move to the 15 Board's questions. 16 Mr. Smith, would you like to start? Are you 17 ready? 18 MEMBER SMITH: There is just one area I wanted 19 to ask you about which doesn't seem to come up too 20 often, and that is the cost side of the equation as 21 opposed to the revenue side. 22 When a customer installs embedded generation 23 you face a revenue loss and you have spent two days 24 describing how you cope with that, but it is primarily 25 through what you call cost shifting or preventing cost 26 shifting from happening. But, in any event, your 27 management philosophy is to recoup the revenue from 28 somebody, either you get it back from the original Les Services StenoTran Services Inc. 613-521-0703 762 OHNC PANEL 1 1 customer or you pass it on to your other customers. 2 You mention in your testimony that there is no 3 automatic cost reduction in your operation because you 4 have lost the customer. The system has a lot of fixed 5 costs that don't vary with volume. What I wanted you to 6 explain to me is to what extent are there discretionary 7 actions in your cost structure of the company that could 8 be looked at to reduce costs? 9 MR. CURTIS: The one area where there may be 10 some discretionary costs would be in the area of 11 maintenance and operation. 12 MEMBER SMITH: Right. That is about a 13 $300 million -- 14 MR. CURTIS: In total, in terms of our total 15 cost structure. 16 The reason why that may be limited to some 17 degree is because the facilities that we are talking 18 about, even if they are not serving one customer because 19 that customer has decided to reduce its requirements off 20 the system is that those facilities often serve other 21 customers as well. So the reduced take on the system 22 doesn't mean that you can suddenly stop operation or 23 stop maintenance. Those still have to go on in order to 24 maintain the operation and the reliability of the system 25 for other customers. 26 Moreover, in many of the examples that were 27 discussed during this panel, we talked about reducing 28 the take on the transmission system but not eliminating Les Services StenoTran Services Inc. 613-521-0703 763 OHNC PANEL 1 1 it. It really doesn't matter if you now decide just to 2 take 50 per cent of your former take off the 3 transmission system, the level of maintenance still has 4 to be there, still has to, in order to maintain the 5 facility, deliver that 50 per cent. And there may be 6 the same similar sorts of requirements on the 7 operational side. 8 The bulk of our costs, as you, I'm sure, 9 realize are associated with the fixed costs of the 10 infrastructure, the debt, if you will, that services 11 that. Those costs would not go away or could not be 12 minimized if a customer decided to reduce its take off 13 the system. 14 MEMBER SMITH: Right. Let me just probe this 15 a little bit further, though. 16 In our economy, in general, in the last 20 17 years an awful lot of businesses have had to take a look 18 at their operations and look into costs that they never 19 thought they would have to do. Sometimes through sheer 20 necessity they have found cuts that had to be made in 21 order that their business would survive or to maintain 22 their margins and so on. 23 In the old hydro, or now the new company, has 24 any such exercise been gone through in the transmission 25 system to not just take it for granted that, "These are 26 the costs we have always faced so now we have to face 27 them in the future", but to see if there are better, 28 cheaper ways of getting those costs down the way an Les Services StenoTran Services Inc. 613-521-0703 764 OHNC PANEL 1 1 awful lot of other industries have had to -- a challenge 2 a lot of other industries have had to face. 3 MR. CURTIS: Yes. Our management is looking 4 at that right at the moment, as a matter of fact. 5 But this is broadly across the whole business, 6 not just in the sense of a customer under a net versus 7 gross application deciding to take less service off the 8 system. There is a broad examination of the cost 9 structure within our business, within our company. I 10 would submit that when we come forward in terms of 11 filing again, either under PBR or under cost of service, 12 that a lot of that would come out at that particular 13 point in time. 14 MEMBER SMITH: Right. So I can take it that 15 it is not axiomatic when the company faces a revenue 16 loss that it automatically turns to recouping that 17 revenue from another customer but it would also be part 18 of management philosophy to see if the margins could be 19 maintained by internal managing down of costs as well. 20 MR. CURTIS: Managing down costs, that's 21 correct. 22 MEMBER SMITH: Okay. 23 There just was one other sort of technical 24 matter I wanted to ask you about. You were talking 25 about when people are a customer of your company, and 26 therefore justifying user fees and it came up I think 27 yesterday that you see somebody to be a user of the 28 system just because they are connected. Les Services StenoTran Services Inc. 613-521-0703 765 OHNC PANEL 1 1 MR. CURTIS: Yes. 2 MEMBER SMITH: So if no power was flowing they 3 are still a user of the system? 4 MR. CURTIS: Yes, they are. 5 MEMBER SMITH: In the new regime would they 6 have to pay a fee? I am not talking about a customer 7 with embedded generation, just say somebody who had a 8 direct customer who had a plant that had to be shut down 9 for maintenance or a strike or the economy or something, 10 so that they remain connected but they weren't drawing 11 any power. 12 MR. CURTIS: No, they wouldn't. 13 I guess just to try and be clear about this, 14 we were trying to differentiate between those situations 15 where a business ceases to take power off of our system 16 because of their own business reasons. They are forced 17 to shut down a plant for whatever business reason might 18 have occurred and under those circumstances, they would 19 not continue to pay transmission services. 20 However, just again to be clear, if a plant, 21 for say one hour or whatever or a few hours out of the 22 month, cease to take delivery off the system because of 23 the charge determinant that we have set up, they would 24 undoubtedly still pay for that monthly requirement in 25 terms of what peak they had achieved through the rest of 26 the month. 27 MEMBER SMITH: All right. 28 THE PRESIDING MEMBER: Thank you. Les Services StenoTran Services Inc. 613-521-0703 766 OHNC PANEL 1 1 Mr. Vlahos. 2 MEMBER VLAHOS: Thank you, Mr. Chairman. 3 Gentlemen, just a couple of questions in a 4 couple of areas. First, there is some clarification. 5 The number that you have referred to, the 6 transmission component of the total electricity bill 7 being about 16 per cent, that is an average number. So 8 is there a large variation around that number? Do you 9 have a feel for it? 10 MR. CURTIS: For some customers that are 11 taking delivery directly off the transmission system and 12 consequently don't go through the distribution system, I 13 think that figure would go up to something in the order 14 of 20 to 25 per cent. I think that would be about as 15 high as the figure would go in terms of the transmission 16 component. 17 MEMBER VLAHOS: What would be on the low end 18 of the range? 19 MR. CURTIS: I think the figures that I have 20 looked at are in the order of about 12 per cent. 21 MEMBER VLAHOS: Now, there has been a lot of 22 discussion about the Table 5 on Exhibit D, Tab 5, 23 Schedule 2. You don't need to turn it up. That shows 24 all the impacts to the various customer categories. It 25 is set out? 26 MR. CURTIS: Yes. 27 MEMBER VLAHOS: I just want to understand or 28 clarify that the impacts that you have shown there, they Les Services StenoTran Services Inc. 613-521-0703 767 OHNC PANEL 1 1 are over what base? What is the base? Is it the 2 current customer bills once you back out the cost of the 3 electricity component, the commodity component? 4 MR. CURTIS: Yes, it is. 5 MEMBER VLAHOS: It is. 6 MR. CURTIS: It is strictly the transmission 7 portion of the customer's bill. 8 MEMBER VLAHOS: Okay. That is based on the 9 1999 revenue requirement as found by the Board? 10 MR. CURTIS: The 2000 revenue requirement -- 11 MEMBER VLAHOS: 2000? 12 MR. CURTIS: -- as found by the Board, yes. 13 MEMBER VLAHOS: 2000 in 1999? 14 MR. CURTIS: Yes. 15 MEMBER VLAHOS: Okay. There is not any 16 forecast element in those numbers? 17 MR. CURTIS: Other than the load forecast that 18 has been incorporated to take it up to 2008. 19 MEMBER VLAHOS: And the capital expenditure 20 forecast? 21 MR. CURTIS: It is not reflected directly. It 22 is only reflected in so much as it was contained in the 23 2000 approved revenue requirement. 24 MEMBER VLAHOS: All right. That is also a 25 forecast? 26 MR. CURTIS: Yes, it was. 27 MEMBER VLAHOS: In the same way the O&M would 28 be a forecast. At the time that the Board has set the Les Services StenoTran Services Inc. 613-521-0703 768 OHNC PANEL 1 1 rates a lot of those things were forecast? 2 MR. CURTIS: Yes, that is correct. 3 MEMBER VLAHOS: As a matter of course, do you 4 do the updates for your forecast or do they always stand 5 throughout the year? 6 MR. CURTIS: Yes. Typically, we have an 7 annual forecasting routine, if you will, that we go 8 through. So there would be an update, for example, on 9 the load forecast that would be done. There is a 10 process in terms of determining what our costs or budget 11 would be. That would be done on an annual basis as 12 well. 13 MEMBER VLAHOS: Although, I am sure that the 14 forecast the Board looked back in 1999 for 2000 rates 15 did not reflect gross versus net billing, for example. 16 What will be implicit in those kinds of forecasts? 17 MR. CURTIS: I guess I am not quite 18 understanding what you mean by implicit in the forecast. 19 For example, the load forecast would be -- 20 would not be taking into account assumptions around net 21 versus gross load in terms of how it gets resolved. The 22 load forecasting is aimed at determining what the total 23 load would be potentially on the system on a forecast 24 basis. 25 MEMBER VLAHOS: Right. So you would recover 26 your costs from the total load? 27 MR. CURTIS: Yes. 28 MEMBER VLAHOS: All right. So implicit in Les Services StenoTran Services Inc. 613-521-0703 769 OHNC PANEL 1 1 there was a gross billing? 2 MR. CURTIS: Yes, I suppose one could 3 interpret it that way, yes. 4 MEMBER VLAHOS: Also, there was a lot of 5 emphasis on the estimates produced by AGRA Monenco about 6 the potential or likely embedded generation in the 7 province. I believe it was a new panel that there is 8 less likelihood, probably little opportunity, for the 9 smaller MEUs to engage in embedded generation. Was that 10 your position? I am not sure. 11 Were you understanding? 12 MR. CURTIS: Yes, we accepted what the 13 consultant reported back to us on that. 14 MEMBER VLAHOS: Okay. I just wondered, to the 15 extent that transmission rates are high enough that 16 embedded generation makes economic sense even for small 17 MEUs, then I just wonder about this parallel effect. 18 How would the company handle something like this? 19 It goes back to Mr. Brock's questions, I 20 guess. You would have some stranded costs and there 21 would be an issue of recovery of those stranded costs. 22 Where would you go? 23 MR. CURTIS: The position that we brought 24 forward is that those costs would go back into the 25 general pool of costs, if you will, and be recovered 26 from other customers, other transmission customers. 27 MEMBER VLAHOS: But if you take it to the 28 ultimate degree then there is no customers? Les Services StenoTran Services Inc. 613-521-0703 770 OHNC PANEL 1 1 MR. CURTIS: That's correct. 2 MEMBER VLAHOS: Okay. And if there are no 3 customers then what happens to those stranded costs? 4 MR. CURTIS: Well, if there are no 5 transmission customers it probably means there is no 6 transmission company any more. So the stranded costs 7 ultimately in the very end state would go to the 8 shareholder, which in our case would be the government. 9 MEMBER VLAHOS: But that scenario is very 10 highly unlikely, isn't it? 11 MR. CURTIS: I would certainly hope so, yes. 12 MEMBER VLAHOS: At least in the foreseeable 13 future. 14 MR. CURTIS: That's correct. 15 MEMBER VLAHOS: There was also a lot of 16 questions about, by some parties, about the perceived 17 unfairness -- I believe that was mostly from 18 Mr. Brown -- regarding the open ending future of your 19 proposed gross and net proposal. 20 MR. CURTIS: Yes. 21 MEMBER VLAHOS: And the fact that would be 22 there forever, although the load itself may -- the 23 growth in the load itself may provide a situation where 24 it would be unfair to gross bill forever, partially 25 gross bill forever. Do you recall that discussion? 26 MR. CURTIS: Yes, I do recall that discussion. 27 MEMBER VLAHOS: What was your response to that 28 these negotiations, arrangements you are going to have, Les Services StenoTran Services Inc. 613-521-0703 771 OHNC PANEL 1 1 that will take care of that, there will be some base 2 certain, some finality to the gross billing? 3 MR. CURTIS: Yes. 4 MEMBER VLAHOS: Is that the response? 5 MR. CURTIS: Yes, we are proposing that this 6 be replaced with a contracting-based structure and that 7 anyone under our current proposal when once the 8 contracting base has been established could come back 9 and negotiate a contract at that point. 10 So it in fact isn't going to go on forever. 11 It would be ended once the contracting regime was put in 12 place. 13 MEMBER VLAHOS: What comfort does Mr. Brown 14 have today that within the term of that negotiation 15 there will be something, what he would consider 16 reasonable, like say less than 10 years, for example, 17 that would be better than OPGI's proposal, the 10-year 18 frame. Does he have any indication now as to what those 19 contractual terms may be? 20 MR. CURTIS: I don't think he has any comfort 21 necessarily. What we have outlined in terms of our 22 proposal and our testimony is that we would be 23 developing the framework, the contractual framework, 24 with reference to what has gone on in other 25 jurisdictions as well as discussions with the 26 stakeholders in terms of how -- what they may want in 27 terms of this framework and we would bring the framework 28 back before the Board for approval before entering into Les Services StenoTran Services Inc. 613-521-0703 772 OHNC PANEL 1 1 any specific contract negotiations. That's the process 2 stream, if you will. 3 MEMBER VLAHOS: So you are not looking for any 4 guidelines or any commentary by the Board at this stage 5 in this decision as to the kinds of parameters that the 6 Board may have in mind to guide you in your discussions 7 with your stakeholders. 8 MR. CURTIS: Well, we would find it useful and 9 helpful if the Board decided that yes, they could offer 10 us some assistance in this. 11 MEMBER VLAHOS: But your application is 12 already asking for it. 13 MR. CURTIS: No, it is not. 14 MEMBER VLAHOS: Just lastly, I want to have, I 15 guess, a discussion with you about the economic 16 efficiency principle that has been much discussed in the 17 last three days. A number of parties have raised 18 concerns that this principle has not been elevated to 19 the same level as other principles. 20 MR. CURTIS: Yes. 21 MEMBER VLAHOS: In a discussion of the charge 22 determinants when you talk about economic principles, 23 you talk about "Well, our job is not to introduce those 24 economic efficiencies of principle. It is simply to 25 accommodate the working of the market and we just want 26 to recover our money". That's the impression that I 27 got. 28 If you want to talk about economic efficiency Les Services StenoTran Services Inc. 613-521-0703 773 OHNC PANEL 1 1 principles, and this in a case of charge determinants, 2 then you can talk about the local pricing, for example. 3 Okay? And that's to come. 4 MR. CURTIS: Yes. 5 MEMBER VLAHOS: All right. And you also 6 talked about a regulatory compact. Do you remember 7 that? 8 MR. CURTIS: I'm not exactly sure. No. 9 MEMBER VLAHOS: The questions, I guess, were 10 how would you address economic efficiency issues. You 11 did mention local prices. You also mentioned -- well, 12 it's going to be part of the regulatory compact. I just 13 wasn't sure what you meant by that. 14 MR. CURTIS: I would probably have to look 15 back at the record to see more. I'm struggling a little 16 bit, I'm sorry, in terms of -- 17 MR. PORAY: Perhaps I could maybe offer 18 something here. I think maybe from a longer term 19 perspective the issue would be whether we stick with 20 postage stamp type rates or do you go to more location 21 specific rates and under what regulatory compact or what 22 regulatory arrangement would that take place. 23 MEMBER VLAHOS: So, as far as economic 24 efficiency is concerned then, one way to implement that 25 principle would be in the future to localize pricing, 26 locational pricing. 27 MR. PORAY: I think if we want to move in the 28 direction of specific users pay for those facilities Les Services StenoTran Services Inc. 613-521-0703 774 OHNC PANEL 1 1 that they use, if that's the long term view that we want 2 to go to, then I think perhaps that's the direction. 3 Yes. 4 MEMBER VLAHOS: In that connection, I guess we 5 started off the hearing with a cost allocation and then 6 you sort of also discussed rate design as well. I 7 sensed that there was a lot of difficulty with some 8 parties that you have not differentiated the two. Cost 9 allocation is an exercise where you try to find a way to 10 allocate all your costs. 11 MR. CURTIS: Yes. 12 MEMBER VLAHOS: And then the rate design part 13 of it is how you recover those costs, what principles 14 would you apply. That's where economic efficiency comes 15 in. Okay? 16 MR. CURTIS: Yes. 17 MEMBER VLAHOS: Your proposal to simply -- 18 cost allocation rate design is exactly the same thing. 19 MR. CURTIS: I don't think so. 20 MEMBER VLAHOS: Well, you were trying to 21 recover your -- remember the arguments you had or the 22 discussion you had about experience if you saw those 23 costs, those had to be recovered. 24 MR. CURTIS: Yes. 25 MEMBER VLAHOS: But not necessarily looking 26 forward, going forward. That's something else. It 27 belongs somewhere else. It is not part of you 28 responsibility. Les Services StenoTran Services Inc. 613-521-0703 775 OHNC PANEL 1 1 MR. CURTIS: No. I don't think we were trying 2 to say it wasn't part of our responsibility. In fact, 3 one of the other issues that we are going to be looking 4 at in this proceeding is looking at recovering costs for 5 new facilities for connecting up new generators and new 6 facilities for connecting up new loads. 7 What we have been talking about in terms of 8 the net versus gross portion of this proceeding is 9 ensuring the recovery of costs for the existing assets. 10 So, I'm just wondering if perhaps we haven't reached 11 that stage to look at the recovery of future costs. 12 MEMBER VLAHOS: Well, you are trying to find a 13 way to recover the cost of your existing assets and you 14 come up with your choice of charge determinants, for 15 example. 16 MR. CURTIS: Yes. 17 MEMBER VLAHOS: Okay. So that would have 18 covered historical costs, but as to whether those are 19 appropriate charge determinants to accommodate other 20 principles, such as economic efficiency, you are not 21 really reflecting those. 22 Let me give you an example. Figure a 23 distribution company, okay, a lot of its costs are also 24 fixed. One of the principles is that they have to 25 recover their costs of service. They determine those 26 pools of dollars based on functionality as you have 27 done. 28 If the cost allocation exercise is now Les Services StenoTran Services Inc. 613-521-0703 776 OHNC PANEL 1 1 completed and moving to the rate design part of it, you 2 try to look at ways of -- say, you look at fixed costs, 3 you look at demand charges, you look at energy charges. 4 Do you follow me? 5 MR. CURTIS: Yes. 6 MEMBER VLAHOS: Okay. Your proposal does not 7 have that, those features. 8 MR. PORAY: I was under the impression that in 9 fact we did because we had -- in the cost allocation we 10 did functionalize the pools of cost. Having established 11 those pools of cost, then we moved into the rate design. 12 We looked at a number of options for rate design, either 13 based on demand or energy. Then, given the perspective 14 that we obtained from our stakeholders, we honed in on a 15 proposal that would assign essentially the recovery of 16 those costs based on demand. 17 MEMBER VLAHOS: Help me understand this. You 18 have proposed a charge determinant based on peak in some 19 cases. 20 MR. PORAY: No. In all cases we are using 21 peak demand for the connections. Pool of costs we are 22 using the non-coincident peak of the customers. For the 23 network, we are using the higher of the coincident peak 24 or 85 per cent of the non-coincident peak within the 25 peak period, so it's always based on demand. 26 MEMBER VLAHOS: Right. And that was your cost 27 allocation driver in allocating those costs to the 28 various customers. You have functionalized your costs Les Services StenoTran Services Inc. 613-521-0703 777 OHNC PANEL 1 1 and you put them into three pools. 2 MR. PORAY: Right. 3 MEMBER VLAHOS: You say "I'm going to recover 4 the costs from those pools based on these determinants" 5 and you set them out. 6 MR. PORAY: Right. 7 MEMBER VLAHOS: Okay. And to you that's the 8 rate design part of it. 9 MR. PORAY: That's correct. 10 MEMBER VLAHOS: Okay. There was some 11 discussion about equity and fairness. I believe it was 12 Mr. Klippenstein that had tried to distinguish between 13 the notions of equity and fairness from user equity. 14 MR. PORAY: Yes. 15 MEMBER VLAHOS: Do you recall that discussion? 16 That was yesterday. 17 MR. CURTIS: Yes, I do. 18 MEMBER VLAHOS: Just again remind me as to why 19 his questions about what your proposal proposed to do is 20 deal with the equity fairness part of it and not 21 necessarily the user equity principle. 22 MR. CURTIS: I think what Mr. Klippenstein was 23 getting at is, we put forward what we had heard from 24 stakeholders in terms of the use of the term "user pay" 25 and there were two definitions that were put forward to 26 us during the stakeholder process. 27 The one definition was that users should only 28 pay for what they are using and that -- at least what I Les Services StenoTran Services Inc. 613-521-0703 778 OHNC PANEL 1 1 was understanding from Mr. Klippenstein's discussion -- 2 was the definition that he favoured. 3 However, other stakeholders had put forward a 4 definition of "user pay" that users should pay for those 5 assets that were installed to serve them and that the 6 costs should not be transferred to others. 7 Mr. Klippenstein I think was suggesting that 8 that should be redefined around the fairness and equity 9 principle. 10 The problem, at least from my perspective, in 11 terms of doing that is that we also heard from 12 stakeholders that use the definition of the fairness and 13 equity principle that Mr. Klippenstein was alluding to, 14 but also there were other stakeholders who had another 15 definition for that that talked about customers only be 16 charged for the services that they continue to use. 17 So the dilemma for us was we had to be very 18 acute in terms of our listening because stakeholders 19 would be saying "user pay" and we would have to be very 20 certain that we understood which context or which 21 definition they were using that in. 22 Similarly, for the fairness and equity 23 principle we would have to be very careful in our 24 listening in terms of understanding which definition 25 they were referring to. 26 MEMBER VLAHOS: Was Mr. Klippenstein, in your 27 view, getting to the issue of the First Nations and that 28 there has to be some reflection of how much the specific Les Services StenoTran Services Inc. 613-521-0703 779 OHNC PANEL 1 1 customer uses the system. There has to be some 2 recognition that if someone used the system all the time 3 as opposed to some of the time, although the 4 responsibility in terms of billing the system may have 5 been the same, there has to be some recognition of the 6 actual use of the system. 7 MR. CURTIS: Well, I think we are getting 8 again into this difficulty in terms of the use of -- the 9 actual use of the transmission system. Is it based on 10 the amount of energy that is delivered to the customer 11 or is it based on the peak requirement that that 12 customer places on the system? It is our contention 13 that it is the peak requirement that the user places on 14 the system that is the driving parameter on this. 15 MEMBER VLAHOS: Is the driving parameter the 16 only parameter? I guess that is what the issue was, at 17 least by the First Nations. 18 MR. CURTIS: I think if I may just add to 19 that, and that is the difficulty of finding another 20 parameter which will reflect what actual costs are 21 incurred in operating the system in terms of trying to 22 get to cost causality and to reflect the fact that if a 23 user or a customer uses less transmission they reduced 24 the cost, and we haven't been able to identify that 25 because of the nature of the cost structure of our 26 business, that it's mostly fixed cost. 27 In one way you could lose -- say, for 28 instance, you could approach this that if we had Les Services StenoTran Services Inc. 613-521-0703 780 OHNC PANEL 1 1 responsibility for, let's say, dispatching generation 2 and load on the system, we could have some control over 3 the losses in the system. To minimize loses may be one 4 of the objectives and in that case you could charge a 5 portion of the transmission based on energy. 6 MEMBER VLAHOS: But I thought that in one of 7 your 18 options, at least in some of those options you 8 have included the possibility of energy use being one of 9 the determinants? 10 MR. CURTIS: Yes. 11 MEMBER VLAHOS: Okay. So it was considered, 12 as I recall your evidence. 13 MR. CURTIS: Yes. 14 MR. PORAY: It was indeed. 15 MEMBER VLAHOS: So, first of all, it is 16 doable. It is doable. You can come up with a design 17 that has an energy charge component? 18 MR. PORAY: Absolutely, yes. 19 MEMBER VLAHOS: Okay. And you have considered 20 it and you have decided that it is not the way you wish 21 to proceed? 22 MR. PORAY: That's right. 23 MEMBER VLAHOS: And if you were to introduce 24 such an energy component, I'm just trying to anticipate 25 the arguments by the parties on whether what they are 26 going to propose may be doable. Is there anything in 27 the evidence that would give us some guidance as to how 28 do you go about to set up a demand charge and energy Les Services StenoTran Services Inc. 613-521-0703 781 OHNC PANEL 1 1 charge to recover your costs? 2 MR. CURTIS: Are you talking about in terms of 3 the actual implementation -- 4 MEMBER VLAHOS: Yes, I am. 5 MR. CURTIS: -- of such a rate structure? 6 I don't think that there would be anything 7 that would preclude the actual implementation of it. 8 The type of metering that we are talking about that has 9 to be installed, the interval -- so-called interval 10 metering would be able to accommodate a billing 11 structure that included an energy component to it? 12 MEMBER VLAHOS: If the Board were inclined to 13 go about it another way, it does not need any more 14 quantitative analysis from what has been proposed here, 15 it can simply ask the company to come back and when it 16 comes forward the next time to have some energy charge 17 component into its rate design? 18 I don't want you to read anything into my 19 question, it's just I want to make sure -- you know, I'm 20 anticipating the arguments by the parties that those 21 things are indeed doable. 22 MR. PORAY: I guess they are doable in the 23 sense that you could come up with some sort of an 24 arrangement that part of the charge will be based on the 25 demand, part of it may be based on energy. I guess the 26 question will be how much would be in one part and how 27 much would be in the other and how do you balance that 28 between the competing stakeholder requirements. Les Services StenoTran Services Inc. 613-521-0703 782 OHNC PANEL 1 1 One of the issues there would be those 2 stakeholders who have low load factors associated with 3 their load and operate it outside the peak period. An 4 energy component would in fact capture all of those 5 customers. 6 So I think there would have to be some further 7 analysis in terms of trying to come up with if it's a 8 split-type charge what would be the most equitable way 9 of developing that charge. 10 MEMBER VLAHOS: Okay, gentleman. Thank you 11 very much. 12 Those are all my questions. 13 Thank you, Mr. Chairman. 14 THE PRESIDING MEMBER: Thank you, Mr. Vlahos. 15 I have a few questions. The first one I think 16 is very straightforward. 17 I just want to be clear in my own mind, that 18 refers to merchant plant, okay, as opposed to embedded. 19 MR. CURTIS: Yes. 20 THE PRESIDING MEMBER: So the situation is, 21 number one: Whether the 50 megawatts pure merchant 22 plant connected directly to the network, how would that 23 be billed? 24 I think I know the answer, but we will start 25 from there. 26 MR. CURTIS: Okay. 27 MR. PORAY: This would be -- this merchant 28 plant wouldn't be associated with any specific customer? Les Services StenoTran Services Inc. 613-521-0703 783 OHNC PANEL 1 1 THE PRESIDING MEMBER: No. 2 MR. PORAY: And it would be connected directly 3 to the transmission system? 4 THE PRESIDING MEMBER: Yes. And we are 5 assuming there is no heat load to -- 6 MR. PORAY: Okay. 7 THE PRESIDING MEMBER: It's purely for 8 producing energy and selling into the marketplace. 9 MR. PORAY: Right. 10 THE PRESIDING MEMBER: That transmission 11 customer would be billed for connection charges only? 12 MR. PORAY: Only. 13 THE PRESIDING MEMBER: Okay. Now, let's take 14 another situation, which is the same plant but now it is 15 embedded in an LDC, okay. It is now embedded. You 16 still have no heat load so it doesn't qualify for the 17 efficient but it's embedded. How would that be billed? 18 MR. PORAY: The LDC within which that plant is 19 located would be billed on the basis of the net meter 20 reading, which is the meter placed between the 21 transmission system and -- 22 THE PRESIDING MEMBER: Which is called the 23 LDC meter. 24 MR. PORAY: LDC meter, plus the output of 25 the plant. 26 THE PRESIDING MEMBER: Right. Therefore, now 27 let's go to the customer meter. What are we doing? How 28 would the customer be billed? Les Services StenoTran Services Inc. 613-521-0703 784 OHNC PANEL 1 1 MR. PORAY: Again, we have this customer is 2 just a generator. 3 THE PRESIDING MEMBER: Right. 4 MR. PORAY: There is no -- that customer 5 presumably would be billed for connection to the 6 distribution system. 7 THE PRESIDING MEMBER: Okay. Thank you. I 8 understand that. 9 Now, is the only distinction if the plant was 10 now a cogenerator and therefore qualified for efficient. 11 How would that be treated, because it would be now 12 behind the customer meter, assuming that its a 13 cogenerator providing a heat load as well? How would 14 that be treated? 15 MR. PORAY: That's correct. 16 First of all, the local distribution company 17 would be billed on the basis of their net meter reading 18 and then 50 per cent of the load supplied by that 19 generator would be added back into the bill. So that's 20 the partial net load billing that would apply to that 21 local distribution company. 22 THE PRESIDING MEMBER: Okay. I understand. I 23 think I had it clear before, but I just wanted to be 24 sure. 25 I would like to come back now to regulated 26 backup charges and exit fees, that topic. First of all, 27 dealing with backup charges, when you were looking at 28 them what type of charge determinant did you assume when Les Services StenoTran Services Inc. 613-521-0703 785 OHNC PANEL 1 1 you were looking at backup charges? Was it the same 2 charge determinant, which is the coincident peak, or was 3 it another -- 4 MR. PORAY: When we did the evaluation of 5 backup charges what we did is we assumed the current 6 magnitude of backup required on the system, which was 7 something like 400 megawatts. This is based on our 8 knowledge of as it is today. 9 THE PRESIDING MEMBER: That includes diversity 10 then? 11 MR. PORAY: Now, what we did then is we took 12 into account diversity across the system to try to come 13 up with a cost determinant in terms of the megawatts, so 14 that would then allow us to allocate a portion of the 15 network costs to the backup, to establish a backup cost. 16 So we used that diversity and the 400 megawatts to come 17 up with a cost component. 18 THE PRESIDING MEMBER: And the charge 19 determinant though was actually the same charge 20 determinant as for network? 21 MR. PORAY: It was just simply that demand 22 that we have calculated. It wasn't the higher of. 23 THE PRESIDING MEMBER: That's what I mean, 24 yes. 25 Now, with respect to exit fees, if we were 26 looking at exit fees we need a base line scenario. For 27 example, there could be the OPGI 10 year phase in from 28 gross to net, so that during that period as time goes on Les Services StenoTran Services Inc. 613-521-0703 786 OHNC PANEL 1 1 there would be different levels of exit fees, I assume, 2 would be charged, depending on when the customer exited 3 if it was under that type of scenario. Is that a 4 correct assumption? 5 MR. PORAY: Well, we haven't really given much 6 thought to exit fees. 7 THE PRESIDING MEMBER: Would it be logical to 8 have a ratchet provision like that? 9 MR. PORAY: I think it's possible. I mean 10 this is an arrangement that has been adopted in Alberta, 11 for example. 12 THE PRESIDING MEMBER: Can we just explore 13 that a little bit more. If you could turn up Exhibit D, 14 Tab 5, Schedule 2, page 6 of 7. That's Table 5. It has 15 been much looked at in these proceedings. 16 MR. PORAY: We have it. 17 THE PRESIDING MEMBER: Let's look at this and 18 talk around it under scenario No. 8, where you see there 19 being a phase in, this is from gross-load billing to 20 net-load billing for network only over the five-year 21 period. 22 MR. PORAY: Yes. 23 THE PRESIDING MEMBER: To illustrate this, 24 would you then contemplate or consider a ratchet 25 provision through the five years where the exit fee 26 would be prorated, depending on when you exited. Is 27 that the type of provision that would be looked at? 28 MR. PORAY: I think so, yes. Les Services StenoTran Services Inc. 613-521-0703 787 OHNC PANEL 1 1 THE PRESIDING MEMBER: Thanks. That gives me 2 a better feel of that. 3 Just looking at that again, this five year 4 phase in from gross-load billing to net-load billing for 5 network only was an alternative to 4C, which is your 6 preferred option. Correct? 7 MR. CURTIS: It was one of the alternatives 8 that was brought up through the stakeholding process. I 9 am not sure I would characterize it as an alternative to 10 4C though. 11 THE PRESIDING MEMBER: How would you not or 12 why would you not? 13 MR. CURTIS: It's just another one of the 14 alternatives that we looked at. 15 THE PRESIDING MEMBER: All right. 16 What I was looking at is if you look at the 17 impact at the end of eight years under scenario No. 8 18 and compare those with the impact over 4C -- in fact, 19 one would seem to think that the impacts are lower, with 20 the exception of the first column which is 1.5 per cent 21 negative. 22 MR. CURTIS: I think the second column there 23 is a more adverse rate impact on the other LDCs. 24 THE PRESIDING MEMBER: I was going to explore 25 why you didn't think that was a reasonable alternative 26 and it pertains to those impacts then in columns 1 and 27 2. 28 MR. CURTIS: Yes. Les Services StenoTran Services Inc. 613-521-0703 788 OHNC PANEL 1 1 THE PRESIDING MEMBER: So that was the basis 2 on which you wouldn't propose it as a compromise then, 3 you wouldn't propose it. Similarly, the OPGI, which is 4 similar in concept. 5 MR. CURTIS: I think there are a number of 6 factors why we weren't recommending, but that would be 7 one of them, yes. 8 THE PRESIDING MEMBER: Are there any material 9 differences, other than the five versus ten years, 10 between scenario 8 and the OPGI proposal? 11 MR. PORAY: I think the major difference is 12 that in our evaluation that five year phase in wasn't a 13 gradual phase in. It was more or less a block. We went 14 gross-load billing for a period of time and then went 15 immediately to net-load billing, so it wasn't a gradual 16 phase. 17 THE PRESIDING MEMBER: So you didn't actually 18 know the word "phase" in -- 19 MR. PORAY: It doesn't quite reflect, that's 20 right. It's a step function really. 21 THE PRESIDING MEMBER: All right. I 22 understand. 23 I would like to next talk about how net 24 billings for network if that was proposed, as opposed to 25 gross billing, how would this affect in your view and 26 based on your knowledge, number one, IMO charges for 27 such services as black start reactive support, et 28 cetera. In other words, customers would be potentially Les Services StenoTran Services Inc. 613-521-0703 789 OHNC PANEL 1 1 avoiding some of those charges on a pure net billing or 2 would they, that's the question. 3 MR. PORAY: My understanding is that they 4 wouldn't. The IMO charge, certainly in the first 18 5 months of the market, would be a dollar per megawatt 6 hour charge, charged as an uplift onto the energy 7 portion of the bill. 8 THE PRESIDING MEMBER: Energy is the basis of 9 it as opposed to demand? 10 MR. PORAY: That's right. 11 THE PRESIDING MEMBER: So it would not avoid 12 any of those charges that I just listed? 13 MR. PORAY: That's my understanding. 14 THE PRESIDING MEMBER: Equally, the 15 competition transition charge, the amount hasn't been 16 set, but the proposal now is to be based on energy. Is 17 that your understanding? 18 MR. PORAY: I'm not aware of that. I 19 haven't -- 20 THE PRESIDING MEMBER: You don't know what the 21 basis of the charging would be. 22 So if it was other than energy there could be 23 a potential concern about bypassing or avoiding that 24 charge? 25 MR. PORAY: That is correct. 26 THE PRESIDING MEMBER: I guess I am trying to 27 move now onto the question of reconciling in my mind 28 when will there be a point in which OHNC might actually Les Services StenoTran Services Inc. 613-521-0703 790 OHNC PANEL 1 1 put incentives, either locally or generally, for 2 customers to reduce load either by DSN or by generation. 3 When are you going to reach that point and are we going 4 to turn things upside down and we're going to let the 5 hourglass run and then at the end we are going to turn 6 it upside down? When do you see that happening? 7 MR. PORAY: I think that really is something 8 of a paradigm shift for us in terms of being the sole 9 entity responsible for transmission planning and looking 10 at alternatives to transmission plants. This is all 11 going to be part of the new marketplace where planning 12 will be done on a coordinated basis with the IMO, with 13 the market participants and with the transmission 14 owners. At that time, I guess, any market participant 15 can come forward with a suggestion for an alternative to 16 either an upgrade in transmission or addition of new 17 generation. 18 THE PRESIDING MEMBER: Okay. 19 MR. PORAY: The rules for that have not yet 20 been debated at the technical panel. 21 THE PRESIDING MEMBER: Finally, I would just 22 like to explore with you the so-called contracting 23 regime and how that will relate or might relate to the 24 introduction of locational pricing. Are the two 25 alternatives or are they things that would best be 26 introduced together? 27 MR. CURTIS: I don't think in our view that 28 they are necessarily linked and have to be introduced Les Services StenoTran Services Inc. 613-521-0703 791 OHNC PANEL 1 1 together. The contracting mechanism that we have put 2 forward in this proposal, the thinking that we have done 3 on that, has been based in connection with moving from 4 our proposal around net versus gross billing to that as 5 the end state, and we weren't considering that that was 6 linked with locational pricing of transmission services. 7 THE PRESIDING MEMBER: So just moving to 8 locational pricing, you had a short study done here. 9 What is the plan of the company and, also, perhaps more 10 importantly, what do you know about the views of the IMO 11 and so on with respect to locational pricing, when and 12 if we should move to that? 13 MR. PORAY: As far as the IMO is concerned, 14 the locational pricing that it will be looking at will 15 be the locational pricing of energy which is normally 16 termed locational marginal pricing. That is really the 17 value of the usage of the transmission system and the 18 value of energy at each delivery node on the system. 19 That has nothing really to do with the recovery of sunk 20 costs and the costs of the infrastructure. 21 The current market rules really deal with 22 postage stamp type transmission services and the 23 recovery of those. The market rules contain three 24 services, the basic service which is equivalent to the 25 network, the line connection service and the 26 transformation service. So that suggests that they are 27 really sort of pool type services. The market rules 28 state that the IMO will charge in accordance with the Les Services StenoTran Services Inc. 613-521-0703 792 OHNC PANEL 1 1 rates approved by the OEB. 2 If we move towards locational transmission 3 pricing, which is essentially the cost of transmission 4 at each delivery point, that obviously would require a 5 significant change in my mind to the market rules as 6 well as significant stakeholder inputs to determine 7 whether that is the way stakeholders want to move, and 8 the Board itself -- does the Board see value in moving 9 in that direction and how quickly -- because I think in 10 our study we demonstrated that there can be big winners 11 and big losers. 12 THE PRESIDING MEMBER: Okay. Thank you. 13 Finally, with respect to the AGRA Monenco 14 forecast of new generation -- maybe we should just turn 15 it up since you have it. It is Tab 5, Schedule 2, page 16 4 of 7, Table 3. Do you have that there? 17 MR. CURTIS: Table 3, yes. 18 MR. PORAY: Yes, we have it. 19 THE PRESIDING MEMBER: Thank you. 20 I know this is corresponding to the low and 21 medium scenarios as opposed to the high scenario but, 22 anyway, have you done any comparison of announced plans 23 in terms of megawatts that have been announced say in 24 the last three or four months for new generation? It 25 would seem to be -- as always, you can take them a 26 little bit with a grain of salt, but they seem to be 27 very credible. How does that compare with the forecast, 28 either the low or the medium forecast that you have Les Services StenoTran Services Inc. 613-521-0703 793 OHNC PANEL 1 1 proposed for the eight-year period? 2 MR. CURTIS: I think, in our view, the 3 announcements, in the negotiations the company is 4 currently engaged in with other customers, would seem to 5 indicate that the amount of new generation, both 6 embedded and merchant, is probably more optimistic than 7 what is forecast. The amounts that we are seeing -- 8 THE PRESIDING MEMBER: The announced plans are 9 higher than -- 10 MR. CURTIS: The announced plans are higher, 11 yes. 12 THE PRESIDING MEMBER: -- which scenario? The 13 mid scenario, in your view, or in the -- we haven't got 14 the high one on here. These are just the others. 15 MR. CURTIS: I think so far it is more 16 optimistic than the medium scenario. 17 THE PRESIDING MEMBER: More than the medium. 18 MR. CURTIS: Yes. 19 THE PRESIDING MEMBER: Okay. Thank you very 20 much. That is helpful. 21 Those are my questions. 22 Mr. Smith has one for -- 23 MEMBER SMITH: Just on the contract pricing 24 issue, do I interpret this to mean that you would do 25 individual contracts with individual customers and there 26 would be different terms in the contract depending on 27 circumstance, some would be gross load billed, some 28 could be net, some would be in between? Les Services StenoTran Services Inc. 613-521-0703 794 OHNC PANEL 1 1 MR. CURTIS: No. I think what we were 2 proposing in terms of a contracting framework is that 3 there would be specifications in terms of the latitude 4 that the company would have in terms of negotiating 5 parameters like that. In fact, it would be fairly well 6 established in terms of the degree of net load billing 7 that could be offered by the companies. 8 The illustration I think that has been brought 9 up in this proceeding has been the Alberta ratchet. In 10 there you can see there is a very specific formula that 11 is put in place to essentially go from kind of a gross 12 load basis to the degree it reaches the net load. That 13 is what we had in mind. 14 When we are talking about individual contracts 15 we are talking about other factors or other features 16 that are unique as far as each transmission proposal 17 that is brought forward before the company, say, for 18 example, in terms of the size, the number of megawatts, 19 any particularities as far as the actual connection that 20 has to be done, requirements around operations. Those 21 are the areas that we think we would have to have some 22 flexibility around in terms of negotiating. 23 MEMBER SMITH: Would one of the areas also be 24 location, in that it could be located in an area where 25 there was a greater or lesser surplus of capacity on the 26 transmission system? 27 MR. CURTIS: That may very well be. We 28 probably would like to indicate to a customer if they Les Services StenoTran Services Inc. 613-521-0703 795 OHNC PANEL 1 1 did have the flexibility themselves in terms of where 2 they wanted to locate. 3 MR. PORAY: If I may just add here. One of 4 the outcomes of the new marketplace is that the IMO will 5 publish an annual report. It will be like a state of 6 the union report on the power system indicating where 7 there are shortages in capacity, where there are 8 problems with transmission. That will then provide some 9 sort of a guidance in terms of where new generation 10 might want to be located, and then that will be 11 translated into negotiations with the transmission 12 company. 13 MEMBER SMITH: Thank you. 14 MEMBER VLAHOS: Dr. Poray, just to follow up 15 from our previous discussion about economic efficiency 16 and locational pricing. I misunderstood. I thought 17 that the locational pricing would also be reflected into 18 the transmission pricing not only commodity. That is 19 what I took from your comments. Perhaps I was wrong. 20 MR. PORAY: There are two locational pricing 21 methodologies. One is locational marginal pricing, 22 which is really the value of energy on the transmission 23 system. That takes into account losses and congestion 24 so that if you have no losses and no congestion on the 25 system there will be one single price of energy on the 26 system. 27 So that really determines, if you like, the 28 conditions on the system and the dispatch on a Les Services StenoTran Services Inc. 613-521-0703 796 OHNC PANEL 1 1 particular day and a particular hour. When we talked 2 about locational transmission pricing, what we were 3 trying to do here is focus on what is the cost of the 4 transmission to each delivery point from which a 5 customer is located. So it is really looking at the 6 cost structure now and can we identify those costs that 7 really make up -- that are attributable to the assets 8 that are used to supply that delivery point. 9 MEMBER VLAHOS: Right. 10 Does the IMO say anything about this right 11 now, the rules? 12 MR. PORAY: Well, certainly, the IMO is 13 thinking in terms of the locational marginal prices 14 since they will in fact be calculating those at the 15 outset of the market. But I don't think they are 16 thinking in terms of the other yet. 17 MEMBER VLAHOS: Okay. 18 MR. PORAY: As I said, the market rules today 19 contain quite specific references to pool-type charges. 20 MEMBER VLAHOS: Would your company think in 21 the future about the location of transmission prices? 22 MR. PORAY: I think, as I mentioned earlier 23 on, it would really be a function of the direction that 24 we want to go in. Do we want to go towards cost 25 causality and move away from the uniform pricing that is 26 currently embodied in the white paper in the government 27 direction. 28 MEMBER VLAHOS: And it is not an issue in your Les Services StenoTran Services Inc. 613-521-0703 797 OHNC PANEL 1 1 view that this panel should be commenting on this 2 decision? 3 MR. PORAY: At this point in time, no. 4 MEMBER VLAHOS: But it may have some 5 connection about the whole issue about energy efficiency 6 pricing? 7 MR. PORAY: I think from the overall 8 perspective, yes. 9 MEMBER VLAHOS: Okay. Thank you. 10 THE PRESIDING MEMBER: Thank you, gentlemen. 11 Those are the Board's questions. 12 Mr. Rogers, do you have some re-direct? 13 RE-EXAMINATION 14 MR. ROGERS: Just one. Thank you, sir. 15 Panel, each member of the Board has asked 16 questions about the net/gross load billing and with 17 respect to the timing of how long it would be in place, 18 your proposal. I know you have been very careful on 19 answering questions to Board counsel and others not to 20 commit to anything, but it might be useful if you could 21 help us. 22 What is your present expectation or hope, at 23 least, as to when you might be able to have a proposal 24 for the Board for the contracting regime which you are 25 recommending as the long term solution? 26 MR. CURTIS: In terms of trying to bring -- in 27 terms of bringing back a proposal to the Board we would 28 anticipate that it would take about three years for it. Les Services StenoTran Services Inc. 613-521-0703 798 OHNC PANEL 1, re-ex (Rogers) 1 We have outlined in our evidence that there 2 has to be a decision in terms of this application that 3 is before the Board. There is a requirement to put in 4 place the transmission system code and the connection 5 agreements around it. Other parts of the legislation 6 have to be put into place and any regulation that has to 7 be declared around that. In our view, that is not all 8 going to be in place much before open access. There may 9 be a period after open access has been declared for that 10 to settle in, if you will, so that all the market 11 participants understand how these facets are going to 12 operate. 13 We also outlined that we would be examining 14 how contracting is done in other jurisdictions and would 15 want to bring that forward to discuss with our 16 stakeholders before we put our proposal before the 17 Board. 18 So our anticipation is that would take about 19 three years. 20 MR. ROGERS: All right. Would it be fair then 21 to characterize your net/gross load billing proposal as 22 an interim measure to be in place until the new 23 contracting regime could be approved by the Board? 24 MR. CURTIS: That is correct. 25 MR. ROGERS: Thank you. 26 Those are my questions. Thank you, sir. 27 THE PRESIDING MEMBER: Fine. Then we will end 28 the discussion on issue number two and we will now move Les Services StenoTran Services Inc. 613-521-0703 799 OHNC PANEL 1, re-ex (Rogers) 1 to issue number five -- 2 MR. ROGERS: Yes, that's right. 3 THE PRESIDING MEMBER: -- definition of a 4 transmission customer. 5 MR. ROGERS: Yes, that's right. 6 THE PRESIDING MEMBER: Do you wish to have an 7 introduction here? 8 MR. ROGERS: I think I do, but I wonder if I 9 could just speak to Mr. Poray for a moment before I do. 10 THE PRESIDING MEMBER: Sure. 11 --- Pause 12 MR. ROGERS: Thank you, sir. I do have a few 13 questions, I think, which I hope will be of help to the 14 parties. 15 We didn't cover this topic in the opening 16 evidence -- 17 THE PRESIDING MEMBER: No, you didn't. 18 MR. ROGERS: -- so I thought it might be 19 useful just to summarize the company's position. 20 THE PRESIDING MEMBER: Thank you. 21 MR. ROGERS: Mr. Poray, you, I believe, are 22 the principal one responsible for this section of your 23 evidence? 24 MR. PORAY: Yes. It was developed under my 25 supervision. 26 MR. ROGERS: The issue which is number five, 27 definition of a transmission customer, is covered in 28 Exhibit D, Tab 3, under the heading "Who Are Les Services StenoTran Services Inc. 613-521-0703 800 OHNC PANEL 1, re-ex (Rogers) 1 Transmission Customers Other Than LDCs and the Directly 2 Connected Customers"? 3 MR. PORAY: That's correct. 4 MR. ROGERS: I wonder, sir, if you could just 5 very briefly outline the company's proposal for us? 6 MR. PORAY: Certainly. 7 OHNC's proposal is to go forward for this 8 application with the definition of transmission 9 customers as those customers who today are Ontario 10 Hydro's customers. This would include all of the local 11 distribution companies, plus those customers who are 12 termed direct customers. 13 The reason that we chose to do this, to go 14 forward with this, we felt that there hasn't been 15 sufficient discussion between the stakeholders and 16 ourselves and the IMO to determine what is the most 17 appropriate mix of transmission customers, who is a 18 transmission customer and who isn't. So we thought 19 maybe as a phase in we would use the existing definition 20 of Ontario Hydro's customers and treat those as 21 transmission customers. 22 MR. ROGERS: Now, tell us, you do, I think, in 23 your evidence have a long term recommendation to the 24 Board as to who should be transmission customers? 25 MR. PORAY: We do. 26 MR. ROGERS: What is that definition? 27 MR. PORAY: Our longer term view is that the 28 transmission customers should be those entities that are Les Services StenoTran Services Inc. 613-521-0703 801 OHNC PANEL 1, re-ex (Rogers) 1 directly connected to the transmission system. 2 MR. ROGERS: Well, great. Tell me, what is 3 the difference between the existing situation and the 4 long term situation? Which customers would be 5 different? 6 MR. PORAY: The difference would be that on 7 two or three areas. 8 There are some customers today who are members 9 of the, or are customers of the, municipal electrical 10 utilities. They are billed by those utilities but they 11 are, in fact, connected to the transmission system. 12 MR. ROGERS: So there are large industrial 13 users, I assume? 14 MR. PORAY: That is correct. 15 MR. ROGERS: Who are directly connected to the 16 transmission system today? 17 MR. PORAY: That is correct. 18 MR. ROGERS: But are nevertheless served 19 through local electric utilities? 20 MR. PORAY: That is correct. 21 MR. ROGERS: A long term solution that those 22 customers would be taken out of the municipal utility 23 and become a transmission customer themselves? 24 MR. PORAY: That is correct. 25 MR. ROGERS: Are there any other differences? 26 MR. PORAY: The other differences would be 27 those customers who are really embedded within the 28 Ontario Hydro distribution system, the large customers, Les Services StenoTran Services Inc. 613-521-0703 802 OHNC PANEL 1, re-ex (Rogers) 1 who are under the direct customer category who are not 2 directly connected to the transmission system. They 3 are, in fact, connected to the distribution system. 4 Those customers, in our proposal, are in fact 5 termed transmission customers, but in the longer term 6 they would not be transmission customers because they 7 are not directly connected to the transmission system. 8 MR. ROGERS: So in the long term you would 9 have some large users who are presently served by 10 municipalities becoming transmission customers and some 11 customers in the old power district who are not 12 connected to transmission, in the long term being 13 redefined as non-transmission customers? 14 MR. PORAY: That is correct. 15 MR. ROGERS: Are there any other significant 16 differences? 17 MR. PORAY: This would also apply to the 18 embedded local distribution companies within the Ontario 19 Hydro distribution system, that today in our proposal we 20 would assume that they would be transmission customers, 21 but because they are not directly connected to the 22 transmission system in the longer term they would not be 23 transmission customers. 24 MR. ROGERS: Now, can you help us as to how 25 much time do you anticipate will pass before the long 26 term solution will be proposed to this Board for 27 acceptance? Your best estimate. I am not asking you to 28 commit to this. Les Services StenoTran Services Inc. 613-521-0703 803 OHNC PANEL 1, re-ex (Rogers) 1 MR. PORAY: I think this can be done fairly 2 quickly. As I said, it really requires for us to have 3 discussions with all the participants that would be 4 affected. 5 MR. ROGERS: Would you expect that it could be 6 done over the next three or four years, for example? 7 MR. PORAY: I think so, yes. 8 MR. ROGERS: All right. Thank you. 9 Those are my questions. Thank you, sir. 10 THE PRESIDING MEMBER: Thank you, Mr. Rogers. 11 Who is going to lead off, is that you, 12 Mr. Brown? 13 MR. BROWN: Actually, IPPSO has no questions 14 in this area. 15 THE PRESIDING MEMBER: Okay. 16 Mr. Fisher. 17 MR. FISHER: Thank you, Mr. Chair, and good 18 morning. 19 THE PRESIDING MEMBER: Good morning. 20 FURTHER CROSS-EXAMINATION 21 MR. FISHER: To set the stage for this 22 cross-examination, I would like to indicate where AMPCO 23 is coming from on this issue. 24 AMPCO considers this to be a fundamental issue 25 of market design. It's important that we put into place 26 the durable definition of transmission customers that is 27 consistent with the roles of the relevant parties and 28 the new market. Les Services StenoTran Services Inc. 613-521-0703 804 OHNC PANEL 1, cr-ex (Fisher) 1 For there to be a level playing field in the 2 energy market, it is also important that similarly 3 situated customers be treated the same way, whether the 4 LDC that sells them was previously owned by an MEU or 5 was previously part of the Ontario Hydro rural network. 6 AMPCO considers that interim solutions are not 7 necessary. Interim solutions create uncertainty and 8 lead to reworking the IMO and LDC settlement and billing 9 systems. 10 I have a diagram that was distributed last 11 week that I would like to make an exhibit. 12 MR. LYLE: Mark that as Exhibit G5.1 13 THE PRESIDING MEMBER: Thank you. 14 MR. FISHER: Thank you. 15 EXHIBIT NO. G5.1: Diagram with headings 16 OHNC, Inner Ring, Outer Ring 17 MR. FISHER: This diagram shows down the left 18 side a number of transmission customers under three 19 headings. The first heading is OHNC. The next heading 20 is inner ring. The bottom heading is outer ring. The 21 diagram also shows two rectangles, one MEU E service 22 area and another with an OHNC distribution area. These 23 diagrams are joined horizontally by a dark transmission 24 line. Throughout the diagram there are various 25 customers. Do you have that diagram? 26 MR. PORAY: Yes, we do. Thank you. 27 MR. FISHER: I would also like to turn to the 28 AMPCO proposal, settlement proposal, that was attached Les Services StenoTran Services Inc. 613-521-0703 805 OHNC PANEL 1, cr-ex (Fisher) 1 to the settlement proposal. It's called Attachment A, 2 proposed settlement on transmission customer and 3 transmission charge determinant. 4 THE PRESIDING MEMBER: Okay. We have that. 5 MR. FISHER: For purposes of this 6 cross-examination, I am going to refer to the inner ring 7 of meters as the IMO wholesale meters at the boundary 8 between the transmission system and either an LDC 9 distribution system or an end user directly connected to 10 transmission. 11 On the diagram, the inner ring of meters are 12 indicated by an oval with "MI" inside. My understanding 13 of the IMO market rules is that there are market 14 participants in the IMO wholesale market who are not 15 connected directly to the transmission system. These 16 embedded customers are connected indirectly via the 17 distribution system of an LDC. 18 These embedded wholesale market participants 19 also have wholesale meters read by the IMO. For the 20 purpose of this cross-examination, I am going to refer 21 to the outer ring of meters as including these embedded 22 customers as well as the inner ring of meters. So, it's 23 similar. 24 In this exhibit, the additional meters in the 25 outer ring are shown with "MO" inside the oval. The 26 outer ring of meters includes the meters indicated "MO" 27 as well as the meters in the inner ring indicated by 28 "MI". Les Services StenoTran Services Inc. 613-521-0703 806 OHNC PANEL 1, cr-ex (Fisher) 1 Is this terminology acceptable to you? 2 MR. PORAY: Well, this is your terminology we 3 understand. We understand what you are trying to 4 portray here. 5 MR. FISHER: Thank you. Okay. Now, I just 6 want to go to Exhibit B, Tab 3, Schedule 1, pages 9 and 7 10. Can you confirm that the inner ring, meters 8 proposed by AMPCO in the settlement, is essentially the 9 same as Option II described in your evidence? 10 MR. PORAY: That is correct. 11 MR. FISHER: Can you confirm that this is 12 OHNC's preferred long term solution because it's the 13 most appropriate for the new industry structure in 14 Ontario? 15 MR. PORAY: Yes. And also it's the simplest. 16 MR. FISHER: Is it true that the OHNC proposal 17 to have the existing LDCs and direct customers as 18 transmission customers is not fully consistent with the 19 new market structure because it does not treat customers 20 who are similarly situated in the same manner? For 21 example, if we look at the diagram, Industrial Customer 22 C, in the MEU E service area would not be a transmission 23 customer while Industrial Customer D, similarly situated 24 in the OHNC distribution territory, would be a 25 transmission customer. 26 MR. PORAY: That is correct. 27 MR. FISHER: Would you agree that if a 28 temporary solution is adopted, the IMO will have to Les Services StenoTran Services Inc. 613-521-0703 807 OHNC PANEL 1, cr-ex (Fisher) 1 develop its systems to charge transmission rates on the 2 basis of the interim solution and that when a permanent 3 definition replaces the interim proposal, the IMO will 4 be required to reduce some of that work? 5 MR. PORAY: My understanding is that those 6 customers -- there may be some potential for that, 7 although I feel that those large customers like 8 Customer C and like Customer D who may want to be 9 participants in the marketplace, they have the option to 10 be billed by the IMO directly for transmission services. 11 MR. FISHER: Whether they have the option or 12 not, the work may still be required to redo that work. 13 MR. PORAY: And the work that you are 14 referring to is the -- can you just elaborate on that, 15 please? 16 MR. FISHER: This is the work required for 17 billing and settlement, so one of the systems -- one of 18 the proposals is accepted now, the temporary one, and 19 then it's changed, then the IMO is going to have to 20 change the way it does these things. 21 MR. PORAY: I agree that there may be some of 22 that. Yes. 23 MR. FISHER: Thank you. 24 Is it true that there can be implications for 25 the LDC settlement systems that would also likely need 26 to be reworked as the definition of transmission 27 customer were changed? 28 MR. PORAY: I think probably that is the case. Les Services StenoTran Services Inc. 613-521-0703 808 OHNC PANEL 1, cr-ex (Fisher) 1 MR. FISHER: Would you agree that there's a 2 lot less work and more certainty if we decide on a 3 definition of transmission customer now that is 4 consistent with the new market structure and is durable? 5 MR. PORAY: I'm always in favour of going to a 6 simpler solution and, therefore, I think potentially, 7 yes, there will be less. 8 MR. FISHER: On Exhibit G5.1, we have shown 9 Industrial Customer A as within the service territory of 10 an MEU, but directly connected to transmission. 11 MR. PORAY: Okay. 12 MR. FISHER: Can you confirm that there are 15 13 large users of MEUs in this situation and that with the 14 OHNC proposed interim solution, they would not be 15 transmission customers? 16 MR. PORAY: That is correct. 17 MR. FISHER: On this exhibit we have also 18 shown a similarly situated customer in the OHNC 19 distribution service territory as Industrial Customer B. 20 Can you confirm that Industrial Customer B would be a 21 transmission customer within the OHNC distribution area 22 under the interim solution? 23 MR. PORAY: Yes, it would. 24 MR. FISHER: Can you confirm that at the 25 January 1999 technical conference, OHNC promised that 26 the 15 MEU large users like Industrial Customer A would 27 be transmission customers? 28 MR. ROGERS: Maybe you better give us a Les Services StenoTran Services Inc. 613-521-0703 809 1 reference for that "promise". 2 MR. FISHER: Okay. There is a transcript from 3 January 8th, and it's pages 179 and 180 I believe. 4 Perhaps I could -- 5 MR. ROGERS: Well actually, you see, it's the 6 "promise" part of the question that I just want to 7 check. 8 --- Pause 9 MR. FISHER: In this transcript Mr. Snelson 10 was asking Mr. Taylor from OHNC -- I'm sorry, 11 Mr. Stewart. 12 MR. CURTIS: Was there a time commitment in 13 terms of fulfilling this promise in terms of 14 Mr. Stewart's statement? 15 MR. FISHER: I believe it was in terms of when 16 the market opened these customers would be transmission 17 customers. 18 MR. ROGERS: Is the "promise" part of his 19 question important? If so, I'm going to insist that we 20 check it out, because I'm not sure anybody was 21 authorized to make any such promises at a technical 22 conference. 23 But if you just want the intent of the company 24 in the long term I don't quarrel with the question. 25 MR. FISHER: I guess we could have some 26 movement from the word "promise", but the fact was that 27 this comment was made after a day's deliberation. The 28 initial question was asked on the January 7th and Les Services StenoTran Services Inc. 613-521-0703 810 1 Mr. Stewart promised to come back with an answer and 2 came back with the answer indicating that these 15 large 3 users would be transmission customers in the new open 4 market. 5 THE PRESIDING MEMBER: I think, then, the best 6 thing to do is, since the Applicant obviously needs to 7 check it out, so we should probably take a transcript 8 undertaking to check out that statement and the 9 background to it -- 10 MR. ROGERS: Yes, thank you. I appreciate 11 that. 12 THE PRESIDING MEMBER: -- and you will provide 13 a response on the record when you have done that. We 14 have that. 15 Thank you. 16 MR. LYLE: We will mark that as 17 Undertaking F5.1. 18 UNDERTAKING NO. F5.1: Mr. Rogers 19 undertakes to review the transcript of 20 the Technical Conference held in 21 January 1999 to confirm whether OHNC 22 promised that the 15 MEU large users 23 like Industrial Consumer A would be 24 transmission customers 25 MR. ROGERS: With respect to Mr. Stewart, I 26 suppose that if he's not authorized I don't know who 27 would be, so let me look into it. 28 --- Laughter Les Services StenoTran Services Inc. 613-521-0703 811 1 --- Pause 2 MR. FISHER: Can you confirm that with the 3 inner ring of meters definition all industrial customers 4 that are directly connected to transmission, that is 5 both Industrial Customers A and B, would be considered 6 transmission customers whether or not they were formerly 7 customers of Ontario Hydro or an MEU? 8 MR. PORAY: That is correct. 9 MR. FISHER: In Exhibit G5.1, let's now assume 10 that both Industrial Customers C and D are over 11 5 megawatts; Industrial Customer D is connected to OHNC 12 distribution, while Industrial Customer C is similarly 13 situated in the territory of an MEU. 14 Can you confirm that with the OHNC interim 15 definition of transmission customer, Industrial 16 Customer D is considered to be a transmission customer 17 while Industrial Customer C is not a transmission 18 customer? 19 MR. PORAY: I confirm that. 20 MR. FISHER: Thank you. 21 Is it true that the proposed inner ring 22 definition puts both Industrial Customers C and D on the 23 same basis in that neither is a transmission customer? 24 MR. PORAY: That is correct. 25 MR. FISHER: Is it true that there is no 26 requirement in the market rules for an over 5 megawatts 27 direct customer of Ontario Hydro connected at 28 distribution voltage to be a wholesale market Les Services StenoTran Services Inc. 613-521-0703 812 1 participant? For example, Industrial Customer D does 2 not have to be a wholesale market participant. 3 MR. PORAY: I don't think there is any 4 obligation on any market participant that they have to. 5 MR. FISHER: Isn't it likely with the OHNC 6 interim definition of transmission customer the IMO will 7 have to build some customers for transmission who are 8 not participants in the IMO energy market? 9 MR. PORAY: I believe that is so. 10 Perhaps I could just add to that, that it is 11 also my understanding that today the IMO builds those 12 customers and there are meters in place and they are 13 revenue-quality meters. 14 MR. FISHER: Coming now to the customers who 15 would not be transmission customers with the inner ring 16 definition of meters, and that would be Industrial 17 Customers C and D and MEU F. 18 You are probably aware that AMPCO proposed in 19 its evidence that the outer ring of meters be used for 20 defining transmission customer. The reason for this was 21 that AMPCO wanted to make sure that the wholesale market 22 participants that are connected to distribution would 23 see the transmission rates with as little distortion as 24 possible with regards to the form and level. 25 Could you please look at the second item in 26 the AMPCO Proposed Draft Settlement. The title of 27 Item 2 is "Transmission Charges For Embedded Market 28 Participants". Les Services StenoTran Services Inc. 613-521-0703 813 1 MR. PORAY: Yes, we have that. 2 MR. FISHER: Would you agree that this 3 proposal, if adopted, would ensure that any incentives 4 for making more efficient use of the transmission system 5 in the transmission system rates are passed on to the 6 embedded wholesale market participants? 7 MR. PORAY: If this proposal were to be 8 adopted, yes. 9 MR. FISHER: Yes, that is how I was 10 qualifying it. 11 You will notice that this proposal refers 12 specifically to customers with interval meters. Can you 13 confirm that customers with interval meters should have 14 the meter data necessary to implement either Option XVI 15 or Option XVIII for the network rate determinant? 16 MR. PORAY: I confirm that. 17 MR. FISHER: Is it also the case that 18 customers must have interval meters to be wholesale 19 market participants? 20 MR. PORAY: That is correct. 21 MR. FISHER: Is it true that the interval 22 metered customers of LDCs can make a choice as to 23 whether to be wholesale market participants and that 24 having the same regime for transmission charges avoids 25 the transmission rate being a distorting factor when 26 they make that decision? 27 MR. PORAY: I'm sorry, can you repeat 28 that, please? Les Services StenoTran Services Inc. 613-521-0703 814 1 MR. FISHER: Sure. Is it true that the 2 interval metered customers of an LDC can make a choice 3 as to whether to be a wholesale market participant and 4 that having the same regime for transmission charges 5 avoids the transmission rate being a distorting factor 6 when they make that decision? 7 MR. PORAY: When you talk about the distortion 8 factor are you -- does this come about as a result of 9 the local distribution company passing on transmission 10 charges to those customers if they were not to be billed 11 directly for transmission? 12 MR. FISHER: The point is, if the LDC is not 13 changing any of the transmission charge rates or 14 determinants, then the customer is not going to be 15 influenced one way or another as to whether or not to be 16 a wholesale market participant because they will be 17 charged the same in either case. 18 MR. PORAY: I'm not sure whether in fact the 19 market participant would be -- or an entity would decide 20 to be a market participant or not based on how it is 21 going to be charged on transmission. I mean, that may 22 be one factor, but it won't be the only factor. 23 MR. FISHER: But it just doesn't distort the 24 decision then? 25 MR. PORAY: Well, it may. 26 MR. FISHER: Okay. Based on where we have 27 gone so far, would you agree that the Items 1 and 2 of 28 the AMPCO Proposed Settlement together provide for a Les Services StenoTran Services Inc. 613-521-0703 815 1 durable solution to the transmission customer definition 2 and also protect the interests of embedded wholesale 3 market participants? 4 MR. PORAY: Yes, as proposed by AMPCO that 5 appears to be the case. 6 MR. FISHER: Is the solution proposed by AMPCO 7 in items 1 and 2 acceptable to OHNC for the reasons we 8 just talked about? 9 MR. PORAY: I think from an OHNC perspective 10 it would have to be also acceptable to the other 11 stakeholders, yes. 12 MR. FISHER: The other day when we were 13 talking about the charge determinant we established that 14 there was a property of non-coincident charged 15 determinants, that the sum of the parts was not equal to 16 the whole. We believe that this property has had some 17 interaction with the definition of transmission 18 customer. 19 If you could turn to your definition of 20 transmission customer that was given in Exhibit A, 21 Tab 9, Schedule 1, page 19, I could just read it to you. 22 MR. PORAY: Page 19? 23 MR. FISHER: Page 19. 24 MR. PORAY: We have it. 25 MR. FISHER: It reads: 26 "An entity is considered to be a 27 transmission customer, for the purposes 28 of transmission pricing, if the Les Services StenoTran Services Inc. 613-521-0703 816 1 transmission provider includes the usage 2 and related charge determinants of that 3 entity in pre-determining the 4 transmission rates and in developing the 5 forecast of revenue flow from 6 transmission customers to meet the 7 revenue requirements approved by the 8 OEB." 9 In essence, this seems to say that you are a 10 transmission customer if OHNC considered you a 11 transmission customer when OHNC sets the transmission 12 rate. Is that correct? 13 MR. PORAY: I think in the context of this 14 submission when we define the transmission customers to 15 be the former customers of Ontario Hydro it is basically 16 because we have information on those customers that 17 would allow us to predetermine the rates. 18 MR. FISHER: I want to first look at this as 19 it applies to network service. I understand that the 20 process of setting the rates for network service is to 21 add up the forecast charge determinants for all the 22 identified transmission customers for all 12 months of 23 the year, getting the total of all charge determinants 24 for the year. The rate is then set by dividing the 25 revenue requirement for network by the total charge 26 determinants for network. Is that correct? 27 MR. PORAY: That's correct. 28 MR. FISHER: I understand that this causes a Les Services StenoTran Services Inc. 613-521-0703 817 1 problem with a non-coincident peak charge determinant if 2 the identified transmission customers change between the 3 time of rate setting and the time when the charges are 4 determined. This property is because of the 5 non-coincident peak charges that the sum is not equal to 6 the whole. You might recall we discussed that last 7 Thursday, February 17. 8 Can you confirm that if you use a 9 non-coincident peak charge determinant and the 10 identified transmission customers change between the 11 time of setting the rates and the time of preparing the 12 transmission bills, the sum of the charge determinants 13 would change even if the total electricity used in the 14 province were exactly as forecast? 15 MR. PORAY: That is possible, yes. 16 MR. FISHER: Am I correct that this could 17 cause OHNC to either overrecover or underrecover its 18 revenue requirement? 19 MR. PORAY: I think that could happen, yes. 20 MR. FISHER: Is the reason why OHNC has 21 adopted the definition of transmission customer that 22 says transmission customers -- is this the reason, 23 excuse me, why OHNC has adopted the definition of 24 transmission customer that says that transmission 25 customers are those identified as transmission customers 26 at the time of setting the rate? 27 MR. PORAY: That's correct. 28 MR. FISHER: If a coincident peak charge Les Services StenoTran Services Inc. 613-521-0703 818 1 determinant is used and the sum of the charge 2 determinants is always the total peak load in the 3 province, no matter how the loads are divided up into 4 transmission customers. Is that correct? 5 MR. PORAY: That's correct. 6 MR. FISHER: Is it true then that at least as 7 far as network service is concerned, if a coincident 8 peak rate determinant were used, OHNC would not have to 9 restrict transmission customers to those identified at 10 the time of rate setting? 11 MR. PORAY: I don't think that's the case, no. 12 MR. FISHER: Why not? Why is that not the 13 case? 14 --- Pause 15 MR. CURTIS: One still has to forecast in 16 advance what the usage will be of those customers. So 17 there is still this element of forecasting that has to 18 come into play and so as a result in the final 19 collection that occurs they may necessarily not be on 20 the same basis as what the forecast was that was used in 21 order to set the rates initially. 22 MR. FISHER: But isn't it just the provincial 23 load that you need to forecast? 24 MR. CURTIS: Yes. The total customer load in 25 that case, yes. 26 MR. FISHER: Do you agree that with a 27 coincident peak charge determinant the rate can be set 28 once to forecast the coincident peak load for the Les Services StenoTran Services Inc. 613-521-0703 819 1 province and the revenue requirement for a network has 2 been set? 3 MR. PORAY: Yes. 4 MR. FISHER: Now, with regard to connection 5 charges, most parties agree that some form of 6 non-coincident peak charge should be used for connection 7 charges. I would now like to turn to some of the 8 problems this may cause with some definitions of 9 transmission customer. 10 Is it correct that the identification of the 11 customers at the outer ring of wholesale meters is hard 12 to predict, in that we don't know which customers 13 connected to the distribution system will decide to 14 register with the IMO as wholesale market participants? 15 MR. PORAY: If we look at them as market 16 participants, yes. If we look at them as today's 17 Ontario Hydro customers we know who they are. 18 MR. FISHER: But the outer ring is the outer 19 ring of wholesale meters that we defined at the outset, 20 transmission customers? 21 --- Pause 22 MR. FISHER: So if we go back to the exhibit, 23 you can see Industrial Customers C and D and MEU F. 24 MR. PORAY: There will be -- for instance, 25 Customer C, we would not have the information on that 26 customer. That's correct. 27 MR. FISHER: Can you confirm that with a 28 non-coincident peak charge determinant measured at the Les Services StenoTran Services Inc. 613-521-0703 820 1 outer ring of meters you would have this problem of not 2 being able to predict the revenues because of the 3 difficulty in identifying the transmission customers at 4 the time of rate setting? 5 MR. CURTIS: Are you talking strictly in terms 6 of connection charge or -- 7 MR. FISHER: Yes. 8 MR. PORAY: Yes, I think that's true. 9 MR. FISHER: There are several proposals on 10 the table that would essentially define connection 11 charges based on the readings of what we have termed the 12 inner ring of meters. Can you confirm that the inner 13 ring of meters only change when there are physical 14 changes to existing connections or new connections are 15 added to the system? 16 MR. PORAY: That's correct. 17 MR. FISHER: Would you agree that the directly 18 connected transmission customers defined by the inner 19 ring of wholesale meters are a more stable set of 20 transmission customers than the outer ring? 21 MR. PORAY: I would agree with that, yes. 22 MR. FISHER: Do you agree that the 23 transmission customers defined by the inner ring of 24 meters gives the degree of stability between rate 25 setting and implementation that is necessary to 26 reasonably assure OHNC of recovering the right level of 27 revenue if the load turns out as forecast? 28 MR. PORAY: In general I would agree, yes. Les Services StenoTran Services Inc. 613-521-0703 821 1 MR. FISHER: Those are my questions. Thank 2 you. 3 Thank you, Mr. Chair. 4 THE PRESIDING MEMBER: Thank you, Mr. Fisher. 5 It is now time for the morning break. We will 6 take 20 minutes, back at five minutes after 1100. Thank 7 you very much. 8 --- Upon recessing at 1045 9 --- Upon resuming at 1110 10 THE PRESIDING MEMBER: Thank you. 11 Who is going to go next. Is that you, 12 Mr. Hilson or is it Ms Godby? 13 MS GODBY: Yes, it is. Would you like me to 14 go next, Mr. Chair? 15 THE PRESIDING MEMBER: Since you have the 16 chair now you might as well sit in it. Right? 17 MS GODBY: Okay. 18 THE PRESIDING MEMBER: Okay. Please proceed. 19 FURTHER CROSS-EXAMINATION 20 MS GODBY: I am going to be referring, 21 gentlemen, to Exhibit D, Tab 3, Schedule 1, page 4 22 of 13. 23 --- Pause 24 MS GODBY: Do you see the chart on that page? 25 MR. PORAY: Yes, we do. 26 MR. CURTIS: Yes. 27 MS GODBY: Okay. Really what I want to do is 28 go through this chart and clarify a couple of points. Les Services StenoTran Services Inc. 613-521-0703 822 OHNC PANEL 1, cr-ex (Godby) 1 I understand that if we look at the first 2 column, at the first row, we have 69 customers who are 3 directly connected to the transmission system. Correct? 4 MR. PORAY: That's correct. 5 MS GODBY: If we go just to the right of that 6 we have 15 other large users that are actually directly 7 connected but they are billed by MEUs. Is that right? 8 MR. PORAY: That is correct. 9 MS GODBY: Okay. So under the short-term 10 proposal what will happen is that the 69 customers, the 11 69 direct customers, will be deemed to be transmission 12 customers? 13 MR. PORAY: That is correct. 14 MS GODBY: And the 15 will not? 15 MR. PORAY: That is correct. 16 MS GODBY: And the only difference between the 17 two is that one is billed by an MEU, the other one is 18 not? 19 MR. PORAY: The difference is, as per our 20 definition, that those 15 large users that are embedded 21 within the LDCs today are not Ontario Hydro's customers. 22 MS GODBY: So the only difference between them 23 is essentially the ownership. Okay. 24 If we go down to the next row, we have 34 25 directs. So 34 customers who are connected directly to 26 OHNC distribution. 27 MR. PORAY: That's correct. 28 MS GODBY: Okay. Les Services StenoTran Services Inc. 613-521-0703 823 OHNC PANEL 1, cr-ex (Godby) 1 Then, if we skip over and then go one row down 2 to 133, those customers are connected I understand 3 directly to the LDCs of the municipal utilities. Right? 4 MR. PORAY: That's correct. 5 MS GODBY: So the only difference between 6 those two are the ownership of the LDC. One in fact is 7 owned by OHNC and the other one is not. 8 MR. PORAY: That's correct. 9 --- Pause 10 MS GODBY: So what we have, then, is we have 11 the MEUs retaining the benefits of the diversity which 12 the large users offer, but those diversity benefits are 13 lost with respect to OHNCD customers. Correct? 14 MR. PORAY: I don't think they are lost. I 15 mean, those customers are there today. Those 34 16 customers will remain. 17 MS GODBY: The 34 customers, the direct 18 customers, they will be deemed to be transmission 19 customers. Correct? 20 MR. PORAY: Yes, they will. Yes. 21 MS GODBY: Okay. 22 So what is happening is that the 133 -- you 23 have a distinction, as I understand it, and correct me 24 if I'm wrong, but as I understand it, you have a 25 distinction based on ownership of the local distribution 26 company. So you have 133 large users that are customers 27 of MEUs or the MEU LDCs. Right? 28 MR. PORAY: That's correct. Les Services StenoTran Services Inc. 613-521-0703 824 OHNC PANEL 1, cr-ex (Godby) 1 MS GODBY: And the only distinction between 2 them and the 34 is that the LDC is owned by OHNCD. 3 MR. PORAY: If you like. 4 MS GODBY: Well, is that right? 5 MR. PORAY: I mean, these other MEUs are 6 separate local distribution companies. Ontario Hydro 7 Distribution is also a local distribution company. 8 MS GODBY: So you have a distinction based on 9 the ownership of the LDC? 10 MR. PORAY: I guess so, yes. 11 --- Pause 12 MS GODBY: So the 133 customers that are 13 served off the MEUs, they will stay in. They will not 14 become transmission customers under the short-term 15 proposal. Correct? 16 MR. PORAY: That is correct. 17 MS GODBY: Okay. So the MEUs retain those 18 benefits from their diversity. Correct? 19 MR. PORAY: That's correct. 20 MS GODBY: Okay. 21 MR. PORAY: And you have assessed the loss -- 22 as a result of this short-term definition, I take it 23 that the costs that are shifted onto customers of OHNCD 24 is approximately $18 million. Is that correct? 25 MR. PORAY: Where did you get the $18 million, 26 please? Can you indicate it to us? 27 --- Pause 28 MS GODBY: With the Board's indulgence, just Les Services StenoTran Services Inc. 613-521-0703 825 OHNC PANEL 1, cr-ex (Godby) 1 one minute, please. 2 --- Pause 3 MS GODBY: If you turn to Exhibit D, Tab 4, 4 Schedule 3, page 6 of 13 -- 5 MR. PORAY: Okay. 6 MS GODBY: -- okay -- we have the base case 7 which is the -- you show the power district, and then we 8 have your preferred case which is Option XVIII -- 9 MR. PORAY: That's correct. 10 MS GODBY: -- which demonstrates the 11 $18 million. Is that correct? 12 MR. PORAY: But that is a shift in cost as a 13 result of the dissolution of the power district. 14 MS GODBY: Well, isn't that in fact what we 15 are talking about here? 16 MR. PORAY: In terms of who the transmission 17 customers are? 18 MS GODBY: Yes. 19 MR. PORAY: No. 20 MS GODBY: If we have a distinction based on 21 ownership, as we have just discussed, we have a number 22 of customers that are going to become transmission 23 customers, we have a number of directly connected 24 customers that are going to become transmission 25 customers, according to your short-term proposal. Now, 26 that results in the loss of diversity benefits, does it 27 not, and that is translated into $18 million? 28 MR. PORAY: No. I think the loss of the Les Services StenoTran Services Inc. 613-521-0703 826 OHNC PANEL 1, cr-ex (Godby) 1 benefit is as a result of the unbundling of the power 2 district. That is where the $18 million comes about. 3 It is not the movement of transmission customers. It is 4 the fact that you are dissolving the power district. 5 --- Pause 6 MS GODBY: Gentlemen, have you performed an 7 impact assessment on the long-term proposal? 8 MR. PORAY: The long-term proposal being...? 9 MS GODBY: Being the directly connected 10 customers. 11 MR. PORAY: What impact are you looking at? 12 MS GODBY: Well, I'm wondering whether or not 13 there has been any impact assessment done, whether or 14 not there has been any assessment done with respect to 15 your long-term proposal; and, if so, where would I find 16 that in your evidence? 17 MR. PORAY: We haven't performed an impact on 18 the rates, on customers' rates, as a result of the long 19 term proposal for transmission customers, only those 20 that are connected to the transmission system. 21 MS LEA: Thank you, those are my questions. 22 MR. PORAY: Thank you. 23 THE PRESIDING MEMBER: Thank you. 24 Mr. Hilson, are you going to ask questions on 25 behalf of Energy Probe? 26 MR. HILSON: Just a couple. 27 THE PRESIDING MEMBER: Thank you. Please 28 proceed. Les Services StenoTran Services Inc. 613-521-0703 827 OHNC PANEL 1, cr-ex (Godby) 1 FURTHER CROSS-EXAMINATION 2 MR. HILSON: I am trying to understand, if you 3 take AMPCO's proposal for a definition and OHNC's, how 4 much is just a question of the billing and if there are 5 any potential rate impacts. If there are, what in 6 general terms, what would they be? 7 MR. PORAY: We are not sure whether there in 8 fact would be any impacts on the customers' rates. 9 AMPCO's proposal is essentially what we have proposed 10 for the longer term. 11 MR. HILSON: Okay. Are there any cost 12 consequences to OHNC of using AMPCO's definition? 13 MR. PORAY: I don't think so, no. 14 MR. HILSON: Thank you. Those are my 15 questions. 16 THE PRESIDING MEMBER: Thank you, Mr. Hilson. 17 Mr. Poch, are you going to proceed now? 18 MR. POCH: No questions. 19 THE PRESIDING MEMBER: Mr. Mark, thank you. 20 FURTHER CROSS-EXAMINATION 21 MR. MARK: Thank you, Mr. Chair. 22 Gentlemen, am I correct that even though you 23 have expressed some preferences for the long term, you 24 haven't proposed a permanent solution today because you 25 simply don't have the information you need to make the 26 assessment of impacts? 27 MR. PORAY: We haven't really had discussions 28 with all the stakeholders to be able to formulate our Les Services StenoTran Services Inc. 613-521-0703 828 OHNC Panel 1, cr-ex (Mark) 1 longer term proposal. 2 MR. MARK: As I understand it, you would need 3 some of the issues, which are before this hearing, 4 resolved before you could have an in-depth discussion 5 with stakeholders about what the impacts of various 6 proposals would be, such as the charge determinants? 7 MR. PORAY: I don't think that is necessarily 8 the case. If we had, I guess, had the discussions with 9 all the stakeholders to determine this issue on the 10 transmission customers as part of this overall 11 preparation for this submission, then perhaps we would 12 have been in a better position to bring forward a 13 different proposal. 14 MR. MARK: No, but am I not correct that the 15 advantages and disadvantages in impacts of each of the 16 available definition options cannot be assessed until 17 the charge determinant and point of billing issues are 18 decided, for example? 19 MR. CURTIS: In the context of what we 20 submitted, if those are accepted, then the issue around 21 customer definition would be resolvable at this stage. 22 MR. MARK: But I am just trying to find out -- 23 I had thought, in response to one of our interrogatories 24 in particular, you had told us that you couldn't assess 25 the disadvantages and impacts until certain issues such 26 as the charge determinants and point of billing issues 27 are resolved, whether it is resolved by agreement or 28 resolved by the Board. Les Services StenoTran Services Inc. 613-521-0703 829 OHNC Panel 1, cr-ex (Mark) 1 MR. CURTIS: By the Board, yes. But as a 2 package it could be resolved, yes. 3 MR. MARK: Oh, I understand that. But as yet, 4 because certainly until a few days before this hearing 5 you had not. Because of the uncertainty of the outcomes 6 you hadn't advanced the analysis of the long term 7 options very far. Is that fair? 8 MR. PORAY: That's fair. 9 MR. MARK: All right. 10 Now, counsel for AMPCO was asking you 11 questions about, if I understood his questions 12 correctly, the coincident and non-coincident peak issue 13 again and, in particular, suggesting that with certain 14 options or certain proposals that there were problems 15 wedding it with non-coincident determinants. Do you 16 recall that? 17 MR. PORAY: Yes, I do. 18 MR. MARK: Am I correct that the only time the 19 issue of coincident and non-coincident billing becomes 20 an issue here in the context of definition of 21 transmission customer is when there is the possibility 22 for the composition of the class of transmission 23 customers to change from the time the rates are set 24 until they are collected? 25 MR. PORAY: That is correct. 26 MR. MARK: And as long as you have stable 27 class composition then you don't have to go to the 28 coincident peak method, even assuming you want to deal Les Services StenoTran Services Inc. 613-521-0703 830 OHNC Panel 1, cr-ex (Mark) 1 with that problem? 2 MR. PORAY: I think that would be correct. 3 MR. MARK: So for example, if you adopted a 4 definition with, as you propose, under your preferred 5 long term option of having the definition of customer 6 decided by the physical aspect of whether the customer 7 is connected or not, that is a status which is not going 8 to change regardless of what the customer does with his 9 contractual arrangements. Correct? 10 MR. PORAY: That would be correct. 11 MR. MARK: Similarly, under your present 12 interim proposal, whereby you propose to define the 13 membership in the class by the present relationships, 14 you are not proposing that customers be able to change 15 whether they are in or out of the class. Correct? 16 MR. PORAY: That would be correct. 17 MR. MARK: Again, the issue with coincident 18 versus non-coincident goes away in that scenario. 19 Correct? 20 MR. PORAY: I am not sure whether it goes away 21 because of the fact that you have some customers that 22 are embedded in -- 23 MR. MARK: No, I am not saying it is not an 24 issue, but this issue in the changing composition of the 25 classes goes away to the extent that is possibly a 26 rationale for choosing coincident billing. As long as 27 you fix the composition of your customer class that 28 rationale disappears. Correct? Les Services StenoTran Services Inc. 613-521-0703 831 OHNC Panel 1, cr-ex (Mark) 1 MR. PORAY: That is correct. 2 MR. MARK: Thank you, gentlemen. Those are my 3 questions. Thank you, Mr. Chair. 4 THE PRESIDING MEMBER: Thank you, Mr. Mark. 5 Mr. Campbell, do you have any questions? 6 MR. CAMPBELL: We have no questions on this 7 topic. 8 Thank you, Mr. Chairman. 9 THE PRESIDING MEMBER: Thank you. 10 I will go over next to Mr. White then, please. 11 FURTHER CROSS-EXAMINATION 12 MR. WHITE: Thank you. 13 I have had a request that I name the clients 14 that I am working with in this particular submission and 15 they include Bracebridge, Caledon, Gravenhurst, 16 Haldimand, Lincoln, Nanticoke and West Lincoln. 17 I just have a few questions for the panel on 18 this particular topic. 19 The current short run definition of the pool 20 of transmission customers is split on the basis of -- I 21 am sorry -- your proposed short run definition is split 22 on the basis of use and function. Is that basically 23 correct? 24 MR. PORAY: I am sorry, what are you referring 25 to, the transmission customers? 26 MR. WHITE: The transmission customer 27 definition, yes, the LDCs being classified as 28 transmission customers on the basis of function and the Les Services StenoTran Services Inc. 613-521-0703 832 OHNC Panel 1, cr-ex (White) 1 former directs on the basis of size. 2 MR. PORAY: No, we didn't use that for the 3 definition of the transmission customer. We just said, 4 for simplicity in terms of not having had the 5 discussions on this topic, to determine who is a 6 transmission customer and who isn't we propose to go 7 forward with categorizing the transmission customers as 8 those customers who today are customers of Ontario 9 Hydro. 10 MR. WHITE: Are there LDCs who are supplied 11 both from what are classified as transmission facilities 12 and non-transmission facilities? 13 MR. PORAY: There are some LDCs that are 14 supplied from transmission facilities and there are some 15 LDCs that are embedded within another LDC that are 16 supplied from the distribution facility. 17 MR. WHITE: Are there situations where you 18 would have the same LDC supplied from a combination of 19 transmission facilities and embedded facilities? 20 MR. PORAY: I am not aware of that situation. 21 MR. WHITE: Based on your earlier comments, is 22 it fair to characterize your response that you feel it's 23 premature at this time to move to a long term definition 24 of transmission customer without the benefit of further 25 consultation? 26 MR. PORAY: That is what we stated. 27 MR. WHITE: Thank you. 28 THE PRESIDING MEMBER: Thank you, Mr. White. Les Services StenoTran Services Inc. 613-521-0703 833 OHNC Panel 1, cr-ex (White) 1 Anyone else now have questions before the 2 Board staff? No. 3 Then we will go to Mr. Lyle, Board staff. 4 Thank you. 5 MR. LYLE: Thank you, Mr. Chair. 6 EXAMINATION 7 MR. LYLE: Gentlemen, if I could refer you 8 back to Table 1 that Ms Godby referred you to. That's 9 at Exhibit D, Tab 3, Schedule 1, page 4. We see in this 10 table the 15 other large users who are directly 11 connected to the transmission system that other counsel 12 have been talking about. 13 I understand that the reason why these are 14 currently customers of LDCs is for matters of history, 15 historical anomaly, is that correct? 16 MR. PORAY: That is correct. 17 MR. LYLE: Do you see any difficulties in 18 modifying the status quo option so that these 15 large 19 users are included in the definition of transmission 20 customers at market opening? 21 MR. PORAY: I think that the response to that 22 has to be that we haven't had the discussion with the 23 municipal electrical utilities that are the hosts to 24 those customers and with the IMO to determine what would 25 be the best outcome. 26 MR. LYLE: But speaking from your perspective, 27 do you see any practical difficulties with moving to 28 that scenario by market opening? Les Services StenoTran Services Inc. 613-521-0703 834 OHNC PANEL 1, ex (Lyle) 1 MR. PORAY: Well, I guess the practical 2 implications would involve the issues which the host 3 municipal electrical utilities might have. In terms of 4 billing mechanisms and that, I don't see much 5 difficulty. 6 MR. LYLE: Okay. Moving down the table, we 7 see the 34 direct customers, currently customers of OHNC 8 distribution. If OHNC distribution expands its service 9 area, could there be additional customers in this 10 category? 11 MR. PORAY: When you say expand its area, this 12 is through mergers and amalgamations with other -- 13 MR. LYLE: That's correct. It buys up other 14 utilities. 15 MR. PORAY: It is possible that there would be 16 an increase. 17 MR. LYLE: So this 34 number is not frozen. 18 This is something that can change in the next three to 19 four years as this Option IV remains in place. Is that 20 fair? 21 MR. PORAY: Yes. 22 MR. LYLE: Okay. And then moving down to the 23 final row on Table 1, there are two large users who are 24 embedded in LDCs who are considered transmission 25 customers. Can you explain to me in what way they 26 differ from the 133 other embedded large users? 27 --- Pause 28 MR. PORAY: I would like to perhaps check on Les Services StenoTran Services Inc. 613-521-0703 835 OHNC PANEL 1, ex (Lyle) 1 that 2 MR. LYLE: Okay. Well, perhaps we can take an 3 undertaking then. Make that Undertaking F5.2. 4 THE PRESIDING MEMBER: Just state that for the 5 record. 6 MR. LYLE: Yes. It's an undertaking that the 7 witness check as to in what manner the two large users 8 who are embedded in the LDCs differ from the 133 large 9 users embedded in LDCs in terms of why the two are 10 transmission customers and the 133 are not. 11 UNDERTAKING NO. F5.2: Mr. Poray 12 undertakes to check as to in what manner 13 the two large users who are embedded in 14 the LDCs differ from the 133 large users 15 embedded in LDCs in terms of why the two 16 are transmission customers and the 133 17 are not 18 MR. LYLE: Now, I understand your evidence in 19 chief was that the status quo Option IV could be in 20 place for between three and four years. Is that fair? 21 MR. PORAY: I don't think we gave anything in 22 direct evidence. 23 MR. ROGERS: I think when I asked that 24 question, I was careful to say they weren't committing 25 to it, but to give us some idea of what their present 26 thinking was. I think that's the trouble with the 27 question I think. 28 MR. LYLE: Okay. Les Services StenoTran Services Inc. 613-521-0703 836 OHNC PANEL 1, ex (Lyle) 1 MR. ROGERS: I don't think the witnesses are 2 in a position to make an undertaking or a further -- 3 MR. LYLE: I'm not suggesting they make an 4 undertaking. 5 MR. ROGERS: Yes. 6 MR. LYLE: I'm just trying to get an 7 understanding. Is it your expectation it might be in 8 the range of three to four years that this Option IV 9 would be in place? 10 MR. PORAY: Certainly. Yes. 11 MR. LYLE: All right. And do you agree with 12 counsel for AMPCO, Mr. Fisher, that failing to implement 13 the longer term solution now creates uncertainty? 14 MR. PORAY: I don't believe so. I think this 15 is a stepping stone to the new market and like most 16 things, it's an evolving process. You start from 17 somewhere and you move towards an end goal. I think 18 that's all we have been trying to do here. I don't 19 think there is that much uncertainty. 20 MR. LYLE: Not that much uncertainty, but 21 there is some uncertainty that is created by not moving 22 now to the long term solution. Is that fair? 23 MR. PORAY: I think that's probably fair. 24 MR. LYLE: Perhaps you could elaborate on what 25 you expect to gain from the consultations you intend to 26 undertake with stakeholders that in your mind makes it 27 more valuable to delay a long term solution and create 28 the potential uncertainty that Mr. Fisher has talked Les Services StenoTran Services Inc. 613-521-0703 837 OHNC PANEL 1, ex (Lyle) 1 about. 2 What are you going to learn from the 3 stakeholders that you don't know right now? 4 MR. CURTIS: I think we are going to learn, 5 first of all, what we are dealing with in terms of these 6 particular customers. We don't have much in the way of 7 historical information in terms of the actual billing 8 structure as far as these customers are concerned since 9 they have been MEU customers. 10 There is also the implication, I think it has 11 been alluded to by other intervenors, as to how the LDCs 12 overall billing is affected by having these particular 13 customers within their jurisdiction. We don't have any 14 knowledge currently of how that on a going forward basis 15 would impact the rate. 16 I think we need to have a clear understanding 17 of the implications around the MEUs where these 18 customers are currently in place. 19 MR. LYLE: Thank you. Setting aside the 20 concerns with stakeholders, are there any practical 21 difficulties from a billing perspective, distance 22 perspective of moving to the longer term Option II as of 23 market opening? 24 MR. CURTIS: No, we don't see any. 25 MR. LYLE: In responding to a question from 26 Mr. Fisher, I believe you said that in the case where 27 someone was not a wholesale market participant but was a 28 transmission customer that the IMO would have to bill Les Services StenoTran Services Inc. 613-521-0703 838 OHNC PANEL 1, ex (Lyle) 1 that person for transmission service. Is that correct? 2 MR. PORAY: Based on what we are proposing, 3 that those customers today are Ontario Hydro's direct 4 customers, they are being billed by the IMO today. 5 MR. LYLE: I see. You talked with the IMO and 6 that's going to continue in place after market opening. 7 MR. PORAY: That is my understanding. 8 MR. LYLE: Okay. Thank you. 9 Now, AMPCO proposed -- maybe I can refer you 10 to the Settlement Agreement, Attachment A to the 11 Settlement Agreement. 12 --- Pause 13 MR. PORAY: Okay, we have it. 14 MR. LYLE: If you go to the paragraph numbered 15 number (2), AMPCO proposed a mechanism for setting 16 distribution rates to ensure that the transmission price 17 signals would be passed through to the interval metered 18 customers. 19 Are there any similar mechanisms that could be 20 used to establish -- to pass on transmission price 21 signals to non-interval metered customers? 22 MR. PORAY: I think that would really depend 23 on the distribution company and what were the mechanisms 24 for billing those customers, whether it was on the basis 25 of demand or energy. 26 MR. LYLE: Okay. But if we look at AMPCO's 27 proposal, it's that interval metered customers be billed 28 transmission charges in the same form as transmission Les Services StenoTran Services Inc. 613-521-0703 839 OHNC PANEL 1, ex (Lyle) 1 charges are charged to the LDC. 2 MR. PORAY: That is correct. 3 MR. LYLE: Do you agree with that? 4 MR. PORAY: That is correct, yes. 5 MR. LYLE: You agree with that approach for 6 setting distribution rates? 7 MR. PORAY: No, this is not for setting 8 distribution rates. This is for passing through the 9 transmission -- 10 MR. LYLE: Yes, passing through. But the LDC 11 is going to have a distribution rate which establishes 12 how it passes through the transmission charges on to 13 their end use customers. Is that -- 14 MR. PORAY: I'm assuming they will. 15 MR. LYLE: Okay. Do you agree, then, with the 16 approach that AMPCO has set out here? 17 MR. CURTIS: That's one possible approach for 18 doing that. 19 I think one of the problems that we have had 20 is that this is obviously an application for 21 transmission services and we don't feel that we are in a 22 position to propose to the Board how necessarily it gets 23 passed through in terms of distribution rates. 24 MR. LYLE: I'm not asking you to propose 25 anything to the Board. 26 MR. PORAY: All right. 27 MR. LYLE: I'm just asking for your knowledge 28 base to assist us -- Les Services StenoTran Services Inc. 613-521-0703 840 OHNC PANEL 1, ex (Lyle) 1 MR. PORAY: Okay. 2 MR. LYLE: -- and whether you think this is an 3 appropriate way to design distribution rates to pass 4 through transmission charges. 5 MR. PORAY: Well, I think anything that will 6 minimize distortion is a good approach to take. 7 MR. LYLE: Can you think of any other ways you 8 could establish distribution rates to minimize 9 distortion? 10 MR. PORAY: I don't think I can comment 11 on that. 12 MR. CURTIS: I don't think we have really 13 turned our heads to the design of distribution, I'm 14 sorry. 15 MR. LYLE: Fair enough. That's fine. 16 Finally, gentlemen, I just want to turn you 17 back to Exhibit C, Tab 3, Schedule 1. It is that 18 portion of your evidence where you set out the 19 principles and objectives of cost allocation and rate 20 design. 21 I just want to ask you as to whether you 22 believe whether there are any of your principle 23 objectives that are set out there that are not met by 24 the proposed Option IV definition of "transmission 25 customer". 26 MR. CURTIS: Including our short term and our 27 long term definition we feel that we are meeting the 28 principles here, yes. Les Services StenoTran Services Inc. 613-521-0703 841 OHNC PANEL 1, ex (Lyle) 1 MR. LYLE: But do you have some concerns that 2 some of the principles aren't met by the short term and 3 that is why you are proposing the long term? 4 --- Pause 5 MR. PORAY: I think it's probably a balance 6 between the -- this is on the principles that are on 7 page 2 of Exhibit C, Tab 3, Schedule 1, that the rate 8 structure should be fair and that the rate structure 9 should minimize impact to customers at the onset of open 10 access. 11 MR. LYLE: I see. So are you concerned, then, 12 that moving too quickly to Option II would create rate 13 impacts on customers at the onset of -- 14 MR. PORAY: Possibly, yes. 15 MR. LYLE: Okay. Do you have any sense of 16 which customer classes in particular might be most 17 affected by moving to Option II right away? 18 MR. PORAY: Probably the local distribution 19 companies. 20 MR. LYLE: I see. The embedded local 21 distribution companies particularly? 22 MR. PORAY: Not only the embedded ones, but I 23 think the ones that are directly connected to the 24 transmission system. 25 MR. LYLE: Why is that? 26 MR. PORAY: In terms of the customers that 27 they serve today and customers that they may not be 28 serving tomorrow. Les Services StenoTran Services Inc. 613-521-0703 842 OHNC PANEL 1, ex (Lyle) 1 MR. LYLE: Okay. 2 MR. ROGERS: I'm sorry. Could you keep your 3 voice up, please? 4 MR. PORAY: I'm sorry. 5 MR. ROGERS: You are trailing off there. 6 MR. LYLE: Thank you, gentlemen. 7 Those are all my questions, Mr. Chair. 8 THE PRESIDING MEMBER: Thank you, Mr. Lyle. 9 Does the Board have questions? 10 MEMBER SMITH: The status quo, that is 11 existing wholesale customers of Ontario Hydro? 12 MR. PORAY: These are the large direct 13 customers. 14 MEMBER SMITH: Large direct. 15 MR. PORAY: Yes. 16 MEMBER SMITH: So OHN's distribution company 17 is one of the customers? 18 MR. CURTIS: OHND is, yes, is one -- 19 MEMBER SMITH: One customer. 20 MR. CURTIS: -- one of those customers, yes. 21 THE PRESIDING MEMBER: Mr. Vlahos? 22 MEMBER VLAHOS: Gentlemen, just a couple of 23 questions. 24 If you go to Table 1 on Exhibit D, Tab 3, 25 Schedule 1, page 4, I just want to make sure I 26 understand what the current proposal is in terms of what 27 it includes in that table. 28 That would include, in the short-term Les Services StenoTran Services Inc. 613-521-0703 843 OHNC PANEL 1 1 proposal, the 59 direct customers? 2 MR. PORAY: That's correct. 3 MEMBER VLAHOS: And that would include the 4 34 under the OHNC distribution? 5 MR. PORAY: That's correct. 6 MEMBER VLAHOS: That would include the two? 7 MR. PORAY: That's correct. 8 MEMBER VLAHOS: The two customers. 9 MR. PORAY: That's correct. 10 MEMBER VLAHOS: Okay. With the information as 11 to why the two are not subject to the undertaking 12 response that you have provided. 13 MR. PORAY: That is correct. 14 MEMBER VLAHOS: Okay. 15 Now, going to the long-term solution. It is a 16 proposal of yours to go to the long-term solution. 17 Right? 18 MR. PORAY: That's correct. 19 MEMBER VLAHOS: Then what would I include or 20 exclude? 21 MR. PORAY: Well, certainly included would be 22 the large users that are embedded within the municipal 23 electrical utilities. So in row one the customers in 24 the right-hand column, the 15 in the right-hand column, 25 would be included as transmission customers. 26 Some of the number 34 might in fact go down as 27 a result of the fact that some of those customers are 28 connected directly to the distribution system rather Les Services StenoTran Services Inc. 613-521-0703 844 OHNC PANEL 1 1 than the transmission system. 2 As to the two, well, we will have to 3 verify that. 4 MEMBER VLAHOS: Okay. Can you help me on the 5 133 shown on the very bottom right-hand corner? Those 6 would be -- 7 MR. PORAY: I think they will stay -- 8 MEMBER VLAHOS: Okay. And the 69 will all 9 be in? 10 MR. PORAY: That's correct. They will stay -- 11 MEMBER VLAHOS: Does one want to be in or out 12 of this destination? From a financial perspective I 13 don't have a feel for it. 14 You are not saying that AMPCO wants the 15 long-term solution today because of what reasons? 16 MR. PORAY: I think it's just the simplicity 17 and the stability that those customers who are connected 18 to the transmission system will remain transmission 19 customers. 20 MEMBER VLAHOS: Are there financial 21 considerations? 22 MR. CURTIS: Yes, there may be. I think some 23 of the large customers feel that they may end up with 24 some component of a distribution charge that they would 25 not otherwise have to pay if they were defined strictly 26 as a transmission customer. That is the issue. 27 MEMBER VLAHOS: Now, I noticed something there 28 and I just want to take you back a couple of days. I Les Services StenoTran Services Inc. 613-521-0703 845 OHNC PANEL 1 1 just want to make sure I understand. 2 There are a number of issues that you want to 3 resolve, you say, for the long-term solution. 4 MR. PORAY: In terms of moving towards the 5 long-term solution for the transmission customers? 6 MEMBER VLAHOS: Yes. I am not sure. If you 7 want to go with a long-term solution which is Option II, 8 I believe, -- 9 MR. PORAY: That's correct. 10 MEMBER VLAHOS: -- then what is there to be 11 discussed? That's what I don't understand. 12 MR. PORAY: I think Mr. Curtis mentioned some 13 of the things that we would need to have in the debate 14 with the municipal electrical utilities and the IMO. 15 MEMBER VLAHOS: Right. But the objective 16 would not change. You would move to Option II and it is 17 just a matter of bringing everybody up to speed as to 18 what you are going to do and how you are going to do it. 19 MR. PORAY: I guess that would be a correct -- 20 MEMBER VLAHOS: It's not negotiable. 21 Option II is your end state. 22 MR. PORAY: Yes. 23 MR. CURTIS: Yes. 24 MEMBER VLAHOS: Okay. So those are the 25 discussions you are referring to in the discussions 26 about how to get to Option II? 27 MR. PORAY: That's correct. 28 MEMBER VLAHOS: So taking you back a couple of Les Services StenoTran Services Inc. 613-521-0703 846 OHNC PANEL 1 1 days ago, we had a discussion with, I believe, Mr. Vogel 2 about -- there was a question whether the First Nations 3 were or were not consulted on the definition of 4 transmission customer. Do you recall that exchange? 5 MR. CURTIS: Yes, I do. 6 MEMBER VLAHOS: And the answer was, no, we did 7 not consult. 8 MR. CURTIS: That's correct. 9 MEMBER VLAHOS: I was left with the impression 10 that the First Nations were left out. There were 11 consultations with other parties, but from today's 12 evidence I hear you saying that this issue was not 13 discussed period. 14 MR. CURTIS: This issue was not discussed with 15 the First Nations. Actually, there were two reasons for 16 it. One is that the issue around the definition of 17 transmission customer came up later on in the process of 18 our stakeholdering that we had done. This wasn't an 19 issue that we were aware of initially until we had 20 started into our stakeholdering process and, basically, 21 we either were well into our consultation process with 22 First Nations or had completed it before we realized 23 that this was an issue that needed some sort of 24 discussion. 25 The other aspect of it with relation to the 26 First Nations is that there is currently no First Nation 27 that would qualify either under definition (a), No. 1 or 28 No. 2, as a transmission customer. Les Services StenoTran Services Inc. 613-521-0703 847 OHNC PANEL 1 1 MEMBER VLAHOS: You were made aware that this 2 was an issue, so prior to that what was your assumption 3 about who would be characterized as a transmission 4 customer? Was it the short-term solution or the 5 long-term solution? 6 MR. CURTIS: We were going on the basis of our 7 short-term solution at that point. 8 MEMBER VLAHOS: And then when you became aware 9 there may be some concerns, then you developed Option 10 II, the long-term solution? 11 MR. CURTIS: Yes. 12 MEMBER VLAHOS: It appears to me from your 13 evidence no one has a problem with going to Option II in 14 the long term. It is just that some parties would like 15 to get there today. 16 MR. CURTIS: Yes, I think that's a fair 17 characterization. 18 MEMBER VLAHOS: Is that also a fair 19 characterization for the First Nations' position? 20 MR. CURTIS: I'm not aware of what the First 21 Nations' position would be on that. 22 MEMBER VLAHOS: But you take it that no one 23 has a problem getting to Option II eventually, just that 24 someone wants you to travel faster? 25 MR. CURTIS: That's correct. 26 MEMBER VLAHOS: Thank you for those answers. 27 Thank you, Mr. Chairman. 28 THE PRESIDING MEMBER: Thank you. Les Services StenoTran Services Inc. 613-521-0703 848 OHNC PANEL 1 1 I would just like to try and understand a 2 little more what the concerns not that you have, but 3 your customers, particularly the MEA group, the MEU 4 group, have expressed to you about concerns about 5 including these customers as transmission customers, as 6 opposed to LDC customers. That group in the 15 and then 7 the 133. 8 First of all, when the bills are being 9 calculated for MEU customers the large directs are 10 excluded anyway right from that. That's the current 11 situation. 12 MR. CURTIS: I'm not sure that that's the 13 case. 14 THE PRESIDING MEMBER: You don't think so? 15 MR. CURTIS: No. I'm not sure. 16 THE PRESIDING MEMBER: Then the calculation 17 for the interval metered customers is done first, 18 according to the proposed settlement calculations and 19 glossies are also allocated. 20 MR. CURTIS: Yes. 21 THE PRESIDING MEMBER: Then the balance is for 22 the charges for distribution services. Now, we are 23 talking about is allocated to the energy metered 24 customers, that's how it's done. 25 What I am having trouble understanding is why 26 the interval metered would not be in the same position, 27 whether they were within an LDC or whether they were 28 direct. I really can't quite figure that one out. Les Services StenoTran Services Inc. 613-521-0703 849 OHNC PANEL 1 1 I am trying to get to what they told you. I 2 know it's not your concern directly, but what have they 3 expressed to you as a concern? 4 MR. PORAY: I think diversity was an issue 5 with them. 6 THE PRESIDING MEMBER: So they would feel that 7 they would lose diversity for the remaining group 8 customers? 9 MR. CURTIS: Yes. 10 MR. PORAY: Yes. 11 THE PRESIDING MEMBER: That's the concern and 12 there might be rate impacts, as yet unfigured out with 13 respect to that for the transmission service component 14 of the overall bill that they get from the IMO, which 15 includes energy charges, IMO charges and transmission 16 charges. 17 MR. CURTIS: Yes, and in terms of their 18 flexibility around being able to bill their end-use 19 customers as well. 20 THE PRESIDING MEMBER: So the key then is that 21 the direct customers, the large customers interval 22 metered, the methodology has to be basically neutral, I 23 think that seems to me to be the requirement that you 24 are neutral whether you are direct or whether you are 25 within an LDC, the methodology should be identical. 26 MR. PORAY: That was the concern expressed by 27 the large users and AMPCO, the parity of treatment. 28 THE PRESIDING MEMBER: And so they don't yet Les Services StenoTran Services Inc. 613-521-0703 850 OHNC PANEL 1 1 believe because it is just emerging about the settlement 2 system and how it will all be calculated, whether they 3 will be equally treated, whether they were a direct 4 transmission customer or whether they are embedded, 5 that's the issue? 6 MR. CURTIS: That's it exactly. 7 THE PRESIDING MEMBER: And the question is 8 what are the things that are specifically going to need 9 to get resolved before that issue is clearer, not clear, 10 clearer? Will the retail settlement code, for example, 11 that deals with distribution charges, as opposed to 12 transmission, is that one factor that will clear things 13 up in terms of the methodology for distribution services 14 as opposed to transmission? Is that one? 15 MR. CURTIS: That would help insofar as it is 16 specific in terms of how the transmission component of 17 the bill would be allocated to the end-use customers, 18 yes. 19 THE PRESIDING MEMBER: I guess at this point 20 we are assuming I think that there is a separation on 21 the bill for transmission from the distribution service 22 and also separation from the IMO, other charges as well. 23 That seems to be the way it is structured in the retail 24 settlement code, as I understand it. Have you followed 25 that? 26 MR. CURTIS: That's my understanding as well, 27 although I haven't been following it in great detail, 28 but yes. Les Services StenoTran Services Inc. 613-521-0703 851 OHNC PANEL 1 1 THE PRESIDING MEMBER: I am still a bit 2 puzzled as to this question of being neutral, whether 3 you are embedded in an LDC and having a bill from an LDC 4 or whether you are a direct. I am still a little 5 puzzled as to what the worry or the concern is going to 6 be, but I guess we will have to wait and see. I guess 7 you don't have any other answers at this time? 8 MR. CURTIS: No, I'm afraid we don't. 9 THE PRESIDING MEMBER: Thanks very much. 10 MEMBER SMITH: A point of clarification, I 11 thought your answer to my colleague, Mr. Vogel, was that 12 you prefer Option II and in the consultation to come 13 after you want to work towards achieving Option II. 14 MR. CURTIS: Yes. 15 MEMBER SMITH: But the evidence filed 16 suggested it's a more open-ended process, you say the 17 approach to allow the parties to assess the advantages 18 and disadvantages of the various options, you express 19 your preference, I am on page 13 of 13 under Tab 3, the 20 one that has been referred to, you express your 21 preference for Option II, but you leave it a little more 22 open there than you suggested in your oral evidence, 23 that's all. 24 MR. PORAY: I think we recognize the advantage 25 of Option II in terms of simplicity in the new 26 marketplace. I guess it is the steps to get to that 27 option that we haven't explored yet fully. 28 MEMBER SMITH: Are you asking the Board to Les Services StenoTran Services Inc. 613-521-0703 852 OHNC PANEL 1 1 express a preference for Option II or are you just 2 asking us to go with Option IV and let you -- 3 MR. PORAY: I think our submission is to go 4 with Option IV and evolve to Option II. 5 MEMBER VLAHOS: I think the question still 6 was: Did you want the Board to comment as to the 7 appropriateness of going to Option II in the long term? 8 MR. PORAY: I think any direction that the 9 Board could give us would be helpful. 10 THE PRESIDING MEMBER: We are looking for some 11 help from you, is all. 12 --- Laughter 13 THE PRESIDING MEMBER: Okay. Thank you, 14 gentlemen. Those are the Board's questions. 15 Mr. Rogers, do you have any redirect? 16 MR. ROGERS: No. Thank you. 17 THE PRESIDING MEMBER: Okay. Thank you. 18 Well, then let's look forward to where we go 19 next. 20 MR. ROGERS: I guess the time has come to call 21 my second panel. 22 THE PRESIDING MEMBER: Really? These 23 gentlemen have gotten so used to being here on their own 24 that they wouldn't welcome any company. 25 --- Laughter 26 MR. ROGERS: My second panel consists of 27 Dr. Poray, Mr. Curtis and Mr. Gary Schneider. I ask him 28 to come forward and be sworn, please. Les Services StenoTran Services Inc. 613-521-0703 853 OHNC PANEL 1 1 PREVIOUSLY SWORN: DAVID CURTIS 2 PREVIOUSLY SWORN: ANDY PORAY 3 SWORN: GARY SCHNEIDER 4 MR. ROGERS: Well, Mr. Schneider, they put you 5 right in the middle I see. 6 EXAMINATION-IN-CHIEF 7 MR. ROGERS: First of all, can I ask you, 8 Mr. Schneider, to just outline for us your full name and 9 your professional affiliation? 10 MR. SCHNEIDER: Certainly. 11 My name is Gary Schneider and I am a Senior 12 Advisor in the Regulatory and Stakeholder Affairs 13 Division of the Ontario Hydro Networks Company. 14 MR. ROGERS: Mr. Schneider, I understand that 15 your training is in economics and that you hold a degree 16 in economics and a masters degree in economics from the 17 University of Western Ontario. 18 MR. SCHNEIDER: Yes. That is correct. 19 MR. ROGERS: I understand as well that you 20 have been employed in the electricity business for some 21 time, first with the former Ontario Hydro and now with 22 the Ontario Hydro Networks Company, and your experience 23 has lasted for about 15 years with those companies. 24 MR. SCHNEIDER: Yes. That is correct. 25 MR. ROGERS: During that time you have worked 26 in a number of areas including economic and load 27 forecasting, local area resource planning and market 28 planning. Les Services StenoTran Services Inc. 613-521-0703 854 OHNC PANEL 2, in-ch (Rogers) 1 MR. SCHNEIDER: Yes. 2 MR. ROGERS: Currently, you work in the area 3 of transmission regulation, which brings you here I 4 imagine, and most recently you have been involved in the 5 development of the company's application before the 6 Board as well as the stakeholder consultation process 7 that we have heard so much about. 8 MR. SCHNEIDER: Yes. That is correct. 9 MR. ROGERS: As I understand it, sir, you 10 assisted Dr. Poray and Mr. Curtis in the overall 11 supervision and preparation of the entire submission to 12 the Board. 13 MR. SCHNEIDER: Yes. 14 MR. ROGERS: To your present knowledge and 15 belief, that submission contained in the evidence filed 16 with the Board is accurate as amended? 17 MR. SCHNEIDER: Yes. 18 MR. ROGERS: You were personally responsible 19 and more directly responsible I think for the 20 preparation of the evidence found in the application at 21 Exhibit D, Tab 7, that is, the treatment of new load 22 connection investment. 23 MR. SCHNEIDER: Yes. That is correct. 24 MR. ROGERS: That, of course, has been amended 25 by submissions on November 24th and December 2nd, 1999. 26 MR. SCHNEIDER: Yes. 27 MR. ROGERS: And that evidence in particular 28 is correct as amended, to your knowledge and belief. Les Services StenoTran Services Inc. 613-521-0703 855 OHNC PANEL 2, in-ch (Rogers) 1 MR. SCHNEIDER: Yes, it is. 2 MR. ROGERS: Mr. Chairman, I can tell you that 3 Mr. Schneider was involved in the consultation process 4 and, when the time comes, he will be prepared to answer 5 questions about that process and to answer First 6 Nations' concerns as well as raised in their evidence. 7 What I would like to do with this panel is to 8 go through a very brief description of their evidence as 9 I did on opening day, but this time I propose to do it 10 issue by issue, that is to say, I will start with one 11 issue, have the witnesses explain the company's position 12 very briefly, go through the order of cross-examination, 13 and then when they come to the next issue on the issues 14 list I will ask them to summarize that position for you. 15 I hope that maybe will be a little more helpful. 16 THE PRESIDING MEMBER: Thank you. 17 MR. ROGERS: My proposal is that we will begin 18 this panel with export and wheeling-through 19 transactions, which is Issue No. 4. 20 This panel will also deal with, by the way, 21 treatment of existing Ontario Hydro contracts, treatment 22 of new load connection investment and the terms and 23 conditions of service under "Later issues". 24 Just dealing with the first issue on the 25 issues list to be dealt with by you, panel, that is 26 export and wheeling-through transactions, Mr. Poray, I 27 think you have a large degree of responsibility for this 28 area of the evidence? Les Services StenoTran Services Inc. 613-521-0703 856 OHNC PANEL 2, in-ch (Rogers) 1 MR. PORAY: Yes. I did supervise this part. 2 MR. ROGERS: Would you briefly summarize for 3 us the key elements of the company's proposals in this 4 respect? 5 MR. PORAY: Yes, I would be happy to do that. 6 OHNC's proposal to charge export and 7 wheel-through transactions attempts to provide a 8 balanced approach to address the conflicting stakeholder 9 views. Some stakeholders express a strong preference 10 for OHNC not to develop any charges for these 11 transactions since, in their mind, such charges that 12 reflect fixed costs of transmission could send the wrong 13 signals to the marketplace and potentially distort their 14 efficiency of the marketplace. 15 On the other side were some stakeholders who 16 felt that by not assigning some portion of the fixed 17 costs of transmission to these types of transactions, 18 this in turn would send wrong signals to Ontario's 19 customers in that some transmission users were getting a 20 free ride while others had to pay the full costs of 21 transmission. 22 Our intent is to provide a rate which strikes 23 a balance between the competing domestic stakeholders 24 and which provides consistency and reciprocity with 25 other jurisdictions. The level of charge should be 26 comparable to that used in other jurisdictions and the 27 resulting revenues should be used to reduce the 28 transmission charges to customers in Ontario. Les Services StenoTran Services Inc. 613-521-0703 857 OHNC PANEL 2, in-ch (Rogers) 1 MR. ROGERS: When you refer to other 2 jurisdictions, which other jurisdictions do you have in 3 mind? 4 MR. PORAY: What we were referring to are 5 those that are connected directly to our transmission 6 system and the neighbouring jurisdictions to those 7 jurisdictions. 8 MR. ROGERS: All right. Thank you. 9 So these would be jurisdictions to which power 10 would be transmitted and vice versa? 11 MR. PORAY: That's correct. 12 MR. ROGERS: Tell us, do transmission owners 13 in other jurisdictions impose such charges? 14 MR. PORAY: It is general practice for 15 transmission owners in other jurisdictions to offer a 16 wheeling service. Typically, this service is called a 17 point-to-point service. This is offered to those 18 entities that require that service. 19 The charges for such service may be set at the 20 full embedded costs of transmission in the jurisdiction 21 or they may be discounted from the full embedded costs. 22 The resulting revenues, typically, are used to reduce 23 the transmission owner's revenue requirement. 24 Therefore, OHNC's proposal is consistent with the 25 processes used in other jurisdictions. 26 MR. ROGERS: Can you tell us, please, how 27 domestic customers' transmission charges will be reduced 28 as a result of revenues obtained from the export and Les Services StenoTran Services Inc. 613-521-0703 858 OHNC PANEL 2, in-ch (Rogers) 1 wheel-through transaction charges that you propose? 2 MR. PORAY: Certainly. 3 The details of how transmission charges will 4 be reduced have not yet been fully developed. This is a 5 detail that is part of the development of the market 6 rules and discussions with the IMO. 7 The current version of the market rules does 8 not contain any material pertinent to how OHNC's export 9 and wheel-through charges would factor in the settlement 10 process. 11 The technical panel of the IMO is currently 12 addressing rules pertaining to the settlement process, 13 but these have not yet been finalized. OHNC believes 14 that its proposal is implementable. We would hope that 15 the details would be available over the next few months. 16 Conceptually, OHNC envisions that on an annual 17 basis the IMO will provide OHNC with the revenues 18 collected from their exports and wheel-through 19 transactions and OHNC would credit these revenues 20 against its transmission revenue requirement for the 21 following year, and we calculate their associative 22 transmission rates for that period. 23 MR. ROGERS: Would there be any credit due to 24 generators who are charged for exporting wheel-through 25 transactions? 26 MR. PORAY: Yes. It is OHNC's proposal to 27 include provisions for crediting those generators who 28 were charged for export and wheel-through transactions. Les Services StenoTran Services Inc. 613-521-0703 859 OHNC PANEL 2, in-ch (Rogers) 1 This credit will be equivalent to the generator's 2 specific payments towards the purchase of transmission 3 rates from the IMO-administered markets. The details of 4 how this crediting will be done have not yet been worked 5 out. 6 However, conceptually, OHNC envisions that any 7 credits would be calculated on the basis of the 8 information received from the IMO as to the specific 9 contributions that generators made to the transmission 10 rights auction, up to a maximum amount that is the 11 amount they paid for their export and wheeling-through 12 transactions. 13 MR. ROGERS: Now, sir, thank you. 14 Have you prepared an exhibit which will help 15 us to understand how this will likely work in practice? 16 MR. PORAY: Yes, I have. 17 MR. ROGERS: That is the document which has 18 been circulated just this morning entitled "OHNC 19 Proposal for Export/Wheel-Through Service (EWT)"? 20 MR. PORAY: That is correct. 21 MR. ROGERS: Mr. Chairman, this document was 22 compiled in the hopes that we might answer some 23 questions and it was circulating in the room as to how 24 this practically will work. 25 What I propose to do is have Dr. Poray just 26 walk us through an example for you. I hope this will be 27 helpful to the Board. 28 MR. LYLE: We will make that Exhibit G5.2 Les Services StenoTran Services Inc. 613-521-0703 860 OHNC PANEL 2, in-ch (Rogers) 1 EXHIBIT G5.2: Document entitled "OHNC 2 Proposal for Export/Wheel-Through Service 3 (EWT) with diagrams and appendices" 4 --- Pause 5 MR. ROGERS: Now, Dr. Poray, I want you to 6 adopt your principle of simplicity, as much as possible, 7 and walk us through these tables. 8 But first of all, just to set the context, I 9 understand that it is the company's proposal in this 10 case that transactions are resulting in flow out of 11 Ontario will attract an export and wheel-through service 12 charge of $1 per megawatt hour. 13 MR. PORAY: That is correct. 14 MR. ROGERS: This is a compromise solution 15 that you told us about a moment ago which attempts to 16 reflect the fact that there are embedded costs which 17 some stakeholders feel should be recovered in this 18 charge? 19 MR. PORAY: That is correct. 20 MR. ROGERS: It sort of addresses the no-free 21 ridership issue, does it? 22 MR. PORAY: That is so. 23 MR. ROGERS: All right. 24 Can you then, please, explain how this will 25 work in practice, and then using the diagrams and the 26 accompanied appendices give us practical examples? 27 MR. PORAY: I would be very glad to do that. 28 The first page just summarized more or less Les Services StenoTran Services Inc. 613-521-0703 861 OHNC PANEL 2, in-ch (Rogers) 1 what I have discussed in my direct evidence. 2 Perhaps we could turn to page 2 of the handout 3 and that is the page which is titled "Appendix A." 4 There are two pages and two examples. 5 In the first example, which we call 6 "Scenario 1", we have a situation when the transmission 7 rights revenue, the total, is less than the charges 8 collected from the payment of the export and 9 wheel-through transactions. 10 So we have a situation where a Generator "A" 11 pays $30 for 60 megawatts of transmission rights in the 12 IMO auction, and there is a Market Participant "B" who 13 also participates in the auction for transmission rights 14 and they pay $20 for 40 megawatts. So we have a total 15 of $50 that has been paid for 100 megawatts of 16 transmission rights. 17 Generator A then sells 120 megawatts into 18 their export market which we see taking place at load 19 P2, for which the energy price is $22 per megawatt hour. 20 The applicable tariff for this transaction is the export 21 and wheel-through tariff of $1 per megawatt hour. 22 So that is the scenario that we have painted. 23 If we now go to the bottom half of that page, 24 we will see the actual flow of dollars from the 25 transmission rights auction and from the export and 26 wheel-through tariff coming to the IMO. The intent is 27 to show here how those dollars will be reallocated. 28 So if we start off in the left-hand corner, Les Services StenoTran Services Inc. 613-521-0703 862 OHNC PANEL 2, in-ch (Rogers) 1 coming from the transmission rights auction box, we have 2 $50 coming to the IMO which is made up of $30 which 3 Generator A paid and $20 which Generator B paid. On the 4 right-hand side we have $120 coming in from the export 5 and wheel-through tariff which Generator A paid as a 6 result of sending 120 megawatts into the export. So the 7 IMO receives $170 from the transmission rights and from 8 the export and wheel-through tariff. 9 How is that then allocated? 10 The IMO will pass $120 obtained from the 11 export and wheel-through transaction tariff to OHNC, and 12 OHNC will credit both the transmission customers who 13 have paid for transmission and Generator A who bought 14 the transmission rights for $30. 15 What we see here is that OHNC will credit $30 16 to the generator since that is what he paid for his 17 transmission rights, and the remainder, that is $90, 18 which is the difference between $120 and $30, will be 19 returned to the customers through our lower transmission 20 rate. 21 That is the first example. 22 MR. ROGERS: Now, just before you move on, is 23 this a practical thing to do? 24 MR. PORAY: We believe that this is 25 implementable and that the IMO's settlements process 26 should allow this to be done. 27 MR. ROGERS: Have you had discussions with the 28 IMO about this? Les Services StenoTran Services Inc. 613-521-0703 863 OHNC PANEL 2, in-ch (Rogers) 1 MR. PORAY: Yes. We have had some preliminary 2 discussions. 3 MR. ROGERS: So far as you know, this approach 4 is generally acceptable to them? 5 MR. PORAY: It is our understanding that there 6 are no major impediments, no. 7 MR. ROGERS: All right, thank you. 8 MR. PORAY: If we now move to page 3 we will 9 look at the scenario where in this case the transmission 10 rights revenue is greater than the revenue collected 11 from the export and wheel-through charges. 12 In this particular case, we have Generator A 13 pays $180 for 60 megawatts of transmission rights and 14 Market Participant B pays $100 for 40 megawatts of 15 transmission rights. In this case we have some $280 16 that were accrued to the IMO from the sale of 17 transmission rights. As before, Generator A sells $120 18 megawatts into the export market at load P2 where the 19 energy price is at $24 per megawatt hour. Again, the 20 applicable tariff for the export and wheel-through 21 transaction is $1 per megawatt hour. 22 If we move to the bottom part of the page, 23 starting off in the left-hand top corner, we see that 24 there is $280 coming from transmission rights auction to 25 the IMO. This is the total of Generator A and Market 26 Participant B paying for their transmission rights. 27 On the right-hand side we have $120 coming in 28 from the export and wheel-through transaction which Les Services StenoTran Services Inc. 613-521-0703 864 OHNC PANEL 2, in-ch (Rogers) 1 Generator A paid. Again, the IMO will pass to OHNC the 2 revenues collected from the export and wheel-through 3 transactions, which is $120, and OHNC will allocate that 4 between Generator A and transmission customers. 5 In this particular case, the generator will be 6 refunded all of the export and wheel-through tariff 7 since the revenues from the export and wheel-through 8 tariff are the lower of the two. In other words, it is 9 the lower of the two that you always look at. It is the 10 lower of either the export and wheel-through charge or 11 the transmission rights that they have paid for. So in 12 this case, Generator A would get all of the credit and 13 there will be no credit going back to the transmission 14 customer. 15 MR. ROGERS: All right. Thank you very much. 16 You have indicated that this dollar per 17 megawatt hour charge proposed is comparable to the 18 charges of other neighbouring jurisdictions. 19 MR. PORAY: That is correct. 20 MR. ROGERS: What do you see down the road? 21 Would this type of charge be in place indefinitely or do 22 you believe that it will be phased out over time? 23 MR. PORAY: It is our belief that over time 24 these types of charges will be phased out because they 25 do in fact impose additional charges which lead to 26 pancaking. What I mean by pancaking is that if a 27 transaction tries to cross a number of jurisdictions and 28 each jurisdiction charges its embedded cost, then you Les Services StenoTran Services Inc. 613-521-0703 865 OHNC PANEL 2, in-ch (Rogers) 1 are adding those costs -- you are pancaking those costs 2 on to the transaction and that transaction may in fact 3 become quite uneconomic at the other end where it is 4 going to. 5 The idea is that ultimately these types of 6 transactions would be charged on the basis of marginal 7 cost rather than some proportion of embedded costs. 8 MR. ROGERS: All right. Thank you very much. 9 Those are my questions, sir. 10 THE PRESIDING MEMBER: Can we just clarify one 11 thing. That is in scenario one and scenario two. To 12 enhance our understanding of what market 13 participant B -- what happens to that party? You 14 specifically said not a generator, but it's a market 15 participant. 16 MR. PORAY: That is correct. Any market 17 participant, be they a generator having a physical 18 facility that produces megawatts or a third party 19 arranging a transaction for a customer, may participate 20 in the transmission rights market. 21 THE PRESIDING MEMBER: Right. 22 MR. PORAY: What we are proposing in our 23 submission is that formally the generators that have 24 physical -- that are putting in physical megawatts into 25 the system be credited back for the charges that they 26 pay, not the market participants that don't actually 27 have a physical facility associated with them. 28 THE PRESIDING MEMBER: So that's the Les Services StenoTran Services Inc. 613-521-0703 866 OHNC PANEL 2 1 distinction. Similarly, in scenario two, there would be 2 no credit to the market participants from the $120 fee 3 for the WT transactions. 4 MR. PORAY: That is correct. 5 THE PRESIDING MEMBER: Okay. I understand. 6 Thank you. 7 All right. Are you going to start, Mr. Brown? 8 MR. BROWN: I think I can in this area, 9 Dr. Higgin. 10 CROSS-EXAMINATION 11 MR. BROWN: Panel, just to get some basic 12 flesh on the skeleton, so to speak. Exhibit 1.4 are the 13 maps of the transmission system. In terms of the export 14 points from the Ontario transmission system, would you 15 identify those export points for me? 16 MR. PORAY: When you talk about export points, 17 do you specifically mean the point at which the power 18 leaves the Ontario system or the point at which the 19 power is injected into the system? 20 MR. BROWN: Points at which the Ontario system 21 is interconnected with systems in neighbouring 22 jurisdictions which would allow for the outflow of 23 energy to those jurisdictions. 24 MR. PORAY: Okay. So there are 25 interconnections in the Sarnia area. 26 MR. BROWN: You don't have to name them. I'm 27 just looking generally for the points. 28 MR. PORAY: All right. There are Les Services StenoTran Services Inc. 613-521-0703 867 OHNC PANEL 2, cr-ex (Brown) 1 interconnections with Michigan. 2 MR. BROWN: At Sarnia and Detroit. 3 MR. PORAY: At Sarnia and Detroit. There are 4 interconnections with New York at Beck around the 5 Niagara Peninsula. There are interconnections with New 6 York in the Cornwall area. There are interconnections 7 with Quebec in the Ottawa area and also in the 8 northeastern region, in the Abitibi part of the region. 9 MR. BROWN: This is not shown on the map. 10 It's shown on the far right hand corner. 11 MR. PORAY: Yes. 12 MR. BROWN: Towards the top. 13 MR. PORAY: There are interconnections with 14 Manitoba at Kenora and there is interconnection with 15 Minnesota at Fort Francis. 16 MR. BROWN: In terms of those points that you 17 have identified, are the flows at the interconnections 18 with Quebec primarily exports to Quebec or imports into 19 Ontario? 20 MR. PORAY: They can be both. 21 MR. BROWN: But in terms of historic use, has 22 the pattern been that they are primarily points for the 23 import of power into Ontario or the export of power into 24 Quebec? 25 MR. PORAY: I think they are both. We export 26 and we import. 27 MR. BROWN: In terms of the connection point 28 with Manitoba, historically has it primarily been an Les Services StenoTran Services Inc. 613-521-0703 868 OHNC PANEL 2, cr-ex (Brown) 1 import point or an export point? 2 MR. CURTIS: I think it has primarily been an 3 import point, supply into Ontario from Manitoba. 4 MR. BROWN: In terms of the connection with 5 Minnesota, has that primarily been an export point? 6 MR. PORAY: My understanding is it's primarily 7 an export point. 8 MR. BROWN: Similarly, the two 9 interconnections with Michigan, those are primarily 10 export points? 11 MR. CURTIS: Over an historical basis, they 12 have been both. They have been both an import and an 13 export point. 14 MR. BROWN: Okay. In terms of the 15 interconnections with New York, what has their historic 16 use been primarily? 17 MR. PORAY: The same in both directions. 18 MR. BROWN: As far as wheel-through 19 transactions based on historic patterns, what has been 20 the primary or most popular path of wheel-through 21 transactions through Ontario? 22 MR. CURTIS: Can you clarify that in terms of 23 like picking one, whether it has been import or export. 24 Is that what you mean? I'm not sure that we understand. 25 MR. BROWN: I'm looking more for the favourite 26 wheel-through path. For example, is the favourite 27 wheel-through path Quebec through Ontario down to New 28 York, Quebec through Ontario down to Michigan? What are Les Services StenoTran Services Inc. 613-521-0703 869 OHNC PANEL 2, cr-ex (Brown) 1 the most popular paths? 2 MR. PORAY: I think in the context of history, 3 there haven't been wheeling paths through per se because 4 Ontario Hydro didn't really allow wheeling. Ontario 5 Hydro bought energy and we sold it at the border. 6 MR. BROWN: Just one final group of questions 7 on history. In terms of what happened in 1999, can you 8 tell us what the level of energy exports were from 9 Ontario to other jurisdictions? 10 MR. PORAY: I don't have that information. We 11 don't have that information. 12 MR. BROWN: Similarly, if I was to ask you for 13 1999 what the level of wheel-through transactions was 14 through Ontario to and from other jurisdictions, would 15 you be able to provide that information? 16 MR. PORAY: No, we don't have that 17 information. 18 MR. BROWN: I take it the reason that you 19 don't have the information is similar to one of the 20 answers that you gave to, I think, a Board staff 21 interrogatory request. You simply don't have that 22 information. You don't have possession of that 23 information. 24 MR. PORAY: That is correct. 25 MR. BROWN: Who has possession of that 26 information? 27 MR. PORAY: It is our understanding that OPGI 28 has that information. Les Services StenoTran Services Inc. 613-521-0703 870 OHNC PANEL 2, cr-ex (Brown) 1 MR. BROWN: For the purposes of submitting 2 this application before the Board, did you make any 3 request of OPGI to provide you with that historic 4 import-export or wheel-through information for inclusion 5 in your evidence? 6 MR. PORAY: No, we did not. 7 MR. BROWN: Can you explain why you did not? 8 MR. CURTIS: Certainly what we are putting 9 forward here is a going forward position with the new 10 marketplace being established. We weren't convinced 11 that historical use of the interconnection system was 12 necessarily relevant in terms of what we are trying to 13 set here as far as a going forward rate for export and 14 wheeling through. 15 I think, as Dr. Poray said earlier on, there 16 is a whole different set of rules that are being put in 17 place. Historically there was no export. There was no 18 wheeling through allowed. It was purchased by Ontario 19 Hydro and reselling. 20 There was a domination or control in fact at 21 the interconnection facilities, so we are looking at 22 something different being put in place on a going 23 forward basis. 24 MR. BROWN: I take it then because you have no 25 historical information, when it came to putting together 26 your revenue requirements for years 1999 and 2000, 27 particularly for 2000, you did not have any historic 28 base upon which to forecast the volume of export Les Services StenoTran Services Inc. 613-521-0703 871 OHNC PANEL 2, cr-ex (Brown) 1 transactions which would take place and the revenues 2 associated with those to you. 3 MR. PORAY: That is correct. 4 MR. BROWN: Indeed, if you look at Exhibit E, 5 these the are the interrogatory responses, Exhibit E, 6 Tab 6, which are the IPPSO responses, the 35, 7 Schedule 35 -- I'm at E, Tab 6, Schedule 35, in 8 particular question (e), gentlemen, which was: 9 "Has OHNC estimated the expected annual 10 export transaction quantities? If so, 11 what is this amount? If not how does 12 OHNC account for anticipated revenues as 13 a result of the export fee?" (As read) 14 If you turn over to page 2, you have 15 indicated, in the answer to that question, that you 16 haven't estimated the transaction quantities, nor have 17 you accounted for anticipated revenues. 18 "There is no basis for such estimates. 19 The revenue requirement approved for the 20 OEB for year 2000 does not include any 21 revenue requirements for export and 22 wheel-through transactions." (As read) 23 I take it that is primarily for the reasons 24 you have just described, your inability to have access 25 to relevant information? 26 MR. PORAY: That is correct. 27 MR. CURTIS: Just to clarify it, we didn't 28 feel that that was relevant information for what was Les Services StenoTran Services Inc. 613-521-0703 872 OHNC PANEL 2, cr-ex (Brown) 1 required in terms of this submission. 2 MR. BROWN: I guess the point I am driving at, 3 in terms of the rate design which you are proposing in 4 this hearing, which is a rate design to recover approved 5 revenues for 1999 and 2000, you have not projected any 6 revenues for year 2000 from export or wheeling 7 transactions. 8 MR. CURTIS: That is correct. 9 MR. SCHNEIDER: That's correct. 10 MR. BROWN: So any revenue that you receive 11 from those transactions during the balance of 2000 will 12 be surplus over your approved revenue requirements. 13 MR. PORAY: Well, the purpose of those 14 revenues would be to reduce the transmission charges to 15 Ontario's customers that have paid for transmission. 16 MR. BROWN: But the actual monies that you get 17 into the bank will be a surplus to or an excess over 18 your Board-approved revenue requirements? 19 MR. PORAY: That is correct. 20 MR. BROWN: Just on the same point, but if we 21 could switch to the cost side of the ledger, if you 22 could turn to Exhibit E, Tab 1, Section 92 -- sorry -- 23 Schedule 92, Exhibit E, Tab 1, Schedule 92, which is 24 Board Staff Interrogatory 92, you were asked by Board 25 staff: 26 "Please list the costs which OHNC expects 27 to reasonably incur as a result of export 28 activity and wheel-through activity. Les Services StenoTran Services Inc. 613-521-0703 873 OHNC PANEL 2, cr-ex (Brown) 1 Please quantify these costs." (As read) 2 Response: 3 "There will be no costs incurred by OHNC 4 in 2000 as a result of export and 5 wheel-through activities." (As read) 6 So I take it from that you mean what you say, 7 that for whatever export or wheel-through transactions 8 that take place in year 2000 there will be no costs 9 incurred by OHNC? 10 MR. PORAY: We did not see that there will be 11 any transmission costs incurred, costs in providing 12 transmission for those transactions. 13 MR. BROWN: Which perhaps leads me to ask, 14 with some trepidation, what might be the dumbest 15 question of the hearing. If you aren't going to incur 16 any costs for those transactions in year 2000, why are 17 you proposing to charge a fee if there is nothing in 18 respect of which you have to recover costs? 19 MR. PORAY: Our proposal is an attempt to 20 balance the requirements of the stakeholders. As I 21 mentioned in my direct evidence, there were some 22 stakeholders who felt that we should not be bringing 23 forward a specific rate that tries to recover some of 24 the embedded costs, but on the other hand there were 25 customers, there were stakeholders, who felt that we 26 should be charging some portion of the embedded costs to 27 those entities that export and wheel-through because 28 they were using the transmission system and they felt Les Services StenoTran Services Inc. 613-521-0703 874 OHNC PANEL 2, cr-ex (Brown) 1 that some charge should accrue to them. 2 MR. BROWN: You would agree with me, however, 3 Dr. Poray, that if one reads your response to Board 4 Staff Interrogatory 92 a person might reasonably 5 conclude, based on the answer that you have given, that 6 the incremental costs associated with export and 7 wheel-through transactions is zero? 8 MR. PORAY: Yes, somebody might see that that 9 way. That's correct. 10 However, I would add to the fact that that 11 entity that is using the transmission system, if we look 12 at it from the perspective of those stakeholders that 13 are paying the transmission, the full cost of 14 transmission facilities, we view those entities as 15 actually using the transmission system and therefore 16 they should be charged. 17 MR. BROWN: I will deal with that in just a 18 second. 19 But in terms of an answer that you gave I 20 think to your counsel when he was leading you in-chief, 21 you talked about the long-term vision where export and 22 wheel-through transactions could be charged on a 23 marginal cost basis. Do I take it from your answer to 24 Board Staff Interrogatory 92 that the best evidence that 25 you have right now is that the marginal cost in Ontario 26 for those transactions is zero? 27 MR. PORAY: No, I don't think I'm saying in 28 there. All I'm saying is in the response of this Les Services StenoTran Services Inc. 613-521-0703 875 OHNC PANEL 2, cr-ex (Brown) 1 interrogatory we are just trying to address the costs 2 incurred by OHNC. The marginal costs of transactions 3 are costs that will be determined by the dispatch of the 4 system and the incremental losses on the system that are 5 incurred when the transaction takes place, and that will 6 be done under the purview of the IMO. 7 MR. BROWN: Fair enough. 8 Just to perhaps sum up, then, this particular 9 part, and I think you have already alluded to the 10 answer, I take it, then, the purpose of the charge which 11 OHNC is proposing on this application is not to collect 12 revenue to recover anticipated incurred costs with 13 respect to export and wheel-through transactions but to 14 respond to some stakeholders that there should be some 15 charge imposed for export and wheel-through 16 transactions? 17 MR. PORAY: Yes. That is correct. 18 MR. BROWN: Dr. Higgin, I am moving on to a 19 different area. Would this be an appropriate time to 20 break? 21 THE PRESIDING MEMBER: Thank you, Mr. Brown. 22 Now would be a good time to break, yes. 23 So we will return at two o'clock, I think, if 24 that is fine with everybody. Thank you. 25 --- Upon recessing at 1231 26 --- Upon resuming at 1405 27 PRELIMINARY MATTERS 28 THE PRESIDING MEMBER: Any preliminaries? Les Services StenoTran Services Inc. 613-521-0703 876 Preliminary Matters 1 Yes, Mr. Rogers. 2 MR. ROGERS: Thank you, sir. I have a few 3 housekeeping matters I would like to attend to. We are 4 trying to clear these undertakings as they get answered. 5 I have an answer to Undertaking F2.1, which 6 was a request for OHNC to calculate the expected value 7 of the transmission charge rate for load supplied by 8 embedded generation under Option XVIII. We have 9 prepared an exhibit and I think that has been 10 distributed. Could that be given a number? 11 THE PRESIDING MEMBER: I think it is called a 12 Response to Undertaking 2.1. 13 MR. ROGERS: That's right. Yes. Thank you. 14 I should say to the Board that I am instructed 15 that in preparing the answer to this undertaking more 16 detailed work or more detailed examination of 17 probability analysis was undertaken, which gave rise to 18 a refinement to an interrogatory answer and the 19 applicant thought it should provide this more detailed 20 information. This has to do with Interrogatory 21 No. E-1-47 which is a Board staff interrogatory I 22 believe. A new table has been attached to this 23 interrogatory revision. 24 I will draw it to everyone's attention that on 25 the second page of the revision to this interrogatory 26 response there is a change in the future found in the 27 bottom left-hand corner of that table in column 1, 28 Option A, Regular Transmission Charges. The old answer Les Services StenoTran Services Inc. 613-521-0703 877 Preliminary Matters 1 I think was 12.8 and you will see that has been revised 2 to 15.5 as a result of this additional work that has 3 been undertaken. 4 Now, one other matter that I can deal with and 5 that is something that came up this morning I think as 6 Undertaking F5.2, which was a discussion about the two 7 customers who are shown on the schedule at Exhibit D, 8 Tab 3, Schedule 1, page 4. This is the table showing 9 the direct customers and you will recall there were two 10 customers on the line MEU LDC's distribution. 11 Those two customers, I understand, are two 12 Ontario Hydro customers who are connected to the 13 municipal utility assets and so they are not connected 14 to transmission. This results from an historical 15 situation whereby Ontario Hydro, the customer and the 16 municipal utility agreed that the customers' interests 17 were best served by being served through the local 18 municipality. No? 19 MR. CURTIS: No. 20 MR. ROGERS: Sorry. 21 MR. SCHNEIDER: The customer, Ontario Hydro 22 and the municipal utility felt that the customer's needs 23 would be best served as an Ontario Hydro direct 24 customer. 25 MR. ROGERS: Sorry. I hope that explains how 26 that came about. 27 THE PRESIDING MEMBER: So they are within the 28 MEU territory, but they are for the purposes of billing Les Services StenoTran Services Inc. 613-521-0703 878 Preliminary Matters 1 and so on they are direct customers from Ontario Hydro? 2 MR. ROGERS: Yes. Thank you. 3 THE PRESIDING MEMBER: I guess whoever was 4 asked for F2.1 may have some questions to follow up and 5 so leave it for now and remember that there is that 6 opportunity, if you wish, to clarify the response to 7 F2.1. I can't remember who actually asked for it. Was 8 it you, Mr. Campbell? 9 I will leave it that way. You can look at it 10 with your people and then when you are ready you can ask 11 some questions or, if you are ready now, do it, 12 whichever you like. 13 MR. CAMPBELL: I will use an analogy. I don't 14 think I will rise to that tempting bait. I both desire 15 and need the opportunity to consult on it. So, if we 16 want to ask any questions we will let you know. Thank 17 you. 18 THE PRESIDING MEMBER: Thank you very much. 19 Any other preliminary matters? No. 20 Back to you, Mr. Brown. Would you like to 21 resume? Thank you. 22 CONTINUED CROSS-EXAMINATION 23 MR. BROWN: Thank you, Dr. Higgin. 24 Panel, if I could turn to the proposal that 25 you put before the Board this morning as contained in 26 Exhibit G5.2, what discussions has OHNC had with the IMO 27 about implementing this credit proposal? 28 MR. PORAY: Very preliminary discussions. Les Services StenoTran Services Inc. 613-521-0703 879 OHNC PANEL 2, cr-ex (Brown) 1 They haven't seen this diagram yet. 2 MR. BROWN: Have you thrown the concept by 3 them and elicited any reaction from them? 4 MR. PORAY: Not specifically as portrayed 5 here, no. 6 MR. BROWN: Have you thrown anything by them? 7 MR. PORAY: Just general discussions around 8 what we provided in the submission. 9 MR. BROWN: What was their response to that? 10 MR. CURTIS: They felt broadly that it could 11 be implemented. 12 MR. BROWN: Have you set up any process or 13 time frame with the IMO to work out the details of this 14 proposal? 15 MR. PORAY: Yes, we have. 16 MR. CURTIS: Yes, we have. 17 MR. PORAY: We have embarked on meeting with 18 them to work through the rates and this as well. 19 MR. BROWN: When have you targeted to bring 20 those negotiations to a conclusion, so that you have a 21 workable process in place, credit process in place? 22 MR. CURTIS: Well, we are meeting with them 23 again next month. We have an ongoing process that we 24 have established with the IMO on this. I don't know 25 that we have a definite firm date when all of the 26 implementation details would be available to put in 27 place, but certainly we are all working towards making 28 sure that it's in place prior to open access. Les Services StenoTran Services Inc. 613-521-0703 880 OHNC PANEL 2, cr-ex (Brown) 1 MR. BROWN: Will the software that the IMO has 2 developed be able to incorporate and accommodate this 3 proposal? 4 MR. CURTIS: That's our understanding, yes. 5 MR. BROWN: The scenario 2 on page 3 of 3, the 6 circumstance where the transmission rights' revenue 7 exceeds the EWT tariff charges for a year, am I correct 8 that in general terms if a generator's annual purchase 9 of transmission rights is greater than or equal to its 10 annual EWT charges then, effectively, the generator pays 11 zero for EWT transactions? 12 MR. PORAY: That's correct. 13 MR. BROWN: Have you made any forecast of how 14 many existing generators in this province would probably 15 fall into that category where on an annual basis things 16 would net out so that their EWT charges effectively are 17 zero? 18 MR. PORAY: No, we have not. 19 MR. BROWN: Could I ask you, gentlemen, to 20 briefly look at Mr. Fagan's evidence, which is 21 Exhibit H, Tab 6, Schedule 1 -- Exhibit H, Tab 6, 22 Schedule 1, page 23, a section which deals with 23 Mr. Fagan's opinion evidence on the export tariff. 24 MR. PORAY: Yes. We have it. 25 MR. BROWN: If you look under his section 26 "Rationale" in the second full paragraph, he opines: 27 "The export tax is an unnecessary 28 supplemental mechanism for collecting a Les Services StenoTran Services Inc. 613-521-0703 881 OHNC PANEL 2, cr-ex (Brown) 1 contribution towards fixed costs of the 2 transmission system. The net congestion 3 rental collected through the IMO sale of 4 transmission rights and through the real 5 time spot energy market results in an 6 appropriate level of contribution to 7 fixed costs." (As read) 8 Would you agree in general terms that the 9 direction of Mr. Fagan's comments closely resembles 10 those of yours where in any year you have a generator 11 whose annual purchases of transmission rights are 12 greater than the EWT charges? 13 MR. PORAY: Can you just restate that please? 14 MR. BROWN: Fine. Perhaps focusing on the 15 second sentence and I recognize that one difference that 16 appears between your proposal and what Mr. Fagan has 17 written here is that on the credit side of your proposal 18 you will give credit or you will recognize credit for 19 payments made with respect to the purchase of 20 transmission rights. 21 MR. PORAY: That is correct. 22 MR. BROWN: You are not proposing that there, 23 also on the credit side, be a recognition for payments 24 made with respect to congestion charges? 25 MR. PORAY: That is correct. 26 MR. BROWN: Perhaps you can explain why you 27 would propose to give credit for a purchase of 28 transmission rights but not give credit for congestion Les Services StenoTran Services Inc. 613-521-0703 882 OHNC PANEL 2, cr-ex (Brown) 1 payments which are made by a generator? 2 MR. PORAY: I think we weren't certain as to 3 what those congestual rentals might be and whether they 4 would be significantly large compared to the EWT charges 5 such as to perhaps swamp them. 6 MR. CURTIS: I think too, maybe more 7 fundamentally, the congestion charges are related to the 8 commodity, to the energy, whereas the transmission 9 rights are more intimately related to the transmission 10 system. 11 So since we are talking about an EWT charge 12 that is aimed at recovering some portion of the embedded 13 transmission system, if you will, those costs associated 14 with that, it's more appropriate to be dealing with 15 charges that specifically relate to transmission as 16 opposed to the energy commodity portion of costs that 17 arise in the marketplace. 18 MR. BROWN: I think some of my friends are 19 going to have further questions for you on that 20 particular answer, but I would like to go back to 21 Mr. Fagan's paragraph on page 23, and perhaps in that 22 second sentence I could change the language a bit and 23 then ask you whether you would agree with the sentence 24 as I changed it. 25 Would you agree with the statement that the 26 transmission rights payments collected through the IMO's 27 sale of transmission rights results in an appropriate 28 level of contribution to fixed cost, that is fixed Les Services StenoTran Services Inc. 613-521-0703 883 OHNC PANEL 2, cr-ex (Brown) 1 transmission cost? 2 MR. PORAY: It is not the transmission rights 3 themselves that will be -- is our understanding, that 4 will be -- that will be used to offset the contribution 5 of fixed costs. 6 What we were using in our example is the 7 transmission rights of the proxy to estimate the amount 8 of credit that we would give back from the charges 9 collected through the export and wheel-through 10 transaction. 11 MR. BROWN: On the example that I gave you 12 where on an annual basis the transmission rights are 13 greater than or equal to the amount you charge for the 14 EWT transactions, at the end of the day the generator 15 pays zero in EWT transactions. 16 MR. PORAY: That's correct. 17 MR. BROWN: Therefore, in that circumstance 18 wouldn't you agree that effectively the collection of 19 the transmission -- the payments made by the 20 transmission rights represent an appropriate level of 21 contribution to fixed costs because that is basically 22 where you are ending up. 23 MR. PORAY: Well, that would depend, I would 24 assume, on the net balance in the holding account which 25 the IMO has as to what would be left at the end of the 26 year that could be contributed or credited back to load 27 customers in Ontario. 28 MR. BROWN: But just to keep it simple, if Les Services StenoTran Services Inc. 613-521-0703 884 OHNC PANEL 2, cr-ex (Brown) 1 during one year a generator is charged $100 by you for 2 EWT transactions -- and you have indicated that that 3 $100 is not a cost-based charge, it's a compromise 4 amongst the stakeholders that you have tried to effect 5 charge. Is that correct? 6 MR. PORAY: Correct. 7 MR. BROWN: Then if you charged the generator 8 $100, and if in that year the generator has purchased 9 $100 of transmission rights, it basically doesn't pay 10 any EWT charge for that year? 11 MR. PORAY: That's correct 12 MR. BROWN: Under that circumstance you would 13 agree that the payment by the generator to the IMO of 14 the payments for the transmission rights effectively 15 results in the generators appropriate level of 16 contribution to the fixed cost or the embedded cost of 17 the transmission company, because that is where you end 18 up under that scenario. 19 MR. PORAY: Well, as I mentioned, how that 20 will be redistributed by the IMO at the end of the year 21 in terms of crediting back to customers -- it doesn't 22 come back to OHNC, it goes back to the customers of 23 Ontario that have paid for transmission services. 24 MR. BROWN: Well, then I'm having difficulty 25 following your example because I thought that, in blunt 26 terms, everything, the amount paid for the transmission 27 rights and the amounts charged for the export wheeling 28 transaction, all initially were collected by the IMO. Les Services StenoTran Services Inc. 613-521-0703 885 OHNC PANEL 2, cr-ex (Brown) 1 MR. PORAY: They are indeed, yes. 2 MR. BROWN: And the IMO then disburses the 3 money to you. 4 MR. PORAY: Only for the -- 5 MR. BROWN: EWT charges. 6 MR. PORAY: -- EWT charge, yes. 7 MR. BROWN: But your proposal is that specific 8 generators which engage in export or wheel-through 9 transactions be identified and be tracked throughout the 10 year so that at the end of the year you can make this 11 calculation that you have on Exhibit G5.2. 12 MR. PORAY: That's correct. 13 MR. BROWN: So under those circumstances I'm 14 confused as to why you keep repeating, Dr. Poray, that 15 whether or not there is a contribution to fixed costs 16 depends on some further identification by the IMO. 17 MR. PORAY: Well, because the IMO -- it is my 18 understanding, then, the IMO will set up a holding 19 account, if you like, where the charges collected 20 through -- for congestion and the funds collected from 21 the transmission rights auctions will go into and then 22 the IMO will pay out from that account two generators 23 who hold transmission rights, they will receive 24 congestion rental and whatever other settlements that 25 have to be made by the IMO. 26 If there are funds left at the end of the 27 period in that account, then under the market rules the 28 IMO may refund those as a credit to those customers who Les Services StenoTran Services Inc. 613-521-0703 886 OHNC PANEL 2, cr-ex (Brown) 1 have paid for transmission charges. 2 MR. BROWN: That is what you have outlined on 3 pages 2 and 3 of your exhibit? 4 MR. PORAY: I haven't outlined what the IMO 5 will do with it's account. 6 What I have shown is how we would propose to 7 credit those generators who have paid for the export and 8 wheel-through transactions and who have purchased 9 transmission rights, how much credit they would get 10 back. 11 MR. BROWN: I will leave it there. 12 Perhaps I could turn to the final area of 13 questions that I would like to ask you, gentlemen. They 14 relate to the issue of pancaking. 15 I have provided you with an extract from the 16 Federal Energy Regulatory Commission, Order 2000. There 17 are copies for the Board and Board Staff. Perhaps I 18 could ask that they be handed up. 19 --- Pause 20 MR. LYLE: We will make that Exhibit G5.3. 21 EXHIBIT NO. G5.3: Extract from the 22 Federal Energy Regulatory Commission, 23 Order 2000 24 --- Pause 25 MR. BROWN: Gentlemen, this is known as FERC 26 Order 2000 and it was released by FERC on December 20, 27 1999. 28 I take it you have had an opportunity to go Les Services StenoTran Services Inc. 613-521-0703 887 OHNC PANEL 2, cr-ex (Brown) 1 over the extracts I provided to you through your 2 counsel? 3 MR. PORAY: I have glanced through it. 4 MR. BROWN: You have a general understanding, 5 I take it, that over the past few years the FERC has 6 engaged in a process to consider the mechanisms by which 7 regional transmission organizations could be established 8 throughout the United States of America? 9 MR. PORAY: Yes. 10 MR. BROWN: FERC Order 2000 represents a 11 culmination of that process? 12 MR. PORAY: That is my understanding. 13 MR. BROWN: If I could ask you to turn towards 14 the latter part of the extract, starting at page 593, 15 you will see there a heading "Participation by Canadian 16 And Mexican Entities". 17 MR. PORAY: Yes. 18 MR. BROWN: There are some discussions there. 19 If I could ask you to forward to page 595 where the 20 Commission outlines its conclusion in this particular 21 area. 22 MR. PORAY: Okay. 23 MR. BROWN: In the first paragraph of its 24 conclusion FERC writes: 25 "After reviewing the comments we 26 continued to believe that Canadian and 27 Mexican involvement in RTL formation and 28 operation would be beneficial to both Les Services StenoTran Services Inc. 613-521-0703 888 OHNC PANEL 2, cr-ex (Brown) 1 countries as well as to the United 2 States. As we stated in the Notice..." 3 (As read) 4 MR. PORAY: "Of Preferred Rule Making". 5 MR. BROWN: Order of proposed -- 6 MR. PORAY: "Notice of Preferred Rule Making". 7 MR. BROWN: Thank you. Or the NOPR. 8 "...expansion of electricity trade in 9 North American bulk power market requires 10 that regional institutions include all 11 market participants so that everyone may 12 enjoy direct access to market information 13 and the benefits of non-pancaked 14 transmission rates." (As read) 15 Just stopping there, does OHNC as a matter of 16 corporate policy agree with that statement? 17 MR. PORAY: I think as we stated in our 18 submission that our long term view is that avoidance of 19 pancake rates is a good thing. 20 MR. BROWN: The Commission goes on to say that 21 commentators from the United States and Canada agree 22 that significant benefits can be achieved by trading 23 over natural or appropriate transmission regions that do 24 not necessarily stop at the border. I take it from what 25 you just said, Dr. Poray, you would be in agreement with 26 that sentiment? 27 MR. PORAY: Yes, I would. 28 MR. BROWN: What position does OHNC have as to Les Services StenoTran Services Inc. 613-521-0703 889 OHNC PANEL 2, cr-ex (Brown) 1 the desirability of creating a cross-border RTO in which 2 Ontario would participate? 3 --- Pause 4 MR. PORAY: I think in terms of the creation 5 of a cross-border RTO there are a number of entities 6 that would be involved, including ourselves. Up until 7 now we haven't had any discussions on this issue. 8 MR. BROWN: Earlier on in this particular 9 extract FERC indicates -- and I don't have the page -- 10 yes, it indicates on page 6 that in order to move this 11 RTO formation process along that they are going to 12 support and sponsor a collaborative process to take 13 place in the spring of this year, under which there will 14 be further discussions of the circumstances under which 15 RTOs could be established. Does OHNC plan to 16 participate in those sponsored conferences? 17 MR. PORAY: I believe that is the case and so 18 far we have been part of a CEA group that has been 19 having discussions on RTOs. 20 MR. BROWN: With the Canadian Electrical 21 Association? 22 MR. PORAY: That is correct. 23 MR. BROWN: Specifically, on the issue of 24 pancaking, in one portion of FERC's order they dealt 25 with a number of potential ratemaking issues that would 26 have to be addressed in the process of forming RTOs. 27 At page 513 the extract regarding pancaked 28 rates begins. Then if I could ask you to turn a few Les Services StenoTran Services Inc. 613-521-0703 890 OHNC PANEL 2, cr-ex (Brown) 1 pages further on to page 516 the Commission states its 2 conclusion in this respect. In the second sentence the 3 Commission states: 4 "After receiving comments on the subject, 5 mostly in favour of the proposed 6 prohibition, we affirm that the RTO 7 tariff must not result in transmission 8 customers paying multiple access charges 9 to recover capital costs." 10 I take it, Dr. Poray, from your comments 11 earlier this morning, that you would also agree 12 directionally with those sentiments? 13 MR. PORAY: Yes, I would. 14 MR. BROWN: The second paragraph of the 15 conclusion then proceeds to deal with some of the 16 potential benefits of eliminating pancaking. I will 17 just briefly read it. It says: 18 "Except for transactions within the ISOs 19 now in place, transmission customers are 20 faced with additional access charges for 21 every utility border they cross. The 22 distances may not be great to be assessed 23 to be assessed two, three or more access 24 charges for a single transaction. This 25 duplication can severely restrict the 26 area in which generation can economically 27 be secured." 28 I take it you would agree with that Les Services StenoTran Services Inc. 613-521-0703 891 OHNC PANEL 2, cr-ex (Brown) 1 conclusion? 2 MR. PORAY: In directionally, yes. 3 MR. BROWN: They continue: 4 "A main reason that an RTO can expand the 5 marketplace for generation to a large 6 region is that an RTO can implement 7 non-pancaked rates for each transaction. 8 A wider area served by a single rate 9 means more generation is economically 10 available to any customer which means 11 greater competition for energy." 12 I take it you also agree directionally with 13 those comments? 14 MR. PORAY: I would. 15 MR. BROWN: In terms of the present proposal 16 that is before this Board, with respect to charges for 17 EWT transactions, has OHNC taken into account in any way 18 the implications of FERC Order 2000? 19 MR. PORAY: At the time when we were 20 formulating this, this particular document hadn't in 21 fact been written. But in general, as I indicated in 22 our submission, we do have a longer term view that there 23 shouldn't be this pancaking of rates. 24 However, in the interim period our 25 stakeholders indicated to us that we should be 26 consistent with what is happening in other 27 jurisdictions, particularly those that are surrounding 28 Ontario in terms of export and wheel-through Les Services StenoTran Services Inc. 613-521-0703 892 1 transactions and to that extent which -- we feel that we 2 are consistent because those jurisdictions today do use 3 the concept of a wheel-in service through the 4 point-to-point service. 5 MR. BROWN: In other words, a lot of 6 jurisdictions take a first step. OHNC does not consider 7 it appropriate that Ontario do so? 8 MR. PORAY: Well, it was indicated to us by 9 our stakeholders that Ontario should perhaps not 10 necessarily be taking that first step. 11 MR. BROWN: Thank you, gentlemen. Those are 12 my questions. 13 Thank you, Doctor. 14 THE PRESIDING MEMBER: Thank you. 15 Mr. Poch. 16 MR. POCH: Mr. Chairman, Mr. Fisher and some 17 of my other friends have been kind enough to let me jump 18 the cue so I can make another appointment later today. 19 THE PRESIDING MEMBER: That is fine. Go 20 ahead, Mr. Poch. 21 CROSS-EXAMINATION 22 MR. POCH: Let me start with a few 23 miscellaneous items. 24 Way back on in the first round last Wednesday, 25 Ms Lea asked you if you were to form an interconnection 26 assets pool who would pay for it, and I think your 27 response was it would go into network. I think it was 28 Dr. Poray's comment. I take it that would be the answer Les Services StenoTran Services Inc. 613-521-0703 893 OHNC Panel 2, cr-ex (Poch) 1 consistent with your current proposal? 2 MR. PORAY: That is correct. 3 MR. POCH: All right. 4 You agree, though, another possibility is that 5 could be a pool of assets that were charged to those 6 specifically using them, that is, at least to some 7 extent could be charged to exporters, for example, or 8 importers? 9 MR. PORAY: If such a pool could be created 10 then possibly that may be the case. 11 MR. POCH: We will come back to that question 12 in a moment. 13 Now, first of all, there has been some 14 discussion in the interrogatories and so on about how 15 your proposal compares to what is occurring in 16 neighbouring jurisdictions. Is my understanding correct 17 that in neighbouring jurisdictions, typically, discounts 18 from full network tariffs are for non-firm energy? 19 MR. PORAY: That is correct. 20 MR. POCH: And your proposal applies to what? 21 MR. PORAY: Our proposal, there is no firm or 22 non-firm in Ontario. 23 MR. POCH: It will all be firm, in effect? 24 MR. PORAY: It would be the same category. 25 There is no such thing as firm. 26 MR. POCH: All right. It is more analogous to 27 firm than non-firm, I take it. It is not going to be -- 28 is it going to suffer the status of being the first to Les Services StenoTran Services Inc. 613-521-0703 894 OHNC Panel 2, cr-ex (Poch) 1 be interrupted if there is any issue? 2 MR. PORAY: No. 3 MR. POCH: No. It is going to be on the same 4 basis as domestic load meeting energy gross. 5 MR. PORAY: It will be indeed. 6 MR. POCH: Thank you. 7 Now, there has been a lot of discussion today 8 about the nexus between EWT charges, transmission 9 rights, payments for transmission rights, and congestion 10 charges. Would you agree that the congestion charges 11 and transmission rights proposal, at least at the 12 outset, is intended really as a rationing mechanism and 13 as an available hedging mechanism for exporters 14 concerned about a bottleneck at the border, if you will 15 accept my colloquialism. 16 MR. PORAY: The purpose of the transmission 17 rights is to provide a hedge against price variation due 18 to congestion. 19 MR. POCH: Right. And congestion pricing is 20 about -- is more of an operational time frame, that is, 21 before this congestion there is no charge for 22 congestion? 23 MR. PORAY: That is correct. 24 MR. POCH: After you fix the problem, if you 25 do, if whoever is going to decide this adds more 26 transmission, there will no longer be congestion and a 27 congestion price? 28 MR. PORAY: On that particular interface that Les Services StenoTran Services Inc. 613-521-0703 895 OHNC Panel 2, cr-ex (Poch) 1 you fixed. 2 MR. POCH: Right. So it is not a long term 3 forward price signal as some would suggest is 4 appropriate for EWT charges? It is a much more of an 5 operating time frame? 6 MR. PORAY: Yes. I would say it's in the 7 operating time frame. 8 MR. POCH: Now, earlier in our discussions, 9 both about net versus gross and about charge 10 determinants, there was a lot of different terminology. 11 Variously, we heard about user pay, we heard about 12 equity or equitable, apportionment of embedded costs and 13 we also heard about a concern for avoiding free 14 ridership on the existing system. 15 I think you would agree that in various ways 16 all of those principles were applied in both 17 discussions. Is that fair? 18 MR. PORAY: That's correct. 19 MR. POCH: All right. Is there any reason why 20 those principles shouldn't be applied in the EWT 21 situation? 22 MR. PORAY: I think we have addressed those 23 principles by coming forward with a proposal to have 24 charges for EWT transactions. 25 MR. POCH: Okay. You would agree then -- I 26 take it your answer is that they do apply and you 27 believe your proposal responds to those concerns. 28 MR. PORAY: That is correct. Les Services StenoTran Services Inc. 613-521-0703 896 OHNC Panel 2, cr-ex (Poch) 1 MR. POCH: Okay. Now, again back in Panel 1 2 we spoke about -- I think the Exhibit number is E5.10. 3 I don't believe you have to turn it up. In short, it 4 was your response to our request for information on 5 interconnection assets. You responded "very difficult 6 to draw that line". It's not just the facilities at the 7 border because it's also the portion of the act that's 8 in the network that made that interconnection real or 9 not. 10 MR. PORAY: That's correct. 11 MR. POCH: All right. In light of that 12 response, would you agree with me that pure incremental 13 pricing for EWT, which would not collect anything 14 towards the embedded network costs, would be either 15 unfair or inequitable or free ridership, depending on 16 which phrase we carry forward from the earlier 17 discussion. 18 MR. PORAY: I don't think so. I think in that 19 sense we are talking about the usage of the system for 20 different types of transactions compared to the 21 transactions which provincial load customers are 22 involved in. The issue really is what is happening 23 around us, is everybody doing the same? Then we should 24 follow -- if there are other jurisdictions that are 25 doing different things, then perhaps marginal pricing is 26 not the way to go yet. 27 MR. POCH: Apart from the concern about what's 28 happening in other jurisdictions, if we can separate Les Services StenoTran Services Inc. 613-521-0703 897 OHNC Panel 2, cr-ex (Poch) 1 these things in our minds, what's different about it? 2 This is just a generation serving load and it's as firm 3 as any other sale. Correct? 4 MR. PORAY: Well, I would like to categorize 5 the export and wheel-through transactions as being of a 6 different nature to the transactions which involve 7 provincial load. They are typically less predictable. 8 They tend to exploit intermarket price differentials. 9 They tend to be short duration. They tend to rely on 10 transmission service for a short period, which is an 11 hour as, say, opposed to a month. 12 These are some of the things which I feel 13 differentiate the export and wheel-through transactions 14 from provincial load transactions. 15 MR. POCH: If we indeed move toward more of a 16 continental energy market, won't all those distinctions 17 start to blue? 18 MR. PORAY: I believe not because I believe 19 that the incumbent customers that are served from the 20 transmission system would still have different -- will 21 have different behaviours in terms of these short term 22 duration type transactions. I think this combination 23 will continue. 24 MR. POCH: Now, let me ask you about Mr. 25 Brown's self-styled stupid question. He asked you are 26 not facing any consequences so why are you proposing to 27 charge anything. I wanted to ask you if I screw in 28 another light bulb in my house, are you going to face Les Services StenoTran Services Inc. 613-521-0703 898 OHNC Panel 2, cr-ex (Poch) 1 any additional costs on the transmission system this 2 year? 3 MR. PORAY: Basically, no. 4 MR. POCH: All right. And if the light bulb 5 is screwed in in Windsor as opposed to in Detroit, is 6 the system going to see any difference in cost? The 7 light bulb in both cases is being served by an Ontario 8 generator. 9 MR. PORAY: Okay. Probably not. 10 MR. POCH: All right. 11 MR. PORAY: And I would qualify that from the 12 perspective of the transmission owner and its costs, not 13 the dispatch and operational costs. 14 MR. POCH: Of course, they might be paying 15 different amounts on energy. 16 MR. PORAY: Right. 17 MR. POCH: It depends on the private 18 arrangement being made. 19 MR. PORAY: Right. 20 MR. POCH: Of course. Excuse me. 21 --- Pause 22 MR. POCH: Now, just looking at -- this is 23 sort of a very simple way of looking at it. When an 24 export occurs or as exports might increasingly occur as 25 we move towards a more continental energy market, some 26 of your lines are going to face additional loading just 27 to transmit that power. Correct? 28 MR. PORAY: That is correct. Les Services StenoTran Services Inc. 613-521-0703 899 OHNC Panel 2, cr-ex (Poch) 1 MR. POCH: If we had a wheeling situation, 2 perhaps with a jurisdiction in between the shipping and 3 receiving jurisdiction, we could face additional loading 4 right the way through. 5 MR. PORAY: That is possible. Why I say 6 possible is that depending on the flow of the mirror 7 system, in fact our flows or the flows emanating from 8 our system may in fact back down their flows because 9 they are in the opposite direction. 10 MR. POCH: Sure. And that's exactly the same 11 in our domestic grid for domestic generation and use. 12 MR. PORAY: That's correct. 13 MR. POCH: Sometimes lines are loaded, 14 sometimes they are unloaded. It's a mix. 15 MR. PORAY: They are loaded all the time, but 16 it's the degree of loading that changes. 17 MR. POCH: The analogy holds. 18 MR. PORAY: That is correct. 19 MR. POCH: Right. That being the case, isn't 20 pancaking just a pejorative for user pay? These exports 21 really are using these facilities. 22 MR. PORAY: And I think that's the basis on 23 which these rates have been put forward by these 24 utilities. They are using the transmission system. 25 MR. POCH: So then we come down to the 26 question of really is the dollar an adequate 27 contribution for the use of the network. Is that fair? 28 Looking at it through that lens. Les Services StenoTran Services Inc. 613-521-0703 900 OHNC Panel 2, cr-ex (Poch) 1 MR. PORAY: Yes. I guess it's a fair comment. 2 MR. POCH: Indeed, if we see trends 3 domestically where generation centres are and load 4 centres, if we see trends towards increasing export, you 5 may at some point have to add facilities to deal with 6 that. 7 MR. PORAY: That is correct. 8 MR. POCH: It's a lumpy addition just as in 9 the case of domestics, but it's nevertheless real. 10 MR. PORAY: That's correct. 11 MR. POCH: Now, in the discussion, you recall 12 when I was asking you questions about net versus gross, 13 I asked you whether your concern was in the main about 14 sharing the existing costs as opposed to sending a 15 forward price signal and you agreed that was the case. 16 Do you recall that, Dr. Poray? 17 MR. PORAY: That's right. 18 MR. POCH: Is that the situation here in your 19 development of the rates for EWT? 20 MR. PORAY: In terms of sending a signal? 21 MR. POCH: Are you concerning yourself with 22 sending a forward price signal here or are you -- has 23 that been a motivating factor in your design? 24 MR. PORAY: No. We are not sending -- the 25 intent is not to send a forward price signal. 26 MR. POCH: All right. Your support for, if I 27 can say it, anti-pancaking, I took from the previous 28 examination is at least in part, it may be Les Services StenoTran Services Inc. 613-521-0703 901 OHNC Panel 2, cr-ex (Poch) 1 predominantly, because you view that this may assist in 2 developing competition. Is that fair? 3 MR. PORAY: I believe that that is the case. 4 Yes. 5 MR. POCH: And that's the primary reason -- 6 rationale for this? 7 MR. PORAY: I think from an efficiency and 8 economic perspective, that will be the best way to go at 9 giving incentives to transactions to take place. 10 MR. POCH: Is there any reason why the 11 transmission utility should be concerned about 12 competition for the commodity here any more than they 13 should be in the net versus gross debate, for example? 14 MR. PORAY: I think this is just our 15 observation in this matter and it was because of that 16 that our original proposal which we filed with the Board 17 in December of 1998 did not in fact have any specific 18 charges for export and wheel-through. 19 MR. POCH: Would you agree that the system -- 20 it was in fact built in part to accommodate EWT, the 21 network system. I am not talking about just the 22 interconnection at the border. 23 MR. PORAY: As a by-product of the system that 24 was built in Ontario, the possibility to export and 25 wheel-through is there, yes. 26 MR. POCH: If it was built for EWT, you would 27 agree that EWT users should pay part of the embedded 28 cost? Les Services StenoTran Services Inc. 613-521-0703 902 OHNC Panel 2, cr-ex (Poch) 1 MR. PORAY: I didn't say it was built for EWT. 2 MR. POCH: I know you didn't. I heard that 3 distinction. 4 If one were to conclude that it was, you would 5 agree that there is a stronger argument that users of 6 that service should pay for some of the embedded costs? 7 MR. PORAY: That is what some of our 8 stakeholders have expressed. 9 MR. POCH: Was the system built for import? 10 MR. PORAY: The system, which includes the 11 interconnections, was primarily built for reliability of 12 supply to customers in Ontario. As an addition to that, 13 there was the possibility for importing and also the 14 possibility for exporting, but primarily the reason was 15 reliability. 16 MR. POCH: You view -- the answer to my 17 question is really the same whether I ask about import 18 or export. It was in your view a by-product, an extra 19 benefit obtained? 20 MR. PORAY: That is correct. 21 MR. POCH: But you do charge, you are 22 proposing to charge full network charges to imports. 23 Correct? 24 MR. PORAY: No. Once the load in Ontario has 25 paid the network charge there are no additional charges 26 for generation, whether it is located in the province or 27 outside the province. 28 MR. POCH: A load importing power is going to Les Services StenoTran Services Inc. 613-521-0703 903 OHNC Panel 2, cr-ex (Poch) 1 pay full network charge for the use of the transmission 2 system to get its power? 3 MR. PORAY: In exactly the same way that it 4 would pay for power which came from a generator located 5 in Ontario. 6 MR. POCH: Right. But a load in Buffalo isn't 7 going to pay full network charge for getting that power? 8 MR. PORAY: It's paying a network charge on 9 its own jurisdiction. 10 MR. POCH: But not to us. Not to you. Not 11 for your network? 12 There is a distinction in your treatment 13 between import and export? 14 MR. PORAY: No, I believe there isn't because 15 the transaction that would involve a generator exporting 16 to a Niagara Mohawk customer would include a charge for 17 wheeling to the border, in the same way that a generator 18 located in New York supplying a customer in Ontario 19 would be a assessed the charge in New York. 20 MR. POCH: I am not asking if the two 21 customers in the two countries are treated differently. 22 I understand what you are saying. You are proposing 23 something approaching reciprocity. 24 I am comparing a domestic customer -- I am 25 looking only at the charges paid to you for the use of 26 the Ontario network. A domestic customer from a 27 domestic generator pays for it 100 per cent. 28 MR. PORAY: That's correct. Les Services StenoTran Services Inc. 613-521-0703 904 OHNC Panel 2, cr-ex (Poch) 1 MR. POCH: A domestic customer from a foreign 2 generator pays for it 100 per cent. 3 MR. PORAY: That's correct. 4 MR. POCH: A foreign customer from a domestic 5 generator doesn't pay for it 100 per cent. They may be 6 paying for their own 100 per cent, but ours they are 7 paying whatever, this $1. 8 MR. PORAY: That's correct. 9 MR. POCH: Right. 10 I am going to ask you to -- Mr. Chairman, I 11 distributed I guess it was yesterday an extract from a 12 decision of the Consolidated Hearings Board in docket -- 13 it was CH8503. I don't know if it has been given a 14 number yet. 15 THE PRESIDING MEMBER: I'm sorry, I don't have 16 a copy. 17 MR. POCH: I think I gave some copies to 18 counsel. I have a few more. 19 MR. ROGERS: You had it, but you don't any 20 more because I have it. 21 MR. POCH: Does that panel have that, Mr. 22 Chairman? 23 THE PRESIDING MEMBER: We don't and the 24 witness is just getting it now. 25 --- Pause 26 MR. LYLE: I have got it as Exhibit G5.4. 27 EXHIBIT NO. G5.4: Extract from a 28 decision of the Consolidated Hearings Les Services StenoTran Services Inc. 613-521-0703 905 OHNC Panel 2, cr-ex (Poch) 1 Board in Docket CH8503 2 --- Pause 3 MR. POCH: Just by way of explanation, Mr. 4 Chairman, this document represents two years of Mr. 5 Campbell's life and several months of mine many years 6 ago when Ontario Hydro was seeking environmental 7 assessment approval and the associated approvals, hence 8 the Consolidated Hearing, for I guess two of the three 9 lines emanating from the Bruce area, 500 kV lines that 10 is, and a line in the London to Nanticoke. 11 Just by way of explanation, if you turn to the 12 second-last page of the excerpt I have provided, you can 13 see these were the competing alternative proposals that 14 Ontario Hydro put forward. 15 Mr. Campbell refuses to remind me which one 16 was approved. Nothing turns on it fortunately. Plan 17 One was ultimately approved. I would just like to take 18 you to a few sections of this and ask for your comments 19 at the end. 20 First of all, if we start at page 12 of the 21 decision at the bottom. The Board there was reciting 22 both the general and the specific purposes that Ontario 23 Hydro had set out for the undertaking which was the 24 project. Over leaf on page 13, in addition to the first 25 two, which were basically unbottling Bruce and meeting a 26 domestic supply, there was a third specific purpose: 27 "3. Continue to permit adequate 28 interchange of electric power and energy Les Services StenoTran Services Inc. 613-521-0703 906 OHNC Panel 2, cr-ex (Poch) 1 between Ontario Hydro and the Michigan 2 Electric Co-ordinated System for the 3 mutual benefit of Ontario and Michigan." 4 (As read) 5 Do you see that, panel? 6 MR. PORAY: Yes, I do. 7 MR. POCH: Just backing up then, I would like 8 to read you a section to give you what the decision 9 maker in that case, their take on what was at stake was 10 and at the bottom of page 9 they cite what at the time 11 was the 2.3 per cent annual load forecasting piece and 12 went on to say: 13 "This continuing load growth in 14 southwestern Ontario will hamper Ontario 15 Hydro's ability to delivery power to the 16 interconnections with its present bulk 17 transmission system, but even without any 18 future load growth the uncontradicted 19 evidence of the proponent is that new 20 transmission is required and is required 21 now. 22 The interconnections with Michigan 23 have an exchange capacity of 2,000 24 megawatts. This figure is significant 25 because of interconnection agreements 26 signed by Michigan and Ontario whereby 27 each undertook the obligation to 28 endeavour to supply the other with power Les Services StenoTran Services Inc. 613-521-0703 907 OHNC Panel 2, cr-ex (Poch) 1 over and above domestic needs up to 2,000 2 megawatts. 3 In the past and up until 1984, 4 Ontario Hydro has received large revenues 5 from sales to Michigan, which have had 6 the effect of lowering electricity prices 7 for Ontario consumers. These sales have 8 declined drastically since then and 9 Ontario Hydro's forecast for the future 10 is not encouraging. 11 The proponent points to the fact 12 that in recent years scheduled firm power 13 transfers to the USA had to be 14 interrupted because of transmission 15 limitations experienced at the Buchanan 16 input interface. Furthermore, takes the 17 position that the declining sales are due 18 in part to its inability to deliver 19 enough cheap energy which is located at 20 Bruce and it must rely on the more 21 expensive energy generated by coal at the 22 Lambton generating station. 23 The ability to transmit energy 24 produced at Bruce would place Ontario 25 Hydro, in its opinion, in a more 26 competitive position for sales as far as 27 Michigan is concerned. The fact is that 28 Michigan expects to be a purchaser of Les Services StenoTran Services Inc. 613-521-0703 908 OHNC Panel 2, cr-ex (Poch) 1 power throughout the 1990s and very 2 little new generation is being planned in 3 the northern United States." (As read) 4 I will finish up here: 5 "Michigan at present is able to obtain 6 cheaper power generated by coal fired 7 generating plants in the United States. 8 In the Board's opinion, Ontario Hydro 9 will be under a competitive disadvantage 10 if it cannot deliver to its American 11 neighbours the cheaper power generated at 12 its nuclear plant at Bruce." (As read) 13 They go on on page 12, in the second paragraph 14 there, to say: 15 "For the reasons stated above, the Joint 16 Board accepts the proponent's evaluation 17 of the benefits of interconnection and 18 approves its aim to improve its strengths 19 for capability with the State of 20 Michigan." (As read) 21 Then they just note -- they introduce the 22 purposes set out below. That is: 23 "The lack of full and proper integration 24 of Bruce and the need for greater 25 transmission capability over the Buchanan 26 input interface together with the desire 27 to improve the interchange capability 28 with Michigan have led Ontario Hydro to Les Services StenoTran Services Inc. 613-521-0703 909 1 divide the transmission scheme or 2 undertaking." (As read) 3 First of all, does that conform with your 4 understanding of historic event? 5 MR. PORAY: I was one of the fortunate people 6 who had nothing to do with this project, so I can't 7 vouch for -- 8 MR. POCH: All right. We will let the Board 9 just speak for itself. 10 Can you agree that if we take the Board's 11 phrasing on its face, it's fair to conclude that much of 12 the domestic system has been built with the benefits of 13 export and import in mind, though clearly not as 14 necessarily the only or primary motivating factor, but 15 certainly with that in mind? 16 MR. PORAY: Certainly my understanding is that 17 what is said there is that the proponent did indicate 18 that there were benefits of interconnection, yes. 19 MR. POCH: Sure. And the Board in reaching 20 its conclusion included a weighting of that 21 consideration? 22 MR. PORAY: That appears to be the case. 23 MR. POCH: Now, at the time of course 24 profitability of exports for Ontario Hydro could be 25 equated, in some sense, with the public good. You would 26 agree that at this stage in the evolution of the 27 electricity sector Ontario -- where Ontario Hydro may no 28 longer be the owner of these facilities, they may not be Les Services StenoTran Services Inc. 613-521-0703 910 1 publicly held, what have you -- we should not make such 2 a conclusion. 3 We shouldn't conclude that export profits in 4 and of themselves are necessarily a public good. We 5 should be looking at all the costs and benefits to 6 society. Is that fair? 7 MR. PORAY: I think I would agree with that. 8 MR. POCH: With that background I would like 9 to ask you, if there is an export that is going to occur 10 in the brave new world from -- let's take the Bruce 11 Nuclear Power Generating Station as an example, and it's 12 going to go to Michigan or, say, New York -- what is the 13 difference -- let's propose it's a significant export, 14 it's a prolonged export, is there any difference between 15 that and some retailer making the same purchase from 16 Bruce with domestic customers in terms of their use of 17 the network or whether they should pay for the network? 18 I'm having difficulty understanding your earlier 19 distinction. That's what I'm asking you. 20 MR. PORAY: My earlier distinction was based 21 on the fact that typically the interconnected market 22 tends to rely on exploiting the price differences in the 23 markets and therefore the exchanges that take place tend 24 to be short-term rather than long-term. That is not to 25 say that some bilateral contracts may be entered into 26 for a longer period of time, particularly if it involves 27 installation of new generation. 28 But typically the types of transactions that I Les Services StenoTran Services Inc. 613-521-0703 911 1 am aware that take place on the interconnected systems 2 throughout the North American continent is that they 3 tend to explore the price differences in the market, and 4 therefore they are short-term transactions. 5 MR. POCH: If it's cheaper somewhere else you 6 are going to pick up the power. 7 MR. PORAY: Right. That's correct. 8 MR. POCH: Aren't there going to be brokers 9 that are going to be doing that domestically too in the 10 domestic market? They are going have some bilateral 11 contracts, they are going to be going to the spot, they 12 are going to be shopping around and shifting around 13 wherever they can get the best bargain. 14 MR. PORAY: But generally speaking my feeling 15 is -- my understanding is that those transactions for 16 the domestic load would be fairly long-term transactions 17 rather than short-term. 18 MR. POCH: So this is a key distinction, then, 19 the difference between short-term and long-term 20 transactions? 21 MR. PORAY: I categorized that earlier on as 22 being a factor, in my understanding of the types of 23 transactions that take place for export and 24 wheel-through. 25 MR. POCH: What is it about a short-term as 26 opposed to a long-term transaction that changes your 27 view as to whether it should pay for the network, or how 28 much it should pay for the network? Les Services StenoTran Services Inc. 613-521-0703 912 1 MR. PORAY: I guess I would come at it from 2 the perspective that the transmission network is there 3 to serve that load customer all of the time that that 4 load customer is taking power, whereas on the shorter 5 term transactions there may be capacity available on the 6 network or there may not be. 7 MR. POCH: All right. 8 Is there going to be any -- I thought we had 9 already clarified that no one has any greater call on 10 the system than anyone else. 11 MR. PORAY: No. The actual access, if you 12 like, to the transmission system will be based on the 13 bids and offers that are made into the marketplace. 14 That will determine, effectively, whether you get access 15 or not. 16 MR. POCH: That is true of domestic or export? 17 MR. PORAY: This is correct, yes. 18 MR. POCH: What, then, is the difference 19 between, say -- I seem to recall when we were talking 20 about an embedded generator, for example, you were 21 saying: Well, they may not use it much but the system 22 is going to be there when it wants it and therefore it 23 should pay gross. 24 What is the difference here? 25 MR. PORAY: What I was trying to get at is 26 that domestic load customers, there are a few customers 27 that perhaps will exercise response to price volatility 28 in the marketplace, but there may be some that will Les Services StenoTran Services Inc. 613-521-0703 913 1 reduce their demands, but by and large most of the load 2 customers will be supplied accordingly, whereas on the 3 transactions if the price isn't right then I think the 4 transaction doesn't take place. 5 MR. POCH: So what you are saying is that the 6 customers for export power are more elastic, their 7 demand is more elastic -- this is, I forget that famous 8 economic pricing principle, but you are charging what 9 the traffic will bear and you figure the domestic 10 traffic can bear it all, you might not get away with 11 that in the exports. Is that fair? 12 MR. PORAY: I think so, yes. 13 MR. POCH: Is there any analysis, then, that 14 $1.00 is the right level? 15 MR. PORAY: Well, we felt that the proposal 16 that we have made for $1.00 per megawatt hour for export 17 and wheel-through transaction is a reasonable compromise 18 between the stakeholder positions that were elucidated 19 to us. 20 MR. POCH: In an ordinary marketplace -- 21 forgive me if I oversimplify -- wouldn't you want to set 22 the price at an optimal level, that is you might be 23 prepared to see less exports if price was high enough 24 that your revenue was enhanced, or you might want to 25 lower the price if you thought that the exports would go 26 up so much that that would more than compensate? There 27 would be some optimal level. 28 MR. PORAY: The intent of that charge is not Les Services StenoTran Services Inc. 613-521-0703 914 1 to -- is really not to look at the optimality of the 2 transactions. We don't dispatch and control those 3 transactions. 4 MR. POCH: No, but I'm asking you about the 5 optimality of your transmission -- I'm sorry, maximizing 6 transmission revenues, a function of what you charge and 7 how much goes through. Fair? 8 MR. PORAY: But the whole idea of this was 9 really to try to strike a compromise between those 10 stakeholders who felt that there should be no charge for 11 embedded costs and those stakeholders who felt that 12 there should be a charge, and we feel that this is about 13 the right level of compromise that we can strike. 14 MR. POCH: All right. I think I will leave 15 that there. 16 Just in terms of the realities facing southern 17 Ontario, I take it that the markets in New York, in the 18 northeast, tend to be summer peaking at this point? 19 MR. PORAY: I believe that is the case. 20 MR. POCH: And presumably demand for our 21 exports will be, to some extent, related to their 22 demand. 23 MR. PORAY: It could be. 24 MR. POCH: We are now facing increasing summer 25 peak in the southern part -- or at least in the greater 26 Toronto area in Ontario? 27 MR. PORAY: I think that's probably the case, 28 yes. Les Services StenoTran Services Inc. 613-521-0703 915 1 --- Pause 2 MR. POCH: I'm not sure if I got this answer a 3 minute ago and maybe I should just make sure I get it on 4 the record. 5 You have not in fact studied this question of 6 optimizing transmission revenues -- 7 MR. PORAY: No. And the reason why -- 8 MR. POCH: -- in resolving this -- I'm sorry, 9 let me finish. 10 MR. PORAY: I'm sorry. 11 MR. POCH: Just resolving this and coming to 12 this compromise, the balancing of the stakeholders' 13 positions, you haven't intended -- it has just been not 14 part of your consideration to try to optimize them? 15 MR. PORAY: That is correct. The reason why 16 we haven't optimized it is that this revenue will not be 17 retained by OHNC. But any revenues that come from the 18 export and wheel-through transactions are returned 19 effectively to the customers as reduced charges for 20 transmission. 21 MR. POCH: Right. Mr. Chernick in the last, 22 very last part of his evidence, deals with this question 23 about the disposition of any surplus revenues from 24 congestion and transmission rights sales. and 25 basically -- 26 MR. CURTIS: Could we have a reference to 27 that -- 28 MR. POCH: Yes, it is Exhibit H5.1. It is Les Services StenoTran Services Inc. 613-521-0703 916 1 very well summarized in the last page of his evidence, 2 the second-last page and the last page. 3 --- Pause 4 MR. PORAY: Which page is it? 5 MR. POCH: Twenty-four and 25, the last 6 question, the second-last question. 7 I will give you a minute to look at that and 8 refresh your memory. 9 --- Pause 10 MR. PORAY: Okay. 11 MR. POCH: I took Mr. Chernick's comment as 12 saying basically, if you are going to charge full 13 network for export and wheel-through, then yes, take the 14 surplus of these revenues and give them back to the 15 exporters as a group. But if you are going to start 16 with a discounted EWT rate which is how he would style 17 your dollar, as an 80 per cent discount in fact, then 18 those revenues should accrue to the network users as a 19 larger group. Do you understand him to be saying that? 20 MR. PORAY: Yes, that is what is stated here. 21 MR. POCH: It shouldn't give them a discount 22 and then return the revenues to them. 23 My question is pretty narrow. Leaving aside 24 the wisdom of -- which you might disagree with -- is it 25 as workable as yours? Are there are any technical 26 problems with this approach? I think you answered the 27 question earlier that you thought yours was workable. 28 Is this just a variation of yours that is Les Services StenoTran Services Inc. 613-521-0703 917 1 equally workable in terms of the transactional ease? 2 MR. PORAY: I believe this is another way of 3 gleaning this, yes. 4 MR. POCH: Okay. 5 MR. PORAY: Just one thing I should point out 6 in Mr. Chernick's evidence, and that is on page 24 in 7 the second line when he talks about transmission rights 8 held by OHNC. OHNC will not hold any rights, it is the 9 IMO that will, in fact? 10 MR. POCH: Okay. And we should note that 11 correction. 12 Finally, in the absence of a binding cap on 13 emissions or at least on all emissions of cogeneration 14 in Ontario, or in the larger sphere, would you agree 15 that lowering the tariff is going to push directionally 16 in the -- head towards increased emissions in Ontario? 17 MR. PORAY: No, I don't believe I would agree 18 with that. 19 MR. POCH: Why is that? 20 MR. PORAY: Because the export and 21 wheel-through transactors could be other entities that 22 have either hydro-electric generation or gas fired 23 generation. 24 MR. POCH: Do you have a view as to whether or 25 not OPGI's coal facilities are likely to be in the 26 category of EWT candidates? 27 MR. PORAY: No, I do not. 28 MR. POCH: Do you agree that if they are then Les Services StenoTran Services Inc. 613-521-0703 918 1 to the extent tariffs, lower tariffs, enhance their 2 opportunities for more exports we would see more 3 emissions? 4 MR. PORAY: I don't think our tariffs are 5 going to enhance any specific generation. 6 MR. POCH: Would you agree your tariff levels 7 are going to increase or decrease the opportunities for 8 them to make export sales? 9 --- Pause 10 MR. PORAY: I think to a large extent the 11 opportunity for export sales will determined by external 12 factors, the marketplace, the external markets. 13 MR. POCH: Are you then saying that the level 14 of your tariff is not an important factor in determining 15 the potential amount of exports for a given potential 16 export? 17 MR. PORAY: It may factor in the export and 18 wheel-through calculations, but there will be other 19 components, not only the tariff. 20 MR. POCH: Certainly, there will be other 21 components. There is the question of who they are 22 competing against. It is the most obvious. But you 23 would agree that the level of the tariff is important, 24 it is going to have an impact on how much these kinds of 25 transactions occur? 26 MR. PORAY: As I say, it could be one of the 27 factors that we will take into consideration. 28 MR. POCH: And to the extent that factor Les Services StenoTran Services Inc. 613-521-0703 919 1 changes it is going to change the equilibrium point, the 2 amount of export that is going to occur. Correct? 3 MR. PORAY: It may have some impact on it. 4 MR. POCH: To the extent it does it is going 5 to affect emissions in Ontario, assuming they are not 6 otherwise capped? 7 MR. PORAY: I don't know. I am not in a 8 position to -- 9 MR. POCH: You haven't considered that issue? 10 MR. PORAY: No, we have not. 11 MR. POCH: Thank you. 12 That is all my questions, Mr. Chairman. 13 THE PRESIDING MEMBER: Thank you, Mr. Poch. 14 I think we will resume order. I thought 15 Mr. Greenspoon was going to be next. 16 MR. POCH: I understand Mr. Greenspoon has no 17 questions of this panel. 18 THE PRESIDING MEMBER: Okay. 19 MR. POCH: At least on this topic. 20 THE PRESIDING MEMBER: We will resume then the 21 order. 22 Can we go back to you, Mr. Fisher, please? 23 CROSS-EXAMINATION 24 MR. FISHER: Thank you, Mr. Chairman. 25 Yesterday, I distributed two diagrams called 26 "Import Example 1" and "Import Example 2." 27 MR. PORAY: We have those, thank you. 28 THE PRESIDING MEMBER: Your diagrams, Mr. Les Services StenoTran Services Inc. 613-521-0703 920 OHNC Panel 2, cr-ex (Fisher) 1 Fisher are -- Mr. Fisher and Mr. Snelson, we always like 2 your diagrams or Mr. Fisher. 3 MR. FISHER: Pardon me. 4 THE PRESIDING MEMBER: Mr. Fisher and Mr. 5 Snelson, we always like your diagrams. 6 MR. FISHER: Oh, thank you. 7 THE PRESIDING MEMBER: They make the day much 8 more bright and not as dull. 9 --- Pause 10 MR. LYLE: We will mark Import Example 1 as 11 G5.5 and Import Example 2 as G5.6. 12 EXHIBIT G5.5: Document entitled "Import 13 Example 1" 14 EXHIBIT G5.6: Document entitled "Import 15 Example 2" 16 --- Pause 17 MR. FISHER: Thank you. 18 AMPCO, like a number of other intervenors, is 19 strongly of the view that trading in electricity between 20 regions should not be impeded by unnecessary high costs 21 of transmission service between these regions. AMPCO 22 favours low cost inter-regional trading on a reciprocal 23 basis. Several parties are concentrating on keeping the 24 costs low for transactions that are leaving Ontario and 25 going into other jurisdictions. 26 AMPCO's main interests is the charges in other 27 jurisdictions for exports from those jurisdictions that 28 are imports into Ontario. We have at least two examples Les Services StenoTran Services Inc. 613-521-0703 921 OHNC Panel 2, cr-ex (Fisher) 1 here to illustrate the reasons for AMPCO's concern. 2 The first sheet of this exhibit is entitled 3 Import Example 1. It shows in a very simplified form 4 the connection of a small Ontario market to a much 5 larger U.S. market. For this example, I would like to 6 assume that the U.S. market is much larger than the 7 Ontario market and that it has many competitive 8 generators. The result of this assumption is that for 9 practical purposes what happens in Ontario has an 10 insignificant effect on the electricity market price in 11 the U.S. 12 In addition, I would also like to assume that 13 there is one generator in Ontario that has a substantial 14 market power. In Example 1, we show that the U.S. price 15 is $35 a megawatt hour. We also show for simplicity 16 that there is no charge for inter-regional transmission. 17 That is there are no IMO charges or transmission charges 18 in either jurisdiction. 19 In this simple case, would you agree that if 20 the price in Ontario is set above $35 per megawatt hour, 21 some Ontario loads will choose to buy in the U.S. via 22 the interconnection rather than buy in Ontario, assuming 23 of course that they are rational decision-makers? 24 MR. PORAY: And this will be done through a 25 bilateral contract? 26 MR. FISHER: Or spot market. 27 MR. PORAY: But which market would they be 28 bidding into? Would they be bidding into the Ontario Les Services StenoTran Services Inc. 613-521-0703 922 OHNC Panel 2, cr-ex (Fisher) 1 market for -- they have to bid their demand into a 2 market. 3 MR. FISHER: Well, for simplicity, let's just 4 say it's a bilateral. 5 MR. PORAY: Okay. Then I would agree with you 6 that they would seek a lower price. Sure. 7 MR. FISHER: I see. Would it also be your 8 view that these transactions will likely occur until the 9 capacity of the interconnection is reached? 10 MR. PORAY: These transactions could occur 11 even if the capacity of the interconnection is reached, 12 provided they are counter-flow transactions. 13 MR. FISHER: Would you agree that the Ontario 14 generator cannot raise the price, the U.S. price, above 15 $35 without losing its market share? 16 MR. PORAY: I think that's probably true. 17 Yes. 18 MR. FISHER: Okay. If we now go to Example 2, 19 this is identical to Example 1 except that now there is 20 a $5 per megawatt hour charge for inter-regional 21 transmissions from the U.S. into Ontario. 22 Under this scenario, would you agree that in 23 this case it is only worthwhile for an Ontario load to 24 buy in the U.S. if the price in Ontario exceeds $40 per 25 megawatt hour, once again assuming rational 26 decision-making prevails? 27 MR. PORAY: That would appear to be the case. 28 MR. FISHER: In addition, I think you would Les Services StenoTran Services Inc. 613-521-0703 923 OHNC Panel 2, cr-ex (Fisher) 1 also agree that the Ontario generator can raise prices 2 in Ontario to $40 per megawatt hour without losing 3 market share. 4 MR. PORAY: Yes, I would agree. 5 MR. FISHER: Now, this example is a 6 simplification of the real world. Several markets in 7 the U.S. and Canada, Ontario is interconnected to. Each 8 one has its own and different charging regimes for 9 transactions out of that market into Ontario. Can you 10 agree that in general, the higher the transmission 11 charges from other jurisdictions into Ontario, the less 12 effective competition there would be in Ontario 13 resulting from the imported energy? 14 MR. PORAY: I would agree. 15 MR. FISHER: Would you agree that in general 16 the higher the transmission charges from other 17 jurisdictions into Ontario, the more scope a generator 18 with market power in Ontario will have to push up prices 19 to the disadvantaged of all Ontario consumers, both big 20 and small? 21 MR. PORAY: I would agree to the fact that 22 there would be less competition in the province. How 23 that generator would behave, I don't know. 24 MR. FISHER: You don't know. Okay. Could I 25 take you now to Interrogatory E, 24.10. This just lists 26 the export and wheel-through charges in other 27 jurisdictions. On page 2 there is a table. 28 MR. PORAY: Yes, we are there. Les Services StenoTran Services Inc. 613-521-0703 924 OHNC Panel 2, cr-ex (Fisher) 1 MR. FISHER: Thank you. Can you confirm that 2 the charges in this table are in U.S. dollars? 3 MR. PORAY: Yes, I believe they are, except 4 the Hydro Quebec and Manitoba, and I think those are in 5 Canadian dollars. 6 MR. FISHER: Most likely. Can you confirm 7 that the charges for transactions from other 8 jurisdictions into Ontario on a firm basis range from a 9 high of over $11 per megawatt -- that's in U.S. -- yes, 10 $11 for Hydro Quebec to a low of $2.27 U.S. for Detroit 11 Edison. 12 MR. PORAY: That's correct. 13 MR. FISHER: We understand that many 14 jurisdictions discount their firm transition rates for 15 non-firm transactions that are arranged on a short term 16 basis. 17 MR. PORAY: That is correct. 18 MR. FISHER: Is it true that the discounted 19 charges for transactions from other jurisdictions into 20 Ontario range from a high of over $3.72 per megawatt 21 hour for New York to a low for PJM of 67 cents? 22 MR. PORAY: Well, the PJM rate wouldn't be 23 into Ontario. This would be the rate across the PJM 24 system because there is another jurisdiction between PJM 25 and Ontario, but within the PJM system, that is the 26 discounted rate. 27 MR. FISHER: And that 67 cents per megawatt 28 U.S. is about $1 Canadian, is that correct? Les Services StenoTran Services Inc. 613-521-0703 925 OHNC Panel 2, cr-ex (Fisher) 1 MR. PORAY: That is correct. 2 MR. FISHER: On this basis, will you agree 3 that the proposed charge of $1 per megawatt hour for 4 export and wheel-through transactions is towards the low 5 end of the discounted transmission rates of other 6 jurisdictions? 7 MR. PORAY: That is correct. 8 MR. FISHER: Thank you. 9 Those are my questions, Mr. Chair. Thank you. 10 THE PRESIDING MEMBER: Thank you, Mr. Fisher. 11 Do we go next with Mr. Budd? 12 MR. BUDD: I have no questions. 13 THE PRESIDING MEMBER: No questions. 14 Who would like to go next then, please? 15 Mr. Cowan, come up to the chair here next 16 to -- 17 Okay. Go ahead. 18 MR. COWAN: Thank you, Mr. Chair. 19 CROSS-EXAMINATION 20 MR. COWAN: Mr. Curtis, Mr. Poray, Mr. 21 Schneider, a few brief questions for information. 22 In your consideration of export volumes, did 23 you try to access the National Energy Board's records of 24 export licence applications and their approvals? 25 MR. PORAY: No, we did not. 26 MR. COWAN: If there were ever a cost 27 associated with a cross-border facility, and I 28 understand from the evidence that there is no Les Services StenoTran Services Inc. 613-521-0703 926 OHNC PANEL 2, cr-ex (Cowan) 1 anticipation that there ever could be, but if there ever 2 were such a cost, an ice storm or perhaps regular 3 maintenance, which customers would pay that cost? 4 MR. PORAY: In our current submission, the 5 interconnection facilities form part of the network 6 facilities whose cost is borne by all provincial load 7 customers. 8 MR. COWAN: All provincial load customers. 9 MR. PORAY: That is correct. 10 MR. COWAN: Bear the cost. 11 MR. PORAY: Yes. 12 MR. COWAN: But no non-provincial customers 13 bear that cost. Does that cost allocation reflect the 14 two way flow of power? 15 MR. PORAY: As I indicated, we didn't 16 specifically allocate costs to export and wheel-through 17 transactions. In our cost allocation methodology, we 18 did not create a separate pool of costs. 19 MR. COWAN: In your research did you examine 20 the definitions of subsidy used by the United States 21 International Trade Court? 22 MR. PORAY: No, we did not. 23 MR. COWAN: What other U.S. ITC documents or 24 decisions did you or your staff refer to? 25 MR. CURTIS: Is this in terms of that 26 definition? 27 MR. COWAN: With respect to any aspect 28 regarding the export of a good or service to the United Les Services StenoTran Services Inc. 613-521-0703 927 OHNC PANEL 2, cr-ex (Cowan) 1 States of America and the possibility that it might 2 attract a countervail duty on any Canadian good or 3 service. 4 MR. CURTIS: I don't believe we consulted any 5 document with that. We looked at, for example, some 6 FERC documents, but they don't pertain to countervail 7 which I think is what you are talking about now. Is 8 that right? 9 MR. COWAN: That's what I am talking about. 10 Moving to a different topic then, is it 11 possible that power exported from the Bruce plant, or 12 any other Ontario plant for that matter, would cost less 13 in Detroit than in Windsor, or less in Buffalo than in 14 Niagara Falls or Schenectady than Kingston? 15 MR. PORAY: I guess that depends on the market 16 conditions. 17 MR. COWAN: Well, given the freight costs that 18 would be applied, in the sense that it might otherwise 19 sell for the same price, is it possible that power 20 exported from one plant in Ontario to two nearby 21 markets, one in Canada and the U.S., would cost less on 22 the American side than in Canada? 23 MR. PORAY: I presume the purpose of the 24 export would be that the customer located in another 25 jurisdiction felt that he got a better price for energy 26 supplied from a generator or a supplier located 27 elsewhere than one located in his jurisdiction. 28 MR. COWAN: That's right. Les Services StenoTran Services Inc. 613-521-0703 928 OHNC PANEL 2, cr-ex (Cowan) 1 So this is a change from the reliability 2 purpose it once was. Reliability was once the purpose 3 of the interconnection facility? 4 MR. PORAY: The main purpose on which the 5 interconnection was justified was for reliability, but 6 as we discussed with Mr. Poch that there were other 7 factors that were evaluated as well, which was import 8 and export. 9 MR. COWAN: And in future then some of these 10 other factors, such as saving money or making money, 11 might come into play to a greater extent than in the 12 past? 13 MR. PORAY: I believe that is the case, as the 14 markets turn more commercially minded. 15 MR. COWAN: Referring back then to the 16 potential for a lower price in the two neighbouring 17 markets, a particularly lower price in the U.S. market, 18 could that be construed as dumping? 19 MR. PORAY: I don't believe so. 20 MR. COWAN: No. Even though it is Canadians 21 selling Canadian goods and service for less than they 22 charge themselves here at home? 23 MR. PORAY: No. I believe in the new 24 marketplace the basis for an export or a transaction 25 will be based on the competitive market. 26 MR. COWAN: That is your belief. 27 With respect to the differential that Mr. 28 Fisher referred to between Hydro Quebec's prices and Les Services StenoTran Services Inc. 613-521-0703 929 OHNC PANEL 2, cr-ex (Cowan) 1 your proposed prices, is that a power quality factor 2 that allows the Quebec power to bear such a higher 3 charge? 4 MR. PORAY: I believe that the prices charged 5 by Quebec for their transmission system reflect their 6 transmission system costs. 7 MR. COWAN: And not their desire to make 8 profit exporting? 9 MR. PORAY: I didn't say that. I said their 10 transmission system costs which reflect the cost of 11 running their transmission business. 12 MR. COWAN: One last question then, and 13 bearing in mind that there will be competition and that 14 from time to time it could be competition between 15 generators serving Ontario consumers or between Ontario 16 consumers competing with U.S. consumers to get Ontario 17 power, to the extent that the proposed rates reduce the 18 cost of power in the U.S. relative to its price here, is 19 it not the case that your proposed prices will set 20 Ontario consumers in more intense competition with their 21 U.S. counterparts leading to higher prices here? 22 MR. PORAY: First of all, I don't believe that 23 the export charge will lower the price of Canadian or 24 Ontario based generation for export purposes. I think 25 all it is is just one factor that the exporter has to 26 take into account when bidding into an export market. 27 That will determine the final sale that they make to 28 that external market. Les Services StenoTran Services Inc. 613-521-0703 930 OHNC PANEL 2, cr-ex (Cowan) 1 In a general principle of how markets work, 2 if, for instance, the Ontario generation price or the 3 Ontario price is lower than the price in another market 4 once those markets start operating, then there will be a 5 readjustment in prices to try and move the two markets 6 closer together. That's how markets work I guess. 7 MR. COWAN: Thank you kindly. Those are all 8 my questions. 9 THE PRESIDING MEMBER: Thank you, Mr. Cowan. 10 We are at the afternoon break now. Can 11 somebody give me an idea of how many questioners there 12 are left on this issue, the EWT issue? 13 MR. MARK: I have very few questions. 14 THE PRESIDING MEMBER: Thank you, Mr. Mark. 15 Mr. Snelson? No. 16 Anyone else? 17 Mr. Campbell and Mr. Klippenstein I see. Just 18 so that people will know whether to stick around or not 19 because probably we will only take a half an hour then 20 or so, I would think, unless you have a lot of 21 questions, Mr. Campbell 22 MR. CAMPBELL: Mr. Chairman, you will recall 23 that this is one of the two issues that we are 24 addressing in our own evidence, and certainly it looks 25 like we are going to reach the end of the 26 cross-examination list today. 27 That being so, I am requesting that in light 28 of Mr. Rogers' filing this diagram and example and Les Services StenoTran Services Inc. 613-521-0703 931 OHNC PANEL 2 1 calculations only today and my not having had an 2 opportunity to review it, I am going to suggest that I 3 do my cross-examination first thing tomorrow morning on 4 this. I think it will save a great deal of time because 5 we will be going through the numbers and if I can get 6 organized tonight and do that in an organized and 7 coherent way it will be much more efficient than trying 8 to do it straight off the page, if you will. 9 I hope to organize this so we can set it out 10 and work through the examples that we say need to be put 11 forward to supplement that exhibit. 12 THE PRESIDING MEMBER: I understand what you 13 are saying. 14 So we may then move on with another topic 15 before five o'clock and come back to that. 16 We will see how far we go. It is very likely 17 then that given that we will only have about another 18 half an hour on this topic and then we will move on for 19 the balance of the afternoon. 20 With that, we will come back at about 10 21 minutes to four o'clock please. Thank you. 22 --- Upon recessing at 1535 23 --- Upon resuming at 1600 24 THE PRESIDING MEMBER: Mr. Lyle. 25 MR. LYLE: I just have a few preliminary 26 matters, Dr. Higgin. 27 I am advised that VECC wishes to cross-examine 28 on the EWT rates tomorrow morning. Les Services StenoTran Services Inc. 613-521-0703 932 OHNC PANEL 2 1 THE PRESIDING MEMBER: Okay. Yes. 2 MR. LYLE: Also, I wish to remind parties they 3 should make sufficient copies of all of the exhibits so 4 that there are three copies for the public file. 5 In addition, there are two new exhibits that 6 are available, one from Imperial Oil, one from AMPCO. 7 Also, the schedule of intervenor witnesses is now 8 available on the site. 9 THE PRESIDING MEMBER: Okay. So we will wait 10 a minute for people to get those. 11 Are you going to put those AMPCO exhibits out 12 now? 13 MR. LYLE: Yes. 14 THE PRESIDING MEMBER: Is the Board going to 15 get its copy now or are we waiting for -- 16 MR. LYLE: Yes, Dr. Higgin. We will be making 17 them available now. 18 THE PRESIDING MEMBER: Okay. 19 --- Pause 20 MR. LYLE: Dr. Higgin, there are two exhibits 21 filed by Imperial Oil. One we will give No. G5.7, and 22 it is titled "Appendix 3, Wholesale Market Design 23 Technical Panel Report". 24 THE PRESIDING MEMBER: Okay. 25 EXHIBIT NO. G5.7: Document entitled 26 "Appendix 3, Wholesale Market Design 27 Technical Panel Report" filed by Imperial 28 Oil Les Services StenoTran Services Inc. 613-521-0703 933 OHNC PANEL 2 1 MR. LYLE: Then we will give G5.8 to 2 "Chapter 4, Transmission and Distribution". I believe 3 that is Chapter 4 of the Market Design Committee's final 4 report. 5 THE PRESIDING MEMBER: Okay. 6 EXHIBIT NO. G5.8: Document entitled 7 "Chapter 4, Transmission and 8 Distribution" from the Market Design 9 Committee's final report filed by 10 Imperial Oil 11 MR. LYLE: There is also an exhibit which we 12 will give Exhibit No. G5.9. It is an exhibit from AMPCO 13 and it consists of four pages. It is headed 14 "Information Provided by OPGI". It appears to be dated 15 January 14, 2000. 16 EXHIBIT NO. G5.9: Four-page document 17 entitled "Information Provided by OPGI", 18 dated January 14, 2000, filed by AMPCO 19 --- Pause 20 MR. LYLE: There is another exhibit introduced 21 by AMPCO, G5.10. It is a one-page document which is 22 headed "Exhibit Prepared by AMPCO". 23 EXHIBIT NO. G5.10: Document entitled 24 "Exhibit Prepared by AMPCO" filed by 25 AMPCO 26 THE PRESIDING MEMBER: Okay. That is it? 27 MR. LYLE: That is it, Dr. Higgin. 28 THE PRESIDING MEMBER: Thank you. Les Services StenoTran Services Inc. 613-521-0703 934 OHNC PANEL 2 1 We will resume, I believe -- I don't know 2 whether Mr. Mark wants to go first or Mr. Klippenstein. 3 You can choose whichever you like. 4 Let's hear from Mr. Mark, then. 5 MR. MARK: I would be happy to go. I won't be 6 very long at all, Mr. Chairman. Thank you. 7 CROSS-EXAMINATION 8 MR. MARK: Gentlemen, if I could just clarify 9 one thing for you. 10 If you could go back to the Exhibits G5.5 and 11 G5.6 that were put before you on AMPCO's 12 cross-examination. Do you have that? 13 MR. PORAY: Yes, we do. 14 MR. MARK: All right. Just so I'm clear and 15 the record is clear, your proposal for the EWT doesn't 16 affect transmission pricing for imports. Correct? 17 MR. PORAY: That's correct. 18 MR. MARK: All right. 19 So when we see here in these two examples 1 20 and 2 the variation in the transmission charge, do you 21 read this the same way I do, that they are talking about 22 the transmission charge imposed in the foreign 23 jurisdiction? 24 MR. PORAY: It is the export charge going from 25 outside Ontario into Ontario. 26 MR. MARK: Imposed by the jurisdiction in 27 which the power originates? 28 MR. PORAY: That's correct. Les Services StenoTran Services Inc. 613-521-0703 935 OHNC PANEL 2, cr-ex (Mark) 1 MR. MARK: Okay. So these numbers here are 2 not a function of your EWT proposal? 3 MR. PORAY: No. 4 MR. MARK: Thank you for that. 5 Mr. Brown, in his cross-examination earlier 6 today, was asking you about the revenue requirement that 7 you tabled in your revenue application in December, I 8 guess, 1998 it would be, and whether the revenues from 9 the export revenues were included in that. I think you 10 indicated to him that no they weren't and that therefore 11 the revenues you will derive from this in the first year 12 will be surplus to the revenue requirement you submitted 13 to the Board and got approval for. Do you recall that? 14 MR. PORAY: That's correct. 15 MR. MARK: Okay. I want to, again, make sure 16 I understand this. 17 It is your intention, the way you envision the 18 system working, that those revenues that you collect in 19 the first year will be, if you will, rebated to 20 customers in year two. Is that correct? 21 MR. PORAY: That is correct. 22 MR. MARK: So this is a timing issue. Nobody 23 is taking unexpected revenues in year one and pocketing 24 them. Correct? 25 MR. PORAY: That is correct. 26 MR. MARK: As we get into year two and so on, 27 you will have this continuous one-year lag, but in each 28 year you will be having a collection and a rebate. It Les Services StenoTran Services Inc. 613-521-0703 936 OHNC PANEL 2, cr-ex (Mark) 1 is just that they won't be matched in the given year. 2 MR. PORAY: That is correct. 3 MR. MARK: Thank you. 4 Those are my questions, Mr. Chairman. 5 THE PRESIDING MEMBER: Thank you, Mr. Mark. 6 Mr. Klippenstein. 7 MR. KLIPPENSTEIN: Thank you, Mr. Chairman. 8 CROSS-EXAMINATION 9 MR. KLIPPENSTEIN: Members of the panel, I 10 have a few questions related to the question of 11 surrounding jurisdictions because I heard you say that 12 one rationale for OHNC's proposal is to match or bring 13 it in line to some degree with surrounding jurisdictions 14 or surrounding jurisdictions were a factor. Is that 15 fair? 16 MR. PORAY: Yes. Yes, it was. 17 MR. KLIPPENSTEIN: Okay. 18 If you could turn, please, to Exhibit E, 19 Tab 24, Schedule 10, which was reviewed before, that is 20 Pollution Probe Interrogatory No. 10 updated. That is 21 Exhibit E, Tab 24, Schedule 10. 22 MR. PORAY: We have it. 23 MR. KLIPPENSTEIN: If you could turn to page 2 24 of that. There is a table there that shows the 25 surrounding jurisdictions charges. Is that right? 26 MR. PORAY: That is correct. 27 MR. KLIPPENSTEIN: And it shows their firm 28 charge and their discounted charge and it shows what the Les Services StenoTran Services Inc. 613-521-0703 937 OHNC PANEL 2, cr-ex (Klippenstein) 1 percentage of the discount is. Right? 2 MR. PORAY: It is not the percentage of the 3 discount. It is the discounted charge expressed as a 4 percentage of the firm charge. 5 MR. KLIPPENSTEIN: Right. But it does show 6 the discount? 7 MR. PORAY: In column two it shows the 8 discount, if there is any. 9 MR. KLIPPENSTEIN: And Michigan, Detroit 10 Edison doesn't discount for export and wheel-through 11 transmission customers. Is that right? 12 MR. PORAY: That is our understanding. 13 MR. KLIPPENSTEIN: Then, going down to New 14 York, New York also doesn't give any discount for export 15 and wheel-through transmission customers. Is that 16 right? 17 MR. PORAY: That is our understanding. 18 MR. KLIPPENSTEIN: Okay. So those two 19 jurisdictions don't discount. 20 Now if you could turn to -- 21 MR. PORAY: Can I just clarify a little bit 22 further? 23 MR. KLIPPENSTEIN: Yes. 24 MR. PORAY: Our understanding is that Detroit 25 Edison hasn't done it up until now, and in New York 26 there has been a change in the sense that the 27 independent system operator has now been put in place 28 and they are administering the tariff, and, at the time Les Services StenoTran Services Inc. 613-521-0703 938 OHNC PANEL 2, cr-ex (Klippenstein) 1 when we obtained this information, there wasn't a 2 discount but that is not to say what the future may 3 bring. 4 MR. KLIPPENSTEIN: But you have no idea what 5 the future may bring? 6 MR. PORAY: No. 7 MR. KLIPPENSTEIN: Okay. So as of now those 8 two jurisdictions don't discount. 9 MR. PORAY: That is correct. 10 MR. KLIPPENSTEIN: If you could then turn to 11 Exhibit E, Tab 31, question No. 9, which is OPG's 12 response to Pollution Probe Interrogatory No. 9. 13 Question 9 is found at pages 4 and 5 of 8. 14 MR. PORAY: Yes, we have it. 15 MR. KLIPPENSTEIN: On page 5 we have a table 16 that shows where exports from Ontario went in the years 17 1998 and 1999. Is that right? 18 MR. PORAY: That's what appears to be the 19 case. 20 MR. KLIPPENSTEIN: All right. 21 Do you have any reason to doubt these figures 22 here? 23 MR. PORAY: Well, we are not familiar with 24 them. 25 MR. KLIPPENSTEIN: Okay. 26 Taking them at their face value from OPG, 27 these suggest, would you agree with me, that in 1998 to 28 1999 the overwhelming proportion of exports from Ontario Les Services StenoTran Services Inc. 613-521-0703 939 OHNC PANEL 2, cr-ex (Klippenstein) 1 went to Michigan and New York. Is that right? 2 MR. PORAY: That would appear to be the case. 3 MR. KLIPPENSTEIN: So isn't it true, then, 4 that the jurisdictions which by far form the largest 5 export recipient with respect to Ontario don't actually 6 discount for export and wheel-through? 7 MR. PORAY: At this point in time, that would 8 appear to be the case. 9 MR. KLIPPENSTEIN: Thank you. 10 I would like to ask a number of questions, 11 then, with respect to the relationship between the 12 discount and export revenues. 13 The proposed discount for export and 14 wheel-through rates proposed by OHNC is about 80 15 per cent. I think that is assumed, right? 16 MR. PORAY: It is not as -- we didn't look 17 upon that as a discount from net worth. We just 18 established a $1 per megawatt charge, but you could 19 express it as that. 20 MR. KLIPPENSTEIN: Okay. That reduction or 21 difference or discount in the rates between what the 22 export and wheel-through transmission customer will pay 23 reduces OHNC's export revenues by 80 per cent over what 24 they would otherwise be, based on the ordinary rates. 25 Is that fair? 26 MR. PORAY: I am not sure I understand that, 27 because what do you mean by "ordinary rates"? 28 MR. KLIPPENSTEIN: The rates that everyone Les Services StenoTran Services Inc. 613-521-0703 940 OHNC PANEL 2, cr-ex (Klippenstein) 1 else would pay such as -- I shouldn't say everyone 2 else -- but the rates that, for example, Toronto Hydro 3 would pay for transmission. 4 MR. PORAY: That is the provincial load 5 service rate? 6 MR. KLIPPENSTEIN: Yes. 7 I apologize if it wasn't absolutely clear, but 8 to repeat my question: The 80 per cent discount or 9 reduction from the provincial load rates for 10 transmission will reduce OHNC's export revenues by 80 11 per cent over what they would be if OHNC maintained the 12 same rate? 13 MR. PORAY: No, we didn't assign any revenues 14 to export so we can't say whether they will be reduced 15 or increased. 16 MR. KLIPPENSTEIN: Well, isn't it simply true 17 by definition that by putting in place an 80 per cent 18 discount your total revenues from exports will be 80 19 per cent less than what they otherwise would be? 20 Doesn't that follow necessarily? 21 MR. PORAY: That assumes interactive demands 22 for the electricity that you can get the same sales for 23 the $5 rate. 24 MR. KLIPPENSTEIN: Okay. Assume the same 25 sales for now, your revenue would be in total 80 per 26 cent less over what they otherwise would be. Is that 27 right? 28 MR. PORAY: If you make that assumption, yes. Les Services StenoTran Services Inc. 613-521-0703 941 OHNC PANEL 2, cr-ex (Klippenstein) 1 MR. KLIPPENSTEIN: I am getting to that 2 assumption, but okay. 3 Then let's deal with that assumption. Do you 4 think that the discounted rates will increase exports to 5 make up that entire 80 per cent of your total revenue 6 from exports? 7 MR. PORAY: I cannot answer that question 8 because we haven't done the analysis as to what the 9 volume of exports might be. 10 MR. KLIPPENSTEIN: Wouldn't you agree that it 11 is highly unlikely that the 80 per cent discount will so 12 much increase exports that it will make up the revenue 13 lost by the discounting? 14 MR. PORAY: As I mentioned in previous 15 discussions, that transmission charge for export is only 16 one factor in determining what exports will go ahead and 17 what not -- and which will not. 18 MR. KLIPPENSTEIN: Sure. But it seems to me 19 highly unlikely that the 80 per cent discount would be 20 enough to increase the exports so much that the lost 21 revenue from the discount would be replaced. Therefore, 22 it seems very likely, wouldn't you agree, that the total 23 revenue will be below what it otherwise would be? 24 MR. PORAY: Well, I am having difficulty in 25 discussing lost revenue because there is no lost 26 revenue. The revenue that has been allocated to the 27 provincial load service will be recovered. 28 What we are talking about now here is revenue Les Services StenoTran Services Inc. 613-521-0703 942 OHNC PANEL 2, cr-ex (Klippenstein) 1 that will be recovered from the export and wheel-through 2 transaction that will then be used to rebate customers 3 in Ontario for their transmission charges. The reason 4 why we didn't include the export revenues is because we 5 don't know what that export revenue will be. We don't 6 know what the volume of traffic will be and, therefore, 7 to predict that is highly speculative. 8 MR. KLIPPENSTEIN: Well, maybe I can call it a 9 lost rebate then, based on what you have just said. New 10 York charges 100 per cent, Michigan charges 100 11 per cent. What you are doing here is losing 80 per cent 12 which would otherwise go to reduce customer's rates. 13 Isn't that mathematically accurate? 14 MR. PORAY: No, I would say we are not losing 15 because -- 16 MR. KLIPPENSTEIN: You are giving it up, 17 right? 18 MR. PORAY: No, for the reasons that I have 19 explained, we haven't established a base for exports and 20 therefore we can't say whether we are losing or gaining. 21 MR. KLIPPENSTEIN: If you charged 100 per cent 22 of the transmission rate would you get more or less of a 23 rebate to the customers? 24 MR. PORAY: I don't know. I don't know 25 whether any transactions would go through if we charged 26 the 100 per cent. 27 MR. KLIPPENSTEIN: So is it your testimony 28 that you have lost no rebate to the customers with this Les Services StenoTran Services Inc. 613-521-0703 943 OHNC PANEL 2, cr-ex (Klippenstein) 1 discount? 2 MR. PORAY: I believe that we have gained 3 rebate to the customers by proposing this charge, as 4 some of our stakeholders have suggested. 5 MR. KLIPPENSTEIN: You have gained rebates 6 only as compared to no charge at all, right? Correct? 7 MR. PORAY: As compared to no charge at all. 8 MR. KLIPPENSTEIN: But as compared to the 100 9 per cent rate, as carried out in Michigan or New York, 10 you have lost 80 per cent of the rebate. Is that 11 correct? 12 MR. PORAY: Well, no, I would not agree with 13 that. I don't think we are losing anything. 14 MR. KLIPPENSTEIN: Where has it gone? Where 15 is it? 16 MR. PORAY: It was never there. 17 MR. KLIPPENSTEIN: Now, if you chose, like 18 Michigan and New York, to charge at the 100 per cent 19 rate, you would get more per unit. Is that right, the 20 80 per cent difference? 21 MR. PORAY: Maybe. I don't know. It would 22 depend on what volume of traffic would go through as a 23 result. 24 MR. KLIPPENSTEIN: Well, I have broken that 25 out because I have said per unit. Per unit you would 26 get the difference from 20 per cent up to 100 per cent 27 per unit. Is that right? 28 MR. PORAY: Probably. Les Services StenoTran Services Inc. 613-521-0703 944 OHNC PANEL 2, cr-ex (Klippenstein) 1 MR. KLIPPENSTEIN: Yes. So unless the units 2 went way, way up, unless the volume of exports went way, 3 way up as a result of this discount, you are not going 4 to make up that gap. Isn't that right? 5 MR. PORAY: I fail to see what gap we are 6 talking about. I don't believe that there is a gap. 7 I see where you are coming from. But I don't 8 believe fundamentally there is a gap because we haven't 9 established a volume of traffic for the export and 10 wheel-through transactions that we could say, "This is 11 the base case", and on the basis of that we could then 12 say, "Well, if we discount it then we would get less 13 revenue or more revenue." 14 MR. KLIPPENSTEIN: You don't know whether your 15 export revenues would be higher or lower if you set the 16 rate at 100 per cent instead of 20 per cent? You are 17 telling me you don't know? 18 You are telling me you don't know if your 19 export revenues would be higher or lower if you set the 20 transmission rate for export and wheel-through at 100 21 per cent rather than 20 per cent? 22 MR. PORAY: That is correct. 23 MR. KLIPPENSTEIN: Okay. 24 MR. PORAY: We don't know what the export and 25 wheel-through transactions are. For that reason, we 26 didn't establish this as part of the recovery of all of 27 the costs because we don't, in essence, have a charge 28 determinant for the export and wheel-through Les Services StenoTran Services Inc. 613-521-0703 945 OHNC PANEL 2, cr-ex (Klippenstein) 1 transactions. 2 MR. KLIPPENSTEIN: Is it fair to say that the 3 difference between a 20 per cent transmission rate and 4 100 per cent transmission rate -- or that there will be 5 a difference in terms of the level of export revenues, 6 depending on which one you choose? 7 MR. PORAY: I am sure it will have some 8 influence, yes. 9 MR. KLIPPENSTEIN: So there will be a 10 difference if you set the rate at 100 per cent rather 11 than at 20 per cent? 12 MR. PORAY: It will be one of the factors that 13 would determine the level of transactions that take 14 place. 15 MR. KLIPPENSTEIN: Okay. Just as if I sell -- 16 if I am a shoe store who sells my shoes normally at $100 17 per pair and I discount them to $20 per pair, my total 18 revenue will drop unless that discount increases my 19 sales to an offsetting amount. Is that a simple 20 analogy? Do you see the logic there? 21 MR. PORAY: No, because I think in terms of 22 your shoe shop you have already -- that revenue that you 23 have established is part of your operation. What we are 24 saying in here is that we haven't included in our 25 revenue requirement what revenues would be required from 26 export and wheel-through transactions because we don't 27 know what those transactions will be. 28 MR. KLIPPENSTEIN: Do you think that just as Les Services StenoTran Services Inc. 613-521-0703 946 OHNC PANEL 2, cr-ex (Klippenstein) 1 in that shoe shop, if I set my prices at $20 my total 2 revenue will be less than at $100 per shoes unless I 3 sell a lot more shoes, would you agree that if you had 4 set your transmission rate at 100 per cent for export 5 and wheel-through of the ordinary transmission rate that 6 you would have more revenue in total from exports? 7 MR. PORAY: I don't agree with you because 8 basically what I'm saying -- the comparison that you are 9 trying to make was a shoe shelf, I guess. You would 10 establish what volume of shoes you could sell at the 11 hundred dollars a pair -- I assume not per shoe -- sales 12 that would factor what are your revenues for running 13 your shop. 14 What we have done is we know what the revenues 15 for our transmission system are and we have allocated 16 that revenue to domestic load. Now we are adding a 17 charge for export and wheel-through transactions which 18 will hopefully bring some benefit to the customer, but 19 we haven't set a base case for that level of revenue 20 because we don't know what it will be. 21 MR. KLIPPENSTEIN: Would you agree with me 22 that any additional revenue that came from a higher EWT 23 transmission rate than what you have set would go to 24 reduced rates of other customers? 25 MR. PORAY: Certainly. That would be one side 26 of the equation that you would have to balance. The 27 other side of the equation would be what would a higher 28 rate do in terms of encouraging transactions to take Les Services StenoTran Services Inc. 613-521-0703 947 OHNC PANEL 2, cr-ex (Klippenstein) 1 place. As I say, that's one of the components that will 2 figure in those entities who transact, but they will 3 have to take that into consideration. 4 MR. KLIPPENSTEIN: So you gave no 5 consideration, did you, to how much additional export 6 revenue would be available to reduced customer's rates 7 simply by doing what New York and Michigan do. 8 MR. PORAY: No, because what we felt we should 9 do is in consideration with other jurisdictions do, we 10 felt that setting a level at $1 per megawatt hour seemed 11 like an appropriate level for contributions to the 12 recovery of embedded costs. 13 MR. KLIPPENSTEIN: So if the Board wants to 14 know how much lower could rates be, if we did what our 15 two largest trading partners are doing, you don't have a 16 number for the Board to tell them that. 17 MR. PORAY: I don't know because I don't have 18 the volume of transactions that might take place. 19 MR. KLIPPENSTEIN: So the Board has no way of 20 knowing that today. 21 MR. PORAY: We don't know what revenue could 22 accrue as a result of those charges. Yes. 23 MR. ROGERS: I have no further questions, Mr. 24 Chairman. 25 THE PRESIDING MEMBER: Thank you, Mr. 26 Klippenstein. 27 If there are no other questions, we will move 28 on to Board staff. Les Services StenoTran Services Inc. 613-521-0703 948 OHNC PANEL 2, cr-ex (Klippenstein) 1 Mr. Lyle, please. 2 MR. LYLE: Thank you, Dr. Higgin. 3 EXAMINATION 4 MR. LYLE: Gentlemen, if I could refer you 5 back to Exhibit D, Tab 6, Schedule 1, page 5 of that 6 document. 7 MR. PORAY: Page 1? 8 MR. LYLE: Page 5. 9 MR. PORAY: Page 5. We have that. 10 MR. LYLE: There are six options set out there 11 for possible designs of EWT rates. I want to refer you 12 specifically to number three. I understand that 13 proposal would provide for a rate of $4.85 a megawatt 14 hour and that that level is determined by dividing the 15 annual network pool revenue requirement by the annual 16 energy transacted through the network. 17 MR. PORAY: That is correct. 18 MR. CURTIS: If I refer you down then to 19 Option V, you state there that the EWT transactions 20 could be charged to fixed rate to be applied by the IMO. 21 You state then that the fixed rate could be lower than 22 that noted for Option III. For example, it could be a 23 dollar a megawatt hour. 24 MR. PORAY: That is correct. 25 MR. LYLE: So when you were structuring your 26 preferred options, is it fair to say that basically you 27 looked at zero dollars a megawatt hour, you looked at 28 $4.85 a megawatt hour. You decided, at least in the Les Services StenoTran Services Inc. 613-521-0703 949 OHNC PANEL 2, ex (Lyle) 1 short term, that zero was too low because of the 2 concerns of certain load customers. You decided that 3 $4.85 was too high because of the concerns of generators 4 and you struck a balance. Is that -- 5 MR. PORAY: We tried to strike a balance. 6 Yes. 7 MR. LYLE: And if I could refer you to 8 Exhibit E, Tab 1, Schedule 100, which is Board staff 9 Interrogatory 100. 10 MR. LYLE: We have that. 11 MR. KLIPPENSTEIN: You were asked why 12 specifically you had chosen a dollar a megawatt hour. 13 You stated that it was: 14 "-- a balance between the desires of 15 stakeholders for exporters and wheelers 16 to contribute to the embedded costs of 17 the transmission infrastructure, and the 18 desires of the exporters and wheelers not 19 to be encumbered with a large portion of 20 the fixed costs of transmission. 21 You then went on to say: 22 "The proposed charge is such that there 23 is a significant contribution from the 24 users of the transmission system but not 25 large enough to penalize those users." 26 And that you chose a rate that fell within the range 27 used in the neighbouring jurisdictions. 28 Now, if you had chosen a different level Les Services StenoTran Services Inc. 613-521-0703 950 OHNC PANEL 2, ex (Lyle) 1 between zero and 45, if you had chosen say $2 a megawatt 2 hour, wouldn't that have also represented a balance 3 between the various stakeholders? 4 MR. PORAY: I guess it could have. 5 MR. LYLE: In your view, would such a proposed 6 charge have been a significant contribution from the 7 users of the transmission system? 8 MR. PORAY: It certainly would contribute. 9 Yes. 10 MR. LYLE: In your view, would it not be large 11 enough to penalize the exporters and wheelers? 12 MR. PORAY: Well, obviously, the higher you 13 make it, the more influence it has on the transactions 14 that will take place. 15 MR. LYLE: Well, what did you look at to 16 decide at what level exporters and wheelers were being 17 penalized by BWT rates? 18 MR. PORAY: I think our proposal is really 19 based on our review of the neighbouring jurisdictions. 20 We tended to go with the lower end of the scale that's 21 provided in those jurisdictions. 22 MR. LYLE: Would you agree with me that $2 a 23 megawatt hour would also fit within the range in the 24 neighbouring jurisdictions? 25 MR. PORAY: It would be within the range, but 26 perhaps not at the lower end of the scale. 27 MR. LYLE: Okay. Well, let's explore that a 28 little bit further. I want to refer you back to the Les Services StenoTran Services Inc. 613-521-0703 951 OHNC PANEL 2, ex (Lyle) 1 Pollution Probe interrogatory, Exhibit E, Tab 24, 2 Schedule 10. 3 MR. PORAY: Okay. 4 MR. LYLE: That chart that's set out there -- 5 now, you talk there about the discounted charges. Can 6 you tell me, are those firm or non-firm? Are those 7 charges for firm or non-firm service? 8 MR. PORAY: Typically the discounted charges 9 are for non-firm. 10 MR. LYLE: I see. And in the case of PJM, is 11 it for firm or non-firm? 12 MR. PORAY: I believe that that will be for 13 non-firm. 14 MR. LYLE: So when you convert the OHNC dollar 15 megawatt hour into U.S. dollars, you get the 68 cents a 16 megawatt hour. Is that correct? 17 MR. PORAY: That's about right. Yes. 18 MR. LYLE: How frequently does PJM discount to 19 the 67 cents U.S. level? Do you have any information on 20 that? 21 MR. PORAY: No, I don't. 22 MR. LYLE: So that the bottom range of 23 discounted rates for non-firm service in neighbouring 24 jurisdictions is basically 67 cents U.S. What you are 25 proposing is 68 cents per U.S. for service which, as I 26 understand it, is neither firm nor non-firm, but 27 certainly, as I think you answered earlier, has more of 28 the characteristics of firm power. Is that a fair Les Services StenoTran Services Inc. 613-521-0703 952 OHNC PANEL 2, ex (Lyle) 1 characterization? 2 MR. PORAY: That is correct. Yes. 3 MR. LYLE: I just wanted to clarify one point 4 purely for the record. I believe you were asked earlier 5 whether the numbers in the chart were American dollars 6 or Canadian dollars and you indicated that you thought 7 for Hydro-Qu‚bec and for Manitoba that Canadian dollars 8 were used. 9 I just wanted to refer you to Board Staff 10 Interrogatory Exhibit E, Tab 1, Schedule 95, page 2. 11 You will see at footnote 3 that it states that the 12 figures in that chart have been converted into 13 U.S. dollars at the rate of one Canadian dollar to 14 68 U.S. cents. 15 MR. PORAY: That's correct. 16 MR. LYLE: I think the figures that are used 17 there from Manitoba Hydro and Hydro-Qu‚bec are the same 18 as the figures in the Pollution Probe response. 19 MR. PORAY: They are indeed, yes. 20 MR. LYLE: Does OHNC intend to provide any 21 discounts on the 1 megawatt rate? 22 MR. PORAY: That was not our proposal, no. 23 MR. LYLE: Still with Pollution Probe's 24 Interrogatory 10, there is a reference down there on the 25 third paragraph below the chart to Minnesota Power and 26 Light and it indicates that this company is moving to 27 charging on the basis of megawatt mile? 28 MR. PORAY: That is our understanding. Les Services StenoTran Services Inc. 613-521-0703 953 OHNC PANEL 2, ex (Lyle) 1 MR. LYLE: If Ontario and other neighbouring 2 jurisdictions were to move to distance-based rates, 3 would that also address some of the concerns that have 4 been raised about pancaking of rates? 5 --- Pause 6 MR. PORAY: I don't think so. I think there 7 would still -- if each jurisdiction had its own rate, 8 whether it's megawatt mile or postage stamp, and the 9 charge wheeling-through transactions, pancaking would 10 still occur. 11 MR. LYLE: But as I understand, I mean the 12 principle concern with pancaking is I ship power from 13 Windsor to Toledo, that is a very short distance but I 14 have gone through three jurisdictions and I get rate 15 after rate after rate added so I end up paying $15 a 16 megawatt hour, for instance, for transmission. I'm just 17 making that number up. 18 In this case with distance rates you would be 19 looking to the actual distance that was travelled 20 without regard to the jurisdictional boundaries, so 21 wouldn't that serve to address the concern about 22 pancaking? 23 MR. PORAY: No. I think what we are saying is 24 that Minnesota would institute megawatt mile for its 25 jurisdiction. 26 MR. LYLE: No, but what I asked you, though, 27 was: If Ontario and neighbouring jurisdictions moved 28 towards distance-based rates, would that address the Les Services StenoTran Services Inc. 613-521-0703 954 OHNC PANEL 2, ex (Lyle) 1 concern that people have raised about pancaking? 2 --- Pause 3 MR. PORAY: I think I will still go with my 4 first answer. I don't think it would because it would 5 still be -- it would still be applying a transmission 6 charge within each jurisdiction. 7 MR. LYLE: Well, would you at least agree with 8 me, then, that the transmission charge would likely be 9 lower than it otherwise would be? 10 MR. PORAY: It may be. 11 MR. LYLE: Gentlemen, if I could refer you to 12 Exhibit E, Tab 4, Schedule 6, which is Interrogatory 13 No. 6 from Energy Probe. 14 MR. PORAY: Okay. 15 MR. LYLE: The first sentence of your response 16 states that OHNC views the existing interconnections and 17 potential upgrades thereof as part of the network 18 facilities, the cost of which should be recovered 19 through regular rates from all customers who are subject 20 to the network charge. 21 Let's take a hypothetical. In two years from 22 now imports into the province are remaining stable and 23 there is a an increased level of exports out of the 24 province, so much so that an inter-tie needs to be 25 upgraded. In your view, that need for the upgrade to 26 the inter-tie stem purely from increased exports, those 27 costs of that upgrade, should they just go to the 28 customers who are subject to the network charge. Les Services StenoTran Services Inc. 613-521-0703 955 OHNC PANEL 2, ex (Lyle) 1 MR. PORAY: To the extent that you can 2 identify benefits for the specific transmission upgrade 3 and assign them to the beneficiaries, then the 4 beneficiaries should pay. 5 The problem with adding facilities to the 6 network is that most users of the network will benefit 7 as a result of that upgrade. That is the dilemma that 8 has to be dealt with in the new environment in terms of 9 how do you deal with investments in the network. It's 10 relatively straightforward to deal with connection, but 11 not in the network. 12 MR. LYLE: But certain users will benefit 13 more. I mean, certain users who want to export power 14 out of the province and into neighbouring jurisdictions 15 are obviously going to benefit more and that is why, in 16 fact, you are building the upgrades. In my scenario 17 that is what has pushed the need for the upgrade. 18 MR. PORAY: Okay. And, as I said, to the 19 extent that you can identify those beneficiaries and 20 clearly that they are the main users of those 21 facilities, then you can apportion the costs to those. 22 But, as I said, once you put a transmission line as part 23 of the network you tend to obtain benefits for other 24 uses as well in terms of lowering the losses on the 25 system, improving stability, increasing the transfer 26 capability, and that works for both imports and exports 27 and for reliability. 28 MR. LYLE: But are you in agreement with me, Les Services StenoTran Services Inc. 613-521-0703 956 OHNC PANEL 2, ex (Lyle) 1 then, that some of those costs should be transferred on 2 to the exporters and wheelers? 3 MR. PORAY: As I say, if you can identify 4 those, yes. 5 MR. LYLE: That's fair enough. 6 MEMBER VLAHOS: There is no cost 7 classification, Dr. Poray, though, is there? 8 MR. PORAY: I'm sorry? 9 MEMBER VLAHOS: There is no cost 10 classification in the proposal now? 11 MR. PORAY: Not a separate one for 12 interconnections, no. 13 MEMBER VLAHOS: So what we are talking about 14 now is a second best solution is to revisit whatever the 15 rate may be, whether it's $1.00 or $2.00? I'm just not 16 sure how you would implement what are the mechanics if 17 you identify that some of those expenditures for 18 expansion of the network system ought to be -- or a 19 portion of it should be attributed directly to the 20 exporters/importers for example. 21 MR. PORAY: Then I think you are moving away 22 from uniform pricing into more specific pricing for 23 different customers. 24 MEMBER VLAHOS: That is why I had a problem 25 with the answer that you gave to Mr. Lyle. I'm just not 26 sure how you would do it. 27 MR. PORAY: That's the dilemma. I don't think 28 anybody has really solved that problem of how do you Les Services StenoTran Services Inc. 613-521-0703 957 OHNC PANEL 2, ex (Lyle) 1 deal with network investment in terms of apportioning 2 costs to different beneficiaries of the network. 3 MEMBER VLAHOS: Well, one way would be to 4 adjust the export charge, for example. 5 MR. PORAY: But I think if we are talking 6 about making an investment to add a new interconnection, 7 I'm not sure how adjusting that charge would deal with 8 this because the exporters would be one of the users of 9 that facility, but so would the importers and so would 10 the customers in Ontario benefit from that investment 11 and therefore that cost -- 12 The question is: Should it be actually rolled 13 in, all of it rolled into the rates or a portion of it 14 rolled into the rates, a portion recovered through 15 another mechanism? 16 MEMBER VLAHOS: All right. 17 MR. LYLE: Gentlemen, if I could refer you to 18 Exhibit G5.2, which you introduced into evidence earlier 19 today. 20 --- Pause 21 MR. PORAY: Okay. 22 MR. LYLE: If I could take you to Appendix A, 23 the bottom half of the page. The chart here indicates 24 that OHNC will pay the generator and the transmission 25 customers directly the rebate and the credit. Is that 26 correct or does the money flow actually take place from 27 the IMO? 28 MR. PORAY: I think in our proposal we suggest Les Services StenoTran Services Inc. 613-521-0703 958 OHNC PANEL 2, ex (Lyle) 1 that the IMO will in fact refund OHNC or pay to OHNC for 2 the export and wheel-through transactions and OHNC would 3 then credit the generators and credit the transmission 4 customers, yes. 5 MR. LYLE: Okay. Now, there is $50 going into 6 the IMO from the transmission rates option and $120 from 7 the export and wheeling-through tariff. 8 By the way, is it load that pays the $120? 9 MR. PORAY: No, it's the exporter. It's the 10 generator that's exporting. 11 MR. LYLE: Okay. So $170 is flowing into the 12 IMO and it's my turn to ask the stupid question: $120 13 flows out. Where does the other $50 go? What is it 14 used for? 15 MR. PORAY: The $50 would go into this holding 16 account which the IMO would have into which it 17 accumulates revenues from transmission auctions and from 18 congestion payments, and then it uses the revenues in 19 that pool to pay those who hold transmission rights the 20 congestion rent. If there is anything left over at the 21 end, after all the settlement has taken place, in 22 accordance with the market rules there may be a refund 23 to transmission customers. 24 MR. LYLE: Are you asking the Board, in your 25 application, to approve the generator credit or is that 26 something for the market rules? 27 MR. PORAY: I think we are asking the Board to 28 approve our proposal, that we would credit the Les Services StenoTran Services Inc. 613-521-0703 959 OHNC PANEL 2, ex (Lyle) 1 generators and the transmission customers. 2 MR. ROGERS: If I can clarify. To approve in 3 principle the concept. 4 MR. PORAY: That's right, yes. 5 MR. LYLE: Just one moment, please. 6 --- Pause 7 MR. LYLE: Just to clarify, you stated that if 8 there was anything left over from that fund that the IMO 9 would accumulate it would go to the transmission 10 customers. Is it ever possible that the IMO fund could 11 be in deficit and how would that be dealt with? 12 MR. PORAY: I guess it is possible, but I'm 13 not sure how that would be dealt with. 14 MR. LYLE: Fair enough. 15 Thank you. Those are all my questions. 16 Thank you, doctor. 17 THE PRESIDING MEMBER: Thank you, Mr. Lyle. 18 We are going to hold the Board's questions 19 until tomorrow. As far as I know tomorrow, in order to 20 finish up this issue, we have Mr. Campbell to come on, 21 and Mr. Janigan as well, so we will decide which order 22 they should be in. Those are the two that I understand 23 will be asking questions. Then the Board questions will 24 follow after that. Then, once we have dealt with that 25 we will move on to the next issue. 26 So that is just a bit of a heads up. 27 One other thing, we will probably be asking a 28 bit more about tomorrow, and I will give this heads up Les Services StenoTran Services Inc. 613-521-0703 960 1 to the applicant. 2 The Board is trying to grapple with the issue 3 of what approvals and implementation issues may be 4 coming up that affect not just the applicant but also 5 the IMO specifically. We are having some considerable 6 difficulty understanding whether your proposals are 7 fully aired and understood by the IMO and whether if we 8 were to "approve them or substitute an alternative" what 9 is that going to do to such things as the wholesale 10 settlement process, such things as, in the ultimate, the 11 market opening and so on. 12 We are having considerable difficulty as this 13 proceeding develops with understanding some of those 14 critical issues so we will start, I think, to ask some 15 questions about some of these recent areas tomorrow. 16 That is why I'm giving you a heads up so that you can 17 think about that and also think about the processes that 18 have to go on after this proceeding stands down and 19 where those implementation issues need to get worked up. 20 So those are some concerns that the Board is 21 developing, just to give you that little bit of heads 22 up, and we will ask some questions at this point and 23 maybe later in the proceeding as well. 24 In the ultimate, if the applicant can't answer 25 some of these questions, the Board may have to do 26 something else to get answers, and that could include 27 asking for the IMO to provide some evidence or 28 commentary on some of these proposals. I'm just saying Les Services StenoTran Services Inc. 613-521-0703 961 1 that is in the ultimate. It is not something at this 2 point that we are prepared to do, because the IMO is not 3 a party to this proceeding. They are an intervenor and 4 as such they are not a party per se. 5 So those are some -- just to give you where 6 our concerns are starting to develop around some of 7 these proposals. 8 MR. ROGERS: Very good. Thank you. We will 9 certainly think about it and hopefully can answer your 10 questions. 11 THE PRESIDING MEMBER: Right. 12 Excuse me for one moment. 13 --- Pause 14 THE PRESIDING MEMBER: My colleague just says 15 that perhaps one thing you could work on would be a list 16 of approvals that you are seeking from us which go 17 beyond the obvious, you know, approval of the $2.76 for 18 the network charge, going beyond that, which may be 19 linked into the IMO, the settlement process, the 20 functioning of the market, some of those approvals such 21 as we have heard today, some of those that are, in this 22 case, dependant on how the IMO auction is going to work 23 with respect to transmission rights and so on. We need 24 to have you start thinking to put together that kind of 25 list. 26 We will revisit this from time to time as we 27 go from an implementation perspective. That is what my 28 colleague just suggested. I think it is a good Les Services StenoTran Services Inc. 613-521-0703 962 1 suggestion. Okay? 2 MR. ROGERS: Thank you very much. 3 THE PRESIDING MEMBER: All right. 4 So with that, we will see everybody at nine 5 o'clock tomorrow for the resumption. Thank you. 6 --- Whereupon the hearing adjourned at 1653, 7 to resume on Wednesday, February 23, 2000 8 at 0900 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 963 1 INDEX OF PROCEEDING 2 PAGE 3 Upon resuming at 0932 758 4 OHNC PANEL 1 5 PREVIOUSLY SWORN: DAVID CURTIS 758 6 PREVIOUSLY SWORN: ANDY PORAY 758 7 Preliminary Matters 758 8 Questions by the Board 761 9 Re-Examination by Mr. Rogers 797 10 Further Cross-Examination by Mr. Fisher 803 11 Upon recessing at 1045 821 12 Upon resuming at 1110 821 13 Further Cross-Examination by Ms Godby 821 14 Further Cross-Examination by Mr. Hilson 827 15 Further Cross-Examination by Mr. Mark 827 16 Further Cross-Examination by Mr. White 831 17 Examination by Mr. Lyle 833 18 Questions by the Board 842 19 OHNC PANEL 2 20 PREVIOUSLY SWORN: DAVID CURTIS 853 21 PREVIOUSLY SWORN: ANDY PORAY 853 22 SWORN: GARY SCHNEIDER 853 23 Examination-in-Chief by Mr. Rogers 853 24 Cross-Examination by Mr. Brown 866 25 Upon recessing at 1231 875 26 Upon resuming at 1405 875 27 Preliminary Matters 875 28 Continued Cross-Examination by Mr. Brown 878 Les Services StenoTran Services Inc. 613-521-0703 964 1 INDEX OF PROCEEDING (Cont'd) 2 PAGE 3 Cross-Examination by Mr. Poch 892 4 Cross-Examination by Mr. Fisher 919 5 Cross-Examination by Mr. Cowan 925 6 Upon recessing at 1535 931 7 Upon resuming at 1600 931 8 Cross-Examination by Mr. Mark 934 9 Cross-Examination by Mr. Klippenstein 936 10 Examination by Mr. Lyle 948 11 Upon adjourning at 1653 962 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 965 1 EXHIBITS 2 NO. PAGE 3 G5.1 Diagram with headings OHNC, 804 4 Inner Ring, Outer Ring 5 6 G5.2 Document entitled "OHNC Proposal 860 7 for Export/Wheel-Through Service 8 (EWT) with diagrams and appendices" 9 10 G5.3 Extract from the Federal Energy 886 11 Regulatory Commission, Order 2000 12 13 G5.4 Extract from a decision of the 904 14 Consolidated Hearings Board in 15 Docket CH8503 16 17 G5.5 Document entitled: 920 18 "Import Example 1" 19 20 G5.6 Document entitled: 920 21 "Import Example 2" 22 23 G5.7 Document entitled "Appendix 3, 932 24 Wholesale Market Design Technical 25 Panel Report" filed by Imperial Oil 26 27 28 Les Services StenoTran Services Inc. 613-521-0703 966 1 EXHIBITS (Cont'd) 2 NO. PAGE 3 G5.8 Document entitled "Chapter 4, 933 4 Transmission and Distribution" 5 from the Market Design Committee's 6 final report filed by Imperial Oil 7 8 G5.9 Four-page document entitled 933 9 "Information Provided by OPGI", 10 dated January 14, 2000, filed by 11 AMPCO 12 13 G5.10 Document entitled "Exhibit 933 14 Prepared by AMPCO" filed by AMPCO 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Les Services StenoTran Services Inc. 613-521-0703 967 1 UNDERTAKINGS 2 NO. PAGE 3 F5.1 Mr. Rogers undertakes to review 810 4 the transcript of the Technical 5 Conference held in January 1999 6 to confirm whether OHNC promised 7 that the 15 MEU large users like 8 Industrial Consumer A would be 9 transmission customers 10 11 F5.2 Mr. Poray undertakes to check as 835 12 to in what manner the two large 13 users who are embedded in the LDCs 14 differ from the 133 large users 15 embedded in LDCs in terms of why 16 the two are transmission customers 17 and the 133 are not