1398 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 Friday, February 25, 2000, 21 commencing at 1108 22 23 24 25 HEARING 26 27 VOLUME 8 28 Les Services StenoTran Services Inc. 613-521-0703 1399 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 KATHI LITT 9 10 DONALD ROGERS/ Ontario Hydro Networks 11 BRYAN BOYCE Company Inc. (OHNC) 12 13 DAVID BROWN Independent Power Producers 14 Society of Ontario (IPPSO); 15 Ontario Natural Gas 16 Association (ONGA) 17 18 JAMES FISHER/ Association of Major Power 19 KEN SNELSON Consumers in Ontario (AMPCO) 20 21 MICHAEL JANIGAN Vulnerable Energy Consumers 22 Coalition (VECC) 23 24 ROBERT WARREN Consumers Association of 25 Canada (CAC) 26 27 28 Les Services StenoTran Services Inc. 613-521-0703 1400 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 1401 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 BONNIE ANDRIACHUK 19 20 PAUL VOGEL/ The Chiefs of Ontario 21 CAROL GODBY 22 23 ALAN MARK/ Municipal Electrical 24 KELLY FRIEDMAN/ Association (MEA) 25 MAURICE TUCCI 26 27 28 Les Services StenoTran Services Inc. 613-521-0703 1402 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 1403 1 Toronto, Ontario 2 --- Upon resuming on Friday, February 25, 2000 3 at 1108 4 THE PRESIDING MEMBER: Thank you. Please be 5 seated. 6 Good morning, everybody. We have a couple of 7 preliminary announcements from the Board and then I 8 think there are maybe some other matters. I will just 9 start with those preliminary matters before we get the 10 proceeding under way. 11 PRELIMINARY MATTERS 12 THE PRESIDING MEMBER: First of all, as 13 Mr. Rogers -- there he is. He's a bit late. 14 MR. ROGERS: Displaced. 15 THE PRESIDING MEMBER: Displaced. All right. 16 Just with respect to Undertaking F7.2, as you know, 17 where we left it yesterday was that you would proceed 18 with Part A of the matter. 19 We have looked at B and considered it. I 20 think that the information would be useful. If you are 21 able to complete that on a best efforts basis, that 22 would be appreciated. We think that the results of that 23 will be most useful to the Board if you have an 24 opportunity to speak to that result and there may be an 25 opportunity for us to ask questions about the result. 26 So we might bring that back as part of the final wrap-up 27 as well. 28 MR. ROGERS: Very good, sir. Les Services StenoTran Services Inc. 613-521-0703 1404 Preliminary Matters 1 THE PRESIDING MEMBER: If that would be 2 acceptable to you. 3 MR. ROGERS: Yes. I'm instructed that the 4 company thinks it can have that for you, hopefully, by 5 Thursday morning. I will be quite willing to have 6 witnesses answer questions about it. 7 THE PRESIDING MEMBER: All right. Thank you. 8 That was the first matter. 9 The second matter is the argument schedule, et 10 cetera. Okay. The Board considered the proposal on the 11 format of argument that was advanced by Mr. Campbell of 12 OPG on behalf of certain intervenors. The Board finds 13 that the format of argument should remain in accordance 14 with the Board's usual practice and procedure. 15 Therefore, assuming that the oral hearing is 16 completed on Friday, March 3, 2000, the schedule for 17 argument will be as follows. 18 For the applicant in chief by Friday, 19 March 10, 2000. Intervenors argument by Friday, 20 March 24, 2000. The applicant's reply Friday, April 7, 21 2000. If there is anyone that does have difficulty with 22 that schedule, then they should bring it to our 23 attention if it's not doable for anybody. We think 24 that's a reasonable time frame on each side. 25 That is two weeks for the intervenors, but we 26 do recognize March break in the middle there and two 27 weeks for the applicant's reply. That was the basis of 28 the schedule. Les Services StenoTran Services Inc. 613-521-0703 1405 Preliminary Matters 1 Now, just a couple of points on the argument. 2 I know some of you are experienced campaigners here at 3 the Board and others aren't, so this is mostly for those 4 that aren't. 5 The argument should be structured according to 6 the issues list. That doesn't mean you have to argue on 7 every issue, but it should be structured as per the 8 issues list. 9 The Board also requests that all argument set 10 out clearly complete references to the evidence and to 11 the transcript. The Board will not be assisted and the 12 decision may be delayed if this is not done properly. 13 If possible, electronic copies in Word or Word 14 Perfect format would be of assistance. The Board itself 15 prefers Word Perfect, but we can handle both. 16 The original of the document, the argument, 17 should be signed on behalf of the intervenor and also 18 any requests for costs should be included in the 19 argument. We will deal later with the filing of cost 20 claims and so on towards the end of the proceeding, but 21 as far as the argument is concerned, a request for costs 22 in principle, not setting out the details, should be 23 included in the argument. 24 So those are some guidelines which we hope 25 will be helpful. 26 That's our preliminary remarks for this 27 morning. Can we now ask if there is anything from the 28 applicant, any preliminary matters. Les Services StenoTran Services Inc. 613-521-0703 1406 Preliminary Matters 1 MR. ROGERS: No, Dr. Higgin. 2 THE PRESIDING MEMBER: Okay. Thank you. We 3 will turn over to Mr. Vegh. Ms Wong. 4 MR. CAMPBELL: Mr. Chairman, I do have a 5 preliminary matter. 6 THE PRESIDING MEMBER: Okay. 7 MR. CAMPBELL: As you know, Ontario Power 8 Generation will be appearing next week. We are going to 9 be making a change to our witnesses. We propose to call 10 Mr. Ron Osborne first thing Tuesday morning as a 11 separate but additional panel to the panel of Mr. Boland 12 and Dr. Orans. 13 I have talked to Board staff and counsel. The 14 way we propose to go is as follows. If AMPCO finishes 15 on Monday in sufficient time, and I anticipate that will 16 be the case, we will call Dr. Orans' and Mr. Boland's 17 evidence in chief at that time. If cross-examination 18 can commence, that would be fine too, but we would 19 certainly like to get the evidence in chief in. 20 Dr. Orans and Mr. Boland would continue under 21 cross-examination immediately following the completion 22 of Mr. Osborne's testimony on Tuesday morning, if that's 23 acceptable to the Board. It was really a matter of how 24 much time and scheduling for Mr. Osborne that is driving 25 that choice. We have been concerned throughout that 26 with that being a half day and that if at all possible 27 we would like to finish on the Tuesday, hence we would 28 like to get the chief in on Monday to see whether that Les Services StenoTran Services Inc. 613-521-0703 1407 Preliminary Matters 1 can pick along on that basis. 2 We will be filing a CV for Mr. Osborne, if not 3 later today, then certainly first thing Monday morning. 4 THE PRESIDING MEMBER: Are you planning to 5 provide any prefiled evidence for Mr. Osborne or will it 6 just be your oral in chief only? 7 MR. CAMPBELL: I think probably the simplest 8 things is just for me to outline now what he is going to 9 be addressing. He is obviously not going into the 10 details of calculation of charge determinants. He is 11 here in a policy context and to address policy issues. 12 In the context of the restructured industry, 13 Mr. Osborne will address the background and policies 14 associated with OPG's formation, the policy 15 considerations that are behind the matters addressed in 16 the evidence of Mr. Boland and Dr. Orans and why this 17 policy framework is important to OPG, to the province 18 and to the operation of the new electricity market. 19 That's what he will be speaking to. 20 That is, as I say, the revised proposal for 21 OPG's evidence. 22 THE PRESIDING MEMBER: Okay. Thank you very 23 much, Mr. Campbell. Basically, subject to the 24 contingencies, it sounds as if it could be fit in as you 25 suggest, start on Monday afternoon and then finish, 26 hopefully, by one or so on Tuesday. That should fit in 27 I think. Okay. 28 MR. CAMPBELL: Thank you, Mr. Chairman. Les Services StenoTran Services Inc. 613-521-0703 1408 Preliminary Matters 1 THE PRESIDING MEMBER: Thank you. 2 Are there any other preliminaries? No. Then 3 we will ask Ms Wong if she would like to -- Is Mr. Vegh 4 going to lead? 5 MR. VEGH: Thank you, sir, yes. 6 Good morning, panel. My name is George Vegh. 7 I'm here today on behalf of Amoco Canada Petroleum 8 Company. Its witnesses will address Amoco's proposed 9 rate treatment in light of its LRER contract. 10 We filed a document earlier this week which 11 includes the CVs of the witness panel. I provided 12 copies to Mr. Thiessen this morning that perhaps he can 13 hand up to the Board. There are additional copies on 14 the window sill. 15 I would like to start by -- 16 MR. LYLE: We will mark that as Exhibit G8.1. 17 EXHIBIT NO. G8.1: Curriculum vitaes of 18 Jean-Paul Desrochers, Jason Thompson and 19 Paul Cahill 20 MR. VEGH: Thank you. 21 I would like to start by having the panel 22 members introduce themselves to the Board, starting with 23 Mr. Desrochers, who is closest to the Board. 24 MR. DESROCHERS: That's great, thank you. 25 My name is Jean-Paul Desrochers and I am the 26 Regional Director, Canada for BP Amoco Energy Management 27 Services. My group is responsible for providing the 28 energy management services to Amoco Canada Petroleum Les Services StenoTran Services Inc. 613-521-0703 1409 Preliminary Matters 1 Company's facilities across Canada as well as third 2 party companies, which includes contract negotiations on 3 behalf of Amoco Canada as well as contract optimization, 4 as well as providing advice on regulatory matters. 5 MR. VEGH: I will ask the other members to 6 introduce themselves in just a moment, Mr. Desrochers, 7 but could you please -- there is a document that has 8 been filed that is in front of the Board -- 9 THE PRESIDING MEMBER: Mr. Vegh, I'm sorry. I 10 thought we were just doing short introductions. They do 11 have to be sworn to be on the record, okay. So I was 12 hoping that you would do a brief introduction first and 13 then we will have the gentlemen come up and be sworn, if 14 you would. All right? 15 MR. VEGH: Thank you. 16 Mr. Thompson, perhaps you could introduce 17 yourself? 18 MR. THOMPSON: Good morning. My name is Jason 19 Thompson, I am employed by Amoco Canada Petroleum 20 Company as a Business Development and Joint Interest 21 Representative for their Natural Gas Liquids Business 22 Unit. In 1995 and 1996 I was employed by Amoco Canada 23 as a Project Engineer assigned with the responsibility 24 of developing and implementing a cogeneration project at 25 our Sarnia Natural Gas Liquids Fractionation Facility. 26 MR. CAHILL: Good morning. My name is Paul 27 Cahill, I'm employed as the Plant Superintendent at the 28 Sarnia Fractionation Plant for Amoco. I'm responsible Les Services StenoTran Services Inc. 613-521-0703 1410 Preliminary Matters 1 for the operations and maintenance of the facility. 2 Prior to my current position I was involved in a 3 development role in doing some of the initial groundwork 4 for the cogeneration that was proposed in 1995 for 5 Sarnia. 6 THE PRESIDING MEMBER: Thank you. 7 Would you like to come up and Mr. Smith will 8 swear you in. 9 SWORN: JEAN-PAUL DESROCHERS 10 SWORN: JASON THOMPSON 11 SWORN: PAUL CAHILL 12 MR. VEGH: Thank you. 13 I believe the witnesses have been sworn. 14 EXAMINATION-IN-CHIEF 15 MR. VEGH: Mr. Desrochers, if we could return 16 to you for a moment. 17 There were documents filed with the Board as 18 Exhibit H31.1 and H31.2. 19 Document H31.1 is entitled "Amoco Canada 20 Petroleum Company Limited Prefiled Evidence". Was that 21 evidence prepared under your supervision? 22 MR. DESROCHERS: Yes, it was prepared under my 23 supervision. 24 MR. VEGH: Is it accurate, to the best of your 25 knowledge? 26 MR. DESROCHERS: Yes, it is. 27 MR. VEGH: Do you adopt that evidence on 28 behalf of Amoco Canada? Les Services StenoTran Services Inc. 613-521-0703 1411 AMOCO PANEL, in-ch (Vegh) 1 MR. DESROCHERS: Yes, I do. 2 MR. VEGH: For the benefit of the panel and 3 the parties cross-examining, I understand, 4 Mr. Desrochers, that you will largely be answering 5 questions addressed to policy and the particular relief 6 that Amoco is seeking in this case. Those are addressed 7 in paragraphs 1 to 11 and paragraphs 45 to 49 of the 8 prefiled evidence. 9 As well, you will be addressing the settlement 10 agreements at Exhibit I? 11 MR. DESROCHERS: That is correct. 12 MR. VEGH: Mr. Thompson, I understand that you 13 will largely be answering questions relating to the 14 history of negotiations with Ontario Hydro, the third 15 party review process, as well as the agreement with 16 Ontario Hydro? 17 MR. THOMPSON: That's correct. 18 MR. DESROCHERS: Mr. Cahill, you will largely 19 be answering questions relating to operation and 20 maintenance of the Sarnia plant? 21 MR. CAHILL: Yes, that's correct. 22 MR. VEGH: Thank you. 23 Going back to you, Mr. Desrochers, I 24 understand that you would like to provide a brief 25 opening statement to the Board? 26 MR. DESROCHERS: That's correct. Great, 27 thank you. 28 Mr. Chairman, I just wanted to start off by Les Services StenoTran Services Inc. 613-521-0703 1412 AMOCO PANEL, in-ch (Vegh) 1 stating that Amoco only expects or seeks to be treated 2 fairly with respect to the load retention and expansion 3 rate or LRER contract entered into. 4 As inducement to enter into this contract, 5 Amoco was promised to be no worse off for entering into 6 the LRER or, as it's sometimes called, virtual 7 generation contract as opposed to constructing its 8 physical generation. 9 Now I would like to briefly review a few items 10 that came out of the ADR conference that occurred prior 11 to the hearing, specifically the proposed ADR Settlement 12 Agreement as it relates to LRER customers. 13 Through discussions in that process it became 14 very clear to Amoco that one of the major concerns of 15 all the parties involved was that in order to treat 16 Amoco for transmission purposes as an existing embedded 17 generator, that would be generation would be installed 18 prior to October of 1998, a lot of the parties were 19 concerned that Amoco be required to physically install 20 the generation that was deferred in the LRER. 21 Amoco viewed this concession as reasonable, 22 and this is a compromise from our position that we have 23 in our evidence to what is filed as Exhibit I, 24 Attachment B, which is the ADR proposed settlement 25 document. 26 Now I would ask the Board to, if they could, 27 maybe bring up Exhibit I, Attachment B. I would like to 28 briefly summarized what is contained therein. Les Services StenoTran Services Inc. 613-521-0703 1413 AMOCO PANEL, in-ch (Vegh) 1 Does everybody have the document? 2 THE PRESIDING MEMBER: We have it. Thank you. 3 MR. DESROCHERS: In this Exhibit I, 4 Attachment B, the LRER Settlement Proposal, it is 5 proposed that both Amoco and Imperial be treated as if 6 they have installed generation that they did not install 7 as a result of the load retention and expansion rate. 8 This is made up of three components. 9 The first component is to provide Amoco and 10 Imperial with a one-year period without prejudice to 11 determine whether or not to install physical generation. 12 During that one-year period they would pay transmission 13 rates as if they were existing embedded generation. 14 The second component of the proposal is that 15 Amoco and Imperial have a five-year period to install, 16 bring into operation and commission their physical 17 generation projects. 18 The third component is that during that 19 five-year period Amoco and Imperial would pay 20 transmission on the basis of existing embedded 21 generation and if we do not install physical generation 22 in that period it is proposed that Amoco pay to Ontario 23 Hydro Networks the difference from what we would have 24 paid paying transmission charges on the basis of the 25 existing embedded generation and what would have 26 normally been paid by our regular load without embedded 27 generation. 28 This basically keeps Ontario Hydro Networks Les Services StenoTran Services Inc. 613-521-0703 1414 AMOCO PANEL, in-ch (Vegh) 1 Company as well as Ontario Hydro Network's Company 2 customers whole if we do not physically install the 3 generation that was deferred. 4 We realize that this is not everything that we 5 are asking for in our evidence. It is a compromise 6 position that we believe meets the interests of all the 7 parties involved and, again, we are only seeking to be 8 treated fairly and to be made no worse off for the LRER, 9 for entering into the LRER rather than installing the 10 physical generation project which we had committed to 11 build. 12 MR. VEGH: Mr. Desrochers, just perhaps as a 13 matter of clarification, the first component you 14 referred to is a one-year without prejudice period. 15 Could you explain why Amoco is requesting a one year 16 without prejudice period? 17 MR. DESROCHERS: Yes. The one year without 18 prejudice period is important to Amoco because as we 19 enter into this new restructured electricity world 20 Ontario Hydro has now been unbundled and we are dealing 21 only with one component of that bundled package in this 22 hearing and that is the transmission tariff. 23 In order to be truly treated as embedded 24 generation that was installed prior to October of 1998 25 we must address this issue that is represented in front 26 of the Board today in several different forums because 27 of the Ontario Hydro unbundling. These would include 28 the IMO and their fees, the IMO market rules, the Les Services StenoTran Services Inc. 613-521-0703 1415 AMOCO PANEL, in-ch (Vegh) 1 transmission rules, as well as the Ministry of Finance. 2 Until we can know the results of presenting 3 our cases in each one of these forums it is difficult 4 for us to make a decision. That is the reason we 5 require the one year, to put all these individual pieces 6 back together and then make the appropriate decisions to 7 install physical generation as we had done in 1996. 8 In addition, if we look back at our LRER 9 contract, there is an extension provision that could 10 have been entered into in the time frame of June to 11 August of 1999. If the contract was not renewed, this 12 agreement basically gave us one year without prejudice 13 to make a decision to install physical generation. 14 Unfortunately, with all the regulatory 15 uncertainty, specifically with how LRER contracts were 16 going to be treated, whether or not they were going to 17 be treated as existing old embedded generation installed 18 prior to 1998 or as new generation, with this 19 uncertainty we are not able to make the decision to 20 install that physical generation. 21 Basically, we lost the ability to make that 22 decision without prejudice. 23 MR. VEGH: Thank you, sir. Subsequent to 24 filing the evidence, did you have the opportunity to 25 review the evidence of other parties? 26 MR. DESROCHERS: Yes, I have had a chance to 27 review the evidence of other parties, particularly that 28 of Imperial Oil. The issues raised by Imperial Oil are Les Services StenoTran Services Inc. 613-521-0703 1416 AMOCO PANEL, in-ch (Vegh) 1 the same issues that we are raising in our evidence as 2 well. 3 The one thing that Imperial has done that we 4 have not done is we have attempted to quantify or assess 5 the impact of OHNC's application on Imperial Oil. 6 In Imperial Oil's evidence, at Exhibit H, Tab 7 19, Schedule 1, paragraph 46, Imperial Oil indicated 8 that they have quantified the economic harm to them to 9 be about $3.97 million per year. 10 Using similar assumptions as Imperial has 11 done, we have also qualified the impact or economic harm 12 to Amoco of OHNC's proposal. This is estimated to be 13 about $785,000 per year. 14 I think it is important to realize that this 15 is only the economic impact as it relates to OHNC's 16 proposal. As I mentioned, there are many other forums 17 that we must address in order to be treated as truly 18 embedded generation. The harm that we are experiencing 19 in those forums is not reflected in this estimate that I 20 have just stated. 21 MR. VEGH: Have you had the opportunity to 22 review the transcripts of this proceeding? 23 MR. DESROCHERS: Yes, I have. I have been 24 reviewing the transcripts of the proceeding this week, 25 in particular that of the cross-examination of OHNC on 26 the issue of the existing contracts. 27 The one thing I wanted to clarify for the 28 Board, as it relates to Amoco's issue in this Les Services StenoTran Services Inc. 613-521-0703 1417 AMOCO PANEL, in-ch (Vegh) 1 proceeding, is that we are not asking for an extension 2 of the existing LRER contract. I would invite the Board 3 to turn to Amoco's evidence, which is Exhibit H, Tab 31, 4 Schedule 1. It is page 19, paragraph 45. 5 In this paragraph in the second sentence -- 6 and for clarity, I will read it out: 7 "Amoco does not expect this Board to 8 order an extension of the contract, and 9 acknowledges that it will have to either 10 purchase power in an open market or 11 install Physical Generation." 12 Therefore, we clearly do not want an extension 13 of this existing contract. We are only asking that the 14 Board treat Amoco fairly, such that it is made no worse 15 off for it having entered into the LRER in 1996 as 16 opposed to installing the physical generation. 17 MR. VEGH: Thank you, Mr. Desrochers. With 18 leave of the Board, I now present this panel for 19 cross-examination. 20 THE PRESIDING MEMBER: Thank you, Mr. Vegh. 21 Who is going to lead off? 22 Mr. Fisher, do you wish to start? Is there an 23 agreement? 24 MR. FISHER: ATCO has no questions for these 25 witnesses; thank you. 26 THE PRESIDING MEMBER: What about in order? 27 Mr. Rogers, do you have a view of where you would like 28 to be? Les Services StenoTran Services Inc. 613-521-0703 1418 AMOCO PANEL 1 MR. ROGERS: I would like to be at the end, 2 sir; thank you. 3 THE PRESIDING MEMBER: I thought so. 4 Then we will pass on to Mr. Mattson. 5 MR. MATTSON: Thank you, Mr. Chairman. Good 6 morning. 7 While Energy Probe's questions will be part of 8 my cross-examination, Mr. Janigan is fogged in in Ottawa 9 and I am asking the questions on behalf of the 10 Vulnerable Energy Coalition this morning. 11 CROSS-EXAMINATION 12 MR. MATTSON: To begin, then, members of the 13 panel, my name is Mark Mattson. We have six areas of 14 cross-examination. I would like to begin, first of all, 15 with some general questions about your understanding of 16 what you are here asking the Board to remedy this 17 morning. 18 You would agree with me -- and Mr. Desrochers, 19 I will put these questions to you -- that the Ontario 20 Energy Electricity Act itself, Bill 35, certainly made 21 no allowances for pre-existing contracts. Is that fair? 22 MR. DESROCHERS: I would say that the 23 Electricity Act, upon opening in a market, terminated 24 all existing contracts. And that is not what we are 25 seeking here, is an extension of that contract. 26 MR. MATTSON: Right. Secondly, did your 27 client appear before the legislative committee in order 28 to make submissions about existing contracts at that Les Services StenoTran Services Inc. 613-521-0703 1419 AMOCO PANEL, cr-ex (Mattson) 1 time? Did you appear before the legislative committee 2 hearing submissions on Bill 35? 3 MR. DESROCHERS: No, we did not appear in 4 front of the committee hearings on that. But we have 5 had meetings with both the Ministry of Finance and the 6 Ministry of Energy regarding the issue of how LRER 7 contracts would be treated. We have expressed our 8 concerns to them and presented the same case that we are 9 presenting here today. Upon instruction from them, they 10 have indicated that we should address these issues in 11 OHNC's tariff application. 12 MR. MATTSON: All right. Before we go to it 13 what they have to say, you would agree with me, though, 14 that from the Act itself it appeared that the contract 15 that you entered into with Ontario Hydro, at least 16 looking at the Act itself, appears to be null and void 17 at this time. Is that fair? 18 MR. DESROCHERS: I guess it will become null 19 and void once the market opens up later this year. We 20 understand that and we have no problem with that. 21 MR. MATTSON: You had a contract with Ontario 22 Hydro. Is it clear that the responsibility for that 23 contract is now with OPGI? 24 MR. DESROCHERS: In the unbundling or break-up 25 of Ontario Hydro it is our understanding that that 26 contract has been put to Ontario Power Generation. 27 MR. MATTSON: You have had discussions with 28 OPGI? Les Services StenoTran Services Inc. 613-521-0703 1420 AMOCO PANEL, cr-ex (Mattson) 1 MR. DESROCHERS: Yes, we have had discussions 2 with OPGI. As I mentioned, we did have a renewal clause 3 in our contract, and they gave us indications that they 4 were not able to renew the contract because of the 5 unbundling of Ontario Hydro. 6 MR. MATTSON: OPGI, at any rate, has indicated 7 that they are not prepared to extend the contract. Is 8 that fair? 9 MR. DESROCHERS: I guess they were prepared to 10 enter into an agreement on generation services, but that 11 is only one piece of the former bundled contract that we 12 entered into. 13 MR. MATTSON: As a bundled service that you 14 contracted in with Ontario Hydro -- and I think you 15 mentioned that in-chief this morning -- that contract 16 dealt with many different components of the service you 17 were receiving: transmission, generation, distribution. 18 That was all included in the old contract with Hydro; 19 correct? 20 MR. DESROCHERS: Yes. The old contract was 21 for a bundled delivered service. 22 MR. MATTSON: Now that these services are 23 about to be unbundled, this proceeding is dealing just 24 with the rates as they relate to transmission. Is that 25 fair? 26 MR. DESROCHERS: That is correct. 27 MR. MATTSON: Again this morning in your 28 evidence you indicated that regardless of what the Board Les Services StenoTran Services Inc. 613-521-0703 1421 AMOCO PANEL, cr-ex (Mattson) 1 decides in this proceeding, your company needs further 2 discussions with the Ministry of Finance, the IMO. You 3 need to discuss the other parts of the old rate with 4 those bodies in order to try and get a rate that 5 reflects the old contract that you had. Is that fair? 6 MR. DESROCHERS: I guess we are not trying to 7 get a rate that reflects the old contract. What we are 8 asking for is to be fairly transitioned. We realize the 9 contract ends, but all we are asking for is to be 10 treated as existing embedded generation -- generation 11 that was installed prior to October of 1998. 12 MR. MATTSON: If I can help you -- if I can 13 turn the question around then, who do you need approval 14 from in order to accomplish that goal other than the 15 Ontario Energy Board? 16 MR. DESROCHERS: To be treated as truly 17 embedded generation, we would require approval from the 18 Ontario Energy Board that relates to the Ontario Hydro 19 Networks' tariff, the Ministry of Finance, as well as 20 the board again for the IeMO issues as well. 21 MR. MATTSON: The Ministry of Finance, what 22 are we talking about here? Are we talking about taxes? 23 MR. DESROCHERS: We are talking about the CTC 24 or the competitive transition charge. 25 I think the one thing to make clear is that we 26 are not asking for anything special. All we want to be 27 is treated as existing -- as how existing embedded 28 generators will be treated with respect to the CTC and I Les Services StenoTran Services Inc. 613-521-0703 1422 AMOCO PANEL, cr-ex (Mattson) 1 understand that is still unresolved. So we are not 2 asking for anything that they would not receive. 3 MR. MATTSON: Can you indicate to us and to 4 the Board what the value of that competitive transition 5 charge would be to your company, the exemption from it? 6 MR. DESROCHERS: The exemption from the 7 competitive transition charge -- although I don't have 8 my notes here -- it would depend on what the 9 competitive transition charge is. We don't know what 10 that is from the Ministry of Finance yet. I guess it 11 would depend on what that is. 12 MR. MATTSON: You will be, I guess, involved 13 in those meetings and finding that out within the next 14 year? Is that what your evidence is, that is why you 15 need this year period? 16 MR. DESROCHERS: That is correct. We are 17 having ongoing meetings and discussions with the 18 Ministry of Finance. My understanding is that they have 19 still not made a decision on the CTC or yet how it is 20 going to apply to existing embedded generators. 21 Again, we are only asking how they treat 22 existing embedded generators, that is how we would like 23 to be treated as well. 24 MR. MATTSON: Have you given any thought to 25 what the value of your request to the IMO is worth, what 26 that exemption is worth if the IMO agrees with your 27 proposal? 28 MR. DESROCHERS: We have given some thought to Les Services StenoTran Services Inc. 613-521-0703 1423 AMOCO PANEL, cr-ex (Mattson) 1 it. But here again, a lot of the IeMO charges as it 2 relates to uplift and losses have not -- those are 3 charges that haven't been determined. The one charge 4 that, as I mentioned this morning in my opening 5 statements, that we know and we have been able to 6 quantify is the impact of the Ontario Hydro Networks' 7 proposal or application on Amoco. 8 MR. MATTSON: That is the $785,000 a year? 9 MR. DESROCHERS: That is correct. 10 MR. MATTSON: When you go to the IMO you are 11 going to be asking them that they treat your generation 12 on a net basis? Would it be the same approach as you 13 are asking this Board? 14 MR. DESROCHERS: We would be approaching the 15 IMO to treat our generation as existing embedded 16 generation that was installed prior to October of 1998. 17 MR. MATTSON: Would you agree with me then, 18 Mr. Desrochers, that in a way this is your first stop to 19 a number of other decision makers along the way in 20 trying to deal with this contract that you had with 21 Ontario Hydro in the mid nineties? Is that fair, the 22 Ontario Energy Board is your first real opportunity to 23 make your argument and have it heard? 24 MR. DESROCHERS: I wouldn't say this was our 25 first stop in the process. As I mentioned, we have had 26 meetings with the Ministry of Finance and Ministry of 27 Energy and -- 28 MR. MATTSON: And OPGI, sorry. Les Services StenoTran Services Inc. 613-521-0703 1424 AMOCO PANEL, cr-ex (Mattson) 1 MR. DESROCHERS: -- and OPGI. As well, it is 2 my understanding that this issue has also been raised in 3 the IeMO hearing which is running concurrently. Upon 4 reviewing those transcripts it is my understanding that 5 board there has indicated that they will wait to see 6 what comes out of this particular hearing before they 7 make a decision. 8 In our view, Ontario Hydro Networks for this 9 particular proceeding is just another one of our places 10 that we are making concurrent stops, as you would put 11 it, to address our issue. 12 MR. MATTSON: Would you agree with me that 13 Amoco -- fortunately or unfortunately, you are the first 14 witness with respect to this issue before the Board, but 15 certainly, you will pave the way for other parties who 16 will come after you with respect to this request, not 17 only at the Ontario Energy Board, but potentially at the 18 IMO and at the Ministry of Finance with respect to these 19 special treatment requests. Is that fair? 20 MR. DESROCHERS: I would not say we were 21 necessarily paving the way. 22 The only thing I can speak to is that the 23 evidence of the other parties that have filed evidence 24 in this proceeding, and there is very few of them, and 25 as we had indicated in our response to interrogatories 26 is that we only believe that having existing LRER 27 customers treated as existing embedded generation, that 28 should only apply to customers that had a bona fide Les Services StenoTran Services Inc. 613-521-0703 1425 AMOCO PANEL, cr-ex (Mattson) 1 project that was going to be built prior to 1998. 2 MR. MATTSON: Other than yourself and Imperial 3 Oil do you know who they are, those other bona fide 4 contract holders? 5 MR. DESROCHERS: Based on the evidence that 6 has been filed in this proceeding there is ourselves, 7 Imperial and Kimberley Clark. Those are the only three 8 that I am aware of. 9 MR. MATTSON: Could there be others? 10 MR. DESROCHERS: Based on my knowledge and 11 based on the exhibit that was -- or the undertaking that 12 was filed with the Board yesterday -- there is a total 13 of about five of these LRER-type contracts. 14 MEMBER SMITH: Excuse me, I am sorry. 15 It was Kimberley Clark, Imperial, and who was 16 the third? 17 MR. DESROCHERS: And Amoco. 18 MEMBER SMITH: Okay. I just heard you -- I 19 thought there was another name. 20 MR. DESROCHERS: I am sorry, I started off 21 with ourselves. And just a reference, that was it was 22 Undertaking F6.2. 23 --- Pause 24 MR. MATTSON: If you could, Mr. Desrochers, 25 what is the actual -- it is difficult to -- I found it 26 difficult to find it articulated in your evidence -- 27 what is the actual nature of your complaint here before 28 the Board this morning? What is it that you are Les Services StenoTran Services Inc. 613-521-0703 1426 AMOCO PANEL, cr-ex (Mattson) 1 complaining about? When I say "complaining" I mean was 2 there any sort of misrepresentation, was there a 3 contractual deficiency? What happened that put you in 4 the position that you are in now? 5 MR. DESROCHERS: As I indicated, upon entering 6 into the load retention and expansion rate contract, 7 Amoco was promised to be made no worse off for having 8 introduced that contract as opposed to building their 9 physical generation alternative. 10 Therefore, since we did have a committed 11 project prior to October of 1998 we are asking, again, 12 not for special treatment for Amoco, but we are only 13 asking to be treated as existing embedded generation. 14 MR. MATTSON: But you are saying then that 15 really what the Board -- you had the contract and, I 16 believe, the contract itself indicates that everything 17 in that agreement that you filed that was the entire 18 agreement? There was nothing outside that agreement 19 that you are relying on here today? Is that fair, it is 20 that agreement that we are talking about? There is no 21 other agreement that we haven't seen. Correct? 22 MR. VEGH: Mr. Mattson, can you just identify 23 what in the contract you are referring to? 24 MR. MATTSON: It is agreement for power among 25 Amoco Canada Resources Limited. It is at Tab 23 in 26 evidence. 27 This is the agreement that the Board is 28 looking at. There is no agreement outside this Les Services StenoTran Services Inc. 613-521-0703 1427 AMOCO PANEL, cr-ex (Mattson) 1 agreement, is that fair, with Hydro? 2 MR. DESROCHERS: This is the only agreement 3 with Hydro as it relates to our load retention and 4 expansion rate contract. 5 MR. MATTSON: This agreement says that your 6 company should be no worse off had you built. Is that 7 fair? 8 MR. DESROCHERS: When we entered into the load 9 retention and expansion rate agreement, Ontario Hydro, 10 or the former Ontario Hydro, indicated to us that we 11 would be no worse off entering into this agreement as 12 opposed to foregoing the physical generation option, and 13 that we would have the right, without prejudice, to 14 build our physical generation option at any point in 15 during that five-year period. 16 From our perspective, we would not forego the 17 long-term benefits of a physical generation project with 18 a life of 30 years for a short-term agreement unless we 19 were able to build that, without prejudice, within the 20 five-year period, otherwise we would have simply built 21 our cogeneration project as we had committed to do. 22 It was Ontario Hydro's inducement that we did 23 enter into this contract, which did not advantage Amoco. 24 We remained neutral as if we had built our cogeneration 25 project, but it also benefited Ontario Hydro and Ontario 26 Hydro's customers by retaining that load on the system. 27 MR. MATTSON: On page 13 of that contract, 28 clause 11.2, I'm not a contract lawyer by any means, but Les Services StenoTran Services Inc. 613-521-0703 1428 AMOCO PANEL, cr-ex (Mattson) 1 that term says: 2 "If, during the term of this Agreement, 3 or any renewal thereof, the providing of 4 power to the Customer at the price set 5 out in this agreement becomes contrary to 6 the provisions of any statute or 7 regulation, the Customer may, at Ontario 8 Hydro's discretion, be denied all or part 9 of the benefit of Ontario Hydro's Load 10 Retention and Expansion Rate, and the 11 Commission and Ontario Hydro shall not be 12 liable if the said denial takes place; 13 but if the said denial takes place, the 14 customer shall thereupon have the option 15 of terminating this Agreement." 16 Is that a fair reading of this contract? 17 MR. DESROCHERS: That is a fair reading of 18 clause 11.2. I would agree. 19 MR. MATTSON: So you knew when you signed this 20 contract that there was some risk involved with respect 21 to this load retention rate, that things may change in 22 the marketplace? 23 MR. DESROCHERS: We expected, upon signing the 24 contract, that we would have the right when the contract 25 expired, or if it was not renewed or if it was 26 terminated, to build our existing physical generation. 27 MR. MATTSON: Right. And you do have that 28 right now? Les Services StenoTran Services Inc. 613-521-0703 1429 AMOCO PANEL, cr-ex (Mattson) 1 MR. DESROCHERS: We have that right now, but 2 we are disadvantaged for not having built the generation 3 prior to October of 1998. 4 MR. MATTSON: Mr. Desrochers, let's -- 5 MR. VEGH: Mr. Mattson, allow Mr. Desrochers 6 to finish answering the question, please. 7 MR. MATTSON: I'm sorry. I didn't realize -- 8 MR. DESROCHERS: No, no. 9 MR. MATTSON: Sorry. 10 MR. DESROCHERS: Had we known that we would be 11 foregoing the long-term value of building the physical 12 generation project, it would have been very easy for us 13 to -- we would have concluded the best option for Amoco 14 was to build the generation project in 1996. So 15 throughout the term of this agreement it was our 16 understanding that we could build without prejudice. 17 MR. MATTSON: All right. 18 But one thing we haven't focused on here and I 19 was trying -- I thought we were getting to, was that 20 there had been benefits that your company has received 21 during the course of this agreement. You have received 22 benefits, many benefits. Wouldn't you agree? 23 MR. THOMPSON: If I could answer that, JP. 24 Amoco is held financially harmless by the load 25 retention and expansion rate and was indifferent to 26 building the project in 1996 or five years later. The 27 benefit that Amoco saw from that load retention and 28 expansion rate was that we weren't financially harmed. Les Services StenoTran Services Inc. 613-521-0703 1430 AMOCO PANEL, cr-ex (Mattson) 1 We freed up capital to spend on other projects 2 internally, and it achieved our objectives of reducing 3 power costs for the Sarnia plant. But, in addition to 4 that, we recognized that there were benefits to Ontario 5 Hydro and its customers by retaining Amoco's load. So 6 there were benefits for Amoco. 7 MR. MATTSON: Just setting aside other 8 benefits which we can -- I don't want to get into an 9 argument at this point. 10 You would agree that your benefits were that 11 you had lower generation prices, correct, during the 12 term of this contract and otherwise? 13 MR. THOMPSON: Lower power prices, yes. 14 MR. MATTSON: You did not incur the capital 15 cost of the construction. 16 MR. THOMPSON: That's correct. The capital 17 cost of the construction was included in the load 18 retention and expansion rate calculations. 19 MR. MATTSON: Okay. You did not have to 20 manage the physical operations of your plant. Correct? 21 MR. THOMPSON: That's correct. 22 MR. MATTSON: You did not have to manage staff 23 to operate that plant. 24 MR. THOMPSON: Those costs were all included 25 in the load retention and expansion rate contract. 26 MR. MATTSON: And you certainly didn't have 27 the risk of trying to manage the input costs of the 28 price of natural gas, for example. You didn't have to Les Services StenoTran Services Inc. 613-521-0703 1431 AMOCO PANEL, cr-ex (Mattson) 1 worry about that. Is that fair? 2 MR. THOMPSON: Yes. That can be viewed in a 3 couple of ways. Like the risks at that time, in 1996, 4 were well defined. In some ways, the offset to the 5 benefits that we received by entering a load retention 6 contract were increased risks, exposure to those items 7 in the future, capital cost risk and gas price, et 8 cetera. 9 What we didn't believe that we should be 10 exposed to was the risk that we would be prejudiced 11 against building the project in the future. 12 MR. MATTSON: But now that you can go ahead 13 with building the project, have you not gained an 14 advantage also by having had that five-year opportunity, 15 and you are asking the Board for another one-year 16 opportunity in order to assess the marketplace, assess 17 these costs and these risks again today? Now, with that 18 five-year knowledge and another one-year window, you 19 will be able to assess your position again and decide -- 20 with all those benefits over the last five years, now 21 you can decide where to go from here, whether you want 22 to build an oversized plant, a smaller plant. That is 23 all available to you now. Is that not fair? 24 MR. DESROCHERS: I would say that there is not 25 necessarily a benefit in being able to make that 26 decision today. 27 If we look back at 1996, we had a certainty 28 around a lot of other things in terms of execution of Les Services StenoTran Services Inc. 613-521-0703 1432 AMOCO PANEL, cr-ex (Mattson) 1 the project, the cost of the project. We have exposed 2 ourselves to considerable risks going forward -- risks 3 such as capital infusion -- that Amoco is willing to 4 take, and there are pros and cons as we move forward. 5 So I would not necessarily say that we have an 6 advantage today because of the load retention and 7 expansion rate contract. If anything, I would say that 8 we are being prejudiced because if we had built the 9 project prior to 1998 we would be treated as existing 10 embedded generation and now that we are here today, what 11 we are asking for is only to be treated as if we had 12 built the existing generation, which was what we had 13 committed to do and, upon entering into the load 14 retention and expansion rate, was our understanding we 15 would be able to do. 16 MR. CAHILL: Excuse me. Could I confer for 17 just a minute, please? 18 MR. MATTSON: Yes. 19 --- Pause 20 MR. DESROCHERS: Actually, what we would like 21 to just clarify, I think as to a previous question that 22 was asked, is that in the virtual cogeneration contract 23 Amoco was exposed to a gas price risk and delivery risk, 24 because the virtual cogeneration contract simulated all 25 aspects of the cogeneration project, and at the end of 26 the day Amoco only received exactly what it would have 27 received had it built the project and it also assumed 28 the risks vis-…-vis the gas and the other variables that Les Services StenoTran Services Inc. 613-521-0703 1433 AMOCO PANEL, cr-ex (Mattson) 1 would go into the virtual cogeneration project. 2 So we did not get a net benefit. We were kept 3 whole. By doing so, we were allowed to -- by doing so, 4 Ontario Hydro was allowed to retain our load on the 5 system which benefited Ontario Hydro and Ontario Hydro 6 customers. 7 MR. MATTSON: I guess what the consultants are 8 saying, Mr. Desrochers, is it's difficult for us to 9 assess in a public forum here what those benefits might 10 be. In fact, many of those gas forecasts, et cetera, 11 had been blacked out. They are not for us to review. 12 You are giving evidence that you have looked at them, 13 but you are not making those forecasts public here. 14 Correct? 15 MR. DESROCHERS: My understanding, if you look 16 at the agreement, those are not the forecasts that go in 17 there. They are actual tolls and tariffs in the given 18 year that go in there. So the contract adjusts over 19 time to what the costs are. In other words, our load 20 retention and expansion rate also adjusts over time as 21 well. 22 For example, if gas prices were to triple or 23 quadruple in price, that would have a very big impact on 24 our load retention and expansion rate. 25 MR. MATTSON: Looking to your contract itself, 26 which we are doing, Schedule B, we are looking at "the 27 monthly reduction shall be calculated as follows". 28 That's paragraph 3(2). There are no numbers provided, Les Services StenoTran Services Inc. 613-521-0703 1434 AMOCO PANEL, cr-ex (Mattson) 1 but you start with a base number throughout. There are 2 no numbers there. You haven't provided us with any of 3 the numbers. You have just provided us with the 4 formula. 5 MR. DESROCHERS: That's correct. The numbers 6 that are blacked out -- those numbers were blacked out 7 at the request of Ontario Power Generation and due to 8 the confidentiality agreement that Amoco has with 9 Ontario Power Generation as it relates to this contract. 10 What we have filed here is the contract to 11 illustrate that we were exposed to -- this was a virtual 12 cogeneration project. 13 MR. MATTSON: Following through, is there 14 anything in your contract or what is it that -- I guess 15 the problem I'm having and the parties are having is 16 what is it in the contract that you -- what is it in the 17 contract that OPG won't give these numbers? Isn't your 18 contract with OPG -- like, what is it that you are 19 asking the Ontario Energy Board to take from this 20 contract that they can say "Oh, well, here's the nature 21 of the complaint. Here's why the transmission customers 22 should" -- to take from this contract and say "Here's 23 where the complaint was, here's where the problem was" 24 and within the setting of rates now and in the future, 25 why should be the Board be -- isn't this with OPGI? 26 Shouldn't you and OPGI be working this out? 27 You guys have all the information. It was their 28 contract. It's their problem. Les Services StenoTran Services Inc. 613-521-0703 1435 AMOCO PANEL, cr-ex (Mattson) 1 MR. DESROCHERS: As I indicated previously, we 2 are not asking for an extension of this contract. What 3 we are asking for is for regulatory treatment as a 4 virtual generation, in other words, as if we had built 5 our generator prior to October of 1998 and be treated 6 that way for transmission purposes. 7 MR. MATTSON: It was OPGI that made the 8 representations that you would be no worse off. They 9 are still a market player and they are dealing in a 10 generation aspect of the new market. Why don't you go 11 back to OPGI and get a generation rate that might 12 somehow save you harmless as opposed to coming here?> 13 MR. DESROCHERS: Our contract is not -- our 14 original contract was not with OPGI. It was with 15 Ontario Hydro and Ontario Hydro represented the bundled 16 component for delivered supply to the plant. 17 MR. MATTSON: Right. 18 MR. DESROCHERS: On the generation component 19 which is being deregulated as we open up the market, 20 Amoco has no problem in taking market risk as it relates 21 to generation. We are dealing with the two other 22 issues, the regulated transmission and distribution, if 23 applicable. Those services are going to continue to be 24 regulated. 25 If we had built our project in 1996, we would 26 have been treated as an existing embedded generator. 27 That's how we want to be treated for regulatory 28 purposes, as an existing embedded generator on Ontario Les Services StenoTran Services Inc. 613-521-0703 1436 AMOCO PANEL, cr-ex (Mattson) 1 Hydro networks and distribution system. 2 MR. MATTSON: I understand that. I understand 3 your request. I guess what I am trying to figure out is 4 why you don't have a case or some sort of claim, why are 5 you not dealing with this directly with OPGI. Under 6 what authority or do you see the Ontario Energy Board 7 now dealing with just transmission rates. 8 This really was a generation, even though it 9 was a bundled rate. You put in your evidence today that 10 the problem was that there was -- Ontario Hydro had a 11 surplus capacity of generation. You were going to leave 12 the grid, so they provided you with a discounted rate so 13 that you didn't build your plant. Now OPGI has said to 14 you "Look, we are not going to honour the terms of that 15 contract". 16 MR. VEGH: I'm sorry. I'm sure there is a 17 question in there somehow, but I don't know what it is. 18 MR. MATTSON: What does it have to do with? 19 The Ontario Energy Board is setting rates for 20 transmission now. The Act was pretty clear that all 21 these contracts are null and void. You don't want a 22 renewal of that contract. That's fair. Correct? You 23 said that many a time. 24 MR. DESROCHERS: That is correct. We don't 25 expect a renewal of the existing LRER contract. 26 MR. MATTSON: We should just really set aside 27 all the evidence with respect to this contract. Really 28 it should be set completely aside. It really doesn't Les Services StenoTran Services Inc. 613-521-0703 1437 AMOCO PANEL, cr-ex (Mattson) 1 help us with respect to what we are asking the Board for 2 here today, does it? Because that valve you have with 3 OPGI or Ontario Hydro or the old Act, I mean this is 4 all -- that's really all irrelevant to what you are 5 asking the Board for today. 6 MR. DESROCHERS: No. I wouldn't say it's 7 irrelevant. I think this is the contract that we 8 entered into with Ontario Hydro which had the components 9 of generation, transmission and distribution. What we 10 are here addressing is the transmission component of 11 this contract and the generation component, that's not 12 an issue here. I realize that. 13 MR. MATTSON: Let me just in this one area and 14 then close off with this question, Mr. Desrochers. 15 Would you agree that by building a cogeneration with the 16 knowledge of what open access will bring you by way of 17 competition today, you are at an advantage to others who 18 may have built five, six years ago, if they built. 19 MR. DESROCHERS: I don't understand the 20 question. What do you mean we are at an advantage? 21 MR. MATTSON: Today you have knowledge of the 22 market, knowledge of the rules. You have knowledge of 23 how the rates are going to be set, or at least better 24 knowledge than you would have five, six years ago, and 25 certainly you can have more knowledge a year from now. 26 You specifically want another year to really look this 27 market over, but the last five years have been helpful 28 in making a decision. Next year will be helpful as Les Services StenoTran Services Inc. 613-521-0703 1438 AMOCO PANEL, cr-ex (Mattson) 1 well, and that's a benefit that you are getting. 2 MR. DESROCHERS: No. I wouldn't say -- that's 3 not necessarily a benefit. Over the past five years 4 there has been regulatory uncertainty as to how our 5 contract would be treated. Therefore, I don't see a 6 benefit. All I can see is increased risks as opposed to 7 having built the project in 1996 where we had our 8 capital costs well defined. We had internal approval 9 and we were ready to proceed with the project. 10 Today the regulatory uncertainty is how we 11 will be treated, whether we treat it as new generation 12 or existing embedded generation. It does not allow us 13 to make that decision without prejudice, as was 14 contemplated in this agreement. 15 MR. MATTSON: Now, why then don't you just 16 go -- I mean it seems from the evidence that you have 17 known for some time that those contracts were going to 18 be declared null and avoid. You have been in 19 discussions with OPGI. Why didn't you just go out and 20 build this thing a year ago? Why isn't it built today 21 and why are you asking for another year? 22 MR. DESROCHERS: When we entered into the load 23 retention and expansion rate contract, we did start 24 looking at building a new plant at the Sarnia site in 25 early 1998. This was right in the middle of the Market 26 Design Committee. At that time the Market Design 27 Committee was making recommendations as to how existing 28 embedded generation would be treated and how old Les Services StenoTran Services Inc. 613-521-0703 1439 AMOCO PANEL, cr-ex (Mattson) 1 embedded generation would be treated. 2 This regulatory uncertainty as to how it would 3 apply to us with our load retention and expansion rate 4 contract did not allow us to make a decision to build 5 because we were not sure how we are going to be treated. 6 We did have a project that was definitely 7 committed and ready to build prior to 1998, but there 8 was no clarity on whether or not we would be treated as 9 existing embedded generation. That is what we have 10 talked to the Ministry of Energy and the Ministry of 11 Finance about, and other parties, as to trying to 12 determine where -- determine how our load retention and 13 expansion rate contract will be treated. 14 We believe it should be treated as an existing 15 embedded generation. 16 MR. MATTSON: It seems to me, Mr. Desrochers, 17 what you are saying, then, is that if you aren't going 18 to be treated as embedded generation then you might not 19 build this plant. That is the crux of what you're 20 saying here. That's why you didn't go ahead and build a 21 year ago, because you weren't sure if you were going to 22 be embedded or not and you need more time and that this 23 somehow is an important factor in your decision whether 24 to build or not. 25 MR. DESROCHERS: What we want to do is be 26 treated as if we had built existing embedded generation 27 because we did have a project that was committed and 28 ready to be built prior to October 1998. Les Services StenoTran Services Inc. 613-521-0703 1440 AMOCO PANEL, cr-ex (Mattson) 1 MR. MATTSON: But I'm going back to when OPGI 2 and others -- and it was pretty clear over a year ago 3 that you weren't going to -- these contracts, the LRER 4 contract wasn't going to go forward and why you didn't 5 build then. You indicated because you weren't sure 6 whether it would be embedded or not. 7 So on that point, the question of whether or 8 you are treated as embedded generation or not is a key 9 decision whether to go ahead and build? 10 MR. DESROCHERS: I would say being treated as 11 existing embedded generation is one of the factors that 12 goes into making that decision, but it is not the only 13 factor that would go in to making that decision to 14 build. 15 MR. CAHILL: Even if we are treated as 16 embedded generation, we have no guarantee that we would 17 be better off financially by building a plant. But with 18 the uncertainty that we have around the regulatory arena 19 right now, without having any definition of our 20 transmissions costs in addition to the other costs that 21 we have mentioned we can't assess the benefits of one 22 case versus another. 23 What we are asking for is that the contract 24 provided us with an 18-month window, from June to August 25 of 1999, to the end of the contract to decide if we 26 wanted to build. 27 We are asking for that now because we don't 28 have the certainty that we thought we had when we signed Les Services StenoTran Services Inc. 613-521-0703 1441 AMOCO PANEL, cr-ex (Mattson) 1 the agreement. We thought that we had provision that we 2 would be saved from prejudice, I guess is the term, by 3 signing the agreement with respect to regulatory 4 matters. That is not the case today. 5 MR. MATTSON: Okay. So then turning to the 6 last area here, you are -- just to be clear, then, what 7 you are asking the Board finally is that on 8 February 23rd the counsel for Imperial in the transcript 9 indicated that the proposal would give Imperial and 10 Amoco a period of six years to build their actual 11 cogeneration facility. 12 If they do not build within that six year 13 window they would be entitled to net load billing after 14 the cogen facility becomes operational and in the 15 interim, while the facility is under construction, they 16 would be entitled to pay for transmission based on the 17 usage they would have paid if they had actually built 18 in 1996. 19 That's still what you are asking for now. Is 20 that fair? 21 MR. CAHILL: I'm sorry, can you -- I'm not 22 sure what you are asking. You said that Imperial -- 23 MR. MATTSON: This was on the record. 24 MR. CAHILL: Yes, but I'm not sure what -- I'm 25 not sure what Imperial's point was. 26 MR. MATTSON: Imperial and Amoco, this is in 27 the ADR Agreement -- 28 MR. CAHILL: Okay. Les Services StenoTran Services Inc. 613-521-0703 1442 AMOCO PANEL, cr-ex (Mattson) 1 MR. MATTSON: -- what your request was. Is 2 that -- 3 MR. DESROCHERS: If it's Exhibit I of -- I'm 4 sorry, Attachment B of Exhibit I, that is what we are 5 asking for today. 6 MR. MATTSON: Just given that, I also 7 understand that you are not -- you are here today but 8 you are also willing to contemplate some variations on 9 that proposal if there are reasonable variations put 10 forward. Is that fair? 11 MR. DESROCHERS: Well, that was the whole 12 process behind the ADR. We came into the ADR and we 13 compromised our position from where we were in our 14 evidence in discussing and negotiating with the various 15 parties, taking into account their points, and what was 16 achieved is what we filed as part of the ADR Settlement 17 Proposal. So that was a result of compromise on all 18 sides to try to reach what was deemed fair for 19 everybody. 20 MR. MATTSON: Would you contemplate a 21 different term extension and a different arrangement 22 with respect to paying gross load billing in the 23 interim, subject to a rebate at the end of the term if 24 you do in fact build your facility? Is that something 25 that you would be open to consideration of? 26 MR. DESROCHERS: Just so I'm clear, the 27 mechanics of how the rebate or clawback works with 28 respect to the five years, I'm sure we can agree on Les Services StenoTran Services Inc. 613-521-0703 1443 AMOCO PANEL, cr-ex (Mattson) 1 something that is fair there. But I think we do require 2 the one year as well as the five years. 3 The whole idea behind the five-year period is 4 that Ontario Hydro Networks and Ontario Hydro Network 5 customers will be kept whole. If we don't build, we 6 will pay back the difference between what we would have 7 paid or -- what we would have paid as an embedded 8 generator versus being treated as a load customer. 9 --- Pause 10 MR. MATTSON: Would the clawback also apply to 11 the 18 months, Mr. Desrochers? 12 MR. DESROCHERS: Which 18 months? 13 MR. MATTSON: The year I mean, the one year. 14 MR. DESROCHERS: The one year would be a one 15 year without prejudice. 16 MR. MATTSON: No prejudice. 17 Do you know how much that benefit would be 18 worth to your company? Do you have that? 19 MR. DESROCHERS: I don't have that number 20 with me. 21 MR. MATTSON: Would you undertake to give to 22 us what the benefit would be of that net load billing 23 rate for the one year? 24 MR. VEGH: I'm sorry, could you clarify the 25 "benefit"? Do you mean what would be the reduction 26 in -- or what would be the avoided transmission rates -- 27 MR. MATTSON: Yes. 28 MR. VEGH: -- or the one year? Les Services StenoTran Services Inc. 613-521-0703 1444 AMOCO PANEL, cr-ex (Mattson) 1 MR. MATTSON: Would that be the $785,000? 2 MR. DESROCHERS: I guess for that one year the 3 $785,000 would be the appropriate number. That would be 4 what we would be harmed. 5 MR. MATTSON: Or the benefit you would receive 6 if your proposal is accepted? You wouldn't be billed 7 for it? 8 MR. DESROCHERS: I wouldn't categorize it as a 9 benefit, I would leave it as how we would be harmed. 10 MR. MATTSON: Okay. Just a moment. 11 --- Pause 12 MR. MATTSON: Thank you. Those are all my 13 questions. 14 Thank you. 15 THE PRESIDING MEMBER: Thank you, Mr. Mattson. 16 We will move on to Mr. Mark, please. 17 MR. MARK: Thank you, Dr. Higgin. 18 MR. VEGH: Just a minute. Before Mr. Mark 19 begins, Mr. Mark, you are here for the MEA? 20 MR. MARK: Yes. 21 MR. VEGH: Mr. Mark's client has signed onto 22 the settlement proposal with Amoco and Imperial. I 23 don't think it is appropriate to be opposing this 24 position at the hearing. 25 MR. MARK: The settlement hasn't been 26 accepted, Mr. Chairman. 27 THE PRESIDING MEMBER: That's right. The 28 Board has not accepted the settlement agreement -- we Les Services StenoTran Services Inc. 613-521-0703 1445 AMOCO PANEL 1 made that clear -- and the parties, unless there is any 2 back room agreement to the contrary, are free to ask 3 questions. Because the settlement agreement proposal is 4 just that, it is a proposal, a toast shall we say, as 5 far as this proceeding. 6 --- Laughter 7 THE PRESIDING MEMBER: So we are hearing these 8 matters de novo and, as I said, in the absence of any 9 agreement by parties they have a right to question on 10 any matter that was in the settlement. Okay? 11 MR. MARK: Thank you, Mr. Chairman. 12 CROSS-EXAMINATION 13 MR. MARK: Mr. Cahill, if I understand the 14 answer you -- if my note is correct of the answer you 15 gave Mr. Mattson a few moments ago, the essence of your 16 case is that you say you had an agreement with Ontario 17 Hydro that you would be held harmless by signing on to 18 this contract. Is that correct? 19 MR. CAHILL: That we would be financially 20 indifferent to building versus signing the 21 agreement, yes. 22 MR. MARK: You say you had that agreement with 23 Ontario Hydro, that you would suffer no financial 24 prejudice whatsoever by deferring your generation under 25 this contract. Is that what you say, sir? 26 That's what I took your answer to be a moment 27 ago to Mr. Mattson. If that is not correct, let 28 me know. Les Services StenoTran Services Inc. 613-521-0703 1446 AMOCO PANEL, cr-ex (Mark) 1 MR. CAHILL: Well, if I can take a minute, 2 please? 3 MR. MARK: Sure. 4 --- Pause 5 MR. CAHILL: In our prefiled evidence -- 6 MR. MARK: Yes. 7 MR. CAHILL: -- page 11, paragraph 26? 8 MR. MARK: Yes. 9 MR. CAHILL: In a submission from Ontario 10 Hydro the -- 11 MR. MARK: I'm sorry, which document are you 12 in? 13 MR. CAHILL: In the prefiled evidence. It is 14 H31.1, I believe, page 11, paragraph 26. 15 MR. MARK: Yes. 16 MR. CAHILL: This is Ontario Hydro offering 17 Amoco a rate proposal. In the second paragraph it 18 states: 19 "Specifically, Ontario Hydro is prepared 20 to create a mechanism whereby Amoco will 21 be charged a price for electricity, for a 22 term not to exceed five years, equal to 23 the cost of power that would otherwise be 24 supplied by the proposed NUG..." 25 That was the underlying spirit of the 26 agreement. That is what we worked towards in 27 development of the agreement. 28 MR. MARK: So those are the words that you Les Services StenoTran Services Inc. 613-521-0703 1447 AMOCO PANEL, cr-ex (Mark) 1 rely upon. 2 MR. CAHILL: Yes, among -- that was a part of 3 the negotiation, yes. But this was not the only thing 4 that we relied on, if that is what your question is. 5 MR. MARK: Let me deal with this one, which 6 seems to be the one we have here today. And the promise 7 you say you were made was that you would be charged a 8 price for electricity, for a term not to exceed five 9 years, equal to the cost of power that would otherwise 10 be supplied by the proposed NUG that you are currently 11 prepared to construct and operate. 12 Did you get that, sir? Did you not get for 13 the life of this contract the price of power equivalent 14 to what would have been your cost had you built? 15 MR. CAHILL: Yes. 16 MR. MARK: So I take it then, sir, there is 17 some additional agreement you rely upon, is there? 18 MR. CAHILL: The next sentence in there is 19 that we have called this mechanism a "virtual NUG". 20 This will be a virtual cogeneration facility. 21 MR. MARK: Do you mean to say, sir, that we 22 should take from the name that they gave the proposal in 23 this paragraph some amendment or alteration to the 24 description of what it did that they gave in the 25 sentence before? What if they called it an ice cream 26 truck? Would that change the definition of what it was 27 that they promised you? 28 MR. CAHILL: Maybe I can take a minute and we Les Services StenoTran Services Inc. 613-521-0703 1448 AMOCO PANEL, cr-ex (Mark) 1 can better address your specific concern. 2 --- Pause 3 MR. THOMPSON: Perhaps I could answer. 4 MR. MARK: Sure. 5 MR. THOMPSON: Maybe you could state your 6 question one more time. 7 MR. MARK: I am trying to follow up on what 8 Mr. Cahill told Mr. Mattson and what he confirmed to me 9 at the outset of my cross-examination: that you had an 10 agreement with Ontario Hydro that you would be held 11 financially harmless in all respects by virtue of having 12 entered into this contract. 13 I am trying to find a reference in the 14 evidence to such a promise or such an agreement. If 15 there isn't one, that is fine. 16 MR. THOMPSON: I don't believe there are those 17 exact words anywhere in this evidence that we have 18 filed. However, the agreement that we entered into, in 19 our minds, was a deferral of our project, and the 20 agreement treated us as a virtual cogeneration project 21 so that we were exposed to the costs as if we would have 22 built the project. 23 However, also in the agreement we believe that 24 we preserved the right to build the project at a later 25 date without prejudice. 26 MR. DESROCHERS: And to add to that, if we 27 knew that we were going to be forgoing the 30-year 28 benefits of a physical cogeneration project, we would Les Services StenoTran Services Inc. 613-521-0703 1449 AMOCO PANEL, cr-ex (Mark) 1 have never entered into the agreement. 2 Now that the world has changed with electric 3 restructuring, all we are asking for is the right to be 4 fairly transitioned; to go back and build our physical 5 generation as we had intended to in 1996. 6 MR. MARK: But let's be fair about it, 7 Mr. Desrochers. This is now a little bit different. As 8 I understand what you are telling me, you at Amoco would 9 not have gotten into this contract if you had known then 10 about the issue of embedded versus non-embedded; 11 correct? 12 MR. DESROCHERS: I think what reasonable men 13 and women would expect is that when there is significant 14 change, there would be transition from the old world to 15 the new world. 16 MR. MARK: I am just trying to understand, 17 sir. Is your complaint here today -- I understand what 18 you want. Does your complaint here today have anything 19 to do with the promises and representations from Ontario 20 Hydro or your understandings with Ontario Hydro? Or is 21 it just your coming here and you say that you want the 22 same treatment as this generator over there? 23 I am trying to understand what your case is. 24 MR. DESROCHERS: We are asking to be treated, 25 for transmission purposes, as if we had installed 26 embedded generation. Also, we don't expect to get this 27 without making a commitment to actually install that 28 generation. Les Services StenoTran Services Inc. 613-521-0703 1450 AMOCO PANEL, cr-ex (Mark) 1 The idea being -- and this is addressed in the 2 proposed settlement proposal -- that if we do not in the 3 transition period to allow us to construct our physical 4 generation project, if we do not, there is a claw-back 5 provision that would keep Ontario Hydro Networks Company 6 and its customers whole. 7 MR. MARK: I understand what you want, sir, 8 but here is my problem. Turn to your prefiled evidence, 9 at page 31.1, BP/Amoco, page 2, paragraph 5. Let me 10 read you the first sentence: 11 "As precondition to agreeing not to build 12 the Sarnia Generator, Amoco obtained a 13 promise from Ontario Hydro that, for 14 regulatory purposes, Amoco would be 15 treated as if it had built the Sarnia 16 Generator." 17 With all due respect, gentlemen, I think what 18 we have just established is that you received no such 19 promise, did you? 20 MR. DESROCHERS: We received that promise in 21 the load retention and expansion rate agreement. 22 MR. MARK: Where? 23 MR. DESROCHERS: The idea that we would be 24 able to build, without prejudice, at any time during 25 that agreement. 26 MR. MARK: Where is that promise recorded or 27 reflected, sir? Point me to it. 28 You have said in very straightforward, bald Les Services StenoTran Services Inc. 613-521-0703 1451 AMOCO PANEL, cr-ex (Mark) 1 words, at the beginning of your submission to this 2 regulatory tribunal, that the basis of your case is a 3 promise from Ontario Hydro that for regulatory purposes 4 Amoco would be treated as if it had built the Sarnia 5 generator. 6 I presume, sir, that you didn't give that 7 evidence lightly. And I presume, sir, that when you 8 made that statement to this regulator you knew what 9 provision of some contract you had in mind. I would 10 just like to see it. 11 MR. DESROCHERS: We agree with our original 12 statement as in our prefiled evidence. We have filed 13 all the supporting documentation to support that. In 14 the negotiations with Ontario Hydro entering into the 15 contract it was our understanding that we would be able 16 to build without prejudice. 17 MR. MATTSON: Did you read the contract before 18 it was executed, sir? 19 MR. DESROCHERS: Yes, we did read the 20 contract. 21 MR. MATTSON: And did Amoco have the benefit 22 of counsel when it entered into that contract? 23 MR. DESROCHERS: Yes, we did. 24 MR. MATTSON: Did you understand, sir, that it 25 had what businessmen commonly call "an entire agreement" 26 clause? 27 MR. DESROCHERS: Yes, we did. 28 MR. MATTSON: And you understand, sir, that it Les Services StenoTran Services Inc. 613-521-0703 1452 AMOCO PANEL, cr-ex (Mark) 1 says, as one of the very terms of this very contract, 2 that there are no understandings upon which the parties 3 are entitled to rely in entering into the agreement, 4 other than the promises and agreements reflected in the 5 document? 6 MR. DESROCHERS: I don't believe that we are 7 saying there is any understandings beyond the agreement. 8 MR. MATTSON: So do you now want to amend the 9 first sentence of paragraph 5 of your testimony? 10 MR. DESROCHERS: No, the first sentence of 11 paragraph 5 says that: 12 "...for regulatory purposes, Amoco would 13 be treated as if it had built the Sarnia 14 generator." 15 This agreement treats us as if we had built 16 the generator. 17 MR. MATTSON: You understand, sir, that the 18 only treatment you get in that contract is that you get 19 your power for the term of contract at the same price as 20 if you had built your generation. Correct? 21 MR. DESROCHERS: That is the regulatory 22 treatment that we are talking about. 23 MR. MATTSON: There is no promise of any other 24 regulatory treatment, other than what you pay for the 25 price of power over the term of the contract. Is that 26 correct, sir, the contract makes no other promises or 27 representations about treatment with respect to any 28 other aspect of your power purchases, past, present or Les Services StenoTran Services Inc. 613-521-0703 1453 AMOCO PANEL, cr-ex (Mark) 1 future, other than promising you a specific price for 2 the five-year term. Is that not correct, sir? 3 MR. DESROCHERS: There are other promises in 4 here. I can't list them all. 5 MR. MATTSON: Well, show me one. 6 MR. DESROCHERS: Okay. 7 --- Pause 8 MR. DESROCHERS: There is a promise in here 9 that: 10 "...except as otherwise provided, herein 11 this agreement shall be enforced for the 12 five-year period. This agreement may be 13 extended with necessary amendments by 14 written agreement into the period 15 June 1st, 1999 through August 1st, 1999, 16 provided that all three parties agree to 17 do so and provided that Ontario Hydro 18 obtains Board of Director approval and 19 government approval through an 20 Order-in-Council if yesterday." (As 21 read) 22 I believe that's it. 23 MR. MATTSON: So the promise you want to refer 24 to then is the one that made it very clear to you that 25 this contract could end at the end of its initial term 26 and you had no right or entitlement to insist upon its 27 continuation. Correct? 28 MR. DESROCHERS: The promise I referred to is Les Services StenoTran Services Inc. 613-521-0703 1454 AMOCO PANEL, cr-ex (Mark) 1 that it could end or it could be extended if agreed to 2 by the parties. 3 MR. MATTSON: Okay. So that is about the 4 term. But my question, sir, as I believe you 5 understood, was what promises about this regulatory 6 treatment are contained in here other than this issue of 7 how much you are going to pay every month for power 8 during the term of the contract? 9 MR. DESROCHERS: Maybe I can help clarify 10 that. 11 I think, as I indicated before, we are not 12 looking for an extension of this load retention and 13 expansion rate contract. Had we built our generation as 14 we planned to do in 1996, it would be clear how we would 15 be treated for regulatory purposes today with respect to 16 OHNC's application. In 1996 we did not build our 17 generation at the inducement of Ontario Hydro to enter 18 into this contract which provided significant benefit to 19 Ontario Hydro, the bundled entity. All we are asking 20 for is to be fairly transitioned and to allow us to 21 build the generator that we would have built. 22 In our proposal, I think it is clear that if 23 we do not build we should not get treatment of an 24 existing embedded generator and that is what we put 25 forward in our proposal. So that is what we are asking 26 for. We are not asking for the contract to be continued 27 in any way, shape or form. 28 MR. MATTSON: I understand, sir, and might I Les Services StenoTran Services Inc. 613-521-0703 1455 AMOCO PANEL, cr-ex (Mark) 1 suggest to you that your position really is that you say 2 if you had not entered into this contract you would have 3 built, and therefore you want the regulator to consider 4 you as if you were embedded. 5 Your case has nothing whatsoever to do with 6 any promises that were made to you by Ontario Hydro or 7 the government or any regulator or anybody else. 8 MR. DESROCHERS: If you look through the 9 correspondence attached to our evidence, Ontario Hydro 10 indicated to us that we would be kept whole. 11 MR. MATTSON: Where is this, sir? I have 12 asked you several times. I have looked through your 13 documents, I have looked through Imperial's documents. 14 I see lots of references to being held harmless with 15 respect to the net present value of the generation, but 16 I just don't see the other one and I am asking you again 17 for some help. 18 MR. THOMPSON: I am sorry, what is the other 19 one? 20 MR. MATTSON: That you were promised that you 21 would be held harmless with respect to anything other 22 than making sure you got the net present value of the 23 price benefit you would get by building your own 24 generation over the life of the contract. 25 MR. DESROCHERS: In the correspondence, 26 Ontario Hydro indicated that we would be able to obtain 27 the long term benefits of building our physical 28 generation project by entering into the load retention Les Services StenoTran Services Inc. 613-521-0703 1456 AMOCO PANEL, cr-ex (Mark) 1 and expansion rate. 2 MR. MATTSON: But you knew the thing had a 3 definite -- had a term after which Ontario Hydro had no 4 further obligations to you. Correct? 5 MR. DESROCHERS: In this particular agreement 6 which is an agreement for supply -- 7 MR. MATTSON: Yes. 8 MR. DESROCHERS: -- they would not have to 9 supply us power once the agreement ceased and Amoco 10 would be -- it would be up to Amoco to figure out where 11 to get its supply, whether it be purchased in the open 12 market or to go back and install our physical 13 generation. 14 MR. MATTSON: You knew, sir, I suggest to you, 15 that when that day came at the end of the contract there 16 would be all sorts of circumstances in the world of 17 electricity that would be different from the 18 circumstances that pertained in 1996 when you executed 19 this contract. Correct? 20 MR. DESROCHERS: At the time we executed the 21 contract we expected that we would be able to build our 22 cogeneration project either on the point of termination 23 of the contract or before that time without prejudice. 24 Otherwise, we would have built the cogeneration project, 25 because it would not make sense for us to enter into a 26 short term five-year agreement to give up, again, the 27 long term benefits of having physically built the plant. 28 MR. MATTSON: I understand that was your Les Services StenoTran Services Inc. 613-521-0703 1457 AMOCO PANEL, cr-ex (Mark) 1 expectation, sir, but I am suggesting to you that as a 2 businessman with your eyes wide open, you accepted the 3 risk that the world might be considerably different when 4 the time came for you to make that investment decision 5 five years down the road. 6 MR. DESROCHERS: There were some risks the 7 world would be different, but we expected that we would 8 be fairly transitioned from the new -- from the old 9 world to the new world -- as it relates to our specific 10 load retention and expansion rate contract. 11 I think when there is deregulation or big 12 market changes that contracts that don't work in the old 13 world, or don't work in the new world for the old 14 world, there should be transition from one world to the 15 next. 16 Similarly, for the existing embedded 17 generators that did build prior to October of 1998, they 18 are also being transitioned from the old world to the 19 new world. That is all we are asking for here as well. 20 We were committed. We would have built the 21 project in '96 well before the 1998 date. We are only 22 asking for that right to go back and build our 23 generation project that we would have built in 1996. 24 MR. MATTSON: I suggest to you, again, sir, 25 that this case is all about what you say is a request 26 today to be transitioned from the old world to the new 27 world and, again, has nothing to do, sir, with any 28 promises or understandings you had with any regulatory Les Services StenoTran Services Inc. 613-521-0703 1458 AMOCO PANEL, cr-ex (Mark) 1 body or even Ontario Hydro. You just say, "We don't 2 want to have to pay that much more for power today 3 because golly, gosh, we would have built if we had known 4 that we were going to be hit by this truck." 5 MR. DESROCHERS: It has been a fact through 6 1992 through 1996 Amoco was very committed to building 7 the project, again, without Ontario Hydro's continued 8 insistence that we enter into the load retention and 9 expansion rate contract that benefited the customers of 10 Ontario Hydro. 11 What we are here asking for today, again, it 12 is not an extension of the contract but just to be 13 transitioned fairly into the new world because we were 14 committed to building that project in 1996. 15 MR. MARK: And by "transition", sir, exactly 16 what do you mean? 17 As I understand your request, you want your 18 treatment as an embedded generator and therefore 19 eligibility for the 50 per cent net billing to be a 20 permanent condition. Correct? You are not asking for a 21 ramp-up, are you? 22 MR. DESROCHERS: I don't understand your 23 question. 24 Efficient generation receives 50 per cent 25 billing but existing embedded generators receive 26 treatment on Ontario Hydro networks on a net basis 27 because they have made a decision to put the capital at 28 risk, which we are proposing that we have the right to Les Services StenoTran Services Inc. 613-521-0703 1459 AMOCO PANEL, cr-ex (Mark) 1 do as well, and it is stated clearly, if I recollect, in 2 Ontario Hydro Networks' evidence that they do not want 3 to burden the existing embedded generators with -- or 4 prejudice them based on decisions they have made to 5 install that capital in the old regime. So that is why 6 they are being treated on a net basis. 7 MR. MARK: So when you say "transition", you 8 want that same treatment for as long as they get that 9 treatment. You don't want some softening of any rate 10 increase which will sort of be ramped down over time. 11 That is what you mean by "transition"? 12 MR. DESROCHERS: What we want is to be treated 13 exactly as existing embedded generation. However they 14 are treated, we should be treated the same way. That is 15 all we are asking to be transitioned to: to allow us to 16 install the physical generation option that we had put 17 forward in 1996 and then be treated as an existing 18 embedded generator that was installed prior to October 19 of 1998. 20 MR. MARK: Am I correct, Mr. Desrochers, that 21 the installation you want to build, though, is not the 22 exact installation that you would have built in 1996? 23 Correct? 24 MR. DESROCHERS: That's not correct. 25 At this point in time we are only asking for 26 regulatory treatment for our existing load, which is 27 20 megawatts. When we are able to assemble the 28 individual components of this unbundling process, as Les Services StenoTran Services Inc. 613-521-0703 1460 AMOCO PANEL, cr-ex (Mark) 1 well as look at other factors, then we will have to 2 re-evaluate the size of plant that will best suit the 3 Sarnia facility. 4 MR. MARK: All right. 5 Will you be asking for the same treatment for 6 the oversized portion if you do build the oversized 7 portion or are you restricting the relief you are 8 seeking to a plant which mirrors what you would have 9 built in 1996, which is just a 20 megawatt plant? 10 MR. DESROCHERS: Actually, that question is 11 somewhat irrelevant based on Ontario Hydro Networks' 12 proposal. For the 20 megawatts we will consume at the 13 plant, we want to be treated as an existing net 14 generator. If we build the plant larger or the same 15 size, that will be treated as new generation, and there 16 is no regulatory treatment as it relates to embedded 17 generation or new generation. Or should we increase the 18 load at our plant, that would be treated as new load on 19 the Ontario Hydro system regardless. 20 MR. MARK: What if you increase the load at 21 your -- if you were to build oversized, say, if you were 22 to build a 40 meg plant, I understand what you are 23 telling me is your internal needs are still just 20, and 24 because you would be vending 20 per cent into the grid 25 you would be paying full transmission rates on that. 26 MR. DESROCHERS: All merchant capacity is 27 treated the same. 28 MR. MARK: What happens if you increase your Les Services StenoTran Services Inc. 613-521-0703 1461 AMOCO PANEL, cr-ex (Mark) 1 load requirements at the plant and an additional, let's 2 say, 10 megawatts becomes -- you know, self-generation? 3 MR. DESROCHERS: If we increase the load at 4 our plant by an additional 10 or 20 or 30 megawatts, it 5 is not applicable here because that would be a new load. 6 It would be as if we built a new plant and that would be 7 treated as a new Ontario Hydro customer. So if we built 8 that load it would be treated as a new load. What we 9 are asking for in the regulatory treatment for our 10 existing load would not impact on that. 11 MR. MARK: Are you prepared, sir, to give a 12 credit back again to the discount you are requesting for 13 the economic benefits that you might get from 14 oversizing? 15 MR. DESROCHERS: I don't understand how that 16 credit would apply and who it would apply to. 17 MR. MARK: Well, back in 1996 you would have 18 built a 20 megawatt plant. Correct? 19 MR. DESROCHERS: No. We were actually going 20 to build a 40-megawatt plant. This is also important. 21 When the load retention agreement was entered 22 into it was based on a 40-megawatt plant. The fact that 23 Ontario Hydro did not want to purchase that merchant 24 capacity, and we only had a 20-megawatt load, that was 25 also factored into the load retention agreement. So we 26 were treated as if we had installed a 40-megawatt plant, 27 the capital associated with that, but we only got the 28 benefit of a 20-megawatt load. Les Services StenoTran Services Inc. 613-521-0703 1462 AMOCO PANEL, cr-ex (Mark) 1 MR. MARK: And you were only going to operate 2 it, I take it, at a 20-megawatt load. 3 MR. DESROCHERS: That is correct. 4 MR. MARK: Have you made any efforts, 5 Mr. Desrochers, to calculate your net position on a 6 going-forward basis compared to the position you would 7 have been in had you built the plant in 1996? 8 MR. DESROCHERS: I think I went through that 9 this morning as to how we would be harmed, at least with 10 respect to OHNC's proposal, and that was about $785,000 11 a year. 12 MR. MARK: Well, that is how you are harmed, 13 vis-…-vis -- that is the difference, the quantification 14 of the differentiated treatment, between you and other 15 generators who are classed as existing grandfathered 16 embedded generators, but I'm asking a slightly different 17 question. 18 Have you done any work towards trying to 19 quantify what your net position will be on a 20 going-forward basis if you build this generation 21 compared to what your position would have been had you 22 built it in 1996, taking into account new technologies, 23 taking into account what you presently know about 24 markets and prices? 25 MR. DESROCHERS: We tried to undertake in our 26 office to do that, but there is too much undefined, in 27 the regulatory world, to be able to assess whether or 28 not we should build the project, or what size that Les Services StenoTran Services Inc. 613-521-0703 1463 AMOCO PANEL, cr-ex (Mark) 1 project should be. 2 MR. MARK: And you anticipated, I take it, 3 from your evidence and from the ADR agreement, that you 4 anticipate that within one year you will know enough 5 about the landscape so that you will be able to do that 6 comparison? 7 MR. DESROCHERS: What we require that one year 8 for, as I stated, was now that Ontario Hydro is broken 9 up into so many different pieces, it has been unbundled, 10 we must address this argument in each one of those 11 forums. Once we are able to do that, then we can 12 properly assess the physical generation option for our 13 plant. It is undetermined when we will have all those 14 answers. 15 MR. MARK: I had understood you to say that 16 you believe that one year from now you will be in a 17 position to make the economic and financial assessment 18 that you need as a businessman to make a go/no-go 19 decision on construction. 20 MR. DESROCHERS: I think we will be able to 21 make a decision on installing a physical generation 22 option. 23 MR. MARK: That is your evidence? 24 MR. DESROCHERS: Yes, it is. 25 The answer is, the one-year time frame that we 26 have asked for will allow us to put all the pieces of 27 the puzzle together and allow us to make a decision on 28 the physical generation option. Les Services StenoTran Services Inc. 613-521-0703 1464 AMOCO PANEL, cr-ex (Mark) 1 MR. MARK: Would I therefore not be correct in 2 saying that one year from now we will also then be able 3 to do a comparison of the position you project you will 4 be in if you build today versus the position you would 5 have been in had you built in 1996 under the package and 6 the specifications and the assumptions that are laid out 7 in the documents before us? 8 MR. DESROCHERS: I don't understand what kind 9 of assessment you would be looking for. I think we are 10 able to quantify the difference between Ontario Hydro 11 Networks' proposal and the physical generation option. 12 MR. THOMPSON: If I could add to Jean-Paul's 13 or JP's answer there. 14 In a year's time we should have enough 15 information together to be able to determine whether we 16 go forward with a project or not, but the one year is no 17 guarantee that we are going to have -- that all the 18 information will be ready. I think what we have 19 proposed is that one year is a reasonable period to 20 allow definition of those items. 21 MR. MARK: Right. 22 I'm simply suggesting that, to the extent you 23 can then, at that point, put together a financial 24 analysis, we could all take that financial analysis, and 25 hopefully it is very well defined in a year, and compare 26 it to the financial analysis you did in I gather 27 somewhat painstaking detail for Ontario Hydro back in 28 1995 and 1996 of what your energy world would look like Les Services StenoTran Services Inc. 613-521-0703 1465 AMOCO PANEL, cr-ex (Mark) 1 if you built the cogen. We could do that a year from 2 now. Correct? 3 MR. THOMPSON: One year is a reasonable time. 4 It is not necessarily -- 5 MR. MARK: I understand that we don't have 6 perfect vision into the future, but you have indicated 7 you are prepared to agree to one year in terms of your 8 horizon for having to make the decision, which is why I 9 say that. 10 MR. DESROCHERS: I would like to make a 11 correct there. I don't believe I heard my colleague say 12 we agreed to one year to make that decision. We will 13 require a year. Then we can evaluate whether or not we 14 want -- whether or not to continue with the physical 15 generation option. 16 MR. MARK: I understand. There is a year to 17 see what happens, and at the end of the year you would 18 do your evaluation, and that may take some period of 19 time but that is the process. 20 MR. DESROCHERS: And then it was based at one 21 year without prejudice is what we proposed, but then to 22 actually get the plant up and running, we would require 23 five years to do that. 24 MR. MARK: But you are going to do an 25 analysis, a business case analysis, like you do for all 26 your other investment decisions in your business and you 27 are going to decide "Am I going to build it or am I not 28 going to build it?" and you are going to do that, I take Les Services StenoTran Services Inc. 613-521-0703 1466 AMOCO PANEL, cr-ex (Mark) 1 it, reasonably soon after the expiry of one year because 2 you have only got five to six years to get the thing 3 operating. Right? 4 MR. DESROCHERS: That's correct. 5 MR. MARK: Thank you. Just a couple of final 6 matters. 7 Mr. Chairman, I am going to be a few more 8 minutes. I am in your hands as to -- 9 THE PRESIDING MEMBER: I think we are all 10 feeling hungry. If you are going to be more than five 11 minutes, I think we better get some lunch. 12 MR. MARK: It may be. I may be able to pare 13 it down over lunch as well, so why don't we do that now 14 then? 15 THE PRESIDING MEMBER: Okay. Then we will 16 return at five minutes after two. It just makes it an 17 hour plus. Okay? 18 Thank you. 19 One thing, Mr. Vegh. You haven't asked me but 20 the normal is that if you wish to speak with the 21 witnesses while they are under oath during the lunch 22 break, we accord that to the counsel and we basically 23 hope that that always is not abused. 24 Thank you. 25 MR. VEGH: Thank you, sir. 26 --- Upon recessing at 1255 27 --- Upon resuming at 1410 28 THE PRESIDING MEMBER: Any preliminary Les Services StenoTran Services Inc. 613-521-0703 1467 AMOCO PANEL, cr-ex (Mark) 1 matters? Nothing. Ms Lea? 2 MR. LYLE: No, Mr. Chair. 3 THE PRESIDING MEMBER: We will resume with 4 Mr. Mark. 5 MR. MARK: Thank you, Mr. Chair. 6 Gentlemen, just before the break we were 7 talking about your original intentions with respect to 8 the sizing of the plant. My recollection is you told me 9 that the original specifications for the plant called 10 for the construction of 40 megawatts of capacity. Is 11 that correct? 12 MR. DESROCHERS: That's correct. 13 MR. MARK: And your intention at the time was 14 to actually produce only 20 megawatts. Correct? 15 MR. DESROCHERS: That is correct. We would 16 only produce 20 megawatts because Ontario Hydro did not 17 want to purchase any of the merchant electricity. 18 MR. MARK: I understand. Now, in the 19 calculations of your cost of the virtual project, were 20 the costs that were used to determine what your cost of 21 self-generated power would have been, did those costs 22 include the capital and construction costs of the 40 23 megawatt capacity facility? 24 MR. DESROCHERS: Yes, they did. 25 MR. MARK: So Ontario Hydro gave you a credit 26 for the costs associated with a 40 megawatt unit. 27 MR. DESROCHERS: I wouldn't say it's a credit. 28 It disadvantaged Amoco in the load retention and Les Services StenoTran Services Inc. 613-521-0703 1468 AMOCO PANEL, cr-ex (Mark) 1 expansion agreement. Had we been able to factor in the 2 merchant revenues associated with that merchant 3 capacity, we would have had more benefit in the -- not 4 more benefit, but the load retention and expansion rate 5 would have been different. 6 MR. MARK: I understand that. Let's see if we 7 can keep the evils that this arrangement was addressing 8 to a limited scope. We weren't dealing with the problem 9 of -- the LRER contract wasn't intended to deal with the 10 issue of whether Ontario Hydro should or shouldn't be 11 permitting merchant generation. 12 As I understand it, when you did the costing 13 analysis, you included the 40 megawatt costs. 14 MR. DESROCHERS: That's correct. There was a 15 40 megawatt capital costs and that basically had a 16 negative impact on Amoco's load retention and expansion 17 rate because there was unutilized capacity and you were 18 building a bigger machine than you required. 19 MR. MARK: And you have indicated that one of 20 the benefits you had was that you were able to deploy 21 your capital elsewhere, I think was your evidence. Mr. 22 Cahill, was that your evidence? 23 MR. THOMPSON: No. That was me. 24 MR. MARK: Indeed as I understand it, sir, in 25 fact at the time Amoco was capital constrained, so there 26 was a benefit to you in this arrangement in that sense. 27 MR. THOMPSON: In that sense there was a 28 benefit to us offset by increased risk of capital cost Les Services StenoTran Services Inc. 613-521-0703 1469 AMOCO PANEL, cr-ex (Mark) 1 in the future or changing gas costs. 2 MR. MARK: I understand it was offset, but 3 Amoco was operating with a capital restraint, so it 4 wasn't just an assessment of the cost of capital per se. 5 It was a benefit to you to be able to offload this 6 capital cost into another type of arrangement. 7 MR. THOMPSON: Yes, that's true. Offset by 8 the items that are -- 9 MR. MARK: By the risks. 10 MR. THOMPSON: By the risks. That's correct. 11 MR. MARK: In addition to that, it was not a 12 question of offsetting into another arrangement. It was 13 a deferral of a capital expenditure to a later time 14 frame, or perhaps never. 15 MR. DESROCHERS: I think it would have been a 16 question of re-evaluating the physical generation option 17 during our five year contract and then going ahead with 18 that. From our mind, it was only a deferral because we 19 knew that installing the cogeneration plant, there would 20 be 30 years worth of benefit. That's what our economics 21 were based on. 22 We would not forego the last 25 years of that 23 just for a five year deferral. We were very committed 24 to build the project based on our requirements for the 25 plant in 1996 and we believe it had a long term 26 arrangement. 27 We would have deferred the capital 28 expenditure, but the capital expenditure would have Les Services StenoTran Services Inc. 613-521-0703 1470 AMOCO PANEL, cr-ex (Mark) 1 likely been incurred at a later date. 2 MR. MARK: But you would have at the end of 3 the contract in any new renewal terms, you would have 4 done a fresh assessment each time and compared whatever 5 contracts you could enter into in the market with 6 generators, transmitters, distributors, with your cost 7 of self-generation. You would have made a fresh 8 decision each time. Correct? 9 MR. DESROCHERS: We would have made a new 10 assessment. Yes. 11 MR. MARK: Right. And there was always the 12 possibility that your market alternatives would be as 13 economic or more economic than building your own 14 generation. 15 MR. DESROCHERS: It is possible, but due to 16 the nature of our plant in Sarnia with the high heat 17 load and the electrical requirement, it is very likely a 18 cogeneration plant that would have still been the best 19 solution for us. If we did not have a virtual 20 cogeneration, we would then go back to physical 21 generation, so there is a high probability that building 22 the physical generation would have been the best 23 decision for Amoco. That is because of the unique 24 nature of the plant with its heat load which would not 25 be the same for any other industrial plant. 26 MR. MARK: Gentlemen, if you could turn to 27 page 20 of your prefiled evidence. I'm particularly 28 interested in paragraph No. 48 under the heading Les Services StenoTran Services Inc. 613-521-0703 1471 AMOCO PANEL, cr-ex (Mark) 1 "Conclusion". Do you have that? 2 MR. DESROCHERS: Yes, I do. 3 MR. MARK: All right. There you point out 4 what I take to be sort of the three points of your 5 evidence distilled to their essence. I think we have 6 dealt with Nos. 1 and 2 of those three bullets. I would 7 like to turn to the third bullet. You say that if the 8 proposal is approved by the Board, it would result in 9 the following. 10 You say Amoco will be prejudiced for having 11 relied on the rules set down by the old regulators and 12 now be required to now pay transmission rates on its 13 entire load. Who do you mean by the old regulators? 14 MR. DESROCHERS: The old regulators is defined 15 in our evidence as the Ontario Hydro successor companies 16 as well as -- just bear with me for one moment. 17 --- Pause 18 MR. VEGH: If I could be of assistance. I 19 believe the term is defined in paragraph four. 20 MR. DESROCHERS: Yes. In paragraph four. 21 MR. MARK: That's right. Last sentence of 22 paragraph four. 23 MR. DESROCHERS: That is correct. The Ontario 24 Hydro Board of Directors, the Government of Ontario and 25 Ontario Hydro. 26 MR. MARK: Read that sentence that says "This 27 contract was approved by the Ontario Hydro Board of 28 Directors and the Government of Ontario". At that time Les Services StenoTran Services Inc. 613-521-0703 1472 AMOCO PANEL, cr-ex (Mark) 1 these bodies collectively regulated the supply, 2 transmission and distribution in Ontario, collectively 3 referred to as the old regulators. 4 So I see two entities. I see the Hydro Board 5 of Directors and I see the Government of Ontario. Am I 6 correct? 7 MR. DESROCHERS: That is correct. Those are 8 the two entities. 9 MR. MARK: And the Ontario Hydro Board of 10 Directors, it was Ontario Hydro who you entered into 11 contract with, so they are the actual party to the 12 contract. Correct? 13 MR. DESROCHERS: Correct. Ontario Hydro is 14 the bundled entity responsible for load transmission, 15 generation and distribution. 16 MR. MARK: My point is this. The Board of 17 Directors, just like your Board of Directors, it's the 18 corporate governing body of Ontario Hydro. It's not 19 some separate regulator. Right? 20 MR. DESROCHERS: That is correct. 21 Under the old regime and under the Power 22 Corporation Act, Ontario Hydro was, I believe, a 23 self-regulating entity and it was not accountable to 24 this Board in its operation. It would take advice from 25 the Board, is my understanding. 26 MR. MARK: So do you call Hydro a regulator 27 because it was self-regulating? 28 I'm just intrigued by your putting Ontario Les Services StenoTran Services Inc. 613-521-0703 1473 AMOCO PANEL, cr-ex (Mark) 1 Hydro Board of Directors in the category of regulator 2 with respect to this contract. 3 MR. DESROCHERS: It was, Ontario Hydro being a 4 self-regulating entity was responsible, I believe to the 5 Minister of Energy, and it was responsible for 6 regulating itself as well as all the municipal electric 7 utilities that it served. 8 So in place -- they were essentially the only 9 ones that were regulating Ontario Hydro in its 10 day-to-day operations. 11 MR. MARK: In other words, Ontario Hydro was 12 unregulated? Subject to the control by the Lieutenant 13 Governor in Council it was unregulated. Correct? 14 MR. DESROCHERS: I don't know if I would say 15 it was unregulated. It was a regulated monopoly 16 responsible for the distribution of power and it was a 17 self-regulated entity, is my understanding. 18 MR. MARK: In preparing your evidence you 19 decided to tell us about what you thought were the rules 20 and views established by those that you defined as the 21 regulators at the time, did you look at what this body, 22 the Ontario Energy Board had had to say about LRER rates 23 at that time? 24 MR. DESROCHERS: Yes, I'm aware of the Board's 25 views of LRERs. 26 Amoco did not set the rules of the day. We 27 just simply had to abide by Ontario Hydro's regulations. 28 Ideally what we were planning to do is build a Les Services StenoTran Services Inc. 613-521-0703 1474 AMOCO PANEL, cr-ex (Mark) 1 cogeneration facility. We did not endorse the LRERs. 2 If you look at our evidence, it was clear that 3 many, many times we had a lot of frustrations with 4 Ontario Hydro and it was at Ontario Hydro's request the 5 final -- as we were on the verge of ordering major 6 equipment and had already committed $650,000 to building 7 our project that they finally -- at their request we 8 entered into the LRER. 9 MR. MARK: What are the rules you are 10 referring to? 11 MR. DESROCHERS: The rules of the day in terms 12 of who is responsible for the generation, transmission 13 and supply of power in Ontario. That was the 14 responsibility of Ontario Hydro and Ontario Hydro 15 exclusively through a monopoly. 16 MR. MARK: That's right. What you're telling 17 us is, you -- isn't this the same as the point you made 18 before? 19 What you are talking about in Item No. 3 is 20 the same thing you talked about in Item No. 1, which is 21 your view of the contract you negotiated with Ontario 22 Hydro. The only party that regulated this contract was 23 Ontario Hydro. Right? 24 MR. DESROCHERS: Ontario Hydro entered into 25 the contract with Lieutenant Governor in Council 26 approval and our contract was subject to an independent 27 third party assessment which Amoco lobbied for because 28 we wanted an impartial party to evaluate our project. Les Services StenoTran Services Inc. 613-521-0703 1475 AMOCO PANEL, cr-ex (Mark) 1 MR. MARK: Maybe we can just stick to my 2 question, Mr. Desrochers. 3 I'm trying to determine what the difference is 4 between point No. 1 and point No. 2. 5 In other than the fact that Ontario Hydro got 6 Lieutenant Governor in Council approval, is there any 7 regulatory statement, promise, representation of any 8 nature that you rely on for bullet No. 3, other than the 9 same representations you say were made by Ontario Hydro 10 which underlie bullet No. 2? 11 MR. DESROCHERS: Could I have a moment, 12 please? 13 --- Pause 14 MR. DESROCHERS: I'm sorry, could I get you 15 just to rephrase the last part of that question? 16 MR. MARK: Other than the fact that Hydro got 17 Lieutenant Governor in Council approval for the 18 contract, is there any regulatory statement or 19 representation that you say comes within the third 20 bullet, other than the same representations and 21 statements of Ontario Hydro that make up the second 22 bullet? 23 MR. DESROCHERS: Other than the inducements 24 that are referred to in our evidence and our 25 correspondence between us and the entire Ontario Hydro, 26 there are no other contracts. 27 MR. MARK: I'm not talking about contracts. 28 Is there anything you rely upon, in addition Les Services StenoTran Services Inc. 613-521-0703 1476 AMOCO PANEL, cr-ex (Mark) 1 to everything you have told us again and again about 2 what you say Ontario Hydro told you during the 3 negotiations? Is there anything embodied in the third 4 bullet, other than the fact that Ontario Hydro got the 5 Lieutenant Governor in Council to put his John Henry on 6 the order? 7 --- Pause 8 MR. DESROCHERS: We relied on the Ontario 9 Hydro Board of Directors approval, which was then 10 Lieutenant Governor in Council approval on behalf of 11 Ontario Hydro, the entity responsible for selling 12 electricity in the province. 13 That is what we relied upon in entering the 14 supply contract. 15 MR. MARK: So the answer is that there is 16 nothing else. 17 MR. DESROCHERS: With respect to bullet three, 18 other than Ontario Hydro, its board of directors and 19 Lieutenant Governor in Council approval, that is all 20 that we relied on. 21 MR. MARK: During those years that you were 22 negotiating with Hydro in the mid-1990s, did you inform 23 yourself as to the views expressed by this Board with 24 respect to the LRER concept and the related concepts, 25 such as competitive pricing? 26 MR. DESROCHERS: We were familiar with -- at 27 the time we were proceeding with our project, we did not 28 approach Ontario Hydro for a load retention and Les Services StenoTran Services Inc. 613-521-0703 1477 AMOCO PANEL, cr-ex (Mark) 1 expansion rate. They approached us with it. 2 MR. MARK: Could you answer the question, 3 Mr. Desrochers? It is Friday afternoon. 4 Did you inform yourself as to the views and 5 opinions that were being expressed in HR-22 and HR-23 6 and HR-24 by this Board with respect to LRER contracts 7 and similar contracts? 8 Anybody? 9 MR. THOMPSON: I am not sure that we did. 10 MR. MARK: Thank you, gentlemen. Those are my 11 questions. Thank you, Mr. Chair. 12 THE PRESIDING MEMBER: Thank you, Mr. Mark. 13 Mr. Rattray, do you have some questions? 14 MR. RATTRAY: We have no questions, 15 Dr. Higgin. 16 THE PRESIDING MEMBER: Thank you. Is there 17 anyone else before Board Staff? 18 If not, then Mr. Lyle, please. 19 MR. LYLE: Thank you, Mr. Chair. 20 EXAMINATION 21 MR. LYLE: Gentlemen, my name is Mike Lyle. I 22 am counsel for Board Staff. 23 Your evidence earlier in the day was that the 24 harm that is being done to you by the OHNC proposal can 25 be quantified at the amount of $785,000 a year. Is that 26 correct? 27 MR. DESROCHERS: That is correct. 28 MR. LYLE: I take it that is the difference Les Services StenoTran Services Inc. 613-521-0703 1478 AMOCO PANEL, ex (Lyle) 1 between what you would be charged if you don't have any 2 embedded generation for transmission and what you would 3 be charged if you had already built embedded generation? 4 MR. DESROCHERS: That is correct. That is the 5 difference between what we would pay as embedded 6 generation, which would involve paying a certain amount 7 of transmission for back-up, versus what we would have 8 to pay for the full amount. 9 MR. LYLE: Do you have those numbers that went 10 into that calculation? 11 MR. DESROCHERS: I have them roughly. Perhaps 12 the best way might be to do that through an undertaking. 13 MR. LYLE: Certainly, gentlemen. Perhaps we 14 could have an undertaking, then, that you can provide 15 the charge that you would anticipate paying if you don't 16 have any embedded generation under OHNC's proposal, and 17 the amount that you would anticipate paying if in fact 18 you had built embedded generation prior to October 1998 19 under OHNC's proposal, and any relevant assumptions that 20 might underlie those numbers. 21 MR. VEGH: If I could be of assistance, 22 perhaps just for clarifying the undertaking, as you 23 know, in Imperial's evidence they set out the chart. 24 Would it be satisfactory if Amoco just plugged in the 25 Amoco numbers to that chart? I believe we followed the 26 same sort of analysis. 27 MR. LYLE: That would be satisfactory, as long 28 as you explain the underlying assumptions as to where Les Services StenoTran Services Inc. 613-521-0703 1479 AMOCO PANEL, ex (Lyle) 1 those numbers came from. 2 In addition, referring back to the Imperial 3 evidence, Imperial also developed the numbers on the 4 amount that you would have to pay for transmission rates 5 under gross load billing if you were to actually go 6 ahead and build embedded generation. 7 If you could provide that number as well under 8 an undertaking as well. 9 MR. DESROCHERS: We can provide all that. 10 MR. LYLE: Thank you. Gentlemen, if I could 11 move you to Attachment B of the Settlement Agreement, 12 which is Exhibit I, as I understand your evidence and 13 this document, there is first of all a one-year period 14 which you refer to as the pre-installation period, and 15 then after that there is a further five-year period for 16 construction and bringing into operation of any embedded 17 generation that you might build. 18 During that time period you wish to be billing 19 transmission rates as if you had built embedded 20 generation already. Is that correct? 21 MR. DESROCHERS: That is correct. 22 MR. LYLE: If in fact the concept of gross 23 load billing had never been raised in OHNC's application 24 and they were planning to bill on the basis of net load 25 billing, and your contract had expired, as it is 26 expected to expire at the end of this year, you would 27 have been paying, based on the net load billing, the 28 full amount, the same amount as any other industrial Les Services StenoTran Services Inc. 613-521-0703 1480 AMOCO PANEL, ex (Lyle) 1 customer, for your transmission rates as of January 1, 2 2001. Is that correct? 3 MR. DESROCHERS: I guess if OHNC's proposal 4 was not for gross billing, we would be paying on net 5 billing, as everyone else would be. 6 MR. LYLE: Under OHNC's proposal, given that 7 you don't have any embedded generation, you will still 8 be paying for net billing as of January 1, 2001. 9 MR. DESROCHERS: On expiry of our contract we 10 will be paying the net billing or appropriate 11 transmission tariffs at that point in time. If it is 12 net billing and we are going to install our physical 13 generation project, then we would also be paying on net 14 billing too. 15 MR. LYLE: Where I am having difficulty, 16 gentlemen, is I understand the argument with respect to 17 the date of October 1998 and that being the cut-off for 18 embedded generation not being gross load billed. I 19 understand the concern that you have with respect to 20 that date. 21 Where I am having difficulty is seeing why you 22 are in any different place with respect to that six-year 23 time period before you actually install cogeneration 24 than you would have been if in fact OHNC was not 25 proposing gross load billing. 26 Can you help me on that? 27 MR. DESROCHERS: When we entered into our load 28 retention and expansion rate contract, prior to the Les Services StenoTran Services Inc. 613-521-0703 1481 AMOCO PANEL, ex (Lyle) 1 expiry of that contract we started looking at installing 2 our embedded generation project. At that time in 1998 3 when we started looking at that, there was too much 4 regulatory uncertainty to make a decision to install 5 that project. 6 Therefore, what we are asking for is just a 7 fair transition, now that there will hopefully be 8 greater clarity as to how our contract will be treated, 9 to now allow us to make that decision in an appropriate 10 time frame to install that generation. 11 MR. LYLE: You are not the only company that 12 has faced regulatory uncertainty either in 1998 or 13 today. Is that fair? 14 MR. DESROCHERS: That is correct. 15 MR. LYLE: What I am trying to understand is: 16 Whether or not there had been gross load billing, you 17 would have been charged the same amount as of January 1, 18 2001 under OHNC's proposal today, because you don't have 19 any physical embedded generation actually in place. 20 Is that correct? 21 MR. DESROCHERS: We would be charged the 22 appropriate gross load bill on January 1, but we were 23 not able to make a decision to install our generation 24 earlier to make sure that it was in place prior to the 25 expiry of the contract or shortly thereafter due to the 26 regulatory uncertainty. 27 MR. LYLE: But you just agreed with me, 28 though, that regulatory uncertainty is something that Les Services StenoTran Services Inc. 613-521-0703 1482 AMOCO PANEL, ex (Lyle) 1 many other companies have been facing during this 2 transition in the electricity industry? 3 MR. DESROCHERS: Regulatory uncertainty has 4 been faced by all, but we entered into our load 5 retention and expansion rate which had benefits for all. 6 All we are asking for is to be treated fairly through a 7 transition. 8 MR. LYLE: Now, gentlemen, in your proposal 9 the installation period is proposed to be five years. 10 Can you tell me why it is going to take you five years 11 from the time you make a decision to go with the cogen 12 plant to the time that cogen plant is actually in 13 operation? 14 MR. DESROCHERS: Typically, the five year 15 number is pretty standard in the industry in order to 16 get a large cogen -- well, to get a large cogeneration 17 project up and going there is time that is required for 18 putting the agreements together. There is time that is 19 required for long lead items. Currently, the term in 20 the market is a three year lead item. Then there is 21 probably a year, year and a half, to actually physically 22 construct and then commission the plant. 23 So five years, we believe, is a reasonable 24 number to start evaluating all the alternatives and all 25 the parameters you would have to do to install a 26 cogeneration project and from that point have it up and 27 running. 28 As well, in our proposal, whether it takes Les Services StenoTran Services Inc. 613-521-0703 1483 AMOCO PANEL, ex (Lyle) 1 three years or five years, because of the clawback 2 Ontario Hydro would be indifferent. If we don't build 3 we will pay back the difference between what we would 4 pay as an embedded generator or what we would have paid 5 if we were a regular load on the system. 6 I guess, in addition, the five years is the 7 time frame that Ontario Hydro has proposed that existing 8 embedded generators that have been mothballed be allowed 9 to bring their projects back on line to be net billed. 10 If we do not bring them on line within that five year 11 period they will be treated as gross load billing. 12 That is our rationale for the five years. 13 MR. LYLE: Thank you, gentlemen. 14 Those are all my questions. 15 THE PRESIDING MEMBER: Thank you, Mr. Lyle. 16 Mr. Rogers, please. 17 MR. ROGERS: I have no questions. Thank you. 18 THE PRESIDING MEMBER: Thank you, Mr. Rogers. 19 The Board may have some questions. 20 Mr. Vlahos. 21 MEMBER VLAHOS: Thank you, Mr. Chair. 22 Gentlemen, just some clarification that I 23 need. 24 Mr. Desrochers, you spoke about the issue, the 25 same issue being proposed for the IMO proceeding. Do 26 you recall that? 27 MR. DESROCHERS: Yes, I do. 28 MEMBER VLAHOS: I was left with the impression Les Services StenoTran Services Inc. 613-521-0703 1484 AMOCO PANEL 1 that whatever this Board, this panel, will decide on 2 that issue then it will automatically apply to the 3 IMO-related charges for your company. Is that what you 4 said? 5 MR. DESROCHERS: Based on my understanding of 6 the transcript I realize that this Board cannot bind the 7 decision of other boards. But I think my interpretation 8 of what I read in the transcript was that what would 9 come out of here would have significant bearing on how 10 we are treated at the IMO. 11 MEMBER VLAHOS: Okay. Perhaps that goes a bit 12 beyond what the ruling said. The ruling invited the 13 company to approach the Board regarding the decision 14 that this panel would make. Is that fair? 15 MR. DESROCHERS: Yes, that's fair. 16 MEMBER VLAHOS: Also, you have stated that 17 when you referred to the Attachment B of the settlement 18 agreement that there was a compromise on all sides and 19 agreed to by the parties or all the parties. I was left 20 with the impression that there was a final settlement of 21 this issue by all the parties. That is not correct, is 22 it? 23 MR. DESROCHERS: That is not the case. I 24 meant to say one has referred to it as a proposed ADR 25 settlement. If I said it was a settlement I was 26 mistaken. 27 If you look at the earlier pages it shows the 28 parties that were signed on, parties that had no Les Services StenoTran Services Inc. 613-521-0703 1485 AMOCO PANEL 1 position, and there was some parties that were opposed 2 as well. 3 MEMBER VLAHOS: All right, thank you 4 Thank you, Panel. Those are my questions. 5 THE PRESIDING MEMBER: Thank you, Mr. Vlahos. 6 Mr. Smith, please. 7 MEMBER SMITH: I got confused throughout your 8 testimony as to whether or not you received a financial 9 benefit from entering into the contract with Ontario 10 Hydro. Part of your testimony seemed to say that there 11 was no financial benefit because you were neutral as to 12 whether you took the contract or built the plant, it 13 came out the same. 14 Another part of the testimony seemed to say 15 that because you were able to save on capital and invest 16 that capital somewhere else, that there indeed was a 17 financial benefit to you because you could use your 18 capital twice, in a sense; you get the virtual 19 generation and you had the capital to use somewhere 20 else. If that is the case there was a financial 21 benefit. 22 Can you help me with this? 23 MR. DESROCHERS: Maybe to help clarify, I 24 think when our LRER was calculated it included all the 25 financial costs associated with that in terms of capital 26 costs, costs of carry, interest, so that the LRER price 27 reflected that. It did allow us to defer that capital 28 to a later date in the future. Les Services StenoTran Services Inc. 613-521-0703 1486 AMOCO PANEL 1 MEMBER SMITH: So there was no financial 2 benefit? 3 MR. DESROCHERS: We were kept neutral. 4 MEMBER SMITH: If you entered a contract that 5 didn't give you a financial benefit was there 6 non-financial benefits you derived from this contract? 7 MR. DESROCHERS: Sorry, sir? 8 MEMBER SMITH: You say you were neutral. It 9 was as if we go in, we don't go in, we really don't 10 care, we are indifferent. So you didn't get anything 11 out of this contract, it kept you in your status quo. 12 Why would you enter a contract that you didn't get 13 anything out of? 14 MR. DESROCHERS: It kept us status quo with 15 having built the physical generation. So if we were to 16 have built the generation and actually put the 17 generation in the ground our return would have been 18 equivalent as if we entered into the load retention and 19 expansion rate contract. 20 In other words, we did not get -- the 21 discount when up -- the load retention and expansion 22 rate cost factored all the capital and associated things 23 in there while -- as the return on that capital for 24 whomever put that capital in. So that would not be 25 something that we would be paying. 26 Whether we used our capital or somebody else's 27 capital somebody -- that return was factored into the 28 load retention rate. So if we had invested our capital Les Services StenoTran Services Inc. 613-521-0703 1487 AMOCO PANEL 1 and we would be earning at a certain percentage on that, 2 that was factored into the load retention contract as 3 well and that resulted in a certain electricity price. 4 MEMBER SMITH: I understand. So in that sense 5 it didn't free up capital because you were paying the 6 price of that capital in a virtual way? 7 MR. DESROCHERS: In a virtual way, yes. 8 MEMBER SMITH: I will leave that. I will just 9 try one more time. 10 What was the financial benefit you received 11 from going into this contract or what was the benefit? 12 You say it was 50/50 but you must have felt it tilted a 13 little bit going in, as opposed to not going in, 14 otherwise you would not have gone into it. 15 MR. DESROCHERS: It interrupted the flow of 16 capital. Although the costs for that capital are 17 embedded in the load retention agreement, the capital 18 did not have to be spent. So perhaps that could be 19 viewed as a benefit, it defers payment on capital to a 20 later date, although the cost to carry that capital was 21 factored into our load retention rate. 22 MEMBER SMITH: I will leave it there. 23 Thank you. 24 THE PRESIDING MEMBER: Thank you. 25 I have a few questions as well. 26 First of all, I think many of these may be 27 illuminated when you come up with your example. So 28 could I just make sure that they are on the record in Les Services StenoTran Services Inc. 613-521-0703 1488 AMOCO PANEL 1 case they are not? 2 First of all, are you asking for an extension 3 or special treatment on your line connection 4 transmission costs or not, under this, under your 5 proposal? 6 MR. DESROCHERS: Under our proposal we are 7 asking to be treated as an existing embedded generator 8 which would be both for the network and the connection. 9 So we are asking for an exemption, the same as would be 10 applied to an existing embedded generator which, in our 11 understanding, includes both connection and network. 12 THE PRESIDING MEMBER: So you want to be net 13 load billed, in essence -- and that is another thing I 14 will come to in a minute -- as if you were an existing 15 generator on both network and line? 16 MR. DESROCHERS: That is correct. 17 THE PRESIDING MEMBER: Okay. 18 --- Pause 19 THE PRESIDING MEMBER: My colleague is just 20 looking at the tables in Imperial, but we will see yours 21 when they come and I'm sure you will have reference to 22 theirs. 23 You asked for a grace period in which to 24 connect your "physical generator" similar to 25 reconnection of other embedded generators that are 26 allowed so that big plants that are mothballed have a 27 grace period to reconnect. Right? I understand that 28 was a total of five years from the market opening. Is Les Services StenoTran Services Inc. 613-521-0703 1489 AMOCO PANEL 1 that correct? 2 MR. DESROCHERS: That is correct. That is the 3 way I understand it in OHNC -- 4 THE PRESIDING MEMBER: And you are actually 5 asking for 72 months or another 12 months on top of that 6 in total. Is that correct? 7 MR. DESROCHERS: That's correct. 8 THE PRESIDING MEMBER: So where the others are 9 going to get 60 months, you are asking for this extra 10 one year to make your decisions than the 60 months 11 after. Is that right? 12 MR. DESROCHERS: That is correct. 13 I guess the existing embedded generators know 14 how they are going to be treated. The reason we are 15 asking for that one year is so that we can find out how 16 we are going to be treated, if we are going to be 17 treated as truly embedded generation across all the 18 unbundled segments. 19 THE PRESIDING MEMBER: So you would be treated 20 as an embedded generator for tax purposes for a total of 21 72 months from the day the market opens as a maximum if 22 you were to go and build, and then you have your rebate 23 plan, as you would call it. Right? 24 MR. DESROCHERS: Have our physical plant in 25 service before the end -- 26 THE PRESIDING MEMBER: Right. 27 MR. DESROCHERS: Yes. 28 THE PRESIDING MEMBER: Okay. Les Services StenoTran Services Inc. 613-521-0703 1490 AMOCO PANEL 1 Now, if net billing for new generation was 2 approved or the applicant's 50 per cent, then how would 3 that impact on you or how would that provide the relief 4 that you are requesting? 5 MR. DESROCHERS: If we got net billing across 6 the system, that still would not put us in the same 7 position as being treated as a net generator, therefore 8 it would only remedy part of what we are presenting here 9 today, therefore we would still present our case to be 10 treated as an embedded generator. 11 THE PRESIDING MEMBER: I would just like to 12 try and understand perhaps what you see as your options 13 going forward. 14 Right now you have LRER contract that is good 15 until the end of the year or until the market opens. We 16 will come to that in a minute. One option you have is 17 just to go the deregulated market and negotiate a power 18 contract and then pay transmission at approved rates as 19 a load, and then also pay IMO charges and CTC charges, 20 et cetera, as a load. That is one option. Right? 21 MR. DESROCHERS: That is an option, yes. 22 THE PRESIDING MEMBER: Depending on whether 23 that all adds up to more or less money than you are 24 paying now, of course, is the big question for you, 25 whether all those things add up. 26 MR. DESROCHERS: We think that, again, due to 27 the unique nature of our plant being an ideal site for 28 cogeneration, by developing a cogeneration plant that Les Services StenoTran Services Inc. 613-521-0703 1491 AMOCO PANEL 1 will be our lowest cost of supply. 2 THE PRESIDING MEMBER: Now, under another 3 option you have, which is basically the option that you 4 are asking for for the interim period, and we have the 5 clawback issue, is to enter into a power contract with a 6 generator such as OPGI or someone else under a bilateral 7 contract, for example, as opposed to going to the spot, 8 and you are paying tax at the same rates as embedded 9 generators under your proposal, right, and this is for 10 the -- and then you would pay also IMO charges and also 11 CTC based on whatever they are going to be charged on as 12 far as charge determinants are concerned. So, under 13 that one, you might end up financially better off or 14 worse off than you are under the LRER contract now. 15 Have you made any assessment -- and I think 16 you answered this, "No, we haven't yet done that 17 assessment." Right? 18 MR. DESROCHERS: That is correct. 19 THE PRESIDING MEMBER: Then your third option 20 is to build a generator, you know, the capital cost, and 21 then it could either be a gross load bill for 22 transmission at a 50 per cent access fee, which is the 23 proposal of the applicant, or it could be on another 24 basis depending on this decision. Then you would have 25 also the IMO charges and the CTC charges which you are 26 seeking some relief on as well. Is that right? 27 MR. DESROCHERS: That is correct. We are 28 seeking relief on the IMO charges. And CTC, as it is Les Services StenoTran Services Inc. 613-521-0703 1492 AMOCO PANEL 1 still undetermined how it is going to be treated for 2 embedded generation, we would expect to be no different. 3 If all embedded generation has to pay, then we should 4 pay as well. 5 THE PRESIDING MEMBER: It is a very simple 6 summary, but is that sort of how you view your options 7 on a going-forward basis? 8 MR. DESROCHERS: I believe that summarizes the 9 range of options that are open to us. 10 THE PRESIDING MEMBER: Right. Okay. Thank 11 you. 12 A final question. Your agreement with OPGI 13 apparently expires on December 31st, 2000. Is that 14 correct? 15 MR. DESROCHERS: That is correct. 16 THE PRESIDING MEMBER: So if the assumption is 17 that the market opens on November the 1st, or 18 thereabouts, 2000, who pays for the two months between, 19 the last two months of the contract? What is the 20 financial arrangement? 21 MR. DESROCHERS: Between ourselves and Ontario 22 Power Generation? 23 THE PRESIDING MEMBER: Yes. 24 MR. DESROCHERS: Our understanding is that 25 when the market opens we now pay the new transmission 26 rates and our load retention and expansion rate is 27 voided because of the new legislation, so therefore we 28 pay a spot market price plus -- Les Services StenoTran Services Inc. 613-521-0703 1493 AMOCO PANEL 1 THE PRESIDING MEMBER: That is what the 2 legislation says but that is not what the contract says. 3 There is a difference. 4 MR. DESROCHERS: Well, that is what -- 5 THE PRESIDING MEMBER: Do you have recourse to 6 OPGI for the balance, the last two months, or not? Or 7 is there a clause in the contract that says it is toast 8 when something happens on the market or anything else? 9 MR. DESROCHERS: My understanding is that the 10 legislation overrides the contracts and that we don't 11 have recourse. But, again, I'm not a lawyer to Ontario 12 Power Generation for the remainder of this existing 13 contract. 14 THE PRESIDING MEMBER: Okay. Thank you very 15 much. 16 Mr. Vlahos has a question. 17 MEMBER VLAHOS: Mr. Desrochers, I would just 18 like you to expand on one of the responses that you gave 19 to the Presiding Member when he asked you if this panel 20 were inclined to go for a net billing, and for the 21 moment assume both network as well as a line connection, 22 you have responded that the relief that you will receive 23 from this would not be adequate. It would not satisfy 24 you. 25 Could you expand as to what remains and why? 26 MR. DESROCHERS: I think if we receive net on 27 network and net on connection, I believe that would 28 probably satisfy our requirements. Les Services StenoTran Services Inc. 613-521-0703 1494 AMOCO PANEL 1 MEMBER VLAHOS: Okay. Because your answer 2 previously was that that was not adequate. 3 MR. DESROCHERS: That was what my 4 understanding was. Maybe I misunderstood that we had 5 net on network but full on connections. I guess what we 6 would be looking to see is as long as net on everything 7 is the same as the embedded generation, then that would 8 be how we would want to be treated. 9 THE PRESIDING MEMBER: Thank you, Mr. Vlahos. 10 Well, gentlemen, your ordeal is over. Thank 11 you very much. Unless your counsel has some redirect, 12 which he may have. 13 RE-EXAMINATION 14 MR. VEGH: Just some brief redirect. 15 On the point just raised by Member Vlahos, I 16 wonder if you could clarify that for me at least. Do I 17 take you to say that if the Board rules on -- does not 18 approve Ontario Hydro proposals with net on network and 19 net on connection and from Amoco's perspective it would 20 be treated in the same way as if it had built generation 21 in 1996. 22 MR. DESROCHERS: That would be my 23 understanding, that we would be -- I think to maybe 24 further clarify that point is that -- 25 MR. VEGH: Let me put it this way. 26 MR. DESROCHERS: Yes. 27 MR. VEGH: If you had built generation in 28 1996, you wouldn't be purchasing any electricity from Les Services StenoTran Services Inc. 613-521-0703 1495 AMOCO PANEL, re-ex (Vegh) 1 the line, would you? 2 MR. DESROCHERS: That is correct. Maybe I 3 need to be a little bit more clear there, I guess. If 4 we get net on everything, assuming that we billed, we 5 will get net, but we also believe that there should be 6 some kind of transition mechanism because we were not 7 able to make a decision to build during our five year 8 contract period. We would be seeking some kind of fair 9 condition in addition to the net, in addition to being 10 treated as a net generator. 11 MR. VEGH: Maybe just a couple of other areas. 12 Mr. Mark asked you some questions on the prefiled 13 evidence. I wonder if you could turn that up, please. 14 In particular, page 20, the conclusion in paragraph 48. 15 Do you have that, Mr. Desrochers? 16 MR. DESROCHERS: Yes. 17 MR. VEGH: The reference here is to the rule 18 set down by the old regulator and Mr. Mark asked you 19 some questions. Were there rules in place that Amoco 20 had to meet in order to qualify for the LRER rate? 21 MR. DESROCHERS: Yes, there was. In order to 22 be eligible for the LRER rate, we had an extensive third 23 party review process. It was only after the independent 24 review that we did receive our load retention and 25 expansion rate. Again, it was important for Amoco that 26 this was done independently because, as shown in our 27 evidence through the long history, Amoco and Ontario 28 Hydro could not agree on the validity of our project. Les Services StenoTran Services Inc. 613-521-0703 1496 AMOCO PANEL, re-ex (Vegh) 1 MR. VEGH: Can I take you back, please, to 2 paragraph 26 of the evidence. Mr. Desrochers, I believe 3 you and Mr. Mark had some exchange on the quotation set 4 out in paragraph 26. The question in particular is what 5 turned upon the reference to the word "virtual amount" 6 which is underlined at the end of the second paragraph. 7 Could you please read the paragraph following 8 that, please. 9 MR. DESROCHERS: 10 "The proposal would provide Amoco with 11 all the benefits of actually purchasing, 12 installing and operating the proposed 13 NUG, while fixing capital, construction 14 and operating risks etc." 15 Can you advise what that statement meant to 16 you at the time? 17 MR. DESROCHERS: That meant to us that we 18 would be able to build -- the fact to build without 19 prejudice during the term of our contract. The idea was 20 that it was strictly a deferral contract for supply, 21 that we would be able to make an unencumbered decision 22 to put our physical plant in. 23 The reason for entering into the LRER was 24 there was benefits for all parties. 25 MR. VEGH: Thank you, panel. Those are my 26 questions. 27 THE PRESIDING MEMBER: Thank you, Mr. Vegh. 28 Thank you again, panel, for coming here and Les Services StenoTran Services Inc. 613-521-0703 1497 AMOCO PANEL, re-ex (Vegh) 1 presenting your evidence. We again thank you. 2 MR. DESROCHERS: Thank you. 3 MR. LYLE: Just before we go on to the next 4 witness panel, Mr. Chair, I omitted to give to give an 5 undertaking number when I received an undertaking from 6 the witness panel, so if we give that F8.1 now. 7 UNDERTAKING NO. F8.1: Mr. Desrochers 8 undertakes to provide the charge that you 9 would anticipate paying if you don't have 10 any embedded generation under OHNC's 11 proposal, and the amount that you would 12 anticipate paying if in fact you had 13 built embedded generation prior to 14 October 1998 under OHNC's proposal, and 15 any relevant assumptions that might 16 underlie those numbers. In addition, the 17 numbers developed by Imperial on the 18 amount that you would have to pay for 19 transmission rates under gross load 20 billing if you were to actually go ahead 21 and build embedded generation 22 PRESIDING MEMBER: I think we will take a very 23 short break so everybody can shuffle around and get set 24 up and just a little comfort break until 3:15 because we 25 do want to get through everything today. 26 Thank you. 27 --- Upon recessing at 1501 28 --- Upon resuming at 1520 Les Services StenoTran Services Inc. 613-521-0703 1498 AMOCO PANEL, re-ex (Vegh) 1 THE PRESIDING MEMBER: Thank you. Please be 2 seated. 3 Okay. Ms Wong. 4 MS WONG: Thank you, Mr. Chair. What I 5 propose to do is simply introduce the panel by name and 6 ask them to go up to be sworn and then I will give a 7 brief introduction of each of them after they have been 8 sworn. 9 THE PRESIDING MEMBER: Fine. Thank you. 10 Please be seated. 11 MS WONG: Sitting closest to the panel is Mr. 12 Brian Fischer, who is a Senior Vice-President of 13 Imperial Oil and a Director of Imperial Oil. In the 14 middle is Mr. Paddy Roach who is employed at the Sarnia 15 plant and is in charge of infrastructure. On the 16 closest to us is Mr. Michael McEachen who is also 17 employed at the Sarnia plant. 18 If the gentlemen can go up and be sworn. 19 SWORN: BRIAN FISCHER 20 SWORN: PADDY ROACH 21 SWORN: MICHAEL McEACHEN 22 EXAMINATION-IN-CHIEF 23 MS WONG: A few days ago I circulated and left 24 on the side the CVs for the witness panel, so if anyone 25 needs it, it's right over there on the counter. 26 Mr. Fischer, I understand that you are 27 employed by Imperial Oil as Senior Vice-President, 28 Products and Chemical Division, and that you are also a Les Services StenoTran Services Inc. 613-521-0703 1499 IMPERIAL OIL PANEL, in-ch (Wong) 1 Director of Imperial Oil Limited. Is that correct? 2 MR. FISCHER: That's correct. 3 MS WONG: And I understand that you hold a 4 Bachelor of Science degree in Civil Engineering from 5 Carleton University and a Masters degree in Chemical 6 Engineering from the University of Waterloo. 7 MR. FISCHER: That's right. 8 MS WONG: Thank you. Now, Mr. Fischer, you 9 have been continuously employed by Imperial Oil or an 10 affiliated company, and by affiliated such as Exxon 11 Chemical or an Exxon company, since 1968. 12 MR. FISCHER: That's right. 13 MS WONG: And you became Senior Vice-President 14 of the Chemicals Division and were appointed as a 15 Director of Imperial Oil Limited in 1992. 16 MR. FISCHER: Correct. 17 MS WONG: And you have held your current 18 position as Senior Vice-President, Products and 19 Chemicals Division, since February 1994. 20 MR. FISCHER: That's right. 21 MS WONG: Now I understand, sir, that you have 22 the responsibility for the final approval of all of the 23 Imperial Oil prefiled evidence. 24 MR. FISCHER: That's right. That's correct. 25 MS WONG: And at Exhibit H19.1. You accept 26 that material as your evidence in this case, Mr. 27 Fischer. 28 MR. FISCHER: I do. Yes. Les Services StenoTran Services Inc. 613-521-0703 1500 IMPERIAL OIL PANEL, in-ch (Wong) 1 MS WONG: I also understand that you were 2 involved in some of the negotiations between Ontario 3 Hydro and Imperial Oil in the 1995-1996 time frame. 4 MR. FISCHER: That's right. 5 MS WONG: And you were also involved in the 6 approval of the load retention contract by Imperial 7 Oil's management. 8 MR. FISCHER: That's also correct. 9 MS WONG: Thank you. Now, if we could turn to 10 Mr. Roach for a moment. Mr. Roach, I understand that 11 you are the Manager of Utilities and Technical Services 12 at Imperial Oil's Sarnia manufacturing site. 13 MR. ROACH: That is correct. 14 THE PRESIDING MEMBER: When you use the 15 microphone, would you like to pull it in front of you. 16 Thank you. 17 MR. ROACH: All right. 18 MS WONG: And you hold a Bachelor of Applied 19 Science degree from the University of British Columbia. 20 MR. ROACH: Yes. 21 MS WONG: And a Masters degree in Chemical 22 Engineering from the University of Waterloo. 23 MR. ROACH: Right. 24 MS WONG: You joined Imperial Oil's 25 Engineering Division in Sarnia in 1966. 26 MR. ROACH: Correct. 27 MS WONG: And you have been continuously 28 employed by Imperial Oil or an affiliated company since Les Services StenoTran Services Inc. 613-521-0703 1501 IMPERIAL OIL PANEL, in-ch (Wong) 1 that time. 2 MR. ROACH: Yes. That's correct. 3 MS WONG: You were appointed the Cogeneration 4 and Infrastructure Manager for the Sarnia manufacturing 5 site in 1995. 6 MR. ROACH: Yes. That's right. 7 MS WONG: And you have held your current 8 position as Manager of Utilities and Technical Services 9 since May of 1997. 10 MR. ROACH: Yes. 11 MS WONG: Thank you. Can you confirm that you 12 have reviewed all of the evidence filed by Imperial Oil 13 in this matter and that to the best of your information 14 it is accurate and complete? 15 MR. ROACH: Yes, that's correct. 16 MS WONG: And do you believe all of the 17 evidence -- I have asked that question -- to be 18 accurate? 19 MR. ROACH: Yes, I do. 20 MS WONG: And you accept it as your evidence 21 in this proceeding? 22 MR. ROACH: Yes. 23 MS WONG: Thank you. 24 Now, Mr. Roach, I understand that you were 25 involved in the negotiations between Ontario Hydro and 26 Imperial with respect to the LRER contract? 27 MR. ROACH: Yes, that's correct. 28 MS WONG: You are the person at Imperial who Les Services StenoTran Services Inc. 613-521-0703 1502 IMPERIAL OIL PANEL, in-ch (Wong) 1 is responsible for how that contract is administered? 2 MR. ROACH: Yes. 3 MS WONG: You are also the person responsible 4 for overseeing Imperial's current cogeneration 5 development project in Sarnia? 6 MR. ROACH: Correct. 7 MS WONG: Thank you. 8 Now, the third member of the panel is 9 Mr. Michael McEachen. 10 Mr. McEachen, I understand that you are the 11 Business Unit Leader for Infrastructure at Imperial 12 Sarnia Manufacturing Site? 13 MR. McEACHEN: Yes. 14 MS WONG: You have held that position 15 since 1998? 16 MR. McEACHEN: Yes. 17 MS WONG: You joined Imperial in 1978? 18 MR. McEACHEN: Yes. 19 MS WONG: And have been employed at Sarnia 20 since that time? 21 MR. McEACHEN: That is correct. 22 MS WONG: Sir, you are the one responsible for 23 the initial preparation of the prefiled evidence? 24 MR. McEACHEN: That is correct. 25 MS WONG: Do you believe it to be true and 26 accurate? 27 MR. McEACHEN: Yes, I do. 28 MS WONG: Mr. Chair, I have asked Mr. Fischer Les Services StenoTran Services Inc. 613-521-0703 1503 IMPERIAL OIL PANEL, in-ch (Wong) 1 just to be prepared to answer a few questions to give a 2 summary of the evidence and to deal with some of the 3 issues that come up in the course of cross-examination. 4 THE PRESIDING MEMBER: Fine. Thank you. 5 MS WONG: Mr. Fischer, would you please 6 describe Imperial Oil's interest in these proceedings? 7 MR. FISCHER: Yes. 8 Imperial Oil has intervened in these 9 proceedings because we are very much affected in a 10 negative way by the treatment that OHNC is proposing for 11 customers who have load retention and expansion rate 12 contracts and we were one of those. 13 We believe that OHNC's proposal unfairly 14 prejudices Imperial and that the company would be 15 penalized for its decision to enter into its load 16 retention contract with Ontario Hydro in February 17 of 1996. 18 MS WONG: Can you explain, sir, why you think 19 the proposal is unfair to Imperial Oil? 20 MR. FISCHER: It probably goes without saying 21 that in the commodity business that we are in focusing 22 on costs is a fundamental part of what we do. 23 By 1993 it became apparent for our Sarnia site 24 that the only gap between achieving best in-class or 25 world-class cost structures and where we were at was our 26 cost of electricity. We looked at, over many years 27 prior to that, building a cogeneration facility and 28 could not achieve -- meet our hurdle rates within the Les Services StenoTran Services Inc. 613-521-0703 1504 IMPERIAL OIL PANEL, in-ch (Wong) 1 company. 2 So by 1993 the cost of electricity had risen 3 to the extent and the progress and technology had 4 advanced to the extent that a project was viable. 5 So in 1995 we became firmly committed to 6 building a cogeneration facility, supply all of our 7 electrical power needs at the Sarnia site. We had 8 completed all of the front engineering, the design 9 specification, had appropriated funds and had started 10 construction work on our site. 11 Imperial agreed to defer construction of our 12 project at the urging of Ontario Hydro. We were advised 13 by Ontario Hydro that if we built a facility we would 14 add to already surplus capacity. I would have to say, 15 as a manager in our industry again, I spent most of my 16 career dealing with surplus capacity. Our industry is 17 famous for having too much capacity chasing too little 18 demand. 19 In the case of a business, that surplus 20 capacity becomes an economic rock around the company's 21 neck and in the case of a public company it ultimately 22 becomes a burden to the consumer. 23 So if we were to contribute to that surplus 24 capacity, we viewed that that would not be socially 25 responsible, but we also have shareholdings that we must 26 meet. So the discussions we entered into with Ontario 27 Hydro is that if we could be indifferent against our 28 alternative that we would defer our cogeneration Les Services StenoTran Services Inc. 613-521-0703 1505 IMPERIAL OIL PANEL, in-ch (Wong) 1 project. It was clearly always a deferral. 2 Hydro had raised the idea of a deferral 3 contract as early as 1994 with us but, frankly, the 4 discussions and negotiations that went on then were 5 extremely complex, veered far away from the point at 6 hand on occasion. We were offered for Ontario Hydro to 7 loan us capital to invest in energy conservation 8 projects and what have you and certainly not as direct 9 as reducing our electrical rates so that we could be 10 indifferent. 11 Because of the complexity of those kinds of 12 offers, the negotiations bogged down by May of 1995 and 13 we needed to make a decision. Our project costs were 14 mounting at a steep rate. We were committed to going 15 ahead with the development of our cogen unless Ontario 16 Hydro came to the table with a specific deal. 17 I contacted John Fox, who had become my 18 contact at Ontario Hydro at that time, that our cogen 19 facility had to receive senior management committee 20 approval and we would be going ahead unless we could 21 reach a firm agreement that kept us indifferent and 22 resulted in a deferral. 23 The deal we worked out with Ontario Hydro was 24 done on the basis that Imperial would be held 25 financially indifferent as to whether or not we built 26 the generation in 1996 or deferred and built at the end 27 of the contract. This was over the life of the project, 28 not over the life of the contract. Les Services StenoTran Services Inc. 613-521-0703 1506 IMPERIAL OIL PANEL, in-ch (Wong) 1 I can refer you to in our evidence to Tab C. 2 MS WONG: The Imperial evidence is 3 Exhibit H19.1. 4 MR. FISCHER: I think Tab F would possibly be 5 a better reference. Either one is, but Tab F I think is 6 probably even more important. 7 Do you have that? 8 THE PRESIDING MEMBER: Yes, we have that. 9 MR. FISCHER: Tab F is a letter from a 10 Mr. Richards, the Manager of Direct Sales and Customer 11 Service for Ontario Hydro to John Fox, the Executive 12 Vice President and Managing Director, Customer Services 13 Group. 14 I refer you in particular to the paragraph 15 that has a point "1" beside it. It says: 16 "Both sides have agreed upon two 17 fundamental negotiating points: 18 1.) that the objective of the 19 negotiations has been to defer 20 installation of the cogeneration project 21 at the Sarnia site for a period of three 22 years. The method of determining this 23 lost value to Imperial Oil will be 24 calculated by `holding Imperial Oil Ltd. 25 harmless in NPV terms over the life of 26 the project through deferral'." 27 Now, midway through our contract the 28 government, as you are aware, instituted the new regime Les Services StenoTran Services Inc. 613-521-0703 1507 IMPERIAL OIL PANEL, in-ch (Wong) 1 which totally changed the rules. 2 When Imperial entered into the contract in 3 February 1996 I want to assure you that we had no 4 expectation that the electricity industry was going to 5 be restructured. Restructuring and the possibility of 6 competition in the industry played absolutely no role in 7 our thinking at the time and it never came up at all in 8 our negotiations with Ontario Hydro. 9 In fact, it was not until May of 1996 when 10 there was any indication or reregulation or deregulation 11 coming and the white paper was not published until 12 November of 1997. 13 Even then I would have to say that I 14 questioned -- I thought it was a brilliant effort to 15 move in that direction, I questioned whether it would be 16 possible to privatize Ontario Hydro because of the 17 substantial economic debt that it had. 18 So Imperial entered into the LRER contract 19 with the belief that we would be able to build our cogen 20 plant at the end of the contract term under essentially 21 the same conditions as it would have done in 1996. I'm 22 not naive enough to believe that we could have guessed 23 what gas prices or electrical prices or anything would 24 have been. 25 When I talk about "the same conditions", it is 26 those that are managed and controlled by the regulators. 27 We believed that because of that we would not 28 be prejudiced by deferring construction and that was a Les Services StenoTran Services Inc. 613-521-0703 1508 IMPERIAL OIL PANEL, in-ch (Wong) 1 key factor in our decision to assist Ontario Hydro by 2 entering into the contract. 3 Within our own company there were a number of 4 managers that wished to proceed with building. In fact, 5 with what we had been through at the Sarnia site in 6 improving our costs and our competitive position, 7 building a facility was viewed to be a further 8 demonstration of commitment to the site and a further 9 manifestation of security for the employees. 10 But in the end, we were willing to assist 11 Hydro so long as it did not hurt our customers or our 12 shareholders. And that is what we did. Unfortunately, 13 under the OHNC transmission rate proposal, Imperial 14 would suffer a very significant financial penalty as a 15 result of our decision to defer building. 16 In our prefiled evidence we have set out the 17 calculation showing that under the OHNC proposal, if 18 Imperial had built in 1996 our transmission rates going 19 forward after market opening would be about $4 million 20 per year less. 21 Even if we build cogen capacity in the future, 22 Imperial's transmission costs, after its cogen plant 23 comes into operation, would still be about $2 million 24 higher than if we had built in 1996. 25 Imperial believes that it is unfair that we 26 should have to pay these substantially higher costs when 27 it was committed to building long before the government 28 restructuring plans were announced. We only deferred Les Services StenoTran Services Inc. 613-521-0703 1509 IMPERIAL OIL PANEL, in-ch (Wong) 1 completing the construction in order to benefit Ontario 2 Hydro and reduce the further burden on the Ontario 3 consumer. 4 We are not saying in any way that the contract 5 has been breached. The contract is over when the market 6 opens. 7 However, Ontario Hydro clearly knew when they 8 were doing their plans and development of the network 9 and transmission systems that we were going to build, 10 because the contract was based on a deferral. So there 11 is not a surprise to the city electrical system. 12 As well, both MDC and OHNC's rationale for the 13 way existing or committed cogeneration should be treated 14 differently is predicated on the basis that those 15 economic decisions made in the old regime should not be 16 reduced by the rules that were then unknown. And we 17 support that. 18 We also made economic decisions to assist 19 Ontario Hydro and not leave them with additional surplus 20 capacity. If we are not included as an embedded 21 generator, our economics will be reduced as well. 22 MS WONG: Thank you, sir. Just to go back and 23 pick up on a couple of things you mentioned, you pointed 24 us to Tab F and indicated there was something in Tab C. 25 Could you let us know what in Tab C you were referring 26 to? 27 MR. FISCHER: Let me just refer to Tab C 28 myself. Les Services StenoTran Services Inc. 613-521-0703 1510 IMPERIAL OIL PANEL, in-ch (Wong) 1 Tab C again, to me, implies but in a less 2 direct fashion that by deferring the project for a 3 mutually agreeable period, we will be "saved financially 4 harmless" in terms of project NPV. 5 The other document says over the life of the 6 project, which is very important to me. It is not over 7 the life of the contract. 8 MS WONG: And you are referring to point 1 in 9 that letter. 10 MR. FISCHER: In Tab F, that's right. 11 MS WONG: You have pointed to these two 12 statements about keeping you financially harmless. What 13 relevance does Imperial place on those representations? 14 What difference does it make to your case? 15 MR. FISCHER: I think in the conduct of all 16 business that was the framework and belief within which 17 we were operating and the representations made to us by 18 very senior people in Ontario Hydro. I think everybody 19 who does business would accept that kind of thing as a 20 fairly strong representation. 21 MS WONG: If you are indifferent to whether or 22 not you entered into the contract -- and this goes to 23 Member Smith's question at the end of Amoco -- why did 24 you enter into the contract? 25 MR. FISCHER: Let me, first of all, make sure 26 it is clear why we were indifferent and that in fact we 27 received no benefits above and beyond those we would 28 have enjoyed had we built the project. Les Services StenoTran Services Inc. 613-521-0703 1511 IMPERIAL OIL PANEL, in-ch (Wong) 1 There are some questions about capital and 2 would one not have been able to take the capital he 3 would have spent and used it elsewhere. Well, capital 4 can be acquired at a cost. And in calculating the 5 reduction in rate, we were debited by Ontario Hydro as 6 if we had spent the capital. So that money was not 7 available to us to go and acquire additional capital. 8 Second, it was based on a virtual cogeneration 9 facility where we exposed ourselves to both the 10 electrical cost risk and the natural gas risk. As I 11 said, it was the amount of money that we did not get in 12 a reduction from Ontario Hydro was exactly the same had 13 we borrowed the capital. 14 So from my perspective clearly -- and we 15 worked hard with Ontario Hydro to ensure that there was 16 no gain to us above and beyond what we would have 17 achieved. We did it for the simple reason that we view 18 waste, and particularly waste that is added to the 19 consumer, as almost abhorrent. 20 MS WONG: Could you briefly summarize for us 21 Imperial's proposal and the rationale for why you think 22 that proposal is fair. 23 MR. FISCHER: First of all, I think it has 24 become clear with the last set of witnesses, but I will 25 clarify it again. I will say what we are not asking 26 for. 27 For sure, we are not asking for the LRER 28 contract to be extended beyond the market opening or Les Services StenoTran Services Inc. 613-521-0703 1512 IMPERIAL OIL PANEL, in-ch (Wong) 1 beyond its termination date of December 2000. We are 2 definitely not asking for that. 3 We recognize the Electricity Act terminates 4 that contract as of market opening, and we have no 5 recourse to accept that. We are not asking the Board to 6 somehow revoke the effect of legislation. 7 In the simplest form, what we want is for the 8 definition of the existing embedded generator to include 9 Imperial Oil on the basis that we were committed prior 10 to October 1998 to building cogeneration. We would have 11 been an embedded generator had we not entered into the 12 agreement with Hydro for Hydro's benefit. 13 We will pay for transmission on the basis of 14 whatever uniform rate the Board sets for other existing 15 embedded generators. We do not believe, therefore, that 16 our proposal results in a departure from the concept of 17 uniform rates. 18 The OHNC proposal already proposes a different 19 rate class for existing embedded generation. We believe 20 that we belong in that rate class rather than in a class 21 proposed for those customers who do not have existing 22 generation. We obviously had committed generation, 23 which is also included in that concept. 24 Imperial's proposal is summarized in 25 Attachment B to the settlement document which was filed 26 with the Board. Nothing in the proposal suggests that 27 the LRER contract is to be extended beyond market 28 opening. Les Services StenoTran Services Inc. 613-521-0703 1513 IMPERIAL OIL PANEL, in-ch (Wong) 1 Essentially, the proposal is identical to what 2 Amoco has reviewed here earlier today, and the proposal 3 gives Imperial a period of six years to build our own 4 cogeneration facility. If we do build, we would be 5 entitled to be treated the same as existing embedded 6 generators after the cogen facility becomes operational. 7 In the interim, while the facility is under 8 construction, we would be entitled to pay for 9 transmission based on the usage we would have had if we 10 had actually built in 1996, at the size we would have 11 built in 1996. 12 If the cogen plant is not up and running, if 13 we have not found it economically attractive to us to do 14 that, once we understand the rules by the end of six 15 years, we would reimburse or the money would be clawed 16 back for the first five years. 17 The period of the one year that we would not 18 expect to pay back under the contract we had with 19 Ontario Hydro we essentially had two years to understand 20 the market rules. We are asking for one year in this 21 case. We would not be subject to paying back if we do 22 not proceed. 23 We believe the offer is fair because it 24 honours the principle that LRER customers should not be 25 financially prejudiced by their decision to defer 26 building and it recognizes the very unique circumstances 27 related to the very few LRER customers. It gives us a 28 reasonable period of time to understand the new rules Les Services StenoTran Services Inc. 613-521-0703 1514 IMPERIAL OIL PANEL, in-ch (Wong) 1 for the electricity industry so that we can make a 2 rational decision as to whether or not to build. 3 On the other hand, it is fair to OHNC's other 4 customers, because if we do not build then we would 5 treat it just like every other direct connect customer 6 who is not an existing generator. 7 MS WONG: Thank you, sir. Mr. Roach, I just 8 have one question for you. 9 During cross-examination a few days ago there 10 was a suggestion that there is a clause in the Imperial 11 LRER contract -- and I believe it is paragraph 12.1 of 12 that contract. The suggestion was that the effect of 13 that clause was that the contract could be terminated by 14 future government legislation, or that is what it was 15 put in there to deal with. 16 Were you involved in the negotiations 17 surrounding that provision? 18 MR. ROACH: Yes, I was. 19 MS WONG: Can you tell us what the intent of 20 that provision was. 21 MR. ROACH: The intent of the provision was 22 based on the fact that at the time of negotiating the 23 contract, we at Imperial were not absolutely certain 24 that Ontario Hydro at the time was fully empowered to 25 enter into an LRER agreement of the type that we were 26 entering into in terms of the contract as well as the 27 detail. 28 We wanted to be certain or assured by the Les Services StenoTran Services Inc. 613-521-0703 1515 IMPERIAL OIL PANEL, in-ch (Wong) 1 contract language that we, Imperial, could terminate the 2 contract if in fact that turned out to be true, that 3 Ontario Hydro was not fully empowered. We wanted to be 4 able to terminate the contract and then proceed in our 5 own direction, whether that would be to build a cogen, 6 or whatever. 7 It was definitely not with a view to 8 legislation changes in deregulation, or anything like 9 that. 10 MS WONG: It had to do with the existing 11 legislation at the time. 12 MR. ROACH: It had to do with the legislation 13 that was existing at the day that we developed the 14 contract. 15 MS WONG: Thank you, sir. Mr. McEachen, a 16 couple of questions for you. 17 During the cross-examination a few days ago 18 Mr. Janigan asked OHNC whether there was any way to 19 unbundle the components of the rates that were charged 20 to Ontario Hydro's LRER customers. 21 Mr. Curtis answered that OHNC had no way of 22 unbundling how much of the amount charged was 23 attributable to generation. Can you assist the Board? 24 Is there any way to unbundle what was paid to Ontario 25 Hydro by Imperial Oil to determine what amount was 26 attributable to transmission? 27 MR. McEACHEN: Yes, there is. 28 In simple terms, the contract with the virtual Les Services StenoTran Services Inc. 613-521-0703 1516 IMPERIAL OIL PANEL, in-ch (Wong) 1 cogen had a way of calculating the energy costs. Then 2 there was also another component which was a back-up 3 cost, back-up power cost, which we stated in our 4 evidence that this includes an energy component and a 5 transmission demand component. It is also stated in the 6 contract that this cost is the same that we would have 7 paid had we actually physically built the generation. 8 So you can break those two out. 9 MS WONG: Which of those two components would 10 represent the transmission costs -- sorry -- just to 11 clarify that for me. 12 MR. McEACHEN: The transmission costs, even if 13 you discount -- let's just assume that the energy 14 component in the back-up is not there -- that the 15 back-up could be for this purpose attributed all to 16 transmission costs. 17 MS WONG: Have you put a figure on that 18 amount? 19 MR. McEACHEN: In relation to? 20 MS WONG: In relation to your last year under 21 the LRER contract. Can you just sort of, for comparison 22 purposes, how much did you pay or how much difference 23 would there be between what you paid for back-up under 24 your LRER and what you would pay under the OHNC 25 proposal? 26 MR. McEACHEN: If we look at the back-up as -- 27 I guess in the new world it is IMO and OHNC charges. If 28 you look at the aggregate of those two and take away Les Services StenoTran Services Inc. 613-521-0703 1517 IMPERIAL OIL PANEL, in-ch (Wong) 1 what it is in the current contract, Imperial Oil would 2 incur costs, additional costs, of about $6.5 million. 3 MS WONG: On an annual basis? 4 MR. McEACHEN: On an annual basis. 5 MS WONG: Now, at the end of the Amoco 6 examination there was a question put by the Board as to 7 whether or not there would be sufficient relief if the 8 Board chose to go with net billing on both network and 9 line connection instead of the proposed bill for gross 10 billing. 11 Mr. McEachen, can you comment as to whether or 12 not net billing would be a sufficient answer for you? 13 MR. McEACHEN: Yes, I can, and no, it 14 wouldn't. 15 MS WONG: Why not? 16 MR. McEACHEN: Well, if we had built in '96, 17 and we will take that as a starting point, our energy 18 costs, our commodity costs would be within our control. 19 The way I understand the IMO, as an example, and OHNC, 20 the way they are going to treat that is net billing. 21 You are just referring to net billing on transmission? 22 MS WONG: Yes. 23 MR. McEACHEN: If we look at the -- I will 24 call it the construction period between now and a cogen 25 start up, we still have to pay the additional IMO 26 charges, even if you are talking about the net billing 27 just for transmission. 28 So no, I don't see those two being the same. Les Services StenoTran Services Inc. 613-521-0703 1518 IMPERIAL OIL PANEL, in-ch (Wong) 1 MS WONG: But during the transmission -- oh, 2 excuse me -- during the transition period while you are 3 building -- I am just speaking about transmission costs 4 for the moment -- are you kept whole during that 5 transition period? 6 MR. McEACHEN: During the transition period? 7 MS WONG: While you are building the plant. 8 MR. McEACHEN: If we just received net billing 9 on transmission? 10 MS WONG: Yes. 11 MR. McEACHEN: The assumption is we would pay 12 gross on IMO? 13 MS WONG: No, leaving aside the IMO for the 14 moment and just deal with what the Board can deal with, 15 which is transmission. 16 MR. McEACHEN: Yes. 17 MS WONG: During the period of time while you 18 are actually building your plant, if the Board was to 19 allow you to have net billing on what you take off the 20 grid, without anything else, would that be sufficient? 21 MR. McEACHEN: No. 22 MS WONG: Why not? 23 MR. McEACHEN: Again, we would be paying 24 approximately $5.1 million in transmission costs because 25 we don't have the assets sitting there spinning 26 electrons. 27 MS WONG: Thank you. 28 Those are all my questions and the panel is Les Services StenoTran Services Inc. 613-521-0703 1519 IMPERIAL OIL PANEL, in-ch (Wong) 1 now available to cross-examination. 2 THE PRESIDING MEMBER: Thank you, Ms Wong. 3 Mr. Fisher, do you have any questions? 4 MR. FISHER: No, I don't. Thank you, 5 Mr. Chair. 6 THE PRESIDING MEMBER: Thank you. 7 We will go to Mr. Mattson. 8 CROSS-EXAMINATION 9 MR. MATTSON: Thank you. 10 Gentlemen, if you could just turn to Tab I of 11 your prefiled? 12 Just dealing with the last point you were 13 making, Mr. McEachen, on the $6.5 million a year, you 14 see at Tab I you have the Sarnia manufacturing site, 15 Ontario Hydro negotiation history -- page 2 -- sorry, 16 page 2 of that tab. 17 MR. McEACHEN: Yes. 18 MR. MATTSON: Now, am I correct that if we 19 look at the first line, "1995 sharing of the pie" it 20 says that: 21 "The proposed power rate reduction is 22 from 5.2 cents per kilowatt hour reduced 23 to 3.6 cents per kilowatt hour." 24 (As read) 25 That was the reduction, was it, in the rate? 26 MR. McEACHEN: Yes. 27 MR. MATTSON: Is there any way you could let 28 the Board know what percentage of that or what part of Les Services StenoTran Services Inc. 613-521-0703 1520 IMPERIAL OIL PANEL, cr-ex (Mattson) 1 that 3.6 cents per kilowatt hour was related to 2 transmission as opposed to generation or distribution? 3 MR. ROACH: You can't do that. This is a 4 bundled number. 5 MR. MATTSON: Right. 6 MR. ROACH: It is impossible for me at this 7 point for me to separate out the transmission from the 8 generation from anything else. 9 MR. MATTSON: Yes, that is why I was having 10 difficulty, how you arrived at that $6.5 million a year. 11 MR. McEACHEN: Excuse me. Maybe I can assist 12 Mr. Roach. 13 The reference that you are looking at -- 14 MR. MATTSON: Right. 15 MR. McEACHEN: -- was a management 16 presentation. It provides a chronological view of the 17 negotiations. 18 MR. MATTSON: Right. 19 MR. McEACHEN: Q2-95 does not constitute the 20 terms of the agreement, so I would just like to make 21 that first. 22 Secondly, the contract, once again, in its two 23 basic concepts, there was a way to determine what the 24 cost of the commodity is and there was a way that the 25 back-up charges were calculated. Those back-up charges, 26 forgetting the commodity for a moment, the back-up 27 charges are the same charges that we would have paid had 28 we built. So there is a commodity aspect and then there Les Services StenoTran Services Inc. 613-521-0703 1521 IMPERIAL OIL PANEL, cr-ex (Mattson) 1 is a back-up. 2 MR. MATTSON: Yes, but those back-up power 3 rates, they were set at a time where they were -- I 4 don't mean judgmental, but there was a component to them 5 that they were intended to try and keep people on the 6 system. Is that not fair, those rates were fairly 7 significant? 8 MR. McEACHEN: I don't have any knowledge 9 about that. 10 MR. ROACH: We were using the standard back-up 11 rates that were in existence at the time. 12 MR. MATTSON: At that time. 13 MR. ROACH: And the level of the dollars was 14 based on our economic model of our cogen which said how 15 often and how much electricity we would use from the 16 grid as back-up. They were based on the rates at the 17 time, which were standard rates. 18 MR. MATTSON: What I would like to do is -- I 19 don't want to be anywhere near as long as earlier this 20 morning. We have covered some of these areas fairly 21 well, so I just really wanted to get some evidence on 22 the record. 23 The virtual production costs or output costs 24 that you are calculating are on the basis of a virtual 25 project output of how many megawatts? 26 MR. ROACH: A nominal 123 megawatts. 27 MR. MATTSON: One hundred and twenty-three. 28 MR. ROACH: Yes. I say nominal because a Les Services StenoTran Services Inc. 613-521-0703 1522 IMPERIAL OIL PANEL, cr-ex (Mattson) 1 cogen, the output varies with ambient temperature and 2 other conditions, so nominal 123. 3 MR. MATTSON: Okay. And your plant facility 4 now uses how many megawatts? 5 MR. ROACH: Approximately 123 megawatts. 6 MR. MATTSON: So the capital in the virtual 7 project output at the time were based on the same size 8 of facility? 9 MR. ROACH: Yes. 10 MR. MATTSON: Okay. You are also intending 11 after -- well, depending on what happens with respect to 12 a decision here, but your intention is to also go before 13 the IMO and the Minister of Finance and make this case 14 with respect to these? 15 MR. FISCHER: Our intention is to use the same 16 rationale, that we should be viewed as an embedded 17 generator and go to all of those who set the rules for 18 embedded generators, to appeal to them to be treated the 19 same. 20 MR. MATTSON: Right, okay. 21 Now, with respect to the benefits, if I could, 22 I just wanted to go through some of these again. 23 I know your evidence is that you are neutral 24 and it has been very difficult to find benefits. I know 25 some of these are offset, but just in terms of the 26 benefits that your company receives, and I know there 27 may be some -- there are things that probably offset 28 these benefits to make them neutral. Les Services StenoTran Services Inc. 613-521-0703 1523 IMPERIAL OIL PANEL, cr-ex (Mattson) 1 But in terms of the benefits you would agree 2 that you benefited from having a special pricing 3 arrangement not available to other captive customers in 4 the system, right? Those would be the customers who 5 didn't have this opportunity? 6 MR. FISCHER: When we talk about being neutral 7 we are neutral over the life of the project by having 8 this arrangement versus having built our own project. 9 MR. MATTSON: Right. 10 MR. FISCHER: We are indifferent. So that is 11 when we talk about neutral. 12 Our shareholders enjoyed the same benefits 13 that they would have enjoyed had they invested in the 14 facility, subject to the vagaries of the market. We 15 built those in as well by reflecting the actual prices 16 of gas and electricity in calculating the payments that 17 Ontario Hydro would make for the discounts, and they 18 debited the project for the cost of our capital as if we 19 had -- which removed that for me to be able to go and 20 borrow capital. 21 MR. MATTSON: On the point -- we also went 22 over this with Amoco -- when people suggested that you 23 had a benefit from -- you had a lower price, you didn't 24 incur capital cost of construction, you didn't have to 25 manage the operation of the plant, you didn't have to 26 manage staff, and the managing, the operation's input 27 costs, such as the price of natural gas, you didn't have 28 to worry about that, when I put all those benefits to Les Services StenoTran Services Inc. 613-521-0703 1524 IMPERIAL OIL PANEL, cr-ex (Mattson) 1 you you said those were all dealt with in the contract. 2 MR. FISCHER: All of those costs, all of those 3 management concerns that you note were built in as a 4 cost for Imperial Oil had they developed and started up 5 the cogeneration facility. 6 MR. MATTSON: And we have had some time to go 7 over how those costs were determined. Would you agree 8 with me that the calculation of those costs were based 9 on forecasts with no rebasing after reality? Right? 10 They were all based on forecasts. 11 MR. ROACH: Incorrect. 12 MR. MATTSON: Okay. 13 MR. ROACH: The base cost for gas, the 14 commodity called gas, the base cost for transportation 15 of gas to our site, the consumer price index, those 16 numbers were real numbers in 1996. 17 MR. MATTSON: Yes, they were 1996 numbers. 18 MR. ROACH: Every year after that those 19 numbers change based on how those values have escalated. 20 So, for example, on gas we use something called the 21 Alberta reference price, and that changes every year in 22 real time. It is not a forecast. 23 The transportation of gas changes in real 24 time. So if tomorrow Union Gas rates go up, they are 25 reflected immediately in the contract. If TransCanada 26 PipeLines' rates go up they are reflected immediately. 27 The consumer price index is reflected as it 28 happens. Les Services StenoTran Services Inc. 613-521-0703 1525 IMPERIAL OIL PANEL, cr-ex (Mattson) 1 MR. MATTSON: In the contract, then, somewhere 2 in here there is a rebasing, is there, or an escalation 3 factor built into the contract? 4 MR. ROACH: Yes. 5 MR. FISCHER: When the rebate is calculated, 6 it is based on what actually happened to the cost of 7 electricity and the cost of gas, and the transmission 8 costs of gas -- 9 MR. ROACH: Absolutely. 10 MR. FISCHER: -- on an actual basis, so that 11 we would have seen exactly the same effect had we been 12 the project. 13 MR. ROACH: Right. That was the concept of 14 the virtual cogen. 15 MR. MATTSON: Okay. So those numbers that are 16 blackened out in the contract, those were numbers that 17 were actual prices at the time in 1996 -- 18 MR. ROACH: Yes. 19 MR. MATTSON: -- when they first -- and then 20 they were escalated. 21 MR. ROACH: Correct. Correct. 22 MR. FISCHER: Or de-escalated, depending on 23 what happens in the market. 24 MR. ROACH: Yes. 25 MR. MATTSON: Now, what about the benefits 26 that seem to be derived by your company by having had 27 the opportunity to wait and not build the plant at the 28 time and now have had some experience with where the Les Services StenoTran Services Inc. 613-521-0703 1526 IMPERIAL OIL PANEL, cr-ex (Mattson) 1 market is going, a better understanding of what the 2 rules may look like, have they been, at all, a benefit 3 to your company, having had that -- for example, I 4 believe -- 5 MR. FISCHER: I can answer your question. 6 The one thing we can tell you today with 7 reasonable certainty is what it would cost us to build a 8 new plant, because we do very detailed engineering and 9 what have you. That is the lowest risk piece that we 10 have. 11 We do not yet know whether we are going to -- 12 how we are going to be treated, as an embedded generator 13 or not. That causes us considerable uncertainty. 14 Then the rest of the things that are not under 15 the control of the regularities are the vagaries of the 16 market that we have to assess. Those vagaries are no 17 different today than they would have been any other 18 time. I wouldn't have guessed that crude oil would be 19 $30 today and $11 a year ago, and gas is moving around 20 with it. 21 So all of those, what I would call the 22 non-controllable non-regulatory aspects, will be a 23 business decision and judgment at any time. And we 24 still are unclear and we won't be clear until we finish 25 the various appeals, as we are doing here today, as to 26 how we are going to be treated in all of the other. We 27 can only assume today, and if you can give me an 28 assumption, I can give you an answer. Les Services StenoTran Services Inc. 613-521-0703 1527 IMPERIAL OIL PANEL, cr-ex (Mattson) 1 MR. MATTSON: So if I suggested to you that 2 there might be better technologies available today, they 3 may be better than they were five years ago, six years 4 ago or cheaper, or that you may have an opportunity for 5 looking at different sizing of your unit, would you 6 agree with me that those might be potential benefits for 7 your company at this point? 8 MR. FISCHER: Right now the cogeneration, from 9 my perspective, has become such a hot topic around the 10 world that from the day I order a cogeneration piece of 11 hardware it takes 30 months before it is available and 12 on line, and those time periods were far shorter in the 13 past. So the demand for machines -- as the 14 machinery/technologies improve, the demand has increased 15 as well. 16 There are new entrants in the market versus GE 17 and others, ABB, and the issue with those is though 18 right now they may be cheaper we don't understand the 19 reliability. 20 I don't know. I don't know that I could say 21 with assurance that we are going to see benefits from 22 waiting in terms of technology. Certainly not in terms 23 of delivery. 24 MR. MATTSON: We will have one more try at 25 benefits. 26 We have a few questions here. These would be 27 benefits that came out of your evidence. 28 In addition to the discount provisions in the Les Services StenoTran Services Inc. 613-521-0703 1528 IMPERIAL OIL PANEL, cr-ex (Mattson) 1 contract -- 2 MR. FISCHER: Can you refer us to a -- 3 MR. MATTSON: Yes, I will. I will. 4 But in addition to the discounts provided in 5 the contracts, I would like to take you to three 6 different parts in the evidence. Schedule A to your 7 evidence, page 9, clause 5.8. 8 You will note there, in paragraph 5.8, that 9 Ontario Hydro provided some money and the amount is 10 blacked out: 11 "...for the supply and installation of a 12 third transformer or an alternative 13 facility at the plant to ensure the 14 reliability of the Imperial Transformer 15 Station." 16 MR. ROACH: Yes. 17 MR. MATTSON: Is this equipment still in place 18 at the Imperial Oil facility today? 19 MR. ROACH: It is in place. 20 MR. MATTSON: And for how long? 21 MR. ROACH: For the life of the site. Sorry, 22 how long has it been in place or how long will it be in 23 place? 24 MR. MATTSON: It will be in place for the life 25 of the site. Okay. 26 And who owns that? 27 MR. ROACH: We do. 28 MR. MATTSON: Do you pay transmission charges Les Services StenoTran Services Inc. 613-521-0703 1529 IMPERIAL OIL PANEL, cr-ex (Mattson) 1 for that? 2 MR. ROACH: We own the Imperial transformer 3 station. In the new world, no, because the 4 transformation station is owned by us. 5 MR. MATTSON: Another schedule -- 6 MR. ROACH: Perhaps I could explain the 7 background for this particular clause, 5.8. 8 MR. MATTSON: If you would, please. 9 MR. ROACH: In our economic model of our cogen 10 we had put in a capital cost credit for this particular 11 transformer. If we had installed our cogen as we 12 planned we would not have needed this piece of 13 equipment. So we built that into our economic model as 14 a capital cost credit. 15 When we started to negotiate the LRER 16 contract, clearly we were not going to build our cogen 17 immediately so we still needed to import all of the 18 power that we were using onto our site from the grid, 19 but we needed this particular piece of equipment for 20 reliability. 21 We initially had rolled that all into our 22 economic model. Ontario Hydro, being good negotiators, 23 said, "We are going to see the whites of your eyes on 24 this one. We will only reflect that capital credit if 25 you actually install the facility." So they, at their 26 initiative, pulled this amount of money out and only 27 compensated us for it if we actually install the 28 facility, which we did and they compensated us for it. Les Services StenoTran Services Inc. 613-521-0703 1530 IMPERIAL OIL PANEL, cr-ex (Mattson) 1 So it was a way of dealing with that particular capital 2 credit. It was at their initiative, not ours. 3 MR. FISCHER: And then, reflecting the ego of 4 two separate sets of engineers doing estimates, they 5 believed they could do it cheaper than we could and 6 capped the amount of money that they would pay us. 7 MR. ROACH: So we agreed to split the savings 8 to give both sides an incentive to improve. 9 MR. MATTSON: Okay. 10 If we turn to Tab H there is a letter from 11 Mr. Fox to Mr. Fischer. 12 MR. FISCHER: Yes. 13 MR. MATTSON: In the third last paragraph on 14 the second page -- 15 MR. FISCHER: It starts "In any event"? 16 MR. MATTSON: No, "As we have indicated 17 to you". 18 MR. FISCHER: Okay. 19 MR. MATTSON: If you go down there it says, 20 "Any provision": 21 "Any provision for capital expenditures 22 incurred by you prior to reaching an 23 agreement with Ontario Hydro would, of 24 course, be the subject of our 25 negotiations." 26 Could you indicate to the Board how that was 27 factored into your negotiations? 28 MR. FISCHER: In the end, I was getting Les Services StenoTran Services Inc. 613-521-0703 1531 IMPERIAL OIL PANEL, cr-ex (Mattson) 1 sufficiently frustrated with the process because we were 2 spending more and more money. I continued to get calls 3 from John Fox saying, "Don't worry, we will strike a 4 deal." But I eventually got on the phone with John and 5 said, "We are moving fully ahead. The longer it takes 6 for you guys to get the stuff through your system, I'm 7 happy. I'm just going to keep on going and you are 8 going to pay for whatever capital I have spent because 9 it is wasted capital for me." So John, again being a 10 good negotiator, didn't accept that. He said, "We will 11 negotiate what we will do with that." 12 In the end, that was something that we gave 13 up. We had spent about $3.1 million before we shut down 14 the project and we ate that. 15 MR. MATTSON: $3.1 million. Okay. 16 MR. FISCHER: I was at the stage of getting up 17 to about $20 million and I was going to have Mr. Fox 18 pick that up. 19 MR. MATTSON: You agree with us that that 20 wasn't factored in though at the time then. It was not 21 factored. 22 MR. FISCHER: There is nothing in our 23 agreement that compensated us for our lost capital. 24 MR. MATTSON: Right. And, similarly, if we 25 have this -- Ontario Hydro will provide 1.5 person years 26 of technical support at the site to assist the project 27 development and evaluation. You remember? 28 MR. FISCHER: Where are you? Les Services StenoTran Services Inc. 613-521-0703 1532 IMPERIAL OIL PANEL, cr-ex (Mattson) 1 MR. MATTSON: This is page 2 of Schedule E. 2 MR. FISCHER: Schedule E. 3 MR. MATTSON: The second last paragraph at the 4 bottom of page 2 there. Ontario Hydro will provide 1.5 5 person years of technical support at the site to assist 6 this project development and evaluation. 7 MR. FISCHER: I think I can address that 8 because I was involved at that time and Mr. Roach wasn't 9 directly. This was involved in some of the convoluted 10 steps that Ontario Hydro came up around energy 11 conservation projects and what have you. 12 To entice us to do that, they said they would 13 actually contribute some manpower. We kept moving to 14 back to why don't we just reduce the rate and get on 15 with life. I don't need to borrow capital from Ontario 16 Hydro. I can borrow that from a number of people. 17 To entice us, they said they would provide us 18 with some manpower to assess some of these schemes. 19 MR. MATTSON: Okay. Finally, I put this 20 proposal to Amoco as well, this position to Amoco as 21 well. That was whether or not your company would 22 contemplate a different term extension or a different 23 arrangement with respect to paying the gross load 24 billing in the interim. That would be subject to rebate 25 at the end of the term if you in fact built your 26 facility. 27 Is that something that you would be prepared 28 to consider? That would be that you would actually pay Les Services StenoTran Services Inc. 613-521-0703 1533 IMPERIAL OIL PANEL, cr-ex (Mattson) 1 the money and then you would receive it back if you 2 built the plant as opposed to the other way around. 3 MR. FISCHER: I guess if someone included 4 interest on that, I would be happy to consider it. I 5 just want to be treated the same as if I was an embedded 6 generator. 7 MR. MATTSON: Sorry. That was a two part 8 question. I should have let you go on. Different term 9 extension as well. Do you need -- are you set with the 10 five years, with the one year period for more time for 11 you to consider your options? 12 MR. FISCHER: The one year period, as I noted 13 earlier, is really almost a compromise between the two 14 years we had previously in the contract and got confused 15 and eliminated by the actions of government. 16 The remaining period of the five years, I 17 noted that from the time I understand what I want to 18 build and put in order, it takes 30 months to install a 19 cogeneration facility. That's about two and a half 20 years. 21 It will also take us about two and a half 22 years to work through those various technologies you 23 talk about through the front end engineering, arrange 24 the gas contracts and put through the hardware. 25 The part I can't see right now see that I can 26 control is the length of time it takes me from ordering 27 to receipt of a cogeneration machine, but we will work 28 diligently to try and shrink the two and a half years Les Services StenoTran Services Inc. 613-521-0703 1534 IMPERIAL OIL PANEL, cr-ex (Mattson) 1 that is within our control. 2 MR. MATTSON: Okay. Thank you. 3 Thank you, panel. Thank you. 4 THE PRESIDING MEMBER: Thank you, Mr. Mattson. 5 Mr. Mark, please. 6 CROSS-EXAMINATION 7 MR. MARK: Thank you, Mr. Chair. 8 Mr. Fischer, in your remarks in chief, you 9 referred to something that was important to you being 10 recapturing the cost of the deferral over the life of 11 the project. 12 MR. FISCHER: Correct. 13 MR. MARK: Is that correct? 14 MR. FISCHER: Correct. 15 MR. MARK: I'm not sure I understand what that 16 means. As I understand it, the way the discount was 17 calculated was by reference to the difference in the 18 price you would pay Ontario Hydro over the term of the 19 contract, less the amount you could have generated the 20 electricity for over the life of the contract. Is that 21 correct? 22 MR. FISCHER: The reason that I noted that the 23 exchange of letters between ourselves and Ontario Hydro 24 and their internal letters refer to the life of the 25 project. That was the context within which we were 26 offering, which included a 30 year term. 27 MR. MARK: I understand you referred me to 28 that, but as I understand the contract which you Les Services StenoTran Services Inc. 613-521-0703 1535 IMPERIAL OIL PANEL, cr-ex (Mark) 1 negotiated -- 2 MR. FISCHER: We are not saying that the 3 contract was breached. 4 MR. MARK: I know you are not saying that, but 5 allow me, if you will. The contract that you negotiated 6 and agreed upon dealt -- 7 MR. FISCHER: And we abided by. 8 MR. MARK: Sorry. Can I finish my question? 9 MR. FISCHER: Sorry. 10 MR. MARK: Dealt with and only with a discount 11 that was calculated by specific reference to the price 12 differential over the term of the contract. Is that 13 correct? 14 MR. FISCHER: The calculation would have 15 reflected that. That's correct. 16 MR. MARK: And you didn't contract for any 17 other benefits or indemnities or hold harmless 18 provisions. 19 MR. FISCHER: No. As I noted earlier, we were 20 trying to support the government in not further damaging 21 customers, their customers, in leaving them more surplus 22 capacity. 23 MR. MARK: So you are not suggesting that you 24 believed you were contracting for some greater 25 indemnities or hold harmless provisions than you 26 actually got. 27 MR. FISCHER: No. I said the contract was not 28 breached. Les Services StenoTran Services Inc. 613-521-0703 1536 IMPERIAL OIL PANEL, cr-ex (Mark) 1 MR. MARK: If we can look at the 2 correspondence in that regard. I take it you are 3 telling me the contract wasn't breached, you know what 4 you contracted for, but by historical reference you are 5 saying that the concept was somewhat broader. Do I have 6 the point correctly? 7 MR. FISCHER: That's what I said. When they 8 talked to us about the life of the project, that 9 certainly says it is beyond the contracted period. And, 10 as I pointed out, we had no understanding that the 11 regulations, the things that are controlled by the 12 regulators, were going to change. 13 MR. MARK: Could you turn, please, to your 14 Exhibit H, which is the letter from Mr. Fox to yourself 15 of November 15, 1995. 16 MR. FISCHER: Yes. 17 MR. MARK: Do you have that? 18 MR. FISCHER: Yes. 19 MR. MARK: And I want to direct you, sir, 20 particularly to the third paragraph. Well, this is the 21 letter that really, as I understand your evidence, is 22 when Ontario Hydro finally came over to your side of the 23 fence and said "Okay, we will do it your way". Is that 24 a fair generalization of what this was? 25 MR. FISCHER: I would say they finally did 26 what they said they were going to do, which we agreed 27 with. 28 MR. MARK: This letter embodies -- Les Services StenoTran Services Inc. 613-521-0703 1537 IMPERIAL OIL PANEL, cr-ex (Mark) 1 MR. FISCHER: It was your reference that came 2 our way. 3 MR. MARK: Yes. 4 MR. FISCHER: This is what they committed to 5 do and they did it. 6 MR. MARK: And was this letter in keeping with 7 the understanding you have told us about, this hold 8 harmless basis for the life of the project. 9 MR. FISCHER: I'm not sure that the interview 10 you are referring to is particular -- 11 MR. MARK: I'm trying to find out where and 12 when exactly it is that this broader concept which was 13 never enshrined in the contract was actually on the 14 table. 15 MR. FISCHER: As I noted in the reference 16 under Tab F -- 17 MR. MARK: Yes. 18 MR. FISCHER: The whole aura around the 19 discussions that went on between John Fox and myself was 20 that we were to be held harmless over the life of the 21 project and not expecting that either of us could 22 understand that they agreed with the commodity markets. 23 MR. MARK: And in November of 1995, were you 24 still in a position to proceed with your own project if 25 Ontario Hydro's proposal did not meet with your 26 approval? 27 MR. FISCHER: Absolutely. 28 MR. MARK: Can you look, please, sir, at the Les Services StenoTran Services Inc. 613-521-0703 1538 IMPERIAL OIL PANEL, cr-ex (Mark) 1 third paragraph, and I want to take you particularly to 2 the second last sentence where it says these provisions 3 would permit Imperial Oil Limited to recover benefits 4 lost over the contract term as a result of having 5 deferred the project. Does that reflect the 6 understanding you and Ontario Hydro shared about these 7 negotiations? 8 MR. FISCHER: This was a reference in his 9 letter of November 15 and I didn't view that to have any 10 more significance than the general discussion and 11 context we had. 12 MR. MARK: I might take from that that all 13 these statements back and forth are mere -- 14 MR. FISCHER: That I believed we would not be 15 damaged by helping Ontario Hydro over the life of our 16 project. 17 MR. MARK: You understood what Ontario Hydro's 18 view was as expressed here in any event, that you would 19 recover any benefits that you lost over the contract 20 term. Did you understand that, sir? 21 MR. FISCHER: I said, and I have said 22 repeatedly now, that we do not believe the contract was 23 breached. 24 MR. MARK: Now, if I can turn to your Exhibit 25 I, this is your presentation to senior management for 26 approval of these arrangements with Hydro. 27 MR. FISCHER: This is Mr. Roach's 28 presentation. Les Services StenoTran Services Inc. 613-521-0703 1539 IMPERIAL OIL PANEL, cr-ex (Mark) 1 MR. MARK: Yes. This was the presentation 2 made to senior management to get the authorization to 3 proceed with the agreement with Hydro. Do I have it 4 correct? 5 MR. FISCHER: Yes. As you point out, had we 6 known that the rules were going to change, we would have 7 extracted a bigger load reduction credit from Ontario 8 Hydro at the time. 9 MR. MARK: Well, when you negotiated this 10 contract, Mr. Fischer -- 11 MR. FISCHER: Yes. 12 MR. MARK: You knew what was going on in the 13 industry, did you not? 14 MR. FISCHER: In the electrical industry? 15 MR. MARK: Yes. You knew that restructuring 16 was coming down the pipe. 17 MR. FISCHER: Absolutely not. Absolutely not. 18 There was never any discussion between ourselves and 19 Ontario Hydro. In fact, the first indications were in 20 May of 1996 after we signed the contract. 21 MR. MARK: Is it your evidence, sir, that when 22 you signed -- at the time you signed this contract, you 23 had no idea that there was quite a bit of public 24 discussion about the need to restructure the electricity 25 industry? 26 MR. FISCHER: I said at the time that we 27 signed our contract, there was no public discussion that 28 I was aware of that I can say that factually. Les Services StenoTran Services Inc. 613-521-0703 1540 IMPERIAL OIL PANEL, cr-ex (Mark) 1 MR. MARK: And if you turn to Exhibit I which 2 is that management presentation. Can you turn, please, 3 with me to the last page. 4 MR. FISCHER: The last page, yes. 5 MR. MARK: This is the calculation of, as I 6 understand it, a comparison of what you would pay 7 Ontario Hydro at their rates over the term of the 8 contract versus what your costs would be if you 9 self-generated and it results in the net present value 10 calculation of the $25.04 million, being the, if you 11 will, the benefits given up that you wanted back in the 12 form of rate discounts. Is that correct? 13 MR. FISCHER: That's the benefit we would have 14 given up. That's right. 15 MR. MARK: Now, your cogen project was 16 scheduled to commence operation in the last quarter of 17 1997. Correct? 18 MR. FISCHER: That was the base case. 19 MR. MARK: Yes. 20 MR. FISCHER: Yes. 21 MR. MARK: If I look at these numbers in the 22 last page in Exhibit I, we see that included in your 23 calculation of the $25.04 million net present value is 24 an amount which reflects the difference between Hydro 25 rates and self-generation costs for 1996. Correct? 26 MR. FISCHER: Mm-hmm. 27 MR. MARK: You have to say yes or no for the 28 lady which is the reporter. Les Services StenoTran Services Inc. 613-521-0703 1541 IMPERIAL OIL PANEL, cr-ex (Mark) 1 MR. FISCHER: Yes. 2 MR. MARK: Okay. As I understand from the 3 answer you gave me a few moments ago, in 1996 you would 4 in any event still have been buying this power from 5 Ontario Hydro. Correct? 6 MR. ROACH: I can comment on this. I think 7 what you are getting to is since we would not have 8 started up our plant until 1997, how come we got a 9 discount in 1996? 10 MR. MARK: Bingo. Right. 11 MR. ROACH: The contract in this form was at 12 Ontario Hydro's initiative. They wanted us to defer our 13 cogen for three years from the end of 1997 to the end of 14 the year 2000. Their initiative was the structure of 15 the five year contract in this format. That was their 16 initiative, not ours. 17 MR. MARK: I understand it was. I'm not 18 criticizing you. 19 MR. FISCHER: No. 20 MR. MARK: I just want to be sure I 21 understand. 22 MR. FISCHER: Right. 23 MR. MARK: The way Ontario Hydro wanted to 24 structure it resulted in you being able to get a credit 25 for reduced costs in 1996 when in reality you wouldn't 26 have had reduced costs for 1996. Is that correct? 27 MR. FISCHER: That is correct. In reality, we 28 would not have had a cogen plant running in 1996. Les Services StenoTran Services Inc. 613-521-0703 1542 IMPERIAL OIL PANEL, cr-ex (Mark) 1 MR. MARK: And one of the reasons this deal 2 was attractive to you is because built into the 3 structure, and it may have initiated with Ontario Hydro, 4 is you got some discounts which made it quite 5 attractive. 6 MR. FISCHER: Not correct. As Brian has 7 pointed out, the whole basis for this contract was for 8 Imperial Oil to be indifferent and the delta, the 9 difference in net present value between us building in 10 our base case and deferring was what we wanted to 11 recapture and that's what this contract recaptured for 12 us. 13 If you would refer to the -- 14 MR. MARK: Sorry. 15 MR. FISCHER: If you refer to the last page 16 you also talked about that says the base case Q4-97 17 stats. 18 MR. MARK: Yes. 19 MR. FISCHER: I don't know whether that is 20 referencing the same set. 21 MS WONG: Is that the page just before, Mr. 22 Fischer? 23 MR. FISCHER: It looks to me -- in my book it 24 is just before Tab J. 25 MS WONG: Is that the one that says Sarnia 26 clean energy project deferral case? 27 MR. FISCHER: That's it. If you look at that, 28 it says if we had a facility start-up in the fourth Les Services StenoTran Services Inc. 613-521-0703 1543 IMPERIAL OIL PANEL, cr-ex (Mark) 1 quarter of 1997, the after tax net present value 2 discounted at 11 per cent would have been $47.5 million. 3 If we deferred three years, it would have been 31.9 and 4 the difference is 15.6. On a before tax basis, that's 5 $25 million. 6 Essentially, that is what we advised Ontario 7 Hydro they had to reimburse us one way or another. They 8 came up with, on the first page, which is what Mr. Roach 9 was trying to tell you, they came up with the schedule 10 by which they wished to reimburse us. 11 I would have taken it in one lump sum over two 12 years, whatever. They wanted to give it over five 13 years. In our perspective it would have to total 14 $25 million. In fact, we built in interest rates in our 15 discussion with them if they wanted to do it in any 16 other fashion. 17 MR. MARK: But the only detailed calculation 18 we have in front of us is the one in your presentation 19 which appears at the last page. I'm just puzzled, 20 Mr. Fischer, I'm just trying to understand. 21 How, if you were not going to have a cogen 22 plant in 1996 and 1997, were the operating costs for 23 those years determined? 24 MR. ROACH: As I mentioned, this approach was 25 at the initiative of Ontario Hydro. This is how they 26 wanted to do it. 27 Our position was, as long as we get 28 $25 million before tax we don't care if you spread it Les Services StenoTran Services Inc. 613-521-0703 1544 IMPERIAL OIL PANEL, cr-ex (Mark) 1 over three years, five years or one year. 2 MR. MARK: Well, does this reflect the method 3 of calculation that is prescribed in the contract? 4 MR. ROACH: This is the method of calculation 5 in the contract, yes. 6 MR. MARK: The method of calculation of the 7 contract, as I understood your evidence, was to reflect 8 reality. Correct? 9 MR. FISCHER: The reality was to reflect 10 reality of what we would have made versus what we were 11 going to and to be compensated by Ontario Hydro for the 12 difference. 13 Ontario Hydro determined the schedule and the 14 method that they would do that by. 15 MR. MARK: So is this Ontario Hydro's 16 calculation or is this your calculation? 17 MR. FISCHER: These are calculations that 18 Mr. Roach can say were agreed to between Ontario Hydro 19 and ourselves as a way that they could flow the 20 $25 million to us. 21 The bottom line was what was important to us. 22 MR. MARK: I want to make sure I understand. 23 It's your evidence that these calculations 24 don't reflect reality, don't even reflect what would 25 have been projected as reality. 26 MR. FISCHER: Well, that's not true. They 27 reflect -- the calculation of $25 million in aggregate 28 reflects exactly the difference. Les Services StenoTran Services Inc. 613-521-0703 1545 IMPERIAL OIL PANEL, cr-ex (Mark) 1 MR. MARK: You say it reflects what you have 2 calculated is your -- 3 MR. FISCHER: And what they agreed with the 4 working of Deloitte Touche to our cost. 5 MR. MARK: I understood. 6 THE PRESIDING MEMBER: I think the confusion, 7 if you look at paragraph 32 of the evidence in-chief you 8 will see there is the discount and there are some slight 9 differences between those and those shown in that 10 schedule. 11 So I just want to be correct, they have put 12 into evidence what are the discounts for the year. 13 MR. MARK: At paragraph 32? 14 THE PRESIDING MEMBER: Yes. 15 MR. MARK: I understand paragraph 32 to 16 be the -- 17 THE PRESIDING MEMBER: The net amount that 18 Hydro received, which is the corresponding to the 19 production costs, I would assume, in Schedule I. 20 Am I correct? 21 MR. ROACH: Yes. 22 MR. FISCHER: Yes. 23 THE PRESIDING MEMBER: There are some slight 24 differences. 25 MR. ROACH: And there would be because a 26 previous question asked whether all of the costs were 27 fixed according to some forecast. The answer is no; the 28 costs changed in real time. That's why the numbers are Les Services StenoTran Services Inc. 613-521-0703 1546 IMPERIAL OIL PANEL, cr-ex (Mark) 1 different. 2 MR. MARK: But these numbers for 1996, are 3 these a fictional set of numbers that were plugged in to 4 make the end number work? 5 MR. ROACH: They are not a fictional set of 6 numbers. They are real numbers and by using these 7 numbers over the five years starting in 1996, if our 8 forecasts were played out to be exactly correct, we 9 would have achieved what we said we needed to have. 10 MR. FISCHER: If our forecasts had turned out 11 to be exactly wrong by the time the end of the period 12 came we have gotten no more or less than what reality 13 turned out to be. 14 MR. MARK: Let me go at it this way -- maybe 15 it's my fault I don't understand -- if we look at 1999 16 in this chart, we have a forecast of production costs 17 from your self-generation of $46.26 million. Correct? 18 MR. ROACH: Correct. 19 MR. MARK: Now, was that your best estimate of 20 what your production costs would be in 1999? 21 MR. ROACH: Using the model that we and 22 Ontario Hydro agreed on, yes, made up of these 23 components which is operating costs. 24 MR. MARK: Yes. Do the three numbers for your 25 total production costs for the three years 1998, 1999 26 and 2000, represent the forecast that you and Hydro made 27 of your self-generation costs over those three years 28 according to the model you used? Les Services StenoTran Services Inc. 613-521-0703 1547 IMPERIAL OIL PANEL, cr-ex (Mark) 1 MR. ROACH: I'm sorry. If you look at the 2 comments on the right-hand side of that viewgraph on 3 your actual values, 1996 is a base case and we used a 4 projection off that base case as to what our costs would 5 be. They were indexed off a base case of 1996. 6 MR. MARK: Right. So why for 1996 and 1997 7 did you use the projected costs for self-generation as 8 your actual cost when you would have been purchasing 9 from Ontario Hydro? 10 MR. ROACH: As I mentioned earlier, this was 11 the format of the contract that Ontario Hydro wanted to 12 use. That's why we did it this way. But the net result 13 of the entire five year discount was the loss in net 14 present value that we would have incurred, and that was 15 satisfactory to us. 16 MR. MARK: Do the numbers for 1998, 1999 and 17 2000 reasonably reflect the reality as it developed? 18 MR. ROACH: As it turned out? 19 MR. MARK: Yes. 20 MR. ROACH: We actually ended up getting a 21 lower discount then we had predicted. 22 MR. MARK: By how much variation? 23 MR. ROACH: I can't give you that information. 24 That is confidential information. 25 MR. MARK: You are not prepared to tell us how 26 you actually fared compared to these projections? 27 MR. ROACH: I can tell you that we received a 28 lower discount than our predictions. Les Services StenoTran Services Inc. 613-521-0703 1548 IMPERIAL OIL PANEL, cr-ex (Mark) 1 MR. MARK: Five hundred thousand, a million? 2 MR. ROACH: Several hundred thousand 3 dollars less. 4 MR. MARK: So within several hundred thousand 5 dollars the project cost to you of foregoing the 6 cogeneration project are accurately stated here for 7 1998, 1999 and 2000? Am I correct? 8 MR. ROACH: I'm sorry, which are we into now? 9 Which -- 10 MR. MARK: The Schedule I. 11 MR. ROACH: Schedule I. 12 MR. MARK: This is the last page 13 in Schedule -- in Exhibit I. 14 MS WONG: That is the page noted "Ontario 15 Hydro Proposal". 16 MR. ROACH: Okay. 17 MR. MARK: It's the first page. 18 MR. ROACH: Yes. I think our books are 19 different. That shows up as our first page. I'm sorry. 20 That's why we are having some confusion here. I'm 21 sorry. 22 MR. MARK: Well, let's make sure we are -- 23 MR. ROACH: We are talking about a page -- 24 MR. MARK: -- the last few minutes -- 25 MR. ROACH: We are talking about a page 26 entitled "Ontario Hydro Proposal". 27 MR. MARK: It says "Sarnia Manufacturing Site, 28 Sarnia Clean Energy Project, Ontario Hydro Proposal, Les Services StenoTran Services Inc. 613-521-0703 1549 IMPERIAL OIL PANEL, cr-ex (Mark) 1 Estimated Values Millions of Dollars". 2 MR. ROACH: Yes, that's the one. 3 MR. MARK: Okay. All right. 4 The bottom number is 25.04 when all is said 5 and done. Right? 6 MR. ROACH: All is said and done, yes. 7 MR. MARK: So if I understand what we just 8 went through in the last couple of minutes, Mr. Roach, 9 that within a few hundred thousand dollars -- 10 MR. ROACH: Several hundred thousand dollars. 11 MR. MARK: Several hundred thousand dollars. 12 What we see here is the projected discount to 13 you for 1998, 1999 and 2000 were the actual discounts? 14 MR. ROACH: I'm sorry, I missed that. 15 What is shown on this sheet is what we 16 projected back in February of 1996 that we would have 17 achieved with the assumptions at the time around gas 18 prices -- 19 MR. MARK: Right. 20 MR. ROACH: -- CPI, and so on. 21 This is what we would have expected to 22 receive. 23 MR. MARK: That's right. 24 It turns out that within several hundred 25 thousand dollars your projection was correct? 26 MR. ROACH: On the negative side. Our 27 discount was substantially less than this. 28 MR. MARK: By several hundred thousand Les Services StenoTran Services Inc. 613-521-0703 1550 IMPERIAL OIL PANEL, cr-ex (Mark) 1 dollars. 2 MR. ROACH: Right, because gas prices went 3 higher. 4 MR. McEACHEN: If I could just add, with the 5 legislation, the Energy Act cancelling the contracts, 6 making them null and void, November 2000, just those two 7 months of impact are a little higher than three-quarters 8 of a million dollars just for this year. 9 MR. MARK: Did Ontario Hydro in fact pay you 10 the indicated discounts for 1996 and 1997, being the 11 7.44 and the 7.18? 12 MR. ROACH: In 1996 the discount that we got 13 from Ontario Hydro was substantially less than 14 $7.44 million. 15 MR. MARK: Did you get one? 16 MR. ROACH: We got a discount. 17 MR. MARK: By "substantially less" what do you 18 mean? Yes, an order of magnitude? 19 MR. ROACH: Approximately $1 million less. 20 MR. MARK: In 1997 did Ontario Hydro give you 21 a discount? 22 MR. ROACH: Yes. 23 MR. MARK: How much was that discount? 24 MR. ROACH: It was about -- excuse me. 25 I can only give you approximate numbers. We 26 have a confidentiality agreement with Ontario Hydro. I 27 am giving you order of magnitude. 28 MR. MARK: Please. Les Services StenoTran Services Inc. 613-521-0703 1551 IMPERIAL OIL PANEL, cr-ex (Mark) 1 MR. ROACH: Approximately $1 million less 2 again. Approximately. 3 --- Pause 4 MR. FISCHER: I would offer an undertaking, 5 with counsel's advice, that if you would like to see our 6 detailed economics of what our project would have 7 generated, with the assumptions at the time of the 8 fourth quarter 1997 start-up, we can provide those and 9 show you that the difference between that and the 10 three-year deferral was $25 million, which is the amount 11 of money that we are trying to capture from Ontario 12 Hydro. 13 We can undertake that. 14 MR. MARK: I was just going to ask you if you 15 still have the calculations which underlie the previous 16 page, which shows us the before tax and after tax 17 numbers. 18 Can you get those? 19 MR. ROACH: Yes, we have them. 20 MR. MARK: Just to close this off -- 21 MR. LYLE: We will make that undertaking F8.2. 22 MR. FISCHER: Did you capture both? 23 MR. LYLE: That will be in the transcripts. 24 MS WONG: Maybe Mr. Mark can summarize the 25 undertaking. 26 MR. MARK: The calculations underlying the 27 numbers which appear on the second-last page of 28 Schedule I, the one entitled "Deferral Case". Les Services StenoTran Services Inc. 613-521-0703 1552 IMPERIAL OIL PANEL, cr-ex (Mark) 1 MR. ROACH: That is the undertaking you are 2 asking for. 3 MR. MARK: Yes, just so we understand each 4 other. 5 UNDERTAKING NO. F8.2: Mr. Roach 6 undertakes to provide the calculations 7 underlying the numbers which appear on 8 the second-last page of Schedule I, 9 entitled "Deferral Case" 10 MR. MARK: Just to try and sum this up, I 11 gather what you are trying to tell me is that the method 12 of calculation and the assumptions which you and Ontario 13 Hydro eventually put into the contract are different 14 from the numbers and the assumptions that you used when 15 you did your own assessment of the deferral case. And 16 at the end of the day you are happy as long as you got 17 to the same number. 18 MR. ROACH: The form is different; the end 19 result is the same. That is what we were shooting for. 20 MR. FISCHER: And we got no more or less than 21 had we built the facility. 22 MR. MARK: Was there actually a calculation 23 carried out under the contractual formula for 1996 and 24 1997 where you took actual gas prices, actual cost of 25 living, et cetera? 26 MR. ROACH: Yes, that is how the discount is 27 calculated. Every year we carry out the calculations 28 based on real data. At the end of the year we know what Les Services StenoTran Services Inc. 613-521-0703 1553 IMPERIAL OIL PANEL, cr-ex (Mark) 1 our cost of generation would have been, and we subtract 2 that from our real bill. That is the level of the 3 discount. 4 MR. MARK: Just so I understand the 5 second-last page, the $25 million is the calculation of 6 the difference in the cost of the two scenarios before 7 tax. 8 MR. ROACH: The difference in the net present 9 value of the two scenarios, before tax. 10 MR. MARK: Before tax. 11 MR. ROACH: Yes, over the life of the project. 12 MR. MARK: And AT means after tax. 13 MR. ROACH: Yes. AT means after tax; BT means 14 before tax. 15 MR. MARK: Thank you, gentlemen. Those are my 16 questions. 17 THE PRESIDING MEMBER: Thank you, Mr. Mark. 18 Mr. Lyle, please. 19 MR. LYLE: Thank you, Mr. Chair. 20 EXAMINATION 21 MR. LYLE: Gentlemen, I think you have agreed 22 that there was nothing in your contract that would 23 provide you with any guarantee of the rate you would be 24 paying for electricity, either the commodity or 25 transmission charges, subsequent to its ending at the 26 end of this year. 27 Is that correct? 28 MR. FISCHER: The terms of the contract were Les Services StenoTran Services Inc. 613-521-0703 1554 IMPERIAL OIL PANEL, ex (Lyle) 1 not breached; that is right. 2 MR. LYLE: My understanding of your proposal 3 is that during what you have called the pre-instalment 4 period and the instalment period -- which is, in total, 5 six years -- you will pay approximately $1.1 million in 6 transmission charges per year as opposed to the $5.1 7 million that you otherwise would be paying with no 8 actual generation. 9 Is that correct? 10 MR. McEACHEN: Yes. 11 MR. LYLE: Can you explain to me why it is 12 that you should be treated differently during this 13 six-year period than other industrial customers who do 14 not have actual generation installed? 15 MR. FISCHER: Because we would have built a 16 cogeneration facility. We are only looking for 17 fairness. Being a good corporate citizen, we supported 18 Ontario Hydro and believe that we are now being treated 19 differently because of that help provided. 20 MR. LYLE: But even if OHNC had not come 21 forward with gross load billing, you still could have 22 found yourself in the situation where your contract had 23 expired and you were moving back to the same rates as 24 other industrial customers would be charged. 25 MR. FISCHER: If I built the facility? 26 MR. LYLE: No, if you had not built the 27 facility, if you did what you did. You signed the LRER 28 contract. And if in fact the OHNC had not come forward Les Services StenoTran Services Inc. 613-521-0703 1555 IMPERIAL OIL PANEL, ex (Lyle) 1 in this rates hearing with the proposal for gross load 2 billing, you would still be faced at the end of your 3 contract with the reality of paying the same rates for 4 transmission as other industrial customers. 5 Is that correct? 6 MR. FISCHER: I am not sure -- 7 MR. LYLE: What I am trying to get at, 8 gentlemen, is I am trying to understand what unfairness 9 has been done to you by having you charged at the same 10 rate for transmission as other industrial customers at 11 the end of your contract term. 12 I understand that your concern was -- 13 MR. FISCHER: We believe we should be treated 14 in the definition as an embedded generator. 15 MR. LYLE: And I understand that. 16 MR. FISCHER: And if we are not, we believe we 17 are being treated unfairly. 18 MR. LYLE: I understand that once you actually 19 build generation, you feel that that generation should 20 be treated in the same way as generation that is built 21 prior to October 31, 1998 is being treated, because in 22 your view you would have built generation. I understand 23 that. 24 MR. FISCHER: We would have been on stream in 25 the fourth quarter of 1997. 26 MR. LYLE: But you didn't actually build 27 generation, and there is nothing in your contract that 28 says you are guaranteed anything about what your rates Les Services StenoTran Services Inc. 613-521-0703 1556 IMPERIAL OIL PANEL, ex (Lyle) 1 are subsequent to the end of the term of that contract. 2 What I am having difficulty with is 3 understanding, for that six-year time period, why you 4 should not be treated in the same way as other 5 transmission customers. 6 MR. FISCHER: My understanding of what both 7 the OHNC and the marketing study indicated is that they 8 believed it would be unfair to have people who had made 9 economic decisions in the period and built cogeneration 10 facilities -- and indeed we made economic decisions in 11 that period of time. 12 But it is inappropriate for those who made 13 economic decisions based on committed or built capacity, 14 that they somehow have that economic decision and value 15 of it eroded. We are saying the value of the decision 16 we made -- and we were committed -- is being eroded now. 17 So it is a matter of fairness. I am not 18 saying it is a matter of contractual breach. It is a 19 matter of fairness, because we were committed; and, as 20 good corporate citizens, we tried to assist Ontario 21 Hydro. That is all we are saying. 22 This is not about breaching contracts. This 23 is a matter of fairness. We believed that we would be 24 treated fairly with what we did to help Ontario Hydro, 25 by deferring our project. And had we not deferred our 26 project, we would be treated as an embedded generator. 27 We only deferred it at the inducement of Ontario Hydro. 28 MR. LYLE: Gentlemen, under the Electricity Les Services StenoTran Services Inc. 613-521-0703 1557 IMPERIAL OIL PANEL, ex (Lyle) 1 Act, as I think you are aware, your contract will cease 2 to have effect on market opening. 3 MR. FISCHER: Yes. 4 MR. LYLE: It is possible, however, that the 5 government can pass a regulation that would keep your 6 contract alive for the last two months after market 7 opening until the contract would expire under its terms. 8 If the government were to pass such a 9 regulation, what is your understanding as to -- I 10 understand that OPGI is now the contract holder. Is 11 that correct? 12 MR. ROACH: Correct. 13 MR. LYLE: What is your understanding as to 14 who would pay for the transmission charges for those 15 prior two months if your contract was still in effect 16 due to that regulation? 17 MR. ROACH: There is no understanding. 18 MR. LYLE: You have not thought that through. 19 MR. ROACH: We have not addressed it as yet. 20 MR. LYLE: Thank you. Those are all of my 21 questions, gentlemen. 22 THE PRESIDING MEMBER: Thank you, Mr. Lyle. 23 Mr. Rogers...? 24 MR. ROGERS: I know it is late in the day, 25 sir, but could I ask a few questions. 26 CROSS-EXAMINATION 27 MR. ROGERS: Mr. Fischer, my name is Don 28 Rogers, and I represent the applicant in this case. I Les Services StenoTran Services Inc. 613-521-0703 1558 IMPERIAL OIL PANEL, cr-ex (Rogers) 1 have listened very carefully to what you have had to say 2 today, and I respect what you have had to say. 3 Sir, you impress me as a man of some 4 experience in the business community. 5 MR. FISCHER: Yes. 6 MR. ROGERS: Your company obviously is one of 7 the biggest companies in the world. 8 MR. FISCHER: Well, it is the tenth largest in 9 Canada, after the banks. 10 MR. ROGERS: It is a very sophisticated 11 company? 12 MR. FISCHER: Yes. 13 MR. ROGERS: And you yourself have had 14 experience in negotiating very large financial 15 arrangements on behalf of your company, in your 16 experience. 17 MR. FISCHER: That is true. 18 MR. ROGERS: You appreciate that I was not 19 around in that context back when you were negotiating 20 with Mr. Fox. 21 MR. FISCHER: Yes. 22 MR. ROGERS: And my client is a new company 23 and it was not even alive at the time of these 24 negotiations -- you understand that -- so that we are 25 faced with a situation now -- you come forward and tell 26 us about these negotiations, and I accept what you say, 27 that that is how you saw it and that is what you 28 intended. But, as a man of business, you would agree Les Services StenoTran Services Inc. 613-521-0703 1559 IMPERIAL OIL PANEL, cr-ex (Rogers) 1 with me I think that commercial transactions like this 2 are put into a contract so that there won't be a dispute 3 sometime down the road about what was intended by the 4 parties? Correct? 5 MR. FISCHER: The general purpose of the 6 contract. That's right. 7 MR. ROGERS: I'm sure that you had very good 8 legal advice when this contract was entered into, just 9 as you have now. 10 MR. FISCHER: Outstanding legal advice, yes. 11 MR. ROGERS: Your lawyers would have been 12 charged by you with the responsibility of protecting the 13 interests of Imperial Oil in entering into this contract 14 with Ontario Hydro. 15 MR. FISCHER: Yes. That's right. 16 MR. ROGERS: The contract -- and I have read 17 the contract because I was trying to figure out really 18 what was meant and what was intended by you two 19 contracting parties -- states at paragraph 1.2 -- if you 20 would like to turn that up with me. 21 --- Pause 22 MR. ROGERS: On page 4, Mr. Fischer. 23 MR. FISCHER: Yes. 24 MR. ROGERS: Do you see this clause? It says: 25 "This Agreement, together with the 26 Confidentiality Agreement referred to in 27 Section 14 of this Agreement and the 28 Operating Agreement dated August 13, Les Services StenoTran Services Inc. 613-521-0703 1560 IMPERIAL OIL PANEL, cr-ex (Rogers) 1 1986, between Ontario Hydro and Imperial 2 Oil ... contains all the terms and 3 conditions agreed to by the parties; and 4 no other agreement, written or oral, 5 respecting the subject matter of the said 6 two agreements, shall be deemed to exist 7 ... to bind either party." 8 Do you see that? 9 MR. FISCHER: Yes, I do. 10 MR. ROGERS: Now, isn't it understood in 11 commerce, sir, that the idea is that a clause like this 12 states that all of the things that we intended to 13 accomplish we are going to put in this contract so that 14 sometime down the road when other people get involved, 15 maybe a court, they will know what we meant? 16 MR. FISCHER: Yes, it is. 17 MR. ROGERS: Sir, my client's problem is this, 18 that we have looked at this contract, and if I take this 19 at face value that this codifies what you and Ontario 20 Hydro meant to do and gives expression to your 21 intentions at the time -- 22 MR. FISCHER: Yes. And, again, I will repeat 23 that the contract has not been violated. 24 MR. ROGERS: I appreciate that, sir. You have 25 made that point, and I understand it. 26 But, nevertheless, you understand that it is 27 the only thing that my client can go on as to what 28 really the deal was and what the intention was between Les Services StenoTran Services Inc. 613-521-0703 1561 IMPERIAL OIL PANEL, cr-ex (Rogers) 1 the two parties? 2 MR. FISCHER: Yes, I understand that. 3 MR. ROGERS: This contract provides that you 4 made a five-year deal with Ontario Hydro, subject to 5 certain rights of extension and so on -- 6 MR. FISCHER: Yes. That's correct. 7 MR. ROGERS: -- and that in return for that 8 you got something, consideration flowed in both 9 directions -- 10 MR. FISCHER: And, as I noted, we were 11 indifferent to our -- 12 MR. ROGERS: That is your evidence. I 13 understand that. 14 MR. FISCHER: That is clear. 15 MR. ROGERS: And I have no way of doubting you 16 on that point. 17 And that this contract was deemed or was 18 intended by you to be for a five-year term to end on 19 December 31, 2000. 20 MR. FISCHER: Unless we reopened it. 21 MR. ROGERS: Unless you reopened it, which you 22 did not do. 23 MR. FISCHER: That's right. 24 MR. ROGERS: For the reasons you gave us -- 25 MR. FISCHER: Yes. 26 MR. ROGERS: -- all the uncertainty that you 27 and everybody else in this room has been facing, you 28 couldn't reopen it or extend it. Les Services StenoTran Services Inc. 613-521-0703 1562 IMPERIAL OIL PANEL, cr-ex (Rogers) 1 MR. FISCHER: Yes. 2 MR. ROGERS: You would agree with me -- I 3 think you have already agreed -- that based on this 4 contract alone that was the only document that we had to 5 determine what the deal was? There would be no good 6 reason why you should receive any discount or special 7 treatment from other customers under my client's 8 proposal, is there? 9 MR. FISCHER: No. I have said that the 10 contract was not breached and we are not here indicating 11 or stating that it has been. 12 MR. ROGERS: Right. 13 MR. FISCHER: We are here because we are 14 trying to be corporate citizens and help Ontario 15 Hydro -- 16 MR. ROGERS: I understand. 17 MR. FISCHER: -- and we believe we are not 18 being treated fairly in respect of that. 19 MR. ROGERS: And the way the cookie has 20 crumbled, it has worked out to be unfair to you in your 21 view. 22 MR. FISCHER: Yes. Yes, most definitely. 23 MR. ROGERS: If I could ask you one further 24 question, sir. 25 Suppose the cookie had crumbled a little 26 differently, and suppose this Board decides that it 27 wants to encourage new cogeneration, and suppose this 28 Board says that everybody who installs generation after Les Services StenoTran Services Inc. 613-521-0703 1563 IMPERIAL OIL PANEL, cr-ex (Rogers) 1 open access gets free transmission for five years but 2 those who built generation in the old days are stuck 3 with the tariff, would you be telling us that your 4 company should be treated under the old virtual 5 generation intent? 6 MR. FISCHER: There are a number of 7 suppositions that you have made there, many of which 8 would not pass the test of sound commerce I believe. 9 MR. ROGERS: But can you answer my question? 10 I mean, it could have turned that way. If it had, would 11 you really be here telling this Board that, "We don't 12 want the free transmission because we were committed 13 back in 1998"? 14 MR. FISCHER: All we are trying to do is 15 recognize the conditions that were being regulated at 16 the time. The fact that we were committed to build, the 17 fact that in doing a favour, if you want, for Ontario 18 Hydro we did not build and that we didn't think we would 19 be harmed by being -- with the regulations that are 20 controlled by your applicant with different financial 21 treatments. That is all it is about. 22 MR. ROGERS: Okay. Thank you. 23 MR. FISCHER: If I had signed a contract -- a 24 contract is a contract we are saying, and Ontario Hydro 25 abided by the contract they signed. It is not about 26 that, as I said. It is about fairness in recognition of 27 what we did as a corporation. 28 MR. ROGERS: Thank you very much. Les Services StenoTran Services Inc. 613-521-0703 1564 IMPERIAL OIL PANEL, cr-ex (Rogers) 1 THE PRESIDING MEMBER: Thank you, Mr. Rogers. 2 Mr. Vlahos, please. 3 MEMBER VLAHOS: Thank you, Mr. Chairman. 4 I only have one question and that is for 5 Mr. McEachen. 6 Mr. McEachen, can you help me with this gross 7 versus net? I asked similar questions of Amoco. If the 8 purpose of your object is to be treated exactly the same 9 way as if you had embedded generation, in terms of the 10 impact would the tables that you show in your prefiled 11 evidence, pages 12 and 13 of Tab 1, suffice? 12 MR. McEACHEN: Just one second. 13 --- Pause 14 MR. McEACHEN: I'm sorry, could you repeat 15 that? 16 MEMBER VLAHOS: Yes. 17 If you look at those tables, at page 12 and 18 going over to 13, okay, it is paragraphs 40 and 41 of 19 Tab 1 -- 20 MR. McEACHEN: Yes. 21 MEMBER VLAHOS: -- can you help me understand 22 those tables, and is that consistent with the relief 23 that you are seeking that you should be treated exactly 24 the same way as an embedded generator? 25 MR. McEACHEN: On page 12, using OHNC's 26 submission for rates and determinants, this is what we 27 have calculated the Imperial Oil Sarnia facility would 28 pay in transmission if it is ruled that we don't receive Les Services StenoTran Services Inc. 613-521-0703 1565 IMPERIAL OIL PANEL 1 treatment as existing embedded. So that is what that 2 table is trying to represent. 3 On the following page, page 13, where it says 4 "Assuming Imperial Builds", it is utilizing the $2.76 a 5 kilowatt, a monthly demand, and the 50 per cent gross 6 load billing and line connection at 100 per cent gross 7 load for a total of 3.124. If Imperial were to build 8 and be deemed new embedded generation, that is what they 9 would pay. 10 MEMBER VLAHOS: Okay. So the one thing I 11 guess that is pertinent here is the gross versus net, 12 because that is what you show as being the driver for 13 the change in between the two tables. 14 MS WONG: Sir, if I might just interrupt for a 15 minute. 16 It might be helpful if you look at paragraph 17 46 as well because that closes the loop for you. 18 MEMBER VLAHOS: Okay. Perhaps Mr. McEachen 19 can help with 46, then. 20 MR. McEACHEN: If Imperial is charged based on 21 its cogen facility that would have been started up in 22 1997, the facility had three nominally 40-megawatt 23 generators, because it would be on a net basis we have 24 calculated the cost for eight of the 12 months using the 25 charge determinant in OHNC's proposal, and in the 26 12 months of the year we would have to go to the grid 27 and get charged for the entire month for 40 megawatts, 28 which equates to, if I have done this correctly, the Les Services StenoTran Services Inc. 613-521-0703 1566 IMPERIAL OIL PANEL 1 $1.14 million. 2 Comparing that to the $5.1 million with no 3 cogen is the difference of the 3.97. 4 Then, just below that, comparing the 1.14 on a 5 net basis based on the 1996 project, the 3.12 in the 6 bracket at the bottom there would be under new embedded 7 transmission charges. 8 So the delta between the 3.12 and the 1.14 9 represents net billing. That equates to approximately 10 $2 million. 11 MEMBER VLAHOS: Okay. The total cost to a 12 transmission customer would depend on the kind of rate 13 design that this Board -- cost allocation and rate 14 design that this Board would approve. 15 MR. McEACHEN: I agree. 16 MEMBER VLAHOS: And there are issues on gross 17 versus net, there are issues of charge determinants, 18 just to name two. I guess what I'm not clear is there 19 is not a rate category called embedded generation 20 customers. 21 MR. McEACHEN: Yes. 22 MEMBER VLAHOS: What I'm trying to understand 23 is that -- the difference in the area, there are 24 different ways this Board, this panel, can land on those 25 issues. At the end of the day, as we decide each issue, 26 I just don't know how to address your request for 27 relief. I don't have a table, if you like, to say that 28 "Well, the charge determinant, it translates to so much. Les Services StenoTran Services Inc. 613-521-0703 1567 IMPERIAL OIL PANEL 1 Gross versus net will translate to so much". Do you 2 follow what I'm saying? 3 MR. McEACHEN: Yes, I do. 4 MEMBER VLAHOS: How can you help the panel 5 with that kind of information? Is there something that 6 you can do in terms of a spreadsheet of a table? 7 MR. McEACHEN: If I understand you correctly, 8 Mr. Vlahos, this was based on the OHNC submission. I 9 can appreciate there's a lot of different ways of 10 calculating it. If I look at net billing for existing 11 embedded, which is what we are asking for, I don't know 12 what ultimately is going to be decided, but I guess we 13 could assist if we knew what the assumptions were. 14 MEMBER VLAHOS: I'm not sure I can help you. 15 THE PRESIDING MEMBER: We haven't 16 discussed it. 17 MS WONG: Perhaps I could help, sir. 18 THE PRESIDING MEMBER: All right. 19 MS WONG: I don't want to tread where I'm not 20 supposed to go, but when you said a minute ago that 21 there is no separate rate class for existing embedded 22 generator, under the OHNC proposal, existing embedded 23 generators would be treated very differently from new 24 embedded generation. 25 Existing embedded charge only net while new 26 generation is charged 50 per gross on network and 100 27 per cent gross on line under their proposal. 28 MEMBER VLAHOS: I understand that part. Les Services StenoTran Services Inc. 613-521-0703 1568 IMPERIAL OIL PANEL 1 That's the easy part. 2 MS WONG: Okay. 3 MEMBER VLAHOS: That goes for the gross versus 4 net issue only. 5 MS WONG: Right. 6 MEMBER VLAHOS: And my question is: Is there 7 anything additional to that that would impact a 8 customer, whether he is an embedded generator or not. 9 MR. FISCHER: As relates to transmission? 10 MEMBER VLAHOS: That's right. 11 MR. FISCHER: I don't believe so. 12 MS WONG: The only part that would be 13 different, and I am not sure if this is what you are 14 driving at, but because we are asking to be treated as 15 if we had built in that interim period instead of being 16 charged net on everything we are taking off the grid, 17 which is 120 megawatts, we would like to be treated on 18 the virtual usage, which is what is set out in paragraph 19 45 and 46 of the evidence, which is based upon 40 20 megawatts eight months of the year. 21 That's why we were asking for the treatment in 22 the five year period to be based on virtual usage. 23 MEMBER VLAHOS: All right. 24 MS WONG: Does that help? 25 MEMBER VLAHOS: Yes. 26 Thank you for that. 27 THE PRESIDING MEMBER: Mr. Smith. 28 MEMBER SMITH: I'm sorry. The first question Les Services StenoTran Services Inc. 613-521-0703 1569 IMPERIAL OIL PANEL 1 has now been answered. The second one very briefly. I 2 fully accept what you say about the motivation for going 3 into the contract. 4 Just for my curiosity, and it may be a long 5 shot, is Ontario Hydro or was it in any sense a 6 significant customer of Imperial Oil? 7 MR. FISCHER: No. I couldn't tell you where 8 Ontario Hydro would rank, but it would be well down the 9 list and probably a buyer of heating oil from us when 10 they had interruptible gas, but not a very big customer 11 at all. 12 MEMBER SMITH: Thank you. 13 That's my only question. 14 THE PRESIDING MEMBER: Thank you, Mr. Smith. 15 I would like, if I can, to get some help on 16 understanding some of the assumptions regarding the 17 backup charges that were in the contract with Ontario 18 Hydro and how do they relate to the transmission rate 19 that you are seeking? 20 Could we start by looking at Tab I and looking 21 at the projection which you claim is Ontario Hydro's 22 full usage for now. You see the line there called 23 backup power, okay, $3.24 million a year, which is 24 constant through the period. 25 I would like to try and understand what basis 26 that would calculate, that $3.24 million. You have 27 given me one assumption which is that you go to the 28 grids for four months of the year. You have given me Les Services StenoTran Services Inc. 613-521-0703 1570 IMPERIAL OIL PANEL 1 one. How many units? Are they all down? You know what 2 I'm getting at. 3 What is the basis of that $3.24 million backup 4 power, that cost that you would have incurred for your 5 generation for backup? That's what I'm trying to 6 understand. 7 MR. ROACH: I can't give you the actual 8 calculations. I don't have them here. I can give you 9 the concept. 10 The concept of backup power in this model was 11 that in our virtual cogen and in our planned cogen, we 12 had three 40 megawatt turbines. Those turbines have a 13 service factor of less than 100 per cent, so they would 14 be down, out of service, for some time. 15 THE PRESIDING MEMBER: Mr. Snelson does these 16 calculations for us all the time. 17 MR. ROACH: Same type of calculations, 18 depending on whose turbine you have. 19 THE PRESIDING MEMBER: All right. 20 MR. ROACH: At some time, either on a planned 21 or an unplanned basis, one or more of the turbines would 22 have been down. 23 Since the sum of the output of the three 24 turbines was approximately equal to our demand, then we 25 would have had to have gone to the grid to buy power. 26 This was an estimate of what that power cost would have 27 been at the posted rate at that time. 28 THE PRESIDING MEMBER: So when you say "at the Les Services StenoTran Services Inc. 613-521-0703 1571 IMPERIAL OIL PANEL 1 posted rate", that is for back-up power, the back-up 2 power rate, which included some commodity and, of 3 course, would also include transmission? 4 MR. ROACH: It was bundled. Yes. It was a 5 bundled rate and it was to pay for the power that we 6 would buy from the grid when we needed it. It was 7 indexed to Ontario Hydro's actual rates. 8 The reason why it didn't change is that there 9 was a forecast that those rates would not change over 10 time and in fact I don't believe that they have. 11 THE PRESIDING MEMBER: Now, on the assumption 12 that your proposal of being treated like a virtual 13 generator, what I'm trying to grapple with in a similar 14 question is: What would be the annual cost to you for 15 back-up power? 16 MR. ROACH: On a go-forward basis what we are 17 proposing is that if we had had our cogen in place we 18 would still have to go to the grid to buy power and when 19 we did that we would obviously have to pay transmission 20 tariffs on the power that we took from the grid. 21 THE PRESIDING MEMBER: So the transmission 22 tariff component is the $1.1 million difference that you 23 referred to. That's what you're saying? 24 MR. McEACHEN: It's the $1.4, yes. 25 THE PRESIDING MEMBER: The balance would be 26 whatever you can get for power now in the new 27 competitive market? 28 MR. ROACH: Yes. Les Services StenoTran Services Inc. 613-521-0703 1572 IMPERIAL OIL PANEL 1 In the open market we would buy the power from 2 whoever we bought it from. The $1.14 is the cost of 3 transmission for that period. 4 THE PRESIDING MEMBER: I understand that a 5 little better. 6 Just to finish up on that point, as I went 7 through it with Amoco this morning, one of the options 8 that you have is to go to the competitive market for 9 power as opposed to build your cogen. There are a 10 number of factors that might push you there. It may be 11 the price is competitive; maybe -- gas prices, as you 12 know, have gone up a lot, you know, nearly $1.00 over 13 what you had in your projection; there are a number of 14 things. 15 So that is still an alternative that you must 16 evaluate. Correct? 17 MR. FISCHER: That's correct. 18 THE PRESIDING MEMBER: That is partly why you 19 want the one year window, shall we say? 20 MR. FISCHER: That should hopefully give us 21 some insight as to what the regulated components will 22 be, or reregulated, and we would do our best to get out 23 our own crystal balls around the things that we have to 24 make our own assumptions on. 25 THE PRESIDING MEMBER: As Amoco was also asked 26 that question: With some flexibility on the one year, 27 what happens after one year? You are then going to tell 28 who that you have made your decision? Les Services StenoTran Services Inc. 613-521-0703 1573 IMPERIAL OIL PANEL 1 MR. FISCHER: In the case of our company, 2 until we -- at the end of one year we are hopeful that 3 we understand the rules, we would then embark on trying 4 to sort through technology, pick vendors and do what we 5 call a Class 2 estimate, one that we have confidence 6 will not overrun or underrun by more than 10 per cent. 7 Our company requires us to have that class of estimate 8 before we can appropriate. 9 So we would not -- it's probably the one year 10 and then as much as two and-a-half years more before we 11 arrive at that class of estimate, and it is at that time 12 that we actually make a decision based on all of the 13 data we have as to whether we move forward or not. 14 The thing that would give us some better 15 understanding to move forward with the front-end cost of 16 just getting to the stage of having a Class 2 estimate 17 would be some clarification around the regulatory 18 matters. 19 THE PRESIDING MEMBER: Okay. I understand 20 that is slightly different from Amoco and I hope you can 21 still finance it at 75 per cent equity and 25 per cent 22 debt, but Ontario Hydro should be so lucky. 23 --- Laughter 24 THE PRESIDING MEMBER: Thank you very much. 25 MR. FISCHER: Thank you. 26 THE PRESIDING MEMBER: Those are the Board's 27 questions. 28 Do you have some re-direct, Ms Wong? Les Services StenoTran Services Inc. 613-521-0703 1574 IMPERIAL OIL PANEL 1 MS WONG: I have only two very minor redirect 2 just to clarify some things on the record. 3 RE-EXAMINATION 4 MS WONG: Mr. Roach, Mr. Mattson had taken you 5 to the section 5.8 of the contract which talked about 6 the transformation station. That was in the context of 7 his discussion about benefits. 8 Can you tell me whether or not you got any 9 benefit from the transformation station? 10 MR. ROACH: Okay. What is -- the content of 11 this particular paragraph is the addition of a fourth 12 transformer. We had three transformers in place. I'm 13 sorry, we had two transformers in place, we wanted to 14 add a third transformer. The two existing transformers 15 were adequate to carry out load, but in the case of a 16 failure of one of those transformers we would be 17 vulnerable. 18 So this was a reliability enhancement for 19 our site. 20 MS WONG: Let me try that a different way. 21 If you could turn to Tab I, which is the 22 management proposal -- 23 MR. ROACH: Yes. 24 MS WONG: -- and to the page dealing with the 25 Ontario Hydro proposal. 26 MR. ROACH: Yes. 27 MS WONG: If you look at the calculation at 28 the bottom of the page we see that the reduced power Les Services StenoTran Services Inc. 613-521-0703 1575 IMPERIAL OIL PANEL, re-ex (Wong) 1 bill discount is $21.9 million. 2 MR. ROACH: Yes. 3 MS WONG: Then Ontario Hydro paid for the 4 transformer at $3.14 million -- 5 MR. ROACH: Yes. 6 MS WONG: -- for a total NPV of $25 million. 7 MR. ROACH: Yes. 8 MS WONG: Is the $3.14 million reflective of 9 the cost of that transformer that is being discussed in 10 section 45.8? 11 MR. ROACH: Yes. 12 MS WONG: All right. So that your total NPV 13 of 25 included that cost? 14 MR. ROACH: Yes. 15 MS WONG: Thank you. 16 MR. FISCHER: And the only difference between 17 whatever the actual price would have been and the price 18 is when it was going to be spent and how much it would 19 have been discounted back by. 20 MS WONG: Thank you. 21 Mr. Fischer, just one small one for you. 22 Mr. Mattson asked you about the Tab E document 23 which referred to the 1.5 person years. 24 MR. FISCHER: Yes. 25 MS WONG: I believe you said that that was in 26 a context of some pre-negotiations or some early 27 negotiations. 28 Was that term about the 1.5 years ever Les Services StenoTran Services Inc. 613-521-0703 1576 IMPERIAL OIL PANEL, re-ex (Wong) 1 implemented? 2 MR. FISCHER: Not that I am aware of, no. 3 MS WONG: Thank you. 4 Those are all my questions, sir. 5 THE PRESIDING MEMBER: Thank you, Ms Wong. 6 That is the end of the week. It has been a 7 long week for everybody. 8 Thank you, gentlemen, for your testimony. 9 MR. FISCHER: Thank you. 10 THE PRESIDING MEMBER: We have the schedule. 11 I think everybody has it. 12 Is it on the hotline or not, the schedule. Do 13 we know? 14 MR. LYLE: It's partially on, but I will make 15 sure it is on in its entirety tonight. 16 THE PRESIDING MEMBER: Make sure that it is on 17 and it is updated with Mr. Campbell's change. 18 We still have to put on Mr. Rogers' gentlemen 19 coming back on Friday if that is expected as well. 20 So that is the schedule. If there is any 21 change to that we will certainly let you know. 22 Have a good weekend everybody. 23 MR. ROGERS: Dr. Higgin, excuse me. Just 24 before you leave -- I know that everyone is anxious to 25 get away -- I just would like to advise everyone that I 26 have an exhibit here which I will be using on Monday I 27 believe in the cross-examination and I will distribute 28 it to those here and I will see that Board Staff gets a Les Services StenoTran Services Inc. 613-521-0703 1577 1 copy of it. 2 THE PRESIDING MEMBER: My colleague reminds me 3 that we are starting at 9:30 on Monday morning. 4 MR. ROGERS: Very good. 5 MEMBER SMITH: Actually, I suggested 6 10 o'clock. 7 THE PRESIDING MEMBER: He said 10:00, but I 8 didn't take that. 9 --- Laughter 10 THE PRESIDING MEMBER: Have a good weekend, 11 everybody. 12 --- Whereupon the hearing adjourned at 1708, to 13 resume on Monday, February 28, 2000 at 0930 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Les Services StenoTran Services Inc. 613-521-0703 1578 1 INDEX OF PROCEEDING 2 PAGE 3 Upon resuming at 1108 1403 4 Preliminary Matters 1403 5 AMOCO PANEL 6 SWORN: JEAN-PAUL DESROCHERS 1410 7 SWORN: JASON THOMPSON 1410 8 SWORN: PAUL CAHILL 1410 9 Examination-in-chief by Mr. Vegh 1410 10 Cross-examination by Mr. Mattson 1418 11 Cross-examination by Mr. Mark 1445 12 Upon recessing at 1255 1466 13 Upon resuming at 1410 1466 14 Examination by Board Counsel 1477 15 Questions by the Board 1483 16 Re-examination by Mr. Vegh 1494 17 Upon recessing at 1501 1497 18 Upon resuming at 1520 1497 19 IMPERIAL OIL PANEL 20 SWORN: BRIAN FISCHER 1498 21 SWORN: PADDY ROACH 1498 22 SWORN: MICHAEL McEACHEN 1498 23 Examination-in-chief by Ms Wong 1498 24 Cross-examination by Mr. Mattson 1519 25 Cross-examination by Mr. Mark 1534 26 Examination by Board Counsel 1553 27 Cross-examination by Mr. Rogers 1557 28 Questions by the Board 1564 Les Services StenoTran Services Inc. 613-521-0703 1579 1 INDEX OF PROCEEDING (Cont'd) 2 PAGE 3 Re-examination by Ms Wong 1574 4 Upon adjourning at 1650 1577 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Les Services StenoTran Services Inc. 613-521-0703 1580 1 EXHIBITS 2 NO. PAGE 3 G8.1 Curriculum vitaes of Jean-Paul 1408 4 Desrochers, Jason Thompson and 5 Paul Cahill 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Les Services StenoTran Services Inc. 613-521-0703 1581 1 UNDERTAKINGS 2 NO. PAGE 3 F8.1 Mr. Desrochers undertakes to 1497 4 provide the charge that you 5 would anticipate paying if you 6 don't have any embedded 7 generation under OHNC's 8 proposal, and the amount that 9 you would anticipate paying if 10 in fact you had built embedded 11 generation prior to October 1998 12 under OHNC's proposal, and any 13 relevant assumptions that might 14 underlie those numbers. In 15 addition, the numbers developed 16 by Imperial on the amount that 17 you would have to pay for 18 transmission rates under gross 19 load billing if you were to 20 actually go ahead and build 21 embedded generation 22 23 F8.2 Mr. Roach undertakes to provide 1552 24 the calculations underlying the 25 numbers which appear on the 26 second-last page of Schedule I, 27 entitled "Deferral Case"