1582 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 Monday, February 28, 2000, 21 commencing at 0930 22 23 24 25 HEARING 26 27 VOLUME 9 28 Les Services StenoTran Services Inc. 613-521-0703 1583 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 1584 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 JOANNA BIRENBAUM 17 18 RICHARD STEPHENSON Power Workers Union 19 20 MARK RODGER Toronto Hydro Electric 21 System Ltd. 22 23 PAUL DUMARESQ Ontario Association of Physical 24 Plant Administrators 25 26 SHARON WONG Imperial Oil Ltd. 27 28 Les Services StenoTran Services Inc. 613-521-0703 1585 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 1586 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 1587 1 Toronto, Ontario 2 --- Upon resuming on Monday, February 28, 2000 3 at 0930 4 THE PRESIDING MEMBER: Thank you. Please be 5 seated. 6 Good morning everybody. Welcome to week three 7 of the hearing. I hope this will be the last week for 8 everybody. We hope to get through everything this week. 9 It is going to be quite a tight schedule. 10 Are there any preliminary matters? 11 Nothing from the Applicant. 12 Yes? 13 PRELIMINARY MATTERS 14 MR BIRENBAUM: Good morning. I'm Joanna 15 Birenbaum. I'm here on behalf of Pollution Probe. 16 Mr. Klippenstein isn't available this morning. 17 I'm simply here to request and to notify other 18 counsel that Pollution Probe is requesting to go first 19 tomorrow morning in the cross-examination of Mr. Boland 20 and Dr. Orans, if that's possible. Both 21 Mr. Klippenstein and I are scheduled to be in the Court 22 of Appeal, so we are seeking accommodation to juggle the 23 two hearings. 24 THE PRESIDING MEMBER: Okay. We will see if 25 we can fit that in tomorrow. 26 Ms Lea? 27 MS LEA: I'm sure that's fine. But I think 28 you understand that those gentlemen should be starting Les Services StenoTran Services Inc. 613-521-0703 1588 Preliminary Matters 1 this afternoon. 2 THE PRESIDING MEMBER: Yes. 3 Did you know? 4 MS BIRENBAUM: Yes, I am aware of that. I 5 spoke with Mr. Campbell and he believes that the direct 6 will be finished today. I don't know whether he knows 7 for certain -- we don't know whether -- 8 In any event, Mr. Klippenstein isn't available 9 this afternoon. 10 MS LEA: Okay. 11 Then the first thing up is Mr. Osborne 12 tomorrow morning. Okay, good. 13 Thank you. 14 MS BIRENBAUM: Thank you. 15 THE PRESIDING MEMBER: Any other preliminary 16 matters? 17 Gentlemen, Mr. Fisher, would you like to 18 briefly introduce everybody and then we will get them 19 sworn and get things under way? 20 MR. FISHER: Good morning, Dr. Higgin. Yes, I 21 will. 22 First, I would just like to let you know how I 23 would proceed today. I would like to advise you that 24 AMPCO will be calling three witnesses panels. 25 The first panel will speak to the evidence 26 contained in AMPCO's prefiled evidence, which is 27 Exhibit H, Tab 2, Schedule 1. 28 The second panel is composed of Les Services StenoTran Services Inc. 613-521-0703 1589 Preliminary Matters 1 representatives of three AMPCO member companies who will 2 speak to the issue of net load billing versus gross load 3 billing as it relates to their operation. 4 The third panel consists of representatives 5 from AMPCO members who are surplus power customers. 6 I would like to introduce to you -- closest to 7 you is Mr. John Lemay from INCO; in the middle is 8 Mr. David Goldsmith from IVACO; and at this end is 9 Mr. Ken Snelson. 10 THE PRESIDING MEMBER: Would you like to come 11 up and be sworn by Mr. Smith, please. 12 SWORN: JOHN LEMAY 13 SWORN: DAVID GOLDSMITH 14 SWORN: KENNETH SNELSON 15 THE PRESIDING MEMBER: Thank you, Mr. Fisher. 16 Would you like to proceed? 17 MR. FISHER: Thank you. 18 EXAMINATION-IN-CHIEF 19 MR. FISHER: Would you please state your names 20 for the Board? 21 MR. LEMAY: John Lemay. 22 MR. FISHER: Please describe your professional 23 qualifications for the Board. 24 MR. LEMAY: I have a Bachelor of Applied 25 Science from the University of Toronto in Electrical 26 Engineering and I'm a Registered Member of the 27 Professional Engineers of Ontario. 28 MR. FISHER: Would you please describe the Les Services StenoTran Services Inc. 613-521-0703 1590 AMPCO PANEL 1, in-ch (Fisher) 1 length and nature of your work experience for the Board? 2 MR. LEMAY: I have worked for INCO Limited, 3 the nickel producer, for more than 30 years. My title 4 is Project Manager, Energy Conservation. As such I am 5 responsible for our $120 million energy budget, both for 6 the purchase of energy and for the management and trying 7 to find ways to reduce the use of energy. 8 INCO has been a leader in energy conservation 9 and recently achieved a gold level rating in the federal 10 government's voluntary challenge registry to reduce 11 greenhouse gases. We scored 100 per cent in that. 12 My previous job experience includes having 13 been responsible for the company's hydro electric 14 generating plant and electrical power system. 15 MR. FISHER: Please state your involvement in 16 the electricity restructuring process. 17 MR. LEMAY: I'm a former Vice-Chairman and 18 Chairman of the Association of Major Power Consumers and 19 currently I'm on the Board of Directors. I have been 20 involved in electricity issues for more than 30 years. 21 I am a Member of the Board of Directors of the 22 Independent Market Operator of Ontario and I am also on 23 the Audit Committee of that organization. 24 MR. FISHER: What other relevant involvement 25 do you have? 26 MR. LEMAY: I am Vice-Chair of the Industrial 27 Gas Users and have served on their Board of Directors 28 for many years. Les Services StenoTran Services Inc. 613-521-0703 1591 AMPCO PANEL 1, in-ch (Fisher) 1 As well, I am Chairman of the Ontario Mining 2 Association Energy Committee and a Member of the Mining 3 Association of Canada Energy Task Force. 4 MR. FISHER: Mr. Lemay, have you been involved 5 with and read and understand the evidence submitted by 6 AMPCO? 7 MR. LEMAY: Yes. I was involved in the 8 preparation of the evidence. 9 MR. FISHER: To the best of your knowledge and 10 understanding, do you believe the contents of the AMPCO 11 evidence are true and accurate? 12 MR. LEMAY: I do. 13 MR. FISHER: Mr. Lemay, do you adopt the 14 evidence in the main body of the AMPCO document, 15 excluding the appendices? 16 MR. LEMAY: Yes, I do. 17 MR. FISHER: Thank you. 18 Sir, would you please describe AMPCO for the 19 Board? 20 MR. LEMAY: The Association of Major Power 21 Consumers, or AMPCO as it's known, has 66 members. The 22 total electricity bill for AMPCO members is over 23 $1 billion a year and it amounts to about 15 per cent of 24 the former Ontario Hydro revenues. 25 AMPCO member companies represent a diverse 26 range of both national and -- they are both national and 27 international in scope. All members, like my company, 28 are major exporters and need competitive electricity Les Services StenoTran Services Inc. 613-521-0703 1592 AMPCO PANEL 1, in-ch (Fisher) 1 rates to maintain their global competitiveness. 2 Key industries represented by AMPCO are 3 mining, pulp and paper, automotive manufacturing, oil, 4 steel, chemicals, petrochemicals, abrasives, cement and 5 metals. 6 MR. FISHER: How is AMPCO governed? 7 MR. LEMAY: AMPCO is incorporated under the 8 laws of the Province of Ontario and has a Board of 9 Directors of 17 members that are elected each year at 10 the Annual General Meeting. 11 MR. FISHER: What is AMPCO's mandate? 12 MR. LEMAY: It is represent the interest of 13 members in electricity matters in the Province of 14 Ontario. Its members are interested in fair and 15 equitable electricity rates and achieving a truly 16 competitive market in the Province of Ontario. 17 MR. FISHER: What is the significance of 18 AMPCO's members to the Ontario economy? 19 MR. LEMAY: AMPCO members directly employ more 20 than 100,000 people and indirectly another 300,000. 21 AMPCO's members make a very significant contribution to 22 the country's balance of payments. 23 MR. FISHER: What is AMPCO's Mission 24 Statement? 25 MR. LEMAY: It is: 26 "To advocate competitive and predictable 27 electricity rates for major industrial 28 consumers throughout Ontario and to Les Services StenoTran Services Inc. 613-521-0703 1593 AMPCO PANEL 1, in-ch (Fisher) 1 ensure a reliable electricity supply that 2 supports industry and the economy of 3 Ontario." (As read) 4 MR. FISHER: How long has AMPCO been involved 5 in electricity restructuring? 6 MR. LEMAY: AMPCO has been involved for more 7 than 25 years, participated in HR-5, the costing and 8 pricing hearing; has been involved in the demand/supply 9 hearing; was involved before the McDonald Commission and 10 has been involved in a number of hearings before this 11 Board as well. 12 As well, AMPCO had two representatives in the 13 Market Design Committee. 14 MR. FISHER: How does AMPCO develop positions 15 on issues related to electricity restructuring? 16 MR. LEMAY: We hold members meetings, send out 17 surveys to get input from members and from the public in 18 general, and we form committees to deal with specific 19 issues. 20 MR. FISHER: What is AMPCO's view of the 21 purpose of the Energy Competition Act in general and the 22 Ontario Energy Board Act, 1998 in particular? 23 MR. LEMAY: The title of the Act is: 24 "An Act to create jobs and protect 25 consumers by promoting low cost energy 26 through competition." 27 AMPCO submits that the primary purpose for 28 restructuring is to generate pressure for lower prices Les Services StenoTran Services Inc. 613-521-0703 1594 AMPCO PANEL 1, in-ch (Fisher) 1 to electricity consumers by creating competition in the 2 generation of electric power. 3 The purpose of the Act wasn't to encourage 4 theoretical economic efficiency, as I understand OPGI 5 and OHNC have led us to believe. 6 Given the purpose of the Act I think it is 7 very clear that the purpose of OHNC is to help foster 8 competition and not to put roadblocks in its way. 9 MR. FISHER: Do you believe we will have a 10 competitive market on market opening? 11 MR. LEMAY: No, we do not and will not have a 12 competitive market unless there is very significant 13 changes. 14 I have, Mr. Chairman, not had one offer of 15 electric power sales from anybody. This tells me very 16 clearly, as one of the largest consumers in the 17 province, there isn't a competitive market. 18 I contrast that with our gas where I have 19 people call me every week even though they know I have a 20 deal with a supplier already. They are still saying 21 "Well, I would like to come and talk to you just so you 22 know I'm here and when you change suppliers I want to be 23 in line." 24 Electricity, that is not happening at all. To 25 put it in context, our electricity purchases are more 26 than twice what our gas purchases are. 27 As well, as Chairman of the Ontario Mining 28 Association Energy Committee, I have had discussions Les Services StenoTran Services Inc. 613-521-0703 1595 AMPCO PANEL 1, in-ch (Fisher) 1 with most of the mining companies in the province. And 2 to my knowledge, not one of them has had anybody come 3 and want to discuss electricity supply. 4 MR. FISHER: What choices does INCO have for 5 electricity supply? 6 MR. LEMAY: We have currently got two choices: 7 one would be to enter into a contract with Ontario Power 8 Generation. The second choice would be to go to the 9 spot market. Neither of those is very appealing. In 10 the case of OPGI trying to enter into a contract where 11 they have total market power is not very appealing. We 12 really have nothing to negotiate and would have to take 13 whatever they offer. 14 In the case of going to the spot market, that 15 is not very appealing either because OPGI again has 16 total market power when it comes to the spot market and 17 will be able to manipulate the market if they so desire. 18 So neither of the choices we have right now 19 are very appealing. 20 MR. FISHER: Mr. Lemay, what is needed for a 21 competitive market? 22 MR. LEMAY: There are a number of 23 requirements, and they are listed in Section 2 of the 24 AMPCO evidence. I would like to highlight market power, 25 net load billing and the length of the peak period. I 26 realize that market power is not within the Board's 27 power to decide. The Board's decisions will certainly 28 have a significant effect on whether we have a Les Services StenoTran Services Inc. 613-521-0703 1596 AMPCO PANEL 1, in-ch (Fisher) 1 competitive market. Net load billings, from my point of 2 view, is essential. Gross load billing is only going to 3 serve to increase OPGI's market power, and I believe 4 that is why OPGI supports gross load billing. 5 INCO does not presently have plans to install 6 any generation and would only do so if OPGI would not 7 give us an appropriate price. And I am not sure we 8 would even do so then. 9 With gross load billing, saying well we don't 10 like your price, we are going to install cogeneration, 11 that is just an empty threat, because the difference in 12 price makes it totally uneconomic. 13 Additionally, the Board can make certain 14 recommendations to the government. I would urge the 15 Board to urge the government to speed up the decontrol 16 process even beyond where it is now and recently 17 announced. 18 AMPCO's recommendation on the peak period, if 19 adopted, will cause loads to shift. It's happened with 20 time of use rates, and this will help to delay the need 21 for additional transmission capacity. I would point out 22 that the load shifting doesn't come for free for the 23 companies doing it. We have to make significant 24 investments to be able to shift load. 25 MR. FISHER: I would now like to turn to 26 Mr. Goldsmith to provide the Board with AMPCO's 27 particular concerns with the OHNC application. 28 For the record, would you state your name, Les Services StenoTran Services Inc. 613-521-0703 1597 AMPCO PANEL 1, in-ch (Fisher) 1 please. 2 MR. GOLDSMITH: David Goldsmith. 3 MR. FISHER: Sir, what are your professional 4 qualifications? 5 MR. GOLDSMITH: I have a Bachelor of Science 6 and a Master of Science, both in electrical engineering 7 and both from the Massachusetts Institute of Technology. 8 And I am a registered professional engineer in Ontario. 9 MR. FISHER: Please state your position and 10 duties of employment with IVACO rolling mills. 11 MR. GOLDSMITH: IVACO rolling mills is an 12 electric furnace steelmaker located in the far east end 13 of the province. We also have a steel wire rod rolling 14 mill, and with a $100 million plant modernization, which 15 we completed last month, we are now the largest rod mill 16 in North America and the most technically advanced rod 17 mill in the world. 18 That is significant in the sense that our 19 competition comes from all over the world. 20 I am Manager of Planning and Development for 21 the company. In addition to energy issues, I am 22 directly involved with international trade issues and 23 government relations. I am also involved in strategic 24 planning for the business. 25 MR. FISHER: Please state your past and 26 present positions with AMPCO. 27 MR. GOLDSMITH: I have been representing our 28 company to AMPCO since 1979. I have been on the board Les Services StenoTran Services Inc. 613-521-0703 1598 AMPCO PANEL 1, in-ch (Fisher) 1 of directors of AMPCO since 1985. I was chair of the 2 organization from 1991 through 1994, and it was during 3 that period that our restructuring proposals began to be 4 developed. I chaired the internal committee of AMPCO 5 which developed those proposals, and I am now chair of 6 the committee which is reviewing the OHNC rate 7 application. 8 MR. FISHER: Could you please tell the Board 9 any other roles that you have played in the electricity 10 restructuring process in Ontario. 11 MR. GOLDSMITH: I spent most of 1998 as one of 12 two industry representatives to the Market Design 13 Committee. 14 MR. FISHER: Thank you. Mr. Goldsmith, did 15 you participate in, and have you read and do you 16 understand the evidence submitted by AMPCO? 17 MR. GOLDSMITH: Yes, I have. 18 MR. FISHER: To the best of your knowledge and 19 understanding, do you believe that the contents of the 20 AMPCO evidence are true and accurate? 21 MR. GOLDSMITH: Yes, I do. 22 MR. FISHER: Mr. Goldsmith, do you adopt the 23 evidence in the main body of the AMPCO document, 24 excluding the appendices? 25 MR. GOLDSMITH: Yes, I do. 26 MR. FISHER: What causes AMPCO to take the 27 position it has with respect to the development of the 28 electricity market? Les Services StenoTran Services Inc. 613-521-0703 1599 AMPCO PANEL 1, in-ch (Fisher) 1 MR. GOLDSMITH: AMPCO's positions are 2 developed by working committees of its members and are 3 approved by its board of directors. The working 4 committees use consultants, discussions with other 5 industrial associations and other jurisdictions, 6 discussions with industry experts and the extensive 7 experience of our own members in many jurisdictions to 8 develop positions. 9 MR. FISHER: How does the application before 10 the Board assist in promoting the objects of the 11 legislation? 12 MR. GOLDSMITH: In order to answer that 13 question, I need to backtrack a little bit and talk 14 about how we got to where we are. 15 AMPCO's position on restructuring, as 16 unanimously approved by its members in 1995 and 17 presented to the McDonald Committee and to government, 18 included as an essential element of restructuring the 19 creation of a competitive market and generation. 20 Rather than presenting this as a theoretical 21 principle, AMPCO actually proposed two different methods 22 whereby Ontario Hydro Generation assets could be split 23 up into five different generating companies, station by 24 station, creating companies which were approximately 25 equal in size and with diversified generation mix, both 26 by geography and by generation type. 27 Competition in generation is not a feature of 28 the new market. However, as the Act says, the Les Services StenoTran Services Inc. 613-521-0703 1600 AMPCO PANEL 1, in-ch (Fisher) 1 objectives of restructuring are to create jobs and 2 protect consumers by promoting low cost energy through 3 competition. We believe that it is essential that the 4 OHNC application be viewed in the light of how it 5 furthers the goal of creating competition in the 6 electricity generation and, conversely, how it might 7 prevent that goal from being achieved rapidly. 8 MR. FISHER: What are AMPCO's concerns with 9 the OHNC application? 10 MR. GOLDSMITH: AMPCO has developed its 11 position as a coherent and inter-dependent set of 12 recommendations. The significance of that is that if 13 certain of these recommendations were not adopted, it 14 would require revisiting of other recommendations. 15 Having said that, I can characterize our 16 recommendations as they relate to the following issues. 17 The lack of competition in generation market 18 is key, and we are concerned with the fact that the 19 proposals in the application perpetuate rather than 20 overcome this lack of competition. 21 The definition of transmission customer does 22 not treat all customers equally. 23 The change in the practice of Ontario Hydro to 24 move to gross load billing for both existing and new 25 embedded generation will stump the growth of competition 26 and perpetuate market power. 27 The definition of line connection is too 28 broad, perpetuating the existing regime and undermining Les Services StenoTran Services Inc. 613-521-0703 1601 AMPCO PANEL 1, in-ch (Fisher) 1 the growth in competition for connection assets. 2 The proposed use of non-coincident peak as a 3 charge determinant doesn't recognize the very real 4 diversity benefits to the system of certain customers. 5 The proposed treatment of existing contracts 6 with the former Ontario Hydro will cause severe rate 7 shock to certain customers. 8 And export and wheel-through transactions 9 should be charged on an incremental cost basis, provided 10 reciprocity is achieved with surrounding jurisdictions. 11 MR. FISHER: Thank you. 12 I would now like to turn to Mr. Snelson to 13 provide the Board with the rationale behind AMPCO's 14 proposal. 15 Can you state your name for the Board, please? 16 MR. SNELSON: Yes. It is John Kenneth 17 Snelson. 18 MR. FISHER: What are your professional 19 qualifications? 20 MR. SNELSON: I have a first class honours 21 degree in electrical mechanical sciences from Cambridge 22 University, England. I am also a registered 23 professional engineer in Ontario. 24 MR. FISHER: Please state your present 25 occupation and relationship with AMPCO. 26 MR. SNELSON: I have been involved in the 27 electricity industry for more than 30 years in 28 electrical utilities since -- in the areas of Les Services StenoTran Services Inc. 613-521-0703 1602 AMPCO PANEL 1, in-ch (Fisher) 1 distribution, transmission and generation. Since 1993 I 2 have been an independent consultant in the electrical 3 utility area and I have worked for a variety of clients 4 in industry utilities and government. 5 AMPCO has been a client since 1993 and I have 6 worked with them on issues such as the Ontario Hydro 7 rate hearings, submissions to the McDonald Committee 8 and, more recently, the late 1998 and early 1999 9 proceedings in front of this Board on OHNC's revenue 10 requirements. 11 MR. FISHER: Mr. Snelson, would you please 12 state any other roles you have played in the electricity 13 restructuring process in Ontario? 14 MR. SNELSON: In 1998 I was a member of the 15 market design committee, transmission technical 16 committee. In early 1999 I was a member of the Ontario 17 Energy Board's distribution rate task force as part of 18 their PBR initiative. Early this year I have been 19 involved in the -- I have been a member of the task 20 force dealing with the transmission system code so I 21 have had to delegate that to somebody else during the 22 course of this hearing. 23 MR. FISHER: Mr. Snelson, are you the 24 principal author of the main body of the evidence 25 submitted by AMPCO up to and including Appendix A? 26 MR. SNELSON: Yes, I was. 27 MR. FISHER: To the best of your knowledge and 28 understanding do you believe the contents of the AMPCO Les Services StenoTran Services Inc. 613-521-0703 1603 AMPCO PANEL 1, in-ch (Fisher) 1 evidence are true and accurate? 2 MR. SNELSON: Yes, I do. 3 MR. FISHER: Mr. Snelson, do you adopt the 4 evidence in the main body and Appendix A of the AMPCO 5 document? 6 MR. SNELSON: Yes. 7 MR. FISHER: What has been your role in the 8 development of the AMPCO positions and evidence? 9 MR. SNELSON: I have worked with the AMPCO 10 committees and the Board of Directors and individual 11 AMPCO members in the preparation of this evidence. I 12 also assisted them through the Ontario Hydro Networks' 13 stakeholdering process in the summer and in the 14 preparations, as we said, of the AMPCO evidence, which 15 is Exhibit H, Tab 2, Schedule 1. 16 MR. FISHER: I would like to turn to the issue 17 of cost allocation. 18 Mr. Snelson, would you please outline for the 19 Board the concerns that AMPCO has with the cost 20 allocation proposal and the OHNC application? 21 MR. SNELSON: AMPCO believes that one of the 22 reasons for proposing the more liberal regime for the 23 investment and line connections was that by having a 24 separate line connection pool you could make customers 25 directly responsible for their own connection costs, and 26 that the reasons for doing that would be to make them 27 more directly responsible and therefore they would have 28 incentives to do things in more economic ways. Les Services StenoTran Services Inc. 613-521-0703 1604 AMPCO PANEL 1, in-ch (Fisher) 1 AMPCO can support that move, but only if the 2 customers who have responsibility for the costs have 3 some ability to manage those costs, only if there is a 4 recognition of the specific costs that customers have 5 paid, and that customers who have paid for their own 6 connections in whole or in part do not have to wholly 7 pay for the connection costs of other customers by 8 continuing to be entirely within the pool. 9 The combination of the broad definition of 10 line connection, as proposed by OHNC, and their proposed 11 investment rules, do not allow customers to manage the 12 costs in most cases, customers who have paid all or part 13 of their connections and are fully paying the costs of 14 the line connection pool. 15 In addition, in the fall when OHNC approached 16 many AMPCO members to tell them which pools they would 17 be in, we found that many AMPCO members who considered 18 that they had fully paid for their line connection costs 19 now were allocated as being entirely within the line 20 connection pool. They found that difficult to deal 21 with. 22 MR. FISHER: What is AMPCO's proposal for 23 addressing this issue? 24 MR. SNELSON: We have two proposals. The 25 first is that the definition of line connection be 26 limited to what we have called the narrow definition of 27 line connection, and that is the facilities that serve 28 only one transmission delivery point will serve a group Les Services StenoTran Services Inc. 613-521-0703 1605 AMPCO PANEL 1, in-ch (Fisher) 1 of transmission delivery points that serve the same 2 directly connected customer. This allows the customer 3 who is using the facilities to be made fully responsible 4 for the costs without having to deal with the difficult 5 questions regarding how to deal with shared facilities. 6 The second proposal would be to allow 7 connection costs -- connection assets -- to be 8 transferred from OHNC to customers. This would allow 9 customers who have paid for most of their own 10 connections to buy out the remainder and thereby move 11 out of the pool and get credit for the contributions 12 that they have made. 13 MR. FISHER: There has been some discussion of 14 the cost of which assets should be transferred. 15 Mr. Vlahos established that OHNC would consider selling 16 assets at the higher of book value or market. The 17 reference is in the transcript at Volume 7, page 1307, 18 lines 1 through 12. At what value does AMPCO propose 19 that assets be transferred? 20 MR. SNELSON: AMPCO is proposing that these 21 connection assets be transferred at net book value. We 22 don't believe that this a real market transaction. 23 There is only one possible seller and the customer is 24 probably the only interested buyer. This is sorting out 25 the ownership of assets to better fit a new regulatory 26 paradigm. This is not the same as OHNC selling a 27 substantial proportion of its transmission system to 28 another competitor transmission provider. In that Les Services StenoTran Services Inc. 613-521-0703 1606 AMPCO PANEL 1, in-ch (Fisher) 1 latter case OHNC would get market value whether it was 2 above or below net book value. 3 MR. FISHER: OHNC in its answer to AMPCO's 4 Interrogatory E, Tab 2, Schedule 1, produced two figures 5 that show some difficulties with the narrow definition. 6 These are figures 1A and 2A of Appendix A to Exhibit E, 7 Tab 2, Schedule 1. 8 How do you respond to these figures? 9 MR. SNELSON: Our response is that these 10 figures appear to have been drawn to accentuate the 11 anomalies of the narrow definition. We just point out 12 that the broad definition also has anomalies, as we have 13 discussed earlier in this hearing, and that essentially 14 when you are trying to draw a distinction between 15 network and connection then you are trying to draw a 16 hard line between black and white when really there are 17 shades of grey. Any distinction will have anomalies 18 around that line. 19 The advantage of the narrow definition is that 20 it clearly identifies assets that serve one customer 21 that he could be made responsible for. Now, that is 22 necessary because at the moment we don't have rules for 23 how to deal with the costs of shared facilities and 24 pooling mechanisms that seem to work. 25 MR. FISHER: Also at Exhibit E, Tab 2, 26 Schedule 1 there is Appendix B that shows the effects of 27 the quantitative analysis of the narrow definition. How 28 does AMPCO respond to that? Les Services StenoTran Services Inc. 613-521-0703 1607 AMPCO PANEL 1, in-ch (Fisher) 1 MR. SNELSON: We note that this analysis was 2 done at our request by OHNC and that the size of the 3 line connection pool with the narrow definition has 4 fallen from 16 per cent of the revenue requirement to 5 about 4 per cent. At the same time, the number of 6 customers who are left in the line connection pool has 7 fallen and fallen even faster. The result is that the 8 line connection rate for the few customers remaining in 9 the pool would rise. 10 Since the submission of AMPCO's evidence we 11 have had some further thought about that and we have had 12 some concern about the possible impact to such an 13 increase on those particular customers. We made some 14 suggestions on how that impact could be mitigated in 15 some of our interrogatory responses, in particular, 16 Interrogatory E, Tab 49, Schedule 4, which is an 17 interrogatory from OHNC. 18 In that interrogatory we suggest that one of 19 the solutions to this possible rate impact is to roll 20 the very much reduced line connection pool into the much 21 larger transformation pool and bring together all the 22 costs that customers can be made responsible for that 23 are the connection costs, into one pool. Now, AMPCO 24 would accept this proposal as long as the buy out 25 proposal of connection assets would be allowed. 26 MR. FISHER: Mr. Lemay, I understand that in 27 your capacity as Chair of the Ontario Mining 28 Association Energy Committee you can provide the Board Les Services StenoTran Services Inc. 613-521-0703 1608 AMPCO PANEL 1, in-ch (Fisher) 1 with some examples of the disparity that the OHNC 2 proposal would cause in relation to mining in general 3 and INCO in particular. Would you please comment on the 4 different treatment received by mining companies. 5 MR. LEMAY: In answer to an Ontario Mining 6 Association interrogatory, Exhibit E, Tab 28, 7 Schedule 1, page 1, OHNC indicated that they treated 8 mining companies differently because they were 9 supposedly riskier. Frankly, I was amazed at the 10 answer, Mr. Chairman, because we have been trying to get 11 Ontario Hydro to admit to this policy for years, and for 12 years they have been stonewalling. I wasn't amazed at 13 what the answer said, but I was amazed that they had 14 actually admitted that they had been treating mining 15 companies much differently. 16 I don't know of any basis in fact for saying 17 that mining companies are riskier. There are many 18 mining companies, including my own. We have been in 19 business in the province for some 100 years and have 20 always paid our bills. You can go down the list of 21 companies, Noranda, Falconbridge and so on, that have 22 been around for many, many years, and I don't understand 23 Ontario Hydro's basis for treating mining companies 24 differently. 25 I would urge the Board, as part of its report, 26 to order OHNC to look at the disparities and readdress 27 where mining companies have had to pay more money than 28 other companies. Les Services StenoTran Services Inc. 613-521-0703 1609 AMPCO PANEL 1, in-ch (Fisher) 1 MR. FISHER: Mr. Lemay, will you please 2 describe what INCO paid towards its connection 3 facilities and the consequences the OHNC proposal would 4 have for INCO. 5 MR. LEMAY: INCO was paid for more than half 6 the cost of the 230 kV line connection to its 7 facilities. In addition, after the facilities were 8 constructed, Ontario Hydro constructed a station 9 supplied from these facilities. This station supplies 10 Sudbury Hydro and the Ontario Hydro Retail, and the 11 effect of the OHNC proposal would be that they would pay 12 the same amount as we do in connection charges. This is 13 clearly inequitable when we paid a good portion of the 14 line and they haven't paid anything toward it, to my 15 knowledge. 16 MR. FISHER: Thank you, Mr. Lemay. 17 I would like to turn back to Mr. Snelson and 18 the definition of "transmission customer". 19 Mr. Snelson, would you please outline for the 20 Board AMPCO's objectives in dealing with the definition 21 of "transmission customer"? 22 MR. SNELSON: AMPCO believes that it is 23 important at the time of market opening to have in place 24 a clear and durable definition of "transmission 25 customer", a definition that would be consistent with 26 the proposed market structure, a definition that would 27 put all LDCs on the same basis whether or not they were 28 previously municipal utilities or previously an arm of Les Services StenoTran Services Inc. 613-521-0703 1610 AMPCO PANEL 1, in-ch (Fisher) 1 Ontario Hydro. 2 AMPCO notes that in the MDC there was a clear 3 view that transmission customers should include market 4 participants embedded in LDCs, and AMPCO feels that the 5 spirit, at least, of that recommendation should be 6 implemented. 7 If that is not implemented, embedded wholesale 8 market participants will face transmission charges on a 9 different basis than directly connected wholesale market 10 participants, possibly different in each LDC across the 11 province. 12 MR. FISHER: What is AMPCO's proposed 13 definition of "transmission customer"? 14 MR. SNELSON: AMPCO proposed in its evidence 15 that all wholesale market participants taking load in 16 Ontario -- that is, the outer ring of meters -- should 17 be transmission customers. This is still AMPCO's 18 preferred solution and it is a feasible solution with 19 AMPCO's proposals for coincident peak charge 20 determinants. 21 MR. FISHER: What is AMPCO's position with 22 respect to the definition of "transmission customer" 23 that is in Attachment A to the Settlement Conference 24 Report? 25 MR. SNELSON: AMPCO put forward this as a 26 compromise solution. We thought we could generate 27 enough support for this solution from OHNC and from 28 other participants that we could get this settled and Les Services StenoTran Services Inc. 613-521-0703 1611 AMPCO PANEL 1, in-ch (Fisher) 1 get it out of this hearing and that we could have 2 greatly shortened the hearing. The compromise was to 3 define the transmission customers as those connected 4 directly to transmission, that is the inner ring of 5 meters. 6 An integral part of this proposal would have 7 been a strong indication from this Board that 8 transmission charges would be passed on by LDCs to their 9 interval-metered customers with as little distortion as 10 possible. 11 AMPCO felt that this proposal would create a 12 market opening, the sustainable definition that we were 13 looking for, that it would be consistent with the market 14 structure, and that it would protect the interests of 15 the embedded customers. 16 MR. FISHER: I would now like to turn to the 17 issue of net load billing versus gross load billing. 18 Exhibit D, Tab 5, describes the applicant's 19 position regarding the issue of net load versus gross 20 load billing. First, I would like to ask Mr. Goldsmith 21 why AMPCO believes that gross load billing is contrary 22 to normal business practices. 23 MR. GOLDSMITH: Gross load billing defies the 24 principle of user-pay. It requires payment for 25 facilities not being used by the customer even though 26 those facilities may not even have been built for that 27 customer and may well be in use by other customers. 28 The application takes a rather arbitrary stand Les Services StenoTran Services Inc. 613-521-0703 1612 AMPCO PANEL 1, in-ch (Fisher) 1 that the state of the system in October of 1998 was a 2 stable state where everyone who was a user of the system 3 at that time was someone for whom the system had been 4 built when in fact in 1998 many of the customers for 5 whom parts of the system had been built were no longer 6 customers of Ontario Hydro, and many of the customers 7 who were on the system had embedded generation which was 8 net load billed. 9 In business, we seldom see a true take-or-pay 10 contract. Contracts may have stipulated volumes over a 11 specified limited time frame, but a failure to take or 12 to provide those volumes merely results in a breach of 13 the contract and the offended party has responsibilities 14 to mitigate his losses. 15 The history of the electrical system in 16 Ontario where net load billing has been the fact for 17 ninety-something years, shows that what isn't being used 18 by one customer will be used by another. Gross load 19 billing will actually result in a double payment of the 20 same asset, and the principle is not even proposed to be 21 consistent. 22 Other forms of load reduction will be net 23 billed. For example, in our plant in 1991 or 1992, we 24 shut down one of our electric arc furnaces. We reduced 25 our load on the system by some 10 megawatts and our 26 bills on the system reduced by some 10 megawatts. We 27 were billed at that level and have been billed at that 28 level ever since. Les Services StenoTran Services Inc. 613-521-0703 1613 AMPCO PANEL 1, in-ch (Fisher) 1 The proposal is inconsistent with normal 2 business practice. 3 MR. FISHER: How does gross load billing 4 reduce competition in the energy market? 5 MR. GOLDSMITH: Because of the unwarranted 6 extra cost of transmission, it will render certain 7 projects uneconomical. As we indicated earlier, the 8 transmission rate proposal -- it is critical that the 9 transmission rate proposal encourages the creation of 10 competition which is missing from the basic market 11 design. On this point alone, AMPCO would strongly 12 recommend that any form of full or partial gross load 13 billing be rejected. The effect of gross load billing 14 will be to prolong market power. 15 MR. FISHER: Returning to you, Mr. Snelson. 16 In the last two weeks we have heard OHNC 17 refuse to characterize its existing practice as net load 18 billing. 19 What is AMPCO's view in this respect? 20 MR. SNELSON: I think this is a very simple 21 point that shouldn't require this much debate. It is 22 accepted that the current bundled bills are on a net 23 load basis. Transmission is part of the bundled bill. 24 I can't see any doubt that since transmission is part of 25 the bundled bill that even if it isn't billed separately 26 it is billed on a net load basis. 27 MR. FISHER: There has been a lot of confusion 28 over the past weeks regarding the meaning of the Les Services StenoTran Services Inc. 613-521-0703 1614 AMPCO PANEL 1, in-ch (Fisher) 1 user-pay principle. How do you see that principle and 2 its application to the net versus gross load billing 3 issue? 4 MR. SNELSON: I think we have to be very clear 5 as to what we mean when we talk about such principles. 6 It seems as though there are two distinct and different 7 interpretations of "user pay". 8 AMPCO has used the term to mean the current 9 user of the facility pays. 10 The other meaning that seems to be floating 11 around is that it means the customer for whom the 12 facility was built pays even if he is no longer the 13 current user. 14 With a few exceptions, the Ontario electricity 15 system has always run on the basis of the current user 16 pays according to his current usage. In Ontario, unlike 17 some other jurisdictions, it has not been necessary to 18 have rates with ratchets. Ratchets, typically, in other 19 jurisdictions might charge customers, say, for the 20 highest demand over the previous 12-month period. 21 Customers in Ontario have been on a pay as you 22 go month by month basis. As Mr. Goldsmith has said, the 23 transmission system has developed over the last century. 24 It has been added to and it has been modified. These 25 additions and modifications have been made to meet the 26 changing needs of whoever were the customers current at 27 that time. 28 We don't see any reason why the current user Les Services StenoTran Services Inc. 613-521-0703 1615 AMPCO PANEL 1, in-ch (Fisher) 1 pay system should change for the regulated transmission 2 system as the generation moves into a competitive 3 environment. 4 MR. FISHER: Sir, what is AMPCO's view as to 5 the impact on other customers due to net load billing? 6 MR. SNELSON: If we make an assumption, and 7 this is quite a big assumption, then there are no cost 8 savings or other benefits of additional embedded 9 generation, then AMPCO itself and OHNC have all done 10 studies which show that transmission charges to 11 customers who do not have embedded generation are a 12 little higher with net load billing than with gross load 13 billing. 14 The various studies all use more or less the 15 same assumptions and produced generally similar results. 16 The big issue is how to interpret the results. 17 Continued net load billing would have been the paradigm 18 if we had not had market opening. That's business as 19 usual in Ontario and that should be considered as the 20 business as usual scenario in these projections. If you 21 consider that so, then there is no cost shift to other 22 customers compared to business as usual. 23 Now, as has been mentioned, net load billing 24 is likely to stimulate additional generation in the 25 market. Increased competition in the generation market 26 can lower prices. Lower prices will benefit all Ontario 27 customers, big and small, whether or not they have 28 embedded generation. Les Services StenoTran Services Inc. 613-521-0703 1616 AMPCO PANEL 1, in-ch (Fisher) 1 MR. FISHER: How does that help you with the 2 proposed rules as to who gets net load billing and who 3 is gross load billed? 4 MR. SNELSON: We seem to be developing a 5 series of arbitrary rules and a host of categories where 6 some people are net load billed, some people are gross 7 load billed and some are somewhere in between. 8 Many of the distinctions seem to have little 9 to do with the transmission service that is provided or 10 the cost of providing that transmission service. An 11 example, the cost of providing transmission service does 12 not depend on the efficiency or the environmental 13 performance of the generation that is connected to the 14 transmission system. 15 We also have different categories according to 16 the vintage, the age of the facilities and when they 17 were added to the system. We have different treatment 18 of customers who reduce load, either because of 19 self-generation or because of other reasons for load 20 reduction. 21 MR. FISHER: Mr. Lemay, does INCO have any 22 plans to update any of its generation facilities? 23 MR. LEMAY: No, we don't at present. We 24 support net load billing solely because we think it will 25 reduce OPGI's rates. Even though we will end up paying 26 a little wee bit more for the transmission rate, we 27 think that will be far more than offset by the reduction 28 in OPGI's rates. Les Services StenoTran Services Inc. 613-521-0703 1617 AMPCO PANEL 1, in-ch (Fisher) 1 MR. FISHER: Would you please tell the Board 2 about the generation facilities owned and operated by 3 INCO and how the OHNC proposal would apply to these 4 facilities. 5 MR. LEMAY: We have five hydroelectric 6 generating plants in the Sudbury region. In these 7 plants we have 13 different units. We don't presently 8 have any plans to upgrade these plants, and if we did it 9 would take several years before we could actually end up 10 doing it. 11 I simply don't understand how OHNC's proposal 12 would apply. We would presumably have to install 13 interval metering on individual units. Even then I 14 don't know how the billing would apply. Would it apply 15 on the output above what the unit's previous maximum had 16 been? 17 Additionally, if the increased generation 18 could either increase or decrease our system power 19 losses, and I don't know how that would factor into the 20 equation -- if I sound confused about the whole thing, I 21 am because I, frankly, can't understand at all how this 22 proposal would apply to our plants if we did do anything 23 with them. 24 MR. FISHER: Would you please describe the 25 facilities at your nickel refinery. 26 MR. LEMAY: At our nickel refinery we have two 27 nine megawatt simulgenerators that were installed in the 28 1950s to make use of waste heat from processed steam. Les Services StenoTran Services Inc. 613-521-0703 1618 AMPCO PANEL 1, in-ch (Fisher) 1 Since then our processed changed and recently we used 2 these generators to produce electricity using boilers 3 that were fired by natural gas. 4 Currently, the units aren't being run. If we 5 did run them again though, depending on when we ran them 6 again, they could be net load billed or gross load 7 billed or if we did something to increase the thermal 8 efficiency again, they could be partly net load billed 9 and partly gross load billed. 10 Again, the whole proposal is just very 11 confusing, to say the least. 12 MR. FISHER: Would you please describe you 13 view OHNC's gross load billing proposal? 14 MR. LEMAY: OHNC's proposal is a total change 15 from how we have been treated and how our generation has 16 been treated over the past 95 years. If approved by 17 this Board, it would just be one more item that would 18 make it less economic and, therefore, more unlikely that 19 we would do anything to upgrade the units, particularly 20 the hydraulic units I don't think would be in anybody's 21 interest if we didn't down the road do something to 22 improve them if we could. 23 The history of this province has been net load 24 billing. The change will not encourage jobs and 25 investment in the province. I think that's counter to 26 the government's intent in the legislation. 27 MR. FISHER: Mr. Snelson, you have mentioned 28 dedicated connection facilities. How does AMPCO propose Les Services StenoTran Services Inc. 613-521-0703 1619 AMPCO PANEL 1, in-ch (Fisher) 1 that these be treated if the customer decides to 2 self-generate? 3 MR. SNELSON: AMPCO accepts that the 4 facilities that are part of a dedicated supply to one 5 customer that become underutilized or unutilized due to 6 embedded generation should not become a burden on other 7 customers. 8 In AMPCO's evidence we have discussed a number 9 of ways in which this could be done. The first way is 10 to have the customer buy back the dedicated connection 11 facilities at book value, as we have proposed. This is 12 the simplest procedure and leads to the simplest 13 administration. 14 Another possibility is to have net load 15 billing to connection with historic load at a minimum, 16 as proposed by IPPSO. The third and least preferred 17 solution from AMPCO's point of view is gross load 18 billing for connection. That would only be acceptable 19 if the connection were defined by the narrow definition. 20 MR. FISHER: Turning now to the issue of 21 charge determinants, what is the basic thrust behind 22 AMPCO's positions on charge determinants? 23 MR. SNELSON: AMPCO recognizes that the power 24 district was a construct in the old paradigm and that 25 the breakup of the power district is necessary to become 26 consistent with the new market structure. 27 As has been pointed out, the breakup of the 28 power district imposes additional costs on direct Les Services StenoTran Services Inc. 613-521-0703 1620 AMPCO PANEL 1, in-ch (Fisher) 1 customers. That is because the power district provided 2 recognition of the real diversity benefit to the direct 3 customers with a variety of different load patterns. 4 What AMPCO is seeking here is charge 5 determinants that mitigate the increase in costs due to 6 the breakup of the power district, that recognize the 7 diversity benefits of all customers and that this should 8 be done in a way that is fully consistent with the new 9 market structure. To this end, AMPCO has advocated 10 coincident peak billing for network. 11 There has been some move in AMPCO's position 12 throughout 1999. Initially, AMPCO was advocating 13 Option IV, which is one hour coincident peak billing. 14 That is similar to the FERC, Federal Energy Regulator 15 Commission, pro forma tariff for transmission in the 16 U.S. 17 However, concerns have been expressed about 18 the possibility of inappropriate gaming and so AMPCO has 19 moved to recommending Option XVI. This is the option 20 that defines the coincident peak as being the average 21 load over the highest 50 hours in the month and that's 22 determined after the end of the month. 23 We believe that this provides an appropriate 24 balance between unproductive avoidance of the tariff, 25 recognition of the contribution to diversity and 26 providing the ability for customers to use the 27 transmission system at low cost when the power system is 28 not under stress. Les Services StenoTran Services Inc. 613-521-0703 1621 AMPCO PANEL 1, in-ch (Fisher) 1 MR. FISHER: On Thursday, February 17, Dr. 2 Higgin was talking about the difference between Option 3 XVI and Option XVIII and said why is it so important to 4 everybody if it only shifts a couple of million dollars. 5 The reference in the transcript is Volume 2, page 335, 6 lines 7 and 8. Can you help us answer this question? 7 MR. SNELSON: I will certainly try. For the 8 average direct customer there is little difference. 9 However, there are direct customers with wide ranges of 10 load patterns. Load factors range from under 20 per 11 cent to over 90 per cent and the choice between Option 12 XVI and Option XVIII matters to some of these direct 13 customers. 14 To illustrate this point, I would ask you to 15 turn to Appendix A of AMPCO's evidence and perhaps if 16 you could find that and go to Chart 1. AMPCO's evidence 17 is Exhibit H, Tab 2, Schedule 1. I would ask you to 18 look at Chart 1, which is the first chart following the 19 four pages of text of that appendix. 20 Now, Appendix A includes all the assumptions 21 in the analysis on how some of the rate determined 22 options, some of those that are currently in play affect 23 the transmission costs of the different types of 24 industrial loads. This chart can give a first 25 indication flavour, if you like, of the results. 26 Each group of columns in this chart represents 27 a different type of customer. In each group the 28 right-hand column represents Option XVIII and the second Les Services StenoTran Services Inc. 613-521-0703 1622 AMPCO PANEL 1, in-ch (Fisher) 1 from the right represents Option XVI. The values on the 2 scale are the effective transmission costs in cents per 3 kilowatt hour derived from the various rate proposals. 4 If you look at the first group of columns, 5 which is the average direct customer, determined from 6 the rate determinants in the OHNC evidence, then it is 7 quite right. There is very little to choose between 8 Option XVI and Option XVIII. 9 If you look at the third group of columns, 10 which is labelled "Type C Low Load Factor Customer", 11 this is a customer who is assumed to have a 60 per cent 12 load factor. Peaks are not correlated with the system 13 peak and can occur at any time. The peak loads in this 14 case will be driven by the needs of the particular 15 industrial process. 16 In this case, it does matter whether you 17 choose Option XVI or Option XVIII. Option XVI gives 18 credit for the diversity this customer creates and gives 19 lower costs. 20 I just take you to one other group of columns 21 and that is the fifth group and that's labelled "Type E 22 Flexible Customer". This is a customer who operates at 23 70 per cent load factor, but only when electricity 24 prices are reasonable. He moves a lot of energy usage 25 into the off-peak period, but he also wants to be able 26 to use the system during the weekday peak periods at 27 times when the transmission system is not under stress. 28 And now only a customer with a very large proportion of Les Services StenoTran Services Inc. 613-521-0703 1623 AMPCO PANEL 1, in-ch (Fisher) 1 his electricity costs or his costs in electricity would 2 operate in this way and he is not likely to be on 3 standard rates today. 4 It's quite likely that he would be a surface 5 power customer today, paying very little for fixed costs 6 of transmission, and in that case the power district is 7 actually not a good indication of what he would 8 currently pay. 9 In this case, Option XVI is again distinctly 10 better for him than Option XVIII. It allows him to 11 continue to use the transmission system at relatively 12 low cost, as long as he keeps out of the highest load 13 hours. 14 MR. FISHER: At various times over the last 15 couple of weeks we have referred to the property of 16 coincident peak charge determinants that the whole is 17 equal to the sum of its parts. Why is this significant? 18 MR. SNELSON: This property gives greater 19 freedom in selection of who in particular are 20 transmission customers. It is easier for local 21 distribution companies to pass on the charge without 22 distortion because of that property and it reduces a 23 game of diversity where when you have a non-coincident 24 peak system then you want to be grouped with other 25 customers who have dissimilar load patterns before your 26 charges are determined and how you group customers 27 together starts to affect in fact your rates. And there 28 has been a lot of adjustments required in the old rate Les Services StenoTran Services Inc. 613-521-0703 1624 AMPCO PANEL 1, in-ch (Fisher) 1 system to try to compensate for some of the vagaries of 2 the non-coincident peak system. 3 MR. FISHER: Turning now to the charge 4 determinant for connection services, what is the main 5 thrust of AMPCO's position? 6 MR. SNELSON: As you go from facilities that 7 serve very large numbers of customers, such as network 8 facilities, and you get closer and closer to the 9 individual facilities serving a specific customer, then 10 the load coincident with the system peak becomes less 11 relevant and the non-coincident peak load of that 12 particular customer becomes more relevant. And so we 13 are proposing some form of non-coincident peak billing 14 for the connection facilities. 15 We do, however, believe that the 16 non-coincident peak should be measured at the interface 17 between the transmission system and the distribution 18 system. This is not done in Ontario Hydro Network's 19 short-term solution by using existing wholesale 20 customers as transmission customers. 21 It is a measure of non-coincident peak load, 22 but it is at the meter of the customer who may be 23 embedded in the transmission system, direct customers 24 and embedded LDCs. 25 By doing that you make the revenues of the 26 transmission utility dependent on diversity within the 27 distribution system. We believe the transmission 28 utility should not be involved in this aspect of the Les Services StenoTran Services Inc. 613-521-0703 1625 AMPCO PANEL 1, in-ch (Fisher) 1 distribution business. 2 Now, AMPCO has put forward in its evidence a 3 measure of non-coincident peak at the distribution 4 interface, at the transmission distribution interface, 5 but still allows the transmission customers to be 6 defined by the outer ring of meters. 7 The proposed settlement, which is Attachment A 8 to Exhibit I, the third point of that settlement is that 9 the non-coincident peak should be measured at the inner 10 ring of meters, i.e. the interface between transmission 11 and distribution. 12 If the first two points of the settlement are 13 accepted, then the proposal in the third bullet meets 14 AMPCO's concern. 15 MR. FISHER: The discussion of net load 16 billing has been diverted from time to time to a 17 discussion of back-up need. How does the AMPCO proposal 18 deal with providing appropriate charges for back-up 19 service? 20 MR. SNELSON: The coincident peak charge 21 attempts to network will provide a low charge for 22 back-up service use on the network and we believe that 23 that is appropriate. That is appropriate because the 24 back-up needs of embedded generators have little or no 25 influence on the need for network facilities. 26 We do believe that the combination of 27 non-coincident peak charge determinants for connection 28 services, some protection against the stranding of Les Services StenoTran Services Inc. 613-521-0703 1626 AMPCO PANEL 1, in-ch (Fisher) 1 dedicated connection assets and possibly some provisions 2 in connection agreements will provide protection to 3 other customers from back-up power customers getting a 4 free ride at the expense of other customers. 5 We have some numerical analysis which I won't 6 take the time to take you through, but it is in Appendix 7 A of AMPCO's Exhibit H-21 which shows the impact of 8 gross or net load billing, the back-up supply needs and 9 the various charge determinants. 10 MR. FISHER: Last Wednesday, counsel for OPGI 11 had a discussion with the OHNC witnesses that suggested 12 that Ontario Hydro changed its planning practice after 13 1994 to include back-up loads in the loads used for 14 transmission planning. The reference is transcript 15 Volume 6, February 23, pages 1133 to 1136. He based 16 this assumption on the AMPCO evidence. How do you 17 respond to the suggestion from the OPGI counsel? 18 MR. SNELSON: The inference drawn in that 19 exchange with regard to AMPCO evidence was incorrect. 20 There is no evidence that I know of that 21 Ontario Hydro included back-up demands in its bulk 22 transmission system planning. 23 The reference in the AMPCO evidence -- and, 24 just for the record, it's Exhibit H-2, Schedule 1, 25 page 35 in the fourth full paragraph. This reference 26 refers to HR-23 in 1995. There are similar references 27 in HR-22 in 1994. 28 This is not about how Ontario Hydro planned Les Services StenoTran Services Inc. 613-521-0703 1627 AMPCO PANEL 1, in-ch (Fisher) 1 its system, it's about how Ontario Hydro generated the 2 cost allocation to include in back-up rates. 3 At that time, because of the inconsistency 4 between how they were planning and how they were 5 charging, AMPCO objected to those charges being too 6 high. 7 MR. FISHER: Moving on to the treatment of 8 existing Ontario Hydro contracts, Mr. Snelson, can you 9 outline for the Board AMPCO's position with respect to 10 surplus power contracts? 11 MR. SNELSON: AMPCO considers the OHNC 12 proposal unacceptable because there is no relief for the 13 surplus power customers. 14 This proceeding is to determine how the fixed 15 costs of OHNC will be recovered. The conditions of 16 service to surplus power customers ensured that no fixed 17 costs would be incurred to serve them. So today surplus 18 power customers pay little or nothing towards the fixed 19 costs of transmission. Imposing full transmission 20 charges on them without any transition would be a major 21 impact. This is contrary to OHNC's principle as 22 minimizing the negative impact on customers as of market 23 opening. 24 Now, AMPCO considered and has discussed in its 25 evidence various alternatives to help meet the needs of 26 the surplus power customers. The option that was 27 settled on is a 10-year transition. This is a simple 28 mechanism. It can be implemented within the existing Les Services StenoTran Services Inc. 613-521-0703 1628 AMPCO PANEL 1, in-ch (Fisher) 1 market rules and after the transition period the surplus 2 power customers will be on the same basis as all other 3 customers. 4 In accepting this position it is important to 5 the surplus power customers that the charge determinant 6 gives them the flexibility to use the transmission 7 system at low cost when the system is not under stress. 8 As we have discussed, Option XVI does that. 9 MR. FISHER: What is the rationale for the 10 10-year period for the transition? 11 MR. SNELSON: The 10-year period was chosen to 12 coincide with the term of the Market Power Mitigation 13 Agreement. The customers felt that as the market 14 becomes more competitive they will have opportunities to 15 buy their needs in ways that recognize the value of 16 their flexibility and their interruptability. 17 MR. FISHER: Mr. Snelson, you are aware of 18 some of the deals with Ontario Hydro that require 19 potential cogenerators to defer the construction of new 20 generation. As a result of these contracts some of 21 these customers will be treated differently in the new 22 market than if they had built their generation as 23 originally proposed. 24 How does AMPCO propose that these be treated? 25 MR. SNELSON: The first and most important 26 step is to continue the net load billing regime. That 27 will allow both old and new embedded generators to be on 28 the same basis. If there is not a net load billing Les Services StenoTran Services Inc. 613-521-0703 1629 AMPCO PANEL 1, in-ch (Fisher) 1 regime that is not continued, at a minimum there needs 2 to be a window of opportunity for these customers to 3 install their generation and to get existing embedded 4 generation treatment. 5 Now, whether or not net load billing is 6 continued, because of concerns about rate impacts there 7 may be a need for transitional arrangements such as 8 those settled -- those proposed in the settlement 9 conference agreement, Attachment B. This would be to 10 reduce the negative impact on market opening. 11 MR. FISHER: Mr. Lemay, would you please 12 describe for the Board INCO's views on surplus power 13 rates? 14 MR. LEMAY: INCO is not, and because of the 15 nature of our operations will never be, a surplus power 16 customer. Surplus power is beneficial because it has 17 provided additional jobs and investment in the province 18 that we wouldn't otherwise have, and I think CXY 19 Chemicals is the perfect example of this. 20 Our view is that the transmission rate should 21 be designed so that surplus customers can use it at 22 times of lower use without incurring transmission costs 23 unless additional facilities have to be built to supply 24 that facility and then, of course, they would have to 25 pay for those particular costs. 26 MR. FISHER: Moving back to Mr. Snelson and 27 the issue of the treatment of new load connection 28 investment, what is AMPCO's view of the proposed rules Les Services StenoTran Services Inc. 613-521-0703 1630 AMPCO PANEL 1, in-ch (Fisher) 1 for new investment in line connections? 2 MR. SNELSON: As we have said, AMPCO supports 3 moves to make transmission service more commercial and 4 more market-based. However, we don't believe that OHNC 5 proposals make a significant move in that direction. 6 OHNC's proposal aims to give customers the 7 choice of self-providing and owning their line 8 connection facilities in addition to the opportunities 9 they already have to self-provide and own their 10 transformation connection facilities. However, when we 11 look at the details, it seems that apart from a few 12 customers who conveniently located near network 13 stations, that there is really no real option for 14 customers to self-provide. 15 Essentially, there is no option where shared 16 network or line connection assets will still be used to 17 get to the network station. In that case, the customer 18 will be fully in the line connection pool and will have 19 every financial incentive to have the pool do the work. 20 Now, AMPCO's proposal would allow for a more 21 complete move to customer responsibility, but for a 22 smaller pool of assets. 23 MR. FISHER: Last Thursday I had a discussion 24 with OHNC witnesses about the customer choices for line 25 connection investments. That's in transcript Volume 7, 26 page 1195, lines 14 to 22. 27 We were discussing a case where a customer has 28 a choice of self-providing his own line connection at a Les Services StenoTran Services Inc. 613-521-0703 1631 AMPCO PANEL 1, in-ch (Fisher) 1 cost off $5 million or having the pool do the work with 2 the customer making a capital contribution of 3 $1 million. In both cases the transmission rate would 4 be the same. 5 Mr. Goldsmith, as a large industrial customer 6 in the fuel industry, which option would you choose? 7 MR. GOLDSMITH: Clearly we would choose to 8 have the pool do the work. 9 MR. FISHER: Mr. Lemay, as a large industrial 10 customer in the mining industry, which option would you 11 choose? 12 MR. LEMAY: Clearly, again, we would have the 13 work done through the pool. 14 MR. FISHER: Can either of you gentlemen think 15 of any reason that an industrial customer might want to 16 choose the more expensive option so that he could own 17 his own transmission line? 18 MR. GOLDSMITH: No. 19 MR. SNELSON: No. 20 MR. FISHER: Moving back to you, Mr. Snelson, 21 with the issue of export and wheeling through 22 transactions, can you summarize the AMPCO position with 23 respect to transmission charges for export and wheeling 24 through transactions? 25 MR. SNELSON: AMPCO's position I believe has 26 been made clear through evidence and cross-examination 27 of OHNC witnesses. The desirable end state is 28 inter-regional trading on an incremental cost-only Les Services StenoTran Services Inc. 613-521-0703 1632 AMPCO PANEL 1, in-ch (Fisher) 1 basis. This will enlarge the affected market and it 2 gives more competitive options to both sellers and 3 buyers of power. 4 AMPCO's main concern is that charges as in 5 other jurisdictions, the transactions into Ontario, make 6 the Ontario market less competitive and enhance the 7 market power of the dominant generator. 8 AMPCO is proposing that Ontario should use the 9 lowering of its charges for transactions out of Ontario 10 as a negotiating tool to encourage reciprocal reduction 11 in charges in other jurisdictions. 12 Now, there is one other aspect to OHNC's 13 proposal which is the proposed rebate based on the 14 transmission rights auction revenue. 15 Having reviewed the material, we are not sure 16 how the scheme will work and we are not sure that it 17 provides equitable treatment of all parties that want to 18 schedule out of the transactions out of the Ontario 19 market, some of whom may not be generating. 20 MR. FISHER: Thank you. 21 Those are my questions, Dr. Higgin. The panel 22 is now ready for cross-examination. 23 THE PRESIDING MEMBER: Thank you, Mr. Fisher. 24 I think we will start with Mr. Janigan, if he 25 is ready. 26 Thank you. 27 MR. JANIGAN: Thank you, Mr. Chair. 28 I apologize for my absence on Friday, however Les Services StenoTran Services Inc. 613-521-0703 1633 AMPCO PANEL 1, in-ch (Fisher) 1 I am happy to report where it is frequently said that 2 Ottawa is in a fog I can say that sometimes the reverse 3 is the case. 4 I would add that we will be advancing 5 concerns -- as a result of agreement between ourselves 6 and CAC, we will be advancing the concerns they may have 7 for this panel and they will be reciprocating with 8 respect to the IPPSO panel that will be appearing later 9 in the week. 10 Thank you. 11 CROSS-EXAMINATION 12 MR. JANIGAN: Good morning, panel. My name is 13 Michael Janigan. I appear on behalf of the Vulnerable 14 Energy Consumers Coalition, which represents residential 15 consumers of limited or modest means. 16 I am going to start with your testimony that 17 you gave this morning referring to some evidence that 18 you filed in this proceeding, in particular on 19 paragraph 1.1. I wonder if you could turn that up 20 for me. 21 In the last sentence of the first paragraph, 22 it is indicated: 23 "Based on the objectives of the Act, 24 AMPCO submits that the primary purpose of 25 the restructuring is to generate pressure 26 for lower prices to electricity customers 27 by creating competition in the generation 28 of electricity." (As read) Les Services StenoTran Services Inc. 613-521-0703 1634 AMPCO PANEL 1, cr-ex (Janigan) 1 I believe you confirmed this morning -- and 2 that is your belief -- that that is the primary purpose 3 of restructuring. Is that correct? 4 MR. GOLDSMITH: Yes, it is. 5 MR. JANIGAN: I take it, in your sentence 6 setting out the primary purpose, that electricity 7 customers refers to all customers. 8 MR. GOLDSMITH: Yes, it does. 9 MR. JANIGAN: You indicate in the second 10 paragraph, in the last sentence, that: 11 "On this schedule and from what is being 12 presented by OHNC in this proceeding it 13 will be ten years before there is 14 effective competition in generation." 15 (As read) 16 I take it from that that you believe the ten 17 years is too long. 18 MR. GOLDSMITH: Yes. 19 MR. JANIGAN: Can you suggest what period is 20 appropriate? 21 MR. GOLDSMITH: I think we already expressed 22 this morning that our view is that the market should 23 open with effective competition in generation. And 24 because it is not, then we must do what we can to foster 25 the growth of competition in generation as quickly as 26 possible. 27 MR. JANIGAN: You have made a number of 28 different proposals to amend the cost allocation model Les Services StenoTran Services Inc. 613-521-0703 1635 AMPCO PANEL 1, cr-ex (Janigan) 1 that has been put forward by OHNC. These include the 2 matters that you reviewed with your counsel today: the 3 narrow definition of line connection, the definition of 4 a transmission customer, charge determinants, and net 5 billing. 6 All of these changes will result in other 7 customers picking up a greater percentage of OHNC's 8 costs, will it not? 9 MR. SNELSON: No, I don't believe so. 10 MR. JANIGAN: Let's take the greater 11 percentage of OHNC's costs than the model proposes. And 12 when I say the model, I am referring to the model that 13 OHNC has put forward in this proceeding. 14 MR. SNELSON: I believe that a number of our 15 proposals, such as the narrow definition of line 16 connection and the coincident peak charge determinant, 17 benefit the customers of OHNC distribution, as well as 18 the direct customers. 19 MR. JANIGAN: They may benefit them -- and you 20 take the long-term view on this. But in the short term 21 there will be an increased percentage of costs that are 22 borne by those customers, are there not? 23 MR. SNELSON: No, I don't believe so. 24 MR. JANIGAN: For example, with respect to the 25 line connection, to the other LDCs that are not -- the 26 OHNC rural distribution, those customers will be 27 incurring higher costs, will they not? 28 MR. SNELSON: If you look at Table 2-3 of Les Services StenoTran Services Inc. 613-521-0703 1636 AMPCO PANEL 1, cr-ex (Janigan) 1 AMPCO's evidence, which is on page 11 of Exhibit H2, 2 Tab 2, Schedule 1, this is a summary from various OHNC 3 sources of the total costs that are allocated to 4 different groups of customers. 5 MR. JANIGAN: Yes. 6 MR. SNELSON: If you look at Option 16A -- 7 which is the combination of Option XVI, the charge 8 determinant for network, and the narrow definition -- 9 then you will see that, on the right-hand column for 10 OHNC distribution, that has a cost allocation of $161 11 million. And that is the lowest of all the options that 12 are listed there. 13 It is lower than Option XVIII that is proposed 14 by OHNC, by the difference of $171 million to $161 15 million. 16 The only lower number is $153 million for the 17 power district, which we agree is not consistent with 18 the new market structure. 19 MR. JANIGAN: Won't the MEUs go up? 20 MR. SNELSON: The MEUs go up, yes. 21 MR. JANIGAN: In every circumstance, the 22 percentage of costs that is borne by your customers -- 23 and I am taking AMPCO as representing that category of 24 industrial that will be affected by this. In every 25 circumstance the percentage of costs that you proposed 26 will go down for those customers. 27 Would you not agree? 28 MR. SNELSON: I believe that in most cases Les Services StenoTran Services Inc. 613-521-0703 1637 AMPCO PANEL 1, cr-ex (Janigan) 1 that is true. We are accepting higher costs than are in 2 the power district. The reason for accepting those 3 higher costs is because we recognize that the power 4 district is not consistent with the new market 5 structure. 6 So we are not talking about lower transmission 7 costs to direct customers here; we are talking about 8 mitigating the increase in costs. 9 MR. JANIGAN: I am referring to the consensus 10 model that OHNC has put forward, not the old power 11 district model. Under the consensus model that OHNC has 12 put forward, your proposals effectively will give your 13 customers a lower percentage of OHNC's costs. 14 MR. SNELSON: They will give lower costs than 15 Alternative XVIII. I am not sure that I would 16 characterize Alternative XVIII as a consensus proposal. 17 It is not the lowest cost. The lowest cost in 18 that table, if you look at it, would be for the 19 coincident peak charge, which is Option IVA. 20 MR. JANIGAN: Getting back to competition and 21 the primary purpose of restructuring, if your customers 22 get this cost relief what are they going to do? 23 MR. SNELSON: Mr. Janigan, compared to the 24 existing power district situation we don't see this as 25 being a reduction in cost; we see this as being an 26 increase in cost. 27 MR. JANIGAN: Let's assume that you have some 28 difficulty with the OHNC model that has been put Les Services StenoTran Services Inc. 613-521-0703 1638 AMPCO PANEL 1, cr-ex (Janigan) 1 forward. You indicate in your evidence that if the OHNC 2 model is adopted, you see great problems on the horizon 3 for competition in electricity generation in Ontario. 4 Let's assume the optimum here; that you get 5 what you want in terms of cost allocation relief from 6 this model. What are you going to do? 7 You get your plan. You get your cost 8 allocations. You get your charge determinants. You get 9 your narrow definition of line connection. What is 10 going to happen? 11 MR. GOLDSMITH: Well, as we have said in our 12 evidence, it is our view that if all of that were to 13 come to pass it would create a market situation which 14 would stimulate the introduction of competitive 15 generation sooner, which would allow all customers on 16 the system to benefit from more competitively priced 17 energy. 18 MR. JANIGAN: You have indicated that the 19 appropriate time frame is the introduction of open 20 access. Is that what is going to occur if you get what 21 you want in this proceeding? 22 MR. GOLDSMITH: No, it isn't. 23 MR. JANIGAN: So what is the time frame? 24 MR. GOLDSMITH: That will be determined by the 25 market. 26 MR. JANIGAN: In the interim, all the other 27 customers who are picking up a larger share of the costs 28 than this model will continue to pay those costs until Les Services StenoTran Services Inc. 613-521-0703 1639 AMPCO PANEL 1, cr-ex (Janigan) 1 effective competition comes to pass. 2 MR. GOLDSMITH: As will the direct 3 industrials. 4 MR. JANIGAN: No. They will be granted the 5 relief from the model that you have suggested in your 6 evidence. 7 So what happens, let's say, if the Board sees 8 fit to grant the relief that you suggested in your 9 evidence, you will be paying a lower percentage of 10 OHNC's costs on the model that is put forward, the rest 11 of the customers will be paying a higher percentage of 12 costs and we may still not see effective competition on 13 the horizon for some years. 14 MR. GOLDSMITH: Some of the rest of the 15 customers will be paying more. Not all. 16 MR. JANIGAN: Yes. 17 MR. GOLDSMITH: And, yes, that is possible. 18 MR. JANIGAN: It is primarily through 19 competition that the rest of these customers are going 20 to see the benefits of having a competitive market in 21 electricity commodity and lower electricity prices as a 22 result. 23 MR. GOLDSMITH: That is true for everybody in 24 Ontario. 25 MR. JANIGAN: But assuming, let's say, the 26 model that exists currently, that has been put forward 27 by OHNC, under your plan your customers would get the 28 benefit of the cost allocation relief that you suggested Les Services StenoTran Services Inc. 613-521-0703 1640 AMPCO PANEL 1, cr-ex (Janigan) 1 and any setoff against those additional amounts of costs 2 that our customers would be paying would have to await 3 competition. 4 MR. GOLDSMITH: I guess I don't see it that 5 way. 6 MR. JANIGAN: Why don't you see it that way? 7 MR. GOLDSMITH: What we have suggested is that 8 the model that you refer to does not recognize the real 9 costs imposed on the system by all of the customers. We 10 have suggested that there are other models which would 11 more accurately reflect the cost impact to those 12 customers and give more accurate price signals to the 13 customers about how to conduct their operations in such 14 a way as to mitigate their impacts on the system. 15 In any case, in any scenario that has been 16 proposed, whether it is OHNC or ours or any of the 17 myriad of others, our members as well as others are 18 going to see increased costs not decreased. 19 MR. JANIGAN: But getting back to your initial 20 premise, the whole reason that we are constructing this 21 model and going through electricity restructuring 22 presumably is to get a competitive market in electricity 23 generation and sales. Is that correct? 24 MR. GOLDSMITH: Among other things, yes. 25 MR. JANIGAN: You have indicated, the thrust 26 of your evidence is that other customers are going to 27 have to bear a percentage a larger percentage of costs 28 in this structure in order for us to get there. Les Services StenoTran Services Inc. 613-521-0703 1641 AMPCO PANEL 1, cr-ex (Janigan) 1 MR. GOLDSMITH: As will we. 2 MR. JANIGAN: Well, as opposed to the OHNC's 3 model, other customers are going to have to bear an 4 increased percentage of costs than the evidence of OHNC. 5 MR. LEMAY: I think I pointed out in my 6 evidence that INCO, with net load billing, would be one 7 of the companies that would pay a bit more and we are 8 willing to do that to get the competition in the market. 9 MR. JANIGAN: We are not comparing apples to 10 apples here. You are taking the old power district 11 model and you are suggesting that there will be 12 increased costs, than you are paying now, under the old 13 power district model. 14 Let's move away from that and go to the OHNC 15 model which has been presented here. I will delete the 16 term consensus model, but that is the model that is 17 before us here. Under that model you have indicated in 18 your evidence that in order to jumpstart competition, as 19 it were, we have to get amendments to this model that 20 will result in other customers paying a higher 21 percentage of the costs than is currently in the model. 22 I am suggesting to you that the only way in 23 which the customers could accept that is that they could 24 see benefits for competition somewhere down the line. 25 MR. LEMAY: Yes. I think my answer just 26 addressed that. 27 MR. JANIGAN: Now, how long would you expect 28 them to bear those increased percentage of costs before Les Services StenoTran Services Inc. 613-521-0703 1642 AMPCO PANEL 1, cr-ex (Janigan) 1 competition arises? 2 MR. LEMAY: We think in our case and the case 3 of others it will have a fairly immediate benefit. 4 MR. JANIGAN: Now, what happens if competition 5 doesn't arise? Our customers have already taken on an 6 increased percentage of the costs from the OHNC model 7 and we still don't have competition in commodity that 8 would give them the lower electricity prices that you 9 premised as the whole idea behind this purpose, behind 10 this exercise. 11 MR. LEMAY: If we don't have competition it 12 will have a significant negative effect on the Ontario 13 economy and it will affect all of us. 14 MR. JANIGAN: What about cost allocation? Do 15 we go back and redo the cost allocations, because we 16 have done this on the basis that you have indicated that 17 we would reach a competitive market? 18 MR. SNELSON: We have not done the cost 19 allocation solely on the basis of trying to rejig 20 numbers to jumpstart competition. We have done the cost 21 allocation in a way which we think is a valid and 22 reasonable way to do it on a continuing basis. 23 MR. JANIGAN: But, Mr. Snelson, you have 24 indicated that the primary purpose of restructuring in 25 the view of AMPCO is to produce this competition that 26 would produce or give pressure for lower electricity 27 prices. 28 MR. SNELSON: We certainly have. It is the Les Services StenoTran Services Inc. 613-521-0703 1643 AMPCO PANEL 1, cr-ex (Janigan) 1 new market structures that separate the market. To 2 define the functions into transmission and distribution 3 and generation and the distinctions that are drawn, the 4 lines that are drawn between the new parties in this new 5 paradigm, that requires that the power district be given 6 up, and AMPCO, to support the development of the 7 competitive market, is supporting the abandonment of the 8 power district. That is the big change in cost 9 allocation and structures, and that is necessary to 10 allow competition to take place. 11 MR. JANIGAN: But the primary purpose -- I 12 mean, as in all electric restructuring exercises, the 13 primary purpose, then, of the cost allocation exercise 14 is to generate the competitive market. 15 MR. SNELSON: No, I don't believe so. 16 MR. JANIGAN: The cost allocation can be 17 approached in a different fashion than the entire 18 electricity restructuring? 19 MR. SNELSON: No. I believe that the -- if 20 you look at the very big picture, then what we are 21 trying to achieve is competition in generation. In 22 doing that, we have to change a lot of ways in which 23 business is done, and one of the ways that we have to 24 change is that we have to change cost allocation. Cost 25 allocation has to be done in a way that is consistent 26 with the new market structure and is consistent with the 27 way in which cost allocation should be done. 28 MR. JANIGAN: In terms of your proposals, you Les Services StenoTran Services Inc. 613-521-0703 1644 AMPCO PANEL 1, cr-ex (Janigan) 1 have indicated that -- I believe in your evidence and 2 also in your testimony today -- there is little 3 likelihood of a competitive market developing if these 4 proposals were implemented -- sorry, if the OHNC model 5 was implemented. Is that correct? 6 MR. GOLDSMITH: We have said that it will take 7 a lot longer. 8 MR. JANIGAN: I believe Mr. Lemay indicated 9 that not one offer for competitive electricity sales has 10 been received by any of your members. 11 MR. LEMAY: No. What I said was, I hadn't 12 received any, and to my knowledge the Ontario mining 13 industry had not received any. As far as I know, 14 though, too, I don't think any AMPCO members have 15 received offers either. 16 MR. JANIGAN: This doesn't sound like the 17 competitive market and electricity generation is too far 18 along. Would you agree? 19 MR. LEMAY: Yes. And I'm highly concerned by 20 it. 21 MR. JANIGAN: I'm concerned with your proposal 22 insofar as it proposes that the other customers trade or 23 obtain or take on additional cost responsibility really 24 in consideration for very uncertain future benefits from 25 competition. Could you comment on that? 26 MR. SNELSON: Yes. If you go back to 27 Table 2-3 on page 11, then the cost to direct customers 28 compared to the power district -- and remember we are Les Services StenoTran Services Inc. 613-521-0703 1645 AMPCO PANEL 1, cr-ex (Janigan) 1 giving up the power district so that we can achieve 2 competition and generation -- would be consistent with 3 the new market structure. That is the base case that we 4 should be looking at. On that basis, direct customers 5 are accepting higher costs, Ontario Hydro Distribution 6 customers would have to accept higher costs, and the 7 MEUs would get more costs. 8 MR. JANIGAN: Yes. I don't like that base 9 case. I want to use the OHNC model as my base case for 10 the comparison, at least for the purpose of evaluating 11 whether or not the OHNC model or your model will be best 12 for my customers, okay, for the customers that I 13 represent. 14 MR. GOLDSMITH: The problem with that approach 15 is that you are looking at the result of whichever model 16 you are evaluating and using that result to choose which 17 model you should be using. 18 We have proposed a model which is based on 19 cost allocation principles and taken the result 20 whichever way it turned out. 21 MR. JANIGAN: And which cost allocation 22 principles are based on a view of how the market should 23 be evolving electricity. Is that correct? 24 MR. GOLDSMITH: Only in part. They are based 25 more substantially on principles which are durable and 26 will survive the existence or non-existence of 27 competition in the province. 28 MR. JANIGAN: Well, let's just take the OHNC Les Services StenoTran Services Inc. 613-521-0703 1646 AMPCO PANEL 1, cr-ex (Janigan) 1 model and let's accept for the moment that we believe 2 your submission that your proposal will allow 3 competition to develop sooner than the OHNC proposal 4 and, therefore, we adopt it. 5 By the looks of this, the prospect of 6 developing electricity competition in the near future in 7 Ontario is very remote. Would you agree with that? 8 MR. GOLDSMITH: It depends on what you mean by 9 developing electricity competition. The full 10 competition that we have referred to, I would agree with 11 you. Competition in any form, it's not that clear that 12 that won't happen sooner. 13 MR. JANIGAN: And if I was looking at it from 14 the standpoint of what is going to be of more benefit to 15 the customers that I represent, your model or the OHNC 16 model, what I am looking at is in order to get your 17 model, we will take on a greater percentage of the cost 18 than the OHNC model, yet our benefits -- and that's a 19 certainty -- and yet our benefits are highly uncertain. 20 Would you agree with that? 21 MR. GOLDSMITH: I would agree that the 22 customers you are referring to will take on costs that 23 more closely reflect their impact on the system. 24 MR. JANIGAN: And those will be greater than 25 that which are set out in the OHNC model. 26 MR. GOLDSMITH: Based on the figures in 27 Table 2-3. 28 MR. JANIGAN: Yes. Les Services StenoTran Services Inc. 613-521-0703 1647 AMPCO PANEL 1, cr-ex (Janigan) 1 MR. GOLDSMITH: Yes. 2 MR. JANIGAN: And those costs are certain. 3 MR. GOLDSMITH: Yes. 4 MR. JANIGAN: If your proposals are adopted, 5 are they not? 6 MR. SNELSON: I think those costs are 7 forecasts. 8 MR. JANIGAN: Yes, but it's certain that we 9 would be taking on a higher percentage of costs than the 10 OHNC model under your model. 11 MR. SNELSON: I would like to come back to the 12 statement that the customers that you represent would 13 necessarily take on larger costs. I don't know that we 14 know that as a result of this. 15 What we have here are allocations of costs to 16 MEUs and to OHNC Distribution. Now, we know that the 17 OHNC Distribution is mostly small customers because the 18 large direct customers have been taken out of that. 19 The MEUs, the cost changes that are taking 20 place are quite small. The MEU loads include large 21 customers as well as small customers. I don't think 22 that we know how those costs will be distributed within 23 the MEUs between the MEU large customers and the MEU 24 small customers. 25 MR. JANIGAN: And whatever result of your 26 proposal, they will result -- it will result in your 27 customers taking on a smaller percentage of the cost and 28 the other cost customers taking on a higher percentage Les Services StenoTran Services Inc. 613-521-0703 1648 AMPCO PANEL 1, cr-ex (Janigan) 1 of the cost in the OHNC model. 2 MR. SNELSON: Compared to the OHNC model, then 3 direct customers who -- previously direct customers of 4 OHNC, Ontario Hydro, will take on smaller costs. AMPCO 5 also represents large industrial customers who are 6 inside MEUs and we don't have a projection as to how 7 these various proposals will affect the costs of the 8 large industrial customers within the MEUs. 9 MR. JANIGAN: Mr. Chair, I don't know when you 10 were going to take a break. 11 THE PRESIDING MEMBER: Now is convenient if 12 you are moving on to another topic. 13 Could we return at 11:30 prompt. Thank you. 14 --- Upon recessing at 1103 15 --- Upon resuming at 1134 16 THE PRESIDING MEMBER: Okay, Mr. Janigan. 17 Please resume. 18 MR. JANIGAN: Thank you, Mr. Chair. 19 Panel, I would like to now go to your evidence 20 on page 21 in paragraph 4.4, which is associated with 21 the premise that customers who reduce load should not be 22 responsible for the remaining life of the network 23 transmission assets. 24 I take it under your setup a customer has a 25 choice whether to use and pay for transmission costs on 26 OHNC's system or to own its own generation facilities 27 and only pay for that transmission that is actually 28 used. Les Services StenoTran Services Inc. 613-521-0703 1649 AMPCO PANEL 1, cr-ex (Janigan) 1 MR. SNELSON: Can you repeat that question, 2 Mr. Janigan? I'm not sure I got the full complexity 3 of it. 4 MR. JANIGAN: In your proposed setup under 5 this aspect of your proposal, your customer would have 6 the choice to either use and pay for transmission costs 7 on OHNC's system or establish its own generation 8 facilities, at which time it would only be paying for 9 any transmission facilities that are actually used. 10 MR. SNELSON: Yes. The customer would have 11 that choice, as he always has. 12 MR. JANIGAN: Now, I take it under the OHNC 13 model that choice would not be available to that extent. 14 MR. GOLDSMITH: He would still have the choice 15 to shut down facilities and not pay for transmission. 16 MR. JANIGAN: Yes. But apart from that 17 radical solution, under the OHNC's model he would be 18 effectively responsible for 50 per cent for any new 19 generation. Is that not the case? 20 MR. GOLDSMITH: That's not actually radical. 21 We actually did that in the early nineties. That's part 22 of becoming more efficient. 23 MR. JANIGAN: Yes. But as part of the OHNC's 24 proposal, they would be paying 50 per cent for any new 25 embedded generation facilities. Isn't that the case? 26 MR. SNELSON: The 50 per cent number is for 27 network service. 28 MR. JANIGAN: That's right. Les Services StenoTran Services Inc. 613-521-0703 1650 AMPCO PANEL 1, cr-ex (Janigan) 1 MR. SNELSON: On the total basis, it's 2 probably more like 70 per cent. 3 MR. JANIGAN: So certainly your proposal is 4 different in that respect insofar as it is only at the 5 user pay's proposal, you are only paying for the 6 transmission network services that are actually 7 received. 8 MR. SNELSON: As I said in my direct evidence, 9 our interpretation of the user pay principle is that the 10 current user of the facilities pays for them according 11 to his current usage. 12 MR. JANIGAN: Now, other customers may not 13 have this option to establish new generation facilities. 14 Is that correct? 15 MR. SNELSON: Other customers will have 16 different options. The degree to which other customers 17 have that option is different, yes, but they do have 18 that option still. 19 MR. JANIGAN: And those that don't have that 20 option are also going to be paying for the share of 21 transmission facilities that are involved in the 22 transmission facilities that are no longer used by 23 customers that install new embedded generation. 24 MR. SNELSON: I missed the start of that 25 question, Mr. Janigan. I'm sorry. 26 MR. JANIGAN: The customers that don't have 27 the opportunity to install new embedded generation, in 28 addition to not having that opportunity, they will also Les Services StenoTran Services Inc. 613-521-0703 1651 AMPCO PANEL 1, cr-ex (Janigan) 1 be faced with an increased cost as a result of the -- 2 under you proposal, the increased costs associated with 3 those transmission facilities which are no longer used 4 by your customers that have established new generation 5 facilities. 6 MR. SNELSON: I think you have to look at this 7 in the context, Mr. Janigan, of the history of net load 8 billing in Ontario and that is that industrial customers 9 and other customers have had the right to install their 10 own generation and have net load billing treatment. 11 They had in the old regime. They did it in 12 the old regime. You could expect them to continue to do 13 it if we had not gone to a competitive market. I am not 14 sure that the cost of transmission to customers who 15 don't install embedded generation are any higher than 16 they would have been if the old regime had continued. 17 MR. JANIGAN: But they would certainly be 18 higher under what you have proposed than what OHNC has 19 proposed in this proceeding? 20 MR. SNELSON: Yes. 21 MR. JANIGAN: Thank you. 22 For those customers that don't have the 23 opportunity to install new embedded generation, I take 24 it their hope would be that this new generation will 25 stimulate competition to reduce the commodity price? 26 MR. SNELSON: That is one benefit of that, 27 yes. 28 MR. JANIGAN: And their other hope would be Les Services StenoTran Services Inc. 613-521-0703 1652 AMPCO PANEL 1, cr-ex (Janigan) 1 that new load comes on stream to take up some of these 2 costs? Their other hope would be that new load comes on 3 stream to take up some of these costs? 4 MR. SNELSON: That is one way in which the 5 cost is spread over the current users, yes. 6 MR. JANIGAN: Now, on page 37 of your evidence 7 at Table 7.1 you give a table with annual primary 8 demand. By the looks of it, the hopes of those 9 customers that new load would come on to relieve their 10 cost allocation responsibilities would be pretty slim 11 based on this history? 12 MR. SNELSON: Clearly, this table shows that 13 the annual primary demand that Ontario Hydro has 14 supplied has been very flat through the 1990s, a period 15 of relatively low economic growth in Ontario. We were 16 just discussing among ourselves, and we are not quite 17 sure of the point, that this is clearly the net demand 18 on the Ontario Hydro system and we are not sure whether 19 there have been additional embedded generation projects 20 that have come along in that time, and this is the net 21 result. We weren't sure of that point. 22 MR. JANIGAN: What kind of change would that 23 make to this table? 24 MR. SNELSON: If there had been embedded 25 generation come on in that time, then this table would 26 be showing that with a relatively constant net demand 27 that the load growth had been matching the additional 28 embedded generation. Les Services StenoTran Services Inc. 613-521-0703 1653 AMPCO PANEL 1, cr-ex (Janigan) 1 As I say, we are not clear on that point. 2 MR. JANIGAN: I don't want to put you to 3 additional work as it is not feasible. Is there any way 4 that you could become clear on that? 5 MR. SNELSON: I don't think we have the data. 6 MR. JANIGAN: All right. 7 I want to turn to the topic of the treatment 8 of existing Ontario Hydro contracts and in particular 9 starting with surplus power. First of all, I just want 10 to make clear in my mind some statements in the material 11 on what you said this morning. 12 On page 37 at Note 78, it indicates that 13 surplus power customers were required to pay for any 14 upgrades to the transmission system necessary to meet 15 their demand. Is that the extent to which surplus power 16 customers were responsible to contribute to embedded 17 transmission costs? 18 MR. SNELSON: That isn't a contribution to 19 embedded transmission costs. That is a contribution to 20 incremental transmission costs and it is correct that 21 surface power customers were required to fully pay for 22 all the incremental transmission facilities required to 23 serve them and some transmission customers did actually 24 do that. Some surface power customers did pay for 25 incremental facilities. 26 MR. JANIGAN: Were there any other payments 27 for transmission costs included in the contract, apart 28 from what's set out in Note 78? Les Services StenoTran Services Inc. 613-521-0703 1654 AMPCO PANEL 1, cr-ex (Janigan) 1 MR. SNELSON: Included in the surface power 2 rate is a mark-up, if you like, on the energy cost of 5 3 per cent, which covers transmission system losses and in 4 the new market transmission system losses will be 5 recovered through the IMO uplift. 6 In addition, there is one unallocated 7 component of the rate which is a $3 a megawatt hour or a 8 $4 a megawatt hour additional part of the rate, which is 9 said to be a contribution to Ontario Hydro's net income 10 and that's unallocated in terms of where it goes. 11 MR. JANIGAN: Thank you. 12 Now, I believe we have established with OHNC 13 earlier that these contracts for surplus power were for 14 bundled service. 15 MR. SNELSON: That's correct. 16 MR. JANIGAN: Now, did the contracts have any 17 specific price for any of the components that went into 18 the bundled price, apart from what you have already 19 indicated? 20 MR. SNELSON: The description of the current 21 tariff structure is in 7.2 of our evidence which is on 22 page 39. There is one additional factor in the rate, 23 which is not included in that paragraph and we alluded 24 to it in our cross-examination of OHNC witnesses and 25 that is that the surplus power customers pay a $2,000 26 per month administration fee to be on the rate. 27 But there are various components to the rate, 28 but they are not divided out between generation, Les Services StenoTran Services Inc. 613-521-0703 1655 AMPCO PANEL 1, cr-ex (Janigan) 1 transmission or distribution. 2 MR. JANIGAN: Now, if you had to replicate 3 this contract now, given the break up of Ontario Hydro, 4 I would take it you would need to have an agreement for 5 special treatment of all the components; generation, 6 transmission, distribution and IMO? 7 MR. SNELSON: I am not sure quite what you 8 mean by special treatment, but this is clearly a bundled 9 rate and so to replicate it you have to deal with all 10 the components, that's pretty clear. 11 MR. JANIGAN: Now, have you talked with 12 others, such as OPGI, for the generation to craft a 13 similar arrangement for generation that existed under 14 the surplus power rate? 15 MR. SNELSON: I certainly have not. I 16 wouldn't expect AMPCO to do so. You have three AMPCO 17 customers, three years of surplus power customers coming 18 up in a later panel today and they will be able to tell 19 you whether they have made any particular approach to 20 OPGI. 21 MR. JANIGAN: Have there been any approaches 22 to the IMO by AMPCO regarding these contracts? 23 MR. SNELSON: Not to my knowledge. 24 MR. JANIGAN: Or to distribution? 25 MR. SNELSON: Again, not to my knowledge. 26 MR. JANIGAN: Okay. 27 Now, in our examination of OHNC, OHNC 28 officials noted that these contracts were a function of Les Services StenoTran Services Inc. 613-521-0703 1656 AMPCO PANEL 1, cr-ex (Janigan) 1 the generation side of the Ontario Hydro business. 2 Would you agree with that? 3 MR. SNELSON: Yes, I agree the generation side 4 was the primary driver behind these contracts. 5 MR. JANIGAN: And Hydro witnesses also stated 6 that the transmission system business would be much the 7 same as it is today without these contracts. Would you 8 agree with that? 9 MR. SNELSON: I think they indicated that 10 there were no transmission facilities whose costs were 11 being recovered through this process that were 12 attributable to the surplus power customers. 13 MR. JANIGAN: Based on that, would you not 14 agree that the generation component of the agreement is 15 the logical component to be discounted and that 16 transmission would more appropriately be charged the 17 full rate? 18 MR. SNELSON: No, I would not agree with that. 19 MR. JANIGAN: And why would you disagree with 20 that statement? 21 MR. SNELSON: Clearly, the generation is the 22 largest component and so clearly these customers will be 23 seeking some form of market based generation rate and 24 that's one aspect of it, but the rate was a bundled rate 25 for generation and transmission and there is this 26 transmission rate impact that will be imposed upon them 27 if they don't have any transition. 28 MR. JANIGAN: I wonder if you would turn up Les Services StenoTran Services Inc. 613-521-0703 1657 AMPCO PANEL 1, cr-ex (Janigan) 1 Exhibit B, Tab 11, Schedule 1, page 3. 2 --- Pause 3 MR. JANIGAN: I'm looking at the definition of 4 "surplus power" in the OHNC evidence, that: 5 "Surplus power is designed to make 6 efficient use of surplus capacity which 7 exists due to variability in system load 8 and existing transmission system 9 conditions. Surplus power rates apply 10 only to incremental load in excess of an 11 historical baseline and is interruptible 12 for both generation and transmission 13 capacity constraints." (As read) 14 Would you agree with OHNC's definition? 15 MR. SNELSON: Yes. 16 MR. JANIGAN: If I understand your position 17 with respect to surplus power, you have indicated that 18 the historical record of dealing between Ontario Hydro 19 and surplus power customers calls for a special 20 treatment in this case that would prevent this rate from 21 being discontinued, and one of the reasons why it should 22 not be discontinued are the -- I'm sorry, one of the 23 reasons that this should be discontinued is the 24 financial difficulty in which surplus power customers 25 are faced as a result of the discontinuance. 26 MR. SNELSON: First of all, AMPCO is proposing 27 to discontinue this rate. AMPCO is proposing a 28 transition so that it is phased out over a period of Les Services StenoTran Services Inc. 613-521-0703 1658 AMPCO PANEL 1, cr-ex (Janigan) 1 time rather than discontinuing all at once. 2 MR. JANIGAN: The reason you are urging a 3 transition period rather than an immediate 4 discontinuance is that the historical record of dealing 5 between Ontario Hydro and the customers calls for them 6 to be let down gently, as it were? 7 MR. SNELSON: We think it is a proper 8 application of the principle that the customers should 9 not be negatively impacted on market opening. 10 MR. JANIGAN: This is a different principle 11 than the user-pays principle that we used before to 12 reduce your costs I take it? 13 MR. SNELSON: We accept that on the user-pay 14 principle eventually these customers should be on the 15 same transmission rates as everybody else because we do 16 not see it as practical to continue an interruptible 17 transmission service within the structure of the market 18 rules that are proposed today. 19 You could have an interruptible transmission 20 service on a going-forward basis, and there are -- in 21 other markets there are such services, and in that case 22 there would be reasonable grounds for continuing the 23 treatment as a permanent rate. 24 MR. JANIGAN: But the reason that the 25 user-pays principle is trumped in this case is that 26 there is a historical record of dealing between Ontario 27 Hydro and these customers and these customers will be 28 financially disadvantaged if it is discontinued Les Services StenoTran Services Inc. 613-521-0703 1659 AMPCO PANEL 1, cr-ex (Janigan) 1 immediately? 2 MR. SNELSON: I don't think it's the 3 historical record so much as the avoidance of rate 4 impact. 5 MR. JANIGAN: Now, I take it that AMPCO would 6 support moving to a competitive marketplace with respect 7 to surplus power? 8 MR. SNELSON: The surplus power customers will 9 buy their power in the energy market and they will do so 10 under the same terms and conditions as other people and 11 if they can get credit in that market for some of the 12 characteristics of the load, then they will do so. 13 MR. JANIGAN: Well, in a competitive 14 environment would not all parties have a fair 15 opportunity to also acquire this excess capacity in a 16 market rate? 17 MR. SNELSON: What excess capacity are we 18 talking about? 19 MR. JANIGAN: The excess capacity which is the 20 subject of surplus power. 21 MR. SNELSON: Are we talking about excess 22 generation capacity? 23 MR. JANIGAN: Yes. 24 MR. SNELSON: That is correct, and they will 25 do in the new environment. 26 MR. JANIGAN: But in this circumstance there 27 will be a class of customers, namely those customers 28 that formerly contracted for surplus power rate, they Les Services StenoTran Services Inc. 613-521-0703 1660 AMPCO PANEL 1, cr-ex (Janigan) 1 will not be obtaining their power subject to a 2 competitive market situation, they will be grandfathered 3 in by way of a 10-year transition plan. 4 MR. SNELSON: As far as their commodity is 5 concerned, their energy commodity is concerned, they 6 will be in the competitive market. 7 MR. JANIGAN: But for the transmission they 8 will not be in the competitive market. 9 MR. SNELSON: Transmission is not a 10 competitive market, as I understand it, in the new 11 structure. 12 MR. JANIGAN: But in terms of movement to a 13 competitive market, would it not be better for the 14 excess capacity to be bid on by other customers to 15 extract the highest possible price for that 16 transmission? 17 MR. SNELSON: Again, are we talking about 18 generation capacity or transmission capacity? 19 MR. JANIGAN: Transmission capacity in 20 this case. 21 MR. SNELSON: So can you repeat your question 22 so that I can think of it in that light? 23 MR. JANIGAN: Okay. 24 In a competitive market would it not be better 25 to allow all customers to bid for the excess capacity 26 and extract the highest possible price for that 27 transmission? 28 MR. SNELSON: We don't have a competitive Les Services StenoTran Services Inc. 613-521-0703 1661 AMPCO PANEL 1, cr-ex (Janigan) 1 market in transmission and we don't have a proposal on 2 the table to create a competitive market for 3 transmission, so I'm not sure that I -- you know, in a 4 theoretical market sense there may be some sense to your 5 question, but I don't think it has any relevance here. 6 --- Pause 7 MR. JANIGAN: Now, in your proposal, at least 8 for a 10-year period, by not having these surplus power 9 customers assume their share of fully embedded costs of 10 moving electricity on the transmission line and thus 11 shifting costs to others, is it not in fact building 12 into the rate a distortion of the true market signal? 13 MR. SNELSON: Well, again you are coming back 14 to a true market signal which we don't have, but I would 15 also object to the statement that this shifts costs on 16 to other customers. 17 At present the surplus power customers pay 18 very little for transmission fixed costs. Imposing 19 fixed costs on them is a shift in costs to the surplus 20 power customers from the other customers. 21 MR. JANIGAN: Under OHNC's model it would 22 involve a cost shift, would it not? 23 MR. SNELSON: It is a shift from OHNC's model, 24 but it is not a shift from the costs they are paying 25 today and that is what really matters. 26 MR. JANIGAN: Now, OHNC has confirmed that 27 there are not contracts, to their knowledge, that are 28 longer than 10 years. Les Services StenoTran Services Inc. 613-521-0703 1662 AMPCO PANEL 1, cr-ex (Janigan) 1 Is that also your understanding with respect 2 to surplus power contracts? 3 MR. SNELSON: My understanding is that most of 4 the contracts expire within the next perhaps two years. 5 MR. JANIGAN: Yes. And that all expire, 6 actually, by 2002? 7 MR. SNELSON: I don't know that as a fact, but 8 that is my general understanding that they expire fairly 9 soon. 10 MR. JANIGAN: Now, I would assume that all of 11 the customers who have surplus power rates were aware 12 that these deals would expire the earlier of open access 13 or 2002? 14 MR. SNELSON: I think perhaps when you are 15 getting to the details of their contract you would be 16 better to address the questions to the customers who are 17 familiar with those contracts. You may find that there 18 are provisions within those contracts under certain 19 terms for extension and I don't know those provisions. 20 MR. JANIGAN: I want to turn to your proposal 21 with respect to cogen deferral rates. I think it's 22 under paragraph 8.1 of your evidence on page 47. 23 I just want to be clear, first of all, what 24 you support. 25 I believe you indicated in your evidence that 26 you urge that a window -- if in the event that the net 27 load billing was not adopted that a window be provided 28 to the customers in this category to afford them some Les Services StenoTran Services Inc. 613-521-0703 1663 AMPCO PANEL 1, cr-ex (Janigan) 1 relief. 2 Could you explain what you meant by that? 3 MR. SNELSON: What was meant in this evidence 4 was that the customers who have been encouraged to defer 5 their generation by contracts with Ontario Hydro should 6 not be further disadvantaged by being subject to 7 different treatment because they are now new embedded 8 generators, instead of having built their facilities 9 back at the time when they signed the cogeneration 10 deferral rates. If they had built at that time, they 11 would be treated as existing cogeneration. 12 So the spirit of this recommendation is that 13 they should not be further disadvantaged. 14 You had quite a considerable discussion on 15 Friday with two of these customers in Imperial Oil and 16 BP/Amoco. I don't think I can add very much to their 17 evidence except that AMPCO signed on to the draft 18 settlement that was Appendix B to Exhibit I. 19 MR. JANIGAN: Let me see if I understand it. 20 What should happen between now and the time at which 21 they build the new embedded generation? How should they 22 be treated? 23 MR. SNELSON: We are not familiar with all the 24 details of their contracts. If it would impose a 25 significant additional transmission cost on them, then 26 there may be a case for transition treatment, which is 27 what they are suggesting in their Draft Settlement 28 Agreement. AMPCO sees that as one way in which that Les Services StenoTran Services Inc. 613-521-0703 1664 AMPCO PANEL 1, cr-ex (Janigan) 1 need could be satisfied. 2 MR. JANIGAN: So you would support their 3 proposed treatment as virtual generators until the time 4 that new embedded generation comes on stream? 5 MR. SNELSON: In the settlement conference -- 6 as a result of the settlement conference AMPCO signed on 7 to that draft settlement and has not changed its 8 position. 9 MR. JANIGAN: Your analysis of the 10 circumstances surrounding these customers, and in 11 particular the way they should be treated, is based in 12 large part on the historical record of dealing between 13 these customers and Ontario Hydro. 14 MR. SNELSON: Really, the historical record 15 does have a lot of significance here. Quite frankly, 16 AMPCO is not familiar with the details of all the 17 contracts that its members sign. I think you can get 18 much more definitive answers as to the particulars of 19 those dealings by talking to those customers directly. 20 MR. JANIGAN: I am curious, though, in terms 21 of the position of AMPCO. In relation to part of the 22 OHNC proposal, you have urged a forward looking approach 23 -- that of user pay -- in doing the appropriate cost 24 allocation. 25 In relation to surplus power and these 26 existing agreements, you have essentially urged an 27 approach that looks at the historical treatment of these 28 customers. Is that not the case? Les Services StenoTran Services Inc. 613-521-0703 1665 AMPCO PANEL 1, cr-ex (Janigan) 1 MR. SNELSON: First of all, I think I have 2 indicated that we believe that the transmission system 3 has largely run on a user pay principle in the past. 4 And on a going forward basis, we believe that the 5 transmission system should be on a user pay basis and 6 that what is being proposed is transitional arrangements 7 to reduce the impact from going from one paradigm to 8 another. 9 MR. JANIGAN: In each case that you have urged 10 the user pay approach, and in using the forward looking 11 user pay approach, it has resulted in your customers 12 being responsible for a smaller percentage of the costs 13 than they would otherwise have been under the OHNC 14 model. 15 Would you not agree? 16 MR. SNELSON: I think there are a lot of cases 17 where AMPCO members -- and we went through this morning 18 at length where AMPCO members are accepting higher costs 19 than the current system. 20 As I said in my direct evidence, we are 21 looking for ways that will mitigate that increase in 22 costs that are consistent with the new market structure 23 and new paradigm. 24 MR. JANIGAN: In relation to the model that 25 has been presented to the Board by OHNC, when you have 26 taken issue with that model on the basis of a user pay, 27 or a forward looking model, the end result of the 28 application of that principle has been to lower the Les Services StenoTran Services Inc. 613-521-0703 1666 AMPCO PANEL 1, cr-ex (Janigan) 1 costs for your customers. Has it not? 2 MR. SNELSON: I don't suppose that it would be 3 any surprise that AMPCO is looking for costs to its 4 customers. But we are doing so on a principle basis. 5 We are doing so on a basis of proposals that are 6 consistent with a new market structure. 7 As I say, compared to the existing system we 8 are looking for ways to mitigate the cost increase. We 9 are not looking for ways to gain new advantage. 10 As regards other customers on the system, this 11 is not a question of seeking high costs for them. It is 12 a question of getting to a system which reduces the 13 degree to which their costs go down. 14 MR. JANIGAN: In the cases of existing Hydro 15 contracts, when you have urged an approach that 16 emphasizes the historical treatment of these customers, 17 rather than the forward looking user pay kind of 18 principle, in these cases as well we see that it results 19 in a reduction of costs to your customers. Would you 20 not agree? 21 MR. SNELSON: The treatment of surplus power 22 customers in particular is additional costs that those 23 customers bear that they wouldn't bear today. So that 24 is going in the direction of lowering costs to other 25 customers. 26 In total, there is quite a large sum of money 27 involved there. I think we have seen an impact of 28 around $25 million or so. Les Services StenoTran Services Inc. 613-521-0703 1667 AMPCO PANEL 1, cr-ex (Janigan) 1 These customers have created benefits in the 2 past that have benefited all other customers. It is in 3 the evidence that the contributions to net income that 4 these customers have made up until 1998 are about $25 5 million. 6 MR. JANIGAN: Once again, it is a departure 7 from the user pay approach to the forward looking 8 approach to cost allocation. You look at the historical 9 situation regarding these customers and you fashion 10 relief, maybe even transitory relief, based on that 11 historical treatment. 12 MR. SNELSON: We are trying to mitigate the 13 impact on rates as of market opening, yes. 14 MR. JANIGAN: When we use these principles in 15 the circumstances that you proposed, it results in a 16 reduction of costs from the OHNC models to your 17 customers. 18 MR. SNELSON: You have asked that question 19 before, several times. 20 MR. JANIGAN: I haven't quite got the answer. 21 MR. SNELSON: And I have given you my answer. 22 MR. JANIGAN: I take it that the answer is 23 yes. 24 MR. SNELSON: Yes, but we don't accept that as 25 being the reasonable base to compare with. The base is 26 what we pay today. 27 MR. JANIGAN: In terms of the use of an 28 historical analysis, how far back do we go in Ontario Les Services StenoTran Services Inc. 613-521-0703 1668 AMPCO PANEL 1, cr-ex (Janigan) 1 Hydro operations to determine what may be fair in 2 relation to a set of customers? 3 I know you rejected in your evidence, in 4 looking at the customers that build their own 5 facilities, the idea that transmission facilities were 6 built for a particular customer. 7 How far back do we go in terms of looking at 8 what is fair from an historical standpoint? Do you have 9 any suggestion? 10 MR. SNELSON: I don't know how to answer that 11 question. Clearly, more recent history is more relevant 12 than more ancient history. And where you draw that 13 line, I really have no idea. 14 MR. JANIGAN: Would it be fair, in an 15 historical analysis, to look at whether or not a 16 particular customer actually caused the building of a 17 particular generation facility, a transmission facility, 18 and assess costs based on that record? 19 MR. SNELSON: I think it would be very 20 difficult to go back and unbundle those kinds of 21 decisions. 22 MR. JANIGAN: Finally, my last question: 23 Recently the Minister of Energy suggested that the 24 purpose of rate restructuring was not to produce price 25 increases. Does your proposal take us closer to that 26 objective or further away from that objective? 27 MR. GOLDSMITH: Our proposal takes us closer 28 to that. In the short term it is neutral; and in the Les Services StenoTran Services Inc. 613-521-0703 1669 AMPCO PANEL 1, cr-ex (Janigan) 1 long term, as competition comes in, it brings us closer 2 to the lower price paradigm. 3 MR. JANIGAN: Thank you, panel. 4 Thank you, Board. Those are all my questions. 5 THE PRESIDING MEMBER: Thank you, Mr. Janigan. 6 We will go to Mr. Mattson, please. Thank you. 7 MR. MATTSON: Thank you, Dr. Higgin. 8 CROSS-EXAMINATION 9 MR. MATTSON: Good morning, panel. My name is 10 Mark Mattson. I'm counsel to Energy Probe. 11 Mr. Lemay, I think you indicated this morning 12 that the group you are representing this morning, AMPCO, 13 has been a regular attendee at the Ontario Hydro rate 14 hearings in the past. 15 MR. LEMAY: Yes, that's correct. 16 MR. MATTSON: Since I have been actively 17 involved since HR-19, I believe you have been at every 18 hearing since then, 19, 20, 21, 22, 23 and 24. 19 MR. LEMAY: I think that is correct, AMPCO has 20 been here. I haven't personally been here. 21 MR. MATTSON: I think at every single hearing, 22 AMPCO has come forward and your position has been that 23 you want a more competitive rate. Is that fair? 24 MR. LEMAY: Yes, we wanted a competitive 25 market. 26 MR. MATTSON: No, no, not a competitive 27 market. Your position has been that you want more 28 competitive rates. Les Services StenoTran Services Inc. 613-521-0703 1670 AMPCO PANEL 1, cr-ex (Mattson) 1 MR. LEMAY: That involves having a competitive 2 market. 3 MR. MATTSON: Well, your evidence here today 4 is that there isn't a competitive market, as Mr. Snelson 5 has said a number of times, and yet it is clear from 6 your evidence that what you want and what you are asking 7 the Board here today is for a more competitive rate. Is 8 that fair? 9 MR. LEMAY: No, I don't think it is. 10 MR. MATTSON: So you are not asking for a more 11 competitive rate? 12 MR. LEMAY: We are asking for a competitive 13 market which leads to competitive rates. 14 MR. MATTSON: Do you think that the Board, the 15 Ontario Energy Board setting -- rate design and cost 16 allocation issues for the transmission system in Ontario 17 -- do you think this is the place that you should be 18 coming to ask for a competitive market in electricity? 19 MR. LEMAY: The decisions this Board makes on 20 transmission rate issues will certainly have a 21 significant effect on whether we have a competitive 22 market or not. 23 MR. MATTSON: Yes. One way they could go 24 would be to ensure that Ontario Hydro Services 25 Corporation minimizes their costs for all customers. Is 26 that fair? 27 MR. LEMAY: I didn't quite understand the 28 question. Could you repeat it, please? Les Services StenoTran Services Inc. 613-521-0703 1671 AMPCO PANEL 1, cr-ex (Mattson) 1 MR. MATTSON: Mr. Lemay, one way that this 2 Board could certainly try to help with that goal would 3 be to ensure that Ontario Hydro Networks Company 4 minimizes its costs. Is that fair? 5 MR. LEMAY: Yes. Anything the Board can do to 6 reduce OHNC's networks costs and encourage that will 7 certainly help to reduce everybody's costs. 8 MR. MATTSON: Right. 9 Another way the Board could go would be the 10 way that your company is urging them to go, which would 11 be to try and set rates which encourage economic 12 development such as your group is asking for today. Is 13 that fair? 14 MR. LEMAY: No, I don't think it is. 15 MR. MATTSON: Did you not indicate that AMPCO 16 would like to see rates that in fact directly encourage 17 jobs -- what else -- more competitive rates. What else 18 have I heard this morning? Well, jobs and more 19 competitive rates, keeping industry in Ontario. Is that 20 fair? 21 MR. LEMAY: What we are talking about before 22 this Board is the transmission rate design and how that 23 is done. The competitive market isn't part of this 24 Board's purview. 25 MR. MATTSON: No. In fact, AMPCO's no 26 different from any other customer before this Board in 27 terms of the Board trying to allocate who are the 28 winners and losers from this restructuring. AMPCO is no Les Services StenoTran Services Inc. 613-521-0703 1672 AMPCO PANEL 1, cr-ex (Mattson) 1 different from, let's say, the MEA, from CAC, Vulnerable 2 Energy Coalition, all these groups that represent 3 customers. You are just another customer group before 4 this Board. Right? 5 MR. LEMAY: Yes, we are one of the customer 6 groups before this Board. 7 MR. MATTSON: And you want cheaper rates, 8 right, more competitive rates? 9 MR. LEMAY: No. I think I said in my 10 testimony that as far as INCO was concerned we supported 11 net load billing even though that would lead to an 12 increase in the transmission component of my rate. 13 MR. MATTSON: Well, that would be you speaking 14 as INCO now. Is that fair? Mr. Lemay, you are speaking 15 that INCO would support net load billing even though it 16 would increase the rates for INCO. Is that what you are 17 saying? 18 MR. LEMAY: Yes, speaking as INCO I can say 19 that. Yes. 20 MR. MATTSON: But INCO, certainly with net 21 load billing in place, would have an opportunity to seek 22 new generation at cheaper costs than if they had to seek 23 generation from OPGI. Is that fair? 24 MR. LEMAY: I think I testified that the 25 reality of that would be that it would keep OPGI's 26 prices down. 27 MR. MATTSON: Right. So again we are getting 28 back to -- OPGI's prices are not part of this hearing. Les Services StenoTran Services Inc. 613-521-0703 1673 AMPCO PANEL 1, cr-ex (Mattson) 1 Is that fair, Mr. Lemay? This Board isn't concerned 2 about the generation costs -- well, they are concerned 3 about it, but certainly that is not something that this 4 regulator is going to try and address and set in the 5 rates for transmission. Is that fair? 6 MR. LEMAY: No. In my testimony I said what 7 the Board does will have a significant effect on what 8 happens in the competitive market and their design of 9 the transmission rates is very important. 10 MR. MATTSON: Mr. Lemay, prior to this hearing 11 then, if we go back to HR-22, 23 and 24, you would agree 12 that your client was in support -- in fact, your client 13 had entered into contracts with Ontario Hydro and 14 supported Ontario Hydro's economic development load 15 retention rate proposals before the Board at that time. 16 Is that fair? 17 MR. LEMAY: You would have to give me a 18 specific reference to what you are referring to. 19 MR. MATTSON: For example, the surplus power 20 rates. Could you support those? 21 MR. LEMAY: Yes. The surplus power rates I 22 supported because they made use of the transmission 23 system when it wasn't being used and provided jobs and 24 investment in the province that we otherwise wouldn't 25 have had. 26 MR. MATTSON: Right. 27 MR. LEMAY: And provided a significant amount 28 of net income that reduced all the rates of everyone. Les Services StenoTran Services Inc. 613-521-0703 1674 AMPCO PANEL 1, cr-ex (Mattson) 1 MR. MATTSON: Right. So your customer group, 2 then, took advantage of surplus rates that 3 non-participating customers were not able to take 4 advantage of, correct, Mr. Lemay? There were many 5 customers who weren't able to take advantage of those 6 surplus power rates. Right? 7 MR. LEMAY: Yes. I have said that my company 8 was one of those companies that didn't and never could 9 take advantage of surplus power rates. I support them 10 because I think they are good for the province in 11 providing jobs and investment, and as well they provided 12 $25 million in net income to Ontario Hydro which has 13 helped reduce all our costs. 14 MR. MATTSON: We heard that at the hearings 15 from the AMPCO witnesses, and we understand you made 16 deals with Ontario Hydro, but you are also familiar with 17 what the Board had to say about those surplus power 18 rates, aren't you? 19 MR. LEMAY: You would have to, again, give me 20 the specific reference, please. 21 MR. MATTSON: You haven't reviewed the Board's 22 decisions in those rate hearings. 23 MR. LEMAY: I have, but I haven't got that 24 good a memory. 25 MR. MATTSON: Do you recall that the Board 26 specifically told Ontario Hydro that these were 27 transitional rates? 28 MR. LEMAY: Again, would you please provide me Les Services StenoTran Services Inc. 613-521-0703 1675 AMPCO PANEL 1, cr-ex (Mattson) 1 the specific reference? 2 MR. MATTSON: If you don't remember, that's 3 fine. I'm not going to go through the whole decision 4 with you. We don't have a lot of time here today. 5 Do you recall that the Board specifically told 6 all industrial customers and AMPCO and Ontario Hydro 7 that none of these rates should be extended beyond 1999? 8 Are you familiar with that? 9 MR. LEMAY: No, I'm not. 10 MR. MATTSON: Are you familiar with the fact 11 that the Board, at the end of that -- this is HR-24 -- 12 last hearing that it had, said specifically that it 13 recommended that: 14 "...Hydro not come forward with further 15 rate proposals until it is able to deal 16 in a meaningful way with the issues of 17 stranded assets, unbundling of rates, and 18 effective public review of load retention 19 applications." 20 MR. LEMAY: Yes, I think so. 21 MR. MATTSON: Would you agree with me that the 22 basic argument that underlies the gross load billing and 23 the net load billing argument is how OHNC is going to 24 deal with these embedded costs or with some of what is 25 called potentially stranded assets. Is that fair? 26 MR. LEMAY: Would you repeat the question 27 again, please? 28 MR. MATTSON: In terms of the Board's Les Services StenoTran Services Inc. 613-521-0703 1676 AMPCO PANEL 1, cr-ex (Mattson) 1 recommendation that Ontario Hydro not come forward until 2 it deals with issues of stranded assets, here we have 3 OHNC coming forward with a proposal, and its gross load 4 billing proposal, at any rate, is trying to deal with 5 these issues of embedded costs or potentially stranded 6 assets? 7 MR. LEMAY: No, I wouldn't agree with that. 8 MR. MATTSON: You wouldn't agree with that and 9 yet if it was net load billing, would you agree with me, 10 Mr. Lemay, -- would you agree me with me that if it was 11 net load billed for AMPCO customers, they would be able 12 to purchase power that effectively would place a greater 13 burden on the non-participating customers? Is that 14 fair? Cost shifting on to non-participating customers. 15 MR. LEMAY: Are you referring to customers 16 that would put in new and better generation than those 17 that wouldn't? 18 MR. MATTSON: No. I'm not talking about the 19 producers. I'm talking about the customers. If you are 20 a customer group, the one you are representing today, 21 and your proposal is accepted with respect to new net 22 load billing for new generation, that those who 23 participate and are able to take power from new 24 generation and net load billing, that there would be a 25 cost shifting on to those non-participating customers 26 who are unable to take advantage of that new embedded 27 generation. 28 MR. LEMAY: No. I don't agree there would be Les Services StenoTran Services Inc. 613-521-0703 1677 AMPCO PANEL 1, cr-ex (Mattson) 1 a cost shifting. I would say it would just be a 2 continuation of what has been the practice in this 3 province for the past 95 years. 4 MR. MATTSON: Yes. And isn't that why we are 5 restructuring now? Isn't that exactly the reason why we 6 are restructuring, Mr. Lemay, because we have a problem 7 with respect to these embedded costs and we need to 8 recover them? 9 MR. SNELSON: Perhaps I can just help a little 10 here. 11 MR. MATTSON: I don't think you would, 12 Mr. Snelson. If Mr. Lemay doesn't want to answer any 13 further, that's fine, but I'm really going at his 14 evidence right now and I have these questions for 15 Mr. Lemay. 16 MR. SNELSON: The comment I was just trying to 17 make is that the embedded costs that we are concerned, 18 as I recall it, in the 1990s were embedded costs of 19 generation rather than embedded costs of transmission 20 and that the recapitalization of OPGI and the 21 identification of stranded costs from CTC I believe is 22 the primary mechanism for dealing with those embedded 23 costs. I don't see the link to the discussion of 24 embedded costs in the 1990s. 25 MR. MATTSON: Mr. Lemay, at HR-24, as we have 26 discussed at least, you would agree that your group, 27 AMPCO, believes that there were legitimate objectives -- 28 a legitimate objective of the special rate options to Les Services StenoTran Services Inc. 613-521-0703 1678 AMPCO PANEL 1, cr-ex (Mattson) 1 your group were to promote economic and industrial 2 growth. Is that fair? 3 MR. LEMAY: Yes. I think that's fair. 4 MR. MATTSON: And you still believe that this 5 is an appropriate role for the OEB, even after the 6 restructuring and setting transmission rates. Is that 7 fair? 8 MR. LEMAY: I think in setting its 9 transmission rates, the OEB certainly has to consider 10 the government's direction in setting the Act, which was 11 to provide jobs and investment in the province. 12 MR. MATTSON: So if I suggested to you that a 13 general principle for regulating a public utility such 14 as OHNC is that social policy initiatives should be left 15 in the domain of government rather than reflected in 16 rates charged by the public utility, would you disagree 17 or agree with that? 18 MR. LEMAY: Would you repeat the question, 19 please? 20 MR. MATTSON: That the general principle for 21 regulating a public utility such as OHNC is that social 22 policy initiatives be left in the domain of government 23 rather than be reflected in the rates charged by the 24 public utility. Would you agree or disagree with that? 25 MR. LEMAY: Yes. I think social policy 26 objectives are within the domain of government. 27 MR. MATTSON: Right. And should they be 28 reflected in the rates, public utility rates? Les Services StenoTran Services Inc. 613-521-0703 1679 AMPCO PANEL 1, cr-ex (Mattson) 1 MR. LEMAY: It depends whether or not the 2 government orders the Board or makes legislation to 3 reflect some of those objectives. 4 MR. MATTSON: And has there been any such 5 order to date with respect to this Board? 6 MR. LEMAY: If you characterize providing jobs 7 and investment as the social policy objective, I would 8 say yes. 9 MR. MATTSON: Would you agree with me that it 10 could equally be taken as we agreed earlier that what 11 the Board meant or what any legislation -- that the 12 legislation may mean that the Board should ensure that 13 OHNC minimizes its costs? That would encourage jobs and 14 promote economic development as well. We agreed on 15 that. Right? 16 MR. LEMAY: Yes. Certainly anything the Board 17 can do to help minimize OHNC's costs will help all of 18 us. 19 MR. MATTSON: So where does it say that they 20 should reflect the social policy initiatives in the 21 rates charged by the public utility? 22 MR. LEMAY: What social policy objectives are 23 you referring to? 24 MR. MATTSON: Economic development, creation 25 of jobs. Where's the link made between those policies 26 in its social policy initiatives in the setting of 27 rates? 28 MR. LEMAY: I think if you look at the Les Services StenoTran Services Inc. 613-521-0703 1680 AMPCO PANEL 1, cr-ex (Mattson) 1 legislation and the title of the Act, that's there. 2 MR. MATTSON: So you are looking at the title 3 of the Act for that link. 4 MR. LEMAY: And the Act itself. 5 MR. MATTSON: If I suggested to you that 6 customers should be charged only for the public 7 utility's services rendered and that government ought to 8 be responsible for alleviating social policy such as 9 economic development, what would you say to that? 10 MR. LEMAY: Would you repeat that again, 11 please? 12 MR. MATTSON: If I suggested that customers 13 such as your own group and others should be charged only 14 for the public utility services rendered and that 15 government ought to be responsible for alleviating 16 social policies such as economic development and jobs, 17 what would you say to that? 18 MR. LEMAY: That's really a two part question 19 as I see it. First, we have said that we should only 20 pay for the services that have been rendered. 21 Mr. Snelson has talked to the user pay position. The 22 second part, the government has it within its purview to 23 decide what social policy objectives to order a Board 24 such as this or any other government institution has to 25 follow. 26 MR. MATTSON: In other words, some sort of 27 monstrous hybrid here. They can choose either, 28 depending on who is in favour and who is not. Is that Les Services StenoTran Services Inc. 613-521-0703 1681 AMPCO PANEL 1, cr-ex (Mattson) 1 what you are suggesting, they have a two pronged -- 2 MR. LEMAY: No. I think the legislation is 3 very clear on its surface. 4 MR. MATTSON: So do I, Mr. Lemay. Now, you 5 also suggested, Mr. Lemay, that -- I believe you didn't 6 suggest this, but you indicated at least with respect to 7 gas usage in Ontario that your company, INCO, has many 8 differing players and agents, brokers, marketers who are 9 in the gas industry who are willing to service your 10 needs with different gas offers. Is that fair? There's 11 a competitive market in gas. 12 MR. LEMAY: There's a competitive market in 13 the commodity supply of gas. There's not a competitive 14 market in the transmission of gas. 15 MR. MATTSON: Right. In the commodity supply 16 of gas. Correct? 17 MR. LEMAY: Yes. 18 MR. MATTSON: How familiar are you with how 19 this Board, the same Board you appear before today, 20 regulates gas commodity and transmission, et cetera, 21 those rates? 22 MR. LEMAY: I am reasonably familiar with the 23 regulation of natural gas in the province. 24 MR. MATTSON: Are you familiar with any 25 discriminatory rate setting in gas regulation based upon 26 the goal of creating job development -- jobs and 27 economic development? 28 MR. LEMAY: I think the Energy Act applied to Les Services StenoTran Services Inc. 613-521-0703 1682 AMPCO PANEL 1, cr-ex (Mattson) 1 natural gas as well as to electric power. 2 MR. MATTSON: Are you familiar with any 3 discriminatory rates in the past decades that have been 4 offered to special customers to promote jobs and 5 economic development? 6 MR. LEMAY: I think in my view, some of the 7 discrimination in gas has been the other way. There has 8 been a higher rate of return charged on industrial 9 customers in the past because that was used to support 10 some of the residential rates. 11 MR. MATTSON: Right, and yet it's your own 12 evidence that that market is working very well for your 13 company and for your clients. There's lots of gas 14 marketers out there. 15 MR. LEMAY: Yes, because we have a competitive 16 market in natural gas. 17 MR. MATTSON: Why would anybody want to come 18 to AMPCO, AMPCO members or to your company, and try and 19 seek to sell generation supply to your company when 20 everybody knows that AMPCO is coming to this Board first 21 to seek the special rate offerings and seek that they be 22 continued into the future? 23 Nobody is going to be able to compete with 24 these load retention rates. I mean, it would be like 25 selling low flow showerheads at a time Hydro was giving 26 them out. 27 MR. LEMAY: We are talking of two very 28 different things and can you put your question so that I Les Services StenoTran Services Inc. 613-521-0703 1683 AMPCO PANEL 1, cr-ex (Mattson) 1 can answer it. You are talking about both the 2 transmission rates and the generation rates in the same 3 question rolled together. I really can't -- 4 MR. MATTSON: Right. The reason I did, 5 Mr. Lemay, is because you want these transmission 6 tariffs to reflect the problem in the generation market 7 that has no competition. So I am just looking now at 8 the generation market, where you indicate there is no 9 competition and I am wondering if maybe it's AMPCO's 10 fault because AMPCO instead of going out and seeking 11 competitive rates is coming before this Board, this OEB, 12 and seeking special treatment with respect to 13 transmission tariffs. Everybody is waiting to see what 14 happens. 15 MR. LEMAY: Now, AMPCO is seeking a 16 transmission tariff that is both fair and equitable and 17 that is workable. 18 MR. MATTSON: Well, you would agree with me 19 that many of the small residential and commercial 20 customer groups don't believe it's fair and equitable if 21 net load billing was adopted. Wouldn't you agree with 22 that? 23 MR. LEMAY: No, I wouldn't agree with that. 24 MR. MATTSON: So they haven't suggested that. 25 You haven't heard that at these hearings. 26 What if I told you that that's their position? 27 MR. LEMAY: You would have to refer me to the 28 specific customers. I am certainly an individual Les Services StenoTran Services Inc. 613-521-0703 1684 AMPCO PANEL 1, cr-ex (Mattson) 1 customer and on an individual basis I don't agree with 2 that. 3 MR. MATTSON: Now, you understand, and this 4 question can go to anybody on the panel. I am sorry, 5 Mr. Lemay, for putting all these questions to you. I 6 just wanted to deal with some of the initial evidence 7 you put on the record this morning. 8 Is it AMPCO's position to the Board that 9 basically your proposal will have no negative impacts on 10 other customer classes if the Board accepts it? Just 11 from a customer's point of view, your customer group you 12 are representing and, Mr. Snelson, you are well aware of 13 all the other customer groups. Is it your evidence that 14 your proposal, if adopted by the Board, would have no 15 negative impacts on any other customer class. Is that 16 your evidence? 17 MR. SNELSON: That's a very absolute question. 18 MR. MATTSON: Yes. 19 MR. SNELSON: And I think most of the impacts 20 that we have seen are in the direction of the 21 transferring costs to industrial customers compared to 22 business as usual under the old paradigm. This is 23 transmission costs to customers. 24 There may be some cases where it goes the 25 other way. I am just not aware. I just can't think of 26 them right at this moment. 27 MR. MATTSON: I don't understand, Mr. Snelson. 28 Do you have some idea of what, under the old paradigm, Les Services StenoTran Services Inc. 613-521-0703 1685 AMPCO PANEL 1, cr-ex (Mattson) 1 for example, the first special rate I note was Kimberly 2 Clarke in '91, but do you have any idea of the savings 3 that AMPCO has reached over the past nine years as a 4 result of these special rate offerings to your 5 customers? You must have some idea. 6 MR. SNELSON: First of all, AMPCO doesn't reap 7 the savings and they are not our customers, but -- 8 MR. MATTSON: Your group. 9 MR. SNELSON: I believe that the evidence of 10 the load retention customers, and this is Imperial Oil 11 and Sunoco who appeared on Friday, was that under the 12 old paradigm they had the freedom to generate their own 13 power and because of surplus and generation market they 14 agreed to stay on the system and that there were some 15 additional benefits that went to other customers because 16 they stayed on the system rather than generating their 17 own power. 18 MR. MATTSON: That wasn't my question. My 19 question was: Do you have any idea what the savings 20 that have been reaped by AMPCO as a result of the 21 special rate offerings over the past -- well, since 22 Ontario Hydro offered them, the Ontario Hydro special 23 rate offerings? Do you know what the savings that your 24 group has reaped from those special offerings, what you 25 would have paid otherwise without the deal? 26 MR. SNELSON: Without the deal you have to 27 think about whether the load would be there and whether 28 they would have paid anything. Les Services StenoTran Services Inc. 613-521-0703 1686 AMPCO PANEL 1, cr-ex (Mattson) 1 MR. MATTSON: Right. But through the 2 unbundling process we found that Imperial Oil would have 3 been paying I think $3 million or $4 million more a year 4 and Amoco was looking at something like three-quarters 5 of a million dollars a year and they were just on the 6 load retention rate. 7 If we added up the surplus power rates, the 8 real time pricing rates, all those rates and I don't 9 know all their names, but discount back-up rates, do you 10 know what the savings would be of your group, of your 11 customer group? 12 MR. SNELSON: No, I do not, but I do know that 13 there was an undertaking that was provided by OHNC last 14 week where they took the current level of the special 15 rates and calculated the transmission revenue that would 16 be attributable to those loads on those current rates. 17 In addition to that I have no further 18 information. 19 MR. MATTSON: Nobody on the panel? AMPCO has 20 never looked at what the benefits have been from all 21 that work you did at those hearings and signing those 22 contracts, you have never attempted to calculate what 23 the benefits have been to your group as a result of 24 those special rate offerings with Ontario Hydro? 25 MR. SNELSON: I haven't accepted that as a 26 calculation of the benefits. 27 MR. MATTSON: You mean there was no benefit to 28 those rates? Les Services StenoTran Services Inc. 613-521-0703 1687 AMPCO PANEL 1, cr-ex (Mattson) 1 MR. SNELSON: The benefits would be calculated 2 differently and should be calculated on the difference 3 between the scenario where you have the rates and where 4 you do not. For instance, surplus power customers, the 5 condition of going on the rate is that it is a load that 6 would be there with the rate that would not be there at 7 the standard rate. 8 So the calculation of the transmission rate or 9 the total rate with the surplus customer there is two 10 inconsistent things. They were not to be -- they are 11 mutually exclusive. 12 MR. MATTSON: So you are saying, Mr. Snelson 13 and Mr. Lemay -- or Mr. Goldsmith, you both agree that 14 your group, AMPCO, has done no calculations now that we 15 have unbundled these things and you can see all these 16 costs, your group has done no calculation on what the 17 benefits have been to your group as a result of those 18 special rate offerings that existed prior to the 19 electricity restructuring, nothing? 20 MR. GOLDSMITH: The calculation that you have 21 described is not a calculation of the benefits to our 22 group or to anyone else. 23 MR. MATTSON: Have you done any attempt to try 24 and calculate those benefits however you look at them? 25 MR. GOLDSMITH: Only insofar as we have been 26 able to identify the companies who are still there who 27 would not be there otherwise were it not for the rates 28 or the jobs were it not for the rates. Les Services StenoTran Services Inc. 613-521-0703 1688 AMPCO PANEL 1, cr-ex (Mattson) 1 MR. MATTSON: And you have done work on that? 2 MR. GOLDSMITH: If you mean in terms of formal 3 study, no. 4 MR. MATTSON: But is it something that you 5 have actually analyzed what load wouldn't be there 6 without the special rates? Have you looked at that, 7 what load would not be in Ontario but for the special 8 rates? 9 MR. GOLDSMITH: As an organization we haven't 10 look at that because we don't know who has which special 11 rate. 12 MR. MATTSON: It doesn't seem like many people 13 know that really, do they, in Ontario. Nobody knows 14 about these special rates, do they? 15 MR. GOLDSMITH: I couldn't answer that. 16 MR. MATTSON: Now, just looking at your 17 Executive Summary in your evidence, page (i) and (ii), I 18 guess they are Roman numeral (i) and (ii). I just 19 wanted to go through some of these bullets with you and 20 look at who the winners and who the losers are in terms 21 of your proposal. 22 If we start with the third bullet: 23 "AMPCO proposes that the current practice 24 of billing loads supplied from embedded 25 generation on a net load basis be 26 continued for both existing and new 27 embedded generation. The principle is 28 that current users of the transmission Les Services StenoTran Services Inc. 613-521-0703 1689 AMPCO PANEL 1, cr-ex (Mattson) 1 system should pay according to their 2 level of usage on a user pay basis." (As 3 read) 4 Would you agree with me that participating 5 load displacement customers would win in that scenario 6 and non-participating customers would lose? That's a 7 pretty -- 8 MR. GOLDSMITH: No. 9 MR. MATTSON: No? How couldn't they? 10 MR. GOLDSMITH: First of all, it's a 11 continuation of current practice -- 12 MR. MATTSON: But which we have talked about 13 and which the Board told Ontario Hydro -- 14 MR. FISHER: Would you let Mr. Goldsmith 15 answer the question please? 16 MR. MATTSON: Well, we don't have much time. 17 You spent an hour and a half in chief. I am just trying 18 to speed, but we talked about that. We know already 19 that the Board has spoken on that, that those current 20 practices were not acceptable. There has been a 21 restructuring. The government has declared all those 22 contracts null and void. It's a new world now. 23 So you would agree with me that if we accepted 24 that proposal that participating load displacement 25 customers would win and non-participating would lose, 26 setting aside the historic context? 27 MR. GOLDSMITH: No. 28 MR. MATTSON: Why not? Les Services StenoTran Services Inc. 613-521-0703 1690 AMPCO PANEL 1, cr-ex (Mattson) 1 MR. GOLDSMITH: First of all, I am not aware 2 of any decision of the Board with respect to gross load 3 or net load billing. 4 MR. MATTSON: No. 5 MR. GOLDSMITH: I'm not aware of that being 6 referred to as a special rate of any sort that was to 7 terminate in any sense. 8 So I still say it's a continuation of current 9 practice and therefore not a case of creating winners 10 and losers. 11 In the second instance, I would point out that 12 the continuation of net load billing will encourage the 13 creation of new generation which will cause a reduction 14 in costs for all consumers on the system. Therefore, it 15 is not a shifting from one group to another. 16 MR. MATTSON: Okay. Then let's look 17 relatively. 18 You would agree that the non-participating 19 customers lose relative to the participating customers. 20 You would agree with that? 21 MR. GOLDSMITH: No. 22 MR. MATTSON: So this is sort of like the 23 surplus power rates that all customers win because AMPCO 24 got the surplus power rates. There is a benefit there 25 because, as far as you were concerned, this is just 26 going to create a better market and everybody is going 27 to win. 28 Even if you win a little more, everybody is Les Services StenoTran Services Inc. 613-521-0703 1691 AMPCO PANEL 1, cr-ex (Mattson) 1 going to win. Right? That's what you're saying? 2 MR. GOLDSMITH: I'm not sure what you mean by 3 "win a little more". 4 In the case of surplus power specifically, it 5 created incremental load which would not otherwise have 6 been there. It used assets that would otherwise have 7 been idle -- stranded in your terms -- 8 MR. MATTSON: Right. 9 MR. GOLDSMITH: -- and which all customers on 10 the system would have had to have been paying for. 11 So $24.6 million was actually contributed by 12 the surplus power users to reduce the cost of everyone 13 else on the system. 14 MR. MATTSON: Right. But they were called 15 specifically, Mr. Goldsmith -- and I know you know this 16 and Mr. Snelson knows -- that they were transitional 17 rate to deal with what was an unexpected problem with 18 respect to Ontario Hydro and surplus capacity. 19 I mean, Mr. Snelson was here. He was one of 20 the planners of the DSP that Amoco supported which 21 supported a $60 billion 20-year supply expansion system. 22 I mean, it was only a year later that we had these 23 surplus power rights. 24 So you would agree, it was a transitional 25 thing. It wasn't a benefit to everybody. There was a 26 real negative attached to it and that was that we had 27 discriminatory rates and one customer group was 28 benefitting more than others. You would agree with me. Les Services StenoTran Services Inc. 613-521-0703 1692 AMPCO PANEL 1, cr-ex (Mattson) 1 MR. GOLDSMITH: No. 2 Next bullet: 3 "AMPCO proposes that the definition of 4 `line connection' be restricted to those 5 facilities dedicated to one directly 6 connected transmission customer. This 7 customer can be responsible for the cost 8 and will have the capability of managing 9 those costs. The customer will not have 10 to pay for both the cost of its own 11 connection and the cost of the pooled 12 connection of other customers." 13 (As read) 14 My point is, agree or disagree, so long as the 15 connection is gross load billed, but net for network, 16 participants in self-generation would win and everybody 17 else would lose? 18 MR. SNELSON: Can you just sort of clarify for 19 me the link that you are making here between the net and 20 gross issue and the line connection definition? 21 MR. MATTSON: Mr. Snelson, you have the bullet 22 in front of you. I don't need to read it again. Right? 23 MR. SNELSON: Okay. No, I have it. 24 MR. MATTSON: You are familiar with it? 25 MR. SNELSON: Yes, I am. 26 MR. MATTSON: Okay. 27 My question, I mean you can disagree -- I want 28 to move through this yes or no -- but so long as the Les Services StenoTran Services Inc. 613-521-0703 1693 AMPCO PANEL 1, cr-ex (Mattson) 1 connection is gross load billed, but net load billed for 2 network, participants in self-generation would win and 3 everybody else in the system would lose in terms of cost 4 shifting? 5 MR. SNELSON: I think this is the same 6 question you have been asking, which is whether net load 7 billing produces a cost shifting to other customers and 8 for the reasons that we have discussed about the past 9 practices and the energy market we haven't accepted 10 that. 11 MR. MATTSON: I mean, a lot of these I suppose 12 have to do with that. 13 So basically, Mr. Snelson, for the purposes of 14 your evidence the Board has to accept that there is no 15 cost shifting going on here and that as far as you are 16 concerned in your proposal all customers win and all the 17 customers who oppose your proposal are just off the deep 18 end. They don't know what they are talking about. They 19 should listen to you. Is that fair? 20 MR. SNELSON: I don't think I could accept 21 that, no. 22 MR. MATTSON: You don't see any detriment to 23 other customers in the system as a result of your 24 proposal. 25 MR. SNELSON: There are changes in the costs 26 to other customers according to different proposals that 27 are on the table. 28 MR. MATTSON: Right. And some customers will Les Services StenoTran Services Inc. 613-521-0703 1694 AMPCO PANEL 1, cr-ex (Mattson) 1 pay more and some will pay less. Right? 2 MR. SNELSON: Yes, that is true, and the 3 customers compared to the historic situation -- in many 4 of the situations that we have talked about the 5 customers who are paying more compared to the historic 6 situation are the industrial customers. 7 MR. MATTSON: Yes, they are going to pay more 8 because the special rates are over and the unbundling 9 has occurred. Right? So you are going to pay. You are 10 going to pay what you would have been paying otherwise 11 but for the special rates. 12 MR. SNELSON: No, that's -- I was referring 13 there specifically to the breakup of the power district 14 and the way in which that increases the costs to direct 15 customers. 16 MR. MATTSON: But would you agree with me that 17 now with the restructuring, unless you get your proposal 18 on the table, your customers are going to finally have 19 to pay market rate as opposed to the special rates you 20 had for the past five or six years? 21 MR. SNELSON: I would characterize the surplus 22 power rate as having been a rough simulation of a market 23 rate. 24 MR. MATTSON: A rough simulation? 25 MR. SNELSON: Yes. 26 MR. MATTSON: You would agree with me that 27 other customers in the province now with the unbundling 28 occurring would love to be able to have access to those Les Services StenoTran Services Inc. 613-521-0703 1695 AMPCO PANEL 1, cr-ex (Mattson) 1 surplus power rates if there are any, wouldn't they? 2 MR. SNELSON: The market is being unbundled to 3 create a competitive generation market and surplus power 4 customers will be buying their power in that market the 5 same as everybody else. 6 MR. MATTSON: Except if the surplus power 7 rates are extended out over the next 10 years? 8 MR. SNELSON: We are only talking about the 9 transmission component of the surplus power rate in this 10 proceeding and your questions are confusing it -- 11 MR. MATTSON: Well, Mr. Snelson, you are going 12 to go to the -- 13 MR. SNELSON: -- with the energy part of -- 14 MR. MATTSON: You are going to go to the other 15 hearing -- AMPCO is going to ask that those special 16 rates be applicable to generation as well though. I 17 mean, that's your evidence. It's not just for this 18 Board that the transmission -- 19 MR. SNELSON: I don't know where one can go to 20 get special treatment of the commodity market of 21 generation. I believe that that will be sorted out 22 according to the market rules as the market runs by the 23 IMO. 24 MR. MATTSON: So before I go to the CTC issue 25 where you might be going for that, but -- 26 So the fact that this Board is here, that is 27 why you have chosen municipal transmission, because this 28 right currently is the only process you have to make Les Services StenoTran Services Inc. 613-521-0703 1696 AMPCO PANEL 1, cr-ex (Mattson) 1 your case to get the special rates continued. Is that 2 fair? That's why you're here. 3 MR. SNELSON: No, that's not fair. 4 MR. MATTSON: Are you going to go and ask that 5 the CTC issues -- are you going to go to the Ministry of 6 Finance and ask that some of those issues be dealt with 7 in the future, such as Imperial and Amoco said Friday 8 they were going to? 9 MR. SNELSON: You can talk to the individual 10 surplus power customers about their intentions of 11 seeking an exemption from CTC, but that is an entirely 12 separate process. 13 This is a process about transmission rates and 14 we are here to talk about the appropriate treatment of 15 the transmission rates for surplus power customers when 16 we are talking about the surplus power issue. 17 MR. MATTSON: Mr. Snelson, you have also put 18 forward this this morning, you have talked about how you 19 need -- this is a transitional process you said to my 20 friend Mr. Janigan, it's transitional. You need more 21 time. 22 Mr. Snelson, you are very well aware that the 23 Board at HR-24, which was 1996, said the transition is 24 up -- or should be up in 1999. You know that, right? 25 You have read the decision. 26 MR. SNELSON: I have read the decisions. I 27 don't remember all the details. 28 I do recall the general impression that the Les Services StenoTran Services Inc. 613-521-0703 1697 AMPCO PANEL 1, cr-ex (Mattson) 1 surplus in generation was only of a limited duration, 2 but there was talk that it might last until 2008, as I 3 recall. 4 There was also talk that the surplus power 5 rate was effectively self-limiting in the sense that if 6 the surplus in generation was no longer there then 7 incremental generation costs would rise -- and that is 8 what the surplus power customers were paying -- the 9 incremental generation costs would rise such that the 10 surplus power rate would be no advantage. 11 MR. MATTSON: Was this talk that was taking 12 place like down at the coffee shop? 13 MR. SNELSON: No, I believe -- 14 MR. MATTSON: I asked you specifically about 15 the decision of HR-24. They said no rate, no deal, no 16 special rate extending beyond 1999. There wasn't one 17 rate that the Board indicated -- 18 MR. SNELSON: I haven't -- 19 MR. MATTSON: -- to your client group that 20 should be extended beyond 1999. That's my question. 21 Is there any rate that the Board at HR-24 said 22 to you should be extended beyond 1999? 23 MR. SNELSON: You have the record in front of 24 you and I haven't, so -- 25 MR. MATTSON: So you didn't read it? 26 MR. SNELSON: Well, sure. I read a lot of 27 things over time, like Mr. Lemay. 28 MR. MATTSON: Okay. Les Services StenoTran Services Inc. 613-521-0703 1698 AMPCO PANEL 1, cr-ex (Mattson) 1 MR. SNELSON: I don't recall everything I have 2 read in the last 10 years. 3 MR. MATTSON: Is AMPCO saying that they are 4 somehow surprised by the restructuring and the proposal 5 being brought forward by OHNC now to try and recover 6 some of these embedded costs to gross load billings? 7 Does that surprise your customers? Do you need more 8 time now? Is this a surprise? 9 MR. SNELSON: I think that if you go back to 10 expectations in the 1990s, when a competitive market was 11 being first mooted in Ontario, there was no discussion 12 that I am aware of at that time of gross load billing 13 for embedded generation. 14 MR. MATTSON: No. But they specifically said 15 that they would have to deal in the restructuring with 16 embedded costs, Mr. Snelson. You know that. And that 17 is the basis for the proposal for gross load billing. 18 You know that. 19 If we look at the last words of the Board in 20 HR-24, we note that the evidence of why gross load 21 billing is coming forward is to deal with these embedded 22 costs. You are not surprised that the proposal came 23 forward now in the year 2000. You knew as far back as 24 1996 that there would be proposals that would deal with 25 these embedded costs; fair? 26 MR. SNELSON: I think we are confusing two 27 very separate things. We are confusing the net versus 28 gross load billing debate with the debate about how to Les Services StenoTran Services Inc. 613-521-0703 1699 AMPCO PANEL 1, cr-ex (Mattson) 1 treat special rates in the new marketplace. 2 The embedded costs that everybody was 3 concerned about in the 1990s were the above market costs 4 of Ontario Hydro generation. 5 MR. MATTSON: In this hearing what are they 6 worried about with respect to gross load billing? 7 Aren't they worried with respect to embedded costs of 8 the transmission system? Isn't that what we are talking 9 about? 10 MR. SNELSON: You keep coming back to Board 11 decisions that were made in the 1990s. If you want to 12 pose your question about those proceedings, then, to the 13 best of my recollection, I will deal with them. But if 14 you want to deal with what is being dealt with in this 15 proceeding, then yes, we will deal with that. 16 MR. MATTSON: What I read to you at the 17 beginning said unbundled rates, which we have; effective 18 public review of load retention applications, which we 19 have; and dealing with the issue of stranded assets, 20 which I suggest to you the gross load billing in this 21 hearing is trying to deal with in an effective way with 22 respect to transmission systems. 23 That is what we are dealing with, is it not? 24 MR. SNELSON: I do not accept that the 25 stranded assets which were being dealt with in that 26 decision were stranded transmission assets. My belief 27 is that they were stranded generation assets that people 28 were concerned about. Les Services StenoTran Services Inc. 613-521-0703 1700 AMPCO PANEL 1, cr-ex (Mattson) 1 THE PRESIDING MEMBER: I think we have been 2 around that one several times, Mr. Mattson. The 3 witnesses do not agree. They are focusing on the 4 generation assets and surplus at that time. 5 MR. MATTSON: Thank you, Dr. Higgin. I 6 appreciate that. It is just the link that what we have 7 here is a group coming forward with evidence to you 8 saying it is the lack of competition in the generation 9 system that is causing them to come before you and ask 10 you for these special rates in the transmission system. 11 That is clear from the record. 12 Although we are dealing with old bundled 13 rates, now that they are unbundled -- I will have just 14 one more try with Mr. Snelson. 15 Are you suggesting that there are no embedded 16 costs that Ontario Hydro Networks Company's proposal, or 17 OPGI's proposal, or any proposal with respect to gross 18 load billings, there are no embedded costs that that 19 gross load billing proposal is trying to recover? 20 MR. SNELSON: This procedure is about 21 recovering Ontario Hydro's revenue requirement. And 22 that total is a sum of money that is being fixed at this 23 point in time. 24 I don't understand the rest of your question 25 at the moment. Perhaps you will have to repeat it. 26 MR. MATTSON: No. I think I have asked it 27 enough times. 28 As advice to the Board with respect to the Les Services StenoTran Services Inc. 613-521-0703 1701 AMPCO PANEL 1, cr-ex (Mattson) 1 surplus power rates, who does AMPCO propose should pay 2 for the continued subsidization of those surplus power 3 rate customers? Who should pay for those transitional 4 rates, as you call them, that extend out an extra ten 5 years? 6 MR. SNELSON: I don't accept that it is a 7 subsidy. 8 MR. MATTSON: Not subsidy, but who should pay 9 for the cost shifting that would occur? 10 MR. SNELSON: To the extent that surplus power 11 customers pay for transmission service, that they would 12 pay more for transmission service than they were 13 previously providing, then that tends to reduce the 14 costs to other customers. 15 MR. MATTSON: Your speculation that there may 16 be this reduced cost to other customers because you are 17 getting a cheap rate -- and it may not be speculation; 18 it may be some sort of common sense there. But the fact 19 is that if you keep with these surplus power rates for 20 another ten years, you are getting a better deal than 21 the other customers are getting with respect to that 22 surplus power that is available out there to everybody. 23 I am suggesting that it is available to 24 everybody right now, and you are just one group, one 25 customer group who is coming asking for the surplus 26 power rates. In fact, you may be the only one. 27 You are here asking for the surplus power 28 rates. Who should pay for them? Les Services StenoTran Services Inc. 613-521-0703 1702 AMPCO PANEL 1, cr-ex (Mattson) 1 MR. SNELSON: First of all, we are only 2 talking about the transmission component. 3 THE PRESIDING MEMBER: The transmission 4 component only. 5 MR. MATTSON: The transmission component of 6 it, correct. 7 MR. SNELSON: And the transmission component 8 we are talking about phasing in to full transmission 9 rates over a reasonable transition period. 10 MR. MATTSON: Who should pay for that? 11 MR. SNELSON: The surplus power customers are 12 paying for that. 13 MR. MATTSON: Who should pay for the 14 transition of allowing you to have these surplus power 15 rates for the transmission system for the next ten 16 years? Should it be just the other customers, the 17 non-participating customers? 18 MR. SNELSON: The point you want to get to -- 19 and I don't want to be obtuse. But the point you want 20 to get to is that if those surplus power customers were 21 to be there and were to pay full transmission rates, 22 then there would be one level of rate. 23 MR. MATTSON: One lower rate. 24 MR. SNELSON: Clearly if they are there and 25 they pay less, then there are lower rates. That is 26 simple arithmetic. 27 We are talking about -- you can always change 28 the cost shifting according to what you consider to the Les Services StenoTran Services Inc. 613-521-0703 1703 AMPCO PANEL 1, cr-ex (Mattson) 1 base. 2 THE PRESIDING MEMBER: It depends whether the 3 glass is half empty or half full. 4 MR. MATTSON: I should recognize that, 5 Mr. Chairman; I agree. 6 Could you just give me a moment. I don't 7 think I a will have many more questions, Mr. Chairman. 8 Are we taking lunch at one o'clock? 9 THE PRESIDING MEMBER: Yes, we are taking 10 lunch. So perhaps you could look it over. 11 MR. MATTSON: Yes. I might only have a couple 12 more and then we can move on; thank you. 13 THE PRESIDING MEMBER: We will have to keep 14 the lunch hour fairly tight, because we have a long way 15 to go with this panel today. 16 I will have to make it an hour. I usually try 17 to go more than that, but we will try for an hour. We 18 will be back at two o'clock. 19 Thank you. 20 --- Upon recessing at 1249 21 --- Upon resuming at 1405 22 THE PRESIDING MEMBER: Please be seated. 23 MR. POCH: Mr. Chairman, I just want to 24 indicate, I have no questions of AMPCO' panel. I 25 understand there is at least a couple -- more than two 26 hours of cross left on this panel, plus two other 27 panels. On that assumption that we won't reach OPGI, I 28 will be withdrawing, if that is a safe assumption, Les Services StenoTran Services Inc. 613-521-0703 1704 AMPCO PANEL 1 1 Mr. Chair. 2 THE PRESIDING MEMBER: It is not in my hands. 3 Mr. Fisher, do you have any views, at least 4 what is in your control, in terms of your next two 5 panels and your in-chief? Do you have a response there? 6 MR. FISHER: Mr. Chair, what I was going to 7 mention to you is that my witnesses are not available 8 for tomorrow. As a result, it will be best if we can 9 finish today -- if we had to go past five o'clock, I'm 10 not sure what you want to do about that -- otherwise it 11 would be requiring another day to schedule the witness 12 panel. I expect that evidence-in-chief for the other 13 two panels will take about 15 minutes each. 14 THE PRESIDING MEMBER: So we may, then, get 15 through these panels today. I think there is a chance, 16 there, Mr. Poch, but it is unlikely we would start 17 anything else. That would be my -- 18 MR. POCH: Thank you, Mr. Chairman. 19 MR. CAMPBELL: Mr. Chairman, people again are 20 trying to follow times and so I can be sure that I am 21 correct in my assumptions for the schedule, can I be 22 confident that Mr. Osborne would proceed at nine o'clock 23 in any event? 24 THE PRESIDING MEMBER: I think that is what we 25 will have to do if he is not available any other time. 26 MR. CAMPBELL: Thank you, Mr. Chair. 27 THE PRESIDING MEMBER: So we will resume and 28 see how far we get, then. Les Services StenoTran Services Inc. 613-521-0703 1705 AMPCO PANEL 1 1 Mr. Mattson, would you like to start again? 2 MR. MATTSON: Yes, Mr. Chairman. 3 I think I probably chewed on this bone long 4 enough, but technically, while my client may require to 5 challenge some of the evidence in order to support its 6 argument -- 7 THE PRESIDING MEMBER: Well, argument is 8 for -- 9 MR. MATTSON: Right. Except that, 10 technically, when the evidence goes in, if you don't 11 challenge it it is pretty hard to argue against them at 12 that point. 13 However, I should put on the record, and if 14 there isn't any difficulty with this, Mr. Chairman, that 15 certainly for the purposes of argument we will be able 16 to quote from past decisions of the OEB and the public 17 record from those decisions. 18 Secondly, as this is the first panel really 19 that has brought into issue the role of the Ontario 20 Energy Board in setting rates, transmission rates, and 21 what your appropriate role is in this matter as it deals 22 with economic development or jobs or energy efficiency, 23 I certainly wish to address that in argument as well. 24 I don't need really to go further at this time 25 with this questioning, but I certainly, Mr. Chairman, 26 note that, as they have come up and I have 27 cross-examined on them, I think that it should be noted 28 that we wish to argue those issues in this proceeding. Les Services StenoTran Services Inc. 613-521-0703 1706 AMPCO PANEL 1 1 They are not on the issues list but it has 2 come up in the course of this panel, certainly their 3 view of what your role is in setting these rates as 4 justification for what they are asking to come forward. 5 I don't think I need to ask any more 6 questions, but I did want to let you know that 7 ultimately we will be arguing those issues as they have 8 come up on the record. I have challenged them at this 9 point and I don't need to argue them any more with the 10 witness panel, is what I am trying to say. 11 THE PRESIDING MEMBER: I will just have a 12 discussion here with my colleagues. 13 --- Pause 14 THE PRESIDING MEMBER: We don't have any 15 problem with, as long as relevancy of course is always 16 there, bringing back some of the Board's prior decisions 17 or, you know, giving your own interpretation on some of 18 the objects and so on of the Act. Those type of things 19 I think are all fair game. They obviously in the 20 ultimate have to lead to what the thing is before the 21 Board in terms of what we have to decide, but, yes, we 22 have no problem with that. 23 MR. MATTSON: Thank you, Dr. Higgin. 24 I just have one question, then, to finish off 25 with, for Mr. Snelson. 26 CONTINUED CROSS-EXAMINATION 27 MR. MATTSON: After going over things, 28 Mr. Snelson, do you accept that any potentially stranded Les Services StenoTran Services Inc. 613-521-0703 1707 AMPCO PANEL 1, cr-ex (Mattson) 1 costs might be included in OHNC's revenue requirements? 2 MR. SNELSON: I'm not quite sure which 3 potentially stranded cost you might be referring to. It 4 is a very general question. 5 MR. MATTSON: Do you accept that there are any 6 potentially stranded costs that might be included in 7 OHNC's revenue requirements? 8 MR. SNELSON: There might somewhere be -- 9 somewhere or another in OHNC's system at this point in 10 time might be some underutilized assets, if that is what 11 you are referring. No, I can't give you an assertion 12 that there are no stranded costs or no underutilized 13 assets on the OHNC system. 14 MR. MATTSON: Thank you. 15 THE PRESIDING MEMBER: Thank you, Mr. Mattson. 16 Mr. Mark, do you have some questions, sir? 17 MR. MARK: Yes, I do, Mr. Chair. Thank you. 18 CROSS-EXAMINATION 19 MR. MARK: Mr. Goldsmith, if I could just 20 start with you, please, sir. 21 By the way, I represent the Municipal Electric 22 Association. 23 Towards the end of my friend Mr. Mattson's 24 cross-examination you gave what I think was the 25 justification at the end of the day for your preference 26 for net load billing. My note says that you saw that as 27 encouraging new generation which would benefit all 28 customers by reducing costs. Is that the essence of Les Services StenoTran Services Inc. 613-521-0703 1708 AMPCO PANEL 1, cr-ex (Mark) 1 your support for net load billing? 2 MR. GOLDSMITH: That along with the 3 continuation of current practice, yes. 4 MR. MARK: With respect to the benefit to all 5 customers by reducing costs, is that because you believe 6 this net load billing will induce lower cost generation, 7 in other words, generation that is competitive vis-…-vis 8 OPGI? 9 MR. GOLDSMITH: It is our belief that the 10 continuation of the net load billing regime will 11 encourage more generation projects to go ahead, which 12 will create more competition on the system sooner rather 13 than later. 14 MR. MARK: So your support for it doesn't 15 depend on a determination of whether the induced 16 generation is lower cost generation. Am I correct? 17 MR. GOLDSMITH: That's correct, because if the 18 generation is higher cost under the way the market will 19 operate it wouldn't run anyway. So it is not likely 20 that would get built. 21 MR. MARK: Isn't this the very issue that the 22 MDC dealt with, sir, in particular, to the extent you 23 have generation which might not proceed just on a 24 straight generation cost comparison with OPGI, what net 25 load billing does is it may induce that generation by 26 permitting the parties to that arrangement to avoid the 27 transmission costs? 28 MR. GOLDSMITH: I guess I'm not sure what you Les Services StenoTran Services Inc. 613-521-0703 1709 AMPCO PANEL 1, cr-ex (Mark) 1 mean by "the MDC dealt with it". 2 MR. MARK: You were on the MDC, sir, were you 3 not? 4 MR. GOLDSMITH: Yes, I was. 5 MR. MARK: You are aware that the MDC made a 6 very strong recommendation for a gross load billing for 7 new embedded generation? 8 MR. GOLDSMITH: I'm aware that the MDC made a 9 recommendation in favour of gross load billing. I'm not 10 sure I would characterize it as a very strong one, but 11 it was certainly a recommendation. 12 I'm also aware of the discussions that went 13 into making that recommendation. 14 I guess, Mr. Chairman, I'm in a bit of a 15 difficult position because one of the undertakings we 16 agreed to at the beginning of the Market Design 17 Committee deliberations was not to bring out the 18 discussions within the MDC in public. 19 MR. MARK: I'm interested in the conclusions 20 of the MDC, sir. 21 MR. GOLDSMITH: Well, certainly the conclusion 22 was in favour of gross load billing. 23 MR. MARK: And the rationale expressed in 24 their published document was precisely the issue that, 25 what net load billing might do is induce uneconomic 26 generation by the bypassing of transmission costs. 27 Correct? 28 MR. GOLDSMITH: That was an issue that was Les Services StenoTran Services Inc. 613-521-0703 1710 AMPCO PANEL 1, cr-ex (Mark) 1 described. Yes. 2 MR. MARK: And am I correct that to the extent 3 that the generation induced is not lower cost 4 generation, the non-participating customers actually get 5 it two ways. Number one, they don't get lower cost 6 generation in the system and, secondly, they have to pay 7 the higher transmission costs resulting from the bypass. 8 Correct? 9 MR. GOLDSMITH: You are assuming in that 10 question that the generation will actually run. 11 MR. MARK: Yes. I am assuming if you build 12 it, it's to run it. 13 MR. GOLDSMITH: I understand, however, 14 generation which is built and sold into the market will 15 not run if it's not competitive with the otherwise 16 marginal unit. Therefore, it's not likely that 17 generation would be built at it's higher cost than the 18 otherwise marginal unit, unless there is a shortage of 19 generation which at this point there is not. 20 MR. MARK: Then how is it, sir, that AMPCO 21 states in its evidence, if my recollection is correct, 22 that net load billing, in other words, taking off the 23 burden of transmission costs, will make projects which 24 would otherwise not have been economic? Either you can 25 compete on generation costs or you can't. 26 MR. GOLDSMITH: I guess I'm not sure what the 27 question is. 28 MR. MARK: Well, isn't that your evidence, Les Services StenoTran Services Inc. 613-521-0703 1711 AMPCO PANEL 1, cr-ex (Mark) 1 sir? Isn't it right in AMPCO's filed evidence that this 2 proposal of net load billing, of removing the burden of 3 transmission costs, will make projects which would 4 otherwise have been uneconomic economic? 5 MR. GOLDSMITH: On a straight energy cost 6 basis, yes. 7 MR. MARK: Similarly, Mr. Goldsmith, from a 8 system point of view, does AMPCO see any reason to 9 prefer embedded generation over merchant generation? 10 MR. GOLDSMITH: I'm not sure I would 11 understand the distinction. I understand the definition 12 of distinction, but I'm not sure I understand the 13 distinction in the context of the question. 14 MR. MARK: In the context of your evidence, 15 you understand, sir, that your net load billing proposal 16 advantages embedded generation and disadvantages 17 merchant generation. Do you understand that, sir? 18 MR. SNELSON: I don't think it's quite as 19 clear cut as that, Mr. Mark. One of the things that 20 you -- if you examine some of the projects that are 21 being proposed, many of the projects have both an 22 embedded and a merchant component in the same project. 23 The embedded project helps to provide some financial 24 stability, some commercial assurance to the generator, 25 the one he is considering adding to his project in the 26 system. 27 MR. MARK: But comparing apples to apples, if 28 you have like sized units of similar production Les Services StenoTran Services Inc. 613-521-0703 1712 AMPCO PANEL 1, cr-ex (Mark) 1 characteristics, your net load billing proposal 2 advantages the generator that is embedded relative to 3 the generation that is not. Correct? 4 MR. SNELSON: If you were to accept the like 5 sized assumption, yes. There are also -- many of the 6 embedded options have cogeneration opportunities 7 available to them. 8 MR. MARK: My question is -- accept that 9 assumption. I understand we can get into innumerable 10 permutations and combinations, but do you not accept, 11 Mr. Snelson, that as a basic principle, one of the 12 features of your proposal is that it advantages embedded 13 generation relative to merchant generation? 14 MR. SNELSON: Embedded generation, the load 15 that is supplied from embedded generation, will not have 16 to pay for the transmission rate, for the transmission 17 service that it doesn't receive. If you consider that 18 an advantage, yes. 19 MR. MARK: And would you agree with me, Mr. 20 Snelson, that from a system point of view, again 21 assuming like generators, from a system point of view 22 they provide the same benefits to the system? 23 MR. SNELSON: In terms of total quantity of 24 generation, yes. Their location almost by your 25 definition is different. 26 MR. MARK: Well, assuming the benefit you want 27 is localized generation and you have two plants that 28 both provide localized generation, one is hooked up to a Les Services StenoTran Services Inc. 613-521-0703 1713 AMPCO PANEL 1, cr-ex (Mark) 1 customer and is embedded, the other hooks up to a line, 2 they both provide the same transmission benefits as well 3 as generation benefits. Correct? 4 MR. SNELSON: In that particular case, yes. 5 MR. MARK: And under your net load billing 6 proposal, as I understand it, Mr. Snelson, in the case 7 of the embedded generator, the benefits of the reduced 8 transmission costs of locally siting the plant go to the 9 generator and the host whereas in the merchant example, 10 those benefits are shared amongst all the customers. 11 Correct? 12 MR. SNELSON: If they are located on the same 13 point on the transmission system, then I believe you are 14 correct. 15 MR. MARK: Now, Mr. Lemay, I also made some 16 notes of your evidence. As I understand what you have 17 had to tell us on the gross versus net issue is you want 18 on a going forward basis -- pardon me, let me rephrase 19 it. 20 Your complaint is that the proposal for gross 21 load billing for new generation represents a change from 22 the way your generation has been treated for the last 95 23 years. 24 MR. LEMAY: I don't think, Mr. Chairman, I 25 would characterize it as a complaint. I noted that the 26 practice had been for the last 95 years net load billing 27 and I also noted that net load billing, even though we 28 had no plans to make any change to our generation, we Les Services StenoTran Services Inc. 613-521-0703 1714 AMPCO PANEL 1, cr-ex (Mark) 1 would end up paying more for transmission, but I viewed 2 that as advantageous because it would encourage more 3 merchant plants that would have more embedded 4 generators. It would hopefully have some excess 5 capacity that would provide competition for OPGI. 6 MR. MARK: Excuse my use of the word 7 "complaint" and maybe I misinterpreted what you had to 8 say. As I understand your evidence, Mr. Lemay, one of 9 the rationales you advance in support of the net billing 10 proposal is that the gross load billing proposal 11 represents a change from the way your generation has 12 been treated for the last 95 years. Does that better 13 reflect your evidence, sir? 14 MR. LEMAY: I said that in my evidence. I'm 15 not sure it was rationale. I think the real rationale 16 is the effect it will have on competition. 17 MR. MARK: Well, then help me, Mr. Lemay. 18 Separate what's essential here from what's not essential 19 here. Can we forget about the argument that is oft 20 advanced by the proponents of the net load billing, 21 which is the consistency with the treatment for the past 22 95 years? Help me with this. Is it an issue or is it 23 not an issue? 24 MR. LEMAY: I think it certainly is a 25 consideration, what the past practice in the system has 26 been and what the practice would have been if we 27 wouldn't have had a competitive market development. 28 MR. MARK: You understand, Mr. Lemay, that Les Services StenoTran Services Inc. 613-521-0703 1715 AMPCO PANEL 1, cr-ex (Mark) 1 even under the gross billing proposal, the generation 2 which was put in place over the last 95 years will 3 continue to be billed on a net load basis? 4 MR. LEMAY: Yes. I understand that. 5 MR. MARK: And does that not, sir, 6 sufficiently address the concern about a change in the 7 rules? 8 MR. LEMAY: No. It doesn't address my 9 competitive concerns at all. 10 MR. MARK: And the competitive concern, is 11 that because a customer who built before 1998 may get an 12 advantage over you? 13 MR. LEMAY: No. My concern is in getting 14 competition in the marketplace and getting alternatives 15 to OPGI as soon as we can. 16 MR. MARK: All right. So you are not 17 concerned then with the issue of whether one of your 18 competitors happened to have existing generation, 19 whether that gives him an advantage over you because you 20 will build your generation after 1998. That's not one 21 of the issues you are putting forward. 22 MR. LEMAY: Yes. Could you repeat the 23 question because I think you had two things mixed up 24 there and I didn't really understand it. 25 MR. MARK: And I may have misunderstood your 26 evidence, sir, and correct me if I'm wrong, please, if 27 it's my misunderstanding, but I had thought what you 28 meant in your evidence about competitive advantage was Les Services StenoTran Services Inc. 613-521-0703 1716 AMPCO PANEL 1, cr-ex (Mark) 1 that you didn't think it was fair that one of your 2 business competitors who installed generation prior to 3 1998 should get a different billing treatment for that 4 generation compared with generation that you may install 5 subsequent to 1998. 6 MR. LEMAY: No, I don't think I addressed what 7 competitors did previously at all, and I also said we 8 had no plans right now to install additional generation. 9 MR. MARK: That's fine. Thank you for that 10 clarification. 11 Mr. Lemay, while I still have you, on the 12 subject of surplus power, you understand, sir, I take 13 it, that the surplus power contracts did have a limited 14 life? 15 MR. LEMAY: I think that's question better 16 addressed to the surplus power panel, Mr. Chairman. 17 MR. MARK: Here's my problem, Mr. Lemay. You 18 guys have dealt with it. Now, you have come and you 19 have given evidence as the AMPCO panel about your 20 position on surplus power and you have advocated for 21 certain relief with respect to those customers. I would 22 like to ask you some questions regarding your 23 understanding of those arrangements and your expressed 24 rationale. 25 Now, if you want to withdraw your testimony on 26 it I would be happy to do that, but we have got to do it 27 one way or the other. 28 MR. LEMAY: Yes. If he is asking the question Les Services StenoTran Services Inc. 613-521-0703 1717 AMPCO PANEL 1, cr-ex (Mark) 1 on that basis, Mr. Chairman, that's fine. 2 MR. MARK: Hold on. Mr. Lemay, are you 3 saying, sir, you have no understanding that the surplus 4 power contracts were of limited duration and indeed by 5 design were intended to be temporary for the period of 6 generation surplus? 7 MR. SNELSON: Mr. Mark, I believe -- 8 MR. MARK: I'm sorry, Mr. Snelson, -- 9 MR. SNELSON: But I think I answered the 10 question this morning. 11 MR. MARK: I want Mr. Lemay to answer the 12 question. 13 MR. LEMAY: I think Mr. Snelson referred to in 14 some cases thinking the contracts might go out as far as 15 2008, if I remember his answer. 16 MR. MARK: Assume with me, Mr. Lemay, as the 17 evidence is that none of these contracts have a life 18 beyond 2002 -- in other words, that the industry's who 19 entered into these contracts agreed to a termination of 20 the rate in the year 2002. As a businessman, sir, do 21 you see any reason why the benefit of those contracts 22 which were enjoyed prior to 2002 should be enjoyed 23 beyond 2002? 24 MR. LEMAY: My understanding from discussions 25 with some of the surplus contract holders, and I think 26 it's still better addressed by them, but I will give you 27 my understanding, Mr. Chairman, was that those contracts 28 were for five years and had an annual rollover provision Les Services StenoTran Services Inc. 613-521-0703 1718 AMPCO PANEL 1, cr-ex (Mark) 1 which if they had been looked at last year would make 2 them another five-year period. 3 MR. MARK: But you understood, sir, did you 4 not, that the extension was not a unilateral one that 5 could be revoked by the customer. It had to be a 6 bilateral agreement to extend. You are aware of that, 7 aren't you, sir? 8 MR. LEMAY: No, I wasn't aware of that. 9 MR. MARK: Have you ever seen these contracts, 10 Mr. Lemay? 11 MR. LEMAY: No, I have not seen one of the 12 contracts. 13 MR. MARK: Before you came to this Board today 14 to give testimony on the subject of SPP did you inform 15 yourself from an SPP customer about those contracts and 16 the circumstances surrounding them? 17 MR. LEMAY: I have had general discussions 18 with them, yes, but -- 19 MR. MARK: You had no specific discussions 20 with anybody actually on that contract prior to offering 21 your views to the Board today? 22 MR. LEMAY: My view to the Board was on the 23 value of the rate and what it has done for the system, 24 not on the individual details of a specific contract. 25 MR. MARK: Mr. Snelson, let's go to you now. 26 Do you have a better understanding of the contracts? I 27 mean, who on this panel knows about these contracts? 28 MR. SNELSON: I have not read the surplus Les Services StenoTran Services Inc. 613-521-0703 1719 AMPCO PANEL 1, cr-ex (Mark) 1 power contracts, no. 2 MR. MARK: Mr. Goldsmith, have you? 3 MR. GOLDSMITH: I have discussed the issue 4 with surplus power customers and my understanding of the 5 termination provision is that the contract automatically 6 rolls over at the end of the initial five-year term for 7 subsequent one-year terms unless terminated by either 8 party prior to the ending of one of those terms. 9 MR. MARK: In other words, you need bilateral 10 agreement to extend it? 11 MR. GOLDSMITH: Or, in other words, you need 12 neither party to want to terminate. 13 MR. MARK: Let's assume that somebody at 14 Ontario Hydro has these contracts diarized and they 15 actually deal with it at the end of the contract. Am I 16 correct, sir, that unless Ontario Hydro had wanted to 17 extend the contract that the SPP customers understood 18 that the rate was over. Is that fair? 19 MR. LEMAY: That is my understanding of it, 20 yes. 21 MR. MARK: And is it also fair to say, sir, 22 that everybody understood that the premise of the 23 surplus power rate was a surplus in generation capacity 24 and that after that surplus disappeared the rate was 25 going to disappear as well? 26 MR. LEMAY: Or in the event that the rate did 27 not disappear that because it is a marginal supply rate 28 that the absolute value of the rate would go up to a Les Services StenoTran Services Inc. 613-521-0703 1720 AMPCO PANEL 1, cr-ex (Mark) 1 point where it had no more value to the customer. 2 MR. MARK: It might be self-liquidating 3 because the costs because of the constraints on the 4 system would achieve what could be achieved by the 5 parties just saying that's it. 6 MR. LEMAY: That's correct. 7 MR. MARK: All right. The same result. 8 So even if we hadn't had restructuring, Mr. 9 Goldsmith, is it fair to say that these customers faced 10 return to standard firm rates for this power by 2002? 11 MR. GOLDSMITH: As one of the possibilities 12 that they could face at the end of the contract, yes. 13 MR. MARK: So the return to the same rates 14 that everybody else is paying doesn't result from 15 restructuring, Mr. Goldsmith. It results from the 16 limited nature of the term of the contract. Correct? 17 MR. GOLDSMITH: Well, only in part. In the 18 first instance, there is a question if there were not 19 restructuring whether there would continue to be a 20 generation surplus and that, of course, is something 21 they faced at any time, even within the term of the 22 contract. 23 MR. MARK: Right. 24 MR. GOLDSMITH: Going beyond that, they had a 25 reasonable expectation that, and really I am speaking 26 for the surplus customers and I am really speaking for 27 the surplus customers and I am really relating to the 28 Board what they have told me and they can tell you much Les Services StenoTran Services Inc. 613-521-0703 1721 AMPCO PANEL 1, cr-ex (Mark) 1 better themselves, I am sure. 2 But they had a reasonable expectation that 3 under the old regime that whatever forces led Ontario 4 Hydro to negotiate that rate with them at that time 5 would allow them to at least talk about some reasonable 6 accommodation whenever the rationale for the rate would 7 disappear. 8 The difference is that under restructuring 9 that opportunity is gone. The surplus power rate is, as 10 we have said so often this morning, a generation-based 11 rate working on the marginal cost of generation with a 12 few adders thrown in to cover transmission losses and 13 contributions to net income. 14 In the new market, on day one of the new 15 market, those surplus power customers, independent of 16 what this Board decides in terms of transmission rates, 17 those surplus customers will continue to pay the 18 marginal cost of transmission in the province, just like 19 everybody else in the province does and neither we nor 20 anyone else has asked for relief from that part of 21 reality. 22 So the only issue is whether those surplus 23 customers should immediately face the full impact of 24 paying the full transmission cost for a system which 25 they are not using when the system is heavily loaded, 26 any more than they were before market opening. 27 MR. MARK: Sorry, are you finished? I didn't 28 mean to cut you off. Les Services StenoTran Services Inc. 613-521-0703 1722 AMPCO PANEL 1, cr-ex (Mark) 1 MR. GOLDSMITH: Yes. 2 MR. MARK: So then, as I understand your 3 evidence, Mr. Goldsmith, your support for a transitioned 4 return to regular rates for these customers is premised 5 upon what you understand to have been their expectation 6 that even at the end of the contract period they would 7 be given some transition arrangement by Ontario Hydro. 8 Is that correct? 9 MR. GOLDSMITH: I don't believe I said that 10 they would be given anything at the end, only that they 11 had a reasonable expectation of being able to sit down 12 and discuss with Ontario Hydro other options. 13 MR. MARK: That's my point. Your support for 14 this transition period is really premised upon what 15 those customers are telling you, that is that they 16 expected that they would be able to sit down and 17 negotiate a transition arrangement. Correct? 18 MR. GOLDSMITH: No. You are drawing a 19 conclusion from two separate questions that I don't 20 think are related. 21 MR. MARK: Then I am having a little bit of 22 trouble understanding what it is you are telling me. 23 Are you saying you want to transition them and give them 24 financial relief because they have been denied the 25 opportunity to even sit down at the same table as Hydro 26 and discuss whether they could be given an 27 accommodation? Is that the wrong hear that we have from 28 restructuring? Les Services StenoTran Services Inc. 613-521-0703 1723 AMPCO PANEL 1, cr-ex (Mark) 1 MR. GOLDSMITH: What I am trying to say -- you 2 asked two different questions earlier. You asked what 3 was the expectation of those customers when they went 4 into the contract and then you asked what is the 5 rationale for the transition that we are proposing. I 6 answered the one question, but I didn't really address 7 the other. 8 As far as I'm concerned, the rational for the 9 transition is that these customers have not been using 10 assets of the transmission system -- they have been 11 using only idle assets of the transmission system. That 12 situation does not change when the new market opens, so 13 their impact on the system does not change from what it 14 has been for the past whatever number of years they have 15 been on that rate. 16 However, the market rules do not provide for 17 an interruptible transmission rate, which is essentially 18 what they have been working under up until now, even 19 though other markets do operate with interruptible rates 20 and there is nothing fundamentally wrong with that kind 21 of approach. 22 Therefore, as a compromise to having an 23 interruptible transmission rate, which isn't feasible in 24 the short term, AMPCO has proposed that these 25 customers -- in keeping with one of OHNC's own 26 principles in rate design, which is to avoid rate shock 27 on market opening -- has proposed that these rates be 28 phased in over the same period that competition is Les Services StenoTran Services Inc. 613-521-0703 1724 AMPCO PANEL 1, cr-ex (Mark) 1 phased into the new market. 2 MR. MARK: Well, you have raised -- and, in 3 fairness, I guess if I ask two question you can give two 4 answers, but let me try to separate out the two points 5 you are making. 6 Let me deal with the latter one first. 7 You raised the issue of rate shock. By that, 8 sir, do you mean again this unanticipated change in 9 cost? 10 MR. GOLDSMITH: I'm referring more to its 11 substance than its degree of anticipation. 12 MR. MARK: Well, assume -- make the assumption 13 that when these customers entered into the contracts it 14 was foreseeable that they would go back to standard 15 rates at the end of the contract. In that circumstance 16 should this Board be concerned with rate shock when it 17 was foreseeable regardless of the impact? 18 MR. GOLDSMITH: Only if this Board is 19 concerned with those portions of the Act which direct 20 the Board to deal with issues of jobs. 21 Because remember again that the surplus power 22 rate by its definition -- and its application as far as 23 I know -- applies only to incremental load, load that 24 would not be there other than for the fact that the rate 25 exists. Therefore, if that rate goes away for whatever 26 reason, whether it is the disappearance of the surplus 27 or the opening of the new market or some other 28 condition, or Ontario Hydro terminates the contract Les Services StenoTran Services Inc. 613-521-0703 1725 AMPCO PANEL 1, cr-ex (Mark) 1 under the notice provisions, then the presumption has to 2 be that those jobs which were created or preserved by 3 the surplus power rate will disappear. 4 MR. MARK: So you want to have this load 5 become very close to firm load for the next 10 years, 6 but you argue that it should get a benefit relative to 7 other customers because it has these economic benefits 8 associated with it. 9 Is that, in essence, what we have? 10 MR. GOLDSMITH: I don't understand how firm 11 load enters into this discussion. 12 MR. MARK: Well, you understand, sir, that 13 they are not going to be interruptible customers on a 14 going-forward basis. 15 MR. GOLDSMITH: They will be economically 16 interruptible. 17 MR. MARK: By whom? 18 MR. GOLDSMITH: By the market, in the sense 19 that if the marginal cost of electricity goes up, even 20 for the short term, even if it is for a couple of hours 21 in a day, those customers will be shutting down for 22 those few hours because it is no longer -- I'm assuming 23 this now based on what they have told me and really this 24 is something for them to speak to, but those customers 25 will be shutting down because it is no longer economical 26 for them to operate during those hours. 27 Which is the same premise that the surplus 28 rate is based on, that under the old regime Ontario Les Services StenoTran Services Inc. 613-521-0703 1726 AMPCO PANEL 1, cr-ex (Mark) 1 Hydro would, in anticipation of its generating costs 2 going up, whether because it has to start up another 3 marginal unit or it has to import power across an 4 intertie at a higher cost than what the rest of the 5 province is operating at, that it will cut those 6 customers before it would pay those higher costs. Those 7 customers will be self-interrupting on that same basis 8 just by the nature of the operation that caused them to 9 want the surplus rate to begin with. 10 MR. MARK: But you understand, sir, that 11 contractually or from a regulatory point of view OHNC 12 will have no power, authority or ability to terminate 13 service, to interrupt the transmission service. Do you 14 understand that? 15 MR. GOLDSMITH: Yes, I do. 16 MR. MARK: So what you are telling me is that 17 because these customers have an elastic demand they 18 will, in effect, be interruptible. Correct? 19 MR. GOLDSMITH: They will self-interrupt, yes. 20 MR. MARK: Is there any reason, sir, why we 21 should give this particular group of customers with an 22 elastic demand the preferential treatment you are 23 suggesting? Is it just because they happen to be SPP 24 customers today? 25 Is there any other difference between them and 26 other customers with elastic demand? 27 MR. GOLDSMITH: Only that the SPP customers 28 are -- again I go back to the definition of the rate -- Les Services StenoTran Services Inc. 613-521-0703 1727 AMPCO PANEL 1, cr-ex (Mark) 1 their load is incremental load that would not otherwise 2 be there other than for the existence of that rate. I 3 have to assume that the other elastic customers that you 4 refer to are loads that would be there independent of 5 the rate because they are. 6 MR. MARK: So you are making the assumption 7 that the class of customers who will be effectively 8 self-interrupting on a going-forward basis in the new 9 regime are the handful of customer who presently have 10 SPP contracts? 11 MR. GOLDSMITH: No. 12 MR. MARK: Now, the run-off period you want, 13 Mr. Goldsmith, am I correct, is 10 years? 14 MR. GOLDSMITH: Yes. 15 MR. MARK: I understand this duration of the 16 run-off period is being advocated because it reflects 17 the term of the Market Power Mitigation Agreement. Is 18 that correct? 19 MR. GOLDSMITH: Yes. 20 MR. MARK: So I take it the rationale, then, 21 is you want to use the transmission rates to compensate 22 for the less than perfect competition which we have in 23 generation? Is that correct? 24 MR. GOLDSMITH: What I'm saying is that these 25 customers are not paying transmission today and they 26 should assume the costs of transmission over the same 27 period as they are able to recover those costs from a 28 competitive market. Les Services StenoTran Services Inc. 613-521-0703 1728 AMPCO PANEL 1, cr-ex (Mark) 1 MR. MARK: I'm sorry, I didn't quite follow 2 that. Can you give me that one again? 3 MR. GOLDSMITH: These customers are not paying 4 transmission today, other than losses and their 5 contribution to net income, which is unallocated anyway, 6 and therefore they should assume those transmission 7 costs over the same period as they are able to deal with 8 them through a competitive generation market. 9 MR. MARK: In other words, you are linking the 10 transmission rates and benefits from generation. You 11 are saying we should be using the transmission rates to 12 compensate for the fact that there isn't perfect 13 competition yet in generation. 14 MR. GOLDSMITH: In this particular instance 15 where there is no interruptible transmission rate, yes. 16 MR. MARK: Do you think it is appropriate, as 17 a general rule, Mr. Goldsmith, to be saying to this 18 Board that they should be concerned about designing 19 transmission rates to achieve certain results and 20 consequences in the generation markets? Is that one of 21 the mandates they should take upon themselves? 22 MR. GOLDSMITH: That is in our direct 23 evidence, yes. 24 MR. MARK: Is that one of the philosophies 25 that I take it underlines your gross versus net billing 26 proposal as well, that we should be using 27 transmission -- the allocation of transmission costs 28 amongst customer groups to incent certain types of or Les Services StenoTran Services Inc. 613-521-0703 1729 AMPCO PANEL 1, cr-ex (Mark) 1 new generation? 2 MR. GOLDSMITH: Insofar as a cost shift occurs 3 because of that, yes. 4 MR. MARK: Insofar as the shifting of the 5 transmission cost occurs because of what? 6 MR. GOLDSMITH: I didn't say it that way. I 7 said -- 8 MR. MARK: I thought you did. 9 --- Pause 10 MR. GOLDSMITH: I'm sorry, do you want to give 11 that to me again, please? 12 MR. MARK: Yes. I mean, I had asked you if 13 you wanted this Board to take away from your evidence 14 the notion that they should be prepared to use the 15 allocation of transmission costs amongst customer groups 16 to effect certain results in the generation sector. 17 MR. GOLDSMITH: And I think what I said was 18 that insofar as -- let me step back a bit. 19 You seem to be making a direct assumption that 20 the continuation of net load billing will actually shift 21 costs to other customer groups. That is an assumption 22 which we don't accept. 23 MR. MARK: You don't accept the proposition 24 that net load billing will result in embedded system 25 costs being borne in different proportions than they 26 presently are by certain customers vis-…-vis other 27 customers? 28 MR. GOLDSMITH: Given that in the present Les Services StenoTran Services Inc. 613-521-0703 1730 AMPCO PANEL 1, cr-ex (Mark) 1 system we have net load billing, the answer is no. 2 MR. MARK: Certainly compared to the OHNC 3 proposal, I have taken from your evidence that one of 4 the things you are advocating is to prefer your net 5 billing proposal because it will have certain desirable 6 consequences in respect of generation. 7 MR. GOLDSMITH: Yes. 8 MR. MARK: Would you agree with me, 9 Mr. Goldsmith, that the problems associated with the 10 unfortunate -- and believe me, my client agrees with you 11 -- the unfortunate imperfection of competition we 12 presently see in the generation markets is an impact 13 that is borne by all customers, whether they have 14 opportunities for embedded generation development or 15 not? 16 MR. GOLDSMITH: Yes. But I would like to 17 clarify that the opportunities for embedded generation 18 are not restricted to industrial customers. Certainly 19 any municipal utility which wishes to build a generator 20 would have the same benefits from embedded generation 21 than an individual customer would. 22 MR. MARK: If that is allowed at that level. 23 I want to move briefly to the subject of the 24 line connection proposal. My note doesn't say who dealt 25 with it in-chief. Mr. Goldsmith is pointing to 26 Mr. Snelson. 27 MR. GOLDSMITH: I think it was he. 28 MR. MARK: Mr. Snelson, I want to make sure I Les Services StenoTran Services Inc. 613-521-0703 1731 AMPCO PANEL 1, cr-ex (Mark) 1 understand the definition. 2 As I understand it, under your definition, a 3 facility that serves more than one customer goes into 4 the network pool. Is that correct? 5 MR. SNELSON: That is correct. 6 MR. MARK: Once the facility goes into the 7 network pool, its cost will be distributed over all 8 transmission customers; correct? 9 MR. SNELSON: All transmission customers pay 10 the network rate; so yes, they will all pay. 11 MR. MARK: You don't subscribe to a definition 12 that Ontario Hydro Networks Company does, which is that 13 network facilities are the ones that serve all 14 customers. 15 MR. SNELSON: No. We have defined it the 16 other way around, by identifying connection facilities 17 with those servicing specific customers; and the 18 remainder, then, becomes network. 19 MR. MARK: Am I correct that under your 20 proposal, if we have a line that serves only two direct 21 customers, and only two direct customers, that cost will 22 move out of the line connection pool where it would be 23 under the OHNC proposal and into the network pool? 24 MR. SNELSON: Yes, it would, just as a line 25 that served two MEUs would be in the network pool. 26 MR. MARK: If we had a line which had the same 27 physical and connection characteristics of that line but 28 it served one LDC rather than two direct customers, it Les Services StenoTran Services Inc. 613-521-0703 1732 AMPCO PANEL 1, cr-ex (Mark) 1 would be in the line connection pool, not the network 2 pool. 3 MR. SNELSON: That is correct. 4 MR. MARK: As I understand it, Mr. Snelson, 5 your proposal reduces the number of direct customer 6 delivery points that are in the line connection pool 7 from 98 to 94. Is that correct? 8 MR. SNELSON: I don't think those numbers are 9 right. 10 MR. MARK: From 98 to four. 11 MR. SNELSON: I believe that is correct. 12 MR. MARK: I can't believe I made that 13 mistake. Lord forgive me. 14 The 94 delivery points that come out of the 15 pool are now going to be borne, under your proposal, by 16 all the transmission customers. 17 MR. SNELSON: The shared lines that they are 18 connected to, yes. 19 MR. MARK: The vast majority, as I understand 20 it, of the customers who will be left sharing the line 21 connection pool are large LDCs; correct? 22 MR. SNELSON: Perhaps we should check that. I 23 believe it is in one of the answers to interrogatories. 24 MR. MARK: Correct. I will turn it up in a 25 moment. 26 Your Exhibit E, Tab 2, Schedule 26 -- I am 27 told that there is a table which appears as Table 2-3, 28 at page 11 of your evidence. Les Services StenoTran Services Inc. 613-521-0703 1733 AMPCO PANEL 1, cr-ex (Mark) 1 MR. SNELSON: Which do you want me to look at, 2 Mr. Mark, Table 2-3 or the interrogatory? 3 MR. MARK: Let's look at Table 2-3, which I 4 understand is derived from the information in the 5 interrogatory. 6 It is at page 10 of your evidence; sorry. 7 MR. SNELSON: Maybe it is Table 2-2 that we 8 are looking at? 9 MR. MARK: I am told it is, yes; my mistake. 10 As I read that, under your definition, of the 11 MEU delivery points 34 are large LDCs and three are 12 medium size LDCs, and there are no small ones. Am I 13 reading that correctly? 14 MR. SNELSON: Are you looking at Table 2-2? 15 MR. MARK: Sorry, give me a moment. 16 --- Pause 17 MR. MARK: Let me try it this way -- and I 18 apologize, Mr. Chairman and Mr. Snelson. 19 Mr. Snelson, I would ask you to go to the 20 interrogatory response which I referred you to before, 21 Exhibit E, Tab 2, Schedule 26, page 2 of 2. 22 MR. SNELSON: I have that, yes. 23 MR. MARK: If you look at the bottom chart on 24 the page, "Service Pools on Delivery Point Basis Per 25 AMPCO Definition" -- 26 MR. SNELSON: I see that. 27 MR. MARK: You have one for direct, and the 28 one at the bottom is for -- we have directs and MEUs. I Les Services StenoTran Services Inc. 613-521-0703 1734 AMPCO PANEL 1, cr-ex (Mark) 1 am looking at the bottom one. 2 As I understand it, if you add up the second 3 column and the fourth column, you will get the total 4 number of MEU delivery points by size of utility that 5 are in the pool. 6 MR. SNELSON: I believe that is correct. This 7 is information provided by OHNC, based on our 8 definition. 9 MR. MARK: Just so we are working from the 10 same numbers, then, as I read this, as you define the 11 pool of the LDC delivery points, 34 would be the 12 delivery points of large LDCs; three delivery points 13 would be of medium LDCs; and there would be no delivery 14 points associated with small LDCs. 15 MR. SNELSON: That is how OHNC has calculated 16 it, yes. 17 MR. MARK: Is it fair to say, Mr. Snelson, 18 that whether or not an MEU's delivery point is in this 19 pool or the network pool seems to be related to size in 20 the sense that large utilities tend to use lines which 21 because of either their load or their geographic 22 location serve them only? 23 MR. SNELSON: That may be one reason for this 24 particular distribution, yes. 25 MR. MARK: Is there any other one that springs 26 to mind, other than, that is, the characteristics of the 27 usage or the size of the utility or the geographic scope 28 of the utility that is having this result? Les Services StenoTran Services Inc. 613-521-0703 1735 AMPCO PANEL 1, cr-ex (Mark) 1 MR. SNELSON: I haven't looked at the 2 particular utilities that are in this particular group, 3 so we are speculating from the result as to what would 4 cause it. 5 MR. MARK: One of the other gentlemen, I think 6 either Mr. Lemay or Mr. Goldsmith, spoke about how one 7 of the virtues of your definition was that it helped 8 move us toward a model where investment decisions 9 approximating those that would be made in the 10 marketplace will be made with respect to investment in 11 these assets. Gentlemen, can you help me? I believe it 12 was one of you. 13 Mr. Goldsmith, you are raising your hand. 14 Thank you. That is the view you expressed, sir? 15 MR. GOLDSMITH: Yes, it is. 16 MR. MARK: You support a regime therefore 17 whereby if a customer decides to exit the line 18 connection pool by building its own line that is 19 acceptable because that investment decision will be 20 based upon the market value of the line, of the services 21 required to build the line, versus what the cost of that 22 line is by staying in the pool? 23 MR. GOLDSMITH: Yes, although we did express 24 it not so much in terms of building a line to get out of 25 the pool as -- well, of course, with our definition, 26 narrow definition of "line connection" as buying that 27 line from the existing owner at net book value. 28 MR. MARK: I was going to get to the issue of Les Services StenoTran Services Inc. 613-521-0703 1736 AMPCO PANEL 1, cr-ex (Mark) 1 buying the line from the existing owner, but I had 2 rather understood one of the points of your evidence to 3 be that certainly looking over the longer term with 4 respect to new investment in line connections, one of 5 the virtues of this proposal is that it encouraged the 6 investment decisions and the new facilities to be made 7 on that basis, comparing market costs with the 8 alternative cost? 9 MR. GOLDSMITH: That is one of the virtues. 10 MR. MARK: Yet, if I understand your proposal 11 correctly, with respect to the investment decision not 12 whether to buy -- not, rather, to build but whether to 13 buy, you want the comparison to be made not on the basis 14 of market value but on the basis of OHNC's book value. 15 Is that correct? 16 MR. GOLDSMITH: Because there is no market 17 value per se to ascribe to it. 18 MR. MARK: Is the problem one of definition or 19 ascertainment of the market value or is it some other 20 principle at play here? 21 MR. GOLDSMITH: It is really one of 22 ascertainment but it is based on the principle that 23 there is no market for those assets. There is one buyer 24 and one seller. 25 MR. MARK: Have you considered the idea of 26 getting a third party to actually give you an opinion of 27 market value with respect to these assets as is done for 28 a whole host of other assets and commodities where there Les Services StenoTran Services Inc. 613-521-0703 1737 AMPCO PANEL 1, cr-ex (Mark) 1 are imperfect markets? 2 MR. GOLDSMITH: I would think that where you 3 could actually create an opinion, it would be one that 4 only had meaning if there was an alternative market for 5 those assets. For example, if they could be picked up 6 and moved somewhere, not that that is necessarily 7 practical but if that could be done, then perhaps you 8 could develop a simulation of a market value. 9 MR. MARK: Are you suggesting to me, 10 Mr. Goldsmith, that there are no consultants in North 11 America who can give you an estimate or opinion, a value 12 of the transmission connection facility? 13 MR. GOLDSMITH: I'm suggesting that no matter 14 who was to give the opinion, it would not have much 15 value in terms of determining a market value for 16 something for which there is no market. 17 MR. MARK: So you think that rather than 18 commissioning an opinion of market value from an expert 19 in the field we should just let you buy them at book 20 value. Do I have your evidence on that correct, sir? 21 MR. GOLDSMITH: Yes. 22 MR. MARK: Now, on the related question of 23 capital contribution that you refer to in your evidence, 24 I want to make sure I understand the point. You are 25 talking about the contribution that was made by 26 customers to the construction of facilities when they 27 were initially commissioned. Is that correct, 28 Mr. Snelson? Les Services StenoTran Services Inc. 613-521-0703 1738 AMPCO PANEL 1, cr-ex (Mark) 1 MR. SNELSON: One of the concerns expressed by 2 the AMPCO members is that many of them have made 3 substantial capital contributions to their own 4 connection facilities in the old regime, and Mr. Lemay 5 spoke in particular about that with respect to INCO. 6 MR. MARK: Those were the contributions, am I 7 correct, that Ontario Hydro took to mitigate the risk 8 that it would end up with a stranded transmission asset? 9 Correct? 10 MR. SNELSON: That could have been one of the 11 reasons that they would ask for a capital contribution. 12 MR. MARK: Wasn't that the primary principle 13 underlying it, that Ontario Hydro endeavour to make an 14 assessment of the risk that the customer's load would be 15 gone before the facility was paid for through charges 16 and therefore required a capital contribution to 17 mitigate the risk of having a stranded asset? Wasn't 18 that the fundamental basis for those contributions? 19 MR. SNELSON: That, I believe, was one of the 20 rationales that they would have used for a capital 21 contribution. 22 MR. MARK: So, Mr. Snelson, I take, then, that 23 AMPCO members understand that the old system was at 24 least, in some respects, based on the notion of direct 25 customers holding the system harmless regarding possible 26 stranded transmission cost. That is not a new concept 27 to the members of AMPCO? 28 MR. SNELSON: No. This relates mainly to Les Services StenoTran Services Inc. 613-521-0703 1739 AMPCO PANEL 1, cr-ex (Mark) 1 connection costs. This was addressed as part of the 2 considerations when the customer was connected to the 3 system. 4 MR. MARK: But that concept of holding Hydro 5 harmless for a possibly stranded cost, is certainly not 6 something that is new to the AMPCO members. 7 MR. SNELSON: That is not new, no. 8 MR. MARK: Mr. Lemay, I think you addressed in 9 your evidence as well the question of coincident and 10 non-coincident billing determinants. Correct? 11 MR. LEMAY: It was addressed in AMPCO's 12 evidence, yes. 13 MR. MARK: I had a note that you spoke to that 14 issue in your remarks to us in-chief today. If I'm 15 wrong accept my apologies and correct me, but I thought 16 you had addressed that. 17 MR. SNELSON: I believe that I gave most of 18 AMPCO's evidence in that regard. 19 MR. MARK: My question was not who gave most 20 of AMPCO's evidence. My question was whether Mr. Lemay 21 addressed it. 22 MR. LEMAY: I might have addressed it, but I 23 don't remember the particular reference, Mr. Chairman. 24 MR. MARK: You are familiar with AMPCO's 25 proposal with respect to coincident and non-coincident 26 billing, Mr. Lemay? 27 MR. LEMAY: Yes, I am. 28 MR. MARK: And you support it? Les Services StenoTran Services Inc. 613-521-0703 1740 AMPCO PANEL 1, cr-ex (Mark) 1 MR. LEMAY: Yes, I do. 2 MR. MARK: As I understand it, sir, you 3 justify the preference for coincident billing on the 4 basis that it lowers overall system costs. Is that 5 correct? 6 MR. LEMAY: That is one of the reasons. 7 MR. MARK: Just to help me, what is the other 8 reason? 9 MR. LEMAY: It is also, I think, going to be 10 much more administratively simple. If we have some kind 11 of non-coincident billing, there is going to be a very 12 big difficulty in people that can one day be IMO market 13 participants and then the next day not be IMO market 14 participants. 15 There is also a problem of how you flow the 16 charges through in any non-coincident system. There is 17 a great deal of judgment that has to go into it. The 18 coincident system there isn't. I think a coincident 19 system also reflects the costs that are caused on the 20 system. 21 MR. MARK: That last line, was that yet 22 another rationale or is that part of the administrative 23 simplicity rationale? 24 MR. LEMAY: That is part of the rationale that 25 it reflects the costs in the system. 26 MR. MARK: So this is a third reason, then? 27 MR. LEMAY: I haven't counted the reasons as 28 you have counted them necessarily, but it is a reason. Les Services StenoTran Services Inc. 613-521-0703 1741 AMPCO PANEL 1, cr-ex (Mark) 1 MR. MARK: I was just asking you to express 2 the reason, sir, and I was just trying to determine 3 whether the sentence you put at the end of your question 4 was part of the administrative simplicity rationale that 5 you started describing or whether it's a separate one. 6 I don't much care whether it's number four or five. I 7 just want to make sure I understand what you are telling 8 us. 9 MR. LEMAY: Was that a question? 10 MR. MARK: Yes. 11 MR. LEMAY: Okay. Its rationale. 12 MR. MARK: And are there any others or have we 13 not identified all of them? 14 MR. LEMAY: There could be others. Those are 15 what come to my mind right now. 16 MR. GOLDSMITH: Mr. Mark, I believe I am the 17 one who addressed it actually. The main rationale that 18 I did say in direct was that other than the issues that 19 Mr. Snelson brought up was the fact that it recognizes 20 the very real diversity benefits of certain customers to 21 the system. 22 MR. MARK: And by diversity benefits, do you 23 mean the benefit of getting lower costs because of the 24 diversity of the customer's loads? 25 MR. GOLDSMITH: What I mean is that the 26 system, the impact on system costs is lower because of 27 the diversity of customer loads and this recognizes that 28 diversity in ascribing those costs to specific Les Services StenoTran Services Inc. 613-521-0703 1742 AMPCO PANEL 1, cr-ex (Mark) 1 customers. 2 MR. MARK: You say the system costs are lower 3 because of the diversity. 4 MR. GOLDSMITH: I guess what I'm trying to say 5 is that under a coincident peaking methodology, the 6 system costs are divided among customers according to 7 their impact on the system and under non-coincident 8 peaking, customers are billed for more than their impact 9 on the system. Therefore, the total billing, unless 10 the -- the rate then becomes a function of the number of 11 customers rather than a function of the system cost. 12 MR. MARK: Are you now saying that it's the 13 preferred system because of the way it reflects the 14 causation of the embedded costs or is it the preferred 15 system because it will induce certain behaviours which 16 will minimize costs on a going forward basis? 17 MR. GOLDSMITH: It does both of those things. 18 MR. MARK: Now, with respect to the 19 minimization of costs on a going forward basis, have you 20 reviewed the evidence in this hearing, Mr. Goldsmith, on 21 what those costs, if any, are? Are you familiar with 22 the evidence? 23 MR. GOLDSMITH: I'm not directly familiar with 24 it, no. 25 MR. MARK: Has AMPCO undertaken any of its own 26 estimation of the system benefits, if any, from inducing 27 customers from using the coincident peak method? 28 MR. GOLDSMITH: Our recommendation of that Les Services StenoTran Services Inc. 613-521-0703 1743 AMPCO PANEL 1, cr-ex (Mark) 1 principle goes not to defining a specific set of 2 benefits or quantifying a specific set of benefits, but 3 rather to inducing appropriate behaviour on the part of 4 customers which will tend to minimize costs over the 5 long term. 6 MR. MARK: I take it you are aware, Mr. 7 Goldsmith, that vis-…-vis the costs that are already 8 sunk and embedded, future behaviour is not going to 9 change those costs. They are what they are. Correct? 10 MR. GOLDSMITH: Well, only insofar as the 11 system is not fully loaded at its peak. In other words, 12 if the system basically has surplus capacity at all 13 times, then influencing behaviour appropriately does not 14 affect system costs. 15 However, if the system is built to handle its 16 peak conditions and if the peak is real, in other words, 17 the system runs out of capacity at some point, then 18 inducing appropriate behaviour on the part of customers 19 will minimize the need for building additional 20 facilities or for taking other actions to preserve the 21 system. 22 MR. MARK: I take it you are aware, Mr. 23 Goldsmith, that it's Ontario Hydro Networks Company's 24 evidence in this proceeding that the benefit of that 25 long term avoided costs is but a small fraction of the 26 bill savings which the direct customers will get from 27 coincident billing. You are aware of that evidence, 28 sir? Les Services StenoTran Services Inc. 613-521-0703 1744 AMPCO PANEL 1, cr-ex (Mark) 1 MR. SNELSON: I have reviewed quite a lot of 2 this evidence. I can't say I have read everything. I 3 was not aware that OHNC had made an estimate of the 4 future incremental costs or incremental savings of the 5 system. 6 MR. MARK: I'm talking about the 1995 study 7 which is the only study we have. You are familiar with 8 that one, Mr. Snelson? 9 MR. SNELSON: Yes, I am. Are you talking 10 about incremental system values and that they are 11 included in AMPCO's evidence, AMPCO included them? We 12 included them to make two points and only two points and 13 that is that it is possible to make estimates of the 14 incremental transmission savings. Ontario Hydro has 15 done it in the past. 16 Those savings were a significant proportion of 17 the total cost of the system. They were not the full 18 amount. I don't think from those old studies you can 19 conclude anything more than that as to the specifics of 20 the future costs because of the changes that may have 21 taken place since 1995. 22 MR. MARK: But do you have any evidence about 23 what the long term cost benefits are as we sit here 24 today in the year 2000? 25 MR. SNELSON: As I read OHNC's evidence, they 26 said that they couldn't even estimate this. We included 27 this in our evidence to at least show that they have 28 done estimates in the past. Les Services StenoTran Services Inc. 613-521-0703 1745 AMPCO PANEL 1, cr-ex (Mark) 1 MR. MARK: And with respect to, Mr. Goldsmith, 2 the issue of the allocation of the sunk costs, I want to 3 make sure I understand your point. You say that using 4 the coincident peak best reflects the cost causality of 5 the existing system. 6 MR. GOLDSMITH: That's correct. Those sunk 7 costs were built to accommodate a system that operates 8 in a certain way. That way is a function of the 9 diversity of the customer loads. The system was based 10 built on that intrinsic diversity. 11 MR. MARK: So you say, and I take it you are 12 talking about the diversity of all customers because 13 looking at the Ontario load as a whole, there's 14 tremendous diversity, and you say that the benefits of 15 that diversity should be recognized. 16 MR. GOLDSMITH: Yes. They are recognized 17 today in the current rate structures. They are 18 recognized de facto in municipal utilities where the 19 billing for the utility is based on the sum of its load 20 which takes into account the full diversity of its 21 loads. 22 An individual customer doesn't have the 23 benefit of being combined with other customers, so a 24 rate structure has to be designed in such a way that it 25 attempts to recognize the diversity of that load the 26 same as it would if that load was within a municipal 27 utility or within some other grouping of loads. 28 MR. MARK: Isn't billing today done at both Les Services StenoTran Services Inc. 613-521-0703 1746 AMPCO PANEL 1, cr-ex (Mark) 1 levels on a non-coincident basis? Isn't that how the 2 diversity is recognized? 3 MR. GOLDSMITH: It's not recognized that way. 4 It is done on a non-coincident basis, yes. There are 5 other factors which are put into the billing equation to 6 try and recognize for that diversity. 7 MR. MARK: And you say at the bottom, and I 8 want to make sure that I understand this, Mr. Goldsmith, 9 that the customer who has the ability to move his 10 consumption off the peak should get the benefit of that 11 relative to the customer who cannot. 12 MR. GOLDSMITH: I guess that's a part of what 13 we are saying. It's not the main thrust of it. 14 MR. MARK: And does your support for the 15 proposition depend at all or does it relate at all to 16 the evidence as to what the peak is in the Ontario 17 system? We have had evidence that we have a very broad 18 peak in Ontario. Does your support for the coincident 19 demand billing take that into account? 20 MR. SNELSON: I would like to suggest that 21 maybe we haven't had evidence. We have a very broad 22 peak in Ontario as regards its indications for 23 transmission system planning. 24 MR. MARK: All right. 25 So you say, Mr. Snelson, that in fact there 26 isn't a broad peak and that supports your position? 27 MR. SNELSON: I would say that the need for 28 facilities is very often driven by what happens on a few Les Services StenoTran Services Inc. 613-521-0703 1747 AMPCO PANEL 1, cr-ex (Mark) 1 cold days in the winter and a few hot days in the 2 summer. 3 MR. MARK: And what does your proposal say, 4 Mr. Snelson, about high load factor customers versus low 5 load factor customers? Should we, as is done in some 6 jurisdictions, be rewarding high load factor customers? 7 MR. SNELSON: If you look at Appendix A of our 8 evidence and go back to the chart that I showed you in 9 direct evidence. 10 MR. MARK: Yes. 11 MR. SNELSON: Then you will see that high load 12 factor customers in all of these arrangements receive 13 lower transmission rates than low load factor customers, 14 but they do not receive lower rates than customers who 15 can move their energy usage predominantly into off-peak 16 periods. 17 MR. MARK: In your proposal the customers who 18 get the greatest benefits are the ones with the lowest 19 load factor? 20 MR. SNELSON: If you look again at this chart, 21 I am at Chart 1, Appendix A, then the low load factor 22 customer even with our proposal pays on average in cents 23 per kilowatt hour more for transmission service than 24 does the high load factor customer. 25 MR. MARK: And is the flexible customer 26 typically going to be a low load factor customer? 27 MR. SNELSON: The flexible customer was 28 defined as a customer who uses a very large portion of Les Services StenoTran Services Inc. 613-521-0703 1748 AMPCO PANEL 1, cr-ex (Mark) 1 his energy during off-peak periods and during the peak 2 periods he reduces his load during the high load hours, 3 during the peak period and he uses somewhat higher 4 loads, but not as high as in the off peak, during the 5 other remaining hours within that 12 hour peak period. 6 MR. MARK: So is the answer yes, a flexible 7 customer will tend to be a lower load factor customer, 8 as I understand it? 9 MR. SNELSON: The flexible customer -- in this 10 particular case the flexible customer has a 70 per cent 11 load factor. 12 MR. MARK: Thank you. 13 Those are my questions. 14 Thank you, Mr. Chairman. 15 THE PRESIDING MEMBER: Thank you, Mr. Mark. 16 Mr. Campbell, do you have some questions? 17 CROSS-EXAMINATION 18 MR. CAMPBELL: Mr. Snelson, the first area I 19 want to speak with you about is export charges. I 20 assume those questions should go to you. 21 MR. SNELSON: I will try and answer your 22 question, if I can, Mr. Campbell. 23 MR. CAMPBELL: You were the one who spoke to 24 this in direct, were you not? 25 MR. SNELSON: Yes, I did. 26 MR. CAMPBELL: And the proposal that you make 27 for export charges is set out in Exhibit 21 at 28 Exhibit H, Tab 2, Schedule 1 at page 52. Is that Les Services StenoTran Services Inc. 613-521-0703 1749 AMPCO PANEL 1, cr-ex (Campbell) 1 correct? 2 MR. SNELSON: That's correct. 3 MR. CAMPBELL: As a starting point, I take it 4 on reading this evidence that what you see as the 5 desirable end state as being the MDC recommendation that 6 export transactions should be carried out at incremental 7 cost without any additional charge, such as the $1 8 proposed by OHNC. 9 MR. SNELSON: That is correct. 10 MR. CAMPBELL: And your proposal for the 11 interim period suggests a charge to Ontario exporters 12 that is equal to the average of any similar charge 13 imposed in the other jurisdiction on transactions into 14 Ontario. Again, do I have that right? 15 MR. SNELSON: I believe you do. 16 MR. CAMPBELL: And if the other jurisdiction 17 discounts, you would use the average charge after taking 18 into account whatever discounting is done in that 19 jurisdiction? 20 MR. SNELSON: That is correct. 21 MR. CAMPBELL: And could you explain to the 22 Board please how that average would be calculated and 23 applied? 24 MR. SNELSON: We have suggested that the 25 calculation be done by the IMO, and it is an estimation 26 as much as a calculation, ahead of time so that the 27 effective charge to each of our surrounding 28 jurisdictions would be known sufficiently ahead of time Les Services StenoTran Services Inc. 613-521-0703 1750 AMPCO PANEL 1, cr-ex (Campbell) 1 that it wouldn't affect the short run market outcome. 2 It wouldn't make the IMO the effective player in the 3 short-term market. 4 MR. CAMPBELL: But I took it that this 5 calculation was going to be done using actual discounted 6 experience in that other jurisdiction, real data. I 7 thought that's what your proposal said. 8 MR. SNELSON: What we have said in our 9 proposal is that the IMO, there would be a fully 10 embedded cost rate which would be the maximum and that 11 the IMO should be required to discount this rate to 12 approximate the rate applicable in the neighbouring 13 jurisdictions for transactions coming into Ontario. 14 If the neighbouring jurisdiction operates on 15 an incremental cost only basis, the Ontario charge 16 should be just the incremental cost, including 17 congestion, as in the energy market and as recommended 18 by the MDC. 19 So we haven't specified here whether it should 20 be done on an actual historical basis or on a forecast 21 basis. 22 MR. CAMPBELL: But in any event, if I read the 23 last paragraph of your proposal in this area on page 53, 24 whatever calculation is done, whether it's past or 25 forecast, the calculation would be done by the IMO. 26 Correct? 27 MR. SNELSON: Yes. 28 MR. CAMPBELL: It would be published annually? Les Services StenoTran Services Inc. 613-521-0703 1751 AMPCO PANEL 1, cr-ex (Campbell) 1 MR. SNELSON: Yes. 2 MR. CAMPBELL: And it would apply over that 3 period? 4 MR. SNELSON: That is correct, unless during 5 that period the neighbouring jurisdiction was to make a 6 significant move towards an incremental cost only basis, 7 in which case the IMO could lower the charge. 8 MR. CAMPBELL: But in effect there will be a 9 period for which the charge will be published and it 10 will be a fixed charge which will not vary? 11 MR. SNELSON: That is correct. 12 MR. CAMPBELL: So, for instance, if your 13 calculation came up with a figure of $3, then that 14 figure would become a fixed export charge applied to all 15 transactions? 16 MR. SNELSON: If it was $3 to a particular 17 jurisdiction, then they would apply to all transactions 18 to that jurisdiction, yes. 19 MR. CAMPBELL: And in that sense it would 20 operate in the same way as OHNC's $1 charge. It would 21 be a fixed charge applied to all transactions? 22 MR. SNELSON: Except that the OHNC is 23 proposing some credits for revenues in the transmission 24 rights option. 25 MR. CAMPBELL: All right. 26 What I understood your proposal to be, in 27 contrast to OHNC's, is that your proposal would give a 28 credit for net congestion and I take that from the Les Services StenoTran Services Inc. 613-521-0703 1752 AMPCO PANEL 1, cr-ex (Campbell) 1 second-last paragraph on page 52. 2 MR. SNELSON: That is correct. 3 MR. CAMPBELL: And can you explain for me 4 please what you mean by net congestion revenues? 5 MR. SNELSON: Basically, it is to adjust the 6 charge so that the total amounts that would be paid for 7 going out of the Ontario market would be approximately 8 equal to the rates coming into the Ontario market. Part 9 of the costs of going out of the Ontario market is 10 whatever is being charged for congestion in the energy 11 market and recognizing that congestion revenues are 12 quite uncertain that there needs to be an allowance 13 there, otherwise you are not comparing an equal 14 transmission rate for going out to the transmission rate 15 for other people coming in. 16 MR. CAMPBELL: But when you are calculating 17 the net congestion revenues that you are going to allow 18 for here, are you taking into account both -- or all of, 19 because it's more than two -- all of congestion 20 payments, congestion revenues to TR holders and payments 21 for TR rights? Are all of those part of what you 22 include in net congestion revenues? 23 MR. SNELSON: Yes. 24 MR. CAMPBELL: So I take it, to put this in 25 market rule terms, you are essentially putting in all of 26 the components that we reviewed the other day in the TR 27 clearing account, which was Market Rule 4.18, I believe? 28 MR. SNELSON: I don't remember the rule Les Services StenoTran Services Inc. 613-521-0703 1753 AMPCO PANEL 1, cr-ex (Campbell) 1 number, but conceptually it is all of the elements that 2 go into that account, yes. 3 MR. CAMPBELL: Why is it that you use net 4 congestion revenues versus only the proceeds from the 5 sale of transmission rights as in the OHNC proposal? 6 MR. SNELSON: The costs of going out of the 7 market are whatever are the total charges. The 8 auctions, the transmission auctions, the right to 9 auction, is only a means of hedging against the actual 10 congestion cost. So to treat one and not the other I 11 believe distorts the purpose of the hedge. 12 Also, in the OHNC proposal I believe that only 13 generators get reimbursed. It seems to me that anybody 14 who buys in the Ontario market and sells outside of 15 Ontario who is going to be subject to the congestion 16 charges should be subject to the same regime in respect 17 to transmission pricing whether they are a generator or 18 a marketer. 19 MR. CAMPBELL: So we are talking, for net 20 congestion revenues, all of the exporters as opposed to 21 simply generators who export? 22 MR. SNELSON: That is correct. 23 MR. CAMPBELL: Do I assume that your proposal 24 would limit the credit for net congestion revenues to 25 the amount of the fixed charge? 26 MR. SNELSON: No, I don't believe so. I think 27 that if you were to get to the point where the charge 28 for going out of Ontario on a congestion-only basis on Les Services StenoTran Services Inc. 613-521-0703 1754 AMPCO PANEL 1, cr-ex (Campbell) 1 the congestion charges were to be as high or higher than 2 the charges for coming into Ontario, then you have 3 achieved your end state of having the transaction take 4 place on an incremental cost basis. 5 MR. CAMPBELL: All right. 6 Now, if we look at some of the revenue flows 7 in an export transaction, is it fair, speaking in 8 general terms -- I won't worry about just little amounts 9 at the margins -- is it fair to say that over and above 10 the market clearing price in Ontario all of the revenues 11 from an export transaction go to offset the transmission 12 service charges paid by Ontario customers? 13 MR. SNELSON: I'm not quite sure in this 14 situation you have posed quite where IMO fees come in 15 and uplift. 16 MR. CAMPBELL: I'm happy to have them paid 17 separately for the moment. 18 The IMO fees and uplift would be dealt with 19 separately, but in the flows that we are talking about, 20 the congestion, the Ontario market clearing price, the 21 price in the exporting jurisdiction, if we put those 22 into the mix everything above the Ontario market 23 clearing price goes to offset transmission service 24 charges, either through your fee or through congestion. 25 MR. SNELSON: The surplus from the congestion 26 accounts and the export fee, if there is one, for 27 transmission, both -- the revenues from that both go to 28 reduce transmission costs to other customers. Les Services StenoTran Services Inc. 613-521-0703 1755 AMPCO PANEL 1, cr-ex (Campbell) 1 MR. CAMPBELL: Now, do you think that the use 2 of your fixed average amount is likely to affect the 3 overall amount of the revenues collection by the IMO on 4 transactions from Ontario? 5 MR. SNELSON: I think it is quite likely. 6 MR. CAMPBELL: And why is that? 7 MR. SNELSON: Any additional charge that is 8 imposed in one jurisdiction on transactions to another 9 jurisdiction has the potential to affect the volume of 10 those transactions. 11 MR. CAMPBELL: All right. Let's see how that 12 works by looking at what might happen over a one-week 13 period. 14 Let's say that for the first five days the 15 difference between the market clearing price of energy 16 in Ontario and the price in the export market is $2.00 17 for five days and then in the last two days that price 18 difference goes up to $5.00. 19 MR. SNELSON: Okay. 20 MR. CAMPBELL: So the amounts collected by the 21 IMO in that case, assuming no export charge for purposes 22 of this time round, the amounts collected by the IMO in 23 that case without an export charge would be the five 24 days times the $2.00 difference, plus the two days times 25 the $5.00 difference. Correct? 26 MR. SNELSON: I'm sorry. Is the $2.00 the 27 difference between the price in the external zone in the 28 Ontario market and the price in in the internal zone of Les Services StenoTran Services Inc. 613-521-0703 1756 AMPCO PANEL 1, cr-ex (Campbell) 1 the Ontario market? Is that the $2.00 you we talking 2 about? 3 MR. CAMPBELL: Yes. 4 MR. SNELSON: I had understood it to be the 5 difference between the Ontario market and some other 6 market. 7 MR. CAMPBELL: Deal with it in and out of the 8 zone is fine. 9 MR. SNELSON: Okay. 10 So this is in terms of the revenue -- can you 11 repeat the question again because I have forgotten what 12 the question was. 13 MR. CAMPBELL: In terms of the revenue that 14 would be collected by the IMO -- and what I am going to 15 go on into, of course, is that this is what the credit 16 to the transmission customers becomes -- it would be the 17 $2.00 times the five days, where that was the 18 difference -- 19 MR. SNELSON: Yes. 20 MR. CAMPBELL: -- plus $5.00 times the two 21 days, where the $5.00 was the difference, for a total, I 22 think, of $20.00. Two dollars over five days -- 23 MR. SNELSON: Yes. Yes, it is. 24 MR. CAMPBELL: -- being $10; $5.00 over two 25 being $10.00. Add them together. I think we have 26 $20.00, don't we? 27 MR. SNELSON: I think we have, yes. 28 MR. CAMPBELL: That would be the amount of the Les Services StenoTran Services Inc. 613-521-0703 1757 AMPCO PANEL 1, cr-ex (Campbell) 1 credit to the transmission customers. 2 MR. SNELSON: This is in the case with no 3 export charge? 4 MR. CAMPBELL: Yes. 5 MR. SNELSON: That is correct. 6 MR. CAMPBELL: Okay. Now, let's see what 7 happens over exactly the same week if your proposal went 8 into place and an export charge had been adopted at the 9 $3.00 amount that we talked about being the average for 10 purposes of this calculation. You have the same 11 circumstances but with the $3.00 fee. 12 MR. SNELSON: Yes. 13 MR. CAMPBELL: Okay? In that case, wouldn't 14 it be correct that for the first five days in our 15 example the sale just wouldn't take place because the 16 charge of $3.00 makes the transaction uneconomic? It 17 makes no sense to pay $3.00 for a $2.00 deal. 18 MR. SNELSON: That was what I meant when I 19 gave my previous answer that the export charge can 20 affect the sales volumes. 21 MR. CAMPBELL: All right. 22 Then for the other two days the transaction 23 would go ahead because the $5.00 difference between the 24 two markets is larger than the $3.00 fee. Correct? 25 MR. SNELSON: That is correct. 26 MR. CAMPBELL: So in our second example with 27 the $3.00 fee, as I understand it, it got no money for 28 five days; for two days it got $5.00; so in this case Les Services StenoTran Services Inc. 613-521-0703 1758 AMPCO PANEL 1, cr-ex (Campbell) 1 the amount credited to the Ontario transmission 2 customers falls to $10? 3 MR. SNELSON: That is correct. 4 MR. CAMPBELL: You would agree, as a general 5 rule, that any level of fee would have this same effect. 6 It will eliminate sales when price differences are 7 thinner, thereby reducing the credits overall going to 8 transmission customers? 9 MR. SNELSON: I'm not sure I'm prepared to 10 accept that in all cases it reduces the revenues to 11 transmission customers, but in many cases it will. 12 That is one of the reasons why we support the 13 long-run move to incremental cost only inter-regional 14 training and, as I said in my direct evidence, that 15 improves market opportunities for both generators and 16 loads in Ontario. 17 MR. CAMPBELL: But the revenue -- I want to 18 come back to the qualification you put on your answer. 19 Isn't it correct that in all cases where the 20 price differentials that we have been talking about is 21 less than the fee, those sales will be lost and 22 therefore those revenues will not be available to offset 23 transmission costs in Ontario? 24 MR. SNELSON: In these very simple cases, but 25 there can also be cases where there are profits to be 26 made in export markets. And the effect of the export 27 fee is to reduce the profit of say the generator or to 28 reduce the customer surplus of the eventual buyer rather Les Services StenoTran Services Inc. 613-521-0703 1759 AMPCO PANEL 1, cr-ex (Campbell) 1 than just the effects that we described. 2 So I am not prepared to accept as a general 3 proposition that it always happens. But I do accept 4 that this phenomena, as you have described, can happen. 5 MR. CAMPBELL: And it would happen where that 6 price differential is smaller than the fee. You would 7 lose that volume. 8 MR. SNELSON: Where the total profit between 9 what the generator can sell at and what the buyer can 10 buy at is less than the fee and the other transaction 11 charges that are taking place. And if we look at the 12 costs behind it, then yes, if the margins are very thin 13 then the export fee will kill transactions. 14 THE PRESIDING MEMBER: Are you moving on to 15 another topic, Mr. Campbell? 16 MR. CAMPBELL: Yes. 17 THE PRESIDING MEMBER: Then we will take the 18 break. We will come back at five minutes to four, 19 please. Thank you. 20 --- Upon recessing at 1538 21 --- Upon resuming at 1600 22 THE PRESIDING MEMBER: It is getting kind of 23 warm in here this afternoon. 24 As you know, we are running a bit behind 25 schedule. We are going to have to do some shuffling and 26 probably move some of the schedule over into next week. 27 That is the most likely circumstance. 28 Mr. Thiessen has been talking with a few of Les Services StenoTran Services Inc. 613-521-0703 1760 AMPCO PANEL 1, cr-ex (Campbell) 1 you in that regard. 2 For the immediate schedule right in front of 3 us, we will pick up tomorrow, as we said, with OPG. 4 That is a half day. Then after that we don't know. We 5 will have to see where we are going to go from there in 6 terms of moving people around. 7 Mr. Campbell, would you like to resume, 8 please. 9 MR. CAMPBELL: Thank you, Mr. Chairman. 10 Mr. Snelson, I would like to take you back to 11 some figures that you discussed with Mr. Mark earlier. 12 I had some questions in that area as well. 13 I am looking at page 23 of Exhibit H2.1. 14 Do you have that? 15 MR. SNELSON: Is that page 23? 16 MR. CAMPBELL: Page 23, yes. 17 MR. SNELSON: Yes, I have that. 18 MR. CAMPBELL: There you were dealing with 19 some earlier estimates about savings in transmission 20 costs, and you point out that they fell from $3.41, an 21 estimate of the savings for 2010 that was made in March 22 1992 -- that figure fell to $2.83 in March 1995. 23 Do you see those figures? 24 MR. SNELSON: Yes, I do. 25 MR. CAMPBELL: There you refer to a document 26 that set out the March 1982 system incremental values at 27 Footnote 48. 28 MR. SNELSON: Did you say March 1982? Les Services StenoTran Services Inc. 613-521-0703 1761 AMPCO PANEL 1, cr-ex (Campbell) 1 MR. CAMPBELL: 1992, I think. If I said 1982, 2 I misspoke myself. 3 MR. SNELSON: Okay. 4 MR. CAMPBELL: Do you see that at Footnote 48? 5 MR. SNELSON: Yes, I do. 6 MR. CAMPBELL: Am I correct that that 7 reference is not in your evidence in any location? 8 MR. SNELSON: Do you mean that there is no -- 9 MR. CAMPBELL: That document is not included 10 already in your evidence? 11 MR. SNELSON: We have not included that 12 reference document in this evidence, no. 13 MR. CAMPBELL: Could I get an undertaking to 14 have that filed, please, Mr. Fisher? 15 MR. FISHER: My apologies. I was engaged in 16 conversation with Mr. Thiessen. Could you repeat that, 17 please. 18 MR. CAMPBELL: There is a document referred to 19 in the Footnote at page 23 of the AMPCO evidence, 20 Footnote 48. I had asked for an undertaking to file 21 that document. 22 MR. SNELSON: That document is Exhibit 592 of 23 the Ontario Hydro Environmental Assessment hearing on 24 demand supply plan. 25 MR. FISHER: Do you have that? 26 MR. SNELSON: Yes, I have that in my office. 27 I don't have it here. 28 MR. FISHER: Yes, I will give you that Les Services StenoTran Services Inc. 613-521-0703 1762 AMPCO PANEL 1, cr-ex (Campbell) 1 undertaking. 2 MR. CAMPBELL: Could we get an undertaking, 3 please. It is the March 1992 Incremental System Value 4 document. 5 MS LEA: That will be F9.1. 6 Mr. Snelson, is that a voluminous document? 7 MR. SNELSON: It is probably of the order of 8 about 30 pages. Some of these documents -- I am just 9 trying to think back through this. There were a number 10 of these documents. Some of them are as short as 10 or 11 12 pages. There are one or two of them that have very 12 substantial rationale included in them and they are 13 quite a lot longer. 14 To my recollection, I can't recall whether 15 this was the long one or the short one. 16 MS LEA: Thank you. 17 UNDERTAKING NO. F9.1: Mr. Snelson to 18 provide the March 1992 Incremental System 19 Value document referred to in Footnote 48 20 at page 23 of AMPCO's evidence 21 MR. CAMPBELL: The later values that you talk 22 about, the March 1995 values -- you refer to OEB HR 24 23 Interrogatory, 2.15.10 as the source of those figures. 24 And that is in Footnote 52. Do I have that right? 25 MR. SNELSON: Yes, you do. 26 MR. CAMPBELL: Mr. Chairman, I distributed 27 copies of this interrogatory response earlier, and I 28 wonder if they could now be given an exhibit number. Les Services StenoTran Services Inc. 613-521-0703 1763 AMPCO PANEL 1, cr-ex (Campbell) 1 MS LEA: Is that the HR 24 interrogatory, 2 Mr. Campbell? 3 MR. CAMPBELL: Yes, it is. 4 MS LEA: That will be G9.1, please. 5 EXHIBIT NO. G9.1: HR 24 Filed 6 Interrogatory 7 MR. CAMPBELL: Thank you. 8 Mr. Snelson, if you go to the back page of 9 that interrogatory answer -- that is, G9.1 -- I see 10 there the load forecast that was used at the time. 11 MR. SNELSON: I believe that is what Ontario 12 Hydro gave as its 1995 sales forecast for the purposes 13 of this interrogatory. 14 MR. CAMPBELL: That was the forecast, if I 15 read the interrogatory correctly, that was used for 16 calculating the incremental system values? 17 I think you can find that at the bottom of 18 page 2 of the interrogatory answer. There is a table 19 with Note 1 that says -- at least right at the bottom of 20 that table it says "values are based on April 1995 21 median load forecasts". 22 MR. SNELSON: That is correct. 23 MR. CAMPBELL: If we go back to the last page 24 for a moment, we can see that the forecast for 2000 was 25 148 terawatt hours. 26 MR. SNELSON: That is what it says, yes. 27 MR. CAMPBELL: And that is what was used in 28 the incremental system values as was -- and I will pick Les Services StenoTran Services Inc. 613-521-0703 1764 AMPCO PANEL 1, cr-ex (Campbell) 1 the other year -- 2003. 2003 is 154. Am I reading that 2 correctly? 3 MR. SNELSON: That is correct. 4 MR. CAMPBELL: I think if I go to your 5 calculations that dealt with AMPCO's submission last 6 summer in the consultation process with respect to the 7 benefits of embedding generation, that would be found in 8 the record of these proceedings at Exhibit B, Tab 9, 9 Schedule 4. 10 MR. SNELSON: On page 15. 11 MR. CAMPBELL: Yes. On page 15 we see the 12 load forecast that was used in that calculation. 13 MR. SNELSON: I have that in front of me, yes. 14 MR. CAMPBELL: And whereas the 1995 values 15 forecast 148 terawatt hours for the year 2000, the 16 forecast by the time of the preparation of this document 17 had fallen to 139? 18 MR. SNELSON: That is what it shows. 19 MR. CAMPBELL: And similarly the 154 figure 20 for 2003 had fallen to 145. 21 MR. SNELSON: The 145 figure that is in 22 Exhibit B, Tab 9, Schedule 4, I don't believe that that 23 is an OHNC number. I believe that that is my projection 24 from past trends in the year 2000 number for what 2003 25 would be. 26 MR. CAMPBELL: In any event, that is the 27 figure that was used in this Schedule 4 in carrying 28 these calculations forward. Les Services StenoTran Services Inc. 613-521-0703 1765 AMPCO PANEL 1, cr-ex (Campbell) 1 MR. SNELSON: That is correct. 2 MR. CAMPBELL: Would I be correct that with 3 that kind of difference in the load forecast that is 4 incorporated into expected incremental system values, 5 that would have an impact on the calculation of those 6 values? 7 MR. SNELSON: I would expect it to have an 8 impact, yes. 9 MR. CAMPBELL: Would I also be correct that 10 with that size of difference in the load forecast, 10 11 terawatt hours, the facilities that might have been 12 contemplated in each case -- say between the 1992 and 13 the 1995 -- might have been substantially different? 14 MR. SNELSON: Sorry, the 1992 and the 1995? I 15 am at a bit of a loss as tow hat you are referring to 16 there. 17 MR. CAMPBELL: On page 23 of your Exhibit H2.1 18 you show a change in incremental system values, and I am 19 focusing for the moment on the 1995 one. 20 Would it not be fair to say that the 21 facilities that would have been assumed for purposes of 22 the ISV calculations -- that is, the future facility 23 additions, for the purpose of the ISV calculations, 24 would have been different in the March 1995 than they 25 would be for the higher load forecast used in your 26 document B9.4. 27 MR. SNELSON: Yes. There is a change in load 28 forecast. Then there can be a change in system plan, Les Services StenoTran Services Inc. 613-521-0703 1766 AMPCO PANEL 1, cr-ex (Campbell) 1 and that can affect incremental system values. 2 MR. CAMPBELL: Finally, with respect to the 3 analysis that was shown in the interrogatory response, 4 that was done with respect to NUG facilities, as I 5 understand it, and not embedded generation facilities? 6 MR. SNELSON: I'm sorry, I don't understand 7 the distinction at the moment you are making. 8 MR. CAMPBELL: I guess I should be more 9 specific there. It was done with NUG facilities, it 10 contemplated merchant plants as opposed to embedded 11 generation for the March 1995 calculation? 12 MR. SNELSON: The March 1995 calculation, as I 13 understand it, was Ontario Hydro's general prediction of 14 the incremental system values of savings in energy and 15 in capacity for both generation and for transmission 16 separately identified, and that this would be applied to 17 many different sources of energy change or capacity 18 change on the system. 19 MR. CAMPBELL: All right. 20 Let me just go directly, then, and ask you the 21 question this way. Is it not fair to note that a 22 difference between NUGs in embedded generation is that 23 -- and I'm using NUGs in the sense of merchant plants. 24 Maybe I should deal directly with "merchant", use that 25 phrase. 26 Is it not fair to say that merchant plants are 27 subject to dispatch and control by the system operator 28 while that may not be the case with embedded generators Les Services StenoTran Services Inc. 613-521-0703 1767 AMPCO PANEL 1, cr-ex (Campbell) 1 and that that therefore makes them more useful from the 2 perspective of system optimization, then, in embedded 3 facility? 4 MR. SNELSON: I actually prefer your 5 characterization of NUGs, the 1995, the merchant 6 generation, because as of 1995, then the regime that was 7 being considered or had been considered in the recent 8 past was non-utility generation. Most of these 9 generators were contracted to Ontario Hydro and the 10 terms gave very little freedom for the system operator 11 to adjust them and schedule them. That was one of the 12 reasons that some people, including myself, felt that 13 they should have been allowed to be scheduled, but as it 14 was they were not allowed to be scheduled. 15 MR. CAMPBELL: There is a general principle 16 looking at merchant plants that don't have -- let me 17 back up. 18 As a general rule, you are speaking to the 19 specific terms of the NUG contracts with Ontario Hydro. 20 Is it not generally correct that merchant generation 21 that is dispatched by a system operator will offer more 22 -- or that they are more useful from the perspective of 23 system optimization than an embedded facility? 24 MR. SNELSON: We do expect that merchant 25 generation in the future will be under the dispatch 26 control of the system controller. At the same time, 27 some embedded generators, if they choose to, can be 28 under the dispatch of the IMO. But there can be some Les Services StenoTran Services Inc. 613-521-0703 1768 AMPCO PANEL 1, cr-ex (Campbell) 1 embedded generators who would not be under the control 2 of the IMO? 3 MR. CAMPBELL: All right. 4 So that to the extent that it is under the 5 control of the system operator, it offers more benefits 6 than an embedded generator that does not? 7 MR. SNELSON: As a general principle I would 8 say yes. 9 MR. CAMPBELL: I guess, finally, the March 10 1995 ISDs that you have used were in interrogatory 11 response in HR-24. Do you have an equivalent document 12 to the March 1992 document that explains the full basis 13 of those ISDs? 14 MR. SNELSON: I don't believe that such a 15 document has been made public. 16 MR. CAMPBELL: So your answer is no, you don't 17 have one. 18 MR. SNELSON: I do not have one, no. 19 --- Pause 20 MR. CAMPBELL: Now, can you go to page -- I 21 guess it is Exhibit H -- yes, page 37 of AMPCO's 22 exhibit, please, H-2-1. You will recall, Mr. Snelson, 23 you were asked some questions about this load table 24 earlier today. 25 MR. SNELSON: Yes, I recall that. 26 MR. CAMPBELL: And you raised the potential, 27 although you were careful not to assert it, that the 28 reason for some of the flat load growth here might have Les Services StenoTran Services Inc. 613-521-0703 1769 AMPCO PANEL 1, cr-ex (Campbell) 1 been that embedded generation had come on and that might 2 explain in part these numbers because there would be a 3 low net demand. Do you recall that? 4 MR. SNELSON: I recall the discussion, yes. 5 MR. CAMPBELL: Would it be most likely that 6 the candidates over the period to install embedded 7 generation would be AMPCO members or at least direct 8 customers? 9 MR. SNELSON: The most likely people to have 10 installed embedded generation in that period would be 11 direct customers of Ontario Hydro and large users of 12 municipal utilities, and some of both of those 13 categories are AMPCO members. 14 MR. CAMPBELL: What AMPCO members have 15 installed embedded generation over that period? Are you 16 aware of any? 17 MR. SNELSON: I don't know. I haven't 18 inquired into that. 19 MR. CAMPBELL: Mr. Goldsmith, would you know? 20 MR. GOLDSMITH: No. 21 MR. CAMPBELL: Mr. Lemay, would you know? 22 MR. LEMAY: No, I don't. I do know that 23 Sudbury Hydro where I live has installed some embedded 24 generation for a municipal heating system. 25 MR. CAMPBELL: Thank you, Mr. Chairman. Those 26 are my questions. 27 THE PRESIDING MEMBER: Thank you, 28 Mr. Campbell. Les Services StenoTran Services Inc. 613-521-0703 1770 AMPCO PANEL 1, cr-ex (Campbell) 1 Ms Godby, you have questions? 2 MS GODBY: Yes, I do, Mr. Chairman. 3 THE PRESIDING MEMBER: Please go ahead. 4 CROSS-EXAMINATION 5 MS GODBY: Good afternoon, gentlemen. Can you 6 hear me okay? My name is Carol Godby and I'm counsel 7 for the Chiefs of Ontario. I have a few questions with 8 respect to the line connection. 9 I understand AMPCO's position that it 10 disagrees with OHNC's proposal with respect to the line 11 collection pool. Is that correct? 12 MR. SNELSON: That is correct. 13 MS GODBY: Your narrow definition of a line 14 collection pool is that it will consist of those line 15 collection assets that serve one customer essentially. 16 MR. SNELSON: One delivery point or several 17 delivery points that serve the same transmission 18 customer. 19 MS GODBY: This allows your customers, then, 20 the transmission customers, to make decisions with 21 respect to those assets which will help them control 22 their costs. Correct? 23 MR. SNELSON: In a small measure, yes. 24 MS GODBY: If we have a smaller or a more 25 narrow definition of a line collection pool, then in 26 effect what happens is that this increases the price of 27 the network pool. Is that correct? 28 MR. SNELSON: That is correct. Les Services StenoTran Services Inc. 613-521-0703 1771 AMPCO PANEL 1, cr-ex (Godby) 1 MS GODBY: As I understand AMPCO's proposal, 2 for those customers that purchase their own line 3 connection assets, this would allow them to escape the 4 line connection pool. Correct? 5 MR. SNELSON: That is correct. 6 MS GODBY: I understand as well that the 7 length of a line connection is one factor which would 8 influence its cost. 9 MR. SNELSON: Certainly. 10 MS GODBY: And all other things being equal, 11 the further that you have to build the line to attach 12 into the grid or the network, then the more expensive 13 that line connection would be. 14 MR. SNELSON: Other things being equal, yes. 15 MS GODBY: So the converse is therefore true, 16 all other things being equal, the shorter the line 17 connection the less expensive it will be? 18 MR. SNELSON: Yes. 19 MS GODBY: I understand as well that geography 20 may have some impact on the cost of the line connection. 21 For instance, is it easier for me to -- would it be less 22 expensive to put up a line connection across the Golden 23 Horseshoe area rather than blasting through the Canadian 24 Shield? 25 MR. SNELSON: Local factors can affect the 26 cost. 27 MS GODBY: So geography is a factor. 28 MR. SNELSON: Certainly the actual Les Services StenoTran Services Inc. 613-521-0703 1772 AMPCO PANEL 1, cr-ex (Godby) 1 construction costs can depend on what kind of ground you 2 are building over or that kind of thing. 3 MS GODBY: Okay. Mr. Snelson, as I see it in 4 the future, what's going to happen is that you are going 5 to have a number of people with low cost connection 6 facilities, a number of transmission customers with low 7 cost connection facilities leaving this connection pool. 8 MR. SNELSON: That is one of the effects that 9 we talked about in our evidence. Yes. 10 MS GODBY: So then what happens is that the 11 pool then consists of people with higher cost connection 12 facilities. Is that not the case? 13 MR. SNELSON: Yes. I believe that the effect 14 can be that the lower cost people in the pool may decide 15 to buy their assets and that the pool may decline over 16 time and the average cost of the pool can rise. 17 I think you will find that in our direct 18 evidence, or in our written evidence on this. We 19 discussed this effect. 20 MS GODBY: So who is in the pool in the 21 future? 22 MR. SNELSON: Well, if you go back to the 23 tables that the MEA referred us to, according to Ontario 24 Hydro Networks Company in their application of our 25 proposed definition, those who are left in the pool are 26 large MEUs, in Southern Ontario presumably. 27 MS GODBY: Well, I would put it to you, 28 Mr. Snelson, that if the only people left in the pool Les Services StenoTran Services Inc. 613-521-0703 1773 AMPCO PANEL 1, cr-ex (Godby) 1 are those with higher cost facilities, it's not really 2 much of a pool, is it? 3 MR. SNELSON: I believe that there is a 4 fundamental disconnect between specific costing and 5 pooling and that if you wish to go to specific costing, 6 then you tend to have this effect that those who have 7 lower specific costs will want to be costed specifically 8 and those who have higher costs will remain in the pool. 9 The two ideas really don't go together, but 10 you can't have over a long period of time specific 11 costing and pooling as alternatives that customers can 12 choose. It will gravitate one way or the other 13 depending on the rules which are in place. 14 MS GODBY: But essentially what we are talking 15 about is that we are not going to have a connection pool 16 that is going to be balanced by low cost facilities 17 coming in because nobody who can purchase low cost 18 facilities are going to remain in this pool. 19 MR. SNELSON: I have agreed that the pool will 20 tend to decline over time and that the average cost of 21 the pool may rise. 22 MS GODBY: So this in effect then, Mr. 23 Snelson, would make the postage stamp rate for 24 transmission services less realistic in the future. 25 Wouldn't you agree? 26 MR. SNELSON: If you go from pooling with our 27 costs average across the province to make customers 28 responsible specifically for individual parts of their Les Services StenoTran Services Inc. 613-521-0703 1774 AMPCO PANEL 1, cr-ex (Godby) 1 costs, then inherently I believe this is a move away 2 from postage stamp rates. 3 MS GODBY: Thank you, Mr. Snelson. Those are 4 my questions. 5 Thank you, Board. 6 THE PRESIDING MEMBER: Thank you, Ms Godby. 7 Does anyone else have questions? 8 Mr. Cowan has questions. Mr. Cowan would you 9 like to come up and take a seat. 10 CROSS-EXAMINATION 11 MR. COWAN: Members of the Board, Mr. Snelson, 12 thank you. A few brief questions. 13 Following up on the following week from the 14 one that Mr. Campbell took you through, if you would. 15 This one a slightly more complex week. One day with a 16 two dollar differential, one day with a three dollar 17 differential, one day with a four dollar differential, 18 two days with a five dollar differential and two days 19 with a $3.50 differential. That's your seven days. 20 Somewhat different differentials. And $12 is what might 21 go to the beneficiaries of the pool in that particular 22 week. 23 Both are hypothetical weeks. What is a 24 normal -- 25 MR. SNELSON: I don't quite see how you get 26 $12. 27 MR. COWAN: One day at four dollars. 28 MR. SNELSON: One day at two. Les Services StenoTran Services Inc. 613-521-0703 1775 AMPCO PANEL 1, cr-ex (Cowan) 1 MR. COWAN: No sale on the day at two. 2 MR. SNELSON: Oh, I'm sorry. 3 MR. COWAN: Three dollars is your charge. 4 MR. SNELSON: Okay. That was the assumption 5 that I hadn't got. 6 MR. COWAN: My apologies, Mr. Snelson. So two 7 days with no sale, one day with a dollar, two days with 8 ten dollars between them and two days with one dollar 9 between them, for twelve dollars. 10 Now, both weeks are hypothetical. What is a 11 typical differential between Ontario power and import 12 power, the price of power in our markets -- for export, 13 sorry. 14 MR. SNELSON: The price differential we are 15 talking about is whatever the price differential will be 16 in the IMO market between an Ontario external zone and 17 the internal Ontario market. These are both prices that 18 are determined by the Ontario IMO. 19 At this point in time, we don't know how big 20 those estimates will be. It depends. If there are a 21 lot of transactions that are scheduled out of Ontario, 22 the price differential could be large, particularly if 23 the amount scheduled out is greater than the capability 24 of the interconnections. If there is very little 25 scheduled out, the price differential may be very small. 26 MR. COWAN: And your answer then reflects the 27 reality of the market. That is if very little is 28 scheduled out, the price differential is small. It Les Services StenoTran Services Inc. 613-521-0703 1776 AMPCO PANEL 1, cr-ex (Cowan) 1 would suggest that there is very little scheduled out 2 because there is not enough of a differential to attract 3 it. 4 MR. SNELSON: No, I don't think so. I think 5 that in fact Ontario power generation through the use of 6 its market power can arrange for the amount that is 7 scheduled out to be just less than the interconnection 8 capacity so that congestion charges are very small. 9 This is the way in which they can maximize their profit 10 while they have market power. 11 MR. COWAN: Thank you. Then on the days in 12 which there are no sale, what would happen to the power 13 that was not exported? 14 MR. SNELSON: It would not be produced. 15 MR. COWAN: What would happen to the coal that 16 wasn't burned? 17 MR. SNELSON: It would sit on a coal pile. 18 MR. COWAN: And what would happen to the air 19 that was breathed? 20 MR. SNELSON: We are presuming that the 21 incremental plant is a coal-fired plant. We haven't 22 actually made that assumption. With that assumption, 23 then there would probably be less emission. 24 MR. COWAN: What would happen to the price in 25 Ontario of power if the export market were in fact 26 smaller but the capacity remained the same, the capacity 27 to produce was not reduced. 28 MR. SNELSON: All other things, it depends on Les Services StenoTran Services Inc. 613-521-0703 1777 AMPCO PANEL 1, cr-ex (Cowan) 1 whether you consider the generator inside to have market 2 power or not. Right? If the generator has market 3 power, then he can adjust his bids in the market to 4 substantially end up with the same price in the Ontario 5 market as there would otherwise be. 6 MR. COWAN: Would it be your opinion that in 7 the case of generators with market power, the only 8 possibility for a consumer benefit, if you will, from 9 export power or not export power is in the returns to 10 the export pool in transmission? 11 MR. SNELSON: I believe that is the main one. 12 MR. COWAN: In the absence of market power, 13 would it be your opinion that there would also be the 14 potential for a consumer benefit through more widely 15 available reduced cost power in Ontario? 16 MR. SNELSON: Yes, but I don't think that it's 17 as great as the potential reduction in the Ontario price 18 if you had real competition coming from outside. 19 MR. COWAN: Right. The emphasis that you 20 would stress in your approach is equal prices for import 21 and export in order to have the true advantage of trade, 22 lower prices. 23 MR. SNELSON: We are seeking the lowering of 24 charges on inter-regional trade so that both buyers and 25 sellers have the access to the widest market possible on 26 the incremental cost only basis. 27 MR. COWAN: Okay. Thank you, kindly. That is 28 all. Thank you, gentlemen. Les Services StenoTran Services Inc. 613-521-0703 1778 AMPCO PANEL 1, cr-ex (Cowan) 1 THE PRESIDING MEMBER: Thank you, Mr. Cowan. 2 Does anyone else have any questions for this 3 panel before Board staff? No. 4 Then, Ms Lea, please. 5 MS LEA: Thank you. 6 I presume, Mr. Rogers, you prefer to go after 7 I do? 8 MR. ROGERS: Well, I would be willing to go 9 first. 10 MS LEA: I am in your hands, sir. I don't 11 have very much, so I can finish today certainly. 12 MR. ROGERS: I have about an hour I 13 anticipate, I am sorry to report, sir. 14 May I ask the Board what your intentions would 15 be today? 16 THE PRESIDING MEMBER: Our intentions were to 17 go a bit late, but not that late. 18 I think we will have to see whether these 19 witnesses can be resumed, but then we have to schedule 20 OPG first. 21 MR. ROGERS: Yes. 22 I was going to suggest that if we have to deal 23 with OPG first thing in the morning, if these gentlemen 24 could come back tomorrow I certainly for one would be 25 willing immediately following Mr. Osborne's panel 26 cross-examine them at that time. 27 MS LEA: The trouble is that if we start, I 28 think, shifting everybody around a bit and I gather that Les Services StenoTran Services Inc. 613-521-0703 1779 AMPCO PANEL 1 1 these witnesses are not available tomorrow. Am I right? 2 MR. FISHER: These witnesses may be available. 3 I haven't canvassed these witnesses, but -- no. 4 MS LEA: The difficulty is then bumping OPG to 5 another day. 6 MR. ROGERS: There is one OPG witness who is 7 not available other days. So far as I know the other 8 witnesses are available. It's just Mr. Osborne I think. 9 THE PRESIDING MEMBER: Yes, Mr. Osborne, and 10 we have to go on with him in the morning. 11 MR. ROGERS: My suggestion was that we do Mr. 12 Osborne first thing in the morning. I don't anticipate 13 he will take all that long, although I don't know 14 because I haven't seen his testimony, then resume with 15 these witnesses. 16 THE PRESIDING MEMBER: These gentlemen are not 17 available. 18 MR. GOLDSMITH: I am sorry, Mr. Chairman, I 19 would find out, first of all, if I could find a hotel 20 and, secondly, if I can schedule my day away from work 21 tomorrow. I hadn't planned that. 22 THE PRESIDING MEMBER: We will just have to 23 wait until you tell us. So we will proceed with Board 24 staff first and then Mr. Rogers next and see where we 25 go. Thanks. 26 MS LEA: Thank you. 27 EXAMINATION 28 MS LEA: I have four topics to ask you about, Les Services StenoTran Services Inc. 613-521-0703 1780 AMPCO PANEL 1, ex (Lea) 1 gentlemen, each with one or two questions each. 2 First, dealing with your proposal for a narrow 3 definition of a line connection pool and issues related 4 to that. I gather that because of some of the issues 5 and I won't delineate them here due to time constraints, 6 some of the issues around the fairly small pool which 7 would result by your narrow definition of a line 8 connection pool that you would propose to roll the 9 narrowly defined line connection pool in with the 10 transformation connection pool to form a combined 11 connection pool. Am I understanding the proposal 12 correctly? 13 MR. SNELSON: It's not specifically one of our 14 recommendations at this stage, but it is one possibility 15 to mitigate the impact that is caused by the relatively 16 small pool that results and the relatively high line 17 connection charge, connection rate that results. We 18 suggested that in answer to a couple of interrogatories. 19 MS LEA: Right. So it was in answer to 20 concerns raised by others, as opposed to part of your 21 original proposal? 22 MR. SNELSON: I don't believe the concerns 23 have been raised directly with us. It was a concern 24 that came to us as we looked at the results of the 25 answers to interrogatories some time after we had 26 finalized our evidence. 27 MS LEA: Thank you. 28 As I understand it from an answer to one of Les Services StenoTran Services Inc. 613-521-0703 1781 AMPCO PANEL 1, ex (Lea) 1 our interrogatories, to address concerns about the 2 possible lack of fit between customers not using one of 3 the pool services, but still paying for the full cost of 4 the combined connection pool, one of the key assumptions 5 of your proposal was that any disadvantaged customer 6 would be able to purchase its dedicated connection 7 facilities at net book value. Am I right? 8 MR. SNELSON: That's correct. 9 MS LEA: If that transfer of assets could not 10 take place between Ontario Hydro Networks Company and 11 some of the customers would this render your proposal 12 unworkable? 13 MR. SNELSON: Are you saying that it could not 14 take because -- 15 MS LEA: Could not take place, not a question 16 of price. 17 MR. SNELSON: It was a question of will it? 18 MS LEA: Possibly or some other preventing 19 thing. 20 MR. SNELSON: Clearly, if it was a question of 21 will then this is a choice the customers would make. So 22 that would certainly not be a barrier to it. 23 I am not sure what other barrier to that 24 happening you might have in mind. 25 MS LEA: Well, there could be a number of 26 things. Suppose price was a barrier, you couldn't agree 27 on price at OHNC. All I am trying to say is if that 28 could not take place is your proposal unworkable? Les Services StenoTran Services Inc. 613-521-0703 1782 AMPCO PANEL 1, ex (Lea) 1 MR. SNELSON: It is an essential part of our 2 proposal that that be allowed to take place if the 3 customer wishes it, yes. 4 MS LEA: Okay. 5 I have a second question on this area which 6 you may want to answer now or you may want to answer by 7 way of undertaking, if you want time to think about it. 8 I am happy either way. I wonder if you could consider 9 instead of OHNC's proposal, that a proposal involving 10 four pools is considered, a network pool which is based 11 on network assets only, so it doesn't include what has 12 been termed line connection assets, a transformation 13 pool, a line connection pool which is comprised of all 14 shared radial line facilities and a dedicated line pool 15 which covers those lines serving a single customer. 16 Now, under these pools a customer who 17 connected and paid for his own tap line to a network 18 line would not pay either the dedicated line pool charge 19 or the line connection pool charge. He would pay only 20 network and transformation if he needed that service. 21 So given that approach of four pools, would 22 that approach meet the concerns that you expressed in 23 your evidence. I think it is mostly in section 2.2, you 24 expressed concerns about OHNC's proposal. Would this 25 structure address some of your concerns? 26 MR. SNELSON: Can I ask a clarification? 27 MS LEA: Yes. 28 MR. SNELSON: And that is what would be the Les Services StenoTran Services Inc. 613-521-0703 1783 AMPCO PANEL 1, ex (Lea) 1 investment rules that would go with these pools because 2 I think that's an integral part of this consideration. 3 MS LEA: By investment rules can you be more 4 specific? 5 MR. SNELSON: Are the investments in the line 6 connection pool to be funded in the way that is 7 described by OHNC, for instance? Are the investments in 8 the dedicated line connection pool to be funded on a 9 customer pays basis or on a pool basis? 10 MS LEA: I think that you can assume with the 11 first one that it is in accordance with OHNC's proposal. 12 For the second one I will just ask some advice. 13 --- Pause 14 MS LEA: We are talking about the dedicated 15 line pool. I think we were hoping that we could assume 16 that the customer could stay in the pool or not under 17 his choice. Does that give you enough information? 18 MR. SNELSON: I think so, but I think we may 19 be better to answer it by way of undertaking, rather 20 than to try and give you an answer off the cuff today to 21 give you a fairly substantial answer. 22 MS LEA: Thank you. I appreciate that. It is 23 a lot to ask you. 24 MR. SNELSON: Yes. 25 MS LEA: Let's call it Undertaking F9.2 and if 26 you need further clarification you can let us know off 27 the record and we will certainly try to do that for you. 28 So, F9.2 is an answer to the proposed or Les Services StenoTran Services Inc. 613-521-0703 1784 AMPCO PANEL 1, ex (Lea) 1 suggested, let us say, four-pool structure. 2 UNDERTAKING NO. F9.2: Answer by 3 Mr. Snelson to the suggested four-pool 4 structure 5 MS LEA: Moving on to one question under net 6 versus gross and I know there is another panel coming up 7 for this, but I think this has more to do with some 8 evidence that was put forward by this panel. Could you 9 please have a look at page 21 of your evidence -- page 10 21 of your evidence. I am looking under section 4.4. 11 Under the first paragraph in section 4.4 you list three 12 options and you state that the numbers 2 and 3, that is 13 in the second paragraph of page 21, you state: 14 "Alternatives 2 and 3 are only acceptable 15 to AMPCO if AMPCO's proposals on the 16 narrow definition of line connection and 17 the right to buy out connection assets 18 are accepted." (As read) 19 Why are they dependent on those findings? Why 20 are those options depending on those findings? 21 MR. SNELSON: The two options end up with 22 gross load billing -- with a broad definition of line 23 connection, end up with gross load billing on a range of 24 transmission lines which are not dedicated to that 25 particular customer and which are available for use by 26 other customers in their same areas. 27 Many of those transmission lines that would be 28 gross load billed are 115 kV transmission lines which Les Services StenoTran Services Inc. 613-521-0703 1785 AMPCO PANEL 1, ex (Lea) 1 were originally built as network. Now they are serving 2 a function as line connection. 3 It is very hard to attribute those lines as 4 being specific stranded assets that should be recovered 5 by a gross load billing charge because some generator 6 load that is connected to them had installed it on 7 generation. 8 Many of those lines have been there many years 9 and were built for other purposes. 10 MS LEA: So if those findings that you list in 11 the second paragraph on page 21 are not made, do you 12 still put forward Option II and III as workable 13 proposals to the Board? Could they not be adopted 14 without those findings? 15 MR. SNELSON: I believe that AMPCO would not 16 find them acceptable. 17 MS LEA: All right. From your perspective, 18 then, you would not put those forward as desirable. 19 MR. SNELSON: That's right. 20 MS LEA: I see. 21 Turning to another question on -- I think this 22 has more to do, actually, with the transmission backup 23 service. 24 If modified culmination Option XVI as put 25 forward by OHNC was selected, is it your view that that 26 option renders transmission backup services redundant? 27 I think that was the conclusion we reached 28 with OHNC, but I just wanted to confirm your opinion Les Services StenoTran Services Inc. 613-521-0703 1786 AMPCO PANEL 1, ex (Lea) 1 also. 2 MR. SNELSON: Option XVI for the rate 3 determined for network? 4 MS LEA: Yes. 5 MR. SNELSON: Okay. Our view is that that 6 rate determinant provides an appropriate level of 7 charges for backup customers and that with that rate 8 charge determinant then you don't need to consider 9 whether or not you need a separate backup rate for 10 network. 11 MS LEA: Thank you. 12 Still on the question of the backup option, 13 then, I wonder if you could look at a response to one of 14 our interrogatories. It was our 11th interrogatory and 15 I think it has Exhibit No. E-58-11. 16 MR. SNELSON: Yes, I have it. 17 MS LEA: Okay. I would like you to look at 18 the last paragraph of that answer, please, on the second 19 page of the interrogatory. 20 I'm not sure that I understand the reason for 21 this statement. Can you explain why there is a lack of 22 clarity such as what you speak of here? 23 MR. SNELSON: Can I just take a minute to 24 reread that? 25 MS LEA: Please. 26 --- Pause 27 MR. SNELSON: I suspect that there is a 28 problem with the question in that the combination Les Services StenoTran Services Inc. 613-521-0703 1787 AMPCO PANEL 1, ex (Lea) 1 options being referred to appear to be IV and XI and I 2 think they probably should be IV and XVI is my guess. 3 MS LEA: That is my belief also. 4 MR. SNELSON: That is one of the things that 5 has been confusing me with this answer. 6 MS LEA: All right. We ask your pardon for 7 that. 8 --- Pause 9 MR. SNELSON: Yes. The reason for that last 10 paragraph is that if you have a charge determinant that 11 inherently doesn't recognize the effects of diversity, 12 the effects of some very small probability that some low 13 load factor use system may coincide with the system 14 peak, then if you give relief from that load factor to 15 backup power customers just because they are backup 16 power customers, then there could be other low load 17 factor customers on the system to whom you are not 18 giving equivalent relief. 19 MS LEA: Would you believe that there is 20 sufficient similarity between a backup power customer 21 and other low load factor customers on the system that 22 disparity between them is an issue? 23 Can I ask you the question this way: For a 24 low load factor customer I tend to think of a regular 25 usage for only part of the time, whereas for a backup 26 customer I would think of it as a more random usage. 27 I wonder whether the network usage pattern of 28 a single low load factor customer can be categorized as Les Services StenoTran Services Inc. 613-521-0703 1788 AMPCO PANEL 1, ex (Lea) 1 similar to a generator experiencing a forced outage and 2 its change -- it's sudden demand on the transmission 3 system? 4 MR. SNELSON: I don't know of any specific low 5 load factor customers that would have a load shape that 6 is very similar to the backup power demand. 7 I believe from their evidence that they gave 8 in the answer to one interrogatory that there is one 9 customer on the system, one direct customer that has a 10 load factor of 5 per cent and I don't know what their 11 load shape is like, but I would doubt that it is exactly 12 the same as a backup customer. 13 But there is the principle of a continuum here 14 that what matters to the transmission system is the 15 flows on the transmission system and if we establish a 16 set of charge determinants that charges on a reasonable 17 basis based on the flows of the transmission system, 18 then it shouldn't matter whether that flow on the 19 transmission system is created by the loss of a 20 generator causing a load to take extra power from the 21 system or whether it is some use of the system that is 22 only occasional for other reasons, the load for 23 instance, perhaps an electric furnace or something that 24 has a very low load factor -- 25 MS LEA: Okay, thank you. I think I 26 understand your position there. 27 Now, I have some questions about the surplus 28 power issue. They appear to me to be fairly policy or Les Services StenoTran Services Inc. 613-521-0703 1789 AMPCO PANEL 1, ex (Lea) 1 generic types of questions. Would I be asking them of 2 this panel or the surplus power panel? Shall I try them 3 here and bounce them over if they are better answered by 4 someone else? 5 Why don't I ask and you can let me know if I 6 need to ask them elsewhere, okay? 7 I gather from what we have heard from several 8 cross-examiners today is that the surplus power rate was 9 established when Ontario Hydro had a generation surplus. 10 Am I correct? 11 MR. SNELSON: That is correct. 12 MS LEA: It was designed to increase load and 13 use up some of that surplus. Correct? 14 MR. SNELSON: That is correct. 15 MS LEA: It was a rate package that promised 16 low margin cost-based rates if you accepted a certain 17 level of interruptability. Was that basically the idea? 18 MR. SNELSON: It had a number of conditions. 19 It had to be incremental load. It had to be 20 interruptible load. So those two conditions had to be 21 met and that was a necessary part of going on the 22 rate, yes. 23 MS LEA: Up until about 1997 interruption 24 levels on that rate were relatively low. 25 MR. SNELSON: We have submitted a document on 26 that as one of the exhibits. I would have to actually 27 review it to see whether that was the case. 28 MS LEA: I think it's G5.9. Les Services StenoTran Services Inc. 613-521-0703 1790 AMPCO PANEL 1, ex (Lea) 1 These are kind of questions leading up to my 2 main question. 3 So I don't want to lead you down the garden 4 path, but I had the impression that until 1997 5 interruption levels were relatively low. 6 MR. SNELSON: Well, I look at the exhibit and 7 there were substantial numbers of interruptions in 1993, 8 very few in 1994, quite a number in 1995. Again, there 9 were quite a number in 1996 but there was a substantial 10 increase in 1997, yes. 11 MS LEA: Okay. I gather that in 1997 general 12 capacity in Ontario became tighter and the price of 13 surplus power increased as well as the level of 14 interruption? 15 MR. SNELSON: That is correct. 16 MS LEA: Several large industrial customers 17 along with AMPCO, people who are benefitting from the 18 surplus power rate, encouraged Hydro to do something 19 about this situation. Am I correct? 20 MR. SNELSON: I believe that was probably the 21 case, yes. 22 MS LEA: Okay. I gather that Ontario Hydro 23 expanded the surplus power rate to include an 24 interconnected market purchase buy-through option -- I 25 think I have the words right -- to reduce outages and 26 reduce the interruptability. Do you recall that? 27 MR. SNELSON: Yes, there is an interconnected 28 market buy-through opportunity and it really exchanged Les Services StenoTran Services Inc. 613-521-0703 1791 AMPCO PANEL 1, ex (Lea) 1 interruptions for the opportunity to bypass, sometimes 2 at a very high price indeed. 3 MS LEA: I guess what I'm saying is that after 4 the surplus was exhausted here in Ontario the surplus 5 power rate was changed to allow imported power 6 quantities to supply surplus power load in a sense. 7 MR. SNELSON: Yes, that is true. 8 MS LEA: Isn't it the case, then, that you 9 have already had your transition period out of this 10 rate? I mean, there is no surplus left. 11 MR. SNELSON: These customers are on the 12 system essentially on the same basis as they were 13 originally in that they are being supplied at greater 14 than incremental cost and if they are incremental load 15 they are still making contributions to the net power -- 16 to the net income of Ontario Hydro and now Ontario Power 17 Generation. 18 So the rate has evolved certainly, but it has 19 evolved to a form that is still consistent with those 20 original principles. 21 MS LEA: But you are saying you still need a 22 further transition period despite the evolution of the 23 rate? 24 MR. SNELSON: The customers as of today have 25 their surplus power arrangements in place as we have 26 described them and they will change when the market 27 opens and if these rates end. 28 MS LEA: My last question is actually to Les Services StenoTran Services Inc. 613-521-0703 1792 AMPCO PANEL 1, ex (Lea) 1 Mr. Lemay. 2 Sir, you indicated in your evidence -- and it 3 has been pointed out by several cross-examiners -- that 4 no one has apparently approached you, at least your 5 company, to try to market electricity to you. 6 Did I understand your evidence correctly? 7 MR. LEMAY: That is correct. And because it 8 is my responsibility, if anybody approached our company 9 they would be directed to talk to me. 10 MS LEA: Is that, in part, because electricity 11 marketers are not yet licensed? Would you be dealing 12 with such marketers? 13 MR. LEMAY: No. I think we would be dealing 14 directly with generators. Our load is, in total, almost 15 200 megawatts. It is about 1 per cent of the total 16 provincial load. It isn't something that most marketers 17 would be able to deal with unless they had their own 18 generation. And if it was somebody who wanted to build 19 generation, they would certainly have to talk to us 20 about it well ahead of time. 21 MS LEA: Thank you, sir. Those are my 22 questions, gentlemen. Thank you, Mr. Chairman. 23 THE PRESIDING MEMBER: Thank you, Ms Lea. 24 --- Pause 25 THE PRESIDING MEMBER: Might I inquire from 26 the reporters whether you are able to go on for a bit 27 longer? 28 THE COURT REPORTER: Yes, I am okay. Les Services StenoTran Services Inc. 613-521-0703 1793 AMPCO PANEL 1, ex (Lea) 1 THE PRESIDING MEMBER: We will start and go 2 perhaps for 20 or 25 minutes, Mr. Rogers, if that is 3 okay. 4 MR. ROGERS: Very well, sir. 5 May I tell the Board that I have with me 6 Mr. Naren Pattani, who is a senior advisor with my 7 client, who will be helping me with this 8 cross-examination. I hope his assistance won't be 9 required very much, but he is with me. 10 CROSS-EXAMINATION 11 MR. ROGERS: Sir, last week we distributed, 12 and I have given to this panel, a series of four 13 diagrams that I am going to deal with in the course of 14 my cross-examination. I hope that the Board has copies 15 of those. Board Staff does and the witnesses do. 16 Could we be given an exhibit number, please. 17 MS LEA: That will be G9.2. 18 MR. ROGERS: Thank you. 19 EXHIBIT NO. G9.2: Series of four 20 diagrams 21 MR. ROGERS: This looks imposing, sir, but I 22 think it is relatively simple -- otherwise, they 23 wouldn't have given it to me. 24 Mr. Snelson, you can help me with these. 25 MR. SNELSON: I will do my best. 26 MR. ROGERS: You have had the diagrams for a 27 few days now? 28 MR. SNELSON: I had them on Friday, yes. Les Services StenoTran Services Inc. 613-521-0703 1794 AMPCO PANEL 1, cr-ex (Rogers) 1 MR. ROGERS: You have looked them over and 2 understand, more or less, what they depict? 3 MR. SNELSON: I understand some of what they 4 depict. I'm not quite sure I understand all of what 5 they depict. 6 MR. ROGERS: Maybe we can figure that out 7 together. I would like to discuss these with you, and I 8 hope that you can help me with some questions that 9 really go more to understanding your proposal. 10 Just so you know, sir, I propose to deal with 11 the specific first in this examination, and then I am 12 going to move to more general concerns later on. So I 13 will get the hard work done first and then the more 14 general later. 15 Mr. Snelson, I understand, sir, dealing with 16 your narrow line connection pool that has received some 17 attention today, your definition is that the line 18 connection pool consists of lines that serve only one 19 transmission delivery point. 20 MR. SNELSON: Either one transmission delivery 21 point or more than one transmission delivery point that 22 serves the same transmission customer. 23 MR. ROGERS: Correct. Thank you. 24 Is your line connection pool proposal 25 consistent with the MDC recommendation for line 26 connection pools? 27 MR. SNELSON: No, it is not. 28 MR. ROGERS: Mr. Goldsmith, you were on that Les Services StenoTran Services Inc. 613-521-0703 1795 AMPCO PANEL 1, cr-ex (Rogers) 1 Market Design Committee, were you? 2 MR. GOLDSMITH: Yes. 3 MR. ROGERS: Mr. Snelson, can you help me. Is 4 my client's proposal, based on the functionality of 5 transmission assets, more closely resembling the MDC 6 proposal than yours? 7 MR. SNELSON: I believe it is in that the MDC 8 did propose a definition of line connection that was 9 based on normally radial operation. I am not sure that 10 it lines up with the MDC recommendation in all respects. 11 I am not sure that the MDC has worked it out in that 12 degree of detail. 13 MR. ROGERS: Fair enough. But my client's 14 proposal is closer to what they recommended than yours. 15 MR. SNELSON: Yes. 16 MR. ROGERS: As I understand it, your proposal 17 for a narrowly defined line connection pool is based 18 primarily on your desire to see customer investment 19 signals in line connections. 20 MR. SNELSON: That is correct. 21 MR. ROGERS: All right. I think my client 22 would share that view. 23 However, my client, as you are well aware, 24 must deal with the complexities of managing the 25 regulated line connection pool under your proposal, if 26 it is accepted. 27 Therefore, I would like you to help me and the 28 Board understand some of the concurrent decisions in the Les Services StenoTran Services Inc. 613-521-0703 1796 AMPCO PANEL 1, cr-ex (Rogers) 1 matter of the narrow definition for line connection. I 2 am going to just begin with some questions that are 3 hopefully going to help us understand how your proposal 4 will work with respect to existing line connection 5 facilities; how they should be managed and regulated by 6 my client and the Board under your proposal. All right? 7 MR. SNELSON: Yes. 8 MR. ROGERS: Let's look at Exhibit 9.2 that 9 was just marked today, Figure N1. This diagram 10 illustrates a common situation across the province. And 11 just so we can help the Board understand this, I 12 understand, sir, that at the top there is a solid line 13 that shows the network systems. 14 Do you understand that, Mr. Snelson? 15 MR. SNELSON: Yes, I do. 16 MR. ROGERS: What we have shown here are 17 customers C1, C2, C3 and C4, all of whom are connected 18 by a tap line to the network system. 19 MR. SNELSON: I can see that. 20 MR. ROGERS: These delivery points, C1 to C4, 21 being connected to various lines whose costs are 22 included in the network pool, they serve, in part, a 23 common function. So they would be in the connection 24 pool. 25 MR. SNELSON: I'm sorry, the line from Network 26 Station A to Network Station B would be in the network 27 station pool. 28 MR. ROGERS: Right. The tap lines are what I Les Services StenoTran Services Inc. 613-521-0703 1797 AMPCO PANEL 1, cr-ex (Rogers) 1 want to talk to you about. 2 MR. SNELSON: Okay. 3 MR. ROGERS: I am instructed that there are 4 over 50 delivery points to tap into lines which connect 5 network stations. Is that in accordance with your 6 understanding? 7 MR. SNELSON: I don't have that data. You 8 have the data. 9 MR. ROGERS: Mr. Snelson, looking at our 10 example of the four customers who are attached by a tap 11 line, what is the tap line length that makes that tap a 12 line connection and therefore requires that the 13 customer, such as C1 to C4, pay towards the line 14 connection pool under your narrow definition for line 15 connection? 16 MR. SNELSON: We haven't specified a minimum 17 distance. There would probably be some de minimis of 18 perhaps -- I don't know how it would be defined. It may 19 relate to lines that are identified as specific assets 20 in the Ontario Hydro assets categorization, or it may 21 relate to length. We haven't defined it in that degree 22 of detail. 23 MR. ROGERS: So we are not sure what your 24 proposal is with respect to that? 25 MR. SNELSON: It is anything that represents a 26 significant line. But the definition of significant is 27 something that we have not addressed. 28 MR. ROGERS: Would .2 kilometres qualify? Les Services StenoTran Services Inc. 613-521-0703 1798 AMPCO PANEL 1, cr-ex (Rogers) 1 MR. SNELSON: I don't know. 2 MR. ROGERS: Would .5 kilometres qualify? 3 MR. SNELSON: Probably. 4 MR. ROGERS: Therefore, one kilometre would 5 qualify for sure. 6 MR. SNELSON: Yes. 7 MR. ROGERS: So it is somewhere between .2 and 8 .5 where your ambiguity exists. 9 MR. SNELSON: It may be a question of whether 10 in fact there is more than one tower distance. There 11 are a number of ways that it could be defined. But 12 there has to be some de minimis. If you just drop some 13 wires off the line and you are ten yards off to the 14 right-of-way and the wires just come down, that can't be 15 classified as a line. 16 MR. ROGERS: Who is going to define this? If 17 your proposal is accepted, what is my client supposed to 18 do with this proposal? 19 MR. SNELSON: I believe that OHNC would be in 20 the position of having to administer that. And whoever 21 was in the position of administering it would have to 22 put some exact resolution around the general principles 23 proposed. 24 MR. ROGERS: Do you have a recommendation for 25 them as to how they should define that so that you won't 26 be back complaining about it the next time? 27 MR. SNELSON: No, we don't have a specific 28 recommendation in that area. Les Services StenoTran Services Inc. 613-521-0703 1799 AMPCO PANEL 1, cr-ex (Rogers) 1 MR. ROGERS: Assuming then that at least those 2 customers on the diagram, from C2 through to C4, would 3 be subject to these charges -- and this really follows 4 on the questions that Ms Godby asked earlier today. 5 Would you expect under your proposal that upon the first 6 day of open access all of the customers who are tapped 7 to the network line, who would be paying charges -- I 8 suppose they all attract charges except perhaps the 9 .2-kilometre length line, number one, under your 10 proposal? 11 MR. SNELSON: If the .5 and 1 and 20 were 12 identified as line connections, yes, they will attract 13 charges. 14 MR. ROGERS: Let's just take them. 15 The first day of open access each of them 16 would have the option of buying out the tap which they 17 themselves use. 18 MR. SNELSON: That's correct. It may take 19 place before open access, but it is -- they would have 20 that option. 21 MR. ROGERS: All right. 22 Let's just take C2, Customer C2. There is a 23 half kilometre of line there. He would have the option 24 of buying it out and on your proposal that would be at 25 net book value. 26 MR. SNELSON: That is correct. 27 MR. ROGERS: We will come back to that in a 28 moment. Les Services StenoTran Services Inc. 613-521-0703 1800 AMPCO PANEL 1, cr-ex (Rogers) 1 Now, if we can turn to some other situations 2 that may arise under your definition of the narrow pool. 3 Let's look at the next page, Figure N2. 4 This looks a little more complicated, but I 5 don't think it is. This figure covers examples of line 6 connections originating at network stations, at network 7 stations rather than off the network lines as was the 8 case in Figure N1. Do you understand that, sir? 9 MR. SNELSON: Yes, I do. 10 MR. ROGERS: I would ask you, please, or point 11 out that this figure shows four examples that I would 12 like to address with you, starting with example (a) in 13 the top left-hand corner. 14 This example, example (a), shows two 15 customers, C1 and C2, utilizing a network line defined 16 by your proposal from the network station to the tap for 17 Customer C1. Do you see that, sir? 18 MR. SNELSON: Yes, I do. 19 MR. ROGERS: Is it true, Mr. Snelson, that 20 under your proposal Customer C1, who is located 10 21 kilometres from the network station and who utilizes a 22 regulated line to connect to the station will not pay 23 line connection charges since more than one customer 24 share the line to his delivery point? 25 MR. SNELSON: Are you postulating this example 26 that there is no line between point (x) and the 27 Customer C1? 28 MR. ROGERS: No. There is a line there, it is Les Services StenoTran Services Inc. 613-521-0703 1801 AMPCO PANEL 1, cr-ex (Rogers) 1 a broken line, and you will see on the margin at the 2 bottom right-hand that he therefore owns that line. I'm 3 sorry. 4 MR. SNELSON: Okay. I hadn't picked up on 5 that. 6 MR. ROGERS: Yes. I'm sorry. I should have 7 pointed it out. He owns that line. 8 MR. SNELSON: Customer C1 would not be in the 9 line connection pool. 10 MR. ROGERS: Can you help me, please? What 11 tap link from the junction point (x) on our exhibit (a) 12 to the delivery point for Customer C2 would place 13 Customer C2 in the line connection pool under your 14 proposal? 15 MR. SNELSON: I think we have already had that 16 discussion with respect to the tap of a network line and 17 the answers would be the same. 18 MR. ROGERS: Be the same. 19 MR. SNELSON: Yes. 20 MR. ROGERS: Somewhere around .5 kilometres 21 up? 22 MR. SNELSON: Whatever is long enough to be 23 worth recognizing as a line. 24 MR. ROGERS: All right. We have already 25 discussed how we would go about defining that. 26 MR. SNELSON: Yes. 27 MR. ROGERS: Let's suppose that it is long 28 enough that it qualifies, would that therefore require Les Services StenoTran Services Inc. 613-521-0703 1802 AMPCO PANEL 1, cr-ex (Rogers) 1 that Customer -- I'm sorry. We will come back to that. 2 Let's look at Customer C3 for a moment. 3 Would Customer C3 in this proposal -- he is 4 10 kilometres away from the network station -- would 5 Customer C3 have to pay line connection charges? 6 MR. SNELSON: Yes. 7 MR. ROGERS: While Customer C1 will not be 8 required to do so in this example? 9 MR. SNELSON: That is correct. 10 MR. ROGERS: Is it also true that line 11 connection charges for customers like C3 will increase 12 if your other proposal about purchasing the connecting 13 assets at net book value is also accepted assuming the 14 customers with short line connection choose to buy their 15 existing line connection assets and the customers like 16 C3 do not exercise this option possibly because of a 17 lack of sophistication or a lack of resources or some 18 other reason? 19 MR. SNELSON: We have accepted that the line 20 connection pool, that the buy-out option, moves 21 customers into specifically owning their assets faster 22 and the tendency is it would likely be for the lower 23 cost assets to buy themselves out and that the average 24 cost of the remaining assets might rise. We have that 25 in our evidence. 26 MR. ROGERS: Yes, you do. 27 MR. SNELSON: We put it in because we realized 28 that this was a consequence of our proposal. Les Services StenoTran Services Inc. 613-521-0703 1803 AMPCO PANEL 1, cr-ex (Rogers) 1 MR. ROGERS: Yes, you do. I agree. To be 2 fair, it is in your evidence. I just want to explore 3 how it will work. 4 Therefore, would you say that a remote 5 customer, for example, a remote LDC, is more likely to 6 be in the situation of Customer C3 while customers in 7 relatively more populated areas are more likely similar 8 to Customers C1 and C2? 9 MR. SNELSON: That sounds like a plausible 10 proposition, but the results that you have shown for the 11 calculation, in our definition, seem to indicate that 12 the customers who are in the line connection pool tend 13 to be large municipal utilities. 14 MR. ROGERS: Yes. You said that earlier to 15 Ms Godby. 16 Now, let's turn to example (b), if we could. 17 This is in the bottom left-hand corner of Figure N2. 18 This example is the same as example (a) except 19 that a new customer, C7, now connects just above the 20 Customer C3 at the tap point (y). Do you see that on 21 the right-hand line? 22 MR. SNELSON: Yes, I do. 23 MR. ROGERS: This Customer C7, because of the 24 dotted line, pays for his own hook-up to the existing 25 line. Are you with me, sir? 26 MR. SNELSON: Yes, I am. 27 MR. ROGERS: Under your proposal will 28 Customer C7 pay for line connection charges? Les Services StenoTran Services Inc. 613-521-0703 1804 AMPCO PANEL 1, cr-ex (Rogers) 1 MR. SNELSON: If this is the same as 2 example (a), then the line that originally went from the 3 network to Customer C3 is within the line connection 4 pool and remains in the line connection pool. 5 The Customer C3 has not bought the line from 6 the network station, did they? 7 MR. ROGERS: No. No. 8 You see, if it is a solid line he hasn't 9 bought it, if it is a dotted line it is customer-owned. 10 MR. SNELSON: In that case, Customer C7 would 11 not be in the line connection pool. 12 MR. ROGERS: All right. Thank you. 13 But Customer C3 will continue to pay line 14 connection charges. 15 MR. SNELSON: That is correct. 16 MR. ROGERS: If Customer C7 -- Mr. Goldsmith, 17 just a moment, I will come to you in a moment, if you 18 like -- were to connect after or below the point of 19 connection for Customer C3, will Customer C3 continue to 20 pay the line connection charges? 21 MR. SNELSON: So there is an extension to the 22 line and Customer C7 is further from the network station 23 than Customer C3. Is that your question? 24 MR. ROGERS: Yes. Assuming he is hooked up, 25 just extend the line and C7 is hooked up below 26 Customer C3 that is more remote from the station. 27 MR. SNELSON: And the question was? I'm just 28 trying to think through the situation. Les Services StenoTran Services Inc. 613-521-0703 1805 AMPCO PANEL 1, cr-ex (Rogers) 1 MR. ROGERS: Will Customer C3 in that 2 circumstance continue to pay the line connection charge? 3 MR. SNELSON: For that to happen there has to 4 be a reclassification of the line from being a line 5 connection to network. 6 MR. ROGERS: Right, because they -- 7 MR. SNELSON: And that may take place because 8 the line which used to serve one customer now serves 9 two. 10 MR. ROGERS: Right. So by virtue of the fact 11 that C7 connects below or more remote from the station 12 than Customer C3, now it is a shared facility and 13 therefore that line is in the line connection pool. 14 MR. SNELSON: It should be, yes. 15 MR. ROGERS: Notwithstanding the fact that 16 that line would be serving exactly the same function? 17 MR. SNELSON: It is serving two customers. 18 MR. ROGERS: Well, it is serving two customers 19 now, before you move C7. 20 MR. SNELSON: The line from the network 21 station to the tap (y) would be reclassified under this 22 system as network, and that would be the same as the 23 reclassification that would take place if you connected 24 further out. The connection from the network station to 25 the point at which it ceases to be a shared asset would 26 be reclassified as a network. 27 MR. ROGERS: All right. 28 So it is reclassified by virtue of the fact Les Services StenoTran Services Inc. 613-521-0703 1806 AMPCO PANEL 1, cr-ex (Rogers) 1 that Customer C7 locates where he locates? 2 MR. SNELSON: That is correct. 3 MR. ROGERS: Now, can we just go to (c) at the 4 top right-hand corner of this Figure N2. 5 This example shows two customers, C4 and C5, 6 who share a line that is 40 kilometres long, Customer C4 7 owns the short tap to this line. Now, under your 8 proposal, I understand that Customer C4 will not pay 9 line connection charges. Is that correct? 10 MR. SNELSON: Customer C4 is in the same 11 situation as C1 in example (a) and that is correct. 12 MR. ROGERS: Thank you. 13 Now, could we look at Customer C6 on the 14 right-hand side of that schematic. Customer C6 is 15 located about 5 kilometres away from the same station 16 that supplies Customers 4 and 5. 17 Let us hypothesize that this customer has a 18 much larger load than either of customers C4 and C5 and 19 assume further that the transmission line design for 20 this customer is identical to that for customers C4 and 21 C5, given the lumpiness of transmission investment. Do 22 you understand the assumptions that I asked you to make? 23 MR. SNELSON: You are saying that the same 24 type of line has been built to serve 200 megawatts as to 25 serve 25 megawatts. 26 MR. ROGERS: Yes. Given the lumpiness of 27 transmission investments. 28 MR. SNELSON: That is possible, but it also Les Services StenoTran Services Inc. 613-521-0703 1807 AMPCO PANEL 1, cr-ex (Rogers) 1 may not be so. I mean you can size transmission lines 2 to suit the size of the load to some degree. 3 MR. ROGERS: Take my assumption that because 4 of the lumpiness of the transmission investment, that 5 circumstance prevails. Right? 6 MR. SNELSON: We will accept that for 7 discussion purposes. I'm not sure that it's entirely 8 reasonable. 9 MR. ROGERS: All right. Well, would you agree 10 with that assumption that customer C6 would be making a 11 more efficient use of the line that connects him to the 12 network station as compared to customer C4? By that I 13 mean the unit cost of serving customer C6 would be lower 14 than the unit cost of serving customer C4. 15 MR. SNELSON: You are saying that the five 16 kilometres transmission has a lower carrying cost than 17 the 40 kilometres to customer C4? Is that the point you 18 are getting at? 19 MR. ROGERS: Yes. 20 MR. SNELSON: And with your assumption then 21 that is true. Yes. 22 MR. ROGERS: Thank you very much. And would 23 you also agree that under your proposal at least, 24 customer C6 will pay line connection charges while 25 customer C4 will not? 26 MR. SNELSON: That is correct. 27 MR. ROGERS: Now, can we come back to this 28 question of net book value. Your proposal is that Les Services StenoTran Services Inc. 613-521-0703 1808 AMPCO PANEL 1, cr-ex (Rogers) 1 customers will have an option for line connection -- for 2 line existing and the line connection pool to either 3 purchase -- to purchase the asset at net book value. 4 That's your proposal. 5 MR. SNELSON: That is our proposal. 6 MR. ROGERS: And I understand as well that 7 this proposal is tied to your proposal for the narrow 8 definition of the line connection pool. Is that right? 9 MR. SNELSON: We think that it was better with 10 the -- well, with the narrow definition of line 11 connection. With the broad definition of line 12 connection, we might make a similar proposal, except 13 that it's not generally feasible for the customer to buy 14 the asset and to be out of the pool where there is a 15 shared facility involved. So it can still apply with 16 the broad definition of line connection whether it is a 17 dedicated connection line from the network station to an 18 individual load and that is partially owned by Ontario 19 Hydro Network. 20 MR. ROGERS: All right. Thank you. Now, you 21 talked about this with Ms Godby just a few moments ago, 22 but you would agree -- I think you did with her as a 23 matter of fact -- that all other things being equal, an 24 older line would have a lower net book value and would, 25 therefore, be less expensive to purchase than a newer 26 line of same length. 27 MR. SNELSON: I don't think we did actually 28 get to that with her, but for what reason would you Les Services StenoTran Services Inc. 613-521-0703 1809 AMPCO PANEL 1, cr-ex (Rogers) 1 expect the longer line -- sorry, older line to have the 2 known net book value? 3 MR. ROGERS: What depreciation would be 4 applied to it. 5 MR. SNELSON: That's correct. 6 MR. ROGERS: Now, you didn't get to that 7 point, but this is the drift of her questions. You 8 would also agree that under your purchase option, 9 customers who utilize shorter lines also would tend to 10 have lower costs and, therefore, would be more inclined 11 to buy them. 12 MR. SNELSON: Yes. I would agree to that. 13 MR. ROGERS: You have also agreed, and as you 14 pointed out several times today, you have referenced 15 this in your evidence. This phenomenon or process will 16 lead to an ever-increasing line connection charge rate 17 as customers cherry pick the best facilities, probably 18 shorter and older lines, under your proposal. 19 MR. SNELSON: We agree that it moves towards 20 the specific costing of these facilities and that it's 21 not consistent with the long term standards of having a 22 pool. This is a way of transitioning to the customers 23 being responsible for those costs. 24 MR. ROGERS: But the customer will have the 25 choice whether to buy the facility or not. 26 MR. SNELSON: That is correct. 27 MR. ROGERS: And suppose that the demand of 28 those customers who happen to be served by older shorter Les Services StenoTran Services Inc. 613-521-0703 1810 AMPCO PANEL 1, cr-ex (Rogers) 1 tap lines is higher than the average demand per customer 2 in the pool and these customers are the ones who choose 3 the buyer option, that will exacerbate this 4 ever-increasing cost on the remaining members in that 5 diminishing pool, won't it? 6 MR. SNELSON: Can you just go through the 7 assumptions again? 8 MR. ROGERS: Yes. 9 MR. SNELSON: There were several there and I'm 10 not sure I got them all. 11 MR. ROGERS: I'm sorry. Assume that customers 12 who happen to be served by the older, shorter lines also 13 happen to be those which on average have the biggest 14 demand. 15 MR. SNELSON: I'm not sure that we have any 16 data to support that assumption. 17 MR. ROGERS: Well, that may be. I'm asking 18 you to assume it. If I had the data, I wouldn't ask you 19 to assume it. I would put it to you. Just assume that 20 with me, will you? 21 MR. SNELSON: In that case, I understand the 22 assumption. 23 MR. ROGERS: Assume like the big customers 24 maybe in Southern Ontario who happen to be close to the 25 line and who happen to have old depreciated facilities 26 are those who choose to cherry pick and buy their asset. 27 MR. SNELSON: I understand your assumptions. 28 MR. ROGERS: They have a larger demand in the Les Services StenoTran Services Inc. 613-521-0703 1811 AMPCO PANEL 1, cr-ex (Rogers) 1 system on average. 2 MR. SNELSON: That's another part of your 3 assumption. 4 MR. ROGERS: That will just exacerbate this 5 problem of this death spiral that this pool is going to 6 find itself in, won't it? 7 MR. SNELSON: As I have said, I don't believe 8 that the pool is viable on a long term basis along with 9 the system of having customers responsible for their 10 individual costs. 11 MR. ROGERS: I see. How long a transition 12 period do you foresee here? How long will this pool be 13 in existence? 14 MR. SNELSON: I don't know. It depends on how 15 quickly these phenomena that we talked about happen and 16 how quickly customers decide to exercise their options. 17 MR. ROGERS: Have you any advice for the Board 18 as to how long that length will be in your judgment? 19 MR. SNELSON: We haven't made any estimate of 20 that. 21 MR. ROGERS: All right. Can we just go to one 22 last -- the last example on page, figure M3 -- no, I'm 23 sorry, M2, which is the second page. Now, this will be 24 figure D, Mr. Snelson, on the bottom right hand corner 25 of the page. 26 MR. SNELSON: Yes. I can see that. Yes. 27 MR. ROGERS: Now, you will see that this 28 example involves two LDCs, one and two. Les Services StenoTran Services Inc. 613-521-0703 1812 AMPCO PANEL 1, cr-ex (Rogers) 1 MR. SNELSON: I can see that. 2 MR. ROGERS: Now, under your proposal, will 3 LDC 2 pay line connection charges for demand delivered 4 from the line shown? 5 MR. SNELSON: And you are showing LDC 2 as 6 owning his own connection? 7 MR. ROGERS: Yes. 8 MR. SNELSON: In which case he will not pay 9 line connection charges. 10 MR. ROGERS: Now, if LDC 2 and LDC 1 were to 11 merge, would the former LDC 2 now have to pay line 12 connection charges? 13 MR. SNELSON: If the line between the network 14 station and the tap to LDC 2 were to be reallocated to 15 the line connection pool because it now serves one 16 transmission customer, yes. 17 MR. ROGERS: So that if those two utilities 18 merged, then the costs are on the line connection pool. 19 MR. SNELSON: That is correct. 20 MR. ROGERS: For those people who live in 21 LDC 2. 22 MR. SNELSON: That is correct. 23 MR. ROGERS: Even though the actual function 24 served by that connecting line would be the same. 25 MR. SNELSON: That is correct. 26 MR. ROGERS: Thank you very much. 27 I have finished with that figure now, sir. I 28 am going to go on to the next figure. I don't know how Les Services StenoTran Services Inc. 613-521-0703 1813 AMPCO PANEL 1, cr-ex (Rogers) 1 much patience you have for this. 2 THE PRESIDING MEMBER: I think it may be a 3 good idea because we are not going to get through this 4 to stop at this point. We will pick it up when we 5 reschedule again. 6 Have you any news at all, Mr. Fisher, about 7 when you might be able to reschedule? 8 MR. FISHER: Dr. Higgin, one of the witnesses 9 on the second panel for AMPCO is only available 10 Wednesday and Thursday this week and then he is out of 11 the country for the next three weeks and will not return 12 until the 24th, so that won't help us if he can't make 13 it. So Wednesday and Thursday and I would have to 14 consult with the other members. I think the other 15 members for that panel would be available on Wednesday, 16 but I have to confirm that finally. 17 I would like to be able to speak with all of 18 them in order -- if we could bring both panels, or all 19 three panels back at the same time on Wednesday to 20 complete would be best. 21 THE PRESIDING MEMBER: So you would prefer to 22 come back on Wednesday, but an afternoon won't do it, 23 will it? 24 MR. ROGERS: Mr. Thiessen has just given me 25 some information that may assist. 26 MR. THIESSEN: It just complicates things. I 27 have been in contact with IPPSO about shifting from 28 Wednesday to next week and Mr. Brown got back to me and Les Services StenoTran Services Inc. 613-521-0703 1814 AMPCO PANEL 1, cr-ex (Rogers) 1 said that wasn't possible, but he is willing to shift 2 along to Wednesday or Friday, if need be, with his 3 witness panel. So we may have to think about making 4 some compromise on hearing time on Wednesday and perhaps 5 sitting a bit late. That might be my suggestion, but I 6 don't know. 7 THE PRESIDING MEMBER: We are going to have to 8 leave it with you. 9 As far as the resumption of these witnesses, I 10 guess you were looking to Wednesday as well? 11 MR. LEMAY: Mr. Chairman, I am from Sudbury 12 and Wednesday would be difficult for me. 13 I don't know how much more Mr. Rogers has, but 14 I am quite prepared to take whatever time it takes to 15 finish tonight and I think Mr. Goldsmith is in the same 16 position. 17 THE PRESIDING MEMBER: I don't think everybody 18 else can hang in for a long time, so I think that's 19 where we are at. We are going to have to stop. 20 The only question really is, my colleague 21 points out, that whether you can handle your questions, 22 Mr. Rogers, with Mr. Snelson at another time or do you 23 need the other gentleman? That's the question. 24 MR. ROGERS: I was just going to suggest that. 25 I could do without Mr. Lemay. 26 MR. LEMAY: I am not sure how to take that. 27 MR. ROGERS: To accommodate, I could put my 28 questions to Mr. Snelson, yes. Les Services StenoTran Services Inc. 613-521-0703 1815 AMPCO PANEL 1, cr-ex (Rogers) 1 THE PRESIDING MEMBER: You could? 2 MR. ROGERS: Yes. 3 THE PRESIDING MEMBER: I think the Board could 4 also handle it that way as well with our questions. 5 MR. ROGERS: He speaks for AMPCO on these 6 matters. I believe he has -- 7 THE PRESIDING MEMBER: That may be another 8 helpful option then, is we would just have Mr. Snelson 9 return to complete Mr. Rogers' questions and Board 10 questions. That might be something we can handle. 11 MR. FISHER: Yes, I think so. 12 I wonder what Mr. Snelson thinks about that. 13 Are you all right with that, Mr. Snelson? 14 MR. SNELSON: I am quite happy to deal with 15 the more technical questions, Mr. Chairman. There are 16 occasions when questions might arise that are more of a 17 policy nature for AMPCO and I am not sure that I can 18 speak entirely on the policy level for AMPCO. 19 Mr. Goldsmith and/or Mr. Lemay may speak more 20 authoritatively with respect to the policy at AMPCO. 21 THE PRESIDING MEMBER: Well, we can always 22 proceed by transcript undertaking if we need to on a 23 policy question, which means there would be a written 24 response required. 25 MR. ROGERS: If I can say most of my questions 26 really deal with the technical debate as to these ideas 27 and, therefore, I think Mr. Snelson could probably 28 answer them. Les Services StenoTran Services Inc. 613-521-0703 1816 1 THE PRESIDING MEMBER: That may be helpful. 2 I will leave those things. Board staff will 3 now have to work with other people, including 4 Mr. Fisher, and see if we can get a new schedule for 5 tomorrow. 6 We will start tomorrow morning, though, with 7 Mr. Osborne and I don't know, Mr. Campbell, you haven't 8 got any idea roughly I guess whether we are going to be 9 two hours or five hours with Mr. Osborne? 10 MR. CAMPBELL: My expectation is that 11 Mr. Osborne's appearance will be much less than two 12 hours overall would be my guess, because we have the 13 panel immediately following who will be dealing with 14 detailed questions about the proposals in the two areas 15 that OPG has put forward. 16 So, as I understand it now, Mr. Osborne would 17 come on at 9:00 and as soon as he was concluded we would 18 proceed with Mr. Boland and Dr. Orans. 19 THE PRESIDING MEMBER: That's tomorrow plan 20 and I think we will look to see if we can do something 21 on Wednesday now between Mr. Fisher and Mr. Brown and 22 see if we can get something going there. 23 Meanwhile, we will just assume that you 24 gentlemen are still sworn in until we tell you 25 otherwise, but you may have to come back some other 26 time. Thank you. That's the best we can do. 27 --- Whereupon the hearing adjourned at 1726, to 28 resume on Tuesday, February 29, 2000 at 0900 Les Services StenoTran Services Inc. 613-521-0703 1817 1 INDEX OF PROCEEDING 2 PAGE 3 Upon resuming at 0930 1587 4 Preliminary Matters 1587 5 AMPCO PANEL 1 6 SWORN: JOHN LEMAY 1589 7 SWORN: DAVID GOLDSMITH 1589 8 SWORN: KENNETH SNELSON 1589 9 Examination-in-Chief by Mr. Fisher 1589 10 Cross-Examination by Mr. Janigan 1633 11 Upon recessing at 1103 1648 12 Upon resuming at 1134 1648 13 Cross-Examination by Mr. Mattson 1669 14 Upon recessing at 1249 1703 15 Upon resuming at 1405 1703 16 Continued Cross-Examination by Mr. Mattson 1706 17 Cross-Examination by Mr. Mark 1707 18 Cross-Examination by Mr. Campbell 1748 19 Upon recessing at 1538 1759 20 Upon resuming at 1600 1759 21 Cross-Examination by Ms Godby 1770 22 Cross-Examination by Mr. Cowan 1774 23 Examination by Board Counsel 1779 24 Cross-Examination by Mr. Rogers 1793 25 Upon adjourning at 1726 1816 26 27 28 Les Services StenoTran Services Inc. 613-521-0703 1818 1 EXHIBITS 2 NO. PAGE 3 G9.1 HR 24 Filed Interrogatory 1763 4 G9.2 Series of four diagrams 1793 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 1819 1 UNDERTAKINGS 2 NO. PAGE 3 F9.1 Mr. Snelson to provide the 1762 4 March 1992 Incremental System 5 Value document referred to in 6 Footnote 48 at page 23 of AMPCO's 7 evidence 8 F9.2 Answer by Mr. Snelson to the 1784 9 suggested four-pool structure Les Services StenoTran Services Inc. 613-521-0703