1820 1 RP-1999-0044 2 3 THE ONTARIO ENERGY BOARD 4 5 IN THE MATTER OF the Ontario Energy Board Act, 1998; 6 7 AND IN THE MATTER OF an Application by Ontario Hydro 8 Networks Company Inc., for an Order or Orders approving 9 year 2000 transmission cost allocation and rate design. 10 11 12 B E F O R E : 13 R.M. HIGGIN Presiding Member 14 P. VLAHOS Member 15 B. SMITH Member 16 17 18 Hearing held at: 19 2300 Yonge Street, 25th Floor, Hearing Room No. 2 20 Toronto, Ontario on Tuesday, February 29, 2000, 21 commencing at 0903 22 23 24 25 HEARING 26 27 VOLUME 10 28 Les Services StenoTran Services Inc. 613-521-0703 1821 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 1822 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 1823 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 1824 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 ALECK DADSON Enron Capital Corp. 17 18 19 20 21 22 23 24 25 26 27 28 Les Services StenoTran Services Inc. 613-521-0703 1825 1 Toronto, Ontario 2 --- Upon resuming on Tuesday, February 29, 2000 3 at 0903 4 THE PRESIDING MEMBER: Good morning everybody. 5 Are there any preliminary matters, any filings, 6 schedulings, or anything? 7 MR. FISHER: Dr. Higgin, I would just like to 8 report on the status of the undertakings of AMPCO. 9 First, Undertaking F9.1, the document is being 10 printed as we speak and we will go and retrieve it at 11 morning break. 12 Second, we need some further time to consider 13 the ramifications of Undertaking F9.2, and we will 14 discuss that further with Board Staff and will make our 15 best efforts to get it to you as soon as possible. 16 THE PRESIDING MEMBER: Thank you. 17 MR. BROWN: Dr. Higgin, I was asked yesterday 18 by Mr. Aleck Dadson to ensure that a formal appearance 19 had been put in on behalf of Enron in this proceeding. 20 I don't think they appear on the transcript. 21 They are a registered intervenor. Mr. Dadson 22 has been monitoring the proceeding, and I expect Enron 23 will be filing final argument. 24 THE PRESIDING MEMBER: Thank you. 25 Anything for you, Mr. Rogers? 26 MR. ROGERS: No, sir. 27 THE PRESIDING MEMBER: Very well, then. Good 28 morning, Mr. Osborne. Les Services StenoTran Services Inc. 613-521-0703 1826 1 MR. OSBORNE: Good morning. 2 THE PRESIDING MEMBER: Mr. Campbell, we will 3 go to you for formal introduction and then the swearing 4 in. Thank you. 5 MR. CAMPBELL: Thank you very much. 6 Mr. Chairman, as you know, appearing for OPG 7 today is OPG's first panel, which consists of Mr. Ron 8 Osborne. 9 I would ask Mr. Osborne to come forward and be 10 sworn. 11 SWORN: RON OSBORNE 12 MR. CAMPBELL: Mr. Chairman, there has been a 13 CV filed for Mr. Osborne. It has been distributed 14 generally in the room and I believe to the Board. 15 EXAMINATION-IN-CHIEF 16 MR. CAMPBELL: Mr. Osborne, I am not going to 17 take you through that CV, but I would ask you to -- 18 MR. LYLE: Mr. Campbell, perhaps we should 19 mark that as Exhibit G10.1. 20 EXHIBIT NO. G10.1: Curriculum Vitae of 21 Ron Osborne 22 MR. CAMPBELL: Mr. Osborne, I am not going to 23 take you through that CV, but I would ask you to state 24 the position that you hold at OPG. 25 MR. OSBORNE: I am the President and Chief 26 Executive Officer of OPG. 27 MR. CAMPBELL: Could you please tell us why 28 you are appearing today before this Board. Les Services StenoTran Services Inc. 613-521-0703 1827 OPG PANEL 1, in-ch (Campbell) 1 MR. OSBORNE: I am appearing today because 2 while I would obviously rely on, and indeed have to rely 3 on, our qualified staff and technical staff to deal with 4 the details of the issues that you are addressing in 5 this hearing, I think it is important that they be 6 considered against the policy framework that was 7 inherent in Bill 35 and what the ultimate objectives are 8 that we at OPG and others who are members of the system 9 at large are required to operate against. 10 So I am here to discuss the policy framework 11 against which issues like gross versus net or wheeling 12 out and through decisions have to be made and the 13 implications of those decisions to that policy 14 framework. 15 MR. CAMPBELL: What do you see as the key 16 policy elements within which OPG will be operating? 17 MR. OSBORNE: I think if you go back through 18 the original discussion papers culminating in the white 19 paper almost three years ago now and ultimately Bill 35 20 that was passed in the last government, it is reasonably 21 clear that the basic policy objectives can be summarized 22 in three or four fairly straightforward encapsulations. 23 First, there was a clear desire to move from a 24 monopoly-based, one-size-fits-all regulated marketplace 25 in its entirety to a competitive marketplace where that 26 is feasible, recognizing that there are elements of the 27 electricity marketplace that do not lend themselves to 28 normal competition -- witness local distribution and the Les Services StenoTran Services Inc. 613-521-0703 1828 OPG PANEL 1, in-ch (Campbell) 1 transmission issues that you are addressing here and in 2 other sessions. 3 Secondly, I think a recognition on the part of 4 Ontario in general and the government in particular that 5 the time had come to force what was then Ontario Hydro 6 to operate in what I will call a more commercial 7 framework as opposed to a monopolistic framework and to 8 subject itself to the disciplines of the marketplace 9 which, in my view at least and obviously in the view of 10 the proponents of the legislation, would force it to 11 operate in a more consumer-friendly, customer-friendly, 12 and ultimately efficient manner. 13 Aligned to that was the objective of the 14 government to in effect phase out its position as the 15 financial backstop for the electricity industry through 16 the former debt guarantees that the province had offered 17 to Ontario Hydro and, going forward, that any future 18 debt incurred by either ourselves at Ontario Power 19 Generation or the transmission company Ontario Hydro 20 Services Company would not be guaranteed by the 21 province; that they could stand on their own two feet on 22 a commercial basis. 23 Finally, and just as important I guess as the 24 other objectives, is the desire to ensure that the 25 maximum value could be obtained for the various assets 26 of the old Ontario Hydro, as now deconstructed into the 27 separate companies, in order to ensure that the stranded 28 debt that had built up over recent decades could be Les Services StenoTran Services Inc. 613-521-0703 1829 OPG PANEL 1, in-ch (Campbell) 1 mitigated as far as possible, and that the impact to the 2 consumer of CTCs or other forms of transition charge to 3 deal with stranded debt could be minimized. 4 MR. CAMPBELL: Within this framework there are 5 obviously some realities. OPG is owned by the province. 6 How do you see the policy framework as preserving the 7 value and dealing with OPG's 85 per cent share of the 8 market for electricity generation in the province? 9 MR. OSBORNE: As I indicated, the decision has 10 been taken to move away from a monopoly regime where 11 some people at least would have argued that maximum 12 value could have accrued to the old Ontario Hydro and 13 the assets under its domain. 14 I think the evidence was pretty clear that in 15 fact those assets were not necessarily husbanded and 16 handled in the most productive fashion, either for the 17 province or the consumer. So we are now moving through 18 a transition phase -- and it won't happen overnight; 19 there has to be a transition to get there -- to a 20 construct in which we believe, and the province believes 21 in its pronouncements, that value can be maintained and 22 enhanced both for the benefit of the consumer and for 23 the benefit of the taxpayer. 24 One can argue that they are one and the same 25 at the end of the day, but there are distinctions 26 obviously. The taxpayer is represented through the 27 province and its guarantee of Ontario Hydro's former 28 debt, and the consumer through electricity rates. Les Services StenoTran Services Inc. 613-521-0703 1830 OPG PANEL 1, in-ch (Campbell) 1 The issue, as we move from the old regime to 2 the new regime is to do it in a fashion which (a) 3 ensures transparency and fairness to the consumer of 4 electricity; and (b) ensures that harm is not done to 5 the value of the underlying assets and the value of OPG 6 and OHSC, et cetera, in a way which would increase 7 stranded debt and thereby ultimately increase CTC 8 charges that would have to be recovered from the 9 consumer. 10 So obviously there is a balancing here of 11 interests. I think it is fair to say that, in general, 12 these interests do not collide. They are in fact 13 parallel. And I think we are attempting to show, as 14 OPG, through the positions we are taking on key issues, 15 that the interests of OPG and the interests of the 16 consumer on these key issues we are addressing are in 17 fact parallel and will be enhanced. But that is what we 18 are here to debate. 19 The key issue in this transition is clearly 20 the market position of Ontario Power Generation as we 21 start. We have some 85 per cent of the generating 22 capacity available in the province today, and clearly, 23 in the fullness of time, that simply is not sustainable 24 if one wants a fully competitive marketplace. 25 So a number of devices have been introduced to 26 deal with that. The key device is the Market Power 27 Mitigation Agreement under which we are capped on the 28 revenue stream on roughly 106 terawatt hours, which is a Les Services StenoTran Services Inc. 613-521-0703 1831 OPG PANEL 1, in-ch (Campbell) 1 very large portion of the production in this province 2 and, as I think you are aware, the now famous 3.8 cents 3 per kilowatt hour. And we rebate back to the consumer 4 anything that we are able to recover through the spot 5 market that exceeds 3.8 cents on that 105 or 106 6 terawatt hours. 7 But perhaps more importantly, in the long run 8 we are required to divest significant portions of our 9 assets. We were in fact given a ten-year horizon for 10 final decontrol or divestiture with an interim stage of 11 four years, approximately, to decontrol roughly 4,000 12 megawatts of fossil plant or price setting plant within 13 the spot market mechanism. 14 We have chosen to accelerate that time frame, 15 and we have announced in fact approximately 4,000 16 megawatts of generating capacity to be decontrolled by 17 us, hopefully prior to November 1st. My objective would 18 be to have those transactions out of the way before 19 November 1st so that there can in fact be other 20 indigenous generation in fossil in the province 21 available to bid in against us at the opening of the 22 market. 23 In addition to that we have put on the market 24 roughly 30,000 megawatts of base load generation, being 25 nuclear generation at the Bruce facility, which is a 26 process that is on the way as we speak. We are hopeful 27 that while it may not have closed by November 1st we are 28 hopeful that we can come up with a deal that will close Les Services StenoTran Services Inc. 613-521-0703 1832 OPG PANEL 1, in-ch (Campbell) 1 sometime over the next 12 to 18 months. 2 So we are attempting to advance the ball on 3 that front. 4 MR. CAMPBELL: Now, could you summarize for 5 the Board, with that background, the policy 6 considerations that you see behind OPG's position on 7 gross versus net billing, one of the two issues that OPG 8 has put in a position on in these proceedings? 9 MR. OSBORNE: Yes. Again, I think I come back 10 to the balance I referred to earlier, or the equation, 11 of what is appropriate for the consumer and what 12 preserves the value in the assets of which we are the 13 custodians. 14 To the extent that there are distortions built 15 into the transmission rates to the benefit of one 16 customer versus another customer, that other customer 17 will pay more than his or her fair share. It is our 18 view that the existing grid, sunk buried costs of the 19 existing grid, should be to all intents and purposes 20 paid for by all the existing customers, recognizing 21 there are some very limited exceptions to that. 22 We believe that going forward it is important 23 that no distortions be created in that structure. The 24 upshot of distortions would be not only the transfer 25 from one customer class to another customer class of 26 some element of transmission costs, but also the 27 undermining of value in some generating assets versus 28 potential new generating assets. Les Services StenoTran Services Inc. 613-521-0703 1833 OPG PANEL 1, in-ch (Campbell) 1 At the end of the piece, the undermining of 2 the value of existing generating assets to the benefit 3 of new generating assets that might come on stream will 4 result in less mitigation and stranded debt and higher 5 CTC charges to the consumer. This is a holistic 6 framework against which at the end of the day the 7 consumer will be footing the bill for the electricity 8 system either through transmission charges, energy 9 charges or CTC's. It is very important that we not 10 distort one element because it will create a distortion 11 in another element of the framework if we are not 12 careful. 13 Now, we recognize that not everybody agrees 14 with our position on this and we recognize that one can 15 make different arguments over a very long term. We do 16 recognize that if one wants to take a 30 or 40-year view 17 one can come up with a construct that sees the migration 18 away from gross billing to some form of modified net 19 billing. 20 In the interests of simply getting on with it 21 and trying to compromise here, we have suggested in our 22 submissions that a 10-year phase out of gross to net or 23 phase in of net from gross, however one wants to express 24 it, might be a sensible compromise just to get everybody 25 to the party and get on with what we have to do. 26 But the basic premise behind our position is 27 that there should not be artificial distortions created 28 in one form of generation versus another and that all Les Services StenoTran Services Inc. 613-521-0703 1834 OPG PANEL 1, in-ch (Campbell) 1 generations should stand on its own two feet against a 2 similar backdrop of transmission charges. 3 MR. CAMPBELL: Mr. Osborne, Mr. Boland and 4 Dr. Orans will be appearing to speak to the details of 5 that proposal, so I would like to move you on, please, 6 and ask you to address the policy considerations that 7 are behind OPG's position on the EWT or export and 8 wheel-through charges that are being proposed here. 9 MR. OSBORNE: Okay. I recognize that EWT or 10 exports have something of an emotive ring to it because 11 it is possible to put a construct -- I think an 12 incorrect construct -- but it is possible to put a 13 construct on it that somehow exporters are doing 14 something to the disadvantage of the indigenous market, 15 that somehow they are doing something that results in 16 them bypassing their fair share of the grid charge. I 17 do not believe that to be the case. 18 Historically, exports from this province 19 through the old Ontario Hydro were effectively used to 20 either make up for imports where it was advantageous for 21 us to import on a cost basis or a load-meeting basis, or 22 to create profits which were effectively accredited back 23 to the consumers through the cost of service regime 24 under Ontario Hydro and the PCA. 25 Going forward, a somewhat similar construct 26 will be maintained if our recommendations are accepted, 27 because the value of the transmission rate inherent in 28 the interties or congestion valuation in the interties, Les Services StenoTran Services Inc. 613-521-0703 1835 OPG PANEL 1, in-ch (Campbell) 1 as you will hear in the evidence of Mr. Boland and 2 Dr. Orans this afternoon, effectively will accrue to the 3 consumer through the workings of the IMO. Exporters 4 from this province will simply receive the value of 5 their energy without being bonused by the value of 6 transmission rates or congestion in the intertie. 7 Anything which attempts to levy on exports an 8 undue fixed charge which will be layered on top of 9 whatever would be paid in the form of congestion rates, 10 and whatever would be paid on the other side of the 11 border will, in effect, make exports uneconomic and will 12 ultimately reduce the credits back to the consumer in 13 Ontario because there will be no values that can be 14 contributed back to the IMO to the consumer. 15 While I think the theoretical construct should 16 be that exports would bear their full incremental costs 17 and not have the advantage of congestion value, as I 18 indicated earlier, again, I think we have tried to be 19 pragmatic in our suggestion. We recognize that not 20 everybody accepts that position. 21 In the interests, again, of simply getting on 22 with it and coming up with a compromise that we think 23 will make it possible for people to get on with it and 24 get the market to open appropriately on November 1st, we 25 have suggested that the minimum amount that should come 26 back to the consumer in Ontario through the IMO is a 27 dollar per megawatt hour, regardless of whatever the 28 congestion value may be. If the congestion value is Les Services StenoTran Services Inc. 613-521-0703 1836 OPG PANEL 1, in-ch (Campbell) 1 higher than the dollar then that is what will come back 2 to the consumer, if it is less than a dollar then the 3 consumer will get a dollar back through the system. 4 At the end of the piece, our exports and other 5 player's exports -- by the way, this isn't just an OPG 6 issue. It is an issue that is faced by all generators 7 in this province. All generators will simply operate on 8 an essentially level playing field through the interties 9 and will work to the advantage of the consumer by 10 ensuring that maximum credits are generated. 11 MR. CAMPBELL: Thank you, Mr. Chairman. Those 12 are my questions of Mr. Osborne. 13 THE PRESIDING MEMBER: Thank you very much. 14 We will follow the normal order. 15 CROSS-EXAMINATION 16 MR. BROWN: Good morning, Mr. Osborne. 17 As your counsel mentioned before you started 18 this morning, my name is David Brown and I am appearing 19 on behalf of the Independent Power Producers Society of 20 Ontario. 21 MR. OSBORNE: Right. 22 MR. BROWN: I have been asked by my friends 23 from AMPCO to ask these questions on their behalf as 24 well. So you are getting a break, two for one, early in 25 the morning. 26 MR. OSBORNE: All right. I will take that as 27 a break. 28 MR. BROWN: I will confine my questions to Les Services StenoTran Services Inc. 613-521-0703 1837 OPG PANEL 1, cr-ex (Brown) 1 largely the policy level because that is the level at 2 which you have addressed your comments. 3 I was struck that you opened your comments by 4 talking about the objectives, as you saw them, of the 5 new regime in Ontario. You went through a list of three 6 or four of those. 7 Would you agree with me, sir, that one of the 8 strikingly new things about the regime, and perhaps one 9 of the repression things about the regime, is that the 10 Ontario Legislature in its wisdom decided that under the 11 new legislation it would prevent people really from 12 having to guess what the objectives of the new regime 13 are? Instead, the Legislature set down in the opening 14 section of the Electricity Act and in the opening 15 section of the Ontario Energy Board Act, the objectives 16 which it saw for the new market in Ontario. 17 MR. OSBORNE: Yes, and I think what I 18 attempted to do is pricey from the perspective of one 19 reader of that legislation, what I think those 20 objectives boil down to in its simplified form. 21 MR. BROWN: Fair enough, and of course, 22 notwithstanding that the Legislature has put something 23 down on paper, everyone is going to come at it from a 24 different perspective. 25 But you agree with me, sir, that one of the 26 things that the Legislature has emphasized under the new 27 regime is that the new regime must facilitate 28 competition in the generation of energy? Les Services StenoTran Services Inc. 613-521-0703 1838 OPG PANEL 1, cr-ex (Brown) 1 MR. OSBORNE: Yes. 2 MR. BROWN: And that is, if I could put it 3 this high, probably the linchpin or the foundation block 4 upon which the Legislature has rested its case because 5 it is essentially rolling the dice and saying if we have 6 more competition in generation, in the long run Ontario 7 consumers are going to pay less for their electricity 8 needs? 9 MR. OSBORNE: Yes, and I think my comments by 10 pointing out that the key objective was to move from a 11 monopoly regime to a competitive regime. 12 I then went on to say that in doing that we 13 must ensure that we don't create distortions in the 14 marketplace which, in effect, will reverberate back on 15 the consumer. 16 You will recall a very lively and very public 17 debate around the value of the old Ontario Hydro assets 18 and the residual stranded debt and the matter in which 19 that residual stranded debt, which is a figure of 20 roughly $8 billion, if my memory serves, will be 21 recovered from the consumer and over what period of time 22 and what consumer, et cetera. 23 We are not here to debate that today, but the 24 point I was making was that this is a historical -- it 25 is a connected historical, it is a whole. The objective 26 is to ensure that we introduce fair competition in a way 27 which is balanced, does not create distortions in the 28 marketplace, and at the end of the piece is in fact Les Services StenoTran Services Inc. 613-521-0703 1839 OPG PANEL 1, cr-ex (Brown) 1 beneficial to the consumer and doesn't reverberate by 2 creating, for example, higher CTC charges or more 3 stranded debt. 4 I think the public debate around that issue 5 and through the Market Design Committee was reasonably 6 transparent, and I think I have tried to paraphrase as 7 best I can my reading of that debate. 8 MR. BROWN: It is fair to say, though, is it 9 not, sir, that the largest slice or portion of any 10 electricity consumer's bill in this province is the 11 energy portion of the bill? 12 MR. OSBORNE: Roughly 50 per cent. 13 MR. BROWN: And we have a number of other 14 components wrapped into the bill, the transmission 15 distribution and other things. 16 MR. OSBORNE: Yes. 17 MR. BROWN: But it is the energy cost which is 18 the primary cost. 19 MR. OSBORNE: As I said, it is roughly 50 per 20 cent. 21 MR. BROWN: Therefore, in order to get to the 22 end state that the Ontario legislature foresees for this 23 economy, it is critical, is it not, that the energy 24 component of the bill be exposed to as much competition 25 as possible in order to ensure as best as possible that 26 we get the least cost, the cheapest electricity, for 27 consumers in Ontario? 28 MR. OSBORNE: It is essential that we have a Les Services StenoTran Services Inc. 613-521-0703 1840 OPG PANEL 1, cr-ex (Brown) 1 maximum competition that does not create distortions in 2 the other elements of the electricity system so that at 3 the end of the day you rob Peter to pay Paul and you 4 create distortions in the other components of the 5 system. 6 Our view is that the way to ensure over the 7 medium and longer term, and recognizing the short term, 8 we have to create competition by decontrol because that 9 is the only way in the short term. It takes three to 10 four years to build a new plant. But in the medium to 11 long-term, the best way to create competition is to 12 ensure an open, transparent, balanced as far as possible 13 level playing field for all players. That will ensure 14 to all generating players, they know the rules of the 15 game as they come in, that there will not be 16 capriciousness within the system and at the end of the 17 piece they can compete on their skills as generators, as 18 buyers of fuel, as marketers, et cetera, and not compete 19 on the basis of artificial devices that are created 20 through distorting elements in transmission rates or CTC 21 rates or whatever. 22 MR. BROWN: I want to address one of the 23 things which you, I suspect, are labelling as a 24 distortion. But just to finish up on this point, would 25 you agree with me that if by the time we reach the end 26 state ten years down the road electricity prices in this 27 province have not fallen, that is, the price of the 28 energy component has not fallen, this whole Les Services StenoTran Services Inc. 613-521-0703 1841 OPG PANEL 1, cr-ex (Brown) 1 restructuring exercise will have been a failure? 2 MR. OSBORNE: No, I wouldn't agree with that. 3 That is beyond my canon. It is a political statement 4 more than it is a businessman's statement or, candidly, 5 if I can, without disrespect, a regulatory statement. 6 The issue for me is: What is likely to create 7 the best opportunity for the cheapest possible 8 electricity rates ten years out, five years out, et 9 cetera? As I indicated, we have undertaken to 10 accelerate the decontrol mechanisms which were imposed 11 upon us because we recognize that we are in a untenable 12 position let alone the rest of the system is in an 13 untenable position while we procrastinate and simply 14 don't get on with it. 15 So we are doing our best to comply and more 16 than comply with the demands put on us through the 17 market power mitigation agreement. I have no idea what 18 the price of natural gas will be eight years from now. 19 I have no idea how much new generation will be 20 constructed over the next ten years. I have no idea 21 what the demand in the province will be. We can all 22 make our best educated guesses, and there are a lot of 23 science attached to some of these guesses, but the 24 reality is we are operating now in a commodity world 25 which will largely, over time, be driven by natural gas 26 prices. 27 If anybody in this room was able to predict a 28 year ago with certainty what was going to happen to Les Services StenoTran Services Inc. 613-521-0703 1842 OPG PANEL 1, cr-ex (Brown) 1 either natural gas or oil prices, he or she did not have 2 to work, sort of made their money speculating on oil and 3 gas over that period of time. 4 So, the reality is, the prices of electricity 5 will be driven by all the environmental factors I have 6 referred to ten years up. Whether that is higher or 7 lower will be a function of those factors, and 8 particularly, obviously, the price of fuel. 9 The question, though, that you I think were 10 trying to get me to answer, and I may not be doing it to 11 your satisfaction, but the question you were trying to 12 get me to answer is: How do we construct a marketplace 13 that will create an opportunity for the lowest possible 14 price. I think we will do that by having a balanced, 15 non-distorting transparent regime in which all 16 generators, present and future, know what the rules are, 17 know that they will be treated equitably and fairly, and 18 can win on the basis of their inherent skills, and, as I 19 said earlier, not on the basis of come artificial 20 construct. 21 It is a truism that we all in this business, 22 and in any other quasi-regulated businesses I have been 23 involved in, talk about a level playing field. One 24 regulator once said to me, "There is no such thing as a 25 level playing field. That is why we change ends at half 26 time." But the reality is I do think we have an 27 obligation to construct the most level playing field we 28 can. We do not believe that will be achieved by Les Services StenoTran Services Inc. 613-521-0703 1843 OPG PANEL 1, cr-ex (Brown) 1 artificially bonusing or benefitting one source of 2 generation against another. And we don't think it is in 3 the interest of the consumer that one source of 4 generation be bonused against another. 5 MR. BROWN: You have mentioned, sir, several 6 times in your comments, that OPGI is moving quickly to 7 fulfil the first phase of its decontrol mandate under 8 the market power mitigation agreement, and I take it 9 that it is moving to fulfil that first stage so quickly 10 because you, as the company, appreciate that the 11 decontrolling of Ontario Power's dominant position in 12 the marketplace is a key element in moving towards a 13 competitive electricity market. 14 MR. OSBORNE: The easy answer to that question 15 is obviously, yes, but all answers -- 16 MR. BROWN: Well, that is all that I want from 17 you. 18 --- Laughter 19 MR. OSBORNE: -- are new ones because the 20 reality is that we will be operating under a 21 transitional market power mitigation agreement that is 22 designed to ensure we cannot take advantage of what you 23 refer to as our dominant position in that marketplace. 24 But at the end of the day, I think justice has to be 25 seen to be done as well as being done. 26 We believe that customers would like there to 27 be real competition as early as possible, as opposed to 28 a framework through the market power mitigation Les Services StenoTran Services Inc. 613-521-0703 1844 OPG PANEL 1, cr-ex (Brown) 1 agreement, and I will say candidly that there is an 2 element of self-interest that is built into our desire 3 to accelerate the control. It is extraordinarily 4 difficult to come up with a game plan for a company that 5 is meaningful and directive for 15,000 employees when 6 you know you have this mandate to decontrol and divest 7 at some point in the future. 8 We have concluded that taking all of those 9 factors into account, the province is better served if 10 we get on with it now. I think timing is acute. It is 11 not coincidental that it is now. Twelve months ago it 12 would have been rash because candidly there was no real 13 definition of the marketplace at that point, in spite of 14 the excellent work of the Market Design Committee. This 15 hearing had not yet even started. 16 By the time we are through with the debates 17 that we are having here today, and decisions have 18 rendered, et cetera, and by the time the IMO is finished 19 its market rule definitions, et cetera, we will likely 20 be towards the end of the process of decontrol and 21 buyers, people who want to take the assets from us, will 22 be in a position to assess the value against that 23 construct. So I think the timing is opportune. 24 MR. BROWN: Just, sir, as you have candidly 25 admitted that it is probably in the best interests of 26 the Ontario economy overall that OPGI move quickly to 27 fulfil its decontrol mandate, would you not agree with 28 me that it is equally critical for the Ontario economy Les Services StenoTran Services Inc. 613-521-0703 1845 OPG PANEL 1, cr-ex (Brown) 1 that we move quickly to create the fairest possible 2 conditions so that other generators can enter into the 3 market and again to offer energy on a competitive basis 4 to Ontario consumers? 5 The two go hand in hand: fast decontrol and 6 fast investment in private sector generation resources. 7 Would you agree with that? 8 MR. OSBORNE: I agree with that absolutely, 9 and that was the fundamental premise of what I said. 10 You used the term, I think, "a fair approach" 11 to allowing a construct to be developed that would bring 12 in new generation. That is exactly what I said. I do 13 not believe that creating mechanisms that distort 14 somehow the allocation of transmission costs or other 15 costs, for that matter, constitutes fair. I would argue 16 that anything that distorts the allocation of 17 transmission costs in the fashion that I think you are 18 implying you would like or that you haven't stated, and 19 I don't honestly know what your particular position 20 is -- 21 MR. BROWN: I'm coming to it. I'm coming 22 to it. 23 --- Laughter 24 MR. OSBORNE: -- I think you are suggesting 25 that there should be some element of allocation within 26 the system that is somehow different from what we have 27 recommended. I assume you are heading toward some kind 28 of a net versus our proposal of gross phased to net over Les Services StenoTran Services Inc. 613-521-0703 1846 OPG PANEL 1, cr-ex (Brown) 1 time. 2 The upshot of what I believe you will be 3 suggesting to me in one of your next questions, if I can 4 be so presumptuous, is in my view to allocate costs 5 between customer classes in a fashion that is not in the 6 best interests of the system at large. I think I 7 addressed that in my opening comments. 8 MR. BROWN: I would like to return to your 9 opening comments, because I was struck by one of your 10 remarks which, I hope I heard correctly, was that in 11 your view in the long term perhaps it would be 12 appropriate to phase in a net load billing regime. 13 Do I take it from your remarks that you would 14 see the end state as being one in which net load billing 15 regime is in place some time down the road? 16 MR. OSBORNE: I think there are many other 17 issues attached to transmission that are going to have 18 to be addressed at some point. The whole issue of nodal 19 versus zonal, et cetera, is one that is going to be 20 addressed at some point. 21 I think there will be numerous debates around 22 what constitutes a fair transmission regime. One of 23 those issues will continue to be gross versus net. I 24 wouldn't presume, as we sit here now, to try to predict 25 what might be the ultimate fair position 15, 20 years 26 from now. 27 We know we have a grid today that has been 28 constructed with that time horizon and indeed more ahead Les Services StenoTran Services Inc. 613-521-0703 1847 OPG PANEL 1, cr-ex (Brown) 1 of it. The issue we are attempting to discuss today is 2 what is the best way to allocate the costs of that 3 system. 4 I think some time will have to elapse and some 5 experience with the system will have to be developed 6 before we can determine precisely what the model of 7 transmission charging might be, 20 or 30 years from now. 8 The issue is what do we do over the next roughly 10 9 years of transition as we go from a monopoly regime to 10 an open competitive marketplace. 11 We believe we have come up with a construct 12 that is a reasonable compromise between the 13 theoretically pure on the one hand and what we consider 14 to be the theoretically impure on the other hand, which 15 is going to a net regime today. 16 MR. BROWN: Perhaps I could put it this way, 17 if there is a general consensus that at the end of the 18 day, whenever that time might be, a net load billing 19 regime would be the appropriate for an end state, my 20 question to you, sir, is why wouldn't we move there 21 immediately and get the ball rolling and get competition 22 and energy up and running as quickly as possible in this 23 province? 24 MR. OSBORNE: Because we are where we are. We 25 inherit a system that has engrained the embedded costs 26 of the transmission grid, local distribution network and 27 the generation that we have today. The issue is: What 28 is an appropriate transition regime to the Valhalla of Les Services StenoTran Services Inc. 613-521-0703 1848 OPG PANEL 1, cr-ex (Brown) 1 the world 20 and 30 years up. We are not starting with 2 a tabular horizon. We are starting where we are, with 3 an existing grid, with an existing requirement to fund 4 back grid and to retire that grid. The issue is what is 5 a fair and balanced way of allocating the cost of the 6 existing grid. 7 We don't believe that coming up with a regime 8 that automatically advantages one source of generation 9 versus other sources of generation is a reasonable 10 transition technique for dealing with the status quo. 11 We have to deal with where we are. 12 MR. BROWN: In terms of where we are right 13 now, we had seen from one of the interrogatory responses 14 given by OHNC to some questions that in terms of the 15 current tariff, the current regime, when they are 16 calculating the bill for loads served by embedded 17 generators, at the present time they do not add on to 18 that bill the demand which is supplied by the embedded 19 generator. They just calculate the bill on the basis of 20 the energy that is taken off the transmission grid. 21 If that's where we are today, sir, why would 22 we suggest moving to something else, that is gross load 23 billing, where you add on something which today is not 24 added on. Isn't that a distortion in the existing 25 playing field? 26 MR. OSBORNE: Well, there are existing cogen 27 facilities that have, I think you are aware, have been, 28 quotes, grandfathered, into the system. Les Services StenoTran Services Inc. 613-521-0703 1849 OPG PANEL 1, cr-ex (Brown) 1 There are a number of what are call virtual 2 cogen facilities which have asked for an opportunity to 3 be dealt with in a similar fashion for a period of time 4 and then we have some surplus customers, by which I mean 5 customers who essentially buy energy on the margin, 6 today as we speak, and make their own decisions to buy 7 or not buy based upon the surplus cost, largely in the 8 interties, although not necessarily in the interties. 9 They too have asked for some form of special treatment. 10 We are taking no views with respect to those 11 particular classes of customer because we believe that's 12 for the OEB and for the authorities at large to 13 determine. 14 What we are asked to opine on and what we are 15 submitting our evidence on is the best construct we 16 believe would ensure the appropriate balancing of the 17 interests of all consumers and all generators in this 18 province. 19 I think the issue is what is the best 20 construct going forward, not what we might have done in 21 the past or how we got there from here. Lots of things 22 happened in the past. The reality is we are here to 23 determine what is an appropriate approach to allocating 24 transmission costs going forward. 25 If you wish to delve further into what 26 happened in the past, I would suggest that you talk to 27 the experts from OPG who will be up to bat later in the 28 date, or refer back to the OHNC experts in this field, Les Services StenoTran Services Inc. 613-521-0703 1850 OPG PANEL 1, cr-ex (Brown) 1 but the issue for me, as we sit here today, is what is 2 the appropriate construct going forward. We think we 3 have created such in our recommendation. 4 MR. BROWN: Fair enough, sir, and that message 5 has come through loud and clear, but you do appreciate 6 that there is a fairly large school of thought, 7 particularly amongst those on the private generation 8 investment and develop community, who perceive the 9 proposal for gross load billing as a choking of the 10 playing field in a way that the parts from where we are 11 now and in a way that will discourage rapid investment 12 and private generation, you understand that perception? 13 MR. OSBORNE: I understand that perception. 14 My response would be that far from us requiring or 15 requesting a tilting of the field, it's they that are 16 requiring a tilting of the field to enable their 17 generation that otherwise would not be competitive at a 18 point in time to be competitive by means of the tiling 19 of that very field to which you refer. 20 We are perfectly happy to compete with all 21 comers on the same transparent basis. We do not believe 22 it is in our interest or in the consumer's interest to 23 have generation incentivated through distortions in such 24 elements as transmission because, as I said earlier, to 25 the extent you create such distortions you will create 26 the opportunity for otherwise uneconomic generation to 27 be built, which ultimately goes to the value of the 28 existing asset, which goes to the amount of stranded Les Services StenoTran Services Inc. 613-521-0703 1851 OPG PANEL 1, cr-ex (Brown) 1 debt, which goes to CTC charges that the province will 2 have to extract from the electricity consumer. 3 And, at the same time, you will create 4 distortions between transmission rates paid by one 5 customer class versus another customer class. 6 We don't consider either of those results to 7 be in the interests of the system at large or customers. 8 MR. BROWN: Just following on that theme, that 9 fair is fair for everyone and there should be a fair and 10 transparent transmission regime, would you agree with 11 me, sir, that it would also be fair that if existing 12 private generators or future private generators have to 13 bear the responsibility for their connection costs to 14 the grid, it would also be fair to set up a construct 15 under which OPGI bears responsibility for its cost of 16 the connection assets to the grid? Isn't that the 17 logical conclusion of fair is fair? 18 MR. CAMPBELL: Just a minute, Mr. Chairman. I 19 thought there had been a specific ruling from this Board 20 that that issue was for argument only. It is not one on 21 which evidence is being given in these proceedings. 22 THE PRESIDING MEMBER: Do you want to respond 23 to that? 24 MR. BROWN: Well, that is perfectly -- if my 25 friend wants to hide behind a refusal I won't pursue the 26 question, but the issue of fairness, quite frankly, 27 given the policy level that Mr. Osborne is addressing 28 matters at, is one I thought my friend would have wanted Les Services StenoTran Services Inc. 613-521-0703 1852 OPG PANEL 1, cr-ex (Brown) 1 his client to answer. But if there is a refusal I will 2 move on, Dr. Higgin, to another area. 3 The final area, Mr. Osborne, is with respect 4 to the future sources of generation competition for 5 OPGI. Would you agree with me, sir, that in the 6 broadest of terms they will come from two sources. The 7 first source of generation competition for OPGI will be 8 from those generation plants that are connected to the 9 network, what we colloquially call merchant generation 10 plant? That will be one source? 11 MR. OSBORNE: That is certainly one source, 12 yes. 13 MR. BROWN: Certainly one source. And those 14 are the plants that sell into the grid and their 15 customers take their energy off the transmission grid. 16 Correct? 17 MR. OSBORNE: Yes. 18 MR. BROWN: And those customers will pay for 19 their transmission on a net load basis. They will just 20 pay for what they take off the grid. Correct? 21 MR. OSBORNE: I want to think through the 22 ramifications of the specifics of your words there. 23 People buying off the grid will pay, assuming for the 24 moment they are buying on the spot market, will pay the 25 spot market price of electricity, plus they will pay 26 their share of transmission costs. They will pay 27 whatever CTC is levied and they will pay IMO optics. 28 They will pay NUG optics or non-utility generator Les Services StenoTran Services Inc. 613-521-0703 1853 OPG PANEL 1, cr-ex (Brown) 1 stranded debt optics, et cetera. They will pay the full 2 price if they are buying through the spot market. 3 If they are buying on a bilateral basis from a 4 marketer, it might be OPG or it might be somebody other 5 than OPG, either they or the marketer will somehow be 6 responsible for precisely those same charges. So they 7 will ultimately at the end of the piece be paying on a 8 gross basis. Have I misunderstood your question? 9 MR. BROWN: Mr. Chairman, I would like to 10 focus on the transmission component of it because that 11 is the nature of the proceeding before the Board right 12 now. 13 Those who rely exclusively on the grid to take 14 their energy, you agree, will pay for their transmission 15 charge on a net load basis, that is they pay the charge 16 based upon what they take off the grid? 17 MR. OSBORNE: Oh, I see what you are 18 getting at. 19 Well, in this particular instance net load 20 equals gross load. They are paying on their entire load 21 if they are taking all of their electricity off the 22 grid. Whatever they are taking off the grid they will 23 be paying for. 24 MR. BROWN: Right. So they pay -- as you say, 25 they pay for what they take off the grid. 26 I am correct, am I not, that OPGI's current 27 portfolio generation assets fairly can be described as a 28 merchant generation portfolio of generation assets? Les Services StenoTran Services Inc. 613-521-0703 1854 OPG PANEL 1, cr-ex (Brown) 1 MR. OSBORNE: Well, as of November 1st, other 2 than to the extent to which we would have bilateralized 3 any contracts with customers, all of our fleet will be 4 merchant fleet on November 1st. 5 MR. BROWN: The second source of competition, 6 generation competition, I suggest to you, will come not 7 from the merchant generation plant but they will come 8 from the so-called embedded generators, those generators 9 that are located behind the customer wholesale meter? 10 MR. OSBORNE: That is certainly a second 11 source, yes. 12 MR. BROWN: Certainly you recognize -- 13 although you have articulated why you disagree, but you 14 certainly recognize that whether there is a gross load 15 billing regime or a net load billing regime is a very 16 live and critical issue for those contemplating to go 17 down the embedded generation route? 18 MR. OSBORNE: I recognize that if the net load 19 billing regime were created it would be an incentive to 20 create more of the embedded generation which otherwise 21 might not in fact be economically sensible within the 22 system-at-large. 23 MR. BROWN: Well, would you agree with me, 24 sir, that when we are looking at a transmission tariff 25 for the new market, for the open access market, that at 26 the end of the day what we should be looking at is a 27 transmission tariff which is completely evenhanded as 28 between merchant plant and embedded generators? Les Services StenoTran Services Inc. 613-521-0703 1855 OPG PANEL 1, cr-ex (Brown) 1 MR. OSBORNE: Yes, I think I do accept that, 2 but I do not accept that evenhanded means creating a 3 regime where with respect to this period of transmission 4 from monopoly to open competition -- and we have 5 suggested a compromise of some 10 years in this regard. 6 I do not accept that creating a construct of net load 7 where only a portion of the load taken by customers who 8 take load both from the grid and from embedded 9 generation is an evenhanded way of comparing embedded 10 generation with merchant generation, to use your 11 description. 12 The issue is, as I said earlier, how we 13 allocate the cost of existing transmission which was put 14 there for the benefit of the entire system and all of 15 the customers who have access to that grid and all of 16 the customers who currently take power from that grid 17 and will take power from that grid in the future to a 18 greater or lesser extent. The issue is how you allocate 19 those costs. 20 We have recommended that a gross versus net 21 technique is the most balanced approach to this. We 22 recognize that not everybody accepts that and we 23 recognize one can debate around the period of time over 24 which one can deal with this historical problem of "We 25 are where we are". 26 We have given transmission costs and we have 27 suggested a compromise of 10 years for phase out of this 28 approach. Even though it may not be the most Les Services StenoTran Services Inc. 613-521-0703 1856 OPG PANEL 1, cr-ex (Brown) 1 theoretically pure model we think it is a practical 2 compromise. 3 We do not accept that simply on day one hiving 4 off certain elements of customer class and hiving off 5 certain elements of generation and somehow relieving 6 those elements of their share of the freight is an 7 appropriate way to go. 8 MR. BROWN: Why, sir, is your proposal not a 9 theoretically pure model? Is that because it departs 10 from the user-pay principle that is embedded within the 11 net load billing proposal? 12 MR. OSBORNE: I think I say it's not a 13 theoretically pure model because the reality is that 14 10 years is a very short period of time over which to 15 amortize the cost of a grid that has been built for the 16 next 20 to 30 years. 17 I don't know what the theoretically pure 18 answer is to that question. Ten years is simply a 19 pragmatic suggestion on our part to get on with it. 20 MR. BROWN: Thank you very much, sir. 21 Those are my questions. 22 Thank you. 23 THE PRESIDING MEMBER: Thank you, Mr. Brown. 24 We will go to Mr. Warren, please. 25 MR. WARREN: Thank you. 26 CROSS-EXAMINATION 27 MR. WARREN: I have questions, Mr. Osborne, in 28 two areas. I'm trying to keep them at a high level of Les Services StenoTran Services Inc. 613-521-0703 1857 OPG PANEL 1, cr-ex (Warren) 1 policies that you have addressed. 2 I will preface the first one by saying that it 3 is the position of a number of intervenors, and in 4 particular IPPSO, that the proposal for a gross load 5 billing regime will discourage investment in small 6 distributor generation projects in the 5 to 20 megawatt 7 range. 8 Now, do I understand your position, 9 Mr. Osborne, that you agree that that is the case, but 10 that: 11 (a) those in the short term would be 12 uneconomic; and 13 (b) there are overriding policy considerations 14 which would dictate that in the interest of consumers we 15 have for this interim period a gross load regime? 16 MR. OSBORNE: Well, I think you have put words 17 in my mouth better than I did. 18 MR. WARREN: I'm happy to do that, 19 Mr. Osborne. 20 --- Laughter 21 MR. OSBORNE: I find most people do in this 22 circumstance. 23 Yes, I think that is a fair encapsulation. 24 The only thing I might say a little bit 25 differently is that I don't think having a balanced 26 appropriate regime for transmission is a disincentive to 27 anything. 28 The issue is whether one should create an Les Services StenoTran Services Inc. 613-521-0703 1858 OPG PANEL 1, cr-ex (Warren) 1 artificial incentive for something and, in my view, 2 having an unbalanced transmission regime creates an 3 artificial incentive that enables generation that would 4 otherwise not be economic in the normal sense to become 5 economic because precisely of the imbalance to which I 6 refer. 7 MR. WARREN: My second question, Mr. Osborne, 8 is to address one of the other policy objectives in the 9 legislation which deals with the protection of the 10 environment. 11 As I understand the position of the proponent 12 of a net load regime that one of the effects of -- I'm 13 sorry, I'm going to have too many negatives in this. 14 One of the effects of a gross load regime is 15 that by discouraging investment in the small embedded 16 generation projects you are thereby discouraging the 17 development of green energy sources. 18 First of all, do you agree with that 19 proposition and, if so, secondly, how do you balance 20 that policy consideration against the ones you have 21 articulated? 22 MR. OSBORNE: Well, I think with respect, I 23 don't think I am in a position to suggest to people how 24 to balance policy objectives. That's what politicians 25 do and that is what the government-at-large and 26 regulators-at-large will do. 27 The premise that you start with, namely 28 that -- if I can use my words -- not having a distorted Les Services StenoTran Services Inc. 613-521-0703 1859 OPG PANEL 1, cr-ex (Warren) 1 transmission regime means that all forms of generation 2 have to compete on their own two feet, yes, that's 3 irrefutable. I don't argue with that. 4 Whether or not there is an appropriate policy 5 that says that certain forms of generation should be 6 incentivated is for the province and for 7 regulators-at-large. It's not for me to say. 8 Our position on that would be, I think, quite 9 simple, that the government and the regulators will 10 create the regulatory environment against which all 11 generators will operate. 12 Minister Clement came down with the latest 13 pronouncements in the area of emissions, NOx, SOx and 14 CO2s for example, some two or three weeks ago. We, and 15 all generators, will comply with those pronouncements 16 and to the extent those pronouncements are ever advanced 17 in the future, as undoubtedly they will be at some 18 point, we will continue to comply with them. 19 We are not nervous about out ability in OPG to 20 compete in terms of environmental friendliness of our 21 product. We have some 75 per cent of our product that 22 is non-fossil and is irrefutably the cleanest in terms 23 of air emissions that one can have. 24 I do not believe, however, that these kinds of 25 incentives should be created in a nontransparent way 26 through transmission rates or similar. There have to be 27 other mechanisms put in place if people wish to 28 incentivate. Les Services StenoTran Services Inc. 613-521-0703 1860 OPG PANEL 1, cr-ex (Warren) 1 Now, I think you would have to speak to the 2 politicians and the governments to figure out what the 3 government's objective is in this regard. I don't 4 propose to be capable of speaking in that regard. I do 5 not believe, however, that hidden structures through 6 transmission rates, or whatever, is an appropriate way 7 to go. 8 In general, my personal belief is that the 9 market should create structures in which this happens, 10 and undoubtedly marketers, retailers, will create 11 product portfolios which will be attractive to consumers 12 based upon their green component. 13 The proof of the pudding is in the eating, in 14 that regard. But we will have to wait and see. 15 We certainly intend to offer green product, 16 whether it competes with the most economically low cost 17 generation or not. We today have 125 megawatts of such 18 green product. We have plans to try to create over the 19 next couple of years another 100 megawatts. And 20 undoubtedly there are many other players out there 21 trying to do the same. 22 We do not believe that product should be 23 incentivated through distortions in basic 24 infrastructures that should be transparent to all 25 comers. 26 MR. BROWN: Thanks, Mr. Osborne. 27 Thank you, Mr. Chairman. 28 THE PRESIDING MEMBER: Thank you. Les Services StenoTran Services Inc. 613-521-0703 1861 OPG PANEL 1, cr-ex (Warren) 1 Would you like to go next, Mr. Budd? 2 MR. BUDD: No. I will give the witness a 3 break; thank you. 4 THE PRESIDING MEMBER: Mr. Mattson, then, 5 please. 6 MR. MATTSON: Dr. Higgin, we have no 7 questions; thank you. 8 THE PRESIDING MEMBER: Mr. Poch. 9 MR. POCH: Thank you, Mr. Chairman. 10 CROSS-EXAMINATION 11 MR. POCH: Good morning, Mr. Osborne. I am 12 David Poch on behalf of the Green Energy Coalition. 13 MR. OSBORNE: Good morning. 14 MR. POCH: Mr. Osborne, you started by 15 announcing that you have effectively put in place, or 16 you are in the midst of putting in place, decontrol 17 plans for some 4,000 megawatts, I take it, of fossil 18 hopefully by market opening. Is that correct? 19 MR. OSBORNE: Well, we announced -- let me 20 make sure I don't mislead you. We announced fossil 21 around Lakeview and Lennox, which approximates 3,200 22 megawatts. We are looking at further amounts which we 23 hope to announce in the not too distant future that will 24 take it up over the 4,000 megawatts. If we can 25 adequately pursue the process, recognizing that there 26 are investment bankers and due process, et cetera, that 27 will be involved in all of this, I would hope that we 28 could have 4,000 of such product in other people's hands Les Services StenoTran Services Inc. 613-521-0703 1862 OPG PANEL 1, cr-ex (Poch) 1 on November 1st. Some of that is a little bit beyond 2 our control. 3 At the same time, we have a little over 3,000 4 megawatts of baseload generation in nuclear in the hands 5 of investment bankers as we speak. We will do our bit 6 to try to get all of that into the hands of third 7 parties as soon as possible. 8 MR. POCH: I don't want to cause you to 9 disclose anything that would be commercially sensitive 10 at this time, but can you give us some sense of where 11 you are on that process. 12 Do you have memorandums of understanding with 13 anybody at this point, or are you simply putting out 14 signals and answering inquiries? Or are you further 15 along? 16 MR. OSBORNE: Well, let me split the Bruce 17 from the other. With respect to the Bruce we have had a 18 formal process under way which is being carried out, as 19 you would expect, in the context of normal commercial 20 behaviour with confidentiality agreements and investment 21 bankers involved, et cetera. 22 And we have a number of expressions of 23 interest, as we sit here now. We do not have a 24 memorandum of understanding. We are discussing 25 expressions of interest with a number of parties. 26 With respect to the announcements around 27 Lakeview and Lennox, which were made either last week or 28 the week before -- I can't remember now to be honest -- Les Services StenoTran Services Inc. 613-521-0703 1863 OPG PANEL 1, cr-ex (Poch) 1 we are now in the process of engaging investment 2 bankers. We will have a formal process that is open to 3 all comers. It will be a transparent process in the 4 sense that it is available to all; but it will, like all 5 commercial transactions, be dealt with under the 6 protection -- not for our benefit but for the benefit of 7 other parties -- of confidentiality agreements, 8 et cetera. 9 But we have not yet specifically approached 10 any purchasers on those assets, because the announcement 11 has just recently been made. 12 Having said that, we have had over-the-transom 13 expressions of interest in those assets now for some 14 months. 15 MR. POCH: Thank you. You started off your 16 presentation today talking about what you took to be the 17 purposes of the restructuring. 18 Absent on your list was any indication that 19 one of the purposes was to move us towards cleaner 20 generation. Would you agree that that, in the end, is 21 the clearly enunciated purpose of the restructuring? 22 MR. OSBORNE: Yes, it is one of the five or 23 six subsets of the introduction to the legislation. 24 MR. POCH: You praised the MDC for the work. 25 You would agree that one of the prefaces of the MDC's 26 conclusions was that the government was to put in place 27 by market opening a comprehensive and binding cap and 28 trade regime for all the air emissions associated with Les Services StenoTran Services Inc. 613-521-0703 1864 OPG PANEL 1, cr-ex (Poch) 1 generation; correct? 2 MR. OSBORNE: I honestly can't confirm or 3 reject your specific premise as to what the MDC said. I 4 can't remember, to be candid with you. 5 What I can say is that Minister Clement came 6 out with a framework two or three weeks ago around two 7 issues in particular: one was emission rates; and also a 8 cap regime as it related to NOx and SOx. And at the 9 same time he put out a general framework position on 10 emission reduction trading regimes. 11 If that is specifically directed to whatever 12 was in the MDC report, which I candidly can't remember, 13 then so be it. But the fact is Minister Clement has 14 come up with a regime that is in response to the greater 15 interests of the province on the environmental front. 16 MR. POCH: Mr. Osborne, I am sure you have 17 been briefed about that regime. You would agree with me 18 that there is no cap on carbon in that regime. 19 MR. OSBORNE: The cap, as I indicated, is on 20 NOx and SOx. 21 MR. POCH: And you would agree with me that 22 the cap on NOx and SOx is one that allows, for example, 23 generators such as your company to purchase credits from 24 non-electricity sector initiatives elsewhere. 25 MR. OSBORNE: Let me take the fifth, or 26 whatever the term is, with respect to caps on SOx, 27 because I honestly don't know. 28 MR. POCH: All right. Les Services StenoTran Services Inc. 613-521-0703 1865 OPG PANEL 1, cr-ex (Poch) 1 MR. OSBORNE: With respect to NOx, the answer 2 is that the regime is designed to ensure that the money 3 we spend on NOx reduction is most effectively spent. 4 And if that is done by emissions credit trading, then 5 that is encouraged by that regime. We, as a company, 6 firmly believe in the appropriate allocation of 7 resources in that regard and are very supportive of a 8 trading regime. 9 Yes, it is intended that we be able to make 10 use of appropriate structures within emissions trading 11 with respect to NOx. You can ask my colleagues on the 12 SOx front, because candidly I have only addressed it 13 personally on the NOx front. 14 MR. POCH: For the benefit of the Panel, I 15 know Mr. Gibbons, who is very active on this particular 16 issue, is going to be taking the stand later in the week 17 and we will be able to get an update from him. 18 MR. OSBORNE: Fine. 19 MR. POCH: You would agree that there is 20 nothing in the proposed regime directed at toxics, 21 mercury, what have you. 22 MR. OSBORNE: Within what Mr. Clement came out 23 with two or three weeks ago, to my knowledge, it does 24 not address other what you refer to as toxics and other 25 emissions. It was intended to deal primarily with NOx, 26 SOx and CO2s. 27 MR. POCH: Thank you. I take it from your 28 comments today and from the evidence that has been filed Les Services StenoTran Services Inc. 613-521-0703 1866 OPG PANEL 1, cr-ex (Poch) 1 on behalf of your company that you are wrestling with 2 the sort of struggle between how we share embedded costs 3 and how we give a forward looking signal to the 4 marketplace. Is that fair? 5 MR. OSBORNE: Yes, I think that is fair. 6 MR. POCH: So to that extent, you would agree 7 with the position my client is taking that it is 8 inappropriate to simply look exclusively at one of those 9 issues. 10 MR. OSBORNE: I think we would agree that this 11 is a subject that is worthy of debate, and it is a 12 subject that deserves looking at from all angles. We 13 have come to a balanced conclusion which we have tried 14 to articulate. We recognize that others may come to 15 different conclusions, but we are prepared to accept 16 that everybody has a right to express a view on this. 17 MR. POCH: I am sure we all agree on that. I 18 am just saying that you see merit, in rate design, being 19 concerned both with the sharing of embedded costs, and 20 that that in your mind is not the only factor to 21 consider in rate design. We should also be looking at 22 giving a forward looking price signal. 23 MR. OSBORNE: I think the Members of the Board 24 and the OEB at large are charged with looking at all of 25 the interests and all of the components that will go 26 into making this decision. 27 As I said earlier, we have come to what we 28 consider to be a version of the truth, which we believe Les Services StenoTran Services Inc. 613-521-0703 1867 OPG PANEL 1, cr-ex (Poch) 1 creates the right signal in terms of the transmission 2 versus generation. There are constructs that are in 3 place with respect to emission controls through the new 4 policy statements from the government, et cetera. 5 There are other constructs in place, for 6 example, in the Income Tax Act with respect to 7 accelerated depreciation for certain classes of 8 environmentally friendly generation, which we are not 9 here to debate this morning. 10 There are many forums in which 11 environmentally-friendly energy can be debated and 12 incentivated. We just don't believe that transmission 13 is the way to do that. 14 MR. POCH: Well, just let's keep it narrowed 15 just on transmission costs. 16 You would agree with me that rate structures 17 should give a signal about future transmission costs so 18 that people use that resource efficiently? 19 MR. OSBORNE: I believe that transmission 20 rates should be allocated in a fair and equitable manner 21 to all generators and to all customers, is what I 22 believe. 23 MR. POCH: We all agree on that. I am just 24 asking you the narrow question. 25 You agree that in that allocation one of the 26 important considerations should be sending a signal so 27 that resource, the transmission system, is not 28 inefficiently, economically inefficiently grown? Les Services StenoTran Services Inc. 613-521-0703 1868 OPG PANEL 1, cr-ex (Poch) 1 MR. OSBORNE: Well, I certainly agree with 2 that. But I guess what I was equally trying to say was 3 that I don't think signals should be sent through 4 transmission rates that create in the growth of 5 inefficient and uneconomic generation -- 6 MR. POCH: We heard you earlier on that. I 7 wasn't talking about that. I am talking just the very 8 narrow question about sending signals with respect to 9 transmission infrastructure and future transmission 10 infrastructure costs. I am not trying to take you out 11 of context. I just was trying to segregate the issues. 12 Now, you said several times that you are 13 concerned that while you want to see competition 14 enhanced and so on, you don't want to see one set of 15 generators artificially advantaged over another. You 16 want this level field. Is that fair? 17 MR. OSBORNE: Yes. 18 MR. POCH: I take it in your comments, 19 implicit in your comments, is you equate that with gross 20 billing? 21 MR. OSBORNE: Yes. Although I tried to, 22 again, indicate we have recognized the practicality of 23 where we are and the transitional nature of where we 24 are. We have suggested that a phased-in process is 25 probably an equitable balancing of all the positions 26 that are being taken around this room. 27 MR. POCH: All right. Now, we will have a 28 chance to talk about the details with the other OPGI Les Services StenoTran Services Inc. 613-521-0703 1869 OPG PANEL 1, cr-ex (Poch) 1 witnesses, but I just want to keep this, the level 2 principle. 3 You would agree that if there are avoidable 4 transmission costs, that is transmission costs that can 5 be avoided, future transmission costs that can be 6 avoided by embedded generation, that is an element that 7 should get weighed into this equation? 8 MR. OSBORNE: I think that is an issue you had 9 better discuss with Mr. Boland and Dr. Orans this 10 afternoon because -- well, what I have tried to focus my 11 thinking on is the existing transmission grid, the 12 existing cost structure and how that gets allocated. 13 I do not purport to be an expert on future 14 transmission costs with respect to future transmission 15 capacity. As I think I indicated earlier, there are 16 many factors that the OEB and other stakeholders will 17 have to consider in future rate design, not the least of 18 which is the whole issue of one size fits all postage 19 stamp versus one, et cetera, et cetera. 20 So I would be hate to be candidly going down 21 an avenue of discussing one component of rate design 22 when there will be many factors that have to be taken 23 into account in future. 24 MR. POCH: Maybe you didn't hear. I was 25 trying to let you off the hook for being required to 26 answer with any knowledge of whether or not there are 27 indeed such costs and when they might arise and so on. 28 But I am just asking you a very simple Les Services StenoTran Services Inc. 613-521-0703 1870 OPG PANEL 1, cr-ex (Poch) 1 question that to do as you have done, that is equate no 2 artificial advantage with pure gross billing, of 3 necessary implication assumes that there are no 4 transmission costs to be avoided. 5 Let me give you a simple example. If it could 6 be demonstrated that putting in an embedded generator 7 would in fact save the system one cent on the 8 transmission budget, then you would agree that if it 9 comes in at nine-tenths of a cent more expensive at the 10 bus bar than your generation, it is in fact economic to 11 the extent that we all enjoy that other penny saved. 12 Correct? 13 MR. OSBORNE: Well, again, I don't purport to 14 be an expert in these things. I would suggest that in 15 that circumstance, a case-by-case, project-by-project, 16 approach be taken to determine what is an appropriate 17 response to whether or not one can avoid the next 18 generation or the next expansion of kilometrage of 19 transmission. 20 MR. POCH: Fair enough. 21 MR. OSBORNE: The issue we are talking about 22 or at least I am talking about today, recognizing that 23 you have other interests that I am not competent to talk 24 about is the embedded costs of where we are, how we get 25 out of where we are and how we migrate to the new world. 26 MR. POCH: I take it from your answer you are 27 agreeing in principle, but that needs to be considered. 28 You don't want to express an opinion of how it Les Services StenoTran Services Inc. 613-521-0703 1871 OPG PANEL 1, cr-ex (Poch) 1 should be? 2 MR. OSBORNE: Yes, yes. That is a very good 3 way to put it. 4 MR. POCH: That's fair. 5 I take it that you would agree that somewhere 6 someone has to, should, properly consider the 7 differentials in environmental externalities that 8 society is having to bear. 9 MR. OSBORNE: All of those issues, as I have 10 said earlier, are worthy of debate, includable in the 11 debate, and will have to be balanced by the ultimate 12 decision makers. 13 MR. POCH: Fine. I think you have already 14 said that the big one, that is what is ultimately best 15 for competition, is surely something that the regulators 16 should be cognizant of? 17 MR. OSBORNE: What is ultimately best for 18 competition consistent with fair treatment of various 19 customer classes, is what I consider at the end of the 20 day was the main issue that we have suggested to the 21 Board, with respect, that you consider. 22 MR. POCH: All right. I just had a couple 23 more questions here. 24 Do you agree with me that the 10-year 25 phase-out proposal that OPGI has tabled does give OPGI 26 the advantage of having a relatively clear shot of 27 securing its place in the market at the important front 28 end of the market. Does it not? Les Services StenoTran Services Inc. 613-521-0703 1872 OPG PANEL 1, cr-ex (Poch) 1 MR. OSBORNE: No, I don't think that is a 2 fair -- 3 MR. POCH: All right. 4 MR. OSBORNE: -- sentiment of what I was 5 trying to say. 6 First of all, OPG is not the only game in town 7 as we go forward. The views we are expressing with 8 respect to the appropriate construct will equally apply 9 to us, as they will apply to people who take assets from 10 us under the decontrolled regime, will equally apply to 11 people who wish to sell into the province through the 12 interconnections. There are a goodly number of players 13 outside this province, including Quebec Hydro, Manitoba 14 Hydro and some U.S. players who wish to import into this 15 province. 16 The construct we are talking about we think is 17 a fair and balanced construct for all players. It has 18 nothing to do with somehow cementing OPGI's position. 19 As I have already indicated, we are going to be 20 decontrolling large chunks of generation and we will be 21 one of only a few players of a number of players who 22 have the same interests. 23 MR. POCH: Does it remind you of the phrase, 24 "The law in all its majesty fines both the rich man and 25 the poor man equally for sleeping on a park bench"? 26 Certainly, you would agree that -- 27 MR. OSBORNE: Well, I couldn't accept that as 28 I don't understand that. Les Services StenoTran Services Inc. 613-521-0703 1873 OPG PANEL 1, cr-ex (Poch) 1 --- Pause 2 MR. POCH: -- certainly, you would agree that 3 between OPGI and the small generation industry in 4 Ontario, the embedded generation industry in Ontario, 5 this approach gives OPGI much more freedom from that 6 competition at the opening of the market? 7 MR. OSBORNE: No. I think what we are 8 suggesting is that we will compete on a fair and 9 equitable basis with all comers on the same footing. To 10 create a construct other than what we have suggested, in 11 fact, does not create a level playing field upon which 12 we will all compete equally, rather it creates a 13 distortion where other people have an advantage against 14 embedded existing -- not embedded -- existing 15 generation, whether it is owned by us or by the people 16 who buy it from us. 17 The issue isn't one of creating a construct in 18 which we have an advantage. The issue is not creating a 19 construct where other people have an advantage, whether 20 it is against us or against people who will buy assets 21 from us. 22 MR. POCH: All right. So then I take it you 23 would agree that if it can be demonstrated that embedded 24 generation actually does save transmission costs, to not 25 to account for that would be giving an unfair advantage 26 to players in your position. Isn't that fair? 27 MR. OSBORNE: I think we are back to where we 28 were a few minutes ago where I said I found myself out Les Services StenoTran Services Inc. 613-521-0703 1874 OPG PANEL 1, cr-ex (Poch) 1 of my depth and I would rather you have that debate with 2 people who are more qualified to discuss it. 3 MR. POCH: All right. 4 MR. OSBORNE: I think it is clearly an issue 5 that should be taken into account. Whether it is the 6 only issue I am certainly not qualified to say. I think 7 there are many other transmission issues that will have 8 to be debated at that juncture. 9 I have a sneaking suspicion, having not really 10 thought through the question appropriately, that is 11 probably a case-by-case approach as opposed to a one 12 size fits all blanket statement. 13 MR. POCH: Thank you. That was my question. 14 Thank you, Mr. Chairman. 15 THE PRESIDING MEMBER: Thank you, Mr. Poch. 16 We will go to Mr. Greenspoon, please. 17 CROSS-EXAMINATION 18 MR. GREENSPOON: Thank you, Mr. Chair or 19 Dr. Higgin. 20 Good morning, Mr. Osborne. My name is Lloyd 21 Greenspoon. I represent NorthWatch which is a coalition 22 of Northern Ontario environmental and social justice 23 groups, I guess one could say. 24 So my questions will be dealing with the 25 specifics of your evidence with that northern slant, 26 although I will keep them very general. 27 I just wanted to follow up on the last issue 28 you discussed with Mr. Poch. Do I take it that in these Les Services StenoTran Services Inc. 613-521-0703 1875 OPG Panel 1, cr-ex (Greenspoon) 1 negotiations with the fossil and Bruce, you intend -- 2 you see then that you will be conveying the benefits to 3 the buyer that you have with respect to the market, that 4 market opening? 5 MR. OSBORNE: Well, maybe the way I would 6 phrase that is that we will be conveying assets into 7 their hands, whoever they may be, for them to operate 8 against the same market backdrop we would have operated 9 them against. 10 MR. GREENSPOON: So you will be -- 11 MR. OSBORNE: I don't know that I can identify 12 benefits per se. Whatever the regime is we would have 13 operated against with respect to those assets, and they, 14 having bought those assets from us or whatever the 15 construct is, will similarly operate against that 16 backdrop of transmission and CTC and IMO optic, 17 et cetera. 18 MR. GREENSPOON: All of the benefits. 19 IPPSO certainly could be said to look at those 20 as benefits. It would be their position that there are 21 different -- there is a different playing field for you 22 as for some of the new embedded generation, and that 23 simply could be called benefits. 24 MR. OSBORNE: I really don't want to be 25 argumentative because I would like to understand the 26 point, but I honestly don't believe that there is any 27 benefit inherent in the system that we have with respect 28 to those assets that will not accrue to other owners of Les Services StenoTran Services Inc. 613-521-0703 1876 OPG Panel 1, cr-ex (Greenspoon) 1 those assets. 2 I mean, I think what we are talking about here 3 is transmission rates that are transparent, open, fair, 4 balanced and are available to all generators and to all 5 customers. 6 MR. GREENSPOON: Fair enough. 7 I take it that Atikokan and Thunder Bay are 8 not in the foreseeable future for sale. 9 MR. OSBORNE: I indicated that we have 10 identified roughly 3,200 megawatts of fossil that we 11 will be decontrolling in the next little while, being 12 Lennox and Lakeview. No determination has been made 13 with respect to Atikokan and Thunder Bay or any other 14 plant for that matter. But, having said that, clearly 15 we have to consider the future of those plants in making 16 that determination so you should draw no conclusion from 17 the fact that nothing has been said. 18 MR. GREENSPOON: I see. All right. 19 Just briefly I would like to know about the 20 125 megawatts of green power that you have identified. 21 Would it be fair to say that that power is 22 going to be sold at the same rate as the other power? 23 Is that a fair guess? 24 MR. OSBORNE: As we sit here today, I suspect 25 it is not an unfair proposition to suggest that one 26 option we have is to market it along with all of our 27 other power, but I think it is equally fair to say that 28 we will have potential customers, municipal electric Les Services StenoTran Services Inc. 613-521-0703 1877 OPG Panel 1, cr-ex (Greenspoon) 1 utilities, for example, or former municipal electric 2 utilities that are being restructured, who may wish to 3 bilateralize specifically around that product and other 4 products we would generate in a similar vein. 5 I refer to another 100 megawatts we would like 6 to create and we are working on now. The reason they 7 would want to do it is because they would like to offer 8 a so-called green component in their retail offering. 9 So I think at the moment we have our options with us 10 with respect to that power. At some point, we will 11 likely want to tag it or earmark it and make sure it 12 gets properly channelled through the system. 13 MR. GREENSPOON: To some extent, your size as 14 a corporation has enabled you to more easily produce 15 that type of power which traditionally has been more 16 expensive. 17 MR. OSBORNE: Well, there is no question that 18 under a PCA regime or a monopoly regime where cost of 19 service ultimately dictated the pricing of electricity 20 in the marketplace, the old Ontario Hydro had the 21 opportunity to do things within the cost of service 22 regime. 23 As we go forward, we will be on the same 24 footing as all other generators, we at OPG, and the 25 issue will be, as we generate new green power to ensure 26 that it makes sense both environmentally and 27 economically, that there is indeed a market for it, a 28 market construct for it. Les Services StenoTran Services Inc. 613-521-0703 1878 OPG Panel 1, cr-ex (Greenspoon) 1 The customers are prepared to take it. The 2 customers want it earmarked. Municipalities wish to 3 deliver it. We will not be, in the normal sense, a 4 retail distribution company. We will be a generator and 5 a wholesaler. The municipalities will be the organs 6 that will determine the amount of green power they wish 7 to have within their retail offering, and we will 8 obviously want to be able to supply municipalities with 9 all kinds of product, base load, peaking load, green 10 load, black start capacity, et cetera. It is simply 11 part of the product offering and we will be guided very 12 much by the demands of the marketplace. 13 MR. GREENSPOON: Thank you. Just one other 14 area that -- I want to be clear on this. 15 You used a phrase in your evidence about 16 balancing all of the interests around the room when you 17 spoke of your compromise, as you put it. I just want to 18 be clear. At one point in your evidence you said that 19 you felt 30 to 40 years down the road, I think that was 20 the time frame, that it would be easy to argue that we 21 should have net billing. You had no problem with that. 22 MR. OSBORNE: I think what I have tried to get 23 across, and I don't recall precisely my words, but what 24 I was trying to get across was that we have a 25 transmission grid that is built with that time horizon 26 in mind and the issue is how we amortize the costs of 27 that transmission grid. 28 I think we theoretically accept that over the Les Services StenoTran Services Inc. 613-521-0703 1879 OPG Panel 1, cr-ex (Greenspoon) 1 20 to 30 year, or whatever time frame you wish to put on 2 it, it is so far out that I guess I won't have to worry 3 about it in an ongoing sense, but we accept as a matter 4 of theory that when you get that far out the existing 5 plant will have been largely amortized, dealt with, the 6 transition will be behind us, and there will be an 7 opportunity to revisit the entire transmission 8 structure, that the issue of gross versus net will be 9 one of many aspects of transmission rate structure that 10 will have to be revisited in the coming years. 11 Our compromise suggestion of ten years was 12 based on the assumption that gross versus net becomes 13 less meaningful once the existing embedded plant is 14 dealt with and we are trying to be helpful to the 15 process by suggesting a practical way of simply getting 16 on with it and for shortening that debate. 17 MR. GREENSPOON: I will ask you the question, 18 then, that I want to know the answer to particularly. 19 What I'm trying to get at is, in a compromise, 20 how much of that compromise is based on your interest or 21 how much of it is based on really trying to find an 22 agreement for all of the interests around the room? 23 That is, when you come at ten years, is it truly a 24 compromise between zero and 20 or 30, or is it that ten 25 years reflects protection of your interest as well? 26 MR. OSBORNE: It is the former, not the 27 latter. 28 As I indicated, in a sense it is almost a zero Les Services StenoTran Services Inc. 613-521-0703 1880 OPG Panel 1, cr-ex (Greenspoon) 1 sum gain because, to the extent the transmission rate 2 structure is used to put us at a disadvantage, that 3 simply over time will increase the amount of stranded 4 debt within the entire system that the consumer will pay 5 for through CTC. We are where we are. We have the 6 assets that we have, we have the debt that we have, and 7 we have the cost structure attached to those assets that 8 we have. The issue is how we apportion those over all 9 customer classes going forward. 10 Obviously, from an Ontario Power Generation 11 specific point of view, we want as level a playing field 12 so that we can be as fairly competitive as possible as 13 can be created. We acknowledge that nothing is perfect 14 in life, but if we can come to a reasonable, balanced 15 level playing field that would be our objective.] 16 I think, however, having said that, I would 17 come back to the point that as far as the ultimate 18 consumer is concerned it is essentially a zero sum gain. 19 If we strand more assets of the existing generating 20 assets by creating uneconomic generation to be an 21 opportunity for uneconomic generation to be built in 22 this province, we would effectively undermine the 23 construct of stranded debt or stranded debt recovery. 24 So, at the end of the day, it is really a zero sum gain. 25 MR. GREENSPOON: I understand what you are 26 saying, and I understand your position with respect to 27 having a leg up. You answered Mr. Posh that you don't 28 believe that that is what is happening. Les Services StenoTran Services Inc. 613-521-0703 1881 OPG Panel 1, cr-ex (Greenspoon) 1 Nevertheless, you are declining the balance 2 from the first year at 100 per cent, so your compromise 3 does reflect protection of OPG at the beginning of the 4 game. 5 MR. OSBORNE: I would rephrase that, if it 6 were my words, to say that our compromise gives others 7 an advantage against us but only over time. 8 MR. GREENSPOON: All right. Fair enough. 9 Just one last question. 10 What is OPG's position with respect to the 11 1 megawatt exemption? There was some discussion, 12 without getting into the details, about perhaps raising 13 that in terms of the connection of the 1 megawatt 14 exemption and the connection of that to your ten year 15 proposal. 16 MR. OSBORNE: I honestly can't answer the 17 question. I would suggest you ask Mr. Boland. I'm sure 18 he can. 19 MR. GREENSPOON: Thank you. Those are my 20 questions. 21 Thank you, Mr. Chairman. 22 THE PRESIDING MEMBER: Thank you, Mr. Green. 23 Now we will go to Mr. Vegh, please. 24 MR. VEGH: Thank you, Dr. Higgin. 25 CROSS-EXAMINATION 26 MR. VEGH: Good morning, Mr. Osborne. My name 27 is George Vegh, and I'm here this morning on behalf of 28 Toromont Energy. Les Services StenoTran Services Inc. 613-521-0703 1882 OPG PANEL 1, cr-ex (Vegh) 1 Just by way of background, Toromont Energy is 2 in the business of engineering and installing small 3 cogen projects. 4 MR. OSBORNE: And they are a partner with us 5 in such projects. 6 MR. VEGH: You are partners. I guess you can 7 appreciate that for some issues at least even your 8 partners have some different perspectives on things. 9 MR. OSBORNE: Absolutely. 10 MR. VEGH: I would like to start by just 11 prefacing on what I don't want to get into a discussion 12 about, which is the level playing field issue. You can 13 understand that Toromont and OPG will have a different 14 perspective on what is a level playing field, who is 15 getting a leg up, all these questions of fairness on the 16 gross and net issue. 17 I would like to put that aside, if I could, 18 and get some clarification on another point that you 19 raised this morning and I don't believe is in the 20 prefiled evidence. That has to do with the CTC, the 21 stranded debt and the CTC. 22 I am not clear on how you believe that this 23 Board should consider stranded debt and CTC issues, so I 24 would like to ask you some questions about that. 25 MR. OSBORNE: I am not suggesting that this 26 Board would have to make decisions around CTC and 27 stranded debt. I don't honestly know whether it is in 28 their purview or not. All I was attempting to do was Les Services StenoTran Services Inc. 613-521-0703 1883 OPG PANEL 1, cr-ex (Vegh) 1 paint the backdrop of the entire restructuring against 2 which this debate around the specific issue here today, 3 or two issues that we are talking about here this 4 morning, gross versus net and the out and through 5 wheeling issue. 6 I don't think one can view those specific 7 issues in a vacuum, in a silo. This is the 8 reconstruction of a very complicated industry and it is 9 simply not possible to understand the ramifications of 10 all decisions within silos without looking at the entire 11 backdrop. I am not suggesting that the Board will have 12 to determine this because I don't know what's within its 13 purview. 14 I am simply suggesting that part of the 15 backdrop of the entire restructuring is the need for the 16 system at large to deal with stranded assets, stranded 17 debt and the CTC charge. 18 MR. VEGH: That is what I would like to get 19 some clarification on, to maybe just nail down how this 20 backdrop is relevant for the purposes of the Board's 21 decision in this case. 22 Let me put it to you this way: Do I 23 understand you to say that all things being equal, if 24 financial harm is caused to OPG as a result of this 25 decision, then the stranded debt may be affected and the 26 CTC, which is related to that stranded debt, may also be 27 affected? 28 MR. OSBORNE: You would have to ask the Les Services StenoTran Services Inc. 613-521-0703 1884 OPG PANEL 1, cr-ex (Vegh) 1 province at the appropriate time how it proposes to deal 2 with stranded debt on the CTC because I have no inside 3 knowledge in that regard. 4 But if I can paint an extreme just to make the 5 point, and please accept it as an extreme only to make 6 the point, if we were to come up with a transmission 7 construct or any other market rule construct, for that 8 matter, which seriously devalue the assets of Ontario 9 Power or for that matter Ontario Hydro's Services 10 Company and resulted in the province taking a huge loss, 11 the province in the form of OEFC, the financing 12 corporation that was superimposed above the 13 restructuring, taking a huge loss on those assets and 14 not realizing the values that were inherent in the 15 restructuring mathematics of some 12 months ago with 16 what was known as the CFR process. Then clearly, the 17 stranded debt that is left within OEFC will rise. 18 That's a given. 19 How the province will choose to respond to 20 that I have no idea. 21 MR. VEGH: But are you saying that the Board 22 should avoid making a decision, again all things being 23 equal, the Board should avoid making a decision that 24 causes financial harm to OPG because this could result 25 in a construct that could devalue OPG and, therefore, 26 have an effect on -- 27 MR. OSBORNE: I am saying that one of the 28 factors the Board should take into account in making Les Services StenoTran Services Inc. 613-521-0703 1885 OPG PANEL 1, cr-ex (Vegh) 1 this determination is the extent to which any decisions 2 could undermine the CFR of a year ago and, in effect, 3 result in a requirement for other elements of the system 4 to have to be rebalanced. It's one of many factors. It 5 isn't the only factor. 6 MR. VEGH: One of many factors? 7 MR. OSBORNE: Yes. 8 MR. VEGH: But you would agree, though, that 9 the calculation and the implementation of the CTC, 10 that's being carried out by the Ministry of Finance I 11 believe. That's not being carried out by this Board. 12 Right? 13 MR. OSBORNE: Well, it's being carried out by 14 the government. I honestly am not sure I know where 15 within the government. 16 MR. VEGH: And that calculation and 17 implementation is going to involve sort of a political 18 balancing between a number of interests? 19 MR. OSBORNE: I would rather not comment on 20 the government process. I am simply not privy to it. 21 MR. VEGH: Maybe we could just put it this 22 way, that whatever decision this Board makes on 23 transmission rates, if it has an impact on CTC issues 24 then there is a forum in which that impact can be 25 addressed? 26 MR. OSBORNE: I'm sure that's right. 27 MR. VEGH: Thank you. 28 Those are my questions. Les Services StenoTran Services Inc. 613-521-0703 1886 OPG PANEL 1, cr-ex (Vegh) 1 THE PRESIDING MEMBER: Thank you, Mr. Vegh. 2 Is there anyone else who would like to ask any 3 questions of Mr. Osborne from the intervenors? I know 4 you do, sir. I am just going to let Board staff counsel 5 go next. 6 MR. LYLE: We have no questions, Mr. Chair. 7 THE PRESIDING MEMBER: Thank you. 8 Would you like to go then? 9 MR. ROGERS: Yes. Thank you, Dr. Higgin. I 10 won't be very long. 11 THE PRESIDING MEMBER: Thank you. 12 CROSS-EXAMINATION 13 MR. ROGERS: Mr. Osborne, my name is Rogers 14 and I represent OHNC in these proceedings. How do 15 you do. 16 MR. OSBORNE: Good morning. 17 MR. ROGERS: I want to ask you a little bit 18 about some evidence that we heard on Friday. We heard 19 on Friday from Amoco and Imperial Oil for the whole day 20 about their complaints about the proposed treatment of 21 them and their need for special consideration. You are 22 aware of that request? 23 MR. OSBORNE: Well, I can't honestly claim to 24 be familiar with their specific evidence. I know the 25 direction from which they were likely to be coming. 26 MR. ROGERS: They have called on your company, 27 I am sure, have they not? 28 MR. OSBORNE: Yes. I am absolutely Les Services StenoTran Services Inc. 613-521-0703 1887 OPG PANEL 1, cr-ex (Rogers) 1 convinced -- to my knowledge they haven't spoken to me 2 directly, but they have talked to our people on and off. 3 MR. ROGERS: We heard a lot about a Mr. John 4 Fox who negotiated contracts with these people back 5 under the Ontario Hydro regime. Does Mr. Fox work for 6 your company? 7 MR. OSBORNE: Yes, he does. Yes. 8 MR. ROGERS: What's his position with your 9 company? 10 MR. OSBORNE: He is Executive Vice-President 11 and Chief Operating Officer and he has responsibility 12 for the sales and marketing efforts of OPG, as well as 13 the non-nuclear generation. 14 MR. ROGERS: So he is still in the marketing 15 end of the business? 16 MR. OSBORNE: Yes. 17 MR. ROGERS: And I assume he would be the one 18 responsible for negotiating special generation contracts 19 with Amoco and Imperial Oil? 20 MR. OSBORNE: Special generation? 21 MR. ROGERS: Well, if there were any. 22 MR. OSBORNE: Special marketing sales 23 agreements with them? 24 MR. ROGERS: Yes. 25 MR. OSBORNE: Yes, he would. He wouldn't be 26 alone in that responsibility because there is a 27 management team and a management construct and he would 28 act within authorities, but, yes, he would be our senior Les Services StenoTran Services Inc. 613-521-0703 1888 OPG PANEL 1, cr-ex (Rogers) 1 marketing individual. 2 MR. ROGERS: Thank you. 3 I understand that these contracts have been 4 assigned under the new regime to your company, that is 5 the old Ontario Hydro contracts with Amoco and Imperial 6 Oil, among others? 7 MR. OSBORNE: I don't want to get into 8 specifics of individual contracts because I don't claim 9 familiarity with specific contracts, but the old supply 10 contracts in general terms, it's fair to say the old 11 supply contracts of the old Ontario Hydro were passed on 12 through Bill-35 to Ontario Hydro. 13 The majority of such contracts, as I recall, 14 are, as presently constructed, designed to expire as of 15 the opening of the market and other parties have the 16 opportunity to seek continuation of those contracts to 17 their natural life, but those contracts were -- if you 18 are referring to the various supply contracts I think 19 you are referring to, then they were passed on to us 20 with the Minister effectively retaining the ability to 21 have them expire or not expire on November 1st. 22 MR. ROGERS: That's fine. The point I wished 23 to clarify was that these contracts that we heard so 24 much about on Friday are now held by OPG with Imperial 25 Oil and Amoco and the person who negotiated those 26 contracts worked for you, Mr. John Fox? 27 MR. OSBORNE: Yes, that's fine. I assume he 28 negotiated all of them. I know he did the Imperial one. Les Services StenoTran Services Inc. 613-521-0703 1889 OPG PANEL 1, cr-ex (Rogers) 1 The Amoco I couldn't honestly tell you. 2 MR. ROGERS: I can't tell you either. I just 3 remember Imperial talking a good deal. His name came up 4 quite a lot on Friday I can tell you. 5 MR. OSBORNE: All right. 6 MR. ROGERS: Now, your evidence this morning I 7 think was that your company feels that the transmission 8 system my clients are responsible for should not be used 9 as a means of achieving parallel or corollary 10 objectives. It should be a system which allocates costs 11 fairly to existing customers and that other policy 12 considerations should not be brought about by distorting 13 the transmission tariff? 14 MR. OSBORNE: In general, I think that's what 15 I was trying to say. I think I went on to say that 16 obviously the Board will look at the bigger picture and 17 look at every issue, but at the end of the piece our 18 view is the overriding factor should be the appropriate 19 disposal of existing cost structures and appropriate 20 cost allocation between all customers. 21 MR. ROGERS: Thank you. 22 Now, just with that in mind and dealing with 23 this problem that we all now have with these old 24 contracts and with Amoco and Imperial I am thinking of 25 specifically, tell me, what is your company's policy? 26 Will you be providing special consideration to them on 27 their energy costs because of the historical situation 28 and the creation of this virtual generation concept by Les Services StenoTran Services Inc. 613-521-0703 1890 OPG PANEL 1, cr-ex (Rogers) 1 Ontario Hydro? 2 MR. OSBORNE: Well, with respect, there are 3 three or four different forms of contracts and we had 4 better be very careful that we don't overgeneralize 5 here. If you were interested in specifics on various 6 forms of contracts I would suggest that we should make 7 available to you people who are more knowledgeable of 8 the specifics of the contracts than I am ever likely to 9 be. 10 But I guess it's fair to say that with respect 11 to those people who describe themselves as virtual cogen 12 operators, we refer to some of them as load retention or 13 LRER contractors. Well, it's another term of art that I 14 am sure you know better than I, we recognize that those 15 folks feel somehow disadvantaged by the restructuring 16 and the simple reality -- nothing is simple in this 17 life, but the simple reality is that all players will 18 have the advantage of an entirely new marketplace and 19 access to competitive generation sources going forward. 20 In creating that competitive opportunity on 21 generation there will be dislocation because we are 22 going from a monopoly regime with inherent issues within 23 it, to an open regime and there will undoubtedly be 24 dislocations. 25 So all players have to look at what's good and 26 what's bad for them within that construct. We recognize 27 that those particular LER or virtual cogen situations 28 are problematic for those players and we understand, I Les Services StenoTran Services Inc. 613-521-0703 1891 OPG PANEL 1, cr-ex (Rogers) 1 can't confirm this, but I understand most of them are in 2 discussion with the Minister now with a view to seeing 3 if they can be somehow extended beyond November 1st, et 4 cetera, and they are making other petitions. 5 I don't think it's appropriate for us to be 6 taking a position on those contracts. We are simply 7 suggesting that whatever the Minister or the OEB should 8 determine with respect to those contracts we will find a 9 way to live with. 10 We don't particularly wish to get into the 11 polemic between those players and the government. 12 MR. ROGERS: Thank you. 13 Won't they have -- once open access is in 14 place, they will be dealing with you directly, your or 15 other suppliers of -- 16 MR. OSBORNE: Or possibly through the spot 17 market, I suppose. 18 MR. ROGERS: Right. 19 Mr. Vegh, by the way, represents one of those 20 customers. I am surprised he didn't ask you about this, 21 but will your company be providing special consideration 22 to them as a matter of policy because of the historical 23 situation in which they find themselves? 24 MR. OSBORNE: We have not determined how we 25 are going to market any of our energy to any customers, 26 other than through the spot market, as we sit here now. 27 There is a huge amount of work that we have ahead of us 28 over the next few months to figure out the products and Les Services StenoTran Services Inc. 613-521-0703 1892 OPG PANEL 1, cr-ex (Rogers) 1 services we will be offering and the way in which we 2 will offer those services. 3 I do not believe in the absence of some kind 4 of a policy framework, either from the OEB, if that's 5 the appropriate organ, or from the government if that's 6 the appropriate organ, that says that these particular 7 contracts, LERE -- LRER or virtual cogen, should be 8 handled in this fashion. I don't think it would be 9 appropriate for us to be singling out customers and 10 treating them different from other customers. 11 We will take direction, if that should come 12 our way, and failing that we will operate on an 13 evenhanded and open basis with all customers. 14 MR. ROGERS: Thank you. That answers my 15 question. Thank you very much, sir. 16 That completes my questions. 17 THE PRESIDING MEMBER: Thank you, Mr. Rogers. 18 The Board will have some questions. 19 MR. VEGH: Excuse me, Mr. Higgin. I wonder if 20 it is possible on behalf of Amoco to ask one clarifying 21 question in response to the questions that were just 22 raised by the load retention contracts? 23 THE PRESIDING MEMBER: Okay. 24 MR. VEGH: Thank you, sir. 25 FURTHER CROSS-EXAMINATION 26 MR. VEGH: As Mr. Rogers mentioned, 27 Mr. Osborne, I am also representing Amoco in these 28 proceedings and I hadn't planned to address this issue, Les Services StenoTran Services Inc. 613-521-0703 1893 OPG PANEL 1, cr-ex (Vegh) 1 but just as a matter of clarification, you referred to 2 the various forums in which you understand that Amoco 3 and Imperial are addressing the LRER contracts and I 4 believe you used the term petitioning for extensions and 5 I have put those terms in quotes. 6 Just for clarification, the evidence of Amoco 7 and Imperial in this case is that they are not asking 8 for an extension of these contracts. You don't have any 9 firsthand knowledge to disagree with that, do you? 10 MR. OSBORNE: Well, I did try to indicate to 11 Mr. Rogers that I don't claim to be an expert on the 12 evidence that Amoco and Imperial gave on Friday, and 13 neither do I claim to be an expert on the specifics of 14 their contracts. 15 I have the same overall view of those 16 contracts that I expressed with respect to other issues. 17 I don't know, candidly, whether Amoco and Imperial have 18 approached anybody. I am aware through our customer 19 service people that some of those people, and I would 20 have to assume that that could well include Imperial and 21 Amoco, I don't honestly know that, are figuring out how 22 to seek relief from what they consider to be an 23 injustice. 24 As I say, we don't want to be in the middle of 25 that debate. I think we are in an untenable position. 26 We will treat all customers equally and fairly based 27 upon bilateral negotiations and if direction comes to us 28 that somehow these contracts should be grandfathered for Les Services StenoTran Services Inc. 613-521-0703 1894 OPG PANEL 1, cr-ex (Vegh) 1 some period of time, or whatever relief might be sought, 2 then we will take direction, but failing that we will 3 treat all customers on a fair and equitable basis, 4 recognizing that at the end of the day it is likely a 5 bilateral negotiation. 6 MR. VEGH: Thank you, Mr. Osborne. 7 Thank you, Mr. Chair for allowing that 8 question. 9 THE PRESIDING MEMBER: Thank you, Mr. Vegh. 10 Mr. Vlahos. 11 MEMBER VLAHOS: Mr. Osborne, just one 12 clarification, sir. 13 Your answers about -- I understand your 14 position about those specific contracts that deal with 15 surplus power and the low retention expansion rates. 16 Numerous times you mentioned about if 17 direction comes your way that you will act accordingly. 18 In a previous discussion you also named the government 19 and the OEB in the same breath. Is it your 20 understanding that this direction can come from this 21 Board about -- 22 MR. OSBORNE: I mentioned them in the same 23 breath, Mr. Vlahos, because I honestly don't know where 24 it might come from. I don't claim to be an expert on 25 the jurisdiction of the Board in that regard, but it's 26 an issue, obviously, that other people have brought to 27 your attention and whether or not you have the authority 28 or choose to opine on it I honestly don't know. Les Services StenoTran Services Inc. 613-521-0703 1895 OPG PANEL 1 1 I recognize, therefore, that it could 2 conceivable come from the OEB, although I don't know 3 that. I recognize that it could come from the 4 government as well but, again, I don't know that either, 5 frankly. 6 MEMBER VLAHOS: All right. Thank you. 7 THE PRESIDING MEMBER: Mr. Smith? 8 MEMBER SMITH: One question, Mr. Osborne. 9 A lot of the discussion on the gross/net 10 business relates to the allocation of costs among 11 customer class. If embedded generation comes in it 12 shows up as potential infliction of pain and the idea is 13 who is going to take it. A great deal has been said 14 about how you would allocate that. 15 But what about the cost of managing the system 16 itself? 17 I mean, all of this discussion seems to take 18 place in the context that the actual cost of managing 19 the power corporation and the network corporation have 20 been reduced to kind of an irreducible minimum and that 21 going forward there is just no room in there for any 22 kind of further efficiencies or cost reduction and that 23 the pain is going to have to be inflicted on everybody 24 else. 25 Could you comment on that, sir? 26 MR. OSBORNE: Yes. I would not accept the 27 premise that there is no room for improvement. We -- 28 wearing my short-lived but former hat at Ontario Les Services StenoTran Services Inc. 613-521-0703 1896 OPG PANEL 1 1 Hydro -- recognized that there was room for improvement 2 on all fronts and we accepted the premise -- indeed I 3 came to this company with my eyes open, accepting the 4 premise that one of the jobs was to find a way to 5 generate electricity more cheaply and to distribute it 6 more cheaply. 7 With respect to the generation piece of that 8 equation, the chief level of efficiency will be the 9 marketplace. We either will be competitive or we won't 10 be supplying, because over time people will build 11 generation. 12 I have indicated how we will create 13 competition by selling existing generation, the 14 interties will constitute competition, and obviously our 15 shareholder will demand to get an adequate return on its 16 investment. 17 All of those typical commercial market forces 18 will be the key level that will force us to be as 19 competitive as we possibly can. Therefore, obviously, 20 our objective will be to generate electrons -- say five 21 years from now for the sake of the argument -- a whole 22 lot better than we do today. 23 That doesn't, however, obviate the need for a 24 balanced construct around transmission, because we and 25 other generators will all be generating against the same 26 backdrop and it is precisely those other generators that 27 will keep us honest at the end of the day and keep our 28 cost structure where it has to be. Les Services StenoTran Services Inc. 613-521-0703 1897 OPG PANEL 1 1 With respect to the transmission and LDC part 2 of the equation, I don't claim to be any kind of expert 3 on this but I would assume that the PBR mechanism, or 4 something similar or your oversight through PBR or other 5 mechanism, will be a key lever, but equally obviously 6 the desire of the shareholder and bondholders to have 7 adequate security and adequate returns will again be a 8 key commercial driver. 9 So I don't want to put words into the mouth of 10 OHNC, but I suspect that they would give you a somewhat 11 similar answer that commercial forces will equally drive 12 them to do better than otherwise would be the case. 13 MEMBER SMITH: Could I just follow that up? 14 Would it be fair to say, then, that cost 15 allocation issues don't always have to flow 100 per cent 16 to other customer classes or back through to the CTC, 17 and so on and so forth, there is this other avenue to 18 look at and that is that we are using the costs of 19 operating the whole system? 20 MR. OSBORNE: Well, I think maybe the way I 21 would prefer to phrase that, in my own thinking, might 22 be that whatever the cost structure is -- and let's hope 23 it is a better cost structure than it was and let's hope 24 that we are doing a better job than we did 25 historically -- but whatever that cost structure is the 26 same issue pertains: How do you allocate that better 27 cost structure? 28 I recognize that issues can be mitigated, at Les Services StenoTran Services Inc. 613-521-0703 1898 OPG PANEL 1 1 least in the short term, by doing things better and, in 2 effect, sort of papering over the issue of cost 3 allocation because costs went down, but you are still, 4 at the end of the day, left with the same debate: What 5 is the appropriate way to allocate those costs that are 6 now more managed and balanced than they were in the 7 first instance? 8 MEMBER SMITH: Thank you. 9 THE PRESIDING MEMBER: Thank you, Mr. Smith. 10 I have a couple of questions, if I could. 11 On the gross versus net issue, in the first 12 part, if at present the transmission system was more 13 nearly fully depreciated, if there was still capacity on 14 most parts of the system, would you still activate gross 15 load billing for new generation and why? 16 MR. OSBORNE: That is a very interesting 17 question I have never thought through, candidly. 18 I think the issue is that we have a 19 transmission grid with a value that is attributable to 20 it in economic terms that is sufficient to supply the 21 load as we sit here today and has been built to supply 22 the load as we sit here today. 23 The decision has been taken, at least so far, 24 that an appropriate representation of the fair value of 25 that grid in restructuring the entire industry -- 26 because it was a process of revaluing all of the assets 27 of the old Ontario Hydro -- the decision was taken with 28 respect to OHSC that the appropriate revaluation was in Les Services StenoTran Services Inc. 613-521-0703 1899 OPG PANEL 1 1 fact historic book value net of depreciation to date. 2 I suppose if there had been significantly more 3 depreciation taken historically and we had ended up with 4 lower book value and yet still the same remaining useful 5 life and economic value, we would have had to have 6 reconsidered that form of revaluation being book value. 7 But, to be honest with you, that wasn't an 8 issue that ever really came up. 9 I think the issue really is whatever is the 10 fair value of that asset mash, which we have deemed to 11 be book value for purposes of the restructuring, has to 12 somehow be allocated. 13 THE PRESIDING MEMBER: Under your proposal 14 for, as I call it, a 10-year ratchet system from 15 0 to 100 per cent, would not -- are you relying on load 16 growth to mitigate, then, the costs that all of the 17 users would have to bear or would you also bring into 18 that the financial considerations of -- number one would 19 be the further depreciation of the system and also the 20 remaining life of the asset? 21 MR. OSBORNE: I think it's all of the above, 22 Dr. Higgin. I think those are all factors that go into 23 the mix and represent the basis for a compromise between 24 extreme views. 25 As I say, what we have attempted to do is come 26 up with a compromise between polarized positions and I 27 think you have raised a factor there that, frankly, I 28 hadn't thought of and considered in today's discussion, Les Services StenoTran Services Inc. 613-521-0703 1900 OPG PANEL 1 1 which is load growth in effect. 2 Utilizing more of the transmission or 3 acquiring more generation are ultimately requiring a 4 decision around transmission, but I think the three 5 factors you refer to are all relevant to that debate. 6 I don't want to claim finite accuracy or slide 7 rule accuracy applied to the 10 years. We are just 8 trying to be pragmatic. 9 THE PRESIDING MEMBER: The next question 10 relates to your views on green power. 11 The Board in its SSS decision made a comment 12 that it viewed green power as a competitive offering for 13 the competitive part of that market as opposed to being 14 something that should be integral to the standard supply 15 service. 16 Do you agree, and also do you feel that the 17 IMO could or should do certain things to encourage green 18 power at the wholesale level? 19 MR. OSBORNE: Well, I agree with the first 20 element of the question, and I tried to say that; that 21 ultimately the customer would dictate to the retailer 22 the components of product the customer wants to buy and 23 is prepared to pay for. It is a market-driven approach 24 to the issue of green power in that context. 25 With respect to the second part of the 26 question, should the IMO -- I honestly don't know the 27 answer to that question. I think it would be 28 inconsistent, frankly, for the IMO to delve into that Les Services StenoTran Services Inc. 613-521-0703 1901 OPG PANEL 1 1 issue if the basic premise is that the market will drive 2 this and the market will dictate, and it is a 3 competitive issue as opposed to a standard supply issue. 4 I don't know why the IMO would take that under its wing 5 and try to run with it at the wholesale level. 6 I have never discussed that with the IMO, so 7 there may be counter arguments that I am not familiar 8 with. But I would have thought consistency would 9 suggest that at the end of the piece we go back to what 10 I said; that we are prepared to supply, and undoubtedly 11 other generators will be prepared to supply, all the 12 product people want, whether it is reserve capacity, 13 black stock, voltage regulation bars, all these esoteric 14 electron terms that are beyond by ken frankly -- 15 THE PRESIDING MEMBER: Mine too. 16 MR. OSBORNE: -- plus normal energy, plus 17 green power components, et cetera. And people will have 18 their own definition of green power for that purpose as 19 well. Quite apart from whatever federal and provincial 20 regulators or governments say is green power, there will 21 be customer definitions as well, undoubtedly. 22 So I think we as a manufacturer will supply 23 through the wholesale chain what the market is 24 demanding. 25 THE PRESIDING MEMBER: Do you then support the 26 proposal put forward by the Applicant for a reduction in 27 transmission access fees for efficient generation, or 28 would you go further towards more preference for green Les Services StenoTran Services Inc. 613-521-0703 1902 OPG PANEL 1 1 power? 2 MR. OSBORNE: I think Mr. Boland will be in a 3 better position to respond specifically to the 4 Applicant's position on this. To my knowledge, we are 5 accepting the Applicant's position and are comfortable 6 with it. I would invite you to raise that further with 7 Mr. Boland. 8 With respect to the second part of your 9 question, again recognizing that you have as part of 10 your mandate the obligation to ensure that there is 11 nothing standing in the way of creating environmentally 12 friendly products, I would, with respect, suggest that 13 we think this should be done in a fashion that is market 14 driven as opposed to structurally driven through 15 distortions in tariffs, et cetera. 16 I recognize, having said all of that, that 17 there are some issues in the submission from the 18 Applicant around very small generation, et cetera, and I 19 am not arguing with that. Mr. Boland can speak to the 20 specifics of that. 21 But standing back from the specifics of those 22 issues, we don't believe, as I tried to say earlier, 23 that the transmission tariff or similar construct is the 24 way in which to create the environment for that. 25 THE PRESIDING MEMBER: Thank you. My last 26 question: Can you just recap to me how the sale of OPG 27 assets to new buyers will be influenced by the Board's 28 decision on gross versus net load billing. The assets, Les Services StenoTran Services Inc. 613-521-0703 1903 OPG PANEL 1 1 of course, are now net billed. 2 MR. OSBORNE: The assets are now net load. 3 The assets are now net load in the sense -- I'm sorry, I 4 am not trying to put words into your mouth; I am just 5 trying to articulate for my benefit. 6 The assets are now net load in the sense that 7 there are some cogen plants today, which we are not 8 presumably supplying because the cogen is supplying that 9 piece of the load -- 10 THE PRESIDING MEMBER: I am really talking 11 about your assets. 12 MR. OSBORNE: Okay. To the extent that our 13 assets are supplying electricity, in a sense gross 14 equals net, because whatever we are supplying, other 15 than through the surplus contracts and the LER contracts 16 that we talked about earlier, all of our power is 17 absorbing in a sense its fair share of the freight going 18 forward. 19 As we go forward here, we are talking about 20 how existing generation and new generation will have 21 access to the grid or will not have access to the grid 22 and how the costs of that grid will be split between 23 generators and customers, et cetera, going forward. 24 Those existing cogen plants that are there 25 have been in place historically, as I understand it -- 26 and I will be corrected by my counsel or by anybody else 27 who is more knowledgeable -- and in effect will continue 28 to be billed on the historic basis. So the issue isn't Les Services StenoTran Services Inc. 613-521-0703 1904 OPG PANEL 1 1 existing cogen capacity; the issue is the load that is 2 there today supplied by our assets, evaluation of our 3 assets, and the way in which the transmission grid cost 4 that is delivering the product from our assets is spread 5 amongst all customers. 6 THE PRESIDING MEMBER: Let's take a 7 hypothetical. If somebody bought one of your thermal 8 generation assets and then increased capacity, how would 9 the decision of this Board on net versus gross billing, 10 and also the other related issue -- which we are not 11 supposed to talk about, which is generators -- affect 12 the sale of that asset in your view, if you have a view 13 on it. 14 MR. OSBORNE: Yes, I have a view. To the 15 extent that a transmission construct incentivates the 16 creation or the construction of new generation that 17 wouldn't otherwise be built absent that transmission 18 construct, that will have the effect of reducing the 19 value of all existing assets. In effect, uneconomic 20 plant will have been constructed that will be give rise 21 to an imbalance in the competitive marketplace we 22 referred to. 23 And not all of our colleagues in the room 24 agree with that, obviously. But that is the discussion 25 we have been having this morning. 26 To the extent that that happens, all plant, 27 that which we sell and that which we do not sell, will 28 have a valuation impact on it. I honestly couldn't tell Les Services StenoTran Services Inc. 613-521-0703 1905 OPG PANEL 1 1 you that we could ever put that on a slide rule and 2 measure it, because at the end of the day it is an 3 auction process and beauty is in the eye of the 4 beholder. 5 But standard sort of valuation theory would 6 suggest that to the extent there is an imbalance that 7 will incentivate plant to be built that otherwise 8 wouldn't be built, the market will assume that the 9 existing plant has less value rather than more value. 10 THE PRESIDING MEMBER: thank you very much for 11 your responses. 12 Mr. Vlahos has a few questions. 13 MR. VLAHOS: Mr. Osborne, I would just like to 14 follow up on one item that you discussed with the 15 Presiding Member. 16 I get the impression, when the discussion 17 turned to the OPG's proposal for a ten-year phase-in, 18 that at the end of the day it will be an open question 19 as to what will survive and what will be replacing that 20 ten-year phase-in. 21 Do you recall this exchange? 22 MR. OSBORNE: Yes. 23 MR. VLAHOS: Is this your belief, that at the 24 end of the ten-year time frame you just don't know what 25 will be in place, that it may be again some form of 26 gross billing, or not? 27 MR. OSBORNE: As I tried to indicate, 28 Mr. Vlahos -- and again, not being an expert in these Les Services StenoTran Services Inc. 613-521-0703 1906 OPG PANEL 1 1 things and coming at it somewhat late in life and from 2 the standpoint of 200,000 foot as opposed to in the 3 trenches -- I am under the impression that a number of 4 significant issues with respect to transmission tariffs 5 have been left for further consideration at a future 6 date. 7 For example, my recollection is that the 8 Market Design Committee, while recommending a postage 9 stamp approach, as it is called, to transmission, 10 equally recommended that this should be revisited. I 11 don't know what the Board's intention is with respect to 12 that. But it will be within your purview, obviously. 13 And there will be other similar issues, I am sure, that 14 I am simply not familiar with that will be important in 15 the construct of future transmission rates as we go 16 forward. 17 So I don't think any -- at least I am not 18 assuming. I would be interested in my colleagues' views 19 on this because they are the experts on this. But I am 20 not assuming that everything that comes out of this 21 hearing is for keeps. 22 I think we all recognize that there are issues 23 that will have to come forward periodically as we go 24 forward, including, for example, additional capacity on 25 the interties, where the Market Design Committee 26 recommended that the system should enable new intertie 27 capacity to be built in order specifically for 28 generation outside the provide to import into the Les Services StenoTran Services Inc. 613-521-0703 1907 OPG PANEL 1 1 province and create more competition for existing 2 generating assets. 3 I would assume that at some point people will 4 come to you with applications for such intertie 5 capacity. I simply don't know that, but that is 6 something within Ontario Hydro Services Company, I 7 guess, primarily. 8 So there will be a myriad of such issues which 9 are as important in the overall scheme of things, I 10 suspect, than the ones that we are discussing today. I 11 don't think this is the end of the debate around 12 transmission tariffs. 13 MEMBER VLAHOS: I can certainly follow it up 14 with the witnesses of OPG later, Mr. Osborne, but it was 15 my impression that one of the rationales given for this 16 10-year phase in that it does create some certainty, 17 both a place and a market, as to what have to be phased 18 now and 10 years down the road. 19 MR. OSBORNE: I would agree that, to the 20 extent that we can put some stakes in the ground that 21 create the right signposts for people, particularly for 22 people who are going to buy assets from us, for example, 23 that is important. But I don't think anybody is 24 expecting that we are creating a 30-year regime here, 25 any more than any other jurisdiction has created a 26 30-year regime. 27 What we are looking for here is some certainty 28 and balance over the next period. We talked about Les Services StenoTran Services Inc. 613-521-0703 1908 OPG PANEL 1 1 10 years as it related to gross versus net. That was 2 our attempt to compromise. But I think we all recognize 3 that other issues will come up during that 10-year 4 horizon. 5 MEMBER VLAHOS: So you give here the gross 6 versus net may be revised at the end of the 10-year 7 period based on the company's proposal? 8 MR. OSBORNE: Yes, and I wouldn't doubt that 9 others will bring it to your attention constantly in 10 that 10-year period. 11 MEMBER VLAHOS: All right. 12 Thank you, sir. 13 THE PRESIDING MEMBER: Thank you, Mr. Vlahos. 14 Thank you, Mr. Osborne. 15 Could you see if your counsel has any 16 re-direct or follow-up questions? 17 MR. CAMPBELL: Not a single question. 18 THE PRESIDING MEMBER: All right. So you are 19 relieved. 20 So we appreciate you coming here and 21 presenting your testimony. We wish you good luck in the 22 future. 23 MR. OSBORNE: Thank you. 24 THE PRESIDING MEMBER: Now, we will take a 25 break, and 20 minutes back, please. 26 --- Upon recessing at 1105 27 --- Upon resuming at 1125 28 THE PRESIDING MEMBER: Please be seated. Les Services StenoTran Services Inc. 613-521-0703 1909 1 Mr. Fisher, you are reaching the mike. 2 MR. FISHER: Dr. Higgin, we have the copies of 3 Undertaking F9.1 so I shall give them to Board staff and 4 then put the remainder on the shelf. 5 THE PRESIDING MEMBER: Okay. Mr. Campbell, 6 would you like to introduce the gentlemen briefly and 7 have them be sworn? 8 MR. CAMPBELL: Thank you. 9 The two witnesses in the OPG second panel are 10 Mr. Bruce Boland and Dr. Ren Orans. Perhaps they could 11 go forward and get sworn. 12 SWORN: BRUCE BOLAND 13 SWORN: REN ORANS 14 THE PRESIDING MEMBER: Thank you. Please 15 proceed. 16 EXAMINATION-IN-CHIEF 17 MR. CAMPBELL: Mr. Boland, if I could proceed 18 with you first, please. 19 You hold the position of Vice-President of 20 Regulatory Affairs at Ontario Power Generation? 21 MR. BOLAND: That's correct. 22 MR. CAMPBELL: As I understand it, you began 23 your career at Ontario Hydro in 1982? 24 MR. BOLAND: Yes. 25 MR. CAMPBELL: You were a member of the Market 26 Design Committee? 27 MR. BOLAND: Yes. 28 MR. CAMPBELL: And in February of '99 you were Les Services StenoTran Services Inc. 613-521-0703 1910 OPG Panel 2, in-ch (Campbell) 1 appointed to the board of the Independent Electricity 2 Market Operators? 3 MR. BOLAND: That is correct. 4 MR. CAMPBELL: You hold an MBA from the 5 University of Toronto, as I understand it, and a 6 Bachelor of Business Administration from Sir Wilfrid 7 Laurier University? 8 MR. BOLAND: That's correct. 9 MR. CAMPBELL: Your evidence is filed in these 10 proceedings as Exhibit H8.2. I take it that exhibit was 11 prepared under your supervision? 12 MR. BOLAND: That's correct. 13 MR. CAMPBELL: Are there any changes or 14 additions you want to make to that? 15 MR. BOLAND: No. 16 MR. CAMPBELL: Do you adopt that exhibit as 17 your testimony in these proceedings? 18 MR. BOLAND: Yes, I do. 19 MR. CAMPBELL: Now, Mr. Chairman, we have one 20 exhibit that Mr. Boland will be referring to. 21 Perhaps I should just get an exhibit number 22 for it. It is an exhibit that has on the title of it 23 "Export Examples." We distributed it last week. 24 MR. LYLE: We will mark that Exhibit G10.2 25 EXHIBIT G10.2: OPG document entitled 26 "Export Examples" 27 MR. CAMPBELL: Now, Mr. Boland, just before we 28 get to that exhibit, OPG has taken positions on two Les Services StenoTran Services Inc. 613-521-0703 1911 OPG Panel 2, in-ch (Campbell) 1 issues in this proceeding. Would you outline, please, 2 the proposals that OPG has put forward on those two 3 issues? 4 MR. BOLAND: Just in terms of a quick summary, 5 our proposal is outlined in our prefiled evidence, but 6 at a high level on the gross versus net issue, our 7 proposal is to phase from gross to net on a 8 project-by-project basis over 10 years for each project. 9 This proposal recognizes that customers installing 10 embedded generation should not be allowed to walk away 11 from the costs incurred to serve them by the 12 transmission company. 13 The second issue on which we filed evidence is 14 the export and wheel-through. Our proposal on export 15 and wheel-through is that the net congestion payments 16 from these transactions should be paid to the Ontario 17 transmission customers. Should these payments not be as 18 high as $1 per megawatt hour then the exporter will make 19 an additional payment to bring the total to this figure. 20 This creates a minimum shared contribution to the 21 Ontario transmission customer. 22 With the design of having congestion payments 23 going to the Ontario transmission customers it is both 24 unnecessary and counter-productive to have an explicit, 25 fixed export charge in addition to congestion. The MDC 26 method of having congestion payments go back to the 27 Ontario transmission customer creates a better outcome 28 for both exporters and transmission customers in Les Services StenoTran Services Inc. 613-521-0703 1912 OPG Panel 2, in-ch (Campbell) 1 Ontario. An export and wheel-through charge will 2 actually reduce the funds available to transmission 3 customers in Ontario by preventing economic transactions 4 from occurring. 5 MR. CAMPBELL: All right. Now, I would ask 6 you again to walk through the examples that are set out 7 in Exhibit G10.2. I am going to ask you to go through 8 the board, go to the board, and kind of draw this out on 9 a step-by-step basis as we go so that the construction 10 of the examples is made perfectly clear. 11 I guess we will start you with Case 1A. 12 MR. BOLAND: What I am going to attempt to 13 illustrate the design of the Ontario market, as 14 envisioned by the MDC to begin with, and ultimately as 15 it is being adopted through the IMO processes. 16 Now, to understand export in the context of 17 the design of the Ontario market, it is necessary to 18 look at three different marketplaces. The circles that 19 I am drawing just roughly correspond to the more or less 20 circles from the Case 1A, the top circle being the 21 Ontario market, the bottom circle being the New York 22 market. The New York market is actually divided into 23 zones and Ontario, where the market is a whole, there is 24 just one zone for Ontario. But the relevant market in 25 New York is actually the New York zone that touches 26 along the border with Ontario. 27 In Ontario there will be a market based on 28 supply and demand and the supply and demand forces will Les Services StenoTran Services Inc. 613-521-0703 1913 OPG Panel 2, in-ch (Campbell) 1 determine the market going price at any point in time. 2 That will happen on a five minute-by five minute basis. 3 For illustration here, I am going to make a 4 simple line assumption on an hour-by-hour basis and just 5 talk about a one hour period of time and what happens in 6 that one hour period of time. I am also going to 7 assume, just for purposes of illustration, perfect 8 knowledge that the figures I have put up we can assume 9 is the market participants are equally aware of that 10 rather than have to get into expected values and 11 uncertainty and so on. 12 Now, let's assume that the Ontario market for 13 a one hour period is claiming $30 per megawatt hour 14 through the demand and supply forces in Ontario. So 15 let's assume for that same hour the New York market is 16 clearing at $50 per megawatt hour. Let's also assume 17 for Case 1A that there is no fixed export and 18 wheeling-through transmission charge and let's consider 19 what the various market participants would think about 20 in terms of what this market is facing and what 21 opportunities do they have. 22 Now, the first thing to consider is that what 23 we are talking about now is there is a limited amount of 24 physical flow that can happen from Ontario to New York. 25 That is why we have separate markets. But in this case, 26 where the price in Ontario is less than the price in New 27 York, there is going to be a demand from the suppliers 28 in Ontario to want to be able to serve in the New York Les Services StenoTran Services Inc. 613-521-0703 1914 OPG Panel 2, in-ch (Campbell) 1 market and access that higher price. But there is a 2 limit to the extent that they can do that. So this 3 line, for purposes of illustration, we can call it 4 1,000 -- 1,000 megawatts is what it can handle. 5 Any market participant can bid to supply power 6 he couldn't bid at his zone. Those bids at that zone 7 are seen as additional demand from the Ontario market 8 point of view. It is not restricted to generators so it 9 is not -- this export issue is not necessarily related 10 to generators in Ontario. These could be marketers that 11 are buying from the stock market and reselling them to 12 the New York market. It is any market participant doing 13 that. 14 Based on these forces that they see, the only 15 reasonable outcome is that this price is going to be bid 16 up to start to reflect something close to the $50 in New 17 York. In the illustration I am using, I am using $41. 18 What that is doing is it is leaving a $1.00 margin for 19 the exporter. The exporter would pay $49, which is the 20 $19 congestion charge which is the difference between 21 the $49 and the $30, plus the $30. So the exporter 22 would be paying $49 and in turn would be selling into a 23 $50 market. 24 I have made for this purpose an illustration 25 that that exporter would need in order for him to earn a 26 living, earn a return that would cover his costs, 27 $1.00 per megawatt hour. I know exactly what that 28 number is going to be. In the real world, I don't think Les Services StenoTran Services Inc. 613-521-0703 1915 OPG Panel 2, in-ch (Campbell) 1 anybody does. But the concept I think is quite sound 2 that in arbitraging these markets that price 3 differential should become quite low and would become 4 quite low. 5 So the IMO will determine for this hour how 6 much physically is available, and they will determine 7 for this hour 1,000 megawatts is available. 8 The people bidding in here -- there might be 9 4,000 megawatts worth of bids, there might be 10 10,000 megawatts worth of bids. That's what makes the 11 constraint -- more people want to get through than the 12 line can actually handle. 13 So the rules are that the IMO is going to 14 select the highest bids, because that is what creates 15 the most benefit back to the Ontario transmission 16 customer. If there are a bunch of bids at $48 and $47, 17 but there is 1,000 megawatts of bids at $49, it is the 18 $49 bid that is going to be accepted by the IMO. 19 Let's go through it, then. This gets 20 scheduled at $49 for 1,000 megawatts. Let's go through 21 the settlement process for what happens. 22 The exporter is going to pay $30, pay a 23 congestion fee of $19, sell into the New York market, he 24 gets access now to the $50 but it has cost him $49 to 25 get that access, and he in return is earning a net 26 revenue of $1.00. 27 The credit back to the Ontario transmission 28 customer in this case is the cost of the congestion, Les Services StenoTran Services Inc. 613-521-0703 1916 OPG Panel 2, in-ch (Campbell) 1 which is really the value of transportation for this one 2 hour to get from one market to the other, and the value 3 of that congestion, according to the market signal, is 4 $19. That will go back through the settlement process 5 of the IMO and the IMO settlements account to the 6 transmission customers in Ontario. 7 MR. CAMPBELL: Mr. Boland, just so we are 8 clear, it is the market rules that say that that 9 congestion, that $19 of congestion, goes to the Ontario 10 transmission customers? 11 MR. BOLAND: Yes. This is the market design 12 as envisioned by the Market Design Committee and it has 13 continued to be endorsed through the IMO board. 14 MR. CAMPBELL: And it is being implemented 15 through the market rules? 16 MR. BOLAND: When the market rules are 17 implemented, that is where these mechanisms would be 18 reflected. 19 Now, let's move on to Case 1A which is exactly 20 the same in terms of the economic forces in terms of the 21 $30 price and the $50 price. The difference that we are 22 adding in Case 1B is that we are now adding a fixed EWT 23 charge of $3.00. 24 Now, with this set of economic assumptions 25 facing the potential exporters, what are they going to 26 see? They are going to see a $50 market in New York 27 that they would like to get access to, but, effectively, 28 to get access to that $50 market they know they have to Les Services StenoTran Services Inc. 613-521-0703 1917 OPG Panel 2, in-ch (Campbell) 1 pay a $3.00 fee back to the Ontario transmission 2 customer. So the net proceeds that they are going to 3 see now from having access to that $50 market, the net 4 proceeds they will see will not be $50 but will be $47. 5 Based on the same logic that we had from the 6 first case, that this intertie is going to bid up to be 7 $1.00 less, that $1.00 is the margin that the exporter 8 needs in order to earn his return. We would expect this 9 bid, this export capability to be bid up now, not to 10 $49 but instead to $46. 11 So let's examine the implications of this for 12 the settlement process. The exporter, again paying now 13 $16 of congestion, is paying $30 to buy, for a total -- 14 also paying a $3.00 export and wheel-through charge and 15 being able to sell for $50. Again, that yields the 16 $1.00 net revenue back to that exporter. 17 What has happened in the settlements account 18 now in Case 1B compared to Case 1A in terms of the money 19 flowing back to the Ontario transmission customers? 20 In this case, the Ontario transmission 21 customer gets that $3 EWT charge -- that's a fixed 22 payment -- and in addition gets the congestion payment, 23 which in this case defines the difference between the 24 $46 and the $30 of $16, for a total of $19. 25 Now, just to compare, then, Case 1B with 1A, 26 the total amount, even though we added a $3.00 export 27 and wheel-through transaction which had on the face of 28 it the appearance of being a good thing for the Ontario Les Services StenoTran Services Inc. 613-521-0703 1918 OPG Panel 2, in-ch (Campbell) 1 transmission customer because market forces are at play 2 here and the market will adjust for that, the yield back 3 to the Ontario transmission customer is exactly the same 4 in Case 1B as it was in Case 1A, and that is $19. 5 Now, I would like to move on to another case. 6 I am going to change the economic situation now into 7 another hour in time and the Ontario market and the New 8 York market for this hour of time are different than 9 what we had previously. 10 Let's hold the $30 for the Ontario market, but 11 let's say at this time the supply and demand forces in 12 New York are such that it would be a $33 market clearing 13 price in the New York zone. 14 Following the same logic, the exporters 15 attempting to get access to this limited line, are going 16 to want to bid that line up. In this case, assuming 17 they need that $1 margin to earn a return on their 18 activities and make it worth their while, they should be 19 bidding this zone, this export zone, up to $32. 20 If we go through the settlements in terms of 21 when this happens, the exporter pays a $2.00 congestion 22 fee, the difference between the $32 and the $30 -- that 23 is how the congestion is defined -- plus the $30 to buy 24 out of the Ontario market in order to sell for $33 in 25 the New York market. That yields the exporter $1.00. 26 The credit back to the Ontario transmission 27 customer in this case is simply the congestion revenue 28 of $2.00. That is reflecting the fact that the value of Les Services StenoTran Services Inc. 613-521-0703 1919 OPG Panel 2, in-ch (Campbell) 1 that gateway for that one hour is not as valuable as it 2 was in the first two cases we had because the market 3 differential is much smaller. 4 Now I want to continue on with these same 5 market forces of $30 and $33 but now add back in again a 6 $3.00 fixed export and wheel-through transmission 7 charge. 8 In this case, the exporter is trying to seek 9 access to a $33 market. It looks better than the 10 $30 market, but the exporter knows that in order to get 11 access to that $33 market he has to make a $3.00 fixed 12 payment. So, from his perspective, in terms of net 13 proceeds and the revenue he will receive, this is 14 effectively now a $30 market. That is the most that he 15 can get out of it. 16 How much is he going to bid up the intertie? 17 On our example again he needs to make a buck 18 on his transaction or it is not worth his while, so he 19 is going to be willing to pay up to $29, and at $29, 20 $29 is less than the $30. So from the Ontario 21 perspective, the IMO, in scheduling transactions for 22 that hour, will say this demand point here has said that 23 I am willing to pay up to $29 for any product, the 24 market in Ontario is clearing at $30, that is the going 25 tariff for that hour, that is the market clearing price 26 for energy. I'm not going to schedule that transaction, 27 and the trade does not take place. 28 So in terms of the settlements process, it is Les Services StenoTran Services Inc. 613-521-0703 1920 OPG Panel 2, in-ch (Campbell) 1 extremely simple in this case. There is no transaction, 2 there is no settlement, the exporter doesn't make any 3 money and the transmission customer in Ontario does not 4 receive any credit back for congestion. 5 So in contrasting Case 2A to Case 2B, where in 6 Case 2B we added the $3.00 export and wheel-through 7 charge, that fixed charge has the effect of making an 8 otherwise economic transaction uneconomic and both the 9 market participants and the Ontario transmission 10 customer have suffered that loss. 11 The last case is Case 3 and it is the same as 12 Case 1. I'm just introducing one other concept here, 13 and that is that in the Ontario market there will be 14 these things called transmission rates or financial 15 transmission rates. These are hedges that market 16 participants can buy in an open auction. The IMO will 17 hold the auction and market participants can buy these 18 hedges and these hedges will give the market 19 participants a right to receive a financial payment 20 equal to the amount of the congestion charge for that 21 intertie for which they have bought the transmission 22 rights. 23 So in going through the settlements on this 24 account with this hedge, the Case 3 settlement looks 25 exactly the same as the Case 1A settlement with two new 26 lines being added, the fact that the market participants 27 are not purchasing a financial transmission right, and 28 that they are receiving a payment that reflects the Les Services StenoTran Services Inc. 613-521-0703 1921 OPG Panel 2, in-ch (Campbell) 1 value of the congestion -- this is the hedge that they 2 have -- they get a payment back for the amount of 3 congestion. 4 So in Case 3 the congestion was $19. By 5 definition, by holding the transmission right, those 6 holders of that transmission right get a $19 payment 7 back. 8 The other thing to bring into that is that in 9 this example I have shown that the transmission right 10 will be bought for $19. In our example in perfect 11 certainty here that makes sense. The market 12 participants again would have a right to receive a 13 TR payment of $19. They would be expected to bid 14 through that option process the transmission rights up 15 to $19. 16 Now, transmission rights under the market 17 rules will be auctioned, at least initially by the IMO. 18 They will be auctioned in one-month blocks and in annual 19 blocks and the actual actions I believe will take place 20 monthly and quarterly for those blocks. 21 So there is a time differential associated 22 with the transmission rates and the operation of the 23 market. 24 The actual operation of this market, which we 25 have described to these different cases is on an 26 hour-by-hour basis and the market participants would 27 actually be informed of whether or not they were 28 accepted into the schedule a half an hour before the Les Services StenoTran Services Inc. 613-521-0703 1922 OPG Panel 2, in-ch (Campbell) 1 actual hour takes place. So this is happening over and 2 over again a half hour before every hour, the market 3 participants are given that message of whether or not 4 they were the successful participants in the market. 5 Now, in this example the transmission right 6 purchase was exactly $19. It could be that if we 7 removed the perfect certainty assumption that they could 8 have paid a lot more for those transmission rights, 9 which would have meant a lot more money flowing back to 10 the Ontario transmission customer, or they could have 11 paid less had their expectations for prices been 12 different at the time the TR auction took place. 13 But in terms of just pure illustration and 14 showing the example, for perfect certainty $19 would be 15 the logical price at which the TRs would go to. 16 My summary from this is in attempting to 17 illustrate how the market will work is to show that the 18 export and wheeling charge is really a redundant factor 19 that given that market forces are at work here in 20 determining what market players will do, and given that 21 all of the congestion payments, the mechanism is already 22 in there in the rule, that the full value of that 23 transmission line at any point in time is captured by 24 the Ontario transmission customer, that that's the best 25 approach that we could have from the perspective of both 26 transmission customers and market participants and 27 transmission customers in Ontario. 28 MR. CAMPBELL: Thank you, Mr. Boland. Les Services StenoTran Services Inc. 613-521-0703 1923 OPG Panel 2, in-ch (Campbell) 1 Now, Dr. Orans, if I can turn to you, please. 2 I understand that you are President of Energy and 3 Environmental Economics Inc.? 4 MR. ORANS: That's correct. 5 MR. CAMPBELL: I also understand that you have 6 about 20 years of experience in the electric utility 7 business. 8 MR. ORANS: Yes, I do. 9 MR. CAMPBELL: And you have worked extensively 10 in wholesale and retail ratemaking, integrated resource 11 planning and transmission and distribution planning? 12 MR. ORANS: Yes. 13 MR. CAMPBELL: You have testified before state 14 and provincial regulators on transmission pricing, 15 retail and wholesale rate design? 16 MR. ORANS: Yes. 17 MR. CAMPBELL: And in the last five years your 18 work has focused on transmission and distribution 19 pricing for electric utilities in North America? 20 MR. ORANS: Yes. 21 MR. CAMPBELL: I understand that mostly 22 recently you have testified on transmission rate design 23 on behalf of B.C. Hydro in its last two transmission 24 proposals before the British Columbia Utilities 25 Commission? 26 MR. ORANS: Yes, that's correct. 27 MR. CAMPBELL: You have a Ph.D. in civil 28 engineering from Stanford? Les Services StenoTran Services Inc. 613-521-0703 1924 OPG Panel 2, in-ch (Campbell) 1 MR. ORANS: Yes. 2 MR. CAMPBELL: And a B.A. in economics from 3 Berkeley? 4 MR. ORANS: Yes. 5 MR. CAMPBELL: Now, your evidence has been 6 prefiled as Exhibit H8.1. Could you confirm please that 7 that exhibit was prepared under your direction? 8 MR. ORANS: Yes, it was. 9 MR. CAMPBELL: Are there any changes or 10 additions that you want to make to that testimony? 11 MR. ORANS: No, there are not. 12 MR. CAMPBELL: And I take it you adopt it as 13 your evidence in this proceeding? 14 MR. ORANS: Yes, I do. 15 MR. CAMPBELL: I understand that you have 16 prepared and we have distributed an exhibit 17 demonstrating the impact of embedded generation on 18 network transmission investment. Mr. Chairman, that has 19 been distributed and coloured copies have been made 20 available. If I could get an exhibit number please. 21 MR. LYLE: We will mark that as G10.3. 22 MR. CAMPBELL: G10.3. 23 MR. LYLE: That's correct. 24 EXHIBIT NO. G10.3: Document 25 demonstrating the impact of embedded 26 generation on network transmission 27 investment 28 MR. CAMPBELL: Dr. Orans, I am again going to Les Services StenoTran Services Inc. 613-521-0703 1925 OPG Panel 2, in-ch (Campbell) 1 ask you to walk through that illustration please, 2 demonstrating the impact of embedded transmission on 3 network investment. 4 MR. ORANS: This illustration takes a 5 relatively complex problem and puts it on one graph. I 6 have tried to do that with a simplicity of assumptions 7 and numbers here and only four lines. 8 On the vertical axis of the graph is quantity 9 and on the horizontal axis of the graph is time. When I 10 think about this graph it is a typical expansion plan 11 for an Ontario Hydro network system, much like the GTA 12 area or much like the eastern Toronto area that I have 13 in my testimony. 14 Let's look at the first two lines. The first 15 line I would like to point out is the supply line, which 16 is the dark blue line on the top of the graph. It shows 17 the existing quantity in the Ontario Hydro network 18 system and it shows the need to reinforce this system 19 when the second red dotted line here, the demand line, 20 intersects the supply line. 21 So absent any changes in load, unanticipated 22 changes in load, I would reinforce this system at point 23 B in my graph. 24 Let's look at two other lines. Let's say I am 25 humming along here in my system. I am an existing 26 customer and Ontario Hydro is normally planning to 27 provide capacity for me in this network and I have an 28 unanticipated load change from an existing customer Les Services StenoTran Services Inc. 613-521-0703 1926 OPG Panel 2, in-ch (Campbell) 1 placing embedded generation in my network. Let's assume 2 I can count on that generation as a load reduction. The 3 full load reduction of my system, dispatchable, 4 controllable, et cetera, and it lasts for a long period 5 of time. It's not one year, two years, but it's a long 6 period of time that exists over 10, 20 years. 7 I can now draw another line here beginning at 8 point A, which is the time under which the generator is 9 put in place. It's not today. It could be 10 years 10 from now, the time in which the generator is put in 11 play. And that line now will extend all the way through 12 this same period here, past what I call T18, which is 18 13 years after the initial investment that I talked about 14 that corresponds to point B, up to this second period 15 marked by T22, which is four years after the first 16 period. 17 I want to point out two lines that I used to 18 derive that here. There is a third line here called 19 demand after embedded generation. That's the red dashed 20 line. That's the line that shows the new demand after 21 the embedded generator or load reduction. It doesn't 22 have to be an embedded generator. It is installed and 23 exists over the same period. 24 You will see here by extending the existing 25 capacity out to point C, it defers the need to invest in 26 new network capacity for in this case four years. 27 I would like to make a couple of points about 28 this graph. First, it doesn't depict any one system in Les Services StenoTran Services Inc. 613-521-0703 1927 OPG Panel 2, in-ch (Campbell) 1 Ontario Hydro Network Systems. It's a typical system 2 that would have investments in new capacity in excess of 3 10-year periods. So when I saw a need to invest in 4 capacity, I would then build something that would carry 5 me beyond 10 years. I wouldn't build something that 6 would carry me one year, two years, three years, four 7 years. 8 That's fairly typical of large bulk systems. 9 I think you heard previously on the record that it takes 10 in excess of 10 years to plan, site, get through a 11 planning study. You are never going to build something 12 shorter than that period when you reinvest in capacity. 13 So we have seen it all over North America. 14 The shortest period you see on planning cycles 15 are about 10 years. Frequently you see them 20 and 30 16 years in downtown areas because it fills up and the 17 sites are gone. So people like once they have a 18 right-of-way, they like to fill it with enough capacity 19 to take them through a whole planning cycle, which could 20 be in excess of 20, 30, 40 years. 21 So the first thing you see in this example is 22 if a random, unexpected load change happens in a 23 network, it could be a very long time and the evidence 24 in this case suggests that it is a fairly long period of 25 time until that capacity can be effectively reused. 26 As Commissioner Smith said, it is true there 27 is a value now to that deferral. I am not going to say 28 that the value of deferring this, point B, four years in Les Services StenoTran Services Inc. 613-521-0703 1928 OPG Panel 2, in-ch (Campbell) 1 time is not worth something. 2 What I am going to put to you is that it is a 3 relatively small number given discounting over that 4 period. 5 If you want to think about the value today -- 6 or not the value today, but the value in the first year 7 after installing the embedded generator, it is the 8 present value of the deferral value between pushing this 9 investment from the 18th year to the 22nd year back to 10 the first year in the expansion plan. That is the first 11 point. 12 The second point is the value increases over 13 time. Because, as other witnesses have testified in 14 this proceeding, as I have load growth it is not 15 depreciation in particular that is important but it's 16 the load growth and the reuse of the capacity. 17 As I get nearer to this investment the 18 discounting becomes less important. That is why in our 19 proposal we propose a phase-in that has a greater value, 20 less pain, if you will, over time, or more crediting to 21 the embedded generator as Ontario Hydro Network can 22 reincorporate the new plans and let lower load into 23 their investment plan. 24 MR. CAMPBELL: In your evidence you talk about 25 specific examples of this phenomenon in Ontario, do you 26 not? 27 MR. ORANS: Yes, I do. 28 MR. CAMPBELL: I think that can be found at Les Services StenoTran Services Inc. 613-521-0703 1929 OPG Panel 2, in-ch (Campbell) 1 about page 10 of your evidence. 2 Perhaps you could just outline what you were 3 dealing with there? 4 MR. ORANS: In preparation for this case I 5 asked OHNC if they could provide me in the GTA area, the 6 greater Toronto area and the eastern Ontario area, the 7 amount of capacity that they installed over the last 8 10 years. I asked them specifically load growth related 9 network capacity. Just the network piece, not the 10 interconnection piece, and just related to load growth. 11 In these two areas -- from my past experience 12 these two areas were where most of the load growth had 13 occurred over the last 10 to 15 years. 14 They produced a table in Attachment 2 of my 15 exhibit that shows that over the last 10 years they have 16 added 6,150 MVA of capacity in the GTA area and 17 4,300 MVA of capacity in the eastern Ontario area. 18 Now, at the same time I asked them what was 19 the load growth, the average annual load growth in those 20 two areas during this period, and they produced 21 estimates of the annual load growth that is also shown 22 on page 10 of my testimony. 23 In the GTA area I calculated that 24 approximately, if you were to go back to this graph, the 25 period between point A and point B, which is the period 26 under which you would have to defer the value of this 27 deferral -- or present value the value of this deferral 28 back to get the current value of the load deferral -- Les Services StenoTran Services Inc. 613-521-0703 1930 OPG Panel 2, in-ch (Campbell) 1 was about 50 years for the GTA area and in excess, well 2 in excess of 100 years for the eastern Ontario area. 3 MR. CAMPBELL: All right. 4 You have used two terms "MVA", "megawatts". 5 Could you just deal with that, please? 6 MR. ORANS: Yes. For simplification I have 7 assumed here that MVA is translated directly over to 8 megawatts. I don't have any estimates of reactive power 9 in this area. 10 MR. CAMPBELL: All right. 11 Now, in the course of Dr. Poray's testimony -- 12 and I think this can be found at pages 626 and 627 of 13 the transcript -- I asked him what the most conservative 14 estimate of the additional load meeting capability of 15 the transmission addition was for each of the GT area 16 and the eastern Ontario area. 17 Did you review that testimony? 18 MR. ORANS: Yes, I did. 19 MR. CAMPBELL: Did Dr. Poray's most 20 conservative figures change your conclusions at all? 21 MR. ORANS: No, they did not. 22 MR. CAMPBELL: Perhaps you could explain why 23 that is? 24 MR. ORANS: Dr. Poray's response was that 25 under the most conservative assumptions -- and this is a 26 very large, complicated network with lots of different 27 pieces and load flows and generation. 28 Under the most conservative assumptions you Les Services StenoTran Services Inc. 613-521-0703 1931 OPG Panel 2, in-ch (Campbell) 1 could remove the potential autotransformers -- the two 2 of the them that are in the GTA area and two of them 3 that are in the eastern Ontario area -- from the range 4 of capacity added that they initially gave me, and the 5 only change that would make is a small change in the 6 numbers. 7 It reduces the GTA estimates for the period 8 from point A to point B from 50 years, which was 9 equivalent to the number they first gave me, down to 10 37.8 years, which is equivalent to his most conservative 11 assumption of the capacity added in the GTA area. 12 MR. CAMPBELL: What was the effect in eastern 13 Ontario? 14 MR. ORANS: It was still well in excess of 15 100 years. 16 MR. CAMPBELL: All right. 17 Now, I have two other -- 18 The table you referred to is found at 19 Interrogatory E-8-19, is it not? 20 MR. ORANS: Yes, that is correct. 21 MR. CAMPBELL: There are two other items I 22 would just ask you to deal with briefly. 23 One, the first one, is a question that 24 Dr. Higgin asked about the basis of a figure that is 25 contained in Interrogatory E-31-16. If you could turn 26 that up, please. 27 MR. ORANS: Yes, I have it. 28 MR. CAMPBELL: In that figure at page 8 of 8, Les Services StenoTran Services Inc. 613-521-0703 1932 OPG Panel 2, in-ch (Campbell) 1 Table 1, Footnote 3, there was a question about the 2 figure that is shown there of $3.38. Perhaps you could 3 address the question that was asked about that figure. 4 I understand there is a correction to be 5 made first. 6 MR. ORANS: Yes, $3.38 is a mistake. The 7 number should be $3.83. 8 The way that is derived is, if you take 9 Ontario Hydro Network Company's proposed $2.76 per kW 10 per month, full embedded cost number under Option XVIII, 11 divide that by 720 hours in the month, which is 12 equivalent to a 30-day month, that equals $3.83 per 13 megawatt hour. 14 Now, Footnote 3, with that standing corrected, 15 the number shown in the actual table of $2.61 is 16 correct. So there was just a transposition of numbers 17 in Footnote 3, but the table is correct. 18 MR. CAMPBELL: All right. 19 The second item I want to deal with, to 20 conclude, is Undertaking F2.1, which was Ontario Hydro 21 Network Company's response to the undertaking they gave 22 us last week. Do you have that in front of you? 23 MR. ORANS: Yes, I do. 24 MR. CAMPBELL: Do you agree with that 25 calculation? 26 MR. ORANS: Generally I agree with the 27 calculation, but I would like to propose one correction. 28 At the bottom of the table you will see for Les Services StenoTran Services Inc. 613-521-0703 1933 OPG Panel 2, in-ch (Campbell) 1 the unit sizes, the larger size, the 100 to 199 megawatt 2 hours, they have calculated an average frequency of 3 outage of slightly over six times per year. 4 You have to remember, these are probabilities 5 from historical data. I think it is, first of all, 6 unreasonable to round that up to seven. You are not 7 getting costs -- because you have a probability of two 8 or three days into the next month you probably won't get 9 costs in that month. 10 So it's more reasonable to round that to six, 11 that is my first, rather than rounding up to seven, 12 which is what they did in their calculation of the bill 13 under Option XVIII. The first. 14 Then the second correction perhaps is more 15 substantive, although the numerical adjustment is the 16 same in that that is to go downward again. 17 If there are six chances during the year under 18 which I am going to get costs under proposed 19 Option XVIII for the billing determination, it is 20 unlikely that all of those are going to be costs in each 21 individual month separately. 22 Imagine if you are throwing pennies into 23 glasses blindly and they are random, the first one I am 24 going to get caught in, I'm going to put something in 25 the glass if I hit it. The second one, probably. When 26 I get to the sixth one, there is a half a chance that I 27 am going to double up on a previous one. 28 So if you think about them each randomly and Les Services StenoTran Services Inc. 613-521-0703 1934 OPG Panel 2, in-ch (Campbell) 1 this is a probability, it is more likely that on average 2 Option XVIII, using their same data from the CEA, will 3 produce an estimate of five out of 12 months getting hit 4 with this billing determinant. 5 What that does, if you turn over -- mine is on 6 two sides -- to the back page, they have estimated that 7 Option XVIII will produce, for the larger megawatt 8 embedded generators, $1.37 a kilowatt per month. If you 9 adjust the $7.12, which they use as the first number, 10 the number of months getting hit by the billing 11 determinant, down to $5.12, which I believe is more 12 reasonable given their data, the number comes down to 13 98 cents per kilowatt per month. 14 MR. CAMPBELL: That said, do you believe that 15 Option XVIII results in an appropriate standby charge? 16 MR. ORANS: Yes, I do. 17 MR. CAMPBELL: Thank you, Mr. Chairman. Those 18 are the questions I have of this panel. 19 THE PRESIDING MEMBER: Thank you, 20 Mr. Campbell. 21 Who is going to lead off? Will it be you, 22 Mr. Brown? 23 MR. BROWN: I shall, Dr. Higgin, yes. 24 Good morning, gentlemen. My name is David 25 Brown. 26 MS BIRENBAUM: Excuse me for interrupting, but 27 yesterday morning Pollution Probe had put a request on 28 the record -- and it has not been discussed with Les Services StenoTran Services Inc. 613-521-0703 1935 OPG Panel 2, in-ch (Campbell) 1 counsel -- that we be permitted to cross-examine first 2 because of scheduling constraints. 3 Both Murray Klippenstein and I are scheduled 4 to be in the Court of Appeal. I don't know if you have 5 any objections. 6 THE PRESIDING MEMBER: Yes, I remember your 7 request. Please go ahead. 8 MS BIRENBAUM: Thank you. I am sorry for the 9 inconvenience. 10 CROSS-EXAMINATION 11 MS BIRENBAUM: I am Joanna Birenbaum, and I am 12 here on behalf of Pollution Probe. 13 First of all, we have prepared a reference 14 book of cross-examination documents, and I want to 15 ensure that the Chair and Panel have it, and the 16 witnesses have it. 17 MR. BOLAND: We have it. 18 MR. LYLE: We will mark that as Exhibit G10.4. 19 EXHIBIT NO. G10.4: Pollution Probe 20 Reference book of cross-examination 21 documents 22 MS BIRENBAUM: I am going to ask questions 23 both with respect to the issue of gross load billing and 24 net load billing and questions with respect to the issue 25 of export pricing. I am going to start with the issue 26 of gross load billing versus net load billing. 27 Primarily the questions are intended to be 28 follow-up or clarification questions in response to the Les Services StenoTran Services Inc. 613-521-0703 1936 OPG PANEL 2, cr-ex (Birenbaum) 1 witnesses' responses to Pollution Probe's 2 interrogatories. 3 First, Mr. Boland, could you turn to page 2, 4 Question 5 of your evidence, which can be found at page 5 1 of Pollution Probe's book of documents. 6 MR. BOLAND: Yes. 7 MS BIRENBAUM: According to your response to 8 Question 5 -- and I am going to read part of your 9 response -- you say, at line 11, that: 10 "Allowing new embedded generators to 11 avoid responsibility for sunk 12 transmission provides them with a 13 competitive advantage that does not 14 derive from any inherent efficiency in 15 generation." (As read) 16 As a result of this evidence, and if you turn 17 to Pollution Probe's Interrogatory No. 1, which can be 18 found at page 5 of our book of documents, we asked you 19 whether you believed that OPG's coal-fired power plant 20 can provide electricity at a lower cost to society than 21 a new natural gas-fired cogeneration or combined cycle 22 plant. 23 Your answer to that question -- and I know 24 that you answered in two parts -- essentially is that 25 generally, and I am quoting again from the first line of 26 your answer: 27 "Generally, coal-fired power plants can 28 provide electricity at a lower cost than Les Services StenoTran Services Inc. 613-521-0703 1937 OPG PANEL 2, cr-ex (Birenbaum) 1 natural gas generation." (As read) 2 Is that correct? 3 MR. BOLAND: Correct. 4 MS BIRENBAUM: The second part of Pollution 5 Probe's question to you in Interrogatory No. 1 was 6 whether you could provide an estimate of the public 7 health and environmental cost of coal-fired electricity 8 emissions, specifically the dollar per ton or kilogram 9 cost of carbon dioxide, sulphur dioxide, nitrogen oxides 10 and mercury emissions; correct? 11 MR. BOLAND: Correct. 12 MS BIRENBAUM: And your answer to that is 13 essentially the very last few words of the paragraph, 14 where you said that OPG's testimony did not discuss this 15 issue. 16 Is that correct? 17 MR. BOLAND: Along with the rest of the 18 answer, that is correct. 19 MS BIRENBAUM: Would it be fair to say, then, 20 that your statements in your direct evidence and in your 21 response to the interrogatory that coal-fired 22 electricity is cheaper, is not based on any concrete 23 estimate of the cost to public health and the 24 environment of coal-fired emissions as opposed to 25 natural gas-fired emissions? 26 Is that fair to say? 27 MR. BOLAND: The statement that it is 28 generally cheaper is based on the relative costs of coal Les Services StenoTran Services Inc. 613-521-0703 1938 OPG PANEL 2, cr-ex (Birenbaum) 1 versus other forms of generation; in this case, new 2 natural gas generation. 3 MS BIRENBAUM: But does that comparative cost 4 include an estimation of the cost to public health and 5 the environment? 6 MR. BOLAND: The cost of coal generation 7 reflects the need to have coal plants adhere to the 8 provincial legislation related to emissions. That 9 legislation would be internalized into the coal costs, 10 and that would be built in. 11 MS BIRENBAUM: I understand from your answer 12 to the interrogatory that you rely on compliance with 13 government standards in this regard. But what I am 14 asking is: Did OPG actually do an estimate of the 15 comparative public health and environmental cost? Was 16 that estimate done? 17 MR. BOLAND: No, I don't have estimates of 18 public health and environmental costs on a dollar per 19 ton/kilogram basis. 20 MS BIRENBAUM: I think you have perhaps 21 answered this in part but I would like a fuller answer. 22 What, then, is the basis of your claim, both evidentiary 23 and other bases that you can provide, that coal is 24 cheaper? 25 MR. BOLAND: Well, it is primarily based on 26 the cost of purchasing coal versus the cost of natural 27 gas to fire a unit, and also the fact that we are 28 talking about existing plants in this example versus new Les Services StenoTran Services Inc. 613-521-0703 1939 OPG PANEL 2, cr-ex (Birenbaum) 1 plants. So in this case you are actually talking about 2 the marginal cost of an existing facility versus the 3 full cost of a new facility. 4 So that would make the cost differential quite 5 large. 6 MS BIRENBAUM: Would it be fair to say, then, 7 that essentially it is based on financial costs and not 8 total cost to society? 9 MR. BOLAND: With the exception that I said 10 earlier; that the laws related to emissions very much 11 reflect the extent to which a coal plant can operate, 12 and that becomes a factor in bidding -- when we get to a 13 competitive market that will be a factor in determining 14 how that unit should be bid into the market. That cost 15 would have to be internalized into that bid. 16 --- Pause 17 MS BIRENBAUM: I am going to move on, although 18 I am asking a similar set of questions to you, 19 Dr. Orans. 20 You state at page 3 of your evidence in 21 response to Question 5, which can be found at page 11 of 22 Pollution Probe's book of documents -- and this is 23 quoting from lines 4 to 7. You say that: 24 "Market penetration by new embedded 25 generation should be driven by the cost 26 of delivered energy. All new generation, 27 whether embedded or not, should compete 28 on an equal footing." (As read) Les Services StenoTran Services Inc. 613-521-0703 1940 OPG PANEL 2, cr-ex (Birenbaum) 1 Is that correct? 2 MR. ORANS: Yes, that is correct. 3 MS BIRENBAUM: As a result of this statement, 4 Pollution Probe then asked you, in Interrogatory No. 14, 5 which can be found at page 9 of Pollution Probe's book 6 of documents, a similar question to that which was asked 7 of Mr. Boland: whether you believe that OPG's 8 coal-fired power plant can provide electricity at a 9 lower cost to society than a new natural gas-fired 10 cogeneration or combined cycle plant. 11 That is the question that was put to you; 12 correct? 13 MR. ORANS: Yes. 14 MS BIRENBAUM: And your response to that 15 question was simply to refer to the response of 16 Mr. Boland to Interrogatory No. 1; correct? 17 MR. ORANS: Yes, that is correct. 18 MS BIRENBAUM: So similarly, would it be fair 19 to say that when you state that coal-fired plants can 20 generally provide electricity at a lower cost, you are 21 not relying on any evidence specifically as to the 22 comparative cost to public health and the environment of 23 natural gas as opposed to coal-fired emissions? 24 MR. ORANS: I would like to restate what 25 Mr. Boland said in my own words. 26 He has said he complies with all environmental 27 laws and all the emissions costs to meet those 28 environmental laws. So his cost of dispatch, when he is Les Services StenoTran Services Inc. 613-521-0703 1941 OPG PANEL 2, cr-ex (Birenbaum) 1 talking about cost of running a coal plant, includes 2 compliance. 3 I would assume that compliance includes a 4 whole study and host of environmental damage, et cetera, 5 on all those things you talked about already. So I 6 would assume that that some reasonable policymaker made 7 those laws. They passed it on, and Mr. Boland's company 8 internalized those in his prices. And net of all that 9 at the end of the day, his costs of dispatch are lower 10 than the costs of gas-fired generation. 11 MS BIRENBAUM: Do you have any evidence of 12 those studies or any evidence of total costs, the extent 13 to which it is internalized? 14 MR. ORANS: I am not familiar with all the 15 environmental compliance laws here in Canada, no. 16 MR. BOLAND: Just to add to that from an OPG 17 perspective, what Dr. Orans is referring to here are 18 studies and whatever decisions or information the 19 government would have taken into account in coming up 20 with their legislation on this issue, not OPG work. 21 --- Pause 22 MS BIRENBAUM: This may again be repeating a 23 point, but we still feel that we have not quite got the 24 answer. 25 Whether or not you are complying with 26 regulatory standards and there is a certain cost 27 associated with complying with regulatory standards, 28 this is still essentially an issue of the financial cost Les Services StenoTran Services Inc. 613-521-0703 1942 OPG PANEL 2, cr-ex (Birenbaum) 1 of coal-fired plant and does not constitute an 2 evaluation of the total cost to society. 3 Is that correct? 4 MR. ORANS: I would disagree. I would say the 5 total cost to society is his net result of dispatching 6 with all the environmental compliance laws placed on 7 therm. He has already internalized those costs. If 8 they are higher than lower than the legislation has 9 given weight to each one, that is a much broader 10 legislative issue. 11 But his final cost incorporates the cost of 12 some levels of emissions and compliance with those 13 costs. 14 MS BIRENBAUM: Are you suggesting that if you 15 have a coal-fired plant that is in compliance with 16 regulations and you have a natural gas-fired plant which 17 is in compliance with regulations, and the natural 18 gas-fired plant emits emissions which are considerably 19 less than the coal-fired plant, the coal-fired plant 20 nevertheless is a lesser cost to society. 21 MR. ORANS: I am saying that some policymaker 22 who had many more options to look at, whether that be 23 source emissions, whether that is cars, whether that is 24 point source for generation plants, whether it is 25 conservation, whether it is pricing programs, did some 26 study, decided some emissions levels were appropriate, 27 turned to the utility and said: "I believe these are 28 the appropriate laws and levels of emissions that I want Les Services StenoTran Services Inc. 613-521-0703 1943 OPG PANEL 2, cr-ex (Birenbaum) 1 you to incorporate through scrubbing, through dispatch 2 control, et cetera." And then he is compliant with 3 those. 4 His costs reflect and internalize their 5 policies that have, part of them, environmental costs. 6 Now, on top of that I don't think at the end of the day 7 he should take his compliance costs and add on top of 8 that some other study of damages on top of his costs 9 already of compliance. That is going to be at least, at 10 best, double counting of the environmental benefits. 11 MS BIRENBAUM: Have you reviewed any of these 12 studies that you are referring to or can you provide us 13 with any of these studies? 14 MR. ORANS: Again, I am not familiar with the 15 studies in Canada. 16 MR. BOLAND: Neither one of us would have been 17 involved in the government's decisions and the 18 information that they used to come up with their 19 legislation. 20 MS BIRENBAUM: You are just assuming, 21 actually, that these studies exist? 22 MR. ORANS: Right. 23 MS BIRENBAUM: Correct? 24 MR. ORANS: I am familiar with lots of studies 25 in the U.S. concerning environmental damages and I have 26 participated in some of those studies and looked at 27 them. 28 MR. BOLAND: We are simply making the Les Services StenoTran Services Inc. 613-521-0703 1944 OPG PANEL 2, cr-ex (Birenbaum) 1 assumption that the government would have taken into 2 account the reasonable information that it had in making 3 that decision and it would not have -- it made some kind 4 of random ruling that the decision it made reflects its 5 fundamental beliefs, as it was elected to represent the 6 public interest in doing that. 7 MS BIRENBAUM: You are assuming that the 8 government is optimized for regulation? 9 MR. ORANS: Well, I want to go even further 10 than -- I don't want to assume they have optimized the 11 regulations. They have taken a whole range of 12 considerations into account, or initiatives, and they 13 have decided on some level of standards that 14 Mr. Boland's company is compliant with. 15 Now, if you are asking Mr. Boland should he 16 then on top of that decision add on top another set of 17 damages to his admissions -- that I don't know where he 18 is going to get, actually -- but another set and decide 19 not to dispatch his call, I don't think that is 20 reasonable policy. 21 MS BIRENBAUM: Perhaps again, another way of 22 asking the same question, that would you agree that the 23 Board has a public interest mandate? 24 --- Pause 25 MS BIRENBAUM: It can be put to either 26 witness. 27 MR. BOLAND: Broadly speaking, I would agree 28 with that. Les Services StenoTran Services Inc. 613-521-0703 1945 OPG PANEL 2, cr-ex (Birenbaum) 1 MS BIRENBAUM: Would you agree then that is 2 consistent with the public interest mandate of the Board 3 to consider whether coal-fired emissions are at a 4 greater cost, total cost, to society than natural 5 gas-fired emissions or whether or not government 6 standards are complied with? 7 MR. BOLAND: I think that vision is reflected 8 in the Ontario Energy Board Act from 1998. I have it in 9 front of me. It says that the Board will do a number of 10 things in carrying out its responsibilities. The last 11 one is that it will: 12 "...facilitate energy efficiency and the 13 use of cleaner, more environmentally 14 benign energy sources in a manner 15 consistent with the policies of the 16 Government of Ontario." 17 I think that the responses that you have 18 received from us are consistent with that, that we will, 19 OPG will, adhere to all of the policies of the 20 Government of Ontario on this issue. 21 MS BIRENBAUM: Okay. With respect to the 22 issue of equity and net load billing, still on page 2, 23 question 5, Mr. Boland, of your evidence -- in fact, at 24 page 1 of Pollution Probe's reference section. 25 This is your second point, and it is at 26 line 14 to 17. You say that: 27 "...allowing transmission system bypass 28 is unfair to the remaining customers of Les Services StenoTran Services Inc. 613-521-0703 1946 OPG PANEL 2, cr-ex (Birenbaum) 1 the transmission system. The 2 transmission system was constructed for 3 all Ontario electricity customers and, 4 therefore, all customers should pay to 5 recover the cost historically incurred to 6 serve them." 7 Correct? 8 MR. BOLAND: Correct 9 MS BIRENBAUM: In other words -- and I think 10 this is fairly non-controversial. We have heard already 11 this morning from Mr. Osborne -- you are saying that net 12 load billing is unfair because it shifts costs of 13 transmission to users who either don't use or don't have 14 the benefit of embedded generation and, as a result, it 15 is going to increase the transmission rates for those 16 users. Correct? 17 MR. BOLAND: That is correct. The point, 18 taking it from the other side, it allows the customer 19 who installed the embedded generation -- 20 MS BIRENBAUM: To avoid -- 21 MR. BOLAND: -- to not have to pay for 22 facilities that haven't been built to supply that, his 23 load. 24 MR. ORANS: And a third point, if I might add, 25 it also creates an un-level playing field between the 26 merchant generation and embedded generation. 27 MS BIRENBAUM: We have heard a lot about that 28 this morning already, okay. Without conceding to that, Les Services StenoTran Services Inc. 613-521-0703 1947 OPG PANEL 2, cr-ex (Birenbaum) 1 I am not going to address the issue of the level playing 2 field from the perspective, that particular perspective. 3 But specifically, with respect to transmission 4 rates, can you turn to page 6 of the evidence of Jack 5 Gibbons, which is at page 19 of Pollution Probe's 6 reference book. 7 The bottom paragraph on page 6, Mr. Gibbons 8 repeats Hydro's medium forecast for embedded generation, 9 that if the Board approves full net load billing, 10 transmission rates will increase over time. He simply 11 repeats it and then proceeds to do an analysis of it. 12 At page 7 for the following page, page 20 -- 13 that is Pollution Probe's book of documents -- he then 14 points out that on the basis of real rates, as opposed 15 to the rate based on nominal or unadjusted dollars, the 16 transmission rates will actually fall by 11 per cent 17 between the forecasted period of the year 2000 to the 18 year 2008 if the Board actually does approve a 19 100 per cent net load billing. Correct? 20 Do you agree with this evidence of 21 Mr. Gibbons? 22 --- Pause 23 MR. ORANS: We haven't checked this evidence 24 of Mr. Gibbons yet or heard his testimony or questions 25 on it. 26 But I would like to point out that when you 27 started the question you said let's keep this confined 28 to the effect of embedded generation on the transmission Les Services StenoTran Services Inc. 613-521-0703 1948 OPG PANEL 2, cr-ex (Birenbaum) 1 revenue. A number of parties here have mixed together 2 several different things. They have got inflation, they 3 have got depreciation, they have got sales growth, and 4 they say, "Yes, I will concede that new embedded 5 generation, all other things being equal, will increase 6 rates." However, then once they mix it all in and go 7 through the depreciation in the rate table they say the 8 change is minimal. In OHNC's table initially they had a 9 $1.00 -- I mean, a penny -- per year. 10 But the effect of the evidence we have shown 11 here in this table -- and the evidence I presented in 12 this exhibit is generally correct. I have no reason to 13 think it isn't for this province. The evidence we show 14 here is that the first order effect of embedded 15 generation is going to be the increased rate for all the 16 customers who don't put in embedded generation. 17 MS BIRENBAUM: We don't disagree with that, 18 but the point that we are establishing here at this 19 table is that nevertheless the rate would go down. What 20 it ends up being is a question of how much the rates are 21 reduced. 22 MR. ORANS: But the rates would have gone down 23 further had you not encouraged embedded generation. So 24 I don't want to wink the decision of net versus gross to 25 the rates going down at all. 26 MS BIRENBAUM: In fact, we don't disagree with 27 that. 28 --- Pause Les Services StenoTran Services Inc. 613-521-0703 1949 OPG PANEL 2, cr-ex (Birenbaum) 1 The last question with respect to the net load 2 billing/gross load billing issue I can put to 3 Mr. Boland. 4 You would agree, wouldn't you, and again 5 necessarily, non-controversial, but one of the 6 objectives of the Ontario Energy Board Act is to 7 facilitate energy efficiency and the use of cleaner, 8 more environmentally benign energy sources? 9 MR. BOLAND: Just to complete that: In a 10 manner consistent with the policies of the Government of 11 Ontario. 12 I think you are reading from the -- 13 MS BIRENBAUM: From the Act itself, that's 14 right. 15 So consistent with this objection, Pollution 16 Probe asked you in Interrogatory No. 2, which can be 17 found at page 5 -- 18 --- Pause 19 MS BIRENBAUM: -- of Pollution Probe's 20 reference book. This is the second paragraph from the 21 bottom. The question we put to you in the interrogatory 22 was: 23 "Could it be in the public interest to 24 permit new embedded generation to bypass 25 OHNC's transmission network, without 26 penalty, if the new embedded generation 27 leads to a significant net reduction in 28 Ontario's electricity-related Les Services StenoTran Services Inc. 613-521-0703 1950 OPG PANEL 2, cr-ex (Birenbaum) 1 emissions..." 2 Then we named four of the most problematic 3 emissions, carbon dioxide, sulphur dioxide and nitrogen 4 oxides and mercury. 5 I understand your answer to be that it would 6 not be in the public interest to allow existing 7 customers who install new embedded generators to avoid 8 responsibility for some transmission costs. Is that 9 correct? 10 MR. BOLAND: That's correct. 11 MS BIRENBAUM: So I guess what I am wondering 12 is, are you saying then that no matter how large or 13 significant the net reduction in Ontario's 14 electricity-related emissions as a result of new 15 embedded generation, you believe that such embedded 16 generation is not in the public interest as long as it 17 permits existing customers who install new embedded 18 generation to avoid responsibility for some transmission 19 costs? That is what I understand what you are saying. 20 MR. BOLAND: I believe it would be extremely 21 difficult to make this in the public interest to say 22 that we are going to all this trouble over the last 23 three years to create a competitive marketing generation 24 for electricity, and we are going to start that market 25 for the objective of sending a signal above and beyond 26 and that is different from the government legislation 27 associated with emissions. 28 To think that whatever public benefit you Les Services StenoTran Services Inc. 613-521-0703 1951 OPG PANEL 2, cr-ex (Birenbaum) 1 might be attempting to get on the environmental side, 2 without waving distortion to the entire market, that is 3 almost inconceivable to me, especially when you consider 4 all of the other options the government has to do 5 policies and so on, associated with environmental 6 legislation. They can do that directly. 7 MS BIRENBAUM: Okay. 8 Turning now to the issue of export pricing, I 9 want to explore briefly the relationships, and OPG's 10 proposal as it is conceived in various jurisdictions, 11 between export pricing, export revenue and domestic 12 rates. 13 First, Mr. Boland, if you could turn to 14 Pollution Probe Interrogatory No. 9, which can be found 15 at page 7 -- Pollution Probe's book of documents. 16 The question is on page 7. What I want to 17 refer to is on page 8, which is a table at the top of 18 the page, sub (c), "Breakdown of Exports and Imports by 19 Interconnected Jurisdictions". 20 What this table shows is where exports from 21 Ontario went in the years of 1998 and 1999. Right? 22 MR. BOLAND: That's correct. 23 MS BIRENBAUM: We can see in 1998 and 1999 24 that Michigan and New York comprised approximately 25 75 per cent of Ontario's exports. Correct? 26 MR. BOLAND: That looks roughly correct. 27 MS BIRENBAUM: Turning to Hydro's response to 28 Pollution Probe's Interrogatory No. 10, which starts on Les Services StenoTran Services Inc. 613-521-0703 1952 OPG PANEL 2, cr-ex (Birenbaum) 1 page 22 of our reference book -- and accidentally we 2 only copied the first side not the back side so I 3 provided you with the table that I want to refer to on a 4 separate sheet. For those who don't have it, it is 5 Exhibit E, Tab 24, Schedule 10, page 2. 6 MR. BOLAND: We have it. 7 MS BIRENBAUM: You have it. Okay. 8 What this table demonstrates is that for the 9 jurisdictions of Michigan and New York these two 10 jurisdictions don't charge a lower rate for export and 11 wheel-through transmission than they do to their 12 domestic customers. Correct? 13 MR. ORANS: I would like to make several 14 comments, because I don't agree with your conclusion on 15 this table. 16 The first thing is, as Mr. Boland showed you 17 this morning, we don't know what the rates the 18 generators are going to pay for exports in this province 19 are. Most of the time -- he showed you two different 20 cases. They could be paying $19 per megawatt hour or 21 they could be paying nothing if it is a fixed EWT 22 charge. 23 The dollar figure we have talked about that is 24 in our proposal is not equivalent to this discounted 25 charge here. It is a minimum bill. So OPG's expected 26 payment could be significantly and we expect it to be 27 significantly in excess of that dollar. 28 The second thing about this table is, if you Les Services StenoTran Services Inc. 613-521-0703 1953 OPG PANEL 2, cr-ex (Birenbaum) 1 look at Michigan and you look at Hydro Quebec and you 2 look at Manitoba, none of those areas have congestion 3 charges, type pools or congestion charges. So you will 4 see they have significant -- they are providing here 5 significant discounts to clear out, but you can't really 6 do a comparison to here because the discounts aren't the 7 same and you don't have congestion. 8 New York has just started their market. I 9 don't know what this data is from, but the posting of 10 the transmission fixed charges on the web for each of 11 the New York zones, the transmission owners, they have 12 only be doing it for a couple of months at most. They 13 used to discount before they had the type pool and they 14 had normal transactions. They don't have any posted 15 discounts now, but I expect them to be fully discounting 16 in the future. 17 And Michigan doesn't have an open market at 18 all yet. They are just starting their phase-in of the 19 open market. 20 MS BIRENBAUM: I have a couple of questions, 21 then, in response to this. 22 First of all, are you suggesting that there is 23 a reason to doubt the accuracy of this chart in terms of 24 what it is purporting? 25 MR. ORANS: I'm saying you can't compare these 26 with the discounts being proposed here. There is 27 absolutely no comparison here. That is the first point. 28 The second point here is on New York and Les Services StenoTran Services Inc. 613-521-0703 1954 OPG PANEL 2, cr-ex (Birenbaum) 1 Michigan, you know, Michigan doesn't have an open access 2 vibrant market where there is a lot of volume on the 3 trade, and New York has just started and used to 4 discount significantly. 5 MS BIRENBAUM: I'm asking you, though, a 6 really simple question, not whether or not there are 7 other variables for which you can distinguish these 8 various jurisdictions. All I'm asking is, isn't it true 9 on the basis of this chart, which is Hydro's evidence 10 and which although you suggested maybe there is some 11 reason to doubt its accuracy, you haven't actually 12 provided any concrete reason to doubt its accuracy, that 13 Michigan and New York do not discount their export and 14 wheel-through rates? 15 MR. ORANS: No. I disagree. Michigan and New 16 York have historically discounted their export rates. 17 And the data here, I just noticed this, this is the -- 18 MS BIRENBAUM: But wait. I am going to 19 interrupt you for a minute. 20 I'm asking you today. I'm not asking you 21 whether they historically didn't discount or what their 22 historical practices are. According to this chart, 23 which is purporting to tell us what Michigan and New 24 York do today, it is telling us that New York and 25 Michigan today do not discount their export and 26 wheel-through rates. 27 MR. ORANS: The New York data is only for the 28 NYPA charge. This doesn't even show other charges Les Services StenoTran Services Inc. 613-521-0703 1955 OPG PANEL 2, cr-ex (Birenbaum) 1 related to the other TSCs that I know have traditionally 2 discounted. The TSC charge is the fixed charge from all 3 the other -- like Niagara Mohawk and Commonwealth 4 Edison, et cetera. This NYPA charge has never been 5 discounted to my knowledge ever before. It has always 6 been fixed. 7 Under the FERC rules that are in place in both 8 Michigan and New York, they export on what is called a 9 point-to-point tariff. That point-to-point tariff is 10 commonly discounted for EWT transactions. 11 MS BIRENBAUM: Let's assume, then, that there 12 are variables which change the actual rates, as you are 13 suggesting -- and this is going to have to be based on 14 your knowledge because it is not any information that I 15 have before me -- overall, what is the comparative rate 16 that Michigan and New York then charge comparing their 17 domestic and their export and wheel-through rates? 18 MR. ORANS: Michigan has very few export and 19 EWT transactions, though. The main complaint about 20 Michigan historically is they don't release capacity in 21 their transmission system so you can do EWT 22 transactions. They will do buy/sell arrangements with 23 you under which they claim to have comparable tariffs. 24 They will arrange it for you and they bundle the energy 25 and transmission together. So it is very difficult, and 26 this was a whole long case before FERC, to separate out 27 the Michigan actual transmission tariff. 28 But New York, historically, has had a lot of Les Services StenoTran Services Inc. 613-521-0703 1956 OPG PANEL 2, cr-ex (Birenbaum) 1 volume between them and New England and PJM, and they 2 have exported on discounted rates previously. It has 3 been a huge range depending on, as Bruce said, what is 4 happening in the market because they have a very similar 5 market mechanism to here. 6 MS BIRENBAUM: What is the average percentage 7 discount -- well, the export tariff as a percentage of 8 the domestic tariff, what is the average for New York, 9 then? What are you saying the subsidy is on average? 10 MR. ORANS: The pool, this new pool that just 11 formed, just started in late November, it didn't have 12 very many transactions then. I don't know what this is 13 from, but I haven't polled data from December, January 14 or the beginning part of February on what those are. 15 MS BIRENBAUM: In sum, then, you are 16 suggesting that this table is wrong, but you don't know 17 exactly how it is wrong and you don't know what 18 percentage, then, New York or Michigan actually is. You 19 don't know whether it is 95 per cent or 10 per cent. 20 You just don't know. 21 MR. ORANS: I didn't produce this table. I 22 can't draw the same conclusions you have from the 23 knowledge I have about the market. 24 MS BIRENBAUM: Okay. 25 Mr. Boland, happily moving to I think again 26 what will be some uncontroversial statements, it is fair 27 to say, isn't it, that Ontario Hydro is planning to use 28 its export revenues to lower its transmission rate Les Services StenoTran Services Inc. 613-521-0703 1957 OPG PANEL 2, cr-ex (Birenbaum) 1 through to domestic customers. Right? 2 MR. BOLAND: I'm sorry. Give me that again, 3 please. I'm sorry. 4 MS BIRENBAUM: So uncontroversial. 5 --- Laughter 6 MR. BOLAND: I just didn't catch it, the name 7 of the company. I wasn't -- 8 MS BIRENBAUM: That's fine. That Hydro is 9 planning to use its export revenues to lower its 10 transmission rates for its domestic customers. That is 11 correct, isn't it? 12 MR. BOLAND: The network company -- 13 MS BIRENBAUM: Yes. 14 MR. BOLAND: -- is planning to use -- I'm 15 sorry? 16 MS BIRENBAUM: Its export revenues to reduce 17 its transmission rates for its domestic customers. 18 MR. BOLAND: Okay. I just don't see them as 19 having export revenue. I think that is what hung me up. 20 The credits that they get from the market, 21 they will use that to reduce ultimately the amount that 22 the customers in Ontario pay for transmission. 23 MS BIRENBAUM: So it is a question of 24 semantics, whether it is monies, revenues, credit? 25 MR. BOLAND: Yes. You refer to the 26 transmission company as earning export revenues and 27 through the congestion mechanism the credits go back to 28 the Ontario transmission customer through an IMO Les Services StenoTran Services Inc. 613-521-0703 1958 OPG PANEL 2, cr-ex (Birenbaum) 1 account. 2 MS BIRENBAUM: The idea is that the credits 3 will reduce domestic transmission -- 4 MR. BOLAND: Exactly. 5 MS BIRENBAUM: And again I think this is 6 uncontroversial, but if that's the case it's in the 7 financial self-interest of most of Hydro's domestic 8 customers that Hydro maximize now I would say revenues, 9 you are probably going to say credits, from electricity 10 exports. Correct? 11 MR. BOLAND: I am trying to remember back on 12 the hearing of this and I am not sure I could give you a 13 definitive answer. But my recollection is the witnesses 14 from OHNC said that they were relatively, and I don't 15 want to put words in their mouths, but this is my 16 recollection, they were relatively disinterested in this 17 issue from the point of view that they didn't earn a 18 return on it, that the money went back directly to the 19 transmission customer in Ontario. That's my 20 recollection. It may not be perfectly accurate. 21 MS BIRENBAUM: I don't remember precisely 22 either. I am not going to dispute that. 23 But from the perspective of the domestic 24 customer, it's in the domestic customer's self-interest. 25 MR. BOLAND: From the domestic customer's 26 perspective it's in their interest to have those 27 revenues go back to credit against their bill, yes. 28 MS BIRENBAUM: That the revenues be maximized? Les Services StenoTran Services Inc. 613-521-0703 1959 OPG PANEL 2, cr-ex (Birenbaum) 1 MR. BOLAND: Yes. 2 MS BIRENBAUM: And last, I think 3 uncontroversial payment, is that Hydro's proposed 4 transmission rate for exports and wheel through volumes 5 is 80 per cent less than its transmission rate for 6 domestic customers? That's the percentage difference. 7 I specifically didn't call it a discount so we 8 wouldn't get into that discussion, but the rate is 80 9 per cent less. 10 You will have to turn to -- if you are going 11 to disagree with it perhaps turn to Exhibit A, tab 2, 12 Schedule 1, page 9. This is Hydro's own evidence that 13 we are referring to. 14 MR. BOLAND: I have the reference. 15 MS BIRENBAUM: All I am confirming is that the 16 domestic rate is 80 per cent less -- sorry, the export 17 rate is 80 per cent less than the domestic tariff. 18 MR. BOLAND: That's ignoring the congestion 19 payments that we have talked about, just basing on the 20 fixed fee of $1? 21 MS BIRENBAUM: From the starting point of the 22 minimum export tariff. Correct. 23 MR. ORANS: First of all, the minimum bill 24 that we proposed in our proposal was a dollar. The 25 first question might -- 26 MS BIRENBAUM: Again, just to clarify, we are 27 not talking about your proposal. We are talking about 28 the OHNC $1 charge. Les Services StenoTran Services Inc. 613-521-0703 1960 OPG PANEL 2, cr-ex (Birenbaum) 1 MR. ORANS: Okay. Their minimum bill, if you 2 will, actually theirs is a little different because they 3 didn't credit the congestion piece. They only credited 4 the TR holder piece, but their minimum bill was a 5 dollar. 6 So the first question is I don't think a $5 7 charge is what you are looking at. Are you asking what 8 the difference between $2.76, which is their proposal on 9 network and their dollar because that's not an 80 per 10 cent discount. 11 MS BIRENBAUM: We are talking about the $4.85 12 total domestic rate. 13 MR. ORANS: So you are including all of the 14 connection cost pools, along with the network costs? 15 MS BIRENBAUM: That's correct. 16 MR. ORANS: I think your arithmetic is 17 approximately right. However, the dollar is a minimum 18 bill. It is not the expected amount of costs that OPG 19 expects to contribute to the overhead of the 20 transmission system. 21 MS BIRENBAUM: I am actually going to get to a 22 question about that, but for the time being I really 23 just wanted to confirm the simple arithmetic of the 80 24 per cent discount. 25 Now, you have taken us through some models in 26 your evidence and we want to turn to our own model and 27 this can be found at the last page of our reference 28 book, page 23. These models are hypothetical and they Les Services StenoTran Services Inc. 613-521-0703 1961 OPG PANEL 2, cr-ex (Birenbaum) 1 are just intended to make a certain point that we will 2 get to. 3 Under Option 1 the tariff is $5.00. The 4 export volumes are 10 megawatts and the export revenues 5 are $50. Correct? 6 MR. BOLAND: Yes. 7 MS BIRENBAUM: And under Option 2 we have 8 assumed that Hydro discounts its export rate by 80 per 9 cent and that the export volumes don't change as a 10 result. Accordingly, the export revenues fall from 11 $50 to $10. 12 MR. BOLAND: Yes. 13 MS BIRENBAUM: Then, under Option 3, in order 14 to get the level of revenues back up to where they were 15 under Option 1, you need to increase the volume by a 16 factor of five. So you have a rate of a dollar, but you 17 need to have export volumes at 50 megawatts in order to 18 have export revenues at $50. Correct? 19 MR. BOLAND: Based just on this map, yes. 20 MS BIRENBAUM: Just based on this model. 21 MR. BOLAND: Yes. 22 MS BIRENBAUM: So following from that and 23 bringing that into the context of the specific Hydro 24 network proposal, not the OPG proposal, do you think 25 that discounting the export tariff by 80 per cent will 26 increase export sales by a factor of five relative to 27 what they would have been if Hydro's transmission rates 28 for export would have equalled its transmission rates Les Services StenoTran Services Inc. 613-521-0703 1962 OPG PANEL 2, cr-ex (Birenbaum) 1 for domestic loads? 2 MR. BOLAND: Will decreasing the export rate 3 by a factor of five increase the exports by a factor of 4 five? 5 MS BIRENBAUM: No. If you are decreasing the 6 price -- if you decrease the price by 80 per cent, you 7 have a discount, do you think that that will increase 8 your volume of exports by five, by a factor of five? 9 This isn't taking into account the -- 10 MR. ORANS: Nobody knows. 11 MR. BOLAND: I doubt it. I don't know. 12 MR. ORANS: Mr. Osborne testified he didn't 13 know. We have testified we didn't know in response. 14 OHNC has testified they don't know the levels. 15 I think one thing we can say from the 16 presentation this morning, that we know volume is 17 maximized with a zero EWT charge. Any additional EWT 18 charge will reduce volume. 19 MS BIRENBAUM: Give me a minute. 20 --- Pause 21 MS BIRENBAUM: Frankly, we are not all that 22 surprised that you couldn't answer this last question. 23 This is consistent with the answers provided by Mr. 24 Boland to Interrogatories 8, 10 and 12 of Pollution 25 Probe. These can be found at pages 7 and 8 of Pollution 26 Probe's reference book. 27 Briefly skimming these various questions, 7, 28 8, 10 and 12, Pollution Probe asked you, Mr. Boland, Les Services StenoTran Services Inc. 613-521-0703 1963 OPG PANEL 2, cr-ex (Birenbaum) 1 whether you had any reasonable estimate of the export 2 and wheel through volumes, whether you had any estimate 3 of the export and wheel through revenues and whether or 4 not you had any estimates of both of these based on no 5 discount rate or, in other words, based on a tariff that 6 was equal to the domestic tariff or based on an 80 per 7 cent discount and none of these questions were answered. 8 Correct? 9 MR. ORANS: They were answered -- 10 MR. BOLAND: I think they were answered. 11 MS BIRENBAUM: Well, not in substance, but, 12 true there is some typing underneath. 13 MR. CAMPBELL: If there is no estimate, there 14 is no estimate. My friend may not care for that fact, 15 but it is a fact and it is an answer. 16 MS BIRENBAUM: So it's fair to say then that 17 based on the answers to these various interrogatories 18 you can't actually say based on estimates, whether they 19 are well founded or not, based on any estimates whether 20 a higher rate could be fixed than the dollar proposed, 21 which would actually result in increased revenues? You 22 can't actually say that, whether or not that's true or 23 false? 24 MR. BOLAND: I think based on the material 25 that I went through earlier a higher rate is going to 26 decrease revenues, not increase revenues. 27 But you are right, I can't talk to specific 28 volumes of export trade when the market opens. I am not Les Services StenoTran Services Inc. 613-521-0703 1964 OPG PANEL 2, cr-ex (Birenbaum) 1 aware that anyone has that capability today. 2 MS BIRENBAUM: You can only base your answer 3 on theory? 4 MR. BOLAND: I can base it on theory, that's 5 correct. And as that export fee goes up, fewer 6 transactions will be economic and fewer will take place, 7 creating a lower surplus back to Ontario transmission 8 customers. 9 MR. ORANS: Also, your example presumes there 10 is a price quantity trade-off here. I think 11 Mr. Boland's presentation this morning in all the 12 examples shows the congestion charge picks up the 13 difference in the change in EWT charge. 14 So in our assumptions here, we don't know the 15 volumes or the exact level. We have assumed the 16 mechanism is consistent with maximizing return to 17 transmission customers. 18 MS BIRENBAUM: Do you have an estimate of what 19 the congestion charges will be? 20 MR. ORANS: I think we can make that statement 21 in all of these cases and that's why he showed three 22 different examples on a high end and on a low end and 23 none of them result -- with the exception of a high EWT 24 charge, none of them result in reducing the margin or 25 the contribution to fixed overhead for OHNC's customers. 26 MS BIRENBAUM: Do you have any evidence if the 27 Board adopts OPG's proposal or OHNC's proposal that the 28 revenues will be higher than if there is a fixed tariff Les Services StenoTran Services Inc. 613-521-0703 1965 OPG PANEL 2, cr-ex (Birenbaum) 1 that is equal to the domestic rate? 2 MR. ORANS: I think we can show you through a 3 whole series of examples -- we don't know the exact 4 level of congestion, but you can take the level of 5 congestion up to $50 or you can take it down to $1.00 or 6 $2.00. 7 If we can show you on both ends of the extreme 8 that the domestic customer is better off in hypothetical 9 examples, what purpose does it take anybody or serve 10 anybody to create an estimate in the middle that no one 11 will believe at all and come up with a postulated amount 12 gained by those customers? We can show you they are 13 better off under the mechanism under both extremes. 14 MS BIRENBAUM: I think we are repeating the 15 question, but adding to it an undertaking. 16 Do you have any concrete evidence that the 17 revenues will be higher under your proposed -- 18 MR. CAMPBELL: Mr. Chairman, that's about the 19 third time around on this question. 20 The witnesses have gone through some time this 21 morning pointing out that they cannot be lower. That is 22 the evidence. They cannot be lower. 23 Now, I am not prepared to give any undertaking 24 to do a whole raft of calculations which at the end of 25 the day are simply going to show this again. It's what 26 the methodology produces. It's what the facts and the 27 facts in the market produce. It's not something they 28 have made up. This is the market operating. Les Services StenoTran Services Inc. 613-521-0703 1966 OPG PANEL 2, cr-ex (Birenbaum) 1 MS BIRENBAUM: To shorten, then, this line of 2 questioning, could we then have an undertaking that we 3 be provided in writing with an explanation as to why the 4 total revenues would be lower under the OPG proposal 5 than if there was a fixed rate at $4.85? 6 MR. CAMPBELL: I think that was Mr. Boland's 7 testimony this morning. 8 MS BIRENBAUM: I'm sorry, I obviously mixed up 9 my words. Why it would be higher. 10 MR. CAMPBELL: Mr. Chairman, I think we have 11 done this in the testimony we have given this morning 12 and in our Exhibit G10.2. 13 THE PRESIDING MEMBER: The problem I'm having 14 with this is the fact that we have to focus on the 15 Applicant's proposal and what we are interested in is 16 the differences between your proposal and the 17 Applicant's. Now, this has been sort of thrown in as a 18 new construct from out of left field. That is the 19 problem I'm having. 20 I would allow the undertaking in qualitative 21 terms to why their proposal is going to yield more or 22 less revenue than the Applicant's proposal. They have 23 explained it generally why they think it is, they have a 24 hypothetical which we can go into as a number of 25 assumptions about how the market is going to function. 26 If the market functions the way they said, 27 then the result is correct. But we don't know -- and 28 neither do you yet know -- the market is going to Les Services StenoTran Services Inc. 613-521-0703 1967 OPG PANEL 2, cr-ex (Birenbaum) 1 function exactly that way. That is the problem. 2 So basically, coming to another set of 3 undertakings on a different set of assumptions is not 4 something that is going to be too helpful to us. 5 MS BIRENBAUM: The reason why Pollution Probe 6 was suggesting it would assist the Board or be in the 7 interest of the Board is because in our view it is in 8 the public interest and consistent with the Board's 9 mandate that revenues be maximized. 10 So while we both want to know the evidence 11 for -- or the comparison between OPG's and OHNC's 12 proposals, we think it is also relevant how OPG founds 13 its claim or can demonstrate to the Board that their 14 proposal would generate revenues that are higher than 15 $4.00 -- then if the export rates were set at $4.85. 16 THE PRESIDING MEMBER: But my problem, 17 Ms Birenbaum, is that is something you can put to the 18 Applicant. Right? 19 MS BIRENBAUM: Okay. Well, we will move on 20 then. 21 THE PRESIDING MEMBER: That proposal, your 22 proposal the $2.76 -- I thought we did actually canvass 23 this -- is something you should put to the Applicant. 24 That is not OPGI's proposal. 25 OPGI's proposal is the one they have outlined. 26 So that is the difficulty I'm having, okay. So as an 27 undertaking that should preferably be put to the 28 Applicant. Les Services StenoTran Services Inc. 613-521-0703 1968 OPG PANEL 2, cr-ex (Birenbaum) 1 If you want to compare their proposal with 2 OPGI, that difference with the Applicant with respect to 3 the assumptions that underlie their assumption, that is 4 something else that is different. 5 MS BIRENBAUM: We are satisfied, then, with 6 the undertaking that focuses on the comparison and we 7 will move on. 8 I won't be very much longer at all. 9 MR. CAMPBELL: If we could get an undertaking 10 number, please, for that. And I understand it to be 11 essentially why OPG's proposal will yield more or 12 less -- 13 THE PRESIDING MEMBER: Why yours will maximize 14 revenue than OHNC's proposal. And underlying that his 15 restatement, should we say, of the assumptions as to how 16 the market is going to work that are inherent in and 17 underlie your proposal compared to the assumptions about 18 the market functioning that is under the Applicant's 19 proposal. 20 MR. CAMPBELL: That is fine. 21 MR. LYLE: And we will give that 22 Undertaking F10.1. 23 THE PRESIDING MEMBER: Thank you. 24 UNDERTAKING NO. F10.1: OPG undertakes to 25 provide why their proposal will maximize 26 revenue more than OHNC's proposal; and 27 underlying that their restatement of the 28 assumptions as to how the market is going Les Services StenoTran Services Inc. 613-521-0703 1969 OPG PANEL 2, cr-ex (Birenbaum) 1 to work that are inherent in and underlie 2 the proposal compared to the assumptions 3 about the market functioning that is 4 under the Applicant's proposal. 5 MS BIRENBAUM: My last very few questions are 6 to Dr. Orans. 7 Dr. Orans, could you turn to page 17 of your 8 evidence, which is at page 13 of Pollution Probe's 9 reference book. In answer to Question No. 23 -- and 10 this can be found at lines 12 and 13 -- you say that: 11 "Charges for export and wheel-through 12 service should encourage efficient use of 13 OHNC's intertie capacity." (As read) 14 Is that correct? 15 MR. ORANS: Yes, that is correct. 16 MS BIRENBAUM: And further down on the page, 17 in answer to Question No. 24 -- and this can be found at 18 lines 22 to 26 -- you say: 19 "The logical implication of efficient 20 pricing is that exporters pay only the 21 out of pocket cost of transmission when 22 there are no transmission constraints 23 plus a market clearing price premium 24 during times when there are constraints." 25 (As read) 26 Is that correct? 27 MR. ORANS: Yes, that is correct. 28 MS BIRENBAUM: Then earlier today, in your Les Services StenoTran Services Inc. 613-521-0703 1970 OPG PANEL 2, cr-ex (Birenbaum) 1 direct evidence, you referred to really another category 2 of evidence but related. You were discussing the 3 justification for the OPG proposed ten-year phase-in 4 from gross load billing to net load billing. 5 This is at page 10 of your evidence, which is 6 page 12 of Pollution Probe's reference books, the 7 previous page. 8 MR. ORANS: That is correct. 9 MS BIRENBAUM: And here you say: 10 "Under this simple analysis, the average 11 amount of time required for load growth 12 to fully utilize the capacity at GTA 13 (Greater Toronto Area) will be nearly 50 14 years. The average amount of time 15 required for load growth to fully utilize 16 new capacity in Ottawa will be in excess 17 of 100 years." (As read) 18 What I understand from this is that there is 19 significant excess transmission capacity in the GTA or 20 the Ottawa area, or eastern Ontario. Is that correct? 21 MR. ORANS: I wouldn't call it excess. I 22 would just call it the lumpy investment pattern, and it 23 takes a long time to use it up. 24 MS BIRENBAUM: There is existing transmission 25 capacity that is not being used to its full? 26 MR. ORANS: No. I would just say -- 27 MS BIRENBAUM: Would you characterize it that 28 way? Les Services StenoTran Services Inc. 613-521-0703 1971 OPG PANEL 2, cr-ex (Birenbaum) 1 MR. ORANS: Right after it is added, it has 2 sufficient capacity to serve more load; and then over 3 time, that capacity gets used up. 4 MS BIRENBAUM: Okay. What I am wondering is: 5 If you apply the economic efficiency reasoning that is 6 used in that export pricing context to this domestic 7 example which arose in the context of gross load 8 billing, isn't the logical implication that the 9 efficient pricing transmission for customers in GTA and 10 the Ottawa area should mean that they only pay Hydro's 11 out of pocket costs of transmission when there are no 12 transmission constraints plus, in your words, a market 13 clearing price premium during times when there are 14 constraints? 15 MR. ORANS: No. I think you have it exactly 16 backwards. If the value or the incremental cost of the 17 load reduction is nothing or relatively low, as I have 18 shown here in the early years after the insulation and 19 embedded generation, then they should pay the full 20 embedded cost because there is no cost saving through 21 the load reduction. 22 This is when Commissioner Smith was talking 23 about how much is the pain in the shifting. We are 24 saying here that there is a lot of shifting of revenues 25 to non-participating customers in the early years. That 26 incremental cost gets larger over time, and the shifting 27 declines. That is why we have proposed a phase-in 28 proposal with the same kind of pattern of cost Les Services StenoTran Services Inc. 613-521-0703 1972 OPG PANEL 2, cr-ex (Birenbaum) 1 reduction. 2 Both proposals are based on marginal cost. 3 MS BIRENBAUM: I know that I mentioned the 4 words net load billing because that was the context in 5 which this example arose. But what I am specifically 6 adverting to now is what I am calling excess 7 transmission capacity; what you are calling an 8 investment that then can accommodate a larger load in 9 the future. 10 The reality is that that larger load is in the 11 future, not at the moment. At the moment there is this 12 ability to accommodate an excess load. I am saying: 13 Doesn't that mean that efficient pricing then ought to 14 be more consistent with the export pricing model? 15 MR. ORANS: Turning back to the exhibit you 16 referred to, I used this exhibit to show the value of a 17 load reduction was relatively small in the early years. 18 What we are asking here -- as Mr. Osborne testified this 19 morning, his view; and I agree with that view and I 20 think Mr. Boland has agreed with that view too -- is 21 that absent any value to the load change, a customer who 22 is humming along on the transmission system and then 23 suddenly installs an embedded generation should pay the 24 load ratio share of this stuff that somebody built for 25 him. He had an obligation to pay for that for some 26 period of time. We agree that it is not forever but for 27 some period of time. 28 The second set of questions that arise then Les Services StenoTran Services Inc. 613-521-0703 1973 OPG PANEL 2, cr-ex (Birenbaum) 1 is: Well, what is the cost reduction of the OHNC 2 system? That has to do with the marginal costs. What 3 is the marginal cost of the load reduction, not the 4 embedded cost of the stuff that was already there for 5 the humming along business? 6 What I have calculated here is that the 7 marginal cost is very low. 8 If we turn that around, like you have 9 proposed, and we charge everybody the marginal cost 10 here, who is going to pay for all the embedded cost to 11 the system? Basically, then, everybody free rides on 12 the system in the early years, and the non-participating 13 customers' rates go up and it is not sustainable. 14 MS BIRENBAUM: Those are my questions. Thank 15 you. 16 THE PRESIDING MEMBER: Thank you, 17 Ms Birenbaum. 18 We are at five after one, which is normally 19 lunch hour. I don't know whether it is worth starting 20 with Mr. Brown at this point in time. 21 How long have you got, Mr. Brown? 22 MR. BROWN: I have probably 30 to 40 minutes. 23 But I would ask to be stood down in any event. I have 24 to get down to Kingston to teach a class. 25 THE PRESIDING MEMBER: Then we have the 26 question of where do we go in terms of the schedule. I 27 am going to ask Board Staff, Mr. Thiessen, whether you 28 have any guidance for us as to where we go. Les Services StenoTran Services Inc. 613-521-0703 1974 1 Let's start with tomorrow afternoon at one 2 o'clock. 3 MR. THIESSEN: I think the appropriate term is 4 congestion. 5 THE PRESIDING MEMBER: Yes. And confusion, I 6 think, too. 7 MR. THIESSEN: I think tomorrow at one o'clock 8 we will continue with this panel and try to finish it. 9 Then we will bring AMPCO's Panel No. 2, which is dealing 10 with net versus gross from AMPCO's perspective; and also 11 finish the cross-examination of Mr. Snelson by 12 Mr. Rogers. 13 If we get through that in the afternoon, then 14 we will start with IPSO near the end of the day. That 15 may be a bit optimistic. 16 THE PRESIDING MEMBER: Which day are you 17 talking about? 18 --- Laughter 19 MR. THIESSEN: In any event, I have committed 20 to hear GEC and NorthWatch on Thursday morning, because 21 they have travel commitments that have to be kept by 22 their experts. 23 Then we hope to follow with IPSO after those 24 two panels. 25 At this stage, I have TransAlta and Pollution 26 Probe generally agreeing that they are going to come on 27 Monday. So we will just try to make adjustments as the 28 schedule allows and keep it moving. Les Services StenoTran Services Inc. 613-521-0703 1975 1 THE PRESIDING MEMBER: That is where we are on 2 Wednesday. The Board is willing to sit another hour on 3 Wednesday, if that can be accommodated; that is, up to 4 6:00 p.m. We will have to talk to the Reporters to make 5 sure that is fine with them. 6 But tentatively we would be willing to sit 7 from 1:00 p.m. to 6:00 p.m. on Wednesday afternoon. 8 That will add a bit more into the schedule, and it might 9 be helpful. 10 That is where we will leave it for now. We 11 will resume with this panel, then, at one o'clock on 12 Wednesday. 13 Thank you. 14 --- Whereupon the hearing adjourned at 1305, to 15 to resume on Wednesday, March 1, 2000 at 1300 16 17 18 19 20 21 22 23 24 25 26 27 28 Les Services StenoTran Services Inc. 613-521-0703 1976 1 INDEX OF PROCEEDING 2 PAGE 3 Upon resuming at 0903 1825 4 OPG PANEL 1 5 SWORN: RON OSBORNE 1826 6 Examination-in-Chief by Mr. Campbell 1826 7 Cross-Examination by Mr. Brown 1836 8 Cross-Examination by Mr. Warren 1856 9 Cross-Examination by Mr. Poch 1861 10 Cross-Examination by Mr. Greenspoon 1874 11 Cross-Examination by Mr. Vegh 1881 12 Cross-Examination by Mr. Rogers 1886 13 Further Cross-Examination by Mr. Vegh 1892 14 Questions by the Board 1894 15 Upon recessing at 1105 1908 16 Upon resuming at 1125 1908 17 OPG PANEL 2 18 SWORN: BRUCE BOLAND 1909 19 SWORN: REN ORANS 1909 20 Examination-in-Chief by Mr. Campbell 1909 21 Cross-Examination by Ms Birenbaum 1935 22 Upon adjourning at 1305 1975 23 24 25 26 27 28 Les Services StenoTran Services Inc. 613-521-0703 1977 1 EXHIBITS 2 NO. PAGE 3 G10.1 Curriculum vitae of Ron Osborne 1826 4 G10.2 OPG document entitled "Export 1910 5 Examples" 6 G10.3 Document demonstrating the impact 1924 7 of embedded generation on network 8 transmission investment 9 G10.4 Pollution Probe Reference book 1935 10 of cross-examination documents 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 1978 1 UNDERTAKINGS 2 NO. PAGE 3 F10.1 OPG undertakes to provide why 1968 4 their proposal will maximize 5 revenue more than OHNC's proposal; 6 and underlying that their 7 restatement of the assumptions as 8 to how the market is going to work 9 that are inherent in and underlie 10 the proposal compared to the 11 assumptions about the market 12 functioning that is under the 13 Applicant's proposal