1979 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 Wednesday, March 1, 2000, 21 commencing at 1303 22 23 24 25 HEARING 26 27 VOLUME 11 28 Les Services StenoTran Services Inc. 613-521-0703 1980 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 1981 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 1982 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 1983 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 1984 1 Toronto, Ontario 2 --- Upon resuming on Wednesday, March 1, 2000 3 at 1303 4 THE PRESIDING MEMBER: Thank you. Please be 5 seated. Good afternoon, everybody. 6 PRELIMINARY MATTERS 7 THE PRESIDING MEMBER: I would like to start 8 the proceeding by a little canvass in terms of how many 9 and long is the directions and questioning for this 10 panel. The reasons are we, as you will realize, we 11 genuinely would like to be completed, but on the other 12 hand, on the back end of this, we do have a similar 13 pressure from the AMPCO panel to be completed today as 14 well. So that is the background for that, my inquiry. 15 So could we start then? 16 MR. BROWN: Perhaps 45 to 50 minutes, perhaps 17 an hour. 18 MR. BUDD: With the right answers probably 19 seven or eight minutes. 20 THE PRESIDING MEMBER: Okay. 21 MR. FISHER: And for AMPCO between 20 and 30 22 minutes. 23 MR. WARREN: Half an hour, sir. 24 THE PRESIDING MEMBER: Two and a quarter. Go 25 ahead. 26 MR. MATTSON: Dr. Higgin, 20 minutes to half 27 an hour. 28 MR. POCH: Probably 45 minutes to an hour, Les Services StenoTran Services Inc. 613-521-0703 1985 Preliminary Matters 1 depending on what has been covered ahead of me. 2 THE PRESIDING MEMBER: Three and a hour hours. 3 MR. ROGERS: I think I will be tomorrow. I 4 have about 20 minutes, sir, 20 to 25 minutes. 5 THE PRESIDING MEMBER: So we are looking at 6 estimates of four hours, plus. 7 MR. LYLE: Probably about 15 to 20 minutes 8 from Board staff. 9 THE PRESIDING MEMBER: So five hours. Let's 10 be conservative. 11 --- Laughter 12 THE PRESIDING MEMBER: That is what we have, 13 five hours this afternoon. 14 So then we have got to recognize the fact that 15 if we are going to have to stand down the gentlemen, 16 then there is going to be a problem of resumption. 17 Alternatively, I am informed that AMPCO's panel cannot 18 appear in any time soon. Is that correct? 19 MR. FISHER: Dr. Higgin, one of the witnesses 20 after tomorrow is gone until the 24th of March. 21 THE PRESIDING MEMBER: By that time it will be 22 over. So I will leave that with you, but the general 23 plan right now is to leave about an hour, an hour and a 24 half, for your panel. That is the plan. 25 So if you would like to discuss it, and maybe 26 you and Mr. Campbell can draw straws or an arm wrestle 27 in the corridor or something and make a decision, okay? 28 That is the conflict that we are facing. Les Services StenoTran Services Inc. 613-521-0703 1986 Preliminary Matters 1 MR. FISHER: Sir, if it helps at all, I have 2 canvassed several counsel and the consensus is that 3 there are very few questions for the second AMPCO 4 witness panel. 5 THE PRESIDING MEMBER: Realistically, to 6 introduce them it is going to need an hour plus, and we 7 have just heard five hours on this panel. 8 MR. FISHER: I would say that they could give 9 their evidence-in-chief in 30 to 40 minutes total for 10 all three. 11 THE PRESIDING MEMBER: That gives us an idea, 12 but it is still going to be very, very difficult to do 13 it this afternoon. So we will proceed and see how far 14 we get. I think that is the best we can do. Let's get 15 underway. 16 Mr. Brown, I think you were almost on 17 yesterday. 18 MR. POCH: Mr. Chairman, could I just let 19 people know that I am putting a couple of exhibits on 20 the sideboard, one of which Mr. Chernick will be making 21 reference to tomorrow, so people won't want to get it 22 today. 23 THE PRESIDING MEMBER: Okay. Thank you. 24 MR. ROGERS: Dr. Higgin, if I may make the 25 same observation, there will be two exhibits on the 26 windowsill. 27 One is for the IPPSO witnesses, which I have 28 given to my friend the previous day, but there are Les Services StenoTran Services Inc. 613-521-0703 1987 Preliminary Matters 1 copies for others today. As well, we have one exhibit 2 that I will be putting to the GEC witnesses, which can 3 be found on the windowsill. 4 There are several undertakings I would like to 5 address now, if I could, Dr. Higgin, very briefly. 6 THE PRESIDING MEMBER: Okay. 7 Sorry, Mr. Brown. 8 MR. ROGERS: First, my client is refiling a 9 revised Exhibit F6.1, which is a more current, and I 10 think the most current, edition now of the market rules 11 amendment request. It just improves the information we 12 submitted the other day, sir. I think this is up to 13 date, now. That is F6.1. 14 Secondly, I am filing an answer to 15 Undertaking F4.2, which is in response to a question put 16 by Mr. Klippenstein, I think, on Mr. Gibbons' behalf. 17 You will see that my client has, for the purposes of 18 this case, has accepted Mr. Gibbons' calculations. 19 There are certain caveats to the acceptance, but for the 20 purpose of this case we will accept those calculations 21 subject to the conditions. 22 THE PRESIDING MEMBER: Okay. 23 MR. ROGERS: Then finally, I can advise the 24 Board that I have an answer to Undertaking F7.2 put by 25 Board staff and that will be filed this afternoon. 26 Copies are being made. That is the one that took 27 several days, sir. You will recall we discussed it. It 28 is now completed. Les Services StenoTran Services Inc. 613-521-0703 1988 Preliminary Matters 1 Thank you. 2 THE PRESIDING MEMBER: Any more preliminaries? 3 MR. BROWN: I have one preliminary, 4 Dr. Higgin, and that is I have set it on the counsel 5 tables and over on the side, an amendment to Mr. Fagan's 6 Table 1 in his evidence. So that is available for the 7 other parties 8 THE PRESIDING MEMBER: Yes, that is it then 9 finally. Let's get started. 10 Thank you, Mr. Brown. 11 PREVIOUSLY SWORN: BRUCE BOLAND 12 PREVIOUSLY SWORN: REN ORANS 13 CROSS-EXAMINATION 14 MR. BROWN: Good afternoon, gentlemen. 15 My name is David Brown and I am counsel to 16 IPPSO. In light of the time estimates, I will try and 17 pare my cross-examination down to the bare essentials. 18 The first set of questions I have are directed 19 to you, Mr. Boland, and I should preface my remarks by 20 saying all of my questions will be dealing with the 21 net/gross load issue. 22 But first, Mr. Boland, dealing with your 23 evidence, if I could ask you to turn to that, which is 24 Exhibit H8.2, in particular page 3, question 8? 25 --- Pause 26 MR. BROWN: Do you have that, sir? 27 MR. BOLAND: Yes. 28 MR. BROWN: In question 8 you are talking Les Services StenoTran Services Inc. 613-521-0703 1989 OPG Panel 2, cr-ex (Brown) 1 about the advantages if OPGI stays in proposal. The 2 first two sentences of that answer deal with the 3 disadvantages of pure net load billing. I take it by 4 "pure net load billing" you are referring there both to 5 net load billing for the transmission network assets as 6 well as for connection transformation? 7 MR. BOLAND: Actually, I don't recall in the 8 context. I think at this point in the testimony I am 9 referring to network and it was a description of pure 10 net billing on network, as I recall. 11 MR. BROWN: Fair enough. 12 Your question 6 introduces the idea that we 13 are talking about network transmission. 14 MR. BOLAND: I appreciate that clarification. 15 MR. BROWN: Then after that second sentence 16 you then go to talk and say, "in addition, it" which I 17 take is pure net load billing: 18 "...it ignores the fact that even after 19 installing embedded generation, customers 20 continue to use the transmission system, 21 albeit less intensively. This use occurs 22 in at least three ways." 23 I am going to deal with each of the three 24 ways. 25 But just as a general proposition, I take it 26 that your point that you are trying to make here, sir, 27 is there is some merit to gross load billing to the 28 extent that it allows the transmission company to Les Services StenoTran Services Inc. 613-521-0703 1990 OPG Panel 2, cr-ex (Brown) 1 recover some of the costs for providing these three 2 additional services or uses that you then go on to 3 describe. Is that a fair context in which to put those 4 three ways? 5 MR. BOLAND: In part. In addition, gross load 6 billing also reflects the fact that the asset as a whole 7 was built to serve the customer at his prior level of 8 load before he became net or before he built an embedded 9 generation. 10 MR. BROWN: Now, the first use or way that you 11 refer to is that the transmission provides power quality 12 support for the customer's entire load, including that 13 portion served by embedded generation. I take it you 14 are effectively saying that the power quality support 15 that you are referring to there is a kind of service 16 that the load and its generation derives from connection 17 with the transmission system? 18 MR. BOLAND: Yes. By continuing to be 19 connected to the system a generator that is connected 20 enjoys the stability that connection brings. 21 MR. BROWN: I take it implicit in your 22 statement there is that there is some cost associated 23 with providing that service and, therefore, gross load 24 billing in part enables recovery of the cost associated 25 with providing that power quality support service? 26 MR. BOLAND: That's correct. 27 MR. BROWN: Now, OPGI's generators are 28 connected to the transmission system? Les Services StenoTran Services Inc. 613-521-0703 1991 OPG Panel 2, cr-ex (Brown) 1 MR. BOLAND: Yes. 2 MR. BROWN: OPGI's generators, I take it, 3 benefit from power quality support by reason of being 4 connected to the transmission system? 5 MR. BOLAND: Both benefit and provide, yes. 6 MR. BROWN: But, at the end of the day, given 7 the tariff proposal that is on the table, there is no 8 suggestion that OPGI generators should pay the 9 transmission company anything, any amount of money for 10 the service they get in respect of power quality 11 support, is there? 12 --- Pause 13 MR. BROWN: The simple answer, since there is 14 a pause, is that it is not part of OHNC's tariff 15 proposal to charge generators anything except if we get 16 into the circumstance where there is new generation 17 requiring new connection assets. But, for transmission 18 service, for network transmission service, there is no 19 element of OHNC's proposal that they will charge 20 generators for certain things. Correct? 21 MR. BOLAND: I think that is fair. I think 22 the charge would be that the generator's customers would 23 see that charge because it is part of the charge 24 embedded within the network costs. 25 MR. BROWN: We heard a lot yesterday about 26 level playing field. Just to pursue that theme and the 27 theme of fair is fair, I take it, to the extent to which 28 OPGI generators don't have to pay the transmission Les Services StenoTran Services Inc. 613-521-0703 1992 OPG Panel 2, cr-ex (Brown) 1 company anything for power quality support, then 2 non-OPGI generators should not be required to pay the 3 transmission company any amount for power quality 4 support. That is fair is fair, is it not? 5 MR. ORANS: In a transaction between a 6 merchant generator and a domestic customer, I think 7 Mr. Boland said, and I would agree with him, that the 8 reacted power would be covered by the end-use customer, 9 the cost of providing that reacted power support. 10 MR. BROWN: Mr. Boland, this is your evidence. 11 The way I read that first point that you are trying to 12 make is that there is some power quality support 13 associated with the portion served by embedded 14 generation. 15 MR. BOLAND: I think the point that it is 16 trying to make more specifically is that there were 17 historic investments made that are providing that and 18 the cost of those historic investments are still there. 19 Regardless of the fact that the embedded generation has 20 been provided, the costs have still been incurred and 21 still need to be recovered, and it is appropriate from 22 our perspective that the customer installing the 23 embedded generation not have the ability, through the 24 rules that are developed through this process, to walk 25 away from those costs. 26 MR. BROWN: Precluded by the issues list to 27 exploring completely the treatment of historic costs 28 associated with certain customers. Les Services StenoTran Services Inc. 613-521-0703 1993 OPG Panel 2, cr-ex (Brown) 1 Be that as it may, would you agree with me 2 that to the extent that a transmission customer uses a 3 service they should pay for the service but all 4 transmission customers should be treated equally in 5 respect of the payment for a particular service: If 6 Customer A uses it, he should pay for it; if Customer B 7 uses it, he should pay for it? 8 MR. BOLAND: Yes. I think the debate is 9 around how "use" is interpreted in this. I think very 10 much if the customer was there taking power and the 11 networks company had to make investments to supply that 12 customer, to me that is use. The fact that the 13 intensity of that use may change over time does not 14 negate the fact that those costs were incurred, and we 15 are talking primarily about recovery of sunk fixed 16 costs. 17 MR. BROWN: I appreciate that, sir. I 18 appreciate that. 19 Let me jump to the third point that you have 20 here. The third point is that the transmission system 21 enables embedded generators -- so we are talking about 22 embedded generators here -- to sell excess production 23 into the market. I take it that what you are saying is 24 that one of the reasons there should be gross load 25 billing is that it allows the embedded generator -- not 26 the load, the generator -- to sell excess production 27 into the market. That is one of the rationale that you 28 are pointing out there. Correct? Les Services StenoTran Services Inc. 613-521-0703 1994 OPG Panel 2, cr-ex (Brown) 1 MR. BOLAND: Yes. We feel, certainly as we 2 are going through this transition now to a competitive 3 market, that these embedded generators have a 4 considerable amount of new rights that they didn't use 5 to have under the old regime. It is very much 6 appropriate in consideration of those new rights to also 7 consider what appropriate obligations they might have to 8 deal with the past investment that has been made. That 9 is very much a fairness issue and a regulatory issue, 10 and that is frankly why we are here on this issue. 11 MR. BROWN: How much does OPGI, in respect of 12 its generators, pay to OHNC under the proposed tariff to 13 sell production into the market? The answer to that is 14 zero, isn't it? 15 --- Pause 16 MR. BOLAND: Yes. Directly in terms of the 17 way we have this designed, that's correct, there is no 18 direct payment by the generator. Payment is made by the 19 generation customer. 20 MR. BROWN: Correct. 21 MR. BOLAND: The customer of the generator. 22 MR. BROWN: Correct. 23 MR. BOLAND: And as a generator, we are very 24 much interested in what the final cost to that consumer 25 is going to be and what he is going to face. 26 Mr. Osborne talked considerably yesterday about the need 27 for a level playing field -- 28 MR. BROWN: I guess the simple point I'm Les Services StenoTran Services Inc. 613-521-0703 1995 OPG Panel 2, cr-ex (Brown) 1 making -- and I'm just parsing the list that you have 2 put together -- is the third rationale that you have 3 identified in terms of supporting gross load billing is 4 that it allows the embedded generator to sell into the 5 market and therefore gross load billing implicitly is 6 recovery of costs to allow an embedded generator to do 7 it. 8 And you would agree with me, sir, that if OPGI 9 is not charged an amount of money by the network company 10 to sell its production into the market, then an embedded 11 generator should not be charged an amount to sell its 12 production or excess production into the market? That 13 is reasonable, is it not? Or are you saying that OPGI 14 should not be charged anything to sell its production 15 into the market but the level playing field requires 16 that the embedded generator pay something to sell its 17 excess production into the market. Is that the level 18 playing field? 19 MR. BOLAND: The issue here is the charge 20 determinant that the transmission customers are going to 21 pay, not the generator itself, and it is finding the 22 appropriate charge determinants for the customers. 23 MR. BROWN: Would you agree with me, at the 24 highest level of principle, that if OPGI is not required 25 under the transmission tariff to pay any amount to the 26 transmission company to sell power into the market, then 27 an embedded generator should not be required under the 28 transmission tariff to pay an amount to the transmission Les Services StenoTran Services Inc. 613-521-0703 1996 OPG Panel 2, cr-ex (Brown) 1 company to sell excess production into the market? 2 Would you agree or disagree with that proposition? 3 MR. BOLAND: I agree with that proposition. 4 I'm not sure it really reflects the issue, and the issue 5 you have to look at from the customer perspective. 6 MR. BROWN: We will have ample argument on 7 that point. 8 The second rationale that you identify as the 9 second rationale on page 10 is that the transmission 10 system stands ready to provide access to replacement 11 energy when a customer's embedded generation is 12 inoperative. You would agree that the service that you 13 are describing there is -- you can call it the back-up 14 service in a very generic way. Is that what you are 15 getting at this point? 16 MR. BOLAND: That's correct, the fact that the 17 system is there. Whether or not it is being drawn on at 18 any instant in time, the system was still built and it's 19 still there. 20 MR. BROWN: So some loads served by embedded 21 generators may need that service some time in the 22 future, some loads that are served by an embedded 23 generator may not need that service in the future. Is 24 that a fair statement? 25 MR. BOLAND: Presumably, if they don't need it 26 they would disconnect entirely from the network. So I'm 27 assuming that the fact they are connected is that they 28 recognize that at some point they will need it. Les Services StenoTran Services Inc. 613-521-0703 1997 OPG Panel 2, cr-ex (Brown) 1 MR. BROWN: The point that I guess you are 2 making is that to the extent that a load has to draw on 3 the network transmission system for back-up supply it 4 should pay something for that service. 5 MR. BOLAND: That's correct. 6 MR. BROWN: You would agree with me that there 7 are different ways of approaching how a load should pay 8 for that service? There is no one magical way to 9 address that issue, is there? 10 MR. BOLAND: There are a variety of 11 mechanisms. 12 MR. BROWN: One mechanism that could be used 13 is the selection of the charge determinant. Correct? 14 MR. BOLAND: Yes. 15 MR. BROWN: And to the extent that the charge 16 determinant which is selected -- well, let me put it 17 this way. To the extent that a customer's embedded 18 generation is inoperative during system off peak hours, 19 then the customer is not placing additional demands on 20 the system and the selection of a charge determinant 21 could reflect that. 22 MR. BOLAND: No, I don't think that's correct. 23 Regardless of when the outage is, there is always the 24 demand there on the system by the fact that it has to be 25 there ready to provide whenever the outage may occur. 26 MR. BROWN: But a charge determinant, the 27 selection of an appropriate charge determinant, would 28 send a price signal that if you are going to draw upon Les Services StenoTran Services Inc. 613-521-0703 1998 OPG Panel 2, cr-ex (Brown) 1 the transmission system at a time when it is under 2 network peak use, then you are going to have to pay more 3 for your access to that transmission service than if you 4 draw upon it at a time when it is not at peak use. That 5 is one way of approaching the backup supply issue, is it 6 not? 7 MR. BOLAND: It's one way, yes. 8 MR. BROWN: Sure. Another way that one could 9 approach the backup supply issue is by trying to 10 calculate some standby fee that might reflect the actual 11 costs that are associated with using that service. 12 That's another general option, is it not? 13 MR. BOLAND: That's another option. 14 MR. BROWN: Another option in terms of 15 approaching the backup issue is perhaps embarking upon 16 some sort of ratchet mechanism in some form. That's 17 another scenario, is it not? 18 MR. BOLAND: It can be. Yes. 19 MR. BROWN: And, of course, I guess the fourth 20 scenario which is implicit in here to your question 8 is 21 that gross load billing is also another means by which 22 to approach the issue of back up service, a rate charge 23 for backup service. 24 MR. BOLAND: In part that's correct, but the 25 gross load billing issues goes much beyond just the 26 issue of backup service. I mean certainly this 27 paragraph is focusing on the continuing benefits of 28 being connected, but I mean ultimately at its heart, the Les Services StenoTran Services Inc. 613-521-0703 1999 OPG Panel 2, cr-ex (Brown) 1 gross load billing issues goes to the responsibility for 2 the sunk investment. 3 MR. BOLAND: The historic costs. 4 MR. BROWN: That has been made. 5 MR. BOLAND: Right. 6 MR. BROWN: What I'm trying to do, I guess, is 7 unbundle to a certain extent the services that are being 8 provided. You would agree with me that in the best of 9 worlds, the cleanest and most appropriate way of 10 approaching the backup supply issue would be to fashion 11 a means which results in the customer who uses that 12 service paying an amount which reflects the actual costs 13 of the service that is provided. Is that a fair 14 statement? 15 MR. BOLAND: I think I would agree with that 16 or just about anything here. 17 MR. ORANS: That's got to include both 18 historical costs potentially and future costs. 19 MR. BROWN: We will deal with that then later. 20 That completes the questions I have for you, Mr. Boland, 21 on your question 8. 22 The next thing I would like to turn to is 23 Exhibit G2.1. This was an exhibit that your counsel put 24 to OHNC during the course of his cross-examination of 25 OHNC. It's on the issue of charge determinants. 26 Do you have that, gentlemen? 27 MR. ORANS: Yes, we do. 28 MR. BROWN: It's really more informational Les Services StenoTran Services Inc. 613-521-0703 2000 OPG Panel 2, cr-ex (Brown) 1 questions. First of all, were either of you involved in 2 the preparation of this exhibit? If so, who? 3 MR. BOLAND: I think we were both involved in 4 it. I think it was primarily Dr. Orans. 5 MR. BROWN: Then, Dr. Orans, if you wish to 6 answer these questions, that's fine. Under your section 7 A on the second line, there's a reference there to the 8 $1.33 per kilowatt per month. Do you see that 9 reference, sir? 10 MR. ORANS: Yes, I do. 11 MR. BROWN: Could you please tell me the 12 source of that number. Where did you get that number 13 from? 14 MR. ORANS: That number is the facilities 15 charge for the backup replacement or standby service 16 that exists today, I believe. 17 MR. BROWN: Under the current OHNC tariff? 18 MR. ORANS: Yes. That's correct. 19 MR. BROWN: I take it then from your answer 20 that the cost allocation upon which that number is based 21 is the cost allocation that was used by the old Ontario 22 Hydro and not the cost allocation that OHNC has brought 23 forward in this application. Is that a fair statement? 24 MR. ORANS: Yes, that's a fair statement. 25 MR. BROWN: Now, in terms of the components of 26 that $1.33 number, sir, I take it from your description 27 there that that number includes some value for a 28 transmission component. Les Services StenoTran Services Inc. 613-521-0703 2001 OPG Panel 2, cr-ex (Brown) 1 MR. ORANS: Yes. I believe that's correct. 2 MR. BROWN: What is the value, what is the 3 dollar or cent amount associated with the transmission 4 component of that number? 5 MR. ORANS: I did not have a breakout for the 6 individual pieces that went into that number. 7 MR. BROWN: I'm just going to go through a 8 list then and you can tell me whether certain components 9 are in that number and, if so, whether you have a value. 10 I take it that there's a second component to this 11 number, that is there's a value in there for power 12 quality support, as you have indicated on the exhibit. 13 MR. ORANS: Yes. I believe that's correct. 14 MR. BROWN: I take it from your previous 15 answer you don't have a specific monetary amount to 16 associate with that power quality support. 17 MR. ORANS: No. I don't have any access to 18 any individual members on the breakout of each of the 19 individual components. 20 MR. BROWN: That same answer would hold true 21 for the administration component of the backup supply or 22 what you call the facilities charge. You don't have an 23 individual breakout. 24 MR. ORANS: I don't have an individual 25 breakout for any individual piece. 26 MR. BROWN: Now, in terms of the next piece, 27 the distribution related portion of backup service, what 28 is that, sir? Can you explain to the Board what Les Services StenoTran Services Inc. 613-521-0703 2002 OPG Panel 2, cr-ex (Brown) 1 services that distribution portion of backup service 2 covers, sort of what costs the distribution related 3 portion of the backup service recovers? 4 MR. ORANS: Yes. I believe Ontario Hydro has 5 also distribution facilities and transmission 6 facilities, so it would be the cost of backup for the 7 distribution and transmission facilities together, but 8 it would be I believe only Ontario Hydro's distribution 9 facilities. 10 MR. BROWN: What we have now referred to as 11 the OHNC D customers, or facilities relating to OHNC D 12 customers. 13 MR. ORANS: I believe that's correct. Yes. 14 MR. BROWN: Do you know, sir, how much of the 15 $1.33 in that number is related to generation costs? 16 MR. ORANS: I don't believe there's any 17 generation costs in there. 18 MR. BROWN: Do you know, sir -- you say you 19 don't believe. Did you make that inquiry of OHNC? 20 MR. ORANS: No, but I think it's stated in the 21 tariff, the best I can recall, that this is a facilities 22 charge designed to collect the costs of transmission and 23 distribution. 24 MR. BROWN: The last question I have in terms 25 of the components, do you know whether there's any 26 amount in that $1.33 related to connection asset costs? 27 MR. ORANS: I'm not aware that there are. 28 MR. BROWN: Now, the number that you have Les Services StenoTran Services Inc. 613-521-0703 2003 OPG Panel 2, cr-ex (Brown) 1 used, the $1.33, you are in this exhibit comparing to 2 another number which is nine cents. Correct? 3 MR. ORANS: Yes. That's correct. 4 MR. BROWN: And that nine cents, I take it, 5 flows from Option XVI which is a charge determinant 6 option that's on the table in this proceeding. Correct? 7 MR. ORANS: Yes. That's correct. 8 MR. BROWN: And so the numbers then that 9 underlie that nine-tenths first of all are based on the 10 cost allocation proposal that Ontario Hydro Network 11 Corporation has brought forward in this proceeding. 12 Correct? 13 MR. ORANS: No. It's not at all. It's based 14 on a comparison of the network cost under the 50 hour 15 average demand proposal, Option No. XVI, billing 16 determinants and the assumption stated in section B, so 17 the only connection with the nine cents is based on the 18 network revenue requirement. It does not include the 19 connection facilities here. 20 MR. BROWN: I wasn't suggesting that it did. I 21 didn't put the question directly enough then. The 22 transmission costs, the network transmission costs, upon 23 which the derivation of this number is based are the 24 network transmission costs that we have seen in OHNC's 25 cost allocation study in Exhibit D in this proceeding. 26 Correct? I'm sorry, Exhibit C. 27 MR. ORANS: Yes. That's correct, but you 28 could make the calculation on four dot. You could add Les Services StenoTran Services Inc. 613-521-0703 2004 OPG Panel 2, cr-ex (Brown) 1 each of the components together. It's the same 2 transmission system that has been here before and after. 3 So the issue really is where would you cut it? You 4 could use the same calculation on the whole level or on 5 any of the individual pieces. 6 MR. BROWN: But to the extent that there has 7 been a cutting or moving things from one pot to another 8 in this proceeding which differs from where things stood 9 under the old Ontario Hydro, that is a difference on the 10 basis -- that must make one cautious to some extent 11 about comparing that nine cent number with the $1.33. 12 MR. ORANS: Cautious. Although I believe the 13 conclusion is still very stark in my mind. That is, you 14 could use this 9 cent number and you have a $1.33 number 15 today for a facilities charge, or if you wanted to take 16 the most pessimistic view of this and you could blow up 17 the whole thing to almost $5. Multiply it by 3 per cent 18 and you can 15 cents a kilowatt month. 19 In either case it's significantly different 20 from the facilities charge we have today. 21 MR. BROWN: In terms of starkness of contrast, 22 and I have put questions to you about what goes into 23 this and we can then argue about whether we have got an 24 apples and apples or an apples and oranges comparison, 25 but just in terms of starkness if you were to take this 26 $1.33 number and compare it to OHNC's proposed network 27 transmission charge of I think in the neighbourhood of 28 $2.67 or somewhere around there, $2.76, isn't the ratio Les Services StenoTran Services Inc. 613-521-0703 2005 OPG Panel 2, cr-ex (Brown) 1 that one comes up with is that this back-up charge is 2 about 48 per cent of the network charge? Isn't that an 3 extraordinary ratio? 4 MR. ORANS: I don't think it's an 5 extraordinary ratio at all. In fact, it's fairly 6 typical for other general jurisdictions when they are 7 looking at standby charges for bulk transmission 8 facilities. 9 MR. BROWN: I take it, sir, in order to 10 conduct a finely-tuned comparison of that 9 cent number 11 with another number what we would really have to do is 12 look at the current facilities tariff charge and try to 13 strip it down and remove any extraneous components that 14 are not included in that 9 cent number. Correct? 15 MR. ORANS: No. I think that's actually the 16 opposite. That would just reduce -- as I understand 17 your question, it would strip down the network service 18 revenue requirement to below $2.97 a kilowatt month. We 19 are going to get a lower number than 9 cents and it's 20 going to get a bigger difference from the $1.33 that you 21 see today. 22 MR. BROWN: Let me perhaps frame it this way: 23 The components which go into the 9 cent number should be 24 measured against and compared against a number which 25 contains only the same components. Correct? That's an 26 apples and apples comparison. I think that's correct. 27 MR. ORANS: What we are really looking at here 28 is independent of the revenue requirement level, the Les Services StenoTran Services Inc. 613-521-0703 2006 OPG Panel 2, cr-ex (Brown) 1 actual end charge, on a monthly basis what is the 2 customer is getting charged for on average? 3 This customer, the proposal under Option XVI 4 and any kind of net billing determinant is going to 5 result in only 3 per cent of the cut under our example 6 with a 3 per cent forced outage rate and the customer 7 seeing only an average of 3 per cent of the total rate 8 every month, independent of what the revenue requirement 9 level is. 10 MR. BROWN: I am going to try one more time. 11 To the extent that there is any significance to the 12 comparison that you made in Exhibit G2.1 between the 9 13 cent number and the $1.33 number, and indeed as I read 14 it that's the purpose of the exhibit, to contrast that 15 one number against the other, you would agree with me 16 that a reasonable comparison can only be made if we are 17 assured that the components that go into the 9 cent 18 number are the same components and no more than goes 19 into the $1.33 number? 20 And to the extent that they are not the same, 21 then a valid comparison between the two numbers cannot 22 be made. Do you agree or disagree with that 23 proposition, sir? 24 MR. ORANS: I would take you back to my 25 previous statement about the comparison not of the final 26 charge, but the comparison of the expected payment each 27 month, and I would take you back to the question you 28 asked me previous to that is: Let's just assume, let's Les Services StenoTran Services Inc. 613-521-0703 2007 OPG Panel 2, cr-ex (Brown) 1 make an apples to apples comparison. 2 MR. BROWN: Perhaps, and I don't mean to 3 interrupt any witness, but perhaps before giving me an 4 explanation you can provide me with the direct answer to 5 my question, which was whether or not you agreed or 6 disagreed with the proposition that I put to you? 7 MR. ORANS: I believe this is a valid 8 comparison between the facilities we have today to 9 reflect bundled transmission and distribution, as stated 10 here $1.33, and the option that you have proposed here 11 for a 3 per cent forced outage rate embedded generator. 12 MR. BROWN: And I will leave it at that. 13 I have another area of questioning for you, 14 Dr. Orans. If I could ask you to turn in your 15 testimony, sir, which is Exhibit H8.1, to Question 16 16 which is on page 10. 17 MR. ORANS: Yes, I have it. 18 MR. BROWN: The analysis which you have set 19 out in Question 16, as I understand it, purports to show 20 the amount of time which is required for load growth in 21 the GTA area to fully utilize the capacity added to the 22 GTA area over the past nine to ten years. 23 MR. ORANS: Yes, that's part of it and also in 24 the eastern Toronto area. 25 MR. BROWN: Eastern Ontario. I will come to 26 that separately, but for the purposes of my initial 27 questions let's just deal with GTA because that's 28 simpler. Les Services StenoTran Services Inc. 613-521-0703 2008 OPG Panel 2, cr-ex (Brown) 1 MR. ORANS: That's fine. 2 MR. BROWN: If that's the question your 3 analysis was directed at and the conclusion, as I read 4 your evidence, is that it would take nearly 50 years for 5 GTA load growth to fully utilize the transmission 6 capacity that had been added to the GTA area over the 7 past nine to ten years? 8 MR. ORANS: That's correct. 9 MR. BROWN: The method by which you arrived at 10 that conclusion is in reliance on an answer that OHNC 11 gave to you in response to OPGI's Interrogatory 19 and 12 you have attached that response right at the end of your 13 opinion. I think it is your Attachment No. 2. Correct? 14 MR. ORANS: Yes. I believe that's marked 15 E8.19. 16 MR. BROWN: It could well be. Yes, Tab 8, 17 Schedule 19. And your analysis with respect to the GTA 18 and also the eastern Ontario area was fairly 19 straightforward on the capacity investment side. You 20 added up in the case of GTA those six projects and you 21 came up with the 6,150 number. Correct? 22 MR. ORANS: Yes, that's correct. 23 MR. BROWN: And then you divided it by 24 124 megawatts per year and that 1,241 megawatts over 25 10 years you got by taking the difference between the 26 loads in the summer of '89 and the summer of '99? 27 MR. ORANS: That's correct. 28 MR. BROWN: And by dividing the 6,150 by the Les Services StenoTran Services Inc. 613-521-0703 2009 OPG Panel 2, cr-ex (Brown) 1 124 you came up with roughly 50 years. Correct? 2 MR. ORANS: That's correct. 3 MR. BROWN: And I take it, sir, the suggestion 4 that you are making in your response to Question 16 of 5 your evidence is that there is really sufficient 6 capacity -- that there is sufficient network 7 transmission capacity in respect of the GTA area to 8 service load growth in the GTA area for the next 9 50 years? That's the sum and substance of your point. 10 MR. ORANS: That's generally correct. 11 However, you would need -- 12 MR. BROWN: Pretty specifically correct, 13 isn't it? 14 MR. ORANS: No. No, I don't believe it is and 15 if you would let me respond I would tell you in a more 16 complete answer. 17 MR. BROWN: I shall indeed. Go ahead. 18 MR. ORANS: My analysis focuses on the bulk 19 system components here of network service. To answer it 20 more specifically you would need a load flow under all 21 the inner connected parts of the system, the lower 22 voltage, the higher voltage, the changes, the generation 23 pattern, the interconnection with the new market, 24 et cetera. 25 MR. BROWN: And you did not do that? 26 MR. ORANS: I didn't have any available 27 information to do that. 28 MR. BROWN: And as you have described the Les Services StenoTran Services Inc. 613-521-0703 2010 OPG Panel 2, cr-ex (Brown) 1 analysis it's a simple analysis? 2 MR. ORANS: Yes, it's relatively simple. 3 MR. BROWN: Back of the envelope. 4 MR. ORANS: I wouldn't call it back of the 5 envelope, but I used the information that I had 6 available. 7 MR. BROWN: I am sorry, I interrupted you. 8 Continue, sir. 9 MR. ORANS: To completely answer the question 10 "Do you need to add any more transmission capacity in 11 this area for the next 50 years?" you would have to run 12 a whole series of combinations of generation dispatch, 13 load under certainty, voltage levels, outage scenarios, 14 et cetera, and look at all the cases and determine if 15 each component was provided a satisfactory level of 16 reliability in this network. 17 MR. BROWN: That is an exercise that you did 18 not perform for the purposes of this proceeding? 19 MR. ORANS: No, I did not. 20 MR. BROWN: But I take you back to the initial 21 suggestion that I made to you, sir: The thrust of this 22 portion of your evidence is that you have proposed a 23 10 year phase out for net load billing and you have 24 described that proposal in your evidence. Correct? 25 MR. ORANS: Yes. I believe that is the 26 shortest reasonable period under which you could use 27 this evidence to justify a phase out. 28 MR. BROWN: And to justify that phase out -- Les Services StenoTran Services Inc. 613-521-0703 2011 OPG Panel 2, cr-ex (Brown) 1 and indeed question 16 says: 2 "Do you have any evidence to suggest that 3 10 years is a reasonable 4 customer-specific transition period for 5 Ontario?" 6 One of the reasons that you gave was "10 years 7 is reasonable because, look, guys, we have 50 years of 8 excess network transmission capacity floating around. 9 That is the thrust of your evidence, is 10 it not? 11 MR. BOLAND: I would like to respond to that 12 one because we, in kind of the policy issue of why we 13 picked 10 years as opposed to 15 or 20 -- we actually 14 had an interrogatory on this as well saying, you know: 15 Why 10? Based on your figures here you have 50 years 16 and over 100 years in the other case. 17 Frankly, this is what Mr. Osborne talked about 18 fairly extensively yesterday when he said, you know, we 19 wanted to get a proposal out there that people could 20 live with and work with and get moving with this. 21 We could have proposed, based on this 22 evidence, that further study be done, in terms that 23 Mr. Orans is describing, to find out, you know, overall: 24 Is 50 the best number or is 100 the best number? 25 Frankly, we didn't think that would be 26 received very well by the people after net load billing 27 and we were after something, a bit of a compromise, 28 something pragmatic and to move forward with. Les Services StenoTran Services Inc. 613-521-0703 2012 OPG Panel 2, cr-ex (Brown) 1 From our perspective, based on the evidence we 2 have here and the best available data we had to come up 3 with this, we couldn't see reasonably suggesting 4 anything less than 10 years. 5 MR. BROWN: That's quite what I was getting 6 at. Let me shorten it. 7 Dr. Orans, in your evidence -- Mr. Boland, you 8 can answer this question too -- are you or are you not 9 suggesting to this Board that based upon the analysis 10 that you have performed using the information that OHNC 11 provided to you that there is approximately 50 years of 12 excess or unusable transmission capacity in the GTA 13 area. 14 MR. ORANS: I wouldn't call it excess. 15 MR. BROWN: No, I know. You didn't yesterday. 16 MR. ORANS: I wouldn't call it excess. I 17 would say these facilities constructed over the last 18 10 years could serve the average load growth under the 19 last 10 years under a normal operating case. 20 Now, whether -- 21 MR. BROWN: For the next 50 years. 22 MR. ORANS: Yes. Now, whether that 23 actually -- 24 MR. BROWN: No, sir, just -- is that correct 25 for the next 50 years -- 26 MR. ORANS: For the next 50 years, yes. 27 MR. BROWN: You don't like calling it excess 28 capacity. Can I use a more neutral term? Would you Les Services StenoTran Services Inc. 613-521-0703 2013 OPG Panel 2, cr-ex (Brown) 1 describe it as underutilized or unused capacity or 2 capacity available for use in the future? 3 MR. ORANS: That's fine. 4 MR. BROWN: One question that arises, sir, 5 from the suggestions made in your analysis is that if 6 there is so much capacity in the GTA area on the network 7 transmission system, that remains -- or that will remain 8 underutilized over a long period of time. Why should 9 existing transmission customers pay anything for that 10 excess -- or that unused capacity? Why don't we just 11 take it out of rate base? 12 MR. ORANS: I think each of these facilities 13 also add a significant component of reliability to the 14 system as well. It is very hard to separate out an 15 addition for capacity and addition for reliability. 16 If you look at the length that we were given 17 here in response to this question from OHNC, the tend to 18 loop the GTA area and interconnect it. So they provide 19 many additional benefits than just serving additional 20 load growth, including all the benefits that Mr. Boland 21 listed this morning that would also go to embedded 22 generators. 23 MR. BROWN: I guess what I'm driving at, 24 Dr. Orans, is whether there is really symmetry or 25 asymmetry at work here because your proposal, the phase 26 out proposal, is essentially suggesting that gross load 27 billing be phased out over 10 years, in part because 28 when an embedded generator goes in there is going to be Les Services StenoTran Services Inc. 613-521-0703 2014 OPG Panel 2, cr-ex (Brown) 1 an immediate reduction in load demand. Correct? 2 MR. ORANS: No, I don't believe that is 3 correct. 4 Our proposal balances what Mr. Boland said 5 this morning, primarily the need to collect the 6 transmission revenue requirement on a fair basis from 7 every customer. 8 Second, the pattern reflects the increasing 9 value of that load reduction in the network over time as 10 this spare capacity -- or extra capacity, as you have 11 called it -- becomes used over time. 12 MR. BROWN: But I will just ask one more 13 question in this area. 14 One of the underpinnings of your proposal, 15 though, is it not, is that when a load reduces its 16 demand because it puts in an embedded generator, there 17 is a reduction in use by that load of the network 18 transmission. You say there are overall costs 19 associated with that reduction in use, that other 20 customers shouldn't be left holding the bag for those 21 costs, and therefore it is appropriate to phase out 22 gross load billing in part to make the load bear some 23 responsibility for those costs. 24 Is that a fair statement? 25 MR. ORANS: I think it is reasonable to not 26 let customers walk away from the expenses incurred on 27 their behalf. 28 MR. BOLAND: You have said there is a Les Services StenoTran Services Inc. 613-521-0703 2015 OPG Panel 2, cr-ex (Brown) 1 reduction in use and in one sense there is a reduction 2 in use, in an energy sense, but there is also the 3 capacity sense and we are talking about here investments 4 and fixed capacity and sunk costs. There may be a 5 reduced use in an energy sense, but if the hook-up is 6 still there the customer is still relying on the system 7 to the same degree in a standby sense. 8 MR. BROWN: But when a customer puts in 9 embedded generation, your thesis is that there is an 10 immediate reduction in use, the customer should bear 11 some responsibility for the overall system costs 12 associated with that immediate reduction in use. 13 Correct? 14 MR. BOLAND: That's correct. I was just 15 trying to explain to you that there are different 16 connotations around the word "use". 17 MR. BROWN: I want to focus on immediate 18 because isn't the logical flip side of your thesis, 19 Dr. Orans, that if a load that takes embedded 20 generation, which has what you call an immediate impact 21 on the system, has to pay something, and the flip side 22 is, if there are investments in the expansion of the 23 transmission system which cannot be immediately used by 24 load then those expansions shouldn't be put into rate 25 base and the transmission customer -- company shouldn't 26 be allowed to charge for those until they are used. 27 MR. ORANS: No. 28 MR. BROWN: Isn't that the logical flip side? Les Services StenoTran Services Inc. 613-521-0703 2016 OPG Panel 2, cr-ex (Brown) 1 MR. ORANS: No, I don't think it is the 2 logical flip side at all. In fact, the only way you 3 continue to encourage a large network owner to invest in 4 efficient scale, network investment to provide 5 reliability and increased use and manage siding, 6 et cetera, is to allow them to collect on the revenue 7 requirement sufficiently before it is immediately used. 8 It takes -- they have testified it takes 9 potentially in excess of 10 to 15 years to side a new 10 transmission line in a dense urban area. They shouldn't 11 be disallowed that investment and collection for 12 14 years. 13 MR. BROWN: Perhaps coming at it a different 14 way, are you suggesting in your evidence on this point, 15 Dr. Orans, that no new network transmission investment 16 will be required in the GTA area for the next 50 years? 17 MR. ORANS: Based on the limited information I 18 have in response to my questions put to OHNC, my rough 19 calculation shows that the existing bulk transmission 20 facilities by themselves would serve the average load 21 growth over the last 10 years for the next 50 years 22 before you would need to make a new investment in 23 capacity. 24 MR. BROWN: So are you saying, sir, that OHNC 25 will not have to make any investments in transmission 26 capacity over the next 50 years in respect of the GTA 27 area? 28 MR. ORANS: There are a range of other needs Les Services StenoTran Services Inc. 613-521-0703 2017 OPG Panel 2, cr-ex (Brown) 1 that OHNC needs to look at other than just load growth. 2 So we are looking here at the value of a load reduction 3 once again placed in the network. 4 I believe the capacity investments they gave 5 me, as I stated before, are sufficient to provide 6 50 years of load growth related network capacity 7 investment. If there are voltage problems, reliability 8 problems, they may need to add other investments to meet 9 those needs. 10 MR. BROWN: But in terms of load growth, based 11 on your analysis, you do not perceive a need over the 12 next 50 years for any further network transmission 13 investments by OHNC in respect of the GTA area? 14 MR. ORANS: Under those load growth 15 assumptions they provided, which were the average load 16 growth over the last 10 years, if that load growth gets 17 higher or lower or changes or the pattern changes, you 18 could see a new expansion plan. 19 MR. BROWN: I suppose in order to determine, 20 sir, what investments would have to be made in the 21 future in respect of the GTA area, one would have to do 22 a forward-looking analysis of load growth for the GTA 23 area. Correct? 24 MR. ORANS: Yes, that's correct. That 25 analysis did not form part of the analysis which you did 26 for question 16. 27 MR. BROWN: I don't have a whole range of 28 forward-looking sets of load growth or expansion plans Les Services StenoTran Services Inc. 613-521-0703 2018 OPG Panel 2, cr-ex (Brown) 1 for the GTA area. You just relied on the historic 2 information given to you by OHNC? 3 MR. ORANS: To look at the average amount of 4 time it takes to reuse capacity placed in a large system 5 like this. 6 MR. BROWN: I want to ask you some specific 7 questions about the methodology that you used, 8 Dr. Orans, which I think is fairly simple. You 9 determined a numerator which was the 6,150 megawatts, or 10 the approximation to that, and then you used the -- and 11 that is the additions to capacity -- that is your 12 numerator? 13 MR. ORANS: Yes, that's correct. 14 MR. BROWN: And then your denominator is the 15 one associated with load growth. Correct? 16 MR. ORANS: That's correct. 17 MR. BROWN: If you could turn to that 18 Attachment 2 to your evidence, which is simply a 19 reproduction of the information that you got from OHNC. 20 I am going to ask you again, just with respect to the 21 GTA area, there is a critical assumption that underlies 22 your methodology, is there not? 23 The critical assumption is as following: That 24 the sum of the capacity associated with each project in 25 fact represents the actual amount of increased network 26 capacity to serve load growth? Now, that is the 27 fundamental assumption underlying your methodology, is 28 it not? Les Services StenoTran Services Inc. 613-521-0703 2019 OPG Panel 2, cr-ex (Brown) 1 MR. ORANS: I asked OHNC to provide load 2 growth-related network capacity. They sent back to me 3 this table. If you read footnote No. 2 here, it says 4 that: 5 "The effective capacity is either the 6 incremental transfer capability obtained 7 following reinforcement of transmission 8 lines or the nameplate capacity of 9 autotransformers following their 10 addition." 11 That is the footnote attached to effective 12 capacity added. I did not add these individual numbers. 13 I was given this number added together here. 14 MR. BROWN: But the opinion that you have put 15 forward in this proceeding, sir, rests, does it not, 16 upon the appropriateness or the legitimacy of adding 17 those numbers together to reach a capacity number? 18 MR. ORANS: Yes, it does. 19 MR. BROWN: Okay. And just on that point of 20 the appropriateness of adding those numbers together, I 21 think in response to an earlier question that I put to 22 you, you acknowledged that in the fullness of time if 23 you had as much money and as much time as you would 24 possibly want to perform this kind of analysis, the 25 analysis that you had to perform is a network load flow 26 analysis. Correct? 27 MR. ORANS: Yes. That is exactly why we asked 28 OHNC, I think Dr. Poray, what he believed the most Les Services StenoTran Services Inc. 613-521-0703 2020 OPG Panel 2, cr-ex (Brown) 1 conservative estimate of capacity added would be in this 2 area, absent all that detailed analysis. He gave the 3 most conservative estimates of the capacity added that 4 were lower than the initial response that they provided 5 us to. 6 I believe we provided -- we bracketed the 7 answer and without all of that detail, and the results 8 show that in the GTA area under the most conservative 9 assumptions you are still having approximately 37.8 10 years until these bulk system capacity investments in 11 the network would be effectively reused by other load 12 growth. 13 MR. BROWN: Refresh my memory, Dr. Orans. 14 What was the number that Dr. Poray put out? 15 MR. ORANS: For the GTA area he removed under 16 the most conservative assumptions the Middleport TS 17 autotransformer and the Claireville TS autotransformers, 18 which reduce the 6,150 number you referred to by 1,500 19 MVA which gives you a total in the area of 4,650 MVA. 20 MR. BROWN: Coming back to this issue of a 21 network load flow analysis, am I correct that when one 22 performs that analysis, in respect of any upgrade to the 23 network, that what one really is doing is looking at the 24 relationship amongst all of the network transmission 25 lines as they may be affected by that particular 26 investment? 27 MR. ORANS: And the generation and the 28 customers. Les Services StenoTran Services Inc. 613-521-0703 2021 OPG Panel 2, cr-ex (Brown) 1 MR. BROWN: Because the network transmission 2 system is a highly complex transmission system a form of 3 network load flow analysis is required to really be able 4 to ascertain what the precise effect of any upgrade to 5 the network system will be, correct, in terms of 6 capacity? 7 MR. ORANS: Yes. I believe Dr. Poray 8 confirmed that effect and that is why we put it to him 9 "the most conservative assumption." Under all of the 10 most conservative assumptions, without all of that 11 detail, you could still make the assumption that at 12 least 4,650 MVA was added to that area over the last 10 13 years. 14 MR. BROWN: Now, before Dr. Poray gave you 15 that information you also began to embark a bit upon 16 that form of analysis, didn't you, in response to one of 17 the questions asked by IPPSO? Perhaps if you could look 18 at the interrogatory asked of OPGI, which should be 19 Exhibit 4, Tab 36, Interrogatory 11. So it is 20 Schedule 11. 21 --- Pause 22 MR. ORANS: Yes, I have it. 23 MR. BROWN: I am sorry, it is Exhibit E10.36, 24 Schedule 11. In particular, I think it is -- just bear 25 with me here a second, Dr. Orans, please. 26 This is in response to Interrogatory 11-I. In 27 that interrogatory you were essentially asked, as I 28 understand it, whether it is appropriate to add some of Les Services StenoTran Services Inc. 613-521-0703 2022 OPG Panel 2, cr-ex (Brown) 1 the Claireville to Middleport or Claireville and 2 Middleport investments together, as you implicitly did 3 in the schedule, because you were asked whether or not 4 the system in that area worked on a parallel basis or a 5 series basis -- sort of the thrust of the question? 6 MR. ORANS: That is generally correct. 7 MR. BROWN: Certainly, as a general 8 proposition, the extent to which one can simply add 9 together the capacities represented by each investment 10 depends upon the degree to which the additional assets 11 operate in parallel or in series, as a very general 12 proposition? 13 MR. ORANS: That is generally correct. 14 Generally, the definition of the network facilities is 15 that they don't run in series. They run in parallel and 16 they are additive, generally. 17 MR. BROWN: You then, in your detailed answer 18 to that question, went through an analysis, indicated 19 that you had spoken a bit more to OHNC, got a better 20 handle, you thought, on exactly how those assets related 21 to some of the other assets in the network. The bottom 22 line, which we see on the top of or towards the end of 23 that interrogatory response, is that you were prepared 24 to reduce your number, your denominator, from the 6,150 25 down to about 4,650? 26 MR. ORANS: No, I was providing, once again, a 27 range under the most conservative assumptions. I wasn't 28 reducing my estimate of the number. The number is 6,150 Les Services StenoTran Services Inc. 613-521-0703 2023 OPG Panel 2, cr-ex (Brown) 1 still. 2 MR. BROWN: Is it fair to say, though, 3 however, that once you started asking more questions 4 about how these assets actually connected in and worked 5 in conjunction with other network assets, it was 6 apparent that it might be appropriate to back some of 7 the additional investment out and use a lower more 8 conservative denominator in your ratio? 9 MR. ORANS: No. I wanted to avoid exactly the 10 discussion of is this a valid analysis and do we need to 11 bring in tonnes of experts and computer models and 12 outage cases and scenarios, and I wanted to bracket the 13 estimates for the purposes of making a policy decision. 14 Since we were proposing a phased proposal beginning with 15 the embedded generation being installed in year one to 16 year ten, all of these assumptions led to results that 17 supported our proposal and they were all significantly 18 in excess of the ten year phase in proposal. 19 MR. BROWN: So if the number was greater than 20 ten years, at the end of the day you really didn't care 21 how much greater it was. Is that the bottom line? 22 MR. ORANS: I would say the -- 23 MR. BROWN: For the purpose of your proposal. 24 MR. ORANS: No. The analysis that you are 25 asking would be pertinent if this were something like a 26 five to ten year analysis, and it would make a 27 difference for our proposal. In our case, we were 28 proposing something significantly shorter that had to do Les Services StenoTran Services Inc. 613-521-0703 2024 OPG Panel 2, cr-ex (Brown) 1 with a variety of different factors, and if you could 2 bracket the analysis it would save everybody the time of 3 requesting hundreds of load flow analyses under all 4 kinds of different cases to provide the same result 5 of -- at the maximum it is 6,150 and at the minimum it 6 is 4,650. 7 MR. BROWN: I guess what I am suggesting to 8 you, Dr. Orans, is that for the purpose of using any 9 number to figure out how many years of excess or 10 underutilized capacity is currently in place, one really 11 has to engage in this more detailed network load flow 12 analysis that you began to do in part in response to 13 IPSO 11-1. That is a critical starting point for that 14 analysis, is it not? 15 MR. ORANS: No. I think if you go back to 16 Dr. Poray's response, you can provide minimums and 17 maximums and bracket the analysis. You can't get down 18 to the exact amount between because, in reality, some of 19 those transformers some of the time run in parallel, 20 some of those transformers some of the time run in 21 series, under some cases they can be limiting and other 22 cases they are not, but if you take them out altogether, 23 you don't need to run the load flow analysis to be able 24 to add the capacity to the lines. 25 MR. BROWN: Let me turn to the other portion 26 of the fraction which is the denominator. The 27 denominator that you used, sir, I take it, assumed that 28 the increase in capacity which is shown in the Les Services StenoTran Services Inc. 613-521-0703 2025 OPG Panel 2, cr-ex (Brown) 1 numerator, that increase in capacity was used solely to 2 service load growth in the GTA area. That is the 3 assumption underlying your denominator. Correct? 4 MR. ORANS: I asked OHNC to provide load 5 growth related network investments. They gave me this 6 page back. They assured me these were load growth 7 related network investments when I had talked to them, 8 and footnote (1) says that these are load growth related 9 network investments. 10 MR. BROWN: The document you filed in this 11 proceeding is your opinion. Correct? 12 MR. ORANS: Yes, it is. 13 MR. BROWN: In order to arrive at your opinion 14 you had to rely on certain facts. Correct? 15 MR. ORANS: Yes, that's correct. 16 MR. BROWN: The fact that you have rendered an 17 opinion indicates that you have a degree of certainty in 18 the facts that are outlined in your opinion. Correct? 19 MR. ORANS: Yes, that's correct. 20 MR. BROWN: With respect to the denominator in 21 this particular fraction that is contained in the 22 response to question 16 in your opinion, I put it to 23 you, sir, that for the purposes of your opinion you are 24 prepared to assume that the increased capacity and the 25 numerator would be used solely to service the load 26 growth in the GTA area. That is your assumption 27 underlying your opinion. 28 MR. ORANS: No. I don't believe that is. Les Services StenoTran Services Inc. 613-521-0703 2026 OPG Panel 2, cr-ex (Brown) 1 These investments in capacity would not have 2 been made but for the load growth, so they are load 3 growth related. They could also provide other benefits. 4 MR. BROWN: Some of the other benefits, I'm 5 going to suggest to you, that these increases in 6 capacity could provide would be an ability to service 7 increased load growth in other areas of the province. 8 That would be an additional benefit resulting from these 9 additional investments in the network transmission. 10 Correct? 11 MR. ORANS: The entire network is interlinked. 12 MR. BROWN: Exactly. 13 MR. ORANS: I believe that could also be the 14 case. 15 MR. BROWN: Right. It is an integrated 16 province-wide network. 17 MR. ORANS: Yes, that's correct. 18 MR. BROWN: We agree on that? 19 MR. ORANS: That's correct. 20 MR. BROWN: Okay. 21 I am going to suggest to you that in order to 22 identify a proper denominator to slide into that 23 fraction that you used, you would have to examine the 24 extent to which the increase in the network capacity in 25 the GTA area enabled the province-wide integrated 26 network to service increased load growth outside of the 27 GTA area. 28 MR. ORANS: In these forward-looking analyses Les Services StenoTran Services Inc. 613-521-0703 2027 OPG Panel 2, cr-ex (Brown) 1 you would do the whole network. 2 MR. BROWN: And you would have to add -- 3 sorry -- to the extent that load growth outside of the 4 GTA area could be served by increased investments in 5 respect of a GTA area, then that increased load growth 6 would have to be added into your denominator. Correct? 7 MR. ORANS: That's correct. However, I was 8 told by OHNC that the majority of the load growth over 9 the last ten years in this province has occurred in 10 these two areas. So, yes, it was a simplifying 11 assumption that these investments weren't being made to 12 serve another large load-growing city outside of these 13 two areas. 14 MR. BROWN: Of course to the extent that you 15 added any non-GTA related load growth to that 16 denominator, that is going to affect the overall number 17 you come out with in terms of number of years of excess 18 or underutilized capacity. Correct? 19 MR. ORANS: Yes. If you increase the 20 denominator the whole number declines. 21 MR. BROWN: So if you go back and you look at 22 IPPSO Interrogatory 11 to OPGI, starting at -- really I 23 think it is about question (b) through to question (g), 24 a whole bunch of questions were asked of you whether any 25 portion of this increased capacity investment in the GTA 26 area would be able to service load growth outside of the 27 GTA area. You responded by saying OHNC didn't provide 28 you with that information therefore you can't provide an Les Services StenoTran Services Inc. 613-521-0703 2028 OPG Panel 2, cr-ex (Brown) 1 answer to that. Correct? 2 MR. ORANS: That's correct. Once again I will 3 say I asked OHNC if these investments were primarily 4 related to the load growth in these two areas and they 5 answered yes they were. 6 MR. BROWN: But in order to come up with a 7 real calculation of the number of years of excess or 8 underutilized capacity that exists at the present time 9 in respect of the GTA area, you would have to go back, 10 get all that additional information from OHNC and do a 11 fuller analysis, would you not? 12 MR. ORANS: You said "real". I think this is 13 a real analysis. I think the level of precision is 14 sufficiently accurate to make a decision in this case. 15 It is real. It could be more precise and potentially 16 even more accurate if you had more load and more load 17 growth analysis and more network analysis on the higher 18 end and the lower end, but it may turn out that you had 19 declining loads in outside areas and your denominator 20 would go the other way and your number would be 21 different there. 22 So I don't believe that this is not a real 23 analysis by any means. 24 MR. BROWN: But you don't know what that 25 number would be because you didn't perform the full 26 analysis that would be required to arrive at that number 27 because the information that was provided to you by OHNC 28 was limited in nature, as you have identified in your Les Services StenoTran Services Inc. 613-521-0703 2029 OPG Panel 2, cr-ex (Brown) 1 responses to interrogatories. 2 MR. ORANS: No. I believe the most 3 conservative estimate is reasonable for the capacity 4 added. I also believe that OHNC gave me accurate 5 information that these network-related load growth 6 investments were related to these few areas. 7 MR. BROWN: Can I ask you, Dr. Orans, to turn 8 to another exhibit that was put in. This one was put in 9 through your examination-in-chief. It is Exhibit G10.3. 10 I think it went in yesterday when Mr. Campbell was 11 asking you questions. Do you have that, sir? 12 MR. ORANS: Yes, I have it. 13 MR. BROWN: When I listened to your evidence 14 yesterday in-chief, I understood that you were saying 15 that the information displayed here was information 16 reflective of a typical network transmission system in 17 North America. Did I hear that correctly? 18 MR. ORANS: Yes, you did. 19 MR. BROWN: The flip side of that is that the 20 information that is displayed here is not based on any 21 data relating to OHNC's network. Correct? 22 MR. ORANS: These numbers, 18, 22, 30, are not 23 related to the data I used. 24 MR. BROWN: Not only not related to the data 25 that you used, they are not related in any way to data 26 relating to the OHNC system. 27 MR. ORANS: I believe if you read the top of 28 the exhibit, it says "illustration of impact of embedded Les Services StenoTran Services Inc. 613-521-0703 2030 OPG Panel 2, cr-ex (Brown) 1 generation on transmission network investment". I don't 2 believe I portrayed as exactly GTA for the other area. 3 MR. BROWN: I just want to make sure that when 4 we use this diagram or this exhibit that you have 5 prepared for the purposes of final argument, you would 6 agree with me that this diagram does not purport to 7 present or record any data relating to OHNC's 8 transmission system in the Province of Ontario. 9 Correct? 10 MR. ORANS: That's correct. 11 MR. BROWN: Now, in terms of its 12 representativeness of a typical network transmission 13 system, the quantity that you have is flat lined for 18 14 years. Correct? 15 MR. ORANS: That's correct. 16 MR. BROWN: Would you agree with me that 17 certainly historically investments in transmission 18 systems throughout North America have been characterized 19 by what has been termed lumpiness? 20 MR. ORANS: That's correct. 21 MR. BROWN: So a flat line scenario is not 22 necessarily reflective of what has happened in the past 23 with North American network transmissions. 24 MR. ORANS: No. That's exactly wrong I think 25 again. Flat line -- a very lumpy system with the 26 majority of the years would be flat line and then you 27 would just have a larger lump at B and a larger flat 28 line afterwards. The flat line is characteristic of a Les Services StenoTran Services Inc. 613-521-0703 2031 OPG Panel 2, cr-ex (Brown) 1 large lumpy system. OPG has one of the largest lumpiest 2 systems and, therefore, the most flat line would be 3 expected in an OPG type system -- OHNC. Excuse me. 4 MR. BROWN: Let me take you to point C on the 5 exhibit. I take it your point C in relationship to 6 point B is suggesting that investment in embedded 7 generation would defer network expansion -- sorry, that 8 investment in embedded generation would defer investment 9 in network expansion for four years. That's what you 10 are representing there. 11 MR. ORANS: Yes. That's correct. 12 MR. BROWN: I'm going to suggest to you that 13 investment in embedded generation may well defer 14 investment in network expansion for a period of longer 15 than four years. That is certainly a realistic prospect 16 in respect to some embedded generation projects, is it 17 not? 18 MR. ORANS: Yes. It could defer them longer 19 and shorter and indeed a particular embedded generation 20 project might even eliminate the need for some 21 investment in network expansion. There could be an 22 infinite deferral. 23 MR. BROWN: The exhibit that you provided 24 here, you used I think in part to talk about calculating 25 the net present value of deferred investment in the 26 network system. Correct? 27 MR. ORANS: That's correct. 28 MR. BROWN: However, the exhibit that you put Les Services StenoTran Services Inc. 613-521-0703 2032 OPG Panel 2, cr-ex (Brown) 1 in here doesn't purport to illustrate any numerical 2 magnitude associated with the number of dollars 3 associated with capital expansion or the number of 4 dollars associated with the net present value of the 5 deferral of that expansion, does it? 6 MR. ORANS: No, it does not. 7 MR. BROWN: This is purely qualitative, not 8 quantitative. 9 MR. ORANS: It's just an illustration. Right. 10 MR. BROWN: And certainly you would agree with 11 me that transmission investment can be quite costly. 12 MR. ORANS: Yes, it can. 13 MR. BROWN: So you can be talking about 14 investment numbers of a very large order of magnitude. 15 MR. ORANS: Yes. I would agree the 16 transmission can be very costly. 17 MR. BROWN: And until one does a proper cost 18 analysis of any particular embedded generation project 19 and its effect on future network expansion, one really 20 can't determine in any quantitative sense the savings, 21 the net present value savings that might be associated 22 with that embedded generation and its deferral of the 23 transmission investment, can you? 24 MR. ORANS: I would agree you need the proper 25 cost data to be able to calculate the value. Yes. 26 MR. BROWN: And just on a qualitative basis, 27 if one was to take your point B at T18 and move it in 28 the other direction, move it to let's say T6, you would Les Services StenoTran Services Inc. 613-521-0703 2033 OPG Panel 2, cr-ex (Brown) 1 agree with me that if you moved it in that direction, 2 the value of deferred transmission network expansion 3 would be higher. 4 MR. ORANS: Are you asking if I get a deferral 5 of 18 years -- excuse me, 14 years, is that more than 6 the deferral of four years? 7 MR. BROWN: I guess what I'm trying to 8 suggest, and I am doing it clumsily, as I thought I 9 heard you say yesterday if an embedded generator goes in 10 today and it defers investment by four years, starting 11 18 years down the road, your net value of that, folks, 12 you are really looking at a fairly small number. I 13 think that was the thrust of your evidence. 14 MR. ORANS: Yes, it was, sir. 15 MR. BROWN: And all I'm suggesting to you is 16 that if you look at an investment in an embedded 17 generation today and what it really happens to do means 18 that in year T6 there is a network expansion and what 19 not. We could be looking at a higher number, a higher 20 net present value. 21 MR. ORANS: Yes. The further out the 22 investment, which was point B, is, the lower the number. 23 The closer in it is, and you gave me T6 which is closer, 24 the higher the number. 25 MR. BROWN: And then, finally, you would agree 26 with me that what you are illustration shows here is 27 only one part of the picture because the illustration 28 does not show the overall impact of the embedded Les Services StenoTran Services Inc. 613-521-0703 2034 OPG Panel 2, cr-ex (Brown) 1 generation investment on commodity prices. It simply 2 purports to show qualitatively the impact of investment 3 in embedded generation on the deferral of transmission 4 network investment costs. 5 MR. ORANS: Yes, and not looking at all at the 6 commodity price. I would agree with you. 7 MR. BROWN: So if someone was to try to take a 8 big picture look at the impact of embedded generation, 9 one would have to look not only on the value of deferral 10 of embedded generation or the value on the deferral in 11 terms of investment in the network system, one would 12 have to take a look at the impact of embedded generation 13 on the commodity prices in order to come up with the big 14 picture impact. Do you agree with that? 15 MR. ORANS: Can you define big picture for me? 16 From whose perspective are you looking at this? That 17 will help me. 18 MR. BROWN: From the perspective of the 19 taxpayers and the electricity users and the Ontario 20 economy. For any user of electricity in Ontario, for 21 them to determine whether or not investment in embedded 22 generation is going to be a better thing for them or a 23 worse thing for them, fine, you take a look at the 24 impacts that it has on transmission, cost shifting and 25 perhaps the deferral of investment, but you have also 26 got to look at the other side of the ledger, which is 27 the impact it is going to have on commodity prices. 28 Correct? Les Services StenoTran Services Inc. 613-521-0703 2035 OPG Panel 2, cr-ex (Brown) 1 MR. ORANS: For the purpose of setting the 2 transmission revenue requirement and establishing the 3 transmission rate design and billing determinant, I 4 don't believe that considering the energy price is 5 relevant. I think Mr. Boland responded yesterday to a 6 question very similar to that. 7 MR. BROWN: On that point, in terms of putting 8 together your opinion and the assessments that are 9 contained in your opinion, Dr. Orans, did you take into 10 account any of the factors that are set out in sections 11 1 of the Electricity Act 1998 or the Ontario Energy 12 Board Act 1998 in terms of what the big picture is? 13 MR. ORANS: Yes. 14 MR. BROWN: Did you look at all of them? 15 MR. ORANS: I have read through them before 16 and I believe, and this gets to level playing field for 17 generation. I don't believe it's in the interest of 18 Ontario taxpayers or ratepayers or transmission 19 customers to subsidize embedded generators relative to 20 any merchant generator, whether it be an OPGI merchant 21 generator or a third party merchant generator. 22 MR. BROWN: And if that investment results in 23 a significant decrease in the commodity cost to Ontario 24 electricity consumers, would that still be your answer? 25 MR. ORANS: If that decrease is reflective of 26 a subsidy and not an inherent advantage in that 27 generation costs, then all you are doing is creating a 28 distortion in the market. A distortion in the market Les Services StenoTran Services Inc. 613-521-0703 2036 OPG Panel 2, cr-ex (Brown) 1 may create a temporary decrease in prices, it may not, 2 but in the long run it is certainly not going to create 3 stability. 4 MR. BROWN: I would take it -- 5 MR. ORANS: Excuse me. I will refer you to 6 the white paper from the government that dealt with this 7 issue on page 13, and I will just read one paragraph 8 that deals precisely with the issue that you are 9 raising. To quote on page 13: 10 "An important objective of reform is to 11 ensure that new supply decisions -- 12 including replacement supply decisions, 13 made over the 1998 to 2000 period -- are 14 made on businesslike grounds, and are 15 subject to normal market tests. A 16 competitive market will impose more 17 discipline on investment decisions and 18 will help the industry avoid both the 19 overbuilding and asset impairment that 20 occurred in the past." 21 So, clearly, the notion of subsidizing 22 generation and ultimately leading to overbuilding is not 23 envisioned and is not considered a good thing in this 24 restructuring that we are going through for our 25 electricity industry in Ontario. 26 MR. BROWN: I take it we won't know how much 27 energy prices will come down until all of those 28 competitive generation projects go in? Les Services StenoTran Services Inc. 613-521-0703 2037 OPG Panel 2, cr-ex (Brown) 1 MR. BOLAND: I don't know what's going to 2 happen to future commodity prices, if that's what you 3 are asking. 4 MR. BROWN: Thank you, gentlemen. Those are 5 my questions. 6 I apologize, Dr. Higgin, I have gone much 7 further than I estimated. 8 THE PRESIDING MEMBER: Thank you, Mr. Brown. 9 We will take the first or our two afternoon 10 breaks. We will have to keep them short, so come back 11 at 20 minutes to three, please. Thank you. 12 --- Upon recessing at 1425 13 --- Upon resuming at 1440 14 THE PRESIDING MEMBER: Just to tell everybody 15 what the plan is generally. We will go to the second 16 break, about an hour and a half, then we will probably 17 have to, if we are not completed, to stand these 18 gentlemen down and bring the AMPCO panel up after that 19 break. That's the plan. 20 MR. MATTSON: Dr. Higgin, I should note that I 21 have to be in trial tomorrow in Ottawa and so I will be 22 leaving this afternoon and I have to finish the 23 questions with this panel. Hopefully I will get to. I 24 don't have any questions for the AMPCO panel this 25 afternoon. 26 THE PRESIDING MEMBER: Then, in terms of 27 order, while I am looking at you, are you willing to let 28 Mr. Mattson go or do you have another commitment? Les Services StenoTran Services Inc. 613-521-0703 2038 AMPCO PANEL 2 1 MR. WARREN: I was actually hoping that Mr. 2 Fisher was going to speak and volunteer for me, sir. 3 THE PRESIDING MEMBER: He will be coming back. 4 I am trying to ask if the two of you will 5 stand by and let Mr. Mattson go. I am sorry, I didn't 6 make that clear. 7 MR. FISHER: Pardon me, Mr. Chair. 8 MR. WARREN: I think we are going to get to 9 Mr. Mattson anyway, sir. I have only about 20 minutes? 10 MR. FISHER: We have only five minutes. 11 THE PRESIDING MEMBER: All right. We will get 12 to you then. 13 Mr. Fisher, do you want to go first? 14 MR. FISHER: Mr. Snelson is going to ask a 15 couple of questions of these witness. Thank you. 16 MR. SNELSON: We have shortened this down. We 17 have avoided any questions -- 18 THE PRESIDING MEMBER: Are you still sworn in, 19 Mr. Snelson? 20 MR. SNELSON: I realize, but I think I am 21 asking questions at the moment rather than answering 22 them. The questions are not evidence, but hopefully the 23 answers are. 24 CROSS-EXAMINATION 25 MR. SNELSON: I have one line of questions 26 which relates to Exhibit G10.2, which I think probably 27 Mr. Boland would want to answer and that is the exhibit 28 that was used yesterday in the presentation on the Les Services StenoTran Services Inc. 613-521-0703 2039 OPG PANEL 1, cr-ex (Snelson) 1 effects of export charges, EWT charges. Have you got 2 that in front of you? 3 MR. BOLAND: I have it. 4 MR. SNELSON: When you introduced this 5 exhibit, I believe you indicated a number of times that 6 there are a number of assumptions in this exhibit that 7 this is more or less a perfect market. Is that correct? 8 MR. BOLAND: A competitive market, yes. 9 MR. SNELSON: And so one of the assumptions 10 implicit is that nobody in this market has market power. 11 Is that correct? 12 MR. BOLAND: No. I think let's be realistic. 13 I think we recognize that there is at least one party 14 that does have market power. I think the issue is what 15 has been done about that party with market power and I 16 can elaborate on that to some degree, if you want me to 17 get into it or perhaps you want to take me there? 18 MR. SNELSON: I will take you there and I have 19 just got a number of quick points, I hope, that we can 20 make in this regard. 21 That is that in this particular example, and I 22 am looking at Case 1A which is the first example in the 23 handout. 24 MR. BOLAND: Yes. 25 MR. SNELSON: The market clearing price in 26 Ontario is $30 a megawatt hour? 27 MR. BOLAND: Correct. 28 MR. SNELSON: Would I be right that under the Les Services StenoTran Services Inc. 613-521-0703 2040 OPG PANEL 1, cr-ex (Snelson) 1 Market Power Mitigation Agreement, which I believe is 2 the document you would be referring to as to how market 3 power is being dealt with in Ontario, would I be 4 right -- 5 MR. BOLAND: Among many other things, yes. 6 MR. SNELSON: Would I be right that under the 7 Market Power Mitigation Agreement OPGI is allowed to use 8 its market power in Ontario to bid up the Ontario price 9 to $38 a megawatt hour on average over the year? 10 MR. BOLAND: That's correct. 11 MR. SNELSON: Now, if we were to simplify your 12 example a little more and to assume that New York was 13 the only market to which Ontario was connected, would I 14 be right that in this very simple case OPGI could in 15 theory use its market power to bid the price up to $50 a 16 megawatt hour? 17 MR. BOLAND: In theory we could bid the price 18 up to $50 per hour. Let me just outline what I would 19 see as some of the consequences of doing that if the 20 true supply/demand circumstances in Ontario for this 21 hour were $30. 22 That would somehow imply that we would take 23 generating stations out of service that could be 24 servicing or somehow imply that we would be bidding in 25 at extremely high or in a manner different than they 26 would normally be bid. 27 I would put back to you that those kinds of 28 activities would be problematic from OPG's perspectives Les Services StenoTran Services Inc. 613-521-0703 2041 OPG PANEL 1, cr-ex (Snelson) 1 for a number of reasons. First and foremost, there will 2 be a market surveillance panel in the province which is 3 tasked specifically with this issue of dealing with 4 market power and is quite aware of the fact -- of the 5 market power mitigation agreement and the things that 6 OPG can and cannot do. That would be the primary thing. 7 I would also very much indicate that under the 8 market power mitigation agreement if we raised that 9 market clearing price to $50, 90 per cent of the 10 difference between $50 and $38, based on that defined 11 quantity in the market power mitigation agreement, would 12 be rebated back to customers. So there would again be 13 very limited incentive from a financial perspective to 14 do that. 15 Finally, from the perspective of continuing to 16 be a government owned entity, I think the potential 17 embarrassment to OPG in terms of behaving in the manner 18 you are suggesting I think would be problematic for OPG 19 management. 20 I know I already said finally, but I just 21 thought of one more finally. I would refer back to Mr. 22 Osborne's comments of yesterday about the speed with 23 which OPG is voluntarily attempting to meet its 24 decontrol objectives. Sorry for going on. 25 MR. SNELSON: I understand and that has 26 perhaps been helpful to the Board. I hope it has. 27 Do you agree that, strictly speaking, under 28 the market power mitigation agreement the only recourse Les Services StenoTran Services Inc. 613-521-0703 2042 OPG PANEL 1, cr-ex (Snelson) 1 against OPGI if it does push the price above $38 a 2 megawatt hour, and it may go to $50 or it may stop at 3 $42 or whatever, that the only recourse allowed for in 4 the market power mitigation agreement is the rebate 5 mechanism which you indicate will return to Ontario 6 customers 90 per cent of the extra revenue? 7 We could debate whether it is 90 per cent or 8 80 per cent, but I agree it is a large proportion of the 9 extra revenue, but it doesn't require you to return all 10 the extra revenue? 11 MR. BOLAND: Strictly speaking, the language 12 in that document, the only economic recourse would be to 13 rebate the rebate if the price ended up higher than $38. 14 That's consistent with my recollection of that 15 agreement, yes. 16 MR. SNELSON: And do you also agree that in 17 the market power mitigation agreement there is a clause 18 which requires the Market Surveillance Committee to take 19 account of this section of the Market Power Mitigation 20 Agreement in considering the issues of market power 21 within the market? 22 MR. BOLAND: Yes. 23 MR. SNELSON: My last question is, coming back 24 to your Case 1A example, then if there is market power 25 in the market then OPGI can increase the natural price 26 in Ontario, increase the price in Ontario above the 27 natural price to $38 or possibly higher, and then in 28 that circumstance the congestion revenues in this Les Services StenoTran Services Inc. 613-521-0703 2043 OPG PANEL 1, cr-ex (Snelson) 1 example could be significantly less than the 2 $19 indicated? 3 MR. BOLAND: If the market clearing price was 4 $38, for whatever reason, and the New York market was 5 still at $50, then yes, the congestion amount would be 6 reduced. 7 MR. SNELSON: Thank you. Those are my 8 questions. 9 THE PRESIDING MEMBER: Thank you, Mr. Snelson. 10 Mr. Warren, please? 11 MR. WARREN: Thank you, Mr. Chairman. 12 CROSS-EXAMINATION 13 MR. WARREN: Panel, my name is Robert Warren 14 and I appear as counsel for the Consumers Association of 15 Canada. Our client is still wrestling where it wants to 16 come out on the great religious debate of net versus 17 gross load billing and so my questions will focus on 18 that issue. 19 What I would like to do, if I can, panel, is 20 try to get you to join issue on what I take to be the 21 major points opposite gross load billing, that is the 22 major points in favour of net load billing. So that's 23 where I'm going to go. 24 In doing so I am going to deal principally 25 with the positions which have been articulated by IPPSO, 26 but there are clearly others who are in support of that 27 position. 28 The first proposition I would like to put to Les Services StenoTran Services Inc. 613-521-0703 2044 OPG PANEL 2, cr-ex (Warren) 1 you is the proposition which is articulated by IPPSO 2 principally, and that is that a gross load billing 3 regime will have the result that small distributor 4 generation projects in the 50 to 20 megawatt range will 5 not attract investment. 6 First of all, do you agree with that 7 proposition and, if so, is it a concern? 8 MR. BOLAND: No, I don't agree with that 9 proposition. I think the evidence on this -- we have 10 kind of gone over it in terms of getting into all the 11 reasons again behind the debate, but I'm certainly 12 prepared to do that. 13 I think the gross load billing sends the 14 proper economic signal and it would be the net load 15 billing which would avoid responsibility for sunk costs 16 and create a distortion in terms of what the generator 17 would see. 18 MR. WARREN: The flip side of the proposition, 19 as I take it, if I understand it, is that a net load 20 billing regime would have the result of attracting 21 investment for small embedded generation projects. Do 22 you agree with that proposition? 23 MR. BOLAND: On a relative scale, yes, it 24 would attract it, and it would also attract even 25 potentially investment that would be uneconomic because 26 that embedded generation would be able to avoid a 27 transmission charge so the customer making that decision 28 would see a reduction in costs and he would take that Les Services StenoTran Services Inc. 613-521-0703 2045 OPG PANEL 2, cr-ex (Warren) 1 into account in making his decision. 2 But society would not see that same reduction 3 in costs and so what you might have under a net load 4 billing regime is a generator that, let's say, can run 5 at $33 appearing economic from the perspective of that 6 customer, because in running that $33 generator he could 7 avoid, let's say, a $5.00 transmission charge. So that 8 would have the appearance, from his perspective, of 9 being a $28 charge. 10 There may be another generator that could run 11 at $30 and that would be, from society's perspective, 12 the better generator to run. But because of the 13 distortion that net load billing would create, the 14 individual making that decision about the embedded 15 generator would not make the correct decision. 16 MR. WARREN: IPPSO's evidence characterizes 17 the proposal for net load billing as -- the language is 18 "an arbitrary tax on investment in small distributor 19 generation". Do you agree with that proposition? 20 MR. BOLAND: Could you repeat it? 21 MR. WARREN: They are characterizing -- IPPSO 22 in its evidence is characterizing the proposal for gross 23 load billing -- I'm sorry, my mistake. 24 Gross load billing -- I'm crossing the 25 religious lines -- gross load billing as "an arbitrary 26 tax". Do you agree with that? 27 What I'm trying to get at -- 28 MR. BOLAND: Am I agreeing with their Les Services StenoTran Services Inc. 613-521-0703 2046 OPG PANEL 2, cr-ex (Warren) 1 characterization or am I agreeing that it is an 2 arbitrary tax? 3 MR. WARREN: No, do you agree with their 4 characterization? 5 MR. BOLAND: I don't recall them using the 6 word "tax" offhand, but -- 7 MR. ORANS: I could speak -- I do remember 8 that response. 9 To me, the only way to create the level 10 playing field in generation between merchant plant, 11 large, small, green, all kinds of generators, is to make 12 the customers that are buying from those generators all 13 pay the same charge. 14 So if you take customers that are buying from 15 merchant plants and who will pay, in effect, a load 16 ratio share, their fair share of the embedded costs, and 17 then you compete those against generators, other 18 generators embedded or not -- but in this case the 19 proposal is for embedded generators -- to sell to 20 customers who don't pay a portion of the transmission 21 revenue requirement, that is not a level playing field. 22 That is as far away from an arbitrary tack that I could 23 think of. 24 MR. WARREN: I would like to put to you, then, 25 four specific components of Mr. Fagan's evidence. I 26 don't know whether you need to turn it up, but if you do 27 I will give you the page reference. 28 The first reference is on page 6 of Les Services StenoTran Services Inc. 613-521-0703 2047 OPG PANEL 2, cr-ex (Warren) 1 Mr. Fagan's evidence in which he makes the following 2 proposition, and it is a proposition which is of 3 considerable concern to the constituency that my client 4 represents. 5 He says, under heading No. 3: 6 "Consumer interests are threatened by the 7 failure of OHNC's rate design to 8 establish an efficient transmission 9 pricing regime and to encourage 10 generation competition, both of which are 11 required for a competitive market to 12 result in lower consumer prices. 13 Consumer choice is skewed by a gross load 14 billing approach that discourages local 15 generation sources in favour of more 16 remote or network connected sources." 17 (As read) 18 Do you see that observation? 19 MR. BOLAND: Yes, I see it. 20 MR. WARREN: Do you see that consumer 21 interests are threatened under the approach proposed 22 by OHNC? 23 MR. BOLAND: Yes, but probably from the exact 24 opposite perspective of the author of this report. 25 The OHNC proposal was a 50 per cent compromise 26 and so I would say that it is allowing the embedded 27 generator, the customer who is installing embedded 28 generation, to avoid 50 per cent of the costs that I Les Services StenoTran Services Inc. 613-521-0703 2048 OPG PANEL 2, cr-ex (Warren) 1 would suggest he is responsible for on a going-forward 2 basis. 3 So I would agree that there is that problem 4 with the OHNC proposal. 5 MR. WARREN: The OPG suggested an alternative 6 approach. What is the relative position of consumers, 7 particularly small residential consumers in that 8 scenario. Are they better or worse off? 9 MR. BOLAND: I think the OPG proposal is 10 designed to make the customers better off because it 11 doesn't have the same degree of cost shifting associated 12 with it that the OHNC proposal does. It recognizes over 13 time that eventually that capacity will be able to be 14 reused but not immediately. 15 So there is not an immediate value to the 16 system or to the transmission customer in Ontario from 17 that embedded generator, but eventually over time we 18 will come to that point. 19 MR. ORANS: I would like to also add, OPG's 20 and OHNC's proposal have an exception for below 21 1 megawatt. I don't see any residential customer 22 putting in a generator, an embedded generator above 23 1 megawatt unless it is a very large set of residential 24 customers all grouped together. 25 So from my point of view their choice is 26 limitless here. We are not limiting their choice. What 27 the proposal does, it seeks to protect them from shifted 28 revenues due to larger customers having a potential to Les Services StenoTran Services Inc. 613-521-0703 2049 OPG PANEL 2, cr-ex (Warren) 1 avoid some of their fair share of costs and put it on 2 the residential class. 3 MR. WARREN: Well, thank you for that, because 4 I want to turn, then, to this question of cost shifting. 5 Because if I look at, for example, page 14 of 6 the Fagan evidence, about a quarter of the way down the 7 page in the fourth bullet item is the assertion: 8 "There is no potential for network costs 9 to be unreasonably shifted since all 10 users pay based on demand." (As read) 11 Then a little further down after the next 12 bullet he says: 13 "The presence of a connection and 14 transformation service pool paid for by 15 all service users regardless of the 16 embedded generation mitigates concern 17 that net load billing shifts costs." 18 (As read) 19 Now, I read that as taking issue with the 20 fundamental point that there is a shifting of costs. 21 Do you agree or disagree with this 22 proposition? 23 --- Pause 24 MR. BOLAND: I mean, I certainly disagree with 25 the position that with net load billing there is not an 26 unreasonable shifting of costs. It is a very reasonable 27 and very large shifting of costs. I think estimates of 28 that had been provided earlier at the interrogatory Les Services StenoTran Services Inc. 613-521-0703 2050 OPG PANEL 2, cr-ex (Warren) 1 phase of just how big that potential cost shifting is. 2 MR. ORANS: I think if you want to add to 3 that, even in Mr. Fagan's own corrected table which he 4 handed out today, it indicates under the two options 5 described here that over -- and this is the whole series 6 of assumptions that I don't want to go through -- but 7 even in his own evidence, as corrected today, it 8 indicates that the full net load billing proposal that 9 he is proposing and supporting, produces rates that are 10 25 cents per kilowatt month larger than what is called 11 the "modified gross load billing proposal" of OHNC in 12 the year 2008 with a medium load growth forecast of 13 embedded generation. 14 So even in his own evidence it contradicts 15 this statement. 16 MR. WARREN: On page 17 of his evidence, and 17 this is the -- 18 MR. LYLE: Just Dr. Orans, just before we 19 proceed, I believe you referred to the document which 20 hasn't been entered as an exhibit? 21 MR. ORANS: Yes. 22 MR. LYLE: So perhaps we could make that an 23 exhibit, make that Exhibit G11.1. I also provide copies 24 to the Board. 25 EXHIBIT NO. G11.1: Revised Table in 26 Mr. Fagan's Evidence 27 MR. WARREN: I take it, Dr. Orans, if I 28 understand your answer is, or panel, if I understand Les Services StenoTran Services Inc. 613-521-0703 2051 OPG PANEL 2, cr-ex (Warren) 1 your answer, is that there is a cost shift and you 2 believe the cost shift to be unreasonable? 3 MR. BOLAND: Yes, and that is primarily -- the 4 primary focus behind this issue is what is the 5 appropriate responsibility for the cost that could 6 potentially be shifted? Does it make sense for the 7 customer installing the embedded generation to be able 8 to walk away from the costs associated with transmission 9 service and have those costs ultimately then borne 10 through higher transmission rates by all the rest of the 11 transmission customers within the province? 12 MR. WARREN: On page 17 of the prefiled 13 evidence, the statement appears at the second full 14 paragraph from the top of the page: 15 "Compared to a gross load billing regime, 16 net load billing will lead to relative 17 downward pressure on energy commodity 18 prices by providing greater incentives to 19 install embedded generation." 20 Do you agree with that proposition? 21 MR. BOLAND: I think we talked about that 22 earlier today and I think that is a potential 23 possibility. There is a "can't" argument as well, but 24 there is a potential possibility that could happen at 25 least in the short term. But I think if we are creating 26 distortion that will lead to an over supply of 27 generation in general, that uncertainty will ultimately 28 be reflected through a very disruptive market. Les Services StenoTran Services Inc. 613-521-0703 2052 OPG PANEL 2, cr-ex (Warren) 1 Ultimately, we also get back to the case that 2 I referred to earlier about the $33 generator being able 3 to avoid a transmission charge versus a $30 generator 4 that is unable to do so, leading to the economic 5 consequence that $33 generator will run instead of the 6 $30 generator, which is disadvantageous. 7 MR. WARREN: My final question, panel, is with 8 respect to one of the options that was considered by 9 OHNC, which is a five-year phase out as opposed to a 10 ten-year phase out. Did OPGI consider using a five-year 11 phase out as opposed to a ten? 12 MR. BOLAND: Well, what we did was, based on 13 the evidence and the work of Dr. Orans, we tried to find 14 out what was the appropriate time period in Ontario, 15 what made sense based on the over capacity situation 16 relative to the demand and the growth in that demand, 17 what made sense. 18 The evidence that we had, and is in the 19 calculations that Dr. Orans did, were that looked like 20 it was in the range of 30 to 40 years for the Toronto 21 area and for eastern Ontario greater than a 100 years. 22 So we look at that number and we try to come up with a 23 reasonable proposal that would be accepted from both 24 sides of the debate on this. We, quite honestly, could 25 find absolutely no justification for going below ten. 26 Ten was what we saw as kind of the bare minimum of what 27 you could justify and still stick with the principle of 28 what you are trying to accomplish. Les Services StenoTran Services Inc. 613-521-0703 2053 OPG PANEL 2, cr-ex (Warren) 1 MR. WARREN: My final question is one that I 2 put to Mr. Osborne yesterday and I would like to put the 3 same question to you. A concern has been expressed by 4 those who support net load billing and oppose gross load 5 billing that a gross load billing regime will have an 6 adverse impact on the development of green energy 7 alternatives. 8 Do you agree with that proposition? 9 MR. BOLAND: No, I don't agree with that. If 10 we give a subsidy to embedded generation through 11 allowing them to avoid the transmission charge -- sorry, 12 I have lost my train -- can you give me the question 13 again? 14 MR. WARREN: The question, the concern as I 15 understand it, is that a gross load billing regime will 16 result in there being less if not no investment in green 17 energy alternatives. 18 I was asking if you agree with that 19 proposition? 20 MR. BOLAND: No. Gross load billing creates a 21 level playing field for all generations, so it does not 22 specifically advantage or disadvantage any green 23 generation. 24 MR. WARREN: Those are my questions. 25 Thank you, Mr. Chair. 26 THE PRESIDING MEMBER: Thank you, Mr. Warren. 27 We will go to Mr. Mattson now and come back to 28 Mr. Budd. Les Services StenoTran Services Inc. 613-521-0703 2054 OPG PANEL 2, cr-ex (Warren) 1 CROSS-EXAMINATION 2 MR. MATTSON: Thank you, Dr. Higgin. 3 Panel, my name is Mark Mattson. I am counsel 4 for Energy Probe. 5 Mr. Boland, yesterday you indicated that you 6 were a member of the market design committee? 7 MR. BOLAND: That's correct. 8 MR. MATTSON: Am I correct in that your 9 company's position in these hearings most closely 10 represent the MDC's final recommendations? 11 MR. BOLAND: Sorry. I didn't understand that. 12 MR. MATTSON: Your position here, your 13 position before the Board in these hearings, that 14 position most closely of all the other parties reflects 15 the MDC's final recommendations? 16 MR. BOLAND: I don't know that I have compared 17 ours to every -- on all the issues. I mean, even 18 sticking strictly to the two issues that we have 19 particularly submitted evidence on, I don't -- I haven't 20 compared that line by line with all of the other 21 submissions. 22 MR. MATTSON: But where does Ontario Power 23 Generation's position differ from what the market design 24 committee recommended? 25 MR. BOLAND: Well, on the issue of net versus 26 growth, the market design committee recommended a pure 27 gross method recognizing that was creating the best 28 price signals going forward and would create a Les Services StenoTran Services Inc. 613-521-0703 2055 AMPCO PANEL 2, cr-ex (Mattson) 1 competitive and viable market without any cross 2 subsidies. We have in essence stayed with that, but 3 recognized that, as Dr. Orans has testified, over time 4 there is some value associated with embedded generation. 5 Based on the situation we have in Toronto it will take 6 many years for that to happen, but that benefit will 7 come over time. 8 So we have modified the MDC position to phase 9 in on a project-by-project basis from gross to net 10 billing, recognizing the responsibility that load had 11 for the transmission costs that had been incurred to 12 serve before the embedded generation was installed. 13 On the export and wheeling-through we have 14 essentially adopted -- at a high level we have 15 certainly -- we have adopted the market design committee 16 recommendation. The market design committee 17 recommendation, again, recognized that the most 18 efficient outcome for the province in creating a 19 competitive environment would be one in which there was 20 real competition over the interties, and that the value 21 of congestion would go not to the market participants 22 and the generators, but it would go back to the 23 transmission customers in Ontario. 24 Now, we have modified that a little bit, in 25 recognition of what would happen in all the 26 stakeholdering sessions where a number of the other 27 parties expressed a concern that didn't give them some 28 kind of a guarantee of how big that contribution might Les Services StenoTran Services Inc. 613-521-0703 2056 AMPCO PANEL 2, cr-ex (Mattson) 1 be. So we have added the notion of a $1 minimum, that 2 if the congestion doesn't turn out to be that high we 3 would top it up. 4 MR. MATTSON: So Mr. Boland, on both, in terms 5 of OPGI's position on net versus gross and the 6 export/wheeling issue, you have modified the MDC's 7 position somewhat in light of the stakeholder 8 consultation process. Is that fair? 9 MR. BOLAND: That's fair. Certainly, with 10 respect to export and wheeling-through, in terms of pure 11 theory we would not have modified our position at all if 12 we hadn't heard from some concerned stakeholders. On 13 the net versus gross it goes beyond just hearing the 14 stakeholders. 15 Our own thinking on this as it evolved and we 16 started to recognize -- and we had the benefit of the 17 work of Dr. Orans in terms of the long-term benefit -- 18 that it didn't make sense from our opinion to have gross 19 load billing forever and so I think we came to that 20 conclusion on our own. 21 The analysis would have suggested, again, 22 sticking to our principles, that that number might have 23 been 30 or 40 or 50 years for a phase out, and we 24 modified that period of time to reflect what we were 25 hearing from those favouring the net position. 26 MR. MATTSON: Why, Mr. Boland, isn't there a 27 market design position before this Board? As a member 28 of that board, was there a decision made just to put Les Services StenoTran Services Inc. 613-521-0703 2057 AMPCO PANEL 2, cr-ex (Mattson) 1 that on the table for the consultative process and not 2 go forward as an intervenor in itself? What happened to 3 that position? Why isn't it here before the Board 4 formerly? 5 MR. BOLAND: I think it is just a simple 6 reflection of the fact that the Market Design Committee 7 no longer exists. It was in place for roughly a 8 13-month period through 1998 and into early 1999. 9 MR. MATTSON: How many people were on that 10 committee? 11 MR. BOLAND: The official voting stakeholder 12 members, there were 14. 13 MR. MATTSON: Were many of the issues that are 14 being debated here before the Board debated by the 15 Market Design Committee before coming up with its final 16 recommendation? 17 MR. BOLAND: Very much so. 18 MR. MATTSON: Is there any reason why -- I 19 mean, is it just a coincidence, is there a good reason 20 why OPGI's position at this hearing is very closely 21 reflective of what the Market Design Committee came up 22 with? Why is that? Is there a reason for that or is 23 that just a coincidence? 24 MR. BOLAND: I think, frankly, the Market 25 Design Committee was a very successful process in terms 26 of moving the introduction of a -- moving Ontario very 27 much towards a competitive marketplace and one in which 28 ultimately would send the proper price signals and Les Services StenoTran Services Inc. 613-521-0703 2058 AMPCO PANEL 2, cr-ex (Mattson) 1 encourage efficiency. I think certainly OPG is very 2 supportive of introducing competition and wants to see 3 it done the right way and wants to see a level playing 4 field. I think those are the same kind of principles 5 that the various stakeholders brought and really brought 6 to the kinds of decisions and discussions that they had 7 when they were on the MDC. 8 MR. MATTSON: Did OPGI go into the Market 9 Design Committee consultative process with a position or 10 was your position formed during the course of that 11 13 months? 12 MR. BOLAND: There would have been issues that 13 we would have thought about at some level of detail 14 beforehand but, quite frankly, OPGI had not thought 15 through those issues ahead of time at any level of 16 detail. It was really the Market Design Committee that 17 was driving the process I think, not just for OPG but 18 for all of the market participants and potential market 19 participants in Ontario. 20 MR. MATTSON: Thank you. 21 Mr. Boland, I'm just going to another issue 22 but it is slightly connected. 23 I recognize you from past hearings and your 24 name being on certain evidentiary matters that have come 25 forward in past hearings and I need to ask you a number 26 of questions with respect to three areas. 27 First of all, the Association of Major Power 28 Consumers have a proposal for some form of relief with Les Services StenoTran Services Inc. 613-521-0703 2059 AMPCO PANEL 2, cr-ex (Mattson) 1 respect to the surplus power rate. Are you familiar 2 with that proposal? 3 MR. BOLAND: I'm generally familiar with the 4 proposal. 5 MR. MATTSON: And you were with the old 6 Ontario Hydro when many of those contracts were signed, 7 and I take it at the time your company saw a good reason 8 for signing those contracts? 9 MR. BOLAND: I was with Ontario Hydro at the 10 time those contracts would have been signed. 11 MR. MATTSON: Your company at the time -- I 12 believe, I'm not sure, I thought I had cross-examined 13 you on some of these before -- certainly your company 14 saw a good reason for signing those or putting those 15 rate options forward at the time? 16 MR. BOLAND: That's fair. 17 MR. MATTSON: Now that it is no longer up to 18 your company to deal in that bilateral or unilateral 19 spirit with respect to those rates, why should the Board 20 not give any relief to those customers now in this new 21 market? 22 MR. BOLAND: I think, quite rightly, that is 23 an issue for the Board to decide and certainly that is 24 why the issues, I think quite appropriately, are being 25 brought before the Board in terms of what is an 26 appropriate regulatory mechanism to deal with this as a 27 transitional issue, much as we have a very appropriate 28 issue to put before the Board in terms of what is a fair Les Services StenoTran Services Inc. 613-521-0703 2060 AMPCO PANEL 2, cr-ex (Mattson) 1 way to deal with the embedded generation issue on net 2 versus gross? 3 MR. MATTSON: Is your company making any -- I 4 think, in fact, Mr. Osborne said your company wasn't 5 giving the Board any advice on these issues. Is that 6 fair? 7 MR. BOLAND: That's fair. 8 MR. MATTSON: So you are not prepared at this 9 point to give the Board any advice on what they should 10 do with respect to the surplus power rates, load 11 retention rates that are being requested here? 12 MR. BOLAND: No. We are taking no opinion on 13 that issue and I think, as Mr. Osborne talked about 14 yesterday, it basically reflects the fact that we 15 continue to be owned by the provincial government and to 16 the extent that they desire to direct us to behave in a 17 certain way, then we would be respectful of that. But, 18 beyond that, we would treat all customers on a fair 19 competitive basis. 20 MR. MATTSON: Your company also was -- again, 21 without regulatory scrutiny, you entered into many 22 long-term fixed price contracts with IPPSO members in 23 the past. Is that fair? 24 MR. BOLAND: NUG contracts? 25 MR. MATTSON: Yes. 26 MR. BOLAND: Yes. 27 MR. MATTSON: And those contracts your company 28 had to take whether or not you had a surplus or not, and Les Services StenoTran Services Inc. 613-521-0703 2061 AMPCO PANEL 2, cr-ex (Mattson) 1 in fact you had to take that power when you had a 2 surplus. Is that fair? 3 MR. BOLAND: Once the contracts were entered 4 into my -- I don't have a complete understanding of the 5 NUG contracts, but essentially that comports with my 6 understanding. 7 MR. MATTSON: Certainly now at least your 8 evidence at this hearing is that you do not think that 9 there should be any special favours, that this Board 10 should not be giving any special leg up or favours or 11 distort the market with respect to helping IPPSO members 12 initiate generation projects, embedded generation in the 13 province. Is that fair? 14 MR. BOLAND: We are looking for a level 15 playing field. I think, at least in theory, in the old 16 regulatory environment that was what was envisioned with 17 the old NUG contracts, they were based on a concept of 18 avoided cost and that was the theory behind it. So if 19 the NUG contracts were based on an avoided cost, to put 20 it otherwise would have cost, had Ontario Hydro built 21 the generation. That also was done to achieve a fair 22 outcome under that previous regime. 23 MR. MATTSON: I'm not sure where you are going 24 with that. 25 Finally, you said yesterday, Mr. Boland, and 26 I'm just paraphrasing, but it was almost inconceivable 27 to you the government would intend to incent 28 environmental efficiency by distorting the transmission Les Services StenoTran Services Inc. 613-521-0703 2062 AMPCO PANEL 2, cr-ex (Mattson) 1 market when it could do it much easier through direct 2 action. Do you recall that? 3 MR. BOLAND: Yes, I do. 4 MR. MATTSON: You also recognize that your old 5 company entered into many DSM programs, free light 6 bulbs, free showerheads, and used electricity rates to 7 pay for those programs. Do you recall those programs? 8 MR. BOLAND: I recall the programs. 9 MR. MATTSON: Why should the Board now have 10 any difficulty or act any differently now that the 11 market is changing and in the restructuring process? 12 MR. BOLAND: I think there is a large number 13 of reasons. 14 I think the government has a very direct 15 vehicle through which to make directions associated with 16 energy efficiency or environmental issues. I think more 17 fundamentally we are creating a market here and that 18 market force will also allow customers to make specific 19 decisions. I think that is one of the advantages that 20 we are going to get out of creating a market is that 21 customers who want to choose particular types of 22 green-sourced energy will now have that option. 23 Just on that point, I mean, there is nothing 24 at all that will prevent customers in Ontario from 25 choosing other then the fact that they would have to 26 find suppliers, but there is nothing from customers from 27 actively seeking out suppliers of green energy. Is that 28 fair? Les Services StenoTran Services Inc. 613-521-0703 2063 AMPCO PANEL 2, cr-ex (Mattson) 1 MR. BOLAND: Nothing to prevent them? It is 2 envisioned that there will be nothing to prevent them 3 when the market opens. I think my understanding is that 4 there is a lot of work that will need to take place in 5 terms of green energy verification and processes that 6 will have to be put in place to ensure that that can 7 happen. But in theory I agree that that is where we 8 want to go. 9 MR. MATTSON: But even as Mr. Osborne 10 indicated yesterday, there may be people offering some 11 green energy. I'm not sure of the licensing here put 12 before the Board as to, if there will be any, what is 13 green or not or if the Board wants to do that, but, as 14 Mr. Osborne indicated yesterday, there will be different 15 levels of what is green and what is not green. Is that 16 fair? 17 MR. MATTSON: There will be different levels 18 of what -- 19 MR. BOLAND: Again, subject to whatever 20 decisions we hear from the Board I think there will be 21 different levels or there will be one level. I think 22 there is certainly a need for rules and verification 23 around green claims. 24 MR. MATTSON: And if a customer doesn't want 25 to pay more or pay the same or whatever or purchase 26 green power, then that customer ultimately will be -- 27 that will be that customer's decision in terms of who 28 they purchase electricity from. Is that fair? Les Services StenoTran Services Inc. 613-521-0703 2064 AMPCO PANEL 2, cr-ex (Mattson) 1 MR. BOLAND: Yes. 2 MR. MATTSON: And if the Board, however, put 3 in the transmission rates an incentive for green power 4 that did have some cost implications for all other 5 customers, then in effect, Mr. Boland, the Board would 6 be making the decision for those customers. Is that 7 fair? 8 MR. BOLAND: When you talk about an incentive 9 rate, are you talking about an incentive rate 10 through the-- 11 MR. MATTSON: Transmission. 12 MR. BOLAND: Through transmission. 13 MR. MATTSON: Through transmission. They 14 would be making that decision on behalf of the customer 15 here. Is that correct? 16 MR. BOLAND: Yes. The Board would essentially 17 be making a policy decision and asking that decision to 18 be reflected and it ultimately would be reflected in the 19 prices that customers see. 20 MR. MATTSON: Now, yesterday, Mr. Boland, 21 again -- I think it was from Dr. Higgin, he was asking 22 some questions of Mr. Osborne about -- he raised the 23 issue of who subs the proponent versus the proponent's 24 application which has been testified to and then OPGI's 25 application that you are just one of the many 26 intervenors in this hearing. Is that fair? 27 MR. BOLAND: Yes. 28 MR. MATTSON: OHSC and your company are both, Les Services StenoTran Services Inc. 613-521-0703 2065 AMPCO PANEL 2, cr-ex (Mattson) 1 however, owned by the government. 2 MR. BOLAND: That's correct. 3 MR. MATTSON: And OHSC's revenue requirement 4 has already been approved in this hearing, or this 5 proceeding, has it not? 6 MR. BOLAND: In prior proceedings, I believe. 7 MR. MATTSON: Yes, yes. So in fact the 8 outcome of this hearing really, from a financial point 9 of view, will have a much more negative or positive 10 impact on your company than it would on the proponent as 11 the proponent's rates -- the revenue requirement market, 12 but certainly how these rates are ultimately costed will 13 have a significant impact on your company as it goes 14 forward. 15 MR. BOLAND: I agree. Certainly these issues 16 will have a significant impact on OPG and that's why OPG 17 is very interested in some of the issues with this 18 hearing. I would be hesitant to contrast how we 19 perceive this hearing affects us versus how OHNC might 20 perceive how it affects them. I don't think I could 21 tackle that. 22 MR. MATTSON: But I think Mr. Osborne was 23 clear yesterday in terms of the rates and the cost 24 allocation issues that this Board decides here with 25 respect to transmission tariffs, those issues will very 26 much affect your company negatively or positively or 27 neutrally, but they will very much affect your bottom 28 line, your actual ability to make a profit. Les Services StenoTran Services Inc. 613-521-0703 2066 AMPCO PANEL 2, cr-ex (Mattson) 1 MR. BOLAND: Yes, I agree. These decisions 2 are critical for our company. Absolutely. 3 MR. MATTSON: In fact, your company right now, 4 much as we have heard other evidence at this hearing, 5 your company is doing a great deal of work in terms of 6 trying to put forward offerings to customers. You have 7 got a number of different offerings you are looking at 8 putting forward to customers nobody has seen yet. Is 9 that fair? 10 MR. BOLAND: I'm not really familiar with the 11 status of the work within the marketing department, but 12 I think there was some reference yesterday from Mr. 13 Osborne about work that was going on within the 14 corporation to get ready for the market. 15 MR. MATTSON: And I take it that again that 16 work will be very much impacted and affected by the 17 decision by this Board. 18 MR. BOLAND: Yes. Certainly. 19 MR. MATTSON: So would you agree that your 20 company as well would benefit from some certainty in 21 terms of the rules going forward for implementation? 22 MR. BOLAND: Well, I think we would all 23 benefit from certainty in knowing the rules, but 24 without -- if the rule was bad, we wouldn't necessarily 25 have a net benefit. 26 MR. MATTSON: If the rules do affect your 27 company negatively, how then will that -- how will that 28 ultimately flow through -- Mr. Osborne spoke about it Les Services StenoTran Services Inc. 613-521-0703 2067 AMPCO PANEL 2, cr-ex (Mattson) 1 yesterday a little bit, but how ultimately will it flow 2 through if your company is -- there's a risk here, I 3 take it. Maybe I should put this to you, Mr. Boland. 4 Is there a risk here that your company may not be able 5 to compete in this market? Are you going to be able to 6 stay afloat? 7 MR. BOLAND: I think OPG is definitely 8 prepared to compete in this market and live with 9 whatever decision the Board makes on these opinions. I 10 think that they will have serious financial consequences 11 in the short run and in the long run, depending on the 12 decisions that we hear, but I think we are prepared to 13 compete. 14 MR. MATTSON: Who is at risk for any -- if you 15 are not able to compete, who is at risk for the costs of 16 any sort of failure on the part of your company? 17 MR. BOLAND: Oh, this is very speculative. I 18 suppose with any company you look back, ultimately the 19 owners are at risk and the debtholders to some degree, 20 but ultimately one thinks in terms of a financial 21 structure that the shareholder is ultimately at risk. 22 In that case, this is the Province of Ontario. 23 MR. MATTSON: Mr. Osborne said that the 24 province is no longer guaranteeing your debt. 25 MR. BOLAND: That's correct. 26 MR. MATTSON: So how is the province at risk 27 then? 28 MR. BOLAND: The province is at risk in that Les Services StenoTran Services Inc. 613-521-0703 2068 AMPCO PANEL 2, cr-ex (Mattson) 1 they own -- well, just to give an example. As owner, 2 one of the things -- you know, they own the value of 3 OPG. One of the things OPG has to do is, for example, 4 decontrol. Let's say we have to sell some plant. Some 5 of the decisions that will be made in this hearing will 6 affect the value of that plant. 7 When that plant is sold, those proceeds go 8 back to OPG and indirectly to the government as the 9 owner, so that ultimately is -- I mean that's a very 10 real consequence. 11 MR. MATTSON: We are dealing with the Ministry 12 of Finance and CTC charges and in that process, that's 13 where those issues would be resolved and those financial 14 implications would flow from. 15 MR. BOLAND: That's the most immediate thing 16 that I think of in terms of the CTC process, that if the 17 assets of OPG are impaired relative to the value that 18 was set up, then when they are sold, that impairment 19 will be reflected in a lower price which will ultimately 20 increase the stranded debt. 21 MR. MATTSON: And what about ratepayers? How 22 will this -- this is an open market. You will have to 23 ultimately -- I suppose the majority of the ratepayers 24 in the province for electricity will at the beginning at 25 any rate be your clients or your customers, I should 26 say. 27 MR. BOLAND: We can hope that. I think to say 28 the majority of the customers in the province will be Les Services StenoTran Services Inc. 613-521-0703 2069 AMPCO PANEL 2, cr-ex (Mattson) 1 our customer, I mean at the wholesale level I would 2 agree with that, not at the retail level. 3 MR. MATTSON: Right. At the wholesale level. 4 And if, for example, the net load billing proposal of 5 IPPSO is adopted, I take it that the commodity cost or 6 the price of the commodity may go down at first for 7 those customers who have access to that generation. Is 8 that fair? Their rates would go down, those who have 9 access to that generation that is net load billed. 10 MR. BOLAND: If the embedded generator facing 11 a net load billing regime makes the decision to install 12 in terms of what he would be looking at, his commodity 13 costs might actually go up, but he is avoiding a fixed 14 transmission charge so he sees a net reduction. He 15 could install potentially less efficient or more costly 16 generation sources than already exist. You know, I 17 couldn't agree with you on the commodity. 18 MR. MATTSON: In terms of the actual benefits 19 from the net load billing proposal, it would be the 20 customers who would enjoy the benefits, those customers 21 who are able to take advantage of that new embedded 22 generation at net load billing. They would be the ones 23 who ultimately would benefit from that, those customers. 24 We would have to differentiate between the customers who 25 are able to take advantage of that and those who are 26 not. Correct? 27 MR. BOLAND: That's exactly correct, and the 28 customers who wouldn't be able to benefit from that or Les Services StenoTran Services Inc. 613-521-0703 2070 AMPCO PANEL 2, cr-ex (Mattson) 1 the remaining customers who didn't install embedded 2 generation would all see higher transmission rates than 3 they otherwise would. 4 MR. MATTSON: Why has there been throughout 5 the room and, of course, this hearing, why have people 6 said that those will be the smaller residential 7 customers? Why have those customers been the ones who 8 people have indicated will not be the ones who are able 9 to take advantage of the new embedded generation? 10 MR. ORANS: The smaller customers generally 11 have lower load factors, no access to alternative 12 sources of fuel and much higher transaction costs and 13 higher costs of financing, so generally, people think 14 there is a larger market for larger customers with 15 flatter loads. 16 MR. MATTSON: And, Dr. Orans, is that your 17 experience -- like from your experience, could you say 18 that you are in the province of net load billing, for 19 example, as adopted by this Board or the OHNC's proposal 20 is adopted, how certain could you be that the smaller 21 customer in the province wouldn't benefit from that? 22 MR. ORANS: There may be individual, small 23 applications, but when you add up all the megawatts 24 together and the financial implications and follow the 25 dollars, the amount of load that uses embedded 26 generation to lower their transmission bill and their 27 overall bill the majority of it will come from larger 28 customers. Les Services StenoTran Services Inc. 613-521-0703 2071 AMPCO PANEL 2, cr-ex (Mattson) 1 MR. MATTSON: And you have seen that at work 2 before? 3 MR. ORANS: Yes. 4 MR. MATTSON: Thank you. 5 Those are all my questions. 6 THE PRESIDING MEMBER: Thank you, Mr. Mattson. 7 We will go back to Mr. Budd now who has been 8 quite patient. 9 Mr. Budd. 10 MR. BUDD: Thank you, Dr. Higgin. 11 Good afternoon, gentlemen. My name is Peter 12 Budd and I act on behalf of TransAlta. 13 CROSS-EXAMINATION 14 MR. BUDD: I would like to ask you, if you 15 would kindly, to turn to your evidence, Dr. Orans, which 16 is marked I believe as Exhibit H8.1 in this proceeding. 17 MR. ORANS: Yes, I have it. 18 MR. BUDD: And if you could just turn up to 19 page 3 and we will just refamiliarize ourselves with 20 Question 7 at line 16, which simply reads: 21 "How should a transmission tariff be 22 designed to fairly reflect a customer's 23 responsibility for historical costs and 24 projected use of network resources?" 25 Your answer starting at line 19 indicates 26 that: 27 "I support the principle commonly applied 28 in ratemaking, that it is fair to Les Services StenoTran Services Inc. 613-521-0703 2072 OPG PANEL 1, cr-ex (Budd) 1 allocate both historical and projected 2 costs to the customers that most closely 3 caused those costs to be incurred." 4 And further at line 23 you then go on to 5 indicate that you believe that there are three different 6 fair allocations of network costs and then your response 7 at line 26 on page 3 says one of those would be a new 8 customer with embedded generation. Is that correct? 9 MR. ORANS: That's correct. 10 MR. BUDD: Then, if you turn the page to page 11 4, at line 11, item 2, your second response there is: 12 "An existing customer who adds or expands 13 embedded generation." 14 Right? 15 MR. ORANS: Yes, that's correct. 16 MR. BUDD: And then the third at line 19 is: 17 "An existing customer who maintains its 18 embedded generation at the historical 19 capacity level." 20 You are familiar with that of course? 21 MR. ORANS: Yes, I am. 22 MR. BUDD: Just going back up to line 11. As 23 I understand this paragraph, it is your position that 24 the existing load which leaves the system due to the 25 installation of on-site generation should in fact be 26 responsible for making a reasonable contribution to the 27 cost of network resources that were constructed to serve 28 that customer's initial usage. Is that right? Les Services StenoTran Services Inc. 613-521-0703 2073 OPG PANEL 1, cr-ex (Budd) 1 MR. ORANS: Yes, that was the primary factor 2 behind our proposal. 3 MR. BUDD: Sir, would you agree with me that 4 existing load which leaves the system for any other 5 reason, one example might be installing more efficient 6 equipment or DSM measure, that that existing load should 7 also be responsible for making a reasonable contribution 8 to the cost of network resources that were constructed 9 to serve the customer's initial usage? 10 MR. ORANS: It depends on the length of it and 11 the duration and the notification, but many 12 jurisdictions have designed exit fees for precisely that 13 reason. 14 MR. BUDD: But directionally you would agree 15 with me? 16 MR. ORANS: Directionally you could use the 17 same principle for leaving load, yes. 18 MR. BUDD: Sir, would you agree that if gross 19 load billing were used as the mechanism to collect a 20 contribution to the cost of network resources for load 21 that leaves the system, then existing load which leaves 22 the system for any reason other than the installation of 23 on-site generation would not in fact make any 24 contribution to the cost of network resources. Is that 25 right? 26 MR. ORANS: Would you repeat the question 27 please? 28 MR. BUDD: Sure. Would you agree with me that Les Services StenoTran Services Inc. 613-521-0703 2074 OPG PANEL 1, cr-ex (Budd) 1 if gross load billing were used as the mechanism to 2 collect a contribution to the cost of network resources 3 for load that is leaving the system, then existing load 4 which leaves the system for any reason other than the 5 installation of on-site generation would not make any 6 contribution to the cost of network resources. Isn't 7 that right? 8 MR. ORANS: If there were no exit fees and 9 otherwise applicable facilities charges or customer 10 charges, yes, I would agree. 11 MR. BUDD: And would you, therefore, agree 12 that the use of gross load billing to collect a 13 contribution to the cost of network resources for load 14 that leaves the system would discriminate against load 15 which leaves the system due to the installation of 16 on-site generation? 17 MR. ORANS: No, I wouldn't agree at all. I 18 believe they are different services going forward. Mr. 19 Boland described this morning the many ongoing benefits 20 the network provides to a customer who has embedded 21 generation and that's very different from a permanent 22 reduction of our customer who leaves the system 23 permanently and doesn't continue to use those ongoing 24 benefits of the network system. 25 MR. BUDD: Right. But I think you have agreed 26 with me earlier that the principal target of your 27 proposal at OPG is to target the on-site generation 28 being embedded. Is that correct? But for others that Les Services StenoTran Services Inc. 613-521-0703 2075 OPG PANEL 1, cr-ex (Budd) 1 are leaving in fact you are not proposing any similar 2 penalty? Isn't that in fact discriminatory? 3 MR. ORANS: I would say that's not 4 discriminatory. It's reflective of costs and usage of 5 the system. 6 MR. BUDD: But it is making a discrimination, 7 is it not? It is treating things differently. 8 MR. ORANS: It treats them according to costs. 9 MR. BOLAND: If I could just add that it is 10 also our proposal that if the customer installing the 11 embedded generation chooses to disconnect entirely from 12 the grid, putting himself in a similar situation to what 13 you are talking about, a customer who leaves the 14 province, under our proposal that customer would also 15 avoid his responsibility for the sunk costs. 16 Just as a pragmatic matter, we have not 17 introduced an exit fee into our proposal, but it's not 18 discriminatory because that customer has that same 19 option as well, to disconnect from the grid. 20 MR. ORANS: And we also have a new customer 21 load who embeds generation. We are not charging them 22 for historical past commitments either. That's more 23 akin, there is no prior commitment here to the new 24 customer with the new load. There is a prior commitment 25 for the existing customer. The system is humming along, 26 unanticipated load reduction happens through the prior 27 commitment of the existing customer and we are treating 28 them, one, according to the prior commitment and, two, Les Services StenoTran Services Inc. 613-521-0703 2076 OPG PANEL 1, cr-ex (Budd) 1 according to the costs. 2 MR. BUDD: And so for the customer I gave an 3 earlier example. For a customer that closes a plant in 4 Brampton, but opens one in Mississauga, they are no 5 longer using the network are they in Brampton if they 6 have just closed that. Correct? 7 MR. ORANS: And they could be gone forever. 8 Yes. 9 MR. BUDD: But they decide we are not going to 10 install any embedded generation there, enough of this, 11 we don't like these rules, we are going to go to 12 Mississauga and we are going to build a new one there 13 and there's where we are going to put the embedded in 14 and then they will avoid everything, won't they? 15 MR. ORANS: They will pay for their net load 16 on the system at that point, yes. 17 MR. BUDD: Thank you. 18 Are you aware of any jurisdiction in Canada 19 which currently bills end-use customers on a gross load 20 basis? 21 MR. ORANS: On the retail level or on a 22 wholesale level? Can you break that down? 23 MR. BUDD: Let's start with the wholesale 24 level. 25 MR. ORANS: I am aware in both Alberta and in 26 B.C. Hydro of ratchets. First of all, in Alberta there 27 used to be a grossing up of load, all the load connected 28 at the distribution level. Now there is a ratchet Les Services StenoTran Services Inc. 613-521-0703 2077 OPG PANEL 1, cr-ex (Budd) 1 provision and a contract demand provision that 2 effectively creates at minimum, at best, a 90 per cent 3 ratchet for the first five years of leaving, so you 4 could call that a gross load proposal very similar to 5 our transmission. Actually, it's higher than our 6 transmission, those costs. 7 In B.C. Hydro the classic point-to-point rate 8 is if a customer makes a five-year commitment to 9 point-to-point service there is ratchet demand over that 10 whole period. That's a ratchet demand for the length of 11 the contract period. 12 MR. BUDD: So you are suggesting that in 13 Alberta there are ratchets and notice provisions. Is 14 that right? 15 MR. ORANS: Yes, that's correct. 16 MR. BUDD: And you classify that as billing 17 end-use customers on a gross load basis? 18 MR. ORANS: I have introduced a lot of 19 evidence and other people have as well that it's 20 equivalent, a ratchet billing device is equivalent to 21 gross load billing in terms of the impact on the 22 customer. 23 MR. BUDD: Thank you. We will later in the 24 hearing hear from certain witnesses from Alberta. 25 Thank you, Mr. Chairman. 26 Those are all of my questions. 27 THE PRESIDING MEMBER: Thank you, Mr. Budd. 28 We will go down to Mr. Poch please. Les Services StenoTran Services Inc. 613-521-0703 2078 OPG PANEL 1, cr-ex (Budd) 1 MR. POCH: Thank you. 2 CROSS-EXAMINATION 3 MR. POCH: Mr. Boland, Mr. Mattson was asking 4 you about the MDC. Can we just clarify, the MDC was 5 made up of these 14 members. They were government 6 appointees? 7 MR. BOLAND: That's correct. 8 MR. POCH: And some of us didn't get a voting 9 seat at that table. Is that fair? 10 MR. BOLAND: Everyone other than the 14 I 11 expect. 12 MR. POCH: Now, turning to your graphic that 13 you filed, your set of graphics which is under Exhibit 14 G10.22. Can we agree that, first of all, exports aren't 15 always going to be constrained? 16 MR. BOLAND: Yes, I would agree with that. 17 It's theoretically possible, but I would agree with 18 that. 19 MR. POCH: In fact, we are seeing an increase 20 in the capacity I think from -- remind me now, is the 21 current intertie capacity something over 4,000 22 megawatts? 23 MR. BOLAND: The intertie capacity on any 24 given day varies according to system conditions, but 25 4,000 megawatts is a reasonable rule of thumb to use for 26 discussion. 27 MR. POCH: And over the next year or so the 28 beef-ups to that intertie connection are going to Les Services StenoTran Services Inc. 613-521-0703 2079 OPG PANEL 1, cr-ex (Poch) 1 increase at some 500 megawatts. Is that right? 2 MR. BOLAND: I think more than that. I think 3 there is one particular project that is 500 and I think 4 at least on a best-efforts basis the Market Design 5 Committee tasked OHNC or OHSC to come forward with a 6 proposal to attempt to expand the intertie capability 7 for import purposes to increase competition in the 8 province and to do that by -- I think 2,000 megawatts 9 over the next three years, as I recall. 10 MR. POCH: You would agree, obviously, that 11 the more there is intertie capability the more time 12 there is going to be when the interties are going to be 13 unconstrained, directionally? 14 MR. BOLAND: Directionally and holding all 15 other things equal. 16 MR. POCH: When the differential in the market 17 clearing price in Ontario and the jurisdiction to which 18 we might export to is lower, that is likely to more 19 often result in unconstrained interties as opposed to 20 the opposite? 21 MR. BOLAND: When the market clearing prices 22 in the two markets are roughly in sync that will lead to 23 less exchange. That is generally correct. 24 MR. POCH: And less congestion? 25 MR. BOLAND: That's correct. And perhaps in 26 theory no congestion if the prices equate. 27 MR. POCH: Right. There may be no congestion 28 even if the prices don't equate, but the premium is Les Services StenoTran Services Inc. 613-521-0703 2080 OPG PANEL 1, cr-ex (Poch) 1 relatively low? 2 MR. BOLAND: There also won't be any trade in 3 all likelihood because, I don't know -- you know, let's 4 adjust Case 1A and the market clearing price in Ontario 5 is $30 and the market clearing price in New York is $30, 6 I would agree the line is extremely likely to be 7 congested but I don't even think it's likely to be in 8 use, not for commercial purposes anyway. I mean, it's 9 still there for reliability purposes. 10 MR. POCH: I think you already agreed with 11 Mr. Snelson that there is the potential for the 12 differential between the two markets to affect the 13 market clearing price in Ontario. Correct? Depending 14 how you bid into the market. 15 MR. BOLAND: For the differential to affect 16 the market clearing price in Ontario? 17 MR. POCH: Yes. 18 MR. BOLAND: I mean, the two different markets 19 are going to set market clearing prices based on the 20 supply and demand conditions in each market and they can 21 only influence each other to a very limited degree based 22 on that intertie capability. 23 MR. POCH: You, as a major player -- I think 24 you have agreed with Mr. Snelson already, I just wanted 25 to make sure I understood it correctly. 26 You, as a major player, for example, in the 27 two markets, the generator, are going to be bidding into 28 the energy market. Your awareness of what you can get Les Services StenoTran Services Inc. 613-521-0703 2081 OPG PANEL 1, cr-ex (Poch) 1 south of the border is going to -- has the potential to 2 influence your bids into the domestic market and that is 3 market clearing price in Ontario. 4 MR. BOLAND: I think -- 5 MR. POCH: Not just you, all generators. 6 MR. BOLAND: If I'm understanding you 7 correctly, we, as would any other market participant 8 thinking of exporting and bidding in that export zone, 9 would take into account their expectations of what they 10 think the New York price is going to be. 11 MR. POCH: The bidding is going on roughly 12 simultaneously for these two market areas? 13 MR. BOLAND: That's correct. 14 MR. POCH: All right. 15 Just looking at Case 2B there where you have 16 said there would be no credit for Ontario transmission 17 customers because, in the scenario you have painted, 18 there wouldn't be any export. Correct? 19 MR. BOLAND: Correct. 20 MR. POCH: Can we agree in that scenario, 21 though, Ontarians would benefit to the degree that the 22 externalities in Ontario are reduced? I'm thinking of 23 the environmental externalities to the extent they are 24 reduced? 25 MR. BOLAND: Well, again, I would get back to 26 the discussion we had yesterday, that the externalities 27 will be incorporated into the costs of compliance, 28 whether that be through whatever type of fuel purchase Les Services StenoTran Services Inc. 613-521-0703 2082 OPG PANEL 1, cr-ex (Poch) 1 is made or whatever kind of scrubbing equipment is put 2 on, and so on. So I think the prices would reflect the 3 externality costs as determined through the 4 environmental legislation in the markets? 5 MR. POCH: I'm just looking at this example 6 and the situation where, depending on the price to the 7 U.S. market you are going to export or you are not. If 8 you don't there is going to be less emissions? 9 MR. BOLAND: I can't agree with that, 10 because -- 11 MR. POCH: Why not? 12 MR. BOLAND: -- you are not changing the level 13 of demand in your assumption, so if the export is not 14 made from the Ontario market it could be some other 15 generator somewhere else is going to be fired and I 16 don't know if that generator is going to be cleaner or 17 dirtier than the source that would have been fired in 18 Ontario. 19 MR. POCH: So your view is that if there is a 20 constraint on exports, for example on a $3.00, or 21 whatever it is, EWT charge, what this is going to do is 22 tend to shift some generation from occurring inside 23 Ontario to occurring upwind, I guess you would say, in 24 the U.S. market? 25 MR. BOLAND: Well, elsewhere. I mean, not 26 necessarily U.S. 27 MR. POCH: Okay. 28 MR. BOLAND: In likelihood, U.S. Les Services StenoTran Services Inc. 613-521-0703 2083 OPG PANEL 1, cr-ex (Poch) 1 MR. POCH: Right. I mean, we don't have coal 2 plants in Manitoba or Quebec so what we are really 3 worried about here when we are thinking about the impact 4 of pollution on Ontarians is the U.S. Correct? 5 MR. BOLAND: I'm willing to accept that the 6 displacement source of power is likely to be U.S. 7 source. It's not guaranteed. 8 MR. POCH: Your concern is that it might come 9 from coal-fired production there, in response to my 10 earlier question? 11 MR. BOLAND: Not to be semantic, I wasn't 12 expressing a concern I was just expressing what I 13 thought was a reality. 14 MR. POCH: You are observing that coal is 15 often the marginal fuel in the U.S.? 16 MR. BOLAND: Yes. 17 MR. POCH: Okay. And to the extent that OPGI 18 is exporting, would you also agree that coal is often 19 going to be your marginal fuel? In the dispatch order 20 of costs of running these plants, coal is your higher 21 priced plant? 22 MR. BOLAND: Coal could well be the marginal 23 plant. 24 I think in the new world it is actually going 25 to be tough to identify what the marginal export plant 26 is because we are not going to have an Ontario market 27 kind of, you know, obligation to serve in Ontario 28 monopoly regime versus selling around the interties for Les Services StenoTran Services Inc. 613-521-0703 2084 OPG PANEL 1, cr-ex (Poch) 1 surplus. The actual export is going to be determined 2 through that export zone and the generation that is 3 fired or sourced in Ontario is going to be determined 4 through the Ontario market clearing price and I don't 5 know how you could do anything other than an arbitrary 6 allocation to determine which generation is being 7 exported. 8 MR. POCH: Well, if we merged these markets 9 that Ontario -- OPGI will be bidding into, I know what 10 you're saying, you can't say this plant was for -- 11 necessarily that electron went there, but in the 12 dispatch order of things the more you generate the more 13 likely it is you will be using your coal plant. They 14 are your higher priced plant. You are going to fire 15 them up last. 16 MR. BOLAND: Generally speaking, in dispatch 17 order coal is fired after nuclear, although 18 hydroelectric bounces around. 19 MR. POCH: Sure. 20 MR. BOLAND: You also have some oil in 21 the mix. 22 MR. POCH: Okay. And many of OPGI's coal 23 plants are unscrubbed? 24 MR. BOLAND: I believe that is correct. 25 MR. POCH: All right. 26 MR. BOLAND: I'm not familiar with the exact 27 status of pollution emission equipment on each plant. 28 MR. POCH: To the extent we have more Les Services StenoTran Services Inc. 613-521-0703 2085 OPG PANEL 1, cr-ex (Poch) 1 coal-fired coal-burning in Ontario rather than in, you 2 know, Pennsylvania, we are going to have increased 3 emissions of mercury and other toxins into the local 4 environment, aren't we? 5 MR. BOLAND: I don't know where the 6 alternative source is going to come from, I don't know 7 how clean it is going to be, I don't know which way the 8 air is going to be blowing that day. That is 9 speculative. 10 MR. POCH: You would agree with me it is a 11 distinct possibility? 12 MR. BOLAND: I agree it's a distinct 13 probability either way. 14 MR. POCH: All right. 15 You would agree with me that the emission of a 16 particular pollutant, let's take one of these toxins, 17 take your pick, the same emission here versus the same 18 emission in the States, it's going to have more impact 19 on Ontarians if it's here? 20 MR. BOLAND: I have no expertise in that area. 21 MR. POCH: All right. It's amazing how narrow 22 one's expertise can be when you need it to be. 23 MR. BOLAND: Believe me, it is not a question 24 of when needed. I do not have in my job portfolio any 25 responsibility for environmental issues. 26 MR. POCH: Fair enough. 27 You would agree with me that your exporting, 28 whatever the plant is ultimately that comes on line to Les Services StenoTran Services Inc. 613-521-0703 2086 OPG PANEL 1, cr-ex (Poch) 1 export, to meet an export commitment that you have bid 2 for, it doesn't just use the interties, it does actually 3 utilize the upstream network, the 500 kV line? 4 MR. BOLAND: Yes. 5 MR. POCH: You would agree that increased 6 activities such as that can ultimately create the need 7 for more transmission investment? 8 MR. BOLAND: Yes, it could. 9 MR. POCH: Now, looking forward in this brave 10 new world of a continental energy market, why should we 11 treat provincial loads differently than out-of-province 12 loads? Won't these export oriented or export satisfied 13 loads be on a system planner or a transmission system 14 planner's radar screen, statistically speaking, just as 15 my neighbour's immigration from British Columbia would 16 statistically speaking be on that system planner's radar 17 screen ten years into the future? 18 MR. BOLAND: Well, I mean, first and foremost, 19 I would say that the system was built, the system was 20 built to serve Ontario customers and exclusively Ontario 21 customers -- 22 MR. POCH: I understand. 23 MR. BOLAND: -- and the interties are built 24 for reliability purposes -- 25 MR. POCH: I understand your point and that is 26 why I specifically -- 27 MR. BOLAND: -- in going forward. 28 THE PRESIDING MEMBER: Mr. Poch, could you Les Services StenoTran Services Inc. 613-521-0703 2087 OPG PANEL 1, cr-ex (Poch) 1 please let -- 2 MR. POCH: Sure. 3 MR. BOLAND: In going forward, I would say the 4 rationale is based on the market design that we are 5 moving towards in the Ontario market which recognizes 6 that the most efficient way to utilize the intertie 7 capability that we have is to base it on a market-based 8 regime. 9 I mean, this is the regime that can create 10 huge benefits back to the Ontario transmission customer. 11 This is very much a design that reflects customers' 12 interests. It very much protects the transmission 13 customers' rights in Ontario. There has been a lot of 14 concern expressed about the fact that it is not the full 15 freight. We had the potential to be much, much larger 16 than the full freight. 17 MR. POCH: My question is not about the 18 benefits or dis-benefits of export. We will get to 19 that. 20 My question is: For the transmission planner, 21 he is looking at what is happening in the market. He is 22 now going to have to be cognizant of use of the 23 transmission system, the growing use perhaps of the 24 transmission system, for export. Correct? 25 MR. BOLAND: I don't know who quite honestly 26 in the future this transmission planner is. I think 27 transmission growth in the future will be primarily 28 based on market participants demanding it and the Les Services StenoTran Services Inc. 613-521-0703 2088 OPG PANEL 1, cr-ex (Poch) 1 mechanism that is going to be put in place, as I 2 understand it, is that they will pay for it if they 3 demand it. 4 MR. POCH: You believe that is going to be the 5 mechanism for the network, not just for the connections? 6 MR. BOLAND: Yes. I think that is outlined, 7 yes. 8 MR. POCH: All right. For the moment, when we 9 don't have that system in place, you agree that there 10 should be some forward-looking price signal for the use 11 of the network? 12 MR. BOLAND: I am sorry, I don't understand. 13 A forward-looking price signal, to who are we talking 14 about? 15 MR. POCH: Domestic or export customers. Do 16 you agree that the rate design should send a price 17 signal to people about the use of that system? 18 MR. BOLAND: I think there is one. It means 19 the full embedded costs right now. 20 MR. POCH: All right. But whether or not 21 there is one or not, you agree, as a theoretical matter, 22 that users of this system, in addition to whether or not 23 they are paying their fair share of the sunk costs, they 24 should see a price signal that tells them something 25 about the costs that they are potentially imposing on a 26 system in future if that system has to grow to meet 27 needs, meet growing needs? 28 MR. ORANS: I think Mr. Osborne said the Les Services StenoTran Services Inc. 613-521-0703 2089 OPG PANEL 1, cr-ex (Poch) 1 historical cost responsibility and the reflection of 2 future costs are both important -- 3 MR. POCH: All right. 4 MR. ORANS: -- and they should be considered 5 by this Board. 6 MR. POCH: Which brings me to your evidence, 7 Dr. Orans. You said that -- it was in answer to 8 question 23 -- you say that EWT charges should encourage 9 efficient use of OHNC's intertie capacity. You go on in 10 question 24 to say that an efficient EWT charge would be 11 basically incremental operating costs plus congestion 12 payments. 13 I am wondering if in that discussion you are 14 equating congestion payments with long run marginal 15 costs? 16 MR. ORANS: No, not at all. 17 MR. POCH: All right. You would agree with me 18 these are quite different beasts? 19 MR. ORANS: In a perfect market with perfect 20 foresight, just like Mr. Boland's example on an FTR and 21 a congestion, the long run costs would be the 22 expectation of all the short run costs which are 23 reflected in losses and congestion. 24 MR. POCH: All right. When we as a province 25 make these investments in intertie capacity expansion, 26 you would agree that exporters are receiving the benefit 27 of the use of these assets, first of all? 28 MR. ORANS: No. Under the diagram described Les Services StenoTran Services Inc. 613-521-0703 2090 OPG PANEL 1, cr-ex (Poch) 1 by Mr. Boland yesterday, the majority of the benefits 2 under most of these cases flow to the transmission users 3 which -- for every domestic customer in the province. 4 MR. POCH: That's fine. You would agree, 5 though, that to the extent we have more investment in 6 intertie capacity, there is more opportunity for exports 7 and there is more opportunities for exporters? 8 MR. ORANS: I guess, yes. 9 MR. POCH: Sure. There is also, I believe I 10 have established earlier, more relief from congestion? 11 MR. ORANS: All other things being equal, more 12 capacity will relieve congestion. 13 MR. POCH: Right, and that is a benefit to 14 exporters too? 15 MR. ORANS: And to all of the customers. 16 MR. POCH: Sure. 17 MR. ORANS: There is also a cost, the cost of 18 the investment. So I will agree with you there is a 19 benefit and there is a cost. 20 MR. POCH: Right. In the scenario we are 21 talking about here domestic customers are going to pay 22 the costs, exporters are not. Correct? 23 MR. ORANS: No. I think Mr. Boland said there 24 is going to be a market for transmission here. We are 25 not clear at all that -- who bears the costs. We know 26 where all the benefits go. It is not clear at all who 27 bears all of those costs and whether they flow all back 28 to customers or not. Les Services StenoTran Services Inc. 613-521-0703 2091 OPG PANEL 1, cr-ex (Poch) 1 MR. POCH: Dr. Orans, isn't it perfectly clear 2 in the next little while we caught my friends at OHNC 3 raising their revenue requirement this year to pay for 4 these assets and they are being allocated to the 5 network? 6 MR. ORANS: I think Dr. Poray testified, if my 7 memory serves me right, that in the future they are not 8 by themselves responsible for doing all of that planning 9 and adding capacity, that it is a mix of them, the IMO 10 and the market participants and investors. 11 MR. POCH: But right now, where we are at 12 right now, assets are being added, they are being paid 13 for by domestic transmission customers but they are 14 giving benefits to exporters. You have agreed to each 15 of these steps. What is the problem with the 16 conclusion? 17 MR. ORANS: No. I said the majority of the 18 benefits go right back to the domestic customers. 19 MR. POCH: Fine. Some of the benefits are 20 going to exporters? 21 MR. ORANS: If there is more capacity, yes. 22 MR. BOLAND: Just to add to that, because we 23 are focusing so much on exports here, the other side of 24 having more capacity is more import capability, again 25 creating advantages and opportunities for access to 26 additional generation for the Ontario customer. 27 MR. POCH: Nobody in this case has done any 28 analysis to see how the use of these new assets is Les Services StenoTran Services Inc. 613-521-0703 2092 OPG PANEL 1, cr-ex (Poch) 1 tracking the costs of these assets. Is that fair? 2 MR. BOLAND: Are the new assets you are 3 referring to the assets that -- the new intertie 4 capability that -- 5 MR. POCH: That is the example I am working 6 with. 7 MR. BOLAND: -- recommended for import 8 purposes? 9 MR. POCH: Yes, that is the example I am 10 working for. I don't necessarily -- but let's take that 11 example. 12 MR. BOLAND: Okay. You are saying no one is 13 analysing -- 14 MR. POCH: The costs of these assets versus 15 the use being made of them. Who is currently going to 16 be using these assets? 17 MR. BOLAND: That is not my understanding. My 18 understanding is OHNC has to come forward with proposals 19 for additional capability for that 2,000 megawatts and 20 that is going to be subject to a test from -- my 21 understanding is presumably in front of this Board. 22 MR. POCH: Right, some are in that category. 23 My apology. 24 In the absence of a pool for interconnection 25 costs, there is no mechanism right now to charge 26 exporters for these costs? 27 MR. ORANS: Could you elaborate on the 28 question? Les Services StenoTran Services Inc. 613-521-0703 2093 OPG PANEL 1, cr-ex (Poch) 1 MR. POCH: In the current proposal there would 2 be no cost allocation pool for interconnection assets or 3 assets associated with exports. In the current proposal 4 there is no mechanism by which these investments can be 5 charged to exporters, is there? 6 MR. ORANS: Under these scenarios outlined by 7 Mr. Boland, you are getting the maximum you could get 8 from an exporter. The congestion cost defines the 9 maximum revenue he could -- he left $1 in there to make 10 the point, but the congestion cost is the demand for it, 11 as long as there is a competitive market here if there 12 isn't any -- if you charge more you are going to lose 13 volume and potentially lose revenue. 14 MR. POCH: We will deal with that separately. 15 Let me move on to -- 16 MR. CAMPBELL: Excuse me. Did you want to 17 add -- 18 MR. POCH: Go ahead, Mr. Boland. 19 MR. BOLAND: I don't know. Your question was 20 "today" and I took that to mean today with the current 21 situation of OPG. 22 I mean in the current circumstance where there 23 is -- the Ontario export zone does not exist. I mean, 24 what happens today -- the New York market hasn't been 25 open very long, but there has already been examples 26 where the New York market has cleared at over $1,000 per 27 megawatt hour U.S. On those days when the Ontario 28 market is not constrained, our marginal resource might Les Services StenoTran Services Inc. 613-521-0703 2094 OPG PANEL 1, cr-ex (Poch) 1 be $45, $50, firing an expensive plant with that kind of 2 marginal cost. 3 If that is the kind of dynamic that is going 4 to happen from time to time -- and I'm not going to say 5 it is going to happen all the time, it is obviously not, 6 that is an extreme situation -- the amount of the 7 congestion is huge and the future environment, when we 8 have a market, that goes back to the Ontario 9 transmission customer. 10 MR. POCH: All right. I would like to move on 11 to some questions about net versus gross. 12 If you would turn up your responses to 13 interrogatories from OHNC -- and I apologize, 14 Mr. Chairman, I don't have the exhibit number that has 15 been assigned to that handy. 16 THE PRESIDING MEMBER: Can somebody help 17 everybody with that? 18 --- Pause 19 MR. POCH: This is OPGI's response to OHNC's 20 first interrogatory. 21 THE PRESIDING MEMBER: Can we get to, please, 22 just to keep the record straight, an "E" number. 23 --- Pause 24 MR. POCH: E-52 I'm told, Mr. Chairman. So 25 that would be E-52, Schedule 1, presumably. 26 THE PRESIDING MEMBER: Okay. We have that 27 one. Just a minute. 28 --- Pause Les Services StenoTran Services Inc. 613-521-0703 2095 OPG PANEL 1, cr-ex (Poch) 1 THE PRESIDING MEMBER: Okay. Questioning 2 which one? 3 MR. POCH: This is the first question. 4 THE PRESIDING MEMBER: Question 1. All right. 5 MR. POCH: The first question from OHNC to 6 OPGI. 7 You were asked there about whether or not you 8 agreed that net load billing encouraged installation of 9 economically or environmentally efficient new 10 generation. Your reply seems to state two things. 11 First of all, you don't agree that net billing 12 would encourage economically efficient generation. So 13 just stopping there. I take it the phrase "economic" 14 you are using is not from a narrow transmission system 15 perspective but from a more societal perspective, that 16 is, counting the generation costs. Is that correct, 17 Mr. Boland? 18 MR. BOLAND: It's from a generation 19 perspective. 20 MR. POCH: Right. So you are looking at it 21 beyond transmission costs? Yes? The societal cost 22 perspective. 23 MR. BOLAND: We are looking at the impact of 24 the transmission cost on the incentives and the 25 condition that it is creating for generators making 26 decisions. 27 MR. POCH: When you say it is not economic, 28 economic from whose perspective? From society's Les Services StenoTran Services Inc. 613-521-0703 2096 OPG PANEL 1, cr-ex (Poch) 1 perspective? 2 MR. BOLAND: We are assuming that the energy 3 cost reflects society's cost of energy, so it is in the 4 market. 5 MR. POCH: All right. 6 If you go down to the third question, this is 7 a question about whether or not the EWT proposal would 8 be subsidizing export and wheel-through charges. Your 9 answer refers to the MDC's hope that domestic customers 10 would benefit, in short, by the benefits of competition 11 due to increased imports. Is that a fair paraphrase? 12 MR. BOLAND: Yes. 13 MR. POCH: All right. So there again you are 14 having regard to this broader societal perspective of 15 looking at what you think the benefits of the approach 16 will be to customers having regard to energy prices. 17 Fair? 18 --- Pause 19 MR. ORANS: I think it is the same answer as 20 long as you -- we are defining the societal cost of 21 energy as the market price. 22 MR. POCH: All right. You are having regard 23 to the effects on the price of energy. 24 MR. ORANS: Yes. 25 MR. POCH: All right. 26 Why then did you object so strongly to 27 Mr. Brown's question to you about why don't you 28 consider -- when Mr. Brown asked you whether the Les Services StenoTran Services Inc. 613-521-0703 2097 OPG PANEL 1, cr-ex (Poch) 1 bringing on of more generation here, embedded generation 2 here would have benefits in lowering the price of 3 energy, you jumped this morning -- or this afternoon. 4 You said you don't believe this Board should have 5 consideration for the energy impact when setting 6 transmission rates. Didn't you just say that an hour 7 ago? 8 MR. ORANS: I think Mr. Boland responded, and 9 I responded too, that there are two things you want to 10 look at: one is what is the transmission impact; and 11 then, two, what is the overall impact on the customers? 12 I think Mr. Osborne said the customer is part 13 of this too, and we brought in the customer in both 14 cases. 15 I want to take you back to a simple example 16 here for the cost of energy, because I responded both 17 yes, affirmative we were using the cost of energy. So 18 let's say now we have a customer. That customer can 19 receive energy at $30 a megawatt hour from the pool 20 every hour, just like we have used in this example. 21 Let's say there is a $5-per-megawatt-hour transmission 22 charge that is avoidable. This customer, because they 23 are net billed, including a $33-per-megawatt-hour cost 24 of production embedded generator, we don't think that is 25 an efficient result for the energy market or the 26 transmission market. 27 MR. POCH: I understand your point. You are 28 assuming of course that there is no avoidable cost of Les Services StenoTran Services Inc. 613-521-0703 2098 OPG PANEL 1, cr-ex (Poch) 1 transmission in that example. There is no corresponding 2 savings on transmission costs. 3 MR. ORANS: Yes. I'm assuming that the $5 was 4 100 per cent fixed in this case. 5 MR. POCH: I understand your logic. I'm just 6 asking you, do you agree with me that in the case of 7 exports, in the case of supporting gross load billing 8 you are quite prepared to say that we have to look at 9 the overall societal cost benefit but when asked to look 10 at the impact that net load billing may have for 11 bringing on generation that could bring competition and 12 lower the price of energy you are not prepared to 13 consider that, are you? 14 MR. ORANS: I think it is exactly consistent. 15 We are looking at the cost here, the cost of export, and 16 we have shown through examples that the majority of the 17 value of that export in almost all of these cases we can 18 consider goes back to the customer. We are doing the 19 same thing on the domestic market here. We are saying 20 these customers should compete on energy, not on 21 avoiding transmission costs -- 22 MR. POCH: But let me break this up for you 23 Dr. Orans. 24 Are you resiling from your answer to 25 question 3 that you think that the Board should have 26 regard to the benefits -- to customers of low export 27 tariffs because there is going to be increased 28 competition on the import front? Les Services StenoTran Services Inc. 613-521-0703 2099 OPG PANEL 1, cr-ex (Poch) 1 MR. ORANS: I think that's correct. 2 MR. POCH: You agree the Board should have 3 regard to the impacts on energy prices in Ontario? 4 MR. ORANS: The cost of energy to all 5 customers. 6 MR. POCH: Yes. 7 MR. ORANS: And that includes the revenue 8 shift to the non-participants in the case of embedded 9 generators. 10 MR. POCH: Yes. You agree we should look at 11 transmission rate impacts but we should also look at the 12 energy market impact? 13 MR. BOLAND: I think one of the things we 14 specifically said, quite emphatically, is we want the 15 Board, in making a net versus gross decision, to 16 consider the impact that that is going to have on the 17 generation market. I think we have said time and time 18 again that we don't want to see a distortion created in 19 the generation market because of a decision made on 20 transmission tariffs. 21 MR. POCH: Part of the impact, you would agree 22 then, that the Board should have regard is what the 23 impact is going to be on competition and on energy 24 prices. We can disagree with what we think that impact 25 is, but you would agree it is an appropriate 26 consideration. 27 MR. BOLAND: I agree that's a consideration in 28 determining a level playing field. That's the issue. Les Services StenoTran Services Inc. 613-521-0703 2100 OPG PANEL 1, cr-ex (Poch) 1 MR. POCH: Mr. Boland, you were on the MDC. 2 The MDC made a very strong statement in its report that 3 it felt the government should put in place comprehensive 4 caps for all relevant emissions prior to market opening. 5 That was a premise of the MDC report, was it not? 6 MR. BOLAND: I recall something along those 7 lines, yes. I don't know the exact words or the exact 8 recommendation in my mind, but yes. 9 MR. POCH: The government was invited to do 10 that. The government has made a proposal that, can we 11 agree, deals with some emissions. 12 MR. BOLAND: Certainly. 13 MR. POCH: Not all emissions. 14 MR. BOLAND: Yes. 15 MR. POCH: The government has also passed 16 legislation which specifically puts on this Board's 17 plate the question of moving towards cleaner generation. 18 Correct? 19 MR. BOLAND: I'm not sure what exactly you are 20 referring to, to be honest. 21 MR. POCH: Well, section 1.6. 22 MR. BOLAND: Yes, that's fair. 23 MR. POCH: So to the extent that there is -- 24 Mr. Boland I think I heard you say earlier that you just 25 felt there was just no room for this Board to have any 26 regard to the environmental implications of its 27 decisions because the government has the opportunity to 28 deal with that elsewhere. Is that what you said? Les Services StenoTran Services Inc. 613-521-0703 2101 OPG PANEL 1, cr-ex (Poch) 1 MR. BOLAND: No. I don't think I said that at 2 all. I think what I said is that this Board -- well, 3 what I will say now is this Board has some very 4 important decisions to make with respect to energy 5 efficiency and the use of cleaner and more 6 environmentally designed sources in a manner consistent 7 with the policies of the Government of Ontario. 8 You have given my viewpoint that I believe 9 that it is the Government of Ontario that is setting the 10 policy framework. I think within that framework this 11 Board has many decisions to make. Dr. Higgin yesterday 12 asked a question to Ron Osborne about training the 13 market for green power and so on. These are a role for 14 the IMO. Those are, I think, exactly the kinds of 15 considerations that this Board would be making under 16 this Act. 17 MR. POCH: All right. Now, let's go back to 18 this question of what's economic and what's uneconomic 19 on the embedded generation front. I think a moment ago 20 I put to you your simplifying assumption is that there 21 is simply no avoidable transmission costs, hence your 22 conclusion that generation that needs to rely on some or 23 all of that transmission differential was uneconomic. 24 Correct? 25 MR. ORANS: No. My assumption in stating that 26 to you is that there is an amount transferred so that 27 the avoidable cost is lower than the average embedded 28 costs. But, in the one I put to you with the simple $5, Les Services StenoTran Services Inc. 613-521-0703 2102 OPG PANEL 1, cr-ex (Poch) 1 I just made it simple and didn't adjust it. 2 MR. POCH: All right. We can agree that there 3 may be cases -- to the extent there are any avoidable 4 transmission costs, then there can be embedded 5 generators who can't compete if they have to pay the 6 full transmission tariff, but if given a break to the 7 extent of those avoidable transmission costs could 8 compete and would be economic by your definition. 9 Correct? 10 MR. ORANS: Yes, and that's why we propose to 11 phase in the way we have. 12 MR. POCH: I take it the extent of your study 13 of this is the answer you have given to your question 16 14 in your prefiled evidence. It would be Exhibit H1, if 15 I'm not mistaken. 16 MR. CAMPBELL: Mr. Poch, you are not 17 forgetting the other interrogatory answers and the 18 direct evidence and all this, I take it. 19 MR. POCH: That's fair. The inquiries you 20 have made, the studies you have done is basically this 21 work that appears here and that is elaborated upon as 22 Mr. Campbell has noted. That's fair? 23 MR. ORANS: That's fair. 24 MR. POCH: You have already been asked about 25 how you added up these effective capacity added values 26 that OHNC passed along to you. Excuse me. Too many 27 papers. 28 MR. ORANS: I will agree with you on that one. Les Services StenoTran Services Inc. 613-521-0703 2103 OPG PANEL 1, cr-ex (Poch) 1 MR. POCH: Yes. We can all agree on that. 2 --- Pause 3 MR. POCH: All right. I'm going to ask you 4 some questions that pertain to that. I would ask you to 5 turn up not your attachment 2, but the interrogatory 6 from which you took attachment 2, and that is the 7 Ontario Power Generation Interrogatory No. 19, which is 8 Exhibit E, Tab 8, Schedule 19. 9 --- Pause 10 MR. ORANS: Yes, we have it. 11 MR. POCH: First of all, going back to that 12 distinction that was made I think by both you and OHNC 13 on the difference between sixty-one fifty and forty-six 14 fifty for the effective capacity added to the GTA area, 15 that difference was by taking out the Ottawa 16 transformers. 17 MR. ORANS: Yes, that's correct. 18 MR. POCH: Because there's a possibility that 19 to some extent there's double counting there. Fair? 20 MR. ORANS: That's correct. 21 MR. POCH: The same could be true below in the 22 Eastern Ontario example. 23 MR. ORANS: Yes. We didn't cover that this 24 morning, but a similar analogy can be drawn. 25 MR. POCH: Now, the other question is whether 26 these lines are predominantly in parallel to some extent 27 in theory. Can we just look at the -- let's look at the 28 Ottawa example because people have gone over the Toronto Les Services StenoTran Services Inc. 613-521-0703 2104 OPG PANEL 1, cr-ex (Poch) 1 example. 2 The two lines there, the one is the Lennox to 3 Hawthorne and the other is Lennox to Bowmanville. So 4 people can picture this, I take it Lennox is somewhere 5 about half way between the area of Darlington, east of 6 Toronto, and the Ottawa area. Is that fair, along the 7 lake? 8 MR. ORANS: In that area. It's hard for me to 9 see this map. 10 MR. POCH: And we are talking about lines that 11 came from east of Toronto over to Lennox and then from 12 Lennox up to Ottawa? Correct? Those are the two sets 13 of lines. 14 MR. ORANS: That's roughly correct. 15 MR. POCH: Okay. So the lines from 16 Bowmanville to Lennox, they would be able to get power 17 from Darlington, Pickering, Bruce, Nanticoke, for 18 example, out towards -- as far as Kingston or so. 19 Correct? 20 MR. ORANS: I'm not sure how -- 21 MR. POCH: To Lennox. 22 MR. ORANS: I'm not sure how far, but 23 certainly there could be a lot of interconnection and 24 there could be a lot of flow on those lines. Right. 25 MR. POCH: It gets the power as far as Lennox. 26 That's where the line is. 27 MR. ORANS: Yes, but all of these things are 28 interconnected through to each other. If it stops there Les Services StenoTran Services Inc. 613-521-0703 2105 OPG PANEL 1, cr-ex (Poch) 1 and they had capacity just to Lennox isn't a correct 2 characterization. 3 MR. POCH: You need that next line, don't you, 4 going up to Ottawa to get the power up to Ottawa and 5 improve the capacity up to Ottawa. 6 MR. ORANS: If all the capacity on one line 7 went directly all to the other line, that would be 8 correct, and they would be in series. However, there is 9 a whole lower voltage system where there is 10 interconnection and there are multiple subtransmission 11 systems in here. 12 MR. POCH: It's not a simple picture, is it? 13 MR. ORANS: It's not a simple picture and 14 that's why Dr. Poray said in the most conservative case, 15 you can look at the lines in both cases interconnecting 16 a loop of all transmission systems and take out the 17 Ottawa transformers. Remember, the Ottawa transformers 18 can't be simply taken out either. 19 MR. POCH: Sure. 20 You understand that the nameplate transmission 21 capacity of any given addition is of necessity virtually 22 always higher than the forecast peak load? If loads are 23 going up, let's take a simple -- 24 MR. ORANS: No, that's not the case. 25 MR. POCH: Let me give you an example and make 26 sure we are talking about the same thing. In 27 transmission planning planners have to account for 28 contingencies. Les Services StenoTran Services Inc. 613-521-0703 2106 OPG PANEL 1, cr-ex (Poch) 1 MR. ORANS: That's correct. 2 MR. POCH: Right. So, if we just looked at 3 the actual physical capacity of a single line, you 4 wouldn't put in a 10 megawatt line for a 10 megawatt 5 load growth. You would want to ensure that the 10 6 megawatts is an insured capacity, that there is -- 7 MR. ORANS: You would need a reserve margin. 8 MR. POCH: You would need a reserve margin. 9 You would need some redundancy in the system? 10 MR. ORANS: I would agree with that. 11 MR. POCH: And it is even more complicated 12 than that. They have to consider things like transient 13 stability? 14 MR. ORANS: That's correct. 15 MR. POCH: And machine mode stability? 16 MR. ORANS: That's correct. 17 MR. POCH: And critical interface loadings? 18 MR. ORANS: Yes. 19 MR. POCH: And they need to meet regional 20 planning commitments to avoid visiting problems on 21 neighbouring systems? 22 MR. ORANS: That's correct too. 23 MR. POCH: And they try, at least in the past 24 they have tried to optimize generation usage? 25 MR. ORANS: Before bulk system planning and 26 generation was done together, yes. 27 MR. POCH: So if we look at E8.19, this is the 28 source for the numbers you quoted again, the second Les Services StenoTran Services Inc. 613-521-0703 2107 OPG PANEL 1, cr-ex (Poch) 1 paragraph in the answer says: 2 "The network investments carried out in 3 the past were primarily based on meeting 4 system load growth, maintaining system 5 reliability and security and optimizing 6 utilization of generation resources." 7 Correct? Do you have that? 8 MR. ORANS: Yes, I see it. 9 MR. POCH: Did you take that paragraph as not 10 applying to the rest of the answers? 11 MR. ORANS: No. I believed the whole system 12 was built all together over the last 10 years. 13 MR. POCH: Sure. 14 So these additions weren't built just for 15 capacity -- for load meeting capabilities. They were 16 also built for such things as optimizing utilization of 17 generation resources? 18 MR. ORANS: They provided jointly capacity and 19 these other benefits. 20 MR. POCH: But, in fact, some of the capacity 21 might be in effect utilized for these other purposes? 22 MR. ORANS: Yes. They are jointly utilized 23 for reliability and other purposes, I would agree. 24 MR. POCH: And if we look at the third 25 paragraph we see, talking about these last 10 network 26 investments, at the very end it says these were: 27 "...reinforcements in southern Ontario to 28 meet load in the Greater Toronto Les Services StenoTran Services Inc. 613-521-0703 2108 OPG PANEL 1, cr-ex (Poch) 1 Area....[and] eastern Ontario and Ottawa 2 area and to address changes in system 3 power flow pattern due to generation 4 changes such as the lay-up of generating 5 units at Pickering A and Bruce A and the 6 return of the two mothballed units at 7 Lennox." 8 There is an example of the other purposes why 9 these capacity additions were being made. Correct? 10 MR. ORANS: I will agree with you that these 11 investments in capacity also provide load to these 12 customers. 13 MR. POCH: Well, this is a real example of 14 shifting generation and the transmission system was 15 responding to that. 16 MR. ORANS: They included serving these 17 generators, yes. 18 MR. POCH: Right. So some of this additional 19 capacity then was used up moving power in a different 20 direction than it used to be used because of these 21 shifts in generation location? 22 MR. ORANS: I can't draw that conclusion. 23 Again, as I testified this morning, you have 24 an entire generation dispatch and you have a load. I 25 don't know that these incremental changes -- these could 26 have added capacity. 27 MR. POCH: Well, doesn't this answer tell you 28 what OHNC thinks? They think they added these things in Les Services StenoTran Services Inc. 613-521-0703 2109 OPG PANEL 1, cr-ex (Poch) 1 part to respond to these shifts in generation location. 2 MR. ORANS: And they could have added twice as 3 much -- the entire generation dispatch was the context 4 of the discussion that we had with OHNC. We didn't ask 5 them to undertake a very long complicated study and do 6 that. 7 MR. POCH: And OHNC in answering your 8 interrogatory placed the caveat on here, saying that 9 these were some of the factors that influenced their 10 addition of this capacity. Correct? 11 MR. ORANS: I will give you that they are 12 related to the capacity installed in the area. I don't 13 know if they are more, less or what the magnitude is. 14 MR. POCH: You have assumed that all of the 15 capacity was added to meet the growing load in those 16 regions? 17 MR. ORANS: No. No, I haven't. They told me 18 the incremental capacity added and I am assuming they 19 have already accounted for the Bruce A and Pickering A 20 statement. 21 MR. POCH: So you are assuming that the values 22 of these MVAs at the back here is after they have taken 23 the total capacity added, deducted that amount that is 24 then used up because we are now generating it wherever, 25 at Bruce instead of Pickering or vice versa, and this is 26 just what is left over of the capacity addition to serve 27 load growth. Is that how you have interpreted the 28 answer? Les Services StenoTran Services Inc. 613-521-0703 2110 OPG PANEL 1, cr-ex (Poch) 1 MR. ORANS: Yes. I think the appropriate term 2 here is footnote 2, incremental capacity transfer added 3 with each addition. That doesn't say then go ahead and 4 net generation after it because I didn't have the 5 generation, so I couldn't have done the calculation 6 without the generation. These are all incremental to 7 what's already there and includes some estimates of what 8 the generators are and the loads are. 9 MR. POCH: All right. I am sure -- we will 10 come back to that. 11 THE PRESIDING MEMBER: Mr. Poch, just to let 12 you know, we are nearly out of time. 13 MR. POCH: I certainly have more, 14 Mr. Chairman. I am not going to finish. 15 THE PRESIDING MEMBER: Do it now or do it next 16 time. We are nearly out of time. 17 MR. POCH: Mr. Chairman, whenever you want to 18 stop just let me know. 19 THE PRESIDING MEMBER: If this is a convenient 20 point we will stop. We have to return, probably at 20 21 minutes to the hour and we will have the AMPCO panel. 22 MR. ROGERS: Sir, that's the second AMPCO 23 panel that we are now going to have. Is that right? 24 THE PRESIDING MEMBER: Yes. I believe that's 25 what Mr. Fisher is planning. 26 Gentlemen, we will have to stand you down for 27 now and we will see you again. 28 MR. POCH: Mr. Chairman, I probably have no Les Services StenoTran Services Inc. 613-521-0703 2111 1 questions for AMPCO. I am wondering if the Board has 2 any indication when this panel will be returning? 3 THE PRESIDING MEMBER: Could you discuss that 4 with Mr. Campbell. 5 MR. POCH: All right. Thank you. 6 THE PRESIDING MEMBER: Thank you. 7 --- Upon recessing at 1625 8 --- Upon resuming at 1642 9 THE PRESIDING MEMBER: Thank you. 10 Mr. Fisher, would you like to briefly 11 introduce the panel and then have them sworn. 12 Thank you. 13 MR. FISHER: I will. Thank you, Mr. Chair. 14 Closest to you is Jim Townsend from Stelco; in 15 the middle is Om Bhatia from Abitibi Consolidated; and 16 the person in the grey suit is Bob Baxter from 17 Kimberly-Clark. 18 THE PRESIDING MEMBER: Would you like to come 19 up, gentlemen, and Mr. Smith will swear you in. 20 SWORN: JIM TOWNSEND 21 SWORN: OM BHATIA 22 SWORN: ROBERT BAXTER 23 THE PRESIDING MEMBER: I think you can 24 proceed, Mr. Fisher. 25 MR. FISHER: Thank you. 26 EXAMINATION-IN-CHIEF 27 MR. FISHER: Mr. Baxter, would you please 28 state your name and professional qualifications for the Les Services StenoTran Services Inc. 613-521-0703 2112 AMPCO PANEL 2, in-ch (Fisher) 1 Board? 2 MR. BAXTER: My name is Bob Baxter. I am a 3 graduate from Lakehead University, Bachelor of Science 4 and Forestry. 5 MR. FISHER: Sir, what is your title at 6 Kimberly-Clark and what are your responsibilities? 7 MR. BAXTER: My current title is 8 Vice-President for Kimberly-Clark Incorporated. I'm 9 responsible for our Terrace Bay Kraft Pulp Mill and 10 Forest Products. I started with our operation upon 11 leaving school, moved to our Woodlands organization and 12 then our mill organization. I became mill manager in 13 1995, President of Kimberly-Clark Forest Products 14 in 1997. 15 In 1999, at the end of the year, we 16 reorganized and became part of Kimberly-Clark 17 Incorporated, of which I am a Vice-President. I am on 18 the Board of Directors for Kimberly-Clark Canada and 19 Kimberly-Clark Incorporated. 20 MR. FISHER: Mr. Baxter, were you involved in 21 the preparation of the evidence and do you understand 22 the evidence in Appendix B submitted by AMPCO on behalf 23 of Kimberly-Clark? 24 MR. BAXTER: Yes, I was involved, and yes I 25 support it. 26 MR. FISHER: To the best of your knowledge and 27 understanding, do you believe the contents of the 28 Kimberly-Clark evidence to be true and accurate? Les Services StenoTran Services Inc. 613-521-0703 2113 AMPCO PANEL 2, in-ch (Fisher) 1 MR. BAXTER: Yes, I do. 2 MR. FISHER: Mr. Baxter, do you adopt the 3 evidence in Appendix B submitted by AMPCO on behalf of 4 Kimberly-Clark? 5 MR. BAXTER: Yes, I do. 6 MR. FISHER: Thank you. 7 Please describe the business activities of 8 your operations. 9 MR. BAXTER: In our operations we manufacture 10 kraft pulp and forest products. At our Terrace Bay mill 11 and associated woodlands we have approximately 12 1,000 employees and we have an estimated 1,200 support 13 employees or additional jobs that are directly 14 supporting our operation. 15 Our business and our employees generated about 16 $60 million last year for the government coffers. Last 17 year our purchased goods and service totalled 18 approximately $130 million. 19 We are the major employer in five communities 20 in northern Ontario, being Terrace Bay, Schreiber, 21 Longlac, Geraldton and Nakina. 22 MR. FISHER: Sir, what is your company doing 23 to maintain its competitiveness in the global market? 24 MR. BAXTER: We have had to focus on reducing 25 our manufacturing costs. Key areas that we focused on 26 are our wood costs, our labour costs and our energy 27 costs. We must lower our costs to be competitive, to 28 ensure that we have a viable operation in the future. Les Services StenoTran Services Inc. 613-521-0703 2114 AMPCO PANEL 2, in-ch (Fisher) 1 We are continually facing global competition, 2 and as recently as a year ago Indonesian hardwood was 3 being sold in Chicago at a price lower than what our 4 manufacturing costs were. 5 Our business and a number of the other 6 Canadian pulp businesses have had a very difficult 7 decade. The earnings have been very poor. It is 8 crucial that we continue to lower our manufacturing 9 costs as we compete in this global commodity market. 10 MR. FISHER: Mr. Baxter, would you please 11 explain for the Board the significance of energy costs 12 to the Terrace Bay facility? 13 MR. BAXTER: Energy is a large component with 14 an expenditure of approximately $11 million last year. 15 This represents about 6 per cent of our operating costs. 16 MR. FISHER: Sir, how competitive is the 17 Terrace Bay operation with average energy costs for the 18 pulp industry? 19 MR. BAXTER: We have recently participated in 20 a couple of studies to evaluate where we stood and 21 benchmarked ourselves. 22 The most recent one was the 1998 23 PriceWaterhouseCoopers Global Market Pulp Survey. In 24 that survey, as we looked at global hardwood pulp costs, 25 our energy component -- we were about the 11th most 26 expensive out of 22. So, more importantly, in the 27 Canadian hardwood market our energy costs were the 28 7th most expensive out of nine. So we were 7 out of 9 Les Services StenoTran Services Inc. 613-521-0703 2115 AMPCO PANEL 2, in-ch (Fisher) 1 in terms of most expense for energy. 2 In the softwood market, globally our energy 3 costs were about 25th out of 43 participants, but again, 4 importantly, in the Canadian softwood production we were 5 the 19th most expensive of the 26 that responded. 6 A second comparison was the Resource 7 Information Systems or RIS survey, and it indicated that 8 our energy and fuel costs were $10 higher than the 9 eastern Canadian average. 10 Terrace Bay's energy self-generation is 11 currently at 43 per cent. We produce 43 per cent of our 12 electrical needs and the eastern Canadian average is 13 about 70 per cent. 14 MR. FISHER: Sir, would you please describe 15 the cogeneration plant contemplated by Kimberly-Clark in 16 the mid-1990s? 17 MR. BAXTER: In the mid-1990s we considered a 18 30 megawatt cogen plant. Our plan was to utilize wood 19 waste which was currently being landfilled to produce 20 steam in our power boiler. We would use this steam 21 along with processed steam to meet all of the mill's 22 electrical needs. We would be basically 95 per cent 23 self-sufficient and that would lower our annual 24 electrical costs. 25 MR. FISHER: On what basis did Kimberly-Clark 26 enter into the LRER contract with Ontario Hydro? 27 MR. BAXTER: We had discussions with Ontario 28 Hydro and believed we had a bona fide generation Les Services StenoTran Services Inc. 613-521-0703 2116 AMPCO PANEL 2, in-ch (Fisher) 1 project. An independent review was done with Ernst & 2 Young and we reached agreement among all parties that, 3 yes, we had a bona fide agreement. 4 We agreed to defer the installation of the 5 project as a result of the surplus that Ontario Hydro 6 had at the time. Ontario Hydro benefitted by 7 maintaining their load and sustained efficiency in the 8 transmission system. 9 MR. FISHER: How did Kimberly-Clark see their 10 energy requirements to be met at the end of this 11 contract? 12 MR. BAXTER: We saw that as the new government 13 was coming in the potential for a competitive energy 14 market unfolding. 15 We also had a provision to renegotiate our 16 agreement by September of 1999. We believe we still had 17 a bona fide proposition and our decision to proceed with 18 the generator would depend on the guidelines developed 19 during the deregulation process. 20 I might add, in the interim one of our plants 21 has shut down in Maine and we were able to acquire one 22 of the turbines that they had and it is fairly in hold. 23 We are basically awaiting the development of the 24 guidelines in this process as to whether we proceed 25 or not. 26 MR. FISHER: Mr. Baxter, will you please 27 describe for the Board how a cogeneration facility will 28 assist in your efficiency goals? Les Services StenoTran Services Inc. 613-521-0703 2117 AMPCO PANEL 2, in-ch (Fisher) 1 MR. BAXTER: A cogen facility then would 2 provide us 100 per cent self-sufficiency in energy 3 needs; it would lower our annual and electrical costs 4 considerably; it would utilize wood waste which is 5 currently being land filled to produce steam to produce 6 this energy. 7 MR. FISHER: How would gross load billing 8 impact the viability of the project? 9 MR. BAXTER: We estimate that the benefits of 10 this project will be reduced by roughly 1.2 million, a 11 roughly 20 per cent reduction with gross load billing. 12 Since we need to compete for capital within the 13 corporation, projects with poorer returns are less 14 likely to be authorized. 15 If this project does not proceed it will 16 continue to be competitively disadvantageous to those 17 mills that have installed cogen prior to 1998. 18 MR. FISHER: Why would this be a further 19 competitive disadvantage in relation to those newer, 20 expanded mills with electric-intensive processes in 21 place? 22 MR. BAXTER: A new plant would have the 23 ability to add new pulp capacity to the pulp market with 24 self-generation and not be charged gross transmission 25 charges. It would be a disincentive for us to be 100 26 per cent self-reliant. 27 MR. FISHER: What will be the fate of the 28 Terrace Bay operation both in the new term and the long Les Services StenoTran Services Inc. 613-521-0703 2118 AMPCO PANEL 2, in-ch (Fisher) 1 term if gross load billing is implemented? 2 MR. BAXTER: If gross load billing is 3 implemented an efficient and environmentally friendly 4 cogeneration project would be directly burdened and risk 5 being eliminated. 6 Gross billing would add to our electrical 7 costs. It would be an indication of the Ontario 8 economic climate, not as favourable as other 9 jurisdictions that Kimberly-Clark does business in, more 10 specifically in Nova Scotia where future capital could 11 be forwarded to the Nova Scotia plant versus ours. This 12 could impact the viability of the 50-year old portion of 13 our plant which must improve its competitive position. 14 It would be less secure and, subsequently, the jobs 15 would be less secure and the impact on the five 16 communities would be apparent. 17 MR. FISHER: Thank you, Mr. Baxter. 18 Mr. Townsend, would you please state your name 19 and title and responsibilities for the Board? 20 MR. TOWNSEND: I am Jim Townsend, Purchasing 21 Manager, Strategic Materials at Stelco. 22 I am responsible for the purchase of strategic 23 commodities for Stelco which includes electricity. I am 24 also Stelco's representative in AMPCO. I have been 25 employed at Stelco for 29 years and in my present 26 position for two and a half years. 27 MR. FISHER: Mr. Townsend, were you involved 28 in the preparation of the evidence and do you understand Les Services StenoTran Services Inc. 613-521-0703 2119 AMPCO PANEL 2, in-ch (Fisher) 1 the evidence in Appendix C submitted by AMPCO on behalf 2 of Stelco? 3 MR. TOWNSEND: I was, and yes, I do. 4 MR. FISHER: To the best of your knowledge and 5 understanding, do you believe the contents of the Stelco 6 evidence to be true and accurate? 7 MR. TOWNSEND: Yes, I do. 8 MR. FISHER: Mr. Townsend, do you adopt the 9 evidence in Appendix C submitted by AMPCO on behalf of 10 Stelco? 11 MR. TOWNSEND: Yes, I do. 12 MR. FISHER: Sir, would you please describe 13 the business activities at Stelco? 14 MR. TOWNSEND: Stelco is a major steel 15 producer of steel in Canada with sales of a little over 16 $3 billion in 1999. Stelco produces five million tonnes 17 of steel per year and employs 11,700 people, 7,400 of 18 those people are employed in the province of Ontario. 19 MR. FISHER: Mr. Townsend, what is Stelco 20 doing to maintain its competitiveness in the global 21 market? 22 MR. TOWNSEND: Stelco is continuously striving 23 to make our business more cost efficient. Over the past 24 three years Stelco has invested over $700 million in 25 capital improvements. 26 Many aggressive cost-cutting programs have 27 been put in place in all areas over the past few years. 28 With our suppliers we have introduced cost-reduction Les Services StenoTran Services Inc. 613-521-0703 2120 AMPCO PANEL 2, in-ch (Fisher) 1 programs with new contributing partnership arrangements. 2 We have implemented inventory reduction programs 3 throughout our process and consignment programs with our 4 suppliers; we have completed major upgrades to our 5 facilities; we have installed automation on new and 6 existing equipment; we have introduced many 7 energy-reduction programs throughout the organization. 8 The Stelco group of businesses have improved 9 energy efficiency by approximately 10 per cent between 10 1990 and 1998. The pursuit of all cost-cutting 11 opportunities aggressively continues today in what has 12 become an even smaller global market. 13 MR. FISHER: Would you please tell the Board 14 how much Stelco spends on electricity? 15 MR. TOWNSEND: We spend in the province of 16 Ontario $80 million on electricity. 17 MR. FISHER: How significant are electricity 18 costs as part of Stelco's Ontario operations? 19 MR. TOWNSEND: These costs represent 35 20 per cent of our net income in 1999 and approximately 10 21 per cent of our energy consumption. 22 MR. FISHER: Sir, would you please tell the 23 Board why Stelco decided to participate in Ontario's 24 voluntary anti-smog action plan? 25 MR. TOWNSEND: The environment is Stelco's top 26 priority after safety in our plants and Stelco has 27 always had a strong history of commitment to 28 environmental improvements. We have been implementing Les Services StenoTran Services Inc. 613-521-0703 2121 AMPCO PANEL 2, in-ch (Fisher) 1 measures to reduce smog-causing emissions since the 2 Canadian Council of Ministers of the Environment 3 announced a management plan for nitrogen oxide and 4 volatile compounds in 1990. 5 We decided to participate in Ontario's 6 anti-smog action plan to support the province's air 7 quality objectives, to formalize our commitment to 8 reduce emissions, and to ensure that our emission 9 reduction progress was recognized. 10 Through modernization projects we processed 11 changes since 1992, Stelco Hilton Works has reduced 12 emissions in nitrogen oxide by 17 per cent, sulphur 13 dioxide by 41 per cent and volatile organic compound by 14 45 per cent. I understand these reductions are well 15 ahead of the anti-smog action plan goals. 16 MR. FISHER: How does a 40-megawatt 17 cogeneration facility assist Stelco in meeting its 18 obligations under the smog report? 19 MR. TOWNSEND: A 40-megawatt cogenerator 20 facility would allow us to achieve an energy balance at 21 Hilton Works by utilizing our surplus coke ovens and 22 blast furnace gases which are currently flared. This 23 would not only benefit Stelco by utilizing by-product 24 fuels but would also contribute to emission reductions 25 in the Ontario Air Shed. This would occur when the 26 generation of 40 megawatts of electrical power generated 27 at Stelco replaces power generation at fossil generation 28 facilities either in Ontario or up-wind in neighbouring Les Services StenoTran Services Inc. 613-521-0703 2122 AMPCO PANEL 2, in-ch (Fisher) 1 states. 2 MR. FISHER: Moving on to another voluntary 3 emission reduction program, sir, would you please 4 describe Canada's voluntary challenge and registry 5 initiative? 6 MR. TOWNSEND: The program represents Canada's 7 national action plan on client change where participant 8 submit their plans to achieve energy and greenhouse gas 9 emission reduction goals. 10 MR. FISHER: What are the goals of this 11 initiative and how successful has Stelco been at meeting 12 its goals under the VCR? 13 MR. TOWNSEND: Stelco's goal is to reduce 14 energy consumption to 80 per cent of 1998 levels by 15 2010. As a result of many efficiency improvements, I 16 believe Stelco is on target. 17 MR. FISHER: How would a 40-megawatt 18 cogeneration plant assist in meeting Stelco's goals? 19 MR. TOWNSEND: Instead of flaring surplus 20 by-product fuels, these fuels would be used to fire the 21 cogeneration facility, thus reducing the amount of 22 purchased energy. The cogeneration facility will reduce 23 Hilton Work's specific energy consumption by more than 4 24 per cent, up to 7 per cent if we use the combined cycle 25 turbine and include the district heating project we are 26 currently discussing with the city of Hamilton. 27 MR. FISHER: Why is Stelco coming forward now 28 with a cogeneration proposal? Les Services StenoTran Services Inc. 613-521-0703 2123 AMPCO PANEL 2, in-ch (Fisher) 1 MR. TOWNSEND: Timing is important for us 2 since over recent years Stelco has undergone significant 3 restructuring, utilizing new technologies which have 4 allowed us to become more cost and energy efficient 5 resulting in a growing surplus of by-product fuels. 6 Power generation is our largest single 7 opportunity to meet our environmental commitments while 8 utilizing the available by-product fuels. 9 MR. FISHER: Mr. Townsend, if the cogeneration 10 project does not become a reality, how will Stelco meet 11 its environmental commitments? 12 MR. TOWNSEND: With difficulty. We have not 13 identified a feasible alternative for utilizing our 14 by-product fuels. End-of-pipe emission control devices 15 are expensive and offer no return. This route is not 16 environmentally or economically feasible considering 17 that our North American competitors are going the 18 cogeneration route. 19 MR. FISHER: What impact will gross load 20 billing have on the future of Stelco's cogeneration 21 facility? 22 MR. TOWNSEND: I can't say for sure. Gross 23 billing was not on the table when we made our voluntary 24 environmental commitments. We believe that gross 25 billing will impede our ability to move our energy plan 26 forward and will make achieving our environmental 27 objectives more challenging and certainly more costly. 28 The economics of cogeneration projects within Les Services StenoTran Services Inc. 613-521-0703 2124 AMPCO PANEL 2, in-ch (Fisher) 1 steel plants is already fragile because of the 2 complexities of using by-product fuels and economy of 3 scale generally works against them. 4 MR. FISHER: Thank you. 5 Mr. Bhatia, would you please state your name 6 and professional qualifications for the Board? 7 MR. BHATIA: My name is Om Bhatia. I have a 8 Masters degree in paper science and engineering, and an 9 MBA from the University of Notre Dame. 10 MR. FISHER: So what is your title at Abitibi 11 Consolidated and what are your responsibilities? 12 MR. BHATIA: I am Abitibi Consolidated 13 Corporate Vice-President of Energy and International 14 Customers. I am responsible for all the energy needs 15 for the company. The company spends close to 16 $600 million a year on energy and I look at the issues 17 in all the States in the U.S., as well as in Canada. 18 MR. FISHER: Mr. Bhatia, were you involved in 19 the preparation of the evidence and do you understand 20 the evidence in Appendix D submitted by AMPCO on behalf 21 of Abitibi Consolidated? 22 MR. BHATIA: I was involved in preparing the 23 evidence and I do support it with one exemption, one 24 correction, which is on page 4, the top paragraph, the 25 last line which reads: 26 "...as Bill 35 suggests, to circumvent 27 stranded cost responsibility." 28 I would like to delete that. Les Services StenoTran Services Inc. 613-521-0703 2125 AMPCO PANEL 2, in-ch (Fisher) 1 MR. FISHER: Thank you. 2 To the best of your knowledge and 3 understanding, do you believe the contents of the 4 evidence to be true and accurate? 5 MR. BHATIA: Yes. 6 MR. FISHER: Without exception? 7 MR. BHATIA: Yes. 8 MR. FISHER: Mr. Bhatia, do you adopt the 9 evidence in Appendix D submitted by AMPCO on behalf of 10 Abitibi Consolidated? 11 MR. BHATIA: Yes, I do, with that correction. 12 MR. FISHER: Mr. Bhatia, would you please 13 describe for the Board the status of Abitibi 14 Consolidated International, or ACI, among Canadian and 15 global newsprint producers? 16 MR. BHATIA: Abitibi Consolidated is the 17 largest company in the world producing newsprint and 18 value-added paper. With the recent acquisition, we will 19 be operating 29 mills in the U.S., Canada, U.K. and in 20 Asia. We have a market share, with this recent 21 acquisition completed, of 34 per cent of the North 22 American market in newsprint and 32 per cent in 23 value-added markets. Worldwide we will have a 16 per 24 cent market share of the world's newsprint capacity. 25 With the recent acquisition we have become the 26 largest forest products company in Canada with a 27 significant operation in Ontario. The revenue is 28 expected to be about $7 billion. Les Services StenoTran Services Inc. 613-521-0703 2126 AMPCO PANEL 2, in-ch (Fisher) 1 MR. FISHER: What is the significance of the 2 Ontario operations to ACI's production? 3 MR. BHATIA: In Ontario we have about 20 per 4 cent of the worldwide production capacity and these 5 mills are strategically located to serve the U.S. 6 mid-west market both in newsprint and the value-added 7 commercial printer markets. 8 The mills we have in Ontario -- we have four 9 mills plus the fifth one which would be through the 10 recent acquisition. That represents the largest single 11 consumer of electricity in Ontario paying about 12 $100 million for electricity in Ontario. That excludes 13 the self-generation we have in our facility, which is 14 about 40 per cent. 15 MR. FISHER: How long has ACI operated in 16 Ontario? 17 MR. BHATIA: Almost a century. Two of the 18 mills have been in operation for 90 years: Fort Frances 19 since 1906; and, Inuquois(ph) Falls since 1912. Other 20 mills and woodland have been in operation for at least 21 the last few decades. 22 MR. FISHER: Mr. Bhatia, does ACI have its own 23 generating facilities? 24 MR. BHATIA: Yes. That has been the premise 25 of being competitive in paper production, so we have 26 always emphasized to find the location where there are 27 self-generation opportunities, particularly Hydro. We 28 have eight hydro plants generating about 125 megawatts Les Services StenoTran Services Inc. 613-521-0703 2127 AMPCO PANEL 2, in-ch (Fisher) 1 and it is primarily used for three of our four mills. 2 In Inuquois(ph) Falls we have three plants on Abitibi 3 River, and at Fort Frances, we have one in Fort Frances, 4 and one in Sturgeon Falls and in Palm Lake. The Kenora 5 plants are, one is Kenora, another one is Norman plant, 6 for a total of eight hydro power plants. 7 We also have a cogeneration plant to be 8 completely owned in the coming years of 2007 for our 9 Fort Frances facility and we are constantly making 10 payments towards the ownership of that plant eventually. 11 MR. FISHER: Would you please describe for the 12 Board ACI's power generation facilities in terms of 13 their location, age and significance to the Ontario 14 plants while we have that? 15 MR. BHATIA: Yes. As I mentioned, the 16 125 megawatts serves three of the plants, three of the 17 manufacturing plants. In Inuquois(ph) Falls we have 18 three plants, Twin Falls, Iroquois Falls and Island 19 Falls. Twin Falls was completed in 1921 with a capacity 20 of 25 megawatts; Iroquois Falls was originally built in 21 1914 and then modified in 1948 with an operating 22 capacity of 18 megawatts; then, Island Falls was 23 completed in 1925 with a total capacity of 40 megawatts 24 which the Inuquois(ph) Falls mill's total capacity for 25 this hydro power is about 80 megawatts. 26 In Fort Frances we have three plants, as I 27 indicated before: Fort Frances at 12 megawatts which is 28 on the Rainy River, and it is in the location at Fort Les Services StenoTran Services Inc. 613-521-0703 2128 AMPCO PANEL 2, in-ch (Fisher) 1 Frances mill; Sturgeon Falls which is 60 miles east of 2 Fort Frances mill, it is on the Sand River, it was 3 constructed in 1920, it has the capacity of 7 megawatts; 4 in Calm Lake, which is another 65 miles east of Fort 5 Frances on the Sand River close to Sturgeon Falls, and 6 it has a capacity of 9 megawatts and was constructed in 7 1920. 8 In Kenora we have two hydro plants: one is 9 Kenora Powerhouse, it was built early 1900s, and it has 10 a capacity of 7 megawatts and was modified in 1927-28; 11 and Norman Powerhouse of 5 megawatts was originally 12 constructed around 1920. These two plants are on Lake 13 of the Woods. 14 So those are all of the hydro plants we have 15 in Ontario. 16 MR. FISHER: What percentage of Abitibi's 17 energy requirements is self-generated? 18 MR. BHATIA: Company-wide we use about 19 1,800 megawatts, and we have 25 per cent self-generating 20 capacity worldwide. In Ontario we have close to 40 per 21 cent self-generation. Because of other costs being very 22 high, we have made efforts to work toward a 23 self-generating capacity to reduce the cost of operation 24 in Ontario. 25 Just a point there. The energy cost component 26 for the total manufacturing cost is close to 18 to 27 20 per cent, which is very high, close to labour and 28 close to fibre. So fibre, labour and energy are the Les Services StenoTran Services Inc. 613-521-0703 2129 AMPCO PANEL 2, in-ch (Fisher) 1 highest cost components of our operation. 2 In terms of self-generation, we continue to 3 work to bring affordable power for the long-term 4 liability and competitiveness of the mills, and we 5 continue to work towards percentage self-generation 6 increasing for the mills to stay competitive in this 7 global competitive marketplace, particularly where the 8 commodity prices have not been good for the last decade 9 or so. That is our biggest challenge. 10 MR. FISHER: You have a lot of hydro electric 11 installations. Do new replacement turbines have the 12 same capacity as those being replaced? 13 MR. BHATIA: The answer to that is no. 14 Whenever we replace any equipment in the manufacturing 15 process we look at higher productivity and efficiency 16 out of that system. These new plants which are in place 17 right now are in the study phase right now. To be 18 implemented, we are looking at higher efficiency 19 turbines because some of the turbines were as old as 40 20 to 60 years and the technology has improved. 21 Our effort is to get the most out of existing 22 resources of water and existing sites so to generate as 23 much as we can at the lowest cost possible to increase 24 affordable self-generation for our plants. 25 Just one example. We completed an engineering 26 study on the Iroquois Falls site, currently 18 megawatts 27 with the improvements and technology, we can have up to 28 25 or higher capacity and much higher energy out of the Les Services StenoTran Services Inc. 613-521-0703 2130 AMPCO PANEL 2, in-ch (Fisher) 1 same water resources. 2 MR. FISHER: Would ACI have replaced these 3 turbines if the government did not decide to restructure 4 the electric industry? 5 MR. BHATIA: Yes. We have -- that's the way 6 we do all our business. We look at all of our assets 7 and continue to find a way to get more through a 8 leveller, maintenance or upgrades. Then the time comes 9 where the maintenance cost is much higher than a 10 replacement cost and we move into the replacement of 11 those with an additional output which will further 12 increase the productivity and lower the cost of 13 manufacturing. So we would do it anyway if it is 14 economical to do it. 15 We are doing similar efforts in Quebec power 16 plants as well as Newfoundland and also we are looking 17 in Arizona which are the thermal power plants the same 18 way. 19 MR. FISHER: What will ACI do to meet its 20 increased power needs? 21 MR. BHATIA: As I indicated before, energy 22 costs being one of the largest components, 18 to 20 per 23 cent of the total cost, we continue to find a way to get 24 an affordable low cost power to keep our total 25 manufacturing cost. It's a similar effort we do for 26 fibre and labour. 27 We had recently announced a 10 per cent labour 28 reduction to reduce our labour costs. We have also done Les Services StenoTran Services Inc. 613-521-0703 2131 AMPCO PANEL 2, in-ch (Fisher) 1 a lot of -- also made fibre sources that are recycled 2 material, to bring it to manage the fibre cost. 3 In terms of energy, there are only a few 4 alternatives. We focus on cogen or other hydro plants 5 or increase our hydro capacity to offset that cost as we 6 go forward. That's the major effort we are doing in 7 Ontario because there are some other costs which are 8 higher. Any increase that happens in energy, it starts 9 making some of our plants uneconomical and then we start 10 looking at whether we invest in these projects or we 11 shut down the capacity. 12 As you might know, there has been a major 13 demand and supply issue in the North American newsprint 14 capacity. Now we look at the worldwide basis. 15 MR. FISHER: What other costs is ACI concerned 16 about arising from the OHNC application? 17 MR. BHATIA: We have in Fort Frances and Calm 18 Lake and Sturgeon Falls, we had owned those plants for a 19 hundred years or close to a hundred years. We had 20 lines, transmission lines, transmitting those powers 21 from those plants to us. Those lines were taken over by 22 Ontario Hydro in '50 and right now -- at that time there 23 was some -- the financial reward or financial 24 compensation was made to compensate that. 25 Then in 1989 we had renegotiated that and then 26 we paid $3 million for capital to upgrade those lines. 27 Since then we have paid another $6 million of 28 transmission charges. We are concerned that any changes Les Services StenoTran Services Inc. 613-521-0703 2132 AMPCO PANEL 2, in-ch (Fisher) 1 in that might impact or will impact the cost of 2 manufacturing at the Fort Frances mill. 3 MR. FISHER: And, sir, what relief are you 4 looking for in this regard? 5 MR. BHATIA: I would say the wheeling 6 arrangements made in 1989 to address the local 7 circumstances must be accommodated and any charges 8 resulting in additional transmission costs will 9 certainly kill the liability of these power plants, thus 10 adversely impacting cost of manufacturing at the Fort 11 Frances mill, which is very important for us in terms of 12 the strategic market this mill serves. 13 I would say all this embedded generation in 14 terms of capacity, energy delivery improvements must be 15 treated under net billing approach because this approach 16 is consistent with past Ontario practices. It's 17 consistent with practices in other jurisdictions we do 18 business in and also promotes the competition and energy 19 market promoting the low cost energy. 20 The products we have right now are these new 21 and refurbishment products, they are only possible with 22 net billing to increase our percentage of affordable 23 power that can enhance or maintain our competitive 24 position in this global marketplace of newsprint and 25 value added. 26 I think that is becoming more and more 27 critical, that we reduce the costs in our Ontario 28 plants. Les Services StenoTran Services Inc. 613-521-0703 2133 AMPCO PANEL 2, in-ch (Fisher) 1 MR. FISHER: Thank you, Mr. Bhatia. 2 Dr. Higgin, those are my questions. The panel 3 is now available. 4 THE PRESIDING MEMBER: Thank you very much. 5 Mr. Brown, do you have any questions? I 6 didn't think so. 7 What about Mr. Campbell, OPG? 8 MR. CAMPBELL: Thank you, Mr. Chairman. 9 CROSS-EXAMINATION 10 MR. CAMPBELL: I think my first question is to 11 Mr. Townsend. You have given in your evidence a figure 12 of $2.4 million per year. That can be found at page 8 13 of Appendix C of the AMPCO exhibit. Does that 14 $2.4 million assume that you avoid the full network, the 15 full line connection and the full transformation 16 charges? 17 MR. TOWNSEND: I could probably answer the 18 question easier in telling you what it is made up of 19 rather than what it's not made up of. It does not 20 include -- let me tell you how it is made up of. 21 We use $2.76 per kilowatt per month in 22 transition rates, 79 cents per kilowatt per month for 23 line connection and $1.39 per kilowatt for transmission 24 connection, bringing a total of $4.94 times 40,000. It 25 comes to $2.73 million. 26 MR. CAMPBELL: You do understand -- I take it 27 by including of all of that, are you asking that this 28 Board in effect go full net charges on line connection Les Services StenoTran Services Inc. 613-521-0703 2134 AMPCO PANEL 2, cr-ex (Campbell) 1 charges and transformation charges as well, that they be 2 fully avoided? 3 MR. TOWNSEND: Yes, we are. 4 MR. CAMPBELL: And what's the rationale for 5 that suggestion? 6 MR. TOWNSEND: Well, first of all, that's the 7 way business is right now on any cogeneration that we 8 have in place. That's the way business has been carried 9 out. It's a user pay principle. It's the same as any 10 other commodity. If we don't use the service, we don't 11 pay for it unless it's a facility that has specifically 12 been put up for our purposes where we negotiated a pay 13 per pay portion of the facility as a base load. 14 Otherwise this is a service, if we reduce our 15 demand, we would not normally expect to pay anything for 16 the transmission of a service that we do not obtain. 17 MR. CAMPBELL: So as I understand it, your 18 position essentially is that your line connections and 19 the transformation service that you receive was not put 20 up specifically for you and, therefore, you should be 21 allowed to completely avoid it. Is that -- 22 MR. TOWNSEND: Hilton Works in an MEU in 23 Hamilton. The network has been there for many -- the 24 transmission of the entire system has been there for 25 many decades, probably as old as electricity service 26 itself. It was not solely put in place for our use. 27 MR. CAMPBELL: And if I could turn then to 28 you, Mr. Baxter. We did a similar calculation around Les Services StenoTran Services Inc. 613-521-0703 2135 AMPCO PANEL 2, cr-ex (Campbell) 1 your $1.2 million. Are you also asking that you be 2 permitted to avoid the full network, the full line 3 connection and the full transformation charges? 4 MR. BAXTER: In my response earlier, the 5 $1.2 million is strictly the transmission component 6 impact which we are talking about here in this hearing. 7 There are components as we move ahead with the process 8 of deregulation which we will have to review. The 9 $1.2 million portion is the transmission component. 10 MR. CAMPBELL: Are you talking the network 11 transmission charge when you speak of the transmission 12 component? 13 MR. BAXTER: That would be -- 14 MR. CAMPBELL: I guess my simple -- I will 15 just leap right ahead here. How did the $1.2 million 16 get calculated? 17 MR. BAXTER: The network component. 18 MR. CAMPBELL: So it's the 276, which is the 19 network charge, times the 30 megawatts which is the 20 plant size, times 1,000 because the charge is in 21 kilowatts, times 12. When we did that calculation we 22 got $993,000 and change. 23 MR. BAXTER: This is put together by a member 24 of our staff. To get into the intricate details I am 25 not really that qualified. 26 MR. CAMPBELL: But, in any event, when you are 27 speaking of transmission avoiding, regardless of how the 28 calculations all work out, what you are speaking of and Les Services StenoTran Services Inc. 613-521-0703 2136 AMPCO PANEL 2, cr-ex (Campbell) 1 what you want the Board to take from at least your 2 comments is that you are proposing to avoid the full 3 network charge? 4 MR. BAXTER: Transmission cost. 5 MR. CAMPBELL: But the transmission cost, if 6 you look at it globally, all together right through to 7 the plant -- 8 MR. BAXTER: I'm not talking line charge or 9 the IMO usage or application or the CTC or the 10 ancillary. 11 MR. CAMPBELL: And you are not talking 12 transformation services? 13 MR. BAXTER: No. We recognize that's a 14 component we are prepared to pay. 15 MR. CAMPBELL: Okay. Thank you, Mr. Chairman. 16 Those are my questions. 17 THE PRESIDING MEMBER: Thank you. 18 We will go to Board staff please. 19 MS LEA: Thank you. 20 EXAMINATION 21 MS LEA: Mr. Baxter, I want to follow up on 22 what Mr. Campbell is asking you about. Can you tell me 23 approximately what percentage of your total electricity 24 costs that $1.2 million represents, or if you can give 25 me a total electricity cost then maybe I can 26 calculate it. 27 MR. BAXTER: About 10 per cent. 28 MS LEA: Ten 10 per cent. So your total Les Services StenoTran Services Inc. 613-521-0703 2137 AMPCO PANEL 2, cr-ex (Lea) 1 electricity cost is what? 2 MR. BAXTER: $11 million. 3 MS LEA: $11 million. Okay. 4 I had a couple of other questions for you, 5 sir, which deals with some aspects of your evidence. On 6 page 2 of your evidence you talk about the fact that you 7 entered into a load retention and expansion rate 8 contract in 1996 and you talked about the benefit that 9 Ontario Hydro received from that in your 10 evidence-in-chief today. What benefit did you receive 11 because you entered into this contract? 12 MR. BAXTER: Our power rates -- our electric 13 rates were reduced. 14 MS LEA: By how much? 15 MR. BAXTER: About 10 per cent. 16 MS LEA: About 10 per cent. Okay. 17 And that was per annum obviously? 18 MR. BAXTER: Yes. 19 MS LEA: Are you able to quantify the total 20 benefit in dollar terms that you received to defer your 21 generation? How many years did that apply? 22 MR. BAXTER: This is a five-year project. The 23 actual commercial terms we would have to release with 24 Ontario Hydro because of the confidential nature of the 25 contract. 26 MS LEA: Okay. So you don't want to give us 27 the actual dollar amount then. It was about 10 per cent 28 for each of five years. Thank you. Les Services StenoTran Services Inc. 613-521-0703 2138 AMPCO PANEL 2, cr-ex (Lea) 1 Now, there was one thing I didn't understand 2 at page 2 of your evidence and that was in the last 3 paragraph under load retention and expansion rate under 4 that section you say in your first sentence of that 5 paragraph: 6 "If gross [load] billing is adopted as 7 outlined by OHNC, a time horizon of three 8 to five years is required to pursue the 9 cogeneration project without being 10 penalized by the new transmission 11 charges." 12 Does that mean that if the Board decided that 13 gross load billing was the way to go for the foreseeable 14 future, that after three to five years you wouldn't have 15 a problem with that? 16 MR. BAXTER: What we are proposing is that we 17 have an opportunity to follow through with the project 18 which we had on our books in 1996. We looked for a 19 window of opportunity to do the analysis with the way 20 the deregulation process comes, securing the funds and 21 then the construction of the project. 22 MS LEA: But my question was after that time 23 you wouldn't have a problem with gross load billing? 24 MR. BAXTER: We definitely would. 25 MS LEA: You still would. 26 But the concern you were attempting to address 27 here was related to that specific project and the 28 ability to carry through on it? Les Services StenoTran Services Inc. 613-521-0703 2139 AMPCO PANEL 2, cr-ex (Lea) 1 MR. BAXTER: That's correct. 2 MS LEA: Thank you. 3 Mr. Townsend, it has already been discussed 4 again by Mr. Campbell that you have calculated an 5 additional financial burden of $2.4 million per year as 6 a result of gross load billing. 7 Now, the projects that you have talked about, 8 would those projects qualify for the 50 per cent access 9 fee, the discount that Ontario Hydro proposes for 10 efficient generation? 11 MR. TOWNSEND: First of all, I should add one 12 thing, my figure of the $2.4 million that we had in our 13 evidence does not include any distribution charges and 14 we don't know what those will be, so that will add to 15 that. 16 MS LEA: That's fine. We are just talking 17 about transmission in this hearing. 18 MR. TOWNSEND: Sorry, go back to your 19 question. 20 MS LEA: Yes. I was trying to determine 21 whether you would be able to receive the 50 per cent 22 access fee, the sort of discount that OHNC is proposing 23 for efficient generation projects. Some of your 24 projects, would they be capable of qualifying? 25 MR. TOWNSEND: Yes, I understand what you are 26 saying. So while we don't accept that that is an 27 acceptable proposal for us, the 50 per cent net, yes, 28 with all our attempts to do everything we are trying to Les Services StenoTran Services Inc. 613-521-0703 2140 AMPCO PANEL 2, cr-ex (Lea) 1 do with the environment they would qualify. 2 MS LEA: And if that were the case would the 3 figure of $2.4 million of incremental cost be less? 4 MR. TOWNSEND: It would be less if that was 5 the case. 6 MS LEA: And I understand from your evidence 7 that the $2.4 million represents about 3 per cent of 8 your total electricity bill? 9 MR. TOWNSEND: If you have done that 10 calculation that sounds about right. 11 MS LEA: I was working from $80 million. 12 MR. TOWNSEND: Right. 13 MS LEA: Subject to check, as we usually say. 14 MR. TOWNSEND: That $80 million is all of our 15 operations in Ontario. To get a more accurate figure 16 for Hilton Works alone, it would be that figure, the 2.4 17 of about 44 million right now at Hilton Works. 18 MS LEA: Okay. Thank you. 19 MR. TOWNSEND: So it's a higher percentage. 20 MS LEA: Now, you have indicated in your 21 evidence that the extra cost would negate the economic 22 and environmental benefits of utilizing your embedded 23 energy through cogeneration initiatives. Now, when you 24 say negate, do you mean that the products would never go 25 forward or that they would go forward, but their 26 benefits would be reduced? 27 MR. TOWNSEND: The benefits will definitely be 28 reduced. We don't feel that we cannot go forward Les Services StenoTran Services Inc. 613-521-0703 2141 AMPCO PANEL 2, cr-ex (Lea) 1 because of our environmental commitments and simply it's 2 common sense and it's business sense to use the fuel 3 rather than waste it. 4 MS LEA: Thank you. 5 Mr. Bhatia, I wonder if we can look at page 6 6 of your evidence. I should probably take you to the 7 phrase. In the last paragraph you say that: 8 "The execution of these embedded 9 generation opportunities is only 10 economically feasible with Net Load 11 Billing." 12 I think this refers to the three generation 13 opportunities that you have talked about in your 14 evidence. Is that right? 15 MR. BHATIA: That's correct. 16 MS LEA: As Mr. Campbell was asking your 17 colleague Mr. Baxter, are you comparing pure net load 18 billing to pure gross load billing -- in other words, 19 full gross load versus full net load? 20 MR. BHATIA: That's correct. 21 MS LEA: So what would be the effect then of 22 this 50 per cent access fee for efficient generation? 23 Would that assist these projects? 24 MR. BHATIA: Any -- I think the way these 25 projects stand right now they are economically good in 26 terms of the generation costs and the way they have been 27 treated. 28 We look at financing these projects and, Les Services StenoTran Services Inc. 613-521-0703 2142 AMPCO PANEL 2, cr-ex (Lea) 1 generally, in hydro you don't have much of a leverage of 2 return of the financing. If you take the full net load 3 billing and full gross load billing it cuts down the 4 return by 50 per cent. 5 MS LEA: By 15 or 50? 6 MR. BHATIA: By 50. 7 So close to half and it becomes totally 8 financially unattractive for anybody to finance that. 9 It certainly goes away below our hurdle rate. So I 10 think even the 50 per cent, that would not be attractive 11 to get it financed to get those projects going. 12 MS LEA: You are saying that even with the 13 discount that OHNC proposes for efficient generation, 14 your projects would still not go forward under gross 15 load billing? 16 MR. BHATIA: Yes. 17 MS LEA: And is that because they would not 18 qualify for the discount or the discount is 19 insufficient? 20 MR. BHATIA: I think -- I am not 100 per cent 21 sure whether they would qualify for a discount or not. 22 I am not completely familiar with that. But it is not 23 sufficient. It has to be looked at. We are looking at 24 the full gross load basis versus full net load basis 25 there. 26 MS LEA: Would there be other factors that 27 might make those projects economically feasible even if 28 gross load billing was put in place? Les Services StenoTran Services Inc. 613-521-0703 2143 AMPCO PANEL 2, cr-ex (Lea) 1 I can't come up with examples; it is late in 2 the day. But can you think of other factors that would 3 persuade you that these projects are still a good idea? 4 MR. BHATIA: I cannot think of anything else. 5 MS LEA: All right. Have you calculated the 6 financial impact of net versus gross load billing on 7 your business in the way that your colleagues have? 8 MR. BHATIA: No, I have not calculated it in 9 terms of absolute dollars. The way I have calculated -- 10 I shouldn't say I have calculated -- is that these 11 projects are not going to go. That means that our 12 energy costs in these plants are not going to get 13 better, and thus the manufacturing costs would continue 14 to be higher. 15 Those are the basis of making the costs of 16 manufacturing lower in the energy area. 17 MS LEA: How high would your energy costs have 18 to go before these projects became feasible even with 19 gross load billing? Do you know that? 20 MR. BHATIA: How high would the cost of energy 21 be? 22 MS LEA: Yes. In other words, you are saying 23 that because these projects are not going to go ahead, 24 your energy costs are not going to be reduced by the 25 benefit from these projects. 26 What I am trying to ask you is: Even with 27 gross load billing, at what point does the curve reach 28 the point where it is still worthwhile for you to go Les Services StenoTran Services Inc. 613-521-0703 2144 AMPCO PANEL 2, cr-ex (Lea) 1 ahead with these projects? 2 MR. BHATIA: I think as soon as the gross load 3 billing is added to this, the return of the projects 4 gets reduced and you just cannot get any internal or 5 external financing to get these projects going. 6 MS LEA: No matter what cost of the commodity 7 electricity, how high it rose? 8 MR. BHATIA: It doesn't matter because these 9 are looked at in the long-term period. The capital 10 investments are pretty high. 11 MS LEA: Thank you, gentlemen, for your 12 evidence. 13 Thank you, Mr. Chairman, those are my 14 questions. 15 THE PRESIDING MEMBER: Thank you, Ms Lea. 16 Mr. Rogers? 17 MR. ROGERS: Thank you, Mr. Chairman. I have 18 just a few questions. 19 CROSS-EXAMINATION 20 MR. ROGERS: Gentlemen, my name is Rogers and 21 I represent Ontario Hydro Network Company, the Applicant 22 in this case -- and the object of your ire, I am afraid. 23 Mr. Baxter, can I start with you. I have a 24 few questions for you, sir. 25 MR. BAXTER: Yes, sir. 26 MR. ROGERS: Mr. Baxter, you have some 27 evidence in your testimony about the load retention and 28 expansion rate. Les Services StenoTran Services Inc. 613-521-0703 2145 AMPCO PANEL 2, cr-ex (Rogers) 1 MR. BAXTER: Yes, sir. 2 MR. ROGERS: As I understand it, in 1996 your 3 company agreed with Ontario Hydro to postpone the 4 installation of a 30-megawatt cogeneration facility. 5 MR. BAXTER: That is correct. 6 MR. ROGERS: And you entered into a contract 7 with Ontario Hydro 8 MR. BAXTER: Yes. 9 MR. ROGERS: With a finite period which ends 10 in 2001? 11 MR. BAXTER: It was a five-year period, with a 12 renewal option to be discussed in March of 1999. 13 MR. ROGERS: Did you renew in 1999? 14 MR. BAXTER: We met with the Minister, the 15 Ministry staff, Ontario Hydro staff, and asked for 16 guidance from the Board in terms of how to proceed, and 17 all indications were that we would be in a holding 18 pattern pending the outcome of these deliberations. 19 MR. ROGERS: So you decided not to renew the 20 contract. 21 MR. BAXTER: We were not given the opportunity 22 to renew it. 23 MR. ROGERS: Ontario Hydro wouldn't agree to 24 renew with you? 25 MR. BAXTER: Well, with market opening. Our 26 understanding was that all contracts would expire upon 27 market opening. 28 MR. ROGERS: I see. So Hydro would not renew Les Services StenoTran Services Inc. 613-521-0703 2146 AMPCO PANEL 2, cr-ex (Rogers) 1 the contract, under the terms of the contract, because 2 the law, as they understood it, would not permit it. Is 3 that what you are telling us? 4 MR. BAXTER: They did not entertain any 5 discussions. 6 MR. ROGERS: I see. And that was their right 7 under the contract, wasn't it? 8 MR. BAXTER: It was mutual, yes. 9 MR. ROGERS: You say you asked the Board for 10 advice. Do you mean the Ontario Energy Board? 11 MR. BAXTER: Yes. 12 MR. ROGERS: What advice did they give you? 13 MR. BAXTER: It would be reviewed at these 14 hearings. 15 MR. ROGERS: I see. When did you ask for 16 their advice? 17 MR. BAXTER: The exact date? 18 MR. ROGERS: How did you do it? Did you come 19 to a hearing and ask them or did you write them a 20 letter? 21 MR. BAXTER: We wrote a letter to 22 Mr. Laughren. 23 MR. ROGERS: Mr. Laughren. I see. In any 24 event, you didn't renew the contract, so now you are 25 left with the fact that we don't have this 30-megawatt 26 plan. Is that correct? 27 MR. BAXTER: That is correct. 28 MR. ROGERS: When you entered into this Les Services StenoTran Services Inc. 613-521-0703 2147 AMPCO PANEL 2, cr-ex (Rogers) 1 contract with Ontario Hydro what you were wanting to do, 2 I imagine, was to defer a decision so long as it didn't 3 cost you anything to defer the decision. 4 MR. BAXTER: With the option of reducing our 5 power rates, which was mutually beneficial to Ontario 6 Hydro, the transmission, and Kimberly-Clark. 7 MR. ROGERS: Right. You negotiated a deal 8 which you felt was to your benefit at the time. 9 MR. BAXTER: It was mutual. 10 MR. ROGERS: Perhaps so. That means you got a 11 benefit out of it; right? 12 MR. BAXTER: All parties participating in the 13 agreement got a benefit. 14 MR. ROGERS: I hope so. Sometimes the 15 contracts don't work that way, but I am glad you feel 16 yours did. 17 Tell me this: Do you remember a man by the 18 name of Mr. Fox? 19 MR. BAXTER: Yes. 20 MR. ROGERS: Did you talk to him about these 21 contracts? 22 MR. BAXTER: We talked to his staff. 23 MR. ROGERS: And it was with his staff that 24 this contract was negotiated, was it? 25 MR. BAXTER: That is correct. 26 MR. ROGERS: What is it exactly you want this 27 Board to do for you now in this case? What order do you 28 expect them to make to help you? Les Services StenoTran Services Inc. 613-521-0703 2148 AMPCO PANEL 2, cr-ex (Rogers) 1 MR. BAXTER: The Board is going to make a 2 recommendation to the Minister in terms of how to handle 3 transmission rates. Our recommendation would be that 4 transmission rates be geared on a net billing basis, 5 which is the modus operandi now as we are paying. We 6 are paying for the power which we use. 7 MR. ROGERS: So if the Board comes down in 8 this debate on the net load billing basis, you would be 9 happy. 10 MR. BAXTER: Yes, sir. 11 MR. ROGERS: Your load retention rate deferred 12 the decision that you have to make to add this capacity. 13 Isn't that right? 14 MR. BAXTER: Yes, it is. 15 MR. ROGERS: So now you are in a position 16 where you say: It is unfair. We have been 17 disadvantaged because we deferred the decision and now, 18 if we have gross load billing, it is going to cost us a 19 lot of money. 20 MR. BAXTER: We were also asked by Ontario 21 Hydro to defer it. As I said earlier, it was a mutual 22 benefit. 23 MR. ROGERS: I understand. Mr. Baxter, 24 suppose this Board were to come out with a decision that 25 said that they want to incent new cogeneration projects, 26 and that any projects which were planned in 1996 would 27 not qualify. Would you tell them that you were not 28 interested; that you wouldn't qualify for that subsidy? Les Services StenoTran Services Inc. 613-521-0703 2149 AMPCO PANEL 2, cr-ex (Rogers) 1 MR. BAXTER: We are not asking for subsidies 2 at this stage. 3 MR. ROGERS: Would you insist that it wouldn't 4 be fair that you should get that subsidy; that you 5 should be without it? 6 MR. BAXTER: The agreement that we had 7 negotiated was how we looked moving forward. That was 8 the past practice then. We are not asking for future 9 special consideration. 10 MR. ROGERS: You are prepared to take your 11 lumps with all the other customers, are you? 12 MR. BAXTER: We would like to have the 13 opportunity to install our generator, which was the 14 position we were in in 1996. 15 MR. ROGERS: No one is stopping you from 16 installing your generator. 17 MR. BAXTER: The competition for capital 18 within our business dictates that those projects which 19 have poorer returns are less likely to receive the 20 funds. 21 MR. ROGERS: I understand that. You gave us a 22 figure earlier, that if you had gross load billing -- 23 and I am not just sure what the number is. But it is 24 somewhere around $900,000 or $1.2 million a year in 25 additional costs that you will be facing? 26 MR. BAXTER: That is correct. 27 MR. ROGERS: One other question I wanted to 28 ask you. Your project was for 30 megawatts; right? Les Services StenoTran Services Inc. 613-521-0703 2150 AMPCO PANEL 2, cr-ex (Rogers) 1 MR. BAXTER: Yes. 2 MR. ROGERS: That is your total demand in your 3 plant, 30 megawatts? It would supply all your energy 4 needs if you were to build it? 5 MR. BAXTER: That is correct. 6 MR. ROGERS: If you build this plant, will you 7 disconnect from the Ontario Hydro network system? 8 MR. BAXTER: Well, there will be times when we 9 will have to do maintenance on our existing unit. 10 MR. ROGERS: Do you mean you will still be 11 hooked up to the system? 12 MR. BAXTER: That is correct. 13 MR. ROGERS: And you would still take power 14 from the system when you needed it; right? 15 MR. BAXTER: And pay for it appropriately. 16 MR. ROGERS: Well, I guess that is the debate 17 we have been having for the past few weeks. 18 Suppose your cogeneration plant went down and 19 didn't operate for a week. Would you expect Ontario 20 Hydro Network Corporation to provide you with the power 21 that your own facility could no longer supply? 22 MR. BAXTER: We would pay for the power that 23 was used. 24 MR. ROGERS: Would you expect them to provide 25 it to you? 26 MR. BAXTER: It depends if there are others in 27 the marketplace that provided Manitoba Power or other 28 providers. Les Services StenoTran Services Inc. 613-521-0703 2151 AMPCO PANEL 2, cr-ex (Rogers) 1 MR. ROGERS: I'm not talking about 2 Mr. Campbell's client, they can take care of themselves. 3 I'm talking about my client, the transmission company. 4 You would expect the transmission company to 5 convey your power to you if your own plant went down, 6 wouldn't you? 7 MR. BAXTER: And we would pay for it based on 8 how much we used. 9 MR. ROGERS: Right. Right. 10 Now, this $900,000 or $1 million a year or so, 11 $1.2 million a year that you will avoid if net billing 12 is introduced, can we talk about that for a minute? 13 Okay? 14 MR. BAXTER: Yes. 15 MR. ROGERS: You appreciate that we have a big 16 system here with a lot of sunk costs, Mr. Baxter? 17 MR. BAXTER: Yes. 18 MR. ROGERS: Those sunk costs have to be 19 recovered by my client under this framework. You 20 understand that? 21 MR. BAXTER: Yes. 22 MR. ROGERS: It can only look to those people, 23 its customers, to collect that money. Right? You 24 understand that? 25 MR. BAXTER: Yes, I do. 26 MR. ROGERS: Now, if you build your own plant 27 and avoid paying $1.2 million my client, from whom 28 should my client collect that money? Les Services StenoTran Services Inc. 613-521-0703 2152 AMPCO PANEL 2, cr-ex (Rogers) 1 MR. BAXTER: If we build our own plant and 2 generate our power internally, there will be room on the 3 network, then, to handle other loads and charge the 4 people that use those other loads as opposed to 5 paying -- having us to pay and another client and double 6 billing basically. 7 MR. ROGERS: I understand your point. But the 8 evidence that I have heard suggests that there is spare 9 capacity on the system. 10 MR. BAXTER: I'm not that familiar with the 11 loading of the system. 12 MR. ROGERS: Suppose that the evidence was 13 that there is spare capacity on the system and that if 14 your load goes off the system it won't be replaced for 15 quite some time. Now, under those circumstances don't 16 you think it's fair that your company should help to pay 17 for those sunk fixed costs? 18 MR. BAXTER: I think that is kind of 19 speculative, because if you have an asset that is not 20 fully utilized we think the management team would load 21 the asset up, whether it be exporting or importing or 22 some manner. 23 MR. ROGERS: I see. Well, suppose they can't. 24 Suppose they are the best managers in the world of a 25 transmission system and they scour the province and they 26 can't find anybody to replace your load, don't you think 27 it's fair that your company should pay to help discharge 28 that sunk cost? Les Services StenoTran Services Inc. 613-521-0703 2153 AMPCO PANEL 2, cr-ex (Rogers) 1 MR. BAXTER: I think we are getting into the 2 realm of how to manage the transmission company and the 3 reason I am here is to talk about Terrace Bay's example 4 and the potential that we have for a cogen facility and 5 really I am not qualified in the beyond portion of it. 6 MR. ROGERS: All right, Mr. Baxter. I'm 7 sorry, I don't mean to be cross with you but there is 8 quite a philosophical debate about this. 9 MR. BAXTER: I understand. As Mr. Osborne 10 mentioned yesterday, there are different viewpoints and 11 we each bring our own part to the Board so the Board can 12 make a ruling on the next step. 13 MR. ROGERS: All right. Thank you very much. 14 To be fair I would like to ask you other 15 gentlemen a couple of questions. 16 Mr. Townsend, let's start with you if we 17 could. 18 You have told us about your cogeneration 19 plans. Can you tell me, why is it you haven't built the 20 plant to date? 21 MR. TOWNSEND: I think our evidence indicates 22 and as I have -- 23 THE PRESIDING MEMBER: Use the microphone. 24 Thank you. 25 MR. TOWNSEND: Thank you. 26 As our evidence indicates and as I have 27 indicated, there is a growing need because of 28 modernization and new technology in putting in simply Les Services StenoTran Services Inc. 613-521-0703 2154 AMPCO PANEL 2, cr-ex (Rogers) 1 more modern plants. Our surplus has grown. 2 I can give you an example, I think it was 3 mentioned in our evidence, that I think within the last 4 five years we replaced the soaking pits in the Bloom 5 mill. Those soaking pits were large users of coke oven 6 gas and blast furnace gas. 7 We replaced the heating facility with a new 8 hi-tech furnace, new technology. That absolutely cut 9 out our use of blast furnace gas in Hilton Works other 10 than back to pre-heat combustion air for the furnace. 11 MR. ROGERS: So you did -- 12 MR. BAXTER: And that continues. It continues 13 for the operation of the blast furnace. We expect our 14 load to grow over the next two years. We are spending 15 $120 million upgrade to our hot strip mill at our Lake 16 Erie works. With that, one furnace, No. 3 furnace is 17 starting up right now. No. 4 furnace is due to come on 18 line in July of 2001. Probability will be that we will 19 shut down the hot strip mill at Hilton Works, which will 20 cut more use of coke oven gas. So the need grows to 21 utilize the coke oven gas. 22 We have been actually looking at a proposal 23 recently of a smaller generation unit of up to 24 15 megawatts. As a matter of fact, Ontario Hydro 25 incented us by offering $1.5 million to put that in 26 because we had excess steam. It simply has not moved 27 forward to date because of the funds and because of the 28 complexities of upgrading our boiler station, central Les Services StenoTran Services Inc. 613-521-0703 2155 AMPCO PANEL 2, cr-ex (Rogers) 1 boiler station. 2 We are looking at a cogen facility project now 3 as a catalyst to modernize our energy system throughout 4 Hilton Works. The current infrastructure was installed 5 in the 1940s and it does need upgrading. With our 6 central boiler station it is probably operating at about 7 33 per cent efficiency now. With the cogen project and 8 modernization we will move it up to about 75 per cent 9 efficiency. 10 MR. ROGERS: All right. Thank you very much. 11 I do recall excerpts of that. 12 Just one last question for you, sir. How long 13 do you think it will take you to plan and build a 14 cogeneration facility? 15 MR. TOWNSEND: Probably 24 months, I would 16 think. That depends. Right now we have shortlisted a 17 number of cogen proposals -- or suppliers. Our first 18 meeting was this afternoon as a matter of fact. We are 19 trying to move this forward fast enough that we will -- 20 the rest of the four we are meeting with this week. 21 The proposal range is everywhere from 22 40 megawatts up to 180 to 160 and one pretty close to a 23 gigawatt. It is not our purpose to get into merchant 24 business. I was asked a question earlier by the Board 25 staff and I should have added with respect to class 43.1 26 the contract or the supplier that suggested the 40 27 megawatt is expressing some concern that at the 40 28 megawatt level it may not meet the class 43.1 and it Les Services StenoTran Services Inc. 613-521-0703 2156 AMPCO PANEL 2, cr-ex (Rogers) 1 would not be a combined cycle turbine. 2 MR. ROGERS: All right. Thank you very much. 3 Those are my questions. Thank you, sir. 4 THE PRESIDING MEMBER: Thank you, Mr. Rogers. 5 The Board may have some. 6 One question from Mr. Smith. 7 MEMBER SMITH: One question for Mr. Bhatia 8 from Abitibi. 9 Sir, there was just something I didn't 10 understand. You talked about the line that you used to 11 own from the Sturgeon Falls power project to Fort 12 Frances. I am sorry, I just didn't get your point that 13 what was happening now or what you feared might happen 14 was going to damage you in some way. Did it have to do 15 with the gross/net issue? I am sorry, I just missed it. 16 MR. BHATIA: No, this is not to do with the 17 gross/net issue. Any other charges, it would be 18 imposed. Let me just go back a little bit. 19 In the fifties it was taken over by Ontario 20 Hydro for whatever reason, and then it was transferred 21 to another station, and then no wheeling charges or 22 transmission charges were imposed at that time. In 1989 23 we were asked -- we were required to pay $3 million to 24 maintain that line, which we didn't own at that point, 25 and then we paid some transmission charges since then. 26 Until today we are paying those. If for any reason they 27 go up because of the line losses or new charges or 28 anything like that, that would have a negative impact on Les Services StenoTran Services Inc. 613-521-0703 2157 AMPCO Panel 2 1 those power plants and it would thus impact the Fort 2 Frances mill. 3 MEMBER SMITH: Is it your information that the 4 charges will go up? 5 MR. BHATIA: That is my information, that in 6 terms of -- line losses, transmission or any IMO charges 7 could be added to that. 8 MEMBER SMITH: Thank you. 9 THE PRESIDING MEMBER: Thank you. I would 10 just like to follow up a little bit on that. 11 Have you considered what you may have as other 12 options with respect to those particular transmission 13 lines? For example, you could, as some of your 14 colleagues in AMPCO, buy those lines back again. The 15 question that is on the table is whether they should be 16 at net book value or market value. You could then 17 incorporate a transmission company of your own to convey 18 the power from the hydraulic dams to the Fort Frances 19 plant. 20 Have you considered those other options as 21 ways of alternatives, I will say, to being exposed to 22 full transmission and other charges? Have you 23 considered them? 24 MR. BHATIA: I would say because the part of 25 the lines we owned, they had been dysfunctional for a 26 long time. So if we had to do that probably there would 27 be a tremendous cost to that. 28 There is also another complexity to that. Les Services StenoTran Services Inc. 613-521-0703 2158 AMPCO Panel 2 1 There are Ontario Hydro customers, First Nations 2 communities, and there are another 300 individual rural 3 which are retail customers. That has to be served 4 somehow by somebody. It is a little more complex, and 5 we haven't looked at that, can we own that line and it 6 will be beneficial. I would guess the cost of 7 refurbishing those could be very high. 8 THE PRESIDING MEMBER: So that is your bottom 9 line. 10 What I'm not quite clear on is when you sold 11 the line to, at that time, Ontario Hydro, subsequently, 12 also you have made a payment to upgrade the line -- what 13 I'm not totally clear on is why the lines aren't in good 14 shape, should we say? Why isn't that a going asset, the 15 line? That is where I'm not totally clear. 16 MR. BHATIA: Okay. The lines directly from 17 Sturgeon Falls and Calm Lake, which were directly owned 18 by us, were abandoned and these are Ontario Hydro 19 lines -- the Atikokan substation. These are different 20 lines which are used to transmit the power. So those 21 lines which we owned at one time, basically they don't 22 exist. 23 THE PRESIDING MEMBER: Right. Okay. 24 So you connected your hydraulic plant directly 25 into Ontario Hydro Networks' line that comes from 26 Atikokan. Is that correct? 27 MR. BHATIA: Right. Right. That is the only 28 option that was given to us at that time. Les Services StenoTran Services Inc. 613-521-0703 2159 AMPCO Panel 2 1 THE PRESIDING MEMBER: Right. Okay. 2 MR. BHATIA: For whatever reason, I have to go 3 back to that. 4 THE PRESIDING MEMBER: Okay. I understand now 5 better what the situation was. 6 I just have one question that I would like to 7 put probably to Mr. Townsend. 8 Mr. Townsend, just to clarify, you have 9 mentioned that your Hilton Works is embedded in the -- I 10 assume it is the Hamilton Municipal Electric Company or 11 whatever. 12 MR. TOWNSEND: Yes, that's correct. Yes. 13 THE PRESIDING MEMBER: Can you just tell me 14 what the situation is with regard to the Nanticoke mill? 15 Are you a direct customer? 16 MR. TOWNSEND: Yes, sir. Yes, sir. It is a 17 newer mill. It was commissioned in 1980. If I'm 18 correct, I believe there are 115 volt lines, two lines 19 directly into that works. It is a more modern facility 20 compared to the Hilton Works. It has evolved over the 21 last century in the Hamilton system and I believe the 22 feed -- there is well more than a dozen feeds going into 23 it, which is another concern for us. I think around 24 14,000 volts. 25 THE PRESIDING MEMBER: So you are taking 26 directly from the network, as far as I can tell. Do you 27 own your transformation or not? What is the arrangement 28 there? Les Services StenoTran Services Inc. 613-521-0703 2160 AMPCO Panel 2 1 MR. TOWNSEND: Sorry, in which mill? 2 THE PRESIDING MEMBER: For Nanticoke. 3 MR. TOWNSEND: I'm not sure. I think we do 4 own -- we take it down from the 115 I believe in 5 Nanticoke. 6 THE PRESIDING MEMBER: So you probably own the 7 transformer and the line connection. 8 MR. TOWNSEND: I believe that's correct. 9 THE PRESIDING MEMBER: Okay. Thank you. 10 I will just check my notes here if there is 11 anything that is unclear. 12 --- Pause 13 THE PRESIDING MEMBER: Again, another question 14 to you, Mr. Bhatia. 15 You mentioned the Fort Frances cogeneration 16 facility which, as you know, the Board had a little 17 brush with this some time ago, as you would hence 18 remember. You said that you are on a lease-to-own 19 arrangement. Is that the arrangement? 20 MR. BHATIA: That is, yes. That is correct, 21 yes. 22 THE PRESIDING MEMBER: And that is completed, 23 you mentioned, for 2007. 24 MR. BHATIA: That's correct. 25 THE PRESIDING MEMBER: Okay. 26 At this point in time you don't have any plans 27 for expansion of that facility that would perhaps again 28 run afoul of net load billing if that was instituted for Les Services StenoTran Services Inc. 613-521-0703 2161 AMPCO Panel 2 1 the expanded part of the plant? 2 MR. BHATIA: Right. We do not have any plans 3 to extend that, yes. 4 THE PRESIDING MEMBER: Thank you. Thank you, 5 gentlemen. Those are my questions. 6 Thank you again for coming and your evidence. 7 I'm sorry it was on and off and we now have kept you 8 very late. 9 Your counsel may have a question or two. I 10 don't know whether there is any redirect or anything. 11 MR. FISHER: No redirect, thank you, 12 Mr. Chairman. 13 THE PRESIDING MEMBER: Okay. Then thank you, 14 gentlemen, for coming. We appreciate it. 15 Thank you. 16 MR. BHATIA: Thank you. 17 MR. TOWNSEND: Thank you. 18 THE PRESIDING MEMBER: So with that we will 19 look to tomorrow. Mr. Fagan -- 20 MEMBER SMITH: Mr. Campbell. 21 THE PRESIDING MEMBER: Sorry, Mr. Campbell. I 22 was going to deal with the schedule just to retrace 23 that, tomorrow. I think I know what the morning holds, 24 but it is the afternoon. 25 MR. THIESSEN: Yes. In the morning we are 26 going to finish with OPG at nine o'clock, go straight to 27 GEC right after that and then NorthWatch. 28 THE PRESIDING MEMBER: NorthWatch, right. Les Services StenoTran Services Inc. 613-521-0703 2162 1 MR. THIESSEN: Then hopefully we will get to 2 IPPSO early in the afternoon. 3 Maybe I will go to Friday as well. Friday 4 morning at nine we have the third AMPCO panel and then 5 continue with IPPSO, EnergyLink following IPPSO and the 6 Chiefs to wrap up the week. 7 THE PRESIDING MEMBER: Okay. It sounds like a 8 challenging schedule. I hope we will stick with it. 9 Okay. So we will see everybody in the 10 morning. 11 MR. CAMPBELL: Mr. Chairman, just before we 12 did adjourn, I did want to say that I have material here 13 that was delivered up for cross-examination of the GEC 14 panel and anyone who wants to pick it up tonight can do 15 it. I'm not sure where Mr. Poch is, but I will make 16 sure he gets it first thing in the morning if I can't 17 find him now. 18 THE PRESIDING MEMBER: Okay. 19 MR. CAMPBELL: I have been assuming, and I 20 perhaps shouldn't have yesterday, but I want to be 21 absolutely clear about this, that for all of us counsel 22 who have panels who are going over from one day to the 23 next and with upcoming cross-examination, I assume the 24 Board would be content to have us all operate under what 25 I will call Mr. Roger's rules that he spoke to at the 26 beginning of the hearing? 27 THE PRESIDING MEMBER: Yes. I think I 28 mentioned to one counsel that we acquired that Les Services StenoTran Services Inc. 613-521-0703 2163 1 disposition -- dispensation. I will get the word right, 2 it's very late -- dispensation. 3 MR. CAMPBELL: Thank you, Dr. Higgin. 4 THE PRESIDING MEMBER: Thank you. 5 So we will see everybody at nine tomorrow. 6 --- Whereupon the hearing adjourned at 1757, 7 to resume on Thursday, March 2, 2000 at 0900 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Les Services StenoTran Services Inc. 613-521-0703 2164 1 INDEX OF PROCEEDING 2 PAGE 3 Upon resuming at 1303 1984 4 Preliminary Matters 1984 5 OPG PANEL 2 6 PREVIOUSLY SWORN: BRUCE BOLAND 1988 7 PREVIOUSLY SWORN: REN ORANS 1988 8 Cross-Examination by Mr. Brown 1988 9 Upon recessing at 1425 2037 10 Upon resuming at 1440 2037 11 Cross-Examination by Mr. Snelson 2038 12 Cross-Examination by Mr. Warren 2043 13 Cross-Examination by Mr. Mattson 2054 14 Cross-Examination by Mr. Budd 2071 15 Cross-Examination by Mr. Poch 2078 16 Upon recessing at 1625 2111 17 Upon resuming at 1642 2111 18 19 AMPCO PANEL 2 20 SWORN: JIM TOWNSEND 2111 21 SWORN: OM BHATIA 2111 22 SWORN: ROBERT BAXTER 2111 23 Examination-in-Chief by Mr. Fisher 2111 24 Cross-Examination by Mr. Campbell 2133 25 Examination by Board Counsel 2136 26 Cross-Examination by Mr. Rogers 2144 27 Questions by the Board 2156 28 Upon adjourning at 1757 2163 Les Services StenoTran Services Inc. 613-521-0703 2165 1 EXHIBITS 2 NO. PAGE 3 G11.1 Revised Table from Mr. Fagan's 2050 4 Evidence 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Les Services StenoTran Services Inc. 613-521-0703 2166 1 ERRATA ADDENDA 2 3 Volume 10, Tuesday, February 29, 2000 4 PAGE LINE 5 1831 24 6 "30,000 s/b "3,000" 7 1833 4 8 "and stranded debt" s/b "and more stranded debt" 9 1837 18 10 "pricey" s/b "precis" 11 1911 20 12 "shared" s/b "assured" 13 1913 4 14 "simple line" s/b "simplifying" 15 1913 13 16 "claiming" s/b "clearing at" 17 1914 11 18 "stock" s/b "spot" 19 1914 17 20 "$41" s/b "$49" 21 1914 27 22 "I know" s/b "I don't know" 23 1920 14 24 "rates" s/b "rights" 25 1920 27 26 "not" s/b "now" 27 1921 22 28 "rates" s/b "rights" Les Services StenoTran Services Inc. 613-521-0703 2167 1 ERRATA/ADDENDA (Cont'd) 2 Volume 10, Tuesday, February 29, 2000 3 PAGE LINE 4 1946 22 5 "haven't s/b "have" 6 1948 24 7 "wink" s/b "link" 8 1950 23 9 "marketing" s/b "market in" 10 1951 2 11 "waving" s/b "creating" 12 1961 19 13 "map s/b "math"