1 1 RP-1999-0048 2 3 4 IN THE MATTER OF the Municipal Franchises Act, 5 R.S.O. 1990, c. M.55, as amended 6 7 8 9 10 MODEL FRANCHISE AGREEMENT 11 12 13 14 15 B E F O R E : 16 S.K. HALLADAY Presiding Member 17 F. LAUGHREN Chair/Member 18 J.B. SIMON Member 19 C. SPOEL Member 20 21 Hearing held at: 22 2300 Yonge Street, 25th Floor, Hearing Room No. 1, 23 Toronto, Ontario on Tuesday, January 25, 2000, 24 commencing at 0935 25 26 27 VOLUME 1 28 2 1 APPEARANCES 2 STEPHEN McCANN Board Counsel 3 NEIL MACKAY/ Board Staff 4 WILF TEPER 5 GLENN LESLIE/ Union Gas, Consumers Gas and 6 THOMAS LEDANYI/ Natural Resource Gas (NRG) 7 BOB ADIE/ 8 PADDY DAVIES/ 9 BILL BLAKE 10 ERNEST McARTHUR/ Regional Municipality of 11 LORNE ROSS Ottawa-Carleton 12 ANDREW ROMAN/ City of Toronto 13 LORRAINE 14 SEARLES-KELLY/ 15 ANDREW KOROPESKI 16 ANDREW WRIGHT/ Association of Municipalities of 17 ROBERT FOULDS/ Ontario (AMO) 18 CASEY BRENDON 19 PATRICIA VANINI/ 20 21 22 23 24 25 26 27 28 3 1 Toronto, Ontario 2 --- Upon commencing on Tuesday, January 25, 2000 3 at 0935 4 THE PRESIDING MEMBER: Be seated. 5 Good morning. My name is Sheila Halladay. 6 With me today are Judy Simon, Floyd Laughren and Cathy 7 Spoel. 8 Before you begin, I would like to just say a 9 few words about the purpose of this meeting. 10 Over the past few months, the Board has been 11 involved in the process of reviewing the terms of the 12 model natural gas franchise agreement. We have received 13 a number of comments from interested participants, 14 including a report to the Board from the gas utilities 15 and the Association of Municipalities of Ontario. 16 The purpose, today, is to hear oral 17 presentations from a number of the parties. 18 We want this proceeding to be as informal as 19 possible, considering that it's being held in a hearing 20 room -- and I should point out that this isn't a 21 hearing, in the formal sense of the word; it will, 22 hopefully, be a dialogue between the parties so that 23 Board Members and Board staff can ask questions of the 24 interested participants so that we have a better 25 understanding of the issues involved and the positions 26 of the parties. 27 So, before we start, if we could just go 28 around the room and I would ask for people who are 4 1 participating in today's presentations to identify 2 themselves. 3 MR. LESLIE: Good morning, Madam Chair. 4 My name is Glenn Leslie. I have been asked to 5 introduce the witnesses for the gas companies who, I 6 think by agreement, are going to start off this morning. 7 THE PRESIDING MEMBER: Good morning, Mr. 8 Leslie. 9 MR. McARTHUR: Madam Chair, my name is Ernest 10 McArthur. I appear on behalf of the Region of 11 Ottawa-Carleton. 12 I will be presenting first, on behalf of the 13 municipalities. 14 THE PRESIDING MEMBER: Thank you, Mr. 15 McArthur. 16 MR. ROMAN: My name is Andrew Roman. I am 17 representing the City of Toronto. 18 THE PRESIDING MEMBER: Thank you, Mr. Roman. 19 MR. WRIGHT: Madam Chairman, my name is Andrew 20 Wright. I appear on behalf of AMO, this morning. 21 THE PRESIDING MEMBER: Thank you, Mr. Wright. 22 Are there any other participants? Okay. 23 Well, I think, as Mr. Leslie said, the 24 utilities have agreed to go first. 25 MR. LESLIE: Thank you. 26 Madam Chair, we did distribute, this morning, 27 a document entitled "The Gas Companies' Joint 28 Presentation to the Ontario Energy Board Model Franchise 5 1 Agreement". This is a summary of the comments that will 2 be made this morning. It, essentially, reproduces the 3 content of the earlier submission but was intended to 4 assist the Board, and the others present, following the 5 remarks this morning. 6 I will hasten to say that I don't plan to say 7 very much, mind you; I will just simply introduce the 8 witnesses and if there are any legal issues that come 9 up. 10 The witnesses for the gas companies, or the 11 presenters for the gas companies, I should say, are, 12 closest to you, Mr. Paddy Davies, who is Director of 13 Market Expansion with Consumers Gas; sitting in the 14 middle is Mr. Bob Adie, who is General Manager, 15 Franchise Relations, with Union Gas; and next to Mr. 16 Adie is Mr. Bill Blake, who is the President of Natural 17 Resource Gas, or NRG, as it's commonly known. 18 Mr. Davies and Mr. Adie will share the 19 presentation, this morning, and I will ask them to go 20 ahead and introduce themselves and make their comments. 21 Thank you. 22 PRESENTATION 23 MR. DAVIES: Good morning. My name is Paddy 24 Davies. I have worked for Enbridge Consumers Gas for 33 25 years. I am currently Director of Market Expansion. 26 For most of the time that I have worked for Consumers 27 Gas, it's been in our regional operations, throughout 28 Ontario, working quite closely with the municipalities 6 DAVIES/ADIE, Presentation 1 in which we do our business. 2 MR. ADIE: Good morning. My name is Bob Adie. 3 I'm the General Manager of Franchise Relations, with 4 Union Gas, and have been employed with Union for some 35 5 years, 14 of years of which was spent in our head 6 office, in Chatham. I was head of the Industrial and 7 Contract Gas Markets and, during that tenure, had 14 8 appearances before this Board -- it's nice to be back. 9 The other 21 years has been spent in the regions and the 10 districts -- a number of roles, from residential to 11 commercial sales, human relations, general sales 12 management -- the last seven -- I'm sorry -- the last 13 eight years in general management of the districts. I 14 have been involved in excess of 100 franchise 15 renegotiations. 16 It's a pleasure to be here. 17 MR. BLAKE: My name is Bill Blake. I'm with 18 Natural Resource Gas. I'm the President and General 19 Manager. 20 I have been appearing at this Board for about 21 20 years, now, on behalf of NRG, in other -- in 22 interventions in other matters. 23 I am not going to be speaking today but I am 24 here to answer any questions the Board or any others 25 might have, regarding NRG's involvement in municipal 26 franchise in Ontario. 27 Thank you. 28 MR. DAVIES: I believe you have a copy of our 7 DAVIES/ADIE, Presentation 1 presentation, in its written form. We are going to 2 cover the key points, as best we can, and, hopefully, 3 with all the experience as a panel here, provide some 4 practical examples of some of the issues for you. 5 The municipal franchise agreement is an 6 extremely important issue. It has far-reaching 7 implications for the gas customers in Ontario. It goes 8 to the very core of our business. It, in fact, 9 prescribes the detailed terms and conditions under which 10 the gas companies operate in Ontario. 11 The specific terms and conditions have 12 significant implications in three areas: They have 13 implications for the gas distribution rates that are 14 charged in Ontario; it has implications for energy 15 choices for the citizens of Ontario; and it has 16 implications on fair competition between gas and 17 electricity. 18 In fact, these three areas were the guiding 19 principles that we used in our submission to the Board, 20 in December. 21 The current municipal franchise agreement has 22 served Ontario well -- very well -- over the last 13 or 23 14 years. It has helped to maintain or contain gas 24 distribution rates. It has also facilitated or enabled 25 the gas companies to expand into many new communities. 26 In fact, since the municipal franchise 27 agreement was worked out in 1987, we have added over 28 800,000 new customers, in Ontario. Last year, we paid a 8 DAVIES/ADIE, Presentation 1 total of $71 million in property and pipeline taxes to 2 the municipalities in which we do our business. 3 How do we get to be here today? 4 The Association of Municipalities of Ontario, 5 in late 1998, requested the Ontario Energy Board revisit 6 the municipal franchise agreement, in the light of 7 recent legislative changes. The gas companies' position 8 is that legislative changes do not justify the negative 9 impacts that would result if AMO's proposed changes were 10 adopted. 11 Indeed, in January of 1999 -- and I'm going to 12 quote from a letter from the Minister of Energy: 13 "The intent of the Energy Competition Act 14 provisions relating to easements for 15 utilities is to maintain the status quo. 16 In other words, the government does not 17 intend these provisions to provide new 18 sources of revenue to municipalities; nor 19 does it intend to limit traditional 20 sources of revenue to municipalities." 21 It goes on to say: 22 "My officials have met with staff from 23 the Association of Municipalities of 24 Ontario to clarify the government's 25 policy intent on this issue." (As read) 26 And we agree. AMO is seeking new sources of revenues 27 from the gas companies, in the form of permit fees and 28 encroachment fees, when we are already paying 9 DAVIES/ADIE, Presentation 1 municipalities over $70 million in the traditional form 2 of property and pipeline taxes. 3 My colleagues here today with me were part of 4 the gas companies' team which met with representatives 5 of AMO, on six occasions, during 1999. These meetings 6 were productive and a joint report was filed with the 7 Board, I believe, in September of 1999, with some 8 changes that we agreed to. However, there are still 10 9 outstanding issues which we, and others, have commented 10 on, in submissions to the Board, in December, and what 11 we would like to do, today, is to review our position on 12 these 10 issues and our agenda will be expanded to 13 include comments on the need for the consistency of the 14 application of the municipal franchise agreement, and 15 for completeness of the record, we will also reference 16 Board Decisions and legislations which we feel are 17 relevant to the proceeding and also clarify what we feel 18 may be misrepresentations in the submissions that were 19 made to the Board in September. 20 So, with that, I will turn it over to my 21 colleague to begin the presentation. 22 MR. ADIE: My portion of this presentation 23 will be directed to six of the ten issues outstanding in 24 this process and were raised by the Association of 25 Municipalities of Ontario. 26 Specifically, they are the payment of permit 27 fees, compensation for the use of municipal rights of 28 way, duration of the proposed franchise agreement, 10 DAVIES/ADIE, Presentation 1 insurance and liability, the effects of legislative 2 change and, finally, the default provisions of the 3 franchise, all of which are requested by AMO and opposed 4 by the gas industries in Ontario. 5 First I want to speak to the issue of payment 6 fees, of permit fees. The additional fees of any kind 7 will put upward and unwarranted pressure on gas rates. 8 This is true for existing customers and potential 9 customers and communities not yet served with the 10 natural gas alternative. 11 Let's address unserved communities first. As 12 we extend our distribution system to unserved 13 communities, it is an uphill battle to keep costs low so 14 that it makes economic sense to spend the capital to 15 provide service to these communities. In many 16 instances, a need to construction is required by future 17 customers of the gas system and in some cases, 18 provincial and federal grants are also required in order 19 to provide natural gas service to these communities. 20 Higher rates resulting from the application of 21 permit and occupancy fees will make this expansion even 22 more difficult as well as negatively impact the 23 residential conversion decision. The payback period of 24 the conversion to a gas fired heating system from either 25 oil or electricity will be lengthened and may defer the 26 decision altogether. 27 The major efficiencies that we have gained 28 over the years in laying pipeline, for example, the move 11 DAVIES/ADIE, Presentation 1 from steel to plastic pipe, from digging up every road 2 and every right of way to trenchless technologies where 3 we bore and rocket under roads -- the portfolio approach 4 to expansion and even gas deregulation will be 5 jeopardized, in our view, and it will limit choices to 6 these communities. 7 I have never been involved in a gas expansion 8 project to an unserved community where municipal 9 officials did not want gas available for development 10 purposes at the lowest possible cost. Further, they are 11 delighted to hear that they get taxes on the gas that we 12 have underground. 13 Existing customers have imbedded in the rates 14 they pay the taxes the gas company pays to the 15 municipalities on their underground distribution plant. 16 Together, the three gas companies represented here today 17 pay in excess, as Paddy mentioned, $71 million annually. 18 Of our investment, 83 per cent of it's underground, not 19 even seen; 24 per cent of it in fact is on private 20 property. That doesn't influence the rights of way in 21 any way, but we still pay taxes to the community on 22 these piper properties. 23 An underground pipeline system uses very few 24 of the services municipalities provide in return for 25 their tax dollars. For example, we do not use city 26 libraries, parks, arenas, buses, snow removal, golf 27 courses, garbage pickup and a myriad of other services 28 that you would normally expect to receive for your tax 12 DAVIES/ADIE, Presentation 1 dollar. We do, however, use the municipal road 2 allowance, as does the city owned municipal electric 3 utility who pays no taxes versus our $71 million 4 annually. 5 Others that use road the allowance free, 6 that's at no charge, are the city sewer and the city 7 water systems and the cable companies. AMO proposes, in 8 addition to the $71 million that we pay in taxes now, a 9 permit fee that we forecast would cost the three gas 10 utilities in Ontario an additional $43 million annually, 11 and an occupancy fee that would increase our costs 12 another $14 million annually. All of these, of course, 13 would have to be absorbed in some fashion in our rates. 14 These permits and occupancy fees will not 15 apply to the telecommunications business, sewer, water 16 or the electric industry. They should not apply to the 17 gas industry. When we compare the cost we pay, $71 18 million, we more than compensate the municipalities for 19 the use of their road allowance. 20 Our competitor, the municipal electric 21 utility, pays no taxes on their poles, overhead wires or 22 underground cables. This infers a very unlevel playing 23 field in a competitive market. This is made more so by 24 the very owners of the electric system, the 25 municipalities. 26 We ask the Board to approve our model 27 franchise agreement as is and not allow for the 28 unwarranted imposition of permit and user fees on the 13 DAVIES/ADIE, Presentation 1 gas utilities of Ontario. This will be in keeping with 2 the Board's decision in E.B.O. 125. 3 A key challenge for the Board is to ensure 4 that all facets of the energy industry, including the 5 model franchise agreement, are reformed in a fair and 6 equitable and consistent manner. AMO uses the example 7 of the gas utilities paying fees to the Ministry of 8 Transportation of Ontario for the use of their highways 9 and the rights of way and for occupancy fees, and we do. 10 It's an anomaly. 11 The total costs of these charges, though, by 12 MTO for the three utilities' share are approximately 13 $150,000 annually. We do not, however, pay them taxes 14 on this pipe. We do, however, pay taxes on that pipe as 15 it passes through the townships and as it enters the 16 municipalities. 17 I will turn next to the duration of the 18 proposed franchise agreement. The gas utilities invest 19 approximately $600 million annually in the 20 municipalities that we serve. These are long term 21 investments and must be protected by long term 22 franchises, if not franchises in perpetuity as supported 23 by the Industrial Gas Users Association in their 24 submission. 25 Typically, residential investments are 26 evaluated over a 40 year term to ensure the opportunity 27 of a fair return on this investment. The initial first 28 agreement of 20 years for a franchise with a renewal 14 DAVIES/ADIE, Presentation 1 term of 15 years, or up to 20 if agreed between the 2 parties, is satisfactory to the gas industry. Any 3 reduction of the franchise term would have the effect of 4 increasing investment risk with the resultant increase 5 in gas rates to customers. 6 We ask the Board to approve the existing term 7 of the model agreement with the inclusion of an 8 automatic renewal, thereby keeping our rates 9 competitive. We have long term debt for long term 10 investments and require long term security through 11 franchises. 12 I will now address very quickly the issue of 13 insurance liability, quickly because I have absolutely 14 no expertise on this, but I will stumble through. 15 The existing agreement, the model franchise 16 agreement, indemnifies the municipalities against all 17 claims arising out of the gas companies' operating, 18 constructing and maintenance of their underground gas 19 system. It does not insure the municipality against the 20 negligent or wrongful acts of the municipality's 21 employees, servants or agents. Nor should it. It is 22 the municipality's responsibility to insure itself. Our 23 insurers advise that we cannot name the municipalities 24 to our policies without incurring significant additional 25 cost, and there is an issue between named and just 26 traditional insurers, but name them we cannot do. 27 The gas companies have no record of issue or 28 concern with this insurance coverage. We are committed 15 DAVIES/ADIE, Presentation 1 to protecting ourselves and the municipalities that we 2 serve. If it's not broken, please, let's not fix it. 3 I will now deal with the issue of the effect 4 of the legislative change on franchises. The existing 5 franchises are for a specified period of time and they 6 can be renegotiated and planned, and administratively 7 planned for. Opening all franchises because of 8 legislative change imposes further risk on the gas 9 utilities. 10 In addition, there are approximately 650 11 franchises in Ontario and, frankly, the gas companies do 12 not have the resources to renegotiate 650 franchises at 13 once, nor, I suspect, would the Board have the resources 14 to hear the results of 650 franchises were they reopened 15 and renegotiated at one time. 16 The administrative burden for the utilities 17 and the Board would be excessive and with associated 18 costs. The model franchise agreement already allows 19 municipalities to impose bylaws of general application 20 as long as these bylaws do not contradict or oppose the 21 model franchise agreement. 22 Again, it's another example, in our view, of 23 the "if it's not broken, don't fix it". These changes 24 as opposed would only add further cost and increase 25 rates for no benefit of the rate paying customers. 26 Finally, I will turn my comments to the issues 27 of adding default provisions to franchise agreements. 28 The gas utilities have a long history of cooperation 16 DAVIES/ADIE, Presentation 1 with municipalities that they serve and have absolutely 2 no experience where municipalities have claimed the gas 3 utilities to be in fault of the franchise terms of the 4 agreements. 5 We must seriously question the purpose of 6 wanting this added to the model agreement. The model 7 agreement provides the municipality under the 8 restoration clause with the right if they are 9 unsatisfied with the work or the repairs that the 10 utilities have done or the time limits of the repairs to 11 either do the work themselves or contract the work to be 12 done and to send the gas utilities a bill for doing that 13 work. In no instance in our discussions have the cities 14 even exercised that right, so there is no reason to have 15 a default clause in contracts. 16 We work very hard to ensure the satisfaction 17 of the municipality that we serve and this definitely is 18 not broken so please don't fix that. Paddy, I will turn 19 it back to you. 20 MR. DAVIES: I am going to cover the remaining 21 four issues remaining on the list and they are geodetic 22 information, as-built drawings, no warranty on condition 23 of the highways and abandoned pipe. 24 With respect to geodetic information, the gas 25 companies have no objection to providing geodetic 26 information where this is required and this is already 27 in the existing municipal franchise agreement. To 28 require this detail of the gas companies alone, is, in 17 DAVIES/ADIE, Presentation 1 our opinion, unnecessary, it is wasteful, it is costly 2 and to require it of the gas companies on its own is 3 discriminatory. In congested urban settings where the 4 use of geodetics is of value, it is only of value if one 5 of the underground structures were to provide the same 6 information and the existing municipal franchise 7 agreement already provides for this. 8 Turning now to as-built drawings, these are 9 provided to municipalities and this is again a 10 requirement under the existing municipal franchise 11 agreement. Our concern here is the extended use or the 12 requirement of geodetics where this is of little value 13 for the costs involved. In fact, we estimate that the 14 costs to the gas companies would be of the order of five 15 to eight million dollars annually to provide geodetic 16 information. 17 Turning now to no warranty on condition of the 18 highway; AMO has proposed wording to be added to the 19 municipal franchise agreement to the effect that 20 municipal approval for works is not a representation as 21 to the state of the highway or the presence or absence 22 of a hazardous substance that is in or beneath the 23 roadway or the suitability of the highway for gas 24 distribution purposes. 25 The gas companies find it difficult to 26 conceive of circumstances whereby approval of the road 27 engineer would be a representation and warranty as to 28 the absence of a hazardous substance or the suitability 18 DAVIES/ADIE, Presentation 1 of a highway for gas distribution purposes. We don't 2 believe this is an argument to amend the municipal 3 franchise agreement as proposed. The gas companies do 4 not want to lose the ability to rely on the knowledge of 5 the municipalities in the diligent performance of its 6 business. 7 We are concerned that a contractual commitment 8 to use the highways at our own risk could disentitle us 9 to site negligence as a legal course of action or 10 defence in appropriate circumstances. We believe it is 11 unreasonable to require the gas companies to contract 12 out of the common law in matters that are dependent on 13 the specific circumstances as is the case with damage 14 claims and environmental claims. 15 Turning now to abandoned pipe, AMO have made 16 the distinction in their presentation to the Board or 17 their submission to the Board in December between 18 abandoned pipe and decommissioned pipe. There is no 19 difference between abandoned pipe and decommissioned 20 pipe. It is one and the same. 21 And the current municipal franchise agreement 22 states that, "In the event that we abandon or 23 decommission pipe that is on bridges or viaducts that we 24 will remove it at our cost." It also states that 25 removal of the pipe from underground is at our 26 discretion. It further says that municipalities can 27 remove abandoned pipe in the ground as part of a 28 construction project that may be taking place on the 19 DAVIES/ADIE, Presentation 1 roadway. It is efficient to do it then; it is sensible 2 and it is inexpensive and that is the practice that 3 exists today. 4 It is also inappropriate to forfeit ownership 5 of abandoned or decommissioned pipe to the municipality. 6 Investments are made by the gas companies for the 7 benefit of gas rate payers. In the event that 8 underground conduits are required and an abandoned or 9 decommissioned gas pipe is available for that purpose, 10 we believe that the gas rate payers and the municipality 11 and the company should benefit from the innovative use 12 of an abandoned gas pipe for this purpose. In fact, 13 there is wording in the submission that was jointly made 14 by AMO and the gas companies that contains words to that 15 effect. 16 That concludes the ten issues, but I would now 17 like to talk about consistency of application at the 18 municipal franchise agreement. 19 We wish the Board to consider the merits and 20 the benefits of a model franchise agreement that 21 uniformity is applied across the province in large and 22 small municipalities alike. Our costs to operate our 23 business in complex urban areas is already higher than 24 in rural Ontario. Taxation rates are higher in urban 25 areas. Enbridge Consumers Gas, for example, paid the 26 City of Ottawa over $1.2 million in pipeline taxes and 27 property taxes last year. Ottawa-Carleton the total was 28 over $2.8 million. 20 DAVIES/ADIE, Presentation 1 We believe that greater disparities through 2 the uneven application of the municipal franchise 3 agreement across Ontario could put pressure on the 4 concept to have postage stamp rates throughout the 5 province. 6 Turning now to legal considerations, there is 7 a few decisions and legal references that we think might 8 be useful to reference here for completeness of the 9 record. 10 In EBO 125 the Board approved that a franchise 11 agreement cannot be superseded by municipal bylaw. In 12 the Dawn Township/Union Gas case established the primacy 13 of the Ontario Energy Board over municipal bylaws that 14 relate to the transmission, production, distribution and 15 storage of natural gas. This case supports the Board's 16 mandate to safeguard the general public interest as 17 opposed to local interest. 18 In the renewal applications for Centra Four, 19 which is really Orillia, Gravenhurst, Severn Township 20 and Bracebridge, the Board concluded that it has the 21 authority to prohibit the introduction of municipal 22 fees. 23 The Board also found that the exchange of 24 services between the province and municipalities and the 25 legislative changes to allow user fees were not 26 sufficient to justify changes to the model agreement. 27 And lastly, section 220.1(4)(e) of the Municipal Act 28 exempts natural gas transported through distribution 21 DAVIES/ADIE, Presentation 1 pipe from fees and charges as supported by the 2 minister's letter which I referenced earlier. 3 Turning now to a few clarifications or 4 misinterpretations from the presentations that were 5 submitted to the Board in December. Most permits that 6 are applied for by the gas companies are simply requests 7 for permission to dig. In some cases it is no more than 8 a fellow phone call. It is not permits in the sense of 9 the Environmental Assessment Act. It is simply a log 10 for the municipalities to make note of who in fact dug 11 that hole. In some cases it is a submission of a plan 12 for a construction project but that is the extreme case. 13 Mostly it is just to ask for permission to dig. 14 Most distribution plant of the gas company is 15 outside the travel portion of the roadway, and once it 16 is stored it requires little or no attention from the 17 municipalities for its existence. Where we cross roads, 18 our installations, we make every effort to bore across 19 the roads as my colleague Bob indicated earlier. We 20 don't know of any installation or any instance where a 21 municipality has exercised its right to restore and bill 22 the gas company for a restoration that wasn't followed 23 up by one of our companies. 24 MEUs do not pay any right-of-way costs or 25 taxes on their distribution plant. In fact, the lack of 26 equity between gas and electricity extends to the 27 installation of our facilities. The gas companies pay 28 for the costs of their installations in new 22 DAVIES/ADIE, Presentation 1 developments. The MEUs have their plants paid for them 2 and contributed to them by the developers. 3 The idle pipe tax, which is referenced by the 4 Association of Municipalities of Ontario, applies only 5 to National Energy Board regulated pipelines, its 6 decommissioning rules. The National Energy Board have 7 regulations requiring the transmission companies to 8 maintain their pipelines to provide cathartic protection 9 and to continue to monitor those pipelines. It doesn't 10 apply to the gas distribution companies of Ontario. 11 I would like to clarify also the Association 12 of Municipalities of Ontario reference for highway fees. 13 These are nominal fees; $150,000 for all three 14 utilities. This charge is based on an historic anomaly 15 and it is the only amount paid to the MTO. It is 16 important to remember that the gas companies are 17 assessed taxes on all of its pipelines, whether they are 18 on private property, on road allowances or on provincial 19 highways within the municipality. 20 In summary, we could have made three 21 presentations today and we didn't do this. We felt that 22 it was an efficient use of the Board's time to hear this 23 once from the three utilities. We are unanimous and 24 strong in our opposition to the AMO's proposals that are 25 outstanding. We believe that the municipal franchise 26 agreement was crafted carefully in 1987 and it has 27 worked well. 28 We trust that we have impressed the Board with 23 DAVIES/ADIE, Presentation 1 our presentation today on the importance and the 2 potential implications of the changes proposed by AMO, 3 and that the proposed fees, the new revenue streams, are 4 not consistent with government policy to create a more 5 level playing field between gas and the electric 6 utilities. 7 The current municipal franchise agreement was 8 put into place 13 years ago. We won't be back perhaps 9 for another 13 years. A new one may last as long again. 10 It is important, we believe, to urge you to balance the 11 interests of the gas ratepayers in Ontario, the 12 potential expansion market, the municipalities and fair 13 competition with the MEUs when considering any new terms 14 and conditions for the new franchise agreement. 15 That concludes our remarks, and we would be 16 only too pleased to take questions from you. 17 Thank you. 18 MEMBER LAUGHREN: I don't know who wants to 19 answer this question, Mr. Adie or Mr. Davies. 20 It has to do with section 220 of the 21 legislation and that whole issue of the transportation 22 of a natural resource. I read that several times, and I 23 tried to read it very carefully, and I don't have a 24 steel-trap legal mind, but when I looked at it I didn't 25 know whether it applied to natural gas or not. I'm 26 wondering if you could tell us how you come to the 27 conclusion you have on that section. 28 MR. DAVIES: Well, we are not lawyers either, 24 DAVIES/ADIE 1 and we are operating people from the gas companies. For 2 that reason, we have along with us Mr. Leslie, who is 3 working with us, and perhaps that question would be best 4 answered by Mr. Leslie. 5 MR. LESLIE: I'm desperately trying to find 6 the section, but I will do this from memory. 7 The exemption that has been referred to 8 exempts from any kind of fee the transportation of, 9 among other things, natural gas. I think the 10 municipalities' position is that that would preclude 11 throughput charges but doesn't preclude the kinds of 12 fees that they are proposing. The section is subject to 13 both interpretations. 14 In the end, I don't think the utilities' 15 position turns on that. I think their position turns 16 more on, one, the Board's already determined ability to 17 continue to provide a prohibition against such fees, as 18 has been done in the past, and also on the fact that the 19 MEUs don't pay such fees and probably can't be required 20 to pay such fees under section 41(8) of the Electricity 21 Act, 1998. 22 --- Pause 23 MEMBER SIMON: Mr. Leslie, could you please 24 help us out and tell us what section 41(8) says? 25 MR. LESLIE: 41(8)? That I can -- 26 MEMBER SIMON: The one you just referred to in 27 the Competition Act, the one -- 28 MR. LESLIE: No. I'm sorry. This is in the 25 DAVIES/ADIE 1 Electricity Act -- 2 MEMBER SPOEL: I'm sorry; in the Electricity 3 Act. 4 MR. LESLIE: -- 1998, and that I do have in 5 front of me. 6 MR. McCANN: Can I just interrupt? 7 Do the Panel Members have a copy of it, 8 because if not we should make an effort to make sure you 9 have it? 10 THE PRESIDING MEMBER: We do. Thank you. 11 MR. McCANN: Okay. 12 MR. LESLIE: The clause I referred to says: 13 "Subject to clause 7 (c), the transmitter 14 or distributor..." 15 That is, of electricity: 16 "...is not required to pay any 17 compensation in order to exercise its 18 powers under subsections (1), (2) and 19 (3)..." 20 Subsections (1), (2) and (3) deal with the 21 installation of electrical infrastructure. That section 22 makes it reasonably clear that they can't be subject to 23 fees in connection with those installations; and the 24 ministerial letter that was referred to by Mr. Davies, I 25 believe, is consistent with that interpretation. 26 THE PRESIDING MEMBER: Do we have a copy of 27 that? 28 --- Pause 26 DAVIES/ADIE 1 MR. DAVIES: I have a copy here of the letter. 2 THE PRESIDING MEMBER: Yes. Is that an extra 3 copy? Thank you. 4 --- Pause 5 MEMBER SPOEL: I thought I heard you say that 6 you wanted a right to automatic renewal of the franchise 7 agreement. Was I correct in hearing that? 8 MR. ADIE: Yes, you did hear that. 9 MEMBER SPOEL: So you would like this 10 agreement to not -- 11 MR. ADIE: I'm sorry? 12 MEMBER SPOEL: You would like to have the 13 right to automatic renewal without the ability of the 14 municipality to refuse to renew -- 15 MR. ADIE: Well, yes. We certainly operate 16 under the belief and the historic precedent that they 17 are renewed. I think the automatic renewal would just 18 enforce that, that in fact we will come to an agreement. 19 That would be our wish conversely. We are not -- but it 20 is more important as a 20-year initial term. 21 MEMBER SPOEL: Right. I just want to think 22 about the implications of that. 23 If you had an agreement -- let's say we come 24 up with a new form of agreement that includes the right 25 to automatic renewal, what happens if in 15 years from 26 now there is another review of the model franchise 27 agreement and it changes its terms? Does that mean you 28 are entitled to continue operating under the one that is 27 DAVIES/ADIE 1 approved now, or would municipalities have the right to 2 use any new board? 3 I mean, aren't you saying that "We want 4 whatever is on here"? If you have an automatic right of 5 renewal, doesn't that have the implication that those 6 are going to be the terms forever? 7 MR. DAVIES: I think in our submission we 8 indicated that there was some merit to perpetual 9 agreements. I think the important thing here is that a 10 year or two prior to the expiration of the municipal 11 franchise agreement we still invest in that community. 12 We may invest a lot of money in that community. We 13 don't use, as a consideration that would inhibit that 14 investment, the fact that the franchise is about to come 15 up for renewal. We presume that upon its expiration 16 that we would be successful in renewing that franchise 17 agreement. So we considered, as part of our operation, 18 that upon expiration, unless there is some very good 19 reason not to, that the renewal would be reasonably 20 automatic. 21 MEMBER SPOEL: Right. 22 But what you are asking for, I think, when you 23 ask for an automatic renewal in the agreement, is that 24 the renewal was going to be on exactly the same terms 25 and conditions as the agreement that you signed 20 years 26 earlier, and that's what I'm trying to clarify. Is that 27 what you intend by having an automatic right of renewal? 28 MR. DAVIES: No, no. 28 DAVIES/ADIE 1 MR. ADIE: No. You would have to have the 2 right to bring it up to date. 3 I go back to my experience, I guess, in 4 industrial markets when we dealt with contracts with 5 customers that had automatic renewal but the right to 6 cancel when it came due in order to bring the terms and 7 conditions of sale up to the current standard. But the 8 right to be there we think should be embedded in 9 perpetuity and the issues of the day-to-day operations 10 should be reviewed on occasion, as we are reviewing them 11 now. 12 MR. LESLIE: If I may? 13 This is dealt with on page 5 of the document 14 we had this morning, and what was contemplated was that 15 the model franchise would be subject to review 16 periodically by the Board as a generic matter and 17 updated, and that that would replace whatever had 18 existed before, so that the evergreen principle would 19 not preclude changes and revisions. 20 MEMBER SPOEL: Thank you. 21 I had another question about the cost 22 implications -- I think it was you, Mr. Davies -- no, 23 Mr. Adie, I think; anyway, it doesn't matter -- the 24 question of the expansion to new communities and the 25 cost implications for and the payback time for 26 conversion. I just wondered if you have any estimate of 27 what the cost implications of AMO's proposal to have 28 permit and occupancy fees might be. We have heard how 29 DAVIES/ADIE 1 much you pay in taxes already, but I don't have any 2 feeling for what the costs might be. 3 MR. ADIE: We did a rough cut on it, because 4 that would be, I think -- 43 and 14 and eight -- 5 roughly -- we thought that would be somewhere between 6 $20 and $30 a year, over all of the customers. 7 MR. DAVIES: So the total cost implication of 8 the permit fees, as per AMO's proposal, would be an 9 additional $43 million a year, annually, to the gas 10 companies. 11 MEMBER SPOEL: Okay. On top of the $71 12 million you pay in taxes? 13 MR. DAVIES: On top of the 71. And the 14 encroachment fees, as per the schedule submitted by AMO, 15 was a further 14 million. 16 I think these are included in the table that 17 we had at the end of our written presentation. 18 MEMBER SPOEL: Yes, they are. Thank you. 19 MEMBER SIMON: Mr. Adie, I think you were 20 mentioning that the telecommunications companies, the 21 cable companies, aren't subject to user fees. 22 Why is that? And is that likely to continue, 23 in the future? 24 MR. ADIE: That was lifted out of the AMO 25 submission and my understanding is that they are not 26 subject -- they are protected, by legislation, against 27 these fees. 28 MEMBER LAUGHREN: I just have a question on 30 DAVIES/ADIE 1 the difference between the private landowner and the 2 municipalities. 3 It's my understanding that the utilities pay 4 the private landowner a once-only fee for access to the 5 use of properties. Is that correct? 6 MR. DAVIES: No. All the plant that is 7 buried -- all the gas distribution plant which is buried 8 in the ground is either on private property -- for 9 example, service lines that go through the road 10 allowance to the residences -- or, in some cases, very 11 few cases, on easements. We pay taxes on all of that 12 plant, whether it's on private properties, road 13 allowances or, as I referenced earlier, even on 14 provincial highways that exist in municipalities. All 15 of the underground plant attracts taxation. 16 MEMBER LAUGHREN: But I was asking about: is 17 there a fee paid to the private landowners when you put 18 a line into their property? 19 MR. LESLIE: Perhaps I could deal with that, 20 since I'm in the middle of a facilities case. 21 My understanding, in Union's case, at least -- 22 I don't know what the practice is at Consumers, but in 23 Union's case, at least, if it was a private landowner 24 and it was an easement for a transmission line, there 25 would be an amount paid for the easement, which would be 26 a lump-sum payment, normally, as well as disturbance 27 damages and crop loss damages, if it was agricultural 28 property. 31 DAVIES/ADIE 1 Union's practice is to pay the fee simple 2 value of the acreage that's subject to the easement; and 3 that is a lump-sump payment that's made to the owner. 4 Consumers, apparently, do the same thing. 5 MEMBER LAUGHREN: And that kind of fee is not 6 paid to the municipalities; it's paid in the form of 7 taxes. Is that correct? 8 MR. LESLIE: Yes, that's -- there is also tax 9 on the private easement, but the municipality gets tax 10 on any use of it. 11 Any property that's in the road allowances -- 12 which is what we are talking about -- is also subject to 13 municipal tax. 14 MEMBER LAUGHREN: Thank you. 15 MEMBER SPOEL: I'm sorry. I forgot to ask 16 this before. 17 With respect to the representation and 18 warranty as to the condition of the highway, I wondered 19 if your concern was that the granting of the approval by 20 a municipality did not imply any representation or 21 warranty as to condition, or your concern was with the 22 phrase at the end saying that the gas company was going 23 to use the highway at its own risk, on an "as is" basis? 24 Is there a distinction, in your minds, between 25 those two? 26 MR. DAVIES: The concern we have is that when 27 construction takes place in a road allowance, we do as 28 everyone else who digs on a road; that is, to try and 32 DAVIES/ADIE 1 establish any obstacles or things that should be known 2 about before we do any construction or excavation. We 3 don't know of any circumstances whereby a municipality 4 warrantees the suitability of the highway. We submit 5 plans and they grant approval, if it's suitable, and we 6 proceed with construction. Before we do that, we 7 attempt to ascertain where every other underground 8 obstacle will be and anything we may come across during 9 the construction of our activities. What we hope to 10 continue to do, of course, is to take advantage of any 11 known situation that the municipality has in its 12 knowledge about what obstacles would be underground. 13 MEMBER SPOEL: Well, if the municipality 14 doesn't provide any warranty, or you don't expect them 15 to, why would you have a problem with putting that in 16 agreement, actually mentioning that in the agreement, 17 that the mere granting of the approval doesn't provide 18 such -- or shouldn't be taken to imply such 19 representation or warranty? 20 MR. DAVIES: Again, I'm not a lawyer. I 21 believe that we would not want to give up our rights 22 under common law for any situation which could occur 23 that may lead to a claim from a damage or environmental 24 situation that could occur in that road allowance. 25 MR. LESLIE: I think the municipality's 26 position is based on the premise that by telling the 27 utilities they can dig in a given location there's a 28 representation that it's okay to do so, not only since 33 DAVIES/ADIE 1 they have permission but that it's safe and other 2 things. We don't take that position. 3 But, on the other hand, if the municipality 4 has, or ought to have, positive knowledge that there's 5 some impediment doing work there, either from a risk 6 standpoint or environmental, whatever, they should have 7 some obligation to disclose that -- and that's really 8 what the common law would dictate. 9 If you start putting in specific language that 10 says they are not representing or warranteeing, then you 11 probably have to have a proviso that says that they are 12 not -- that doesn't exclude liability for their own 13 negligence or recklessness, and it all gets kind of 14 complicated. 15 The common law basically protects both 16 parties, as matters now stand. 17 I don't think the premise on which the AMO 18 position is based is a realistic one. The utilities 19 certainly don't take the position that by being told 20 they can dig in a certain location that that involves an 21 absolute guarantee that it's okay to do so, from a risk 22 standpoint. 23 THE PRESIDING MEMBER: Mr. McCann, do you have 24 any questions? 25 MR. McCANN: Yes; there are a couple of things 26 I would like to follow up. 27 Just for the sake of clarity -- I think that 28 we have already been over this, but just so we are very 34 DAVIES/ADIE 1 clear on it, I want to go over the increased costs that 2 the gas utilities, jointly, would incur, as a result of 3 the AMO proposals, as they came to be, and I'm looking 4 at the table which you have included on page 8 of your 5 material, and I think there are three numbers that are 6 relevant. One occurs in No. 1, "Payment of permit 7 fees" -- and that amount is estimated to be $43 million. 8 I take it that's based on using the $350 permit fee 9 times the number of permits you estimate would be? 10 MR. DAVIES: That's correct. 11 MR. ADIE: Yes. 12 MR. McCANN: The second is under No. 2, 13 "Compensation for use"; and there, it says that: 14 "Rates would have to increase by a 15 minimum of $14M per year to cover the 16 $250/km charge proposed by AMO". 17 And, again, I take it that's length of 18 pipeline multiplied by 250 kilometres? 19 And, then, under No. 5, "Geodetic 20 Information", there's a statement that: 21 "Rates would have to increase by 22 approximately $8M per year to cover the 23 geodetic data requirements proposed by 24 AMO." 25 And I think you have explained that, at least 26 in the previous submission that you made and possibly in 27 here. 28 So that we have three amounts, 43, 14 and 35 DAVIES/ADIE 1 eight, which, I think, adds up to $65 million -- which 2 is what you see as the increased costs to the gas 3 companies that would be occasioned by implementation of 4 these changes to the municipal franchise agreement? 5 MR. DAVIES: That's correct. 6 MR. McCANN: Okay. Now, one issue that I did 7 want to just dig into a little bit was the issue of 8 property taxes. 9 If I understood rightly, you said that -- 10 again, this is, I take it, a joint figure that the gas 11 companies pay roughly $71 million annually in property 12 taxes. 13 Just so we understand this, my understanding 14 is that the Assessment Act, which is provincial 15 legislation, lays out the basis for the assessment and I 16 think there's a table which lays out the diameter of 17 pipeline and the assessment per square foot, I guess it 18 is, or per foot. 19 MR. ADIE: Lineal foot. 20 MR. McCANN: I'm sorry? 21 MR. ADIE: Lineal foot. 22 MR. McCANN: Lineal foot. Then the mill rate 23 is applied by the municipality, as it would be to other 24 property owners in the municipality and that's how the 25 tax is determined. 26 MR. DAVIES: That's right. 27 MR. McCANN: Now, I hear you when you say that 28 the gas companies get no direct benefit from this in the 36 DAVIES/ADIE 1 sense that they don't make use of garbage pickup and 2 libraries and other services of the municipality, but 3 would you agree with me that there's at least some 4 indirect benefit to the gas companies in the sense that 5 along with other businesses which are located in the 6 municipality, if people have services such as garbage 7 pickup, police, libraries, parks, people will want to 8 live in those communities, do business with the 9 businesses that are in those communities, which includes 10 the gas company, so that to the extent that municipal 11 taxes make a municipality a good place to live, there is 12 at least some indirect benefit to the gas companies in 13 the payment of those taxes. 14 MR. DAVIES: I believe there is, but $71 15 million is what we think is more than our fair share. 16 MR. McCANN: Okay. That's fair. Could I just 17 have your indulgence for one moment. One issue which I 18 wanted to -- this may be more appropriately addressed to 19 Mr. Leslie. I don't know that a lot turns on it in this 20 particular matter. 21 I'm looking at the model franchise agreement, 22 section 4, "Procedural and other matters". What it 23 says -- I'm hoping people have copies -- is: 24 "This agreement in respect of rights and 25 obligations hereunto of the parties are 26 hereby declared to be subject to the 27 provisions of all regulating statutes and 28 all municipal bylaws of general 37 DAVIES/ADIE 1 application." (As read) 2 It then goes on to except from that permit 3 fee. That's the famous exception. I'm not so concerned 4 about the permit fees at the moment. I'm concerned 5 about the language "all municipal bylaws of general 6 application". 7 I think I heard you say in your presentation, 8 and I am looking at page 6, the Dawn versus Union Gas 9 case, which is a well known case in Ontario: 10 " -- established the primacy of the 11 Ontario Energy Board over municipal 12 by-laws that relate to the transmission, 13 production, distribution or storage of 14 natural gas. The case stands for the 15 proposition that the higher authority of 16 the Board is reflective of the Board's 17 mandate to safeguard the general public 18 interest as opposed to local interests." 19 Is there an inconsistency between these two 20 statements, the one saying that the gas company in doing 21 business in the municipality is subject to the municipal 22 bylaws and general application, except permit fees, the 23 other saying that the authority of the Board takes 24 precedence over municipal bylaws. 25 MR. LESLIE: I see your point, but I don't 26 think so in the end. What the Dawn case stands for is 27 bylaws or other municipal instruments which purport to 28 regulate gas, not bylaws of general application, that 38 DAVIES/ADIE 1 purport to regulate gas in the specific -- required some 2 kind of planning approval for the location of gas 3 facilities. They do not apply because the Board has 4 authority over those matters. 5 The specific reference to bylaws imposing 6 permit fees may in a sense be redundant if Dawn is 7 applied to its fullest extent, but I'm not sure that it 8 is. It's probably better there. I don't think there is 9 necessarily an inconsistency. 10 MR. McCANN: Okay. That's fine. Those are 11 all the questions I have, Madam Chair. 12 MEMBER SIMON: I have some questions regarding 13 the $43 million and the $14 million. I was wondering 14 what assumptions you made in calculating the $43 15 million. Why was the same $350 level per permit as MTO 16 uses -- the results are nominal. I was wondering how 17 many permits -- I was wondering what the assumptions 18 were behind the calculation. If you could help me out, 19 please. 20 MR. DAVIES: The highways in Ontario, mostly 21 just road crossings, there are very few highways that we 22 actually parallel the highway right of way, so there's 23 very few of these. That's why it's such a nominal 24 amount that goes to the MTO, whereas as the work that we 25 do in the municipality, every single day we are 26 excavating within municipalities to either install 27 service lines to homes and residences, or we are doing 28 maintenance work on our pipelines and all of the 39 DAVIES/ADIE 1 activities that require us to excavate in the roadway or 2 anywhere requires us to apply for a permit. 3 As I mentioned earlier, this in some cases is 4 simply an administrative thing to make sure that there 5 is a record of who in fact of the utilities that could 6 excavate in the road allowance in fact excavated in that 7 particular location, this for reinstatement purposes 8 later on. 9 What we did is we looked at all of the 10 instances where we think that a permit or an application 11 to do an excavation would -- be it Consumers Gas Company 12 or Enbridge Consumers Gas and Union and NRG, and 13 multiplied by that by $350 to come up with the number of 14 $43 million. 15 MEMBER SIMON: Are you assuming that for any 16 given pipeline in a municipality you would have to get 17 more than on permit to dig the entire route? 18 MR. DAVIES: No. If you were to install a 19 major project, that would be one permit. In fact, going 20 to a new community, it would be one permit, but after 21 you have installed the pipelines into that community, 22 there are permits for every single service installation 23 as a record of the location of where we would dig later 24 to install a service line into each premises. 25 Every occasion where we excavate in a 26 municipal road allowance is an application to that 27 municipality for permission to dig. 28 MEMBER SIMON: Thank you. 40 DAVIES/ADIE 1 THE PRESIDING MEMBER: I just have a few 2 questions. I guess getting back to the same permit 3 fees. What fees exactly do utilities pay right now to 4 municipalities? Can you help me with that? For 5 example, if you are building a district regulator 6 station, do you pay a permit fee to build that facility? 7 MR. DAVIES: With respect to -- I don't 8 believe it will apply to a regulator facility. The $71 9 million that we referenced is taxation, as was 10 referenced by Board staff. This is the province's 11 requirement with respect to taxation and it's on a per 12 footage basis. 13 We pay $71 million. I believe it's 83 per 14 cent of that that is on the distribution pipes. The 15 balance is on buildings or facilities which would be 16 regulator stations and other buildings. 17 THE PRESIDING MEMBER: No, I appreciate that 18 you pay -- under the Assessment Act you pay certain 19 assessed values based on the lineal footage and the 20 table and the Assessment Act and the mill rate. I guess 21 what I'm trying to find out is what additional fees do 22 you pay right now for operating your gas utilities? 23 MR. DAVIES: We pay for obviously the cost of 24 our construction. We pay for all of the reinstatement 25 costs. In other words, when we have excavated, we fix 26 up the road if it's in the travel portion of the road or 27 the sidewalk. We pay for that. We receive a bill from 28 the municipalities who want to do that permanent 41 DAVIES/ADIE 1 reinstatement themselves and bill us for it. We pay for 2 that. I don't know of any other cost that we pay. We 3 do not pay permit fees, we do not pay occupation fees. 4 We pay taxes and we pay for the costs in total of the 5 installation of our pipelines and for the maintenance 6 work that we do, plus the reinstatement of the roads in 7 those cases. 8 THE PRESIDING MEMBER: All right. 9 If you were doing building, then you don't pay 10 to get a building permit then from the municipality. 11 MR. LESLIE: I think we do. 12 THE PRESIDING MEMBER: You do? 13 MR. LESLIE: Yes. I think any buildings that 14 are erected are subject to building permits and whatever 15 fees, associated fees. 16 THE PRESIDING MEMBER: All right. Would that 17 include district regulator stations and that type of 18 thing that are not really a building per se, but -- 19 MR. LESLIE: I don't think we know the answer 20 to that, I'm afraid. We can supply it. 21 THE PRESIDING MEMBER: Could you, please. 22 Thank you. Is it your position that -- well, not your 23 position -- you shouldn't pay any fees at all. For 24 example, if the municipality incurs additional costs and 25 expense just for providing services to a gas utility, 26 are you saying that under no circumstances should you 27 have to pay for those services? 28 MR. DAVIES: Essentially yes, we are. We are 42 DAVIES/ADIE 1 saying that the amount that we pay every municipality in 2 the form of taxes more than covers the cost that they 3 incur on behalf of the gas company dealing with the 4 administration of our business. 5 THE PRESIDING MEMBER: Would it be possible 6 for the utilities and the municipalities to estimate the 7 additional cost to a municipality to provide services on 8 some sort of basis? 9 MR. DAVIES: Well, that might be a question to 10 ask of the municipalities. But as much as we -- with 11 respect to the applications, the work associated with 12 that is done by the utilities and it is simply in most 13 cases an administrative just, "yes, it is okay to dig," 14 and they give us approval and it is logged and so on. 15 Not much work. It is not an environmental assessment 16 application or a permit that requires a lot of 17 consideration. Most of the gas company's work is on 18 standard line locations, does not require a great deal 19 of consideration on the part of the municipalities to 20 consider and to approve. 21 THE PRESIDING MEMBER: Thank you. 22 MR. ADIE: And that is work -- I am sorry, I 23 will just add too if you don't mind -- that is work that 24 they also do for the municipal electrics at no cost 25 which they own. So it is this level playing field that 26 is really in jeopardy as we are exposed to additional 27 costs that aren't exposed to our competitors. It is a 28 real issue with us. 43 DAVIES/ADIE 1 THE PRESIDING MEMBER: I appreciate the fact 2 that the level playing field is an important issue, 3 especially in this area of transition. 4 Can you help me with the issue of insurance? 5 I appreciate that there are issues about the 6 unreasonable administrative onus of adding on each 7 municipality as a named insured and I guess I am not an 8 expert at insurance law either. So have you done an 9 estimate -- you also said that there was an issue of 10 additional cost of naming municipalities on as 11 co-insured. Is that an additional end cost that your 12 insurer would require you to pay? And if so, do you 13 have an estimate of what that would cost? 14 MR. ADIE: No, I don't have an estimate. We 15 were advised that that was not something you would do. 16 If you did, then it would have to be like taking out 17 additional policy on behalf of the city if it is 18 additional named insured as opposed to additional 19 insured. My understanding from our insurance people are 20 additional insured is already covered within the 21 franchise agreement. It is the named that is the issue. 22 THE PRESIDING MEMBER: Right. And do you know 23 how much naming would -- an estimate of how much that 24 would cost? 25 MR. LESLIE: I think the position the 26 insurance companies took was that they wouldn't do it. 27 That is to say they wouldn't create a policy that showed 28 all the municipalities as the named insured. Because 44 DAVIES/ADIE 1 that would in essence be taking out insurance for each 2 of the municipalities and a premium -- I don't know what 3 the effect -- my experience is insurance companies will 4 do anything for money. So there probably is an answer 5 to your question. But the immediate answer was no, we 6 wouldn't that. We could go back and get some indication 7 of what they charge if we absolutely had to have it 8 done. 9 THE PRESIDING MEMBER: I would appreciate it 10 because for me it makes a difference as to whether it 11 would be impossible to get this insurance or whether it 12 wouldn't be impossible and what the additional costs 13 would be -- 14 MR. LESLIE: Yes. 15 THE PRESIDING MEMBER: -- so that we can do a 16 cost benefit analysis. Thank you. 17 With respect to the term, if in fact the Board 18 agreed with an evergreen-type of renewal provision on 19 the same terms and conditions, would the utilities be 20 amenable to shorter terms of agreement? 21 In other words, if in fact your concern is 22 that you want some sort of protection for your 23 investment over a long period of time and we agreed that 24 in fact there would be a type of evergreen renewal on 25 your franchise agreement, is there any reason why you 26 would be prejudiced by granting a shorter time so that 27 if there were changes as they went along that they 28 municipalities would have an opportunity to catch up 45 DAVIES/ADIE 1 more quickly than they would with a longer term 2 franchise agreement. 3 MR. ADIE: That seems reasonable. One issue 4 that we have then is because of the number of franchises 5 that we have, albeit they are shrinking but they are not 6 shrinking that much at this point in time, is the 7 administrative change required of each franchise. If 8 you are suggesting, you know, we had a franchise in 9 perpetuity and we had some of the operating components 10 outside of the agreement, then we suspect that would be 11 a reasonable expectation. I'm not sure. We haven't 12 really thought out the time, like every seven years or 13 every eight years. We haven't thought that through. 14 THE PRESIDING MEMBER: The municipalities, of 15 course, are saying that because of this legislative 16 change and because of this downloading that in fact that 17 they need a more regular update, I guess, for lack of 18 better words, to the franchise agreements than they 19 would get every 15 to 20 years. 20 Can you help me with this geodetic information 21 and these as-built drawings? It is the position of the 22 utilities that they won't give it to the municipalities, 23 that they shouldn't have to give it to the 24 municipalities. In other words, if you have got this 25 information, what is the additional cost to the utility 26 of providing it to the municipality and what would be 27 the downside of doing that? 28 MR. DAVIES: We don't have this information 46 DAVIES/ADIE 1 for all of our facilities. The existing franchise 2 agreement that is in place today requires it for complex 3 urban intersections and we provide it in those 4 situations and so do other utilities in those complex 5 urban situations so that the record is complete. And 6 where that is required we provide that information. 7 Our concern is that that would be extended to 8 all of our facilities and that is estimate that we have 9 given you as far as the costs are concerned. We believe 10 that it is just not necessary to have this information 11 for all of our facilities in a municipality. It is of 12 little value if it is just our facilities and not the 13 other utilities and the costs therefore are not just 14 warranted. 15 So it already allows for the municipality to 16 have this where there is a reason for it and that is 17 provided by us. We don't have information on geodetics 18 for the balance of our facilities. We only do it when 19 it is required by the municipality for such complex 20 intersections. 21 THE PRESIDING MEMBER: Okay. So you are 22 saying you only -- you don't have this additional 23 information unless the municipality requires it? 24 MR. DAVIES: That is correct. 25 THE PRESIDING MEMBER: And it is not necessary 26 unless the municipality requires it and provisions of 27 the franchise agreement are sufficient to protect the 28 municipalities for the complex urban areas. 47 DAVIES/ADIE 1 MR. DAVIES: That is right. 2 THE PRESIDING MEMBER: Can you help me here? 3 Is there a large incremental cost of supplying this 4 information if, in fact, you did have it for whatever 5 reason and if, in fact, the municipality requested it? 6 MR. DAVIES: If we had it, it would be not 7 much more of an incremental cost to provide it. We just 8 don't have it and we propose we do not spend the money 9 necessary to have geodetic information on our plant. 10 Geodetic information is a referencing system 11 that provides both a vertical and a horizontal axis, you 12 know, to tie to a framework. It is not a -- it is not a 13 geographical -- a geographic system. That is just a 14 mapping system. Geodetics is a tying in to reference 15 points absolutely where each point of your plant is and 16 we simply don't have that. We only do that when it is 17 required of us by the municipality for complex 18 intersections. What we have we are prepared to share. 19 MEMBER LAUGHREN: What I don't understand is 20 why would a municipality ask you for it if they didn't 21 need it if it wasn't important for them to have it? 22 MR. DAVIES: Well, that may be a question to 23 ask of the municipality too. 24 MEMBER LAUGHREN: Okay. But you are fearful 25 that they will obviously. Because you say that if they 26 need it you will provide it if you have it. But that if 27 you don't, then you don't want to get locked into that 28 kind of arrangement. But I can't -- you can't answer 48 DAVIES/ADIE 1 it, I guess, as to why they would even ask you for it if 2 it wasn't important to have it. 3 MR. DAVIES: Indeed there are some 4 municipalities who do not have any information on 5 geodetics for any of the plant. And to require it of us 6 as part of the agreement we feel is, as we said, 7 unnecessary and costly and wasteful. But where it is 8 required for purposes of managing complex urban 9 intersections, we and the other utilities provide it. 10 THE PRESIDING MEMBER: Can I just ask one last 11 question about abandoned pipe? 12 It is your position that -- now, I understand 13 that if it is on bridges or under passes or whatever, 14 you will remove the pipe as abandoned. Right? 15 MR. DAVIES: Right. That is correct. 16 THE PRESIDING MEMBER: Assuming you have 17 abandoned it. If it is in the ground, presumably you 18 can remove it if you want to, the municipality can 19 remove if they want to, the landowner can remove it if 20 they want to if it has been abandoned? 21 MR. DAVIES: In practice, what happens is 22 this. When we decommission or abandon -- same thing -- 23 a gas pipeline because it is no longer required, maybe 24 through an alteration or because it has been replaced, 25 we are required to cut it up into sections that make it 26 non-continuous. This is in accordance with the codes in 27 Ontario. And we leave it in place in the road 28 allowances, because to remove it could be very costly 49 DAVIES/ADIE 1 and be intrusive and cause more trouble and 2 inconvenience than the original installation maybe. So 3 it is left there. 4 In the event that there is some construction 5 work by another utility or the municipality, and this 6 abandoned or decommissioned pipe is exposed and in the 7 way, it is removed as part of the construction project, 8 at which time it is inexpensive and efficient to do 9 that. And the current agreement doesn't require us to 10 pay for that. That's just part of the job of doing the 11 construction project that is at hand at the time. 12 THE PRESIDING MEMBER: Right. 13 But your position is, for ratemaking purposes, 14 you have written off that pipe that is abandoned. Is 15 that -- 16 MR. DAVIES: Well, no, not exactly. 17 THE PRESIDING MEMBER: Okay. 18 MR. DAVIES: There is still some residual 19 value that could be -- in fact, in the event that there 20 was a use for this, and we have talked to 21 representatives of AMO about this -- in the event that 22 it provided a useful conduit for purposes of fibre optic 23 cable or other cables in the future, then the 24 convenience for the municipality is that the road 25 doesn't get excavated. As long as we can connect the 26 disconnections that we have put in the ground because of 27 the codes, we reconnect the pipe and make it continuous 28 again, it could be used for innovative purposes like 50 DAVIES/ADIE 1 this. And we have agreed, and the submission indicates, 2 that we have made some agreement with AMO that would 3 equitably share the revenues of that use. 4 THE PRESIDING MEMBER: Okay. 5 I understand that even though you have 6 abandoned it for gas facility purposes there may be some 7 value and you just don't want to give up the rights in 8 that additional value potentially down the road. 9 MR. DAVIES: That's right. 10 THE PRESIDING MEMBER: Do you know if, for 11 ratemaking purposes, abandoned pipes have been totally 12 written off? 13 MR. LESLIE: If it's judged to be not used or 14 useful for the purposes of the utility it is not in rate 15 base. The difficulty is usually around quantifying how 16 much comes out. 17 THE PRESIDING MEMBER: All right. I 18 appreciate that. Thank you. 19 Thank you very much for your presentation. We 20 appreciate it. 21 Now I think would be a good time to take a 22 short break. We will reconvene at five after 11:00. 23 I believe the next people we are going to hear 24 from are the Ottawa-Carleton people. 25 MR. McARTHUR: That's right, Madam Chair. 26 Thank you. 27 THE PRESIDING MEMBER: Thank you. 28 --- Upon recessing at 1050 51 1 --- Upon resuming at 1110 2 THE PRESIDING MEMBER: Mr. McArthur. 3 MR. McARTHUR: Thank you, Madam Chair. 4 With your indulgence, we would like to do a 5 joint presentation, myself and Mr. Lorne Ross, who is an 6 engineer. 7 Also, with your indulgence, we would like to 8 do it by way of PowerPoint, if we might. 9 PRESENTATION 10 MR. McARTHUR: As I have said, my name is 11 Ernest McArthur, counsel for the Region of 12 Ottawa-Carleton. With me is Lorne Ross, an engineer and 13 Manager of Surface Projects at Ottawa-Carleton. 14 A little diagram of Ottawa-Carleton, just in 15 case some of you are not sure where it is. I think most 16 of you are. 17 A little bit of information. Twelve 18 municipalities in the region -- very soon to become one 19 municipality, as you are all aware. Approximately a 20 million people in the total, the whole Ottawa-Carleton 21 area; and there is some kilometres, mileage of the 22 roads, regional roads that we are talking about today. 23 Madam Chair, the municipalities intend to 24 present, in the fashion shown before you -- and, by the 25 way, before I go any further, I did give a copy of this 26 presentation to you. Each of you have a copy of it in 27 front of you, and staff have a copy of it, and there's a 28 limited number gone out to the gas companies. 52 McARTHUR/ROSS, Presentation 1 As I have said, the Region of Ottawa-Carleton 2 will go first and make some preliminary observations; 3 and, secondly, address the Energy Board issues Nos. 1 4 and 2, which we have roughly labelled compensation. 5 Following Ottawa-Carleton, will be a 6 submission on behalf of the City of Toronto by 7 Mr. Andrew Roman, counsel, and he will address legal 8 issues, jurisdiction, legislation. 9 Thirdly, the Association of Municipalities of 10 Ontario, AMO, a submission will be made by Mr. Andrew 11 Wright covering the balance of the issues, the Energy 12 Board issues 3 to 10. 13 I suggest that the questions may be a little 14 bit tricky and maybe they should be left until the 15 completion of all three submissions on behalf of the 16 municipalities, but of course, Madam Chair, that is up 17 to you and your discretion. 18 Before turning to my next slide, I would like 19 to make an opening comment about Ottawa-Carleton's 20 position. 21 Basically, Madam Chair, the position, our 22 position, is that there is very clear legislative 23 authority both for us to manage our roads and, secondly, 24 to recover our costs and charge a fee. That legislation 25 is clear, with respect. 26 Secondly, this is a road management hearing, 27 Madam Chair. I have reviewed the 10 issues raised by 28 the Energy Board presented to us for discussion. 53 McARTHUR/ROSS, Presentation 1 Clearly, they are road management issues. 2 With respect to my colleagues and friends from 3 the gas companies, the purpose of this hearing is not 4 advanced, with respect, by the two tired old arguments: 5 taxes and rates. 6 I was involved in negotiations with the gas 7 companies. This was the subject of their discussion and 8 their negotiations: rates and taxes. It's also clear 9 from their submissions that this is what they perceive 10 this hearing to be: rates and taxes. It's also clear 11 from the submissions we have heard this morning that 12 what they are concerned about is rates and taxes. 13 With the greatest respect, Madam Chair, to the 14 Board and to the gas companies, these issues are 15 irrelevant. Obviously, it is the Board's mandate to 16 consider rates. Obviously, the gas companies are 17 concerned about rates. But how does that advance the 18 issue of road management, proper road management? 19 Of course rates will be affected, that goes 20 without saying, but the issue before us, Madam Chair, is 21 road management. 22 The other issue is taxes. Well, of course 23 they pay taxes. This is a provincial issue. This is an 24 Assessment Act issue. This is not an Energy Board 25 issue. This is not a municipal issue. The fact that 26 the gas companies pay taxes, so do the hot dog 27 vendors -- they pay taxes. I have never heard a hot dog 28 vendor coming to a municipality and say, "Whoa. We pay 54 McARTHUR/ROSS, Presentation 1 taxes. Why are you charging us a fee?" It's laughable. 2 Moving on to my next slide, Madam Chair, why 3 are we here now reviewing the franchise agreement? Why 4 is it important now? 5 Well, I understand the basis for it, that 6 several of them are coming up for renewal and the Board 7 and the gas companies would like to have them 8 standardized and settled so that we are not having 9 hundreds of them floating around out there, but it is a 10 tired, old agreement. It has run its course. 11 We think, the municipalities think, it is time 12 to review them now for the reasons listed in front of 13 you: changing uses of the road. The road, in the last 14 generation, has become a mass of wires and pipes and 15 ducts, and there are many other uses which I will 16 elaborate on in a moment. 17 Secondly, deregulation -- the buzz word is 18 "privatization" -- both at the federal level and the 19 provincial level. They want competition. There are 20 people everywhere, companies everywhere, utilities 21 everywhere clamouring for the use of our roads. 22 Times have changed and at times changed 23 drastically. That has resulted in the third bullet 24 before you in rights of way management, the need for us 25 to sit down as municipalities and consider how best to 26 manage these roads and rights of way. 27 In the fourth bullet, the fiscal realities 28 have hit us. There is no longer the funding that we 55 McARTHUR/ROSS, Presentation 1 used to have. The mass intrusion into our rights of way 2 by utility companies, in general, is made obvious to the 3 fiscal realities of having to keep these roads in 4 repair, maintain them, resurface them. Together with 5 that, we are faced with the idea that in fact we, as 6 municipalities and taxpayers, are subsidizing 7 multimillion dollar companies. I'm not just talking 8 about the gas companies, for all utilities, 9 telecommunication companies -- we are subsidizing them. 10 Why should that be? Madam Chair, with 11 respect, this has got to stop. 12 In the next bullet, we have become more aware 13 of our costs. We start to sit down and think about what 14 it's actually costing us to have the gas companies use 15 our roads. Urbanization is a factor. Environmental 16 concerns -- I won't elaborate; they are all obvious. 17 Legislative changes. We have always had Section 111 of 18 the Municipal Act, which says assistance is prohibited. 19 A municipality is prohibited from assisting private 20 companies. But, now, that's being reinforced by Section 21 320.1 of the Municipal Act, which Mr. Roman will 22 address, which clearly, with respect, allows us to 23 charge for our services -- it says that -- and it also 24 allows us to charge for use of our lands -- it says 25 that. We have clear legislative authority now, with 26 respect, Madam Chair. 27 That's another reason why this old agreement 28 needs to be reviewed. 56 McARTHUR/ROSS, Presentation 1 Finally, with the FCM's five principles. I 2 won't elaborate on those; they have been outlined in 3 Ottawa-Carleton's submission, on page 25. 4 Basically, what they say is that a 5 municipality must exercise its legislative authority to 6 manage its roads. 7 Secondly, and importantly, is that this 8 management and right to manage the roads, and the use of 9 the roads by utilities, should not cost the municipality 10 and the taxpayer. This is what we are talking about. 11 In the next slide, an example of an 12 intersection in Ottawa-Carleton: Kent Street and Slater 13 Street; a mass of intrusion beneath the surface of the 14 roadway -- especially at these intersections. 15 This is an old photo. Back in 1917, I 16 believe, in New York City. Maybe things have changed 17 now. It's a very clear depiction of what the 18 municipalities are faced with, and what they have been 19 faced with for 100 years: extreme use of its roads and 20 a need to manage it efficiently and properly. 21 Moving on to the next slide. Just listing a 22 few of the multiple uses for their road allowances, 23 Madam Chair: Pedestrians; vehicles; shade trees; 24 signs -- a mass of signs and signals; street lights; 25 electric wires; communication systems; sanitary sewers, 26 storm sewers; water mains; gas lines; pipelines; street 27 furniture; and many others -- and under the "many 28 others", I could name: the homeless; squeegee kids; 57 McARTHUR/ROSS, Presentation 1 panhandlers; sporting events; parades -- it goes on and 2 on. 3 This, Madam Chair, is a massive undertaking 4 for municipalities, in terms of management. It's easy 5 to say, well, maybe the legislation didn't give us the 6 authority; maybe it forgot about us; maybe the 7 Telecommunications Act, the Municipal Act, the Energy 8 Board Act, forgot about us. But I don't think so. 9 There's clear wording in that legislation -- especially 10 the Municipal Act and the Telecommunications Act -- with 11 respect to consent. The municipality must be allowed to 12 exercise that consent and properly manage its roads. 13 I didn't mean to go beyond this Board's 14 jurisdiction in referring constantly to the 15 telecommunications companies, but they are relevant, 16 they do use our roads and, as far as we are concerned, 17 their Act is relevant, also. 18 Moving on to the next slide, I will elaborate 19 a little on what I have just said. 20 What is management? It's a balancing of 21 interests. I just outlined some of the interests. 22 There's many of them. We have to balance those 23 interests. They are essential in competing demands we 24 have to manage. We have to come up with by-laws, 25 practices, policies; take care of matters of health, 26 safety, welfare, economics. This is a finite resource, 27 Madam Chair. We are running out of room in a lot of 28 areas, especially urban areas. It's time we started to 58 McARTHUR/ROSS, Presentation 1 manage this finite resource and manage it responsibly, 2 on behalf of our taxpayers. What we have to consider is 3 a benefit to all users of that road allowance. 4 A little example of what happens if we don't 5 manage a road allowance properly. 6 A statement I have thrown in here, from the 7 U.S. Federal Communications Commission's Notice of 8 Inquiry: 9 "The comments filed reveal the tensions 10 that naturally arise with surging demand 11 for a scarce and valuable resource which 12 is necessarily devoted to multiple and 13 sometimes conflicting uses. It's no 14 surprise --" 15 the writer says: 16 "-- that private enterprises chafe under 17 rules that protect the public, health, 18 safety and welfare and fiscal interests 19 of the taxpaying public." 20 Ottawa-Carleton's submission -- which you have 21 had for a while, now, Madam Chair -- is based on a few 22 basic premises. Number one, road management -- and this 23 is the "Road Management Matter", the first bullet before 24 you -- and that's reflected in the 10 issues that the 25 Energy Board has requested that we address. 26 Moving down to the fourth bullet, "Gas Rate vs 27 Road Management", I have already addressed the matter of 28 gas rates. Sure, they are going to affect on gas rates. 59 McARTHUR/ROSS, Presentation 1 But the legislation doesn't say anything about that when 2 it talks about our right to manage our roads and consent 3 to the use of our roads. There's no legislation which 4 says the municipal taxpayer -- that's you, Madam Chair, 5 and me -- should finance these companies. This is a 6 cost of doing business. 7 In the second bullet, Madam Chair, we have the 8 authority to manage our roads. It's clear in the 9 Municipal Act. We have the obligation to manage our 10 roads efficiently and effectively. 11 "Relevance of Precedent". I suggested that 12 the franchise agreement is out of date; it's seen better 13 days. Precedent should be created, with respect, not 14 relied on, in this particular case. There's been too 15 many changes. There's been too many technological 16 changes, changes to the legislation, changes in every 17 aspect of road use, to be turning back to precedent over 18 the last 100 years. 19 "Compensation" -- the next bullet. Sure. 20 What are the utilities saying? And I don't say just the 21 gas companies, but what are the utilities saying? This 22 is a money grab. 23 Well, it's not, Madam Chair. It's a realistic 24 look at what the use of our roads is costing the 25 taxpayers and what we should be recovering, because of 26 those costs. 27 The gas companies are concerned about the 28 bottom line and what it costs them to operate. Doesn't 60 McARTHUR/ROSS, Presentation 1 it make sense that the municipalities should take a 2 similar approach? 3 The next bullet, "Utilities - Taxation 4 Differences". Sure, there's unequal playing fields. 5 But as I suggested, in Ottawa-Carleton's submission, 6 this is not the place to correct those taxation 7 differences and inequities. That's the plain fact. 8 Second-last bullet, "All Road Users". 9 Ottawa-Carleton has come up with a policy -- as has 10 Toronto and other municipalities, I'm sure -- of fair 11 and equal treatment. This is based on the five FCM 12 principles and Ottawa-Carleton's belief that all users 13 of the road, utilities, should be treated fair and 14 equally. 15 Finally, on this page, this is more than a gas 16 issue -- and I have already alerted -- well, mentioned 17 that. There's a hearing before the CRTC on identical 18 issues, with respect to the telecommunications issues. 19 I'm not sure how the Board might choose to handle that 20 fact, that it's more than a gas issue, but they might 21 handle it by telling the municipalities and the gas 22 companies to go away and negotiate fair and reasonable 23 terms and conditions of access to our roads and only to 24 return if any of those terms and conditions are 25 obviously prohibitive, obviously totally unreasonable; 26 then the Board might be in a position to consider that 27 particular term of condition of use of the road. 28 Madam Chair, I have said and made my 61 McARTHUR/ROSS, Presentation 1 preliminary comments. I'm going to move into OEB issues 2 No. 1 and 2, which we have labelled "Compensation" -- 3 oops! I jumped over myself here a bit. I apologize. 4 I'm going to back up and say what the 5 preferred position of the municipalities is; and that 6 is, that the municipalities have the authority to manage 7 their roads and this be recognized. Every municipality 8 is different, every thing is going to be different, 9 every cost is going to be different. Let the 10 municipalities manage their roads. Let them pass a 11 by-law. There are protections in-built in that process. 12 The gas companies and all utilities are free to 13 challenge those by-laws; it's an open process. It's 14 done as a public process; they can challenge them. And 15 that's the place for the gas companies to look into what 16 the municipality is doing or how it's managing its 17 roads, with respect to terms and conditions. 18 Now, that's the preferred position, Madam 19 Chair, of the municipalities: let us do our thing. 20 Having said that, we have been asked to speak 21 Issues 1 and 2, which is compensation; that is, costs, 22 and use and occupancy licence fee -- and as you can see 23 on the slide, we have tried to make clear that they are 24 entirely separate issues. The first one, cost recovery, 25 relates to direct and indirect costs which the 26 municipality incurred. And, secondly, a use and 27 occupancy licence fee; that is, for the use of our 28 roads. 62 McARTHUR/ROSS, Presentation 1 While we would like to be able to decide for 2 ourselves what those fees should be and what the costs 3 are, and we will do it, we have here, in the next few 4 minutes, going to present to you and indicate to you 5 what, in fact, some of those costs are. 6 So, here, I would like to hand it over to Mr. 7 Lorne Ross, if I might. 8 Thank you. 9 MR. ROSS: Thank you, Mr. McArthur. 10 The use of municipal rights of way by utility 11 companies imposes many significant costs on 12 municipalities. As stewards of the public rights of way 13 and to minimize taxpayers' subsidization of utility 14 operations, it is a well established practice throughout 15 North America for municipalities to levy permits and 16 other fees to recover the direct and indirect costs of 17 the public rights of way management efforts resulting 18 from utility use. 19 Ottawa-Carleton submits that it is 20 inappropriate for private profit seeking companies to be 21 subsidized by municipal taxpayers and that it is only 22 fair and reasonable that the users of the public rights 23 of way be responsible for all costs arising from that 24 use. 25 The economic transfer from a taxpayer's pocket 26 to a utility shareholder's pocket that subsidization 27 implies is not only exceedingly unfair, but has a very 28 serious societal and global competitive impact since the 63 McARTHUR/ROSS, Presentation 1 underpricing of scarce invaluable resources promotes 2 inefficient consumption and presents a significant 3 disincentive to the development of unsubsidized 4 competing technologies. 5 As mentioned earlier, Ottawa-Carleton 6 envisions two types of compensation. Firstly, fees to 7 recover the direct and indirect costs of the use of 8 public rights of way by the gas company. These costs 9 fall into five categories: general administrative 10 costs, pavement degradation costs, relocation and 11 adjustment costs, direct quantifiable costs and what we 12 call work-around in other costs that are unquantifiable. 13 The second type of compensation proposed is a 14 licence fee in consideration of the market value of the 15 municipal property occupied by the gas company. I will 16 now touch on each one of these. 17 Firstly, general administration costs. 18 General administration costs arising from the use of 19 public rights of way by utilities relate to the 20 following: permit issuance, record keeping, field 21 inspection, coordination and technical review of plans, 22 legal advice and general overhead. 23 Last year an Ontario Good Roads Association 24 task force report on utilities using municipal rights of 25 way proposed that municipalities recover general 26 administrative costs by means of a permit fee and that 27 this fee be determined by dividing the total general 28 administrative costs incurred by a municipality by the 64 McARTHUR/ROSS, Presentation 1 number of permits processed annually. 2 With one refinement, this is the method 3 Ottawa-Carleton would propose for the recovery of 4 general administrative costs. The refinement is simply 5 to have a two level minor-major permit fee that 6 recognizes the different level of municipal costs 7 associated with large utility projects versus relatively 8 minor works. 9 Ottawa-Carleton's current permit fee is 10 $107.50. However, the region is just completing a major 11 review of all utility public rights of way management 12 issues. As part of this review, a thorough costing 13 exercise was carried out. The region's general 14 administrative cost for utility rights of way management 15 are, as shown here, a basic permit fee -- a basic cost 16 of $395 which applies to all projects and an additional 17 cost for major projects of $165. Thus a permit fee of 18 $560 would recover all of the general administrative 19 costs associated with a major utility project. 20 However, each municipality's general 21 administrative costs differ for many valid reasons and 22 not all municipalities may wish to undertake a costing 23 exercise to determine an appropriate permit fee. In 24 view of this, Ottawa-Carleton suggests that the Board 25 may wish to recommend a general permit fee that would 26 apply to all municipalities, except those municipalities 27 that adopt a specific fee schedule by bylaw. 28 Ottawa-Carleton proposes that such a 65 McARTHUR/ROSS, Presentation 1 recommended municipal consent permit fee could be as 2 outlined in O.D.R.A.'s August 1999 task force report and 3 as shown here, $100 for a village or township, $200 for 4 a city or town and $300 for a county or region. 5 Pavement degradation is another cost. 6 Utilities using municipal rights of way often need to 7 trench the road pavement structure in order to install 8 or maintain their plant. A literature review conducted 9 by the National Research Council of Canada last year 10 uncovered studies showing that up to 60 per cent of the 11 pavement life can be lost due to the effects of utility 12 trenching. 13 Pavement damage caused by utility trenching 14 results in municipalities having to resurface roadways 15 at more frequent intervals at great expense to the 16 municipal taxpayer. The financing of this work can 17 result in funds being diverted from other needed parts 18 of the municipal budget or limited researching budgets 19 can mean that there are insufficient funds to undertake 20 all the needed work with the result that pavement 21 conditions can rapidly deteriorate to the point where 22 reconstruction is required at ten times the cost of 23 resurfacing. 24 It is estimated that lost pavement life 25 through utility trenching costs the taxpayers of 26 Ottawa-Carleton alone at least $1 million annually. In 27 addition to this, deteriorated pavements result in 28 communities having to endure increased noise, vibration, 66 McARTHUR/ROSS, Presentation 1 vehicle repair costs and a decrease in the safety of 2 travel. 3 Increased user costs due to poor pavement can 4 far exceed the cost of pavement repairs, so the impact 5 of utility activities on public rights of way can affect 6 the entire economic and social wellbeing of a community. 7 As shown here, typical road pavement 8 structures are made up of layers of gravel, sub-base and 9 base and surfacing, generally asphalt or concrete. 10 Pavements are designed to support the specific traffic 11 loadings, subgrade, environmental conditions of the 12 site. They are engineered structures just as are the 13 pipes, wires and other plant of utility companies. 14 This slide here shows the structural damage, 15 the shortened pavement life of the gas utility trench in 16 Ottawa-Carleton. Like the human body, the pavement 17 structure exhibits a permanent scar after being cut 18 deeply and what is most significant, the pavement 19 structure within and in the immediate vicinity of the 20 starred area exhibits a much shorter life than the 21 undisturbed pavement. 22 There are several ways that utility trenching 23 reduces road life, but perhaps the most insidious is the 24 introduction of new joints that allow the entry of water 25 into the very hard pavement structure. The presence of 26 water weakens the ability of a road to sustain heavy 27 loads and makes the pavement very susceptible to damage, 28 but worse. When water freezes, it expands and exerts 67 McARTHUR/ROSS, Presentation 1 the pushing force of 120,000 pounds per square inch. 2 This is an incredible force that over time reduces even 3 mountains to sand and exerts this force time and again 4 as the water alternately freezes and thaws, as it does 5 many times each winter season in our climate. This 6 gives a new meaning to a utility company's right to 7 enter and break up a municipal road. 8 Ottawa-Carleton has just completed its own 9 state-of-the-art pavement degradation study. This study 10 shows an average minimum reduced pavement life of 32 per 11 cent for trenched pavement areas in Ottawa-Carleton's 12 urban road systems. 13 For cost recovery purposes, Ottawa-Carleton's 14 study quantified the 32 per cent loss in pavement life 15 in terms of dollars per square metre of road cut. As 16 shown here, this pavement degradation cost ranges from a 17 high of $24 per square metre for pavements that have 18 just been resurfaced or have been resurfaced for less 19 than two years at the time of cutting the road to $4 per 20 square metre for pavements that have been resurfaced for 21 more than ten years. 22 It must be emphasized that the pavement 23 degradation costs shown here are very much minimum 24 values. Any time there was any doubt in this study 25 about any effect, the analyses were presented in favour 26 of utilities. The cost of pavement degradation can be 27 most effectively recovered in conjunction with the 28 general administrative permit fee discussed earlier. A 68 McARTHUR/ROSS, Presentation 1 simple look-up table such as shown here can be used for 2 administrative ease. 3 A third cost item relates to costs for 4 relocating and adjusting the gas company's equipment 5 occupying the municipal rights of way. While the 6 Board's issues do not refer to relocation and adjustment 7 costs specifically, Ottawa-Carleton requests that this 8 matter be reviewed by the Board as a cost compensation 9 issue. 10 Regional Council by its adoption of the 11 Federation of Canadian Municipalities principle No. 3 12 takes the position that where relocation or adjustment 13 is required for bona fide municipal purposes, the 14 utility will be 100 per cent responsible for the costs. 15 The 1987 model agreement accommodates this 16 position when a gas plant is located on a bridge, 17 viaduct or structure. However, at other locations, 18 except for any upgrade costs which are to be borne by 19 the gas company, relocation costs are paid 35 per cent 20 by the municipality and 65 per cent by the gas company. 21 Why should not the gas company pay 100 per 22 cent of relocation costs on the municipal rights of way? 23 With reference to our previous comments 24 concerning subsidization, why should the municipal 25 taxpayer incur expenses because of the gas company's use 26 of the municipal rights-of-way. 27 However, should the Board find that allocating 28 100 per cent of relocation costs to the gas company not 69 McARTHUR/ROSS, Presentation 1 to be acceptable, Ottawa-Carleton proposes in the 2 alternative that a five year sliding scale of cost 3 allocation be implemented as shown here. This involves 4 a decrease from the gas company's current proportion of 5 the cost for the first two years, no change from the 6 present allocation for the next three years and an 7 increase after that. 8 A sliding scale for the allocation of 9 relocation cost responsibility would result in a fair 10 sharing of risks. In the early years the municipality 11 would take the greatest risk. Should a municipality 12 request the gas company to relocate soon after providing 13 municipal consent, the municipality would pay a higher 14 percentage of the relocation costs. Likewise, after a 15 reasonable period of time, say five years, the gas 16 company would assume the full cost of relocation. 17 What we call work around and other 18 unquantifiable costs is a fourth cost item. This slide 19 shows two shallow utility installations obstructing the 20 progress of a contractor installing a water main in 21 Ottawa-Carleton. One of these is the utility duct, I 22 think one is telecom and the other is a double hydro 23 duct. 24 Here, Ottawa-Carleton workers called out to 25 repair a water main discovered a natural gas line 26 installed directly on top of the water pipe. That would 27 be the gas line and there is the water pipe. Both of 28 these situations occur routinely on municipal 70 McARTHUR/ROSS, Presentation 1 reconstruction and maintenance purposes. These 2 encounters add significantly to the time and expense of 3 municipal works. 4 Work around costs are the additional costs 5 incurred by the municipality due to the physical 6 presence of utilities in the municipal rights-of-way. 7 These include costs for increased planning and 8 coordination. These include costs for construction and 9 maintenance delays associated with locating and 10 exposing, working around, shoring, tunnelling and repair 11 costs when unmarked lines are damaged. 12 Other costs incurred by municipalities include 13 those associated with public transit delays, traffic 14 management, administering franchise agreements and 15 responding to general queries with respect to utility 16 activities on the municipal rights-of-way. 17 These costs have not been quantified by most 18 municipalities because of the difficulty in doing so, 19 but nonetheless, these costs are very real and 20 substantial. We have been advised by an expert that 21 Ottawa-Carleton retained, having more than 30 years 22 experience in the contracting business, that these extra 23 costs imposed by municipalities due to the presence of 24 utility plant in the municipal rights-of-way can be as 25 high 20 per cent if our tendered construction costs. 26 The derivation of a recovery mechanism for 27 work around and other difficult to quantify direct and 28 indirect costs is a challenge. However, Ottawa-Carleton 71 McARTHUR/ROSS, Presentation 1 requests that the Board recognized firstly that 2 municipalities do incur costs of this nature, and 3 secondly, that the Board direct that the gas utility and 4 the municipality negotiate and agree on an appropriate 5 amount to be paid to the municipality by the gas company 6 as compensation for these costs. 7 The fifth and final cost item is for all other 8 quantifiable costs. There are also other quantifiable 9 costs incurred by municipalities due to the use of 10 municipal rights-of-way by utility companies such as 11 payment restoration, damage to municipal infrastructure 12 or other works carried out under the terms of the 13 franchise agreement and these should be built for the 14 gas utility at cost. 15 We have just discussed costs. The second 16 category of compensation is a road use license fee. 17 Municipal rights-of-way are scarce, invaluable 18 public assessments. Municipal rights-of-way are 19 valuable to both the municipality and the gas company. 20 To the municipality as a finite and diminishing 21 resource; to the gas company as the only viable location 22 in many cases for its plant. The slides we saw earlier 23 of the underground utility plant in New York City 83 24 years ago and Ottawa today show just how limited is the 25 space in our municipal rights-of-way. 26 A road use license fee can be derived from the 27 value of the lands occupied by the gas company. While 28 some may profess difficulty in attributing land value in 72 McARTHUR/ROSS, Presentation 1 the ordinary sense to lands occupied by a road, there 2 are many indicators of its value. Vendors pay to use it 3 as do restaurant owners and advertisers, untravelled 4 portions may be leased, encroachments must be paid for 5 if utility companies need it, when closed it is sold at 6 market value. 7 In recognition of the role of municipalities 8 as owners and stewards of public property, some 9 municipal organization such as the Federation of 10 Canadian Municipalities have adopted several important 11 municipal rights-of-way management principles. The 12 fifth right-of-way management principle adopted by the 13 Federation of Canadian Municipalities reads as follows: 14 "Recognizing that rights-of-way have 15 value, municipal governments must receive 16 full compensation for the occupancy and 17 use of municipal rights-of-way by other 18 parties." (as read) 19 The National Association of Telecommunication 20 Officers and Advisers, an organization of local 21 government officials in the United States, has also 22 adopted several rights-of-way management principles and 23 one especially relevant example is as follows: 24 "Local government has a duty under 25 general legal principles governing 26 property rights not to give away public 27 property for private use without just 28 compensation." (as read) 73 McARTHUR/ROSS, Presentation 1 They go on to say: 2 "Limiting compensation to the recovery of 3 costs would also result in giving away 4 public land for private use and gain." 5 (as read) 6 Compensation for municipal rights-of-way is 7 not unique. The private use for rights-of-way owned by 8 municipalities is comparable to the private use of 9 property owned by other governmental units for which 10 compensation is expected and not questioned. In order 11 for finite and scarce public resources to be used for 12 commercial purposes, governmental units as standard 13 practice require reasonable compensation from the 14 commercial users of this resource. 15 For example, the federal government 16 recognizing the limited availability of radio spectrum 17 utilizes an auction process, declining payments 18 considerably in its excess of its cost for 19 administration. Due recognition is given to the value 20 of the property right that is being auctioned. In 21 addition, governments at the municipal, provincial and 22 federal level all expect and receive market value 23 payments for the sale and lease of real property. 24 There are many examples in models of 25 rights-of-way use license fees in the literature. There 26 are at least six different models for determining a 27 value for rights-of-way that can be used to develop a 28 reasonable fee. The region favours the method which can 74 McARTHUR/ROSS, Presentation 1 be referred to as the easement model and which 2 attributes value by comparison with abutting or 3 neighbouring vacant land. 4 Adjustments of that value can be made as in 5 any comparative land valuation for relative factors. 6 Canadian data indicates a reasonable compensation range 7 in the order of two dollars to twenty dollars per linear 8 metre of rights-of-way use, with the high end being 9 appropriate for the core area of large urban centres and 10 the lower end being in rural locations. 11 In view of this, Ottawa-Carleton requests that 12 the Board recognize that municipalities as owners and 13 stewards of the public rights-of-way should receive fair 14 and reasonable compensation for the use of municipal 15 rights-of-way by private companies for profit purposes 16 having due regard for the value of the municipal 17 property used. 18 Although Ottawa-Carleton would prefer a 19 rights-of-way use license fee that is truly reflective 20 of the market value of the property occupied, the region 21 supports an initial general rights-of-way license fee of 22 $2.50 per metre as proposed by the Association of 23 Municipalities of Ontario. This fee is in line with 24 rights-of-way use fees received by public jurisdictions 25 elsewhere. 26 In summary on the compensation issues, 27 Ottawa-Carleton has identified two main financial 28 compensation categories: cost recovery and a road use 75 McARTHUR/ROSS, Presentation 1 license fee. Five categories of cost have been 2 presented along with several compensation mechanisms. 3 Mr. McArthur will continue on with 4 Ottawa-Carleton's presentation. 5 MR. McARTHUR: Madam Chair, there are just two 6 minor points or points where we differ slightly, where 7 Ottawa-Carleton differs slightly from the AMO 8 presentation and the first one is the duration of the 9 franchise agreement. It is Ottawa-Carleton's position 10 that once in the ground, once the gas company is 11 servicing its customers it is pretty well protected. 12 What municipality is going to order the removal of gas 13 service to customers throughout its municipality and 14 what Energy Board will allow it. 15 In those circumstances it doesn't make sense 16 to Ottawa-Carleton at all that we should be talking 17 about perpetuity or 40 years or 20 years or even 10 18 years. We think that five years is a more appropriate 19 term. This allows for proper management of our roads, 20 to take into account the frequent technological changes 21 that occur, to take into account legislative changes 22 which have become more frequent recently and generally 23 to allow municipalities to properly manage their roads. 24 We think five years is adequate. 25 The second issue where we differ but only 26 slightly from AMO is with respect to abandoned pipe. 27 The present agreement says that abandoned pipe may be 28 removed by the gas company. With respect in terms of 76 McARTHUR/ROSS, Presentation 1 good road management and in terms of not allowing our 2 roads to be cut more often than necessary, we suggest 3 that the gas company not be permitted at its discretion 4 to remove its equipment and pipes but that it be done at 5 the direction of the municipality and that is at 6 reconstruction of the road. 7 So those are two minor points where we differ 8 from AMO slightly. Well, not minor points, important 9 points but where we differ slightly is what I am trying 10 to say. Mr. Wright will address those matters soon. 11 In conclusion, Madam Chair, it is 12 Ottawa-Carleton's position that as a provider of an 13 essential facility to the gas company the region 14 requests, with respect, that as the owner and stewart of 15 the road allowance its authority to manage that facility 16 safely and in the best interests of the municipality, 17 the public, the utility companies and all users in a way 18 which best protects all of these interests be 19 recognized. In other words, we are asking the Energy 20 Board to recognize the municipality's authority to 21 recognize its roads in the best interest of all users. 22 That's the presentation, Madam Chair. I hope 23 we haven't gone over time too much. 24 As I said before, with questions it might be 25 better that we finish our three presentations but, 26 again, I will leave that to the Board. 27 THE PRESIDING MEMBER: Thank you, 28 Mr. McArthur. 77 McARTHUR/ROSS, Presentation 1 --- Pause 2 THE PRESIDING MEMBER: I think that we feel 3 that we would like to ask you a few questions now while 4 your presentation is still fresh in our minds. 5 MR. McARTHUR: Yes, Madam Chair. 6 THE PRESIDING MEMBER: I assume that you will 7 be available to answer any of the questions we might 8 have at the end of the other -- 9 MR. McARTHUR: Yes. 10 --- Pause 11 MEMBER LAUGHREN: Mr. McArthur, I believe it 12 was Mr. Ross made the point -- I believe you said that 13 the OEB should send the utilities and AMO away to hammer 14 out their differences, words to that effect, on fees and 15 so forth. Don't let me put words in your mouth. 16 MR. McARTHUR: At least that would be the 17 preferred objective. 18 MEMBER LAUGHREN: But I thought that that has 19 basically already happened with the committee that 20 looked at proposals for changing the model franchise 21 agreement anyway. I'm wondering what gives you the 22 optimism that if you did it again that the results would 23 be different. 24 MR. McARTHUR: I will try not to speak for 25 AMO, but as far as Ottawa-Carleton is concerned, I 26 think, with a little bit of incentive and direction from 27 this Board, subsequent negotiations may be a little more 28 fruitful, especially on the issue of compensation. 78 McARTHUR/ROSS 1 MEMBER LAUGHREN: Okay. 2 Another question had to do with the permit 3 fees. You indicated that you thought that this could be 4 approved, three different levels of permit fees. I 5 think you said: village, 100; city, 200; region or 6 county, 300. I think that's what they are. 7 Why would there not be some economies of scale 8 in the big ones, like the region or the county, that 9 would make up for the increased complexity of dealing 10 with permit fees? 11 MR. McARTHUR: I think I will let Mr. Ross 12 answer that. 13 But certainly the information available to 14 municipalities at this stage is lacking. 15 Ottawa-Carleton has been working for two years on this 16 kind of question precisely. I think it is a good 17 question and I think there could be economies of scale 18 in large urban areas, but that also has to be offset 19 against the increased costs of operating and building in 20 a highly urbanized area of the municipality. So while 21 there might be economies of scale, there are also vastly 22 increased costs in certain areas of a city or a town. 23 Lorne? 24 MR. ROSS: Yes, I would agree with that. I 25 think that there isn't an awful lot of cost information 26 available from other municipalities unfortunately, so it 27 is hard to kind of maybe draw that conclusion with 28 factual information, but the complexities and difficulty 79 McARTHUR/ROSS 1 of managing rights of way in downtown Toronto is a world 2 removed from what happens in some of the smaller rural 3 municipalities and I think that would tend to perhaps 4 move costs in an upward direction. There are more 5 activities, there are more permits, so perhaps you are 6 right on a kind of a volume basis. 7 The other thing is Ottawa-Carleton does very 8 much favour setting a permit fee based on actual costs 9 that the municipality does have. There are many reasons 10 why these costs will vary from municipality to 11 municipality. 12 The Ontario Good Roads Association work is a 13 fall-back position because, again, there is some effort 14 involved in undertaking these costing analyses and 15 studies and, for want of having some kind of a generic 16 framework, we see that as probably being the best that's 17 available. 18 MEMBER LAUGHREN: I still don't understand it, 19 I guess. 20 When it comes to relocation costs, relocation 21 of a line, is that invariably or always because the 22 municipality has requested it or demanded it, or is it 23 ever at the initiative of the utility? 24 MR. ROSS: Again, that is probably a good 25 question to ask the gas industry. I know there have 26 been situations where it has occurred at the request of 27 the utility for various reasons, maybe an upgrade or 28 things of that nature. So I think the pure answer is 80 McARTHUR/ROSS 1 no, it wouldn't be invariably at the request of the 2 municipality, but I would defer to the gas industry a 3 bit on that one. 4 MEMBER LAUGHREN: I just wondered whether that 5 would change your view on the proportion of costs or the 6 relocation, depending on who it was that was demanding 7 the relocation. 8 MR. McARTHUR: I don't think so. A gas 9 company knows, like every other utility, when it asks 10 for the use of our roads, that this is highly likely, 11 there will be restructuring of the road, rebuilding, 12 repaving. It knows that there is probably going to be 13 relocation sooner or later. It is a cost that it surely 14 should build into its business plan. 15 MEMBER LAUGHREN: Thank you. 16 MEMBER SIMON: Mr. McArthur, I was wondering 17 if you could provide us with a little bit more 18 information on what the CRTC proceeding is all about 19 with regard to -- I assume it has some relationship to 20 user fees and payment for the services and municipal 21 roads. Is that correct? 22 MR. McARTHUR: Okay. 23 This is a little difficult to answer. I will 24 answer it as briefly and as simply as I can. 25 Ledcor started using roads in the City of 26 Vancouver to lay its pipe. Vancouver asked it to remove 27 its wires and, as a result, Ledcor made an application 28 to the CRTC for permission to use city streets. The 81 McARTHUR/ROSS 1 hearing will involve all aspects of terms and 2 conditions -- or, I should say, will involve all terms 3 and conditions proposed by Vancouver. Basically, they 4 are identical to the issues before this Board. They 5 involve the municipality's right to manage its roads in 6 all of the 10 points that we have referred to, and 7 certainly we believe that the right to manage properly 8 and efficiently includes the right to recover costs and 9 charge a fee. 10 So, yes, compensation is squarely before the 11 CRTC in its hearing with Ledcor in Vancouver. 12 Someone else might want to elaborate on the 13 hearing and the nature of the hearing. 14 --- Pause 15 MR. ROSS: Madam Chair, could I add something 16 on the question on the relocation issue? 17 The question was: Are relocations sometimes 18 at the initiative of the gas utility? The answer is 19 yes, but I don't believe in a case like that that we 20 would be expected, the municipality, to pay part of the 21 cost. If I could just clarify that. 22 MEMBER SIMON: I just had some general 23 questions about good roads management within the context 24 of the principles that you have outlined, looking at 25 subsidization, user-pay issues, and the true costs of 26 doing business. 27 I was wondering if Ottawa-Carleton had given 28 any thought to applying those principles to its own 82 McARTHUR/ROSS 1 sewage and waterworks and the municipal electric 2 utility's functions as far as it applies to good roads 3 management. Recognizing that you own those facilities, 4 but in the interests of good roads management, have you 5 thought about looking at how much those costs would 6 apply to those utilities and how you might deal with 7 that issue to implement a user-pay for those utilities 8 as well? 9 MR. McARTHUR: Again, I'm going to let 10 Mr. Ross answer that, but I will preface it by saying 11 certainly we have thought about it and certainly there 12 are costs for the road by installing water and sewer, 13 which are, generally, essential services applicable to 14 all of our residents, not just some. So there is a much 15 more widespread use and need for water and sewer than 16 there are for some other utilities. But, yes, I think 17 Mr. Ross can confirm that we certainly thought of that 18 and there are implications. 19 MR. ROSS: That's true, we certainly have 20 thought about it, and it would be our preference that, 21 in terms of the permit fee and the cost recovery 22 mechanisms we outlined, that would apply equally to all 23 utilities, including public utilities that would use the 24 municipal rights of way. 25 The road-use licence fee would be a more 26 difficult issue to deal with, and that would be a policy 27 issue that our council would have to deal with. That 28 hasn't really been addressed per se, but in terms of 83 McARTHUR/ROSS 1 cost recovery, my own group who resurface roadways, our 2 contractors pay permit fees the same as everybody else. 3 MEMBER SIMON: Is the municipality doing any 4 research now to actually do the costs? So, for example, 5 if this Board went along with the proposal for the user 6 fees as you have suggested, how quickly could you 7 implement the same level, the same sort of fee practice 8 for the other municipally-owned utilities that you have? 9 MR. ROSS: The way we establish our permit fee 10 is via our by-law, and it's currently at $107.50. So it 11 would be simply a matter of going to our committee and 12 council and outlining the costs concerned; and that fee 13 would apply, I would expect, equally to all users of the 14 rights of way -- "public utilities", say, our water 15 utility as opposed to the gas. 16 MEMBER SIMON: So the utility figures -- I 17 will just make sure I understand this -- the utility 18 figure costs that you have included in your submission, 19 they are utility costs, not natural gas utility-specific 20 costs, so they would be the same costs that you would be 21 seeking recovery for on a municipal, sewer and water 22 side, and on the MEU side, as well? 23 MR. ROSS: That is correct. 24 MEMBER SIMON: Thank you. That's very 25 helpful. Those are my questions for now. 26 MEMBER SPOEL: I have a couple of questions 27 that I just wanted some clarification information, if I 28 could, on the tax issues. 84 McARTHUR/ROSS 1 Do you have any idea, Mr. McArthur or Mr. 2 Ross, how much in realty taxes the gas utilities -- I'm 3 not even sure which one serves Ottawa-Carleton; whether 4 it's Enbridge or Union -- what is paid in realty taxes, 5 annually, by whichever gas utility it is? 6 MR. McARTHUR: I don't know. 7 MR. ROSS: I think we heard some figures 8 earlier. I think it was one point -- in Ontario or -- 9 MEMBER SPOEL: No. 10 MR. ROSS: -- Ottawa-Carleton? 11 MEMBER SPOEL: To Ottawa-Carleton, 12 specifically. 13 MR. ROSS: I forgot the number. Two point...? 14 MR. DAVIES: Two point eight, in total. 15 MEMBER SPOEL: Two point eight, in total. 16 That's your total realty taxes, including 17 schools and everything, for the whole Regional 18 Municipality of Ottawa-Carleton. 19 Mr. McArthur or Mr. Ross, do you have any idea 20 if you have other businesses located in Ottawa-Carleton 21 that pay municipal taxes that are greater than that or 22 in that sort of order of magnitude? 23 MR. McARTHUR: I have no idea. 24 MR. ROSS: I'm not sure if it's relevant to 25 the question but our own utilities, there's "in lieu of 26 taxes" that are levied; for example, our water. So, 27 again, there's a bit of a level playing field there. 28 MEMBER SPOEL: So what do your utilities pay 85 McARTHUR/ROSS 1 in lieu of taxes? 2 MR. ROSS: I can't answer that. We would have 3 to -- I don't have that information. But there is a 4 figure that they do pay in a kind of a lieu. 5 MEMBER SPOEL: Would it be possible to provide 6 that information -- get that information and provide it 7 to us later? 8 MR. ROSS: Yes, I would expect that would 9 be -- 10 MR. McARTHUR: So, the question relates to 11 other businesses and what they might pay, in comparison 12 to the gas companies? 13 MEMBER SPOEL: Well, it depends -- I didn't 14 realize that your own utilities paid payments -- made 15 payments in lieu of tax -- 16 MR. ROSS: Specifically, the utilities? 17 MEMBER SPOEL: Specifically, utilities. 18 MR. ROSS: That information -- 19 MEMBER SPOEL: I narrow it down to that, 20 because I didn't know that existed. 21 Specifically, utilities' payments in lieu of 22 taxes, your own utilities, what they pay in lieu of 23 taxes to Ottawa-Carleton. 24 The other question I had was relating to the 25 term of the agreement. 26 One of the slides you used refers to the five 27 years, or the opening clause, and then automatic 28 extensions. 86 McARTHUR/ROSS 1 So, I assume, Mr. McArthur, that what you 2 would like is that there be an automatic -- that it 3 would be recognized in the agreement that the franchise 4 would automatically be renewed but that it be 5 renegotiated or the terms be renegotiated on a five-year 6 basis. Do I have that correct? 7 MR. McARTHUR: Yes. 8 MEMBER SPOEL: Those are all my questions. 9 THE PRESIDING MEMBER: Mr. McCann? 10 MR. McCANN: There's one area I would like to 11 explore. 12 On the last page of your presentation or, I 13 guess, it's the third- and fourth-last slides, you make 14 some points about some differences with AMO's 15 submission. But to my reading of things, there are some 16 other fairly major differences, too -- and by that I 17 mean you have presented slides indicating that the model 18 franchise agreement should be amended to deal with cost 19 recovery, and then you have a number of items under 20 "Cost Recovery", and then you have the "Road Use Licence 21 Fee". 22 I think your position, with regard to the road 23 use licence fee, is very similar or identical to AMO's. 24 But when I read AMO's submission -- and AMO may wish to 25 address this later on -- I don't see much in there about 26 pavement degradation costs, relocation costs, direct 27 quantifiable costs and work-around costs. What I saw in 28 AMO's submission was permit fees and a position that's 87 McARTHUR/ROSS 1 similar, though not quite identical, to yours and 2 compensation for use of roads. But I don't see, in 3 AMO's submission, treatment of these other costs. 4 I was not -- I mean I wasn't at the sessions 5 at which discussions took place between the gas 6 utilities and AMO, but at least on the surface of 7 things, it would appear that AMO is not seeking changes 8 in this regard and so, there is a difference between 9 your submission, today, and AMO's. Is that a fair 10 statement? 11 MR. McARTHUR: I will not speak for AMO, but I 12 will say that I was at the negotiations which included 13 AMO and the gas companies and my understanding, all 14 along, is that Ottawa-Carleton and AMO do not differ, at 15 all, in this respect, in the sense that a permit fee is 16 proposed and the permit fee is to cover all costs, 17 period. It's just that Ottawa-Carleton has been a 18 little more thorough, a little more elaborate, in its 19 outlining of those costs and we include pavement 20 degradation and work-around costs, which are direct 21 costs to the municipalities. But I don't think that 22 flies in the face, whatsoever, of AMO's position that a 23 permit fee should reflect all costs. 24 MR. McCANN: Sorry to push this a little bit 25 further, but -- so the amounts that are suggested, that 26 might be as much as $560 for a major utility project, in 27 terms of a permit fee -- which is, I think, I understand 28 that's what your view was of that -- that that amount is 88 McARTHUR/ROSS 1 intended to compensate, at least partly, for all of 2 these related costs to the municipality of managing its 3 roads; it's not a case of, there will be further fees 4 levied in regard to pavement degradation or relocation 5 or the other matters? 6 MR. McARTHUR: I will back up somewhat. I 7 think the municipality should decide exactly what its 8 permit fee will cover, what particular costs. What 9 Ottawa-Carleton has in mind -- and as Mr. Ross 10 outlined -- is that our permit fee will cover 11 administrative costs, and possibly pavement degradation 12 costs, but that all other costs will be a charge upon 13 the gas company or the utility. And, in fact, that's 14 the way we are negotiating with the telecommunication 15 companies: one, a permit fee, which covers our 16 administrative costs and which they will pay; two, other 17 costs -- and they are paying that in a lump sum, annual 18 sum, to be negotiated between the Region of 19 Ottawa-Carleton and the telecommunications company; 20 three, the road use licence fee. 21 MR. McCANN: Just to give you one more example 22 of what I'm trying to get at here is -- and, again, I'm 23 referring to the AMO's submission, and I realize you are 24 making a separate submission and AMO may want to address 25 this issue later -- but I believe you referred to a 26 recommendation that 100 per cent of relocation costs 27 should be paid for by the gas utility? 28 MR. McARTHUR: Yes. 89 McARTHUR/ROSS 1 MR. McCANN: The current agreement is the 65 2 gas utility 35 per cent split -- 3 MR. McARTHUR: Yes. 4 MR. McCANN: -- as contemplated by the 1987 5 model franchise agreement. 6 Now, AMO, in its submission, has submitted two 7 appendices; one of which is intended to show the model 8 franchise -- Appendix A, which is intended to show the 9 model franchise agreement as it would be if the 10 agreed-on things were done that were agreed on by the 11 gas utilities and AMO; and Appendix B is to show what 12 the model franchise agreement would be like if AMO's 13 recommendations were adopted. And when I look at the 14 pipeline relocation section in those, I don't see any 15 difference, particularly in regard to the 65-35 split. 16 So, I have to assume that that is something that AMO, at 17 least, is not seeking in this particular model franchise 18 agreement negotiation. 19 MR. McARTHUR: I think you are right. I won't 20 speak for AMO, but I will speak for Regional Council, 21 which has passed -- which has approved a report which 22 says that all utilities should be treated equally, 23 fairly and the same. And Regional Council's position is 24 that the FCM principle on relocation should apply; and 25 that is, 100 per cent. 26 MR. McCANN: Thank you very much. 27 Those are my questions, Madam Chair. 28 THE PRESIDING MEMBER: Thank you, Mr. McCann. 90 McARTHUR/ROSS 1 I just have a few questions, to wrap up. 2 In your presentation, you referred to a number 3 of reports, including the "good roads" report, et 4 cetera. 5 Have you provided copies of those reports to 6 Board staff? Or would it be possible for us to see 7 those reports? 8 MR. McARTHUR: Yes. 9 THE PRESIDING MEMBER: We would appreciate 10 that. Thank you. 11 With respect to -- I know neither of you are 12 lawyers, but could you please -- 13 MR. McARTHUR: Yes. 14 THE PRESIDING MEMBER: Oh, you are a lawyer. 15 --- Laughter 16 THE PRESIDING MEMBER: Mr. McArthur, then, 17 could you please comment on, without qualification, on 18 the utilities' position that Section 220.1 of the 19 Municipal Act does not apply to gas utilities. 20 MR. McARTHUR: It clearly applies and exempts 21 the transportation of gas. This has nothing to do with 22 the transportation of gas whatsoever. It only relates 23 to use of a road allowance, that exception. Clearly, in 24 my opinion, there is no relevance whatsoever. 25 THE PRESIDING MEMBER: So you are saying that 26 it has nothing to do with transportation of gas. 27 MR. McARTHUR: Yes. It deals with 28 transportation. I don't have it in front of me, but if 91 McARTHUR/ROSS 1 the words are that transportation of -- can someone help 2 me? It refers to the transportation. It doesn't refer 3 to use of land. 4 "No by-law under this section shall 5 impose a fee or a charge that is based on 6 or is computed by reference to the 7 generation -- " 8 It is clearly not that. 9 " -- the exploitation -- " 10 It's clear not that. 11 " -- the extraction, harvesting, 12 processing, renewal or transportation of 13 natural resources." (As read) 14 None of this has anything to do with any of 15 those categories, with respect, Madam Chair. What we 16 are talking about and what we are dealing with is use of 17 a road allowance, occupancy of land. 18 THE PRESIDING MEMBER: Isn't that to transport 19 gas? 20 MR. McARTHUR: It may be to transport gas. It 21 may be to store gas, yes, but the issue before the Board 22 is use of land. 23 THE PRESIDING MEMBER: Not for land use. With 24 respect to the fees charged, you talk about reasonable 25 compensation for actual costs. Is there any upward 26 limit on the fees that you think the municipality should 27 be able to charge these gas utilities? 28 MR. McARTHUR: I think I missed a little bit 92 McARTHUR/ROSS 1 of the question, but yes, there's obviously a common, 2 well established, legal principle that a municipality 3 cannot charge more than it's entitled to charge. That 4 is, it has to calculate the costs to make a fair and 5 reasonable assessment of its costs and charge only that 6 amount. Certainly there's an upper limit, yes. 7 THE PRESIDING MEMBER: Would there then be any 8 limit as far as protecting the gas utilities concerned 9 about the reasonableness of the costs that 10 municipalities incurred? In other words, even if you 11 said they had to reimbursed for the costs you have 12 incurred, what would the position of the municipality be 13 vis-a-vis the utilities to ensure that that was a 14 reasonable cost, that you weren't allocating too much 15 for these costs, that you weren't incurring additional 16 costs? 17 MR. McARTHUR: Ottawa-Carleton has been 18 studying the cost to its roads, the road cuts for two 19 years. The utilities are part of that study. They are 20 taking part in it, they are contributing to that study. 21 Obviously they will contribute to the formulation of the 22 bylaw. That is they will have a say in it. There will 23 be public hearings. 24 They will be able to study and examine any 25 estimate that the municipality comes up with respect to 26 its costs and comment. 27 THE PRESIDING MEMBER: But the region's 28 position is that the region determines these costs, that 93 McARTHUR/ROSS 1 the Boards don't determine the costs, that it's up to 2 them to participate in the public process, but aside 3 from that, gas utilities have no say in the 4 reasonableness of the cost that the regional 5 municipality wants to impose. Is that correct? 6 MR. McARTHUR: Again, I have to take care not 7 to speak for the other participants in this hearing, but 8 my position would be that a gas company could always 9 return to this Board and say that the costs are 10 prohibitive and bear no resemblance to the actual costs 11 and that the Board should direct the municipality to see 12 that the costs are reflective of actual costs. 13 THE PRESIDING MEMBER: Excuse me, sir, but 14 since you are a lawyer, I can ask this question. What 15 jurisdiction would the Board would have to do that? 16 Under what provision would you say that we could do 17 that? 18 MR. McARTHUR: Under the Ontario Energy Board 19 Act. Again, I don't want to intrude on Mr. Roman's 20 discussion of jurisdiction and legislation, but my 21 interpretation of that Act is that the Board has 22 jurisdiction to consider terms and conditions. It 23 clearly says that in there. 24 I think that that jurisdiction must be limited 25 to terms and conditions which are obviously, shall I 26 say, outrageous. I don't think the Board wants to be 27 involved in every trivial term and condition that the 28 municipality and the gas companies are trying to thresh 94 McARTHUR/ROSS 1 out. I think it has to be made clear that this is a 2 road management matter within the jurisdiction of the 3 municipality, but there is the overlying jurisdiction of 4 the Board there anyway. 5 THE PRESIDING MEMBER: With respect to the 6 user fee, is that for only on road allowances or would 7 that be levied on any municipal property? 8 MR. McARTHUR: As far as Ottawa-Carleton is 9 concerned, this relates to road allowances only. When 10 utilities come to us to use so-called private municipal 11 lands, that is other than the road allowance, we 12 negotiate with the utility just as any other piece of 13 land. That is, we say to them "This is the market value 14 of the land. You want an easement, this is the value of 15 it". That's how we deal with public lands other than 16 roadways. 17 THE PRESIDING MEMBER: As I understand it, 18 when I get gas in my house, part of the pipe, the 19 attachment, goes across the municipal road allowance to 20 my house. Are you saying that the gas utilities would 21 pay for that portion as well based on the number of 22 meters that they have, or is that something that I -- I 23 don't live in Ottawa-Carleton, but that the municipality 24 would have the right to charge individual landowners the 25 same $2.50 per metre per year for the right to use the 26 property. 27 MR. McARTHUR: You are speaking that very 28 small portion on the road allowance. 95 McARTHUR/ROSS 1 THE PRESIDING MEMBER: I'm talking about 2 conceptually if it is the municipality's position that 3 you are using our road allowance, that's a right, that's 4 a public resource that therefore we should be 5 compensated for, does that not necessarily in principle 6 apply to everyone, regardless of whether they are a gas 7 utility, an individual homeowner, the owner of a 8 business? 9 MR. McARTHUR: There's a very clean line, 10 property line, between the road allowance and private 11 property. On the road allowance, we are suggesting that 12 the gas company pay the cost of being on the road 13 allowance. Once we get to the private property line, to 14 your property line, the gas company must approach you 15 and deal with you as a private property owner. 16 I'm not sure how that's done under 17 legislation. Maybe they have a right to be there. If 18 they don't have a right to be there under legislation, 19 then they would be expropriating or negotiating with you 20 as a private a property owner, but I don't know if 21 that's the case. You will have to ask the gas 22 companies. 23 THE PRESIDING MEMBER: With respect to 24 relocation costs, I want to clarify. Your position is 25 that if the municipality requests that the utility move 26 a pipeline, that the utility must pay 100 per cent of 27 those costs. 28 MR. McARTHUR: Yes. 96 McARTHUR/ROSS 1 THE PRESIDING MEMBER: Do you see any rights 2 of the gas utility to argue that that relocation is not 3 necessary or is challenged, or is it just that the 4 municipality decides to relocate this pipeline, so they 5 have got to do it and bear the cost. 6 MR. McARTHUR: Absolutely. That's a condition 7 of being on the road allowance and the cost of locating 8 on a road allowance. It's a well anticipated, well 9 known cost. There's nothing strange about it or unusual 10 about it. 11 THE PRESIDING MEMBER: With respect to these 12 costs, I assume that the road allowances are used for 13 other utilities, including obviously water, sewage, et 14 cetera. I understand the whole issue about pavement 15 degradation and the cost of maintaining the road. The 16 roads are used for other purposes as well, including 17 roads. 18 MR. McARTHUR: Yes. 19 THE PRESIDING MEMBER: My question is: Has 20 there been an allocation, in your costing has there been 21 an allocation among the various utilities as far as 22 these costs are concerned in managing the road? For 23 example, it seems to me as though having big sewers in a 24 road would lead to more -- what was the word you 25 used -- joints in the road that lead to the degradation, 26 would lead to more subsidence in the road because the 27 pipe would be bigger than the gas utility's pipes are. 28 I'm just wondering in determining these costs 97 McARTHUR/ROSS 1 whether those factors have been taken into account for 2 that. 3 MR. McARTHUR: You are absolutely right. 4 Actual costs are calculated in that manner, that is 5 attributing degradation of the costs to the utilities in 6 the road, whether it's water or sewer or gas or 7 telecommunications. 8 I will let Mr. Ross elaborate on that, but 9 yes. We can only charge actual costs. 10 MR. ROSS: Yes. First of all, because we have 11 translated the impact into a square metre impact, so the 12 larger the excavation, the larger the economic impact of 13 the damage it costs due to the insulation going in the 14 roadway. That's about as far as I guess we can take it 15 at this time. 16 In terms of a larger installation, by its very 17 definition deeper and perhaps by inherently causing more 18 damage, that doesn't necessarily hold true. In fact, 19 some of the smaller types of excavations are the more 20 difficult to deal with because they are very narrow. 21 It's very hard to get proper compaction equipment in 22 very narrow trenches. 23 In fact, if you disturb the road enough, you 24 are effectively rebuilding a roadway. Some of our large 25 sewer and large projects in essence give us a brand new 26 road when they are done. In actual fact, the effect can 27 be completely the opposite of what you might think. 28 I think the fairest approach as we had derived 98 McARTHUR/ROSS 1 is to look at the amount of road disturbed and that 2 would be a square metre impact. So the larger utilities 3 would be disturbing a larger square metre impact. So 4 therefore they would be commensurately responsible for a 5 larger portion of the costs. 6 THE PRESIDING MEMBER: The utilities have 7 given us some numbers as far as the impact is concerned 8 and I realize that you just deal with Ottawa-Carleton 9 but could you give this Board a view as to whether those 10 numbers sound reasonable and in line with what you would 11 anticipate the impact of your proposals would be on the 12 province? 13 MR. ROSS: Okay. I remember the numbers, the 14 numbers on geodetic information I believe on permitting. 15 We could provide something similar for Ottawa-Carleton. 16 I think it would be beyond our scope to deal with the 17 province. 18 THE PRESIDING MEMBER: That would be very 19 helpful. Thank you. 20 I guess one of the challenges before the Board 21 right now in general terms is the balancing of interests 22 between local authorities to be able to manage their own 23 utilities including electric utilities and the overall 24 public interests of the province as far as managing the 25 utilities on a province-wide basis. The utilities made 26 a comment on the fact that this would have an impact or 27 could have an impact on the traditional postage stamp 28 rate for gas utilities and I am wondering if you could 99 McARTHUR/ROSS 1 briefly comment on that or if you have a comment? 2 MR. ROSS: I think again we heard some numbers 3 earlier about potential impacts. I forgot what the 4 actual numbers were. I believe you were talking about 5 the effect on the rate payer, the utility rate payer 6 versus the gas rate payer? 7 THE PRESIDING MEMBER: Right. Yes. 8 MR. ROSS: Yes. I think -- 9 THE PRESIDING MEMBER: -- costs are based 10 on -- 11 MR. ROSS: I think the gas company is in a 12 position to -- we don't have the information to be able 13 to translate these impacts into the actual rate, the 14 impact it might be on the consumer. 15 THE PRESIDING MEMBER: I appreciate that. 16 Thank you. 17 MEMBER SIMON: I just had a couple of 18 follow-up questions to the relocation cost discussion 19 that we just had. I was wondering what in your view was 20 the principle behind the cost sharing arrangement now 21 between the municipality and the utilities? 22 MR. McARTHUR: Mr. Andrew Wright may be able 23 to answer that better. He was involved in the original 24 hearings or the hearings back in 1987. I don't know how 25 they came to 65.35. I read the report and I read the 26 discussion but I'm not sure exactly how they fixed on 27 65.35. 28 MEMBER SIMON: Well, actually I'm not really 100 McARTHUR/ROSS 1 asking about the specifics of the 65.35, more if you had 2 a view on the principle behind a sharing arrangement 3 versus 100 per cent cost arrangement and what the 4 principle was behind the sharing rather than the 5 specific level of sharing. 6 MR. McARTHUR: All I can say is that the Gas 7 made a good presentation, and despite their request to 8 the use of the road and their presence their and despite 9 the fact that their presence is the reason for the 10 relocation and the relocation costs they convinced the 11 Board that they shouldn't have to pay total. 12 MEMBER SIMON: Could you foresee a situation 13 in Ottawa-Carleton where there was -- say it was a 14 municipal sewer issue and you need to cut open the road 15 and in order to repair the municipal sewer you had a 16 choice of relocating the electricity wires or the gas 17 pipe and in that specific situation it could go either 18 way, 50/50. In this scenario that you are proposing 19 where the gas utility would pay 100 per cent, do you 20 think there would be a predisposal on the municipality's 21 part to choose to relocate the gas pipe in that 22 situation or is this not a realistic scenario? What is 23 your view on how you would make those decisions? 24 MR. ROSS: You are talking about a municipal 25 utility water/sewer project as opposed to a road 26 project, a roadway construction project. There would be 27 a different approach there. 28 MEMBER SIMON: Well, whatever -- 101 McARTHUR/ROSS 1 MR. ROSS: In essence, if there is a 2 relocation -- I will come at it from maybe a bit 3 obliquely -- if our water and sewer utility wishes to 4 relocate or it is an actual road job and there is 5 relocation of our water and sewer utility, they would 6 pay the cost of that. So I would think when you look at 7 projects, what you just said would have to be taken into 8 account. 9 Every project is very specific, but there 10 should be some attempt to take into account the overall 11 societal sort of impact. It would not be, I think, fair 12 to say just because you pay 100 per cent and that is an 13 automatic better deal for us that we do something that 14 is maybe not the best thing to do. I could answer it 15 that way. 16 So there wouldn't be an automatic decision to 17 go in the direction that you are suggesting. I would 18 hope not anyway. 19 MEMBER SIMON: But if it was equal except for 20 who pays, in who would pay the relocation -- in what 21 needed to be relocated, if, you know, it was 50/50 22 either way but there was a difference of who pays, how 23 do you think the municipality might be disposed to make 24 that decision? 25 MR. ROSS: I can't really answer that. I 26 still think that one really would have to look at all 27 the aspects of the project. There are just too many 28 unknowns. It is a very specific thing that would have 102 McARTHUR/ROSS 1 to be looked at at that time. It would be speculative 2 for me to give an answer to that. 3 MEMBER SIMON: Okay, thank you. 4 THE PRESIDING MEMBER: I just have one further 5 question. I'm sorry I didn't ask it before. 6 In the utilities' presentation, they indicated 7 that in fact the municipalities don't require a lot of 8 services as far as their interaction with the utilities 9 are concerned. 10 I am not talking about road management and I 11 realize that your presentation has focused on road 12 management. I am talking in terms of permits or 13 submitting drawings or consents or locates or various 14 sundry sorts of things. Could you please comment on 15 whether in your experience there is a lot of interaction 16 with utilities, a little less interaction with 17 utilities, whether utilities do most of the work, 18 whether there is a burden on the municipalities? 19 MR. ROSS: You mean in terms of the process of 20 a utility proceeding with an initiative to do some work 21 on the right-of-way and what happens? How much work 22 they do versus what effort is involved in our part as 23 the municipality's part of that? 24 THE PRESIDING MEMBER: Right. 25 MR. ROSS: Well, normally what would happen 26 would be the utility would send us a copy of some 27 drawings or plans and essentially a covering letter or 28 an application stating what work they would like to 103 McARTHUR/ROSS 1 undertake. And then we as a municipality, at least in 2 Ottawa-Carleton anyway, we proceed to circulate all 3 those maps, plans and drawings to all the interested 4 municipal entities as well as all the other utilities. 5 Things are done a little differently in 6 different places, but we undertake to do that effort and 7 consolidate all the comments, do a technical review of 8 the maps, plans and drawings and at the end of the day 9 if everything looks okay we would actually give formal 10 municipal consent to that and that in turn would pave 11 the way for an issuance of an excavation or a 12 construction permit. And of course our effort is 13 undertaking all that clerical, record keeping, reviewing 14 exercise, right down to the permitting action, including 15 after the fact doing some inspections of the field of 16 restoration and traffic inspection and safety inspection 17 and things of that nature. So that is all the effort we 18 are talking about in terms of cost recovery. 19 THE PRESIDING MEMBER: Do the utilities pay 20 for that right now? 21 MR. ROSS: We have a permit fee now that 22 ostensibly should cover our costs in that regard, but 23 they do not. And in terms of gas, no, with the decision 24 that gas -- gas does not pay anything at all in that 25 regard right now. 26 THE PRESIDING MEMBER: But are there similar 27 utilities that pay -- 28 MR. ROSS: Yes. Yes. 104 McARTHUR/ROSS 1 THE PRESIDING MEMBER: Thank you. 2 I think now would be an appropriate time for a 3 lunch break. 4 MR. LESLIE: Madam Chair, I wonder if I could 5 request through you that any filings that are made to 6 the Board that the gas utilities get copies of that 7 material. That may be implicit. There was reference 8 earlier there are some reports and whatnot that are to 9 be produced and we would like to get copies of them. 10 THE PRESIDING MEMBER: Certainly. I think 11 Board staff can coordinate that, Mr. Leslie, if that is 12 convenient with you. Is there a problem, Mr. McCann? 13 MR. McCANN: No, I guess I had understood that 14 there is going to be a subsequent phase to this in terms 15 of submission of further reply or further submissions. 16 So material of this nature could form part of those 17 submissions or be attached to it. Certainly if any 18 material is filed with the Board prior to those final 19 submissions, it should be shared with all the parties to 20 this and I think that is a fair comment. And if there 21 is any problems in the logistics of it, Board staff can 22 assist in making sure that it gets to the right people. 23 THE PRESIDING MEMBER: Is that satisfactory to 24 you, Mr. Leslie? 25 MR. LESLIE: That is perfect. Thank you. 26 THE PRESIDING MEMBER: Okay. Thank you very 27 much. 28 Now would be a good time for a lunch break. 105 1 So we will reconvene at a quarter to two. Thank you. 2 --- Luncheon recess at 1232 3 --- Upon resuming at 1350 4 THE PRESIDING MEMBER: Next I think it is the 5 City of Toronto. 6 Mr. Roman. 7 PRESENTATION 8 MR. ROMAN: Thank you, Madam Chairman. 9 I would like to introduce the people that are 10 appearing with me today. On my immediate left is 11 Ms Lorraine Searles-Kelly, who is a lawyer with the City 12 Solicitor's Office; and on my right is Mr. Andrew 13 Koropeski, who is the Director of Transportation 14 Services in the City of Toronto's Department of Works 15 and Emergency Services. He would be roughly equivalent 16 to Mr. Ross in Ottawa-Carleton and would love it if you 17 would ask him some of the same or similar questions so 18 that he can give you the technically correct answers for 19 the City of Toronto that I certainly couldn't give you. 20 These would be questions relating to permitting, 21 restoration, contracting, engineering, those sorts of 22 things. 23 I have provided the Board with some statutory 24 materials relating to the Municipal Franchises Act and 25 the Municipal Act. Also, I will be providing your 26 counsel with three cases that I will not be referring to 27 as such, but letting you know that they exist and will 28 just be mentioning them in passing. I won't spend any 106 ROMAN/SEARLES-KELLY/KOROPESKI, Presentation 1 time on them, but I will leave a copy with the Board, 2 and we will also make copies available to other parties. 3 I believe I have handed up a copy of the 4 agenda, if I may call it that, of the topics I intend to 5 cover, but I would just like to take you through those 6 very briefly. 7 First of all, at the beginning of my 8 presentation I will be presenting our conclusions so 9 that you know where you are going and I will be 10 referring briefly to the written submissions which we 11 made earlier, which we have no intention of repeating. 12 We will just take those as having been read or available 13 to be read. 14 I will mention right now that, in general 15 terms, the City of Toronto supports the positions taken 16 by the Regional Municipality of Ottawa-Carleton with the 17 exception of possibly some legal interpretations that I 18 will be getting into in greater detail, and also the 19 position of AMO that the focus of today's presentation 20 for the city will be jurisdictional and statutory 21 interpretation issues, and then finally a response to 22 both the legal and the policy arguments submitted by the 23 gas companies and by the Industrial Gas Users' 24 Association. 25 So I would like to start first then by 26 presenting our conclusions. There are in fact seven of 27 these. I haven't got a detailed, written text, so I 28 will just be giving these to you orally. 107 ROMAN/SEARLES-KELLY/KOROPESKI, Presentation 1 Our first conclusion is that the city would 2 request the OEB, in its decision in this proceeding, to 3 state clearly that any model franchise agreement does 4 not apply to the City of Toronto because of the 5 legislated, virtually perpetual or perpetual arrangement 6 with Enbridge Consumers Gas, but began with the 7 legislation in 1848 and continues to this day. So, in 8 that sense, we are a special case, and the reasons for 9 that are set out in our written brief. 10 The second point and perhaps the contentious 11 one is that the Ontario legislature intentionally 12 changed the law when in enacted section 220.1(2) of the 13 Municipal Act. This section has paramountcy over any 14 Act, which includes section 10 of the Municipal 15 Franchises Act. Thus, the effect of subsection (2) is 16 to exclude the Board from the role that it would 17 otherwise have under section 10 of the MFA in overruling 18 municipal by-laws which impose charges. 19 The legislature has taken away this control 20 from both the Ontario and Municipal Board and the 21 Ontario Energy Board and, in subsection 13 of that 22 section, has placed control over municipalities at the 23 political level, not at the regulatory level. That's 24 our second conclusion. 25 Our third conclusion is that subsection 26 220.1(4), which the gas companies have relied on, is not 27 an exemption clause, as stated by the gas companies. It 28 does not exempt any class of persons or businesses. 108 ROMAN/SEARLES-KELLY/KOROPESKI, Presentation 1 What it does do is limit the use of municipal powers to 2 duplicate certain federal and provincial taxes, namely 3 income taxes, GST and PST, by precluding fees and 4 charges in the nature of income, consumption, 5 transaction or sales taxes. This would preclude, under 6 subclause (4)(e) of 220.1, charges by municipalities 7 that would be in the nature of timber stumpage fees or a 8 per-MCF tax on the transportation of gas, for example, 9 by TCPL. 10 However, subsection (4) was not intended to 11 legislate mandatory cross-subsidy, whether inter or 12 intramunicipal, and there are such cross-subsidies 13 today. Subsection (4) in no way limits municipal cost 14 recovery from the distribution and retailing of gas via 15 any charge -- not a tax, but a charge -- for services or 16 activities associated with the permitting process or 17 charges for the use of municipal property. 18 So the situation in which we find ourselves 19 today, then, is that subclause (e) has no application 20 and the OEB, therefore, would have no jurisdiction to 21 use subclause (e) to limit the municipal use of 22 subsection (2) of 220.1. The result would be that if a 23 gas company believes that a municipality is 24 misinterpreting or exceeding its powers under subsection 25 (2), its remedy lies not with this Board but in an 26 application to the court or at the political level. 27 That's our third conclusion. 28 Our fourth conclusion would be alternative to 109 ROMAN/SEARLES-KELLY/KOROPESKI, Presentation 1 the third, which is that if this argument is incorrect 2 and if the OEB does have jurisdiction over 220.1(2) and 3 (4), the Board has no duty to decide what are pure 4 questions of law. A court would have concurrent 5 jurisdiction with the Board and the Board should either 6 leave such questions to the court or state a case to the 7 court under section 32 of your Act, which would 8 authorize you to state a case, not just under the OEB 9 Act but under any other Act that the Board has 10 jurisdiction from. 11 Our fifth conclusion is that the policy goal 12 for all municipalities should be to eliminate 13 undesirable cross-subsidization between property 14 taxpayers who are gas customers, and property taxpayers 15 who are not gas customers. To achieve this, Toronto 16 wants to charge the gas companies full cost recovery for 17 the costs that their activities impose on the city. The 18 policy will be one of no more subsidies. 19 The resulting increase in cost to the gas 20 companies, if it is even noticeable, will be equal to 21 the amount of the subsidy they and/or their customers 22 have been enjoying. That is really an important point. 23 When you eliminate a subsidy by asking someone to pay 24 more and they complain about the amount that they are 25 paying, what they are really pointing you to is the 26 amount of the benefit that they have been enjoying as a 27 subsidy to date. 28 Number six, and this deals with perhaps a 110 ROMAN/SEARLES-KELLY/KOROPESKI, Presentation 1 technical issue, given that the gas companies have 2 postage stamp rates, to the extent that a municipality 3 underrecovers its costs, it will cross-subsidize other 4 municipalities which underrecover by a smaller margin. 5 The OEB's decision in the Centra Orillia case sought to 6 avoid any inconsistency between municipalities. 7 Unfortunately, it did this by perpetuating the problem 8 of cross-subsidies by requiring Orillia and other 9 municipalities to continue underrecovering. 10 It is our submission that it would be better 11 for the Board to accept that on the road to the correct 12 cost recovery by all some municipalities will reduce or 13 eliminate their cross-subsidies sooner than others. 14 There will therefore be a transitional period during 15 which some municipalities will charge the right amount 16 and some will still be undercharging. Despite this, it 17 is better to be right in a growing number of 18 municipalities than to be wrong in all of them. So, for 19 that reason, the transition period should be seen as a 20 transition only. 21 Finally, number seven, the submissions of the 22 gas companies and of IGUA are designed to perpetuate the 23 status quo and therefore are wrong in law and wrong in 24 public policy. 25 Well, that is where we end up and I will now 26 proceed to take us in that direction. 27 First of all, my new topic deals with the 28 scope and limits of a model gas franchise agreement. In 111 ROMAN/SEARLES-KELLY/KOROPESKI, Presentation 1 that regard, as you have already heard from our friends 2 at RMOC, one size does not fit all. 3 The OEB's jurisdiction does not include making 4 a rule or regulation that the terms of the model 5 agreement must govern all relationships between 6 municipalities and gas companies. Each case must be 7 decided on its own merits despite the fact that the 8 Board can use certain general policies. 9 The status quo in most, if not all, of the 10 City of Toronto, and I can't speak for all of it because 11 there may be some old arrangements with some of the 12 other pre-amalgamation municipalities, but in most of 13 Toronto the situation is that the gas company pays 14 permit fees on actual permitting-related costs. After 15 completion of amalgamation, this will be the situation 16 across the city. We have more detail about that in our 17 written brief on page 4. 18 These permit fees will vary from year to year. 19 It's not an annual fee. They will vary from year to 20 year in Toronto depending on the level of construction 21 activity of the company. These permitting fees include 22 the gas company's share of the cost of permit review, 23 inspection staff and related overhead, and the costs of 24 the permanent restoration of pavement. This latter item 25 of course is a significant one. Nevertheless, this is a 26 partial cost recovery only. It does not include other 27 costs such as the accelerated pavement degradation from 28 repeated cuts in the pavement, which costs are more 112 ROMAN/SEARLES-KELLY/KOROPESKI, Presentation 1 difficult to attribute causally. 2 The model agreement should not turn back at 3 least the present level of Toronto's cost recovery, 4 which may be greater than it is in some other 5 municipality. 6 But despite all this, as we point out in our 7 written brief, some of the costs that you saw in the 8 earlier presentation are not recovered and so, non-users 9 of gas, in the City of Toronto, are still somewhat 10 subsidizing the users of gas because not all of the 11 costs are recovered. 12 Our submission would be that the OEB should 13 not work in the direction of increasing their subsidy by 14 imposing the terms of the model arrangement on the City 15 of Toronto. 16 I turn now to the central issue, perhaps: the 17 Board's jurisdiction under the Municipal Franchises Act. 18 Not one of the easiest acts, I found, to read or 19 understand. 20 The Municipal Franchises Act is an old act, 21 but it was recently revised by the legislature when it 22 undertook the Energy Competition Act. 23 Despite that, it does need substantial 24 rethinking. Much of it is archaic and much of it is 25 very badly drafted. If the Board has any influence, in 26 this regard, up at Queen's Park, you might tell them to 27 redraft it and rethink it. 28 Leafing to Section 9 of the Act, this section 113 ROMAN/SEARLES-KELLY/KOROPESKI, Presentation 1 covers by-laws granting a right, or a renewal of right, 2 to construct, operate, extend, add to, et cetera, works 3 for the distribution of gas where such by-laws are 4 required to be presented to electors for their assent. 5 OEB approval, there, is a pre-condition to presentation 6 to electors. However, Toronto's relationship with the 7 predecessor of Enbridge Consumers Gas -- or ECG, for 8 short -- dates back to an 1848 act, which is cited in 9 our written submission -- which act said, by the way, 10 that what was then called the Consumers Gas Company of 11 Toronto could dig up the streets on two days' written 12 notice, in writing, to -- on two days' notice in writing 13 to the mayor of the municipality. It was subsequently 14 amended to 30 days -- and they don't have to bother the 15 mayor; they can bother Mr. Koropeski and his staff. 16 Now, Section 10, of course, is the key 17 section. And there's a bunch of words in there about 18 Section 6 which, really, are irrelevant, so I tried to 19 give you the words with the irrelevant words or 20 inapplicable words omitted; and I would read it this 21 way: 22 "Where the term of a right to operate 23 works for the distribution of gas has 24 expired, or will expire within one year, 25 either the municipality, or the party 26 having the right, may apply to the 27 Board --" 28 et cetera. 114 ROMAN/SEARLES-KELLY/KOROPESKI, Presentation 1 Now, there is no expiry in the legislation 2 covering Toronto and ECG; it goes on in perpetuity. 3 So, as a pure question of law, it would be my 4 first submission that Section 10 doesn't apply -- and, 5 on that basis, the Board has no role vis-…-vis the City 6 of Toronto, because Toronto is not subject to this 7 section; the other legislation deals with its situation. 8 And we could all go home if that was all I had 9 to say but, unfortunately, it's not going to be that 10 quick; and that's because we have not yet been able to 11 clarify the relationship between the ECG and the former 12 municipalities now amalgamated into the City. 13 So, we will assume, for the purposes of this 14 submission, that Section 10 may apply to some of them; 15 and that's why it's necessary for us to go on to 16 interpret Section 10. 17 Section 10(2) gives the OEB a special 18 jurisdiction of a permanent nature to renew or extend 19 the right, if public convenience and necessity appear to 20 require it. It would be difficult to find a real-world 21 situation where renewal would not be granted; that 22 apropos of the evergreen situation you mentioned, Madam 23 Chair, it is at least legally possible that the Board 24 might come to the conclusion that it would not be in the 25 public interest to renew a franchise and would call for 26 proposals for someone else to take over that 27 franchise -- presumably, at book value or whatever 28 basis -- and there may be some difficult, therefore, in 115 ROMAN/SEARLES-KELLY/KOROPESKI, Presentation 1 jurisdictional terms, in the Board granting a perpetual 2 contract because that would take away the Board's 3 ability to use this provision of this section. 4 So that's sort of a jurisdictional footnote 5 that I leave with you because of the question you asked 6 earlier. 7 But, in the real world, I would suggest that 8 that's not very likely, and no one is going to tell 9 people to remove their lines or abandon them. 10 Section 11 does create a right of appeal of an 11 OEB decision, to the Divisional Court, with leave. But 12 the important point is that it does not oust your 13 jurisdiction, under Section 32 of the Act, to state a 14 case to the court on your motion on any question of 15 law -- and I will return to the possibility of a stated 16 case later. 17 Before trying to interpret the various 18 sections of the Municipal Franchises Act, let's consider 19 its purpose. 20 The purpose of the Act, originally, was to 21 protect electors from improvident or improper long-term 22 contracts entered into by municipalities for the 23 introduction of new monopoly public utilities services; 24 hence, the need for the assent of the electors which, 25 today, has largely been replaced by OEB approval. 26 But fast forward from when the MFA was 27 enacted, to today. Very few contracts today, except in 28 fairly remote areas, are for initial services. The 116 ROMAN/SEARLES-KELLY/KOROPESKI, Presentation 1 removal of gas lines is unthinkable; hence, lengthy 2 contracts are unnecessary. 3 The only major issues for both parties, if 4 there are such contracts, are the adequacy and impact of 5 compensation levels and municipal control over the use 6 of highways. The franchise itself is not likely to be 7 an issue. 8 The MFA is not a regulatory statute like the 9 OEB Act; and it's important to point out that the Board 10 does not license or regulate rates of municipalities, 11 or, for that matter, gas companies, under this Act. So, 12 in applying Section 10(1), the Board should not apply a 13 regulatory model, or a regulatory mind set, and, thus, 14 should not seek to control revenues or returns of 15 municipalities, as it might seek to do those of gas or 16 electric utilities. 17 For reasons that I will elaborate on later, 18 when we come to the details of statutory interpretation, 19 Section 10 cannot restrict municipalities from 20 requiring -- under the Municipal Act Section 220.1(2) -- 21 a reasonable fee or charge for the use of their 22 property, or for property under their control. And 23 there's no statutory requirement that such charges be 24 cost-based. 25 And, for that reason, the OEB would have no 26 basis, in law, for reading such limitations into the 27 Act. 28 Ordinarily, the owner of any property would 117 ROMAN/SEARLES-KELLY/KOROPESKI, Presentation 1 have the right to charge whatever it wants for the right 2 to what amounts to a licence to use and occupy. There 3 are practical and legal limits on this for 4 municipalities, but those limits are not specified in 5 the Municipal Franchises Act. Hence, in its role, under 6 Section 10 of the MFA, if that section gives the Board 7 jurisdiction over charges, under 220.1(2), the Board 8 should operate under a presumption that the municipal 9 charges are prima facie reasonable and that they were 10 developed in good faith, rather than operating on some 11 other assumption. 12 Therefore, the burden of proof should be on 13 the users of municipal property to show why, in some 14 detail, it would be contrary to the public interest, not 15 just their interest, for them to meet these terms. This 16 is especially true when, as you will hear -- and Mr. 17 Koropeski can tell you more about this -- the City of 18 Toronto has developed a kind of standard set of terms 19 that I can refer to colloquially as "the going rate". 20 And if others pay the going rate, why shouldn't gas 21 companies? 22 And if the Board is going to look at that 23 question, it shouldn't look at the question of gas 24 companies in isolation; it should look at the public 25 interest and the issue of the going rate. And if the 26 going rate has been developed by the use of market 27 mechanisms, or reasonable proxies for market mechanisms, 28 the Board ought to be reluctant to impose its own 118 ROMAN/SEARLES-KELLY/KOROPESKI, Presentation 1 judgment on those things, absent some clear-cut showing 2 by the users of the property that there's some serious 3 public policy reason against such charges -- all of 4 which, of course, presumes that the Board has the 5 jurisdiction to review these matters. 6 In that regard, section 10 provides no 7 guaranteed right of renewal, as I have said, no 8 guaranteed right of occupancy unless public convenience 9 and necessity appear to require it. 10 The test is public convenience and necessity, 11 not the private convenience of gas companies or their 12 largest users. The Municipal Franchises Act, section 13 10, gives the OEB a dispute resolution role which is not 14 there to protect gas company shareholders, but the 15 public. The public includes municipal taxpayers, both 16 gas users and non-users. The municipality's charges to 17 users of its property must be fair to both. 18 Now I'm shifting to a new topic, which is the 19 legal effect of the three magic words in section 220.1, 20 subsection 2, of the Municipal Act. These three magic 21 words are "despite any Act". 22 At the risk of boring the lawyers on the 23 panel, let me start by pointing out that there is an 24 important difference in statutory interpretation between 25 statutory phrases like "subject to" and phrases like 26 "despite". 27 When a statute says that one section or 28 subsection is subject to another, the two provisions 119 ROMAN/SEARLES-KELLY/KOROPESKI, Presentation 1 normally have to be read together. "Despite" is a 2 different situation. The phrase in this legislation 3 "despite any Act" is the lean and mean modern version of 4 these words. 5 Older statutes used to say "Notwithstanding 6 any provision in any other Act under the jurisdiction of 7 the Legislature of Ontario". That was found to be too 8 wordy. They cut it down to "Notwithstanding any other 9 Act". Today it's down to "despite any Act". 10 All three have the same general intention. 11 "Despite" indicates paramountcy. In the event of a 12 conflict between the paramount provision and any other 13 provisions, the one with the "despite" in it applies and 14 the others do not. That's the significance of 15 "despite". 16 Where the wording is a limited version of 17 that, such as "despite section 'x' or statute 'y'", the 18 paramountcy is limited to that specific provision, but 19 here the expression "despite any Act" means what it 20 says, despite any section of any other Act, unless there 21 is something in that section of that Act that also says 22 "despite any Act", in which case the legislature has 23 perhaps untidily spoken out of both corners of its mouth 24 at the same time, but you don't have that situation 25 here. 26 What you see with "despite any Act" is a 27 situation of total paramountcy with the sole exception 28 being if the provision is unconstitutional in the event 120 ROMAN/SEARLES-KELLY/KOROPESKI, Presentation 1 of a conflict over any other provision of any provincial 2 Act. What does this mean for you and your Act? 3 Well, the phrase "despite any Act" in section 4 220.1(2) of the Municipal Act means that it applies 5 despite any part of the Municipal Franchises Act which 6 conflicts with it. This would mean that the OEB's 7 jurisdiction under section 10 of the MFA cannot apply or 8 restrict any terms and conditions for the renewal of a 9 gas franchise which are fees or charges under a validly 10 enacted bylaw under section 220.1(2). 11 Subsection (5) of 220.1 supports this 12 interpretation. Such subsection creates an exception 13 which requires OEB approval for municipal fees or 14 charges, but that exception is limited to distributing 15 the retailing of electricity. 16 It's highly significant that when the 17 legislature most recently turned its mind to this 18 section of the Municipal Act, and this was at the end of 19 1998, it only imposed this limitation on municipal 20 authority, namely OEB approval, in relation to 21 distributing and retailing of electricity, not gas. 22 This indicates a legislative intention that 23 municipal authority for charges as set out in subsection 24 (2) for distribution of gas should fall outside the 25 OEB's jurisdiction. I do draw a distinction here 26 between transportation and distribution, which I will 27 come to in a minute. 28 I then have to deal with precedent because my 121 ROMAN/SEARLES-KELLY/KOROPESKI, Presentation 1 friends form the gas companies dealt with this too, in 2 particular the OEB decision of March 31, 1998, which is 3 E.B.A. 767, 768, 769 and 783, which I will refer to as 4 the Centra Orillia decision. 5 In my respectful submission, the decision in 6 that case, the correctness of the decision in that case 7 is legally questionable. In paragraph 4.01 of that 8 decision, the Board stated that user fees can well be 9 excluded under the municipal franchise agreement. In 10 our submission, that would be true only if the 11 municipalities agreed. It could not be coerced on them. 12 Similarly, the Board stated in paragraph 4.02 13 that it is not persuaded that the new statutory 14 provisions preclude the prohibition on such fees in a 15 new franchise arrangement agreement. Again, I would 16 submit that's true, but only if the municipalities 17 agree. 18 The bottom line is that the Board has no 19 jurisdiction to impose under the Municipal Franchises 20 Act, whether through a model agreement or by other 21 means, any provision that restricts or, worse still, 22 renders nugatory municipal powers under the Municipal 23 Act that apply despite any Act. 24 I said the Board's decision was questionable. 25 I didn't go so far as to say it was wrong because the 26 Board did not decide a certain issue which it expressly 27 felt it had no need to decide, but I do point out that 28 the Board's decision did not provide any statutory 122 ROMAN/SEARLES-KELLY/KOROPESKI, Presentation 1 rationale under which it justified ignoring these three 2 words "despite any Act". 3 The Board then went on to give a bunch of 4 policy reasons for its decision in paragraphs 4.03 to 4, 5 but in our respectful submission, policy reasons cannot 6 justify interpreting section 10 of the MFA as if it had 7 parallelcy over section 221.2 of the MA. In other 8 words, the Board cannot ignore or overrule legislation 9 with policy arguments. 10 This raises the question as to whether the 11 Board should follow its earlier decision. In our 12 respectful submission, there is value in applying a 13 consistent policy to Board decisions whenever possible, 14 but there is no value in the Board exceeding its 15 jurisdiction. For that reason, the earlier decision 16 should not be followed in the present case if the result 17 would be to cause the Board to exceed its jurisdiction. 18 The three gas companies submitted in paragraph 19 20 of their brief the same point that Centra did in the 20 earlier case, namely, that they are exempt from this 21 provision in the Municipal Act. I will respond to that 22 argument shortly. 23 Before we get to that, the first question 24 really is whether the Board should even attempt to 25 decide this legal issue. The scope of municipal 26 jurisdiction under section 220.1(2), having regard to 27 the limits in (4) on certain kinds of charges is a pure 28 question of statutory interpretation. It involves no 123 ROMAN/SEARLES-KELLY/KOROPESKI, Presentation 1 energy policy. It involves no issues of public 2 interest. 3 The OEB has probably got the power to engage 4 in this statutory interpretation exercise as part of 5 deciding its own jurisdiction, but the Board doesn't 6 have a duty to do so. The Board may quite properly 7 leave such legal questions up to the court, either by 8 not deciding the issue and letting one of the parties 9 take it to the court, or by stating a case to the court 10 itself. 11 The Board could apply a policy and leave the 12 pure law as opposed to the law on policy issues to the 13 judge. If the Board does not do that, or if the Board 14 does not wish to do that, we will be providing legal 15 argument on the subsection (4) issue that was raised by 16 the gas companies. 17 The Board discussed but explicitly declined to 18 decide the so-called exemption issue in the Centra 19 Orillia case on the ground that it was unnecessary to 20 decide that question. However, in paragraph 4.08 of the 21 Board's decision, it expressed its concern that the 22 interpretation of the so-called exemption clause might 23 require inconsistent interpretation of two exemption 24 clauses in similar language to avoid conflict with the 25 Board's exclusive jurisdiction to regulate gas 26 distributors, transmitters and storage companies. 27 I would now like to address that concern which 28 the Board didn't decide but raised only as a concern. 124 ROMAN/SEARLES-KELLY/KOROPESKI, Presentation 1 In our submission, this is an unnecessary 2 concern. The Municipal Act does not affect the OEB Act 3 or the Board's jurisdiction under that Act. Nor are the 4 two clauses really exemption clauses, nor are they 5 really parallel because they arise in two different 6 statutory contexts in the Municipal Act. 7 The first appearance of this clause is in 8 section 220.1(4), which we have all been dealing with, 9 under subclause (e). This is in the context of the 10 limitation on municipal fees, charges and taxes. 11 The second appearance, later on in the 12 Municipal Act, is in the context of business licensing. 13 The latter limits municipal powers to require business 14 licensing by excluding the right to require licenses for 15 wholesale operations of certain kinds and natural 16 resource activities which take place essentially at the 17 wholesale level. 18 Therefore, this second clause is of no 19 relevance to the OEB and does not require your 20 interpretation. 21 But conspicuously absent from either of these 22 limits on municipal power is any language referring to 23 principles of statutory interpretation. The main 24 principle of statutory interpretation used today is that 25 every provision must be interpreted in the context of 26 the surrounding provisions and the entire act. The 27 section we have been discussing falls in part 17 of the 28 Municipal Act which is really called the power to pass 125 ROMAN/SEARLES-KELLY/KOROPESKI, Presentation 1 bylaws. 2 Subsection (1) of section 220 deals with 3 definitions and subsection (2) which is the central one 4 grants a broad power to municipalities and certain local 5 boards to pass bylaws imposing fees or charges on any 6 class of persons for certain services provided, costs 7 payable and so on for the use of its property including 8 property that it does not own but that is under its 9 control. 10 Fees or charges people normally impose for the 11 use of their property are either called rent if there is 12 a lease or rental agreement or a license fee if it is a 13 license. And under subsection (2) there is no 14 requirement for a formal executed license. The only 15 prerequisite is a passing of a bylaw and the use of city 16 property. 17 Now, as municipalities are permitted to charge 18 any class of persons, this would include gas companies 19 in general, and no class of persons, including gas 20 companies, is exempted. The limits on municipal powers 21 in subsection (4) relate to types of charges, not really 22 to classes of persons. And the types of charges that 23 they relate to are not really charges either but charges 24 that are called charges but that are in reality taxes. 25 So these limits that are found in subsection 26 (4) are narrow and specific. First of all, subsection 27 (3) says you can't impose a poll tax and that goes 28 without saying. Then if you look at section (4) it 126 ROMAN/SEARLES-KELLY/KOROPESKI, Presentation 1 excludes bylaws which impose taxes related to income, 2 taxes related to sales or consumption or like 3 transactions. 4 The obvious policy rationale behind this is 5 not to protect gas companies but to prevent municipal 6 duplication of federal and provincial income tax and 7 federal and provincial GST or PST through a municipal 8 tax which is masquerading as a charge but is really an 9 income tax or a sales tax. That is the purpose of 10 subsection (4). 11 That is why you see in the opening words of 12 subsection (4) they prohibit bylaws imposing a fee or 13 charge that is "based on, is in respect of or is 14 computed by reference to," and then there are five items 15 which follow it. Let's look at each of these briefly to 16 consider their generic similarity. 17 Subclause (a) prohibits charging municipal 18 income tax, plain and simple. Subclause (b) prohibits a 19 municipal sales tax on the use, purchase or consumption 20 of property, and that really refers to a sales tax on 21 goods or such things as a land transfer tax. Item (c) 22 prohibits a municipal sales tax on purchase -- use, 23 purchase or consumption of services. That would be such 24 things as a penalty for legal services, again a type of 25 sales tax. 26 Item (d) prohibits a consumption tax on the 27 benefit of the service, and this unusual language closes 28 what would otherwise be a loophole in (c) because 127 ROMAN/SEARLES-KELLY/KOROPESKI, Presentation 1 otherwise they could tax not the vendor at the time of 2 purchase but the purchaser for the benefit received by 3 the purchaser. So (c) and (d) are really related and 4 they are designed to prevent a certain kind of tax. 5 And now we come to (e). In general the 6 purpose of (e) is to prevent municipal duplication of 7 federal or provincial natural resource-based sales taxes 8 calculated on units of resources such as stumpage fees 9 for harvesting timber or charges to hydro generators per 10 MCF of water, or in the case of gas per MCF of gas 11 transported. This would be intended to prevent a form 12 of municipal sales tax on international, interprovincial 13 or intermunicipal pipelines. 14 In this regard the transportation that is 15 referred to, the transportation of gas is roughly 16 analogous to the transmission -- the word "transmission" 17 used in the electricity context. And the first thing to 18 notice about (e) therefore in this context is that it 19 does not mention distribution and it does not mention 20 retailing of a natural resource, as does subsection (5). 21 Subsection (5) shows that the legislature was 22 aware of the difference between transportation and 23 distribution. Therefore charges on distribution are 24 within municipal power under subsection (2) and that is 25 really what the gas companies do within the city, they 26 distribute it. 27 Now, that is our principal argument and in 28 addition to that we have an alternative argument if the 128 ROMAN/SEARLES-KELLY/KOROPESKI, Presentation 1 Board rejects that argument. 2 So our alternative argument would be that if 3 the Board chooses to interpret the word "transportation" 4 in subsection (4) so broadly as to include within it 5 distribution, even in that case the gas companies' 6 argument should not prevail. Because it must be noted 7 that only certain types of municipal charges, but not 8 all charges on the distribution of gas would be 9 excluded. A charge that is based on or in respect of or 10 computed by reference to transportation would be 11 excluded and this would be the type of charge that, as I 12 said earlier, would be based on the volume of gas such 13 as dollars per MCF. 14 But that is not how Toronto and many 15 municipalities charge gas companies. First, Toronto's 16 charges to recover its costs, the costs of cutting up 17 the streets, those charges would apply regardless of the 18 volume of gas transported into or distributed in 19 Toronto. They are totally unrelated to those things. 20 These costs are caused by the gas company's construction 21 and maintenance of its facilities by cuts in the 22 sidewalk and the pavement. They do not vary with the 23 amount of gas flowing through the lines and neither do 24 the charges. Such charges are not income taxes, they 25 are not sales taxes and they are not any other kind of 26 taxes. 27 The second point we would make is charges for 28 the use of city property. These are also not a tax 129 ROMAN/SEARLES-KELLY/KOROPESKI, Presentation 1 based on, in respect of or computed by reference to 2 transportation. They are a charge in the nature of a 3 license fee. These charges would be a license fee for 4 the use of city property calculated in one of several 5 possible ways. 6 For example, in relation to the length of pipe 7 occupying city property or as a percentage of gross 8 revenue received in Toronto or as a result of those or 9 possibly a mix of the two. And this is how the charges 10 have been developed through an RFP process with Metronet 11 which is a large telecom company and the Metronet 12 agreement has become the template for the City of 13 Toronto with other telecom companies. So that is what 14 we now call the going rate in the City of Toronto. 15 And this is similar to commercial license 16 agreements for the use of property in other fields such 17 as space in shopping centres or even the use of 18 intellectual property. And the city would like to treat 19 people consistently whether they distribute food on 20 sidewalk cafes or provide telecom services or distribute 21 natural gas. 22 If they are using the services for commercial 23 services, and I emphasize the word "commercial" here, 24 for their commercial purposes, they should pay something 25 for it. We are not saying they should pay the same but 26 they should pay something for it. And in our respectful 27 submission, a reasonable interpretation of subsection 28 (4)(e) does not preclude municipalities from such 130 ROMAN/SEARLES-KELLY/KOROPESKI, Presentation 1 charges. 2 So let me summarize our conclusion then on the 3 statutory interpretation matters. Summing this up. 4 Section 220.1(2) has changed the law and it 5 has paramountcy over section 10 of the Municipal 6 Franchise Act. A model agreement under the MFA cannot 7 be imposed by the Board so as to preclude or limit the 8 municipal exercise or statutory powers under section 9 220.1(2). Subsection 220.1(4)(e) does not affect the 10 right of a municipality to recover its costs and to 11 charge a gas company which uses municipal property for 12 that use. Such a charge can be a license fee calculated 13 in a variety of ways. 14 The OEB has no statutory role under section 10 15 of the Municipal Franchises Act to control municipal 16 fees or charges under subsection 220.1(2). 17 Subsection 12 of that section explicitly excludes the 18 jurisdiction of the Ontario Municipal Board. 19 So if you look at the OMB and the OEB 20 together, the clear legislative intention is to exclude 21 regulatory intervention by either the OEB or the OMB and 22 to put control at the political level, and you can see 23 that in subsection (13) where it talks about the 24 minister having the power to make regulations to limit 25 what the minister or the government might consider to be 26 abuses or over enthusiastic use of these powers by the 27 municipality. 28 Now I want to change the topic and respond to 131 ROMAN/SEARLES-KELLY/KOROPESKI, Presentation 1 the submissions of the gas companies. 2 First of all, they made a number of 3 submissions on legal issues and, in that regard, as we 4 have said, I have addressed the legal issues and I 5 wanted to turn, therefore, to their policy arguments. 6 But to the extent that their policy arguments assume 7 that the OEB's jurisdiction is paramount over the 8 Municipal Act, these arguments are contrary to law and 9 therefore are inapplicable. Unfortunately, the 10 assumption of Municipal Franchises Act paramountcy 11 underlies most if not all of their brief. 12 In effect, the gas companies make numerous 13 policy arguments that rest on the assumption that the 14 OEB can effectively repeal or ignore subsection (2) of 15 220.1 and can stretch the meaning of subsection (4) to 16 exempt them. I would submit that that assumption is 17 incorrect and the policy arguments which rest on it 18 should not be given any weight. 19 Now, however, in the alternative, I want to 20 address their policy arguments, particularly the issue 21 of subsidies. 22 The gas companies' submissions, we would 23 submit, are wrong in policy because they are designed to 24 maintain a system under which the Toronto property 25 taxpayers continue to subsidize the gas company. Now, 26 that may have been all right at the turn of the century 27 when they were all the same people and when it was 28 really desperately important to get some gas under the 132 ROMAN/SEARLES-KELLY/KOROPESKI, Presentation 1 streets so that there could be light and there could be 2 gas available for homes, but those days are over. To 3 the extent that the subsidies are passed through to 4 consumers, we have taxpayers who are not gas consumers 5 subsidizing taxpayers who are gas consumers. This is 6 not justified by any legislation or by any principle. 7 Similarly, to the extent the different 8 municipalities recover different percentages of their 9 total costs, there are unauthorized intramunicipal 10 cross-subsidies arising from the postage rate tariff. 11 Paragraph 4.03 of the Orillia case, in that paragraph 12 the Board stated that uniform conditions for all the 13 municipalities prevent unfairness. With respect, that 14 is only true if the uniform conditions are themselves 15 fair. If the uniform conditions are unfair, as at 16 present, they will create unfairness in every 17 municipality. 18 Under the status quo, where full costs are not 19 recovered, taxpayers who are not gas users will 20 subsidize those who are, and will also, to some extent, 21 subsidize gas company shareholders whose costs will be 22 lower and whose income will be higher than they might 23 otherwise be. If municipalities can, over time, 24 eliminate such cross-subsidies, eventually the entire 25 province will be charging the right rate after these 26 contracts have been renewed. 27 Now, the city is aware that the timing of the 28 introduction of new or increased charges may be a 133 ROMAN/SEARLES-KELLY/KOROPESKI, Presentation 1 sensitive issue for gas companies because of the way the 2 Board's PBR regime works. In that regard, we would 3 consult carefully with the gas companies to avoid 4 triggering a hit to their shareholders. This may 5 require a consideration of not changing the status quo 6 and thus avoiding the need for an exogenous adjustment, 7 as you call it, within the current terms of the current 8 PBR regime. 9 The Board's other concern about the Centra 10 Orillia case was about the increased cost to ratepayers 11 of charging the right amount if there was full cost 12 recovery. In our respectful submission, such a concern 13 is misplaced. 14 If charging the gas companies full cost 15 recovery results in higher rates, the amount of that 16 increase is equal to the subsidy now being received, and 17 reducing any cross-subsidy will always create higher 18 costs for those who have been receiving the subsidy and 19 lower costs for those who have been paying it, but that 20 is not a reason not to do it. Unless the quantification 21 of this amount shows that there will be a serious price 22 shock, which is unlikely considering how relatively 23 minor the charges would be as a per cent of total gas 24 company costs -- when you add the three gas companies' 25 total costs, this is a very small amount. The present 26 cross-subsidy could be eliminated without needing to be 27 phased in over several years in any municipality. 28 We have also heard a lot of arguments about 134 ROMAN/SEARLES-KELLY/KOROPESKI, Presentation 1 equivalents with electricity under the new legislation 2 and the so-called level playing field. Those arguments, 3 I would submit, have misstated the situation. 4 The OEB now expects, under its PBR regime, for 5 MEUs, when they restructure to become local distribution 6 companies, to earn a market return on their equity. 7 Equity is property, but so is land, whether it is above 8 or below the highway. If the municipalities should earn 9 a return on their capital property, why not on their 10 land? Why charge 10 per cent plus per annum for the use 11 of municipal property to its own electric company and 12 charge a zero licence fee for the use and occupation of 13 its real property by strangers? What's the logic of 14 that. Or worse, in the situation today, why charge zero 15 for the use of municipal property and also fail to 16 recover full out-of-pocket costs from road restoration 17 and pavement degradation, and so on? 18 The big, big thing to consider with 19 electricity consumers is that they will be paying 20 relatively large competition transition charges, or 21 CTCs, between one-and-a-quarter and one-and-a-half cents 22 per kilowatt hour, which is 20 to 25 per cent of the 23 cost of electricity, and they will be paying this to the 24 tune of billions of dollars for many years to pay off 25 the stranded debt. This is not a charge that will be 26 paid by gas customers. 27 Electricity customers will also face higher 28 rates for distribution costs from LDCs to permit a 135 ROMAN/SEARLES-KELLY/KOROPESKI, Presentation 1 commercial return on their capital. Again, this will 2 change the level playing field. These amounts, when put 3 together, will swamp many times over any effect that 4 would be experienced by gas consumers. 5 The other thing to look at is, of course, all 6 this talk about level playing and competition. Who are 7 we really talking about? We are talking about 8 distribution companies that distribute gas that are 9 monopolies, and we are talking about wires cos and gas 10 pipes cos, both of which are monopolies. They don't 11 compete with any one. Competition occurs, if at all, at 12 the commodity level. 13 So many of these arguments attempting to apply 14 the philosophy of competition under the Energy 15 Competition Act are taken out of context and are in the 16 wrong context. When we look at the real amounts of 17 dollars here and what will be required to recover such 18 charges, those are so small as to be insignificant and 19 would not affect the playing field at all. The 20 levelists of any playing field is the result of many 21 offsetting factors. In the big picture, the municipal 22 charges we are talking about are largely insignificant. 23 A brief comment on permit fees. 24 Paragraphs 11 and 12 of the gas companies' 25 brief opposes paying $350 for each permit fee as 26 proposed by AMO on the basis that this would make gas 27 uncompetitive with electricity. In our submission, this 28 argument is alarmist and without substance. Toronto 136 ROMAN/SEARLES-KELLY/KOROPESKI, Presentation 1 must represent a sizeable portion of the total volume 2 and dollar revenue of ECG, perhaps 35 to 50 per cent. 3 Yet in most parts of the city, ECG has, for many years, 4 been paying many times, or at least that amount, in 5 permit fees which cover road restoration costs and 6 permit issuance costs -- all of this without apparently 7 any ill effects. The sky has not fallen down, no one 8 has gone bankrupt and they haven't had to stop providing 9 services everywhere else in the province. 10 Does ECG now propose to stop paying this and 11 to pay less than $350, thereby increasing the present 12 subsidy in Toronto from non-users to users, or do they 13 propose to pay other municipalities their permitting 14 costs on an inconsistent basis? Such a proposal should 15 not be taken seriously. 16 Paragraph 12 of the gas companies' brief 17 states that any increase in project permit cost recovery 18 would directly increase gas rates. The OEB's response 19 to that has to be that if that's true it's about time 20 the rates were increased to the right level. As with 21 NHL hockey teams, the idea of subsidies to 22 privately-owned gas companies is no longer acceptable. 23 Paragraph 14 of the brief states that the gas 24 companies are opposed in principal to any new municipal 25 fees, regardless of their magnitude. What is lacking in 26 this statement, in our submission, is any statement of 27 what that principle is. It would have been more 28 accurate to have said that the opposition to full cost 137 ROMAN/SEARLES-KELLY/KOROPESKI, Presentation 1 recovery is not based on any principle beyond reflexive 2 resistance to any change even if justified. 3 Paragraphs 16 and 17 of the brief threaten -- 4 and this was also the response to some questions to the 5 panel, without any quantification -- that expansion 6 projects will be reduced. Why would that be the case if 7 the costs can be passed through; and would it matter if 8 marginal projects were cancelled because of the 9 cross-subsidization from taxpayers and other 10 municipalities ended? 11 Under the old Power Corporation Act there was 12 a 15 per cent mandatory rule subsidy by Ontario Hydro, 13 but there is no such thing in the new legislation, and 14 there is no mandatory underrecovery of costs by 15 municipalities today in order to fund uneconomic 16 expansion in other municipalities. 17 So, in our submission, in reality, as opposed 18 to hypothesis, the number of marginal expansion projects 19 that would be rendered uneconomic if the gas companies 20 paid their way in their existing service territories 21 would be few, if any. 22 I want to come, now, to the red herring about 23 municipal property taxes -- a couple of the Panel 24 Members have asked questions about this -- and it's 25 dealt with in paragraph 18 and 19 of the gas companies' 26 brief. 27 Our submission on this issue is that it would 28 require a detailed social benefit cost analysis to 138 ROMAN/SEARLES-KELLY/KOROPESKI, Presentation 1 provide any basis for the truth of the statement that, 2 in the aggregate, if you add property taxes and non-tax 3 charges, municipalities are more than fully compensated. 4 We have not seen any such study and the 5 hypothesis remains unsubstantiated. 6 Nor could such a study be determinative 7 because the argument attempts to aggregate apples and 8 oranges -- namely, taxes and charges. Aggregating two 9 different fruits does not produce a logical argument; it 10 produces fruit salad. 11 Logic requires not mixing property taxes with 12 cost recovery fees. 13 Let's consider some examples. 14 People with no children pay school tax and 15 people who are never sick for a day pay taxes to support 16 Medicare for the chronically ill. Such taxes are never 17 justified by the economic benefit to the taxpayer but 18 only by the indirect benefits that we all derive from 19 being members of a society in which there is universal 20 public schooling or with whatever delays we now 21 experience universal health care. But, by definition, a 22 tax is not a fee for service and is not related to 23 recovering an individual cost. That would be a fee or a 24 charge. 25 The property taxes municipalities charge gas 26 companies, and any other companies, are not within the 27 jurisdiction of the OEB. They are subject to the 28 control of the legislature and the Ministries of Revenue 139 ROMAN/SEARLES-KELLY/KOROPESKI, Presentation 1 and Municipal Affairs and Housing -- to which ministries 2 the gas companies seem to have adequate access. 3 If someone wants to make municipal -- 4 commercial use of municipal property, for example, to 5 create a sidewalk cafe or to have city crews shovel a 6 sidewalk without charging, it would seem irrelevant for 7 such a person to argue that he, unlike others, should 8 pay nothing because he has no children and, therefore, 9 pays school tax with no benefit, or spends half the year 10 in Florida and uses fewer municipal taxes during that 11 time. 12 Municipalities cannot be expected to reduce 13 their standard going rate to recover the cost of 14 specific services or charges for the use of municipal 15 property for everyone who wants to describe himself as a 16 special case because of alleged under-utilization of 17 some of the benefits supported by property taxes. 18 When a gas main blows up, doesn't the 19 ambulance arrive or doesn't the Fire Department come to 20 put out the fire? Of course they do. But there's no 21 way to quantify what those benefits are. 22 So, there's no principal basis for treating 23 gas distributors as a special case for cost of road 24 recovery cuts and there's no empirical basis for 25 quantifying how much less than cost they should pay. 26 What the gas companies are proposing is 27 arbitrary discrimination by municipalities in their 28 favour; especially the preservation of the unjustifiable 140 ROMAN/SEARLES-KELLY/KOROPESKI, Presentation 1 status quo. 2 Finally, we want to make a couple of brief 3 comments about the IGUA brief, which really made three 4 points: first, that it would be disastrous to have gas 5 companies pay even a $350 construction permit fee -- and 6 we have discussed that issue; second, that the use of 7 municipal property on the same basis that others do is, 8 quote, an odious attempt for a cash grab; and, third, 9 that the proposed charge would be taxation without 10 representation. 11 Now, as for the odious cash grab, this is 12 colourful rhetoric, without substance. Every cash 13 grab -- whatever that is -- is odious; hence, the term 14 "odious" is redundant. 15 But what exactly is a cash grab? Where do we 16 draw the line between a justifiable charge for the use 17 of municipal property and a mere cash grab? -- whatever 18 that is. 19 Well, IGUA offers no suggestion, arguing that 20 any charge for the use of municipal property is a cash 21 grab. 22 Well, we have two responses to this. 23 First of all, at the rhetorical level, a cash 24 grab is a meaningless comparative, merely an emotional 25 use of semantics, intended to evoke attitudes of 26 disapproval on the part of the reader. For example: I 27 am firm, but my opponent is stubborn; my costs are 28 unavoidable, those of my suppliers are exorbitant; my 141 ROMAN/SEARLES-KELLY/KOROPESKI, Presentation 1 children are precocious and his children are brats; and, 2 finally, what I charge for the use of my property is a 3 modest fee, what others charge is an odious cash grab. 4 Such over-the-top semantic binges in the brief 5 provide us with some amusing heat but not with light. 6 The OEB cannot accept IGUA's blanket 7 condemnation of such charges. 8 THE PRESIDING MEMBER: Excuse me, Mr. Roman. 9 I think that you are over time. Could you -- 10 MR. ROMAN: Thank you. 11 THE PRESIDING MEMBER: -- wrap it up quickly? 12 MR. ROMAN: Perhaps I can just wrap up, then. 13 IGUA's condemnation of these charges was 14 somewhat premature because they have not yet seen what 15 the proposed charges are -- "Before we even know what 16 they are, we are opposed to them". 17 Fortunately, the Board does not prejudge these 18 things. 19 And, in essence, the IGUA argument is an 20 opposition to the legislation itself -- which argument 21 is too late. 22 As to the tax and taxation with 23 representation, I believe that was an import from the 24 American colonists at the Boston Tea Party, and our 25 proposal would be that that should be left floating with 26 the cases of tea in Boston's harbour. 27 So, at bottom, the IGUA brief in support of 28 the gas companies could be summarized as "me, too, but 142 ROMAN/SEARLES-KELLY/KOROPESKI, Presentation 1 with attitude", and it was fun to read, but I would 2 submit that it adds little to the Board's rhetoric -- to 3 the Board's record, in this case. 4 That concludes our, I apologize, overly long 5 presentation and we are now open for any questions on 6 law or City practices or costs, which I would ask you to 7 address to Mr. Koropeski. 8 THE PRESIDING MEMBER: Thank you. 9 MR. ROMAN: All the hard stuff is for him. 10 MEMBER SIMON: Mr. Roman, I wonder if you 11 could provide a little bit more information on the 12 Metronet agreement and how that's led to the going rate, 13 in the City of Toronto, and -- 14 MR. ROMAN: I will try -- 15 MEMBER SIMON: -- who that now applies to. 16 MR. ROMAN: -- and explain that and Mr. 17 Koropeski will try and explain it, to the extent that we 18 can. 19 The agreement itself is a confidential 20 agreement but we can talk about the general principles 21 of it. 22 What happened was that the City conducted an 23 RFP process and Metronet's proposal was the one that was 24 deemed to be the best, as a result of which the City 25 entered into extended negotiations with Metronet and 26 came up with a long, detailed, complicated, contract 27 which has now become what we call the "MAA", the 28 municipal access agreement, template, and that was used 143 ROMAN/SEARLES-KELLY/KOROPESKI 1 to negotiate other agreements with other companies, such 2 as Ledcor and Stream, where slightly shorter versions of 3 the agreement were used because their circumstances were 4 less complicated. This is not an agreement where the 5 policy is, "You must sign all the clauses"; it's the 6 template used for negotiating purposes. 7 --- Pause 8 MR. ROMAN: In the standard MAA, then, I'm at 9 liberty to disclose that there is a per metre charge 10 and, also, a gross revenue charge of 2 per cent in the 11 first few years, rising to 3 per cent in subsequent 12 years, of the revenues obtained within the City of 13 Toronto boundaries. 14 So, those would be payments for the use of 15 City property, to the City. That would be a user fee. 16 Now, we are not suggesting that that is 17 necessarily the right rate or the wrong rate to charge 18 other users, but that's the kind of template, and the 19 right or wrong rate would be determined by such things 20 as the value to the company of having access to property 21 of that density. 22 There is another CRTC proceeding going on 23 right now, which I should mention, which is perhaps of 24 as great or greater interest than even the Vancouver 25 hearing, and that was the -- it began on December 23rd, 26 with a Christmas present we got from a company called 27 Telus, which filed an urgent interim application against 28 the City of Toronto, with the CRTC, to which the City of 144 ROMAN/SEARLES-KELLY/KOROPESKI 1 Toronto has responded -- and we could make copies of 2 those briefs available to you. 3 The issue, in that case, is more interesting, 4 to some extent, than the Ledcor one because, in the 5 Ledcor case, the company was already there and it didn't 6 involve any construction. Here, Telus was asking for 7 construction permits, to dig up city streets. 8 Therefore, it involved issues more like those that we 9 are dealing with today. Again, Telus took the position 10 that it will pay only the actual out of pocket costs for 11 permit fees, not restoration costs, and no charges for 12 the use of municipal property. It took the position 13 that in western Canada, where it is an incumbent 14 carrier, it doesn't pay these things and, therefore, it 15 shouldn't have to in Ontario because once an incumbent, 16 always an incumbent. 17 The Toronto position, of course, is you may be 18 an incumbent there, but you aren't here and you are not 19 going to dig up our streets without paying for it. 20 That's another set of issues that you may wish to 21 consider. 22 There is the issue then of full cost recovery 23 for quantifiable out of cost things and then some 24 payment for the use of municipal property. To some 25 extent the payment for the use of municipal property can 26 help to compensate for the fact that you can't quantify 27 all your costs on your cost recovery side or, if you can 28 quantity the costs, those quantifications may be 145 ROMAN/SEARLES-KELLY/KOROPESKI 1 debatable and the allocation of those cost 2 responsibilities causally to individual companies when 3 there are maybe a dozen cutting up your streets over a 4 20 year period, it may be very difficult to do. The use 5 of municipal property theme may represent a reasonable 6 proxy for that. 7 MEMBER SIMON: This MAA, is that also going to 8 apply to municipal utilities using municipal property or 9 is this just going to be applied to private companies? 10 MR. ROMAN: The intention is to have a level 11 playing field with everybody, but you don't necessarily 12 have to have a written contract with yourself. On the 13 basis of the policy of the level playing field, and that 14 is a municipal resolution that we could provide you 15 with, the intention, if I understand it correctly and 16 you can correct me if I'm wrong, is that everyone will 17 be treated alike. 18 There are certain statutory limitations there 19 where you can't level the playing field totally by 20 eliminating all statutory differences. The municipality 21 doesn't have that jurisdiction. Subject to the 22 statutory framework in which we find ourselves, there is 23 an attempt to make these things apply in an approximate 24 equivalent basis. 25 The general principles in the MAA should also 26 be applied with whatever changes are legally or 27 practically necessary to others. In other words, the 28 city is not giving itself or its own creatures better or 146 ROMAN/SEARLES-KELLY/KOROPESKI 1 preferential treatment versus anyone else. 2 MEMBER SIMON: Could I expect then, as someone 3 who lives in Toronto paying sewage and water costs, that 4 eventually my costs are going to go up as the city takes 5 into account road cuts that the city's utility would 6 make in constructing and carrying sewage and water 7 works. 8 MR. ROMAN: No, you wouldn't expect that 9 because the costs are fully recovered already. Given 10 that there is full cost recovery, there would be no need 11 to raise the cost. 12 MEMBER SIMON: Municipal costs recovered by 13 the municipality, but the price that I pay for my water 14 may not necessarily reflect the true cost of the water. 15 MR. ROMAN: Well, if water is priced properly, 16 it will. I don't have any knowledge of whether it is or 17 isn't priced properly, but if it is priced properly, 18 which it should be, it should recover all its costs. 19 Counsel Moscoe, who is sitting at the back of 20 the room and who understands the policy issues better 21 than I do, advises me that it is charged properly and 22 there is full cost recovery. 23 The other point, however, is that sewers are 24 not a commercial undertaking. They don't represent a 25 commercial use of the city's property, so there may be 26 some difference in that regard for sewers. 27 MEMBER SIMON: What about for Toronto Hydro? 28 MR. ROMAN: Well, that again is subject to a 147 ROMAN/SEARLES-KELLY/KOROPESKI 1 specific legislative situation, but of course Toronto 2 Hydro will be paying dividends to the city, so the city 3 will be obtaining some substantial benefits there, 4 albeit that is to offset the city's investment, but 5 there will be some cash come in there that the city has 6 not been receiving so far. 7 MEMBER SIMON: How will Toronto Hydro 8 be -- how will you be dealing with the road cut issue 9 vis-a-vis Toronto Hydro construction? 10 --- Pause 11 MR. ROMAN: I'm sorry? 12 MEMBER SIMON: I was just wondering how you 13 were going to be applying the road cut/sidewalk cut 14 issue to Toronto Hydro. 15 MR. ROMAN: I will pass to Mr. Koropeski. 16 MR. KOROPESKI: Yes. Perhaps I can explain 17 briefly how the cost recovery or the whole operation for 18 road cuts and sidewalk cuts occurs in Toronto. 19 First of all, the same process is applicable 20 to all utilities, be it the city water system, the sewer 21 system, Toronto Hydro, the telephone companies, cable TV 22 companies and consumers, Enbridge Consumers Gas. It's 23 consistent. 24 Unfortunately at the moment I have to qualify 25 everything by saying that generally speaking this is the 26 case because we have just amalgamated seven different 27 approaches. However, six of them are very similar in 28 that the city contracts to do all of the permanent 148 ROMAN/SEARLES-KELLY/KOROPESKI 1 repairs on the sidewalks and road cuts, so we put a 2 tender out. Whoever was responsible for making that cut 3 is billed for the cost of that work to restore the 4 pavement. 5 Added on top of that cost is a fee or an 6 additional amount that covers the city's permit 7 processing, the inspection of the work when the utility 8 is initially doing it, the costs of administering the 9 city's repair contract and also the costs of inspections 10 of the city's contractor. 11 There's not a permit fee per se. If in any 12 given year, for example, any given utility is in a 13 capital expansion mode, that utility would be paying the 14 higher proportion of the overall cost of that operation 15 because they are the ones that are responsible for those 16 costs. 17 With that being said, the city's recovery of 18 direct costs through that program is fairly 19 comprehensive, but it doesn't take into account things 20 like Mr. Ross talked about this morning of pavement 21 degradation, in other words when a cut is made, the 22 reduced life cycle of the pavement and the need for 23 earlier reconstruction. 24 THE PRESIDING MEMBER: Mr. McCann. 25 MR. McCANN: Yes. I would just like to 26 clarify a couple of things. If I could turn your 27 attention to the model franchise agreement -- do you 28 have a copy of that handy, Mr. Roman, the model 149 ROMAN/SEARLES-KELLY/KOROPESKI 1 franchise agreement? 2 Could we just have a moment, Madam Chair, 3 while we sort that out? 4 MR. ROMAN: Sorry, what clause or paragraph? 5 MR. McCANN: You have the model franchise 6 agreement. I'm looking at section 4 which is titled 7 "Procedural and Other Matters", section 1, municipal 8 bylaws of general application. 9 MR. ROMAN: We have the Web site version, but 10 it will take me a second to find it. 11 MR. McCANN: I don't have the Web site version 12 here, but it should be the same. 13 MR. ROMAN: Okay. "Procedural and Other 14 Matters", yes. 15 MR. McCANN: Okay. Just to set the context of 16 this -- I won't read the whole of it, but the pertinent 17 part. 18 "This Agreement and the respective -- " 19 Sorry. Perhaps I should say I am reading 20 section 1, municipal bylaws of general application. 21 "This Agreement and the respective rights 22 and obligations hereunto of the parties 23 are hereby declared to be subject to the 24 provisions of all regulating statutes and 25 all municipal by-laws of general 26 application and to all orders and 27 regulations made thereunder ... save and 28 except by-laws which impose permit 150 ROMAN/SEARLES-KELLY/KOROPESKI 1 fees --" 2 This is the famous clause which has been much 3 debated about permit fees, one of the reasons why this 4 discussion is taking place today. The issue I am trying 5 to focus on is this. You have made the argument that 6 section 220.1 of the Municipal Act, particularly 7 subsection (2), because it says "despite any Act" in 8 effect prevents the Board from imposing conditions in a 9 municipal franchise that would prevent the municipality 10 from charging a fee that it's entitled to under 220.1. 11 Municipalities are entering into this model 12 franchise agreement all the time. They have even done 13 so since this agreement was -- or sorry -- this 14 proceeding to discuss the model franchise agreement was 15 undertaken. Admittedly there are some which have sought 16 interim renewals. 17 But my question is what is the effect of those 18 words "save and except bylaws which impose permit fees" 19 in the light of 220.1. Does a municipality which signs 20 an agreement, a franchise agreement in this form sort of 21 contractually undertake not to impose the fees it would 22 otherwise be entitled to impose under section 220.1? 23 MR. ROMAN: I think so. I think what it would 24 amount to is a contractual waiver for the duration of 25 the agreement of its right to charge such fees under 26 that section of the Municipal Act. 27 MR. McCANN: So AMO's submission as I 28 understand it, and AMO will be coming next, is that 151 ROMAN/SEARLES-KELLY/KOROPESKI 1 those words that I have read, "except bylaws which 2 impose permit fees" should be removed from the municipal 3 franchise agreement. And it would be your view, I 4 guess, that if you don't do that, if you leave those 5 words in, it will then prevent any municipality which 6 signs on to the municipal franchise agreement from 7 exercising its rights under 220.1? 8 MR. ROMAN: That is correct. 9 MR. McCANN: Thank you. 10 One other comment you made which I just wanted 11 to ask about was you said that the Board in -- you said 12 that the Municipal Franchises Act is not exactly a 13 regulatory statute and you said something to the effect 14 that the OEB should not apply a regulatory mindset when 15 it exercises jurisdiction under sections 9 and 10 in 16 particular of the Municipal Franchises Act. 17 Well, I guess I am going to ask you why 18 shouldn't the Board apply a regulatory mindset, at least 19 in the sense that it would be proper, would it not, for 20 the Board in examining the terms and conditions of a 21 municipal franchise agreement or in being asked to in 22 effect refashion a municipal franchise agreement under 23 section 10, it would be proper, would it not, for the 24 Board to be mindful of the effect on rates? I mean it 25 is not itself a rate setting exercise. I think that 26 would be common ground. 27 But the effect on rates, the effect on the 28 rate payer would be something that the Board should very 152 ROMAN/SEARLES-KELLY/KOROPESKI 1 much have in consideration in those proceedings. Would 2 you agree with that? 3 MR. ROMAN: Well, with certain qualifications, 4 yes. If there was going to be a sudden shock to the 5 rate payer, the Board should consider that. But if the 6 higher rate results in people charging the right amounts 7 for the right things, then the Board should be mindful 8 not only of the fact that people who are gas customers 9 are going to pay higher rates, but that people who are 10 municipal taxpayers are no longer going to be 11 subsidizing them. And it should look at both aspects of 12 that because it is not part of the regulatory mindset to 13 insist that there be cross-subsidies. If anything, it 14 is the reverse of that. 15 But what my comment was directed to is really 16 more the use of city property fee or charge because 17 there isn't anything that I understand in the normal 18 regulatory theories that people apply that deals with 19 that. Regulation would normally deal with the right to 20 somebody to receive a return on their capital invested 21 in a public utility or something of that sort. And what 22 we are talking about, which is license fees or rent for 23 the use of municipal properties, whether it be a hot dog 24 stand or a pipe under the highway, is something that 25 normally isn't dealt with by regulators. 26 And what we would want you not to do therefore 27 is to reject such charges out of hand on the basis that 28 you are not familiar with them and that they are truly 153 ROMAN/SEARLES-KELLY/KOROPESKI 1 cost based. Because there could be such a regulatory 2 impulse that says, "Gee, we wouldn't let Consumers Gas 3 charge that so why should we let the city charge that?" 4 And we are saying that that is not the right 5 way to look at the question. Because the Municipal Act 6 does not say, "Municipal rates must at all times be just 7 and reasonable." That is not the way the Board is 8 supposed to look at it. The municipal costs cover a 9 variety of things and sometimes they may be just and 10 reasonable in accordance with regulatory standards and 11 other times they may not be. Certainly the many decades 12 of under recovery would not be considered just and 13 reasonable. 14 MR. McCANN: And one last area, and I am 15 sorry, I am going a little out of order here. I think 16 you have already covered this but just so I am clear on 17 it. 18 What we know as the former City of Toronto, 19 the situation there is covered by 1848 legislation, 20 which without having seen it, without going into it in 21 too much detail, allow certain rights to be exercised by 22 the gas company. But as that situation has grown up, as 23 Mr. Koropeski outlined, there is a recovery of costs 24 from the gas company by some sort of arrangement. 25 And with regard to the other municipalities 26 that amalgamated to form the current City of Toronto, 27 the situation is being researched and developed to 28 determine just what the arrangements are there and I 154 ROMAN/SEARLES-KELLY/KOROPESKI 1 assume that the Board will be hearing more about that at 2 some point. I take it there is a little bit of 3 uncertainty about that. 4 MR. ROMAN: We are not even sure where to find 5 the answer now because some of the people who knew the 6 answer have gone. And some of these agreements might 7 have been entered into 50 years ago or there might have 8 been special legislation in the "Township of 9 Something-or-Other Act" that got amalgamated with the 10 "Township of Something Else Act" and those old statutes 11 are not easy to find. It is a little bit like looking 12 for a needle in a haystack when the persons who knew 13 about them and where they were aren't around any more. 14 So maybe what we will have to tell the Board 15 at some point is unless our friends at the gas company 16 can help us, we give up. We don't know what the basis 17 is. But ultimately it may become irrelevant if all of 18 it is merged or amalgamated together. 19 MR. McCANN: So what you are looking for the 20 Board to do here is with regard to the current City of 21 Toronto as it exists today to in some way ensure that, 22 at least for the time being, the model franchise 23 agreement, whatever the Board recommends about the model 24 franchise agreement should not apply to the City of 25 Toronto? 26 MR. ROMAN: That is correct. 27 MR. McCANN: Those are my questions, Madam 28 Chair. 155 ROMAN/SEARLES-KELLY/KOROPESKI 1 THE PRESIDING MEMBER: Thank you. 2 Mr. Roman, I just have a couple of questions. 3 I would be remiss to my friends at Union Gas if I didn't 4 ask for your comments on the Dawn/Union Gas case 5 vis-a-vis the jurisdiction of the Board as I am sure 6 that they will raise it. You mentioned our famous 7 Centra Four case but not the Gas Companies favourite 8 case. 9 MR. ROMAN: I didn't deal with that in my 10 written submission. I must admit I haven't read that 11 case recently and I don't remember the details of it 12 when I did read it. 13 I would be surprised if that case came to the 14 conclusion, however, that the words "despite any act" 15 don't mean "despite any act." That is to me about as 16 clear statutory language as you can find. 17 Now, there are certain provisions in the 18 Municipal Franchises Act that also say "despite any 19 act," but those are not provisions that apply in the 20 present situation. They are provisions that apply in 21 other situations. 22 What I might like to do if you wouldn't mind, 23 Madam Chair, is to provide a written response on that 24 one issue to your question if it changes what I have 25 just told you. 26 THE PRESIDING MEMBER: Certainly. I think we 27 would appreciate your comments on the case. 28 MR. ROMAN: I will do that. 156 ROMAN/SEARLES-KELLY/KOROPESKI 1 THE PRESIDING MEMBER: Because I would 2 anticipate that the utilities dealing with the 3 jurisdictional issue will raise that case in their 4 argument. So you might want to as far as that is 5 concerned. 6 Is it your position then that vis-a-vis 7 section 10 of the Municipal Franchises Act that under 8 the terms of section 10 of the Municipal Franchises Act 9 the Board has authority to impose or to agree upon the 10 terms of a franchise agreement between the municipality 11 and the utility? Is that -- can I say that that is fair 12 subject to the requirement that it be within a year? 13 That that is the basic framework that the Board has 14 authority to impose the terms? 15 MR. ROMAN: Yes, but with one perhaps minor 16 implied qualification and that is that really this 17 section or this subsection (2) deals with public 18 convenience and necessity. And in the legal and 19 economic literature around that subject, that has come 20 to take on a particular kind of meaning which is not the 21 same kind of regulation as that rates must at all times 22 be just and reasonable. It is rather the necessity of a 23 permitting process. 24 So I would say where it says, "upon such terms 25 and conditions as may be prescribed by the Board," those 26 terms and conditions should be as to public convenience 27 and necessity and can deal with such things as 28 restoration after construction, compensation to 157 ROMAN/SEARLES-KELLY/KOROPESKI 1 landowners, rates charged to customers by a pipeline 2 company or distribution company and so on. But it is 3 not primarily again a rate regulating type of 4 jurisdiction. 5 THE PRESIDING MEMBER: Is it your view that 6 the Board should not take a holistic approach and look 7 at the entire industry and say we deal with rates. 8 Obviously we would have to set just and reasonable 9 distribution rates, but we should sort of ignore that in 10 terms of our interpretation of section 10 and -- 11 MR. ROMAN: I wouldn't go so far as to say 12 ignore. I think it is more a difference of emphasis. 13 The emphasis here would be, and if you look at 14 the second part of it, you will see the part that none 15 of us have wanted to talk about. If public convenience 16 and necessity do not appear to require a renewal or 17 extension of the term or the right, may make an order 18 refusing a renewal or extension of the right. 19 So you have a binary choice. Either it is 20 granted or it is not granted. And when it is granted, 21 it is on certain terms and conditions. The National 22 Energy Board by way of comparison grants the right to 23 build a pipeline and that would be considered a 24 certificate of public convenience and necessity. 25 When they do that, they don't look in enormous 26 detail at rates. What they look at it is if you are 27 going to build a pipeline or build facilities or if you 28 are going to have a franchise that is renewed, are you 158 ROMAN/SEARLES-KELLY/KOROPESKI 1 being fair to other people. You should look at 2 questions like the externalities. For example, if you 3 dig up the roads and the streets are blocked for weeks 4 at a time, those are things that fall on other people 5 who don't receive compensation. 6 So when you say a holistic view, and I am 7 agreeing with you, but I think that holistic view is not 8 just the same kind of holistic view as you look at when 9 you look at whether rates are just and reasonable, but 10 rather should deal more with the construction aspects 11 and the compensation to the public for any inconvenience 12 caused and perhaps also cost recovery. 13 THE PRESIDING MEMBER: Am I understanding your 14 argument that because of the use of "despite of" in 15 section 220.1, a combination of subsection (2) and 16 subsection (4) together, that the Board does not have 17 jurisdiction to have any provisions in an agreement that 18 it would impose under section 10 of the Municipal 19 Franchises Act dealing with these types of fees that the 20 municipality can charge? 21 MR. ROMAN: Yes. And by that I would mean 22 that the Board cannot say here is the standard agreement 23 and you must all sign it, including the City of Toronto, 24 must all sign it. And if that standard agreement 25 precludes, as Mr. McCann's question indicated, precludes 26 the things that we are permitted to charge, then what 27 you would really be doing is in effect either repealing 28 that section or treating it as if it gave the city no 159 ROMAN/SEARLES-KELLY/KOROPESKI 1 rights. 2 And if you do that you are in effect creating 3 a conflict between that draft contract or that imposed 4 contract and subsection (2) of section 220.1. And in 5 the event of such a conflict, then it is the Municipal 6 Act provision that would prevail. 7 If there is no such conflict, the problem 8 doesn't arise. It only arises if there is a conflict. 9 THE PRESIDING MEMBER: You said -- I'm sorry. 10 I understand what you are saying. I think I understand 11 what you are saying. 12 MR. McCANN: Could I just ask one question to 13 follow up yours, Madam Chair. 14 Let me try this question. We don't have an 15 actual application before us today. We have a 16 discussion. 17 MR. ROMAN: Right. 18 MR. McCANN: But if we had an application by a 19 municipality -- if we had an application by either the 20 municipality or the utility, in circumstances where they 21 agreed on every term of the model franchise agreement 22 except the utility wish to continue the language "save 23 and except permit fees" and the municipality wished to 24 drop that language, that was the only matter in 25 disagreement. And that application came before the 26 Board under section 10, is it your view that there would 27 be -- this is a hypothetical question. Let me put it 28 this way. 160 ROMAN/SEARLES-KELLY/KOROPESKI 1 There would be very strong arguments given the 2 wording of 220.1(2) that the Board could not in 3 exercising its jurisdiction under section 10 in fact 4 require that the "save and except permit fees" language 5 be put in the franchise agreement to be imposed on the 6 municipality because that would run counter to section 7 220.1? 8 MR. ROMAN: That is right. 9 MR. McCANN: Thank you. 10 THE PRESIDING MEMBER: So it is your position 11 though I think you said earlier that the parties could 12 waive the imposition of these fees if they wanted to. 13 You are just saying that the Board could not as a 14 provision of the franchise agreement have jurisdiction 15 to have a permanent waiver, so to speak, as part of its 16 model franchise agreement? 17 MR. ROMAN: That is right. Waiver is a 18 voluntary act and it can't be imposed by the Board under 19 the Municipal Franchises Act because that would, in 20 effect, either repeal or render nugatory the benefit the 21 legislature intended to give the municipalities under 22 subsection (2) of 220.1. 23 THE PRESIDING MEMBER: Right. You have said 24 that the fees charged by the municipality do not have to 25 be just and reasonable. 26 MR. ROMAN: I mean that in the regulatory 27 sense. In the very special sense in which you use it in 28 the regulatory sphere. 161 ROMAN/SEARLES-KELLY/KOROPESKI 1 I don't mean by that, and I am glad you raise 2 it just in case there is anybody from the press here, 3 that municipalities have a right to charge rates that 4 are unjust or unreasonable. But those words have a 5 technical meaning in the regulatory context that deal 6 with certain kinds of costs that are acceptable for 7 regulatory purposes and so on. And really what I am 8 saying is that they don't have to comply with those 9 technical regulatory standards that are applicable to 10 public utilities under a rate of return regulation 11 regime. 12 THE PRESIDING MEMBER: Are you saying then -- 13 I understand that it is not the cost to service type of 14 regulatory regime that we are dealing with or the new 15 model PBR that we are introducing now, et cetera, for 16 just and reasonable rates for distribution rates for 17 example. 18 But are you saying that the Board would not 19 have jurisdiction in a model franchise agreement to say, 20 "Municipalities you can charge these fees but they have 21 got to be just and reasonable"? Are you saying that the 22 field has been sort of totally occupied by section 220.1 23 and therefore the Board has no jurisdiction to make any 24 comment on the fees that can be charged under the terms 25 of the model franchise agreement? 26 MR. ROMAN: That is our position that the 27 remedy, if any, in terms of whether municipalities are 28 applying a tax or are charging a fee, because really 162 ROMAN/SEARLES-KELLY/KOROPESKI 1 what subsection (4) does is it deals with taxes, is 2 really a question of law for the courts. And there are 3 three cases, I am embarrassed to say I forgot to 4 mention, that I was going to bring to your counsel's 5 attention. 6 One is Carson's Camp Limited v. Amabel 7 Township and I guess I can give the cites to the 8 reporter later. We don't need to do that now. 9 The second one is Re: Ontario Private 10 Campground Association and the Corporation of the 11 Township of Harvey. And the third is Re: Urban Outdoor 12 Trans Ad and the Corporation of the City of Scarborough. 13 And that last one is the most recent of the three. 14 And those three deal with the question of 15 municipal laws as to when something is a fee, when 16 something is a charge and when something is a tax. And 17 those are important legal questions. Also Re: Eurig's 18 Estate dealt with that question as well in a slightly 19 different context. 20 So that issue is an important one and if a 21 municipality steps outside of its boundaries in that 22 regard, people are not reluctant to make quick 23 applications to the court to say that is a tax, that 24 falls afoul of section (4). So it isn't as though the 25 Board is the only protection the gas companies and their 26 customers have. 27 As well, if you look at the end of -- if you 28 look at subsection (13) in 220.1, it says: 163 ROMAN/SEARLES-KELLY/KOROPESKI 1 "The Minister may make regulations," 2 And then underneath that there is item (b): 3 "imposing conditions and limitations on 4 the powers of a municipality or local 5 board under this section..." 6 So if the government wants to limit municipal 7 powers under that section, that's the way it does it. 8 But, with respect, it hasn't authorized the Board to do 9 that. The minister has kept that power to the minister. 10 --- Pause 11 THE PRESIDING MEMBER: I have a number of 12 questions, but unfortunately we don't have -- our time 13 is running out, and you raised a number of interesting 14 legal arguments that, again, unfortunately, we didn't 15 have an opportunity to review in advance of your 16 presentation, so there will be lots of other questions 17 that we will have once we have an opportunity to 18 review your submissions. 19 MR. ROMAN: Now, I understand from Mr. McCann 20 that there will be a final written response, or 21 something of that sort, so if there is any concern that 22 in my rapid delivery there were certain questions that 23 may not have been understood clearly, or if the Board 24 has any questions to put to me in writing through 25 Mr. McCann, I would be pleased to respond to them, 26 either in time for the final submission or earlier if 27 necessary, so that other parties can make responses to 28 it. 164 ROMAN/SEARLES-KELLY/KOROPESKI 1 MR. McCANN: Yes. I think that's fine and I 2 think the only further thing to say would be we would 3 make these questions available to all parties so they 4 would know what was going on and could respond 5 accordingly. We will have to think this through, but if 6 we had to modify the procedure we have laid out 7 previously we will do that. I think the important 8 thing, though, is that, you know, we want to make sure 9 we have all of the relevant considerations before we 10 proceed to making a decision. 11 THE PRESIDING MEMBER: I do, though, have 12 one -- and I'm not saying that I'm talking on behalf of 13 the other Members of the Board, but I do have one 14 concern, just generally speaking, and that is, we talked 15 about fees, fees for service, and the gas companies, 16 utilities will say, "We don't use the schools, we don't 17 use all other services", and you will say, "But that's 18 part of living in a society and living in the city, and 19 that is, generally speaking, what taxes are for." But 20 then you turn around and you say, "But you do use road 21 cuts and you do cause -- you know, carrying on your 22 business does cause problems with the roads, et cetera", 23 and you are saying "and you should pay for those 24 services that you are using." So, in fact, you are 25 dividing up -- the ones that the utilities say, "Well, 26 we use", you say, "Well, you should pay for", and the 27 ones that they say they don't use, you are saying, 28 "Well, that's just part of being in the city." 165 ROMAN/SEARLES-KELLY/KOROPESKI 1 Is not part of being in a city, like the City 2 of Toronto, having access to gas and gas utilities and 3 the pipelines that are there, the ability of members to 4 be able to attach to that? Is that not something that 5 is -- even though I appreciate that it is run by a 6 private company -- that is regulated, so to that extent 7 we try not to allow the shareholders to have exorbitant 8 rates of return on their investment -- so there is 9 that -- and we do have the problem of public convenience 10 and necessity as far as section 8 of the Municipal 11 Franchises Act is concerned -- 12 MR. ROMAN: I think the answer to your 13 question lies in the three cases I have just mentioned 14 to you. In two of those three cases the municipal 15 by-law was struck down, in one of them it was upheld. 16 In the two cases, it was struck down because something 17 that was described as a fee or a charge was held not to 18 be a fee or a charge, but really a tax. The reason for 19 that was that it wasn't for any specific service, it was 20 just for the general revenues of the municipality, and 21 you can't call something a fee or a charge if it isn't 22 something specific for a service. 23 So when we have a charge for road cuts or 24 permit fees, that isn't a form of municipal tax. That 25 doesn't go to the general body of taxpayers. That goes, 26 in one very specific instance, as Mr. Koropeski 27 mentioned, when the bill comes in from the person who 28 patched -- the contractor who patches the road, that 166 ROMAN/SEARLES-KELLY/KOROPESKI 1 gets sent straight to the gas company. So that is a 2 direct connection. It's not a tax, it's a direct 3 payment for a specific service. 4 On the other hand, a tax is something where, 5 if I may put it this way, you really get nothing in 6 return. If you look in those cases, and in the Eurig 7 case, at what is the definition of a tax, you will see 8 that it is something that is applicable to everybody, 9 not just to somebody who cuts the road, and it's 10 applicable to everybody for nothing that they get in 11 particular in return. So it's not a fee for a service. 12 And everybody pays those things, that's why they are 13 called taxes, whereas when it comes to this, it is a 14 different situation. 15 So there is no double payment except in the 16 way that we all have a double payment if we pay for 17 specific services and if we don't. 18 THE PRESIDING MEMBER: One last question. 19 Ms Simon touched on it before. 20 I don't understand -- and perhaps you can help 21 me -- this municipal access agreement. Right now you do 22 not have a franchise agreement for the City of Toronto 23 with Enbridge Consumers Gas. Are they paying these fees 24 on an ongoing basis? 25 MR. ROMAN: No. 26 THE PRESIDING MEMBER: So they are not paying 27 the fees. 28 MR. ROMAN: Consumers Gas does not have a 167 ROMAN/SEARLES-KELLY/KOROPESKI 1 municipal access agreement with the City of Toronto of 2 the type that we would have with Metronet. We are not 3 saying that it should immediately either. What we are 4 saying is that, under the laying playing field policy, 5 the intention over time is to look at the various terms 6 and conditions of those and, to the extent that they are 7 applicable, to use a legal expression here, is 8 mutatis mutandis -- to the extent that they are 9 applicable in this other area, negotiate with a company 10 and see if we can work out an arrangement that is 11 satisfactory to both parties. The intention is not to 12 brow-beat people into this, but to see if these things 13 can be negotiated. 14 THE PRESIDING MEMBER: So who are Metronet? 15 Can you help me with that? 16 MR. ROMAN: Well, Metronet is a very large 17 telecommunications company that has many kilometres of 18 fibre optic cable under the City of Toronto streets and, 19 in fact, has built up a whole national network of that. 20 They are now owned by AT&T and they are part of what 21 would be called a competitive local exchange carrier, or 22 CLEC, which can provide you with telephone service in 23 competition with Bell Canada and other telephone 24 companies. 25 THE PRESIDING MEMBER: So they are a 26 competitive entity as opposed to -- 27 MR. ROMAN: Of...? 28 THE PRESIDING MEMBER: They are a competitive 168 ROMAN/SEARLES-KELLY/KOROPESKI 1 entity? 2 MR. ROMAN: Yes. And they are using it for 3 their commercial purposes. If you look at share values 4 of companies like Ledcor and Metronet and AT&T, as a 5 result of these fibre optic services, some of them are 6 almost as good as Amazon.com. They have done extremely 7 well with building a very substantial corporate empire 8 in a very short time on municipal rights of way. 9 THE PRESIDING MEMBER: So they have come into 10 business relatively recently, have they? 11 MR. ROMAN: Yes. 12 THE PRESIDING MEMBER: And have been laying 13 these cables relatively recently and that's why you are 14 charging them these fees now? 15 MR. ROMAN: Three years ago they have started. 16 THE PRESIDING MEMBER: As opposed to -- and 17 this was so that you would permit them to use it? Is 18 this a sort of entry into the new territory type of 19 agreement? 20 MR. ROMAN: Yes, because without that they 21 would be trespassers. Nobody can put something under or 22 over city streets without permission and, in return for 23 obtaining that permission, they were required to offer 24 certain commercial terms that were better than those 25 offered by other people who did not do as well as they 26 did in the RFP process. 27 THE PRESIDING MEMBER: So I appreciate that 28 you will say there is no difference, but there is an 169 ROMAN/SEARLES-KELLY/KOROPESKI 1 argument that there is a difference between a new 2 technology that wants your permission to come in and 3 trespass, as far as the fees are concerned, and a gas 4 utility that had the pipes in the ground for -- how many 5 years? 6 MR. McCANN: Fifty. 7 MR. ROMAN: There is a difference. We are not 8 saying that there isn't and we are not saying that the 9 rates or the terms should be the same. What I believe 10 the city is saying is that over time there should be 11 some analogous if not equivalent kinds of agreements so 12 that some people who use city property don't use it free 13 and other people pay for it, so that where there are 14 clear out-of-pocket costs, all of those are clearly 15 recovered. 16 THE PRESIDING MEMBER: Thank you. 17 I think now might be an appropriate time to 18 have a short break and we will reconvene at a quarter to 19 four. 20 --- Upon recessing at 1534 21 --- Upon resuming at 1550 22 THE PRESIDING MEMBER: Last, but not least, 23 Mr. Wright. 24 PRESENTATION 25 MR. WRIGHT: Thank you, Madam Chairman. 26 I have with me, on my right, Mr. Robert 27 Foulds, who has been in the municipal administration 28 business for a lot of years, including being involved 170 WRIGHT/FOULDS/BRENDON/VANINI, Presentation 1 with the negotiation of the last round of municipal 2 franchise agreements. 3 On my left is Mr. Casey Brendon, who, until 4 very recently, was with AMO. He's an engineer by trade 5 and has been instrumental in helping me understand some 6 of these issues as we have gone along and he will -- 7 when we get into technical engineering issues, if the 8 questions go in that direction, he will come to my aid. 9 Also, Ms Pat Vanini, who is behind me, is with 10 AMO, and to the extent that AMO position becomes 11 pertinent to questions, I will look to her. 12 Over the break, I have laid before you a 13 four-page summary of the points that I wish to 14 highlight. Largely, they reflect what is in AMO's 15 submission. 16 My primary focus is going to be on the 17 Issues 3 to 10. 18 Before doing that, let me speak just a little 19 bit about Points 1 and 2. 20 Essentially, AMO finds itself associating its 21 submissions with Ottawa-Carleton and Toronto. I would 22 say two things -- two or three things. 23 With respect to the question raised by you, 24 Madam Chair, with Mr. Roman, about the effect of a 25 municipality entering into an agreement voluntarily 26 amounting to a waiver of their right, under the 27 Municipal Act, to impose permit fees, I would agree with 28 his response, that if there is a voluntary entering into 171 WRIGHT/FOULDS/BRENDON/VANINI, Presentation 1 a municipal franchise agreement that contains that 2 waiver of permit fees, it has the effect of, at least 3 for the duration, standing in the way of their 4 exercising their rights under 220.1. 5 If, however, they do not voluntarily enter 6 into such an agreement and the Board imposes it, I also 7 agree with Mr. Roman that there is the problem of the 8 conflict that would have to be resolved in a court, and 9 I think the importance of that, from the perspective of 10 AMO, is that, until that point is decided, it would be a 11 wise municipality that would ask the Board to order an 12 agreement so that they leave open their right to have a 13 discussion with a court about the paramountcy argument. 14 Now, the other point that I would raise 15 relates to the question of the amount of the fees and 16 the just and equatability or the reasonableness of the 17 rates or the permit fees under 220. 18 My friend, Mr. Roman, I don't think 19 intentionally, but may have left the impression that 20 municipalities are, short of ministerial intervention, 21 left largely to their own devices and discretion. And 22 to the extent that this Panel has that impression, I 23 disagree that that is the case. 24 In my view, Section 220.1(2) deals with the 25 specific things for which the by-law can be passed and a 26 municipality that is not able to -- in the jurisdiction 27 of a court, on a challenge of the by-law -- produce the 28 basis upon which they came up with the number, that 172 WRIGHT/FOULDS/BRENDON/VANINI, Presentation 1 by-law is at serious risk. A municipality cannot simply 2 pull a number out of the air in order to, for instance, 3 pass a by-law imposing fees for services or activities 4 done by or on its behalf, that it would have to be able 5 to establish, to the satisfaction of a court, on the 6 basis of evidence, that it truly reflects the cost of 7 providing that service. 8 I just wanted to make that observation to the 9 extent that -- to the extent that the Board may have the 10 impression that there are no constraints on the 11 municipality's exercise of that jurisdiction. 12 I think another point that I would make is 13 that, insofar as permit fees are concerned -- and there 14 was some discussion about telecos and electrical 15 distributors -- those highway users are exposed to 16 permit fees. 17 Now, the telecos and the electrical 18 distribution companies are not exposed to the user fees, 19 but they are exposed, under the legislative regime we 20 have, to permit fees. 21 And in my respectful submission, whatever else 22 you may do, with respect, the gas company should be -- 23 on the level playing field theory -- exposed to permit 24 fees that are reasonably based and founded on a 25 justification, as would be required by Section 220.1. 26 Now, in AMO's initial submission, in December, 27 the suggestion was there should be a fall-back position 28 to -- and the figures of some sort of default amounts 173 WRIGHT/FOULDS/BRENDON/VANINI, Presentation 1 were proposed, if the Board -- if the Board decided that 2 they were going to wade into an amount question. 3 Having heard the submissions, AMO's position 4 is that the best course for this Board is to avoid the 5 legal quagmire of the conflicts between its jurisdiction 6 under the Municipal Franchise Act and the Municipal Act 7 provision that we have heard about from Mr. Roman and 8 that the Board should simply remove that "save and 9 except" clause, leaving it to the courts, at some time, 10 to decide, after a municipality passes a buy-law, one, 11 whether 220.1(4)(e), in fact, stands in the way of the 12 by-law; and if so, whether or not the municipality has 13 been able to sufficiently demonstrate the underpinnings 14 for the charge as to avoid the problem of it being a 15 tax. In that way, each municipality can tailor its own 16 charges according to its own costs and, in that way, 17 avoid cross-subsidization as between gas users and 18 non-gas users within the municipality and as between 19 municipalities for their service by the same gas 20 company. 21 In my respectful submission, that is the 22 position that this Panel should take on that issue. 23 Now, let me speak, briefly, about the 24 relocation costs. 25 AMO has not revisited that question, which 26 was -- there were really two nugget issues 13 years ago. 27 One of them had to do with municipal authority over its 28 road allowances; and the other had to do with cost 174 WRIGHT/FOULDS/BRENDON/VANINI, Presentation 1 sharing on relocation. And if the Board wishes, in 2 their questions, to get into that in detail, Mr. Foulds, 3 who was there, and I, who was there, will attempt an 4 historical backgrounder but, effectively, on the issue 5 of relocation costs, the decision that was negotiated 6 then -- and it was negotiated -- was to avoid the 7 problems of the Public Service Works and Highways Act, 8 which was then the governing legislation, in a silent 9 franchise agreement and to come up with something that 10 approximated it -- and that's where the numbers fell 11 out. And we are not revisiting. That is not to be 12 reopened, as far as AMO is concerned. 13 I digress for a moment, in that context, to 14 say that, however, the matter of permit fees was not an 15 issue of significant, or any, negotiation, at that time 16 and, at that time, there was an expression of preference 17 by the Board -- it's in E.B.O. 125 in paragraph 635. 18 It's right at the end. "As a matter of policy, the 19 Board does not support the introduction of permit fees 20 by municipalities", so it was stated as a matter of 21 policy. It wasn't an issue as far as the municipalities 22 were concerned at that time. It wasn't an issue to be 23 negotiated. 24 That, Madam Chairman and Members of the Panel, 25 however, was before section 220.1 of the Municipal Act. 26 It was at a time when the MTO was subsidizing municipal 27 highway costs up to about 50 per cent. Now it is an 28 issue, an unlikely location cost. AMO believes that 175 WRIGHT/FOULDS/BRENDON/VANINI, Presentation 1 this was not negotiated then to the extent that it was 2 discussed at all, which was very little. The ground 3 rules have changed. Enough on points one and two, 4 subject to questions which we will come back to. 5 With respect to the question of duration of 6 new and renewable franchise agreements, there are a 7 couple of sections of the Public Utilities Act which 8 were referenced both in my summary and in the brief, in 9 my respectful submission, suggests strongly that 20 10 years is a maximum. AMO is rather of the view that the 11 rationale expressed in E.B.O. 125 strikes the balance. 12 As to the notion of automatic renewability, I 13 share my friend, Mr. Roman's concerns that that creates 14 some difficulties as to the Board's jurisdiction under 15 the Municipal Franchises Act. I will leave it there. 16 It seems to me that this is one of those 17 issues where the business of term, largely the gas 18 companies and AMO are in the same place: 15 to 20 19 years, 20 years for the first term 15 for renewal, 20 unless the municipality wants more, but in the normal 21 course, I don't think I'm being unfair about this, in 22 the normal course, most municipalities are simply 23 presented with something. 24 If this Board is inclined to say 15 years for 25 renewal, staff should at least be saying to the 26 municipal clerk when they get a 20 year contract "But 27 did you know you could get it for 15 and do you really 28 want it to be 20?" It's a question of clerks who 176 WRIGHT/FOULDS/BRENDON/VANINI, Presentation 1 probably deal with this, municipal staff who deal with 2 this perhaps once or twice in their career and simply 3 wouldn't know. It's incumbent, in my submission, on 4 Board staff to be sure that the municipal staff are 5 alerted to the 15 year term as being Board policy if 6 they want it. 7 On insurance and liability, let me start as we 8 did in the brief and, as I say, near the top of page 2 9 of the summary. There is no intention on AMO's part to 10 alter the indemnity provision as found in the current 11 municipal franchise agreement and that includes the 12 obligation of a gas company to indemnify the 13 municipality for anything relating to the gas company's 14 operations, except where it flows out of municipal 15 negligence. That is not something we propose to change. 16 What we ask is two things. I don't mean to 17 impute improper motives, but there is, in my submission, 18 and my sense is that the gas companies are deliberately 19 not understanding what the municipalities want. In 20 effect they say "Oh, well, they want to be named insured 21 so the gas companies are insuring them". That's not and 22 never has been the issue. 23 What we want is to be added as an additional 24 named insured, which is what I think they are agreeing 25 they will do, so that the municipality will have a 26 direct claim on the insurance policy, so that they won't 27 have to involve their own insurance company when it is 28 clear that there is no municipal negligence involved. 177 WRIGHT/FOULDS/BRENDON/VANINI, Presentation 1 That should add virtually no additional cost. 2 There is no change in risk, no change in coverage. It 3 may be that there is a modest administrative charge for 4 doing it, but in the experience of municipalities for 5 which I have acted over a lot of years, it's fairly 6 standard procedure, whether they are construction 7 contracts or subdivision agreements or whatever they may 8 be, to have a contractor put up insurance for their 9 obligations and have the municipality named as an 10 insured, again for the reason of not involving their 11 insurance companies when clearly there is no municipal 12 responsibility. 13 We are not seeking to avoid responsibility for 14 municipal negligence which is the song you are hearing 15 from the gas companies. It never has been. We simply 16 want to know that -- simply. We want to know that 17 there is coverage and we want to be able to deal 18 directly with the insurance company when we have been 19 named because we are sort of in the vicinity and there's 20 no negligence. 21 Again, it's not unusual to ask for evidence of 22 insurance coverage of the indemnity obligation which 23 they have agreed to provide. In the course of 24 negotiations leading to this proceeding, there was some 25 discussion about how much that insurance should be. 26 Huge numbers were bandied about. Probably those huge 27 numbers were justified if you were in Ottawa-Carleton or 28 Toronto. They probably aren't justified if you are in, 178 WRIGHT/FOULDS/BRENDON/VANINI, Presentation 1 with respect to my client, Middlesex Centre, just out of 2 London, a rural township. The numbers are different. 3 AMO's submission is that the standard of 4 coverage ought to be that of a prudent Canadian gas 5 utility operating in the municipality in question. If 6 there is some dispute, as I can't imagine there would 7 be, somebody could adduce evidence in a court as to what 8 a prudent Canadian utility would do, but I can't imagine 9 that. 10 In any event, it is for the gas companies to 11 decide. The municipalities should not be in the 12 business of telling them what kind of coverage they as a 13 prudent gas utility should have, but they should use 14 that as the test, produce evidence of that insurance and 15 have the municipality added as an additional named 16 insured. In my respectful submission, that's one of 17 those things that ought to have been dealt with in the 18 negotiations. 19 Let me deal with geodetic information. Let me 20 describe geodetic information as I understand it because 21 I think it's important that there be understanding. 22 Geodetic information is locational 23 information. Normally when we talk about geodetic 24 information in the context of the existing municipal 25 franchise agreement, it is very precise locational 26 information that is provided, normally by a surveyor, 27 that establishes longitude, latitude and altitude by 28 reference to a predetermined bench mark. 179 WRIGHT/FOULDS/BRENDON/VANINI, Presentation 1 Geodetic information is normally prescribed 2 within inches, if you are of the old school, within 3 millimetres if you are of the new, so it's very precise. 4 Normally it's not required. 5 Let me just stop for a minute and talk about 6 GIS, the information that municipalities have to track 7 services within their road allowances. The GIS 8 information, as I am instructed, normally has 9 longitudinal and latitudinal information. It has that 10 information. 11 What it has a blank data item for is the 12 altitude. So if you go to most municipalities -- I will 13 put it this way -- most urbanized municipalities, you 14 are going to have GIS information that locate in a road 15 allowance where most of the servicing is located. 16 Now, the municipalities don't ask for that 17 level of detail, the geodetic level of detail for the 18 purposes of input to their GIS system in situations 19 where they are not providing it for their own services. 20 But when they are providing it for their own services so 21 that there is some -- there is fiscal responsibility. 22 If the municipality is doing it for its own services, 23 then it is not unreasonable for them to ask that all of 24 the other services that are around them provide the same 25 level of information and that is what we ask. 26 We also ask that if the gas company has for 27 whatever reason that level of detail for its own 28 purposes, that they provide that information which they 180 WRIGHT/FOULDS/BRENDON/VANINI, Presentation 1 already have to the municipality. 2 Now, you heard on the Gas Company presentation 3 that they are already providing geodetic information in 4 complex urban -- the test is it has got to be complex, 5 undefined, urban and intersection. And from the 6 municipality's perspective the test should be complex. 7 It shouldn't matter if it is a complex situation that it 8 be at an intersection, and from the municipality's 9 perspective it shouldn't matter if it is a complex 10 situation at some particularly complicated intersection 11 of county roads out beyond an urbanized area. 12 So the test that the municipalities ask for is 13 let's leave urban and intersection out of it and let's 14 be a little bit more precise about what we mean by 15 complex. And as you will see in the notes in the middle 16 of page 2, we would propose that "complex" relate to the 17 number, nature and proximity of existing or planned -- 18 and I see all sorts of spelling errors in there -- 19 planned utilities and services, or if the highway is in 20 some particularly complex non-standard width, alignment 21 or cross-section. 22 Now, Madam Chairman, if the Board is going to 23 ask questions about what they mean by complex, my friend 24 Mr. Brendon is going to answer all those questions. 25 But the Gas Companies position on this is, "We 26 don't want to be treated differently. We don't want to 27 be discriminated against." It is not -- and to be fair 28 to them that came out of an earlier situation where the 181 WRIGHT/FOULDS/BRENDON/VANINI, Presentation 1 municipalities were saying, "No, no, we will tell you 2 when we want geodetic information," and leaving it 3 entirely in the municipalities' discretion. 4 And to the extent that AMO in their materials 5 in December have migrated from that position, their 6 submission hasn't reflected it. We don't intend to 7 discriminate. It is not going to be done haphazardly. 8 And in our submission, it is important that as we are 9 talking about long-term contracts we anticipate improved 10 technologies and needs and abilities as the technology 11 costs decrease, and I am thinking particularly of the 12 satellite-driven GPS equipment, increasingly 13 municipalities will begin to use it for its own purposes 14 and this should all fit in. It is not discrimination. 15 It is anticipation of future technology. 16 Now, with respect to as-built drawings, and 17 they are linked, to the extent that approval with -- the 18 geodetic information required in connection with 19 approvals is reasonable, not discriminatory, reasonable, 20 all those kinds of things, to the extent that the 21 approval is based on geodetics, the as-builts should 22 come in with the same level of detail and that is the 23 principal point. The additional two points are in this 24 day and age we would like -- the municipalities would 25 like the as-builts to come in in compatible, you know, 26 on a disk so that we can put it into our GIS system so 27 that it is compatible. 28 Again, if they have got the information, that 182 WRIGHT/FOULDS/BRENDON/VANINI, Presentation 1 shouldn't be a major difficulty. And again, we would 2 like to have some sense of the time of the delivery. 3 AMO suggested two months in its submission. I haven't 4 heard anything to the contrary as to why that might be 5 regarded as inappropriately aggressive. So essentially 6 on the as-builts, in my submission, AMO simply asks that 7 we get the same level of detail as our approval was 8 based on, that we get it, in addition to the standard 9 mylar, in electronic format and that we get within a 10 couple of months after they are completed. 11 Now, let me deal with -- in my summary I am on 12 the top of page 3 and it deals with this warranty as to 13 completion of the highway. And this one is a difficult 14 one. And the Gas Companies in responding, and I won't 15 speak from my notes, but when asked about their 16 position, they say, "We want to be able to sue the 17 municipalities because that is our common law right if 18 they knew or ought to have known of some problem in the 19 road allowance." Then they hasten to say, "But of 20 course that would never happen." But the test is "knew 21 or ought to have known." 22 And I wasn't at the negotiating table that led 23 to this but my understanding is that this whole 24 discussion came out of a discussion of the 25 responsibility -- who was responsible if when somebody 26 opens the road, we find, lo and begore, there is some 27 terrible environmental problem. Say a patch of coal tar 28 or something that we find. 183 WRIGHT/FOULDS/BRENDON/VANINI, Presentation 1 Well, at the end of the day the resolution of 2 that was well, we don't -- nobody is going to prejudge 3 the issue of who put it there or why, and it certainly 4 isn't the responsibility of the discoverer of it because 5 they were the discoverer of it. So we are not going to 6 prejudge any issues about that. 7 But the Gas Company if they discover it while 8 they have the opportunity to take up their pipes and go 9 some place else, come in for another approval in another 10 location, shouldn't be in a position to demand that the 11 municipality because they approved that location, clean 12 it up. Because the municipality may be earmarked by the 13 Ministry of the Environment to clean it up, but if the 14 generator is in sight, it may be the generator. 15 And those issues shouldn't be prejudged on the 16 basis of the fact that the municipality gave the 17 approval to be one foot off the property boundary which 18 is normally where gas lines live as I understand it -- 19 of one metre, I am corrected. 20 The point of the exercise is that coming out 21 of that it was what in my respectful submission is a 22 reasonable position that nobody -- that the finder ought 23 not to be responsible, the municipality, however, ought 24 not necessarily be responsible to clean it up so that 25 the gas company can get into the location. And we then 26 found ourselves in the position where the gas company 27 was taking, and again I don't mean to be inappropriate, 28 but an almost perverse position that this issue having 184 WRIGHT/FOULDS/BRENDON/VANINI, Presentation 1 been raised, we darn well want to be able to assert our 2 common law rights if we find some piece of paper that is 3 20 years old that somebody has filed but everybody has 4 forgotten that says you ought to have known. 5 It is like a building permit. There is a 6 representation and warranty that, you know, this thing 7 complies with all applicable law. 8 Well, we don't want and I don't think anybody 9 should want the consequences of the position that the 10 gas companies are now taking. And if that position is 11 sustained, then AMO would be saying to prudent road 12 authorities that you should be making darn sure before 13 you issue a permit that the gas company can in fact use 14 it for the purpose for which it is intended, which would 15 involve a suite of borings and testings and other things 16 that are quite out of line with the problem that is 17 trying to be solved. 18 And in our respectful submission the way to 19 solve the problem is make it clear that the -- when the 20 municipality approves a gas company proposal for 21 location it is not intended to be any kind of a 22 representation and that the gas company finds the road 23 allowance as it is whenever they find it. And if they 24 don't like what they find, their option is to come back 25 with a new location. 26 With respect to the legislative changes, I 27 think I will limit myself to saying this, and I think 28 the Board understands the thrust of this point from some 185 WRIGHT/FOULDS/BRENDON/VANINI, Presentation 1 questions that were asked earlier. 2 The legal regime in which these things are 3 negotiated is an evolutionary thing. If there are rests 4 when the question can be revisited and the terms of the 5 agreement tailored to the new legislative regime and 6 their reasonable periods, as in 20 years for a new 7 contract and 15 years for renewal, then there is no need 8 for what I will call a reopener. If we were to get into 9 perpetual contracts or even evergreen clauses in shorter 10 term contracts, then the sort of language proposed by 11 AMO would be a fair response to the need to reopen in 12 the event of an altered legal regime. If the Board, 13 however, is doing the 20-15 years, then AMO is not 14 pursuing that provision. 15 Now, let me deal with the default provisions. 16 The municipal position is not that these 17 things are to be opened or reopened at a whim. There is 18 no -- the gas companies' presentation is based on the 19 notion that they and this Board would be tied up with 20 reopener after reopener in constant allegations of 21 default, and so on and so forth. That is not, never 22 was, the position of AMO. We are, however, looking at 23 the problem of, what I have styled in the vernacular, a 24 bad actor, and the terms of that actor are pretty 25 strong: repeated, persistent material defaults, safety 26 of persons put at risk or a financial disaster. 27 I'm now casting myself back a decade or more 28 where there was a bad actor out there that was in very 186 WRIGHT/FOULDS/BRENDON/VANINI, Presentation 1 serious financial difficulty that was putting pipe with 2 not enough cover in locations that would scare road 3 superintendents as they were ploughing roads, and we are 4 talking NRG down in the Aylmer area. The difficulty 5 that that municipality -- that that and those 6 municipalities had, they either had to wait for the bad 7 actor to figure out how to get the financing to do it 8 right or sell to somebody who knew how to do it. The 9 municipality had no control over that situation and they 10 should. There is a bad actor that is putting people at 11 risk persistently with material faults. They should be 12 able to go to a court and say, "This one is off", so 13 that they can then strike up discussions with somebody 14 else and come here for new franchise provisions. 15 That is what this is all about. This has to 16 do with the bad actor and municipalities being locked to 17 people that can't do it right. 18 Now, that is vastly different from the 19 business about having notice of disputes and, in my 20 respectful -- let me start with this. I should have 21 probably started my whole submission with this. 22 The history between municipalities and the gas 23 distribution companies has been excellent over many, 24 many years. The bad actor is a reflection of one bad 25 actor. The 60-day notice is, in part, a reflection of 26 the kind of mechanics that normally are to be found in 27 commercial contracts and municipal agreements of various 28 sorts, has the advantage -- the 60-day notice provision 187 WRIGHT/FOULDS/BRENDON/VANINI, Presentation 1 has -- first of all, I emphasize it doesn't prejudge the 2 issues. That's not the intention. 3 The intention is that there be some orderly 4 process, and that if it is in writing and it has to be 5 sent up to head office so that things won't get out of 6 hand, as personality conflicts -- the unusual 7 personality conflicts in the field get people into 8 entrenched positions that are difficult to back away 9 from. 10 This is really -- in my submission, if the gas 11 companies kind of really thought about it in these 12 terms, my sense is that they -- instead of knee-jerk 13 reacting and saying no, they thought about it, they 14 might say, "Hey, well that may be not a bad idea. Maybe 15 head office should hear it before somebody issues a 16 statement of claim." But the problem with these 17 negotiations is that they bog down on the first two 18 points, so lots wasn't heard on the last seven or eight 19 that, in my submission, ought to have been heard. 20 Now, let me deal with 10, which is abandoned 21 pipe and the difference between abandoned and 22 decommissioned pipe. 23 What you heard today from the gas companies 24 was that "abandoned" pipe and "decommissioned" pipe are 25 the same thing. 26 I'm just going to wait for a minute for the 27 Chair. The Chair and the Chair are in -- 28 THE PRESIDING MEMBER: I apologize. 188 WRIGHT/FOULDS/BRENDON/VANINI, Presentation 1 MR. WRIGHT: Are you all right? 2 THE PRESIDING MEMBER: Continue. I'm sorry. 3 MR. WRIGHT: What you heard today from the gas 4 company was that decommissioned pipe and abandoned pipe 5 were the same thing, and the municipal understanding of 6 the situation is that that is not the case. 7 The municipal understanding is that 8 decommissioned pipe has been rendered safe, the gas has 9 been purged, it has been left in the ground, but it 10 remains on the tax roll because the municipalities -- 11 excuse me -- the gas companies are saying, "You know, 12 that's still part of the system; it could be part of the 13 system. We reserve the right to put gas back into it." 14 That's decommissioned pipe. They pay tax on it, it's 15 part of the system, it's there, and they negotiated with 16 AMO special provisions about that. Those special 17 provisions appear and basically they say, "It's there, 18 we may use it again, but in the meantime we may let 19 other people use it." The municipalities have said, 20 "Well, okay. If you tell us about that and get them to 21 enter into an agreement, that's all right too." 22 But what was not negotiated was the business 23 of abandoned pipe. The whole discussion about abandoned 24 pipe and the definition of "abandoned" pipe, by the way, 25 and I go to that, the definition of "abandoned" pipe is 26 that it has been determined by the gas companies to be 27 waste. It's no longer useful. It's taken off the tax 28 roll. They are no longer paying taxes on it. It will 189 WRIGHT/FOULDS/BRENDON/VANINI, Presentation 1 never be used again. 2 Under the municipal franchise agreement, that 3 regime says, on abandoned pipe, the gas companies have 4 the choice to leave it or take it. If they want to take 5 it, then they are at liberty to do so so long as they 6 restore to original position. If they don't take it, 7 then the next time the municipalities are in that area 8 doing something else, if they encounter an abandoned gas 9 pipe, they can jerk it out and throw it away because it 10 has been off the tax roll, it's waste. 11 And in taking it and throwing it away, there 12 is no responsibility to the gas company, because they 13 have abandoned it. It's waste to them. It's not worth 14 their while to take it out. But if we are there and 15 it's easy to take it, we should be able to take it. 16 Now, the municipalities ask for only two 17 changes in the regime about "abandoned" -- which I will 18 emphasize is waste pipe that has been left in the ground 19 by the gas companies; they have had the choice to take 20 it and they decided to leave it because it's worth more 21 to take it out than to just leave it in the ground. We 22 ask two things. One, we ask that when pipe is abandoned 23 that we told about it so that we know what's waste and 24 what's not waste, so that when we come to do our 25 projects, we know that we are taking it up and throwing 26 it away or we are not. 27 Now, we can find that information by carefully 28 tracking from their assessment rolls that they file each 190 WRIGHT/FOULDS/BRENDON/VANINI, Presentation 1 year with the Assessment Office, or it would be really 2 helpful if they would provide that information to the 3 municipalities as they go. We are asking that it be 4 done once a year, which would -- whoever's doing the tax 5 roll would make up a separate sheet to say, "Well, this 6 came off the tax roll, so we will tell the municipality 7 that". So, we are asking for notification where there's 8 been abandonment, in the sense that I have described it. 9 The other thing is to clarify what probably 10 doesn't need to be clarified; and that is, if the 11 municipality exercises its right to take up the pipe, 12 the abandoned pipe, that they do so with the same kind 13 of approval process, as to timing and scheduling and all 14 of that sort of thing, that they would when they were 15 installing in, so that there would be a liaison between 16 the municipality and the gas company and other users, 17 users of the highway so that traffic can be stopped when 18 it has to, and all those sorts of things. 19 I think it is implicit, and I think that it is 20 the practice -- I'm instructed that it is the practice 21 that when gas companies take up their abandoned pipe 22 that they do go through that process. 23 We ask that the franchise agreement be 24 adjusted to reflect that practice. 25 Again, I would say, it seems to me, again, 26 that if the gas companies -- and it may be that some of 27 these ideas got a little better refined as we got 28 prepared for this exercise, but, again, it seems 191 WRIGHT/FOULDS/BRENDON/VANINI, Presentation 1 difficult for us to hear the gas companies here, today, 2 saying that "decommissioned" and "abandoned" are 3 completely different, given our understanding, as we 4 came in. 5 I have two final things, and then I will open 6 this to questions. 7 Item No. 11 is not on the list that appeared 8 on the Board's Web site, but it reflects the notion that 9 if there are to be some changes -- I'm not sure what the 10 answer to this is -- but if there are to be some changes 11 to some of these provisions, that municipalities who 12 have recently been ordered by the Board to have 13 something that a new suite of model agreements are going 14 to be different about, we request that some 15 consideration be given about how to have a reopener on 16 those issues. I'm not sure how we would do that, short 17 of the parties agreeing that if the municipalities and 18 the gas companies wish to bring it back that they could 19 bring it in to get it brought up to date. 20 I raise it only because there is some concern 21 about municipalities who signed up because they are 22 anxious to get on with other projects. 23 Enough said on that. 24 Point No. 12. I make this point -- and it may 25 be a reflection of the fact that I have, in the last two 26 or three years, had some good success with mediation 27 that is tribunal-driven -- I'm thinking of the 28 Environmental Appeal Board; I'm thinking of the Ontario 192 WRIGHT/FOULDS/BRENDON/VANINI, Presentation 1 Municipal Board -- where board members who ultimately 2 don't make the final decision are requiring people to 3 hear what the other person is saying. 4 It may be, for instance, that we are going to 5 have a Board hearing that's finally going to decide how 6 much a permit fee should be, hypothetically, but there 7 are eight or nine other issues here that ought not to 8 have been ignored because they were being used as 9 bargaining chips for the first issue. 10 In my respectful submission, having not been 11 at the table, that is what I think happened here. 12 And early in the piece, the suggestion was 13 made, on behalf of AMO, by me, that this process might 14 be delayed a very little bit by Board-led mediation. 15 The impression that I had, in response to that, was that 16 it was not something that the Board did much or, in 17 fact, at all, so that wasn't part of the program. 18 But at the end of all this, the trick is going 19 to be to get a franchise agreement that municipalities 20 will want to bring in to be renewed in the new form. 21 At the end of all this, this Board should be 22 attempting to have the parties find their own solutions 23 rather than trying to be Solomon and ordering the 24 solutions. 25 While I understand that the Board has a large, 26 and probably increasingly large, slate of municipal 27 franchise agreements that are backlogged against the 28 disposition of this, my view is that, on some of these 193 WRIGHT/FOULDS/BRENDON/VANINI, Presentation 1 issues, if we could set aside the financial questions, 2 some of these issues -- if a Board member was saying, 3 "Well," you know, on the insurance question, as an 4 example, "if you are not changing the indemnity and it's 5 truly not costing you more than $9 a municipality to get 6 them as additional named insureds, why wouldn't you do 7 that?". That's the sort of thing that a Board Member 8 should have said, could have said and would have forced 9 the parties not to have to have that issue before you 10 today, in my respectful submission. 11 Madam Chairman, I have said more than I 12 probably should have. I'm open for questions. 13 THE PRESIDING MEMBER: Thank you, Mr. Wright. 14 Excuse us, just a second. 15 --- Pause 16 THE PRESIDING MEMBER: Mr. Laughren? 17 MEMBER LAUGHREN: Thank you. 18 Mr. Wright. 19 MR. WRIGHT: Yes, Mr. Laughren. 20 MEMBER LAUGHREN: When you were going through 21 your presentation, I was -- it was funny the way you 22 ended up your presentation because I was scratching my 23 head, up here, and saying to myself, "How come those 24 weren't settled? They seem to be very close. They seem 25 to be what you say is the special request the utilities 26 were also thinking -- and I'm thinking of the insurance 27 and liability, the geodetic information, the as-built 28 drawings, perhaps even the default provisions and the 194 WRIGHT/FOULDS/BRENDON/VANINI 1 conditions of the highway -- I could go on, but it 2 seemed to me there was a lot there that I'm surprised 3 was not settled before you got here, in that process 4 that was set up, which was Board, not -- whether you say 5 it was Board-led or driven, but it was set up by the 6 Board, that process where the utilities and AMO sat down 7 and talked about franchise agreements, and so that was 8 really puzzling me as you went through your 9 presentation. I wonder if you could shed any more light 10 on that other than it was people holding back bargaining 11 chips for the end of the day. Is it really that simple? 12 MR. WRIGHT: Yes. Mr. Chairman, my difficulty 13 in responding is twofold. One, I wasn't there and, two, 14 I don't want to be heard to be casting aspersions on 15 those who were. 16 Against that background, it seems to me that 17 often parties can only get so close together on their 18 own before, and this is reflecting some ABR experience 19 that I had in another context, before they need the help 20 of somebody to go through a bit of a process and to 21 isolate some of the issues that truly probably have to 22 be decided by a panel and say "Now, just stop 23 talking" -- I'm repeating what I said earlier, but my 24 experience is that if -- I am again repeating myself. 25 My experience with those other Tribunals is 26 that if, to use the Municipal Board as an example, a 27 Board member comes down, says "I'm not going to hear 28 this case, but I'm here and you can count on my 195 WRIGHT/FOULDS/BRENDON/VANINI 1 understanding what might happen". Again, I am using a 2 land use case to say that some ratepayer -- "You know, 3 this developer is offering you something that the 4 Municipal Board can't give you, so put some weight on 5 that", and then leans on the developer for something 6 else. 7 There's a process that can produce results 8 that, if achieved by the parties, is a happier result 9 than one that is imposed. 10 MEMBER LAUGHREN: I don't disagree with that. 11 I'm just surprised that these issues would fit into that 12 category we have gone through. 13 MR. WRIGHT: My reaction is they should have. 14 To be as candid as I can be, what should have happened 15 is they should have put the money issues off to one side 16 and said "All right, now let's talk about this" and then 17 talked about it. If they had to get an insurance agent 18 to tell them what the detail was, do that. Have a 19 surveyor in. 20 Most of these issues, in my judgment, at some 21 point in the negotiations stop. 22 MEMBER LAUGHREN: Thank you. 23 MEMBER SIMON: Just one question, Mr. Wright, 24 for completion of the record. I was wondering if you 25 could shed some light based on your historical 26 experience for the principle of cost sharing for 27 relocation costs. It's somewhat incomplete, the record 28 on that issue. 196 WRIGHT/FOULDS/BRENDON/VANINI 1 MR. WRIGHT: All right. Historically, in the 2 Union Gas trading area, the franchise agreements 3 included provisions that required the gas company to 4 take up their pipes and go at gas company expense when 5 requested by the municipality. 6 Now, the quid pro quo on that was that road 7 authorities were less concerned about approving location 8 that perhaps wobbled around tree roots or around rocks 9 or whatever it was because they knew that if it came to 10 putting in a municipal ditch in that location or some 11 other road work, they didn't have to worry about the 12 cost. The gas company was taking the risk. If they 13 wanted to do that, that was fine. 14 That was the Union approach, perhaps because 15 Union Gas historically grew out of a bunch of small 16 municipal operations down there. 17 Consumers, on the other hand, had municipal 18 franchise agreements that were silent on the question of 19 relocation. That put them in the position where, if 20 they wanted to move their pipe for their own purposes, 21 they did it at their own expense. If they moved their 22 pipe at the request of the municipality for road work, 23 then the municipality was required to pay under the 24 Public Service Works and Highways Act half of the cost 25 of labour and labour saving devices. 26 Labour saving devices covered a lot of ground, 27 so there was a very large portion of the relocation cost 28 being shared as to half by the municipalities under the 197 WRIGHT/FOULDS/BRENDON/VANINI 1 Public Service Works and Highways Act. 2 There were some problems about the Public 3 Service Works and Highways from the municipal 4 perspective because it related to work, relocations 5 required for highway purposes but not for other 6 municipal purposes, like relocation of sewers or water. 7 If it was a water main project, a municipality was 8 paying it all. 9 It sort of came to a head ten or 15 years ago 10 when some of the senior people with experience in 11 Consumers found themselves down in Union territory and 12 started negotiating franchise agreements and said 13 "What's this about paying costs of relocation?" and 14 started to strike them out. 15 The result was a number of cases where the 16 Union experience was being compared with the Consumers 17 experience and the Board said at one point "Enough. We 18 want consistency across the province". 19 There was also this notion that if there were 20 municipal works, regardless of whether they were roads 21 or other pipes, that it should be the same ground rules 22 if it was a municipally requested relocation. 23 The notion was to get away from the Public 24 Service Works and Highways Act and to devise a formula 25 that somewhat emulated the result, which is the formula 26 that you see in the agreement. You will also see in the 27 agreement that there is out of regard for the past 28 practice in Union territory, at the back page there is a 198 WRIGHT/FOULDS/BRENDON/VANINI 1 phase-in where in Union territory, a different 2 proportion of the cost was borne, depending upon when 3 the location was approved. 4 How did I do? 5 MEMBER SIMON: Thank you very much. 6 MR. McARTHUR: Madam Chair, if I might, we 7 have a train to meet. If we might be excused, could we 8 please leave? 9 THE PRESIDING MEMBER: Certainly. I guess the 10 next step before we continue, because I know that the 11 Board has got other questions and I know that you are in 12 a hurry. 13 First I want to thank all of the participants 14 for coming today. You have obviously spent a lot of 15 time and effort preparing your submissions and preparing 16 your presentations. The Board has been gratefully 17 enlightened and appreciates the amount of effort that 18 you have spent in helping us with these issues. 19 We are proposing that there be written 20 submissions by February 4, if that is still a convenient 21 time for written submissions. In light of Mr. Roman's 22 extensive legal argument, Mr. Leslie, would you like 23 additional time to prepare? 24 MR. LESLIE: Madam Chair, I have discussed 25 this with the gas companies. To be frank, apart from 26 the submissions on behalf of AMO, everything we heard 27 today we heard for the first time. 28 We think we can still file by the fourth. We 199 WRIGHT/FOULDS/BRENDON/VANINI 1 don't think that's going to be a problem. The one thing 2 that did occur to us though was if people are filing 3 additional documents, we would like to have those by the 4 end of the week so that we can integrate that into 5 whatever comments we make on what we have heard today 6 from Ottawa-Carleton and Mr. Roman. 7 THE PRESIDING MEMBER: Thank you. 8 Unfortunately, of course, now Ottawa-Carleton have -- 9 MR. LESLIE: Well, they will read the 10 transcript. We will communicate with them. 11 THE PRESIDING MEMBER: You will communicate 12 with them. Thank you. 13 The purpose of this is it's not a hearing, 14 it's not a proceeding, it's merely enlightening the 15 Board so that the Members of the Board who are here will 16 be making a recommendation to the full Board based on 17 the submissions that we have heard as to our recommended 18 changes to the proposed model agreement. 19 That being the case, we are very open to 20 process and to additional time if it is required. 21 MR. LESLIE: Well, there was some legal 22 arguments today from Mr. Roman that need to be 23 addressed. 24 THE PRESIDING MEMBER: I think that's right, 25 Mr. Leslie. 26 Continuing on. Ms Spoel. 27 MEMBER SPOEL: I have a couple of questions 28 about insurance that I just wanted to clarify. 200 WRIGHT/FOULDS/BRENDON/VANINI 1 Where I understand the problem is if you -- if 2 there is a problem with let's say a gas leak or 3 something, that the municipality typically is named as 4 an additional defendant in a lawsuit because they own 5 the roadway in which the accident or the incident, let 6 me call it that, the incident occurred and they are as a 7 matter as the owner -- 8 MR. WRIGHT: As a matter of course. 9 MEMBER SPOEL: -- they get named whether there 10 is any real claim against the municipality or not and 11 that is why the municipality is seeking to be an 12 additional named insured on the insurance? 13 MR. WRIGHT: That is correct. 14 MEMBER SPOEL: Okay. I just wanted to clarify 15 that. 16 With respect to the clause about the warranty 17 as to the condition of the highway, I wondered, 18 Mr. Wright, whether you would -- your client would be 19 adequately served in your view if the words at the end 20 about using it "as is at their own risk" were taken out 21 and it merely stated that the approval was not to be 22 taken as a representation or a warranty, which would 23 leave open the question of whose ultimate responsibility 24 it is -- 25 MR. WRIGHT: Yes. I think the "as is where 26 is" is perhaps gilding the lily a little bit. I think 27 the point is -- you have taken the point. 28 And let me go back just to answer a little 201 WRIGHT/FOULDS/BRENDON/VANINI 1 bit. It occurred to me on the question of insurance. 2 In the normal course insurance -- municipal 3 insurance companies eventually recover over a period of 4 time the costs that are going -- that go out on that 5 municipality. You know it may be five years or six 6 years but eventually they recover the costs that are 7 laid out. Some of the costs that are laid out, in fact, 8 often the majority of the costs that are laid out are 9 the costs of legal defence. So the key is to keep the 10 municipal insurance counsel out of the equation and to 11 let the whole thing be covered by the people who have 12 the primary, and in the situation that we are 13 postulating, the only responsibility. 14 MEMBER SPOEL: No, I assumed that that was one 15 of the advantages. 16 Thank you. Those are all the questions I 17 have. 18 THE PRESIDING MEMBER: Mr. McCann. 19 MR. McCANN: Yes, just a couple of questions 20 for Mr. Wright. 21 We have heard considerable discussion today, 22 Mr. Wright, about section 220.1 of the Municipal Act. 23 But are there other authorities in the Municipal Act or 24 other legislation which municipal governments might use 25 to impose fees in the nature of permit fees on gas 26 utilities if the model franchise agreement were amended 27 to allow for permit fees, or is it all section 220.1 28 now? Is that the whole game? 202 WRIGHT/FOULDS/BRENDON/VANINI 1 MR. WRIGHT: Well, Mr. McCann, it seems to me 2 that the possibility that permit fees might be charged 3 was extant 13 years ago when we had the discussion or 4 that notwithstanding clause wouldn't have been in there. 5 Now, where one finds the authority for permit 6 fees in the Municipal Act at that time, which is sort of 7 the question is -- 8 MR. McCANN: Yes. 9 MR. WRIGHT: -- really has to be founded on an 10 adjunct to the authority to operate roads. And it would 11 have been nebulous, it would have been -- it would have 12 been something that some road superintendent or county 13 engineer somewhere would have said, "Want to get in my 14 road, I got to have my people process the application. 15 That is going to cost you 50 bucks." 16 MR. McCANN: So it would be fair to say then 17 that the situation is sort of uncertain in the past. 18 But in the future if the model franchise agreement were 19 modified as AMO would like, the fees that we are talking 20 about, the charges that we are talking about, the permit 21 fees would be imposed under section 220.1. I mean that 22 would be cited as the legal authority to do so, not 23 other sections of the Municipal Act or other 24 legislation? 25 MR. WRIGHT: I think that is right. And while 26 I may stand to be corrected by others with more 27 extensive knowledge than I, any permit fees that I have 28 been familiar with have been done as a matter of almost 203 WRIGHT/FOULDS/BRENDON/VANINI 1 administrative decision making rather than to be found 2 entrenched in some bylaw, probably because some 3 solicitor who would have to find the authority to pass 4 the bylaw couldn't find it. 5 MR. McCANN: Yes, I know. I know. I know the 6 limitations of legal advice all too well. If there is 7 anything, you know, you think further thoughts about 8 that, you might include them in the submission on 9 February the 4th. 10 MR. WRIGHT: All right. 11 MR. McCANN: There is one other area -- now, 12 here again I want to make reference to the model 13 franchise agreement as it currently exists. Do you have 14 a copy of that? 15 MR. WRIGHT: Yes, I have. I am looking at 16 Schedule "A" to the AMO submission, but you give me the 17 clause and I will find it. 18 MR. McCANN: All right. It is part 2, clause 19 3. It is the duration of the agreement and the renewal 20 procedure. 21 MR. WRIGHT: Part 2. Yes. That is the 22 footnote. 23 MR. McCANN: Yes, that is right. It is the 24 footnote that I want to refer to. So this is paragraph 25 3. It is entitled "Duration of Agreement and Renewal 26 Procedures" and it says: 27 "The rights hereby given and granted 28 shall be for a term of * years from the 204 WRIGHT/FOULDS/BRENDON/VANINI 1 date of final passing of the By-law." 2 And then the footnote, which I think is part of the 3 agreement and which was part of the negotiations in 1987 4 says: 5 "The rights given and granted for a first 6 agreement shall be for a term of 20 7 years. The rights given and granted for 8 any subsequent agreement shall be for a 9 term of not more than 15 years, unless 10 both parties agree to extend the term to 11 a term of 20 years maximum." 12 So leaving aside the first agreements and 13 concentrating on the renewal, it suggests that 15 years 14 is what might be called the default these days, I guess, 15 but there can be an agreement to extend the term to 20 16 years. 17 My question is, if that footnote were simply 18 left untouched, would AMO be content? Because that 19 seems to be the impression I got from listening to what 20 you were saying today although I got a different 21 impression from reading AMO's submission, which 22 suggested to me that you were seeking something more in 23 the nature of a 10-year renewal period. I am trying to 24 pin AMO down, I guess, to put it bluntly on what your 25 submission is on this. 26 MR. WRIGHT: No, no, that is fine. 27 Mr. Foulds, is trying to help me find the provision of 28 or a part of EBO 125 where -- 205 WRIGHT/FOULDS/BRENDON/VANINI 1 MR. FOULDS: The position of the Board was 10 2 to 15 years -- 3 MR. WRIGHT: For renewal. 4 MR. FOULDS: -- EBO 125 for renewals. 5 MR. McCANN: Okay. That is not quite what 6 this footnote says though. 7 MR. FOULDS: It is up to a maximum of 15 8 years. 9 MR. McCANN: No, it shall be for a term of not 10 more than 15 years. 11 MR. FOULDS: Not more than. So the 10 to 15, 12 the proposal from the Board is what we allude to. 13 MR. McCANN: Okay. But I guess -- I mean, you 14 are not -- you therefore are not asking the Board to 15 change this footnote? 16 MR. WRIGHT: I think that is fair. 17 MR. McCANN: So there would be no change in 18 the model franchise agreement on this issue of duration 19 in that scenario? 20 MR. WRIGHT: And I think the point that is 21 made is if some municipality came forward and said I 22 read from McAuley back in this and he said 10 to 15 23 years and I want 10, that they won't be dismissed out of 24 hand. 25 MR. FOULDS: Well, municipality is a good 26 example. I think that was the argument there -- 27 THE COURT REPORTER: Sorry, Mr. Foulds, you 28 are not coming across on the microphone. 206 WRIGHT/FOULDS/BRENDON/VANINI 1 MR. FOULDS: In the Innisfil situation I 2 believe it was a 10-year renewal after hearing the 3 arguments. And this -- and the Board in EBO 125 said a 4 10 to 15 year period seems reasonable for a renewal. 5 The footnote says up to 15 years. 6 MR. McCANN: I'm sorry to be so pedantic about 7 this. But I am getting the impression that there is in 8 fact no disagreement on the drafting of this footnote 9 between the Gas Companies and AMO and therefore my, you 10 know, recommendation might be we just take it off the 11 issues list. Because we are here today to talk about 12 changes to the model franchise agreement and I don't 13 hear anybody recommending a change to this particular 14 clause. 15 But there may be some variation in renewal 16 terms in different -- 17 MR. WRIGHT: I think we can't take it off the 18 table having regard for what we heard from 19 Ottawa-Carleton. I don't think we should presume to 20 speak as if we can sell, you know, they said five years 21 but don't mind them. 22 I mean AMO's position is this footnote is 23 fine, have regard to what was said back here that you 24 could go to 10. But we are not in a position to and 25 wouldn't suggest that Ottawa-Carleton should, that we 26 are in a position to negotiate away their submission. 27 MR. McCANN: That is fine. Thank you very 28 much. Those are all my questions, Madam Chair. 207 WRIGHT/FOULDS/BRENDON/VANINI 1 THE PRESIDING MEMBER: Thank you, Mr. McCann. 2 Mr. Leslie, to the extent that Mr. Wright has 3 raised two additional issues dealing with the mechanisms 4 for existing agreements to be traded in and the ADR 5 mediation issues number 11 and 12 and has submission on 6 it, do the utilities have any comments on those points? 7 MR. LESLIE: I certainly don't at this time. 8 We will put that in our written material that we are to 9 file by next Friday I guess it is, a week Friday. 10 THE PRESIDING MEMBER: Mr. Wright, you raised 11 a number of issues with respect to ADR and the utility 12 of ADR and coming to -- helping parties to come to an 13 agreement. And I guess we would like to reiterate that 14 we certainly support the negotiation process. The Board 15 has supported it all along. The Board commends the 16 parties to the extent they have been able to settle on 17 certain issues and we would like to encourage the 18 parties, notwithstanding the oral presentations that we 19 have heard today to continue to negotiate in the 20 interim. The more issues you take off the table, the 21 fewer submissions you will have to make, the less issues 22 there will be for us to decide. There is nothing to 23 preclude the parties from continuing to negotiate and we 24 would encourage you to do that. 25 If you require the assistance of a member of 26 the Board's staff, we are willing to make Board staff 27 available to assist you in the ADR process. It had been 28 our understanding that Board staff were encouraged not 208 WRIGHT/FOULDS/BRENDON/VANINI 1 to be part of this process. For whatever reason, I 2 don't know. But if the parties would wish Board staff 3 to be made available, then I suggest that you should 4 talk probably with -- Mr. McCann would be a good person 5 to work with to continue on with your negotiations. 6 I would like to reiterate what I said earlier 7 that we certainly appreciate all the time and effort 8 that the parties have spent in preparing their 9 submissions and their oral presentations. It certainly 10 has been enlightening I think for all members of the 11 Board present here. And we would like to remind you 12 again that written submissions are due on February the 13 4th subject to obtaining all of the additional 14 information by this February -- by this Friday. Thank 15 you. It is late in the afternoon and I think everyone 16 is thinking it is late in the afternoon. 17 So that having been said -- oh, I would like 18 to, before I forget, thank Board staff as always and 19 thank the Court Reporter for their assistance here 20 today. And that being said we are now adjourned. Thank 21 you. 22 --- Whereupon the hearing concluded at 1705 23 24 25 26 27 28 209 1 INDEX OF PROCEEDINGS 2 PAGE 3 Hearing commenced at 0935 3 4 Presentation by Mr. Davies and Mr. Adie 5 5 on behalf of the Consumers Gas, Union Gas 6 and Natural Resource Gas 7 Questions by the Board 23 8 Question by Board counsel 33 9 Further questions by the Board 38 10 Recess at 1050 51 11 Resumed at 1110 51 12 Presentation by Mr. McArthur and Mr. Ross 51 13 on behalf of the Regional Municipality 14 of Ottawa-Carleton 15 Questions by the Board 77 16 Questions by Board counsel 86 17 Further questions by the Board 90 18 Luncheon recess at 1232 105 19 Resumed at 1350 105 20 Presentation by Mr. Roman, Ms Searles-Kelly 105 21 and Mr. Koropeski on behalf of the 22 City of Toronto 23 Questions by the Board 142 24 Questions by Board counsel 148 25 Further questions by the Board 155 26 Recess at 1534 169 27 Resumed at 1550 169 28 210 1 INDEX OF PROCEEDINGS 2 PAGE 3 Presentation by Mr. Wright, Mr. Foulds, 169 4 Mr. Brendon and Ms Vanini on behalf of 5 the Association of Municipalities of Ontario 6 Questions by the Board 193 7 Questions by Board counsel 201 8 Hearing adjourned at 1705 208