1 1 RP-1999-0049 2 3 THE ONTARIO ENERGY BOARD 4 5 IN THE MATTER OF the Ontario Energy Board Act, 1998, 6 S.O. 1998, c. 15 (Sched. B); 7 8 AND IN THE MATTER OF an Application by the Independent 9 Electricity Market Operator for an order or orders 10 approving its proposed expenditures and revenue 11 requirement and fixing the fees which it may charge for 12 the year 2000. 13 14 15 16 17 B E F O R E : 18 P. VLAHOS Vice Chair and Presiding Member 19 A. BIRCHENOUGH Member 20 21 Hearing held at: 22 2300 Yonge Street, 25th Floor, Hearing Room No. 2 23 Toronto, Ontario on Thursday, June 15, 2000, 24 commencing at 0903 25 26 27 FEE DESIGN ISSUE HEARING 28 VOLUME 1 Les Services StenoTran Services Inc. 613-521-0703 2 1 APPEARANCES 2 MICHAEL LYLE/ Board Staff 3 HIMA DESAI/ 4 SUZANNE TONG 5 6 DAVID BROWN/ Independent Electricity Market 7 KEITH BRYAN Operator (IMO) 8 9 JAMES E. FISHER/ Independent Power Producers' 10 ROBERT CARY Society of Ontario (IPPSO) 11 12 JOHN RATTRAY/ Ontario Power Generation 13 ANDREW BARRETT (OPG) 14 15 MAURICE TUCCI Municipal Electric Association 16 (MEA) 17 18 19 20 21 22 23 24 25 26 27 28 Les Services StenoTran Services Inc. 613-521-0703 3 1 Toronto, Ontario 2 --- Upon commencing on Thursday, June 15, 2000 3 at 0903 4 THE PRESIDING MEMBER: Good morning, everyone. 5 My name is Paul Vlahos and with me is Mr. Art 6 Birchenough, comprising the Panel for this proceeding. 7 The Board is sitting today to consider the fee 8 design issue of the Independent Electricity Market 9 Operator's RP-1999-0049 application, as indicated in the 10 Board's Procedural Order No. 5 which was issued with 11 respect to this proceeding. 12 The RP-1999-0049 application seeks a Board 13 order approving the IMO's proposed expenditures and 14 revenue requirement and fixing the fees which you may 15 charge for the year 2000. 16 Today we are addressing only the fee design 17 issue. That is Category E of the family of issues. 18 Mr. Lyle, are we properly constituted to 19 proceed? 20 MR. LYLE: Yes, Mr. Chair, we are. Affidavits 21 of service have been received, and Board orders for 22 publication and service have been complied with. 23 December 21, 1999 was the date of 24 intervention. The affidavits of service and publication 25 are dated January 5, 2000. 26 THE PRESIDING MEMBER: Thank you, Mr. Lyle. 27 Could I have appearances, please? 28 MR. BROWN: Good morning, Mr. Vlahos. My name Les Services StenoTran Services Inc. 613-521-0703 4 1 is David Brown. I am appearing today as counsel for the 2 IMO. 3 With me is Mr. Keith Bryan from Regulatory 4 Affairs at the IMO. We will be swearing in as a witness 5 Mr. Amir Shalaby, who is the Head of the Regulatory 6 Section at the IMO. 7 THE PRESIDING MEMBER: Thank you, Mr. Brown. 8 MR. FISHER: Good morning, Mr. Vlahos. My 9 name is Fisher, first name James. With me is Robert 10 Cary. We are here on behalf of the Independent Power 11 Producers' Society of Ontario. 12 THE PRESIDING MEMBER: Thank you, Mr. Fisher. 13 MR. RATTRAY: John Rattray and Mr. Andrew 14 Barrett on behalf of Ontario Power Generation. 15 THE PRESIDING MEMBER: Thank you, Mr. Rattray. 16 Anyone else? 17 There being no response, Mr. Lyle...? 18 MR. LYLE: Yes. Mike Lyle representing Board 19 Staff. With me today are my colleagues Hima Desai and 20 Suzanne Tong. 21 THE PRESIDING MEMBER: Thank you. 22 The first matter to deal with, then, is the 23 proposed Settlement Agreement. I do have a copy which 24 was received June 13th. Is there an update to this or 25 is this the final document? 26 MR. BROWN: Evidently there was an update to 27 that, Mr. Vlahos, which was filed yesterday with the 28 Board. We do have copies here. Perhaps it would be Les Services StenoTran Services Inc. 613-521-0703 5 1 best to -- 2 MR. FISHER: There are copies of that document 3 on the dias, Mr. Chair, a two-page document. 4 THE PRESIDING MEMBER: Is this the two-page 5 document? 6 MR. FISHER: That's correct. 7 MR. LYLE: Well, there is a covering letter 8 with it. 9 THE PRESIDING MEMBER: There is one page and 10 there is just a cover letter. At page 8 of 8 of the 11 Settlement Agreement it is amended? 12 MR. BROWN: That's correct, and the amendments 13 are shown with the lines on the right. 14 THE PRESIDING MEMBER: Before the Board 15 pronounces on the agreement can someone just tell us 16 quickly what the amendments are. 17 MR. BROWN: The amendments on page 8 of 8, 18 Mr. Vlahos, reflect Issue E.4, the future evolution of 19 IMO fees. As you will see, the third paragraph on that 20 page, there had been consensus among many of the 21 participants that we would have to later review and 22 refine the IMO's fee proposal. The particular proposal 23 was that that review could wait until at least two years 24 of experience subsequent to market opening had taken 25 place, and then with that amount of information under 26 everyone's belt a review could be done. 27 The amendment indicates that IPPSO was unable 28 to agree with that particular proposal pending the Les Services StenoTran Services Inc. 613-521-0703 6 1 outcome of this hearing concerning the use of AQEW. 2 So there is a linkage between IPPSO's view on 3 the usage fee and their view on the future evolution of 4 IMO fees. One is certainly contingent on the other. 5 THE PRESIDING MEMBER: Thank you. 6 I note here that IPPSO is in disagreement 7 still. 8 MR. BROWN: On the usage fee, that is correct, 9 Mr. Vlahos. 10 THE PRESIDING MEMBER: Then, on that basis, 11 the Board accepts the Settlement Agreement as filed and 12 as amended this morning, subject to the usual caveats 13 that significant external events could require further 14 consideration and that the Board's decision on the 15 contested issue or issues could affect the settlement of 16 certain issues that have been agreed to. 17 This is just the normal acceptance conditions 18 that the Board puts on those Settlement Agreements. 19 The plan for today is to hear the contested 20 issue. I suspect there will be some cross-examination. 21 Hopefully, we will finish this morning. 22 The Board cannot sit beyond 12:30 today. 23 Should it be necessary to continue, we just don't have a 24 date, but it is my hope that we can finish today, the 25 first part of the day today. 26 With that, then, Mr. Brown, perhaps I will 27 give it over to you. 28 MR. BROWN: Yes, Mr. Vlahos. Just to let you Les Services StenoTran Services Inc. 613-521-0703 7 1 know what I propose to do, since there has been 2 settlement on a large number of the issues under fee 3 design, the major issue on which there is dispute is the 4 usage fee and in particular the charge determinate for 5 the billing of the usage fee. 6 What I propose to do is to have Mr. Shalaby 7 sworn as a witness. I have a brief examination in-chief 8 that I propose to do of him focusing on the issue in 9 dispute and hopefully through that to clarify issues for 10 the Board. Once we have gone through that, Mr. Shalaby 11 will be available for cross-examination by the parties. 12 Perhaps with that, Mr. Vlahos, I could ask 13 Mr. Shalaby to be sworn. 14 THE PRESIDING MEMBER: That's fine, Mr. Brown. 15 I neglected to point out that we would like to 16 finish today. That would include also oral argument on 17 the issue? 18 MR. BROWN: Correct. 19 THE PRESIDING MEMBER: So there will be an 20 appropriate break for a number of minutes, and then we 21 will come back and hear submissions on the issue. 22 Mr. Shalaby, would you please come up. 23 SWORN: AMIR SHALABY 24 THE PRESIDING MEMBER: Go ahead, Mr. Brown. 25 MR. BROWN: Thank you very much, Mr. Vlahos. 26 EXAMINATION-IN-CHIEF 27 MR. BROWN: Mr. Shalaby, you are the Manager 28 of Regulatory Affairs at the Applicant, the Independent Les Services StenoTran Services Inc. 613-521-0703 8 SHALABY, in-ch (Brown) 1 Electricity Market Operator and have held that position 2 since June of 1999? 3 MR. SHALABY: That is correct. 4 MR. BROWN: Your curriculum vitae, I 5 understand, has been filed with the Board. I don't know 6 whether it has been assigned an exhibit number. If it 7 has not, perhaps we could do that now. 8 MR. LYLE: Mr. Shalaby's curriculum vitae is 9 included in a larger package of material that is with 10 you on the dias, Mr. Chair, another letter dated June 11 14, 2000, and Mr. Shalaby's curriculum vitae is towards 12 the end of that batch of documents. 13 Do you just wish the curriculum vitae to be 14 marked as an exhibit in the hearing, Mr. Brown? 15 MR. BROWN: That is correct. 16 MR. LYLE: It has been prefiled and given an 17 exhibit number. 18 MR. BROWN: Okay, fine. 19 THE PRESIDING MEMBER: We received it 20 yesterday, so it has been prefiled. 21 MR. BROWN: Yes. 22 With that, then, Mr. Shalaby, could you please 23 identify for the Board what portions of the IMO's 24 prefiled evidence you were involved in preparing. 25 MR. SHALABY: I was involved in preparing the 26 introduction to the evidence and Section E on fee 27 design. 28 MR. BROWN: Do you have any additions or Les Services StenoTran Services Inc. 613-521-0703 9 SHALABY, in-ch (Brown) 1 changes which you wish to make to that evidence? 2 MR. SHALABY: There are two small changes to 3 Section E. One is on page 4 of 8, now Exhibit E1, 4 tab 1 -- it is of a very minor nature, but just to be 5 complete -- under the heading "Implementation of Fee 6 Schedules" -- 7 THE PRESIDING MEMBER: Sorry, what page are we 8 at? 9 MR. SHALABY: Page 4 of 8. 10 THE PRESIDING MEMBER: Thank you. 11 MR. SHALABY: Under the "Implementation of Fee 12 Schedule" the line citing in Chapter 11, 1.1.1.111, that 13 rule number has been changed as new definitions enter 14 the market rules. It should now read 1.1.1.126. 15 A similar change is on page 5, in the second 16 line under the heading "The Usage Fee", and it is 17 No. 1.1.1.281. It should be, instead of 281, 326. 18 This really reflects additional definitions in 19 the chapter that includes definitions, and those two 20 specific definitions come later in the newer version of 21 the market rules. 22 A third change has to do with Exhibit E2. 23 Exhibit E2 is a single page. Under "Usage Fee", 24 Exhibit 2 now reads: 25 ".872 dollars per megawatt hour fee 26 payable by wholesale customers -- " 27 I wish to insert the words: 28 "-- and market participants" (As read) Les Services StenoTran Services Inc. 613-521-0703 10 SHALABY, in-ch (Brown) 1 MR. BROWN: Actually, its "or market 2 participants". 3 MR. SHALABY: "or market participants". 4 MR. BROWN: There was an update filed on June 5 the 13th of this year of Exhibit E2, tab 1, Schedule 1. 6 Does that incorporate that change? 7 MR. SHALABY: That's correct. 8 The words "wholesale customers or market 9 participants", so those three words "or market 10 participants" are inserted. 11 MR. BROWN: Just so the record is clear, 12 Mr. Shalaby, an additional filing was also made on June 13 the 13th, 2000, which has been marked as Exhibit E2, tab 14 1, Schedule 2, entitled "Additional Provisions in the 15 Implementation of the IMO Fees". 16 MR. SHALABY: That is the page that explains 17 the rationale for adding those three words "or market 18 participants" to make it consistent with and explain 19 further the concept of the charge determinant. It's 20 really to line up the charge determinant with the 21 definition of "customer" who pays the charge 22 determinant. The exact Schedule 2 really explains the 23 reasons for that. 24 MR. BROWN: Subject to the changes that you 25 have just outlined, do you adopt that evidence as your 26 own for the purposes of this proceeding? 27 MR. SHALABY: Yes, I do. 28 MR. BROWN: Now, the parties to this Les Services StenoTran Services Inc. 613-521-0703 11 SHALABY, in-ch (Brown) 1 proceeding engaged in a Settlement Conference and we 2 have marked and dealt with the Settlement Agreement. 3 One issue remains in dispute and that is IPPSO disagrees 4 with the IMO's proposal on the selection of the charge 5 determinant for the usage fee and the related issue of 6 the definition of which participant should pay the usage 7 fee. 8 I would like to ask you a number of questions 9 which are directed to that particular issue. First, 10 perhaps by way of general introduction, could you 11 explain to the Board the IMO's proposal for the charge 12 determinant for the usage fee. 13 MR. SHALABY: Yes, I can. 14 The charge determinant for the user fee has 15 the acronyms AQEW and stands for allocated quantity of 16 energy withdrawn -- allocated quantity for energy 17 withdrawn. It is defined specifically in the market 18 rules. It's a quantity that intended to permit certain 19 flexibilities in the markets, primarily those who do not 20 have interval meters. 21 So the question is: Why an allocated quantity 22 of energy withdrawn? Why not a meter quantity of energy 23 withdrawn? The answer is if everybody had interval 24 meters, we would not need the allocation process. 25 The allocation process is surrogate or 26 substitute for interval meters. The decision was made 27 by the Market Design Committee and designers later on to 28 permit wider participation in the market and not Les Services StenoTran Services Inc. 613-521-0703 12 SHALABY, in-ch (Brown) 1 restrict participation by insisting on interval meters, 2 that are expensive to install. 3 So a calculation will substitute for an 4 interval meter. That's the reason for introducing that 5 quantity and that provision in the market rules, is to 6 permit wider participation for those who don't have 7 interval meters. It also permits the participation of 8 what has become known as the embedded customers. 9 An embedded customer is somebody who is not 10 directly connected to the IMO control grid but is deeper 11 in or connected to somebody upstream who is connected to 12 the IMO control grid. The allocation then permits 13 assignment of losses, distribution losses, in addition 14 to their meter reading. Without the allocation, those 15 embedded customers will not be able to directly 16 participate and the losses will have to be dealt with 17 another way. 18 The third reason for introducing this 19 allocation is to permit aggregation of loads throughout 20 the service territory. Somebody can be paying the bills 21 for a particular store or chain of factories that are 22 located in different cities: a branch in Bracebridge, a 23 branch in Barrie, a branch in Toronto. You can 24 aggregate all of that and get the allocation factor for 25 all three of them sent to a particular retailer or 26 merchant to settle for this. 27 So really the allocation process is a 28 substitute for metering when metering doesn't exist, it Les Services StenoTran Services Inc. 613-521-0703 13 SHALABY, in-ch (Brown) 1 permits flexibilities and permits wider participation in 2 the marketplace. 3 Those who have interval meters and are 4 directly connected to the IMO grid, the meter quantities 5 and the allocated quantities will be identical. That, 6 in brief, is a description of what that quantity is and 7 the rationale for introducing it in the marketplace. 8 MR. BROWN: If I could ask you, Mr. Shalaby, 9 to turn to the prefiled evidence, in particular Exhibit 10 E1, tab 1, Schedule 1, page 6 of 8. The concept you 11 were just referring to there, the AQEW, is defined on 12 that page of the prefiled evidence. 13 MR. BROWN: It is. 14 MR. SHALABY: That is a definition which 15 appears in the market rules as they have been published 16 by the IMO and approved by the Minister. 17 MR. SHALABY: That is correct. 18 MR. BROWN: And am I correct in saying that 19 the concept of AQEW is one which is used as part of the 20 formulas for the settlement of the real time markets 21 under the market rules? 22 MR. SHALABY: That is correct. That heading 23 is in section 3 of that chapter which is entitled 24 precisely that, "Settlement for the real time market". 25 "Determination of already settled amounts" is the 26 heading of section 3. 27 MR. BROWN: So the AQEW is not a concept that 28 has been designed specifically for recovery of the IMO Les Services StenoTran Services Inc. 613-521-0703 14 SHALABY, in-ch (Brown) 1 fee. It's designed for a much broader use. 2 MR. SHALABY: It is central to the design of 3 the settlement of the IMO markets. The energy traded 4 and consumed and delivered in the marketplace will all 5 be settled using that quantity. We merely wanted to 6 latch on to a quantity that is well defined and well 7 tracked and preserved in the settlement system, and we 8 tagged on our usage fee to the energy withdrawn 9 quantities that are defined in the marketplace. 10 So it is correct. It is not designed 11 specifically for IMO fee purposes. It is designed 12 primarily for energy withdrawn purposes, and we are 13 tagging along with that to get our fees. 14 MR. BROWN: Is the AQEW a concept that has 15 already found its way into the software which the IMO 16 has developed and is in the process of developing for 17 settlement of the real time markets? 18 MR. SHALABY: Yes. 19 MR. BROWN: Now, Mr. Vlahos, Members of the 20 Panel, what I thought might be appropriate at this time 21 is to ask Mr. Shalaby to perhaps illustrate, by 22 reference to some specific fact situations, how the AQEW 23 would work in practice. 24 For that purpose, Mr. Shalaby, I understand 25 that you have prepared two sheets which illustrate four 26 examples. 27 MR. SHALABY: That is correct. 28 MR. BROWN: I don't know, Mr. Vlahos, whether Les Services StenoTran Services Inc. 613-521-0703 15 SHALABY, in-ch (Brown) 1 copies of those have been put on the dais. 2 THE PRESIDING MEMBER: Those are on the dais. 3 MR. BROWN: The two handwritten sheets, IMO 4 fees, on one page there is illustrations, Examples 1 and 5 2. Examples 3 and 4 are on the other one. 6 THE PRESIDING MEMBER: Yes, we do have them. 7 MR. BROWN: And copies of those are at the 8 side board. 9 MR. LYLE: We will mark this document as 10 Exhibit K1.1. 11 EXHIBIT NO. K1.1: Illustration of the 12 Allocation (AQEW) Process 13 MR. BROWN: I will just wait until everyone 14 has the copies. 15 --- Pause 16 MR. BROWN: What I would ask you to do, then, 17 Mr. Shalaby, is to go through the four examples that you 18 have sketched out on these two sheets and explain how 19 the AQEW will be calculated in these different 20 situations. 21 MR. SHALABY: I will do so. 22 The purpose of the example is to provide the 23 Board with a better working appreciation of what these 24 quantities are and how closely they relate to the 25 metered quantities. 26 I have given examples of -- starting from the 27 simple and more straightforward metering and allocation 28 process and moving on to certain complexities to try and Les Services StenoTran Services Inc. 613-521-0703 16 SHALABY, in-ch (Brown) 1 capture how the concepts work as the complexities are 2 introduced. 3 I removed one complexity from the examples 4 that is not germane to the arguments being heard today, 5 and that is the complication of how losses are accounted 6 for. So for the purposes of this example, I would not 7 deal with losses because they will involve using 8 fractions to add up and so on, they complicate the issue 9 further and it's not what is at stake today and not what 10 is in debate today. 11 So with that proviso that losses are removed, 12 I will start with Example 1. 13 Example 1 shows a wholesale customer, for 14 example, General Motors, directly connected to the IMO 15 control grid to the high-voltage transmission. They 16 have an interval meter, the meter is denoted by the 17 circle with the word "meter" inside it, and the General 18 Motors' load for this example is the square box with the 19 word "load" inside it, and the number "100 megawatt 20 hours" is denoting what the load is at that particular 21 hour. 22 I'm going to use energy quantities because 23 AQEW is an energy measure and the energy units are 24 megawatt hours, in this case. 25 So, in this case, the customer is withdrawing 26 100 megawatt hours, the meter would read 100 megawatt 27 hours, the allocated quantities for energy withdrawal 28 would be 100 megawatt hours, so an identical meter Les Services StenoTran Services Inc. 613-521-0703 17 SHALABY, in-ch (Brown) 1 reading to the allocated quantities. It's a 2 straightforward case and there are no complications. 3 Let's move to Example 2. Example 2 is one of 4 the reasons for adopting the allocation methodology and 5 it is to serve embedded loads of customers, allow them 6 to participate directly in the IMO-administered market. 7 Example 2 shows three customers, denoted by 8 three loads, three squares: Load 1, 100 megawatt hours; 9 Load 2, 10 megawatt hours; Load 3, 20 megawatt hours. 10 And to add some variety, Load 3 does not have an 11 interval meter. 12 So we have some embedded loads, Loads 2 and 3; 13 one of them doesn't have an interval meter. 14 At this snapshot where Load 1 is withdrawing 15 100 megawatt hours, Load 2 10 megawatt hours, Load 3 16 megawatt hours, the meter readings are as follows: 17 Meter 1 would read 130, everything that Load 1 would 18 consume plus everything downstream of Load 1 connected 19 to it, which is Load 2 plus Load 3, so Meter 1 would 20 read 130; Meter 2 would read 10, the consumption of 21 Load 2; Load 3 does not have a meter. 22 The allocation process would work as follows: 23 Load 1 would get allocated 100 megawatt hours -- and the 24 way that would happen is by subtracting the reading on 25 Meter 2 and subtracting a factor that is being submitted 26 to the IMO to account for Load 3, to account for the 20 27 megawatt hours. So AQEW 1 would become 100 megawatt 28 hours; AQEW 2 would become identical to the meter Les Services StenoTran Services Inc. 613-521-0703 18 SHALABY, in-ch (Brown) 1 reading, 10 megawatt hours. AQEW 3 is a predetermined 2 factor quantity, 20 megawatt hours. 3 That example then shows how the allocation 4 process serves those who do not have an interval meter 5 and those who are embedded deeper into the system and 6 not directly connected to the IMO control grid. 7 Here we start to see the allocated quantities 8 deviating from the meter reading. More notably, the 9 Meter Reading 1 is 130; allocated quantity to Customer 1 10 is only 100. 11 MR. BROWN: Perhaps if I could stop you there, 12 or interrupt you there, Mr. Shalaby. 13 With the three different loads having three 14 different allocated quantities, what is the result when 15 it comes to billing by the IMO? Are each of the three 16 loads billed by the IMO? 17 MR. SHALABY: If the three loads are all 18 market participants, if they are true city market 19 participants, they would be billed directly by the IMO. 20 And, in fact, this arrangement then illustrates the 21 empowerment of embedded loads and non-metered loads to 22 be market participants and participate in the markets 23 administered by the IMO. 24 MR. BROWN: Thank you. 25 MR. SHALABY: They don't need to identify 26 themselves as market participants. They can choose to 27 be retail customers of Load No. 1 if they wish, or they 28 have the option of becoming market participants being Les Services StenoTran Services Inc. 613-521-0703 19 SHALABY, in-ch (Brown) 1 billed directly by the IMO for the services they 2 receive. 3 MR. BROWN: Okay. If you could proceed, then, 4 with the third example. 5 MR. SHALABY: Example 3 is one where we are 6 adding features to illustrate the concept. 7 I'm going to add a generator, what is -- and I 8 put between quotation marks a customer that has 9 self-generation -- "self-generation" meaning it's a 10 generating unit operating entirely within the premises 11 of that customer and supplying only the load of that 12 customer. So the diagram would show the load of 100 13 megawatt hours but a generator only feeding that load 14 only and it's feeding 30 megawatt hours into that load. 15 Under that circumstance, you would find that 16 the meter reading is 70 megawatt hours and the allocated 17 quantity to that load is 70 megawatt hours. Really, the 18 generation is invisible to the grid, invisible to the 19 IMO systems. What is read on the meter is what gets 20 allocated to that particular customer provided that that 21 generation is entirely serving that load and does not 22 participate in the IMO-administered markets. That is 23 the proviso. And that would be the point of 24 discussion -- that is the point that now -- I will go to 25 Example 4, which is a place where IPPSO and ourselves 26 had different views on the suitability of AQEW to settle 27 the IMO fees. 28 If I don't misrepresent IPPSO's views, that Les Services StenoTran Services Inc. 613-521-0703 20 SHALABY, in-ch (Brown) 1 situation, Example 3, really is serving the purposes of 2 metering and allocation and not disfavouring a customer 3 that has instituted generation for its own use. 4 Example 4 is probably the snapshot that 5 ourselves and IPPSO has a difference of view on the 6 suitability of AQEW, and for that reason I graph it in a 7 way to illustrate what the difference is between it and 8 Examples 4 and 3 and the issue would come about as to 9 whether it's appropriate to use AQEW or not. 10 Example 4, now, is what we have come to call 11 in the Settlement Conference a joint facility. On the 12 same premise, an organization has a load of 100 megawatt 13 hours, they have a generator of 30 megawatt hours, but 14 that generator is separately metered and is 15 participating in the IMO-administered markets, meaning 16 it's bidding its energy into the market, participating 17 in the larger market. 18 In that situation, whether generators have to 19 be metered and have to participate or is it a choice of 20 the enterprise to do that or not to do that, the market 21 rules at this time are still developing as to the 22 requirements for registration separately and metering 23 separately. But if a generator chooses to participate 24 in the IMO markets, then it would be metered separately 25 and the situation would be that Meter 1 will register 26 100 megawatt hours, and the AQEW would be 100 megawatt 27 hours, and Meter 2 would be 30 megawatt hours going in 28 the reverse direction as shown by the arrow and -- the Les Services StenoTran Services Inc. 613-521-0703 21 SHALABY, in-ch (Brown) 1 companion quantity to AQEW is called AQEI, energy 2 injection -- there would be a 30-megawatt energy 3 injection into the system. 4 So the difference between Examples 3 and 4 is 5 that in Example 3 the customer is being billed for 70 6 megawatt hours -- what has become known as net net 7 billing. I am not going to adopt the words "net" and 8 "gross", but I'm just translating in language that has 9 been used in other circumstances. 10 The allocation process is neither net nor 11 gross; it's allocated quantities, and we want to use 12 that terminology. 13 Certainly Example 3 is what IPPSO would call 14 appropriate net billing. 15 Example 4 is what might be called gross 16 billing, meaning the entire load is now being billed. 17 The allocated quantity represents the entire load. The 18 generation on site is not netted out or excluded from 19 either the metered quantity or the allocated quantity. 20 The reason for that is they are really treated 21 as two separate facilities: a generator and a load. 22 They share the same geographic location, but they 23 really -- for the purposes of the services that the IMO 24 provides, they are really two separate facilities. 25 There could well be one in Bracebridge and one in 26 Barrie. They just happen to be coincident 27 geographically, but they are imposing the level of 28 service that two separate facilities would, they receive Les Services StenoTran Services Inc. 613-521-0703 22 SHALABY, in-ch (Brown) 1 the levels of service that two separate facilities 2 would. 3 Those are the examples, and I submit that 4 Example 4 is the example where IPPSO finds the use of 5 AQEW on Meter 1 to be disadvantageous to its own 6 facility. 7 MR. BROWN: Perhaps I could just ask you a few 8 questions, further questions, on that Example 4. 9 The way you set up the schematic on 10 Exhibit K1.1 indicates that the output from the 11 generator is going to the IMO grid, and it's metered and 12 you have the AQEI as the metered quantity. Is it 13 possible, in this joint facility situation, that some of 14 the output of the generator would go over and be used to 15 service the load? 16 MR. SHALABY: If it is metered separately and 17 hooked separately to the grid, really it's a question 18 that is almost a philosophical question of: Did the 19 electrons coming from "G" serve the load or did other 20 electrons serve the load? The technical panel is going 21 to be wrestling with the issue of what should the 22 allocated withdrawal be deemed to be. The theory can go 23 either way. 24 Meter 1 and Meter 2, once you put different 25 meters and different breakers, they become more and more 26 separate facilities than they are joint facilities 27 serving the load. In my estimation, particularly in the 28 case of the IMO services, they become separate services, Les Services StenoTran Services Inc. 613-521-0703 23 SHALABY, in-ch (Brown) 1 separate facilities. 2 An example that has its limitations, as all 3 examples do, is if one is trading 100 shares of a 4 certain company, at ten o'clock calls his broker and 5 asks to buy 100 shares, then ten minutes later calls and 6 says sell 30 shares, the commission the broker would 7 charge would not be on 70 shares, it would be on the 8 full 100 for buying and on the full 30 for selling. 9 That is the example here. There is no netting 10 of anything. They are two separate services, two 11 separate facilities that incur registration, 12 administration, billing, dispatch, restoration plans and 13 all the other services that have to do with the IMO, 14 market rule-making, and so on. These are the services 15 offered, and they do not net out, given that the 16 megawatt hours are (off microphone...). 17 MR. BROWN: Did I understand you correctly, 18 Mr. Shalaby, to be saying that in Example No. 4 the 19 technical panel of the IMO is still debating and 20 considering the precise calculation of the AQEW in the 21 circumstances of that load shown in Example 4? 22 MR. SHALABY: My understanding is that they 23 are debating the requirements for separate registration 24 and the requirements for the treatment of a joint 25 facility, whether it is to aggregate the meter readings 26 or aggregate the allocated quantities or not. But the 27 more fundamental question, as I understood it from 28 Mr. Bob Cary representing IPPSO, who is a member on the Les Services StenoTran Services Inc. 613-521-0703 24 SHALABY, in-ch (Brown) 1 technical panel and better informed than I on this 2 matter, is that they are investigating the options of 3 registration. When do facilities have to be separately 4 registered and jointly registered (off microphone...) 5 MR. BROWN: Now, we have indicated in the 6 Settlement Agreement, and we will hear from my friends 7 from IPPSO, that IPPSO disagrees with the use of the 8 AQEW as the charge determinant because it does not 9 reflect the principle of charging on the volume of 10 wholesale energy delivered through the IMO-controlled 11 grid. I understand IPPSO states that in the cases of 12 these jointly registered facilities the total AQEW may 13 exceed the metered amount of energy delivered through 14 the IMO-controlled grid. How do you respond to that? 15 MR. SHALABY: It is really the Example 4, 16 whether you deem that the load has in fact consumed 70 17 or 100. That is the issue at stake here. 18 MR. BROWN: IPPSO suggested that the charge 19 determinant should be defined as something called net 20 load at the primary registered wholesale meter. I would 21 like to put two questions to you on that point. 22 First, does the settlement concept being 23 constructed by the IMO, based on the market rules, use 24 such a concept? 25 Second, would the use of net load at the 26 primary registered wholesale meter have any impact on 27 the flexibility of settling accounts for downstream 28 customers? Les Services StenoTran Services Inc. 613-521-0703 25 SHALABY, in-ch (Brown) 1 MR. SHALABY: First, whether the primary 2 registered wholesale meter -- that's a specific 3 description of a meter that is directly connected to the 4 IMO-controlled grid, and to settle on that amount would 5 not be consistent with what the market design is working 6 towards. Market design measures the primary registered 7 wholesale meter readings. It transforms those very 8 quickly into allocated quantities, and then the journey 9 begins with the AQEWs that we talked about. 10 So the quantities are certainly available. 11 The primary metered quantities are certainly available 12 within the IMO IT systems and within the IMO metering 13 and data storage. They are not used for settlement 14 purposes. They are intermediate quantities that are 15 corrected -- for example, if a meter is defective for a 16 certain hour or two, there are some interventions and 17 estimations that would smooth over the defection in the 18 meter or the malfunction in the meter and so on. 19 So metered quantities are certainly a main 20 ingredient in the settlement quantities but the 21 settlement occurs on the allocated quantities, not on 22 the metered quantities. That's the answer to the first 23 part of the question. 24 The other part was about...? 25 MR. BROWN: Flexibility on downstream -- 26 settling the accounts for downstream customers. 27 MR. SHALABY: Yes. If we imagine -- and 28 that's the example we used in the Settlement Conference, Les Services StenoTran Services Inc. 613-521-0703 26 SHALABY, in-ch (Brown) 1 that your question is -- a primary registered meter 2 could be, for example, Guelph Hydro directly connected 3 to the IMO-controlled grid. They have a primary meter. 4 Downstream of them are two or three other small 5 municipal utilities that are connected to Guelph Hydro, 6 embedded or downstream of Guelph Hydro. If we charge on 7 the primary meter reading that Guelph Hydro is 8 withdrawing and seeing on its own meter, charge our fees 9 on that, then they will in turn have to turn downstream 10 and collect what they paid on behalf of people 11 downstream of them. So they would have to go through a 12 process of billing the IMO fees or passing them on to 13 people downstream of them. 14 This perhaps is best illustrated in Example 2. 15 If you go back to Example 2, Meter 1 belongs to Guelph 16 Hydro. If they charge the IMO fees on the meter 17 reading, which is 130 megawatt hours, in this example 18 Guelph Hydro only consumed 100, so they in turn have to 19 go look for Load No. 2 and Load No. 3 and pass the IMO 20 fees to them and collect that money from them. In that 21 sense, there is an added step of collecting the fees by 22 Guelph Hydro for the purposes of the IMO, the fee (off 23 microphone...) 24 Now, that is one consideration that arises if 25 we charge our fees on the meter readings. 26 Another consideration that arises is that if 27 Load 2 in this example is a customer like the ones that 28 we are looking at in Example 3 or 4, has embedded Les Services StenoTran Services Inc. 613-521-0703 27 SHALABY, in-ch (Brown) 1 generation in it or has a joint facility -- assume 2 Customer 2 in Example 2 has a joint facility registered. 3 Then we are really passing this difficult issue of how 4 to allocate the feeds downstream. We are going to have 5 Guelph Hydro, or more properly perhaps the Retail 6 Settlement Code, decide on how to charge Load No. 2 that 7 has a joint facility. 8 The issue of how to charge a joint facility 9 does not go away. It just gets passed over from this 10 particular proceeding to another proceeding, namely the 11 Retail Settlement Code. There has to be rules, and how 12 do you pass the IMO fees to a facility that has joint 13 generation in load. So the problem doesn't go away. It 14 just gets passed on to another forum somewhere else to 15 be dealt with. 16 The third consequence of metering, charging on 17 the meter, is that the IMO now would lose a billing 18 relationship with its own participants, market 19 participants. 20 In Example 2, Load 2 and Load 3 are market 21 participants. They are in essence the customers of the 22 IMO services. We will not be billing our customers. We 23 will be billing a subset of our customers. We would 24 lose the billing relationship to our customers. That 25 limits the service relationship with our customers. 26 It also limits the evolution of the fee design 27 that the market very much expects the fees to evolve. 28 If we limit our billing to only Meter 1, then future Les Services StenoTran Services Inc. 613-521-0703 28 SHALABY, in-ch (Brown) 1 options having to do with unbundling, having to do with 2 different options, the fees of the IMO can perhaps be 3 limited if we limit it only to customers at the Meter 1 4 collection rather than all of our customers. If we 5 don't have access to all of our customers in terms of 6 billing, our future fee design is very much a 7 constraint. 8 MR. BROWN: I would like to turn, Mr. Shalaby, 9 to the related issue, that is, who is the customer? If 10 I could do that, in the fee schedule that the IMO has 11 filed, the proposed fee schedule that the IMO has filed 12 as part of its evidence -- this is Exhibit E2, tab 1, 13 Schedule 1, page 1 of 1. If you could perhaps turn that 14 up. It was the one filed June 13. 15 MR. SHALABY: I think I have memorized that by 16 now, but that's okay. I have it. 17 MR. BROWN: In any event, under the usage fee, 18 it proposes a usage fee which will be payable by 19 wholesale customers or market participants on all energy 20 withdrawn for use or sale in Ontario. 21 MR. SHALABY: That's correct. 22 MR. BROWN: Then it goes on to talk about 23 exports. But just talking about the domestic stuff, 24 could you please explain the difference between 25 wholesale customers and market participants as used on 26 this proposed tariff. 27 MR. SHALABY: Example 2 comes in handy again. 28 That's the best darn drawing I ever made in a long time. Les Services StenoTran Services Inc. 613-521-0703 29 SHALABY, in-ch (Brown) 1 Example 2 can illustrate the differences. 2 Load No. 1 is what is called a wholesale customer. A 3 wholesale customer is one that is directly connected to 4 the IMO control grid. Load No. 2 is not a wholesale 5 customer because it is not directly connected to the IMO 6 control grid but is a market participant. The 7 difference between a market participant and a wholesale 8 customer is whether they are directly connected to the 9 IMO control grid or not. 10 Now, the wholesale customer is a market 11 participant. They get two badges. They are both a 12 market participant and a wholesale customer, but Load 13 No. 2 and No. 3 are only market participants. They can 14 choose to be market participants or not. They can 15 choose to be a retail customer of Load No. 1, but the 16 example here makes the assumption that Loads No. 2 and 17 No. 3 made the choice to become market participants. 18 That is the distinction between market participants and 19 wholesale customers. 20 MR. BROWN: Now, in the Settlement Agreement 21 that has been filed with the Board, Exhibit I 1, tab 1, 22 Schedule 8, on page 4 of 8, under the section "Fee 23 design principles" there's sort of a summary of the 24 dispute that arose on this particular issue, and IPPSO 25 has proposed that the definition of the fee customer 26 should be changed so it simply matches that of a 27 transmission customer. 28 For the purposes of today's discussion, Les Services StenoTran Services Inc. 613-521-0703 30 SHALABY, in-ch (Brown) 1 IPPSO's proposal to bill transmission customers 2 equivalent to simply proposing what you have called 3 wholesale customers, that is those directly connected to 4 the IMO grid. 5 MR. SHALABY: That is the proposal as we 6 understood it at the Settlement Conference. If we do 7 that, then we have to use a quantity other than 8 allocated quantity. 9 MR. BROWN: My next question then would be why 10 doesn't the IMO propose to charge its usage fee simply 11 on wholesale customers? Why add market participants? 12 MR. SHALABY: The reason we feel strongly that 13 we want to deal directly with all the market 14 participants had been summarized by my previous answer. 15 I will go over the reasons quickly again. 16 Retaining the billing relationship with our 17 own customers and the pursuant options and offers for 18 fee evolution is one reason. The other reason is not 19 burdening the wholesale customers to go and collect fees 20 on our behalf from our own customers, so the Guelph 21 Hydro burden to go and catch our money for us from 22 people downstream. 23 The market rules empower the IMO to collect, 24 to have potential requirements, to resolve conflicts. 25 The market rules give the IMO all kinds of facilities to 26 collect our money and to -- to them and so on. Maybe 27 Guelph Hydro does or does not have similar powers or 28 similar facilities or similar authorities to collect Les Services StenoTran Services Inc. 613-521-0703 31 SHALABY, in-ch (Brown) 1 those kinds of monies. It certainly would be a burden 2 on them. 3 Thirdly, it is an inconvenience to the 4 aggregator. If we take an example of somebody who wins 5 the account for all the Zeller's store in Ontario, for 6 example, there are 93 of them, let's say, in 80 towns. 7 One of the elements of the allocation is that all of 8 these can be allocated into one bill and they can pay 9 one bill and one bill only. 10 If you pay the energy and other charges on 11 allocated quantities that can be aggregated into one 12 bill, that particular merchant or broker or trader would 13 then have to pay 93 different upstream utilities for the 14 IMO fees. I mean it's a nuisance. 15 The market design is trying to aggregate all 16 the charges on allocations and permit the aggregation of 17 bills. This now goes the other way of saying most of 18 the bill is aggregated with the exception of this one 19 fee. There may be other exceptions having to do with 20 the transmission fee now that can be a separate bill. 21 We did in fact come to the Board when the 22 transmission question was being debated, favoured even 23 the transmission charges being an allocated quantity for 24 the exact purpose and reason that you don't want to 25 inconvenience people downstream and you don't want to 26 burden people that are directly connected. 27 For other reasons, the transmission customers 28 were deemed to be appropriate for transmission charges. Les Services StenoTran Services Inc. 613-521-0703 32 SHALABY, in-ch (Brown) 1 After all, they are transmission customers. They 2 provide for more predictability of transmission revenue. 3 You can design your fees, the transmission fees, with 4 more stability having identified the physically 5 connected customers. 6 There were reasons to adopt that in an 7 transmission case. Those reasons are not present in an 8 IMO fee case. 9 In addition, the purpose of passing the buck 10 really to the Retail Settlement Code, the issue of 11 embedded generation or joint facilities is really going 12 to be removed. If this Board rules that we use a charge 13 determinant -- that is, the primary meter readings -- it 14 really passes that difficult issue that IPPSO is 15 wrestling with to another forum and does not resolve it. 16 Finally, all the IT systems and market rules 17 and so on have to be modified to correspond to that 18 change in philosophy. It can be done. It costs money 19 to do so. It takes time to do so. That is why the 20 market has responded to other requests when the reason 21 for doing so outweighs the burden of doing so. 22 In a nutshell, then, there are various reasons 23 that we think charging on the primary meter readings to 24 those directly connected to the IMO control grid are 25 still adequate and does not serve the purposes of 26 collecting the IMO fees. 27 MR. BROWN: And from what you have just said 28 then, you have summarized why on balance you prefer the Les Services StenoTran Services Inc. 613-521-0703 33 SHALABY, in-ch (Brown) 1 IMO's proposal to that advocated by IPPSO. 2 MR. SHALABY: Not totally. In addition 3 showing the difficulties or the shortcomings of charging 4 on the primary meter reads, I would like to indicate the 5 reasons for charging on the allocated quantities, maybe 6 summarize those as well, the reason the allocated 7 quantities serve the purpose of fee design for the IMO. 8 First of all, it is continuation of the 9 current practice. Today General Motors pays an abundant 10 energy bill. Whatever they pay for energy has tagged to 11 it a charge reflecting the costs of system control of 12 market events. 13 Let's take ourselves back two or three years. 14 An organization called the CMO, the central market 15 operator, was the predecessor of the IMO. The costs of 16 running the CMO was bundled with the energy. Whenever 17 anybody bought energy and paid for energy, they paid a 18 charge for the control functions that are part of the 19 IMO function today. That is precisely what we want to 20 continue. We want to tag along with energy withdrawn 21 from the network. 22 What we are proposing is, the allocated 23 quantities mirror and are the closest thing to the 24 existing practice. They are embedded in the energy 25 charge now, we wanted to tag along with the energy 26 charge tomorrow. 27 The allocated quantities are consistent with 28 the principle of user pay. The services provided by the Les Services StenoTran Services Inc. 613-521-0703 34 SHALABY, in-ch (Brown) 1 IMO are not reduced in the Example 4 by the presence of 2 netting out of energy flow on the transformer or on a 3 wire. The services provided by the IMO are not reduced 4 if you net out the energy flow. Our services have to do 5 with administering markets and designing market rules, 6 resulting disputes, surveillance of the market for 7 market power, monitoring, a whole lot of functions that 8 do not get reduced a whole lot if somebody is generating 9 on the same site as in Example 4. 10 It is not that somebody is not using the 11 service. They are fully using the service. In fact, 12 the joint facilities have a large number of market rules 13 and a large number of complexities arising from them. 14 One could argue that if we didn't have embedded 15 customers and if we didn't have joint facilities, market 16 rules could in fact be a lot simpler and the 17 implementation of them would be a lot simpler. 18 The concept of user pay is maintained and is 19 consistent with the allocation concept that we are 20 proposing. 21 The retention of the service provider 22 relationship with the customer, the IMO getting its own 23 customers, is something that I went over a couple of 24 times. The freedoms and degrees of freedoms allowed in 25 fee evolution in the future is in fact a feature to 26 adopting the allocated quantities. So we are dealing 27 directly with all of our customers that withdraw energy 28 and that permits us perhaps wider degrees of evolution Les Services StenoTran Services Inc. 613-521-0703 35 SHALABY, in-ch (Brown) 1 in the further unbundling, whether it is allocated 2 differently with each -- if we restrict ourselves to 3 some subset of the customers, then we would limit that 4 freedom. 5 The AQEWs or the allocated quantities do not 6 burden the intermediaries, do not burden Guelph Hydro to 7 go and chase after others to collect our fees. They do 8 not inconvenience the aggregator who has won the 93 9 Zeller stores accounts and resolving this issue here in 10 this hearing, in this proceeding, does not pass the buck 11 to the retail settlement arena to deal with the exact 12 issue again. 13 We would prefer to have this issue settled, 14 settled on the merits of consistency with user pay for 15 the service, consistency with its current practice, 16 consistency with the market design. It is for all these 17 reasons that we feel very strongly that the use of 18 allocation quantities is the right thing to do when 19 charging the IMO fees. 20 MR. BROWN: Thank you, Mr. Shalaby. That 21 concludes my examination-in-chief. Mr. Shalaby is 22 available for cross-examination. 23 THE PRESIDING MEMBER: Thank you, Mr. Brown. 24 Mr. Fisher, are you ready? 25 MR. FISHER: Could I have a moment, please, to 26 confer with Mr. Cary? 27 THE PRESIDING MEMBER: Certainly. 28 MR. FISHER: Thank you. Les Services StenoTran Services Inc. 613-521-0703 36 SHALABY, in-ch (Brown) 1 THE PRESIDING MEMBER: Mr. Rattray, are you 2 going to ask any questions of this witness? 3 MR. RATTRAY: If I may have a moment to confer 4 with Mr. Barrett. 5 --- Pause 6 MR. RATTRAY: Mr. Vlahos, we have no 7 questions. Thank you. 8 THE PRESIDING MEMBER: Thank you, sir. 9 --- Pause 10 MR. FISHER: If I could ask my friend Mr. Lyle 11 here -- we have a response diagram to Mr. Shalaby's and 12 we would like to have this copied for distribution, 13 please. 14 MR. LYLE: We will certainly undertake to do 15 that. 16 MR. SHALABY: Everybody is invited to do their 17 own diagrams now. 18 MR. LYLE: We are working on ours right now. 19 --- Pause 20 MR. FISHER: Mr. Vlahos, I do believe we are 21 ready to proceed. 22 THE PRESIDING MEMBER: Please go ahead. 23 CROSS-EXAMINATION 24 MR. FISHER: Good morning, Mr. Shalaby. 25 MR. SHALABY: Good morning. 26 MR. FISHER: The first thing I would like to 27 do is get clarification related to charges for 28 non-registered facilities and, in particular, if I could Les Services StenoTran Services Inc. 613-521-0703 37 SHALABY, cr-ex (Fisher) 1 take you to Exhibit A1, tab 1, Schedule 1, page 24. 2 MR. SHALABY: A1? 3 MR. FISHER: Yes. Tab 1, Schedule 1, page 24. 4 THE PRESIDING MEMBER: Mr. Fisher, I 5 apologize. We seem to be having technical difficulty 6 with the microphones, the acoustics. Can we just go off 7 the record for a minute. 8 --- Off record discussion 9 THE PRESIDING MEMBER: Can we try to speak 10 closer to the microphone and see if that works. It may 11 not be a technical difficulty, it may be simply a human 12 voice difficulty. 13 MR. FISHER: Certainly. 14 Do you want me to repeat the question for the 15 purposes -- 16 THE PRESIDING MEMBER: Would you, please. 17 MR. FISHER: Mr. Shalaby, I would like to talk 18 you, initially, about clarification of charges for 19 non-registered facilities and, in particular, take you 20 to Exhibit A1, Tab 1, Schedule 1, page 24. 21 Under the heading "5.2 Sources of Revenue", 22 the last bullet refers to usage fees from non-registered 23 market participants upon market opening and the further 24 collection, and then it's assumed that the revenues to 25 the IMO be the same whether the participant is 26 registered or not. 27 IPPSO has reviewed the responses to OHSC's 28 Interrogatory 8 and OPG's Interrogatory 2 and Les Services StenoTran Services Inc. 613-521-0703 38 SHALABY, cr-ex (Fisher) 1 understands that this is purely a temporary measure in 2 case certain parties cannot satisfy authorization and 3 registration procedures before market opening. 4 Would you confirm that this would apply only 5 to those participants who have not met their application 6 requirements at the time of opening? 7 MR. SHALABY: Yes. 8 MR. FISHER: In the long-term, if a wholesale 9 market participant load is served by self-generation 10 which is not separately registered, will the load be 11 obliged to pay a usage fee on the self-generated amount? 12 MR. SHALABY: Could you repeat that? 13 MR. FISHER: Sure. In the long term, if a 14 wholesale market participant load is served by 15 self-generation that is not separately registered, will 16 the load be obliged to pay a usage fee on the 17 self-generated amount? 18 MR. SHALABY: That would be the Example 3 that 19 we just discussed. Would you agree with that? 20 MR. FISHER: Yes. 21 MR. SHALABY: And we indicated that the 22 allocated quantity would be 70 megawatt hours, in that 23 case, where the load is 100 and the self-generation is 24 30. 25 MR. FISHER: So the answer is, no, it wouldn't 26 be required to -- 27 MR. SHALABY: It would be required to pay -- 28 they pay the allocated quantity. Les Services StenoTran Services Inc. 613-521-0703 39 SHALABY, cr-ex (Fisher) 1 MR. FISHER: Right. 2 MR. SHALABY: I'm reluctant to agree with that 3 they pay on certain things and not pay on certain 4 things. I'm consistently saying they pay the allocated 5 quantity. If the allocated quantity comes up to 70, 6 that's what they pay. 7 MR. FISHER: Just a general question. Do IMO 8 costs vary significantly with usage? 9 MR. SHALABY: No. And we indicated that in 10 the evidence. 11 MR. FISHER: Now, moving into -- 12 MR. SHALABY: I can elaborate on that. I mean 13 they don't vary once the systems are designed. This is, 14 in fact, a key issue that we discussed in the fee 15 design -- and perhaps spending a minute on it would be 16 helpful -- that is, the IMO's revenue requirements are 17 $102 million in the year 2000 approximately. 18 Once you design the IMO, staff it, buy the 19 computers, then the charges are somewhat fixed during 20 that particular year. Whether the system consumes 150 21 kilowatt hours, 130, 180, the charges or the costs 22 incurred by the IMO are reasonably fixed for that year. 23 The charges can be different. If we designed 24 the system for a 50-kilowatt hour universe, then the IMO 25 fees would be lower. But once you design for a specific 26 size, then whether that size emerges in its exactness of 27 145 or 150 or 180 or 130, the costs are fixed. There 28 are buildings, there are people performing functions Les Services StenoTran Services Inc. 613-521-0703 40 SHALABY, cr-ex (Fisher) 1 that are not directly related to the size of the 2 consumption. An example would be market monitoring, 3 market rule development, dispute resolution and so on. 4 These things are not variable if the consumption in 5 Ontario is up by 10 per cent or down by 10 per cent. 6 That is the reason I say that the IMO costs do 7 not change very much in the short term related to the 8 size of the load. In the long term, it probably would. 9 MR. FISHER: Thank you. 10 Okay. Moving to the area of the meaning of 11 AQEW, IPPSO believes that for a connection point without 12 any embedded generation the total AQEW would equal the 13 net metered amount at the primary RWM. Is that correct? 14 MR. SHALABY: That is correct. That is your 15 Example No. 1, if you agree that is Example No. 1 -- 16 MR. FISHER: If there is a registered 17 generation facility embedded behind the primary RWM, 18 IPPSO believes that the total value of the AQEW, at that 19 point, would equal the net metered amount plus the 20 injection from the embedded generation. Is that 21 correct? 22 MR. SHALABY: Is this your Example 3A? 23 MR. CARY: Yes. 24 MR. SHALABY: Okay. If we look at -- 25 MR. LYLE: Perhaps if we are going to refer to 26 the document, we should enter it as an exhibit. We will 27 make it Exhibit K1.2. 28 EXHIBIT K1.2: IPPSO's Example Les Services StenoTran Services Inc. 613-521-0703 41 SHALABY, cr-ex (Fisher) 1 MR. SHALABY: Perhaps in the language of 2 metering and allocation -- let's go over your question 3 one more time now that it's 3A that we are talking 4 about. 5 MR. FISHER: Okay. I will refer that to 6 Mr. Cary to take you through that. 7 MR. SHALABY: All right. 8 CROSS-EXAMINATION 9 MR. CARY: I think the question is unchanged. 10 If this is a registered generation facility 11 embedded behind the primary RWM it's our understanding 12 that the total of AQEW for that load facility would be 13 equal to the net metered amount plus the injection from 14 the embedded generation. 15 MR. SHALABY: Would it be M1 plus M2? Is that 16 what -- 17 MR. CARY: That is our understanding of the 18 scheme of things. Is that a correct understanding? 19 MR. SHALABY: I would first say that the 20 markets rules are still evolving in that area. Is that 21 correct? Because you know better about the evolution of 22 the market rules. My understanding is that they are 23 still evolving; that issue has not been resolved. 24 MR. CARY: That also is my understanding. 25 However, there is a lot of uncertainty over that. You 26 would agree that there is uncertainty in that area? 27 MR. SHALABY: That issue has not been 28 resolved, yes, and the heart of resolving it is a Les Services StenoTran Services Inc. 613-521-0703 42 SHALABY, cr-ex (Cary) 1 technical issue, having to do with what is deemed to be 2 withdrawal and what is deemed to be injection. It is my 3 opinion that a technical issue of that sort is best left 4 to a panel called a technical panel to deem what is 5 withdrawn and what is injected, and to make it 6 consistent with other matters in the market rules having 7 to do with dispatching of generation, with constraining 8 on and off, with different locational pricing. 9 I mean, the issue, as you well know, has many 10 other dimensions that bear on the technical question of 11 do you allocate quantities withdrawn and quantities 12 injected in certain ways or certain other ways. And it 13 is for that reason that I think that is better left to 14 the technical panel and not to a rate-setting exercise. 15 MR. CARY: Would you agree, then, that the 16 definition of those rules about the allocation process 17 is going to be determined by issues other than the IMO 18 fees? 19 MR. SHALABY: Yes. 20 MR. CARY: Thank you. Can we look -- 21 MR. SHALABY: And I don't want to be totally 22 offended and think that nobody cares about the IMO fees, 23 but they will not be a significant factor in that 24 decision. 25 MR. CARY: Can we look at Example 3A as 26 compared with your Example 3? 27 Example 3, as you have put forward, the 28 generation (off microphone...) that will become Les Services StenoTran Services Inc. 613-521-0703 43 SHALABY, cr-ex (Cary) 1 registered with the IMO (off microphone...) load 2 displacement for that load, the IMO effectively has no 3 knowledge of what it is doing -- 4 THE PRESIDING MEMBER: Mr. Cary, when you ask 5 a question, please try to look into the microphone, if 6 you could. I know it is difficult, but we are having 7 some difficulty. 8 MR. CARY: Yes. I will try and reach forward. 9 --- Pause 10 MR. CARY: The difference between your 11 Example 3 and Example 3A is simply the registration of 12 the generation behind this facility. In this case, if 13 the registration rules require or if it is registered as 14 a separate facility, and if the rules on AQEW are 15 evolved so that the AQEW in this example would be 100 16 megawatts, would you agree that that would result in the 17 load paying IMO fees on energy that is self-generating? 18 MR. SHALABY: You would pay IMO fees on what 19 is deemed to be withdrawn energy by the technical panel. 20 They would be higher than in Example 3. So the facility 21 is registered, and if the rules indicate that a 22 registered facility has to be treated essentially as in 23 my Example 4, then the situation in Example 4 is also 24 higher allocated quantities withdrawn than in Example 3. 25 It does lead to higher charges based on the rule-making 26 of what is deemed to be (off microphone...). 27 MR. CARY: Now we look at Example 3B. Example 28 3B is a case where the generation is higher than the Les Services StenoTran Services Inc. 613-521-0703 44 SHALABY, cr-ex (Cary) 1 load itself. This is a joint facility which results in 2 a net input (off microphone...). This would require it 3 to be a registered facility and a generator (off 4 microphone...). Is that a correct answer? 5 MR. SHALABY: Yes. 6 MR. CARY: We talked about the uncertainty 7 over the metering arrangements and I think there was a 8 question as to whether Meter 2 would be a necessary 9 meter in here. (Off microphone...). 10 So in this instance, it is quite possible that 11 the generator generating 160 megawatts and also puts 60 12 into the grid would in fact still pay an IMO fee on the 13 load portion of the 100 megawatts load portion. Is that 14 correct? 15 MR. SHALABY: The rules develop that the 16 allocation process results in a withdrawal of 100, 17 injection of 160 and your assumption is correct. They 18 are going to be treated as if they are two separate 19 facilities, a generator and a load that are happening to 20 be side by side, and treated as separate entities that 21 way if in fact the technical panel deems those to be 22 separate things, and allocates the energy as separate 23 (off microphone...) 24 MR. CARY: This is an example which I would 25 suggest represents some existing facilities connected to 26 the grid which have both load and generation (off 27 microphone...). Under the present scheme of things, the 28 load pays its bundled energy price only for these net Les Services StenoTran Services Inc. 613-521-0703 45 SHALABY, cr-ex (Cary) 1 energies it takes off the grid, from the grid? 2 MR. SHALABY: Yes. 3 MR. CARY: So when the generation quantity 4 exceeds the load quantity (off microphone...) it would 5 not pay any contribution towards the CMO charge under 6 the present scheme of things? 7 MR. SHALABY: The situation is a tad more 8 complicated by back up charges and by -- I mean the rate 9 structure today is significantly different than it will 10 be in the future, but they do pay the CMO charges on 11 the -- whenever they pay for energy they pay for the CMO 12 charges. If they are not paying for energy, they are 13 not paying for the CMO charges. That is a principle 14 that I say is consistent with the practice that we are 15 promoting for tomorrow. 16 When you pay for energy, when you are 17 allocated the energy, you pay for the IMO charges. If 18 they don't pay for energy, they don't pay for the CMO 19 charges. That's correct. 20 MR. CARY: I think you acknowledged that it is 21 quite possible that this circumstance would result in an 22 AQEW (off microphone...) depending on the rule-making 23 process. 24 MR. SHALABY: Depending on the rule-making 25 process. 26 Again, this is really an example in 3B. It is 27 very much like 4, if you separated the joint meter, the 28 adding of the two quantities. I'm not even sure that an Les Services StenoTran Services Inc. 613-521-0703 46 SHALABY, cr-ex (Cary) 1 arrangement like this would actually exist, but if it 2 did it's very much like Example 4: a generating 3 facility and a load co-existing, and the generation is 4 participating in the markets, is benefitting from the 5 IMO-administered markets, and participates fully with 6 its 160 megawatts into the market, and for that reason 7 it may be treated as a separate (off microphone...). 8 It's not limited to participating to 60, for example. 9 There are privileges for participating fully 10 as a generator and the load participating fully as a 11 load. So, for example, there are, to my knowledge, no 12 restrictions on the load bidding its megawatts in the 13 IMO-controlled market. In the IMO-controlled market, 14 the load can submit bids, can say, "Listen, the energy 15 price is so high I am prepared to get off and not pay 16 the high price of energy today." That's what we call 17 load bidding. So this company, if it is DuPont, as we 18 used as an example here in the Settlement Conference, 19 they could decide to shut down their load and get paid 20 the high energy price for that hour. 21 It can also decide to bid their 160 megawatts 22 in the market and can get the high energy price at that 23 hour. So there are privileges and freedoms associated 24 with being treated as a load and a generation and having 25 all the privileges and freedoms of both the load and the 26 generation. They don't net out at that stage. 27 MR. CARY: I would like to jump back to that 28 point in a minute to look at the (off microphone...), Les Services StenoTran Services Inc. 613-521-0703 47 SHALABY, cr-ex (Cary) 1 but I would just like to finish off this point first, 2 and that is to (off microphone...) that this 3 circumstance in Example 3B would not have been -- or 4 could result in a charge of IMO fee to that 100 megawatt 5 load although it is being provided and served completely 6 by the in-house facility (off microphone...) 7 MR. SHALABY: I will confirm the first part, 8 and that is it could result in 100 megawatt hour load. 9 I'm using energy charges. I know that you mean it to be 10 energy charges as one and the same. 11 I will confirm the first part that it could 12 result in a 100 megawatt hour allocation and, therefore, 13 I would not agree that it is applied by its own 14 generation. That is a technical issue that the 15 technical panel will rule on. Is it supplied from the 16 grid or is it supplied from the companion facility that 17 is sitting on the same facility? 18 It is an issue of did it get these very 19 electrons to supply the load or did it inject them into 20 the grid and back again? My somewhat illustrative but 21 not perfect example of you buy 100 shares and then you 22 sell 70 or 30, these are two separate transactions 23 rather than one (off microphone...). I would leave the 24 determination of that to the technical panel because 25 there is latitude in determining what is the right 26 answer here. 27 MR. CARY: So as far as today's hearing is 28 concerned, you acknowledge there is considerable Les Services StenoTran Services Inc. 613-521-0703 48 SHALABY, cr-ex (Cary) 1 uncertainty? 2 MR. SHALABY: There is. There is. That matter 3 is unresolved, yes. 4 MR. CARY: I said I would come back to the 5 comparison of actual load and the treatment of this 6 actual load relative to the self-generating facility. 7 If you look at Example 3A here and 3, which 8 are the same numbers, you have a facility that can 9 operate a load between 70 and 100 megawatts, depending 10 on whether the generation is running. Its net load on 11 the grid would vary from 70 to 100 depending on the 12 operation of the (off microphone...) 13 If its allocated quantity is the 100 megawatts 14 that it could be, then I would suggest that the IMO fee 15 would be charged on the 100 megawatts. If instead of 16 being a load with embedded generation it was a (off 17 microphone...) load facility that could vary its load in 18 accordance with market signals between 170 megawatt (off 19 microphone...) then I would suggest that the IMO fee, 20 when it is curtailed to 70 megawatts would only be 21 charged on 70 megawatts (off microphone...) 22 MR. SHALABY: When the load is withdrawing 70 23 megawatts from the grid? 24 MR. CARY: Yes. 25 MR. SHALABY: The question is...? 26 MR. CARY: Then it would only pay the IMO fee 27 on that 70 megawatts. 28 MR. SHALABY: If the allocation of energy Les Services StenoTran Services Inc. 613-521-0703 49 SHALABY, cr-ex (Cary) 1 withdrawal is 70, it will pay only 70. 2 MR. CARY: So if the net load is reduced by 3 virtue of embedded generation, it could result in an 4 allocated quantity of an IMO fee based on 100 megawatts. 5 If the net load is reduced by virtue of being a 6 dispatchable load facility, then (off microphone...) 7 MR. SHALABY: I don't understand that last 8 bit, and it is partly because I did not define what net 9 load is and neither have you. Let's go over that last 10 piece one more time and show me perhaps on Example 3A -- 11 or is there another example to be illustrated here? 12 Let's go through it one more time, if you 13 could, please. 14 MR. CARY: In Example 3A and Example 3 you 15 have a total load of 100 megawatts. 16 MR. SHALABY: That's correct. 17 MR. CARY: The metered quantity through Meter 18 1 can be reduced to 70 megawatts by firing up a 19 generator. 20 MR. SHALABY: That is the snapshot that you 21 show in 3A. 22 MR. CARY: Yes. 23 MR. SHALABY: That is correct. 24 MR. CARY: Firing up that generator may not 25 reduce the IMO fee below the (off microphone...) 26 MR. SHALABY: If it is a separately registered 27 facility. 28 MR. CARY: If the generation is registered. Les Services StenoTran Services Inc. 613-521-0703 50 SHALABY, cr-ex (Cary) 1 MR. SHALABY: And deemed to be injecting and 2 the 100 being withdrawn, that is correct. 3 MR. CARY: If we consider a different example 4 where there is no generation attached to it. 5 MR. SHALABY: Right. Are we back to Example 6 1, for example? 7 MR. CARY: Back to Example 1. 8 MR. SHALABY: Right. 9 MR. CARY: But 30 megawatts of that load is 10 dispatchable; 30 megawatts of the load will respond to 11 the market signal and provide operating (off 12 microphone...) almost equivalent to an embedded 13 generator. 14 MR. SHALABY: I don't know whether others are 15 with you or not, but I am with you. All right. 16 MR. CARY: If that load was curtailed down to 17 70 megawatts as a result of that, then my understanding 18 is that the IMO fee would be based on the 70 megawatt 19 load. 20 MR. SHALABY: That is my understanding. 21 MR. CARY: I would suggest that the two 22 circumstances are directly equivalent as far as the grid 23 and the control (off microphone...), that the end result 24 is very different charges to the load (off 25 microphone...) 26 MR. SHALABY: You are making the proposition 27 that a dispatchable load is identical to a generator. 28 MR. CARY: Is closely analogous to. Les Services StenoTran Services Inc. 613-521-0703 51 SHALABY, cr-ex (Cary) 1 MR. SHALABY: To a generator. 2 MR. CARY: Yes. 3 MR. SHALABY: Its impact on the total demand 4 on the grid is similar, but the dynamics of the two and 5 the management of the two and the metering of the two 6 are quite different. 7 I am agreeing that they may have the aggregate 8 impact of reducing the demand on that site to 70 9 megawatts, but whether the services rendered to that 10 complex by the IMO are similar, I don't think (off 11 microphone...) 12 That is another area of equating dispatchable 13 load to generation and seeking perhaps conformity in 14 treatment when dispatchable load is in effect versus 15 when generation is in effect. I have not addressed 16 that. 17 MR. CARY: Okay. Thank you. 18 I think Mr. Fisher is going to take over 19 again. 20 MR. SHALABY: All right. Thank you. 21 CROSS-EXAMINATION 22 MR. FISHER: I just have a couple of questions 23 in relation to economic efficiencies. 24 Suppose there was a load with self-generation 25 facility and the owner had the option to register or 26 not. Would you agree, then, if it stays unregistered, 27 this resource is completely under control of the owner? 28 MR. SHALABY: I think the resource is under Les Services StenoTran Services Inc. 613-521-0703 52 SHALABY, cr-ex (Fisher) 1 control of the owner in all situations. 2 MR. FISHER: If it registers the generator and 3 submits offers, it puts all the capacity of the 4 generation under the dispatch control of the IMO. Is 5 that correct? 6 MR. SHALABY: If it's registered and is what? 7 MR. FISHER: Submits offers. 8 MR. SHALABY: Right. 9 MR. FISHER: So dispatches data. 10 MR. SHALABY: Right. 11 MR. FISHER: It puts all the capacity of the 12 generator under the dispatch instructions of the IMO. 13 MR. SHALABY: The owner makes a choice of 14 whether to register or not. 15 MR. FISHER: Right. 16 MR. SHALABY: Whether to submit bids to the 17 IMO's controlled markets or not is still under the total 18 control of the owner. 19 MR. FISHER: Okay. But it is still under the 20 dispatch control of the IMO. 21 MR. SHALABY: If they wish to be dispatched, 22 then they would receive dispatch requests from the IMO. 23 But it is their choice to do all of that. 24 MR. FISHER: Yes. As you are aware, IPPSO 25 believes that if the usage fee is on a gross load 26 basis -- i.e., load plus self-generation that we are 27 calling gross load -- then this provides a cost 28 incentive against registering the generation facility. Les Services StenoTran Services Inc. 613-521-0703 53 SHALABY, cr-ex (Fisher) 1 A question following from that is: Does the 2 IMO believe in maximizing the economic efficiency of the 3 market? 4 MR. SHALABY: Maximizing the economic 5 efficiency of the market? 6 MR. FISHER: Yes. 7 MR. SHALABY: We can all agree to that if we 8 can only know what that is. 9 MR. FISHER: Indeed. Would the maximum 10 economic efficiency be achieved if the self-generation 11 were not available to provide, for example, operating 12 reserve or dispatchable generation into the system? 13 MR. SHALABY: I would back away a step or two 14 and indicate that the market being established by the 15 Independent Market Operator offers choices for market 16 participants to decide what is efficient and what is 17 not. 18 It provides a marketplace where people make 19 economic decisions based on a number of factors. If a 20 facility owner sees an advantage in participating in the 21 IMO-controlled market, bidding the generation over not 22 registering and not bidding in the IMO-controlled 23 market, but rather applying a load behind a fence 24 completely invisible from the markets, that's an 25 analysis that a facility owner has to go through and the 26 considerations are numerous, not only IMO fee driven, as 27 Mr. Cary indicated. 28 The considerations on how to configure a joint Les Services StenoTran Services Inc. 613-521-0703 54 SHALABY, cr-ex (Fisher) 1 facility, how to size it, how to operate it, whether to 2 participate in the IMO-controlled market or not, there 3 are many factors that far outweigh in their significance 4 whether you pay an IMO fee on a certain amount or not. 5 MR. FISHER: Well, we do recognize that the 6 individuals, or the owners in this situation, do have 7 those incentives and the ability to make those decisions 8 themselves, but the question essentially is what is best 9 for the market? 10 MR. SHALABY: What is best for the market is a 11 very levered market design which we think is best for 12 the market and we will continue to evolve it. It is a 13 delicate balance between competing interests at times, 14 conflicting interests at times. The market design 15 embodies a highly sophisticated set of rules that 16 balance all of these interests, balance all of these 17 objectives. 18 We went through a discussion in the Settlement 19 Conference, for example, that said that imposing the IMO 20 fee on exports handicaps exports, puts a burden on 21 exports. We agree on that. Exports are good for 22 operating this market. We agree with that. Reducing 23 cost is good, but also paying for services received is 24 the overriding factor in this case. 25 So we have dealt precisely with a parallel 26 issue of exports are good. They do better without an 27 IMO fee. Why not avoid the IMO fee? We can do the same 28 thing with embedded generation. Embedded generation, Les Services StenoTran Services Inc. 613-521-0703 55 SHALABY, cr-ex (Fisher) 1 when it participates in the market it can do better 2 without the fee, but the fee is levied for service 3 rendered and people do pay for the services that are of 4 high value to the market as a whole. 5 So this optimization exercise is a 900 page 6 set of rules that will continue to evolve. Talking 7 about one element in isolation misses the interconnected 8 nature of the market and the rules in the market. 9 --- Pause 10 MR. FISHER: We did have an earlier discussion 11 with respect to implementation issues and cost benefit 12 analysis for changing certain aspects of IT and those 13 types of things. I was wondering, are all of the cost 14 allocation issues fully defined within the IMO and the 15 technical panel? 16 MR. SHALABY: No. As indicated in your 17 earlier cross-examination, my answers were there are 18 some issues yet to be resolved to do with the joint 19 facilities and to do with separately metered generation 20 on (off microphone...). So I would say largely settled, 21 but a few issues yet to be settled and being dealt with 22 on a priority basis and (off microphone...). 23 MR. FISHER: Right. So there is some need to 24 undertake additional work on the settlement systems, 25 then. It is not fixed as we speak. 26 MR. SHALABY: It's mostly, to use a pun, 27 settled, but there are things yet to be developed on it, 28 yes. Les Services StenoTran Services Inc. 613-521-0703 56 SHALABY, cr-ex (Fisher) 1 MR. FISHER: Those are my questions. Thank 2 you. 3 MR. SHALABY: Thank you. 4 THE PRESIDING MEMBER: Thank you, Mr. Fisher. 5 Mr. Lyle, do you want to break now and come 6 back? How long do you think you will be? 7 MR. LYLE: I should be about 10 to 15 minutes. 8 THE PRESIDING MEMBER: Why don't we just 9 charge on then, so that we can take just one lengthy 10 break and give the parties an opportunity to collect 11 their thoughts and go over their submissions. 12 MR. LYLE: Certainly. 13 EXAMINATION 14 MR. LYLE: From your evidence, Mr. Shalaby, it 15 is my understanding, as you were saying to Mr. Fisher, 16 that there are still a number of issues related to how 17 to determine allocated quantities still before the 18 technical panel. Is that correct? 19 MR. SHALABY: That is correct and they do 20 specifically relate to the very limited universe, and we 21 will discuss whether it is very limited or limited, but 22 it is the universe of joint facilities and whether they 23 are registered or not and so on. It's not that the 24 whole issue is wide open. It is 90 per cent plus 25 settled. There are a few specific examples that are not 26 (off microphone...). 27 MR. LYLE: Is it your understanding that if 28 the issues that are still before the technical panel are Les Services StenoTran Services Inc. 613-521-0703 57 SHALABY, ex (Lyle) 1 resolved in the manner that IPPSO wishes them to be 2 resolved that that would address all of their concerns 3 in this proceeding as well? 4 MR. SHALABY: If it is resolved in the 5 technical panel to their satisfaction? 6 MR. LYLE: That's correct. 7 MR. SHALABY: These are questions better 8 addressed to them, but my expectation is yes. 9 MR. LYLE: Certainly, perhaps Mr. Fisher can 10 address that in argument, but I was -- 11 MR. SHALABY: In fact, that is the point we 12 wished to make, is that fixed market rules should be 13 done at the market design technical panel, which is of 14 course approved by the IMO board. I mean the technical 15 panel merely recommends market rule changes and market 16 rule formulations to the IMO board of directors. The 17 board of directors recommends that to the Minister of 18 Energy who makes (off microphone...) recommendation of 19 the IMO board (off microphone...). 20 MR. LYLE: I understand. 21 Now, if the Board accepts IPPSO's proposal re 22 the design of the usage fees, does that leave the IMO 23 with the decision of whether or not to adopt the Board's 24 decision for all purposes of determining allocated 25 quantities, or is it possible that the IMO would decide 26 that there would be two different approaches, one for 27 the usage fees and one for certain other purposes, such 28 as settlement? Is that the two options you would have Les Services StenoTran Services Inc. 613-521-0703 58 SHALABY, ex (Lyle) 1 before you? 2 MR. SHALABY: If the IPPSO option is adopted 3 for seconding the IMO fees, the allocated quantities 4 will continue to live and be the heart of the settlement 5 engine because that is how energy is settled. 6 Energy is going to be a $4 billion to 7 $5 billion (off microphone...) settlement of the IMO 8 fees, $100 million (off microphone...). 9 MR. LYLE: So you would be faced then with 10 applying two different sets of rules? 11 MR. SHALABY: That is correct. 12 MR. LYLE: So moving then to the IMO 13 settlement systems and software, are there expenditures 14 that the IMO would have to incur if the Board was to 15 adopt IPPSO's proposal for the design of usage fees? 16 MR. SHALABY: Yes. 17 MR. LYLE: Do you have any estimate of the 18 level of those expenditures? 19 MR. SHALABY: Not a precise one. It probably 20 would be not significant because it might have been, 21 given the transmission ruling that was rendered earlier 22 in Hearing 44, that in a sense we now will have 23 apparently settlement systems for transmission and maybe 24 that would provide a basis for settling the IMO fees on 25 the IPPSO proposal. It may or it may not because we are 26 yet to look at the implementation of the transmission 27 ruling. 28 The answer is, yes, there would be costs. Les Services StenoTran Services Inc. 613-521-0703 59 SHALABY, ex (Lyle) 1 There would be time taken. There would be different 2 rules drafted to reflect that. The question of how 3 significant or insignificant is what I don't have a good 4 handle on. It could be in the hundreds of thousands of 5 dollars. 6 MR. LYLE: Can you give me some estimate of 7 the time taken to make whatever necessary changes would 8 result from a Board decision to adopt IPPSO's proposal? 9 MR. SHALABY: I continually get disappointed 10 at how long things take in the IT business. 11 I have an image of the IT business being 12 people on terminals changing codes and then in two 13 minutes the code is changed. I am told that is not the 14 case. 15 It takes time and it takes time primarily 16 because the system for settlement tests undergo rigorous 17 testing. It has to be compatible with other modules in 18 the market rules. It has to find its way into training 19 module (off microphone) into auditing and verification. 20 It's a fairly elaborate consistent set of 21 rules and set of codes. That's what takes time. You 22 have to issue instructions to vendors. This is what I 23 hear from our technical IT people. 24 The delays could be in perhaps three weeks or 25 four weeks, depending on the priority put on, but there 26 is certainly a time delay involved in shifting from 27 tagging onto a quantity that already exists central to 28 the design of the market and tagging onto a quantity Les Services StenoTran Services Inc. 613-521-0703 60 SHALABY, ex (Lyle) 1 that has to be custom designed for that. 2 MR. LYLE: Is that a time delay which is so 3 significant as to impact on the IMO's targets for market 4 opening? 5 MR. SHALABY: A two hour delay is significant 6 in our lives. 7 --- Laughter 8 MR. LYLE: Fair enough. 9 Now, if we were to adopt the IMO's proposal 10 and we come back before the Board in the year 2002 and 11 the Board at that time says, "Change it to what the 12 IMO -- what IPPSO wanted originally", how difficult 13 would it be at that time for your systems to adopt that 14 kind of a change? 15 MR. SHALABY: As I indicated in answering your 16 question previous, given that the transmission system is 17 going to be settled on something like the primary meter 18 readings, I expect the change to be doable with the 19 costs that we talked about and the time that we talked 20 about. A few years from now we may have the luxury of 21 time and it will (off microphone...). It is doable is 22 my answer with (off microphone...). If the benefits are 23 high, then the costs will be deemed to be appropriate. 24 MR. LYLE: Just finally, Mr. Shalaby, if I 25 could a sense from you as to the megawatt hours and the 26 dollars and cents that are involved in this. Presumably 27 if we were to go with IPPSO's proposal, that would mean 28 that the usage fee would be calculated on a slightly Les Services StenoTran Services Inc. 613-521-0703 61 SHALABY, ex (Lyle) 1 smaller number of megawatt hours. Do you have any sense 2 of what we are talking about in percentage terms? 3 MR. SHALABY: My suspicion is no. The 4 universe to which we will apply the IMO usage fee will 5 remain the same. We want to capture all the energy 6 withdrawn from the IMO control grid, including exports 7 estimated at 150 kilowatt hours. That's 150 billion 8 megawatt hours. 9 MR. LYLE: I don't think I quite understood 10 that. If we were to go with IPPSO's proposal, there 11 would be certain megawatt hours that would not be 12 included in the AQEW. Is that not correct? 13 MR. SHALABY: The proposal, as I understand 14 it, you will abandon the concept of AQEW altogether. 15 MR. LYLE: Which would mean a lower number of 16 megawatt hours being used to determine the usage fee. 17 MR. SHALABY: No. Let me take a minute 18 because it's an important point. 19 MR. LYLE: Okay. 20 MR. SHALABY: We go to Example 2. I love it 21 when you can use examples. Example 2, to go with 22 IPPSO's proposal, as I understand it, we will settle our 23 fee on the 130 megawatt hours that is the meter reading 24 No. 1. That is none of the AQEWs that is shown. It's 25 really the summation of all the AQEWs. 26 It makes my point that the meter reading, the 27 primary meter reading, captures the three AQEWs 28 downstream (off microphone...). Les Services StenoTran Services Inc. 613-521-0703 62 SHALABY, ex (Lyle) 1 MR. LYLE: Okay. 2 MR. SHALABY: The quantity that the fee 3 applies to is 130 either way, whether it's a meter 4 reading, a primary meter reading, whether's it's the 5 three separate AQEWs. 6 MR. LYLE: Okay. 7 MR. SHALABY: The universe is similar and the 8 fee magnitude would be similar. 9 MR. LYLE: If we go to Example 4 though, under 10 IPPSO's proposal would not the usage fee be calculated 11 on 70 megawatt powers? 12 MR. SHALABY: Example 4 does not show a 13 primary registered meter. Their Example 3B does. If we 14 imagine upstream of the two meters that I show in 15 Example 4 -- 16 MR. LYLE: Yes. 17 MR. SHALABY: -- the registered meter that 18 sums the two, it would read 70. That would be lower 19 than the allocated quantities. You are quite correct. 20 In that example, the allocated quantities are higher 21 than the metered quantities. 22 MR. LYLE: I'm just trying to get a sense of 23 the scope of the Example 4s that are out there and how 24 many megawatts that adds up to. 25 MR. SHALABY: We discussed that a bit in the 26 Settlement Conference. The universe of independent 27 power generation in the province and IPPSO, who know all 28 about this, is about 2,500 megawatts, give or take -- is Les Services StenoTran Services Inc. 613-521-0703 63 SHALABY, ex (Lyle) 1 that a good estimate -- compared to about 25,000 2 megawatts of capacity installed. So 10 per cent of the 3 generation is independently owned and also owned by 4 OPGI. Is that a fair assumption to try and arrive at 5 the materiality of the difference? 6 THE PRESIDING MEMBER: Maybe, Mr. Shalaby, 7 just give us your understanding and go on. 8 MR. SHALABY: I will go on. 9 THE PRESIDING MEMBER: I'm sure if you are 10 wrong, someone would -- 11 MR. SHALABY: Right. 12 Of the 2,500 megawatts that's independently 13 owned, some of it is straight generation. It doesn't 14 involve a jointly registered facility. Most of it, 15 1,500 megawatts of it, are under contract to the system. 16 They are treated quite separately from all of this for 17 various purposes and I don't have a full understanding, 18 but they are contracted for long-term delivery to the 19 network. 20 Some of them are in the variety of -- by 21 Example 3. I'm coming to the conclusion that my 22 understanding of Example 4 today is small. It may be 23 hundreds of megawatts, if that, so it's a small amount. 24 The difference between the base on which you apply the 25 IMO fees one way versus the other is going to be quite 26 small. 27 We have to go through some estimation and some 28 analysis of the configuration of independent generation, Les Services StenoTran Services Inc. 613-521-0703 64 SHALABY, ex (Lyle) 1 some analysis of how many of them are separately metered 2 and so on. In my estimation, the base to which the fee 3 will apply will differ by no more than one or two or 4 three (off microphone...) 5 MR. LYLE: Those are all my questions. 6 Thank you. 7 MR. SHALABY: Thank you. 8 THE PRESIDING MEMBER: Thank you, Mr. Lyle. 9 Just before we break, can I get a sense of how 10 long you would be, gentlemen, on submissions. 11 MR. BROWN: I have to take instructions. I 12 would think 15 minutes, 20 minutes. 13 THE PRESIDING MEMBER: Mr. Fisher? 14 MR. FISHER: Between 10 and 15 minutes. 15 THE PRESIDING MEMBER: Mr. Lyle, would you 16 have any comments to make? 17 MR. LYLE: We are not entitled to make any 18 comments, Mr. Chair. 19 THE PRESIDING MEMBER: Mr. Brown, do you have 20 any redirect? The Board has no questions of 21 Mr. Shalaby. Do you have any redirect? 22 MR. BROWN: No, I have no questions by way of 23 re-examination. 24 THE PRESIDING MEMBER: Okay. Then we can 25 break. It's five minutes to eleven. Let's resume at 20 26 after, please. 27 --- Upon recessing at 1045 28 --- Upon resuming at 1125 Les Services StenoTran Services Inc. 613-521-0703 65 1 THE PRESIDING MEMBER: Mr. Fisher. 2 MR. FISHER: I'm sorry. I apologize. 3 THE PRESIDING MEMBER: We will hear from, I 4 guess, the Applicant first and then we will hear from 5 IPPSO and then the Applicant will have the right to 6 reply to the comments of IPPSO. 7 MR. RATTRAY: Mr. Chairman, it's Mr. Rattray 8 for OPG. 9 THE PRESIDING MEMBER: Yes. 10 MR. RATTRAY: We have a few remarks we would 11 like to make in support of the IMO, so I would suggest 12 if appropriate, we might make our remarks prior to 13 Mr. Fisher. 14 THE PRESIDING MEMBER: Mr. Rattray, I will ask 15 Mr. Lyle to check with our rules of practice and 16 procedure. You have agreed to the settlement proposal, 17 I understand. 18 MR. RATTRAY: That is correct. 19 THE PRESIDING MEMBER: I can't recall the 20 precise clauses in the rules, but I believe that is not 21 customarily done. 22 MR. LYLE: Mr. Chair, I believe he would be 23 speaking in favour of the settlement proposals, so he is 24 not -- if he was to agree to the settlement proposal and 25 then come to oppose it at the hearing, that would be a 26 problem, but he is here to speak in favour of the 27 settlement proposal. 28 THE PRESIDING MEMBER: That would be Les Services StenoTran Services Inc. 613-521-0703 66 1 acceptable, Mr. Lyle, in your view? 2 MR. LYLE: Yes. 3 THE PRESIDING MEMBER: Okay. Then we will do 4 that. 5 MR. RATTRAY: Thank you, Mr. Chairman. 6 THE PRESIDING MEMBER: Nevertheless, I think 7 the Applicant should go first and then you can add to 8 it. 9 Mr. Brown. 10 MR. BROWN: Thank you very much, Mr. Vlahos. 11 SUBMISSIONS 12 MR. BROWN: The Applicant, the Independent 13 Electricity Market Operator, comes before the Board in 14 this proceeding to seek approval for a number of things. 15 As a result of Procedural Order No. 4 which was issued 16 by the Board, it has been decided that the fee design 17 issues, that is issue E, will be decided first. 18 The one area of dispute that remains for the 19 Board to decide is on issue E.3, in particular the 20 charge determinant for the usage fee and the related 21 issue of the definition of the customer who will be 22 billed for that charge. 23 The Applicant's proposal for the fee is 24 contained in Exhibit E2, tab 1, Schedule 1, page 1 of 1. 25 The rate design which is being proposed is that the 26 IMO's usage fee will be payable by wholesale customers 27 on all energy withdrawn for use or sale in Ontario and 28 on all export schedules out of Ontario. Les Services StenoTran Services Inc. 613-521-0703 67 BROWN, Sub. 1 Under the Settlement Agreement, agreement has 2 been reached on the charge determinant for the export 3 schedules -- I'm sorry. I'm reading from the wrong one. 4 Anyway, an agreement has been reached on the 5 export schedules, but with respect to the proposed fee 6 schedule there is an issue as to whether the fee should 7 be payable by wholesale customers or market participants 8 on all energy withdrawn for use or sale in Ontario. 9 As part of this fee proposal, the IMO has 10 proposed that the actual determinant to be used to 11 calculate the fee for wholesale customer or market 12 participants is the allocated quantity of energy 13 withdrawn or AQEW, which is a term, as Mr. Shalaby 14 indicated, defined in the market rules. 15 It is a term and concept which is being used 16 in the calculation of the settlement of energy 17 quantities traded in the real time market. It is not a 18 term that has been designed specifically for the 19 recovery of the IMO fee. It is one of general 20 application. 21 In the applicant's submission, the rationale 22 underlying the adoption of the AQEW as the charge 23 determinant is sound. It's sound for two primary 24 reasons. First, the use of the AQEW is consistent with 25 the principle that the users of IMO services will pay 26 for those services based upon the quantities which they 27 extract from the grid. In my submission, that's a key 28 element in favour of the proposal. Les Services StenoTran Services Inc. 613-521-0703 68 BROWN, Sub. 1 The second rationale which supports the 2 proposal is that it is a continuation of the current 3 practice. Mr. Shalaby described the current practice 4 with bundled rates in which there is some component for 5 recovery of costs or charging for costs for services 6 provided by the CMO, and the fee design that the IMO is 7 proposing is in a sense a continuation of that. 8 I think it's fair to say that from the 9 evidence you have heard this morning, particularly going 10 over the four examples and the two sub-examples offered 11 by IPPSO, that there is really no dispute as to the 12 appropriateness of using AQEW in the vast majority of 13 cases. 14 The Board can take comfort, in my submission, 15 that most of the market participants who have been 16 involved in this proceeding have signed on to the 17 Settlement Agreement and are content with the use of the 18 AQEW, in large part because it does follow the user pay 19 principle. 20 IPPSO, however, has expressed some concerns 21 and not concerns about the general application of the 22 AQEW, but the specific application of the AQEW in 23 circumstances where generators may participate in the 24 market. That is, they may decide not only to supply an 25 associated load, but they may also decide to inject or 26 bid into the IMO administered market. 27 That is really the fact situation in respect 28 of which IPPSO has expressed concerns. Les Services StenoTran Services Inc. 613-521-0703 69 BROWN, Sub. 1 Now, that fact situation is one that results 2 from the choice of the owner of the generator. You have 3 heard Mr. Shalaby's evidence that there are some 4 generators who will decide not to register and 5 participate into the IMO controlled grid or the IMO 6 administered market. In those particular ones, they are 7 invisible, I think was the term Mr. Shalaby used, to the 8 market rules. These are the so-called self-generators. 9 However, there may well be generators whose 10 owners decide that they wish to not only service an 11 associated load, but also participate in the IMO 12 administered market. That decision and the calculation 13 of the risks and benefits associated with that decision 14 lie solely within the province of the owner of the 15 generator. 16 You heard Mr. Shalaby's evidence that what 17 effect that decision has on the payment of IMO fees 18 probably will not loom large in any decision made by the 19 owner of the generator. There are much larger issues at 20 stake that will drive the owner of a generator to 21 determine whether or not to register that generator in 22 the IMO market. 23 However, there will be some who decide to 24 register the generator and it appears that this is the 25 main category of generators in respect of which the IMO 26 has expressed some concerns. There was an explanation 27 given by Mr. Shalaby over the treatment of what he 28 called joint facilities and those are shown as Example 4 Les Services StenoTran Services Inc. 613-521-0703 70 BROWN, Sub. 1 in Exhibit K1.1. Then my friends from IPPSO filed 2 Exhibit K1.2 which illustrated further nuances or 3 refinements on that particular fact situation. 4 Mr. Shalaby was cross-examined at some length 5 on what might happen with respect to the use of AQEW in 6 those circumstances. I think the evidence is quite 7 clear that it is uncertain what will happen in those 8 circumstances. The evidence clearly indicates that the 9 body which has been charged with considering the 10 technical merit of the various situations and the actual 11 determination of the AQEW is the technical panel of the 12 IMO. Mr. Cary is a member of that panel. 13 That technical panel is still grappling with 14 the issue of the determination of the AQEW in the 15 circumstance of joint facilities or the circumstance of 16 generators which decide to participate in the IMO 17 controlled market. As well, they are grappling with a 18 larger issue which is the requirements for registration 19 of those facilities. 20 Although today's hearing has not been one in 21 which the debate of the technical panel has been 22 rehearsed in great detail, I think the Board has been 23 able to gain some flavour that the issue of registration 24 of these facilities, how it's done and the ramifications 25 associated with the choice of registration really is the 26 larger issue that is driving this debate and the actual 27 determination of the AQEW will flow from a consequence 28 of the determinations on registration. Les Services StenoTran Services Inc. 613-521-0703 71 BROWN, Sub. 1 The AQEW will not drive that determination. 2 They are really the outcome of the larger debate on 3 registration. That is very much a debate within the 4 province of the technical panel. As the evidence of Mr. 5 Shalaby pointed out, there are major drivers behind that 6 debate. Those are big issues. They are big issues 7 relating to other market principles associated with 8 participation in the IMO administered market. They are 9 not driven by a consideration of how or who is going to 10 pay the IMO fee and on what basis. 11 Mr. Shalaby quite candidly and accurately 12 stated that that is not a major consideration in this 13 debate, although as the evidence has pointed out, it 14 will be a consequence of the debate. 15 Since the IMO's technical panel has to resolve 16 this issue, the concerns that have been raised by IPPSO 17 may turn out to be concerns which are resolved by the 18 technical panel in favour of IPPSO. They may well be 19 concerns which the technical panel decides to resolve in 20 a way that does not address or satisfy the concerns of 21 IPPSO. 22 The point that I want to make here, however, 23 is that the body which has been charged by the statute 24 to make determinations on what is evidently a very 25 complex area is the technical panel. They have to take 26 into account a host of factors in determining the proper 27 process and criteria for registering these generation 28 facilities and also the consequent consequences on the Les Services StenoTran Services Inc. 613-521-0703 72 BROWN, Sub. 1 determination of the content and calculation of AQEW. 2 That's the body that will have to determine 3 it. Whatever determination the technical panel makes, 4 of course, has to go to and be approved by the IMO board 5 and still at this particular stage must then be 6 considered and approved by the Minister. 7 So a decision today, with respect to the 8 adoption of AQEW as the appropriate charge determination 9 from the IMO for the IMO fee will not resolve the larger 10 issue of registration of generators and the fallout from 11 that. That remains a live issue before the technical 12 panel and, therefore, an appropriate form still exists 13 for the various stakeholders who want to make their 14 pitch and make their arguments on how that issue should 15 be resolved. 16 The issue that is before the Board today, it 17 might be worth recalling, came before the Board in a 18 very particular way. 19 Procedural Order No. 4 on page number 2 20 states, in the second paragraph, as follows: 21 "Due to the delay in filings by the IMO 22 and the need for a fee structure to be in 23 place prior to developing billing systems 24 necessary for market opening, there will 25 be a preliminary consideration of issues. 26 The fee design issue." (As read) 27 There are many market participants out there, 28 including Members of Mr. Tucci's organization, the Les Services StenoTran Services Inc. 613-521-0703 73 BROWN, Sub. 1 Municipal Electric Association, that requires some 2 certainty as to the structure of the billing system that 3 they must put in place for their settlement. 4 One component of that billing system will be 5 the IMO fee and how it is determined -- and I think it 6 is worth recalling that the reason we have split the IMO 7 case into a Phase I and Phase II basis is because there 8 have been indications from market participants that 9 there is need for certainty and settlement on the issue 10 of the IMO fee structure so that they can then get on 11 with the business of finalizing their settlement. 12 The fee proposal which IPPSO has brought 13 before the Board today will bring certainty to that 14 issue and I think, as I mentioned, the evidence fairly 15 indicates that in the overwhelming number of 16 circumstances, probably well over 95 per cent of the 17 circumstances that the market will face, the use of the 18 AQEW will provide a charge determinant which is 19 satisfactory to the market participants in large part 20 because it reflects the user pay principle with respect 21 to IMO services. 22 I think it's probably also significant -- and 23 this might be a bit of speculation on my part -- that a 24 number of the affected parties have signed on to the 25 Settlement Agreement with respect to the use of AQEW, 26 because I think Mr. Shalaby's evidence highlights that 27 beyond the AQEW being consistent with the two main 28 principles it also brings certain advantages to the Les Services StenoTran Services Inc. 613-521-0703 74 BROWN, Sub. 1 settlement system. 2 One advantage that it brings is that the AQEW 3 does not burden intermediaries with respect to the 4 allocation question that arises in the settlement 5 process. 6 Another advantage is that it does not pass on 7 the settlement issue to aggregators who are going to be 8 very active on the retail side of the market; that is, 9 it doesn't pass downstream of the real settlement and 10 allocation issues that must be addressed. It provides a 11 mechanism where those will be dealt with through the 12 AQEW, and I would have to say that I suspect that the 13 reason so many market participants are content with the 14 IMO proposal is that it has brought certainty to the 15 determination of how one charges for the IMO fee, which 16 is, you know, in a manner, consistent and satisfactory 17 to the needs which they face in the market. 18 There's another advantage to the IMO fee which 19 I think is quite significant. You will see from the 20 Settlement Agreement that the IMO has agreed that 21 after -- and a number of parties have agreed -- that 22 after two years' experience in the open access market a 23 view will be done of the IMO fee structure. 24 Mr. Shalaby, in his evidence, has indicated 25 that the use of the AQEW and the associated use of 26 wholesale customers and market participants, as the 27 billing customers, brings great flexibility to the 28 consideration of the future evolution of IMO fees. Les Services StenoTran Services Inc. 613-521-0703 75 BROWN, Sub. 1 That, in my submission, is a very attractive feature of 2 the IMO proposal. 3 The IPPSO proposal, which would have the fees 4 charged to, effectively, transmission customers -- or 5 wholesale customers, as Mr. Shalaby indicates -- 6 provides less flexibility for future development, 7 particularly in the area of unbundling, because other 8 market participants are not being billed by the IMO. So 9 I think that long-term consideration must also be taken 10 into account in consideration of the applicant's 11 proposal. 12 If I could come back to the issue of the 13 advantage of not passing the issue of the settlement of 14 allocations downstream. 15 One of the advantages for the Board to accept 16 the IMO's proposal is that it will bring certainty to 17 this issue of the charge determinant and allocation of 18 quantities. 19 If the Board does not see fit to accept the 20 applicant's proposal, that issue of allocation will 21 still have to be decided. 22 The result of adopting a proposal similar to 23 that advanced by IPPSO will be -- this whole issue of 24 allocation will have to be decided in some other form, 25 probably with respect to consultations regarding the 26 retail settlement code but it's not an issue that will 27 go away. 28 So, in my submission, that's an additional Les Services StenoTran Services Inc. 613-521-0703 76 BROWN, Sub. 1 attractive feature to the IMO proposal -- and it's 2 attractive because the principle underlying the IMO 3 proposal and the merits of the proposal are quite 4 strong, as Mr. Shalaby described them. 5 So, on balance, the IMO submits that its 6 proposal is the way for the Board to go. There is an 7 immediate certainty to the settlement of the IMO in the 8 overwhelming number of cases, the IMO's proposal is 9 consistent with the principle that the users should pay 10 for the services that are being rendered by the IMO, 11 there is great flexibility for future fee evolution and, 12 therefore, on merits, this is a very good proposal. 13 The hearing today has highlighted one area of 14 uncertainty, and that relates to the issue of generators 15 servicing a load and perhaps also opting to inject into 16 the grid. The technical panel is dealing with it; 17 that's the appropriate forum in which it should be dealt 18 with. The stakeholders who are concerned about the 19 issue will have input before the technical panel and, 20 therefore, in my respectful submission, it would be 21 appropriate for the Board, today, to adopt the IMO 22 submission. 23 With your leave, one moment, please, 24 Mr. Chairman. 25 --- Pause 26 MR. BROWN: Mr. Shalaby has pointed out to me 27 that with respect to joint facilities there is some 28 certainty on how to settle because the AQEW will be used Les Services StenoTran Services Inc. 613-521-0703 77 BROWN, Sub. 1 as the settlement market. What is uncertain is the 2 amount that will go into the AQEW, and then that will be 3 the result of the debate that will continue before the 4 technical panel. 5 So, for those reasons, Members of the Board, 6 in my submission, the IMO's proposal is one that 7 well-grounded in the basic principles of fee design, it 8 is one which provides certainty now and one which 9 provides great flexibility in the future, and for those 10 reasons, we would ask the Board to adopt the rate design 11 for the usage fee which is set out in the IMO's proposed 12 fee schedule in Exhibit E2, tab 1, Schedule 1. 13 Those are my submissions. 14 THE PRESIDING MEMBER: Thank you, Mr. Brown. 15 Mr. Rattray. 16 SUBMISSIONS 17 MR. RATTRAY: Thank you, Mr. Chairman. 18 In the interests of time, my submissions will 19 be fairly limited. 20 OPG recommends that the Board adopts the 21 proposed Settlement Agreement filed by the IMO, in 22 respect of the fee design issues. 23 In our view, the Settlement Agreement is 24 supported by a broad range of stakeholder interests and 25 represents a reasonable compromise in the circumstances. 26 As is noted in the Settlement Agreement, 27 though OPG itself does not agree with all of the aspects 28 of the proposed fee design -- most notably, the proposal Les Services StenoTran Services Inc. 613-521-0703 78 RATTRAY, Sub. 1 to charge the fee to export schedules to which 2 Mr. Shalaby alluded in his examination -- in the 3 interests of moving forward, OPG has decided not to 4 dispute those issues in this proceeding. 5 We note that only one of the intervenors in 6 this case, IPPSO, has objected to the proposed 7 settlement because it is opposed to the IMO's proposed 8 use of AQEW as the usage charge determinant. 9 We would urge the Board to reject IPPSO's 10 submissions on this matter, for the following reasons: 11 IPPSO's alternative term, "net load at the 12 primary registered wholesale meter", is not presently a 13 defined term under the market rules, so a definition 14 would have to be subsequently developed for it, 15 requiring additional delay, debate and revision of the 16 market software tools. 17 In contrast, the term "AQEW" is a defined term 18 within the market rules and has been established as the 19 settlement mechanism for energy quantities. 20 Through IPPSO's cross-examination, it was 21 suggested that IPPSO objects to the use of AQEW because, 22 in a limited number of circumstances, it possibly does 23 not produce the precise result that they wish. 24 We submit that this limited possibility does 25 not merit further delay in our preparations for the 26 market opening. Quite simply, there is a need to get on 27 with the important work of preparing for the opening of 28 the market. In our respectful submission, the Board can Les Services StenoTran Services Inc. 613-521-0703 79 RATTRAY, Sub. 1 assist in this work by making a decision in favour of 2 the IMO's proposal. 3 Finally, given that the IMO is committed to 4 reviewing its fee design after the market is up and 5 running, IPPSO will have an opportunity in the near 6 future to revisit this issue with the benefit of actual 7 experience in the operation of the market. 8 Thank you, Mr. Chairman. Those are our 9 submissions. 10 THE PRESIDING MEMBER: Thank you, Mr. Rattray. 11 Mr. Fisher, we will go to you, and then to 12 Board staff, if they have anything to add. 13 MR. LYLE: We don't have anything to add, 14 Mr. Chair. 15 THE PRESIDING MEMBER: You may after. 16 MR. LYLE: We will see. 17 SUBMISSIONS 18 MR. FISHER: First off, just as a procedural 19 matter, would there be any opportunity for final written 20 argument? None of this oral or written was discussed in 21 Procedural Order 5. 22 THE PRESIDING MEMBER: No, Mr. Fisher. As I 23 pointed out at the commencement of the hearing, oral 24 argument will be it. 25 MR. FISHER: Only oral. Thank you. 26 The first thing I would like to talk about is 27 in relation to the uncertainties associated with AQEW. 28 IPPSO believes that it is inappropriate for Les Services StenoTran Services Inc. 613-521-0703 80 FISHER, Sub. 1 the Board to decide on a fee design when the main 2 component, the AQEW, has a number of uncertainties 3 associated in relation to joint facilities and other 4 facilities embedded in LDCs. 5 It has become evident that the outcome with 6 respect to AQEW is going to be determined by the IMO 7 technical panel and driven by other issues other than 8 fee design. 9 There is a strong possibility that AQEW may be 10 a grossing up determinant for customers, and this is the 11 main cause of concern for IPPSO. 12 As a result, IPPSO respectfully requests that 13 the Board adopt IPPSO's proposal and provide some 14 certainty in its decision. 15 In addition, with the IMO proposal there is 16 likely to be some cost shifting to loads that are served 17 by existing self-generation. In addition, there is also 18 the possible disincentives for generating stations to 19 register their facilities in the market, and IPPSO 20 believes that it would be best for the market to have 21 full participation of all generating facilities in the 22 interest of economic efficiency. 23 The IMO fee design proposal results in an 24 incentive to stay unregistered for those who have the 25 choice. 26 In its evidence today, the IMO acknowledged 27 that the IPPSO proposal, if adopted, would result in a 28 small impact on the revenue requirements of the IMO in Les Services StenoTran Services Inc. 613-521-0703 81 FISHER, Sub. 1 terms of a 1 to 3 per cent matter of the load. But this 2 would be a noticeable impact to the owners of existing 3 generating stations that are presently operating and for 4 the potential for new embedded generation which would 5 assist in developing competition in the market. 6 Another area where we might look for some 7 guidance is the Board's decision in respect of the 8 transmission design. In that decision the Board decided 9 that network service was to be billed on a net load 10 basis and that any cost shifting was minimal and likely 11 to be outweighed by the increased competition in the 12 energy market through increased generation. 13 Another aspect of the transmission decision 14 had to do with the user pay principle that the Board 15 recognized could be argued both ways. In terms of the 16 applicant, the OHNC's position on that, it reflected or 17 described the situation in relation to stranded costs as 18 supporting the user pay principle. But in this case 19 there are no stranded costs. 20 The IMO has talked about having contact with 21 all of its customers as one of the reasons that it 22 supports the use of AQEW. 23 If we look at the IMO example 2 and suppose 24 that load 1 is an LDC, the host LDC of loads 2 and 3, 25 then the 100 megawatts would be presently accounted for 26 in the retail settlement code for thousands of retail 27 customers and the limited number of embedded wholesale 28 customers who could be market participants and, as such, Les Services StenoTran Services Inc. 613-521-0703 82 FISHER, Sub. 1 would already be paying separate line distribution 2 transmission charges and do in fact have a relationship 3 with the IMO in terms of paying for the energy provided 4 to those customers. 5 In summary, I would like to -- sorry. 6 --- Pause 7 MR. FISHER: The IMO has also suggested that 8 the IPPSO proposal would constrain any type of future 9 developments in fee design, and IPPSO rejects that 10 simply because it doesn't. 11 In summary, then, I would just like to say 12 that IPPSO's proposal for using the net energy withdrawn 13 from the IMO controlled grid, as measured at primary 14 RWMs, has the following benefits: 15 It reflects the fee design philosophy 16 apparently described by the IMO in Section 5.3 of its 17 fee design introduction. That would be in Exhibit A-1. 18 It precludes the potential inequity of 19 treatment with respect to existing joint facilities. 20 It provides appropriate incentives for 21 investment and market participation. 22 And, finally, it is consistent with the 23 application of the arguments accepted by the Board in 24 its decision on network transmission tariff. 25 Those are my submissions. Thank you, 26 Mr. Vlahos. 27 THE PRESIDING MEMBER: Thank you, Mr. Fisher. 28 Mr. Lyle. Les Services StenoTran Services Inc. 613-521-0703 83 FISHER, Sub. 1 MR. LYLE: We have no comments, Mr. Chairman. 2 THE PRESIDING MEMBER: Mr. Brown. 3 REPLY SUBMISSIONS 4 MR. BROWN: Just briefly in reply, Mr. Vlahos. 5 The first is to emphasize that the 6 uncertainties which remain now with respect to AQEW are 7 not uncertainties which relate to the vast majority of 8 cases to which AQEW will apply. It relates only to one 9 circumstance and that is the treatment of joint 10 facilities and I have made submissions on that in chief. 11 So AQEW provides great certainty and there is 12 no disagreement about its application in the vast 13 majority of cases. We do have this one area of 14 uncertainty. 15 My friend in his reply talked about the IPPSO 16 proposal precluding potential inequitable results and 17 emphasized potential. This issue of the registration 18 and the consequent AQEW treatment of joint facilities is 19 something that will be considered by the technical panel 20 and decided by them. 21 The follow-up point on that, with respect to 22 the results of the application of the AQEW to the joint 23 facilities, those in large part will result from choices 24 that owners make as to whether it is or is not to their 25 benefit to register their generator and have it 26 participate in the overall market. That will be a 27 function of owner choice. It's not something being 28 imposed to them. Les Services StenoTran Services Inc. 613-521-0703 84 BROWN, Reply Sub. 1 Finally, my friend made some reference to 2 likely cost shifting associated with the IMO proposal 3 and also with disincentives to participate in the 4 market. Those are matters that he has raised in 5 argument. There is no evidence before you as to what 6 cost shifting, if any, will occur. There is no evidence 7 before you as to whether or not there will be 8 disincentives and on this point I do wish to point out 9 that the IMO's proposal that the AQEW be the charge 10 determinant is something that has been in their evidence 11 for a long time. It's not new. 12 So to the extent that parties wanted to take 13 issue with the use of that charge determinant, there 14 were opportunities to file evidence. 15 Those are my submissions in reply. 16 THE PRESIDING MEMBER: Thank you, Mr. Brown. 17 I would ask the parties if we can resume again 18 in 15 minutes. It is 12:00 now, so at 12:15. We will 19 see whether the panel can agree on a ruling today. I 20 would ask you to come back at 12:15 please. 21 --- Upon recessing at 1200 22 --- Upon resuming at 1215 23 THE PRESIDING MEMBER: In this matter, based 24 on the evidence, the settlement proposal, the testimony 25 today and the submissions by the parties, the Board 26 adopts the IMO proposal and that is the Board's decision 27 and also should serve as an order, so no additional 28 order is necessary. Les Services StenoTran Services Inc. 613-521-0703 85 1 I would only ask if any of the parties wish 2 reasons for the Board's decision they will have to be 3 written, but we can do that. It probably will take a 4 bit of time and perhaps at the same time as the Board's 5 decision on the next phase of this proceeding. 6 So with that, if any of the parties now wish 7 to ask for written reasons we will supply those. 8 MR. BROWN: Mr. Vlahos, since this is the 9 first application that the IMO has made, I think it 10 would be useful from the applicant's point of view if 11 the Board could issue written reasons, making those part 12 of the Phase II reasons as well. It is perfectly fine 13 with us, but the guidance of the reasons would be of 14 assistance. 15 THE PRESIDING MEMBER: All right. We will 16 undertake to provide those reasons. 17 With that are there any other matters? 18 Mr. Lyle. 19 MR. LYLE: No, Mr. Chair. 20 THE PRESIDING MEMBER: Thank you. We are 21 adjourned. 22 --- Whereupon the hearing adjourned at 1217 23 24 25 26 27 28 Les Services StenoTran Services Inc. 613-521-0703 86 1 INDEX OF PROCEEDING 2 PAGE 3 Upon resuming at 0903 3 4 SWORN: AMIR SHALABY 7 5 Examination-in-Chief by Mr. Brown 7 6 Cross-Examination by Mr. Fisher 36 7 Cross-Examination by Mr. Cary 41 8 Continued Cross-Examination by Mr. Fisher 51 9 Examination by Mr. Lyle 56 10 Upon recessing at 1045 64 11 Upon resuming at 1125 64 12 Submissions by Mr. Brown 66 13 Submissions by Mr. Rattray 77 14 Submissions by Mr. Fisher 79 15 Reply Submissions by Mr. Brown 83 16 Upon recessing at 1200 84 17 Upon resuming at 1215 84 18 Decision by the Ontario Energy Board 84 19 Upon adjourning at 1217 85 20 21 22 23 24 25 26 27 28 Les Services StenoTran Services Inc. 613-521-0703 87 1 EXHIBITS 2 NO. DESCRIPTION PAGE 3 K1.1 Illustration of the Allocation 15 4 (AQEW) Process 5 K1.2 IPPSO's Example 40 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Les Services StenoTran Services Inc. 613-521-0703