1 1 RP-1999-0049 2 3 4 IN THE MATTER OF the Ontario Energy Board Act, 1998 5 6 7 AND IN THE MATTER OF an Application by the Independent 8 Electricity Market Operator for an order or orders 9 approving its proposed expenditures and revenue 10 requirement and fixing the fees which it may charge for 11 the year 2000. 12 13 14 B E F O R E : 15 P. VLAHOS Presiding Member 16 R. HIGGIN Member 17 A. BIRCHENOUGH Member 18 19 20 21 Hearing held at: 22 2300 Yonge Street, 25th Floor, Hearing Room No. 1, 23 Toronto, Ontario on Thursday, January 27, 2000, 24 commencing at 0905 25 26 27 ISSUES DAY 28 2 1 APPEARANCES 2 MICHAEL LYLE/ Board Counsel 3 HIMA DESAI/ Board Staff 4 SUZANNE TONG 5 DAVID BROWN/ Independent Electricity Market 6 AMIR SHALABY/ Operator (IEMO) 7 KEITH BRYAN 8 SHARON WONG/ Imperial Oil 9 JANE LATHAM/ 10 MIKE McEACHEN 11 BRUCE CAMPBELL/ Ontario Power Generation 12 ANDREW BARRETT 13 M. E. RICHARDSON Public Interest Advocacy Centre 14 (PIAC), VECC 15 JAMES FISHER Association of Major Power 16 Consumers in Ontario (AMPCO) 17 MAURICE TUCCI Municipal Electric Association (MEA) 18 19 20 21 22 23 24 25 26 27 28 3 1 Toronto, Ontario 2 --- Upon commencing on Thursday, January 27, 2000 3 at 0905 4 THE PRESIDING MEMBER: Good morning everyone. 5 The Board is sitting today to consider the 6 proposed issues list for the RC-1999-0044 proceeding 7 dealing with the determination of the revenue 8 requirement for the Independent Market Operator or IEMO 9 and for the fixing of charges in respect of year 2000. 10 My name is Paul Vlahos. With me are Members 11 Roger Higgin and Art Birchenough. 12 Can I have appearances, please? 13 MR. BROWN: Certainly. Good morning, 14 Mr. Chair. David Brown appearing for the Applicant, the 15 Independent Electricity Market Operator, and with me I 16 have Mr. Amir Shalaby and Mr. Keith Bryan. 17 THE PRESIDING MEMBER: Good morning. 18 MS WONG: Good morning, sir. My name is 19 Sharon Wong. I am appearing for the Intervenor, 20 Imperial Oil Limited. With me is my colleague, Jane 21 Latham and Mr. Mike McEachen from Imperial Oil. 22 THE PRESIDING MEMBER: Thank you, Ms Wong. 23 MS RICHARDSON: Good Morning. Mary Ellen 24 Richardson for ECS on behalf of PIAC and VECC. 25 MR. TUCCI: Good morning. Maurice Tucci 26 representing Municipal Electric Association. 27 MR. CAMPBELL: Bruce Campbell, counsel for 28 Ontario Power Generation and with me today is Andrew 4 1 Barrett. 2 MR. FISHER: Good morning, Mr. Chairman. My 3 name is James Fisher and I am counsel to the Association 4 of Major Power Consumers in Ontario. 5 MR. LYLE: Good morning, Mr. Chair. My name 6 is Mike Lyle. I am counsel, Board Staff. With me today 7 are Hima Desai and Suzanne Tong. 8 THE PRESIDING MEMBER: Thank you. Anybody 9 else? There will be no response. 10 We are provided with a Draft Issues List, a 11 Proposed Issues List which contains the agreed upon 12 issues as well as one contested issue. The Board 13 accepts the proposed agreed upon issues with a minor 14 modification. Issue E5 entitled "Comparisons to other 15 Jurisdictions" should not stand on its own. It is 16 embedded or implied in the issues shown in Category E. 17 Parties will be able to cross-examine on the 18 filed evidence on the matter of other jurisdictions or 19 provided on evidence. It just won't show on the Issues 20 List as a standalone item which would imply that a 21 distinct ruling would be required in the penalty of the 22 other issues. So it is just a presentation issue. 23 With respect to the contested issue Whether 24 Load Retention and Expansion Rate, contract customers 25 should be charged a usage fee, the plan is as follows: 26 We will ask one party from those sponsoring this issue 27 to lead the submissions. Other parties who may be 28 generally in support may wish to add or qualify. We 5 1 will then move to the parties generally in a position to 2 the inclusion of the issue and IMO will be last in that 3 category. 4 The leading sponsoring party will be given the 5 opportunity to respond to the submissions made by 6 others. Board staff may ask questions of any party by 7 way of clarification and the Board may also ask 8 questions of the parties making submissions. 9 The Board may be in a position to issue a 10 ruling at the end of the submissions on this matter or 11 it may reserve. We will be in a better position to know 12 once we hear the submissions. 13 In any case, a procedure order will be issued 14 as soon as possible. 15 Any preliminary matters, Mr. Lyle? 16 MR. LYLE: Yes, Mr. Chair. Before we get 17 under way, perhaps I should point out that with respect 18 to the contested issue it has been suggested by parties 19 that that should read: Whether LRER contract customers 20 should be charged a full usage fee -- 21 THE PRESIDING MEMBER: A...? 22 MR. LYLE: Full usage fee, and perhaps also, 23 Mr. Chair, I could make that Exhibit 1 to the issues 24 today, the draft issues list. 25 EXHIBIT NO. 1: Draft Issues List 26 THE PRESIDING MEMBER: Thank you, Mr. Lyle. 27 Any other preliminary matters? There will be 28 none. 6 1 Who would like to commence, take the lead 2 in -- 3 MS WONG: I will be making the submissions in 4 the lead, Mr. Vlahos. 5 THE PRESIDING MEMBER: Thank you, Ms Wong. 6 Ms Wong, without wishing to divert you from 7 your planned submissions, we wish to point out that 8 there are certain criteria that the Board customarily 9 applies to contested issues, whether it should be in or 10 out of the Board-approved list and they are the 11 relevance, that is one. 12 Materiality is another one. 13 And urgency, whether the issue should be 14 included in this proceeding. 15 So we hope that your submissions will assist 16 us in that regard. I am not suggesting that those are 17 the only criteria, but those are the sort of standard 18 criteria that the Board will apply. 19 Now in the interest of efficiency, I will ask 20 that on the criteria of materiality whether you have 21 information yourself, or your colleagues, as to what the 22 potential impact is on your client. The reason I am 23 asking now is that in case you don't have that 24 information, in the interest of efficiency you can 25 obtain that information. It would be of critical 26 importance to us. 27 MS WONG: I believe I do have that 28 information, sir. I will just take a second to make 7 1 sure that the number I have in my head is the right one. 2 THE PRESIDING MEMBER: Thank you. 3 MS WONG: I do have that, sir. 4 THE PRESIDING MEMBER: Thank you. Please 5 proceed. 6 MS WONG: Why don't I start with the 7 materiality issue since you have just raised it and I 8 have the number right off-hand. 9 My understanding is that the usage fees that 10 Imperial Oil Sarnia site, which is the site we are 11 primarily concerned with, would pay under the current 12 IMO proposal would be about $700,000 per year and the 13 submission would be that it is quite a material number, 14 sir, that if it was based upon some other principles 15 relating to how much power the site would have drawn off 16 the grid. If it had built its cogen plant -- and I will 17 get into the facts of that -- the number would be 18 significantly less and probably something in the range 19 of $1,000 a year. 20 Just to get to the facts, or the background 21 facts, the LRER contract is a contract that Ontario 22 Hydro entered into with a few parties in about the 1996 23 time period and the purpose of the contract was to allow 24 Ontario Hydro to attain loads or expand its loads. It 25 is essentially a bypass rate and they only entered into 26 those contracts where the customer could show a 27 legitimate business case for building its own 28 cogeneration plant. 8 1 In order to prove that case, the customer had 2 to undergo a third-party review where the customer's 3 plans and financial projections were all examined to 4 ensure that they could efficiently and cost-effectively 5 build the plant and get a disc(ph), which would reduce 6 their power cost. 7 The particular contract that Imperial Oil had 8 was based upon the principle that Imperial would pay to 9 Ontario Hydro an amount of money that would keep it 10 financially whole as compared to what it would have paid 11 for power if it had built. 12 So the parties underwent a financial analysis 13 to determine how much they would have paid, or how much 14 it would have cost Imperial if it had built its plant 15 and ran it itself, and that amount was essentially the 16 amount the customer paid for power to Ontario Hydro. 17 Imperial Oil entered into one of those 18 contracts for its Sarnia manufacturing site, and at that 19 Sarnia site it has a refinery, it has a manufacturing 20 plant, it has some other ancillary plants and services. 21 So the contract only was for that one site in Sarnia. 22 The question of how the LRER contracts are to 23 be treated is already an issue in the OHNC matter and 24 essentially all Imperial Oil is asking for is an 25 opportunity to make submissions in the IMO matter 26 similar to the submissions that it is already allowed to 27 give in the OHNC matter and that is what the issue is, 28 whether it should be required to pay the full usage fee, 9 1 which is based upon the total amount of power drawn off 2 the grid, or whether, because of its unique 3 circumstances in that it agreed to defer building its 4 plant in order to help Ontario Hydro retain its loads, 5 whether it should be entitled to some special provision 6 which would allow it to be built based upon how much 7 power it would have drawn off the grid if it had built 8 and had not deferred its plant. 9 You could think of it as a virtual 10 cogeneration plant, if you will. It should be charged 11 on the basis of what it would be drawing off the grid if 12 it had built. 13 Imperial's decision to defer its plant had 14 very little financial benefit, if any, for the company. 15 The discount rates were calculated on the basis as if 16 Imperial had built. 17 It was basically financially indifferent as to 18 whether or not it built or not. So entering into that 19 deferral contract was really for the benefit of Ontario 20 Hydro to allow it to attain its load. As a result, it 21 benefited all of Ontario Hydro's other customers who did 22 not have to pick up that extra cost that Imperial was 23 contributing towards. 24 Imperial made that decision on the belief that 25 it would not suffer any prejudice from deferring its 26 building of the cogen plant. The problem it faces now 27 in this new world of restructuring and unbundling is 28 that because of the various services being unbundled, 10 1 such as transmission and the control functions that IMO 2 is carrying on, it finds itself in a position of having 3 to pay based upon what it's drawing off the grid when it 4 never anticipated that discrete issue of how much it was 5 taking off the grid would make any difference. 6 It's decision back in 1996 when it entered 7 into this contract could not have anticipated that the 8 question of how much you were taking off the 9 transmission grid would make any difference as to how 10 much it would pay after the deferral contract expired. 11 My submission is very simple. The usage fee 12 is clearly an issue before the Board. Under section 19 13 of the Electricity Act, the Board's mandate, the Board's 14 jurisdiction is to look at the design of the usage fee, 15 how it should be applied and who should pay it. 16 My submission is that that question clearly 17 encompasses whether or not customers in unique 18 circumstances should have to pay the same normal or full 19 usage fee that the other customers have to pay. All we 20 want is an opportunity to be able to lead evidence and 21 make submissions as to why it is not fair in these 22 circumstances for the LRER contract holders to have to 23 pay on the same basis as the other contract holders. 24 Those are essentially my submissions. Thanks. 25 THE PRESIDING MEMBER: Thank you, Ms Wong. 26 Those parties that are generally in support of 27 the inclusion of the issue, would they wish to add 28 anything to this? There was no response. 11 1 Are there parties that wish to speak against 2 the inclusion of the issue other than IMO? Is there 3 anyone who wishes to speak? There being no response, 4 Mr. Brown, this should be a short morning. 5 MR. BROWN: I guess it will, Mr. Chair. 6 The IMO does contest the inclusion of this 7 issue on the issues list for this proceeding. As you 8 are aware, this proceeding is the first one that has 9 been brought before the Board under section 19 of the 10 Electricity Act, 1998. Under that section, the IMO was 11 required by the end of October of last year to submit to 12 the Board its proposed expenditures, revenue 13 requirements and fees, and it did so towards the end of 14 October. 15 The Act continues by requiring that the Board 16 review those proposals and it can either approve those 17 proposals or send them back for reconsideration with the 18 Board's recommendations. 19 The key element of the context for this 20 particular proceeding, I submit, Mr. Chair, Members of 21 the Panel, is that the language of section 19 provides 22 that the IMO shall submit its proposed expenditure and 23 revenue requirements for the year and the fees that it 24 proposes to charge during the year to the Board. 25 The particular proceeding that you have before 26 you today is styled as the IMO year 2000 fees case, so 27 the evidence that the applicant has placed before the 28 Board is with respect to its proposed expenditures for 12 1 2000 is proposed revenue requirements for 2000 and its 2 fees for 2000. 3 As you will have gleaned from the evidence, 4 because the market has not yet opened, the revenue 5 requirement of the IMO will be satisfied in two 6 different ways during the course of the year. For the 7 lion's share of the year, from January through to 8 October, its revenues will be satisfied pursuant to 9 payments made under the revenue allocation agreements 10 which were entered into by the successor corporations to 11 Ontario Hydro. 12 The evidence filed by IMO indicates that for 13 that portion of the year, the IMO will not be charging a 14 fee. Its revenue requirements are paid for through the 15 revenue allocation agreement. The fee that the 16 applicant is seeking approval from from this Board for 17 year 2000 is a fee in respect of November and December 18 of 2000. That is after the proposed opening of the 19 market. 20 The fee briefly has two components. One is an 21 application or registration fee which is $1,000 and then 22 the other component fee is what has been termed as the 23 usage fee. It is proposed that the usage fee will be 24 approximately 71 cents per megawatt hour, payable by 25 wholesale customers on all energy withdrawn for use or 26 sale in Ontario and on all exports scheduled out of 27 Ontario. That's from tab B of the applicant's evidence. 28 Essentially the usage fee that my friend is 13 1 referring to is one that is planned to be levied against 2 wholesale customers for the months of November and 3 December 2000 in order to provide the revenue 4 requirements needed to cover the IMO's expenditures for 5 that year. 6 This is a very year specific fee application. 7 It's the first such application made by the IMO under 8 the Electricity Act. To that extent, the IMO is coming 9 before the Board with a clean slate. It's a new 10 corporation under new legislation and is filing its 11 initial submission to the Board. 12 There's some additional background facts that, 13 in my submission, are relevant to the proposal that has 14 been put forward by my friend on behalf of Imperial. 15 Now, none of these are in evidence before you, although 16 I am taking them out of the evidence that Imperial Oil 17 filed in the OHNC proceeding and if I misstate anything, 18 my friend will correct me. 19 The contract that my friend referred to was a 20 contract entered into between Imperial Oil and Ontario 21 Hydro effective January 1, 1996. The contract was for a 22 term of five years and by its term would expire on 23 December 31, 2000. Under that contract, Imperial Oil 24 agreed to purchase what it styled as all of its power 25 requirements from Ontario Hydro. The contract did have 26 a provision that it could be extended for another five 27 years if appropriate notice was given. 28 The evidence that Imperial Oil filed in the 14 1 OHM proceeding -- OHNC proceeding, indicated that there 2 was, I think, a six months or something extension of the 3 discussion period, but in the result, the parties did 4 not extend the agreement. So the contract that Imperial 5 Oil is trying to bring before this Board in this 6 proceeding is one which by its terms expires on December 7 31, year 2000, and that's the end of it. 8 The second background fact with respect to the 9 contract is that the contract specifies certain rates 10 that Imperial Oil must pay to Ontario Hydro. There are 11 two categories of rates. One is what is styled as a 12 demand charge and the other is what is styled as an 13 energy charge. There is no particular definition as I 14 could see under the contract for that, although I may 15 not have dug deep enough. 16 Those charges were levied on a dollar per 17 kilowatt per month basis. Those are the two things they 18 had to pay. 19 With the advent of the new legislation in 20 1998, as the Board is aware, the assets of the old 21 Ontario Hydro were divvied up or, in the language of the 22 statute, transferred to successor corporations. The 23 evidence of Imperial Oil in the OHNC proceeding is that 24 the responsibility for its contract, its LRER contract, 25 was assigned OPGI. That's a successor corporation to 26 which the obligations and liabilities under that 27 contract were assigned. 28 Significantly, the IMO was not a party to the 15 1 LRER contract, nor has any responsibility for the 2 contract been assigned to the IMO pursuant to any 3 transfer order under section 116 of the Electricity Act. 4 If I could just stop and elaborate on that 5 point for one moment. I gave Ms Desai some copies of 6 the transfer order. I gave her two and so I have got 7 another one for the -- 8 MR. LYLE: Perhaps that can be made Exhibit 2 9 to the issues day, Mr. Chair. 10 EXHIBIT NO. 2: Transfer Order, Order in 11 Council 647/99, dated March 31, 1999 12 MR. BROWN: I apologize to most of my friends. 13 I didn't realize that we would have such a crowd this 14 morning, so I didn't come prepared with an appropriate 15 number of copies. 16 But just to put the IMO's inherited 17 liabilities and obligations in context, Mr. Chair, what 18 I have given to you is a copy of Order in Council 19 647/99. Under section 116 of the Electricity Act it was 20 required that there be a transfer of the assets, 21 liabilities, obligations and employees of the old 22 Ontario Hydro to the successor corporations. The Order 23 in Council that you have before you is the one that 24 deals with the transfer to the IMO. 25 There are a few portions to which I wish to 26 draw your attention. If I could ask you to turn first, 27 please, to page 3 of the Order in Council, section 3, 28 section 3.1. This is really the main operating section, 16 1 which provides, about three lines down that: 2 "... this Transfer Order hereby transfers 3 to and vests in the Transferee --" 4 That is the IMO: 5 "-- on the Transfer Date --" 6 which I believe was March 31 or April 1, 1999: 7 "-- as applicable, all rights, title 8 interest, liabilities and obligations of 9 Ontario Hydro in, to and in respect of 10 all employees...assets, liabilities, 11 rights and obligations of Ontario Hydro 12 as at the Transfer Date that are Related 13 to the Business as more particularly 14 described...." 15 on various exhibits. 16 Now, the exhibits deal with various forms of 17 assets, realty, personalty, contracts, litigation and it 18 also deals with employees. 19 For my purposes, I would ask you to turn to 20 Exhibit B to this transfer order, which is the section 21 dealing with contracts. Unfortunately, the page is not 22 numbered, but it is back in there. 23 As you will see under Exhibit B, the contracts 24 which were transferred from Ontario Hydro to the IMO 25 were all of Ontario Hydro -- sorry, were all contracts 26 of Ontario Hydro related to the business, including all 27 agreements, equipment, personal property, leases, et 28 cetera, et cetera, as of March 31, 1999. 17 1 So what was transferred were contracts related 2 to the business. Which leads me to ask you to turn to 3 the last portion of the order, which is the portion 4 which defines what the business is, since business is a 5 defined term. If I could ask you to go back to page 2 6 of the transfer order, you will see there the section, 7 the definitional section of this transfer order. There 8 is a definition for the word "business". In this 9 transfer order: 10 "'Business' means the activities carried 11 on as at the Transfer Date by the central 12 market operator business unit of Ontario 13 Hydro." 14 So the transfer order that is made under 15 section 116 of the Electricity Act transfers from 16 Ontario Hydro to the IMO any contracts relating to the 17 activities carried on by the central market operator. 18 Certainly, on its face, that does not include 19 the retail kinds of contracts that my friends are 20 dealing with in the LRER contracts and, as my friends 21 have indicated and as their evidence in the OHNC 22 proceeding indicates, those sorts of contracts were 23 transferred to OPGI. I presume because in large part 24 they dealt with the sale of energy at a particular 25 price. 26 So it is important for the context of not only 27 my friend's argument, but this particular proceeding, 28 Mr. Chair and members of the Board, that the inherited 18 1 obligations of the IMO relate only to the activities of 2 the central market operations unit of the Ontario Hydro. 3 They do not relate to retail or wholesale contracts that 4 the previous Ontario Hydro entered into with loads 5 throughout the province. 6 I have in my introduction referred to this as 7 the first application made under section 19 of the 8 Electricity Act. It is a very year specific provision, 9 that is this application relates only to expenditures 10 and proposed revenue requirements for year 2000 and the 11 fees that the IMO is proposing to charge are designed to 12 recover the revenue requirements for November and 13 December 2000 only. 14 The IMO, as you will see from the evidence, 15 proposes to charge a uniform, non-discriminatory usage 16 fee to all wholesale customers and the fee which it is 17 proposing to charge is forward looking. That is, there 18 is no fee being charged in respect of historical 19 transactions. The fee will attach to energy 20 transactions that commence on market opening, which is 21 scheduled to be November 1, 2000 and for the purposes of 22 this application will attach to any transactions in 23 November or December of the year 2000. 24 There is nothing historical that is being 25 sought by the IMO in the application of its usage fee. 26 The IMO opposes the inclusion on the issues 27 list of the special or discriminatory usage fee that 28 Imperial Oil is proposing for several reasons. The 19 1 first reason, and this is really under the heading of 2 relevance, is first that there is no statutory authority 3 under section 19 of the Electricity Act, 1998, for the 4 IMO to charge a special fee based on events which 5 predated its incorporation back in April 1999. 6 Section 19 of the Act specifically states that 7 the fees which it proposes are the fees which it 8 proposes to charge during the year in respect of its 9 proposed expenditures and revenue requirements for that 10 year. So the statute, in my submission, in terms of 11 determining relevance is forward looking and, as a 12 practical matter, given the context of the market here 13 in Ontario right now, is a fee that will arise November 14 1, 2000 and apply after that date. 15 In my submission, to accede to Imperial Oil's 16 argument would open the way for anyone to come forward 17 and argue for special treatment based on events which 18 took place before market opening. That is, based on 19 events which took place before the date on which the IMO 20 is providing the services for which it seeks to recover 21 its costs. 22 The IMO in this case is starting its year 2000 23 fees case with a clean slate and its fee design 24 methodology for its first full year of operation should 25 not be burdened with the events of five years ago. In 26 my submission, the statute provides no authority 27 whatsoever with burdening its fees with events which 28 predated the incorporation of the IMO. 20 1 Further, on the issue of relevance, I have 2 drawn your attention to the provisions of Order in 3 Council 647/99. Since the IMO, in my submission, has no 4 obligation in respect to Imperial Oil's contract, there 5 is no principal basis upon which Imperial Oil can come 6 before the Board and state that its contract is relevant 7 to the fee design or the approval of revenues or 8 expenditures that the IMO was putting before the Board 9 in this particular case. 10 In terms of materiality, this is really an 11 alternative argument because, in my submission, the 12 argument of relevance just is not met by Imperial Oil. 13 But in terms of materiality, the matter raised by 14 Imperial Oil in a certain sense is de minimis -- that is 15 it's very, very small. 16 If one is to put Imperial Oil's case at its 17 highest, in my submission it stands as saying no more 18 than Imperial Oil should not pay rates different from 19 those in its LRER contract during the life of the 20 contract. As I indicated to you, that contract is a 21 five-year contract which expires on December 31, year 22 2000. That is two months after the market opening date. 23 The IMO fee design proposal which is before 24 you indeed does cover those two months, November and 25 December 2000, but also, as you will see from the 26 evidence, realistically the fee that we are asking for 27 approval from the Board will, in all likelihood, be the 28 fee structure that is in place for year 2001, subject to 21 1 any comments or recommendations by the Board. 2 So this proceeding, to a certain extent, does 3 impact beyond November and December of year 2000 and, in 4 my respectful submission, the considerations which the 5 Board has to bring to the structure of that kind of fee 6 should not be influenced by the claim of one customer 7 whose claim at most covers the last two months of this 8 particular year. 9 So the amount of the claim or the materiality 10 of the claim made by the IMO -- sorry, by Imperial Oil, 11 in my submission, is de minimis. 12 However, on the flip side of the coin, given 13 the de minimis nature of its claim, the amount of 14 regulatory and hearing time that its claim would require 15 in order to be dealt with is considerable and, in my 16 submission, would be completely disproportionate to the 17 materiality of the claim. 18 As you have heard my friend say, Imperial Oil 19 would want to lead evidence. That, of course, would 20 spawn interrogatories from Imperial Oil to the IMO. 21 That would spawn interrogatories from the IMO and 22 perhaps others to Imperial Oil. 23 In the OHNC application, Imperial Oil filed a 24 considerable body of evidence which included a lot of 25 the correspondence that passed between it and Ontario 26 Hydro in the mid-1990s. That will take a fair amount of 27 hearing time and regulatory time to deal with. 28 Beyond that, if Imperial Oil is allowed to put 22 1 this particular issue on the Issues List, then there may 2 well be other LRER contract parties who would want to 3 come forward and say "Well, geez, we want to file 4 evidence on our contract as well." None of those 5 contracts are the legal obligation of the IMO. I am 6 assuming that all of the other ones would have been 7 assigned to OPGI as well. 8 So, in my respectful submission, the 9 de minimis nature of Imperial Oil's claim is completely 10 and disproportionately outweighed by the amount of 11 regulatory time that would have to be consumed in order 12 to deal with the argument. 13 In my submission, this hearing should not deal 14 with it, primarily because it is not relevant and, 15 alternatively, because of the disproportionate amount of 16 time that would have to be taken up on an immaterial 17 issue. 18 Just to add one further element on that, I'm 19 not exactly sure of the actual formula that my friends 20 would be advocating for the purposes of trying to 21 ascertain what the special tariff or special fee would 22 be to apply to Imperial Oil or any LRER customers. My 23 friend gave you a very rough-hand way of describing it. 24 However, one could foresee that Imperial Oil 25 or another LRER customer would want to get into a whole 26 exercise of trying to unpack costs from the predecessor 27 corporation, Ontario Hydro, through to the successor and 28 we would get into a whole exercise of cost allocation 23 1 between the old and the new. 2 In my respectful submission, that has no place 3 in this hearing, if for no other reason than the 4 transfer order that I referred to the Board clearly 5 delimits the liabilities and obligations inherited by 6 the IMO and an intervenor, in my respectful submission, 7 should not be allowed to put an issue on the Issues List 8 that effectively doesn't end-run around the Order in 9 Council. 10 So for those reasons, Mr. Chair and Members of 11 the Board, the IMO respectfully opposes the inclusion of 12 the issue as framed by Imperial Oil on the Issues List 13 for year 2000 fees case. 14 Those are my submissions. 15 THE PRESIDING MEMBER: Thank you, Mr. Brown. 16 Mr. Lyle, do you have any questions by way of 17 clarification? 18 MR. LYLE: Thank you, Mr. Chair. 19 I have a couple of questions for Ms Wong. 20 Ms Wong, it is my understanding under 26(3) of 21 the Electricity Act that, subject to regulation, that 22 contracts such as the contract between Ontario Hydro and 23 Imperial Oil would cease to have effect on market 24 opening. Am I correct about that? 25 MS WONG: That's my understanding, Mr. Lyle. 26 MR. LYLE: Has there been such a regulation to 27 date? 28 --- Pause 24 1 MS WONG: I believe there has been such a 2 regulation, but I'm just not sure. 3 But if I may respond to the substance of the 4 question, our position is not really that the contract 5 should only be viewed as relevant for the life of the 6 contract, because my friend is quite right, the contract 7 expires in November or December of 2000. 8 The issue is whether, because of the reliance 9 that was placed on that contract, LRER contract holders 10 are entitled to special treatment after the life of that 11 contract because it made a decision to defer building. 12 Those contracts expressly contemplated that 13 two years before the end of the contract -- so by 14 1998 -- the parties, Ontario Hydro and the contract 15 holders, would negotiate as to whether or not there 16 would be a renewal. 17 In Imperial Oil's case that negotiation 18 couldn't go forward because of restructuring. Bill 35 19 came out. We were in a new world. Nobody knew what was 20 going to happen under restructuring, so Ontario Hydro 21 was not able to offer a renewal of the contract because 22 they didn't know what was happening in the future. 23 On the other hand, Imperial Oil was not able 24 build the cogen plant starting in 1998 because it didn't 25 know what was happening in the future. It needed some 26 certainty as to what the new world would bring. 27 So they find themselves in a position where 28 they didn't build in 1996 because they were entering 25 1 into this contract. They thought that if the contract 2 expired at the end of 2000, in 1998 they could look at 3 it and make a decision as to whether or not they were 4 going to build. 1998 comes around and the world, as 5 they knew it, no longer exists and they don't have a 6 real opportunity in 1998 to decide whether or not to 7 build. 8 What they are saying now is, in order to be 9 fair to us, in order to put us in the position that we 10 expected to be in, we should be given an opportunity to 11 build. We should be placed in that position that we 12 expected to be in. 13 So, Mr. Lyle, to answer your question, we are 14 not really relying on the fact that the contract 15 continues under its terms. We are saying, in fairness 16 and equity we are entitled or we should be allowed to 17 have a special time after that. That would go to my 18 friend's points as well with respect to the de minimis 19 nature of the matter. 20 We are not looking for relief just for those 21 two months of the remaining life of the contract. 22 MR. LYLE: Thank you, Mr. Chair. 23 Those are my questions. 24 THE PRESIDING MEMBER: Thank you, Mr. Lyle. 25 Ms Wong, you may wish to respond. 26 MS WONG: Thank you, sir. 27 As I just indicated to you, in our respectful 28 submission the matter is not de minimis. Even if we 26 1 were just looking at the two months left in the life of 2 the contract, that is over $100,000 right there based 3 upon $700,000 a year. 4 But in our submission, the fairness of the 5 matter goes to whether or not the company should be 6 allowed to make that decision as to whether or not to 7 build, and they can't make that decision on any reasoned 8 principled basis until they know what the future holds. 9 They don't have the opportunity to go out and 10 build. It's going to take many years to build this 11 plan, many years to figure out what the costs are, what 12 the most effective way of getting power into that site 13 will be. 14 What the LRER contract holders, and Imperial 15 Oil specifically, is looking for is an opportunity to 16 make that decision without being prejudiced. 17 The rate hearing -- or the hearing before you 18 will set the precedent going forward. So when my friend 19 says that it is only for the two months, yes, that is 20 true, but it will set the precedent going forward, and 21 so we respectfully request an opportunity to make 22 submissions now. 23 My friend points to the fact that only the 24 responsibilities of the central market operator were 25 transferred to IMO. We take no issue with the fact that 26 IMO has no responsibility for the contract. 27 What we do say is, IMO is charging for 28 services that Ontario Hydro used to charge for, parts of 27 1 those services, the services carried out by the central 2 market operator, just like OHNC is charging for parts of 3 the service charged for by Ontario Hydro previously. 4 Because of unbundling, in order to be able to 5 make its submissions, Imperial Oil needs to go to each 6 of the new entities and put its case forward, because 7 the bundled rate it paid to Ontario Hydro has now been 8 split apart. In order to be able to be treated on the 9 same basis as before, it needs to look at and address 10 each of the unbundled portion. Therefore it needs to 11 make submissions in the OHNC matter and in the IMO 12 matter. 13 My friend points to the statutory authority 14 and says that there is no authority to look at past 15 practices. My respectful reply would be, the Board 16 clearly has authority to set the rates going forward, 17 and one of the factors that is relevant to what should 18 be paid going forward are the decisions that customers 19 made in the past based upon representations from Ontario 20 Hydro. 21 The usage fee and how it should be applied is 22 the very issue the Board is charged with reviewing. My 23 friend and I at the moment disagree as to whether or not 24 Imperial Oil should be entitled to some exemption or 25 special treatment, but that goes to the substance of the 26 question. 27 Today's question, today's issue is whether or 28 not we should even be allowed to make those 28 1 representations and lead that evidence. 2 Respectfully, Mr. Chair and Members of the 3 Board, most of my friends' comments go to the substance 4 of the matter and it is clear that the issue itself is 5 relevant and the substance is something for another day 6 when you have the full evidentiary record before you and 7 can make that determination as to whether or not it is 8 fair that something special should be done for the LRER 9 people. 10 Thank you, Mr. Chair. Those are all my 11 submissions. 12 THE PRESIDING MEMBER: Thank you, Ms Wong. 13 The Board has some questions. 14 MEMBER HIGGIN: In terms of looking at the big 15 picture we will call "before and after market opening", 16 Imperial Oil has the contract currently with OPGI. 17 MS WONG: That's correct. 18 MEMBER HIGGIN: And as I recollect -- and 19 please correct me if I have not recollected -- it 20 results in about a 3.6 cents net in the cost of power as 21 a bundled amount. 22 MS WONG: We believe it is a little bit higher 23 than that, but that is approximately right. 24 THE PRESIDING MEMBER: My point is that, as 25 you know and as you correctly pointed out, now the 26 bundled rates for power have been broken up into 27 services and fees from the IMO transmission tariffs 28 which have been filed for, as far as the design is 29 1 concerned, by Ontario Hydro Network will be actually 2 collected by the IMO as part of the billing, and then 3 the other component, the big one, is the cost of power. 4 After market opening you don't know what the 5 cost of power is going to be for Imperial Oil. Nobody, 6 as I see it, is either going to want to or try to 7 predict the spot market or even the cost for bilateral 8 contracts. 9 So in a before and after situation, how can 10 you, you as Imperial Oil, address the question of the 11 before and after scenario because you are now picking at 12 30 components, but the big one you are not addressing at 13 all, which is what the cost of power may be if it 14 dropped to 3 cents. That would be a big factor in 15 whether to build. I think it would also be a big factor 16 in the cost that you have to pay for power to the site 17 instead of 46 to 48 million, which is what the amount 18 annual revenue you provide to OPGI. You have a 19 different cost, you don't know yet. 20 MS WONG: That is one of the reasons why we 21 can't make the decision as to whether or not to build 22 because everything needs to settle out first, but on a 23 principle basis, what we are asking for is to be treated 24 as if we had built because we deferred the decision to 25 build back in 1996 on the belief and expectation that we 26 would be kept whole. These would be our position if we 27 had built. 28 So because we can't predict with any certainty 30 1 what the final number will be as a total, we come at 2 each one and say what position would we have been in if 3 we had built? And in the IMO matter, the position we 4 would be in if we had built is we would be taking very 5 little power off the grid and that is principle reason 6 why we are asking not to pay the full usage fee. 7 MEMBER HIGGIN: Yes, I understand the 8 argument, but it is coming to the issue and an 9 understanding of how you will be kept whole. What are 10 the parameters that go into being kept whole after 11 market opening? That is the question and I know nobody 12 has the answer to that because the big piece of the 13 puzzle is missing right now. 14 MS WONG: If you could just give me a second, 15 Dr. Higgin. 16 MEMBER HIGGIN: Yes. 17 --- Pause 18 MS WONG: The best I can tell you at this 19 point, sir, is that Imperial does have a forecast as to 20 what its power cost would be and based upon that 21 forecast it does believe that its power cost for the 22 year, if you include everything under the OHNC proposal 23 and the IMO proposal and uplift the whole package would 24 be in the neighbourhood of $8 million more than it is 25 paying currently under the contract. That evidence, if 26 we were asked, we could probably flush out in the 27 proceeding, but obviously I am not in a position to give 28 you anything more at this point. 31 1 MEMBER HIGGIN: Fine for this purpose. Thank 2 you. Just looking at the approved issues list -- sorry, 3 the proposed issues list, under item number E, do you 4 feel that you would not be able to argue for a class of 5 fees under there that would correspond either not to 6 LRER customers historically, but large users if the fee 7 schedule could be a scale that would be in favour of 8 large users? In other words, instead of a uniform 9 charge, as proposed by the applicant, per kilowatt hour, 10 then you could argue that your use of the services, and 11 so on, be such that you could ask for a different type 12 of fee structure and is that not something that you 13 could argue and contemplate and bring forward evidence 14 in any event under the items under E. 15 MS WONG: From a procedural point of view, 16 sir, I don't have any particular desire to have a 17 separate category for the LRER contract, but I did want 18 some certainty that I would be able to ask for a special 19 rate rider or category under the item for usage fees and 20 based upon the discussion yesterday I had some concern 21 that my friends would object to that unless the issue 22 was specifically raised with the Board and the Board 23 agreed that we could raise that issue. 24 MEMBER HIGGIN: I understand. You feel that 25 you would be reasonably constrained to make those 26 arguments and lead evidence under the existing 1 through 27 4 on the fee design. 28 MS WONG: I think my friends would take the 32 1 position that I am constrained and because of that I 2 wanted some guidance from the Board. 3 MEMBER HIGGIN: Thank you. That is helpful. 4 MR. BROWN: Actually, Dr. Higgin, just on that 5 point my friend is quite correct. As I understood your 6 proposition, it would be that the large customer 7 intervenors could make a pitch for a different structure 8 of fee design because of the different characteristics 9 of their use of service. 10 As I understand my friend's proposition, her 11 client would be asking for a different fee design which 12 is not related to use of service at all and she has 13 given the virtual cogen or we really do exist even 14 though there is nothing there today scenario so her 15 approach is not based on use of service at all and the 16 tariff that we are submitting is based on use of 17 service. 18 MEMBER HIGGIN: Thank you. Those are my 19 questions. Thank you very much. 20 THE PRESIDING MEMBER: Thank you, Dr. Higgin. 21 Mr. Brown, just a question. You did talk 22 extensively about the transfer order by Order in 23 Council, but you also mentioned before you got in the 24 details of that, you mentioned the obligations and 25 responsibilities that would were transferred to the OPGI 26 and I am not sure that I was quick enough to note all 27 those things. 28 Could you just review what you said about the 33 1 responsibilities of the OPGI vis-…-vis conflicts of this 2 type? 3 MR. BROWN: Simply, Mr. Chair, that my 4 understanding that the obligations to continue to 5 service the LRE contracts were transferred over to OPGI 6 as part of this process of giving up the obligations of 7 the old Ontario Hydro. I don't have the transfer order 8 regarding OPGI in front of me, but I am simply assuming 9 that contracts such as the LRE contracts were part of 10 the contracts transferred to OPGI under that transfer 11 order. 12 MS WONG: That's my understanding, sir, but I 13 have not actually seen the order myself. 14 THE PRESIDING MEMBER: All right. Thank you. 15 Ms Wong, just a couple of questions. I was a 16 bit surprised that you don't consider a hundred thousand 17 dollars being de minimis in the order of things when we 18 talk about $87 million proposed for revenue requirements 19 for the IMO as well as the total bill for your client. 20 MS WONG: A hundred thousand dollars may be de 21 minimis for the $87 million for the IMO. My submission 22 was that it would not be de minimis for the customer, 23 Imperial Oil. Now, I realize Imperial is a very large 24 corporation, but it still -- it's their relevance or 25 materiality you have to be concerned with and not the 26 $87 million. 27 THE PRESIDING MEMBER: All right. You also 28 expressed concern that one of the reasons that you are 34 1 here is that if you were not here, then the precedent 2 will be set, so you will lose an opportunity. 3 I'm just curious as to how you have come to 4 that conclusion that if the issue is not included at 5 this time in this proceeding, how will that prevent you 6 from coming forward when rates are set, for example, in 7 2001? 8 MS WONG: From a legal perspective, sir, it 9 probably does not prevent us. It's really the issue of 10 the fact that the hearing, in my respectful submission, 11 will set the precedent. It will set the tenure of how 12 the rates will go forward in the future, but I agree 13 with you that we likely would be able to raise this 14 issue again or at least try to raise this issue for the 15 2001 hearing. 16 THE PRESIDING MEMBER: I'm just not sure that 17 if the issue is not visited how that can be considered a 18 precedent, but in any event -- A couple more questions. 19 In light of the fact that this issue has been 20 reviewed in the transmission proceeding currently before 21 the Board and the possibility of having two different 22 panels reviewing the two different applications, do you 23 see a problem there in terms of the practicality of 24 things? 25 MS WONG: Well, sir, as far as the two 26 different Boards reviewing it, there is no way to avoid 27 that if with the unbundling we have two different 28 hearings, so we have to come to close if we want to put 35 1 our issue forward. 2 I would expect that the OHNC matter may be 3 dealt with before you deal with it in the IMO matter and 4 you would have the opportunity to see what the other 5 panel does. I know you are not bound by it, but you 6 would at least have the opportunity to see what they 7 did. 8 From a practicality point of view, 9 unfortunately, we just do not have any other way of 10 raising the issue. It has been in the nature of 11 unbundling. 12 THE PRESIDING MEMBER: Am I correct in 13 assuming that the relief requested is a lot larger in 14 the case of transmission than it is in the case of IMO? 15 MS WONG: From a dollar perspective? 16 THE PRESIDING MEMBER: Yes. 17 MS WONG: Yes, it is. 18 THE PRESIDING MEMBER: And to the extent that 19 you will not be prejudiced to bring the matter forward 20 in the IMO proceeding in the future, do you see a way 21 that it will be possible for the transmission panel to 22 review matters in some detail -- as I understand it, you 23 filed substantial evidence -- and leave your options 24 open for the IMO in the future? 25 MS WONG: Well, sir, I have already said that 26 we do have that option of raising in 2001. My client 27 has rightly indicated to me that one of the concerns we 28 have as well is that what is done in the IMO usage fee 36 1 OM&A matter might have set what happens with the uplift 2 charges under market rules. 3 I realize that is not an issue before this 4 Board, but it is a related issue and the dollars there 5 would be in the same order of magnitude as the dollars 6 in the transmission hearing. 7 THE PRESIDING MEMBER: Finally, I believe I'm 8 correct that there has been some evidence filed by at 9 least another party in the transmission proceeding about 10 a similar situation. I believe it was AMPCO. Are you 11 aware of that? 12 MS WONG: Yes, I am, sir. 13 THE PRESIDING MEMBER: I am just wondering 14 whether the Board should read anything into the fact 15 that they are not here today. 16 MS WONG: I don't believe you should -- well, 17 I'm not sure what you are reading into it, so I can't 18 really speak to that. My frank answer is I don't think 19 AMPCO realize the issue and if they had, I believe they 20 probably would have intervened, but I sort of can't 21 speak for AMPCO. 22 THE PRESIDING MEMBER: That's fair, that's 23 fair. I have also noted that AMPCO is in support of 24 your issue in the transmission case, but they were 25 silent today. Should we read anything into this? 26 MS WONG: Once again, sir, I can't speak to 27 that. AMPCO has counsel here, so I will -- 28 THE PRESIDING MEMBER: All right. Well, I'm 37 1 not going to put the other counsel on the spot. 2 Thank you very much, Ms Wong. 3 Any other matters, Mr. Lyle? 4 MR. LYLE: No, thank you, Mr. Chair. 5 THE PRESIDING MEMBER: One moment, please. 6 --- Pause 7 THE PRESIDING MEMBER: Ms Wong, Mr. Brown, we 8 will take a break now for about a half hour. According 9 to the clock on the wall, it is about ten after. Let's 10 resume at 20 minutes before the hour. At that time 11 perhaps we will have a ruling, perhaps not, but I think 12 it's worth while. It's break time anyways. 13 Let's resume at 20 minutes to the hour. 14 MS WONG: Sir, if you will excuse me. I had 15 to be in court ten minutes ago, so my colleague will be 16 here to take the reasons, if you have them. 17 Thank you. 18 THE PRESIDING MEMBER: That is fine, Ms Wong. 19 MS WONG: Thank you, sir. 20 THE PRESIDING MEMBER: Thank you. 21 --- Upon recessing at 1006 22 --- Upon resuming at 1043 23 THE PRESIDING MEMBER: Please be seated. 24 The Board has considered the submissions by 25 the parties and has come to a conclusion. The Board 26 does not accept that the issue proposed by Imperial Oil 27 should form part of the issues to be addressed in this 28 IMO proceeding. 38 1 By not allowing this issue in this specific 2 proceeding, the Board does not see any reason why 3 Imperial Oil cannot approach the Board regarding this 4 issue at a time when the Board has dealt with the 5 principle of this issue in the OHNC transmission 6 proceeding or for year 2001 charges by the IMO. The 7 principle of the issue is clearly common to both 8 proceedings. 9 The relative impact on Imperial Oil is 10 substantially higher in the OHNC transmission 11 proceeding. Also, there are obvious complexities and 12 practicalities and inefficiencies in having the same 13 issue of principle addressed in two hearings, one 14 immediately following the other. 15 That is the Board's ruling and some of its 16 reasons. Are there any questions? 17 There being none, a Procedural Order will be 18 issued as soon as possible. 19 We are now adjourned. Thank you. 20 --- Whereupon the hearing adjourned at 1045 21 22 23 24 25 26 27 28 39 1 INDEX OF PROCEEDING 2 PAGE 3 Hearing commenced at 0905 3 4 Upon recessing at 1006 37 5 Upon resuming at 1043 37 6 Hearing adjourned at 1045 38 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 40 1 EXHIBITS 2 NO. DESCRIPTION PAGE 3 1 Draft Issues List 5 4 2 Transfer Order, Order in 15 5 Council 647/99, dated 6 March 31, 1999