RP-2000-0001 THE ONTARIO ENERGY BOARD IN THE MATTER OF ss. 44 and 45 of the Ontario Energy Board Act, 1998, S.O. 1998, c.15, (Sched. B); AND IN THE MATTER OF THE Proposed Gas Distribution Access Rule dated February 6, 2001. Hearing held at 2300 Yonge Street, 25th Floor, West Hearing Room, Toronto, Ontario, on Tuesday, June 26, 2001, commencing at 9:30 a.m. ---------- Volume 2 ---------- B E F O R E : F. LAUGHREN CHAIR & PRESIDING MEMBER S. HALLADAY MEMBER A. BIRCHENOUGH MEMBER A P P E A R A N C E S ELAINE WONG ) Board Counsel and Staff KELLEY McKINNON ) KATHI LITT ) MARIKA HARE ) Enbridge Consumers Gas JANET HOLDER ) JERRY FARRELL ) ALICK RYDER ) City of Kitchener DWAYNE QUINN ) BILL BLAKE ) NRG SANDY McCALLUM ) I N D E X O F P R O C E E D I N G S Page No. Presentation by Enbridge Consumers Gas 2 Examination by Board Staff 10 Examination by The Board 28 Presentation by the City of Kitchener 35 Examination by Board Staff 45 Examination by The Board 53 Presentation by NRG 54 Examination by Board Staff 65 Examination by The Board 81 --- Upon commencing at 9:35 a.m. THE PRESIDING MEMBER: Be seated. Good morning and welcome to the Oral Consultation part of the Gas Distribution Access Rule process. Just a word that the microphones are live and they don't have a button or a light on them that tells you that, but they are live and people can hear you when you speak. They're voice-activated and so people can hear it throughout the building who are tuned in or if somebody has dialed in, they can have access to it as well, so just a word to you. Welcome. This morning the first appearance is by Enbridge Consumers Gas and I would ask that you introduce yourselves to the Panel and for others in the room. MS. HARE: Good morning. My name is Marika Hare. I'm director of regulatory affairs at Enbridge Consumers Gas. To my left is Janet Holder. As of June 1st, Janet assumed the position of vice-president operations with primary responsibility for customer relationships and growth. Prior to June 1st, Ms. Holder was vice-president market development and gas supply with primary responsibility for relationships with customers, marketers and suppliers. To my right is Jerry Farrell. Jerry is a partner with the law firm Fraser Milner Casgrain. THE PRESIDING MEMBER: Thank you. The process presumably will be that now you will make your presentation. Staff will ask any questions they have of you and then if the Panel has any as well following that. --- Presentation by Enbridge Consumers Gas: MS. HARE: We appreciate the opportunity to appear before the Board to discuss our position on the Proposed Gas Distribution Access Rule. Enbridge Consumers Gas submitted written comments to the Board on the Proposed Rule on February 26th and June 15th. We hope that these laid out our position on the issues clearly and we plan to use time allotted to us this morning to elaborate on a few of the points and allow the balance of the time for questions. The two themes of our concern that we would like to highlight today relate to process and to jurisdiction. In our view the Board has exceeded its rule-making authority and in doing so has fundamentally altered the gas industry at the retail level. Moreover, the process that has been followed to get to where we are now has been inadequate and in some respects unfair. Now, the Board may be surprised that Enbridge Consumers Gas is taking such a strong position on these matters, given our involvement in the development of the distribution access rule from the outset. I think it may be useful to explain from our perspective what went wrong. The director of licensing's letter of December 1999 inviting parties to participate in the development of a Gas Utility Access Rule set out the scope of such a rule and I quote: 'The rule will deal with matters such as customer transfers, mobility, obligations of distributors to provide access to customer information, billing and metering service requirements." The letter also referred to the broad stakeholder consultation that would occur following the issuance of a Draft Rule. The director's letter of March 17th, 2000, m confirmed that certain matters were outside of the scope of the rule. This is an important point and I'd like to quote directly from the director's letter: 'Matters related to the unbundling and reselling of distribution service, i.e. wholesale distribution service, involves significant rate design and cost allocation issues and need to be raised as part of a rate process. While it may be appropriate to address principles for the development of a wholesale distribution service in the future task force process, I believe that it is premature to be considering these matters in the current process.' In light of these comments and our expectation of what the Rule was intended to achieve, we were surprised when the Board Staff Draft Rule was issued. We were surprised because, one, the effect of the Draft Rule intended or otherwise was to create a wholesale distribution service by virtue of a vendor consolidated billing option. Two, the Draft Rule was contrary in some respects to the recommendation of the task force report. Three, on issues where the task force could not reach a consensus, such as vendor consolidated billing, Board Staff selected the vendor friendly option. And fourth, the broad stakeholder consultation that had been promised following issuance of the Draft Rule consisted merely of the submission of written comments. The far reaching implications of the draft rule which would adversely affect customers, Enbridge Consumers Gas and our shareholders. We accordingly commented on these implications in our written submission of October 24, 2000. When the Board issued the proposed rule on February 6th 2001, we were surprised to see that it did not many of the issues we raised in our previous comments. In fact, the proposed rule was identical in most respects to the draft rule. Unfortunately, the Board did not provide its rationale for adopting certain provisions of the draft rule despite the comments of various parties. The Board provided no discussion or explanation of how it balanced the interests and concerns of all stakeholders including the distributor. Without knowing why the Board did what it did, it impossible for individual parties to move beyond entrenched positions. Let me illustrate this point. Several parties to this rule-making process have taken diametrically opposed views on important matters. Customer mobility is one example of a complex issue where positions differ significantly on matters of principle. Without the benefit of the Board's reasons for prescribing the customer mobility provisions, parties can only reiterate their previous positions. This does not help to advance the matter and leaves many parties frustrated, believing that their views have been dismissed out of hand. Significant differences of opinion in our view cannot be resolved by written submissions in an oral consultation. Fairness dictates a hearing-type process. For example, Professor Trebilcock yesterday made a number of points concerning the impact of a vendor consolidated billing option on the market and on distributors. The points he made were adverse to us, and yet we have no opportunity to test his points on the merits. We deserve the opportunity and without it, the process for examining the distribution access rule is unfair. I now turn to the question of the scope of the Board's rule-making authority, which is our second theme As we stated in our June 15th submission, we requested advice from our lawyers with respect to jurisdictional issues. Their brief is attached to our submission of June 15th. We took this step because we still question the Board's ability to effect changes contemplated in the proposed rule for a rule-making process. Without the benefit of the Board's reasons for believing that it does have this power, we have no other choice. Some parties seem to ignore the jurisdictional issue and instead rely on examples of U.S. jurisdictions where vendor consolidated billing is or will be available. They seem to suggest that this billing option is required in order to facilitate a competitive commodity market. Let me make two points in this regard. The first is that we already have a competitive natural gas commodity market in Ontario. I say this because 628,000 of Enbridge Consumers Gas's residential distribution customers buy their natural gas from marketers. The second point is that no matter how attractive the U.S. examples may seem, they're not reliable without a clear understanding of the legislative foundation and regulatory framework that were used to implement them. Our U.S. attorneys have indicated that in some states such as Georgia, legislation created wholesale distribution service and defined customer service to include a billing function. In other states such as New York, there was a thorough examination of a staff report including the opportunity to make reply as well as initial submissions and commission orders that clearly articulate not only decisions but also the reasons for making them. Three specific points were dealt with in our written submissions that relate to our concern about process and jurisdiction. These are critical from our perspective and include: impact to shareholders; financial requirements and customer mobility. Let me deal first with the financial impacts on Enbridges's shareholders that will result from the move to a vendor consolidated billing. These impacts result from a loss of direct and regular contact between the company and its customers. This contact is required for us to maintain and indeed to increase our customer base. Furthermore, it allows us to promote natural gas over other fuel choices. A vendor-consolidated bill would immediately cause Enbridge Consumers Gas to lose this direct contact with the 628,000 customers that have already moved to a vendor. Loss of direct and regular contact with customers will also affect our ability to communicate safety and efficiency messages to all customers. It will also affect our ability to continue our customer education initiatives. More work is clearly required because confusion is still prevalent. There is no other explanation for the fact that after more than 15 years after the start of deregulation of the natural gas market in Ontario, many customers, even those who have signed on the with a marketer, do not understand their options. It is no wonder customers are confused. Yesterday, Mr. Hamilton distributed copies of an OESC brochure that tells customers they'll continue to receive one bill from Enbridge Consumers Gas. If you have copies of the brochure in front of you, I'd like to turn your attention to second panel. In the shaded area in green, there is a section entitled: 'How Will This Affect My Relationship with Enbridge Consumers Gas?' The last line states: 'You will continue to get one bill from Enbridge Consumers Gas.' One would conclude from reading this brochure that OESC is not interested in billing customers, but buried in tiny print at the top is the word 'billing' as part of the agency appointment. So how would customers understand that despite the words under the shaded section 'How will this affect my relationship with Enbridge Consumers Gas?' they in fact could no longer be receiving a bill from the distributor. I turn now to our concerns regarding financial requirements. At the time of the task force deliberations, we had little experience with gas vendor failure and no experience with failures in a time of rising commodity prices. Unfortunately since that time, we have had one major vendor failure and, as a result of this experience, we now know that the potential requirements specified in the proposed rule are inadequate. The industry needs to revisit these requirements and consider factors such as the cost to all ratepayers of returning customers to system gas. The distributor needs to have discretion as to the amount and quality of the security it requires of the parties it deals with, just as any other party to a commercial transaction would, as long as this is not unduly discriminatory. The distributor must be the one to determine the amount and quality of the security based on the level of its financial exposure and the credit standing of the vendor. My final point has to do with customer mobility. Some parties may characterize ECG's concern over the customer mobility provision in the proposed rule as an attempt to have the utility to impede customer mobility. This is not the case, although the issue of how much customer mobility is desirable and practical is still to be dealt with. Our concern stems from the cumbersome STR process described in the proposed rule. This process could require up to 13 information handoffs or actions on the part of the four parties; being the distributor, the first vendor, the second vendor and the customer. This will require the development of a complicated and costly process and the process itself would drastically impede mobility. Aside from this administrative burden of the customer mobility provisions, we are very concerned about the principle of having the distributor placed in the role of resolving disputes between vendors and their customers who we still believe are our customers, as a result of customers choosing to move from one vendor to another. Determining whose contract should stand, the nuances of agency law with respect to customer inspection and enforceability of contracts, should not be up to the distributor. Each vendor may have good legal arguments with respect to the merits of their contract with the customer, just as customers may have very valid legal ideas as to their rights and obligations under their contract with the vendor; but the distributor should not have any role in deciphering customer preference in which vendor's contract is valid. The contract is between the customer and the vendor; the distributor should have no role in these matters except to implement the switch according to customer direction. We welcome questions from Board Staff and Panel. THE PRESIDING MEMBER: Thank you, Ms. Hare. Ms. McKinnon MS. McKINNON: Thank you, Mr. Chair. --- Examination by Board Staff: I have a variety of questions not in any particular order, so forgive me if I jump around a little bit as between sections of the proposed rule. First of all, some comments arising from your concerns about marketer consolidated billing and the concern you had expressed about losing the value of having that customer list and losing an opportunity to communicate with your customers. But I take it, however, there are other means by which you could communicate with your customers other than the current billing system you have in place? Have you given consideration to what those other means for communication might be? MS. HOLDER: A. Obviously one of our main communication tools we have today is the bill and bill inserts. If we lost the billing we wouldn't have that. We do use other means of communicating with our customers through the media, through general promotion ads, et cetera. We obviously could beef up those types of communications. We could do direct mail communications to our customers. I think the question then becomes a question of cost and whether we lose some of the efficiency of having the bill. It's well over a million dollars for us to send a single letter out to all our customers, so if we want to promote natural gas and promote growth in the marketplace, which is something that is that's very near and dear to our hearts, our costs would go up substantially above what they are today if we didn't have the bill to provide that information. Again safety messages. We would still be happy to get those safety messages out there it's very efficient to do it through the bill. If we lost that bill, again I think we would have some incremental costs and I think they would be substantial. Q. Let me then ask you next a question specifically regarding the safety issues. One of the rules does provide that you shall continue to provide safety messages in the event of marketer consolidated billing, but you would still be obliged to provide safety information to the marketers to be included in the bills so that we could be assured safety information was always provided. So is that not an adequate means to continue to get safety information out because that could then go on a monthly basis? A. I think this is two points there. One is I'm not sure what the cost of that would be to us because I'm not sure the marketers would want to do that free of charge. Those issues haven't been addressed yet, that I'm aware of. Second is, from a customer's perspective, I hate to say this but we sort of refer to -- when the issue is gas, people think of Enbridge Consumers Gas. We are the gas man. And it's going to take a long time of education before customers don't rely on the gas company to provide that safety information. So if somebody gets a bill from a marketer, whoever that marketer is, I'm not sure they are going to pay as much information to the inserts in that bill around safety as they would if they got an insert from Enbridge Consumers Gas. Q. Let me ask you this, though. Correct me if I'm wrong, I don't see anything in the proposed rule that would restrict you from having a flyer inserted in the monthly bill that would then clearly be a flyer from Enbridge Consumers Gas regarding safety matters. Would that answer your concern on that point? A. Probably only in part, because again I'm not sure what people will pay attention to in that flyer. So as you mentioned, safety is one of our concerns, growth of the market is another one of our concerns and energy efficiency is also a concern of ours. We put a lot of emphasis on promoting the wise use of natural gas. We would want to continue doing that. I think that's to the better of everybody. On the growth side it's just not the general promotion of natural gas, it really is -- we can talk to our customers through ads and such that gas is good but it's hard to explain in detail how they can use that gas without having more detailed information. Q. So the problem with general ads is it doesn't give you the opportunity for detailed information, the problem with you sending out your own mailings is the cost? A. Yes. Also with the general ads you cannot be customer specific. So an ad to one type of customer would not necessarily mean anything to another type of customer. With the mailing you can segregate the customer list to some extent. Q. I take it that could be answered by doing targeted mailings again, which you have identified as a cost issue, targeted communications to take particular ideas to particular segments of customers could be done through targeted mailing. A. Yes. And with substantial cost to that, which I'm not sure creates the efficiency that you want to see in the market. Q. Fair enough. I understand your point on the cost. What I'm trying to assess is are there any other potential harms to your regulated business other than increased costs by having to communicate through other means? A. To our regulated business, I can't think of anything offhand. I think Enbridge as a whole, there might also be a detriment which we had spoken to as well. Q. And in that you're referencing your concerns about the impact on your shareholdings generally or something else? A. Yes, no, our shareholders. I think the other thing just intuitively is it's not right to me as if we have the responsibility for safety and the accountability for safety to pass that off to somebody else to do on our behalf. Q. Let me ask you something else regarding the use of the customer information, and again, I'm focusing on the lists, the customer lists. I recognize there are broader relationship issues. Do these lists essentially only have value for retail purposes or is there any non-retail purpose? A. There's definitely a safety value. We would have to continue to have that list. So if a customer phoned up with a gas leak we'd know exactly where they were and who they were and what to expect when we arrive on site. So there is a value to having a list from a safety perspective for the utility. Q. Other than safety purposes, is there any other value to them in a retail versus a non retail context? [The Witness Panel confers] A. I guess I'm struggling by what you mean by retail versus non-retail. Are you talking about the selling of other products? What does that mean by retail? Q. Potentially. Well, by retail I guess I'm assuming the sale of products, and is that a perspective use for these lists in your perspective? And I suppose we should segregate out because of course you've made the fair point safety isn't a retail issue. Energy efficiency might be a retail issue, it might not be a retail issue depending on whether it's tied to energy efficient products; do you agree with that? A. Yes. I think for the general promotion of new products on the market, if there's a design of a new type of hot water that list is a value, whether because it doesn't need -- it's more effective from an efficiency point of view, from an installation point of view that would be a value. Q. Let me ask you one other question: From your perspective, if marketer consolidated billing was implemented, I take it you don't see any limitation or restriction on your ability to make use of these lists, and I say that because even if it's a marketer-consolidated billing system, as you said these billing, assuming residential customers for a moment are still customers of Enbridge, so you have a direct relationship with them as your customers and therefore I take it you don't have any concern that you might not have a right to use those lists for your own marketing services? A. Provided somehow there is an ability for us to get that list number one. I think that is also a concern. As customers move around, you combine the mobility issues with the consolidated billing issues, that we're assured that our lists are truly up to date, that we do have accurate information, then we have the necessary information to respond to safety calls, and that given millions of dollars we could probably continue to promote the growth in the market. Q. In your written submission you have stated that marketer-consolidated billing would both cause a loss of revenue to your company and then there would be a loss of efficiencies. Can you be a little more specific as to what you anticipate in terms of loss of revenue and how that arises, and what efficiencies in your view would be lost if we have a marketer consolidated billing? A. I think one efficiency I have already mentioned is if we were to continue the value of natural gas and growth in the market that we will be incurring costs that we do not incur today, well over and above what we incur today. Q. So you're not speaking of inefficiencies, if I could put it that way, and what the marketers may do in their billing, but rather the fact that if you continue to promote natural gas independently and if you continued to do safety mailings independently, there will be added costs over what there is currently? A. Yes. I think the other issue -- I'm going to use Toronto, or the City of Toronto or Toronto Hydro as an example. Toronto Hydro is going to be promoting electricity as well as natural gas. So if they're the consolidated billing agent, I would suspect that they're going to be leaning more heavily to promoting electricity than they are natural gas. So we lose -- I think no matter how hard we try through means such as general promotion, direct billing ads, we still did not have as efficient or effective means of promoting natural gas as we do by maintaining that billing relationship with our customers. Q. Moving on to a different and more broad question, in relation to the general rule that's been proposed, do you have any comments or suggestions about added consumer protection mechanisms that might be appropriate? Have you given that any thought? A. No, no. I think just the only thing I can possibly think of, and it's not protection, it's an education issue, and we've been the -- education around customer choice and direct purchase. For many years we know that still isn't as effective as we would like to all see it be. So it's not so much protection, but again who's responsible for the education piece around changes in the market. Q. Let me ask you a question about your perspectives on the value of competition, because in your submissions you made it very clear that you are in favour generally of the mobility provisions contained in -- well, they're not mobility provisions, they're the provisions for the processing of STRs -- but you have pointed out that that will allow customers to indicate to the distributor their choice of marketer and the new system you would be entitled to act on that choice. But the Section 8 side with respect to billing choices you've expressed some concerns. And my question is if competition is to be facilitated generally, but you are not satisfied with the billing options, can you suggest to me how else competition can be facilitated other than by putting the choice in the hands of the actual consumer when it comes to their billing choices? A. I'm not sure how broad you want me to answer that question. Clearly, we believe that competition is good. We know our customers want choice and we want to give them choice. We do have concerns about how well competition is working presently. I think we all would like to have seen more participants in the marketplace. We would like to see more transparency in pricing at the market. There is transparency in points in the system, but not necessarily in all parts of the market. I think we would also like to see more products. And products being defined in this case as term of contract and flexibility in those contracts. Right now we're seeing most contracts are three-year contracts fixed price. You don't see variable contracts out there. So I think the number of products are limited right now. I think the number of players are limited, and we don't have price transparency. So all those issues I think are causing some problems with regards to true competition. I don't see billing as solving those issues. Q. Well assuming that's right, and maybe billings not necessarily intended to solve all those issues, it is intended to give options to the customer as to how they receive their bills. And do you have any comments as to how else customer choice and competition can be satisfied in a billing context other than the current Proposal. MS. HOLDER: A. I think maybe there's a bit of a disagreement what we mean by competition. Competition in our view doesn't mean at the end of the day there may be a hundred percent customers choosing vendors. They'll be a percentage that will want to stay on the system gas if that's still an option. So we're saying that we have 628,000 customers that have moved, others might submit that that's still not competition because it still means more than 50 percent are with system gas. But the other point is the Board should be looking at competition with respect to natural gas, not competition with respect to billing options. Q. You said something similar to that in your submission, that the Board should not be facilitating competitors, it should be facilitating competition -- A. Competition in natural gas supply. Q. And I confess that it's not entirely clear to me the distinction you're drawing there if one of the fundamental underpinnings of competition is people in the marketplace being able to have more than one option. And as it stands currently, the only option available to them for billing is distributor consolidated billing. So what I'm trying to do is see what your response is to -- your perspectives on competition and choice in other contexts, but not the same degree of choice. We can agree to disagree whether that's competition or not, let's call it choice for the moment on billing options; do you have any further comments on that or have we exhausted that? A. I think one thing we need to remind ourselves is that the markets and the customers have a billing option now in that -- the marketer bill through the utility ABCT. So I'm not sure -- I guess in my mind competition is getting more options and better prices out to the customers. I'm not sure what billing -- a billing option, how that gets better prices out there in that I actually see it creating some insufficiencies at least for the utility and managing to promote the growth and efficiency of natural gas. Q. Fair Enough. Let's me move on to something else in light of our time constraints. You have expressed concerns about the security arrangements provided for in the proposed rules; do you have some specific comments as to how those provisions could be improved? MR. FARRELL: A. You mean prudential terms? Q. Yes, I think they're referred to as security arrangements, and I think we're talking about the same thing. When you say prudential and I say security, it's Rule 9 I believe. Yes, Rule 9? MS. HARE: A. We were involved obviously with the original proposal and thought the original proposal was correct until we actually had a recent failure and came to some realizations that I guess we hadn't thought of in the past. One is if the customer has an assignment of our up-stream transportational and TransCanada Pipelines, which is the way the market works right now, and they stopped paying TransCanada's bill, then the utility is left with that responsibility. And currently the prudential requirements don't cover for that situation. The other is, I guess, in the rising market I think there's a 10 percent limit. If the customer base of the marketer change is less than 10 percent then there's no change in requirement to the utility, however, in these markets, 10 percent could be a million dollars, over a million dollars if the customers changed substantially. So that 10 percent value may not be sufficient. The other one which is probably not as much of a concern and that's the two and a half percent times the maximum -- the maximum monthly bill. The way we currently collect that would mean that if they were arrears and they're already sending in the bill for the next month, we would have to recognize that they were going into receivership much sooner than we think our normal practices are. The fourth probably most difficult situation that they don't cover, and this will be a very difficult one for them to cover, currently if the marketer fails, their customers return to system supply. We don't shut them off, we immediately take them on. Obviously our portfolio has not -- is not planned for that, so we don't necessarily have the gas molecules for them. We have to go out and buy that gas. In the past I remember probably the first day of the last failure, because it was a rising market, one day it was probably about $80,000 worth of gas we put in the PGDA. Now we, yes, we could probably go back and collect that from the customers of the marketer who failed, but we don't have a means of doing that, and that's also not exactly customer focused in our mind. So that money goes into the PGDA to be collected by all other ratepayers or system -- sorry, just system supply customers. So that is the other component that I think was missed when the rules were drafted. Q. Anything else, or does that cover your thoughts on improvements to that rule? A. I think that covers that. Q. Let me ask you one other question relating to security issues. A distributor is entitled to seek security from both the gas vendor and from a consumer, and this has raised the potential concern, and of course the gas vendors or the marketers are also entitled to seek security from their customers. This has raised the potential concern of a consumer having to pay duplicate security in the event they transfer from other marketer to a distributor or the other way; do you have some views about the insertion of a provision that any security held either by a distributor or a marketer ought to be terminated or returned, whatever the case may be in, the event that a consumer changes the goods and services -- changes the party from whom they're getting their services or the gas. The design of that intended to be avoiding a duplication so that a consumer would not be giving security to two entities essentially for the same services. A. You're assuming that only one party is responsible for the collection of the monies? I guess it depends on what sort of scenario you're talking about. I think the principle customers should not have to pay double security for the exact same bill. But if they should require the security for the distribution charges to ensure the utility gets paid, the security for the commodity to ensure the vendor gets paid, then I could see that there can be rationale for two securities. Q. In that circumstance, although I think practically it's arguably, the case that the distributor would also be looking for security from marketing to forward on any monies collected for the distributor service. So it might not be the case that you'd be looking directly to the consumer for security in that circumstance; is that fair? A. Again, it would depend on the circumstance. In the past case the money that we didn't collect from the marketer, the gas customers of that marketer or those marketers that failed did pay their bills. We did not have an issue there. We only had an issue with the money that was owing to us by the marketer for gas services. Q. Another question, jumping around a bit by topics, there has been some concern expressed by some parties that Section 6 of the rule, which would require a distributor to act on a consumer's direction to change marketers might cause some interference with existing contracts either between distributors and marketers or marketers and customers. And there is a provision contained in the retail settlement code that describes the procedures in that code for STRs. I'm just going to read it to you. It's quite brief. And get your comments on it as to whether or not it is reasonable language to insert in to this rule. And the retail settlement codes say, "Nothing in Section 10 ..." MR. FARRELL: A. Can I have the section, please? Q. Yes, this is the section. A. Yes, I've got the retail settlement code here so we can follow along. Q. It is contained -- hang on. It's 4.1 of the December 15, 2000 version; do you have that one, because I have an extra copy if you don't? A. Actually I have the June 15th, 2001 version. Q. Well, we'll check and see if the language is the same. "Nothing in Sections 10.5 to 10.5.5 should be interpreted as in any way interfering with the contractual rights or obligations of retailers or consumers or the remedies available to retailers or consumers to enforce those contractual rights or obligations." Now I recognize that this is not a concern you've raised, that the distributor-transferring consumers in accordance with their request is an issue, but other parties have suggested that that may cause the distributor to be in breach of contracts with marketers; do you have any views about the usefulness or adequacy of this kind of language to make it express that this Rule is not intending to interfere with any existing contractual rights or remedies that the parties may have. MR. FARRELL: Well, from our perspective the only contractual obligations we have to a marketer per se is under the collection service agreements that are part of the billing and collection service. Our distribution contracts, gas transportation agreements and gas sales agreements are with end users. They are the customers. The marketers are only the agent. Q. Excuse me just for one moment. Set priorities so we don't run overtime. [The Board confers] MS. McKINNON: Thank you for that moment. Q. Yesterday we heard the submissions from IGUA and I suspect you may be familiar with their written submission in which they have recommended an addition to the provisions - let's just look at it. It's Rule 3 - which identify what the claimed purchase price may include and they have recommended an addition such that the claimed purchase price would include any upstream transportation costs that might be incurred by a party that contracts for its own gas supply. Do you have any comments on that proposal? MS. HOLDER: A. We don't have a problem with that. Q. And in addition, the definition of "emergency" that's been provided for in the Proposed GDAR, you may also be aware that there is an alternate definition proposed by IGUA. Do you have any comments on either the proposal in the GDAR or IGUA's proposal to narrow the circumstances in which an emergency might be considered to apply? A. Sorry, I just want to refresh my memory. Q. Sure, just take a moment. [The Witness references document] A. Again I don't think I have any concerns with the intent of IGUA's proposal. The only issue I have is the word "commodity markets". I think commodity markets may mean something different to a lot of people. If they're really talking about the value of the commodity in the market, which I think is my understanding of what IGUA was referring to, then I do not have a problem with what their recommendation is. Q. Let me ask your view, because this is an interpretation issue I think, if you note -- if you have the definition of "emergency" in front of you that IGUA proposed and you look at the third line -- A. Right. Q. -- what they're suggesting is that emergency means a sudden unanticipated situation during which a distributor is unable to acquire sufficient gas supplies in the commodity market or through interruptible. There's a question whether that definition precludes emergencies in a distribution system. A. That's why I was saying that I have concern with what they mean by commodity markets. If they mean commodity markets as the commodity in the market meaning our marketplace, then I'm happy with their definition. If they mean commodity markets being ACCO and Alberta, then I have concern with their definition. Q. Thank you. I have just one or perhaps two more questions. Yesterday there was a concern expressed by Direct Energy and OESC that if their customers were allowed to give a direction to the distributor and they were allowed to switch to another marketer, and if this happened to any significant degree such that their customer base and their fixed price long-term contracts were then undermined, they expressed a concern that the suppliers from whom they purchase gas would, because of the uncertainty in their customer base, require significantly higher or more onerous terms of security that would then be become onerous to them and potentially undermine their ability to carry on. I'll repeat that if you missed it but -- so their concern ultimately was that the section 6 provisions which allow consumers to direct a distributor to switch marketers would potentially so undermine their customer base, which is primarily long-term fixed price contracts as I understand it, that the people from whom they get supply would be so concerned about I suppose their revenue flows in which would be affected if contracts were breached to any significant degree that the suppliers would then be applying such onerous terms on them by way of security that it would impact their viability. Now, your company is also in the business of dealing with suppliers and do you have any comments on that scenario and the likely impact of real harm to the marketers? A. I've never been in a situation to buy gas on the basis of a marketer. I've obviously been in a situation to buy gas from the utility's perspective which we do not have a firm customer base either, so we deal with that through having a variety of portfolio. And we also have -- we don't have a fixed price contract so that's how the utility deals with that situation. As the price goes up, we collect more. As the price goes down, we collect less, and pay more or pay less. I'm not sure to be honest because I've never gone to a supplier and said if I only had this many customers and I want to buy gas at a fixed price but that customer base could shrink or be higher, what they would offer me. MS. McKINNON: Fair enough. Those are all my questions. Thank you. THE PRESIDING MEMBER: Thank you, Ms. McKinnon. Mr. Birchenough? --- Examination by the Board: MR. BIRCHENOUGH: I just have one. Q. Your presentation focuses on vendor consolidated billing. I'd like to hear your views on the split billing option, if any? MS. HOLDER: A. We are agreeable to split billing. Our position is the people providing the service should have the right to bill for those services. THE PRESIDING MEMBER: Ms. Halladay? MS. HALLADAY: Yes, I just have a couple questions. Q. And the area I would like to focus on is process because I'm very concerned about the process. Ms. Hare, is it your position that the process for this Rule is not appropriate or flawed? MS. HARE: A. Yes, I think inappropriate is a good choice of words. I think through our written submissions and in our oral presentation we tried to illustrate the impact on our company and on customers. And following the issuance of the Task Force Report, the only opportunity was through written submissions. We're not able to question other parties. There's no evidence provided in advance that we can test and so we think that the magnitude of the impact of this DAR deserved a process which would have constituted more of a hearing. Q. So you would expect that we should then go and have a generic hearing on the DAR. Is that what you're advocating? A. Well, unfortunately it's what we would have preferred at the outset. Now we're kind of changing the process as we go. We would have preferred to have seen a generic hearing on DAR at the outset, yes. Q. I get concerned because I think that we're in a bit of a cycle as far as process is concerned in trying to figure out how the DAR fits in with Phase 2 of RP-1999-0001 on the unbundling application that may or may not come and how do you see them all fitting together. Obviously, the unbundling process will give Enbridge the opportunity to call witnesses and examine witnesses and I'm sure that the extent of witnesses and cross-examination will be an issue in that application. Would you like to comment on that? MR. FARRELL: I think the way we view it, Ms. Halladay, is that the Rule is so far reaching in both scope and implications that quite apart from our jurisdictional concerns that something other than a notice and comment process would have been preferable. I think at the outset we saw issues that are covered by DAR as being are they in Phase 2 of that former proceeding or are they not. And my recollection is that the parties wrote the Board a letter and gave a list of topics that might be, I think the term was 'ripe for consideration' by the Board, and Phase 2 never happened and the DAR process was implemented. And that's I think because at the time Phase 2 was being contemplated, it was very unclear what would be in the DAR and what would be in Phase 2 and I'm not too sure -- or I am sure, I guess from our perspective that certain things made it into the DAR process that we would have preferred to see either in Phase 2 or a generic hearing because as you might recall Union was concerned if we went forward with our Phase 2, their concerns might not be adequately covered in that proceeding. I think it was their pre-PBR filing and so on. So there was really a sort of procedural rigmarole at the time. MS. HALLADAY: It has been a bit of balancing act to try to deal with the concerns of Enbridge and the concerns of Union and the concerns of pushing it through. There is a provision in the Rule to deal with exemptions from the Rule. Does that afford Enbridge any comfort that they can apply for an exemption from the Rule if they don't feel that it adequately protects your interests of any particular provision? MR. FARRELL: I think that the company feels that the Rule should result from a process that takes into account the ability to test the positions of other parties rather than an exemption provision. I don't know whether an exemption would be a nice clean-cut thing or not. I've had some experience under another Code with an exemption application and parties I think -- my experience there tells me parties wish to be notified of every exemption application and be afforded the right to participate in the exemption application. So I'm not sure that an exemption application wouldn't turn into a mini generic hearing in any event. So I don't know whether efficiency would be gained by the exemption application, depending on its scope. If it's a minor thing, then presumably people wouldn't care. If it was a major thing however, then I think you would have a type of generic proceeding disguised as an exemption proceeding. MS. HALLADAY: So apart from the right under a generic proceeding to test and cross-examine the positions of the parties, is there anything that you feel is missing from the process apart from that? MR. FARRELL: Let me make two points here. The first has to do with the need for a hearing and not to single out Professor Trebilcock again but I will. He was presented as an expert and I don't have any quarrel with his expertise, however an expert witness is a witness entitled to give an opinion. We might quarrel with his opinion and so in that case a hearing is needed to test the value of his opinion. I think it would also be useful, quite apart from whether there was a hearing, for if we're going to be following in part what's happening in the U.S. it seems to me from the little bit that I have read and using New York as an example, the commission there issued what they called, I think, their billing order. And in that order it not only set out the rules a la DAR itself, but the reasons and the Board's views of the submissions made by parties and the Board's reasons for making certain policy or even administrative decisions. And we don't have the benefit at this point of knowing why the Board has chosen some of the administrative or policy things that are reflected in DAR. And I think it would help parties such as -- well, certainly it would help us but I won't speak for others -- to know the Board's rationale and reasons and understanding. We might not agree with them, but at least we'd know why you made certain choices. I think that would be of great assistance in this process if you stick to it and when you publish your final rule, as such, if you were to publish a decision with it at least it would be instructive to us as to why you found our views not compelling in some cases or compelling in others. MS. HALLADAY: When we had the presentations for model franchise agreement, the Panel did write a report to the Board outlining why the Panel made certain recommendations. Is that what you had in mind as far as this process is concerned? MR. FARRELL: I'm familiar with the report but I did not study it in detail because I was not involved in that proceeding. So I guess what I am saying is if that report clearly articulated the reasons for choosing one versus another, then that is what I would advocate, yes. MS. HALLADAY: As much as I could do when I wrote the report, Mr. Farrell. MR. FARRELL: Well then I'll certainly read it. MS. HALLADAY: Thank you very much. Those are my questions. THE PRESIDING MEMBER: Thank you. I want to follow up on the process question. I want to be clear about this. Q. Despite what has gone on before and the fact that you would have preferred a generic hearing on the Access Rule right from the beginning as opposed to the process unfolding, you would still at this point have preferred a full-fledged quasi-judicial hearing on the Access Rule? MR. FARRELL: I think -- MS. HARE: A. If I understand your question, you are asking me what the Board should have done, or what it wanted to do? Q. At this point in time. A. At this point in time what the Board should do? I think that's a difficult question because I think what we're seeing both through written comments and the submissions is that there's a great deal of disagreement on a number of points. So it would be difficult for the Board to know how we now move forward. And on the other hand we do want to move forward and I think this is part of our submission within Mr. Farrell's comments about looking for the Board's reasons for decision. I don't really know what the process is that the Board had intended going forward. I don't know if, for example, the parties will be asked to provide another round of written comments base on what was heard today, whether or not there would be a report, whether there would be another version of the rule that we would be able to comment on? Frankly, that was the problem with the process from the outset is that we didn't know what was coming next or how to fix it at this at this point. I'm not sure I can help you. Q. Okay. And I appreciated the directness of the language in your submission of June 15th. I was seeking an explanation as to what Enbridge's position would have been going back a month and saying: 'Look, instead of having an oral consultation', would you at that time have said: 'No, no, don't do that. Have a hearing, a full-fledged hearing'? A. Yes, if canvassed, say, at the beginning of May, we would have said let's have a full-fledged generic hearing. Q. Okay. That answers my question, thank you. I had a question on billing options in your submissions and it's at page 5. This is on your June 15th submission. You state quite explicitly that -- this is under Billing Options: 'The choice may include gasmen and consolidated billing to be sure, but only when the gas distributor determines that this is an advisable billing option. Customers should only be able to choose billing option from a menu of options that the distributor is willing to offer.' I'm puzzled by that as to where customer choice fits in with that description of how it should be done. Is that the customer making a choice or is that the distributor making a choice? MS. HOLDER: A. I think that what we're saying is that when we refer to customer choice we're referring to where the customer or who the customer buys their services, being a gas commodity, any of the other gas-related services other than obviously distribution services are provided only by the distributor. So that's what we refer to 'by choice'. We don't believe customer choice and billing is necessary to create competition. Q. Okay. So it's not the customer who should decide who sends the bill, it's the distributor? I don't want to put words in your mouth, but is that what you're saying? A. Currently, yes. MR. FARRELL: The provider of the service, in this case the distribution service. If marketers wish to provide a bill for the services they provide, that is the commodity, then if they don't want us to do it they can do it themselves. I think our position is that the service provider should have a choice of how he or she collects for services provided. THE PRESIDING MEMBER: Okay. I have no further questions. Any more questions from Ms. McKinnon? MS. McKINNON: No thank you, Mr. Chair. THE PRESIDING MEMBER: Well, thank you very much, Ms. Hare, Ms. Holder, Mr. Farrell for your presentation. We of course will consider your comments. Thank you very much. [The Panel withdraws] THE PRESIDING MEMBER: Okay. The next presentation is from the City of Kitchener. And I would ask the folks to introduce themselves. MR. RYDER: Yes. My name is Alick Ryder and I am the counsel for the City, but Mr. Quinn, who is the manager of the utility, will make the presentation. THE PRESIDING MEMBER: Welcome. --- Presentation by the City of Kitchener: MR. QUINN: Thank you, sir. Good morning Board Members, Board Staff and others present here today. I want to thank you for the opportunity to address the Ontario Energy Board on these important matters. I am going to give some background to my comments up front and then I'm going to focus on four specific areas. Given the amount of time I thought I would just highlight four areas that we have raised consideration for, and that is: distributor-provided services in 2.2.2; customer choice in 6.1 where the utility takes direction from customer; billing options in 8.3.1 referring to gasmen or consolidated billing; and finally, customer information limitations in section 7.1.1. I think it important to provide just a little background on Kitchener Utilities. We are an integrated gas and water utility serving approximately 50,000 customers in the City of Kitchener. Unlike electrical utilities of the day, Kitchener Utilities does not have a separate Board of Directors. We are a division of the corporation responsible through City staff directly to City Council. We have a fundamental philosophy: most of our customers are also owners of the utility as taxpayers. We believe the long-term interest of our customers and owners are best served by effective markets in those areas where competition delivers value. We also believe that in natural monopolies or inefficient markets, utilities can provide value-added services desired by our customers while generating benefits for our owners. We are interested in the development of market rules that will create efficiencies while maintaining strong, safe delivery systems. These foregoing philosophies give us the mandate to do the right thing on behalf of our stakeholders. Our desire to be involved in shaping progressive change has led to my role as Kitchener's representative on the Board of Directors of the Ontario Natural Gas Association and on the Natural Gas Advisory Council for the Technical Standards and Safety Authority. The TSSA encompasses the responsibility formerly held by the Fuel Safety Branch of the Ministry of Consumer and Corporate Relations. This is the area we have been involved with in addressing safety issues. Through the evolution of energy market development, we use the philosophies noted to determine which initiatives to undertake and what positions to take in contributing our ideas to the change process. As part of the original Distribution Access Rule Task Force, this philosophy has made it easy to accept our marching orders. We are told to take off our corporate hats and to recommend rules which would assist in market development in the best interest of all stakeholders. Our presence here today speaks to the inability of our task force to succeed in carrying out those orders and reach consensus for the benefit of all. I believe that the Board and its staff have been able to take the best of our recommendations made in the original report in developing the draft Rule. My purpose here today is to provide the Board with the City of Kitchener's position in support of the Rule, while offering ideas to enhance the Rule consistent with its intent. My first comments will relate to the safety obligations of the gas utility in section 2.2.2 of the draft -- section 2.2.2 of the draft rule lays out services which have been fundamental to the safe operation of natural gas utilities for decades. In Ontario it is clear that the public generally regards the provision of safe and reliable public utility like natural gas or water or electricity as governmental responsibility. The Walkerton tragedy and its aftermath prove that notwithstanding the delegation of many functions respecting the delivery of a safe municipal water supply, the public holds the government to be ultimately responsible. The Ontario Energy Board as an agent of government holds a responsibility for granting -- the granting of franchise rights to natural gas distributors. With the onset of PBR, the Board realizes that economic incentives change. It is our submission that this is the time to ensure the public interest is served by making the safety obligation of the distributor explicit in the granting of franchises to utilities. The draft rule refers to distribution of services subject to the provisions of any legislation, regulation and other applicable law. Although this certainly sounds appropriate, our experience in development recommendations in the task force concluded that some services provided historically are not covered by any provisions of legislation, regulation or law, and even if they are covered, they can be subject to change. Emergency response has always been provided by natural gas utilities for the safety of its customers and the protection of its image and its investment. However, when the task group sought legislation, regulation or law, which places the onuses for the service on the utility, none was found. Our concern is not just hypothetical. In my role in the natural gas advisory council for the TSSA, I was involved in discussions about the delivery systems to ensure safety of natural gas systems and its customers. Those discussions included the possibilities of replacing utility-provided inspections and the emergency response with systems provided by others. While it was emphasized that the currently safety level must be maintained or improved, it was recognized that the economic drivers of PBR are different from those of cost of service. For the record here, my position in this meeting was that I believe incorporated into the rates that we charge for delivery service are the cost of appliance inspection, service and emergencies response that our customers have come to rely on for safety. While Kitchener is willing to look at improved delivery systems for these services, I believe that it is inappropriate to transfer this cost to customers through third-party provision or certification, especially if the rates remain unadjusted. It is my submission that if the Board wants to ensure that these services are maintained through the evolution of the industry, responsibility should lie with the distributor to ensure provision. The distributor may choose to provide the services through a third party, but they must maintain responsibility financially and economically. One possibly means of ensuring acceptance of the responsibility is to make these services a condition of granting the franchise. Also the draft rule refers to "subject to". This "subject to" may serve to reduce the responsibilities of the distributor if it is not covered explicitly elsewhere. The next section that I would like to comment on is the area of customer choice in Section 6.1 of the draft rule. Kitchener supports the procedures set in Section 6 of the rule as a reasonable balance between the competing interest involved in this area. Customer choice is a foundation of market development as an economic driver. Although this issue has sometimes been characterized as an issue of sanctity of contract, that is clearly not the case. Neither Kitchener nor any other party that I have heard from supports the unilateral breaching of a contract without cause. This issue is about enforcement of contracts. Since the onset of the marketing of gas contracts, gas utilities have been put in the role of contract enforcer. It has been difficult to be in a position as some marketing practices has misinformed customers for the purpose of persuading to contract, then the utility is put in the position of enforcing a contract entered into through misrepresentation, with no power to resolve the dispute. Most of the disputes revolve around what the customer was told when they were signing at the time of contract. Independent of what the customer was told, the distributor becomes responsible to enforce that contract. Although the Ontario Energy Marketers Association attempted to resolve some of these disputes, Kitchener constituents let their city councilors know that they expected the utility to act to protect them. They suggested the city put a moratorium on contracting until sufficient consumer protection was put in place. Instead, Kitchener established a disclosure information sheet that required the vendor to clearly inform the customer that they were entering into a contract with certain terms and conditions. Very importantly, the sheet emphasized that the vendor was not affiliated with the city. This practice ensured that our constituents could make an informed contracting decision and eliminated the need for Kitchener to be involved with resolving disputes related to the terms of offering of the contract. Although not perfect, the system increased the probability of an informed decision by the customer. The Board's draft rule goes a step further in allowing the customer a voice should they determine they were misinformed at the time of contracting. Again, Kitchener does not endorse the breaking of contracts; however, if the customers legitimately believe that they have been misinformed, they can risk opting out. The pure cost of enforcement by gas vendors will drive the contracting process toward customer satisfaction and choice will underpin market development. Kitchener intends to discontinue the use of it's disclosure sheet should the current rule be implemented allowing the customer to give direction to the utility. Some parties have suggested that past contracts should be grandfathered, keeping the same enforcement practices. Beyond the aspect of creating two classes of customers, if grandfathering were allowed, it would endorse the questionable marketing practices of the past. If a vendor did not have questionable marketing practices, they would not be concerned. I believe that this is evidenced by the lack of support of grandfathering of -- of the grandfathering by CEED as a retail market participate. Kitchener's experience would suggest that grandfathering would continue a practice that has proven problematic. Kitchener's billing system first incorporated the name of the gas supplier on the bill with the implementation of our new billing system in 1999. With the introduction of agent billing and collection service, the customer had to be notified of their respective broker. The deluge of phone calls clearly told us that most customers did not even know that they were under contract to a vendor, as they believed they had signed up for a city-sponsored gas program. Although some may say that this type of marketing is ancient history, I know that to be otherwise. Two months ago our staff received phone calls from customers who were concerned that they were approached at their door -- at the door of their home by people who said that they were working with the city to offer a fixed gas-price program. Through the customers we learned who the gas vendor was. When the vendor was reminded of our disclosure information sheet requirement, they choose to leave the city as opposed to using the form. Therefore, Kitchener supports the Board and the principle of customer choice in the area of direction from the customer to the gas utility for gas supply contracting. Kitchener's belief in the principle of customer choice extends to the billing options in Section 8.3.1 of the draft rule. As noted in my introduction, we view our customers as owners. Our responsibility under regulation is to facilitate competition. However, the public utility, our commitment to choice is even deeper. I don't believe that I am discharging my duties as a public servant if I artificially preclude market choices from my owners. I believe that we should provide all services to the level of our customer satisfaction. If we don't, they should have a choice to go elsewhere. But being a municipal utility with a responsibility to prudence with public funds, there are limitations to extend our ability to provide service. In the context of this section, Kitchener supports the Board in the determination that customers should have a choice of gas vendor consolidated billing. Kitchener is keenly aware that supporting this principle puts at risk part of its investment in the recently implemented billing system. However, Kitchener believes that if customer choice is the right principle in areas such as contracting, it also must be the right principal in the area of choice of billing providers. I have heard it expressed that some market participants do not believe that this option should be provided because customers don't want it. But I believe some will. You only have to consider the addition of energy telecommunication services that could be billed by a vendor to understand that customers may choose the billing services of another provider. Whether one believes customers will choose another billing service or not, Kitchener submits that it should be their choice, and let the customers voice their desires through choosing their billing system. Kitchener supports their customer's right to choose and commends the Board for providing this choice as part of the draft rule. As noted at other times throughout this presentation, Kitchener has recently implemented a new billing system. The billing system's foundation is a relational database which is designed to maintain customer information and render billing for all city services. Beyond the traditional gas billings, the system is designed for taxation, water, rental water heaters, appliance financing and servicing, alarm response, ballpark rental fees and a host of other city services. The invoice sent to a customer on a regular basis could provide information from the city on any or all of these services over time. The draft rule limits the customer information to the more traditional gas billing requirements. Kitchener would respectfully request the Board's acceptance of the city situation through exemption. The City of Kitchener appreciates the opportunity to address the Board and provide the benefit of its experience. While development by definition takes time, Kitchener believes that the Board will nurture market development by its draft rule. We remain available to serve the Board in the developmental of market rules for the benefit of all interested participates. Thank you. THE PRESIDING MEMBER: Thank you Mr. Quinn. Any questions from staff? [The Panel confers] MS. MCKINNON: Thank you, Mr. Chair. [The Panel confers] MS. MCKINNON: Sorry about that, Mr. Chair. Thank you. --- Examination by Board Staff: Q. First of all, if I could clarify, Mr. Quinn, a couple of points regarding your current billing system in place. In your written submission, while I guess this crosses two areas, in your written submission under Section 7 Customer Information, you've made reference to your integrated billing system, and then you've said, "collection retention and release of this information is guided by principles developed from many statutory regulations and municipality by-laws." Can you give me some idea of the nature of existing regulations that apply to your use of customer information to the extent that those do have an impact on your billing issue? MR. QUINN: A. To answer your question, I am not an expert in that security area. I have sat with our folks in our finance area and they have assured me of regulations related to privacy and disclosure are always paramount, and we have that internally as policy, but I don't know the regulations that underpins those policies. Q. Certainly I suspect there is a municipal freedom of information and protection of privacy act, and I would certainly expect that to apply. I didn't know whether this reference might have been referring to other statutory provisions. But I respect that you're not sufficiently familiar with that area. Let me ask a similar question: Are you aware whether any of the other statutory requirements or even guidelines are in conflict in any way with the rules proposed in this rule, the DAR, either in Section 7 on customer information or in the billing provisions in Section 8, do you know if there are any conflicts? A. No, I addressed this with our staff directly and they did not point out any conflicts that they felt that they couldn't abide by if it was in the draft rule. Q. Now, recognizing the request for an exemption regarding billing matters, setting that aside just for a moment, if I can clarify, I take it the bills are sent by the city itself? A. That's correct. Q. And are there existing system limits on your ability to provide the billing options that are set out in the DAR? A. There would be a need for additional programming to provide interferences if there were -- as an example split billing or gas vendor consolidated, we would have to have electronic data interchange capabilities with vendors to make sure that the process didn't take months to get a bill out the door. So that would have to be done and it would take some time, but our commitment would be to follow what is required by the rule when implemented. Q. Okay. So just to clarify then, to the extent that you do seek an exemption, it would be for a limited time period while you got your systems in position to be able to comply? A. I should be very clear. We do -- we would need to put in programming to provide the opportunity for split or retail consolidated billing. We'd also, though, have a desire to continue to use our billing system to its full capabilities as designed, because it was designed as an integrated city billing system; therefore, the data would all be kept together, customer information, and the bill would be sent out for numerous other services, not just gas. If a retailer was taking responsibility for billing a customer, then they would get a separate bill just for their gas services. And whatever other items the retailer may want to put on, we would still continue to send out a bill for their water and many other city services that a customer may have. Q. Understood. Thank you. Can you comment, since Kitchener has had the experience for sometime of providing customers with one bill that provides a billing service for a variety of functions, can you give us your comments on what benefits you think your customers in Kitchener obtained by reason of a single billing for multi services? A. Again, to be clear, we are still implementing a billing system; additional modules are being added. These have been requested for some time by our customers. They want simplicity and they want one bill. They want to be able to make one transaction for a number of services. So long as those services are broken out so that they can understand what they're paying for, they would like us to simplify as much as possible. In fact, some of our billing has been handled in the past by a separate bill, and it has long been a point of contention with our customers as to why we cannot integrate it on the same bill. We are in the process of doing that. This is why we would not want to return to sending out a separate bill for a number of different services. They've been asking for it, and the city has decided to invest in a system that would bill all of the services on one bill. If followed, this rule explicitly, we would have to separate gas service billing from the rest of the city services. Q. Turning to Section 7 of the proposed gas distribution access rule dealing with customer information, do you have any comments on that rule, and in particular whether there are any additional protections regarding customer information that might be useful? A. Having been a part of the original task group and seeing the rule as written, I believe that the provided -- what we were looking for in a balance of, you know, ensuring the customer's privacy and the information be used appropriately, and I have nothing more to add in terms of recommendations. Q. Could I just draw your attention specifically to 7.4, which is the provision on metered accessibility. That states, "A customer shall have unfettered access to the meters." Is that something you have any comment on as a component of the rule? A. If I may, the accessibility is something that we currently deal with at this time. We have some customers that have desire to have their meter information and we provide a service to them so that they have it if they want to get that information for themselves. Section 7.4.2 is a result of our experience, and that is that we require the customer to ensure that industry Canada or measurement Canada as a division of industry Canada provisions are maintained. They limited access to a meter which has been proven to be accurate. They do want people fooling with the meter. So we would want the onus being on the customer to ensure that industry Canada requirements are maintained. Given that, then I think the customer should have access to their meters. With today's technology, that can be done for a fraction of what it use to cost customers. Q. Just going back for a moment to the billing provisions under Section 8, I meant to ask you this when you were speaking of the modifications you might need to prepare for Section 8. Do you have a sense of the timing that it would require for you to be in compliance with Section 8? A. Having learned not to be too optimistic with billing system implementations and programming, I would suggest they would be within the year, but I'd be hard pressed to define it further than that. There are some priorities that we are going through right now. We would have to readjust and we would be willing to readjust our priorities, but it's a resource commitment that we would have to make to do this, and we would also want to work toward a common standard, and this was contemplated in discussions at the time of distribution access rule task force, that a common standard would be preferable in the industry so that information could be exchanged between vendors and distribution utilities without having to go through a number of different standards. So I would like to suggest that we would probably do our programming once we knew the standard. And so given an understanding what timetable we would get to a standard, then we would do a programming around that, and I would say that it would be within the year. Q. With respect to Section 6 of the proposed rule -- first of all, let me clarify this, in the franchise area that you serve. Are there any existing gas venders or marketers? A. Yes, there are. Q. And so in terms of the requirement of Section 6 that you process service transfer requests for a variety of purposes including a consumer wanting to switch to a marketer or a different marketer, is ... A. Yes, we do. Q. One thing, Mr. Quinn, that you may be familiar with, there have been submissions filed by IGUA regarding the emergency provisions in section 3 of the Rule. And if you've had an opportunity to review those, you will see that they have a proposal to modify section 3.2.4 such that the claimed purchase price would also include charges incurred -- transportation charges and other charges incurred upstream, particularly applying to those users who enter into their own supply contracts and they don't reply on the distributors. Do you have any comments on the usefulness of that as an added component of section 3.2.4? A. I'm familiar with the comments. I don't have them in front of me, but I believe their intent is met by the words that are there. I would, however, like to comment on the area in question from the previous panel about the definition of an emergency which was brought up. Q. Yes, I was going to ask you that next. A. Okay. Thank you. I am concerned and we went through this distinction in the task force. Emergency is not about the acquisition of gas commodity. It's about the physical ability of a distributor to provide service. Gas is available in the commodity markets. It depends on what price you want to pay for that gas, and it was a great concern from IGUA's representation that this not be what they call a price majeure, so if the price of the gas is too high, the distributor doesn't want to buy that day. That's not what talking about here and I believe I am consistent with all gas distributors in recognizing that this is about the physical inability to get gas to all customers. That's when an emergency would be called and so it would be about delivery obligations and not about acquiring gas in a commodity market. So their amendment would focus more on acquiring the gas commodity in the definition of "emergency" whereas written as it is right now, to maintain firm distribution service to me is more consistent with the intent of emergency by the task group and from our view as the City of Kitchener. Q. Thank you, Mr. Quinn. Final question relating to section 9 of the Proposed Rule and section 9 covers the security arrangements. And as you know, a distributor may require security from a customer or a gas vendor or both. Do you have any views as to the adequacy of the security amounts and the forms in which security may be provided? A. This question was asked of me specifically by our chief financial officer in reviewing this. The interesting thing from our perspective, we have not developed strong security arrangements in our city. As you can imagine as a municipal utility whose billing is done by the city, we have other ways of ensuring payment. So this is kind of a new area for us because the agent or marketer in this case may not have a responsibility to the city through being a landowner or other means. So we have generally followed what is in here and seen it as an improvement to what we're doing today. And I believe that there is a balance of interests in here and I don't believe that exposure -- if we are managing our receivables, I don't believe the exposure could get too great. So I think these are adequate as written and the different types of arrangement provide choice for the city and for the vendor to make sure they come up with something that works for both parties. MS. McKINNON: Thank you, Mr. Quinn. Mr. Chair, those are all my questions. THE PRESIDING MEMBER: Thank you, Ms. McKinnon. Ms. Halladay? --- Examination by the Board: MS. HALLADAY: Q. I was just curious, Mr. Quinn, what percentage of your ratepayers are served by marketers? Do you have any idea? MR. QUINN: A. I don't have an accurate percentage. In terms of volume it is significant because most of our large industrials are served by some vendor, through an energy management consultant. I honestly don't have that figure. It part of our new billing system's capability to provide us that information and that's a module that has been put lower on the priority list. Q. I appreciate that. Do you have any ballpark figures? A. It would be in my belief in terms of number of customers, it would be less than ten per cent, somewhere between five and ten. We have just gone through a June 1st renewal and through that time with people moving and stuff, we still don't have an accurate figure as to the number of customers that are under contract to different vendors, but five to ten per cent would be in the ballpark. MS. HALLADAY: Thank you very much. THE PRESIDING MEMBER: Mr. Quinn, that completes the questioning of you and I appreciate your presence here and the responses to the questions. It's a help to the Panel. Thank you very much. [The City of Kitchener withdraws] THE PRESIDING MEMBER: I believe this would be an appropriate time to take a break and come back and have NRG appear before the Panel. Let us come back by eleven-thirty and commence at that point. Thank you very much. We are adjourned. --- Recess taken at 11:10 a.m. --- On resuming at 11:33 a.m. THE PRESIDING MEMBER: Please be seated. We now welcome to the Board NRG. If you would introduce yourselves, gentlemen, we could proceed. --- Presentation by NRG: MR. BLAKE: I'm Bill Blake, the president and general manager of NRG. With me is Sandy McCallum. He's our financial manager. I guess you probably don't need any of the history of the company and how we are regulated by the Board. We have about 5,000 customers. We operate generally in the service area south and east of London between the 401 and Lake Erie. Our base is sort of an agriculture-based area. We don't have any centers except Aylmer; the rest are all in the small rural community or in rural areas. A lot of our business-based customers are agricultural with tobacco, grain drying, those sorts of accounts. Our largest account is the Imperial Tobacco factory and we have the Ontario Police College as our second largest account and then they go down from there to greenhouses, grain dryers, that sort of thing. So we're pleased to be here today with the opportunity to present our position on GDAR as it relates to smaller gas utilities. NRG sent in submissions together with Six Nations earlier and we've tried to work with Six Nations in combining our efforts for commenting in an attempt to limit costs. Both Six Nations and NRG are embedded distributors of Union Gas and so we have some concerns in that we think we need a few special considerations. And we're both M9 customers of Union Gas, and in fact, are the only two M9 customers of Union Gas at the present time. Overall NRG is supportive of the measures to promote the ability of customers to make informed choices for their natural gas supply, and we see this Rule as a positive step forward in establishing relations between distributors and gas vendors. We do again want to stress that as a small-embedded distributor, there are unique factors that we would ask the Board to take into account when they're considering the final Orders with relation to the Rule. So Sandy will go through a few items and we'll try to take as little time as possible with the Board and then we would be pleased to answer any questions you have. THE PRESIDING MEMBER: Mr. McCallum? MR. McCALLUM: What I'm going to do is I'm going to go through this in basically the same order as how the Draft Rule was organized just to highlight some of the differences or the unique factors that relate to an M9 customer or a small embedded distributor. First of all, in section 1 under the definitions, there were a couple of areas that we had concern with. When I say, I'm meaning NRG and Six Nations. The first one was dealing with the ABC T-service. As it's currently defined, it doesn't reflect how as an M9 customer we purchase storage and load balancing services from Union Gas. And we're able to provide an ABC T-service currently without providing those upstream services. Secondly, with respect to the term "customer" as it's currently defined and used throughout the document, it's defined as a person who purchases distribution services as an embedded distributor by definition is also obtaining this distribution service. And in the case of NRG and Six Nations, we obtain this from Union Gas. We feel that it's important for other sections in this Rule that this definition be clarified so that embedded distributors are included as customers. The new term that was developed through this Rule is the Service Level Agreement, and the question we had was with respect to the portion dealing with the customer. The portion dealing with the gas vendor is clear enough, however, as it's currently defined, it would also apply to the relationship between the distributor and a customer. And as a customer is defined as anyone who uses distribution services, we wonder how all-encompassing this is meant to really be because it could apply to all customers. With respect to section 2 on distribution services, in the first line it states that it applies to other than an embedded distributor, so the question arises as to what does apply for an embedded distributor. In the case of Six Nations and NRG or M9 customers, any exclusion of embedded distributors from the section gives rise to the question as to what does apply for an embedded distributor. The situations also arise in our system, and I'm sure they exist in other scenarios as well, where customers are in one franchise area but the take-off from the main is in another distributor's franchise area. And what we felt was necessary that the definition of "delivery point" be clarified so that it was clear what delivery point we were talking about. Was that at the point where it takes off from the main which is in one franchise area or is it where the meter which could be in another franchise area? With respect to section 3 in emergency supply planning, both Six Nations and NRG are firm service customers of Union Gas. The wording of this section currently gives them the right to curtail service to us in an emergency. This would potentially circumvent the considerations that are outlined in section 3.1.1 as we would have no opportunity to apply these considerations if we were completely cut off. We suggest that this section not apply to an embedded distributor. Embedded distributors should have some other provisions apply for emergency supply planning so that they can ultimately apply section 3.1.1 to their customers. In section 4, expansion and connection to a distribution system, this section has a number of references to the EBO 188 guidelines. This report only references - when I say this report I'm meaning EBO 188 - references its applicability to Enbridge and Union Gas. While NRG does try to follow the general guidelines of EBO 188, some of the information that is required to be obtained in that report is not available to either NRG or Six Nations. In section 4.1.2, it states that the policies noted in 4.1.1 are to be filed with the Board. However, 4.1.1 specifically states "distributors whose rates are regulated by the Board" and we felt that some clarification was necessary in that particular case to determine whether 4.1.2 was to apply to all distributors or only those distributors whose rates are regulated by the Board. There are a number of references throughout the document. The first one is in 4.2.2 with respect to timeframes in which a distributor is to respond to requests, whether it be from a customer or a gas vendor. In 4.2.2, the reference is to five days. For a small utility, five days is not an achievable target in all cases. Most of the time these responses are being done by one person who has other duties. If that person is away on holidays, happens to be here at the Board, happens to be off sick for an extended period of time, the five days is not going to be achievable. What we have done in our prior submission is we've put in suggested time guidelines that we felt were achievable for a smaller utility. And due to the references to EBO 188, we had requested an exemption be granted to smaller utilities for compliance with EBO 188. In section 5, dealing with distributor gas vendor relations, it talks about a Service Level Agreement and specifically it talks about a Standard Service Level Agreement. Perhaps in our naivete we were wondering whether that was to be a standard across the province, whether it was to be a standard between NRG and a gas vendor or if it was to be a similar document such as a franchise agreement which is to be standard across the industry. And we weren't sure what was meant by that. If it's to be more of a standard across the province, then both NRG and Six Nations would have some trouble dealing with a particular standard as they're not able to provide the same level of services in terms of unbundling, as an M9 customer, as larger utilities are. In Section 5.3.4, it talks about the distributors adhering to the Standard Service Level Agreement, and we felt that this comment should be made equally to both parties, both the gas vendor and the distributors and the same standards of compliance should apply equally to vendors as they do distributors. It's an agreement between both parties and the terms and conditions should apply equally to both parties. Section 6 is on service transaction requests and we share some of the concerns that were raised earlier this morning. It's a very onerous process particularly for a small utility to go through. Both NRG and Six Nations have concerns about the cost to a small utility in complying with all of the terms of this section. In our prior submission we had requested an exemption for full compliance. We're both prepared to adhere to the spirit of the section but full compliance will be a very onerous and costly venture for the small number of customers there are served by both utilities. In the event that an exemption is not provided by the Board, we wish to make the following comments with respect to some of the sections that are noted in there. In 6.1.1, it talks about accepting a verbal direction in accordance with a service transfer request from a customer. We feel that this could lead to possible problems at a later date and suggest that it should be in writing or some sort of confirmation be in place. Also in 6.1.1, there are situations that can arise where customers may not make the request. If you consider the case of a landlord/tenant situation for a house or the owner of a small commercial property, the owner may make the request to go with a gas vendor. However, the owner may not be the customer. The customer may be the tenant. In section 6.4.3, it states that the transfer is to occur on the first day of the month after the service transfer request is processed. This would require special meter reading to occur on the first day of the month. The cost to obtain a special reading on the first day of the month could be significant and is not practical for a smaller utility to accomplish. In the past, NRG has done transfers to direct purchase as of the next meter reading date. We have not prorated the readings for the amount on system gas and the amount supplied by the vendor. We were happy with this arrangement as it did not require an additional reading and the gas vendor was also satisfied with it also. In section 6.4.3, the section states that a customer is to be switched from system gas to a gas vendor the month after which the distributor processes the service transfer, the STR. The gas distributor may have completed the processing of the STR but the distributor and the gas vendor may not have completed the Service Level Agreement at that time or any other contract governing the operations between the two. The STR is defined as the authorization that initiates the transfer. We suggest that a transfer not take place until the SLA, the Service Level Agreement, has been signed by the vendor and returned to the distributor. This would avoid any problems taking place in the future and place an urgency on the completion of the SLA by both parties. Section 6.5, our general comment regarding this section is there's a large amount of communication that's required by the distributor to process all of the requirements noted in this section. We have concerns about the costs that will arise as a result of all this additional work, particularly for a smaller utility. We can foresee that these additional costs may require a significant change in the charges associated with customers who may wish to choose an alternative supplier. Section 6.6.2, this section mentions that a distributor shall not decline a service transfer request of an existing customer to system gas for reasons of non-payment by the customer of commodity, distribution or other non-commodity services. We have concerns regarding the transfer back to customers to system gas for non-payment. This could result in the transferring of customers with poor payment history from the gas vendors back to the utility. If such a transfer is to take place, then provisions should be made so that the payment history of these customers is provided to the utility so that they are not able to use more gas before the utility is ultimately able to disconnect service to those customers In section 6.6.3, the section states that a customer of the gas vendor is being transferred back to system gas, then it's the distributor's responsibility to communicate this fact back to the customer. Our question is, is this not the gas vendor's responsibility? They are the gas vendor's customers. Throughout the section, the onus appears to be on the distributor to do everything with little responsibility for communication occurring by the gas vendor. Similarly, in section 6.8.2, where the customer wishes to move and wished to transfer the gas supply contract with their gas vendor to a new location, again the distributor is required to do the communication. The gas vendor's name, the gas vendor's phone number is on the gas bill. It's their price and service that the customer wishes to transfer. Would it not be a more simple matter for the customer to contact the gas vendor and the gas vendor communicate with the distributor that they've approved the old account and the existing contract be cancelled and be replaced with a new one for the existing customer. Section 7, we have some of the same concerns that Mr. Quinn did with respect to the City of Kitchener. Both NRG and Six Nations have ancillary programs that are currently billed on their gas bills and it requires them to collect and use information beyond what's currently provided in section 7.1.1.. For this reason they both requested exemptions from this section. With respect to section 8.3 dealing with billing options, the option of gas vendor consolidated billing we see as a very expensive proposition for a small utility. Given the relatively small number of customers who would utilized this option, it can become a very expensive burden on a per customer basis. Should this option be mandated by the Board, then we request that we be allowed to recover these costs from the gas vendors. We also have a number of questions and concerns with respect to how vendor consolidated billing will work. Perhaps these are contemplated being covered in the SLA. Some of our concerns include whether the gas vendors are expecting meter readings or volumetric information from the distributors. Since the utilities have lost the ability to monitor payments and arrears, how do customers get disconnected for nonpayment since the gas vendor cannot do this? How do they get reconnected since they're going to be paying the gas vendor? Being a small rural community, we currently have a substantial percentage of our customers paying their bills in the office. This option will now be unavailable to customers that have been used to this convenience for decades. Section 8.4.1 requires the information to be disclosed should the customer desire it. As M9 customers, we do not have access to this information. Should it at some point in the future become available, it will become an extremely costly exercise to have this option available to provide the information to the relatively few number of customers that would utilize it. Section 9 on security arrangements, in our prior submission we suggested that embedded distributors be removed from a list of those requiring security arrangements from another distributor. These arrangements have not been in place in the past and consideration should be given the past history that embedded distributors have enjoyed with other distributors. In the event that embedded distributors are not removed from the list, then we suggest that the maximum security be consistent with the requirements of other parties at two-and-a-half times the highest monthly bill expected to be incurred for storage and transportation over the prior 12-month period contracted for by the embedded distributor. Section 9.3.2, the statement says that the form of security for the gas vendor is at the gas vendor's discretion. There's no similar option for any other party. The security is put in place to protect the distributor and the distributor should have the final call as to what form of security is applicable and acceptable to it. The final section we wish to add some comments to is section 11 dealing with the complaint procedures. Again it requires the complaints to be responded to in five days, and we've talked about your reservations with respect to that. As the designated employee, it's going to be somebody who has got other responsibilities and may not be able to respond within that five-day period. That concludes the comments that we wish to make on the specific provisions in the Distribution Access Rule. We welcome any questions from Board Staff or the Board Panel to expand on any of our comments. THE PRESIDING MEMBER: Thank you, Mr. McCallum. Ms. McKinnon? --- Examination by Board Staff: MS. McKINNON: Thank you, gentlemen. Q. I have a few questions and they are for the most part going to follow along in the order of your oral presentation, but also for reference purposes, I've phrased a lot of my questions based on your written presentation so it may be easiest for you and perhaps the Board Members if they wish to have that available in front of them. They are the comments GDAR submitted by NRG and Six Nations under cover of a letter dated February 26th, 2001 from Randy Aiken. It's not critical that you have them, but certainly that's what I'm referencing in many cases when I'm asking the questions. With respect to your submissions on sections 3, the Proposed Rule regarding emergency provisions, you have requested that the distributor not have a discretion to interrupt service to embedded distributors. And I take it your underlying reason for that relates to the fact that both NRG and Six Nations have residential customers. Is that your main concern, that if your gas is interrupted, in turn residential customers may be affected in your delivery of gas or is there some other reason? MR. BLAKE: A. Not only residential customers, but also if it was a severe situation where we had -- let's maybe use the example of some of the hypothetical cases that were put forth by the Y2K issue. At that time part of our plan indicated that we would require emergency gas supply for schools, emergency centres, community centres and so forth. The Ontario Police College was designated as an emergency centre. So under this case we would see that Union could interrupt supply of gas to our system, whereas we would feel that we would want to continue at least partial supply so we could continue to supply those maybe first of all emergency buildings, hospitals, nursing homes that sort of thing, followed by residential customers and so forth down the line. And so we need that to be taken into account in the Rule. I think that's essential. Q. Would you agree that if embedded distributors are simply excluded as you have suggested and all discretion on the part of the distributor is taken away to cut at least some service from embedded distributors that that might have an impact on a distributor's ability to make decisions in a real emergency circumstance? A. I don't think there's any question that there are going to have to be choices made and I'm not suggesting that we would require full firm service, full delivery of service, but there has to be some degree or some choices made so that we aren't interrupting residential customers and Union Gas isn't interrupting residential customers, let's say. We need to have a level playing field with respect to interruption and that should apply universally throughout the area affected. Our area if you look at the map is we have sort of a piece out of the Union Gas franchise area, if you'd like, and so they're all around us on three sides except for the side with the lake. So if there is an interruption in London, let's say, and it's in the media that the Dawn-Trafalgar system has failed or a compressor site has blown up or whatever the case might be, our customers would understand that they should expect that same sort of interruption as would be occurring on the Union Gas system. On the other hand, we wouldn't want to think that we would be interrupting residential customers and Union Gas would only be interrupting industrial customers. Q. If we look at the Proposed Rule, it does require a distributor in deciding who to curtail or interrupt, they shall select from customers who can use alternative sources or can shut down their applications and they're to have regard for the well-being of individuals. If it was clear that distributors in curtailing service to embedded distributors had to have regard for the ultimate customers of the embedded distributor, something like that I take it would satisfy your concern so that you're not fully interrupted? A. That's correct. I think that if there's a level playing field so that we weren't required to interrupt customers at any different level than the distributor that was supplying the gas, I think that would be reasonable. Q. Sorry to interrupt. Have you thus far put your mind to specific wording that might accomplish your goal without taking away the discretion of a distributor to interrupt to some extent the gas they provide to embedded distributors? Have you put your mind to that? A. As I understand it, we did put some words in page 2 of our submission when is it May -- February, I'm sorry. Q. I do note that although the wording that you've proposed would exclude embedded distributors entirely and that was the concern I was trying to alert you to. Your proposed language in the written submission would take away the discretion of distributors to interrupt your service at all, and I think what I'm suggesting and I think I understand you to be agreeing is that some interruption, if the distributor uses their discretion properly, some interruption of your service so long as they don't curtail it entirely would be acceptable so long as in their decision as to the extent to which they curtail takes into account the type of consumers you have to provide service to. Do you follow me? A. I do follow you. I think that I agree with you in general terms. But I think that if we are going to provide those sorts of words, we need to provide the words that state that -- if we're going to get that detailed, then we need to provide more detailed wording that states that the interruptions won't occur at any different level between one utility and the other. I think what we were saying here is that we have an obligation to do the same thing as Union Gas in our case would have the obligation to. And if we were advised that there was an emergency, then we would curtail our customers just like Union Gas would be curtailing their customers, and that that would have the effect of lessening the burden on Union Gas. And I think that's all we're saying is the Rule says if there is an emergency, Union Gas will interrupt their customers. That's fine. Don't interrupt the embedded distributors. The Rule also would apply to NRG. If there's an emergency, we would interrupt our customers and that would have the effect of rippling back on to Union Gas. And I think that was the presumption we had there or the plan that we had and I understand what you're saying but I think they both have the same effect, the end result. Q. And maybe we both agree if we focus on -- you would not want to see an interruption to service to embedded distributors because of course that would not give you the ability to allocate amongst your customers, but you could accept the appropriateness of a distributor in an emergency curtailing service to an embedded distributor to some extent and you would then in turn have to make your allocation decisions as to which of your customers you curtail? A. Maybe we're arguing about semantics here, but I think that in the case where Union Gas was not curtailing firm residential customers but was curtailing, let's say, firm industrial customers, I would not want them to make the decision as to how much gas they were going to allocate to us because I don't think they could make that decision. I think that would have to be a decision made on our part. And if it is an emergency, we probably won't have a lot of time to make our decision. We're not going to be able to call Union Gas and say we're receiving 'x' number of cubic metres of gas from you today and we think it's going to be so much tomorrow and if we'd interrupt this group, it's one and so forth. What we are going to understand is that industry-wide or in that area-wide, that if we find it necessary to interrupt this group of customers, and if we do do that and that's what Union is doing and that's what we do, then that should meet the needs. But otherwise you're going to put the -- the ability is going to be on Union Gas to dominate the situation and tell us what we're going to have to do. And I don't think that should be the case and I don't think that should be what GDAR is all about. Q. Thank you. A quick question that relates to some of your concerns about the time frame for notice requirements and such by reason of concern about your available resources and the administrative burden. In particular you have stated regarding section 5.2 of the Proposed Rule, and that is the Rule that says where you are assigning a new customer account number, for instance, you must notify the affected gas vendor within five days and you have proposed a time frame of 30 days as an alternative. I take your general point about five days being short for a company in your circumstance, but is there the prospect that a time limit of 30 days may in fact interfere, for instance, with billing cycles and be long enough that it could then cause some residual problems to other parties? A. Typically a billing cycle is thirty days, and so I think that what we're saying here is that we're saying that -- we're not saying that it would take us thirty days, but I think what we're saying is that we would deal with that issue, deal with that matter within a billing cycle. And that's where our thirty days came from. I think that's reasonable. I think in five days I think in our situation where we have one billing clerk and, you know, it's -- when we're doing billing, when we're operating when it's those twenty days of the month that we do our billing, it's very difficult for us to expect that person to do a lot of other things other than generate the bill and produce the bills because we only have one person doing that. If the Rule determines that five days is appropriate, then five days it will be. But if that's the case and if we find experience with that, then we will simply have to hire another billing clerk or post part of a person to that or a person part-time to that position to handle those. So I guess what we're saying is anything is possible. We can do whatever the Rule states but we find that in our circumstances thirty days would be more appropriate in order that we could do it during a billing cycle. Q. All right. I have some questions with respect to your comments on section 6 of the Proposed Rule. Your written submissions, and today I believe you confirmed that you're seeking an exemption from section 6, but I take it it's not an exemption in whole. You further indicated some cases where you require exemptions but -- I guess clarify for me, is it your intention to seek an exemption if section 6 was passed as it is from the entire Rule for all service transfer requests regardless of the nature of the service transfer request? MR. McCALLUM: A. What we had requested in our earlier application was to be exempted from all of section 6 due to the onerous requirements that were noted therein. We would still process the service transfer requests in our own manner as we have in the past. Q. But without regard to the time limits and some of the notification requirements. Is that the idea? A. That's correct. Q. Let me ask you a question about -- this is again from your written submission. In seeking the exemption from section 6, you have said: 'This request is made on the basis that the costs incurred to comply with this section would be significant while any benefits achieved would be minimal given the number of customers served by small distributors.' Could you explain to me your assessment that brought you to the conclusion that any benefits would be minimal? I take it because you are a small distributor, that's your argument? Just help me understand why you don't think the benefits of that processing would not apply just because you're small? A. We've got a very minor number of customers in comparison to a lot of the other utilities and you can't -- whether you do the programming for ten customers or ten thousand customers, the cost is relatively the same. In order to process all the information in the required time frames and provide the requisite information that's noted in section 6 would be a great deal of programming and also as Mr. Blake has said we would need to allocate additional resources to that to deal with the relatively small number of customers that would choose to take advantage of that. Q. Just let me clarify. I think in fairness, everything you're speaking to relates to the costs of complying, and it may be that on a cost benefit analysis you are saying the costs so much outweigh the benefits that we don't it merits following section 6. But what I do want to understand is, is it your position that notwithstanding they're a small number of customers, that the flexibility and the choices that section 6 would provide to them in exercising their choice and having their choices processed, is it your position that there would be no benefits achieved notwithstanding -- small number of customers but is there still not the prospect for benefit to those small number of customers? A. No, we're not saying that at all. There's still a benefit to having the customers having the ability to choose who they get their gas from. We have not said that at all. But the section is fairly lengthy. There is a substantial amount of work to be done with respect to it, and in order to fully comply with this section, what we have said is is there a benefit to the customer of us complying in 30 days versus five days or 10 days or 14 days. We're still getting the information processed, but we're doing in it in the manner that we've considered appropriate in the past. Q. So again just so I'm clear, I take it to the extent you're seeking an exemption, it's not that you're not intending to comply with the general requirements of section 6. It's the timeline requirements and such. So put another way, your customers will ultimately get the benefits contemplated by section 6 just over a different time periods. Is that fair? A. Over a different time period and possibly with some different reporting that may be going back to the gas company. Q. All right. Thank you. With respect to your comments on section 7 of the Proposed Rule, and that's the section dealing with limitations on your use of customer information and you've suggested that because you have ancillary programs you would have difficulty complying with section 7 because you need to use that information. Have you considered the prospect of, for instance, getting customers to consent to the use of that information for ancillary service purposes? MR. BLAKE: A. The only customers that would use that or we would use that information for are the customers that have contracted with us for ancillary services. Really all we're saying is sort of the same thing as Dwayne was saying a few minutes ago in that we only have one database. We only have one billing package. And those customers that we're using that billing package for are the customers in large part that have signed for a hot water heater, a rental hot water heater. Those customers have choice on who they choose for a hot water heater. We don't have the exclusive market on that. There are other people out there renting water heaters and selling hot water heaters. But in order that we can bill those water heaters to the customers, then that data goes into that database. We don't necessarily use that database exclusively for that. It's just part of that billing package sort of thing and most of that what we're talking about relates to billing the customers for those water heater rentals. Q. I don't want to micromanage but just a query on your existing contracts where people sign up for these ancillary services, do you have an expressed consent on their part to the use of their customer information for those purposes or is that something you have considered as another means to effectively be able to comply with the customer information restrictions and where your use of information goes beyond those to have the consent of the customer to use the information in that way? A. I'm not sure that I really understand maybe the Rule or the Draft Rule or really what you're saying, but it seems to me to be common sense that if I'm the customer and I've signed up with NRG to have a rental water heater and I've also signed up with NRG as a gas -- to receive distribution services, that when I get my bill at the end of the month and it has natural gas distribution services and it has hot water heater rental services on it, it would seem to me to be intuitive to most customers that we're using the same billing system to do that and I think that, you know -- I don't think that asking them if we can use their gas system to bill their water heater, I don't think that makes a lot of sense to me. Q. Well, it may not and it may be in fact as you've said that there's an implied consent but what I'm getting at is you've asked for an exemption to the requirements of 7.1.1 which say you can only collect and use customer information for certain limited purposes, and I'm trying to explore whether there are in fact there are other means for you to properly use information for your ancillary programs without violating section 7.1.1. A. I hadn't thought about what you're suggesting, in all fairness, and I guess as I understand it the process will be in all -- I don't anticipate that the Board is likely to give exemptions prior to issuing the Rule or at the same time as the Rule, and so what I would propose is that we look at the Rule as it comes out, as it's finally approved, and then we'll have to look at whether we can comply with the Rule as described. But as it stands right now, in the strict interpretation of what we see in front of us, we feel that we would have to ask for an exemption, but there may be some other options and what you're suggesting I hadn't thought about. Q. And the reason I'm exploring questions in this fashion is of course to the extent that you are even at the stage of a Draft Rule seeking exemptions, we are trying to explore whether your requests for exemptions go to underlying flaws in the Rule or whether they relate to your own administrative and resource circumstances. A. Yes, I guess we could ask for the Rule to be drafted with an exception clause, and I guess that would be I guess an option that we could have chosen at the time. And I guess that would be an option of the Board to draft the Rule with the exception clause in it, but notwithstanding, we understand that the Rule is going to be drafted the way the Rule is or the Rule is going to be approved by the Board in whatever form it is, and we'll deal with it from there. Q. Let me ask you a more general question on how competition can be facilitated in circumstances where we have you, smaller distributors, in the same geographical area as Union, for instance, and to the extent that there is a Rule to which parties like yourselves are seeking substantial numbers of exemptions potentially - I recognize that the Rule is not completed yet - but I'd like your comments on this. There is the prospect that what will be created are two classes of customers in a close geographical proximity, one class with Union and one class with you who may be -- some may get the benefits of the Rule and some others may not. Do you have any views about the ultimate impact of that on consumers and any harm to them, any harm to competition generally? A. I don't think that in large part there's going to be any different treatment of customers. I think that in some cases we may take longer to provide the information and the customers may be in some cases delayed in implementing a direct purchase arrangement. But I think in general terms I think that aside from maybe some small timing differences, I don't think there will be a lot of difference. I think that in our case we do have the ancillary programs. We do have the water heater rentals and so forth. But our customers have always had that and those programs have had the effect of reducing our rates for our gas customers. They've always made higher rates of return. And in our situation we have a smaller utility where our costs are higher, our rates for distribution are higher, and if we were to take ancillary programs out, it would have the impact of increasing our rates so that it would actually increase the disparity of costs between customers served in our area and customers served in Union's area. So it's something that we have to weigh. We have to sort of what the options are and what the costs are and so forth. And I think the direction we have been going over the past number of years has been the right direction and if the Board determines that we should go a different direction, then we'll have to do that. But I think the way we're going in my mind has the best advantage for customers in our area and I don't think they're advantaged by those customers served in the Union Gas area, largely because the Union Gas customers are getting their distribution costs at lower rates than we are, albeit, if you look at our cost of service has been falling on a per customer basis fairly dramatically over the last few years and we're hoping to continue that. At some point in time we're hoping that the distribution rates will converge with Union's and all costs will be the same. Q. Thank you. I have just a couple more specific questions. Again in your written submission regarding the billing options under section 8.3, you've indicated that you would request an exemption with respect to offering gas vendors the option of gas vendor consolidated billing. Can I infer from that that you are content to offer split billing? MR. McCALLUM: A. Yes, we currently offer that now, and we're more than content to continue that. Q. And in terms of your submissions regarding section 9 security arrangements, you've requested an exemption. Well, you'd like the Rule to be modified so you're not included in the list of parties from which a distributor may require security arrangements. I'd like to understand the basis for that, given that, of course, you do have payment obligations with the distributor and it would be reasonable in commercial circumstances to expect a distributor to potentially seek security from you. And if you were not subject to security arrangements, are there other protections in place or that you foresee which would ensure that you're not untouched by security issues at all? MR. BLAKE: A. Well, I don't think that there's been any rule -- there hasn't been any rule in the past related to security issues between distributors -- embedded distributors, as we're now called, and distributors. And I think that in the past we've managed to operate quite reasonably with Union Gas and so forth, and I think that those security arrangements for a large part come about as part of the contractual arrangements between the two parties. And I guess our first preference would be that embedded distributors not be included in the Rule, that we make our own arrangements with the distributor and so forth. But if they are included in the Rule, if that clause is included in the Rule, then we have some difficulty understanding why a vendor, why a marketer can choose his own security arrangements under the Rule that's been drafted and they're the only ones that can choose their own security arrangements? That would seem to me to be an inequitable situation. MR. McCALLUM: A. We have put in our recommendation of what we thought would be an appropriate security measure. Q. That maximum security should not exceed 2.5 times the highest monthly bill, those comments? A. That's correct. MS. McKINNON: Thank you very much, gentlemen. Those are all my questions. Thank you, Mr. Chair. THE PRESIDING MEMBER: Thank you. Questions, Mr. Birchenough? MR. BIRCHENOUGH: Just one. --- Examination by The Board: MR. BIRCHENOUGH: Q. A number of the exemptions you're suggesting you would request are because you're an embedded utility and a number because you're a small utility and some because you're both. If you were just to look at the size factor in the definition of a small utility and the problems the rules cause for a small utility, what suggestions would you make as to the definition of a small utility? Where would the cut-off be? MR. BLAKE: A. Well, the disparity in size between NRG and the large utilities, there are only two large utilities and they both have I guess a million-and-a-half customers each. And then the small utility, as being NRG, and we have 5,000 customers. Six Nations has I don't know how many. They had 1,600 the last time I heard how many they had. And then they go down from there to the really small utilities, if you would like to have sort of three categories. And that would be Wellandport, Glennard, Fisherville and Superior View, and they have -- I don't know if they have over 200 customers each. Wellandport may have 200 or so. I think the others have maybe a hundred and some. So those customers, they don't even know anything about what GDAR is all about. That's sort of a, you know -- they are sort of out in the dark. So they I think they should be just exempted carte blanche of the whole arrangement. But I think if you looked at small distribution utilities, I think that we're one of them and we're probably ourselves and Six Nations are the only two. So if you were to say where is the number and if it was based on customer, I guess maybe 5,000 or 10,000 customers would be the number. Sorry, I've given you a sort of long answer to a short question, but we can sort of look to -- you can almost look the TSSA and their licensing categories. They've sort of captured us in sort of a category that's under the large guys. The large guys pay I don't know what it is a year, $75,000 a year for their license. And then the next category has obviously been structured so that it captures us and ours is, I don't know, $5,000 or $6,000 a year for our license. Then it goes down from there to the teeny, tiny guys who pay a few hundred dollars a year. So they've sort of structured that licensing based on large - there isn't really a medium - small and extra small, if you like. MR. BIRCHENOUGH: Thank you. THE PRESIDING MEMBER: Ms. Halladay? MS. HALLADAY: Q. How many of your 5,000 customers use gas marketers? MR. BLAKE: A. Three. Q. That was an easy question or easy answer. A. I knew the answer before I came today. Q. Do you know what volume that represents? A. Well, two of them are small volume, are residential accounts, and the other is our largest account, so when you put them together it's about 20 per cent probably, maybe even more. I would say 20 per cent at today's consumption rate. MS. HALLADAY: Thank you. THE PRESIDING MEMBER: I have no further questions. And I thank you for coming today and for making your presentation. You do make some interesting points regarding the small distributors, the embedded distributors, so thank you for doing that. MR. BLAKE: I would just like to say that -- sorry, for adding this at the end, I'd just like to say Nick Petruzzella of Six Nations had hoped to be here but unfortunately he was in a car accident a few weeks ago. I talked to him yesterday and I told him that I would attempt not to misrepresent his position, but he did want to extend his apologies for not being here today. THE PRESIDING MEMBER: Thank you for that and wish him well. MR. BLAKE: Thank you. THE PRESIDING MEMBER: We are now adjourned until tomorrow afternoon at one o'clock. Thank you. --- Whereupon the hearing adjourned at 12:25 p.m., to be reconvened on Wednesday, June 27th, 2001, at 1:00 p.m. Presentation by Enbridge Page 9 Consumers Gas Examination by Board Staff Page 27 Examination by the Board Page 34 Presentation by the Page 44 City of Kitchener Examination by Board Staff Page 52 Examination by the Board Page 53 Presentation by NRG Page 64 Examination by Board Staff Page 80 Examination by the Board Page 84