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 Wednesday, June 27, 2001, commencing at 1:00 p.m. ---------- Volume 3 ---------- 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 ) ROBERT WARREN ) CAC JULIE GIRVAN ) JUDY KWIK ) VECC GERRY HAGGARTY ) The Convergence Group: GRAHAM HENDERSON ) Toronto Hydro Energy, ARNEL SCHIRATTI ) Ontario Hydro Energy, and GEORGE VEGH ) Sunoco Energy I N D E X O F P R O C E E D I N G S Page No. Presentation by CAC 219 Examination by Board Staff 224 Examination by The Board 244 Presentation by VECC 255 Examination by Board Staff 273 Presentation by The Convergence Group consisting 278 of Toronto Hydro Energy, Ontario Hydro Energy, and Sunoco Energy Examination by Board Staff 300 Examination by The Board 323 --- Upon commencing at 1:00 p.m. THE PRESIDING MEMBER: Be seated. Good afternoon and welcome to the Oral Presentation and Consultation on the Gas Distribution Access Rule. I welcome you here this afternoon. And the first presentation is by the Consumers' Association of Canada and I would ask you to introduce yourselves and get on with the presentation. --- Presentation by CAC: MR. WARREN: Good afternoon, Mr. Laughren, Members of the Panel. My name is Robert Warren. I'm here in my capacity as counsel to the CAC in energy matters and I hope for my sake and certainly for yours that I have virtually nothing to say. My colleague Ms. Girvan will say everything that's meaningful. MS. GIRVAN: Good afternoon. I just wanted to indicate to the Board that Dr. Dyne of the CAC had intended to be with us today but he had another commitment so he wasn't able to make it. What I thought I'd do is we had filed some written submissions with Board Staff and those submissions deal with a number of issues related to the Rule, focusing primarily on consumer mobility and billing. And what I thought I'd just do briefly is summarize some of the major points that we've made in that submission. CAC has reviewed the Draft Rule and the various submissions filed by other stakeholders. We are aware of the divergent views on these issues and appreciate the opportunity to provide you a consumer perspective. CAC does does support the development of a competitive retail natural gas market and accepts that the Board in developing the Rule is attempting to facilitate further competition. We believe the market is not truly competitive at this present time and that there are many significant hurdles to overcome. In effect, implementation of the Rule itself will not necessarily bring on competition in our view. We've pointed out in the submission some of the problems with the current: A lack of education about how the market works and what elements are subject to competition; the confusion about the distinction between the role of gas vendors and LDCs; the prevalence of complicated long-term contracts with unreasonable contract provisions; the existence of one dominant marketer in both the Union and ECG franchise territories; and the continued use of misleading advertising and misrepresentation by retailers. So although the Rule may go part way to solving these problems, there needs in our view more to be done and we've stressed in our submission the need for enhanced consumer education initiatives and the development of better ways to enforce the Code of Conduct for gas marketers. As for process, CAC's views are not unlike those of of the LDCs. Our views are set out in our paper. We do not believe the consultation process has been adequate. In addition, given the divergent views and commercial interests at stake, attempts at arriving at an industry solution has failed. In our view the Board needs evidence and an ability to properly test that evidence in a public forum. We also need a process that allows for balanced input. In the submissions by other parties, you have very conflicting positions, you're faced with conflicting positions. Without an opportunity to test those conflicting positions, the Board may have difficulty deciding how best to weigh them. We also believe that to the extent the Board follows a proper process, the Rule will be subject to less challenges in the future. We also believe there are many gaps in the information the Board has before it. The LDCs have claimed that compliance with the Rule could be costly both to its shareholders and ratepayers. The cost impacts are in our view a relevant consideration for the Board. On customer mobility, CAC has stressed the need for it and we have done that over a number of years. Without it there's little chance of competition developing in the province. We support the change in LDC policy which allows them to transfer customers on the basis of what the customer wants. This will not go the full way to promoting mobility but represents an important step in our view. The LDCs have raised issues of administrative complexity and cost. This is a concern for the CAC and as such we believe the Board needs to consider the cost impacts before adopting the proposed policies. On billing, CAC believes the customer not the retail should be the one making the choice as to their preferred billing option. The difficulty in the current market is that some customers were promised nothing would change, yet their contracts do allow for the retailer to act as agent to make their decision for them. Despite this is the way contracts were written, we believe customer choice is important. With respect to billing options, CAC is of the view that the Board has incomplete and conflicting evidence before it and that such a decision at this time would be inappropriate in terms of adopting the three proposed options. We've set out in our submission on page 8 a number of questions we feel need to be answered before proceeding. Ultimately we support the introduction of gas vendor consolidateed billing. The appeal to customers of one bill for many services cannot be disputed; however where we disagree with others is to implementation and timing. The introduction of gas vendor billing in our view at this time is premature. So those are the highlights of our submission. I think Mr. Warren has a few comments to make. MR. WARREN: Members of the Panel, I only want to comment on the issues of jurisdiction which have been raised by various parties to this limited extent. Issues of jurisdiction are a bit like Banquo's ghost at the table: they are there all the time and people talk about them but there doesn't seem an easy way to resolve them. I have read the submissions of Ms. Jackson and Mr. Farrell in some detail. I am aware that Mr. Brown has responded to them in part. I have not yet been able to reach -- not yet seen Mr. Brown's response. I don't intend this afternoon to comment on them. I don't really feel that I have done enough work on it to be able to do so responsibly. I would, however, make these two observations: The first is that I think it would be helpful to the process if Board Staff were to formally respond to the issues of jurisdiction, setting out their view, whether pro/con or whatever. I think it's important that all of the positions, divergent or otherwise on jurisdiction be articulated. The second thing is, that if there is a mechanism which is available to resolve these issues in advance, whether for example seeking an interpretation of the courts on the divergent issues of jurisdiction, I would recommend that that be pursued rather than the Board issuing its rule and then having, after the fact -- I think it would be naive of us to assume that there will not be jurisdictional challenges. The positions are, as far as I can tell, sufficiently divergent and sufficiently deeply held that it's inevitable that one side or the other in the debate will seek judicial review of the Board's decision. And that, it strikes me, could be possibly avoided if the Board were itself to seek a court interpretation under those contentious issues in advance. That would have the advantage of having a clean, discrete proceeding that is resolved. Those are my observations on the issues of jurisdiction and beyond that I have nothing to add. Thank you. THE PRESIDING MEMBER: Are you ready for questions now, Ms. McKinnon? MS. McKINNON: Thank you, Mr. Chair. --- Examination by Board Staff: Q. First of all, some questions regarding your -- actually if I could step back for a moment before I even get to questions. You may be aware that the organization known as VECC is also making submissions in fact this afternoon. Could you help me to understand how your constituency differs from the constituency that they speak for, to get some context to your views on consumer protection issues and consumer interest? MR. WARREN: A. The constituencies differ, Ms. McKinnon, in this respect. VECC acts for or represents as I understand it two constituencies: one is an alliance of retired people; and the second is the Ontario Coalition Against Poverty. Both of those are characterized, as I understand it by - or those constituencies are characterized primarily by people who are on fixed incomes. And that differs from the broad base of residential consumers whom CAC represents, some of whom are on fixed incomes but not all of whom, or the majority of whom are on fixed incomes and may therefore have somewhat more flexibility in their response to energy consumption issues. The second position, and I mean no disrespect to VECC or those represented at all, when I say that the Ontario Coalition Against Poverty's position on some issues is, as far as we are able to detect from the popular press, somewhat more radical than, frankly, is the position of the CAC or -- and CAC isn't frankly, as far as we can tell from the feedback that was given to Dr. Dyne, particularly comfortable with, some of what others might describe at the radical positions of OCAP or the way they are articulated. And they are articulated in a number of ways. So having said that, there is commonality obviously on a number of the positions and we certainly have, CAC has considerable sensitivity to the concerns of people on fixed incomes but the constituency that CAC represents is broader than that. Q. In terms of your information and intelligence-gathering, if I could put it that way, are you also structured in a way that there are other organizations with which you are affiliated or are you really the umbrella organization and your focus is on individual consumer interests? A. It's very difficult for either of us sitting here today to say what the network of context is for the CAC, because, as you can appreciate, it is both provincial and national. But let me step back from that and say this. Ms. Girvan and I receive our instructions from Dr. Dyne. Dr. Dyne is the head of the energy network for the CAC and he is in contact with a substantial number of other organizations and groups within Ontario and nationally. And he receives information from a wide variety of sources, some of which he communicates to us when it's relevant to the particular concerns we are dealing with, some of which I assume he doesn't communicate with us. What his formal contacts are, I don't know. He certainly receives a very substantial volume of what I would describe as telling anecdotal information in a sense. He receives a steady stream of telephone calls, for example, about gas broker contracts from people who are asking what they mean, what their interpretation is, what their remedies are if they're unhappy with them. He will, when he receives that information, do at least two things, one of which is he checks with other people across Ontario in other organizations representing consumers to see what sort of anecdotal information they are getting. He checks with other organizations across the country and with CAC's national office and, at some point in the process, will call Ms. Girvan for her insights on it and may, indeed regularly does, calls me for my interpretations on legal matters. It's a long-winded answer to your question, the first premise of which is I don't know what his formal contacts are. I can tell you that they are significant, they are ongoing and they are regular. For example, he was at a meeting in Yellowknife last week dealing with energy issues, some of which are related to this. Q. Thank you, Mr. Warren. Some questions relating to your submissions on education because you said not only is it important but more must be provided. Who in your view ought to provide additional education regarding the proposed GDAR, assuming it's passed? MS. GIRVAN: A. I think typically that the best vehicle for information is the LDC and I think that they have undertaken that to some extent. I think that the government needs to step up its efforts on education, and I think what we've seen in the gas industry is we have had little or no education undertaken by the government in terms of explaining sort of the deregulation process and what it means, how to make a choice as a consumer. So I know there are some initiatives on the electricity side that the government is undertaking right now, but I think it is sort of a combined effort on the part of government and on the LDCs to -- Q. Is it your view the marketers have no role or potentially obligations in that area? A. I think the marketers in some sense do, but the difficulty is their particular perspective and if you have balanced information that the marketers are willing to provide, then I think that that's certainly an option. Q. How much if any advance education is needed before this proposed rule comes into force? A. I think that's a difficult question. I think that often what happens is in my sort of limited understanding of how these things work is you do a base line survey and undertake some education efforts and see how well you've done in terms of informing the public. So I don't have a good answer, but I think you have to recognize that, my feeling anyway, sort of from the input we've had from consumers is that there is very little understanding about how this market works at all. So I think you've got to deal with two components, one is the sort of basics of how the market works today, and (b), how potentially those things may change or what kind of new initiatives are coming out of the rule-making process. MR. WARREN: Could I just make this observations as sort of a supplement to that response? Again, I want to emphasize that the CAC's sources of information by and large are anecdotal in the sense that it can't do the kind of survey work that really needs to be done. But in our experience, the anecdotal information they get is tellingly accurate. There are certain fundamental questions that keep coming up that suggest to us that I guess a very substantial proportion of those people who are on gas broker contracts now don't necessarily understand that they are on those gas broker contracts. That is point number one. Number two, they have no idea what the rights and obligations are of the parties to those contracts, for example, what's the scope of, the power of the gas broker to contract on their behalf. What are the agency powers? Thirdly, they don't understand the relationship between the gas broker and the LDC. Now, those three areas alone are of such significance that if people don't understand that, then putting the GDAR process, if I can call it, on top of that, means that you are simply compounding the confusion. So when you ask how much advance work is necessary, I think the first step is reliable survey information that tries to establish how much people understand about the contracts and about the relationship with gas brokers. Q. I take it from your point that such survey information is not currently available? A. To the best of my knowledge it is not available. There has been some evidence presented in a couple of hearings ago, one of the major LDCs, which strongly support -- I think I'm going to get the numbers wrong, but something like 67 per cent of the people surveyed didn't know that they were on contracts with gas brokers. I mean that's... MS. GIRVAN: A. I think that was prior the ABC-T service initiative to have it on the bill, but I still think -- I think the LDCs themselves, and ECG, in this particular case, has submitted some evidence to say that at least their view is that there still is -- customer confusion is still prevalent in the industry. Q. Given what's there, is it still reasonable, in your view, to implement the GDAR but to have education programs parallel to it; in other words, going on at the same time? A. Well, I think I would support what Mr. Warren has said, that we have few steps to take care of first in terms of informing people about basics of the gas mobility market and how that works. I think all of a sudden to impose the GDAR and simultaneously talk about the marketer consolidated billing, I think it's going to be problematic. I think, as we've said, I think some people can understand that they are being served by a gas vendor and they don't understand what entirely that means. And I think there is going to be confusion if all of a sudden they receive a bill and they no longer get that bill from the utility, which they've been used to for many years. MR. WARREN: A. But, Ms. -- Q. Sorry, I don't want to spend too much time on this, but let me clarify one thing you just said. Certainly the proposed rule contemplates that they will be informed that they are going to have a choice and they will have then made a choice. So does that not satisfy your suggestion that all of a sudden they're going to get a bill from somebody different and they won't know why? A. I think that's a valid point. But I just think, before we even get there, I think there's a number of basics that need to be communicated to customers about the industry. MR. WARREN: A. I've sort of flogged this, but one more, just one more observation. One of the central issues in this matter is the issue of customer mobility. In the issue of customer mobility, if people don't understand (a) they have a contract with somebody and that their mobility may contractually be very limited, they may be subject to a law suit if they try to move, if there is a substantial level of ignorance about that then saying to people there is no mechanism by which you can move, may do them a disservice. Until we know the level and initial extent of that ignorance and do something to educate people about frankly what are their obligations under existing contracts, then customer mobility may be substantially illusory. [The Panel confers] Q. On a consumer protection point generally, can you tell me what other mechanisms or provisions you would consider useful for the proposed GDAR? MS. GIRVAN: A. To accompany the proposed policy? Q. From a consumer protection perspective, is there anything else you could think of specifically that would be valuable? A. I think that what we did mention certainly in submission is that one of the elements that we think is important is to improve upon the Boards ability to oversee the conduct of retailers in the province. And although we know, and this is certainly advocated over a number of years, that the Board does have the ability through licensing regime, and in terms of the code of conduct that's in place, what we're finding is I think the Board is restricted to some extent in what it can do. And one of the issues that we've raised and we've had some discussions with others about is the idea of trying to start a regime to impose penalties or fines for those who violated the code of conduct. So that's -- in my view that's certainly one way of ensuring -- Q. Is there anything specifically you can add at this time? A. Not at this time, but I could undertake to provide to you. Q. I'm not asking for undertakings, but thank you for offering. A. Okay. Q. You made it clear in your submission that you think customer choice is a valuable component of a competitive system. Can you tell me what other mechanisms you would consider to work to facilitate competition in a market like the energy market, the gas energy market? A. Certainly one of the things that we did mention is sort of more information out there. And one element is consumer education, and the other is what I would characterize as price transparency. So some ability for customers to be able to compare price offerings, and that's something sometimes difficult to do in terms of comparability, but I think one of the things that I felt in terms of talking to customers is they need a place to go or they need some way to find out how, you know, what the various offers are out there and I think that's lacking to some extent. I know there's one website that offers some level of comparison. If there was a way to do that I think that certainly people can then evaluate different offers and make a decision on the basis of ... Q. You've stated in your written submission that in your view there must be changes to the way in which gas marketers are regulated. Do I take it that you would propose any such changes be made to the marketer's code of conduct or is there another way that you contemplate changes to be effected that would better regulate them in your view? A. Well, I think as I just said earlier, I think in terms of enforceability, the code of conduct and any changes in that regard I think would be a significant improvement over where we are now. Q. And on that point, you've mentioned one concern being a lack of enforcement or remedies for improper behaviour. Are there any other specific suggestions you have as to potential changes that would compliment or best protect consumers in the context of the proposed GDAR? A. I can't think of anything offhand specifically, but I think that in the context of the GDAR it might be appropriate to go back and look at the code of conduct to see what potentially -- how it might be changed to compliment introduction of the company policy. I think that the other thing in terms of some of the issues and concerns we've raised about information getting to the customers, and if you have gas vendor consolidated billing, one of the problems potentially is what kind of information is communicated to the customers. And likely what could be done I suppose through the licensing regime is mandating some kind of informational requirement for the marketers to undertake either on safety issues with respect to distribution charges, and I think that would be helpful. Q. All right. Moving on to the general principles that come under Section 6 and Section 8 of the proposed rule, and those are the provisions for the service transfer request and the billing options, let me say at the outset I recognize that you have expressed concerns that implementation and administrative costs of the GDAR are not yet known. So I take that from your submission as a concern that we don't yet know the costs. But let's talk for a moment about the general principles that are set out in the provisions under Section 6 and Section 8. In terms of Section 6, just so I understand, it's your position that the customer ought to be allowed to switch suppliers and make the choice as to whom they continue their business with? A. Yes. Q. And in terms of the administrative proposals in Section 6 for the processing of STRs, am I right that you also agree that those are, subject to cost issues and potentially some complexities that would be worked out at the time, that you are in agreement with proposed Section 6? A. Yes, I would say generally speaking. Like I said, I think that some of it is -- does introduce complexity, and I think the LDCs have expressed that. And so what might look good on paper from a practical perspective may be unnecessarily complex. And that's why we advocated that if something like this was put in place, that potentially the Board may consider changing it to the extent that it doesn't appear to be practical and it does introduce a level or complexity that's not necessary. Q. Let's assume for the moment that there wasn't a change to the current status quo and the distributors, as you have put in your submission, continued to act as an arbiter of any disputes between consumers and marketers, if the consumer wanted to move, do you have any thoughts on what the material harm might be both to consumers and to the market generally? I guess that presupposes that parties to the market generally may come back to affect consumers, but do you have any views on the material harm that might be caused if the system were to stay the way it is, that is with the distributors continuing to be arbiter or police over a consumer's wish to switch marketers? A. Well, I think what I've heard certainly in the past and recently is that it does restrict competition in that they have in both franchise areas a large incumbent marketer. I think other marketers who want to get into the game have been unable to do because of the fact that this policy has been in place. So I think that I can see generally I think it would. What we found is that it hasn't really facilitated competition, so -- plus if it was changed, what extent we would have more competition, so ... Q. And to what extent do you think delay or a time factor will impact on that harm, being a lack of competition? In other words, if there were a substantial delay in implementing the GDAR, how time sensitive do you think this issue is? A. Well, I think that it's in the interest of all stakeholders to get these issues sorted as quickly as possible, but also in a way that you're going to have something at the end of the day that you can stand. So I don't really have any sort of -- I really don't have timing. I think what you're saying is there's a bit of a trade off, and until you revolve these issues, you're left with the current system. So I think that we just need to move forward as quickly as we can. Q. Let me ask you a couple of questions about the billing provisions in Section 8. In your written submission you have expressed concern about directions as to the billing choice coming from the gas vendor or the marketer, not the consumer. Now, I don't know if you have it in front of you, but I want to look at Section 8.1.1 for a moment. That currently reads: "The distributor shall take direction from the customer or the gas vendor with respect to the option governing the rendering of the bill." If the language in that section was modified to read: "The distributor shall take direction from the customer or the gas vendor as agent of the customer," does that satisfy the concerns you were expressing in your written submission, or are you concerned about instructions coming from the gas vendor, even if the gas vendor is acknowledged to be a valid agent of the consumer? A. Yeah, I think it's the latter. As I pointed out in the submission, you know, a lot of contracts have been in place for a long period of time. And back at a time when customers -- they were marketed on the basis of nothing will change. You'll continue to receive your bill from the utility. And in some cases we note that a lot of contracts were entered into sort of unknowingly by the customers. There's some bad practices and inappropriate activities. So I realize that in many of these contracts there is a provision that the gas vendor acts as agent. So in effect the customer has surrendered the rights to make some of the decisions. I think the problem that we have is, as Mr. Warren said earlier, is there is -- a lot of consumers out there have no idea that they've all ready surrendered those rights, especially when they were marketed, when these contracts were marketed to them on the basis that nothing would change and they would continue to receive the bill from the utility. So there's definitely a conflict there. I think legally these contracts bind the customer that that -- to the fact that the agent -- they've signed away those rights and the agent can act on their behalf. I think it's unfortunate those contracts were designed in that form, and I think a lot of customers will be confused. Q. Let me ask you this, then, because I think you have clearly hit the difficulty. If there's a legal relationship which establishes the marketer or gas vendor as the agent, then there's some difficulties suggesting that you go behind the agent and back to the principal of clarify. But since you have raised the concern, do you have any proposal, any specific ideas as to how you might practically accomplish the result you want to accomplish without interfering with the legal relationship? A. Well, I think the legal relationship is there and it's obviously not going to change. What I would hope is perhaps in moving forward that the gas vendors might be willing to compromise that to some extent in order to initiate choice and move forward. I think -- and Mr. Warren might have something to say about it. It is a problem. I guess what we're saying is not that we have a solution, but it is a problem and what we'd like to see is customers have the choice. And it's just unfortunate that the industry has these problems and that these contracts are in place. But we believe that probably most customers, especially if they have read the materials saying nothing has changed, would be quite surprised to find that their gas vendor can choose the billing options on their behalf and make a whole host of decisions on their own. MR. WARREN: A. I don't know how you can change 8.1.1 to accomplish the goals that we want to accomplish. It's a legal matter as well. Q. Part of the reason I asked the question that way, Mr. Warren, is because I hadn't understood whether your submission was seeking a clarification of 8.1.1, because it's expressed that the vendor in providing those instructions to the distributor would be acting as agent. Or whether in fact your real concern was taking any instructions from the agent period. So I think I now understand your position on that point. A. What you said, for example, is the distributor shall take direction from the customer with respect to the option of governing the rendering of the bill for distribution of service. And after that GDAR was implemented with that wording, and you've got 400,000 directions from the agent. The agent's product seems to be entirely, legitimately argued, that for purposes of doing so it is the customer. Q. I agree. And I think that was the point that Ms. Girvan had expressed. MS. GIRVAN: A. Yes, it doesn't help to have the words "the agent" in there. I understand your point. Q. Now in terms of your views as expressed on the choice of billing set out in Section 8 of the GDAR, subject to the concerns that you've expressed about the costs, you have stated that a choice of billing is a good thing, and secondly, that ultimately you think marketer-consolidated billing is a desired end state. Can you just interpret for me those two together; does that mean marketer-consolidated billing, you take it to be the preferred option or merely that that is a valuable option to have available amongst the three? A. I think I would say it's a valuable option to have available among the three. Yeah, and as I said, you've indicated that you think it is premature, but that's another issue. Q. Let me ask you this again on billing options. Contrast two scenarios, one where there is available only two options, distributor-consolidated billing and split billing, and another scenario where there are three options including marketer-consolidated billing under the GDAR are available; do you have any comments on the relative benefits or disadvantages of the two scenarios? A. Well, I think one of the sort of things that we don't have before us is a cost consideration. And you're saying put that aside at this point? Q. Yes, please. A. The one problem that I see -- I mean obviously if cost isn't a consideration and you have a choice of three options and customers can pick amongst that option depending on what the particular preference is, I think that's definitely a good thing. With respect to split billing, I think we'd probably need more information on that too in terms of if that's desirable. I can say antidotally that probably some consumers would prefer split billing. But the thing with it I see is transaction costs, and potentially, you know, having to receive two bills and send out two cheques, or whichever way you want. So I think depending on different customers, and I think that the problem that I have right now is that I've seen the research undertaken by some of the marketers, and I've seen the research undertaken by the LDCs, and we don't arrive at the same point when we look at that research. As I said, in the perfect world if cost wasn't a consideration, I think having all three choices might be a good thing. Q. To the extent that some would argue it's going to take some time to sort out, as you say, the cost issues or potentially the other issues associated with billing options, what are your views about the affect on competition if there is a delay of any substance in offering more than what we have currently, in other words, more than just distributor- consolidated billing? A. Well, as I said earlier, there is sort of conflicting evidence in that regard, and you have the LDCs making the argument that ABCT service, as it now stands and potentially with some changes, represents an effective way, cost effective way to bill on behalf of the customers. And on the side you have marketers saying that that limits our ability to develop contacts with customers and customer relationship. So I'm not sure what the impact on competition might be. Q. In your submission, you've stated and you've stated this morning as well, that in your view the current market is not truly competitive. Now we've heard submissions two days ago from Direct Energy and OESC, for instance, that take the position that it is, and of course there's disagreement that the Panel has to assess. Can you explain in that context why you say the market is not truly competitive? A. Sure. One of the problems is the dominance of certain marketers in the marketers place and the fact that in both franchise areas of Union and ECG there is a dominant marketer. So that customers -- of all the customers that are currently under direct purchase contracts, most of them are with one marketer. I guess I wouldn't characterize that as true competition. The other problem I have is the way in which those contracts were signed and marketed. At some stage it certainly wasn't, in our view, done in a way that because of competition -- I think a lot of people initially signed up with those marketers unknowingly because they thought they were represented by the gas company and -- so that's ... MR. WARREN: A. It leaves the market contestable. If you have got one dominant marketer in both the franchise areas with long-term contracts, some of which are longer than all of us in this room will live, then is it a true contestable market, and I suspect not. One of the other issues, important issues, of truly competitive is is it transparent? Is there information about what the issues are and what is out there, and if that's missing, then you've got a lot of blind or semi-blind people following one large marketer. And all of those things put together suggest to us that this is not a truly competitive market. MS. GIRVAN: A. And I think the one thing that I was going to add is that I think you have marketers who are not players yet in this market who are saying there are barriers and the mobile -- the restriction by the LDC that GDAR is proposing to change, I think they would argue that that has inhibited their ability to actually compete. And so we have incompetent marketers and we have others who want to get into the market, and I think they're saying it's not competitive and we need some changes. Q. Thank you. Final question. In your submissions at page 3 under the heading, "Symmetry With Electricity Initiatives," you have made the statement that the Board should recognize the differences were appropriate and not force symmetry if there are valid reasons to make a distinction. I infer from that that you conclude that parts of the proposed GDAR have an element of forced symmetry where perhaps a distinction ought to be made. And if that's the correct reading of that, can you please give me some examples of where you justify the proposed GDAR may be forcing symmetry where it's not appropriate? A. I don't have any specific examples right now. I know that ECG raised some of the issues. I think the point is, probably from our perspective, the most important point is the fact that this electricity system is (A) starting from scratch in the sense that everybody is starting under the same rules and starting at the same point, and (B) the fact that those rules are untested. And I would note that I think that some of ECG's concerns are jurisdictional concerns about the differences between the treatment of gas and electricity within the Act. MS. McKINNON: Thank you. Those are all my questions. THE PRESIDING MEMBER: Thank you, Ms. McKinnon. The Panel has some questions for you. Mr. Birchenough? --- Examination by the Board: MR. BIRCHENOUGH: Q. I just have one referring to the education component. As I understand education, there are really two parts to it. There's a teaching part and there's a learning part and when you say government should be involved in education, I'm assuming you mean the teaching part. Do you see a corresponding obligation or onus on the consumers you represent to learn, and if you do, how would you go about measuring that learning and determining in fact that the messages are getting through? MR. WARREN: A. Certainly in answer to the question do they have an obligation, absolutely they have an obligation. There's no entitlement on the part of consumers to remain willfully ignorant. But let's be frank, in terms of arcane subjects that are available to consumers, how they purchase their gas and the relationship between gas brokers and the LDCs has got to rank very high on the arcana measurement. People are not that interested in it and it's difficult to understand. It's difficult for all the people in this room to understand what it is. So, yes, they do have an obligation. And, secondly, it seems to me part of the survey and education process should be follow-up testing. Do you understand these issues? And if at some point it is determined that the message isn't getting through, the answer may not be to increase exponentially one-half of the equation which is the teaching part. One may say this stuff is simply impenetrable. People aren't grasping it. But at the moment, there is to my knowledge no mechanism by which we test the effectiveness of these education programs. So I would certainly concur that there is an obligation on the part of consumers to learn, to educate themselves about this, and (b) that any education program should be twinned with mechanisms to test the effectiveness if it. And if isn't working -- I mean there's a limit to what you can do. MS. GIRVAN: A. Just to add to the point, I think what we do find is there are consumers out there who would like more information and they just don't know where to find it so... THE PRESIDING MEMBER: Thank you. Ms. Halladay? MS. HALLADAY: Q. I would just like to ask a couple of questions about process. Mr. Warren, is it your position that the Board has not followed the proper rule-making process in promulgating this Rule? MR. WARREN: A. Ms. Halladay, I don't mean to be facile when I say this. First of all, I think there are two components. One is from a practical point of view, is this the best way to get to the decision, and the second issue is the legal issue. On the second issue, frankly I haven't thought enough about it to be able to give you an answer which I think is responsible, one professional to another. On the first issue, the question of practicality which frankly is a greater concern, there are conflicting positions in the case. There are conflicting positions with respect to cost, for example, what will the implementation cost. There are conflicting positions, a lot of conflicting positions about the level of competitiveness in the marketplace. Q. Excuse me, Mr. Warren, please speak up. I can hardly hear you. A. There are conflicting positions on how competitive the market is. There are conflicting positions on the attitudes of consumers and the desires of consumers. If the GDAR is going to work, in our view, the public has to be educated. First of all, the public has to be educated so you need a transparent process which is more than just position A versus position B with the Board, not necessarily with any reasons for doing so, picking A or B or some combination to the two. So a process whereby the information was disclosed in the form of evidence subject to testing would in our view add to the credibility of whatever Rule is produced at the end of the day. And so the process is from that point of view which is a practical point of view, in our view, flawed. Measured against that is clearly the cost and time consumed in some form of hearing process which are entirely legitimate concerns which we share. I'm sorry I can't answer the first part of your question. I'd like to be able to do so but... Q. That's fine. Mr. Warren, except for the right to cross-examine witnesses, except for that right that clearly to be able to test the evidence that clearly, clearly has not been available in this format that we've chosen for the GDAR, is there anything else that is missing? In other words, the parties have had the right to present their own evidence. They've had the right to present their own arguments. They've had the right and have challenged the positions taken by other parties. Except for that right of cross-examination, can you help me with what else is missing? A. Ms. Girvan just makes the point to me which I think is an important point that I'm not sure that there has been a lot of evidence that has been put forward. One of the reasons -- the value of changing the process is it compels people to put forward the best evidence they have in support of their position. I don't know that people have done that although logically one would assume that they would. But it seems to me clearly the right to cross-examine is the fundamental issue. In addition to the other point I made at the outset in response to Ms. McKinnon's question which is that when Board Staff, for example, adopts a position, its reason for preferring one position or another ought to be articulated. And the other point is that it would be very useful if people could join issues on these jurisdictional questions, particularly getting a response, a formal position from Board Staff on the jurisdictional questions. Q. Mr. Warren, you may or may not know that the Board has attempted to state cases on interpretation, statutory interpretation with less than overwhelming success at the moment, shall we say. A. I'm aware that the track record is mixed. Q. Thank you. Perhaps you can help me again on the process because I am concerned about it, and that is, how would you see it unfolding? In other words, we have Union's unbundling application. We have Union's enabling application. We have the second phase of RP-99-0001 that I think we can admit has sort of come to a timely death. There is a Consumers/Enbridge unbundling proposal floating out there somewhere, some application that they are proposing to bring forward. How do you see the Board putting all of these bits and pieces together to form a coherent whole? A. Boy, that sounds like a question you should answer. MS. GIRVAN: A. I think it's a problem. Q. It's a bit of chicken and egg problem, isn't it? A. It is. Q. On one hand, Enbridge has said we can't go ahead with Phase 2 or unbundling until we know what the rules of GDAR are and these are too generic. A. One of the observations I would make is I think with GDAR it seems to me there are a couple of issues that are really sort of fundamental in the sense that you've got very divergent views, and I know in the past when I was on some industry stakeholder task forces, those issues have been around and the same people making the same arguments. I think it might be helpful to have potentially sort of a generic proceeding on those particular points and I would say billing and customer mobility. The problem I see, for instance, with having the Union Gas case and having billing, then what happens with Enbridge? And I agree that I think it's problematic, but I don't think it's insurmountable. I think that the fact is we have to do something and that we want to be able to try to incorporate all these processes. But at sort offhand right now, I can't devise an ideal process. MR. WARREN: A. This might be a facile answer but it seems to me what I understand has been the position taken by ECG and Union is that the task of resolving their unbundling issues is easier if they get disposition of the GDAR issues. They see the chicken and the egg phenomenon I think as I understand it quite clearly, and so resolving the issues in a generic proceeding in my view is the more efficient way to do it. I would be astonished if their individual unbundling proceedings didn't thereafter become more straightforward than they would otherwise have been. Q. Well, as I understand it, the present application of Union before the Board for their unbundling, their enabling application also includes applications for exemption from the proposed GDAR as well. So we're faced with not only having a generic proceeding for GDAR but then also facing exemption applications by the two major utilities to be exempt from whatever provisions are that are enacted in a generic proceeding. A. Part of the problem is that as I read their material, ECG and Union are complaining about the inadequacies of the GDAR process. Q. Oh, yes, they're complaining about that too. A. So that if you take that complaint away from them, if they have a process for GDAR which is satisfactory, then they have less room to complain when they get to the individual processes I would have thought. Q. Mr. Warren, is it your position that if we had a generic hearing for GDAR that the issues of exemption applications would not be raised in the individual unbundling applications? A. You know I wish I could speak for the utilities on that question. MS. GIRVAN: We try. MR. WARREN: A. Perhaps I will and I'll send them a bill. I don't know. MS. HALLADAY: Thank you. Those are my questions. THE PRESIDING MEMBER: Q. I'll start my question with an if. If the options of billing, if split billing was seen to be an expense greater than consolidated billing by either the marketer or the distributor, should the customer choice issue, if customers want that, should they still be able to get it or should the inefficiency, if it is such, take precedence over the customer's right to choose that option anyway? MS. GIRVAN: A. I guess without really knowing (a) to what extent there's a demand for split billing, and (b) to what extent you're going to have significant costs added on in order to facilitate split billing, I think it's a difficult question to answer. As I said earlier, my view is that I'm sure some consumers would prefer split billing but I think you have to weigh the efficiencies. I'm sure that's not terribly helpful but I think it's a difficult answer without knowing the complexities of being able -- I mean as I said earlier in an ideal world to be able to offer the various billing options I think would be the most appropriate so ... Q. Staying with the theme of customer choice, your point that the customer should be the one who tells the distributor that they want a change or how they want their billing to be done, if the language in the contract was such that it clearly stated that the customer had turned over to the vendor or to the marketer the right to choose a billing option, would that be any better or would that still be the way it is now, in your view? A. I think if it's clear and if the customer -- if it was presented in such a way that customers knew that that's what was happening, I don't know how you could really argue with that. If customers are looking over a contract and I think it's their responsibility. I think the problem that we identified is really the way these contracts were marketed previously, and in fact currently, has created a problem in that customers didn't really -- I don't believe that most customers understood that that's in fact what they were doing in terms of surrendering their rights. Q. The Board has avoided prescribing a standard contract for marketers for all sorts of reasons, we don't know what they're going to be offering in the future and so forth, so I think there's been some hesitancy there to prescribe something like that in the contract. MR. WARREN: A. The contracts that we've seen are fairly general in their wording. For purposes of relation to the supply of energy, the marketer is the agent, with very broad grant of authority. The anomaly is that many of the marketing campaigns that gave rise to the signing of those contracts had as one of their major features that you will have a continuing ongoing relationship with your LDC. You're not going to lose your tie to the mothership. There's some interesting questions about -- I suppose arcane questions for contract lawyers - about which governs, but that's a problem, that people's expectations were not reflected in the contract that they signed. Q. My final question is to do with a follow-up on Ms. Halladay's question of process. If the Board was to take your suggestion and have a generic hearing, a real quasi-judicial process and refer the issue of jurisdiction to the courts before presumably doing that because if we didn't have jurisdiction it would be fruitless to proceed, but if that was the case, the time element which seems to me would be substantial, but in your mind the honouring of that kind of process would take precedence over the timelines that would result from that? MS. GIRVAN: A. Well, I would say, and of course I'm not a lawyer, but I would say that the problem in forging ahead without potentially doing that is you may be faced with legal challenges down the road which you know at the end of the day you may be worse off in that respect. And certainly my reading and Mr. Warren's reading of the submissions in the various rounds of this consultation have implied that if certain things aren't done in the GDAR in the way that certain parties propose, that there will be legal action. And it's implied but I can imagine that happening so you may find the process tied up for years. So I don't know which would be worse. MR. WARREN: A. I have a different view. I think it would be far worse, to implement GDAR as a result of this process and have judicial review because if judicial review is successful in quashing some or all of what the Board has done, then you've got to go back and do the process all over again. So acknowledging that the time considerations are important, it seems to me that it's better to do it to the extent that we can, do it right going in. So we would prefer changes to the process and resolution of the jurisdictional issues in advance. Q. That would be assuming the Board regarded the jurisdictional question as a truly serious one? A. Absolutely, sir, absolutely. If the Board doesn't regard them as serious, Board Staff doesn't regard them as serious and that's an opinion being given to the Board, I think everybody would benefit from knowing what that opinion is so that we can join issue on it. MS. GIRVAN: A. You may prevent the process from going further. If people had a clear indication of the Board's perspective on jurisdiction, then parties may accept it. THE PRESIDING MEMBER: Okay. Well, thank you, Ms. Girvan, Mr. Warren, for your presentation and for responding to our questions. We appreciate your presence here. Thank you. MS. GIRVAN: Thank you. MR. WARREN: Thank you. [The Panel withdraws] MS. McKINNON: Mr. Chair, I wonder if I might make a proposal regarding timing? The next party as you know from the schedule is VECC and materials were distributed just today which are not exceptionally lengthy but they're nonetheless 13 pages. Subject to whether you are of the view this is helpful, I wonder if we make take, say, a ten-minute break? We are precisely on schedule. That would perhaps cut into the questioning a little bit on the next one but certainly it might be useful to take a few moments to review the written submissions beforehand and that might obviate the need for some questions even. THE PRESIDING MEMBER: I think that's a helpful suggestion. So let us take a -- it's a little after two, so let's come back at a quarter after and try and start right at 2:15. We are adjourned until then. --- Recess taken at 2:01 p.m. --- On resuming at 2:18 p.m. THE PRESIDING MEMBER: Be seated. Okay, the next presentation is from the Vulnerable Energy Consumer's Coalition. And could I ask the array of presenters to introduce themselves. --- Presentation by VECC: MS. QUICK: I'll start that off. Good afternoon, my name is Judy Kwik. I've been retained by VECC as advisor on the proposed GDAR. Michael Janigan was to deliver VECC's oral presentation on the proposed GDAR today, but unfortunately he will not be able to do so as he's recovering from surgery. Therefore, with your permission I will be delivering the presentation on behalf of Mr. Janigan. The Vulnerable Energy Consumers Coalition (VECC) strives to represent the interests of low volume residential natural gas customers, who by reason of income or other condition, may be differentially affected by changes in rates or policies for the sale and delivery of natural gas. The overwhelming majority of VECC's constituency is system gas users who are likely to remain so. VECC appreciates the opportunity to give an oral presentation on the proposed Gas Distribution Access Rule (GDAR). VECC would note that our previous comments in the GDAR consultation process were primarily directed to two themes. These were: the necessity to maintain congruence with the Electricity Distribution Access Code and the absence of funding to address consumer issues in the GDAR. With respect to our first theme, we would submit that having a 'level playing field' for the two main energy industries in Ontario, gas and electricity, allows competitive suppliers in both industries, and their customers to be subject to similar rules. This may reduce the potential for preference for either energy form due to structural factors and allows pure price to be the key factor. In the service area, it may also help promote further convergence that may lead to economies of scale for suppliers and consumers. Having made this point, it is recognized that there are significant differences in the structures of the two industries and these differences may, on occasion, drive a divergence in the rules established for the two industries. Key among these differences is the market settlement process. Upon market opening, settlement for the electricity commodity will involve the Independent Market Operator. In the gas industry, the retailers typically take title to the gas they sell to consumers. In addition, the retail gas industry and retail gas markets are relatively mature, while the electricity market is still waiting for a market opening date. Our second initial theme concerned the lack of customer participation and input into the development of the proposed GDAR. While distributors and marketers involved in task force discussions may have put forth customer issues, we can assume that their primary focus was the protection of their commercial interests. We believe that this funded oral consultation provides a partial remedy to the asymmetrical abilities of stakeholders to participate due to resource concerns. VECC also believes that GDAR should be comprehensible for the ordinary residential customer. The sections of the Rule that address the working relationship between the distributor and gas marketers are reasonably clear and, given the relative sophistication of the parties, there is unlikely to be significant confusion. However, the Rule was not written with the small volume customer in mind. This document should be the primary source for resolving customer account and billing difficulties. Therefore, we suggest that in the final version a customer "Bill of Rights" written in plain language be included as an appendix to, and as a useful summary of, the residential customer provisions of the GDAR. In any event, consumer education upon implementation of the Rule will be necessary and should go beyond simply mandating bill inserts. We have reviewed the submissions of other parties to this process to date and we will discuss their comments pursuant to our review of pertinent sections of the GDAR. There are several overarching issues that we would wish to address at the outset, prior to our review of specific sections. These are: (1) costs (2) retroactivity (3) jurisdiction, and (4) enforcement. (1) Costs Sprinkled throughout the previous comments of the LDC stakeholders are ominous references to increased costs associated with the adoption of the GDAR. While we note that these references are generally meant to provide a chilling effect to reformist plans in the GDAR opposed by the LDCs, we are concerned that VECC's constituencies may ultimately be visited with an as yet unascertained quantum of costs associated with implementing the GDAR. The costs appear to fall in three categories: (i) compliance costs (ii) return to system costs, and (iii) bad debt losses and potential stranded utility assets costs, such as, investment in, or, contracts for billing and customer information system functions associated with vendor consolidated billing of distribution services. VECC is alarmed by the prospect of the implementation of the GDAR without the quantification of costs pursuant to the aforementioned categories (i) and (ii), as well as the evolution of cost recovery mechanisms that ensure that system gas users who stay with system gas are not visited with such costs in their rates. The Board should not be appeased by the elusive prediction of system wide benefits associated with the enabling of choice, and thus promulgate rules without cost quantification as well as allocation models for those costs. In that instance, we are likely to swiftly find that the pocketbooks of system gas users are used to provide the lubricant to enable customer choice that is not desired or perhaps needed. While consideration of the final cost category would, at best, be a highly speculative exercise, in VECC's view any costs associated with the provision of vendor-consolidated billing should not be placed on non-participating consumers. Rather, these costs should be borne by the vendors and the participating consumers. (2) Retroactivity Several parties, in particular, Direct Energy and OESC, have contended strongly for the application of the GDAR customer mobility provisions in Section 6.5 prospectively to new contracts only. This contention is supported by allegations that these GDAR provisions amount to regulatory interference with contractual relations and/or legislating with improper retroactive effect. We would note with respect to the latter contention that the proposed GDAR does not seek to alter the arrangements or the effect of the arrangements that prevailed prior to the promulgation of the new rules. In other words, the previous reliance by the contracting parties on the circumstances up to the date of the GDAR is not undermined. What is changed is the removal of the distributor as an enforcer of the arrangements between a gas customer and the vendor. The distributor processes the customer request; the distributor does not amend the contract to supply and the obligation to pay. The situation is analogous to the local telephone company when there is a change of long distance providers the switch is made, and whatever contractual problems are left are for the parties to resolve. More importantly, where the Board is pursuing an important public policy goal of customer mobility in support of its statutory objective of facilitating competition in the sale of gas, it cannot be restrained from so doing because of the assumptions of some commercial stakeholders concerning future access to the distribution system. Similarly, the Board cannot be constrained from providing rules in support of its statutory objectives to ensure safety or energy efficiency, even though such rules may affect contractual obligations of existing stakeholders. While it may be legitimate (although incorrect, in our assessment) to contend for the current distributor enforcement of existing gas supply contracts to promote a competitive market in the sale of gas by maintaining confidence of the gas vendors, it is our submission that the contractual activities f the marketers to date should not act as a firewall for competitive reforms to enhance customer mobility a prime indicia of a competitive market. (3) Jurisdiction There are a number of jurisdictional impediments that have been cited to the Board's promulgation of the proposed GDAR. The principal jurisdictional objections have emanated from the LDCs. These objections roughly fall into two categories. i) The GDAR proposes to regulate terms of access to distribution services that are not distribution services within the meaning of the OEB Act. These objections apply to the Rule's inclusion of the sale of system gas as well as provision of services under section 2.2.2 of the GDAR. ii) Section 8 of the GDAR involving gas vendor consolidated billing provides for the creation of a wholesale distribution service by gas vendors that is ultra vires of the Board. It must be conceded that the Act is rather unhappily worded to allow the Board full flexibility in the achievement of the statutory objectives of competition, efficiency and fairness. It is reasonable from an administrative and public interest standpoint to evolve an easily understandable code involving access to the range of customer services provided through the distributor. As well, the Board, in the past, has acknowledged that its role goes beyond a set of pigeonholed duties. In the HVAC complaint proceeding, RP-1999-0058 the Board articulated its important role in deterring anti-competitive conduct: 3.1.14 Section 2 of the Act states that the Board is to be "guided" by the listed objectives. It is clear that the Board must consider these objectives in carrying out its statutory duties; however, the objectives set out in section 2 are not an exhaustive list of all of the goals that the Board may consider. The Board has a broad public policy mandate to regulate the conduct of monopoly utilities in the public interest. 3.1.15 A role of the Board in enhancing the competitive energy services marketplace is to ensure that the utility does not use its dominant position in the storage, transmission, and distribution of gas to frustrate the development of a competitive market in other non-regulated energy services. However, we concur with the opinions expressed with respect to the ambit of the rulemaking powers of the Board under Section 44(1) of the Act in that the Board must exercise its authority over the impugned areas either by use of Section 36 of the Act or Section 42(3) of the Act, in accordance with the procedures so provided. With respect to the jurisdictional complaint under the aforementioned category (ii), a more creative legal argument has been extended to attempt to prevent the interpolation of marketers into the customer billing process. The complainants analyse the framework of Section 8 of the GDAR with a view to suggesting that the choice of billing mechanisms is an invidious and ultra vires attempt to replace the LDC with the gas marketer as the distributor. The argument further, and rather fancifully, purports to elevate the mechanical billing for distribution services to a fundamental element of the contractual relationship with the customer and a necessary element of utilities ability to earn its rate of return. With respect, these submissions confuse the mechanisms associated with fulfilment of the contractual obligations of the parties with the obligations themselves. Communication and advances in the technology of communication have, generation by generation, altered the method of fulfilment of contractual obligations. In this case, a change in billing format is not sufficient to rearrange the status of the contracting parties. Similarly, the argument that the substitution of the billing of the distributor with a vendor's billing function is a fundamental erosion of the utility's assets as a distributor is, in VECC's view, yet another gloss on the old chestnut of regulatory confiscation. The distributor's franchise is clearly subject to the legitimate pursuit of the objectives of the Act through policy making by the Board. In this case, the encouragement of competition and its role in preserving the public interest in relation to monopoly services is more than adequate justification for altering the status quo with respect to billing. However, while the jurisdictional complaints of the LDCs are not compelling with respect to competitive billing, their practical assertions of effect may have foundation. It has been noted that the direct purchase market is not workably competitive and that there exists considerable ambivalence and perhaps hostility by customers to the provision of billing by parties other than the LDC. There is concern expressed whether customers will receive what they expect to receive at an appropriate price. First of all, we would submit that the choice of billing options should be entirely within the purview of the customer not the gas vendor. VECC understands that the purpose of the introduction of competition in billing services is to induce efficiencies, by having informed consumers shop for the best service. Having the gas vendor mandate the selection of billing hardly accomplishes that purpose. We are concerned that the current GDAR treats the billing issue too much as a prize in a turf war between commercial stakeholders rather than a potential market for choice and savings by customers. It is our submission that customer billing should be ruled (following a properly convened proceeding) a distribution service of the gas distributor subject to rules that give the customer the option of choice of billing systems where the distributor does not supply the commodity. Additional provision could be made for the disclosure of the costs of such service by the distributor and the gas vendor willing to compete for this service. The Board must ensure an informed market of customers who are able to make this choice on the basis of the offerings of the distributor or competitive gas vendor. (4) Enforcement VECC shares the previously expressed concerns of CEED with respect to the enforcement of the GDAR. The Complaint Procedures are not sufficient to ensure the compliance of stakeholders without an effective enforcement mechanism. From experience it is clear that a market player may gain an advantage from misconduct in the marketplace, if there are not sanctions for such misconduct that can be swiftly and fairly applied. We fully support the necessity to provide a third party complaints resolution procedure with appropriate penalties, in addition to Board ordered compliance for distributors where warranted. If Bill 57 becomes law, the Board will have the legal authority to apply levers in instances of licence non-compliance and it should use this authority effectively. The presence of significant transparency in the process for resolution and disposition of complaints is also essential. VECC wishes to address some individual sections of the GDAR as well as the relevant comments of stakeholders with respect to the same. Section 5 - Distributor-Gas Vendor Relations Union Gas points out that while the Standard Level Agreement is defined as an agreement that establishes relationships between a distributor and either a customer or a gas vendor, section 5.3 deals only with the relationship between a distributor and gas vendor and not between a distributor and a customer. Union Gas suggests revising the definition of SLA to be applicable to distributors and vendors so that it does not inadvertently capture the distributor's relationships with consumers and customers. VECC agrees that the definition of the SLA should be revised to be applicable only to gas vendors and distributors. However, given that the SLA pertains to customer's conditions of access to the competitive market, and that without the customer there would not be the necessity for a SLA, section 5.3 should have a provision for customer access to the SLA. Section 6 - Service Transaction Requests Sections 6.3.3.1 and 6.3.3.2 of the proposed Rule state that upon STR time period expiration, the distributor must cease processing of the STR. CEED comments that prior to ceasing the process, vendors should be informed of the deficiency, preventing the unnecessary resubmission of the STR in its entirety and making the STR process more efficient. CEED's suggestion is a practical solution to a process that can become onerous for all involved, including the customer, when they need to start the STR process all over again. This frustration may discourage a customer from participating in the competitive market. CEED's suggestion also allows the distributors and vendors to become familiar with the STR requirements, minimizing future errors over time. Therefore, the recommended addition of wording on exercising due diligence, "including contacting the gas vendor in a timely manner to obtain additional or accurate information" is appropriate. With regard to the 14-day time limit for STRs, we agree with CEED's suggestion that the time limit should be binding and that penalties should apply if the time limit is not met as a service quality performance measure in a PBR scheme. This will provide increased certainty that the time limit will be met and lessens potential frustration with the transfer process. Section 6.5.2 states that during the initial STR waiting period, the vendor should notify the current gas vendor that it has submitted an STR to become the customer's supplier of Gas. CEED believes that the customer should be copied on this notification, as they say, "to create transparency for all parties involved in customer transfers, especially the customers who are being transferred, by removing the possibility of confusion and unauthorized transfer." In addition to the awareness by the customer of action in response to an authorized transfer, in our opinion, CEED's suggestion would also serve as a deterrent to unauthorized transfers. Copying the customer on the notification would preclude the need for a distributor to ask for a copy of written authorization from the gas vendor, a clause that Union Gas finds inconsistent with increased customer mobility provided by the Rule. It is important to recognize that the customer notification process should be designed in a way to reduce "slamming". A distributor might not be motivated to provide enhanced customer protection by asking for a copy of written authorization. Enhanced customer protection might better be provided by having the distributor send a copy of the STR notification to the customer. Direct Energy also recommends an amendment that requires the distributor rather than the new vendor to notify the existing retailer of a STR. While, as Direct Energy points out, this provides consistency with the Retail Settlement Code, it will also protect customers from potential inappropriate opportunities the process may present to the new vendor. Beyond this point, it would be the customers' responsibility to react when it receives a copy of an unauthorized STR. Making the distributors responsible for notifying the existing vendor would also address, to some extent, the Ontario Energy Savings Corporation's (OESC) concern with breach of tri-party contracts between distributor, customer and agent. Where the distributor is party to a tri-party contract, it would want to make sure that it is not in breach of contract by stranding the existing supply agent. By looking after its own concern with regard to tri-party agreements, the distributor, depending on the agreement, may also be saving the customer from breach of contract. Section 6.2.2 includes credit information on the list of information included in a STR. Union Gas points out that credit information would include credit reports purchased from credit agencies and that payment history rather than credit information is more appropriate. Union has made a critical point in that payment history is the information relevant to the customer as a gas customer. Credit information that includes credit reports purchased from credit agencies is not relevant to the customer as a gas customer. It should not be assumed that customers with poor credit reports do not give priority to paying utility bills over other bills, given that utility services are generally considered essential services. Therefore, a customer could have a poor credit report and a good payment history. Union's suggestion on changing the final sentence of section 6.7.1, a vendor default clause that requires a 10-day period between the date on which payment was due from the gas vendor, to reflect default in failure to deliver gas, brings up the question of the responsibility for supply during those 10 days. While system supply during the 10-day grace period may be implicit in the Rule, to ensure customer protection, the provision needs to be stated explicitly. Section 7 - Customer Information CEED's recommendation is to amend clause 7.1.1 by adding "only" on limitation to collection of customer data. VECC supports the amendment since the information in this section was made available only for gas distribution purposes. For this same reason, Union Gas' suggestion that section 7.1.1 needs to be broadened to allow Union Gas to use information obtained from customers to conduct any business that Union Gas is authorized by the Board to conduct, is not appropriate. These provisions could be enhanced by the insertion of a purpose clause limiting the release of individual customer data to purposes of gas service requested by a customer. With respect to Section 7.1.2, VECC understands that the term "data" refers to personally identifiable data and perhaps the wording should so specify. V.E.C.C. further notes that any purpose set out in the Service Level Agreement for which individual customer information is required should be concurred with by the customer. With regard to section 7.4, Union Gas suggests that this section should be removed to make clear that the Rule in no way allows supplanting the distributor's custody of meters. While Union Gas' position of distributors' having custody of the meter is definitely to the customer's benefit given the importance of the meter and metering data, customers a need to have access to the meter and metering data in case of disputes. In this case qualified staff of the distributor and Measurement Canada would handle the meter and metering data, avoiding the opportunity of meter mishandling by unqualified customers. Therefore, section 7.4.1 could be removed, but 7.4.2 should remain. Section 8 - Billing In the event that the Board elects to proceed by way of the proposed GDAR VECC concurs with Union Gas' submission as to the information disclosed on bills. Union suggests that the Board needs to consider related rules on information disclosure that would apply to gas vendors through the marketing code. Union Gas states that in "the absence of such requirement in the Marketing Code, gas vendors will be able to bundle and unbundle charges as they see fit, and be able to charge any price for distribution service regardless of the distributors' regulated rate". Further, Union Gas maintains that section 8.4.1 would expose consumers to "significantly more risk, confusion and no assurance regulated distribution services will be provided and charged at rates regulated by the Board." Union's position is well stated and points to the need for consistent rules between the presentation of regulated distribution services whether on distribution or vendor-consolidated bills to avoid customer confusion and misleading bill item presentations. In addition, the distribution services rates on the vendor's bill must be a passthrough of Board approved rates and should be the rates and charges as presented on the distributor's approved rate schedules. VECC notes that the provision of competitor billing as per its submissions earlier in this presentation might serve as a better template to incorporate consumer protection issues. With regard to the second bullet in section 8.5.1, CEED's understanding of this point is that it is meant to prevent distributors from providing different promotional material to different system gas customers and that as draft edit may be interpreted as an exception to the general prohibition. In CEED's view, the wording of section 2.7.3 of the Standard Service Supply Code for electricity is much more definitive and that the Board should follow this model in the Rule. Section 2.7.3 of the SSS Code states that bills for SSS customers "shall only include the distributor's marketing information or promotional materials, and any materials or information that the distributor is obligated to send as part of its regulated distribution function". CEED's suggestion of modelling section 8.5.1 bullet two on the SSS will result in clarification of the Rule and will help keep distribution versus commodity marketing unbundled in the customer's mind. CEED's reference to Section 2.7.3 of the SSS draws attention to how customers on vendor consolidated billing will receive the information, beyond relevant safety information, that a distributor is obligated to send as part of its regulated distribution function. An example might be impending increases in distribution rates. In summary, VECC submits that there needs to be a level playing field for the two main energy industries in Ontario to the extent feasible to allow for a pure pricing signal and enhanced efficiency through convergence. As the primary document for resolving customer account and billing difficulties, the Rule should include a customer "Bill of Rights" and a summary written in plain language. In addition, consumer education beyond bill inserts should be conducted upon implementation of the Rule. The Board should not implement the Rule without some cost quantification of benefits associated with the enabling of choice. Neither should it allow contractual activities of the marketers to date to act as a firewall for competitive reforms to enhance customer mobility a prime indicia of a competitive market. VECC does not find the jurisdiction complaints of the distributors with respect to competitive billing compelling and submits that the choice of billing options should be entirely within the purview of the customer and not the gas vendor with the understanding that the purpose of the introduction of competition in billing services is to induce efficiencies, by having informed consumers shop for the best services. Further, VECC believes that any direct or indirect costs associated with vendor-consolidated billing should be borne by the vendor and the participating consumer. And finally, the Board must use any legal authority it may have to enforce the Gas Distribution Access Rule. All of which is respectfully submitted this 27th day of June, 2001. Michael Janigan, Counsel for VECC. At this point, I would be pleased to try and answer any questions that you may have for me in my capacity as consultant. Should you have any questions of a legal nature or one of a spokesperson for VECC, I would be pleased to undertake to provide you written responses for those. THE PRESIDING MEMBER: Thank you, Ms. Kwik. --- Examination by Board Staff: MS. McKINNON: Mr. Chair, I will try very hard to be succinct given that we have covered the submission in such detail. Q. Ms. Kwik, let me ask you, starting at the end of your submission and perhaps working backwards, and you may recall the question that the Chair asked of the CAC Panel at that very conclusion about where you place the relative priority of choice over efficiencies, because I notice at the conclusion of your submission on page 12, you submit that the choice of billing option should be entirely within the purview of the customer and not the gas vendor with the understanding that the purpose of the introduction of competition in billing services is to induce efficiencies. So can you give us some sense of how you think that the choice of billing options contrasted to the efficiencies ought to be weighed? MS. KWIK: A. Speaking for myself, rather than the VECC, I think when you start having several billing options, there are going to be some duplication of efforts, and there will be costs associated with those. And there's a point where the benefits have to be worth more than the costs. And I would think if a customer wanted that option badly enough that they would pay for it, then perhaps the total picture efficiency doesn't need to be there as long as it's efficient for the customer who makes the choice to have that form of billing. Q. So speaking more specifically then to the proposed split billing option, do I interpret your view to be that it ought to be available because there may be customers who are willing to pay for it? A. That's right. Q. One question on your submissions regarding the meter accessibility point, at page 11 of your submissions you stated that the section on meter accessibility could be removed but should remain and you stated that customers need to have access to the meter in case of disputes. Would you agree that access to the meter may also be important for purposes such as gauging consumption and usage and making decisions about usage based on those statistics? A. Yes, absolutely that data should be available. But I would assume here that the concern was more the handling of the meter by unqualified people, and you know, the holder of the meter and the meter records, it's important that there's continuity on the keeping the meter itself and the meter data safe. Q. All right. My real question is this, in addition to having access to that information for the purpose of resolving disputes, if you agree that the information is also important for measuring consumption and making decisions, does that persuade you that it is therefore important for the meter accessibility provision to remain in the GDAR? Does that make it more important, in other words? A. What I have said was that while 7.4.1 could be removed, 7.4.2 should stay which would give you access, the access that you need in case of a dispute. Q. All right. I'm sorry, maybe I'm not being clear, but what I'm trying to get at is the value of the information under 7.4.1 to consumers, and that is, to be able to measure units of consumption. So you're telling me that from a consumer perspective you don't consider that to be an important component of information? A. No, it is important to have the information that you gather from the meter, but the firsthand access to the meter, in other words, the handling of the meter, the physical handling of the meter should be in the hands of qualified people. Q. And there should then be some obligation to provide that information? A. Yes, there's obligation to provide information but it doesn't mean the customer can go and handle the meter themselves. I interpreted consumers concern to be more one of myself as a customer going and fooling around with my meter. Q. All right. Thank you. You also state that the complaint procedures are insufficient to ensure compliance. Do you have any specific proposals by which you would suggest that procedures could be improved? A. I would assume that once the Board has the -- if Bill 57 becomes law or when it does become law that you could set up a process that has the Board's authority on applying levers kicking in at a particular point in time. Q. All right. But I'm asking whether you have any specific suggestions at this point and I take it the answer no? A. No. Q. In terms of your comments on consumer education, you have stated in your submissions that education has to go beyond simply mandating bill inserts. Again, do you have any specific proposals about what specific educational initiatives might be valuable and who ought to undertake those? A. I think considering that this Bill of Rights as you might call it actually comes from the Board. I think the Board does have a role in ensuring that the customers who it is intended to protect understands their rights. So I would see the Board getting involved in it. In terms of the medium, I think something that in the public eye would always be mass media, just to reference the Board's website and if the Board's website has a user friendly guide on what the rights were for the customers, I think that would be helpful. Q. A final question, Ms. Kwik, from a consumer protection perspective generally, other than what you've covered in reading out your submissions today, are there any other proposals you would make to modify the proposed GDAR with a consumer protection goal in mind? A. Well, I think if some of these suggestions that have been made in this presentation are taken, I think that will have added some consumer protection. Q. I apologize, one more question. Again it's a general one and I raise it because much of what you've shared with us today is dealing on a quite specific level with some of proposals in section 6 and section 8 of the GDAR. But do I take it again from a consumer representation perspective, you do agree that the proposed GDAR is useful in facilitating competition in the gas market? A. Again from my perspective, I think it is. MS. McKINNON: Thank you. Those are all my questions. THE PRESIDING MEMBER: Thank you, Ms. McKinnon. Ms. Kwik, we appreciate the fact that it's somewhat difficult to be representing VECC and not speaking for them. MS. KWIK: Being a consultant to VECC and not representing them. THE PRESIDING MEMBER: The Panel understands that and does appreciate your presence here. We have no further questions, so thank you very much for bringing VECC's views to the Panel. MS. KWIK: Thank you. [The Panel withdraws] THE PRESIDING MEMBER: The Panel is prepared to forge ahead and not take another break. So that brings the group known as the Convergence Group to the table. I would invite them to take their place and introduce themselves to the Panel. --- Presentation by The Convergence Group: MR. VEGH: Good afternoon, Panel. My name is George Vegh. I'm counsel for the Convergence Group. Just as we're getting the organized, there are a couple of documents that we've filed. One is the June 15th submissions. And we also prepared, just for the sake of ease of presentation today, a Power Point presentation with some slides and I believe that's being handed up to you, and that's dated today's date. And we are just waiting for one of our members to join us, but I perhaps can start with, what I'll do is I'll refer to the Power Point presentation more than the submissions and these will just walk through the submissions and highlight some of the major points from our perspective. At page 2 of the Power Point presentation I set out an outline of our presentation. THE PRESIDING MEMBER: I'm sorry, are you going to introduce your Panel? MR. VEGH: Yes, sir. Thank you. What we propose to do today will provide some introductions and then - this is at page 2 of our presentation - I'll have a brief discussion of who is the Convergence Group and then the issues that these submissions will address of customer mobility, marketer billing and then I'll make the panel available for questioning. I would like to start with introductions of the panel members, starting to my furthest left, Gerry Haggarty of Toronto Hydro Energy Services. MR. HAGGARTY: Yes, my name is Gerry Haggarty. I'm the director of natural gas with Toronto Hydro Energy services. Toronto Hydro Energy Services is a licensed retailer of both gas and electricity in Ontario. We serve the residential, commercial and industrial markets and are active in both the Union Gas and the Consumers Gas franchise areas. Personally, I was involved in a few of the subcommittees with the Distribution Access Rule so I'm familiar with those aspects of it as well. MR. HENDERSON: I'm Graham Henderson. I'm the director of business development and market strategy for Ontario Hydro Energy. Ontario Hydro Energy is a wholly-owned subsidiary of Hydro One. We are also, similarly to Gerry's introduction, hold both electricity and gas marketing licenses. We focus on the residential market. We're in the business of renting water heaters, selling electricity contracts and selling long distance phone service, as well as other services. We strongly support the customer's choice in terms of billing and supplier as critical drivers of robust competition in the marketplace and we believe competition creates efficiencies and forces innovation in products and services that are offered to customers. MR. SCHIRATTI: Q. Good afternoon. My name is Arnel Schiratti. I'm the director of energy supply and regulatory affairs for Sunoco Incorporated. As well we hold licenses in both the electricity and the natural gas sectors. Currently we are only in the natural gas sector and strongly considering the electricity industry in Ontario. We have approximately 300,000 residential consumer equivalents in Ontario and we're also a member of CEED, who you've heard from two days previous to this. In our opinion, a fair and level playing field is imperative to both customers and current and potential market participants. We feel that as well, and we agree with the Board, that customer choice is also very paramount. And as well we believe that the robust markets require a convergence. It's not simply something that's desirable. It's absolutely imperative, if the customers will be protected and enjoy the benefits of competition as well as the marketplace enjoying a fair and level playing field. MR. VEGH: Thank you, panel. The way we'll move forward is that I'll provide an outline of the submission and then step aside and leave the Panel open for questions from Board Staff and from the Board. So I'm now at page 4 of our Power Point and as you've heard from the member of the Convergence Group, each one of them is licensed to sell both gas and electricity to retail customers, and each one of them has been involved with this Board quite intensively on task forces in both the natural gas sector and the electricity sector with a view to bringing about competitive rules and a level playing field for retail gas and electricity. And I think it's fair to say that Sunoco has been more involved on the gas side. Sunoco has been frankly quite extensively involved in several rate proceedings and the DAR process really since its inception. Toronto Hydro Energy and Ontario Hydro Energy are also well known to the Board. They've been particularly involved in electricity restructuring initiatives with the Board. But what you get from these three companies is a coming together but also a diversity of backgrounds. Sunoco is largely involved in natural gas while the other two here have a stronger electricity background. We have independent marketers and affiliate marketers in front of you. We have an incumbent marketer in Sunoco and we have new entrants in the other two members. And despite this diversity or from this diversity even they agree upon several high level principles and one of the principles is that you need similar market rules for natural gas and electricity retail markets. You know people often point to the difference between the gas and electricity commodity and how that may be relevant for some purposes and that's fair enough, but for the purpose of retail market design, the submission of this group is that similar rules are required if you really do want to bring about a converged market, converged energy market consisting of both natural gas and electricity. And the principal position of the group is set out at page 5. There are three major premises. First is that the rules for mobility and billing should be the same in the two sectors. The second is that in both sectors, these rules should reflect the principle of customer choice over who supplies and bills energy services. And the third is that customer choice has been the Board's vision in electricity and that should be the operative one that is also applied to gas. Turning first to customer mobility, it's interesting to note, and in our written submissions they're set out in more detail, that the electricity model for customer mobility was based on the experience in the gas rules. People learned from gas that the lack of mobility in gas was causing real market problems, and it was an attempt to avoid those problems in electricity that the customer mobility rules of the Retail Settlement Code were drafted. And that's a very important point to learn that lesson and apply it to electricity, but also to apply it to natural gas as well. And just on that, what applying these rules to gas will fix is that right now gas is virtually the only retailer service market, at least that I can think of, where customers don't have mobility, where customers do not have the choice to fire their supplier. And I've heard some people on Monday talk about this as a virtue, but the Board has recognized this as a problem since at least 1996 and starting at least in 1997, the Board has been seeking an industry solution to this problem through task forces, through DPIC, through the Market Design Task Force, and the fact is there is no industry solution to the problem, and it really is up to the Board to provide some direction and to send a message on customer mobility. And the message that we submit that the Board should be sending to the market is that the way to keep customers is to treat them right and if you treat them right, your customers will stay, and if you don't treat them right, you should not rely on the utility to prevent your customers from leaving. And a same principle and related principle is with respect to marketer consolidated billing where our submission is that customer choice should be the operative principle. The first point is that the customer's choice of the bill provider is as important as a customer's choice over the gas supplier. And I was here yesterday when there was a discussion with Enbridge, and you know, it's clear from hearing Enbridge and others I suppose that some people take the position that you can support customer mobility on who provides the commodity, but they say customer mobility is really not -- or customer choice is really not relevant for billing. They say billing is just, you know, a mechanical vehicle, a way to collect the money. It's interesting though because these companies at the same time talk about the importance of the customer relationship, and why it's so important commercially to have that customer relationship. But the reality is the bill is the vehicle for the customer relationship. And when you choose your bill provider, you are choosing as a customer who it is that you want to have that relationship with. And that's crucial. And in our view, marketers should be competing over the right to have a relationship with the customer. And that is as important as competing over the right to supply that customer. And the relationship, again, with mobility is crucial. As I said on the customer mobility issue, this group's position is the way to keep a customer, is to treat them right; that is, you build a positive relationship. And if you build a positive relationship, the customer will want to maintain that relationship. But both of these issues are related. They should be addressed in the context of the marketer. Marketers should be encouraged to build positive customer relationships through taking on billing responsibilities, and they should be -- have an incentive to have positive customer relationships through customer mobility provisions. And this, I think, is important not just in response to what we heard from Enbridge yesterday, but in response to what we heard from CAC today. CAC was saying, you know, is this a truly competitive market? There's some issues around transparency, do customers know who they're dealing with? Customers need more education. Well, in my submission, the way you deal with transparency is to open up that relationship. The marketer no longer is a line item on a bill; the marketer becomes the one who is sending you a bill. And the way you get a customer's attention to know who they're dealing with is you send them a bill. And that's how to get their attention, that's how to make the relationship transparent so the customer knows who they're dealing with. And that's really a more effective education tool than sending out a bunch of pamphlets through a utility bill to a customer. That is what will get a customer's attention, and that is what will make the market transparent. Turning to page 8, we have -- I have some references here to the LDC surveys. And I want to be clear at first. CAC said today that there is some conflict over what's in the survey results. There is no conflict in what's in the survey results. The utilities asked different questions than the survey results that this group asked. So there's -- as I say, there's been some suggestion that we have conflicting results. We don't have conflicting results. The LDC survey asked customers who should bill them, and then the LDC comes to the Board and says, you know, customers prefer to be billed by the LDCs, therefore, you shouldn't allow the customers to be billed by anybody else. And in my submission there's a step missing in that analysis. The customers did not say that they do not want a choice over who would bill them; that's what the LDC is asking this Board to say. And the one question the LDC survey did not ask the customers is do the customers want to have the choice over who bills them. That's a question that the convergence group asked the customers, and the majority of the customers said, yes, they want that choice. All surveys also indicated that customers prefer a single bill. And ultimately a single bill for combined energy services and ultimately looking further down the road at other types of services, the type of services that Mr. Henderson's company offers, those can only be provided through a marketer-consolidated bill provision. Once you have a mandatory distributor bill, you prevent the opportunity for new and innovative billing arrangements. And there's no discrepancies in the survey in terms of the number of customers who want this sort of service. They are consistent when you ask them the same question. I'd like to -- I do have some comments on jurisdiction, and this is addressed at page 9. And if you could turn to it, it would be helpful, because I have some statutory definitions there. Both utilities have argued that the Board can not impose marketer billing because marketer billing is not supported by the definition of distributor in the OEB Act. And their argument, as I understand it, is that if you allow marketer billing, then the marketer becomes the distributor, and the marketer will need a rate to sell distribution services, and the distributor is no longer a distributor, they're now something else which they call a wholesale -- which provides a wholesale distribution service. It's not really clear what happens with the distributor under the LDC scenario. But their entire argument is based on the definition of the distributor in the OE Act. I've just set out the definition of distributor, because I'd like to take you to it. All that the Act says is that a distributor means a person who delivers gas to a consumer. It doesn't say anything about you have to have a billing relationship to be a distributor, and that if a distributor bills a marketer for delivering gas to a consumer, then the distributor is no longer a distributor and the marketer becomes a distributor. This Act -- the definition of distributor in this Act is simply not as restricted as they're trying to tell you. If they are right, then the only conceivable method by which you can bill for gas under the legislation is the current rules. So they're the legislation freezes the status quo, and you're not entitled to have any further developments of this market unless you run off to the legislature and have the legislature amend the bill, amend the definition of distributor. I don't think that's -- that argument carries really any weight whatsoever, and Mr. Warren's suggestion that, you know, you should run off to the courts to get some sort of confirmation of this before doing anything, I also think is without merit. I think the Act clearly gives you the jurisdiction to order marketer-consolidated billing, and the definition of distributor is not at all inconsistent with marketer-consolidated billing. Turning to page 10, and to bring this jurisdictional issue back to the point of convergence, the gas utilities seem to be suggesting that the Board can order marketer-consolidated billing in the electricity sector but can't order marketer-consolidated billing in the gas sector. So they're saying that you have to have different -- well, your jurisdiction does not allow you to bring about the same treatment in the same two sectors. And they point out that there is a different definition of distribute in the electricity sector. When you look at the words it's true that there is a difference because in electricity there's talk about conveyance of electricity, while in gas it's delivery to a consumer. So there is a difference, and that difference is really driven by a number of factors I think, but that has to do with the physical nature of the commodity. The fact that a distributor will convey both from generator going upstream, and from an upstream IMO going downstream to a consumer, while a gas distributor simply conveys one way. And there could be other reasons why you'd have a different definition of gas and electricity distributor, but there is nothing, in my submission, in the definition of these two functions that suggests that for retail marketing purchases the Board is driven to a different method of regulating the two sectors. What the jurisdictional argument comes down to is that there are differences in the definitions, but those -- the differences are without distinction or relevance for marketer consolidated billing. I'd like to turn to process now, because there's been discussion about process both from Enbridge yesterday and from the CAC today. It's interesting -- I was interested to hear Enbridge's statement yesterday that they were surprised that this process addressed rules for marketer-consolidated billing. And I had to go back to the transcripts to confirm that that this is what they actually said on the record. And they said that this surprised makes them to question the fairness of this process. So I think, you know, this is an important point. And I wanted to -- I wanted to address this by reference to some background materials just to make the point clear that it was clear from the outset that this process was to deal with marketer billing. There is no doubt that Enbridge knew about that and participated in that. And if I could just turn you to the documents at tab A, I'll go through them quickly. Tab A is a series of correspondence around the distribution access rule. And the first is a letter from the director of licensing to various participants. And I'd like to refer you to the third paragraph. And in my copy I think it's marked up a bit. The third paragraph, third sentence in, second sentence in it says, "A rule will deal with such matters as customer transfers, mobility, obligations of distributors to provide access to customer information, billing and metering service requirements. The rule will also establish principles and policy direction regarding the unbundling of utility services. Individual service matters and costs, charges and fees for services would be the subject of each utility's rate proceeding." So it was clear that billing was supposed to be on the agenda of the DAR from the very beginning, but that the rates implementation of billing issues would be addressed in rates cases. And just to make that even more clear, if you turn the page over you'll see there's a draft table of contents that came with this December 6th letter. This is the original table of contents of December 1999. Item number 6 in the draft table of contents for the gas utility rule -- 6C sets out billing options. And if there were any doubt about what sort of billing options were going to be addressed, you could take a look at the next document, which is a February 16, 2000 agenda for the DAR task force where the utilities participated in. This is February 16, 2000, which outlines what is meant by billing option, and that's in item number four on the agenda. If we look at the billing options (D): Party Combinations Retailer Consolidated Billing. This was on the agenda from the initiation of this process. There is no surprise that this issue would be addressed. In fact by the time this process started marketer billing had already been addressed in the Retail Settlements Code. Everyone walked into this process knowing that it would be addressed. And this process ran from early 2000 until late summer in 2000. And I participated in that process with Enbridge and Union, and there was no surprises anywhere. We were all dealing with marketer billing as parts of the issue. Turning over to the next document, which is correspondence around marketer billing, it's a letter from Mr. Brown who's counsel for CENGAS. He writes to the Board in 19 -- sorry in January 2000 talking about the interaction between the DAR and the Enbridge rates case, because to take you a bit you'll remember in August 1999 the Enbridge rates case -- or the portion of the Enbridge rates case that was to deal with unbundling was differed and kind of left open and then the DAR process stepped in. So Mr. Brown is writing in this letter to ask for some direction on how these two processes interact, the DAR and the Enbridge rates case. And you'll see at the very end of his letter, the last sentence on page 2, he says: "If the task force -- and he's talking about the DAR task force -- if the task force mandate is to draft a gas utility access rule which directs an unbundling of customer care and billing services, CENGAS is prepared to reconsider the need for the Board to hear its motion. So that's in the hearing room. So you think if you're going to deal with it in the DAR, then we don't have to deal with this issue in the hearing room. Enbridge responded to that letter in the next document dated February 14, 2000. And I just want to take you to -- responding to the CENGAS letter, and on page 2 the fourth paragraph, the second last paragraph, second sentence Enbridge -- this is a letter to the Board -- Enbridge says, "For example, CENGAS has specific interest related to the provision by gas marketers of billing, collection and accounting services. It is anticipated that the Distribution Access Rule task force will be dealing with issues such as billing requirements and access to customers, both of which are linked to the noted interest of CENGAS. In light of the above comments, Enbridge Consumers Gas is of the view that it might be most appropriate to await the Distribution Access Rule before establishing a procedural schedule for the second phase of our RP-1999-001. So Enbridge knew what this process was going along, that we would deal with the substantive issues of marketer billing in the DAR task force, and deal with the implementation of those issues in rates case. And they wrote to the Board over a year ago suggesting that this is the appropriate procedure. And one final piece on this correspondence. This is when the Board having -- the next document over, the Board having reviewed this correspondence between CENGAS and Enbridge, and the Board concludes at the end in a letter to Mr. Brown, "There appears to be some overlap between the phase two issues and the matters to be completed by the DAR task force. The Board agrees with Enbridge Consumers Gas proposal. To await the DAR task force is the most expeditious way to proceed with this matter." So, again, my point here is that it's not -- it doesn't lie in Enbridge's mouth at this stage, two years after the last hearing was adjourned in a large part to deal with DAR, after dealing with DAR and marketer billing for 18 Months, it does not lie in Enbridge's mouth to come forward now and say it's inappropriate for this process to have dealt with that issue and that they were surprised by that, because Enbridge was not surprised by that. And my submission is, with all respect to Enbridge, that their complaints about the process are really just complaints about the outcome of that process. That process was open. The DAR process, it was open, it was fair and it was thorough. Another thing is that this process was similar or is similar, still going on, to the process which had been used to establish these rules in electricity. And electricity through the Retail Settlement Code you dealt with issues of customer mobility. The Board dealt with issues of marketer billing. You didn't have to call a hearing to deal with those sorts of issues. The Board made a policy direction that the process was similar to that in electricity. There's no question also legally that Section 44 is a valid process for this. And I just -- just for the Board's reference, I've attached at tab D to this document the decision of the Divisional Court in Alliance Gas Management versus Ontario. And that was -- I'm sure the Board is familiar with that case. That's where Alliance Gas and other marketers took a run at the Board's jurisdiction under Section 44. And the Divisional Court made it clear in paragraph 6, the last full sentence, Section 44.1(c), but all of Section 44 this is applicable, "Is not subordinate in any way to other sections of the Act, and must be given it's full meaning." Like all legislation, it is deemed remedial. So Section 44 is -- there's no question that Section 44 is legally sufficient to deal with issues that are addressed in this code. And my submission is also that it is a preferred way to deal with these issues. And I'd like to go back now to the power point at page 14, which addresses why in submission Section 44 is preferable. Section 44 allows industry-wide treatment of these issues. The fact is when people talk about we don't know what the costs are, the costs are going to be different according to different utilities, not only their cost structure, but also the way they contracted out for the types of billing services. The cost will be for different utilities. Section 44 allows industry-wide treatment on a policy basis of how billing and mobility are to be addressed, so Section 44 is preferable. The other thing that makes Section 44 preferable is that applies to municipally-owned utilities as well. Yesterday the City of Kitchener was here endorsing, by the way, the marketer billing requirements. That -- City of Kitchener is subject to Section 44. The City of Kitchener is not subject to Section 36 because their rates are not regulated by this Board. Now CAC has also raised a procedural issue on whether it was appropriate to use a DAR process. In fact as I read their submission on this, they have some questions on marketer billing, but really no substantive objections to marketer billing. Their objections are more about this process. In fact, on marketer billing, CAC says ultimately that should be available to customers, but they didn't like this process. And they object to this process, and they say the Board should not have followed Section 44 and said the Board should have a rate hearing on this under Section 36. Now someone asked, is this a chicken and egg kind of question. Maybe in August 1999 this was a chicken and egg question, but I think that question -- I mixed my metaphors, because I don't want to go too far with the chicken and egg metaphor, but that train left the station, I think, in August 1999, when we were sitting in front of the Board on the Enbridge case, and the Board had to make a decision: Does it want to deal with the marketer-billing issue, which was live in that case -- through that the case -- or did the Board want to go through a different process? At that time the merits of Section 36 versus Section 44 were reasonably considered I think. Section 36 had some advantages by its intervener funding so that could have greater encouragement for CAC and VECC perhaps. It has its advantages in that you can look at cost issues, but it has some disadvantages as well, where Section 44 has advantages, and that has to do with industry-wide treatment and there are other advantages to Section 44. So the Board had to make a decision in August of 1999 of which way to go and then made that decision. It said we're going down the Section 44 route. Now in my submission it's not responsible two years after that to say, "Well, let's have some second thoughts here. Maybe we should not have gone down Section 44 and start another hearing under Section 36." That's two years of significant investment of time and resources, not just of the people involved, but of the Board and Board Staff. Also, I'm not aware that the Board has a hearing -- has a luxury of hearing schedule as Enbridge and CAC may think. That we could just run off and hold a full hearing every time you want to make a change to the rules. Section 44, in my submission, is the appropriate process; it's a preferable process; it was fair; it was open; it was through, and there is no reason after two years of having gone through that process for the Board to second guess itself and say, you know what, we should not have gone down that road. We should scrap that two years of work and start a rate hearing right now. The final issue I want to address is what Enbridge has raised, and Union has raised about the financial consequences to the utility. And those start at page 15. Their first argument about marketer billing, they say marketing billing is not fair because the utilities have currently the customer relationships, and there's value in their customer relationships and the utilities are entitled to that value. Our response to that is that we agree that there is value in customer relationships and the appropriate way for this Board to address that is to ensure that the customer relationship is competed for in the marketplace. If it's competed for in the marketplace, then customers will realize the value of that relationship. The utilities are asking the Board for a monopoly on the value of the customer relationship. That is not in the customer's interest. The utilities also talk about interfuel competition and they say -- or Enbridge said yesterday - that, you know, if you have a marketer out there like Toronto Hydro, then Toronto Hydro Energy Services, well they're likely to prefer electricity and not push gas and the utility should be able to push gas. But remember we're looking at two sectors of an industry where in our submission you should not be providing competitive advantages to either sector. The Board shouldn't be setting up rules so that the gas utilities can have a mechanism, you know, a ratepayer-subsidized mechanism to support natural gas against their competitive fuel source in electricity. And if you do that, then the next step is electricity distributors come in and say, well, why are you giving gas distributors that advantage. We have an interest in pushing electricity as well. The Board should not be making these determinations, in my respectful submission, between gas and electricity and which one should be preferred by customers. By leaving that choice up to the market, the marketers will provide the customers with the energy source that they want. And if the marketers don't do that, then they won't be successful. So again, if you leave that to the marketplace, then interfuel competition would be addressed more adequately. Enbridge said yesterday there are safety messages that have to get through to the customer. That's true and the DAR deals with that. And if there's a requirement to include safety messages, you know, call before you dig, sort of stuff, there can be arrangements for how that can be distributed to customers. And in fact that is already addressed in the GDAR. In addition to that gas utilities are not prevented from dealing with customers through other forums. And finally on this point, Enbridge makes the argument - and I notice Union in their original submissions did not make this argument - Enbridge makes the argument in their submission that what will happen if you allow marketer billing. Then you will have a loss of business for Enbridge's commercial services for their affiliate. Now, I take from that how their affiliate relationship works is that whenever Enbridge sends a bill out to a customer, there's a revenue stream going over to the affiliate that provides the billing service. So they're saying there is this cash flow going back and forth between the utility and its affiliate and they're saying that it's the Board's responsibility to ensure that that cash flow continues. So its affiliate provides a billing service and Enbridge is seeking not just a monopoly for itself, for the gas company to provide this service, but they're saying provide our unregulated affiliate with that service. Now, that affiliate, if that affiliate has a good billing service, then maybe they can offer it to the market and find some marketers who would take that service. It's really not the Board's job to guarantee a revenue stream from a utility to an affiliate. But Enbridge says, but, you know, we decided to come up with that structure because that's the way the rules were at the time. You know, a couple of responses to that. One is that at the time they came up with that structure there was a lot of uncertainty about just what these rules should be. Even today there's some uncertainty about what these rules should be. So if they decided to set up their intercorporate arrangements in a way that could prejudice them as a result of marketer billing, frankly that's their problem. That's not a problem that the Board should solve for them. The other response to that is that Enbridge has been before this Board several times on that outsourcing arrangement saying the Board has no jurisdiction over it. They're saying the Board doesn't have jurisdiction under PBR to open up their PBR program to take a look at that outsourcing arrangement. It's completely outside of the Board's control. Well, if that's true, then again it should not lie in their mouth now to come to the Board and say the Board has some sort of duty to protect Enbridge's affiliate and the revenue stream that goes to that affiliate. So I covered a lot of ground and in conclusion on this, I'd like to thank the Board for sitting through my submissions. I'll turn it over to the Panel to answer your questions, and I'll answer that I can be helpful as well. But, in conclusion, the DAR is a positive step forward. It's something that my clients have worked on for a long time, responsibly, in my submission, and if I do say so myself, to bring about a better retail market for both gas and electricity. My clients applaud the Board for its proposed DAR and we share the Board's vision on a competitive converged retail energy market. Thank you for your time. THE PRESIDING MEMBER: Thank you, Mr. Vegh. Ms. McKinnon, some questions? MS. McKINNON: Mr. Chair, I'll do my best in light of the timing. I certainly want to leave time for Panel questions. If I get to a point where I'm not asking questions which seem useful to you, I just wanted you to know I don't object at all if you to give me a signal that you've had enough. THE PRESIDING MEMBER: There's a well known signal. MS. McKINNON: Yes, but if I'm not watching you, I won't see that one. --- Examination by Board Staff: MS. McKINNON: Q. Members of the Panel, if I might at the outset just get a clarification, particularly from Mr. Haggarty and Mr. Henderson about the extent to which the customers you serve are residential customers? Mr. Haggarty, you said you have residential, commercial and industrials. Could you give me an order of magnitude of your residential customers in your business for gas? MR. HAGGARTY: A. The number of customers or the percentage that it would represent of our business? Q. I'm told volumes are the better indicator, if that's something you can provide. A. We currently have -- Toronto Hydro Energy Services is relatively new in the gas marketing area, really taking an active role in the market just earlier this year. We currently have -- we flow probably about ten to fifteen thousand gJs a day to residential customers. Q. That means something to Ms. Litt. It doesn't mean much to me but thank you. A. That would probably represent about 30- to 40,000 customers. Q. Thank you. Mr. Henderson, how about you? MR. HENDERSON: A. At this point, we're not flowing any gas to residential customers. Imitation being the sincerest form of flattery, we're about to duplicate Toronto Hydro Energy Services' initiative and move into the gas retail market, but at this point we are not selling any gas to customers. We're as I said about to initiate that. Q. Thank you. And, Mr. Schiratti, you mentioned in your introductory comments I believe that you have 300,000 residential consumers equivalents. MR. SCHIRATTI: A. Correct. Q. Can you give my friend, Ms. Litt, some help by telling her what that would translate into in terms of volumes? A. Approximately 100,000 gJs a day. Q. Thank you. I intend to ask you at the outset some questions relating specifically to the billing issues that arise and one of the things you have referred to is your survey results in contrast to the survey results obtained by others. As we know there's no formal evidence in this consultation. Do you have a present intention to use those survey results as prefiled evidence in the event you are an intervenor at subsequent hearings relating to rates and bundling and unbundling issues? And I respect that if that's not something you've considered, that's a fine answer, but I'm interested to see whether you anticipate that we would have the prospect of your survey results to be used as a form of evidence at some point in time? MR. VEGH: A. Maybe I can answer that. This survey was put together really just so that the proper question was asked to the customers. Both Union and Enbridge filed some survey evidence in this case and in reading that survey, we said, well, they haven't asked the right question, so the decision was made to ask this question and it was used for this process. Now that it's been filed, of course, it can be used for -- I think at some point it attracts judicial notice and it could be used for anything else. But there is certainly no intention to intervene in any sort of generic process largely because it's the hope that we do not have another, that this is the process that will lead to a conclusion in this case. Q. On issues of marketer consolidated billing, if marketer consolidated billing is not available, can you give me some idea of the impact you foresee that having on your relationships with your customers specifically and your business generally? MR. SCHIRATTI: A. I can speak on behalf of Sunoco with respect to both of those issues. First of all on the customer relationship, it was always intended when Sunoco got into the natural gas business, since this process really started in the mid 1990s, that there would be at some point in time a customer relationship between Sunoco and our natural gas customers. We always anticipated that and the business case was built upon that. Any synergies that we would have in any other business, like the HVAC business which we had entered into, as well as any other petroleum synergies that we were hoping to have were also considered in the business case. With respect to electricity, our current decisions on electricity rest somewhat with marketer consolidated billing. A lot of the synergies that we would see a lot of the customer relationship issues and a lot of the customer benefits that Sunoco would have in a more explicit customer relationship with our customers relying fairly heavily on marketer consolidated billing. Q. You've spoken to reliance, can you tell me anything more specific in terms of the impacts you see if it's not available? I take it, for instance, you would agree with me that notwithstanding you may be of the view that billing is the best or one of the best ways to build and maintain this customer relationship, that there would be other means for you to build and maintain customer relationships if you were denied that option? A. It was one of the reasons certainly that we got into the business. I can honestly say that Sunoco got into the business because of the prospect of a better interface and better synergies and the prospect of electricity as well. Q. But do I infer from that answer, Mr. Schiratti, that if marketer consolidated billing was one of the reasons you got into the business and it were not to be made available to you, you would then get out of the business? A. I'm not sure if I would go that far, but it makes it far less attractive from a long-term perspective as well as it makes electricity far less attractive. Q. Comments from either of the others? MR. HENDERSON: A. What I would like to add to that is marketer consolidated billing within the context of the gas industry is sort of nice to have if you just want to be in the gas business, but the lack of it really removes the opportunity to create synergies with other product lines which do things such as reduce the overall cost of billing because the costs of billing and customer service are spread amongst more than one product line. So the impact on the business from our perspective is a lack of marketer consolidated billing in the gas industry would not allow us to (a) create the synergies that we see, (b) deal with the things like minimizing the cost of billing and customer service and customer care, and (c) it doesn't allow us as a marketer that's driven by market needs to fulfil what the consumer is telling us in research which is they are interested in and are seeking innovations such as a convergent bill that covers more than one product line. If we're not allowed to do it, it removes that marketing tool from us in terms of fulfilling what the consumer is looking for. And really our advantage, compared to an LDC as an example, other than some of the terms and conditions, is we can fulfil a different value proposition to the consumer than other entities in the marketplace can. Without marketer consolidated billing, we cannot fulfil that value proposition. Q. Can you just clarify for me, you speak of synergies and in your written submission you talked about economies of scope which I thought maybe meant economies of scale, but maybe economies of scope is the same thing or something different. But when you're talking about synergies, I take it you're talking about the administrative efficiencies and the cost savings that you get from having marketer consolidated billing and perhaps being able to bill other services at the same time. But are there other things, other values that you are including when you're talking about these synergies or is it all related to administrative and cost efficiencies? MR. HAGGARTY: A. I think it does go a lot to the synergy that you get by having one billing service for a multitude of different products. You may have one customer that is gas, another that is electricity, another that is a different type of service, or you may have a customer that has more than one of the same services, but you really only need one billing service. And having that one billing service reduces the cost of billing and communication with that customer over all their services and provides a more competitive and cost-effective way to bill and communicate with the customer. Q. If the proposed GDAR is passed, can you give me some sense of the timing in which you would be able to implement the split billing option, and secondly, how much time you would require to have all three options available? A. Certainly the implementation of having the electricity option available will be contingent upon when the actual market opens, and so that would be the earliest date that we would be able to implement something and that would probably be a driving date behind when we would offer that service. So if the electricity market is to open in the spring of next year, then that would be an important target date for us. Q. Sorry, maybe I wasn't clear. Your answer confused me. I'm talking about the time it would take you to implement certain billing procedures in respect of your gas customers, apart from whatever date electricity may be a go, if I can put it that way? A. What you're saying is after the Rule were to be passed and put into effect, how long would it take us to get up and running? Q. Yes, in terms of split billing as a mechanism available to your customers, and secondly, having all three options available, so add on the marketer consolidating billing function? A. We are going through the billing process right now within our company and the timelines that are being provided to us is that once the information would be available, it would take approximately 90 to 120 days after that. When I say the information being available, that we would get -- that there would be a process to interface with the gas LDCs to say this is the format we're going to give you, the information that you're going to need for your billing services because right now we don't have how we would receive that information. We are still going to require meter reading information in order to know the proper volumes. Q. And just to clarify, did that answer apply to split billing by itself or was that more the marketer consolidated billing you were speaking to? A. It would apply to both. Q. Any comments from the other two? MR. HENDERSON: A. I would tend to think that the timelines from our point of view would be a bit longer than that. I think of it in terms of a Rule being finalized. Then the next step is designing the data requirements back and forth between the LDC and the marketer, agreement to those data requirements, design of system, programming. So my thinking, at least I'm talking about where we are with our systems, is from the time the Rule is passed until any of the billing options would be available from our perspective would be a six- to nine-month period. And I'd also like to make it clear the split billing option we would not offer on its own because the very consistent response we have from consumers in any research we've done is no one is interested in a split billing option. So to offer that there would be no take-up to start with and it only leads to more questions, well, why can't I get what I really want. So we wouldn't offer it on its own. Q. Can I just backtrack to Mr. Haggarty for a moment. Do you have the same views on split billing or would you intend to offer it assuming the proposed GDAR was passed and the three options were approved? MR. HAGGARTY: A. At the residential level, we would only do it if marketer consolidated billing was available. We would not do split billing. Q. On its own. A. On its own. Q. Okay. Thank you. Mr. Schiratti? MR. SCHIRATTI: A. I think that would be consistent for Sunoco as well. Q. And in terms of timelines for you? A. We really haven't looked at it in as much detail because it also depends on our direction with respect to electricity. Q. Thank you. MR. VEGH: A. Just on the timeline point, could I also make another implementation issue. I'll make it quickly. When you read the GDAR, I mean the decision from the Board now will be the first step of a fairly complex process. Once the GDAR is approved the next step here is for the utilities to file a Draft Service Level Agreement and that's going to have the kinds of details that we've heard about. And the process I believe of getting that Service Level Agreement in place and finalized to everyone's satisfaction could take awhile as well. So a decision here is the first step of a few more steps down the road. So you can add that to whatever the timing discussions have been. Q. Now, gentlemen, you know the concerns that the distributors have expressed about having marketer consolidated billing available and we know what their submissions are as to the value of that customer list to them. Have you considered the impact -- the financial or business impact on distributors if marketer consolidated billing is made available and do you have any comments on that, focusing on the potential financial and business harm to the distributors of marketer consolidated billing? MR. HAGGARTY: A. We've concentrated a little bit more on the harm that it would have to us if it wasn't available and we think that that is significant. Q. Well, I know, but that's why I'm asking if you've put your minds to the other side of the coin, and if you whether you have thoughts that you're prepared to share with us on that. MR. HENDERSON: A. I guess I'll throw in my two cents. I think having a billing relationship with a customer is of significant value to a marketer, i.e. if you're competing in the marketplace to supply products and services, having a billing relationship has distinct value. My view is that for a monopoly business that is not in the business of competing, I dispute that having a billing relationship creates distinct and separate value for the LDC. They are not competing. They will be continuing to receive their regulated revenue regardless of how the billing is carried out. Not sending a bill does not prevent them from communicating with the customer in fulfilling their responsibilities in that sense. So I have some problem seeing the economic basis that they are using to claim that having a billing relationship creates distinct and separate value for them. Q. Mr. Schiratti? MR. SCHIRATTI: A. The only additional point that I would like to make is I suspect that the value comes more in the unregulated affiliates, with respect to the business from the unregulated affiliates. And frankly I don't think believe it's appropriate that the monopoly is used and regulated rates and a regulated monopoly is used to benefit the unregulated affiliates. And if that's where the value is coming from, then I would suspect that I would suggest that's inappropriate. MR. HENDERSON: A. And I'll follow up on that thought a little bit, namely, if the LDCs' unregulated affiliates that are providing billing services will provide a service at quality and price that is competitive in the marketplace and meets our requirements as marketers, we would obviously take that into consideration and be willing to place business with them. However, I suspect we would put them under more cost pressure than doing business with their own regulated LDC places them under. MS. McKINNON: I have one last question on billing issues and then a few others, Mr. Chair. I'm conscious of the time. Are you content that I proceed? THE PRESIDING MEMBER: That's fine. MS. McKINNON: Q. Thank you. Assuming the proposed GDAR is passed as it is and the distributors are directed to make three billing options available to consumers and to gas marketers or vendors as their agents, are you prepared to also commit to offering the three options to your customers? MR. HAGGARTY: A. We are prepared to offer the option of whether the distributor bills them or whether we bill them. For residential customers, our view is much the same as what Ontario Hydro Energy has experienced is that customers don't want a split bill at the residential level, and so we probably would not be supportive of that unless there was a large request for it. We would continue to provide that option of either having marketer consolidated billing or distributor billing, and the customer would have the choice. Q. Mr. Henderson? MR. HENDERSON: A. Yes, we have the same view on that. We just don't see any value in the split billing option. There's no demand for it. It doesn't achieve any efficiencies. In fact customers are very resistant to the idea and I can tell you that from firsthand experience in terms of some of the customer comments we had when we moved the billing for water heater rental out of the utility billing and on to our own billing system and suddenly the customer was getting two bills, namely, one from Hydro One Networks and one from Ontario Hydro Energy for the rental of the water heater for a service that they had always seen on one bill previously. Q. But you would continue to offer your customers the choice of distributor consolidated billing along with marketer consolidated? A. We'd offer it. We'd certainly have a preference which is we would be recommending the marketer consolidated billing. MR. SCHIRATTI: A. I believe that Sunoco would also be offering the two billing services but as my colleagues have indicated would find it very, very difficult to see the customer demand for several bills, i.e. split billing. Q. From the perspective of added consumer protection provisions that might be necessary in the event of marketer consolidated billing such as requirements for certain information or certain formats, would you agree that it may be necessary to make changes to the Marketers Code of Conduct to ensure that there's adequate protections built into the system, and if not, are there other means by which that could be insured? A. I couldn't speak specifically on behalf of what tools should be used because I'd like to see what specific issues are raised, but I would certainly agree that any customer protection issues should be always paramount. Q. And is the Marketers Code of Conduct likely the place to address those? A. I believe it would be, but I don't have any specific knowledge. And again it would depend on what specific concern over customer protection would be raised. MR. HENDERSON: A. And I think in that light it would be important to maintain as much consistency or symmetry as possible between the Gas Marketers Code of Conduct and the Electricity Retailers Code of Conduct. If there for any reason grew to be a disparity between the two, that makes it very difficult in terms of having a consistent approach. Q. Thank you. I have a few questions that generally relate to section 6, the section provided for providing the service transfer requests, and what I want to do is canvass some of your views in relation to the positions we've heard from some of the other parties, and in particular, Direct Energy and OESC. At the outset I'd like you to confirm for me your views of the contractual relationships, and in particular, what direct contracts there are between the distributor and marketer, not with the marketer acting as agent of the customer, but distributor/marketer contracts. And I'll tell you why the context of this is important. There is a concern on the part of some parties that the obligation of a distributor to process the consumer's request to switch marketers may give rise to breach of contract between the marketer and the distributor and that the distributor in acting on the consumer's request to switch may be breaching a contract between the distributor and the marketer. So I'd like your views on the contractual issues there. And I'll give you one more specific because I want to be conscious of using the time effectively. We saw, for instance, a gas transportation contract that was entered into between the consumer and the distributor with the marketer identified as an agent of the consumer, and I take it you probably have similar agreements? Sorry, you need a yes for the transcript. MR. HAGGARTY: A. Yes. MR. HENDERSON: A. Yes. Q. And in those circumstances would I be correct that you consider yourselves to signing those agreements as agent of the consumer? MR. VEGH: A. Maybe I could just interrupt. Q. Mr. Vegh, you may want to put your position on this? A. Yes, that's what I thought I'd do. Q. Sure. A. You know, the contracts between marketers and the distributors have been identified for the record, but to just put them in some context, the legal relationships, the legal artifice of marketer/distributor relationships were all formed under the basis of pre-Bill 35 when title transfers in Ontario were prohibited. And as a result of that prohibition, the marketers and the distributors got together and worked out some sometimes fairly imaginative and complex legal arrangements so that you could still have direct purchase even though you weren't allowed to transfer title in Ontario, and the agency relationship I think was a part of it. Now, what will happen I think is as a result of Bill 35, people are starting to rethink this idea. Is it necessarily an agency relationship between a marketer and a customer or is it simply a supply arrangement? Things should be much simpler now. And if the Board releases its decision or if the Board approves this DAR as drafted, then it's going to be necessary to go back to the GTAs that are in place between the distributors and the marketers and figure out now what is this new relationship. So it's true that the old regime carried with it some baggage that will have to be updated under the new regime. And I don't think that that's going to lead to a lot of litigation. I think that what it's going to lead to is a need for a new industry standard because we have new rules now. Q. If I can stop you there and you may want to comment further, but that doesn't really answer my question because the fact of the matter is there are existing contracts signed and binding amongst the parties, and a very serious concern has been expressed to this Panel that the provisions of section 6 are going to cause a vary of breaches of contract, particularly breaches between marketers and distributors. So while I take your point that this may cause a new regime going forward, we're still being asked to consider the question of the impact on existing contracts amongst the parties. A. Well, I suppose my response to that for what it's worth is that I've never agreed with the legal opinion that concluded that there was a breach of an agency agreement when the principal directly contacts the distributor on the other side of the contract and says switch me over to another marketer. So I understand the legal theory behind this argument, that it's a breach of contract between the agent -- the marketer as agent and the utility if the consumer gives the utility a direct distribution. I understand that theory, but I've never agreed with that theory. I think even under the old system the distributor was able to follow the direction of the customer directly. Q. Back to where I started, I still have a question that you may or may not wish to answer and that is, you can use the Gas Transportation Agreement as an example if you like, do you consider there to be other agreements or would you consider the Gas Transportation Agreement form to be a contract that binds in any way marketers as principals to the contract or merely as agents of the consumers? I know that has legal implications so you may prefer not to answer it, but it would be helpful if you have an answer. A. I prefer not to give an answer off the top of my head now without going through every provision and determining which provisions you're talking about. There may be some that directly bind the marketer. Q. All right. In terms of financial risks, it has been suggested to the Panel that section 6 will cause a more mobile customer base and that that is going to cause financial risks to the established marketers. Do you have any views on the likelihood of repeated switches by customers as they seek out cheaper gas and what the impacts of that may be on the established marketers? MR. HAGGARTY: A. The fact that there would be the ability for customers to have mobility between their suppliers is really just another factor as there is in any other business. It's not restricted only to the natural gas business for customers being able to move between suppliers of any product. But specifically within the gas business, it is a risk factor that would have to be priced into the product that you offer, and it's no different than the volume risk that has to be taken into consideration when you price a product, the weather risk that you have to have, the price risk and price volatility that you have. So there are a number of different factors. And if you look at the difference between what the wholesale price of gas at Empress is and what the price that marketers charge the end customer, there's a markup, and part of that is management of risk and part of that is a margin, and you just have to do that like any other business to put in those risks. And if a marketer found that they weren't able to properly risk that, then they would be pricing themselves out of the market and they would not be competitive in the marketplace. That should have no impact on the customer Q. Other comments? MR. SCHIRATTI: A. Other than to concur, no. MR. HENDERSON: A. The only other thing I think we could add is given the DAR has been under discussion for a period of five years, more or less in one form or another, anybody who has been in the market for that time has had more than sufficient time to take that possibility into consideration in how they constructed their existing contracts. Q. On the same area, it has been suggested that if there is greater mobility amongst the customers of existing marketers, the established marketers, that that will cause such vulnerability and uncertainty in the market, that the marketers will no longer offer the long-term fixed price contracts which they have been. Do you have any comment on the likelihood of that occurring, that long-term fixed price contracts would be sacrificed as a result of the potential for greater mobility? MR. HAGGARTY: A. I don't believe that they will at all. I'd go back to my previous answer, it will be factored into the price and the customer will make the choice as to whether they want to pay that price for a longer-term contract. But again it's much the same as many other products such as mortgages with customers. Five-year mortgages haven't disappeared because variable-price mortgages and one-month mortgage pricing became available. It's just a price that goes into the product. If the customer wants it and the customer desires it, then there will be somebody in the market that will provide it. And if some of the other competitors don't want to provide it, we'd be very happy to. Q. I see nods from each of Mr. Henderson and Mr. Schiratti? MR. HENDERSON: A. I'd second that. I think that the other thing that that type of mobility does, as we said earlier, is it increases the competitive forces. Competitive forces drive innovation. The purpose of innovation in a marketplace is to produce products and services that the market is demanding. Q. Thank you. Now, you've spoken about the importance of convergence in facilitating competition, but can you tell me, again without giving me a long textbook answer because I'm conscious of time, how a lack of convergence between the two energy supplies would frustrate competition? MR. SCHIRATTI: A. I would have to say that much of the business case behind natural gas and any other commodity like natural gas, like electricity, the margins frankly are quite thin. There's a significant amount of risk that is inherent in these commodities. We've seen the price issues of late. And that requires, that requires economies of scope and scale. When I speak of scope, I speak of different types of services. When I speak of scale, I'm talking about the number of customers you have and all of them are either each. So the business case for getting into this commodity business which is a significantly risky business, which is highly complex, which are already somewhat different in the way that the commodity is. One is storable, one is not. The mechanics around delivering those are somewhat different. So any differences make it more difficult to make a competitive market of these two commodities. MR. HENDERSON: A. I'd say lack of convergence greatly reduces the opportunities for packaging products and services in ways that cannot -- or have not been done in the past, which is an essential part of the innovation aspect. So to not be able to put together, for instance, electricity and gas would imply that then there would have to be separate offers from customers possibly from separate entities that aren't related, and it just removes the opportunity to package and present the consumer an offer that provides more value from the consumer's point. Q. Are you going to add something? MR. HAGGARTY: A. The only thing that I would add is that we felt it was very important from Toronto Hydro Energy Services perspective, being an affiliate of Toronto Hydro Electrical System, to get into other areas of business such as natural gas. And it was important to spread out the risk and just diversify. So it is an important factor. Q. Concerns have been expressed on some parts that marketers who promote and sell both electricity and natural gas may give electricity a priority and that the natural gas industry as a whole will suffer; do you have any business commitment to promote them equally or not? And if you do have an intention to promote them equally, how would you intend to do that with your customers? MR. HENDERSON: A. I think I can answer that fairly simply. Our business commitment is to promote products that we make money at. So if we're making more money at gas than electricity, that would be higher in our scheme of which products we want to promote. Q. And vice-versa? A. And vice-versa. It's strictly a commercial mentality. It's constructed from a portfolio basis of having a number of products and services to offer. Q. Would anybody else like to wade in on that one? MR. HAGGARTY: A. I would just add to what Graham had said, is that we are a retailing company, and that we don't -- we aren't producers at present of any of these products, and so it's the product that we can see that we'd best offer to the customer and that we would be able to grow our business most aggressively with. And we would see that having both products is going to be the most successful way to grow our business. MR. SCHIRATTI: A. I guess from Sunoco's perspective, I wouldn't be as presumptuous as to think that we could actually impact that significantly on the buying patterns of electricity customers and natural gas customers. Q. My final question is actually directed to Mr. Vegh, and it may be something to which you have not given any consideration. There is a provision in the proposed GDAR in Section 2.2.2 which would require distributors to provide certain additional services. You may want to turn to take it just to take a look. "A distributor shall be required to provide within its franchise area...", and it identifies four services, including emergency gas leak response, safety information service. Some parties have contested the jurisdiction of the Board to pass that rule; is that a matter that you've given any consideration to, and if so would you share your views? MR. VEGH: A. All I -- the only view I'll share is perhaps just of history. This rule resulted from a process on a long stakeholder process of drafting the rule. And on this particular issue, this is something where there was a consensus among the utilities and other participants as to what -- as to effectively what is included in distribution services. If you go back to the DAR task force report, there will be a list of recommendations, some where there was agreement and some where there was no agreement. And my recollection on this issue is that there was agreement, so if for some reason it's not worded in a way that people are satisfied it could be always be amended I suppose. Q. All right. My question really was directed to the jurisdictional issue. To the extent that someone is now taking issue with it, I take it from what you've said you've not considered the jurisdictional issues surrounding 2.2.2? A. That's right. Because 2.2.2 was the view of the task force at the time that that was included in the definition of distribution. Q. Thank you. A. And I assume I'm still of that view. MS. MCKINNON: Mr. Chair, I'm sorry to have gone over time, but those are all my questions. THE PRESIDING MEMBER: That's fine. Thank you. Any questions? Ms. Halladay? MS. HALLADAY: No. --- Examination by The Board: THE PRESIDING MEMBER: Q. I only have one question and it had to do with the contracts that marketers sign with customers for the sale of gas. There's been some comment that the customers don't know what they're signing and they would also not realize that they were signing off the right to select their own billing option; that basically it's giving the vendor the right to make the choice not the customer. And people are saying, well customers should have the right, consumers should have the right to make that choice. And even though it may be written in that contract somewhere, the customer doesn't really get it when it comes to doing that; is that a concern of you folks? MR. HAGGARTY: A. It's a concern only to the extent that we believe the customer should make that choice, and that they should have the option of which billing service is provided to them. And our position would be to give the customer that choice and respect the choice that they make. Q. How do you make sure that they understand that? A. It would have to be a positive election by them as to which billing service they would choose. MR. VEGH: A. Maybe just to address that as well, there are two different issues, one is how issues are set in the market and then what sort of regulatory provisions should there be around, you know, the terms of contracts. And I would submit that really the best way to deal with this is to really see what happens out there in the market. If you send a customer a bill and the customer doesn't like it, they'll let you know. And if you have a customer mobility system, you're not going to provide a lot of services that customers don't want. And I would suggest that that's more important than a provision in a code, which I don't think customers necessarily read either. So if there is a potential problem, I would think that the transparency of marketer billing and customer mobility combined will take care of that problem very quickly. Q. Okay. I appreciate that. And all three organizations represented here, though, would, if a customer said I want to continue to get the distribution costs bill sent from the distributor and I want you to do everything else for me, you would say you can't be our customer, because that's split billing? MR. HAGGARTY: A. That's an option that we are not likely to offer. MR. SCHIRATTI: A. Right. MR. HENDERSON: A. Correct, same in our case. I tend to agree, yes. THE PRESIDING MEMBER: That completes the questioning of the panel and from staff. And thank you very much Mr. Haggarty, Mr. Henderson, Mr. Schiratti and Mr. Vegh for your presentation and responses to our questions. MR. HENDERSON: Thank you for the opportunity. THE PRESIDING MEMBER: This panel will stand adjourned until 1 p.m. tomorrow afternoon. Thank you very much. We are adjourned. --- Whereupon the hearing adjourned at 4:35 p.m., to be reconvened on Thursday, June 28th, 2001, at 1:00 p.m. Presentation by CAC Page 223 Examination by Board Staff Page 243 Examination by The Board Page 254 Presentation by VECC Page 272 Examination by Board Staff Page 277 Presentation by The Page 299 Convergence Group Examination by Board Staff Page 322 Examination by The Board Page 325