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 Thursday, June 28, 2001, commencing at 1:00 p.m. ---------- Volume 4 ---------- 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 PAT MORAN ) Board Counsel and Staff JAMES WIGHTMAN ) KATHI LITT ) HIMA DESAI ) IAN MONDROW ) HVAC MARTIN LUYMES ) GORDON CARMICHAEL ) Ontario Greenhouse Growers Marketing Board FRANK GAZZOLA ) Energy Information Systems DAVID ARKELL ) PATRICIA JACKSON ) Union Gas JANE PEVERETT ) MARCEL REGHELINI ) I N D E X O F P R O C E E D I N G S Page No. Presentation by HVAC 326 Examination by Board Staff 346 Examination by The Board 352 Presentation by Ontario Greenhouse 354 Growers Marketing Board Examination by Board Staff 366 Examination by The Board 373 Presentation by Energy Information Systems 380 Examination by Board Staff 387 Examination by The Board 398 Presentation by Union Gas 399 Examination by Board Staff 411 Examination by The Board 434 Further Examination by Board Staff 453 --- Upon commencing at 1:00 p.m. THE PRESIDING MEMBER: Be seated. Good afternoon and welcome to the final day of the Oral Consultation on the Gas Distribution Access Rule. I believe the first presentation this afternoon is from HVAC and if you would introduce yourselves, we could proceed. --- Presentation by HVAC: MR. MONDROW: Thank you, Mr. Chair. Good afternoon, Panel Members. My name is Ian Mondrow. I am counsel for HVAC Coalition, and with me today is Martin Luymes, that's L-u-y-m-e-s. Martin has a dual function in the industry. He's the HVAC Coalition case manager, and as such, has been integrally involved with HVAC's regulatory initiatives. He's also employed by HRAI which is the trade association part of the industry organizations, and as such, he brings quite extensive practical industry insight. He may be able to respond to any industry mechanics questions that arise. We have provided the Panel and Staff with a book which I'll call a materials brief. It's merely an attempt to collect a few items from previous Board jurisprudence that I'll refer to in my submissions. It also contains a copy of my most recent gas bill and I'll come back to that in a moment. In addition to the brief we'll be referring to three sets of materials filed by participants in this process, the Consumers Gas letters, the first dated February 26th and the second dated June 15th, and the Union Gas submissions which I believe are dated March 9th. And within the space of just under hopefully the next half-hour I will try to impart to you why HVAC Coalition is interested in this matter and what positions it takes on the really two issues that I'm going to address. The HVAC Coalition is generally interested in Board governance of utility conduct with respect to two of the objectives set out in the current draft of the GDAR. Those are the first two objectives set out under section 1.1 of the GDAR which are to facilitate competition in the sale of gas and to preclude discriminatory or preferential conduct by gas distributors. Now, there are a host of issues related to those objectives, as well as others, that have arisen in respect of jurisdiction and process in this consultative proceeding. They're being thoroughly canvassed by others and given HVAC Coalition's limited resources and really very particular interest, I will resist the temptation to opine on those and will defer on those issues to other parties, subject to any questions that might arise. But HVAC Coalition is more particularly interested in the Board's governance of utility conduct with respect to affiliate energy services companies and HVAC Coalition has a history of representations in that respect before this Board. Tuesday morning on the radio when I was getting dressed, I heard ESI's, Enbridge Services Inc.'s, commodity offer. ESI also markets a plethora of energy and other home improvement related services at present, and in our submission it's impossible to isolate the commodity from the other products and services that energy services providers have and will continue to seek to offer. And indeed the providers of these services do not differentiate between the two. And so it's our view that the issues raised in the code of conduct, RP-1999-0058, and indeed, the further direction we are hoping from the Board, have implications in respect of the GDAR, and in particular in respect of the utility's submissions on the GDAR. And I'll be referring to those implications briefly. To get to the very particular issue that we're going to highlight, I noticed in the transcripts that on Tuesday Ms. McKinnon suggested in her questioning of Consumers Gas's representatives that the only current billing option is the distributor consolidated bill. And in fact, in our view currently what we have in the Consumers Gas's franchise territory is in fact a vendor consolidated bill for Enbridge Services. Enbridge Services is the vendor of commodity and other competitive energy services. I'm going to take you to that bill in a moment to illustrate the point that we would like to leave you with. In this proceeding Consumers Gas on behalf of its shareholder is asking the Board to protect what, in our view, is that exclusive competitive advantage by deletion of the vendor consolidated billing from section 8 of the Draft GDAR. Following addressing this primary point, I'll briefly comment on the GDAR treatment of gas appliance inspections which is another technical interest of the HVAC industry. Turning to the bill, for a few moments I'm going to use the Enbridge model, although the comments that I'm going to make apply equally to Union Gas, Toronto Hydro and other distributors who are watching this process and watching the Enbridge saga as most recently manifested in HVAC's code of conduct complaint. In our brief at tab 1 which I'll ask you to turn up, as I alluded to a minute ago is a copy of my most recent Enbridge Consumers Gas bill and behind that bill, and I'm going to leaf through that very quickly in a moment, are copies of materials sent with, in fact not this bill which was in a very skinny envelope but the previous Consumers Gas bill that I got, and these other materials have also been filed in our concluding submissions in the code of conduct proceeding. But I'd like to just look at this bill for a minute with the Board. What we have here is an Enbridge bill, not a Consumers Gas bill. It contains distribution charges to be sure. It also contains system gas charges. I'm a system gas customer. And it also contains an Enbridge Services Inc. water heater charge. I'm a rental water heater customer. Indeed I'm typical in that respect. Ninety-five per cent of the people that heat water with gas, heated that water with Consumers Gas rental water heaters at the time that Consumers Gas transferred that business to its unregulated affiliate. And if you leaf through from pages 2 and onwards in our brief, you will see what else comes now with the Enbridge bill. There is a Consumers Gas pipeline insert. This is the safety and energy efficiency information that the utility has represented to you it is necessary for it to keep providing to customers. And that's included in the Enbridge bill to be sure. But also included in the Enbridge bill, starting at page 4, are the Enbridge home services inserts, replacement windows and doors which you can put on your Enbridge bill. And then starting at page 6 we have cooling and heating protection plans which you can put on your Enbridge bill. And then starting at page 8, we have central air conditioning sales and installation services which you can also put on your Enbridge bill. Now, as I said a minute ago, on the radio on Tuesday morning, I heard that ESI is marketing gas and if I were to purchase an ESI gas contract, I would have a new Enbridge bill which would contain the gas charges from ESI, rental water heater charges from ESI, the distribution charges from Consumers Gas, all the ESI promotional material, the Enbridge envelope which it comes in, the Enbridge return envelope which it comes with, and sometimes a pipeline or a rate change information sheet. In effect, in our submission, Enbridge Services currently has gas vendor consolidated billing; in fact, it has energy service provider consolidated billing. The point we would like to leave you with is that the Board should consider the positions of Consumers Gas, on behalf of its shareholder, and Union Gas, on behalf of its shareholder in these proceedings in light of that current reality. I am going to elaborate on that for just a couple of minutes. To do that, I would like to ask the Board to turn up first the Consumers Gas letter of submissions dated February 26th. There are a few passages in that letter which I'd like to highlight in light of this current marketplace reality. The first passage I'd like to highlight appears on page 2 of that February 26th submission under the heading "Impact on Customers". The third paragraph under that heading reads as follows: The title of Section 8.1 of the rule 'Customer Choice' is a misnomer in that Section 8 does not allow consumers to choose the billing option they prefer. Rather, the choice is given to the customer or the gas vendor who can and, in practice, will dictate to the consumer the billing option they will receive for bills from the distributor. Pausing there for a moment parenthetically. It's HVAC Coalition's view that with true customer mobility protection, that will not be the case. Customers will in fact choose a gas vendor based on, among other things, the billing option that they prefer. And so if the market works properly, it will be the customer, even under the current wording of the rule who will choose the billing option. That's by way of an aside. Continuing on of the text of Consumers Gas's submissions. The company goes on to state: In this respect, the rule does not meet its stated purpose, which is to facilitate competition in the sale of gas, but rather eliminates consumer choice in billing and provides the gas vendor with an undue competitive advantage in dictating to both the consumer and the distributor the billing option. Moreover, the fact that the vast majority of the 600,000 consumers that Enbridge Consumers Gas serves via direct purchase or served by only one marketer, will only hamper competition in the retail gas market by giving an unfair competitive advantage to the dominant marketer. This statement from Consumers Gas who transferred a million rental water heater customers to Enbridge Services Inc. which now renders the Enbridge consolidated bill. You need not turn this up, but for the record, Union makes a similar although briefer point at page 17 of its March 9th submissions, in saying: The Market Design Task Force recommendations were premised on a competitive market with many gas vendors. This situation does not exist today. The mandatory provision of gas vendor consolidated billing risks relieving customers from the protection of a regulated distributor and exposing them to a largely unregulated market where one firm is the dominant provider. Sticking a sentence in and continuing: With due respect, this will result in a marketplace that is less competitive and one where end-use customers will be more confused and offered little protection. In HVAC Coalition's view, that's the marketplace that Enbridge Services Inc. is currently operating and with the very advantages that both utilities are asking you to preclude other marketers from having: a vendor consolidated bill. The next excerpt I would like to briefly turn to is on page 3, still in the February 26th letter of Consumers Gas. It's under now the heading of "Impact on Distributors", the second major plank of Consumers Gas's argument to you to preclude vendor consolidated billing. And in the first paragraph, the last sentence on the page, it's starting the second last line of page 3, the company states: It is the distributor who has built up a relationship of trust with its customers, the majority of whom are consumers. And removal of this relationship cannot be undertaken without consideration of the financial impact that will ensue. Then the point is elaborated in the subsequent paragraph. Starting in the second full paragraph on page 4, the company goes on to state: Failure to recognize and take into account the cost and financial implications of a distributor/consumer relationship and the commercial interest that underpins the marketer's desire for marketer consolidated billing, will irreparably damage the distribution sector in Ontario. If these factors are not taken into account, distributors will be denied the opportunity to earn a fair rate of return. This will be contrary to the fundamental principles of rate-making, vis-a-vis the maintenance of just and reasonable rates. Now that is an incredible statement in my view. First of all, Consumers Gas is asking you, on behalf of Enbridge, for protection of its one-bill competitive advantage. It speaks of a denial to the distributor of the opportunity to earn a fair rate of return. And I don't understand that. The distributor is a regulated monopoly and earns a guaranteed rate of return. It has to be borne in mind by the Board and this Panel that a regulated distributor is not like other companies. And the Board has already found that - and I'm going to just ask you to turn back to our brief, leaving the Consumers Gas letter open, to tab No. 2, where we've excerpted two pages from a 1996 report of the Board to the Minister on utility diversification. Starting on page 11 of our brief, we've reproduced the section where the Board in that report dealt with utility flexibility and, in particular, the requirement and the undertakings for pre-approval of the utility entering into diversified business activities. At paragraph 2.3.5 of the report which is reproduced on page 12 of our brief, Consumers Gas's submissions are encapsulated by the writer of the report. And essentially Consumers Gas was complaining that if it needed prior approval it would have limited commercial flexibility and could not participate in bidding processes quickly and that would hurt it. The Board addressed that starting at paragraph 2.3.9 under the heading "Discussions and Conclusions". I would like to highlight three passages. The first is in paragraph 2.3.9 where the Board said: The utilities have specifically asked that they be released from prior approval from the Board for engaging in or investing in non-regulated businesses. The last sentence in that paragraph is, in our view, the crucial one in respect of today: The Board considers that utilities are by their nature different from other business and enjoy certain advantages and responsibilities that are not available to other businesses. The Board understands that the requirement for prior approval can be a handicap for effective participation for by the utility in certain billing situations; however, the Board is in agreement with Dr. Bauer that the utility should be afforded the degree of flexibility that corresponds to the reasonable safeguards determined to be necessary for the protection of ratepayers. In the context of today, we would suggest adding a thought for the protection of consumers and the competitive integrity of the marketplace for commodity and other energy services. In light of those special advantages and concomitant obligations that the regulated distributor has, it is not as Consumers Gas and Union Gas have asked you to find in our view unreasonable that the distributor bill be at the option of the customer changed to a vendor bill. The guaranteed rate of return remains. The issue of renewing franchises is, in our view, a red herring. And in light of the monopoly status, the distributor as a distributor need not worry about its financial integrity. The commercial interests of the parent company in competitive business is another matter. That is not a matter that this Board need protect the parent in respect of. If you could turn the page in Consumers Gas's submissions of February 26th, over to page 5. In the second paragraph there is one more excerpt I would like to read from this submission. In the second paragraph, starting in the, I guess it's the second sentence that begins in this regard: We find it significant that the OEB in its discussion of the costs and benefits of the Rule in the notice describes the benefits as increased openness, fairness and fluidity of the commodity gas supply market. This statement is further evidenced in the fact that the Board has failed to take into consideration the impacts of the Rule on the market for distribution services. And I ask myself: What market is there for distribution services? There is only one place you can go to get gas distributed and that is in the franchise area of Consumers Gas. In Union's franchise area it's Union Gas. Now there is competing fuel and maybe that is what they're talking about, but this concept of a market for distribution services is, in our respectful submission, a bit overblown. And indeed like the reference to just and reasonable rates in the excerpt I read just a moment ago, and like the spectra of compromised safety in our submission, these are complete red herrings. I would like to move forward for just another minute or two to the June 15th letter from Consumers Gas. And on page 3 of that letter, Consumers Gas sets out in summary form its positions on this vendor consolidated billing issue. And under the "Harm to Shareholders" topic, it writes as follows: A gas distributor's customer base has intrinsic value. And I'm going to focus on that concept in a moment. Direct contact with gas consumers is necessary to maintain and grow the customer base, as well as to continue promotion of natural gas over other fuel choices. The point has already been made in these proceedings and we have reiterated that direct contact is not equivalent to a billing relationship. There are other methods of direct contact. There was discussion about the cost of those and which, admittedly, have to be considered. The Board should not leave the utilities position unquestioned that without the bill they'll be cut off from their customers for the purpose of generic promotion of the efficient use of natural gas. The company continues in the next bullet, "The shareholders of a gas distributor would suffer harm if gas vendors are allowed to expropriate without compensation the intrinsic value of the gas distributor's customer base. The rental water heater customer base, which was equivalent at the time to the gas user customer base, was transferred to ESI for a net book value at the urging of Consumers Gas. Combined with what we now have, which is an Enbridge bill, in our view the result has been in fact expropriation without compensation of the Consumers Gas customer base by the gas vendors/energy services provider/utility affiliate. In light of that, comments of Consumers Gas at the bottom of page 4 of this June 15th letter in the last sentence are incredible. The company says the vendor consolidated billing option at the vendor's option would allow gas vendors to expropriate from a gas distributor's shareholder without compensation for the intrinsic value of the gas distributor's customer base. Enbridge Services Inc. has already done this. I won't take the time to read it, but Union makes a similar argument at paragraph 19 of its submission. And our point simply is that you have to read the submissions of the utilities and particularly Consumers Gas in light of the knowledge that in our submission there is already a vendor consolidated billing option enjoyed only by the affiliate of the regulated utility, together with an overwhelming customer base for the purpose of cross selling, including cross selling gas, and putting gas on the Enbridge bill along with distribution services. I'll just finish this point with one more reference. This is at page 5 of the Consumers Gas June 15th letter starting at the top. The company writes: "In ECG's case the proposed rule would also undermine ECG's shareholders in another way. Enbridge Inc. made business decisions and restructured its organization based on the regulatory framework that is now in place. And included in the list of the elements of that framework is the Affiliate Relationships Code. The company says, "To change the ground rules now would be unfair to the company's shareholders. Business decisions were consistent with the regulatory framework and guidelines in place at the time. It's HVAC's coalition's position that vendor-consolidated billing currently enjoyed by ESI in isolation is in fact in breach of the framework of the Affiliate Relationship Code that the company relies on. The company goes on to state, "The gas vendor consolidated-billing option could reduce by almost one half the number of ECG's customers for whom Enbridge Commercial Services Inc. provides billing services to ECG." And then in the next paragraph the company continues, "The result would be that Enbridge Commercial Services Inc. would lose revenue to the detriment of Enbridge Inc. and gas vendors would gain efficiency and market power." This result would be grossly for two reasons: Gas vendors would control the result by virtue of their consolidated billing option, and they would also achieve the result without the need to compensate Enbridge Inc. Enbridge Inc. took this for free. They have this competitive advantage. And the real issue before you in respect of vendor consolidated billing, in our submission, is does the utility shareholder have the right to commercially exploit the distribution customer base, because that's what Enbridge is doing, and that's what it wants you to protect. And we would refer back to the excerpt from the Board's diversification report in 1996 which stated the distribution utilities are not like other companies. They have rights and they have concomitant obligations, and you have to bear that in mind when you're considering their arguments. Given the monopoly at a guaranteed rate of return from a captive customer base, we believe that the economic interests of the shareholder to exploit the captive customer base should be limited. If that issue that we've raised, does the utility shareholder have the right to commercially exploit the distribution customer base, is answered yes, it will have a significant competitive impact. The OEB has jurisdiction of this matter by virtue of the regulated industries doctrine which accepts this industry from oversight by the competition bureau as long as the Board has assumed that jurisdiction, which it has. Most recently annunciated in the decision in the RP-1900-58 proceeding. The reference for the record is paragraph for 4.7.3. If you accede to the utilities positions and reject vendor-consolidated billing, then you must, in our submission, reject it for all gas vendors including Enbridge Services Inc. Only this way will your ruling on that issue be consistent with the two objectives set out at the start of the draft GDAR that I read at the outset to facilitate competition in the sale of gas and to preclude discriminatory or preferential conduct by gas distributors. Now as an aside, I should be clear that HVAC's coalition's arguments in the code of conduct proceeding -- if separate billing for utility and affiliate should be required under the affiliate relationships code for gas should apply, in our submission, even if vendor consolidated billing is accepted in the final version of the GDAR. We believe this to be the case because the issues raised in that proceeding with common branding and customer confusion are separate and different issues from those before you today. I note again, parenthetically, that Research Dynamics, the firm retained by Consumers Gas to file evidence or a report in this case, identifies a customer preference for billing by Consumers Gas, which is not in fact how customers of Consumers Gas are being billed today; they're being billed by Enbridge. The distinction has been lost even on the company that filed the report in support of the vendor consolidated-billing position of the utility. But the point is simply that if you reject vendor consolidated-billing in this proceeding, then you have to reject it for everyone including ESI. If you accept it, our arguments in the code are to proceed separately. And we don't want to be seen, as here, compromising our position in that proceeding. We believe there are additional issues that play, and that's all I'll say about that. I'm going to move briefly to the billing envelope provision of the GDAR, which is section 8.5.1 in the draft. And just by way of kind of, I guess, a follow up comment to -- HVAC Coalition filed written submissions on the staff draft, not on the Board circulated proposed rule. The change between the staff draft and the circulated proposed rule, which is before us today, included a change to an attempt to clarification, I think, of the billing envelope issue -- let me just get the right section -- we're concerned with the carve out. There's a prohibition in the current draft that when a distributor issues a bill to a customer for system gas, it shall not convey any marketing or promotional material provided by any gas vendor. And then there are two carve outs to that, the second of which is that the distributor may include only the marketing and promotional material which it makes available to all other system gas customers. Now, we understand the intent of that carve out to be to permit distributors to circulate their generic marketing materials. If that's the intent, however, we would suggest that the second carve out be reworded to clarify that, because in our submission it's not clear from the current wording. CEED has already, earlier this week, suggested to you adoption of the wording in the Standard Supply Service Code at Section 2.7.3. We have included that in tab 4 of our brief. I don't have to take you to it. You're familiar with it, but we would endorse in respect of clarification of this issue that suggestion. And that makes it clear, in our view, that the carve out is intended to allow the distributor to circulate it's own generic materials to promote the use of natural gas, and in our submission does it more clearly than the current wording. But really there's a bigger issue that we want to address for a minute here, which is it's not clear to HVAC why the prohibition on distributor bill including promotional material applies only if the distributor bills for system gas. Now I understand the origin of this particular phraseology is with the Standard Supply Code, and the utilities have pointed out to you that the regulatory context is different, and maybe that's where this comes from. But in our view there's no reason that the prohibition on marketing material should not apply to this distributor bill period whether the distributor is selling system gas to the end user consumer or not. And again, in our view, that's the only way to meet the two competitive objectives that I've read out now twice and that are found in the first two billets of Section 1.1 of the draft GDAR. HVAC's particular concern here is that misinterpretation of Section 8.5.1, or at least a lack of clarity, could lead to a conflict with the affiliate relationships code, which precludes preferential direction of customers and preferential endorsement. And we've argued in the code proceeding that including bill inserts from a competitive service provider amounts to preferential endorsement. And so what we'd like the Board to consider in respect of the GDAR is either to clarify that the prohibition of inserting marketing material applies to the distributor bill in general, whether or not the bill is sent to a system gas customer, or at a minimum, clarify the hierarchies to be applied in the event that someone argues a conflict in meaning between the codes, and in that respect the Standard Supply Service Code at Section 1.5 provides a hierarchy which appropriately in our view places the Affiliate Relationships Code as number one. And at a minimum, our view, that would clarify that to the extent that including marketing materials of any energy service provider or gas vendor in the distributor bill that amounts to preferential endorsement is precluded, and it would ensure that this provision, however ultimately drafted, doesn't undermine that principle. The last issue I want to talk about for just a minute or two is dealt with in Section 2.2.2 of the GDAR, which -- an issue that we're concerned about is the appliance inspection service. Now there's a clarification that's been added to Section 2.2.2 between the staff draft version and the Board circulated version, and that's the last phrase that follows the four bullet points which qualifies the distributor's obligation to provide within it's franchise area, inter alia, appliance inspection service with the following phrase, "Subject to the provision of any legislation, regulation or other applicable law." Now what we recommended in our comments on the staff draft was the following: "Appliance inspection service required by legislation or regulation to be undertaken by the distributor." And we're not sure whether the current version makes that clear. Our point was that -- well let me step back. I'm going to give you just a brief background on why the issue is important. The caveat that we believe should apply should make it clear that the distributor -- if this is to be included in the code -- should make it clear that the distributor's appliance inspection service should be provided by the distributor only if the law otherwise mandates that provision, and we're not sure that that's clear. It's our fear that this section could be seen to independently mandate that. The background to that is current that the distributor's inspection of any new gas appliance hookup is required by the Gas Utilization Code, and in particular, Section 8 of that Code, which is a regulation under the Ontario Energy Act. The combination of some bottlenecks on appliance hookup inspection service and participation of Enbridge Services Inc. in the marketplace has prompted the HVAC industry to be interested in alternatives to the current model of distributor inspections of new gas hookups. The industry, working with the Technical Standards and Safety Association, and indeed the utilities, is currently seriously re-examining the model for these appliance inspections, and it's our hope and perhaps even the distributor's hope that the distributor will not in future be relegated by that inspection authority. Indeed Union's position on this is, which is at page 4 on the March 9th submission, is that the requirement in the GDAR that the service be provided by the distributor is duplicative of other legislation, and it would be cleaner to not include it in the GDAR in the event that that other legislation changes, then we don't have a web of things to consequently amend, including this rule. The HVAC Coalition supports that aspect of Union's position, that application inspection service in particular need not be covered in the GDAR, and to have it covered in the GDAR and mandated to the distributors will in the event that that changes, and we hope it does change, just require an amendment and the concomitant process here. And we don't really see, with respect, what it adds to the rule, given that there's other legislation -- what it adds to the market place climate given that there's other legislation that governs that. If the Board is disinclined to remove appliance inspection service from the rule in its entirety, we would ask that the Board add further clarifications along the lines that we've submitted in the staff draft comments to make it clear that the distributor shall only be required to provide to the service to the extent that other legislation so requires it. In our view that's in fact redundant, but at least it should be clarified. So that if there are changes to that regime, the flexibility of that current marketplace condition is not compromised by the GDAR. Subject to any questions, those are my submissions and HVAC Coalition appreciates your time THE PRESIDING MEMBER: Thank you Mr. Mondrow. Ms. McKinnon? --- Examination by Board Staff: MS. MCKINNON: Thank you, Mr. Chair. Q. Mr. Mondrow, let me ask you what is my most specific question. You provided some alternate wording which you suggest for section 8.5.1 of the proposed GDAR. And you referred the Panel to Section 2.7.3 of the Standard Supply Service Code for electricity distributors, and this is all designed to restrict the marketing and promotion materials which can be contained in bills. What I'd like to do is ask your views on yet another alternative wording to the second bullet under 8.5.1 such that it would read: "The distributor may include only the marketing and promotional material related to the system gas." Does that, in your view as a modification, satisfy your concern? MR. MONDROW: A. Yes, I think it does. Q. Thank you. On Section 8, while we're there, this is, I concede, a very general question and you've not spoken to the -- well you have spoken generally to your views on the importance of vendor consolidated billing. Could you tell me whether you have any views as to the potential harm that would arise or impact on competition if it were the case that only two options were ultimately provided under Section 8, being distributor consolidated billing and split billing? A. I guess my comment would be -- and I'll let Martin comment on this if he wishes in a minute, but my comment would be that it depends on how the Board views what you've referred as to distributor-consolidated billing. Our point was that that's not the current position. But I suppose if the question is: If the Board were to orchestrate it such that we really did have distributor-consolidated billing or split billing, but not vendor consolidated billing, again I don't think that GDAR would inflict any incremental competitive harm on the marketplace if that's what it said, because that's what the current situation should be. Q. But do I understand your concern as stated in that question to be only if the Board could do something to resolve the concern you have expressed about the fact that the Enbridge services company is in fact doing a form of billing which you consider to be vendor-consolidated billing. So are you saying if somehow that were abolished, so nobody got vendor-consolidated billing such that there were really only distributor-consolidated billing and split billing that that would not have a harmful effect on competition issues? A. Harmful effect has to be vis-a-vis a standard, and if the standard is what exists today, then if there was no change from what the model used to be, there could not be harmful effect. Whether that would preclude a beneficial effect is not the question you asked, but maybe that's what you're seeking comment on. Q. Well, you can turn the question that way because that would be helpful. Give me then your comments on the specific direct benefits to competition you see from marketer-consolidated billing being available. [Mr. Mondrow confers] A. I think anytime that a service provider can provide a one-bill option that gives it in the customer's mind a service advantage and if marketers could simplify -- gas vendors and energy service providers could simplify the customer's monthly bill payment process to one bill rather than two and take care of all of the behind the scenes transactions, that would give it a marketing advantage. So I think that would -- it could persuade -- it could be an additional benefit to customers who might be otherwise interested in choosing a competitive option and indeed it would remove an impediment to those customers choosing that other competitive option that's otherwise attractive. The impediment being, well, if I do that I'm now going to have two bills. It's not worth the hassle. So we're sensitive and supportive as we have been through this process from the background of the position that allowing the vendor to render a consolidated bill will allow it to provide its customers who choose them with a service advantage, which is a one stop -- a one bill service package, and I think that would provide them with a selling feature for the customer. Q. I have a question regarding your submissions on Section 11, the complaint procedures. You stated in your written submission that the absence of articulated types of remedies is a significant flaw in that section. Could you help us understand in a specific way what you believe the benefits of articulated remedies for this sort of rule to be? A. Well, it would preclude in the case of the Affiliation Relationships Code several rounds of jurisdictional arguments by HVAC and Consumers Gas and the other interested parties. But the problem that we have addressing that today and the reason we didn't actually address it in our submissions is the matter of the Board's jurisdiction to enforce codes is still live in our -- I hope still alive -- in our code of conducts complaint proceeding. And until either the Board government gives direction to the interested parties of precisely what remedies they're prepared to consider, it would be difficult for us to indicate particulars of what should be included in Section 11. But -- for example, having a penalty provision with a maximum per breach would allow parties, interested parties to argue that, well, you should start with that for example. I'm not sure that's been terribly helpful. I'm not sure how much more particular I can be, though, until the rest of the process is played out. Q. One other question regarding your comments on the complaint procedures. You have suggested that it ought to be the case that complaints are made available to the public I believe through the website. Do you have views whether, if that is not the means chosen, there are other satisfactory means to get information regarding complaints available to be useful? A. Other than a Board-issued notice -- other than a Board-issued notice, which entails a notice period and costs, I don't see at this point any other feasible way of ensuring that regularly interested and perhaps particularly interested parties in any given process would receive notice. Our comments stemmed from our experience on the first Board process under a code which was again the RR-1999-0058 proceeding before it became docketed as that preceding. It was a complaint that we ultimately referred to the Board, and in an ad hoc fashion because of kind of casual enquiries ourselves, effectively notified other people who were ultimately interested in making submissions, for various reasons, jurisdictional or otherwise. And it was through that process that those parties got involved in the early stages. Now, that process as everyone knows became long, protracted and complex and so ultimately everyone had their say, probably several times under the Boards auspices. But initially we were faced with a bit of a conundrum in that we didn't want to be calling up people and rousing the rabble. On the other hand, there was no way people would know what was going on even after the referral to the Board and we felt that the issues were important enough and seminal enough that there were parties that would be interested. And in the result we had kind of an ad hoc, so what's going on with that anyway question, and, well, we have information if you would like copies and, yes, please send them and that's what we did. But having a place on the website which is becoming increasingly useful where things like that are posted so that interested parties could regularly check is, I think, the most cost effective way and probably the most flexible way. Other than that you would have to have circulated notice which I would imagine would be logistically and financially quite an undertaking. MS. McKINNON: Thank you, Mr. Mondrow. Those are all my questions. THE PRESIDING MEMBER: Thank you, Ms. McKinnon. Ms. Halladay? --- Examination by the Board: MS. HALLADAY: Q. I just have one question, I think it's one question, Mr. Mondrow. I appreciate your position that in fact now we do have vendor consolidated billing because of all of the various line items on presumably the Enbridge distribution bill or the bill that's done by Enbridge Commercial Services Inc. on behalf of Enbridge Gas. I understand the competitive disadvantage that HVAC members may feel by not having access to the bill, and I also understand that customers do not want two bills or myriad of bills for various services. How would retailer consolidated billing help the small HVAC person who is providing competitive services but is not providing a myriad of converged services? A. I guess the short answer and the practical answer is any marketplace mechanism that takes customers away from the iron grasp of Enbridge or at least puts those customers in play is a benefit to all competitors of Enbridge Services, and to be blunt, that's the practical result of allowing the big interests to come and shake up the market a bit. It will at least alert customers to the fact that they're not dealing with the gas company. And there was a reference by Janet Holder I noticed on the record, and she said it almost apologetically, "People think of us as the gasman." Well, leaving aside the gender issue, I think that's right. And any marketplace mechanism that would in a practical way clarify for customers that that's no longer the case would benefit even the small players who would then have more a contestable marketplace. I guess the other comment that I should make, and again it's really a self-protection thing for HVAC, is even if you did that, even if the Board pushed through with vendor consolidated billing in the context of the GDAR, we still think there are other reasons why the Enbridge bill is a problem but I'll just flag that to make clear that we don't think vendor consolidated billing here is a solution to that case. We think the particular issue still needs to be addressed. Q. I appreciate that. A. I want to be perfectly clear about that. MS. HALLADAY: I think we got your message, Mr. Mondrow. Thank you. THE PRESIDING MEMBER: Mr. Mondrow, Mr. Luymes, thank you for your appearance here today and your presentation and responses to questions. MR. MONDROW: Thank you, sir. [The Panel withdraws] THE PRESIDING MEMBER: Are there representatives from the Ontario Greenhouse Growers Marketing Board here? MR. CARMICHAEL: Yes. THE PRESIDING MEMBER: Oh, it's you. Welcome to this Oral Consultation. MR. CARMICHAEL: Thank you very much. --- Presentation by The Ontario Greenhouse Growers Marketing Board: MR. CARMICHAEL: My name is Gordon Carmichael. I'm with the law firm of McCarthy Tetrault, and I'm here representing the Ontario Greenhouse Vegetable Growers Marketing Board, the head office of which is in Leamington, Ontario. I would like to thank you very much for providing us the opportunity to present these views. The Ontario Greenhouse Vegetable Growers Marketing Board represents as all greenhouse growers in the Province of Ontario under enabling legislation enacted by the provincial government and it acts as an advocate for the growers on all issues and plays a role in the marketing of their production. There are 238 growers in the province with a total of approximately 1,100 acres of greenhouse. And the regulation of the Board extends to tomato and cucumber production. The president of the Board tells me that they're going to extend that to peppers as well in the near future. This is a large business. Approximately 50 per cent of the North American greenhouse vegetable production originates in Ontario, which would surprise most peoples, and approximately 80 per cent of that Ontario production originates in Essex County. There has been rapid growth in the greenhouse business in the last decade. The president of the Marketing Board tells me that farm gate value of the greenhouse growers production in Ontario ten years ago was approximately $25-million and last year it was approximately $300-million. I asked him why this remarkable growth and he said that it was the quest for the perfect tomato that is driving this growth and in these greenhouses they're able to produce an almost perfect environment. That together with, I think, the low Canadian dollar and low prices for natural gas have allowed this business to develop to the extent that it has. Most greenhouses are heated with natural gas and gas, including the cost of the gas and the distribution services which the farmers pay for is now the single biggest line item in a grower's expense budget. It used to be labour but with the increase in gas prices that occurred last year, the gas cost is approximately $60-$70,000 per acre per year. So with the 1,100 acres that are in production in Ontario at the moment, that would give you approximately $77-million in gas which is purchased by this group annually. There may be some farms that are not heated by gas but that would be an estimate that isn't too far off. And the average farm size is approximately four-and-a-half acres so the average greenhouse operator would be running at a cost of between $270,000 and $300,000 a year in the purchase of natural gas, distribution and gas itself. So access to gas distribution is important to these customers. Now, while their businesses are relatively large they are small businessmen and they are dealing with complicated contracts and complicated arrangements. And having acted as counsel for these people in disputes with distributors, I think it's fair to say that most of them don't understand the technical side of the agreements and often these agreements are presented -- forwarded by mail. They're 20-, 25 page agreements, bundled transportation agreements, this sort of thing, and they're expected to sign them and return them immediately. They really don't have the resources to review them and in many cases not the understanding of what the provisions mean. Although there is of course now more than one source of gas, there is still only one source of gas distribution services in any franchise area. And it is the belief of the Marketing Board that the growers of course need the protection from the abuse potential of this monopoly power that the distribution companies possess. And they need rules and procedures that will provide access to distribution on fair and reasonable terms and an effective mechanism for the resolution of disputes regarding the rules that provide for this access. Now, the issue has been highlighted by the recent increase in gas prices which now I think is thankfully subsiding a bit, but over the prior years before this increase in prices came into effect, the commodity was relatively -- was inexpensive and this increase in prices has produced friction in the relationship between the growers and the distribution company, particularly Union Gas in our franchise area, and it's forced people to look at contractual provisions and policies and terms and conditions of access that many growers didn't fully appreciate until it has become important because of the high prices and they're faced with these difficult issues. This is why the Rule is important to the group and hopefully will create a procedure where these non-rate issues can be effectively dealt with. Now, in the course of my firm's research in preparing this submission, we did an Internet search and found an access code which has been adopted in Australia that covers many of the issues that your Draft Rule covers and found it most interesting to review. It was developed -- there are seven states I believe in Australia and there's a coalition of the seven state governments and the federal government and the access rule covers both transmission and distribution pipelines that they have developed. But the agency, the coalition of governments met and prepared an access distribution rule that was subsequently adopted in all of the states and by the federal government, so this is now the access to distribution rule that applies throughout Australia. In each state the regulator having authority in that state administers the distribution rule. But we found that in almost all issues that are covered by your Draft Rule, it was very interesting to look at the Australian rule to see the way that they have dealt with the same issue. For example the objects of the Australian rule at page 1 of the introduction to the rule, and we had included a copy of the Australian rule as an appendix to our submission, but the objects at page 1 state that the object is to promote the abuse of monopoly power, to provide rights of access to natural gas pipelines on conditions that are fair and reasonable for service providers and users, and to provide for the resolution of disputes. There are a few other objects that are stated there but ... When we looked at it, we appreciated the very direct approach that the regulators had taken to identifying the problems that we see should be addressed by the Draft Rule that is in consideration here. The rule requires that a pipeline operator, and pipeline includes both transmission and distribution pipelines, file an access arrangement with the relevant regulatory authority. The access arrangement describes the arrangements, the terms and conditions and the rates that are applicable to each service which the pipeline offers. And this access arrangement which is filed by the distribution company may be amended from time to time by further filings. The terms and conditions of the access arrangement must be fair and reasonable. There is provision for public notice for hearings and for final approval by the relevant regulatory authority in the state having jurisdiction. The regulator may accept or reject any filing and may impose an access arrangement if one is not agreed to. Any user is free to agree to other terms, but failing agreement, the terms of the approved access arrangement will apply. So users are free to negotiate other arrangements with the distribution company, but in the event no agreement can be reached, the standard access arrangement would apply. It struck us as being comprehensive and fair and we, just as a general comment, we recommend it for consideration by the Board as a source document in seeing how another jurisdiction has dealt with many of the same issues that the Board is considering with this Draft Rule. Now, turning to the Draft Rule itself, the purpose of the Draft Rule is certainly encouraging from the standpoint of our client, namely, precluding discriminatory or preferential conduct by distributors, establishing principle for and standardizing the conduct of business between distributors and customers, establish performance levels governing the conduct of distributors for access to distribution services and provide balanced protection to all affected parties. This is good stuff as far as we're concerned. We suggest that three concepts be looked at for adoption as part of the purpose though, taken from the Australian rules, namely, the recognition that you're preventing the abuse of monopoly power which is granted to the distribution companies with the franchises they hold. We suggest that the access to distribution services be provided on terms that are fair and reasonable to all parties and that that standard be adopted by the Rule and apply to all of the non-rate issues that are governed by the Rule, and that there be an effective method for the resolution of disputes regarding the rules and policies and terms and conditions of a non-rate issue. Section 2.2.1 of the Draft Rule requires a distributor to provide access to distribution services on a non-discriminatory basis. This establishes the fundamental obligation of the distributor in connection with access. And there are other provisions of the Rule which establish general obligations on the parties as well, which require those parties to act in a non-discriminatory and non-preferential manner as opposed to simply a non-discriminatory manner. Section 4.2.1 for example, where distributors are adopting financial contribution policies are required to apply them in a non-discriminatory, non-preferential manner. Section 5.1 where distributors are required to conduct all commercial relations with gas vendors in a non-discriminatory, non-preferential basis. Section 9.2.1 requires a distributor's security policy to be non-discriminatory and non-preferential. So we have all of these other situations where the non-discriminatory, non-preferential standard is adopted, but the fundamental obligation with respect to the provision of access is only non-discriminatory. The Marketing Board believes that the access to distribution services should also be subject to the non-preferential as well as the non-discriminatory standard. Now there may be exceptions to the non-preferential element of the rule that we are suggesting. For example, system expansions and other issues where obviously some preference would exist to a customer that was already on the line versus a customer who was not. And there certainly could be exceptions to the requirement - and where exceptions can be justified we would not object. But the general principle, we feel, should be one of non-preferentiality as well as non-discrimination. We believe that the Rule should require the distributor to file all policies, terms and conditions and contracts that apply to access. Now Section 4.1.1 of the Draft Rule requires policies to be filed and other matters regarding expansion and connection. Section 9.1.1 requires policies regarding security. Both of these requirements are good, but only if all policies, terms and conditions applicable to access to the distribution services only if the Rule requires that they be filed where you have the entire relationship that exists between the customer and the distributor before the Board, in addition of course to the separate rate proceedings. We feel that it is important that all these elements of the relationship be brought within the Rule and under the supervision of the Board. As I mentioned earlier, the Australian rule, for example, requires a distributor to file with the relevant regulatory authority all of the policies, terms, conditions, rates, virtually everything related to the access arrangement that the distributor proposes to offer in respect of each service that is offered. And therefore there is no question that everything in the relationship is brought within the ambit of their rules. As I mentioned earlier, we believe that there should be a standard imposed with respect to the access arrangements and that it be a fair and reasonable standard. It is not enough to simply require that the terms and conditions or that the policies be filed with the Board; in our view it is also necessary that a standard be established to which all policies, terms and conditions must comply. The Australian code has adopted a standard of this kind. Service level agreements. The definition of service level agreement in the Draft Rule includes not only agreements between distributors and gas vendors but also agreements between distributors and customers. Now the Rule mandates a standard service level agreement for gas vendors but not for customers. We believe that the form of the service level agreement, at least insofar as it applies to the types of services that the Marketing Board represents, is concerned. There should be a mandated standard service level agreement which should be subject to public comment and to hearing and approval by the Board in the event that it can't be agreed upon otherwise. Sections 9.3.5 and 9.3.6 of the proposed Rule deal with security matters and security that is required to be posted by customers and others dealing with distribution companies. We certainly support the need for the filing of these sorts of rules. Demands for security in the greenhouse grower business as a result of the increased prices of natural gas have been a problem in the industry. As a matter of fact, it reminds me a bit of back in the early 'eighties when interest rates went to 19 and 20 per cent and the banks were, of course, with their loans outstanding and floating rates suddenly looking at customers that used to be paying interest at 8 per cent and who were then paying interest at 20 per cent, and the situation tightened up and demands were made by banks, I think, as a result of that that were unreasonable. There were receiverships and bankruptcies. In my view, the administration of credit policies by the gas companies are in the hands of amateurs really. There are things that are being requested that I don't think the requesters fully understand and it basically puts these people out of business when the request is made at the wrong time. Now, of course they have a right to protect their receivables and to collect their credits, but their credit policies seem to me to be administered on a very ad hoc basis and are being used, I believe, to prevent people from leaving the gas company and moving to other fuels such as bunker-C oil, which a number of growers have attempted to do. The security policy, if not used in a way that's proper and regulated, can be just another tool in the hands of -- can be used in a way that cannot be combatted adequately by the customer base when there is only one source of distribution services available and where they are completely dependent upon those services. The other suggestion that we would make as far as the security is concerned is that there is often a considerable value in the bank gas account that a customer may have with the distributor and the value of the gas in a bank gas account is not one of the items listed in the Draft Rule, I believe, as something that could be considered as security for the obligations of the customer to the distribution company. We believe that the value of that gas should be a factor and potential security for the obligations. Regarding the complaint procedures, Section 11.2 of the Draft Rule says that the complaint procedures apply to complaints regarding the application of this rule by a distributor and the compliance of a distributor with this rule. Now if the complainant does not fall within the application of the Rule or the compliance by the distributor with the rule, the complaint procedure will not apply. We make this point simply because we believe that the policies, the terms and conditions, the forms of the agreements and whatnot, all elements of the relationship that exists between the customer and the distributor, need be subject to the regulation of the Board under this Rule so that the complaint procedures will also apply to all those matters and that you will not be faced with the question of whether or not a particular complaint is one which falls within the conditions of Section 11.2. A complaint presumably that did not fall within that condition would be no subject to these complaint procedure rules. Section 11.7 states that if a complaint is not resolved, it may be referred to the Board. It is the view of the Marketing Board that it should be clear that the Board has the power to require a hearing and to finally resolve these disputes. I am not suggesting that the Board stand in the place of the courts to resolve matters that should go to litigation, but on issues as to whether or not a policy or contractual terms or other materials that may be required to be filed under this Rule is fair and reasonable, assuming this Rule adopted that standard, the Board would have the jurisdiction to make a determination as to whether or not it was fair and reasonable and as to whether or not it met the requirements of what we would like to see the Rule provide. And it would, in our view, be important that the Board have the power to finally resolve those issues and specify policies that were fair and reasonable in the event that those proposed were not. Thank you very much. THE PRESIDING MEMBER: Thank you, Mr. Carmichael. Are there questions, Ms. McKinnon? MS. MCKINNON: Just a few, Mr. Chair. --- Examination by Board Staff: Q. On one specific point you raised on your discussion on the security arrangements, Mr. Carmichael, you made reference to banked gas accounts, but am I correct that those accounts can fluctuate and would therefore not be considered to provide a source of a constant security at least at a fixed value; do you agree with that? A. That's true, but -- and it may be that at some point if the bank gas account dwindles that other security would have to be provided, but in a recent situation that I was dealing with, a customer had allegedly defaulted in deliveries of his daily contract quantity under a bundle transportation agreement and Union had terminated the bundled transportation agreement. There was approximately 200,000 worth of gas in a banked gas account and the customer wanted to dispose of that gas in open. The price of gas was high and the customer had converted his heating system from gas to oil, and was only going to be using the quantities of gas in his operation from that point that a relatively small user would use. This user was the operator of a 21-acre greenhouse facility, which was is a very large facility. The letter -- as a condition of being allowed to dispose of the gas and the bank gas account at open market, they requested that all defaults but corrected and that certain penalties be paid, and that a letter of credit be posted as a condition of returning to system gas. And the letter of credit that they requested was a letter of credit in an amount equal to the cost of current prices of two month's usage by the grower determined prior to the time that he had converted to oil. It was a request for a letter of credit of $1 million, and there was $200,000 worth of gas in the banked gas account and the customer was returning to system gas and was going to be using just a fraction of that amount. It was an abuse of the, I felt -- they have a legitimate interest in protecting their credit, but this was meant, I believe, as a ploy to illustrate to the greenhouse grower community that they would be tough with people who were going to default under these agreements. Now the letters of credit that they're requesting are potentially huge. And if you look back at the usage of a customer over a 12 month period and see a two month bulge in the use, obviously that's a period of high concern. And it may be that the banked gas account will dwindle as gas is used, and that letters of credit or other security would have to be posted. But this can't be looked at once a year. This is something that a distributor would have to work with his customer on and work through the high periods. And it's the kind of relationship that a banker might have with a customer when it gets into these kinds of issues. Q. Fair enough. Thank you. Let me ask you a couple of questions relating to the Australian rule that you have delivered to us. Do you know whether in fact that rule is currently being applied in Australia? A. Yes. Q. Do you know when it came into force? A. It was adopted -- well, the -- we accessed it on the website of the South Australian Government, and there was legislation in southern Australia adopting it. And we've been advised that the other states have adopted it as well in Australia. But, no, we have not - I must say that we have not thoroughly researched the way it's been applied in Australia. Q. Thank you. Now it's my understanding, correct me if yours is any different, that in the Australian natural gas industry the utilities are not integrated as they are here, and by that I mean storage distribution, transportation, they're all provided by separate entities? A. Well, I don't know that, but I do know that they have an extensive section in their rules regarding ring fencing procedures, which might be of interest to the last presenters. They are rules which limit the ability of companies that are in this business to abuse their monopoly of powers but doing the kinds of things that were referred to in the earlier presentations. There's a large section which in general allows the establishment of rules which would seem to deal with those sorts of issues. Now I don't know whether the industry itself is in need of that at the moment, but the rules would seem to allow for. Q. My question was actually focused to what if any knowledge you had about the actual structure of the utilities -- A. No, I don't. There's lots of information available on their website. Q. Thank you. Now one of the main things I want to focus on with you is your concern about the access rule, Section 2.2.1. And you have expressed your suggestion that this access rule should also provide that it be nonpreferential as well as nondiscriminatory. Now for comparative purposes can you point me to any provision in the Australian rule that has the nonpreferential component as part of its procedure? A. That really didn't arise so much from the Australian rule, no. I can't -- Q. Fair enough. If it was there I wanted you to point me to it, and if it's not there that's fine. A. May I say, just on that issue, in another dispute that we're looking after for a grower which deals with issues that would have fallen within this rule if the rule had in been in effect when the circumstances arose, we did some research into the common law and the obligations it imposes on companies such as gas distribution companies. And a gas distribution company would have the status of a common carrier at common law. It would also have the status of a public utility, and the common law cases that we found and some of the research that we disclosed talks in terms of nondiscriminatory and from time to time nonpreferential. Q. Can you give me an idea and the Panel an idea of the kinds of harms that your clients are of the view would be potentially caused if the rules stays as it is and the nonpreferential term is not inserted? A. Well, it's hard to say. The question is what would be protected. I suppose if the wording was simply nondiscriminatory versus what would be protected if it was nondiscriminatory and nonpreferential. Personally, we are looking for, I suppose, as much support in the wording of the general obligation that's imposed here as we can find to be helpful in dealing with the situations that we have to deal with. I might just -- one of the issues that a number of the growers were considering during last fall and early winter -- this antidote might be of interest to you, but they were considering converting their greenhouse fuel systems from gas to bunker sea oil, because bunker sea oil was at a considerably lower price. There are some drawbacks to bunker sea oil of course; it's not as clean burning a fuel; there's a risk of spill when it's being handled; it's more corrosive and somewhat more harmful to their boilers than gas would. But it was at such a lower cost that they were forced to consider it. And some who were more highly levered in their financing and whatnot were more forced to consider it than others. But there were numerous requests made to Union for a reduction -- for relief from the contractual provisions that these growers were subject to under the bundled transportation agreements. Under those agreements they are required to deliver a certain specified contract quantity of gas to Union throughout -- on each day throughout the year. And the total obligated quantity which is to be delivered is roughly equal to the consumption that's expected by the customer over the course of the year. So at first growers were approaching Union with requests that they be allowed to cease deliveries of their daily contract quantity for the purpose of converting to bunker sea oil. Now this meant that Union would be losing a customer. There would be someone going to oil from gas and they were dealing with these requests on somewhat of an ad hoc basis. There were requests granted in some cases, other requests were refused. At one point in the fall they became concerned that dealing with these issues on an ad hoc basis was not satisfactory, and they stopped granting requests for a while. Then in December they published a policy which they called a DCQ flexibility policy. Some people were allowed to take advantage of that -- the conditions of the policies were dictated by Union. Some growers were allowed -- fit within the policy and were eligible to take advantage of its term, others were not. Some who were not allowed to take advantage of its terms went into default under their bundled T-agreements. And such incidents as the one that I mentioned earlier with the demands for letters of credit and whatnot followed, but the concept of the access to distribution services being on a nondiscriminatory and nonpreferential basis we thought would have allowed us to have required of the distributor that a uniform and standard approach be taken to such issues such as DCQ flexibility. When in fact there were people -- the reasons why some people were allowed out and others were not or how they had originally administered their policy were completely unknown to us and not part of anything that I'm aware that Union published. The concept of fairness and reasonableness of nonpreferential and nondiscriminatory, these are all concepts that are important to this group. I can't tell you specifically how the protection that would be offered by nonpreferential would extent beyond the nondiscriminatory, but ... Q. So I take it from some of the antidotes that you've shared with us, that essentially thus far your clients have had to negotiate difficult access decisions on a case-by-case basis with the distributor? A. Well, the fact is that they've all been delivered a standard form of agreements by mail and have been told to sign them if they want distribution service, and none of them have negotiated them. And the practical reality of it is that none of them can afford nor will they be willing to take the time to sit down and do this. And it seems to me that we need to bring the terms and conditions of these agreements and of the policies that distribution companies publish within the ambit of this Board so that in a collective way under the direction of some organization like the marketing board, these issues can be dealt with effectively. Now I must say I found my dealings with Union -- Union has been quite reasonable when we've gotten right down to it, but if there was a proceeding to which the matter could be referred, and if there were these standards of fairness and reasonableness and these requirements of nondiscrimination and non preferentiality, I think we'd have a much better chance of reaching where we wanted to go here without a lot of the things -- without going through the things that we've had to go through. Q. Thank you, Mr. Carmichael. Those are all my questions. THE PRESIDING MEMBER: Mr. Birchenough? --- Examination by the Board: MR. BIRCHENOUGH: Just one question. Q. I don't think you've touched on this in your presentation. I'm just wondering if your clients have a position on Section 3 of the rule, which refers to emergency supply planning and the discretion given to distributors to curtail or interrupt during emergency situations. A. I can't speak for all of the 11,000 growers, but many of the large volume users who are growers have opted for service under the M5 rate. The M5 rate is an interruptible rate, so they have installed oil-burning equipment in their greenhouses which is sufficient to heat their greenhouses during a period of interruption by Union. So they have opted for the option at the lower cost. They're prepared to face interruptions. And I read, and I've stated in our submission, that we've agreed with the submissions of the Industrial Gas Users Association regarding emergency supply planning and interruption. But as a result of the options that many of these growers -- apart from that, apart from agreeing with the submissions that they've made, they have dealt with the interruption issue effectively I think in this instrument. THE PRESIDING MEMBER: Thank you, Ms. Halladay. MS. HALLADAY: Thank you, I have no questions. THE PRESIDING MEMBER: Q. I have one question on the access. The examples you used seemed to be dealing largely when a greenhouse that would go from gas to bunker crude or the splitting of gas is the primary source of heat. Are there problems other than that with access? A. Well, the issues that we're seeing certainly with respect to the security policies that I mentioned earlier. The switch from oil -- from gas to oil, some of them are doing completely, in other words, have come off gas and have gone on to bunker. They've spent a lot of money over the last six months building into their operations the capability to rely solely on bunker sea. But most of them are not choosing to do that even though they've increased their capability to do so. They're continuing to burn gas at a certain level and to rely on bunker sea for the rest, which means that -- and they're trying to manage their situations so they can keep their options open as far as gas supply is concerned. There are all sorts of issues that are very technical that arise in this context. But, for example, they're not receiving -- a mature greenhouse that's been burning gas for the last number of years will at this point be entitled to receive deliveries of gas that it purchases each year at three different locations: Dawn -- or to make deliveries at Dawn, Empress and Parkway. And one of the problems with ceasing to be a bundled T-customer and reverting to system gas for relatively small quantities while converting to bunker sea oil for the majority of the heating requirements, is that the customer would lose access to the Dawn and Parkway capacities that the customer has earned over the past four or five years. There are considerable savings to a bundled T-customer who is entitled to make deliveries at all three points. And if you lose those points, the cost of the transportation service is about sixty cents per gigajoule less on the deliveries that are made to Dawn and to Parkway as compared to the deliveries that they're required to make to Empress in Alberta. So some of them are trying to keep their bundled transportation agreements in effect, despite the fact that they're burning oil for most of their heating requirements. So what they're doing is taking delivery of gas and paying for it. It's going into their bundled T-accounts and then they have to go to go Union and request an authorization from Union to dispose of the gas in their banked gas account to other customers either inside or outside the system. And at the moment it's completely the discretion of Union as to whether or not these dispositions, whether inside or outside of the system, will be permitted. Q. That's because of the contracts they've signed. A. Because -- yes. So you have a bundled transportation agreement which is -- it's an evergreen agreement which renews ever 12 months automatically unless a notice of termination has been given six months and five days prior to the automatic renewal date. Also -- so in other words, if you want to cease to be a bundled T-customer, the only point in the year that you have the legal right to do that is six months and five days prior to the date of renewal; you give your notice at that point and then it ends at that renewal date. If you wish to change the level or the type of service that you're receiving, for example, if you decide that you're, let's say, you're daily contract quantity is a hundred gigajoules per day and you reduce to a 50 gigajoule contract and burn oil for the remainder, the only time during the year that you can reduce the level of service is by notice given six months and five days prior to the contract renewal date. So there is no -- on the other hand, it seems that when you want to increase your contract quantities they'll let you do it anytime you want. When you want to decrease your contract quantities it's a big deal. And the policies that exist and the method of administration of these policies, of these issues, are completely within the discretion of Union as far as I can see. Now we recognize that these are important issues for Union as well. They have planned their system requirements and their loads and their storage and all the rest of it based on expectations, and these expectations are realized through contracts and this sort of thing. But on the other hand they're dealing with life and death situations here. They're granting concessions to some people; they're not granting them to others. The policies that they do adopt I don't think are being communicated effectively. I think that the language in which the policies are written could certainly be plainer and more understandable for the benefit of those who are not engineers or lawyers who read these things that would have a difficult time at understanding exactly what it all means. So there are a myriad of issues that exist in the relationship between the distributor and -- you know, they published -- a policy was published recent dealing with -- the question was what do you have to -- assuming you give your notice six months and five days prior to the renewal date, in the event that your reducing your DCQ with the intention of burning oil partially and gas partially. They had an existing policy statement that said that they would -- you've got to file a credible forecast showing how it is that you're going to be using less gas next year. And they cited as examples of where a credible forecast might be submitted as a situation where your facilities had been decreased in size or a greenhouse had fallen down or something like this. And they gave -- but they didn't mention the situation, the situation where the customer simply wanted to burn another fuel -- Q. Didn't want to give them the idea? A. -- and many of the growers were of the view that -- here they had this evergreen contract that was renewable forever and that they simply couldn't make the decision to convert to oil from gas. So we had meetings with Union and they acknowledged that an intention to burn oil would be a circumstance which would support a credible forecast for the use of less fuel and cleared that issue. They subsequently published a policy statement which applies to these bundled T-customers who are going to other fuels, and it said that you had to file a credit -- where a notice was given with the intention to reduce consumption because of another fuel, you had to file a credible forecast and you had to show that you had the equipment in place necessary to burn the other fuel and all of this sort of thing, all of which is reasonable. And then it went on to say that if at any time during the year, covered by the forecast, the consumption exceeded the customer's forecast consumption, the actual consumption exceeded the forecast consumption, then the permission that had been granted to reduce the DCQ would be revoked and the original DCQ would be restored. Now what that means of course is that someone suddenly who was delivering 50 gigajoules at a cost of six dollars plus transportation -- might be ten dollars a day -- it's a $500 cost per day, suddenly has a thousand dollar cost per day. Now he's still planning to burn oil, he's just exceeded by one molecule the forecast quantities that he was going to consume. And the bundled gas accounts allows fluctuations of plus or minus -- or the bank account I should say allows fluctuations of plus or minus four percent. This is an arbitrary rule. This is a rule that is designed to prevent people from switching from one fuel to another or to impose conditions that are unreasonable. This is the -- now we haven't gone back to the -- most of the growers seemed to have laughed at that. They just laughed at Union and it's a policy. But it's a policy that shouldn't ever have existed. It's a policy that should have -- maybe there should be some -- there are interests to be protected. We would acknowledge that on Union's side, but this is an arbitrary and dictatorial and unacceptable approach to that issue. THE PRESIDING MEMBER: And I can tell you care about it, Mr. Carmichael. Thank you very much for your presentation here this afternoon. [The Panel withdraws] MR. MONDROW: Mr. Chair, if I might interject. You may be taking a break or calling the next presenter and I hesitate to do this, but just after I concluded, there was a fact that Mr. Luymes brought to my attention over lunch which directly addresses Ms. Halladay's question and I would in fact be perhaps under-representing my client if I didn't put it on the record. I wonder if I might have thirty seconds or less to do that? THE PRESIDING MEMBER: Yes, go ahead. MR. MONDROW: The question was: Will retailer consolidated billing benefit -- how would it benefit the smaller HVAC players? And my answer was, well, the bigger players might get some market share and stir things up. But in fact there have been discussions among the small industry players with some of the potentially large service providers to provide a dealer network in exchange for access to a consolidated bill and on-bill financing options. And I thought that that was important. There are at least in discussion real benefits to the retailer consolidated billing as it's been proposed in the Rule. I thought that was quite important. So I hesitated to interrupt but I thank you for your time. THE PRESIDING MEMBER: Thank you. Is the Energy Information Systems group here? Good. Would you come up and take a seat, please. And we'll take a break after this presentation before the Union one. Gentlemen, welcome to the Energy Board and this Oral Consultation. If you would introduce yourselves, we can proceed with your presentation. MR. ARKELL: Thank you very much for allowing us to speak. --- Presentation by Energy Information Systems: MR. ARKELL: My name is Dave Arkell and I'm president of Energy Information Systems. MR. GAZZOLA: Thank you as well. My name is Frank Gazzola, also with Energy Information Systems. MS. McKINNON: Could I interrupt? MR. ARKELL: Sure. MS. McKINNON: Could you just spell your last name for the record? MR. GAZZOLA: Absolutely. Arkell? MS. McKINNON: No, Arkell I know only because I have the written material from Mr. Arkell. I think it's A-r-k-e-l-l? MR. ARKELL: That's correct. MR. GAZZOLA: Yes, and Gazzola is spelled G-a-z-z-o-l-a. MS. McKINNON: Thank you. MR. GAZZOLA: You're welcome. MR. ARKELL: All right. Actually our message is very short but I think probably what we believe is one of the most important rulings in the Gas Distribution Access Rule and ultimately what our point is and what we would like to state today is that we fully support 7.4, specifically 7.4.2 on behalf of all the customers in Ontario. And just a very quick review, that item allows access to the gas meter for customers. Why we speak with passion with this whole thing is that we've been exposed in selling the natural gas commodity to customers, we've been involved in energy management and this is all prior to working in the business that we're in and so we know the value of information and how it can be used and the benefit of it being used by customers, by consultants, by marketers and ultimately it presumably will be some value to the distribution utility as well. So what I've done is we've prepared a very quick -- so I'll go through that very quickly and I don't know if you want to interrupt me as we go or at the end. I'll leave it up to yourselves. So the message is quite clear as we've noted. We believe all industrial and commercial customers should be provided access to the natural gas meter. And when I say that, we class that as 'read only' access. And what that means is that the customer is only collecting the data. They cannot go into the existing -- communicate with the existing meter where they can manipulate or malfunction the meter itself. They're just collecting the raw data. From our experience in this and we've been in the field for over fifteen years working with large industrial customers, greenhouses, people like that, on the energy management side we have seen on the gas side which, quite frankly, we've been surprised, is from 5 to 25 per cent savings on usage by customers having information, information on a timely basis, information that they can understand. And then the other benefit, it can be used for procurement purposes or managing the commodity. I think we're speaking about load balancing, things of that nature. If customers have this information sooner, it typically can act quicker and find ways of mitigating some of the costs that they might incur. So let's just talk about very quickly on the next slide is really to talk about what the current system is and we'll go through the sort of pros and cons associated with that. Currently what occurs is on Centra, Union and Enbridge, the utility collects the data from the meter directly strictly for billing purposes. So they phone the meter over the phone line, collect that data and then ultimately they provide that information to a customer for a couple of reasons. One for obviously for billing purposes, but then they also provide this information to customers for managing the commodity for load balancing purposes. From my personal experience on this side, when a customer receives this paper from the utility it can be not very timely. There can be a six months' delay before the customer actually gets this data, so it's very difficult to figure out what they might want to do for load balancing purposes. It can also be very difficult to understand. Each utility seems to have a different way of reporting this information to customers on what they use and when they used it. And consequently, when you deal with a multi-site that has locations in Centra, in Consumers and in the Union franchise, it's all different -- or can be different reports. So it's very confusing to the consumer. That is strictly done for procurement purposes. It's really not done for energy management purposes. It's also been brought to our attention that some of the utilities are providing web access to consumption data which I compliment the utilities for doing that. There is small issues with that and that is, one, it's limited as far as what information is available. It also means that the customer has to go to different sites for each utility. So it does have some -- it's certainly better than what has been done in the past with the paperwork, but ultimately we do not believe it's the best solution for the customer or the marketers that are servicing the customer. On the next page, this is what our experience has shown us, that effectively if the customer does get information and they get information on a timely basis, and that's not just numbers, it's presented to them or they have the ability of manipulating it into different formats so that a controller sees it one way, a purchasing manager sees it another way, an operation person sees it in a different way, you can achieve two benefits: one being you can manage the commodity more successfully which ultimately means lower costs or should mean lower costs to customer or at least they have a handle on those costs; and then last but not least, the ability of the customer actually reducing their energy usage. As I suggested in the past paper would normally flow from the utility to customers but ultimately that goes to purchasing people and that information is not shared readily to people that are in the plant that actually can make the changes and make the appropriate changes for saving energy. So our key point here is, yes, it's important to get information from the utility to verify the information that you have, but more importantly, ensure that the customer has access to that meter and it's not restricted in any way. Now, what we've done, we've sort of in the past year we've actually modified it. The next page is just talking about how we have overcome some of the issues that we talked about in the previous page and that is getting information to the customer in a quicker and timely fashion. I'll explain this. So just make sure everyone is on the same page, it's modified process to access natural gas information. So ultimately, what has occurred is because the utility will not allow 'read only' access in the natural gas meter, they effectively have to put what they call a pulse output and that pulse output counts the number of pulses that that gas meter reads. Then in effect, then what happens is those pulses go to a black box, what we call a data logger. So once that information is available, then ultimately the customer can collect that information as often as they want and it can be passed to a variety of people. That seems to be a pretty good solution, but ultimately there's a problem with this from our experience. Three critical issues: one, it's actually not billing accurate data. It's not the exact data that the utility sees. So right away that's a question to the customer. Number two, from our experience, trying to get a pulse from -- certain utilities can take up to six months just to get the pulse output. It has nothing to do with collecting data, just getting a pulse output. And the third is that the cost that customer has to incur can be cost prohibitive. So it doesn't motivate the customer to go this direction. So ultimately we believe this is a possible solution but is not the best solution and, once again, being able to access the utility meter directly will alleviate all the things that I've just suggested, reduce the cost, speed up the process, ensure the customer has appropriate accuracy of the gas data that the utility meter is reading. So last slide, ultimately this is what we're proposing. If a customer has 'read only' access to the utility meter -- let me just make sure that's understood. What happens is the customer can actually phone the natural gas meter and it collects the raw data. It could be a 24-hour, it could be 25 days of data that they're collecting. So they have the ability of interrogating and communicating with that data and at any time that they want to. I should say this also was available and is actually made -- this code on the electrical side is a code and has been passed, 11.2 on the Electrical Code. So I think that should reinforce the same thing for gas. The value of this information now is that the customer can interrogate and it's a value to multiple-site customers. They can interrogate meters from a variety of utilities, whether they have locations in the north, they have locations in Sarnia, or they have locations in Toronto. They do not have to rely on the utility to provide that information in different formats. So from our experience this is ultimately the best benefit for the customer and it will ensure that they will look at future unbundling because now they have control of their own information, they can look at special -- like T-1 accounts or further unbundling per se, or it also ensures that they look at energy usage as a form of conservation that can be done. That's it. THE PRESIDING MEMBER: Ms. McKinnon, questions? MS. McKINNON: Thank you. --- Examination by Board Staff: MS. McKINNON: Q. Mr. Arkell, a few questions first to clarify some of the things you've just told us. MR. ARKELL: A. Sure. Q. And one of the things I'd like to do is start with page 4 of your handout which was the page entitled "Modified Process". And just to be clear, I understood that you said this system of pulses is what the gas company is currently doing to obtain information and it's then sent to a black box for processing. Did I understand that correctly? A. Yes, let me, I'll just make sure. This is actually a system that we have implemented on behalf of customers, so what you see here is what we are currently providing for customers where they have a gas meter that they read separately and between that gas meter a device is put on so it counts the pulses from the gas meter. Q. And those pulse are then sent to a data logger that you use to then process the various reports that your customers want? A. That's correct. Q. All right. That now makes sense because I was looking at page 4 and on the right-hand side, you have all these various reports and usages and that's not what the gas company is providing, that's what you're providing? A. That's correct. Or I want to make this clear. This is not a self-serving -- ultimately the customer can do it. Anybody who has access to this information can capture that data and that's really what we're proposing to ensure that that's allowed because there's significant benefits to that. Q. To say that anyone can capture it, what's needed to capture the information from these pulses, any special equipment? MR. GAZZOLA: A. There's some technological barriers, if you will, or requirements that enable the customer or the end-user to access that information. The premise that read-only access has been granted, again from a technological perspective, that's the first hurdle. Once you're allowed to capture that information, the customer then has options available to them to go and get that information to manipulate it and manage it how best they see fit. Q. And does apply to whatever kind of meter a customer may have? It's not restricted to a particular kind of meter? A. In the gas situation? Q. Yes. A. There are limits and there are technical requirements for the gas meter. That is correct. So some of the smaller consumers wouldn't have the type of metering that enables that to happen. Q. I actually was going to ask this question. I note from page 1 of your presentation you speak to this being accessible to industrial and commercial customers but I take it from what you said some smaller commercial users might not have meters that would allow them to make use of the system either? MR. ARKELL: A. That's correct. Q. And is there a prospect over time that this may be accessible to residential consumers or is that not something within your contemplation at least? A. It all comes down to a matter of economics. Effectively why we're suggesting commercial and industrial customers right now is they do have the appropriate metering in place for 'read only' access to occur. For the residential customer they don't have a phone line connection where the utility actually reads that data per se. Q. Oh, of course. Like my house they still have to come to look at it. A. That's right. Q. Let me clarify something as between this picture called modified process and your written submissions, just to see if I've fixed on the right comparison. At the bottom of page 1 of your written submissions you make reference to the current circumstances where the gas distributors are making energy information available to the consumer via what's referred to as a secondary or check meter-type device. Is that the same as this modified process picture? A. That would be -- that's correct. Yes, that's what we're referring -- and we're the ones who -- our company was actively involved in trying to get this to be done. Let me put it this way, this whole modified process is not readily promoted or available or many customers don't even know of this type of process because they actually don't even know the value of the information to them directly for procurement or for energy management purposes. Q. And so then again comparing your written submissions to this picture, you've referred to one of the disadvantages of the modified process being cost? A. Yes. Q. The cost comes from the extra equipment that relates to not the sending of pulses, I take it, because the gas companies use that themselves, but is it them hooking it into your data logger? Is that where the cost comes from? A. If I may, there's actually a parallel or a redundant device that creates the same pulses that the gas company is using for their billing purposes. So there's some safety code issues, some electrical components that are required to allow access to this for the customer. So there is a cost associated with that, plus the cost associated with the data logger which is the device used to store that electronic information. So it's basically a mimic of equipment that is already on site as the gas company's equipment. Q. You talked about there being issues of concern about the timeliness of the provision of information. I take it your modified process that you're using currently provides information on what you consider to be a timely basis? MR. ARKELL: A. Right. When we say 'timely basis', that's really driven by what the customer wants to achieve. Q. You can give them daily information if they wish? A. Absolutely. In fact, most of the customers, the gentleman before us talking about greenhouse, we are servicing and providing the service to a large greenhouse in southwestern Ontario and they get daily information showing hourly usage. Now, that customer itself is predicting, based on this information, a 25 per cent savings on their energy usage because they now have fine-tuned their operation where they can try different things that they didn't know how it would impact their usage. And now that they can see how it impacts, they can come up with the best practice techniques by using different equipment which is more efficient. Q. And just to be clear, the modified process on page 4 that you've currently got in place, you need the co-operation or consent of the distributor to put this process in place? A. Absolutely. And it's fair to say that it's been --just because it's not their core business it's been very slow and as I've suggested perhaps costly for the customer. Q. So contrasted with that, on the fifth page of your handout, is the information process which I take it is the process you are proposing to use in the event that proposed rule 7.4 is put in place that would give the customer the right to give you consent to have access to their meter? A. That's right, us or anyone else who chose or had the ability to do so. Q. And is the technology for this information process you wish to use tried and true? Is it in use somewhere? A. Yeah. Let me -- for the electrical metering, we are currently doing this for all electrical metering for some of the customers that we deal with in Ontario. Specifically for the natural gas side, it is not available because the utilities Union, Centra and Enbridge have not allowed anyone to get access to the meter. They've suggested they would not allow that. Q. For the purposes of testing it, you mean, to see if the system works? A. They're just saying they don't feel comfort with it. MR. GAZZOLA: A. Again, it's the 'read-only' access statement. Q. But I guess I'm trying to clarify from a technological perspective, assuming tomorrow there was no longer an issue with the distributors denying you access and consumers were entitled to give you 'read-only' access, do you have the technology in place to allow the system to start working immediately or is it a prospective system for gas? MR. ARKELL: A. The answer is we have the software to do it but what has to happen is that you have to develop a communication protocol with those meters. We have approached the utility for us to do that and they've said, 'No, we're not going to give you that communication protocol'. For the electrical meters that is readily available. Q. So if Section 7.4 is passed, you'll still have some work to do to make your system functional? A. That's correct, and that could be a four-week period. Q. Let me ask you a couple of questions specifically in relation to the proposed Rule. Are there safety standards or certification standards that apply to what you're doing as it would relate to 'read-only' access to the gas and your collection of information? A. Ultimately what has to happen, as Frank has suggested, is when we are getting a duplicate pulse output, they have to ensure that there's certain standard safety standards that occur, so yes, I believe that Union Gas or the utility per se, is looking after those standards. As far as us communicating with that device, it's really just a modem connection from modem to modem, so there's not really any safety concerns or issues behind that. Q. That's on the current system. But looking at -- A. Going forward. Q. Going forward at your 'read access only' system, I mean, let me take it back to real basics. A. Sure Q. Is anybody going to be touching the meter in those circumstances? A. No, no. It's just a phone communication from computer to computer to black box. So there's no one touching. Q. So are there any safety or regulatory issues applicable to that that you're aware? A. Not that we're aware of and there should not be, because in essence we are duplicating the same procedure that Union Gas or Enbridge Gas is doing when they capture that data. So, how this would be implemented is the device, the metering system, would be reprogrammed to allow a password that would just allow this 'read-only' access that limits what, how far into the meter's programming we can access so we cannot reformat, reset, or change any of the critical components and programming issues, just read the information from that meter. Q. Let me clarify because I'm not a computer expert. The reprogramming, what does that entail? I mean for instance, basic question: Does this entail a hook-up of an additional line to a meter? Is there anything physical like that? MR. GAZZOLA: A. Physically, no. It's done remotely from head office, or in the field with a portable laptop to, as I say, reformat, reprogram the meter to allow or prohibit access beyond a certain level, security level. MR. ARKELL: A. We can speak about the electrical side because this goes on all the time as far as reformatting and allowing 'read-only' access to those meters. It can take 30 seconds to do if someone knows what they're doing as far as setting up a password for 'read-only' access. Q. And so if the consumer gives you the consent to do that, that's something you do from your premises? A. That's correct. Q. Do you need the co-operation or interaction of the distributor to do that? A. Absolutely. Absolutely. Without their cooperation it can't be done. Q. Could I ask you to look for a moment at the wording of section 7.4.2 of the proposed Rule? A. Unfortunately we don't have a copy with us. Q. Sorry. I'll get you one so you can look at it. Because there's some requirements there and I want to ask you whether you can meet those requirements. A. All right. Q. If you look at subsection (2), it's the second part that I'm interested in, but to give it context the first part says: The customer, its gas vendor or any party authorized by the customer -- which would be you: -- shall be allowed to interrogate the meter used by the distributor for the purposes of measuring consumption for the purposes of billing using any device -- and here's what I'm interested in: -- which satisfies the distributor's technical requirements. Now, do I take from your earlier answers that you would say there are no technical requirements for the system you propose as far as the distributor is concerned, or are there some? A. I think the technical requirements that the utility would want would be ensure that when we did communicate with that meter that we didn't have the ability of changing or modifying that meter. Q. Or interfering with their access? A. Absolutely. Now interfering with that access, it takes one minute to communicate with the meter or less. But if you have a 24-hour period, the chances of us hitting at the same time -- and even if you do because that does happen on the electrical meter, their system or the customer system or our system just phones back. So it's not a really a serious issue. Q. In terms of identifying what the distributor's technical requirements may be, do I take it that they've not readily given you any comments on your proposed system, they've merely said we're not going to give you access for this purpose? A. That's correct. You'd have to speak to them. I think we believe that they just haven't thought about this process. They may think it may cause all sorts of problems because of the verification. Our information may be different from their information. I can tell you that has and does occur on the electrical side, but it can be a benefit to both parties. On the electrical sides we have found where the utility didn't -- they weren't billing enough. And we've also seen it where they've billed too much. So we've actually been an ally on the electric side, and believe we can be the same way on the gas side as well. Q. But at least based on what you know presently, there are no distributor technical requirements that your proposed system would not meet? A. The only reason why it wouldn't meet is because we don't have the protocol and they haven't allowed us access to that protocol. Q. I understand that. The second point, a system which is in compliance with Industry Canada's requirements. Are there any requirements from Industry Canada that would apply to your proposed system that you're aware of? A. None that we're aware of. Q. And the third requirement that does not impair or impede the ability of the distributor or it's agent to read the meter. Now you've more or less spoken to that I think. Do you have any more comments on your ability to comply with that portion? MR. GAZZOLA: A. It would be within our capabilities to comply with that, yes. Or the customer, yup. Q. Excuse me just for a moment. [The Panel confers] MS. MCKINNON: Thank you. Those are all my questions. Thank you Mr. Chair. THE PRESIDING MEMBER: Thank you. Questions? --- Examination by the Board: Q. I just have one very short question. These meters, would they have to be what's known as integral meters in order to make it work. MR. ARKELL: A. Okay, they don't have to be, but ideally it would be beneficial for them to be so. And from our understanding that there are gas meters that are -- some are integral meters depending on the size of the customer. It's probably more beneficial if they are integral, because then you see timeframes associated with it, and that's the value and it's very helpful for energy management purposes. THE PRESIDING MEMBER: Okay. Well, thank you, Mr. Arkell, Mr. Gazzola for your presentation. MR. ARKELL: We want to thank you for allowing us to talk on this. THE PRESIDING MEMBER: Thank you. We'll take a break now, and I wonder if, since we're running early, if staff could determine when Union would be ready, and if they'd be ready say by twenty after three we could reconvene at that point and let us know. Okay? Thank you very much. We're adjourned until 3:20 at least. --- Recess taken at 3:05 p.m. --- On resuming at 3:20 p.m. THE PRESIDING MEMBER: Please be seated. This presentation is part of the Oral Consultation. It's by Union Gas and we welcome you here this afternoon and ask that you introduce yourselves. MS. PEVERETT: Thank you very much. --- Presentation by Union Gas: MS. PEVERETT: My name is Jane Peverett with Union Gas, president and CEO. MR. REGHELINI: Marcel Reghelini with Union Gas, manager of regulatory affairs. MS. JACKSON: I'm Patricia Jackson with Torys and I'm counsel for Union Gas. THE PRESIDING MEMBER: All right. Anytime you wish to begin your presentation you may do so and then there will be questions probably from the Staff and the Panel Members as well. MS. PEVERETT: Good afternoon, Mr. Chairman, Board Panel. Thank you for the opportunity to speak to the Board directly on the Proposed Gas Distribution Access Rule. We've already made comments at the Gas Distribution Access Rule Task Force and in response to both Staff Draft Rule and the Board's official Notice of Proposed Rule-Making. Our comments in these past processes covered all aspects of the Proposed Rule, so I intend only to address the issue of greatest importance to Union Gas, the issue of gas vendor consolidated billing. Up front, I will note our views that the Board does not have the jurisdiction as an incident of its rule-making power or otherwise to require gas vendor consolidated billing. Ms. Jackson will address any questions the Board may have with respect to jurisdiction. Union is opposed to the proposal to require distributors to make gas vendor consolidated billing available. Such a rule, if issued, is not supported by Union's customers and would be detrimental to Union's business. My purpose is to illustrate the significant effect with which the gas vendor consolidated billing proposal would have on the distribution system and on Union's customers. The Proposed Rule would fundamentally change the relation between Union Gas and its retail customers as it would end the relationship between many of those customers and Union. Given the current level of direct purchase, it's likely that at least 40 percent of retail customers would cease to have a relationship with Union. They would not receive a bill from Union. They would not have access to a Union customer service representative when they had questions about their bill. Retail customers have always had the assurance that the Board regulates distribution service. The existing regulatory framework ensures there is no abuse of that monopoly position. Under a billing option where the gas vendor bills for both gas and distribution service, retail customers will not be assured that they're paying regulated rates for distribution service. Parties have suggested that the Proposed Rule will enhance customer choice. I question whether at a practical level such a choice would exist. Many agency agreements used by gas vendors operating in the Union franchise area require customers to give vendors the authority to make that decision. Therefore the choice of billing options will not be made by customers but by their gas vendors. In the move to bring gas vendor consolidated billing to the natural gas industry, customers' wishes should be considered. Union Gas has asked its customers what they want and they have said that they do not want gas vendor consolidated bills. Customers are happy with receiving a distributor-consolidated bill. Union has filed this customer preference research together with its comments on this Proposed Rule in the consultation process and in our enabling unbundling proceeding. This research reflects the views of both gas vendor supplied and Union supplied customers in Union's service territory. I urge the Board to consider customers' wishes and not require gas vendor consolidated billing, especially when it is the vendors who will choose the billing option. The importance to Union of billing its retail distribution customers for the distribution service it provides was set out in the evidence that Union filed in support of its enabling unbundling application and has refilled in this consultation process. Union has invested almost $3-billion in natural gas distribution, transmission and storage assets. Union's earnings on and recovery of this investment depend on the continued use of these facilities. We need to be able to effectually promote the use of natural gas to customers. The most effective way to do this is through direct communication with the retail customer. Gas vendors usually sell forms of energy as well and do not have a preference of one form of energy over another. They will focus on selling the energy that makes them the greatest margin and this is entirely appropriate for a gas vendor who doesn't have significant storage, distribution or transmission investments in Ontario. However, it is equally legitimate for Union to use our primary method of communicating with our distribution customers as a vehicle for advancing our commercial interests. Our submissions have addressed the importance to Union of maintaining a connection with our retail distribution customers to cement our franchise arrangements. The risks associated with franchise renewals are not trivial. Union has experienced challenges to the renewal of franchise rights in both Sudbury and the former Pittsburgh Township. The outcome of these franchise challenges could still be affected by court challenges and other municipalities could conceivably seek to terminate franchises upon their expiry. Union cannot afford to become invisible to the retail customer when those customers as voters in the municipalities that we serve will influence the actions of municipal officials. In our submissions, Union identified that its relationship with its retail customers is part of the value inherent in the company. This value has been built up through the provision of valued service over the years. It is neither reasonable nor consistent with the established regulatory and legal principles to deprive Union of that value and give it without compensation to gas vendors. I'm not going to cover all of the reasons identified in our submissions why Union does not support a Rule that requires distributors to facilitate gas vendor consolidated billing. My comments are intended to underscore that the effects identified are sufficiently large and they should not be considered through the limited review that has taken place in the context of a rule-making process. It is important to note that with each of the previous structural changes, the Board held a hearing to examine all the implications of the proposed changes. Any interested party was able to bring forward witnesses and parties and Board Members were able to test that evidence through cross-examination. Only in this way can the Board have confidence that it is making informed decisions based on properly tested evidence and that decisions affecting fundamental economic interests are not taken without due process. While the Board is striving for a broad review of the issues through this consultation process, it is clear that a thorough review of and comprehensive response to the issues will not be accomplished. The Board has already heard that funding provided for this process has precluded the representatives of the retail customer from having meaningful input. Further, parties have not had the opportunity to test the positions and submissions of each other through the consultation that has occurred. For example, Union provided customer preference research but no party has been able to test this research or ask questions to better understand it. Both Enbridge and the Convergence Billing Group have also filed customer preference research. The conflicting interpretations of the results of this research reflected in the comments made during this week's consultation illustrate the need for a hearing to test its validity, interpretation and significance. Equally, Union has had no opportunity to understand, and therefore, to respond, to the countervailing view of the issues, including an apparently countervailing but unexpressed view of jurisdiction which has led the Board to propose retail consolidated billing. Gas vendor consolidated billing still has to be implemented and operated in the Ontario electric industry. In fact, very few jurisdictions have implemented gas vendor consolidated billing. There is even some question where it has been implemented as to whether it has been successful. In Georgia gas vendors were unable to bill and failed. Further, significantly higher customer shutoffs for nonpayment had been experienced. Significant concerns have been raised in this process as to the consequences of the Proposed Rule for competition, consumer protection and the cost to consumers. The implementation issues that would need to be addressed have not been canvassed to assure that the gas vendor consolidated billing could be achieved without disruption to customer service or the businesses of the gas vendors and distributors. Any necessary accompanying changes to the Gas Marketer Code of Conduct or the licensing conditions have not been examined. The Board appears to be contemplating proceeding with gas vendor consolidated billing despite the above uncertainties, perhaps with the comfort that if anything goes wrong, consumers will have a safety net to return to in the form of the distributor system supply. However, the risks associated with providing distributor system supply are increased under gas vendor consolidated billing and the business of system supply is made less attractive to distributors. The Board should not take for granted that distributors will continue to make this safety net available. To summarize, given the substantial policy and jurisdictional issues raised by the proposal for gas vendor consolidated billing, Union considers that if it is to be pursued, it must be reviewed in a full hearing and should not be implemented in a rule-making process. I once again thank the Board for the opportunity to address you on this important issue. I will be happy to answer questions you have concerning my comments following Ms. Jackson. MS. JACKSON: I propose to just briefly, I hope, to deal with a couple of observations that I take it to have been made, more I think in material that's been filed with you during the course of this week. And it appears to be a sort of differing with Union's assessment of jurisdiction in a way that I thought might be useful to revisit. It seems that the brunt of the argument that has been presented on jurisdiction, as I understand it, is that Union is wrong in analyzing retail consolidated billing -- or pardon me, gas vendor consolidated billing (I will probably continue to make that mistake) as a gas wholesale service, and the underpinning as I understand it of that position is that distribution for gas purposes is exactly the same as distribution for electric purposes and it is merely, or not merely but it is the physical delivery of the gas; in other words, if you operate the system that delivers the gas you're the distributor. Now the Board will be aware that in coming to the jurisdictional conclusion that it has, Union has focused on the difference in the definitions of gas and electricity distribution and they are, in those respects, in my submission materially different. Gas, unlike for electricity, distribution of gas is the provision of a delivery service to the consumer. Unlike electricity, it is not the ownership or the operation of the system. In other words, for electricity, you deliver the gas by operating the system that effects the physical delivery; in electricity, you deliver the service to the consumer. They are different definitions. I think we must start with the assumption that the legislature intended them to have different impacts. It has been suggested that Union's jurisdictional analysis therefore is that the Board does have jurisdiction to impose gas vendor on retail consolidated billing in the electric industry and not in gas. Frankly, we have not done the analysis with respect to electricity and we understand that the question of jurisdiction was not markedly controversial when the Retail Settlement Code was put in place. But what we have done is focus on what the difference means with respect to gas in our jurisdictional analysis. Now, it has been suggested at least by one and perhaps by two parties, that the reason for the difference can be pointed to the fact that in electricity on the distribution system electricity goes both ways: to consumers and from producers. And it is suggested that doesn't happen on a gas system. It was not clear to me at least from what I heard or read why that would lead to this different definition, but it's also factually inaccurate to say that that doesn't happen on a gas system. Union Gas does have gas producers within its franchise area. It does collect gas on its distribution system from producers in addition to delivering it to consumers. And therefore from our perspective we come to the view these are different definitions and they yield different consequences. For the gas world, a distributor of gas provides the delivery, provides the delivery service of course for payment. It's a contract for service. Now the contract is of course subject to regulation, but it is indeed the very -- the contract for the service, the payment, that is the focus on the regulation. And the act, in my submission, in looking at that contract and what it is and how it works, does not and could not in the absence of express language, as you've heard earlier in another context, change the common law of agency and the common law of contract. And the common law of agency and contract says: If I have a distributor here and a consumer there, even if the distributor appoints an agent or the consumer appoints an agent, the distributor looks to the consumer for the obligation and vice-versa. The agency relationship in between does not change the fact that the consumer looks to the distributor for delivery and the distributor looks to the consumer for payment. And if the consumer doesn't pay, the distributor has its rights against the consumer as a matter of common law, with collection, recovery, lawsuit ultimately, and subject to regulatory constraints, cutting off the customer. And that's the way that it traditionally works and that is, of course consistent with the legislative framework that says the contract for delivery of service is between the distributor and the consumer. When we get, though, to the GDAR, the proposed Rule, as you will have seen from our submission, we draw clearly that the obligations, I'm focusing for now on the payment obligation which of course the distributor used to look to the consumer for. If you have got a gas vendor consolidated bill, the distributor is to look to the gas vendor for all of those obligations. The gas vendor puts up the security. The gas vendor pays. The gas vendor, but not the consumer, will in effect be cut off if that payment is not forthcoming. So in respect of the obligations to the distributor, when there is gas vendor billing, they all end at the gas vendor level and they are independent of whether the consumer is paying or not paying the gas vendor. So that to us says quite clearly on basic contractual principles, the contract is now we provide the distribution service to the gas vendor and the obligation for payment are back to the distributor. And it could not be that way if the vendor were merely the agent. So on basic principles of contract and common law agency, the contract has been replaced. We have a contract for service to the vendor who, in the words of the Rule, becomes something that didn't exist under the act and that is a customer for delivery services who is not a consumer. And so once the service goes to the vendor, as long as that gas vendor consolidated billing system is in place, there then must be a second contract between the vendor and the consumer. That is why we arrive at the conclusion that this is a wholesale service, that is a wholesale service with respect that is not contemplated by the act, but it is a new service and it amounts to saying that under that arrangement the delivery of a distribution service to the consumer is from the gas vendor. It's in some ways perhaps not surprising that the Board, if it were to go down this route, would prefer that model to the alternative because the alternative would, it seems to us, be a requirement that the company outsource its billing function to gas vendors. And not only would that be contrary to basic principles of not telling a utility how to manage its business, it would, of course, put at great jeopardy one of the most fundamental ways of earning a reasonable rate of return. If you're going to collect your revenues, you've got to make sure your bills are accurate, timely, get delivered or get followed up on and collected on, and if that fundamental activity that's associated with earning a just and reasonable return is directed to be outsourced to any number of billers or vendors with any number of capacities, of course the cornerstone of the views that the regulator does not tell the utility how to manage its business and cannot deprive it of the opportunity to earn a reasonable rate of return are thwarted. So we're not surprised that the Board didn't want to do it that way because it would be even more problematic. But the result is to stop the obligation at the gas vendor level so that the question of whether the gas vendor does that job very well or not doesn't defeat our ability to earn a reasonable return. When the obligation stops at the gas vendor level, in our submission, you're back to a wholesale service. So I hope that's helpful in explaining why we have taken a different view of these issues than has been described to you by at least two of the parties that have been here this week and we would, of course, be pleased to answer any other questions that might clarify that view. We would also be very pleased to know so that we could respond more specifically to how the Board -- what has led the Board clearly to another conclusion. Thank you. THE PRESIDING MEMBER: Thank you for that presentation. Is there anything else from Union? MS. PEVERETT: No, thank you, Mr. Chairman. THE PRESIDING MEMBER: Okay. Moving to questions, Ms. McKinnon? --- Examination by Board Staff: MS. McKINNON: Q. At the risk of getting bogged down at the outset in some of the legal issues, I think perhaps I'll ask a few clarifying questions of Ms. Jackson first to assist us in understanding and assessing your position on jurisdiction. I heard you say that under the Proposed Rule the vendor becomes the customer for delivery services, and you say that notwithstanding the fact that the delivery of gas is still directly to the consumer. And if you could elaborate it would help me to understand why you say 'the vendor becomes the customer'. And so it doesn't appear that I didn't listen to the other things you said, I know you also said that your assessment of the new contractual relationship is based on your statement that the gas vendor puts up a security, the gas vendor pays, the gas vendor would be cut off if there are problems. And if those are the factors that cause you to come to that conclusion that the vendor is now the customer, that would be helpful to know if those are the factors that would draw you to that. MS. JACKSON: A. It is essentially that. As I say, the concept of delivery as it's defined in the Act is not based on who operates the system and effects physical delivery, unlike electricity. So that fact is paramount. A second paramount fact is that it's impossible to analyze the way the obligations are drawn in the Rule, in my view, and come to any other conclusion than that the vendor ceases being an agent. The vendor is the customer. The contract ends there. There must be a second contract. Q. Is it then also your interpretation of the Proposed Rule that the utility no longer has any contract with the end-user, the consumer? By saying the vendor has become the customer, are you also saying you no longer have a contractual arrangement with the consumer? A. It's hard to see the Rule as effecting any other result in that in the event of non-payment by the consumer, gas still is delivered so long as the vendor is paying. And in the event of non-payment by the vendor, the consumer is still gets its gas delivery service by virtue of being put back on the system. I cannot think and I haven't heard expressed a contractual theory that would lead to any other conclusion than in those circumstances there is a contract between the distributor and the vendor for distribution service and a contract between the vendor and the consumer. I don't know of any other contractual or agency theory that would produce that result. I think that's probably as far as I can go; because, of course, the Rule doesn't say what the contract is. I'm just look at the Rule and saying the consequences of where the obligations lie are to me inconsistent with any other contractual analysis. Q. Do I it take it then that you reject a theory that the contract, the primary contract remains between the utility and consumer for the delivery of gas and the associated distribution services, and the consumer has in effect appointed the marketer as its agent for the purposes of billing for both the services provided by the -- well, the gas costs provided by the marketer and the services provided by the distributor and that's merely an agency relationship? A. If the vendor were an agent, it's I think trite law that the obligations laid out here for vendors would be with the consumer. Q. Is it not possible in your view that the vendor -- A. Let me add, I have some difficulty imagining how a customer can designate an agent to give itself a bill. That's my other problem, but that's a subsidiary issue. Q. Do you accept that there's the prospect that the marketer under the Proposed Rule can effectively be playing more than one role in that there would be a contract essentially as principal as between the consumer and the marketer for some purposes, that the marketer would then be acting as agent for other purposes? Does that satisfy the concern you just mentioned about the role between the marketer and consumer? A. Of all of the relationships that we're talking about, here we're talking about the contract for the delivery of gas on the one hand and the payment on the other. And under this arrangement all of the payment obligations are clearly not with the consumer. They're with the vendor. I'm not sure I can take it any further than that. That's how I get there. Q. All right. Let me ask you this then, accepting for a moment - and you may not - but just for argument's sake, accept this for the moment, that to give marketers or vendors the option of a marketer consolidated billing scheme, that you are dissatisfied on a legal jurisdictional perspective with the Proposed Rule, do you see any what you would consider to be lawful means to put the power into the hands of marketers to be able to bill on effectively what we know to be a consolidated basis? A. I don't under the current Act for the reason that I described earlier because the only other model I could imagine or have seen described is where in effect there's mandatory outsourcing which, for the reasons I've described, I think is equally beyond the jurisdiction of the Board. Q. And by that you're speaking of your argument that the distributor ought to have the right to bill its customers for its services? That's your objection to the mandatory requirement that billing be sent out? A. Otherwise you're saying in effect the distributor has to allow whichever vendor wishes to do so to issue its bills to consumers, but the obligation for payment on this theory remains with the consumers. But the distributors' ability to recover that payment depends upon each one of those vendors doing this job properly. In other words, you've put the recovery of revenue function out of their control which seems to me the most extreme example of the kind of management that a utility -- that this Board and others and courts have said regulators should not impose. Q. Does the fact that section 9 of the Proposed Rule allows a distributor to also seek security directly from a consumer satisfy any of those concerns about taking the recourse for payment out of your hands? A. I don't see it, no. Q. So having the opportunity to get security for payment from the consumer doesn't answer your concerns about having to seek payment solely through the vendor? A. My concern isn't having to seek -- well, I wouldn't have put it that way. I would have put it on the basis that the Rule stops the obligation for payment with the vendor and visits all the consequences of non-payment on the vendor, in my view. Q. Well, you may argue that they're inconsistent, but I guess what I'm trying to suggest and I'd like to know if you agree, is if Rule 9 certainly makes provision for security to be sought by the distributor directly against the consumer so that (a) provides a direct relationship between the distributor and the consumer, and (b) is certainly intended - you may disagree that it affects this but it's certainly intended - to the provide the distributor with some recourse directly as against the consumer? A. I'm not sure -- you better tell me what specific -- Q. Sure. It's section 9.3.1 which provides that: 'A distributor may require any of the following to enter into security arrangements and that includes both customers and gas vendors.' A. First of all, customers of course is not just consumers under this Rule, but I don't think it avoids the issue as I read the interplay of all of these rules, in the gas vendor consolidated situation, the question of what you can do or not do in terms of continuing to supply gas depends on what the gas vendor is doing with respect to payment. And if the consumer is not paying but the gas vendor is, you keep supplying the gas. So I'm not sure how the security from the consumer enters into that question. Q. Because from your perspective, so long as your bills are getting paid, you're not going to go behind where the money is coming from? A. Under this Rule -- that's not the regime under this Rule as we understand it. Q. Sorry, I understood you to be saying that was the fact, that if the consumer stopped paying but the vendor continued paying, you would continue to flow the gas, and I take it that's because so long as your bills are paid you don't care where the money is coming from? A. I haven't considered the question of whether if the money were coming in from the gas vendor, how we would cut the consumer off under this Rule. I'm not sure I see how that would happen but I confess I have not considered the question. Q. And would you agree that the mere fact that the money is coming from the gas vendor by itself is not enough to make the gas vendor the principal in this contractual arrangement as opposed to merely an agent? And I say that because I would think it's appropriate for a party to flow their payments through an agent as opposed to making payment directly. A. The mere fact of money coming from the gas vendor probably by itself, I would agree. I mean let me observe that I don't want to be in any way unhelpful but to the extent these questions are reflective of a theory of what this is that is different than the theory we have put forward to you, we could I think be a lot more helpful to you if you would tell us what that theory is. I just make that observation. Q. Thank you for your assistance. Ms. Peverett, did I pronounce that correctly? MS. PEVERETT: A. You did. Q. One question before I launch into some of my generic questions and I didn't watch when I started. Forgive me, Mr. Chair, I'm now working from a compilation of questions that I prepared from a variety of parties this week, so I'll try to be conscious of the time. Ms. Peverett, one of the things you mentioned in your submission, just earlier, a couple of times was that as a practical matter you believe the billing options available to the consumer will be determined by the vendor, not the consumer. So that effectively marketer consolidated or vendor consolidated billing is not going to give the consumer choice. Can you explain to me why you say that you expect that to be the case? A. Yes, I can. We have seen some of the contracts between customers and gas vendors and within the fine print of the contract, the customer is required to allow the vendor to make the billing choice for them. And I have actually myself seen that in some of the ads that have been published advertising commodity offerings in newspapers. Those have tended to be long-term contract offerings. They're in existence already. Some of them go up to five years. So to the extent that we have 40 per cent of our customers already on contracts which go up to five years, some of which at least and I believe many of which contain this clause, I believe that it will be the vendors in those circumstances who will make the choice of the billing option. Q. Is there the prospect that modifications to the Marketers Code of Conduct could be made which would satisfy you that vendors would be obliged to offer choice to their consumers in the event the Rule as proposed is passed? A. It's possible. Again I'd like to be able to consider what those are to be able to fully answer that, but I think it's possible. This is one to the implementation implications that I think we would have liked to explore more fully in a hearing, but that having been said, it is possible. Q. But if I could paraphrase what I believe your concern to be it is that we might have a rule that mandates the distributor to offer choice, but if the marketers are not obligated to offer choice as well, then the end result is not to give the consumers the choice that was expected. Is that fair? A. I think that's a fair characterization of what I was saying. Q. Let me ask you some questions about the customer information that you have as a result of distributor consolidated billing at present. And you mentioned the fact that the bills are the most effective way for you to promote natural gas to customers, and I also know that from a distributor perspective the bills are currently the way in which you distribute routine safety information. A. They are. Q. So apart from those two things, what are the other uses or purposes of this customer information that you have and use in the context of your billing? A. It's not so much the customer information. It is this is the most effective and the least costly way that we have of communicating directly with our customers. The research that we have shows that an astounding number as compared to other methods, astounding percentage of our customers actually read the bill, even more than -- even more customers read the bill than read the inserts to the bill. And also a lower but equally astonishing number of customers remember what they read. So we've actually done customer research which has told us that customers read it and they remember it. So it is, as I say, the most effective and least expensive way of communicating with customers. With respect to what we would like to communicate, it is the things that you've mentioned. It is, for example, safety, energy efficiency, and also importantly the increased use of -- the increased use of gas in efficient ways. As I know that you know, we have commodity-based rates, so our bottom line is affected within the regulatory lag period by the volumes of gas that go through our system and we do promote increased uses, although efficient, of natural gas. So those are the concerns that we would have in losing that ability to communicate directly with the customer. Q. Can I just clarify one thing. You talked about customers reading the bill more so than the inserts. When you speak of the bill per se, are you merely talking about the amount charged and the volume of gas used or is there more information on a bill than I'm aware of? A. There could be more information actually printed on the bill, so when we look at the bill -- Q. Such as? I just want to understand the distinction you're making when you say people read the bill but not the inserts. What other kind of information are you talking about that they pay attention to on the bill other than, say, what they've got to pay you and the amount of gas they used in a particular month? A. It can be the availability of efficiency programs or it can be safety information, it can be call before you dig, those sorts of short but concise messages can go on the bill. Q. And you said that's in contrast to the inserts. What's the general nature of the inserts then, if the safety information, for instance, is actually part of 'the' bill per se? A. They would tend to be -- well, some of the inserts are rate increase inserts. Some of them are the promotion of fireplaces, for example. And I should just clarify that the reading of inserts is also much higher than the next available method of communication, so it's also effective, very effective but not as effective as the bill. Q. Now, let me ask you this, you have consistently talked about the billing being the most effective means to communicate this information to your customers, but there are clearly other ways in which you could communicate that same information. And I take it to do so is merely - I don't use that word lightly - but is merely a cost issue? A. Cost and effectiveness. As I say the information that goes out in our envelope containing the bill, even the things that are inserted within there are read more frequently than just flyers that go out. So we could mail out information to customers in an envelope which said 'Union Gas'. That would be a cost issue. But also if it doesn't contain a bill, it's less likely to be read. Q. In terms of the importance of things like safety information then, I take it you would expect customers who received a bill from their marketer, if Union had provided a safety insert to go with it, based on what you said you would then expect customers to likely pay attention to that sort of inclusion in a marketer's bill? A. I haven't tested that so I don't know. Q. Now, a fairly general question but it's nonetheless critical to this issue, you have made it clear in your written submissions that there is a value, a good will associated with your ability to bill your customers monthly, and not surprisingly, as you know, the marketers essentially say that it has the same sorts of value to them. How can you reconcile those two? Help us with your views on who ought to have the opportunity then? And the second part of my question is, can you tell me what real harm will come to the distributors in the event the marketers are also given the right to offer marketer consolidated billing and customers can choose that? A. I'll try and remember both pieces of the question. I think the response to the first is we would like to make available the option of a split bill or a dual bill. In other words, the marketers are perfectly free to bill for their services and to bill their value through the billing of their services. We would just like to be able to continue to bill for our services and preserve the value of our bill. So that's how I reconcile the two is that the option does exist for each one of us to bill independently. Q. Can I ask you a question on that before you come to the second part? Others have spoken of the inefficiencies and the potential added cost of split billing. What are your comments on that if split billing is your solution to reconcile the perspectives of marketers and distributors? If split billing then becomes the preferable option to accommodate those two parties but there's an added cost to consumers? Let me throw that into the pot and see how you reconcile that as a third element. A. I won't do this full justice, but I can imagine there will be a number of cost consequences on the utility if we remove ourselves from billing, so we spoke about the need still to communicate with customers. There will a cost to communicating with customers. Whether it will be a monthly communication so the cost would equally offset, I can't tell you. Also we will still have to maintain a lot of the infrastructure that we have, so our infrastructure doesn't go away and it's not infinitely variable so we'll have a core of fixed costs which we'll be required to maintain. So I don't believe that the savings that we would see would be offset by their cost increases. Q. All right. And the second part of my original lengthy question was, can you give me some specifics as to the nature of the harm that you expect marketer consolidated billing would cause to your regulated business? A. I think I would just be repeating our evidence, but some of the examples that we've offered are -- they stem from the communication that we lose with customers and the value of that communication. So it goes to the renewal of municipal franchises. It goes to communicating with customers on new energy -- new uses of natural gas. And it goes to the value inherent in just the good will value that's inherent in that billing relationship. Q. Thank you. I have a few questions that more generally relate to the provisions of section 6 -- sorry, did you want to add something? A. I'm sorry, I wanted to go back to another question because I don't believe I did it justice. You were asking me whether or not things that were included in a marketer's bill would be equally as effective -- communications included in a marketer's bill. And I just remembered a piece of research that we had done that said that the more things that you put into a bill, the less effective any one of them is. And so one of our concerns with putting our information in a marketer's bill is I expect that the marketer's bill would contain a lot of marketing stuff which people then tend to bundle together and dispose of without having read any of it. Our research shows us that the stuff that comes in our bill, which is less often of a marketing nature, is read more often. So that would be just what I would add to that. And I guess the second thing I would add, when you were speaking about the harm that comes to Union of having lost its bill and the good will value, I just want to make the point - I'm sure it's apparent - that Westcoast as the shareholder of Union has actually paid for that good will when they bought Union Gas and it's not included in our rate base. So it sits on Westcoast's book as a shareholder cost and has been amortized over the years into Westcoast's costs. It hasn't been recovered in rate. Q. On some of the issues that arise from Section 6 of the proposed GDAR, and that's the provision that provides for service transaction requests, one of the concerns that was expressed earlier in the week by marketers who were making submissions on this oral consolidation was that the effect of that rule will be to allow a mobility by consumers that has not previously existed because the distributor have de facto been acting as police or enforcers of contracts between consumers and marketers. And a concern was expressed that if Section 6 is implemented it will cause some uncertainty in the customer base of established marketers, and that will then cause suppliers of gas to acquire additional security or potentially onerous security from those marketers to continue supplying them with gas. Now, I give you all that by way of lengthy background and recognizing, of course, you're involvement in the industry purchasing gas and dealing with suppliers; do you have any comment on that concern that the provisions of Section 6 might undermine the stability of the market such that gas suppliers could reasonably be expected to compel additional and potentially onerous security from marketers in order to purchase gas? MS. PEVERETT: A. I think what I can offer that would be helpful is my view that Union Gas manages its portfolio supply, which is large today, using a mixture of contracts, and we use a mixture length. Simply we're never sure how many customers we're going to have at any point in time. So we -- because we have a large number of customers, we can have long-termed fixed contracts and we can have hedges because we are fairly certain that for the foreseeable future, let's say it's the year in which we're purchasing, those customers or that volume will be required. We then buy an amount which is just monthly gas because we're less certain that we're going to need that gas. And we buy a bunch of gas on the spot because we absolutely don't know that we're going to need it. I would imagine that a marketer, if they're circumstances were similar, might face the similar requirements in terms of portfolio. Q. I suppose the added fact that potentially differentiates your experience is this: The marketers raising these concerns are marketers who are typically offering long-term fixed priced contracts which of course is not consistent with at least most of your business, not with residential consumers as I understand it anyway -- A. Without understanding the relevance of the distinction, that is a distinction. Q. In your view, is that a relevant distinction when it comes to procuring gas supply, if you wanted to be in a position to offer long-term fixed price contracts? MR. REGHELINI: A. I think we need to be clear that when we talk about long-term contracts in our gas supply portfolio the long term contract is in excess of one year, slightly in excess of one year. So we don't have fixed priced contracts in our portfolio that run out for five years if that is what the marketer is trying to accomplish by backing up his contract with his customers and fixed price supply. Q. Thank you. Again with respect to Section 6 there is a requirement that if a consumer submits -- if a consumer wishes to change marketers, and the distributor is then processing the STR, the distributor has an obligation to notify the new marketer of the request. Is it your view that there is any benefit to an obligation that the distributor either also notify the old marketer or notify the old marketer as a priority? MS. PEVERETT: A. Do you mean any benefits to Union Gas or any benefits to the industry or to the old marketer? Q. Well, I guess to the industry, so that would capture all of your individual parts, but the specific concern is that the old marketer ought to have an earlier opportunity to be aware of a consumer's intended switch, so they might have some chance to persuade that consumer not to switch; that's the genesis of that -- A. I could certainly see if I were that marketer, I would want the earliest possible notification. Q. Right. And from an industry perspective, do you see merit to an added requirement or an alternative requirement that would see the distributor notifying both of the marketers or alternatively the old marketer first? A. Honestly not. I think all it does is speed up -- it may speed up by several days the process. I think, frankly, the process -- I hope the process will run smoothly, but I can see times when that process is going to be iterative and strung out and cause a lot of people to do a lot of work. Q. Now, there's a term that I learned for the first time in a gas context this week and that's "slamming". It's a term that I expect you would be familiar with. It's used by other parties to talk about the practices alleged by some marketers of signing up consumers without giving them adequate information as to the nature of the contract they're entering into. Is that something you're familiar with? A. I have heard the term and vaguely understand it. Your definition was helpful. Q. Thank you. Do you have any views whether the current provisions of Section 6 of the proposed GDAR may provide any protections or deterrence against slamming in the industry? MR. REGHELINI: A. I think that the proposed GDAR, because of the notification requirement that it has, is intended to provide an opportunity for the incumbent marketer to contact the customer to ensure that the customer is not being slammed. I guess the general thrust of our comments on all of the STR provisions were really around the more steps and notifications you put into the system, the more difficult or the more time consuming it will be to process the STR. So that our point and our submissions are really about trying to streamline the process to have the minimum number of notifications and still accomplish the objective, and to get the distributor out of the role of policing the contracts between consumers and marketers. Q. Moving on to another area, there has also been concern expressed regarding the security arrangement provisions; that there is potential for duplicate security being required from a customer given that the distributor may require security from the customer, as may the gas vendor. And would you consider a provision helpful for instance that would require the distributor to immediately release security in the effect a system gas customer indicated their intention to move to a marketer, or some other provision that might reduce or eliminate the possibility of consumers being required to post duplicate security? A. I think this is impacted somewhat depending on whether you presume you're in a marketer-consolidated environment or not. Certainly if customers today are served by a gas vendor under a distributor-consolidated billing arrangement, the distributor still has a need for security from the customer for the distribution charges that the customer will owe them, and in fact for the commodity charges because we're a collection agent for the marketer. If you were in a gas vendor consolidated environment, a gas vendor consolidated billing environment, I guess we didn't interrupt this to mean that the distributor would require security from the end-use consumer because we were interrupting this to be a wholesale relationship between the marketer and the distributor and therefore there would be no opportunity for duplicate security, because we would not have a customer relationship with the end-use consumer. I think that goes back to some of the comments Ms. Jackson made as to why we think it's problematic in terms of who's got the contractual relationship and how that determines whether it's a wholesale billing relationship or whether it's -- sorry, a wholesale-distributor relationship or a retail-distributor relationship. Q. Let me ask you this then. Setting aside just for argument sake your concerns about the contractual relationship, do I take it that you would agree that provisions which would limit duplicate security from a consumer would be reasonable? A. I think that's fair. Our intent is to obtain security for the exposures that the distributor faces and nothing more than that. Q. But I take it from what you've said today that your current thinking is that all security would then come from the marketer in a direct purchase context, not a system gas contexts? A. No, in a gas vendor consolidated-billing context. Q. Right. Fair enough. All right, Mr. Chair, I have a just few more questions in just a couple of areas if I may. Another issue that has been raised with other parties making submissions is associated with the potential -- this is going back to Section 6 just for a moment -- the potential for Section 6 in that it now provides for distributors' obligation to process a customer's request to change marketers. There has been a concern expressed by some established marketers that this would result in a number of breach of contract arrangements, including, it is there assertion, breach of contract between the distributor and the marketer. Now, again, from a contractual relationship perspective, do you have any views whether in circumstances where a consumer decides to break their contract for gas with the marketer, when they notify the distributor of that choice, do you have any view whether that in fact causes a breach of any contractual relationship between the distributor and the marketer? And I know this may be putting you on the spot. MS. JACKSON: A. Well, we had a brief discussion about this before we came in, trying to understand what the argument was and on what contractual documents it was founded. And I think I could say this much; in view of what I take to be the typical relationship, namely that in respect of this supply of gas, the vendor is the consumer's agent. And then the consumer says directly to the distributor the contract is over, I don't see there being -- if the suggestion is by processing that request the director is in breach of a contract, I don't see, but I haven't had a chance to examine all the contracts on which that argument was based. Q. Fair enough. Thank you. A. I'm not sure I can take it any further than that. Q. Nope. That's helpful as it is. Let me take it one step further. Notwithstanding your answer to that, one of the questions I have posed to most of the other parties, as a potential means to address the concern of those who think there may be breaches of contract by this consumer direction to switch, there is language contained in the Retail Settlement Code which is as follows -- it's just one sentence so I'll just read it to you, and it refers to Section 10 of the Retail Settlement Code which deals with service transaction requests in that code. And the language is, "Nothing in Section 10.5 to 10.5.5 should be interpreted as in any way interfering with the contractual rights or obligations of retailers or consumers for the remedies available to retailers or consumers to enforce those contractual rights or obligations." Do you have any views if there is merit to the concerns of those parties about the potential for breach of contract about the usefulness of inserting a clause similar to this to make it clear that Section 6 is not intended to compel a breach of a contract? A. As I -- and I may not have fully understood what some of the earlier presenters this week were saying, but I took them to be suggesting two potential breaches of contract, one by the consumer. And I may have over reacted. I took them to be suggesting there was potentially a breach of contract by the distributor. Q. That was the suggestion? A. And the latter suggestion causes me concern, and I don't understand it. And since I don't understand it, I'm not sure that I would be comforted by a rule saying whatever it is you're not -- if you comply with this rule, whatever the force of this argument is you're stuck with it. I don't understand the breach of contract argument, and I don't think the rule provision that you were suggesting would assist if there were such an issue, but I don't understand what they say the issue is. But I wouldn't have that the intention of the rule was to alter the laws of contract as you've heard me say. Q. Moving on to an issue related to the emergency supply provision, I suspect you may be familiar with the submissions by IGUA relating to both the definition of emergency and a proposed addition to what the claimed purchase price would include. Do you recall those or should I turn them up? MR. REGHELINI: A. I've read those. Q. It's just a general question. You may recall that in the current rule there are two components to the claimed purchase price, and IGUA has recommended that there be an added element which would incorporate any upstream transportation costs incurred by a party who had contracted for their own gas supply. Do you have any difficulty with that proposal? A. I think generally what IGUA had proposed was very similar to the alternate proposal that Union had submitted in its submission where we said that it should include the landed cost of gas at the distributor. The only difference between what we proposed is we had another piece which was intended to protect the customer, and that was any demand charges owing on the distributor system should also be recoverable by the customer as the gas was reallocated and they didn't receive the distribution service. Q. Mr. Chair, if I just might have a moment to consult to see whether any remaining questions may be sacrificed or whether I might have a couple more. [The Panel confers] MS. MCKINNON: Thank you, Mr. Chair. Those are all my questions. THE PRESIDING MEMBER: Thank you, Ms. McKinnon. Any questions? MS. HALLADAY: I just have a couple of questions; more than two. So if you'll bear with me. --- Examination by the Board: I would like first to talk about process, because I'm very concerned about process. And the first question I've got is, is I understand that Union has been involved in this process of the rulemaking for a number of years; is that correct? MS. PEVERETT: A. Yes, we have. Q. So you've been involved in the process from the very beginning when you were trying to set up this rule. And when you first became engaged in the process and the prospect of retailer-consolidated billing first reared its ugly head, was the issue of the Board's jurisdiction to order this? Was this ever addressed in any of the task force meetings or any processes along the way? A. I think our understanding and our position on this has evolved over the time that we've been involved in the discussions. And it was probably in early 2000 where we started to realize the full implication of vendor consolidated billing on Union Gas and became quite concerned about it. And in becoming concerned, therefore, looked at the jurisdictional question. So from the very outset, no, but for the last year and a half we have been concerned about it. Q. As far as the process is concerned, to be honest with you I was quite surprised to find the gas utilities claiming that they wanted to have full generic hearings with rights to cross-examine of witnesses because we're usually hearing that they don't and that they want to streamline the process, and we have a hearing review processing committee and have been making various efforts to do it. Can you help me understand why on this particular issue that a generic hearing is so important where on other issues the utilities have been wanting to streamline the process? A. I think the -- certainly we, as you know, are very supportive of streamline processes, in particular where it becomes clear that the parties involved are in agreement and therefore we don't need all of the time that a hearing -- and costs -- that a hearing can consume. However when we have an instance where we have a significant change contemplated -- that would be in my opinion at least -- and significant disagreement between the parties, I think it's been our experience and certainly our opinion in this particular instance that you should go to a hearing. We ran across this same issue in our PBR where we tried for well over a year to just get a settlement and eventually realized longer -- further down the road than we would have liked that we were not going to get a settlement and had to go to a hearing. And in the end I think when you realize that you're not going to get a settlement it makes sense to go to a hearing. I think what we've also seen today is the advantage of a hearing in that, especially in areas which are complicated and controversial, it helps for all the parties to be able to understand what each other are saying and also test what each are saying where you've conflicting thoughts or interpretations of words which one party may think is clear. Q. I understand the issue about testing the evidence and you haven't had the ability to test the evidence. Other than the ability to test the evidence, is there anything else that's been lacking in this evidence? You've had the opportunity to submit evidence, had the opportunity to forward legal arguments, had the opportunity to respond to other people's arguments. MS. JACKSON: A. Can I come back first -- on the testing of evidence, part of this has to do with the way things have come forward, so by way of example I take it that the impact of this proposal, particularly gas vendor consolidated billing on the issue of competition, is a lively issue of concern for the Board, and we have a file from Professor Schmidt suggesting there is a couple of issues that the Board might want to explore further before becoming confident that this was going to promote competition rather than the reverse. This week we saw Professor Trebilcock's rather lengthy response, which comes a little closer but isn't as elaborate as one would expect with respect to evidence. Frankly, we didn't know -- we have just not been able to deal with that, except I can tell you we sent it to Professor Schmidt, and not surprisingly in many respects he has a different view as to the implications for competition of this proposal. And we as well read Professor Trebilcock as taking a different view about costs and so on than is Union's experience. We have no way in this process of dealing with that in any fashion. And I guess that comes back to the difference between this process and the hearing process that the Board's rules set out, which -- I mean all the things in the Board's rules for a hearing are directed to a more orderly and informed exploration of issues than can possibly occur without a hearing, and they would include the ability of people to be involved at a level that enables meaningful participation, and I have in mind CAC and VECC and so on who have come to present, but not with the opportunity to know what they're doing and to prepare in the way that they would if they were funded participants in a hearing. Proposals and issues like Professor Trebilcock's have emerged over the course of the hearing rather than being set out. Whatever people are saying is a mixture of positions, rhetoric and what might be evidence but none of it is under oath. All of the interrogatory processes that are useful to explore what the issues really are and do that before we come before you are missing. And then once we all know what the issues are and what the evidence is and to have tested it, to come back and give you argument, for example, on jurisdiction, knowing what the countervailing theory is. But the cross-examination, there's no doubt it's an important part, but for all the reasons that the Board's hearing process is not just based on cross-examination. All those other things are missing. Q. I appreciate that too. Ms. Jackson, I guess this question is directed to you. The Board is promulgating this Rule under section 44 of the Act. That is for the jurisdiction that we're claiming we have. Within the scope of section 44, assuming that we have jurisdiction under section 44 to promulgate this rule, is there anything in the process that has been done improperly, following the steps laid out in section 44? A. Well, I think the Board has followed the steps laid out for the rule-making power. Q. So if it's a proper rule and if we have the proper rule-making power, we have followed the proper procedural steps under section 44? A. I don't want to try and duck the question. There's no doubt as I read it the rule-making procedure has been followed. The question of the results of that and the implications I think for the jurisdictional reasons we've indicated and also as a sort of fundamental matters of administrative law have led to conclusions that are outside the jurisdiction. But I certainly think the Board has done what section 44 requires, which I think is your question. Q. That was my question. It's just a procedural question. We have done what's required in section, Rule 44? A. I think that's -- I mean I will double check. I haven't specifically turned my mind to that question and if there's any caveat on that, I'll give it to you but I don't think there is a problem. Q. We certainly appreciate that. And Rule 44 does contemplate that there may be matters of policy that the Board can deal with by its rule-making jurisdiction. Is that fair to say? A. Yes. Q. Okay. And those rules of policy may deal with items of the type of evidence that we've had before without the necessity of a full hearing of cross-examination under Rule 44, assuming we've got jurisdiction? A. I think it's clear that section 44 doesn't require a full hearing. Q. Okay. That's fine. Thank you. My next question, and I apologize because I know more about the Enbridge Consumers Gas side of the rate-making than I do the Union, although I do know something about the Union franchise issues and some issues with respect to facilities. So my analysis may be more with respect to Enbridge than with Union, so I do apologize. There are a variety of unbundling issues before the Board, including the Union unbundling application. There's the enabling unbundling application. There is Enbridge's Phase 2 of RP-1999-0001, and there is this GDAR. And it is a certain matter of a chicken and egg scenario which we don't want to go into too deeply as we did the other day. But how does the Board try to deal with issues that -- for example, would Union propose that we just join rates cases on dealing with unbundling for Union and Enbridge together? We've tried to do the policy matters that we thought were in common, not only for the rate-regulated utilities, but for the other regulated utilities such as Kingston and Kitchener, in one process for administrative efficiency and giving everyone the opportunity to be heard and trying to be fair in listening to everyone's opinions. Do you have any views on how the Board should have done this? MS. PEVERETT: I can speak for Union's. Unfortunately I will have trouble folding in the Enbridge experience. But where we are in unbundling is we have before the Board an application on unbundling Union's system. It was largely settled. There are only one or two items with respect to the unbundling portion that the Board has to decide on. And I don't believe that those will be affected in large measure by what is proposed by the Distribution Access Rules. I think those two have been successfully divided. And the second application that we have in front of the Board is called enabling unbundling. I view it as two primary issues. One is the construction of an information technology system required to effect what has been -- what is already in front of the Board on the unbundling application. The second part slides into what we have in front of us here because within the enabling unbundling application, Union presented also its views around billing in particular. So it is only on the billing issue where we have an overlap between one outstanding application for Union and the Gas Distribution Access Rules. Q. That's the way I understood it. Now, I also understand in the enabling unbundling application it is either assumed or requested that there will not be market -- sorry, gas vendor consolidated billing. I always want to say retailer consolidated billing too, Ms. Jackson. So there will not be gas vendor consolidated billing. Is that correct. MR. REGHELINI: A. The enabling unbundling application is about enabling the unbundled services which Union proposed in RP-99-0017 and which have been accepted in the ADR Agreement from that preceding. Those unbundled services were for unbundled storage essentially and unbundled upstream transportation. They were not unbundled -- it had nothing to do with billing. So to the extent that the enabling unbundling application deals with the systems that we want to put in place, it deals with that aspect. We were explaining -- the other part of the application explains why Union is not coming forward and proposing to provide gas vendor consolidated billing. And it also includes a proposal to provide what has been termed split billing in this proceeding. Q. Do you do split billing right now? A. We do have some marketers that serve industrial-type loads that bill directly for themselves, but we don't have the systems that could deal with that for the small volume market, and that's why we've included requests around that in our enabling unbundling application. Q. Thank you. Can you help me, is your billing function outsourced to an affiliate? I know Enbridge's is. And I assumed that yours was as well. MS. PEVERETT: A. We have a portion of our total billing process which is supplied by -- rather a function is performed by a company called Enlogic but we have not outsourced billing and collection. That is still Union Gas's responsibility and we still have billing centres and call centres and collection centres. Q. I appreciate that. Now, I guess, Ms. Jackson, this question is to you. The Rule deals with a billing function. Is it possible that the Rule can deal with a function of billing, i.e. who renders the bill, but it does not, as far as I read the Rule, deal with the legal relationships among the parties. Is it possible in your view to say that someone shall bill, i.e. render the bill or prepare the bill or send the bill, without in fact affecting the legal relationships and the legal obligations of who had the contracts and who has the obligation to pay the underlying debt that's evidenced by the bill? MS. JACKSON: A. The only way that I can think of that you could do that without affecting the legal relationships is by directing -- is the second model I talked about, directing Union to have its billing done by others, but keeping the payment obligations as they currently are, in other words, mandatory outsourcing and the outsourcing would be the gas vendors. So I think you could -- the question of whether that model would change the legal relationship between the consumer who would remain responsible for payment to the distributor and the distributor would remain responsible, I don't think it would. The problems with it are otherwise. They have to do with the fact that it would make absolutely impossible the effective collection of revenue. Q. Okay. I'm not necessarily sure that I agree with you that it would be absolutely impossible. But I guess where I'm heading for is that the whole issue of billing as a function and billing as a separate function and the contestability of billing as a separate function is an issue that's been brought up before the Board, that billing is something that's separate, that you can separate out, that has been separated out to affiliates for other companies, maybe not totally for yours. And therefore the requirement in the rule to allow it under certain circumstances, a contestable function that's not necessarily part of the core business, that doesn't affect the nature of the legal relationship between the distributor and the customer, I was wondering if you would like to comment on that? A. I'm not sure that I -- I'll try to be helpful. I'm not sure that I've entirely understood the question. You can outsource a function which is I take it what has been done in other instances, and still have it effectively performed. The question I guess is the requirement that it be outsourced in effect to whoever wants to do it, the question -- there's two aspects of it that make it problematic in this case. I think it's the mandatory outsourcing of a function that is clearly central to the business, and the mandatory outsourcing not just to some entity, but in effect to any vendor who wants to do it. And if you do that without trying to affect the legal relationship, in other words the distributor must still look to the consumer for payment, in order to get the payment, the distributor has to be able to demonstrate and to know that the bill has been properly prepared, accurately prepared, sent in a timely fashion, delivered, received. And then I'm not sure whether the outsourcing function includes the collection, in which case the collection has to be adequately performed. Q. Ms. Jackson, it's not just to any vendor who happens to walk along the street. These vendors have got to be licensed by the Board and subject to rules of conduct by the Board. Can you think of any provisions that might be added to the Gas Marketers Code of Conduct to be able to help alleviate the gas distributors' concerns with respect to their ability to properly perform these functions? MS. PEVERETT: A. I was sitting back because I thought the two of you might be involved in a legal discussion, but I gather we're into a performance discussion now, so I might be helpful. The distinction I would draw between what Enbridge has done - at the risk of wading into their -- a submission they should be making to you-- Q. I appreciate that. A. --is that while they have an affiliate who is sending out the bill on their behalf, so they have outsourced, the bill that goes out is identified as an Enbridge Consumers bill. It contains the Enbridge Consumers brand. It contains the Enbridge Consumers information that they would like to send to their customers. And it is in every way continuing the brand equity that exists with the customer. As I see -- how I would contrast that with the proposed vendor consolidated billing is that would be a gas vendor envelope, a gas vendor bill, their material in the envelope. The Union Gas brand or the Enbridge brand would be either gone or significantly distanced. So I share all of the performance issues that were discussed but I also wanted to bring back to your attention the real issue for us which is the loss of communication, the loss of visibility and the loss of the brand equity with the customer. Q. Thank you. As you'll appreciate, the whole issue of branding and brand equity in the relationship with the customer has been canvassed in the HVAC complaint on the Affiliate Relationships Code, so we're aware that that is an issue. There is an argument that in fact we do have consolidated billing now. There's two issues. One is that we do have distributor consolidated billing, so your argument about the forced outsourcing is now equally applicable on the flip side for the gas vendor who is billing through, unless it's a split bill that everyone seems to think except for the industrial customers no one wants, so it then becomes a question of which entity, the distributor or the vendor, is going to bill; the argument now is that that's forced the other way, that the gas vendor is forced to use the distributor's billing and that in fact their relationship with the customer is undermined. Now, the other argument, of course, is the fact that people don't know who they're dealing with because they get the bill from "the gas company", but I'm wondering if you have any comments on that. MR. REGHELINI: A. I think you have to look at the history of how distributor consolidated billing came to be in Ontario and it was at a time when competition was just being introduced in the sale of the commodity and the billing system was a significant barrier to entry for marketers, so it was brought forward as a solution that the utilities -- the distributors agreed to provide this non-utility service so that the competitive market could essentially get started. And in our enabling unbundling proceeding, we have proposed to make available split billing so that marketers do indeed have a choice and are not forced to take the distributor consolidated bill from Union, but have the option if they want to do their own billing, they can go do their own billing. MS. PEVERETT: A. I would just add one thought, just to pick up on the comment you made that nobody wants the split billing. Our customer research shows that one-third of customers when asked to choose between split billing, gas vendor consolidated billing -- I'm sorry, just choose between just those two options, one-third of them chose split billing, one-third chose gas vendor consolidated billing and one third didn't know. So we have evidence at least that suggests that people are equally happy with gas vendor consolidated billing as they are with two bills. Q. I think that we can all agree, and Ms. Jackson will no doubt agree with me, that the survey evidence presented in this oral presentation is all over the map, shall we say, and the arguments as far as what questions were asked and whether they were properly asked has been an issue that all sides have raised which in my mind questions the validity of any of the survey evidence that we've had. But that's neither here nor there. Just a couple more questions. Sorry. When you transferred out your hot water rental heaters to Union Energy, was any good will paid on that transfer? MR. REGHELINI: A. The hot water heaters were transferred out at net book value. Q. So there was not good will? A. There was some study that was done as to what the market value was and it was very similar to the net book value. Q. That's fair enough. The argument has been raised earlier today that, in fact, that is a transfer or an expropriation by the affiliate of the good will attached to the customer list of the hot water heater rental customer base. Would you care to comment on that? MS. PEVERETT: Excuse us for one moment. [The Witness Panel confers] MS. McKINNON: Mr. Chair, while they're consulting, if you would permit me, there is one brief question which I have asked of all other parties relating to the timing to implement the billing options. If you agree that's useful, I would ask that at whatever point it's convenient. THE PRESIDING MEMBER: Okay. MS. PEVERETT: A. I think we're arriving at the conclusion that the transfer of the good will with the retail services business is consistent with the notion that it is the shareholder that owns that good will. MS. JACKSON: A. And there was an earlier reference to the fact that when Westcoast bought the business, it pays a premium. MS. HALLADAY: Q. No, I understand that. I guess the problem is that the whole issue about the customer lists and the value of the customer list, and unfortunately I don't live in a Union franchise area so I can only comment on the Enbridge side, but I'm a customer of Enbridge Gas, as a system customer, not because I chose it but it was default and I have no other choice but to use it for the distribution service as a customer and therefore the whole question about whose value is it of that value customer list and should any value of that list itself be apportioned, whether it's to the utility itself or to its shareholder. The argument obviously is, is that the value of that is inherent in the regulated utility and it's not necessarily a value that automatically sort of flows up to the shareholder to be able to use under any circumstances the shareholder wants. That's one reason why we have confidentiality obligations in affiliate codes and that sort of thing. But that was another question. Another question, sorry, just to tidy up a few things. NRG in their submissions mentioned a number of issues with respect to being embedded distributor, and particular concerns with respect to emergencies. I'm not sure if you've had a chance to follow the transcripts. MR. REGHELINI: A. Yes, I've read it. Q. And do you have any comments or concerns about their problems as far as supply allocation being an embedded distributor during emergencies? A. Well, as I look at the Rule as it's drafted, it requires the distributor to consider the nature of the customers, the firm service customers that it's considering curtailing, and there's a priority that needs to be established. So knowing the type of customers that NRG has behind them, being an embedded distributor, that's something that Union would have to consider in acting in an emergency. So I'm not entirely sure that an exemption is necessary to ensure that NRG is protected in the event of an emergency. Q. So you would see that the intent would be for in the event of emergency that Union would allocate gas along the NRG system sufficient for NRG to meet its own emergency obligations to schools and hospitals and things like that? A. Essentially what we would be looking for are what are defined as the nonessential firm customers and looking to those first, of course, after we had gone through all the other remedies that we would have had to avoid calling an emergency in the first place. Q. I appreciate that. Just to follow up on a couple of minor things. Ms. Peverett, you talked about Georgia and I guess one of the things that we've looked at when we've looked at various codes is that we're concerned that one size doesn't necessarily fit all. Would it be fair to say that Georgia's experience with respect to retailer consolidated billing is different because, of course, they don't have distributor consolidated billing in Georgia? MS. PEVERETT: A. I would suggest there's probably a number of ways that they differ, and I would agree that a one-size -fits-all approach to this kind of an issue would not be the most appropriate way to go. Q. Okay. Thank you. My last question, and it is my last, Mr. Chair, for which you'll be grateful, is, Ms. Peverett, you made the statement and I may not have written it down correctly, but it did concern me when you made it and it was to the effect that we should not take for granted the standard system supply. And I guess I would like -- I'm not sure if that was a statement or a threat or obviously the Board is very concerned about the reliability of a standard system supply. Would like to comment on that? A. I would like to first say that it was not in any way intended to be a threat. Q. I appreciate that. A. But what I was hoping to express to the Board is the fact that today Union Gas operates as a supplier of last resort, if you will. When a vendor fails, customers are returned to us. We buy the gas for the customers and take them back on the system. It is my understanding of the Act that our responsibility is to distribute, and we have an obligation to distribute, but that the obligation to supply is not there anymore and that was a recent change. So I believe we have open to us a consideration of no longer being in the gas supply business, subject to all of the people that we would have to speak to about making that decision. And certainly as time goes on and the circumstances change, we continue to look at that question. For example, as you know or as the Panel knows, this is an area of the business in which we don't make any money. So we buy the gas and we pass it through and we provide the call centre service to customers, et cetera. If we got to a point where we had sufficiently few customers of our own, we would be concerned that the fixed costs that we incurred to keep that system in place, both for the few customers that we had remaining and for the customers who might one day be returned to us, could be disproportionately large and we would face a regulatory risk of non-recovery of those assets. So those are some of the reasons why we continue to look at whether or not we need to be in this business - let me correct myself - whether we want to be in this business, and therefore whether or not we should be taking steps to remove ourselves from the business. As I say, it's not a current intention and it was in no way intended to be a threat, but I believe that the option is open to us and so we do consider it MS. HALLADAY: Thank you, Ms. Peverett. THE PRESIDING MEMBER: That concludes the Oral Consultation part of this process. MS. McKINNON: If you don't object. It would be very brief. THE PRESIDING MEMBER: Oh, I'm sorry, Ms. McKinnon had a question. --- Further Examination by Board Staff: MS. McKINNON: I apologize for interrupting out of order but there's one question regarding timing implementation respecting billing options that I've asked all parties involved in potential billing options. It's two-part. First of all, how long would you expect it to take you to be able to implement split billing for all of your customers? And the second part is assuming Section 8 of the GDAR is passed as proposed, how long would you take to be prepared to offer all three options of billing? MR. REGHELINI: A. I think in our enabling unbundling proceeding, we filed our evidence last October with the intent of being able to offer the services within the next calendar year, so I would presume that once that proceeding starts its review, that upon getting a decision, we would be able to implement split billing fairly quickly. I think there was a timeframe of about four or five months to make sure that the systems were completely in place and operational. With respect to retailer consolidated billing, I wouldn't want to speculate on how long it would take us to do that because we'd have to go back, and presuming that it is a wholesale service as our understanding of the Rule is, we would have to design that wholesale service, come forward to the Board and apply for approval of it and get a rate approved for it. Q. Assuming that's not the case for the moment and you're wrong on that and it was merely a case of putting in place systems whereby adequate information had to be provided by the distributors to the marketers so that they could put the complete billing in place in the same way that you now have distributor consolidated billing, how long would that take? A. I'm not aware of how long that would take. I'd have to go back and talk to the people who deal with systems to know. MS. McKINNON: Thank you. Thank you, Mr. Chair, for that indulgence. THE PRESIDING MEMBER: Well, that does indeed bring to a close this Oral Consultation. The Panel has been assisted by the presentations we've heard this week and we thank you for that. We also plan now for the Panel to make a presentation or report to the Board and the Board will authorize or make any changes to the Rule which will then been distributed for further comment. That's the process from here on in. I would like to thank my two colleagues on the Panel, Mr. Birchenough, Ms. Halladay, for their assistance and the Staff consisting of Kathi Litt and Elaine Wong and Lisa Brechendon, and of course, our esteemed counsel, Ms. McKinnon, and thank you for that. With that we are adjourned. --- Whereupon the hearing adjourned at 4:57 p.m. Presentation by HVAC Page 326 Examination by Board Staff Page 348 Examination by The Board Page 352 Presentation by Ontario Page 354 Greenhouse Growers Examination by Board Staff Page 367 Examination by The Board Page 374 Presentation by Energy Page 384 Information Systems Examination by Board Staff Page 393 Examination by The Board Page 398 Presentation by Union Gas Page 404 Examination by Board Staff Page 413 Examination by The Board Page 437 Further Examination by Page 455 Board Staff