Rep: OEB
Doc: 128R7
Rev: 0













ONTARIO ENERGY BOARD

Volume: 1

April 02, 2002


BEFORE:



P. VLAHOS

VICE CHAIR AND PRESIDING MEMBER

S. ZERKER

MEMBER

F. PETERS

MEMBER

A. BIRCHENOUGH

MEMBER



1
HEARING RP-2000-0023

2
IN THE MATTER OF the Ontario Energy Board Act, S.O. 1998, c. 15, Schedule B;

3
AND IN THE MATTER OF an Application by Hyrdo One Networks Inc., for an order or orders approving or fixing just and reasonable rates.


4
APPEARANCES

5

JENNIFER LEA

Board Counsel

MARTIN DAVIES

Board Staff





DON ROGERS

HYDRO ONE NETWORKS INC.

JIM MALENFANT

HYDRO ONE NETWORKS INC.

JIM FISHER

AMPCO

KEN SNELSON

AMPCO

JOHN McGEE

FOCA

COLIN McLORG

TORONTO HYDRO ELECTRIC SYSTEM

IAN MONDROW

HVAC

MICHAEL JANIGAN

VECC

YANNICK VENNES

VECC

ANDREW TAYLOR

POWER BUDD COALITION

JAMES SIDLOFSKY

BLG COALITION

TED COWAN

ONTARIO FEDERATION OF AGRICULTURE

ROGER WHITE

ECMI



6
TABLE OF CONTENTS

7

APPEARANCES:

[16]





PRELIMINARY MATTERS:

[45]





SUBMISSIONS BY MR. ROGERS:

[76]





HYDRO ONE NETWORKS INC. - PANEL 1

[115]





EXAMINATION BY MR. ROGERS:

[120]





CROSS-EXAMINATION BY MR. COWAN:

[281]





QUESTIONS FROM THE BOARD:

[290]





EXAMINATION BY MR. ROGERS:

[355]





CROSS-EXAMINATION BY MR. WHITE:

[482]





CROSS-EXAMINATION BY MS. LEA:

[510]





QUESTIONS FROM THE BOARD:

[615]





8
EXHIBITS

9

EXHIBIT NO. I.1.1: HYDRO ONE NETWORKS INC. DOCUMENT: APPROVALS SOUGHT

[100]









EXHIBIT NO. I.1.2: CURRICULUM VITAE FOR WITNESSES

[111]









EXHIBIT NO. I.1.3: CALCULATION OF REVENUE REQUIREMENT

[209]









EXHIBIT NO. I.1.4: LETTER DATED MARCH 27, 2002, DEALING WITH DEFERRED WORK

[313]









EXHIBIT NO. I.1.5: REVISIONS SHEET

[405]










EXHIBIT NO. I.1.6: TIME-OF-USE APPLICATION AMENDMENT

[439]











10
UNDERTAKINGS

11

UNDERTAKING NO. H.1.1 TO PROVIDE INFORMATION REGARDING CUSTOMERS IN THE SAME CLASS AS TIME-OF-USE MITIGATION CUSTOMERS

[677]





12
--- Upon commencing at 9:30 a.m.
13
MR. VLAHOS: Please be seated.

14
Good morning, everyone. The Board is sitting today on the matter of Hydro One's application for rates under Board docket number RP-2000-0023. My name is Paul Vlahos. With me today are Board members: Sally Zerker, Art Birchenough, and Fred Peters.

15
Could I have appearances, please.

16
APPEARANCES:

17
MR. ROGERS: Good morning, sir. My name is Don Rogers and I appear for the applicant. With me is Mr. James Malenfant, senior advisor of regulatory affairs with my client.

18
MR. VLAHOS: Thank you, Mr. Rogers.

19
MR. FISHER: Good morning, panel. My name is James Fisher; I am counsel to the Association of Major Power Consumers in Ontario, also known as AMPCO, and with me is Mr. Ken Snelson of Snelson International Energy.

20
MR. VLAHOS: Good morning, gentlemen.

21
MR. MCGEE: Yes. John McGee is the name, representing FOCA; that's the Federation of Ontario Cottagers' Assocations Inc.

22
MR. MCLORG: Good morning, Mr. Vlahos and panel. My names is Colin McLorg, for Toronto Hydro-Electric System Limited.

23
MR. VLAHOS: Welcome, Mr. McLorg.

24
MS. LEA: Jennifer Lea for Board staff and with me is Mr. Martin Davies.

25
MR. VLAHOS: Ms. Lea.

26
MR. JANIGAN: Thank you, Mr. Chairman. Michael Janigan for the Vulnerable Energy Consumers' Coalition and with me is Yannick Vennes.


27
MR. VLAHOS: We didn't get the second name.

28
MR. JANIGAN: Vennes.

29
MR. MONDROW: Good morning, sir. Ian Mondrow, counsel for the Electrical Contractors Association of Ontario, or ECAO.

30
MR. VLAHOS: Hello, Mr. Mondrow. Next.

31
MR. WHITE: Roger White, the ECMI Coalition.

32
MR. VLAHOS: Good morning.

33
MR. COWAN: Good morning, sir, Ted Cowan with the Federation of Agriculture for Ontario.

34
MR. VLAHOS: Mr. Cowan. Next.

35
MR. SIDLOFSKY: Good morning, sir. James Sidlofsky for the BLG Coalition. It's comprised of Brantford Power, Niagara Falls Hydro, Guelph Hydro and Wellington Electric Distribution.

36
MR. VLAHOS: Mr. Sidlofsky, what do we call the coalition again?

37
MR. SIDLOFSKY: The BLG Coalition.

38
MR. VLAHOS: Thank you. Next?

39
MR. TAYLOR: Good morning. Andrew Taylor for the Power Budd Coalition. The Power Budd Coalition is comprised of Hydro Ottawa, Oshawa Hydro, and Enersource Hydro Mississauga.

40
I guess now would be a good time to inform the Board that London Hydro and St. Catharines Hydro have decided not to continue intervening in this proceeding. Their decision is in no way based on the position of the coalition. Both London Hydro and St. Catharines Hydro continue to support the position of the coalition; however, their decision to not continue is financially motivated. We learned late last week that the Board found the coalition, the Power Budd Coalition, ineligible for a cost award.


41
MR. VLAHOS: Thank you, Mr. Taylor.

42
Anyone else?

43
MR. MCMAHON: Pat McMahon, with Union Gas Limited.

44
MR. VLAHOS: Anyone else?

45
PRELIMINARY MATTERS:

46
MR. VLAHOS: There being no response, Ms. Lea, are we properly constituted?

47
MS. LEA: Yes, Mr. Chairman. I examined the affidavits of service and publication last week and it appears that the Board's directions for those activities have been complied with and that sufficient notification has been given of this hearing and its commencement date.

48
MR. VLAHOS: Thank you, Ms. Lea.

49
Now, Mr. Rogers, is there a schedule for panel that you have prepared?

50
MR. ROGERS: Yes, I have some proposals and subject to your approval what I would suggest or propose to be done is I'd like to give a brief opening statement to the Board outlining the nature of the case, and giving you a breakdown of the panels that I propose to call and the order in which I will call them. I can tell you that this morning my plan was to deal with the settlement proposal before you and panel 4 witnesses to deal with the settled issues on the settlement proposal, to outline very briefly for the Board the basis of the company's case and the reasons for the settlement, and then to be available to answer questions about the settled issues.

51
MR. VLAHOS: Okay. Perhaps then we can wait until we get this -- there is a document of this, a panel schedule document; is there one?

52
MR. ROGERS: No.

53
MR. VLAHOS: There is not one?

54

MR. ROGERS: It's quite a simple schedule. If this morning we can go through the settlement proposal, and hopefully the Board will approve the proposal, that will leave really two issues, two main issues to deal with. Both would be the low-voltage issue and the line-loss issues, and we have really two panels to deal with that. In addition to that, there is the quality-of-service matter which will be dealt with, I think, next week. That's my understanding.

55
MR. VLAHOS: Okay. Well, I was also wondering about the scheduling of the witnesses for the intervenors, where there's filed evidence. At some point, perhaps Mr. Davies can just put the schedule together, in due course, after you have spoken to the applicant and the intervenors that are going to file -- that have filed evidence.

56
MR. ROGERS: I think, sir, once we get going today, and we see how things are going we'll have a better sense of how long it's likely to take for the applicant to present its case. I would think that we may be able to put together a schedule maybe today or tomorrow with respect to the intervenor's evidence.

57
MS. LEA: Perhaps those intervenors who plan to call witness panels can let us know what the constraints on your witnesses are, we can take those into account.

58
MR. VLAHOS: Mr. Rogers, I didn't hear you mention the time-of-use rates issue which has come up in the last few days.

59
MR. ROGERS: Yes.

60
MR. VLAHOS: That will be visited today?

61
MR. ROGERS: Yes, it will, sir.

62
MR. VLAHOS: All right. Okay, in terms of order of cross-examination, Ms. Lea, do you have any suggestions?

63
MS. LEA: Mr. Vlahos, we usually go by order of appearance of those parties interested in an issue. Board staff proposes to go last, except with respect to service quality, in which I understand it's the only party with any questions.

64
MR. VLAHOS: Okay. Any problems with that, following the order of appearance? All right, thank you. And certainly, Ms. Lea, you're going to go last on every issue except that one?

65
MS. LEA: That's the plan, unless -- for instance, for time-of-use rates this morning, I don't know if other parties are prepared. I may be ending up going first. We'll see what happens, I'm very flexible, whatever.

66

MR. VLAHOS: Just to clarify, that would also include cross-examination dealing with the -- with the other intervenor segments? You would follow Mr. Rogers?

67
MS. LEA: No, I would think that actually you're right, sir. Thank you for that correction. I think Mr. Rogers should go last in that cross-examination.

68
MR. VLAHOS: Today we're going to be sitting from 9:30 until 1:00. Now, I just want to canvass parties as to: Would there be any objection if we plan to sit half days henceforth, from 9:00 to 1:00? There are other business that this panel has to attend to, Board business. So is there any objection to sitting half days and see how far that will take us? Okay, that would be none. Then that's the plan.

69
Now, normally on a hearing that lasts just a few days, we have the availability of a hotline. People can call in and find out as to where -- as to what the status of the hearing is in case people, you know, don't have to show up here every day, so they can follow the schedule of the hearing. So Mr. Davies is going to find out if there is a telephone number that you can call in, and he will do so in the next day or two. In the meantime, to leave the room later on this morning, Mr. Martin has agreed to provide his own telephone for the time being, and he will leave the appropriate messages as to the development of the hearing. So his number is, area code 416, 440-8107.

70
With that, any other preliminary matters, Mr. Rogers or anyone else?

71
MR. MONDROW: Mr. Chair, before Mr. Rogers commences, if I could just put on the record, and I have disclosed this to the company, but it seems to me appropriate to put it on the record. In my law firm, there is a woman who works with the corporate unit on the other side of the office who has been recently, within the last year or so, I believe, married to a Hydro One person who is part of the regulatory team, although he will not be appearing, as far as I understand it, in this hearing. We have instituted an internal policy at my firm where she and I are not to discuss anything related to Hydro One or her husband's work, and I don't, as a practice, discuss with her my work, in particular, my work on these types of proceedings because we don't have occasion to interact on a professional basis. I don't do corporate law, and that's all she does, she's a corporate clerk. I have disclosed this to the company and they've indicated that they have no concerns or objections, but I thought I should just put it on the public record.

72
MR. VLAHOS: Thank you, Mr. Mondrow. Any comments on this? Being none, thank you for that.

73
Anything else, Mr. Rogers?

74
MR. ROGERS: No, I have no other preliminary matters, sir, other than I will be filing some documents as I go through my opening statement.

75

MR. VLAHOS: Okay. Over to you, then.

76
SUBMISSIONS BY MR. ROGERS:

77
MR. ROGERS: Thank you very much. I will not take very long with this, but I thought it might be useful to set out for the Board a brief overview of the case which my client presents, to tell you something about its plans for future applications which may affect the way the issues in this case are dealt with, and to give you a brief review of the settlement proposal which has been filed with the Board.

78
I can confirm, sir, that the divestiture policy of the company, although not an issue on the issues list in this case, has been filed by the company with the Board as required.

79
You mentioned this morning the rate mitigation plan for time-of-use customers, and I will deal with that briefly in this statement. That plan was only recently proposed and finalized and, therefore, did not form part of the settlement discussions and hence is an issue that we have to deal with in this case.

80
Now, may I, Mr. Chairman and members of the Board, describe what I submit this case should be about. The applicant -- the application was originally filed in May of 2000 in response to the Board's direction to all distributors to file unbundled ratings to be effective on or at open access. As the Board knows, the application has been amended several times in the intervening period in response to changes in circumstances in this evolving industry. This has complicated matters somewhat, and I will later set out for the Board the relief that's being sought in this case. I'll have a document that lists for you the things that we're asking you to do in this case.

81
Networks' application then is for approval of first-generation unbundled rates which are based on actual 1999 costs as required by the rate handbook. The purpose of unbundling, I submit, is to identify and isolate costs of distribution from the bundled rates of the old Ontario Hydro, and this my client has done. Although all utilities were required to file unbundled rates, only Networks has had its proposals reviewed in a full oral public hearing. Obviously, Networks is somewhat unique as evidenced in part by its troublesome, so-called low-voltage system, and I suppose it's not surprising that it was selected for this oral hearing. The fact remains, however, that the purpose of the exercise undertaken by Networks as is the case with other distribution companies, was to unbundle its distribution rates in accordance with the distribution rate handbook. As I said at issues day, that is what my client tried to do and that is what this case should be about, I submit.

82
The proposals set forward in this case should be seen as transitionary. It is the company's current plan to file an application in 2003 for both the transmission and distribution systems for rates which will go into effect for 2004. At that time, when matters are more settled and better information is available through studies being undertaken and experience is gained in the open market, more detailed examination can be undertaken by the Board of these complex, interrelated issues.

83

In this case, the rates have been unbundled in accordance with the rate handbook. This process has identified the costs of providing distribution service. In some cases, such as the low-voltage issue, identification of these costs will raise questions and concerns. That is as it should be. By identifying these costs and making them transparent the goal of first-generation unbundling has been achieved.

84
Following this case, the next step, I submit, should be to examine the system in light of those costs now laid bare and visible, to collect further information through appropriate studies and stakeholder consultation, and to make any required modifications in the allocation of costs to distribution customers on a sound and logical basis.

85
I can tell the Board that the company already has some of those studies underway and, as stated previously, it plans to file an application for distribution and transmission in 2003 for rates effective in 2004. That case is the second-generation step in this evolutionary process.

86
Now, as the Board knows, a settlement conference was held between March 4th and March 11th, 2002, with the assistance of Ms. Cindy Diamond as a facilitator. As a result of that conference, a substantial number of issues on the list were settled among the parties who participated. I'd like to say here that, on behalf of the applicant and I'm sure on behalf of the intervenors who participated in that conference, that we are grateful for the Board's dispatch in giving general acceptance to the settlement proposal which has been very much appreciated and has assisted in the preparation of this case.

87
My client does appreciate that the settlement proposal does not bind the Board and that the Board, through its staff or on its own behalf, may have question about some of the settled issues. And to that end I have company witnesses available this morning, and I propose to impanel them together so that we might go through the settlement proposal and they can answer any questions which the Board or its staff may have about the settled issues.

88
When that is done, I propose to move to the contentious issues by empaneling the appropriate witnesses for each issue remaining. In that respect, I would like to ask the Board's indulgence with respect to one witness, Mr. Anthony Horton, who although here today, has some important personal concerns which will keep him away from the hearing until next Monday. Mr. Horton is responsible for customer relations and will provide evidence concerning issues 4 and 6. He will also deal with the recently proposed rate mitigation proposal for certain time-of-use customers. You mentioned that this morning, Mr. Vlahos. This proposal was only recently finalised following the settlement conference, and it did not form part of that conference. We know that the Board wants to hear some evidence about this in accordance with your procedural order number 9, and I will have Mr. Horton explain the company's proposal to the Board. Hopefully we can get to that today.

89
Finally, the Board is aware that the divestiture policy of the company has been filed as directed. This is not an issue on the issues list for this case, and accordingly I did not propose to call any witnesses to speak to it unless the Board so desires.

90

Now, it might by useful now if I can just set out for the Board and the intervenors the witnesses who will make up the individual panels. First today, as I have said, I propose to call a number of witnesses together to deal with the settled issues, numbers 1, 4, and 5, and parts of number 2. That panel will consist of Ms. Susan Frank, Dr. Andy Poray, Mr. Oded Hubert, and Mr. Anthony Horton. My suggestion is that we go through each settled issue, outline briefly for the Board the company's position and the basis of the settlement which is set out in the agreement.

91
On a few issues, such as the revenue requirement, I propose to ask the appropriate witness to give the Board a summary of the company's position leading to the settlement. I wish to do this particularly in the case of the revenue requirement which is built up through a series of numbers which can be confusing. I will ask Ms. Frank to give a summary of the development of the revenue requirement, and she has some schedules which I think will be of assistance to the Board. I should say that this presentation or outline has been given by Ms. Frank earlier to intervenors, I think at the -- one of the conferences, and the Board will not have had the benefit of that. My friends all have, and I'm hopeful that it will be of assistance to the Board.

92
When we get to the contested issues, numbers 2 and 3, which will be the main -- I anticipate, the main focus of this case dealing with low-voltage related issues, Dr. Poray will be the witness with respect to the cost allocation, and Mr. Hubert will probably join him when we talk about the issue of line losses.

93
When we come to that panel, I will lead Dr. Poray through a brief summary of the company's proposal with respect to each of those issues, the low-voltage issue and the line-loss issue, before making him available for cross-examination. I don't anticipate that we will begin that until tomorrow. Hopefully tomorrow.

94
The special time-of-use rate, mitigation rate, I've already said will be dealt with by Mr. Anthony Horton who is here today. As well, Mr. Horton will deal with issue number 6, which is the quality-of-service issue. There are letters filed with the Board that we will deal with. I will ask Mr. Horton to summarise for you the nature of those letters and to discuss them with you and answer any questions that you and your staff may have. I don't anticipate that will be until next Monday.

95
Now, before getting to the settlement agreement, Mr. Chairman and members of the Board, I thought it might be useful for the Board to provide to you an outline, or a list really, of the decisions and the relief which we are asking you to make in this case. Because of the evolution of this case, it's quite complex, I know, and it's hard to keep track of all of the decisions that have to be made. So we have prepared a list of those and I have copies for you. Could that be marked -- would you like to mark that as an exhibit?

96
MS. LEA: Yes. I think it would be good to mark it as an exhibit for identification purposes. The exhibits series in this hearing will be under letter "I," and the two numbers subsequent will indicate the date of the hearing and the number of exhibit on that day. So this would be I.1.1, please. What is the title of the exhibit, sir? Findings requested or something like that?

97
MR. ROGERS: I'll have to look. It's just entitled Hydro One Networks Inc., is seeking approval for.

98
MS. LEA: How about approvals sought, then?

99
MR. ROGERS: Fine, thank you.

100
EXHIBIT NO. I.1.1: HYDRO ONE NETWORKS INC. DOCUMENT: APPROVALS SOUGHT

101
MR. ROGERS: I don't propose to deal with this now, but I would like to give it to the Board now so we can have a look at it, and we will deal with it in due course.

102
Now I don't propose to deal with this now; it's quite a long list, as you can see. Before proceeding further, there is one other matter I'd like to raise with the Board. Before moving to the evidence, I asked the Board to grant me relief under Rule 4.04 of the Rules of Professional Conduct. The Board may recall that that directive generally prohibits counsel from discussing evidence with the witness while under cross-examination. I'm asking permission of the Board and of my friends in this case to discuss the case with witnesses even during cross-examination if necessary, if it relates to undertakings given, or to be given, or to matters of a technical nature on which I require assistance or instruction. I will, of course, undertake not to contravene the spirit of the rule by attempting to influence a witness, to alter evidence which has already been given on a topic. But in cases like this, with the technical nature of the evidence, I ask that I be given this relief so that I can discuss with the witnesses, if necessary, those narrow ambit of information.

103
MR. VLAHOS: Any party objecting to the relief sought? There being no response, relief granted, Mr. Rogers.

104
MR. ROGERS: Thank you very much, and I thank my friends.

105
Can we now move to the settlement proposal, and with your permission, sir, I would like to call the four witnesses and we can deal with it.

106
MR. VLAHOS: If they can come forward.

107
MR. ROGERS: I'll introduce them to you, if you like.

108
MR. VLAHOS: That's fine.


109
MR. ROGERS: Could the four witnesses come forward, please. I have copies of curriculum vitae for these witnesses too, sir, that might be of help following this. If I can ask Mr. Horton to take the first seat.

110
MS. LEA: Let's give it Exhibit I.1.2, curriculum vitae for witnesses.

111
EXHIBIT NO. I.1.2: CURRICULUM VITAE FOR WITNESSES

112
MR. ROGERS: I'll introduce the panel to you, sir, and if we can have the witnesses sworn or affirmed, as the case may be.

113
The first witness to my left, and beginning with the closest to the Board, is Mr. Anthony Horton. Next to him is Dr. Andrew Poray. Next to Dr. Poray is Miss Susan Frank, and then the last witness closest to me is Mr. Oded Hubert. Could they be sworn and then I will qualify them and ask them which parts of the evidence they are responsible for.

114
MR. VLAHOS: If the witnesses could please come forward to the other side of the dais.

115
HYDRO ONE NETWORKS INC. - PANEL 1

116
A.HORTON; Sworn.

117
A.PORAY; Sworn.

118
S.FRANK; Sworn.

119
O.HUBERT; Affirmed.

120
EXAMINATION BY MR. ROGERS:

121
MR. ROGERS: Let me begin with Mr. Horton, if I might. Mr. Horton, I understand, sir, that you hold an honours master of arts degree from the University of Waterloo, and a master of arts degree in economics and history from the University of Waterloo.

122
MR. HORTON: That's correct.

123

MR. ROGERS: I understand you have extensive experience in the regulatory field with Seagram company which is where you started off.

124
MR. HORTON: Yes.

125
MR. ROGERS: And then you had a period of time when you worked for Bell Canada from 1994 until 1997?

126
MR. HORTON: That's right.

127
MR. ROGERS: As among other things, as a senior project manager. You worked with Sprint Canada from 1997 to 2001 and achieved the office of vice-president advanced business services.

128
MR. HORTON: Yes.

129
MR. ROGERS: From April of 2001 to the present time, I understand you have been employed by Hydro One Networks Inc. as director of customer relations.

130
MR. HORTON: That's right.

131
MR. ROGERS: And that is the -- that's the reason why you're here today; is that right?

132
MR. HORTON: Exactly.

133
MR. ROGERS: Could you just tell us, please, which parts of the evidence you are responsible for?

134
MR. HORTON: I'm responsible for the service, quality, letters of comment, the time-of-use rate mitigation and rate implementation processes.

135
MR. ROGERS: All right, thank you.

136
Now, Dr. Poray, if we can come to you, please. I understand you have a degree in electrical engineering from the University of Strathclyde.

137
DR. PORAY: That's correct.


138
MR. ROGERS: And a doctor of philosophy in electrical engineering from that same institution in Glasgow, Scotland.

139
DR. PORAY: Yes.

140
MR. ROGERS: You have been involved in the utility business for some time, I see beginning back in the United Kingdom from 1970 to 1997?

141
DR. PORAY: That's correct.

142
MR. ROGERS: And you came to Ontario and began working with Ontario Hydro back in 1978; is that right?

143
DR. PORAY: That is correct.

144
MR. ROGERS: And you've progressed, as your curriculum vitae shows, through a series of positions with the old Ontario Hydro and now with Hydro One Networks Inc., where I understand you hold the position of director of pricing and strategic support.

145
DR. PORAY: That is correct.

146
MR. ROGERS: And you have testified before this Board on one or two other occasions, Dr. Poray?

147
DR. PORAY: I have.

148
MR. ROGERS: Most recently in the transmission case that this Board heard.

149
DR. PORAY: That is correct.

150
MR. VLAHOS: He will never forget that one, Mr. Rogers.

151
MR. ROGERS: Well, he has a busy week coming up so ...

152
Next we have Ms. Susan Frank. Ms. Frank, I understand that you -- sorry, Dr. Poray, can you tell us what areas of the evidence are you responsible for addressing?


153
DR. PORAY: Certainly. I have responsibility for the preparation of Exhibit D and Exhibit E with the following exceptions: Exhibit E, tab 2, schedule 2, section 6.1, on pages 15 through 28, and appendix A of the same exhibit, sheets 1 and 4 to 6, which are the accountability of Mr. Hubert; Exhibit E, tab 3, schedule 1, section 4.4, on pages 37 and 38, which is the accountability of Mr. Horton; and Exhibit E, tab 6, schedule 4, which is the accountability of Mr. Hubert.

154
MR. ROGERS: Thank you, sir.

155
DR. PORAY: Thank you.

156
MR. ROGERS: Ms. Frank, I understand from your curriculum vitae that you are a graduate of the University of Guelph, with a bachelor of applied science.

157
MS. FRANK: Correct.

158
MR. ROGERS: That you hold masters of business administration from the University of Toronto?

159
MS. FRANK: Yes.

160
MR. ROGERS: And that you are a chartered financial analyst and member of the Institute of Charter the Financial Analysts.

161
MS. FRANK: Yes.

162
MR. ROGERS: You began your career as an equity analyst with the Bank of Nova Scotia in 1975.

163
MS. FRANK: Correct.

164
MR. ROGERS: You worked for a number of private companies, including Financial Models Company Inc. and Williams R. Waters Limited up until 1990.

165
MS. FRANK: That's correct.

166
MR. ROGERS: And from 1990 until the present time, you have been employed with Ontario Hydro, or now presently Hydro One Networks Inc.

167
MS. FRANK: Yes.

168
MR. ROGERS: You have held a number of positions, I see, in the finance area with the company, and you are now the director of financial planning and regulation for Hydro One Services Inc.

169
MS. FRANK: That is correct.

170
MR. ROGERS: Could you please tell us, Ms. Frank, what areas of the evidence you are responsible for?

171
MS. FRANK: I'm responsible for the financial statements; the revenue requirement; the accounting policies and procedures; the corporate financial functions and services groups; the support costs and rate mitigation. With respect to the issues list, these are issues 1 and 5, and in the evidence is tabs A, C, and parts of D.

172
MR. ROGERS: Thank you. And I understand in particular you're going to tell us this morning -- a little later -- about the revenue requirement and how it has been built up.

173
MS. FRANK: Yes.

174
MR. ROGERS: Next, Mr. Oded Hubert. Mr. Hubert, I understand that you hold a bachelor of applied science and mechanical engineering from the University of Waterloo?

175
MR. HUBERT: That's correct.

176
MR. ROGERS: In addition, you have a masters of business administration from York University, here in Toronto.

177
MR. HUBERT: That's right.

178
MR. ROGERS: You have been involved in the electrical business throughout your career?

179
MR. HUBERT: Correct.

180
MR. ROGERS: Starting with the old Ontario Hydro back in 1983.


181
MR. HUBERT: In 1981 is actually when I started.

182
MR. ROGERS: Oh, I see. All right. You've progressed through a number of positions with the old Ontario Hydro and now hold the position as director, network strategy, with the applicant company.

183
MR. HUBERT: Yes, Mr. Rogers.

184
MR. ROGERS: Can you tell us, please, what areas of the evidence are you responsible for addressing?

185
MR. HUBERT: My area of responsibility falls into several portions of Networks' evidence. They pertain primarily to the operations aspects of the business; namely, the distribution assets and the associated operations, maintenance, and capital work programmes. I will support Ms. Frank in these areas as they arise in Exhibits A, B, and D. I'm also available to support Dr. Poray for the losses portion of appendix E -- sorry, Exhibit E and also for the portions that he mentioned in Exhibit E. In addition, I'm accountable for the proposed miscellaneous charges which can be found in Exhibit E, tab 4, and in tab 6, schedule 4.

186
MR. ROGERS: Thank you, Mr. Hubert.

187
Mr. Chairman, with those qualifications, can I ask that these witnesses be accepted as expert witnesses where required to give evidence in the area of their expertise?

188
MR. VLAHOS: Any objections from the intervenors? There being none, yes, Mr. Rogers, they are acceptable to the Board.

189
MR. ROGERS: Thank you very much, sir.

190
Now, I would like now, with your approval, to deal with the settlement proposal. I believe this has been given an Exhibit I.1.1.

191
MS. LEA: Correct.

192
MR. ROGERS: Does the Board have copies available to it? We have extras here if necessary.

193
MR. VLAHOS: We do have them.

194
MR. ROGERS: Do you have them? Very good. May I then proceed to deal with this, sir.

195
What I propose to do, as I said earlier, is to go through each issue and explain to the Board the rationale behind the company's position and the basis of the settlement.

196
The first of those is the proposed distribution revenue requirement found at page 2 of the settlement proposal.

197
You will see that this issue has been settled on the basis that no party will seek to contest the amount of the aggregate revenue requirement or seek to cross-examine upon it subject to conditions which are set out in the agreement. In the case of the ECAO, my friend Mr. Mondrow's client, Networks has agreed to address certain issues of particular interest to it in its next case, and Networks will do so.

198
In the case of the Power Workers' Union, Networks has agreed to file certain additional information concerning the work to be deferred, pursuant to the rate mitigation plan. The information in the response was worked out with Mr. Stephenson, counsel for the Power Workers' Union, and that document has now been filed. I have spoken to Mr. Stephenson and he has advised me that in view of the settlement agreement, he did not plan to be here today, and indeed he is not.

199
Now, the revenue requirement is obviously very important to my client. The basis of the settlement is approval for this case of an aggregate revenue requirement before mitigation of $814.5 million based on its 1999 costs, proposed as $762 million in retail rate revenue, $38.6 million in low-voltage charges, and miscellaneous charges set to recover $13.7 million. This is set out in the preamble to the agreement.

200
As the Board knows, the company is proposing a rate mitigation plan in order to mitigate against undue rate impacts. Accordingly, Networks has proposed to reduce its aggregate revenue requirement collected through miscellaneous charges, retail rates, and low-voltage rates, and seeks recovery of the amounts of $646 million in 2001, $694 million in 2002, and $742.3 million in 2003, subject to AMPCO and the Power Budd Coalition's right to argue that the shareholders should bear some portion of the low-voltage costs. So the parties have agreed to those aggregate amounts subject to the right of certain parties to argue that some of those costs should be borne by the shareholders, as I understand. I don't know whether they will argue that. They just wanted to reserve the right to do so.

201
As the Board can see, these revenues are substantially below the revenue requirement which would be allowed by the rate handbook, and the result is that Networks' proposed rates are expected to recover substantially less than its allowed return over the PBR period. I'm sure that was an important factor that led to the settlement of this issue with the intervenors.

202

Now, what I've done is try to summarize for you, sir, the preamble to the settlement agreement, but I would like to ask Ms. Frank to outline for you how these numbers were built up. This was done for the intervenors for other conferences that were held, and I'm hopeful that we will help you track through what can be a confusing series of numbers.

203
Ms. Frank, do you have some handouts that will help us follow your evidence this morning?

204
MS. FRANK: Yes, I do.

205
MR. ROGERS: Ms. Frank has prepared, at my request, several tables, really, that will, I hope, help us follow this explanation.

206
MS. LEA: Can we mark that as an exhibit also to keep track of these things?

207
MR. ROGERS: Yes.

208
MS. LEA: I.1.3, please. We'll call it calculation of revenue requirement.

209
EXHIBIT NO. I.1.3: CALCULATION OF REVENUE REQUIREMENT

210
MR. ROGERS: Now, Ms. Frank, we've already gone through your qualifications and so on, and you've told us the areas of evidence that you are responsible for, subject to the errata that has been filed, the errata sheet that's been filed in this case -- we haven't done that. We will be filing an errata sheet. I'm sorry, I've overlooked that, there were some changes that had to be made. But subject to those changes on the errata changes, do you adopt the evidence that you indicated responsibility for, as your evidence in this case?

211
MS. FRANK: Yes, I do.

212
MR. ROGERS: What is the purpose of your direct evidence?

213
MS. FRANK: The purpose of my direct evidence is to provide a description of the revenue requirement and the method we used to calculate and the rate mitigation plan.

214
MR. ROGERS: Now, in order to do that, I understand you have prepared several schedules which have now been market as an exhibit in this case.

215
MS. FRANK: Yes, that is correct.

216
MR. ROGERS: Ms. Frank, can you please explain to me and to the Board how the revenue requirement was calculated?

217
MS. FRANK: Yes. What I'd ask you to do is turn to slide 1 of the material that was handed out, and I'd like to take you through the material step by step.

218
MR. ROGERS: What's the heading on that table?

219
MS. FRANK: Calculation of revenue requirement.

220
What we've done is followed the methodology as outlined in the distribution of rates handbook to calculate the market-based revenue requirement. As per the handbook, we used 1999 audited year-end results for distribution. This information is shown in column 1 of the handout on slide 1. The audited financial statements are found at Exhibit C, tab 3, schedule 1.

221
Given the handbook definition of distribution, we then add this next column, retail customer relations costs, which are to encompass the definition that the handbook now has established for distribution. This function includes customer services, accounts management, customer communications, bad debts management, and the management of the cost of power. This information was based on the schedule of net cost and expenses that was reviewed by our auditors and is provided in Exhibit C, tab 3, schedule 2.

222
The next column that we add follows the OEB directions in the distribution handbook for all LDCs to include contributing capital; therefore, we've included the costs of the contributing capital. In total, our costs are in the final column and the bold number, $1.4 billion. We then add on the return on our rate base. This is the amount of $323 million. This return is based upon our capital structure, the approved rate of return of 988, and our actual cost of debt of 7.71 per cent. This calculation can be found in Exhibit C, tab A, schedule 2.

223
From the total of $1.7 billion, the next bolded number on this far right column, we deduct revenues that we receive from other sources such as the rural rate protection amount. We also deduct the cost of power to get to the market-based revenue requirement of 751.

224
MR. ROGERS: Can I just stop you there. When you're dealing with the group of lines headed less non-rate revenues, when you're deducting certain of these revenues, I see there's an item there of facility charges, the second on the list, of $29 million. What is that?

225
MS. FRANK: That is the amount that the revenue allocation agreement pays to the distribution business for the low voltage facilities.


226
MR. ROGERS: We'll be dealing considerably with that item later on, but I just wanted to show the Board that that's where it appears. Yes, thank you very much. Did you follow the distribution rate handbook in calculating the revenue requirement, Ms. Frank?

227
MS. FRANK: Our submission is consistent with the electricity distribution rate handbook, and as allowed, we used Hydro One's specific information in three areas: The cost of debt of 7.71 per cent is reflective of our embedded cost of borrowing. This rate is based upon specific coupon rates for bonds in our debt portfolio. This debt was issued by Ontario Electricity Financial Corporation to Hydro One.

228
Secondly, the Hydro One distribution capital structure established by the province was used rather than the handbook generic capital structure. The Hydro One capital structure is composed of 60 per cent debt, 4 per cent preferred shares, and 36 per cent common equity. This was -- this capital structure was approved by the Ontario Energy Board in the distribution transitional rate order effective April 1, 1999. This is the financial structure on which our debt readiness is established and on which we manage the company.

229
Thirdly, we've also used the large corporations tax and added it to our tax rate as it is a tax that the company is currently paying. Those are the exceptions.

230
MR. ROGERS: Thank you very much.

231
Now, the settlement proposal outlines, and I mentioned earlier that the so-called market-based revenue requirement is adjusted or reduced to yield the tariff-based revenue requirement. Can you please explain to the Board the adjustments that are made to achieve that result.

232
MS. FRANK: Yes. I'd ask you to turn to slide 2.

233
MR. ROGERS: This is entitled reconciliation of revenue requirement?

234
MS. FRANK: That is correct. This slide starts with the 751 of market-based revenue requirement that we derived on the previous page and then makes the following adjustments to get to the tariff-revenue requirement. We add back in the $126 million of rural rate protection which is separately identified as a rebate on qualified customers' bills. We also add on the $29 million of low-voltage facility charge that's currently received under the revenue allocation agreement until the market opening. Then we remove $92 million in line losses which are recovered through the distribution loss factor rather than through customer rates.

235

Finally, we remove $14 million of miscellaneous charges which is collected through the amount that has been approved on an interim basis from miscellaneous charges. This results in a total tariff-revenue requirement of 801. Of this amount, $762 million relates to the retail tariff revenue requirement, and $39 million is collected through the low-voltage customers upon market opening.

236
It's important to note that while this is the tariff revenue requirement that's developed following the handbook, this is not what we are requesting.

237
MR. ROGERS: Well, what level of revenue are you asking for in this application?

238
MS. FRANK: The next slide helps you to develop that, so if you'd turn to slide 3, please.

239
MR. VLAHOS: Ms. Frank, is there a misalignment of the rows on that schedule, because the miscellaneous revenue, it's negative $14 million; right?

240
MS. FRANK: Yes.

241
MR. VLAHOS: I believe there's a misalignment on that slide, if you can just draw a straight line on it.

242
MS. FRANK: Oh, I see. It is supposed to be miscellaneous revenues that's $14 million.

243
MR. VLAHOS: All the numbers should be dropping down by one cell, one row.

244
MS. FRANK: The numbers do relate to each of the categories. I'm just checking. The rural rate protection is the 126, the facility charges are the 29, the line losses are the minus 92, and the miscellaneous revenues are the minus 14. Does that help? Okay.

245
Okay. We were turning to slide 3.

246
MR. ROGERS: You were going to explain to us the rate mitigation plan and tell us what it is you're actually asking for in this case.

247
MS. FRANK: In this application we're asking for less than the 801. In our application, under Exhibit D, tab 1, schedule 4, it shows the mitigation plan. That is what I've incorporated on slide 3. We're proposing to increase the revenues to the following amounts: 594 -- this is the tariff -- retail tariff revenue from retail customers of 594 million effective October 1 of 2001.

248
MR. ROGERS: Now, you're rounding. It's 593.7 million on the table.


249
MS. FRANK: Yes, it is. I'll read the full number. And on March 1st, 2002, $641.7 million, effective March '02. These two amounts have now been approved by the Board on an interim basis and we're seeking final approval at this time.

250
We're also requesting the March 1st, 2003 distribution revenue requirement of 690 million. This is substantially below the 762 tariff revenue requirement that was developed following the handbook.

251
MR. ROGERS: All right, thank you.

252
Just dealing with the rate mitigation plan table here, and column -- year 2, March 2002, there's a revenue requirement for the retail distribution rates of $641.7 million that you explained to us. In addition to that, there is 36.8 million which I think you've rounded to 39 million for the low voltage tariff revenue.

253
MS. FRANK: That's right.

254
MR. ROGERS: There's another item for market-ready costs recently approved by the Board. How does that figure in the calculation?

255
MS. FRANK: The Board has approved, on an interim basis, $8.1 million for market-ready costs. This will be added to the 641.7 in establishing rates, unbundled rates for opening.

256
MR. ROGERS: Thank you.

257
Tell me, Ms. Frank, with the planned mitigation that you've outlined for us, what year provides the most significant challenge for Networks?

258
MS. FRANK: 2002 is the year of most significant challenge. We'll be receiving revenue for that year based on two months at the rate of 594, and for ten months at the rate of 642. This results in the 2002 revenue requirement being $129 million less than is allowed by the handbook.

259
MR. ROGERS: $129 million. Well, how do you plan to manage with a revenue requirement that is $129 million less than allowed by the handbook in this year?

260
MS. FRANK: Slide 4, if you'd please turn to slide 4, provides the actions - this is called 2002 mitigation actions - that we plan. To highlight a few of the mitigation actions that we plan to take --

261

MR. ROGERS: This is down at the bottom half of the table?

262
MS. FRANK: Yes, it is.

263
First of all, we'll forego the 29 million of contributed capital that we're allowed to recover under the handbook. We've also requested $4 million of increased revenues for miscellaneous charges which the Board has approved on an interim basis. The miscellaneous charges are included in our evidence under Exhibit E, tab 4, schedule 1.

264
Hydro One will also temporarily reduce its spending on time-adjustable programmes. The spending reduction in these programmes is not sustainable. Exhibit G.5, tab 2, schedule 2, provides further information on the $20 million that we're mitigating here.

265
We have also requested deferral accounts to accommodate environmental costs in 2001 and 2002. Our proposal is to amortize these deferral costs -- these deferred costs and include them in the cost of service over the period to 2020. That relates to the $16 million that's on this slide.

266
Other cost reductions include productivity measures that we're implementing and we believe we'll be able to find a way to save $26 million under these other cost reductions.

267
Finally, Hydro One will reduce the returns to shareholders below the 9.88 per cent that's allowed and result in a $34 million mitigation for this factor.

268
MR. ROGERS: Thank you. Now, you've explained 2002 to us and what you anticipate. How about 2003? Will the company be in a better position then?

269
MS. FRANK: Our situation improves in 2003, but we expect that we will be $80 million below our handbook revenue requirement, and shareholders will still experience a shortfall and earn lower than the allowed return.

270
MR. ROGERS: All right. Thank you very much. Have you covered, then, the key elements in how the revenue requirement is built up and how it is impacted by the rate mitigation proposals?

271
MS. FRANK: Yes, I have.

272
MR. ROGERS: Thank you, Ms. Frank.

273

Ms. Frank is available to answer any questions that the Board or its staff may have about this item of cost -- I'm sorry, of revenue requirement.

274
MR. VLAHOS: Thank you, Mr. Rogers. I understand parties that have signed on to the settlement proposal do not have any questions, or are they still permitted, Mr. Rogers, to ask questions?

275
MR. ROGERS: Technically, I think it's not permitted according to your rules of -- but I'd be flexible if the parties are confused about it. I think the parties that participated in the settlement conference are -- I don't want to be too complimentary to them because I'll be fighting with them tomorrow, but were quite cooperative, and I think we're satisfied that in view of the rate mitigation plan, the revenue requirement was not a concern to them for this case. I don't believe they have any questions.

276
MR. VLAHOS: How about we'll leave it on the basis that they can ask questions of clarification to assist the Board.

277
MR. ROGERS: Yes, of course.

278
MR. VLAHOS: All right.

279
So with that, any questions, Mr. Cowan?

280
MR. COWAN: Yes, please.

281
CROSS-EXAMINATION BY MR. COWAN:

282
MR. COWAN: On slide 3, Ms. Frank, the single asterisk relating to the distribution retail rates revenue line and relates then to the market-ready interim recovery, it's noted both in 2002 and 2003. Is the $8.1 million included in those costs in both years?

283
MS. FRANK: The 8.1 is not included in the cost in either the 641.7 or the 690. The amount is incremental to be added on top.

284
MR. COWAN: In both years?

285
MS. FRANK: Well, the amount should be added in 2002. At this time there has been no direction at 2003. So I'd agree the asterisk in 2003 should be struck.

286
MR. COWAN: Thank you for the clarification.


287
MR. VLAHOS: Thank you, Mr. Cowan.

288
Anyone else from the intervenors? There being no response, Ms. Lea, do you have any questions?

289
MS. LEA: No, thank you, sir.

290
QUESTIONS FROM THE BOARD:

291
MS. ZERKER: I'm not sure if this is the right place to put this question. But you have on slide 4 brought up a question of your deferrals, your temporary adjustable programmes. And I made a note when reading the evidence about the implications in terms of the environment and safety of such deferral of forestry poll adjustments and so on, and I wondered if you could comment on that or if somebody else would be commenting on it at a later time.

292
MR. ROGERS: Ms. Frank can help you there, I hope.

293
MS. FRANK: There's two elements on the mitigation that deal with deferrals. The one -- the amount that says the environmental deferral and associated tax implications is 16, this is actually work that we're doing during the year but we're just not charging to operations in this year, we're charging it to a deferral account. That would have no impact on the environment.

294
However, there is another line, the temporary time-adjustable programme, and in that, 20 is the amount that I believe you are referring to. There is some forestry and some environmental work that we are not doing during this time.

295
I'm going to ask my colleague, Mr. Oded Hubert, who manages these programmes, to explain the amounts of the impact of the work.

296
MS. ZERKER: Thank you.

297
MR. HUBERT: There are three programmes that are being referred to as time-adjustable programmes, two of them are environmental programmes and one of them is a vegetation management or forestry programme. The work under the environmental portion is land assessment and remediation work to identify and deal with contamination in our sites, and the deferral there is in the order of $6 million work that we would be pursuing at a later time.

298

The other environmental component is our PCB testing and destruction programme, to deal with PCB-contaminated transformers and the testing and identification, and the deferral there is about $3 million of work as well. Both these programmes are voluntary in nature and we continue to meet our environmental requirements. We are simply deferring our work to the later time.

299
Finally, the vegetation management programme involves a deferral of about 2,500 kilometres of line clearing and brush control which will be also moved into a later time. Although these deferrals are not sustainable from a long-term perspective, we feel they can be accommodated within the short time frame involved in this single year.

300
MS. ZERKER: When you talk about short time, are you talking about 2002, putting it off to 2003?

301
MR. HUBERT: It's a deferral from 2002, and the work will be deferred in various programmes to later times, not entirely into 2003. The next rates submission in 2003, we'll seek recovery of the costs for those.

302
MS. ZERKER: And you're not concerned about the implications of it, from a safety point of view or from the point of view of an environmental impact?

303
MR. HUBERT: No, we are not at this point.

304
MS. ZERKER: Thank you very much.

305
MR. MONDROW: Mr. Chair, I wonder if I might, just on that issue, I note that Mr. Rogers -- perhaps we should note that Hydro One Networks filed, by letter dated March 27th with the Board and pursuant to its agreement with the Power Workers' Union in the context of the ADR, a brief description of these three deferrals and the timing and the costs, and perhaps the Board might want to mark that as an exhibit in respect of his earlier questions. I believe Mr. Oded is familiar with that letter.

306
MR. HUBERT: Yes, that's correct.

307
MR. ROGERS: This was part of the Power Workers' Union's concern related to that very question. We did file a response which I think will give us of the information you're seeking too. I don't know whether that has an exhibit number. It was sent to the Board.

308
MS. LEA: It was sent to the Board as a letter. It won't have an exhibit number yet.

309
MR. ROGERS: I have copies here if you'd like to do that now.

310

MS. LEA: Certainly. Why don't we mark that now, thank you. Exhibit I.1.4. I'll have to look at the exhibit in order to know what to call it. Thank you. Can we call it letter dated March 27th, 2002, dealing with deferred work.

311
MR. ROGERS: Let me just remember what's in it here. Yes, I think that would suffice.

312
MS. LEA: Thanks.

313
EXHIBIT NO. I.1.4: LETTER DATED MARCH 27, 2002, DEALING WITH DEFERRED WORK

314
MR. VLAHOS: A couple of questions of clarification, Ms. Frank. On slide 4, I was just interested in the way you would define annualized. Do you see the second row? Less requested revenue requirement, in brackets, "annualised." And maybe my understanding of annualisation is different from what's depicted in here. When you take the portion of two months and then a different level of another ten months, and I just don't know whether that's annualisation from a rate-making perspective and I have trouble following that. Your term annualized here means that this is the cost for a 12-month period?

315
MS. FRANK: What I'm doing here is showing the amount of revenue that we would get for the 12 months from January 1, 2002, to December 31st, 2002. And it's because the first phase of the 594 carries on till the 1st of March that you get two months at that level, and then for the rest of the year, from the 1st of March on to the end of the year, the second phase kicks in and 642 is the number that we're using.

316
MR. VLAHOS: I understand what you've done. It's just that in -- I guess in regulatory parlance, we would not use the word "annualized."

317
MR. ROGERS: Mr. Vlahos, I understand your point. I think that is correct. Normally, as I understand it, annualized means that you have -- what the year's revenues would be if that rate was in effect for the whole year. This is really the actual revenue that you recover.

318
MS. FRANK: This is the actual revenue.

319
MR. VLAHOS: Thank you for that. Then in terms of the rate mitigation actions, and I'm not sure that I can translate -- from a rate-making perspective, Ms. Frank. Is it, I mean, you explain to us as to what the mitigation actions may be, but from a rate-making perspective, does anything turn as to what -- if those lines are materialized or close to forecast?

320
MS. FRANK: The reason for providing it is to give you confidence that we believe that we can manage the business with this lower revenue than the handbook would have suggested.


321
MR. VLAHOS: Okay. Let me turn to the first one, contributed capital. When you say "not recovered," at some point, would the contributed capital form part of the rate base? Is that what you mean here, that the contributed capital does not -- is not included in the rate base that they've calculated?

322
MS. FRANK: The rate base calculation that I did on slide 1 would have included the contributed capital. What I'm suggesting at this point is there's not enough revenue in the mitigated amounts to allow us that recovery so we would propose that we will not include contributed capital for this phase-in period.

323
MR. VLAHOS: Okay, but that could be presumably any line. I mean, the fact of the matter is that you're going to recover $29 million less, and you call that contributed capital. It could be anything else -- could be rate of return not achieved. It could be any other line item. Why is it contributed capital?

324
MS. FRANK: Contributed -- the reason we've identified that one as contributed capital is contributed capital is an amount that's been added to our rate base consistent with the handbook directed to all to LDCs. By adding that amount on this raises the revenue requirement by $29 million, and we're suggesting that we not have that raised revenue requirement. We could, as you're suggesting, think of that as the amount that the shareholder will not recover in terms of return and add it to the 39 that I've got as the last item. Yes, that would be appropriate.

325
MR. ROGERS: 34.

326
MS. FRANK: 34, thank you.

327
MR. VLAHOS: But you haven't divided off an amount contributed to contributed capital from rate base in the evidence that one can identify as contributed capital that is not being collected.

328
MS. FRANK: We've identified in the calculation, getting to rate base, $194 million worth of assets that would qualify under that category, contributed capital. And what we're now suggesting is that 194. We will not earn the associated costs on that, either the return or the normal depreciation. We won't recognise it.

329
MR. VLAHOS: Okay. I mean, I understand what you're doing by itemizing those things, but I guess in my view, it's dollars that the utility cannot -- will not recover for a given test period, and those are foregone revenues, if you like.

330
MS. FRANK: That is correct.

331

MR. VLAHOS: Okay. But my last question on this is: When you talk about other cost reductions, including productivity measures, once those productivity measures take hold, then presumably those savings will be carried over to a future year; right?

332
MS. FRANK: We would expect that the 2003 and 2004 and beyond will continue to enjoy the benefit of whatever productivity savings we can bring in in 2002; correct.

333
MR. VLAHOS: And the $34 million for the returns committed to shareholders, I guess the $34 million in foregone returns, this is just a plug number, isn't it?

334
MS. FRANK: This is the amount that we cannot identify any mitigation action for, and as a result, our shareholder will earn lower return.

335
MR. VLAHOS: Okay, thank you for that.

336
Those are the Board's questions. Mr. Rogers, do you have any redirect?

337
MR. ROGERS: No, I don't. Thank you very much.

338
Just dealing with issue number 1, the Board will know from the issues list that it was broken into three bullet points. The major item is the first, and we've just dealt with that. The settlement agreement does deal with bullet points 2 and 3, the first at page 6 of the settlement proposal dealing with the appropriateness of the exceptions to the rate handbook. Ms. Frank has explained that to you already. There was agreement that those variations or departures from the rate handbook were appropriate, and no party wishes to take any position on it, with the exception of the low-voltage aspect. To the extent that it impacts on low voltage, it is understood that that is contested. And line losses are the same. We will have a panel to deal with low-voltage issues and line losses later.

339
The last item was the elaboration of evidence filed in Exhibit F, related to PBR for Hydro One Networks. That is dealt with at page 7 of the settlement proposal, where all parties agreed or took no position on Networks' application in this respect. So that concludes issue number 1.

340
If the Board has no further questions on issue number 1, I propose to move to issue number 2.

341
MR. VLAHOS: Hold on one second, please.

342
MR. ROGERS: Yes.

343

MS. ZERKER: I'd like to clarify something about your view on the Z-factor as you present it.

344
As I was looking at it, I was thinking, what about PBR implications? Is your approach to the Z-factor for now specifically, or are you, in some way, prejudicing the future of the -- for the panel about -- for the Board about how you will be projecting yourself on the Z-factor? Do you understand my question? I'm a little bit confused because I came through it with some confusion about the timing, or your timing approach for it.

345
MR. ROGERS: I understand your question. I'm not sure I can answer it satisfactorily. I'm wondering if maybe Ms. Frank can try to do so.

346
MS. FRANK: Right. The Z-factor, I think more than anything, we were identifying that there could be some unusual items that we can't anticipate at this point in time, and the thing that always pops to our mind when we say that Z-factor is an ice storm, a major ice storm like we had a few years ago. And the idea is that we, indeed, want to be able to come back and identify that unusual event and it would be something that would qualify as a Z-factor, in our opinion.

347
We're not suggesting that what we've got in here would be what would be used for the next application that we come for. We're talking about during this interim period until -- until the end of '03 is what we're talking about, that we'd want to have that ability. I would see there would be no prejudice for anything beyond that period.

348
MS. ZERKER: Well, that clarifies it for me, then. It was specifically for this application.

349
MS. FRANK: That's correct.

350
MR. VLAHOS: Those are all the Board's questions, Mr. Rogers. I guess just a note that there was -- you may recall on issues day there was a bit of perplexity as to how one should read appendix F, and so maybe that's where Dr. Zerker is coming from.

351
MR. ROGERS: Yes, I understand. That's fine. I hope it's been answered to your satisfaction.

352
MS. ZERKER: Yes.

353
MR. ROGERS: The last bullet point under this heading was the rate handbook and, as you see, the parties had no question about that so if the Board is comfortable with that, I propose to move on to issue number 2.

354
MR. VLAHOS: Please go ahead.

355
EXAMINATION BY MR. ROGERS:

356
MR. ROGERS: Issue number 2 on the issues list is found at page 8 of the settlement proposal. You will see that the parties approached this issue in several components in an attempt to isolate the areas where there was not agreement. I'm pleased to report that there was agreement for most of it but not all; hence we have indicated that this item was partially settled.

357
Dr. Poray can answer questions about this, but let me try and just summarize for you what I think the position is in view of this settlement proposal.

358
First, all parties have agreed or take no position regarding the aggregate of amounts proposed to be collected by Networks through its miscellaneous charges, retail rates, and low-voltage rates in the amount of 646 million in 2001, 649 million in 2001, and 742.3 million in 2003, subject, however, to AMPCO and Power Budd Coalition's right to argue that the shareholders should, perhaps, bear some portion of the low-voltage component of those costs.

359
There was also concern expressed by parties that they did not wish to have their agreement with this item on cost allocation prejudice their position when we come to talk about line-loss allocation and low-voltage rates. And you will see that some of the parties disagree with the line-loss allocation, particularly ECMI, I believe. But subject to those concerns, this item was settled. In particular, what was settled was the retail distribution rates. There was no contest concerning the cost allocation and those rates.

360
I think I'm correct in stating that the only contest, apart from my friend for FOCA, on this issue, dealt with low-voltage issues or line-loss issues which will be dealt with by another panel and which we concede are open for contest.

361
Now, I should tell the Board that there was one party that would not agree with the settlement of this issue and this was Mr. McGee, and his organization FOCA. I would like to just explain to the Board the process of this settlement conference, to put this in context.

362
Mr. McGee was there on the opening day but I don't believe was able to come any other day. The other parties were there for the -- throughout the period of time and the sequence here was that agreement was reached on this issue by all the parties who met a number of times to try and work out a compromise of all of these issues. Mr. McGee was not at that meeting. The parties agreed to the wording of the settlement, and it was after that that Mr. McGee indicated to me that he could not accept this and would not agree to it.

363

Now, I point this out only because you may hear that the other parties have concerns about them being prejudiced by FOCA having the ability to cross-examine after they have already agreed to this item, and I think what they're concerned about is that if Mr. McGee, as stated in the agreement, persuades you that costs in addition to low-voltage costs should be allocated to large users, then I would think the large users may wish to have something to say about that. At the moment they're in agreement with the cost allocation, but I think in fairness to them if Mr. McGee is given leave to try to shift costs to them, they'll want the right to deal with it, and I for one would have to agree that would be appropriate.

364
I would suggest to the Board, as Mr. McGee is the only one, really, who quarrels with the agreement, if he could indicate to the Board just what it is he is concerned about and what area he wishes to cross-examine on so we can -- if you give him leave to do so, we'll at least have some focus about what we're -- what is in issue here.

365
MR. VLAHOS: Mr. McGee, any response to Mr. Rogers' comments?

366
MR. MCGEE: Right off the bat, not being a lawyer, I'm not sure what I'm allowed to say and what I'm not allowed to say at this stage.

367
The fundamental concern that I have is that the large-user class appears quite different from all the customer classes in that they pay only one charge, that being the lines that feed them, the low-voltage lines that feed them, and they escape all of the other charges that are charged to every other customer; that is, metering, billing, collection, and that type of thing, and that this is the aspect that I want to pursue. They are a class and they're being treated very differently from all of the other customer classes that exist in the rural retail system.

368
Does that explain my position?

369
MR. VLAHOS: Well, over to Mr. Rogers.

370
MR. ROGERS: Well, Dr. Poray can certainly answer questions about the cost allocations, if the Board thinks it's appropriate. Not necessarily now. I suppose I should ask my friends. I hate to do this because once you start to unravel an agreement, it's hard to get it stopped, but I don't personally have too much concern about some questions about this.

371
I'm sure that the witnesses can satisfy Mr. McGee, frankly, that the cost allocation was done fairly in this area. But may I suggest that the other intervenors ought to be given a chance to say whether they would agree with this or what their position would be in view of their agreement to the settlement of the issue.

372
MR. VLAHOS: We'll leave it on the basis then, Mr. Rogers, that Mr. McGee can ask his questions, and then if the other intervenors wish to follow up on that, that would be fine, that would be up to them.

373

MR. ROGERS: I think the rules provide that when a party agrees to a settlement, they are deemed to accept a settlement but they can get relief if circumstances during the hearing make it inequitable, obviously. I have to say that if Mr. McGee was allowed to cross-examine on this and that -- this with the intent of shifting costs to some other participant, that those -- that other participants should have the opportunity to defend itself. So if you're inclined to allow Mr. McGee to ask those questions, I think it would probably be put to Dr. Poray. Some of them, I gather, have some relationship to the low-voltage issue -- what was said. And I'm wondering whether they could be dealt with when we call the low-voltage panel. Can they be dealt with at that time, Mr. McGee?

374
MR. VLAHOS: Mr. McGee, before we proceed, I would just like to understand that -- I understand from Mr. Rogers you were there only for the first day. I guess is the understanding of FOCA that they can -- they do not have to participate throughout the discussion of all the -- of the issue throughout the ADR process? Is it possible if FOCA was there throughout the ADR process that perhaps this issue would have been settled in some fashion?

375
MR. MCGEE: Well, no. Basically, number 1, I had other commitments that I had to pursue. But number 2 was that we were basically in agreement with all of the other issues in the settlement proposals. We saw no need to participate. That was the only point on which we had any difficulty.

376
MR. VLAHOS: I guess the point is that you were not -- you were there the first day and then I guess there was -- you decided that there was not much room there for agreement with the company, and then you walked away, or FOCA walked away from the ADR process. That's what I understand from Mr. Rogers, that there was no attempt to come back to the table and say, well, how can we satisfy FOCA, how can FOCA's interests be met in some way.

377
MR. MCGEE: Well, it was quite evident that the low-voltage issue was not going to be settled in the settlement process and that it was going to be reviewed by the Board. This issue that I'm speaking of is part and parcel of that low-voltage issue, so it -- I think it will have the opportunity to be discussed when that issue comes along.

378
MR. VLAHOS: Okay. I must admit that I'm not entirely clear as to what part of the questioning deals with the general principles of cost allocations and what part deals with the low voltage. So can you just tell us one more time, Mr. McGee, as to -- are your issues any different from the other intervenors' issues in terms of allocation of the low-voltage assets or the costs associated with the low-voltage assets?

379
MR. MCGEE: Well, of course, there was no agreement on the low-voltage, cost-allocation issues, so whatever the Board determines will -- my support is for Hydro One's position on the low-voltage issue. But I realise that other intervenors are not of that same mind. But yes.

380

MR. VLAHOS: I'm still not sure that I have -- maybe I'm the only one in the panel that doesn't fully appreciate the answer. Are your issues -- do your issues go beyond the low-voltage issue that is still on the table for this hearing?

381
MR. MCGEE: Yes. That's why I wanted to get it in here. As I mentioned earlier, I see a customer class here that's being treated very differently in terms of cost allocation than all of the other ten customer classes that Hydro One Networks has. The special treatment being afforded to the large-use customer class and, by the way, very different than the distribution of rates handbook would require, is the concern that I have. And I don't think that that could have been resolved in the settlement process at all.

382
MR. VLAHOS: Mr. Rogers, we'll probably have to go ahead and hear the questions from Mr. McGee, and then I guess to the extent any of the parties that have signed the agreement wish to seek relief, I guess the Board will be inclined to provide that relief. So we'll just have to take it an hour at a time.

383
MR. ROGERS: Very good, sir. I understand. And what I suggest is we leave the issue until the low-voltage panel has testified. Mr. McGee can ask questions, and if it goes beyond the low-voltage issue in some way, then we can entertain that. That would --

384
MR. VLAHOS: That's fine, and perhaps then at that time we can ask Mr. McGee to be the first cross-examiner so that the rest of the parties will have an opportunity to hear what the nature of the questions is.

385
MR. ROGERS: I think that's a sound idea.

386
MR. VLAHOS: So we don't have to duplicate the process.

387
MR. ROGERS: That's a very good idea and then they can deal with anything he covered.

388
MR. VLAHOS: With that, Ms. Lea, can we take our morning break now. Is there anything else that you would wish to bring up before the break?

389
MS. LEA: No. I believe the Mr. Rogers' panel will continue with the settlement agreement upon our return.

390
MR. VLAHOS: That will be on issues around cost allocation and the rate designations --

391

MR. ROGERS: We're pretty well finished with item number 2, sir. You may have questions on it, but I don't have anything more to say about it.

392
MR. VLAHOS: Okay. We'll leave it on the basis that Mr. McGee can ask his questions when we review the -- as part of the low-voltage issue.

393
MR. ROGERS: Yes. That's fine.

394
MR. VLAHOS: That's fine. It's a little bit after 11. Let's resume at 11:30.

395
MR. ROGERS: Very good.

396
--- Recess taken at 11:03 a.m.
397
--- On resuming at 11:30 a.m.
398
MR. VLAHOS: Please be seated.

399
Mr. Rogers.

400
MR. ROGERS: Thank you, sir.

401
Now, we've completed issue number 2. Unless the Board has any questions, I propose to move to the other -- the next settled issue which is issue number 4.

402
But before doing that, I'm reminded that one thing I overlooked during this morning, and I apologize, is to file an errata sheet. I think the Board has a copy before you. I've given copies to my friend, Ms. Lea. And this is a document that -- I've asked that all the small changes be listed in one place for parties, in writing, so that they can make amendments where necessary. Most of these are minor. There are a couple of them that deal with the low-voltage issue, and they are listed here. I will deal with them tomorrow. Dr. Poray will explain in more detail the reasons for the errata.

403
I wonder if this can be given an exhibit number.

404
MS. LEA: Yes, I.1.5, and I'm going to call it revisions sheet because the first word of the title is called revisions.

405
EXHIBIT NO. I.1.5: REVISIONS SHEET

406

MR. ROGERS: I was going to say, most of these are of relatively little importance. A couple of them are important, and we will deal with them tomorrow.

407
Now, having done that, can I move to issue number 4, please, on the issues list, which is miscellaneous charges and street light and sentinel light rates. This is found at page 11 of the settlement agreement.

408
Each of the items under this head were settled. In fact, no party took a position on Networks' proposals, certainly none had any concerns about it, other than ECAO. ECAO had some concerns about some miscellaneous charges, but in view of the condition attached to issue number 1, the revenue requirement, where my client has agreed to provide certain information as part of its filing in the next rate case, Mr. Mondrow's client has agreed with this -- or takes no issue with this issue on the issues list; hence there are no parties that wish to take issue with this or wish to cross-examine on issue number 4.

409
Unless the Board has questions, I'll deal very briefly with issue number 5, which is found at page 12. This is the application for an accounting order to establish a deferral account for recording environmental costs. I think part of this was dealt with peripherally this morning. Ms. Zerker asked Mr. Hubert a question about some of the costs. This issue of dealing with the deferral account for recording environmental costs was settled on the basis that no party, except for FOCA, will contest the applicant's proposal for this account, and no party will seek to cross-examine on the issue. It was agreed, however, that FOCA was free to address its concern about the account in argument. FOCA did not wish to take issue with it during the course of the hearing through cross-examination.

410
Those are the settled issues, Mr. Vlahos and members of the Board, leaving unsettled issues; part of issue 2, issue 3, which is the allocation of line losses including low voltage, and issue number 6, which is service quality.

411
As I indicated earlier, my proposal was to have Mr. Horton deal with service quality probably when he comes back, but we can still deal with the time-of-use rate mitigation proposal which we discussed at the opening of the hearing today, if you like. And I would suggest that we do do that if the Board is prepared to hear it.

412
MR. VLAHOS: Mr. Rogers, just a clarification before we leave these settled issues. What is the expectation of Hydro One in terms of the final pronouncement of the agreement before the actual decision is rendered and written?

413
MR. ROGERS: Well, sir, I hope -- I would ask the Board to -- once you've satisfied yourselves that you're comfortable with the settlement proposal, that you accept the settlement issues as dispositive in the issues on the case on those settled issue items.

414
MR. VLAHOS: And that will happen when?


415
MR. ROGERS: Well, hopefully sometime this week, if you could do that, so we would know that we wouldn't have to deal with it in argument, and so on.

416
MR. VLAHOS: That's fine.

417
MR. ROGERS: Thank you. There being no other questions on the settlement proposal, I propose to move to the time-of-use rate mitigation.

418
MR. VLAHOS: Just let me double check on that one.

419
MR. ROGERS: All right.

420
MR. VLAHOS: Ms. Zerker, do you have any questions?

421
The Board has no questions, Mr. Rogers.

422
MR. ROGERS: Very good. Thank you, sir. Thank you very much.

423
Mr. Horton, can I turn to you, please. Now, you have indicated earlier that you are the witness responsible to respond to questions concerning the company's proposal for a special rate -- mitigation rate for certain time-of-use customers.

424
MR. HORTON: Yes.

425
MR. ROGERS: And are you in position to give that evidence as director of customer relations for Hydro One Networks?

426
MR. HORTON: Yes, I am.

427
MR. ROGERS: Can you please explain for us the pre-market opening time-of-use rate programme, the number of customers that were involved in it, and the impacts of market opening on those customers which led the company to consider this rate mitigation, or this mitigated rate.

428

MR. HORTON: Yes. Time-of-use rates come as a result of demand-side management programmes that were offered by the former Ontario Hydro, starting in the early 1990s. Time-of-use was offered to numerous customers and this -- and basically it was a rate structure or rate strategy that provided incentives to shift their electricity-intensive business processes to off-peak hours. Now, off-peak hours are considered 11 p.m. to 7 a.m. on regular business days.

429
In 1996, time-of-use eligibility was frozen due to the fact that the programme didn't result in a material shift to off-load electricity use in off-peak hours. This left Hydro One with 57 existing time-of-use customers. Of these 57, nine were considered experimental customers and they were in the residential class, and the remainder are industrial and commercial customers from 250 KV to 5 megawatt usage. In addition, we inherited 23 time-of-use customers through our acquisition programme of municipal electrical utilities.

430
With respect to the market opening, the rate handbook recognises that time-of-use is related to the commodity and not to distribution, and suggests that time-of-use be eliminated upon the open market. So the primary impact to those customers is the rate programme that they have been on for the last number of years will cease to exist as of the market opening, and they will then pay regular distribution rates at that time.

431
Now, we have the letter that was written to the Board. It may not yet have been brought to the Board's attention. I will file a copy of that letter explaining the company's proposal. There are actually two letters, Mr. Vlahos, dealing with this issue, just so you know. There's a letter of March 19th, 2002, addressed to the Board secretary, Mr. Pudge, attaching the proposed rate. There's a secondary letter or a supplementary letter of March 21, 2002, which is a letter from Mr. Gabel attaching a schedule which was, I think, mistakenly not attached to the first letter, and that's being distributed now.

432
Excuse me, Mr. Chair. I'm sorry.

433
And there's a third letter that we've distributed on this issue which is a letter dated March 19, 2002, from Mr. Gabel who is vice-president of regulatory affairs for Hydro One Networks Inc. which gives a supplementary response to Board staff interrogatory 66 which also deals with the explanation for this rate.

434
So I think we've given you a copy of each of those as part of this package, and maybe they can all be marked together as one exhibit number.

435
MS. LEA: I don't have a problem with marking it for identification. I guess the thing is that the first letter is an amendment to the application and the last is already a supplemental interrogatory, so those matters will already have been put on the record in some fashion. If you think it would be useful for identification so that you can refer to the package as a bundle, I'm happy to give it a number.

436
MR. ROGERS: Why don't we do that, Mr. Chairman, if that's satisfactory, because there may -- for convenience, we may need to refer to this package.

437
MS. LEA: Okay. I.1.6, then. We'll call it time-of-use application amendment.

438
MR. ROGERS: Thank you.

439
EXHIBIT NO. I.1.6: TIME-OF-USE APPLICATION AMENDMENT

440
MR. VLAHOS: One second, Mr. Rogers.

441
MR. ROGERS: Yes.

442
MR. VLAHOS: Go ahead.

443
MR. ROGERS: I'm sorry, I should have given you that first. I apologise. I wasn't aware that we had it to file this morning.

444
Mr. Horton, let me come back to you, with that interruption to the train of everyone's thought. We now have filed these documents and I think you were really explaining, too, as what was in the documents. You told us something about the history of this that led to this proposal. Do I understand that you're proposing that about ten of the 57 customers get this rate treatment?

445
MR. HORTON: Yes, that's correct.

446
MR. ROGERS: Can you explain to us why those ten were selected?

447
MR. HORTON: Yes. It came to our attention in late August of last year that ceasing the time-of-use rates would -- as a one-step sort of a process would cause severe impacts in the overall bill to a small number of the customers who were on these special time-of-use rates. These were customers who would have taken advantage of the incentive of the time-of-use programme by investing either significant dollars of their own capital, time, or operating dollars in shifting their business processes in such a way to take advantage of the time-of-use price signal.

448
And due to the fact that less than ten years ago Ontario Hydro had promoted these services quite vigorously to these customers, when it became evident, in late August last year, that this would impact these customers in this way, we felt that we had a moral obligation to provide a transitional period in order to assist these customers to adapt to the elimination of time-of-use rates.

449
MR. ROGERS: All right. This came to your attention, I think you said, in August or so of 2001.

450
MR. HORTON: That's correct.

451
MR. ROGERS: Can you tell us why it's taken until very recently to have this proposal formulated?

452
MR. HORTON: Yes. First, time-of-use rates and the way that they are calculated is considerably complex. Although we were aware of the issue in August, it did take some time to identify and fully scope the impacts on the various customers. This was both as a result of the complexity of the way that the rates are, again, calculated in our systems and, quite frankly, the fact that there are a limited number of employees in the company who understand that to the degree that we needed, and we required their time to be able to do that effectively.

453
Ultimately, what we did was built a model so that we could run different scenarios in looking at viable alternatives for these customers. We did explore a number of different strategies including rate mitigation, and this included work with one of the most negatively impacted customers to determine if there were things we could do with load balancing, if there were solutions that we could provide or suggestions that we could give to them in terms of their business processes that would ultimately limit the impacts of time-of-use rates ending upon market opening. And we did this in order to look for any possible solutions that would prevent us from having to look at a rate mitigation strategy for these customers.

454
And it was really only in the last month that our proposed strategy, which was a rate mitigation strategy, that that was finalized, working through the various internal and external stakeholders that we had to in order to ensure that we were putting something forward that was considered to be as equitable as possible.

455
MR. ROGERS: Thank you. Mr Horton, I wonder if you can tell us about the nature of these customers. Are these huge industrial customers, or small, medium? Who do they tend to be?

456
MR. HORTON: I wouldn't categorise them as large industrial customers. They are generally customers whose use is within 250 kilowatts to 5 megawatts, so they are generally low-voltage customers. I would classify them as medium-sized enterprises or businesses, and operations that would typically benefit from or be able to shift their business processes.

457
Examples would be there are some greenhouse-type companies that would operate in the evening, ski resorts, a number of those.

458
MR. ROGERS: Thank you very much.

459
Well, one of the reasons I asked you that was because I wondered about whether customers running their business processes in off-peak might benefit from a favourable commodity price in a market opening. Can you comment on that, please.


460
MR. HORTON: Yes. That is certainly something that we took very seriously when we looked at the various options that might be available to these customers, and we really came to two conclusions.

461
One was very simple, which is that we simply can't predict how the commodity price is going to behave in the off-peak hours, although logically one would assume that these customers would be able to benefit from a slightly lower commodity price at that time.

462
But the second and the more, I think, critical issue was when we took these customers who had a 2:1 ratio in their off-peak to peak usage, what we found was that they would need an unrealistically low commodity price, or, in fact, in some instances, as strange as it sounds, a negative commodity price in order to avoid a 20 per cent or greater impact to their overall bill. So, again, they had taken advantage of these incentives in this programme to such an extent that the lowest imaginable possible commodity price still wouldn't allow them to operate in a way that they wouldn't experience significant impacts on the elimination of time-of-use.

463
MR. ROGERS: Thank you. I understand that this proposal, if accepted by the Board, has a limited period of application.

464
MR. HORTON: Yes. It would -- again, the motivation is to avoid a one-step elimination of time-of-use for the small number of customers and instead, over the course of the next two years, transition them out of the programme, limiting the impacts to an overall 10 per cent impact in year 1 and a 30 per cent impact in year 2, or less than those amounts. So upon the implementation of the 2004 rates, these would -- this transition rate would cease to exist.

465
MR. ROGERS: The company's proposal is that there be a deferral account approved to collect these costs or attract these costs for disposition, as the Board thought appropriate, in the next rate case.

466
MR. HORTON: That's correct.

467
MR. ROGERS: Thank you, Mr. Horton. Have you explained to us, then, as best you can, the rationale for these time-of-use -- this time-of-use rate mitigation proposal?

468
MR. HORTON: Yes, I believe so.

469
MR. ROGERS: He's available to answer any questions that the parties may have, Mr. Vlahos.

470

MR. VLAHOS: Thank you, Mr. Rogers. Perhaps we can go from -- I'm sorry, the order of appearances. Mr. Fisher, any questions?

471
MR. FISHER: I have no questions.

472
MR. VLAHOS: Mr. McGee.

473
MR. MCGEE: No.

474
MR. VLAHOS: Mr. McLorg?

475
MR. MCLORG: We have none, thank you.

476
MR. VLAHOS: Mr. Janigan?

477
MR. JANIGAN: I have no questions, Mr. Chairman.

478
MR. VLAHOS: Mr. Mondrow? He's left the room.

479
MS. LEA: I think he's retired.

480
MR. VLAHOS: Mr. White.

481
MR. WHITE: I have a couple of questions.

482
CROSS-EXAMINATION BY MR. WHITE:

483
MR. WHITE: When you said the impact would be limited to 10 percent in year 1 and 30 per cent on year 2, is that on the 30 per cent on the existing base or on the year-1 base?

484
MR. HORTON: On the year-1 base.

485
MR. WHITE: Are any of these customers covered under tri-party agreements with LDCs?

486
MR. HORTON: Not that I'm aware of.


487
MR. WHITE: Can you undertake to assure us of that? Because my interest in that drops rather dramatically if none of those customers are involved. Is this the RTP 2 programme, is that what we're talking -- realtime pricing 2 programme?

488
MR. HORTON: I don't believe that it is. I believe that that pertains to the customers who would currently be billed by OPG, and those would be predominantly plus-5-megawatt customers.

489
MR. WHITE: Are there any considerations for -- on the part of Hydro One to, in any way, mitigate the impacts upon those customers on market opening, or are they going to be fully subject to the vagaries of the market?

490
MR. HORTON: There were two considerations that went into the decision not to include those customers. One of those is the fact that we contacted OPG and asked them to do an analysis of the impacts, and their analysis indicated that the impacts would not be severe to the same degree as the time-of-use impacts that were below 5 megawatts.

491
The other consideration is that a number of those customers have already received, and I profess that I don't understand the details of the special pricing, but they have already received a transitional plan or mitigation strategy on the commodity price that they will benefit from, I believe, for three years after the market opening. But the first item was most critical, from our perspective, to show that there would not be the same sort of impacts for that group.

492
MR. WHITE: Thank you very much.

493
MR. VLAHOS: All right. Mr. White, do you still want an undertaking?

494
MR. WHITE: No, it's okay. I think his latter question dealt with the issue. I'm okay with -- I understand where they're going and how they're treating the customer pools differently. Thank you.

495
MR. VLAHOS: Mr. Cowan?

496
MR. COWAN: No, thank you, no questions.

497
MR. VLAHOS: Mr. Sidlofsky?

498
MR. SIDLOFSKY: No, thank you, sir.

499
MR. VLAHOS: Mr. Taylor?

500
MR. TAYLOR: I have no questions.

501
MR. VLAHOS: Mr. McMahon?

502
MR. MCMAHON: No questions, Mr. Chair.

503
MR. VLAHOS: Just for the record, that was no questions.

504
Mr. McMahon, do you plan to participate actively in this proceeding? If you are, you should come forward to your mike.

505
MR. MCMAHON: No, Mr. Chair, I'll just be an observer from this point.

506
MR. VLAHOS: All right. Then I won't be bothering you.

507
MR. MCMAHON: Thank you.

508
MR. VLAHOS: Ms. Lea?

509
MS. LEA: Thank you, I do have some questions.

510
CROSS-EXAMINATION BY MS. LEA:

511
MS. LEA: Mr. Horton, most of my questions deal with a clarification and an understanding of the proposal, as well as a few of the ramifications of it.

512
I gather that there are ten customers involved and they come from the rate classes that are listed on the last page, what I've numbered as page 5 of the March 19th letter. That's the industrial-commercial-general service, three-phase G3 class, and the industrial-commercial subtransmission B class. Okay, sorry, I got that from -- Mr. Davies gave me that from the rates schedule, so that's very helpful, thank you. That's where that comes from.

513
Are those the classes we're talking about?

514
MR. HORTON: Yes.

515

MS. LEA: And there's a total of ten customers that you propose to have rate mitigation operate on in the way you've described?

516
MR. HORTON: Yes, that's correct.

517
MS. LEA: Okay. Just to look at the proposal and comparing it to the rate schedule. The rate schedule for the Industrial, Commercial, General Service Three-phase G3 class, I read the -- under volumetric charge in the current rate schedule -- the demand charge per kilowatt-hour per month is about $8 -- $8.001. That's what I read from the rate schedule. And do I understand that for the period up to February 28th, 2003, that distribution volumetric charge will be only 13 cents per kilowatt-hour per month? Now, it's not -- there's no per-month indication on your application in the filing, but I notice that there's a per-month -- month to the minus 1 in your rate schedule. And I just wanted to clarify that these numbers are supposed to be compared.

518
MR. HORTON: Yes.

519
MS. LEA: Okay. So instead of paying $8, they are going to pay 13 cents, up to February 28th, 2003 --

520
MR. HORTON: That's correct.

521
MS. LEA: -- volumetric charge. And after March 1st, 2003, the distribution of volumetric charge is proposed to be $1.70 per kilowatt-hour per month?

522
MR. HORTON: Correct.

523
MS. LEA: Okay.

524
MR. ROGERS: Excuse me, can I -- sorry to interrupt. I think we are getting the kilowatt hours and the kilowatts mixed up here.

525
MS. LEA: Yes, that's quite possible. I was quite misunderstanding what units we were talking about.

526
MR. ROGERS: The $1.70, as I understand it, is a kilowatt charge.

527
MS. LEA: Is a kilowatt charge. Well, maybe we can start with the rate schedule.

528

MR. ROGERS: Can I just invite Dr. Poray to help in to -- if he can assist --

529
MS. LEA: Sure, whoever can help me.

530
MR. ROGERS: Dr. Poray, feel free to help here if you're -- with your greater familiarity with some of other rates in the rate schedule. Can we start over again, at least partway back?

531
MS. LEA: I'm trying to understand -- the difference in what I read as a difference between units in the rate schedule and the filing, and maybe there's no confusion in anybody's mind but mine. When I look at the rate schedule --

532
MR. VLAHOS: Ms. Lea, is there any reference that we can turn to?

533
MS. LEA: That's what I'm trying to find out. I think Mr. Davies will be able to help me. I'm looking at the rate schedule that list the rates for the two classes that I mentioned.

534
MR. HORTON: I think -- if I can clarify, to just get the --

535
MS. LEA: I found the reference, sir. It's decision and procedural order number 9 has the most recent numbers from which I am taking these numbers. So decision and procedural order number 9, and if you don't have copies handy, I have a copy handy.

536
MR. VLAHOS: I have a copy. I'm not sure about my Panelists.

537
MS. LEA: All right. One moment, please.

538
MR. VLAHOS: For people who may not have procedural order number 9, they may want to turn to Exhibit E, tab 6, schedule 2. Now, I'm not sure whether those the most recent ones or not, but at least there is some reference.

539
MR. ROGERS: I think Mr. Horton can clarify this in a minute. If we just want -- once everyone settles down here and finds the right exhibit, I'll have Mr. Horton explain this.

540
MS. LEA: Thank you, Mr. Rogers. Please have the witness go ahead.

541
MR. ROGERS: Can you help us? You've heard -- there's some confusion here, I think. Mr. Horton, can you help us?


542
MR. HORTON: Yes. I think your original quote of the rate classes, I misheard your --

543
MS. LEA: Or I said the wrong thing, yes.

544
MR. HORTON: It's -- the time-of-use customers would all be in the T-class rates, so the G-class rates would not apply to that.

545
MS. LEA: Okay.

546
MR. HORTON: And the T-class rates, you're probably reading a demand charge of $7.03, and that's what we would compare the 13 cents to.

547
MS. LEA: Okay. Again, trying to take this very, very -- step by step, I'm looking, then, at the rate schedules that were appended to procedural order number 9, and as Mr. Chairman points out they are also available in Tab E, 6, was it, sir?

548
MR. VLAHOS: Tab 6, I believe, yes. Page 02.

549
MR. ROGERS: Do you have those, Mr. Horton and Dr. Poray?

550
MR. HORTON: Yes.

551
MS. LEA: On that page I see two classes listed that I thought this rate might apply to. You're telling me it only applies to the industrial commercial sub-transmission T?

552
MR. HORTON: That's correct.

553
MS. LEA: Okay. So all of the ten customers involved are from the industrial commercial sub-transmission T?

554
MR. HORTON: Correct.

555
MS. LEA: Okay, good, thank you. And we see there under -- they have a service charge and they have a volumetric charge. And under the volumetric charge there are two charges: Energy charge, listed as per kilowatt-hour; or demand charge per kilowatt per month. And I'm attempting to understand -- in your recent filing requesting the amendment to the application, what number is comparable to the 13 cents?

556
MR. HORTON: The number that would be comparable to the 13 cents is the demand charge per kilowatt per month at $7.03.

557
MS. LEA: Mine, mine says $6.62. Am I misreading this? I'm sorry that my very first cross-examination is leading us into such difficulty, but maybe I'm looking at a different page.

558
MR. ROGERS: This is a brutal cross-examination, I must say.

559
MS. LEA: I just want to get it clear.

560
MR. ROGERS: Could we just take a moment, because I've got the same number you do, Ms. Lea, and I think there is some confusion in the schedules. You're taking yours from the Board's procedural order, the attachment --

561
MS. LEA: That's right. I was taking it from decision and procedural order number 9.

562
MR. ROGERS: If we can just give the witnesses a chance to look at that, and with Dr. Poray's help, maybe they can explain.

563
MR. HORTON: Okay. We -- yes. We had an earlier version.

564
MS. LEA: Okay.

565
MR. HORTON: We had a different version.

566
MS. LEA: Okay. So the most recent number is the $6.62?

567
MR. HORTON: Yes.

568
MS. LEA: Okay. Good. Now then what -- in your recent application filing, that's a kilowatt per month -- per-kilowatt, per-month charge, 13 cents, and it compares to the $6.62 demand charge.

569
MR. HORTON: Right.

570
MS. LEA: Okay. And, subsequent to March 1st, 2003 then, that charge would be $1.70 per kilowatt per month as compared to $6.62.

571
MR. HORTON: Correct.

572
MS. LEA: All right. Thank you. And I thought that was the easy question. Okay.

573
Now, as I understand your application, the qualification criteria for this mitigation is historical power consumption.

574
MR. HORTON: Correct.

575
MS. LEA: It's not anything to do with any distribution characteristics that sets these customers aside from others in their class.

576
MR. HORTON: No.

577
MS. LEA: How many customers fall into the industrial commercial subtransmission T-class; do you know offhand?

578
MR. HORTON: I think I will defer to my colleague Dr. Poray on that one.

579
MS. LEA: Sure.

580
DR. PORAY: There are about 320 T-class customers, all told.

581
MS. LEA: Thank you. Has this Board ever approved, in the past, a rate differential, if I can put it that way, that is based on historic power consumption as opposed to some characteristic of the customer?

582
MR. HORTON: I do not know the answer to that question.

583
MS. LEA: Okay. Given that it is only historical power consumption that divides one class that pays $6.62 from the subclass that pays 13 cents, do you see this as a fair charge among members of a class?

584

MR. HORTON: Based on the fact that the customers that we are looking to apply the rate mitigation strategy to are on these time-of-use rates, you know, on the surface, obviously if you look at the differentiation, one could look at it and conclude that it isn't equitable or it isn't fair; however, our motivation in this is related to the fact that these were customers that Ontario Hydro, approximately ten years ago, specifically went out and aggressively pursued to adopt these special rates and again, the mitigation plan is devised in such a way to ease them out of that particular rate structure based on a moral obligation that we feel to assist them with it.

585
MS. LEA: All right. We'll see if the phrase moral obligation recurs elsewhere in this hearing.

586
Can I say to you, then, your concern seems to be based, then, on fairness to these customers who took up the promotion that Ontario Hydro was putting to them.

587
MR. HORTON: That's correct.

588
MS. LEA: Was there any other concerns, such that these customers might switch fuels or you might lose these customers or that some other effect would occur detrimental to the utility's operation?

589
MR. HORTON: No, that didn't enter into our reasoning.

590
MS. LEA: I understand that you're proposing to list these -- the deficit in revenue, if I can put it that way, in a deferral account, and that the revenue will be collected as determined by the Board at a future rate proceeding; is that correct?

591
MR. HORTON: That's correct.

592
MS. LEA: Have you given any thought to what would be a fair disposition?

593
MR. HORTON: Yes. Again, because of the fact that this is meant to ease these customers who spent a considerable amount of capital or change their business process out of the rate, one of the considerations that we had given was that we would then recover from these same customers after that two-year period, again, looking at the primary motivation which is to avoid a one-stop, when the market opens, elimination of these rates, allowing them the time to get their business processes in line with the rate structure as it is defined in the rate hearing.

594
MS. LEA: Okay, thanks. I don't want to hold you to anything, but one of the thing you're considering is recovery of this revenue over time from these same customers.

595
MR. HORTON: Correct.

596
MS. LEA: All right. One moment, please.

597
Just -- we agreed, I think, that there is nothing besides historic power consumption that will distinguish these ten customers from the others in their class. You have crafted something for the rate schedule that will differentiate these customers so that we know -- you know, we know what we're approving on the rate schedule.

598
MR. HORTON: Sorry, could you clarify the question for me?

599
MS. LEA: I'm not sure. I guess a simpler way to ask the question is the -- in the application that you filed, the letter that you filed, the last two pages were a description paragraph. You proposed to insert those paragraphs, that description, into the rate schedule?

600
MR. HORTON: If you could bear with me for one moment, please.

601
MS. LEA: Yes.

602
MR. ROGERS: Maybe I'm confused, but there are rate -- there is an actual rate attached to the letter, I think, which shows how these customers would qualify, and that is they must have a 2:1 or greater peak/off-peak ratio. Is that what you just said?

603
MS. LEA: Yes, I just want to know how they'll be described so that they are identifiable on the rate schedule.

604
MR. ROGERS: I think there's some confusion there.

605
MR. HORTON: I'm not sure I understand the question.

606
MR. ROGERS: I think part of the problem I created this morning by filing these documents. But when the proposal was sent to the Board, there were rate schedulings attached, Mr. Vlahos, I'd like to advise Ms. Lea through you, and I think they form part of the package that I hope you have there which shows the definition of the customers and the qualification of criteria.

607
MR. VLAHOS: My understanding of the issue, Mr. Rogers, is if the Board is inclined to approve as proposed by the company, then how does the final rate schedule read like? Would it have a footnote or would it have a separate subclassification of the industrial-commercial subtransmission T-class? Ms. Lea, am I right?

608

MS. LEA: Yes. I'm sorry. Again, I seem to be making a simple question difficult. I'm looking at what you filed this morning in Exhibit I.1.6, the third page of that package. It appears to be a statement of qualification criteria, duration and rate. Is that what you propose to include on the rate schedule?

609
MR. ROGERS: Well, I'll let the witnesses answer that. My understanding was yes, but perhaps Dr. Poray or Mr. Horton could answer that. Or if you're not sure, we can take it under advisement and advise Ms. Lea in the morning.

610
DR. PORAY: It is my understanding that that is what would appear on the schedule.

611
MS. LEA: Okay, thank you. Thank you very much. Those are my questions, Mr. Chairman.

612
MR. VLAHOS: Thank you, Ms. Lea.

613
Mr. Peters.

614
MR. PETERS: Thank you very much.

615
QUESTIONS FROM THE BOARD:

616
MR. PETERS: Let me share with you my understanding of some of the numbers that appear to have been spoken to.

617
As I understand it now, you have 56 customers but you are to inherit another 62 that are on this time-of-use approach, and this is as a result of the interrogatory. So that's 118 potential customers to which you've applied the threshold test of 100 per cent higher usage in peak hours as opposed to non-peak hours. And then if they pass that threshold test, it's intended for the 10 per cent to cap the increase at 10 per cent in year 1 and not more than 30 per cent in year 2.

618
MR. HORTON: Maybe I can attempt to paraphrase the question and run through it.

619
We have 57 existing retail time-of-use customers and those would be customers whose usage is up to 5 megawatts. We have then added 23 additional time-of-use customers, or customers who had a time-of-use-type rate structure with their local utility in the MEUs that we acquired. We then have a number of customers that are plus 5 megawatts who will be billed by Hydro One Networks upon market opening, and I believe those total 39 customers. And the proposed rate mitigation strategy covers ten of the customers within that first number that I mentioned, the first 57 customers.

620
MR. PETERS: The first 57.


621
MR. HORTON: And then your comments around the 10 per cent in the first year and the 30 per cent in the second year in terms of where we want to cap the mitigation are correct.

622
MR. PETERS: One other question. The test, how do you avoid the notch effect? I mean, if you just missed the threshold test of 2:1 by a very small amount, you end up not benefitting from any mitigation, if I understand the proposal correctly. And unless, you know -- this one you're in or you're just a little bit out, and if you're a little bit out, you're exposed to the full cost pass-through. I'm assuming that either there's no such "just a little bit out" so that there's a significant difference between those who reach the threshold and those who do not, or I would think one would have a concern about what I would call the notch effect, that is, you fail the test by such a small amount and you lose any element of protection.

623
MR. HORTON: In theory, that would be correct, that customers could just be under the threshold. The structure of these rates is such that customers are generally in two classes: Those who took advantage of it aggressively and moved or naturally had a lot of their business processes around the off-peak hours and then changed them so that they operate specifically in these hours; and those who didn't or did it in a manner that wasn't really fully taking advantage of it. So what we find is there isn't a wide dispersion of customers, and in fact some of the customers on these rates will in fact benefit by the elimination of time-of-use. These are obviously not the ten that we're talking about, but some did not take advantage of it to the extent that it will actually benefit them to come off of the rate.

624
So when we -- when we -- I mentioned that we took quite a bit of time doing the analysis, and in doing that, we tried to find the best way to come up with a definition or criteria that would avoid exactly that, and this 2:1 ratio is essentially what does it.

625
MR. PETERS: Thank you.

626
MR. VLAHOS: Mr. Peters, are you finished?

627
MR. PETERS: Yes.

628
MR. VLAHOS: Dr. Zerker.

629
MS. ZERKER: Yes, I was concerned about that, and I appreciate your answer about that, as Mr. Peters calls it, the notched effect, and it clarified it for me.

630
I have one question and that has to do with just a question of clarification. Is the 13 cents per kilowatt, is the service charge of $229.30 still remaining for those who are paying 13 cents per kilowatt?


631
MR. HORTON: Yes. The service charge --

632
MS. ZERKER: So the service charge -- and was there a service charge in the previous time-of-use arrangement?

633
MR. HORTON: Those customers would have paid the standard service charge for their rate class, yes.

634
MS. ZERKER: Then what seems a bit confusing, then, for me is how do you go from $6, whatever it is, $6.62 per kilowatt, keeping the same service charge, and go to 13 cents which is a fraction, and still only have a 10 per cent increase over and above their current billing?

635
MR. HORTON: Well, it's -- the rate that is proposed is designed to limit the increase to 10 per cent. When you look at the impacts on these ten customers, the impacts of paying the demand charge, the $6.62, would typically have put them in the 20 to 100 -- I think 111 per cent increase overall, so it is, in fact, that differential in the rate that limits them to the 10 per cent based on their '99 usage pattern.

636
MS. ZERKER: So the contrast I have to look at is what might have been had they paid 6.62 and what they would pay, and then compare that to what they are paying, is that right, in terms of a monthly bill? Because if you look at 13 cents as a fraction of $6.62, you might get the impression that they're going to -- that their bill should drop substantially, you know, given that they're still paying the same service charge.

637
MR. HORTON: Yes. You would look at what they are paying today on the time-of-use -- on the time-of-use rates prior to market opening, then look at what they would pay after market opening with a one-step elimination of time-of-use, and then compare that to the 13-cent rate in order to -- in order to determine what the difference would be by this rate mitigation strategy.

638
MS. ZERKER: That's it. Thank you. There was one other one.

639
Could you reiterate again for me, I'm sorry that I didn't grasp it completely, about this notched effect. Why would one customer that was close to having your criterion not be impacted significantly? Would you -- I mean, are there no customers in that category?

640
MR. HORTON: No.

641
MS. ZERKER: There are none?

642

MR. HORTON: No.

643
MS. ZERKER: Okay.

644
MR. VLAHOS: Thank you, Dr. Zerker.

645
Mr. Horton, a few questions. Is the 10 per cent level, and later 30 per cent, is this on the total bill? Does that include the commodity costs?

646
MR. HORTON: Yes, it does.

647
MR. VLAHOS: It is. And it assumes that the current commodity cost is maintained?

648
MR. HORTON: It was developed using the, I believe, 4.3 for the commodity cost. That's standard.

649
MR. VLAHOS: Ms. Lea asked you of any thoughts as to the possible disposition of the balance in that account, and I was just wondering, was that -- was that opportunity discussed? Was this based on your reading or the company's reading of prior Board rulings on similar matters, like special rates, for example, or going back to the transmission case? Was that a consideration as to why you suggest that customers would be paying for it and that would be one logical option that would be coming forward?

650
MR. HORTON: That option, when we discussed the possible recovery of those amounts, was the primary option that came out of those discussions because it seemed the most logical in terms of what we were trying to do and was not, to my understanding, predicated on any previous or forecast decisions of the Board.

651
MR. ROGERS: Mr. Vlahos, perhaps if I can just interject and tell you that Mr. Horton may not have had that in mind but others have, and certainly the company is cognizant of this Board's past decisions in this area. Those comments will be taken very seriously when we come to -- hopefully when we come some day in 2003 to deal with the disposition of these collected costs.

652
MR. VLAHOS: I just want to make sure that the customers, the affected customers, the paying customers, are aware of what -- are they aware of what eventually they will have to pay for it, to pay for whatever costs they are responsible for?

653
MR. HORTON: Not at this stage.

654

MR. ROGERS: Let me clear it up. The company has not formulated a position yet, Mr. Vlahos. This is -- the witness was asked by my friend, I think, whether any consideration had been given as to how this could be done, and he gave this as one means, one factor that's been considered, or one approach that's been considered. But I can tell the Board that the company has not decided yet what it will recommend to the Board or propose if this deferral account is approved in this case.

655
MR. VLAHOS: Thank you.

656
I read the letters, the letter on the first page, that's the March 19th letter, the second paragraph, the last line: "Discussions and proposals to address the negative impacts were only recently finalized." Were those finalised by the company or by the company plus in consultation with the ten and therefore the ten would be cognizant that eventually they will have to pay for those costs?

657
MR. HORTON: The finalisation of the proposal is not in discussion with all of the ten customers. There is one customer in particular who is forecasted to experience quite negative impacts, who is aware of that. However, in terms of attempting to derive a strategy for these customers, prior to a final decision being made, we did not feel that it would be prudent to involve all of them and thus, essentially, be making a form of promise or setting an expectation prior to any rate mitigation being accepted.

658
MR. VLAHOS: Are these customers, to your knowledge, Mr. Horton, are they those using meters, do they plan to stay on those meters, or are there any plans to go to, for example, interval meters; do you know?

659
MR. HORTON: I only know what they have done to date, and at this stage we have not -- we have not encountered anyone -- any of them that plan to go to interval meters at this time.

660
MR. VLAHOS: Wouldn't it make sense for them, if they're large enough, as you describe, that some of them would consider investing in interval metering, if those rates only will have a short life? Maybe I'm putting you on the spot.

661
MR. HORTON: That's such a broad question I'm afraid to -- it really wouldn't be for us, in trying to look at this rate strategy, to make the assumption not knowing all of their businesses as well as we might, whether they would benefit or not benefit from it, so we tried to leave that out as a consideration.

662
MR. VLAHOS: Now, you're suggesting that those rates would have to be in effect by market opening; correct?

663
MR. HORTON: Yes.


664
MR. VLAHOS: So I'm just looking at the -- the logistics of getting there, if the Board is inclined to accept such proposal. And perhaps, Mr. Rogers, this is a question for you.

665
MR. ROGERS: Yes.

666
MR. VLAHOS: How do you see the world unfold on this specific issue? Because clearly we're not going to complete this process and final argument and decision on the other matters before market opening dates. So did you have anything in mind? Have you turned your mind to it?

667
MR. ROGERS: I perhaps should take some advice and come back to you on that, Mr. Vlahos. Could I take that under advisement and inform you in the morning?

668
MR. VLAHOS: Yes. I guess what I'm wondering is, I have no idea, and I can't speculate on where the others parties may come from on this issue, so it's a mini-hearing within this hearing that we have to worry about.

669
MR. ROGERS: Yes. If I could, I'd like to take that under advisement, and I'll take some instruction and inform the Board tomorrow morning.

670
MR. VLAHOS: Okay. Dr. Zerker has a follow-up question.

671
MS. ZERKER: Yes. Going back to you, Mr. Horton, please. You said that there are no customers that are in the -- close in terms of your criterion. So could you tell me what the impact would be of the $6 -- I always have to look over there -- the $6.62 to the nearest customer? What would the effect be on the nearest customer to that criterion? I realise that what you're trying to do is create an environment of fairness, and what I'm asking about is if this fairness environment is going to be extended, or is it reasonable for the next -- of the 57 that is not included? Can you tell me that?

672
MR. HORTON: I can't tell you off the top of my head, but I can certainly get the information for you.

673
MS. ZERKER: I'd appreciate that, thank you.

674
MR. ROGERS: We'll do that, Dr. Zerker, and inform the Board as soon as we can.

675
MS. LEA: That will be undertaking H1.1, and that is information regarding customers in the same class as time-of-use mitigation customers.

676

MR. ROGERS: I think that's sufficient. I think I understand the purport of the question, and we'll try to provide some information that answers to your understanding and hopefully helps you.

677
UNDERTAKING NO. H.1.1 TO PROVIDE INFORMATION REGARDING CUSTOMERS IN THE SAME CLASS AS TIME-OF-USE MITIGATION CUSTOMERS

678
MR. VLAHOS: Just one moment, Mr. Rogers.

679
Thank you for indulgence.

680
Mr. Rogers, I want to know -- one of the, I guess, questions that we have is the degree to which the customers are aware that eventually they'll have to -- they may have to pay for those costs they are not going to pay over the next couple of years. So is there anything in addition to what has been spoken to that you can give us some comfort in that customers would be made aware of it, or is there not?

681
MR. ROGERS: Well, I'd like to take some advice about that. But I can say this: The company's proposal is that this deferral account would be dealt with in full at the next rate case, and all of those customers would be put on notice of whatever the company's clearing proposal was. So they would have an ample opportunity to make representations. That may give you some comfort. For the purpose of -- in the context of this case, however, I'd like to talk to my advisors and see if I can give you further evidence or information about their level of knowledge about one of the possible options that this may be a gift that is returned some day. I understand the Board's concern.

682
MR. VLAHOS: Yes. I'm sure you do, Mr. Rogers. You've been before the Board for many years now, and having a disposition issue of a balance that may take you back two, two and a half years, it may create some substantial problems for the customers, for the Board --

683
MR. ROGERS: Yes.

684
MR. VLAHOS: -- if there is not adequate notice at this time. So that is where we have some degree of discomfort is to -- how do we go forward in this issue. But in any event, I understand Mr. Horton will not be around tomorrow.

685
MR. ROGERS: He will not be here tomorrow, but hopefully you'll excuse him. He does have some personal problem to deal with. He will be returning, and perhaps that is satisfactory to the Board.

686
MR. VLAHOS: That's fine. At that time, perhaps you can turn your mind as to how we implement this issue if we're inclined to do so.

687
MR. ROGERS: We'll -- I'll provide the information to the undertakings given this morning before Mr. Horton returns, and hopefully then he can answer any additional questions you may have arising out of that information.

688
MR. VLAHOS: That's fine, Mr. Rogers. Thank you.

689
These are all the Board's questions. Any redirect, Mr. Rogers?

690
MR. ROGERS: No, thank you, not today.

691
MR. VLAHOS: Okay. Thank you, Mr. Horton.

692
Where do we go next then, Mr. Rogers?

693
MR. ROGERS: My next panel will be Dr. Poray dealing with the low-voltage issue. I have some evidence to lead from him in chief but I don't know that we would finish it by 1:00. My suggestion is that we adjourn now and reconvene in the morning. I think the evidence in chief of Dr. Poray -- he is going to just explain to the Board the rationale behind the proposals concerning low voltage. It will probably be less than an hour but more than half an hour.

694
MR. VLAHOS: Mr. Rogers, we were just talking whether it would be of benefit to the parties if they have some flavor as to what the issue is all about. I'm not suggesting that, you know -- if you don't feel comfortable in not completing today, that's fine as well. But if you think that you can do parts of it now so that you can give us a heads-up as to what to expect. We would not insist on that.

695
MR. ROGERS: I think we could do it today. I think the parties are well aware, I know they are well aware of the issue, but I'd be quite willing to do it today. I think we can start Dr. Poray, and if we don't finish it, we can do it tomorrow.

696
MR. VLAHOS: Let's see how far we get at 1:00.

697
MR. ROGERS: Can I ask that the other witnesses be excused, then, for the time being, to be recalled if the Board requires?

698
MR. VLAHOS: Sure, with the Board's thanks.

699
MR. ROGERS: Mr. Vlahos, I'm just informed that I do not have some of the exhibits that were going to be used in Dr. Poray's presentation here in the hearing room right now.

700
MR. VLAHOS: The Board's efficiency has taken you by surprise.

701
MR. ROGERS: It certainly did. Not the efficiency, but just the silence of my friends for which I'm eternally grateful. It's unusual but it's very much appreciated. So it may just cause confusion if we try to start now. I appreciate what you're trying to do.

702
MR. VLAHOS: That's fine.

703
MR. ROGERS: Could we deal with it in the morning?

704
MR. VLAHOS: Let's do that, then.

705
Any other matters, Ms. Lea or Mr. Rogers?

706
Okay. We'll start tomorrow at 9:00, 9 till 1. Thank you. We're adjourned for the day.

707
--- Whereupon the hearing adjourned at 12:40 p.m.