Rep: OEB
Doc: 128R8
Rev: 1













ONTARIO ENERGY BOARD

Volume: 2

03 APRIL 2002


BEFORE:



P. VLAHOS

VICE CHAIR AND PRESIDING MEMBER

S. ZERKER

MEMBER

F. PETERS

MEMBER

A. BIRCHENOUGH

MEMBER



1
RP-2000-0023 TRANSCRIPT VOLUME #2

2
IN THE MATTER OF the Ontario Energy Board Act 1998, S.O. 1998, c.O.15.15, Schedule B; AND IN THE MATTER OF an Application by Hydro One Networks Inc., for an order or orders approving or fixing just and reasonable rates.

3
RP-2000-0023 TRANSCRIPT VOLUME #2


4
03 APRIL 2002

5
HEARING HELD AT TORONTO, ONTARIO


6
APPEARANCES

7

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

ECAO

MICHAEL JANIGAN

VECC

YANNICK VENNES

VECC

ANDREW TAYLOR

POWER BUDD COALITION

JAMES SIDLOFSKY

BLG COALITION

TED COWAN

ONTARIO FEDERATION OF AGRICULTURE

ROGER WHITE

ECMI



8
TABLE OF CONTENTS

9

PRELIMINARY MATTERS:

[18]





DECISION:

[86]





HYDRO ONE NETWORKS INC. - PANEL 2

[92]





EXAMINATION BY MR. ROGERS:

[94]





CROSS-EXAMINATION BY MS. LEA FOR MR. MCGEE:

[315]





CROSS-EXAMINATION BY MR. FISHER:

[364]





CROSS-EXAMINATION BY MR. MCLORG:

[582]





CROSS-EXAMINATION BY MR. JANIGAN:

[728]





CROSS-EXAMINATION BY MR TAYLOR:

[826]





10
EXHIBITS

11

EXHIBIT NO. I.2.1: SIMPLIFIED DIAGRAM OF DISTRIBUTION SYSTEM

[36]









EXHIBIT NO. I.2.2: EXCERPT FROM AN AGREEMENT OF PURCHASE AND SALE

[550]









12
UNDERTAKINGS

13

14
--- Upon commencing at 9:05 a.m.
15
MR. VLAHOS: Please be seated.

16
Good morning, everyone. Any preliminary matters, Ms. Lea or Mr. Rogers?

17
MS. LEA: Yes, I think there are several, from my point of view.

18
PRELIMINARY MATTERS:

19
MS. LEA: I -- yesterday, Mr. Chairman, you asked Board staff to look into the scheduling of the hearing and scheduling of panels. As you are well aware, we are not speaking with any certainty about this. We've discussed the order of panels with the applicant and intervenors and have some idea of how long they might take. I wonder if I could provide then to you orally this morning, our best guess on the understanding that it will no doubt change as we move along.

20
This morning we understand that the applicant will be bringing forward the low-voltage panel which consists of Mr. Poray, and that panel will probably take the remainder of this day, of today. It may or may not continue into tomorrow morning. Once this panel is complete, the line-losses panel will take the stand; that'll be Mr. Poray and Mr. Hubert. And we anticipate that that line-losses panel would be completed by the end of Thursday. We're not sure, of course, it may continue into Friday. If there is time on Friday, and we anticipate there will be, Mr. Snelson has kindly agreed to testify once the line-losses panel has completed its evidence. Mr. Snelson will be testifying for AMPCO.

21
Then on the Monday, the 8th, Mr. Horton will return to give evidence on quality-of-service and also, I understand, some follow-up evidence with respect to time-of-use rates. I haven't yet spoken to my friend from the Power Budd Coalition, but we anticipate that their panel would follow Mr. Horton but I want to talk to them before I make any further statements as to when they would be testifying.

22
So that takes us to the end of Monday and possibly into Tuesday, the 9th.

23
Sorry, Mr. Taylor, to take your name in vane there, can you help us at all with respect to this? Do you have constraints in terms of when your witnesses can appear?

24
MR. TAYLOR: I think Monday's going to be fine. I'll have to double check for any conflict.

25
MS. LEA: And would Tuesday be all right as well if that -- if we didn't get completed on Monday?

26
MR. TAYLOR: I think so.

27
MS. LEA: Okay, thanks.

28
MR. VLAHOS: Thank you, Ms. Lea. Anything else?

29
MS. LEA: There was one piece of paper that you will see on the dais before you that has not been given an exhibit number. Mr. Rogers, is it okay if I give this an exhibit number now? It's a simplified diagram of the distribution system.

30
MR. ROGERS: Yes, thank you, Mr. Chairman, that would be fine. This is a diagram that Dr. Poray will use in explaining the low-voltage issue to you, I hope.

31
MR. VLAHOS: Did you say simplified?

32
MR. ROGERS: That's right. That's right.

33
MS. LEA: That's the intent.

34
MR. ROGERS: This is an engineer's idea of a simple diagram.

35
MS. LEA: And it will be given Exhibit I.2.1. I.2.1., and that's a simplified diagram of distribution system.

36
EXHIBIT NO. I.2.1: SIMPLIFIED DIAGRAM OF DISTRIBUTION SYSTEM

37
MS. LEA: Thirdly, we have succeeded in having a hotline set up which is a recorded message which will indicate to parties who call in the state of the hearing. That hotline number is 416-440-7608. I think that's it for me. I think Mr. McClorg has some preliminary matters and probably Mr. Rogers.

38
MR. ROGERS: Yes, I do, sir. Could I -- I have some information really resulting from some inquiries from the Board yesterday in testimony regarding this time-of-use mitigation rate, and I believe you asked me some questions about the company's proposals and I would like to give you some information in response now if I could, sir.

39
MR. VLAHOS: Certainly.

40
MR. ROGERS: First of all, you asked about the implementation of the proposed time-of-use mitigation rate. Can I just back up and give some of the background to put this all in context.

41
On March 18, 2002, Networks applied to the Ontario Energy Board for an amendment to its January 19, 2001 application to provide for approval of a transitional mitigation rate for 10 existing time-of-use retail customers who would face significant bill impacts at market opening. In its March 18th letter, Networks requested that the Board provide interim approval of the rate for implementation at market opening.

42
Now, yesterday, you asked me if the applicant could clarify its proposal concerning the implementation of the mitigation rate as the Board's approval is likely not going to be given in time for implementation at market opening. That is the Board's decision in this case.

43
The company's proposal is that at market opening Networks would charge the applicable interim unbundled rate approved by the Board in its Interim Decision and Procedural Order No. 9, dated March 26, 2002. These rates would be charged until superceded by a further order of the Board setting out final rates for these customers.

44
Following the Board's decision on the time-of-use mitigation matter, Networks would implement the Board's approved rate for the 10 customers effective on the date the Board indicates in its decision. Now, depending on the Board's decision on this matter, if an adjustment to customer rates is required as a result, Networks would adjust the rate accordingly and, if appropriate, refund to customers any amount that was overcharged as a result of the Board's decision. That is the proposal.

45
Now, may I also say that yesterday, during Mr. Horton's testimony, there was, I fear, some confusion about this rate. I can advise the Board and my friends that the company will be filing shortly a package of rate schedules, many of which have not yet been filed with the Board, to update the evidence and to provide final proposed rate schedules.

46
Included in that package will be an amended time-of-use mitigation rate. I want to deal with what I think was a misunderstanding and some incorrect evidence, perhaps in part, about the service charge. Mr. Horton testified that a service charge does apply. The rate that was before you, I don't think, showed the service charge on it and that is to be amended, and I will do that as part of this package.

47
I would also like to ask, although I think your order yesterday permits this, I would like the opportunity to discuss with Mr. Horton this isolated issue of the time-of-use rate because I'd like to recall him for re-examination to get it straight, and I need to talk to him to make sure I understand the situation. I just want to be sure there's no confusion left with the Board. I'm assuming I have everyone's agreement to do that.

48

MR. VLAHOS: Just on that point, Mr. Rogers, you may want to ask Mr. Horton to review the paragraph 430 in the transcript, where he makes reference to the rates handbook in which he thinks that there is a suggestion that time-of-use rates should be eliminated. Perhaps you can reconcile that with the retail settlement code, and just a bit of clarification as to what is the understanding of Mr. Horton and the company.

49
MR. ROGERS: Very good, I will do that. I'll deal with that, if I can, when I bring him back next week. He's unavailable until then.

50
Finally, sir, I think one of your colleagues asked me to clarify the company's position concerning the time-of-use deferral account, and there was some discussion by Mr. Horton, you may recall, about the company's plans as to how this account would be cleared. I'd like to make it clear that Networks requests, as part of this application, that the Board approve establishment of a deferral account to reflect decreases in revenues related to the establishment of the time-of-use mitigation rate. At this time, Networks has made no decision on how to dispose of the deferral account balance; Networks currently anticipates that it will make an application for disposition of the account when it files its 2004 rate application in 2003. At that time it may propose collecting the balance from specific customer groups or from all of its customers or some other combination. So I just want to be left -- the Board to be clear that the company has not decided, if you approve this deferral account, how it will seek to clear it. I hope that helps you.

51
MR. VLAHOS: Thank you, Mr. Rogers. Again on that point, I guess the evidence was quite clear yesterday that was the -- that was the intent that the company had not concluded that that's the -- you know, that's the only option. I guess the concern from the panel was that whether the customers were notified or would they be aware that eventually they may have to pay for those costs, and that was the source of the conflict.

52
MR. ROGERS: I understand. I hope that helps. That's all I have this morning before we move to Dr. Poray.

53
MR. VLAHOS: Mr. Rogers, could I just clarify something about the market opening with respect to the time-of-use rates? Your suggestion is that the rates that are attached to Procedural Order No. 9 will survive May 1st and those would not include the mitigated rates for those customers.

54
MR. ROGERS: Yes, sir, that's right.

55
MR. VLAHOS: Right, and then the rates would apply -- eventually, it will be rates that will be attached to the final decision, and then there would be an adjustment as appropriate. Now, for example, if the Board finds that the rates should be lower than -- there should be some mitigation for those customers, then the proposal is that there would be a refund to those customers?

56
MR. ROGERS: Yes. Excuse me.


57
If the Board made your order effective at market opening, there would have to be a refund. I suppose the Board could make it effective as of the date of the order, in which case no refund would be required.

58
MR. VLAHOS: Okay. Thank you for that clarification.

59
Okay. Anything else?

60
MR. MCLORG: If I may, Mr. Chair.

61
I thought it would be procedurally expedient to address this as a matter of scheduling. Mr. Vlahos, there was an issue raised in your decision and Procedural Order No. 6, and it's very short, so if you don't mind I'll just read it into the record. It's found on page 4 and it has to do with the issue of Hydro One Networks' ownership of LV assets versus sale of these assets. The only matter I wish to just raise has to do with Hydro One providing a witness, presumably to answer only questions of clarification with respect to their policy. Toronto Hydro understands that there is not a matter for determination in this hearing, much less argument.

62
As of yesterday, it appeared that the copy that Hydro One kindly delivered to Toronto Hydro hadn't yet been located. I think it may have been fallen into the black hole that couriers sometimes use. I have got two copies with me now, and so I think from Toronto Hydro's perspective, we'd be happy if some provision might be made for intervenors to ask a few questions on this issue, perhaps at the end, or otherwise when the Board finds it to be convenient. I had thought the schedule had been tentatively mapped out until Tuesday, and certainly from our perspective we'd be happy to address it more or less as a clean-up matter at the conclusion of other matters.

63
MR. VLAHOS: Thank you, Mr. McLorg. Yes, I do have a copy of that procedural order and it does speak to the possible availability of a witness to discuss the statement if required, and I guess you require -- you're asking that this witness come forward.

64
MR. MCLORG: If I may, I'm feeling a little sheepish because I'm not 100 per cent certain that Toronto will have questions about it, but I think that -- I undertake not to make up questions for the sake of it, but I think that we'll probably have a few.

65
MR. VLAHOS: Mr. Rogers?

66
MR. ROGERS: Well, I suspect that resistance is futile. I don't -- my submission simply is I don't want this case to get sidetracked into a collateral issue. The Board made it clear that it's not an issue in this case. Of course, if you would like to have a witness here, I will have Mr. Hubert come and answer clarification questions.

67
The way I read this, it's -- if required by the Board. So if the Board requires a witness, we will of course produce one.

68
MR. VLAHOS: The Board does not have -- need to make a finding, Mr. Rogers, so I'm not sure the Board would require it. I guess the Board has to be guided by the desires or the wishes of the people, of the intervenors. Indeed, if it goes to the understandability of the policy that has been filed -- can I just canvass the other intervenors. Mr. White, you had your hand up.

69
MR. WHITE: Yes. I think the ECMI Coalition might have a couple of questions of clarification based on a cursory reading of the policy document, so it would be, again, just seeking clarification so that -- so that what has been filed is clear to all parties and there's something on the record that clarifies some of the questions that may be open.

70
MR. VLAHOS: Anybody else?

71
Ms. Lea, any advice on this?

72
MS. LEA: Well, it appears that the witness that would be brought forward would be Mr. Hubert, so he is attending for the line-losses panel. The way I read the procedural order, it appeared that the parties and the Board needed an understanding of the policy, and if parties can make sure that their questions relate to clarification and understanding, I think that the procedural order tends to indicate that they will have the opportunity to ask such questions. So my recommendation would be that at the conclusion of the line-losses panel, when Mr. Hubert is still here, that we take what sounds like it's going to be no more than half an hour to have everybody's questions answered about clarification.

73
MR. VLAHOS: So that issue does not go into argument --

74
MS. LEA: No, it does not. It's kind of the Board providing an opportunity or a forum for parties to ask those questions as the procedural order indicated. You are not required to make a finding on the issue.

75
MR. VLAHOS: So we wouldn't classify it as cross-examination, it's just questions for clarification.

76
MS. LEA: That's how I see it.

77
MR. ROGERS: Well, with that understanding, sir, I don't quarrel with that. I'm quite happy to have Mr. Hubert answer questions for the clarification of my friends.

78

MR. VLAHOS: Thank you, Mr. Rogers.

79
Ms. Lea, you'll put that into your next schedule as well.

80
MS. LEA: Yes.

81
MR. VLAHOS: All right. Any other matters?

82
Thank you, Mr. McLorg.

83
MR. MCLORG: Thank you, Mr. Chair.

84
MR. VLAHOS: Any other matters?

85
Actually, I do have one and that's the settlement proposal.

86
DECISION:

87
MR. VLAHOS: The panel has completed its deliberations on this matter. The panel was assisted by the further explanation and elaboration of the document which was provided yesterday by company witnesses. The Board accepts the settlement proposal as dispositive of the settled issues with the usual qualifications. That qualification, Mr. Rogers, you're aware of the usual caveats and that is that to the extent there is conductivity between the settled issues and the unsettled issues, and we don't know what they are, they may not be none, what we know for sure is we don't know at this time if there are any. So with that qualification, then, we do accept the agreement as part of the record.

88
MR. ROGERS: Thank you very much, sir. That's very helpful. Thank you.

89
MR. VLAHOS: With that, let's go to Dr. Poray.

90
MR. ROGERS: Thank you very much.

91
The next panel is Dr. Andrew Poray who will be testifying this morning on issue number 2, which is the cost allocation and design, including low voltage, and his evidence will essentially be dealing with the low-voltage issue which the Board can see is the main focus of interest on the part of the intervenors.

92
HYDRO ONE NETWORKS INC. - PANEL 2


93
A. PORAY; Previously Sworn

94
EXAMINATION BY MR. ROGERS:

95
MR. ROGERS: Dr. Poray, you've already been sworn to tell the truth in this proceeding and were qualified yesterday as a witness.

96
DR. PORAY: That's correct.

97
MR. ROGERS: Subject to some corrections made in the errata sheet filed as Exhibit I.1.5, do you accept the evidence that you have outlined as being within your responsibility, your evidence in this case?

98
DR. PORAY: I do.

99
MR. ROGERS: I think you did set out for us yesterday what areas of the evidence you are responsible for.

100
DR. PORAY: I did.

101
MR. ROGERS: We should just talk for a moment about your background here. You have been integrally involved in the development of the cost allocation leading to the proposal for low-voltage treatment in this case.

102
DR. PORAY: I have indeed.

103
MR. ROGERS: And I understand that you have participated in some stakeholder meetings and dialogue about this issue?

104
DR. PORAY: Yes, we did.

105
MR. ROGERS: And you're generally aware that this is an issue of some controversy for some of the customers of the company?

106
DR. PORAY: I'm aware so.


107
MR. ROGERS: Now, let's deal with some revisions with the evidence so we have this clear from the very beginning and no one is confused.

108
Can you explain why Networks has made the revisions? And I'm thinking particularly here with regard to the issue of the $29.2 million which is the sum that was allocated under the revenue allocation agreement, and the sum of $38.6 million which is the sum I understand your cost allocation indicates as appropriate to recover from low-voltage customers. Could you just lead us through the amendments and corrections that have been made so that we have it straight before we begin our dialogue this morning?

109
DR. PORAY: Certainly.

110
The revisions pertain to the existing low-voltage-related revenues of $29.2 million and the Networks' derived LV-related costs of $38.6 million. There are statements made in the evidence that imply linkages between the two numbers and possible explanation for the increase from $29.2 million to $38.6 million.

111
There are three areas where we have made amendments and these were recently submitted, and these three areas are: Exhibit E, tab 2, schedule 1, page 7, lines 17 and 18; Exhibit E, tab 2, schedule 1, page 18, lines 6 to 8; and Exhibit E, tab 2, schedule 2, page 23, lines 4 through 9.

112
MR. ROGERS: I should say, members of the Board, that these amendments were filed with the Board on March 28th, and there's a package that was provided to the Board and there are copies in the back of the room if anybody doesn't have them.

113
MR. VLAHOS: I wonder, Dr. Poray, if you can just identify the line number on that exhibit so we can highlight it as we go through. Do you have a copy of that exhibit in front of you?

114
DR. PORAY: Okay. The first exhibit is Exhibit E, tab 2, schedule 1, page 7, and it's lines 17 and 18.

115
MR. VLAHOS: I'm sorry, maybe I did not make myself understood. There is Exhibit I.1.5. This is the one sheet that goes to the back of it.

116
MR. ROGERS: Yes, that's the errata sheet. Which of those items, I think is the question, do these relate to?

117
MR. VLAHOS: Yes. If they're not identified there, that's fine. But if they are --

118

DR. PORAY: I don't think they are identified there because these were just errata, as opposed to specific pages that we re-filed.

119
MR. VLAHOS: That's fine.

120
MR. ROGERS: We will -- Dr. Poray, you're going to explain these changes a little later on this morning, why they were made and what their significance might be.

121
DR. PORAY: I will indeed.

122
MR. ROGERS: All right.

123
DR. PORAY: The revisions modify the statements in the original evidence, and I just wanted to bring this to the Board's attention --

124
MR. VLAHOS: Dr. Poray, I hate to interrupt you again. My colleague is asking whether those references are in the settlement agreement itself; do you know?

125
MR. ROGERS: No. This is not a settled issue.

126
MR. VLAHOS: Okay, sorry about that.

127
MR. ROGERS: No, these were not -- no, this is not a settled issue so it --

128
MR. VLAHOS: No, I understand. But usually there is reference provided even for the unsettled issues, aren't they?

129
MR. ROGERS: Yes. These are just some modifications that you'll hear that the company wishes to make to clarify some evidence as a result of some additional work that was done, really, in response to interrogatories. We dug a little deeper and found out some additional information and changed some of the pitch of some of the evidence. They want to make it clear, that's all.

130
MR. VLAHOS: I'll let Dr. Zerker take over.

131
MS. ZERKER: No, my -- I guess then my question is that I'm trying to find out where the references refer to the evidence, and is it specifically in the pre-filed evidence of Networks only?

132

MR. ROGERS: Yes, it is.

133
MS. ZERKER: Okay, that's fine.

134
MR. ROGERS: Yes it is. And there is a package which contains each of these little changes for a --

135
MS. ZERKER: Is that the package that we just recently received this morning.

136
MR. ROGERS: It was sent some time ago, it was sent last week, but --

137
MS. ZERKER: Well, last week.

138
DR. PORAY: And all of the pages that have been revised are yellow pages.

139
MS. ZERKER: Right.

140
MR. VLAHOS: I seem to be the only one who doesn't have the yellow version. Is there an extra copy, Ms. Powell? Thank you. Okay.

141
MR. ROGERS: All right. Actually, Dr. Poray can explain to us -- I think we're making more out of this than I needed to, but I just wanted to be sure there wasn't any misunderstanding. Dr. Poray, can you just explain these changes to us as it relates to this issue.

142
DR. PORAY: Certainly. Networks' knowledge of the LV system and related costs has been evolving and improving over time. Much of the information which pertains to customers resides with Ontario Power Generation and is not readily available to Networks. This is a difficulty that we have faced throughout the preparation of Networks' evidence. Further analysis and research and preparation of responses to interrogatories has shown that there are gaps in data and information which Networks has not been able to fill. As a result, we have not been able to establish direct linkages to previous cost-allocation studies which were thought to exist at the outset. It now appears that there is no linkage between the revenues of $29.2 million which Networks continues to receive from OPG and Networks' identified cost of $38.6 million. The $29.2 million figure was negotiated as part of the revenue allocation agreement, whereas the $38.6 million figure is the result of Networks' cost-allocation study.

143
As a result, we decided to amend the evidence in this area to reflect the information provided in the interrogatories, and I will speak to those parts later on in my testimony.

144

MR. ROGERS: All right. We will be coming back to this issue of the comparison of the $29.2 million which is in the unbundled rates, as I understand it, or at least is being allocated to Networks now under the revenue allocation arrangements, and the $38.6 million which you seek to recover as a result of this case.

145
DR. PORAY: That is correct.

146
MR. ROGERS: Now, just going back, then, can you tell us, what is the purpose of this evidence this morning?

147
DR. PORAY: The purpose of my direct evidence is to describe the key elements of Networks' proposal with respect to the allocation of LV costs and LV charges, and later I will also deal with the -- provide evidence with respect to the allocation of distribution losses.

148
MR. ROGERS: Can you tell us, please, how -- or describe the cost elements that make up Networks' low-voltage costs.

149
DR. PORAY: Certainly.

150
The cost elements that are eligible for consideration with respect to LV costs are low-voltage lines, distribution lines, distribution stations and miscellaneous costs. These shared costs cannot be assigned directly to any group of Networks' customers and, therefore, have to be allocated on some basis.

151
It should be noted that Networks' distribution is one of the entities that is also assigned a portion of these costs.

152
As a means of clarifying this statement, I would like to briefly explain at a high level the concept behind Networks' cost-allocation process and its outcome, and for this purpose I would like the Board and everybody else to turn to Exhibit E, tab 1, schedule 1, page 7.

153
MR. VLAHOS: Go ahead, Doctor.

154
MR. ROGERS: Can you use this diagram to explain to us in as simple fashion as you can, Dr. Poray?

155
DR. PORAY: I will do my best. On that page you can see a schematic diagram which shows the breakdown of Networks' total distribution revenue requirement into its component parts with respect to Networks' retail distribution and the LV costs which are to be assigned to non- Networks entities. I hope this helps everyone to understand how costs are allocated to LV as a result of the cost-allocation study.

156
If we start on the top of the diagram with the long box which is marked "Networks Total Revenue Requirement of $814.5 million." We first strip off the miscellaneous revenues which amount to $13.7 million since these are not related to the rates that are to be determined. So we are left with a residual amount of $800.8 million and this is the revenue requirement that is related to Networks' distribution business; in other words, its wires business.

157
Of that total, some $290 million, which can be seen in a box on the right-hand side under the cost-allocation study box.

158
MR. ROGERS: $289 million. Please don't round.

159
DR. PORAY: I'm sorry, $289 million. I was trying to do it at a higher level. That can be directly assigned to Networks' retail customers because this is the related cost of facilities used only to deliver electricity to those customers. No other customers benefit from those facilities and these do not play any part in the LV system. So what we are left with is a residual amount of $512 million which is LV-related revenue that cannot be directly assigned to customers and must be allocated. These costs represent the costs of common facilities that are used to deliver electricity to embedded local distribution companies, embedded former direct customers of Ontario Hydro, and Networks' own distribution stations.

160
Networks LV analysis then separates the costs and allocates these to Networks' retail distribution system and to the LV charges that will be paid by the non- Networks entities. The outcome of this process, which are the boxes at the very bottom, is that Networks' retail distribution system is allocated a total of $762.2 million, you can see that in the middle box, and that is to be used in setting the distribution rates for Networks' retail customers, and an amount of $38.6 million that is to be allocated to the Networks -- to the non- Networks entities, and that's the end of the cost-allocation process at a high level.

161
MR. ROGERS: The issue that we're dealing with now in this case is the $38.6 million that is being allocated to other than Networks' own retail customers.

162
DR. PORAY: That is correct.

163
MR. ROGERS: Dr. Poray, can you tell us, who are the customers which are served by Networks' low-voltage system?

164
DR. PORAY: As of 1999, the customers who are served by Networks' low-voltage system include 39 former direct customers of Ontario Hydro - those are typically customers which have a consistent consumption level above 5 megawatts - some 220 local embedded local distribution companies. This number is prior to the acquisitions/amalgamations, and portions of Networks' own retail distribution system.


165
Perhaps I can take the opportunity to explain in slightly more detail the general characteristics of Networks' distribution system.

166
MR. ROGERS: Now, we're going to set aside the diagram in the evidence and move to the new simplified diagram marked as Exhibit I.2.1for this discussion.

167
DR. PORAY: That's correct.

168
This is a schematic diagram of the arrangements which exist in 1999, and they still exist today. I apologize for the very busy diagram, but this is a very complex system. I just wanted to illustrate in the simplest way possible the variety of connections that exist within Networks' distribution system and why it is not readily possible to ascribe a simple description to the LV system.

169
Now, before we start I just wish to clarify one point of nomenclature, and that is when I refer to retail customers, I am referring to those end-use customers that are subject to Networks' retail distribution rates. These are the distribution rates that would evolve from the 762.2 million that was allocated to retail networks. So these are the retail customers. All other customers are non-retail, and are generally referred to as the embedded entities.

170
Now, what we can see in this diagram, and I don't propose to go step by step through this diagram because what I want is for you to get a picture of the complexity, and the fact that we have retail customers and non-retail customers who are connected all over the place. There isn't just one specific voltage that a certain group of customers is connected and another lower voltage where another group of customers is connected, they are connected all over the place. We have a combination of retail and non-retail customers that are connected at 44 kV at 27.6 kV and below those voltages.

171
What this means is that one cannot readily assign the use of facilities to any specific group of customers other than in the case in the very -- very low-voltage systems, where only retail customers are connected. So a large part of Networks' distribution system is a mishmash arrangement of facilities operating at a variety of voltage levels serving both retail and non-retail customers. This can be viewed as a common system of facilities which is used to deliver electricity to both retail and non-retail customers.

172
MR. ROGERS: I want to ask you to describe why the system is so complex. But before doing that, just dealing with this diagram, Dr. Poray, can you just point me, give me examples on this diagram of where I might find these different types of customers, just to illustrate the point that you've made.

173

DR. PORAY: Let's focus on the left-hand side of the diagram, starting on the box at the top which is labeled "TSs, 44 kV, 3-wire." These would be Networks' transformer stations that would step down voltage from above 50 kV, typically 115, 230, down to 44 kV. And we have a line that is running vertically down from that station which would be a 44 kV feeder. Where you can see that branching off to the left we have feeders that supply non-retail customers. Typically these are called direct feeders or express feeders and they serve only those particular customers.

174
MR. ROGERS: So that would be an embedded customer like a municipality or a large user?

175
DR. PORAY: That's correct.

176
MR. ROGERS: All right.

177
DR. PORAY: If we proceed down the vertical line, we'll see that there is an arrow going off to the right-hand side saying "retail customers." Here we would have some of what are the T-class customers which are connected at these voltage levels, and typically these would be large users, but below 5 megawatts.

178
We also have a line branching off to the left going to embedded non-retail customers, so again we could have large users and we could have local distribution companies. Then that line terminates at another box which is labeled "DS," standing for distribution stations, where the voltage is stepped down from 44 kV to a variety of voltage levels which are indicated just to the left-hand side of that box. And you can see that they can range from 27 to 16, down to 4.8 kV. And we have typically here is a 4-wire system which means we can have three-phase customers and single phase customers which are served from those facilities. You can see going down that line, branching off to the right-hand side, we have retail customers who are three-phase and single phase.

179
Also branching off to the left-hand side, we have a number of arrows which go to embedded, non-retail customers. So, here again, we have connections to local distribution companies and other non-retail customers. And then the line just continues to feed other customers further down, and there may be further transformation down the line.

180
MR. ROGERS: All right, thank you.

181
Now, can we set aside the diagram for now?

182
DR. PORAY: Yes, we can.

183
MR. ROGERS: This system seems to be a rather complex one. Why has this Networks' system such complexity in it; and is this something that is common to other utilities, or unique to your utility?


184
DR. PORAY: Networks assumed the ownership of the distribution system that was previously owned by the former Ontario Hydro. For historical reasons, the former Ontario Hydro made decisions to connect load customers and to deliver electrical supply to municipal boundaries by constructing low-voltage feeders instead of constructing transmission lines or transformer stations. The mandate of the former Ontario Hydro was to deliver power at the least cost for the benefit of the power pool which it administered.

185
The former Ontario Hydro also had a mandate under the then Power Corporation Act to be the supplier of last resort, and consequently those customers not served by the municipal electrical utilities were ensured delivery of electricity.

186
MR. ROGERS: Excuse me, can I just interrupt you there. Do I understand from what you've said that this low-voltage system that was constructed by Ontario Hydro could have been, in some measure at least, transmission facilities rather than low-voltage facilities?

187
DR. PORAY: Indeed, it could have been.

188
MR. ROGERS: But for reasons that, I guess made sense at the time, they decided to do it with low-voltage facilities to serve a quasi-transmission function; is that a fair way to put it?

189
DR. PORAY: That is correct.

190
MR. ROGERS: All right, thank you.

191
DR. PORAY: So for this very reason, Networks has two systems within its distribution system; namely, the low-voltage system which delivers electricity to the embedded entities, local distributions and end-users, and a distribution system proper which delivers electricity to Networks' approximately 925,000 retail customers as of 1999.

192
Other LDCs typically have no need for separating their distribution systems since their delivery systems evolved around the retail customers located within each municipal boundary. Consequently, these LDC distribution systems are much more compact. In most cases, the other LDCs do not contain embedded entities within their distribution system and so there was no need for them to develop an intermediary LV system.

193
Because the LV system was primarily developed to serve embedded entities, it comprises a mixture of facilities that are operated at different voltage levels and so a single voltage level or a category such as a sub-transmission system cannot be used to describe the LV system more precisely. In general, the LV system is comprised of 44 kV, 27.6/16 kV facilities, as well as lower voltage facilities that are used to deliver electricity to embedded entities.

194
MR. ROGERS: Dr. Poray, thank you.

195
Can you tell us, how are these low-voltage costs recovered today, and what is the magnitude of that recovery?

196
DR. PORAY: Today, LV costs are recovered through the use of wholesale bulk power rates that are administered by Ontario Power Generation in respect of all local distribution companies and direct customers of former Ontario Hydro.

197
This arrangement will continue until market opening when those customers who are embedded within Networks' distribution system will become Networks' customers.

198
The basis for the cost recovery is the former Ontario Hydro bundled wholesale rate structure that has been in existence since 1993. Networks lacks details of the revenues that are recovered by OPG in this respect as the customers from whom it recovers these revenues are not Networks' customers. Under the terms of the revenue allocation agreement, whose signatories are all the successor companies of the former Ontario Hydro, Networks receives from OPG an annual amount of $29.2 million in respect of all the LV charges.

199
MR. ROGERS: All right, thank you. Now may I just stop -- pause there for a moment. So that -- in today's system, an amount of $29.2 million is allocated from OPG to Networks to account for these low-voltage costs; is that right?

200
DR. PORAY: These are the revenues that are collected, that are assigned to Hydro One.

201
MR. ROGERS: Is there any way of identifying in the present bundled tariff charged by OPG what amount they are actually recovering from this system?

202
DR. PORAY: No, that is not possible for Networks to do.

203
MR. ROGERS: All right, thank you.

204
Now, earlier this morning we touched upon some modifications made to the evidence and I think it related to this issue of $29.2 million. Can you explain the modifications to the Board and why -- and what their significance is?

205
DR. PORAY: Certainly, I'll be happy to.


206
If we look, first of all, at Exhibit E, tab 2, schedule 1, page 7, which is the first of the yellow pages -- and we are focusing on lines 17 and 18 -- the reason for the revision that we made was to reflect the fact that the $29.2 million which Networks receives from OPG is not based on a cost-allocation study, nor is it a measure of the revenues received only from embedded customers. In the previous wording, that wasn't clear.

207
MR. ROGERS: And I gather, as you said earlier, it was because of some additional digging that was done to respond to some interrogatories, I think from Board staff, that you were not able to confirm that there was an underlying cost-allocation study with -- at Ontario Hydro which had been assumed to be the case?

208
DR. PORAY: That is correct.

209
MR. ROGERS: Okay, thank you.

210
DR. PORAY: The second amendment which we made relates to Exhibit E, tab 2, schedule 2, page 23, lines 4 to 9. And this is the third yellow sheet which has section 7.2, entitled: "Impact on total cost allocation of bulk power delivery."

211
MR. ROGERS: Okay.

212
DR. PORAY: The original wording of this paragraph suggested that the increase of revenues received from OPG in 1999 and the amount that resulted from Networks' own cost-allocation study was attributable to load growth. This is only part of the explanation, as indicated in Networks' response to an interrogatory which is found at Exhibit G, tab 1, schedule 57.

213
When Networks first submitted its written evidence, it understood the $29.2 million had its origins in a previous cost-allocation study that was done in support of the rate submission by the former Ontario Hydro. In preparing its responses to the various interrogatories, Networks conducted a more detailed search and concluded that the 29.2 million was not, in fact, backed by any cost-allocation studies done by the former Ontario Hydro. That being the case, Networks was not able to establish any linkages between the $29.2 million and the result and outcome of its own cost-allocation study reported in this submission.

214
The original wording was based on the assumption that because some of the charges were applied on a per kilowatt-hour basis, that it was load growth that caused the difference between the 29.2 million and the 38.6 million. However, in our response to an OEB interrogatory at Exhibit G, tab 1, schedule 57, Networks identified that an amount of $1 million as being attributable to an increase in load growth over the period 1999 to 2001, and therefore it's quite possible that there was an increase in the years since 1993 to 1999 that was attributable to load growth, but that is not the complete explanation.


215
MR. ROGERS: All right, thank you very much.

216
Now, is there another -- one other item that you wanted to draw our attention to concerning the description of how costs are allocated to embedded customers?

217
DR. PORAY: That is correct. This is with reference to Exhibit E, tab 2, schedule 1, page 18, lines 6 to 8.

218
MR. ROGERS: Just one moment. Is that found in this --

219
DR. PORAY: This is found on the yellow page which, at the top, has appendix A, sheet 2, "Revenue Requirement for Embedded Direct Customers and LDCs," and there is a table there, table 8. And just beneath the table are the lines that I'm referring to.

220
MR. VLAHOS: Give us the reference again, Dr. Poray.

221
DR. PORAY: It's Exhibit E, tab 2, schedule 1, page 18.

222
MR. ROGERS: It's on the back of the second yellow page in my package.

223
MR. VLAHOS: Go ahead.

224
DR. PORAY: Okay.

225
The original wording implied that Networks' allocation of costs was only to embedded direct customers and LDCs connected below 50kV. This is not correct as Networks has consistently stated elsewhere in its evidence the allocation of LV costs, particularly the shared LV line costs, would be to all LDCs and embedded direct customers. For example, Networks' evidence at Exhibit E, tab 1, schedule 1, page 4, lines 4 to 7, sets that out.

226
I just wanted to make that clear in case there was any confusion.

227
MR. ROGERS: Thank you.

228
Now, Dr. Poray, I'd like to deal with this issue of the difference between the allocation amount of $29.2 million under today's regime and the $38.6 million that you derive from your cost-allocation work. Can you explain how those two numbers compare and how they fit together.


229
DR. PORAY: Certainly.

230
Networks identified, through its cost-allocation study, that the 1999 LV-related costs which should be allocated to non- Networks entities amount to $38.6 million. When compared against the LV-related revenues that Networks receives from OPG in 1999 of $29.2 million, this represents an increase of $9.4 million, or a difference of $9.4 million.

231
From Networks' perspective, it has not been able to establish a direct linkage between the revenues collected from customers by OPG or the costs incurred in providing the LV system and the amount that it receives from OPG in respect of LV charges. Consequently, Networks cannot offer a breakdown of the cost increases and a meaningful comparison with the current amounts, since there are no records of the cost components that make up the revenue amount received by Networks from OPG.

232
As Networks has no access to such information, it is difficult to ascribe a meaning to the differential and what it has identified through its own cost-allocation study.

233
MR. ROGERS: All right, so -- thank you.

234
Your case, of course, is based on the results of your cost-allocation study, not on the amount that the revenue-allocation arrangement allocated.

235
DR. PORAY: That is correct.

236
MR. ROGERS: Can you explain to us, please, the unbundling of Networks' low-voltage costs as it relates to the rate handbook. What direction did you get from the rate handbook, I guess?

237
DR. PORAY: Certainly. The rate handbook requires the unbundling of distribution costs from the bundled costs that existed in 1999, and in this respect it provides the necessary processes that LDCs can follow to achieve the desired outcome. However, the handbook is silent on LV cost allocation and no methodology exists for unbundling the LV-related costs.

238
The handbook was directed mainly at the average LDC, which, as I explained before, has no requirement for an LV system. Networks is unique in this respect and, consequently, developed a process for achieving the desired outcome that is consistent with the intent of the rate handbook. Networks followed the principles of the handbook and unbundled its LV costs as these existed in 1999. Consequently, the purpose was achieved and the costs were made transparent.

239
MR. ROGERS: Could you please summarize for us the company's evidence, pre-filed evidence, with respect to the allocation of low-voltage costs.


240
DR. PORAY: Certainly.

241
Networks' proposal to allocate the 38.6 million pool of costs is in a manner that is similar to what is done today; that is to say, that the costs will be allocated to the following elements: they will be allocated to shared lines; to specific lines, LV; specific lines, distribution; high-voltage distribution stations; shared distribution stations; and specific distribution stations. This approach means that those who today are assigned payments under the various existing LV charges will continue to do so after the market opens.

242
Networks' proposal is that all LDCs and the former direct customers of Ontario Hydro that are embedded within its distribution system should be allocated these costs. Networks terms this as maintaining the status quo.

243
MR. ROGERS: All right. Can I stop you there, Dr. Poray. As you know, this is an area of some contention with the participants to this case.

244
DR. PORAY: Yes.

245
MR. ROGERS: The proposal, as I understand it, is that all customers who are presently being allocated or paying a portion of those costs under the existing system will, in the transitional period, under Networks' proposal, continue to do so until the next case.

246
DR. PORAY: That is correct.

247
MR. ROGERS: And that would be -- even though some of those customers, some of the local distribution companies and so on, may not be physically, directly using the low-voltage system.

248
DR. PORAY: That is correct.

249
MR. ROGERS: I guess that's really the point of contention, isn't it, in this case?

250
DR. PORAY: I believe that is so.

251
MR. ROGERS: All right, thank you.

252
Why do you propose such an approach?

253

DR. PORAY: The separation and making transparent the LV costs and associated charges, particularly the shared line -- low-voltage line charge, are part of the first generation of unbundling costs. In this respect, Networks' proposal is to maintain status quo and this is predicated on achieving a balance between the desires of unbundling the wires charges and minimizing cost shifting between customer groups.

254
Networks followed the intent of the handbook which is to unbundle costs as these exist in 1999. The handbook does not require a new cost-of-service or cost-allocation to be performed to achieve this intent.

255
Networks fully supports the intent of the handbook, which is to make costs transparent, so that these can be accounted for in an appropriate matter for the purpose of settlements that will apply when the electricity market opens in Ontario. The advent of unbundling the wires costs is not the time to address past decisions, such as cross-subsidies, and the handbook places no such requirements on local distribution companies. Furthermore, Networks did not have all the information at hand that would be required to allocate costs in alternative ways. For example, such information would pertain to the completion of acquisitions, mergers, and amalgamations of LDCs, that impact on the differentiation between specific line categories and shared line categories of costs.

256
Further, the harmonization of all customers that are connected to the LV facilities and the completion of connectivity studies that identify which customer is connected to which facility are necessary requirements.

257
MR. ROGERS: Can I stop you there. These connectivity studies, these are studies, I gather, that are conducted to determine who exactly is attached to the low-voltage system?

258
DR. PORAY: Who is attached to the low-voltage -- that's exactly the case.

259
MR. ROGERS: And do I understand that those studies have not yet been completed?

260
DR. PORAY: That is correct.

261
MR. ROGERS: All right, thank you.

262
DR. PORAY: All of this work requires time and effort to complete and cannot be done in the time lines of the current submission. Networks is undertaking these and other related activities as we speak and will address these matters in its next submission, which the company currently plans to file in the spring of 2003 for setting rates in 2004.

263
Networks believes that its proposal to maintain status quo as a transitional measure is therefore a reasonable approach as the first stage of unbundling these costs.

264
MR. ROGERS: Dr. Poray, you've indicated that this is the proposal for the transitional period. What about the customers who say that they are not physically connected to this system and therefore shouldn't have to pay for any of its costs?

265
DR. PORAY: There are a number of intervenors that have indicated their preference for what's call the user-pay approach to allocate in the shared line costs. However, the former Ontario Hydro distribution system which Networks has inherited was not developed with the user-pay approach in mind. The history of its development is predicated on connecting customers at the lowest cost for the benefit of all users of a power pool. Although the power pool is being done away with by the introduction of open access, the legacy of the distribution system that was built up over the years in support of this concept cannot be done away with in a similar manner. A change to user-pay will take time to develop as the complexity of Networks' distribution system is addressed in future cost-of-service and cost-allocation studies.

266
MR. ROGERS: Thank you. Can you just describe for us briefly Networks' proposal for its low-voltage charges? What charges would you propose?

267
DR. PORAY: Networks' proposal comprises a set of six charges that make up the LV charges. These charges are: the shared low-voltage line charge, which is 17 cents per kilowatt per month; a specific low-voltage line charge at $465 per kilometre; specific distribution line charge at $316 per kilometre; high-volt DS high charge at $1.48 per kilowatt per month; a shared distribution station charge at $1.87 per kilowatt per month; and a high-voltage DS low charge at $3.35 per kilowatt per month.

268
MR. VLAHOS: Dr. Poray, I'm sorry, where are those in the evidence?

269
DR. PORAY: If I may turn -- point you to Exhibit E, tab 3 --

270
MS. LEA: Schedule 1, page 32?

271
DR. PORAY: That is correct, thank you.

272
MR. VLAHOS: Thank you.

273
MR. ROGERS: I should also say, as I said this morning, Mr. Vlahos, we will be filing later in the week, I hope, the low-voltage rate schedules.

274
DR. PORAY: So all of those rates that I just mentioned are indicated in table 3.6, on page 32.

275

MR. ROGERS: Thank you, Dr. Poray.

276
We're nearly finished with this summary, but it might be useful if you could summarise for us the billing determinants for per-kilowatt charges.

277
DR. PORAY: With the exception of the shared line charge and the specific line charges, the other charges are based on non-coincident peak load determinant at each delivery point. The shared line charge is, in fact, a flat monthly fee that is based on the customer's average monthly peak demand in 1999, multiplied by the 17 cents per kilowatt per month.

278
MR. ROGERS: Thank you. What is the basis for the shared low-voltage line charge?

279
DR. PORAY: The shared low-voltage line charge determinant is different because Networks' proposal is to recover the shared line costs from all of the local distribution companies; namely, those that are connected to the LV system and those that are not.

280
The reason for choosing the 1999 billing demand is to reflect the fact that that is the only information Networks has with respect to the non-LV connected LDCs. Networks' distribution will not have a billing relationship with these LDCs in the open access market on a going-forward basis. By choosing the 1999 demand as the billing determinant, Networks is attempting to emulate the charges that would apply in 1999 based upon its cost allocation for 1999.

281
Further, Networks proposes this charge as a transitional measure until the second generation PBR submission, at which time it will have completed its relevant studies that will address the issues identified as a result of the unbundling of these costs.

282
MR. ROGERS: So it would be based on 1999 demands?

283
DR. PORAY: That is correct.

284
MR. ROGERS: And it will look like a fixed charge to customers?

285
DR. PORAY: That is correct.

286
MR. ROGERS: Wouldn't this -- what do you say about those who say that this is unfair to customers whose demands may differ from 1999?

287

DR. PORAY: Networks has no means at this time of obtaining demand data on a going-forward basis; for example, for 2001 or for 2002, and consequently it was unable to ascertain the future demand on which to base its charges. It may be possible for Networks to obtain this information in the future, but at this time the best information it has is the 1999 billing data. We recognize there are shortcomings with this approach, but that is the best that we can do with the information at hand.

288
MR. ROGERS: All right, thank you.

289
Could you summarize for us how Networks' proposed low-voltage charges compare with the charges currently administered by OPG?

290
DR. PORAY: Certainly.

291
When compared on a rate-by-rate basis, the impacts are as follows: shared line charge, there's an increase of 35 per cent over the estimated base value in 1999; the specific LV line charge shows an increase of 11 per cent; the specific distribution line charge shows a decrease of 25 per cent; the high-voltage DS high charge shows an increase of 44 per cent; the shared DS -- distribution station charge shows an increase of 15 per cent; and the high-voltage DS low charge shows an increase of 26 per cent.

292
In addition, the embedded LDCs and former direct customers of Ontario Hydro will be assessed a loss charge that will depend on their point of connection in Networks' distribution system.

293
Inasmuch as these are significant increases on a low-voltage rate basis comparison, it should be recognized that the low-voltage charge is but one component of the total electricity bill -- and a fairly small one at that. Networks provided a comparison on a total-bill basis in its response to an OEB interrogatory at Exhibit G, tab 1, schedule 64, where it was shown that the largest increase on a total-bill basis was 2.3 per cent.

294
MR. ROGERS: Thank you. Can you comment on the proposed rate increases compared to existing rates?

295
DR. PORAY: Networks has no means of judging the level of increases with respect to existing rates because it has no base for the costs that were included in the former Ontario Hydro rate structure. The former Ontario Hydro LV rates have generally been frozen since 1993.

296
Further, Networks has no means of tracking the components that make up the various rates and their changes since 1993, in order to do a more meaningful comparison.

297
MR. ROGERS: Thank you. Dr. Poray, does Networks propose any mitigation measure for these LV rates; and if not, why not?

298

DR. PORAY: Networks did not propose a mitigation plan for the LV charges because it has no basis on which to develop such a plan. It did not have access to customer information to determine what customers were paying in 1999. Consequently it has no yardstick by which it could develop a mitigation plan in the way that it did with respect to its retail distribution customers.

299
As I noted before, the impacts on a total-bill basis are relatively small and of similar magnitude to the impacts noted in the unbundling of Networks' retail distribution rates.

300
MR. ROGERS: Thank you. Are there any implementation issues associated with Networks' proposal that we should be aware of?

301
DR. PORAY: There are no major implementation issues with Networks' proposal. The shared LV line charge that will apply to all LDCs will require Networks to issue a bill to the non-LV-connected LDCs with whom it will not normally have a distribution, distributor-customer relationship. By adopting the 1999 billing demands, Networks' charges will be fixed monthly fees that do not require regular calculations or updates, since these would not be dependent on the LDCs' actual demands.

302
MR. ROGERS: Thank you. While we're dealing with this issue of impacts, can you explain how Networks' low-voltage charges that apply to the former direct customers of Ontario Hydro compare with the charges applied to large users and other LDCs?

303
DR. PORAY: The LV charge is applicable to end-users served from Networks' LV system are designed to be consistent with status quo LV charges as a transitional measure. In this respect, these charges differ from the applicable charges for comparable end-users connected to other LDC distribution systems. The comparison cannot be made readily because the other LDCs do not have a comparable LV system. In any case, Networks does not have the information to do a customer-bill comparison.

304
MR. ROGERS: Thank you.

305
Finally, Dr. Poray, can you tell us whether Networks' low-voltage rate structure is consistent with the rate structures proposed in the rate handbook.

306
DR. PORAY: Networks' LV charges for the end-users have a different rate structure than the charges for comparable end-users located in other LDC distribution systems. The reason for this is that the other LDCs do not have a need for the LV system, and therefore their rate structures are developed to be consistent with the principles in the rate handbook.

307

It is Networks' intent to address the issues arising from the unbundling of its 1999 LV costs and rates as part of its future submission when it will have the necessary data and information to enable it to look at the various options that may be considered in this respect.

308
MR. ROGERS: All right, thank you. Now, does that complete your summary of the company's application with respect to low-voltage issues?

309
DR. PORAY: That is it.

310
MR. ROGERS: Thank you. Mr. Vlahos, those are my questions. Dr. Poray is available for cross-examination.

311
MR. VLAHOS: Thank you, Mr. Rogers.

312
Ms. Lea, we decided on a schedule of cross-examiners that would have Mr. McGee to lead. I don't see him here. Do you have any information?

313
MS. LEA: Yes, I do, Mr. Vlahos. Mr. McGee is unable to attend the session today due to a death in the family, and he has e-mailed me some questions that he has asked me to ask on his behalf and I'm prepared to do that, and I'm prepared to do that as the first cross-examiner if that suits the Board's purposes.

314
MR. VLAHOS: That's fine, Ms. Lea. Go ahead.

315
CROSS-EXAMINATION BY MS. LEA FOR MR. MCGEE:

316
MS. LEA: Dr. Poray, as you know, Mr. McGee represents the Federation of Ontario Cottagers' Associations and I presume, therefore, that he is concerned about the level of rates paid by direct retail customers. I wonder if I could ask you a few questions on his behalf.

317
Why is Hydro One not proposing any monthly service charge for its large users of embedded LDCs?

318
DR. PORAY: As I noted in my direct evidence, the charges which Hydro One Networks proposes for its LV charges are structured on the same basis of the existing charges. That's -- we're proposing to maintain those as a transitional measure, and these charges do not have, today, a fixed charge.

319
MS. LEA: So it's as a result of history?

320

DR. PORAY: It's as a result of history, yes.

321
MS. LEA: Where do the costs reside for metering, customer care, billing, collection, meter reading, that kind of thing, for these large users if they do not pay a monthly service charge?

322
DR. PORAY: Some proportion of metering costs are included in the miscellaneous charges which are allocated to the LV costs, but the customer care costs were not allocated since these were not customer -- Networks' customers in 1999.

323
MS. LEA: So who pays those costs now?

324
DR. PORAY: These costs are allocated to Networks' distribution customers.

325
MS. LEA: Okay. How does Hydro One justify the vast difference between the $33,330 distribution bill of a 5,000 kilowatt T-class customer and a proposed $850 bill for a 5,000 kilowatt large-use or former direct customer? And I can tell you where I think those numbers are coming from.

326
I believe that the figure -- let's start with the figure of $850, comes from Exhibit E, tab 3, schedule 1, page 32, you referred us to earlier. If you take the 17-cent charge for embedded direct customers, under shared lines --

327
MR. ROGERS: Sorry, can I just turn it up.

328
MS. LEA: Yes. Exhibit E, tab 3, schedule 1, page 32.

329
MR. ROGERS: 32? Thank you. The witness has it?

330
DR. PORAY: Yes, I do.

331
MS. LEA: Under the column embedded directionals, these are the 17-cent charge there, and I believe the calculation that Mr. McGee has done is 5,000 kilowatts times that 17 cents. He then looked at the charges that a 5,000 kilowatt T-customer would pay. Now, the page that I have comes from the existing rate schedule, and we referred to it yesterday. There was a demand charge of $6.62. It's page 21-5 of the rate schedule that was approved on an interim basis. You looked at it yesterday when I was asking you about time-of-use rates.

332
DR. PORAY: Excuse me for a moment.

333

MS. LEA: Yes.

334
So that's the interim approved rate schedules, page 21-5.

335
MR. ROGERS: Just one moment. I'm looking for it.

336
MS. LEA: Yes. I'm sure it's difficult to find all these pages.

337
MR. ROGERS: It's attached to Procedural Order No. 9.

338
MS. LEA: Yes, it was -- oh, was it? Yes, it was. That was where I got my copy yesterday. It's an easier place to find it, perhaps.

339
MR. ROGERS: We're closing in on it now.

340
DR. PORAY: I've got Procedural Order No. 9. Which page?

341
MS. LEA: I believe it's the last page of the procedural order. It's page 21-5 of the rate schedule that was attached. Five?

342
DR. PORAY: I have it.

343
MS. LEA: Okay. That was the page that we looked at yesterday briefly with the time-of-use cross-examination.

344
You'll see that there's industrial-commercial-subtransmission T-class listed in the middle of the page.

345
DR. PORAY: I do.

346
MS. LEA: I believe that what Mr. McGee has done to get this calculation is take the 6.62 cents, multiply it by 5,000 for the kilowatt, and added the service charge, monthly service charge, of $229.30, to give you a total dollar figure of $33,329.30. The question is: How does Hydro One justify the difference between that $33,330 bill to the $850 bill that was calculated for the embedded direct customer?

347

DR. PORAY: The process that Networks has followed is to unbundle the rates as they exist in 1999, following the intent of the principles of the handbook. The T-class customers are customers which, in 1999, were Networks' distribution customers, and these were the rates that were derived on that basis. And the calculation that Mr. McGee has done would reflect those numbers.

348
The LV customers, again, the charge is as it pertains to customers in 1999, unbundling those customers and costs in 1999. So there is a disparity between those two.

349
MS. LEA: All right. So, as I understand your answer, then, the rates are based on history. You acknowledge there is a disparity; is that the case?

350
DR. PORAY: I acknowledge that there is a disparity, yes.

351
MS. LEA: Yes. The next question, then, is: Does Hydro One have a plan for correcting these inequities or cross-subsidies in the future, in the near future?

352
DR. PORAY: I noted in my direct evidence that Networks will be addressing the issues that have come to light as a result of the unbundling of costs as part of its submission for 2003 rates.

353
MS. LEA: When would those rates actually come into effect? Can you assist us with that?

354
DR. PORAY: The 2003 submission?

355
MS. LEA: Yes.

356
DR. PORAY: Those will be for rates in 2004.

357
MS. LEA: 2004.

358
One moment, please. Thank you very much. Those are questions the -- those are the questions Mr. McGee asked me to ask. Thank you for your indulgence, Mr. Chairman.

359
MR. VLAHOS: Thank you, Ms. Lea.

360
Mr. Fisher, are you ready to proceed, or would you prefer a break now?

361
MR. FISHER: I'm at your disposal, sir. Our questions will probably last less than 40 minutes.

362
MR. VLAHOS: Okay. Well, let's take about 15 minutes of questions and then we'll take our break at about a quarter to eleven.

363
MR. FISHER: Okay, thank you.

364
CROSS-EXAMINATION BY MR. FISHER:

365
MR. FISHER: Good morning, Dr. Poray.

366
DR. PORAY: Good morning.

367
MR. FISHER: As you know, AMPCO represents large industrial electricity consumers. Some AMPCO members are large users of former MEUs; others are direct customers of former Ontario Hydro; and in both cases they are greater than 5-megawatt loads in order to qualify for rates.

368
First I want to consider how these different classes of industrial customers arose under the former Ontario Hydro MEU structure, and first I'd like to consider a new industrial load, how it was treated under the old structure, assuming that the load is over 5 megawatts and the chosen supplier arrangement is at 44 or 27 kV.

369
First question: Is it true that if this customer was outside the territory of an MEU, the customer would have been a direct customer of Ontario Hydro?

370
DR. PORAY: That is my understanding.

371
MR. FISHER: Is it true that this type of customer, under the new structure, will become an embedded, direct customer of Hydro One distribution system?

372
DR. PORAY: That is correct.

373
MR. FISHER: Would you agree that under the Hydro One proposal this customer will pay a rate of 17 cents per kilowatt hour, line B charge, for the use of Hydro One LV assets?

374
DR. PORAY: An existing customer that exists today?

375
MR. FISHER: Yes.

376

DR. PORAY: They will pay 17 cents, yes.

377
MR. FISHER: Now, I want to look at the same type of customer in an MEU. Is it true under the old structure, the MEU had exclusive rights to supply loads within a service area?

378
DR. PORAY: I believe that is the case.

379
MR. FISHER: Is it true that if the MEU did not relinquish its exclusive rights to supply, this customer would have become a large user of the MEU?

380
DR. PORAY: I'm not sure of that. I can't speak for that.

381
MR. FISHER: Would you agree that under the present structure, this customer would now be a large user of an LDC other than Hydro One?

382
MR. VLAHOS: Mr. Fisher, you have to speak louder or come closer to the microphone.

383
MR. FISHER: Do you want me to repeat that?

384
DR. PORAY: Yes, I would like some clarification, please.

385
MR. FISHER: Would you agree that under the present structure, this customer that we referred to earlier would be a large user of an LDC under Hydro One.

386
DR. PORAY: I'm assuming that customer is connected to the distribution system of the LDC.

387
MR. FISHER: Yes.

388
DR. PORAY: Then they would be a large user.

389
MR. FISHER: Thank you.

390
If we assume that this customer is connected to 27.6 or 44 kV facilities, is it true that this customer will now pay the large-user distribution rate of the LDC for the use of those facilities for its supply?


391
DR. PORAY: I cannot speak for how the LDC would have done its cost allocation and rate design, but I'm assuming that the rates that were designed for large users would apply to the large user.

392
MR. FISHER: All right.

393
Would you agree that the similar over-5-megawatt customers supplied at 27.6 or 44 will be large users of an LDC, or embedded direct customers of Hydro One, depending on whether they happen to be in the service area of a territory of an ex-MEU or not?

394
MR. VLAHOS: Mr. Fisher, I believe the court reporter is having a bit of difficulty --

395
MR. FISHER: Louder?

396
MR. VLAHOS: I think probably a little fast for me, but not for the court reporter. But just your voice is not projecting well. You may want to shift your seat a bit. Go closer to Mr. Snelson and try that way. Otherwise, we can pull a couple of microphones together. That's it.

397
MR. FISHER: I'll have to take some projection lessons.

398
Would you agree that similar, over-5-megawatt customers supplied at 27.6 or 44 kV will be large users of an LDC, or embedded direct customers of Hydro One, depending on what -- the service area in which they're located?

399
DR. PORAY: I believe that is correct.

400
MR. FISHER: Thank you.

401
I'd now like to move on to Hydro One's proposal before the Board concerning large users and other customers in transmission-connected LDCs.

402
AMPCO has industrial members that are large users of former MEUs, members that are transmission-connected direct customers of the former Ontario Hydro, and members that are embedded direct customers connected at less than 50 kV through Hydro One distribution wires. I want to ask a few questions as to how these different classes of industrial customers are affected by the Hydro One proposal for LV line charges.

403

Is it true that the distribution-connected or embedded direct customers of Hydro One will pay the LV line rate according to the Hydro One proposal?

404
DR. PORAY: I believe that is correct.

405
MR. FISHER: Is it true that the electricity supplied to the distribution-connected direct customers flows through LV lines belonging to Hydro One?

406
DR. PORAY: Could you just repeat that, please?

407
MR. FISHER: Certainly. Is it true that the electricity supplied to the distribution connected direct customers flows through LV lines belonging to Hydro One?

408
DR. PORAY: That is correct.

409
MR. FISHER: Is it true that the electricity supplied to the transmission-connected direct customers does not flow through LV lines belonging to Hydro One?

410
DR. PORAY: That is correct.

411
MR. FISHER: Is it true that the transmission-connected direct customers of Hydro One will not pay the LV line rate according to the Hydro One proposal?

412
DR. PORAY: That is correct.

413
MR. FISHER: As far as the large users of former MEUs, it's a bit more complicated. Is it true that according to the Hydro One application, the transmission-connected LDCs will pay the LV rate?

414
DR. PORAY: That is the proposal.

415
MR. FISHER: Is it true that the electricity supplied to the transmission-connected local distribution companies does not flow through the LV lines belonging to Hydro One?

416
DR. PORAY: There are some LDCs where that would be true, but there are other LDCs where that would not be true.

417

MR. FISHER: Can you give us any idea what the proportion of the transmission-connected LDCs would be that have no LV facilities?

418
DR. PORAY: I believe there are 33 transmission-connected LDCs that have no LV facilities.

419
MR. FISHER: Thank you.

420
Can I rephrase that one and ask whether or not -- sorry. It's whether they use Hydro One LV facilities, not whether they have LV facilities themselves?

421
DR. PORAY: My answer was, specifically, that there are some local distribution companies which are connected at both transmission and distribution.

422
MR. FISHER: Thanks. Is it true that the transmission-connected LDCs are likely to pass through the LV charges that they pay through to their customers, including their residential, commercial, and large industrial customers?

423
DR. PORAY: I would assume that would be the case.

424
MR. FISHER: Thank you.

425
Is it true that indirectly the large users of transmission-connected local distribution companies will likely be charged for LV charges even though the electricity they consume does not flow through LV lines of Hydro One?

426
DR. PORAY: That is so.

427
MR. FISHER: We've established earlier that large users of LDC will pay for the 27.6 and 44 kV lines of their own utility through the large-user rates of their utility. Is it true that the large users of LDCs are likely to pay for LV -- the LV charge of Hydro One in addition to the large-user rate which pays for the 27.6 and 44 kV lines of their own LDC.

428
DR. PORAY: That is correct.

429
MR. FISHER: I want to ask a couple of questions related to the other customers of transmission-connected LDCs. According to the applicant's information in Exhibit E, tab 2, schedule 2, page 14, table 3 -- that's the revision from October of last year --

430

DR. PORAY: Can you just let me get there?

431
MR. FISHER: Yes.

432
DR. PORAY: Could you just say again? Exhibit E?

433
MR. FISHER: Yes, tab 2.

434
DR. PORAY: Yes.

435
MR. FISHER: Schedule 2, page 14.

436
DR. PORAY: Yes.

437
MR. FISHER: There's a table there that shows that 16,289 megawatts of load is supplied by LDCs other than Hydro One.

438
DR. PORAY: Yes, I have that.

439
MR. FISHER: And then -- I jump over to Exhibit E, tab 2, schedule 2, page 21, table 8.

440
DR. PORAY: Yes, I have that.

441
MR. FISHER: And that shows that 2507 megawatts of this load is supplied through Hydro One LV lines.

442
DR. PORAY: That's correct.

443
MR. FISHER: Would you agree, then, that about 85 per cent of non- Hydro One LDC load is supplied through LDCs that are entirely or largely transmission-connected?

444
DR. PORAY: That is correct.

445
MR. FISHER: Would you agree that this transmission-connected LDC load is mostly residential and commercial customers?

446

DR. PORAY: I'm sorry, could you repeat that question?

447
MR. FISHER: Yes. Would you agree that this transmission-connected LDC load is mostly residential and commercial customers?

448
DR. PORAY: I can't speak for the individual LDCs, what proportion their load is or what type of load is.

449
MR. FISHER: Can you say that many of them would be?

450
DR. PORAY: Probably.

451
MR. FISHER: Thank you.

452
Is it true, then, that this transmission-connected LDC load, including many residential and commercial customers, will pay for Hydro One LV lines even though the electricity they use does not flow through the Hydro One LV lines?

453
DR. PORAY: That is correct.

454
MR. FISHER: I now want to turn to the proposed use of the 1999 billing data for LV-line charges.

455
MR. VLAHOS: Mr. Fisher, if you are going to a new area, perhaps we can break now.

456
MR. FISHER: Certainly.

457
MR. VLAHOS: Let's repair at 11:15.

458
MR. FISHER: Thank you.

459
--- Recess taken at 10:45 a.m.
460
--- On resuming at 11:15 a.m.
461
MR. VLAHOS: Please, be seated.

462
Mr. Fisher, when you're ready.

463
MR. FISHER: Thank you.

464
I'd now like to turn to the proposed use of 1999 billing data for LV charges, and I think you covered a few of these points today. Does Hydro One have current billing data for transmission-connected LDCs?

465
DR. PORAY: It does, yes.

466
MR. FISHER: Will Hydro One have current billing data for transmission-connected LDCs after the market opening?

467
DR. PORAY: For the purpose of setting transmission rates, it will.

468
MR. FISHER: What about the distribution business of Networks, will that have that data?

469
DR. PORAY: It would only have data that is necessary for setting the distribution rates.

470
MR. FISHER: All right.

471
So as far as my first question is concerned, then, does Hydro One distribution have current billing data for transmission-connected LDCs?

472
DR. PORAY: No, these are kept separate.

473
MR. FISHER: Thank you.

474
Is the reason that Hydro One distribution has proposed to charge the LV line charges based on '99 usage while all other rates are based on -- sorry. Is this the reason that Hydro One has proposed to charge the LV charges based on '99 data while all the others will be on current usage?

475
DR. PORAY: The only application of 1999 data would be to the shared LV line charge.

476
MR. FISHER: I'd like to ask some questions about the differences between the old 1999 billing data and current billing data.

477

Is it true that with current expectations for the next rate proposal from Hydro One, the proposed LV charges will be in effect until at least the end of 2003, and as a result, by the end of the period for these proposed LV charges, the 1999 billing data will be about four years old?

478
DR. PORAY: For the shared LV line charge, yes.

479
I'd like to just qualify that. The reason which Hydro One used in support of that is that this is a transitional charge to see us through this first period of unbundling.

480
MR. FISHER: Thank you.

481
Would you agree that some utilities will experience significant load growth over a four-year period while other utilities will have stagnant load or even load declines?

482
DR. PORAY: I would agree that there would be variation of loads.

483
MR. FISHER: Would you agree that over this four-year period, there will have been substantial restructuring of distribution utilities, including mergers and acquisitions of utilities by Hydro One?

484
DR. PORAY: That is correct.

485
MR. FISHER: I want to ask some questions about a specific cause of a significant change in the structure and load of LDCs, and this has to do with the transmission-connected large users.

486
Would you agree that there are about 15 large users of municipal utilities that are, in fact, connected at transmission voltage?

487
DR. PORAY: I believe that is correct.

488
MR. FISHER: Would you agree that these 15 large users can become transmission customers of Hydro One under the Board's transmission rate order?

489
DR. PORAY: That is correct.

490
MR. FISHER: Would you agree that when these large users become transmission customers of Hydro One, they will no longer be customers of the LDC?

491
DR. PORAY: That is correct.

492
MR. FISHER: Would you agree that using 1999 billing data for LDCs will result in the LDC being presented with an LV charges bill for former transmission-connected large users that will no longer be customers of that LDC?

493
DR. PORAY: In totality, that will be the case.

494
MR. FISHER: I now want to ask some questions about Hydro One's proposal in relation to new industrial customers. And just for the rest of this cross-examination, whenever I say Hydro One, I'm referring to the Hydro One distribution business.

495
In answer to an AMPCO interrogatory that's Exhibit G, tab 4, schedule 3, part B, that's G, tab 4, schedule 3, part B --

496
DR. PORAY: I have it.

497
MR. FISHER: Thank you.

498
Hydro One stated that a new, over-5-megawatt customer connecting at 27.6 or 44 kV will be charged the T-class rate. Can you confirm that this is still your position?

499
DR. PORAY: That is correct.

500
MR. FISHER: Is it true that all the existing customers on the T-class rate are under 5 megawatts in load?

501
DR. PORAY: That is correct.

502
MR. FISHER: Can you confirm that, upon market opening, the proposed T-class rate for customers with demand meters will be a monthly charge of $225.80, plus $6.52 per kilowatt of demand? This is in Exhibit E, tab 3, schedule 1, page 22, of the revised data of September the 6th, and it's table 2-16B.

503
DR. PORAY: That is correct.

504
MR. FISHER: Is it true that the volumetric charge of $6.52 per kilowatt alone is more than 30 times greater than the 17-cent charge that existing over-5-megawatt customers will pay?

505

DR. PORAY: Even though numerically that is correct, I believe we are talking about two different rates. They are not comparable.

506
MR. FISHER: In what way are they not comparable?

507
DR. PORAY: In 1999 the T-class customers are customers of Networks' distribution system and therefore their class structure or rate structure is based on the distribution-rate handbook rate structure. The 17 cents is, if you like, a legacy rate structure that's carried over during the transition period where there is no customer charge, just a volume charge.

508
MR. FISHER: Nonetheless, it's a very different rate -- between an old customer and a new customer, for over 5 megawatts.

509
DR. PORAY: It's a different rate, yes. I'd like to qualify that. The reason why our response to interrogatory at Exhibit G, tab 4, schedule 3, part B, was that we would connect -- we would apply a T-class charge to a new customer, is that the 17 cents is not representative of the average LV cost. When you're connecting a new customer, one would consider what is the average cost of the facilities that that customer should pay. You can only do that, you can only arrive at the average costs once we have done all of the connectivity studies and the harmonization studies which include -- which would have to include the T-class customers; the large customers that are, today, Ontario Power Generation customers; the 39 directs I'm referring to; plus the large users that are in the local distribution companies which Hydro One has purchased. Only then can you -- once you've harmonized all of those customers that are connected to the LV facilities can you then come up with an appropriate charge.

510
MR. FISHER: Thank you.

511
I now want to turn to the alternative put forward by Hydro One in the application. If you could look at Exhibit E, tab 2, schedule 2, page 24, this talks about a user-pay approach to LV line charges.

512
DR. PORAY: Can I just confirm: It's Exhibit E, tab 2, schedule 2, page 22 --

513
MR. FISHER: 24.

514
DR. PORAY: 24?

515
MR. FISHER: Excuse me, it's page 22. I apologize.

516
DR. PORAY: This is under section 7: Impacts?


517
MR. FISHER: One moment, please.

518
DR. PORAY: Can I correct one thing? We did not put this forward as an alternative proposal, it's just merely reflecting what the cost allocation would look like if you were going towards a user-pay type of approach.

519
MR. FISHER: Right. Can you confirm that the user-only pool includes Hydro One's retail load, embedded direct-customer load, and the LDC loads that are supplied through the LV lines of Hydro One?

520
DR. PORAY: That is correct.

521
MR. FISHER: Can you confirm that Hydro One distribution has access to the current load data of all these customers because they are supplied by Hydro One distribution?

522
DR. PORAY: That is correct.

523
MR. FISHER: Can you confirm that Hydro One distribution will have access to the billing data of all these customers after market opening?

524
DR. PORAY: That is correct.

525
MR. FISHER: Can you confirm that after market opening Hydro One will collect transmission charges from embedded LDCs, embedded direct customers, and from Hydro One retail customers?

526
DR. PORAY: That is correct.

527
MR. FISHER: Can you confirm that the rate determinant for the transmission-connection rate after market opening will be monthly, non-coincident peak load?

528
DR. PORAY: I believe that is correct. I'd have to check with the -- with what's -- with what we submitted to the OEB which was approved on an interim basis, the other regulated charges.

529
MR. FISHER: All right.

530
DR. PORAY: But I believe that is correct.

531
MR. FISHER: Can you confirm that the monthly, non-coincident peak load is a suitable rate determinant for recovering the cost of LV lines?

532
DR. PORAY: That is correct.

533
MR. FISHER: Could we assume for a moment that the Board concludes that first LV-line costs could be recovered by the users-only pool as identified by Hydro One, LV line costs should be recovered using non-coincident monthly peak as the rate determinant, and the charge should be based on current usage rather than historical data. Given that Hydro One has prepared its forecasts of the necessary rate determinants to determine its transmission rates, can you confirm that Hydro One can calculate the rate required in a relatively short period of time?

534
DR. PORAY: Yes, I believe that can be done.

535
MR. FISHER: Thank you.

536
I just want to ask a couple of questions about how we got to the situation that we're in today.

537
Can you confirm that the issue of who should pay for LV lines was raised as long ago as the Market Design Committee in 1998?

538
DR. PORAY: I believe that is the case.

539
MR. FISHER: Can you confirm that the technical panel of the Market Design Committee could not agree on the treatment of LV lines and, in absence of agreement, accepted the status quo?

540
DR. PORAY: I believe that was the outcome.

541
MR. FISHER: And now we're four years later, and if the Hydro One proposal is accepted, we're no nearer to settling this question than we were in 1998.

542
DR. PORAY: That is correct. But I'd like to qualify that; that in unbundling its costs, Networks has followed the intent and the principles of the handbook which is to unbundle the costs at 1999 point in time.

543

MR. FISHER: Yesterday I provided your counsel with an excerpt from an agreement of purchase and sale of -- executed between Hydro One and a municipality concerning the acquisition of an LDC. And Mr. Davies has copies of this excerpt; do you have one before you?

544
DR. PORAY: I don't have one before me, no.

545
MR. ROGERS: We can get one.

546
MS. LEA: Okay. Do other parties have copies?

547
Do you wish an exhibit number to be given to this, Mr. Fisher?

548
MR. FISHER: Yes, please.

549
MS. LEA: All right. That will be Exhibit I.2.2, please, and it's an excerpt from an agreement of purchase and sale.

550
EXHIBIT NO. I.2.2: EXCERPT FROM AN AGREEMENT OF PURCHASE AND SALE

551
MR. FISHER: I just would like to ask a couple of questions about commitments made by Hydro One to stabilize distribution rates that have been made to utilities that Hydro One is or has acquired.

552
I'd like to turn to the answer to an AMPCO interrogatory. It's Exhibit G, tab 4, schedule 13, and it's part C.

553
DR. PORAY: I have it.

554
MR. FISHER: Thank you.

555
Part C of the question reads --

556
MR. ROGERS: I'm sorry, could I slow you down, please, while we get that.

557
MR. FISHER: Yes.

558
MR. ROGERS: Thank you. Carry on.

559
MR. FISHER: Part C of the question reads: "Has Hydro One made rate commitments to the utilities, the municipal councils, the Ontario Energy Board, or the customers of the utilities it has taken over that would prevent Hydro One from passing on to customers increased charges for the use of LV facilities if the shared LV line rate were to be set at a level higher than the proposed 17 cents per kilowatt per month?"

560
And the answer was: "Networks has not made any rate commitments that would prevent it from passing on to customers an increased charge for the use of LV facilities if the shared-line rate were to be set at a level higher than the proposed 17 cents."

561
Could you please confirm that this exhibit is an excerpt from an agreement for purchase and sale of a utility by Hydro One?

562
MR. ROGERS: Let me just take that under advisement. For the purpose of your cross-examination, we can assume that.

563
MR. FISHER: Thank you.

564
MR. ROGERS: And I'll confirm whether or not this is actually part of the actual agreement of the purchase and sale.

565
MR. FISHER: Thank you.

566
And a related question, I'm just wondering if there are similar clauses in other agreements of purchase and sale.

567
MR. ROGERS: Well, I don't know, Mr. Chairman, that Dr. Poray had any involvement in these negotiations.

568
DR. PORAY: I did not.

569
MS. LEA: I wonder, just for the purposes of the record, I need to understand a little better about this too. Who is "the buyer" in this circumstance? I presume that --

570
MR. FISHER: Hydro One.

571
MS. LEA: Hydro One is the buyer?


572
MR. FISHER: That is correct.

573
MR. ROGERS: May I suggest this, Mr. Chair: Let my friend continue with this line of questioning . I have some doubts about its relevance, but I won't object. Let's let him proceed and then go from there.

574
MR. FISHER: Thank you.

575
Clause C of this excerpt says: "The buyer," that being Hydro One, "commits that from the end of the freeze referred to in (a) until 2003, despite expected increases and decreases in individual charges, the buyer will work toward the goal that the total charges for distribution services paid by all customers in the three communities serviced by the commission in the County of Prince Edward will not increase."

576
Would you agree that it would not be consistent with this clause for Hydro One to propose to pass through an increase in LV line charges from 17 cents to 54 cents per kilowatt per month unless Hydro One can propose an offsetting reduction in some other distribution charges?

577
DR. PORAY: I believe that would be the general theme of committing to work towards that goal.

578
MR. FISHER: Thank you very much. That's the end of my questions.

579
MR. VLAHOS: Thank you, Mr. Fisher.

580
Mr. McLorg.

581
MR. MCLORG: Thank you, Mr. Vlahos.

582
CROSS-EXAMINATION BY MR. MCLORG:

583
MR. MCLORG: Dr. Poray, perhaps I could start by mentioning that your testimony this morning both in chief and in cross-examination has been helpful to me, and I thank you for that.

584
There were just a few initial matters that I wanted to take up as a result of that testimony. You earlier mentioned that Hydro One is in the process of conducting conductivity studies and I just wondered two things about that.


585
First of all, could you give us the approximate date at which Hydro One became aware of the fact that it would need to conduct these studies; and then secondly, how long the studies are expected to take.

586
DR. PORAY: In an attempt to understand better the issue of the LV facilities and the LV system and in preparing responses to interrogatories, as well as setting the stage for the next set of rate submissions, the aspect of conductivity was first broached in the fall of 2001.

587
MR. MCLORG: I see, thank you.

588
And then with respect to how long the studies will take.

589
DR. PORAY: It is expected that those studies will probably take about six months.

590
MR. MCLORG: I see, thank you.

591
I'd like to now proceed to ask some questions generally around three topics that I think are fairly intertwined and so I'll try to follow a logical order. Those topics are user-pay principles, rate mitigation, and the character of the status quo that you have referred to earlier in your testimony this morning.

592
Now, I think it's plain from what you've said what the answer to this question will be, but let me put it for the record. Does Hydro One regard its LV cost-allocation proposals as being user-pay-oriented or shall I, for additional clarity, say, are they consistent with generally accepted user-pay principles

593
DR. PORAY: The cost allocation which Networks has undertaken with respect to its LV costs is consistent with the intent and principles of the handbook.

594
MR. MCLORG: But with respect -- I note some amusement on the part of my colleagues -- to generally accepted user-pay principles, meaning essentially that users of services pay for those services and non-users of given services do not pay for them, I take it from what you've said that the answer to that would be no, but I don't want to put words in your mouth.

595
DR. PORAY: The reason why Networks followed or adopted the cost-allocation study, as I mentioned in my direct evidence, was that the characteristics of its system are based on the historical development of the system which was not developed for a user-pay type of approach. It was developed to serve a power pool where those that were connected to the LV system benefited from the lower costs of those connections.


596
The alternative would have been to build new transmission facilities and new transformer stations which would have resulted in higher costs and therefore all LDCs and all large users and all customers served by the LDCs would have, in fact, paid higher costs and would continue to pay higher costs as a result of that.

597
MR. MCLORG: I take it that you're telling me that since the system was developed with different historical purposes, that the present proposal is not consistent with user-pay. Would it be fair for me to understand that from what you're saying?

598
DR. PORAY: That is correct.

599
MR. MCLORG: Thank you.

600
Did Hydro One, in developing its rate proposals that are before the Board now, consider adopting user-pay principles with the probable outcome that was just discussed between you and Mr. Fisher that would have resulted in, for example, the user-only pool paying a toll of about 50-plus cents per kilowatt? In other words, did Hydro One consider adopting an approach that would have charged only the users of the LV system when it was developing its proposals?

601
DR. PORAY: Hydro One was aware of the positions of the various intervenors who indicated their preferences for user-pay. But Hydro One's proposal to the unbundling of costs was to follow the intent of the rate handbook to unbundle those costs as they existed in 1999.

602
MR. MCLORG: Just on that note, I think you mentioned earlier that one of your primary purposes was to unbundle the costs according to the guidelines in the rate handbook. Would it have been possible - and I ask this just for the sake of the record - for Hydro One to have unbundled its bundled charges while, at the same time, adopting a user-only methodology for determining the shared LV rates?

603
DR. PORAY: I believe I mentioned in my direct testimony and in my response to Mr. Fisher that in order to go towards the user-pay principle, you have to take into consideration not only the existing customers, the LV customers, the 39 directs that will be coming over, but also the T-class customers that are currently treated as distribution customers and the large users which are embedded within the local distribution companies that Hydro One has purchased. That would be the appropriate point in time to consider the user-pay when you've, in fact, harmonized all of the customers that are connected physically to the LV system. The rate handbook does not deal with harmonization. Harmonization is specifically to be addressed in the second-phase PBR.

604
MR. MCLORG: Thank you.

605

MR. VLAHOS: Harmonization, you said, Dr. Poray?

606
DR. PORAY: That's correct, yes.

607
MR. VLAHOS: Harmonization.

608
DR. PORAY: Harmonization, yes. Harmonization of rates, and I'm specifically pointing to the rates of the T-class customers and the rates of the LV customers, the 17 cents, and the rates of the large users that today exist within the acquired LDCs. All of those things have to be brought together before you can really think about a user-pay approach.

609
MR. VLAHOS: I'm sorry. Did I understand that those are -- what you just said is stipulated in the handbook, or is this just understood, interpreted, by yourself, at this point.

610
DR. PORAY: It is my understanding that the handbook does not deal with harmonization at this point in time.

611
MR. VLAHOS: Okay.

612
MR. MCLORG: With respect to rate mitigation, very generally, which my next few questions will address, is it correct that Hydro One regards its proposals in this case with respect to the shared LV charges as a form of rate mitigation for its own retail customers?

613
DR. PORAY: No, that is not correct.

614
MR. MCLORG: And I heard you refer earlier to one of Hydro One's objectives which, if I understood correctly at the time, was to minimize cost shifting between customers. I wonder, would it be more correct, Dr. Poray, to say that Hydro One proposes to continue the existing pattern of cost shifting rather than to minimize cost shifting, per se?

615
DR. PORAY: In accordance with the intent and principles of the rate handbook, we unbundled the costs as they existed in 1999 and, as I mentioned in my testimony, those are now revealed and transparent. And there are issues of cross-subsidies that existed in the former Ontario Hydro rate structures; however, this is not the time to address those, and that's why Hydro One Networks didn't do it.

616
In terms of minimization of cost shifting, if I may refer everyone to -- back to that diagram that I spoke to earlier this morning, which is Exhibit E, tab 1, schedule 1, page 7.

617
MR. MCLORG: Okay.

618
DR. PORAY: Is everybody there?

619
If we look at the bottom two boxes, the LV-charge box and the retail-rates box, what we've done here is unbundled costs and allocated them. If there is any different proposal, if, say for instance, the 38.6 million was to be a different figure, then those costs would have to be allocated to the retail -- the Networks retail. That's what I meant in terms of cost shifting.

620
MR. MCLORG: So to sum up that point, I take it that Hydro One is proposing, obviously, to collect some costs from non-users of the LV system in order to cover the cost of that system, and that it is doing -- advancing its proposal to do that generally under the banner, so to speak, of maintaining the status quo.

621
DR. PORAY: That is correct, because those LDCs are, today, contributing to those costs.

622
MR. MCLORG: I see.

623
Does Hydro One agree that customers of those non -- well, that the non-LV-connected LDCs have customers who will ultimately bear the costs that those LDCs pay with respect to the shared LV lines?

624
DR. PORAY: Those customers today are contributing to those costs.

625
MR. MCLORG: Yes, and after market opening, presumably those customers would face charges that are not yet established in order that those LV, LDCs which are shared the LV shared line costs will need to collect those costs from the customers.

626
DR. PORAY: Those LDCs today collect those costs through their distribution rates to their -- to the customers within their service territories.

627
MR. MCLORG: Dr. Poray, as I understand it, any Hydro One distribution shared-LV costs, which are collected by Hydro One from all the LDCs across the province as a matter of fact, do not now have a home in terms of the rates that have been defined so far for the period after market opening. And so relative to the situation where, say, a transmission-only-connected LDC would not be subject to the shared-LV lines, customers would, under Hydro One's proposals, be subject to an additional charge.

628
DR. PORAY: All LDCs today contribute to the LV charges through the existing rates which were the former Ontario Hydro bulk-power rates. So they are today contributing to the costs of the LV facilities.

629
MR. MCLORG: Okay, I accept your point. And so I guess is it possible that we could agree that, in any case, the customers of those transmission-connected LDCs will continue, on your proposal, after market opening to bear the costs of the shared LV lines?

630
DR. PORAY: That is the proposal.

631
MR. MCLORG: And did Hydro One consider any rate mitigation for the customers of those transmission-connected LDCs?

632
DR. PORAY: No, Networks did not consider any mitigation plans for the LV charges; and the reason for that, as I stated in my direct testimony, was that we had no basis on which to develop a mitigation plan because we do not know what those customers are paying today, what those revenues that are collected by OPG from those customers are and therefore it's not possible to establish a mitigation plan.

633
MR. MCLORG: Yes, I think the term you used earlier was there's no yardstick. So it's your position that a yardstick or some knowledge of what the existing charges are is necessary to develop a mitigation plan?

634
DR. PORAY: In order to develop a mitigation plan, you have to know what customers are paying today in terms of their total revenues, which is exactly the way the mitigation plan was developed for the retail customers of Networks.

635
MR. MCLORG: So that really is the distinction between Hydro One's own retail customers and the customers of other transmission-connected LDCs that Hydro One sees, is that Hydro One has information about what its own customers are paying right now, but it doesn't have that information with respect to the transmission-connected LDCs? I'm just seeking to find out what the distinction is between your own retail end-use customers and those end-use retail customers of other LDCs.

636
DR. PORAY: If I may just review, very briefly, the way the mitigation was done for the -- for Networks' distribution -- retail distribution customers. We would look at the year-end revenues for 1999 from each customer class, and once you have unbundled the distribution rate, we would add the cost of power back into that to come up with a new total bill, and you would compare that to the revenues of 1999 and then you would be able to determine what the -- what the differential was and develop your mitigation plan accordingly.

637
We do not have the information on the revenues which are collected by OPGI from all of its wholesale customers that are today paying for the LV charges through the bundled bulk power rates.

638

MR. MCLORG: Just, if I may: A few questions around the status quo. I think I have a fairly good idea from your testimony this morning and from the evidence led so far about your views on the status quo that Hydro One seeks to maintain.

639
Just respect, though, to the evolution which you've appealed to so far this morning, the historical background of these charges, and so on, in your proposal today. Do you see any distinction between the treatment approved by the Board in RP-1999-0044 with respect to the transmission rates and what is being proposed by Hydro One right now?

640
DR. PORAY: I believe that there is a clear distinction in that what we are dealing with now is unbundling of costs as they exist in 1999. The transmission rate design under RP-2000-0044 was more than that.

641
MR. MCLORG: And would you agree that there are different principles that seem to govern the two? That, with respect to the transmission rates, there seems to be concern on the part of the Board that, for example, non-users of certain facilities not pay for those facilities? I'm really trying to get at what is being put forward as the status quo, and determine whether there is a kind of a distinct description of that with respect to Hydro One's distribution operations, in comparison to the transmission operations.

642
DR. PORAY: I'd like to begin by characterizing the transmission system as being relatively simple in comparison to Networks' LV system. And, as I mentioned in my testimony, in order to be able to address the issues which are raised as a result of the unbundling of the LV costs, you need more information. You need the connectivity study, you need the information on the customers that are going to be the customers that are served from the LV system, you need to include the T-class customers, the acquired LDC large-use customers. All of those things I see as being necessary before you can address issues of user-pay and go forward from that.

643
MR. MCLORG: Thanks, Dr. Poray.

644
Maybe we could move on to something that's a little bit more concrete. May I take you to one of your responses to a Toronto Hydro interrogatory that was found at Exhibit G, tab 7, schedule 3.

645
DR. PORAY: Yes, I have it.

646
MR. MCLORG: And in that interrogatory, very briefly, there was a hypothetical configuration of two LDCs put forward and then Hydro One answered some questions about that. I just wanted to find out from you, Dr. Poray, do you think the example given is a possible and a valid one in terms of the physical configuration? Is this example far-fetched?

647
DR. PORAY: Let me just review the example.

648
MR. MCLORG: Sure.

649
DR. PORAY: It's possible that that situation can exist today.

650
MR. MCLORG: And would you agree that the services being provided to the two LDCs in the example are substantially equivalent?

651
DR. PORAY: In terms of delivering electricity to the LDC?

652
MR. MCLORG: Yes, that's right.

653
DR. PORAY: That is correct.

654
MR. MCLORG: And are there any facts that you would like to mention, or can Hydro One justify why, in this example, one customer receiving service that is substantially equivalent to another would pay more than three and a half times the amount paid by the first customer?

655
DR. PORAY: What we see in this example is precisely the situation that existed or came about as a result of the former Ontario Hydro connecting customers at other than transmission facilities.

656
In this particular case, if we take the box marked "TS," which is transformer station, and that transformer station is located within the boundary of a municipality, the feeders that run from that TS to the distribution station of that municipality, which would really be a municipal station rather than a DS, belong to that company, to that LDC. However, a decision was made by the former Ontario Hydro to connect LDCB not by building transmission lines or by putting a transmission station within its territory, but by running a low-voltage feeder from the TS to the right of that TS to supply the LDC.

657
So, for the benefit of the power pool, a decision was made to build the feeder from TS to DSB which was cheaper than building a transmission line or a transformer station and therefore the allocated costs bear that out.

658
MR. MCLORG: But regardless of the historical background that might apply, and admittedly, hypothetically, in this situation, is it the case that there is no proposal that Hydro One could bring forward that would come closer to resulting in more or less equivalent bills to these customers for substantially equivalent service?

659

DR. PORAY: I believe that in the spirit of the handbook, which is to unbundle the costs as they are in 1999, that -- this is not the time to be addressing the issues of cross-subsidies and past decisions. As I mentioned, that this will be something that Networks would be looking at with all the other issues that were raised as a result of the unbundling going forward with its next submission.

660
MR. MCLORG: Okay, thank you.

661
May I take you a few pages further, then, to schedule 7, of Exhibit G, tab 7.

662
DR. PORAY: Yes, I have it.

663
MR. MCLORG: I don't plan to spend long on this because I think the topic has been canvassed. I just really wanted clarification of the answer that you have provided. Does Hydro One agree that the practice of using a fixed billing quantity equal to average 1999 monthly billing demand does effectively shift the risk of load fluctuations that Hydro One would otherwise be subject to the LDCs?

664
DR. PORAY: I don't think it does it in any more than an LDC with its own rates in terms of risks of load fluctuations to its customers.

665
MR. MCLORG: So I take it that that was a "no" to that question? I do understand and agree with you that, you know, all LDCs that own distribution lines are subject to load fluctuations and the risk of those. What I'm trying to get at here is that in -- it's my view that Hydro One's proposal to use the fixed 1999 billing demand effectively off-loads Hydro One's risk of those end-use load fluctuations onto the LDCs. In the case that an LDC lost a major customer or otherwise had a decline in load, it would not only lose the associated distribution revenue for its own purposes, but it would, in fact, insulate Hydro One from that said load fluctuation or decline in load because it would still be paying to Hydro One fixed charges that don't bear any resemblance to the current load.

666
DR. PORAY: And I specified the reason why that had to be the case.

667
MR. MCLORG: Yes, I understand. Well -- so do you agree with what I've more or less said so far about the shifting of risk in this case?

668
DR. PORAY: There is a potential for that, yes.

669
MR. MCLORG: Thank you.

670
I take it from your discussion earlier with Mr. Fisher that this type of situation would not arise were it the case that Hydro One were charging only users of the LV system for the costs associated with it.

671

DR. PORAY: There would be less risk of that, yes.

672
MR. MCLORG: So all the difficulties that really give rise to Hydro One's motivation to use a fixed billing demand actually -- well, let me put it in the form of a question.

673
Do these difficulties, and does the proposal to use the 1999 billing demand actually result from the fact that Hydro One is proposing to bill entities that are not, in fact, Hydro One distribution customers?

674
DR. PORAY: I believe that's the way I explained it, yes.

675
MR. MCLORG: Thank you.

676
I'm almost finished, Dr. Poray. I hope I haven't taxed the patience of the Board. I just wanted to explore two further areas.

677
Just with respect, again, to charging customers or, let me say, entities who don't take distribution services from Hydro One, has Hydro One obtained any legal advice on the validity of applying charges to entities who are not customers of Hydro One distribution? Is it within the Board's jurisdiction to permit Hydro One to do this, in your opinion, or to your knowledge?

678
MR. ROGERS: Excuse me, Mr. Chairman, Dr. Poray is an electrical engineer and he's not qualified to answer that question. I hesitate to say that about him, but he's not.

679
MR. MCLORG: I'm content with that, Mr. Vlahos.

680
MR. ROGERS: I am, but my friend might not like my answer.

681
MR. MCLORG: Well, perhaps I could follow with an answer that you'd be happier -- sorry, follow with a question that you'd be happier with.

682
Can Hydro One cite any precedent in which the Board has authorized a utility to apply charges to entities which are not customers of the utility?

683
MR. ROGERS: I take it that this is a question for the witness. If he knows it, he can proceed.

684
DR. PORAY: I don't know of any, no.

685
MR. MCLORG: Would you be prepared to undertake to conduct a reasonable search to determine if there is such a precedent?

686
MR. ROGERS: Well, Mr. Chairman, I don't think that's appropriate, with respect. My friend can do that himself, if he has something in mind. I guess you can't search for a negative; that's the point, I guess, you're making. Let me take it under advisement. Let me think about it, and if I could, I'll advise the Board in the morning if I'm prepared to undertake to do that. Would that be satisfactory? I just don't want to search --

687
MR. VLAHOS: The witness is not aware of any precedents.

688
MR. ROGERS: No.

689
MR. VLAHOS: Is the company aware of any precedents? Well, it's somewhat of a large undertaking.

690
MR. ROGERS: Yes.

691
MS. LEA: I guess if it goes, though, to the jurisdiction of whether or not these rate schedules can be imposed and you're seeking the imposition of certain rate schedules, then if it is a legal problem, then you and I should perhaps work on it.

692
MR. ROGERS: This is the first time, Mr. Chairman, I have heard anyone suggest in this proceeding that the Board doesn't have jurisdiction over what's being proposed. I'm not aware of that from any position paper or statement, so I'm surprised by this approach. I don't want to embark on a wild goose chase looking for precedents.

693
MR. VLAHOS: Mr. McLorg, is this going to be Toronto Hydro's position and argument, the jurisdictional issue? Because we may be getting into an area that -- the first time we hear of it --

694
MR. MCLORG: Yes, I understand the Board's concern, Mr. Vlahos, and certainly I did not want to ask Hydro One to undertake a wild goose chase, or an unreasonable search.

695
I guess I was coming at it from the direction that, you know, in my understanding the burden is on the applicant, and I think it is a novel proposal so I was simply seeking, you know, for our own information, any precedents that, you know, might provide some governing principles as to how this could be implemented and that kind of thing.

696

If Hydro One is reluctant, and certainly if the Board sees little value in my request, I'm quite prepared to withdraw it, but I thought it might be of assistance to the record in this case. You know, perhaps one way -- if I may suggest, perhaps one way of dealing with it is to just accept the answer from the applicant that it knows of no precedent, which would be satisfactory to Toronto Hydro.

697
MR. VLAHOS: Ms. Lea?

698
MS. LEA: I think, Mr. Chairman, I wasn't aware of the ramifications of some of these proposals until Mr. McLorg put it to the witness, and I apologize for that. It's an interesting question he poses, because I gather that the difficulty is that some of these folk are customers of the transmission utility but not of the distribution utility. And -- correct me if I am wrong, Mr. Rogers -- the proposal is that some costs recovery of the distribution utility will be collected from those who are customers only of the transmission utility; am I understanding correctly?

699
Perhaps the best way to deal with this is for us to discuss it and report to the Board tomorrow morning as to our thoughts on it. I don't want to put facts on the record which are incorrect. I need to understand this question better and then probably help you with whether or not I think any research needs to be done on it.

700
MR. ROGERS: Mr. Chairman, I think just to help here, I hope, I think my friend's assertion is correct. I'd be quite happy to discuss this with her, of course, but I do believe she is correct, of course, that is as a result of the legislation which defines which customers are going to be transmission customers and which customers are distribution customers. I'm not aware of any situation in the past where the statute has done this and created this problem which is, we acknowledge, is a problem for the utility that is left to try and sort out the pieces.

701
MS. LEA: I think my impression is that there will be, as Mr. Rogers points out, no precedent for this because it's a matter created by the way that the legislation has effected the changes in the former Ontario Hydro, so I doubt that we will be assisted by precedent in this regard. If Mr. McLorg is satisfied with the answer of the witness, that he knows of no precedent. Perhaps we can leave it there and Mr. Rogers and I can come forward again if we think something needs to be further clarified.

702
MR. VLAHOS: Mr. McLorg, over to you. Would you be satisfied with that? I guess my concern is that if, at the end of the day, the argument goes to -- the Board does not have any jurisdiction without the issue having been canvassed in this proceeding, it appears to me that this is the first time -- you know, most parties are hearing about this.

703
MR. MCLORG: Well, may I just say, first of all, that it wasn't certainly our intention to upset the proceedings here in any way by raising this. I suppose I thought of it as a fairly innocent question.

704

Certainly, Toronto Hydro will be entirely content with the record as it now stands and with whatever additional discussion may be before the Board tomorrow morning. Our position is simply that it may be an illuminating question to answer, but we're certainly prepared to argue from the basis of the record as it now exists.

705
And to simplify, I'd be happy to withdraw my request that Hydro One undertake to look for a precedent in this regard.

706
MR. VLAHOS: Well, Ms. Lea, you still would like to have a chance to talk with Mr. Rogers, and perhaps Mr. McLorg as well?

707
MS. LEA: I think the bottom line is I need to think about it some more.

708
MR. VLAHOS: All right. Well, why don't we do it on the basis that someone will get back to us in due course.

709
MS. LEA: Thank you very much, sir.

710
MR. MCLORG: Mr. Vlahos, if I may, I just have about two more questions and then that will be the conclusion.

711
MR. VLAHOS: Sure.

712
MR. MCLORG: Mr. Poray -- sorry, Dr. Poray, is it now the case that Hydro One maintains detailed billing records for each of its customers and other entities to whom it applies charges?

713
DR. PORAY: With respect to the transmission and distribution, yes.

714
MR. MCLORG: And would it be -- would those records make it possible for Hydro One to determine two or three years from now how much each entity would have, by that time, paid with respect to the shared-LV-line charge? And let me make it more specific by just saying what each entity would have paid with respect to the shared LV-line charges from the date they become effective, presumably market opening or later.

715
DR. PORAY: Based on the proposal which Networks has put forward, I believe it would be able to do those calculations, yes.

716
MR. MCLORG: I see. And really my last question is hypothetically, now, if the Board were to direct Hydro One to suspend billing of the shared-LV-line charge until it had issued a decision in the case that Hydro One intends to file in 2003, would it be possible for Hydro One to comply with that direction from the Board?

717
MR. ROGERS: Now, may I just interject just to make sure we understand, Mr. Chairman. Is the question: Could Networks compile these statistics to track that, or does it imply, what happens to the revenue? I'm unclear as to what the question is. Does it mean the shareholder of the company foregoes the revenue in the mean time, or is it collected and tracked? How would this work?

718
MR. MCLORG: Mr. Rogers, my bare-bones question only asked whether -- if the Board directed Hydro One to suspend billing of the shared LV-line charge, and so I suppose on the face of it that could most directly mean that Hydro One would not receive the current revenue, but probably in practical terms it may involve Hydro One establishing a deferral account under the Board's direction in which the foregone revenues would be recorded.

719
MR. ROGERS: Sorry, I don't mean to obstruct here. I just want to be clear, Mr. Chairman. I'm quite content to have the witness answer the mechanics of whether or not that could be done so long as we understand that by it being something that was possible for the company to do, we're not taking into account the economic damage that might be done to this company if that was the result.

720
MR. MCLORG: Yes, and I acknowledge that my question doesn't go to that. I'm just asking whether mechanically it would be possible.

721
DR. PORAY: Those rates that Networks is seeking approval for are not yet implemented, so Networks is not collecting LV revenue in accordance with these rates. It's receiving $29.2 million from OPG which would cease at market opening.

722
MR. VLAHOS: Mr. McLorg, was the question as to the deferral of the full 38.6, or you had in mind the different $29 million that the company receives now and the 38? What number did you have in mind?

723
MR. MCLORG: To be quite frank, it was the 38.6. I was simply attempting to establish for the record Hydro One's ability or otherwise to adopt a different approach to this.

724
Mr. Vlahos, that concludes my questions. Thank you for your indulgence, and thank you, Dr. Poray.

725
MR. VLAHOS: Thank you, Mr. McLorg.

726
Mr. Janigan?

727
MR. JANIGAN: Thank you, Mr. Chairman.

728

CROSS-EXAMINATION BY MR. JANIGAN:

729
MR. JANIGAN: Thank you, Mr. Chairman.

730
Dr. Poray, I represent the Vulnerable Energy Consumers' Coalition, and we are in support of Networks' proposal to levy the LV charge on customers as proposed in the application. So I have just a number of questions that I'd like to ask you in relation to the proposal which I think may be useful for the Board.

731
First of all, I wonder if we can just follow up on the questions of my friend, Mr. McLorg, the last question. Just looking at your Exhibit E, tab 1, schedule 1, page 7.

732
DR. PORAY: I have that.

733
MR. VLAHOS: Mr. Janigan, the court reporter has difficulty hearing you. You may want to be just in front of one microphone.

734
MR. JANIGAN: I'll double up the microphones here.

735
MR. VLAHOS: Try just the one for now.

736
MR. JANIGAN: I'll try one for now. Let me move over a little bit.

737
In looking at this schedule, note that we've been talking about the LV charge of 38.6 million, and I believe my friend indicated that -- asked questions to the effect of what would be the impact if you elected, first of all, to defer that charge and, secondly, what -- let me stop there. Let's assume that this Board indicated that that charge could not be levied. Could you levy it on the retail customers and stay within the guidelines in terms of rate increases?

738
DR. PORAY: Within the proposed 4 per cent, 2.8 per cent and 2.8 per cent?

739
MR. JANIGAN: Yes.

740
DR. PORAY: No.

741
MR. JANIGAN: If the Board indicated that you could levy the 29 million charge that was previously recovered through OPG and not the 38.6 million, could you levy that difference upon retail customers and stay within the proposed guidelines?

742
DR. PORAY: No.

743
MR. JANIGAN: So in either of those two instances, in the event that the Board indicated that you could not levy the charge, you would have to absorb that charge internally, in the Networks' corporation?

744
MR. ROGERS: Can I interject here, Mr. Chairman? This really is a question, I submit, that goes to the company policy. When the witness says no, he answered a very specific question that mathematically that one cannot transfer these costs without increasing the rate increase or risk for retail customers beyond the rate mitigation amounts or levels. However, if this Board was to issue a rate order that the company cannot recover these costs from the proposed parties, then the company will have to decide, and with the Board's direction, I suppose, as to who those costs should be recovered from. It doesn't necessarily mean that the shareholder will absorb those costs, in addition to the 100-some-odd million dollars in rate mitigation it's already agreed to absorb.

745
MR. JANIGAN: I guess the question I'm getting at, in the event the company chose to absorb these costs, what impact would it have upon those services and the operations of Networks? And you can undertake to provide me with an answer to that question, if Dr. Poray is not in a position to answer that.

746
MR. VLAHOS: Mr. Janigan, first of all, we cannot hear you. Try to come a little forward. That's better.

747
MR. JANIGAN: I'll have to perch on top of the table.

748
MR. VLAHOS: Secondly, could you repeat that question, please?

749
MR. JANIGAN: What I'm trying to get at is in the event that Networks was forced to absorb the difference, being the 38.6 million -- or the difference between the 38.6 million and the 29 million, what impact it would have on the services and the operations of the Networks corporation if it chose to adopt this plan.

750
MR. VLAHOS: The difference between the 38.6 and the 29?

751
MR. JANIGAN: And the 38.6 taken as a lump sum.

752
MR. VLAHOS: I see, so two scenarios.

753
MR. JANIGAN: Two scenarios.

754
MR. ROGERS: Mr. Chairman, this witness, I don't think, would be the appropriate witness to answer that question, as to what the impact on the corporation would be if, in effect, absorbing a $38.6 million reduction in its already reduced revenue requirement. That would require a good deal of thought from an area of the organization in the financial and management end of the company.

755
MR. VLAHOS: Mr. Janigan, can you be a little more specific as to what -- it's quite a general question you asked, what is the viewpoint of the company. Can you be a little more specific as to what percentage, for example, that something presents, that kind of thing.

756
MR. JANIGAN: It seems to me that we have three possible scenarios of what will occur with respect to this charge; one, that the Board may accept the charge as presented by Hydro One Networks; secondly, the Board may decide to reduce that charge to an amount that is reflective of the revenue formerly obtained by OPG; or, thirdly, the Board may elect to not have the charge assessed to the LV customers, in which case then it has to be picked up either by retail customers or the company, or a combination of those two scenarios.

757
I guess what I'm attempting to get at is that I would like to have some indication of what impact these particular scenarios may have upon the operations of Networks in the event that they were unable to pass on those costs to retail customers because of the guidelines with respect to rate increases that are in effect.

758
MR. VLAHOS: Mr. Rogers?

759
MR. ROGERS: Mr. Chairman, the -- we've already had some testimony from Ms. Frank and Mr. Oded yesterday that the rate mitigation plan that this company has proposed, which I believe called for a reduction from its allowed revenue of something in the order of $129 million in year 1, was a very ambitious mitigation plan. They felt they could do it but they indicated that there is a limit to how far the company's revenues could be eroded. And so you have some evidence that an additional $38 million reduction, if I understand the thrust of Mr. Janigan's questions, would have a serious financial impact, obviously, upon a utility. Now, where within the organization that would be felt is a very difficult thing for anyone to say, and certainly this witness can't do it. But I can tell the Board that the company would consider that to be an extremely serious erosion of its revenue. These costs are -- I'm sorry, sir. These costs are being incurred to serve customers on a low-voltage system. They are not imaginary costs. That system is there and it serves a function.

760
MR. VLAHOS: Mr. Rogers, I assume you're not giving evidence now, you're simply referring to Ms. Frank's testimony.

761
MR. ROGERS: Yes, I was paraphrasing.

762
MR. VLAHOS: Mr. Janigan?

763
MR. JANIGAN: I'm content with that answer with respect to the $38 million figure. If there's any more specificity that could be provided with respect to the lesser figure, the difference between the 38.6 million and the 29 million formerly recovered, I'd appreciate that.

764
MR. ROGERS: Well, I'll take that under advisement, if I could, Mr. Chairman, and if we can say something that would be helpful --

765
MR. VLAHOS: Okay, so no undertakings, just an advisement?

766
MR. ROGERS: Yes.

767
MR. JANIGAN: That's fine with me.

768
Moving on. You've discussed with my friends some of the costs that may be examined in the context of the continuing studies that Networks will be doing over the next year and have discussed with them some of the costs that may potentially be avoided by the LV customers when those studies are completed; is that correct?

769
DR. PORAY: In the context of harmonizing all of the customers on the LV system and looking at what options there are for rates as a result of this new study and the cost-of-service and cost-allocation study, yes.

770
MR. JANIGAN: And, in fact, while there may be costs that are avoided by the LV customers, there may be also be costs that will be attributed to those customers in the context of the study.

771
DR. PORAY: That is entirely possible, yes.

772
MR. JANIGAN: And one of those sets of costs may be customer care. As I understand, there's no customer care cost allocated currently to LV customers.

773
DR. PORAY: That is correct.

774
MR. JANIGAN: Okay. And I would note that on E, 2, schedule 1, appendix 1 -- and you may not have to turn this up -- but currently customer care costs amount to 135 million.

775
DR. PORAY: Let me just turn to that.


776
MR. JANIGAN: E, tab 2.

777
DR. PORAY: E, tab 2, schedule 1, appendix A, sheet?

778
MR. JANIGAN: Just a minute. Schedule 3, page 1.

779
DR. PORAY: I'm sorry, you're at Exhibit E, tab 2, schedule 1, appendix A?

780
MR. JANIGAN: Yes, appendix A.

781
DR. PORAY: There are six sheets in appendix A.

782
MR. JANIGAN: Appendix 1, I believe.

783
DR. PORAY: Okay. Customer-care costs are shown in columns M through to Q.

784
MR. JANIGAN: Okay. I believe to the amount of 135 million?

785
DR. PORAY: 134.8 million, yes.

786
MR. JANIGAN: Thank you. And none of those costs are assigned to the LV customers currently?

787
DR. PORAY: That is correct.

788
MR. JANIGAN: As I understand it, one of the things that Networks will be looking at is high-voltage distribution stations which, as I understand it, may be used as low-cost alternatives to transformer stations in providing, in effect, a transmission service.

789
DR. PORAY: They provide a transformation stepdown service.

790
MR. JANIGAN: In effect, they may be considered, or functionalised, as a transmission service as part of your study. Have I got that right?

791
DR. PORAY: I believe that what you're referring to is the allocation between transmission and distribution.

792
MR. JANIGAN: Yes.

793
DR. PORAY: Yes, that would be part of the studies.

794
MR. JANIGAN: And as part of those studies, the result of this, may be allocation of greater costs to LV customers as a result?

795
DR. PORAY: I don't know. I wouldn't like to state at this point in time what the result would be.

796
MR. JANIGAN: But that may be a possibility?

797
DR. PORAY: It's possible, but it may go the other way too.

798
MR. JANIGAN: Okay.

799
Now, I understand it is the intent of the company to merge subtransmission T-rate -- the subtransmission T-rate with the LV rate for the embedded directs.

800
DR. PORAY: As part of the work for the next submission, we have to harmonize all of the customers that are connected to the subtransmission system.

801
MR. JANIGAN: And what's the rationale between the merger of those two rates?

802
DR. PORAY: Well, the T-class customers are actually, physically connected to the subtransmission system, some of them anyway.

803
MR. JANIGAN: Now, when the harmonized rate results, I would assume that it would be somewhere between the 17 cents per kilowatt per month and the existing rate T, to recover the allocated costs; that would be a correct assumption?

804
DR. PORAY: In order to arrive at a rate, a harmonized rate, one would have to take into consideration the 39 customers that are going to be brought over from OPG, the LV customers -- the large-use customers that exist today in the local distribution companies that were purchased by Hydro One, and the T-class customers. So all of those together will then yield a new rate which, you're right, could be between 17 cents and $6.50.

805

MR. JANIGAN: So when this occurs, LV customers, some of the LV customers may expect to be paying more?

806
DR. PORAY: It's possible, yes.

807
MR. JANIGAN: Okay.

808
Now, in the event that an LV customer who is physically connected stops withdrawing energy, is it possible that we may have an issue of stranded assets and costs?

809
DR. PORAY: If that customer doesn't -- are you talking about the customer that physically leaves the system?

810
MR. JANIGAN: Remains connected, but stops withdrawing energy through its LV facilities.

811
DR. PORAY: Then that cost would still continue to be recovered from that customer.

812
MR. JANIGAN: Thank you. Mr. Chairman, those are all of the questions for VECC.

813
I would also indicate that VECC would like to take its leave from the oral phase of the proceeding at this time. We will be monitoring the proceedings through the transcripts and we'll be very close to this proceeding over the next few days, we being next door. But we will be filing our final argument as a result of what has transpired thus far and in the rest of these proceedings. I thank you for affording us this opportunity.

814
MR. VLAHOS: Thank you, Mr. Janigan. Thank you for participating.

815
MR. JANIGAN: Thank you.

816
MR. VLAHOS: Mr. Mondrow, I don't see him here.

817
Mr. White?

818
MR. TAYLOR: Mr. Chair, Mr. White has graciously allowed me to jump ahead of him in the queue.

819

MR. VLAHOS: Mr. Taylor. Is that allowed, Ms. Lea?

820
MS. LEA: It happens all the time.

821
MR. VLAHOS: How long will you be?

822
MR. TAYLOR: I am going to try to finish by 1:00.

823
MR. VLAHOS: Mr. White, any problem with that?

824
MR. WHITE: I expect that my questions will start tomorrow.

825
MR. VLAHOS: Okay. Mr. Taylor.

826
CROSS-EXAMINATION BY MR TAYLOR:

827
MR. TAYLOR: Dr. Poray, if you could turn to Exhibit G, tab 9, schedule 14, please.

828
The interrogatory that Power Budd Coalition submitted was in the RP-1999-0044 decision with reasons dated May 26, 2000. The Ontario Energy Board found that a transmission customer "shall be defined as being connected directly to the transmission system. The Board agreed that the direct-connection criterion for defining a transmission customer was clear, practical, and unambiguous -- was a clear, practical, and unambiguous method of defining transmission customer."

829
Dr. Poray, does Networks agree that there needs to be a clear, practical, and unambiguous method of defining an LV customer?

830
DR. PORAY: Yes, I believe that is the ultimate goal.

831
MR. TAYLOR: And would you agree that, based on the Board's decision in 1999-44, that that definition should be a customer that is connected directly to the LV system?

832
DR. PORAY: In the longer term, I believe that is correct.

833
MR. TAYLOR: Okay.

834

Now, Networks' proposal is to allocate the cost of the LV facilities to transmission customers; correct?

835
DR. PORAY: To all LDCs and embedded large users, yes.

836
MR. TAYLOR: Right. And some of these transmission customers, these LDCs who are connected only, say, to the transmission facilities, are going to be charged; correct?

837
DR. PORAY: That is correct, just as they are charged today.

838
MR. TAYLOR: Now, this is a distribution rate application, is it not?

839
DR. PORAY: It is.

840
MR. TAYLOR: And are you here today as a distributor or a transmitter?

841
DR. PORAY: I'm here as a distributor.

842
MR. TAYLOR: And you have separate distribution and transmission licences; correct?

843
DR. PORAY: That is correct.

844
MR. TAYLOR: Now, the Electricity Act allows Networks' distribution and transmission businesses to operate within one company. Is that your understanding?

845
DR. PORAY: That's correct.

846
MR. TAYLOR: And the section of the Electricity Act which allows Networks to operate in this way is section 50, and I'm going to read it to you.

847
"The objects of the Services Corporation include, in addition to any other objects, owning and operating transmission systems --"

848
MR. VLAHOS: You have to slow it down, Mr. Taylor.

849
MR. TAYLOR: Oh, I apologize for that, Mr. Chair.

850

MR. ROGERS: If we could please get a copy of the Act.

851
MS. LEA: I have one.

852
MR. TAYLOR: "The objects of the Services Corporation include, in addition to any other objects, owning and operating transmission systems and distribution systems through one or more subsidiaries of the Corporation."

853
Now, you would agree that's the section that likely allows or affords Networks to operate both its distribution and transmission businesses within one company?

854
MR. ROGERS: Excuse me, Mr. Chairman, I object to this line of questioning. This is not appropriate for this witness, who is an engineer. These are legal questions, interpretations of statutes. It's not appropriate, I submit, to put to this witness in cross-examination.

855
MR. VLAHOS: Is it important for the witness to answer this question, Mr. Taylor?

856
MR. TAYLOR: No, it's not, Mr. Chair.

857
MR. VLAHOS: Okay.

858
MR. TAYLOR: Now, within Networks, you operate your transmission and distribution businesses separately, do you not?

859
DR. PORAY: I'm not really the right person to be speaking to the operational aspects of transmission and distribution.

860
MR. TAYLOR: Well, if you would turn to Exhibit G, tab 9, schedule 38, please. In response to an interrogatory, Hydro One --

861
DR. PORAY: Excuse me, is it schedule 38?

862
MR. TAYLOR: Yes, it is, I'm sorry. Schedule 38, page 1 of 1.

863
MR. ROGERS: I'll just observe, Mr. Chairman, this is indicated to be in the area of Mr. Hubert and not Dr. Poray. But if my friend wants to put the question to him, we'll see if he can answer it.

864

MR. TAYLOR: I just want you to confirm that the response is -- part of the response, if you look at line 22, at the very end, is: "To maintain appropriate separation, transmission and distribution are operated as separate businesses with their own financial record, audited financial statements, appropriate cost-allocation mechanisms, and work management processes."

865
Is it your understanding that that's correct, Dr. Poray?

866
DR. PORAY: To the best of my understanding, yes.

867
MR. TAYLOR: Okay. Do you believe that the structure that is permitted by the Electricity Act to have both your transmission and distribution businesses operate within one company provides Hydro One Networks with any rights above and beyond that structure?

868
MR. ROGERS: Excuse me, Mr. Chairman. Two objections; one, I don't understand the question, and secondly it's not a proper one to put to this witness. These are legal questions.

869
MR. TAYLOR: Well --

870
MR. ROGERS: I think it's a legal question. I'm not even sure it's a question but ...

871
MR. TAYLOR: Well, the question is --

872
MR. VLAHOS: So you understand the question then, Mr. Rogers.

873
MR. TAYLOR: -- that simply other than operating within one corporate entity, does Hydro One Networks Inc. have any other rights above and beyond such a structure as a result of section 50 of the Electricity Act?

874
MR. VLAHOS: Mr. Tailor, I must say that I don't understand that question also, and there are four of us non-lawyers in this dias so you may want to rephrase it.

875
MR. TAYLOR: I guess what I'm doing, Mr. Chair, is preparing for, in my arguments, a legal argument as to the -- it actually goes to Mr. McLorg's point of whether or not the Board has the jurisdiction to allow Hydro One Networks distribution to build non-distribution customers. So I'm prepared to move on.

876

I guess I'm putting Mr. Rogers on notice that I am going to be making that similar legal argument, and these questions are related to that argument. And if I don't get answers from this witness, that's fine, but I'm putting Mr. Rogers on notice that I will be -- I know the answers to these questions myself, actually, and that I'll be bringing them up in my arguments.

877
MR. ROGERS: Well, my friend can argue what he wants to argue. I hope that he will keep in mind the Board's issues list when this separation was discussed and considered not to be part of this case. But I understand and I'll meet his arguments when they're made.

878
MR. TAYLOR: Okay.

879
Dr. Poray, let's say that when Hydro One Inc. had decided to operate its transmission distribution businesses, let's say they decided to operate them through two separate companies, and let's call one of those companies Networks Distribution Inc. and let's call the other Networks Transmission Inc. Let's say that Networks Distribution Inc. came to the Board today and asked the Board to approve rates that would be charged to Networks Transmission Inc.'s customers. Don't you think that would be absurd, Dr. Poray?

880
MR. ROGERS: Mr. Chairman, I'm going to object to this. This whole line of questioning is not relevant and, I would submit, not helpful to the Board in trying to sort out the unbundling of these rates in accordance with the rate handbook.

881
MR. TAYLOR: I submit these questions are relevant, Mr. Chair. If Mr. Poray is unable to answer the question, he can simply say he doesn't know the answer to the question or is unable to answer it.

882
MR. VLAHOS: Perhaps, Mr. Taylor, you can rephrase your question to sound less like an argument and we'll see how far we go.

883
MR. TAYLOR: Okay.

884
Dr. Poray, to the best of your knowledge, when setting rates, is the Board required to ensure that those rates are just and reasonable?

885
DR. PORAY: I'm sorry, can you repeat that question, please.

886
MR. TAYLOR: To your understanding, Dr. Poray, when setting rates, is the Board required to ensure those rates are just and reasonable?

887
DR. PORAY: I believe that is correct.

888

MR. TAYLOR: Dr. Poray, do you know if Cornwall Electric is connected to the IMO-controlled grid?

889
DR. PORAY: My understanding is that it is not.

890
MR. TAYLOR: Does Hydro One Networks intend to bill Cornwall Electric for its low-voltage facilities?

891
DR. PORAY: To the best of my understanding, Cornwall today does not contribute to the shared line costs.

892
MR. TAYLOR: So the answer is no?

893
DR. PORAY: The answer is no.

894
MR. TAYLOR: I'm sorry, can you explain why that is?

895
DR. PORAY: Since they are not connected to the IMO-controlled grid, they were not one of the LDCs in the old Ontario Hydro regime who was allocated a portion of those costs.

896
MR. TAYLOR: Okay. Now, some of Networks' transmission customers are also low-voltage customers; right? They are connected both to the transmission system and to the local distribution system.

897
DR. PORAY: Some of the LDCs are connected that way, yes.

898
MR. TAYLOR: Okay. I'm going to refer to these customers as dual customers, just for simplicity.

899
Now, Networks intends to allocate the costs of its LV facilities, shared LV facilities, based on non-coincident peak demand; is that correct?

900
DR. PORAY: That's correct.

901
MR. TAYLOR: So therefore if the dual customer were to take 99 per cent of its load from the transmission system and 1 per cent of its load from the LV system, Networks would allocate the cost of the shared LV system to that customer based on its entire load; correct?

902

DR. PORAY: I believe, in this case, it will be just on the basis of the delivery points that were connected to the distribution system -- to the LV system, I'm sorry.

903
MR. TAYLOR: Well, then, perhaps you can help me out, then. I was under the impression that 100 -- the cost allocation of the shared LV facilities would be based on the electricity that's taken from both, and this is by LDC, both the transmission system and the low-voltage system; I'm incorrect?

904
DR. PORAY: In the case of the dual connections, I believe that the calculation was done on the demand at the delivery points to the distribution system.

905
MR. TAYLOR: So therefore, in my scenario, where the dual customer is taking 99 per cent of its load from the transmission system and 1 per cent from the low-voltage system, Networks intends to allocate the cost of the shared LV system based simply on 1 per cent of that customer's load?

906
DR. PORAY: Can you just restate those figures, please, for me.

907
MR. TAYLOR: Ninety-nine per cent from the transmission system; 1 per cent from the low-voltage system.

908
DR. PORAY: I believe that it would be on the 1 per cent from the delivery points to the low-voltage system.

909
MR. TAYLOR: Isn't it true, Dr. Poray, that if you were to allocate the cost of the LV facilities based on the use of those facilities, following the principle of cost causality, the $38.6 million in costs that are proposed to be allocated to the LDCs and directs would be reduced to 25.7 million?

910
DR. PORAY: I'm sorry. How did you come about to the 25.7 million?

911
MR. TAYLOR: If we were to -- well, perhaps maybe you're more familiar with this number. If we were to allocate costs, the costs of the LV system to -- were based on a user-pay basis, are you familiar with the number $12.9 million that would be shifted from the LDCs and directs to retail, Networks' retail customers?

912
DR. PORAY: Can you point me to any evidence in support of those numbers, please?

913
MR. TAYLOR: The evidence would be the evidence of Randall Aiken.

914
MR. ROGERS: This is a consultant for your client?

915
MR. TAYLOR: Yes, who will be testifying.

916
DR. PORAY: Can you point me to the actual evidence, please?

917
MR. TAYLOR: I'm looking for it right now, Doctor. If you can look at page 5 of the evidence.

918
MR. ROGERS: Just wait a moment, Mr. Chairman, while we dig this out please.

919
DR. PORAY: Page 5 of which exhibit and tab?

920
MR. TAYLOR: I'm actually not sure which exhibit and tab the evidence of Randy Aiken is.

921
MR. VLAHOS: I'm just going to make sure we're all on the same page here. We're looking at Mr. Aiken's evidence here?

922
MR. TAYLOR: We are.

923
MR. VLAHOS: Okay. On page 5?

924
MR. TAYLOR: We are.

925
MR. ROGERS: I don't know if this has been given an exhibit number yet.

926
MR. VLAHOS: Okay. Well, it's part of -- I thought it was part of a J series.

927
MS. LEA: If it's intervenor evidence that has been filed as part of this proceeding, it is, in fact, part of the J series. I don't have the number in front of me.

928
MR. VLAHOS: J.2.1.

929
MS. LEA: J.2.1.

930
MR. ROGERS: Thank you, that's sufficient.


931
DR. PORAY: Which page it was?

932
MR. TAYLOR: Page 5.

933
DR. PORAY: Okay, I'm there.

934
MR. TAYLOR: If you look at the second table, there are two bold numbers at the bottom: One is 38.6 and the other is 25.7.

935
DR. PORAY: Yes, I see that.

936
MR. TAYLOR: And those numbers represent Hydro One Networks' proposal versus a user-pay proposal.

937
DR. PORAY: You're referring to 38.6 being Networks' number and 25.7 being the Coalition number?

938
MR. TAYLOR: Yes.

939
DR. PORAY: Okay.

940
MR. TAYLOR: Now, the difference between 25.7 and 38.6 is $12.9 million.

941
DR. PORAY: Okay.

942
MR. TAYLOR: And this amount would be -- if we were to -- assuming that that number is correct, and Mr. Aiken will explain how he came up with that number when he testifies, but assuming that number is correct, that amount would shift from LDCs, if we were to adopt a user-pay methodology, from LDCs and directs, to Networks' retail customers; correct?

943
DR. PORAY: It would have to be accounted for some way, yes.

944
MR. TAYLOR: That's right. And would it be accounted by shifting it to retail customers?

945
DR. PORAY: I think this is a decision that would have to be made by the company.


946
MR. TAYLOR: If it weren't shifted to Networks' retail customers, where else could it be shifted to?

947
DR. PORAY: I believe one of the alternatives is the shareholder.

948
MR. TAYLOR: Okay.

949
Now, under your proposal, your retail customers are going to be the beneficiaries of the rate mitigation plan; right?

950
DR. PORAY: I'm sorry, can you restate that?

951
MR. TAYLOR: Under Networks' proposal, its retail customers are going to be the beneficiaries of the rate mitigation plan; correct?

952
DR. PORAY: The rate mitigation plan that was adopted for the distribution customers, is that what you're referring to?

953
MR. TAYLOR: Networks is going to forego approximately $129 million of its retail revenue requirement for 2002; right?

954
DR. PORAY: That is correct.

955
MR. TAYLOR: And roughly speaking - I don't have a calculator in front of me - this is approximately a 15-percent reduction of the retail revenue requirement?

956
DR. PORAY: It's in that ballpark area, yes.

957
MR. TAYLOR: Okay. And if the $12.9 million were to be shifted to Networks' retail customers, they would still enjoy mitigated rates, would they not?

958
DR. PORAY: The bill impact would increase -- would be higher than the mitigation plan allowed.

959
MR. TAYLOR: Right. But nevertheless, there still would be -- overall, there still would be mitigation for those retail customers?


960
DR. PORAY: Yes, there would be.

961
MR. TAYLOR: And we've already heard - I believe the question was asked by Mr. McLorg - that Networks doesn't propose to implement any rate mitigation measures for its wholesale customers; right?

962
DR. PORAY: That is correct.

963
MR. TAYLOR: And the reason was because you had no way of measuring -- there was no yardstick and there was no way of measuring the impacts on the wholesale customers; right?

964
DR. PORAY: Networks does not have the information on the revenues paid by the customers to OPGI to establish the base from which a rate mitigation, or a bill mitigation plan could be developed.

965
MR. TAYLOR: Okay. But let's say Networks wanted to be fair between its wholesale and retail customers. Could Networks not reduce or mitigate its revenue requirement for the LV facilities by 15 per cent as well?

966
DR. PORAY: Networks -- I believe Networks has developed the best proposal in following the principles of the handbook to unbundle the costs as they exist in 1999.

967
MR. TAYLOR: But, Dr. Poray, you could reduce -- Networks could reduce its revenue requirement for the low-voltage facilities by 15 per cent, couldn't it?

968
DR. PORAY: As I mentioned in my direct testimony, whatever is done on the -- in reducing the revenue related to LV would then have to be transferred to the retail customers of Networks' distribution system.

969
MR. TAYLOR: I'm sorry, I'm just going through my questions. I believe a lot of them have been asked already so I'm just skipping over them.

970
Dr. Poray, in accordance with the distribution rate handbook, LDCs are phasing in their return on equity over three years. Did Networks consider phasing in the increase, its proposed increase, for its LV facilities? I believe the number is $9.4 million.

971

DR. PORAY: As I mentioned, Networks does not have any information that would allow it to establish a rate or bill mitigation impact. The $9.4 million which you are referring to is the difference between 38.6 and 29.2 million, which does not represent the revenue that is recovered from customers. It's merely a negotiated amount which Networks receives from OPG through the revenue allocation agreement.

972
MR. TAYLOR: So, then, just to answer my question, did you or did you not consider phasing it in?

973
DR. PORAY: No, I mentioned it already, that there is no mitigation plan in Networks' proposal for the LV facilities.

974
MR. TAYLOR: Fair enough.

975
MR. VLAHOS: Mr. Taylor, it is after 1:00, and I believe one minute past is the most we could go.

976
MR. TAYLOR: I have three more questions, Mr. Chair.

977
MR. VLAHOS: It's the answers I'm -- not playback, okay.

978
MR. TAYLOR: I'll go as quickly as I can.

979
MR. VLAHOS: We do have some other commitments to attend to in about ten minutes.

980
MR. TAYLOR: Okay.

981
Dr. Poray, Networks used a cost-allocation model which was reviewed by R.J. Rudden & Associates, and Rudden's conclusion was that the study used an unbundled cost analysis which generally followed accepted industry practices; right?

982
DR. PORAY: That's correct.

983
MR. TAYLOR: Did R.J. Rudden review Networks' proposed cost-allocation methodology with respect to the LV costs?

984
DR. PORAY: It did.

985
MR. TAYLOR: And what was the conclusion?


986
DR. PORAY: They indicated that it was unusual that Networks did not allocate on the basis of, for example, voltages.

987
MR. TAYLOR: Okay.

988
My last question. Are the other regulated rates for Networks' embedded distribution customers the same as those for non-embedded customers; do you know that?

989
DR. PORAY: Are you referring to the retail transmission rates?

990
MR. TAYLOR: I am. And as well, I believe there's a wholesale market rate.

991
DR. PORAY: Can you just repeat the question, please.

992
MR. TAYLOR: Do you know if other regulated rates for Networks' embedded distribution customers, if those rates are the same as non-embedded distribution customers?

993
DR. PORAY: Networks -- when you mean non-embedded distribution customers, are you talking about transmission customers?

994
MR. TAYLOR: Yes. LDCs and transmission customers.

995
DR. PORAY: Well, Networks followed the process which was established in the handbook for passing through transmission rates, and that is the way it developed its retail transmission rates.

996
MR. TAYLOR: So it's your understanding that they're the same? If you don't know, that's fine, sir.

997
DR. PORAY: Well, the rates -- the rates are based on the revenues which Networks distribution has to pay to the IMO for transmission charges, and each LDC that is connected to the transmission system will pay to the IMO based on the same rates. So the same rates on transmission apply to each transmission-connected LDC and then that LDC will calculate the equivalent retail transmission rates based on the revenue that it's paid to the IMO.

998
MR. TAYLOR: Thank you. Those are my questions.

999

MR. VLAHOS: Thank you, Mr. Taylor.

1000
Ms. Lea, I believe you have a question or something.

1001
MS. LEA: It's not a question; I just wanted to put one comment on the record before we broke, sir, with your leave.

1002
Given that it appears clear that the jurisdictional issue that was raised first by Mr. McLorg and now by Mr. Taylor is going to form part of parties' arguments, I don't think it's appropriate that Mr. Rogers and I discuss it off the record or, indeed, debate it on the record between us. So I think that my advice is that we just leave it to the argument phase. People can ask questions, of course, about the facts of the matter, but it appears that it's going to be part of argument so I would anticipate that it will be dealt with in that phase.

1003
MR. VLAHOS: Mr. Rogers, any comment?

1004
MR. ROGERS: There's no reason why I couldn't discuss this with Ms. Lea. Just because it's an issue in the case, I don't feel restrained from discussing it with any of the parties. But if she feels uncomfortable, I won't. But I don't think there would be anything wrong with it. I may talk to my friends who have raised this for the first time so I can understand exactly what it is they are going to argue, because at the moment I do not.

1005
MS. LEA: Well, we'll take it under advisement. Thanks.

1006
MR. VLAHOS: Okay, thank you.

1007
We'll stand down, then, for the day. We will see you tomorrow at 9:00.

1008
--- Whereupon the hearing adjourned at 1:07 p.m.