--- Upon commencing at 9:05 a.m. "Vlahos, P."=MR. VLAHOS: Please be seated. Good morning, everyone. Any preliminary matters, Ms. Lea, Mr. Rogers, anybody else? *****PRELIMINARY MATTERS: "Rogers, D."=MR. ROGERS: The only preliminary matter I would have, sir, is to raise with the Board the question of argument. We're at the point in the case now where we're looking ahead, and the applicant would favour a compressed argument timetable. I don't ask you to make a decision now; I'd ask you and my colleagues to think about it. I can tell you that the applicant is prepared to argue the case orally in chief or file a written argument in chief. In either case, we would be prepared to do that, with the Board's approval, a day following the close of the evidence. In other words, especially if something in writing is to be filed, I would ask the Board to give me one clear day after we end the hearing so that I can put that together. Thereafter, I was thinking if the Board wanted to have written argument, that the intervenors might be given five days to respond to the applicant's argument in chief, and if the Board wanted written argument, I could undertake to file a written argument within the five days of the intervenors' filing. Of course, if the Board is prepared to hear oral argument, that could probably be compressed further, from the applicant's standpoint. As I say, I don't ask for any decision now. I thought I'd make that proposal so that people can think about it. "Vlahos, P."=MR. VLAHOS: Any specific reasons for the compressed timetable, Mr. Rogers? I know that the sooner the better we get the decision out, but I don't think May 1st would be a target. Here we are sitting at April 4th. "Rogers, D."=MR. ROGERS: Yes, I understand. I think really the sooner the better attitude for all concerned. Also, there's the difficulty of the low-voltage customers, because come market opening, there is no rate applicable to low-voltage customers at the moment; and so the shorter the period of time where there would have to be a retroactive adjustment, the better. "Vlahos, P."=MR. VLAHOS: Okay. I'm just trying to turn my mind to what -- there are no rates applicable to low-voltage at all and then you'll be interim -- "Rogers, D."=MR. ROGERS: No, sir. All that is in place now is a deferral account. "Lea, J."=MS. LEA: Yes. In the July 4th decision there is a deferral account. "Vlahos, P."=MR. VLAHOS: Okay, thank you for that. "Rogers, D."=MR. ROGERS: Thank you. "Vlahos, P."=MR. VLAHOS: So I would expect parties to consider that proposal by the company; five days to write their argument following the oral in chief -- "Rogers, D."=MR. ROGERS: Well, we would be prepared to do it orally, or if the Board would prefer to have a written document, we can do that too. "Vlahos, P."=MR. VLAHOS: We've been quite satisfied in the past with oral, and I'm not sure whether I'm alone here with my panelists, but I can speak for one, and perhaps we cannot finalise this today, but it has worked before with oral argument in chief. "Rogers, D."=MR. ROGERS: Thank you. "Vlahos, P."=MR. VLAHOS: The Board would probably insist on having a written argument by the parties and a written reply. "Rogers, D."=MR. ROGERS: I thought that would be the case. Very good. Thank you, sir. If there are no other preliminary matters -- "Vlahos, P."=MR. VLAHOS: Mr. Rogers, one minute. I was given some instructions this morning. There are some technical changes to the sound system. This is off the record. [Discussion off the record]. "McLorg, C."=MR. MCLORG: Mr. Vlahos, if I may, just a quick clarifying question. The five days that was mentioned for intervenor argument, would that be calendar days or business days? "Rogers, D."=MR. ROGERS: Well, I mean, we can discuss it, but I had in mind calendar days. "McLorg, C."=MR. MCLORG: So if the hearing ends on, say, Tuesday -- Toronto Hydro would prefer business days just because it's simpler for us to deal with that. "Rogers, D."=MR. ROGERS: May I suggest we not debate this, take your time, sir. Let me talk to my colleagues. "Vlahos, P."=MR. VLAHOS: I'm sure there will be opportunity to visit this issue again before the end of the oral proceeding. "McLorg, C."=MR. MCLORG: Thank you. "Vlahos, P."=MR. VLAHOS: Anything else? No? "Rogers, D."=MR. ROGERS: Just one matter before we begin the testimony with the next cross-examiner, and that is Dr. Poray has asked for an opportunity to correct something that was said yesterday that he would like to correct. "Vlahos, P."=MR. VLAHOS: Dr. Poray. "Poray, A."=DR. PORAY: Thank you, Mr. Rogers. My correction would be to the paragraph 900, and it's in response to a question by Mr. Taylor concerning the allocation of costs to a dual customer, in other words, a customer that supplied both transmission and distribution. And his question was, would the allocation be to that customer based on its entire load and I had responded that it would be based only on the delivery points that were connected to the distribution system. That is not correct. It is based upon the entire load. So the answer to that question should be yes. "Vlahos, P."=MR. VLAHOS: Thank you. "Rogers, D."=MR. ROGERS: Thank you, Dr. Poray. He's available now for cross-examination, sir. "Vlahos, P."=MR. VLAHOS: Thank you. Mr. Mondrow hasn't appeared this morning, so Mr. White. "White, R."=MR. WHITE: Thank you very much. HYDRO ONE NETWORKS - PANEL 2 A. PORAY; Resumed *****CROSS-EXAMINATION BY MR. WHITE: "White, R."=MR. WHITE: Good morning. "Poray, A."=DR. PORAY: Good morning. "White, R."=MR. WHITE: I'd like to start by indicating that this is Andrew Bateman on my right, and he is an associate of ECMI. He may be -- he may be taking over the questioning at certain points, but I will -- I'll be starting off this morning. I would like to go to some of the evidence provided yesterday. You said that the LV system that Hydro One has is unique. By "unique," you mean the size of it, the number of customers, or the fact that it has an LV system supplying other LDCs or direct industrial customers at all? "Poray, A."=DR. PORAY: The uniqueness that I was referring to was the fact that the system is comprised of a variety of facilities which supply customers that are connected all over the place; in other words, they are connected at the subtransmission voltage levels and they are connected at the lower distribution voltage levels. "White, R."=MR. WHITE: If I were to suggest to you that that is not at all unique amongst my client base, that they often have supplies of 4 kV, at 8 kV, at 27.6, 16, multiple voltages. I thought you were getting at the LV nature in terms of supplying LDCs and direct industrial customers from a previously low-voltage system. "Poray, A."=DR. PORAY: What I was referring to is that the low-voltage system which Networks inherited from Ontario Hydro was designed to supply the embedded LDCs and large users, but it is also used to supply its retail customers as well. "White, R."=MR. WHITE: At least two of ECMI's clients have LV systems which -- "Rogers, D."=MR. ROGERS: Your Honour -- I'm sorry, Mr. Chairman, excuse me. Mr. White should not be permitted to give evidence through his questions. His purpose here today is not as a witness. If he wants to testify, I'd be quite happy to cross-examine him. But he should be asking questions of the witness. "White, R."=MR. WHITE: All right. I'll save it for argument, then. Historically, as the system sits in 1999, are there LV-supplied direct industrial customers within licensed service areas of LDCs? And what I mean is are Hydro One's low-voltage direct customers within the licensed areas of LDCs connected to the LV system? "Poray, A."=DR. PORAY: I don't think I understand your question, Mr. White. "White, R."=MR. WHITE: Are there any of the directs in the -- supplied by Hydro One located within the former franchise areas of LDCs? "Poray, A."=DR. PORAY: I can speak to the 39 directs which are the former direct customers of Ontario Hydro which are connected to Network's subtransmission -- or LV facilities. "White, R."=MR. WHITE: Okay. And are any of those physically located within the former franchise areas of the LDCs? "Poray, A."=DR. PORAY: Which LDCs are you speaking of? "White, R."=MR. WHITE: Any LDCs in the province. I mean, I can go specifically if you want and ask you about Haldimand, which is an LDC. Are there any of these customers that are connected, any of these 39 customers which are in the franchise areas of the LDCs, like Haldimand? "Poray, A."=DR. PORAY: Are you referring to the large users connected to the LDCs that were acquired by Hydro One Networks? "White, R."=MR. WHITE: No, I'm not. "Poray, A."=DR. PORAY: I don't know the answer to your question. "White, R."=MR. WHITE: Okay, thank you. Yesterday, there was some comparison between the T-class customers and the direct customers over 5,000 kilowatts; do you recall that discussion? "Poray, A."=DR. PORAY: Yes. "White, R."=MR. WHITE: Are the T-class customer rates and prices utilisation voltage rates, or are they delivery voltage rates? The actual rates in the schedule, are they rates that apply, say, to the secondary side of the transformer as opposed to direct industrials where the rates historically have been dependent upon the delivery voltage to the customer as opposed to the secondary site of the transformation? What I'm trying to get at is it's my understanding that, for the T-class customers, if power is delivered to those customers at, say, 27.6 or 44 kV, that there is a transformer ownership allowance which applies if the customer owns a stepdown from 44 to, say, 8 kV or some utilisation voltage; that they in turn would distribute that within their plant and that would not be the case for the direct industrial customer supplied at 44 or 27.6. "Poray, A."=DR. PORAY: I believe that the transformer allowance that you speak of still applies. "White, R."=MR. WHITE: Under the existing contracts, the 1999 contracts? "Poray, A."=DR. PORAY: The 1999 contracts, yes. "White, R."=MR. WHITE: I note, when the price determinants are established for LV facilities, that for dedicated facilities the price determinant can be dollars per kilometre where it's a dedicated facility, and where it's part of the shared pool, it is -- it is 17 cents -- it is proposed to be 17 cents a kilowatt. "Poray, A."=DR. PORAY: When you talk about dedicated facilities, do you mean specific lines? "White, R."=MR. WHITE: Yes. "Poray, A."=DR. PORAY: That is correct. "White, R."=MR. WHITE: So for the same pool of LV facilities which effectively serve the same function, the existing system in the proposal of Hydro One is that you use different price determinants to recover similar costs? "Poray, A."=DR. PORAY: We have used the rate structure that exists today. "White, R."=MR. WHITE: Which is different price determinants. In the one case it's kilometres and in the other case it's -- "Poray, A."=DR. PORAY: For the specific lines, it's kilometres; for the shared lines, it's cents per kilowatt. "White, R."=MR. WHITE: And the lines serve fundamentally the same function. "Poray, A."=DR. PORAY: No, they serve different functions. The specific lines are specifically allocated to customers and there is no other customer connected, whereas the shared lines serve a number of customers. "White, R."=MR. WHITE: I understand that. What I was after when I used the word "functional" was not that you allocated them differently, which is in fact an allocation process, but from an electrical delivery perspective, they are both delivering power to LDCs; in some cases, it's more than one LDCs, Hydro One being one of them and utilities being another. "Poray, A."=DR. PORAY: And retail customers as well. "White, R."=MR. WHITE: Yes, that's what I mean. "Poray, A."=DR. PORAY: Yes, I agree. They are delivering electricity. "White, R."=MR. WHITE: Can I take you for a moment to Exhibit E, tab 2, schedule 2, page 14, the green sheets. "Poray, A."=DR. PORAY: Page 14? "White, R."=MR. WHITE: Yes. "Poray, A."=DR. PORAY: Yes, I'm there. "White, R."=MR. WHITE: Okay. If I take you down to rows 12 and 13. "Poray, A."=DR. PORAY: Yes. "White, R."=MR. WHITE: It says, "The shares of non-coincident loads used for cost allocations are shown in table 3." Can I ask how the non-coincident loads were determined? "Poray, A."=DR. PORAY: They were determined based on the delivery points for each entity. "White, R."=MR. WHITE: In other words, if there were two feeders out of the same transformer station, each feeder would be considered a delivery point and the non-coincident demand would be on a feeder-by-feeder basis, regardless of the metering that's in place? "Poray, A."=DR. PORAY: It is my understanding that would be done on each delivery point to an entity. "White, R."=MR. WHITE: Each meter delivery point or each physical delivery point? "Poray, A."=DR. PORAY: Each physical delivery point. "White, R."=MR. WHITE: Would you agree that yesterday it was fairly well established that the direct customers that Hydro One serves are, in some ways, similar to the large users of LDCs, largely similar? "Poray, A."=DR. PORAY: What do you mean by "similar"? "White, R."=MR. WHITE: That they have a common threshold at which the classification starts; that they both start at 5,000 kilowatts. "Poray, A."=DR. PORAY: I agree. "White, R."=MR. WHITE: I'm uncertain whether there is a specific number on the record for the total number of LDCs in the province in 1999 that were supplied through Hydro One -owned LV lines. Is that on the record somewhere, or can you give us a specific number in total? "Poray, A."=DR. PORAY: Just a minute, Mr. White. In response to an interrogatory which was asked by ECMI at Exhibit G, tab 11, schedule 15, the question was asked: "How many LDCs in the province are taking power at 27.6/16 kV," and we responded that there were 57 LDCs that took power at that voltage level. "White, R."=MR. WHITE: I'm aware that that partial number exists, but I'm not aware if there's an aggregate number that exists on the record. "Poray, A."=DR. PORAY: I don't have any other numbers. "White, R."=MR. WHITE: Okay, thank you. Can you give the Board some idea of the capacity of a -- the kilowatt capacity of a 44 kV feeder or a 27.6 or a 27.6/16 kV feeder? "Poray, A."=DR. PORAY: I think I will have to defer that question to Mr. Hubert who is more familiar with that type of -- with the capacity of transmission feeders. "White, R."=MR. WHITE: Does that mean that that question has to wait until we deal with the losses panel? Have you a suggestion, Mr. Rogers? "Rogers, D."=MR. ROGERS: Mr. Chairman, does this question deal with losses? "White, R."=MR. WHITE: No. "Rogers, D."=MR. ROGERS: It deals with low-voltage, does it? "White, R."=MR. WHITE: Yes. "Rogers, D."=MR. ROGERS: Well, I guess if it's important. I don't really understand the relevance of it, but if it's important, we can undertake to find out and let Mr. White know. We can probably do that over the break. "Vlahos, P."=MR. VLAHOS: Mr. White, do you have any numbers that you have taken from the evidence that -- "White, R."=MR. WHITE: No, there isn't, to my knowledge, a specific reference of those capacities on the record. And recognising Mr. Rogers' bias, I don't want to suggest what I think might be appropriate numbers. "Rogers, D."=MR. ROGERS: I think I've been accused of something, but I don't know what. I'll let it pass. "Vlahos, P."=MR. VLAHOS: You have another line of questioning, Mr. White? Because what we could do is we could use the break and see whether we can get that information and then you can -- "Rogers, D."=MR. ROGERS: I have no idea how difficult it will be, but I'll certainly try. "Vlahos, P."=MR. VLAHOS: Yes. "Poray, A."=DR. PORAY: Can I just ask for a clarification. What we're looking for is capacity of a 27.6 kV feeder? "White, R."=MR. WHITE: In kilowatts, yes. Maybe I can come at it from a slightly different angle and get to what I'm trying to get at anyway. You currently supply the 39 directs through subtransmission voltages of 44 or 27.6 or 27.6/16; is that correct? "Poray, A."=DR. PORAY: They are connected to Networks' distribution system but they are not Networks' customers. "White, R."=MR. WHITE: Do you mean that they're not Networks' -- I'm sorry. Are you saying that the directs, the 39 directs, are not customers of Hydro One distribution going forward? "Poray, A."=DR. PORAY: They are not today. That is what you asked, I believe. "White, R."=MR. WHITE: Okay. Are they -- well, let's deal with it. Going forward, once market opens, are they going to be Hydro One distribution customers? "Poray, A."=DR. PORAY: They will be, yes. "White, R."=MR. WHITE: And these customers are individually over 5 megawatts. "Poray, A."=DR. PORAY: I believe that's correct. "White, R."=MR. WHITE: So the capacity for the 27.6 or 27.6/16 or 44 kV lines would at least be 5 megawatts? "Poray, A."=DR. PORAY: I would assume that if they are today connected to those facilities, those facilities are sufficient to supply them. "White, R."=MR. WHITE: I can accept that answer and we can move on, then, without dealing with it over the break. A couple minutes ago you said that there are 53 LDCs connected to the 27.6 kV system. "Poray, A."=DR. PORAY: That's correct. "White, R."=MR. WHITE: Do you have any specific idea whether those deliveries would be above the 5,000 kilowatt level or below? "Poray, A."=DR. PORAY: I don't know offhand what the deliveries are for those LDCs. "White, R."=MR. WHITE: We have provided a handout that's labeled "Handout 1" which is strictly for convenience. It's a direct lift from the Colaco study and we can certainly make copies available to all of the parties. "Rogers, D."=MR. ROGERS: Mr. Chairman, I haven't seen this. This is news to me. "Lea, J."=MS. LEA: All right. We'll pass it to you. "Rogers, D."=MR. ROGERS: Have you seen this, Dr. Poray? "Poray, A."=DR. PORAY: No, I have not. "White, R."=MR. WHITE: It's in evidence as part of the Colaco study. I'm just making a copy available for convenience. "Rogers, D."=MR. ROGERS: Just so I'm clear on this, I gather, Mr. Chairman, that this is simply an excerpt taken from the evidence somewhere? "White, R."=MR. WHITE: Yes, it is. It is from the Colaco study that was provided as part of an ECMI interrogatory on the losses and as a Board interrogatory in the current case here. "Lea, J."=MS. LEA: Thank you. Given that it has been put before it as a separate sheet, can we mark it as an exhibit, please. I.3.1. I think we'll call it "Overview of the Ontario Hydro Distribution Electricity System," in other words, the title that's on the exhibit. EXHIBIT NO. I.3.1: OVERVIEW OF THE ONTARIO HYDRO DISTRIBUTION ELECTRICITY SYSTEM "Rogers, D."=MR. ROGERS: I wonder, Mr. Chairman, just so I'm clear on this, I wonder whether Mr. White can tell me what interrogatory answer it is so I can look at the whole study. "Poray, A."=DR. PORAY: I can provide you it. G, 1, 68. Exhibit G, tab 1, 68. "Rogers, D."=MR. ROGERS: Thanks very much. That's fine, thanks. "White, R."=MR. WHITE: When I compare the table in that study with the table in Exhibit I.2.1, I notice that there are different voltages included in the table that's part of the Colaco study, and I would draw your specific attention to the 2.4/4.16 kV voltage and I wonder whether that's an oversight on the Exhibit I.2.1. "Rogers, D."=MR. ROGERS: Do you understand the question? "Poray, A."=DR. PORAY: No, I don't, I'm sorry. "White, R."=MR. WHITE: When I go through the list of voltages in the Colaco study handout which has just been provided and I compare that with Exhibit I.2.1, not all the voltages in the Colaco study are included in the 1999 distribution system drawing provided by Hydro One. And I'm wondering if it's -- if it's just meant to be an illustrative one, provided as Exhibit I.2.1, or whether it was that that particular -- that particular voltage level was inadvertently left out. "Poray, A."=DR. PORAY: The purpose of Exhibit I.2.1 was to give a high-level overview of Networks' distribution system; therefore, we did not go -- we did not include all of the voltage levels which are included in the Colaco study, so there was no oversight. "White, R."=MR. WHITE: Okay, thank you. When I look at the Colaco study, when I look at the voltages there, it identifies subtransmission voltages and distribution voltages. Can you tell me why they're in two separate groups? "Poray, A."=DR. PORAY: I believe the subtransmission voltages are as indicated there, they are 27.6, 44, and 115, whereas the distribution voltages are typically lower than that. "White, R."=MR. WHITE: But I note that 16 kV, 27.6, is in both of those columns, or is the same delta voltage level but it's in both columns so it's not just the low voltage. "Poray, A."=DR. PORAY: I believe that, for the most part, that diagram indicates that, in a broad sense, you can categorise those. But there is some overlap. "White, R."=MR. WHITE: Would you agree that the one titled "Primary Distribution Voltage" is a wire delivery or a grounded system delivery as opposed to the subtransmission which is not? "Poray, A."=DR. PORAY: I believe that, for the most part, the primary distribution system is 4-wire and the grounded system is 3-wire. "White, R."=MR. WHITE: Thank you. Can a 27.6 kV subtransmission line be changed to a 27.6/16 through the addition of such things as grounding transformers? "Vlahos, P."=MR. VLAHOS: Mr. White, if I may, a lot of those questions are sort of factual in nature and could have been asked in interrogatories. Maybe you can help us in where you're going with this so that we can put some context to it. "White, R."=MR. WHITE: Where I'm trying to take it is that the Colaco study seems to establish some new classes of delivery voltage which -- by how the items are clustered, and these new classes may, in fact, result in having to substantially revisit the cost allocation process that Hydro One has gone through in determining how costs are being allocated between customers. And what I was trying to get at would be can the nature of the 27.6/16 kV line be changed from a delta system to a wire system? Is the fact that the boundary between these two subgroups somewhat arbitrary illustrative and may not be indicative of a clear and appropriate long-term boundary. "Vlahos, P."=MR. VLAHOS: Is this strictly related to the LV issue, or has it broader implications? "White, R."=MR. WHITE: It may spill into the loss issue as well, but it certainly relates to the LV issue. "Vlahos, P."=MR. VLAHOS: But does it have any broader implications in terms of the cost allocation or the rate design as it currently exists, and agreed to by the parties? "White, R."=MR. WHITE: I don't think so, because the LV is determined as a separate pool here because of the nature of the delivery. That certainly wasn't my intent, to broaden the nature of the classification, but certainly to get at whether the classifications or these boundaries should, in fact, in any way, flow into any decision made by the Board with respect to such things that may come out in the Aiken study on layering by voltage for LV losses. Does the witness want to comment generally on whether that boundary is intended for use in any specific way other than -- I guess it is an issue when you get to the losses and I'm wondering whether it is turning into an issue with respect to LV facilities. "Poray, A."=DR. PORAY: Well, maybe -- I think I was a little bit confused as to what we were discussing here, but perhaps if we try and come back to the allocation of LV costs, and I think I demonstrated in Exhibit I.2.1 the nature of the LV system being a mishmash of voltage levels, that that doesn't allow stratification into two separate, nice compartments where you can see these voltages apply to these groups of customers and these voltages apply to these groups of customers, that in fact it's a combination. And that was the way the cost allocation was done. "White, R."=MR. WHITE: Can I take you to the handout 2A and 2B which are, likewise, existing exhibits; the one is Exhibit G, tab 11, schedule 5. And you can make those available to people if you want. They are labelled in our handouts 2A and 2B. The one is Exhibit G, tab 11, schedule 25, page 1 of 1, and the other is Exhibit E, tab 2, schedule 2, page 1 of 24. "Rogers, D."=MR. ROGERS: Mr. Chairman, can I suggest that if Mr. White has other handouts, maybe let's get them all out now. I haven't seen these. If they are taken from the evidence, I don't have any objection, but it will be a little more efficient if we had them all now. Are there more? "Lea, J."=MS. LEA: Yes, there are. Mr. White, they are taken from the evidentiary record that's before us in this case? "White, R."=MR. WHITE: These two are, yes. "Lea, J."=MS. LEA: Can I suggest that we don't give them additional exhibit numbers because they are clearly exhibits in this case with a number. I'm going to pass these along. "White, R."=MR. WHITE: The only reason I'm trying to hand these out is to make sure they're available for all parties. "Lea, J."=MS. LEA: Mr. White, I appreciate that. I didn't want to give them a new number and confuse things. Those were the two handouts. Now, Mr. White, do you want me to deal with the other two handouts? "White, R."=MR. WHITE: Maybe at this point we can provide the ones that relate to the LV questions we have. "Lea, J."=MS. LEA: And those would be which ones? "White, R."=MR. WHITE: Up to and including the ones labelled 4A and 4B. "Lea, J."=MS. LEA: Okay. "Vlahos, P."=MR. VLAHOS: Ms. Lea, any of those that are not part of the record? "White, R."=MR. WHITE: Yes, one is. "Vlahos, P."=MR. VLAHOS: Okay. In that case, I believe if it refers to the witness and the company, they should have those, Mr. White, in advance. So the ones you just handed out, those are fine. But if there's anything that you constructed, those should be provided to the witness ahead of time. "Lea, J."=MS. LEA: Mr. White, I'm dealing with handout number 3, this diagram. Perhaps you can explain what the source of this diagram is. "White, R."=MR. WHITE: It's a new drawing, and we will use it to try and consolidate the questioning around metered delivery points and some of the issues around LV lines. "Lea, J."=MS. LEA: All right. Mr. Chairman, I'm reluctant to distribute this to the Board panel until Mr. Rogers has had an opportunity to see it. So is it possible that we can look at this over the break? I don't know -- "White, R."=MR. WHITE: Certainly. It's later in the questioning anyway so I'm happy to ... "Rogers, D."=MR. ROGERS: I've got three from -- may I suggest that we proceed with the two that have been handed out that come from the evidence. I have no trouble with them. Let me collect these over the break, the new ones, and then we'll see. "White, R."=MR. WHITE: The latter two relate to the losses question as opposed to the current one. "Lea, J."=MS. LEA: You don't have those yet? "White, R."=MR. WHITE: I just gave them so that he would have them. "Lea, J."=MS. LEA: The next two handouts that I believe Mr. White is indicating would belong to this cross-examination of this witness are, in fact, exhibits from this case already on the record, and those two handouts, 4A and 4B under Mr. White's labelling, are both from Exhibit E, tab 1, schedule 1. I seem to have two copies of page 19, and one is a revised version of the other. They have two different dates. I'm going to pass those along now, or do you wish me to hold on to those, Mr. White? "White, R."=MR. WHITE: Can you pass them along. "Rogers, D."=MR. ROGERS: Can we not just deal with the evidence? "Lea, J."=MS. LEA: That's fine. Let's just wait, then. "Rogers, D."=MR. ROGERS: I'd suggest, Mr. Chairman, that this -- I imagine Mr. White is trying to simplify this, and I understand that, but sometimes it's very useful to have this documents. But I'd be grateful if we can just -- if we can deal with the evidence. And if he can tell us which exhibit it is from the evidence that he wishes to examine upon, we can turn it up. "White, R."=MR. WHITE: Okay. So the first is Exhibit G, tab 11, schedule 25, page 1 of 1. "Rogers, D."=MR. ROGERS: All right, thank you. This is an interrogatory answer to ECMI? "White, R."=MR. WHITE: Yes. "Vlahos, P."=MR. VLAHOS: I'm sorry, the number of the interrogatory? "Rogers, D."=MR. ROGERS: Exhibit G, tab 11, schedule 25. "Vlahos, P."=MR. VLAHOS: Schedule 25. Thank you. "Rogers, D."=MR. ROGERS: Is there a question, Mr. Chairman? "White, R."=MR. WHITE: Yes. You probably also need the reference to the second one which is Exhibit E, tab 2, schedule 2, page 1 of 24. When I read the response to the ECMI interrogatory, Exhibit G, it indicates to me that the LV lines, by definition, are considered to be 3-wire, operated at voltages 44 kV or 27.6, and these lines represent about 15 per cent of Networks' total distribution line rate base. The implication from that is that the balance of the 85 per cent are 4-wire distribution lines which includes some single-phase and two-phase spurs. Is that a correct interpretation, and how do you reconcile it with Exhibit E, tab 2, schedule 2? "Vlahos, P."=MR. VLAHOS: What specifically, Mr. White, on the last reference? "White, R."=MR. WHITE: When I read the answer we got in the interrogatory, it was that the LV lines are just the 44 and the 27.6, and the 4-wire lines are, in some way, different from the LV lines when, in fact, the evidence at tab E -- Exhibit E, tab 2, schedule 2, indicates that all of these lines are LV lines in the LV pool. "Poray, A."=DR. PORAY: I believe that what we have answered is correct. If we look at Exhibit E, tab 2, schedule 2, page 1, at line 14, it says: "Lines operating at subtransmission voltage levels such as 44 kV and 27.6 kV are often referred to as low voltage, or LV." In our response to interrogatory G, 11, 25, we said more or less the same thing. "White, R."=MR. WHITE: Does that mean that these other voltages, the 8.32 and down to 4.16, that those are not part of the LV cost pool? "Poray, A."=DR. PORAY: They are part of the LV system cost pool, yes, the way we've allocated costs. But if we talk about LV lines, not LV system, just LV lines, these are typically categorised as 44 and 27.6. "White, R."=MR. WHITE: Thank you, that's quite helpful. So that it's important when we read the evidence and the responses that we try and differentiate between lines and system; is that correct? "Poray, A."=DR. PORAY: Yes, because the system includes transformation as well. "White, R."=MR. WHITE: In your view, and I think you've already stated it, at least in part, what is the purpose of the unbundling process? Is it just to identify the costs that need to be part of rate designs in the future, or is -- what is the purpose of the unbundling process? "Poray, A."=DR. PORAY: I think I stated in my testimony yesterday that the purpose of the unbundling process, which is embodied in the principles of the handbook, is to separate the costs so that these can be developed into rates that can be charged in the new marketplace. "White, R."=MR. WHITE: Would you agree that unbundling of costs in the spirit of the handbook does not provide an opportunity to create new classes of customers? "Poray, A."=DR. PORAY: That is correct. "White, R."=MR. WHITE: Do you agree that if the LV charges were to apply to LDCs who are currently utilising those facilities, that that would, in fact, be creating a new class of customer? "Poray, A."=DR. PORAY: It would be creating a new charge. The class of customer is LDC, but it would be a new charge. "White, R."=MR. WHITE: Have you sufficient data to determine the direct costs as opposed to the allocated costs involved with deliveries to LDCs or direct industrial customers, direct costs as opposed to allocated costs? What I'm really asking is, on a going-forward basis, are you tracking directly the costs that are involved in maintaining the LV facilities that supply directs and LDCs? "Poray, A."=DR. PORAY: We have indicated in our evidence, at Exhibit E, tab 2, schedule 2, in the appendices, particularly appendix A, which indicates the functions to which the costs are assigned, and in those functions you will see that we have LV lines, distribution stations, lines overhead, submerged and underground lines, transformers, and so on, and that's the way the costs are tracked. "White, R."=MR. WHITE: So you're not looking at -- by that answer, am I interpreting what you're saying correctly by saying that you are not tracking the costs associated with these common LV facilities that supply, in fact, LDCs and directs separately from your other costs associated with providing the same functions? "Poray, A."=DR. PORAY: We are not tracking costs on the basis on which we allocated them which is to a common pool of costs. We're tracking them as indicated in the appendix and the functions. "White, R."=MR. WHITE: Can we go for a minute to the -- some of the espoused principles of cost allocation, and I notice that cost allocation should reflect cost causality. In your introduction yesterday, you stated that the system was designed to produce -- the LV system was designed and constructed, in part, to produce the lowest overall cost to the entire electrical system as opposed to individual components; is that correct? "Poray, A."=DR. PORAY: I believe I said that it was the lowest overall cost compared to building transmission facilities instead of LV facilities. "White, R."=MR. WHITE: Is it fair, then, to characterise the transmission system as a beneficiary, if you will, of the construction of the LV facilities? In other words, it had lower costs because LV costs were incurred. "Poray, A."=DR. PORAY: The total transmission costs are lower, yes. "White, R."=MR. WHITE: From your perspective, are directs and LDCs identical? "Poray, A."=DR. PORAY: Yes, they are. "White, R."=MR. WHITE: At this point, what I would -- what I would like to do is defer the balance of my questions which relate to handout number 3, the first handout that is new, until after the break, if that is acceptable to the parties, because they relate specifically to that handout. "Rogers, D."=MR. ROGERS: I'm not sure I follow, Mr. Chairman. Is Mr. White finished but for that? "White, R."=MR. WHITE: Yes, and the questions that relate to it. "Rogers, D."=MR. ROGERS: May I suggest this: that perhaps we can carry on with the cross-examinations, and I would certainly agree to have Mr. White come back and ask questions about these documents, if indeed you allow him to do so, once I know what they are; that is, interrupt his cross-examination and let the others continue in the interests of efficiency and come back after the break. "Vlahos, P."=MR. VLAHOS: That's what you suggested. "White, R."=MR. WHITE: Yes. "Rogers, D."=MR. ROGERS: I guess I agree, then. That's the problem with Mr. White and I; I'm not sure I understand what he's asking. "Vlahos, P."=MR. VLAHOS: That's fine. Mr. Cowan. "Cowan, T."=MR. COWAN: Thank you. Thank you, Mr. Vlahos. *****CROSS-EXAMINATION BY MR. COWAN: "Cowan, T."=MR. COWAN: Good morning. "Poray, A."=DR. PORAY: Good morning, Mr. Cowan. "Cowan, T."=MR. COWAN: I don't have a handout. I'm only going to use one of yours. Exhibit E, tab 2, schedule 1, table 8, in particular where you set out the costs. "Vlahos, P."=MR. VLAHOS: Mr. Cowan, we are having difficulty hearing you. "Cowan, T."=MR. COWAN: My apologies. "Vlahos, P."=MR. VLAHOS: Maybe you can move a bit closer. "Cowan, T."=MR. COWAN: I'll put this out as far as it will go. "Vlahos, P."=MR. VLAHOS: Thank you. "Cowan, T."=MR. COWAN: Exhibit E, tab 2, schedule 1, table 8, Networks embedded business schedule. I just wanted to go through that. "Rogers, D."=MR. ROGERS: Sorry. E, 2, schedule 1, page 18. "Cowan, T."=MR. COWAN: Table 8, the Networks' embedded business schedule. "Vlahos, P."=MR. VLAHOS: You're still fading, Mr. Cowan. "Cowan, T."=MR. COWAN: I went back an inch or thereabouts and it made a difference. Okay. "Rogers, D."=MR. ROGERS: I'm sorry. Mr. Cowan, could you just tell me again slowly which exhibit it is. I'm having trouble finding it. "Cowan, T."=MR. COWAN: My apologies. Between speed and the microphone, I guess that's the nervousness on my part. Exhibit E, tab 2, schedule 1, page 18. "Rogers, D."=MR. ROGERS: Thank you. Thank you. I have it. Do you have it, Dr. Poray? "Poray, A."=DR. PORAY: I have it. "Cowan, T."=MR. COWAN: Again, my apologies. "Vlahos, P."=MR. VLAHOS: Sorry. Court reporter, if you have difficulty with Mr. Cowan, just tell us or we can ask him to move perhaps one microphone over. Perhaps there's something wrong with the mike, but we're having trouble with the microphone, Mr. Cowan. "Cowan, T."=MR. COWAN: Why don't I move over right now. "Vlahos, P."=MR. VLAHOS: Why don't you do that. "Cowan, T."=MR. COWAN: Does this one work a little better? "Vlahos, P."=MR. VLAHOS: Yes, it does. "Cowan, T."=MR. COWAN: Okay. I note in going through that table that it essentially sets out the LV business very much as the entire business was set out by Ms. Frank, and so that there were some comparisons that seemed noteworthy. And I wanted you to explain briefly, if you could, how the figures in table 8 were derived. Were they from known costs or were they estimated as proportions of the total; and if so, based on what? Just how did you -- why those numbers rather than something different? How did they come to be? "Poray, A."=DR. PORAY: May I turn everybody's attention to Exhibit E, tab 2, schedule 1, appendix A, sheet 2. "Cowan, T."=MR. COWAN: Everybody but mine. I don't have that. "Poray, A."=DR. PORAY: It's in the evidence, Mr. Cowan. "Rogers, D."=MR. ROGERS: We can get a copy for Mr. Cowan. "Cowan, T."=MR. COWAN: Carry on. "Poray, A."=DR. PORAY: Okay. This sheet pertains to the build-up of the revenue requirement for the LV costs, for the allocated LV costs. If we go to the bottom of column B, you will see a number there which is 38.6. Okay? That is the number which corresponds to line 6 in table 8 as being the total Networks' revenue requirement for LV. If you look across -- now back in appendix A, sheet 2, in columns -- sorry, yes. If you go across now to columns C, D, and E, that 38.6 is broken down into revenues pertaining to LV lines, which is 21.77 million, distribution stations, which is 7.17 million, and distribution lines overhead, which is 8.09 million. These figures come from the tables within the text where we do the cost allocation for the LV facilities, and I can take you to those tables if you would like. Or do you want me to just carry on with a high-level explanation? "Cowan, T."=MR. COWAN: I think a high-level explanation is what I'm looking for. Are they -- which of the numbers do you feel you can account for each of the individual costs that go into them and which are derived from a portion of something else by necessity and estimate? "Poray, A."=DR. PORAY: The 38.6 number was derived from the cost allocation study and it's made up of the four components; LV lines, 21.77 million; distribution stations, 7.27 million; distribution lines overhead, 8.09 million; and then in column L there is a proportion of the miscellaneous costs, 1.58 million, which is allocated. All those added together come to $38.6 million. "Cowan, T."=MR. COWAN: So only the miscellaneous is a proportional cost. "Poray, A."=DR. PORAY: No. The other ones are a proportion of the total cost as well. So if you allow me, I'll continue. "Cowan, T."=MR. COWAN: Please. "Poray, A."=DR. PORAY: So now that we have for each one of those categories a revenue, what we then do is we allocate that revenue based on the ratios obtained from column M, in appendix A, sheet 2. So, for example, if we were to take -- go to the top of column C, and we look at the OM & A expense which is allocated to LV lines, we would obtain that value of 8.37 by taking 21.77, which was the total value for LV lines at the bottom of column C, and then multiply by the ratio of the total OM & A expense, which is on the far right, under column M, in line 1.1, $307.9 million, divided by the total for Networks' distribution wires requirements, which is at the bottom of column M, 800.82. That ratio multiplied by 21.77 will give you 8.37. "Cowan, T."=MR. COWAN: And the same proportionality applies in depreciation and amortisation? "Poray, A."=DR. PORAY: Yes, that's correct. The same approach was used. "Cowan, T."=MR. COWAN: The same approach. So the proportionality differs according to the proportion of the thing -- general category as a fraction of the total cost for the entire company. "Poray, A."=DR. PORAY: That is correct. "Cowan, T."=MR. COWAN: Okay. And that applies throughout, in all the categories. "Poray, A."=DR. PORAY: That is correct. "Cowan, T."=MR. COWAN: Okay. And underlying that assumption, then, is that the LV business is proportionally the same as the rest of the business in that there's as much depreciation going on there. You're assuming that the assets are of a similar nature and similar age. You've borrowed for them equivalently so the depreciation and amortisation are more or less the same. "Poray, A."=DR. PORAY: The individual assets that we have information for would have their own depreciation values. "Cowan, T."=MR. COWAN: Okay. And the remaining questions, now that I understand how those have come to be, within table 8, how is it that the net income, where you have interest costs at 6.5 per cent, suggesting then that there are assets involved of about 233 million, based on the 7.1 per cent rate of -- interest rate that the company has used -- "Vlahos, P."=MR. VLAHOS: Sorry, Mr. Cowan, you've lost me. "Cowan, T."=MR. COWAN: If you take the -- "Vlahos, P."=MR. VLAHOS: Sorry, you talk about the interest of 6.5 per cent. What is that from? "Cowan, T."=MR. COWAN: The 6.5 is millions. "Vlahos, P."=MR. VLAHOS: I heard per cent. "Cowan, T."=MR. COWAN: The 7.1 is per cent. So the 7.1 divided into a hundred, then multiplied by the 6.5 gives you the debt that's assigned to LV, and then multiply that debt by 1.5 gives you the 60 per cent that is the equity, and add the two numbers together and you get approximately 233 million. "Poray, A."=DR. PORAY: I'm sorry, you've lost me, Mr. Cowan. "Cowan, T."=MR. COWAN: It's possible. We'll go at it again. To start with the 6.5 million and the 7.1 per cent that is the interest rate that is assigned -- "Poray, A."=DR. PORAY: Where does the 7.1 per cent come from? "Cowan, T."=MR. COWAN: Ms. Frank read that into evidence on the first day. "Poray, A."=DR. PORAY: Okay. "Cowan, T."=MR. COWAN: Divide the 7.1 into 100, multiply that by 6.5, and you get a number, approximately $93 million. "Poray, A."=DR. PORAY: I'm sorry. How can it be 93 when you're starting with 6.5? "Cowan, T."=MR. COWAN: Because you've taken your 7.1, you've divided that into 100, and you now have a number of approximately 14. You multiply that by the 6.5 and you get 93. "Poray, A."=DR. PORAY: I'm sorry, I lost you. "Vlahos, P."=MR. VLAHOS: I think we are losing you. Unless we have a sheet of paper to follow exactly what you're suggesting, I'm afraid you have to come to it a bit differently. "Cowan, T."=MR. COWAN: It's arithmetic. "Vlahos, P."=MR. VLAHOS: Well, what is the question and maybe we can go at it that way. "Cowan, T."=MR. COWAN: Well, the question is with respect to the net income, the net income seems to be a proportion of about 1.7 per cent, where all the other costs are in the nature of 4, 5, 6 per cent of the totals. And it struck me that the net income was proportionally much lower based on that total capital -- total cost capital and equity -- borrowing inequity, sorry, that is implicit in that cost structure. So I was wondering why the net income was so low. "Poray, A."=DR. PORAY: Well, all I can say is that if we go back to Exhibit E, tab 2, schedule 1, appendix A, sheet 2, you will see in line 4.1, that an amount of 5.24 million of net income is allocated to the LV lines. Now, that allocation of net income would have been done on the basis of the rate base. "Cowan, T."=MR. COWAN: Okay. So in fact, then, what I'm looking at isn't that the net income is unusually low, it's that these lines are relatively under-utilised compared to -- per unit of cost, you have a much lower income from these lines than others; is that the case? They are relatively expensive assets, from a customer point of view. "Vlahos, P."=MR. VLAHOS: Mr. Cowan, I'm trying to follow your line of questioning. As I understood the previous evidence of Dr. Poray, it's that if you look at appendix A, sheet 2 -- I'm sorry, I should give you the full reference. Exhibit A, tab 2, schedule 1, appendix A, sheet 2. "Cowan, T."=MR. COWAN: Yes. "Vlahos, P."=MR. VLAHOS: On the right-hand side of that document, that column that gives the totals for each of the categories, okay, the starting point therefore is at 106.1; that's in millions. And that column is used in order to derive the specifics, the specific allocations. That starts with column B, the 5.24, et cetera, et cetera. So are you questions pertaining to the adequacy or the reasonableness of the 106.1? I believe that should be the starting point as to what -- "Cowan, T."=MR. COWAN: No, I'm not questioning the 106.1. I'm trying to understand why it is that the 5.2 in table 8 for net income, and I'm -- is roughly, I'd suggest, a 1.7 per cent rate of return on the total assets involved in the company for income -- rate of return but via its income, compared to the other proportions in the same column which are in the 4 to 5 per cent range. I think I'm beginning to understand, from what Dr. Poray has said, that -- or may be saying next is that these assets are under-utilised relative to their size and cost. The income from them is, in fact, rather less, where the costs for operating them are rather higher. The LV system has a different -- a relatively lower income either because of higher costs or lower revenues? "Rogers, D."=MR. ROGERS: Well, Mr. Chairman, Mr. Cowan is welcome, of course, to ask questions, but I'm not sure I understand what the question is. I wonder if Mr. Cowan could ask some questions. Is this line under-utilised; is that the question? Are these facilities under-utilised? "Cowan, T."=MR. COWAN: Well, that's one way of putting it, quite bluntly, thank you. "Rogers, D."=MR. ROGERS: If Dr. Poray can help with that. "Poray, A."=DR. PORAY: I don't think I can help with that. "Cowan, T."=MR. COWAN: Oh, okay. I've left that life raft and we'll swim elsewhere. Why is it that there are no power losses included as a cost category in table 8? "Poray, A."=DR. PORAY: Costs that are identified in table 8 are wires costs and these determine the total revenue requirement that will derive the LV rates. Losses are not part of the rates. Distribution losses are treated separately from the wires rates. "Cowan, T."=MR. COWAN: LV customers will be paying power losses, will they? "Poray, A."=DR. PORAY: There is, and Networks has developed, a distribution load factor for the LV system, yes. "Cowan, T."=MR. COWAN: And similarly with respect to the customer care, there are no customer-care costs allocated, apparently, in table 8? "Poray, A."=DR. PORAY: That is correct. We did not allocate any customer-care costs because in 1999 we didn't have any LV customers. "Cowan, T."=MR. COWAN:But they will be getting care? "Poray, A."=DR. PORAY: They will be getting care, but those costs, they are incurred by OPG. "Cowan, T."=MR. COWAN: And in future? "Poray, A."=DR. PORAY: As Networks' customers, they will incur -- we will incur costs. "Cowan, T."=MR. COWAN: And those customer-care costs for LV customers will be shared by everyone rather than LV customers? "Poray, A."=DR. PORAY: That will be part of the future cost-of-service and cost-allocation study. "Cowan, T."=MR. COWAN: A rather more general question, then. The underlying aim, as I've understood it from you so far, is to unbundle the cost structure and separate the cost to create rates in compliance with the distribution handbook. "Poray, A."=DR. PORAY: That is correct. "Cowan, T."=MR. COWAN: Would another possible purpose underlying the distribution handbook be to provide rates with clear market signals? "Poray, A."=DR. PORAY: I believe the overall purpose of the handbook is to separate the wires costs from today's bundled rates. "Cowan, T."=MR. COWAN: And there is nothing in the purpose of this exercise to provide clear market signals. "Poray, A."=DR. PORAY: I believe the market signals that are being provided are the unbundled costs themselves. "Cowan, T."=MR. COWAN: Then there will be this group of customers over the next two years who will enjoy possibly lower prices than they will have thereafter and have had heretofore; is that so? "Poray, A."=DR. PORAY: I'm not sure I understand what you mean by lower prices. "Cowan, T."=MR. COWAN: Lower rates. The T-class industrial customers who will go from a $33,000 service charge to an $800 service charge? "Poray, A."=DR. PORAY: I'm sorry, I'm not sure how you derived those numbers. "Cowan, T."=MR. COWAN: We'll leave that, then. Have you compared the LV rates that you will see by category for the rest of the customers in the Hydro One service area? Is the same pricing going to be sent to people in LV areas as in the rest of Hydro One areas? "Poray, A."=DR. PORAY: There are different -- completely different rates, rate structures. "Cowan, T."=MR. COWAN: So they will, in fact, be enjoying different rates, different structures. Have you compared the rates that you've come up with here with those in different jurisdictions? "Poray, A."=DR. PORAY: In other distribution companies? "Cowan, T."=MR. COWAN: Yes, in Manitoba, in Quebec, in New York state. "Poray, A."=DR. PORAY: No, we have not. "Cowan, T."=MR. COWAN: So we don't know how those market signals will compare. "Poray, A."=DR. PORAY: I believe Manitoba doesn't have a market. "Cowan, T."=MR. COWAN: It is a regulated market, I will allow, but they do have rates. Where you charge a price, there's a market. "Poray, A."=DR. PORAY: But I believe at this point in time they are bundled rates. "Cowan, T."=MR. COWAN: Yes, that's true. So the rates have not been compared "Poray, A."=DR. PORAY: Not on a jurisdictional basis, no. "Cowan, T."=MR. COWAN: So for the time being, then, we don't know how the prices will compare with other jurisdictions and what the signals will be in the -- we do not know how the prices will compare in this jurisdiction with other jurisdictions? "Rogers, D."=MR. ROGERS: Mr. Chairman, I just want to be clear that the witness and the questioner are talking about the same thing. Mr. White, I assume, is talking about a low-voltage charge, unbundled low-voltage charge, because that's what we're talking about. If that's the question, he can answer it. "Cowan, T."=MR. COWAN: That was the first comparison, yes. I think that question is answered and we can leave it at that. No comparison has been made. "Poray, A."=DR. PORAY: We're not aware of other jurisdictions having similar type of arrangements as exist in Hydro One. "Cowan, T."=MR. COWAN: Thank you. "Vlahos, P."=MR. VLAHOS: Are you finished, Mr. Cowan? "Cowan, T."=MR. COWAN: Yes, thank you, Mr. Chairman. I'm done. "Vlahos, P."=MR. VLAHOS: Thank you. Mr. Sidlofsky is not here. Ms. Lea, would you prefer to break now? Because you're next in line. Or would you rather wait for -- after the break for Mr. White to perhaps ask his questions, if that's okay with the company. "Lea, J."=MS. LEA: I'm content to go ahead, sir. I have three topics to ask about but I expect I could finish by 10:45, if that's of assistance. "Vlahos, P."=MR. VLAHOS: Why don't you go ahead. "Lea, J."=MS. LEA: Okay, thanks. *****CROSS-EXAMINATION BY MS. LEA: "Lea, J."=MS. LEA: Dr. Poray, I wonder if you could turn up Board staff interrogatory number 64, and I'll give you the exhibit number for that. That is Exhibit G, tab 1, schedule 64. You referred to this, I think, either in your evidence in chief or early in your cross-examination. "Poray, A."=DR. PORAY: That's correct. "Lea, J."=MS. LEA: Do you have it available to you, sir? "Poray, A."=DR. PORAY: I do. "Lea, J."=MS. LEA: In this interrogatory, I understand that you were demonstrating at page 2 what the total bill increase would be for those customers who -- some of the LV customers who would be apparently experiencing large increases due to the percentage change in their rate, and your response included a calculation of the total bill, and either in your evidence in chief or in your cross-examination, you indicated that the total bill increase would not exceed 2.3 per cent. Do you remember that line of evidence? "Poray, A."=DR. PORAY: That's correct, yes. "Lea, J."=MS. LEA: What I need further clarification on is an understanding of the last paragraph on page 1 of that interrogatory, and that has to do with the costs of power that you're assuming in creating this interrogatory. Could you please clarify what assumptions you made and where the numbers came from which are contained in that last paragraph on page 1. And if you would prefer to answer this question after some time to think about it, I'd defer it until after the break. I know this is not a simple question. "Poray, A."=DR. PORAY: Yes, if that would be all right, I'd like to think about that. "Lea, J."=MS. LEA: Thank you. If you can think about that, then, sir, I'd appreciate it. Another line of questioning that I want to follow up on had to do with the question first raised by Mr. McLorg and followed up on by Mr. Taylor about an apparent intention by the company to bill customers who were, in fact, not customers of distribution. That is what I understood was being suggested to you yesterday. Do you remember that line of questioning? "Poray, A."=DR. PORAY: Yes, I do. "Lea, J."=MS. LEA: Do you understand what the suggestion is? Can you identify, in your mind, which customers these are? "Poray, A."=DR. PORAY: These would be the transmission-connected, local distribution companies. "Lea, J."=MS. LEA: Are they all LDCs? "Poray, A."=DR. PORAY: Yes. We have not included the direct customers which are connected to the transmission system. "Lea, J."=MS. LEA: And when you say you have not included them, do you mean that you will not be asking them to pay the same charge? "Poray, A."=DR. PORAY: That is correct. "Lea, J."=MS. LEA: I understand. How many LDCs are affected? "Poray, A."=DR. PORAY: The transmission-connected LDCs? "Lea, J."=MS. LEA: Yes. "Poray, A."=DR. PORAY: Excuse me for a moment. "Lea, J."=MS. LEA: And, again, if you prefer to answer after the break or by way of undertaking, I'm content with that. "Poray, A."=DR. PORAY: Yes, I do have those numbers but I don't have them in my head. "Lea, J."=MS. LEA: Would you prefer to answer after the break or take an undertaking, sir? "Poray, A."=DR. PORAY: I can answer after the break. "Lea, J."=MS. LEA: The other question I was going to ask about this. What is the magnitude of charges that we're talking about that has been identified here? How much revenue would the company be foregoing were it not to charge those transmission customers those amounts? "Poray, A."=DR. PORAY: Are we assuming that those -- that if we were to go the user-pay, as is the suggestion by some intervenors, that some $12 million would have to be shifted from the LV cost pool to somebody else, to either Networks' retail customers or foregone revenues. So it would be about $12 million. "Lea, J."=MS. LEA: Thank you. I just want to be clear, though, that I'm making myself understood to you. What I'm asking about is purely the charges that would be paid by those LDCs that are connected to the transmission system only. "Poray, A."=DR. PORAY: That's correct. "Lea, J."=MS. LEA: So it's the $12 million for those customers only. "Poray, A."=DR. PORAY: That's right. "Lea, J."=MS. LEA: Thank you. As you've indicated, then, one choice would be to shift those costs to other customer groups. "Poray, A."=DR. PORAY: That is correct. "Lea, J."=MS. LEA: And one choice would be to shift it to other LV customers. "Poray, A."=DR. PORAY: It would be to all LV-connected customers, yes. "Lea, J."=MS. LEA: All LV-connected customers. "Poray, A."=DR. PORAY: Which, if I may finish. "Lea, J."=MS. LEA: Yes, please. "Poray, A."=DR. PORAY: Which includes Networks as well, because we have distribution stations which are fed from the LV system. "Lea, J."=MS. LEA: I understand, yes. And would that also include retail customers? "Poray, A."=DR. PORAY: Yes, it would. "Lea, J."=MS. LEA: Thank you. One moment, please. Thank you. There was one other area I wanted to ask you about, sir, and that was a comment you made about rate harmonisation. I did not fully understand what you were telling us about the company's position. I had a look at section 5.6 of the rate handbook, and if you could look at that now with me, please, I just wanted to understand what your position was with respect to Hydro One's responsibilities at the present time with respect to rate harmonisation. "Poray, A."=DR. PORAY: Thank you. I think the way I meant harmonisation was with respect to harmonising the customers, the costs, all of the information and data that would be required to bring the LV rates to a closure, if you like. Now, section 5.6 of the Retail Handbook deals with harmonisation of rates for mergers, acquisitions, and amalgamations, where, over a period of time, the idea is to bring the disparity of rates between, say, Hydro One Networks' distribution rates and an acquired LDC's rate. But this does not deal with the LV issue where we have currently T-class customers and the LV customers and they are two different rates. So when I talked about harmonisation, I meant the harmonisation of costs and all the information that would be required to bring that to a closure. "Lea, J."=MS. LEA: And what is your belief as to Hydro One's responsibility in terms of that harmonisation, as you have now described it? "Poray, A."=DR. PORAY: That we would -- that we would do this and address this issue going forward in our next submission to the OEB. "Lea, J."=MS. LEA: Okay, thank you. Thank you very much, sir. Then with the answers I anticipate after the break, those are my questions. Thank you, Mr. Chairman. "Vlahos, P."=MR. VLAHOS: Thank you, Ms. Lea. Mr. Rogers, anything before we break? As I understand it, after the break we may have Mr. White, depending what the company's position is, and then Ms. Lea will continue. I'm assuming there will be some answers. And then the Board will have an opportunity to ask some questions. "Rogers, D."=MR. ROGERS: Yes. "Vlahos, P."=MR. VLAHOS: Okay. Let's return at 11:15. It's twenty to eleven now. --- Recess taken at 10:40 a.m. resume --- On resuming at 11:15 a.m. "Vlahos, P."=MR. VLAHOS: Please be seated. Mr. Rogers. "Rogers, D."=MR. ROGERS: Thank you, sir. Two things. I've spoken to Mr. White and I'm prepared to allow him to ask questions on this exhibit. He's promised me he'll keep it at a high level and not get into too much detail, and that's fine. There was one other matter I wish to raise before we continue. It has to do with my friend Ms. Lea's examination a moment ago. She asked Dr. Poray about the effect of foregoing revenue to be collected from those customers who are not connected to the LV system, and I fear that there may have been a different interpretation put on the question by Ms. Lea and Dr. Poray. So I just don't want to lay the mistaken impression. I haven't spoken with Dr. Poray about this, and I'm not sure I'm correct. But I know different people have spoken to me that have a different idea as to what the purport of the question was, and I'm wondering if we could just -- if Ms. Lea again could state for us the question, if she can remember it. What I understood the question was, and maybe I can accelerate the process, I understood Ms. Lea to be asking how much revenue would be foregone or need to be shifted if customers who are not directly connected to the low-voltage system were relieved from all responsibility for contributing to it. "Lea, J."=MS. LEA: I guess what I was trying to follow up on, and I think that's probably accurate. Let me try and state it again. The issue was raised that there are some people that Hydro One proposes to collect revenue from who are not actually connected to the distribution system, they are connected only to the transmission system. My question was: How much revenue do you plan to collect from those people that are connected only to the distribution system? So I think it's the same question that you put. That were only connected to the transmission system. Did I say that right? "Poray, A."=DR. PORAY: No. Do I take that to mean only connected to the transmission system or partially connected or -- "Lea, J."=MS. LEA: I'm talking about those people who are only connected. Am I? Yes. Let's start with those that are solely connected to the transmission system. "Rogers, D."=MR. ROGERS: If you don't know, Dr. Poray, we can undertake -- "Poray, A."=DR. PORAY: I think we will probably take an undertaking. What I'd like to point out is we are also collecting charges to those that are partially connected. "Lea, J."=MS. LEA: That was the second part. Could you explain how much revenue was being collected from those customers. As long as that's broken out, that would be helpful. The undertaking will be H.3.1, information regarding revenue to be collected from transmission customers. UNDERTAKING NO. H.3.1: INFORMATION REGARDING REVENUE TO BE COLLECTED FROM TRANSMISSION CUSTOMERS "Lea, J."=MS. LEA: Thank you, Mr. Rogers. "Rogers, D."=MR. ROGERS: Thank you. Mr. Chairman, Dr. Poray will answer Mr. White's questions now. Oh, I'm sorry. He undertook to get some information for Ms. Lea over the break, and he has that now. "Lea, J."=MS. LEA: Okay. "Poray, A."=DR. PORAY: This is in response to your questions concerning Exhibit G, tab 1, schedule 64. "Lea, J."=MS. LEA: Yes, Board staff interrogatory 64. "Poray, A."=DR. PORAY: In the bottom paragraph you were asking about the origin of the figures which we used for calculating the bill index. "Lea, J."=MS. LEA: Yes. "Poray, A."=DR. PORAY: All of the data pertaining to the rates is -- can be found in the 1999 bulk power tariffs. These are the former Ontario Hydro tariffs. So the $9.4 per kilowatt, this would be for LDCs that are connected to the -- at 230 kV, and $10.88 per kilowatt are for those LDCs that are connected below 230 kV. And the 4.38 cents per kilowatt hour per energy is the monthly energy price applicable to any use in that same tariff schedule. The other number was the monthly load factor of 60 per cent. This is just common knowledge. "Lea, J."=MS. LEA: Okay. I gather, then, that the figure of $4.38 per kilowatt hour will change or at least vary on market opening, will be subject to a change. "Poray, A."=DR. PORAY: That is correct. "Lea, J."=MS. LEA: And what about the bulk power tariff, 9.4 to $10.88, is that going to be varying upon market opening? "Poray, A."=DR. PORAY: These will cease to exist on market opening. "Lea, J."=MS. LEA: Cease to exist. Pardon me, Dr. Poray. Okay. So the table on the second page of the interrogatory still uses the 1999 bulk power tariffs even though those will cease on market opening in order to provide a comparison table. "Poray, A."=DR. PORAY: That is correct. "Lea, J."=MS. LEA: I understand, thank you. And I think the other information I was seeking was the number of customers who are connected only to the transmission system, that is, the customers that are affected, and you've also added the qualification that some are partially connected. So do you have those figures for me now? "Poray, A."=DR. PORAY: I do. "Lea, J."=MS. LEA: Thank you. "Poray, A."=DR. PORAY: There are 33 local distribution companies that are connected to the transmission system only, and there are also 33 local distribution companies that are partially connected or dually connected. "Lea, J."=MS. LEA: Thank you. I think that's the end of the information that I needed to get from you, sir. Thank you. "Vlahos, P."=MR. VLAHOS: Ms. Lea, you're still going to have some questions after Mr. White on those topics, or you're done? "Lea, J."=MS. LEA: No, I think I'm done. Thank you, sir. "Vlahos, P."=MR. VLAHOS: Okay. Mr. White. "White, R."=MR. WHITE: Thank you. *****FURTHER CROSS-EXAMINATION BY MR. WHITE: "White, R."=MR. WHITE: The handout that was handed out, would you care to designate with a -- "Lea, J."=MS. LEA: Yes. There's an exhibit that's now being passed up to the panel. It will take Exhibit I.3.2. And what's a good title for this exhibit, sir? "White, R."=MR. WHITE: Metered delivery points versus physical delivery points. "Lea, J."=MS. LEA: Metered delivery points versus physical delivery points. Thank you. EXHIBIT NO. I.3.2: METERED DELIVERY POINTS VERSUS PHYSICAL DELIVERY POINTS "White, R."=MR. WHITE: I take it from your answer this morning when I asked about the physical delivery points, when you talked about the non-coincident demand, that you were differentiating between the physical delivery points and the metered delivery points to an LDCs. "Poray, A."=DR. PORAY: That is correct. "White, R."=MR. WHITE: If we accept this exhibit as illustrative of a possible configuration for delivery from Hydro One's LV system, and maybe I can walk briefly through it, the TS in this particular case is located outside of the service areas of the two LDCs, the line runs to the boundary of the first LDC, carries on through and supplies a DS owned by Hydro One Networks and carries on further and supplies LDC-2, hence having the ongoing ownership. The full taps emanating from that line, taps T1 to T6, are owned by LDC-1. Are you okay with that description? "Poray, A."=DR. PORAY: Yes. "White, R."=MR. WHITE: In the cases where you were looking at the cost allocation based on demand for the LV pool, if the meter was at M1, how would the demand be determined for the LV system? Only at -- I'm sorry, M1 and M5, because you probably need one for the low-voltage distribution system charges. These are optional positions for meters to measure quantities because seldom in the physical situation in the world would you have both an M1, an M2, and an M3 meter, and in the real world you would seldom have both an M4 and an M5 meter. "Rogers, D."=MR. ROGERS: Well, I'd ask Mr. White, what's the question? "White, R."=MR. WHITE: This morning the witness indicated that the non-coincident demands were measured on a physical delivery point to determine the allocation that the LV pool should attract, and as there are no meters shown for T1, T2, T3, and T4, T5, and T6, how would the physical non-coincident demands delivered be determined in that cost allocation study? "Poray, A."=DR. PORAY: Can I just ask for some clarification, Mr. White. LDC-1 is non- -- is not Hydro One Networks. "White, R."=MR. WHITE: That's correct. "Poray, A."=DR. PORAY: So we have a situation where we have Hydro One Networks' customers fed from LDC-1's distribution system? "White, R."=MR. WHITE: Not in this particular case, no. "Poray, A."=DR. PORAY: Okay. Now, you said in the -- that all the lines in the DS are owned by Hydro One. "White, R."=MR. WHITE: Including the DS -- save and except the taps, yes. "Poray, A."=DR. PORAY: Except the taps? "White, R."=MR. WHITE: Yes. "Poray, A."=DR. PORAY: So when we talk about the allocation of LV costs, we're talking about allocating the costs of the line that runs from the TS to the right, through the LDC-1, and continuing on to LDC-2. "White, R."=MR. WHITE: Correct. "Poray, A."=DR. PORAY: So what we would do is we would have the demand associated with LDC-1, which I believe would be measured at M3; we would have the demand of Hydro One's distribution system, and that would be the demand of LDC-2. And the reason I say that is that today these LDCs are billed by OPGI and so there would be meters, appropriate meters in place to build those LDCs. "White, R."=MR. WHITE: Okay. Let's assume that M3 and M5 and M6 are in place, as I think you have in your answers, but these are not the non-coincident demand and physical delivery points which occur for each of the taps; would you agree? "Poray, A."=DR. PORAY: If this is the only delivery point for LDC-1, then that would be the -- "Vlahos, P."=MR. VLAHOS: Could you give the answer again, Dr. Poray. "Poray, A."=DR. PORAY: If the delivery point was -- if the delivery point to LDC-1 was at M3, that would be the demand that we would use. "White, R."=MR. WHITE: Would you agree that the physical delivery points occur at the points that the taps, T1 through T6, are connected to the line through the center of the drawing. "Poray, A."=DR. PORAY: These are the delivery points to LDC-1's retail customers. "White, R."=MR. WHITE: Now, the actual taps are owned by LDC-1. "Poray, A."=DR. PORAY: Yes, they supply LDC-1's retail customers. "White, R."=MR. WHITE: They supply LDC-1 who in turn supplies its retail customers; is that correct? "Poray, A."=DR. PORAY: So those taps would go to stepdown transformation within the LDC. "White, R."=MR. WHITE: Absolutely, yes. Thank you. What I'm trying to get at -- "Rogers, D."=MR. ROGERS: That wasn't an answer to the question. You're just clarifying the assumptions. "Poray, A."=DR. PORAY: Yes. "Rogers, D."=MR. ROGERS: Now that we know what the assumptions are, I think, what is the question, Mr. White? "White, R."=MR. WHITE: Given that the LV line between M3 and M4 is a line owned by Hydro One, and given that the taps are owned by the LDC, in the cost allocation study to determine the demands that should be allocated to the LV facilities, you said that you were using the physical delivery points. As those physical delivery points are not metered, how were those demands at the various taps, or physical delivery points, determined in the study? "Poray, A."=DR. PORAY: It is my understanding that the allocation would have been done on the total amount for LDC-1, which, I would have to agree, would be measured at meter M3. "White, R."=MR. WHITE: So that in fact, in many cases, the non-coincident demand that's used to allocate the subtransmission system or the LV system deliveries is, in fact, a metered quantity which may in fact encompass a number of physical delivery points so that in fact the allocation may not be done on a non-coincident demand, on the basis of a physical delivery point basis. "Poray, A."=DR. PORAY: As I understand it, it's the non-coincident demand of LDC-1, because we're allocating it to the total of LDC-1 not the individual taps. "White, R."=MR. WHITE: Is that true for the determination of the allocation to the rural system as well? "Poray, A."=DR. PORAY: It will be done on the delivery points of Networks' distribution system. "White, R."=MR. WHITE: On the basis of the non-coincident demand, metered delivery points? "Poray, A."=DR. PORAY: Non-coincident demand, yes. Now, I can't speak whether, in fact, there were metering facilities at all of Networks' distribution stations. But my understanding is, for the non- Networks LDCs, there are metering points. That is why I spoke, why I said this morning that it would be on the physical. In this case it's on the metered, but I think in Networks' case, there may be instances where there are no meters. "White, R."=MR. WHITE: Thank you very much, that's very helpful. I have no further questions in this area. "Vlahos, P."=MR. VLAHOS: Thank you, Mr. White. Mr. Rogers, the Board will have some questions now and then you will have an opportunity for redirect. "Rogers, D."=MR. ROGERS: Very good. "Vlahos, P."=MR. VLAHOS: So you can do that one time as opposed to twice. "Rogers, D."=MR. ROGERS: That's fine. "Vlahos, P."=MR. VLAHOS: Mr. Birchenough. *****QUESTIONS FROM THE BOARD: "Birchenough, A."=MR. BIRCHENOUGH: Maybe you can refer to Exhibit I.3.1 for the first question I have. "Poray, A."=DR. PORAY: Yes, I have it. "Birchenough, A."=MR. BIRCHENOUGH: I find it much easier to follow the electron flow on these diagrams than the money flow. "Poray, A."=DR. PORAY: Do you mean 3.1 or 2.1? "Birchenough, A."=MR. BIRCHENOUGH: 3.1. "Vlahos, P."=MR. VLAHOS: He's not speaking for the panel. "Birchenough, A."=MR. BIRCHENOUGH: It's the extract from the Colaco study. A question was asked this morning about the 27.6/16 kV primary distribution, 4-wire system. In your cost allocations, are those costs related to the 16/27.6 kV lines specifically charged to low-voltage cost? "Poray, A."=DR. PORAY: As I explained with the help of Exhibit I.2.1, there are situations where Networks' retail customers are connected to 27.6/16 and there are embedded entities that are connected to those -- at that voltage level and therefore there would be a share of costs allocated to LV and a share of costs allocated to Networks' retail. "Birchenough, A."=MR. BIRCHENOUGH: Maybe that, then, leads into my second question which relates to Exhibit E, tab 1, schedule 1, page 7. "Poray, A."=DR. PORAY: Page 7? "Birchenough, A."=MR. BIRCHENOUGH: Yes. "Poray, A."=DR. PORAY: I'm there. "Birchenough, A."=MR. BIRCHENOUGH: If you look at the box entitled "LV Analysis," those costs which total 512 million are not broken down into the three specific boxes underneath. Would you have numbers that would apply to each of those? "Poray, A."=DR. PORAY: Those numbers are, in fact, included in the -- under tab 2 in various places. They are not all collected in one. "Birchenough, A."=MR. BIRCHENOUGH: I realise that, but I was wondering if you can simplify it for me and give me the numbers. "Rogers, D."=MR. ROGERS: We could undertake to do that, Mr. Birchenough. Would that be satisfactory? "Birchenough, A."=MR. BIRCHENOUGH: Another related question. "Lea, J."=MS. LEA: I think we should probably give an undertaking number to that. That would be undertaking H.3.2. And describe the undertaking, please. "Rogers, D."=MR. ROGERS: A breakdown of costs of low-voltage analysis, we'll call it. Breakdown of costs, low-voltage analysis. "Lea, J."=MS. LEA: Okay, thank you. UNDERTAKING NO. H.3.2: BREAKDOWN OF COSTS, LOW-VOLTAGE ANALYSIS "Birchenough, A."=MR. BIRCHENOUGH: Just one more question related to the same exhibit. If you look at the specific LDCs and directs, I believe you stated that the cost determinant for that portion was basically dollars per kilometre of line; am I correct? "Poray, A."=DR. PORAY: That is correct, yes. "Birchenough, A."=MR. BIRCHENOUGH: Is there no differentiation between types of line in terms of capacity, actual capital cost - I'm talking specifically now about the specific LDCs and directs - or is length of line the sole determinant of this cost? "Poray, A."=DR. PORAY: The length of line is the sole determinant. "Birchenough, A."=MR. BIRCHENOUGH: That's it for me. "Vlahos, P."=MR. VLAHOS: Thank you, Mr. Birchenough. Dr. Zerker. "Zerker, S."=MS. ZERKER: Thank you. Dr. Poray, thank you for all your help. Let me go back to some of the evidence you gave -- your testimony yesterday. I'm wondering whether or not I'm missing something, and I find some inconsistencies and I'd like you to help me clarify them. At some point, and I don't have the paragraph number for this one, you said that Networks lacks details of the revenues that are covered by OPG because the customers aren't Networks' customers. "Poray, A."=DR. PORAY: That's correct. "Zerker, S."=MS. ZERKER: And then later on, and this one I do have, number 239, which is about your cost allocation study, 239, and there you have some details about where -- to which entities the costs will be allocated. And my question to you, then, is: Where does that -- let me follow that up with one more point. And you say that that is the status quo, that your cost-allocation study, and I believe you say it right after that, is determined by or retaining the status quo. Well, if you don't have the details from OPG, how do you get the information to retain the status quo? Now, am I confusing apples and oranges here? But it does seem inconsistent to me. "Poray, A."=DR. PORAY: Okay. When I talk about the information that we lack, I'm talking about the actual revenues that OPG collects from the -- from the wholesale customers which it administers today, so this is all the LDCs and all the former direct customers of Ontario Hydro, based on the wholesale bulk power rates. And we've indicated in our evidence, in relation to the LV charges, what those are today; in other words, the specific line charges and the various related charges. So depending on the information, there will be certain revenues that OPG will collect based on those rates. We don't have that information. The 38.6 pertains to a pool of costs that we have allocated to exactly the same entities that are today charged for the LV -- that are charged the LV charges by OPG, so all of the local distribution companies and the embedded direct customers. "Zerker, S."=MS. ZERKER: So that's what you mean by status quo. Those customers that were charged by OPG are going to continue to be charged by OPG -- by Networks. "Poray, A."=DR. PORAY: For the LV charges, yes. "Zerker, S."=MS. ZERKER: For the LV charges. What about the discussions that we've heard considerably yesterday and today about? Customers that are strictly transmission-connected, are they going to be -- were they part of the status quo? "Poray, A."=DR. PORAY: Yes, they are. "Zerker, S."=MS. ZERKER: They were charged previously by OPG; is that correct? "Poray, A."=DR. PORAY: They are being charged today, yes. "Zerker, S."=MS. ZERKER: And today, okay. Thank you for that. Let me go back to another question that is somewhat concerning. At some point, and I might refer you to paragraphs 251, 252, thereabouts. "Vlahos, P."=MR. VLAHOS: So in volume 2? "Zerker, S."=MS. ZERKER: In volume 2, yes. You were talking about the fact that there's cost shifting and you made some reference to -- or admission later on as well that in the old system there was a degree of cross-subsidisation; is that correct? "Poray, A."=DR. PORAY: That is correct. "Zerker, S."=MS. ZERKER: And then what we have with the status quo is a continuation, then, of the cross-subsidisation approach. "Poray, A."=DR. PORAY: That is correct. "Zerker, S."=MS. ZERKER: Can I put it to you this way: I think you're aware that cross-subsidisation is a major concern. Was there any attempt to at least partially take into account the cross-subsidisation issue and start making an adjustment, or if not completely, at least partially? "Poray, A."=DR. PORAY: No, there was not, and the reason why we didn't do that was that we felt that the handbook essentially says that you unbundle the costs as they were in 1999, and at a future date the Board will require participants to come back with new cost-of-service and cost-allocation studies for the second-generation PBR. "Zerker, S."=MS. ZERKER: Dr. Poray, with respect, we know that Networks has taken the handbook as a guide, and in at least issues, that I can think of off the top of my head, having to do with capital structure and debt and taxes, there have been deviations from the handbook, so that the guidelines of the handbook are not cast in stone. You know, one can, and Networks could, indeed, have made this as part of the policy of adapting the question of cross-subsidisation where LV lines -- the LV system is concerned. I mean, what I'm saying, sir, is that the handbook in and of itself does not determine your policy. "Poray, A."=DR. PORAY: And I -- thank you. I appreciate that. I think the picture can only be completed in terms of removing the cross-subsidies when you take into account, as I mentioned, the harmonisation of all of the customers that are connected to the LV system, and this would include the T-class customers which are effectively today Networks' distribution customers. Even though they are physically connected to the LV system, they are being treated as a distribution customer. And we did not address that issue in the unbundling of the distribution rates. We also need to have the 39 direct customers that will become our customers in market opening and the embedded LDCs, and only when you harmonise all of that information together with the information that pertains to cost of facilities with the acquired MEUs or acquired LDCs, because those will have an impact on the categorisation of the specific lines and the shared lines, it's only after you have all that information in place can you really address the issue of cross subsidies. And that is the reason why we felt, as a transitional measure, maintaining the status quo was the best policy. "Zerker, S."=MS. ZERKER: I appreciate that. That's important information. Could I ask you, then, sir, why -- I'll put it to you this way: Would a user-pay system not address the cross-subsidisation issue directly? "Poray, A."=DR. PORAY: I don't believe it would because, for the reasons that I just mentioned, we wouldn't be capturing everybody that's going to be impacted by that. What you would be doing is just partially addressing it, in effect. "Zerker, S."=MS. ZERKER: I see. Thank you. I have perhaps one other question that you can help clarify for me. It's on paragraph 297 that I made a note, and I think you may have answered this with Ms. Lea. You say that the bill impact is small. Let me just look at that. Yes. "The impacts on the total bill basis are relatively small and of similar magnitude to the impacts noted in the unbundling of Networks' retail distribution rates." Now, first of all, what are we talking about, the LV charges as being the elements that would have small impacts? Are we talking about that here? "Poray, A."=DR. PORAY: What we're talking about here is the impact of Networks unbundling the LV costs and comparing the resulting LV charges with the existing LV charges which are administered by OPG. "Zerker, S."=MS. ZERKER: So we're talking about the 29.2 in comparison to the 38.6; is that correct? "Poray, A."=DR. PORAY: I would caution that we are not comparing the 29.2 because we don't know whether, in fact, the existing rates that are administered by OPG recover 29.2. "Zerker, S."=MS. ZERKER: Well, then, are we talking about the differential, the 9.4 differential, then? Is that what you mean by the impacts being small? "Poray, A."=DR. PORAY: No. What I was talking about was, first of all, comparing the rates just themselves, just the LV rates as they are applied today with the LV rates which we developed through our cost allocation, so it's a rate by rate. And then I mentioned that in some cases there were a decrease, a 26 per cent decrease. But then I said that the LV charge forms just one small part of the overall electricity bill and we provided a response to an OEB staff interrogatory which looked at the total bill. So we compared the total bill before unbundling with the total bill after unbundling and the increases that we saw there varied from less than 1 per cent to about 2.3 per cent, and that's what I meant by relatively small. "Zerker, S."=MS. ZERKER: I appreciate that. Thank you very much. The impact you're talking about is on the end-user, like the retail customer? "Poray, A."=DR. PORAY: I was talking in this case the impact being on Networks' LV customers which are local distribution companies and the large users. "Zerker, S."=MS. ZERKER: Have you any idea what kind of impact that would have on a final end-use customer, retail customer? "Poray, A."=DR. PORAY: I would imagine it would be a similar magnitude. "Zerker, S."=MS. ZERKER: In the magnitude of 1 to 2 per cent? "Poray, A."=DR. PORAY: 1 to 2 per cent, yes. "Zerker, S."=MS. ZERKER: Thank you very much. "Vlahos, P."=MR. VLAHOS: Thank you, Dr. Zerker. Dr. Poray, just a couple of questions. Are there issues from what you've heard in the last couple of days, questions from the intervenors and the Board staff, are there any issues associated with the composition of the $38.6 million, or the determination, I should say, the determination of the $38.6 million? "Poray, A."=DR. PORAY: I think the main issue, as I see it, is the allocation to non-connected entities. "Vlahos, P."=MR. VLAHOS: Okay. So the answer to my question is that, in your view, there are no new issues as to the assumptions or the calculations that went into the determination of the 38.6? "Poray, A."=DR. PORAY: Yes, that is correct. That's right. "Vlahos, P."=MR. VLAHOS: It's just simply an allocation issue. "Poray, A."=DR. PORAY: That's correct. "Vlahos, P."=MR. VLAHOS: There was some discussion yesterday about the figure of $12.9 million shift which was in the evidence of, I believe, Mr. Aiken. I'm sorry, I'm not sure if I got the name correct. "Poray, A."=DR. PORAY: I think it was the Coalition, the Power Budd Coalition. "Vlahos, P."=MR. VLAHOS: Thank you. Today you spoke of a figure of $12 million. Were you referring to the same 12.9, or is there a shift number somewhere in your evidence if the user-pay were to apply? "Poray, A."=DR. PORAY: No, I was talking about the same figure. "Vlahos, P."=MR. VLAHOS: The same figure. "Poray, A."=DR. PORAY: Yes. "Vlahos, P."=MR. VLAHOS: Do I take it that there's no issue, from the company's perspective, about the calculation of the 12.9, or there may be? I don't want to put you on the spot. "Poray, A."=DR. PORAY: I think that the figure of 12.9 is representative of what would happen if you were to allocate only to the user, to the user pool. "Vlahos, P."=MR. VLAHOS: Okay, thank you for that. I just want to preamble my next question. One of the jobs I have is to make sure the record is complete, depending where the panel may be inclined to go. Don't read anything into this, and I guess the other parties are the same. If I look at the -- if the Board were inclined to go with something similar to what the evidence is or the submissions may be in terms of shifting the $12.9 million, is there enough information in the record right now for the Board to be able to render that decision and issue an LV schedule? And specifically I'm looking at Exhibit E, tab B, schedule 1, page 32-38. That's table 3-6, entitled "Rates and Facility Charges." I believe your testimony today or yesterday was that that schedule will have to change. "Poray, A."=DR. PORAY: That is correct. The number that would have to change would be the first number, which is the shared lines, the 17 cents would have to change. "Vlahos, P."=MR. VLAHOS: Okay. Do we have anything in the record as to how much it would change, what it would change to? "Poray, A."=DR. PORAY: If -- excuse me for one moment I'm just looking for an interrogatory where we responded to where we did the calculation for the new rates. "Vlahos, P."=MR. VLAHOS: Okay. "Poray, A."=DR. PORAY: I have it. "Lea, J."=MS. LEA: What is the number? "Poray, A."=DR. PORAY: The response is to an AMPCO interrogatory at Exhibit G, tab 4, schedule 9, and it's the response to part A which asks: "Please describe how the proposed rate of $1.7 per kilowatt per month would change if it were charged to the user-only pool based on actual usage rather than 1999 billing demand." And the rate would change -- our response is it would change to $0.56 per kilowatt per month. "Vlahos, P."=MR. VLAHOS: I'm sorry. I've heard actual versus billing. Is that a separate issue? Would the number be different if it was -- "Poray, A."=DR. PORAY: No, this number is based on the demands for allocation purposes, the 1999 demands, the non-coincident peak. But it would be applicable on a going-forward basis to the demands in 2002. The number itself wouldn't change but the amount as calculated would not be a fixed peak. It would be based on what the actual demand was at the time. "Vlahos, P."=MR. VLAHOS: Okay. So it's .56 -- sorry, it's 56 cents based on actual -- "Poray, A."=DR. PORAY: The 56 cents is based on the 1999 demands for allocation purposes. "Vlahos, P."=MR. VLAHOS: Right. "Poray, A."=DR. PORAY: And then this would be applied to the actual billing demands as they occurred. "Vlahos, P."=MR. VLAHOS: That's fine, okay. Thank you. Now, there was some discussion about -- I also want to understand as to the -- how the other classifications may be impacted by such shift. I guess there are various options; one is not to do anything, that's an option; the other one is to have the other LDCs directly connected or served by Networks receiving services from the LV assets. And you mentioned directs as well and you saw no difference in the two. I believe that was the testimony today. You also mentioned something in the same breath about retail and I wasn't sure what you were referring to. "Poray, A."=DR. PORAY: The LV charge would also apply to Networks. It's already taken into account with the allocation of costs to Networks. "Vlahos, P."=MR. VLAHOS: Okay. So both the LDCs that are -- that receive service from the LV assets and directs and Hydro One retail, those rates, tariffs, would be effective? "Poray, A."=DR. PORAY: That is correct. We would have to recalculate the distribution rates. "Vlahos, P."=MR. VLAHOS: And that would not include the 86 acquired? "Poray, A."=DR. PORAY: No, no, no. This is for Networks' existing 925,000 customers. "Vlahos, P."=MR. VLAHOS: And is anything on the record that would indicate the change in the schedules for fees for LDCs and directs as one category or the retail for Hydro One Networks? "Poray, A."=DR. PORAY: I'm sorry, I don't quite understand. "Vlahos, P."=MR. VLAHOS: Well, the Board eventually has to approve the set of rate schedules after it makes its finding, and the hypothesis here we're working with is, in the event we're inclined not to approve your proposal - we talked about how the LV rates and facility charges schedule will change - if those dollars were to be shifted to the customers who directly use the LV facilities, we talked about certain LDCs and the direct customers as well as the retail for Hydro One Networks. What schedules would we have to worry about? "Poray, A."=DR. PORAY: The -- certainly the LV schedule would change and Networks' retail distribution schedules for 2002 and 2003 would have to be recalculated. "Vlahos, P."=MR. VLAHOS: Okay. So it's only ones that are rates schedules, then, that would encompass the change to the LDCs that are directly receiving the service -- directly receiving LV service, as well as direct. It's only one set of rate schedules, is it? "Poray, A."=DR. PORAY: When you say one set of rate schedules, do you mean a package that would include Networks' retail distribution schedules and an LV schedule? "Vlahos, P."=MR. VLAHOS: Okay. The LV schedule would be separate from the existing rate schedules. The existing rate schedules, now they would encompass charges to the LDCs that are directly connected -- or they receive service from the LV assets from Hydro One. "Poray, A."=DR. PORAY: Today they are not included in the schedules, no. The existing schedules that apply today -- "Vlahos, P."=MR. VLAHOS: I see. I think I understand, Dr. Poray. Once we change the LV rates facility charges, once we change that schedule and the rate goes up, because of fewer people that are being billed under that schedule, then that takes care of the people that are not going to be billed because they are direct transmission customers; do I understand that? "Poray, A."=DR. PORAY: That is correct. "Vlahos, P."=MR. VLAHOS: Okay. So the only thing that now changes is, what, on the retail side because the retail side would have to absorb the $12.9? "Poray, A."=DR. PORAY: That's correct. "Vlahos, P."=MR. VLAHOS: So nobody has asked the question to recalculate your rate schedules based on the assumption as we talked about. Nobody has asked that question. "Poray, A."=DR. PORAY: No. "Vlahos, P."=MR. VLAHOS: I guess the Board has a couple of options if it finds different from the applicant. It can attach its own schedules if it's in the evidence; otherwise, it asks the applicant to recalculate, if the Board makes a decision, issues a decision, and the applicant provides a rate schedule. So those are the two options. Is it possible to -- is the incremental changes going to be just one page that will say that those are the incremental changes to those rates if the Board were to decide that way? Is that possible, as opposed to re-filing the full set of rate schedules? "Poray, A."=DR. PORAY: I believe that we would have to file the full set of schedules because you have to go through the recalculation of the distribution rates, particularly since you're adding additional revenue. That means you have to really go back and the 762.2 million will now become 778.4, or thereabouts, million which now has to be broken down between the 12 rate classes. We then have to do -- once we've derived the rates, we then have to go and do the mitigation of the 10 per cent for the low-use customers which will re-adjust the customer charge and the volumetric charge and that will then give us new rates. "Vlahos, P."=MR. VLAHOS: Right. I understand that. The model has to do that. But at the end of the day, is it a possibility to give us one page that says, you know, here are the rate schedules, here are the rates that applied -- here are the rates as proposed by the company and here are the adjustments, and just a unit change. I believe Ms. Powell is shaking her head as she probably knows what I'm talking about. "Rogers, D."=MR. ROGERS: I believe that can be done. "Vlahos, P."=MR. VLAHOS: Instead of receiving the full set of rate schedules as revised per this discussion, can we have an adjustment column that would apply to, well, customer charge doesn't change; energy charge changes by so much per unit. "Poray, A."=DR. PORAY: I believe that can be done, yes. "Vlahos, P."=MR. VLAHOS: Well, could you please do that. "Rogers, D."=MR. ROGERS: I said that could be done. I don't know what's involved in doing it, Mr. Vlahos, but we'll do it -- I can't tell you when. "Vlahos, P."=MR. VLAHOS: That's fine, Mr. Rogers. I don't think it has to be produced before the hearing is over, but at some point it will have to be produced, before the panel begins its deliberations, I guess. "Rogers, D."=MR. ROGERS: Yes. "Vlahos, P."=MR. VLAHOS: That would take us up to, perhaps, the time of reply argument. "Rogers, D."=MR. ROGERS: I'll assume that I can do this reasonably quickly, and if I have any problem, I'll let you know. "Vlahos, P."=MR. VLAHOS: The reason that I'm asking for this is that if the Board were inclined to go that route, it would be in the interests of all to get the decision out and implementable as soon as possible. "Rogers, D."=MR. ROGERS: Yes, I understand, and also show some of the impacts. I quite understand why you would want this. "Lea, J."=MS. LEA: That would be undertaking H.3.3, then. What's a good title for this undertaking? "Vlahos, P."=MR. VLAHOS: The unit rate impact of shifting the -- certain dollar amount, and I think Dr. Poray agreed to $12.9. So we may want to use a figure. So I'll call it $12.9 million to other -- to the retail. Let me repeat that. "Lea, J."=MS. LEA: Is it a revised rate schedule? "Rogers, D."=MR. ROGERS: I think I understand what's going on. I think if we could call it a -- "Lea, J."=MS. LEA: A revised rate schedule? "Rogers, D."=MR. ROGERS: It's really a schedule of rate adjustments arising -- schedule of rate adjustments. "Lea, J."=MS. LEA: Let's call it schedule of rate adjustments. I doubt we'll have too many of them. Thank you. UNDERTAKING NO. H.3.3: SCHEDULE OF RATE ADJUSTMENTS "Rogers, D."=MR. ROGERS: Mr. Vlahos, we'll look. This $12.9 million, if for some reason it's thought that that isn't the right number, we'll come back to the Board. We might as well do it with the correct number. "Vlahos, P."=MR. VLAHOS: If 12.9 is reasonable at this time for the company, that's fine. Perhaps we can wait. "Rogers, D."=MR. ROGERS: This has to do with the question Ms. Lea asked a bit earlier. Once I'm comfortable that that's the right number, that's what we'll use. I think it's around this number. "Vlahos, P."=MR. VLAHOS: Final question, Dr. Poray. You responded to Dr. Zerker that the user-pay approach would partially address -- that's paraphrasing, would partially address this subsidisation issue. Would you characterise this as a step in the right direction? This "partially address," would that be a step in the right direction? "Poray, A."=DR. PORAY: It would be a step, yes. "Vlahos, P."=MR. VLAHOS: Those are all of the Board's questions, Mr. Rogers. Any redirect? "Rogers, D."=MR. ROGERS: If I could have a couple of questions on redirect. *****RE-EXAMINATION BY MR. ROGERS: "Rogers, D."=MR. ROGERS: And the studies that we're undertaking, you're suggesting that it would be prudent, from the applicant's point of view, to await the completion of these studies before adjusting these costs? "Poray, A."=DR. PORAY: That is correct. "Rogers, D."=MR. ROGERS: You told us about some of the studies and I'd just like to be sure that the Board has a full understanding of what studies you have in mind. You mentioned the connectivity study? "Poray, A."=DR. PORAY: Yes. "Rogers, D."=MR. ROGERS: And I'll just lead for a minute here. But the connectivity study, as I understand it, is a study that will tell you which customers are presently actually connected to the low-voltage system. "Poray, A."=DR. PORAY: That is correct. "Rogers, D."=MR. ROGERS: And I think you said that would take about six more months to complete. "Poray, A."=DR. PORAY: Yes, I did. "Rogers, D."=MR. ROGERS: What other studies or information did you recommend be available before this full adjustment is made? "Poray, A."=DR. PORAY: Well, one of the key studies is the harmonisation of customers with the LV system, which means taking the T-class customers and the 39 large users, the large users of the acquired MEUs, and looking at that pool now and what would be the appropriate way of allocating costs. So this is a harmonisation study which also includes the completion of building up the data banks with information from the acquired MEUs in terms of all of the assets that would be part of the asset base of Hydro One so that we can determine which are now the shared lines and which are now the specific lines. So all of that work has to be done. "Rogers, D."=MR. ROGERS: I've heard mentioned - I don't know whether it came up in the evidence or not - a density study. Is there a density study involved in this work? "Poray, A."=DR. PORAY: The density study is more appropriate to Networks' distribution system because it really looks at the aspect of residential costs and how these are applicable to the residential customers. And specifically since we are acquiring MEUs that have different rates, residential rates, yes, there a density study that will be done as well. "Rogers, D."=MR. ROGERS: All right. One last point on this issue. You've heard the questions from the Board about the shifting of these costs and the -- what's being advocated by some of the participants here to amalgamate these costs differently as being a step in the right direction, I think was the term that Mr. Vlahos used. "Poray, A."=DR. PORAY: Yes. "Rogers, D."=MR. ROGERS: Once all of the information that you suggest should be available is available, is it or is it not possible that the cost -- this step in the so-called right direction now might be reversed later on? Can you help us with that? Are we going in the same direction or are we going one step forward, two steps back, or do you know? "Poray, A."=DR. PORAY: Well, I would like to leave the Board with the thought that there will be a number of options that we should explore in terms of allocating costs, and that one of those options is user-pay. So it's just one of the options. I'm not saying that's the only option, I'm just saying that is one of the ones that we will examine. "Rogers, D."=MR. ROGERS: All right. I guess that's the point I wanted to bring out. My one last point. Mr. Taylor put to you an exhibit from some agreement that was entered into by Networks, apparently, with Prince Edward County, marked as Exhibit I.2.2. "Poray, A."=DR. PORAY: That was AMPCO, I believe. "Rogers, D."=MR. ROGERS: I'm sorry. First of all, I guess the suggestion was that somehow the proposals in this case are designed to facilitate whatever obligation Networks made in this agreement. Did you understand that to be the drift of the question? "Poray, A."=DR. PORAY: Yes. "Rogers, D."=MR. ROGERS: Whatever this agreement means, and we can argue about this, but whatever this agreement means, did it have anything whatsoever to do with Hydro One Networks' proposals made to this Board in this case? "Poray, A."=DR. PORAY: No, it did not. "Rogers, D."=MR. ROGERS: Were you even aware of it before yesterday? "Poray, A."=DR. PORAY: No. "Rogers, D."=MR. ROGERS: Thank you. Those are my questions. "Vlahos, P."=MR. VLAHOS: Thank you, Mr. Rogers. Dr. Poray, you're going to be with us for a few more days. Did you want a break now? Perhaps, Mr. Rogers, I can ask you, is the company ready to address the next issue? "Rogers, D."=MR. ROGERS: Yes, I think we are. I have a little bit of evidence in chief, very little, but we can certainly do that today. "Vlahos, P."=MR. VLAHOS: If Dr. Poray is ready, we'll go ahead. "Poray, A."=DR. PORAY: Can I have a just have a drink. "Rogers, D."=MR. ROGERS: I'm going to ask Mr. Hubert to join Dr. Poray for this panel, please. While Mr. Hubert is coming forward, I'm going to be referring to some diagrams that I hope will help the Board. These were passed out the other day. I don't think they've been given an exhibit number. It's a bundle of three schematic diagrams or charts. "Lea, J."=MS. LEA: Can we give them Exhibit I.3.3, please, and I think we'll just use the title on the front of the document, "Loss Allocation Process." "Rogers, D."=MR. ROGERS: Thank you. EXHIBIT NO. I.3.3: LOSS ALLOCATION PROCESS HYDRO ONE NETWORKS - PANEL 3 A. PORAY; Previously Sworn O HUBERT; Previously Sworn *****EXAMINATION BY MR. ROGERS: "Rogers, D."=MR. ROGERS: Mr. Hubert, you've previously been sworn? "Hubert, O."=MR. HUBERT: Yes, that's correct. "Rogers, D."=MR. ROGERS: And you're here to assist and answer questions with respect to the allocation of line losses. "Hubert, O."=MR. HUBERT: Yes, I am. "Rogers, D."=MR. ROGERS: Let me start with you, Dr. Poray. What is the purpose of the evidence that we're about to lead this morning with respect to this issue? "Poray, A."=DR. PORAY: The purpose of my direct evidence is to describe the key elements of Networks' proposal with respect to the allocation of distribution losses. "Rogers, D."=MR. ROGERS: What is Networks' proposal for distribution losses? "Poray, A."=DR. PORAY: Networks' proposal is to have three distribution loss factors, and these are the LV system distribution loss factor, the primary distribution system distribution loss factor, and the secondary distribution system distribution loss factor. This proposal is predicated on the characteristics of Networks' distribution system that is substantially different from that of other LDCs. The Retail Settlement Code requires LDCs to develop two distribution loss factors; one for their primary system and one for their secondary system. In effect, Networks has added a third distribution loss factor that pertains to its LV system. "Rogers, D."=MR. ROGERS: All right, thank you very much. I wonder, could you describe for us, please, gentlemen, the loss allocation process that you followed in developing your distribution -- DLF, what is DLF? What is that acronym? "Poray, A."=DR. PORAY: Distribution loss factor. "Rogers, D."=MR. ROGERS: Distribution loss factor. "Poray, A."=DR. PORAY: I'd like to do this with the assistance of Exhibit I.3.3, which is entitled "Loss Allocation Process." This is a schematic presentation of the process that Networks has followed and one that is consistent with the Retail Settlement Code. This diagram is separated into two parts with a hatched line running down the middle, roughly. The left side of the diagram represents the process that would be followed by other LDCs in their calculation of losses in accordance with the Retail Settlement Code. The right side of the hatched line represents the additional stages that Networks has to include into the process to account for its LV system. So for other LDCs, the boxes on the right-hand side would be blank. Now, starting at the top of the diagram, on the left-hand part, Networks first has to subtract the energy sold to the embedded LDCs and direct customers to arrive at a total that includes the total sales to retail customers and all distribution system losses. So the next step is to calculate the LV losses so that we can determine the total energy sales to retail customers and the associated distribution system losses. So going across to the right side of the diagram, we follow the path down from the box marked "sales to embedded entities" where we encounter a box marked "data from engineering study and expert opinion." Here Networks combined the results of a study, a copy of which was provided in response to an interrogatory at Exhibit G, tab 1, schedule 68, with its engineering judgment and expert opinion to develop the low-voltage distribution loss factor. Following down from this box, the LV losses can be then calculated by multiplying the sales to embedded entities by the low-voltage distribution loss factor. This amount is then subtracted on the left side of the diagram to create the box titled "total energy sales to retail customers and primary and secondary distribution losses" to create the desired energy sales to retail customers and their associated losses. The next stage is to develop the primary adjustment factor, which is a measure of the spread of the loss factors between the primary and secondary distribution systems. Networks used its engineering judgment and expert opinion to derive this factor rather than use the Retail Settlement Code default value of 1 per cent. The reason for doing so is that the Retail Settlement Code default value does not adequately represent Networks' distribution system characteristics. Having calculated the primary adjustment factor, it is now possible to calculate the energy delivered inclusive of the losses to the secondary distribution system. Since we know the total energy sales to customers served from the secondary system, we're able to calculate the secondary distribution loss factor. Once that is done, the primary distribution loss factor is calculated in accordance with the formula in the Retail Settlement Code and the loss allocation process is complete. "Rogers, D."=MR. ROGERS: I see. All right, thank you. Can you tell us, then, the results or describe to us the results of Networks' loss allocation process. "Poray, A."=DR. PORAY: Yes. I would like to do that with the assistance of a diagram entitled "Networks' Distribution Loss Factors." "Rogers, D."=MR. ROGERS: This is the second page of Exhibit I.3.3. "Poray, A."=DR. PORAY: Yes. "Rogers, D."=MR. ROGERS: And this is a schematic diagram. "Poray, A."=DR. PORAY: That is correct, yes. What it does is it shows the respective distribution loss factor in relation to the major components of Networks' distribution system. The main purpose of having the distribution loss factors is to translate a retail customer's meter reading for energy consumption to a common point of reference so that Networks' purchases and sales of energy are matched and losses are accounted for accordingly. The common point of reference is the IMO-defined point of sale, and we can find this point just to be above the box labeled "TS" in the diagram. It's indicated by a little box on the left-hand side. It is this point at which a utility like Networks will purchase energy from the IMO-administered markets and will settle its bill with the IMO on that basis. It is important therefore that Networks, like other LDCs, accounts correctly for losses incurred in its distribution system so that the funds it pays to the IMO are matched with the funds it receives from its distribution customers for the energy delivered. In addition to the distribution loss factor, there is also another factor called the supply facility loss factor and that is a loss factor for representing the average losses in Networks' transformer stations serving Networks' distribution system. And we can see that to the right-hand side of the box title the "TS." "Rogers, D."=MR. ROGERS: That's 0.6 per cent? "Poray, A."=DR. PORAY: That's the 0.6 per cent, yes. The applicable distribution loss factor depends on the location of the customer within the distribution system. Through the combination of the distribution loss factor and the supply facility loss factor, a meter reading can be translated from the customer's location to the IMO-defined point of sale. This combination is called the total loss factor, or TLF, and is the sum of the respective distribution loss factors and the supply facility loss factor. So, for example, referring to our diagram, the applicable total loss factor for a customer connected to the vertical line below the box labeled "TS" will be the sum of the distribution loss factor of 2.8 per cent and 0.6 per cent to include the losses in the transformation equipment for a total loss factor of 3.4 per cent. In summary, Networks has developed three distribution loss factors whose values are as follows: The low-voltage distribution loss factor of 2.8 per cent, the primary distribution system distribution loss factor of 5.5 per cent, and the secondary distribution system distribution loss factor of 8.5 per cent. "Rogers, D."=MR. ROGERS: Thank you. How did Networks' distribution loss factors compare to those in other distribution companies? "Poray, A."=DR. PORAY: Comparing the distribution loss factor for the primary and secondary distribution system, Networks' values tend to be higher. For example, the average distribution loss factor for Networks' distribution system which combines the primary and secondary system is 7.7 per cent. This is the weighted average of the primary and secondary distribution loss factors. The comparable average figure for other LDCs province-wide is 5 per cent. Networks' distribution system delivers electricity not only to customers situated in urban locations but also to those situated in rural and remote locations. The latter results in Networks having to provide long lines to reach those customers. The physical reality of delivering electricity over long lines is that losses increase with distance between source and sink. So one would expect Networks' distribution losses to be higher on average compared to other LDCs. "Rogers, D."=MR. ROGERS: All right, thank you. Tell us, how does Networks propose to implement its distribution loss factors in cases where customers in a given rate class are connected to both primary and secondary distribution systems? "Poray, A."=DR. PORAY: Networks does not have the necessary information in hand to unbundle, for billing purposes, the customer connections within a given rate class so as to determine who in the rate class is connected to the primary and/or to its secondary distribution systems. Therefore, Networks has decided to allocate its distribution loss factors to customer classes based on the intensity of energy usage by customers within the class. For example, Networks farm and general service customers, designated to be within its F3 and G3 rate classes, would be allocated the primary system distribution loss factor. This is because Networks knows that the large users of electricity within these rate classes who account for the greatest portion of energy used within the class are likely to be connected to the primary distribution system. Networks appreciates that its proposal may not be the ideal solution, but given the information at hand, this is the best and fairest approach that it can take at this time. In support of its submission in 2003 for 2004 rates, Networks will be reviewing the issues that have been raised as a result of the unbundling process and addressing matters with input from stakeholders. One of the key ingredients is for Networks to complete its connectivity studies. "Rogers, D."=MR. ROGERS: Tell us, if you would, what adjustments, if any, Networks made to its distribution loss factors to accommodate special customer circumstances, and what impact this would have on Networks' customers. "Poray, A."=DR. PORAY: Networks' original proposal was to adopt a total loss factor of 3.4 per cent to be applicable for all customers served from its high-voltage distribution stations. However, there are a limited number of situations where high-voltage distribution stations supplies customers directly from the low-voltage side of the transformer without making use of any of Networks' low-voltage system lines. One such example is Niagara-on-the-Lake DS where the Networks station steps down voltage from 115 kV and supplies the utility directly at 27.6/16 kV without it having to make any use of Networks' LV system. This is a unique situation that, with the exception of two other locations, does not occur elsewhere in Networks' system. The other two similar situations are found at Vineland DS, which supplies PenWest utilities, and at Fallowfield DS, which supplies Hydro Ottawa. Niagara-on-the-Lake raised the issue with Networks' original proposal and the logic of their argument was indeed compelling. On review of this particular situation and the two others, Networks concluded that it was a practical solution to accommodate the customer's situation, and the two others, by establishing a total loss factor of 0.6 per cent. Networks' decision was predicated on the impact of this change being of no consequence to its remaining customers. The net impact of doing this adjustment means that the losses not accounted for by the three unique situations have to be redistributed to Networks' other distribution customers. However, the impact is relatively small and is lost in the rounding. Consequently there will be no charge to Networks' distribution loss factors which the OEB has approved on an interim basis. "Rogers, D."=MR. ROGERS: Mr. Chair, I'll just remind the Board that this situation was covered by the settlement agreement and it formed the basis of a settlement which is set out in the agreement whereby the rate to Niagara-on-the-Lake was adjusted along with the two others, and it was on the basis of that that we have a substantial settlement of this issue with the allocation of these line losses with the exception of ECMI. I'm just about finished with this direct examination. Dr. Poray, has Networks considered any other mechanisms for allocating losses, for example, on a location-specific basis, which I believe may be suggested by Mr. White. "Poray, A."=DR. PORAY: Networks has followed the intent and principles of the Retail Settlement Code in developing its allocation of distribution losses. In this respect it has not considered other mechanisms since the code requires this to be done on an average basis. Networks recognises that there are always concerns with averaging as this creates cross-subsidies. However, Networks believes that averaging of costs and losses within similar types of customers, using similar facilities, is an acceptable principle in rate-making recognised throughout the industry. As the process of unbundling losses is in its first stages, Networks proposes that it is entirely acceptable to use averaging, especially since the OEB's Retail Settlement Code adopts this principle. Further, as discussed earlier, Networks' distribution system is a complex arrangement of lines and stations that does not easily lend itself to going down the path of specific assignment of losses. The system was not built for specific assignment of costs or losses. The associated investment of time to unbundle the complexity of existing arrangements, the need for verification of data to obtain appropriate loss allocator, and a need to obtain agreements from the respective parties is beyond the capability of Networks' limited resources. Networks believes that this is not the appropriate time to address these matters when the company is preparing for the new market and the activities that it will entail. I believe that this is one of the reasons for which the Board established mechanisms through the Codes and handbook so as to assist LDCs in unbundling the costs to meet the requirements of having unbundled rates for the new market in a timely manner. "Rogers, D."=MR. ROGERS: Now, this issue, if I can just digress for a moment, of trying to assign losses on a specific basis, am I correct in my simplistic understanding that that would entail trying to isolate individual pieces of the line and calculating the losses associated with that individual piece of line, quite separately? "Poray, A."=DR. PORAY: That is correct. "Rogers, D."=MR. ROGERS: And then trying to assign it to the customers who are using that particular piece of line. "Poray, A."=DR. PORAY: Or to a single customer, yes. "Rogers, D."=MR. ROGERS: Or to a single customer. All right, thank you. Finally, can you tell us, how does Networks -- how are Networks' distribution losses allocated today? "Poray, A."=DR. PORAY: Certainly. Under today's bundled arrangements, all of Networks' distribution losses are included in the cost of power which is charged to Networks' retail distribution customers. I'd like to make use of the diagram which is page 3 of Exhibit I.3.3, and it's entitled "Existing Billing Arrangements," to illustrate this point. Networks pays to OPG revenues based on the energy flowing through meter M1, which is just under the box marked TS, which represents all of the energy consumed in Networks' distribution system, losses included. The total losses include the losses incurred in delivering energy to all embedded customers at meter M2. However, these embedded customers are today billed for energy and other charges by OPG based on the quantities derived from meter M2 and therefore they escape paying their share of the distribution losses. The unbundling of losses through the development of the distribution loss factors will address this inequality. "Rogers, D."=MR. ROGERS: Thank you, Dr. Poray. You don't wish to add anything, Mr. Hubert? "Hubert, O."=MR. HUBERT: I don't believe so, no. "Rogers, D."=MR. ROGERS: That's the evidence I wanted to lead to summarise the present treatment in the proposal, Mr. Chairman, and members of the Board. I point out that this issue has been settled, essentially, almost settled. There is one party that does not agree. It is on page 10 of the settlement agreement where it is recorded that the issue was settled, that is, the allocation of line losses, including the low-voltage line losses, was settled on the basis that, subject to the proposal concerning Niagara-on-the-Lake and similar stations, no party wishes to contest the allocation of line losses including low-voltage except ECMI which wishes to pursue the issue in the hearing, and hence I don't believe anyone has any questions about this except for Mr. White on behalf of ECMI, and of course the Board and staff. "Vlahos, P."=MR. VLAHOS: Thank you, Mr. Rogers. Mr. White, do you have any notion how long you would be on this cross-examination? "White, R."=MR. WHITE: I -- with the Board's indulgence, I'd appreciate starting today. I am uncertain as to whether I can have things comfortably wrapped up by 1:00, but I don't have a huge number of questions on this issue and I'd like to move it forward if I can. "Vlahos, P."=MR. VLAHOS: Mr. White, there is a difficulty that the Board has to rise by 1:00 at the latest today. So you're welcome to start questioning, but you may have to come back tomorrow or another time. "White, R."=MR. WHITE: I would appreciate that. I personally will be out of the country tomorrow, and Mr. Bateman will be carrying on with the questions. But if I could start today, I'd appreciate that. "Vlahos, P."=MR. VLAHOS: That's fine. Keep in mind we have to rise at 1:00. Before we get to you, though, Mr. Rogers, if I could just ask one question of Dr. Poray, and this is a very helpful exercise, and definitely we appreciate this. Just one more thing, if Dr. Poray can do for me, and that is, tell us what has been approved as interim right now that would apply for market opening if nothing else changes. "Poray, A."=DR. PORAY: The Board has approved all the distribution loss factors which Networks has filed. "Vlahos, P."=MR. VLAHOS: So it's exactly as you have described in this Exhibit I.3.3. "Poray, A."=DR. PORAY: That's correct. "Vlahos, P."=MR. VLAHOS: No changes from what has been approved on an interim basis as late as, what's the date, January -- I guess the last order that -- I'm sorry, the last Procedural Order No. 9 would have the rate schedules. So what would be reflected in those rates would be exactly as you described in this document. "Rogers, D."=MR. ROGERS: Excuse me, sir. I'm just concerned about Niagara-on-the-Lake. I'd like to check this, but I think the situation is that the rates have been approved with one exception, that is, the small change that the Niagara-on-the-Lake situation entails. I'd like to check this, but I don't think that that modified rate has been approved. I think I'm correct that all of these loss factors have been approved. The only change would be the result of the settlement agreement involving Niagara-on-the-Lake and two other utilities, and those have not yet been -- "Vlahos, P."=MR. VLAHOS: Okay. "Lea, J."=MS. LEA: I guess the other factor is that after market opening, those are all the factors -- those factors aren't recovered through a bundled rate any more and they become a cost of power. They are not recovered through the unbundled rates at all. "Poray, A."=DR. PORAY: That is correct. "Vlahos, P."=MR. VLAHOS: I'm sorry, you have to give that to us again. "Rogers, D."=MR. ROGERS: If we can take this under advisement, rather than waste the Board's time with this, we'll talk and give you a clear answer tomorrow morning. "Vlahos, P."=MR. VLAHOS: Just one more question. Is it a separate rate schedule that would itemise the loss factors separate from the rate schedule that we've attached to the last document, which is Procedural Order No. 9? Perhaps we can take Mr. Rogers' advice and just leave it. I was just curious. "Rogers, D."=MR. ROGERS: We'll do it. "Vlahos, P."=MR. VLAHOS: What I'm not sure of is whether there's a set of rate schedules retail and there's another set of schedules which is not attached to the last document issued by the Board, that's Procedural Order No. 9, that speaks to the line losses, loss factors, et cetera. It may be, but I can check that myself after our hearing. "Rogers, D."=MR. ROGERS: I'll be quite happy to do it. I just can't tell you now. "Vlahos, P."=MR. VLAHOS: Maybe for the record, when Dr. Poray comes back, he can just inform us as to what exists today for market opening. "Rogers, D."=MR. ROGERS: Yes, we'll do that. "Vlahos, P."=MR. VLAHOS: Okay. Thank you. Ms. Lea, can we move to Mr. White? "Lea, J."=MS. LEA: Yes, certainly, unless you wanted to give that an undertaking number. "Vlahos, P."=MR. VLAHOS: No, that's fine. Mr. White, sorry about that. "White, R."=MR. WHITE: Thank you. *****CROSS-EXAMINATION BY MR. WHITE: "White, R."=MR. WHITE: Can we go, first, to your Exhibit I.3.3, page 3. And if, on that drawing, you were to remove the rural components of the line so that we're dealing with an express feeder situation. "Poray, A."=DR. PORAY: Yes. "White, R."=MR. WHITE: Are you with me there? So you remove all the part that goes off to the right at the peak. "Poray, A."=DR. PORAY: Okay. "White, R."=MR. WHITE: Under the existing situation, I'm assuming that the M2 meter is located at the utility boundary? "Poray, A."=DR. PORAY: I believe that on the express feeders there is no M2 meter, there's just the M1 meter. "White, R."=MR. WHITE: There may be cases where there is, in fact, an M2 meter only; is that possible? "Poray, A."=DR. PORAY: My understanding was that, with the express feeders, the location of the meter was at the TS. "White, R."=MR. WHITE: Okay. If the location of the meter is a TS, at the delivery point M2, under the existing billing system, which doesn't -- let's say there's not a meter there, the billing quantities delivered at M1 would have to be adjusted to reflect the losses between M1 and the actual physical delivery point at the boundary, M2; is that correct? "Hubert, O."=MR. HUBERT: Perhaps I can help. If the metering quantity is at M1 for an express feeder, then the utility is, in fact, taking ownership of the power at that point and therefore there is no loss factor applied to that energy. "White, R."=MR. WHITE: Have you ever heard of K & N factors? "Hubert, O."=MR. HUBERT: Yes, I have. "White, R."=MR. WHITE: Would K & N factors not be used to reduce the metered quantities of the TS under the existing system? "Hubert, O."=MR. HUBERT: What I understand of K & N factors, they are used to convert -- to calculate the actual losses from a peak load or a peak -- for an energy consumption to calculate losses. In a case such as the M1 meter here, it's my understanding that there is no need to adjust for losses because all the losses are actually downstream of the delivery point. "White, R."=MR. WHITE: Under the existing system, where does the utility take delivery of the power and the commodity? "Hubert, O."=MR. HUBERT: I think that would vary for different situations. "White, R."=MR. WHITE: For the one we're dealing with here, where we have the utility boundary being unofficially at M2 and the line owned by Hydro One running from the TS out to M2. "Hubert, O."=MR. HUBERT: In the case of an express feeder, it would be deemed to taking the power at M1, at the meter. "White, R."=MR. WHITE: Under the existing billing system? "Hubert, O."=MR. HUBERT: That is my understanding. "White, R."=MR. WHITE: Thank you. If that is the case, would you agree that the -- for the express feeder situation, that the losses being charged to the utility, if they are metered at M1, are the specific losses associated with the delivery for that utility along Hydro's LV system? "Hubert, O."=MR. HUBERT: I believe that's correct. "White, R."=MR. WHITE: In Hydro One's exhibit on the losses hearing, filed on June the 27th -- "Rogers, D."=MR. ROGERS: Wait a minute. Sorry, Mr. Chairman, what exhibit is that? June the 27th? "Lea, J."=MS. LEA: Would that be the retail transmission proceeding, Mr. White? "White, R."=MR. WHITE: The RP-2000-0017/2001-0023. Does that help? "Lea, J."=MS. LEA: No, but we'll figure it out. "Vlahos, P."=MR. VLAHOS: It makes sense to someone. "Lea, J."=MS. LEA: This is 23, but the second number sounded like the retail transmission. Okay. It was an exhibit. Was it a letter or was it an actual exhibit filed before the Board? What was it? "White, R."=MR. WHITE: It was a response to Board interrogatory number 23. "Lea, J."=MS. LEA: That would be the retail transmission hearing. "Vlahos, P."=MR. VLAHOS: What year was that, Mr. White? "White, R."=MR. WHITE: That was 2001. "Rogers, D."=MR. ROGERS: I don't believe we have that document here. I wonder if Mr. White needs to -- he can ask the question without the documents. "White, R."=MR. WHITE: Let me try the question. In that document, it was indicated that 6.5 terrawatt hours were supplied to embedded LDCs through delivery points at subtransmission system, and 2.5 terrawatt hours were delivered to embedded directs and LDCs through delivery points on the primary distribution system. And what I'm wondering is if those numbers would change as a result of the treatment of high-voltage DSs and in terms of what volumes would change. "Rogers, D."=MR. ROGERS: Mr. Chairman, I'd just like to caution the witnesses. I'm happy to have them answer if they are comfortable with the assumption. I myself am not sure what these numbers represent, and I don't have the document here. If they can help, please do so. But if you're not comfortable with what's being asked, please don't make it confusing. "Vlahos, P."=MR. VLAHOS: Would it help, Mr. White, if you can show the document to Dr. Poray? "Rogers, D."=MR. ROGERS: Have you got it? "Poray, A."=DR. PORAY: I believe what this is is a breakdown of the 9 terrawatt hours "Vlahos, P."=MR. VLAHOS: Sorry, can you put some context to this. We don't have a copy of it. Maybe you can tell us which proceeding it was visited. If you wish to pursue the answer -- "Poray, A."=DR. PORAY: I would feel happier if I had all the evidence pertaining to the -- to that proceeding. I don't have it with me. "Vlahos, P."=MR. VLAHOS: We still don't know which proceeding it is. "Lea, J."=MS. LEA: It's the retail. "Poray, A."=DR. PORAY: It was the proceeding which included distribution loss factors and other regulated charges, which was EB-0023. "Vlahos, P."=MR. VLAHOS: That was a written hearing? "Lea, J."=MS. LEA: Yes, it was. "Vlahos, P."=MR. VLAHOS: So there was allowance for interrogatories? "Lea, J."=MS. LEA: Yes, Board staff asked interrogatories in the proceeding, yes. "Poray, A."=DR. PORAY: I don't have that information with me. "Vlahos, P."=MR. VLAHOS: I'm wondering if it's something the panel needs to have before we hear any answers. "Lea, J."=MS. LEA: Can the line of questioning be pursued without any reference to this document? "White, R."=MR. WHITE: Sure. When one considers the deliveries to LDCs, have you any sense of the volumes of deliveries of the different voltage levels through your LV system? I notice the proposal is to use 2.8 per cent, but there are different delivery levels, voltage levels, at which the LV system delivers power. "Poray, A."=DR. PORAY: We would have information in terms of delivery to the embedded LDCs. "White, R."=MR. WHITE: And the directs, of course. "Poray, A."=DR. PORAY: We don't have that information today, no. But we will have when the market opens, when we are -- when they are our customers. "White, R."=MR. WHITE: I see. One of the things that is quite interesting to ECMI is that the make-up of the 2.8 per cent losses seems to be driven by a 1.68 per cent subtransmission line loss factor, .65 distribution station loss factor, and a 3.15 primary distribution line. Why would Hydro One not consider applying those voltage-sensitive or physical-situation loss factors to customers who, in fact, unlike the remaining rural customers, all the losses represented in terms of delivery are not included in these factors? I'd be happy to pick up the answer to that question tomorrow morning so that the Board can meet its time limit. "Vlahos, P."=MR. VLAHOS: Thank you, Mr. White. Anything else, Mr. Rogers, before we adjourn for the day? "Rogers, D."=MR. ROGERS: No, thank you. "White, R."=MR. WHITE: I'd rely on the transcript to give us the question back tomorrow. "Rogers, D."=MR. ROGERS: Is Mr. White finished? "Vlahos, P."=MR. VLAHOS: No, I believe Mr. Bateman would continue tomorrow. "White, R."=MR. WHITE: Yes. "Vlahos, P."=MR. VLAHOS: That's fine. "Rogers, D."=MR. ROGERS: And then the plan would be to have the evidence of -- "Lea, J."=MS. LEA: I think, Mr. Cowan, do you have some questions for the line-loss panel? "Cowan, T."=MR. COWAN: Probably not, actually. I have some concerns about it but I think they are related to performance aspects rather than to billing aspects or rate aspects. "Lea, J."=MS. LEA: Okay, thank you. In terms of mine, then, I'd be zero to ten minutes with this panel. And then I think the idea was to have the gentlemen to answer questions about the acquisition policy; am I correct? "Rogers, D."=MR. ROGERS: Mr. Hubert can answer questions about acquisitions, yes, tomorrow, when you're finished, and then we'll start with Mr. Snelson. "Lea, J."=MS. LEA: That's how I understand it. "Vlahos, P."=MR. VLAHOS: And the time-of-use, we'll follow up with Mr. Horton next week "Rogers, D."=MR. ROGERS: Yes. "Vlahos, P."=MR. VLAHOS: And quality-of-service next week as well. "Lea, J."=MS. LEA: Yes. "Vlahos, P."=MR. VLAHOS: All right. Thank you very much. We'll adjourn until 9:00 tomorrow morning. --- Whereupon the hearing adjourned at 1:00 p.m.