Rep: OEB Doc: 122V6 Rev: 0 ONTARIO ENERGY BOARD Volume: 1 February 20, 2002 BEFORE: M. JACKSON PRESIDING MEMBER G. A. DOMINY VICE CHAIR AND MEMBER P. SOMMERVILLE MEMBER 1 IN THE MATTER OF the Ontario Energy Board Act, 1998; 2 AND IN THE MATTER OF an Application by Union Gas Limited for an order or orders approving the unbundling of certain rates charged by Union Gas Limited for the sale, distribution, transmission and storage of gas. 3 APPEARANCES 4 PAT MORAN Board Counsel CATHY LITT Board Staff OLGA SHPORA Board Staff PATRICIA JACKSON Union Gas Limited MARCEL REGHELINI Union Gas Limited GEORGE VEGH CEED & TCG BARBARA BODNAR Enbridge Consumers Gas ROBERT ROWE Enbridge Consumers Gas ALICK RYDER City of Kitchener MICHAEL JANIGAN VECC JOYCE POON VECC ANDREW TAYLOR WGSPG TIBOR HAYNAL TransCanada Pipelines IAN MONDROW HVAC Coalition ROBERT WARREN Consumers' Association of Canada PETER THOMPSON IGUA MICHELLE FLAHERTY IGUA BRIAN HOWELL IGUA DAVID BROWN Direct Energy Marketing Limited TOM WOODWARD OESC PETER SCULLY Cities of Greater Sudbury and Timmins RANDY AIKEN London Property Management Association GLEN MACDONALD Hydro One Networks 5 TABLE OF CONTENTS 6 PRELIMINARY MATTERS: [12] APPEARANCES: [16] UNION GAS LIMITED PANEL; Sworn [136] EXAMINATION BY MS. JACKSON: [144] CROSS-EXAMINATION BY MR. WARREN: [180] CROSS-EXAMINATION BY MR. THOMPSON: [515] CROSS-EXAMINATION BY MR. VEGH: [793] 7 EXHIBITS 8 EXHIBIT NO. A5: MATERIALS FROM RP-2001-0029 [70] EXHIBIT NO. A1: UNION GAS LIMITED'S EXHIBIT LIST [72] EXHIBIT NO. F1.2 BOOK OF MATERIALS FILED BY CEED [802] 9 UNDERTAKINGS 10 UNDERTAKING NO. G1.1 TO PROVIDE UPDATED ACTUALS NUMBERS [472] UNDERTAKING NO. G1.2 TO PROVIDE REPORT ENTITLED TEN-YEAR MARKET REVIEW OF NATURAL GAS DEREGULATION [524] UNDERTAKING NO. G1.3 TO PROVIDE NATURAL GAS MARKET DESIGN TASK FORCE REPORT AND ACCOMPANYING LETTER [535] UNDERTAKING NO. G1.4 TO PROVIDE BREAK-OUT OF COSTS INCLUDING CONTRACT ADMINISTRATION [975] 11 --- Upon commencing at 9:35 a.m. 12 PRELIMINARY MATTERS: 13 MR. JACKSON: Good morning. Please be seated. 14 Ladies and gentlemen, my name is Malcolm Jackson and with me this morning is Mr. George Dominy on my left and Mr. Paul Sommerville on my right. We're sitting this morning to deal with some procedural matters and to commence the oral hearing of evidence relating to RP-2000-0078, Union Gas Limited's application dated July 31, 2000, for an order of theBoard approving certain unbundling of rates for the storage, sale, distribution and transmission of gas and for certain accounting and other orders as may be appropriate. 15 May I have the appearances, please. 16 APPEARANCES: 17 MS. FLAHERTY: Good morning. I'm Michelle Flaherty and I appear for IGUA. Peter Thomson will be joining me and Brian Howell. 18 MR. JACKSON: Thank you. 19 MR. WARREN: Robert Warren from the Consumers' Association of Canada. 20 MR. JACKSON: Mr. Warren. 21 MS. JACKSON: Patricia Jackson for Union Gas. To my left is Marcel Reghelini who is withUnion Gas. 22 MR. JACKSON: Thank you. 23 MR. BROWN: David Brown for Direct Energy Marketing Limited. 24 MR. JACKSON: Thank you, Mr. Brown. 25 MR. VEGH: George Vegh for the Coalition for Efficient Energy Distribution as well as for The Convergence Group. And I've been asked to enter an appearance for Ian Mondrow this morning on behalf of the HVAC Coalition. 26 MR. JACKSON: Thank Mr. Vegh. 27 MR. JANIGAN: Michael Janigan for the Vulnerable Energy Consumers' Coalition, and with me is Joyce Poon. 28 MR. WOODWARD: Tom Woodward for Ontario Energy Savings Corporation. 29 MR. SCULLY: Peter Scully representing the cities of Great Sudbury and Timmins. 30 MR. JACKSON: Thank you, Mr. Scully. 31 MR. HAYNAL: Tibor Haynal for TransCanada PipeLines. 32 MR. JACKSON: Thank you, Mr. Haynal. 33 MR. RYDER: Alick Ryder for the City of Kitchener. 34 MR. JACKSON: Thank you, Mr. Ryder. 35 Yes, it's hard to see you way back there. 36 MR. RYDER: I'm behind a big person. 37 MR. WARREN: And gracious as ever. 38 MR. JACKSON: Thank you. 39 MR. AIKEN: Randy Aiken for theLondon Property Management Association. 40 MR. JACKSON: Thank you, Mr. Aiken. 41 MR. TAYLOR: Andrew Taylor for the Wholesale Gas Service Purchasers Group. 42 MR. JACKSON: Thank Mr. Taylor. 43 MR. ROWE: Robert Rowe for Enbridge Consumers Gas. With me is Barbara Bodnar. 44 Any further appearances? 45 MR. MORAN: Pat Moran, Board counsel. 46 MR. JACKSON: Yes, thank you, Mr. Moran. 47 MR. MACDONALD: Glen MacDonald, Hydro One Networks. 48 MR. JACKSON: Yes, thank you, Mr. MacDonald. 49 Are there any preliminary matters, Ms. Jackson? 50 MS. JACKSON: Thank you, Mr. Chairman. There are. 51 First, on the totally administrative end of things, Union had previously distributed to participants but we have extra copies today of the evidence that comes forward, as it were, into this proceeding from RP-2001-0029 as a result of the Board's decision, of course. 52 The quantum and prudency of costs were previously being part of the customer review process that relate to the unbundling processes have been brought forward into this hearing. The related evidence has been distributed, and there are extra copies here. 53 And it's been drawn to my attention that we're contemplating in the system that has been set that up this would be filed as Exhibit F. 54 MR. JACKSON: Thank you, Ms. Jackson. Ms. Jackson, perhaps it would be convenient, and I should have mentioned this as we started, but perhaps it would be convenient then if you perhaps dealt with matters that are purely administrative like that, and then perhaps I would ask Board counsel to, if he has any similar matters, because I think he wanted to speak to the question of numbering exhibits, and it might be helpful for him to do that as well. 55 MR. MORAN: Mr. Chair, I was going to suggest -- 56 MR. JACKSON: And then we have, I think, a late intervention to hear about too, and he is not very fast to stand up. So I think maybe we should get those matters out of the way before I turn it back to some of your others. But I'm in your hands, Ms. Jackson, on that. 57 MS. JACKSON: Well, perhaps I'll deal with the two administrative filings and then if I've misstated the numbering, that would be corrected. 58 MR. JACKSON: Thank you. 59 MS. JACKSON: I'm told that it should be subject to any comments that anyone might have, we would suggest that the document I just mentioned be Exhibit F1. 60 MR. JACKSON: Yes, that's fine. 61 MR. MORAN: Mr. Chair, I have an exhibit list. Perhaps I should give you a copy of that. 62 MR. JACKSON: Thank you, Mr. Moran. 63 MS. JACKSON: I'm told that this proposed numbering is consistent with the list. 64 MR. JACKSON: That's good. Thank you. 65 MS. JACKSON: And then as well we have a package of curriculum vitae that relate to the various witnesses whom Union Will be calling and which is proposed to be included at Exhibit A, tab 1. And that package -- and Exhibit A, tab 7 -- I'm sorry, there is a revision to the exhibit list which is Exhibit A, tab 1, and then attached to it are the curriculum vitae to be filed at Exhibit A, tab 7. Those are the curriculum vitae for all of the witnesses that Union will be calling with the exception of the expert witnesses whose curriculum vitae have already been filed, and with the exception of Ms. Patty Piat who, on the proposed witness list, is shown as testifying with Canadian Facts. In fact, it is Union's proposal that that Panel be made up only of witnesses from Canadian Facts. But Ms. Piat will be available should anybody wish to ask her questions. 66 MR. JACKSON: Thank you. 67 MS. JACKSON: so those are the administrative matters. Mr. Chair, one other thing. As a result of the augmentation to the hearing on the customer review process, it was agreed that people would, to the extent that they could, submit in advance to Union Gas interrogatories relating to that evidence, and we have received a number of them. The contemplation was that they would be -- that would position the witnesses to answer orally on the stand; however, Union has prepared for most if not all of them written responses. We were hoping to be able to file before 9:30, but the printing presses are running and they will be filed as soon as they're up here, and they may be of assistance to people as they proceed to cross-examine. 68 MR. JACKSON: Yes. Thank you. I think that will be of assistance. 69 MR. MORAN: Mr. Chair I guess there are two exhibits that we should give formal numbers to, then. The first document which I think you already have is materials from RP-2001-0029 and that would have Exhibit F1.1. 70 EXHIBIT NO. A5: MATERIALS FROM RP-2001-0029 71 MR. MORAN: The second one is an exhibit list from Union Gas Limited. It sets out all the exhibits that are on file at the moment, and that should be given Exhibit F1.2. 72 EXHIBIT NO. A1: UNION GAS LIMITED'S EXHIBIT LIST 73 MR. JACKSON: Mr. Moran, was that not just given the A1 number? 74 MS. JACKSON: That's what I had suggested because that's what it said. 75 MR. JACKSON: Yes. 76 MS. JACKSON: That is where it sits on the list that we're marking. The list that we're marking says that the exhibit list -- 77 MR. MORAN: My mistake, I'm sorry. Mr. Chair, A1, yes. 78 MR. JACKSON: Thank you. I'm sorry. And then what you had numbered the -- so that was what you had called F1.2? 79 MR. MORAN: Point 2. 80 MR. JACKSON: So that will be A1? 81 MR. MORAN: A1, yes. 82 MR. JACKSON: Okay, thank you. Yes. And the curriculum vitae, then, are part of that document, are they, Mr. Moran? 83 MR. MORAN: That's correct. 84 MR. JACKSON: So that should be A7; correct? 85 MR. MORAN: Well, it's all part of the same document so I think we'll have to stay with the same numbering unless we want to separate it. 86 MR. JACKSON: Well, I think that's -- I think it makes sense to separate it because we have sort of a traditional numbering system for these cases. I think it would have gone under A7, wouldn't it, Ms. Jackson? 87 MS. JACKSON: Well, I apologize for the confusion, Mr. Chairman. It says A7, but as I look at the exhibit list, it would look to me as though it's meant to be -- it would appear to be A5. 88 MR. THOMPSON: A5 if we go with -- 89 MR. JACKSON: Let's go with our typed exhibit list. It's A5. 90 MS. JACKSON: Thank you, Mr. Chairman. I apologize for the confusion. 91 MR. JACKSON: Thank you. 92 MR. JACKSON: Mr. Moran. 93 MR. MORAN: Yes, there's one other housekeeping matter that I have. Board staff have set up a hotline so that parties who can't be in attendance full time can keep track of where the proceeding has reached each day, and the phone number for the hotline is 416-440-7608. 94 MR. JACKSON: Good. Thank you. 95 MR. JACKSON: Mr. Moran, would it be appropriate, then, to turn to any late interventions? 96 MR. MORAN: That's all I have, Mr. Chairman. 97 MR. JACKSON: Are there any parties asking for late intervention? 98 MR. SCULLY: Mr. Chairman, Peter Scully on behalf of the cities of Sudbury and Timmins, Great Sudbury and Timmins, those parties are seeking late intervenor status. 99 MR. JACKSON: Yes, Mr. Scully, we have your notice of that. And are there any parties wishing to comment on that? 100 MS. JACKSON: Mr. Chair, as long as Mr. Scully and his clients are prepared to accept the record as it is, I think we are content. 101 MR. JACKSON: Yes. Mr. Scully, is that agreeable? 102 MR. SCULLY: We certainly are. 103 MR. JACKSON: Good. Thank you. Now, Mr. Scully, I note in the notice you sent us, are you appearing as agent? I notice you have said consultant. 104 MR. SCULLY: Yes. 105 MR. JACKSON: But the notice itself, there's talk of briefing counsel and I was wondering is there separate counsel as well that I should be noting? 106 MR. SCULLY: Currently there is not. We'll advise you if other counsel are involved. Or are going to be involved. 107 MR. JACKSON: Thank you. Okay. Now, I was going to deal with one other matter with respect to sitting times, and the Board is proposing or intending to sit when it sits for a full day, from 9:30 until 12 and then from 1:30 until 4:00. And it will do that today and Friday of this week. That's its intention. Although I'm open to any suggestions of flexibility to accommodate people from out of town on Friday, but I think that may work. Now, tomorrow, which is Thursday, we are going to sit from 9:30 in the morning until 1:00 in order to be able to deal with another matter of the Board on which all three of the current Panel are involved. And, to accommodate ongoing work with the Board next week, it's our proposal to sit partial days Monday, Wednesday and Friday -- so 9:30 until 1:00 -- and full days Tuesday and Thursday. 108 Now, we are -- we can introduce some flexibility if needed in order to accommodate specific witnesses, so you can bring up those matters if they arise. 109 MR. JACKSON: Yes Mr. Janigan. 110 MR. JANIGAN: Mr. Chair, specifically with respect to scheduling of specific witnesses, as it's noted in the material that was sent around by Board staff, Mr. Todd, the witness for Vulnerable Energy Consumers' Coalition is scheduled to testify on February 28th and certainly that is fine with Mr. Todd on that day. The problem arises if his testimony is pushed into another day, because he has to take a flight that evening to the West Coast to -- on another matter. So, its a situation where he has to be either testify on that day or ask to be put over until -- to another day. I understand the first available time from the Board is at the end of March, which is satisfactory to Mr. Todd if that's the case. But, he can't go on the March the 1st. 111 MR. JACKSON: We're sitting a full day on Thursday, Mr. Janigan, so we will certainly try to accommodate him and perhaps there is a way to slot him in with a time certain by agreement with other parties, for the morning of that day. But let's just see where we are at that time. 112 MR. JANIGAN: Thank you. 113 MR. VEGH: Sir, just to raise another scheduling issue that Ms. Litt asked and I raise this as well. The TCG, The Convergence Group Panel is scheduled for the 27th on Wednesday, and a member of that Panel has a lack of availability after that date as well, so we're slotted in for the 27th and we hope we can keep either the 27th or a time earlier than that because we will not be available for a time later than that. 114 MR. JACKSON: All right. Thank you, Mr. Vegh. We'll try to work with that as well. 115 MR. BROWN: Mr. Chair, while we're on intervenor evidence scheduling, Professor Trobilco is tentatively scheduled for the afternoon of Thursday the 28th. We've had discussions with Board staff in that regard. If there is going to be any change of course we need sort of a heads up and there would be constraints in his schedule. 116 MR. JACKSON: Thank you for putting that on the record too and we'll try to work with that. 117 All right, Ms. Jackson, are we back to you? 118 MS. JACKSON: I think we are, Mr. Chair. The one other matter with respect to timing of witness panels, Board staff had circulated a list of witness panels in the anticipated order in which they will be called from Union Gas. Panel 1, 2, 3 and 4. Does the Board have that? 119 MR. JACKSON: I do have a tentative list, so that -- I may have the same thing you do. I did not know whether it had been circulated. 120 MS. JACKSON: There is an indication there that counsel for Union, that would be me, will raise the question of the scheduling of Dr. Schwindt's evidence. I don't think there is anything contentious about it. We are content to call Dr. Schwindt's evidence in the order proposed by Board staff. I just note Dr. Schwindt's evidence is reply evidence, and particularly because of that, but of course in any event, to the extent that anything new arises in the evidence that comes after him, we may be required to call him or indeed anyone else, in further reply. That's to stay the blindingly obvious perhaps and with that caveat we are content with what Board staff has proposed. 121 MR. JACKSON: That's fine. Thank you. 122 MR. JACKSON: And then, Mr. Chair, if it's agreeable with the Board, I thought I might open by just giving the Board a brief -- and I assure you it will be brief -- overview of what we anticipate to deal with in this application. 123 The Board has considered and approved unbundled services for the large and small volume market in the Union Gas franchise areas in EBRO 1999-0017, specifically, the Board accepted an ADR agreement that made provision for the design of that unbundled service at the time the ADR agreement was proposed and further confirmed that in its final decision in July of 2001. 124 As contemplated expressly in the ADR agreement, parties acknowledge that there would be a further application for system and process changes necessary to provide the mechanisms for providing those unbundled services and billing for them in the small volume market. 125 As a result of that, we have the application before you today, which has the following aspects: In the first place, we have filed, and it's summarized, for example, at C -- Exhibit C1.15, a completion of the estimate of the system and process changes that will be required to effect that unbundling. The Board may recall that an EBRO 1999-0017, Union indicated an estimate of $7.5 million for the first phase of those costs. That's found at transcript 2162. 126 And indicated that that was exclusive of further system and process changes which the Board will see are now estimated at $8.2 million, for a total estimate of $15.7 million. As I say that is laid out at Exhibit 1.15. 127 At the time of EBRO 1999-0017 Union proposed a method for allocating these costs -- specifically, a proposed allocation by weighted average customer number -- and that, that issue has come forward for further consideration in this proceeding, Union continues to propose that those costs be allocated on that basis, and that method and the rationale for that method will be discussed in the evidence. 128 I'm sorry, I've been told -- I'm told I'm showing my age in talking about EBRO. EBRO as opposed to RPs. Whoever is doing the transcript could just correct all those references I'll be grateful and I'll try to correct them going forward. 129 We are now asking -- Union is now asking that the Board review and accept both the prudency of those amounts, the estimate of those amounts and their allocation, and as we understand it by virtue of the ADR agreement and the Board's acceptance, those issues are to be determined in this hearing. 130 The application also includes a communications plan to educate customers that marketers can now offer competitive storage service and to educate them with respect to the associated bill changes, in particular, the showing of a storage charge separately. 131 The evidence and in particular, Exhibit B, tab 5, page 6 of 6, sets forth a three-phase communications plan. The first phase, associated with informing customers of the break out of the storage line and what it means, is budgeted at $165,000, to be followed by two phases, to educate customers with respect to marketers direct billing for services. Those are budgeted at $385,000 with a contemplated further $2.25 per-customer charge, variable with the number of customers who are selected to go under that billing. 132 And lastly and in that connection, Union is proposing one new billing option, specifically, direct billing, and as -- as a sort of context and explanation for that as well, confirming its intention to continue its existing ABC, Agency Billing and Collection service, and Exhibit B, tab 4, contains a description of those services and an explanation of Union's decision with respect to which billing services it proposes to offer and in particular, why it does not propose to offer marketer-consolidated billing. 133 So, Mr. Chairman, those are the aspects of the application that Union brings forward and subject to the Board's view and wishes, we are prepared to call our first Panel who are sitting here today. 134 MR. JACKSON: Good. Thank you, Ms. Jackson. I guess we better have the Panel sworn. 135 MS. JACKSON: Thank you. 136 UNION GAS LIMITED PANEL; Sworn 137 MS. JACKSON: If I could introduce the Panel members to the Board and the participants in the room to the panel's -- the Panel member closest to the Board is Ms. Creighton and Ms. Creighton I understand that you will be speaking to the company's communication plan. 138 MS. CREIGHTON: That's right. 139 MS. JACKSON: Beside her is Mr. Andrews. Mr. Andrews, I understand you'll be speaking to the quantum of the enabling unbundling costs and the associated system and process changes. 140 MR. ANDREWS: That's correct. 141 MS. JACKSON: And beside Mr. Andrews is Mr. Packer who will be speaking to the proposal to show the storage line separately and to the allocation methodology. 142 MR. PACKER: Yes that is correct. 143 MS. JACKSON: And I have, Mr. Chair, just a very few number of introductory questions which I hope will, in part, orient this evidence. 144 EXAMINATION BY MS. JACKSON: 145 MS. JACKSON: First of all, Mr. Andrews, I wonder if you could please turn up Exhibit C1.15, please. 146 MR. ANDREWS: I have it. 147 MS. JACKSON: Let's give everybody else an opportunity to turn it up as well. 148 Mr. Andrews, as I understand it, Exhibit C 1.15, sets forth all of the one time costs to implement access to unbundled services in the small volume market, is that correct? 149 MR. ANDREWS: Yes that's correct. 150 MS. JACKSON: I wonder, sir, if you could please provide the Board with an overview of the nature of these costs and what drives them. 151 MR. ANDREWS: Yes. Exhibit C1.15 is intended to illustrate how we organize the work. I think there are three key messages here I would like to leave. The first message is that early on when we sat down to scope out the work we recognized that in order to provide the unbundled service to the small market volume it was going -- is going to require a lot of work, it was a very large task, and we could not do that in, in one phase. We had to break it up into two pieces. 152 Secondly, we recognize that we could not implement the unbundled service simultaneously to both markets, so we wanted to be sure that after the first phase, we had done enough work, had built enough functionality, enough capability to be able to allow the large volume customers to access the service and then to proceed to complete the work necessary for the small volume market in the second phase. 153 And the third message, and I think this is the most important message, is that when you think about the nature of the unbundle service in comparison to the bundled service, the unbundle service a daily service -- it requires daily balancing. It requires daily information processing. And the costs associated with facilitating that service are a direct function of the number of customers, in this case, 1.1 million small volume customers versus a few large customers so it's a function of the number of customers, the number of transactions driven by those customers, the number of supporting processes and in -- back-office systems that support those markets and in particular, to support the unbundled service. 154 MS. JACKSON: Now, you spoke Mr. Andrew of doing this work in two pieces or two phases, do I take it the phase one is RP-1999-0017 costs, and phase two is RP-2000-0078? 155 MR. ANDREWS: Yes, that's correct. 156 MS. JACKSON: Thank you. And you said that at the end of the first phase you wanted to be in a position to provide access to the large volume market. Does that mean that the costs that we see in Phase 1 are the costs of serving -- of the costs of the system you would need to build to serve the large volume market? 157 MR. ANDREWS: No not at all. 158 MS. JACKSON: Would you explain that, please. 159 MR. ANDREWS: Yes. The -- we wanted to be able to be in position to offer the service to the large volume customers, so what we did was, as we're working on the systems changes for the small volume market, we basically took -- we spent some time to be able to enable the U5, U7, and U9 rate owners so that we could be in a position to talk with the service. Now, if I were to start from scratch, and if I didn't do this for the small volume market, if I was only going to do this for the large volume market, then I would start with look at existing systems and existing capabilities. And again this is only hypothetical because this is not the approach we took. My best guess is that the cost probably would be no greater than four or $500,000 for that market. 160 MS. JACKSON: Thank you. Mr. Packer, could you please outline for the Board the allocation methodology that Union is proposing and its rationale. 161 MR. PACKER: Yes. We are proposing to allocate the $15.7 million Mr. Andrews has described to rate classes in proportion to weighted average number of customers, and to recover the allocated amounts, from end-use consumers. Essentially there are three reasons that we have submitted the proposal we have. 162 First, the proposed allocator recognizes the cost at issue relate to building transaction-based information systems. The number of transactions involved in administering the unbundled service varies with the number of customers. Taking the service. Therefore, the costs are related to number of customers. 163 Second, the reason we propose the unbundled service offering was related to the recommendations made by the market design task force reports. The premise behind unbundling is that it will increase competition for commodity in the general service market. Therefore, it will be residential and small volume commercial customers that benefit from unbundling. Competitive commodity market already exists for industrial customers and large volume commercial customers. 164 Lastly, the introduction of the unbundled service provides general service, consumers through their marketer, access to storage. Contract customers have an access to storage for a number of years through the T-service offering. 165 MS. JACKSON: Thank you. Gentlemen and Ms. Creighton, I have no specific questions for you, although I'm sure others will. And thank you, Mr. Chair, those are my questions. 166 MR. JACKSON: Thank you Ms. Jackson. 167 Now, I guess, Mr. Moran, I'm in your hands but I think you have stated a preference to go near the end of the list. 168 MR. MORAN: That's correct. 169 MR. JACKSON: And I guess we should have intervenors in support of the Union proposal next and then those opposed. Are there any that consider themselves in support? 170 MR. VEGH: Sir, that's a little hard to say. I might be as close as there is in support, but I have some issues with it as well. So I'm not sure, for this Panel, which is dealing with the all of the issues other than billing, if we can identify the party purely in support and party purely opposed. 171 MR. JACKSON: Right. Very good then. Is there an agreement amongst parties as to who would -- as to an order of examination? 172 MS. JACKSON: In the absence of an agreement, Mr. Chair, perhaps the order of appearances. 173 MR. JACKSON: That would do. 174 MR. WARREN: Mr. Thompson has graciously acceded that position to me. 175 MR. JACKSON: There we go. We do have agreement. Thank you. 176 MR. THOMPSON: I prefer Mr. Warren go first. My presence here, Mr. Chair, and I apologize for being late -- we were on the plane for some two and a half hours, believe it or not. It was primarily to introduce my colleague, Ms. Flaherty, to the Board and to the Board's process. I have to be involved in the TransCanada rate case which starts next week and so I won't be here after tomorrow. And so that's the reason that I'm here. But Ms. Flaherty is here and Mr. Howell is here assisting Ms. Flaherty. He is a consultant to IGUA but he has been the IGUA representative on the GDAR -- during the course of the GDAR process, so he does have familiarity with the process. We, in large measure, are supportive of Union. We'll keep our options open, of course, but my examination of the Panel would be -- I think would be much assisted with the interrogatories responses that, as I understand it, are to be provided in writing shortly, so I would stand down until those are available, if that's acceptable. 177 MR. JACKSON: Yes, that's fine. Mr. Warren, you're prepared to go first. 178 MR. WARREN: I am, sir. 179 MR. JACKSON: Thank you. 180 CROSS-EXAMINATION BY MR. WARREN: 181 Panel, could I just begin with the evidence in chief which is a few minutes old. And I just want to ask a clarifying point because I'm going to get to these issues of costs a little later in my cross-examination, but on the issue of what costs set out in C1.15 represents, Ms. Jackson's, question to you was -- or proposition to you was, that C1.15 represents all of the one-time costs to access services in the small volume market. Do you remember her saying that? 182 MR. ANDREWS: The costs represented on Exhibit C 1.15 represent the costs to access the unbundled services for both all the markets. 183 MR. WARREN: For both markets? 184 MR. ANDREWS: For both markets. 185 MR. WARREN: So C1.15 represents a combination of costs for the small, and the large volume customers; is that correct? 186 MR. ANDREWS: That's correct but as I -- as I indicated earlier, given the cost drivers, and what it is that causes us to incur these costs to enable the service, the unbundled service to both markets, these costs overwhelmingly are incurred to support the small volume market. 187 MR. WARREN: Okay. Can I then -- I want to turn first to the question of -- if I can -- what was dealt with in the 0017 case as opposed to what's being dealt with here. And in that context, I would like to refer, if I could, to three pieces of evidence -- actually four pieces of evidence. Let me deal with them seriatim. The first piece I with like you to turn up is an interrogatory response to a Board staff interrogatory, and it is interrogatory C1.2 188 And in that interrogatory response, do you have it, Panel? 189 MR. ANDREWS: Yes. 190 MR. WARREN: In the second sentence in your answer, it says -- and I quote "The Board, through the acceptance of the unbundling alternate dispute resolution agreement, approved these services." 191 And I take it from the text that these services refers to the proceeding sentence which talks about unbundled service in the small volume market; is that correct? Is that what the answer means? 192 MR. ANDREWS: Yes, I believe so. 193 MR. WARRREN: Okay. Now, the second interrogatory response, second piece of evidence is Exhibit B, tab 1, page 5. And beginning at about line 14, the following sentence appears: "In other words, Union requests confirmation that the purposes for which the expenditures are being made warrant recovery from customers as proposed by Union." 194 I'm puzzled, Panel, by the choice of the word confirmation, because it suggests to me that you do not believe that the Board or are awfully confident that the Board approved unbundled services for the small volume market in 0017 and wanted the Board to revisit the issue in this case and, in some fashion, confirm that that's what it meant. 195 MS. JACKSON: May I just interject in order to explain one aspect of this evidence. This was, of course, filed before time passed and we were now -- Union is now seeking a review in this proceeding of the prudency of the estimate and the allocation. At the time this evidence was filed, the question of the prudency was, as it were, in the air, and this sentence, I think, relates to that. 196 MR. WARREN: Thank you for that, Ms. Jackson. But I parsed this sentence a little differently than you do, and what -- I promise I won't spend more than three minutes being our Miss Brooks on this issue. But, it says, and I quote "Confirmation that the purposes for which the expenditures are being made," not confirmation of the expenditures, but the purposes. 197 Now, I may be reading this incorrectly, Panel, and that's fair. But it suggests to me when you choose to use the word confirmation, that what you're looking for in this case is the Board to say, "Yes, we do approve unbundled services for the small volume market." 198 MR. PACKER: It has been quite some time since this evidence was created in October 23rd, 2000, but I -- I wonder if the sentence identified should be more focused on the fact that we are proposing a certain recovery, being an allocation based on weighted average number of customers, and that's what we're seeking the Board's confirmation on, is that that is the appropriate allocator for recovery from customer ... 199 MR. WARREN: I'm not, Panel, trying to set any traps by this. I'm simply trying to understand from you what Union understands is before the Board for its consideration in this case. And let me try it this way: 200 Is it your position that the Board approved, in the 0017 case, the making available of unbundled services in small volume market? 201 MR. ANDREWS: Yes, it is. 202 MR. WARREN: And -- sorry. 203 MS. JACKSON: I was going to point out that there is one other -- the timing slippage does make some of these problematic. At the point this evidence was written, the PBR decision wasn't out, is the other salient point about -- the timing point which is significant in terms of this question. 204 MR. WARREN: Now, it approved, Panel, the making available, to use my phrase, of unbundled services in the small volume market. But can we agree that the Board did not put its mind to and therefore did not approve the way in which unbundled services were being made available to the small volume market? 205 MR. ANDREWS: I'm not sure I understand what you mean by the way in which it would be made available to small volume market. 206 MR. WARREN: Well, for example, there was no evidence before the Board in the 0017 case about the billing options that would form part of the delivery of the unbundled service; correct? 207 MR. ANDREWS: Yes, that's correct. 208 MR. WARREN: Okay. And we certainly can agree that the question of the prudency in the costs incurred to make unbundled services available to the small volume market was not considered and is indeed being considered in this case; correct? 209 MR. ANDREWS: Yes, that's correct. 210 MR. WARREN: Now, as I understand Ms. Jackson's opening statement, the approval -- sorry. One last question on this point. So can we agree that it is open to the Board in this case to refuse to approve the measures or, if you wish, the means by which unbundled services are to be delivered to the small volume market; correct? 211 MR. ANDREWS: Well, again, if by means are you referring to the costs associated -- 212 MR. WARREN: No. I'm talking to the delivery mechanisms; for example, the billing options. The Board can say, we don't think that those are the correct billing options, or in the alternative, there ought to be other billing options. 213 MS. JACKSON: May I just make one observation, and it's not my intention to continually interrupt my friend. The Board and my friend and others know that there are jurisdictional issues with respect to billing options, and I know that nobody is asking the witness panel to speak to the jurisdictional issues. And can we just take it that all of these answers are subject to jurisdictional issues; is that fair? 214 MR. WARREN: Of course. Of course. 215 My difficulty, Panel, is not only a temporal one, as Ms. Jackson pointed out, there is a gap between what went on in 0017, what we all did in the ADR process, which I will talk about to the extent that it's reflected in the agreement, there's a temporal gap between that and today. But I'm just trying to understand this at a functional level what it is that the Board is being asked to approve and therefore what it can say. 216 One of the things that you come forward with in this case, if I can do it this way and make it easier, is you have outlined certain billing options, and you've also said that one of the billing options, the one that was -- one of the ones that was on the table, for example, in the GDAR process, with is marketer-consolidated billing which is one that you now, for a number of reasons which you've articulated, I think is appropriate. 217 Now, the Board -- is the Board being asked in this case to consider and approve the method by which unbundled services will be made available, including the billing options? 218 MR. ANDREWS: Yeah. I think it's fair to say that of the two billing options that we're proposing to enable the access, as we call it, are part of this -- part of this application so therefore we are asking the Board to approve both of those methods. 219 MR. WARREN: And the Board is being asked to approve the prudency of the costs that have been incurred and are to be incurred to deliver unbundled services; correct? 220 MR. ANDREWS: Yes, that's correct. 221 MR. WARREN: And finally, as Mr. Packer suggested, the Board is being asked to approve an allocation methodology; correct? 222 MR. ANDREWS: Yes, that's correct. 223 MR. WARREN: Now, just at a high level of generality, sir, and again, because of this gap between 0017 and where we are today, can we agree that there is no evidence before the Board, certainly no evidence before the Board from Union, that residential consumers want an unbundled service. 224 MR. ANDREWS: I think it's fair to say that there was nothing explicitly in the evidence that indicates that. 225 MS. JACKSON: I think there are some questions in the interrogatories that are going to be filed that relate to that issue. 226 MR. WARREN: To be filed? 227 MS. JACKSON: Yes. 228 MR. WARREN: Oh, I'm sorry. Then I might reserve questions, Mr. Chairman, on that issue. 229 But let me ask you to turn up an exhibit, which is Exhibit C3.27. It's an interrogatory delivered by my client. Do you have that, Panel? 230 MR. ANDREWS: Yes, we do. I think we're just getting the other reference -- yes, okay. 231 MR. WARREN: The question posed, or one of the questions posed was "Please provide evidence that Union's small volume customers are seeking the changes proposed for this application." 232 Now, the answer given is "As determined in RP-1999-0017, the Board has approved the unbundled service for the small volume market," and I say with great respect and deference, that's not an answer to the question that was posed. 233 May I take it, sir, if I were to re-put the question, "Please provide the evidence that Union's small volume customers are seeking changes proposed through this application," your answer would be "There is no evidence"; is that fair? 234 MR. ANDREWS: Well, there is no evidence that would come directly from small volume customers, but there is evidence with respect to our relationships with the retail energy marketers. 235 MR. WARREN: So what you're saying is that there is evidence that the retail energy marketers want the unbundled service for small volume customers; correct? 236 MR. ANDREWS: Yes. Given that retail energy marketers act as agents on behalf of the small volume market group, I assume that that also means that the small volume customers would want the service as well. 237 MR. WARREN: Okay. And, just to complete this particular cycle, you were asked by my friend Mr. Janigan's client in Exhibit C22.3, the first question posed in that interrogatory is "Has the company carried out any focus groups or interviews for services for small volume customers, i.e., residential customers, that indicate a desire by these customers to have further unbundled service offerings?" And your answer, which appears below it: "Union has not conducted any focus groups with small volume customers concerning the new unbundled service." Correct? 238 MR. ANDREWS: That's correct. 239 MR. WARREN: Now, at the risk of straining everybody's memory, Panel, it was a while ago, can we agree, Panel, that there was no evidence in the 0017 proceeding that small volume customers - I'll use the term residential customers if I can - wanted unbundled service; correct? There was no evidence in that case. 240 MR. ANDREWS: That's correct. 241 MR. WARREN: Okay. Now, I want to deal -- I'll deal with this in greater detail a little later on. But to provide a context. In the evidence that was filed by Dr. Schwindt, which appears at Exhibit B, tab 7 -- you don't need to turn it up for the moment, that's okay. I'm not going to make a specific reference to it. But at a high level of generality, we can say that Dr. Schwindt observed that there was no cost benefit analysis provided, and his context for that observation, to be fair to him, was on the issue of marketer-consolidated billing. Do you remember his evidence on that point? 242 MR. ANDREWS: Yes, I do. 243 MR. WARREN: And he said, as I recollect, and this is again just a rough gloss, he said that it was important in considering marketer-consolidated billing that there be a cost benefit analysis; correct? 244 MR. ANDREWS: Yes. That's correct. 245 MR. WARREN: And, can we agree, sir, that there is no cost benefit analysis with respect to any aspect -- certainly from Union of any aspect of the proposal to offer unbundled services to the small volume market; correct? 246 MR. ANDREWS: No, I'm not aware that there is or there isn't. We didn't bring any evidence forward on that, but it doesn't necessarily mean that it hasn't been done. 247 MR. WARREN: I said Union. Union has provided no cost -- 248 MR. ANDREWS: Sorry. No, we have not done that. 249 MR. WARREN: Okay. Now, I just want to understand functionally, sir -- I apologize for, I hope, asking the most obvious question of the day, but there is a while to go yet. So can I -- do I understand it correctly that unbundled services, that individual residential customers, consumers, cannot themselves get access to unbundled services. 250 MR. ANDREWS: Well, they would do so through their appointed agents, the retail energy marketers. 251 MR. WARREN: That's the distinction I want to get at. They have to go through an REM; is that correct? 252 MR. ANDREWS: That's correct. 253 MR. WARREN: Okay. And does it then follow, sir, that if, speaking hypothetically, if no REM takes up this service, then it simply will not be available to residential consumers. 254 MR. ANDREWS: That's an interesting question. I guess I would -- the service would still be available. I assume that your proposition is that of if the marketer doesn't take it up, then we would deduce that it wouldn't be available to our small volume markets because the marketers won't take it up. 255 MR. WARREN: Right. That's what my question is. If the marketers don't take it up, because they are the essential delivery mechanism, if the marketers don't take it up, as a practical matter it won't be available to residential consumers; is that correct? 256 MR. ANDREWS: Well, the -- I guess the service is still there and I guess other marketers could enter the marketplace and offer the service. So, again, I'm not sure of the basis for your question here. I'm a little puzzled. 257 MR. WARREN: It's available, I suppose in a hypothetical sense it's there, but no marketers are offering it so as a practical matter they can't get it; is that a fair distinction? 258 MR. ANDREWS: That's fair, yes. 259 MR. WARREN: Okay. So is it -- sorry, there's just a couple of final points on this sort of general overview. The Board approved, in the 0017 case, certainly approved, no argument about this, the making available of unbundled services for the large volume customers; correct? 260 MR. ANDREWS: Yes. 261 MR. WARREN: Can you tell me today how many large volume customers have taken up the unbundled service? 262 MR. ANDREWS: Well, today, there haven't been any large volume customers who have taken up the unbundled service. The service was just recently implemented and introduced late last fall. These large volume customers are still operating under their existing contracts, and eventually they will take it up. 263 MR. WARREN: But they certainly haven't taken it up to this point. 264 MR. ANDREWS: Not yet. 265 MR. WARREN: Okay. Is there any evidence on the record, sir -- sorry. To be precise, is there any small volume market? 266 MR. ANDREWS: Yeah I'm just thinking what's on the record here. There isn't anything on the record at this point but we do have knowledge of REMs who are willing to pursue and want to pursue the service. 267 MR. WARREN: To be fair, I want it deal with the evidence which is on the record before you and let me see if you will agree with this high level summary of what's before the Board. There is, we have agreed, no evidence on the record that residential consumers want this service. We've agreed on that: Correct? 268 MR. ANDREWS: Correct. 269 MR. WARREN: We have agreed that there is no evidence from Union on the cost benefit analysis of these services to the small volume market; correct? 270 MR. ANDREWS: Correct. 271 MR. WARREN: We have agreed that there is no evidence on the market that any retail marketer will take up the service. Is that correct? 272 MR. ANDREWS: Correct. 273 MR. WARREN: And, we are -- am I correct in my understanding of the evidence, certainly as articulated by Mr. Packer, that notwithstanding those three things on which we're on agreement, residential customers will in large measure be paying for the $15.7 million in expenditures: Correct? That is what Mr. Packer says is it not? 274 MR. PACKER: The two things you didn't mention in your summary were the body of market design task force reports that supported the unbundling of services and the general service market to provide for a more competitive commodity offering; an ADR agreement that was endorsed by everybody, including the Board, which had us providing unbundled storage and transportation services; and a commitment during the ADR to do so on a very tight time frame, which would have initially had the unbundled service offering out in the general service market, last April. 275 MR. WARREN: Thanks for the prequel of your argument on this point, Mr. Packer, but am I right in my question that the lion's share of the $15.7 million will be paid for by residential customers; is that correct? 276 MR. PACKER: That that is correct, and as I alluded to in my opening comments, there are reasons for that. Dealing with creating a transaction-based information system, creating a more competitive commodity market and introducing a new service to a market that previously didn't have access to unbundled service or a form there of. 277 MR. WARREN: I want to turn, if I can, Panel, to the subject of the -- I guess the twin subject of the drivers for the unbundling. And also a question of the benefits of it. And let me, begin with this question, Panel, see if I understand it. Is it the case that Union itself gets no benefits from the offering of unbundled service to the small volume market -- or put it another way, that Union is indifferent to whether or not unbundled services are available in the small volume market. 278 MR. ANDREWS: It's fair to say that there are no benefits to Union to offering the service. There are risks associated with offering the service but there are no benefits. 279 MR. WARREN: And the risks, I take it, Mr. Andrews, would be that if nobody pays the $15.7 million ticket; is that right? 280 MR. ANDREWS: No, that's not what I was referring to. What I was referring to was the fact that with unbundled services, Union will have less control over assets that it currently has at its disposal to generate revenues in the transactional market. So it stance to reason, the logic is that if some of those assets are allocated to marketers or large volume customers to the unbundled service, then Union has less assets at its disposal to general those revenues. That's the risk I was talking about. 281 MR. WARREN: Sorry. Fair enough. So there are no benefits but there are risks; is that fair? 282 MR. ANDREWS: Yes. 283 MR. WARREN: We can certainly agree, sir, that there would be benefits to the REMs from being able to make this service offering to their customers, actual and potential; fair enough? 284 MR. ANDREWS: I can only presume so. I can't speak on behalf of them. 285 MR. WARREN: But its a fair assumption on my part that there is a benefit to them; correct? 286 MR. ANDREWS: I would presume so, yes. 287 MR. WARREN: And can we agree, sir, that there is likely to be or certainly to be a benefit to large volume customers who take up -- mind you none have up to now, but -- speaking hype -- there are benefits to large volume customers from taking up the service; correct? 288 MR. ANDREWS: Yes. 289 MR. WARREN: And is it in the fair, Panel, looking at it historically, that the two groups that were the principle supporters of the making available of unbundled services for the REMs the and the large volume customers; is that correct? 290 MR. ANDREWS: That is correct, but again I just want it remind you that the REMs -- acting as agent on behalf of the small volume customers are -- are there to provide the service on their behalf, so therefore, small volume customers should benefit by the taking of that service. 291 MR. WARREN: I suppose it's fair for you to remind me of that comforting fiction from time to time, sir, but I won't -- I understand where you're coming from. 292 Now, in terms of understanding the benefits and the factors that may affect the take up of the service, there is some indication -- and I apologize in advance for not knowing as much about this in advance as I should, but there is some indication that TCPL may be considering a substantial re -- certainly considering a substantial review -- and possibly a fundamental shift in the way it delivers transportation services: Is that -- have I understood that -- correct? 293 MS. JACKSON: Are you speaking of evidence in this proceeding? 294 MR. WARREN: No, I'm not. 295 MR. PACKER: I'm generally aware of it. 296 MR. WARREN: And all I wanted to ask you, Panel, was whether or not from your understanding of what TCPL may be considering, might that have an effect on the delivery of unbundled services to both the large and small volume customers? 297 MR. PACKER: I think it's too soon to tell. My understanding is that they drafted a report that has numerous questions associated with it, and until the whole story is told I don't think we can answer that question. 298 MR. WARREN: So do I take it from that answer, Mr. Packer, that the fact that TCPL may be contemplating significant changes would not in your view, make this application premature. 299 MR. PACKER: No. 300 MR. WARREN: Now, I want to, if I can, just return finally on this question of benefits, to the details of Dr. Schwindt's evidence, certainly I'll ask the question of him when me arrives, but as the sponsors of his evidence, could you turn up Exhibit B, tab 7. 301 MS. JACKSON: I'm sure my friend didn't mean any application by statement as the sponsors of the evidence, but there is no doubt this is Dr. Schwindt's evidence, not Union's. And people can ask Dr. Schwindt all about it. 302 MR. WARREN: And I take it, Ms. Jackson, I can ask him whether or not it accepts or rejects Dr. Schwindt's evidence. 303 MS. JACKSON: I prefer to take your questions, Mr. Warren, as they come. 304 MR. WARREN: Do you accept Dr. Schwindt's evidence, Panel? 305 MR. ANDREWS: Yes. 306 MR. WARREN: Thanks. Now I would like you to look at page 1 which is the introduction. And I would like you to look at the fourth full paragraph. 307 Now, before we deal with that paragraph, I think certainly in fairness to Dr. Schwindt, he appears to be talking about the marketer-consolidated billing, which was considered in the GDAR case. That seems to be the context for his observations. He then says: "In my opinion, the analysis of this proposed policy change" -- and I'm assuming he's talking about marketer-consolidated billing -- "suffers from two shortcomings. First, there is no system at a cost benefit analysis of the proposed change." Do you see that? 308 MR. ANDREWS: Yes, I do. 309 MR. WARREN: Can I extrapolate from that and would you agree, sir, that there ought to be a cost benefit analysis for proposed -- any proposed change that would offer unbundling in a small volume market? 310 MR. ANDREWS: Well, I think it's -- I think it's fair to remind everybody that the Board has already made a decision that the unbundled service is going to be offered to the marketplace, so I would presume that any cost benefit analysis or any analysis, I guess, in terms of why it ought to have been offered to the marketplace, would have been done at that time or prior to that decision. 311 MR. WARREN: Well -- 312 MR. JACKSON: Sorry. I didn't hear the last part of your sentence: Could you repeat what you said? 313 MR. ANDREWS: I'm sorry, Mr. Chairman. I have to remember now. 314 What I was saying was that I would presume that any cost benefit analysis, with respect to the offering of the unbundled service to the marketplace, the small market volume or large volume market place, would have and shut have been done prior to the decision by the Board to offer the service to the market place. 315 MR. JACKSON: Thank you. 316 MR. WARREN: Two questions which fall from that response. First of all, I take it we are in agreement that extrapolating from Dr. Schwindt that there ought to be a cost benefit analysis for service offering, unbundled service offerings in the small volume market; correct? We agree on that? 317 MR. ANDREWS: No. I believe Mr. -- Dr. Schwindt's evidence is talking about the cost benefit analysis of marketer-consolidated billing. 318 MR. WARREN: I thought in your answer to the Board, to, Mr. Jackson -- whether he asked for clarification -- my interpretation of your answer, to be fair, is that yes, there ought to have been a cost benefit analysis and you assume there was one done before the Board made its decision in 0017. 319 MS. JACKSON: That is not what Mr. Andrews said. He said that the Board and any cost benefit analysis ought to have been done before people supported it and the Board endorsed it. 320 MR. WARREN: He didn't say people supported. Ms. Jackson, you're extrapolating his answer. 321 MS. JACKSON: No, he did. 322 MR. WARREN: We are in agreement that there ought to have been one done before the Board made its decision in 0017. Do you adopt what your counsel just said? 323 MR. ANDREWS: Yes, I do. I presume that there would have been a cost benefit analysis prior to that decision at some level. 324 MR. WARREN: Did Union do a cost benefit analysis for presentation to the Board in its evidence of 0017? 325 MR. ANDREWS: No, we did not. 326 MR. WARREN: Are you aware of any cost benefit analysis prior to the decision in 0017? 327 MS. JACKSON: By whom? 328 MR. WARREN: I'm sorry? 329 MS. JACKSON: By whom? 330 MR. WARREN: By anyone. 331 MR. ANDREWS: No I'm not aware of that. 332 MR. WARREN: Can I turn the Panel then to the question of the costs and the frequency of the prudency of those costs. And my context for this is two pieces of evidence, one which has already been referred to. The first one I would like you to refer to is Exhibit B, tab 2. And the page I want to refer to is page 1. 333 MR. MORAN: Sorry, Mr. Warren, I missed the reference. 334 MR. WARREN: Exhibit B, tab 2, page 1. 335 Looking at the first full paragraph, the second sentence, "However to enable REMs to access unbundled services on behalf their customers, further changes are required to Union's contract administration and daily gas management processes." 336 These changes in contract administration and daily gas management are for the purpose of allowing the REMs to be able to offer the unbundled service to small customers; is that correct? 337 MR. ANDREWS: The purpose of those changes are to allow REMs to be able to -- acting on behalf of small volume customers, to access the service, correct. 338 MR. WARREN: Can I then turn to the exhibit which has already been referred to which is the Board staff interrogatory number 15, which is Exhibit C1.15. 339 With apologies for covering some ground I covered briefly before, Panel, not to do it in any length. We're looking at page 2 of Exhibit C1.15. I see the RP-1999-0017 unbundling storage and upstream transportation. 340 Now, I may well have read this evidence incorrectly, but if you could just -- I apologize for jumping back. But if you could just come back to Exhibit B, tab 2, page 1. 341 The first sentence says, "In RP-1999-017, Union described the systems and process changes and outlined the costs to accommodate the unbundling of Union's upstream transportation and storage services." 342 Now, when I read the words "unbundling of Union's upstream transportation and storage services", am I correct in my reading that that is almost entirely for the benefit of the large volume customers? 343 MR. ANDREWS: No, that's not correct. 344 MR. WARREN: It's for any customer who wants access to unbundled services? 345 MR. ANDREWS: That's correct. 346 MR. WARREN: So when I look at the costs on C1.15, page 2 of 2, the unbundling and upstream transportation in 0017, the 7.5 million is for the benefit of both large and small volume customers? 347 MR. ANDREWS: That is correct. 348 MR. WARREN: And the same is true of RP-2000-0078; is that the case? 349 MR. ANDREWS: No that's not correct. The costs under RP-2000-0078 are exclusively -- support the small volume market. Because as I indicated earlier, we wanted want to be in a position to offer service to the large volume customers at the end of this case. 350 MR. WARREN: Now, the costs -- you indicated in your evidence that the costs of the process changes are very much a function of the number of customers and the number of transactions; is that correct? 351 MR. ANDREWS: That's correct. 352 MR. WARREN: Is it not fair though, sir, in kind of an inverse proportion relationship, that the benefits of unbundled service accrue principally on the basis of volume? 353 MR. PACKER: That's not correct. Absolutely not correct. I stated in my opening comments that one of the reasons we are unbundling is to -- as per the market design task force reports, try and develop a more competitive commodity market for the general service customers. The industrial customers already have a commodity market that is competitive. In addition to that, they already have access to it. The incremental benefit available to industrial customers as a result of unbundling is far less than to residential customers through their marketer. 354 MR. WARREN: What portion of a typical residential bill would be represented by the storage? 355 MR. PACKER: Just bear with me. I think there was an interrogatory response. 356 MR. WARREN: Could well be, sir, and I could have missed it. 357 MR. PACKER: It's fairly small. Does anything turn on the magnitude? 358 MR. WARREN: Let me see if I can get it this way: Of what a residential customer pays every month, the largest part would be the commodity costs? 359 MR. PACKER: Yes, that's correct. 360 MR. WARREN: Second largest part would be the distribution costs? 361 MR. PACKER: Correct. 362 MR. WARREN: Third largest part, in some measure, would be either upstream transportation or storage; is that fair? 363 MR. PACKER: Let me see if I can turn up the interrogatory. 364 MR. PACKER: I can take that subject to checking. 365 MR. WARREN: Can I get an undertaking -- sorry, Mr. Chair, can I get an undertaking to find that answer? I want to find out the percentage of the bill -- typical customer -- residential customer bills represented by the storage component, and the witness has said it's -- he thinks it's an interrogatory answer. But one way or another, I've asked him simply to undertake to get me the answer. 366 MR. PACKER: Actually, I've found the interrogatory now. 367 MR. JACKSON: That's good. Thank you. 368 MR. PACKER: It's Exhibit C1.7. That's the one I had in mine, anyway. Looking at page 203, under a profile that has annual consumption of 2,900 cubic meters, monthly fixed charge is $120, and the remaining delivery related commodity based charges are $340, storage is 57, transportation is 111, and commodity and fuel is 429, for a total of a thousand dollars and -- sorry, $1,056. 369 MR. WARREN: about 5 per cent of a typical bill? 370 MR. PACKER: Yes. 371 MR. JACKSON: Mr. Warren, when might it be appropriate to break? 372 MR. WARREN: Whenever you want, sir. 373 MR. JACKSON: I with like to do it when it's convenient to you, Mr. Warren. 374 MR. WARREN: I'm about to start into something else so now would be fine. 375 MR. JACKSON: Okay. I think that would be appropriate, and I think we can note for the record that you probably have got the fastest response to an undertaking in a proceeding. So we will break for 15 minutes. 376 --- Recess taken at 10:55 a.m. 377 --- On resuming at 11:15 a.m. 378 MR. JACKSON: Thank you. 379 Just before we start, for clarity of the record, if it needs to be clarified, we have -- there were no objections and we have accepted the late intervention of Sudbury and Timmins. 380 Okay, Mr. Warren, back to you. 381 MS. JACKSON: Mr. Chairman, just before Mr. Warren starts, we have the written interrogatories. I think they've been distributed. They have each have a separate exhibit number consistent with the numbering regime that's in place, and I just wanted to say on the record they're now here. I believe the Board members have a copy in front of them. 382 MR. JACKSON: Thank you, Ms. Jackson. 383 MR. WARREN: Mr. Jackson, just apropos, that most recent filing, I've had about three minutes to take a look at them and I wonder if I might, at the end of my questions, just reserve the right to ask any questions that might arise from them. 384 MR. JACKSON: Yes, that seems appropriate. 385 MR. WARREN: Panel, I just have a couple of questions to complete the area that I was dealing with, which is the costs. Can you turn up, please, Exhibit B, tab 2, page 1. 386 MR. ANDREWS: I have it. 387 MR. WARREN: If I look at the second sentence, it reads "However, to enable REMs to access new unbundled services on behalf of their customers, further changes are required to Union's contract administration and daily gas management processes." 388 Leaving aside for a moment the -- what you said is a relatively small proportion of the $15.7 million which is for the changes necessary to serve the large volume market, can we agree that the largest proportion in excess of $15 million of those expenditures is, in the first instance, to enable the REMs to provide the service; is that fair? 389 MR. ANDREWS: That's fair. 390 MR. WARREN: Okay: Now, the one issue that I want to deal with, finally, is the Board has asked to approve the prudency of the $15.7 million in costs, and I want to deal with the question of whether or not that's all the costs or whether there might be other costs associated with enabling unbundling. First of all, the high level of generality. Is 15.7 million it or are there other costs that might be coming along? 391 MR. ANDREWS: At this point in time, Mr. Warren, that is it as far as we know. That's our best estimate at this point based on what we spend today and what we expect to spend to complete the work. 392 MR. WARREN: And the answer that you've just given me applies to the service offerings, including the billing proposals, which are encompassed by your evidence; correct? 393 MR. ANDREWS: That is correct. 394 MR. WARREN: Now, you were asked a number of interrogatories, which I don't believe you need to turn up at this stage, the gravamen of which were, what would be the cost to Union for the system changes necessary to accommodate market or consolidated billing, and your answer was, we don't know, we haven't calculated it; is that correct? 395 MR. ANDREWS: That is correct. 396 MR. WARREN: Now, can we agree that marketer-consolidated billing is something which was specifically contemplated in what is known as the GDAR; correct? 397 MR. ANDREWS: Correct. 398 MR. WARREN: And if this Board at the end of the evidence in this case were persuaded that marketer-consolidated billing was a good thing, we would still be in the position where we wouldn't know how much it would cost; correct? 399 MR. ANDREWS: That's correct. 400 MR. WARREN: And why, sir, just as a final question on this point, given that marketer-consolidated billing was -- is contemplated in the GDAR, why would Union make a decision not to at least undertake an assessment of what it would cost to implement? Leaving itself open to argue that it's a dumb idea whose time should never come, but why wouldn't it do the assessment of costs? 401 MR. ANDREWS: Well, I think one of the principal reasons, Mr. Warren, is that it really depends on the business model that's going to evolve for marketer-consolidated billing. And what I mean by that is, I'll call it the rules of engagement, the business rules and which then, at the end of the day, determines what additional information needs to be transferred between Union and its marketers. Until you know that, until you have that discussion, then I couldn't even fathom what additional costs would be required to facilitate that service. 402 MR. WARREN: Has Union had any discussions with any of the REMs with respect to what it is they want by way of marketer-consolidated billings, with a view to, among other things, coming up with some cost model for it? 403 MR. ANDREWS: I'm not aware of any such detailed discussions between Union and retail energy marketers. 404 MR. WARREN: Can we not agree though, sir, that the one effect of Union not costing the marketer-consolidated option is that, as a practical matter, you've tied the Board's hands in this case? They can't approve it without knowing the cost; is that not fair? 405 MR. ANDREWS: They can approve marketer-consolidated billing without knowing the cost? 406 MR. WARREN: Right. 407 MR. ANDREWS: Well, I guess -- we're not proposing, I guess, so there is no evidence I guess for them to make a decision. 408 MR. WARREN: Thank you, sir, that's fine. My next question. 409 I want to deal now with the question of allocation. And your proposal, as I understand it, is to -- will cover costs from enfranchise rate classes in proportion to the weighted average number of customers in each rate class; is that right? 410 MR. PACKER: Yes, that's correct. 411 MR. WARREN: And we've agreed, and there is an IGUA, sorry, a -- a VECC interrogatory in this point that the largest proportion of the $15.7 million will be recovered from residential consumers; correct? 412 MR. PACKER: Yes, that's correct. 413 MR. WARREN: Now, you say, turn it up if you want, at Exhibit B, tab 6, page 3 -- 414 MR. PACKER: I have it. 415 MR. WARREN: Now, you say in the sentence which continues at the top of that page "apropos the allocation methodology that residential consumers are the primary beneficiaries of further unbundling." Is that right? Or do you agree that they're the primary beneficiaries? 416 MR. PACKER: Yes. 417 MR. WARREN: Now, this number is somewhere in the evidence, and I apologize, Mr. Packer, I just don't remember where it is. My recollection is that the breakdown within Union's franchise area between system customers and direct purchase customers is about 60/40; is that right? Sixty per cent of the residential customers are system customers? 418 MR. PACKER: Yes. About 60 per cent of our general service class is residential. 419 MR. WARREN: Sorry? 420 MR. PACKER: Sixty per cent are system. 421 MR. WARREN: Sixty per cent are system customers. Now, can we agree, sir, that for those customers who remain on system gas, they get no benefit whatsoever from the availability of unbundled service? 422 MR. PACKER: No, I disagree. 423 MR. WARREN: What's the benefit they get if they're not taking it? 424 MR. PACKER: They have the benefit of having that option available to them; they have the benefit, supposedly, of a more competitive marketplace for commodity. That's why we can have market design task force supported the unbundling of services. 425 MR. WARREN: Now, -- so it is the benefit that will supposedly accrue to them from the development of a more competitive market if that more competitive market develops; is that right? 426 MR. PACKER: I think that's correct, yes. 427 MR. WARREN: Okay. Now, if you look at Exhibit C1.12, which asks -- the Board staff interrogatory which asks for the rationale for the decision to allocate in a certain way. 428 MR. PACKER: I have it. 429 MR. WARREN: If you look at page 2 of 3, I want to take you to the third full paragraph in which you set out the analysis of why Union's view, the costs of unbundling should not be allocated to gas marketers. And, with apologies, I just want to parse the analysis in that paragraph, if I can. 430 In the first line, you say that it would not be appropriate to recover from them because it is end-use customers that stand to eventually benefit the most. And that is -- do I understand it -- a judgment on the part of Union, about allocation according to who is going to benefit? Do you feel the end-use customers will benefit more so they should pay for it; correct? 431 MR. PACKER: It is -- there is a judgment, I guess, but it's based on the premise behind the market design task force reports, which suggested that unbundling was creating more competitive market for commodity. 432 MR. WARREN: Do we not agree, sir, that the REMs -- all of the system changes which were designed as we've agreed to enable them to offer an unbundled service -- that the REMs will receive a benefit from being able to offer this service to their actual or -- and potential customers; correct? 433 MR. PACKER: I don't know if there will be any benefit to them or not. 434 MR. WARREN: They may be a charitable institution that doesn't make any profit from offering the services to residential consumers? I ask that question facetiously, but surely we can agree that when they're able to offer a new service that they're likely to get a financial benefit from doing so. Is that not a reasonable assumption on our part, Mr. Packer? 435 MR. PACKER: Its reasonableness is in the eye of the beholder, but it -- it could be a possibility. I just don't have any evidence to suggest that's the case. 436 MR. WARREN: Fair enough. You then go on in this answer in the following sentence to say, "In addition," the second full sentence, the third paragraph on page 2 of 3 on Exhibit C1.12. "Union's preference is to collect the costs as close as possible to the time that they were incurred." 437 Now, do I take it that what that sentence is referring to is to this risk that if the Board decides to allocate these costs to marketers, number 1, they may not decide to take up the service; correct? 438 MR. PACKER: I'm sorry. 439 MR. WARREN: If the Board were to make a decision that the $15.7 million ought to be allocated to marketers, can we agree that there are two forms of risks for Union in that decision; number 1, marketers may decide not to take up the service; correct? 440 MR. PACKER: I think it depends on how the allocation recovery to marketers would happen. I think the assumption behind your question is that it would be that marketers taking the unbundled service. Another option suggests that it goes to all marketers irrespective of taking unbundled service, which I don't think your concern would apply to. 441 MR. WARREN: Let's take the first category, then, those who take the unbundled service. The Board says they are the ones who really ought to pay the costs. There is a risk to Union that they simply won't take up the service; correct? 442 MR. PACKER: I would agree that there is a -- there is -- there may be more likelihood that they won't take the unbundled service because of the potential entry. I would hope that wouldn't be a risk to Union that the Board finds the costs to be prudent, then we'd recover them somehow, some way. 443 MR. WARREN: There is also a risk that's reflected in this sentence that you don't know when it is the marketers would take up the service so you don't know when it is that you would recover your costs. 444 MR. PACKER: There is uncertainty with respect to time under that scenario, yes. 445 MR. WARREN: If I then go down to the second paragraph, referring back to Exhibit B tab 6, page 3, beginning at the fourth line -- 446 MR. PACKER: Yes, I have it. Yes. 447 MR. WARREN: Union is seeking certainty that it will be allowed to recover the costs with providing the new services, i.e., the amount in recovery methodology. "Union considers it inappropriate to be in the situation where it is providing the new services without any certainty with respect to the recovery of the costs associated with providing those services." 448 Now, I'm going to suggest to you, Mr. Packer, that the allocation methodology that you're proposing in this case is driven principally by considerations of risk. Union does not want to be at risk that it will be unable to recover these costs; is that not fair? 449 MR. PACKER: I don't think I would agree with the premise that the allocation methodology was driven by a concern about risk. What we did was step back and try to identify who the appropriate party to recover the cost was based on the driver for the cost, which transactions, and who stands to benefit which, in our view, eventually will be the end-use consumer. 450 MR. WARREN: So do I understand your answer that risk is not a factor at all in your consideration of allocation methodology? 451 MR. PACKER: Concern about uncertainty with respect to recovery period was a factor. The implication that risk of recovery was the driver, I don't agree with. It was primarily an identification of who we thought was appropriate to recover the costs from; and secondly, we identified some practical impediments to try and recover those types of costs from marketers. 452 MR. WARREN: Are the costs which you're -- the costs which are reflected in C1.15, are they actual or forecast costs? 453 MR. ANDREWS: They're a combination of actual and forecast costs, Mr. Warren. 454 MR. WARREN: Can you tell me, are you proposing to clear both actual and forecast, or just actual costs? 455 MR. PACKER: Attached to the February 18th, 2002, letter that was discussed this morning are allocation sheets that were initially filed in the customer review process. Those costs -- those deferral account disposition sheets show how much we're proposing to recover related to costs incurred up to the end of 2000. 456 MR. WARREN: I apologize, Mr. Packer. Could you just give me the reference again. I didn't have it. 457 MR. PACKER: The February 18th , 2002 letter. 458 MR. WARREN: Right. And what page am I looking at? 459 MR. PACKER: It's a page about four or five -- five pages into the document. The reference is Exhibit B, tab 13, schedule 1. 460 MR. WARREN: Yes, I have it, thanks. 461 MR. PACKER: The incremental unbundling costs that we were talking about appear on lines 17 and 18. The amounts we're proposing to recover are the majority of the 15.7 million. And this schedule talks about actual 2000 costs and forecast 2001. By the time we actually get to disposing of 2001 balances through the customer review process, my anticipated -- I anticipate updating these for actuals. There is an opportunity to update these for actuals. 462 MR. WARREN: So what amount now has actually been expended and what's -- as opposed to forecast? Can you tell me those amounts? 463 MR. PACKER: The amounts we're seeking recovery of appear in columns C and D. For 2000, there's the 6.985 million and the 440,000; 2001, it's the 923,000, and 7,279,000, which at the point in time when this was created, I think, were forecast costs. And what we're identifying is that as a result of the timing of the customer review process, we are in a position to update these and I expect that that may be an outcome of that process. 464 MR. WARREN: Sorry. When can we anticipate that we'll have an updated number of actuals as opposed to forecasts? 465 MR. ANDREWS: Those -- yeah, those numbers are available now, Mr. Warren, I guess, subject to checking. I think we've incurred 12.4 to date of 15.7. 466 MR. WARREN: Do you want to give that as your answer or do you want an undertaking to give -- 467 MS. JACKSON: We'll take an undertaking. 468 MR. WARREN: Can you do that, please? 469 MR. JACKSON: We'll give that an undertaking number, then. Would that be G1? 470 MR. MORAN: G1.1. 471 MR. JACKSON: Thank you. 472 UNDERTAKING NO. G1.1 TO PROVIDE UPDATED ACTUALS NUMBERS 473 MR. WARREN: The final area of questioning I have, Panel, is with respect to one of the categories of costs and that's associated with direct billing. If you could turn up, please, Exhibit B, tab 5, page 4. 474 Now, let's see if I understand this, first of all, at a functional level. One of the billing options being -- you're proposing is a direct billing option, and as I understand it, under that option, Union would bill for the services it provides and the REMs would provide -- would bill for the services they provide; is that right? 475 MS. CREIGHTON: That's right. 476 MR. WARREN: Customers would be receiving two bills? 477 MS. CREIGHTON: That's right. 478 MR. WARREN: Now, in connection with this, Union is proposing targeted communications, I'm reading from page 4 of 6 on tab 5, "for this phase to be allocated to REMs electing to send a direct bill since it is the choice of the REM to move to this billing arrangement. The cost to do so should not be levered on the entire customer base." 479 So the cost -- there is a proportion of the costs which are going to be allocated directly to the REMs, that is, those who take up this direct billing option; is that correct? 480 MS. CREIGHTON: That's right. 481 MR. WARREN: And if I looked at C1.15, where would those costs be reflected? 482 MR. ANDREWS: Communication costs are not included in $15.7 million at Exhibit C1.15. 483 MR. WARREN: Okay. They're an additional cost; is that correct? 484 MS. CREIGHTON: That's right. 485 MR. WARREN: And the total cost of the communications is, as I recollect, something in the order of $600,000; is that fair? 486 MS. CREIGHTON: There are three phases to the communication plan, and we have costed out each phase to assist you. Are you referring to the direct billing scenario only? 487 MR. WARREN: Well, I want to get the entire picture first. And the entire -- the entire communications budget is what? 488 MS. CREIGHTON: Phases 1 and 2 that -- the communication is directed to all small volume customers, no matter whether they're a system or direct purchase. So the first two phases, we're suggesting, would total about $585,000. That's general education. The third phase is simply for those customers who are -- have an REM as their agent who is electing to move to direct billing and so those costs are provided here on a per customer basis. We simply have no other way of aggregating the costs. We don't -- depending on which broker goes and whether they go all at once or in bits and pieces. So we've suggested that the cost would be $2.25 per customer for the third phase. 489 MR. WARREN: And that's going to be charged to the REMs? 490 MS. CREIGHTON: That's right. 491 MR. WARREN: Now, if I look at page 4 of 6, the second sentence in the second full paragraph "Union will be involved in such communications to ensure effectiveness and credibility of the information." And the use of the word credibility suggests to my naive imagination that you don't trust the REMs to accurately and fairly communicate with their customers. Is that an unfair conclusion on my part? 492 MS. CREIGHTON: I think what we're referring to there is that credibility is in -- is in the eyes of the recipient of the communication, so all of our research on our own behalf would suggest that our customers see our information as credible. I wouldn't comment on any other -- anyone else's credibility. 493 MR. WARREN: Does your research suggest that the REMs are not regarded as credible? 494 MS. CREIGHTON: I haven't asked the question. 495 MR. WARREN: But you felt somehow, according to this evidence, you felt it necessary to ensure credibility by communicating directly with the customers on this point? 496 MS. CREIGHTON: Well, our customers rely on us to tell them what they need to know. In this case, it would be what they need to know about their billing arrangement. Our billing relationship with our customer will change in the event of direct billing. And it's important that we let our customers know about what will be on our bill, moving forward. 497 MR. WARREN: Is it to maintain your own credibility? 498 MS. CREIGHTON: I'm suggesting to maintain our credibility with our customers, we would -- we would absolutely have to let them know that our bill was going to be different in the future. 499 MR. WARREN: So the Board shouldn't, reading this evidence, have any concern about the credibility of the REMs; is that fair? 500 MS. CREIGHTON: I simply can't comment on that. 501 MR. WARREN: Okay. Those are my questions. Thank you, Panel, and thank you, Mr. Chairman. 502 MR. JACKSON: Mr. Warren, in order to go back and review your examination, it strikes me that I -- I may need to know what was in your mind when you talked about a marketer-consolidated bill, and I don't know, there may be no confusion at all between you and the witnesses on this one, but we did hear the witnesses talk about business models that might be associated with marketer consolidated billing. But you have a number of questions on that subject. And I was wondering if there was an easy reference that you can point me to as to what specific attributes that concept has in your mind or whether it's general and hence could include, perhaps, different arrangements with respect to obligation to pay the distribution portion of the bill. In other words, I've seen two scenarios, I think, in my reading, one of which is that the obligation becomes the marketers' obligation and another in which the marketer is truly only an agent of the customer and the utilities recourse to the customer remains. And I think I need to know whether you're thinking that specifically when you talked about a marketer-consolidated bill. 503 MR. WARREN: It's always a terrifying question when an adjudicator asks a lawyer what was in his or her mind. 504 MR. JACKSON: Yes, Mr. Warren. 505 MR. WARREN: The terrifying possibility there was absolutely nothing in his or her mind when he was asking the question. What I was referring to, in fairness, I'm not sure I had a precise model in mind. What I was talking about was what Union was talking about in their evidence because they mounted a sustained and quite lengthy assault on marketer-consolidated billing. So perhaps what I should do is -- I can't find the evidence reference, but it's in here somewhere, unless its some length, is ask the question of the Panel, when I talk about marketer-consolidated -- when you are talking about marketer-consolidated billing in your evidence, what is the model that you understand -- that you're rejecting, if I can put it that way? 506 MS. JACKSON: Well, in fairness, the marketer-consolidated billing issue is addressed in a number of different places in the evidence, and indeed one of the points made in the evidence is that there are many different models for a marketer-consolidated billing. So I think I have to object to the question as being not fairly based on the evidence and frankly not helpful. But I understand why Mr. Warren might want to ask them rather than answer your question. 507 MR. WARREN: Well, that's a cute response, and I appreciate Ms. Jackson saying that. But it is, in fairness, that Union expended a considerable amount of energy in its, bad pun, in its evidence in the sustained assault on marketer-consolidated billing. So it seems to me an entirely legitimate -- I can tell what it was I had in mind, and it's a generic concept mind, that a marketer would take over responsibility for billing for all of the services which the customer receives. And it would include the distribution costs and storage costs and commodity costs and so on so forth. I had no concept that was more sophisticated than that. Simply a marketer taking over all of the billing functions. 508 MR. JACKSON: Okay. Well, that is helpful. So then I think, Mr. Warren, I would be right to understand that you -- I should read your questions as generally including a number of possibilities with respect to the one example that I gave, and that is the obligation to pay the distribution portion of the bill, that that may or may not shift to the -- shift to the marketer. In your concept, both are included. 509 MR. WARREN: That's right, sir. 510 MR. JACKSON: Okay. And I think I understand Union's evidence so far, and it may be that one of the, as you put it, assaults against marketer-consolidated billing has to do with the fact that it's not yet defined. But I will leave it to Union to see if they can refresh my memory on that as we go along. But I just wanted to know what your question meant. Thank you very much. 511 MR. WARREN: There is, in fairness, another Panel that's going to deal with billing issues. 512 MS. JACKSON: I do expect that these issues, and particularly your question, Mr. Chair, will be dealt with more fully by the next Panel. 513 MR. JACKSON: That's fine. Thank you very much. Okay. Who is next, please? 514 MR. THOMPSON: I'm ready to go, Mr. Chairman, having received these interrogatory responses. 515 CROSS-EXAMINATION BY MR. THOMPSON: 516 Panel, I want to touch briefly on the history a little bit further with you. I listened with interest to Mr. Warren trying to distance himself from the history leading to your unbundling proposals, and I wanted, if I could, to take you to Exhibit C14.8. This is part of the material that was handed up at the break. I hope the Board has received copies. 517 And at page 2 of this document, we asked you to just list in bullet point summary, the progression of activities that have taken place with respect to the -- what I call the deregulation of the commodity market in Ontario, and many of these steps are described in detail in your Exhibit B, tab 1, and appendix A to that exhibit; is that fair? 518 MR. PACKER: Yes, that's correct. 519 MR. THOMPSON: All right. And the first event that I wanted to draw your attention to is the one described September 1996, "Report on the ten-year market review of natural gas deregulation." Can you -- can anyone on the Panel give a brief description of that process and indicate whether the Consumer's Association and what was then OCAP, Mr. Janigan's predecessor client, until the president went crazy, and then it became VECC, whether they actively participated in that process. Is anyone able to speak to that? 520 MR. ANDREWS: Yes. It appears, Mr. Thompson, that none of us have -- 521 MR. THOMPSON: Well, perhaps I can do this: Could I have an undertaking from the Panel to simply file what is described as the report on the ten-year market review of natural gas deregulation? My recollection is that that's a letter from the Board. Could we have that undertaking? 522 MR. PACKER: Yes. 523 MS. CREIGHTON: Yes. 524 UNDERTAKING NO. G1.2 TO PROVIDE REPORT ENTITLED TEN-YEAR MARKET REVIEW OF NATURAL GAS DEREGULATION 525 MR. MORAN: That will be G1.2, Mr. Chair. 526 MR. JACKSON: Thank you, Mr. Moran. 527 MR. THOMPSON: And then my recollection of the events is that that report from the Board prompted the establishment of what's described two lines down, the working group. Can anybody on the Panel speak to that process and whether the CAC and representatives of OCAP participated in that process? 528 MR. PACKER: I'm not necessarily prepared to speak to the process, but the Ontario College was a participant. 529 MR. THOMPSON: All right. And does the information that you're looking at indicate that Mr. Todd was the representative of that organization? Mr. Todd, I believe, is going to be a witness later in this process. 530 MR. PACKER: Sorry, I'm looking at appendix A from that document and it doesn't specify who the actual person was. 531 MR. THOMPSON: All right, thank you. Moving on then, there's a reference down in February -- sorry, in February of 1999, the Natural Gas Market Design Task Force report, to the OEB, and rather than dwell on this, I'd ask if you would simply give an undertaking to file in this record that report, including its appendices and then the Board's letter that followed the issuance of that report, which is a letter dated April 1, 1999. 532 MR. PACKER: We can do that, yes. 533 MR. MORAN: That will be G1.3, undertaking to file the Natural Gas Market Design Task Force report and the accompanying Board letter. 534 MR. JACKSON: Thank you. 535 UNDERTAKING NO. G1.3 TO PROVIDE NATURAL GAS MARKET DESIGN TASK FORCE REPORT AND ACCOMPANYING LETTER 536 MR. THOMPSON: Now, in terms of the support for unbundling initiatives, and when I use that phrase, I'm including not only the unbundling of the commodity, which dates back to sometime, initially 1986 and thereafter, but the unbundling of rates and services of the type that you were describing in this application. And there was an earlier proposal contained in the RP-1999-0017 decision which you've mentioned already was approved by ADR agreement and by the -- by the Board. 537 In terms of the support for that initiative, and industry's support in particular, can the Panel confirm that industry's support for unbundling has always been as an additional option to the bundled service? 538 MR. ANDREWS: Yes, that's correct. 539 MR. THOMPSON: Thank you. And when you use the term "industry," the results of the RP-1999-0017 decision led to, I recall or understand, three unbundled rates, U5, U7, and U9; is that correct? 540 MR. PACKER: As -- yes, it is correct. As a result of that proceeding, we were able to offer those services in a rate order starting last November. The U2 rate schedule was also discussed in the context of that hearing as well as rate schedules for the north. 541 MR. THOMPSON: Okay. So U2 was tabled but not -- not included in the formal Board order? 542 MR. PACKER: That's correct. 543 MR. THOMPSON: Okay. And the formal Board order issued when? Could we just get that clarified on the record? 544 MR. PACKER: The decision was in July and the rate order became effective or implemented November 1st, 2001. 545 MR. THOMPSON: November 1, 2001. And there has been no take-up of U5, U7 or U9 since November 1, 2001? 546 MR. PACKER: That's correct. 547 MR. THOMPSON: And the reason for that, as someone mentioned this morning, was in part linked to, as far as industry is concerned, their contracts for the ensuing year already being in place by that date; is that your understanding? 548 MR. PACKER: That's part of it. There are contracts in place with the industrial customers which, for the most part, would be spanning the period of time that we are -- we've had available to us for customers to take the unbundled service. 549 MR. THOMPSON: And in terms of the other services that are available to industrial customers -- well, just before I move there, U5 covers what categories of customer? 550 MR. PACKER: It's essentially an interruptible service in the south. 551 MR. THOMPSON: So is it comparable to M5 or M5A? 552 MR. PACKER: Yes. 553 MR. THOMPSON: And U7, is that comparable to the M7? 554 MR. PACKER: And/or T1, yes. 555 MR. THOMPSON: M7, T1. And then the U9, that serves -- 556 MR. PACKER: M9, T3, customers that would otherwise be eligible for M9 or T3 service. 557 MR. THOMPSON: And that's Kitchener's and the other distributors in Union's franchise area; is that right? 558 MR. PACKER: In the south, that's right. 559 MR. THOMPSON: And have they shown any interest in this service? 560 MR. PACKER: I'm not aware of any direct expression of somebody saying, I'm going to take the service by a certain date. There have been discussions with customers about the service offerings. 561 MR. THOMPSON: Thanks. Now in terms of T1 and T3, T1 has been available for how long? This is a -- we used to call it unbundled service, but it involves -- well, just describe it for us, the T1 service compared to the U service. 562 MR. PACKER: The T1 service is a service available to industrial customers in the south. It -- unbundled storage from the perspective of a customer contract specifically for storage and he is responsible for managing that storage. The difference between the unbundled service and T1 is that it's not really a daily nomination derived service. The customer has to make sure that they don't exceed their storage parameters, but they don't have to monitor it daily and they don't have to submit or change their knobs daily. It has been offered since the late '80s. 563 MR. THOMPSON: That's been there since the 19 -- certainly before 1990? 564 MR. PACKER: Yes. 565 MR. THOMPSON: And T3, that, as I understand it is the equivalent to -- well, that applies to the Kitcheners of the world and the other distributors? 566 MR. PACKER: It's a similar service to T1. Although it applies to wholesale customers within our franchise area. 567 MR. THOMPSON: And is T3 used by the distributor constituency? 568 MR. PACKER: We do have one T3 customer and there are three that are eligible. 569 MR. THOMPSON: And has that also been available since the late '80s? 570 MR. PACKER: I have no reason to believe it hasn't been available. 571 MR. THOMPSON: Thanks. 572 Now, in the north and east, what is the service that is currently available to industrial's -- well let me back up. Is there any completely unbundled service to be made available in the north and east? 573 MR. PACKER: Similar services exist today and have existed in the north, compared to the south. The differences on how the rates were structured -- there are T-service offerings within the rate 20 and 100 classes, where a customer can contract for storage and manage it similar to how a T1 service operates. 574 MR. THOMPSON: I guess I am -- sorry to interrupt. 575 MR. PACKER: At the same time we introduced the unbundled service in the south, we introduced the unbundled service in the north for rate 20 and 100 customers. 576 MR. THOMPSON: It's not a separate rate schedule, or is it a separate rate schedule? 577 MR. PACKER: It is not a separate rate schedule. It's offered within the existing rate schedules. 578 MR. THOMPSON: Thanks. Now, you indicated in your evidence-in-chief, and you also indicate in your response to C -- where are we? -- 14.8, as well as in C14.12, that the costs that you've included in the deferral account are driven by numbers of customers. Can you just explain how the costs are driven by numbers of customers? 579 MR. ANDREWS: Yes, Mr. Thompson. When you think about the unbundled service, it's a daily -- it's a service that requires daily balancing. In order for a customer, whether it's a large volume customer or a retail energy marketer, they require daily information. However, when you contrast between the large volume customer and the marketer, the marketer -- we have to account for the hundreds and tens of thousands of small volume end-use customers attached to those contracts. So, when we're driving out -- lets say the daily nominations -- we're going to actually calculate that nomination for the retail energy marketer, and we have to account for one customer at a time. So let's say, for example, if a contract has 25,000 customers attached to it, that's 25,000 separate calculations that we will do each and every day, and we'll actually do it twice a day, once for the demand and once for the weather true-up. It doesn't even approach the level of effort that it would take to support the unbundled service in terms of the nomination process of the large volume customers. That's one example. 580 MR. THOMPSON: Okay. And so that -- so that internally you're going to account, somehow for daily nominations on a per-customer basis; is that right? 581 MR. ANDREWS: The nominations have to be provided by the marketers on a contract basis, so for every contract every unbundled contract they have, they have to submit one nomination each and every day. And that nomination would have to account for all of the customers attached to the unbundled contract. 582 MR. THOMPSON: And this -- the decision to go in that direction -- that is, to account for every individual M2 customer, that was Union's decision; is that correct? 583 MR. ANDREWS: It was what was required for us to calculate the nomination to -- to calculate the next day's demand for the energy market for the retail energy market for the next day for the nomination process, that's correct. 584 MR. THOMPSON: On an individual customer basis? 585 MR. ANDREWS: Yes. 586 MR. THOMPSON: All right. Now, when this process started, and when I say "this process," I'm talking about the history leading to the unbundling, one of the types of service that appeared to be on everybody's agenda was what was called a wholesale rate for REMs; do you recall that? 587 MR. ANDREWS: I do. 588 MR. THOMPSON: All right. And my recollection of that concept was that the REMs would aggregate a bunch of people, and the REMs would be the shipper on Union's system and you would end up with -- and the theory was that you would end up with less than a thousand customers on Union's system, because the core market would be served by a small number of REMs. Can you recall that concept floating around during the process? 589 MR. ANDREWS: I do, yes. 590 MR. THOMPSON: And as of the evidence in one of the cases to which I referred in one of my interrogatories, I'm trying to put my finger on it, Union had stated that one of the things it needed first to do further work on -- I think it's -- if you look at Exhibit C14.12, in the preamble down about -- it's the first paragraph down about 8 lines down, you make reference to the company's evidence in RP-1999-0017, which I think maybe part of this Exhibit F1.1. In any event, it was -- it was that evidence that's referred to there, was filed on the motion that we argued here with respect to the -- whether the allocation issue had or had not been decided. Would you take it, subject to check, that in that evidence, it states as we quote in this interrogatory: "The company was working on development of a wholesale billing system." 591 MR. ANDREWS: Yes, I'll accept that subject to check. 592 MR. THOMPSON: So as of the time of the RP-1999-0017 decision, you were working on that kind of billing system which contemplated that the REM would be the shipper of record; correct? 593 MR. ANDREWS: I think where I'm just hesitating here for a second is the notion the REM is the shipper of record. We did contemplate this wholesale service that you talk about, which would mean that we would bill -- I'm just wondering if you're getting marketing-consolidated billing where we would charge for the billings including distributions charges, and we need it clarify our definitions here. 594 MR. THOMPSON: My concept of market -- of wholesale -- of the wholesale rate and the wholesale billing was where the marketer was the shipper. In other words, the impression I have - and perhaps you can correct me if I'm wrong - was that Union started down this road with a marketer was going to be the shipper of record and then would receive the wholesale rate and be billed as a wholesale customer. And the marketer would turn around and bill the -- bill the customer and at some point, Union abandoned that approach and resisted marketer-consolidated billing and here we are with -- with the proposal to balance a million and a half individual customers on a daily basis. Is that the sequence? Have I got it correct? 595 MR. ANDREWS: Yeah. I think -- when I think of wholesale service, I guess, the fact that -- even under the, the options that we're proposing absent the market of consolidated billing, we would still bill the REMs for as between transportation, if applicable, but more particularly for the storage, for the storage cost. So I guess the line I guess is drawn at the distribution charges, I think, in terms of where we stopped and --. 596 MR. THOMPSON: But what I'm really driving at is, was the abandonment of that initiative that was described in the prior processes and apparently in your evidence in the 1999-0017 case -- was the abandonment of that initiative, the cause for having to now balance a million and a half customers on a daily basis? Were you contemplating doing it on an aggregated basis previously and then abandoned that notion? 597 MR. ANDREWS: There really is no difference, Mr. Thompson, between the two approaches, whether -- whether we would have continued to march down that path had there been a wholesale service. The way the daily nominations would have had to have been constructed and calculated would be the very -- would be the very same methodology. Perhaps where there may be a difference is that under that scenario with the wholesale service -- perhaps your contemplation of that market would have fewer contracts than they do today. But the nomination would still have to be submitted for each contract that they have. However -- however many contracts there are. And we would still have to do those very same calculations. Nothing turns on whether -- whether or not there is a wholesale service. 598 MR. THOMPSON: Okay. So with or without a wholesale available to marketers and with or without marketer-consolidated billing, the systems that you have designed, you would need in any event; is that what you're telling me? 599 MR. ANDREWS: Absolutely. 600 MR. THOMPSON: Okay. Thank you. 601 Okay. Now, in terms of the number of customers in each rate class, in each of the northern and eastern operations area, you've told us the allocation factor you favour is the weighted average number of customers in each class. And is there somewhere in the record we could just see the numbers that are attributable to each class? 602 MR. PACKER: Yes, I'll just turn it up. 603 MR. JACKSON: Mr. Thompson, would you watch for a good breaking point so that we might do our lunch break? 604 MR. THOMPSON: Oh yes, I'm sorry. 605 MR. JACKSON: No, that's fine, I just thought I would alert you. 606 MR. THOMPSON: It would be fine after this response to this question, it would be perfect. Don't hesitate to interrupt me, Mr. Chair. 607 MR. JACKSON: I won't. Thank you. 608 MR. THOMPSON: Thanks. 609 MR. PACKER: Exhibit C22.25 shows the proposed allocator. 610 MR. MORAN: That reference again, please. 611 MR. PACKER: C22, question 25. 612 MS. JACKSON: Perhaps you can indicate which page, Mr. Packer. 613 MR. THOMPSON: What is weighted average? 614 MS. JACKSON: Mr. Thompson, I wonder if we can get directed to the particular page. 615 MR. PACKER: It would be page 2 of 3. 616 MS. JACKSON: And it's column? 617 MR. PACKER: A. 618 MS. JACKSON: Column A, thank you. 619 MR. THOMPSON: Just for the record, what this weighted average number of customers? What does weighted customers mean compared to average -- what's the weighting? 620 MR. PACKER: The weighting reflects -- the weighted average number of customers refers to an allocator of the cost allocation study used under cost-of-service regulation where some classes were given a weighting of more than one. Those are generally in the industrial classes, to recognize that if you just assumed one as your component, that may under-allocate some cost to the rate class. 621 MR. THOMPSON: Okay. So if any -- some of these rate classes had been grossed up; is that fair? 622 MR. PACKER: By a multiple, yes. 623 MR. THOMPSON: By a multiple. And the rate classes that have been grossed up are what, rates 20, rates 100, rates 7, and any others? 624 MR. PACKER: I would have to check if you you're looking for specific rate classes. Generally, the weighting would apply to the larger volume weight classes. There isn't a weighting in the general service category. 625 MR. THOMPSON: Thank you. That would be appropriate to break now, Mr. Chairman. 626 MR. JACKSON: Thank you. There are no other matters that are immediate. We'll rise, then, and resume at 1:35. 627 MR. WARREN: Might I just advise the Board on a scheduling matter. I have to be out of town on a motion tomorrow morning so it's unlikely, given that we're sitting a half day, that I'll be here. I would also guess it's likely we'll get to the next Panel I'll simply stand down on the questioning, read the transcript and take my place whenever I can. But I apologize I can't be here tomorrow. 628 MR. JACKSON: Thank you, Mr. Warren. Okay, then, we'll resume at 1:35. Thank you. 629 --- Luncheon recess taken at 12:20 p.m. 630 --- On resuming at 1.37 p.m. 631 MR. JACKSON: Please be seated. Mr. Thompson, I think you're on. 632 MR. THOMPSON: Thank you, Mr. Chairman. 633 Mr. Packer, I understand that during the luncheon break you had a chance to check with respect to the participation of CAC and OCAP and the processes that followed the ten-year market review? 634 MR. PACKER: Yes, that's correct. 635 MR. THOMPSON: And could you just put on the record the results of the information that you discovered? 636 MR. PACKER: Yes. My understanding is that Julie Girvan, representing the Consumers' Association of Canada participated in the ten-year market review, as well as the two phases of the market design task force. And John Todd, acting on behalf of the Ontario Coalition Against Poverty, also participated in the ten-year market review as well as the two phases of the market design task force. 637 MR. THOMPSON: Thank you. Mr. Andrews, I think I asked you to take, subject to check, the accuracy of the quotes from the company's RP-1999-0017 evidence contained in Exhibit C14.12 and I understand you've checked that; is that correct? 638 MR. ANDREWS: Yes, I have. 639 MR. THOMPSON: And is it accurate? 640 MR. ANDREWS: I just wanted to clarify a couple of things, Mr. Thompson. 641 MR. THOMPSON: Please. 642 MR. ANDREWS: Just noting a reference here to Exhibit B, again, this is an RP-1999-0017. In Exhibit B, tab 5, on page 8 of 18, we had indicated in this evidence that at Exhibit B, tab 1, section 1.67, that there are a number of systems and process changes required to implement unbundling. We also indicated that -- Union also has noted it's working on the development of a wholesale billing and customer information exchange system at the same time as developing and enhancing the above. 643 Two things I want to say about that. We had filed an update later on which indicated that we were not going to pursue the wholesale billing service. And also wanted to clarify, if I perhaps left -- left the impression that we have not spent any money. We had not spent any money on building any of the systems to facilitate the wholesale billing service and I didn't know whether I had left that impression. 644 MR. THOMPSON: Okay. Thank you. Now, I want to just come back to this question of the amount that you're showing in the deferral account. It's totalling in excess of $15 million. Mr. Warren was discussing that amount with you this morning; do you recall that? 645 MR. ANDREWS: Yes. 646 MR. THOMPSON: Okay. And we had an earlier discussion, Mr. Packer, that for industrial customers and as well as for Union's other distributor customers, they've had what I would call partially unbundled service available under the T1 and T3 rate schedule since the late 1980s, I think you told me? 647 MR. PACKER: That's correct, yes. 648 MR. THOMPSON: And is it fair to say that, whatever systems were in place, whatever system improvements that needed to be put in place to handle those services, were put in place and have been paid for long ago? 649 MR. PACKER: I think it's fair to say that the systems required to handle those services are in place, and have been -- the cost of which have been recovered through rates over time. 650 MR. THOMPSON: Thank you. And in addition to the availability to direct purchasers of service under the T1 and T3 rates, they also -- which is partially unbundled, they also can take a bundled service under the M series of rates; is that correct? 651 MR. PACKER: That's correct, yes. 652 MR. THOMPSON: And whatever systems were needed to accommodate that have been in place for some time? 653 MR. PACKER: That's correct, yes. 654 MR. THOMPSON: And so in moving -- and my colleague says, and paid for? 655 MR. PACKER: Yes. 656 MR. THOMPSON: All right. Thank you. In moving from the then -- and then the U2 series of rates, you've left the impression, it may be as a result of my questioning, that this has become very -- very much more complicated; is that correct? 657 MR. ANDREWS: The U2 service as opposed to, say, the bundled service? 658 MR. THOMPSON: Bundle M service or the T service. 659 MR. ANDREWS: Yes, it is. 660 MR. THOMPSON: And could you just explain for whom it has become more complicated. Is it the marketers that create the complications or is it some internal recording that -- that is creating the added complications? 661 MR. ANDREWS: Well, it's complicated by virtue of the fact that you have to account for the hundreds of thousands of small volume customers that are attached to those contracts. When I say you have to account for them, you still -- you need to know where -- where they're located. You need to know which direct purchase contract they're assigned to. You need to know which marketer they're assigned to and as they change from one marketer to another or they change from system to direct purchase. It's further complicated by the -- by the nomination process with respect to the unbundled service. I indicated earlier that we have to account for each one of those customers when we're doing those calculations. 662 MR. THOMPSON: Okay. In terms of the way it is now, for a marketer representing a group of customers served on M2, my understanding is that marketer provides Union with, in effect, the list of customers that it represents. Have I got that straight? 663 MR. ANDREWS: That's right. 664 MR. THOMPSON: Okay. And then that marketer makes one nomination for the group; is that right? That's based on some algorithms then kind of thing? 665 MR. ANDREWS: No. Actually there aren't any algorithms involved at all. The way the nomination works is we set, for each contract, what we call a DCQ, which is a Daily Contract Quantity, which is really based on the historical volumes for that contract, which are normalized for -- for normal weather. And we simply take that number for that contract and we divide by 365 and that's what the marketer has to deliver to Union Gas each and every day on behalf of that contract. But once they submit that at the beginning of the contract term or when they renew the contract, that nomination doesn't change throughout the year. 666 MR. THOMPSON: Okay. So it's a constant and being a constant, that doesn't create problems for Union internally: Is that -- have I got that right? I'm just trying to understand why -- how it works now compared to what's going to happen later. 667 MR. ANDREWS: That's right. No, it's a fairly straightforward process and in fact, for the bundled direct purchase contract, Union does most of the work as far as setting up the nominations. So we basically take the aggregate of all those contracts and we place the nomination on the upstream pipeline. 668 MR. THOMPSON: All right. And then moving to the unbundled regime, is it the fact that nominations have to be done daily, that creates these additional system requirements? 669 MR. ANDREWS: That's correct. This is very much like the storage and transportation world, which is a -- a daily world. So nominations must be placed every day. 670 MR. THOMPSON: And in this case it's by -- it's by the marketer now rather than being a nomination by default in the sense that the DCQ applies 365 days a year. The marketer will submit one each and every day for the portfolio; is that right? 671 MR. ANDREWS: Well, that's correct. But the marketer does not have the tools to determine what the next day's gas demand is going to be for each of those contracts. So, Union will do that calculation for the marketer and, in essence, will tell them: Here is the demand for next gas day, and what you need to do when you submit your nomination is tell us how you plan to source -- what sources of supply are going to meet that demand. And that has to be done each and every day. 672 MR. JACKSON: So the only marketer nomination you're talking about is the nomination to put into your system not a nomination on behalf of the customers to take something out? It's a nomination to put in you're talking about, is it? 673 MR. ANDREWS: No, Mr. Chairman. What they have to do with the nomination now, with the unbundled service is they have to basically tell us where the gas is going to be received at Union. And there are six receive points in the south, there are six delivery areas in the north. They also have to tell us, you have to nominate to the delivery and redelivery service in the north, to the extent that they're going to use the storage which is part of the unbundled service -- they actually have to nominate the injections into and injections out of the storage. So if they're going to deliver, let's say, 100 units and let's say they are -- next day's gas demand only requires 90, they have to tell us what they're going to do with the extra ten. Unlike today, we make all those decisions as part of the bundled service but now they have to make those decisions each and every day, and they can make those decisions more than once a day because the fact that they can have two cracks each day for the next gas day and two cracks each day for the current gas day. 674 MR. JACKSON: Would I be correct in saying, though, that the one thing they don't have to tell you is what the take will be at the individual service locations? Like you only metre that once a month, don't you? 675 MR. ANDREWS: That's correct, Mr. Chairman. And we will tell them what the next day's gas demand is. 676 MR. JACKSON: Okay. So that's the calculation: You do then for them and to the extent that that would have to ever be nominated or told to you, in the case of the small volume customers, that's something which you are still retaining responsibility for; is that correct. 677 MR. ANDREWS: That's correct. 678 MR. ANDREWS: Good. Thank you. And everything else about the services has to be told to you by the marketer; is that correct? 679 MR. ANDREWS: No, not -- not entirely. I mean they will continue to submit to us on a daily basis the names of those customers that they've signed up for -- to direct purchase. We take the numbers of customers into account when we're doing the daily calculation for the nomination, because that will impact the amount of the -- what we call the market required nomination, okay? So we have to take that into account each day and we will process adds and deletes or changes in customers to contracts each and every month. 680 So we will tell them the impact again as a result of these adds and deletes. 681 Now, it's entirely possible that our customers, about 12 per cent of our customers relocate or change addresses every year. So we will tell them, to the extent that their customers -- their customers have moved, have relocated, that may or may not be on the contracts. So again, it's a two-way exchange of information that enables us to continue to calculate that nomination for them. To the extent that -- there are what we call the DCQ changes, we'll let them know as well. 682 MR. JACKSON: Okay. So you're processing adds and deletes you said only monthly though; is that correct? 683 MR. ANDREWS: Well, we take the submissions on a daily basis, but they take effect at the end of the month. 684 MR. JACKSON: Okay, good. Sorry, Mr. Thompson, what I thought was one clarification turned into several. 685 MR. THOMPSON: No. Thanks very much for helping me out. 686 In terms of the big picture, Mr. Andrews, is it fair for me to suggest that what this further unbundling does is increase the number of parties that are involved in the management of the storage and upstream transportation assets? 687 MR. ANDREWS: Yes, it does. 688 MR. THOMPSON: And in theory, is that where the enhanced efficiency is to be found, by increasing the number of people managing these assets? The theory is greater efficiencies will be achieved? Is that the theory, from a competitive perspective? 689 MR. ANDREWS: Yeah. I don't know if it's increased efficiency or if it's just by virtue of the fact that marketers will have access to these assets, both upstream pipeline assets and storage. It gives them a great deal more flexibility to manage those assets as they see fit, which could in fact, I guess, be more efficient than Union if that's what you're suggesting. That may be the case. 690 MR. THOMPSON: Thank you. Fine. Let's move on, then, to the amounts here then of the -- of these systems enhancements. And in your response to C14.12, where we ask you a number of questions with respect to Exhibit C1.15, you've -- you describe in detail much of what you've described already in evidence about phase 1 of the system upgrade, if I can call it that, and then phase 2 of the system upgrade. And in the preamble to the question on C-14.12, page 1, on the first two lines, we made reference to an estimate that had been tabled in the RP-1999-0017 proceedings of $5 million. Do you recall that? 691 MR. ANDREWS: Yes, I do. 692 MR. THOMPSON: Okay. And can you just help us as to whether Union, in the 1999-0017 proceeding, or any prior proceedings, had clearly laid out the two-phased process and a total estimate of what this was going to cost? 693 MR. ANDREWS: Well, at the time we had to come up with the $5 million estimate, we had not done the work, the preliminary scoping work I guess to get a good understanding of how big this task was going to be. 694 MR. THOMPSON: So was it Union's expectation that 5 million was the total cost when it tabled the estimate? 695 MR. ANDREWS: No that was not our expectation that 5 million was going to be the total cost in comparison to the 15.7 million. It was at that time the preliminary estimate of what we thought was going to be, I guess, when we now consider the first phase. 696 MR. THOMPSON: All right. So what I'm trying to find out is just in point of time, when the phasing concept surfaced, had it surfaced in the RP-1999-0017 proceedings? 697 MR. ANDREWS: It's fair to say that during the first proceeding, we knew that there was going to be a second phase but we hadn't done the work to scope out the cost for that second phase. 698 MR. THOMPSON: What I'm trying to get at -- did you tell other parties there were going to be two phases? And if so, I just would like you to give me an evidence reference for that. 699 MR. PACKER: I think it would be helpful, Mr. Thompson, I think the ADR talks about -- this is the RP-1999-0017 ADR agreement, it talks about the fact that there is a second phase. We committed to filing the information in that second phase by the fall of 2000. I think it was evident at that point in time that there were two phases. 700 MR. THOMPSON: All right. There is a reference to the two phases in the ADR agreement? 701 MR. PACKER: I'm look at page 37 of the ADR agreement and there is a reference to -- the parties acknowledge that the necessity to address rates and services related to the --.all right, I'll slow down. 702 Looking at page 37 of the RP-1999-0017 ADR agreement, the second-last paragraph on that page talks about -- the parties acknowledge the necessity to address rates and services related to retail billing through a subsequent application in order to provide small volume, non-daily metered customers access to unbundled services. Union commits to filing this application by July 2000 and agrees to forego the consultation process originally contemplated in order to dispose of the application as soon as practicable to allow for the unbundled services of small volume market to be accessed as close to April 1st, 2001, as possible. 703 Having participated in that process, it was clear to me that there were two. 704 MR. THOMPSON: A two-phase concept appears to have been understood at that point in time. 705 MR. PACKER: Yes. 706 MR. THOMPSON: But how about the costs associated with it? The 5 million number I remember, and I seem to remember an update to 7 and a half million. But from my perspective, the 15 point whatever, eight, million came as a bit of a surprise when this application was filed. But I'm just trying to see if that's just me or whether you had actually tabled some forecasts of what this two-phased process was likely to cost? 707 MR. ANDREWS: No, we didn't table any forecast because we really hadn't sat down and done the detailed work on the scoping side of things. Once the -- once we got past the first phase and once we were waiting for the Board decision, again we were focusing on implementing the service potential to the industrial customers and we really didn't get -- we didn't get an opportunity to sit down and take, as I say, a good hard detailed look at what the costs of the second phase were going to be, until later. 708 MR. THOMPSON: If I can now take you to C14.12, and the questions we asked are with respect to Exhibit C1.15, where you classify the scope of work under the heading RP-1999-0017 with four categories that Mr. Warren, I think, was mentioning to you this morning, one is contract administration; one is daily gas management; one is billing REMs for unbundled storage; and one is IT infrastructure. And then under the heading RP-2000-0078, we have those same four topics plus an additional two. And we were -- we wanted you to give us particulars of the scope of the work under each of those topic headings with respect to each of the rate cases. And your response talks about phase 1 and phase 2, but it never really answered the specific questions that we asked of you, where our first question was: Describe the ambit of the work under each topic heading with specific reference to the contracts to be administered, the gas to be managed, the REMs to be billed and the IT infrastructure changes to be made. 709 Can you answer that question? What does the 7,500 cover in terms of those specific four categories of work? 710 MR. ANDREWS: I think I was probably having a bit of a difficult time understanding the question, but I think the frame -- to answer as best I can here, the way we organized the work as you see there, in terms of the various activities under the contract administration, daily gas management billing and IT infrastructure, it was on behalf of all REMs and all contracts and all gas managed by REMs. 711 MR. THOMPSON: Okay. 712 MR. ANDREWS: And again, because we required two cracks at this things, I mean, we did work in the first phase and we did work completed in the second phase. In order for us to have enough capability to offer the service to the large volume customers at the end of the first phase, again we had to build enough to do that and then we completed the work in the second phase. And it's fair to say -- and I think, as I indicated earlier, that all the work in the second phase was completely on behalf of the small market customer -- the small volume market. 713 So we did -- so we didn't divide the work in terms of -- well, we -- we filled half the REM contracts in phase 1 and half the REM contracts in phase 2. It's just that these are separate, discreet things we had to do for contract administration, daily gas management on behalf of all of the REM markets and contracts for customers and contracts. 714 MR. THOMPSON: Well, is there something in writing that would help us understand the scope -- you said something this morning that had you only done this more industrial customers -- I think maybe you said large volume customers, the cost would have been about $500,000. Did I understand that correctly? 715 MR. ANDREWS: Yes. And that's just -- that's just a best guess on my part because we designed this -- this system really with the REMs in mind because, given the complications that I've already talked about, but recognizing that you can leverage off of those -- those systems, to be able to offer the service to the industrials. 716 And the problem is or the challenge that I've got here is that we didn't separately engage to do this just for a large volume market. But had we done this just for that market. I -- I don't know exactly what approach we would have taken, but just given the relative simplicity of that service compared to the -- compared to the complications involved with the small volume market, I think it's fair it say that we wouldn't have spent nearly -- well, clearly not nearly as much money. So I ballparked it at around 400,000 or $500,000. 717 MR. THOMPSON: Well, what's the basis for the ballpark estimate? Is it based on number of customers? 718 MR. ANDREWS: No. It's just it's simply based on the fact that I think Mr. Packer had indicated earlier that we have a -- a semi-unbundled service now called T1. We have the electronic nominations system in place for the S and T customers, so I think looking at the functionality that was in place, we had to satisfy ourselves that we could just add on whatever little bit we needed to make the unbundled service work for the industrials. That might have been the approach we would have taken. 719 I mean it is just a hypothetical because we didn't do it that way. That's the problem I've got. 720 MR. THOMPSON: I understand it. But from my perspective, this is an important number and it -- it tends to support the allocation, the methodology that you've -- you're proposing. So if you can substantiate it in any way further, please do so, as to how the estimate is derived. We know there are a very small number of customers in the large volume category, even if you include the T3 and the M9 in that category. 721 MR. ANDREWS: Right. 722 MR. THOMPSON: So is the number customer-driven in any way, or is it scope-of-the-work driven? 723 MR. ANDREWS: It's level of effort. It's scope of work. If you think about the contract administration fees, all we would do for the industrials is we would -- as far as the billing is concerned, all we have to do -- or all we did do is basically make a few enhancements to our existing billing system. 724 MR. THOMPSON: Well, in coming back to your interrogatory and the point of departure C1.15, we have scope of the work in RP-1999-0017, contract administration, and it is the same topic for RP-2000-0078. Can you describe to us the difference between the two? 725 MR. ANDREWS: Well, I thought I had in my response to C14.12. 726 MR. THOMPSON: Well, maybe I missed it. But if you wouldn't mind repeating it on the record or telling me on the record, I think it would be helpful. 727 MR. ANDREWS: Looking at the response to C14.12, given the fact that we're building a web-based model, what we undertook to do with the first phase was to do some -- I guess lay the foundation, if you will. So that's where you saw most of the IT infrastructure cost. We talk about IT infrastructure cost, you're talking about hardware, software, network software, communication software. Basically, the stuff that supports the applications you're going to build on top of that, so that was kind of a foundation, kind of like building a house, I guess. So that was done in the first phase because without that you can't go any further. 728 As far as contract administration was concerned -- and again we're building this for the small volume market and the large volume market. The contract administration piece, we talked about just making some basic connections between the back office system. The back office system would be the contract admin system or the nomination system. The customers can't see that, they don't have direct access to that system. They're going to get access to those systems through the web interface that's the front office piece that I talked about. So, in the first phase you talk about making some of those very basic connections. That kind of refers back to what I said this morning about making sure we had enough basic functionality so at the end of the first phase we could be able to offer to the large volume customers. And that's the same for the daily gas management piece. 729 As far as the line item called "Billing REMs from Bundled Storage," again, really doesn't have anything to do at all with large volume market. Again, it's laying the basic foundation for the small volume market so, again, making those connections between the back office, making some changes to the back office, and then being able to move that information from back office to front office. 730 MR. THOMPSON: Okay. Well, the daily gas management amount in phase one was 1.6 million and in phase 2 was 1.9 million. Have I got that right? 731 MR. ANDREWS: That's correct. 732 MR. THOMPSON: And have you told me, then, the -- what is encompassed in each of those topics in terms of ambit of the work? 733 MR. ANDREWS: Well, the cost for the daily gas management in the phase 1 included things like adapting the new web based -- the platform for the electronic nominations. We had to facilitate the 22-day call-back feature, which is part of one of the features of the unbundled service. We basically worked on the tracking and the on-line presentment of the unbundled contract imbalances. So, again, that's what I was referring to earlier, about taking information back office to front office. 734 Incorporating the upstream transportation and storage allocations and to the existing nominations process and design -- system, rather. For the phase 2 part of the daily gas management, that's where we specifically get into all the complications involved with having to create the nomination on behalf of the marketer. So, for example, doing the development of the daily algorithm. Again, the calculation and on-line presentment of the daily weather true-up. The monthly actual consumption true-up reporting enhancements, nomination enhancements, and then finally the inclusion of the actual U2 service and the S1 service. 735 MR. THOMPSON: And then there's this category "Billing REMs for Unbundled Storage", phase 1 was 2.4 million and then phase 2 is 2.3 million. Could you just explain to us the difference between the scope of the work in each of those phases? 736 MR. ANDREWS: In the first phase we focused on, again, on-line presentment of daily consumption, the nominated deliveries, the billing of the unbundled charges for the gas marketers. And, again, making those connections, those basic connections between the back office and the front office. And in the second phase, we talked about on-line presentment of the DP -- the direct purchase status reports, the on-line remittance details, the on-line daily consumption and, again, the inclusion of the U2 and the S1 rate orders. 737 MR. THOMPSON: The IT infrastructure in phase 1 was a large number, 2.7 million, and then a smaller number in phase 2, 500,000? 738 MR. ANDREWS: That's correct. 739 MR. THOMPSON: Have you covered that in your description that you gave me already, or if not, please explain the difference. 740 MR. ANDREWS: Well, I think the difference was, again, we had scoped -- when we initially scoped this out into two phases, we didn't know whether or not we would have to do any additional -- or make any additional enhancements or expenditures with respect to the infrastructure. So, it wasn't until we got to the second phase when we realized we had to make a few additional modest enhancements pretty much along the same lines as I had described with respect to the first phase. Again, getting back to hardware, software, network software, communications software and things like that. 741 MR. THOMPSON: The additional two items in the second phase are "Disaggregation for Presenting Storage Charges," 400,000. Is that with respect to the U2 rate schedule? 742 MR. THOMPSON: And then there's a topic, "Electronic Transfer for Split Billing". Could you just explain was what that's all about? 743 MR. ANDREWS: Excuse me, Mr. Thompson, Mr. Packer just reminded me that that desegregation act takes place on the M2 rate schedule not the U2 rate schedule, but it does pertain or is driven by the unbundled service. Sorry about that. 744 MR. THOMPSON: Sorry. Well, I put the words into your mouth, so, no need to apologize. 745 The electronic transfer for split billing, what's that all about? 746 MR. ANDREWS: Be able to bill for the services that they provide. Here it's called split billing, but I think it's been referenced as direct billing elsewhere. So, it's to provide them the daily volumes so that they can take those volumes and they can either do the calculations and put them on their own bills. 747 MR. THOMPSON: Okay. Now, in terms of what other costs might be in here, we asked you question C14.13, we asked whether any cost that Union has incurred or will incur pertaining to participation in the GDAR process, found their way into any of these accounts, and the answer, as I understand it, is no? 748 MR. ANDREWS: That is correct. 749 MR. THOMPSON: We also asked whether any costs pertaining to Union's resistance to marketer consolidated billing were recorded in this account, and I don't think we got an answer to that question. 750 MR. ANDREWS: Yeah. Perhaps to clarify, none of the costs associated -- that you see on C1.15, the $15.7 million, have anything to do with the GDAR process or, as you call it, our resistance to market consolidated billing. 751 MR. THOMPSON: Okay. So all of the evidence in this proceeding from -- I think it was Dr. Schwindt and perhaps others on that topic, has not found its way into these numbers? 752 MR. ANDREWS: Absolutely not. 753 MR. THOMPSON: Now, in terms of the take-up of direct purchase in your franchise area, which goes to, I guess, the customer choice for unbundled commodity services and perhaps unbundled services generally, we asked you a question about the increase in numbers of direct purchasers, 99 to 2001, and that, I think you provided to us, in Exhibit C14.11. Is that correct? 754 MR. ANDREWS: That's correct. 755 MR. THOMPSON: And that appears to be showing that the total numbers of customers on direct purchase from 1999 of 364,923 has increased to 509,953; is that correct? 756 MR. ANDREWS: That's correct. 757 MR. THOMPSON: And is that trend continuing, the trend towards direct purchase? 758 MR. ANDREWS: It's actually quite difficult for us to, I guess, trend this. For a long period of time we saw an ebb and flow of customers returning to system, customers going from system to DP. I was keeping the number fairly steady and then we saw an increase. I don't know whether this is going to be a prolonged increase or not and I don't have a good way to, quite frankly, forecast this. 759 MR. THOMPSON: You indicated to Mr. Warren, -- and I think it's in -- also in an interrogatory response somewhere, that the -- in the small customer rate classes, about 60 per cent remain on system and about 40 per cent have gone to direct purchase. Is that system wide or is that just Union south? Mr. Packer? 760 MR. PACKER: I don't have the reference before me but my understanding is that that trend is system wide though it's a little different in the north and the south. 761 MR. THOMPSON: And in terms of the interest in unbundled service, in an answer to one of VECC's interrogatories, it's in this package and I made a note of it, just give me a moment. I think it's C22.41. You indicated that Union continues to receive strong and ongoing expression of interest for the unbundled services from its customers, including the largest marketer in its franchise. Can you identify that marketer? 762 MR. ANDREWS: Direct Energy. 763 MR. THOMPSON: Now, in terms of my last question, is in terms of the impact of TransCanada's initiative with respect to a new business model. Mr. Warren was asking you some questions about that this morning. I think, Mr. Packer, you may have indicated you were aware of it? 764 MR. PACKER: Yes, that was my response. 765 MR. THOMPSON: Can you help us with when that initiative was tabled? 766 MR. PACKER: I don't know the exact date but it was within the last few months. 767 MR. THOMPSON: And was that known before you embarked on these processes that you've described in this evidence in this proceeding? 768 MR. PACKER: The exact details of what they tabled was not known, but I think we've known for some time that TransCanada was looking at different ways of providing services on their system. 769 MR. THOMPSON: Did Union give any consideration to deferring any of these expenditures that it was incurring in 19 -- well, in 2000 and 2001, in the light of the prospects that -- the business model for TransCanada might change? 770 MR. ANDREWS: No, we didn't give it any consideration. And I guess I personally was not all that aware of it but I can't imagine what would turn on that. 771 MR. THOMPSON: Well, I suppose what might turn on it is people may be hesitant to unbundle without knowing what they're getting from TransCanada. 772 MR. ANDREWS: Well, you can unbundle without knowing what you're getting from TransCanada. 773 MR. THOMPSON: I know you can, but whether the uncertainty to -- with respect to TransCanada affects them or not is something that will remain to be -- to be seen. 774 In terms of where we are today and the systems that have been improved, have they been tested? Are they ready to go? 775 MR. ANDREWS: The system enhancements required to offer the above service to the small volume market have not been fully tested yet. We're still in the final stages of completing the work as -- as I had indicated before. 776 MR. THOMPSON: So when is the -- when are the services expected to be ready? 777 MR. ANDREWS: No, we didn't give it any consideration. I guess I personally was not all that aware of it, but I can't imagine what would turn on that. 778 MR. THOMPSON: Well, I suppose what might turn on it is people may be hesitant to unbundle without knowing what they're getting from TransCanada. 779 MR. ANDREWS: Well, you can unbundle without knowing what you're getting from TransCanada. 780 MR. THOMPSON: I know you can, but whether the uncertainty as to -- with respect to TransCanada affects them or not is something that will remain to be seen. 781 In terms of where we are today and the systems that have been improved, have they been tested? Are they ready to go? 782 MR. ANDREWS: The system enhancements required to offer the above service to the small volume market have not been fully tested yet. We're still in the final stages of completing the work, as I had indicated before. 783 MR. THOMPSON: So when is the -- when are the services expected to be ready? 784 MR. ANDREWS: Well, we certainly need a Board decision I guess before we roll it out. But from a -- from the build standpoint and implementation standpoint, we have targeted somewhere between April 1st and May 1st to be able to roll this out on a pilot basis, a test basis with our customers. Our customers have asked to participate in order to test these systems on a simulated basis. 785 MR. THOMPSON: Well, should -- I guess the question is should you be able to recover these costs in the rates before we know if all of this is going to work? 786 MR. ANDREWS: I'm very confident it's going to work because when you go back to last fall when we made the service available to the large volume customers, we went through a similar exercise. We had some customers come in, test drive the new systems and it worked very well. We have every reason to believe that these will work just as effectively as happened in the fall. 787 MR. THOMPSON: Okay. I understood your evidence to Mr. Warren, though, in terms of spending the money, it's virtually all spent, the $15.8 million. It's not -- there's not anything left in the kitty; is that right? 788 MR. ANDREWS: I do have an undertaking to provide an update on what has been spent to date, but a large proportion has been, yes. 789 MR. THOMPSON: Thank you very much. Those are my questions. 790 MR. JACKSON: Thank you, Mr. Thompson. Who is intending to go next? Mr. Vegh? 791 MR. VEGH: I believe that would be me, sir. 792 MR. JACKSON: Thank you. 793 CROSS-EXAMINATION BY MR. VEGH: 794 MR. VEGH: Good afternoon, Panel. Just the materials together, I provided your counsel this morning with a document called "Book of Materials", CEED Reference for Cross-Examination, Panel 1, and I provided copies to Board staff as well for Board staff to provide to the Panel -- I don't know if you have yours yet. 795 MR. JACKSON: Yes we do, Mr. Vegh. 796 MR. VEGH: Thank you. And, Panel, I'll be referring to the materials in this book as well as your pre-filed evidence, and later on I'll also make a reference to the settlement agreement so you may want to have all of these handy. 797 MR. MORAN: Mr. Chair, shall we mark this as an exhibit? 798 MR. JACKSON: Yes. I think to keep track of it that would be a good idea. 799 MR. MORAN: F1.2. 800 MR. JACKSON: Thank you. 801 MR. MORAN: Book of materials filed by CEED. 802 EXHIBIT NO. F1.2 BOOK OF MATERIALS FILED BY CEED 803 MR. VEGH: Thank you Mr. Moran. 804 And, Panel, I'll be confining my questions to two issues on the issues list. The first will be issue 3, that's the issue that we -- we've gone over today already, and I'll also be asking some questions around issue 1, the load balancing flexibility cost. But I am going to start with issue 3. And just for the record, Panel of Witnesses, my client, CEED, is a coalition of retail and wholesale energy marketers, and, for the record, and for full disclosure, CEED does endorse the position that Union has put forward in this application, that customers as a whole will benefit from the opportunity to purchase wholesale services as an alternative to Union's bundled services, and that the cost of providing access to these alternatives should be shared in by all customers in the same way as the cost of providing access to commodity markets is shared in by all customers and the cost of open access in electricity will be shared by all customers. 805 I would like to start, Panel, by getting a better understanding of some of the issues that we've been talking about on a more practical basis. There have been a lot of questions this morning and this afternoon about unbundling and it strikes me that we may not yet have clearly defined what that term means on the record, yet. And in order to ensure that everyone in the room has the same understanding of what is meant by unbundling, I would like to ask you some questions about unbundling generally, and then the specific services approved by the Board in 1999-17, and then I would like to link that to, to get some clarification on how the costs that you were seeking recovery for relate to those services. 806 And so I would like to start with addressing unbundling generally and the way I would like to approach this is to compare the alternatives that unbundling makes available to the current status quo. 807 You were asked some questions this morning from Mr. Warren about whether a residential small volume customer may access unbundled services directly or whether these services had to be accessed through a marketer, and I believe you said that these services had to be access through a marketer. Can you just tell me first, were you speaking about this as a theoretical matter or just as a practical matter, these services had to be access through a marketer? 808 MR. ANDREWS: I was actually, when I was thinking about the answer, I was just thinking about the practical aspects of that situation. I mean technically, my mother could, if she wanted to, I guess, try to, I guess, avail -- get access to the unbundled service. But then she would have to basically do the contract -- you know, work with the contract administration and nominations and other things and obviously that's not a very practical situation. So, as a practical matter, they go through retailers and marketers, but technically there is nothing stopping them from trying to do it. 809 MR. VEGH: Okay, and is that also true for bundled direct-purchase services; that is, can a residential customer in theory purchase direct -- in theory, acquire gas supply on a bundled direct purchase arrangement, though in practice it makes more sense for that service to be purchased through a marketer? 810 MR. ANDREWS: Yeah, in theory, that would still hold true for the bundled service. 811 MR. VEGH: As a practical matter, a residential customer who purchases direct purchase will do that to through a marketer? 812 MR. ANDREWS: That's correct. 813 MR. VEGH: So nothing changes as a result of unbundling in that regard? 814 MR. ANDREWS: That's correct. 815 MR. JACKSON: Mr. Vegh. 816 MR. VEGH: Yes? 817 MR. JACKSON: Remind me, just interrupting, in asking whether the rate schedules as currently worded permit what you just described, or were you saying whether you say in theory, do you mean that you wouldn't have to change any of the applicability clauses or anything and rate schedules, too? 818 MR. ANDREWS: I was confirming with Mr. Packer before I gave an answer and I think the answer is no, but I think we may have it right here. I don't think there are any restrictions but. 819 MR. VEGH: I didn't think there were any restrictions either, but there is -- I'm checking -- I'm looking at the rate O1 eligibility criteria which is the general service rate class in the north and it talks about any customers in Union's Fort Frances western, northern or eastern zones who is an end-user or authorized to serve an end-user, but I don't think there is a restriction, at least in that particular rate schedule. 820 MR. JACKSON: Thank you for checking that. 821 MR. VEGH: Thank you, sir. So just a recap. From that perspective, nothing turns on whether the service is bundle or unbundled. In both cases, a practical matter, a residential customer will purchase it from a marketer. 822 MR. ANDREWS: That's true -- that's correct. 823 MR. VEGH: Under the current model, then, which is the bundled service model for residential customers, I take it that how this actually work is that the option that is available to a customer is to retain a marketer to -- to acquire gas supply from sources available in the market and then the marketer delivers that gas to Union. Is that how it works? 824 MR. ANDREWS: I think what I would say is that the market -- just perhaps being fussy on the wording, the marketer arranges for Union Gas to deliver the gas to the customer. 825 MR. VEGH: Well, the marketer delivers the gas to Union, then Union re-delivers that gas. 826 Let me put it this way: The marketer delivers that gas to Union and Union arranges the re-deliver of that gas to the customer? 827 MR. ANDREWS: The marketer -- yes, the marketer delivers the gas to Union. The marketer arranges with Union to have the gas physically distributed to the customer. 828 MR. VEGH: And the marketer's obligation to deliver the gas to Union, that obligation is based on an average daily volume requirement that you talked about? 829 MR. ANDREWS: Yes it is. 830 MR. VEGH: So the way you -- the way you determine that average daily volume is you take a forecast of the customer's annual consumption, divide that amount by 365, and you produce a daily delivery requirement for the marketer; is that right so far? 831 MR. ANDREWS: That's correct. But I just want to clarify that that forecast you talk about, though, is really nothing more than the last 12 months of actuals, weather normalized. 832 MR. VEGH: Right. So the marketer's obligation is to deliver the same amount of gas to Union every day, and of course customers do not consume the same amount of gas every day. So then throughout the course of the year, there will be an imbalance between the amount of gas delivered by the marketer to Union and the amount of gas delivered by Union to the customer; right? 833 MR. ANDREWS: That's right. 834 MR. VEGH: And the plan is supposed to be that at the end of the year, the amount delivered to Union should be in balance with the amount redelivered by Union to the customer, but during the course of the year there is likely to be an imbalance at any given time? 835 MR. ANDREWS: That's correct. And I just want to point out that the current bundled contract does have the plus/minus 4 per cent variance in terms of the annual balance requirement but that is substantially correct. 836 MR. VEGH: And so the bundled delivery service that Union offers is effectively to manage that imbalance between the amount delivered on a daily basis -- sorry, the amount delivered every day and the amount consumed every day? 837 MR. ANDREWS: Yeah, on an annual basis. Yes, correct. 838 MR. VEGH: Whether we say the delivery service is bundled, that's what we mean: It's a combination of the load balancing we've just been talking about and pure delivery; is that right? That's what we mean by bundled service? 839 MR. PACKER: Well, what we mean by bundled service is, in theory, two or more components which could be separated, but are put together for purposes of billing. 840 MR. VEGH: But the bundled delivery service that's available to small volume customers today is this combination -- what's bundled is the load balancing that we've talked about and the delivery. 841 MR. PACKER: And storage. More predominantly the issue at hand is storage. 842 MR. VEGH: Storage assets used to provide the load balancing; right? 843 MR. PACKER: Right. That's right. 844 MR. VEGH: Right. And that is really the extent of the options available to the small volume customers today, to purchase this bundled delivery service through a marketer or to be on system gas; is that right? 845 MR. PACKER: Yes. 846 MR. VEGH: Okay, now with that -- let's turn if we could to unbundling and I have a description of what that means. And the main difference, as understand it, is that under the bundled service, the marketer's daily delivery obligation is the daily average amount that we've talked about, but with unbundling, the marketer's daily delivery obligation is the amount of gas that Union forecasts that the customer will actually consume the next day. Is that right? 847 MR. PACKER: The obligation of the marketer is to balance all supply which would include upstream deliveries and storage with the demand, with the demand that we've identified has to be served. 848 MR. VEGH: But the basic idea is that the marketer delivers as much gas to Union every day as it expects the customers will consume on a daily basis. 849 MR. PACKER: I accept the demand and supply has to be balanced. I guess just want to make sure that it's clear that that's -- the supply is coming from two sources and it could come from storage and could come from upstream arrangement. 850 MR. VEGH: Or it could come from spot-gas, presumably. 851 MR. PACKER: Right. 852 MR. VEGH: So whatever the source requirement is, the balancing obligation is to deliver the amount every day that it's expected that the customer will consume that day? 853 MR. ANDREWS: Yeah, that's correct. 854 MR. VEGH: And so the option that unbundling provides to the customer are the options really that would be available to a marketer to provide a daily delivery service to Union in a manner which is less expensive than the current bundled service that Union provides to the marketer? Is that right? 855 MR. PACKER: Would you repeat that, please? 856 MR. VEGH: The option that the unbundled service provides to the customer is the option that is available to the marketer to provide delivery of gas to Union on a daily basis in a manner which is less expensive than the current bundled delivery service. 857 MR. PACKER: The difficulty I'm having with your question is it assumes that the unbundled service is cheaper and I can't make any -- I can't say whether that's true or not. 858 MR. VEGH: Okay. I'll clarify then. The marketer has the opportunity to try to find a cheaper series of supply and assets than what is available under the bundled service. 859 MR. PACKER: They have that option, yes. 860 MR. VEGH: And to the extent the marketer can take advantage of that opportunity, then the customer will have an alternative that's more attractive than the bundled service alternative? 861 MR. PACKER: I guess that would depend on the arrangements the marketer has with the unused consumer but that is a potential outcome, yes. 862 MR. VEGH: So we're looking at what options will be available to a marketer, then, to provide this service in a way which is more attractive. And just from what we've gone through, the job changes, in a sense, for the marketer under the unbundling regime because the marketer will now have to manage a daily instead of annual portfolio of supply, transportation and storage; is that right? 863 MR. ANDREWS: Yes. There certainly is a shift -- there certainly is a greater responsibility on the part of the marketer to have to manage those assets on a daily basis, yes. 864 MR. VEGH: And so the marketer will have to, in effect, internalize some daily gas management costs which make up these costs of these assets or managing these assets on a daily basis as opposed to an annual? 865 MR. ANDREWS: Well, there -- there are certainly costs associated with that, Mr. Vegh, I just don't know whether or not they're greater or lesser than what they're currently incurring, whether they internalize or hire somebody to do it. But there are certainly costs involved. 866 MR. VEGH: Fair enough. And then to get back to the Union service that we're talking about with the unbundled service, is that the marketer will have to communicate balancing need with Union now on a daily basis, at least a daily basis, perhaps more than a daily basis under the unbundled service; right? 867 MR. ANDREWS: I'm just not quite sure when you say they're going to communicate to us balancing needs. We're going to communicate to them what their market demand is for the next day. They're going to communicate to us how they're going to meet that demand and that could be communicated more than once a day. 868 MR. VEGH: Right. And the fact that this is now being done on a daily basis as opposed to an annual basis is what leads to the increased number of transactions that you were walking through with Mr. Thompson? 869 MR. ANDREWS: That's right. 870 MR. VEGH: And that's discussed in your evidence, I believe, at Exhibit B, tab 2, pages 10 to 11; is that right? That's the daily gas management process? 871 MR. ANDREWS: That's right. 872 MR. VEGH: And when I go over to page 12 of your pre-filed evidence -- do you have that? 873 MR. ANDREWS: Yes, I do. 874 MR. VEGH: And I just wanted to confirm, at page 12 we have table 1, which sets out the cost -- the system cost relating to daily gas management at 1.8 million. I know that number has been updated in Exhibit C1.15. But when we talk about the costs resulting from these transactions, it's -- that's the category that's captured in the daily manage -- daily gas management? 875 MR. ANDREWS: Yes, it is. 876 MR. VEGH: Okay, thank you. 877 Now, I would like to move, then, from this general discussion of unbundling to a discussion about some of the services that Union will actually be providing now as a result of the decision from 1999-0017, and that decision effectively directs an allocation of transportation and storage and I would like to look at each of those separately. 878 So first, I would like to address with you the method of transportation -- I'm sorry, method of allocation of transportation. And for this discussion, I will be referring to some of the materials in the book of materials, so you might want to have that handy, starting at page 83. 879 And I want to make sure that we have a clear understanding of this transportation allocation and its proper context. As I understand it, historically there have been two methods of allocating transportation to direct purchase customers. One method was a hundred per cent TCPL capacity and the second method was the vertical slice. I would like to look at each of those methods separately. 880 First, on the hundred per cent TCPL firm capacity methodology, as I understand how that system worked, when a customer transferred from system gas to direct purchase, Union would allocate that customer's corresponding daily transportation requirement -- requirement that we were just going through for bundled services, that requirement would be allocated directly to the marketer and the transportation allocation would be entirely supported by TransCanada firm capacity; is that right? 881 MR. ANDREWS: Yes, that's correct. 882 MR. VEGH: And what this means is that under that methodology, the marketer used its allocation of TransCanada capacity to deliver the same amount of gas every day to Union, and Union would effectively redeliver that gas to a customer as the customer consumed it under the bundled delivery service that we talked about? 883 MR. ANDREWS: That's correct. 884 MR. VEGH: And this methodology was endorsed by the Board in 493-494; right? 885 MR. PACKER: I believe so, yes. 886 MR. VEGH: Yes. And in that case, 493-494, Union had proposed replacing this hundred per cent TCPL methodology with a new methodology that it called the displacement policy; right? 887 MR. PACKER: That's taking us back a few years. I accept the fact that we had proposed another allocation methodology. The specific term we refer to it as, I can't confirm. 888 MR. VEGH: Okay. Well, fair enough. 889 I would like to take you to how Mr. Baker described the displacement policy in the RP-1999-0017 case, because that leads into what I think is the current methodology. So if you could turn, please, to page 84 of the book of materials that I provided. This is Mr. Baker's evidence in chief in the unbundling case, and I would like to start with the reference to his testimony at line 23, where Mr. Penny asks him: "MR. PENNY: How does Union propose to allocate upstream transportation in the future to facilitate new direct purchase for both bundled and unbundled customers?" And Mr. Baker says: "MR. BAKER: The issue of the approach to allocating upstream transportation capacity is not tied solely to unbundling but irrespective, Union is proposing to continue allocating capacity on a mandatory basis but move to a vertical slice approach to allocating this capacity prospectively to customers electing direct purchase. What the vertical slice simply means is that it is a pro rata allocation of all of the transportation components that are in Union's portfolio at a point in time. So as noted, it does not represent a change from the existing direct purchase displacement methodology which allocates or assigns 100 per cent TCPL firm transportation." 890 Do you agree with that description of the vertical slice methodology and how it compares to the hundred per cent TCPL methodology? 891 MS. JACKSON: Mr. Vegh, I think you inserted a "not" that didn't belong there. I'm sure unintentionally. 892 MR. VEGH: Where did I do that? 893 MS. JACKSON: You said, "It does not represent a change". Line 9. 894 MR. VEGH: Right, it does represent a change. Sorry about that. So you agree with that description? 895 MR. ANDREWS: Yes, I do. 896 MR. VEGH: And then going down to line 22 on the same page, page 85, Mr. Penny says: "MR. PENNY: So why has Union proposed a vertical slice approach as opposed to the existing hundred per cent TCPL firm direct purchase displacement methodology?" And Mr. Baker's response is: "MR. BAKER: Union's proposed moving away from moving to the vertical slice approach, given that from a practical perspective, Union has very little TCPL firm capacity left in its remaining system gas portfolio. And this has resulted primarily from continuing to facilitate new direct purchase using TCPL FT capacity only as Union was directed by the Board in 493-494 in capacity that was turned back to TCPL under the turn-back policy." 897 He goes on: "So at any reasonable rate of continued direct purchase facilitation Union will run out of TCPL FT capacity and, therefore, a new allocation methodology or approach is required. And I would note that this is an issue that would have had to have been addressed irrespective of Union's unbundling proposal. What I mean there specifically is that we would need a new methodology simply to continue facilitating new bundled direct purchase that is in place today." 898 Do you agree with that description? 899 MR. ANDREWS: Yes, I do. 900 MR. VEGH: So the vertical slice proposal which was put forward by the Board -- sorry, put forward by Union in 1999-17 and which was approved by the Board in 1999-17, was largely similar to the displacement policy that Union had proposed in 493-494; is that right? 901 MS. JACKSON: Well, Mr. Vegh, in fairness, the witness indicated he couldn't speak to what the specific proposal was in that hearing a number of years ago. So I don't know how he could then compare it to something he doesn't remember -- doesn't know. 902 MR. VEGH: Let me put it this way: The vertical slice put forward -- proposal put forward by Union was put forward on the basis that Union was running out of TCPL FT capacity and could no longer facilitate direct bundled direct purchase with that capacity? 903 MR. ANDREWS: That's correct. 904 MR. VEGH: And so how does vertical slice works then -- or what the proposal was, in a nutshell, was that when a customer transfers from a system gas to direct purchase, they're allocated transportation as they were under the old methodology, but instead of being allocated a hundred per cent TCPL, FT, they are allocated a proportionate share of Union's entire portfolio. Is that right? 905 MR. ANDREWS: That's right. 906 MR. VEGH: And the basis for that, put forward in 1999-0017, was that this methodology was needed to facilitate bundled direct purchase, and without the new vertical slice transportation allocation, Union could not facilitate bundled direct purchase; isn't that right? 907 MR. ANDREWS: That is right. 908 MR. VEGH: And if you go forward to page 95 of the book-- page 1266 of the transcript. At line 6 I asked Mr. Baker a question about the transfer of customers to the vertical slice and Mr. Baker says: "The vertical -- the vertical slice applies prospectively to existing system customers that then elect a direct purchase option. It is not specific to be clear, to just unbundled customers. This is a methodology. We are no retracting the bundled direct purchase option which exists today. Prospectively, whether customers elect either a bundled direct purchase option or unbundled direct purchase option through a marketer the vertical slice methodology would apply. 909 Do you agree with that? 910 MR. ANDREWS: I agree with that. 911 MR. VEGH: And so, I don't want to belabour this point too much, but if you turn to page. 912 MS. JACKSON: May be a little late for that. I apologize, Mr. Chair, and I apologize, Mr. Baker. 913 MR. VEGH: I keep sending you these balloons and you keep hitting them out. 914 Page 99 of the book of materials have an excerpt from your counsel's reply argument in that case and -- 915 MS. JACKSON: Sorry, which page are we at? 916 MR. VEGH: 99. 917 MS. JACKSON: 99. I apologize. 918 MR. VEGH: And your counsel is -- or your -- Union's argument here is addressing the vertical slice and it reads in the middle of the page: "Irrespective of Union's unbundling proposals, the change in the existing allocation approach of a hundred per cent TCPL FT is required to facilitate new bundled direct purchase agreements." And it goes on, "Union has proposed to facilitate the future movement of system customers to direct purchase, i.e., both bundled and unbundled to a mandatory vertical slice of its upstream transportation portfolio. The vertical slice includes a pro-rata allocation of all components of upstream transportation capacity portfolio, including any spot supplies. This approach would be applied prospectively to all customers and moved from system sales to direct purchase, whether they moved to the existing bundled or the new unbundled service." 919 And so again, in the unbundling proceeding, and even before the unbundling proceeding, if we can go back to 493, 494, to the vertical slice was proposed as a necessary means to use non-TCPL capacity to facilitate direct purchase. Do you agree with that? 920 MR. ANDREWS: It sounds like some form of the vertical slice was proposed in that earlier proceeding, but my understanding is that it was not approved in that proceeding. It was approved in a more receipt proceeding, RP-1999-0017. 921 MR. VEGH: Yes. And even while that -- and just on that point, while that decision was pending, Union actually did run out of its firm TCPL capacity, didn't it? 922 MR. ANDREWS: Yes, we did. 923 MR. VEGH: And in a letter to the Board dated June 7th -- I won't take you to the letter and read it to you -- but it's included in the book at page 102. This is June the 2nd letter, Union advised the Board that it was running out of TCPL capacity, and without a new methodology for allocating transportation, Union could not facilitate any new direct purchase. Do you recall that, that event, that is, running out of capacity and advising the Board that -- without a new method for allocating transaction, Union could not facilitate direct purchase. 924 MR. ANDREWS: Yes, I do recall that. 925 MR. VEGH: So, from aback, when we look at the issue of the transportation allocation and how that was addressed in 1999-0017, the issue there was how to address capacity to all direct purchase customers whether bundled customers or unbundled customers; isn't that right? 926 MR. ANDREWS: That is right. 927 MR. VEGH: And in fact following the Board's decision in the unbundling case in 1999-17 Union has in fact been allocating capacity on a vertical slice basis for marketers to serve customers who went on direct purchase effective November 1, 2001; isn't that correct? 928 MR. ANDREWS: That would be correct. 929 MR. VEGH: Now, these marketers then, who received the vertical slice allocation of transportation, these marketers face the same delivery obligations under the vertical slice as they did under the hundred -- hundred per cent TCPL methodology; right? They had to make the daily deliveries based on a daily average volume and Union provided the load balancing and redeliver. Is that right? 930 MR. ANDREWS: That's right. 931 MR. VEGH: And if no customer ever takes up the unbundled service, the delivery obligations on marketers brought about by the vertical slice would not be impacted at all, would it? 932 MR. ANDREWS: That's right. 933 MR. VEGH: Now, before we leave the bundling decision, the one issue -- another issue I would like to address is that -- is the controversial issue that went to the Board, which was whether this allocation of transportation would be provided on a mandatory basis or an optional basis. Do you remember that issue? 934 MR. ANDREWS: I do have some recall of that. 935 MR. VEGH: You may recall that the retail and wholesale marketers that I represented, CEED in that case, supported an optional allocation, and Union supported a mandatory allocation. Do you recall that? 936 MR. ANDREWS: Yes I do. 937 MR. VEGH: And the small customer groups, the CAC and VECC, they both supported mandatory allocation as well, didn't they? 938 MR. ANDREWS: I believe they did. 939 MR. VEGH: So in other words, CAC and VECC got the transportation allocation they asked for and the REMs at least in CEED did not get the transportation allocation that they asked for; Is that fair? 940 MR. ANDREWS: That's fair. 941 MR. VEGH: And the reason that Union and its supporters, being CAC and VECC, and others, relied upon in favour of the mandatory allocation was that an optional allocation could lead to stranded costs. Do you remember that? 942 MR. ANDREWS: Yes, I do recall that there were concerns about stranded costs. 943 MR. VEGH: And I won't take you to it, but Mr. Baker went so far in the evidence as to say the mandatory allocation was a stranded cost avoidance strategy, and just for your reference I'll -- the reference is to page 106 of the book of materials. And the argument there, then, with respect to the stranded costs, is that a mandatory allocation is for the benefit of ratepayers because it would avoid stranded costs; isn't that right? 944 MR. ANDREWS: Yes, I do recall that argument. 945 MR. VEGH: So then isn't it fair to say that to the extent that all distribution customers benefit from the availability of the direct purchase option and to the extent that all distribution customers benefit from the mandatory nature of the vertical slice -- because it avoids stranded costs -- and at the very least to that extent, regardless of the other arguments, all customers benefit from the systems necessary to implement and manage the vertical slice? 946 MR. ANDREWS: That's correct. 947 MR. VEGH: And to put that another way, even apart from all of the other arguments that Union has put forward to support the position that all customers benefit from the option of unbundled services, should it not also follow that it's inappropriate to allocate the costs of managing transportation allocation to unbundled customers because really those costs are not uniquely attributed to unbundled customers at all? 948 MS. JACKSON: Is that in relation to the vertical slice? 949 MR. VEGH: The transportation allocations under the vertical slice. 950 MR. ANDREWS: Well, my response to that, Mr. Vegh, is that in order to facilitate off the unbundled service, we do have to put in place the methodology that requires the vertical slice no matter what. 951 MR. VEGH: Would you have to have the vertical slice even if you never offered the under unbundled service; isn't that right? 952 MR. ANDREWS: That's true. I don't disagree with that. 953 MR. VEGH: Is there a cost to administering the vertical slice? 954 MR. ANDREWS: Yes, there is a cost to administering the vertical slice. 955 MR. VEGH: And if you could turn please to your pre-filed evidence, Exhibit B tab 2, page 8, the only reason I refer to this is the cost of administering transportation capacity is set out at page 8 lines 4 to 15 and it's under the heading contract administration process. But I don't believe that the costs of contract administration are broken out between the costs of managing the vertical slice and the other costs that go into contract administration? 956 MR. ANDREWS: I think we need to clarify something here, Mr. Vegh. My evidence doesn't really talk about the costs of administering these services. My evidence speaks to the cost to build the systems, to provide the unbundled service. 957 MR. VEGH: Yes, yes, but the -- there are system costs that are necessary to manage the transportation allocations brought about by the mandatory vertical slice; isn't that right? 958 MR. ANDREWS: That's right. 959 MR. VEGH: So where do we find those system costs? 960 MR. ANDREWS: They would be part of the contract administration costs. 961 MR. VEGH: Right. And can you estimate how much of the contract administration costs are attributable to managing the vertical slice? 962 MR. ANDREWS: $60,000. 963 MR. VEGH: $60,000? 964 MR. ANDREWS: That's correct. 965 MR. VEGH: And where is that broken out? 966 MR. ANDREWS: It isn't. 967 MR. VEGH: Could you provide a break-out of the different costs that go into the contract administration? 968 MR. ANDREWS: I would have to undertake to try to do that. 969 MR. VEGH: Well, thank you. I'll take that undertaking. You are able to provide the $60,000 figure off the top of your head, so I assumed there was some breakdown of the other components as well. 970 MR. ANDREWS: Well, there is a very good reason why it's at the top of my head is because we're waiting for the decision back in summer of 2000, and the last component -- the last piece of the puzzle, if you will, flowing out of the ADR was what specific upstream allocation methodology we were going to have to implement. And so getting ready to I guess offer the above service to the large volume customers, again that was the last piece of puzzle. Once we got it, we were able it get a price right away for that specific piece. That's the only reason why I know that piece off the top of my head. 971 MR. VEGH: But doesn't that piece build on other elements -- other system costs that were invested as well? 972 MR. ANDREWS: No, not at all. We had to put in place at least the basic foundation for some methodology whether it was our -- our methodology or CEED's methodology or IGUA's methodology, so there were some basic components that had to be there regardless. 973 MR. VEGH: Well, if you could provide that undertaking, I would appreciate it and I might have some questions once I see that. 974 MR. MORAN: Mr. Chair, perhaps we could give that a number then. G1.4, break-out of costs including in contract administration. 975 UNDERTAKING NO. G1.4 TO PROVIDE BREAK-OUT OF COSTS INCLUDING CONTRACT ADMINISTRATION 976 MR. JACKSON: Good, thank you. If I may at the same time just ask the court reporter, would you need a break this afternoon? 977 Mr. Vegh, when will it be convenient to take a brief break? 978 MR. VEGH: This is a convenient time now. 979 MR. JACKSON: Good. Then let's rise for ten minutes if we could on this occasion and see if we can keep going. Thank you. 980 --- Recess taken at 3:00 p.m. 981 --- On resuming at 3:15 p.m. 982 MR. JACKSON: Please be seated. Mr. Vegh. 983 MR. VEGH: Thank you, sir. 984 I would like to move now, Panel, from transportation to storage, and by way of background in the unbundling application, Union's original proposal was for mandatory allocations of storage but then Union agreed in the ADR agreement to voluntary allocations of storage; is that right? 985 MS. JACKSON: Speaking now of 0017, are we? 986 MR. VEGH: Yes, that's right. 987 MR. PACKER: Yes, generally that's correct. There are limitations on how long, how voluntary the standard peaking service is. The term the storage service but generally that's correct. 988 MR. VEGH: Okay, so subject to some restrictions, this storage allocations, unlike the transportation allocations, are optional, not mandatory? 989 MR. PACKER: I would agree with that, yes. 990 MR. VEGH: And what this means is that when a customer moves from system gas or from direct purchase to unbundled storage, is that that customer will have the option to receive an allocation of storage at posted rates from Union. Is that right? 991 MR. PACKER: Yes. Again, with the caveat that it's the customer who's contracting for the service as opposed to an end user, potentially. 992 MR. VEGH: So that's -- fair enough. But it's open for the customer who's contracting for the end user to not take that allocation and to either acquire storage from a third party or purchase hot gas or some kind of peaking service or other -- some kind of alternative to the Union storage option. Right? 993 MR. PACKER: Yes. 994 MR. VEGH: And if you can turn to the back of materials, page 109, there is a -- an interrogatory response that Union provided to VECC, and I would like to refer to answer sub B, so that's page 109 and the original reference number is Exhibit C22.2. And the answer is, "In serving Ontario customers gas marketers do not have to rely on Union storage only." 995 MS. JACKSON: That's Ontario storage. 996 MR. VEGH: Sorry. "... Ontario storage only. The approved unbundled service provides an optional access to Union's storage. However, a gas marketer could choose to develop their own storage or contract their storage with parties other than Union. Ontario customers could be served with storage from anywhere in the Great Lakes Basin. The attached chart depicts the storage capacity available from Great Lakes storage providers." 997 And then there is an attachment entitled "Storage Working Capacity by State to Province", and what this chart is meant to illustrate, I take it, is that there are a number of storage providers not just Union; is that right? 998 MR. PACKER: Yes, that's correct. 999 MR. VEGH: And customers who do not -- who decide not to take up their optional storage allocation can purchase storage services from any of these providers. Is that the purpose of this chart? 1000 MR. PACKER: Generally, I would agree, yes, it illustrates that there are other providers that are in the marketplace. 1001 MR. VEGH: That are in the marketplace to provide services which may be an alternative to the optional storage service that Union provides to unbundled customers? 1002 MR. PACKER: Yes, that's correct. 1003 MR. VEGH: Now Union's storage capacity in this chart is at about 120, 130 BCF. Are there parties in Ontario who have contracted with Union to purchase storage and can use that storage to provide services to -- to unbundled customers? 1004 MR. PACKER: I think you're correct, yes, Mr. Vegh. 1005 MR. VEGH: Yes. And all I was trying to indicate was that this chart shows Union and Enbridge as the owners of storage capacity, but that the capacity represented -- or the capacity owned by Union or Enbridge is also available to third parties who contracted for that capacity, so that these third parties in Ontario could provide storage services at an alternative to Union's storage. Is that right? 1006 MR. PACKER: Can you repeat the question, please? 1007 MR. VEGH: Maybe I'll try it another way. The only point I'm trying to make is that Union and Enbridge are the only parties listed as owning storage capacity but I take it that there are other parties, other than Union and Enbridge, who can provide storage services using that capacity? 1008 MR. PACKER: Yes, I believe that to be correct. 1009 MR. JACKSON: And are they forced to bundle that before they provide those services or can they -- can their entitlements be assigned? 1010 MR. PACKER: I believe when a customer contracts with storage -- for storage with us, and they would subsequently want to assign it to somebody else, that would have to be for a term of one year or greater. In addition, there may be a requirement for -- or approval of that. So I think from a practical perspective, the approach may be to bundle with something else, a commodity. 1011 MR. JACKSON: Okay. All right. I guess in terms of having -- I'm interested in how the market place which you regulate works. We are curious to know a little bit more about that but I'm not sure that it actually goes -- I'll wait to see whether it actually goes to a particular issue in this case. But, it's -- it may go to the question of how competitive the alternatives are, that was occurring to me. Thank you. 1012 MR. VEGH: Maybe just to conclude on this chart, this chart is simply meant to demonstrate that there are other providers of storage services for Ontario customers who choose not to take their optional allocation; right? 1013 MR. PACKER: Yes, that's correct. 1014 MR. VEGH: And that was really one of the purposes of allowing storage to be optional under the agreement in 1999-0017, which was to give customers some choice over whom would be their storage provider: Union or some alternative? 1015 MR. PACKER: The difficulty I have with the premise here was due to the fact that our -- our proposal was that it wouldn't be optional. We accepted it as being optional through a settlement process so there were some gives and takes. I'm not sure I can speak to the driver for making it optional. 1016 I take it that the ADR agreement that we all agreed to, talks about the fact that by making it optional, this would help support and foster more competitive market for storage services in Ontario. 1017 MR. VEGH: Thank you. So it's expected that by making it optional, this should facilitate competition in the market for storage? 1018 Now, if you could keep that chart handy but then also turn up Exhibit B, tab 2, page 11. And Exhibit B, tab 2, page 11, is where there is evidence on billing of storage charges under the unbundled service. 1019 MR. PACKER: I have it. 1020 MR. VEGH: And if I could just read you the introductory sentence. It says, "As described in RP-1999-0017 the unbundled service will require Union to build REMs directly for the storage component of that service, in addition to any miscellaneous S and T charges that REMs will incur." 1021 And I want to get back to this -- to this sentence but first just get some clarification around S and T charges. And I guess S and T charges, these are the charges that relate to S and T services provided by Union to marketers and to other wholesale customers? 1022 MR. ANDREWS: These S and T charges that you're referring to, Mr. Vegh, refer to the various balancing services that are available to marketers today for the bundled services to balance their contracts. So we refer to them as enfranchise S and T services. 1023 MR. VEGH: And these services can be provided as a supplement or a replacement of the unbundled storage option? 1024 MR. ANDREWS: Yes, that's correct. 1025 MR. VEGH: And are these services charged at market rates? 1026 MR. ANDREWS: Mr. Packer is our rate expert here, Mr. Vegh, and we'll take a moment. 1027 MR. PACKER: I think the services being referred to are of the nature of short-term storage and balancing services. There is a rate specified on the U2 rate schedule but it amounts to a range rate so the service would be provided at market related pricing. 1028 MR. VEGH: Okay. So the storage services that will be billed for that are described here are both the optional storage service and the S and T services that are charged at market rates; is that right? 1029 MR. ANDREWS: That's right. 1030 MR. VEGH: And these S and T services that Union provides, Union provides these services in competition with other wholesale service providers? 1031 MR. PACKER: Yes. The services contemplated are of a nature that they could be substituted with other market products. 1032 MR. VEGH: Okay. Well, if we go to this chart that we've been talking about that identifies the potential -- or the other suppliers of storage services, does Union provide its S and T services in competition with the other service providers that are identified in this chart? 1033 MR. PACKER: It would depend on the market. Some of these service providers may not have any capacity available. Another way of looking at it is from the perspective of residential customers. Without the unbundled service they don't have the ability to go out and contract with somebody else other than Union to provide their balancing requirements. 1034 MR. VEGH: Okay. Leaving aside whether or not a particular service provider has capacity at any given time, these are the people who -- these are the providers that compete with Union to provide S and T services to wholesale customers, including REMs and large industrial customers? 1035 MR. PACKER: And ex-franchise customers, yes. 1036 MR. VEGH: Yeah. So then the storage operators in this chart, they can compete with Union's unbundled storage option as well as competing with Union's S and T service option; is that right? 1037 MR. PACKER: Yes. 1038 MR. VEGH: Now, do the systems that Union has designed to put in place allow customers to have access to these other storage service providers or just to Union? 1039 MR. ANDREWS: Could you just repeat that one more time, Mr. Vegh? I think I know the answer but I would just like to hear the question again, please. 1040 MR. VEGH: Well, the question was whether the -- the systems that have been put in place to facilitate unbundling allow customers to access other storage service providers or just Union? 1041 MR. ANDREWS: They would allow customers to access other storage providers. 1042 MR. VEGH: Would it allow other storage providers to bill customers for storage services or just Union? 1043 MR. ANDREWS: In the case where a customer, if they were to purchase the storage service other than -- from other than Union, they would be billed from that other service provider. 1044 MR. VEGH: And so if Union is the only storage service provider that did make use of this system to bill customers, why is it not more appropriate to recover the costs of building this system from Union S and T? 1045 MR. PACKER: Can you elaborate on what you mean by Union S and T? 1046 MR. VEGH: Sure. If Union -- if only Union can bill for storage under this system and Union -- or the provider of the storage is Union's S and T group, then wouldn't it make -- wouldn't it be appropriate for Union's S and T group to absorb the cost of building this billing system? 1047 MR. ANDREWS: I'm quite confused but I think -- the systems were designed to bill the unbundled service. 1048 MR. VEGH: Yes? 1049 MR. ANDREWS: To the small volume market. 1050 MR. VEGH: But the small volume market now has options. It no longer has to purchase the service from Union. It can purchase the service from someone else. Isn't it fair to say that the cost of billing the service should be absorbed by Union, just as the cost of billing -- billing for services by competitive storage service providers has to be absorbed by them? 1051 MR. ANDREWS: I'm just trying to remember the question again. The costs associated with developing these systems, Mr. Vegh, are intended to provide access to the unbundled service and split them. With specific reference to the billing section, it does allow for the billing of the storage service it provided by Union. If Union doesn't provide the service, then Union doesn't bill the customer for that service. 1052 MR. VEGH: But your evidence at tab 2 under the heading "Billing of Storage Charges" says that, "Under the unbundled service, Union will bill REMs directly for the storage component of that service, in addition to any miscellaneous S and T charges that REMs will incur." 1053 And the cost of implementing this ability for Union to bill for storage are set out at page 12 under the heading of "Billing REMs for unbundled storage at 2.2 million", and that's, of course, been updated. 1054 So if it's truly an optional service, then why should customers have to pay for the cost of being billed for that service? 1055 MR. ANDREWS: I guess it's no different than the proposal that we're putting forward for all the costs in a deferral account to put -- to put the systems in place. I don't know who is going to take the Union storage component but we still have to build the systems for those customers who do take that component. It's not a question of whether they -- whether they take it or not, it's a question of I have to be in a position to be able to bill for the service. 1056 MR. VEGH: I suggest to you that there is one difference and that what we've been talking about with the other services is alternatives to -- what we're talking about with this service is the ability to have an alternative to purchase this service from someone other than Union, so that Union is now providing this service on a basis that really has to compete. And I would suggest to you that it's appropriate for Union to absorb the cost it has to pay to compete just as its competitors have to absorb the cost that they have to pay to compete. 1057 But we're getting into argument and I'm prepared to move on to another point. 1058 MR. JACKSON: So this is not a question of allocation per se, Mr. Vegh, this is a question of whether or not they should be able to recover these costs at all? 1059 MR. VEGH: That's right. So this goes to a question of whether these costs are followed in the category of costs that should go into the unbundled deferral account or whether these are costs that should be absorbed as a cost of providing a storage service. 1060 MR. JACKSON: Did you wish to respond? 1061 MR. ANDREWS: Yeah, I just want to clarify I guess, for Mr. Vegh's question, and perhaps I'm a little confused here. But the costs that are illustrated under Exhibit C1.15, which include the cost to enable us to build the REMs with the storage component of the unbundled service, are exactly that. They're there to set up the access to the unbundled service. They're not there to bill for competitive services. 1062 MR. VEGH: Well, I see us getting into argument further on this, so why don't we just leave it at that, subject to any desire from the Board Panel for further clarification otherwise I'll just move on to my next issue. 1063 MR. JACKSON: To clarify for Mr. Vegh's question, and perhaps I'm a little confused here, the costs that are illustrated under Exhibit C 1.15, which include the cost to enable us to build the REMs with the storage component of the unbundled service, are exactly that, they're there to set up the access to the unbundled service. They're in the there to bill for competitive service services. 1064 MR. VEGH: Well, I see us getting into argument further on this, so why don't we just leave it at that, subject to any desire from the Board Panel for further clarification otherwise I'll just move on to my next issue. 1065 MR. JACKSON: Fine. 1066 MR. VEGH: Thank you. 1067 And my next issue, Panel, is issue number 1. And if you could turn to the ADR agreement that could scope out what it is I'll be addressing in my cross-examination. 1068 MS. JACKSON: Are we talking about the ADR agreement in this proceeding or 0017? 1069 MR. VEGH: This proceeding. 1070 MS. JACKSON: Thank you. 1071 MR. VEGH: Now, as the ADR agreement sets out, the only real issue around the proposed rate changes is that my client, as well as some others, are concerned that the filing in this case does not address the out standing directive of the Board for Union to address load balancing flexibility costs and will be asking the Board to condition its approval of Union's proposal in this case with the requirement that Union present a proposal to address this matter in the customer review process for the year 2003. 1072 MR. PACKER: Do you have a reference, Mr. Vegh? 1073 MR. VEGH: That's in the ADR agreement, page 3, under section 1.2.2. 1074 MS. JACKSON: Mr. Chair, in the interests of time, perhaps I should just raise an objection I have to this right away. And that is, saying that -- in my submission -- this issue is not an issue in this hearing and there are several other reasons why it properly -- properly shouldn't be. But, shortly stated, my submission is that you don't -- you cannot, by saying, "I don't agree to issue 1 because I have this other concern," turn that other concern into an issue in the hearing. By way of example: If my friend said I can't agree to issue 1 because I don't believe it's raining today, it doesn't mean the question of whether it's raining today becomes I issue in this hearing. And in my submission, there is no issue in this hearing with respect to the directive my friend talks about. The directive, as I'm sure he intended to go through, has been one that -- that the Board has made in the past and indeed, there is reference to it in some of the materials that he has referred to, but -- or that he has provided the Board -- most recently or at least in one place, there is an indication on page 3 of list materials that the Board expects a new lower balancing service will be brought forward as soon as the company has completed its work on the unbundling of its services. 1075 There has been a history to this directive that deals with load balancing and flexibility costs and the most recent statement from the Board is that it expects it to be dealt with when the company has finished dealing with unbundling services, which of course by virtue of this application, the company still is doing. 1076 So it's a directive that is not in issue in this hearing. Indeed, on its face, it's a directive that wouldn't apply until after this hearing is over. It's not on the issues list. The dealing with this process is a complex rate-related issue that has applications not only in respect of the particular issue my friend seeks to raise, which I gather is whether there -- should still be a load balancing flexibility charge, but for as with every other rate-making issue for everybody else who is affected when you change the rates. 1077 And lastly, it's an item for discussion in the current customer review process. So for all of those reasons, I say it's irrelevant and in the interests of timing I thought it appropriate to raise my objection at the outset. 1078 MR. JACKSON: All right. Thank you, Ms. Jackson. I think we should hear from Mr. Vegh on the question of relevance. 1079 MR. VEGH: Well, I don't see how these issues are not relevant. The fact that we scoped out a position on the ADR shouldn't be held against us. We just want it make what our position was -- is, clear. 1080 The evidence that I was going to take the witness panel through indicates, as Ms. Jackson said, that the Board did provide a direction 499 for Union to deal with this issue, and RP-1999-17 case, Union said it will deal with this issue after that case has been completed. Union has still not dealt with this issue. Ms. Jackson says that this issue is being addressed in another forum and this is the first I've heard of it. I do not see this issue being addressed anywhere. And my clients's original position was that this issue should be addressed in this case. This case is supposed to be addressing the unbundled rates. In light of timing, and the fact that by the time we got to the settlement agreement it was just not possible as a practical matter to have an evidentiary basis to deal with it as an issue in this case, my clients were prepared to say okay, if not this case threaten the next case. We cannot just leave this directive outstanding and have Union not be bound to address it. 1081 So my submission is that it's entirely appropriate and you know it's not for Union to say what Board directions will be addressed and what will not be addressed. 1082 MS. JACKSON: If my friend is finished, Mr. Chair, may I just respond? 1083 MR. JACKSON: Yes. 1084 MS. JACKSON: My position -- what I now hear is that -- I guess an argument that it ought to have been an issue. But, in part, for the reasons my friend indicates, if this ought to have been on the issues list, and I, for all the reasons I indicated, would have opposed that, the time to raise this was when the issues list was being settled. Because if it had become an issue, and for all the reasons I've indicated, I would respectfully suggest it couldn't have in the proceeding that is not dealing with all of those rate-related issues. But if it had, we would have dealt with the evidence. But you can't squeeze an issue in at the end of the day when it's not in the proceeding and it's not in the issues list and therefore there is no evidence on it just because it's something you would like to deal with, in my submission. 1085 MR. VEGH: Sorry to give response to reply, but the issue is a modification to the U2 rate and that's what this issue addresses. 1086 MS. JACKSON: Well, as we reviewed at the -- at the time of the issues day, what happened in 0017 was that the setting of the rates that are now being disaggregated. There isn't a rate setting element to this hearing. There's simply a disaggregation of rates that were agreed upon or approved in the 0017 hearing. 1087 MR. JACKSON: I think I'm going to have to confer with my colleagues on this, but I think before we do that I just would like to seek your clarification. It seemed to me that initially you were saying, Mr. Vegh, that you were not disputing the fact this would have to be dealt with in another forum. You were not trying to make this issue a broad issue of this forum, you were very narrowly telling us, I thought when I first heard you, that we should be aware of its importance as it relates to issues in this forum and that we should proceed with caution in deciding some of the other issues which we're not trying to make an issue of this forum. But perhaps I misunderstand you. Are you trying to open this up as an issue in this forum? 1088 MR. VEGH: Well, what I'm saying in this forum is that this U2 rate as structured isn't adequate, is improper. But I accept that we do not have the evidentiary basis in this case to fix it. And so if the Board is going to approve this rate in this case, it should do so on the condition that this rate be fixed in short order. 1089 MR. JACKSON: Okay. And what do you need in terms of examination of this Panel on this subject, then, in order to argue that in relation to these proceed? What do you see you need? 1090 MR. VEGH: I want to demonstrate to the Board through my examination that this rate as structured isn't adequate. 1091 MS. JACKSON: And would I simply say, Mr. Chair, if this -- if there were an issue that this rate were inadequate for this reason and that had of been raised it could have been addressed. But it wasn't raised, and so the evidence to deal with it isn't -- 1092 MR. VEGH: Sorry, we have we asked interrogatories about this rate and these -- and Union has refused to answer them, so -- 1093 MS. JACKSON: Because it's not an issue. 1094 MR. JACKSON: Let me confer. 1095 MR. JACKSON: Mr. Dominy is going to ask a couple of questions. 1096 MR. DOMINY: On the status of which the (mic not activated) I asked a couple of questions at the time Mr. -- 1097 MR. JACKSON: I apologize. I have a magic button here I should have pushed. 1098 MR. DOMINY: On the day that the settlement agreement was presented to us, I had noted that in the settlement agreement, on issue 1.2, to rate M2 there was this addition -- question raised on behalf of CEED, City of Kitchener and Direct Energy that they did not agree with Union's proposal as it doesn't address the outstanding directive with the Board EBRO 499, and continued to say -- I would ask the Board to condition its approval on Union's proposal with a requirement that Union present a proposal to address this matter and the customer review process for the year 2003. That's what the ADR settlement said, and it's under the title: "Modification to U2 rate or rate M2 disaggretation of storage cost from delivery costs, modification to U2 rate." That's what the ADR settlement agreement that we received and accepted subject to some changes said. 1099 I wanted an explanation of that and I was informed by Union's counsel, which was Mr. Penny on that occasion, that Union's position on this condition was that they recognized that a review would be required but that they would not be able, in the context of the 2001-2002 customer review process, or the process of 2003, to do it in time. But they would do it. And so I just wanted to understand if that's still Union's position with regard to it. They will address this matter? 1100 MS. JACKSON: That's right. Let me -- that's right. When I say it's an item for discussion, in the customer review process, there is a question of timing about this very issue raised in the customer review process and will be the subject of discussion. But for a host of reasons, including the need to get through the customer review process and the associated backlog which is significant, the very significant work that has to be done on this cannot be done by 2003. That is the position, but I'm -- I guess I'm simply backing off from that and saying but with respect that -- yes, the 2003 customer review process, I'm advised, is scheduled for this summer which is what makes it impossible. But that's -- that's the ultimate position that Union is taking on this issue. What I was advancing of course in addition to that was the expression of the view that it's not an issue for this proceeding. 1101 MR. DOMINY: The reason I have some difficulty in interpreting it is that the title of the section under which this point was raised with regard to the settlement agreement is modification to U2 rate. 1102 MS. JACKSON: Yes. Sorry. I was going to just reply to that, Mr. Dominy, that as set out at the time that the issues were discussed, there was some -- you may recall there was some discussion on issues day as to what was encompassed by item number 1, which included the modification to U2 rate, as a result of which I went through the schedules to show that the rates were just being disaggregated. And the modification was in the rate schedule not in the structure of the rate. And therefore that's why I say when we come forward to this, this what we have in the ADR agreement is an explanation of why certain parties don't agree to this issue. But the explanation, in my submission, does not by itself become an issue unless it's already on the issues list and for the reasons canvassed on the issues day. In my submission, it is not. We're not here talking about underlying rates. Those were set in 0017. We're talking about how they're disaggregated on the rate schedule. 1103 MR. DOMINY: So as I understand what you're telling me, it's that you don't believe this is an issue in this proceeding but that you're -- you recognize that you will be addressing the broader issue of load balancing and costs as soon as possible. 1104 MS. JACKSON: I think the only outstanding issue anywhere is timing and Union accepts that it has to review with its customers in this current process why it says that the deadline Mr. Vegh seeks is not feasible, but that it will be turned to as soon as it's physically feasible. 1105 MR. DOMINY: Thank you. 1106 MR. JACKSON: But nonetheless, Mr. Vegh, you say you have some questions with respect to the U2 rate and the question about enabling unbundling to serve the small volume customers, and I think if you go very, very carefully, maybe you can avoid getting into the load balancing inflexibility issue. But I'm not sure. I think our feeling is that you should not be getting into it to any significant extent. But you said you would like to ask some questions that dealt with your concern about the inappropriateness of the U2 rate or inadequacy of the U2 rate. And if you're very careful going down that path, you may have some questions that indeed are appropriate. I don't know. So Ms. Jackson will watch you very carefully, I'm sure. 1107 MR. VEGH: I'm sure she will. So does that mean I can ask my questions? 1108 MR. JACKSON: Give it a try. But if you're try right into load balancing and flexibility, both feet, I think we would rather you do not do it. 1109 MR. VEGH: Well, I'm not sure I fully follow the parameters, but I'll give it a try and we'll see how it goes. I really should not take that long. 1110 So on this question of load balancing flexibility, then I could probably use some direction because that's the issue I'm trying to deal with. 1111 MR. JACKSON: Yes, I guess you can't -- I don't see how you can go down this path. 1112 MR. VEGH: Well, what is the scope? 1113 MR. JACKSON: If you can show me -- if you can ask some questions about the rate and show some inadequacy and say, would these be solved when you eventually come forward or could they possibly be solved with some changes to the service you offer with respect to load balancing and flexibility, it seems to me that that would be quite different from heading into the subject of load balancing and flexibility and probing its detail. I may be missing something, Mr. Vegh, but you -- you know we don't want to get into detail on load balancing and flexibility, if -- if you could ask the witnesses whether some of the inadequacies which you think you can point to could possibly be fixed some time in the future when these other things are dealt with, you may get a response you want. I don't know. 1114 MR. VEGH: Okay. Why don't I just cut to the chase. Panel, if you could turn to page 21, which is an excerpt from Union's evidence in RP-1999-0017, Exhibit A. In the middle of the second paragraph, Union makes the following: "Flexibility-related costs and the delivery rate paid by all M2 bundled customers is not consistent with the vertical slice methodology." And I asked you, is that -- is that statement -- does it follow from that statement that the recovery of flexibility costs in the delivery rate paid by U2, unbundled customers is not consistent with the vertical slice methodology? 1115 MR. PACKER: I'm having -- personally, I'm having a little trouble with the terminology because our U2 rate is a rate for storage to marketers. The issue, I think, is related to delivery service rates for all bundled and unbundled customers. So, could you possibly frame your question in that context for me? 1116 MR. VEGH: Given the statement in RP-1999-0017 is it Union's position that the recovery of flexibility-related costs and the delivery rate paid by unbundled customers is or is not consistent with the vertical slice methodology? 1117 MR. PACKER: I don't dispute the evidence that was filed in the RP-1999-0017 proceeding. We will have to deal with how flexibility-related costs are recovered. It's a matter of timing and when we do that. You'll note that it affects both bundled and unbundled services. It's not specific to the unbundled service offering. 1118 MR. VEGH: It's inappropriate in both service offerings? 1119 MR. PACKER: As a result -- as a result of implementing the vertical slice, the recovery of gas supplied flexibility related costs needs to be reviewed and that's in the context of both offerings. 1120 MR. VEGH: Now, in terms of timing, the next sentence in that paragraph says that, "Given that new unbundled services and vertical slice will not be implemented until September 1, 2000, at the earliest, it's unlikely that there will be significant amounts of upstream transportation allocated using the vertical slice between September 1, 2000 - December 31, 2000, and therefore it is not necessary to make this change in 2000 rates." 1121 Given that the vertical slice has now been implemented, would you not agree that it is necessary to make this change -- this change in rates as soon as possible? 1122 MR. PACKER: I would agree that it should be reviewed as soon as possible. I don't agree that there is a necessity to deal with it as soon as possible. What we're talking about, putting it in context, is -- are some costs that would otherwise be gas supplied transportation related that are recovered in our delivery rates. The reason they were moved over to delivery rates in part was given -- was in the context of the upstream transportation displacement policy that existed prior to the vertical slice existing. It's really only a factor for the volume for which is subject to the vertical slice. Anybody who was on direct purchase prior to the vertical slice being implemented is still being served with a hundred per cent TransCanada capacity. 1123 So, to the extent there is an anomaly that's starting to creep into rates, it's restricted to those customers who have taken the vertical slice, which is a prospective change, it doesn't affect anybody who was on direct purchase prior to the changing upstream allocation methodology. 1124 MR. VEGH: From what you said, is the anomaly growing in the sense that the customers who are not being served -- or who are being served by the vertical slice is growing? 1125 MR. PACKER: I don't know the answer to that. It would depend on how much migration there is from system supply to direct purchase. I would accept that the tendency would be for it to grow over time. 1126 MR. VEGH: Well, you no longer have any TCPL capacity for system customers; Is that right? That's all being allocated to marketers? 1127 MR. PACKER: In the south, that's my understanding, yes. 1128 MR. VEGH: Right. So it's not going to increase the other way; right? The only way it will increase is customers moving from -- or moving to the vertical slice? 1129 MR. PACKER: Sorry, would you -- 1130 MR. VEGH: The amount -- the amount of direct purchase customers served by a hundred per cent TCPL is a shrinking amount. It's not a growing amount? 1131 MR. PACKER: It depends on the amount -- the proportion might be shrinking depending on how much migration we have of system supply to DP, but the base amount doesn't change. Those customers that were on direct purchase prior to November 1st, 2001, retained their hundred per cent TransCanada capacity allocation. 1132 MR. VEGH: And as I understand what you've been saying, you're not saying that the current methodology is appropriate, but you are -- but you're saying that you just simply have not had enough time to address this issue. Is that right? 1133 MR. PACKER: The other -- yes. With the further explanation being that the directive we have is not only to deal with the flexibility component but also balancing. And the combination of those two things in an environment where services are being unbundled and we're trying to put together a number of rate submissions is going to take some time to work through. 1134 MR. VEGH: So, doesn't that -- what that mean, isn't -- doesn't it -- it's just a question of priorities. Is this issue a priority for Union or is it not? 1135 MR. PACKER: Board directives are always a priority for Union. Getting rates in place is also a priority. This hearing is also a priority. 1136 MR. VEGH: So let's look at your priorities. The book of documents that are filed includes at page -- pages 23 to 82 a list of applications that have been filed with the Board since the time that Union's unbundling application was filed with the Board, and my count is that Union, since the time of filing its unbundling application, has filed 169 different applications with the Board seeking some type of relief or another. Can you agree with that number subject to check? 1137 MR. PACKER: I guess I see the listing of filings that Union Gas has made. The issue I was trying to deal with before is there is a discrete group of people who are going to have to deal with this directive and that group of people are in the rates group and the gas supply group, The planning groups. A lot of the applications that are listed here have nothing to do with those groups. 1138 So to depict Union being busy doing other things in the way you have, I don't think is appropriate. 1139 MR. VEGH: What I suggest, Mr. Packer, that what this demonstrates is that addressing this issue is a very low priority on a very long list. 1140 MR. PACKER: From my perspective, the primary things that we're weighing in the priority balance here, are things like this proceeding, setting rates, and offering unbundled service. The indication from the Board coming out of the 499 decision was that we would deal with it after we've dealt with the unbundled services. We're still in the process of dealing with the unbundled services. So, from that perspective we're not tardy. 1141 MR. VEGH: Well, when are you prepared to commit to deal with this? 1142 MR. JACKSON: I think we've heard an answer on that and it was as soon as possible. But, Mr. Vegh, are you suggesting they might be able to revise their answer? 1143 MR. VEGH: Perhaps they could be more specific? 1144 MR. JACKSON: Can you be more specific? 1145 MR. PACKER: I can't be any more specific other than to say we -- we recognize it as an issue, it is a directive from the Board, and we take directives from the Board seriously. 1146 MR. JACKSON: Okay. Mr. Vegh, when would be a good time to break for the day? 1147 MR. VEGH: Well, I have no more questions. Thank you. 1148 MR. JACKSON: Thank you, Mr. Vegh. We will resume at 9:30 tomorrow morning. 1149 MS. JACKSON: Mr. Chair, I wonder if I could just raise two points? 1150 MR. JACKSON: Yes. 1151 MS. JACKSON: One is that, as we canvassed this morning, Union Gas's fourth panel is Dr. Schwindt. Dr. Schwindt lives in British Columbia. I -- assuming from what's happened thus far, I -- the prospect that Dr. Schwindt would be reached late on Friday is so small that I'm asking, I guess, the Board's indulgence that I say to Dr. Schwindt he will not be needed this week? 1152 MR. JACKSON: Yes, that is fine. 1153 MS. JACKSON: Thank you. And the other thing is I'm wondering if it's possible to do a quick canvass of the room having in mind whether and when the second Panel should be available tomorrow, if at all? 1154 MR. JACKSON: Could we have an indication, please, from those who wish to examine this panel? 1155 MR. JANIGAN: I'll be about 45 minutes to an hour. 1156 MR. RYDER: I'll be half an hour. 1157 MR. AIKEN: Probably five minutes. 1158 MR. TAYLOR: Five to ten minutes. 1159 MR. JACKSON: And do we know whether Mr. Warren will wish to ask any further questions? He reserved, I believe. Ms. Girvan, do you know? 1160 MR. SCULLY: I might have 15 minutes, but I hope I can clear it up off the record. 1161 MR. JACKSON: Okay. Thank you. 1162 MR. MORAN: I might have about 45 minutes. 1163 MR. JACKSON: Ms. Jackson, are you doing the arithmetic? 1164 MS. JACKSON: I am doing it and it's just on the edge, so we'll plan accordingly. It looks to me like we'll fill -- looks to me like we're going to fill three hours tomorrow but -- 1165 MR. JACKSON: Okay. And we have -- 1166 MS. JACKSON: We have three and a half set aside. Three hours plus a break. 1167 MR. JACKSON: We will try to stick to the -- to 15 minutes for the break, give you that commitment, and -- I guess it's how you feel about having the other panel ready. Sometimes these questions go away, I know. 1168 MS. JACKSON: I think we'll endeavour to have that Panel ready if we get to them. 1169 MR. JACKSON: All right. 1170 MS. JACKSON: I guess I didn't -- I forgot to ask the Board. 1171 MR. JACKSON: We're prepared to say that we'll hear them first thing on Friday if that's of help to you. 1172 MS. JACKSON: That's very helpful. Thank you, Mr. Chair. 1173 MR. JACKSON: Thank you. We're adjourned until tomorrow morning at 9:30. 1174 --- Whereupon the hearing adjourned at 4:15 p.m.