Rep: OEB
Doc: 122V7
Rev: 0













ONTARIO ENERGY BOARD

Volume: 2

February 21, 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]





UNION GAS LIMITED - PANEL 1

[33]





CROSS-EXAMINATION BY MR. JANIGAN:

[34]





CROSS-EXAMINATION BY MR. HAYNAL:

[605]





CROSS-EXAMINATION BY MR. RYDER:

[640]





CROSS-EXAMINATION BY MR. SCULLY:

[811]





7
EXHIBITS

8

9
UNDERTAKINGS

10

UNDERTAKING NO. G2.1: TO SEE IF PHASE 1 IS BEING USED PREVIOUSLY

[100]





UNDERTAKING NO. G2.2 TO PROVIDE BREAKDOWN OF CHARGES

[388]





UNDERTAKING NO. G2.3 TO PROVIDE AN ANALYSIS FOR THE ABC T-SERVICE

[399]





11
--- Upon commencing at 9.35 a.m.
12
PRELIMINARY MATTERS:

13
MR. JACKSON: Please be seated. Are there any preliminary matters this morning?

14
MS. JACKSON: There are three, Mr. Chairman. We have distributed to parties and I would propose that formally file the answers to the undertakings which were marked G1.2 and G1.3. And I believe the Board has those in front of them.

15
MR. JACKSON: Yes. Thank you. That's satisfactory.

16
MS. JACKSON: Thank you. And the one other thing is that with respect to G1.1, that was an undertaking to confirm the amount that has actually been spent of the costs that are forecast in Exhibit C1.15, and I understand Mr. Andrews is in a position to do that this morning and I could just ask him to do that on the record, if that's agreeable?

17
MR. JACKSON: Yes, that's fine.

18
MS. JACKSON: Thank you.

19
MR. ANDREWS: Based on invoices that we processed to date, we have spent $12.34 million. I think yesterday I indicated 12.4, so I was pretty close.

20
MR. JACKSON: Yes. Thank you, Mr. Andrews.

21
MS. JACKSON: Thank you. That's all I had by way of a preliminary matter, Mr. Chair.

22
MR. JACKSON: Now, who is the next counsel this morning?

23
MR. VEGH: Excuse me, sir, did -- Mr. Janigan I believe is next. I did ask if he mind if I jump ahead just to clarify something, an answer that was given on the record yesterday, and I would ask your permission to do that?

24
MR. JACKSON: No other objections? That's fine with us.

25
MR. VEGH: Mr. Andrews, this was an answer you gave. I don't know if you have a copy of the transcript from yesterday?

26

MR. ANDREWS: I just got it.

27
MR. VEGH: I just got it as well, and there's a statement there that's unclear to me. I believe this is -- the transcript is organized by line numbers, and line number 6 -- at line number 643, after we returned from lunch, you made a statement to Mr. Thompson and I wonder if you could turn to that, please.

28
MR. ANDREWS: I have it.

29
MR. VEGH: You were clarifying on a couple of points -- in the second paragraph under the title "Mr. Andrews," in this third sentence you say: "I wanted to clarify if I perhaps 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 don't know whether I had left that impression." Could you just clarify for me, has Union spent any money to facilitate the wholesale billing service?

30
MR. ANDREWS: No, we have not.

31
MR. VEGH: Okay. Thank you.

32
MR. JACKSON: Thank you. Mr. Janigan.

33
UNION GAS LIMITED - PANEL 1

34
CROSS-EXAMINATION BY MR. JANIGAN:

35
MR. JANIGAN: Thank you, Mr. Chair.

36
Panel, I would like to start by dealing with the issue of the 15.7 million dollar incremental unbundling cost and to do that I wonder if we could start with VECC interrogatory Exhibit C22.25, page 2.

37
MR. PACKER: I have it.

38
MR. JANIGAN: Okay. Now, it would appear that of the $15.7 million in costs, approximately 13.8 comes from the residential customers. Do you agree with that? 13.8 million.

39
MR. PACKER: You're looking at Exhibit C22.25?

40
MR. JANIGAN: That's correct. Page 2 of 3? And it sets out the allocation.


41
MR. PACKER: The difficulty I'm having is that the original C22.25 allocated 8.2 million.

42
MR. JANIGAN: Well, if we're looking at the M2 residential class, and the R1 residential class, extrapolating from those numbers.

43
MR. PACKER: Yeah, yeah, and the supplemental question C22.44?

44
MR. JANIGAN: Yes.

45
MR. PACKER: Which identifies the allocation of the 15.7 million.

46
MR. JANIGAN: And this is subject to checked is the number 13.8 million from the residential customers seem to be appropriate? In those categories?

47
MR. PACKER: I'm not quite sure how you came up with the 13.8 million. The rate classes aren't necessarily specific to residential.

48
MR. JANIGAN: Well we took the M2 residential class --

49
MR. PACKER: There is not a M2 residential class. M -- there is a M2 class made up of residential customers, industrial?

50
MR. PACKER: Yes, we you took the M2 customer number, southern operations therein. Do you see that?

51
MR. PACKER: Yes.

52
MR. JANIGAN: And then we took the R1 customer number. Made the calculations accordingly.

53
MR. PACKER: I see how you got the 13.8, yes.

54
MR. JANIGAN: Yeah and would you disagree that that -- this is a good approximation of what you collected from residential customers?

55
MR. PACKER: Yes, that is true.

56

MR. JANIGAN: Now we've had some discussion concerning the general services market and the contract services market. Can you give me the definition of what the general services market is?

57
MR. PACKER: It's by definition the general service market is a market that does not have a specific contract with us. They're provided service under our rate 0110 or M2, and the tariff serves as the -- is the contract. Generally, customers within those rate classes are residential, commercial, some small industrial.

58
MR. JANIGAN: That would also include rate 10, I assume.

59
MR. PACKER: That's right.

60
MR. JANIGAN: Yes. Now -- I'm wondering if you could just briefly go through the rate schedule and indicate which of the rate classes are general services customers and which are contract service -- sorry I didn't get to the definition of what is the contract services market? Before we do that.

61
MR. PACKER: The contract service market would be the rate schedules other than rate 01, rate 10 and M2.

62
MR. JANIGAN: Now is it possible for you to go to the rate schedules just to identify which rate classes are part of the general services market and which are part of the contract services market.

63
MS. JACKSON: I think the witness just did.

64
MR. JANIGAN: Okay -- well in terms of the 15.7 million dollars, how much of that total is related to functionality provided to contract customers for unbundling?

65
MR. PACKER: I think Mr. Andrews identified yesterday that the system wasn't built in a way that allows for the industrial cost to be separately identified, though his best guess is it's in the neighbourhood -- it would be no more than 4 or 500,000.

66
MR. JANIGAN: Is it possible to know what considerations went into that guess?

67

MR. ANDREWS: Well I think the difficulty that we have is that the -- at the outset, when I think I had taken everybody back to the original planning exercise and we realized that we had to plan this -- this endeavour -- this undertaking in two phases, that it was predominantly based and driven by the complexities of the small volume market, that we also recognized that by the end of the first phase we want to be in a position to be able to offer the unbundled service to the large volume market. Which we did. And so at best, all we could do is at a high level estimate, what we think it might have cost had we not done anything for the small volume market and had we started from scratch. So, the approach that we did take doesn't lend itself to, I guess, a neat identification of a cost, I guess, with a large volume customer. So it was simply based, on what functionality do we think we would have had to have built and how would we have done it? And, -- and our best guess is in that 4 to $500,000 range.

68
MR. JANIGAN: So if I understand your answer, that is the cost of the additional functionality that would have to have been built on a stand-alone basis for the contract customers if you were not doing this process for the small volume customers. Have I got that right?

69
MR. ANDREWS: Yeah that's basically the approach we took. That was one approach that we took.

70
MR. JANIGAN: And how did you cost that stand alone analysis?

71
MR. ANDREWS: Well, that was the challenge. We didn't have any real good solid basis because the way that the services were contracted with our vendors, we didn't explicitly identify that this part of the engagement is for the large volume customers, that part of the engagement is for the small volume customers. It's about having to billed this -- the machine -- the web-based systems that would, again, be driven by the complexity of the small volume market. So we looked at what pieces of functionality we would have needed, I guess, with respect to the contract administration fees, the daily gas management fees and the billing fees and again, at best, it was a -- just a high level estimate, given that it was a hypothetical exercise.

72
MR. JANIGAN: I guess I'm -- still attempt to understand the allocator that might have been used when you looked at -- your -- as I understand it, you had an entire basket of costs that were associated with this exercise that provided functionality to all customers. And then you had to look at it and say well, if we weren't doing this for all customers, what amount would this have cost for our contract operators. And in order to -- because your software vendors weren't doing this for you, you had to -- use some kind of an allocator in order to get this figure of 4 or $500,000.

73
MR. ANDREWS: Well, I think again, that represents the challenge that we had. We didn't use an allocator, as perhaps, you know Mr. Packer used in allocating costs. It was just -- just that, it was an estimate at a high level. Again, as I indicated yesterday we took a couple of approaches. One is: Let's assume you hadn't done anything for the small volume market what would you do? Or let's assume you did -- you did everything for the small volume market, you weren't even thinking about doing it for the large volume market, what would you do? And again, our best guess that it probably wouldn't have cost much more than what I had indicated in the four or $500,000 range.

74
MR. JANIGAN: Now, what additional functionality, for unbundled service operations, was picked up by contract customers as a result -- or will be picked up as a result of the expenditure of the 15.7 million dollars?

75

MR. ANDREWS: Well, as I was explaining yesterday, what we're doing is we're building this web-based model to be able to move information from the back-office applications, contract administration application, nomination process, to the what we call the front office so that customers, large volume customers, can access the service and transact the service on line.

76
So, it was specifically putting the contract parameters on line, specifically allowing them to use the electronic nomination process and then to provide them with their daily volumes on line, and the billing.

77
MR. JANIGAN: So in effect, the large volume customers are making use of the functionality in a similar way the small volume customers. Am I correct?

78
MR. ANDREWS: Well, they're certainly -- we can certainly use the functionality but there is a lot of functionality there that they will not use -- that they don't need to use.

79
MR. JANIGAN: Okay, but I take it the web based will be used by the large volume customers.

80
MR. ANDREWS: That's true.

81
MR. JANIGAN: Will the market-clearing process be use bid the large volume customers?

82
MR. ANDREWS: I don't understand what you mean by the market clearing process.

83
MR. JANIGAN: I wonder if you could just turn up on page -- Exhibit C14.12, which I think is interrogatory to -- from the Industrial Gas Users' Association. If you look on page 3. About the middle of the page, paragraph that starts: "Phase 1 costs."

84
MR. ANDREWS: Yes.

85
MR. JANIGAN: Notice that you - in developing the upstream capacity clearing house, tracking the on line presentment of contract parameters for upstream transportation allocations, storage allocations, basic contract parameters in the 22-day callback. Will any of that functionality be used by the large volume customers?

86
MR. ANDREWS: Yes it would.

87
MR. JANIGAN: Now, I want to deal with the way in which costs have developed throughout the unbundling process. And I wonder if you could confirm for me that in that Exhibit C14.12, that -- this is the first time the company has used the term "phase 1 costs" in evidence associated with the unbundling process. Talking about the first time you've used it in evidence in OEB proceedings.

88

MR. PACKER: Yes, I take you back to the ADR agreement that came out of the RP-1999-0017 case. Page 37, I think I talked to parties yesterday about the fact that there was acknowledgment that there be a second subsequent application dealing with providing access.

89
MR. JANIGAN: I acknowledge that, Mr. Packer, but I'm referring to the term "phase 1 costs". I have never seen that until the answer to the interrogatories C14.12 was given to me yesterday. As it appeared, did that term appeared anywhere else in the evidence on the RP-1999-0017 proceeding or anywhere else in this proceeding?

90
MR. ANDREWS: I guess my honest answer is I don't know. That's how I chose -- that's how I presented the cost. I think yesterday I was trying to explain that given the size much the undertaking that we had to do this in two phases, so --

91
MR. JANIGAN: I wonder if you can undertake to find out whether or not you've -- or to confirm that this is the first time that it's been used, that term.

92
MS. JACKSON: Well, Mr. Chair, the question is whether the term has been used anywhere in -- I take it two. Not only this proceeding, but a very long other proceeding. You know, to do that is a massive search. I wonder how important it is and frankly whether it really is necessary to do that massive search.

93
MR. JACKSON: Mr. Janigan perhaps you could just indicate to what use you'll put this. I'm having a little trouble with the concept of a massive search given the computerized ability to search for phase Roman 2. But nonetheless, Mr. Janigan, how would you like to use this?

94
MR. JANIGAN: Well, I'm -- as I'm going to be exploring later, I'm curious as to the development of the concept that there would be two sets of costs that would be executed by the company associated with the unbundling process, or the ADR agreement, in another proceeding. In our view, it never contemplated another set of costs, and we have for the first time yesterday been presented with the idea that, in fact, there are specific phased costs that were associated with the unbundling process that has been presented for the first time yesterday. And the idea that that you package these as phase 1 costs as it were, seems to indicate that there was a plan that was executed and approved at some point in time in these proceedings and we dispute that.

95
MS. JACKSON: Mr. Chair, I'm told that in fact, not all but some of this certainly can be electronically searched on effectively a best efforts we can undertake that undertaking I'm not sure we can be sure we would uncover everything but I think.

96
MR. JACKSON: I think on that basis if that suits Mr. Janigan, that sounds appropriate.

97
MR. JANIGAN: That would be fine.

98

MR. JACKSON: Thank you. Can we give that a number.

99
MR. MORAN: Mr. Chair, that would be G2.1, undertaking to make best efforts to see if phase 1 is being used previously.

100
UNDERTAKING NO. G2.1: TO SEE IF PHASE 1 IS BEING USED PREVIOUSLY

101
MR. JACKSON: And that's just in the context of describing these costs; correct?

102
MR. JANIGAN: That's correct.

103
MR. JACKSON: Yes thank you.

104
MS. JACKSON: Thank you. Mr. Chair, that is what we understood.

105
MR. JANIGAN: Now I just want to review briefly the history of these costs and how they were presented to the Board.

106
Now, in the initial filing for -- in RP-1999-0017, the amount of $5 millilitre was identified as being required to accomplish this unbundling; am I correct?

107
MR. ANDREWS: You're correct in saying that there was an estimate of $5 million that was provided but it was an estimate that related to the -- what we're calling the first phase.

108
MR. JANIGAN: Was there any language in that initial evidence that you're aware of to indicate that the $5 million was not a total cost of the unbundling as estimated then by Union?

109
MR. SOMMERVILLE: Mr. Janigan, can you clarify, are you referring to materials filed in 0017?

110
MR. JANIGAN: That's correct.

111
MR. SOMMERVILLE: Thank you.

112
MR. JANIGAN: If you want, I'm prepared to take I undertaking on that if you wish.

113
MR. PACKER: Would you mind repeating the question?

114

MR. JANIGAN: Sure. In the initial filing in RP-1999-0017, was there any language in the evidence in that original filing, to indicate that the $5 million was not the total cost of unbundling as estimated then by Union?

115
MR. PACKER: I have the RP-1999-0017 evidence binder. Under Exhibit B, tab 5 appendix D there is a letter to the Board from Mr. Byng, with respect to the -- that request for a deferral account. The $5 million discussed in that letter specifically related to the unbundling of transportation and storage, which was the issue at hand during that proceeding. The ADR agreement talks about the fact that there will be another proceeding required to provide access. I think my by implication, there had to be other costs or there was a potential for other costs to deal with the second proceeding. The RP-1999-0017 proceeding was only dealing with storage and transportation.

116
MR. JANIGAN: So your evidence is that the $5 million in that -- in that proceeding was only to cover storage and transportation?

117
MR. PACKER: I think the question you asked was -- is there any evidence in that proceeding and I gave you a reference.

118
MR. JANIGAN: Yes.

119
MR. PACKER: To that effect.

120
MR. JANIGAN: No but what I'm -- what I'm asking is, my original question I asked -- whether or not there was any evidence that the $5 million was not to cover all of the costs of unbundling? And your answer to me, as I understood it, was that the letter of Mr. Byng that you cited, goes to show that the $5 million was to cover the storage and transportation. And by implication, there will be more cost as associated with bringing unbundling to the general services market. Is that what the evidence was that was presented to the Board in RP-1999-0017? The initial evidence?

121
MR. PACKER: I'm not quite sure what the question is anymore, after our discussion, but I did give you a reference to an exhibit in the RP-1999-0017 case that talked about a request for a deferral account that was specific, at that time, to the first phase, being storage and transportation.

122
MR. JANIGAN: So -- sorry, I'm sorry, go ahead.

123
MR. PACKER: The ADR identifies that there will be another proceeding to deal with giving general service customers access.

124
MR. JANIGAN: Well, Mr. Packer, let me just deal with the original filing first before we get to the ADR agreement.

125

In the original filing, or what you -- is what you are saying by citing that evidence, is what you're saying, that the initial $5 million that was cited by the company as their estimate for unbundling, covered only storage and transportation?

126
MR. ANDREWS: Yeah, that's generally correct.

127
MR. JANIGAN: And that -- and I believe by interrogatory in March of 2000, Union advised that the costs had escalated to $7.5 million. And that, once again, was only for storage and transportation and not for the total costs of unbundling.

128
MR. ANDREWS: That's correct.

129
MR. JANIGAN: And -- you've indicated that the correspondence of Mr. Byng provides evidence that the Board and intervenors were advised that there will be another set of costs presented later that will increase this amount?

130
MS. JACKSON: I don't want to interrupt my friend, but maybe to assist this I've been handled Exhibit B tab 1, page 85 of RP-1999-0017, and I read there at line 15: "As agreed to by all stake holders during the initial consultative sessions held by Union, Union will be addressing unbundling in two stages requiring two separate OEB applications. The first stage of unbundling is outlined in Union's application and as addressed in this evidence involves the unbundling of upstream transportation and storage. The second stage of unbundling is related to billing, and it is that process that will provide for the determination of the wholesale delivery."

131
MR. JANIGAN: With respect, I believe that that deals with the phasing of the consideration of the matters by the Ontario Energy Board. The presentation of the costs in the context of RP-1999-0017 was done in the context of the unbundling process. And what I am -- what has been made clear to me today, by your Panel, is that the costs that were presented as the costs of unbundling in RP-1999-0017 were the costs only related to storage and transportation.

132
MS. JACKSON: Well, the only caveat I have with that of course and it may ultimately be a matter of argument, the Panel has not accepted the initial premise of what's just been said to the Board. I only interjected in an effort to be helpful, I didn't wish to interfere with my friend's cross-examination. The Board -- the Panel, I respectfully suggest, has not accepted his premise, but I'll try to stay out of it.

133
MR. JANIGAN: I thought it had. Am I not correct, Panel, that when we just went through the cost, the $5 million and the $7.5 million, that was presented in the RP-1999-0017 proceeding, that in fact, those costs only related to storage and transportation, not to the costs of -- of bringing --

134
MS. JACKSON: That wasn't what I was suggesting they hadn't accepted.

135

MR. JANIGAN: Okay. So they had accepted that, is that what you're saying, Ms. Jackson?

136
MS. JACKSON: I think I'm not helping, Mr. Chair, and I'll just let Mr. Janigan carry on with his cross-examination.

137
MR. SOMMERVILLE: Just before he does, I missed the reference that you made. Exhibit B, tab 1, and there was a further reference.

138
MR. JACKSON: Page 85.

139
MS. JACKSON: Page 85, I think, yes.

140
MR. SOMMERVILLE: Thank you kindly.

141
MS. JACKSON: Line 15.

142
MR. SOMMERVILLE: Thank you.

143
MR. JACKSON: Mr. Janigan, do you want to just try to clarify that then? It seems that, from what I'm hearing, that the costs that were mentioned as -- in EBRO 1999-0017, were initially 5 million and they were updated to seven and a half million, as I have understood this Panel, and please correct me if I'm wrong, and that those relate primarily to unbundling the transportation and storage. But do not relate to billing changes that needed to be dealt with in a later proceeding? Is that correct?

144
MR. ANDREWS: Yes, that's generally correct.

145
MR. JANIGAN: And in your view, the -- I know, Mr. Packer, you've cited the letter of Mr. Byng that would -- has evidenced that would indicate that additional costs were to be proposed by Union. Apart from that and the ADR agreement cited by counsel, is there any other evidentiary reference that would lead us to believe that those costs did not include the costs of bringing incremental unbundling to the general services market?

146
MR. PACKER: I don't know. I don't have all of the volumes.

147
MR. JANIGAN: Okay.

148
MR. PACKER: Nor is it easily -- something I could leaf through this morning.

149
MR. JANIGAN: Now, do you recall what was given in evidence by Union as to the costs of unbundling the general -- the contract services market in RP-1999-0017?

150
MR. ANDREWS: I'm sorry, Mr. Janigan, I guess I'm just struggling a little bit with your questions. Would you mind just repeating it?

151
MR. JANIGAN: Certainly. First of all, the question, do you recall whether or not evidence was given as to the costs of unbundling the contract services market in EBRO 1999-0017?

152
MR. ANDREWS: There was no specific estimate for the large volume market, the contract market. I'm sorry, did I misunderstand your question?

153
MR. JANIGAN: Are you conferring with Mr. Packer? I didn't know if you had something else to add.

154
MR. ANDREWS: No.

155
MR. PACKER: What I think -- I think we may have misunderstood your question. Was your question whether we had identified during the RP-1999-0017 proceeding the costs of providing access to general service customers?

156
MR. JANIGAN: No. It was for the contract services branch.

157
MR. ANDREWS: No. No, we hadn't -- we did not provide a specific estimate in the first proceeding.

158
MR. JANIGAN: So there -- the -- those costs would have been part of the general estimate of costs of 7.5 million?

159
MR. ANDREWS: Yes, and again as I indicated earlier, to the extent that we didn't -- we couldn't carve out an exact estimate for the contract market, it's fair to say that the costs of the estimate that was provided in the first proceeding would have included costs for that market.

160
MR. JANIGAN: Now, as I understand from your testimony yesterday, there is less likelihood today that these costs of unbundling will increase again?

161
MR. ANDREWS: That's our best guess at this point.

162
MR. JANIGAN: Okay. You have thoroughly scoped out the unbundling process as I understand it?

163
MR. ANDREWS: Yes we have. We think we have.


164
MR. JANIGAN: Yeah. Now, in --

165
MR. JACKSON: Mr. Andrews, I just am not sure I understood the question -- or the answer to the previous question, but you were addressing some costs that would have been included in the 5 million, I believe. Did I hear you correctly?

166
MR. ANDREWS: No.

167
MR. JACKSON: No. You were talking about the costs -- you were, once again going back to this estimate of 500, $600,000 that would be the costs associated with a stand alone provision of web-based and other services to the large contract volume customers; were you?

168
MR. ANDREWS: Well yeah, we did cover that ground again. The estimate was the 4 to 500,000 for the contract market. I think Mr. Janigan was asking me about whether or not we feel that the $15.7 million estimate that we currently have before us, is that our best estimate as to whether -- of the total cost and do we feel confident we've scoped out the unbundling process.

169
MR. JACKSON: Okay. Yeah, I think it was the question before that, that I was just a little slow in processing here, and I was querying you on. But, it goes to -- I think it goes to the question of -- of what you meant when you said "I was generally correct in my summary of -- of the first estimate of costs, including costs to unbundle storage and transportation. And the second being to deal with billing matters. And I thought -- what did you mean by, by generally in that sense. And was reflecting on that and wondering if what you mean is that there certainly were some billing costs to deal with the unbundling of transportation and storage. Were there?

170
MR. ANDREWS: Yes, there were.

171
MR. JACKSON: Okay good. I -- I appreciate it if you would just give me some of the finer points, too. Just to help me as I go along because I'm trying to keep up with you but generally, add more meaning. I'm glad I asked you. Thank you.

172
MR. ANDREWS: Don't hesitate.

173
MR. JANIGAN: Now, in VECC interrogatory C22.25, you note as well that you do not expect any additional on going cost as associated with offering unbundled service to small volume customers. Do you anticipate any costs for large volume customers? Any additional costs?

174
MR. ANDREWS: Any additional costs?

175
MR. JANIGAN: Yes.


176
MR. ANDREWS: No, we do not.

177
MR. JANIGAN: Now, in the event of a cost overrun -- not that your estimates aren't accurate -- what are you going to do? Will you simply allocate these costs by your weighted customer average?

178
MR. PACKER: Our proposal is to allocate actual cost as associated with unbundling two rate class in proportion to weighted average number of customers. As Mr. Andrews has indicated earlier, he doesn't expect there to be cost overruns.

179
MR. JANIGAN: Well, what if there is?

180
MR. PACKER: Our proposal is to allocate actual cost.

181
MR. JANIGAN: So what will happen -- let's say the actual cost is 20 million. Will that simply be allocated out and collected through rates in the way you've suggested, without further approval by the Board or what will happen?

182
MR. PACKER: The -- the actual -- sorry. In the recovery of these costs is subject to the customer review process.

183
MR. JANIGAN: Yes.

184
MR. PACKER: In the 2001, 2002 customer review process, we would be dealing with costs up until the end of 2001. And the 2002 costs would be subject to the 2003 customer review process, when we actually go to dispose of the -- in the deferral account balances. So I would expect there to be an opportunity for intervenors and the Board to look at cost overruns, should they occur.

185
MR. JANIGAN: So that in effect, the prudency of those additional costs would still be an issue? Would I be correct? About the 15.7 you presented today?

186
MR. PACKER: We are asking for the Board to decide on prudency in this case, and, as Mr. Andrews has indicated, we don't believe there will be cost overruns. I think the implication of actual -- of disposing of the balances through the customer review process, would be that if there are significant overruns, there would be an opportunity for parties to evaluate what's happened and why.

187
MR. JANIGAN: Okay I'm just trying to get at what -- our opportunity to evaluate what's happened and why. What happens if the event that, for example, these costs double?

188

MR. PACKER: If we -- if the costs come in at 15.7 million or around that number, I wouldn't expect there to be a further prudency review. If they doubled, I think there is an opportunity through the customer review process to deal with that matter.

189
MR. JANIGAN: And if the matter is an issue then it would be a subsequent prudency review of the cost overrun; is that what you say?

190
MR. PACKER: Of the overrun --

191
MR. JANIGAN: Yes. Okay.

192
MR. PACKER: I believe that to be correct, yes.

193
MR. JANIGAN: But the allocation amount would be set, right, or the allocator, the way you allocate, would be set by this proceeding, presumably?

194
MR. PACKER: I think that's correct, because -- and the reason I say that is that the large volume market already has access to the unbundled service so the cost overrun would be to provide the service to the general service markets. So the use of weighted average number of customers, I would think would probably still be appropriate in the context of a cost overrun, give the market that the overrun was incurred to provide service to.

195
MR. JANIGAN: Okay. I want to deal with some of the cost particulars, and it seems to me that your interrogatory responses at C1.15 and yesterday's response at C14.12 are the closest that we have to a detailed breakdown of costs. Would that be correct?

196
MR. ANDREWS: Yes, it is.

197
MR. JANIGAN: Now, if we turn up C1.15 -- I'm looking at page 2 -- it's difficult to tell what expenditure items make up the individual amounts that are listed in C1.15. And if we look at C14.12, we have a general description of the work but there is no further breakdown of these items and the labour contracts with software manufacturers, equipment, et cetera. Do you agree with me?

198
MR. ANDREWS: Yes, I agree with that.

199
MR. JANIGAN: Is there some reason why there was no disaggregation of these amounts provided?

200
MR. ANDREWS: Excuse me. We could do -- we do do some further disaggregation. We didn't disaggregate by vender because of the sensitivities around divulging what some of the -- excuse me, what -- I have a frog in my throat.


201
What we had spent with each of the vendors.

202
MR. JANIGAN: Well, it would be helpful to us if -- if you could undertake to do such a disaggregation, simply because these numbers -- or at least these line items are not that meaningful without it.

203
MR. ANDREWS: Yes. There was an undertaking from yesterday from Mr. Vegh, I think, to do some of that disaggregation and we can follow up with the rest of these items.

204
MR. JANIGAN: Okay. Excellent.

205
MR. JACKSON: Would that -- would we just agree that that's an expanded undertaking from yesterday? Or -- I see some people nodding their heads. Is that satisfactory way to deal with it, Ms. Jackson?

206
MS. JACKSON: Yes. I take it this is a -- to provide a further disaggregation, as Mr. Andrews has already undertaken to do, with respect to contract administration, a similar breakdown with respect to daily gas management, billing REMs, IT infrastructure, and so on.

207
MR. JACKSON: Yes. That seems a satisfactory way to do it and it's all in one package.

208
MR. JANIGAN: Now, who is doing this work for Union?

209
MR. ANDREWS: It's a combination of Union's internal IT resources and a number of external IT vendors.

210
MR. JANIGAN: How is it costed, in terms of your internal -- your internal employees?

211
MR. ANDREWS: The $15.7 million represents incremental costs only, so to the extent that we incurred a cost by third parties or I guess incremental to -- to the project. The costs accumulated with Union's internal IT are not capitalized that's our standard accounting practice.

212
MR. JANIGAN: So the internal work that's being done does not appear in the $15.7 million?

213
MR. ANDREWS: No. The salaries associated with the -- our internal IT resources do not appear as part of the $15.7 million.

214
MR. JANIGAN: So what we're looking at in terms of the 15.7, are purely incremental and exterior to the company?

215
MR. ANDREWS: There would be some expenses with respect to travel expenses, with internal employees but that's the extent of the costs associated with internal resources.

216
MR. JANIGAN: But those are incremental.

217
MR. ANDREWS: Those are incremental, that's correct.

218
MR. JANIGAN: It wouldn't be -- okay.

219
Now, are there companies which are related or affiliated with Union Gas, or its parent, doing any of the work, apart from Enlogic?

220
MR. ANDREWS: Apart from Enlogic?

221
MR. JANIGAN: Let me take the first question. Are there companies which are related or affiliated with Union Gas or its parent doing any of this work that's represented by the $15.7 million?

222
MR. ANDREWS: Yes, there is.

223
MR. JANIGAN: Who are those companies?

224
MR. ANDREWS: Enlogics.

225
MR. JANIGAN: Is there any other companies?

226
MR. ANDREWS: No.

227
MR. JANIGAN: And as I understand it, and looking at Exhibit C1.15, that Enlogic's billing is related to the disaggregation and presenting storage charges -- that is about the 5th line down the page on page 2 of Exhibit C1.15.

228
MR. ANDREWS: That is correct.

229
MR. JANIGAN: Yeah. Now, are there savings afforded to Union in other parts of its operation as a result of the incurring of these costs for unbundling?

230
MR. ANDREWS: No, there are not.


231
MR. JANIGAN: Now, Exhibit C22.39, which is one of the recent interrogatories from yesterday, requests information as to how these costs will show up in rates. I wonder if it's possible to be somewhat more responsive than this answer, in terms of indicating how the costs will actually sound in rates?

232
MS. JACKSON: I'm looking at C22.39. Is that the right interrogatory?

233
MR. JANIGAN: Yes, that's correct: Yes, please provide a breakdown of the 15.7 million referenced in Exhibit C1.15 with regard to type of expense zoned and related cost, capital related cost.

234
MR. ANDREWS: Yes, I do have that interrogatory, but I guess I certainly couldn't deduce from the question what you were getting at was --

235
MR. JANIGAN: Is any of this going into rate base?

236
MR. PACKER: No.

237
MR. JANIGAN: And it will all be allocated as a -- in what fashion?

238
MR. PACKER: We are proposing to allocate the costs in proportion -- allocate the cost to rate class in proportion to weighted average number of customers, and then collect the amounts -- the actual amounts expended in each year when we collect the other deferral account balances for each year.

239
MR. JANIGAN: Okay. So is this simply a matter of the -- being cleared to rates when the deferral account balances are cleared?

240
MR. PACKER: Being cleared to customers. There is no impact on rates.

241
MR. JANIGAN: Yes, right. Thank you.

242
MR. JACKSON: Sorry, I don't think I understood that.

243
MR. PACKER: It's a one time -- in theory it's a one time collection. Every time we dispose of the deferral account balances, except in the instance of a rate rider being proposed to recover deferral account balances and rate retroactivity, it doesn't -- doesn't form part of our base rate.

244
MR. JACKSON: Okay. But it's still -- it's still cleared through the rate making process, either as a one time charge or somehow amortized over a period of time?

245

MR. PACKER: Correct. It's cleared through the rate making process. I wanted -- wanted to clarify that it wasn't forming part of a rate. It's not -- it's not an ongoing adjustment to our rate. Once it's cleared it's -- it's disposed of.

246
MR. JACKSON: I think I see the distinction you're making. You're saying rate riders and one-time charges are not a part of the basic rate calculation.

247
MR. PACKER: Correct.

248
MR. JACKSON: Okay. Thank you. I understand it that way. Thank you.

249
MR. JANIGAN: Now, back to C1.15, and just looking at the contract administration category. At the time of this interrogatory, you had spent 5 million to date but no one was using unbundled services. So was the contract administration functionality sitting unused?

250
MR. ANDREWS: By the small volume market, yeah, that's correct.

251
MR. JANIGAN: And it was being used presumably by the large volume market?

252
MR. ANDREWS: It was there to be used.

253
MR. JANIGAN: That's not -- but there is no large volume or small volume customers; is there not?

254
MR. ANDREWS: I'm sorry, can you repeat the question?

255
MR. JANIGAN: There is no small volume or large volume customers that have made use of the unbundled services. Is that --

256
MR. ANDREWS: That's correct.

257
MR. JANIGAN: So effectively it was sitting unused?

258
MR. ANDREWS: That's correct.

259
MR. JANIGAN: Okay. Now, the daily gas management figure by this interrogatory, the amounts spent to date was 1.3 million.

260
MR. ANDREWS: Yes.

261
MR. JANIGAN: Was this functionality working if there were no customers?

262
MR. ANDREWS: Not for the unbundled service.

263
MR. JANIGAN: Was it working for anyone else?

264
MR. ANDREWS: I'm sorry. Could you please repeat that?

265
MR. JANIGAN: Was this working for anyone else?

266
MR. ANDREWS: Not yet. It will be when customers take the service.

267
MR. JANIGAN: Under your billing item, $2.1 million, according to that interrogatory, that had been spent to date. Was this functionality working?

268
MR. ANDREWS: It's -- it will be there when customers take the unbundled service.

269
MR. JANIGAN: Currently working for no one.

270
MR. ANDREWS: It will be there when the customers take the unbundled service.

271
MR. JANIGAN: At the moment it's not being used.

272
MR. ANDREWS: Well, no customers have taken the unbundled service --

273
MR. JANIGAN: All right.

274
MR. ANDREWS: As we indicated yesterday, that we expect the customer will be there this spring.

275
MR. JACKSON: I wonder if I could just ask: That customer that will take this up this spring, are they transferring off a T1 rate, or is this a new customer and you're encouraging them to take the new rate rather than the T1 rate?

276
MR. ANDREWS: Yesterday I was referring to our largest retail energy marketer.

277

MR. JACKSON: Okay. Fair enough. So that -- yes, that logically then, we're not on a T1 rate.

278
MR. ANDREWS: That's correct.

279
MR. JACKSON: Thank you.

280
MR. JANIGAN: Looking once again at the contract administration category, I wonder if you could take a look at Exhibit B, tab 2, page 2.

281
MR. ANDREWS: I have it.

282
MR. JANIGAN: And it indicates that the contract administration process relates to establish and maintaining direct purchase and ABC contracts.

283
MR. ANDREWS: Yes.

284
MR. JANIGAN: Correct?

285
MR. ANDREWS: Yes.

286
MR. JANIGAN: Now, recovery of the costs that enable direct purchase customers, have generally been recovered in the DPAC charge; am I correct?

287
MR. ANDREWS: The cost to -- could you just repeat that, please?

288
MR. JANIGAN: In terms of the cost of the administration associated with direct purchase customers, they generally have been recovered in the DPAC charge; am I correct?

289
MR. ANDREWS: If by administration, if you're referring to the ongoing costs?

290
MR. JANIGAN: Yes.

291
MR. ANDREWS: Yes, that's correct.

292
MR. JANIGAN: Now, with respect to the ABC contracts, this cost item, I will assume it refers to the administration of price changes for ABC contracting; am I correct on that?

293
MR. ANDREWS: This price item?

294
MR. JANIGAN: The -- when you refer to the fact that these costs are associated with incorporating the -- a storage component into the ABC process in this particular bit of evidence.

295
MR. ANDREWS: Yeah. The costs associated with contract administration is part of the $15.7 million, does include the ability for what we call multiple price.

296
MR. SOMMERVILLE: I didn't hear the last word.

297
MR. ANDREWS: The customer review process associated with contract add administration, which are part of the $15.7 million total, do include some new functionality that we called multiple price points that Mr. Janigan is referring to. Excuse me.

298
MR. JANIGAN: I'm curious why these costs not be assigned through the DPAC charge to ABC customers.

299
MR. ANDREWS: The reason for that is that when we designed the unbundled service and we take a look at the complexities -- particularly around the daily gas management piece -- and I think I indicated yesterday that we're having to create a nomination, each and every day, for the marketer for each contract, you have to account for each of the customers in that contract -- there could be thousands of customers in a contract, or thousands of customers distributed over several contracts. It's a very onerous and very complex procedure which is why we needed -- which is why we wanted to develop the web-based model and be able to communicate that information to the marketers.

300
Now, there are lots of contracts currently in place today with marketers with respect to ABC. We fully expect that they're going to need and want to consolidate those contracts into fewer contracts to make the daily gas management part of the process more manageable and more practicable. And that's why we designed the feature that we call multiple price points. It was in relation and driven by the design of the unbundled service.

301
MR. JANIGAN: Why don't we make them pay for it, though?

302
MR. ANDREWS: It was driven by the need for -- to make the unbundled service work. That's the driver. I wouldn't have done it otherwise.

303
MR. JANIGAN: So the people who are taking advantage of this should not necessarily have to pay the costs of having a service delivered to them?

304
MR. ANDREWS: I don't understand your question about people taking advantage of it.

305

MR. JANIGAN: Well, I guess what you're saying; we can't -- we shouldn't do this because this is something that's happening anyway, and we shouldn't visit these costs on the ABC customers even though they are, presumably, benefiting from the unbundled services provided to them.

306
MR. ANDREWS: Well again, when you look at the design of the unbundled service, you have to look at it from the point of a marketer in the case they want to take a customer in the unbundled service to the billing process, you have it look at all the process in between those two points. And the driver for the multiple price points was the unbundled service. It's the only way we can make it work for the marketers. Therefore, it makes sense, to me, that you would allocate all of these costs and as Mr. Packer had proposed.

307
MR. JANIGAN: If you were ordered to by the Board, could you directly assign the system-changes cost of contract administration to the DPAC rate and the ABC charge, based on the benefits that were provided to these two categories?

308
MR. JACKSON: What does the acronym DPAC stand for, please?

309
MR. JANIGAN: Direct purchase administration charge, Mr. Chairman.

310
MR. JACKSON: Thank you.

311
MR. PACKER: The question -- as I understood it, the question was could we, if directed to, charge for some of these things through the direct purchase admin charge or the ABC service fee, could we do so? Yes. It would depend on how that directive was provided. If the directive said there -- there is X amount of dollars that you need to recover through those charges, I guess one could do the calculations and come up with the charge. I think what Mr. Andrews was identifying is it's -- those costs are not easily separable from the costs of unbundling, so if that was left with us to come up with it would be difficult, very difficult to do.

312
MR. JANIGAN: But in theory, these costs could be assigned in that fashion. If you knew the costs. If you ascertained; What's the cost of an ascertainment that could be assigned in the fashion we suggested?

313
MR. PACKER: I think Mr. Andrews described why it wasn't appropriate in our view, but if -- the theory references is to, can you take a defined cost and spread it over your defined billing units, yes, that could be done.

314
MR. JACKSON: But I don't think that was the question. It was -- whether or not the costs could be allocated by Union, based on the benefits -- was the phrase I heard. And I think that begs another question, but I don't want to lead you.

315
MR. JANIGAN: Well could you do that?

316
MR. PACKER: Could we allocate the costs based on the benefits?

317
MR. JANIGAN: Yes.

318
MS. JACKSON: Let me just ask the specific question: What benefits to whom is Mr. Janigan assuming in his question?

319
MR. JANIGAN: Presumably use of the service.

320
MS. JACKSON: By whom?

321
MR. JANIGAN: By ABC.

322
MR. PACKER: I go back and look at in the context of why it is we're unbundling, why the Market Design Task Force reports suggested that it was a good idea and it was to bring a more competitive commodity market to the general service category. So those who benefit, in theory, are the general service end-use customers which is why we proposed that those are the customers that bear the largest share of the cost recovery.

323
MR. JANIGAN: I know you don't like -- you wouldn't like to do it and you think it's against the principles you've cited, but could you do it?

324
MS. JACKSON: Well, Mr. Janigan, the premise of your question is that it's being allocated on the basis of benefit and the witnesses have told you where they think the benefit is, and that's not where you seem to assume it is. So, whether they could -- if they're going to do it on the basis of an allocation of benefit, I think they've told you what they would do.

325
MR. JANIGAN: Well, perhaps, then, we can limit it to the use of the service.

326
MS. JACKSON: By whom?

327
MR. JANIGAN: By ABC.

328
MS. JACKSON: What does -- I don't know what my friend means when he says the services used by ABC.

329
MR. JANIGAN: Presumably, the reason that in fact the ABC customers would use the increased functionality would be to obtain benefits, but let's leave the benefits question out of it.

330
MS. JACKSON: I guess -- the ambiguity is when my friends says the ABC customers, does my friend mean marketers or does my friend mean the ultimate consumers of the service? I think it's important for the line of questioning that's being pursued to be specific.

331
MR. JANIGAN: Marketers.

332
MR. PACKER: You're going to have to put all that together for me in the form of a question. I have to admit, I didn't follow all of that.

333
MR. JANIGAN: Okay. Let me see if I can simplify the process. What I'm trying to get at is, the ability of Union to look at the direct -- look at the contract administration process, expenses, and allocate them to the ABC or the DPAC rate, based upon use. Could you do that?

334
MS. JACKSON: Use by whom?

335
MR. JANIGAN: Marketers.

336
MR. JACKSON: Where usage is measured in what units?

337
MR. JANIGAN: Number of contracts.

338
MR. JACKSON: Okay. Fair enough. Is that question, then, clear?

339
MS. JACKSON: I'm sorry to do this, but do we mean the number of contracts between the marketer and the utility or the number of contracts between the marketer and their customers?

340
MR. JACKSON: Point very well taken. Mr. Janigan?

341
MR. JANIGAN: Number of their customers: In each of the contracts.

342
MR. JACKSON: Mr. Janigan, would this be a question you might wish to formulate in the break?

343
MR. JANIGAN: That would be excellent.

344
MR. JACKSON: And put it in writing, and perhaps if Union can then respond to it without too much trouble, we can give it an undertaking number?

345
MR. JANIGAN: That would be fine.

346
MR. JACKSON: Thanks very much.


347
MR. JANIGAN: Sorry I thought you were going to take the break now.

348
MR. JACKSON: Well, Mr. Janigan, I think we're getting pretty close to that.

349
MR. JANIGAN: That's okay.

350
MR. JACKSON: How long would you be after the break, Mr. Janigan? I think you estimated 45 minutes, but I realize that you're asking the questions not giving the answers. So have you another estimate you could give us?

351
MR. JANIGAN: I have grossly under-estimated my time, unfortunately. I would say another 45 minutes, likely.

352
MR. JACKSON: Okay. Let's -- let's break for 20 minutes at this point in time. Good. Thank you.

353
--- Recess taken at 10:45 a.m.
354
--- On resuming at 11:15 a.m.
355
MR. JACKSON: Thank you. Please be seated.

356
MR. JACKSON: Mr. Janigan.

357
MR. JANIGAN: Yes, thank you, Mr. Chairman. I apologize, we still require some further time to formulate the undertaking, and I apologize for the delay, but I think what we will gain in terms of clarity from the undertaking will be worth the time spent in further drafting it.

358
MR. JACKSON: Right. So you will get back to us, then, perhaps another day?

359
MR. JANIGAN: Yes. We should -- should be available tomorrow morning if that's -- if that's satisfactory to Union.

360
MS. JACKSON: We're certainly in favour of clarity, Mr. Chairman.

361
MR. JACKSON: Thank you. I think we all are. Thank you.

362

MR. JANIGAN: I just want to return to a couple of areas in the previous exchange in order to try to set the context for what might be possible in terms of assignment of costs. I want to look at how two current functions take place within the utility and the market currently and those are the assessment of the direct purchase administration charge and as well, ABC T-service. I wonder if you could explain briefly how the direct purchase administration charge works. What does it recover? What are the cost components? How do you calculate it?

363
MR. ANDREWS: Mr. Janigan, I think that -- I don't have all the components of those charges I guess at the top of my head. I think generally speaking though, the direct purchase administration charge recovers ongoing costs associated with managing direct purchases.

364
MR. JANIGAN: And what kind of costs are put in the direct purchase administration charge? And how do you calculate it? My question seems to be more complex than I thought.

365
MR. ANDREWS: Sorry, I just don't have a recall, at the top of my head, all of the components that make up those fee structures. I guess I wasn't really prepared to talk about that today so --

366
MR. JANIGAN: I'm not --

367
MR. ANDREWS: I apologize.

368
MR. JANIGAN: What I'm saying, you may be over thinking what I'm asking you to do.

369
MR. ANDREWS: Okay. Well, I think what I said was, generally speaking, those fees recover the ongoing costs associated with managing direct purchase, and essentially recover the cost of salaries of certain individuals associated with that process.

370
MR. JACKSON: Is there an analogy for large volume customers too, then? An analogous charge to large volume customers or is that somehow included in the development of the rate for large volume customers, the cost of employees that would have to deal with them?

371
MR. PACKER: My recollection is that there used to be a similar charge in the industrial market, at least in the north but we folded those costs into the delivery rate, a few years ago.

372
MR. JACKSON: Thank you.

373
MR. JANIGAN: Now you mentioned in terms of the salaries for employees that are involved in the administration. What -- what those employees doing with respect to this direct purchase administration?

374
MR. ANDREWS: Essentially involved with the putting the contracts together and other administrative matters associated with that.

375

MR. JANIGAN: So it's an allocation of salary time. Is there any other component to the -- for the DPAC charge that you're aware of?

376
MR. ANDREWS: Not that I'm aware of.

377
MR. JANIGAN: Okay. Now, how do you charge this, this fee? Would this be preferable for me to put in an undertaking? In terms of --

378
MR. PACKER: Give me a minute and I may be able to provide the information requested. I believe those charges appear in a rate order but because we didn't change them recently it may be a rate order that's been in existence for a couple of years so, if that's what you're after, it may be better to deal with it in an undertaking.

379
MR. JANIGAN: Okay. What -- what I want to do is I want to take it from the standpoint of what goes into the charge, what are the cost components of the charge, how you allocate that charge, and how it's billed to the customers and received by Union. May I have an undertaking to do that?

380
MR. ANDREWS: Yes, that would be fine.

381
MR. JACKSON: We'll give that a number, Mr. Moran.

382
MR. MORAN: G2.2.

383
MS. JACKSON: I think, that's G2.3. 2.2 is Mr. Janigan's question, that he's going to write.

384
MR. MORAN: We haven't given that a number yet. We're still waiting for the question.

385
MR. JACKSON: Okay, thank you. So that will be G2.2.

386
MR. MORAN: Two.

387
MR. JACKSON: Thank you.

388
UNDERTAKING NO. G2.2 TO PROVIDE BREAKDOWN OF CHARGES

389
MR. JANIGAN: And I was going to go through the same series of questions with respect to the ABC T-service. Is it possible that same analysis could be provided for the ABC T-service?

390

MR. ANDREWS: Yes, it can.

391
MR. JACKSON: Mr. Moran, does it serve any useful purpose to give that a separate number for anyone?

392
MS. JACKSON: I wanted to clarify the question, if I could. I take it that the ABC service, my friend means the billing service, the agent billing and collection service?

393
MR. JANIGAN: That's correct.

394
MS. JACKSON: Not the underlining direct purchase arrangements.

395
MR. JACKSON: Thank you for the clarification. Shall we just give that a separate number, then?

396
MS. JACKSON: Thank you.

397
MR. MORAN: That will be G2.3, Mr. Chair.

398
MR. JACKSON: Thank you.

399
UNDERTAKING NO. G2.3 TO PROVIDE AN ANALYSIS FOR THE ABC T-SERVICE

400
MR. JANIGAN: Okay. I would like to turn to a new area involving the allocation of costs or the principles behind your allocation of costs, and I note in your Exhibit C2 2.35, in one of the new interrogatories responses, that you appear to assert that your proposed allocation of unbundling meets the principles of causality.

401
MS. JACKSON: I'm sorry, cost of, sorry Mr. Janigan. Cost-what?

402
MR. JANIGAN: Causality. Am I reading too much into that response?

403
MR. PACKER: Sorry was that C22.35?

404
MR. JANIGAN: That's correct.

405
MR. PACKER: And your question was related to cost causality?


406
MR. JANIGAN: It seems to me that, what you were asserting here and I think throughout the different interrogatories, that you appear to be asserting that your proposed allocation of unbundling costs meets the principle of cost causality.

407
MR. PACKER: That's correct, because the systems that we're designing and developing are transaction based information systems and costs vary with the number of transactions. And the number of transactions is also driven by the number of customers.

408
MR. JANIGAN: Now, on page 63 of the transcript yesterday, and I wonder if you could turn that up.

409
MS. JACKSON: Page?

410
MR. JANIGAN: 63 from the electronic copy. I hope it's coincidental with the --

411
MS. JACKSON: On the hard copy there are no, there are question numbers. Do you have a question number, Mr. Janigan?

412
MR. JANIGAN: It starts with -- "Mr. Warren: Is it not fair, though, sir, in kind of an inverse proportion that --"

413
MR. PACKER: That will be a little difficult to find.

414
MR. JACKSON: In your copy, Mr. Janigan, do you have sort of paragraph numbers?

415
MR. JANIGAN: I've cut and pasted this, and I've pasted it --

416
MR. JACKSON: Sorry, you said it was on what page?

417
MR. JANIGAN: It's page 63 in the electronic copy.

418
MR. JACKSON: That certainly is a problem. I'm sorry. I'm actually working with three different copies here myself, trying to -- trying to get up to speed with it, Mr. Janigan, and I'm having a little trouble, but --

419
MR. JANIGAN: Okay. I wonder if I could have a moment, if I could look at the hard copy. I could probably find the --

420
MR. JACKSON: If you can do that, that would help.

421
MS. CREIGHTON: Why don't you try looking at line 352. I think I may have found it.

422
MR. JACKSON: 352, right.

423
MR. JANIGAN: That's very much, Ms. Jackson.

424
MS. JACKSON: That was Ms. Creighton. I'm not that fast.

425
MR. JANIGAN: Sorry, Ms. Creighton. I didn't look up.

426
MR. JACKSON: This is the transition to ERF, I'm told.

427
MR. JANIGAN: Boy it's difficult.

428
Mr. Warren indicates: "It's not fair, though, sir, in kind of an inverse proportion relationship that the benefits of unbundled service accrue principally on the basis of volume." You indicate: "That's not correct. Absolutely not correct. I've stated in my opening comments that one of the reasons unbundling -- we are unbundling is to" -- "as perfect the market design --"

429
MS. JACKSON: That's: Per the design. That's per the Market Design Task Force."

430
MR. JANIGAN: 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, and in addition to that, they have already have access to it. The incremental benefits available to industrial customers, as a result of unbundling, is far less than to residential customers through their marketer."

431
Now, I'm puzzled by that statement, Mr. Packer, in so far as I was given to understand, that competition already existed in the commodity gas market for small volume customers.

432
MR. PACKER: I guess what I was referring to or what I had in mind when I was making those comments was the May 31st, 1997 working group report. On page 10, at the top, there is a statement which I took to be fact, that says: "A competitive commodity market now exists for industrial and large volume customers and institutional buyers. The extent to which residential customers currently benefit from competitive commodity supply is controversial."

433
MR. JANIGAN: So to the extent that a workable competitive market exists for small volume customers, there's obviously less justification for allocation of these unbundling costs, to small volume.


434
MR. PACKER: There may be less justification for unbundling. We've gone down that road fairly sufficiently.

435
MR. JANIGAN: I take it that what you are enabling throughout expenditure of these costs is for the REMs to offer a service whose costs won't be fully picked up by the customers that use the service. Is that correct?

436
MR. PACKER: No.

437
MR. JANIGAN: What's wrong about that statement?

438
MR. PACKER: The marketers are acting as agents for the end-use customers.

439
MR. JANIGAN: But they don't represent all the customers, do they?

440
MR. PACKER: Marketers currently don't -- there currently is a system supplied offering, yes.

441
MR. JANIGAN: What I'm saying is that all customers will be paying for the costs of the service.

442
MR. PACKER: Under our proposal, all customers pay for the option to take the unbundled service. And one of the drivers, as I understood, it as a result of the Market Design Task Force, is to try and create a more competitive market, which in theory everybody would benefit from. In the general service category.

443
MR. JANIGAN: But there will be a class of customers that don't choose that service but will still pay the costs for providing that service. Is that right?

444
MR. PACKER: You have the option of choosing the service in the future.

445
MR. JANIGAN: They have the option, but there will be a class that won't use the service but will still pay.

446
MR. PACKER: I don't know the extent of direct purchase migration over the next few years.

447
MR. JANIGAN: Presumably there will be some portion of customers that will use the service and not -- that will not use this service and will be forced to pay?


448
MR. PACKER: I have no way of knowing the extent of direct purchase in the future.

449
MR. JANIGAN: Okay. Aren't what you're saying is all system customers will be forced to subsidize the choosing customers because you've decided it would be good for them?

450
MR. PACKER: I take issue with the subsidization characterization.

451
MR. JANIGAN: Isn't a subsidy when one class of customers pays the cost for services provide to another class of customers.

452
MR. PACKER: The costs are being incurred to provide an unbundled option. Everybody has access to the unbundled option.

453
MR. JANIGAN: Okay. And you indicate that -- I think you've indicated in your testimony that the REMs in your view, represent the small volume customer. Am I correct on that?

454
MR. PACKER: We've indicated they act as agents for the small volume customer.

455
MR. JANIGAN: Act in a representative capacity with respect to their gas bill?

456
MR. PACKER: Marketers act on behalf of residential consumers.

457
MR. JANIGAN: How can you be confident that the benefits of this unbundling will be passed on to residential customers by the REMs?

458
MR. PACKER: Again, I'm not advocating that that is the case or is not the case. Market Design Task Force process recommended that our services be unbundled and we have done that. And my understanding is that the reason that was important was to drive out a more competitive commodity market for general service customers.

459
MR. JANIGAN: Well, the REMs are obviously under no obligation to pass on the benefits associated with this unbundling process to the customers.

460
MR. PACKER: The competitive market -- I'm not an expert in the competitive markets. But if a competitive market evolved, I would think the experts would suggest that there would be a driver for those costs savings or benefits to be passed on to consumers.

461
MR. JANIGAN: Well in the GDAR process Union made some rather pointed comments about market dominance in the residential direct purchase market; is that correct?


462
MR. PACKER: Only vaguely familiar with the GDAR process.

463
MR. JANIGAN: Well, to the extent that is there market dominance, it would be less likely those benefits would be passed on.

464
MR. PACKER: You're getting into an area of competition and I'm not an expert in competition.

465
MR. JANIGAN: I want to turn to the second part of your answer to Mr. Warren, that I cited. You also objected strongly to the idea that higher volume customers will benefit more by this process than small volumes.

466
MR. PACKER: That's correct.

467
MR. JANIGAN: Yeah. I wonder if you could turn up our -- the interrogatory 22.25 which I think was referenced earlier.

468
MR. PACKER: I have it.

469
MR. JANIGAN: Now, from our calculations, we believe that there -- the end result of your allocation will be a total cost of $13.82 or approximately $14 allocated to each residential customer as the cost of unbundling. Does that look to be about right?

470
MR. PACKER: It looks to be about right, yes.

471
MR. JANIGAN: Okay. So, to make this exercise worthwhile, these customers would have to at least get offsetting benefits; would that be correct?

472
MR. PACKER: I think you're start to go get into an area of evaluating whether we should ever unbundled and again I take you back to the commitment in the RP-1999-0017 case, to do just that, that all parties accepted. It's also something that was evident in the Market Design Task Force reports.

473
MR. JANIGAN: I don't want to guess whose finger prints are on the evidence, but I want to look at the unbundling process itself. That in order to make it worthwhile, I would assume that for these customers, they would have to get benefits offsetting at least the costs they're going to bear of $14.

474
MR. PACKER: I think the premise behind unbundling is that, through a potential for a more potential for a competitive, more competitive commodity market, that would be the outcome.


475
MR. JANIGAN: Well I wonder if you can turn up Exhibit C1.7, please.

476
MR. PACKER: I have it.

477
MR. JANIGAN: I'm going to look at page 2, which gives a comparison of typical bills. Now -- and I think these are annual numbers.

478
If we look under the bundled M2 class, notice that there is an annual storage charge of $23. I take it that that amount represents the storage costs that are in play for these customers as new competitive options are developed. In other words, they're paying this amount now, new competitive options will be developed for them, offered through the REMs, but it's that amount we're talking about that's in play for them for storage?

479
MR. PACKER: I'm not sure I follow the characterization that its -- that that's the amount in play. That is the storage that we're unbundling and that is the component of the bundled rate that relates to storage.

480
MR. JANIGAN: Well presumably whether residential customers deal with their REMs for the purposes of electing an attractive storage rate, they're generally going to be looking at what's the most price competitive or what the amount of money is that's in play now and judging the offer. I don't think they necessarily want to go with an REM for any other reason. Would you agree with that?

481
MR. PACKER: I'm sorry?

482
MR. JANIGAN: It's generally cost that's going to drive this process?

483
MR. PACKER: I'm not in a position to identify why a customer would choose a broker.

484
MR. JANIGAN: Okay. Let's say the customer is motivated by the idea of saving money in the competitive options. If you wanted to save money, associated with competitive options for storage, the annual amount that he's looking at potentially getting reduced, is the $23 annual amount. Or bundled M2 customer. Is that correct?

485
MR. PACKER: Sorry, you're going to have to repeat that. I'm not sure I got it all.

486
MR. JANIGAN: Because of the unbundled process, the REMs will be able to offer competitive options that will deal with storage costs for all small volume customers; am I correct?

487
MR. PACKER: As a result of the unbundling process, the REMs will be managing storage on behalf of the customers that are the agent for.

488
MR. JANIGAN: Okay. And presumably when they manage that storage, they will be attempting to provide reductions in the amount that the customer was previously paying to Union for provision of that storage?

489
MR. PACKER: That's one outcome.

490
MR. JANIGAN: Yeah. And the amount of money that would be in play for a bundled M2 customer or the amount that he would be concerned about affecting reductions would be the $23 annual figure.

491
MR. PACKER: If you looking strictly at storage, that's right.

492
MR. JANIGAN: Okay. Now, is there any additional storage capacity available currently?

493
MR. PACKER: In what context?

494
MR. JANIGAN: In the market?

495
MR. PACKER: There are other storage providers in the market and we occasionally release storage to the market.

496
MR. JANIGAN: Currently is there any -- storage capacity available?

497
MR. PACKER: If I wanted to go out and buy storage today, could I get some? I assume I could. It's a matter of what price.

498
MR. JANIGAN: Well it would be considerably over, I know I wouldn't take at the Union price.

499
MR. PACKER: Sorry?

500
MR. JANIGAN: It would be considerably over the Union cost for enfranchise customers, I assume.

501
MR. PACKER: Generally speaking, the current market value of storage exceeds our cost base rates, yes.

502

MR. JANIGAN: Yeah. Now, with respect to residential customers, through the REMs, these customers have already been able to enjoy potential efficiencies associated with the gas supply transportation charge through the competitive market before this unbundling, have they not?

503
MR. PACKER: Sorry, it was a -- I wasn't sure I caught who it was you're referring to.

504
MR. JANIGAN: Residential customers.

505
MR. PACKER: Is there -- as a result of the current bundled service offering, marketers on behalf of end-users receive an allocation of transportation capacity, but with that allocation comes an obligation to deliver 365 days of the year. The unbundling process we went through in RP-1999-0017 gives them some flexibility in how they use that transportation capacity that wasn't available to them as a bundled service.

506
MR. JANIGAN: And marketers have already been attempting to market options to residential customers that involve -- that may involve reductions of the gas supply transportation charge; is that not correct?

507
MR. PACKER: Again, you're -- I can't comment on the specific arrangements brokers have with their end-use clients. I'm not privy to those, but there's -- there are opportunities for the marketers to look at those types of things.

508
MR. JANIGAN: And for residential customers to save as a consequence of the options that are developed? It's possible?

509
MR. PACKER: I don't know how they would save because they received, on the transportation piece, because they receive an allocation from us, which has fairly tight constraints put around how they use it. I'm not sure how they would actually generate the savings by virtue of taking transportation from us as a bundled service.

510
MR. JANIGAN: They could however package an option for residential customer that affected savings in the amount that that customer paid for this charge?

511
MR. PACKER: That would be a result of the packaging. Transportation charges they're incurring from us, they really don't have a whole lot of flexibility in mitigating them. Because of the obligation to deliver 365 days a year.

512
MR. JANIGAN: Okay. Now, when we look at the R-10 customer, I understand this is a small, industrial, commercial class customer; is that -- am I correct on that?

513
MR. PACKER: Yes.

514

MR. JANIGAN: Okay. And for each of these categories, we see that there are a much larger amounts in play for that -- for that customer. For example, storage charges are $1,264 in relation to $23 for the bundled M2. Is that because these costs are allocated by volume?

515
MR. PACKER: I think we provided a response to that question in writing to yourself. It's Exhibit C22.43. I think in that response it clearly identifies that we do not allocate storage costs biometrically to rate classes.

516
MR. JANIGAN: But in describing the difference between a bundled M2 customer at $23, and the storage charge at 1,264, is that based on the volumetric charged to the R10 customer?

517
MR. PACKER: The cost are allocated to the rate classes -- storage cost are allocated to the rate classes in the way we described in our response to C22.43. Once the costs are allocated to the rate classes, then the recovery of costs is -- is volumetric. In rate 10.

518
MR. JANIGAN: Okay. Now, it stands to reason that if both the R10 and the M2 customer save 10 per cent on their storage as a result of the competitive offerings of a REM after unbundling is put in place, that the R10 customer will get greater monetary benefits even though that customer pays the same amount as the R2 customer?

519
MR. PACKER: The -- there are a couple of concerns I have with what you've put to me. The reason we chose weighted average number of customers was based on how the costs are incurred. They're in relation to transactions and transactions vary with the number of customers. The reason we were proposing recovery from marketers rather than end use consumers was as a result of who benefitted. I believe the use of the weighted average number of customer allocator is appropriate. What you're hypothesizing is that the benefits will come in the form of reduced storage charges, and no way of knowing that to be factual or not.

520
MR. JANIGAN: I think you're thinking ahead of me here.

521
MS. JACKSON: Can I just -- so we avoid a transcript correction. Mr. Packer, you said the reason we are proposing recovery from marketers as opposed to end-use customers.

522
MR. PACKER: Sorry that was a slip. Yes, we're proposing recovery from end-use consumers rather than marketers.

523
MR. JANIGAN: I think you're thinking ahead of me, Mr. Packer. My question is specifically on this point: That if both the R10 and the M2 customers save 10 per cent on their storage as a result of the competitive offerings that a REM might put in place after unbundling, it's clear that the R-10 customer will pick greater benefits even though both customers in this case have paid the same amount to facilitate unbundling. They pay the $14.

524

MR. PACKER: Yeah, and what I tried to provide in my response was that I have difficulty with the assumption that --

525
MR. JANIGAN: Just assume that both save 10 per cent on their storage offerings -- in their storage as a result of the competitive offerings.

526
MR. PACKER: Under the assumption that they -- the savings will be in -- on the storage side, and the they both save 10 per cent, on their storage component, there would be a greater benefit to rate-10 customers.

527
MR. JACKSON: In dollar terms?

528
MR. PACKER: Sorry?

529
MR. JACKSON: In dollar terms?

530
MR. PACKER: In dollar terms, yes.

531
MR. JANIGAN: We heard yesterday that the large industrial customers were already afforded unbundled options through the provision of T1 and T3 rates; is that correct?

532
MR. PACKER: The form of unbundled offering. We used to refer to it as an unbundled service but in the context of the unbundled service, we brought forward in the last case, it really isn't an unbundled service, it's a semi bundled service. But the customers do have access to storage and they can operate the storage that they've contracted for.

533
MR. JANIGAN: And I believe we also heard in that exchange with Mr. Thompson that the provision of these rates involved Union expenditures to enable the functionality of the Union system to offer these rates. Is that correct?

534
MR. PACKER: I think you heard Mr. Andrews say was that the system was designed to provide service to the general service market. As a consequence of that design we're able to provide unbundled services to large volume customers as well, and if you had to do it only for the industrial customers, the amount would be fairly small.

535
MR. JANIGAN: No, no, no. This -- I'm referring back to the T1 and T3 rates. When you introduced them you had to undertake some expenditures in order to give the company the functionality to offer those rates.

536
MR. PACKER: Presumably. I don't recall a discussion about that.


537
MR. ANDREWS: I would presume so, Mr. Janigan, to the extent that we had to make some changes, we would have made those changes to offer the service.

538
MR. JANIGAN: Okay. And when was this done?

539
MR. PACKER: T-service offerings were made available in the late '80s. '88-'89 time frame.

540
MR. JANIGAN: And how were the costs allocated, of enabling this service?

541
MR. PACKER: Don't know.

542
MR. JANIGAN: Could you undertake to provide --

543
MR. PACKER: No. I won't take that undertaking easily. That was a long --

544
MR. JANIGAN: Best efforts?

545
MR. PACKER: That was a long time ago. It would have been in the context of a cost-of-service proceeding and it would have been rolled into the cost allocation process and --

546
MR. JANIGAN: These are the T1 and T3 rates.

547
MR. PACKER: Sorry?

548
MR. JANIGAN: The T1 and T3 rates.

549
MR. PACKER: Sorry, what about them?

550
MR. JANIGAN: The cost associated with obtaining the functionality to offer them, you're saying that that happened in the late 1980s?

551
MR. PACKER: Yes.

552
MR. JANIGAN: And that presumably, at that time there were expenditures and there were allocated in some fashion but you don't know how they were allocated? And you couldn't undertake to try to find out?


553
MR. PACKER: The reason I'm hesitant to accept the undertaking is I don't imagine the amount was specifically identified, which would make it extremely difficult to identify how it was allocated. Give me a moment.

554
The reason that would be difficult is the costs would be fairly insignificant, for fairly small, relative to what we're talking about here because it's quite a different process -- it's not a daily managed service.

555
MR. JANIGAN: I would like to ask some questions on Exhibit C1.12, please. This is the exhibit where you have outlined the different options that you considered in terms of allocation.

556
MR. PACKER: I have it.

557
MR. JANIGAN: Yeah. Now, one of the options that you rejected involved the collection of costs in a deferral account and the assessment of those costs to customers that use the unbundled service. Is that correct?

558
MR. PACKER: We did talk about that as being one of the options, yes.

559
MR. JANIGAN: Okay. And as well, the option of collecting the costs from the REMs that use the service?

560
MR. PACKER: That's correct.

561
MR. JANIGAN: And as part and parcel of that option, I would assume that this might involve amortizing these costs over time because -- because it would be improvident to allocate the costs over a one-year or a two-year period, for example.

562
MR. PACKER: In our view there are practical issues associated with trying to recover the costs from either marketers who are taking the service or the end users who are taking the service. That --

563
MR. JANIGAN: The principles reason why --

564
MS. JACKSON: I think -- could I ask the witness be allowed to finish his answer.

565
MR. PACKER: Essentially it relates to the timing issue, the fact that if you are going to allocate the cost to users of a service, the recovery period is quite uncertain and we're not sure how you would go about doing that and doing so in a way that would recover the costs over a reasonable period of time.

566
MR. JACKSON: Especially if there are no users of the service as you pointed out.

567
MR. PACKER: That is an issue as well, yes.

568
MR. JACKSON: Or if there are, you know to bring it more perhaps, into reality, the users of the service might build over time and by the time there are many users, costs might all have been recovered from a few that were bold enough to jump in at the front end so there might be a lack of fairness there too -- is that what you're saying?

569
MR. PACKER: There a fairness issue and an issue about barred entry. If you're going to recover it from the marketer who is taking the service, the first guy in knows he is going to pay a portion of it and if nobody else happens to go then he's going to pay it all. And that may cause him to reconsider whether he's going to undertake that service offering.

570
MR. JACKSON: Thank you.

571
MR. JANIGAN: I wonder, in light of the responses that Union has provided in the recent interrogatories expressing confidence that this process will succeed, whether or not you may rethink the evidence -- your evidence with respect to possible risk to Union of amortizing these cost others a number of years?

572
MR. PACKER: I don't think so, because it's still -- it doesn't deal with all of the issues. We are -- we're comfortable that there will be some take up of the service based on discussions we've had. Those discussions were probably in the context of our proposal. If the -- if the marketer knew -- if the marketers knew they had to pay the entire amount to avail themselves of the service, I'm not sure what that would do to their -- their perspective on this.

573
MR. JANIGAN: Is it likely the case, Mr. Packer, that this service will not be a success if it has any other allocation method than a pick up of the costs by all customers?

574
MR. PACKER: I can't answer that. It would depend on each marketer's evaluation of the service relative to the costs they were going to have it pay and the benefits that they've assigned to taking the service.

575
MR. JANIGAN: Is there any formal commitment at this point in time from anyone to use this service?

576

MR. ANDREWS: Well we have recently received a letter from our largest retail energy marketer expressing their intent to pursue the service, Mr. Janigan. When we -- as we were designing this service for both phases, phases 1 and phase 2, we had a series of scheduled customer check points. And by customer check points, what I'm referring to are opportunities for customers to come and sit down to review our design, to comment on our design and to provide some feedback on the design. And we had two sessions in 2000, in May and August, two sessions in 2001, May and July, and at all those sessions received very positive, very enthusiastic support for what we were doing. And in fact, at the end of the first phase, in order to test, I guess test drive the systems we actually had an industrial customer test drive the system for us. So as I think as we indicated yesterday, that I do fully expect on the large volume side that eventually there will be take-up there. And as expressed by the largest retail energy marketer in our franchise area, they're going to be first in line when this service becomes available.

577
MR. JACKSON: And those sessions you say were attended by large volume customers, as well as marketers?

578
MR. ANDREWS: The large volume customers attended the sessions with respect to the first phase, and we also are had some retail energy marketers at that point in time. And for the second phase we've had retail energy marketers only.

579
MR. DOMINY: I'm having trouble with this question of using the words phases 1 and 2, and so what was addressed in the second set of meetings relating to phase 2?

580
MR. ANDREWS: It had to do with the fact that in the second phase, we were going to complete the work from the first phase to be able to offer the service to the small volume market. And so --

581
MR. DOMINY: Sorry I can -- sorry.

582
MR. ANDREWS: Specifically what we wanted to do was get specific feedback from the energy marketers with respect to the additional functionality that would be uniquely there to serve the small volume market. That you wouldn't see necessarily in the first phase.

583
MR. DOMINY: In the way the evidence has been presented in C1.15, it's been divided into that which relates to 17, RP-1999-0017, and that which relates to 2000-0078. That's the C1.15 -- divides the costs that way. And then we have a discussion of phase 1 and phase 2 in the other things that are provided. Now, are the costs related to gas contract administration, including nominations, et cetera, in phase 1, because that's really related to storage and transportation unbundling. And are the costs in phase 2 related to billing and collection, which are the items which were deferred from 17 into 78?

584
MR. ANDREWS: Well, the second phase included not only some of the billing elements, but it also required completion of the elements with respect to contract administration and daily gas management. Again, just given that the size and scope of the work involved, we wanted to have just enough functionality at the end of the first phase to be able to roll it out to the large volume customers. That those things that are truly unique to the small volume market would be addressed in the second phase.

585
MR. DOMINY: But in the context of the C1.15 break-out, the gas nomination, gas management aspects are in the RP-1999-17 assessment costs, are they?

586
MR. ANDREWS: That's correct.

587
MR. DOMINY: Even for small volume and large volume customers?

588
MR. ANDREWS: That's correct.

589
MR. DOMINY: Thank you.

590
MS. JACKSON: Mr. Dominy, I'm not sure if you have the exhibit before you. There are those costs in phase 2 as well.

591
MR. DOMINY: Phase 2 is the amalgamation of 17 and 18 -- some split up between what the costs are in which phase?

592
MS. JACKSON: Let me be sure of that.

593
MS. JACKSON: I was just pointing out that, as reflected on C1.15, there is work done on contract administration and daily gas management in phase 1 and in phase 2. That was my simple --

594
MR. DOMINY: As I understand this, contract administration that relates to gas purchases, transportation allocation, storage allocation which is RP-1999-0017. And then maybe there is contract administration which I understand about multi-point flexibility for pricing and managing changes in the portfolio -- customers within a contract feature in phase 2.

595
MR. ANDREWS: That's correct, yes.

596
MR. DOMINY: So there is a separation of the type of activities. I'm trying to understand.

597
MR. ANDREWS: I see. Yes, I think in my response to I think to IGUA's supplemental IR 1412, I was trying to describe -- In my response to IGUA's supplemental IR 1412, I was trying to describe the different functionality that was being delivered -- designed and delivered in each of those two phases and I think you have portrayed that quite correctly.

598
MR. DOMINY: Thank you. Sorry for the interruption.

599
MR. JACKSON: Thank you.

600

MR. JANIGAN: Thank you. Subject to questions arising from the undertakings or my undertaking yet formulated, those are my questions, and I apologize for my exceeding my cost estimate. But it was only -- you won't have phase 2, I promise.

601
MR. ANDREWS: Who pays for the overrun cost?

602
MR. JACKSON: Who would follow Mr. Janigan, then, today? We're going to one o'clock.

603
MR. HAYNAL: Mr. Chairman, I will have a few questions on behalf of TransCanada PipeLines to this Panel.

604
MR. JACKSON: Thank you, Mr. Haynal.

605
CROSS-EXAMINATION BY MR. HAYNAL:

606
MR. HAYNAL: The questions relate to Exhibit B, Tab 13, schedule 3, and this is a table which was in the package, is their Exhibit F1. The title of the table is "Allocation of Deferral Account Balances to Rate Classes - fiscal year ending December 31st, 2000".

607
MR. PACKER: I have it.

608
MR. HAYNAL: Thank you. Mr. Packer. If you are the one who will answer questions regarding this table, please refer to line 10, which is Intro.WACOG, account number 179-102. For the benefit of the reporter, WACOG is spelled W-A-C-O-G.

609
If I look at Column S under the Southern Operations Area, which is for the C1 service customers, I see the balance amount of $485,000. Do you see that, Mr. Packer?

610
MR. PACKER: Yes, I do.

611
MR. HAYNAL: Now, please tell me, do both enfranchise and ex-franchise customers use C1 services?

612
MR. PACKER: C1 or C1 -- C1 rate schedule is a cross-franchise transportation service rate schedule. We also offer ex-franchise type storage services under that rate schedule. There may be situations where a -- an enfranchise customer avails themselves of that rate schedule if they want to embark on S and T type activities. But it's generally ex-franchise customers that use the rate schedule.

613
MR. HAYNAL: Okay.


614
MR. JACKSON: Excuse me, Mr. Haynal, just remind me because I don't have that turned up, but that's a negotiated rate, isn't it?

615
MR. PACKER: The --

616
MR. JACKSON: I think the schedule may set a minimum or something. I can't recall.

617
MR. PACKER: The rate schedule has -- let me back up. Prior to our PER proceeding, there would have been range rates presented on the rate schedule and there also would have been fixed prices, depending on the service the customer was contracting for.

618
MR. JACKSON: Yes.

619
MR. PACKER: That logic exists under PBR although we were given some pricing flexibility under PBR so that we could negotiate.

620
MR. JACKSON: Yes. Thank you. Sorry, Mr. Haynal.

621
MR. HAYNAL: Thank you, Mr. Chairman.

622
So, my understanding is that this amount of gas balance is mainly for C1 ex-franchise customers. It will be allocated mainly to ex-franchise customers. Is that understanding correct?

623
MR. PACKER: Yes.

624
MR. HAYNAL: Then would you please explain it to me that why is Intro.WACOG allocated to ex-franchise customers?

625
MS. JACKSON: Could I just ask, Mr. Chair, what this has to do with this proceeding?

626
MR. JACKSON: Yes. Mr. Haynal, how will you relate that to this proceeding? Or is it just a matter of you're just curious about some of the cost data which has been present? But I think we should try to see how that will relate.

627
MR. HAYNAL: TransCanada received this package, Exhibit F1 a couple of days ago and this exhibit showed up and TransCanada asked me to find out why is this deferral account balance allocated to ex-franchise customers. That's the purpose of my question.

628

MS. JACKSON: And, Mr. Chair, this material, as you may recall, is material that's been imported into this proceeding from a customer review process because it contains evidence related to the unbundling issue. But, it remains filings in the customer review process and I would respectfully suggest that questions that go to issues other than unbundling remain in the customer review process.

629
MR. JACKSON: Point well taken. I'm just trying to think it through myself.

630
Mr. Haynal, are you suggesting that these are some more costs that could be allocated in to the determination of rates for small volume customers through this unbundling process, and is that why you were asking about it?

631
MR. HAYNAL: Well, TransCanada's understanding is that the proposed allocation of all unbundling customers is to the enfranchise customers. I'm sorry. All unbundling cost, the incremental unbundling cost, is proposed to be allocated to the enfranchise customers by Union. And then, according to this table, some costs which appear to be related enfranchise customer services appears to be allocated to ex-franchise customers.

632
So, I'm just asking the question, if you feel that this is not appropriate in this proceeding and it's more appropriate in the customer review process, obviously we can ask that question at that time.

633
MS. JACKSON: The line in this exhibit, Mr. Chairman, that refers -- that's relevant to this proceeding is line 24, the incremental unbundling cost. But I would respectfully suggest that the -- questions about the balance of the exhibit is as -- as has just been suggested, properly referable to the customer review process.

634
MR. JACKSON: That does look right to me, Mr. Haynal, on the face of what I've been able to review here in this schedule, so I'm going to ask you to take this up in the customer review process, if you would, and see if you can get an answer there. Okay?

635
MR. HAYNAL: That's satisfactory. Thank you very much, Mr. Chairman.

636
MR. JACKSON: Thank you.

637
Mr. Ryder.

638
MR. RYDER: I'm next?

639
MR. JACKSON: Yes.

640
CROSS-EXAMINATION BY MR. RYDER:

641

MR. RYDER: Thank you, sir.

642
I represent the City of Kitchener, Panel, and my first point is the interrogatories that Kitchener has filed in this proceeding and have been given the Exhibit C4. Should that be C24?

643
MS. JACKSON: It should actually be C5.

644
MR. RYDER: Should it? All right.

645
MS. JACKSON: And we have some corrected pages if people want to get corrected numbers rather than mark them in.

646
MR. RYDER: So I'm C5?

647
MS. JACKSON: It would seem.

648
MR. RYDER: Now, can I first address the Panel that there is a demand for unbundling services generally. And starting with the -- the U7 unbundled rates, you've told us that that's been available for the U -- for the T1 class since November of last year; right?

649
MR. ANDREWS: That is correct.

650
MR. RYDER: And there are 17 customers within that group?

651
MR. PACKER: I just wanted to maybe elaborate on Mr. Andrews' response. It's available to customers who meet the eligibility criteria which is not -- not restricted to T1. There would be some M7 customers, for example, that could take that service.

652
MR. RYDER: Yes. The M7, T1 package of -- group of customers. How many are there in that group?

653
MR. PACKER: I think there could also be some -- some M4 and M5 potentially as well.

654
MR. RYDER: Well, wouldn't the M5 customers opt for the U5 unbundled service?

655
MR. PACKER: They could.

656
MR. RYDER: Within the -- within the group that is eligible for the -- for the U7, leaving out the M5 for the moment, how many customers are there?

657
MR. PACKER: I don't know exactly. But if you look at Exhibit C14.11, there are 19 M7 customers and 40 T1 customers identified. I think those would be eligible. And there would be a portion of M4 and M5 potentially, depending on their size. They could also take the U7 service.

658
MR. RYDER: All right. And then for the M -- for the U3, there are three customers -- sorry, for the U9, there are three customers?

659
MR. PACKER: Yes.

660
MR. RYDER: So give me the total number of your customers currently that are eligible to off the unbundled service.

661
MR. PACKER: I don't know the answer to that question. The customers can change their profiles in a way that would make them eligible depending on what their forecasted requirements are for a given year.

662
MR. RYDER: Just give me an approximate.

663
MR. PACKER: Rough approximation, I don't know, a hundred customers.

664
MR. RYDER: And are you -- you referred yesterday to the constraints in moving to the unbundled service created by the existence of their T-service contracts with Union, the existing contract; right?

665
MR. PACKER: We talked about the fact that contract customers, by their nature, have a contract with us which, if they were moving to an unbundled service, we would expect that existing contract to expire. Those contracts are for varying terms.

666
MR. RYDER: Right. And so with respect to the hundred-odd customers that are eligible for unbundled service, how many are prevented from taking the option by virtue of their contracts?

667
MR. PACKER: I take issue to the prevented characterization. The customer chooses his contract term with us. We have a lot of customers that choose one year, so they just have to wait until their contract expires, and that's a customer choice.

668
MR. RYDER: Well, between last November and today, how many have been constrained by virtue of their existing contract?

669
MR. PACKER: The only ones that wouldn't would be anybody whose contract expired from November to now.

670
MR. RYDER: Well, does it apply to the entire hundred in the group?

671
MR. PACKER: I don't know the answer, but I would think most of them would not have contracts expiring between November and now.

672
MR. RYDER: Now, with respect to any customer in that group that has a contract, existing contract with Union, would Union not be receptive to an application to switch to the unbundled process? Would you not accommodate that request, notwithstanding the existing contract?

673
MR. PACKER: We would -- we would have to look at it on a case-by-case basis. We are -- we generally try not to be unreasonable and we generally try to meet our customers's expectations. So if we had somebody on a multi-year contract and they really wanted to go with the unbundled service, we would look at how that could be accomplished.

674
MR. RYDER: And I take it there is no policy against entertaining an application to do that? There is no policy which requires Union to hold the customer to the duration of its existing contract?

675
MR. PACKER: Other than the customer signed a contract that committed them and us to performing under that contract. I'm unclear what the policy is that --

676
MR. RYDER: You haven't issued a policy to your customers saying that, we are introducing a new service that you're eligible for but you can't apply until your existing contract terminates?

677
MR. PACKER: No. I don't think we've done that. I don't know why we would, because if somebody really wanted the service, we would work with them.

678
MR. RYDER: Has anybody applied to switch to the unbundled service?

679
MR. PACKER: I think we've heard that there are -- there have been customers who have had discussions with us. I'm not aware of anybody who is -- who has asked us to break the contract mid-term.

680
MR. RYDER: Well, it wouldn't be a question of breaking it, it would be a question of mutual consent to displace it with a new contract. Isn't that the way the process would go?

681
MR. PACKER: I'm unaware of a customer requesting what you've identified here.

682

MR. RYDER: So it's not really fair to say that the lack of take-up of your unbundled service is due to the presence of existing contracts because you could accommodate the -- the barrier of an existing contract?

683
MR. PACKER: I disagree with that. I think customers, in signing a contract for a specific duration, will expect that we'll both perform under that contract. I don't think there is a need for us to go out and say one way or the other whether we'll entertain requests for contracts to be changed or not. I think there is a general expectation that we deal with those on a one-year basis. When that comes up for renewal, we'll deal with it then.

684
MR. RYDER: When you discussed yesterday -- I think Mr. Andrews had a discussion with Mr. Warren about the cost benefit analysis that ought to have occurred prior to the introduction of the unbundling service. What factors does that take into account?

685
MR. PACKER: There was a -- there were some questions asked about whether we were aware of a cost benefit analysis. I think we said we didn't do one; we weren't sure what others had done to get comfortable that the unbundled service should be offered. But everybody had signed on to that in the last case.

686
MR. RYDER: Yes. Well, does a cost benefit analysis, generally speaking, take into account factors such as the activity level, the take-up level, and the resulting revenues?

687
MR. PACKER: I think generally a cost benefit analysis would look at costs relative to benefits.

688
MR. RYDER: And the benefits would include the take-up levels and the revenues to be expected?

689
MS. JACKSON: Can I ask my friend, benefits -- because the witnesses talked about a cost benefit analysis being done by different people. When he speaks of -- my friend speaks of benefits, whose cost benefit analysis is he speaking of?

690
MR. RYDER: I don't speak of benefits. I don't give evidence.

691
MS. JACKSON: It's a question of clarifying the question.

692
MR. RYDER: The Panel has been using the term benefits. I'm saying that when you -- when you were referring yesterday to a cost benefit analysis, does that type of analysis generally include an examination of take-up levels and revenues?

693
MS. JACKSON: And my question is when my friend asks that, whose cost benefit analysis is he talking about, given that many people's cost benefits were talked about.

694

MR. RYDER: Well, the cost benefit analysis that Union ought to have done.

695
MS. JACKSON: That's not what was talked about yesterday or today.

696
MR. RYDER: Can a cost benefit analysis generally take into account, or should it generally take into account revenues and take-up levels?

697
MR. PACKER: The difficulty I have with what you're putting to me is what I -- what I've been discussing as the potential benefit here, which is what was identified as the Market Design Task Force report, is a more competitive market for commodity. You may get a more competitive commodity market by just offering the service. Nobody takes it. I don't know the answer to that. You may get more competitive commodity market by having a few people take it.

698
MR. RYDER: Well, let me come at it via a differently route. When you signed the ADR agreement in 0017 in the summer of 2000, what were your assumptions with respect to the likelihood that there would be a demand for unbundled services?

699
MR. PACKER: I think based on the fact that everybody else was supportive of unbundling, and people were pushing us to unbundle, that our assumption would have been that there would be unbundling, eventually.

700
MR. RYDER: Right. And was that assumption supported by anything else besides the spirit of the times? Was it supported, for example, by forecasts and analysis?

701
MR. PACKER: As I said, those forecast analysis cost benefit scenarios, we didn't do any. We didn't think we needed to do any. Everybody else would have done their own, and I would have assumed, in coming up with support for the ADR -- to the extent everybody else is comfortable that this is something that should happen, I assume they would have done the analysis that they would have needed to do to come to that conclusion.

702
MR. RYDER: Now, in the new C5, at question 4, I asked you about the possible use that's going to be made for the new processes developed by the residential customer if there is no take-up.

703
MR. PACKER: That's question 4?

704
MR. RYDER: Yes.

705
MR. ANDREWS: I just got the IR. Would you please repeat the question, Mr. Ryder?

706
MR. RYDER: Well, the IR asked you about the possible use which can be made for the new processes, if there is no take-up by the residential -- by the REMs.

707
MR. ANDREWS: We haven't turned our mind to that because we are expecting that there's going to be a take-up.

708
MR. RYDER: Yes. I know that -- I see that from your response. But if there is no take-up, let's just address that premise for the moment, are you saying that these processes will be useless?

709
MR. ANDREWS: No. They are -- they would be adaptable.

710
MR. RYDER: And to serve what grouping of customers?

711
MR. ANDREWS: I don't know. We haven't really turned our mind to it. We will -- excuse me. We built -- we built -- we're designing the systems to support the unbundled service, and that's really what we're focused on right now, and we expect that there will be some take-up. But we do expect, as with all things in terms of when you're building systems, that there could be some adaptability but we just haven't thought about what those other uses are.

712
MR. RYDER: Well, I take it you would adapt it to improve your services to other customers -- or other services to make your other services more efficient?

713
MR. ANDREWS: No. If you -- you build processes and you build systems to be able to offer services. It isn't necessarily that you do this to make those services or to make your operation more efficient. It's about offering services. So until I understand what those new potential services are, I don't know what it would take to adapt what we're doing to be able to offer those new services.

714
MR. RYDER: Well, if there is no take-up, though, you're telling me that the processes can be adapted?

715
MR. ANDREWS: I would presume so.

716
MR. RYDER: Right. And the tendency of doing so would be to improve your business offerings elsewhere?

717
MR. ANDREWS: Well, again, the approach that we take when we offer new services is essentially to take a look at the -- the business requirements, the information requirements associated with offering that new service. And that would be the intent of any additional changes you would want to make, is to be able to offer that service.

718
MR. RYDER: So --

719

MR. ANDREWS: Perhaps I should clarify as well, Mr. Ryder, that the adoption, I guess, of the systems for the unbundled service, if I hadn't made clear already, do not drive any efficiencies elsewhere in our business. And again that wasn't the point of why we were -- making these systems changes. It was to offer the service, the unbundled service, as effectively as possible, but there are no other benefits.

720
MR. RYDER: So, to a large extent, if the -- if there is no take-up, these processes will, if not -- if not they won't be useless but they'll be almost useless, a gray element.

721
MR. ANDREWS: No, I don't recall saying that.

722
MR. RYDER: Well, you say they're not going to produce efficiencies anywhere.

723
MR. ANDREWS: I think, again, these systems and these processes, there is basic functionality that we've designed that I'm sure that we could accommodate other services for, but I don't know what those other services are yet.

724
MR. JACKSON: Do you see them as replacing any existing services?

725
MR. ANDREWS: I'm sorry, are you asking me?

726
MR. JACKSON: Yes.

727
MR. ANDREWS: I'm sorry. No, sir.

728
MR. JACKSON: Sorry. I was just waiting to watch Mr. Ryder's reaction. I apologize for interrupting, Mr. Ryder. It seemed a logical question --

729
MR. RYDER: There is a series of questions by CEED where Union is firm that they won't produce any redundancies or redeployment consequences. But it strikes me that what you're telling me is that -- that the benefits of adapting these systems to other areas of your business will be negligible. They won't reduce your costs anywhere and they won't produce any efficiencies.

730
MR. ANDREWS: I think -- I think at the outset, I think we had said that. There are no revenue up-sides to offering the unbundled service and there are no changes in ongoing operating costs as a result of adopting these new systems to facilitate the new unbundled service.

731
MR. RYDER: So what will be the impacts of adapting -- of the current adaptability?

732
MR. ANDREWS: I can't -- I can't answer that because I don't know what those other uses or what new services that we have in mind here.

733
MR. RYDER: But you'll agree with me that any efficiencies that are produced will go to the benefit of Union under the three-year PBR regime we're in?

734
MR. ANDREWS: Well, I think it's fair to say, Mr. Ryder, that we haven't fully examined the impact on operating costs up or down of, I guess, operating new services or adapting these systems for other services. So, I would like to remind you that it's a two-way street. There -- there will be cost increases and there could be cost decreases.

735
MR. PACKER: I might add to that is you referenced a three-year PBR agreement. By the time these services are -- by the time we're in a position to offer these services or modify systems if they're not used, that three year period would probably have elapsed.

736
MR. RYDER: We might be into a second generation? All right.

737
I want to compare the costs of introducing the unbundled U2 service with the cost of introducing other new services that have occurred in the past. And the costs of implementing the T-service, when that was originally implemented in the 1980s, I take it that cost was not a significant one?

738
MR. PACKER: I think I stated earlier, I don't know exactly what it was, but my expectation would -- was that it was -- it would be far less than what we're talking about today. The major difference is, this is a transaction-based information system that we're talking about, that needs to deal with daily transactions for over a million customers.

739
The T-service offering, as you can see even now, has less than a hundred customers.

740
MR. RYDER: And similarly, the cost of implementing your unbundled services for your large volume customers, that was insignificant compared to these costs?

741
MR. PACKER: I think the evidence is that it's hard to separate out the costs based on how it was designed. But, our best attempts at it resulted in a fairly small component relative to the total.

742
MR. RYDER: So, the implementation of the U2 service, places that in a different category in terms of the costs of implementation?

743
MR. PACKER: I don't know how you're defining categories.

744
MR. RYDER: Well --

745
MR. PACKER: Different.


746
MR. RYDER: The difference between, say, 500,000 and 15 million, places the 15 million into a different category.

747
MR. PACKER: Again, I'm not sure where you're going with the terminology, but I agree that four or 500,000 is a lot less than 15 million.

748
MR. RYDER: Well, is there -- given the size of this investment, compared to the investment necessary to implement the other services we've discussed, is there no minimum level of activity that you need to have to justify it? Is there no economic feasibility test that should be applied here?

749
MR. PACKER: I take you back to my earlier comments. Everybody was supportive of this throughout the last few years. I have to assume they did their own cost-benefit analysis to come up with that support.

750
MR. RYDER: But the presence of support surely doesn't take away the need for some sort of feasibility test. I mean, there is support for storage but you still have to do some feasibility test in order to get approval of the investment.

751
MR. PACKER: Feasibility test completed by whom?

752
MR. RYDER: By Union. The party that's making the investment.

753
MR. PACKER: Everybody in the industry is suggesting this is the way to go as -- as evident by the Market Design Task Force reports. And there's -- in their agreement to our last ADR, I don't believe there is an onus on Union to do a further cost benefit analysis.

754
MR. RYDER: Does that approach apply no matter what the investment is? Just because the industry supports it, that you have to do it no matter what the investment is, without doing a feasibility study?

755
MR. PACKER: I guess the other party here is -- is the Board. Our expectation coming out of the last case was that the Board also supported what we were doing.

756
MR. JACKSON: Is the logical question, though, whether the Board would want you to do it at any cost? We keep talking about cost-benefit analyses. I'm dying to know whether there were any cost analyses done.

757
Did you -- you budgeted the costs. Did you consider alternatives before you picked one that you locked into as the least-cost alternative that would do the job?


758
MR. ANDREWS: Yes, we did, Mr. Chairman, and the least cost alternative is the one that's before us right now.

759
MR. JACKSON: Okay. Now, that may be in your evidence and I've just read it so long ago that it didn't jump out at me, but it's certainly in the oral portion of this proceeding, we've been talking about cost-benefit analyses and I guess it would help to remind us of the cost analyses that you did, then. You did do some, did you?

760
MR. ANDREWS: Yes, Mr. Chairman, we did. I mean, at a high level when we started to sit down and design this service, we took a look at the nature of the service, again, going back to the complexities driven by the number of customers and transactions and so on. We -- we arrived at an early conclusion that we would have to use the Internet path to web-enable these processes and systems.

761
We also looked around us as well, in terms of what was going on in other jurisdictions and right in our own backyard, I mean the electricity side, they were developing this thing called the electronic business transaction system that was going to facilitate very similar kinds and numbers of transactions, particularly with respect to small volume customers. And so that guided, I guess, our -- our analysis.

762
We also looked at existing processes, existing systems, to see whether or not we could continue -- carry on, on this sort of semi-automated, semi-manual basis. And we concluded that we could not meet the demands of the service, we could not meet the demands of our customers. So, it was that kind of analysis that we had done.

763
MR. JACKSON: Mr. Ryder.

764
MR. RYDER: Thank you.

765
Just one last question on this. What about the notion that -- that your investment should result in something that is used and useful. Does that apply here?

766
MR. PACKER: It's the general concept of using the useful, I would think, would apply here. It's a matter of when. And what would you do if you deemed it wasn't used and useful?

767
I think our evidence is that we fully expect it to be used and useful. Even if somebody is not taking the service, I would view it as useful in that the option exists for them to take the service at a point in time. If we, down the road, five or ten years and nobody wanted to use the service for whatever reason, you may want to look at it at that point in time.

768
MR. RYDER: Thank you.

769

You told us that these costs are not added -- not to be added to rate base. And why is that? I mean, aren't you purchasing assets? Aren't assets usually added to rate base?

770
MR. PACKER: We could have adjusted rates to reflect an increase in rate base as the way to recover these costs. Some of the thinking behind our proposal was that, generally, when you add cost to rate base, the costs are recovered over numerous years and can be more than if you recover them all at once, Because we're utilities earning a return on them, they're being amortized over time.

771
You look at how we were spending the dollars. We're spending them over a number of years so, to some extent, there is recovery -- there would have been recovery over a number of years through that mechanism.

772
The last consideration was the fact that these are IT type investments which have a fairly short depreciation period.

773
MR. RYDER: Well, do you not rate base -- have you not, in the past, put your IT investments into rate base?

774
MR. PACKER: Generally, IT investments would go into rate base, yes.

775
MR. RYDER: And if you added it to rate base, there would be no change of rates until after the initial PBR period has expired?

776
MR. PACKER: That's incorrect.

777
MR. RYDER: I thought increases to rate base were something that didn't affect the rates during the PBR term?

778
MR. PACKER: Within some constraints, in our view, this would have met the criteria for rate adjustments.

779
MR. RYDER: Under what factor in the -- just remind me, in the PBR formula? I can accept a --

780
MR. PACKER: I think generally, the threshold is around a million and a half, if I recall correctly. There is another threshold at 3 million.

781
MR. RYDER: And --

782

MR. PACKER: The other point I would add, at the time of the filing of the PBR unbundling case, we anticipated that there would be cost to facilitate unbundling, and it was clearly the intent of those costs should be recovered outside of the PBR price cap. I don't think there was any doubt about that.

783
MR. RYDER: I'm just questioning the -- and if it was incumbent on the industry at large to do a cost benefit analysis following the ADR, we would have done so on the basis of what cost? I guess the cost of $5 million; is that right, Mr. Packer? That's the costs that were available to us at the time?

784
MR. PACKER: At the end of the PBR case, it was evident that the $5 million number, which was an initial estimate, had been increased to 7 and a half million, I believe. In addition to that, there -- it was clear that there was another -- another phase or another step that had to be done, so there had to be some estimate of what that would have costed.

785
MR. RYDER: For the non Union participants in these proceedings, it would have been impossible to do their own cost benefit analysis?

786
MR. PACKER: I don't accept that, no. You knew there was at least seven and a half and you knew there would be more. You could have -- participants could have estimated what they thought the additional amount would be and done their own cost benefit analysis.

787
MR. RYDER: We could do that?

788
MR. PACKER: The Market Design Task Force report, which supported this, made no reference to my recollection of any cost benefit analysis.

789
MR. RYDER: I know that was the spirit of those days. Times have changed. This is post 11/11. Anyway, I think those are all my questions, thank you. Oh, one other question. You mentioned you had a letter from your largest REM. Is that since the ADR of this proceeding?

790
MR. ANDREWS: I'm sorry, what letter are you referring to?

791
MR. RYDER: You referred that -- it was a question that Mr. Janigan asked pursuant to his C22.41, which refers to a strong expression of interest from your largest customer, marketer.

792
MR. ANDREWS: Yes.

793
MR. RYDER: And you said that's supported by -- there's documentation of that support?

794
MR. ANDREWS: Yes, there is.

795

MR. RYDER: And that's a letter?

796
MR. ANDREWS: Yes, it is, sir.

797
MR. RYDER: And was the letter received following the ADR of this case?

798
MR. ANDREWS: Did you say following?

799
MR. RYDER: Yes.

800
MR. ANDREWS: Yes it was.

801
MR. RYDER: Thank you. Those are all my questions. Did you solicit that letter, Mr. Andrews?

802
MR. ANDREWS: Pardon me?

803
MR. RYDER: Did you solicit that letter, or was that letter solicited by Union?

804
MR. ANDREWS: Not that I'm aware of.

805
MR. RYDER: That, I promise you, is the end of my questions.

806
MR. JACKSON: I thought you were going to ask for the letter, Mr. Ryder.

807
MR. RYDER: Not if it came following the ADR. I think it would be very reliable.

808
MR. JACKSON: Who is next, please?

809
MR. SCULLY: Mr. Chairman, I think maybe I am.

810
MR. JACKSON: Mr. Scully, thank you.

811
CROSS-EXAMINATION BY MR. SCULLY:

812
MR. SCULLY: The first question I have relates to the settlement agreement in the -- in RP-1999-0017. If you could turn up a copy of that.

813
And I'm interested in page 20, paragraph 1.2.8, and that's entitled "Northern and Eastern Operations Area Unbundling Costs Threshold Level."

814
MR. ANDREWS: Do you mean page 21, or 20?

815
MR. SCULLY: My copy says 20. But if you're on the same paragraph number, we'll ascribe the difference to computer differentiation. 1.2.8?

816
MR. ANDREWS: Yeah, we have that.

817
MR. JACKSON: And that is page 21 in the copy that's in the back of the Board's decision, but I take it there may be a few versions.

818
MR. SCULLY: I don't know. I forget where I printed mine from.

819
MR. JACKSON: That's fine.

820
MR. SCULLY: At any rate, gentlemen, as I read the section underneath that, maybe I should -- I should read it into the record. The second sentence says: "Specifically, Union will manage the risks associated with an incremental 30 per cent of combined, new T-service and unbundled service demand, representing approximately 830,106, M3 of annual demand subsequent to November 1, 2000." And then it goes on to say that "In the event the 30 per cent threshold level as described above was reached, this could trigger a review by Union or other parties to assess the experience and impact of new incremental T-service and unbundled service on demand costs and the operations in the northern and eastern operations area."

821
I read that to be an undertaking that Union was eating all of the costs. Is that an incorrect interpretation?

822
MR. PACKER: That is an incorrect interpretation, yes.

823
MR. SCULLY: Okay.

824
MR. PACKER: That particular package relates to what happens to our bundled gas supply transportation rate recovery in the north as people unbundle. Because of mixed variances, we could be exposed to a greater revenue loss than we have cost loss when people unbundle, because they take assets with them that result in that based on how -- how we serve customers in the north.

825
What we're suggesting in that package is we'll accept that risk up until the threshold levels. It has nothing to do with the infrastructure costs associated with enabling unbundling.

826
MR. SCULLY: Okay. So this section should have had appended to it or if -- if I'm reading it, I should have it in my mind that this is subject to the 5 million that we've already told you about. We're not covering that?

827
MS. JACKSON: No. Mr. Chair, I think my friend has neglected to read the first sentence in that paragraph.

828
MR. SCULLY: So the phrase "using the asset allocation methodology as outlined in the evidence" is a reference to the $5 million?

829
MS. JACKSON: No Mr. Chair.

830
MR. PACKER: This has nothing to do with $5 million, 7.5 million or 15.7 million.

831
MR. JACKSON: But the assets that you're referring to there, what would they include?

832
MR. PACKER: Those are the upstream transportation capacities.

833
MR. JACKSON: Okay. Thank you.

834
MR. SCULLY: I wonder if you could help me out then, gentlemen. Your counsel tells me I'm failing to read the first sentence. Can you tell me what -- what am I failing it see there in that sentence?

835
MS. JACKSON: What I meant, Mr. Scully, was the reference to assets and the reference to assets has just been described to you.

836
MR. SCULLY: Sorry. It's just been described to me?

837
MS. JACKSON: Yes, by the witness.

838
MR. SCULLY: Okay. The other area that I wanted to ask a few questions on is in the answers to the interrogatories to the Vulnerable Energy Consumers' Coalition, specifically, Exhibit C22.44, that's where you provided the schedules of the incidents of your recovery of the $15 million-plus.

839
And I raised this point with you yesterday after the proceedings so you would be prepared for these questions. I'm interested in the differential both in a gross amount and a percentage basis of the customer classes in the north and the east versus the south. Would you agree with me that there is a different level of impact?


840
MR. PACKER: I would agree with you that the schedule could lead you to that conclusion. I think that's a function of allocating a cost in proportion to the number of customers, which is identical in the north and the south, so it's the same cost per customer through the allocation process.

841
Then if you divide an amount -- the dollar amount by volume and then you multiply the unit rate by another volume, you do get different impacts. And that's as a result of having, for example, in the M2 classes, there is a lot of commercial and industrial volume in there, so the allocator assigns one unit of cost to each customer, but then the volume is much greater for those customers.

842
MR. SCULLY: Well, I was looking over at the typical customer where I thought you'd maybe factored out all of those things and you were saying, look, if you're a real customer, if you're what we're really dealing with or as close to it as we can get, there is going to be a different impact.

843
And if you would look specifically at column H, which is a sub-heading under the title "Typical Customer," I read for an R1 customer, it's going to be $11.28 per year, and I look down and see for an M2, it's going to be $8.31 per year. Is that correct?

844
MR. PACKER: It is correct that that's what's shown there, but it's a result of allocating a cost in proportion to weighted -- to number of customers. I'm able to unit rate and multiplying that unit rate by volume. The impact on customers with any trade class is in proportion to volume -- or in proportion to number of customers. How that gets built into rates is really a function of how these dollars are disposed of when we actually go to dispose of them.

845
In the context of this particular response, it had to be done in isolation of a rate-making hearing, because this was the only thing we were dealing. It wasn't -- it wasn't being dealt with in the context of a rate-making hearing, so this was the only way we could present it.

846
MR. SCULLY: Okay. So, maybe the heading "Typical Customer" is wrong? Is that what you're telling me? Are you telling me now that you really thought about it and you would like to change that heading in the table?

847
MR. PACKER: The volumes that are identified in column G are what we use -- we generally use to represent typical customer volumes. But what I'm telling you is when we actually go to collect the amounts, it may not be this outcome because we allocate the cost to rate classes the way I've identified.

848
Once the costs by each rate class are identified, that will be combined with a number of other things, all the other deferral accounts that Mr. Haynal referred to on the schedule he was dealing with, as well as all the rate retroactivity.

849

MR. SCULLY: Well, I don't know how TCPL's costs are going to get mixed in with my residential customers' costs, but right now, in my mind, you're telling me -- or you were telling me, I thought, "Look, we're going to collect this in a one-time charge. We're going to have a surcharge on your bill." And I thought you were telling me it's going to look like $11.28, and you're telling me now it may not. Is that correct?

850
MR. PACKER: That's right. The reason I'm telling you that is because the actual collection of these dollars is going to be part of the customer review process. It's going to be combined with a lot of other things. I think the way to look at it is it's around $14 a customer.

851
MR. SCULLY: I'm sorry? The way to look at it is it's $14 a customer?

852
MR. PACKER: Yeah. What -- bear with me a second.

853
I take the -- the total of column C of 15.7 and divide it by our weighted average number of customer allocator in column A. So if I divide 15.7 million by 1.136,941 million, I get 13.81 a customer. That's approximately $14 a customer.

854
MR. SCULLY: That's all of the customers from Stelco to Mrs. Jones in Timmins?

855
MR. PACKER: Correct.

856
MR. SCULLY: So, it's going to be somewhere between the $8.31 that you have for M2 and the $147 for R20 in the northern zone. It's going to be $14.

857
MR. PACKER: The way to help you here would be that the allocator started off as being -- or resulting in $14 a customer. Then, in the M2 category, based on how this was shown, we then recovered on the basis of volume.

858
So commercial/industrial customers who have higher volume in the rate class were paying something greater than $14, and customers with volume -- lower volume were paying less based on the fact that the allocator was then converted to a volume-based unit rate. I would think the way you should look at it is it's about $14 a customer. The actual collection within the rate class is going to be part of a lot larger process.

859
MR. SCULLY: You know, what's going to happen? Right now I see there being a differential in your collection level between the north and the east versus the south. As you go down the numbers, generally speaking, it's 35, 45 per cent higher in those zones, the northern and eastern zones, than it is in the southern zone. And I'm trying to find out, is that going to continue through? Is that how it's actually going to come down?

860

MR. PACKER: That would only be the case if the dollars we allocated each rate class were then recovered on a volumetric basis within the rate class. We -- we are proposing a rate rider in the customer review process which would have the effect of recovering the amounts within the rate class in proportion to revenue, so that everybody -- everybody's rate would go up by the same amount.

861
MR. SCULLY: Okay.

862
MR. PACKER: That's why I'm suggesting the way I would look at it is it's about $14 a customer.

863
MR. SCULLY: Okay.

864
MR. PACKER: And that's the driver behind the cost allocation.

865
MR. SCULLY: You would look at it that way because that is your -- will be your proposal; is that correct? You're actually saying that's the way it should be done, not what's coming up on this table?

866
MR. PACKER: I think what you're -- I guess what I'm trying to deal with is your concern that the northern customer is disadvantaged by this approach. What I was trying to illustrate was that in actual fact, the -- if this was the approach we took, an M2 residential customer would actually be advantaged because the commercial/industrial customer was paying for something greater than $14 a customer, based on the volume allocator.

867
In addition to that, what I was trying to do was to indicate that once the dollars are allocated to rate classes, the actual collection of that amount in addition to all of the other deferral accounts and all the other retroactivity, will be something that we deal with in the customer review process.

868
MR. JACKSON: But the calculated numbers which Mr. Scully is seeking an explanation for, it seems to me -- let me try this -- might be related to the fact that the consumption level per customer is lower for the northern customers on average than for the customers in the south. And although that might seem counter-intuitive in the first instance, it might be because there are a lot of houses that are not used in the winter in the north -- northern region. I don't know. But I think that's -- that's a possible avenue to explore in terms of trying to come up with why these numbers are so different and maybe you could be helpful in that area. Or have I got it turned around?

869
MR. SCULLY: Mr. Chairman, I did sort of poke around at that, but you'll see if you look in column G, they do have the use per customer that they seem to have worked off and, for some reason, the volumetric consumption is exactly the same in the north and east as it is in the south. At least that's the way I read this table.

870

MR. JACKSON: Well, the way I understood the answer -- and help me with this because I would like to know that I've got it -- is that first, the costs are allocated to customer classes on the basis of customers, and then this table is showing recovery, which is recovery on the basis of volume. And so you've chosen to accept a notion of typical customer as being a customer having volume of 2900 in both regions, and the arithmetic, then, just works out.

871
MR. PACKER: Yes. I agree with a lot of what you said. I would just add something as far as an explanation.

872
MR. JACKSON: Please.

873
MR. PACKER: You're right. The reason we're getting the results we are in this schedule is as a result of the southern average-unit consumption level being greater than the north.

874
The reason for that is not limited to residential consumption patterns, it's because there's commercial/industrial load in the M2 rate class. It's not related to residential consumption patterns, it's related to the fact that in the M2 class, there is commercial/industrial load. So, when I take the volume identified in column E, divided by the customers in column A, I get an average use per customer in the south of 1791, and in the north, 3614.

875
MR. JACKSON: Yes. Thank you for that clarification.

876
MR. SCULLY: Could I just follow up on that? Where are those two numbers you just recited?

877
MR. PACKER: I took the values identified --

878
MR. SCULLY: Or are they on the sheet?

879
MR. PACKER: They can be easily calculated based from two numbers that appear on the sheet.

880
MR. SCULLY: But they are not, themselves, on the sheet?

881
MR. PACKER: No. Those two numbers are not identified on the sheet.

882
MR. SCULLY: Okay. Can you just tell me again how to calculate them?

883
MR. PACKER: It's the volume in column E divided by the number of customers in column A.

884

MR. SCULLY: So, having -- you having calculated those numbers, they don't get used anywhere on this sheet, do they? Besides not appearing, they don't get used anywhere in any of the subsequent calculations?

885
MR. PACKER: They -- indirectly they are because the allocator uses the information in column A, and the unit rate uses the volume in column E.

886
MR. SCULLY: Okay. I'll -- I'm glad I gave you a preview of what my questions were going to be. It made this so much easier.

887
I'll leave it at that, Mr. Chairman.

888
MR. JACKSON: Thank you, Mr. Scully.

889
Okay, we are as close as, I guess, we can get to one o'clock. And are there any other matters that we should address before closing?

890
MS. JACKSON: I don't think there are, Mr. Chair. I would be very grateful if we could do a canvass of the room as to what's expected given that there are, in fact, a few more people here than were here yesterday afternoon.

891
MR. JACKSON: Yes, I think that might be helpful. Could we hear, then, from the people that are remaining and wishing to examine this Panel?

892
MR. TAYLOR: The Wholesale Group would, and I expect I'd be about ten minutes.

893
MR. JACKSON: Thank you. Are there any other questions from this Panel, yes we have Board counsel, of course.

894
MR. MORAN: I think my estimate still remains about 45 minutes.

895
MR. JACKSON: Thank you very much.

896
MS. JACKSON: And we had Mr. Brown here earlier and he's gone I don't know -- I don't know if that means he doesn't --

897
MR. JANIGAN: No he doesn't. He wasn't interested in cross-examining the Panel.

898
MS. JACKSON: Okay. Thank you.

899

MR. JACKSON: And then of course you'll have to factor in a little bit of time for the Panel here.

900
MS. JACKSON: For the Board. Yes.

901
MR. JACKSON: I -- I'm not going to guess, but I don't think we're going to be very long.

902
MS. JACKSON: Thank you.

903
MR. JACKSON: You may wind up in Mr. Janigan's camp before I know it.

904
MS. JACKSON: Thank you, Mr. Chair.

905
MR. JACKSON: Thank you. See you tomorrow at 9:30.

906
--- Whereupon the hearing adjourned at 1:08 p.m.