Rep: OEB Doc: 122V8 Rev: 0 ONTARIO ENERGY BOARD Volume: 3 February 22, 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 [37] CROSS-EXAMINATION BY MR. TAYLOR: [38] CROSS-EXAMINATION BY MR. MORAN: [98] QUESTIONS FROM THE BOARD: [988] RE-EXAMINATION BY MS. JACKSON: [1065] CROSS-EXAMINATION BY MR. VEGH: [1086] UNION GAS LIMITED - PANEL 2 [1142] EXAMINATION BY MS. JACKSON: [1143] CROSS-EXAMINATION BY MR. WARREN: [1209] 7 EXHIBITS 8 9 UNDERTAKINGS 10 UNDERTAKING NO. G3.1 TO PROVIDE INFORMATION ON THE UTILIZATION OF THE ENHANCED CONTRACT ADMINISTRATION SYSTEM AND MAKE APPROPRIATE ALLOCATIONS BASED UPON THAT UTILIZATION [32] UNDERTAKING NO. G3.2 TO PROVIDE SCOPE OF AGENCY CONTRACT FILED IN THE GDAR PROCESS [251] UNDERTAKING NO. G3.3 TO PROVIDE REFERENCES IN THE EVIDENCE FROM RP-1999-0017 DEALING WITH DAILY BALANCING CHARACTERISTICS OF THE SERVICE [409] UNDERTAKING NO. G3.4 TO PROVIDE INFORMATION PERTAINING TO WHAT IS INVOLVED IN DETERMINING THE COSTS OF DELIVERY CHARGES AND FIXED MONTHLY CHARGES FROM UNION GAS TO A MARKETER TO ALLOW MARKETER-CONSOLIDATED BILLING [1276] UNDERTAKING NO. G3.5 TO DETERMINE IF ANYONE IN UNION GAS KNOWS IF THE THREE MARKETERS HAVE EXPRESSED AN INTEREST IN THE DIRECT BILLING OPTION [1293] 11 --- Upon commencing at 9:30 a.m. 12 PRELIMINARY MATTERS: 13 MR. JACKSON: Good morning. Please be seated. 14 Any preliminary matters, Ms. Jackson? 15 MS. JACKSON: Just two, Mr. Chair. We had made reference to the fact that there was an incorrect exhibit designation on the interrogatories from the City of Kitchener and corrected copies of those are available. The only change is to change the number from C4 to C5. 16 And in the same vein, the references to the curriculum vitae filed on the first day, which should have been at tab 5, have been corrected and corrected copies of those are available as well. 17 The only other matter I had, Mr. Chairman, is that I understand that Mr. Andrews would like to provide a clarification of an answer he gave yesterday. This was in response to a question from Mr. Ryder, with respect to the letter from Direct Energy Marketing expressing its interest in the unbundled service. The question was at question 803, Mr. Ryder had asked whether Union solicited that letter. Mr. Andrews said "not that I'm aware of." And I understand that Mr. Andrews would like to provide a clarification of that response. 18 MR. JACKSON: Yes Mr. Andrews. 19 MR. ANDREWS: Yes, Mr. Chairman, I conferred with the account manager for the retail energy marketers this morning. I was curious to know the nature of how the letter came about. And he had indicated that he had placed a call to Direct Energy. In fact, he had called a number of the marketers, again, just to solicit and to confirm their interest in pursuing the unbundled service. And, I guess, just as importantly, to confirm their interest in participating in the system pilot because we needed customers to pilot the new systems. And, in fact, he had confirmed that he had called Direct Energy and they had expressed their interest in both pursuing the unbundled service, and in particular, in being one of the pilot customers. 20 And in -- during that conversation, the account manager suggested that they may want to send us a letter just to confirm that, and that's what they did. 21 MR. JACKSON: Okay. Thank you very much for that clarification. 22 MS. JACKSON: That's all I had by way of a preliminary matter. Thank you, Mr. Chair. 23 MR. JACKSON: Okay. Thank you, Ms. Jackson. I think I must be showing my age as well because I noticed in the transcript that I referred to 1999-0017 by the EBRO prefix as well. That's right. 24 Who is on this morning? 25 MR. JANIGAN: Just one other preliminary matter, Mr. Chair. We succeeded in putting the requested undertaking that was delayed yesterday, into -- we think is an appropriate format for Union to answer in written form. And I furnished a copy to my friend and for the Panel, and I wonder if it could be entered as an undertaking? 26 MR. JACKSON: Yes. I think that would be appropriate. We'll give it a number and perhaps you could summarize it for the transcript record. Or read it if it's brief. 27 MR. JANIGAN: If it's somewhat prolix, Mr. Chair. It's essentially requesting information of the capability of Union to look at the utilization of the enhanced contract administration system and make appropriate allocations based upon that utilization. 28 MR. JACKSON: Thank you. That will do it. 29 MS. JACKSON: Perhaps, Mr. Chair, we could incorporate the text -- which is lengthy -- in the transcript without reading it in, if that's agreeable? 30 MR. JACKSON: That's satisfactory, yes. Thank you. 31 MR. MORAN: The number would be G3.1. 32 UNDERTAKING NO. G3.1 TO PROVIDE INFORMATION ON THE UTILIZATION OF THE ENHANCED CONTRACT ADMINISTRATION SYSTEM AND MAKE APPROPRIATE ALLOCATIONS BASED UPON THAT UTILIZATION 33 MR. JACKSON: Are there any other preliminary matters? 34 Then, Mr. Taylor, are you on this morning? 35 MR. TAYLOR: I believe I am, Mr. Chair. I think I'm the last intervenor. 36 MR. JACKSON: Thank you. 37 UNION GAS LIMITED - PANEL 1 38 CROSS-EXAMINATION BY MR. TAYLOR: 39 MR. TAYLOR: My name is Andrew Taylor and I am here for the Wholesale Gas Service Purchasers Group and I just have a few questions for you, Panel. 40 Panel, you would agree that the cost of the second phase RP-2000-78, ah, they're being incurred exclusively to serve the small volume market? 41 MR. ANDREWS: Yes, I agree with that. 42 MR. TAYLOR: And you would agree that the costs associated with the second phase amount to $8.2 million? 43 MR. ANDREWS: Yes, I agree with that. 44 MR. TAYLOR: And can you tell me, Panel, does Union propose to allocate a portion of those costs -- the $8.2 million -- albeit a small portion, to the M9 or M10 class? 45 MR. PACKER: We are proposing to use weighted average number of customers as the allocator, which results in a very, very small amount allocated to the M9, M10, or T3 class. 46 MR. TAYLOR: Okay. Could you turn to Exhibit C23.4, please. 47 Now, interrogatory B reads: "What benefits will bundled and/or system supply M9 and M10 customers received from the proposed changes in contract administration?" And Union's response was: "There are no direct benefits to M9 or M10 customers unless they chose to be served under one of the unbundled services." 48 If I were to rephrase the interrogatory so that it specifically deals with the $8.2 million expenditure associated with phase 2, so that the question reads: "What benefits will bundled and/or system supply M9 and M10 customers receive from the proposed changes in contract administration associated with the $8.2-million expenditure?" -- would it be fair to say that your response would be: "There are no direct benefits to M9 or M10 customers?" 49 MR. ANDREWS: I would agree with that. 50 MR. TAYLOR: Thank you. 51 And if you would flip the page to Exhibit C23.5, there is a similar question, B: "How are bundled and/or system supply M9 or M10 customers impacted by the proposed daily gas management process?" If I were to add the words "associated with the $8.2 million expenditure" to that, again, your response would be there are no direct benefits to M9 or M10 customers? 52 MR. ANDREWS: Again, are you associating the question with the $8.2 million? 53 MR. TAYLOR: Yes, I am, strictly to the $8.2 million. 54 MR. ANDREWS: In that case I agree. 55 MR. TAYLOR: Okay. 56 And for the last time, if you flip the page to C23.6. Actually, no need to go to C23.6. 57 Panel, it's Union's position that all small volume customers should bear the $8.2 million cost of unbundled services for phase 2 because they have the option of utilizing that service; is that correct? Or perhaps this way. Some might use it and those who don't will have the option and therefore they benefit. 58 MR. PACKER: Just to clarify. Our proposal is to use weighted average number of customers and that's primarily the result of the development of a transaction-based information system where the costs vary with the number of customers. 59 MR. TAYLOR: Well, do you believe that all low volume customers, small volume customers are going to benefit from the unbundling? 60 MR. PACKER: The issue of benefit, I guess, surfaces in the context of once you've allocated the cost to rate classes, you then try to recover it from marketers or end-users. And it was -- it is our proposal to recover the costs from end-users, because in the long run it will be end-users who benefit most. 61 MR. TAYLOR: Okay. 62 And what about the end-users that choose not to use the unbundled service? 63 MR. PACKER: They have the option available to them. 64 MR. TAYLOR: Okay. So then presumably you attach some sort of value to that option; correct? 65 MR. PACKER: I guess indirectly, that's true, yes. 66 MR. TAYLOR: Okay. And we heard, I believe, on day 1 that there is no evidence that low volume customers want the unbundled service; is that correct? 67 MR. PACKER: I don't believe that is correct. 68 MR. TAYLOR: What evidence do we have that low volume customers do want the unbundled services? 69 MR. PACKER: We have the expressions of interest from their agents that they would like us to proceed with unbundling. 70 MR. TAYLOR: Well, it doesn't surprise me that REMs have expressed an interest, but do we have any evidence from low volume customers themselves that they're interested in the unbundled services? 71 MR. PACKER: I'm not aware of any evidence from end-use consumers -- 72 MR. TAYLOR: Okay. 73 MR. PACKER: -- themselves. 74 MR. TAYLOR: Now, I would like to -- and as well, let me just go back. Do you have any evidence to suggest that low volume customers want the option of having unbundled services? 75 MR. PACKER: I think I'd refer you back to the fact that we have expressions of interest from their agents, and the reason we're unbundling is as a result of industry-wide recommendations that that was a good thing to do. 76 MR. TAYLOR: I understand that. But, again, do you have any evidence that the low volume customers want the option of unbundled services? 77 MS. JACKSON: I think the question has to be apart from what's already been referred to. 78 MR. TAYLOR: I'm just looking for a yes or a no. I think the answer is no, since there is-- 79 MS. JACKSON: Well, I think the answer is not no. But if my friend seeks to know if there is any other evidence, I think that's a fair question. 80 MR. TAYLOR: Is there any other evidence? 81 MR. PACKER: Sorry, any other evidence of? 82 MR. TAYLOR: To suggest low volume customers want the option of having unbundled services? 83 MR. PACKER: Again, I'm not aware of any end-use customer -- general service end-use customer stepping forward saying they want this. I wouldn't have expected that to happen. 84 MR. TAYLOR: Right, okay. 85 MR. PACKER: Not because the service is and unattractive, but just because they don't necessarily come forward and ask for new unbundled services without knowing exactly what's going on in the industry themselves. 86 MR. TAYLOR: Has Union asked -- formally asked low volume customers whether or not they want the option of having unbundled services? 87 MR. PACKER: I'm not -- I'm not in the research group so I don't know the answer to that question. 88 MR. TAYLOR: Fair enough. 89 I would like to give you a scenario now and then I'm going to ask you a question. 90 Let's say that here today, I'm sitting here and I'm going to offer French lessons to everyone in the room, and there has been a study conduct bid the Canadian government to suggest that all Canadians will benefit from knowing how to speak French. And I propose to charge everyone in this room $10 for my French lessons, regardless of whether they take the lessons or not, because those who don't will have the option of taking those French lessons. And I haven't asked anyone in the room if they want the French lessons, nor have I asked anyone in the room if they want the option of having French lessons. 91 Do you believe that everyone in the room should have to pay the $10 for my services? 92 MR. PACKER: I guess if people in the room appointed some agents to act on their behalf and those agents said they wanted the option and the service to be available, I don't see why those costs should not be recovered. 93 MR. TAYLOR: I have no further questions. Thank you. 94 MR. JACKSON: Sorry, Mr. Taylor, you said you were -- that was all? 95 MR. TAYLOR: Yes, it is, Mr. Chair. 96 MR. JACKSON: Is there anyone else before Board counsel? 97 Okay, Mr. Moran, I guess you're on. 98 CROSS-EXAMINATION BY MR. MORAN: 99 MR. MORAN: Thank you, Mr. Chair. 100 Panel, let me start with what I think is probably not controversial, just some basic principles. I take it you'll agree with the general principle that to the extent that people will benefit from something, they ought to share the cost associated with that -- providing that benefit; right? 101 MR. PACKER: I would accept that benefit is a consideration. Another consideration, though, is how you've -- why you incurred the costs, how the costs are incurred and why they are as large as they are or as small as they are, which is why we had proposed the use of weighted average number of customers because the information system we developed is transaction based. 102 MR. MORAN: Do you agree with the underlying principle that the people who pay for the cost should be the ones who get the benefit from it? Let me help you, perhaps, a little bit. Do you have the 0017 decision available to you? If you could turn to page 307. And this is in a slightly different context, but there is a statement at paragraph 6.0 -- 6.106, it says: "The Board believes that there is merit in the principle that those who stand to benefit most from an initiative should bear the bulk of the cost." 103 Do you have a problem with that statement? 104 MR. PACKER: No, I don't. 105 MR. MORAN: No? Okay. 106 If there are no benefits to be demonstrated, should the costs be incurred? General principle. 107 MR. PACKER: I guess it's a matter of whether benefits are demonstrated or whether they are likely outcome. How -- and how you go about demonstrating something. For example, the market designed task force reports suggest that a more competitive commodity market could result from unbundling. I think it would be very difficult to prove whether that happens or not. We may get a more competitive commodity market but, who is it say it's the result of the offering of an unbundled service? 108 MR. MORAN: Where does that take you, with respect to the question I asked -- if you can't demonstrate benefits to should the costs be incurred? 109 MR. PACKER: I'm just suggesting that it -- it may not always be easy to demonstrate benefits. You may have to demonstrate that in theory, benefits should accrue, or result, but it may be difficult to actually quantify them or separately identify them. 110 MR. MORAN: So sometimes it might be necessary to take a leap of faith; is that what you're suggesting? 111 MR. PACKER: In a matter of speaking, yes, I guess I am. 112 MR. MORAN: If you're asserting that there are benefits associated with certain costs, is it important to do a cost benefit analysis before incurring those costs? 113 MR. PACKER: I think I've stated that to the extent -- 114 MR. MORAN: It's a general principle. 115 MR. PACKER: Again, it's a matter of a guess who should be doing the cost benefit. If -- 116 MR. MORAN: I'm not asking who -- I'm just asking about a general principle. 117 MS. JACKSON: Can I ask that the witness be allowed to answer the question before the next question comes. 118 MR. MORAN: You're moving ahead of me -- you'll have to just let me stay up with you. As a general principle, is it important to do a cost benefits analysis in order to determine if that cost should be incurred? 119 MS. JACKSON: What cost? 120 MR. MORAN: Any cost. 121 MR. PACKER: The difficulty I have with that is, there may be instances where other factors are more compelling than cost benefit -- 122 MR. MORAN: For example? 123 MR. ANDREWS: I'm not sure that it's -- if a full cost benefit analysis is appropriate in all cases when one is looking at having to incur costs. Certainly, it is something that one could do but I don't know that it's always appropriate. There are other considerations. There may be other reasons why you need to incur costs. 124 MR. MORAN: Okay. For example? 125 MR. PACKER: An example would be, when we're talking about today, to the extent everybody is supportive of something, and they recognize there is a cost associated with doing it, I don't believe it's incumbent on the person who has to incur costs to -- to go through their own cost benefit, I don't know, with the intention of taking that back to people who have already agreed to something and say: Look, you may want to rethink this. 126 As long as the costs that are being incurred are reasonable in the context of what's being done, and everybody is suggesting it should be done -- that would be an example of the situation where a further cost benefit analysis on behalf of the company -- 127 MR. MORAN: All right. Well, let me understand what your answer means: If everybody agrees in principle that something in concept is a good idea, does that mean that you just go ahead and proceed on the basis of -- well, on what basis would you proceed? If you're not looking at the cost associated with the benefit or establishing the existence of the benefit. 128 MR. PACKER: I accept we have it look at the cost to make sure they're reasonable, given what was being done. They're, you need to then marry that up with a benefit that's very difficult to quantify -- is what I'm having trouble with. 129 MR. MORAN: I mean obviously when the Board said to you when you presented the ADR agreement, that had your proposal about proceeding with unbundling storage, -- sorry -- I take it you'll agree that was nothing more than agreement in principle at that stage; right? I mean, all there was was a statement in the ADR agreement about an agreement amongst parties and it was just a statement of principle that it was a good idea to proceed with -- 130 MS. JACKSON: I'm not sure what part of the ADR agreement my friend is referring to, and I think it might be helpful to know. 131 MR. MORAN: Page 37. 1.4.6. Do you need a moment to review it? 132 MR. PACKER: Maybe you could give me the question again, now. Answer whether I'll need it review it again. 133 MR. MORAN: When this was presented to the Board, all it represented was agreement in principle; isn't that correct? 134 MS. JACKSON: You mean -- 135 MR. MORAN: Nobody was agreeing that -- to an expenditure of $15.7 million at that time; right? 136 MS. JACKSON: An agreement in principle with what? I think would be necessary to be able to answer that question. 137 MR. MORAN: What part of my question do you not understand, Mr. Packer? 138 MS. JACKSON: I don't -- I think I am entitled to ask that the question be clear. I don't understand it, and I think it's only fair to say agreement in principle with what? 139 MR. JACKSON: Yes. 140 MR. MORAN: Let me rephrase it then. 141 When the Board said go ahead, it wasn't giving you a blank cheque was it? 142 MR. PACKER: No, it was not. 143 MR. MORAN: It was not. 144 MR. JACKSON: Is that satisfactory, Ms. Jackson? 145 MS. JACKSON: I'm content. Thank you. 146 MR. MORAN: All right. Now, just to help us to understand how all of this works, I think it might be useful if you pulled out Exhibit C3.6 and point 5. These are two interrogatory responses in relation to the CAC questions. 147 MR. PACKER: That was 3.5 and 3.6? 148 MR. MORAN: Yes, right. 149 If we look at 3.6, what we have are two examples of current bills, right, attached to the answer; Is that correct? 150 MR. PACKER: Yes. 151 MR. MORAN: All right. And the two bills that we see attached are, firstly, a bill for the current system customers? 152 MR. PACKER: Yes. 153 MR. MORAN: Okay. This is for a customer who is on system supply gas; right? 154 MR. PACKER: Yes. 155 MR. MORAN: And then we see the breakdown of the charges, the amount of gas used, and then the rate for gas, the rate for transportation, the rate for delivery and a monthly charge total; right? 156 MR. PACKER: Correct. 157 MR. MORAN: Okay. 158 And the other bill is the person who has a retail contract; right? 159 MR. PACKER: That's an ABC, T-service customer, yes. 160 MR. MORAN: And the difference between these two bills is the gas line, right, it will be calculated at the rate in the contract as opposed to the system supply rate. That's the only difference, really, between these two bills? 161 MR. PACKER: The marketer would be specifying the price of gas commodity. It could also be specifying the price for transportation to Union Gas. 162 MR. MORAN: All right. So the transportation to Union Gas is part of the charge associated with the contract between the customer and the retailer? 163 MR. ANDREWS: It can be depending on if it's what we call ABC or ABC-T. 164 MR. MORAN: Um-hmm. Okay. So sometimes it is and sometimes it's not. 165 MR. ANDREWS: Sometimes it is; sometimes it isn't, that's right. 166 MR. MORAN: And what makes the difference whether it is or it isn't? 167 MR. ANDREWS: It depends on what service offering the marketer has presented to the consumer and the offering -- and what the consumer has chosen from that marketer. 168 MR. MORAN: Right, okay. When we look at the other two bills attached to C3.5, these are, I guess, mock-ups of the bills that we would look -- we would see coming out of the changes that you're proposing; right? 169 MR. ANDREWS: That's right. 170 MR. MORAN: Okay. And the first one is -- that we see is one that's entitled Union Direct Billing Customer? 171 MR. ANDREWS: Yes. 172 MR. MORAN: All right. And this would be, I guess, your half of the split bill, really; isn't that what we're talking about? 173 MR. ANDREWS: That's right. This would reflect the services that we provide. 174 MR. MORAN: The only thing we see here is the delivery charge and the monthly charge that Union charges the customer; right? 175 MR. ANDREWS: That's right. 176 MR. MORAN: Okay. 177 The other bill is the enhanced ABC customer. Now, I assume this is the bill that would go out where split billing is available but is not being taken up; right? 178 MR. ANDREWS: That would be correct. 179 MR. MORAN: And what we see here is where we saw previously transportation to Union Gas, we now see transportation to Union Gas and storage. That's the unbundling exercise; right? 180 MR. ANDREWS: Yes, it is. 181 MR. MORAN: And as you indicated when we were looking at present bills, that transportation to Union might be something associated with the retailer or it might be something associated with Union, depending on the nature of the contract between the retailer and the customer? 182 MR. ANDREWS: Yes, that's correct. 183 MR. MORAN: All right. 184 And does that explain why we wouldn't see any transportation charge on the mock-up for the Union direct billing customer bill? 185 MR. PACKER: Sorry, does what explain that? 186 MR. MORAN: Going back to the Union direct billing customer mock-up, there is no transportation to Union line, there is no storage lines. 187 MR. PACKER: Yes. 188 MR. MORAN: Is that based on the assumption that there is a retail contract that is charging for that? 189 MR. PACKER: That's the requirement, yes. 190 MR. MORAN: I'm sorry? 191 MR. PACKER: We would no longer be billing the customer for those services. It would be the marketer's responsibility. 192 MR. MORAN: Always? 193 MR. PACKER: Under that scenario, yes. 194 MR. MORAN: So, again, just to help he understand what's going on, if split billing is the option that's chosen so that you send out your bill and the retailer sends out its bill, transportation and storage will always be charged by the retailer? 195 MR. PACKER: I think we would appreciate it if you could restate the question. 196 MR. MORAN: In the Union direct billing customer example that we have, your half of the split bill, there is no transportation charge, there is no storage charge. Is that on the assumption that every time there is a split bill option taken up, the retailer is always going to be charging for transportation and storage? 197 MR. ANDREWS: I'm sorry, Mr. Moran, we took so long. 198 The bill that you see illustrated here in this interrogatory is an example of direct billing associated with offering the unbundled service. That's why you don't see the transportation and the storage. But there is nothing stopping a marketer from taking the direct billing option with the current -- 199 MR. MORAN: I'm having trouble hearing you. 200 MR. ANDREWS: Sorry. I'll start all over. 201 The bill that you see illustrated in the -- in the attached interrogatory is really illustrative of the direct billing option associated with providing the unbundled service, which is why you do not see the transportation line and the storage line. But there is no reason why a marketer could not elect to take the direct billing option for the bundled service. In that case, on the Union bill, you would see -- or you could see or you would see storage and you would see transportation. You would see transportation. 202 MR. MORAN: So it come downs to the nature of the relationship between the retailer and the end-use customer? 203 MR. ANDREWS: That's correct. 204 MR. MORAN: And the choice that's made by the retailer, with respect to taking your storage service or going somewhere else for storage service? 205 MR. ANDREWS: Again it would reflect the nature of the offering to the end-use customer. 206 MR. MORAN: All right. 207 MR. JACKSON: But what you're saying is that could be commodity only and everything else you would buy from Union? Is that what we're saying in that answer? 208 MR. ANDREWS: Yes, Mr. Chairman. Much like today, with the bundled service with ABC, it could be commodity only, it could be commodity and transportation, so likewise with the split bill option, you could see one or both of those components being offered by the marketer. 209 MR. JACKSON: Okay. And maybe storage left to be provided by you, is that possible? 210 MR. ANDREWS: Under the bundled service, yes, that would be correct. 211 MR. JACKSON: Okay. 212 MR. MORAN: All right. I think you've been asked several times about the kind of research you've done into the customers desires and wants here. And there is an interrogatory response that suggests there was no focus group research done. 213 I just wanted to ask the follow-up question to that. Was any end-use customer researched done at all that you're aware of? 214 MS. CREIGHTON: In terms of billing preference there was, but not specifically tied to unbundling, to the best of my knowledge. 215 MR. MORAN: All right. And with respect to marketers as customers, what kind of customer research was done with them? I think that you indicated yesterday that you might have had a couple of meetings? 216 MR. ANDREWS: Well, we don't -- we don't do formal research, per se with our retail energy marketer customers, because we have a dedicated sales and marketing group who manage the relationships with those accounts. And so we've spent numerous occasions talking with those customers about the unbundled service. We have shipper meetings, customer meetings. We have attended the customer check points throughout the design phase of this project. 217 MR. MORAN: All right. So in dealing with the marketers and trying to figure out what should be done to deliver the unbundled service, how would you describe what you did in order to figure out what was needed on the part of the marketers? 218 MR. ANDREWS: I think that would be best illustrated by the customer check point process that I talked about yesterday. 219 When we did the additional design of what we thought would be required to be able to offer the service -- make the service work for the retail energy marketers -- we certainly wanted to have validation on our ideas, and that's why we had those customer check points. So we sat down with them, and we had the conceptual design. We walked through the entire process, front to back, and we asked them: Do you think this is what you need to make this work? And that was basically their approach. 220 MR. MORAN: All right. 221 MR. ANDREWS: And then we did -- so we repeated that process. And we've done this now four times. And each time we got feedback, each time they indicated that, yes, the design that you have -- that you're showing to us makes sense. We think this will work. And in fact, they had come up with some ideas themselves which we discussed, and in some cases, we decided that it would remain out of scope, because there might be some enhancements or ideas we would pursue later on. But the focus was, here is the -- here is the unbundled service. This is how it works, and do you think, based on our design, the use of these systems, that it can work for you? And again, we were getting positive affirmation. And that was the process that we were using to make sure that we -- that we were only implementing what we had to implement. 222 MR. MORAN: So it was the marketers that helped you to design your proposal? 223 MR. ANDREWS: Yes. 224 MR. MORAN: And what kind of testing did you do to see if what they were suggesting to you, in terms of design, was something that would actually create benefits that would flow through to end-use customers? As opposed to marketers? 225 MR. ANDREWS: Right. Well, given the fact that end-use customers themselves do not interact directly with Union in terms of the -- in terms of the transactional processes -- you know, they rely on their appointed agents to determine whether they feel is best needed to make the service work. 226 MR. MORAN: All right. Did you look at any of the contracts between retailers and customers to see if the marketers had been appointed as their agent to design a new system for a service that wasn't yet available? 227 MR. ANDREWS: We're not privy to those contracts. 228 MR. MORAN: Did you ask for any demonstration that that was the agency agreement that existed? 229 MR. ANDREWS: No, I don't see the point. I don't see the relevance. 230 MR. MORAN: Let me give you an example. Let's say that I have a five-year contract, at 20 cents for example, with a marketer, and the contract says that I appoint the marketer as an agent to do whatever has to be done to secure that supply at that price for me. The marketer is meeting with you to talk about a new service that can't kick in until I sign up a new contract. I'm not sure how the agency assumption works in that context. Can you help me understand that? 231 MR. ANDREWS: I'm not sure I can shed any more light on that either, Mr. Moran. My understanding is that the agency agreement authorizes the marketer it make all the necessary arrangements to be able to provide a delivery service at the end of the day. 232 MR. MORAN: Right. But presumably, if there is a new charge and a new program, the marketer isn't going to start making a new charge for a new program on an existing contract. I mean, that's pretty basic. 233 MS. JACKSON: I think there is -- but we're just taking a look. I think there is an example of the kind of agency agreement there is in the record. The scope of it is, I think, a matter of law. I actually disagree with my friend as a matter of law as to what the scope is. But I don't know that it's a fair question for these witnesses to ask them, as a matter of law, what is the scope of the agency? But it might also be helpful -- I'm sorry we don't have it right away -- but it's a very wide ranging agency appointment. 234 MR. MORAN: Why don't we just leave it like this, Mr. Andrews: 235 When you interacted with the marketers for designing this program, you're acting on the assumption that they were acting as agents for the end-use customers; right? That's fair? 236 MR. ANDREWS: Yes, that's fair. 237 MS. JACKSON: And just if I may interject here: I don't know if this assists my friend. I'm told that we think the particular agency -- the scope of the agency contract was probably filed in the GDAR process. We would be happy to locate it and file it in this if this would be helpful to my friend. 238 MR. JACKSON: I think that might be helpful to the Board. 239 MS. JACKSON: Happy to do that, Mr. Chair. 240 MR. MORAN: Mr. Chair, I just point out that there is probably lots of different agency agreements out there. I mean, every time a marketer changes its contract -- to offer to people -- the agency agreement may not necessarily be the same. 241 MS. JACKSON: I'm not sure that that's actually fair, Mr. Chair. 242 MR. JACKSON: It may be a statement of possibility -- 243 MR. MORAN: That's all. 244 MR. JACKSON: I guess Union has the --- 245 MS. JACKSON: We can provide some scope around that as well. 246 MR. JACKSON: Thank you, Ms. Jackson. I think that would be helpful. 247 MR. MORAN: Do you want to mark that as an undertaking, Mr. Chair? 248 MR. JACKSON: Yes, I think that would be appropriate. What number would that be? 249 MR. MORAN: That would be G3.2. 250 MR. JACKSON: Thank you. 251 UNDERTAKING NO. G3.2 TO PROVIDE SCOPE OF AGENCY CONTRACT FILED IN THE GDAR PROCESS 252 MR. MORAN: Your proposal is to recover most of the $15.7 million from small volume users so we're talking basically residential customers and small business, small commercial; right? 253 MR. PACKER: That's the result of the allocation process, yes. 254 MR. MORAN: Sixteen per cent of whom are -- as I understand it -- are in system supply gas. As I understand. 255 MR. PACKER: Approximately, yes. 256 MR. MORAN: And the remainder are under contracts that won't allow for this service to be delivered to them at least until the contract's over; right? 257 MR. PACKER: I can't comment on the agency agreement between the end-user and the marketer. 258 MR. MORAN: All right. So you don't know? 259 MR. PACKER: I don't know. 260 MR. MORAN: All right. 261 Take a look at C1.12. 262 In this question, you were asked in part to provide a detailed explanation of the options considered by Union with respect to cost recovery. 263 MR. PACKER: Sorry, C1.2 or -- 264 MR. MORAN: C1.12. 265 MR. PACKER: I have it. 266 MR. MORAN: Before I get to this document, let me ask you this first: 267 With respect to designing the system for unbundled services, what kind of options did you identify as -- before deciding on the particular approach that you've taken, that will cost $15.7 million? 268 MR. ANDREWS: Well, the first thing we did was to examine the existing bundled service, the exist -- take a look at the existing systems that we have in place, and the existing processes, and asked ourself how we would then facilitate the unbundled service, based on what we had. 269 And given the nature of the service and given the fact that it's a service that requires daily balancing, and daily information transaction processing, we concluded that changes would be needed. We could not do it with the existing systems and the existing processes. 270 Now, to the extent that we could have tried to, I guess, lever off or -- what I'll call make Band-Aid or minor enhancements to our existing systems, it would have required that I increase operating costs, hire more people to do all those calculations. That was one scenario. 271 If I have to do all the daily calculations, would I do them manually, the answer was no, we could not do them manually because we would not be able it meet the requirements of the service for the marketers. 272 We looked at other jurisdictions. I think yesterday I indicated that we looked in our own backyard in terms of what was happening with retail unbundling in the electricity market. We spent some time with a few people there. They were proposing to build an electronic business transaction system to do very similar things that -- that's in our proposal, that is, to be able to manage all of those daily transactions, to be able to communicate electronically to and from marketers. 273 We also looked at what was going on in Atlanta, Georgia with Atlanta Gas Light, and they did something very similar as well. So we concluded that we really needed to introduce the Internet to be able to move information back and forth quick enough to be able to make the service work. 274 MR. MORAN: All right. Now, you talked about the ability to make these daily calculations. And as I understand it, on a daily basis, you have to calculate what needs to be in the pipe in order to meet the demand for that day. I'm just trying to understand what the difference is between the daily calculation that you have to make anyway and this kind of daily calculation that you're proposing. 275 MR. ANDREWS: Well, the daily calculations that I'm -- one of the examples of the daily calculations I'm referring to with respect to the unbundled service is with respect to the -- what we call the nomination process, the market-required nomination. We need to determine what the demand is going to be for the next gas day on behalf of the marketer for each contract, and we need to do that, we have to account for every customer in that contract. 276 We have to know where those customers live. We've mapped -- there are six delivery areas, six in the north, one in the south. We have to develop this weather algorithms. So we developed seven per-use algorithms. We mapped all that information to four weather zones. And those calculations have to be done each and every day. And then we have to do a second calculation to do the weather true-up. And none of that exists today with the bundled service. 277 Following that, we are going to provide on a daily basis a cycle-built volume that will provide that information every day to the marketers for each contract, for each customer, so that they can then start to build and anticipate what the consumption true-up is going to be at the end of the month. And when we do the consumption true-up, that is done at the customer level. So if you have 25,000 customers in a contract, that's 25,000 calculations. And that's repeated daily and monthly, and that does not happen today. 278 MR. MORAN: What happens today is you have to do the calculation for the entire system; right? 279 MR. ANDREWS: What calculation would that be? 280 MR. MORAN: How much gas you have to push through the pipe to meet the demand for that day? 281 MR. ANDREWS: That's right. 282 MR. MORAN: All right. And that's for all of the customers, including the ones that are on contract with retailers, marketers? 283 MR. ANDREWS: Yes, that'scorrect. 284 MR. MORAN: Just for the record, I've been doing a lot of electricity work, so if I interchange retailer and marketer, I'm still talking about the same thing. 285 Now, the marketers, their customers are a subset of the people that you're serving; right? 286 MR. ANDREWS: A subset of system customers, or -- 287 MR. MORAN: Of the total set of customers you're serving. 288 MR. ANDREWS: Yes, that's correct. 289 MR. MORAN: Right. And these -- they're under contract for fixed terms, one year, two years, three years, five years; right? 290 MR. ANDREWS: Which customers are under contract, I'm sorry? 291 MR. MORAN: The marketer customers. 292 MR. ANDREWS: Yes. 293 MR. MORAN: And what we're talking about, really, is a settlement process between you and the retailer and the customer for the gas that they consumed, which they will consume whether there was a contract or not; right? 294 MR. ANDREWS: Would you perhaps elaborate on what you mean by a settlement process? 295 MR. MORAN: The marketers want to get paid for the contracts that they have with customers; right? 296 MR. ANDREWS: Yes, that's right. 297 MR. MORAN: The customers want gas and you have to deliver it to them; right? 298 MR. ANDREWS: That's correct. 299 MR. MORAN: And whether they have a contract with the marketer or whether they're on system, they still need gas; right? 300 MR. ANDREWS: Yes. 301 MR. MORAN: And they'll consume the same amount of gas whether they are on system or under contract; right? 302 MR. ANDREWS: If we're talking about, I guess, an average end-use customer, yes. 303 MR. MORAN: Yeah. And so there has to be a settlement process; they use the gas, which is supplied by you, the retailer has to get them -- the marketer has to get paid; right? That's what I'm talking about. 304 MR. ANDREWS: Okay, yes. That's fine. 305 MR. MORAN: So the question, I guess, then, is if you have to do a calculation for the total system and all the customers are there anyway, and they're all getting services anyway, and you know how many customers each marketer has, then why do you have to go to a customer-by-customer calculation instead of a group-by-group calculation? 306 MR. ANDREWS: Because we have to account for each contract. We have to -- the market needs to understand that if they're billing -- if they bill up the contract level, they have to nominate at the contract level. And therefore, we need to account for each customer in that contract. That's quite different, that's quite different when we're looking at our total system requirements. We have to break out all that information by contract. 307 MR. MORAN: Why does the retailer have to nominate customer-by-customer -- sorry, the marketer -- by customer-by-customer? Again, they know how many customers they have as well. 308 MR. ANDREWS: They need to nominate for each contract. They need to account for the customers in each contract. We need to tell them what the -- what the demand is going to be for the next gas day for each and every contract. Therefore, we need to know whether that contract has 10,000 customers or a 100,000 customers or 50,000 customers. It makes a difference. 309 MR. MORAN: But you can do calculations on a customer-by-customer basis -- that's what you're proposing. What I'm asking is, are you able to do the calculations on groups of 10,000, groups of 20,000, groups of 50,000 as opposed to individual? 310 MS. JACKSON: And provide an unbundled service, is that what you mean? 311 MR. MORAN: For that marketer, who then would have a choice of providing an unbundled service for that group as opposed to each individual. 312 MS. JACKSON: No, but I would like to just understand my friend's question. Is the question: Can do you it on that basis and provide an unbundled service? I assume that is the question. 313 MR. MORAN: Yes. That is the question. 314 MR. ANDREWS: Again, with respect to the unbundled service, it's really no different than -- than some of our other unbundled services in the S and T market. You must account for the activities at the contract level. Which is why you have to then size the nomination for that contract, because there are certain assets that have been allocated to that contract based on the number of customers. And you can't just come up with a high level number, because otherwise, the customer may not be able to be in compliance with the contract. It could be out of balance. And it could also impose some -- some burdens on the overall system in terms of system integrity. You have to be as exact as possible at the contract level. 315 MR. MORAN: For each gas day when you go to figure out how much gas you need to supply -- to meet the needs of that gas day as things stand right now, you don't do the calculation on a customer-by-customer basis, do you? 316 MR. ANDREWS: You do need -- you have to make some assumptions about what each customer is going to use. You have to have some -- an assumption on the per-use for each customer. We also need to know where those customers are in terms of the over all geographic area within our franchise area. In order to account for the differential in the weather across our franchise. 317 MR. MORAN: And you have to know what the weather is coming -- is like and what it's going to be like and all of those things; right? But you don't have to do a calculation on a customer-by customer basis, do you? 318 MR. ANDREWS: For the current bundled service or for the current system customers? 319 MR. MORAN: No. To deliver gas to all of your customers on a particular gas day, regardless of whether bundled or unbundled services. 320 MR. ANDREWS: No> no, that's not true. We must account for those customers on a contract-by contract basis. Otherwise, we would not be able to provide a reasonable and accurate nomination of the daily gas demand, or for the next gas day, to the marketers. They need to know what that demand is going to be. And the only way we can do that is to account for each and every customer on that contract. 321 MR. MORAN: Sixty per cent of your customers on are system supply. How do you do it for them? They're scattered all over the place, just like a marketers. Presumably there is different weather zones and all those other things that you just listed. How do you do it for -- for the 60 per cent of your customers? Like a marketer would, with 60 per cent of the customers? You've got to meet the demand. How do you do it? Today? 322 MS. JACKSON: Mr. Chair, I wonder if -- I don't want to interrupt my friend, but I know there is a question here of trying to understand and I have a little bit of a sense of ships passing in the night between what my -- the Panel may be assuming my friend understands and what my friend or may not be recalling. And I wonder if I could just interject that -- you'll recall -- in earlier evidence, it's been described that under the existing bundle service, the balancing is annual, and it's been described that under the unbundled service, the balancing is daily. And I'm not sure that that fact is reflected in my friend's questions, but the Panel may be assuming that it is. And I -- I make that observation just in case it would assist in an understanding, which is what I know we're all trying to achieve. 323 MR. JACKSON: I think that is what we're trying to achieve and I don't know whether it would assist also to point out, though, that Mr. Moran's last question was with respect to all customers and -- and just tell me if I understand this correctly, but I think for the unbundled customers that exist today, you would have to do calculations like that for them right now. I am thinking of the large industrial customers that are unbundled. Do you not have to do -- is it annual balancing for them, too? 324 MR. ANDREWS: Well, just getting back to the question on the calculations, no, we don't do those calculations today for those customers. We don't need to do that. 325 MR. JACKSON: Because -- because they're bundled? 326 MR. ANDREWS: No. I guess if we're referring to, let's say, the T-service, they simply provide a nomination of what they're going to deliver to us. But we don't do the calculation of the nomination for them. 327 MR. JACKSON: No. Point well taken. But they do have to nominate daily. And I guess am I understanding it correctly, marketers have not wanted to set up to be able to do these kinds of calculations so that they could take on the responsibility for nominating, they've preferred that you develop a system to do it; is that correct? Or did you say -- or are you saying that there are system integrity reasons where you actually tried to discourage any marketer from setting up these kinds of systems? It seems to me that they could nominate on a daily basis, too. The chances are they could be quite wrong and you could get problems in operating your total system. 328 MR. ANDREWS: In -- I don't think we did anything to discourage them. I think what you're talking about here is they need tools to be able to manage the service. And one of the things -- one of the tools they would need is an ability to forecast the demands for the next gas day for their customers, for each contract, and they don't have those tools. So we said we would provide those tools. 329 So one half of the equation, I guess, with respect to the nomination process is we will tell you -- we'll give you an estimate of the next day's gas demand, but you must tell us how you intend to supply that, how you intend to meet that demand. And that -- they will do that, they will have to do it each and every day. 330 MR. JACKSON: Right. That's my understanding, too. But with respect to large customers, they're on unbundled service today, they just tell you what's coming from where and you assume that meets their demand; is that correct? You're saying they don't have to give you a separate nomination for their total demand because you assume that the supplies that they've nominated will be bringing in receipt points that will equal their demand. 331 MR. ANDREWS: Well, I think with respect to large customers, they have an ability to determine, a much better ability to assess their next day's demand. So when they place the nomination, they are -- they're thinking of meeting the next day's demand. 332 MR. JACKSON: Yes. 333 MR. ANDREWS: And with these customers who are not weather driven, more process driven, then they have a better understanding of what they think their requirements are going to be for the next day. 334 So their intention is to try to estimate as best -- as best as possible what that demand is going to be. 335 MR. JACKSON: The large industrial customers, yes. 336 MR. ANDREWS: Yes. 337 MR. JACKSON: And the large industrial customers that are on a relatively unbundled basis today, are they required to balance -- let me turn the question around. Over what period are they required to balance with you? Do they have to balance daily, monthly, annually? 338 MR. PACKER: The T1 and T3 services? 339 MR. JACKSON: Yes. 340 MR. PACKER: The customer receives an allocation of storage and they have to ensure that they don't go below zero in their storage account or go above what they've contracted for. If they do that, there is some fairly significant penalties that they -- they are exposed to. 341 MR. JACKSON: If they nominate to you and tell you that they are going to take so much out of storage and then they take less or more, what tolerances and when do they have to bring that book into balance? 342 MR. PACKER: They don't nominate storage today. 343 MR. JACKSON: Okay. 344 MR. PACKER: They've got some upstream transportation that -- that, for the most part, has to arrive every day. There are certain periods of the year where we may allow them to divert. But during the winter period, we normally don't allow diversion so we have the same amount of gas coming in every day. The storage account is basically something that takes the difference between their demand during a month and their -- and their incoming supply. If they happen to go above or below what they contracted for, penalties kick in and those penalties have been set at a level that discourages that activity fairly significantly. 345 MR. JACKSON: That's perhaps an aside to what the marketers have to do. It helps me a little bit. Thank you. 346 Mr. Moran. 347 MR. MORAN: Thank you, Mr. Chair. 348 Sixty per cent of your customers are system supplied; right? 349 MR. PACKER: Sixty per cent of our general service customers -- 350 MR. MORAN: Yes, are small volume customers. 351 MR. PACKER: Right. 352 MR. MORAN: And they're scattered around the countryside, right, just like the ones that are under contract? 353 MR. PACKER: Yes. 354 MR. MORAN: In different weather zones; right? 355 MR. PACKER: Yes. 356 MR. MORAN: Right. And you're the one that's responsible for getting gas to them; right? 357 MR. PACKER: Yes. 358 MR. MORAN: Okay. Today, how do you go about determining how much gas you need to provide to that group of customers, given those factors that you have to take into account? 359 MR. PACKER: I'll try to be helpful and see where we get. 360 Today, we're responsible for balancing the system, supply and demand. We take a look at what the next day's temperature will be and we estimate what the demand will be, in total. Supply side, we have comfort that we know how much gas will be arriving because all the bundled service contracts specify that a certain amount of gas has to arrive every day based on the daily contract quantity, 1/365th of their annual requirements. So, we can balance one against the other, and to the extent we get into the day and we find ourselves short, then we have to go out and arrange for something to make up the difference. 361 The unbundled service places the responsibility for managing the assets in somebody else's hands. They may be diverting their supply, they may be doing something with storage that isn't what we would do, when we're operating the total. So we need to make sure that the demand we've estimated for the customers, that the marketer is representing is as accurate as possible. So that we don't get into a situation where supply and demand is too far out of -- supply and demand don't vary by very much. 362 MR. MORAN: Right. And you have that 9.1 BCF for system reliability as well; right? To help balance. For system integrity and balancing? 363 MR. PACKER: That -- there are -- 9.1 had a number of different components to it. 364 MR. MORAN: Yeah. Yeah 3.3 has to do with managing weather variance. One of the factors you referred to; right? 365 MR. PACKER: Which? 366 MR. MORAN: 2.3 is for back-stop supply failures? 367 MR. PACKER: The component related to weather is to manage the variance in demand that may arise as a result of forecasting a certain amount of demand based on the temperature that we expect. And then having the temperature be something different. That's assuming that the algorithm process is in place. You would need more system integrity if our demand estimates were at a higher level. 368 MR. MORAN: Right. 369 So, you have 60 per cent of your small volume users, scattered throughout your service area. You must be in a position to understand their usage against these factors; right? As a group? 370 MR. PACKER: I didn't plan the system in total, because we know -- because that's our responsibility. We balance bundled service customers today. 371 MR. MORAN: I understand that. But Union has the usage patterns for the system supply customers, doesn't it? 372 MR. PACKER: What I'm taking issue with is, you seem to be of the view that we do something different for system than we do for -- 373 MR. MORAN: No, I'm not suggesting that at all. I'm just asking you a very simple question. You know what your system supply customers use; right? Because you supply them, you charge them for it. I'm taking into account the fluctuations that occur because of changes in the weather and so on. They use change pattern over the year, and so on. You know what they use and when they use it and how much they use it as a group. Or you're able to find out if you don't know. 374 MR. PACKER: You're referring to when we actually issue the bill? When we go and collect for the system supplied service. 375 MR. MORAN: Right. You've got usage, historical usage data for that group of people. 376 MR. PACKER: Right. But that bill is issued after the month-end. 377 MR. MORAN: I understand. But you know what the historical usage data is for that group of people in system; right? Or you're able to get it. 378 MR. PACKER: We're able to get it, yes. 379 MR. MORAN: Right. So the question is: If you have an understanding of what 60 per cent of your small volume customers are doing over time, and you have your algorithms and so on for weather and all the other things you have to do, why can't you do that for a marketer that's got 30 per cent of your customers? And do it the same way, as opposed to on an individual customer basis? Did you look at that option? 380 MR. ANDREWS: I don't understand your option, I don't know -- 381 MR. MORAN: What you're proposing is to go to a system where you're going to do a daily calculation for each and every one of your customers; right? 382 MR. ANDREWS: For each contract. 383 MR. MORAN: Right. Who are under contract. 384 MR. ANDREWS: That's right. 385 MR. MORAN: And all I'm doing is, I'm saying: Well, you've got a proxy of people here, your system supplied customers, and you can figure out how they -- how much they need on a daily basis because you have to do it anyway, and -- because you have to supply them -- why can't you do it at the same level on the other side? Why does it have to be at the individual customer level? Its a simple question. 386 MR. ANDREWS: Yes, it is a simple question but it's a very complex situation. You have to account for the nomination at the contract level. Because the marketer has it make those decisions on how they use the assets. 387 MR. MORAN: Is that driven by the fact that that's how you designed the system or because the marketer can't say I've got 40,000 customers and this is how much they need in total today? 388 MR. ANDREWS: I, I think I indicated earlier that the marketers don't have the tools to determine the forecast for their customers. We're providing that information for them. 389 MR. JACKSON: I think since the objective is just to try to get a clear record on this, maybe it wouldn't be inappropriate for me to try a question at this point, Mr. Moran, if I may. 390 MR. MORAN: Thank you, Mr. Chair. 391 MR. JACKSON: Would it help in thinking this through to think of a marketer that has 300 customers in Thunder Bay, and 100 customers in Point Pelee, and another marketer that has 300 customers in Point Pelee - and I hope I haven't done the number of households in Point Pelee yet - and 100 customers in -- did I say Thunder Bay or North Bay? 392 MR. ANDREWS: Thunder Bay. 393 MR. JACKSON: Thunder Bay. So now you've got a marketer that may be on a weather-normalized basis, would have quite a different consumption level that would have to be nominated for. Is that -- is that part of what you're getting at with the need to have a more refined system? At the moment, you're working off annual data for customers spread all over the province. You probably have a lot of diversity in that mix, and you're estimating for the total number of customers, or at least 60 per cent of the customers. In the future, you're going to have to provide a demand to marketers that may differ widely. 394 Maybe I'm not understanding it correctly, but I'm certainly wanting to get to the bottom of this too. But it seems to me that that might be one of the reasons why you need a more detailed analysis of what's the demand for the next day will be for a marketer. 395 MS. JACKSON: There is also, Mr. Chair, a description of an element of this need and why it's different for unbundling than bundling in the report to the Board from the Market Design Task Force, which has been marked as Exhibit G1.3. It's called load profiling issues, at page 62. That might be of some assistance. 396 The other thing that occurs to me is that some of these questions, the answers depend on a description of the characteristics of the unbundled service, and there were -- there was, at least in one place and we think perhaps in others, in RP-0017, these issues were dealt with in more detail by the people who were here to speak to those issues. And I think what we will try to do, if it's of assistance, is pull out those references for people to refer to. 397 MR. JACKSON: Yes, I think that would be helpful. 398 Now, Mr. Moran, has any of the last -- the discussion of the last few minutes helped you enough to finish this line of questioning or -- 399 MR. MORAN: I think I'm almost done on this line of questioning, Mr. Chair. 400 Do we want to mark this as an undertaking? 401 MR. JACKSON: Yes, I think that that would be useful. If you think they're already in the existing exhibits, you may just wish to give us a list of references. But if it's better to excerpt the pages -- 402 MS. JACKSON: I think they're more fully discussed in the evidence of the previous case, so we'll give you those. 403 MR. JACKSON: Those specific references. 404 MS. JACKSON: Yes. 405 MR. JACKSON: Thank you. 406 MR. MORAN: That would be G3.3. 407 Ms. Jackson, how do you want to describe the undertaking? 408 MS. JACKSON: It would be, I think, references in the evidence, largely, I think, in the previous case, RP-1999-0017, dealing with the daily balancing characteristics of the service. 409 UNDERTAKING NO. G3.3 TO PROVIDE REFERENCES IN THE EVIDENCE FROM RP-1999-0017 DEALING WITH DAILY BALANCING CHARACTERISTICS OF THE SERVICE 410 MR. MORAN: I wonder if the Witness Panel is ready to continue? 411 MR. ANDREWS: Sorry. Yes, we are. 412 MR. MORAN: Let me ask this question: Your approach is based on individual customer daily calculations. When you were designing this system, did you look at the option of doing it on an aggregate basis instead of an individual customer basis? 413 MR. ANDREWS: Well, again, if you -- if you understand that the nomination will be impacted by the number of customers on any given contract or any given day for any given month, that you can't just do it on an aggregate basis, you need to account for, again, whether customer A is on contract number 1 or contract number 2. 414 So you have to keep track of customers moving from one contract to another. You have to keep track of customers moving from one marketer to another. You have to keep track of customers moving from direct purchase back to system or system to direct purchase. 415 The marketers need to have as precise -- precise information with respect to each given contract, number of customers, and therefore what the daily -- the gas demand is going to be for the next day. 416 MR. SOMMERVILLE: Just a point of clarification. Referring to the contract, contract 1 or contract 2, is that a contract between the end-use customer and the retailer, the marketer? So, the contracts you're referring to, whether they're lined up with contract number 1 with the retailer or contract number 2 with the retailer? 417 MR. ANDREWS: The contracts I'm referring to are the contracts between Union and the marketer. 418 MR. SOMMERVILLE: Okay. 419 MR. ANDREWS: Because the marketer requires a delivery contract with Union to be able to provide the delivery service to the end-use customers. So, today they have a number of those contracts and each contract represents X number of customers attached to those contracts. 420 MR. SOMMERVILLE: Okay. That helps. Thank you. 421 MR. JACKSON: What defines the establishment of the new contract, then, with the marketer? 422 MR. ANDREWS: What defines the establishment of a new -- of a new contract is based on the fact that the current processes cannot facilitate more than one price point in any one contract. So, with the establishment of the ABC service, our processes and systems can only accommodate, for example, if the marketer was going to charge 20 cents a GJ for the commodity, then that -- all customers who would receive that price are in one contract; but if the marketer offered another price, we had to put it into another contract. 423 MR. JACKSON: And that contracting arrangement works all right even with customers coming in and out of that contract, does it? The contract is written so that it provides for end-use customers to be an add or a delete, if you like, to use your words from yesterday? 424 MR. ANDREWS: Yes, that's correct. 425 MR. SOMMERVILLE: Just as a further clarification. You referred in the description of the new system, that it had the multiple price point capability. So, do I take it that the shift from contract -- from contract to contract would be minimized, given the new system? Is that the idea? 426 MR. ANDREWS: Yes. It provides the flexibility to marketers to determine how many contracts they want, so that they can -- now -- accumulate a number of price points in any given contract. So they may still have a number of contracts that may line up or be aligned with specific marketing programs or offerings or what have you, or -- or whatever which way they want to go, but it gives them that flexibility to do that. And I -- we presumed that in order to make the nomination process practical, that they would probably want to do some consolidation. But now they have that flexibility -- or they will have it. 427 MR. SOMMERVILLE: They can now consolidate customers with varying contractual arrangements with the marketer under a single contract with you? 428 MR. ANDREWS: They will have that flexibility with these systems, yes. 429 MR. SOMMERVILLE: Thank you. 430 MR. JACKSON: And will you permit them to do that right away, when you introduce the new program, or will you hold them to contracts that may have a term, two to five years? What sorts of terms are there for these contracts that you've set up with the different prices? 431 MR. ANDREWS: The contracts that we have with marketers are one year in nature. It's really -- it's really the deliver contract. But the contracts that the marketer has with the end-use consumer can certainly be one year or greater. 432 MR. JACKSON: No, I understand that. But if the contracts you have with the marketer are only one year, then this rationalization or aggregation that you speak of could happen fairly soon. 433 MR. ANDREWS: The -- yeah, the consolidation of contracts will likely occur at a contract renewal. 434 MR. MORAN: Thank you, Mr. Chair. 435 The -- I wonder if you can describe the process that you went through to get approval to proceed with this project, within the company. 436 MR. JACKSON: Mr. Moran? We've been so captured by your examination this morning that we've almost missed the break. You have a question on the floor, but the Panel seems to want to think a bit about it. 437 MR. MORAN: That's fine, Mr. Chair. 438 MR. JACKSON: Could we break at this point and come back and take the answer after the break? 439 MS. CREIGHTON: I think the answer is a short one. 440 MR. JACKSON: Okay. 441 MS. CREIGHTON: And that is, you have a Panel of communicators. 442 I am communicator so I am going to use lingo here -- worker bees. We would have awareness of certain aspects of the approval process, but we certainly couldn't describe the whole process for you. And the next Panel that has Rick Birmingham on it, he would have been through the whole -- it might be a question better addressed to the next Panel is what I'm saying. 443 MR. MORAN: Okay. And he would know about both the billing and the unbundling approval process? 444 MS. CREIGHTON: I would think he would be better able than we are to answer that question. 445 MR. MORAN: That's fine. 446 MR. JACKSON: Very good. Let's break for 15 minutes and resume at 11:15. Thank you. 447 --- Recess taken at 11:00 a.m. 448 --- On resuming at 11:25 a.m. 449 MR. JACKSON: Please be seated. 450 Mr. Moran. 451 MR. MORAN: Thank you, Mr. Chair. 452 Panel, I would like to now touch on the issue of cost benefit analysis. And I think it's pretty clear on the record that Union isn't aware of any cost benefit analysis having been done by anybody; correct? 453 MR. PACKER: I think that's correct. 454 MR. MORAN: Okay. And obviously, that means that Union hasn't done one either. And I'm interested in the idea that you put forward yesterday, which is that, to the extent that people were prepared to support movement towards unbundled services, I think if I recall your evidence correctly, you assumed that it's that those people would have done some sort of cost benefit analysis in order to come to the decision to support this approach? And I guess the question I have that flows from that is this: 455 To the extent that you guys have all the data, how would somebody else do a cost benefit analysis? 456 MR. ANDREWS: What data are you referring to? 457 MR. MORAN: All the system data that would be relevant presumably to a cost benefit analysis. Or maybe you don't need system data to could do a cost benefit analysis here? 458 MR. ANDREWS: Well, again, I'm not sure what data you would be referring to. 459 MR. MORAN: All right. If you were going to do a cost benefit analysis, what data would you use? 460 MR. PACKER: I think I have had discussions with people about the fact that you would need costs and you would need benefits. You need some way of trying to calculate those items. 461 MR. MORAN: All right. And when we -- I think we have an understanding of what you think the cost is of $15.7 million; right? 462 MR. PACKER: Correct. 463 MR. MORAN: So what data would you need to try and figure out what the benefits are in order to determine if $15.7 million is a reasonable cost to incur? 464 MR. PACKER: Benefit side, I think I've taken people back to the Market Design Task Force reports, where I thought the driver for unbundling was a more competitive commodity market. And discussions with you earlier today about the difficulties in trying to calculate a benefit associated with a more competitive commodity market. 465 MR. MORAN: All right. 466 MR. PACKER: It may be something people will have to assume will happen. 467 MR. MORAN: So you're suggesting that you simply just can't do a cost benefit analysis to determine if $15.7 million is a reasonable expenditure? 468 MR. PACKER: I think what I've said is, we know what the cost is, it's difficult to calculate the benefit. 469 MR. MORAN: Right. So it would be very difficult to determine if $15.7 is a reasonable expenditure? 470 MR. PACKER: Difficult for me to determine to -- what the cost benefit outcome is. Others may be in a better position to calculate what the cost benefit is. 471 MR. MORAN: Right. I mean, there is different ways you can go about assessing the different ways of that reasonableness of that expenditure. Did you canvass other jurisdictions to see what other utilities had done with respect to unbundling and what their experience was? 472 MR. ANDREWS: The -- I think I mentioned before, that we had visited Atlantic Gas Light, in Atlantic Georgia, back in 1999 because we were very curious to know about what their approach was and what they were doing to facilitate a retail unbundling in the gas market. And we got a very good idea of the process and system changes that they were going to undertake to do what -- to do what we considered to be something fairly similar to what we were about to undertake. And again, we looked at what was going on here in Ontario with respect to the electricity market. 473 MR. MORAN: Okay. So, the only other utility that you looked at to see what their experience was, was Atlanta -- 474 MR. ANDREWS: Atlanta Gas Light. 475 MR. MORAN: -- Gas Lighting? 476 MR. ANDREWS: Yes. 477 MR. MORAN: That was it? 478 MR. ANDREWS: Well, they basically were leading North America as far as retail and billing was concerned. We were not aware of any other jurisdictions. 479 MR. MORAN: Did you make the inquiry amongst the other jurisdictions? 480 MR. ANDREWS: I did not. 481 MR. MORAN: Did anybody? 482 MR. ANDREWS: I don't know if anybody else did. 483 MR. MORAN: Is there a way to find out? 484 MR. ANDREWS: I don't know how many people I would have to ask. 485 MR. MORAN: Mr. Chair, perhaps we could just ask for an undertaking to make best efforts to find out what inquiries of other jurisdictions were made beyond Atlantic Gas Lighting. 486 MR. ANDREWS: What -- well, you could perhaps define precisely the nature of those inquiries, making inquiries about what specifically? 487 MR. MORAN: About what other utilities have done or didn't do with respect to decisions to unbundle. 488 MR. ANDREWS: Just -- I'm sorry, I -- I think I misunderstood your question. I thought you were sort of talking about what they did to enable unbundling not to pursue unbundling. 489 MR. MORAN: Both. Presumably somebody might have looked at it and decide it was a bad idea; right? And therefore didn't do it. Or maybe did it a different way. 490 MR. JACKSON: Did you explore other systems that were being examined by other utilities in North America -- I think -- is perhaps the question. If so, could you say something about the examination you did of those? Was it sort of a telephone call, conversation, or did you actually get some documentation that might have been available on other systems? I think you did, if you like, get a description of this Atlantic Gas Light system that either had been put in place or was being implemented, if I understand you correctly. Please correct me if I'm -- if I misunderstood you. But you did give some description of that and look at that as you were trying to decide what systems you might put in place. But did you look at any other systems and to what extent might you have looked at other systems? 491 MR. ANDREWS: Yeah. With respect to Atlantic Gas Light, we visited Atlanta Georgia in 1999 to actually see the systems up and running. And we spent a great deal of time with the personnel there to talk about the nature of the unbundled proposal, in Georgia. And to talk about what it was they did, in terms of building systems to facilitate that. So we do have those extensive discussions in person. 492 With respect to the electricity market, we did have one of our IT people in Chatham sit on one of the technical committees to get a better idea of what they were doing as far as the system's design and what they were proposing. That goes back to the electronic business transaction system. 493 So we had those two occurrences and again, to our knowledge, we're not aware that anyone else was coming close to direct purchase. It's further complicated by the -- by the nomination process with respect to the unbundled service. I indicated earlier that we have to account for each one of those customers when we're doing those calculations. 494 MR. THOMPSON: Okay. In terms of the way it is now, for a marketer representing a group of customers served on M2, my understanding is that marketer provides Union with, in effect, the list of customers that it represents. Have I got that straight? 495 MR. ANDREWS: That's right. 496 MR. THOMPSON: Okay. And then that marketer makes one nomination for the group: Is that right? That's based on some algorithms than kind of thing? 497 MR. ANDREWS: No. Actually there aren't any algorithms involved at all. The way the nomination works is we set, for each contract, what we call a DCQ, which is a Daily Contract Quantity, which is really based on the historical volumes for that contract, which are normalized for -- for normal weather. And we simply take that number for that contract and we divide by 365 and that's what the marketer has to deliver to Union Gas each and every day on behalf of that contract. But once they submit that at the beginning of the contract term or when they renew the contract, that nomination doesn't change throughout the year. 498 MR. THOMPSON: Okay. So it's a constant and being a constant, that doesn't create problems for Union internally: Is that -- have I got that right? I'm just trying to understand why -- how it works now compared to what's going to happen later. 499 MR. ANDREWS: That's right. No, it's a fairly straightforward process and in fact, for the bundled direct purchase contract, Union does most of the work as far as setting up the nominations. So we basically take the aggregate of all those contracts and we place the nomination on the upstream pipeline. 500 MR. THOMPSON: All right. And then moving to the unbundled regime, is it the fact that nominations have to be done daily, that creates these additional system requirements? 501 MR. ANDREWS: That's correct. This is very much like the storage and transportation world, which is a -- a daily world. So nominations must be placed every day. 502 MR. THOMPSON: And in this case it's by -- it's by the marketer now rather than being a nomination by default in the sense that the DCQ applies 365 days a year, the marketer will submit one each and every day for the portfolio: Is that right? 503 MR. ANDREWS: Well, that's correct. But the marketer does not have the tools to determine what the next day's gas demand is going to be for each of those contracts. So, Union will do that calculation for the marketer and -- in essence will tell them: Here is the demand for next gas day, and what you need to do when you submit your nomination is tell us how you plan to source -- what sources of supply are going to meet that demand. And that has to be done each and every day. 504 MR. JACKSON: So the only marketer nomination you're talking about is the nomination to put into your system not a nomination on behalf of the customers to take something out? It's a nomination to put in you're talking about: Is it? 505 MR. ANDREWS: No, Mr. Chairman. What they have to do with the nomination now, with the unbundled service is, they have to basically tell us where the gas is going to be received at Union. And there are 6 receive points in the south, there are 6 delivery areas in the north. They also have to tell us, you have to nominate to the delivery and redelivery service in the north, to the extent that they're going to use the storage which is part of the unbundled service -- they actually have to nominate the injections into and injections out of the storage. So, if they're going to deliver let's say 100 units and let's say they are next day's gas demand only requires 90, they have to tell us what they're going to do with the extra ten. Unlike today, we make all those decisions as part of the bundled service but now they have to make those decisions each and every day and they can make those decisions more than once a day because the fact that they can have two cracks each day for the next gas day and two cracks each day for the current gas day. 506 MR. JACKSON: Would I be correct in saying though that the one thing they don't have to tell you is what the take will be at the individual service locations? Like you only metre that once a month, don't you? 507 MR. ANDREWS: That's correct, Mr. Chairman. And we will tell them what the next day's gas demand is. 508 MR. JACKSON: Okay. So that's the calculation: You do then for them and to the extent that that would have to ever be nominated or told to you, in the case of the small volume customers, that's something which you are still retaining responsibility for; is that correct. 509 MR. ANDREWS: That's correct. 510 MR. ANDREWS: Good. Thank you. And everything else about the services has to be told to you by the marketer, is that correct? 511 MR. ANDREWS: No, not -- not entirely. I mean they will continue to submit to us on a daily basis the names of those customers that they've signed up for -- to direct purchase. We take the numbers of customers into account when we're doing the daily calculation for the nomination, because that will impact the amount of the -- what we call the market required nomination, okay? So we have to take that into account each day and we will process adds and deletes or changes in customers to contracts each and every month. 512 So, we will tell them the impact, again, as a result of these adds and deletes. 513 Now, it's entirely possible that our customers, about 12 per cent of our customers relocate or change addresses every year. So we will tell them, to the extent that they're customers -- their customers have moved, have relocated, that -- that may or may not be on the contracts. So again, it's a two way exchange of information that enables us to continue to calculate that nomination for them. To the extent that -- there are what we call the DCQ changes, we'll let them know as well. 514 MR. JACKSON: Okay. So you're processing adds and deletes you said only monthly though; is that correct? 515 MR. ANDREWS: Well, we take the submission objects a daily basis, but they take effect at the end of the month. 516 MR. JACKSON: Okay, good. Sorry, Mr. Thompson, what I thought was one clarification turned into several. 517 MR. THOMPSON: No thanks very much for helping me out. 518 In terms of the big picture, Mr. Andrews, is it fair for me to suggest that what this further unbundling does is increase the number of parties that are involved in the management of the storage and upstream transportation assets? 519 MR. ANDREWS: Yes, it does. 520 MR. THOMPSON: And in theory, is that where the enhanced efficiency is to be found, by increasing the number of people managing these assets, the theory is greater efficiencies will be achieved? Is that the theory? From a competitive perspective? 521 MR. ANDREWS: Yeah. I don't know if it's increased efficiency or if it's just by virtue of the fact that marketers will have access to these assets, both upstream pipeline assets and storage, it gives them a great deal more flexibility to manage those assets as they see fit, which could in fact, I guess, be more efficient than Union if that's what you're suggesting. That may be the case. 522 MR. THOMPSON: Thank you. Fine, let's move on then to the amounts here then of the -- of these systems's enhancements. And in your response to C14-12, where we ask you a number of questions with respect to Exhibit C 1.15, you've -- you describe in detail much of what you've described already in evidence about phase 1 of the system upgrade, if I can call it that, and then phase 2 of the system upgrade. And in the preamble to the question on C-14.12 page 1 on the first two lines, we made reference to an estimate that had been tabled in the RP-1999-0017 proceedings of $5 million. Do you recall that? 523 MR. ANDREWS: Yes, I do. 524 MR. THOMPSON: Okay. And can you just help us as to whether Union, in the 1999-0017 proceeding or any prior proceedings, had clearly laid out the two phased process and a total estimate of what this was going to cost? 525 MR. ANDREWS: Well, at the time we had to come up with the $5 million estimate, we had not done the work, the preliminary scoping work I guess to get a good understanding of how big this task was going to be. 526 MR. THOMPSON: So, was it Union's expectation that 5 million was the total cost when it tabled the estimate? 527 MR. ANDREWS: No, that was not our expectation that 5 million was going to be the total cost in comparison to the 15.7 million. It was at that time up -- and that informs your decision in terms of what you are ultimately going to design. It's fair it say that during the design process, you do test concepts and you do test ideas, as far as how you do this. But that's -- that's the -- what I'll call the intellectual processes that you go through. 528 MR. MORAN: Right. So the scoping process would be the first part of that? 529 MR. ANDREWS: We had essentially three scoping exercises. 530 MR. MORAN: Right. 531 MR. ANDREWS: The first exercise occurred in the late summer of 1999, when we were trying to take a look at sort of the overall picture, trying to get some sense of how big the undertaking was going to be. It was at that time that we realized that it was going to be sufficiently big enough that we had to break it into two pieces. 532 MR. MORAN: How did you describe the undertaking at that time? 533 MR. ANDREWS: How did I describe the? 534 MR. MORAN: How did you describe the undertaking at that time, when you were making the decision to break it into two pieces? What was the description of the undertaking? 535 MR. ANDREWS: I'm not sure I understand your question. 536 MR. MORAN: You were talking about an under -- you were looking at trying to figure out how big an undertaking you had, which led to the decision to break it into two pieces 537 MR. ANDREWS: Um-hmm. 538 MR. MORAN: When you were doing that, how were you describing the undertaking? What did it look like in your mind at that time? 539 MR. ANDREWS: Well, again, what we had in front of us was, you know, the service called the unbundled service. And we had some information in terms of what -- what the service looked like, what it -- how it would operate. 540 MR. MORAN: Right. How did it look at that time? 541 MR. ANDREWS: How did it look? 542 MR. MORAN: Yeah. How did it look? You said you had an idea of how it looked. How did it look? What was your idea at that time? 543 MR. ANDREWS: Okay. 544 MR. MORAN: Let me help you out here. At that time was it -- you had already decided that it had to be customer by customer, daily calculations, for example? Was that the undertaking at that time? 545 MR. ANDREWS: No. I guess how it looked was, we knew it was going to be a service that required daily balancing. So we had an idea of the parameters around the service. So, that's really what the design process allows you to discover is -- if this service requires daily balancing, and if it requires daily balancing at the contract level, and if you have to account for the fact that on a simple -- on a -- using a simple example, if you have a contract with a customer in Point Pelee and a customer in Thunder Bay - I thought I better get back to your example, Mr. Chairman. 546 MR. JACKSON: I'm not sure, but I picked areas in which marketers are acting, but it's hypothetical example. 547 MR. ANDREWS: That's fine. That we recognize that, to be a truly daily balance service that you had to account for the unique profiles of each contract. So, there could be differences in how customers behave at Point Pelee versus Thunder Bay. You had to account for the uniqueness of the customer behaviour as well as the number of customers. So, you have those discussions as you go through the design process. You start to build up the details of what it is that's needed to make the service work. 548 MR. MORAN: All right. And where were the alternative approaches looked at when you were doing this? 549 MR. ANDREWS: Well, I think alternative approaches come into play when you're looking at each segment of the overall process. So for example: Contract administration -- how would you manage the information? What do you need to do -- to manage the information? What information do you need? Then you segue into the nominations process and billing process. So, it isn't that there is sort of an overall alternative. You look at what you can do at each step of the process. There was no alternative unbundled service. That's what we had to design to. That didn't change. But you tried to find the best way possible to make the thing work from front to back. 550 MR. MORAN: I guess I'm referring to the options available to deliver that design objective. 551 MR. ANDREWS: The options to deliver the design of the objective? 552 MR. MORAN: The design objective. The design objective, as I understand you, was it design something that to -- that would deliver unbundled services; right? 553 MR. ANDREWS: Right. 554 MR. MORAN: Presuming there might be different ways of delivering that service -- what were the options that you looked at? I think you already talked about the Band-Aid solution to the legacy system, so we can leave that one aside. Assuming that you ruled that one out as inappropriate. And you're going to do something different. What are the options that you looked at to deliver? 555 MR. ANDREWS: There really are not a wide range of options here. You can look at what you've got in place today, recognizing that what you have in place does not facilitate daily balancing, does not facilitate daily transaction processing. 556 So I suppose you looked at telephone, fax, e-mail, to be able to transmit the information to and from marketers. 557 I suppose you've looked at having -- hiring 20 more people to do those calculations on spreadsheets and then to have somebody consolidate them and then to have somebody phone the marketers. I mean, we did look at things like that, perhaps as silly as it may sound. But then you recognize that you just couldn't meet the requirements of the service for the -- for marketers. You couldn't get the information to them fast enough, secure enough without the possibility of some serious errors. And the only medium available today that I'm aware of, that I was made aware of by our technical experts was the use of the Internet. 558 MR. MORAN: All right. Now, you decided to essentially build your own system; right? 559 MR. ANDREWS: Yes, that's correct. 560 MR. MORAN: So did you look at the option of buying something that might available as opposed to building your own system from scratch? And just to give you some context, I mean, you said you looked at, for example, what was happening in the electricity market and how systems requirements seemed to be similar in terms of the exchange of information that was required, and we know that there's about a hundred utilities out there all trying to set up systems that work and a few vendors dealing with all of them. Did you look at the option of going with some of that stuff so that you didn't have to start from scratch? 561 MR. ANDREWS: It's fair to say that, to the extent that we could have, I guess, borrowed -- borrow a page from someone else's book, I know that our technical people who did look at the -- on the electricity side, for example, we did lift a couple of pages from their play book in terms of the information exchange piece, adopting some of the communication protocols, the Internet protocols, so we didn't have to repeat that. 562 But the -- the history at Union Gas has been such that our system is unique enough that we've -- I can't recall being able to buy either a package solution or an off-the-shelf solution, given the nature of our operation and the nature of the services that we provide. We looked at the Atlanta situation. They don't have storage. 563 Typically, we really don't find anybody else who has the combination of the kind of operation we have, the storage operation, the transmission operation, the distribution operation, all combined under one roof. 564 But where possible, we did, you know, try to find, I guess, off-the-shelf solutions for some of the smaller components of what we've done. 565 MR. MORAN: Right. Did you look at whether there were components of your system that could have been taken off the shelf as opposed to the whole system? 566 MR. ANDREWS: I'm sorry? 567 MR. MORAN: Did you look at whether there were components of your system that could have been bought off the shelf as opposed to -- 568 MS. JACKSON: Mr. Andrews just indicated that they did, and they did buy some off the shelf. 569 MR. MORAN: And that would be Enlogics that supplied some of those components? 570 MR. ANDREWS: Yes. In that context, we required Enlogics to do some work with respect to the storage calculation. So in that sense, yes, we purchased that from Enlogics. 571 MR. MORAN: Now -- 572 MR. JACKSON: Was that off the shelf or was that something they would have to develop for you? 573 MR. ANDREWS: I presume, Mr. Chairman, that that was not off the shelf. I presume that they would have had to do some programming themselves. They would have done it. 574 MR. JACKSON: Thank you. 575 MR. MORAN: Okay. We talked about whether you discussed costs -- we talked a little bit about whether you discussed the costs of these systems with various people. When you were meeting with the marketers and consulting with them on design and, I guess, meeting their design requirements, did you talk to them about how this would be paid for? 576 MR. ANDREWS: If you're referring to the customer checkpoints, no, we did not, because the people who attended the customer check-points would have been the people who would have been more closely associated with the day-to-day operation from their side. So our intent was to share with them our design ideas, how we thought the system should work, and -- but we did not discuss with them costs or how costs should be allocated. 577 MR. MORAN: So the discipline that might have been brought to the design meetings that would be associated with the possibility of having to pay for this wasn't present? 578 MR. ANDREWS: I think I take exception to your proposal, your proposition. The discipline? 579 MR. MORAN: That might be brought to discussions about how this thing should be designed and how elaborate it needs to be and -- was absent if there is no discussion of having to pay for it. 580 MR. ANDREWS: I'm not sure -- I don't make the connection between the two. I mean, what you're trying to do with the design phase is to try and make -- make the service work. That's really your objective, is to make it work. Will this work? 581 MR. MORAN: Right. You want it to work, but you also want it to be cost-effective, don't you? 582 MR. ANDREWS: Yes, you want it to be cost-effective. 583 MR. MORAN: Were there any discussions with marketers about the costs of this system? 584 MR. ANDREWS: Well, again, the people -- the representatives from customers who attended the check points, again, were the people who were going to be operating the -- and using the service from their end. So actually, the people, at the end of the day, who will log on to Union Gas dot com to be able to transact the unbundled process, so we didn't have specific discussions with them about how these costs would be recovered. But I think I mentioned earlier, that during the discussions of the design, we talked about and shared ideas about what functionality would be required to make the service work. So, you think you need this daily information. You think you need this piece of functionality. And in the course of those discussions, marketers did ask for or did suggest other ideas, other functionality that we mutually agreed was not required or necessity point in time. 585 And, I would suggest that that kind of dialogue, that back and forth between Union and marketers, to be able to mutually agree that what we were designing was going to meet the needs of the service, is a discipline, I think, that -- that speaks to the reasonableness of what we're proposing. 586 MR. MORAN: Were there any discussions with any marketers about the costs of the system? 587 MR. ANDREWS: The representatives from the marketers who attended our check points were people who are going to operate the system. We did not talk to them about the costs of the system. 588 MR. MORAN: All right. You talked about a small group of meetings. My question is much broader. Were there any discussions between Union and marketers about the costs of this system? 589 MR. ANDREWS: I'm not aware of any such discussions. I presume that marketers would have had copies of our -- our evidence, and would have received copies of interrogatories which would have provided that information. But I'm not aware of any specific discussions. 590 MR. MORAN: All right. Would you agree with the proposition that if somebody is being asked what they want without having to pay for it, what they might want might be much more than what they might want if they're being asked to consider paying for it? 591 MS. JACKSON: Well, with this caveat, Mr. Chairman, the witnesses have been indicating they weren't asked what they wanted but what they needed and what they needed was tested. So the premise of the question isn't based on the evidence. 592 MR. MORAN: Needs and wants might change depending on whether you're going to be asked to pay for it. Isn't that fair? 593 MR. ANDREWS: Excuse me. When we talked to a marketer representative, we are talking about what they needed to make the service work. 594 MR. MORAN: Right. Did you ask the question -- 595 MS. JACKSON: Could I ask that the -- that Mr. Andrews be allowed to finish? 596 MR. MORAN: I'm Sorry. I didn't know you weren't finished. 597 MR. ANDREWS: I'm trying to talk slow enough to give my friend here an opportunity to catch all my words. 598 We talked to them about what -- what they thought they needed to make the service work. We shared with them what we thought they needed to make the service work. We did not talk to them about how the cost ought to be recovered because we recognized that that was a decision that was going come at a later point in time. 599 But the focus of the discussion was based on needs. And as I indicated, they -- they had articulated some -- what I'll call wants, and again, we mutually agreed that, that it didn't meet the test of what we -- what we all thought was needed to make the service work. 600 MR. MORAN: Fair enough. So in the context of those discussions, there wasn't any discussion about allocation of the cost? 601 MR. ANDREWS: Well, again, the representatives that came to these check points were not the right people to talk about those issues. And -- that's not why they were invited to the -- to attend the sessions. 602 MR. MORAN: I understand that. But at that time, there was no discussions going on to talk about how costs might be allocated with anybody; right? 603 MS. JACKSON: I think -- 604 MR. MORAN: That came later, I think is -- 605 MS. JACKSON: I think this has been covered, Mr. Chair, and it's -- 606 I think that this has been asked and answered and asked and answered. And I observe as well that Union's proposal as to how these costs be allocated and recovered has been consistent through the unbundling process, so it's not mysterious. But my friend has asked this question and it's been answered. 607 MR. MORAN: I just wanted to make sure I understood the last question, Mr. Chair, which I think -- let me just make sure I have it right. You were discussing design, the discussion -- allocation issues came later. Allocation of costs came later and that's the proposal we have before the Board. 608 MS. JACKSON: That's not. Excuse me, but with respect that's not fair. The allocation proposal that Union has made for these costs has been consistent since RP-1999-0017 and it's remains the same. It wasn't not discussed it didn't come -- it didn't come later it's been there throughout. But the witnesses have explained that with these particular people they didn't further discuss it for the reasons indicated. I think the question has been asked and answered. 609 MR. JACKSON: I think, I think the answer is on the record as to timing, indeed and this, -- perhaps this Panel could not have reminded you of where it was on the record. I'm not sure of the extent of the ability of this Panel to remind you, but Ms. Jackson has. 610 MR. MORAN: Fair enough. The proposal to allocate, in the fashion that's being proposed, I guess you're -- Mr. Packer you're the person that would know about this; right? 611 MR. PACKER: It may depend on the question. 612 MR. MORAN: Who designed -- who made the proposal? Who designed the proposal that we have before the Board today to say that it should be allocated the way at that that it's proposed? 613 MR. PACKER: It's my proposal. Others within the company certainly -- 614 MR. MORAN: Right. 615 MR. PACKER: Accepted it. 616 MR. MORAN: Right. When -- when did you first make -- come up with that proposed approach? 617 MR. PACKER: Would have been -- we had a proposal in the RP-1999-0017 case. I used average weighted number of customers as the allocator, so it would have been sometime in advance of that proceeding. 618 MR. MORAN: Right. And before you landed on that proposal, what did do you in terms of consultation with customers? 619 MR. PACKER: I didn't have any consultation with customers. 620 MR. MORAN: Right. It was injected into the 0017 proceeding and that's where it would be dealt with? 621 MR. PACKER: We -- we looked at the costs of -- we were going to have to allocate and we tried to come up with the fairest way of dealing with the allocation issue. Once we made that determination, we filed our proposal. 622 MR. MORAN: Going back to you, Mr. Andrews. 623 There was sole sourcing on this project; right? 624 MR. ANDREWS: Sole? 625 MR. MORAN: There was no tendering for this process; right? 626 MR. ANDREWS: Our approach, when we develop systems or enhance our systems, is to first -- to utilize our in-house IT resources. And to the extent that we require third-party services, third-party skills, we have an -- used other parties in the past. 627 Now, in our business, knowledge is very critical. So, to find a vendor who has the knowledge of your systems and the knowledge of your business is quite critical. So, one of the vendors that we've -- that we used on this particular project, Hatch Associates, we've used them for a number of years. They architected and built our original gas management system, which is undergoing some of the changes as per our proposal. 628 And whenever we need to, to make changes to those systems, we continue to go back to them because of the history and the knowledge that has built up with them. 629 One of the big concerns that we had, going forward with this initiative, was that, again, we thought that based on our earlier preliminary examination of the kinds of technologies and the kinds of systems that we would have to look at, we concluded that this probably would require someone with knowledge and experience and expertise in web development. And Union Gas has, to date, limited experience in web development. So that was one of the things we had to look for. 630 We also recognized that there wasn't a lot of experience in Ontario with retail unbundling, so we thought, well, if there is a vendor, a software vendor out there who could combine skill and expertise with web development and knowledge and experience with retail unbundling, that would be another criteria we would look at. 631 Thirdly, in talking to our IT people, they will tell you that there are published statistics that say that very large projects -- 75 per cent of very large projects frequently exceed budget and time. So, we were looking for someone who could provide very rigorous project management. 632 On that basis, we made a selection of a vendor called Sapient. Sapient worked in Atlanta, they were the ones who developed the gas management system in Atlanta for the unbundling application. So when we went down to Atlanta, we wanted to talk to the people there, in terms of their experience with them, and they provided a very -- a very good reference. They were very happy with the work that they had done. 633 And what Sapient brings to the table, unlike other vendors, and it's an approach they pioneered in the early '90s, is that to help manage the risk of these large projects, that they operate on a fixed-price, fixed-term basis. 634 And, given the fact that -- of our limited experience in developing web applications and working on -- in bringing new technologies to bear, that our concern was that if you work with a traditional -- what we call time-and-materials vendor, and what that means is that if you -- you get an estimate from a vendor that says, "It will take me a hundred hours, it will cost so much money." But if they exceed the number of hours, then -- then you will pay for the difference. 635 Whereas, Sapient will fix the price and the time, so they will -- so what they'll do is they'll say, "We will deliver what you want, when you want, at this price." And that's what Atlanta Gas Light did with them and, in fact, they delivered what they were supposed to deliver on budget, on target. 636 Now, when we engaged with Sapient we thought, "Well, we don't want to simply commit all of the money that we had budgeted," so we weren't about to write a blank cheque and say, "Okay, here you go, based on your sterling reputation." We broke it down into pieces and we used each of those pieces, each of those separate engagements to test whether or not they could deliver on their valued proposition. 637 So, the first time we worked with them was back in the late summer of 1999, and in -- actually, quite frankly, at that point in time we wanted to engage in a very high-level scoping exercise and we did approach two vendors at the time. And the other vendor -- and we did do a -- a quick tender at that point. The tender was just for that specific engagement and we chose Sapient. 638 But they bring to bear a very rigorous project management approach with frequent checkpoints, frequently validating objectives, frequently validating design criteria. They are the ones who insisted on having the customer check points, to bring the customers in to validate the design. 639 What we had, in the course of this project, I believe it was about seven separate engagements with Sapient, so that we were never financially committed to them beyond the firm engagement, so that if we wanted to, we could have walked away from them. Had we not chosen Sapient we would have brought anybody else through the same process. 640 I'll go back to Hatch for a second because we have used them since the early '90s. We are a preferred customer of Hatch and so we're able to compare what is commonly referred to as per diem rates, hourly rates for different kinds of individual systems engineers, project managers and the like. And the Hatch rates match the preferred rates that we get from -- the Sapient rates match the Hatch rates. 641 MR. MORAN: Thank you. Let's talk about benefits now. I think you indicated that one of the benefits that you would point to is the availability of choice. Would you agree with me that the availability of choice, in and of itself, is not a benefit unless the exercise of the choice yields a benefit? 642 MR. PACKER: I have, on occasion, referred to the Market Design Task Force reports. My understanding of what those reports were set out to do was to create a more competitive commodity market in the general service category. 643 To the extent that is the outcome of unbundling, I'm not sure you could limit the benefit to only those who exercise the choice of taking the unbundled service. 644 MR. MORAN: The mere existence of the choice alone is not enough to create a benefit though; isn't that correct? The choice has to actually -- 645 MR. PACKER: I think I've said that -- I think I said yesterday that the existence of choice may create a more competitive market. I don't know. I'm not a competition expert. 646 MR. MORAN: You don't know. 647 MR. PACKER: It's conceivable to me, though, that it might. 648 MR. MORAN: It might. All right. 649 MR. JACKSON: Mr. Moran, would you just let me know when a convenient point might be to break for lunch? 650 MR. MORAN: I can do it now or right after this point in ten or 15 minutes. 651 MR. JACKSON: I think that it might be better, then, to break now and I'll let you resume here later. 652 And let me just ask the witnesses, with respect to Mr. Moran's last line of questioning, would Sapient, then, have been providing you cost implications as you went through the design phase? You were saying that on occasion you had discussed with marketers whether they really needed a certain functionality, and I believe you had said that in certain cases it had been agreed that that would be something that would be postponed and not done now, a functionality which the marketers might otherwise have been asking for, or actually were asking for, because I think you said that in a few cases you had followed a path of not including certain functionality. 653 Would Sapient have been sort of in the background, letting you know what the cost implications were as you went through this? 654 MR. ANDREWS: I think, Mr. Chairman, there are probably a number of considerations. Cost, certainly, would have been one of them. But we also had to take a look at the impact of, let's say, trying to accommodate additional functionality and whether or not we could then deliver the service when we originally targeted to. So, that was one consideration. 655 But I think it's fair to say that Sapient was in the background giving us an idea, roughly, of -- well, clearly more functionality will cost more money, but I think that it was -- it was a combination of elements, I think, that went into, perhaps, our suggesting that, "Well, we don't think you need this for this service. Perhaps we can come back to it another day." 656 MR. JACKSON: So -- and as I understand it, Sapient was involved in designing and implementing a web site functionality which you needed; correct? 657 MR. ANDREWS: That's correct. 658 MR. JACKSON: And were they also involved in the background in designing good gas-relational databases that needed to be behind the web site? Web site, I think, being the communication device to transfer information back into some other databases and management systems? 659 MR. ANDREWS: It was a combination of Sapient resources and Union resources. They worked together at the same time and in the same location. 660 MR. JACKSON: Building the systems behind the web site? 661 MR. ANDREWS: That's correct. 662 MR. JACKSON: Okay. 663 MR. ANDREWS: So in order for Sapient to properly design the web piece, the front-end piece in a communication piece, to take information from the front to the back and back to the front, they had to have an understanding of those back-office pieces. So that's why Union personnel and Sapient personnel had to work together. 664 MR. JACKSON: Well, were they contracted to build some of those back-office pieces or was that Union's personnel that did that? 665 MR. ANDREWS: That was principally Union and the other vendor I mentioned, Hatch Associates, because they're the experts we've relied on for the gas management system. So essentially it was Hatch who were the ones who used to do the work on the gas management system. We used Union IT personnel to do the work on the contract administration and the internal billing piece. And essentially we used Sapient for the web piece. 666 At any point in time, you would have discovered that there would be Hatch people, Sapient people and Union people, design people, technical people, in a room at the same time. 667 MR. JACKSON: Thanks for that clarification. Let's break for lunch, then, and resume at 1:30. Mr. Moran, you can continue at that time. 668 MR. JANIGAN: Mr. Chair, before we break, is it possible to get an estimate of the cross-examination -- amount of cross-examination before the conclusion of this Panel, and as well, the cross-examination for the second Panel? I'm hopeful, possibly, that I could take the two o'clock flight to Ottawa, and of course this has got nothing to do with the Olympic hockey game at three o'clock. But if that's the case, I could resume my cross of the second Panel on Monday morning. 669 MR. JACKSON: I thought the game was at two. 670 MR. ANDREWS: It is. 671 MR. JANIGAN: It is? The third period looks good, then. 672 MR. JACKSON: I think that's a good idea, assessing priorities in the room. Mr. Moran, do you have an idea of how long you'll be? 673 MR. MORAN: I'm in favour of watching the hockey game myself, so -- 674 MR. JANIGAN: Two minutes. 675 MR. MORAN: A penalty, that's right. 676 I've never been so wildly off in my estimate before, Mr. Chair. I'm looking where I am now and I was just flipping through my notes, I think I could be finished in under an hour at this point, which is longer than my initial assessment to begin with, I realize. 677 MR. JACKSON: All right. Thank you. And I think the Board will be, what, 15 minutes? 678 MR. SOMMERVILLE: I agree. 679 MR. JACKSON: Okay. And that was it for this Panel. And then have we any estimates -- can anyone help -- 680 MS. JACKSON: I have a couple of questions in reply. 681 MR. JACKSON: In reply, of course. 682 MS. JACKSON: But I don't think they'll take more than two or three minutes. And if it's of assistance, I do anticipate a brief examination-in-chief of the next Panel, I wouldn't have thought more than 15 minutes, if that. 683 MR. JACKSON: Mr. Warren, I think you did reserve on the new filings the other day. Did you have anything further? 684 MR. WARREN: I do not, Mr. Chair. Thank you very much. 685 MR. JACKSON: Thank you. So, I'm hearing about two hours, I think, a little less. If we resume at 1:30, we could be into examination of the next Panel by 3:30. And are there any suggestions? Should we just plow ahead and follow that scenario? 686 Mr. Janigan, I think perhaps your friends could accommodate you. 687 MR. JANIGAN: I think they're -- my colleagues in front of me have at least an hour and a half in cross-examination, so I think I'm pretty safe in heading to the airport. 688 MR. JACKSON: Okay. I think you probably are too. Okay. Let's adjourn for lunch. Thank you. 689 --- Luncheon recess taken at 12:15 a.m. 690 --- On resuming at 1:35 p.m. 691 MR. JACKSON: Please be seated. We've been told of a request during the lunch break that we consider sitting on Monday afternoon. In other words, sit a full day on Monday and that that would perhaps bring things back into line with respect to some of the time tabling of witnesses. 692 Ms. Jackson, would that be agreeable to you? Does that sound like a good idea? 693 MS. JACKSON: Union would certainly be agreeable, Mr. Chair. 694 MR. JACKSON: Does that affect anyone else? Should I hear any other comments on that? 695 Then let's give that a try and see if that can move us ahead a little bit. I think we have some witnesses that would like to get on. 696 I trust staff will update the hotline to that effect. 697 Good. So, Mr. Moran, back to you. 698 MR. MORAN: Thank you, Mr. Chair. 699 I would like to look at an example now of a marketer who has got a five-year, fixed-price contract with an end-use customer, and this unbundled service becomes available to the marketer and the marketer sources other storage at a lower price, and therefore doesn't have to pay Union for storage anymore. 700 From the end-use customer's perspective, the end-use customer is still in the same position because it's a five-year fixed price and the customer has to continue to pay at that rate. Is that something that's possible, if unbundled service becomes available? Can the retailer do that? Marketer, I'm sorry. 701 MR. ANDREWS: It sounds like it would be plausible. 702 MR. MORAN: Right. So if the marketer can do that then obviously the marketer is improving its bottom line even though the end-use customer is still paying the same amount. Wouldn't that constitute a benefit to the marketer as opposed to the end-use customer? 703 MR. ANDREWS: I think under that hypothetical example, I think that would be correct. 704 MR. MORAN: Right. 705 And if we were to apply the principle that we touched on briefly at the very beginning, that those who benefit ought to pay, then perhaps some of the cost associated with the unbundling figure might be attributable to marketers directly under scenarios like that; right? 706 MR. PACKER: The difficulty I have with what you're putting to us is that you're asking us to put ourselves in the position of knowing what all the arrangements are between the end-use consumer and the marketer, and I don't have privity -- I'm not privy to those arrangements. In the hypothetical example you gave, I think it's true that, for a short period of time, the broker may be better off but the reason we're unbundling was to create a more competitive commodity market which eventually should benefit end-users. It's a matter of time. Say there is three years left on a five-year contract. For three years, somebody else other than the end-user might benefit. But for all the years after that, it will be the end-users who benefits. 707 MR. MORAN: All right. So if we look at it from that perspective, where, for the first period of time where end-use customers are still in fixed-price contracts that haven't expired yet, I take it you're agreeing that is there the potential for a benefit directly to the marketer as opposed to the end-use customer. But you're suggesting that after that, it may be the benefit is also to the end-use customer. Is that fair? 708 MR. PACKER: I think I accepted that as a potential, but I also identified I don't know what the arrangements are between the marketer and their end-use clients. 709 MR. MORAN: Okay. 710 Marketers offer end-use customers fixed-price, fixed-term contracts; right? You know that? 711 MR. PACKER: I know that would be an option, yes. 712 MR. MORAN: Yeah. And, in fact, Union probably knows how many there are, because it does the billing right now, doesn't it? It has the price and it applies the price to the volume, and it ships the bill out; right? 713 MR. ANDREWS: Well, we don't know the term of the contract between the marketer and the end-use customer. 714 MR. MORAN: I'm not talking about the price right now. 715 MR. ANDREWS: Well -- 716 MR. MORAN: Are there variable price contracts that you administer? 717 MR. ANDREWS: We know the price. 718 MR. MORAN: Right. And is it fair to say that the vast majority of retail -- marketers, I'm sorry, contracts are fixed-price contracts at the moment? 719 MR. ANDREWS: I have no idea. 720 MR. MORAN: But you would know that based on the billing data you have; right? And you have to charge them for something. 721 MS. JACKSON: You would have to know -- if you're saying it's a fixed-price contract, you would have to know it's fixed price over the term and the witnesses have said they don't know the term. 722 MR. PACKER: My understanding is that we allow the marketer to change their price every quarter. All we know is what price they're telling us to charge. We don't know anything more than that. 723 MR. MORAN: That's fair enough. 724 So you don't know how many contracts there are currently that are for a fixed price and you don't know how many -- and you don't know what the terms of those contracts are either; right? Is that, that's fair? 725 MR. ANDREWS: That's fair. 726 MR. MORAN: All right. And to the extent that those contracts exist, the ability for a marketer to save money on storage as a result of taking advantage of the unbundled service exists, right, to the extent that those contracts exist? 727 MR. PACKER: I think we've already accepted the fact that if the broker was able to achieve efficiencies in how he operates the unbundled service, it's up to them in their arrangements with their end-use clients as to whether that's passed on or not. 728 MR. MORAN: Right. But to the extent that it's not passed on then that's a benefit directly to the marketer is it not? 729 MR. PACKER: I think we've already accepted that, yes. 730 MR. MORAN: Thank you. I just wanted to make sure. 731 All right. In terms of allocating the $15.7 million, I take it you haven't factored that kind of benefit into your consideration? 732 MR. PACKER: I don't know if it even exists. 733 MR. MORAN: Right. If you don't know that it even exists then clearly you couldn't have factored it into your consideration; right? 734 MR. PACKER: Correct. 735 MR. MORAN: Okay. Thank you. 736 MR. JACKSON: Now, you talked about benefits in terms of efficiencies. Is there also a benefit that arises from the fact that the end-use customer that appoints a marketer as his agent is going to be able to turn over to the marketer storage that is cost-based? Will the marketer then be able to sell off any excess at whatever the secondary market price is? 737 MR. PACKER: There is a few points. The amount of storage that a marketer gets on behalf of the end-use customer. Somewhat, we think they need to operate the unbundled service. The marketer is then free to optimize that allocation with the upstream transportation allocation, and they may be able to do it in a different way that frees up some assets. 738 The difficulty I had with the concept of selling that storage piece into the secondary market is there may be some practical impediments to that. And the reason I suggest that is under our unbundling proposal, the storage followed the end-user. So every year, extent, the end-use consumer went to a different broker, the storage would go to a different broker. And under our storage assignment rules, typically we don't allow an assignment for any less -- of storage for any -- for a period of less than one year. 739 So the actual selling of the storage out right in the market, that, I think, would have to be bundled with something else. 740 MR. JACKSON: I think -- I understand that and as we talked yesterday, it might be a bundled service or a bundled arrangement that results. 741 MR. PACKER: In that context, yes, I would agree with you. 742 MR. JACKSON: Yes. Thank you. 743 MR. MORAN: So in that context, there might be a benefit that's attributable to the marketer but not necessarily to the end-use customer. Isn't that fair? 744 MR. PACKER: That's a potential, yes. I gather you didn't factor that into your consideration with respect to how to allocate the $15.7 million. 745 MR. PACKER: I think the same principles apply. Who is it that's ultimately going to benefit over time, in our view, that -- was supposed to be the end-user. 746 MR. MORAN: All right. Now, as I understand it, some marketers might be marketing services outside the gas industry and as a result of these billing changes, might be able to go to a larger market than just the gas market. I take it you would agree that the ability to be able to do that is something that benefits the marketer and not the end-use gas customer particularly? 747 MR. ANDREWS: Essentially, you just asked the same question. I'm not sure I see a whole lot of difference between what you just asked previously. 748 MR. MORAN: The ability of the marketer to bundle billing services, For example, for many different kinds of services not just gas, under a split billing option, for example, has some value to the marketer but not necessarily to the end-use gas customer; right? 749 MR. JACKSON: Are you looking at the fact the marketer has been able to attract a customer and then do other things with that customer? Is that basically it, Mr. Moran? 750 MR. PACKER: Sorry, I thought there that was a question for somebody else. 751 MR. JACKSON: Perhaps Mr. Moran would just re-word that? I'm sorry. I was just trying to get on -- see if he was asking something different from what I had asked or whether it was the same question. I think he's -- he is asking something different. 752 MR. MORAN: To the extent that a marketer can take advantage of the split billing option to offer a wider range of services outside of gas, does that not create the possibility of a benefit for the marketer and the marketer's actual customers, but not necessarily all of the gas customers -- particularly the ones that remain on system? 753 MR. PACKER: I'm having a little difficulty -- 754 MR. MORAN: Let me try again. 755 MR. PACKER: I'm trying, I think, to understand the question. There is difficulty in assuming all of the things that you have to assume in order to get to where you are when you ask the question. 756 MR. MORAN: There is only one assumption. Under the split billing option, where the marketer gets to do billing for their part of the service, they have the opportunity to provide billing services that they can add to that, for their customer; right? They can provide other billing services for other -- and other retail services, electricity, telephone, et cetera; right? And maybe just straight billing for other agencies. That could all be combined into a single bill which they can do under the split billing option. 757 MR. PACKER: That's a potential, yes. 758 MR. MORAN: Right, and in that context that's a benefit to the marketer -- isn't it -- but not to the system supply customers? 759 MR. PACKER: Not to the system supply customers or the end -- 760 MR. MORAN: System supply customers. 761 MR. PACKER: The benefits as I understood them were to be derived from a competitive market. 762 MR. MORAN: Let me rephrase the question. Should the ratepayers be paying for that kind of market opportunity that's outside of the gas market? 763 MR. PACKER: I think you're assuming though it's not passed on to the natural gas consumers and I don't know whether that will be the case or not. 764 MR. MORAN: The costs associated with setting up this system, that it will allow the marketer to do that, you're proposing to allocate all of that to the ratepayers, right to the small volume user primarily; isn't that right? 765 MR. PACKER: That's right. 766 MR. MORAN: Right. So to the extent that there is benefits for the marketer in markets outside of the gas market, should the ratepayers be bearing the full cost of supplying that system that they can take advantage of in that way? 767 MS. JACKSON: Mr. Moran, it is a premise of your question though that this service is offered to people who take gas service; right? 768 MR. MORAN: That's right. 769 MS. JACKSON: And it would be offered to -- is it a premise of your question that it's offered to all of the people who take gas service but that they might not all take it up? 770 MR. MORAN: No. I'm talking about the marketers' customers. 771 MS. JACKSON: But -- 772 MR. MORAN: Versus the system customers for all ratepayers together. 773 MS. JACKSON: But -- 774 MR. MORAN: Mr. Packer, if there is any part of your question you don't understand, feel free to ask me, okay? 775 MR. ANDREWS: I would like to ask you a question, Mr. Moran, I guess under that scenario. I'm failing to make a connection between the costs associated with our being able to facilitate split billing and benefits that you say will be derived by a marketer let's say offering electricity, I guess. 776 MR. MORAN: Let me take another shot at it then and please bear with me. 777 Under a split billing option, the marketer has the ability to bill the customer directly; right? 778 MR. ANDREWS: They would need that -- that ability, that's right. 779 MR. MORAN: That's right. And because they have the ability now to bill their customer directly, they also have the ability to make other things available to their customer for other services, other billing services, so that the customer might get one bill from their marketer for a whole bunch of things only one of which has to do with gas; right? 780 MR. ANDREWS: I follow that. 781 MR. MORAN: All right. And this is something that is a benefit to the marketer, is it not, and to the marketer's customers? 782 MR. ANDREWS: Yes. 783 MR. MORAN: So given that, is it appropriate to charge the total cost of providing that split billing option to all ratepayers as opposed to just the marketer and its customers? 784 MR. ANDREWS: Under your scenario, Mr. Moran, I think the costs associated with Union facilitating the split billing service would -- would be there to allow marketers to bill for the gas component of whatever that new single bill is going to look like. But the marketer would have to incur additional costs to either create or buy the billing service and to obtain the information necessary for those other services to be able to put it on the bill. 785 So I guess that's where I'm still having the problem connecting our facilitating them to bill for the gas services they provide versus any other services. We're not facilitating them to bill for other services necessarily. 786 MR. MORAN: You may not intend to but that may be one of the outcomes of allowing them it bill directly they can provide more efficient billing services to their customer. The gas plus whatever else they can bill for. 787 MR. ANDREWS: That may be an outcome, yes. 788 MR. MORAN: So the costs that you incurred in facilitating that possibility right now you're allocating entirely to the small volume users -- well, partly to the large volume -- but mostly small volume user; right? 789 MR. PACKER: That's true. But I think we've stated why we've posed that methodology. 790 MR. MORAN: Now, to the extent that a marketer now has the opportunity under your scenario to source storage services elsewhere and therefore not from Union, does that not free up storage capacity for Union that might have some value in the marketplace? 791 MR. PACKER: Well, I think I -- I guess if we step back. Under our unbundling proposal, we have an obligation to provide cost-based storage to customers. Our original proposal was that it be mandatory. Through the settlement process it became optional. The assumption is that somebody is going to not take an optional service and we can therefore offer that to the marketplace at market-based pricing. I guess that is a potential. I note, though, that we are managing growth under our unbundling proposal, so extent somebody didn't take our storage service, which is now below market, that would be strange. Why would you make that economic decision? 792 Secondly, if it became freed up, if we had -- probably use it to manage growth first and lastly to the extent it is provided, into the market, any margin achieved from doing so is deferred. 793 MR. MORAN: I think I heard you say that there is a potential for that to happen though, that you could have an extra storage capacity that you could market; right? 794 MR. PACKER: I'm saying it is -- you have it make all -- you have to assume so somebody was choosing not to take our storage service, going out into the market and replacing it and then we somehow are able to the market and sell it at something above cost, that that's -- it's possible but I'm not sure the economic drivers are present for that to happen. 795 MR. MORAN: But you don't know, right, you're not sure? You just don't know. 796 MR. ANDREWS: Well, I think as Mr. Packer indicated, I guess it's hard to fathom why someone would want to go out and replace cost-based storage with market-based storage. Leave us with the cost-based storage and we can't market that other than -- leave us with cost-based storage. 797 MR. MORAN: Unless the market has a better price; right? 798 MR. ANDREWS: Unless they have a better price than Union's cost-based rates? 799 MR. MORAN: Yes. 800 MR. PACKER: If the market has a better price, then why would the marketer choose to go out and buy it in the secondary market rather than take our cost-based storage? Anything is possible. I just don't see how that would be the outcome, why that would happen. 801 MR. MORAN: If you have too much cost-based storage capacity as a result of this, what do you do with it? 802 MR. PACKER: As a result of what? 803 MR. MORAN: People opting to take storage service elsewhere, for example. 804 MR. PACKER: If they take it elsewhere, there must have been an economic reason for them to do that, which might mean that the market price has come down for whatever reason. Although we've got storage freed up, the value of that is probably less than the circumstances we're looking at today. 805 MR. JACKSON: Would it be fair to say that it's unlikely anyone in Union Gas today would forecast that the price of storage in the secondary markets will be below the cost-based storage which Union offers under Board approved rate schedules? Sorry, perhaps I wasn't specific enough in the last one because the rate schedules do allow certain room for negotiation. I was meaning for enfranchise customers, the cost based storage offered by Union for enfranchised customers. 806 MR. PACKER: I'm always hesitant to say there is nobody. You'd have -- 807 MR. JACKSON: I think you're wise to be. 808 MR. PACKER: I would think generally we're of the belief that given what -- where our cost-based rates are, over a sufficiently long period of time, the market would exceed that -- our current cost-based rates. 809 MR. JACKSON: Right. When you say a sufficiently long period of time, if I were to say five years, that would be within the period you're thinking of? 810 MR. PACKER: Yes. There may be anomalies that show up from time to time that -- 811 MR. JACKSON: Right. 812 MR. PACKER: -- cause the reverse to happen. But if you look at a long enough period of time, five years is probably a good benchmark for that. I would expect the relationship to be the way you described it. 813 MR. JACKSON: Thank you. 814 MR. MORAN: Okay, let's talk about the likelihood of the services being accessed. The evidence so far seems to suggest that nobody has taken it up where it's been available. 815 What level of confidence do you have that the service will be taken up, given that you are proposing to spend $15.7 million to provide it? 816 MR. ANDREWS: I have an exceedingly high degree of confidence that the storage -- that the unbundled service will be taken up. 817 MR. MORAN: With that high level of confidence, then, have you looked at any alternative approaches to recovering that cost besides the one that you're proposing? 818 MR. PACKER: Pretty sure that question was put to me yesterday. We're -- even in the context of us being pretty sure that somebody is going to take the service, we're comfortable with our proposed allocation and recovery approach. 819 MR. MORAN: I think you were asked yesterday about whether this -- this cost could be capitalized and amortized; do you recall that? 820 MR. PACKER: I recall a discussion of that nature, yes. 821 MR. MORAN: And if that were to be done, would it be possible to recover the cost on a transaction fee basis as -- as the service gets taken up? 822 MR. PACKER: I'm having trouble with the concept that capitalizing it would make it any more appealing that treating it as a one-time O and M type cost. Still have the issues about who you're recovering it from, when, whether you've now made the unbundled service less appealing because the first guy knows he's going to pay for some and may often -- may be paying for all of it. 823 MR. MORAN: If you have the transaction being the marketer nominating on behalf of a customer, could you not charge a fee for that and recover the cost that way? 824 MR. PACKER: Is -- the difficulty I have with that is it makes the recovery period quite uncertain. It means we may never recover the cost. 825 MR. MORAN: Right, but there is a high level of confidence that it's going to be taken up so with that high level of confidence -- 826 MR. PACKER: One of the practical impediments to that is how do you come up with your unit rate. What assumption do you make about level of activity? 827 MR. MORAN: If you're suggesting that you might not come up with the exact rate at first, surely that rate can be revisited over time, can it not, as you see the take-up? 828 MR. PACKER: Right. But it prolongs the period of time in which you're recovering it, and we're always dealing with what that rate should be until it's all recovered. 829 MR. MORAN: Right. But it also recovers the cost from the people who use the service, doesn't it? 830 MR. PACKER: It would have the result -- it would result in the people who use the service paying per cent. I'm not sure that's the group of people who are benefiting. They also -- it also makes the process very prolonged and adds some additional loads on the administration. 831 MR. MORAN: Well, did you look at that kind of an option? 832 MR. PACKER: I think Board staff asked me in an interrogatory where I laid out the options, we looked at them, and why we didn't think the ones that we didn't choose were appropriate. 833 MR. MORAN: Right. I don't think that option was on that list, though, was it? 834 MR. PACKER: I thought it was. 835 MR. MORAN: C1.12, I believe it is. 836 MR. ANDREWS: Could you just please elaborate what you mean, what option you are now talking about? 837 MR. MORAN: The transaction based approach to the recovering the cost, where you've capitalized and amortized the cost. 838 MR. PACKER: Sorry. >>From my perspective, nothing turns on whether it's capitalized or not. 839 MR. MORAN: Fair enough. 840 MR. PACKER: You can leave it in a deferral account and it will accumulate interest over time. So if that's the differentiation you're making, then I -- I agree we didn't deal with something in the context of capital. I don't think anything turns on that. 841 MR. MORAN: Then looking just at a transaction fee basis. 842 MR. PACKER: And I -- I thought that's the issue we dealt with in the third paragraph of page 2 of that response. I am at a little bit of a loss if you're referring to something different than that. 843 MR. MORAN: I think if I understand the third paragraph, your concern there is recovering all of the costs from the first person in the door, looking at it is a risk, and that might present a barrier to anyone coming in the door to take that service; right? Is that not the concern that's being expressed there? 844 MR. PACKER: The timing issue is also expressed there. 845 MR. MORAN: Right. 846 But I don't see a description of something that would look at this from a transaction fee basis, so that it wouldn't matter how many people come in the door at first because there is a fee and everybody pays it as they come in. 847 MR. PACKER: I guess -- 848 MR. MORAN: If you didn't look at it, you didn't look at, and that's fine. 849 MS. JACKSON: I don't think that's fair. I must say I'm trying to struggle with why you think -- I frankly don't understand why you think paragraph 3 covers it. And I'm having trouble understanding why you're saying that the fact the fee is transaction based takes it outside of paragraph 3. 850 MR. MORAN: Mr. Packer, all I'm trying to ask is whether a transaction fee basis would be an option that would be worth looking at, that's all. 851 MR. PACKER: And what I was trying to convey was I looked at it and I guess that was part of what I had in my mind when I answered that -- provided the text of that paragraph. 852 MR. MORAN: Okay. So we'll take it that you had it in your mind when you wrote this paragraph. Fair enough. 853 Now, as you know, the Board is in the process of developing a rule, the GDAR process is under way and it deals with billing options. And I take it you're familiar with that process and where it is at the moment? 854 MR. ANDREWS: Yes, we are. 855 MR. MORAN: I take it you'll agree that there are a number of possible outcomes if that rule gets finalized, and I'm just wondering to what extent have you considered the possible outcomes to make sure that what you're doing is flexible enough to fit with those outcomes? 856 MR. ANDREWS: Do you have any specific outcomes in mind? 857 MR. MORAN: Well, the Board could decide that utility-consolidated billing is the best way to go, for example. Based on the consultation, that's a possible outcome. They could decide to stay with the utility-consolidated billing and create some rules around that. So let's start with that outcome. 858 MR. ANDREWS: All right. And the -- sorry, could you put that in the form of a question? 859 MR. MORAN: How does what you're doing fit with that outcome in terms of the cost that you're incurring to create what you're doing? 860 MR. ANDREWS: The costs that that we're proposing to recover to enable the unbundled service do not include a cost to put in place or facilitate the marketer-consolidated billing. 861 MR. JACKSON: Sorry, I think that was -- 862 MR. MORAN: I'm talking about utility-consolidated billing. 863 MR. ANDREWS: I'm sorry. 864 MR. MORAN: What if the out come of the GDAR process is to stay with utility-consolidated billing? 865 MR. ANDREWS: What impact would there be on the cost of the $15.7 million? 866 MR. MORAN: Yeah. 867 MR. ANDREWS: There would be no impact. 868 MR. MORAN: No impact. But obviously you would have gone too far because you've create an option that wouldn't be available under the rule; right? 869 MR. ANDREWS: What option would that be? 870 MR. MORAN: A split billing. 871 MR. ANDREWS: The cost associated with providing the daily volumes are cost that marketers need to manage the unbundled service regardless of whether they stay with the utility-consolidated billing option or the split billing option. 872 MR. MORAN: So when we talk about the $15.7 million and we see that broken down into approximately half for unbundling and half for billing, I'm not sure if I understand your question. 873 So your answer to my question -- 874 MS. JACKSON: Not sure I understand the question. It isn't broken down that way if you look at C1.15. 875 MR. MORAN: If I understand what you're saying, the vast majority of the costs are associated with the exercise to unbundle as opposed to the exercise to deliver the split billing option; is that fair? 876 MR. ANDREWS: That's very fair. 877 MR. MORAN: Okay. So the only loss, if split billing is not available under GDAR, is approximately what? 878 MR. ANDREWS: Well, there is a line at the bottom of C1.15 that says electronic transfer for split billing. It says $800,000. 879 MR. MORAN: All right. 880 MR. ANDREWS: Now, we've -- I guess in the interest of trying to be as forthright as possible in providing information, we did indicate that those costs are specifically directed to enable split billing. Those costs are also needed to enable the unbundled service because our marketer customers said they need that information regardless. There are three purposes for the use of that information, two of which are there to support the unbundled service. 881 MR. MORAN: Right. Now, if GDAR says split billing and utility-consolidated billing is okay, then you're matched up with that; right? 882 MR. ANDREWS: Yes. But I guess to the extent that -- and it also depends on the form of split billing if there is anything other than what we've provided or what we're proposing. I think what it's fair to say that what we're proposing -- the very basic, maybe plain-level service and there may be other requirements associated with that. 883 MR. MORAN: Right, so to the extent that the split billing in a GDAR rule requires certain things to be done that you haven't done, we would be talking about additional costs over and above what you have now? 884 MR. ANDREWS: If that were the case, yes. 885 MR. MORAN: All right. And if the Board were to go with the rule that included marketer-consolidated billing, how would that be accommodated? 886 MR. ANDREWS: Well, there would be additional -- presumably there may or would be additional cost depending on the nature of the requirements for the marketer-consolidated billing option. 887 MR. MORAN: Now, you've indicated, yesterday I think, that you weren't sure what the costs associated with that might be because you didn't know what the marketers business planning model might be with respect to marketer-consolidated billing. And I guess my question to follow up on that is why does it matter what the marketers have to do? Isn't it really about the information that you have to have available to give to them when they send out the consolidated bill? 888 MS. JACKSON: Mr. Chair, I can say I don't think the evidence is that it depends on what the marketers want. I think the evidence is it depends on what the marketer-consolidated billing parameters, as it were, are. And I can tell you that the next Panel will be in a position to address that. 889 MR. MORAN: All right. 890 MR. JACKSON: Are they also in position, though, to address the system cost question that might relate to Mr. Moran's question? 891 MS. JACKSON: I believe so, yes. As to how that works, I don't -- they won't have a number, but they'll explain to you why. 892 MR. MORAN: I mean to the -- 893 MR. JACKSON: Which group will know the system better? Is this the group that will know the system better? It just seems efficient to me that if we have some questions from Board counsel that deal with the nature of the system and what -- how it might have to be augmented, that this Panel might make an attempt to answer that. But, indeed, of course, if the other Panel can do it, then there's -- 894 MS. JACKSON: I would suggest, since I don't know which system questions my friend has, that he ask the question. But I just caution him and advise the Board that the question of the -- how the variables of the -- of the marketer-consolidated billing system, whatever it is, might affect costs will be -- will be addressed by the next Panel. 895 MR. JACKSON: I understand that and I'm just trying to be efficient about the use of Panels here too. 896 MR. MORAN: As things stand right now, you have to bill for the stuff that you provide the customers; right? 897 MR. ANDREWS: Yes, that's correct. 898 MR. MORAN: And under a marketer-consolidated billing approach, that information would still be the same information, because it's still the stuff that you're providing to the customer. So my question is: Given the system changes that you're making, are there extra costs associated with what you've done, if the information that you would normally put into your bill has to be now transmitted to the marketer because the marketer is going to put it in its bill on your behalf? 899 MR. ANDREWS: Yes. Without knowing all of the other additional parameters that may attach itself to the form of marketer-consolidated billing, it's fair to say that at a minimum, there would be additional information that we would have to give to the marketers and that would impose additional costs in order to enable that. 900 MR. JACKSON: May I just ask, it's -- would you have to buy a larger server to serve the web site, is that what you're saying, or what sorts of costs are you thinking of? 901 MR. ANDREWS: It could very well be an additional server or an increase in server capacity, Mr. Chairman. 902 We have the basic framework in -- in play in terms of creating the capability to exchange information. 903 But you need to know what those additional information requirements are and then you have to -- there is some additional programming involved. 904 MR. JACKSON: Yes. 905 MR. ANDREWS: So there are those costs, and there could be additional costs in terms of hardware. But at a minimum there would be additional costs. 906 MR. JACKSON: Yes. 907 MR. MORAN: Do you have a handle on what those costs might be at all? 908 MR. ANDREWS: No, I do not. 909 MR. MORAN: Okay. Ms. Creighton, I have a few questions for you. I hate to see you sitting there for so long, and nobody else seemed to want to ask you any questions. 910 MS. CREIGHTON: I'm most grateful. 911 MR. MORAN: I would like to start off with the issue of credibility that you've touched on in your evidence earlier. And your concern, I guess, about -- I think you were very careful to say you weren't commenting on the credibility of the marketers but rather concerned about protecting the credibility of Union. Did I understand that correctly? 912 MS. CREIGHTON: Yes. I would say, in addition, our concern is that the information that customers get, they believe. So our concern is that they're getting information that they think is right. So it's the credibility in the eye of the customer primarily that they're concerned with. 913 MR. MORAN: Presumably not information that they just think is right but actually is right. 914 MS. CREIGHTON: Well -- 915 MR. MORAN: It goes without saying, hopefully. 916 Union has its own call centre; right? 917 MS. CREIGHTON: Yes. 918 MR. MORAN: And does Union track customer calls that are complaints about marketers? 919 MS. CREIGHTON: I can't speak to you about our call centre operations. Mr. Feldmann, who will be on the next Panel, is responsible for those call centres. 920 MR. MORAN: All right. So perhaps you could pass that question on to him, then? 921 MS. CREIGHTON: Will do. 922 MR. MORAN: We'll follow up with him. 923 Now, you proposed a three-phased education program that involves, as I understand it, in phase 1, four bill inserts that would be issued to all customers at an incremental cost of $165,000; right? 924 MS. CREIGHTON: That's right. That's for the storage line, the new storage line. 925 MR. MORAN: And then a second phase regarding direct billing, or I guess the split bill, right, which would also involve four bill inserts plus out-sourcing call-centre services and incremental costs for $165,000 relating to the bill inserts at $225 for the call-centre out-sourcing; right? 926 MS. CREIGHTON: That's right. 927 MR. MORAN: Phase 3, a joint letter from Union and the marketer and that's billed at -- there is a customer fee on that; right? 928 MS. CREIGHTON: Yeah. Those costs are presented on a per-customer basis. 929 MR. MORAN: Okay. Now, starting with the last one, the joint letter from the -- from Union and the marketer, what's the purpose of that letter? 930 MS. CREIGHTON: Our bill-insert readership is very high; it is something we're quite proud of. It's around 65 per cent, 70 per cent. But we are mindful that there are still 30 per cent of our customers who routinely toss them. So it was thought that we might get to even a greater percentage of our customers in terms of awareness if we did a letter as well. So this would be a letter it all of the customers, or would it be to the customers where split billing is happening? 931 MS. CREIGHTON: Phase 3 is only for the customers of a marketer who is moving to direct billing. 932 MR. MORAN: All right. So this would be in advance of that move saying your next bill was going to be split into two separate bills, one from us, one from them? 933 MS. CREIGHTON: That's right. And our thought with the joint letter was that it might be helpful to the customer to understand what they were going to get in the future because that would be partly ours and partly the marketers that we might want to do something together. 934 MR. MORAN: Along with that would be four more bill inserts in phase 3? 935 MS. CREIGHTON: Yes. We can target bill inserts for particular customers so in that case we could also use the bill inserts which, as we know, are read by quite a few customers to convey that information. 936 MR. MORAN: So the letter would be sent separately? 937 MS. CREIGHTON: Yes, that's the thought. 938 MR. MORAN: And then for bill inserts as well. 939 MS. CREIGHTON: That's right. 940 MR. MORAN: So we're talking all together, I guess, 12 bill inserts through the three phases? 941 MS. CREIGHTON: Yes. 942 MR. MORAN: I was wondering, given the first item, which is to explain the storage line item on the bill, when you're proposing four bill inserts where you've got a 30 per cent non-readership, so to speak, did you consider instead of the bill inserts, just putting a simple message right on the bill itself? 943 MS. CREIGHTON: Oh, its certainly our intention to do that. There is no cost associated with doing that so you don't see that here. 944 MR. MORAN: Okay. And why would the bill inserts be needed on top of that if there's just a simple message on the bill saying "The transportation charge next month is going to be split into two lines, but it will still be the same amount"? 945 MS. CREIGHTON: In our experience, customers generally need a bit more information than we can fit in that little box. So my thought is that the little box would have something very clear and concise. This is a new line, not a new charge. And then the bill insert would expand on why the charge is being broken out. Customers like to know these things so we -- we would explain to them why we're making this change. . There just isn't enough room on the bill itself to do all of that. 946 MR. MORAN: Okay. And I -- I assume you would give the same answer with respect to the bill inserts about direct billing? 947 MS. CREIGHTON: That's right. 948 MR. MORAN: Although there, I guess, there would be an opportunity for an insert right on the bill itself on two bills so that people getting two bills would have the same message on each bill; right? 949 MS. CREIGHTON: That would really depend on how the marketer intended to bill and use their bill. 950 MR. MORAN: Right. And this doesn't deal with bill inserts on the marketer's side of things either. 951 MS. CREIGHTON: No, it doesn't. This is Union's communication to its own customers. 952 MR. MORAN: Okay. I want to talk a little bit about the call centre out-sourcing itself. You indicated already you've got a call centre, and presumably -- 953 MS. CREIGHTON: Those questions would also have to be addressed. I'm really not -- he is completely prepared to answer the call centre questions and I am not. 954 MR. MORAN: All right. 955 MS. CREIGHTON: That's the next Panel. 956 MR. MORAN: I will leave it to him. 957 Okay. I want to turn back now to you, Mr. Andrews, or perhaps it's you, Mr. Packer. I'm not sure who should answer this question. We talked briefly already about the 9.1 BCF reserve for system reliability, et cetera. Does anything happen to that 9.1 in the aftermath of introducing the unbundled service, particularly if it leads to a more efficient management of assets as you suggested it might? 958 MR. PACKER: I think that the 9.1 BCF of system integrity phase was something that the parties accepted in the last case. It is a function of the unbundled service and the components that we need to manage that. So it is linked. It doesn't change. It's there as a result of this. 959 MR. MORAN: Okay. And -- now I have one last area I'm about to cover, and then I'm done. 960 Could you turn up Exhibit C22.44, please? That would be in the additional interrogatories that were filed at the beginning of the hearing. 961 MR. PACKER: I have it. 962 MR. MORAN: Okay. If you can turn to page 2, the table. 963 As I understand it, what we see in column C of this table is the actual allocation amongst the rate classes for the $15.7 million; correct? 964 MR. PACKER: Yes. 965 MR. MORAN: Okay. I wonder if you could just indicate for me, in the left-hand side where it lists all the rate classes, which of those rate classes are large volume users? Just starting under the heading northern and eastern operations area. 966 MR. PACKER: I think in the context of how we've been using the term over the last couple of days, they would be rates 20 and 100. M4, 5, 6, 7, 9, 10, and T3. 967 MR. MORAN: M4? 968 MR. PACKER: Everybody other than rate 01, rate 10 and M2. 969 MR. MORAN: Okay. So four, five, six, seven, and nine. 970 MR. PACKER: In the context of how the term has been used over the last couple of days, those rate classes have varying eligibility criteria. In a different context, large volume would have a different meaning. 971 MR. MORAN: No, I understand, and I think we should stick with the context we've been using here just to make sure nobody is confuse. All right. So if we go to column C, then, to figure out how much is being allocated to the rate classes that you've just indicated, what would the total be? 972 MR. PACKER: It would be very close to a hundred per cent. 973 MR. MORAN: Perhaps you didn't understand my question. If you look at the large volume rate classes that you've just identified -- 974 MR. PACKER: Oh, sorry. 975 MR. MORAN: -- what's the total that's being allocated to those rate classes? 976 MR. PACKER: On a percentage basis, it would be less than 1 per cent. 977 MR. MORAN: Okay. And on a dollar basis, based on what we see in column C? 978 MR. PACKER: About 25,000. 979 MR. MORAN: $25,000? 980 MR. PACKER: Right. 981 MR. MORAN: Okay. If we take the evidence yesterday that suggested that it would cost about 400 or $500,000 to supply this service to the large volume users, how can we reconcile that allocation when we see only 25,000 being allocated at this point? 982 MR. PACKER: I think what Mr. Andrews said the other day was that it's very difficult to do an analysis that breaks out the industrial costs or the large volume costs. When he made an attempt at it, the most he could come up with was 4- or $500,000 dollars. 983 MR. MORAN: Right, which is, you'll agree, considerably more than the 25,000 that's actually being allocated here; right? 984 MR. PACKER: I agree it's more, yes. 985 MR. MORAN: Thank you, Mr. Chair, those are all my questions. I think I was more accurate the second time around. 986 MR. JACKSON: Thank you, Mr. Moran. 987 I guess the time has come for the Board Panel. 988 QUESTIONS FROM THE BOARD: 989 MR. JACKSON: Mr. Dominy. 990 MR. DOMINY: I still am having a little bit of difficulty with your question of phasing and the costs that relate to initiatives for billing and costs that relate to implementing the unbundling storage and transportation questions, and I noticed in the evidence both of 17 and in 78 and interrogatories that there is a considerable amount in terms of the billing operation which relates to what I would call contract maintenance, providing information so that the direct -- the retailer can direct-bill its customers, and the transfer of information; whereas I believe in the original description of the unbundling proposal, it was applied that the costs required for gas management, et cetera, were covered off by the costs forecasted for that proceeding. In other words, for managing the gas contracts, for making sure that you've got a mechanism for calculating the requirements for -- daily requirements for individual gas customers or the aggregate customers, those are all covered off by the cost forecast for the implementation of unbundling that was put forward in RP-1999-0017. 991 So the question occurred to me, and I put it two ways: If you were not to implement split billing or marketer-consolidated billing, what would be the cost for implementing the unbundling of transportation and storage? 992 MR. ANDREWS: Just -- I'm just trying to process your question in my mind, so that's why I'm taking a couple of minutes here. 993 I'll come at it this way: The cost that we have on Exhibit C1.15 are the total costs to offer the unbundled service to the small volume market and the large volume market. And I think in a previous conversation with Mr. Moran, we had talked about the costs associated with facilitating the direct bill with the split bill, and I had indicated that at the bottom of that exhibit, there was an amount of $800,000. But I also had indicated that that functionality is also required to facilitate the unbundled service as well. 994 I don't know if I'm answering your question. 995 MR. DOMINY: I think you're answering my question in the sense that my understanding of the information in your argument and the evidence of RP-17 was that the costs to implement the unbundling of storage, as described in this proceeding, was $7.5 million. I think that's from your argument in 17. 996 MR. ANDREWS: Correct. 997 MR. DOMINY: And then there was another set of information which said that we further are going to propose some billing changes, and included in that was, I assume, an improvement of the administration of the direct purchase activities. I think somewhere in your evidence you say that you've received complaints that your processing of contract changes and notifications has been regarded as not as timely as IMs would like, and there are other -- some other comments about the ability to be able to allow them to direct billing, and that was to be handled in the second phase of the proceeding which was 78. 998 And that's why I was trying to understand the difference. So what you're trying -- what you're telling me is that it was impossible with the $7.5 million to implement transportation and storage unbundling for small volume customers. 999 MR. ANDREWS: That's right. 1000 MR. DOMINY: And that's in order to provide information on the individual requirement of each individual customer to the retail energy marketer as opposed to the systems required to calculate on a contract basis the requirement per contract for a collection of customers, because that's within the gas -- that's within the unbundling point. 1001 Now, is what you might call the back-office stuff, I'm not sure how you view that term, but the stuff that Union knows to be able to say how much gas is required by this collection of customers which represent this contract is in the unbundling and transportation costs, as opposed to the transfer of information on individuals to the retailer. 1002 MR. ANDREWS: I think that's a fair way to describe the difference, yes. 1003 MR. DOMINY: Now, how much of -- supposing you weren't unbundling, supposing you weren't unbundling transportation or storage, how much of the system cost would you be considering undertaking in any case with regard to improving the ability of your -- of Union to improve the way -- its processes for handling direct purchase? 1004 MR. ANDREWS: I really don't know, Mr. Dominy, because the -- we didn't really set -- we didn't accept -- we didn't look at that separately, separate and distinct from offering or facilitating the unbundling service. I really don't know. 1005 When we looked at the design of the systems and the processes that we needed, and again they were based on what we already had in place, there -- it was with the unbundled service in mind. And because we're able to use the same systems and the same processes that we currently use for the bundled service, we're able to accomplish both ends at the same time. 1006 Otherwise, if we had just focused on the unbundled service, we would have ended up with separate -- a separate process, duplicative systems, and more operating costs. So we're able to accomplish both ends at the same time with no additional costs. 1007 MR. DOMINY: So let me put another possible scenario -- I'm just trying to understand. This is the reason. I'm trying to see if there is any reason one can split these costs, and I'm not sure one can. But supposing you didn't unbundle storage and transportation but you wanted to enable an REM to direct bill for those customers that have gas supplied contracts with them, would that have been a very different system, or would you have had to, in fact, have very much the same system as when it comes to the billing side put in place? 1008 MR. ANDREWS: I guess it -- without being able to examine all of the parameters and the details around that, I think it's fair to say that directionally, if all we were doing was facilitating the split bill, I think we would have seen much less in terms of costs. 1009 MR. DOMINY: Because you didn't need the daily transfer information, or the daily -- I think you said earlier that you needed to have daily information to the -- to the company so that it could manage its nominations. 1010 MR. ANDREWS: That's correct. So if we didn't do the unbundled service, we wouldn't have to do that, so we wouldn't incur costs to facilitate that. All you're left with is essentially looking at what information do you need to give to the marketers to be able to -- for them to be able to do their own billing? 1011 MR. DOMINY: And you would also, from reading some of the evidence, would be looking at systems to improve the, shall we say, administration of the contract, i.e., the adds and deletes, for particular members in each contract. For instance, if I'm a customer of one REM and I change to go to another REM or go back to system, there is some management of the contract required in your -- in your systems when the -- when you're informed by the utility or the customer that they've changed -- the REM or the customer have changed. So that would also be part of that system? 1012 MR. ANDREWS: Yes, it is. 1013 MR. DOMINY: I think those are the only questions I have. Thank you for helping me try to understand. 1014 MR. ANDREWS: You're welcome. 1015 MR. SOMMERVILLE: Just very briefly. Mr. Andrews, you spoke about the team that effectively designed and managed the development of these systems. What was your role on that team? Were you the project leader? 1016 MR. ANDREWS: I was the project sponsor. I did not take an active day-to-day role on that team. 1017 MR. SOMMERVILLE: Would that team be reporting to you on a regular basis as to the progress? 1018 MR. ANDREWS: Yes, they would, every week. 1019 MR. SOMMERVILLE: And just clarification. You mentioned an initial scoping in 1999. 1020 MR. ANDREWS: That's correct. 1021 MR. SOMMERVILLE: Late summer, I think, of 1999. 1022 MR. ANDREWS: That's right. 1023 MR. SOMMERVILLE: And you mentioned a couple of checkpoints. When did those occur? 1024 MR. ANDREWS: The checkpoints with customers occurred in May and August of 2000, May and July of 2001, and in fact we had a one-on-one checkpoint, if you will, last Friday with Direct Energy. We wanted to talk -- or their technical people wanted to talk to our technical people. 1025 MR. SOMMERVILLE: So, in effect, there are three incidents of checking of the -- sort of checkpoints, May 2000, August 2000, August 2001, and in addition, this most recent contact? 1026 MR. ANDREWS: Yes. I think there is -- there are actually four. There was May, August of 2000. May, July 2001. 1027 MR. SOMMERVILLE: I beg your pardon. 1028 MR. ANDREWS: And then last Friday. 1029 MR. SOMMERVILLE: Thank you. Those are my questions. 1030 MR. JACKSON: Thank you, Mr. Sommerville. I just have a couple of short questions here, questions to which I think short answers are probably appropriate, I should say. 1031 Can you just briefly remind us why you referred to the current situation for large volume customers as being partially unbundled as opposed to the unbundling that they will be entitled to receive if they were to take up these new rates? 1032 MR. PACKER: The reason I refer to them as being partially unbundled is as a result of the fact that -- as a result of the T-service offerings that existed over the last ten or 12 years, a customer could contract for storage separately and pay storage charges separate from delivery charges. But that wasn't a daily managed service. 1033 MR. JACKSON: Okay. So that's the -- that's the partially aspect, that now they could move to a daily managed service? 1034 MR. PACKER: Correct. 1035 MR. JACKSON: Okay, thank you. And, Mr. Andrews, I think that you were asked about the benefits that might accrue to Union Gas, the company, from the spending of $15.7 million, and I think you said that you could see no benefits; is that correct? 1036 MR. ANDREWS: That's correct, Mr. Chairman. 1037 MR. JACKSON: Was there a time horizon on that, like no immediate benefits, or were you thinking a few years down the road, or can you help me whether you had a time frame in mind? 1038 MR. ANDREWS: Yes. We had two time frames in mind. One was a -- the first year that we implemented the systems, so presumably this year, and then we also looked at the longer term. And we did a high-level analysis because obviously the systems haven't been implemented, the services haven't been taken up. We don't know how customers will behave when they do. But we've looked at the impact of what these systems could do to our current operation, and the analysis -- or the initial findings indicated that with -- with respect to the multiple price points, the ability for marketers to consolidate contracts, that could lead to a reduction in costs and -- however, it's minimal. When I say minimal, we're talking about perhaps the equivalent of two or three clerical people, because they -- they administer contracts today. 1039 But on the other side, we also recognize that systems don't maintain themselves. So as a rule of thumb, our IT people tell us that it usually requires about 10 to 15 per cent of capital in equivalent maintenance requirements. So if there is $10 million in capital, then that would be about a $100,000 or so required on the maintenance side, and that requires people to do that. 1040 When you're putting part of your business on the web, you need to give customers an ability to call you or send you an e-mail. They're going to have questions. As business people, we have to manage the content of the web site. 1041 There are new processes that are being put in place. The daily algorithm is going to require daily stewardship. Someone must own that process, someone must care and nurture the algorithms and make sure that -- you occasionally have to tweak them, to test them to make sure they are producing accurate results. These systems are sophisticated systems; they're going to produce daily reports of what we call five levels of auditability. And these reports are going to indicate and test for any errors in the data, any -- any incidents where we see data sort of out of reasonable -- the reasonability of data or the data exceeds a certain threshold. And these reports will have to be -- someone has to read them, someone has to act on them each and every day. 1042 And we also know that, from our prior history, when we introduce the electronic nomination systems to our S and T customers, that when you give them this kind of functionality, they'll want more and more and more. So you need people to be able to work with customers; further checkpoints to identify what these enhancements are, to be able to implement them. 1043 So when we looked at any individual impact, no one impact exceeded what I would -- $150,000, so the impacts were minimal. And when you add them all up, we decided that we think we can manage the pluses and the minuses. 1044 MR. JACKSON: Right. There may be a wash -- 1045 MR. ANDREWS: That's correct. 1046 MR. JACKSON: -- and that depends on which way it will go. 1047 MR. ANDREWS: That's correct. 1048 MR. JACKSON: Good. Thank you for that. 1049 And lastly, it's a fairly general question, but we've talked about at least one alternative way of implementing these new systems, and costing for them and charging through into rates for them that could be considered to be an impediment to a competitive marketplace, and I think that was with you, Mr. Packer, with respect to charging too much for somebody who wants to go with a marketer. 1050 Can you think of any other impediments, just to sort of update our thinking on this, that may need to be removed in order to move farther towards this competitive gas market that we've all been thinking about and hoping for? 1051 Like, you wouldn't put that impediment in place is what you're saying, I think, to some extent. I can certainly see that point of view. But are there other impediments that need to be removed? It seems to me that maybe Mr. Vegh the other day was looking at load balancing and the flexibility cost issue and the resolution of that. As for removing another impediment, I'm not sure about that. But can you just very, very generally tell me whether you see that as a potential impediment, and are there any others? 1052 MR. PACKER: I don't see that as an impediment, the main reason being the flexibility related cost is a component of our delivery rate and it's -- it will -- until we revisit it, it will remain in delivery rates of customers who take a bundled service or an unbundled service. So it's not -- it's not something that I would -- that I would see having an impact on either end-use customers or a broker acting on their behalf, a marketer acting on their behalf. 1053 MR. JACKSON: Well, does it, by any chance, affect the cost of gas, then, that is for system customers? Does the fact that those costs are put into the delivery rate reduce the total cost of gas that it would have to be spread around system customers? I'm just curious as to where -- where there might be effects. That's not to solve the problem today, that's just to say potentially where do some of the problems lie? 1054 MR. PACKER: I guess once that issue is dealt with, one outcome is we move costs that are in delivery rates into our gas supplied transportation rate. And specifically I was referring to the flexibility component when I talked about that. 1055 That would have the effect of increasing the costs, potentially, to our system-supplied customers, and it would have a corresponding reduction on the delivery side. 1056 The reason I didn't think it was going to have a big impact is I don't think the dollars are very big. It's relatively small dollars. 1057 MR. JACKSON: I don't have a sense of that at the moment, but thank you for that comment. 1058 MR. PACKER: I think it's -- we can just check the amount before I give it to you. It's $1.63 million in total. 1059 MR. JACKSON: On an annual basis? 1060 MR. PACKER: On an annual basis. 1061 MR. JACKSON: Out of a cost of gas sold, the totals would be about what? 1062 MR. PACKER: I don't know the figure, but it would be hundreds of millions of dollars. 1063 MR. JACKSON: I can look that up very quickly, too. So thank you very much, Mr. Packer. I appreciate that. 1064 Ms. Jackson. 1065 RE-EXAMINATION BY MS. JACKSON: 1066 MS. JACKSON: Mr. Chair, I have just two brief matters of clarification. 1067 Panel, can you turn up Exhibit B tab 2, page 11. Do you have that? 1068 MR. ANDREWS: Yes, I do. 1069 MS. JACKSON: You'll recall, yesterday, I think it was yesterday, Mr. Vegh was directing some questions to you and he took you to lines 8, 9, and 10 where there is reference to the unbundled service that Union -- will require Union to bill REMs directly for the storage component of that service, in addition to any miscellaneous S and T charges that REMs will incur. 1070 Are any of the systems costed in C1.15 built to bill for the S and T charges that are referred to in that sentence? 1071 MR. ANDREWS: No, they are not. We already have existing systems to be able to do those billings. 1072 MS. JACKSON: Thank you. And one final matter of clarification: Could you please turn up Exhibit C1.7. 1073 MR. PACKER: I have it. 1074 MS. JACKSON: There is a series of questions from Mr. Janigan yesterday with reference to Exhibit C1.7. And he asked you about various effects of unbundling and, in particular, unbundling storage, although I didn't understand his questions to be limited to that, to the amount in play for a bundled M2 customer. And he took you to the line that's bundled M2 and asked you about the amount in play. And you finished at question 490 with the For a bundled M2 customer -- or the amount that he would be concerned about affecting reductions would be the $23 annual figure." Mr. Packer, you said, "If you're looking strictly at storage, that's right." 1075 If you're not looking strictly at storage but the other effects, including load balancing, what's the amount in play? 1076 MR. PACKER: From my perspective, the -- when a marketer takes the unbundled service, the amounts in play would also include the gas-supplied transportation charge and the gas-supplied commodity and fuel charge, so it would be all three of them: storage, transportation and commodity. 1077 MS. JACKSON: Thank you. Those are my questions, Mr. Chair. 1078 MR. JACKSON: Thank you, Ms. Jackson. 1079 MR. VEGH: Excuse me, sir. Before we leave this Panel, I wonder if I could have your indulgence for a question that arose out of questions you were just asking, and this is just so I understand what the information is. 1080 MR. JACKSON: Ms. Jackson, are you -- you certainly have a right to come in after this again. Are you -- 1081 MS. JACKSON: Thank you. 1082 MR. JACKSON: Would you -- you have no objection to his -- 1083 MS. JACKSON: Well, I don't know what the question is going to be. 1084 MR. JACKSON: Okay. Let's hear it first. 1085 MS. JACKSON: I will take it in the spirit in which it's suggested that this is merely clarification. 1086 CROSS-EXAMINATION BY MR. VEGH: 1087 MR. VEGH: Thank you. 1088 And this has to do, Mr. Packer, with the reference you just gave to the $2.1 million of flexibility costs. You were asked by Mr. Jackson -- or Panel Member Jackson, what were the flexibility costs and you said you think around $2.1 million? 1089 MS. JACKSON: I didn't think that was the number but -- 1090 MR. PACKER: I didn't give -- I don't know where the 2.1 came from. I thought I gave 1.63. 1091 MR. VEGH: Sorry, 1.6, then. And just so I understand what that -- what that number is, in the materials I provided yesterday, there appears to be a different number and I would just like a clarification of what's the correct number at -- this is the CEED references for cross-examination, Panel 1. I forget the exhibit number. 1092 MS. JACKSON: I believe it's Exhibit F1.2. 1093 MR. VEGH: Do you have that? At page 11, there is an excerpt from your customer review process filing. Do you see that? 1094 MR. PACKER: I see it, yes. 1095 MR. VEGH: And the flexibility and -- page 11, table 13.3, has an allocation of 2000 balances, so this has flexibility -- or the amounts in 2000 balances. And under the heading "Amounts Related to Purchases South Flexibility," I see a figure of 36.738 million. And I believe that the 1.6 million figure you referred to is the figure in 499, that would be a '99 forecast? 1096 MR. PACKER: The figure I refer to is actually identified on page 5 of your booklet. The amount included in rates is 1.63 million. 1097 MR. VEGH: Right. And that was -- 1098 MR. PACKER: That's my source -- 1099 MR. VEGH: Sorry. The reference there is to EBRO 499 for 1.6 million, and then I believe at line 14 you say, "Union is projecting a total cost for supplies and load balancing for '99 will be a debit of 2.2 million. The entire amount is related to flexibility." And then at page 11, which is a 2000, I see the figure 36.7 million. 1100 MR. PACKER: The 2.2 and the 36 relate to variances relative to what's been included in rates. 1101 MR. VEGH: Yes? 1102 MR. PACKER: What you're -- I understood the question to be what component of your rate relates to this amount, and that is the 1.63 million. We haven't adjusted rates since 499 to deal with any more current component. 1103 MR. VEGH: So what is this 36.7 million in flexibility costs, then? 1104 MR. PACKER: I think the title of the table refers to deferral account balances. 1105 MR. VEGH: Yes? 1106 MR. PACKER: Well, it's not what's in rates, it's related to a deferral account balance. It's a variance relative to what's included in rates. 1107 MR. JACKSON: So aren't we back, though, to the same point, that the deferral account balance will be cleared through the rate-making process and, even though it's not part of the basic rate, the 36 million will still find its way in to distribution rates or charges related to the basic distribution rate? 1108 Thirty-six million, as I understand it, will not be eaten by the company, in all likelihood, if you get your way with respect to the disposition of the account -- of the deferral account. Nor will it go into the cost of gas sold for system customers. Am I correct in both those points? 1109 MR. PACKER: Yes. It is an amount subject to the rate-making process, as you described it the other day. 1110 MR. JACKSON: Yes. 1111 MR. PACKER: I was just checking to see what the 2.2 million related to. I guess -- I would accept the fact that on a -- when you look at deferral accounts, the amount can vary from year to year. The reference Mr. Vegh gave on page 5 talked about 2.2 million. 1112 MR. JACKSON: Yes. 1113 MR. PACKER: And then we see an amount related to another year that's larger, yes. 1114 MR. JACKSON: Yes. Okay. But whether that's a typical range or not, that still has to be -- well, one might still -- and I guess you can tell that in my thinking, I was curious to weigh it against the total annual cost of gas sold, in terms of judging its magnitude. 1115 MR. PACKER: Yeah. I accept what you're asking. I -- I was focused on what was included in rates. 1116 MR. JACKSON: Yes. Yes. 1117 MR. PACKER: I accept the fact that there are deferral account balances that are larger or that could be. 1118 MR. JACKSON: Mr. Vegh, I don't know whether you have any further questions to ensure you have clarified your understanding. 1119 MR. VEGH: Maybe just a further reference to update the figure again. 2000 was 36 -- what did I say? 36.7 million. And then 2001 is over on page 15, at -- I see that as 18.7 million. 1120 MR. JACKSON: Thank you, Mr. Vegh. 1121 MR. VEGH: This just updates some of the numbers we were talking about. 1122 MR. JACKSON: Any comment on that, Mr. Packer? He has referred to a comparable number, has he? 1123 MR. PACKER: I think so. It has been awhile since I looked at the customer review process material, but I accept that, yes. 1124 MR. JACKSON: Thank you. 1125 MR. VEGH: Thank you, sir. 1126 MR. JACKSON: Thank you. 1127 Ms. Jackson, anything further? 1128 MS. JACKSON: No, Mr. Chair, thank you. 1129 MR. JACKSON: Then this would be the appropriate time to break and see if we can get a hockey score. And so we will return at 3:20. 1130 MS. JACKSON: With the next Panel. 1131 MR. JACKSON: With the next Panel. Great, thank you. 1132 --- Recess taken at 3:00 p.m. 1133 --- On resuming at 3:25 p.m. 1134 MR. JACKSON: Please be seated. 1135 My colleagues would like me to make an announcement. The hockey score, as recently as we could update it, is 4 to 1 for the Canadians. 1136 MS. CREIGHTON: In the second period. 1137 MR. JACKSON: Late in the second period. 1138 Now that we have the preliminary matters out of the way. 1139 MS. JACKSON: Mr. Chair, may I introduce the next Panel? Ms. Creighton has stayed on for a return engagement. Beside her, as the Board knows, is Mr. Birmingham, the Vice-President of Finance and Business Services at Union Gas, and beside him, Mr. Feldmann, who is the Director of Retail Services. And I think probably both Mr. Birmingham and Mr. Feldmann should be sworn. 1140 MR. SOMMERVILLE: Do you choose to be sworn or affirmed? 1141 MR. BIRMINGHAM: Sworn. 1142 UNION GAS LIMITED - PANEL 2 1143 EXAMINATION BY MS. JACKSON: 1144 MS. JACKSON: Mr. Feldmann, I would like to take the plunge with you in your first experience as a witness and ask you the first question. 1145 On the first day of these proceedings, there was some discussions about the ways in which different methods of implementing marketer-consolidated billing -- or different ways in which marketer-consolidated billing might be designed. There was particular reference, I think, on the first day to the question of who might have the ultimate obligation for payment, and some discussion of how that would affect the costs of marketer-consolidated billing. 1146 I would ask you, sir, to explain to the Board what, from your perspective as the Director of Retail Services, are some of the major variables that would affect how you would assess the cost of marketer-consolidated billing? 1147 MR. FELDMAN: Fine. I think there are a number of variables that would affect the cost that Union Gas would have to get resolution to before we could proceed with either costing or coming up with a scenario for marketer-consolidated billing. 1148 I think the first -- and I was in the audience when the Chair asked the question, and that is, what recourse would Union Gas have in terms of payment? Is that recourse to the marketer? Is that recourse still to the 1.1 million delivery customers that we would serve? In essence, would Union Gas be required to have a wholesale rate and, consequently with that, a consolidation of its credit risk, and the risk premium that would be associated with only one or two major counterparts. Ultimately, that is one scenario. 1149 The second scenario is Union Gas could perhaps still have recourse to 1.1 million customers and ultimately the issues that may come out of that scenario. Issues such as, as a retail customer, perhaps, I have already paid my bill to my marketer, and then they would find that Union Gas would issue a subsequent bill looking for payment from customers that have already paid what they would consider their bill for their commodity. 1150 I think a second issue that the Board and Union Gas would have to resolve is how would Union Gas communicate under this particular billing scenario? And what I mean by that is Union Gas, today, plays the central role in educating and communicating with customers on rates, on safety, on industry changes, product recalls, and certainly, importantly to us, is really the end-use application of our product, in the promotion of our product in a competitive environment. 1151 What I mean by that, that takes on significance to Union Gas in resolution, of course, because, in essence, we're having declining use per customer on an accelerated basis. So who, how, and what are the costs associated with that communication? And how would Union Gas convey that information in the marketplace or to customers, is -- is unknown. And Ms. Creighton may very well be able to answer or provide more information on that issue. 1152 I think a third element that would need resolution is one on what I would call customer disconnections for nonpayment. And what I mean by that is the question relating to who has the shut-off rights, the right to issue a turnoff to a customer is not yet known. 1153 I would suggest that Union Gas would propose that it would be a condition of marketer-consolidated billing that it retains the physical requirement to both disconnect, reconnect, and do the inspection for safety reasons, and other operational concerns. 1154 But I think there are two subsequent questions that would need to be asked, and that is, does the marketer have the right, unilaterally, to disconnect service, and under what terms and conditions would that occur? 1155 And secondly, for a customer that has been disconnected, could they, on their own volition, request either Union Gas, as a system supplier or default supplier, to reconnect service, or, could they ask a third-party marketer to reconnect service even though they have been disconnected? My question or the question that remains, is does a customer remain captive to the marketer who has requested a disconnection of service until they have their true-up or have reached resolution on the nonpayment? Again, that issue drives both process costs, system costs, and administrative costs. 1156 A fourth item, I think, that would have to be resolved is one relating to customer relocations. And Union Gas experiences about 12 per cent of its customers moving each and every year. That's a transient nature of our customer service -- our customer locations. That represents nearly 125,000 customers that move from location A to location B. 1157 In today's environment, Union Gas manages that entire process. It manages the accounts, the account reconciliation, the final budget -- or bill true-up, budget billing true-up, the automatic payment plan true-up. It manages all of those transactions on behalf of the market. It manages it on behalf of ourselves as a utility, it manages it on behalf of the marketer, it manages it on behalf of landlords, tenants, and the occupants. 1158 When that scenario -- when those processes now -- you look at more complex and more parties participating in those scenarios, as marketers either assume or don't assume either specific accountabilities or accountabilities in their entirety, makes the market -- makes the relocation process much more complex. 1159 In that case, I would foresee in the future that Union Gas would adapt a policy whereby it would have to physically disconnect and reconnect customers as they move from location A to location B. 1160 Today, we do not have that process. That means, for 125,000 customers we would physically have to disconnect service on one day and then go back the same day, a week following, a month following, or three months following, to reconnect service. Otherwise, customers would receive free gas at their place of business, their home or their apartment. 1161 So to manage the process under a marketer-consolidated billing adds additional parties with additional complexity that I would foresee would ultimately end up with Union Gas having to take the stand that would be: We would disconnect and reconnect. That way, all parties know from when true-up occurred, all parties know that they have the final bill, all parties know exactly where they would stand, and no party receives free gas at the expense of Union Gas or the remaining customer. 1162 A fifth item is that unrelated to either the distribution of gas, the sale of gas, or the transmission of gas, Union Gas as a distributor has approximately 400,000 transactions that we bill customers for, such as metre relocation, aids to construction, NGV cylinder rentals, transfers, aids to construction, extend our pipeline system. There are 400,000 types of transactions like that each and every year that Union Gas has as part of its billing requirement and service provision. 1163 The question remains, how does that get handled in a new environment? Is that something that Union Gas would still incur those costs, would still have to have an invoicing system that would invoice those customers? Would those charges be incorporated in our marketer-consolidated billing option? Would Union Gas have to seek permission before we did customer work on those areas in terms of credit and prudential requirements for marketers before we could actually undertake the work? Again, it makes the system more complex, more onerous to manage, and provides, in essence, a lower value of customer service. 1164 I think one of the other ones in terms of -- one of the other issues, just in terms of account maintenance, is that Union Gas's entire system relies upon a customer account number and that account number is the basis by which we assign rates, we track meters, we track regulators, we actually know which customers are currently being served by marketers or brokers, so all of our systems hang together with a Union Gas account number. 1165 One of the questions and one of the -- what I'll call pre-conditions to offering the service, in my opinion, would be that the marketer would have to use the Union Gas account number in order to do its business with its customer. That does become somewhat complex from a marketer's perspective. >>From a Union Gas perspective, what we would not have to do is redesign either our CIS system, our ^ work-management systems, our mapping systems, our emergency systems because, again, we could never reconcile one or more account numbers for a single account. It doesn't provide the flexibility within our system. So, again, we would have to resolve that issue about whether or not the Union Gas account is the account of record and is the account that all the participants would rely upon. 1166 I think, lastly, and a very simple one, just to explain to the members, is one of how do you bill -- what are the mechanics? And a simple example is Union Gas today does what we call group billing for a single customer. And as an example -- 1167 MR. WARREN: Sorry? 1168 MR. FELDMAN: Group billing for a single customer. 1169 MR. WARREN: I apologize. Middle age -- I didn't get what's the mod -- 1170 MR. FELDMAN: Group. 1171 MS. JACKSON: Group billing for single customer. 1172 MR. WARREN: Thank you. Sorry. 1173 MR. FELDMAN: So the example I would use is today, for example, the Windsor Housing Authority may have 1,200 social housing units -- 1174 MS. JACKSON: I wonder if I might just ask Mr. Feldmann to slow down a little bit for the benefit of everyone in the room. 1175 MR. FELDMAN: I apologize. 1176 As an example, there are social service agencies that manage housing on behalf of a number of individuals. The example I would use is the Windsor Housing Authority. Union Gas has a number of accounts with the Windsor Housing Authority. What they do not want is twelve or 1400 separate bills from Union Gas for all the properties they have across the municipal area. So we do a consolidation of that and actually invoice the Windsor Housing Authority for all the properties that they would have. 1177 My question is, is that is a service that we currently provide to various participants. The question remains, will marketers have that capability? Will Union Gas still have to maintain that capability within its systems, or do we have to reap resolution -- or reach resolution on how that would actually be accomplished? 1178 So not an exhaustive list, Mr. Chair, but kind of an idea about some of the issues that would be faced with Union Gas as we try to develop what the costs would be, how we would have to resolve those issues, such that we could actually come forward with costing analysis under marketer-consolidated billing. 1179 MS. JACKSON: Ms. Creighton, can I turn to you, and just coming back to the question of communications, ask you, what are the ways in which different -- what are the ways in which different kinds of customer communications and the costs of those communications might be affected by a marketer-consolidated billing regime? 1180 MS. CREIGHTON: Sure. I've already mentioned today that currently, we rely virtually exclusively on the bill message and the bill inserts that go together with the bill in the envelope. I think everyone is familiar with that. 1181 We do that for two reasons. One, it's incredibly cheap to do it that way; fractions of pennies. But it's also very, very effective for two reasons, one of which I've already mentioned today, that -- the first thing -- and I think everyone in the room can relate to this -- is bills get opened. When you go home and you see a stack of mail, if you're like most people, you're going to throw away stuff you don't think you need to read, perhaps without even opening it, but bills get opened. So right out of the gate we've got the customer looking at what we've sent. 1182 The second thing is that our inserts aren't commercial in nature. They're not promoting their sales or special offers or decks or windows and things. Our bill inserts are strictly informational. 1183 So the result over time is that our readership has grown. People understand that what's with the bill is information they need, that's relevant and important to them. 1184 Those two things together, the cost and the effectiveness of the bill insert, make every other medium pale by comparison. Nothing can touch that vehicle. So before we even look at the alternatives, we know they are more expensive and they're not as good. Even if you use them together, not by a long shot. Not as effective. 1185 So when I talk about effectiveness, I'm not -- let me be broad in my terms there. It's effective if it's seen, if it's heard, if it's read. It's effective if it's remembered. And a substantial portion of our customers actually tell us that they keep our bill inserts for future reference. And then ultimately, it's effective if it's acted on, if people understand what they've read. 1186 If all of that happens, they have no need to worry, no questions that haven't already been answered and no need to call. Now, what we know is that when they feel a need to call for clarification or more information, they call you, they call the marketers, they call us, they call often. And those call costs can be very high. 1187 So one of the things you want to make sure in your communications plan is that it's pro-active to try and avoid those costs on the other end of anxious customers needing to talk to somebody. 1188 So then we look at our needs. Robert's mentioned that there is safety, there's rates, there's bias for gas, and then finally there is generally industry information. In the case of safety, as he mentioned, it's everything from call before you dig to how to use gas appliances safely, what to do when you smell gas. Those are essential messages. Clearly, we couldn't give up that kind of communication. We would need to continue that in some way. 1189 I think it's still our responsibility to communicate on our rates. We would need to let customers know what they are and how they've changed. And clearly we're the only ones who care if customers use gas. Most of the other participants in the marketplace are indifferent between electrons and molecules. So we are the ones who would need to promote the continued use of gas in order to keep utilization up. 1190 The last category is something I think is kind of up for grabs. Today, we do industry information on behalf of all market participants, in a sense. We let our customers know when the Board has decided to institute licencing for marketers. We let them know how that works and who to contact if they have a question. We help out manufacturers if they have issues with the equipment they've sold to customers, perhaps a recall. We take on, at no cost to the manufacturer, the responsibility for putting out a bill message that says if you've got this kind of furnace, call. 1191 We provide support to the province generally in terms of the energy marketplace and what's changing and what people need to know, who they should call if they have questions about various things. 1192 And we take, generally, on the responsibility for customer education about how things work. And as this deregulation and opening up of the marketplace proceeds, from a customer point of view, it's more complex. So now is not the time to abandon the customer and communicate less. But in this scenario, we would need to look at how do we do that without that very effective, very cheap means? 1193 So we would have it look at who communicates what, are we going to communicate, how do we do it and how much can we afford? Because clearly, you know, the sky is -- is not the limit, it's something lower than that. And these are completely unchartered waters for us. 1194 So we would continue to have to communicate on safety, on rates, on natural gases as a good fuel to use. Someone needs to do the pro-active industry information and education. I don't know if we would continue to be those people. That might be a cost we could cut. 1195 And whether we use TV or radio or newspapers or what we call direct mail and what customers call junk mail is really something we all have to grapple with. It's all exponentially more expensive, and we know it's less effective. So from a communications point of view, direct billing solves that for me. I still have a bill. My envelope is still going to get opened. I don't have to confront any of this in a direct billing scenario. All of this becomes a cost and a consideration in a marketer-consolidated bill. 1196 MS. JACKSON: Lastly to you, Mr. Birmingham. 1197 Apart from the costs of actually implementing marketer-consolidated billing and the associated process business changes, are there other financial impacts of concern to Union Gas with respect to a marketer-consolidated billing proposal? 1198 MR. BIRMINGHAM: Yes. There are three -- they are in our evidence at Exhibit B, tab 4, beginning at page 13. And the first one is the risk of franchise loss. What this risk represents is our connection with the end-use customers and how those customers can then influence the municipal officials that we negotiate with when we're renewing our franchises. 1199 And if we lost that connection, then the risk is that we either have to -- have increased regulatory and legal costs because we have to pursue that franchise renewal perhaps through an Ontario Energy Board proceeding, or that we lose the franchise and therefore lose the revenue that goes along with that. 1200 The second cost would be the impact on our cost of capital, and this is where we would have, because of the inability for us to influence the use of natural gas, there is an impact on our ability to influence our revenues and our costs. And the financial markets would take a look at that, and that may impact our debt ratings and therefore increase the cost of renewed debt. Personally, I don't think that will happen in the near term, but it is something that we would have to monitor. 1201 And the third one is the impact on the value of the company. Union has generated goodwill with customers for the better part of 90 years, and it's in fact one of the reasons why our communications vehicles are so effective. They trust us. And it's also part of the reason why companies like West Coast, in 1992, and now more recently Duke Energy are prepared to pay a premium for companies like Union Gas. And what it goes to is a concept that a lot of audit committees are now calling the quality of earnings. It goes to how can you -- how long can you sustain those earnings? And when you have strong goodwill, when you have a strong brand with customers, they will tend to choose to continue to use your service, and there's value to that in your revenue stream. 1202 So the capital markets recognize that, and there is no question that moving to marketer-consolidated billing will reduce that value. 1203 And we believe that furthering competition in the sale of the natural gas commodity, in fact, can be done by direct billing and get all the benefits of that without having to consider the costs and the other items that we've talked about here. 1204 Thank you. 1205 MS. JACKSON: Thank you, Mr. Chair, those are my questions. 1206 MR. JACKSON: Thank you. 1207 Now, I suppose on a topic-by-topic basis that it may vary as to which intervenors are more supportive of the company's position. We'll certainly accommodate any order that's been agreed to in any event. But with those remarks, who would like to go next? 1208 MR. WARREN: I'm moved nearly to tears by the willingness of my friends who always push me over top of the trench first. 1209 CROSS-EXAMINATION BY MR. WARREN: 1210 MR. WARREN: Mr. Feldmann, can I just start with you on just a little point. Would you turn up your pre-filed evidence in Exhibit B, tab 4, page 13. 1211 Do you see it there? 1212 MR. FELDMAN: Yes, I have it. 1213 MR. WARREN: I'm looking at the first full paragraph under numbered item 3, the heading of which is why Union does not propose marketer-consolidated billing? The last sentence in the opening paragraph's text reads: "Apart from the impediments to marketer-consolidated billing arising from the Ontario Energy Board Act 1998, Union does not propose to facilitate marketer-consolidated billing for several reasons. Each of these reasons are described below." 1214 Now, I read that list, Mr. Feldmann, as being a comprehensive list of the reasons why you didn't support marketer-consolidated billing. Now, when I heard your evidence-in-chief this morning, I'm going to list the following items that you raised which I don't find in that list of reasons. 1215 First, customer disconnections for non-payment; 2, customer relocations; 3, meter relocations, aids to construction, et cetera. That was a broad category. The use of the customer account number. The mechanics of billing using the group billing example. 1216 Unless I've missed that evidence, and I've read it two or three times, I didn't see any of those items listed in the reasons which you gave; am I wrong in that? 1217 MR. FELDMAN: No, you're not wrong. 1218 MR. WARREN: Now, you appreciate that we haven't thus had any chance to consider those or to ask interrogatories. But my question for the moment, Mr. Feldmann, is: Do we now have a comprehensive list, or is this a moving target? Are there more reasons for not supporting marketer-consolidated billing that are likely to come up in the future, or do we have, finally, a comprehensive list? 1219 MR. FELDMAN: I'm not quite sure how to answer that question. In that what we had when we put this evidence together almost 18 months ago was our best understanding at the time about what the issues would be on a material basis that would affect Union Gas on a marketer-consolidated billing. As we look at the marketplace, as we look at how customers react, as we have more experience with our interactions with marketers and consumers, there are other issues that do present themselves. 1220 When this evidence was going in, we did not have our CIS system fully operational for both northern and southern customers. We now have that. We understand some of the limitations, we understand some of the other issues that are presented with managing those relationships. I'm not sure we will ever have a full list to evaluate. What I tried to do earlier today or earlier a few minutes ago was to say here are other issues I think we need to consider. Is it exhaustive? I think we've covered the major issues that we would need to take a look at. 1221 MR. BIRMINGHAM: Mr. Warren, maybe I can help you out a little bit. What Mr. Feldmann was responding to was a slightly different question. I think the list of items is included in the evidence in the interrogatory responses. What he was dealing with are generally in the category of the potential for increased costs. And the question he was responding to was not so much why does Union not support marketer-consolidated billing, but as much it was, if we were to try to implement marketer-consolidated billing, what are the questions that we would have to have answered before we could cost out a scenario that would give some indication as to what the costs would be, moving to a marketer-consolidated billing option. 1222 MR. WARREN: Mr. Birmingham, do we now have a comprehensive list of the factors that would affect the costing of the marketer-consolidated billing option? 1223 MR. BIRMINGHAM: I would say you have a list of the most significant ones. I'm sure there are other ones that will arise as we move forward. For instance, if we were to have customers who paid their bill to the marketer and there was only a partial payment, how would that payment be applied? I think there are some smaller operational issues that would have to get ironed out as we move forward. But in terms of costing a scenario for implementing marketer-consolidated billing, you have now a significant -- the list of significant items. 1224 MR. WARREN: And how long have you been aware of this list of significant items affecting the cost of the marketer-consolidated billing option? 1225 MR. BIRMINGHAM: We prepared it over the course of the last couple of days in response to the questions through this hearing. We hadn't prepared that listing previously because it wasn't our proposal to implement marketer-consolidated billing. 1226 MR. WARREN: But presumably you had been aware of these factors for some time, notwithstanding that you only reduced them to a list in the last couple of days; fair? 1227 MR. BIRMINGHAM: I would say we're generally aware that there were items that were going to increase the costs by moving to a marketer-consolidated billing option, yes. 1228 MR. WARREN: Mr. Chairman, since this evidence is fresh, I had hoped to finish today but I may now -- may need the weekend to think this through and to speak to Ms. Girvan and my client. So I just want to enter that qualification, I'll do the best I can. 1229 MR. JACKSON: That seems reasonable. 1230 MR. WARREN: Panel, I want to, in a kind of counter-intuitive fashion, go from the specific to the general in my questions. And the first specific question that I have is with respect to the direct billing option on which you are proposing as one of the two options. 1231 And to assist me in that, if you could turn up, please, an interrogatory response to interrogatory from my client, C3.5. 1232 MR. FELDMAN: I have that. 1233 MR. WARREN: Okay. Now, the answer that was given -- it was a question in part directed to the formatting of the bills under your proposed options you provided to -- what you describe as potential bill designs for the enhanced ABC and direct billing options, and there are two attachments to that. The first one -- Mr. Feldmann, I presume, are these questions directed to you? 1234 MR. FELDMAN: Correct. 1235 MR. WARREN: Okay. Just for purposes of my understanding, is this an illustration of a typical Union direct bill as it would exist now? 1236 MR. FELDMAN: I believe the Union Gas -- the typical bill that you would have is actually in relation to interrogatory C3.6. 1237 MR. WARREN: Then the example -- the first example, C3.35, this would be a Union bill under the new dispensation order. It's a direct bill; is that correct? 1238 This would be an example of a Union bill under the new direct billing dispensation. So that there would be two items of core information, if I can call it that, which is the delivery charge and the monthly charge; is that correct? 1239 MR. FELDMAN: That is correct. 1240 MR. WARREN: Now, if I turn over to the second of the formatting examples, is this an example of -- this is enhanced ABC, or is this intended to be the -- an example of what might be billed under a direct bill from an REM? 1241 MR. FELDMAN: The next attachment under C3.6, the first page -- 1242 MR. WARREN: I'm looking at C3.5. Sorry. 1243 MR. FELDMAN: 3.5? 1244 MS. JACKSON: You're looking, Mr. Warren, at the one that says enhanced ABC customer? 1245 MR. WARREN: I'm assuming. I just want to confirm that this is an example of a Union bill under the enhanced ABC proposal; is that right? 1246 MR. FELDMAN: That is correct. 1247 MR. WARREN: All right. Now, if I -- just get you to turn physically back a page to the Union billing direct customer. There are two items of information. And looking at this, at the simplistic level at which I'm most comfortable in operating, the two items of information, a monthly delivery charge and a monthly charge, why can that information not be reasonably, straight-forwardly, given to the marketer so that the marketer can put it on its bill? In other words, Mr. Feldmann, what's the complexity in the information being reasonably given to the marketer so the marketer can put it on its bill? 1248 MR. FELDMAN: The -- the complexity, really, is one of taking that information, preparing the calculation electronically, or taking this information as you would see it and just providing it to the marketer. In its simplest context, and you wanted a simple answer, in theory we can take these bills, put them in a box, send them to the marketer and they would have that information in its simplest context. 1249 MR. WARREN: Now, the -- I understand from your pre-filed evidence and from the evidence which you gave in chief a few moments ago that there are costs which you believe are associated with this and that there are reasons why you don't want to do it which you articulated in your pre-filed evidence. But I'm just looking at the simple question of the processes that are in place to get this information over to the marketers. And am I right in assuming that the processes will be in place that will allow you to get this information from your hands into the marketer's hands so the marketer can put it on its bill; is that fair? 1250 MR. FELDMAN: The information would reside on our system. What incremental investments we would have it make in terms of providing this electronic information to a marketer, I do not know. 1251 MR. WARREN: Mr. Feldmann, as I've understood the evidence, under the scenario which we're discussing in this case, which is unbundling of services, you have set up or are proposing to set up processes to transfer information with respect to storage and transportation costs from your system over to the marketers; correct? 1252 MR. FELDMAN: That's correct. 1253 MR. WARREN: Then what's the magic in conveying two additional bits of information, the delivery charge and the monthly charge, information which you already have? 1254 MR. FELDMAN: I don't think there is any magic in preparing this information for marketers. The issue, as I indicated, is one of -- we would electronically have this information and we would electronically present our bill in this format. The issue is, does the marketer have the capability, would Union Gas have to reformat this information electronically in order to provide it to a marketer? 1255 MR. WARREN: You tell me if you have examined the question of the costs associated with that simple mechanical transfer of this information to marketers. 1256 MR. FELDMAN: Not to my knowledge. 1257 MR. WARREN: Would it be difficult for you to do that assessment of the costs of the mechanical transfer of this information to the marketer? 1258 MR. FELDMAN: I don't know. I'm not sure if that issue is one that could be answered by Union Gas staff or whether or not we would have to look at our service provider to see exactly what information from either party would be required. 1259 MR. WARREN: Can you give me an undertaking to determine, both internally and from your service provider, what it would cost to determine in terms -- what's involved and what it would cost in terms of cost of transferring this simple information to marketers so that they can include it in its bill. Can you do that for me? 1260 MS. JACKSON: Well, Mr. Chairman, Mr. Feldmann has already said there is one way of doing it: They could send the bills themselves. But beyond that, and in fairness to Mr. Warren, I know he wasn't here when the evidence was given earlier today that the direct bill can have many more components of information depending on the nature of the service, and Mr. Feldmann has indicated it depends on what the marketer requires. 1261 So it's an illustration of the more general issue that's already been indicated. It depends what's required in order to be able to cost it. So I respectfully suggest that's not appropriate. 1262 MR. WARREN: I think, with respect, Mr. Chairman, Mr. Feldmann has been quite straightforward. He says, we've got two bits of information on our bill, two basic bits of information, and we can understand there's a variable that marketers might want other information. But I'm just asking for what's involved in determining the cost of getting these two basic bits of information into the marketer's hands. Ms. Jackson will give an answer, Mr. Feldmann will give an answer that you know there are some other variables you have to think about, but surely we can get that answer. Because there is the suggestion, I've understood it, hanging over this hearing that there was something very difficult about the transfer of information necessary for marketer-consolidated billing. And I think this Board should have that information since it's available, apparently. 1263 MS. JACKSON: I don't, with respect, think the issue that's hanging over the hearing is a transfer of the information. As Mr. Feldmann has indicated, you could just put the bills in a box and send them. The issues are not that. 1264 MR. JACKSON: I think that might be an unpalatable way to transfer the information and I think that's what Mr. Warren is getting at. 1265 It does seem to me that you're transferring information in two other fields that you might have in your database, and is the web site capable of doing that? These are questions that would then influence the question of whether or not you could estimate a cost. I, frankly, can't see why you can't take a crack at answering the question. 1266 MS. JACKSON: Can I suggest this, Mr. Chair: The person who would be better placed to even understand what's involved is unfortunately Mr. Andrews who just left us. Can we look into -- 1267 MR. JACKSON: That was my fear that I expressed before the break. 1268 MS. JACKSON: -- look into what -- what information we might be able to provide and provide that, and then we can see if that's sufficient for my friend's purposes. 1269 MR. JACKSON: That would -- 1270 MR. WARREN: I can tell you what that's for. It's a preliminary attempt at this, and let's see what we can do. 1271 MR. JACKSON: Yes, thank you. Do you think you might have that for Mr. Warren when he comes back on Monday? 1272 MS. JACKSON: I don't -- I simply don't know what's involved, Mr. Chair. We'll do our best. 1273 MR. JACKSON: You'll do your best. Right, thank you. Do we want it give that a number, please? 1274 MR. MORAN: We're just trying to find the next number. G3.4. How do you wand to describe the undertaking, Mr. Warren, just so we can understand? 1275 MR. WARREN: Well, the undertaking is it try to catch Mr. Andrews to see if Mr. Andrews can -- the undertaking is to see what is involved in determining the costs and what is involved in transferring the information about delivery charge and fixed monthly charge from Union to a marketer to allow marketer-consolidated billing. 1276 UNDERTAKING NO. G3.4 TO PROVIDE INFORMATION PERTAINING TO WHAT IS INVOLVED IN DETERMINING THE COSTS OF DELIVERY CHARGES AND FIXED MONTHLY CHARGES FROM UNION GAS TO A MARKETER TO ALLOW MARKETER-CONSOLIDATED BILLING 1277 MR. WARREN: Now, I just have a couple more questions on the direct billing proposal, Panel. And in the evidence -- to be responsible, I should give you an evidence reference. It's Exhibit B, tab 4, page 2. 1278 You indicate that -- I'm looking at the very bottom of the page. Union, line 121. "Although there are a number of REMs in the small volume market, three REMs are dominant and serve over 90 percent of the small volume direct purchase market." 1279 Now, can you tell me, Panel, of the three marketers who serve over 90 percent of the small volume market, have you asked each of those three whether they are interested in the direct billing option? 1280 MR. BIRMINGHAM: I don't know the answer to that, Mr. Warren. I don't know if they were specifically canvassed about the direct billing option. 1281 MR. WARREN: Do you know if any of the three are interested in taking up the direct billing option? 1282 MR. BIRMINGHAM: I do know that the marketers are interested in having the unbundled service. They are interested -- some of them are interested in developing a stronger relationship with end-use customers. But I don't know specifically whether any of those are interested in taking up the direct billing at this time. 1283 MR. WARREN: Mr. Birmingham, to be fair to you, is it the case that you don't know or that Union doesn't know? Might there be somebody else in Union who would know the answer to my question? 1284 MR. BIRMINGHAM: It's possible that somebody else in Union may know but I do not. 1285 MR. WARREN: Can I get an undertaking for you to determine if somebody else in Union knows, A, if they have been asked and, B, if those three marketers -- any of those marketers have expressed an interest in direct -- in the direct billing option? 1286 MR. BIRMINGHAM: Just so that -- I will take that undertaking, Mr. Warren, but I want to make sure I'm giving you the response you want. So is interest in the direct billing option intended to be that they will -- they will take it up immediately when it's available? 1287 MR. WARREN: I don't want to put the qualifier immediately. I want to say do you have expressions of interest that they will take it up -- 1288 MR. BIRMINGHAM: At some point in the future? 1289 MR. WARREN: -- at some point when it's offered. 1290 MR. BIRMINGHAM: I'll undertake that undertaking, sure. 1291 MR. MORAN: That would be G3.5, Mr. Chairman. 1292 MR. JACKSON: Thank you. 1293 UNDERTAKING NO. G3.5 TO DETERMINE IF ANYONE IN UNION GAS KNOWS IF THE THREE MARKETERS HAVE EXPRESSED AN INTEREST IN THE DIRECT BILLING OPTION 1294 MR. WARREN: Now, just finally on that point, not that point but the directed billing option, has there been any -- and this question has been asked, Panel. I apologize to the previous Panel in a variety of different ways, but I want us to focus on this. Has there been any enquiry made of end-use customers - not the REMs but the end-use customers, and I'm speaking here of principally the residential customers - of their interest in the direct billing option, in other words, of receiving two bills? 1295 MS. CREIGHTON: Yes. We have -- we have filed a survey on billing preferences where that option was canvassed with end-use customers. 1296 MR. WARREN: And as I recollect the survey results, at least correct me if I'm wrong, they weren't enthusiastic, or they were less enthusiastic than getting one bill from you? 1297 MS. CREIGHTON: Yes. 1298 MR. WARREN: Okay. Mr. Chairman, I was going to move on to another topic. I don't know what you want for the time we have left. The next topic I'm moving on to is going to be a fairly lengthy one. 1299 MR. JACKSON: Good. Well, I think we're pleased that you have noted that and I think that this does appear to be a good time to break for the day. We're planning to sit a full day, then, on Monday. 1300 And are there any other closing matters, then, before we adjourn for the day? No? Good. Well, then, we will see you Monday morning at 9:30. Thank you. 1301 MR. MORAN: I was going to say, I don't think so, Mr. Chair. 1302 --- Whereupon the hearing adjourned at 4:05 p.m.