Rep: OEB Doc: 128r1 Rev: 0 ONTARIO ENERGY BOARD Volume: 5 February 26, 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 2 [21] CROSS-EXAMINATION BY MR. JANIGAN: [22] CROSS-EXAMINATION BY MS FLAHERTY: [315] CROSS-EXAMINATION BY MR. MORAN: [356] QUESTIONS FROM THE BOARD: [455] RE-EXAMINATION BY MS. JACKSON: [600] UNION GAS LIMITED - PANEL 3 [622] EXAMINATION BY MS. JACKSON: [626] CROSS-EXAMINATION BY MR. BROWN: [654] CROSS-EXAMINATION BY MR. VEGH: [689] CROSS-EXAMINATION BY MR. JANIGAN: [736] CROSS-EXAMINATION BY MS. FLAHERTY: [803] QUESTIONS FROM THE BOARD: [814] RE-EXAMINATION BY MS. JACKSON: [854] 7 EXHIBITS 8 EXHIBIT NO. F5.1 CVs OF BRIAN DEAS AND BROOK TYLER [625] 9 UNDERTAKINGS 10 UNDERTAKING NO. G5.1: TO PROVIDE THE NUMBER OF CUSTOMERS WHO SWITCHED FUELS IN 2001 [96] UNDERTAKING NO. G5.2 TO PROVIDE INFORMATION ON HOW UNION GAS IS BILLED BY XEROX [338] UNDERTAKING NO. G5.3 COST BREAKDOWN FROM 1999-0017 AND PRESENT PROCEEDING [467] 11 --- Upon commencing at 9:35 a.m. 12 PRELIMINARY MATTERS: 13 MR. JACKSON: Good morning. Please be seated. 14 Any preliminary matters this morning? 15 MS. JACKSON: Mr. Chair, I understand that Mr. Feldmann is in a position now to deal with the answer to interrogatory -- or undertaking number G4.1. 16 MR. JACKSON: Good. Thank you. That might be appropriate to do at this time. Mr. Feldmann. 17 MR. FELDMANN: To the Board, the issue relates as the CIS contract that we were signing or about to sign had the same sort of decontracting flexibility that you advised the Board under the original agreement with Enlogix. I would answer that by saying the new contract with Enlogix has eliminated fees relating to rental water heating appliance service, merchandise sales, and merchandise financing as Union Gas is no longer in these businesses. 18 The fees under the new contract are based upon the number of accounts. In other words, the decontracting aspect of the new contract are driven by the number of accounts served by Union. This recognizes the fact that, as described by Mr. Birmingham, the service level is based upon the necessary calculations driven by the existence of an account. The service that Enlogix provides us, Union Gas is really the determination of the consumption in getting it ready to be put on a bill. And it is from this point, that under marketer-consolidated billing, in that scenario, that the marketer would take over that process. 19 That would then allow us to avoid the costs that we currently pay to Xerox but not to Enlogix. 20 MR. JACKSON: Okay. Mr. Janigan, please. 21 UNION GAS LIMITED - PANEL 2 22 CROSS-EXAMINATION BY MR. JANIGAN: 23 MR. JANIGAN: Thank you, Mr. Chair. 24 Panel, I wonder if you could respond by way of a preliminary -- some preliminary questions. 25 How many years have marketers been able to sell the natural gas commodity to the residential customers in Ontario? 26 MR. BIRMINGHAM: Well, I think technically, Mr. Janigan, the direct purchase arrangements would have been available after what was known as the Halloween Agreement in October of 1985. So any time subsequent to that, we could have elected a direct purchase arrangement. 27 MR. JANIGAN: And I understand, at least from Ms. Creighton's testimony yesterday, that Union Gas has been in the business of selling the natural gas commodity to residential customers for approximately 90 years? 28 MS. CREIGHTON: We had our 90th birthday party last summer. 29 MR. JANIGAN: Congratulations. 30 MS. CREIGHTON: Thanks. 31 MR. JANIGAN: Now, if the marketer-consolidated billing option was made available, would system sales customers who opt to remain bundled with Union, would they be provided with any bill inserts regarding REM marketing information? 32 MS. CREIGHTON: Well, we do that today in terms of providing our customers with general information about the choices they have. I would assume that would continue. 33 To the extent that the rules change or what customers might see in a broker relationship could change, we would probably let our customers know about that too. The second phase of the communications plan that's outlined in this evidence is an example of that, where we would educate all of our customers about a change in the -- in the REM arrangement. 34 MR. JANIGAN: Presumably, however, there wouldn't be any advertising for REM services put in the envelopes, though? 35 MS. CREIGHTON: We've never done that, no. 36 MR. JANIGAN: And you have no plans to do it in the future? 37 MS. CREIGHTON: No, we don't. 38 MR. JANIGAN: Now, on Exhibit B, tab 4, page 5, the evidence notes the following: 39 That some REMs have suggested improvements in the current ABC-service, including the capability to bill for unbundled direct purchase services. 40 Now, in order to accommodate the ABC-service to bill for unbundling direct purchase services, does Union need to create a separate storage line on the bill? 41 MR. BIRMINGHAM: Yes. There would be a separate storage line on the bill. That was the substance of Mr. Packer's testimony. 42 MR. JANIGAN: And if Union did not build this additional line on the bill, would they still have been able to provide enhanced ABC billing? That may be an obvious answer. 43 MR. BIRMINGHAM: I think they are two different concepts, Mr. Janigan. The ability to have a separate storage line on the bill for the unbundled service isn't necessarily an enhanced ABC-service. It doesn't allow marketers to take the unbundled service and therefore continue with the ABC so it's enhanced to that extent. 44 We're also looking at and talking to marketers about other possible enhancements to the service. For instance, one of the things that they've expressed some interest in is having their logo on the bill as well as their name and phone number that currently exists. So we're looking at those possibilities. 45 MR. JANIGAN: And I think those are covered a little further in the evidence at Exhibit B, tab 4, page 10. And I understand that it is Union's position that the cost of these potential enhancements to the ABC-service allowing REMs to offer additional service features will be picked up directly through the ABC fee from the marketers; is that correct? 46 MR. BIRMINGHAM: That's correct. That's the evidence at line 17 and 18 on page 10. 47 MR. JANIGAN: Yes. Now, why does Union support this kind of cost recovery concept? 48 MR. BIRMINGHAM: Well, in this particular case, the agency billing and collection service has some incremental costs, and that service is being used by the marketers. They choose that service and they are looking for these enhancements themselves, for their own benefit. So we're looking at cost recovery from them. 49 MR. JANIGAN: And who gets the ABC-service revenue? Is it the utility? 50 MR. BIRMINGHAM: The ABC-service revenue is part of our revenue forecast and therefore forms part of the utilities' revenue base. To the extent that it is forecasted, it goes into the determination of our rates and ultimately benefits customers. 51 MR. JANIGAN: Now, I think we can be agreed that the facilitation of a competitive energy market in Ontario is a desirable public objective. Would you agree? 52 MR. BIRMINGHAM: We've been working over a number of years to try to develop a more competitive market for the sale of the natural gas commodity. 53 MR. JANIGAN: And in your opinion, does the ABC-service currently offered by Union assist in the delivery of competitive energy offerings by REMs in Ontario? 54 MR. BIRMINGHAM: I would say to a certain extent, Mr. Janigan. And that is, to the extent that a marketer is going to offer commodity sales to customers and to the extent that they see the investment in a billing system and in a customer care system as an impediment to entering the commodity sale market, then the ABC-service gives them an alternative that allows them to avoid the cost of those investments and still be able to serve customers with commodity. 55 MR. JANIGAN: Now, will the offering of the enhanced billing arrangements through the availability of additional service features by ABCs, service features offered by the marketers, assist the REMs in providing more competitive services? 56 MR. BIRMINGHAM: To the extent that they elect the unbundled service and use the storage to help manage their commodity costs, then I believe that it will -- it has potential to enhance the competitive offering or the competitiveness of their commodity offering. 57 What it doesn't do is give them any additional flexibility in the types of commodity offerings that they can offer. It doesn't give them any flexibility to bundle their commodity offering with other services or with other forms of energy. 58 But what it does do is, to the extent that they select the unbundled service, that will help them manage their commodity cost. 59 MR. JANIGAN: Now, you've indicated that you're going to recover the costs of enhancing the ABC-service directly from the marketers through the ABC fee. Now, if this will assist in retail unbundling the small volume market, why aren't you recovering the costs in the same fashion as the incremental unbundling services account? 60 MR. BIRMINGHAM: I think there are two different concepts, Mr. Janigan. Let me try to get at them. 61 The first one is the offering of the unbundled service and the cost needed to offer that unbundled service to the small volume market, looking to recover those costs from all customers, because there is the opportunity for all customers to benefit from that. 62 The second, then, is the cost for the enhanced ABC, and those enhancements go to things like putting the REM logo on our bill. And that's a cost that doesn't go to the commodity offering, it goes to the presence of the REM, it goes to the relationship that the REM can try to enhance with the end-use customer, and therefore we're looking for the cost recovery directly from the REM. 63 MR. JANIGAN: But if this enhanced ABC-service will assist in establishing the competitive market in unbundling services, I wonder why it is not treated in the same fashion as creating the -- costs of creating the unbundled options themselves, which admittedly are done for the same purpose. 64 MR. BIRMINGHAM: Again, Mr. Janigan, I think it's two different concepts. Certainly with respect to offering the unbundled service, that is a new service that we're offering. We do anticipate that that will assist marketers in continuing to make their commodity offerings more competitive. And we need to change our bill to be able to allow for that. That is a separate storage line that reflects the unbundled service. 65 Whether a marketer selects the bundled or the unbundled service, though, they could select the enhanced ABC-service. And these are largely cosmetic changes that don't go to the competitiveness of the commodity offering. They go to, really, the type of presence that the marketer might have in the marketplace and the type of relationship that they might have with end-use customers. 66 So the enhanced ABC-service really is more focused on the types of things that we may be able to do on a limited basis on our bill that would help with their name and brand recognition, but it doesn't go to the competitiveness of the commodity offering. 67 MR. JANIGAN: I want to paraphrase your answer. First of all, ABC-service is not a new service similar to the unbundled services that will be established as a result of presumably this proceeding. And secondly, the depth of the changes that are provided are not so substantial as to trigger an overall competition concern. They're more directly related to the companies themselves; is that fair? 68 MR. BIRMINGHAM: Yes, I think you've got it roughly right. The enhanced ABC could be offered and would be offered independent of whether we are going to be looking to offer the unbundled storage service or not. 69 MR. JANIGAN: Now, Union has brought forth the proposal for unbundled service functionality without a cost benefit analysis, in part, because unbundling is thought to benefit competition in the natural gas commodity, at least that's what I derive from Mr. Packer's testimony. 70 Would it be correct for the Board to allow marketer-consolidated billing without detailed costing data if it is thought to advance competition in the natural gas market? 71 MR. BIRMINGHAM: Well, let me take this on two levels, Mr. Janigan. The first one is with respect to the unbundled service. That was brought forward to the Board as a service that we believed would continue to enhance the competitiveness of the commodity market in Ontario. That service was agreed to by all participants and, in fact, formed the settlement agreement or part of the settlement agreement that was filed with the Board and that the Board subsequently approved. That's a process that, as I described earlier, is a powerful one and it's been used in the past. 72 So when we brought forward the buy/sell service to try to effect direct purchase in Ontario, when we brought forward the T-service offerings, when we brought forward ABC, when we brought forward now the unbundled service, there is an industry consensus that those would be good things for the industry. I think that's a very powerful thing for the Board to have, that all industry participants agree that that's the type of service that they think is the proper evolution of the marketplace. 73 So whether there is a cost benefit analysis specifically done or not, in the same way that you would think about a cost benefit analysis for the investment in a facility where you show revenue streams and benefits against the costs of the investment, I don't think was as big an issue because the industry said: This is a good step and we all agree that it's a good step. Let's move forward. 74 I distinguish that from the situation where -- where we have marketer-consolidated billing now being talked about. There is clearly no industry consensus on marketer-consolidated billing. In fact, as early as the report of June 8th, 2000, it was clear that there were two camps evolving, where there was one camp largely driven by the marketers who were supporting marketer-consolidated billing and the other camp, primarily sponsored by the utilities, that were against a marketer-consolidated billing. 75 I might also add that there was no small volume customer representation in that process that led up to that report. 76 So in the case where we're now looking at marketer-consolidated billing, I think it is useful to look at exactly what the benefits are against the types of costs and the issues that we've raised in this hearing, because we don't, at this point, know exactly what those benefits are. 77 In addition, it's our view that you can achieve whatever those benefits are through a direct billing option and not have to deal with the issues and the costs that arise through the imposition of marketer-consolidated billing. 78 MR. JANIGAN: Now, I would like to deal with problems associated with the loss of ability to promote the consumption of natural gas, and I ask the question: If a cost benefit analysis established that the benefits of marketer-consolidated billing would lower gas bills by introducing competition in some fashion, perhaps on a customer-care part of the -- part of the equation, why should ratepayers care if Union has lost an opportunity to promote the business of gas consumption? 79 MR. BIRMINGHAM: Well, one of the reasons that they should care, I think, Mr. Janigan, is that the lower use of Union's assets has been in the past, and is expected to be, recovered in rates from customers. So the rates for their delivery services will go up in the event that the assets become less utilized than they are now. 80 MR. JANIGAN: Now, you've also indicated that your bills are sent to customers that also -- that already receive gas. How realistic is the threat that they would fuel switch without natural gas promotion in their billing envelopes? 81 MR. BIRMINGHAM: Our view is that it's very realistic. It's realistic even now without the electricity marketing opening and the potential for electricity to become more competitively priced. 82 More recently, in fact, we have seen new housing developments, for instance, in the area of Waterloo, that have gone all electric. We haven't seen that in a number of years. So the threat is real. 83 MR. JANIGAN: Now, you must keep data on these kinds of developments, particularly fuel switching. What percentage or number of customers fuel switch away from natural gas each year? 84 MR. BIRMINGHAM: I think there's -- there's, again, two dimensions to this, Mr. Janigan. The first one is what we have is roughly a million customers who have their heating equipment that's going to last somewhere between, let's say, ten to 20 years. And I'll take the more aggressive one just because it's easier for me to do the math. If I have a million customers and their equipment lasts ten years, I know that I have a 100,000 customers who are now going to decide on which fuel to use, what they're going to replace that heating equipment with, each and every year. 85 So it's at that point where they're going to make a decision. And they're going to decide whether they want to carry on with natural gas or move to something else. So that's the risk that we're dealing with. 86 The second part of the risk is with respect to the individual applications. So it's not necessarily the case that they are going to switch holus-bolus and tear out their natural gas furnace and water heater, and if they have a range or a stove or a dryer, they may tear all that out as well. But it will happen with each individual appliance so it may be that their rental water heater gets replaced in one particular year and they go electric with that. 87 So it's the risk of fuel switching on the individual appliance, as well as overall when their major heating appliance fails. 88 MR. JANIGAN: Well, let's say the hundred thousand last year that had the choice to switch to another fuel source, how many took that option? 89 MR. BIRMINGHAM: I don't know that number specifically, Mr. Janigan. My recollection is it was about 10,000 customers, but I would have to -- I would have to -- 90 MR. JANIGAN: Could you undertake to provide me with that number? And I think I'll use your two category system if I could, in fairness. One is the idea of switching the entire system and the other one is whether or not they switched the particular application. 91 MR. BIRMINGHAM: And you want this for the customers who actually switched from natural gas in the year 2001, so we'll get an annual number for you? 92 MR. JANIGAN: Please. 93 MR. BIRMINGHAM: I can do that. 94 MR. MORAN: Mr. Chair, that will become G5.1. 95 MR. JACKSON: Thank you. 96 UNDERTAKING NO. G5.1: TO PROVIDE THE NUMBER OF CUSTOMERS WHO SWITCHED FUELS IN 2001 97 MR. JANIGAN: Now, I believe you also note at tab 4, page 15, that the REMs may not be simply marketing gas options to customers, but may also be marketing electricity supply options -- or electricity supply services and thus may not, presumably, promote gas with sufficient zeal. Is that a fair characterization of what's there? 98 MR. BIRMINGHAM: Yes. They don't have necessarily the financial incentive to promote natural gas if they're going to earn a margin by promoting a fuel other than natural gas that is higher than the margin they would earn through the sale of natural gas. 99 MR. JANIGAN: Now, to be a devil's advocate here, wouldn't it be more likely that such REMs would provide an independent view of the energy options if they were not committed to a specific energy fuel source? 100 MR. BIRMINGHAM: I guess you would have to ask the marketers themselves, Mr. Janigan. But if I was in that business, I would be looking at the fuel that I could generate the biggest margin on and that's the one that I would be promoting because I would make the most money, take the most to my bottom line. 101 MR. JANIGAN: Now, Union does not promote any other energy source but natural gas, I assume. 102 MR. BIRMINGHAM: That's right. All of our investment in infrastructure is in natural gas facilities. 103 MR. JANIGAN: Now, Exhibit B, tab 4, page 17, contains a discussion of the value of the company and the cost of capital matters. And you indicate that returns from investment in the utility have been declining in recent years. Is this not largely because of the falling, long-term Canada bond rate which is built into Union's ROE formula? 104 MR. BIRMINGHAM: Well, there are two components to that -- to that piece of evidence, Mr. Janigan. The first one is that the perception is that there has been increasing risk, while at the same time the returns available from the investments have been declining. 105 Now, on the return side, there is no question that the declining returns are based on declining interest rates, and the second piece of that is we've had extremely warm weather for just about as long as I can remember now. Of course, as I get older that period shortens up. But it's really those two things that have impacted the profitability of the utilities directly. 106 The other side of that, of course, is the risk, and I think there is a perception from the investment community that there is greater fuel-on-fuel competition as the markets begin to deregulate, there are additional risks that the utilities are taking on under incentive regulation, where there may not be sufficient compensatory mechanisms for those risks. Things like longer terms around asset utilization risk or greater capacity losses, being able to contract for pipe and waiting to recover the costs of that pipe. 107 It's those types of things, I think, that, generally speaking, have gone to the fact that the investors are seeing slightly increasing risk and yet declining returns. 108 MR. JANIGAN: And I believe you have indicated, or have given a history of the restructuring of the gas industry in the evidence at Exhibit B, tab 1, appendix A. And as the industry is restructured and as market forces have been introduced to regulate the industry, rather than -- or as market forces have been introduced to influence the industry rather than regulation, I take it that Union has been exposed to greater risks of competition as these moves have taken place? 109 MR. BIRMINGHAM: Certainly I think on the commodity side there has been -- there is greater competition from fuels and we're expecting even greater competition once the electricity market opens in Ontario. And on the distribution rate side, I think what we're looking at is, again, a form of performance-based regulation that has a different equation for the risks and returns than we've had in the past. 110 MR. JANIGAN: Now, throughout this entire period of restructuring and the introduction of competition, can you tell me, has there been any study by the company that has shown any impact on the stock price or the credit rating of the parent company as a result of these moves? 111 MR. BIRMINGHAM: I can't think of any studies that have actually been done, Mr. Janigan. I can tell you that, again, in our meetings with financial analysts and bond raters, that we've had ongoing discussions about those types of issues and created the increased competitiveness, the risk reward equation. I think, certainly on the bond rating side, the expectation is that while there may be increased risks and there may be lower returns, all of that will eventually get captured in rates even though there may be a longer period of time that the utility is exposed to some of those risks, that eventually they'll be settled up in rates. 112 I think the other thing that's fair to say is that the bond rating agencies have taken a much deeper look at the operations of the company, tried to understand that better than they have in the past, and they rely heavily on having experienced management in the utility to help manage some of this as the changes go forward. 113 On the financial analyst side, I would say that they have done the same thing. Their views are the same, roughly. And it's their expectation, they hope, that over time, moving to a form of incentive-based regulation or performance-based regulation, in conjunction with the greater introduction of market forces into the marketplace, in fact will increase the earnings opportunities for the regulated entities. 114 MR. JANIGAN: But throughout this long period of restructuring that commenced, I guess, with the 1985 Halloween Agreement up until today, which admittedly is another step along the road in restructuring, there have been no specific attributions of -- of drops in credit rating or increased -- decreases in stock prices as a result of the restructuring manoeuvres? 115 MR. BIRMINGHAM: There certainly haven't been decreases in our debt ratings and we've been able to manage that over a period of time. 116 With respect to the share price, of course, Union Gas is not a publicly traded company. Westcoast Energy is the publicly traded company. And there are a number of other companies that affect Westcoast's earnings over and above what Union Gas can influence. And it's that overall combination of companies that will affect the share price. There haven't been any studies that I'm aware of that would separately try to sort out the impact of Union Gas specifically and then the introduction of market forces has had on the Westcoast share price. 117 MR. JANIGAN: How big is Union to Westcoast in terms of assets or revenues, roughly speaking? 118 MR. BIRMINGHAM: There are different measures, I think, with respect to their net income. We would represent, depending on the year, probably 35 to 40 per cent of their -- 119 MR. JANIGAN: Mr. Birmingham, I would like to take you to yesterday's transcript and an exchange with Mr. Warren to see if I understood your answer correctly. On line -- or paragraph 210, it begins. I think I've got it right this time in terms of the numbering system. I can learn at this age. 120 MR. BIRMINGHAM: I have it, Mr. Janigan. 121 MR. JANIGAN: "Well, surely the relationship, Mr. Birmingham, is that Duke was prepared to offer a premium" -- for the purchase of Westcoast -- "and the knowledge that you may be required to provide marketer-consolidated billing." And you indicate what went into the value of the company. "Westcoast paid a premium when they bought Union Gas as well, and the result that they are prepared to pay a premium was they understand we have a billing relationship and communications vehicle with our customers that allows us to maintain the types of revenue streams that we have, and to possibly increase them." 122 Now, further on down, Mr. Warren suggests that on the basis of the chronology, that it would be counter-intuitive that Duke would offer what you say is a premium when they know they -- that you may be required to provide marketer-consolidated billing. You indicated in your answer, no, because what they do is value the company, in part, on discounted cash flows and those discounted cash flows represent cash flows in the current relationship. 123 Now, I am puzzled insofar as what would appear to be the dominant characteristics or the dominant reasons why Duke would pay a premium don't appear to be factors that could be measured by discounted cash flow analysis. Can you help me there? 124 MR. BIRMINGHAM: Well, the reasons why they would pay a premium are many and varied, I think. One of them is the fact that they believe that a company like Union Gas will maintain its end-use relationship and therefore have some support for the existing revenue stream and the ability to grow that revenue stream. That will be the first piece. 125 Another reason that they would look to pay a premium for a company is they may see other revenue opportunities because of the types of operations and assets that a company like Duke Energy would be able to bring to a company like Union Gas. 126 A third reason why they might pay a premium is that they may see some duplication of services that Union Gas currently provides internally that Duke Energy also provides and therefore there would be cost savings or synergies available when you put those two types of entities together. 127 A fourth reason might be that there are other opportunities within Westcoast, for instance, bringing gas down from the north, that may provide an opportunity to Duke Energy that they may be willing to pay a price for. 128 So I think there are a number of things that can generate the premium. 129 When it comes to the question that Mr. Warren asked me, though, the point of my answer, really, was to say that marketer-consolidated billing and the potential for marketer-consolidated billing has not been factored into the price that Duke Energy paid for Westcoast. And there are really a couple of reasons for that. 130 The first one is that say they do the valuation, at least initially, on a discounted cash flow basis and that assumes the existing relationship. 131 Another reason is that we've talked to them about marketer-consolidated billing and our view that we are not supporting it. We don't believe the Board has the jurisdiction to order it, and we don't think that is ultimately going to be the best thing for the marketplace. 132 So they would have done a risk assessment around that, but I don't think it was factored in. 133 MR. JANIGAN: Now, is it Union's position that it is part of the regulatory compact, as it were, that Union has the right in perpetuity to bill the customers they have already acquired or will acquire to the distribution service? 134 MR. BIRMINGHAM: It is our view that we should be able to bill customers for the services that we provide. 135 MR. JANIGAN: And that's a right that exists in perpetuity? 136 MR. BIRMINGHAM: That is a right that exists as long as we are in the business of providing those services. If we are providing those services in perpetuity, then yes. 137 MR. JANIGAN: And that would be even if marketer-consolidated billing was shown to be able to advance competition? 138 MR. BIRMINGHAM: In our view, yes. It's also our view that marketer-consolidated billing cannot be shown to advance the competitiveness of the sale of the natural gas commodity in Ontario beyond any benefits that direct billing would be able to provide. 139 MR. JANIGAN: Now, you've indicated that marketer-consolidated billing may cause an under-utilization of assets. It may also cause stranded assets. Mr. Feldmann, at 1163 of the transcript -- 140 MS. JACKSON: Is that yesterday's transcript? 141 MR. JANIGAN: No, that's the day before's transcript. 142 MS. JACKSON: They have -- as I have understood the system, the same numbers appear on every transcript. So you need to tell us which day. 143 MR. JANIGAN: Yes, that's true. I haven't learned that yet. 144 MS. JACKSON: Which day? Which day? 145 MR. JANIGAN: It would be Friday. 146 MR. FELDMANN: Mr. Janigan, you were referring to which paragraph? I'm sorry. 147 MR. JANIGAN: 1163. 148 MR. FELDMANN: All right, I have that. 149 MR. JANIGAN: Would I be incorrect in my assumption that you seem to suggest there is a possibility of stranded assets in the invoicing process? Or am I reading too much into that answer? 150 MR. FELDMANN: I wouldn't characterize those as stranded assets. It's more of a question of: Do we still need that capacity to provide a bill for those services in the event we have marketer-consolidated billing? 151 MR. JANIGAN: And it would be a situation of paying fees, I guess, on a contract to Enlogix for capacity that you don't need; is that what it amounts to? 152 MR. FELDMANN: No. What I'm suggesting is, from an operational perspective, I would need the ability to print, issue and remit cash, apply that cash against an account that I may not have if this situation was to occur. 153 MR. JANIGAN: Now, Mr. Birmingham, that same transcript, on 1199 -- you may not need to turn it up, but you indicate that one of the concerns of the company is that marketer-consolidated billing may cause a loss of ability to influence ratepayers to pressure municipal officials on franchise renewal applications. 154 My question is: Why should ratepayers care about this loss of influence? 155 MR. BIRMINGHAM: Well, initially, Mr. Janigan, it's really the company that cares about how easy that process will go, because it's the company that has the value that's associated with that relationship. 156 But the reason why the ratepayers should care, to the extent that we have to incur greater regulatory and legal costs, and to the extent that the Board has to incur greater legal and regulatory costs, get those franchises renewed, those cost will ultimately be recovered from ratepayers. 157 MR. JANIGAN: So, in essence, it's the costs of your struggle associated with the franchise renewal? 158 MR. BIRMINGHAM: That's one way of putting it. I think what we would be looking at is the potential to use a different type of process for getting renewals in the future, and I suspect that that process will be more expensive. 159 MR. JANIGAN: Now, I would like to turn to the description of the survey results, and I believe at appendix -- sorry, Exhibit B, tab 4, pages 7 and 8, have some conclusions. I want to follow up on some of these -- or at least two of these conclusions. 160 It's noted that the customers still strongly prefer a single bill from Union, and there is another finding that they prefer to receive a separate bill from each company that they deal with. And I think you make note of that, some contradictory nature of those findings. 161 I wonder if focus groups were done to better understand these results? 162 MS. CREIGHTON: I wasn't actually involved in the conducting of this particular research. I'm not sure whether they used focus groups initially. Sometimes you do in order to help you design your questionnaire. I don't think they did in this case, but I'm not sure. 163 MR. JANIGAN: If focus groups were done and they were done to follow up the study, is it possible that you could undertake to provide us with the results of those focus groups? 164 MS. JACKSON: Can I suggest we defer these questions to the next Panel, who can deal with the survey? 165 MR. JANIGAN: I'm prepared to do that. 166 MR. JACKSON: Thank you. 167 MR. JANIGAN: I'm interested in the answer, Ms. Creighton, that you gave yesterday with respect to the readership rates for your billing inserts which are -- are remarkably high. And I believe you indicated there was a 70 per cent readership rate for your bill inserts. 168 What was the source of that, your data on that percentage? 169 MS. CREIGHTON: Every year, periodically throughout the year, we check with our customers on a variety of things. It's general research that we do. 170 And this question is always asked with regard to this: The slips of paper, the inserts that come with your bill, do you read them or do you throw them away? 171 MR. JANIGAN: And that's done on the basis of a scientific survey? 172 MS. CREIGHTON: Yes. 173 MR. JANIGAN: And, how does this compare to your knowledge with other utilities such as Hydro? 174 MS. CREIGHTON: Well, generally, companies aren't particularly eager to tell you what their readership numbers are, but whenever I've asked, people are slack-jawed when they hear our number and they always want to know: How do you do that? Why do your customers read them when our customers don't? 175 For example, in the discussions with Duke Power, which will soon be our sister utility down in the Carolinas, they're dumbfounded that we have readership numbers as high as we do. 176 MR. JANIGAN: Certainly, they are very high. 177 On another matter, have you done any studies to determine the percentage of customers on ABC-service that believe they are getting all components of their gas service from Union? 178 MS. CREIGHTON: We have -- we have done research, I think filed in the evidence was research done in 1999, where we asked customers questions like that. I'm not sure if that particular question was in that survey. But there still are some customers who are surprised to learn that their customers have direct purchase. 179 MR. JANIGAN: But you don't have any empirically-based percentages of how many customers -- 180 MS. CREIGHTON: I could check that. That survey is in the evidence. If you would like me to check quickly, I can. 181 MR. JANIGAN: That would be excellent. Perhaps it's on -- Roman numeral IV or V of the appendix C. 182 MS. CREIGHTON: That would be the '99 research and that would be the research that the next Panel conducted and could speak to. 183 MR. JANIGAN: Okay. I won't ask that question. You don't have any other information besides that? 184 MS. CREIGHTON: No. I just flipped through '99 and it wasn't asked in that survey. 185 MR. JANIGAN: Okay. 186 Now, turning to another matter. Exhibit B, tab 4, page 11, it's noted how Union will be accommodating direct billing and it's noted that Union will provide to the REMs the monthly consumption data presented in cubic metres for each of their customers. And that information will -- would be transferred electronically upon the completion of each daily meter reading cycle using the Internet-based customer information exchange described in Exhibit B, tab 2. 187 And the proposed one-time cost in doing this daily transfer of consumption data is point 8 million. Do I have that correct? 188 MR. BIRMINGHAM: That's right, Mr. Janigan. The one-time cost for the electronic transfer of the information to support direct billing has been updated to 800,000. That's in response to Exhibit C1.15. But, again, that assumes that we already have the infrastructure in place that supports the unbundled service so that the incremental cost to support direct billing is 800,000. 189 MR. JANIGAN: Now I would like to return to an area that was touched upon by Mr. Warren on Friday; namely, what an REM potentially needs to bill Union's distribution rate component. 190 If I have this right, according to the rate schedule, the distribution rate component is a monthly customer charge, and a volumetric charge that is -- that is designed based on a declining block structure. Am I correct on that? 191 MR. FELDMANN: That is correct. 192 MR. JANIGAN: Now, based on this rate structure of Union's distribution rate component, the only thing the REM would need to bill Union's portion of the bill on a monthly basis is the individual residential consumer's monthly consumption? And the posted rates, obviously. 193 MR. BIRMINGHAM: Sorry, Mr. Janigan. You're assuming that we would transfer the monthly consumption information to the marketer and the marketer would then apply the approved rates to -- for both the fixed monthly charge and the block structure for the small volume rates? 194 MR. JANIGAN: Yes. 195 MR. BIRMINGHAM: Is that the assumption? 196 MR. JANIGAN: Yes. 197 MR. BIRMINGHAM: That may be, in fact, a possibility. Certainly we would recommend that and we would end up doing the equivalent of the bill calculation in any event, because we have to keep our financial records straight. We have to know what the amount of our accounts receivable is going to be. And we would have to keep -- we would have to do those calculations whether we sent them to the marketer or not. 198 MR. JANIGAN: Well, as you will need, presumably, with direct purchase customers, you will need to provide the REM with the monthly consumption data, presented in cubic metres for each of their customers after the completion of each daily meter reading cycle in order to accommodate direct billing. No additional system costs will be incurred in this operation from a marketer-consolidated billing since you've already done this, obviously, to accommodate the direct billing. 199 MR. BIRMINGHAM: I think if you assumed that the marketer, under a marketer-consolidated billing option, was going to take the consumption and then apply the approved rates for the commodity consumption that then translates into the blocked distribution rates, and also apply the approved monthly fixed charge and include all of that on the bill, then I would agree that there wouldn't be any additional cost to transfer that data to the marketer. 200 I think the question then will be, does that then generate questions back and forth, either electronically or through some other vehicle, when the consumption comes through and perhaps isn't calculated properly, or the wrong rates are approved. It will be those types of queries that then end up being generated that wouldn't be generated if we actually handed the charges over. 201 MS. JACKSON: You said wrong rates were approved. I think you mean wrong rates applied? 202 MR. BIRMINGHAM: I'm sorry, yes. I meant wrong rates were applied. Thank you. 203 MR. JANIGAN: Presumably those concerns could be worked out on an SLA, I would assume? 204 MR. BIRMINGHAM: I don't understand that, Mr. Janigan. If the -- if the approved rates are not applied correctly, I don't know how you deal with that under a Service Level Agreement. 205 MR. JANIGAN: No. The way in which the dispute is handled would be worked out under a service agreement. 206 MR. BIRMINGHAM: There may be a process that gets defined in the context of a Service Level Agreement that indicates in those -- in certain particular circumstances what the protocol is going to be to get the bill straightened out. I don't know. 207 MR. JANIGAN: Now, just returning to a discussion I believe you had with Mr. Vegh yesterday concerning the Enlogix's contract, I'm interested in the fact that, apparently, marketer-consolidated billing will not save Union any money as a result of -- or reduce Enlogix's charges, even if the marketers did this kind of derivation that we've been discussing. 208 Am I correct on that? 209 MR. FELDMANN: I think, Mr. Janigan, the answer that is correct -- that what would happen is the system captures a meter rate, it takes that meter rate, adjusts the pressure factors for the meter rate, it adjusts for a barometric pressure and, at that point in time, the system would calculate a gas service bill. 210 Within the gas service bill, the primary rate is the commodity rate. The transportation, storage and distribution charges are sub-rates. 211 So, in essence, just from the calculation perspective, so long as Union Gas is in the distribution business, we will be paying Enlogix to calculate those fees. 212 I think what is every bit as important is you have to understand that the CIS system, and I indicated this yesterday, is really the backbone for a number of issues, including, for example, meter management. 213 We have a regulatory requirement by Measurement Canada to account for meters, the instrument number, that they are sealed and they are at a customer's home. We need our CIS system to provide that function, and to provide the meter management and meter inventory function for Union Gas irrespective of the billing options we're required for that area. 214 In addition, I think if you look at the TSSA, we have inspection and re-inspection requirements for residences, for public buildings, for schools, for hospitals. We have a safety component within our system that is managed and that inspections and frequency all come from our CIS system. We need that system in order to accomplish that regulatory requirement. 215 I think, lastly, when you look at other areas such as corrosion and areas such as our automated facilities management and, more importantly, the tie with our work management system or our mobile client system, a system that gets our staff to an emergency within 90 seconds or within nine minutes to respond in an emergency, we need our CIS system to provide that automated fuel work function. So all of those items mean that we have a CIS system that operates, in essence, whether it calculates a bill and whether it generates the infrastructure required. In all of those areas, we need that system to provide business continuity. 216 MR. JANIGAN: You now admittedly use the CIS system and the CIS system was built through the Enlogix contract. I guess the question I'm asking you is: When you excise that area that we've been talking about, the derivation of the bill once you provided the REM with the volumetric billing, what you're telling me, as I understand it, is that there are no savings associated with the Enlogix contract by excising that portion and giving it to the marketers to derive the billing of a customer; is that what you're saying? 217 MR. BIRMINGHAM: That's correct, Mr. Janigan. And the reason for that is that we would still have to do those computations to be able to record the accounts receivable on our books. That's how we would build up the amount that would be owing. 218 MR. JANIGAN: Just to follow up on the process involved in the renewal of the Enlogix contract. Does the renewed Enlogix contract have to be approved by the Board? 219 MR. BIRMINGHAM: No, it doesn't, sir. What would have to be approved ultimately is, to the extent that we are operating under that contract at the time that we next reset our rates, the cost consequences of that contract would have to be dealt with by the Board. 220 MR. JANIGAN: Now, you note at Exhibit B, tab 4, page 12, that as a default supplier you would have to maintain the customer information system, presumably to keep records for those who may receive bills through REMs or for system supply customers, I assume; am I correct? 221 MR. BIRMINGHAM: Well, there's a couple of different thoughts there, Mr. Janigan. We would need customer information system in a billing capacity to be able to bill our system sales customers, we would need that same capacity to offer the ABC-service, and we would have to maintain that capacity so long as we are in the default supplier role. And we would have to maintain that capacity because if any of the marketers decided that they weren't going to serve those customers, their customers, that is, their commodity customers any more, and that may be through either a failure to deliver or through a perfectly legitimate business decision to simply exit the business, that those customers would return to Union Gas and we would have to have that capability available to take them. 222 MR. JANIGAN: Now, would there be any restrictions on Union's rights to send appropriate notifications through independent mailings to REM billing customers? 223 MR. BIRMINGHAM: Notifications with respect to what, Mr. Janigan? 224 MR. JANIGAN: Well, it could be messages the company wishes to communicate to all customers of natural gas. 225 MR. BIRMINGHAM: So is this in the context of a marketer-consolidated billing option? 226 MR. JANIGAN: No. It could be in the context of your -- of even in the direct billing option. 227 MS. CREIGHTON: Where we would send a letter to customers rather than a bill, you mean? 228 MR. JANIGAN: Yes, that's right. With any restrictions in either -- under the direct billing scenario or the marketer-consolidated billing scenario of your right to communicate with these customers? 229 MS. CREIGHTON: We could send a letter. 230 MR. BIRMINGHAM: Certainly under the direct billing scenario, Mr. Janigan, there is no restriction on our ability to communicate with our customers, because we're sending them a bill for the distribution services. 231 Under the marketer-consolidated billing, where we don't have the billing relationship with the commodity customers who are being served by the marketer, then I think there are restrictions and we're not exactly sure what those restrictions are. 232 MR. JANIGAN: I presume that will be developed -- if marketer-consolidated billing is approved, it would be developed in terms of either the service agreements or some process that would enable you to have some access to the -- their billing envelopes? 233 MR. FELDMANN: Just -- 234 MS. CREIGHTON: I'm confused, Mr. Janigan. I appreciate -- are you talking about communicating through a bill envelope, the marketer's bill envelope? Are you asking if we can send a letter through Canada Post to our customers about something? 235 MR. JANIGAN: Well, both. I think in the marketer-consolidated billing situation, I think number one is access to the envelopes which are served by marketer-consolidated billing, billings sent out by Union, and as well, access to the customers that are served by marketer-consolidated billing -- marketer-consolidated billing, without necessarily access to the REM envelope. 236 MS. CREIGHTON: Well, I would presume that we could communicate with our customers, our delivery customers in any way we were able to. In the case of a marketer-consolidated bill, we may have access to their envelope, and we would consider that. In any case, we could certainly communicate with customers directly by mail. 237 MR. BIRMINGHAM: Mr. Janigan, I want to pick up on your question which was, could this be dealt with through Service Level Agreements. And I think my response is that it shouldn't be dealt with through Service Level Agreements. I'm not saying that it couldn't, I just don't think that would be the most effective method. I think if there are going -- if there is going to be access by the utility into some form of communication that is going to be put into a marketer bill, then we'll want some sort of consistency, not just across Union Gas but also across the province, so that if there are messages around things like public safety or education around industry changes, that those types of things are dealt with on a consistent basis. 238 So I'm not sure that negotiating individual Service Level Agreements with each marketer is the right way to go. 239 And I guess the other observation I'd make is we're not exactly sure what the marketer will have in terms of a bill. I don't know whether they are going to consolidate all of their charges and have them put on credit cards. I don't know whether it's going to be an annual bill or a monthly bill. We simply don't know. None of those types of detail, certainly none of the types of operational issues that Mr. Feldmann has talked about, were ever contemplated in the Gas Distribution Access Rule process, because we never got to that level of detail. The whole process came -- was dealing with whether, in fact, there should be marketer-consolidated billing at all. So we never really got that that level of detail in the discussions. 240 MR. JANIGAN: So presumably with respect to the first item, and in terms of Union's ability to communicate on issues such as safety issues, presumably these are matters that should be dealt with in the -- as a result of GDAR rules, would you agree, if marketer-consolidated billing was approved? 241 MR. BIRMINGHAM: Well, I think there would have to be some process to get an answer to that question. 242 MR. JANIGAN: Now, I'm somewhat confused about the position of Union in relation to customer choice in marketer-consolidated billing. I believe I heard you say, Mr. Birmingham, yesterday, to Mr. Brown that customers should not have the right to choose how they want to be billed; am I correct on that? 243 MR. BIRMINGHAM: That's not quite an accurate characterization, Mr. Janigan. What I mentioned to Mr. Brown is that in every other industry, in our view, there is no reason why the regulated gas utility industry should be any different. It's that the service provider that chooses which billing options are available to customers. There is no question that when the options are given to the customer, the customer could choose which one best suits their needs. 244 But in terms of the -- determining which options are available on a first instance, the service provider does that. And for Union Gas, we do that for customers. We offer them the option of paying their actual monthly bill or they can pay a budgeted amount. And then we also have payment options that are available to them as well. 245 But customers don't choose what billing option they want or how they want to be billed beyond the options that the service provider gives them. 246 The other example that I used with Mr. Brown is, right now I get a telephone bill for my -- from Bell Canada. I also get a bill for my Internet service provider. I can't say, well, I want my Internet service provider charge on my telephone bill. That's -- even if I wanted that, I can't do that. It's the service provider that determines the billing options. 247 MR. JANIGAN: I'm just curious. If this is an option that Union does not believe should be afforded to the customers, why you would file a public opinion survey touching upon the issue of customer choice in the context of this proceeding? 248 MR. BIRMINGHAM: I'm not sure I'm drawing the link there, Mr. Janigan. Can you help me with that one? 249 MR. JANIGAN: Well, you've indicated that you don't believe that marketer-consolidated billing is an option that should be provided to customers. They shouldn't be given the right to choose this option. I'm curious why, at the same time as you've said that, you've filed a public opinion survey dealing with attitude towards billing options by your customers. 250 MS. CREIGHTON: Mr. Janigan, I think it's always been our belief that customers liked our bill and that customers not agitating for change in their billing arrangement. What we wanted to be sure about was that our belief was right, so we went out and did some research to see. 251 MR. JANIGAN: Now, given your position, as your survey shows an overwhelming preference by customers for one bill, and Union is the only player providing distribution service, the only way that customers can get one bill without Board -imposed marketer-consolidated billing is through Union; am I correct? 252 MR. BIRMINGHAM: Well, it's not exactly what the research says, Mr. Janigan. What the research says is that customers show a very strong preference for an utility-consolidated bill. The research doesn't say that they -- that they prefer a consolidated bill and then you have to choose between whether you use a utility or that somebody else provides that. 253 MR. JANIGAN: I won't take issue with that now. I'll move on. 254 MR. JACKSON: Mr. Janigan, would this be a good point to break? 255 MR. JANIGAN: I haven't got too much left but I guess it would be a good point. 256 MR. JACKSON: Would you have more than two minutes? 257 MR. JANIGAN: I would have probably about ten -- ten minutes or so left. I'm exceeding my estimates today only by about 25 to 30 per cent, not 300 per cent. 258 MR. JACKSON: I think, then, given that estimate, that we should break. So we will return at 11:05, please. Thank you. 259 --- Recess taken at 10:45 a.m. 260 --- On resuming at 11:10 a.m. 261 MR. JACKSON: Please be seated. 262 Mr. Janigan. 263 MR. JANIGAN: If you could turn up Exhibit B, tab 5, page 2. 264 MS. CREIGHTON: I have it. 265 MR. JANIGAN: And note the line that: "It is essential that customers receive clear, consistent messages from all sources; that such messages are conveyed in a timely manner prior to, coincident with, and following changes in the billing arrangement." 266 I ask: If we want clear, consistent messages, would it not be preferable to carry out any communication effort related to the billing when there is a decision concerning GDAR and then this proceeding? 267 MS. CREIGHTON: Sorry, could you repeat the question for me. 268 MR. JANIGAN: Well, I've cited you a passage that indicates Union's preference and I guess it's a worthwhile objective that customers receive clear, consistent messages. And if we wanted to provide clear, consistent messages, wouldn't it be preferable to carry out any communication effort related to billing when there is a decision concerning GDAR and in this proceeding? 269 MS. CREIGHTON: This description of our communications plan is related directly to billing changes that might occur at Union as a result of this proceeding. So this communication plan addresses the storage line and also direct billing. Both the second and third phase would be connected to direct billing. 270 So only when a marketer was about to begin direct billing would these communications kick in. 271 MR. JANIGAN: And I would assume that any communications would take place after a decision has been rendered in this proceeding? 272 MS. CREIGHTON: Well, I would argue that it's possible today that a marketer could begin to bill, rather than using our ABC T-service, could decide -- or ABC-service -- could decide they wanted to begin issuing their own bill. And we would find a way, even today, to probably facilitate that. So I would suggest this could happen any time. 273 MR. JANIGAN: Well, I'm suggesting that if you're carrying out these kinds of communications, and you wish them to be consistent, wouldn't it be more prudent to wait until a decision is rendered concerning marketer-consolidated billing in the GDAR and in this proceeding before proceeding on your efforts to communicate about direct billing? 274 MS. CREIGHTON: Well, yes, I suppose that would be ideal. 275 MR. JANIGAN: And as I understand it, in Exhibit B, tab 5, the incremental costs of customers receiving information about direct billing has an incremental cost of $385,000; is that correct? 276 MS. CREIGHTON: That's for the first two phases as they're described here. Or, sorry, let me just check those. 277 We've estimated phase 1 to have a cost of $165,000, and then phase 2 to have a cost of $550,000; phase 3, we estimate a cost of $2.25 per customer. 278 MR. JANIGAN: And I think my figure of $385,000 comes from Exhibit C3.16 in your answer to an interrogatory for the Consumers' Association of Canada concerning a consolidated billing communication campaign, what the cost of it might be. 279 MS. CREIGHTON: Right. That's phase 2, specifically. 280 MR. JANIGAN: Yes. 281 MS. CREIGHTON: So that's not including the storage line. 282 MR. JANIGAN: Okay. I assume if these -- 283 MS. JACKSON: Just, just -- I'm not sure that Ms. Creighton picked up your reference. You're referring to an interrogatory that talks about gas marketer-consolidated billing, aren't you, Mr. Janigan? 284 MR. JANIGAN: That's correct. 285 MR. DOMINY: Can I just, for the record, ask a question? 286 Ms. Creighton referred to $550,000 for phase 2, but looking at the evidence, it's the sum of 385 plus 165; 165 was what I think she called phase 1; 385 was what she called phase 2; and the combination is 550. Is that correct? 287 MS. CREIGHTON: That's correct. I'm sorry if I was confusing everyone. 288 MR. JANIGAN: And with interrogatory 316, that would be -- if we follow the course of action that did the direct billing communication first, and then, presumably, the Board -approved marketer-consolidated billing, that would be an additional $385,000 communication expense; am I correct on that? 289 MS. CREIGHTON: The question that was being answered in 316 was if gas vendor market -- gas vendor-consolidated billing was mandated, what would it cost. And what we were saying was that at a minimum, we would need to still do -- add the storage line and do the general education piece, and then in addition to that, there would be costs that we can't quantify because we haven't got a specific plan for gas vendor-consolidated billing. 290 MR. JANIGAN: I may be reading this wrong, these lines incorrectly. 291 I would assume that as a general principle, that if communications were being planned for both direct billing and marketer-consolidated billing as a package, there would be fewer costs? 292 MS. CREIGHTON: I wouldn't assume that necessarily. 293 MR. JANIGAN: Wouldn't you combine it? Wouldn't you combine the information in the same billing? 294 MS. CREIGHTON: We would certainly be needing to educate customers about more, so you're talking about more information for them to digest. I -- I would guess that that level of complexity and almost certainly the level of confusion attendant with that complexity would tend to drive costs up. 295 MR. JANIGAN: Well, I take it the confusion in complexity would be more in the event that you went ahead with the communication plan with respect to direct billing and subsequent to that marketer-consolidated billing was ordered and you had to communicate with respect to marketer-consolidated billing, shortly after you had already done the direct billing communication? 296 MS. CREIGHTON: Well, as a matter of principle, we will communicate about what's going to happen, so customer -- we'll give customers the information they need when they need it. So we would communicate about direct billing when someone was about to begin a direct billing arrangement. 297 Similarly, we would communicate with customers about a marketer-consolidated bill whenever that was going to happen. 298 If, by some miracle of coincidence, we have one broker going with direct billing and another broker going with marketer-consolidated billing at the same time, which I think we would try desperately to dissuade, but let's suppose that we had that sort of a coincidence, then we would be doing all of our communicating at once. 299 But bear in mind these are targeted communications only to the customers of that marketer who are subject to the new billing arrangement. So I will not be sending the same communication to the customer of Broker A and the customer of Broker B if they're pursuing different billing arrangements. They'll get communications that are targeted for their own situation. 300 MR. JANIGAN: Now, Mr. Chair, did you have anything? 301 With respect to the allocation of the costs associated with these communications, how does Union propose to allocate these costs? 302 MS. CREIGHTON: I think Mr. Packer addressed that in the first Panel: The same way the other cost are being allocated, and that's to all small volume customers. 303 MR. JANIGAN: Now, wouldn't it make more sense to review the final costs and attempt to directly assign the recovery of these costs from the rate classes that generated the costs? 304 MS. CREIGHTON: I'm just conferring with Mr. Birmingham about how I best clarified my previous answer, so if I could just take a step backward. Phase 1 and phase 2 as described here, the costs for those two phases would be collected from all small volume customers because those are educational pieces about the new storage line and generally about the availability of new billing arrangements. 305 Phase 3 is a charge to the broker who decides to change their billing arrangement to direct billing, and is charged to the broker on a per-customer fee. 306 So in the case of phase 3, those costs would not go to all small volume customers, it would be a charge to the broker who was taking those customers to a new arrangement. 307 MR. JANIGAN: I guess I don't understand why phase 1 and phase 2 costs might not be assigned in a similar fashion as you've assigned the phase 3 costs. 308 MS. CREIGHTON: Well, in the case of -- well, first of all, phase 1 is the new storage line. That will appear on all customers' bills so there is a need to educate all customers about the new storage line. I don't think there is an argument there. 309 Phase 2 is education to let customers know that -- that depending on whether they choose system gas or supply from certain brokers, their billing arrangement might change. So it's to educate them generally that it's no longer the case, as many brokers' representatives say on the doorstep, that no matter what, you'll be getting a bill from Union Gas. That has been the premise up to now. So this communication is to all customers to let them know that now their options include different billing arrangements, and they need to understand that up front. 310 So that's, again, something all customers need to know. The targeted communications in phase 3 clearly only need to be known by the customers whose billing arrangement is changing. 311 MR. JANIGAN: I think I'll leave other questions on this point to argument. 312 Mr. Chair, those are all my questions of this Panel. 313 MR. JACKSON: Thank you, Mr. Janigan. 314 Ms. Flaherty. 315 CROSS-EXAMINATION BY MS FLAHERTY: 316 MS. FLAHERTY: Thank you. 317 Good morning, Panel. My name is Michelle Flaherty. I represent the Industrial Gas Users' Association. I have a few questions for you this morning, and I'm going to begin by asking you about your contract with Xerox. And in doing that, I would like to take you to the transcripts dated February 25, so that's yesterday, and specifically paragraph 983. 318 MS. CREIGHTON: Sorry? 319 MS. FLAHERTY: Sorry, 984. Just as you're turning that up, this was a discussion that Mr. Birmingham had with Mr. Vegh and it was specifically involving the contract with Enlogix and the ability to decontract. 320 Do you have that in front of you, Mr. Birmingham? 321 MR. BIRMINGHAM: We do, thank you. 322 MS. FLAHERTY: Okay. So at paragraph 984, you said: "The contract that we have with Xerox is the one that generates the bill for those services. And it's that service provision that would be replaced by marketer-consolidated billing, to the extent that we were under that regime but it doesn't affect the Enlogix services that we've contracted for." 323 So would I be correct, then, in saying that the contract that you're referring to is your contract with Xerox that involves printing and inserting? 324 MR. BIRMINGHAM: That's correct. It is the bill print and the bill insert process. 325 MS. FLAHERTY: Thank you. And has this contract been approved by the OEB? 326 MR. BIRMINGHAM: The contract doesn't require approval from the OEB. The cost consequences of that contract have been more recently included in our last cost-of-service hearing, yes. 327 MS. FLAHERTY: Okay, thank you. 328 And could you describe to me how Xerox is paid under that contract? Is it a per-transaction fee or is there a setup cost? 329 MR. BIRMINGHAM: I don't know, Ms. Flaherty. I'm not sure. 330 MS. FLAHERTY: So I'll just ask my second question. You can let me know if you're able to answer that. And that is: Do you have any understanding of whether, if there is marketer-consolidated billing, whether there will be any savings under this contract with Xerox? 331 MR. BIRMINGHAM: My understanding, Ms. Flaherty, is that in fact there would be a reduced transaction level with Xerox and therefore there would be cost reductions that would come out of a marketer doing their own billing and replacing Union Gas's bill. 332 MS. FLAHERTY: I take it, then, that you wouldn't be able to, today, describe what those cost consequences would be? 333 MR. BIRMINGHAM: No, we wouldn't, other than we have included a reduction in the ABC fee with respect to the potential for issuing a bill. But beyond that, it will depend on the amount of the take-up, if any. 334 MS. FLAHERTY: I'm wondering, then, if I could get an undertaking from you, first, to provide us with a copy of this agreement, and secondly, I understand that any savings would depend upon the take-up, but if you could provide us with information about the breakdown of what savings might result. 335 MR. BIRMINGHAM: On the first point, Ms. Flaherty, I would be very reluctant to bring forward a copy of the contract. This is a commercially negotiated contract that I'm not sure Xerox would want in a public forum. If it suits your purposes, though, perhaps what I could do is at least respond to the question about how we are billed under that -- under that contract, and that would then give you, by inference, what the savings could be, based on transaction reductions. 336 MS. FLAHERTY: That would be fine, thank you. 337 MR. MORAN: That would be undertaking G5.2. 338 UNDERTAKING NO. G5.2 TO PROVIDE INFORMATION ON HOW UNION GAS IS BILLED BY XEROX 339 MS. FLAHERTY: I would like to now ask you some questions about the notion of choice, and how -- sorry, excuse me, as it relates to billing. 340 And I appreciate that you've discussed this with Mr. Brown and Mr. Vegh and then again this morning with Mr. Janigan, so I'm going to attempt to characterize your evidence and you can let me know if I've got it straight, and if necessary we can refer to the transcript. 341 But my understanding of Union's position is that the utility should be making the choices with respect to billing, and one of the reasons you've advanced in support of this is that this is the industry practice. Utilities always get to choose. 342 Have I stated your evidence correctly? 343 MR. BIRMINGHAM: No. My view is that, like any other industry, it is the service provider that determines which billing options will be available to customers. That's -- and in fact, it's that thinking, that philosophy, that actually led us to looking to offer the direct billing options, so that marketers who are providing a commodity service, any other energy-related services that they are providing, can bill direct to those customers. 344 So it's not a question of the customer determining which billing options they want, it's a question of the service provider determining which billing options will be available to customers and customers then picking which option best suits their needs. 345 MS. FLAHERTY: I guess what I'm trying to get at is the philosophy behind the reason that the service providers get to make that determination. 346 My understanding of what you've stated is that it's unprecedented for anyone else to make that choice. Could you explain why there is no precedent for that? What policy or rationale underlies the fact that the service provider gets to make that choice? 347 MR. BIRMINGHAM: I'm not exactly sure how to answer your question, Ms. Flaherty. 348 The value of the customer relationship and how a company provide -- chooses to provide their services is within the overall ambit of their business. And a necessary aspect of doing that business is the ability to bill and collect for those services. 349 That's what happens in every other industry, where the service provider bills and collects for the services they provide. 350 And if they don't do that it's only because they've reached an agreement with somebody else to do it on their behalf, simply suggesting that the imposition of marketer-consolidated billing in this case would be unique, in respect of any other industry where the service provider determines how they are going to bill their customers and how they are going to collect the funds for the services that they billed. 351 MS. JACKSON: I think in fairness I should say, and this has been touched upon in the legal submissions that Union has provided earlier in the GDAR process, is that it's an element of the contractual relationship and therefore an element of the contractual legal relationship to bill and collect for the services provided under the contract. 352 But having made that observation, I'll leave the rest to evidence and leave the law to argument. 353 MS. FLAHERTY: Those are all my questions. Thank you, Panel. 354 MR. JACKSON: Thank you. 355 Are there any other intervenors wishing to question this Panel? Okay, then, Mr. Moran. 356 CROSS-EXAMINATION BY MR. MORAN: 357 MR. MORAN: Thank you, Mr. Chair. 358 Now, Mr. Birmingham, we heard from the last Panel a fair amount of detail about how this service was designed and what went into the designing of it. I would like to talk to -- discuss with you now aspects of the internal approval process that took place. 359 Are you in a position to speak to how this program was approved within Union? 360 MR. BIRMINGHAM: Let me first ask which service you're referring to. 361 MR. MORAN: The total package, the $15.7 million package that -- 362 MR. BIRMINGHAM: This is the unbundled service and the costs that are related to that? 363 MR. MORAN: That's right. 364 MR. BIRMINGHAM: Yes. 365 MR. MORAN: When did you -- well, let me ask this first: Was this taken to the board of directors? 366 MR. BIRMINGHAM: There was no specific approval requested or required by the board of directors. We did talk to the board about the fact that we were going to be amending our service provision to include the unbundling of storage. 367 MR. MORAN: Okay. And how was that done? How was that communicated? 368 MR. BIRMINGHAM: Through an oral presentation. 369 MR. MORAN: Okay. And at what point in the process was that oral presentation in relation to the design work that was being done? 370 MR. BIRMINGHAM: I don't have the exact dates, Mr. Moran, but I believe that it was done at at least two points. Initially, when we had put together the unbundling proposals, as we were doing the customer consultation process that began roughly in the fall of 1998, there may have been other presentations to the board from the period of the fall of '98 to the spring of 2000. And then there was also an oral presentation done to the board with respect to the actual settlement agreement of the -- related to the unbundled service. There is, then, a final presentation to the board on the content of the Board's decision with respect to the unbundled service. 371 MR. MORAN: And when you refer to the customer consultation process, I take it you're referring to the -- to meetings with marketers? 372 MR. BIRMINGHAM: Not just marketers, Mr. Moran, but also all of the parties who typically intervene in our rates cases. This was the process that we started in the fall, where we went to customers initially and to the other intervenors and suggested that we had heard that the unbundling of storage might be the next step to help improve the competitiveness of the commodity market in Ontario. But we asked them whether they thought that would be the appropriate thing to do or whether there is something else that they thought would be of greater benefit, and through the course of those discussions, we landed on the fact that all -- all parties thought that the next logical step involving the market would be to offer the unbundled storage service. 373 And it was that overall type of agreement on the direction, in fact, that led us to the ability to actually settle that issue in the context of the ADR negotiations. 374 MR. MORAN: At what point in the process was the decision made to proceed on the basis of allocating the costs in the way that we see proposed before the Board? 375 MR. BIRMINGHAM: It would have been at some point before we filed the evidence, obviously, but I don't recall the exact time frame of when we landed on that decision. 376 MR. MORAN: With respect to the three presentations that were made to the board of directors that you described, at what point were they advised of the allocation proposal? 377 MR. BIRMINGHAM: The allocation proposal isn't typically something that we would deal with with the board of directors, so I don't recall that that was ever a point of the discussion for the presentations. 378 MR. MORAN: All right. So just picturing myself on this board of directors, I might want to know who is going to pay for all of this? What was communicated to the board on that issue? 379 MR. BIRMINGHAM: I don't think there is any specific reference to what the recovery was, Mr. Moran. I am going back a ways. 380 I do recall that we would have indicated that we would be seeking recovery of those costs, but I don't think there was ever any specific proposal about how they would get recovered. And, again, that isn't typically something that the board of directors is involved in or that we would necessarily include in the presentations. 381 MR. MORAN: With respect to the new systems themselves, what kind of life expectancy is associated with the new systems? 382 MR. BIRMINGHAM: Well, that's always a bit of a hard thing to know, Mr. Moran. There are a couple of determinations around that. 383 Typically, our software applications are written off over roughly a four-year time frame for depreciation purposes. Some of them are somewhat longer than that. 384 I think it's our expectation in this case that the lifespan of those applications would be longer than that four-year time frame. 385 But much of it will be determined by how the market evolves and what other changes are going to be required to accommodate the evolution of the marketplace. To the extent that circumstances stay largely as they are, I suspect that those systems will live much longer. 386 MR. MORAN: In order to help us understand the $15.7 million figure a little bit better, are you able to advise the Board about your view of the economic lifespan of these new systems? I appreciate that the ability to write down software and all of that is done very quickly, but I'm more interested in the economic lifespan. 387 MR. BIRMINGHAM: I think it will depend on the nature of the changes that are going to be required in the future, Mr. Moran. I can tell you that before we replaced our CIS system, we had that system for well over 20 years. If I was going to engage in pure speculation, my suggestion is that these systems are likely going to last a minimum of five. If I had to put a number on it, my estimate would be ten. 388 MR. MORAN: All right. Now, just to get back to this -- to the approval process itself, then. You've indicated that the board of directors didn't really have a role in approving the $15.7 million expenditure. Maybe you could just describe for me how the approval process actually worked, then, to go ahead and propose to spend this money. 389 MR. BIRMINGHAM: Well, as you know, there are two segments to the -- to the spending as we -- as we broke down the project. 390 The monies themselves were brought to the executive group of Union Gas to indicate the level of spending that will be required and also the types of expenditures that are going to be required, and it was that executive approval that allowed the project to go forward. 391 We then had periodic -- periodic updates on the nature of the spending, how the program was going, whether we were going to be on time and on budget. And that's -- that would form part of the periodic reporting to the executive group as well. 392 MR. MORAN: So, again, picturing myself as a member of this executive group, if I asked the question, "Who is going to pay for all of this," what would I have been told? 393 MR. BIRMINGHAM: At that point, we had talked about the fact that we would be seeking recovery in rates. We would be fairly confident that we would get that recovered because the Board had approved the service and these costs would be subject to a prudence examination by the Board. And to the extent that they're found to be prudently incurred, we should receive recovery. There is always some risk associated with that, so we discussed that. 394 And then later on, we had talked about the recovery mechanism which is going to be from all customers, because we were looking for benefit that was going to be potentially available to all customers. 395 MR. MORAN: All right. There has been a fair bit of discussion about marketer-consolidated billing, and am I correct in understanding that Union, through Dr. Schwindt, is saying that before that option should be proceeded with, there needs to be a cost benefit analysis done? 396 MR. BIRMINGHAM: Well, I think there's -- there are a couple of different points I would like to make on that. 397 One is Union's view is that there are issues and costs that arise both in terms of jurisdiction, and policy-type issues, rate-impact issues, cost-recovery issues, and operational issues, that are associated with marketer-consolidated billing. And it's our view that you don't have to deal with all of those, because any benefits that are going to be gathered from the marketer having a closer relationship with their customers and being able to offer different types of commodity offerings and value-added services to those customers can be done through the direct billing option. 398 Dr. Schwindt's evidence also talks about the fact that if you're going to move to a different service offering like marketer-consolidated billing, then it's his view that there hasn't been a cost benefit analysis done. And before the Board does do that -- before the Board considers moving to marketer-consolidated billing, it might want to consider some form of cost benefit analysis. 399 MR. MORAN: Right. And Dr. Schwindt is called by Union, so I take it, therefore, that Union is saying that through Dr. Schwindt, is relying on Dr. Schwindt, in other words, to take that position? 400 MR. BIRMINGHAM: Well, I think I described Union's position in the first instance. Dr. Schwindt is -- is an external expert and his view is that you should do some form of cost benefit analysis before moving to a substantially different service like marketer-consolidated billing. 401 MR. MORAN: Right. Now, as I understand the evidence to date, the costs that might be associated with adding marketer-consolidated billing to the menu of choices are incremental costs; is that correct? 402 MR. BIRMINGHAM: Yes. They are not currently included in our cost of service or in our rates. That's right. 403 MR. MORAN: And as I understand it, the new systems are capable of being added to in order to accommodate marketer-consolidated billing to the extent that they need to be added at all. They've been built for that flexibility? 404 MR. BIRMINGHAM: I think what Mr. Andrews said, Mr. Moran, is that to the extent that we answer the operational issues that we've talked about, depending on the form of marketer-consolidated billing, then the investment that we're currently making would then be able to be expanded to accommodate marketer-consolidated billing. 405 MR. MORAN: Now, you indicated that making this service available allows marketers to better manage their costs. I wonder if you could give me an example of how that might work. 406 MR. BIRMINGHAM: Now, we're talking about the unbundled storage service? 407 MR. MORAN: That's right. 408 MR. BIRMINGHAM: I think generally what happens right now, Mr. Moran, is that marketers who want to provide a commodity offering to customers are in a position of contracting for gas delivery to arrive on a daily basis into Union Gas's franchise area. At that point, the gas goes into storage, and we arrange for the redelivery of that gas when those customers need it. 409 So from a supply portfolio standpoint, the marketer is really limited to having a -- one supply type, that is, they will get a regular amount of gas being delivered to the Union Gas franchise area. 410 With the availability of the unbundled storage, what they can then do is develop a gas supply portfolio similar to the approach that Union Gas has taken in the past. And this allows them, because they now have storage space directly to be able to be managed, they can contract for -- for gas to be delivered on a daily basis. They can contract for spot gas; they can purchase gas, store it and then choose when they're going to withdraw that from storage and deliver it to the customers. 411 That's what that whole daily nomination piece is about, that they have to -- they have to indicate where the gas is going to be coming from to be able to meet those daily demands. 412 That gives them a lot more flexibility as far as where they source their gas from and when they choose to bring that gas into the franchise area to meet the demands. It's the same way that Union manages its gas portfolio, except we obviously do it on a bigger scale. 413 And it's that additional management capability, because of storage, that gives them the ability to decide where they're going to get their gas from, manage the ultimate price of that gas, and determine which gas they're going to use to actually serve customers and which gas they might use to pursue other business ^^^ opportunities. 414 And with respect to the $15.7 million figure, if the Board were to require marketer-consolidated billing in the future, are you able to say how much of that expenditure would become obsolete as a result of having to accommodate marketer-consolidated billing? 415 MR. BIRMINGHAM: We haven't clearly costed out the incremental piece for marketer-consolidated billing, but we would need all of the functionality that the $15.7 million would provide. That expenditure is largely there to be able to provide access to the unbundled service, the unbundled storage service, for the low volume customers. 416 There is about $800,000 in that total amount that provides the option of direct billing, given the -- that we're going to put the infrastructure in place. 417 There would be another amount on top of that to accommodate marketer-consolidated billing, but there is no amount of the $15.7 that would become redundant or obsolete in the event that a marketer-consolidated billing option was imposed. 418 MR. MORAN: If the Board were to require utility-consolidated billing and marketer-consolidated billing but not split billing, the same question: To what extent are these expenditures obsolete? 419 MS. JACKSON: That question was answered by Mr. Andrews. It relates to the 800,000 and Mr. Andrews said that -- 420 MR. MORAN: I'm interested in Mr. Birmingham's answer. 421 MS. JACKSON: Well, Mr. Birmingham is not the cost expert on these -- on these items, and the evidence -- 422 MR. MORAN: Mr. Chair, I think Mr. Birmingham handled the question in a slightly different context perfectly well, and if he can't answer the question, I think he can simply say he can't. 423 MS. JACKSON: Well, Mr. Chairman, the Board -- 424 MR. JACKSON: It's a question of -- yes, I think it's a question of whether Union's answer is on the record. Is there any other perspective that you could come at on that question? I think Ms. Jackson is telling you that that question has been answered. My recollection is it may have. 425 MS. JACKSON: It was Mr. Andrews' evidence, Mr. Chair, and he indicated that although the $800,000 -- he went through it on Exhibit C1.15. He said that it's shown as split billing, but even if we don't have split billing, we need the underlying functionality. And he described why. I couldn't purport to replicate his explanation, but it's in the evidence. 426 MR. JACKSON: Mr. Moran, I think the only question here may be, if you were leading up to something, maybe we can take that as a given. And if that's appropriate. 427 MR. MORAN: That's fine. I see Mr. Birmingham nodding his head so he clearly adopts his counsel's answer on this. 428 MS. JACKSON: It's not my answer, it's Mr. Andrews' answer. 429 MR. BIRMINGHAM: Well, actually, I adopt Mr. Andrews' evidence. 430 MR. MORAN: Yes. I was going to say who, in turn, is pointing out some evidence given by another witness, so I'm prepared to move on. 431 MR. JACKSON: Thank you. 432 MR. BIRMINGHAM: You can't transcribe a chorus? 433 MR. MORAN: I'm not sure who is the best person to answer this question, but I'll let you decide. 434 Is it possible for -- if I live in the Union territory, is it possible for me to arrange with you to pay somebody else's bill? For example, perhaps I want to pay my parents' bill for them, is it possible to arrange for -- with Union, to have that bill sent to me for payment? 435 MR. FELDMANN: The answer to that question is yes. We have the ability within our system to have a special billing address or a mailing address where we can redirect that bill. 436 MR. MORAN: All right. And could you explain how that works in the context of risk and so on that you were referring to in your evidence yesterday? 437 MR. FELDMANN: Irrespective of where we direct the bill for payment, the ultimate payment is required from the customer. So although you may notify Union Gas that you will pay your parents' bill, ultimately if you fail to pay that bill, I would look for recourse back to your parents. 438 MR. MORAN: And do you require any special security for an arrangement like that, or do you just rely on the ultimate recourse back to the original customer? 439 MR. FELDMANN: It would depend upon the credit rating on our system for the customer that we're serving. So if that customer was a -- had an exemplary credit rating, we would not look for security. If the credit rating was less than exemplary, we might. 440 MR. MORAN: One moment, please. 441 All right. One last area to cover and I think this is with you, Mr. Feldmann, and that has to do with the call centre. I understand that Union operates its own call centre? 442 MR. FELDMANN: That is correct. 443 MR. MORAN: And I take it that the people who are working in the call centre are there to answer various questions that customers might have when they have questions about their bill, for example? 444 MR. FELDMANN: And that is correct. 445 MR. MORAN: All right. And I've seen in the communication plan as it was described by Ms. Creighton that there is a need to identify, to communicate to customers who phone in with respect to the changes that will fall out of this proposal. For example, we -- the customer will start seeing an additional line for storage which recent -- which previously wasn't there. 446 In that context, I am -- I wonder if you could explain why it's necessary to out-source that part of the call centre process if you already have people who are able to handle billing inquiries? 447 MR. FELDMANN: Mr. Moran, the issue for us would be the volume and the timing. The call centre staff that we have is comprised of full- and part-time staff so we have some flexibility to take incremental calls as they come forward. 448 The thinking in this case is that we would have insufficient internal resources to answer the volume of calls we would expect under these scenarios. 449 MR. MORAN: So the out-sourcing, then, is based on the expectation that you will be getting many more calls despite all the bill inserts that 70 per cent of the people read? 450 MR. FELDMANN: That is correct. 451 MR. MORAN: Okay. Thank you. 452 Mr. Chair, those are all my questions. 453 MR. JACKSON: Thank you, Mr. Moran. 454 MR. JACKSON: I think the Panel has a few questions. 455 QUESTIONS FROM THE BOARD: 456 MR. DOMINY: Mr. Birmingham, I have a question and I'm not sure it's -- you're the right person. I started the questioning last time with the previous Panel, but I want to flag it so you understand where I'm coming from. 457 In argument in RP-1999-0017, we were provided a figure of 7.5 million as the cost for Internet-based unbundling services in this proceeding. I think that is the wording that was used. And then we're provided a figure in this hearing of 15.7 which is a combination of implementing unbundling services and the changes required to introduce billing modifications, so 7.5 plus 8.2. And then on C1.15, we're given a breakdown by the two different cases. And then I went back and looked at the evidence of 1999-0017, and in 1999-0017 and in the basic evidence, there was a section -- let me get it. It talks about unbundling implementation issues. The section is Exhibit B, tab 1, page 83 of 87, RP-1999-0017. 458 And in that discussion of unbundling implementation issues, it refers to certain activities that the company is undertaking such as the daily usage algorithm, development of wholesale billing and information exchange system, and some of the activities related to implementing the unbundling of implementation issues. 459 And if I then look at -- in this case, I think it's C14.12, it describes phase 1 and phase 2 costs. And in phase 2 costs, it refers to - again, that's page 4 of 4 on Exhibit C14.12 - cost of daily gas -- this is in phase 2, cost of daily gas management between calculating an online presentment of the market requirements development to the daily algorithm, calculation of online presentment of daily weather true-up, that's the quotation. 460 And my confusion is I'm not quite sure which costs relate to implementing unbundling, which costs relate to billing or related billing, and how 7.5 becomes 15.7, 7.5 being the estimate of the cost for implementing the unbundling that was the subject of the proceeding. And so I'm having difficulty in reconciling those numbers. And I wonder whether you could give me some assistance with that or whether they can do it in argument. 461 Also, in relation to the 12.3 million, which I gather is the amount that has already been spent, how that splits between the different activities involved in I think it's C1.15 which tries to break out the costs under different headings. And I apologize if you're the wrong person to ask this question of, but it's been concerning me during the course of this proceeding. Thank you. 462 MR. BIRMINGHAM: Mr. Dominy, I think I'm probably the wrong person to ask in that I don't -- I can't give you any more information than we've already given you. What I can do, though, sir, is undertake to try to split out the components as they're described in the different responses, and put the financial amounts, both for the RP-1999-0017 and for this proceeding, and try to detail that out a little bit more so that you can understand how the costs are attached to the different activities. 463 I think if I understand, one of your concerns at least, sir, is that you're looking for continuity that's clearly laid out from the 1999-0017 proceeding to where we are now. 464 MR. DOMINY: That's exactly it, Mr. Birmingham. So if we could get an undertaking for that, that might be the best way to handle it. 465 MR. BIRMINGHAM: Yes, sir, I'll undertake to handle that. 466 MR. MORAN: That will be G5.3. 467 UNDERTAKING NO. G5.3 COST BREAKDOWN FROM 1999-0017 AND PRESENT PROCEEDING 468 MR. DOMINY: Thank you, Mr. Birmingham. 469 The second issue, and it's just related to the question of the role of the REM as an agent, and it has struck me during the discussions that the view of the agent changes depending on which way -- or which issue is under consideration. And I'll explain my question. I was just going to ask the general comment on it. That is, in the case of the unbundling, the argument is made, the views of the consumer is expressed, because the agent supported unbundling and since the idea marketer -- and since the marketer is the agent of the consumer, then the consumer's interest in unbundling is demonstrated. 470 Now we come to the question of billing or wholesale consolidated billing, and in this case, when we talk about customer choice, there has been a lot of discussion about the customer should have the choice of who bills him, and now we have the REM who, again, is described as the agent of the consumer, who would make the choice as to which form of billing would be appropriate? In this case, would a choice by the agent to use marketer-consolidated billing, be interpreted as the customer's choice since he is the representative or she is the representative of the customer? I would just like a comment on that. There appeared to be some sort of a conflict in the interpretation of the role of the agent. 471 MR. BIRMINGHAM: Clearly, in terms of Union's view, Mr. Dominy, with respect to the unbundled storage service, the marketer is the agent of the end-use consumer to the extent they elect the unbundled service, then as you say, we see that as the end-use consumer electing that service on their behalf. 472 With respect to billing, I wanted to deal with that in two different scenarios, if I could. The first scenario is who should choose which billing option they get? I think I've tried to be as clear as I can, that it's our view that neither one should choose; that is, it doesn't matter if the marketer is an agent of the customer or not, it isn't the -- it isn't up for the marketer or the end-use customer to choose which billing option should be available to them. They can choose the billing options that are made available to them by the service provider. 473 MR. DOMINY: My last question. 474 MR. BIRMINGHAM: Sorry, Mr. Dominy. I wanted to add one other thing and that is -- 475 MR. DOMINY: I apologize. 476 MR. BIRMINGHAM: As I understand, the agency agreements with respect to the -- some of the direct purchase customers, that some of those agency agreements, in fact, include billing. And in that respect, I think the agent could elect on behalf of the customer, given the options that are available and offered by the service provider, they in fact would be in a position, I think legally, to represent the customer by choosing one of the options that are made available by the utility. 477 MR. DOMINY: Can I interpret that to say that, in fact, the agreement between the customer and the marketer provides the marketer the option of choosing the billing arrangement in that circumstance -- so when I sign with the marketer, if I sign with a marketer, I would be explicitly giving that right or direction, whatever you call it, over to the marketer? 478 MR. BIRMINGHAM: My understanding is that in the context of the agency arrangements that they have signed with respect to the supply ^^^ of their commodity, that some of those agency agreements also include billing, and in that respect they could represent the customer and select a billing option that is made available from the utility. 479 MR. DOMINY: Thank you, Mr. Birmingham. 480 And the last is a very general question, and that's -- basically this question we've heard a lot about: The Service Level Agreement that will exist between the LDC and the marketer. And I was just wondering whether there has been any -- pardon my lack of detailed knowledge on the status of this, but has there been any discussion about the content of the Service Level Agreement between the utilities and the marketers, whatever way the Gas Distribution Access Rule ultimately ends up at? 481 MR. BIRMINGHAM: To my knowledge, there has been no detailed discussions. Most of the discussions, as you'll appreciate from seeing the Gas Distribution Access Rule submissions, have been at a relatively high level, including things like which billing options should be available. And there has been a fairly controversial issue over the availability of marketer-consolidated billing. 482 There have not been detailed discussions worked out around, for instance, an agreement in principle that would then form the basis of a Service Level Agreement. I think there is still a long way to go on those issues. 483 MR. DOMINY: I'm sorry, I have sort of a supplementary on that: Has Union, or representatives of Union, been involved in any of the discussions regarding the arrangements in the electricity market that have been continuing among participants in the electricity market? 484 MR. BIRMINGHAM: I just want to make sure I have the context that you're looking for, Mr. Dominy. Certainly we have been following the developments in the electricity side, and we have been participating, I think, in some of the discussions around the technical aspects of what might happen. But we have not been participating in any discussions that would be similar to the types of issues that would have to be dealt with in the Service Level Agreements, if that's what you're asking. 485 MR. DOMINY: Oh, I see. That's exactly the question I was asking in the context, I guess. There are a number of discussions, I would call them a detailed -- or discussion things like the retail settlement code, the associated service agreement. But you haven't been involved in those sorts of detailed discussions? 486 MR. BIRMINGHAM: No. We've been following the development of those but we have not been directly involved in the discussions. 487 MR. DOMINY: Thank you, Mr. Birmingham. Those are my questions. 488 MR. JACKSON: Thank you, Mr. Dominy. 489 Mr. Birmingham, I have just a few questions, and actually, with respect to a couple of them, it may be expeditious to ask you to take an undertaking on those, too, but I'll get to those. 490 The first questions I have are concerning a topic which Ms. Flaherty got very close to resolving for me, but didn't quite do it. And it goes to the question of the -- of the nature of your distribution operations, and essentially, those are monopoly services, would you agree, the distribution services? 491 MR. BIRMINGHAM: Yes. The sale, transmission, storage and distribution services are all regulated. 492 MR. JACKSON: Right. And they're regulated so as to essentially confer certain monopoly rights for you to offer those services too, I guess, notwithstanding that -- I know in the case of storage, there are some competitive factors that come into play. But I guess what I'm grappling with is this notion of the regulator as a surrogate for competition and that comes into play in the pricing aspect of, as I understand, the regulatory models that we use. Would you agree with that? 493 MR. BIRMINGHAM: Yes, I think that's a fair characterization, sir. 494 MR. JACKSON: And I was wondering, then, would you probably agree with me that -- or would you agree with me that the characteristic of service providers in a competitive market is that these service providers would determine the prices of the services they offer? Is that correct? 495 MR. BIRMINGHAM: They would determine the prices that they would like to offer their services at, and I assume they would modify those based on the market conditions and what their competitors were doing. 496 MR. JACKSON: Yes, I think that's certainly a fair way of putting it. 497 So they could decide to charge a higher price and they might get very little take-up of their services if the price was too high and other competitors were offering the similar service at a lower price; would you agree? 498 MR. BIRMINGHAM: Yes. 499 MR. JACKSON: Yes. 500 And so whether we're looking at the so-called monopoly services offered by the utility, the regulator intervenes to price because there is no -- there is no competitor offering a price. That would be correct, too? 501 MR. BIRMINGHAM: There are no competitive market forces that would otherwise discipline the price, I think that's right. 502 MR. JACKSON: Yes, I think that's a fair way to put it, too. 503 And I guess what I'm seeing is an analogy here, and it seems to me that the concept, if there were a competitor offering these monopoly services, they might have to respond to modify the services to -- to make them more palatable, the utility might have to respond to make the services more palatable to customers if the customers seemed to be preferring the services that were offered by the competitor. That's really hypothetical, because I know you're -- we've talked about monopoly services and I'm now trying to get into this question of: How do we apply the concept of being a surrogate for competition? But could you accept that notion? That were there a competitor, the competitor might be offering services in a different way that a customer would find more desirable and then the utility would have to respond with -- a regulator, in that hypothetical model, would have to respond to what they thought the competitive market might have determined as an outcome. 504 MR. BIRMINGHAM: Yes. I'm not exactly sure that the comparison to what a competitive market might have done is exactly how the regulator might come at it. But certainly, I think it's true, sir, that one of the things that happens in the context of our rates proceedings is that customers and other groups look for changes to not only the price of the service, but the terms and conditions around that service. And they bring forward potential changes that they would like the utility and the regulator to consider in the context of offering those services. 505 MR. JACKSON: All right. Well, I think we're pretty much in agreement on this, then. And I guess the thought in my mind that I'm grappling with, then, just to let you know because you may want to deal with it in argument, if not comment on it right now, is that the regulator then may have to try to imagine whether certain flexibility or options with respect to the billing of your services might, indeed, be available were your services offered in a competitive market. And so the regulator may have to make some decisions there, just as it does with price. 506 MR. BIRMINGHAM: I think that's where we may not be of one mind, sir. I would agree that certainly the regulated services, terms and conditions around how those services are offered, the prices of those services, are certainly within the ambit of the regulator. 507 And, in fact, they have been dealt with by the Board in past proceedings. 508 But billing itself is not a regulated service. It isn't something that the Board has regulated in the past as a severable service or that -- whether the price for that service -- certainly, the cost of providing the billing services and the billing options have been included in our cost of service, and ultimately in our rates. But it isn't a separate service that the Board regulates. I guess in that respect, sir, we wouldn't see that the Board would then look at imposing billing options by virtue of their regulation over monopoly services. 509 Now, I do take your point, sir, that in a competitive market, where competitors are offering, in this case, billing options where some of the other competitors may not offer some of those same options, that could give them an advantage on the attractiveness of the service. 510 But typically, that's -- that will be for those parties to determine and whether they, in fact, do provide a competitive advantage, I think, is an open question. 511 MR. JACKSON: One of the other aspects of these problems that I've been grappling with is the notion that you might not bill for your services and -- we may be of the same mind on this, too, but I don't see you as stopping billing for your services. It's just a question of whether you will bill the customer through an agent, whether you will bill an intermediary, or whether you will bill the customer directly. But you will still bill, won't you? 512 MR. BIRMINGHAM: There will still be a bill that is generated by Union Gas to someone. 513 MR. JACKSON: For Union's services? 514 MR. BIRMINGHAM: For Union's services. 515 MR. JACKSON: All right. So then although you say it's not a severable -- billing is not a severable service that the Board regulates, I wonder if you could agree that it's not really a severable service. It seems to me that it's integral to the services that you do have. 516 MR. BIRMINGHAM: Well, it's an integral aspect of the business that we do, but it isn't a regulated service. 517 MR. JACKSON: But isn't it integral to the distribution service, for example? In other words, I don't think you can offer the service without billing for it. That's the trouble I'm having. 518 MR. BIRMINGHAM: Absolutely. A necessary aspect of being able to provide this service is the ability to bill and collect for that service. 519 MR. JACKSON: I think that's helpful to me. 520 Now, the other thing I just wanted to do is look at the U2 rate schedule, if I could, with you, and here is where you may suggest quite rightly that if I put some of my questions on the record, it might be better dealt with by way of an undertaking. I can see that. But feel free, if you like, to look at some of these questions with me, because I think I'm looking at them very much as a -- as a layperson, and it's going to the question of comprehension of the schedule. 521 So either way, I don't mind which way you want to deal with it. 522 So the U2 schedule is found at RP-2000-0078, Exhibit B, tab 3, appendix F. And I may have -- I'm looking at the applicability clause, and I may have not recalled properly because I'm doing it from memory. The -- 523 MR. BIRMINGHAM: Sorry, sir. I'm still waiting for a copy. I didn't have it with me. 524 MR. JACKSON: Okay. 525 MR. BIRMINGHAM: Sorry, Mr. Chairman. I'm with you now. 526 MR. JACKSON: Thank you. 527 As I said, I'm recalling from memory the testimony of Mr. Packer. So I'm not sure that I have it perfectly and I'll try to check it later as well, but Union may want to point it out to me if I'm wrong. The testimony, it seems to me, went along the lines that in theory, if not in practice, and perhaps in practice but with great difficulty, any customer could take this unbundled service. And so I look at the applicability clause, and the first word I stumble over is "authorized," "to a customer who is authorized to serve residential and non-contract commercial and industrial end-users." And so I wonder, is each customer authorized to serve itself? And authorized by whom? 528 MR. BIRMINGHAM: That's the intention of -- I think that wording, sir, is that the customer is authorized to serve themselves, as well as they can appoint an agent to do that for them. 529 And I would agree that the testimony that we've given earlier would suggest that technically any residential customer could, in fact, avail themselves of the unbundled services. 530 From a practical standpoint, we don't think that, for instance, my mother who lives in Burlington is going to want to nominate, on a daily basis, the gas that she's going to remove from her storage. 531 MR. JACKSON: I quite understand. 532 Now, would item D of the applicability clause mean that the person could line up a local supplier within Ontario, and perhaps embedded within the Union Gas area, could not avail themselves of storage for that gas? 533 MR. BIRMINGHAM: Sir, can you give that question to me again, sir? 534 MR. JACKSON: Yes. Would item D in the applicability clause suggest that a person who could find gas supply within the province of Ontario, and I guess specifically within the Union Gas area, not, by virtue of that clause, be allowed to avail themselves of this storage schedule? Because he wouldn't be nominating deliveries on upstream pipeline systems. 535 MR. BIRMINGHAM: I understand the issue now, sir. 536 Certainly it was not our intent by that, by virtue of that clause, to preclude anyone from nominating Ontario production as one of their supplies. And, in fact, we do have customers that do that now. 537 MR. JACKSON: I was told, if it helps, that the way this works is one could nominate zero. One could nominate zero. 538 MR. JACKSON: Oh, okay. Except that you would need to line up a pipeline that's willing to accept your zero nomination, would you? 539 MS. JACKSON: I think I'll retire from the discussion, Mr. Chairman. 540 MR. JACKSON: Thank you. Okay. Now, under rates, see if I understand this clause properly. 541 "All contracts for a year or less will find that the rates outlined under the heading rates are maximum prices for service." Correct? Did I get that under the first -- 542 MR. BIRMINGHAM: That's right. 543 MR. JACKSON: -- two sentences, I guess. 544 MR. BIRMINGHAM: Right, sir. 545 MR. JACKSON: Right. But if you write a contract for a year and a day, you then are wide open to negotiate rates that are higher or lower than the prices set out therein. In other words, the limits come off as long as you go a year and a day? 546 MR. BIRMINGHAM: It's the intention of that language -- was to reflect the finding of the Board in our RP-1999-0017 hearing. In that decision, Union Gas had requested and received approval for the ability to negotiate rates with customers, in this case, for longer term rates. 547 And that was really to deal with the potential where marketers may want to negotiate a longer term rate for some of their other services, like storage, to match up with the length of their commodity contract and therefore effectively lock in the margin that they would be earning over that period of time. 548 That negotiability made sense because customers were looking for that option. And if they didn't want to negotiate, or if they were unsuccessful in negotiating an acceptable rate with Union, they would fall back to the rate schedule for a one-year price. 549 MR. JACKSON: Okay. So then I think I do understand it correctly. And then in terms of the economic reality presented by this schedule, I take it, then, that if cost-based rates are currently in, for the next five years, below market-based rates for storage, that the maximum is essentially the minimum on one-year contracts? 550 MR. BIRMINGHAM: Let me just get my maximums and minimums sorted out, sir. 551 Cost-based rates are in place for the next five years. 552 MR. JACKSON: Well, I think the discussion I had with Mr. Packer was that forecasting ahead five years, in all likelihood, cost-based rates would be less than market-based rates. 553 MR. BIRMINGHAM: That's our current expectation, yes, sir. 554 MR. JACKSON: And so these are cost-based rates that are presented in this schedule, so essentially, although they're stated as maximum, and I'm not having any great trouble with this, I'm just clarifying my understanding, although they're stated as maximum, effectively, they will be minimum; is that correct? 555 MR. BIRMINGHAM: With respect to the negotiated rates, that may or may not be the case. I assume that's the comparison. 556 MR. JACKSON: I was thinking of one-year contracts. I was thinking that although you pointed out the possibility that a marketer might be willing to pay a little bit more and take a contract for more than a year in order to lock in the storage with some other arrangement that he had contracted for, and that that might make sense, it struck me that whenever there was a significant difference between market prices and the cost-based rates, that people would likely opt for one-year contracts rather than going farther than a year. And that, then -- in that case, what are stated as the maximum would be effectively the minimum because of the relationship between cost-based rates and market-based rates which you and I have agreed on. 557 MR. BIRMINGHAM: I understand the question now. 558 I would generally agree with that. I think there are circumstances where we may be negotiating -- or be in the position where we want to negotiate a rate that's lower than the cost-based rate. And that would be, in part -- or at least one example of that would be the situation where there is a potential bypass, where the benefits of keeping a customer on our system would be greater even though we might not capture the cost-based rate from them. 559 So the intention of the phrase where we said "Multi-year prices may also be negotiated which may mean a higher or lower than the identified rates," the lower piece was also to help Union deal with the risk of bypass. 560 MR. JACKSON: Good. Thank you very much for that. That's very helpful to me in my understanding. So that if you were providing distribution service and there was a bypass threat, the one thing you could offer to do is to give some storage along with that service at a lower rate. 561 MR. BIRMINGHAM: We could negotiate terms and conditions and the rate, which would keep the customer on our system, yes. 562 MR. JACKSON: Okay, thank you. 563 Now, in terms of reading the notes, note 4 -- I recognize I'm going on and I hope we don't cut lunch too short, but I was thinking that I might finish here. Maybe I'm putting myself in the situation of others with respect to time estimates. But I think I'm almost finished. 564 With respect to note 4, short-term storage/balancing service is defined as a combined space and interruptible deliverability service for short-term or offbeat storage in Union's storage facilities, or short-term firm deliverability -- and just reading it on the face of it today. My margin note was, "without space?" Because I am reading the word "or." Is that correct? 565 MR. BIRMINGHAM: That's correct. 566 MR. JACKSON: So you can have deliverability from storage without having any storage space? 567 MR. BIRMINGHAM: No. It's more that there would be storage space, but they could contract for different deliverability. 568 MR. JACKSON: Yes. Look at the wording of 1, though, and you have mentioned space and the wording of 2 and you haven't. So it makes me think that in two there is no space. But perhaps that's, again, just something to note in terms of readability. 569 And lastly -- 570 MS. JACKSON: Mr. Chair, I think, if I can be of any assistance, I think amongst other things you can have a short-term deliverability addition to an existing space and time. In other words, you already have the space by virtue of another provision. 571 MR. BIRMINGHAM: That's what I meant, sir. I didn't say it very well. 572 MR. JACKSON: That's fine. Thank you for that clarification. 573 And that would be a negotiated additional contract, then, or an addendum to the existing contract that would have a shorter term perhaps than the basic contract? 574 MR. BIRMINGHAM: Yes, that may be the case, sir. It's typically with customers who already have storage space and are looking for some form of incremental deliverability. 575 MR. JACKSON: Okay, good. So that would really come under -- under the umbrella, if you like, of note 1, which references Union and its sole discretion accepting a term of less than one year, although short-term storage/balancing service is not defined as being less than a year, is it. So maybe I shouldn't read it that way. What do you think short-term would mean? 576 MR. BIRMINGHAM: I think the -- note 1 refers to the demand charges. So we're looking at -- 577 MR. JACKSON: Yes. 578 MR. BIRMINGHAM: -- an annual amount and we have some discretion around the period over which we charge that demand. But typically, we want an annual demand from a customer. 579 The incremental short-term deliverability may be for a period less than that. 580 MR. JACKSON: Less than a year? Is that what you mean? Sorry? 581 MR. BIRMINGHAM: Yes. For instance, they may only want it negotiated over a single winter season. 582 MR. JACKSON: Right. That makes sense. 583 Okay. And would it help a reader or does every reader of this schedule automatically know where to find the reference for Union's turn-back policy on page 3? I just -- I can leave that question for you, but it strikes me that I need to know where to look for that. But I suppose I have the complete set of rate schedules beside me, I can probably find it. Is it in the general terms and conditions, or where will I find it when I'm reading this schedule? Capitalized, so I expect it to be something that's something that is defined somewhere. 584 MR. BIRMINGHAM: I can't put my hands on it right now, sir. 585 MR. JACKSON: And lastly, Mr. Birmingham, I notice under the delayed payment panel, just so that I understand this completely, this is a move to a complete credit-card-like late payment penalty. I notice you've added the words "including previous arrears," so it's now on the outstanding balance, I take it, and the 2 percent is applied every month? 586 MR. BIRMINGHAM: What I'm hesitating about, sir, is the reference to the credit-card-like interest. That wasn't, in my reading of this, the intent of change. This gets applied to the balance on a one-time basis. There isn't a time component after that. It's simply applied to the unpaid balances on a monthly basis. 587 MR. JACKSON: But if the customer continues to deal with you and gets a bill the next month and there are any arrears on the bill, it's applied to the arrears, too, isn't it? 588 MR. BIRMINGHAM: Yes, you're right. Sorry, I understand. Yes. 589 MR. JACKSON: So not to say that I'm not overjoyed to see this move, I just wanted to understand. 590 MR. DOMINY: Mr. Birmingham, can I add to that I believe this is an issue, I think it's issue number 20 or item number 20 in the customer review process. 591 MS. JACKSON: That's exactly what I was about to say Mr. Dominy. That's right. 592 MR. JACKSON: I'm happy to see that. We may approve this schedule before the other process is finished, though, and -- 593 MS. JACKSON: I wasn't suggesting otherwise; I was just going tell you that in addition to any questions you have, and so on, our customers have an opportunity to deal with this in that process next week. 594 MR. JACKSON: That's right. We have to be very fast with our decision to -- 595 MS. JACKSON: And I wouldn't want to discourage it, Mr. Chair. 596 MR. JACKSON: Good. Thank you very much. Thank you for indulging me, but I'm glad we finished our questions. 597 Now, Ms. Jackson, would it be convenient to ask your questions after lunch, or would you like to -- 598 MS. JACKSON: My questions are very short, Mr. Chair. 599 MR. JACKSON: Well, you go ahead. 600 RE-EXAMINATION BY MS. JACKSON: 601 MS. JACKSON: I have three. I don't know how long the answers will be. 602 MR. JACKSON: You can take your time, too. 603 MS. JACKSON: I won't do that. 604 But I have two questions for you, Ms. Creighton. They arise from some examination yesterday. You were taken, I believe it was by Mr. Warren, to article 5.3.2 of the draft GDAR which speaks about the possibility of co-operative marketing programs. And you were asked whether that would allow you to co-operate on marketing programs. And in response to that, you indicated that it would not be an apple-to-apple comparison to the communication -- to the marketing programs you are -- you're available to currently communicate with your customers. Can you explain what you mean by that? 605 MS. CREIGHTON: Well, I think Mr. Brown was suggesting that something we could do through someone else's vehicle, whether it was a bill envelope or some other sort of marketing program, would be just as good as doing one on our own, and my -- at the risk of sounding like a broken record, I wouldn't accept that proposition. I would suggest that the vehicles we have today and the brand we have today is quite different from a newer brand, with different brand attributes both positive and negative and a vehicle that doesn't yet exist which is their bill. 606 MS. JACKSON: And similarly, in the same line of questioning, there was a series of questions devoted to communications that you've had with your consumers in the Sudbury and Kingston area that went beyond the bill insert. As you recall, you talked about the newspaper and other communications. 607 In the context of those questions, there was, as well, reference by both you and Mr. Birmingham to general contentment in other franchises and the renewal of approximately 40 other franchises during the same period. 608 My simple question with respect to those other renewals is: In those other franchise areas where you say there was general contentment, was there a need to communicate in those franchise areas in connection with franchise renewal as -- either by newspaper, public relations or otherwise? 609 MS. CREIGHTON: No. 610 MS. JACKSON: And my last question, Mr. Birmingham, is for you. 611 Yesterday, you were asked in a series of questions, I believe by Mr. Vegh, whether the GDAR -- the current GDAR process or a GDAR-type process could address issues such as those raised by Mr. Feldmann of process. And you said it could. I wanted to ask you to be clear about that context with those set of questions. In your view, has the current GDAR process addressed those questions? 612 MR. BIRMINGHAM: No, it has not. 613 The questions raised by Mr. Feldmann respond to some of the operational concerns about the implementation of marketer-consolidated billing. The current Gas Distribution Access Rule process effectively ended with the issue of marketer-consolidated billing still being a very controversial one. So there has been no discussion around any of the operational impacts. There would have to be some further process or some other process to be followed that would answer the questions that have been raised on the operational side. 614 MS. JACKSON: Thank you, Mr. Chair, those are my questions. 615 MR. JACKSON: Good. Thank you, Ms. Jackson. 616 I think that we might be best served by taking an hour for lunch. I'll check with my colleagues here. 617 So let us return at twenty minutes to two. Thank you. 618 --- Luncheon recess taken at 12:40 p.m. 619 --- On resuming at 1:45 p.m. 620 MR. JACKSON: Please be seated. 621 Ms. Jackson. 622 UNION GAS LIMITED - PANEL 3 623 MS. JACKSON: Thank you, Mr. Chair. This afternoon's Panel is Mr. Deas and Mr. Tyler from Canadian Facts, and I think perhaps the first thing to do would be to ask them to step forward to be sworn or affirmed. 624 Mr. Chair, we have circulated to everyone in the room CVs that set out the qualifications of Mr. Deas and Mr. Tyler. 625 EXHIBIT NO. F5.1 CVs OF BRIAN DEAS AND BROOK TYLER 626 EXAMINATION BY MS. JACKSON: 627 MS. JACKSON: Mr. Deas, you are with Canadian Facts and have been since 1984? 628 MR. DEAS: That's correct, yes. 629 MS. JACKSON: And what is your current position with Canadian Facts? 630 MR. DEAS: Vice-president, client services. 631 MS. JACKSON: And, Mr. Tyler, you've been with Canadian Facts since 1986 and are currently the research director; is that right? 632 MR. TAYLOR: That's right. 633 MS. JACKSON: And, gentlemen, you're responsible for the study that appears at tab 4 of appendix C in the pre-filed evidence? 634 MR. DEAS: Yes. 635 MS. JACKSON: And the interrogatories that bear your names? 636 MR. DEAS: Yes. 637 MS. JACKSON: I would like to ask you, if I may, to start by summarizing for the Board the results of your survey of the billing preferences of Union's customers. 638 MR. DEAS: I think there are four main conclusions -- 639 MS. JACKSON: I'm going to ask you, Mr. Deas, to bring the microphone a little closer and to lean towards it so the sound system picks up your voice, please. 640 MR. DEAS: Is that better? 641 MS. JACKSON: Much better, thank you. 642 MR. DEAS: I think there are four main conclusions. The first one is that within the context of the natural gas market, consumers prefer split -- prefer a consolidated bill over a split bill. 643 The second main conclusion is that, given the choice between consolidated bill from Union and one from a marketer, consumers prefer consolidated bill from Union. 644 Third, given a choice between a marketer-consolidated bill and a split bill, there is roughly equal preference for the two, and quite a proportion of the consumers say they have no preference, that they don't want to choose either. 645 And then finally, when consumers are asked who they would look to for information on the natural gas industry, Union is the most common mention. 646 MS. JACKSON: Mr. Deas, you've seen in the evidence filed in this proceeding a survey done by an organization called North Star? 647 MR. DEAS: Yes. 648 MS. JACKSON: Is the -- are the results of that survey, in your view, consistent or inconsistent with your own results? 649 MR. DEAS: I think they're consistent, to the extent that there is any overlap. In both surveys, the view is that the idea of a consolidated bill is preferred over a split bill within the gas industry. 650 MS. JACKSON: And are there any inconsistencies? 651 MR. DEAS: No, I don't think there are. 652 MS. JACKSON: All right. Gentlemen, thank you, those are my questions. 653 MR. JACKSON: Mr. Brown. 654 CROSS-EXAMINATION BY MR. BROWN: 655 MR. BROWN: Thank you, Mr. Chair. Gentleman, my name is David Brown and I represent Direct Energy Marketing Limited in this proceeding. Direct Energy is one of the retail energy marketers that you dealt with in your study. Just so we have all our cards on the table, you should know that my client supports Union's efforts to unbundle certain service offerings but unlike Union is a rather vigorous proponent of retailer-consolidated billing. So you'll know from where I come. 656 I would like to start off, really, by talking about laundry detergent if we could, and using laundry detergent as a hypothetical, I would ask you to assume that here in Ontario there has been only one brand of laundry detergent. Let's call it brand A. And that brand has been used in Ontario for 90 years. Have you got that assumption? 657 MR. DEAS: Yes. 658 MR. BROWN: And then the second thing I would ask you to assume is that a new company manufactures laundry detergent under brand B. And let's say that this new company is over in the United Kingdom and it looks towards the Ontario market and decides that it would really like to start marketing laundry detergent in Ontario. So that's the second assumption. 659 And my third assumption that I'm going to ask you to make is that the company that manufactures brand A contacts you and asks you to do a survey. And so are you clear on those three assumptions? 660 MR. DEAS: Yes. 661 MR. BROWN: Now, you go ahead and you do the survey and the first question that you ask on the survey is: Consumers, which one of the two following options would you prefer: Using one detergent to wash your clothes or using two detergents to wash your clothes? And would you agree with me that the likely answer to that question by the consumers in Ontario would be that they would probably prefer using one detergent to wash their clothes. Is that sort of a reasonable likelihood of outcome in that kind of survey? 662 MR. DEAS: I think a lot of people might ask you whether you're meaning overall, for all washes they've only got the choice of one detergent, or whether you're saying on any one wash it's one or two. I think they would want a bit more detail before they could answer that. 663 MR. BROWN: We could build in a few more assumptions. So let's say we've got simple washing machines here in Ontario and there is only one kind of wash you can do, and for 90 years there has only been one kind of detergent you can use. So refining our assumptions to build that in, I take it you would agree with me that the likely response of consumers to the first question that you pose is, yes, if we had our choice, I think I prefer using one detergent to do my laundry rather than using two. Correct? 664 MR. DEAS: I think if it was put that on any one occasion that you're doing laundry, would you rather have one detergent or two, then yes, consumers would say they would want one detergent on any one occasion, yes. 665 MR. BROWN: Because consumers usually operate on the premise that simple is better; correct? 666 MR. DEAS: That's debateable, from what I've seen. It depends on the context and whether a more complex option is A, understood, and B, appealing. 667 MR. BROWN: I'm going to suggest to you that most people who sell things out there on the market generally operate on the premise that the simpler you can make it, the easier the sell. And that's a pretty common theme out in the sales arena out there, isn't it? 668 MR. DEAS: Simpler -- as simple as it can be, but no simpler, sure. 669 MR. BROWN: Sure. 670 Now, after asking that first question on your survey, I'm going to ask you to assume that you then follow up and you ask your target audience a second question, and the second question were to go like this: If you were to wash your clothes with only one detergent, would you prefer brand A or brand B? And I take it you would agree with me that since for 90 years the consumers had only been using brand A, and that they hadn't been able to buy brand B in Ontario up to that point of time, it is likely that most consumers would say: We prefer to use brand A to wash our clothes. That's a pretty likely outcome of that question, correct? 671 MR. DEAS: I think implicit in your question is the assumption that consumers have a higher regard for brand A and have held that high regard for 90 years, and with that assumption, then, I would expect that probably most people would choose brand A, yes. 672 MR. BROWN: Now, let's fast-forward five years, and assume that after you do your survey, the company from the United Kingdom actually comes over to Ontario and it begins to market brand B, to sell it in Ontario. Five years later, you then go back out and you conduct another survey, and you ask the people that you target your second question again: If you were to wash your clothes with one detergent, would you prefer brand A or brand B? And I take it, given five years of experience with brand B, and assuming brand B is a pretty comparable quality of brand A, you would likely get a survey result that would show a larger number of people expressing a preference for brand B the second go around and a reduced number of people expressing a preference for brand A the second go around; correct? 673 MR. DEAS: With those assumptions, yes. 674 MR. BROWN: All right. 675 And the reason you would find that is that when you ask a question, people are going to be inclined to favour that with which they are familiar, assuming that that thing is of pretty good quality. That's going to be the general human reaction and response to that kind of question, isn't it? 676 MR. DEAS: We have done a number of surveys over the years where we've asked individuals about a current and existing brand and a new one, and in some cases, the new concept will win and in other cases it won't. And it depends on lots of factors, but certainly among them would be consumers' opinions of the existing product. 677 But a lot of their opinions, of course, are derived from that plus whatever description or experience they've got with the new item. 678 MR. BROWN: And assuming, as I've asked you to assume, that the consumers have been quite content with the existing product that's been made available within their market area, the natural human inclination will be to express a preference for what they know rather than for what they don't know; correct? That's just common human nature. 679 MR. DEAS: I think for what they like, yes. 680 MR. BROWN: And I'm going to suggest to you, gentlemen, that isn't that, in essence, all that your survey has shown, that with respect to -- with respect to who is going to send you a bill, that since consumers in Ontario, certainly in the Union franchise area, have only known one thing for 90 years, that is, getting a bill from Union, that there is no surprise that the answer to your question 3 shows overwhelming preference for continuing to get the bill from Union rather than to get a bill from a retailer from whom they've never gotten a bill before? Isn't that the explanation for your survey results? 681 MR. DEAS: I think the explanation is that they have a high regard for Union and there are, I would infer from the results, some concerns about marketers. And based on their opinions of Union, they tend -- when we ask them to make a head-to-head choice, they're selecting Union. 682 MR. BROWN: But what your survey measures, I'm going to suggest to you, is not the customer's preference between two things that they know but the customer's preference between one thing which they know and one thing which they have never experienced. That is what your survey is demonstrating, isn't it? 683 MR. DEAS: No. In some cases the customers are marketer customers, but in other cases they are Union customers. 684 MR. BROWN: But whether they are marketer customers or Union customers, none of those customers to date have received bills from the marketer; correct? They've only received bills from the distributor. 685 MR. DEAS: Correct. 686 MR. BROWN: Thank you, gentlemen, those are my questions. 687 MR. JACKSON: Thank you, Mr. Brown. 688 Mr. Vegh. 689 CROSS-EXAMINATION BY MR. VEGH: 690 MR. VEGH: Thank you, sir. 691 Good afternoon, Panel. My name is George Vegh. I'm here on behalf of a group called The Convergence Group. That's the -- my client sponsored the North Star evidence that you spoke about with Ms. Jackson a few moments ago. 692 Just to start with that Panel, are you familiar with North Star Research? 693 MR. DEAS: I'm not, no. 694 MR. VEGH: Sorry? 695 MR. TYLER: I've heard of them -- I've heard of the company. 696 MS. JACKSON: I think he said, "And seen them advertised." 697 MR. VEGH: And from what you've heard, is North Star a credible research company? 698 MR. TYLER: I would assume so. I can't say. I don't know that much about them. As I say, I've heard of the name of the company and I've seen, I believe, an announcement in the newspaper. 699 MR. VEGH: And you said in your evidence in chief that you did not believe that the two surveys had -- or were inconsistent in the results. Is this because Canadian Facts and North Star have asked different questions? 700 MR. DEAS: Well, some questions were quite similar and some were different. But the -- the two questions that were similar to our one was related to the preference for a consolidated bill versus a split bill, and the percentages, while the questions weren't identical of course, the percentages were similar. 701 MR. VEGH: And for the other two questions, they were simply as different questions? 702 MR. DEAS: Yes. 703 MR. VEGH: And in the Canadian Facts survey, you did not ask respondents whether they wanted to have a choice over who was their bill provider? 704 MR. DEAS: That's correct. 705 MR. VEGH: And why was that? 706 MR. DEAS: Actually, it didn't occur to us to ask such an abstract question, that we felt we should get into some practical, concrete situations and get some preferences on that basis. 707 MR. VEGH: I would like to ask you some questions on how the data is collected and reported in your survey so I'll be referring to the document you filed the report on billing preferences. Do you have that handy? 708 MR. DEAS: Our report? 709 MR. VEGH: Yes. 710 MR. DEAS: Yes. 711 MR. VEGH: I'll be taking you to a couple of places so you might want to mark them. We'll be going back and forth. 712 First, at the very last section of your report, following Exhibit 18F, there is a piece entitled in the top right-hand corner, "Study JO808." The very last section of -- 713 MR. DEAS: Yes. 714 MR. VEGH: Okay. If you can keep -- why don't I ask you about this one first. 715 This looks to me like a script that's given to the -- a surveyor. Is that what this is? 716 MR. DEAS: It's actually a questionnaire that's programmed into our computerized system. So it's given to the programmers to program in and then the questions come up on the screen for the interviewers. It's not actually a questionnaire that -- that an interviewer would circle or write anything on, it's -- in the end, it's electronic. 717 MR. VEGH: But the interviewer would rely on this document to ask their questions, or the contents of this document? 718 MR. DEAS: Yes. 719 MR. VEGH: And just so I understand how it works, when you go over to page 2, beside the entry on the left saying "post" -- or, sorry, it says, "AL" -- 720 MR. DEAS: Yes. 721 MR. VEGH: This is the question: "You would receive one bill which includes all gas charges or you would receive two bills; one from Union Gas with its charges and the other from the energy marketer with its charges." And then there is a line in here: "No preference" or "Don't know." What I just want to be clear on is the interviewer -- does the interviewer put these options to the survey respondents, "No preference" or "Don't know"? 722 MR. DEAS: No. 723 MR. VEGH: So that's not part of the script? 724 MR. DEAS: It's on the computer, but the fact that it's in bold means that it doesn't get read. 725 MR. VEGH: Doesn't get read? 726 MR. DEAS: Yes. 727 MR. VEGH: So then when we go back -- thank you for that. 728 Now, I would just like to see how that fits into your report. 729 When we go back to an earlier section entitled "General Summary," do you see that? It's in large Roman numeral III, "General Summary." And you -- you set out the answers to question 2 which was the question we just looked at. And so when we look on the tally of the answers and it says "No preference," "Don't know," those are answers that were offered by either the respondents but not -- not options that were put to them by the surveyor; is that right? 730 MR. DEAS: Yes. 731 MR. VEGH: And we won't go through the rest of the questions. But when we see in capital letters these options, that's what this means, that these options were not put to them by the surveyors? 732 MR. DEAS: Yes. 733 MR. VEGH: Thank you. Those are my questions. 734 MR. JACKSON: Next intervenor? Would that be you, Mr. Janigan? 735 MR. JANIGAN: Yes, I have a few questions, Mr. Chair. 736 CROSS-EXAMINATION BY MR. JANIGAN: 737 MR. JANIGAN: Good afternoon, Panel. My name is Michael Janigan. I work for the Vulnerable Energy Consumers' Coalition. It's a coalition of consumers generally of low income and primarily system -- system sales users of Union Gas. 738 Now, in my review of the survey that you did for Union Gas, I note that you solicited customer reviews with respect to Union Gas versus an energy marketer. 739 Am I correct that there was no mention of who the energy marketer may be? 740 MR. DEAS: Pretty well. In fact, at question 1, if the respondents wanted clarification, then we would tell them the sorts of companies that were included, and it's shown in the post -- on the electronic questionnaire. 741 MR. JANIGAN: They didn't inquire, did they? It would just be a generic -- 742 MR. DEAS: That's right. There was an introduction shown on page 1 under "display" where we described the -- the energy marketers. 743 MR. JANIGAN: Now, in your opinion, if you had used a recognizable name like Toronto Hydro or Sunoco, would you likely have generated a different response from your customers on the survey? 744 MR. DEAS: If we had chosen Sunoco, then I think that we would have for lots of reasons. Some people then, presumably, wouldn't be as familiar as we'd hope they are with our introduction as to what we were talking about. But in lots of ways, I think the generic energy marketer is the way to describe this. 745 I suppose there could be other instances where a few individuals might have a different opinion. 746 Overall, I think that our preferences are generally so clear that even if a slightly different wording produced a change in percentage of a few points, it's not going to affect our conclusions. 747 MR. JANIGAN: Just so I'm clear, you don't believe that, for example, a name, a brand name of a company that they were familiar with might have elicited a more positive response to the marketers than your approach of not naming the marketers necessarily? 748 MR. DEAS: Well, you were saying, I think, before about naming one marketer, whereas now I gather you're saying if we listed a whole bunch of them; is that correct? 749 MR. JANIGAN: Well, take either example and I'll -- I'll ask for your response in each case. 750 MR. DEAS: Well, I think I answered the first one, if you have just one. If you have several, then -- I mean, I suspect that you would get a slightly different answer, but I don't think that the differences would be significant. But I believe that we've described the market in a reasonable way, the way we did. 751 MR. JANIGAN: I guess the point I'm getting at is: Generally, a recognizable company elicits a different kind of response than sort of a generic description of a company; wouldn't you agree? 752 MR. DEAS: True. Although I suspect in this case if somebody is -- is familiar with Sunoco, that's the company that they would be thinking of. So in this instance, to the extent of the difference, I think it's -- I think it's highly debateable. I doubt very much that the answer would have changed very much. 753 MR. JANIGAN: The question that arose out of the evidence filed by Union summarizing the results, wherein in one part of your survey, I believe, you got a positive response to the idea that customers like to receive a bill from every company they deal with; on the other hand, they prefer receiving a consolidated bill and preferably from the utility. I wonder if you did any focus groups to reconcile that particular contradiction? 754 MR. DEAS: No, we didn't. I mean, at first glance I agree with you, but after some thought it seems reasonably obvious to us that what's happening is that, in the first case, customers are thinking of a series of different products and services that they're being billed for, and in that instance, they want to have a separate bill for each one; whereas in the context of our earlier questions, they are thinking of gas as just one entity, and in that instance it's not really separate bills that they're thinking about but rather that, in general, they don't want a split bill. They see it as one product or service, the way I interpret it. 755 MR. JANIGAN: Just to follow up on my last question: Did you do any focus groups on any of these issues as a follow-up to the survey? 756 MR. DEAS: No. 757 MR. JANIGAN: And did you do any focus groups to design the survey? 758 MR. DEAS: No. 759 MR. JANIGAN: Essentially, you design the survey from your discussions and instructions from Union Gas? 760 MR. DEAS: Yes. 761 MR. JANIGAN: Now, with respect to the split bill concept, was it brought to the attention of the customer that there would be -- there might be an additional cost to this option? 762 MR. DEAS: No. 763 MR. JANIGAN: Could the fact of an additional cost to cover the administration of the cost of producing and mailing out two bills, could the results have been different if they were told that there was an additional charge? 764 MS. JACKSON: Additional cost in relation to what alternatives? 765 MR. JANIGAN: Either a marketer -- a marketer-consolidated would be the obvious alternative. 766 MS. JACKSON: A direct bill -- split bill would be -- 767 MR. JANIGAN: Or a Union> consolidated bill. 768 MS. JACKSON: But a split bill would be more expensive than either alternative; is that the premise? 769 MR. JANIGAN: I believe so, yes. 770 MR. DEAS: I suspect if we said to customers that there was some substantial charge for having one option but not the other, that it would diminish the preference for it. 771 MR. JANIGAN: Would it need to be a substantial charge, or how would you qualify that? 772 MR. DEAS: Well, we're speaking hypothetically now, but I guess, in my view, if we had said it was going to cost them an extra cent, I doubt it would matter much. 773 MR. JANIGAN: Your survey also notes that the most commonly cited problems concerning REMs relate to their sales tactics and perceived deception or misunderstanding. 774 And I note as well that -- I'm just attempting to do a quick computation. 775 MS. JACKSON: Are you looking at a particular page that we can look up, Mr. Janigan? 776 MR. JANIGAN: Exhibit 14, I believe. 777 MS. JACKSON: Thank you. 778 MR. JANIGAN: Concerning REMs, that -- 779 MR. JACKSON: Sorry, did you give a page? 780 MS. JACKSON: Exhibit 14, my friend said, of the study itself, which is at page 22 of the report. 781 MR. JACKSON: Thank you. 782 MR. JANIGAN: I'm sorry, Mr. Chair. 783 If you could just put your finger on that, and as well -- I noted that you had to do a quick computation this morning of the fact that -- I think of the 200 customers that were system gas, there were a substantial number that appeared to believe that they were being served by the Union utility. Is that correct? 784 MS. JACKSON: I'm sorry, Mr. Janigan, you said if they were system customers, they believed they were being served by Union? I'll leave it to Mr. Janigan. 785 MR. JANIGAN: I'm sorry, I meant of the REM customers, there were 200 REM customers that responded to the survey. A substantial number of them actually believed that they were receiving all of the components of their service from Union; is that correct? 786 MR. DEAS: It's 43 people, yes. 787 MR. JANIGAN: Okay. Almost 25 percent of those REM customers that you survey, in fact, believed they were customers of an utility. 788 MR. DEAS: Yes. 789 MR. JANIGAN: And is this -- might this be an example of the problems concerning the deception/misunderstanding that you referred to in Exhibit 14? 790 MR. DEAS: It's difficult to say. Could you clarify, please? 791 MR. JANIGAN: Well, it seems obvious, though, that the -- if there is a substantial number of customers, as 25 per cent believe that they're dealing with the Union utility, that one of the causes for their misunderstanding may well be the deception or misunderstanding by the REM that is actually providing them the service. 792 MR. DEAS: In fact, in lots of cases, they were saying that it was false advertising or a dishonest sales rep as opposed to, I suppose, what you're saying is a day-to-day association that they don't believe they're working with. 793 So it's quite possible that some of the responses did refer to that, but at a glance, this wouldn't suggest that that's the majority. 794 MR. JANIGAN: In your opinion, is this the kind of deception that might be alleviated if the marketers were able to deliver a direct bill to the customers, and were able to hide behind the utility bill, as it were? 795 MR. DEAS: I'm not sure that I'm really in a position to answer that. But to the extent that we look at this page, there are some mentions of billing problems and poor administration. But, again, as I said, it seems that an awful lot of the mentions refer to advertising and dishonest sales reps as consumers see it as opposed to the day-to-day problems. 796 MR. JANIGAN: Is this the first time that you've looked at billing issues in relation to a utility? 797 MR. DEAS: We have done a number of surveys for utilities and it's possible we might have touched on billing, but certainly not to this extent. 798 MR. JANIGAN: Do you feel capable of giving an opinion of the relationship between billing and the customer relationship as a whole and its importance? 799 MR. DEAS: No. 800 MR. JANIGAN: Thank you, Mr. Chair, those are all my questions. 801 MR. JACKSON: Thank you, Mr. Janigan. 802 Ms. Flaherty. 803 CROSS-EXAMINATION BY MS. FLAHERTY: 804 MS. FLAHERTY: Hello. My name is Michelle Flaherty and I represent the Industrial Gas Users' Association. I have a couple of quick questions for you. 805 First is, am I correct that the only customers you surveyed are residential customers? 806 MR. DEAS: Yes. 807 MS. FLAHERTY: And so then the conclusions that you arrived at cannot be said to apply to any customers besides residential customers? 808 MR. DEAS: Correct. 809 MS. FLAHERTY: Thank you. Those are my questions. 810 MR. JACKSON: Thank you. Are there any other intervenors that wish to ask questions? 811 Mr. Moran. 812 MR. MORAN: I don't have any questions. 813 MR. JACKSON: Thank you. 814 QUESTIONS FROM THE BOARD: 815 MR. DOMINY: Mr. Deas, I notice in the survey terms and conditions which were filed as, I think, an answer to an interrogatory, they mention a total cost to the project in the range of 18,500 to 20,500. Is that the cost of this survey, approximately? 816 MR. TYLER: In the end we billed Union for 24,500. 817 MR. DOMINY: In the terms of reference, there was a statement which says: "The objectives are to gauge the overall level of satisfaction with the current gas bill." That is, in fact, the first of the research objective. It's Roman numeral VI on the page in your terms of reference. 818 Was that, in fact -- were conclusions on that made with regard to the survey? 819 MR. DEAS: In fact, that objective didn't make its way through to the final set. It's the -- 820 MR. DOMINY: It's the very thick binder, Ms. Jackson. 821 MS. JACKSON: Thank you, I have it. If you could tell me where in the thick binder, I would be grateful, Mr. Dominy. 822 MR. DOMINY: It's under a heading called "Survey Terms and Conditions," and it's Roman numeral page VI. But it may be displaced because I received two sets of Roman numerals. 823 MS. JACKSON: I'm looking at a page that says "Research Objectives." 824 MR. DOMINY: Yes. The very first page. 825 MS. JACKSON: Do you have this? 826 MR. DEAS: Yes, this was in our proposal, but it didn't make its way, in fact, in the end, to the -- to the actual final objectives for the study. 827 MR. DOMINY: I see. 828 Further on that page you come to Roman numeral XVIII. It's called appendix and is describing your relevant experience. 829 MR. DEAS: 17, we have, relevant experience. 830 MR. DOMINY: Okay. Well, there are four items. There is Union Gas PBA account, settlement research. It's the fourth one that I was -- 831 MR. DEAS: Okay, sorry. 832 MR. DOMINY: -- interested in. Bill insert ad tests. And I was wondering, Ms. Creighton had talked about the readership of material that is filed in their bill, the bill-stuffers in the Union area, and I was wondering whether there are any comments regarding the results of that study. I don't know whether you were involved in it, if either of you could advise me on it. It came out of that particular piece of research? 833 MR. TYLER: Well, the bill insert ad tests were done over a period of perhaps two or three years, if I recall. This is quite a few years ago. And it was basically, if I recall, to test a different -- I guess different creative concepts and the communication of some specific pieces of information that they were making available to their customers. 834 MR. DOMINY: So the focus was different than the question that I was relating it to which was readership, whether people actually read the material. What you're saying is very focused research. 835 MR. TYLER: It would have asked -- I think readership was one of the things. I can't remember incidences, if that's what you're asking. Some of them, it was better than others, but I don't remember what. 836 MR. DOMINY: Fair enough. 837 And then I notice that in the results of your survey, at the initial -- the initial intent was to do 400 customers; 200 system customers and 200 customers of marketers. And I notice that you ended up with 243 marketer customers and 162 system customers. 838 I just want to -- that's just because you were given two lists and some had changed their category; is that what had happened? 839 MR. TYLER: Well, partly true. We were given a list by Union Gas and I believe that they wanted us to -- to work without any prior knowledge, and so they didn't identify on the list whether the customer was a system customer or a direct purchase customer. So we began interviewing and, of course, the questionnaire was set up so that we would determine at the outset whether the person was a system customer or a direct purchase energy marketer customer. 840 And we assumed that with the description given prior to that first question, explaining that when they get their natural gas bill that it's -- they're paying for the gas molecules as well as delivery of that gas, we assumed that when you explain that to someone, nice and clear, that they would recall whether or not they were indeed an energy marketer customer or not. 841 And in the end we found that there were some people who had told us that they were system customers who in fact weren't. Union Gas verifies whether the person was in fact a system customer for us. 842 MR. DOMINY: Thank you. 843 And the last question, I assume this is the case, but just to confirm it. 844 You have a script that the surveyor goes through, and you deal with the issues of the type of bill, one bill, or separate bills, and who provides you with the bill before you ask questions regarding the perception of the party with regard to the quality of the bill or the -- their opinion with regard to marketers, because you asked questions like, have you heard of any problems with marketers? 845 So I'm assuming that you've answered the first questions before you raise any of these other questions which might give doubt in the person's mind and they come back to it. If they were to come back to the question to answer, from whom would you get the bill -- what I'm trying to get at is if you go through and say, have you heard of any problems about marketers, and most people would have read stories in the press, they may say they've heard of problems. I can't remember your questions, whether you distinguish between heard of or actually experienced problems. 846 And secondly, if you asked that question, before you asked the question, where would you like to get your bill, you might have prejudiced the response. Could you comment on that? 847 MR. TYLER: Sure. In a survey, you structure it so that the most important topics are asked up front and in a manner which isn't potentially biased by any context or any other setting. So that's how the survey is structured. 848 We talked first about the billing options, since that was absolutely key, and then at the very end, before we obtain the basic demographic information about their household, we asked whether they had ever experienced any problems, and whether, if they hadn't experienced problems, whether they had heard of anyone who had experienced problems. But that was at the end, and that's right, the reasoning is correct. 849 MR. DOMINY: And those are all of my pre-questions in the sense that, in terms of the research objectives, those questions are really not reflected in the research objectives of your study, which is on page 2 of your report. 850 MR. DEAS: It's to give us some further information about the consumers' attitudes. But you're right, they're not specifically covered in the objectives. 851 MR. DOMINY: Thank you. Those are my questions. 852 MR. JACKSON: Thank you, gentlemen. I have no questions and Mr. Sommerville has no questions. 853 so Ms. Jackson may have a few follow-ups. 854 RE-EXAMINATION BY MS. JACKSON: 855 MS. JACKSON: I have two questions, gentlemen. You were taken earlier to the script of questions, Study J-0808, and just following up on Mr. Dominy's questions, can you tell the Board whether the questions were asked in the order in which they appear in this script? 856 MR. DEAS: They were. 857 MS. JACKSON: Thank you. And then I see that on the first page of that script near the bottom, question 1: "Just think about gas purchase, not delivery. From what company do you buy your natural gas?" If a customer knew who they were -- the energy marketer from whom they were buying their gas, is that where you had -- you indicated that would come up at some point? Is that where that comes up? If I'm a customer and I know the name of my energy marketer, how does that emerge in this survey, if at all? 858 MR. DEAS: It doesn't, really. It would be recorded under energy marketer. 859 MS. JACKSON: And up above that, where you say in the question: "Some households buy their gas from an independent energy marketer while others buy from Union Gas. Regardless, Union Gas is the company which actually delivers the gas to your home." You were asked some questions about the significance of identifying a particular energy marketer, for example, Sunoco instead of a generic energy marketer. If you had identified a specific energy marketer such as Sunoco, for example, in your view, would that produce a more or less or similarly reliable result? 860 MR. DEAS: Well, I think less on the basis that we're talking then about just one marketer, and that consumers then might be confused if they're thinking of other -- other marketers. To me, I think that we've worded this in the most appropriate way possible to get at the information that was required. 861 MS. JACKSON: Thank you, gentlemen, I have no more questions. 862 MR. JACKSON: Mr. Deas and Mr. Tyler, thank you very much for coming. You're excused. 863 MR. JACKSON: The plan was to do this Panel and then adjourn until tomorrow morning? 864 MS. JACKSON: That's my understanding, Mr. Chair, and I understand by arrangement that North Star has a guaranteed slot, as it were, at 9:30 tomorrow morning. 865 MR. VEGH: That's right, sir. There will be a Convergence Group Panel tomorrow morning, which will have a representative -- or two representatives from North Star as well as representative of Sunoco Inc. and Toronto Hydro Energy Services. 866 MS. JACKSON: That's the first I'd heard of the other two. I wonder if we could find out who they are and what they're going to be speaking about. 867 MR. VEGH: Okay. 868 Well, I'm surprised it's the first you've heard of the other two, Ms. Jackson. But just for the record, as I indicated in the notice of intervention for late -- application for late intervention status, the North Star evidence which was originally sponsored by CEED, so it would have been put forward through CEED, is now being put forward through The Convergence Group. The Convergence Group in fact, includes the membership that sponsored this evidence. So from Toronto Hydro Energy Services, we'll be hearing from Mr. Gerry Hagerty, who also gave evidence or made submissions, made a presentation during the oral consultation in June. He is in charge of energy supply at Toronto Hydro Energy. And from Sunoco Inc., we'll be hearing from Mr. Arnel Sherati, who is the director of regulatory and energy supply at Sunoco. And they will just be referring to their sponsorship of this evidence. And from North Star Research, we'll have the people responsible for the survey. 869 MS. JACKSON: So the representatives from my friend's clients are just confirming they've sponsored the survey? 870 MR. VEGH: I expect, just as Ms. Jackson's witnesses do, they'll have some opening statement from the -- from the witnesses. 871 MS. JACKSON: The only difference of course being that the witnesses I've been seeking, as my friend calls it, opening statements from, it's basically a summary and direction based on their pre-filed evidence. I have no pre-filed evidence from these two people. 872 MR. VEGH: Well, what I heard from Mr. Feldmann on Friday afternoon was not a summary of his pre-filed evidence, it was an opening statement indicating what it was that he was to give evidence on. 873 MS. JACKSON: My friend is not prepared to indicate beyond what this -- what they're prepared to testify to, we'll just have to deal with it tomorrow. I just make the observation that that's not what I had expected. 874 MR. JACKSON: My recollection is that in this environment, we have had sort of a minimum 24-hour-notice rule, but even that's usually longer if you can possibly give us any more notice. But if you're telling us that all your two further witnesses will be doing is confirming what their instructions were to North Star, is that what you're saying the evidence will be? 875 MR. VEGH: The opening statement will be simply a response to the question: Why did you sponsor the North Star evidence? 876 MR. JACKSON: And it will be relatively brief? 877 MR. VEGH: Yes. 878 MR. JACKSON: Okay. Well, we'll see what happens tomorrow, Mr. Vegh. But thank you for that much of a preview. 879 MR. VEGH: Thank you. 880 MR. JACKSON: Thank you. We're adjourned until 9:30 tomorrow morning. 881 --- Whereupon the hearing adjourned at 2:35 p.m.