Rep: OEB Doc: 128r2 Rev: 0 ONTARIO ENERGY BOARD Volume: 6 February 27, 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 THE CONVERGENCE GROUP - PANEL 1; Sworn [19] EXAMINATION BY MR. VEGH: [29] CROSS-EXAMINATION BY MS. FLAHERTY: [84] CROSS-EXAMINATION BY MS. JACKSON: [95] CROSS-EXAMINATION BY MR. MORAN: [278] QUESTIONS FROM THE BOARD: [290] UNION GAS LIMITED - PANEL 3; Sworn [374] EXAMINATION BY MS. JACKSON: [375] CROSS-EXAMINATION BY MR. WARREN: [411] CROSS-EXAMINATION BY MR. BROWN: [554] CROSS-EXAMINATION BY MR. VEGH: [619] CROSS-EXAMINATION BY MR. JANIGAN: [781] CROSS-EXAMINATION BY MS. FLAHERTY: [855] CROSS-EXAMINATION BY MR. MORAN: [900] QUESTIONS FROM THE BOARD: [925] 7 EXHIBITS 8 EXHIBIT F6.1: CVs FOR THE CONVERGENCE GROUP PANEL MEMBERS [24] EXHIBIT F6.2: REPORTS FILED BY THE CONVERGENCE GROUP [26] EXHIBIT NO. F6.3: EXCERPTS FROM THE REPORT TO THE GOVERNOR IN COUNCIL ON THE STATUS OF COMPETITION IN CANADIAN TELECOMMUNICATIONS MARKETS [803] 9 UNDERTAKINGS 10 UNDERTAKING NO. G6.1 TO PROVIDE U.K. STUDY ON DUAL-FUEL BILLING [937] 11 --- Upon commencing at 9:35 a.m. 12 MR. JACKSON: Good morning. Please be seated. 13 Any preliminary matters before we hear -- are there any preliminary matters before we hear from Mr. Vegh this morning? 14 Mr. Vegh, then, or -- 15 MS. JACKSON: I have no preliminary matters, Mr. Chair. 16 MR. JACKSON: Thank you. 17 MR. VEGH: Thank you, sir. I would like to present the Panel for the The Convergence Group. I would ask that the Panel be sworn. 18 MR. SOMMERVILLE: Do you prefer to be sworn or affirmed? 19 THE CONVERGENCE GROUP - PANEL 1; Sworn 20 MR. MORAN: Mr. Chair, there are a couple of exhibits to mark. 21 MR. JACKSON: Thank you. Let's do that. 22 MR. MORAN: We have resumes or CVs, I guess, for this Witness Panel that would become F6.1. 23 MR. JACKSON: Thank you. 24 EXHIBIT F6.1: CVs FOR THE CONVERGENCE GROUP PANEL MEMBERS 25 MR. MORAN: And the -- there is a report done by North Star called billing practices, a report for Toronto Hydro Energy Services Inc., Ontario Hydro Energy Inc., and Sunoco Energy Inc., dated June 13, 2001. And that would become F6.2. This was filed as part of the motion for intervenor status but it hasn't been marked as an exhibit in the proceeding. 26 EXHIBIT F6.2: REPORTS FILED BY THE CONVERGENCE GROUP 27 MR. JACKSON: Good. Thank you, Mr. Moran. 28 MR. VEGH: And just to be clear, the billing practices report was also filed during the evidence process in this case as well. I forget the exact date but it was filed as part of intervenor evidence earlier on. I don't think anything turns on that. I just want to be clear for the record. 29 EXAMINATION BY MR. VEGH: 30 MR. VEGH: Thank you, Mr. Moran. Thank you, sir. 31 I would like to introduce the Panel to the Board, starting with the person -- one person away from me. That's Mr. Douglas Davey. Good morning, Mr. Davey. 32 MR. DAVEY: Good morning. 33 MR. VEGH: Mr. Davey, I have your resume and the Board has your resume at Exhibit F6.1. You're currently the Executive Vice-president of North Star Research Partners? 34 MR. DAVEY: Yes. 35 MR. VEGH: And were you responsible for preparing this report, which has now been given Exhibit F6.2? 36 MR. DAVEY: Yes, I was. 37 MR. VEGH: And were you also responsible for preparing the interrogatories -- responses to the interrogatories at Exhibit E4 and Exhibit E4.1? 38 MR. DAVEY: Yes. 39 MR. VEGH: And you adopt those interrogatory responses as your evidence? 40 MR. DAVEY: Yes. 41 MR. VEGH: Thank you. 42 And right next to you, closest to me, Mr. Peter Zoutis. You're a research associate at North Star? 43 MR. ZOUTIS: That's correct. 44 MR. VEGH: And you work in the areas of survey design sampling methodology? 45 MR. ZOUTIS: That's correct. 46 MR. VEGH: And you were involved in answering the responses to the interrogatories that dealt with survey design and methodology? 47 MR. ZOUTIS: That's correct. 48 MR. VEGH: Thank you. 49 Next to Mr. Davey on the other side, Panel, is Mr. Haggerty. Good morning, Mr. Haggerty. 50 MR. HAGGERTY: Good morning. 51 MR. VEGH: You're the director of natural gas at Toronto Hydro Energy? 52 MR. HAGGERTY: Toronto Hydro Energy Services, that's correct. 53 MR. VEGH: Thank you. And would you just briefly state, what are your responsibilities at Toronto Hydro Energy Services Inc.? 54 MR. HAGGERTY: As director of natural gas, I'm responsible for all natural gas operations, including the purchase of gas and also for regulatory matters relating to natural gas. 55 MR. VEGH: Thank you. And you've -- just looking at page 2 of your CV, at the bottom, it indicates that you've appeared in a number of regulatory proceedings before this Board. 56 MR. HAGGERTY: Yes, I have. 57 MR. VEGH: Thank you. I'll get back to you in a moment, Mr. Haggerty. 58 And then furthest from me, closest to the Board, is Mr. Arnel Schiratti. Good morning, Mr. Schiratti. 59 MR. SCHIRATTI: Good morning. 60 MR. VEGH: And you're now the director of energy supply and regulatory affairs at Suncor/Sunoco? 61 MR. SCHIRATTI: That's correct. 62 MR. VEGH: Briefly state what your responsibilities are at Suncor/Sunoco. 63 MR. SCHIRATTI: I am the director responsible for all the purchase of natural gas with respect to our refinery and our retail natural gas business, as well as all regulatory affairs with respect to natural gas. 64 MR. VEGH: Thank you. Mr. Haggerty, going back to you for a moment, Toronto Hydro Energy Services participated along with Ontario Hydro Energy and Sunoco Inc. in the oral consultation before the Board this summer respecting the Gas Distribution Access Rule? 65 MR. HAGGERTY: Yes, we did. 66 MR. VEGH: And as part of that process, you, as well as the or members of that association or that group, retained North Star Research to prepare a report on billing practices? 67 MR. HAGGERTY: That's correct. 68 MR. VEGH: And could you just advise, why did Toronto Hydro participate in sponsoring that evidence? 69 MR. HAGGERTY: Toronto Hydro Energy Services is a licensed marketer of both natural gas and electricity in Ontario, and we believe that customers wish to have a choice of receiving a combined bill from both gas and electricity. 70 During the Gas Distribution Access Rule process, there was an issue of marketer-consolidated billing that was addressed and discussed thoroughly. Surveys were conducted and filed by both Union Gas and Enbridge Consumers Gas in that proceeding, relating to billing preferences. 71 However, the question of whether the customer could choose who would send them the bill was never asked in either of those surveys. We felt that this was an important question to be asked and therefore we commissioned the survey to be done by North Star, to ask this question specifically. 72 We believe that the customer should have the choice of who sends their bill to them for their energy purchases, and there is symmetry between the rules for gas and electricity and that the opportunity exists to provide a single bill to customers for their energy purchases. 73 MR. VEGH: Thank you. 74 Mr. Schiratti, do you have anything to add to that on behalf of Sunoco? 75 MR. SCHIRATTI: I suppose, on behalf of Sunoco, I would just like to echo the comments made by my colleague and competitor, that frankly, as Sunoco/Suncor, we did not believe that the fundamental question was asked: Do customers really want the freedom to choose who provides them their bill? We felt it was important for us. We felt it was important for the Board to hear the voice of customers in order to tailor our specific offerings to customers. 76 In addition, with respect to the symmetry between natural gas and electricity, we not only believe that it is necessary, we also believe that it is a wise and reasonable course of action. We believe that it takes the customer's interests in mind rather than the current market participants. 77 MR. VEGH: Thank you, Panel. Those are my questions. And I would like to present this Panel for cross-examination. 78 MS. JACKSON: Mr. Chair, could I just clarify: I assume, based on the principle that you annunciated earlier, that I come at the end of this cross-examination in terms of the list of people. To be absolutely clear, I take it this evidence is called adverse an interest to Union Gas. 79 MR. JACKSON: Yes. I think that does make sense, Ms. Jackson. Thank you. Sorry? 80 MR. BROWN: On that basis, I have no questions of this Panel. 81 MR. JACKSON: Thank you. 82 MR. JANIGAN: I have no questions of this Panel, Mr. Chair. 83 MS. FLAHERTY: I have two very brief questions. 84 CROSS-EXAMINATION BY MS. FLAHERTY: 85 MS. FLAHERTY: My name is Michelle Flaherty, and I represent the Industrial Gas Users' Asociation of -- sorry, the Industrial Gas User's Association. And my questions are these: 86 In this survey, am I correct in that you only surveyed residential customers? 87 MR. DAVEY: Yes, that's correct. 88 MS. FLAHERTY: So any conclusions you arrived at would only apply to residential customers, then? 89 MR. DAVEY: That's right. 90 MS. FLAHERTY: Thank you. Those are my questions. 91 MR. JACKSON: Now, Mr. Moran is not supposed to be taking sides, so, Ms. Jackson, perhaps -- I'm not sure. I'm open to suggestions on this. 92 Mr. Moran, where do you think you should go in the order? 93 MR. MORAN: I would suggest the usual place - last, Mr. Chair. 94 MR. JACKSON: Thank you. 95 CROSS-EXAMINATION BY MS. JACKSON: 96 MS. JACKSON: I have a very few questions, Mr. Chairman, and I think they're all directed to you, Mr. Davey and Mr. Zoutis. They relate to the survey. 97 Now, as I understand your evidence, you conducted this survey in four area codes in Ontario: 416, 519, 905, 613; is that correct? 98 MR. DAVEY: Yes. 99 MS. JACKSON: And you know that in all of -- in those areas, there are places that are not served by natural gas; you know that? 100 MR. DAVEY: Yes, I do know that. 101 MS. JACKSON: And in areas that are served by natural gas, there are still customers that are not served by natural gas? 102 MR. DAVEY: Right. 103 MS. JACKSON: Do you know, for example, what percentage of the people in the 519 area code actually have -- actually consume or purchase natural gas? 104 MR. DAVEY: No, I don't. 105 MS. JACKSON: No idea at all? 106 MR. DAVEY: None. 107 MS. JACKSON: Would the same be true for the 416, 905, and 613 area codes? 108 MR. DAVEY: Yes, the same would be true. 109 MS. JACKSON: And you didn't conduct any survey in the 705 area code? 110 MR. DAVEY: No. 111 MS. JACKSON: And I take you don't know what the disposition of natural gas consumers in the 705 area code would be? 112 MR. DAVEY: I don't know. 113 MS. JACKSON: But you know that the 705 area code is in the Union franchise? 114 MR. DAVEY: I didn't know that. 115 MS. JACKSON: You didn't know that, okay. 116 And I take it, therefore, and in fact you've been quite express about this in the interrogatories, that you're unable to say of those you surveyed, how many are actually natural gas customers. 117 MR. DAVEY: That's correct. I have no idea. 118 MS. JACKSON: And, in fact, you didn't ask the people you surveyed, as one of the questions, whether they consumed natural gas? 119 MR. DAVEY: That's correct. We did not. 120 MS. JACKSON: And I took it from your answer to question 3 from Union Gas that the decision to sample in this way -- perhaps you might want to turn that up. Question -- it's Exhibit E4, question 3. I took from that that the sampling methodology was as requested by your clients. 121 MR. DAVEY: Yes. 122 MS. JACKSON: Okay. And I take it, therefore, it would, I guess, follow from the fact that you don't know which of the respondents were natural gas customers, you also wouldn't know if they were natural gas customers, whether they were system customers or direct purchase customers. 123 MR. DAVEY: No, I do not know. 124 MS. JACKSON: And I take it as well that neither -- that none of the three companies that approached you were interested in surveying the preferences of their own customers? 125 MR. DAVEY: No, they did not express any interest in that. 126 MS. JACKSON: All right. 127 Looking at the core correspondence you were kind enough to file in response to interrogatories, it appears to me that you were retained on June the 6th of 2001. 128 MR. DAVEY: Yes. 129 MS. JACKSON: And having been retained, you prepared a draft questionnaire which you then -- 130 MR. VEGH: I'm sorry, which correspondence are you referring to? 131 MS. JACKSON: The correspondence attached to the interrogatories. I think Mr. Davey has it in mind. 132 MR. VEGH: Sorry, just to make sure he has it in front of him. This is the e-mail correspondence between myself and Mr. Davey? 133 MS. JACKSON: That's right. I don't have an evidentiary reference for it; it just appears at the back of the interrogatory answers. 134 MR. VEGH: Maybe for the record, I believe this is an attachment to the response to interrogatory number 1 filed by Union Gas. 135 MS. JACKSON: Okay. It actually came in the package just at the end and I think it's been filed in most people's evidence that way. It doesn't have a number on it. But, Mr. Chair, there are a series of e-mail correspondences that, in the way that this evidence was delivered to us, occur after the text of the interrogatory responses, which are Exhibit E4. 136 In any event, Mr. Davey, you were retained on June 6th and you prepared very quickly a brief questionnaire in response to that retainer? 137 MR. DAVEY: Yes. 138 MS. JACKSON: And provided it to Mr. Vegh? 139 MR. DAVEY: Yes. 140 MS. JACKSON: And I see that you haven't provided us with the draft questionnaire in the materials. Do I take it that's no longer available? 141 MR. DAVEY: Yes, it is no longer available. 142 MS. JACKSON: And Mr. Vegh proposed some amendments and some deletions to those questions and those were agreeable to you, sir? 143 MR. DAVEY: Yes. 144 MS. JACKSON: All right. The questionnaire was administered, as I take it, over one evening -- 145 MR. DAVEY: Yes. 146 MS. JACKSON: -- June the 7th. 147 MR. DAVEY: Friday night, yes. 148 MS. JACKSON: And I noticed that in Exhibit E4, question 6, you say -- this was in relation to the question did people -- "Did you call people back?" and you didn't answer the first time, which is what you would ordinarily do, I take it, if you have more time? 149 MR. DAVEY: Yes, we would probably do more call-backs. 150 MS. JACKSON: You say in answer to that inquiry, "A call-back system was used. Noteworthy: A small number of call-backs is reflective of the short period of time this study was in field, one evening." 151 Why is it noteworthy? 152 MR. DAVEY: We didn't have the time to do call-backs. 153 MS. JACKSON: All right. 154 MR. DAVEY: It was a relatively simple screen, so it was by dialing more numbers we got sample -- 155 MS. JACKSON: Can I ask you to lean closer to the microphone and speak a little more slowly because we have a reporter who has to get down what you're saying, and of course we want the Board it hear it. 156 MR. DAVEY: It was relatively easy to get the numbers in one night so we didn't have to do a lot of call-backs to get them. 157 MS. JACKSON: Now, you -- in the material that is attached to the interrogatory responses, there is a document -- and, again, I'm afraid I can't give you a page number. It's entitled "Report Type - Disposition Report." 158 MR. DAVEY: Yes. 159 MS. JACKSON: It looks like this. 160 MR. DAVEY: Yes. 161 MS. JACKSON: Mr. Chair, it's a sort of computer summary. And in the evidence as I received it, it's after the text of the questions. 162 MR. JACKSON: Yes. I have a separate package after that, too, and it appears to be after the 15 pages that are printed on landscape. 163 MS. JACKSON: That's right. Then we also get into a series of computer printouts. And if you go seven pages in, at least in my copy, you would come to a report called "Disposition Report". 164 MR. JACKSON: At seven pages I get the first -- the first e-mail from Mr. Vegh. 165 MS. JACKSON: Well, in my copy it's just before that, but it may be -- in different copies it may be that it's in a different order. 166 MR. JACKSON: It is called "Disposition Report"? 167 MS. JACKSON: That's correct. 168 MR. JACKSON: I have it, thank you. 169 MS. JACKSON: On that -- 170 MR. JACKSON: Six pages in. 171 MS. JACKSON: On that disposition report, Mr. Davey, you've summarized what happened as a result of all of the calls that you made, as I understand this report; is that correct? 172 MR. DAVEY: Yes. 173 MS. JACKSON: And at the top, you say that 259 interviews were completed; is that correct? 174 MR. DAVEY: Yes. 175 MS. JACKSON: And I take it that means in 259 instances, the contact was made and all the questions were asked and answered? 176 MR. DAVEY: Yes. 177 MS. JACKSON: Then I go forward, sir, to your report in -- and in a number of places, you indicate that you're reporting on 200 responses. Can you reconcile that discrepancy? 178 MR. DAVEY: Yes. The field company called into two invalid area codes in 59 interviews. So they were not included in the sample when it was done. 179 MS. JACKSON: Which area codes were those? 180 MR. DAVEY: I don't know. They didn't send the extracts to us. 181 MS. JACKSON: All right. 182 MR. DAVEY: They were apologetic and didn't charge us for those calls. 183 MS. JACKSON: Now, can I ask you to turn up the text of the first question that you asked, Mr. Davey. And it appears in various places, but it might be useful to look at the large printed version of that question, which comes in the data tables that are appended -- that come at the back of the interrogatory responses. And I'm look at page 12 of the attachments to the interrogatories. Do you have that? 184 MR. DAVEY: Yes. 185 MS. JACKSON: Does the Board have that? It's, again, if you look at the end of the interrogatories in the package that's attached, we have -- we start with something called "Billing Practices," a report, and if you go in 12 pages from that we have, I think, the text of the first question. Is that correct, Mr. Davey? 186 MR. DAVEY: Yes. 187 MR. JACKSON: Okay. The billing practices report starts on the fourth page into my package, so that was the problem. But you say if I go another 12 I might find it? 188 MS. JACKSON: On my copy, there is actually a page number on this portion of the attachments, in the lower right-hand corner. 189 MR. JACKSON: Yes. And you would like me to go to page 12, then, of that set. 190 MR. VEGH: This is page 12 of the report of Exhibit F6.2. 191 MR. JACKSON: Okay that's easy, thank you. 192 MS. JACKSON: Sorry, I didn't realize it was there as well. 193 Have we all got that? Thank you. 194 Now, the first part of this question sort of sets the scene; is that fair? 195 MR. DAVEY: Yes. 196 MS. JACKSON: And then you -- the question says: "For purposes of this question, please assume that you are purchasing natural gas from a company other than the one that is responsible for delivering it to your home." In other words, you're asking the respondent to assume that the respondent is a direct purchaser of natural gas? 197 MR. DAVEY: Yes. 198 MS. JACKSON: Although they may not be a direct purchaser and may not even be consuming natural gas? 199 MR. DAVEY: Correct. 200 MS. JACKSON: And then you set out the responses of those people, and from those people, 91 percent preferred a single bill for their gas services; is that a fair conclusion from this question? 201 MR. DAVEY: Yes. 202 MS. JACKSON: But you did not test, sir, whether those results would be the same among system customers and direct purchase customers, did you? 203 MR. DAVEY: No. 204 MS. JACKSON: And you did not test whether those results would be the same among gas purchasers and non-gas purchasers; is that correct? 205 MR. DAVEY: That's correct. 206 MS. JACKSON: And you didn't test whether the preference for the single bill is therefore the same amongst those different groups of people? 207 MR. DAVEY: That's correct. 208 MS. JACKSON: So when I flip over, sir, to your conclusions, which -- let me just find them here. I apologize. On page 10 of your report -- 209 MR. DAVEY: Yes. 210 MS. JACKSON: -- you say: "It is clear from the data that the vast majority would prefer to receive a single bill rather than multiple bills, regardless of who they buy their natural gas and/or electricity from." You didn't actually test their preferences, depending on whether they did or didn't purchase natural gas or whether they did it on a supply -- on a system or a direct purchase basis, did you? In other words -- 211 MR. DAVEY: Explain that question again, please. 212 MS. JACKSON: You can't tell -- it's not clear whether the results from the answer to this question would be the same amongst direct purchasers, system purchasers, and non-gas purchasers; correct? 213 MR. DAVEY: I could not say whether they were the same. 214 MS. JACKSON: All right. 215 And therefore we can't say whether these results are the same, regardless of who they, in fact, acquire their energy from? 216 MR. DAVEY: No. I could say that they are the same for utility purchasers in the household, people responsible for paying utility bills in a household. 217 MS. JACKSON: Well, you report on utility purchases generally, but you can't say whether they are the same amongst people who do or don't purchase natural gas or whether they do purchase from a direct purchaser or a system purchaser. 218 MR. DAVEY: That's correct. 219 MS. JACKSON: Now, when we move to question 2 of your survey, which is at page 13 of the report, are we to assume -- or do you expect the respondent to make the same assumption that is made with respect to question 1, that is, that they are direct purchaser of natural gas? 220 MR. DAVEY: Yes. 221 MS. JACKSON: And therefore, as with question 1, in terms of question 2, the assumption is that they are a direct purchaser but we don't know whether the results for question 2 would, in fact, differ amongst direct purchasers and system purchasers; correct? 222 MR. DAVEY: That's correct. 223 MS. JACKSON: And we don't know whether they would differ as between gas purchasers and electricity purchasers? 224 MR. DAVEY: That is also correct. 225 MS. JACKSON: And with respect to question 2, which is directed to the ability to choose who sends a single bill; correct? 226 MR. DAVEY: Not who sends, whether they want to choose or not. 227 MS. JACKSON: Whether they want to choose who sends. 228 MR. DAVEY: That's right. 229 MS. JACKSON: For purposes of this question, you may assume there would be no difference in either the cost or the information contained on the bill regardless of which company sends it to you. In other words, assume the bill characteristics don't change depending on who sends it to you. 230 MR. DAVEY: Right. 231 MS. JACKSON: Correct? 232 MR. DAVEY: Yes. 233 MS. JACKSON: So the question doesn't test preferences if bill characteristics are not the same, or are not perceived to be the same. 234 MR. DAVEY: That's true. 235 MS. JACKSON: And it doesn't test whether these preferences for billing choice would still exist if other characteristics of the gas services offered by the two bill providers were not the same. 236 MR. DAVEY: That's true. 237 MS. JACKSON: And you didn't ask the respondents who they would choose if they had the choice they said they wanted; correct? 238 MR. DAVEY: Correct. 239 MS. JACKSON: And in particular, you didn't ask them whether they would choose the gas supplier or the gas deliverer if they had a choice. 240 MR. DAVEY: No, we did not ask that. 241 MS. JACKSON: And I -- if I ask you to turn up, sir, your answer to question 2 in interrogatory E4 -- Exhibit E4, you indicate that -- just get that there. Have you got that? 242 MR. DAVEY: Mm-hmm, yes. 243 MS. JACKSON: No, respondents were not asked whom they would choose in terms of the various options as directed by the client; correct? 244 MR. DAVEY: Yes. 245 MS. JACKSON: So the decision not to ask who they would choose was your client's decision. 246 MR. DAVEY: That's correct. 247 MS. JACKSON: Was there any -- did you suggest they make that inquiry? 248 MR. DAVEY: No. 249 MS. JACKSON: All right. And my -- and then, sir, could I ask you to turn up question 3, which is at page 14 of your survey. Have you got that? 250 MR. DAVEY: Yes. 251 MS. JACKSON: And you say there: "As you may or may not know, the provincial government is planning to deregulate the purchase of electricity in Ontario. Once this happens, it may be possible to purchase both your electricity and your natural gas from the same supplier. Like in gas, the supplier may not be the same company that delivers the electricity to your home. If this were the case, this would require you to pay up to three bills per month; one for combined supply of gas and electricity, one for delivery of gas, and one for the delivery of electricity. Would you prefer to receive a single bill that shows all three charges but only requires a single payment, or would you prefer to receive up to three separate bills?" 252 And you record there, sir, a preference for the single bill; fair? 253 MR. DAVEY: Yes. 254 MS. JACKSON: But your research has already indicated, and other research has indicated, that customers seem to have a preference for one bill with respect to their gas services, supply and delivery; correct? 255 MR. DAVEY: Yes. 256 MS. JACKSON: And if that conclusion is correct, the only way under this scenario that the customer could get a bill for all, with all gas charges on it, would be to charge -- to choose the combined gas and electricity bill; correct? Of the three choices, there is no other way to get one bill for all of the gas charges? 257 MR. DAVEY: Explain that one more time, just so I'm clear on it. 258 MS. JACKSON: If you're right that customers prefer to get one single bill for their gas charges, supply and delivery. Of the three choices that you've given them, the only way they could get that one bill would be to choose the combined gas and electricity bill; correct? 259 MR. VEGH: I don't understand the reference to three choices. There seem to be two choices here, a single bill or up to three bills. That's what's causing my confusion around the question. 260 MS. JACKSON: The only way -- the other choices that are available under your -- under your question, the only way that a customer can get one bill for gas and supply -- for gas supply and delivery is to choose the single bill that combines electricity, correct? 261 MR. DAVEY: The only way to get one bill, that's correct. 262 MS. JACKSON: All right. And what this doesn't, therefore, test is whether the customer would prefer a single bill for all gas charges over a -- doesn't measure the customer preference for a single bill for all gas charges -- 263 MR. DAVEY: That's measured in question 1. 264 MS. JACKSON: Sorry. You didn't let me finish my question. 265 MR. DAVEY: Sorry. 266 MS. JACKSON: You didn't test whether a customer would prefer a single bill for all gas charges and a single bill for all electricity charges; correct? 267 MR. DAVEY: That would be included in the up to three separate bills, because you could have two. 268 MS. JACKSON: But you would not, under that scenario, have a single bill for all gas charges, would you? 269 MR. DAVEY: If you had electricity from the same supplier? 270 MS. JACKSON: Which are you suggesting would allow to you have a single bill for all gas charges, other than the one that requires -- that combines with electricity? 271 MR. DAVEY: Okay. This is talking about if you purchased your gas and electricity from the same supplier, that's what this question is asking. 272 MS. JACKSON: That's right. So this question does not test customer preference for a -- whether the customer would prefer a single bill for all gas charges and a single bill for all electricity charges, does it? 273 MR. DAVEY: No, it does not. 274 MS. JACKSON: Thank you. Thank you, gentlemen, those are my questions. 275 MR. JACKSON: I notice that Mr. Warren has arrived. Mr. Warren, did you wish to ask this Panel any questions? 276 MR. WARREN: Thank you. No, sir. 277 MR. JACKSON: Mr. Moran. 278 CROSS-EXAMINATION BY MR. MORAN: 279 MR. MORAN: Thank you, Mr. Chair. 280 I would like to direct my question to you, Mr. Haggerty, and to you, Mr. Schiratti. 281 What are you asking for from the Board in this hearing? 282 MR. HAGGERTY: What we are asking for is that customers have the choice to choose who they receive their bill for their natural gas purchases from, and that they have that choice to have it provided to them from their distributor or from their gas supplier. 283 also, we're asking that there's symmetry between the natural gas and the electricity with the Retail Settlement Code so that we have the same set of rules for both gas and electricity. 284 Toronto Hydro Energy Services is a marketer of both natural gas and also electricity, and it would be important to us to have that symmetry between those rules. 285 MR. MORAN: And I take it that you're pursuing the same option in the GDAR process? 286 MR. HAGGERTY: Yes, we are. 287 MR. MORAN: Okay. Mr. Schiratti? 288 MR. SCHIRATTI: That is correct, we are pursuing the same option as the GDAR. And I would echo the comments of my colleague. 289 MR. MORAN: Thank you. Those are all my questions, Mr. Chair. 290 QUESTIONS FROM THE BOARD: 291 MR. DOMINY: I asked Mr. Birmingham yesterday a question with regard to the role of the agent, and in response to my question he indicated that he understood that there were certain agreements in which the choice of billing options had been delegated to the agent, the marketer, in signing for that agreement. One of the clauses was that the agent may decide how the customer would be billed. 292 If that is the case, and it is the -- and if that is the content of the contract, where does customer choice fit in at the time of choosing billing if you can only enter the agreement with the condition that the agent decides who you will be billed by? Perhaps you could respond to that, and probably it's Mr. Haggerty and Mr. Schiratti because -- do their gas contracts with customers included those sorts of clauses? 293 MR. HAGGERTY: I believe you're referring to the appointment of agent that a customer would enter into when signing up for direct purchase? 294 MR. DOMINY: That's right. 295 MR. HAGGERTY: Under an appointment of agent, there are a number of -- of different areas in which a customer gives authority to the agent to act on their behalf. Because the contracts tends to be for periods of up to five years, and we're in a process of -- that may be changing. A number of things have been covered, which is the purchase of gas and supply of gas, transportation arrangements, and also billing issues are included in that. And it would give the agent the authority to act on the customer's behalf with respect to billing. 296 As in previous circumstances, here we had a change of the position with respect to the way the customers purchase their gas. It has been the practice that customers may require to make a positive election as to how they would want a service provided to them. And we believe that that would be appropriate for the customer to have that choice. But the -- it would not require that the agent would have to go back to the customer to get a new contract signed. They would have the authority to do the billing, but it would be a requirement they make the choice themselves. 297 MR. SCHIRATTI: From Sunoco's perspective, I'm not aware of anything in our contracts that would stipulate that the agent or the marketer would be the one who decides on behalf of customers what billing choices they would choose. 298 MR. DOMINY: Thank you. 299 The second discussion at some length yesterday, Mr. Birmingham was making a statement that, in fact, he believed it was the right of the provider of the service to provide the billing options, and then the selection, the customer could make a selection from those billing options. 300 I was wondering, therefore, from both Toronto Hydro Energy Services and Sunoco whether they were of the opinion that the customer could select an option other than the ones that have been provided by the company for the way in which they would be billed the services that their companies provide? 301 In other words, would it be possible for me, if I was in the Enbridge Gas consumers' area, to have my electricity billed by Sunoco, or if I was -- alternatively, the other way around, to have my gas billed by Toronto Hydro Energy Services if Sunoco was my energy supplier. I was wondering if you could -- each of you could respond to that question? 302 MR. SCHIRATTI: Sorry, Mr. Dominy, I don't quite understand the question or the -- or the scenario which you have indicated. 303 MR. DOMINY: The question that was -- the comments that were made by Mr. Birmingham related to the fact that it was his opinion that the choice of billing option was that of the provider in the -- not the choice, the billing options or the decision of the supplier of the service, i.e., in their case he would say, Union has these billing options and you can choose between them, as opposed to the customer choosing a specific billing option, i.e., marketer-consolidated billing, from Union when Union "according to the information provided has not indicated they were providing that service." 304 So I was asking the question, then, of Toronto Hydro and Sunoco, that if they were in the situation, would Sunoco allow me, if I was a Sunoco gas customer, to be billed for my gas by Toronto Hydro Energy Services? Equally, if I was a Toronto Hydro electricity customer, would Toronto Hydro allow my electricity to be billed by Sunoco? I'm a customer of both your companies. 305 MR. SCHIRATTI: I think that would depend on several items. One would -- from the Sunoco perspective, we would have to make a business decision as to what the risks are, what the risks would be to the company with respect to credit and prudential requirements. As well, it would be a commercial discussion between -- under your scenario, Sunoco and Toronto Hydro Services, the concern would certainly be -- or the issues would certainly be with respect to branding and other types of issues, as well as whether the customer has chosen that issue. 306 But again, in all of our discussions and in all of our discussions at Sunoco, it's mainly if it's -- if it's an issue that is required or demanded by customers, or if it provides us with a competitive advantage, we would certainly strongly consider it. 307 MR. DOMINY: Mr. Haggerty? 308 MR. HAGGERTY: I would agree that the biggest hurdle in that sort of scenario would be the arrangements between the two suppliers. Prudential arrangements between those two suppliers would have to be put in place to have the surety of payment, and it would get more complicated in that you would have to have surety of payment arrangements for more than one party, because the customer would have to assure their payment to one supplier who would then, in turn, have to supply it to a competitor. 309 As long as the systems and prudential requirements could be put in place, then I see that as a possibility. 310 MR. DOMINY: Mr. Haggerty, you must have been involved in the Retail Settlement Code type discussions for the electricity system from the retailer perspective as opposed to the utility perspective. 311 Do you think the conditions in the Retail Settlement Code and the service agreement provide you with -- or provides sufficient protection? 312 MR. HAGGERTY: Actually, I wasn't involved in the Retail Settlement Code discussions because they were on electricity. I'm just responsible for the gas side. 313 MR. DOMINY: I see. Thank you, those are my questions. 314 MR. SOMMERVILLE: No, thank you. 315 MR. JACKSON: I'm certainly very interested in the questions that Mr. Dominy asked and the answers that you gave, and I wonder if I could just explore this agency arrangement a little bit further. 316 We've heard that certain assumptions were made in earlier discussions about marketer-consolidated billing, and some of the assumptions went to the idea that the marketer would become a principal with respect to the provision of transportation services. I understand it. And yet during this proceeding, although that might have been the basis of some of the discussions and answers that we have heard, we've also heard on a number of occasions that the marketer is simply the agent for the end-use customer. And I would like to seek some clarification on this. 317 If the marketer is simply the agent, I'm having a little bit of trouble with the concepts about prudentials and security and so on. I can understand that the end-use customer might confuse the relationship, but if it's purely an agency relationship, I'm having trouble with the idea that the utility wouldn't have recourse to the end-use customer if the marketer didn't send the money through to the utility. 318 Can you help me a little bit on that, either of you two gentlemen? Mr. Haggerty, perhaps. 319 MR. HAGGERTY: The prudential requirements that we would have under any scenario would not just be with respect to the transportation arrangements but also the commodity as well. 320 MR. JACKSON: Okay. But then I take it that you're working from the point of view that you need them with respect to the transportation arrangements, that you are not simply being an agent in that case anymore. 321 MR. HAGGERTY: We act as agent on behalf of a number of customers that are aggregated into -- into one pool of customers. And it's collectively that the transportation arrangements are assigned from the respective utility to the agent to supply that pool. 322 MR. JACKSON: When you say the transportation arrangements, I understand that with respect to the upstream transportation arrangements, but with respect to the transportation arrangements on the distribution utility, have they -- are they assigning that in total, too? 323 MR. HAGGERTY: I'm sorry, I misunderstood you. I thought you were referring to the upstream transportation. 324 MR. JACKSON: Two types of transportation; one is local transportation; the other is, if you like, main-line transmission down the transportation corridor. 325 MR. HAGGERTY: Now that I've got that clear, can you repeat your question so I can -- I had it in a different context, I'm sorry. 326 MR. JACKSON: Yes. Do you see yourself as buying the transportation, the local transportation from the distributor under marketer-consolidated billing and then reselling it to the customer, or do you see that as being the agent of the customer and merely being the conduit for his payment? 327 MR. SCHIRATTI: I believe -- I believe from Sunoco's view, it's that we would simply be the conduit of local distribution to the customer from the utility. 328 MR. JACKSON: And if the -- if for some reason, far-fetched as it may seem to Sunoco, Sunoco could not make the payment to the utility, do you think the utility would have recourse to the customer? 329 MR. SCHIRATTI: It's my understanding that those prudential requirements would both be dealt with in the GDAR as currently written, as well as the Service Level Agreements. Of course, I would understand that the utilities would require prudential requirements from any marketer in Ontario. I would think less of them if they didn't require it. 330 MR. JACKSON: You see, the difficulty I'm having -- and I was not involved throughout the GDAR process. But I might very likely hire a property manager to look after one or two or three properties I have and I might be taking gas and electricity at those properties and I might ask the utility to send my bill to the property manager because it's far easier for him to write one cheque to cover the gas bill for the three properties and to handle that for me. I don't want to do it, is my assumption. 331 And there may be some business reason why you would be willing to do that for me in respect of the distribution bills for the properties that I have, and you might serve me gas at those three properties and be willing to do that for the distribution bills. 332 But I see the situation there in that circumstance as being perfectly analogous to us asking that it be sent to my property manager. 333 Now, that's just one scenario of how we could get to a marketer-consolidated bill. I'm fully aware that there have been discussions about a marketer becoming more of a principal in nature and undertaking a commitment to pay that bill. But why wouldn't the first scenario work in the simplest possible circumstances? If you get some benefit by offering to pay my bill for me, why can't you do that? Then I still have -- I still have the principal relationship with the distributor and you are only my agent. Has that even been considered by either of your two companies as a possible way that this might work? 334 MR. SCHIRATTI: That Sunoco or the marketer provides -- provides the bill for commodity and the utility continue to provide the bill for distribution? Am I getting your question? 335 MR. JACKSON: They send it to you and you remit the payment. 336 MR. SCHIRATTI: Frankly, I hadn't really -- Sunoco hadn't really considered it. But it would be another form, in my view, of a marketer-consolidated billing arrangement. It would still be -- it would still be the interface between the customer and the positive election to a marketer as the primary interface. But I don't see the difference between that and marketer-consolidated billing, frankly, because the utility, in my view, would be sending us a bill in -- under the case of marketer-consolidated billing, and then we would be simply flowing it through to the customer. 337 MR. JACKSON: Right. Well, I realize that you are here this week primarily to the North Star study. I do realize that. And perhaps you aren't the right people from the respective companies to understand the difference between an agency relationship and being a principal. Maybe that's something that's sort of beyond your camp, so to speak, I don't know. But it is an interesting area to explore in terms of understanding marketer-consolidated billing. As you yourself have said, you think that it is one form of marketer-consolidated billing. 338 And I'll try one more question and see whether it is something that you can handle. But in that simplest form of marketer-consolidated billing, can you think of any advantage to a marketer in wanting to do that for a customer? Not become a principal with respect to the payment but simply be the customer's agent for passing the payment through? Would there be any reason, from a business point of view or in terms of value to your company, to offer to do that? 339 MR. HAGGERTY: I believe that there would be, in that there would still -- that would still allow the ability to combine bills for gas and electricity. It would still provide the ability to -- it would be a benefit over split billing, in which you would reduce the number of bills that the customer would actually get. 340 So I would see that those -- that would be a feasible option. 341 The drawback to that would be that in order to make it a system that would actually work, the information would have to be transmitted electronically and in a bulk form, rather than getting 200,000 bills each month coming to us and having to sort them out manually. If the information could be transferred in a way that it could be uploaded into a system, then that would be a workable situation. 342 MR. JACKSON: Thank you very much for that. And thank you for trying to answer some of these questions. The value to us is that you're here. And so even though you're here for something else, thank you for giving that your time. 343 Now, Mr. Vegh. 344 MR. VEGH: I have no re-examination, thank you. 345 MR. JACKSON: We have one more question, if we may, Mr. Vegh. You can have another shot at this, too. But Mr. Dominy, why don't you go ahead and put it. 346 MR. DOMINY: There is just a question of interest. I know there is a relationship between Toronto Hydro as the utility and Toronto Hydro Energy Services, and I was wondering, in the context of Toronto Hydro Energy Services, whether they will be doing marketer-consolidated billing, distributor-consolidated billing, or split -- I don't know if it's split billing, under the arrangements when the market opens? 347 MR. HAGGERTY: For electricity? 348 MR. DOMINY: For electricity. 349 MR. HAGGERTY: Toronto Hydro Energy Services is interested to be involved in marketer-consolidated billing and are in the process of putting in place a billing system to do that. Because we supply customers electricity throughout all of Ontario, which represents a number of LDCs at the electricity level, it's that in all probability, we will have both marketer-consolidated billing and distributor billing because of the different systems and being ready in different jurisdictions, and possibly even the size. Some of the smaller municipalities and LDCs, we may have only a few customers where it may be easier. So initially it will be both. 350 MR. DOMINY: So you're putting in the systems necessary to do it? That's the question, really. 351 MR. HAGGERTY: Yes, we are. 352 MR. DOMINY: Thank you. 353 MR. JACKSON: Mr. Vegh, are you okay, then? 354 MR. VEGH: Thank you, that's fine. 355 MR. JACKSON: Good. Thank you very much. Thank you very much, Panel, for your assistance. 356 MR. SCHIRATTI: Thank you. 357 MR. JACKSON: Ms. Jackson, would it be a convenience to break for the morning break at this point? 358 MS. JACKSON: Certainly, yes. 359 MR. JACKSON: And then you have your witness. 360 MS. JACKSON: And Dr. Schwindt will be here after the break, yes. 361 MR. JACKSON: Thank you. We will break for 20 minutes and return at ten to eleven. 362 --- Recess taken at 10:30 a.m. 363 --- On resuming at 10:55 a.m. 364 MR. JACKSON: Please be seated. 365 MR. MORAN: We've found out that that "on air" light, the switch for the "on air" light, all it does is turn the "on air" light on and off, it has nothing to do with the microphones. 366 MR. JACKSON: Mr. Moran, I'm told it actually puts us out broadcasts on the web. Do you think it might do that? 367 MR. MORAN: It might do that, but it doesn't control these microphones. 368 MR. JACKSON: We don't care about it in this room; right? 369 Okay, Ms. Jackson. 370 MS. JACKSON: Mr. Chair, a preliminary matter. We have filed and distributed answers to interrogatories G2.1, G2.2, G2.3 and G3.3. 371 And with that, I propose to call -- 372 MR. JACKSON: Thank you. 373 MS. JACKSON: -- the next witness, who is Professor Schwindt and who is sitting before you. 374 UNION GAS LIMITED - PANEL 3; Sworn 375 EXAMINATION BY MS. JACKSON: 376 MS. JACKSON: Professor Schwindt, you are the author of the evidence entitled "The Economic Costs and Benefits of Gas Marketer Billing," which is filed under Exhibit B, tab 7, in these proceedings. 377 DR. SCHWINDT: Yes, I am. 378 MS. JACKSON: And Mr. Chair, Professor Schwindt's curriculum vitae is attached to that evidence. 379 MR. JACKSON: Thank you. 380 MS. JACKSON: And you are also the author of the interrogatories that bear your name in relation to that evidence? 381 DR. SCHWINDT: Yes, I am. 382 MS. JACKSON: And that evidence is true and correctly state states your opinion? 383 DR. SCHWINDT: It does. 384 MS. JACKSON: Your evidence was filed in reply to that of Professor Trebilcock, whose evidence was filed by Direct Energy, and Mr. John Todd, whose evidence was filed by the Vulnerable Energy Coalition -- Vulnerable Energy Consumers' Coalition. 385 I wonder if you could, just as an introduction, give the Board, sir, a brief outline of the areas of apparent distinction between you and those two gentlemen. 386 DR. SCHWINDT: Yes. I was asked by Union Gas to provide an economic review of the potential consequences of changing -- changes in the rules that dealt with billing. And as I looked through the material that was available, in particular, the report by Professor Trebilcock and the report by Mr. Todd, I came to recognize that there was a great deal of emphasis that had been placed upon potential benefits of the rule change, of allowing marketers to bill, and more specifically, considerable emphasis upon the role of marketer-consolidated billing. 387 As an economist, when dealing with policy changes, we generally look at them and say, all right, what are the economic consequences in terms of efficiency and equity, which are really the two core elements that economists look at. 388 Professor Trebilcock, in fact, goes to some length explaining the efficiency concepts. He doesn't mention the equity concepts but both of them play a role. 389 In going through those reports, I was impressed by the fact that there was very little evidence, really, with respect to the potential benefits of marketer-consolidated billing. In fact, as I was informed that this hearing would be focusing upon the distinction between so-called direct billing, also known as split billing, and marketer-consolidated billing, it seems to me that many of the alleged benefits of allowing marketers to bill could be reaped through direct billing. 390 It also struck me that there were costs that were involved with respect to marketer-consolidated billing that would have to be taken into account. 391 And so when one looks at these potential costs and benefits, one asks, you know, in general, do the benefits overwhelm the costs? If so, proceed; and if not, be wary. 392 And ultimately my opinion, as expressed in my report, is that the benefits have not been substantiated. And specifically, focusing on this distinction between direct billing and marketer-consolidated billing, it's not at all clear to me that the benefits could be reaped through direct billing, which would avoid some of the potential costs. 393 Now, I know that there has been considerable discussion about the costs of billing from the panels that have appeared over the last few days and last week. 394 Of particular relevance, I think, is the impact upon Union Gas at the outset, with respect to what will happen if it is, in fact, put in the position of dealing with marketer-consolidated billing. 395 The people at Union have, I think, clearly put on the record that they think that they will lose the benefits of -- the use of billing in both creating and sustaining customer relationships. 396 Clearly, this is the reason -- or at least it's clear to me that this is the reason why marketers want access to the bill, because they, too, recognize that it can be valuable in creating this relationship with customers. In the situation of marketer-consolidated billing, Union, of course, will lose the use of the bill, which they state is very important in maintaining that relationship. 397 And from an economist's perspective, that relationship is valuable. It's not just valuable to the firm that holds it, but it's also valuable to consumers. 398 Why is that? Well, when firms invest in customer relationships, they're essentially putting money into assets to create goodwill. That goodwill of course is, in a sense, held hostage by customers because if the -- the holder of the brand name abuses its position, it loses its investment, essentially, in that goodwill. So from a consumer's perspective, they can generally expect to be better treated by someone who has something at stake in the transaction than those that don't. 399 Of course, from an equity perspective, that's also something that's being taken from Union without compensation. 400 On the benefit side, the reason I presume Union asked me to assist is that I deal a lot with competition law. And it strikes me that the core issue in this discussion of billing is the role that billing has with respect to market entry -- market entry for the commodity, for the gas molecule. 401 And I suppose that if it had been shown to me that the lack of marketer-consolidated billing provided an overwhelming barrier, a strong barrier, a significant barrier to entry, then we would say yes, there will be competition benefits from eradicating distributor-consolidated billing and allowing marketers to engage in this. 402 While both Professor Trebilcock and Mr. Todd make the arguments that it will level the playing field and increase competition, I've seen no evidence from other jurisdictions to indicate that this is, in fact, true. In fact, I can find no cogent argument that would lead me to believe that there's a substantial difference between marketer-consolidated and direct billing. Unless, of course, we had some kind of evidence either from other jurisdictions or survey evidence for that matter that showed that there was a very strong preference for single bills. 403 So strong a preference that people would not move their custom to suppliers who could provide gas at a lower cost or some other package of goods and services. 404 I don't doubt that there is a preference, but from my perspective, the core question is: How strong is that preference? Is it enough to literally tie people to whoever it is that can provide the single bill? 405 So, in conclusion, I differed not in believing that there are potential costs and potential benefits, I take it simply in the acceptance of the magnitude of these benefits. In other words, I don't think that they have been properly valuated and therefore I would not proceed with a rule change until I have more comfort that those benefits were there to be exploited. 406 MS. JACKSON: Thank you, Professor Schwindt. 407 Mr. Chair, those are my questions. 408 MR. JACKSON: Thank you, Ms. Jackson. 409 Mr. Warren, would you be going next? 410 MR. WARREN: Yes, thank you, sir. 411 CROSS-EXAMINATION BY MR. WARREN: 412 MR. WARREN: Professor Schwindt, my name is Robert Warren. I act for the Consumers' Association of Canada. 413 DR. SCHWINDT: Hello. 414 MR. WARREN: And our client's constituency is principally residential consumers. And contrary to some impressions, we are not members of the axis of evil, and we are sort of fumbling around trying to figure out where the cost and the benefits of all of these things lie, and may find ourselves, from time to time, in one camp or another or in both camps simultaneously. So with that broad background, that's where my questions are coming from. 415 Now, your instructions from Union you refer to in your opening remarks in chief, and I would just like to go over those instructions. They were to, as I understand it, respond to the evidence of Messrs. Todd and Trebilcock; is that correct? 416 DR. SCHWINDT: That's correct. 417 MR. WARREN: And you, in the course -- were there any other instructions beyond that or broader than that? 418 DR. SCHWINDT: I was retained by Union prior to the actual formal submission of Professor Trebilcock. And at that time I was simply asked to look at the economic consequences of the rule change. Later, as that report came in and the report of Mr. Todd, I was asked to focus on those and to write a report. 419 MR. WARREN: Professor Schwindt, you have referred both just now and in your written testimony to what you called the rule change, and I wonder if you could tell me what it is you mean by "the rule change." 420 DR. SCHWINDT: Moving away from distributor-consolidated billing to direct billing or to marketer-consolidated billing, in other words, allowing marketers to bill either for their own services or allowing them to bill for both their services and the services of the utility. 421 MR. WARREN: So that when I read your testimony, for example, at page 2 in my text, in the introduction, in the fourth full paragraph - this is, for the record, Exhibit B, tab 7 - "When I see the analysis of this proposed policy change, it encompasses more than just marketer-consolidated billing, it is direct billing --" 422 DR. SCHWINDT: Yes. 423 MR. WARREN: -- "really, in any form." Is that right? 424 DR. SCHWINDT: Yes. 425 MR. WARREN: Now, when you were retained, Professor Schwindt, were you asked to perform a cost benefit analysis of the direct billing option? 426 DR. SCHWINDT: No, I was not. 427 MR. WARREN: Now, when you refer -- sorry. And have you -- may I assume you have reviewed all of the pre-filed evidence in the case? 428 DR. SCHWINDT: I'm always reluctant to say all. I think I have had access to what's there. I can't guarantee it's all. 429 MR. WARREN: And may I assume that you have reviewed the interrogatory responses delivered by both Union and the various parties to the proceeding? 430 DR. SCHWINDT: Most. 431 MR. WARREN: And may I assume as well that you have read the transcript of the proceedings, I guess to the extent that they've been physically available to you? 432 DR. SCHWINDT: Yes, that were physically available to me. I didn't have enough time to go through the Panel 1, but got through most of Panel 2. 433 MR. WARREN: Now, I want to, if I can, then, turn to the question of cost benefit analysis. 434 Now, you -- and I'm looking at your observation again in the introductory section of your pre-filed evidence. At the beginning of page 4 -- sorry paragraph 4, you say, and I quote: "In my opinion, the analysis of this proposed policy change suffers from two shortcomings. First, there has been no systematic cost benefit analysis of the proposed rule change." 435 Now, may I assume -- let me ask you the question: That statement indicates that it is a weakness. May I conclude from it that it's a weakness of both the direct billing proposal and the marketer-consolidated billing proposal, that there has been no cost benefit analysis? 436 DR. SCHWINDT: I think that a cost benefit analysis with respect to direct billing would have given us insights as to whether one had to take the next step to marketer-consolidated billing. 437 So you say, is it a criticism? I would have expected that people would have put more focus onto why it was that we were moving towards this end. My understanding is that those that asked for this policy change, in other words, the ability to bill, viewed billing as an element in creating customer relationships, and Union accepted this. 438 MR. WARREN: To be fair, though, when you say "suffers from shortcomings," one of those shortcomings, applying to both the direct billing option and the marketer-consolidated billing option, is the absence of a cost benefit analysis; correct? 439 DR. SCHWINDT: Yes. But more severe in the case of marketer-consolidated billing, because one of the parties is reluctant to allow it. 440 MR. WARREN: That's fair. But the -- my note of your testimony in chief this morning was -- this is my gloss of it, and please correct me if I'm wrong, is that you're saying to this Board that it should not proceed with what you describe as the rule change without having the benefit of a cost benefit analysis; is that fair? 441 DR. SCHWINDT: Specifically with respect to marketer-consolidated billing. Since the parties seem to be -- since all parties seem to be comfortable with direct billing, presumably that should proceed. 442 MR. WARREN: Well, let me tell you, Professor Schwindt, that based on what you said about the absence of a cost benefit analysis, I'm not so certain I should be comfortable with the direct-billing option. Is it not fair to say that what you're saying to the Board is it shouldn't proceed with a rule change, that is, any form of direct billing whether marketer-consolidated or otherwise, without a cost benefit analysis? Isn't that a reasonable conclusion for the Board to reach based on what you've said? 443 DR. SCHWINDT: I don't think so because I think that we can stand back from this and say: The overall motivation is the deregulation of introducing competition is primarily starting out with competition for the commodity. I think that it is a legitimate concern on the part of those who are marketing the commodity, that they don't have discretion over their own bills. This is a normal activity that enterprises engage in, and I would tend to agree with them, that it would be helpful to their position to be able to bill their customers. 444 Therefore, I don't think that a rigorous cost benefit analysis would be essential in that regard. No one is complaining about this. 445 But when we get to the next step where potentially all of those benefits could have been reaped by direct billing but the costs are mounting and, in particular, you've got these equity issues, I think then that you have to really narrow your focus. 446 MR. WARREN: Can I parse that or can I summarize that answer by saying that since there is an agreement that we ought to move to a deregulated -- more deregulated market, that we can live with the absence of a cost benefit analysis in direct billing; is that fair? 447 DR. SCHWINDT: I think that's fair. 448 MR. WARREN: All right. Now, we are in agreement, though, are we not, that there has been no cost benefit analysis of the direct billing option 449 DR. SCHWINDT: That's my understanding. There has been no rigorous cost benefit analysis of direct billing. 450 MR. WARREN: And can we agree, Professor Schwindt, that one of the -- when we look at the costs side of it, we would have to look at the costs to the marketers, to the utility, and to residential consumers as well? 451 DR. SCHWINDT: From a societal point of view, you look at all costs and you look at all benefits, yes. 452 MR. WARREN: And can you agree with me that one of the costs to residential consumers might be the costs of having to receive, absorb, and pay two bills as opposed to one? 453 DR. SCHWINDT: It could be. 454 MR. WARREN: Okay. 455 Now, the -- I want to turn, if I can -- sorry. And if you might turn up page 3 of your pre-filed evidence. And I'm looking at the top of the page which is a continuation of the paragraph from the preceding page, and I quote the last sentence in that continuing paragraph: "Under the circumstances, it is not possible to estimate the costs of establishing and maintaining the information flows from LDC to marketer that will be required under the new regime. However, it is probable that these costs will be substantial." 456 Now, when I read the words "new regime," do I take it that we're talking about a direct billing regime, whether it's marketer-consolidated or split? 457 DR. SCHWINDT: Yes. 458 MR. WARREN: Okay. And you're saying that these costs will be substantial and that they haven't yet been estimated; fair? 459 DR. SCHWINDT: Because the actual format that these new billing options is going to take has not been finalized. My understanding is that there is a bare-bones understanding with respect to direct billing. 460 MR. WARREN: Is it your understanding that the costs of the information flows for marketer-consolidated billing will be greater than the costs under the direct billing option? 461 DR. SCHWINDT: That's my understanding. 462 MR. WARREN: And that understanding is based on? 463 DR. SCHWINDT: Conversations with Union. 464 MR. WARREN: And have they given you information of those conversations upon which you can objectively and independently assess whether or not, in your view, the costs will be greater under a marketer-consolidated billing than direct billing? 465 DR. SCHWINDT: My understanding is that there will be additional costs in addition to what would exist for direct billing under marketer-consolidated billing. 466 I don't pretend to be an expert on billing, but it stands to reason that under direct billing you have information flows moving primarily from the utility to the marketer. As you take the next step to marketer-consolidated billing, my understanding is you're going to have even greater information flows back from the marketer to the utility. 467 MR. WARREN: And we can agree, I take it, that those can't be quantified until the models have been worked out. 468 DR. SCHWINDT: That's my understanding. 469 MR. WARREN: All right. 470 Now, I would like to turn, if I can, then, to the question of benefits. 471 And I'm still -- I may well be the only person in the room, indeed the only person in the universe who doesn't understand exactly the nature of the benefits that will flow from the unbundling, so if I can just stay broadly with that topic for a moment. 472 When you talked about assessment of benefits, what, in your view, are the benefits that will -- that flow first, Professor Schwindt, from unbundling of the kind we're talking about in this case? 473 DR. SCHWINDT: We're talking about billing. 474 MR. WARREN: I'm talking about unbundling. 475 DR. SCHWINDT: In general? 476 MR. WARREN: Unbundling with respect to storage and transportation as it affects the residential consumer market. I'm trying to get a fix on what the benefits are to residential consumers. 477 DR. SCHWINDT: My understanding is that the unbundling of storage facilitates allows the flexibility of marketers in their dealings and that they can find more efficient ways of serving their customers. If they can't do that, it will lower their costs; it will put pressure on Union if there are such savings to be made. I don't know. And ultimately this type of competition, through the lowering of costs, will lower charges to customers. 478 MR. WARREN: Is it lowering of charges, generally, or lowering of the commodity cost, or both? Lowering of service charges, like charges for delivering bills or for storage, or is it in a commodity cost? Because Union has talked -- to be fair to you, you weren't here for it. But they've talked about the benefits in terms of lower commodity costs through a more competitive market. 479 DR. SCHWINDT: Well, I suppose that if they have storage flexibility, this gives them greater flexibility in when they purchase or don't purchase the commodity. So potentially it could be a lower commodity cost. 480 MR. WARREN: Is there any way, Professor Schwindt, that the benefits of unbundling and of the different billing options can be quantified in any meaningful way so that we can do a cost -- a real comparison of X cents for costs, B cents for benefits, let's look at the two of them? Is there any way that those benefits can, in some meaningful way, be quantified? 481 DR. SCHWINDT: Certainly ex-post they can, ex-ante. You can at least get some kind of an order of magnitude. In other words, if you said to me, here is what Union or marketers say they're going to get out of this unbundling of storage, and they make the argument but they can't put numbers to it, and you say well, yes that's a compelling argument, that makes sense to me, we have faith in competition, what they're talking about is introducing competition in these dimensions. It sounds believable. What are the costs? Are they overwhelming? Are they 100 million, 200 million, 300 million? What are the competition costs in this regard? 482 So that one can do, certainly, a -- a sense of a cost benefit, not down to the pennies or down to the individual dollars, but in gross terms. 483 MR. WARREN: Are you aware -- I take it we can agree that hasn't been done, to your knowledge, in this -- 484 DR. SCHWINDT: No. 485 MR. WARREN: In your view, should that be done before the Board proceeds to make a decision on further unbundling and on the billing options? 486 DR. SCHWINDT: Do you mean has it been done with respect to the unbundling of storage, not billing? 487 MR. WARREN: Fair distinction. Has it been done with respect to the unbundling of storage first, and then the second question, has it been done with respect to these billing options? 488 DR. SCHWINDT: With respect to storage, I think that -- that yes, there has been an up -- a give and take here where people have discussed what is going to occur; that it's generally accepted that this flexibility is something that's desirable and it is going to lead to benefits both to companies and hopefully to your constituents. 489 But with respect to billing, again, I'm willing to say, certainly the benefits of allowing someone who is providing a service to build a customer relationship is a good thing. And it doesn't strike me that there are any kind of idiosyncratic costs in this industry that are going to overwhelm it. 490 Take the next step, however. I'm not that sanguine. I don't see those benefits couldn't be achieved with direct billing rather than taking the next step, but I've said that already. 491 MR. WARREN: Now, I want to follow up on something that you said in your examination-in-chief this morning. You said that as an economist, looking at this case, you wanted to look at efficiency issues and you also wanted to look at equity issues. Now, I may very well have missed it in your pre-filed evidence, but I don't see in the pre-filed evidence any reference to equity issues; is that fair? 492 DR. SCHWINDT: No -- excuse me. Are you Finished? 493 MR. WARREN: My simple question is: I didn't see a discussion of equity issues in your pre-filed evidence. 494 DR. SCHWINDT: Not named as such. But where I identify what it is that Union stands to lose if it loses all billing discretion. Some -- in an instance you are taking from someone, and that's an equity issue. In other words, uncompensated taking involves equity. 495 Let me put it this way: From an economist's perspective, efficiency is essentially releasing resources so we can have more, without regard to who gets it. Equity has to do with distribution of wealth, distribution of goods, distribution of services. And this involves a redistribution, which is an equity issue. 496 MR. WARREN: All I wanted you to do for me, Professor Schwindt, is if you could just itemize for me what the equity issues are in this case. 497 DR. SCHWINDT: Under marketer-consolidated billing, Union Gas would lose the ability to maintain a customer relationship. That raises questions about the efficiency and fairness. You are taking something from one party and not compensating him for it. 498 MR. WARREN: Are there any other equity issues in this case? 499 DR. SCHWINDT: There could be. I haven't considered any, focused on any. 500 MR. WARREN: Okay. Since you have said that it is important consideration, can I ask you for this undertaking: Can you undertake to provide me with a list of the equity issues that you think the Board should consider in reaching its decision in this case? 501 MS. JACKSON: Mr. Chair, I'm not sure that Mr. Warren's questions thus far have focused on the fact that Professor Schwindt's evidence is not about all of the aspects of this case. It's about billing. 502 MR. WARREN: Okay. I'm not sure I care. What Professor Schwindt has said this morning, and frankly I find it a little -- it's not a criticism of him, but he said, as an economist, when he looks at these issues, he says that there are efficiency matters and there are equity issues. And so we leave the room with, hanging over our head, some issues which an expert witness says are important issues but which haven't been considered. And I would simply like him to identify what those are. Are there different equity issues -- I mean, before I get back to Ms. Jackson's objection, are there different equity issues for billing as opposed to unbundling? 503 DR. SCHWINDT: Are there different equity issues as between unbundling of storage and billing? Yes, I would say so. 504 With respect to billing, it's a fairness issue that you allow marketers to bill for their services. 505 Under billing, it would be an equity issue if you took that ability away from Union Gas. 506 MR. WARREN: Well, let me focus on the billing issues only. And I come back to my request for an undertaking. Can you identify for me the equity issues that you think the Board should consider with respect to the billing issues in this case? 507 DR. SCHWINDT: I think I've done that in my report. I don't think that there are critical equity issues besides those that I've identified. But I can do this. 508 MR. WARREN: Is the allocation of the costs of the billing to one group or another an equity issue? 509 DR. SCHWINDT: Allocation of the costs of the billing system to one group or to another? 510 MR. WARREN: There are $15.7 million in costs which are a mix of billing costs and unbundling costs. 511 MS. JACKSON: Well, the evidence is that the 15.7 million is the unbundling information costs, not the billing in the sense of the billing issues that Professor Schwindt has addressed. 512 MR. WARREN: But some of the $15.7 million has been -- has been expended as a necessary precondition to being able to bill under the unbundled services. 513 MS. JACKSON: I'm not trying to be difficult, I just want to make sure we're all talking about the same thing. The 15.7 million addresses the ability to bill for unbundled services, not direct billing or marketer-consolidated billing. With the one caveat that I keep coming back to that $800,000, while it has been described as facilitating direct billing, has also been explained in the evidence to be necessary to unbundling services in any event. So that if my friend's question is: Does the $15.7 million relate to billing, it does enable the billing of the -- the billing of the unbundling services but that's apart from the billing issues that Professor Schwindt has been addressing in his report. 514 I'm not actually sure what billing issues my friend -- I objected because I'm not sure what billing costs my friend's question was seeking to address. 515 MR. WARREN: Well, then, let me get back to the earlier question. 516 With respect to -- are there equity issues, sir, with respect to the allocation of the costs of unbundling? 517 DR. SCHWINDT: Sure, there could be. 518 MR. WARREN: And is one of those equity issues a question of who should be allocated the costs of unbundling? 519 DR. SCHWINDT: Well, clearly. Whenever you say who is going to bear the charge, if it's not -- if someone is targeted for this, it can raise equity issues. So you take a look at unbundling and you say: All right, who is going to pay for this? You say: Well, all right, who is benefiting from it? If the unbundling is a step towards a more competitive market or a lower costs or greater efficiency on the part of marketers, presumably, this is going to filter through and affect everyone that's consuming the product. If it's shown that the marketers are somehow doing things better than Union Gas, they will be able to offer the commodity at a lower price to customers. This will put pressure on the system and ultimately all would benefit. 520 So I'm a little bit perplexed as to how one would determine whether this was a -- what was equitable or inequitable since everybody is going to benefit. I presume that everybody would have to assist in bringing about the -- bringing about the benefits. 521 MR. WARREN: My final question to you, Professor Schwindt, and you might want to turn up an interrogatory response of which you are identified as the author. It's Exhibit C7.1. 522 DR. SCHWINDT: C7.1. 523 MR. WARREN: Point one. And it's an answer to an interrogatory from Direct Energy. 524 The question posed to you was: "Would you have the same objections to the DAR if it allowed natural gas customers to choose their preferred billing option?" And your answer is: "I would have greater objections to the DAR if it allowed natural gas customers to choose a specific billing option." 525 Now, perhaps you could explain to me, if a residential consumer decides that he or she wants to get one bill and wants that bill from the marketer, is it your view that that should not be allowed? 526 DR. SCHWINDT: It is my view that that should not be allowed at this point. 527 MR. WARREN: And can you tell me why that should not be allowed? 528 DR. SCHWINDT: Because what you're doing is you are denying Union the ability to supply something that it's -- to bill for something that it's supplying to the marketplace. Essentially, you are compromising their ability to maintain a relationship with their customers, which has value to them. 529 I don't understand exactly why one would give consumers, broadly speaking, the ability to identify who is going to bill them. In fact, I am a little bit puzzled by the use of these terms, "consumer choice in billing," where consumers would be allowed to choose who billed for them. Think of this world in which everybody says, gee, I like the price that the marketer is offering but I really prefer Union's bills. So even though the marketer is the one that's going to supply me the commodity, I refuse to allow them to bill me." And it all goes to Union. 530 Well, then, the marketer is in the position of saying, look, I'm trying to build goodwill and I can't do this because I don't have the right to bill my customer for something that I'm providing them. 531 I mean, what other -- what other industry in Canada can you choose who is going to bill you? I mean, I'm even to the point where I have two telephone lines and I get two bills from the same telephone company. 532 Can I insist that they aggregate this into one? I could insist but they're not going to do it for me. 533 MR. WARREN: But where does the evil lie in that, sir, if I want to make that choice? I mean, I understand that you don't have it, but where does the evil lie in a system where we're trying to promote customer choice in allowing the customer to say, you know, in this panoply of services of somebody providing this, I want to be able to choose? 534 DR. SCHWINDT: It would be an enormous transaction cost that would be imposed on the firms that had to deal with this. In other words, can you imagine if ultimately you got a relatively competitive commodity market in this province? Two hundred sellers, each one of them attempting to deal with another seller who is billing on their behalf? Issues of fiduciary responsibility, communication flows between all these people. Strikes me that it would be horrendous and therein would lie the evil. 535 MR. WARREN: The additional cost -- 536 DR. SCHWINDT: Now, this, of course, is always juxtapositioned against consumer demands. And if you said, look, we've got iron-clad evidence that consumers really want to be able to buy from X and have Y bill them or Z or Q, I would have to say, well, you better take a look at this. But I've seen nothing to suggest that anybody wants this. 537 MR. WARREN: Let me get back to your earlier response. You said that there were going to be a bunch of transaction costs that would flow from this. If you quantify those transaction costs and say to the consumer, you know, it's going to cost you five cents more a bill to have a direct -- to have a bill from your energy marketer as opposed to Union Gas, do you want to pay the five cents; and the consumer says, yeah, I want to pay that five cents because of the convenience of getting one bill from my marketer. Is it still an evil thing? 538 DR. SCHWINDT: Well, if you go through all of the calculations and put together these costs, presumably, the markets would emerge to deal with this. But what strikes me is -- let me put it this way: If consumers actually wanted this, why don't we see it in other markets? Why don't we see people saying, I'll buy from you, but I don't want to be billed by you? 539 MR. WARREN: You're not answering my question, Professor Schwindt. I said is the evil attained -- if you calculate the cost and say to the consumer, this is your option: You can choose to get one bill from your marketer and it's going to cost you a unit cost of five cents more a bill, is the evil still attained? 540 DR. SCHWINDT: But what that means is that you are taking -- you are taking away from another party their right to bill. Is that it? Well, if what you're saying is the five cents or the ten cents means that whoever is doing the billing is compensating the other party -- 541 MR. WARREN: If you fairly calculate all of the costs and you've said that -- 542 DR. SCHWINDT: Of course. If you can fairly calculate -- I'm sorry. 543 MR. WARREN: You've said it's an expropriation cost, in effect. Not only have you used that word but that's a fair term for it. You're expropriating from Union the goodwill associated with the direct customer relations; right? And there is a cost -- I'm sorry, they don't pick up a nod on the tape, so if you agree with that proposition, I think you have to say yes. 544 DR. SCHWINDT: I was waiting for you to finish your question. 545 MR. WARREN: It is an expropriation, the taking away of the direct billing relationship for which they should be compensated; that is your proposition? 546 DR. SCHWINDT: If you take away something of value and do not compensate for it, then it's a taking. 547 MR. WARREN: And that's one of the costs that would have to be factored into a calculation of the costs of marketer-consolidated billing; correct? 548 DR. SCHWINDT: That's true. 549 MR. WARREN: Okay. If you calculate all of the costs including that one and you come up with a unit cost to a residential consumer to say, that's what it's going to cost you, do you still say they shouldn't have that choice? 550 DR. SCHWINDT: No, I can't say they shouldn't have that choice. If you could factor in all of the costs and you had willing transactors between the distributor and the marketer, where they willingly agreed to what the payoffs would be, and a package was put together and presented to a customer and the customer said yes, I will voluntarily pay it, no economist can disagree with this; right? Voluntary exchange leads to everybody being better off. 551 MR. WARREN: Including this economist here. 552 DR. SCHWINDT: Yes. 553 MR. WARREN: Thank you very much, sir. Those are my questions. 554 CROSS-EXAMINATION BY MR. BROWN: 555 MR. BROWN: Professor Schwindt, my name is David Brown. I'm the counsel for Direct Energy Marketing Ltd. which is the intervenor in this proceeding which is going to be calling Dr. Trebilcock tomorrow. My friend Mr. Warren has gone over a number of areas that I intended to cover. I don't intend to repeat them. 556 I do want to ask you one set of questions, though. Are you aware that come May the 1st of this year, a competitive electricity market is scheduled to open in this province? 557 DR. SCHWINDT: Yes, I am aware of that. 558 MR. BROWN: Are you familiar with a document under the rules and regulations for that new power market called the Retail Settlement Code? 559 DR. SCHWINDT: Not by that name. Help me. 560 MR. BROWN: The Retail Settlement Code, sir, is to the electricity market as what the proposed Gas Distribution Access Rule would be to the gas market. 561 And in particular, one finds in the Retail Settlement Code a bunch of rules and regulations dealing with the relationship between electricity distributors and electricity marketers. In particular, one aspect of the relationship is that in the Retail Settlement Code, there is a specific section which deals with billing, and it outlines, through billing services, what an electricity distributor must make available in this province come May the 1st, 2002. 562 And it should come as no surprise to you that the three options that a distributor must make available on May the 1st are the distributor-consolidated billing, what you have termed as direct billing, and what you have termed as retailer-consolidated billing. 563 Were you aware of that fact, sir, that -- 564 DR. SCHWINDT: I was -- I was aware from Professor Trebilcock's report, in fact, that this was going to be made available to marketers of electricity. 565 MR. BROWN: So you are aware, then, that a policy decision has been made within this province that, at least with respect to the power market, the electricity energy market, distributors must offer three different billing options to consumers or their agents, the marketers; you're aware of that? 566 DR. SCHWINDT: I am aware of that. 567 MR. BROWN: And I am going to suggest to you, sir, that it would be somewhat anomalous, inefficient, and unduly costly if a similar range of options was not made available to gas consumers or gas marketers in this province. Wouldn't you agree with that? 568 DR. SCHWINDT: Not at all. You say it would be unduly costly? Not at all. 569 MR. BROWN: I said it would be anomalous. 570 DR. SCHWINDT: Anomalous. 571 MR. BROWN: Inefficient. 572 DR. SCHWINDT: Inefficient. 573 MR. BROWN: And unduly costly. 574 DR. SCHWINDT: And unduly costly. 575 MR. BROWN: Perhaps you can start with the anomalous. I'm suggesting to you it would be anomalous that gas, electricity -- gas consumers and gas marketers cannot avail themselves of the same billing services that electricity consumers or electricity marketers could. 576 DR. SCHWINDT: Well, if you're asking me, are they going to be different if marketer-consolidated billing is not allowed in gas, then they will be. But remember, it will be anomalous with respect to almost every other business in Canada that a service provider can't bill for their service. 577 Okay, so anomaly, anomaly. Okay. Now, what about efficiency? 578 MR. BROWN: Same question to you. 579 DR. SCHWINDT: Well, you have to explain to me where the efficiency is and then I'll tell you whether or not it's there. 580 MR. BROWN: Well, what I'm going to suggest to you is that if one was to -- your thesis, as I understand it, is that direct billing offers the same benefits as could be fetched under retailer consolidated billing. I think that's the core of your thesis, is it not? 581 DR. SCHWINDT: Yes. 582 MR. BROWN: My friend, Mr. Warren, in one of his questions to you, suggested, however, that there would be different costs associated with retailer-consolidated billing and direct billing, the cost being under direct billing a consumer would get two bills; one for the distribution charge and one for the energy charge; whereas under retailer-consolidated billing, the consumer would get one bill. Correct? 583 DR. SCHWINDT: Yes. But we didn't pursue this. In other words, you say that's more expensive, or costs the consumer more. But we didn't get into any of the potential costs on the -- for the consumer in educating himself or herself. Getting additional mailings from Union if Union couldn't use the bill. So it's not as simple as saying, oh, they have to deal with two rather than one. The costs are twice as much. That's -- 584 MR. BROWN: That's a fair statement, because I think what you're saying is that one has to identify the costs. 585 DR. SCHWINDT: All the costs. 586 MR. BROWN: All costs before measuring them. 587 And if we can simply deal with one subset of the costs, that is, the costs of actually sending out the bill, you would agree with me that just looking at that subset of costs, direct billing potentially is more costly than consolidated billing, be it consolidated billing by the distributor or consolidated billing by the retailer. 588 DR. SCHWINDT: I'm not willing to agree with you, because of the -- this material I've read about the costs of communication for Union absent the billing. It appears that nobody knows what it's going to cost them in order to maintain a liaison with these customers. But if you -- if you want me to narrow it right down to the bill and say, okay, Professor Schwindt, ignore any other cost that is going to be incurred as a result of this move and just the bill, does it look to you like it's going to cost more? I would have to agree you. 589 MR. BROWN: That's right. That was the assumption I was making just with respect to that subset. 590 DR. SCHWINDT: That's fair. 591 MR. BROWN: So two bills, but one bill is less costly than two. 592 DR. SCHWINDT: Generally, yes. 593 MR. BROWN: Just as one bill would be less costly than four, I take it? And the reason I say four, Professor Schwindt, is that if a consumer elected direct billing of the electricity side and a consumer elected direct billing on the gas side, you appreciate one could end up with a situation where the consumer received four bills; two in respect of distribution charges and two in respect of commodity charges. 594 DR. SCHWINDT: That's true. That's possible. 595 MR. BROWN: And just looking at the subset of costs dealing with cranking out the bills and not dealing with any other cost that may attach to it, you would agree that it would be less costly to have one bill go out than to have four? 596 DR. SCHWINDT: That sounds reasonable to me. 597 MR. BROWN: Now, my final question to you, sir, relates to an answer that you gave to a question that Mr. Warren asked you in chief. 598 He was asking you to compare the costs of information flows under direct billing and retailer-consolidated billing. As I noted your answer, you suggested that there would be increased information costs under retailer-consolidated billing, because you would have more information coming back from the retailer to the distributor. Did I understand your answer correctly? 599 DR. SCHWINDT: Yes. 600 MR. BROWN: I can understand that in terms of the information going from the distributor to the retailer, under retailer -- under direct billing, the retailer would only be given consumption information upon which it would then base its charge for the commodity; correct? So would you have that information flow? 601 DR. SCHWINDT: Correct. 602 MR. BROWN: And under direct billing, the distributor would be rendering its own bill for the distribution charge; correct? 603 DR. SCHWINDT: That's correct. 604 MR. BROWN: If we move to retailer-consolidated billing, you would have a new information flow from the distributor to the retailer, would you not? That is, the distributor would be saying to the retailer, hey, look, you've got to charge X dollars to these customers for the distribution charge; correct? 605 DR. SCHWINDT: Correct. 606 MR. BROWN: So you would have an additional information flow under that scenario as between distributor to the retailer; correct? 607 DR. SCHWINDT: Correct. 608 MR. BROWN: Could you help me out, however, and identify what additional information flows under retailer-consolidated billing would then flow back from the marketer to the distributor, because the only additional information that I can see flowing back from the marketer to the distributor would be, here is a cheque for a $100,000 to cover the costs that you say are due to you for the distribution. Am I missing something or is there some other charge? 609 DR. SCHWINDT: My understanding is that once Union, under a marketer-consolidated regime, loses all connection with the customer, information about that customer must flow, then, from the marketer to Union. In other words, with direct billing, presumably when somebody disconnects or whatever, they inform Union directly. Now all information will have to flow through the marketer because there will be no connection between Union and its customers. That's my understanding of the additional information flow. 610 MR. BROWN: I see. So it's not information flow relating to the distribution charge per se? 611 DR. SCHWINDT: No. 612 MR. BROWN: It's information flow related to other aspects of the relationship between the consumer and the distributor. 613 DR. SCHWINDT: Exactly. 614 MR. BROWN: Okay. Thank you for that clarification. Those are my questions. Thank you, sir. 615 MR. JACKSON: Thank you, Mr. Brown. 616 Mr. Janigan is it next. 617 MR. JANIGAN: Thank you. Mr. Vegh has asked me to precede him in the order -- or, no, he says he wants to go now so ... 618 MR. VEGH: I'm fine, thank you. I was able to take advantage of people who went before me to edit some of my questions so I don't think I'll be that long. 619 CROSS-EXAMINATION BY MR. VEGH: 620 MR. VEGH: Good morning, Mr. Schwindt. My name is George Vegh. I'm here on behalf of a group called The Convergence Group which represents a couple of marketers who gave evidence this morning, and I think you've seen them. 621 DR. SCHWINDT: I think we met some years ago, did we not? 622 MR. VEGH: This is stirring up some ghosts for me too, sir. 623 I wanted to cover just a couple of areas with you. 624 First was the equity discussion you had with Mr. Warren and you talked about a taking. And I would like to just be a little more clear on what it is that is the subject matter, what it is that's being taken under the option of marketer-consolidated billing as -- as compared to the two options of utility-consolidated billing and split billing. 625 Under the proposed options, utility-consolidated billing and split billing, the marketer could not offer one bill; right? 626 DR. SCHWINDT: Correct. 627 MR. VEGH: Only the utility can offer one bill? 628 DR. SCHWINDT: That's correct. 629 MR. VEGH: So under the Union proposal which you are endorsing here, Union effectively has a monopoly on the ability to offer one bill to a customer? 630 DR. SCHWINDT: The term "monopoly" is slightly pejorative. In this situation, they're the only people that can offer one bill for gas distribution and gas sales. That's true. 631 MR. VEGH: Well, they're the only provider who can send one bill to a customer on a monthly basis or whatever is the regular basis? 632 DR. SCHWINDT: That's correct. They're in both markets. 633 MR. VEGH: So from a customer's perspective, receiving Union's bill is mandatory under the options that Union is putting forward? 634 DR. SCHWINDT: As long as Union Gas is the distributor, yes, it's mandatory. 635 MR. VEGH: Right. So what Union loses or what the taking is is the ability to have his mandatory obligation for a customer to receive a distribution bill directly from Union? 636 DR. SCHWINDT: Union is the only distributor of gas within its franchise. 637 MR. VEGH: Right. 638 DR. SCHWINDT: Obvious economic reasons. So as long as there is only one distributor and as long as you give that distributor the right to bill for its services, then yes, there is going to be only one provider of a bill for that. That's true. 639 MR. VEGH: Well, we're not talking -- just to clarify. Union will always have the right to bill for its services. It's a question here of whether the end-use customer receives the bill from Union -- 640 DR. SCHWINDT: Yes. 641 MR. VEGH: -- or can receive the bill from a marketer. 642 DR. SCHWINDT: That's correct. 643 MR. VEGH: So what we're talking about in terms of the taking that you've identified is the taking of the mandatory obligation that a customer receive a bill from Union? 644 DR. SCHWINDT: It's -- using the terms mandatory and whatnot, it's all the same thing, that's true. What you are taking away is their ability to directly bill end-use customers. Call it mandatory, call it monopoly, call it what you will. It comes down to the same thing. 645 MR. VEGH: Well, does it come down to the same thing? Because the option for marketer-consolidated billing and in fact the option -- all three of these options are being put forward in the GDAR process, as you're aware, on a voluntary basis so the customer can choose which of those options. So Union still has the ability to send a bill to an end-use customer if the customer chooses for Union to send a bill to an end-use customer. So isn't the difference between marketer-consolidated -- or the taking that's brought about through marketer-consolidated billing, the incremental loss to Union is the mandatory nature of the bill to the end-use customer? 646 DR. SCHWINDT: I'm getting a little bit confused here. 647 Do you envision a world, if you have marketer-consolidated billing and direct billing and distributor-consolidated billing, wherein literally a consumer is going to have the choice of who is going to bill for which of those services? Is that the proposition? 648 MR. VEGH: Well, the -- 649 DR. SCHWINDT: Not -- excuse me. Not choosing a distributor or a marketer who provides them with the bundle that they want, but rather that they literally will be able to say, I want commodity from X and bills from Y? That's what I want. And is it that your clients are going to say, yes, okay, we're going to do this for you? I couldn't quite hear the answer this morning. 650 MR. VEGH: The options that -- you understand the three options that are available in the GDAR; you've written a report on the three options. 651 DR. SCHWINDT: Absolutely, I understand the three options. Are they being given exclusively to marketers or are they being given to customers? That's my question. 652 MR. VEGH: Well, there's a -- the choice is given to customers, and then there's an issue of how customers exercise that choice contractually. 653 DR. SCHWINDT: I don't understand how that can be. 654 MR. VEGH: You don't understand how customers exercise choices contractually? 655 DR. SCHWINDT: I understand if you give the choice to the marketer and then the marketer turns around and says, this is what I'm going to offer my customers, I understand then that a customer can choose marketer X, marketer Y. Marketer Y says, if you come with me, it's marketer-consolidated billing. That's it, that's what you get. The customer will say, okay, take it or leave it. Somebody else will say, no, I don't want to bill you, I'm going to, you know, utilize whatever goodwill Union has with the bills. You can continue to be billed by Union. You take that choice. Okay, that's fine. That's one set of choices. I understand that one perfectly. 656 But I think we were talking earlier with Mr. Warren about the possibility that the customer can actually say, this is the smorgasbord of services that I want. Provide it to me. 657 MR. VEGH: So let's talk about your first -- the choice that you understand. As I understand the choice that you understand, it's that there will be various offers available in the marketplace from retailers to customers. Some retailers would say, I'm going to provide you a bundled bill under my offer; others will say, don't worry, your utility will still bill you. Here is my offer. 658 DR. SCHWINDT: Correct. 659 MR. VEGH: Now, in order for those choices to be available in the marketplace, the utility, Union, has to have a system in place that would allow that option to be presented; right? 660 DR. SCHWINDT: That's true. 661 MR. VEGH: So that when we get -- when we look at the options that the GDAR makes available, it's -- the obligation is on the utility to make those options available, to make the systems available so that marketers can actually make those offers to customers in the marketplace. Is that more clear now? 662 DR. SCHWINDT: That would have to occur, yes. 663 MR. VEGH: Okay. Now, if we do have the option for marketers to provide a consolidated bill under the GDAR, then the taking that you're concerned about, the taking is the loss of the mandatory ability for Union to require that its customers receive a regular bill from Union; isn't that right? 664 DR. SCHWINDT: Union loses the ability to bill retail customers, absolutely. 665 MR. VEGH: But it doesn't lose that, it only loses the ability to do that on a mandatory basis. It still has the ability to bill retail customers where that option is chosen by customers, doesn't it? 666 DR. SCHWINDT: Only if a marketer makes that available. 667 MR. VEGH: Right. If that -- if that service is available in the marketplace. 668 DR. SCHWINDT: For that set of customers, Union would be able to bill them for distribution services, sure. But I don't get the point. 669 MR. VEGH: Well, the point -- I'm trying to identify what is the taking. So why don't you tell me what you say Union is losing. 670 DR. SCHWINDT: Union supplies distribution to people within its franchise. It wants to maintain a billing relationship with those people. Not some of them, not 20 per cent or 30 per cent or those that have gone with this marketer or that marketer. 671 MR. VEGH: It doesn't want to give them the choice? 672 MS. JACKSON: With respect, I would ask my friend to let Professor Schwindt complete his answer. 673 DR. SCHWINDT: It wants to bill all of them. If you introduce marketer-consolidated billing, it can no longer bill all of them. 674 MR. VEGH: It can only bill those that want Union to bill them. 675 DR. SCHWINDT: Well, it could only bill those whose marketers had chosen to include either direct billing or utility-consolidated billing as the way in which billing was going to take place. 676 I mean, I'm a bit reluctant to go into this discussion of consumers choosing this. My hunch is that in most situations, consumers are not going to be choosing marketers on the basis of who bills them. The core issue in almost every survey that's been done out there is that they're after price. This is what they're after. They're after a better deal. But the billing format, it really isn't all that important. This is from the material from Great Britain. 677 So I mean, it's possible that someone is going to be shopping in the marketplace based upon a narrow focus on who bills and will choose their supplier on that basis. 678 I have a hunch that that's not going to be most of the people who opt out of system gas. 679 MR. VEGH: I think you're raising an issue of system gas that's a bit of a red herring here. But I think your position is -- I think -- I think your position is clear and the position of your sponsor is clear. 680 Can I just ask you, just on this question about how these choices are made in markets, billing choices, could you turn, please, to Exhibit 4.59. That's at question -- that's an interrogatory response that you prepared to my clients. 681 DR. SCHWINDT: C? 682 MR. VEGH: C4.59. 683 DR. SCHWINDT: I have it, yes. 684 MR. VEGH: I would just like to explore with you a statement you make in this response, and this ties in, I think, to the discussion we're having. But it may help us address it further. 685 You said, "To my knowledge, in market economies, sellers of goods and services have the right to bill their customers for goods and services they supply." 686 And what I would like to do now is have a discussion with you so I can understand how retail billing arrangements actually work in a market economy. And if you'll allow me, I would like to set up a hypothetical for you. I know that economists like hypotheticals. 687 DR. SCHWINDT: Yes, okay. 688 MR. VEGH: And this is a somewhat simplified hypothetical because I'm not even an economist, I'm simply a lawyer, so please bear with me for the simplified hypothetical. 689 Let's look at a supply chain, a relevant comparable supply chain in this market. Let's look at the gas supply chain. Okay, so the gas commodity. 690 And I've asked you to just accept this supply chain for me even though it's simplified. And the supply chain basically will be: Producers, gas producers, sell to wholesalers, gas wholesalers sell to retailers, and gas retailers sell to customers. That's simplified, but just accept that. 691 Now, let's assume that each one of those stages involves a transaction between the wholesaler and the producer -- between the producer and the wholesaler and the wholesaler and the retailer and between the retailer and the customer, so each element of that supply chain involve transactions and these transactions are made in a market. 692 So let's just assume that people are freely transacting with -- with information and with the other requirements that you would probably say are necessary to co-operate in the market. 693 So far so good? 694 DR. SCHWINDT: Mm-hmm. 695 MR. VEGH: Okay. Now, in this scenario, then, we -- let's take the example of a wholesaler who wants to sell gas to a retailer. So this is one step away from the customer. A wholesaler wants to sell gas to a retailer. What this wholesaler says is, I want to have a billing relationship with your end-use customer; and so if I bill you, if I sell you the gas, then you have to acknowledge in your bill to the end-use customer, gas supplied by whoever, by Shell or something, because it's important for me to put my brand in front of the customer. 696 So the wholesaler would say in this scenario, I'm not going to sell to you unless I can somehow have my -- or my brand presented to your customer, okay? 697 Now, as you say, in market economies, sellers have the right to bill for services they provide. So there is nothing to stop the wholesaler in this example from taking this position; right? 698 DR. SCHWINDT: But the wholesaler is selling to the retailer? 699 MR. VEGH: Yes. 700 DR. SCHWINDT: And so title passes. 701 MR. VEGH: Yes. 702 DR. SCHWINDT: Then who is the customer of the wholesaler? 703 MR. VEGH: The retailer. 704 DR. SCHWINDT: Exactly. And so when that wholesaler then says, I don't want to deal -- I don't want to bill my customer, I want to bill somebody else, i.e., your customer, then clearly the retailer would say, well, no, I won't do this, I'll buy from someone else. 705 MR. VEGH: They'll buy it from someone else. So the only thing to stop the wholesaler from insisting upon having their brand put in front of the customer is the fact that the retailer can get an option from -- can get an offer of gas from someone else. 706 DR. SCHWINDT: I don't think so. First of all, how would the wholesaler know who the final customer was? In other words, what would be the monitoring processes? There is no relationship, is there, between the wholesaler and the final customer? 707 MR. VEGH: Well, that begs the question, the wholesaler could say to the retailer, I want you to say on your bills, gas supplied by Shell. The wholesaler could do that, no? 708 DR. SCHWINDT: Okay, but then there -- well, this goes on all the time. 709 MR. VEGH: It does, doesn't it? 710 DR. SCHWINDT: Yes. 711 MR. VEGH: Yes. So this is not an unusual example. This is a typical example of how decisions are made in the market economy. 712 DR. SCHWINDT: No, wait a minute. That someone, a wholesaler, will say, I want my logo to be presented to the final customer? 713 MR. VEGH: Right. 714 DR. SCHWINDT: And they'll strike a deal with the retailer or whoever is using the product, and indeed that logo will be there. You see it every day. You buy a computer and it says, "Intel inside." You buy a diet cola and you see, "Nutrasweet" on the logo. Those are intermediary products that are still -- a link is being made to the final consumer. Mind you, people are paying for that. 715 MR. VEGH: That's what I wanted to get to. So if the wholesaler is making that option to the retailer -- so we have wholesaler A, where it says that if you buy gas from me, there are strings attached; right? I want my brand to go in front of the customer. Wholesaler B may say, you buy gas from me, there are no strings attached. You can buy gas from me and you can own that customer relationship; right? So then the retailer has these two options in front of them. 716 DR. SCHWINDT: You can own that customer relationship. 717 MR. VEGH: Excuse me for the jargon. Wholesaler B says, you don't have to put my brand on your bill to the customer. 718 DR. SCHWINDT: Right. 719 MR. VEGH: So you can have -- you don't have to refer to me at all. So the retailer then has two options. One is to buy gas from someone who wants their brand in front of the customer, and one is to buy gas from someone who is not interested in having their brand put in front of the customer. 720 MR. JACKSON: Excuse me, Mr. Vegh. Sorry, there is a delivery person in the room and I was wondering if she was trying to find you or what was going on here. So sorry for that interruption. Excuse that interruption, Mr. Vegh. 721 DR. SCHWINDT: I think I get what's going on here. 722 MR. VEGH: Okay. And the -- the options, then, that are available are to choose from the suppliers; right? 723 DR. SCHWINDT: Yes. 724 MR. VEGH: And depending on the retailer's value of proposition to its customers, it may have a different way of evaluating those two suppliers. For example, if a wholesaler says, you don't have to put my brand on your bill to your end-use customer, so I'll sell you gas at a lower price because I'm not going to pay for that kind of branding assistance that your retail relationship will provide me. 725 DR. SCHWINDT: Yes, that's possible. 726 MR. VEGH: And we don't have to go through all the alternative -- all the scenarios that could work out, but the basic value proposition that each wholesaler provides to the retailer and then the retailer's determination of that value is really going to be driven by the retailer's sense of -- excuse me, Mr. Reghelini, I'm trying to talk to your witness. 727 The retailer's sense of that value will also have to reflect what it is -- what offer the retailer wants to offer to its end-use customer. 728 DR. SCHWINDT: Yes, that's correct. 729 MR. VEGH: So one retailer may be a low cost provider and they say that's all they're really concerned about, where they get the lower cost. And if they have to share the brand, they'll share the brand. 730 DR. SCHWINDT: That's possible. 731 MR. VEGH: And others may say, no, the brand is very important to me. So even if the cost is a little higher, I'll pay the higher cost and pass that cost through to my customer, or try to. 732 DR. SCHWINDT: That's possible. 733 MR. VEGH: And then as we move down this supply chain, then, what we are doing then, I guess, is moving down this supply chain from wholesaler to retailer, and the retailer is thinking about the offers they want give to their customers. And then the retailer's customers may, in fact, value billing offers differently; for example, some may want to take the option to say, you know what, put all my purchasers on my Visa bill because I like to collect Aeroplan points; the others may say, the billing arrangement really doesn't matter to me. That is, there may be different value propositions that retailers can offer to customers around billing as well; right? 734 DR. SCHWINDT: That's correct. 735 MR. VEGH: And these sorts of transactions take place every day. There's nothing unusual about the types of value considerations that you and I have been going through; right? 736 DR. SCHWINDT: They take place quite commonly, yes. 737 MR. VEGH: So it's true to say, then, as you do in response to your interrogatory 4.59, that sellers have the right to bill customers in a market. Isn't it also true to say that in a market the question of who sends a bill and what that bill looks like and the options available under that bill are determined by a number of voluntary transactions and each of those transactions carry with it their own value proposition? 738 DR. SCHWINDT: No. You -- you were talking about a vertical chain. You were talking about a wholesaler and a retailer. And when we're talking here, we're not talking about Union Gas being in a wholesale situation. I mean, they might be put into that position, I don't know. But as long as they're not, as long as they are selling a product or a service to an end-customer, they don't have to engage with a retailer as to whether their brand or whether their bill will be carried. They'll just do it themselves. 739 MR. VEGH: But we were talking about your answer here where you talked about -- where you talk about how, in a market economy, sellers bill for their services. 740 DR. SCHWINDT: To their customers. 741 MR. VEGH: Let me -- yes. So we're still talking about the market economy here. 742 DR. SCHWINDT: Right. 743 MR. VEGH: Okay. In a market economy, the question of what these bills look like and who receives them and in what form is carried out through a number of voluntary transactions, in a market economy. 744 DR. SCHWINDT: Absolutely. If someone says, I want someone else to bill for me, or will allow someone else to bill for me, and will do this, either they will collect money for this or they will spend money for it, voluntarily, yes, it takes place. 745 MR. VEGH: And the shape of these transactions is driven by the perception of value to the parties to these transactions? 746 DR. SCHWINDT: We would hope so. 747 MR. VEGH: And the way to capture the value of these transactions is necessary to allow the parties to have some choice, isn't it? 748 DR. SCHWINDT: To have some choice? 749 MR. VEGH: To have some alternatives? 750 DR. SCHWINDT: Well, clearly if they are -- have the alternative to bill themselves or to deal with someone else through the willing they have a choice, yes. 751 MR. VEGH: And that's how, through the exercise of choice, you capture the value. 752 DR. SCHWINDT: Through transactions you capture value. Transactions generally involve choice. 753 MR. VEGH: Through voluntary transactions you capture value. 754 DR. SCHWINDT: Yes. 755 MR. VEGH: So if a customer cannot make a choice, if there is no voluntary transactions over who provides a bill, then to that extent they are being denied a potential value, are they not? 756 DR. SCHWINDT: If a customer puts value on choice and for some reason they don't have choice, then we would conclude that they are less well off as a result of that. 757 MR. VEGH: And finally, given that Union does provide a monopoly service, so we're not talking about services provided in a market, and given that market forces cannot operate on the services that Union provides to customers, doesn't it mean that in order to capture the value that comes with this choice, it is necessary to have some kind of regulatory mechanism in place so that that choice can be registered, because it cannot be registered in a market? 758 DR. SCHWINDT: We're back to the beginning. And that is, yes, if you say that this type of choice or single bill is of extreme importance out there and that it's critical to your deregulation of gas in Ontario, then you better pay attention to marketer-consolidated billing, because that's what is stopping people from getting into the market, clearly. But it's a question of degree. 759 You're saying if you have this choice, wouldn't people be better off? Well, perhaps they would be. But here's the core question: How strong is that felt? Because it's clear that it has ramifications. If you show me that it's overwhelming, the consumer welfare will go right through the roof, I would say, okay, we'd better consider this. That's why I'm perplexed. 760 Your Panel went out and surveyed about the preferences for single bills, but to my mind, the critical question wasn't there, and that was: How strong is your preference? How much do you want this? It's all very well to say, would you prefer to have a choice, and which. You know, it's like motherhood. Most people say of course I want choices. Some choice is better than no choice. But if having that choice has ramifications, you then have got to ask, well, what is the magnitude of this desire, and that wasn't asked. 761 MR. VEGH: Well, it's interesting because the threshold that you're imposing on this is really quite remarkable. You're using words like "critical," "customer welfare has to go through the roof." How would anyone ever prove that this is critical or that customer welfare is not going to go through the roof, and why are you putting this standard? 762 DR. SCHWINDT: I'm hurrying here. I shouldn't be using such a high standard -- strong, significant. 763 MR. VEGH: In terms of how strong the significant is, isn't it the fact we won't know until we try it? 764 DR. SCHWINDT: No. I think surveyors can actually determine these sort -- certainly people determine the strength of potential demand for something before they introduce products and services into the market. 765 MR. VEGH: You try to speculate, but until you throw it out there and actually make an offer, you really don't know, do you>? 766 DR. SCHWINDT: Again, there are all kinds of marketing agencies that make an awful lot of money doing surveys trying to decide whether demand is out there for a product before it's put into the marketplace. If you're saying, you know, ultimately there are Edsels, you're right, there are. 767 MR. VEGH: And we won't know whether this is an Edsel or not until we try. 768 DR. SCHWINDT: We can reduce the uncertainty. And I think that that is my position. I'm not saying yes or no. If you -- you've read my report; you realize I don't say unilaterally this is a bad thing. Costs outweigh benefits. What I'm saying is I don't know. 769 MR. VEGH: You do say that and then you didn't -- but you didn't go to the next step and say, well, I'm going to try to analyze the costs and the benefits and weigh those against each other. 770 DR. SCHWINDT: No, I didn't do that. 771 MR. VEGH: So you can't really help the Board out in that regard, can you? 772 DR. SCHWINDT: As to what the actual calculations are, ultimately, of these benefits versus these costs? No. 773 MR. VEGH: Thank you, sir. Those are my questions. 774 MR. JACKSON: Thank you, Mr. Vegh. 775 Mr. Janigan, are you next? 776 MR. JANIGAN: Yes, I am. 777 MR. JACKSON: I think, then, that since we're sitting a full day today we should break for lunch, and normally we would resume at 1 -- 778 MS. JACKSON: I thought we were sitting a half day today, Mr. Chair. 779 MR. JACKSON: I apologize -- I apologize, you're absolutely right. We were so wrapped up in these things I just think they run seven days a week. Let's carry on. Mr. Janigan, you're on and we'll go until approximately 1:00. We'll be a little flexible to see if we can finish everything. 780 MR. JANIGAN: Thanks, Mr. Chairman. 781 CROSS-EXAMINATION BY MR. JANIGAN: 782 MR. JANIGAN: Dr. Schwindt, I gather from your discussion with Mr. Warren and Mr. Vegh that there are a number of essential pre-conditions associated with implementing marketer-consolidated billing, as you see it. If I understand the pre-conditions, they are -- it is costs, right, you have to have customer net demand based on those costs, and as well, the implementation should be based on the removal of a market barrier 783 DR. SCHWINDT: Excuse me, the last phrase? 784 MR. JANIGAN: The implementation -- the reason you're implementing this is to remove a market barrier. Am I correct that those would essentially be the three pre-conditions? 785 DR. SCHWINDT: I would put considerable emphasis on the last one. 786 MR. JANIGAN: Yes. 787 DR. SCHWINDT: You will note, however, in the -- in the material provided by Professor Trebilcock, there are other potential benefits that he identifies that we haven't discussed this morning. But to my mind, the third element is the critical one, and yes, you would certainly consider the other two. 788 MR. JANIGAN: And presumably it may be difficult to assess customer demand if there is a market barrier in place at the moment. 789 DR. SCHWINDT: Well, you can't observe it in this jurisdiction. You could observe it potentially elsewhere. 790 MR. JANIGAN: Now, supposing that all of the marketers met all these pre-conditions, and the Board decided to implement marketer-consolidated billing. Should the costs of the implementation be passed on to the marketers and then presumably to the customers of the marketers taking the service, or should they be passed on to all customers, including system sales customers? 791 DR. SCHWINDT: It should be passed on to all customers. 792 MR. JANIGAN: And why would you say that? 793 DR. SCHWINDT: Because if the Board found that there was compelling evidence marketer-consolidated billing was necessary to bring to fruition competition in the commodity market, then all customers in Ontario would benefit from that competition; therefore, presumably, all -- it would be justifiable for all to pay. 794 MR. JANIGAN: And presumably that would be part of any cost benefit analysis to see whether or not there are generalized benefits or whether or not the benefits are specific to the customers that take the service? 795 DR. SCHWINDT: My understanding would be if you bring competition to the commodity market, it would be very difficult to insulate one group from another. If marketers were able to make offers that were clearly superior to what Union was able to offer, they would take the customers and Union would either lower prices or lose customers. So I can't imagine a world where you had real competition that didn't bring the price level down to everyone. 796 MR. JANIGAN: Your position is when you implement measures that bring competition into the commodity market, then all customers in that market should pay a share of the costs? 797 DR. SCHWINDT: In a rough-and-ready, user-benefit, user-pay notion, yes. In other words, I don't see any gross inequity in making all pay. 798 MR. JANIGAN: Now, I would like to ask some questions concerning your observations on the telecommunications competitive market. And I have an excerpt I'm going to pass out which I gave your counsel yesterday, minus the front piece, from the status of -- sorry, I gave it to Mr. Reghelini yesterday, concerning the status of competition in Canadian telecommunications markets. So I wonder if I can have that passed up to you. 799 MR. MORAN: Mr. Chair, I guess this would be Exhibit F6.3, Report to the Governor in Council, Status of Competition in Canadian Telecommunications Markets, Deployment, Accessibility of Advanced Telecommunications, Infrastructure and Services, dated September 2001. 800 MR. JACKSON: We'll add the word "excerpts" at the end of that. 801 MR. MORAN: Excerpts, yes. 802 MR. JACKSON: Thank you. 803 EXHIBIT NO. F6.3: EXCERPTS FROM THE REPORT TO THE GOVERNOR IN COUNCIL ON THE STATUS OF COMPETITION IN CANADIAN TELECOMMUNICATIONS MARKETS 804 MR. JANIGAN: Once again, Professor Schwindt, I notice in your evidence, on page 8, that you note that your opinion is supported by the experience of the telecommunications sector that separate bills are provided by local and long distance service providers, and most would agree that the long distance market has become highly competitive. 805 And as well, this interrogatory from my client, VECC, C22.31, I wish for you to turn that up as well. 806 DR. SCHWINDT: Yes, I have it. 807 MR. JANIGAN: You do note that the level of competition in long distance markets is intense. "Long distance telecommunications has become a commodity market with the average rates in 2000 some one-third of what they were in 1995, while consumption in terms of minutes has tripled over the period, while market shares or concentration ratios are not to be used in isolation as a measure of competition. My understanding is that currently, on a national basis, incumbent local exchange barriers, i.e., companies that provided monopoly local telephone services prior to deregulation, account for approximately two-thirds of the long distance minutes and competitors account for the other third." 808 Now, I take it, Dr. Schwindt, that was based on the total long distance market minutes, which includes the business long distance market. 809 DR. SCHWINDT: That's true, Mr. Janigan. 810 MR. JANIGAN: And you'll note on page 20 of the report, which is four pages into the exhibit, that it is noted that the share -- competitor share of residential markets declined to about 18 percent in 2000 from 26 per cent in 1998, and during the same period, the competitor share of residential long distance revenues declined from 31 to 27 percent. 811 Would you agree with me that it would appear that the competitors are not doing as well in the residential markets as business markets? 812 DR. SCHWINDT: In terms of market share? 813 MR. JANIGAN: Yes. 814 DR. SCHWINDT: In terms of market share, what you're saying is correct. 815 MR. JANIGAN: And for -- looking at a market -- or the residential market for long distance, ten years after the exchange was implemented in 1992 -- in this case the measurement is 8 years after, it would appear -- there would appear to have been some substantial difficulties that the competitors had in establishing themselves in that market. 816 DR. SCHWINDT: My understanding is that long distance has been driven to a commodity position both for business and for local, and that rates have plummeted as a result for both business and for local. And yes, it's gotten to be a tougher row to hoe for independents in residential long distance, and that's reflected in those market shares. But I think it's only fair to add that although market share has not increased dramatically, and in fact has declined slightly, this has not been reflected in higher long distance rates for residential customers. 817 MR. JANIGAN: And I believe you are likely aware of the shakedown that has occurred among long distance providers over the past ten years. Many providers have morphed down to a few providers. 818 DR. SCHWINDT: I'm familiar with the ebb and tide in market share in deregulated markets and it's not just in telecommunications. 819 MR. JANIGAN: And even among the survivors, you would be familiar with the financial and business difficulties that have been experienced by long distance providers over the past few years in providing long distance service. 820 DR. SCHWINDT: For some, yes. And I don't think that's exclusively, though, for non-incumbents. I think some of the incumbents have had trouble also. 821 MR. JANIGAN: Now, has any competitor shown a profit from their long distance activities, to your knowledge? 822 DR. SCHWINDT: You mean any independent marketer? 823 MR. JANIGAN: That's right, excluding the collects the -- or the -- excluding the incumbent local exchange providers. Has any competitor shown a profit from their long distance? 824 DR. SCHWINDT: Well, I'm sure some have. They continue to be in business. They couldn't -- they couldn't incur losses consistently. But I'm not prepared to speak to that. I haven't looked at recent financial returns for the likes, you mean, of Sprint and -- 825 MR. JANIGAN: Yes. 826 DR. SCHWINDT: I'm not familiar with that. 827 MR. JANIGAN: Okay. And you recall that AT & T sold its residential service to Prime some years ago. 828 DR. SCHWINDT: Yes. 829 MR. JANIGAN: And do you know who the biggest long distance provider in Canada is, outside of the incumbent telephone company? 830 DR. SCHWINDT: I'm not going to guess. 831 MR. JANIGAN: Okay. Now, are you also aware that long distance suppliers are frequently piggyback their customer billing into the bills sent out by other entities such as department stores, Canadian Tire, and the like? 832 DR. SCHWINDT: You mean the non-incumbents do this? 833 MR. JANIGAN: That's right. 834 DR. SCHWINDT: It's my understanding that they do. 835 MR. JANIGAN: And would you agree, Dr. Schwindt, that the reason that they have done this is that the prospect for receiving two bills for telephone service is a substantial disincentive in the residential market? 836 DR. SCHWINDT: No, I wouldn't. 837 MR. JANIGAN: Would you -- 838 DR. SCHWINDT: In fact -- excuse me. In fact, my presumption is that they are doing this using either billing for multiple services or including their bills with someone else's services because there are benefits that are involved, primarily marketing benefits. But I've seen nothing to indicate that they are doing this to save money on billing. Indeed, in this document, is there -- that you've handed up to me, is there any indication that direct billing is the cause for these market shares? 839 MR. JANIGAN: Certainly that's not something that was surveyed by the CRTC. But I wonder, Dr. Schwindt, in terms of the -- in terms of the residential market, you would not agree that the prospect of receiving two bills is a substantial disincentive for the residential sector? And that may explain the difference in take-up of the competitor services between less residential and business? 840 DR. SCHWINDT: I would expect if that were true, that you would see very, very strong lobbying on the part of independents for marketer-consolidated billing. I have looked for that and I have not found it. 841 So for that reason, I cannot agree with you. And it's so obvious that if this was what was slowing down AT & T and Sprint, that they would be petitioning regulatory bodies in order to do away with incumbent billing, and I have not seen this. I assure you, I looked for it. In fact, I spoke with people in the industry and said, to your knowledge, has this been an issue? And they have simply said, not to my knowledge. So I can't say definitively that it hasn't, but I tell you, I have looked for it and cannot find it. 842 MR. JANIGAN: Now, in fairness, Dr. Schwindt, there is a great deal more to be billed by the incumbent local exchange carriers for local exchange services than is involved in telephony, as opposed to what is done in relation to gas service; do you not agree? 843 DR. SCHWINDT: Currently, true. 844 MR. JANIGAN: Okay. Now, I want to return to -- or mark -- I thought I heard you say to Mr. Brown, Dr. Schwindt, I thought I understood you to say that Union will no longer get information if marketer-consolidated billing was implemented, that Union will no longer get information from the customer but would get it from the marketer; is that correct? In my recollection. 845 DR. SCHWINDT: I didn't say no information. What I said was that this direct contact through the billing would no longer exist so that the connection to the customer would become more tenuous; more information would flow from the marketer to the distributor to the place -- the pre-existing relationship. 846 MR. JANIGAN: Union would still be involved in providing the meter rates, for example. 847 DR. SCHWINDT: Correct. 848 MR. JANIGAN: And they would still have to have information about the customer and the customer's usage. 849 DR. SCHWINDT: Yes, they would still have that information. 850 MR. JANIGAN: Now, in the event that the cost of the information flow to facilitate direct billing is the same as that required for marketer-consolidated billing, would your concern about the costs of information flows that you've set out at page 3 of your evidence, would that concern be removed? 851 DR. SCHWINDT: Certainly, if evidence were brought forward to indicate that there was no significant penalty involved, the concern would go away. 852 MR. JANIGAN: Thank you, Mr. Chair, those are all my questions. 853 MR. JACKSON: Thank you, Mr. Janigan. 854 Ms. Flaherty. 855 CROSS-EXAMINATION BY MS. FLAHERTY: 856 MS. FLAHERTY: Thank you. My name is Michelle Flaherty and I represent the Industrial Gas Users' Association and I have a couple of questions for you. 857 The first one is I would like to take you back to a discussion that you had with Mr. Vegh, and in particular, in the context of the hypothetical that he presented to you. 858 As I understood your answer, you would agree that the existence of voluntary transactions which involve choices and alternatives would lead to enhanced competition in the marketplace; is that correct? 859 DR. SCHWINDT: I'm not following you. 860 MS. FLAHERTY: Sorry. Perhaps I can ask you to lean up to the microphone. 861 DR. SCHWINDT: The last portion of your question -- could you move just a little bit so I can at least see her. The last portion of your question had to do with choice? 862 MS. FLAHERTY: Perhaps I'll rephrase the entire question. So it's about voluntary transactions. 863 DR. SCHWINDT: Yes. 864 MS. FLAHERTY: And how the fact that they are voluntary transactions which involve alternatives or options or choices. These together can lead to enhanced competition in the marketplace. 865 DR. SCHWINDT: Transactions don't lead to competition. Transactions are the result of offers being made and taken up. Choice, generally, is associated with competitive markets insofar as multiple suppliers will make multiple offers. So ultimately consumers will have a choice between suppliers. That's true. 866 MS. FLAHERTY: Just so I'm perfectly clear, if consumers have choice, that tends to lead to a more competitive market? 867 DR. SCHWINDT: I don't think choice leads to competition. I think competition leads to choice. 868 MS. FLAHERTY: Then perhaps I misunderstood what you explained to Mr. Vegh. And my question was meant to be taken in the context of the hypothetical that he put to you, which was, where you have a number of entities within a supply chain and there are a number of billing possibilities, if there are more billing possibilities, more choices, ultimately, there is more competition? 869 DR. SCHWINDT: Again, the billing choice is not leading to the competition. It's the competition is leading to billing choices. 870 I'm not -- I'm not following this except insofar as if billing choice or preferences are very strong for a particular type of bill, very, very strong, so that others are disadvantaged if they cannot offer that -- significantly, not overwhelmingly, just significantly -- then that has an impact on competition. That's given. 871 But the fact that you don't have a range of billing choices, does that lead to no competition? No, I see the line of causality running in the opposite direction. 872 MS. FLAHERTY: I'm not necessarily speaking only in the context of billing. My question is: If customers have a number of options, the people who are ultimately behind those options are competing for customers; is that correct? 873 DR. SCHWINDT: That's correct. Absolutely correct. 874 MS. FLAHERTY: And would that not lead to enhanced competition? 875 DR. SCHWINDT: The fact that they're making the offers, yes, this is the process, in fact, of competition. You're spot on. 876 So if you have numerous suppliers, each one offering something different, and in their offering that something different they are providing consumers with choice and that is competition. Yes. 877 MS. FLAHERTY: Thank you. 878 Now, what I'm not clear on, then, is what you seem to be stating is that in order for billing choices to be offered here, in other words, direct billing marketer-consolidated billing, customers need to indicate a strong preference, and you said "very, very strong," I'm not sure if you used the word "overwhelming." But this seems to me, in your mind, to be a pre-condition to these options being offered. 879 DR. SCHWINDT: That's true. 880 MS. FLAHERTY: And could you explain to me the basis for that, then? 881 DR. SCHWINDT: Okay. What we're after is to make commodity markets more competitive. That's what we're after. 882 If it's shown that marketers are disadvantaged vis-a-vis the incumbent because they cannot bill for the incumbent services, if this were documented and accepted, then one would have to say, okay, we are failing to achieve what we want in the commodity market because marketers cannot offer one bill. And then you would say the costs to society, to consumers, to -- is essentially a competitive market. We better seriously consider whether we should force marketer-consolidated billing. 883 On the other hand, if you cannot show that relationship, you must say, well, it's not true that competition hangs upon this. What is it going to cost us just to impose it? And there we go through these provincial costs. 884 MS. FLAHERTY: I understand your position that there has to be a cost benefit analysis before you believe the Board should order this, but what I don't understand is what you seem to be saying is it's sort of weighed against options in that customer -- or someone has to present evidence that customers have a very, very strong preference of something before the option can even be presented. 885 And I'm not clear on why there would have to be a strong preference. Why would -- why is not -- as we were discussing earlier -- why is not the mere existence of an option a benefit in and of itself, regardless of whether there is a strong preference, a pre-demonstrated strong preference to adopt that option? 886 DR. SCHWINDT: Okay. Let's back up a moment, then. 887 We're not -- the goal isn't, to my mind, to simply give customers choice. I mean if that were -- if that were the name of the goal, we could sit here and we could think about all kinds of choices that we could give to customers, just a whole potpourri of them, and they could be mandated. Offer them this, offer them that, on and on it goes. I don't think that that's the end goal, simply offering a smorgasbord of different choices. 888 What you want, of course, is the choices that are demanded be offered. You're after a satisfaction of consumer demand, not just offering for the sake of offering. What if something cost a very large amount of money to offer and no one wanted it? That would be society's loss. If you would have mandated a choice and no one picked it up, you would have extinguished resources that could have been used to a better end. 889 Now, in most instances, profit-maximizing firms look very carefully at the choices that they offer. They don't just willy-nilly offer choice for choice's sake. They say, I am going to offer this because no else does and, as a result, I can make money. If they are successful, i.e., people are willing to pay more than the cost of the product, the world is better off. I get $10 worth of value and I only paid $5 for this thing. 890 But imagine a world where someone was mandated, you are going to offer someone this, regardless of whether they wanted it and regardless of what the costs were. That doesn't make for a more competitive market or for a higher level of social welfare. 891 MS. FLAHERTY: But then isn't that sort of folded into the cost benefit analysis and there is no pre-condition to there being a strong preference before you can even consider whether or not to undertake this? This is part of the cost benefit analysis that you would undertake in making the decision, is it not? 892 DR. SCHWINDT: Well, except what we're doing here is we're talking about taking away something from Union Gas, its ability to bill. 893 So before we do that, we say, yes, we better have some confidence that this is important. 894 Look, nobody is saying to -- no one would say to marketers, we don't want you to offer this type of particular bill, where you bundle your service with five of the six. We're not going to tell you not to use your bill as a marketing instrument. We're not going to tell you not to align with a supermarket or Aeroplan. Go ahead. Offer people all those choices. But by the same token, we, being the Board, are not going to say, you must give them Aeroplan points, you must give them this. So let that market sort itself out. And it will. 895 MS. FLAHERTY: Those are all my questions. Thank you. 896 MR. JACKSON: Thank you, Ms. Flaherty. 897 Are we at -- Board counsel? 898 MR. MORAN: Just a couple of questions, Mr. Chair. 899 MR. JACKSON: Thank you. 900 CROSS-EXAMINATION BY MR. MORAN: 901 MR. MORAN: I just want to follow up on something that you discussed with Mr. Janigan and Mr. Brown. And that has to do with the information about the customer that would flow to the utility from the marketer under marketer-consolidated billing. 902 I'm just wondering if you could describe what information you're talking about. 903 DR. SCHWINDT: All right. Again, I have to preface this by saying I'm no expert on billing functions. My understanding -- my understanding is that as it now stands, Union Gas is informed of different changes with respect to customers by customers themselves. 904 A move, a new tenant coming in, these sorts of things, my understanding is that this type of information under a marketer-consolidated billing system would generally go through the marketer and then to Union, that there would be an increased necessity of information flows between the two. 905 And I think that the other Panel has touched upon this. I hope they did. 906 MR. MORAN: On the basis -- it's on the basis, therefore, of that assumption that you would express concern -- 907 DR. SCHWINDT: Yes. 908 MR. MORAN: -- about marketer-consolidated billing and customer information flows? 909 DR. SCHWINDT: Yes. It's based upon the assumption that there would be an increased flow of information in that direction and not based upon my own study of that phenomena. 910 MR. MORAN: Fair enough. 911 On a completely different point. You talked about how somebody could do a survey, or there are surveyors out there that could look into whether marketer-consolidated billing was a useful thing to do. 912 I was just wondering what your view would be with respect to a test run of marketer-consolidated billing. Pick a geographic area, for example, and try it out in a particular geographic area to see how it works. And what would your view be of the usefulness of doing something like that? 913 DR. SCHWINDT: As a social scientist, I'd be hard pressed to say that I disagreed with a scientific experiment, wouldn't I? I suppose. I suppose, though, that there would be easier ways to do it if one were to be engaged in the research. I'd go to other jurisdictions first. 914 I tell you, what surprised me was the absence of study of this issue. I expected that there would be an enormous volume of it, that people would have looked at it as if it was as important as everyone was letting on. And I just could not find it. 915 I know it's fairly lame to say I believe in this because I can't find contradictory evidence, but when people in other jurisdictions have incentives to produce those kinds of studies, you would expect them to be there. 916 MR. MORAN: Right. How would you go about surveying for this if you weren't going to try an experiment like I described? How would you design a survey? 917 DR. SCHWINDT: Well, I'm not a professional surveyor, but I think the basics would be -- 918 MR. MORAN: What would you be looking for? 919 DR. SCHWINDT: You'd set up situations where you test the -- you test the importance of different parts of the bundle. In other words, a price change, what would you do if marketer X offered you this for five percent less than everyone else, but you had to take your bill from so-and-so? What if it was five percent less and you got two bills? 920 Some of the surveying has been done in the U.K. that I found quite interesting, and that was the importance of dual-fuel billing. Much has been made about this, right, that with the new regime we'll be able to have dual-fuel billing. But if we have direct billing, customers will still get two bills. Apparently, the surveys that have been done in the U.K. indicate that this option for dual-fuel billing is not really that important to customers. Very few are switching suppliers in order to take advantage of that. But the one data that is always there is price as the explanatory variable. And then other factors like, oh, the aggressiveness of the salesperson. This will be more important than consolidation of bills. 921 So, again, if you're looking for evidence, which I was doing, you would expect it to be there. People would say, yes, it's that one bill. That's why I'm doing what I'm doing. But I haven't found it. 922 So one could survey in that -- in that manner. 923 MR. MORAN: Thank you very much, Dr. Schwindt. Those are all my questions. 924 MR. JACKSON: Thank you, Mr. Moran. 925 QUESTIONS FROM THE BOARD: 926 MR. SOMMERVILLE: Professor Schwindt, I've just been looking through the material again and I don't see references to the research from the United Kingdom -- or I haven't seen any. Would you be prepared to provide some references with respect to that? 927 DR. SCHWINDT: With respect to? 928 MR. SOMMERVILLE: You talked about the dual-fuel studies that have been done in the United Kingdom. Is there a specific -- 929 DR. SCHWINDT: I think they're in the interrogatories. 930 MR. SOMMERVILLE: Could you bring me to it, please? 931 DR. SCHWINDT: It's the MORI study that is perhaps amongst Professor Trebilcock's references. I can identify it. It's easier than going through the paper now. I think it's already in your possession, but I will identify exactly where it is. 932 MR. SOMMERVILLE: I'd appreciate that, thank you. 933 MR. MORAN: Shall we mark that as an undertaking? 934 MR. JACKSON: Yes, that would be a good idea. 935 MR. MORAN: I think it's the first one of the day. That would be G6.1 936 MR. JACKSON: Thank you. 937 UNDERTAKING NO. G6.1 TO PROVIDE U.K. STUDY ON DUAL-FUEL BILLING 938 MR. JACKSON: Dr. Schwindt, did you explore with Union, and if you did, perhaps would you comment on whether or not an end-use customer today can reduce the number of bills he receives in a year, the number of physical bills, by giving instructions to his utility. In other words, can he tell his utility that he doesn't wish to receive a physical bill in the mail? 939 DR. SCHWINDT: Yes, in some jurisdictions, you can tell your utility provider that you'll be billed by e-mail. 940 MR. JACKSON: Good. That's part of what I was getting to. Is that a trend that is increasing? Are more and more people going to be receiving their bills by e-mail, in your opinion? 941 DR. SCHWINDT: My understanding is that the take-up of online payment of bills was exaggerated, that clearly there are people that are using these facilities, but the early predictions have not come to fruition. People apparently are willing to buy books and a few items over the net, make transactions, but it is not nearly as popular as was predicted. There are security concerns, there is familiarity with the -- with the technology. All of these things have slowed down the take-up. 942 So I recently did work with respect to the book industry. In fact, it was the Indigo-Chapters merger. And there the issue was, why do we have to worry? Everybody can buy online now. There is one big market. Amazon will discipline any other provider of books. Forget about the merger, just go for it. But you started to take a look at the statistics as to what volumes of books were actually moving, and what the predictions had been, and it was not nearly as significant as people had anticipated. That's a long answer. The short answer is I think it will expand but not dramatically in the short-term. 943 MR. JACKSON: Okay. It seems to me that that comparison is a little difficult too, because you actually somehow have to transport a book to the individual's home. And so we're not just talking billing in that instance, are we? We're talking about buying and then -- yes, transporting the book or whatever. It may or may not be a good comparison. But the understanding I have is that, for example, if Rogers, which provides cable TV service, gets you on an equal billing plan and you give them access to your bank account, they'll only send you a bill when they change the price. And so you might go for a very long period of time without receiving a physical bill. 944 Now, did you explore whether -- if a customer is willing to permit a gas company, the utility, to debit their bank account? Perhaps they can do without a physical bill. 945 DR. SCHWINDT: I know that this option is available in telecommunications in British Columbia. I do not believe that B.C. Hydro offers automatic debiting of my account. I'm very reluctant to let them do this anyway. 946 MR. JACKSON: I can understand that, too. I was just exploring the possibilities. I was wondering if the physical bill might be, to some extent, going the way of the buggy whip, that it would be disappearing; that at some point in time a major portion of the customers would be doing their payments and hence receiving their bills as well through some sort of electronic medium. 947 But fair enough, I think you have a commented that it looks to you slower than you had -- than some might have initially expected in terms of take-up. 948 DR. SCHWINDT: I don't think that we can, you know, shut down the hearings because of the imminent arrival of e-billing. I think it's going to take a long while. 949 MR. JACKSON: Fair enough. 950 I guess the other thing is just a matter of clarification. But do you think that if I were to substitute throughout your testimony some words to the effect of Union being denied to send a bill directly to the customer's place of use, that that would perhaps be more accurate than talking about Union's ability to bill? 951 I raise this because I talked to Mr. Birmingham yesterday about this very question, and he agreed that Union would not lose the ability to bill, which is what you've been talking about, losing or being denied. And just for clarity, should I substitute that longer phrase every time I see you talking about losing the ability to bill? 952 DR. SCHWINDT: To bill the end customer and if you want -- yeah, that would clarify it, by saying at their place of residential or their place of business, certainly. 953 MR. JACKSON: For use of the commodity. 954 Did you explore with Union whether or not it would accept instructions from customers to send their bills somewhere else? Is that something that is just done as a courtesy but Union doesn't want to feel obliged to do it right now? Did you explore that? Or would a customer be willing -- sorry. Did you explore, perhaps find out whether Union would be willing to accept instructions from a customer to send the bill to a property manager, or to some company that sets itself up relatively independently as a bill-paying agency? 955 DR. SCHWINDT: I didn't explore that with Union, no. 956 MR. JACKSON: And the only reason I raise that question is because it seems to me to go in part to the most fundamental or basic notion of marketer-consolidated billing, and that is where the marketer is nothing more than an agent. 957 Now, I realize that on the electricity side of the development of these issues, there are prudential requirements that have been put in place and all sorts of other things that make it look like more than a very, very simple agency relationship that the retailer has. And I guess to some extent, that probably has been a matter of accepting and going forward with the recommendations of the Market Design Task Force. My colleagues and staff can straighten me out on just the origin of that. But recently there has been very little discussion of a simpler form of an intermediary billing alternative whereby the intermediary would be nothing more than an agent. 958 Do you understand the -- okay. The difference I'm getting at is that under the retailer-consolidated billing for electricity, I think that the retailer has become more than an agent. The retailer is becoming liable, in a principal sense, to the utility for the payment of that bill. 959 DR. SCHWINDT: Okay. 960 MR. JACKSON: Whereas I think in the purest form of agency relationship that I can imagine, the liability for payment of that bill would remain with the end-use customer. 961 DR. SCHWINDT: Okay. 962 MR. JACKSON: So that in terms of at least two alternatives of retailer- or marketer-consolidated billing, I could identify two alternatives on the basis of having or not having the recourse to the intermediary for the payment of the distribution bill. 963 DR. SCHWINDT: I guess in simple terms it comes down to is the distribution service being sold to the retailer who is then reselling it to the end customer, or is the retailer acting as an agent, literally, for Union and simply passing this along. 964 MR. JACKSON: Yes, I agree. That's another way of putting what I'm trying to put to you. 965 So my opinion -- 966 MS. JACKSON: May I just -- so I have this in order, because I had understood your question and I may be wrong in this, but I think it's an important issue of clarification. 967 MR. JACKSON: Yes. 968 MS. JACKSON: Are you speaking of the retailer acting as the agent of the customer for the bill, or the -- because my -- 969 MR. JACKSON: Yes. 970 MS. JACKSON: Professor Schwindt, I think, had the retailer as the agent of the distributor. 971 MR. JACKSON: Oh, thank you very much, Ms. Jackson. Yes, I was -- the agency relationship I was thinking of was the one that a number of previous witnesses have referred to. In fact, Union Gas witnesses have said that their -- the evidence that they have about consumers wanting certain things is because the marketers as agents of those consumers have told them so. 972 So that's the agency relationship I was inquiring about. 973 DR. SCHWINDT: I see. 974 MR. JACKSON: Now, can you wind back a bit and substitute that and think about the question, which is -- which was actually a very simple one: It's whether you had explored any of those alternative concepts of marketer-consolidated billing with Union? 975 DR. SCHWINDT: No. No, I haven't. And I can see the relevance. I see where you're coming from, because some of the potential costs might be mitigated depending upon what that relationship was. But no, I did not -- I did not go there. 976 MR. JACKSON: Okay. Thank you for that. I'll just check my notes very quickly here. 977 Mr. Dominy is going to put one further question to you. I don't think we want to lose you if we can get any more value out of you, Doctor. Thank you, though. 978 MR. DOMINY: Professor Schwindt, we've been hearing about the differences or the anomalous situation between the electricity and the gas market, and the concern being expressed that if you offer it in one market and you don't offer it in another market, it is anomalous and there are difficulties resulting. 979 I was wondering whether you believe there was a reason why it was necessary to have more billing options put in place in a market that was opening up. I mean, the electricity market hasn't been established. It's establishing itself over the next few years, compared to a market that has already been in existence -- oh, maybe my question is wrongly worded. 980 Are there any differences you would like to highlight in the different circumstances between the two markets that might lead to different beliefs as to what is required in the way of billing options? 981 DR. SCHWINDT: Well, I wasn't a party, of course, to the discussions as to billing arrangements in electricity. But my understanding is that the utilities, the distributors, never raised the issue; in other words, never said, we don't want marketer-consolidated billing. 982 So there was ad idem, there was a consensus that we can just go forward with this and for whatever reason those utilities did not believe that there was a customer relationship at stake, or we're going to focus, I suppose, on the marketing of electricity in a -- as an ancillary operation, a subsidiary or whatever. 983 So I don't know that there is a fundamental difference between the two, other than that the issue didn't come up. 984 But harking back to your earlier question about, what about a test sample, well, here's one for you: Why don't you wait and see what happens in electricity where you've got marketer-consolidated billing, and see what the take-up is like. Because in gas, the take-up was enormously quick. I mean, it went very, very quickly from the beginning of deregulation up to the present. It was, what, 40 percent? It's kind of hovered around there now for a number of years. And this was all done with distributor-consolidated billing. So if you want -- if you want to run a test, here it is. You can see what happens. 985 MR. DOMINY: May I ask another question, slightly different. 986 As a customer or as a consumer -- and actually I don't have gas so -- but if I was a customer of gas, I'd certainly have electricity. I see getting my electricity -- I think in terms of electricity, I don't think in terms of a kilowatt-hour and then a delivery of the kilowatt-hour and all these other components. I think of one commodity: electricity. In gas, I think of one commodity, gas. I have oil, I know I'm -- I shouldn't have, but I think of receiving my oil, of oil delivery. I don't think of the mechanisms that are needed to get me there. And if one took that perspective of the customer, that there is just one entity, would it not be reasonable for me to think of myself as getting my gas from, say, a supplier? And then all the other things are up to the other parties to arrange that I got my delivered gas, that's the only thing I'm interested in. 987 If you had that sort of a model, then would I not be just considered being billed by the person that I identify as the person who is giving me my delivered gas molecule. 988 DR. SCHWINDT: Your -- as are most of us, you know, we're prisoners of the way in which things have worked and we view things that way. 989 And I guess what we're going back to is this same -- the same issue, really, as to how strong that perception is. In other words, what you're saying is: I view a fuel supplier and I've never looked at it, I've never looked at whether this component was for storage or this component was for transportation or this was the commodity or this is the pipes. It was all just one thing that came. And I guess what's happening in this century is we're all going to have to become more astute at these different components and their make-up. I mean, quite frankly, I was a bit surprised to find out what the components of gas delivery were, how much of it was the commodity, how much of it was the delivery service. 990 You know, I don't think people are going to have terrific problems with that ultimately. They don't have terrific problems with separating out the concept of long distance and residential. I think that they'll be able to separate out the notion of who delivers it and who gets me my commodity. It takes education, that's true. But, with time, I think it will come to pass. 991 MR. DOMINY: I do have a little difference of view with regard to long distance and local. I do exactly know I'm getting long distance, I'm phoning across the Atlantic or something; whereas local I'm picking up the telephone and ringing my neighbour. So there is a different perception of the thing I'm receiving from the two different suppliers. 992 DR. SCHWINDT: But was that always true? 993 MR. DOMINY: Well, I certainly knew how expensive long distance was. 994 DR. SCHWINDT: Yes, that was always true. 995 MR. JACKSON: Dr. Schwindt, picking up on the same point, if I may. Where there is competition in the marketplace for local transportation such as, for example, courier service, I do think that end-users have the choice of phoning up a specific courier service and saying, pick up my parcel from such and such a location and bring it to me; or alternatively, in many, many cases, dealing with the person that is selling me the goods that are in the parcel and saying, would you please courier that to me and charge me for it. So where there is competition in the local transportation services, that seems to have been a fairly logical choice to have offered, doesn't it? 996 DR. SCHWINDT: Certainly, there is both internalized and externalized transportation. And some firms rely on the internal, some rely on the external, and some rely on both. No question. 997 MR. JACKSON: Right. So there would be an analogy here that some end-use customers might feel far happier buying their gas from someone other than the regulated monopoly, if they could just say to that supplier of gas, will you deal with everyone, just the same way Mr. Dominy suggested, and you arrange my transportation too, would you? Is that -- I guess if I understand your evidence correctly, you're saying well, that hypothetically may be the case but there was no measure of the value of that to customers. Is that basically what your evidence has been? 998 DR. SCHWINDT: When we go back to the retailer who says, okay, Mr. Customer, you can accept delivery any way you want, the retailer is making that decision. In other words, no one can force the retailer to hand -- excuse me, to hand off to Fed-Ex to deliver to a customer. They can just say, look, we don't have that, we don't have a shipping department that does that sort of thing. We do have a little van that will come out and, you know, we'll deliver to you if you want. But, I'm sorry, we just don't -- you know, we've had too much trouble with payment, and so on and so forth, and we don't do business that way. 999 So it's not as if the customer can call the retailer and tell the retailer, you must do this for me. 1000 MR. JACKSON: No, I don't think we're looking at that possibility either, because we don't regulate the retailer. All we're doing is discussing whether or not we should put in a system such that the retailer, if he chooses to offer to do that for me, can actually affect what he is offering to do. 1001 DR. SCHWINDT: Okay. But the point is that Union is saying, if you do that, you are taking something away from us in the process. And that is where this balance has to be brought in and that's -- it's a tough one. 1002 MR. JACKSON: I understand that, and I think that with one of the intervenor counsel you explored the possibility of that maybe happening as a fair economic exchange, that the marketer might actually pay Union for the right to do that. I think that came up, but maybe I read too much into your answer. 1003 But that might then give us some sort of an ex-post notion of value, if that exchange could be affected in the marketplace, if a marketer could say, we'll pay Union for the right to be able to contract for this local transportation service because we think it will give us certain benefits. So then ex-post we have an example of what one marketer was willing to pay for that and what one notion of value might be about the value of that; correct? 1004 DR. SCHWINDT: That's true. That's true. Transactions could take place in the future. 1005 MR. JACKSON: Right. So then just to flow that through, in an annual cost-of-service model used for pricing utility services, or in a tri-annual one which we have through our PBR process with rebasing, the revenues that Union received from selling that value would have to somehow be factored into this overall utility revenue equation, because under this model the regulator is trying to set a revenue requirement that includes a fair return to the capital invested. And if it were not factored in, I take it the utility would receive more than a fair return; do you under -- 1006 DR. SCHWINDT: That's possible. That's possible. That's possible. I'm trying to play this out in my -- in my own mind, though, because when you say if it is that valuable to the REM, and I'm trying to wrap my mind around it, that it can be that valuable for a couple of different reasons. It can be that valuable because the REM realizes people just absolutely hate getting two bills and it's stopping their market growth, that's it. That's all people are interested in is one bill, the convenience. So that's why they want that. 1007 On the other hand, maybe they would want it because it would expand their possibilities to make other offerings, to advertise some other products. I don't know. Maybe it would be crucial to that. If it were the former reason, you know, you would be in the position as the Board to say, well, no, you know, this is something we should just impose because we want competition in the commodity market and, by golly, it's this billing scheme that's stopping that. And we know that and that's why we're going to change it. 1008 On the other hand, you're now getting into this situation where yes, Union has something that's of value to the marketer because the marketer can market other products with this thing, so it becomes a little bit more convoluted. But, yes, they are selling something that would shore up -- give them additional revenues and so presumably this would be passed on to ratepayers. I don't know why else -- why it wouldn't be, if they voluntarily did this. 1009 MR. JACKSON: Thank you very much for trying to help me think that through. I appreciate that. Thank you for being here. Thank you for your assistance. Actually, I think your counsel may possibly have some redirect, before I offer you all our thanks. 1010 MS. JACKSON: I don't, Mr. Chair. 1011 MR. JACKSON: Okay. Well, then, I repeat my thanks, and we are adjourned -- or we will shortly adjourn until tomorrow morning at 9:30. But let me just take a quick poll, if I could, as to what's coming up. 1012 Board counsel, can you help us with any timetabling information at this point? 1013 MR. MORAN: I believe we have the next witness as Mr. Todd, called by VECC, and then Mr. Trebilcock, who is being called by Direct Energy. I'm not sure what people's views are on how long it would take to cross-examine Mr. Todd. We haven't canvassed that so you might want to do that. 1014 MR. JACKSON: Do we have any voluntary comments on that, then, at this point as to how long people think they might be with Mr. Todd? Mr. Todd will be on tomorrow morning, would he? And then Dr. Trebilcock. Is it Doctor or Mister? 1015 MR. MORAN: Mister. 1016 MR. JACKSON: Sorry, I'm getting two different views on this. Professor Trebilcock will be on tomorrow afternoon, I would think. 1017 MR. MORAN: I apologize if I demoted him. 1018 MR. JACKSON: We'll get that clarified. 1019 MR. VEGH: In terms of Mr. Todd, I don't think I would have more than ten minutes, if anything. 1020 MR. JACKSON: Thank you, Mr. Vegh. 1021 Mr. Janigan, any offers? 1022 MR. JANIGAN: In direct I will probably be about ten minutes. 1023 MS. FLAHERTY: I'll be very brief as well. 1024 MR. JACKSON: Thank you. Okay. 1025 Now, as far as Professor Trebilcock is concerned, can he follow Mr. Todd immediately, or did we give him a specific time, Mr. Moran? Can you remember? 1026 MR. MORAN: I don't know if Ms. Jackson has had a chance to indicate how long she would be cross-examining. 1027 MS. JACKSON: I don't, frankly, know, although I am not given to the lengthy cross-examination so -- but these are all relative. But I'm aware that there are a number of people who are not in the room and I, for one, have no idea what their intentions are. 1028 MR. JACKSON: Well, then I think it is a bit up in the air. But we'll start tomorrow morning at 9:30, and if other parties could be ready to just follow in when we have finished with Mr. Todd, that would be appreciated. 1029 And my colleague has just reminded me, I should perhaps ask about Friday and possibly about arrangements for argument. Have you anything you can help us with on that? 1030 MS. JACKSON: I think we've discussed it, Mr. Chair. Well, first of all, there is -- I don't think I'm in a position to advise the Board about reply evidence until we've heard all of the first round of evidence. 1031 MR. JACKSON: Yes, of course. 1032 MS. JACKSON: And I also, although I think we are very anxious to proceed to oral argument as quickly as possible in the particular circumstances, I don't think we'll be in a position to do it Friday. 1033 MR. JACKSON: That's fine. And if we can't do it Friday, have you thought about the possibility of written rather than oral and what your preference would be? 1034 MS. JACKSON: Well, I have to say, Mr. Chair, that particularly given the kinds of questions the Board has been asking the witnesses recently, I think at least in the first instance oral would be, I hope, more helpful. But it's in order to do it properly that I would say that Friday is not entirely desirable. But in talking to Board staff about it, I'm suggesting that as soon as possible thereafter, we would be anxious to proceed, and we've been canvassing some dates in the following two weeks. 1035 MR. JACKSON: Okay. We'll hear more about that, then, as the week goes on. 1036 Thank you. We'll rise now until 9:30 tomorrow morning. 1037 --- Whereupon the hearing adjourned at 1:20 p.m.