Rep: OEB
Doc: 128r4
Rev: 0


















ONTARIO ENERGY BOARD

Volume: 8

March 13, 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

M LYLE

Board Counsel

CATHY LITT

Board Staff

OLGA SHPORA

Board Staff





PATRICIA JACKSON

Union Gas Limited

MARCEL REGHELINI

Union Gas Limited

MICHELLE FLAHERTY

IGUA

PETER SCULLY

Cities of Greater Sudbury and Timmins



5
TABLE OF CONTENTS

6

PRELIMINARY MATTERS

[12]





SUBMISSIONS BY MS. JACKSON:

[19]





QUESTIONS BY THE BOARD:

[227]





7
EXHIBITS

8

EXHIBIT NO. F8.1: BRIEF OF AUTHORITIES OF UNION GAS

[79]









9
UNDERTAKINGS

10

UNDERTAKING NO. G8.1: PROVIDE REWORKING OF EXHIBIT C22.25 TO ALLOCATE BY VOLUME OF GAS

[282]





11
--- Upon commencing at 9:34 a.m.
12
PRELIMINARY MATTERS

13
MR. JACKSON: Good morning. Please be seated.

14
Good morning, ladies and gentlemen. We're sitting this morning in RP-2000-0078 to hear oral argument of Union Gas.

15
Are there any preliminary matters we should deal with?

16
MR. LYLE: No, Mr. Chair. For the record, my name is Mike Lyle, and I am here representing Board staff today.

17
MR. JACKSON: Thank you, Mr. Lyle.

18
Ms. Jackson.

19
SUBMISSIONS BY MS. JACKSON:

20
MS. JACKSON: Mr. Chair.

21
In this application, Union seeks the approval for recovery from rate classes in the method proposed in the evidence of one-time expenses of enabling unbundling to the small volume market and associated communication expenses. And I will refer to these in more detail later, but by way of overview, the expenses result in $15.7 million to enable unbundling; $135,000 of communication expenses to explain the associated change in the bill format to small volume consumers; $385,000 of communication expense to explain direct billing; and $2.25 per customer charged to marketers whose customers are moved to direct billing.

22
I think the way -- given the way that the hearing developed, it might be useful to refer, in broad brush, to the long and, I suggest, broadly based consensus on the desirability of unbundling that led to this last step which is, to put it in context, not the decision to unbundle but simply to pay the costs of the decision that has already been made.

23
The Board will recall, I think in general terms, the history of deregulation which, in a sense, has just been that, a history of unbundling. It's laid out in a way that I hope the Board will find helpful at Exhibit B, tab 1, appendix A.

24

What that illustrates, I suggest, as have all the steps, is that there has been a recognition of a desirability of unbundling as a vehicle for flexibility and supply options leading to more competitive pricing, and every stage of the unbundling process has justified that view of the benefits.

25
More recently, in September of 1996, in the report of the ten-year market review, this is found at Exhibit G1.2, which, as many referred to in the evidence in this hearing, represents a broad consultation process including the intervenors who participated in this hearing. And at the end of that process the Board, amongst other things, noted that it was a necessary condition for a competitive gas market, and I'm here referring to the reference of the Board's report at page 9, that there be, among other thing, better price discovery and full transparency which I suggest comes with unbundling, a range of supply options and pricing, and unbundled services. So the theme that began in the mid-'80s continued in the ten-year market review.

26
In fairness, at the same time the Board was endorsing the continued move to unbundling, the Board in that report and still has said that, while ultimately there may be a fully unbundled market state, for now and for the foreseeable future, the utilities will continue to provide system supply and that's a necessary backdrop when we look at how and why unbundling has occurred.

27
Then in February of 1999, in the Market Design Task Force report, which is found in these proceedings at Exhibit G1.3, there was again general agreement on the overall direction of the industry. And with respect to unbundling in particular, the Task Force reflected agreements on the benefits of customer choice, at page 15, on the public interest in unbundling, storage, transportation, supply, and distribution, that's at pages 16 and 18; and that the way to do that was by having the utilities' advance proposals for unbundling in their next rate cases or proceedings. And indeed the Board -- the Board's subsequent letter of April 1, 1999, which is appended to Exhibit G1.3, in dealing with the Market Design Task Force, noted that Union's unbundling proposal was, by then, before the Board - this was the proposal that was considered in 0017 - and noted that the most effective way of taking the next step contemplated by the Market Design Task Force was to allow for the disposition in that proceeding.

28
Now, the unbundled services that were described to the Board and to intervenors in RP-1999-0017, at least in so far as there is an emphasis on the daily management which feeds the costs that are before you today, is summarized in Exhibit G3.3. That was the undertaking that brought together a number of those references.

29
May I also, though, just remind the Board of the overview of unbundling that was provided in RP-1999-0017, and I'm here reading from Exhibit C, tab 1, commencing at page 10 in that proceeding. This is the unbundling overview.

30
At lines 14 through 17, the evidence specifically noted: "The additional control requires more attention and involvement in activities such as the daily nomination and balancing of transportation flows, storage injections, and withdrawals with consumption."

31
And over the page on page 11, at line 6: "All supplies, upstream transportation, spot gas, and storage, are managed by the customer and the balance between total supplies and consumption must be maintained daily within specific tolerance levels."

32

After that sequence of events and the filing of the evidence in 0017, as the Board knows, there was an ADR agreement. And I think it's -- when one looks at the number of terms in that agreement that received complete agreement, it's useful to bear in mind the approach, for example, that is taken by Mr. Todd.

33
Now, Mr. Todd was not himself a party to the ADR agreement, but of course he has an intimate involvement with VECC and his organization; Econalysis was the consultant to VECC in that agreement. The approach he indicated they consistently took to unbundling, presumably took in this case, is I think probably a fair reflection of the perspective of most participants. As he said, "They've consistently taken the view with respect to the unbundling process that steps should not be taken without demonstrable benefits to consumers."

34
So when one looks at the high level of agreement in that ADR agreement about the unbundling service, I think it's a fair inference that those that agreed did so on the basis of a broad consensus which, after all, has been many years in the making as to the benefits of unbundling. And I think, with respect, there would be no doubt as to what that unbundling was about.

35
For example, paragraph 1.2.3 of the agreement dealt with such things as the 22-day callback provision, delivery point flexibility; paragraph 1.2.4, the elimination of the delivery commitment credit; paragraph 1.2.7, northern and eastern delivery of the redelivery services; paragraph 1.2.8, northern and eastern threshold levels of unbundling for which Union would manage the transportation allocation; paragraph 1. -- I'm being told it's not paragraphs, it's sections.

36
Section, 1.3.1 - and if you could just read "section" for all those paragraph references I have just given you - deals with the standard storage services and includes specific references to residential customers; section 1.3.2 deals with the standard peaking service which is only applicable to M2 customers; section 1.3.3, space allocation underpinning those systems; section 1.3.4, system integrity storage reserve; section 1.3.5, the pricing and annual storage allocation and reallocation specifically required to accommodate the movement of residential customers amongst marketers; section 1.3.6, a future standardization of storage contract; section 1.3.7, future storage development; section 1.4.1, title transfers; section 1.4.2, the allocation of gas and inventory; section 1.4.3, return to systems of unbundled services; section 1.4.4, nomination and balancing fees which, again, drives home the daily aspect of this service since it specifically focuses on departures from the daily balance; section 1.4.5, unauthorized storage overrun penalties, again on a daily basis.

37

Now, I give you that elaborate summary in order to remind everyone of how much attention the aspects of this service had in the agreement that emerged from the ADR process. And the last part of the ADR agreement that I'd like to remind you of is the implementation timing, because having been through all that detail of the service and its daily aspects and its residential customer aspects, everyone agreed, at section 1.4.6, as follows: "Union also highlighted that new and enhanced systems would be required in order to manage daily nominations and other parameters associated with the unbundled service. Overall, Union projected a September 1, 2000 implementation date for the unbundling services," that's generally. "The oral hearing for the remaining unresolved issues related to PBR and unbundling are proposed to take place in June. Depending on the timing of the Board decision, Union will attempt to seek a Board -approved rate order necessary to implement the new services and associated rates as soon as possible. At this time, Union does not expect that the new unbundled service will be implemented before November 1, 2000. The parties acknowledge the necessity to address rates and services related to retail billing through a subsequent application in order to provide small-volume, non-daily metered customers access to the new bundled service," the very process we're here involved in. "Union commits to filing this application by July 2000 and agrees to forego the consultation process" - so there was an emphasis of getting on with it and stop consulting - "agrees to forego the consultation process originally contemplated in order to dispose of the application as soon as practical to allow for the unbundled services for the small volume markets to be accessed as close to April 1 as possible. The parties also acknowledge that Union will incur certain costs in order to be in a position to provide the new unbundled services. These costs and associated recoveries will be addressed under issue 4.2, incremental environmental cost accounting, during the hearing."

38
All of which is to say, at the end of all of that, everybody said we want this, we want this as quickly as possible, get on with it, we understand it will cost.

39
And, indeed, what it will cost at the phase 1 level was already before the Board; and the second part very quickly followed because following the ADR agreement, and as it had agreed to do, Union filed this application before the end of July, in the year 2000. And the evidence detailing the costs in October of 2000.

40
Now, the next step in this process is the Board's decision in 0017 in July 2001 in which the Board, having already accepted the ADR agreement, as it were, from the bench on the issues that I have just described, reiterated that endorsement in its decision.

41
And at page 288 of the decision, it dealt with unbundling generally in the context of the importance to the development of the competitive market of providing open access to the services required to deliver gas, and noted particularly at page 283 the requirement for new and enhanced systems to manage daily nominations which had been identified by Union.

42
Now, as to those benefits, in my submission, the benefits are the underpinning of the decisions that have gone before, but they are also, in my submission, clear. As noted in Union's evidence, this is in particular, for example, at paragraphs 163 to 4 of volume 1, the premise behind unbundled services is related to the recommendations of the Market Design Task Force that unbundling increases competition for the commodity, in this case, in the general service market, because, as noted in the Market Design Task Force, it's a particular benefit there as the industrial and large volume market was already considered to be competitive at that time.

43
And indeed Mr. Todd expressed a similar view at paragraph 460 of the transcript, I guess this would be at volume 7, where he noted that unbundling delivers a lower cost to the marketplace, in this case the general service marketplace, which everybody enjoys. In other words, unbundling drives lower costs and lower costs for everyone, because you can't have lower costs in one component of the market and not have those benefit the other part of the market. And therefore whether or not you take the unbundled services, the premise is that the unbundled services driving down the cost drives down the cost for everyone.

44

As well, of course, for small volume customers, this service provides them with their first access to storage, which has already been available to the large and industrial customers for some time.

45
Let me say a word about the resulting and necessary system and process changes.

46
On the one hand, before unbundling to the small volume marketer -- and, I guess, let me say as well that these changes generally reflect process changes with respect to both contract administration and gas management -- the status quo had -- involves a large manual, by which I mean phone, fax, and e-mail process, for a few transactions and a few contracts, of a service which, in the general service market, is balanced annually and requires essentially constant daily deliveries and, therefore, not daily balancing with monthly reporting.

47
And under this change -- the change to unbundling takes the system from that -- from something that would work that way to a system and a process which must accommodate the need to exchange information daily, to balance gas daily, and to do so for thousands of transactions, and to do so with a capacity for multiple price points. As has been explained to the Board, it was quickly concluded, in my submission, and not surprising, that the only way to handle that level of transactions is with an electronic interface using the Internet.

48
Essentially, what Union is required to do now is to provide a market-required nomination to provide the daily demand per customer trued up for the previous day's weather in multiple weather zones served by multiple marketers under multiple and differently priced contracts; and on the other side, to receive and to balance daily nominations from marketers, identifying amounts to be received and delivered at multiple points throughout the province as well as amounts to be injected and withdrawn from storage.

49
So it's not surprising, and indeed at some level it's perhaps self-evident, that when you move to that level of multiple transactions on a daily basis, you're going to drive a very significant system change. And indeed, another aspect of that is Union is required to provide to marketers monthly, per customer reconciliation.

50
So the general aggregation and limited number of transactions that worked in the past clearly doesn't work anymore. The daily balancing characteristics that are required of this service are, as I say, clear in the evidence and were clear in RP-1999-0017. They are specifically summarized at Exhibit G3.3 in this proceeding and as well referred to, as I've indicated in many places, in the ADR agreement.

51
Let me turn, then, to the costs of those changes. They have been summarized in a number of different places, but I guess as often happens in the course of these hearings, in some ways the last undertaking is, in many ways, the best; and for this purpose I'd suggest that the best place to look for that summary is in Exhibit G5.3.

52

That is the undertaking that was given, I believe, in response to Mr. Dominy's inquiry. And it sets out the elements of the cost both in respect of -- in respect of contract administration, which includes implementing vertical slice and transportation, implementing the 22-day callback, tracking and online presentment of contract parameters, implementing multiple price points in the price change process, implementing online contract change process, then daily gas management, which includes tracking and online presentment of unbundled service balances, adapting the current nomination system to new web technology, daily demand and weather calculations, incorporating daily consumption true-up, and the various aspects of billing and the IT infrastructure.

53
Those are summarized. First of all, we have the phase 1 costs which were described in 0017 as the unbundling of the upstream access. Then phase 2, which were described in the 0017 -- those totalled 7.5. Phase 2, which at the time of 0017, was described as the changes to allow marketers to access the unbundled services which are -- which are today are $8.2 million and which were, at the time this evidence was filed in October of 2000, $7.8 million.

54
And I just pause to observe that the uptake in costs was explained to the Board in two letters of January and June, 2001, which are in the evidence in which Union explained that because of the delay in implementation, there would be an additional element to the cost which was estimated in this order of magnitude. So we have phase 2 at $8.2 million, a total of $15.7 million, and as seen on that exhibit, $12.3 million of which has already been spent; and indeed is not surprising given the admonition to be ready to serve as quickly as possible.

55
Then the communication costs which I can summarize more shortly and which are found at Exhibit B, tab 5, as well as Exhibit C1.24, have three components.

56
The first is to explain to customers the storage line which is added to the bill, and as you've heard from Ms. Creighton, that will be done principally through four bill inserts, as well as there's an anticipation as well because this is a new item of some additional call centre activity, the total of those expenditures is $165,000.

57
Then at the point at which somebody takes up the direct billing option, or it's imminent, Union anticipates a communications program to explain that to customers generally, again specifically focusing on bill inserts and additional call centre activity, although in this case, the level of call centre activity -- additional call centre -- incremental call centre activity is anticipated to be greater. That would be in the amount of $385,000. As well as targeted communications to customers moving to direct billing as they move, and expected call centre activity from those customers, and that is -- that is proposed to be charged at $2.25 per customer to the marketer who selects the direct billing option.

58
Allocation methodology. Let me deal first with the incremental unbundling cost deferral account, the $15.7 million amount.

59
Union proposes these costs be allocated to infranchise rate classes based on the weighted average number of customers and to be recovered from all customers in the rate class. And the result clearly is that the overwhelming amount of these costs are assigned to small volume -- to customers in the small volume rate classes.

60

The reasons for that were given by Mr. Packer on a number of occasions. First of all, the costs are driven overwhelmingly by the number of transactions that this new service requires and hence by the number of customers -- the number of customers drives the number of transactions that drives the costs. These costs are all necessary and are incurred to enable access to the unbundled services to small volume customers. The entire $15.7 million is required for that end.

61
And thirdly, in terms of who benefits, well, the large volume customers already have access to semi-unbundled services, and the costs of providing those customers with unbundled service, if one were otherwise not able to take advantage of the service that has been put in, would be, it's estimated to be, in the order of a half a million dollars, or about 3 percent of the costs of enabling unbundling to the small volume market.

62
In other words, enabling -- to the extent that this additional $15.7 million system does enable some additional unbundling in the large and industrial market, that is -- that occurs because -- as a result of the system being built, it does not require any additional cost. And so that does not add, in any way, to the $15.7 million cost of unbundling to the small volume market.

63
With respect to communication costs, and except for the proposed specific $2.25-per-customer charge for marketers who opt for direct billing, the proposal is that the comprehensive small volume customer information program be recovered from small volume customers only. It is with them that the communication will take place.

64
Those are Union's submissions with respect to the background of these costs, how they are made up, why they should be recovered and how they should be recovered. And that is, in a sense, the end of what we're specifically asking the Board to do in this proceeding. But it's not the end of what I have to say to you given the prominence of the billing issues as they have emerged in this hearing and more generally.

65
And, indeed, Union contemplated in its prefiled evidence that it will -- and it will continue to provide a non-utility agency billing and collection service. Union will also provide a direct billing option to those marketers who wish to bill customers directly. The capacity to do so exists in the systems being built to enable unbundling and does not impose any additional costs as a result. That's found at volume 3, paragraphs 880 and paragraph 993.

66
And I say that specifically because, you may recall, the way those costs were presented initially would suggest that $800,000 of it was incremental cost to enable direct billing, as was more fully and, I hope, clearly explained in the oral evidence. Even if there were not direct billing, that capacity would have to be there to enable the necessary information exchange.

67
In the result no Board order is sought with respect to direct billing beyond that that I've already dealt with, and that is the associated communication cost as and when the direct billing option is selected, Union does not propose to offer marketer-consolidated billing and it does not have a marketer-consolidated billing proposal.

68

It has taken, in this proceeding and in the Board's distribution -- Gas Distribution Access Rules process, the position that as a matter of policy and law, the Board cannot, and should not, require marketer-consolidated billing. Union does not, in this proceeding, seek any specific order with respect to a marketer-consolidated billing proposal. It isn't making one; indeed, nor is anybody else.

69
I should say, though, I think, that the jurisdictional issues that are raised by this discussion, in my submission, do require and are now receiving a hearing and full argument, and do fall to be disposed of, in my submission, in this case.

70
So let me turn to the question of jurisdiction.

71
It is, I suggest, rather clear that the marketer-consolidated billing proposal generally envisaged, to the extent that it was envisaged in the historical documents to which reference has been made, and as envisaged by the proponents generally in this hearing, is a wholesale distribution service, and historically frequently described that way, a wholesale billing service. In my submission, a wholesale distribution service is contrary to the Ontario Energy Board Act.

72
Now, I say it's a wholesale service; I think both Professor Trebilcock and Mr. Todd were fairly explicit in speaking of a wholesale service in which the consumer of gas - and this is important - ceases to be a customer of Union Gas. That's the essence of the wholesale relationship. The marketer becomes the supplier of the commodity and the distribution. And that's -- it would appear consistent with what the Board, at least at this stage, has contemplated in the draft GDAR rules. This was reviewed in Union's submission with respect to those rules, but let me just summarize it briefly.

73
Those rules, as you recall, speak not just of consumers but also of customers, unlike the Act, and it would appear that from the structure of the rules that the marketer is to be, for this purpose, a marketer who chooses marketer-consolidated billing, a customer of Union.

74
First of all, a marketer decides whether or not to take the marketer-consolidated billing service, the wholesale service. The marketer posts security, not the consumer. And Union's remedies for non-payment under those draft rules are for marketer non-payment, not consumer non-payment, and in fact are irrespective of whether the consumer pays or doesn't pay. So, therefore, I can only read the draft rules as contemplating wholesale service.

75
So let me come to my submission that distribution services cannot be provided on a wholesale basis under the Act. And if I can ask you, for this purpose, to look at the green volume I've distributed. And if I could ask you to look first at the extracts from the Ontario Energy Board Act, which is found at volume 2 of that volume, and in particular at section 3 which begins on page 2 and consists of a series of definitions. The particular one I'd like to take you to is on the next page; it's the explanation of gas distributor.

76
MR. LYLE: Mr. Chair, do you wish to have this marked as an exhibit?

77
MR. JACKSON: Yes, I think to track the paper, it would be wise to do so.


78
MR. LYLE: We will mark that Exhibit F8.1, Brief of Authorities of Union Gas.

79
EXHIBIT NO. F8.1: BRIEF OF AUTHORITIES OF UNION GAS

80
MR. JACKSON: Thank you.

81
MS. JACKSON: You'll see there that the definition is that gas distributor means a person who delivers gas to a consumer, and distribute and distribution have corresponding meanings. Part of the significance of that definition is illustrated by the difference between that definition and the definition of a electricity distributor.

82
So may I take you to that next. It's found in two places. First in the Electricity Act, which is found at tab 1, section 2, and you'll see there that for purposes of electricity, "distributor," which is near the bottom of page 2, means a person who owns or operates a distribution system. And I don't know that I need to ask you to turn it up, but it's picked up again in section 56 of the Ontario Energy Board Act which you'll find at tab 2. That is the same. A distributor, in electricity, is somebody who owns or operates a distribution system.

83
In gas, on the other hand, it is not the ownership of the system that makes you a distributor, it is not the operation of the system that makes you the distributor, but the contractual activity of delivering gas, delivering the service. And moreover in respect of gas, that delivery is limited to a specific kind: It's delivery to a consumer.

84
So the distribution activity is, by definition, in my submission, wholesale and focuses on the contractual activity as opposed to the ownership and operation of the system. If these two activities were to be similarly conceived of in the statute, they would have been defined in the same way.

85
So what we see, in my submission, is a conscious decision that the statutory aspects of delivery -- of distribution are different with respect to gas and its regulation than for electricity. The Act does not contemplate the delivery, i.e., the provision of distribution service, other than to a consumer; and it specifically does not contemplate that someone other than a consumer, i.e., a gas marketer, will pay for the delivery of distribution service and hence, as a matter of contract, require the delivery of distribution service to that customer.

86
MR. JACKSON: Could I just ask, and perhaps you'll get to it, would that mean that if Union were delivering gas to an entity other than a consumer that all of the regulatory schemes should be considered to not apply, like would pricing regulation not apply then --

87
MS. JACKSON: I'm going to come to that. I would say that first of all it can't happen. That's my first point.

88

But my second point is that even if it could you'd have to -- let me talk about what could happen even if it could. My first point, and I can't over-emphasize this, is that it can't. You just stop what the end of definition is saying, the Act does not contemplate distribution other than as a contractual activity which delivers the service to consumers. But it could.

89
MR. JACKSON: But for other things that it does not contemplate, Union Gas, the corporation, still may undertake them; is that not correct? I accept where it is explicitly prohibited. But I guess perhaps in this case, distribution -- perhaps supplying gas other than as a distributor or a transmitter would be prohibited. Can we find that that is perhaps true?

90
MS. JACKSON: I'm sorry, I didn't -- could you give me that question again?

91
MR. JACKSON: For example, you're contemplating providing some billing services using assets owned by the corporate entity which I believe you would assert are not to be regulated. Now, if you were to do something that is not within your definition of distribution because you are delivering gas to someone who is not a consumer, would you argue then that that activity could not be price-regulated by the Board?

92
MS. JACKSON: Well, if it's not -- you're saying if Union undertakes an activity other than distribution, storage, or transportation, and has, by definition, received the Board's approval for doing so because it would have to --

93
MR. JACKSON: Would it? Don't you do anything outside of the corporate entity for which you say the Board does not have to give you approval?

94
MS. JACKSON: Non-utility services have to be approved by the Board but not priced by the Board. The ABC-service being a classic example; it's not distribution, it's not transmission, it's not storage. The Board has approved it but the Board does not regulate the pricing.

95
MR. JACKSON: So then in this hypothetical that I'm trying to work my way through, if the Board were to approve of you supplying gas through the distribution pipeline to a non-consumer, would you then assert that the Board had no jurisdiction to price for that service?

96
MS. JACKSON: I'd like to think a little more about that, but I'm not sure that I can -- I want to think about this premise that distribution, given its regulation in the Act, could be done other than as contemplated in the Act. I have a little difficulty with that.

97
MR. JACKSON: Well, I think that --

98
MS. JACKSON: But it would follow that if it could be, that it would not be price-regulated.

99

MR. JACKSON: Why don't I put the question so that at least by the time of reply you could address it, so I don't expect an answer necessarily right now. But it does seem to me that if it wasn't to a consumer, based on your arguments today, it wouldn't be distribution. Nonetheless, it might be delivering gas with the system that was built for distribution to a non-consumer. So I'll just leave that with you. And I await with anticipation, because --

100
MS. JACKSON: I have some difficulty with the premise. But I can tell you that having thought a lot about the wholesale service, none of these -- you really have to look at all of the sections and figure out how they relate to each other and I don't want to --

101
MR. JACKSON: And I assure you we'll do that.

102
MS. JACKSON: I mean by that, by way of explaining, I don't want to give you a quick answer; I'd like to give you a considered answer.

103
MR. JACKSON: Absolutely. Thank you.

104
MS. JACKSON: And I'm grateful for the notice.

105
The next question, I guess, is if wholesale service is authorized, and this may be, in part, an answer to this question, but if wholesale service could be provided under the Act, in other words, it is possible to conceive of a wholesale distribution service, in my submission, there are other statutory conditions that would have to be met.

106
First of all, I think it's clear there is currently no wholesale service. There are no rates, no terms, no conditions for the provision of services other than to consumers. So there would have to be a new service. And in my submission, that could only be done by Board order, under section 36. It would have to be after a hearing, under section 21. And by hearing, of course, it would have to be a hearing with respect to a specific service, not a hearing about the general policy of is there such a thing -- not the hearing of a sort we've had, because the hearing that we've had does not have a specific service proposed before the Board.

107
And the last thing I would observe is that, in my submission, in the absence of an application by the company to provide that service, it would appear that the Board could only do so on an application by someone else. And I say that because of the provisions of section 42, sub 3 of the Act, in which it says this is an area on which the Board cannot act upon its own motion.

108
And if that wholesale service could occur, marketers would then be, in my submission, the contractual providers of the distribution service.

109

And it's worth pausing to just think about what that means in practical terms before I continue with the legal argument. Because that means they price the service package so it means they -- including the distribution price, so that marketers become the pricers of the distribution service. And in my submission, under the Act, that would require orders from the Board not only with respect, then, to the distribution by marketers of that service under section 36, but also since they've become distributors, the deliverers of the distribution service, of their sale prices under section 36. Sorry, of the commodity sale, the commodity sale and the distribution service.

110
And that would be true unless and until, on application, the Board was to determine that there was sufficient competition to protect the public interest under section 29. And, of course, if there was sufficient competition to protect the public interest with respect to retail distribution services, as provided by marketers, it must be that that would be as to retail distribution services provided by Union as well, since Union would, as long as Union continues to be in this business, continue to be a retail distribution provider.

111
And when you step back from it, in my submission, that is not a surprising result under the statute. Because even if wholesale services were legal, if, for example, you've heard something about the dominance in Union's market of three and, in particular, one dominant marketer decided to offer a wholesale service in Union's franchise and resold the distribution service to some of its customers, so you have the one wholesaler and you have Union doing retail distribution. I think nobody would suggest that that would produce a sufficiently competitive market as to warrant the removal of the regulation of the distribution price. At least, I would be surprised if anybody suggested that.

112
And I think that, therefore, if you follow that statutory analysis, it's not a surprising result, but indeed, it's the result you'd expect to protect the public interest in the regulation of the distribution price.

113
Now, while I say the wholesale model is illegal, I say that it is not surprising that it is the one that is suggested or sought to be imposed, given the impossibility of the alternatives.

114
If the distributor is not a wholesaler, the consumer remains the customer of the distributor. The person whom, in the words of Mr. Todd, the customer -- for whom the customer-care function, including billing, is, as he says, vital, essential to the relationship, key to corporate accountability. All of those things are acknowledged, in particular, by Mr. Todd.

115
The proponents of the wholesale model acknowledge that if you have a customer, all of these things are vital to the customer relationship. And, indeed, when people talk about getting bills from other service providers, they're talking about getting bills, for example, in the building example, from the retailer. The notion that wholesalers don't bill for their services to the ultimate consumer is not a surprising one. It's the notion that the provider of the service doesn't bill for the service that is unprecedented or virtually unprecedented. And that's -- so that's the starting point for the wholesale model.

116

When you move to the retail model, the consumer remains Union's customers. The consumer is therefore, as a matter of contract, responsible to Union for payment, not the marketer. That's basic law of contract and agency. And a timely, accurate, reliable bill is required in order to -- for Union to be able to get that payment. And it would be strange, and the Board can't -- I'd suggest with respect that the Board cannot, indeed has not, forced distributors to out-source that vital function in the past or, indeed, any other function. It's still less to out-source to an indeterminate number of marketers of varying and unproven ability. And one doesn't even have to say that they've had as much trouble that they've had in Georgia, to say that your ability to recover your revenues is going to depend on how well a whole bunch of other people who simply say they'd like to do it deliver your bill.

117
This is, in some ways, trite law, and let me just give you a couple of references, recent references that embody the basic principle, which is, I think when you step back from it, that the Board doesn't direct Union or any other utility in how it should manage its business, what it should out-source, as I say, let alone that it should out-source to anybody who asks. And I don't suppose the Board would find that a surprising proposition.

118
But let me give you a recent case in the British Columbia Court of Appeal which you will find at tab 3 of the green book, a 1996 decision.

119
In this case, the B.C. Utilities Commission had issued directions to B.C. Hydro requiring it to submit its expansion alternatives to a committee of interested customers, basically with an IRP perspective in mind, and to provide specified forms of analysis and to take guidance from that committee on how it would expand its system.

120
MR. DOMINY: IRP? Integrated Resource Planning?

121
MS. JACKSON: Integrated Resource Planning.

122
And I should observe in taking you to this case that the jurisdiction of this commission is very broad.

123
It's set out, in part, at paragraph 31 of the decision and includes, as you'll see, "General supervision of public utilities," section 28.1:

124
"28. (1) The commission has general supervision of all public utilities and may make orders about equipment, appliances, safety devices, extension of works or systems, filing of rate schedules, reporting and other matters it considers necessary or advisable for the safety, convenience or service of the public or for the proper carrying out of this Act or of a contract, charter or franchise involving use of public property or rights.

125
"(2) Subject to this Act, the commission may make regulations requiring a public utility to conduct its operations in a way that does not unnecessarily interfere with, or cause unnecessary damage or inconvenience to, the public."

126
So it's a very broad supervisory jurisdiction, arguably broader than the one accorded to this Board.


127
Notwithstanding that, the court clearly found that the Board -- the commission could not do what it proposed to do in terms of directing the management of the company. And if I could take you just to paragraphs -- starting at 51.

128
"The Utilities Act runs to over 140 sections. The administration of the jurisdiction conferred upon the Commission is amply delineated by expressed terms. There is no need to imply terms for this purpose."

129
"I have already described the reason for the existence of the tribunal. The expertise or skills of its members vary. Experience has demonstrated skills associated with accounting, economics, finance and engineering have been frequently utilized. Unlike labour relations tribunals where past experience in the field of labour relations is a virtual prerequisite, past experience in the regulatory field is not necessary. A similar observation may be made with respect to securities commissions. Both labour relations tribunals and securities commissions are expressly conferred with policy making powers. None such are conferred on the Commission."

130
Skipping down to paragraph 55:

131
"I am unable to agree with that characterization as in my opinion the IRP process is specific to the planning phase of the utility's response to its statutory obligations and its enforcement by order is an exercise of management as it relates neither to the certification process" - that's the certification for the expansion of the system - "as such nor to the supervision of the utility's use of its property devoted to the provision of service."

132
"It is only under s. 112 of the Utilities Act that the Commission is authorized to assume the management of a public utility. Otherwise the management of a public utility remains the responsibility of those who by statute or the incorporating instruments are charged with that responsibility."

133
"One of the primary responsibilities and functions of the directors of a corporation is the formulation of the plans for its future. In the case of a public utility these plans must of necessity extend many years into the future and be constantly revised to meet changing conditions. In the case at bar the effect of the Commission's directions is to place a group, whose interests are disparate, in a superior position in the sequence of planning and to require the directors to justify a deviation from the product of the IRP process in the exercise of their responsibilities."

134
"Taken as a whole the Utilities Act, viewed in the purposive sense required, does not reflect any intention on the part of the legislature to confer upon the Commission a jurisdiction so to determine, punishable on default by sanctions, the manner in which the directors of a public utility manage its affairs."

135

And I just say a fortiori you can't be required to take guidance on how you manage; you can't be required to entirely devolve the management, for example, of the billing function or to decide how that will be contracted out. And the Board has -- I'm sorry.

136
MR. JACKSON: Fifty-eight is very, very broadly stated and yet I doubt that the court would be saying that there is no aspect that normally would be part of the management function of a corporation that is not price-regulated that this would have to cover.

137
In other words, let me put it differently. This statement, as I read it, is broad enough to say that the BCUC should not get into any aspect of management. Would you agree with that, the statement of that --

138
MS. JACKSON: I think you would have to read it in the context of what came before. So for example, to the extent that management proposes a rate, clearly the Board has jurisdiction, but you have to find a specific head for the jurisdiction in the Act.

139
MR. JACKSON: Thank you for underlining that.

140
MS. JACKSON: My point is there's no residual jurisdiction to tell the utility, having set the rates, having exercised the jurisdiction that is accorded under the statute, there is no residual jurisdiction to tell the company how to do that, or, for example, to direct, in this case, contracting out.

141
MR. JACKSON: I think I understand your point better now that you have added those additional points.

142
On the face of it, a quote like this might suggest that a regulator has no role in the management of the utility, and yet of course when it does the pricing function, it's actively involved in a normal management function of any other corporation.

143
MS. JACKSON: That's right. And I think the point -- and the court is clearly -- I mean, I've extracted portions of it. The court clearly would agree and clearly says you have to find the specific jurisdiction to do the thing involved. For example, as they said earlier, certifying the expansion of the system is a management activity but the Board gets to say whether you're allowed to expand or not.

144
MR. JACKSON: Yes. I'm just a little bit concerned sometimes about generalities that get picked up to cover nuances which they shouldn't cover.

145
MS. JACKSON: The nuance that I'm suggesting here is that the Board has jurisdiction clearly with respect to rates over distribution services and expansion of other things in Ontario. There is no residual jurisdiction, nor has the Board ever claimed it, to direct the utility how to do that; who to hire, which contract -- who to contract for -- with for certain things.

146
MR. JACKSON: No. With respect to the "how," they might prescribe a rate form.


147
MS. JACKSON: For the distribution --

148
MR. JACKSON: It goes a certain distance down the "how" path. But I take your point that if you want to do it with three employees instead of five, that's not something the Board should get into.

149
MS. JACKSON: That's right. Or if you think that you could do it internally or contract out, the Board shouldn't get into that, it never has. Or still less to say, not only are we're not going to let you do it internally any more, but you have to contract out and you have to contract out to anyone who asks. That's the -- it's in that sense that the Board does not, in my submission --

150
MR. JACKSON: That's the sense of the word "how" that you want us to interpret.

151
MS. JACKSON: That's exactly, it, yes.

152
MR. JACKSON: Thank you.

153
MS. JACKSON: Indeed, the Board has noticed this and accepted it in the past.

154
At tab 4, you have an extract from the Board's decision in the HVAC complaint in 2000, and I've put in there the entire section that deals with the complaint section 4. I only want to take you to section -- paragraph 4.74, at the top of page 48:

155
"The Board acknowledges that ECG has the right to organize its financial affairs in an efficacious manner ..." and actually, if I read you this whole paragraph, I think this illustrates the dichotomy.

156
"The Board acknowledges that ECG has the right to organize its financial affairs in an efficacious manner and to contract with ECS to perform customer care services, including billing and the operation of the call centre. However, the Board is not convinced by ECG's argument that because it has contracted with its affiliate, ECS, to perform the customer care services, it is absolved of responsibility to comply with the Code."

157
In turn, my submission to you, I would say, the fact that Union can manage its affairs doesn't mean it can manage its affairs irrespective of the Board's rate orders and so on. My point is that beyond those specific exercises of Board -accorded jurisdiction, the Board has no residual direction or jurisdiction to tell us how.

158

Then, may I turn to the issue of policy. And I sort of summarize, I think, that the position that I hope has been put before you in the evidence, that even if this were authorized by the statute, which we say strongly it is not, the Board should not proceed with a major regulatory change where there is considerable -- substantial reason to consider the benefits are in doubt, as they are in here. They are at the very least highly controversial and, in my submission, have not been demonstrated; and where the attendant costs are significant.

159
Now, certain of the costs that have been identified to you are inherently not susceptible quantification in advance, and others as you've heard, and I'll come to them in a moment, cannot be -- cannot be quantified without a specific proposal or model for marketer-consolidated billing. But on any analysis, in my submission, the likely costs associated with marketer-consolidated billing are likely to be significant. And when there is no demonstrable benefit, indeed substantial controversy about that, and significant costs, that's not a basis upon which the Board should launch, in my submission, a major regulatory initiative, particularly when there are, perhaps, many other more worthwhile regulatory initiatives underway and occupying the Board's time and attention more frequently, but that's just in brackets.

160
Let me talk briefly about the benefits.

161
In my submission, to the extent that it is argued that this kind of billing initiative is necessary to facilitate competition in the commodity, that, in the end, focuses, I think, on the ability to enable marketers to develop their own customer-care relationship, their own branding, their own billing systems, all those phrases that were used in the evidence before you, prefiled and orally. All of those things can be done by direct billing, by any marketer who chooses it. And there's, in my submission, no systematic analysis or demonstration that marketer-consolidated billing is necessary or significant to facilitate further commodity competition beyond what would be facilitated by allowing service providers to do what other service providers do, and that is bill for their services -- but not for somebody else's.

162
There is this issue of choice which has been raised in a number of different guises over the course of the hearing as being in some way relevant to the question of competition. I think it must first be noted that if marketer-consolidated billing were made available by distributors, those who would choose whether or not it was actually going to be available in the market will be the marketers. In other words, it's clear, I suggest, that the submissions of the marketers and their experts and others make clear that, as Union has said, it's the service provider who chooses how to bill, not the customer. And if the marketers take up marketer-consolidated billing and offer it, it will be available; and if they don't, it won't be, as the -- as Professor Trebilcock indicated. He's not suggesting that a customer can go to direct and say I know you're not offering a marketer-consolidated bill, but I want one anyway, or I want my billing service from you and my gas from Union.

163
So only if the service provider provides the marketer-consolidated bill does the customer have the option, and the customer's option is to decide whether the marketer's total offering, including price, other terms and conditions and marketer-consolidated billing, is attractive.

164
Now, the evidence is that only one of the three marketers in the Union franchise area has, to date, expressed interest in even considering offering marketer-consolidated billing. So there may not be much room for selection, and indeed, in the near term, there's not going to be much room for selection. There are only three significant marketers and Union.


165
And of course nobody, even if Union is directed to offer marketer-consolidated billing, no one is obliged to select it -- a factor that I think bears some consideration when one starts to talk about what are the costs that have to be undertaken even to make it available.

166
But there's also good reason, I suggest, to think that though customers like choice, when you ask people that general question, "Do you like choice," it's not surprising that you get the answer yes; it's only a question of when you say, "What choice and how important is it to you" that you start to bear down on how significant this issue is. And the evidence before you, I suggest, that marketer-consolidated billing is not a choice that has any significant, demonstrated attraction even in a marketer decided to offer it. And I say that for two reasons, at least. One is the Canadian Facts survey that's found at Exhibit B, tab 4, appendix C, because the North Star survey, I suggest, just tells you that people like choice, it doesn't bear down in the way I've suggested is appropriate. Canadian Facts tells you -- survey tells you that customers prefer a consolidated bill from the utility, but if you move away from the utility, they are as likely to prefer a direct bill to a consolidated bill from a marketer. And they also have an expressed preference to receive separate bills from separate companies, which is perhaps not so surprising if you think about consumers wanting to be able to make sure they understand who's charging them for what.

167
And then as well you have, as far as I'm aware, the only survey that has explored this issue even more systematically and over a larger area, and that's the UK survey that I discussed with Professor Trebilcock, the pertinent extract that to the point I'm about to make is found at Exhibit F7.2, point 4, and that you'll recall was a survey over a very broad base of customers where marketer-consolidated billing and all sorts of single bills is available. I think the UK is, frankly, the only jurisdiction that has a demonstrated -- that has had this kind of billing arrangement available for any period of time. And may I just say parenthetically, I'm not aware of anybody having undertaken an analysis of how that's permitted legally in the UK vis-a-vis Ontario.

168
So there's a survey there of a large number of customers, and of those who are staying with gas, a whole host of reasons given for why they're staying with their current gas supplier, nobody even mentions billing. And then people were asked, what would it take to make you change, and a whole host of reasons, and each of these three questions are the questions I reviewed with Professor Trebilcock, nobody even mentions billing. And lastly you get to the people who have actually switched. And the way that question -- the way the question works is that people can say -- they can mention any factor that influences them at all. They are not limited to one. And you'll see -- and you can see that if you add up the column, it doesn't add up to 100 percent, and that's because people can make multiple selections. When they are given that free reign to say anything that influenced them to switch, in 94 percent of cases, unprompted, billing, a single bill, had nothing to do with it at all. And the overwhelming driver was price, which is, after all, not that surprising.

169
But if we think that billing is a significant driver of choice, persuasive customer salesman at the door is a more significant factor than a single bill. The ability to get gas and electricity together is more effective than a single bill. The ability to get a single gas bill just doesn't seem to be very important. And it's not -- if you step back from it, at a common sense level, if you think about it as a consumer and you're asked which do you care most about, getting one bill from two companies or getting a better price, price is probably not surprisingly the driver.

170

The third benefit that was suggested in the evidence is that marketer-consolidated billing, the availability of marketer-consolidated billing, may drive cost efficiencies in the billing function. Mr. Todd was a particular proponent of that.

171
Now, a couple of things I'd ask you to remember as you consider that view. One is this, and it's very important: And that is -- this was described by Mr. Feldmann in a couple of places, I'll give you the references. The customer information system which is the overwhelming element of the cost that people typically think of billing, the system that tracks all of the incidents of customer information, will be required by Union in any event, even if the billing is done by somebody else. And that's described at some length at volume 4, paragraph -- starting at paragraph 972 for a number of paragraphs thereafter. And at volume 5, starting at paragraph 209 and a number of paragraphs thereafter.

172
The other thing is that the cost of the billing function, as with all other costs, is reviewed by this Board. It's not now subject to the additional incentives associated with PBR. There frankly is no evidence of excessive costs or padding or inefficiency.

173
The last benefit that seems to have been identified by proponents of marketer-consolidated billing is symmetry with electricity, because the retail settlement code requires the availability of three kinds of bills, including the marketer-consolidated bill. And let me say with respect to that that there are innumerable ways, I suggest, of much greeter significance in which gas and electricity are not symmetric, either in their characteristics or their markets or their regulation; for example, the notable statutory distinction that I gave you earlier in the definition of a distributor.

174
Now, the provisions of the retail settlement code, as I understand it, were not the objection -- as far as I know, subject of no objection but certainly not the kind of objection and controversy that this proposal has attracted in the Gas Distribution Access Rules. I'm not sure that anybody can say precisely why that is. But I suggest that if you look at the number of differences between electricity and gas, it may not be that surprising. And I'll give you just a few examples.

175
In electricity, there is, I suggest, no or virtually no, investment in goodwill and customer relationship of the sort that was described to you in gas, in particular for Union Gas. Before 1999, for the most part, electricity distributions were customer-funded co-ops, except of course Ontario Hydro, which was provincially owned. And in general terms those co-ops were gifted to the municipalities by the Energy Competition Act. So there has not been the history of investment in goodwill and purchase premiums that have been paid by those who've acquired Union over the years and have purchased its customer goodwill and invested in.

176
The direct purchase arrangements, of course, in electricity and gas are different both in their history, their stage of development and their logistics. Gas has had direct purchase, admittedly with increased unbundling, since the mid '80s. Gas supply is acquired in the direct-purchase market through competitive markets and contracts. Electricity will not have effective direct purchase until this spring. It doesn't have a competitive upstream supply and the arrangements, the market arrangements generally will be done through the IMO. That's a broad-brush overview, but they are very different.

177

Within electricity, the fact that there are over a hundred utilities and Ontario Hydro and this centrally mandated market has led to the development of one reasonably centralized, uniform electronic interface. Union, on the other hand, and I assume Enbridge as well, in gas, each distribution utility deals directly with its customers through its own electronic interface which raises some of the issues with respect to that interface which you've heard about in this hearing.

178
In regulation, the Ontario Energy Board has a long history of regulating gas and distributors and their costs, and those costs have been subject to many years of rigorous cost-of-service regulation. That's one of the reasons I can say to you that there's no demonstrated excessive cost in the billing function. Electricity does not have that long regulatory track record or that cost-of-service test.

179
There are many other differences, but I give you those as an illustrative list as to why I say symmetry doesn't exist and may explain why -- this matter was reasonably uncontroversial with respect to the retail settlement code, but is controversial and considerably so, in my submission, in gas.

180
Let me turn, then, to the question of costs. I should ask the Board -- my last submission is on costs. You will perhaps gauge from the evidence that I have a few things to say about costs, and I can say them now or take -- whichever the Board would prefer, if you'd like a break.

181
[The Board confers]

182
MR. JACKSON: Can you give us a rough estimate as to how long you might be, Ms. Jackson? We certainly don't want to hurry you. We'd like to do it at your convenience as well. So if it would assist you --

183
MS. JACKSON: It would be less than half an hour. I can keep going or not. It's entirely up to you.

184
MR. JACKSON: Okay. Thank you. Then I think we will keep going.

185
MS. JACKSON: All right.

186
Let me turn to the issue of costs. By way of overview, I suggest there are significant potential adverse financial consequences for Union and its customers and for the rational expansion of the distribution system, which is one of the Board's objectives from the introduction of marketer-consolidated billing. There is, first of all, the question of management of asset utilization. As you've heard, Union has a $2.9 billion investment in the system. And its ability to earn a reasonable return on this investment depends on natural gas use, especially given the high proportion of revenue recovered through volumetric as opposed to demand charges, and especially given the accelerating decline in average use by residential and commercial customers.

187

Ms. Creighton was, I suggest, rather eloquent on the bill as Union's most effective communication tool by a very wide margin. It's highly regarded and relied upon by the consumers and has been used by Union in a number of ways, but including to make sure that the consumers are aware of the environmental and economic advantages of gas. I think one cross-examiner put to Mr. Birmingham, natural gas, in effect, is going to promote itself because it's environmentally effective and it's, in many instances cheaper, but as Mr. Birmingham said, all of those things are true, but those are the things that require communication to consumers so they know.

188
And marketers won't have the same incentive to communicate with respect to natural gas, and certainly not a unique incentive to communicate with respect to natural gas. And moreover where margins on electricity are higher, they have an incentive exactly the opposite way. So the vehicles become less -- substantially less effective and less likely to be used with the ability to effect asset utilization correspondingly diminished at a time and under a rate structure in which that is a significant issue for Union's overall risk.

189
Let me talk for a moment about the municipal franchise question, both the maintenance and renewal of municipal franchises.

190
The evidence indicates that the customer relationship, including the regular and highly regarded billing communications, are important in establishing and maintaining customer goodwill, and at a fundamental level, customer goodwill underpins a successful franchise maintenance and renewal. Doesn't guarantee it, and arguably Kingston and Sudbury are examples of that, but it is a substantial underpinning in all cases. As you've heard in the evidence, in at least 40 such renewals over the last three years, no further communication or a costly regulatory proceedings were required.

191
Severing that important link increases the likelihood of more expensive and time-consuming regulatory proceedings, both from Union's perspective and from the perspective of Union's ratepayers and the perspective of the Board.

192
And to that extent, as well, risks detrimentally effecting the rationale expansion of the transmission and distrubution systems is one of the Board's objectives. The impact of marketer-consolidated billing on the value of the company and the cost of new capital is also raised as an issue. If Union is less able to effect its asset utilization risk, it will acquire a higher risk profile and require a higher risk premium in rate of return to deal with those risks. Mr. Birmingham described this issue in part at volume 4, paragraph 481.

193
To the extent that Union has less influence over its revenues, Union and financial analysts and bond-raters anticipate that that will drive a lower debt rating and a higher debt cost. Now, there is no precise study of that. Mr. Birmingham was candid to say, we talked with the financial analysts and we talked to the bond-raters and they've expressed these views.

194
You have as well in the evidence, at Exhibit C3.13, a letter from Catherine McShayne [phon] expressing the same view but also indicating that she shows of no methodology that would enable someone to carve out the cost of capital or the impact on market value of this kind of change, although she, like the other market analysts and bond-raters, is of the view that it is a real issue and a real risk.

195

Moreover, to the extent that Westcoast and most recently Duke have paid a premium for this company, that premium of course is, in part, due to the very goodwill that would disappear if the customer relationship disappeared.

196
Marketer-consolidated billing has a very substantial prospect of increasing the cost and decreasing effectiveness of communications, and communications about which, I'm confident, the Board cares; communications with respect to explaining to ratepayers what rate changes are and how they work; explaining to ratepayers what the changes in the marketplace and the regulatory environment are; explaining to ratepayers what the -- explaining to ratepayers what the steps taken to ensure the safe delivery of their gas - no ice on the meter, call before you dig, all of those things - are communicated to customers; and as well, as I've said earlier, that they are apprised of the advantages of continuing to use natural gas.

197
You heard from Ms. Creighton, who has substantial experience and views in this area, particularly her evidence at volume 4, paragraphs 493 and 509, Union's bill inserts, its primary communication tool with its customers through which it does all these valuable communications at the moment, has a really, virtually unprecedented readership of 70 percent. Not even other utilities appear to be able to match that level of readership. And her evidence indicates that you'd have no reason to expect anything like that level of attention in a non-utility communication.

198
Now, it's been suggested that if marketer-consolidated billing is implemented, you just replace the bill insert with an insert in the marketer's bill. Well, as Ms. Creighton said, first of all, it's completely untested as a communication vehicle. As Mr. Birmingham said, we have no idea what marketers are going to send out, how often, in what format and with what effectiveness. And as Ms. Creighton said, you can't regulate readership of a marketer bill and you can't require it under a Service Level Agreement. And if you're comparing the effectiveness and a cost-effectiveness of a communication vehicle that is read by 70 percent of Union's customers with the cost and effectiveness of sending newspapers which contain all the other communications or television or radio or marketer's bills with a whole bunch of other bills and junk mail, you can only conclude, in my submission, that the cost will go up and the effectiveness will go down.

199
And the cost -- the cost, as you move from inserting a bill -- inserting an insert into a bill that's already been sent to a direct mail substitute which requires an additional stamp, envelope and communication for every such communication, or a newspaper advertisement or a television advertisement or a radio advertisement, you're clearly talking about very significant escalating costs.

200
Then, let me turn to some of the issues addressed by Mr. Feldmann which I call -- I guess what I'd say with respect to the issues thus far, those costs are real, unavoidable, and virtually impossible to quantify in advance. There are, as well, a set of what I think Mr. Feldmann called operational costs which one might be able to quantify, or at least estimate and start to plan systems that would deal with if one knew what the particular form of marketer-consolidated billing that was being proposed was. And by particular form, I don't just mean, of course, wholesale versus retail, but who's going to do what, how often, who has what authority and that, and so on.

201

In the realm of operational costs, Mr. Feldmann gave, I would suggest, a useful indication of the number of issues that would have to be addressed in any marketer-consolidated billing proposal and the likely significant costs that would be attendant on that proposal. For example, a marketer-consolidated bill with respect to the distribution charge does not address who is sending the bill and who's paying to send the bill and who's organizing the information to send the bill, for the 400,000 other transactions that are annually billed for by Union Gas; for example, for meter relocation, aids to construction, natural gas vehicle cylinder rentals, and so on.

202
This particular point was discussed by Mr. Feldmann at volume 3, paragraphs 1162 and 63. As he says, you need to know, is Union going to bill for that or is the marketer; would the charges -- if the charges go on to the marketer-consolidated bill, who's going to deal with the costs and the process of the associated complication to systems, communications, and costs; and who has what responsibility for the communications that are associated with those costs; for example, meter relocations or aids to construction; who communicates with the customer and then who communicates with the distributor; who authorizes it, who decides when and how to get the prudential requirements, and so on. All of those have to be worked out. What it costs will depend on who does it and according to what standards. But what you can clearly see is that costs, wherever they land, will go up.

203
Group billing for multiple customers. Mr. Feldmann discussed this at volume 3, paragraph 1166 and following. As he said, there are another -- there's a large group of customers, the Windsor Housing Authority being one, which have a large number of accounts that are billed jointly and get a discount as a result. Now, that's not to say, I suppose, that a marketer couldn't acquire the capacity to do that as well, but it is an additional level of complication and one that has to be built in to any proposal or system that otherwise might look simpler than it will actually be.

204
Customer connections and disconnections. Mr. Feldmann discussed this at volume 3, paragraphs 1153 to 56, and at volume 4, paragraph 286.

205
As he indicated, Union currently manages connections and disconnections -- connections and disconnections in a couple of ways. First of all, in the context of planning overall utility services, so the physical activity is managed, and of course it's managed as well in the context of the utility's very low, very bad debt experience. There just aren't that many.

206
Now, I put to Professor Trebilcock the Georgia experience on disconnects and reconnects, in particular, an article illustrating some of the dilemmas that occurred there where the utility was not able to keep up with the quarter of a million requests for disconnects that came in from marketers that were not being paid. That was at Exhibit F7.3

207

One doesn't have to posit the disastrous level of experience with billing problems and disconnects and reconnects in Georgia to come to the conclusion that if there are multiple marketers able to make multiple requests with multiple bases for deciding whether to disconnect or reconnect and multiple experiences in getting payment from their customers, that there may be an increase, there may be a potentially significant increase in the number of disconnects and reconnects. So at the very least one has to ask who can request a disconnect and a reconnect, and on what basis. And then I think as well one has to ask who is responsible for the costs of acquiring capacity to manage a larger and less predictable level of disconnects or reconnects, and the related question which is, if the capacity isn't there for whatever that level ultimately is, and who knows what it's going to be, who's responsible for the gas that flows between the time that a disconnect is requested and is able to be effected. If you can't manage the disconnects, the reconnects that come in from multiple marketers on multiple places, and if you have even something remotely approaching the Georgia experience of even thousands, let alone tens or hundreds of thousands, of those requests in a short period of time, and you don't have the capacity to execute those, who pays for the gas?

208
The answer to none of these questions is particularly clear, nor is the scale of costs. But one can certainly say there is potentially a very large scale of costs. Who's going to bear them, and how are we going to recover them?

209
Customer relocations. Mr. Feldmann described this at volume 3, paragraph 1156, and volume 4, paragraph 336 and 353.

210
125,000 customers in Union's franchise areas relocate annually. As Mr. Feldmann said, Union currently manages those accounts, their reconciliation, the true-ups, the communications between and the tenants and landlords and the occupants and is able, in most cases, as a result, not to have to terminate service.

211
Will the marketers assume responsibility, and to what extent will they assume responsibility, as he says, it's an open question. When you have multiple marketers being responsible for connects, disconnects, and relocates at that particular location, you can quickly come to the conclusion, as he has done, that however this works, you will probably be driven to physically disconnect on every customer relocation to avoid the customers receiving free gas and the subsequent reconnect with the new occupant once you know who the new occupant is and the new marketer and the new billing system.

212
Who pays for the cost of the disconnect and the reconnect is, of course, an issue to be decided, but one has some scale, in this case, of what those costs might be. They aren't very often incurred right now for the reasons that Mr. Feldmann indicated, but there is an associated fee. It's $65 per reconnection. So if there were 125,000 of those a year, that's $8 million in additional costs that has to be borne somewhere and therefore $8 million, wherever they're borne, of additional societal costs.

213
Then we have the question of customer numbers and the customer number that Union uses to record its customer information. Mr. Feldmann talked about this at volume 3, paragraph 1164 to 6. This may sound like a simple point. He said, we really need our customer numbers because we keep track of rates, meters, regulators, who is being served by what broker, consumption patterns and so on, by customer number. So the question that thereby arises is does Union have to redesign its systems, mapping, work management, engineering and so on, to accommodate different customer numbers from different brokers and different systems; or do they design their systems so that, in addition to their own customer numbers, they accommodate Union's customer numbers.

214
Whoever is doing it, you have to keep track of multiple customer numbers with associated costs of duplication and increased risk of error. It's a necessary element of having one person bill for two people's services.


215
Those are not -- it's not even an exhaustive list of the points that Mr. Feldmann covered, and as he said, it's not an exhaustive list, but he said that those are the significant issues, significant questions that you have to ask and answer about a particular proposal before you can cost it, but also, in my submission, demonstrative of the likelihood that the costs will not be insignificant and also, in many cases, not predictable in advance with a high level of certainty because they will depend on who takes the service, where, with what success, and how well it works.

216
Let me come back, then, to by way of summary, and I'll, if I may, summarize in general.

217
I say, with respect, that the Board lacks jurisdiction to require marketer-consolidated billing, and I ask the Board to so find.

218
In any event, in policy terms, in my submission, marketer-consolidated billing does not today have that level of demonstrable benefit which would require -- which would justify proceeding with it in the face of significant and as yet unquantifiable and sometimes inherently unquantifiable costs.

219
We ask the Board to proceed on that basis and to deal with the unbundling expenses that have been heard in this case by authorizing the recovery of those expenses and of the associated communication costs from the rate classes as proposed.

220
Those are my submissions.

221
MR. JACKSON: Thank you, Ms. Jackson. And I might just note for the record that the Board acknowledges and is pleased to see Mr. Scully here today and Ms. Flaherty.

222
Let me see if my colleagues would like to ask you any questions based on your argument.

223
[The Board confers]

224
MR. JACKSON: I think first I probably should have turned to Board counsel and asked if there are any matters which he thinks might assist the Board by way of clarification.

225
MR. LYLE: No, Mr. Chair, I don't have any questions.

226
MR. JACKSON: Thank you, Mr. Lyle.

227
QUESTIONS BY THE BOARD:

228
MR. SOMMERVILLE: Yes, I do.


229
Ms. Jackson, your argument on jurisdiction depends very heavily on the construction of the word "delivers" to include and import a contractual relationship that is a comprehensive contractual relationship between the distributor and the person to -- the consumer to whom the gas is distributed.

230
Why should we not read the word "deliver" to simply import the delivery, physical delivery of gas to a consumer without that comprehensive contractual nexus that I think is important for your argument?

231
MS. JACKSON: Well, in part, because the -- in part, by way of illustration, the definition of electricity. With respect, I think what you're talking about is mainly -- the operation of a system that permits the delivery to the consumer. That is the -- it's the operation -- it's the difference between the activity of operating the system and the activity of delivering the service. Those two activities are contrasted in the statute itself. As well, of course, as the fact that it is delivered to the consumer as opposed to a customer.

232
MR. SOMMERVILLE: Okay. Given the importance, the hinging, really, of your argument on jurisdiction on that contractual arrangement, I'd like to explore that just a little bit more.

233
It seems to me that it is equally available to interpret the word "deliver" to simply mean a delivery of a commodity to a person, and that it may be stretching or it may not be a necessary construction that the word imports a comprehensive, exclusive, contractual arrangement between the distributor and the consumer. That's the problem I'm having.

234
MS. JACKSON: Well, the delivery of a commodity was specifically removed. The old distribution used to talk about the delivery of the commodity and the supply. That's the other element, I guess, of this new definition, which is that it has extracted that. It talks about the delivery of the service to the consumer.

235
MR. SOMMERVILLE: Okay. I've asked my question and you've given me my answer. Thank you.

236
[The Board confers]

237
MR. DOMINY: Ms. Jackson, I have a simple question. You made reference to the group billing mechanism that exists in Windsor, the Windsor Housing Project, I think you said.

238
MS. JACKSON: Yes.

239
MR. DOMINY: And that seemed to me to be akin to the concept of, send my bill, in this case, the group is saying, send the bill for these people to this authority, who will then, I suppose, subsequently divide it up in billing and beyond. So what is the situation, if for instance, the customer or the consumer were to say, send my bill to my marketer or send my bill to my bank?

240
MS. JACKSON: It doesn't absolve the consumer of responsibility for paying for it, and it doesn't entitle the bank or the marketer to reissue -- to take over the bill, as it were. In other words, to the extent that I think your question is directed to can't -- can we facilitate marketer-consolidated billing by saying the consumer will tell Union to send the consumer's bill to the marketer, that's not the proposal. The proposal --

241
First of all, the consumer would have to recognize that whatever the -- whatever the marketer did, as soon as that bill was received by the marketer, it was as if received by the consumer and the consumer remains liable for payment, which is a big potential gap and risk for the consumer if the marketer is not very good at what he or she is doing.

242
But the second aspect of that is that that does not entitle the marketer to replace the bill, to say, no, I don't like your bill, I don't want your bill, don't send me your bill, I'm going to replace the bill and I'll send it out to the consumer. That is not the act of the consumer's agent, that's the marketer taking an active principal role. So those are the two reasons, if I've gauged where your question was going, why that wouldn't enable that mechanism to work. And it's a fundamental underpinning of what an agent can and can't do, and why the liability of the consumer remains as soon as you've delivered that bill to the marketer.

243
MR. DOMINY: The second question which is just different a bit. Is M9 service a wholesale service?

244
MS. JACKSON: I will -- there is a provision in the Act that allows, in effect, Union to -- that circumvents the analysis I've just given you when Union delivers gas to a utility. And I don't have it at my fingertips, but -- that's why M9 works the way it does.

245
MR. DOMINY: Okay. But if there's something that needs clarification, maybe you can add --

246
MS. JACKSON: I have one question already under consideration as well, and I'll find the answer to both those questions.

247
MR. DOMINY: Thank you. The third one relates to -- I believe you said the Board should not consider requesting the imposition of marketer-consolidated billing until you knew -- had a much better idea of the costs and benefits, I think something along that line. What the likely costs are -- likely to be significant, and without understanding what the actual benefits are, you really should not proceed by pushing marketer-consolidated billing.

248
And I was contrasting that to perhaps the statements or concerns raised by Mr. Todd with regard to the introduction of unbundling services, and he made some comments in his testimony about how, in other jurisdictions, they wouldn't have proceeded without having done a detailed cost analysis of what unbundling costs would be before they would make a decision to implement it. I wonder if you can comment on that point as well.

249
MS. JACKSON: Let me answer that in two stages, if I may, and dealing first with the billing point.

250
I suggest that there really are -- there's sort of a step-wise process generally. As you step down the road of considering a regulatory change like marketer-consolidated billing, the overall proposition is that you have to be satisfied that the benefits justify the costs, and I would say that applies wherever. And then the question is how do you go about doing that. And in billing, it strikes me, and I would suggest, that the first step is at least to determine that it's going to -- there's enough indication of benefit, demonstrable benefit, to make it justifiable to actually do the cost-benefit exercise. Because in this case, for the reasons that have been developed, in part, and I haven't referred to all of the answers to the undertakings, but you will see that even to get a reasonable handle around the costs of a number of these systems, even at the point where you have a specific proposal, requires itself a scoping exercise that is not insignificantly expensive.

251
So the first step on the billing side, I'd suggest, is to say it would have to be, putting jurisdiction to one side for the moment, we see enough real benefit here and we have enough of a specific notion of what this should look like and we can elaborate on what that would be and how we would answer all of these questions, to say it's worth undertaking the time and resources of doing the cost-benefit analysis in order to decide whether to proceed. So that's how I would unfold the cost benefit rationale in the billing side.

252
It's not always going to be like that. I mean, there are innumerable examples, and many of the steps in deregulation have been of this category, where there was enough reason and enough consensus about the reason to suppose that the change will be beneficial, and also to say, and we can't -- we can't quantify by how much in advance. But, for example, with respect to unbundling, and I take this right down to the level of unbundling to the general service customers, the supposition all the way along has been that as you unbundle these elements of the commodity service and provide for flexibility, you provide more ways of delivering supplies.

253
In the simplest case, up until now there's been no unbundled storage in the general service market, so you have to have a supply that comes in with regularity. You can't take advantage of downturns in the market at store. Well, now you can. That's an example of why you would think that that has the potential of driving the price down in the general service market, just as it has driven the price down in the industrial market.

254
And all the way along people have expected that to occur. They've had a rationale as to why it would occur, and it has occurred. And even Mr. Todd, although he, at some points, expressed reservations about that approach in unbundling, actually said in a number of places, I gave you one in his evidence, but he said exactly that, that as you get more flexible options for the provision of supply and creative minds apply to it, you find differ ways of arranging supply and you drive the price down. Everybody thought it would happen; so far it has happened; and at the point at which the benefit of this particular -- of that particular regulatory initiative was under close examination, which was in 0017, that consensus existed.

255

I say it's quite different when you move to an area where there's lots of reason to doubt the analysis. I hope I've given you some. And there's no consensus whatsoever. And what you can see is likely significant costs. The premise is always the same, but how you would approach the analysis depends upon what the particular item is that's under examination. There are lots of examples, I suspect, of regulatory initiatives where the cost benefit analysis was also intuitive, but it becomes less intuitive where the benefits and costs are controversial.

256
MR. DOMINY: Thank you, Ms. Jackson; those are my questions.

257
MR. JACKSON: Ms. Jackson, you referred to the testimony of Mr. Todd, and I think, in part, found that that supported Union's position that the benefits of these further steps towards broadening the access to the competitive market for the commodity could possibly result in a benefit showing up in a lower commodity price. Although that would be hard to measure; nonetheless, if the benefits were to show up, that's a very likely place that they would show up; is that correct?

258
MS. JACKSON: Yes.

259
MR. JACKSON: There was considerable discussion during the proceeding with respect to C22.44, and that was with respect to a table there which set out the allocation of costs by customer class and then took it through to impacts on a typical customer bill. And I wonder if you or Mr. Reghelini, perhaps, could just remind me, did we see an alternative schedule or an alternative allocation during the proceedings whereby the allocation factor to the customer classes was volume? I just can't remember.

260
MS. JACKSON: I don't believe -- I don't think we did.

261
MR. JACKSON: It strikes me that might be very easy to do and it might be better if that were one of the things that the Board issued to consider in its deliberations, if we asked Union to just redo that spreadsheet with that allocation to customer classes by volume instead of by weighted average number of customers. Could we ask --

262
MS. JACKSON: We're talking here about the allocation to the classes? We'll confirm that we're wrong -- if we're wrong, that it's already in the record, we'll tell you where it is.

263
MR. JACKSON: Thank you.

264
MS. JACKSON: And otherwise we'll do it.

265
The one observation that I'd make about -- the allocation of rate classes is on the basis of weighted average numbers and that, as you know, drives the vast majority of these costs to the general service group which is the group, which is the group that will have access to the services it previously hasn't. Within that class, once those costs get there, they would be disposed of according to the customer review process, and that tends to be more revenue/volume-related within the class but not as a way of allocating to the class.

266
MR. JACKSON: Right. I think I understand the proposal that is on the table. What I'd like to be able to consider during the deliberations is the question of, to what extend these incremental unbundling costs are common costs which wouldn't change if you added one more customer, so that I can't say that they're really driven precisely by the number of customers any more than I can say that they are driven by the volume of gas that I want to put through my system. So to that extent, that they are not specifically behaviorally related to adding a number of customers, I might wish, in the deliberations, to be able to consider an alternative way of assigning those costs to customer classes. And I may come out, and my colleagues may join me, thinking that Union's got just the right way, but I'd like to be able to see the alternative.

267
MS. JACKSON: I understand you'd like to see the alternative and we will provide you with that.

268
MR. JACKSON: Good.

269
MS. JACKSON: Of course, it's not sensitive to the one or the two or the three customer additions. The system is designed to deal with a number of transactions that is generally driven by the large number of customers and hence contracts in that.

270
MR. JACKSON: I'm sure, and correct me in reply if I have got this wrong, but I'm sure that Union has elsewhere been arguing that one should at least consider in deliberating on this the matching of the costs to benefits. And it seems to me that a very strong indication that the benefits are achieved on a volumetric basis.

271
MS. JACKSON: That's why I made the observation that I did that within the class the distribution will be more volumetrically related. First of all, the benefits are the access to unbundling that has not been there before, and in particular storage, and that's not true for the large industrial customers, as you know. And the other thing is that the benefits of that -- of being able to offer that -- those competitive arrays in the general service market has not been there before.

272
MR. JACKSON: Yes.

273
MS. JACKSON: And it's the availability of that flexibility in the general service market that it's anticipated to drive the price down in the general service market. That flexibility already exists in the large industrial market by and large.

274
MR. JACKSON: Yes. No, I think that --

275
MS. JACKSON: I'm sure that's clear, but all of this is not by way of -- we will, of course, provide you with what you are looking for.

276

MR. JACKSON: Absolutely, and I appreciate you reminding me of the other points. Thank you.

277
MR. LYLE: Mr. Chair, should we give that an undertaking number?

278
MR. JACKSON: Yes, that would be very wise.

279
MR. LYLE: It would be Undertaking G8.1, and it's a reworking of Exhibit C22.25 to allocate by volume of gas.

280
MS. JACKSON: For identification of where it already exists in the record.

281
MR. JACKSON: Yes, Ms. Jackson, thank you.

282
UNDERTAKING NO. G8.1: PROVIDE REWORKING OF EXHIBIT C22.25 TO ALLOCATE BY VOLUME OF GAS

283
MR. LYLE: Ms. Jackson, will that be prepared in time for the intervenors to be able to make argument?

284
MS. JACKSON: We hope so. We don't think it will take long, but we aren't the people that will be doing it so ...

285
MR. LYLE: Understood.

286
MR. JACKSON: I think you know we would like to see that as soon as possible.

287
MS. JACKSON: As soon as possible, yes. We assume that with all these undertakings.

288
MR. JACKSON: Ms. Jackson, you made a point this morning that, with respect to providing certain billing options, there would be no additional costs, and I think that that was with respect to accommodating the ABC-service, if I heard it correctly, but not I'm sure.

289
MS. JACKSON: I'm sorry. I was -- as I was reminded on a couple of occasions, speaking to quickly. The ABC-service, while there may in the future be some changes, there's no proposed change to the ABC-service and no cost. The observation I made was with respect to the offering of direct billing.

290
MR. JACKSON: Yes.

291

MS. JACKSON: The systems that are in the process of being put in place to accommodate unbundling to the general service market, the $15.7 million, has within it the capacity to enable direct billing.

292
On Exhibit C1.15, where those costs are broken out, there's a line that suggests $800,000 of those costs are allocable to the facility to provide direct billing. What I said was -- and Mr. Andrews said this, that in fact that was a misnomer, because while that reflects the portion of the system that does enable direct billing, even if there were no direct billing, you'd still have to have that portion of the system to enable the necessary information exchange to enable unbundling to the small volume market. And on that basis there's no additional cost to enable direct billing, apart from the associated communication expense that's separately quantified.

293
MR. JACKSON: Right. I think, then, if I understand Union's position on that properly, it's that, although there are no additional costs to carry on and provide direct billing, Union would say that the 800,000, or 600,000, I forget the number, was a reasonable allocation of those costs to the functions that are then being provided with respect to direct billing. Is that a fair way of putting it? And I think it was arrived at through a stand-alone approach of saying what costs would we have to incurred separately if we wanted to do this for the direct billing alone and didn't have to do it with respect to other unbundling activities.

294
MS. JACKSON: Well, I think what happened -- actually, what Union is proposing is that the allocation of it should be on the basis that $15.7 million is necessary to enable unbundling.

295
MR. JACKSON: Absolutely. I understand that.

296
MS. JACKSON: And all the 800,000 does is identify for you what aspect of that overall functionality also serves the purpose of facilitating direct billing.

297
MR. JACKSON: Thank you.

298
Now, I think if I understand your arguments with respect to distinguishing the distribution service in gas from the distribution service in electricity, and you do that by looking at the word "consumers" as opposed to having seen the word "customers" with respect to electricity, consumers in --

299
MS. JACKSON: No, it's both the use of the word consumer with respect to gas, but also the dichotomy between the -- the focus on the delivery activity which I say is the contractual activity in gas, and the ownership and operation of the system in electricity. So in electricity, it doesn't matter who's delivering the electricity to the customer. That doesn't make you a distributor. What makes you a distributor is you own and operate the system on which that occurs.

300
MR. JACKSON: I think I understand that difference in wording, and I think you've also pointed to a number of surrounding differences, or differences surrounding that point that distinguish the electricity distribution from gas distribution, if I'm correct. You had a number of points there.

301
MS. JACKSON: There's -- the jurisdictional analysis is focused on the statutory language.

302
MR. JACKSON: Yes.

303
MS. JACKSON: The other points I was making about the differences are generally in support of the view that symmetry in billing -- there are lots of reasons why there wouldn't be symmetry in billing, there shouldn't be symmetry in billing, and why people would take a different view, legitimately so, of the costs and benefits of billing -- of marketer-consolidated billing in electricity, versus gas.

304
MR. JACKSON: I don't know whether this would be fruitful or not, but I only get a chance to talk to you once in this process, so I wanted to ask you whether there was any help that we might have in trying to make a comparison, then, between whether or not you can, if we adopt your arguments, wholesale with respect to distribution service as compared to whether or not you could wholesale with respect to storage, for example. Now, the wording is quite different with respect to defining --

305
MS. JACKSON: Storage is different.

306
MR. JACKSON: -- storage. And it's also different with respect to transmission. So would you say that Union can, then, wholesale storage services?

307
MS. JACKSON: The storage definition, as you've pointed out, is different. A storage company is a person engaged in the business of storing gas, so it's more akin to the electricity definition.

308
MR. JACKSON: Yes.

309
MS. JACKSON: You know, you're in the business, you own the system, as opposed to the contractual activity of delivering.

310
MR. JACKSON: Right.

311
MS. JACKSON: So I don't say that the analysis that I've given you with respect to distribution would apply to storage. I haven't focused on transmission. Can I add that to --

312
MR. JACKSON: I know you're being quite careful, and I don't want to push you any further than you're prepared to go, but I was asking the next question: Would you take the position that you can offer wholesale storage services?

313

MS. JACKSON: Well, I don't -- I certainly don't see the barrier that I'm indicating exists with respect to distribution.

314
MR. JACKSON: Okay. Thank you. And then would you also make the same answer if I asked you the same question with respect to transmission?

315
MS. JACKSON: And with respect to transmission, I would like to add that to my list of questions, if I could.

316
MR. JACKSON: That's fine, Ms. Jackson.

317
MS. JACKSON: I mean, I have an idea of just reminding myself of what the statutory provisions are, but I would like you to have better answer than just my first idea.

318
MR. JACKSON: No, I appreciate that very much. Thank you.

319
Now, one more little matter, and it may just be clarification. You may just wish to add it to your list. But I was wondering if you could just help me by reminding me with respect to the Municipal Electric Corporation which I believe you had referred to. I think you said that they've been gifted to the municipalities by the Energy Competition Act, and I'm just wondering if you'd help me there.

320
Were they, for the most part, as municipal electric corporations, corporations incorporated under the Ontario Corporations Act? Is that what they were, structurally, before the so-called corporatization that was occurred this past year?

321
MS. JACKSON: I think after they were afterwards. I'd have to check that.

322
MR. JACKSON: I think afterwards they came under the -- Business Corporations Act.

323
MS. JACKSON: Yes, I think they did. I don't believe they were before, but I'd have to check.

324
MR. JACKSON: Maybe Mr. Lyle could help me and remind me of that.

325
MR. LYLE: I believe the public utilities were generally established under the Public Utilities Act, sometimes under specific municipal legislation, and they would be local boards of the municipality.

326
MR. JACKSON: And not corporate entities at all? Not even corporate entities like a co-operative corporation?

327
MR. LYLE: I think they may have been considered -- I'm not really sure exactly as to their ability to sue and be sued. But generally, the municipality would own the assets and the public utility would be in charge of running the system.

328
MR. JACKSON: I guess the question I was going through in my mind is trying to make the analogy which Union was making, whether indeed the corporations were gifted to the municipalities, or what was the gift was the new entitlement to earn a market-based rate of return on the equity in the corporation.

329
MS. JACKSON: I think the gift, in large measure, was -- I'm not sure the ownership issue was clear. It's clear what they got was the assets.

330
MR. JACKSON: I was wondering if perhaps they owned the assets through essentially owning the corporation before. It may be a minor point, but it might help with the analogy you're trying to make, is all I'm saying.

331
MS. JACKSON: I'll endeavour to clarify that.

332
MR. JACKSON: Thank you very much.

333
I think that's very helpful to the Board, and I'm very pleased that you decided to do this orally. Thank you very much, Ms. Jackson.

334
MS. JACKSON: Thank you.

335
MR. JACKSON: Thank you to all the others that were here: Mr. Lyle, Ms. Litt, Ms. Shpora, and Mr. Reghelini. We'll hear from you again in writing.

336
We'll adjourn.

337
--- Whereupon the proceedings concluded at 11:25 a.m.