1 1 RP-2000-0110 2 =20 3 THE ONTARIO ENERGY BOARD 4 =20 5 IN THE MATTER OF the Ontario Energy Board Act, S.O. 6 1998, c. 15, Schedule B; 7 =20 8 =20 9 AND IN THE MATTER OF an Application by Union Gas Limited 10 for leave to construct the Trafalgar Facilities 11 Expansion Project consisting of a 48 inch diameter 12 natural gas pipeline in the Townships of Zorra, East 13 Zorra-Tavistock and Blandford-Blenheim in the County of 14 Oxford and a 48 inch diameter natural gas pipeline in 15 the Township of North Dumfries in the Regional 16 Municipality of Waterloo. 17 =20 18 =20 19 Hearing held at: 20 Holiday Inn Cambridge, 200 Holiday Inn Drive, 21 Cambridge, Ontario on Thursday, February 8, 2001, 22 commencing at 0944 23 =20 24 B E F O R E : 25 MS S. HALLADAY Presiding Member 26 MS J. SIMON Member 27 =20 28 VOLUME 1 =0C 2 1 APPEARANCES 2 =20 3 JENNIFER LEA/ Board Staff 4 WILFRED TEPER/ 5 JIM McKAY/ 6 ZORA CRNOJACKI 7 =20 8 GLENN LESLIE Union Gas Limited 9 KAREN HOCKIN 10 =20 11 LESLIE DREHER On their own behalf 12 LINDA DREHER 13 =20 14 =20 15 =20 16 =20 17 =20 18 =20 19 =20 20 =20 21 =20 22 =20 23 =20 24 =20 25 =20 26 =20 27 =20 28 =20 =0C 3 1 Cambridge, Ontario 2 --- Upon commencing on Thursday, February 8, 2001 3 at 0944 4 THE PRESIDING MEMBER: We are sitting this 5 morning to hear an application filed by Union Gas 6 Limited for leave to construct 19.9 kilometres of 7 NPS 48 pipeline from the Beachville Valve Site located 8 in Lots 19 and 20, Concession 5, Township of Zorra, 9 County of Oxford, to the existing Bright Compressor 10 Station located in Lots 3 and 4, Concession 10, Township 11 of Blandford-Blenheim, the County of Oxford, and=20 12 associated valves and facilities connecting to the 13 existing Bright Compressor Station; and 15.9 kilometres 14 of NPS 48 pipeline from the Owen Sound line valve pipe 15 located in Lot 36, Concession 9, Township of North 16 Dumfries, the Regional Municipality of Waterloo to the 17 existing Brantford Valve Site located in Lot 7, 18 Concession 8, Township of North Dumfries, the Regional 19 Municipality of Waterloo, that is the Owen 20 Sound-Brantford line, and associated valves and 21 facilities. 22 My name is Sheila Halladay. With me today is 23 Julie Simon -- 24 --- Feedback 25 MR. LESLIE: If I could operate without 26 this -- 27 --- Laughter 28 MR. LESLIE: I think the problem is it doesn't =0C 4 PRELIMINARY MATTERS 1 show up in the transcript if I do. 2 Good morning, my name is Glenn Leslie and I 3 appear for Union Gas, the applicant. 4 THE PRESIDING MEMBER: Good morning, 5 Mr. Leslie. 6 MS LEA: Jennifer Lea for Board staff. 7 THE PRESIDING MEMBER: Good morning, Ms Lea. 8 Any other appearances? 9 I have noticed that a number of people have 10 braved the weather and come today and we appreciate your 11 attendance. That is one of the reasons why we have 12 out-of-town hearings so that we can hear from people 13 affected by the proposed project. If anyone wants to 14 participate in the proceeding who is not otherwise 15 scheduled, please let Board staff know at the break and 16 we will make arrangements for a convenient time to make 17 any statements you want to make to the Board. 18 Before we begin, there is one preliminary 19 matter. 20 I understand that the fire alarm system may be 21 tested today. We don't know if it will be tested or 22 when it will be tested. However, I have been advised 23 that if it is tested that we are not required to 24 evacuate the building. 25 Are there any other preliminary matters? 26 MR. LESLIE: I have some documents I would 27 like to file. 28 THE PRESIDING MEMBER: Okay. Now is a good =0C 5 PRELIMINARY MATTERS 1 time to do that. 2 MR. LESLIE: Thank you. 3 We have for filing statements of 4 qualifications for the witnesses that will be appearing, 5 curriculum vitae. With your permission, Ms Hockin will 6 pass those up to the Board and Board staff. 7 THE PRESIDING MEMBER: Ms Lea, you are the 8 expert. Will these need an exhibit number? 9 MS LEA: Yes. I think we can do that. 10 There is a couple of preliminary matters I 11 have actually, I guess, before we start filing exhibits.=20 12 I have a couple of preliminary things. 13 First of all, Board staff have checked the 14 affidavits for service in the Board's Directions for 15 Service and the Board's directions appear to have been 16 complied with and service has been made. 17 The exhibit lists are prepared also by staff, 18 and you will see Section 12 is the exhibits filed at the 19 hearing by Union. If you turn the page you get 20 section 13, the exhibits filed at the hearing by others.=20 21 Turn the page again and you get undertakings at No. 14. 22 So let's call these 12.1 -- Exhibits filed at 23 the Hearing by Union, number 1 -- and that will be the 24 curriculum vitae. 25 EXHIBIT NO. 12.1: Package of curriculum 26 vitae of witnesses 27 Thanks. 28 THE PRESIDING MEMBER: Did you get that, =0C 6 PRELIMINARY MATTERS 1 Mr. Leslie? It is 12.1. 2 MR. LESLIE: Well, there is more than one of 3 them. 4 THE PRESIDING MEMBER: We will just have them 5 all as one package. 6 MR. LESLIE: Thank you. 7 The only other thing is I have a document 8 called "Witness Panels", which is a matrix that 9 indicates which of the sections of the prefiled evidence 10 and schedules the witnesses will be familiar with. I am 11 told that you have a copy of that as well. If you 12 don't, I have one available for you. All right. 13 I don't think that needs an exhibit number.=20 14 It is really just so people can focus their questions. 15 That is all I had by way of preliminary 16 matters. 17 THE PRESIDING MEMBER: Thank you, Mr. Leslie. 18 Ms Lea? 19 MS LEA: Yes. I have one further preliminary 20 matter. One moment, please. 21 I understand that there are some folks here 22 who were affected by the building of the pipeline. Is 23 that Mr. Dreher, Mrs. Dreher? Have I pronounced your 24 name correctly? 25 MS DREHER: Yes. 26 MS LEA: Thank you. The name is spelled 27 D-R-E-H-E-R. 28 They actually made a request to be allowed to =0C 7 PRELIMINARY MATTERS 1 address the Board as soon as they could, as they may not 2 be able to stay, so if it pleases the panel they have 3 requested to make that statement as soon as you can 4 receive it. 5 THE PRESIDING MEMBER: Thank you, Ms Lea. 6 Ms Lea, are there any other preliminary 7 matters? 8 MS LEA: I'm not aware of any. 9 THE PRESIDING MEMBER: Thank you, Ms Lea. 10 Mr. and Mrs. Dreher, if you would like to make 11 whatever statements, please feel free to do so now. 12 MR. DREHER: Is this working? Yes. Okay. 13 I hope that I am not going to tie you up for 14 too long. There are a few concerns that I have -- my 15 wife and I. It concerns several different aspects prior 16 to us being contacted. SCC, for one -- I think 17 everybody is familiar with that -- stress cracking due 18 to corrosion. 19 We have been told or found out after the fact 20 that the safety zone area for thermal damage would be an 21 area of approximately 200 metres from a pipeline. What 22 effect does a rupture and ignition have on parallel 23 pipelines? 24 I don't know if these questions can be 25 addressed or answered today. 26 Several other things. I think I will just get 27 rid of these notes. 28 I had an opportunity to either talk to people =0C 8 COMMENTS BY MR. DREHER 1 or write to people years back. In 1992, I believe it 2 was a Mr. Ken Volman stated on behalf of the National 3 Energy Board that economics take a second position to 4 public safety. 5 I am very concerned with the fact that it 6 seems to me that this pipeline, which I believe is the 7 NPS 34, was installed some place around 1966, creating 8 at that time then a corridor of which various Boards 9 initiated a program of paralleling these pipelines. So 10 what we have arrived at today on our property are three 11 situations of three pipelines going through. In each 12 case these pipelines are getting closer and closer to 13 rural residences. 14 I am very concerned, even though we now, with 15 the 48-inch pipeline, will be within this 200 metre 16 thermal damage area, other neighbours are a lot closer 17 than that. I am concerned or wondering why, if we know 18 these factors, that we are not instigating a policy of 19 using, one, a heavier pipeline or a heavier casing 20 material in the steel aspect of it, to ensure that at 21 least we are doing everything possible in the vicinity 22 of rural homes to protect these people further. 23 There are several other factors or things that 24 have entered my mind in respect to ensuring public 25 safety. I think the provinces adopted a program or 26 policy of the three "R"s, reduce, reuse, recycle. I 27 proposed back about probably the late seventies, early 28 eighties a program of reducing, reusing and recycling =0C 9 COMMENTS BY MR. DREHER 1 pipeline property, one of which would be to -- and I 2 know this has been brought up and mentioned at the 3 Boards before -- reducing pressure on older pipelines. 4 Maybe this is economically not viable, but it 5 still makes sense to put the initiative back on the 6 transmission companies to either replace or upgrade 7 those pipelines, the older ones. 8 We have a condition of a pipeline in behind 9 our property, an NPS 26, I believe it is. People have 10 raised concerns over the years about this pipe. This 11 being the oldest pipeline in our area, it would seem to 12 me that it should be brought up to the newest standards, 13 that being the latest technology and steel, wrappings, 14 et cetera. 15 If this line were removed and replaced, the 16 environmental damages would be limited strictly to that 17 area, and perhaps just a little bit more of an 18 additional easement to ensure that that line was brought 19 up to spec, today's spec. 20 If that were the case, more than likely my 21 wife and I would not be here today if we had followed 22 the procedures that were done and the respect to farm 23 property that was initiated back when that pipeline was 24 put in. It followed the rear of farm land. 25 Our land is cross-cut, sectioned off with now 26 three pipelines coming through. This has created a 27 situation where the land is fractured. Severances are 28 created for building lots. Homes will be put up in =0C 10 COMMENTS BY MR. DREHER 1 areas that perhaps the regions, the townships, the 2 cities don't want to have buildings on, but 3 nevertheless, with the intrusion of the pipelines, it is 4 creating this effect. 5 We are affected by that. With the options 6 that have been given to us, with the agreements, the 7 easements, et cetera, et cetera, fee simple, it is the 8 only option that we actually can take to free ourselves 9 of potential future liabilities with pipeline removal, 10 mortgage aspects in the future, loans. 11 I would anticipate the way the wording has 12 been in some of the contracts, that there is no 13 liability on the part of the transmission companies -- 14 this is right across Canada and probably in the 15 States -- to remove the pipes in the case of 16 abandonment. Who will pay for the removal of those 17 pipes? 18 As I understand now, after talking to several 19 people in landfill areas, the pipe wrapping constitutes 20 an environmental problem. Yet, the right seems to be 21 maintained for abandonment, which means no liability -- 22 walk away from it. Who then assumes the responsibility 23 for this? More than likely it will be the taxpayers who 24 will have to pay for this. It is a grievous concern; it 25 is a concern that should be addressed. 26 I am anticipating in the future, in the case 27 of abandonment, that the electrical-generated field that 28 helps to protect that pipe casing won't be applied. If =0C 11 COMMENTS BY MR. DREHER 1 somebody abandons it, they walk away from it. That 2 means it will rust, eventually cave in. We have 3 approximately, with a 48-inch pipeline, a four-foot 4 depression in the land. Who fills it? Who takes care 5 of it? The farmer? The landowner? Not acceptable. 6 I think that pretty well wraps up my concerns. 7 THE PRESIDING MEMBER: Thank you. Before you 8 go I would like to make a couple of comments. 9 The first one is that this Board does not put 10 economics before public safety. I want you to be 11 assured that one of the issues that we look into, Board 12 staff in particular look into, a company is required to 13 deal with public safety and to meet public safety 14 standards. 15 Economics obviously plays a part in whether we 16 determine whether to authorize the pipeline or not, but 17 under no circumstances do safety concerns take a second 18 seat or a back seat. 19 MR. DREHER: It is nice to hear that 20 reassurance. 21 THE PRESIDING MEMBER: The second is that I 22 understand -- and Mr. Leslie can correct me -- but there 23 will be panels of experts talking about the pipeline 24 construction, the engineering of the pipeline. We have 25 evidence as far as that is concerned. 26 If you have specific issues that need to be 27 addressed -- I know, Mr. Leslie, you were making some 28 notes as far as issues of concern. You mentioned =0C 12 COMMENTS BY MR. DREHER 1 abandonment, you mentioned the stress cracking due to 2 corrosion issue. Were there other issues that you want 3 us to specifically ask the panel in order to gain some 4 sort of comfort or assurance that your concerns have 5 been addressed? 6 MR. LESLIE: If it is of any assistance, my 7 intention, when I was making my notes, was to find out 8 which witnesses can deal with some of these issues -- I 9 think I know -- and then ask them to comment. 10 THE PRESIDING MEMBER: That is fair enough.=20 11 That is what I was going to ask. Thank you, Mr. Dreher. 12 THE PRESIDING MEMBER: Ms Lea, did you have 13 any comments? 14 MS LEA: No. I made some notes also and I am 15 prepared to ask some questions. Then perhaps we can 16 determine if there is anything we have left out. 17 THE PRESIDING MEMBER: Perhaps, Mr. Dreher, if 18 you want to make sure that you speak with Board staff -- 19 you had a list of a number of concerns -- to make sure 20 that the witnesses are asked those questions. 21 MR. DREHER: Thank you very much. 22 MS LEA: Mr. Leslie, were you suggesting that 23 we hear from those witnesses now while Mr. Dreher is 24 here? We could do that. 25 MR. LESLIE: One, I am not sure who the 26 witnesses would be; and, two, in fairness to them, they 27 should have a little time to think about this. I don't 28 think there is one witness who can deal with all these =0C 13 COMMENTS BY MR. DREHER 1 subjects. 2 THE PRESIDING MEMBER: Mr. Leslie, I think you 3 are right. I think it crosses at least a couple of 4 panels, then environmental panel and the construction 5 panel as well. 6 MS LEA: I think it is all Panel 3. I would 7 be asking questions about abandonment to the person who 8 deals with the land matters and the agreement with the 9 landowners. The Lambton County Storage Association 10 intervenor a couple of cases ago had this same concern.=20 11 I understand there have been revisions to Union's 12 agreement as a result of those concerns. 13 With respect to stress corrosion cracking, the 14 thickness of the pipe wall, the depth of cover on that 15 pipeline and other issues of immediate safety while the 16 pipeline is in use, I am presuming that the construction 17 panel will be able to assist us with that. That is 18 Panel No. 3 also. So, it is all the one panel. 19 Unfortunately, that panel is scheduled to go 20 last. I was concerned that Mr. Dreher have an 21 opportunity to hear those answers if he wants to.=20 22 Perhaps if it is not intended to bring those witnesses 23 forward now, I will find out when they are coming 24 forward and the Drehers can decide whether he wants to 25 stay and hear that or just make sure that I have all the 26 notes I need to ask the questions they want to ask. 27 THE PRESIDING MEMBER: Thank you. Ms Lea, 28 Board staff could also provide the Drehers with extracts =0C 14 COMMENTS BY MR. DREHER 1 from the transcripts if they can't stay so that you can 2 see the answers given by the Union experts who have 3 answered your questions. 4 Is that satisfactory to you, Mr. Dreher? 5 MR. DREHER: Yes. 6 THE PRESIDING MEMBER: Any other preliminary 7 matters? 8 Mr. Leslie. 9 MR. LESLIE: Thank you very much. The first 10 panel comprises Ms Lynn Galbraith, Mr. Steve Baker and 11 Mr. Paul Gardiner. 12 SWORN: LYNN GALBRAITH 13 SWORN: PAUL GARDINER 14 SWORN: STEVE BAKER 15 EXAMINATION-IN-CHIEF 16 MR. LESLIE: Ms Galbraith, starting with you, 17 you are Union Gas' Group Manager, Storage and 18 Transportation Sales and Service? 19 MS GALBRAITH: Yes, I am. 20 MR. LESLIE: Your evidence, for purposes of 21 these proceedings, is found in Section 3 of the prefiled 22 evidence dealing with market requirements? 23 MS GALBRAITH: Yes, sir. 24 MR. LESLIE: I understand there is one 25 correction you wanted to make to that evidence? 26 MS GALBRAITH: Yes, on Section 3, Schedule 5, 27 page 2 of 2 -- and I don't think you really need to turn 28 to it -- we had shown the Sunoco contract for 15,000 GJs =0C 15 PANEL NO. 1, in-ch (Leslie) 1 having a term ending 2008. That term is 2011. That was 2 a ten-year contract, in fact. 3 MR. LESLIE: Subject to that, do you adopt 4 your evidence? 5 MS GALBRAITH: I do. 6 MR. LESLIE: Mr. Gardiner, you are Union Gas' 7 Manager, Demand Forecast and Analysis for Core Markets? 8 MR. GARDINER: Yes, I am. 9 MR. LESLIE: And your evidence is also found 10 at Section 3 of the prefiled evidence and, specifically, 11 3.1. 12 You also have evidence at Section 5 dealing 13 with assumptions which have been used in the economic 14 feasibility analysis? 15 MR. GARDINER: That is correct. 16 MR. LESLIE: And do you adopt that evidence, 17 sir? 18 MR. GARDINER: Yes, I do. 19 MR. LESLIE: Thank you. 20 Mr. Baker, you are Union Gas' Director, 21 Products and Pricing? 22 MR. BAKER: That is correct. 23 MR. LESLIE: And you are here as well to speak 24 to requirements for the facilities that are proposed and 25 to address policy issues that arise out of the 26 application. 27 MR. BAKER: That is correct. 28 MR. LESLIE: Ms Galbraith, could you update =0C 16 PANEL NO. 1, in-ch (Leslie) 1 the Board and Board staff on the status of the contracts 2 which are referred to in the prefiled evidence as I 3 believe "Other." 4 MRS. GALBRAITH: Yes. Just to quickly 5 summarize where we are at with regard to the other 6 contracts that we had listed as being negotiated of 7 approximately 117,600 GJs, we have entered into -- 8 MS LEA: Sorry, Ms Galbraith. What is the 9 exhibit number which you are looking at -- 10 MRS. GALBRAITH: Section 4, Schedule 6. 11 MS LEA: Section 4, Schedule 6. Thank you 12 very much. We have it. 13 MRS. GALBRAITH: Where it says "Other," 14 Parkway 44,900, Kirkwall 72,700 for a total of 117,600. 15 MS LEA: I don't see that on the schedule. 16 MRS. GALBRAITH: All right. I am looking at 17 Section 4, Schedule 6. There is another one. 18 MR. LESLIE: If you go to Section 5, 19 Schedule 5 I think. 20 MRS. GALBRAITH: I think Section 3, Schedule 5 21 we could also go to that, page 2. 22 THE PRESIDING MEMBER: Sorry. If we could 23 pick one. 24 MRS. GALBRAITH: Well, I worked off of the 25 Section 4 one. 26 THE PRESIDING MEMBER: Whichever schedule you 27 feel most comfortable with, Ms Galbraith. 28 MRS. GALBRAITH: Okay. If we can go to =0C 17 PANEL NO. 1, in-ch (Leslie) 1 Section 4, Schedule 6 that is the schedule that I worked 2 off of. 3 THE PRESIDING MEMBER: Right. 4 MRS. GALBRAITH: If we go under the column 5 2001-2002 under the M12 transportation section and we 6 continue down the page to just before the total line, 7 and we work up the page we will see a volume for 8 Kirkwall of 72,700 and a volume of 44,900 for Parkway.=20 9 Those two amounts sum to the total of 117,600. 10 At the present time we have placed into the 11 marketplace under one year contracts 42,202 gigajoules 12 of transportation which would leave a balance of 76,000.=20 13 And since we had had winter peaking service in the 14 facilities application which we don't believe we may or 15 may not require over the course of the year it leaves us 16 with 54,000 GJs of capacity that Union will manage over 17 the course of this coming year. 18 MR. LESLIE: All right. Thank you. 19 Mr. Baker, given the status of the demand as 20 explained by Ms Galbraith, can you explain to the Board 21 how the company is proposing to proceed and what at this 22 stage the company is asking of the Board? 23 THE PRESIDING MEMBER: Excuse me for one 24 moment. I apologize. 25 --- Pause 26 THE PRESIDING MEMBER: I understand that the 27 sound board is down and that the transcribers in Ottawa 28 are not getting any feed as a result. It means that =0C 18 PANEL NO. 1, in-ch (Leslie) 1 they will have to replace the board, however, the effect 2 of this will be a delay in getting the transcript. So 3 we might not get today's transcript until tomorrow. 4 So we have decided that we will proceed on and 5 at the break we might take a bit longer for our morning 6 break so that they can replace the panel at that time 7 and then we will continue on. Is that satisfactory to 8 everyone? Thank you. I apologize. 9 MR. LESLIE: Not at all. Ms Galbraith had 10 explained that there remains at this stage I think 11 54,000 gigajoules of proposed capacity that you are 12 planning to manage during the course of the next year 13 but is not currently under contract. Is that correct? 14 MRS. GALBRAITH: That is correct. 15 MR. LESLIE: And I was then asking Mr. Baker 16 if he would, given that state of affairs, explain to the 17 Board how the company proposes to proceed and what it is 18 the company is requesting of the Board. 19 MR. BAKER: What Union is seeking in this 20 regard is unconditional approval to proceed to construct 21 the two sections of Dawn-Trafalgar in 2001, that being 22 the Beachville to Bright and the Owen Sound to Brantford 23 sections. And the existing demands as just updated by 24 Ms Galbraith fully support the first section being the 25 Beachville to Bright section. And in terms of the 26 second section being the Owen Sound to Brantford section 27 we have, as has just been indicated approximately 28 54,000 GJs per day of uncommitted capacity at this time. =0C 19 PANEL NO. 1, in-ch (Leslie) 1 So my remarks will really be targeted 2 principally at that second section and the 54,000 GJs of 3 uncommitted capacity. 4 So as mentioned, we are seeking unconditional 5 OEB approval to proceed with Union really managing the 6 assessment of the market and those conditions related to 7 that remaining 54,000 GJs a day and for us to manage the 8 determination and the decision to go forward and 9 construct that second section, if that is, in fact, the 10 most economically justified and the best business 11 decision to serve that demand and I will expand on that 12 in a minute. 13 And our rationale for taking this position and 14 this view is really based on a number of factors. The 15 first one being that we are proceeding and operating at 16 the current time on the basis that we will be operating 17 under a performance-based regulation framework for 2001 18 and forward for some term to be determined by the Board 19 and subject, obviously, to the Board's final decision 20 and Union's PBR application. 21 And it is in this context that Union has an 22 opportunity in 2001 to construct a second section, the 23 Owen Sound to Brantford section, at a significant 24 capital cost reduction in 2001 and that is approximately 25 $10.4 million which is highlighted on Table 2 of the 26 updated evidence. And the majority of these savings 27 will not materialize in Union's assessment if the 28 construction is deferred to a subsequent year. So it is =0C 20 PANEL NO. 1, in-ch (Leslie) 1 a permanent capital savings opportunity that we have in 2 2001. 3 Union is confident that additional long-term 4 firm demands will materialize next year at the latest, 5 given that conservatively Union sees normal, annual 6 Dawn-Trafalgar growth on its system in the range of 7 50,000 to 60,000 GJs a day. And that is related to the 8 typical and normal infranchise growth for both Union Gas 9 and Enbridge Consumers Gas. 10 So in Union's clear view it is not a question 11 of if the Owen Sound to Brantford section will be 12 constructed. It is clearly a matter of when and in our 13 view that is 2001 versus 2002. So we are seeking the 14 flexibility to make the most prudent and economic 15 decision to serve all of our existing demand, including 16 the decision to construct the Owen Sound to Brantford 17 section in 2001. 18 And secondly, and a bit more explicitly, under 19 the PBR construct as proposed by Union, we agreed to 20 take on and manage asset utilization risk over the term 21 of the PBR as we will be operating under a price cap, as 22 I mentioned, for some term and under some terms and 23 conditions to be approved by the Board in their final 24 decision. So based on that we are committed to manage 25 any of the uncommitted capacity of 54,000 GJs a day that 26 Ms Galbraith spoke of that is uncommitted at this time. 27 And I think to try and put that in a bit of 28 perspective, there is no scenario that Union can =0C 21 PANEL NO. 1, in-ch (Leslie) 1 envision or forecast that will not see that capacity 2 utilized within the next year based on everything we 3 know in terms of growth that will happen on our 4 franchise. So it will be required on a long-term basis 5 by 2002. 6 And I think the other thing for the Board to 7 try to put it in perspective is that 54,000 GJs a day of 8 capacity is less than one per cent of Union's total 9 Design Day demand on the Dawn-Trafalgar system which is 10 I believe around 5.8 gigajoules a day. 11 Third, I think in our view we are experiencing 12 some changes in the market. 13 MS LEA: Sorry. Did you say 5.8 gigajoules or 14 5.8 million? 15 MR. BAKER: It's 5.8 million gigajoules a day.=20 16 Sorry. 17 I think the third thing we are experiencing is 18 some changes in the market that we are seeing. I don't 19 think we are any different than any other transportation 20 company in Canada and the United States. But we are 21 seeing a reduction in the time generally that parties 22 are willing to commit to capacity prior to the decisions 23 being made to construct facilities. And in a way I 24 think this is good in that it demonstrates that there is 25 a competitive market out there and customers have 26 options. But it certainly does create a few more 27 challenges than what we have seen historically in terms 28 of the timing of Board approval for facilities. =0C 22 PANEL NO. 1, in-ch (Leslie) 1 I think the second thing we are seeing is that 2 parties are generally starting to be less willing to 3 commit to contracts conditional on Board approval of the 4 facilities. So they are increasingly looking to Union 5 to take on that risk and manage the regulatory approval 6 risk associated with the facilities. 7 The fourth thing we are seeing in terms of 8 Union's infranchise market is we are experiencing a lot 9 of changes. We are seeing proposed and projected demand 10 increases due to independent power projects. Certainly 11 this year we are seeing customers' reaction trying to 12 deal with high gas prices. So there is a lot of things 13 going on in our franchise in trying to manage and react 14 to those. But clearly in our view it is a dynamic 15 situation and we need to have the flexibility to meet 16 those changes and the most economic way particularly 17 under a PBR framework. 18 The last one I wanted to make is that as we 19 stand today, Union currently has I think just in excess 20 of 70,000 GJs a day of contract commitments in excess of 21 the capacity that would be provided by only constructing 22 one section, that being the Beachville to Bright 23 section. 24 So in the absence of any flexibility or 25 ability to construct the second section, the Owen Sound 26 to Brantford section in 2001, we will essentially be 27 forced to meet that demand through a non-facilities 28 option such as winter peaking service or some other =0C 23 PANEL NO. 1, in-ch (Leslie) 1 service available in the marketplace. And that may not 2 be the most economic or the best business decision for 3 Union to make in terms of serving that demand, and again 4 which is why we are seeking the flexibility to be able 5 to construct the second section in 2001, if that is in 6 fact the best way to meet that demand. 7 To summarize, we are assuming that we will be 8 under the PBR construct in 2001 forward for some term to 9 be determined by the Board. We are seeing market 10 changes and uncertainties and we are prepared to manage 11 that and we are prepared to manage uncommitted capacity 12 that may exist at the present time under PBR. 13 Again, the 54,000 GJs a day of uncommitted 14 capacity currently is not large in the context of 15 Union's total system. Managing uncommitted capacity is 16 really no different than what we have done in the past 17 when we have put facilities in place that provided a 18 certain amount of capacity in excess of what the demands 19 were at a certain point in time. Union has always tried 20 to manage any excess capacity in the best way it can. 21 The primary difference that we are looking at 22 now is that under PBR, it is clearly Union that is 23 managing that exposure and that risk of uncommitted 24 capacity under a PBR price gap framework. 25 MR. LESLIE: Finally, Mr. Baker, I understand 26 that there is, for the company, some urgency in 27 receiving a determination of whether it can go ahead 28 with these projects. Would you explain to the Board the =0C 24 PANEL NO. 1, in-ch (Leslie) 1 reasons for that? 2 MR. BAKER: Union, as much as anybody, is 3 certainly cognizant of the work load that is on the 4 Board's plate these days. But we wanted to try to give 5 some indication from our perspective in terms of where 6 we are in terms of the timing on approval for the two 7 sections. 8 We don't do this easily, but we are currently 9 trying to make sure that we have an appropriate amount 10 of time to make the decisions that we need to make to 11 get the facilities physically constructed in terms of 12 the commitments that we have to make for pipe and 13 contractors. 14 More importantly is that given that November 15 1, 2001 is fast approaching, which is the in-service 16 date for both of the facilities contemplated, our 17 marketing efforts in terms of that capacity will be 18 frustrated in that we cannot really try to market that 19 capacity. Again, we do that, given that at this point 20 there is nothing that we see at this point in time that 21 would preclude us going forward to construct both 22 sections. 23 What we want to do and would appreciate is if 24 there are any large concerns from the Board, that Union 25 be advised of those as soon as possible so that we don't 26 get into a position where we are trying to pursue market 27 for the remaining 54,000 GJs a day of capacity. If 28 there is a concern in the Board's mind on the =0C 25 PANEL NO. 1, in-ch (Leslie) 1 facilities, we would very much appreciate knowing that 2 sooner than later so that we can govern our market 3 efforts accordingly. 4 MR. LESLIE: Thank you, Mr. Baker. Those are 5 all my questions. 6 THE PRESIDING MEMBER: Thank you, Mr. Leslie. 7 Ms Lea. 8 EXAMINATION 9 MS LEA: Thank you. I am going to have to ask 10 you to repeat one part of your evidence-in-chief when 11 the microphone problem was being dealt with. I didn't 12 hear some of what was going on. 13 That has to do with when Ms Galbraith was 14 explaining that she replaced 42.2 gigajoules per day in 15 the market, and then I got the number, so 76,000 16 gigajoules per day is not committed. Then somehow we 17 got to 64. I didn't hear the intervening explanation. 18 MS GALBRAITH: In the application, based on 19 the 117,600, in order to balance market and the supply 20 side, the price capacity, Union would have to go to the 21 market to purchase 21,000 units of WPS. 22 Given that, we would just as soon not have to 23 buy WPS to meet market, so we just deduct the 21,000.=20 24 We'll sell 20,000 less and not buy the WPS. 25 MS LEA: I would like, then, to turn to some 26 somewhat more basic questions to start out with and we 27 will return to the (off microphone...) in a few minutes. 28 To begin with, in your evidence in several =0C 26 PANEL NO. 1, ex (Lea) 1 places, you indicate how important the Trafalgar line 2 has become in the chain of pipelines that transport gas 3 from the western part of the continent to the eastern 4 part. Can you elaborate on this, and give us some idea 5 perhaps of the percentage of the gas that is used by 6 eastern Canada and possibly the northeastern U.S. that 7 flows through Trafalgar, give us some idea of what the 8 importance of that line is. 9 MS GALBRAITH: In context, east of Dawn -- and 10 I will choose the east of Dawn and we will also imagine 11 TransCanada being really the only other suppliers coming 12 in through the north. All market essentially is 13 consumed east of Dawn in Ontario, making the assumption 14 of the northern leg as well. 15 On a peak winter day, Union moved 5.8 TJs per 16 day at capacity to the market on a firm basis, to the 17 capacity of the system. The eastern Canadian and firm 18 commitment, including Niagara and Iroquois are 19 approximately nine BCFs a day. So on a peak day, the 20 market east of Dawn is shunting on almost two-thirds 21 capacity being moved through the Union Gas system to 22 meet those current day demands. 23 I think another very relevant number is on a 24 peak day in the Enbridge Consumer's market area, over 50 25 percent of their peak day is coming from the Union Gas 26 system. So essentially, the Toronto area market, on a 27 peak day, was getting about 1.9 G of its 3.2 G peak day 28 directly off the Union system. =0C 27 PANEL NO. 1, ex (Lea) 1 Now, once again, I took the 54 million a day 2 into that kind of context just for the Toronto market.=20 3 So, the numbers are very significant. 4 I will just maybe mention one other thing.=20 5 Over the course of the last year, we have seen the 6 activity at the Dawn hub, where parties financially 7 trade gas and physically move significant gas, that 8 volume for the last year has grown seven BCF a day of 9 activity that we are seeing traded in the marketplace 10 every day. Companies sitting east of Union really do 11 look at that being a convergence of pipeline supplies 12 and very competitive and through which (off 13 microphone...) and points of price discovery. 14 MS LEA: Thank you. Could someone, in a 15 relatively simple manner, if that's possible, explain to 16 us how you determine the winter design day demands at 17 the Trafalgar and (off microphone...) cost of living.=20 18 Maybe we should go to another panel. 19 MR. BAKER: That's another panel. 20 MS LEA: Okay. 21 MR. BAKER: I thank it's Mr. Hyatt. 22 MS LEA: All right. So that would be Panel 23 No. 2? 24 MR. BAKER: Yes. 25 MS LEA: Throughout this cross-examination, I 26 am going to be asking you questions which may have to be 27 referred to other panels. That is fine. I don't want 28 to miss you, though, and find out I should have asked =0C 28 PANEL NO. 1, ex (Lea) 1 you something. 2 Turning, then, to the question of the demand 3 for the pipeline that you wish to build, for the present 4 year that we are looking at now, the winter of 5 2000-2001, can you tell us what the forecasted demand 6 for this winter that we are presently in is? 7 I can tell you how we tried to calculate it.=20 8 We looked at exceptions for Schedule 8. I know that is 9 a Section 4 exhibit, but it doesn't seem to graphically 10 illustrate what the various demands of capacity are. I 11 found it useful for understanding these figures. 12 What we did to try and figure out what you had 13 assumed the present year demands were was we took that 14 section for general rate, which was mostly 2001-2002 15 demands, and subtracted what we understood to be the 16 incremental amount, which we calculated to be 314,496.=20 17 What we did was we added the Union (off microphone...) 18 and other incremental demands, subtracted that from the 19 total. That is what we tried to do. 20 Is that a valid way of doing that or have we 21 got our methodology mixed up? 22 MR. BAKER: I didn't quite follow all the 23 numbers, but if you look to I believe it's the far 24 right-hand column, and at the very bottom it says 25 "Winter 2000-2001 Capacity", I don't know what exactly 26 that translates into, but it is something between 5.45 27 and 5.5 GJs a day, which is the existing capacity of the 28 system. =0C 29 PANEL NO. 1, ex (Lea) 1 MS LEA: What I was trying to figure out was 2 the demand this year, not the capacity this year. We 3 worked it out to about 5.49 GJs per day listed as winter 4 2000-2001 requirements, that bottom piece. 5 MR. BAKER: That looks right. 6 MS LEA: That looks about right. 7 MR. BAKER: Just to be clear, I think what it 8 demonstrates is that the winter 2000-2001 demands, being 9 the 5.49, I think you mentioned, is in excess of the 10 physical capacity that we have this winter. So, we have 11 had to meet that through winter peaking service this 12 year. 13 MS LEA: Yes, we understand that. Let's look 14 at that diagram for a moment in Section 4, Schedule 8.=20 15 As we understood this diagram, the column on the left 16 shows the demand. Everything above that line, the top 17 line of winter 2000-2001 are directionally almost the 18 same. So, a GJ is almost the same as an MM. 19 MS LEA: I certainly appreciate that, 20 Ms Galbraith. Thank you. 21 MS GALBRAITH: So, it is about 50,000 GJs as 22 well. 23 MS LEA: Fifty thousand gigajoules per day? 24 MS GALBRAITH: Yes. 25 MR. LESLIE: Just to be clear, what is an MM? 26 MS GALBRAITH: One thousand cubic feet. 27 MS LEA: To turn to the matter, then, of the 28 contractors listed as "Other" on Section 4 of =0C 30 PANEL NO. 1, ex (Lea) 1 Schedule 8. Your evidence-in-chief dealt with those. 2 When you say that you placed 42.2000 3 gigajoules per day in the market, what do you mean by 4 "placed in the market"? 5 MS GALBRAITH: I have signed contracts for 6 42,202 commencing November 1 for a one-year term. 7 MS LEA: For a one-year term? 8 MS GALBRAITH: Yes, ma'am. 9 MS LEA: Do you anticipate that that capacity 10 will continue to be sought past the one year? 11 MS GALBRAITH: Oh yes, ma'am. 12 MS LEA: I understand from your 13 evidence-in-chief that, although you still have 54,000 14 gigajoules per day of capacity, if this project goes 15 ahead, as of yet not spoken for, that you are asking the 16 Board to approve the construction of both sections of 17 pipelines because, in your view, it is best that Union 18 manage that unutilized -- I am going to call it 19 unutilized -- capacity, that it has the flexibility to 20 take on the customers that might fill that capacity or 21 deal with it in its own management. Am I understanding 22 correctly? 23 MR. BAKER: That is right. I think there is 24 two aspects to that. There is the ability to manage the 25 54,000 GJs a day, as we spoke about, and there is the 26 converse which we are very much cognizant of looking at, 27 which is if we don't construct the second section in 28 2001, all of our current contract demands in excess of =0C 31 PANEL NO. 1, ex (Lea) 1 the capacity that would be provided by only constructing 2 one section, we will have to meet in the marketplace 3 through another option, winter peaking service. 4 So, it's making the economic choice in terms 5 of what is best corporately and from an overall cost 6 perspective. 7 MS LEA: As I understand you, then, Mr. Baker, 8 what you are asking is that the Board approve the 9 construction of both sections, but Union may in fact 10 choose not to construct the second section if economics 11 dictate that winter peaking service would be a better 12 choice. Am I correct? 13 MR. BAKER: Directionally I would subscribe 14 that there is a very low probability of doing that, 15 but -- 16 MS LEA: But it is a choice that you want to 17 keep open to the company? 18 MR. BAKER: That is right. 19 MS GALBRAITH: Just to add to that, I think we 20 would be requiring to build. It is our opinion that we 21 would need to build that section anyway next summer. 22 MS LEA: I wanted to ask you about that, as 23 well. It would be best to finish my understanding of 24 this and to keep the evidence very clear. So, the 25 section that you would definitely construct if the Board 26 gave you approvals for both is the Beachville to Bright 27 section, correct; that would definitely go ahead? 28 MR. BAKER: That is correct. =0C 32 PANEL NO. 1, ex (Lea) 1 MS LEA: So, it is the Owen Sound to Brantford 2 section that you would like to have the flexibility to 3 construct or not according to your business decision? 4 MR. BAKER: That is correct. Just to go off 5 what Ms Galbraith just said, it is really a question of 6 timing in terms of whether it is 2001 or 2002. But it 7 is clear that we will have additional long-term demands 8 no later than a year from now that will require the Owen 9 Sound to Brantford section. 10 MS LEA: Let's talk a little bit about this.=20 11 One of the reasons that you thought that it would be a 12 good decision to build a second section this summer, 13 would you say, is to reduce capital costs. Do I 14 understand that you believe there is an opportunity to 15 build this pipeline at a capital cost which is less than 16 you would usually have to pay if you construct it this 17 summer? 18 MR. BAKER: I think directionally that is 19 right. It is less than we would have to pay if we 20 waited and deferred construction until 2002. 21 MS LEA: Why? 22 MR. BAKER: A large portion of that $10 23 million of savings is attributable to the fact that 24 there are synergies and contractor cost savings 25 associated with constructing two sections concurrently 26 or consecutively in one year. There is a large portion 27 of that $10 million that is related to that benefit. 28 To the extent that we were to not construct =0C 33 PANEL NO. 1, ex (Lea) 1 this year, but to construct next year in 2002 and only 2 construct that one section, that synergy benefit would 3 be lost. 4 MS LEA: I know that you are not the panel for 5 economics, but can you tell me if Union has actually 6 done a cross-comparison yet of building one section and 7 satisfying it firmly from the fact of demand on winter 8 peaking service and building those sections this summer? 9 MR. BAKER: I really can't speak to that. I'm 10 not sure whether that has been done or not. 11 MS LEA: All right, I'll ask the next panel. 12 MR. LESLIE: Ms Lea, if I might, two things.=20 13 One, I think Mr. Mallette can help you with that and, 14 two -- and I meant to do this earlier and I apologize -- 15 there is a letter dated February the 2nd that was sent 16 to the Board which attached updated evidence on costs 17 and economics. 18 MS LEA: Yes, we have that. 19 MR. LESLIE: My point at this juncture was to 20 ask whether or not that should be marked as an exhibit. 21 MS LEA: Was it an update from (off 22 microphone...) 23 MR. LESLIE: It updates evidence, but it 24 doesn't update any specific schedule or section, I don't 25 think. 26 MS LEA: It has been marked as an exhibit, 27 actually, as Exhibit 11.1 on the existing exhibit list. 28 MR. LESLIE: That is fine. Thank you very =0C 34 PANEL NO. 1, ex (Lea) 1 much. 2 MS LEA: So, it is listed in 11.1. 3 MR. LESLIE: Because Mr. Baker's $10 million 4 comes from that document. 5 MS LEA: Okay. But I understand that the next 6 panel is going to assist me with whether any such (off 7 microphone...) 8 MR. LESLIE: I plan to ask Mr. Mallette to 9 take us through this document and give you some 10 explanation. Then he will be available to follow up. 11 MS LEA: Thank you. Mr. Baker, as we 12 understood the evidence, there was some indication in 13 the evidence that next summer Union was contemplating 14 constructing yet another loop in order to complete the 15 full looping of the Trafalgar line. Do I understand 16 that correctly? 17 MR. BAKER: I am not entirely sure. That may 18 be right. 19 MR. LESLIE: Ms Lea, Mr. Baker didn't know he 20 was going to be here until fairly recently. Mr. Hyatt 21 can help you with that. I think the evidence is fairly 22 clear. 23 MS LEA: The evidence indicates, Mr. Leslie, 24 that (off microphone...) 25 MR. LESLIE: That is correct. I think Brooke 26 to Strathroy is what is indicated in the evidence. 27 MS LEA: My question to Mr. Baker is: If that 28 is in fact the plan, will not the synergies be available =0C 35 PANEL NO. 1, ex (Lea) 1 for constructing two sections next summer? 2 MR. BAKER: That is the plan, but as we sit 3 right now there is no assurance definitively that there 4 will be sufficient demands materialize in 2002 to 5 justify that other section to Strathroy. What we are 6 assured of ourselves is that there will definitely be 7 enough long-term demand in 2002 to fill the Owen Sound 8 to Brantford section, but we have no certainty at this 9 point that there will be enough demand to build the 10 Brooke to Strathroy section. 11 MS LEA: I understand. So the demand from 12 Brooke to Strathroy is much less certain than the demand 13 that you foresee for Owen Sound-Brantford. Is that 14 right? 15 MR. BAKER: That is right. 16 MS LEA: Who is the witness that I should ask 17 more about that plan? 18 MR. BAKER: Mr. Mallette. 19 MS LEA: I would understand, Mr. Baker, that 20 the plans are driven by the experts? 21 MR. BAKER: That's correct. 22 MS LEA: One moment, please. 23 ---Pause 24 MS LEA: Can I ask you, then, could you have a 25 look with me at Section 4, Schedule 10. I don't know 26 whether Ms Galbraith or Mr. Baker has something better. 27 (Off microphone...) I am just trying to 28 understand what you know about 2002-2003 demand at this =0C 36 PANEL NO. 1, ex (Lea) 1 time. 2 MS GALBRAITH: Once again, we will deal with 3 the WPS amount that we would have shown in the chart 4 that we looked at before. So we have the 21,000 that is 5 a component of the W0001 requirement. 6 MS LEA: Yes. 7 MS GALBRAITH: So, we will deduct that out of 8 there. We have every confidence in the world that the 9 numbers showing for consumers Enbridge and Union will 10 materialize. It is an historical essentially fact that 11 the small customer growth is approximately 60 to 75 12 million a year in Ontario. That is the load we are 100 13 per cent confident on. 14 The other loads, we are working on them.=20 15 There are a lot of circumstances in the market right now 16 that are still -- 17 MR. BAKER: I think what it suggests to you is 18 that if the certainty around, as Ms Galbraith spoke to, 19 the Enbridge, Consumers Gas and the Union demand 20 materializes, then in all likelihood, if that was all 21 that materialized, that would lead you to meet that 22 demand through a winter peaking service. 23 The larger portion of the other, which is less 24 certain at this point in time, we need to see how the 25 market develops on that in terms of whether we will in 26 fact have enough support to construct the Brooke to 27 Strathroy section. 28 MS LEA: I would like to discuss with you to =0C 37 PANEL NO. 1, ex (Lea) 1 some degree what you said about the demand for power 2 projects and other factors that have been driven by the 3 increasing gas prices. At the time that you did your 4 forecast and the demand forecast, as I understand it, we 5 had a somewhat rosier economic outlook in this area of 6 the continent and also gas prices were a lot lower. 7 What have you seen in terms of those factors 8 in terms of demand for the 2001-2002 winter? 9 MR. BAKER: We haven't seen anything yet 10 because that's next winter. 11 MS LEA: So that no one who needs 12 transportation has backed off because of the rising gas 13 prices and their belief that they may not have the 14 customers they think they have the next winter? 15 MS GALBRAITH: Not the new projects, which 16 would have been what we would have -- if there was a new 17 project, that would have backed off. But existing 18 projects will still make their marginal decision based 19 on the gas versus oil at that point. 20 Our belief is for next winter that the gas and 21 oil, gas will still be a strong commodity. It will 22 still be expensive, but oil will be in balance with it. 23 For this coming winter, some of the load that 24 we forecast as other was for our projects in the 25 northeast. 26 MS LEA: When you say "this coming winter", 27 that's 2001 -- 28 MS GALBRAITH: 2001 commencement. Those power =0C 38 PANEL NO. 1, ex (Lea) 1 project are why we backed off on the 117,600, the 2 long-term number, and have marketed some shorter term in 3 order to bridge. Those new projects, some will commence 4 next year, but we don't expect that we will necessarily 5 secure the new projects in the northeast for next 6 winter. Not that we are not going to try, but there 7 seems to be a general trend that they are pushing back. 8 MS LEA: And this has affected your 9 anticipation of how much of that 117,600 gigajoules per 10 day will be actually firmly taken up during the 11 2001-2002 winter? It has affected your assessment of 12 that? 13 MS GALBRAITH: We had 42,000 of it taken up. 14 MS LEA: Looking more broadly, not just at 15 independent power projects, but at transportation 16 customers at large, if I can put it that way, the 17 dramatic rise in the price of natural gas, have you 18 observed that this will reduce the consumption of 19 natural gas and, in your forecasting of the demand for 20 2001-2002 winter and beyond, have you adjusted your 21 anticipation, your forecasted demand for that factor? 22 MS GALBRAITH: That factor doesn't really 23 affect the peak day consumption, which is what the Dawn 24 Parkway system serves. 25 MS LEA: But could this not be sensitive, in 26 general? 27 MS GALBRAITH: Generally speaking that is 28 right. Customers are generally more interruptible.=20 =0C 39 PANEL NO. 1, ex (Lea) 1 They will back off their supply where possible if the 2 plant is not taking the volume. So if you reduce the 3 supply, you reduce the take, you are into a net 4 indifferent situation. 5 MS LEA: Are you telling me then that the 5.8 6 million gigajoules per day is taken up almost entirely 7 or entirely by heat sensitive customers on the one day? 8 MS GALBRAITH: Almost. 9 MS LEA: Do any of these customers have fuel 10 switching capability? 11 MS GALBRAITH: It is not substantial. 12 MR. BAKER: Going back to the point that, even 13 to the extent that average annual consumption were to go 14 down from a heat sensitive market, may have very little 15 impact on peak day, which is why we designed the system. 16 I was also going to say that, to the extent 17 that we have commercial and industrial customers that 18 are fuel switchable, the issue really becomes are they 19 going to reduce their contract demand with Union based 20 on what they are seeing currently in terms of higher gas 21 prices? And at this point in time we don't know, we 22 haven't gone through contract renewal for the most part 23 for those customers. 24 It may very well be that they retain their 25 existing contract demand and they still offload gas for 26 oil when the economics dictate. But because the 27 contract demand stays where it is, it still has an 28 obligation to serve that demand to those customers. =0C 40 PANEL NO. 1, ex (Lea) 1 MS LEA: Mr. Gardiner, I think you had 2 something you wanted to say. 3 MR. GARDINER: I just wanted to say that, for 4 the core market -- the three-quarters of a million 5 residential, commercial and small industrial customers 6 that are served by the Trafalgar system in the Union 7 franchise -- on peak day, that is minus 25 degrees on 8 average, a very cold day, that furnace use is not 9 affected by the price of gas. People try to keep their 10 homes as warm as they can given the temperature outside.=20 11 It is true that the high gas prices that we are seeing, 12 and that Lynn Galbraith alluded to going forward, will 13 affect annual throughput but it does not affect the peak 14 day demand. 15 I want to point out that we are talking about 16 design day, which is not just the coldest day of the 17 year but it is actually a day that is designed on 44 18 heating peak days which is about minus 25, which is very 19 cold. 20 MS LEA: And windy. 21 MR. GARDINER: Yes. 22 MS LEA: What about the possibility of people 23 obtaining their gas from other sources, for example, 24 from decoked gas fields or from other pipelines not 25 using the Trafalgar line as their transportation to 26 these markets? Is there any possibility that those 27 forms of gas will reduce the demand for gas travelling 28 to Trafalgar? =0C 41 PANEL NO. 1, ex (Lea) 1 MS GALBRAITH: Not in the next few years. 2 MS LEA: Could you elaborate on that? 3 MS GALBRAITH: Well, east coast gas -- the 4 Maritimes gas currently is committed virtually to the 5 market in the north-east. The north-east, similar to 6 Ontario, continue to grow and the heat sensitive peak 7 day loads continue to grow at a phenomenal pace. 8 On a design day, which is what the facilities 9 need to protect, there is not an abundance of excess 10 type in the market place. People who have an obligation 11 to serve the city of New York when it is cold -- and it 12 is probably colder than Ontario -- don't have the 13 ability to say, "I am not going to put my gas into New 14 York so I can slip it back into Ontario." They will do 15 that on all the other days but there is not the design 16 infrastructure in our system right now for parties to do 17 that. We do not have fat anywhere in this continent on 18 design day at the present time. 19 MS LEA: But if you chose to construct both of 20 those pipelines, you would at least have some 21 flexibility in respect of the impact of the design. Is 22 that right? 23 MS GALBRAITH: Only to the extent that we 24 don't commit to sell about 54 million a day firm. Keep 25 in mind that during some of these periods -- with high 26 gas prices and with companies having a hard time getting 27 capital -- there has been a lot of cost cutting 28 generally speaking in looking at shorter term =0C 42 PANEL NO. 1, ex (Lea) 1 arrangements to manage the situation. 2 We are losing a bit of the security for 3 supply, issue that people would have -- not at Union so 4 much but I would say definitely in the state of New 5 York, people are sacrificing serving some of their load.=20 6 They are rotating boilers; they are taking more chances 7 that they will interrupt those types of customers more 8 often. So when we say that we will excess flexibility, 9 I am not unconvinced that that 54 million won't be used 10 to serve a market that requires it on a firmer basis 11 than it has it now. 12 MS LEA: Thank you. I have more questions on 13 that area but I will keep them for later on. I have 14 some other questions. 15 Madam Chair, I don't know when you wanted to 16 take a break. Would it be convenient to break at 11? 17 THE PRESIDING MEMBER: Is that convenient with 18 you, Mr. Leslie? 19 MR. LESLIE: Yes, of course. 20 THE PRESIDING MEMBER: We will have a break 21 for 15 minutes and reconvene at a quarter after 11. 22 --- Upon recessing at 1100 23 --- Upon resuming at 1122 24 MS LEA: Thank you. 25 Mrs. Galbraith, the way I understood your 26 evidence, I would describe you as confident that if 27 Union receives approval for and builds the second 28 section of line, the Owen Sound to Brantford section of =0C 43 PANEL NO. 1, ex (Lea) 1 the line, you are confident that sufficient demand will 2 arise to utilize that capacity. Do I understand your 3 evidence correctly? 4 MRS. GALBRAITH: Yes. 5 MS LEA: Does that opinion take into account 6 the factors that I discussed somewhat with Mr. Baker, 7 and economic downturn and a large increase as we have 8 seen in Massey(ph) in the price of gas. 9 MRS. GALBRAITH: Yes. 10 MS LEA: And your confidence is not shaken by 11 those events with respect to either of these 2001/2002 12 year or future years in terms of sending the capacity of 13 the two sections that we are talking about here today? 14 MRS. GALBRAITH: Oh, no. They will be remain 15 full. 16 MS LEA: And what makes you so confident about 17 that? 18 MRS. GALBRAITH: Well, a number of factors.=20 19 One is when we look at the history of gas prices and we 20 understand the current state of affairs that there are 21 right now, there is a slow down in the level of 22 production meets the level of supply. And we do have to 23 look at the economy as global. We know that production 24 is happening at crazy levels in terms of well drilling 25 and all of those other things. So that we know that the 26 gas prices at these levels that they are today will come 27 back into balance within a year or two. 28 The heat value load is the heat sensitive =0C 44 PANEL NO. 1, ex (Lea) 1 load, which is primarily what the design load 2 represents, is not going to be switching off gas because 3 it's alternatives are every bit as extensive in the 4 short run. That is really the biggest factor is the gas 5 balance will come back into balance within a one to two 6 year time frame and the market requires this capacity 7 now. 8 MS LEA: Okay. Thank you. 9 In terms of the physical capacity of the 10 pipeline, I gather I should address those questions to 11 Panel No. 2 rather than this one. All right. 12 So I understand then for any demand that is 13 not satisfied by the pipe, the physical capacity, you 14 will still be using some winter peaking service and you 15 plan to use some winter peaking service in the year 16 2001/2002. Am I correct? 17 MRS. GALBRAITH: No. 18 MS LEA: All right. 19 MRS. GALBRAITH: We are not planning on using 20 winter peaking service for 2001/2002. We conducted the 21 winter peaking service to get back to the 54,000.=20 22 Should we build only one section we would require the 23 purchase of some WPS. 24 MS LEA: I tell you why -- perhaps I can 25 direct you to the schedule before we go further.=20 26 Section 4, Schedule 8, please. 27 MRS. GALBRAITH: I have it. 28 MS LEA: Okay. If you look at winter =0C 45 PANEL NO. 1, ex (Lea) 1 2001/2002 capacity at the very top of that bar, you see 2 WPS 21,000 gigajoules per day. We had assumed in 3 reading that number that that meant that you felt that 4 you had demand that had to be satisfied by some WPS in 5 2001/2002 over and above the capacity of the pipeline? 6 MRS. GALBRAITH: No, when I did my direct at 7 the front when we talked about the other load of 8 117,600 -- 9 MS LEA: Yes. 10 MRS. GALBRAITH: -- and I deducted the 42,000 11 which -- 12 MS LEA: I understand now. 13 MRS. GALBRAITH: -- left the 70-some. So you 14 can deduct that amount off both charts. 15 MS LEA: Thank you. That is helpful. I guess 16 I had written it in my notes but I hadn't gotten around 17 to figuring out exactly what it meant with respect to 18 that chart. Okay. 19 Now, there was something else I didn't 20 understand on Section 4, Schedule 8, whether it is this 21 panel or the next, I don't know. That is also in the 22 capacity column and it's a little wee bit, just above 23 what is marked as winter 2000/2001 capacity and that is 24 Parkway ST 9301, to the left of that column. What is 25 that? 26 MRS. GALBRAITH: That is the gas that comes in 27 at the east end of the system and I am just going to 28 turn to Section 4, Schedule 6. =0C 46 PANEL NO. 1, ex (Lea) 1 MS LEA: Yes. Good, I was going to turn you 2 to it if you hadn't. 3 MRS. GALBRAITH: Well, good. It's nice we are 4 going in the same direction. 5 MS LEA: Let me just have a -- thanks. Okay, 6 go ahead. 7 MRS. GALBRAITH: And if you look at the very 8 bottom line on that schedule which says forecast of 9 Design Day deliveries at Parkway -- 10 MS LEA: Yes. 11 MRS. GALBRAITH: -- these are the obligated 12 volumes that come in at the east end of the system. And 13 I will just step back one second. Understand that the 14 total physical demand or the physical amount of the 15 Dawn-Parkway system consists of two items. One is the 16 physical pipe in the ground plus additional capacity by 17 delivering the FT volumes into Union's system at 18 Parkway. 19 MS LEA: What does "FT" stand for? 20 MS GALBRAITH: Firm transport. It is only 21 applicable if there is gas in the pipeline. 22 MS LEA: I don't understand that last phrase. 23 MS GALBRAITH: Well, if we have an obligation 24 to deliver 100 units -- I will just give maybe a very 25 easy example -- let's pretend we have an obligation to 26 deliver to consumers 100 units from the Dawn Parkway 27 system, and that is the only contract we have on that 28 system, and that Union has purchased for its system =0C 47 PANEL NO. 1, ex (Lea) 1 customers 50 units of FT off Trans-Canada for delivery 2 into our system at Parkway. 3 What we can do on the design day, if we know 4 we are putting gas into that system, is to deliver those 5 50 units to consumers at Parkway and give it to them 6 there, and then we will deliver 50 units down the 7 Dawn-Parkway system. 8 So, consumers seize receipt of 100 units from 9 Dawn to Parkway, which we have managed, by physical 10 pipe, of 50 units and giving them firm gas at the other 11 end. 12 Are you comfortable with that? 13 MS LEA: Yes, I think I understand that. 14 MS GALBRAITH: So, that is why the FT is 15 relevant. We are showing for this coming winter an 16 increase of 9,000 units a day. 17 MS LEA: An increase, that is? 18 MS GALBRAITH: Yes. 19 MS LEA: If we just, then, look at the 20 schedule you referred us to, Section 4, Schedule 6, 21 Forecast of Design Day Deliveries at Parkway, if we look 22 at the present winter, it is 771.2000 gigajoules per day 23 for this present winter? 24 MS GALBRAITH: Yes. 25 MS LEA: That's anticipated being delivered in 26 that fashion? 27 MS GALBRAITH: Yes. 28 MS LEA: And then an increase, as you say, of =0C 48 PANEL NO. 1, ex (Lea) 1 9,000 or 9.3000 gigajoules per day, bringing us up to 2 780.5000 gigajoules per day for the winter of 2001-2002? 3 MS GALBRAITH: Yes. 4 MS LEA: Just to be a little simplistic about 5 this, is this gas that Union has purchased out west that 6 Trans-Canada is bringing in and delivering at Parkway, 7 or is this gas owned by other people that you don't now 8 have to deliver? 9 MS GALBRAITH: It is definitely gas that has 10 an obligation to be delivered at Parkway, whether it's 11 Union's contract or a contract held with an REM or an 12 industrial gas. 13 MS LEA: And what is an REM? 14 MS GALBRAITH: Retail energy marketer. 15 MS LEA: There is going to be gas arriving at 16 Parkway. It's committed to be delivered there? 17 MS GALBRAITH: And it's being delivered under 18 a firm transport arrangement. 19 MR. BAKER: Under existing direct purchase 20 arrangements on Union's system, there is an obligation 21 to deliver firm gas in the Union system. So, it's 22 within the firm obligations within the direct purchase 23 contract. 24 MS LEA: There was something I didn't 25 understand in Section 4, page 4, paragraph 16 of the 26 evidence relating to this topic. 27 MS GALBRAITH: Yes. 28 MS LEA: Section 4 of the evidence, page 4, so =0C 49 PANEL NO. 1, ex (Lea) 1 it's the actual test part of the evidence. Page 4, and 2 it's paragraph 16. Under "Design Day Deliveries at 3 Parkway," paragraph 16 I'm not sure I understand. It 4 says: 5 "Moving into the future, the parties..." 6 Now, what parties are we talking about here? 7 MS GALBRAITH: In paragraph 15 above, the 8 parties are defined as including infranchised customers, 9 marketers serving infranchised customers, and volumes 10 Union had delivered for infranchised customers. 11 MS LEA: So, these are the sources of the gas 12 that is being brought into Parkway? 13 MS GALBRAITH: Yes. 14 MS LEA: So, paragraph 16: 15 "Moving into the future, the parties may 16 commit to deliver at Parkway for peak days and 17 may request that Union find ways to provide 18 additional options as to where they deliver 19 their volumes..." (As read) 20 In other words, somewhere else than 21 Dawn-Trafalgar? 22 MS GALBRAITH: Or at Ojibway or off Vector or 23 Blue Water, the CMS interconnect, or at Dawn from 24 Trans-Canada there. So, it could be any number of our 25 interconnects with other pipelines that they would want 26 to bring in other supplies. 27 MS LEA: But these are points west. In other 28 words, that means that they are not being delivered to =0C 50 PANEL NO. 1, ex (Lea) 1 Parkway any more and you have to find some transport for 2 them to Parkway. 3 MS GALBRAITH: That's absolutely correct. 4 MS LEA: Okay. 5 MS GALBRAITH: We need to hold that thought. 6 MS LEA: Okay. Then the last sentence: 7 "As the future needs of customers are not 8 yet known --" 9 Now, are we talking about these parties who 10 may want what I am going to call delivery points 11 flexibility because that's what you have called it. 12 MS GALBRAITH: Yes. 13 MS LEA: Those are the customers. This has 14 not been factored into the current evaluation. Now that 15 I didn't understand because I thought for this present 16 year -- pardon me -- for the year we are talking about, 17 2001-2002, some deliveries at Parkway have been factored 18 into the evaluation. Are you talking here about future 19 future use? 20 MS GALBRAITH: Yes. 21 MS LEA: Can you clarify this sentence? 22 MS GALBRAITH: Yes. It would be primarily we 23 don't know what's going to happen post this year though 24 this year still has an element of uncertainty attached 25 to it. 26 MS LEA: Sorry. This year being 2001-2002? 27 MS GALBRAITH: Yes. 28 MS LEA: Okay. Yes. And so there is still =0C 51 PANEL NO. 1, ex (Lea) 1 some uncertainty as to this year. 2 MS GALBRAITH: Yes, because there is a six 3 months notice only required to not renew a Trans-Canada 4 FP contract. 5 MS LEA: But aren't we pretty well -- yes, 6 okay. 7 MS GALBRAITH: We are more than six months 8 from November 1. 9 MS LEA: Yes. I understand. And in years in 10 the future then after 2001-2002. 11 MS GALBRAITH: Well, no. That's more as we 12 move down the chain of getting closer to the date. 13 MS LEA: So please explain to me then how this 14 factor sets the capacity that you need after 2001-2002. 15 MR. BAKER: Let me try with an example. To 16 the extent that we have a customer today that is 17 delivering a hundred units under the direct purchase 18 contract at Parkway and they want to move some portion 19 in that volume to Dawn because that's their preferable 20 point to supply, at Dawn, and arrange their supply. 21 To the extent that they move 20 units away 22 from Parkway to Dawn, we have to replace that with 23 physical capacity to maintain our east end obligations 24 at Parkway. What this is really saying is we try to 25 work with customers the best we can. That came out in 26 the unbundling hearing in terms of delivery point 27 flexibility. 28 What we have tried to get across to customers =0C 52 PANEL NO. 1, ex (Lea) 1 is to the extent that they want to move their supply 2 from Parkway to Dawn, they need to let us know because 3 we will need physical capacity from Dawn to Parkway to 4 keep our system whole in terms of our east end 5 obligations and those things that we haven't yet 6 factored in or anticipated in terms of the future of 7 Dawn, physical Dawn-Parkway capacity. 8 MS LEA: Okay. So let me try to get my head 9 clear about this. For the year 2001-2002, you have 10 assumed that there will be -- well, sorry, I just lost 11 that schedule -- It's Schedule 6, isn't it? 12 MS GALBRAITH: Yes. Section 4 of the 13 schedule, Section 6. 14 MS LEA: So for 2001-2002 you have assumed 15 that there will be design day deliveries at Parkway. 16 MS GALBRAITH: Yes. 17 MS LEA: Seven hundred and eighty thousand 18 gigajoules per day. Right? 19 MS GALBRAITH: Seven hundred and eighty 20 thousand gigajuoles per day. 21 MS LEA: Okay. But for the future years, when 22 we look at Section 4, Schedule 6, we also see that you 23 have assumed a standard amount of 770.8 thousand 24 gigajoules per day of design day delivery at Parkway.=20 25 Are you assuming then that that is the amount you will 26 be receiving at Parkway? 27 MS GALBRAITH: That's the assumption for this 28 application. Yes. =0C 53 PANEL NO. 1, ex (Lea) 1 MS LEA: So you have not made the assumption 2 that everyone will want to do their deliveries somewhere 3 else. 4 MS GALBRAITH: That's correct. 5 MS LEA: How have you made this estimate of 6 how much design day deliveries at Parkway will remain 7 past the 2001-2002 year? 8 MS GALBRAITH: That would have been a decision 9 made by our gas supply planning group. I can't speak as 10 to the details, but I would suspect it's primarily 11 because there's only so much capacity that exists in the 12 world. To some extent, if you totally move off of one 13 pipeline, it doesn't necessarily mean that there is 14 going to be another pipeline come on. 15 To meet the base economic needs of your 16 system, you are going to pretty much expect that if you 17 have taken a longer term position that all continues to 18 move that way. 19 MS LEA: Okay. You are going -- 20 MS GALBRAITH: There likely will be some 21 directional movement. 22 MS LEA: So I guess the point is they have 23 looked at history and consumer trends and tried to make 24 their best estimates. 25 MS GALBRAITH: Yes. 26 MS LEA: Okay. Now, for the 2000-2001 year 27 which we are presently in and that heating season, you 28 have a figure on section 4, Schedule 6, of 771.2 =0C 54 PANEL NO. 1, ex (Lea) 1 thousand gigajules per day of this type of delivery. Is 2 that still an accurate number as far as you know? 3 MS GALBRAITH: Yes. 4 MS LEA: Thank you. There is another phrase 5 in the interrogatories which I think relates to this and 6 I wasn't sure that I understood it. I would like you to 7 turn please to Interrogatory No. 14 from Board staff.=20 8 The phrase that I didn't understand was the very last 9 phrase in the answer to number two where we talk about 10 design day deliveries. The last sentence reads: 11 "TCPL would transport these volumes 12 through their northern Ontario facilities 13 to Parkway." (As read) 14 And it is this subsequent phrase that I don't 15 understand: 16 "Or the portion of the volumes they have 17 contracted as M12 from Dawn to Parkway." 18 (As read) 19 Are we referring to TCPL as the "they" there? 20 MS GALBRAITH: Yes. 21 MS LEA: So instead of actually physically 22 delivering, they would say, "All right, we have a 23 certain amount coming down the Trafalgar line that we 24 have contracted as an M12 customer. Instead we will 25 just sub that in for the amount that we would be 26 delivering?" 27 MS GALBRAITH: Yes, it would show as being a 28 delivery by TransCanada at the Parkway, and there would =0C 55 PANEL NO. 1, ex (Lea) 1 show on Union's book a movement of gas for TransCanada 2 along the system, the Parkway. 3 MS LEA: I am just having a look at some 4 questions here. Your complication on when your peaking 5 services change -- I just need to look at some of my 6 questions, one moment please. 7 I would like to move to another topic which we 8 found somewhat confusing, at least at first, and that 9 begins at Section 3, Schedule 3, page 1. That is the 10 TCPL release. 11 MS GALBRAITH: Can we go through that again? 12 MS LEA: Section 3, Schedule 3, page 1, which 13 is a letter from TCPL dated September 18 -- here I am 14 using acronyms -- I think everybody knows that TCPL is 15 TransCanada Pipelines. In this letter they indicate 16 that they have released a certain amount of their 17 capacity on Dawn Trafalgar for three years. Am I 18 understanding this letter correctly? 19 MS GALBRAITH: Yes. 20 MS LEA: Is it also true to say that we do not 21 know past three years whether they will continue to want 22 to release this amount? 23 MS GALBRAITH: Yes. 24 MS LEA: Okay. In Interrogatory Nos 8 and 25 15 -- you don't have to turn all these up, but I am just 26 putting them on the record so we know where to find 27 it -- Interrogatories 8 and 15 and Supplementary 28 Interrogatories 3 and 7, you explain that this capacity =0C 56 PANEL NO. 1, ex (Lea) 1 has been used by other customers to give them delivery 2 point flexibility. Can you explain this please? 3 MS GALBRAITH: Customers do want to purchase 4 some of their supplies at Dawn. Because of the level of 5 price discovery, many parties view it as a supply point.=20 6 It is easier to mitigate gas supply volumes at Dawn than 7 at Parkway because of the amount of liquidity. So it 8 does give a customer some choice and some portfolio 9 diversification. 10 Recognizing that customers wanted to do this, 11 we have come up with a proposal that said: If you want 12 to not to deliver your obligated volumes at Parkway -- 13 MS LEA: Sorry to interrupt: So these are 14 customers that were obligated to deliver a certain 15 number of volumes at Parkway? 16 MS GALBRAITH: Yes. 17 MS LEA: Already? 18 MS GALBRAITH: Yes. 19 MS LEA: Okay, go ahead. 20 MS GALBRAITH: But they were required under 21 the terms of their contract to obligate their deliveries 22 at Parkway to ensure that there was gas for those 23 contracts on peak days, and they wanted to move their 24 gas to Dawn. That meant that we would require a 25 physical or other solution before the east end 26 deliveries impact. 27 TransCanada reviewed its requirements given 28 the amount of the contracting that it experienced over =0C 57 PANEL NO. 1, ex (Lea) 1 the past year and said, "Union, yes, I can help you with 2 this. I will assign back 150 million a day." We went, 3 "And I want relief from my demand charges to do that."=20 4 We came to the board with a proposal with the customer 5 saying that if the customers basically pick up the cost 6 to move and ensured that we had the capacity available 7 to hold the east end delivery pool, they could then have 8 Dawn as the delivery point. 9 MS LEA: Okay. So can I summarize a little 10 bit in terms of its ramifications on this case by saying 11 that although TCPL has released its capacity for three 12 years, your evidence is that that capacity has and will 13 be fully utilized by those customers seeking delivery 14 point flexibility? 15 MS GALBRAITH: Yes, ma'am. 16 MS LEA: Has it been used this winter for that 17 purpose? 18 MS GALBRAITH: Yes. 19 MS LEA: Was it fully utilized this winter for 20 that purpose? 21 MS GALBRAITH: Yes. 22 MS LEA: What are your predictions in terms of 23 its utilization for the 2001-2002 winter? 24 MS GALBRAITH: For the term of that agreement 25 it will be utilized 100 per cent. 26 MS LEA: And by those customers for the 27 purpose of delivery point flexibility? 28 MS GALBRAITH: Yes. =0C 58 PANEL NO. 1, ex (Lea) 1 MS LEA: Okay. I didn't understand something 2 in Interrogatory No. 8 from Board staff. In 3 Interrogatory No. 8 from Board staff I didn't understand 4 the last sentence. You have explained about the TCPL 5 release and how that has been taken up by customers 6 wanting delivery point flexibility. But the last 7 sentence says: 8 "Union did not reflect these changes in 9 the filing as there was no decision on 10 the Performance Based Regulation 11 Hearing." (As read) 12 I don't understand that sentence. 13 MR. BAKER: I think that might have been more 14 appropriately described as a final decision in terms of 15 the unbundling as well that was tagged to the PBR 16 hearing. 17 MS LEA: Okay. 18 MR. BAKER: So the whole issue of delivery 19 point flexibility was something that was addressed in 20 the unbundling portion of that proceeding. We had an 21 agreement from all parties to do that, and that was 22 filed with the Board. The Board has accepted the ADR 23 agreement, but it will be something that will be ruled 24 on in total as part of the PBR exhibit. 25 MS GALBRAITH: But I think it is as simple as 26 well as saying, if you were to look at Section 4, 27 Schedule 11, where we show the levels of transportation 28 on the system -- =0C 59 PANEL NO. 1, ex (Lea) 1 MS LEA: One moment. Yes. 2 MS GALBRAITH: -- that the TCPL contract 3 demand number of the three ninety-eight thirteen was not 4 revised downwards. 5 MS LEA: I'm sorry; I don't see where that 6 number is. 7 MS GALBRAITH: Okay. If we go to the M12 8 Transportation -- 9 MS LEA: Yes. 10 MS GALBRAITH: -- and zip down to the second 11 block that has Parkway as the delivery point -- 12 MS LEA: Yes. 13 MS GALBRAITH: -- we look and we see the name 14 "TCPL". 15 MS LEA: I have the number now. Thank you. 16 MS GALBRAITH: Okay. Their contract level on 17 our system is three ninety-eight thirteen. We did not 18 revise that number down by the one sixty-three. Had we 19 done that, we would have just showed another line, that 20 called "delivery point flexibility", as the pretend 21 contract customer on the system for the one sixty-three.=20 22 So it would have been a net impact of nothing. 23 MS LEA: I understand. 24 So in this filing, then, you simply left those 25 volumes as unreleased by TCPL. 26 MS GALBRAITH: Yes. It had no revenue or no 27 volumetric impact. 28 MS LEA: You have indicated in your evidence =0C 60 PANEL NO. 1, ex (Lea) 1 here today and also in Supplementary Interrogatory No. 3 2 from Board staff, that the customers who have received 3 this delivery point flexibility will pay for the costs 4 associated with this flexibility in their rates. 5 How does that happen? How can you do that 6 with PBR? 7 MR. BAKER: That was part of what was agreed 8 to in the unbundling ADR agreement, that in return for 9 granting customers delivery point flexibility to move a 10 portion of their volume to Dawn they had agreed 11 collectively, as an intervenor group, that they would 12 accept those costs being recovered in their rate. So 13 that rate adjustment will be something that will happen 14 to base rates as part of implementing the final rate 15 once the Board issues its PBR decision. 16 MS LEA: Okay. I think I may have to ask 17 Mr. Packer about this, but I just don't understand how 18 you ensure that that group of customers -- when you are 19 working with a PBR scheme -- how you ensure that that 20 cost is given to those customers, that they pay for that 21 in their rate. 22 Am I making something more complicated than it 23 is? 24 MR. BAKER: I think so. 25 --- Laughter 26 MS LEA: Okay. Fine. This is not 27 unprecedented. 28 What I am trying to say is -- okay. I tell =0C 61 PANEL NO. 1, ex (Lea) 1 you what, let's leave that question aside for a moment 2 and I'll come back to it. 3 MR. BAKER: Ms Lea -- 4 MS LEA: Yes? 5 MR. BAKER: -- to try to clarify it it would 6 be helpful if you would take the 163,000 GJs that's 7 contracted by TransCanada -- and under their M12 8 contract it is worth some amount, I haven't done the 9 math, say $5 million, that was agreed to as part of the 10 unbundling ADR agreement, and the parties agreed that 11 that $5 million would be recovered in rates across all 12 of the rate classes in franchise rates because we were 13 giving all infranchised customers the ability to move 14 20 per cent of their volumes, their obligated volumes at 15 Parkway, from Parkway to Dawn. 16 So, it was explicitly recognized in this 17 schedule in the unbundling ADR agreement that shows the 18 revenue that we will no longer receive from TransCanada 19 because they have assigned their capacity back to us and 20 the corresponding allocation of that amount to all 21 infranchised customers in their rates by rate class. 22 MS LEA: So, all infranchised customers are 23 paying for this delivery point flexibility? 24 MR. BAKER: That's correct. 25 MS LEA: Who is it that's utilizing this? You 26 said it was brokers and who else? 27 MS GALBRAITH: Industrial and Union for its 28 system customers. =0C 62 PANEL NO. 1, ex (Lea) 1 MS LEA: And Union for its system customers.=20 2 So, are there any infranchised customers that are not 3 utilizing, whether they know it or not, this delivery 4 point flexibility? 5 MR. BAKER: No. As part of implementing that, 6 we went out to all customers, communication. Everybody 7 was aware of the delivery point flexibility issue, and 8 parties elected, had to specifically elect so that we 9 knew what parties were actually going to move their 10 volume from Parkway to Dawn and parties elected and we 11 put those contracts in place. They are now delivering 12 at Dawn. 13 MS LEA: If you had denied those customers 14 delivery point flexibility but TCPL had released that 15 amount -- and I understand your request to TCPL was 16 driven by the customers' requests -- but if you had 17 release of that capacity by TCPL and you did not have to 18 provide delivery point flexibility, would this provide 19 you with some additional capacity along the line? 20 MR. BAKER: Yes. 21 MS LEA: How much would it provide? The 22 amount that is listed in Section 4, Schedule 6? How 23 much would it be? 24 MR. BAKER: The full amount of what they had 25 assigned back to us, the 163,000 GJs. 26 MS LEA: Did you consider or would you 27 consider the option of if TCPL is willing to continue to 28 release its capacity of denying customers delivery point =0C 63 PANEL NO. 1, ex (Lea) 1 flexibility and using that capacity to provide services 2 of transportation that are not related to delivery point 3 flexibility? In other words, using some of that release 4 space to avoid having to build your second section or 5 your third section and not allow customers delivery 6 point flexibility? 7 MR: BAKER: There are two components to that 8 question. One is what will customers want at the end of 9 the three-year agreement in terms of TransCanada 10 assigning their capacity back to Union? Will they still 11 want to continue to have delivery point flexibility at 12 Dawn or not? That is one issue we will have to deal 13 with. 14 If they do and TransCanada is still willing to 15 assign that capacity to Union, you will then use that 16 capacity to provide delivery point flexibility. 17 If they don't and we are then proceeding 18 similarly to the way we proceeded in this case where we 19 are proceeding to construct another section in the 20 future, we will, as we have done in this case, go to all 21 of our existing M12 shippers and ask them whether there 22 is any portion of the current contract that they want to 23 turn back to Union, which would then avoid having to 24 construct the facility. 25 MS LEA: My question was: Have you considered 26 the option of still seeking release from various M12 27 shippers, but requiring those customers who, at present, 28 are enjoying delivery point flexibility to deliver their =0C 64 PANEL NO. 1, ex (Lea) 1 gas at Parkway as they are required to do? In other 2 words, they may want it but you deny it? 3 MR. BAKER: We have had no discussions on what 4 will happen with delivery point flexibility at the end 5 of the current three-year arrangement. We have really 6 just recently negotiated that agreement through 7 unbundling. We have not turned our mind, either 8 ourselves or in communications with customers, as to 9 what will happen at the end of that three-year period. 10 MS LEA: I guess what I am asking is: Would a 11 denial of delivery point flexibility put off the 12 necessity of constructing one or more of the loops you 13 have planned? 14 MS GALBRAITH: In retrospect, it may were 15 TransCanada willing to do that. But that also makes the 16 preassumption, then, that the customers would have 17 maintained their FT deliveries. 18 MS LEA: Yes, that's correct. 19 MS GALBRAITH: In which case, TransCanada 20 would have required that capacity to hold the stand 21 obligation whole. 22 MS LEA: Maybe or maybe not. We don't know 23 their business. It might be that they, for some other 24 reason, had some flexibility; we don't know. 25 MS GALBRAITH: Yes, but I would suggest it is 26 not directionally the same volume as a one-for-one. 27 MS LEA: It may not be. All I was asking was:=20 28 Had you considered denial of delivery point flexibility =0C 65 PANEL NO. 1, ex (Lea) 1 in order to put off construction, and I think that your 2 answer is no, you have not because this is a recently 3 considered arrangement with these customers and you 4 don't know what is going to happen after three years? 5 MR. BAKER: I think if you wanted to assume in 6 the hypothetical that if we got to the end of the three 7 years and Union unilaterally said you're not going to 8 facilitate delivery point flexibility any more, and 9 concurrently TransCanada said we are still willing to 10 assign back to you 150 million a day or 162,000 GJs a 11 day of capacity, that would have the effect of delaying 12 potentially the need to build facilities. 13 But I suggest that those are very much 14 hypothetical for the reasons I have said earlier, that 15 we have not turned our mind, either internally at Union 16 or with the customers, and this was a large issue and a 17 bundling. My sense is that Union would not take any 18 unilateral action to say we are not going to support 19 delivery point flexibility any further, but it is 20 clearly something that we have to work with customers on 21 in terms of how we manage that at the end of the 22 three-year term. 23 MS LEA: One moment, please. 24 ---Pause 25 MS LEA: Thank you. I have some questions 26 again which perhaps may end up with Panel 2, but I 27 understand that some of the matters can be dealt with by 28 this panel, and this is the effect on ratepayers of the =0C 66 PANEL NO. 1, ex (Lea) 1 Board's decision in this case, that is, Union's 2 ratepayers obviously. 3 You said in your answers to Enbridge's 4 interrogatories -- and I think they are numbers 1 and 2 5 by Enbridge -- that you are committed to managing asset 6 utilization risk. 7 I gathered from that that what you were saying 8 was that if you built the pipe and it wasn't fully 9 utilized, that Union would manage the shortfall or the 10 risk then that that creates. Am I understanding this 11 correctly? 12 MR. BAKER: For the term of the PBR, that's 13 correct. 14 MS LEA: So, if the PBR decision substantially 15 endorses your proposal and also you get an approval from 16 this panel for this project, what happens if the 17 customers for what was originally that 117,600 18 gigajoules per day do not materialize? Will ratepayers 19 make up the shortfall in profitability? 20 MR. BAKER: No, not under the PBR proposal. 21 MS LEA: Can you explain why not? 22 MR. BAKER: Because rates will be set 23 according to a price cap. They no longer will be set, 24 as they have in the past, under cost of service where 25 you won't be going in for annual rate cases and truing 26 up all the items in our cost of service. Dawn to 27 Trafalgar facilities being one thing in this case to the 28 demand. =0C 67 PANEL NO. 1, ex (Lea) 1 So, that cost of service true up will no 2 longer happen under the PBR framework proposed by Union. 3 MS LEA: Do I understand that when you have a 4 rate cap that rates for customers cannot exceed the cap 5 but they can be in a band below that cap? 6 MR. BAKER: There has been some flexibility 7 proposed. 8 MS LEA: I'm not familiar with your proposal, 9 so pardon my ignorance of that. 10 MR. BAKER: Again, any details that you want 11 on that, Mr. Packer will be on the next panel. 12 MS LEA: I understand that. You stop whenever 13 I get to a point where I'm exceeding our combined 14 knowledge. 15 I guess what I'm trying to ask or a very 16 simplistic point of view is: If Union does have some 17 flexibility to keep rates slightly below the cap or 18 right at the cap level, would not an unprofitable 19 project have the tendency to move rates closer to the 20 cap level rather than keeping them slightly below? Is 21 this one option for Union? 22 MR. BAKER: We are really going into an area 23 that I think is very difficult for us to comment on 24 because we don't yet have the Board's decision on PBR. 25 MS LEA: That is fine. I was really just 26 talking about your proposal. 27 MR. BAKER: What we had thought was that we 28 would have the ability to separate up to a certain level =0C 68 PANEL NO. 1, ex (Lea) 1 based on whatever the price cap was and that is as far 2 as we had gone on that. 3 MS LEA: Perhaps I will follow up with 4 Mr. Packer then on that. 5 I gather that there are ways that the PBR -- 6 now, I don't know your proposal. I am just going from 7 my general understanding of PBR proposals at large and 8 so you tell me if I'm not correct about this. 9 Are there ways that a company who is operating 10 under a PBR scheme can seek, for example, recovery in 11 rates of unexpected expenses. I think that is called a 12 Z factor. For example, if there was a great rise in the 13 price of gas and therefore -- and an economic downturn, 14 let's say, and therefore the customers for this capacity 15 did not materialize, would those things that Union can't 16 control, the economic downturn, the rise in the price of 17 gas, could they be considered a Z factor? Could a 18 company come in and say this was so unexpected that we 19 need recovery in rates for what has happened here? 20 MR. BAKER: Mr. Packer can clarify if I don't 21 get this right -- 22 MS LEA: Okay. 23 MR. BAKER: -- but we had proposed a fairly 24 limited number of what you have referred to as Z 25 factors -- 26 MS LEA: Yes. 27 MR. BAKER: -- associated with our PBR 28 proposal and those items were not items that we had =0C 69 PANEL NO. 1, ex (Lea) 1 proposed be considered Z factors. But I would also say 2 that we always retain the ability to file an 3 application, whether we are on PBR or not, to deal with 4 what may be unforseen circumstances and it is then up to 5 the Board in the context of a PBR to look at that on its 6 merits and decide how it wishes to proceed. 7 MS LEA: Okay. Now, I gathered from your 8 evidence in chief and partly to your earlier answers in 9 this cross-examination that the fact that Union is 10 moving towards PBR was taken into account in continuing 11 to propose to this Board that it approved both these 12 sections. In other words, part of the rationale for 13 asking this panel to approve the second section of line, 14 which as yet we don't have committed capacity for, is 15 partly based on the fact that Union will manage asset 16 utilization risk under a PBR scheme. Do I understand 17 you correctly? 18 MR. BAKER: I think that is fair. It's 19 certainly something that we are assuming at this point 20 in time as the framework by which we are going to have 21 to operate in 2001 and beyond for some terms. 22 MS LEA: Would it not be true to say then that 23 if the Board decides to deny Union's PBR proposal, much 24 of the rationale for this second section disappears? 25 MR. BAKER: I'm not sure I would agree with 26 that because as we had talked about earlier, as we 27 said -- even as we sit here today we have over 70,000 28 GJs a day, a committed demand over and above the =0C 70 PANEL NO. 1, ex (Lea) 1 capacity that would be provided by one section. So it's 2 still not a foregone conclusion that it's the most 3 economic way to service by using (off microphone...)=20 4 And what we are really saying is that we are looking 5 at -- looking for the flexibility in all of the things 6 that we see going on in the marketplace to make that 7 economic -- to make a best economic choice. 8 MS LEA: If Union's rate were to remain on a 9 cost of service basis and none of us here can make any 10 assumptions as to what the Board's decision might be on 11 the rate case, but if it was to remain on a cost of 12 service basis, who would bear the risk for the short 13 fall of the utilization of this capacity? 14 MR. BAKER: Well, typically on the cost of 15 service, both the cost and the demands of the contract 16 associated with its abilities are taken into account in 17 determining cost of service. So to the extent that 18 there was an amount of excess capacity resulting from 19 the construction of a section and it remained 20 uncommitted in the past under cost of service, that 21 would all be factored in, in terms of setting the rates 22 for that year. 23 MS LEA: So if -- 24 MR. BAKER: I was just going to say, and I 25 think that is, in my view, that is generally why under 26 cost of service the Board, rightfully so, has looked at 27 the economics and the capacity commitments supporting 28 the section with the knowledge that if there is an =0C 71 PANEL NO. 1, ex (Lea) 1 amount that is uncommitted, that all things equal, that 2 will be something that will be brought forward in the 3 next rate application under cost of service. 4 MS LEA: And the Board can then decide whether 5 to allow recovery from ratepayers or not? 6 MR. BAKER: That is correct. 7 MS LEA: But if the capital project goes on a 8 rate base then in general ratepayers bear the risk of 9 under utilized capacity on those lines. 10 MR. BAKER: That is correct. 11 MS LEA: In your evidence you did not provide 12 us with any information about the effect on rates of 13 this proposal and I understand that your reason for that 14 was that you were proposing a PBR scheme and therefore 15 there would be no direct connection between this project 16 and rates. Am I correct? 17 MR. BAKER: That is right, and the fact that 18 we have not -- we have not completed a cost allocation 19 study for those very reasons to do that kind of analysis 20 that was requested. 21 MS LEA: Yes. Because we asked you, I think, 22 in an interrogatory for some information about that. 23 Now, is it possible, our situation right now 24 is that Union is operating on a cost of service basis 25 and until such time as the Board may accept it's PBR 26 proposal and we don't know whether that is going to be 27 accepted or not. Given the context then in which this 28 hearing is occurring, are you capable of giving us some =0C 72 PANEL NO. 1, ex (Lea) 1 understanding and some facts about the effect on 2 ratepayers under cost of service regime of this project?=20 3 And I'm not asking you to do a full fledged cost 4 allocation analysis obviously. Is it possible to give 5 us some indication of the effect on ratepayers under 6 cost of service? 7 MR. BAKER: I can tell you that in my own view 8 proceeding with the construction on the second section 9 is a very economic and justified business case and if 10 you look to table one of the updated evidence -- 11 MS LEA: Just a minute and I will find that 12 please. Maybe I have it here. I have put it somewhere 13 else. We have got about six copies of it and now we 14 can't find one. 15 Thanks very much. Okay. Tell me again, 16 Mr. Price -- I mean -- I'm sorry. Tell me again, 17 Mr. Baker. 18 MR. BAKER: When I look at the project 19 economics as updated and you can see that there's been a 20 significant improvement in the net present value. 21 MS LEA: Are we talking about Table 1? 22 MR. BAKER: Table 1. 23 MS LEA: Yes. 24 MR. BAKER: In the net present value from what 25 was filed originally versus the revised evidence and 26 much of that increase in the net present value is due to 27 the reduced cost based on updated pipeline costs and 28 construction tender costs and -- =0C 73 PANEL NO. 1, ex (Lea) 1 MS LEA: I'm sorry. I just want to stop you 2 there for a second. 3 Were there any different assumptions made as 4 to the demand between the original and the revised 5 filing? 6 MR. BAKER: No. 7 MS LEA: Okay. So it's all driven by costs 8 you are saying? 9 MR. BAKER: That is right. 10 MS LEA: Yes. Go ahead. Thanks. 11 MR. BAKER: So there has been a substantial 12 improvement in the net present value to the tune of 14 13 and a half million dollars and much of that is 14 attributable to the cost savings that are associated 15 with proceeding with constructing a second section in 16 2001 and that is again when you go and look on Table 2 17 you can see the break out of the costs -- of the cost 18 savings between each section. 19 MS LEA: Okay. 20 MR. BAKER: So even to the extent that even if 21 hypothetically you wanted to say that some of that 22 capacity would remain uncommitted for a year, it is my 23 view based on our clear understanding that it will be 24 committed within a year at the latest, that from a 25 ratepayer perspective this makes a lot of economic sense 26 to do. 27 MS LEA: Yes, I understand your evidence about 28 that but what I'm trying to understand is in the first =0C 74 PANEL NO. 1, ex (Lea) 1 year of this project, it doesn't pay for itself. Even 2 with the revised economics it's a point nine. And what 3 I'm trying to understand from this panel or the next one 4 is how does that lack of profitability or the fact it 5 doesn't pay for itself effect ratepayer rates under cost 6 of service regime in year 1. 7 MR. BAKER: I think what our evidence is, is 8 that we don't have the information to provide that. We 9 are in admittedly a little bit of a --- 10 MS LEA: A gap. 11 MR. BAKER: -- unwanted position, I guess, in 12 terms of not having a PBR decision and not knowing 13 exactly what that decision will hold. We don't have the 14 information in terms of a cost setting density to give 15 those kind of rates in fact because we have been 16 waiting, anticipating the PBR decision. 17 MS LEA: Yes. I understand your point, but 18 the point is right now you are operating under cost of 19 service. How difficult is it for you to do some kind of 20 work -- I'm not asking for a full-fledged cost 21 allocation analysis, but some work to give us some idea 22 of how much there will be as an effect on rates as a 23 result of the lack of profitability, the two sections of 24 pipeline in the first year? 25 MR. BAKER: I am going to have to defer you to 26 Mr. Packer. 27 MS LEA: That's fine. I'm happy to ask Mr.=20 28 Packer in the next panel. Thank you. I presume that =0C 75 PANEL NO. 1, ex (Lea) 1 they know they are going to be asked that. Just one 2 moment, please. 3 Just to be abundantly clear, if you don't 4 build both sections of line during this summer, whether 5 that's because of Board approval or your own choice or 6 whatever, if you don't build the second section of line 7 this summer, do you have enough capacity to service your 8 presently committed contracts with the one section? 9 MR. BAKER: No. 10 MS LEA: And you intend to fill that up with 11 winter peaking service if for some reason the second 12 section was not constructed. 13 MR. BAKER: We would have no other choice. 14 MS LEA: All right. I gather that there isn't 15 a problem with availability of winter peaking service.=20 16 It's merely a question of how much you are willing to 17 pay for it. Is that correct? 18 MS GALBRAITH: That is correct. 19 MS LEA: Now, you were here when Mr. Dreher 20 was talking about various aspects of pipeline safety and 21 requirements on the utility in regards to abandonment 22 and other issues. I didn't hear anything in his remarks 23 that I thought had to be answered by this panel and, Mr. 24 Leslie and panel members, am I correct about that, is 25 there anything that you spoke to me to address? 26 MR. BAKER: I think that's correct. 27 MS LEA: Okay. Then thank you very much.=20 28 Those are my questions for this panel. =0C 76 PANEL NO. 1, ex (Lea) 1 THE PRESIDING MEMBER: Thank you, Ms Lea. I 2 just have a couple of questions briefly for 3 clarification. 4 Mr. Baker, we are used to Union requesting a 5 quick approval for facilities applications based on 6 construction needs. We are not used to Union asking for 7 quick approval based on commercial contract needs. As 8 far as I understand it, if you want to get out there and 9 sell this capacity, if there's uncertainty as to whether 10 you will have this capacity, then there is uncertainty 11 as to the business decision as to whether you are going 12 to take the risk of not having the capacity or not. 13 From a commercial point of view, you want to 14 firm up the capacity to be able to go out and sell it.=20 15 Is that correct? Is that really the timing issue? 16 MR. BAKER: That's right. If we -- ideally, 17 if we fight from certain - 18 THE PRESIDING MEMBER: You don't want the 19 regulatory risk because you have got a certain 20 unregulatory risk right now because you have oversold 21 your present capacity. 22 MR. BAKER: That's correct. 23 THE PRESIDING MEMBER: So that present 24 capacity you are selling it by WPF and various other 25 sources, but to the extent that you -- obviously that's 26 an expensive way of doing it rather than buy the 27 increased capacity along with the Dawn-Trafalgar system. 28 Really some of the regulatory risk of this =0C 77 PANEL NO. 1 1 lack of capacity you are already bearing and to that 2 extent you want the assurance that you will have the 3 capacity, you will know what to go out and sell so you 4 won't oversell or undersell. That is a timing issue. 5 MR. BAKER: That's correct. 6 THE PRESIDING MEMBER: Then we get to 7 November. That's the last time you got to go out and 8 sell. 9 MR. BAKER: That's correct. 10 THE PRESIDING MEMBER: It may be a question 11 for the facilities panel, but as I understand it, for 12 the construction aspect of this, you need approval in 13 April. I think that was the date to be able to have it 14 in service. 15 By November, I can ask that panel. I just 16 wanted to clarify that. 17 MR. BAKER: But you are right. The main point 18 I was trying to make, and you are quite right, it's 19 different from the situation that we have typically seen 20 ourselves in in the past where we find ourselves in the 21 situation that we are with a market requirement driving 22 time as opposed to construction time. 23 THE PRESIDING MEMBER: And this would be 24 particularly true if in fact the rate panel accepts your 25 proposal or priors your proposal in PBR as far as the 26 risk is concerned. 27 MR. BAKER: That's correct. 28 THE PRESIDING MEMBER: That's correct. Thank =0C 78 PANEL NO. 1 1 you. My next question -- I think what Ms Lea was 2 getting at in her questions, and this may not be the 3 right panel either, is that whenever you have a negative 4 net present value under a cost of service regime, it's 5 going to put upward pressure on rates. Is that fair to 6 say? 7 MR. BAKER: That's correct. 8 THE PRESIDING MEMBER: So we don't know -- 9 MR. BAKER: That's correct, all other things 10 being equal. 11 THE PRESIDING MEMBER: All other things being 12 equal. That's right. We appreciate that this is a 13 short term negative net present value, that in fact if 14 the Board approves this looping and improves the other 15 loopings, you know, you get as said by Mr. McKay of 16 Board Staff, you get a bigger bang for your buck, the 17 later projects are concerned. They are going to turn 18 the net present value from a negative into a positive. 19 MR. BAKER: That's correct. 20 THE PRESIDING MEMBER: That's correct. So the 21 upward pressure on rates, we don't know the extent of 22 it, the quantity. We know that it's now at a .9 PI, 23 right, based on your revised numbers. 24 MR. BAKER: Is that a .9 PI? I just want to 25 make sure that -- that is assuming again that we 26 construct within 2001. If we were to try to re-run the 27 economics and, say, we construct each built of right in 28 01 from Owen Sound to Brantford and 02, the cost for =0C 79 PANEL NO. 1 1 Owen Sound to Brantford will be higher to construct in 2 02 than 01. If you ran a combined economics or net 3 present value, it would not be a PI .9. It would be 4 something lower. 5 THE PRESIDING MEMBER: Unless you were able to 6 get, you know, a great deal on pipeline construction as 7 you did this year by combining the Owen Sound with the 8 one that you are proposing for next year. 9 MR. BAKER: Correct. 10 THE PRESIDING MEMBER: I understand that.=20 11 Thank you. But we don't know the magnitude of the short 12 term increased pressure, upward pressure, on rates if 13 Union were under cost of service. 14 MR. BAKER: Right. 15 THE PRESIDING MEMBER: Thank you. I guess my 16 next question is that while you said everything will be 17 solved by PBR -- I know we have heard that all of our 18 problems at the Board are going to be resolved by PBR. 19 MR. BAKER: I'm not sure I can go that far. 20 THE PRESIDING MEMBER: We will all be looking 21 for other forms of employment because there will be no 22 more rates cases. 23 MR. BAKER: I don't think there's a fear of 24 that either. 25 THE PRESIDING MEMBER: Okay. Thank you, Mr. 26 Baker. The bank and I who hold my mortgage will 27 appreciate that. 28 The fact is that even with PBR there is -- if =0C 80 PANEL NO. 1 1 this is an uneconomic project, there may be -- you have 2 already said that you may come back to the Board for a Z 3 factor, for example. You are not precluding that this 4 could be a Z factor if there is a terrible problem with 5 this project. 6 MR. BAKER: No. 7 THE PRESIDING MEMBER: Or you are not 8 precluding the fact that if everything goes wrong with 9 it and none of the capacity materializes that you might 10 not come back to the Board and argue that that should be 11 an off-ramp. Is that correct? 12 MR. BAKER: No. I can say definitively that 13 we would not -- to the extent that we could not contract 14 the 54,000 GJs a day, we would not be bringing that 15 forward as a Z factor or any kind of adjustment under 16 PBR. 17 What I was trying to respond to, and obviously 18 not clear enough to Ms Lea, was that if for some 19 unforeseen circumstance we had, you know, huge gas stock 20 and they had some impact that wasn't foreseen or some 21 other impact in terms of overall contracted capacity on 22 our system, then something as large and unforeseen in 23 that nature is something that -- or may not even may be 24 defined as a Z factor under PBR is something that we 25 could apply to the Board for some relief, under PBR, but 26 in the context of this section here, it would not at all 27 be the 54,000 GJs a day as being something that we would 28 seek alternate arrangements or alternate rate treatment =0C 81 PANEL NO. 1 1 for it. 2 THE PRESIDING MEMBER: I understand. This 3 uncontracted capacity might be a factor for something 4 that would be larger that you might want to revoke and 5 to come back to the Board on that. We are not going to 6 have you back at the Board saying "We weren't able to 7 contract for this excess capacity and, therefore, we 8 want some rate adjustments for our PBR pricing". 9 MR. BAKER: I think the commitment that I am 10 trying to get clear is that we will, assuming PBR is 11 approved, we are confident managing 54,000 GJs of 12 uncommitted capacity. 13 THE PRESIDING MEMBER: Thank you. My next 14 question I guess deals with rebasing. In fact, if this 15 is an uneconomic project, then it would be taken into 16 account presumably when you come back at the end of your 17 PBR term, whatever the term is and if the board grants 18 you a PBR term. It would be a factor that would be 19 taken into account in a rebasing application when, as I 20 understand it, you essentially have to go back to 21 essentially an across the service cost allocation basis.=20 22 Is that fair to say? 23 MR. BAKER: It is fair but I would like to 24 make one point with respect to that. Again, our view is 25 that is it the capacity for our Owen Sound-Brantford 26 will be needed no later than 2002. By the time we get 27 to a rebasing scenario that capacity will be full. 28 To the extent that we are able to construct it =0C 82 PANEL NO. 1 1 in 2001 -- if things materialize as we would like to see 2 them -- all things equal under a rebasing scenario at 3 the end of whatever term of the PBR the board approved, 4 rates would be lower than they otherwise would be by us 5 taking advantage of the cost savings in 2001 as opposed 6 to delaying the construction of a facility that we know 7 is required but that will cost us in our estimation more 8 money if we delay the construction until 2002. 9 So, constructing it in 2001, recognizing those 10 cost savings and realizing those as permanent capital 11 cost savings, having the capacity forward in the time 12 frame of the PBR will actually provide benefits to 13 customers in terms of a rebasing scenario under PBR -- 14 more benefits than would be the case if we delayed the 15 construction for a year. 16 THE PRESIDING MEMBER: Yes, I wasn't speaking 17 to delaying the cost of construction, I was speaking 18 more -- 19 MR. BAKER: The whole rebasing -- 20 THE PRESIDING MEMBER: The whole rebasing and 21 the whole capacity issue, rather than the actual timing 22 of it. 23 Mrs. Galbraith, do you have something to add? 24 MS GALBRAITH: No, I particularly wanted Mr. 25 Baker to add something. 26 THE PRESIDING MEMBER: Feel free to add it 27 yourself. 28 --- Pause =0C 83 PANEL NO. 1 1 MR. BAKER: It is a point that we should 2 recognize that we are talking because we are sitting 3 here today with the two sessions that we have, to the 4 extent that there are future demands that are less 5 certain at this point in time that do drive construction 6 of other stations that are more economic within the term 7 of the PBR, when we factor all those together it is not 8 clear what the net impact will be at the end of the PBR 9 term. So this one may have a PI less than one. The 10 next one we do may have a PI greater than one. You put 11 them together and you go into a fast forward to a 12 rebasing scenario, there may in fact not be any impact 13 to ratepayers. 14 THE PRESIDING MEMBER: I appreciate that we 15 are dealing in tons of uncertainty, especially for Union 16 as far as this PBR proposal is concerned. 17 I am wondering if now might be an appropriate 18 time to break for lunch? You look shocked. Are you 19 finished with this panel? 20 MS LEA: No. 21 THE PRESIDING MEMBER: Do you think you can 22 deal with the other panel before lunch? 23 MS. LEA: No, I couldn't deal with the other 24 panel before lunch but I didn't know whether there was 25 any evidence in chief. I should hear from the second 26 panel so that I can adjust my questions over lunch.=20 27 There may not be any; I don't know. 28 MR. LESLIE: Well, there is. =0C 84 PANEL NO. 1 1 THE PRESIDING MEMBER: That is a fair point.=20 2 I apologize. 3 MS. LEA: Perhaps we could do that. 4 MR. LESLIE: I was going to ask Mr. Mallette 5 to speak. 6 THE PRESIDING MEMBER: That would be helpful, 7 thank you. I do apologize for skipping the gun, so to 8 speak. The panel is excused with our thanks. Thank you 9 very much. 10 MR. LESLIE: If I might -- 11 THE PRESIDING MEMBER: I am sorry, Mr. Leslie, 12 I forgot. 13 MR. LESLIE: I just want to make sure the 14 record is clear. You were asked whether or not if the 15 Owen Sound-Brantford section that occurs here, whether 16 there would be sufficient capacity or whether the first 17 section (off microphone...) 18 MR. BAKER: That is correct. 19 MR. LESLIE: If I might ask another. You 20 indicated that in your mind there is no doubt that, 21 whatever happens (off microphone...) 22 Again, I think very conservatively speaking, 23 we traditionally see growth on the Dawn-Trafalgar system 24 of between 50,000 to 60,000 GJs a day -- maybe slightly 25 lower, slightly higher in some years -- related strictly 26 to traditional Union infranchised growth in Enbridge 27 consumers gas. 28 So without factoring in any additional =0C 85 PANEL NO. 1 1 potential demand requirements to independent power 2 projects or demands to move gas into the US north-east 3 or any of those kinds of things, the traditional sort of 4 bare bones demand increases that we see related to the 5 Union in the Enbridge infranchised market is within that 6 range, which is at or above the level of uncommitted 7 capacity that we currently have, which is the 54,000 GJs 8 a day. 9 THE PRESIDING MEMBER: Thank you Mr. Leslie.=20 10 Now the panel is excused with our thanks. 11 Would it be your intention, Mr. Leslie, to 12 call the entire second panel for evidence in direct? 13 MR. LESLIE: With your permission, yes. 14 THE PRESIDING MEMBER: Certainly. 15 SWORN: LARRY HYATT 16 SWORN: LAURA CALLINGHAM 17 SWORN: GERRY MALLETTE 18 SWORN: MIKE PACKER 19 EXAMINATION-IN-CHIEF 20 MR. LESLIE: Mr. Mallette, if I could start 21 with you: You are Manager Pipelines Projects for Union 22 Gas? 23 MR. MALLETTE: Yes, I am. 24 MR. LESLIE: And your evidence in connection 25 with your appearance on this panel is section 5 dealing 26 with project costs? 27 MR. MALLETTE: Yes, that is correct. 28 MR. LESLIE: Do you adopt that evidence? =0C 86 PANEL NO. 2, in-ch (Leslie) 1 MR. MALLETTE: Yes, I do. 2 MR. LESLIE: Mr. Hyatt, you are Manager 3 Transmission Planning at Union Gas? 4 MR. HYATT: Yes, I am. 5 MR. LESLIE: And your prefiled evidence is at 6 sections 2, 3 and 4? 7 MR. HYATT: That is correct. 8 MR. LESLIE: And you adopt that evidence? 9 MR. HYATT: Yes, I do. 10 MR. LESLIE: Ms Callingham, you are Team 11 Leader Financial Analysis at Union Gas? 12 MS CALLINGHAM: Yes, I am. 13 MR. LESLIE: You are responsible for the 14 economic evaluation in section 5 and also at appendix A? 15 MS CALLINGHAM: That is correct. 16 MR. LESLIE: Do you adopt that evidence? 17 MS CALLINGHAM: I do. 18 MR. LESLIE: Mr. Packer, your title is Manager 19 Rates and Pricing? 20 MR. PACKER: Yes, that is correct. 21 MR. LESLIE: You have one paragraph that you 22 have to speak to, which is 5.2? 23 MR. PACKER: Yes. 24 MR. LESLIE: Do you adopt that evidence? 25 MR. PACKER: Yes, I do. 26 MR. LESLIE: Thank you. Madam Chair, Mr. 27 Mallette is prepared to do two things. One is to go 28 through the cost reductions that are in the updated =0C 87 PANEL NO. 2, in-ch (Leslie) 1 evidence and explain those in a little more detail. He 2 is also in a position to respond or to comment on some 3 of the concerns that Mr. Dreher raised. But, with 4 respect to the latter, I propose him to ask him to do 5 that in connection with the next panel, because 6 Mr. Haley will be on that panel as well and Mr. Haley 7 may be able to contribute something. 8 THE PRESIDING MEMBER: Certainly, that is 9 fine. 10 MR. LESLIE: Mr. Mallette, do you have a copy 11 of Union's letter of February 2nd and the attachment? 12 MR. MALLETTE: Yes, I do. 13 EXHIBIT NO. 11.1: Letter from Union Gas 14 Limited dated February 2 including 15 attachment 16 MR. LESLIE: That has now been marked 17 Exhibit 11.1, I believe it is. 18 If you could turn to table one, the first line 19 of that table shows a reduction in costs for pipeline 20 and equipment from the original filing of $2.9 million? 21 MR. MALLETTE: Yes, regarding the 22 $2.9 million reduction associated with the pipeline 23 equipment, the cost estimate originally filed as 24 evidence was based on historical costs. Union did not 25 count on obtaining pipe from another pipeline company at 26 that time. Although Union was aware that pipe might be 27 available, commercial arrangements had not been 28 discussed. =0C 88 PANEL NO. 2, in-ch (Leslie) 1 Union also did not anticipate the current low 2 steel commodity cost or the pipe product cost from the 3 pipe mill. Both depend on a number of factors, 4 including the no space availability competition in the 5 marketplace. And in this particular case, at the time 6 of the quote, these factors resulted in a very 7 favourable price. 8 MR. LESLIE: With respect to timing, the price 9 that's available from the other pipeline company, is 10 that a transaction that would have to be completed this 11 year if you were to go ahead? 12 MR. MALLETTE: Yes. With respect to the 13 purchase from the other pipeline company, we have a 14 Letter of Intent in place, and that Letter of Intent 15 expires on June the 1st. 16 MR. LESLIE: Is that the last date in which 17 you can commit to the contract? 18 MR. MALLETTE: Well, there is another factor 19 that would probably come into play ahead of June the 20 1st, and that is the construction contract. We really 21 need to allow them to start putting their labour 22 arrangements and equipment arrangements in place by 23 April the 1st. 24 MR. LESLIE: With respect to the purchase that 25 you are making, as I understand it, you have two 26 sources. One is another pipeline company -- a pipeline 27 company. I take it in that case you are buying pipe 28 from them that they had previously purchased thinking =0C 89 PANEL NO. 2, in-ch (Leslie) 1 they needed it themselves and subsequently decided they 2 didn't. 3 MR. MALLETTE: Yes, that's correct. 4 MR. LESLIE: And the balance is coming from a 5 mill that produces pipe. 6 What time frames or deadlines exist, if any, 7 with respect to that purchase arrangement? Have you 8 already committed to it or must you commit to do it by a 9 certain time? 10 MR. MALLETTE: We also have a Letter of Intent 11 with the pipe mill and, at the current moment, that 12 Letter of Intent expires on February 15th. So a 13 decision would have to be made on that quantity by 14 February the 15th. 15 MR. LESLIE: Next week. 16 MR. MALLETTE: That's correct. 17 MR. LESLIE: All right. The next line is 18 "Construction and labour" and the table shows a 19 reduction in those costs from the estimate or the 20 original filing of $10.4 million. Could you give the 21 Board an explanation of how that reduction arose? 22 MR. MALLETTE: Yes, I can. 23 The mainline contract cost savings amounted to 24 $9,274,000 of the $10.4 million total cost reduction.=20 25 There were three factors that contributed to the 26 savings. The synergies of the two loops being built in 27 one year in close geographic proximity, competition in 28 the construction industry, and competition between the =0C 90 PANEL NO. 2, in-ch (Leslie) 1 bidders. 2 Regarding the synergies, as provided in 3 section 5.1, paragraph 4 of the evidence, Union thought 4 there would be a $1.5 million saving. Now, this was 5 based on a poll of the contractors prior to the filing. 6 When the bids were actually received, it 7 turned out the savings were closer to $6 million, or a 8 $4.5 million increase or decrease that was better than 9 expected. 10 Regarding competition in the industry, the 11 competition in industry results in favourable bids, 12 generally, from all of the contracts, which was 13 demonstrated in the bid result. 14 The third item is the competition between the 15 bidders which can result in a wider cost spread between 16 the bidders than normal. This was also evident in the 17 bids received. 18 So, cumulative, these factors resulted in the 19 overall $9.3 million cost reduction of the main line 20 contract costs. The remaining $1.1 million to make up 21 the $10.4 million is primarily from a number of small 22 savings in company labour and ancillary contracts due to 23 Westcoast Energy enterprise-wide cost saving 24 initiatives. 25 MR. LESLIE: Mr. Mallette, you indicated that 26 about $6 million of the reduction in cost was 27 attributable to the fact that you are building the two 28 sections in the same year and the proximity of those two =0C 91 PANEL NO. 2, in-ch (Leslie) 1 sections. Have I got that right? 2 MR. MALLETTE: Yes, that's correct. 3 MR. LESLIE: Ms Lea has put the proposition 4 earlier that you might be able to achieve or ask the 5 question whether you would be able to achieve the same 6 or similar savings through synergies if you were to 7 postpone the Owen Sound-Brantford line and build it at a 8 future time together with the Brooke to Strathroy 9 section that is discussed in the evidence. 10 Can you comment on that hypothetically? 11 MR. MALLETTE: We don't believe that we can 12 expect to get all of those savings again. In 13 particular, the two sections that you refer to, the 14 Brooke-Strathroy and the Owen Sound-Brantford section, 15 are separated by in excess of 100 kilometres distance. 16 MS LEA: Can we look at Section 4, Schedule 1, 17 just to get an understanding of where the sections are 18 here. 19 I'm sorry, Mr. Mallette, to throw that at you 20 all of a sudden, but we happen to be looking at it and I 21 think it is kind of diagrammatically orchestrated 22 through -- 23 MR. MALLETTE: That's fine. I was just 24 looking at this, oh, half an hour ago myself. 25 The section that is Owen Sound-Brantford is 26 indicated as No. 10., which is just south of 27 Kitchener-Waterloo, whereas the Brooke to Strathroy 28 section is the third section from the westerly end of =0C 92 PANEL NO. 2, in-ch (Leslie) 1 the Trafalgar system and is identified as No. 11 on that 2 particular schedule. 3 I guess in comparison, the two sections 4 currently before the Board are indicated by No. 9 and 5 No. 10. So, as you can see, there is only one section, 6 which is the Bright to Owen Sound section between the 7 two of them. What the contractor can do in that case is 8 set up one base of operation and keep the equipment 9 moving from one location to the other with a very minor 10 disruption to the activities. 11 In the case when the two sections are 12 separated by in excess of 100 kilometres, they will need 13 two basis of operation. They will have to totally 14 demobilize all of the equipment and move everything from 15 one end to the other, or set up two separate spreads of 16 equipment and labour to accomplish those. So it really 17 is a different scenario. 18 MR. LESLIE: All right. Thank you. 19 Again with respect to timing, you haven't yet 20 committed to the construction contracts, as I understand 21 it. By when do you have to make that commitment? 22 MR. MALLETTE: The contract that we have -- 23 well, we have awarded the contract, but we haven't fully 24 executed the legal documents as we speak today. The 25 contract has the ability of being cancelled at any time, 26 and also has the capability of going from one loop 27 section to two loop sections in either scenario at no 28 additional cost to the company. =0C 93 PANEL NO. 2, in-ch (Leslie) 1 However, practically by the April the 1st we 2 need to schedule; the contractor will have to start 3 making arrangements for labour and for the equipment.=20 4 As a result, they will begin to incur costs that we 5 would be obligated to compensate for after that date. 6 MR. LESLIE: All right. 7 Now, the final item on that Table 1 is "Other 8 Costs" which are defined as contingencies and interest 9 during construction, and there there is a reduction from 10 the original filing of $3.4 million. 11 Could you explain that, that figure? 12 MR. MALLETTE: Yes. Of the $3.4 million total 13 reduction for the category called "other", $493,000 of 14 that amount is the reduction in IBC, which is interest 15 bearing construction, which is a result of the overall 16 cost reduction of the project. IBC is charged on costs 17 incurred on the project prior to in-placed service. 18 The remain $2,880,000 is a reduction in 19 contingency. This represents a reduction in contingency 20 and projects costs excluding IBC from 9.5 per cent to 21 6.8 per cent. So action of a contingency amount is 22 always a subjective decision. There is no textbook on 23 this. There is no right or wrong. 24 In this case Union feels the amount is 25 appropriate because the pipe orders are really not 26 finalized yet. We only have letters of intent. The 27 construction activities are still some months from 28 commencement and completion. There's a lot of things =0C 94 PANEL NO. 2, in-ch (Leslie) 1 yet that can happen out there, so we feel that the 2 remaining amount of contingency is appropriate.=20 3 However, we have reduced it by $2,880,000. 4 MR. LESLIE: All right. Could you look at 5 Table 2 in the same exhibit. Would you -- in 6 conjunction with that table, it breaks out the cost. 7 MR. MALLETTE: Okay. I have it here. 8 MR. LESLIE: Okay. Are you all right now? 9 MR. MALLETTE: Yes. Thank you. 10 MR. LESLIE: Thanks. My question was really 11 to ask you to explain how those -- the amounts which are 12 shown beside the Beachville to Bright and Owen Sound to 13 Brantford and then the total column were arrived at. 14 MR. MALLETTE: Yes. The project was tendered 15 as Beachville-Bright alone and the alternative scenario 16 that was tendered was Beachville-Bright combined with 17 Owen Sound-Brantford. These were the only two 18 construction groupings tendered. 19 Owen Sound-Brantford, therefore, was not 20 tendered separately. We didn't feel it was a scenario 21 that would ever occur and we didn't feel it was 22 favourable to contractors to put them through the effort 23 for giving us a price for that alone. Therefore, we do 24 not have what I would call a pure stand-alone cost for 25 Owen Sound-Brantford. 26 When you look at Table 2, the second footnote 27 identifies that the amounts that have been allocated to 28 Owen Sound-Brantford are really just a remaining amount =0C 95 PANEL NO. 2, in-ch (Leslie) 1 left over after we track the Beachville-Bright 2 stand-alone scenario. It's not a pure scenario, but it 3 is representative of the savings that we would expect. 4 MR. LESLIE: As I understand it, the first 5 line of those numbers are based on the tenders you 6 received and the third line are based on the tenders you 7 received. The middle line, the Owen Sound to Brantford 8 line, is subtraction. 9 MR. MALLETTE: That's correct. Yes. Now, the 10 amount of savings that we expect would disappear if you 11 did not build these two loops in the same year, would be 12 the $1.5 million identified as the first footnote and is 13 already included in the $42.8 million of the original 14 filing for Owen Sound-Brantford, plus the $10.4 million 15 change allocation which would make $11.9 million. 16 MR. LESLIE: All right. Thank you. Those are 17 all my questions. 18 THE PRESIDING MEMBER: Thank you. 19 Ms Lea, I am in your hands. Did you want to 20 start questions or would you rather break and then -- 21 MR. LESLIE: I really don't mind, Madam Chair.=20 22 I can go either way. It really doesn't matter. 23 THE PRESIDING MEMBER: Why don't you just 24 start now? 25 MR. LESLIE: Okay, then. Thank you. 26 EXAMINATION 27 MS LEA: Okay. I think, Mr. Mallette, you 28 have answered some of the questions that I was going to =0C 96 PANEL NO. 2, ex (Lea) 1 ask you about the updates. You indicated that your 2 savings on pipeline costs, which I believe are revealed 3 in Table 1 in Exhibit 11.1, are in part derived from the 4 fact that you are going to be buying this pipe from 5 another pipeline company. Is that correct? 6 MR. MALLETTE: Yes, that's correct. 7 MS LEA: Now, is that pipe appropriate for 8 this project, that is, is the wall thickness and grade 9 of the pipe the same or greater than was originally 10 specified in this application? 11 MR. MALLETTE: The design is as great or 12 greater. The wall thickness may not be the exact same 13 thickness because the grade of the pipe may be a little 14 different. It may be greater. 15 MS LEA: I don't understand. 16 MR. MALLETTE: Okay. I will tell you exactly 17 what the quantities are. In the case of the 11.7 18 millimetre pipe, wall thickness pipe, we have shown in 19 our application, and the pipe we would be purchasing 20 from the pipe mill would be grade 4-48. 21 MS LEA: 44A or eight? 22 MR. MALLETTE: Eight. Grade 4-48. 23 MS LEA: Eight. Thank you. 24 MR. MALLETTE: That's a measure of the 25 strength of the steel. 26 MS LEA: I understand. Yes. 27 MR. MALLETTE: The pipes that we are getting 28 from the pipeline company is also 11.7 millimetre wall =0C 97 PANEL NO. 2, ex (Lea) 1 thickness. However, the grade is grade 4-8-3, so it's 2 actually stronger pipe. For the heavier wall pipe, the 3 pipe that we would be ordering from the pipe mill is 4 15.6 millimetre wall thickness -- 5 MS LEA: Yes. 6 MR. MALLETTE: -- grade 4-8-3. 7 MS LEA: Yes. 8 MR. MALLETTE: However, the pipe that we are 9 getting from the other pipeline company is actually 15.3 10 millimetres wall thickness, but the grade is 5-50.=20 11 Although the wall thickness is slightly less than the 12 wall thickness than we had originally specified, the 13 grade increases. 14 MS LEA: Which is the stronger pipe? 15 MR. MALLETTE: Actually the pipe from the 16 pipeline company, the grade 5-50 pipe is stronger. 17 MS LEA: Despite the slightly reduced wall 18 thickness. 19 MR. MALLETTE: That's correct. 20 MS LEA: Thank you. That's helpful. In 21 looking at Table 2 in Exhibit 11.1 then -- thank you for 22 your explanation of the Owen Sound to Brantford numbers.=20 23 that's very useful information. 24 Do I understand then that the total amount 25 that you are saving as a result of synergies is 26 represented in the Owen Sound to Brantford line? In 27 other words, none of the reductions in the Beachville to 28 Bright line are as a result of synergies. All the =0C 98 PANEL NO. 2, ex (Lea) 1 reductions as a result of synergies appear in the Owen 2 Sound to Brantford line. 3 MR. MALLETTE: I think I should point 4 something out here. If you look at Table 1 -- 5 MS LEA: Yes. 6 MR. MALLETTE: The construction and labour 7 reduction of $20.4 million -- 8 MS LEA: Yes. 9 MR. MALLETTE: -- is not the same as the Owen 10 Sound to Brantford change of 10.4. 11 MS LEA: Yes. 12 MR. MALLETTE: The composition of those 13 numbers is different. 14 MS LEA: Right. 15 MR. MALLETTE: So part of the $10.4 million 16 reduction in Table 2 is due to synergies, but not all of 17 that $10.4 million. 18 MS LEA: Right. My question was in fact 19 slightly the reverse. Are all the savings due to 20 synergies contained in the cost reductions in the line 21 marked Owen Sound to Brantford in Table 2? 22 MR. MALLETTE: Yes. I believe that would be 23 correct. 24 MS LEA: So then it would be correct to state 25 that the Beachville to Bright numbers would remain the 26 same whether or not -- the ones on Table 2 I'm talking 27 about here -- would remain the same whether or not you 28 constructed one or both of these sections. =0C 99 PANEL NO. 2, ex (Lea) 1 MR. MALLETTE: That's correct. 2 MS LEA: And you have reflected the synergies 3 in the second line. 4 MR. MALLETTE: That's correct. 5 MS LEA: All right. Thank you. That's 6 helpful. Now, you indicated that you had letters of 7 intent from both the pipeline company and from the steel 8 mill. How confident are you that these prices are now 9 accurate and that you can obtain those prices? 10 MR. MALLETTE: We are quite confident. We 11 have letters of intent. As long as we execute letters 12 in the time frames that we have identified, the cost 13 should be quite firm. 14 MS LEA: Okay. And that would also apply to 15 the labour letters -- the letters that you have with the 16 contractors also. 17 MR. MALLETTE: Yes. Well, at least the 18 starting point. As we know, things can occur during 19 construction that may end up that our final numbers are 20 different than what we have shown, but as far as a 21 starting point goes, we are quite confident with those.=20 22 As I say, we have the contract awarded and we are in the 23 process of fully executing it. 24 MS LEA: What percentage of the cost of the 25 pipe is represented by the amount that you are 26 purchasing from the steel mill? A rough guess is fine. 27 MR. MALLETTE: I don't believe I have that 28 information. I guess I would have to think whether or =0C 100 PANEL NO. 2, ex (Lea) 1 not we would want to identify that because it would 2 clarify the commercial arrangements we made with both 3 parties. 4 MS LEA: Yes, I don't need that kind of 5 information. What I am trying to get at is: Is it a 6 lot or is it half or is it somewhat less than half?=20 7 That is about the level of detail I want. 8 MR. MALLETTE: Well, I can give you a 9 quantity. The pipe mill would be supplying 10 approximately 10,500 metres of pipe. I am sorry, about 11 12,000 metres or 12 kilometres of pipe would be coming 12 from the pipe mill. 13 MS LEA: I guess the point of my question is 14 not so much to find out the cost of that as to you 15 mentioned that you had a letter of intent with that 16 steel mill that had to be executed by February the 15th? 17 MR. MALLETTE: That's correct. 18 MS LEA: And you understand that, given we are 19 now at February 8th, if the Board does not render a 20 decision extremely quickly, you may have to make that 21 business decision without a decision from the Board? 22 MR. MALLETTE: Yes, we understand that. 23 MS LEA: Are you prepared to make that 24 business decision? 25 MR. MALLETTE: Yes, we are. 26 MS LEA: Okay. One moment. 27 ---Pause 28 MS LEA: You gave us a Response to =0C 101 PANEL NO. 2, ex (Lea) 1 Interrogatory No. 27, which compares capital cost per 2 metre for NTS-48 grouping projects. That's Board Staff 3 Interrogatory No. 27. I am just wondering where your 4 old and new prices fit in terms of historic costs? Are 5 they comparable numbers, sir? 6 I guess material cost is what I was looking 7 at, and it is a cost per metre, dollars per metre, I 8 gather. I was wondering what your dollars per metre are 9 for this project? 10 MR. MALLETTE: The dollars per metres, subject 11 to check, we have done some calculations, are $523 per 12 metre. 13 MS LEA: That would match which line in this 14 chart, sir? Would that be the materials cost line? 15 MR. MALLETTE: Yes, that's correct. 16 MS LEA: Then for the totals line, we seem to 17 have been able to calculate a unit cost on the totals 18 line, taking everything into account of $1,885 per 19 metre. 20 MR. MALLETTE: Yes, that's what I have, as 21 well. 22 MS LEA: Thanks. And that reflects the 23 update? 24 MR. MALLETTE: Yes. 25 MS LEA: Thank you. There are a couple of 26 other lines in Exhibit 11.1 we wanted to ask about. 27 One was on Table 3 of Exhibit 11.1, which is 28 that update. I don't know whether you can answer this =0C 102 PANEL NO. 2, ex (Lea) 1 or Panel 3 will have to deal with it because it relates 2 to easements, lands and damages. That is at Table 3 as 3 you go down them just under the Total Construction 4 Labour. It says "Easements, Lands and Damages", and 5 there has been a cost increase in that line. 6 MR. MALLETTE: Yes. 7 MS LEA: Do you know what causes that cost 8 increase? I didn't know whether it was something to do 9 specifically with construction or it was the cost of the 10 easements, in which case it might be Panel 3 or what it 11 was? 12 MR. MALLETTE: I think I would like to, if we 13 could, cover that under Panel 3. I think that would be 14 best. 15 MS LEA: The other thing was we didn't know 16 whether the crossing of the Grand River was broken out 17 somewhere in the evidence as a separate cost. We didn't 18 know whether that was in fact broken out and if there 19 has been any change in the cost of that. Do you know 20 either or those two facts? 21 MR. MALLETTE: I know Interrogatory No. 55 22 dealt with that, Interrogatory No. 55 from Board staff.=20 23 I was just trying to dig that up. 24 MS LEA: I will see if I can dig it up too. 25 ---Pause 26 MS LEA: It indicates in Interrogatory No. 55 27 from Board staff that Union does not estimate costs of 28 major crossings. I gather that is not information that =0C 103 PANEL NO. 2, ex (Lea) 1 is broken out, am I right? 2 MR. MALLETTE: That is correct. To try to be 3 helpful, I believe that, based on what we would expect 4 it to be around the kind of plan that is being developed 5 to cross the river, the crews and equipment that would 6 be needed, it would be in the range of about $500,000 7 for the construction labour to do that crossing. 8 MS LEA: Has there been a change to that cost 9 that would be driven by the things that change the costs 10 in the update? Would those costs have gone down for the 11 same reason as other costs went down in this update? 12 MR. MALLETTE: The $500,000 ballpark number 13 that I am giving you now would be included and reflected 14 in the current costing. 15 MS LEA: I understand. You are using the 16 costing assumptions that are in Exhibit 11.1 to make 17 that estimate? 18 MR. MALLETTE: Yes. 19 MS LEA: Thank you. Madam Chair, I have two 20 more topics to deal with with this panel. One is the 21 matters that Panel 1 so kindly asked them to deal with, 22 and the second deals with economics. If I was to do 23 both of those now, it would probably take me between 20 24 minutes and half an hour. 25 THE PRESIDING MEMBER: We think now would be 26 an appropriate time to have a break then. 27 MS LEA: Certainly. It is now one o'clock.=20 28 We will resume at 2:15? =0C 104 PANEL NO. 2, ex (Lea) 1 THE PRESIDING MEMBER: Yes. 2 MS LEA: Thank you. 3 --- Upon recessing at 1300 4 --- Upon resuming at 1415 5 MR. LESLIE: Madam Chair, you might want to 6 wait. I am told Mr. Mallette is on his way. 7 THE PRESIDING MEMBER: All right. 8 MS LEA: I can ask some questions of Mr. 9 Packer. I do have other questions for Mr. Mallette, let 10 me not forget. 11 Mr. Packer, were you in the room when I was 12 discussing with the first panel and also the Chair was 13 discussing with the first panel of witnesses the 14 ramification on ratepayers of the construction of this 15 project? 16 MR. PACKER: Yes, I was in the room. 17 MS LEA: Can you assist us with an 18 understanding of if Union's PBR proposal is approved 19 whether the approval of this project has any effect on 20 the rate that Union's ratepayers will pay? 21 MR. PACKER: If our PBR proposal is approved, 22 we would be setting rates in relation to a price cap and 23 the impact of a particular facility will not have any 24 impact on ratepayers. It will be something the company 25 manages. 26 MS LEA: Yes. I think we understood that to 27 be the evidence we heard from Panel 1 and then we 28 started discussing things like Z factors, off ramps and =0C 105 PANEL NO. 2, ex (Lea) 1 rebasing. So I wonder if you could turn your mind to 2 those matters. 3 We discussed the question of Z factors and 4 Mr. Baker assured us that he would not be applying to 5 the Board for a Z factor just because the capacity of 6 the pipeline was unused. 7 In your proposal what sort of circumstances 8 might drive Union to come to the Board and seek 9 recovering rates as something which was considered a Z 10 factor? Do any of those things relate to construction 11 projects in any way? 12 MR. PACKER: We had identified in our evidence 13 the items that we would consider non-routine adjustments 14 for Z factors. For the most part those dealt with 15 changes in generally accepted accounting practices, tax 16 legislations, municipal charges and so forth. There is 17 also a non-routine adjustment for the delivery point 18 flexibility that we talked about this morning as well. 19 MS LEA: That was something that I also didn't 20 understand from the first panel. 21 Can you tell me a little bit more about how 22 that delivery point flexibility costs that you have 23 factored into the rates for Union's ratepayers, and also 24 why you needed a Z factor for it? 25 It's not that I wanted to deal with the PBR 26 proposal here. I just need to understand that aspect of 27 it. It said in this case that those customers are 28 paying for that flexibility in their rates. Can you =0C 106 PANEL NO. 2, ex (Lea) 1 tell me that that is the case and reassure me how that 2 is being accomplished properly? 3 MR. PACKER: I think the reason it was 4 identified as a potential Z factor was the fact that we 5 were hearing from customers that they were looking for 6 more flexibility. So we anticipated that there may be a 7 proposal coming forward in the context of the PBR 8 unbundling proceeding to give customers that flexibility 9 and also to seek recovery of the associated costs. 10 What we did in putting together the ADR 11 document for that proceeding was we identified the 12 demand charges that TransCanada would no longer be 13 paying the company and we allocated those to the 14 infranchise rate classes in the southern operations 15 there predominately and the allocation of that cost will 16 form part of the rates that come out of the PBR 17 decision. 18 MS LEA: Let's move back again to the question 19 as to whether there could be circumstances in which this 20 project might put upward pressure on rates. You have 21 indicated that under normal circumstances that the price 22 cap would not or should not even -- I think we have 23 heard from Panel 1 that a Z factor would not be used to 24 deal with this. What about rebasing? 25 MR. PACKER: Can you be more specific, please? 26 MS LEA: No, unfortunately I can't. I guess 27 what I'm trying to say is if at the end of the three 28 years of the PBR scheme Union comes back and there is =0C 107 PANEL NO. 2, ex (Lea) 1 going to be a rebasing of -- from a cost of service. I 2 think it's almost a cost of service exploration of 3 things as Madam Chair indicated. Is there not a 4 possibility that at that time there could be some 5 recoveries off of ratepayers for under utilization of 6 capital assets? 7 MR. PACKER: I think the evidence of the panel 8 this morning was that we don't anticipate there to be a 9 capacity that isn't contracted for by the time any kind 10 of rebasing took place. 11 MS LEA: Yes. They indicated to us that even 12 if we had a shortfall for a year that in subsequent 13 years it would be more than made up for. What I'm 14 asking you to say is to a man who is in the catastrophic 15 circumstances that that doesn't occur and that there is 16 a shortfall, could that not be a sign to ratepayers 17 during a rebasing of the PBR scheme? 18 MR. PACKER: The difficulty I have in 19 answering that question is we didn't in our PBR proposal 20 propose rebasing. So I'm not quite sure how rebasing 21 would actually take place or how the Board viewed it.=20 22 But I'm really having difficulty answering that 23 question. 24 MS LEA: Okay. And I don't have the details 25 to go further with you. We will leave that aside then 26 for the moment. 27 THE PRESIDING MEMBER: Thank you. Excuse me, 28 Ms Lea, I'm feeling a little uncomfortable because there =0C 108 PANEL NO. 2, ex (Lea) 1 is a PBR -- a comprehensive PBR proposal before the 2 Board right now and I know it's a five year term and I 3 know some of the details of the proposal but we have no 4 indication of whether the panel is going to accept the 5 PBR proposal as put forward by Union, with 6 modifications, whatever. 7 I guess my point about the rebasing was just 8 to indicate that in theory that perhaps with all that 9 has happened, there might be enough expression on rates 10 for -- even under a PBR scheme. So if we were going off 11 in that direction, I would just as soon we get back to 12 the PBR proposal if that is okay. 13 MS LEA: Sure. Absolutely. No, I didn't mean 14 to explore the thing in depth either. 15 Let us go back, Mr. Packer, then to the idea 16 that at present Union is operating on a cost of service 17 scheme. Is that right? 18 MR. PACKER: Yes, that's correct. 19 MS LEA: And as you know, in this proceeding 20 there has been no information given as to the effect on 21 rates of this proposal under a cost of service view.=20 22 Can you provide us with some information on that? 23 MR. PACKER: Yes, I'm not sure I can entirely 24 agree with you that there has been no indication of the 25 effect of this project on rates. I think the PI is one 26 indication of what might happen to rates. 27 The difficulty I had in answering the question 28 that was proposed was that it asked for a specific =0C 109 PANEL NO. 2, ex (Lea) 1 allocation by rate class. And in order to do that, you 2 would really need a cost allocation study to identify 3 how the costs would be spread out. If it is helpful to 4 the Board, we can identify what the deficiency is in the 5 early years of the project. It's that less than half a 6 million dollars. 7 MS LEA: Sorry. It's what? 8 MR. PACKER: Less than half a million dollars. 9 MS LEA: Less than half a million dollars, 10 yes. 11 MR. PACKER: And I think in our PBR -- PBR 12 unbundling proposal we identified that we had 13 distribution, transmission and storage revenue of about 14 $800 million. So that is half a million dollar 15 deficiency on a $800 million revenue requirement. I'm 16 trying to put it in context for you. 17 MS LEA: Okay. Thank you. 18 Are you able to give us then any indication as 19 to what the under recovery in the first year of this 20 project would mean to either an M12 customer or a 21 residential customer? 22 MR. PACKER: Not a very accurate one, no. 23 MS LEA: Can you make any kind of a guess? 24 MR. PACKER: Took the average unit this 25 morning, we took to look up the rate impact section that 26 had been filed in the last -- 27 MS LEA: Yes, that might be helpful. 28 MR. PACKER: -- proceeding. That identified =0C 110 PANEL NO. 2, ex (Lea) 1 an impact, I think, of between 50 and 60 cents a 2 residential customer. My expectation will be of the 3 impact on a residential customer as a result of building 4 these two facilities would be in that ballpark or less. 5 MS LEA: And so a one year period or -- 6 MR. PACKER: That would be -- that is per year 7 the maximum impact and it declines over time and it's 8 assets are depreciated. 9 MS LEA: All right. That is 50 to 60 cents 10 annually? 11 MR. PACKER: Annually but I'm just -- I said 12 earlier that I'm a little hesitant because I can't do a 13 precise calculation -- 14 MS LEA: I understand. 15 MR. PACKER: -- or a cost study. I'm using 16 that as a benchmark and saying that I don't think 17 it's -- I think it's probably less than that but I don't 18 expect it to be that. 19 MS LEA: Okay. Now, I wasn't trying to pin 20 you down, I was just making sure that I had heard your 21 answer properly. That is the annual impact you have 22 given us. 23 MR. PACKER: Yes. 24 MS LEA: Okay. Thank you. Well, that helps 25 put things in perspective a little bit for us. One 26 moment, please. 27 Mr. Mallette, the first panel, I was asking 28 them about a variety of matters and I have a note to ask =0C 111 PANEL NO. 2, ex (Lea) 1 you certain things. I'm not quite sure why at this 2 point, but I'm -- can you comment on the overall plan 3 for completing the looping of the Trafalgar system. I 4 did ask Panel 1 about that about whether there was still 5 a plan to build a third section and they referred part 6 of that answer to you. We have heard about the demand 7 for it and I think that you were going to tell us a 8 little bit about your overall plan. 9 MR. MALLETTE: Well, I may defer part of this 10 question to Mr. Hyatt -- 11 MS LEA: Certainly, whoever. 12 MR. MALLETTE: -- who is in charge of 13 planning. I would suggest that perhaps the map that we 14 referred to earlier, Section 4, Schedule 1 may be 15 helpful to indicate the location and the potential 16 timing and the length of the remaining loop sections. 17 MS LEA: Mr. Hyatt. 18 MR. HYATT: Yes. And you could also refer to 19 Section 4, page 8 of 8, which is just one -- it is on 20 the other side of Tab 1. And this lays out the 21 construction plan from the years 2002 through 2005. 22 MS LEA: Is that information still current? I 23 understood from Panel 1 that perhaps it was not. 24 MR. HYATT: This forecast -- or this plan of 25 facilities is based on the forecast that the filing was 26 based on. 27 MS LEA: I understand. And if that forecast 28 has changed then the plan for the facilities may have =0C 112 PANEL NO. 2, ex (Lea) 1 changed. Is that correct? 2 MR. HYATT: If the forecast went up, we would 3 build these facilities more quickly. If the forecast 4 were to be a little lower than from what was previously 5 forecast, then the facilities would be delayed slightly. 6 MS LEA: So I think I understood from Panel 1 7 that it is not necessarily true to say that the Brooke 8 to Strathroy system -- section will be built in 2002? 9 MR. HYATT: If the forecast is -- if what 10 happens is lower than what is forecast, then there is a 11 chance that we could delay the Brooke to Strathroy. 12 MS LEA: Okay. Thank you. 13 Now, we were trying to calculate what the new 14 actual physical capacity was that was to be added by 15 these two proposed sections. Can you assist us with 16 that? 17 MR. HYATT: I believe so. 18 MS LEA: Yes. 19 MR. HYATT: Do you have a specific question? 20 MS LEA: Well, what is it? We were looking 21 at -- where is that schedule again? 22 MR. HYATT: There is Section 4, Schedule 8. 23 MS LEA: Section 4, Schedule 8. Yes, that was 24 the one. And we were -- we were trying to calculate 25 that and what we did was we found that it -- the new 26 capacity added was 311,747 gigajoules per day and we got 27 that by adding the two shaded areas. 28 MR. HYATT: That would be correct. =0C 113 PANEL NO. 2, ex (Lea) 1 MS LEA: Okay. Great. So it is as simple as 2 that. Then that is fine. 3 So the actual physical delivery capacity that 4 the Trafalgar line would have if these two sections were 5 built, we calculated to be 5,025,920 gigajoules per day 6 approximately and we got that by adding the old capacity 7 plus this incremental amount that I just talked to you 8 about. 9 MR. HYATT: This was physical -- this was 10 capacity? 11 MS LEA: Yes, that's correct. 12 MR. HYATT: Yes. So you would -- what you 13 would do would know the capacity of the system, you 14 would take that $5,805,835 -- 15 MS LEA: Yes. 16 MR. HYATT: Less the $21,081 of the winter 17 peaking service. 18 MS LEA: For the winter peaking service. Yes. 19 MR. HYATT: So that would leave a total system 20 capacity of $5,784,754. 21 MS LEA: Yes. What about the Parkway firm 22 transportation? Is that considered part of the 23 capacity? 24 MR. HYATT: That's correct. 25 MS LEA: I understand. Okay. Thank you. Let 26 me see if there is anything else the Panel wants.=20 27 Thanks very much. 28 I would like to turn now to the economics, =0C 114 PANEL NO. 2, ex (Lea) 1 please. Ms Callingham, I understand that -- One 2 moment, please. Right. 3 Turning to economics then, Ms Callingham, we 4 heard quite a bit about the updated evidence from Mr. 5 Mallette. I gather from what we have seen of Exhibit 6 11.1 that the economics of the project have improved 7 with the refiling. Is that correct? 8 MS CALLINGHAM: Yes, it is. 9 MS LEA: Instead of a PI, profitability index, 10 of .75, we now have a profitability index of .9. 11 MS CALLINGHAM: That's correct. 12 MS LEA: And an NPV of minus $6.8 million. Is 13 that right? 14 MS CALLINGHAM: Yes. 15 MS LEA: Okay. Thank you. Now, I may be 16 working with the old numbers here, but in your original 17 evidence, section 5, page 4, paragraph 21 -- section 5, 18 page 4, paragraph 21 -- there you say that your phase 19 two cost benefit analysis resulted in a positive net 20 benefit to regular rate customers -- yes -- of $246.6 21 million based on a social discount rate of 10 per cent 22 and you had a gas related energy cost saving. I presume 23 that that was based on the price of gas at the time of 24 the preparation of the application. Am I right?=20 25 There's two things I am asking you there I guess. 26 MS CALLINGHAM: What was the second one? 27 MS LEA: Let's deal with the first one first. 28 MS CALLINGHAM: All right. =0C 115 PANEL NO. 2, ex (Lea) 1 MS LEA: Have you updated that $246.6 million? 2 MS CALLINGHAM: It has been updated. It 3 hasn't been filed. 4 MS LEA: Okay. Are you able to give us that 5 number? 6 MS CALLINGHAM: The only reason it changed was 7 because the revenue sufficiency project changed. 8 MS LEA: Yes. 9 MS CALLINGHAM: And it's taking into account 10 phase two. The energy cost savings were no different 11 than the prefiled, so we didn't update it. 12 MS LEA: I understand. So what is that figure 13 now? 14 MS CALLINGHAM: I'm going to give you all 15 three figures. What's important is the range of 16 sensitivities found on this analysis. 17 MS LEA: I understand. So we should be 18 looking at paragraph 21 and subbing in figures. Is that 19 right? 20 MS CALLINGHAM: That would be appropriate. 21 MS LEA: Please go ahead. 22 MS CALLINGHAM: Okay. The benefits at a 10 23 per cent discount rate shown on line 2, paragraph 21, it 24 currently reads $246.6 million. 25 MS LEA: Yes. 26 MS CALLINGHAM: That would read $260.8. 27 MS LEA: $260.8 million. Yes. 28 MS CALLINGHAM: On the next line, the net =0C 116 PANEL NO. 2, ex (Lea) 1 benefit at the social discount rate of 5 per cent, it 2 currently reads $469.6 million and it would read $483.5 3 million. 4 MS LEA: Thank you. 5 MS CALLINGHAM: And it would read -- currently 6 it reads $144.0 million at 15 per cent and that would be 7 $158.3 million. 8 MS LEA: Thank you. Now, you indicated that 9 you didn't change anything about the cost of gas. Are 10 not the gas related energy cost savings part of that 11 equation and wouldn't the price of gas alter that 12 factor? 13 MS CALLINGHAM: Yes. The price of gas would 14 alter that. This is a comparison of the price of 15 natural gas over alternative fuel. 16 MS LEA: Right. 17 MS CALLINGHAM: So the differential between 18 gas and other sources of energy. 19 MS LEA: Has not the differential changed 20 significantly since this original evidence was filed? 21 MS CALLINGHAM: I haven't reviewed that since 22 the original evidence was filed. 23 MS LEA: Okay. 24 MS CALLINGHAM: This information was furnished 25 by Mr. Gardiner last summer, prior to the prefiling. As 26 has been said this morning, the price of natural gas has 27 gone up since then. 28 MS LEA: Okay. =0C 117 PANEL NO. 2, ex (Lea) 1 MS CALLINGHAM: But it wasn't expected to 2 be -- it was with respect to correction. 3 MS LEA: In the next couple of years. 4 MS CALLINGHAM: I think that's what Mrs. 5 Galvison said. 6 MS LEA: Okay. Well, please help me 7 understand. Directionally, if the price of gas goes up, 8 do these three numbers you have given us go up or down? 9 MS CALLINGHAM: It would depend on how the 10 price of alternate fuels are varying in relationship to 11 the price of natural gas. 12 MS LEA: Well, I was presuming other things 13 being equal. I think that's the most obvious way to 14 understand that question. If the price of gas is higher 15 relative to the cost of other fuels, directionally do 16 these numbers go up or down? 17 MS CALLINGHAM: If the differential narrows 18 between gas as an alternative over alternate fuels, the 19 benefits would go down. 20 MS LEA: Okay. And if gas is the most 21 expensive of all those fuels, do these numbers disappear 22 altogether or are there other things included in these 23 social discount rates? 24 MS CALLINGHAM: No. We always primarily 25 looked at the price of natural gas, taking into account 26 the cost of equipment if customers were to convert, but 27 other than that, if natural gas benefits and were that 28 situation to arise, it would go down. =0C 118 PANEL NO. 2, ex (Lea) 1 MS LEA: Okay. Perhaps -- 2 MS CALLINGHAM: You are flying a lot of areas 3 here that are kind of outside of my area of expertise.=20 4 Mr. Gardiner was the witness responsible for this area 5 of the evidence. 6 MS LEA: Yes. 7 MS CALLINGHAM: He made all these assumptions. 8 MS LEA: I knew I would do that, that I would 9 not ask something of the right panel. In any event, are 10 there any other benefits that are taken into account in 11 this calculation besides the cost of gas, do you know?=20 12 I'm asking because I don't know. 13 MS CALLINGHAM: No. It's the energy cost 14 savings. 15 MS LEA: Right. Okay. So if gas turned out 16 to be the most expensive fuel of the group that you 17 consider, then the benefits would disappear. Correct? 18 MS CALLINGHAM: Yes. 19 MS LEA: Okay. Thanks. Do you know, and I 20 know I should have asked Mr. Gardiner this, whether it 21 would be difficult to recalculate these numbers based on 22 the current price of gas? 23 MS CALLINGHAM: I would have to ask Mr. 24 Gardiner if there is another forecast, current forecast 25 available. 26 MS LEA: Okay. 27 MS CALLINGHAM: We are doing a 30 year 28 analysis here and the unusual pricing activity that has =0C 119 PANEL NO. 2, ex (Lea) 1 occurred over the past six months, we would not expect 2 that to continue for any length of time, so I don't know 3 if it would be a valuable exercise or not or how long it 4 would take him. 5 MS LEA: Could you undertake to inquire as to 6 where any reanalysis of this figure has been done. I 7 don't want to put any burden on the witness for this 8 point which is not that important. I'm just trying to 9 understand how much the current -- what Union appears to 10 believe is an unusual state with gas prices is affecting 11 these figures. What I need is a -- 12 MS CALLINGHAM: Well, I have an office. You 13 have to keep in mind this is the difference between gas 14 and other forms of energy. I think electricity -- I 15 mean electricity has been going through the roof too, so 16 it could be the differential is even greater. 17 MS LEA: That may be. 18 MS CALLINGHAM: And it's not just -- 19 MS LEA: If you could undertake to make the 20 inquiry, I would appreciate it. 21 MS CALLINGHAM: Yes. 22 MS LEA: Thanks. That would be Undertaking 23 14.1, please. 24 UNDERTAKING NO. 14.1: Reanalysis of what 25 Union believes to be an unusual state 26 with gas prices which would affect 27 figures filed 28 MS LEA: If you are not sure exactly what I'm =0C 120 PANEL NO. 2, ex (Lea) 1 undertaking, what I am asking you to undertake, perhaps 2 we can talk at the break and we can sort out what I 3 need. 4 MS CALLINGHAM: Yes. 5 MS LEA: One moment, please. 6 THE PRESIDING MEMBER: Excuse me, Ms Lea. It 7 would be helpful for me to know. 8 MS LEA: Oh, certainly. Absolutely. I guess 9 what's wrong is I'm not sure I have enough knowledge to 10 ask the question properly right now. 11 THE PRESIDING MEMBER: Is it not that you want 12 an update of the stage two analysis based on the cost 13 differential of gas from the time that this analysis -- 14 this prefiled evidence was filed, update it to the 15 present cost of gas? 16 MS LEA: Yes. That is correct, unless that 17 involves a tremendous amount of work that is going to 18 take a really long time. 19 THE PRESIDING MEMBER: You want to know the 20 amount of work it would take in order to do that. 21 MS CALLINGHAM: It is based on a forecast too, 22 so it isn't just -- we didn't use just current prices 23 and run it through the analysis. 24 MS LEA: Right. 25 MS CALLINGHAM: I believe Mr. Gardiner went 26 from DRI and Standard and Poors forecasts and got 27 projections of price lists for all forms of energy over 28 the next five years and then inflated it thereafter =0C 121 PANEL NO. 2, ex (Lea) 1 based on certain parameters, so it was a broader review. 2 THE PRESIDING MEMBER: An order of magnitude 3 kind of response? That would be your question, whether 4 it would be a big difference or small difference. 5 MS LEA: Yes. I think that would be helpful.=20 6 The only reason I am being somewhat difficult to 7 understand here is that I don't want to create a great 8 deal of work for a point that is not perhaps critical to 9 the Board's understanding of this application. At the 10 same time, it would be interesting to know. 11 In part, Madam Chair, do you find this a piece 12 of information that you think would be helpful to you?=20 13 Why don't we ask for a recalculation and please let us 14 know if it is going to involve a great deal of work.=20 15 All right? Would that be sufficient? 16 THE PRESIDING MEMBER: To be honest with you, 17 Ms Lea, I haven't addressed my mind to this particular 18 point, whether it would be helpful or not. I think from 19 my perspective I think we know directionally which way 20 it is going. 21 MS LEA: Yes. 22 THE PRESIDING MEMBER: The question would then 23 deal with the magnitude of it. If it is not going to 24 make a remarkable difference in the stage two analysis, 25 then it stands to reason why it might not because it is 26 based on a forecast, because it is relative to the other 27 costs of energy sources. 28 If it won't in the long run make a big =0C 122 PANEL NO. 2, ex (Lea) 1 difference, then we don't want you to go into great 2 detail. If it will be significantly different in a 3 quantitative fashion, then you can let us know. I think 4 that would be satisfactory. 5 MS CALLINGHAM: Thank you very much. 6 MS LEA: Is that all right with you? 7 MS CALLINGHAM: Yes. 8 MS LEA: I think you said it a lot better than 9 I could. 10 THE PRESIDING MEMBER: Thank you. 11 MS LEA: So that's the undertaking, whatever 12 it is. 13 We understood from various pieces of evidence, 14 both written and given today, that in a stage-wise 15 facility growth process, some of the individual stages, 16 even isolation, will show less attractive economics than 17 other individual stages. 18 Now, in this application, these two sections 19 of pipeline are now showing a profitability index of .9.=20 20 Do you have any idea whether the Brooke to Strathroy 21 loop will show a better -- as it has been called earlier 22 today -- bang for the buck than this section because it 23 will add a great deal of functional capacity and yet 24 it's a fairly short section. Can anyone comment on that 25 for me? 26 MS CALLINGHAM: Could I ask you to turn to a 27 schedule. 28 MS LEA: Certainly. Please. =0C 123 PANEL NO. 2, ex (Lea) 1 MS CALLINGHAM: Actually it might be a table 2 now. It changed its name. It's in the updated Exhibit 3 11.1. 4 MS LEA: Yes. 5 MS CALLINGHAM: Table No. 6. It's the very 6 last page. 7 MS LEA: Okay. Thank you. Right. Okay. 8 MS CALLINGHAM: I didn't run economics on 9 every section on a stand-alone basis, but the cost per 10 unit of capacity that's shown on this table will help 11 you to put everything into perspective. 12 MS LEA: Yes. I understand that. Yes. 13 MS CALLINGHAM: In the two facilities that we 14 are proposing in this application, the cost premium of 15 capacity of $224 per GJ, the next section, Brooke to 16 Strathroy, had a cost per unit of capacity of $138. So, 17 relatively speaking, it would be a more economic 18 section. 19 MS LEA: Yes. 20 MS CALLINGHAM: The economics will move in 21 line with the cost per unit at capacity that's shown 22 here. 23 MS LEA: Do you have any information about 24 that type of figure historically for other sections of 25 the Dawn-Trafalgar project, either PIs or cost per unit 26 capacity added? 27 MS CALLINGHAM: I have some background and 28 information on historical PIs for various sections that =0C 124 PANEL NO. 2, ex (Lea) 1 have been brought to the Board and approved by the 2 Board. 3 MS LEA: Would you be willing to provide that 4 information? 5 MS CALLINGHAM: The information is a matter of 6 public record as far as I know. It would be just the 7 information that the board reviewed in making the 8 decision to approve prior facilities that we brought 9 before the board. That is the only economic information 10 that I was referring to. 11 MS LEA: Do you have them in one place handy 12 so that we don't go looking through each application to 13 find out what the PI was that was approved? 14 MS CALLINGHAM: We have done a lot of them 15 since the 1950s. 16 MS LEA: I don't think we need everything 17 since the 1950s. There were looping projects done I 18 think about five or six times in the 1990s? 19 MS CALLINGHAM: Yes, I do have that 20 information summarized. Would you like me to furnish it 21 now on the record? 22 MS LEA: Certainly, however it is best for 23 you. 24 MS CALLINGHAM: If you want to return to 25 section 2, page 1. Under paragraph two of that page 26 there is a summary of all the facilities that we have 27 installed in our ongoing program since the original NTS 28 26 line. The only figures I have available to me right =0C 125 PANEL NO. 2, ex (Lea) 1 now are just the PI figures that were actually submitted 2 and approved by the board for the NTS 48-inch sections 3 from 1990 on. 4 MS LEA: That would be very helpful, thank 5 you. 6 MS CALLINGHAM: For the 1990 year section 7 Kirkwall to Hamilton it was 0.92; 1991 sections were 8 1.06; 1993 sections, 0.68; 1994, Enniskillen to Brooke, 9 0.67; 1996, Bright to Owen Sound, 0.82; and, in 1999, 10 the Dawn to Enniskillen. 11 MS LEA: Thanks very much. You probably heard 12 me put the suggestion to Panel No. 1 as to whether Union 13 considered the alternative building only the first 14 section, the Beachville to Bright section, and then 15 making up the rest of the firm demand -- because there 16 is still some uncontracted demand that may or may not be 17 filled -- with winter peaking service. You heard me 18 discuss that alternative with them, I think. Are you 19 able to assist us as to the economics of that option? 20 MS CALLINGHAM: At this point, no. We have 21 undertaken to look into that. It has not been 22 completed. 23 MS LEA: I see. 24 MS CALLINGHAM: Where I could assist you with 25 it -- possibly it might help -- when we evaluate the 26 facility, in the $6.8 million NPV that we fill in the 27 preferred project, that is only an economic analysis of 28 the assets that we are acquiring over the long term, the =0C 126 PANEL NO. 2, ex (Lea) 1 facilities that we are proposing in the application. It 2 never did have winter peaking in it. Are you asking for 3 an analysis that has winter peaking in it? 4 MS LEA: I guess what I am asking for is an 5 costing or an economic analysis rather of the option of 6 building only the one section, though that is the 7 facility itself, the asset, and then I understand that 8 there is some firm demand -- I will have to go back to 9 my notes. I believe what I would like you to assume is 10 that the 54,000 gigajoules per day that Ms Galbraith 11 talked about does not materialize but all the other 12 demand does materialize so that basically is what 13 demand you have. Then you satisfy that demand by 14 building the one section and making up the rest of it 15 through the winter peaking service. 16 MS CALLINGHAM: The result of which you are 17 going to compare to the analysis as it stands presently? 18 MS LEA: I guess so. Would that be in any way 19 valid? 20 MS CALLINGHAM: It is not a direct comparison 21 and it gets back to my point that we have never included 22 winter peaking costs in a long-term economic analysis to 23 support demand. Winter peaking is a cost that we may 24 incur on a short-term basis over the course of the year 25 to bridge the two facilities. So were we to only build 26 one section before we buy winter peaking service to 27 supplement, leaving long-term contractual demand, you 28 are looking at a very uneconomic situation -- =0C 127 PANEL NO. 2, ex (Lea) 1 MS LEA: I think I said it wrong. I think 2 what I need to say is the following and let me make my 3 assumptions a bit clearer. You do not build the second 4 section in 2001-02 but you do build it in 2002-03. In 5 other words, you delay it for a year. 6 MS CALLINGHAM: So you would build it next -- 7 MS LEA: Yes. 8 MS CALLINGHAM: You would assume that the 9 board would approve it next year? 10 MS LEA: That is the assumption I am asking 11 about. 12 MS CALLINGHAM: And it would replace any 13 winter peaking service? 14 MS LEA: Correct. So the winter peaking 15 service is only the stopgap for one year. 16 MS CALLINGHAM: Okay, because we do have 17 evidence on the record that if winter peaking was used 18 to supplement facilities to serve long-term contractual 19 demand -- that economic evidence is on section 4, page 20 8 -- it was a significantly negative result. 21 MS LEA: That was for the long term though, 22 was it not? 23 MS CALLINGHAM: Yes. If we only built one 24 section, Beachville to Bright, that you are asking for 25 and serve the balance of the demand with winter peaking 26 service? 27 MS LEA: Yes. I guess the changes then that I 28 am asking you to assume that that demand is satisfied =0C 128 PANEL NO. 2, ex (Lea) 1 through winter peaking service only for one season. 2 MS CALLINGHAM: One season. 3 MS LEA: I would ask you to remember, of 4 course, that if we look at the numbers in exhibit 11.1, 5 table two, those numbers for Beachville to Bright are 6 accurate because all the synergy savings are listed in 7 the second line for Owen Sound to Brantford. In other 8 words, you don't lose any synergy savings if you use 9 those numbers there. 10 MS CALLINGHAM: Okay. Of the $6.8 million 11 negative NPV that we are showing for building two loops, 12 I can give you a break-out of that between Beachville to 13 Bright and Owen Sound to Brantford as two separate, but 14 that analysis and the evidence that we present has never 15 included winter peaking. 16 MS LEA: No, I know. 17 MS CALLINGHAM: So when I give you this result 18 that you are asking, you are going to compare it back to 19 $6.8 million which never did have it in there. 20 MS LEA: Perhaps you can help us, 21 Ms Callingham. What we are trying to do here, as you 22 can well understand, is attempt to make a meaningful 23 comparison between a decision of the board that approved 24 both sections -- and the economics of that we have 25 before us -- and the decision of the board that for this 26 year approved only the first section. But there is a 27 good possibility or a possibility that the rest of the 28 sections will be approved, and I am asking you to assume =0C 129 PANEL NO. 2, ex (Lea) 1 that that occurs in the following year. 2 So if this board panel had to decide between 3 approving two sections and just approving the one for 4 this year, and I guess that means you would have to 5 supplement with winter peaking service, how do those 6 decisions compare economically? That is what I am 7 asking. 8 MS CALLINGHAM: Well, it compares economically 9 based on what Mr. Baker talked about this morning. It 10 is a significant economic benefit to us to pursue two 11 loops this year because of the savings that we are 12 realizing by building Owen Sound to Brantford in this 13 year compared to what we expect to pay to build that 14 section next year. There is a total difference of $11.9 15 million more that we would pay than if we wait one year. 16 I did do an analysis of what the economic 17 impact of just that deferral was on the facility cost, 18 and it is a saving of $10 million on an after tax basis.=20 19 So right off the top you are saving. We are expecting 20 that we would save $10 million forever -- as long as 21 these facilities have a useful life -- which is fairly 22 significant. So that would be the NPV difference of the 23 cost saving. 24 The other, building winter peaking in, I don't 25 expect that would have a significant impact anyway. 26 MS LEA: All right thank you. One moment 27 please. 28 -- Pause =0C 130 PANEL NO. 2, ex (Lea) 1 MS LEA: Mr. Mallette, I understand that you 2 will be dealing with the concerns raised by Mr. Dreher 3 in panel three, is that right? 4 MR. MALLETTE: Yes, I will. 5 MS LEA: So questions about the practicalities 6 of construction and differences in construction I will 7 ask you in the next panel, is that the idea? 8 MR. MALLETTE: That is fine. 9 MS LEA: Thanks very much for your answers; 10 those are my questions. 11 MS CALLINGHAM: Now, am I still to look into 12 this undertaking? 13 MS LEA: No. 14 MS CALLINGHAM: I can do it. It is going to 15 be a significant benefit. If you want me to assume that 16 it will get approved next year and it is just a matter 17 of a one-year delay, and then I don't have to berate you 18 with winter peaking for the next 30 years, then there 19 will be a significant benefit. It will be in the order 20 of $10 million, but I can get a more precise number. 21 MS LEA: No, I do not think it is necessary 22 for you to complete that one from board staff's point of 23 view. The inquiry into undertaking 13.2, we would ask 24 you to make that inquiry but we are not at this time 25 asking you for a further undertaking because, having 26 heard your evidence, I think we understand what the 27 situation is. That is our view at the moment. Thank 28 you very much. =0C 131 PANEL NO. 2 1 Thank you, Madam Chair. 2 THE PRESIDING MEMBER: Thank you, Ms Lea. I 3 just have a comment and a question. 4 Mr. Mallette, I want to thank you for putting 5 the pressure on the board to render an early decision 6 based on construction. It wouldn't be a hearing unless 7 we had that kind of pressure. I thought for a minute 8 that Mr. Baker was just going to give us the commercial 9 reasons why but I am glad that you came through. That 10 was my comment. 11 My question and I know that it is probably 12 naive but if you can help me with it. As I go to table 13 six of exhibit 11.1 -- I am not sure whom I am 14 addressing this question to so I will just put it out 15 and I know there will be an explanation for it. As I 16 look I see Brook-Strathroy in 2002 has a design day 17 deliverability added of 309609 and a cost per unit 18 capacity added of 137050, which compares favourably with 19 the two that are proposed, the Beachville-Bright and the 20 Owen Sound-Brantford. 21 My question is: Why are you not doing the 22 looping for the Brook-Strathroy because it would give 23 you approximately the same additional design day 24 deliverability added, yet the cost per unit capacity 25 would be substantially less? 26 MR. MALLETTE: Perhaps I can try to answer 27 that question. 28 THE PRESIDING MEMBER: I knew there would be =0C 132 PANEL NO. 2 1 an answer for it. 2 MR. MALLETTE: As we build facilities along 3 the Dawn-Trafalgar system, as we look through, we will 4 look at the sections that provide capacity and we will 5 select the ones that provide the best capacity for one 6 given year, and in particular for the year 2001, 7 Beachville to Bright and Owen Sound to Brantford gave 8 311,000 units of deliverability. If we compared that to 9 Brook-Strathroy, for the same year it wouldn't have 10 given as much capacity. 11 What happens is that you would build 12 Beachville-Bright and Owen Sound-Brantford first because 13 they gave the best capacity. Then the next year you 14 would look at the alternative, and Brook to Strathroy 15 was the best of the alternatives for that year. 16 THE PRESIDING MEMBER: Okay. 17 So in other words, the increased design day 18 delivery capacity is predicated on all the previous 19 loopings having been done. 20 MR. MALLETTE: That is correct. 21 THE PRESIDING MEMBER: Therefore there is a 22 sequence of -- the order is important that you are 23 proposing these loopings in because you go one after the 24 other and get your best capacity -- per cost added 25 capacity as you are going through. 26 MR. MALLETTE: That is correct. 27 And we would look at that every time we got a 28 new set of forecasts. We would go back and relook at =0C 133 PANEL NO. 2 1 that order again to make sure that we were in the 2 correct order again. 3 THE PRESIDING MEMBER: Will the order always 4 stay the same? 5 MR. MALLETTE: If the forecast stays the same, 6 the order will stay the same. If the forecast changes, 7 there is a chance that you could change the order 8 slightly. 9 THE PRESIDING MEMBER: Because you won't need 10 as much capacity, for example -- 11 MR. MALLETTE: That's right. 12 THE PRESIDING MEMBER: -- based on a cost-unit 13 capacity. 14 MR. MALLETTE: Or alternatively, some of the 15 gas was delivered -- more of the gas was delivered at 16 Kirkwall or delivered at Parkway than what were in the 17 forecast. There was a shift of where the gas was 18 required. 19 It could cause some shifting in the order. 20 THE PRESIDING MEMBER: Okay. 21 Thank you very much. 22 Mr. Leslie, anything on -- 23 MR. LESLIE: No. Thank you. 24 THE PRESIDING MEMBER: I don't what to leave 25 you out. 26 Okay, thank you very much. The panel is 27 excused with our thanks. 28 --- Short pause =0C 134 PANEL NO. 2 1 THE PRESIDING MEMBER: Excuse me. Ms Lea, 2 perhaps you could -- could you help me and Mr. Leslie 3 with priming? I guess we are going to have a Mr. 4 Dreher's questions answered next, are we? In one -- 5 MR. LESLIE: Yes. 6 THE PRESIDING MEMBER: When was that -- 7 MR. LESLIE: I was going to ask Mr. Mallette 8 to -- 9 THE PRESIDING MEMBER: To stay on? 10 MR. LESLIE: He is on the next panel in any 11 event but I would sort of ask him to respond to Mr. 12 Dreher's concerns. 13 THE PRESIDING MEMBER: Okay. So were you 14 thinking that we would have the next panel now in 15 response to Mr. Dreher's concerns and do the direct, and 16 then -- 17 MR. LESLIE: Yes. 18 THE PRESIDING MEMBER: -- have a break and 19 then Ms Lea can do the cross-examination? Is that the 20 schedule you were thinking of? 21 MS LEA: Sure. 22 MR. LESLIE: If that is okay, yes. 23 THE PRESIDING MEMBER: That is just fine. 24 MR. LESLIE: I was going to ask Mr. Haley to 25 update the status of the landowner situation as well. 26 THE PRESIDING MEMBER: Thank you. 27 I guess right now we will swear in the next 28 panel. =0C 135 PANEL NO. 2 1 MR. LESLIE: That is Mr. Mallette again, Mr. 2 Haley, Mr. Greg Payne, and David Wesenger. 3 THE PRESIDING MEMBER: Thank you. 4 --- Pause 5 PREVIOUSLY SWORN: GERRY MALLETTE 6 SWORN: RON HALEY 7 SWORN: GREG PAYNE 8 SWORN: DAVID WESENGER 9 EXAMINATION-IN-CHIEF 10 MR. LESLIE: I have two updates to the 11 evidence that I will file with your permission. The 12 first one is an update to Section 5, Schedule 2, that is 13 a schedule that shows the environmental costs to the 14 project. Mr. Payne can speak to that. 15 THE PRESIDING MEMBER: Thank you. 16 MR. LESLIE: The changes have been 17 highlighted. 18 And then there is a two-page document which is 19 a schedule showing landowners who are affected by the 20 two projects. There was a change in ownership, one in 21 each case. Those have been noted on that revised 22 schedule. That is the only difference. Mr. Haley can 23 speak to that if necessary. 24 THE PRESIDING MEMBER: Thank you. 25 MR. LESLIE: Just for the record, that is 26 Section 5, Schedule 2 and Section 8, Schedule 3, pages 3 27 and 4 -- I am sorry -- Section 8, Schedule 3, page 3 and 28 Section 8, Schedule 4, page 3. =0C 136 PANEL NO. 3, in-ch (Leslie) 1 Mr. Haley, if could start with you. 2 You are a senior lands agent with Union Gas? 3 MR. HALEY: Yes, I am. 4 MR. LESLIE: And you are responsible for 5 Section 8 of the prefiled evidence? 6 MR. HALEY: Yes, I am. 7 MR. LESLIE: And do you adopt that evidence? 8 MR. HALEY: Yes, I do with the proviso with 9 the new schedule of landowners -- the new landowners 10 that has been filed. 11 MR. LESLIE: Yes. Thank you. 12 Mr. Payne, you are a senior environmental 13 planner with Union Gas? 14 MR. PAYNE: Yes, I am. 15 MR. LESLIE: And your evidence is found in 16 Section 7, dealing with environmental matters? 17 MR. PAYNE: Yes, it is. 18 MR. LESLIE: And do you adopt that evidence? 19 MR. PAYNE: Yes, I do. 20 MR. LESLIE: And finally, Mr. Wesenger, you 21 are a senior project manager with ESG International 22 Inc.? 23 MR. WESENGER: Yes, I am. 24 MR. LESLIE: And you are responsible for the 25 prefiled evidence dealing with the environmental 26 reports? 27 MR. WESENGER: That is correct. 28 MR. LESLIE: And personally prepared, as I =0C 137 PANEL NO. 3, in-ch (Leslie) 1 understand it, the updates to those reports which are 2 filed as the addendums to Section 1 and 2 of volume 2? 3 MR. WESENGER: That is correct. 4 MR. LESLIE: And you are familiar with all of 5 the other evidence, I understand? 6 MR. WESENGER: Yes, I am -- the environmental 7 evidence. 8 MR. LESLIE: And do you adopt that evidence, 9 sir? 10 MR. WESENGER: Yes, I do. 11 MR. LESLIE: Thank you. 12 Mr. Haley, perhaps I will start with you.=20 13 Could you provide the Board with an update on the 14 situation as it pertains to landowners and any 15 outstanding easements or other copyrights that exist? 16 MR. HALEY: Yes. Perhaps for easy reference, 17 if you could turn to Board Staff Interrogatory # 34. 18 --- Short pause 19 MR. HALEY: Page 2 of that interrogatory, in 20 terms of the Beachville-Bright project, in theory we 21 considered that all the landrights are in place. 22 On December 4th of 2000, we received a letter 23 from the Ontario Realty Corporation indicating that all 24 outstanding issues related to the granting of the 25 easement by that group had been dealt with, that their 26 appraisal staff had found the compensation offer 27 acceptable, and that we could expect signed easements 28 within 90 days. In theory, we consider =0C 138 PANEL NO. 3, in-ch (Leslie) 1 Beachville-Bright complete. 2 In terms of Owen Sound-Brantford, number one, 3 OS.B. #05, Blue Circle Canada Inc., recently there has 4 been an exchange of letters confirming earlier 5 discussions with their lands manager indicating that 6 they find our easement offer acceptable and are 7 satisfied that we will be able to establish values for 8 sterilized gravel in the near future. 9 As recently as yesterday, I received a phone 10 call from their solicitor just clarifying some items 11 relating to the easement and the transfer of funds 12 related to the easement. He indicated that we can 13 expect signed easements within the next couple of weeks. 14 Number two and four, OS.B #21, the 15 negotiations with that landowner were completed on 16 February 2, 2001. OS.B #24, Carl Wesley Bickle, he owns 17 both of those properties -- in case it isn't clear in 18 that answer -- he signed the required documents on 19 January 22, 2001. So neither of those properties are 20 still outstanding. 21 In terms of Mr. and Mrs. Dreher who appeared 22 before the Board this morning, we are having ongoing 23 discussions with them. 24 Perhaps to assist the Board, I can outline the 25 status of those negotiations. We have been meeting with 26 Mr. Dreher and Mrs. Dreher over the years back in the 27 days when we were dealing with other landowners -- and 28 many of them signed. More recently, meetings were held =0C 139 PANEL NO. 3, in-ch (Leslie) 1 in October of last year and December of last year; a 2 further meeting in January, January 22 of this year; and 3 most recently, February 5, last Monday. 4 The one meeting in October and the meeting in 5 December was -- Mr. Jeff Faulkner of our pipeline 6 projects group and myself, met with Mr. Dreher and 7 talked about the construction issues that they had 8 related to the 48-inch pipeline. By the January 9 meeting, we had addressed those specific issues related 10 to the 48-inch pipeline. 11 In the most recent meeting on Monday, February 12 5, I met with Mr. and Mrs. Dreher that evening and at 13 the end of the meeting, Mr. Dreher indicated to me that 14 he had no problem if I was asked about the status of 15 negotiations with them, indicating to the Board today 16 that we had adequately addressed their concerns related 17 to the 48-inch pipeline construction and that the issues 18 that remain outstanding are primarily of a compensation 19 nature. 20 Now I hasten to point out in terms of what he 21 said this morning that -- he has indicated all along, 22 especially in the meetings in December and January -- 23 that whether or not we came to an agreement and 24 documents were signed for the 48-inch pipeline, that he 25 would be attending the hearing either to listen to what 26 was said about more global issues that he has concerns 27 about or to speak to them as he did and that is what has 28 happened. =0C 140 PANEL NO. 3, in-ch (Leslie) 1 We feel that we are very close as far as 2 negotiating the required landrights for this project.=20 3 As I say, he assured me yesterday in a telephone 4 conversation that he had no problem with me indicating 5 that today. 6 Going back to the interrogatory, number 5, 7 OS.B. #25, Brian Ross Booth and Karen Elaine Scott 8 Booth, they signed required documents on December 20th 9 of 2000. 10 The three properties owned by Paris Pits 11 Limited -- a very similar situation to the Blue Circle 12 Gravel Pit property. The owners there, we have been 13 negotiating with them over the years. They have no 14 problem with the granting of an easement, the value 15 related to the easement, and they are quite satisfied 16 with our proposal to evaluate the amount of sterilized 17 gravel through the use of an aggregate consultant. So 18 negotiations are in very shape there. 19 The final outstanding landowner indicated in 20 an interrogatory #34, Susan Kathleen Gross, she signed 21 the required documents on December 12th, 2000. 22 In summary, Beachville-Bright, there is 23 technically one outstanding land requirement. On Owen 24 Sound-Brantford, there are three outstanding property 25 owners, totalling five properties. 26 MR. LESLIE: Thanks very much. 27 Mr. Mallette, you were here this morning when 28 Mr. Dreher made his comments to the Board? =0C 141 PANEL NO. 3, in-ch (Leslie) 1 MR. MALLETTE: Yes, I was. 2 MR. LESLIE: And I understand that you are 3 prepared to respond to those comments or at least 4 comment on those comments? 5 MR. MALLETTE: Yes. 6 MR. LESLIE: If you can do that now. 7 MR. MALLETTE: Okay. 8 As Mr. Leslie said, I was able to make a few 9 notes as Mr. Dreher was speaking. I will try to address 10 as many of the issues as I can all at one time here. 11 With real respect for Mr. Dreher's concerns 12 about the existing pipelines, many of the issues he 13 raised could consume a considerable amount of time to 14 fully discuss and explore. Again, that is regarding the 15 existing pipelines, the 26 inch, the 34 inch, and the 42 16 inch pipeline. 17 I would like to restrict my comments primarily 18 to the proposed 48 inch pipeline that is the subject of 19 this hearing. To provide some assurance, however, about 20 the existing pipelines to Mr. Dreher and to the Board, I 21 can provide that each of the 26 inch, the 34 inch, and 22 the 42 inch diameter pipelines have been pigged with 23 electronic tools from one end to the other. Follow up 24 investigations, investigative integrity digs were 25 undertaken and today, Union is confident the existing 26 lines pose no threat to public safety. 27 To generally address the integrity concerns, 28 Union is using the same approach for the proposed 48 =0C 142 PANEL NO. 3, in-ch (Leslie) 1 inch pipeline as used on previous expansion projects.=20 2 The focus is on pipeline integrity throughout the three 3 main pipeline phases of design, construction, and 4 operation. 5 The pipeline is designed using the highest 6 quality materials including steel with toughness 7 properties to resist brittle failure and crack 8 propagation. The pipe and fittings are inspected and 9 material sources and final installation locations are 10 recorded. Fusion-bond epoxy coating has been specified 11 for the use on this pipeline. Stress corrosion 12 cracking, commonly known as SCC, has never been found 13 under fusion-bond epoxy coating. The pipeline will have 14 cathodic protection to resist corrosion. The pipe will 15 contain full opening ball valves, long radius elbows, 16 and scraper bars in the fittings to allow inline 17 electronic inspection -- again, commonly known as 18 pigging. 19 The specified minimum burial depth exceeds the 20 depth of cover required by the CSAZ 662 code for 21 pipeline construction. The pipe is installed with sight 22 inspection of all activities. The welds are 100 per 23 cent non-destructively examined through x-ray or 24 ultrasonics. Once the pipe is in the ground, it is 25 hydrostatically tested to a higher pressure than it will 26 ever see in service. 27 During operation, the pipeline will be 28 monitored by aerial surveillance and line walks. Marker =0C 143 PANEL NO. 3, in-ch (Leslie) 1 signs are maintained and called before any big programs 2 are in place. The cathodic protection is monitored to 3 ensure its effectiveness. Pipeline pressures are 4 monitored and the mainline valves are remotely operable. 5 Emergency plans incorporated first responded 6 and public communications. 7 All of these efforts and many others that I 8 have left unmentioned throughout the design, the 9 construction, and the pipeline operation ensure a 10 modern, safe facility. 11 Mr. Dreher specifically mentioned his concern 12 about thermal radiation and associated setbacks to 13 houses. 14 Specific studies for thermal radiation have 15 not been done for this pipeline. If they were done, the 16 results would vary along the line and depend on a large 17 number of factors including line pressure, land 18 topography, wind direction, nature of the failure, and 19 so forth. 20 Interrogatory No. 32 from Board staff, the 21 response indicates the pipeline will not pass within the 22 TSSA guideline setback of 20 metres. In fact, the 23 nearest house along either pipeline section is about 24 50 metres away. 25 He also asked about line separation. Line 26 separation is 12 metres from existing line. The minimum 27 separation required by CSA's Z-662 code will be met as 28 identified in interrogatory response to the Board staff, =0C 144 PANEL NO. 3, in-ch (Leslie) 1 No. 33. 2 To our knowledge, there has never been a line 3 break where a pipeline 12 metres away was affected. 4 Regarding the design of the pipe, the wall 5 thickness and so forth, we are installing, or we are 6 proposing to install, pipe that is suitable for Class 2 7 or Class 3 throughout this section. Class 2 in most of 8 it, and in a few places, a couple of cases Class 3, the 9 pipe is suitable for those class locations. Although, 10 the loop sections are largely Class 1 location, so we 11 are exceeding the minimum requirements of the Code. 12 Our design approach is to meet or exceed the 13 prescriptive requirements of Ontario Regulation 157/97, 14 and the CSA Z-662, without reverting the first 15 principles and without developing a limit state or a 16 risk-based design in every circumstance. 17 The bearer was concerned about abandonment of 18 the pipe. Union believes abandonment plans should be 19 made at the time of abandonment, not before the pipe is 20 installed. By developing plans at the time of the 21 abandonment, which may be 50 or more years from now, we 22 can do the following things: we can take into account 23 the environmental conditions present at that time; we 24 can comply with the regulations and guidelines in effect 25 at that time; we can take into account landowner 26 concerns with the owners who own the property at that 27 time; and, we can use the latest technology available. 28 We feel that any guarantees provided now as to =0C 145 PANEL NO. 3, in-ch (Leslie) 1 the techniques that will be used in the future, at the 2 time of abandonment, may not be fulfilled. 3 At abandonment, if the company wanted to 4 release its easement and release the rights and 5 obligations under the easement, and the landowner wanted 6 to gain back the limited rights that they had granted 7 under the easement, then the two sides would have to be 8 in agreement. They would have to agree on that 9 mechanism of removing the easement. 10 If the easement is released, Union would not 11 be able to do so without the landowner being able to 12 accept the conditions that are left behind on the 13 property. The landowner could accept the pipe as it is, 14 perhaps they would accept the situation where the 15 pipeline would be filled with something that wouldn't 16 allow it to collapse, like a very weak concrete grout, 17 or they may accept only the situation where the pipeline 18 is removed. 19 Without agreements on those issues, however, 20 the only option for Union would be to maintain the 21 easement and maintain its rights and obligations under 22 that easement. 23 I think that summarizes our abandonment 24 situation and I believe covers the majority of the 25 concerns that Mr. Dreher has. 26 MR. LESLIE: I think so too, Mr. Mallette, 27 from my notes. 28 Thank you. Those are all my questions. =0C 146 PANEL NO. 3, in-ch (Leslie) 1 THE PRESIDING MEMBER: Thank you, Mr. Leslie. 2 Ms Lea? 3 While Ms Lea is collecting her thoughts, I 4 just have one question. 5 Did we not deal with abandonment of wells in 6 Century Pools II? 7 MR. LESLIE: Yes. 8 THE PRESIDING MEMBER: Didn't I write 9 something in that decision about everyone getting 10 together and talking about abandonment? We weren't 11 going to order a specific abandonment policy for wells, 12 but we thought everyone should talk about it because it 13 was an issue. I should know, I wrote the decision, 14 but -- 15 MR. LESLIE: No. I remember the lurid 16 pictures of Morad(ph) Springs. 17 Yes, there was a direction to do that, and I 18 believe that that has been acted upon, but that involved 19 the Lambton County Landowners' Association. 20 THE PRESIDING MEMBER: It was just with 21 Lambton County? 22 MR. LESLIE: Yes. 23 THE PRESIDING MEMBER: It wasn't generally? 24 MR. LESLIE: Frankly, I don't think Mr. Dreher 25 has approached our people about abandonment matters, as 26 such, prior to today. I don't know whether Mr. Haley is 27 aware he had these concerns or not in general. 28 THE PRESIDING MEMBER: Mr. Haley? =0C 147 PANEL NO. 3, in-ch (Leslie) 1 MR. HALEY: In all our discussions over the 2 years he has talked about general concerns, global 3 concerns about pipelines in general and sort have has 4 always led me to believe that he would like to have the 5 opportunity to speak at a forum such as this about both 6 those concerns. But, again, I repeat that, you know, on 7 the last two meetings we have had, and confirmed by a 8 telephone conversation yesterday, he indicated he had no 9 problem with me indicating that he is satisfied with our 10 commitments related to the construction of the 48-inch 11 pipeline. 12 What is outstanding in terms of this 13 particular project is agreement on the compensation 14 aspects of the project. 15 THE PRESIDING MEMBER: Thank you, Mr. Haley. 16 It was as much a question to Board staff as it 17 was to Union, just trying to deal with what the status 18 of abandonment is. I know abandonment was an issue, for 19 example, in the Model Franchise Agreement hearing, and 20 that was dealt with by AMO, the Association of 21 Municipalities of Ontario, and the consortium of gas 22 companies and the Board at that time. But I was just 23 curious as to what the status was of general abandonment 24 issues of pipelines. 25 Ms Lea, can you help me on that? 26 MS LEA: I was actually going to check with 27 Mr. McKay, with Union's witnesses. 28 I had the understanding that for the Lambton =0C 148 PANEL NO. 3, in-ch (Leslie) 1 County Storage Association situation that in fact 2 meetings have not taken place, as the Board has 3 suggested, and my understanding was that Union believes 4 that its own internal policies with regard to 5 abandonment were sufficient because they complied with 6 TSSA standards and that, therefore, further discussion 7 wasn't required. 8 But I don't know whether that is in fact what 9 has gone on and I take it -- 10 MR. LESLIE: No, that's not my understanding, 11 but I haven't inquired into this recently so perhaps -- 12 MS LEA: So I think if you can inquire, that 13 might be better. 14 THE PRESIDING MEMBER: I would appreciate 15 that. Thank you. 16 Ms Lea, did you have some questions on 17 Mr. Dreher's issues to make sure that they are fully 18 covered? 19 EXAMINATION 20 MS LEA: Yes. I did have a couple of things 21 with respect to Mr. Dreher's issues, beginning with 22 abandonment. 23 Do I gather that Union does have an internal 24 policy or procedure now for abandonment? 25 MR. MALLETTE: Currently, what we do is we 26 follow the TSSA guidelines and essentially develop a 27 plan each time a situation arises. 28 MS LEA: So if you were going to abandon a =0C 149 PANEL NO. 3, ex (Lea) 1 pipe today, would you be consulting the landowner about 2 how that would be accomplished? 3 MR. MALLETTE: Yes, we would. 4 MS LEA: And what does the TSSA, briefly, 5 require you to do? 6 --- Pause 7 MR. MALLETTE: Essentially, they have a list 8 that consists of 13 questions that the company shall 9 consider when developing an abandonment plan. If you 10 want me to I can read them all. There is a full page. 11 MS LEA: No. Why don't I look at them on the 12 break, or we can file the -- perhaps the thing to do is 13 to file the page as an exhibit. We can make photocopies 14 of it and have you read them into the record, and I will 15 look at it on the break as well. 16 Mr. Dreher mentioned an NPS 26-inch line that, 17 as I understood him, and maybe I'm wrong, was running at 18 the back of his property. Is that a Union line? 19 MR. MALLETTE: I believe it is. I would have 20 to check my drawings here to find his property. The 21 26-inch line does deviate away from the other line in a 22 certain area and his property may be one of those. I 23 would have to check that more directly. I just don't 24 recall at the moment. 25 MS LEA: Perhaps you could do that on the 26 break. 27 He seemed to express concerns about that line 28 being up to present standards because it was one of the =0C 150 PANEL NO. 3, ex (Lea) 1 oldest on his property. So I wonder if during the break 2 you could check and see if it is one of your lines and 3 what its status is. 4 You gave us some evidence here about having 5 checked the lines through pigging. Would that apply 6 also to this 26-inch line that we are discussing? 7 MR. MALLETTE: Yes. That is our line and I 8 believe it is, because I am unaware of any other 26-inch 9 diameter pipeline in this general vicinity. Then it 10 would have been part of the -- it is part of the 11 Trafalgar system and would have been checked, as I 12 indicated. 13 MR. HALEY: Perhaps I can clarify a little bit 14 more -- 15 MS LEA: Please. 16 MR. HALEY: -- because it is in fact a Union 17 Gas pipeline. 18 MS LEA: Okay. 19 MR. HALEY: But I should clarify a little 20 further that the pipeline is not on his property. It is 21 just beyond the limit of his property. It's on the 22 property to the north of his. 23 MS LEA: Okay. 24 Now, Mr. Mallette, is there any concern about 25 the materials of that pipeline, given -- when was it 26 constructed? 27 MR. MALLETTE: I believe it was in the late 28 fifties. =0C 151 PANEL NO. 3, ex (Lea) 1 MS LEA: Yes. Have there been improvements in 2 materials and pipeline construction techniques such that 3 that pipeline is no longer up to standards? 4 MR. MALLETTE: Yes, it is up to standard. As 5 you may know, the CSA Z-662 Code is not grandfathered.=20 6 In other words, if you were building that pipe today you 7 may do different things, but just because the Code 8 changes doesn't mean you have to go back and take up all 9 the pipe in the ground that does not meet the current 10 Code requirements if you were installing it today. 11 However, because of our integrity 12 investigation and our ongoing operation, we feel that it 13 is a very safe pipeline. As I say, we are competent 14 that it poses no public safety risk. 15 MS LEA: In your earlier evidence you said 16 that you were getting two types of pipe for this 17 project, one was from a steel mill and one was from 18 another pipeline company. Do both of these pipes meet 19 the CSA and Ontario Regulation Standards as required 20 presently for a gas pipeline? 21 MR. MALLETTE: Yes, they do. 22 MS LEA: Will you have any trouble with the 23 welding operations, given that you may be welding pipes 24 of slightly different thicknesses together? Is that a 25 concern? 26 MR. MALLETTE: That will not present a 27 problem. 28 MS LEA: The other thing that I think =0C 152 PANEL NO. 3, ex (Lea) 1 Mr. Dreher was talking about was the -- I don't know 2 whether he was referring to depth or cover or thickness 3 of pipeline, but perhaps you could assist us with the 4 class scheme for pipelines under the CSA Code. 5 I understand that different classes are given 6 for different population densities. Am I correct? 7 MR. MALLETTE: Yes, that's correct. 8 MS LEA: You indicated that these were going 9 to be built to Class 2 and 3 standards, despite the fact 10 that it was largely a Class 1 area. Could you explain 11 that evidence please. 12 MR. MALLETTE: Yes, I will. 13 Perhaps I could most easily explain it for the 14 Class 2 pipe, the pipe that meets the Class 2 standards 15 being installed in a Class 1 area. 16 MS LEA: Certainly. 17 MR. MALLETTE: The combined location factor 18 and design factor provided in the CSA Z-662 Code for a 19 Class 2 location produces a requirement for the pipe 20 that it operates a maximum operating pressure of no more 21 than 72 per cent of its specified minimum yield 22 strength. That is for Class 2. Class 1 is 80 per cent. 23 However, because the 48-inch pipe also has a 24 maximum diameter-over-thickness ratio as required by the 25 Code, and as amended by the Ontario Regulation 157/97, 26 we cannot make the pipe wall any thinner to meet that 27 diameter-over-thickness ratio. So what we could do, if 28 we wanted to just design to the lesser requirement for =0C 153 PANEL NO. 3, ex (Lea) 1 Class 1, would be to order a lower grade pipe, a lower 2 grade steel. 3 Instead we have ordered a slightly higher 4 grade steel which has little or no commercial impact and 5 the benefit that we get is that it qualifies for a 6 Class 2 location. So, in other words, at little cost 7 impact, little or no cost impact to the company, we are 8 able to install pipe that meets the Class 2 requirement. 9 MS LEA: And the areas that you are travelling 10 through with this pipe, what class are they? 11 MR. MALLETTE: Primarily Class 1. 12 MS LEA: Are there areas of Class 2? 13 MR. MALLETTE: Not that I'm aware of at the 14 moment. However, it's very possible that a Class 2 15 could develop by the addition of a few houses or an area 16 where -- of public congregation where you may have 20 or 17 more people arriving at one time. 18 MS LEA: And I gather there is no Class 3 19 locations in this project? 20 MR. MALLETTE: There is a potential Class 3 21 location which is just to the west of the -- I'm 22 sorry -- of the Brightville site which is -- which is 23 commonly known as the Maple Manor Development. It is a 24 subdivision that is planned, not yet fully built. 25 MS LEA: And what class of pipe are you 26 putting in there? 27 MR. MALLETTE: Class 3. 28 MS LEA: And just then to complete the circle =0C 154 PANEL NO. 3, ex (Lea) 1 as it were, these older pipes that are in the ground, 2 what happens if they are built say to Class 1 and then a 3 Class 3 location develops around them. Do you have to 4 take the pipes out and replace them? 5 MR. MALLETTE: Commonly that would be the 6 solution. 7 MS LEA: And are you running into that sort of 8 situation in the Trafalgar line? 9 MR. MALLETTE: Yes, we have run into that 10 situation and we have replaced sections of pipe because 11 a class location has changed. 12 MS LEA: And is there any possibility of a 13 classification change in the location near where 14 Mr. Dreher's property is? At the present time, I mean.=20 15 I know we don't know in the future. 16 MR. MALLETTE: We do not believe it would 17 exceed the Class 2 designation in the foreseeable 18 future. 19 MS LEA: Thank you very much. 20 THE PRESIDING MEMBER: Thank you, Ms Lea.=20 21 Mr. Haley, I note that on the -- with Board Staff IR 34, 22 the Dreher's are listed as an outstanding easement. 23 MR. HALEY: That is correct. 24 THE PRESIDING MEMBER: There are three other 25 lines or two other lines and one that is just to the 26 north now of the Dreher's property. Are there recent 27 agreements signed that affect that property for those 28 other lines? =0C 155 PANEL NO. 3 1 MR. HALEY: That are on the Dreher property? 2 THE PRESIDING MEMBER: Yes. 3 MR. HALEY: Yes 4 THE PRESIDING MEMBER: So it is just this 5 additional easement that Mr. Dreher is having problems 6 with? 7 MR. HALEY: That is correct. The Drehers 8 signed an easement for the 42-inch line which was the 9 last line built in about 1985 I believe. 10 THE PRESIDING MEMBER: Okay. Thank you. 11 This is my question for Board staff to be on 12 the record and I notice that Mr. McKay is here and I 13 know that he will know the answer to it and that just 14 deals with pipeline safety issues and a responsibility 15 for pipeline safety and could we just have on the record 16 who is responsible for pipeline safety and what the 17 process is. 18 Mr. McKay, do you want to just go to 19 microphone. 20 MS LEA: You have to turn it on. The button 21 on the top. 22 MR. McKAY: The pipeline safety is 23 responsibility of the Technical Standards and Safety 24 Authority for the record. 25 THE PRESIDING MEMBER: Would you like to 26 elaborate on that, please. 27 MR. McKAY: It's currently operated by the 28 Technical Standards and Safety Authority and Oscar =0C 156 PANEL NO. 3 1 Orlonzo is the pipeline engineer for that group. 2 THE PRESIDING MEMBER: And this is an 3 independent authority? 4 MR. McKAY: Yes, it is. Previously operated 5 by the Consumer and Commercial Relations. 6 THE PRESIDING MEMBER: Thank you. So 7 therefore there is an independent authority that is 8 responsible for pipeline safety throughout the province. 9 MS LEA: Yes. 10 THE PRESIDING MEMBER: I just want to get this 11 on the record because we may be sending it to Mr. Dreher 12 to give him confidence, the fact that there is an 13 independent body that is responsible for pipeline safety 14 throughout the province. 15 MS LEA: Yes, that is right. And also I 16 believe they are dealing with the issue of abandonment 17 at this time also. I believe they are -- in fact there 18 is some consideration of the requirements for 19 abandonment presently ongoing. 20 MR. McKAY: There is an advisory committee of 21 which Union Gas and the Board is a member of and we work 22 on the issues such as abandonment and that requirement.=20 23 So the issues that have been raised by Mr. Dreher have 24 also been addressed through this committee. 25 THE PRESIDING MEMBER: So we might suggest to 26 Mr. Dreher that if he has got specific comments he could 27 address them to the committee. Is that correct? 28 MR. McKAY: Yes, that is correct. =0C 157 PANEL NO. 3 1 THE PRESIDING MEMBER: Thank you very much. 2 MR. McKAY: Thank you. 3 Miss Simon has a question for you, Mr. McKay. 4 MEMBER SIMON: Just to complete the record, 5 was the PSSA a member of the OPCC committee that was 6 used in these applications? 7 MR. McKAY: Yes, they are a longstanding 8 member of the Ontario Pipeline Coordinating Committee 9 and they would have reviewed all the evidence submitted 10 to the project. 11 MEMBER SIMON: Did they have any outstanding 12 concerns regarding this -- 13 MR. McKAY: From my recollection, and not 14 having expected to be here, my recollection is that they 15 did not have any concerns with the pipeline as filed and 16 that it met all of the -- all of the CSA code 17 requirements as well as the regulation 167. 18 MEMBER SIMON: Mr. Payne, is that something 19 that you could confirm for us on the record? 20 MR. PAYNE: Yes, it is. In interrogatory, 21 Board Staff Interrogatory 42 on both the Owen 22 Sound/Brantford and Beachville/Bright projects, 23 Mr. Oscar Orlonzo has commented and his letters are 24 attached there. 25 MR. LESLIE: I believe Mr. Mallette has 26 something he would like to add as well. 27 MR. MALLETTE: That was it. 28 MR. LESLIE: Was that it. =0C 158 PANEL NO. 3 1 THE PRESIDING MEMBER: Thank you. Thank you, 2 Mr. McKay, I appreciate your participation. Board staff 3 are always there to pinch hit when we need you. Thank 4 you. 5 Ms Lea, are you satisfied that this addresses 6 all of Mr. Dreher's concerns? 7 MS LEA: I have no other notes, Madam Chair. 8 THE PRESIDING MEMBER: Okay. Thank you. 9 MR. Leslie, do you have anything more in 10 direct? 11 MR. LESLIE: No, I do not. 12 THE PRESIDING MEMBER: Thank you. Then we are 13 up to Ms Lea. 14 EXAMINATION 15 MS LEA: Thank you, Madam Chair. 16 I have one question, gentlemen, that I asked 17 Panel 2 and I would like to just do that first before I 18 forget it. 19 In the updated evidence, Exhibit 11.1 there 20 was a Table 3. So that is Exhibit 11.1, Table 3 and 21 there was along, about two-thirds of the way down the 22 page, immediately above the line "Total Construction and 23 Labour," and that line reads "Easement lands as 24 damages." And I see that there has been an increase in 25 cost between the original filing and this revision. Can 26 someone address the reason for that, please? 27 MR. HALEY: I believe Mr. Mallette deferred 28 this one to me so I will do my best. =0C 159 PANEL NO. 3, ex (Lea) 1 I will make reference to an OEB Staff 2 Interrogatory No. 38 although it's not really necessary 3 to turn to it. But in that interrogatory we outlined a 4 new compensation component which came out of EBRO 267 5 Dawn-Enniskillen which we made the decision to 6 voluntarily extend to the landowners on 7 Beachville/Bright and Owen Sound/Brantford. 8 MS LEA: Okay. 9 MR. HALEY: So at the time of the original 10 filing we had a pretty good idea we were going to do 11 that but we didn't have the opportunity to quantify that 12 as closely as we might have. So in reviewing the 13 evidence and doing the updates we determined -- we were 14 better able to determine the magnitude of that 15 contribution to the costs of the project and therefore 16 it resulted in that increase. 17 MS LEA: Thank you. Can you give us some idea 18 of the differences that you were offering to these 19 landowners that go along with the 267 project that came 20 out of that project? 21 MR. HALEY: If you could refer to Board Staff 22 Interrogatory No. 38, there is a chart there that 23 outlines the new components. 24 MS LEA: Right. Okay. 25 MR. HALEY: Basically there are three new 26 components. One is that we are paying a disturbance 27 damage for the temporary land use lands and those are 28 paid at half the disturbance rate for the easement. The =0C 160 PANEL NO. 3, ex (Lea) 1 second one is that instead of paying measured crop 2 damage on the temporary lands, we are now paying a one 3 time crop damage payment in the same manner that we do 4 on the easement land. 5 MS LEA: I gather that -- is that an option 6 for the owner? 7 MR. HALEY: It's an option if they choose the 8 one time full and final component. We call it an 9 option, but since the introduction of our three-part 10 compensation program, I can't remember anyone that has 11 ever chosen the comparative crop program although it 12 still remains in our arsenal so to speak. 13 MS LEA: Okay. And the last thing -- 14 MR. HALEY: The third one is in the past in 15 the disturbance damage component that was paid for the 16 easement, a portion of that payment went towards a 17 payment for topsoil storage. With the completion of the 18 negotiations for EBRO 267 Dawn-Enniskillen, we bend 19 again to make a use payment for that land based on a 20 percentage of the easement area and we are voluntarily 21 extending that payment to this group as well. 22 MS LEA: In terms of the quantum or the amount 23 of compensation per acre of land of either temporary or 24 permanent easement, are the amounts you are offering to 25 the landowners in this case comparable to those offered 26 in EBRO 267? 27 MR. HALEY: Yes, they are very close. 28 MS LEA: Okay. Thank you. And you have =0C 161 PANEL NO. 3, ex (Lea) 1 indicated to us that the only -- you have updated us on 2 the outstanding easement agreement. Just a moment, 3 please. 4 I'm just crossing off a lot of the questions 5 that have already been answered. 6 Now, just dealing with these landowners who 7 operate gravel pits, I gather that what you are going to 8 do is make compensation for the resource that you are 9 taking out of service or sterilizing is the term that is 10 used in the evidence, the gravel they can longer dig 11 out. Is that right? 12 MR. HALEY: That is correct. 13 MS LEA: And you are going to be using the 14 services of an aggregate consultant in order to value 15 that? 16 MR. HALEY: That is correct. And we have 17 entered into a contract with that consultant just 18 recently. So we are about ready to do that work. 19 MS LEA: Have these two landowners had the 20 Trafalgar line pipeline cross their land before? 21 MR. HALEY: Yes, they have. I should clarify.=20 22 In the case of Blue Circle, which is our OSB File No.=20 23 5, it was a prior owner. They had bought the land when 24 the 42-inch pipeline went through. But Ferris Pits is 25 actually a new corporate owner but the principal of that 26 company was involved when the 42-inch pipeline went 27 through as well. 28 MS LEA: And with Blue Circle was the land =0C 162 PANEL NO. 3, ex (Lea) 1 operated as a gravel pit doing previous construction? 2 MR. HALEY: Yes, it was. 3 MS LEA: One thing when we looked at the -- 4 actually I guess it was the photomosaic that showed the 5 locations of these gravel pits, it looked almost as if 6 to us the pipeline was actually going to go across one 7 of the dug pits and we didn't -- we couldn't figure out 8 how you would deal with that and get enough cover for 9 the pipe. Since we are dealing with the gravel pits can 10 Mr. Payne or someone assist us as to how you actually 11 physically deal with putting a pipe through gravel pit 12 areas and how the land is restored or what you do to it? 13 MR. PAYNE: I think probably Mr. Mallette 14 would be the greatest help here. But I will set up 15 the -- 16 MS LEA: I don't know. Given the expression 17 on his face, I think he wants you to do it. 18 MR. PAYNE: I can do it if you like. In the 19 environmental assessment binder, section 2 is the 20 original Owen Sound/Brantford environmental assessment 21 and in that are the aerial photographs that will provide 22 a little more information. 23 The first gravel pit is on the first page of 24 the aerial photograph, sheet 1 of 5, to the extreme 25 right-hand side of the page you will note on the aerial 26 photograph that it is Canadian Building Materials that 27 was the -- 28 MS LEA: Yes. =0C 163 PANEL NO. 3, ex (Lea) 1 MR. PAYNE: -- previous owner that Mr. Haley 2 referred to. 3 MS LEA: Of which one? 4 MR. PAYNE: Of Blue Circle Aggregate. 5 MS LEA: Okay. Are we right in thinking 6 that -- it looks to me as if the pipe is actually 7 crossing active pits there. 8 MR. PAYNE: I will try to attempt to make it 9 be more of a general statement that may help you. 10 The Ministry of Natural Resources, the MNR 11 provide extraction permits to these pit owners and they 12 will identify cutbacks that we have to be in agreement 13 with. So in other words, the actual operation will not 14 come any closer than is specified in those extraction 15 permits and that will protect the pipeline. 16 MS LEA: Okay. So the photomosaic is in 17 effect a little misleading, not because it is in error 18 but because the type of setback things are not shown at 19 all in the photomosaic. 20 MR. PAYNE: Yes. Because they are not in 21 stereo, the photomosaics, you can't see the topography 22 as well as you might with a stereoscope. 23 MS LEA: Yes. 24 MR. PAYNE: And stereoparaphotographs when you 25 can actually see that the pipelines are actually 26 separate from the excavated pit. 27 MS LEA: Okay. So there is a way to cost that 28 land without going through those excavated pits then. =0C 164 PANEL NO. 3, ex (Lea) 1 THE PRESIDING MEMBER: Well -- just give me a 2 second to turn up the correct map. 3 MS LEA: Sure. A lot of the greenery there 4 just doesn't look like it on the photo. 5 MR. PAYNE: They have certainly been 6 extensively looked at in the field. 7 MS LEA: Okay. Possibly it is in part because 8 of the setback, there is a substantial area of gravel 9 that can then not be accessed. 10 MR. PAYNE : There is one circumstance. If 11 you wanted to find it -- possibly that's it -- 12 Section 8, Schedule 2. 13 MS LEA: Yes. 14 MR. PAYNE: And the name of the property, it's 15 Paris Pits property. 16 MS LEA: Right. 17 MR. PAYNE: I think the one you are referring 18 to, blue circle -- 19 MS LEA: Yes. 20 MR. PAYNE: We are nowhere near any excavation 21 at the present time. 22 MS LEA: Okay. 23 MR. PAYNE: I think I can allay your fears 24 there. 25 MS LEA: Okay. That's fine. 26 MR. PAYNE: The one Mr. Mallette is referring 27 to is just Property 39, Paris Pits. 28 MS LEA: Yes. =0C 165 PANEL NO. 3, ex (Lea) 1 MR. PAYNE: At that Paris Pit property they 2 have excavated sort of into the corner of their property 3 already. We are coming along. We are going to sort of 4 go into that excavation. The excavation that has taken 5 place is not going to extract any more gravel from 6 there. 7 What we are going to do is actually go down -- 8 straight down the slope, across the floor a little bit 9 and then back up the slope again. Since there is no 10 more excavation, it's not going to be a problem. It's 11 just like going across any other hill along the 12 pipeline. 13 There is another property, Paris Pit 35, where 14 the existing lines are essentially in an embankment that 15 was left after the rest had been excavated. In that 16 case there is room to install the pipeline in the 17 embankment -- that's the left hand -- have it installed 18 in undisturbed soil and in a secure location. No 19 further excavation is going to take place. There is 20 nothing unusual about the type of installation that will 21 be required. 22 MS LEA: Let's turn to the update which has 23 been filed as Section 5, Schedule 2, please. I have 24 Section 5, Schedule 2, the original filing, and I also 25 have the update which has become an exhibit today. We 26 don't need to give it an exhibit number I don't think 27 because it is an update to an existing exhibit and 28 contains an exhibit number on it. =0C 166 PANEL NO. 3, ex (Lea) 1 Can someone explain to me the reason for the 2 cost changes. For example, the wet soil shutdown cost 3 seems to have doubled and the same cost is decreasing, 4 site restoration storage has decreased also. Can 5 somebody help us with that? 6 MR. PAYNE: Yes. I can help you with that if 7 you just give me a moment. 8 MS LEA: Right. There are some significant 9 updates in Section 5, Schedule 2. They appear in bold.=20 10 The updates revolve around the wet soil shutdown 11 program. If you compare them with the previous one, the 12 wet soil shutdown has doubled. Some of the contractors 13 based items such as topsoil stripping and stream 14 crossings has been reduced. Perhaps Mr. Mallette is up 15 to give a more appropriate answer on that. 16 MR. MALLETTE: I can speak to the wet soil 17 shutdown portion of that. We have actually instituted a 18 slightly new wet soil shutdown compensation. The policy 19 is -- sorry -- the practice of shutting down wet soils 20 as provided in the letter of understanding has not 21 changed. Environmentally, we are the same. The 22 compensation of the contractor has changed. 23 What we are trying to do essentially is remove 24 a little more risk from the contractor and as a result 25 get lower overall bids. I believe we have seen evidence 26 that that has worked in this case. We are giving up a 27 little bit here, if you will, and gaining back hopefully 28 more on the other side of the equation. =0C 167 PANEL NO. 3, ex (Lea) 1 What we did in this case is that the labour 2 costs incurred were a minimum -- sorry, a maximum labour 3 cost. It wasn't the actual labour costs that were 4 unproductive time that was lost during the day. We are 5 now compensating for a total loss of power activity to 6 the contractor and more closely compensating actual 7 dollars that he has to spend on the labour that is sent 8 home when the wet soil conditions ensue. 9 Secondly, we are paying for some of his 10 equipment standby time because they still have to have 11 that equipment out there. Previously we hadn't paid 12 anything towards that. Now we are paying something for 13 that as well. 14 A combination of these things is going to 15 result in a higher cost to us, but as I say, an overall 16 reduction cost to the project. 17 MS LEA: So it's a question of Union 18 attempting to quantify the shift of risk from the 19 contractor to the company. 20 MR. MALLETTE: That's correct. 21 MS LEA: I understand. Tell me about the 22 topsoil stripping and the placement. That cost seems to 23 have been reduced by almost two thirds. 24 MR. PAYNE: Yes, and again that's a factor of 25 what Mr. Mallette was saying. By reducing some of the 26 risk on the contractor's behalf, there have been some 27 gains made in the rate that the contractors have put 28 forward. That is reflected in these costs and that's =0C 168 PANEL NO. 3, ex (Lea) 1 what we have tried to do with that. 2 MS LEA: So you are saying that the additional 3 risk that the company has assumed for wet soil shutdown 4 has reduced the bid of the contractors brought in for 5 the work you would do for topsoil stripping and the 6 placement. 7 MR. PAYNE: That in conjunction with some of 8 the other items that have been discussed earlier today 9 in terms of competition and synergy, have reduced those 10 over what the original schedules were. 11 MS LEA: Is there any reduction in the care 12 that Union takes over topsoil stripping or, rather, 13 requires of its contractors? Are the same standards 14 intended to be maintained? 15 MR. PAYNE: Most certainly. I think that's 16 reflective in the numbers that didn't change. They are 17 the items such as dust control and environmental 18 inspection and monitoring. Those programs are still in 19 place. We are still investing the money in those 20 programs. Part of that are the soils inspectors and 21 geotechnical work and other items out there. We are not 22 reducing those costs. Those programs are still in 23 place. The only figures that have changed are those 24 that are directly related to some costs that the 25 contractors have put forward. 26 MS LEA: Okay. So just to reiterate then, you 27 are not lowering your standards for topsoil stripping 28 and the placement. =0C 169 PANEL NO. 3, ex (Lea) 1 MR. PAYNE: No, we are not. 2 MS LEA: Okay. Thank you. Turning to the 3 construction schedule, I think that was prefiled at 4 tab 6, Schedule 2. Can you tell me what preconstruction 5 activities have and have not been completed as planned? 6 MR. PAYNE: Is that tab 6, Schedule 2? 7 MS LEA: That's what we were looking at, yes, 8 tab 6, Schedule 2, page 1, project schedule, and also 9 page 2, sample construction schedule. It was the 10 preconstruction. 11 If we look at page 1 there's a dark band 12 marked as environmental and archaeology. I presume that 13 might be the same -- 14 MR. PAYNE: Yes, I have that here. 15 MS LEA: The bulk of construction woodlot 16 clearing, although I don't see any black band. Oh, yes.=20 17 So that was supposed to be done late last year. I'm 18 just wondering what the status of those activities are. 19 MR. PAYNE: I can bring you up to speed on 20 archaeology. 21 MS LEA: Yes. 22 MR. PAYNE: In terms of archaeology, we have 23 undertaken more detailed archaeological survey on 24 several sites that were outstanding. We have started to 25 work on that program. In November the snow stopped us 26 and the cold weather, so we still have some work to 27 complete that in the early spring. Preconstruction 28 woodlot clearing has not started. =0C 170 PANEL NO. 3, ex (Lea) 1 MS LEA: It has not started. 2 MR. PAYNE: No. 3 MS LEA: I just want to deal with the 4 archaeology first. I did have some questions with 5 respect to that. I think it had a stage three 6 assessment that needed to be done of three 7 archaeological sites on the Owen Sound to Brantford 8 route. I was wondering what the status of that was and 9 whether you communicated with the Ministry of Consumer 10 and Commercial Relations with respect to that. Sorry, 11 Citizenship and Culture. I misread my -- 12 MR. PAYNE: Citizenship, Culture and 13 Recreation. 14 MS LEA: Okay. Well, there you go. They are 15 going to shuffle them again. What was happening to that 16 one? 17 MR. PAYNE: Yes, we did have outstanding 18 properties on the Owen Sound to Brantford loop. Those 19 are the ones I was talking about. There are stage three 20 archaeological investigations that are ongoing, three 21 sites, noted as site 109, 110 and 112. Some work has 22 been completed on those. 23 The archaeological consultant has been out in 24 the field and done some work on them. He has to return 25 to the field to complete his survey work once the frozen 26 conditions and snow are gone. 27 In my conversations with him, he expects that 28 no significant issues will arise from these sites in his =0C 171 PANEL NO. 3, ex (Lea) 1 preliminary investigations and he can conclude that work 2 early in the spring. 3 MS LEA: Okay. Thank you. And what about the 4 Beachville to Bright route segment? We didn't quite 5 understand whether a stage two assessment had been 6 completed or didn't need to be completed or what the 7 situation was with that. 8 MR. PAYNE: A stage two assessment was 9 completed and there was no further requirement from the 10 Ministry of Citizenship, Culture and Recreation 11 concerned with that loop. 12 MS LEA: All right. That's great. So you 13 will complete the Owen Sound to Brantford route to their 14 satisfaction also I gather. 15 MR. PAYNE: Yes, we will. 16 MS LEA: Okay. Now, you said that woodlot 17 clearing also had not been started. That's of concern 18 because of bird nesting season. What are your plans 19 with respect to that? 20 MR. PAYNE: In respect of the woodlot 21 clearing, we are working with both Oxford County and the 22 Region of Waterloo. Our initial discussions with them 23 indicated the presence of some local tree cutting bylaws 24 which they suggested we should -- that they would 25 provide us with exemptions to that. 26 We are just following up with them. As soon 27 as that information comes through and we have a 28 contractor available to get out there and do that work, =0C 172 PANEL NO. 3, ex (Lea) 1 it will be completed. There's still a good amount of 2 time to complete that work. 3 MS LEA: Are you confident it will be 4 completed within the time frame that does not interfere 5 with spring bird nesting? 6 MR. PAYNE: Yes, we are. 7 MS LEA: Now, you were saying -- has any 8 woodlot clearing been done or it's all still in abeyance 9 awaiting that discussion? 10 MR. PAYNE: We are still waiting for our -- 11 MS LEA: Which agencies did you have to 12 contact in order to deal with tree cutting and 13 replacement? 14 MR. PAYNE: The County of Oxford and the 15 Region of Waterloo. 16 MS LEA: Okay. And are there any other local 17 authorities, municipalities that you have to talk about 18 this with? 19 MR. PAYNE: No, we do not. 20 MS LEA: Okay. In their opinion, the best 21 course for us was to receive an exemption for this and 22 it could continue when that paperwork is done on their 23 front. 24 MS LEA: With respect to the replacement of 25 trees that you cut, I understand you are still replacing 26 two for one on an area basis. 27 MR. PAYNE: Yes, we are. 28 MS LEA: And will you consult with landowners =0C 173 PANEL NO. 3, ex (Lea) 1 and municipalities with respect to where those trees are 2 going to go? 3 MR. PAYNE: Yes. We will consult with the 4 landowners on the tree replacement program. We have 5 also consulted with the Grand River Conservation 6 Authority and the Upper Thames River Conservation 7 Authority on possible sites that they are working on for 8 habitat rehabilitation should landowners not be able to 9 find a location for all of their trees. 10 MS LEA: Thank you. Looking at the sample 11 construction schedule which is page 2 of tab 6, 12 Schedule 2. 13 MEMBER SIMON: I just want to ask one question 14 so we don't have to come back to the trees. As far as 15 your two-for-one policy, how does that compare with the 16 existing tree cutting by-laws of the two municipalities?=20 17 Are you comparable or are they higher standards? Why 18 are they so willing to grant these? 19 MR. PAYNE: We are comparable to their tree 20 policies. The program is in effect, and we want to work 21 with them to utilize some native species lists that they 22 have put forward for us and make it into a positive 23 situation. So they are very willing to work with us on 24 it. 25 MEMBER SIMON: Great, thanks. Thank you, 26 Ms Lea. 27 MS LEA: I think I started this series of 28 questions by looking at the project schedule. Can we =0C 174 PANEL NO. 3, ex (Lea) 1 look at tab 6, Schedule 2, page 2 which is a sample 2 construction schedule. Is this still a reasonable 3 prediction of what the construction schedule might look 4 like? 5 MR. MALLETTE: Now that we have awarded the 6 work to a contractor and we have begun to explore the 7 actual schedule that is being developed, we would like 8 to see the actual construction, more of the clearing and 9 grading activities, moving back to June. That would get 10 everything complete earlier than is shown on here. So 11 the tie-ins would occur before the end of September, and 12 the work would be completed in the best weather 13 available. 14 MS LEA: So you are hoping to have all of 15 these bars on tab 6, Schedule 2, page 2 all move a 16 little bit to the left; that is, earlier in time? 17 MR. MALLETTE: That is exactly it, yes. 18 MS LEA: Thank you. 19 Madam Chair, I was about to move to some other 20 areas, I don't know whether you are planning on an 21 afternoon break or whether this would be a good time? 22 THE PRESIDING MEMBER: I think now might be an 23 appropriate time for an afternoon break. My watch says 24 it is now 10 after four, so we will return at 25 after 25 four. 26 --- Upon recessing at 1609 27 --- Upon resuming at 1630 28 MR. LESLIE: Madam Chair, a couple of things =0C 175 PANEL NO. 3, ex (Lea) 1 arising out of questions that were asked about 2 abandonment. Remembering there was a directive with 3 regard to this in the Century Pool phase II proceeding.=20 4 The directive actually was to work with other industry 5 participants and the Ministry of Natural Resources in 6 clarifying well and pipeline abandonment and liability 7 issues, and so on. 8 I am told -- this is consistent I think with 9 what Mr. McKay was saying -- that TSSA is really the 10 industry organization to do that, and we are a 11 participant in that organization. One of the exhibits 12 in the Century Pool's proceeding was the abandonment 13 check list that TSSA has endorsed and mandated. I could 14 file that again, if it is of any assistance but I don't 15 want to put all this stuff on the record unnecessarily.=20 16 But it does appear that the company has been and is 17 working with the industry, as you directed in that 18 decision. 19 THE PRESIDING MEMBER: Thank you, Mr. Leslie.=20 20 I don't think it is necessary to put that on the record 21 for this proceeding. 22 MR. LESLIE: What Ms Lea and I were focusing 23 on, I think, was an undertaking that was given by Union 24 in the context of the negotiations with the Lambton 25 County Storage Association to meet with them and discuss 26 safety concerns and try to resolve those concerns. I am 27 told by Mr. Wilton who is here and who was involved in 28 the Century Pools phase II hearing that that is in fact =0C 176 PANEL NO. 3, ex (Lea) 1 happening. There have been discussions; a list of 2 issues is contemplated; and the parties have been and 3 will be meeting over that. 4 THE PRESIDING MEMBER: Thank you Mr. Leslie.=20 5 Ms Lea? 6 MS LEA: Thank you very much. I think most of 7 the rest of my questions deal with environmental 8 matters, one large issue and a various number of small 9 ones. Mr. Payne, have you heeded the Ontario Pipeline 10 Coordinating Committee review process for this project? 11 MR. PAYNE: Yes, we have. 12 MS LEA: Are there any outstanding concerns? 13 MR. PAYNE: No, there are not. 14 MS LEA: I would like to turn to the question 15 for a moment of cumulative impacts. Perhaps both 16 yourself and Mr. Wesenger can help me with respect to 17 this. From Board Staff Interrogatory No. 54 and also 18 the addendum to the recent environmental assessment at 19 pages 14 and 15, do I understand that the spatial 20 boundaries for the area that is considered for 21 cumulative impacts -- that is, where potential impacts 22 might be considered to occur -- are limited to the 23 boundaries of the easement and the temporary work area?=20 24 Am I correct in that? 25 MR. WESENGER: The spatial boundaries that 26 were looked at for the updates were the entire study 27 area for both projects that we looked at. 28 MS LEA: For the cumulative impact? =0C 177 PANEL NO. 3, ex (Lea) 1 MR. PAYNE: For the cumulative impact. 2 MS LEA: Just looking at something, I think I 3 misunderstood something you said. If we look at section 4 4.1.1 at page 15 of the addendum -- it is "section 2 5 addendum". It is the Owen Sound to Brantford one that I 6 happened to have found here. There is a lot of material 7 here. But I think the same wording is in the other one.=20 8 I just happened to find this one. 9 THE PRESIDING MEMBER: Excuse me, Ms Lea, the 10 second addendum to what section reference? 11 MS LEA: The section 2 addendum and I have it 12 as page 15 in mine at paragraph 4.1.1. The first line 13 reads: 14 "The spatial boundaries established for 15 the CEA are the easement and temporary 16 work area boundaries for this section of 17 the Dawn-Trafalgar system." 18 And so on. Am I wrong in presuming that you 19 mean that then the cumulative impact study was 20 restricted to those areas? 21 MR. WESENGER: You are correct with your first 22 statement. What the intention with my comment was when 23 we contacted agencies to obtain information regarding 24 developments in the future or present development, we 25 looked at the entire study area. So the cumulative 26 impacts of these projects were limited to the easement 27 itself. 28 MS LEA: Limited to the easement. Why is that =0C 178 PANEL NO. 3, ex (Lea) 1 so? Is it your opinion, Mr. Wesenger, that that is an 2 adequate boundary for considering cumulative impacts in? 3 MR. WESENGER: It is an adequate boundary. As 4 I indicated in my previous response, we did contact 5 agencies and ask them to comment on the entire study 6 area from a cumulative effect perspective. 7 MS LEA: I guess what I am trying to get at -- 8 perhaps I should be more specific -- is that cumulative 9 impacts occur on fairly broad spatial scales as well as 10 merely in the work area. For example, if you clear part 11 of a wood lot, it changes the flow of energy, species 12 and so on across a landscape as I understand it -- and I 13 think this was recognized in interrogatory answer No. 14 54. 15 I was wondering whether, in your view, in 16 assessing cumulative impact Union should consider 17 broader scales or their environmental consultants should 18 consider broader scales when assessing those types of 19 impacts? 20 MR. WESENGER: My understanding when I am 21 thinking of a response to your question is that, if a 22 feature such as a wood lot is affected by the pipeline 23 and the wood lot edge is removed, in what we are looking 24 at from the cumulative impacts we would assess the 25 impact upon that entire wood lot that abuts the 26 easement. We would go to the extent of that feature.=20 27 So the furthest extent of that feature extends beyond 28 the easement edge. =0C 179 PANEL NO. 3, ex (Lea) 1 MS LEA: Would you consider also the 2 fragmentation effects -- obviously, if you are on the 3 edge you are not fragmenting -- but let us put it this 4 way: Some counties are very concerned about the amount 5 of tree cover that they have in their whole county and 6 this kind of thing. Do you take those sorts of 7 considerations into consideration when preparing 8 environmental assessments for a project such as this? 9 MR. WESENGER: We do. One of the factors we 10 would look at would be the extent of wood lot or area of 11 wood lot that would be removed. And in this case for 12 both projects that was done at the route selection 13 stage. 14 MS LEA: At the route selection stage, I see.=20 15 What recommendation would you make to Union then in 16 considering how to draw boundaries around the area that 17 is assessed for cumulative impact? Can you assist us in 18 understanding that? 19 MR. WESENGER: I really don't see any problem 20 with the approach that is taken right now. The 21 consultant is given some discretion on the boundaries 22 that are applied to it and, for the sake of explaining 23 it, in the update it was described as limited to the 24 easement and temporary work area. 25 I suppose we extended from that logically 26 that, if a feature does touch that easement edge, we 27 could draw that boundary out to the edge of that natural 28 feature. In the case of agricultural features, it could =0C 180 PANEL NO. 3, ex (Lea) 1 be quite difficult to extend boundaries to the limits 2 because they do extend for great distances beyond the 3 edge of the easement. 4 MS LEA: Thank you. Mr. Payne, do you have 5 anything to add to this discussion? 6 MR. PAYNE: I think it perhaps is a matter of 7 wording in that Mr. Wesenger is indicating the easement 8 and temporary work room but he is also including in his 9 cumulative impact assessment those features which are 10 touched by those boundaries. So it is a bigger picture 11 than perhaps the words suggest. 12 MS LEA: I understood also from his evidence 13 that Union does consider landscape ecology-type concerns 14 such as fragmentation or the amount of tree cover in any 15 given larger or regional picture. Do I understand that 16 to be the case also? 17 MR. PAYNE: As Mr. Wesenger just said, 18 cumulative effects are left to the discretion of the 19 environmental consultant. Union requires that they meet 20 the Ontario Energy Board guidelines for the location and 21 construction of hydrocarbon facilities, and I think in 22 this case Mr. Wesenger has done that. 23 MS LEA: Thank you. Those are my questions on 24 that matter. I do have a couple of questions about the 25 routing, though, in that regard. 26 When you were considering originally, I think 27 it was in 1992 that the alternative routes were 28 considered for this pipeline, and I want to concentrate =0C 181 PANEL NO. 3, ex (Lea) 1 on the Owen Sound to Brantford section for a moment 2 because that contains the Grand River crossing which, as 3 you can imagine, is of primary concern in the 4 environmental review. 5 When you were considering alternate routes for 6 that section of pipeline, how did you assess the 7 relative benefits of each route in terms of the crossing 8 of the Grand? Were there different places you could 9 have crossed the Grand which were easier or more 10 difficult, more damaging, less damaging? Was that taken 11 into account in route selection? 12 MR. WESENGER: If I could back up just to give 13 you perhaps an understanding. I am sure you are aware 14 of my involvement in the Owen Sound to Brantford 15 transmission station. I was not involved in the project 16 itself at the time but I had reviewed the documents. 17 MS LEA: Yes. 18 MR. WESENGER: I have also spoken with Dr. 19 Coleman and Mr. Schreib(ph), who were responsible for 20 preparing this document for Union Gas. My 21 understanding, in speaking with them, at the time of 22 preparing this report, it wasn't necessary with the 23 route evaluation to look specifically at the Grand River 24 crossing alone as a factor that would drive the route. 25 There were various crossings of the Grand 26 River that were looked at. However, the land portions 27 of those routes eliminated those routes from further 28 progression. So, the Grand River wasn't a factor that =0C 182 PANEL NO. 3, ex (Lea) 1 was looked at alone as far as selecting ones that were 2 on the final program. 3 MS LEA: I think what you are telling me, 4 then, is that there were other factors that were the 5 driver of the route selection and that the crossing of 6 the Grand River, although a major factor here, it did 7 not play the choice of routes? 8 MR. WESENGER: Correct. 9 MEMBER SIMON: Can I just ask a clarifying 10 question on that so that perhaps you could correct me if 11 I am wrong. 12 My understanding of what was done in 1992 was 13 that there were a number of factors that it was decided 14 by the previous consultant that would not be a factor.=20 15 Because the impacts were considered to be either of no 16 consequence or essentially the same, they were removed 17 from the evaluation in the trade-off evaluation among 18 alternatives. 19 In the case of the Grand River crossing, since 20 it was concluded that in all the alternatives, the Grand 21 River was going to have to be crossed, therefore the 22 Grand River crossing was eliminated on the assumption, I 23 am assuming that it doesn't matter where you cross, that 24 the impacts are essentially the same. I guess what I am 25 trying to get at is: Is that a reasonable assumption? 26 MR. WESENGER: That is a reasonable 27 assumption. There may be slight differences from 28 location to location where to cross. But that is a =0C 183 PANEL NO. 3, ex (Lea) 1 reasonable assumption that the impact that each of those 2 locations would be quite similar. 3 In some locations there may be more 4 residential homes in close proximity to the crossing 5 itself, but from a fisheries perspective, it would be 6 quite similar in that stretch of the river. 7 MEMBER SIMON: In the stretch of the river in 8 the study area? 9 MR. WESENGER: In the study area, yes. 10 MEMBER SIMON: Thank you. 11 MS LEA: Thank you very much. 12 Turning then to your proposed crossing of the 13 Grand for this project, how wide is the river at the 14 proposed crossing point? When I ask that, I know that 15 it changes across the seasons. 16 Let's talk about mid-summer. Approximately 17 how wide is the river in mid-summer? 18 MR. PAYNE: If you could just bear with me for 19 a minute here. 20 MS LEA: Then I'm going to ask you what the 21 depth is. 22 MR. PAYNE: The approximately width of the 23 crossing at the exact crossing location is 54.5 metres, 24 with a present depth of approximately one metre. 25 MS LEA: A present depth, do you mean 26 mid-winter depth? 27 MR. PAYNE: Yes. It doesn't vary. The 28 morphology of the river bed does vary across, and that's =0C 184 PANEL NO. 3, ex (Lea) 1 mid-flow depth. So, that is the area where most of the 2 water is flowing through and there's substantial length 3 of it at that depth. 4 MS LEA: What time of year are you planning to 5 make this crossing? 6 MR. PAYNE: After July 1 and before September 7 1st. 8 MS LEA: So, in July and August, the depth and 9 width that you have given me, are they approximately 10 representative of the state of the river at that point? 11 MR. PAYNE: The width is going to be fairly 12 close. The depth is going to be fairly close, as well.=20 13 The river isn't extremely high right now. These 14 measurements were taken about a month ago now. The 15 flows are up a little bit, but not substantially. We 16 are looking at the same ballpark. 17 MS LEA: Thank you very much. Mr. Payne, 18 could you describe to us what is involved in the 19 crossing method that you propose? It has been described 20 as a wet crossing. Can you give us a fairly detailed 21 description of what it involves? 22 MR. PAYNE: There is a drawing that we have 23 that is a typical drawing from the Canadian Pipeline 24 Watercourse Crossing Committee Book. That may give us a 25 bit of a picture in our minds of a walk through the 26 crossing procedure. 27 MS LEA: Thank you. I would like to make that 28 an exhibit, please. It is an extract from the Canadian =0C 185 PANEL NO. 3, ex (Lea) 1 Pipeline Watercourse Crossing Committee Book. That will 2 be Exhibit 12.2, please. 3 EXHIBIT NO. 12.2: Extract from the 4 Canadian Pipeline Watercourse Crossing 5 Committee Book 6 MS LEA: Board staff is familiar with the 7 book. 8 MR. PAYNE: For ease of explanation, if I 9 could just make a statement about this, it is a typical 10 crossing with not a lot of detail on it, and it is not 11 what we will be using for our site-specific sediment 12 control plan. But it gives us all here a picture of 13 what is going to happen. 14 To help in illustrative purposes, on your 15 sheet if you changed the flow direction of the river and 16 mark the left-hand side of the page as the east bank of 17 the river and the right-hand side of the page as the 18 west, left is the east and right is the west, and that 19 is more typical of what we are seeing at the Grand 20 River. 21 The flow at the Grand River right now, the 22 deeper part, is approximately two-thirds of the way 23 across the river closest to the east side. So, you have 24 a main channel over there. 25 What we are proposing to do is utilize the 26 flood plain at the bottom of the Grand River. There is 27 a large sheep pasture down there right now and we have 28 some temporary work room arranged with that landowner to =0C 186 PANEL NO. 3, ex (Lea) 1 set the pipe up, and that will be our preparation. The 2 pipe will be welded together, tested, concrete coated 3 and ready for installation prior to doing any work on 4 the river. 5 At the time of the crossing, Union will be in 6 touch with the Grand River Conservation Authority and 7 their flood control people that monitor the flow on the 8 river and the operation of the dams to ensure that we 9 are not at any additional risk from manoeuvres that they 10 are planning on flow augmentation on the river. 11 We will also be looking at the forecast for 12 rain to make sure that we are in a good window that way.=20 13 The crossing will be completed with two excavators, one 14 excavator moving into the river from the west side, and 15 he will move towards the channel, and one excavator 16 moving into the river from the east side, and he will 17 stay closer to that east side because that is the deeper 18 water. They will actually touch buckets and start to 19 excavate back across the river. They will, in that way, 20 form a complete trench across the river. 21 Spoil piles will be piled similar to what you 22 see in this picture. However, they are on the 23 downstream side of the trench and that material will be 24 piled in stream and used again for backfill material. 25 Once the trench is obtained, the pipeline 26 section will be picked up and carried toward the river, 27 placed into the trench, and moved across the river into 28 place. Then the survey crews will check it to ensure =0C 187 PANEL NO. 3, ex (Lea) 1 its proper location and backfill on the river will 2 commence at that point. Expected total operations will 3 take about three days for this crossing. 4 It will proceed in a manner that will be 5 continuous from the start of the excavation to the 6 backfill and clean up of the banks of the river. 7 This plan has been discussed at great length 8 with the Grand River Conservation Authority, who is the 9 permitting authority for this operation. They are a 10 signatory with DFO on what is known as a Stage 3 or 11 Level 3 agreement with DFO to provide us authorization 12 for this work. They are also signatory with the 13 Minister of Natural Resources to provide the permits for 14 that. So, they are a one-window source on providing 15 permits to this crossing. 16 We have discussed this approach with them, as 17 I have said, and they are in agreement with us that this 18 is a good approach to cross the river. 19 MS LEA: What would be the depth of the trench 20 you would have to dig? 21 MR. PAYNE: Perhaps Mr. Mallette can answer 22 that. 23 MR. MALLETTE: It would be about nine feet 24 deep. 25 MS LEA: Nine feet. And what is the depth of 26 cover you are going to end up with once it is done? 27 MR. MALLETTE: Minimum of 1.2 metres. 28 MS LEA: Can you tell us why you can't drill =0C 188 PANEL NO. 3, ex (Lea) 1 or bore this river crossing? 2 MR. PAYNE: The materials that make up the bed 3 of the Grand River are really an unsorted mix of cobble 4 and stone, large granular materials, and it is just not 5 suitable for boring. It is very coarse material with 6 unsorted sizes of stones, big and little, and not 7 suitable for that type of operation. 8 MS LEA: I understand that in the original 9 environmental assessment or, rather, the original plan 10 for crossing, a diversion channel was contemplated. Can 11 you tell me why that alternative is not being used? 12 MR.PAYNE: Yes, we can. Probably the best way 13 to illustrate that is to go to the environmental 14 assessment, the Section 2 Environmental Assessment in 15 the aerial photograph at the back in the appendix.=20 16 Sheet 505 is the aerial photograph of the site. 17 Just to give you a little background 18 information on this, during the development of the 19 update reports, we met with DSG personnel on site just 20 to review the proposed plan from the original 21 environmental assessment and look at the river 22 conditions and site conditions as they are today, 23 keeping in mind the regulations that are out there at 24 this point. 25 In reviewing the site conditions and the river 26 itself and how this plan would be enacted, we had 27 several concerns. I can go over those with you at this 28 point. =0C 189 PANEL NO. 3, ex (Lea) 1 In order to construct a diversion at that 2 site --- 3 MS LEA: Which site are we talking about, Mr. 4 Payne? 5 MR. PAYNE: At the crossing site of the Grand 6 River. 7 MS LEA: I don't mean to be stupid, but there 8 seem to be two parallel lines running, one says existing 9 lines and the other is proposed. Are there two sets of 10 existing lines crossing the Grand? 11 MR. PAYNE: Yes, there are. 12 MS LEA: I understand. And the one that 13 crosses over where there's an island, do you know when 14 that one was done? Approximately. Like how big it is 15 or when it was done or -- 16 MR. PAYNE: It's the 34 inch pipeline. 17 MS LEA: Thirty-four. 18 MR. PAYNE: Yes. It would have been the 19 seventies at some point. 20 MS LEA: So how many lines cross the river 21 there? 22 MR. PAYNE: Just one. 23 MS LEA: Just the one. And the others then 24 are represented by the solid line which is below the -- 25 MR. PAYNE: The 42 inch and then the dash line 26 which is the proposed 48 inch. 27 MS LEA: Okay. Does the 26 cross the river as 28 well? =0C 190 PANEL NO. 3, ex (Lea) 1 MR. PAYNE: Yes. It's further north. 2 MS LEA: Further north. Okay. Just going 3 back then to choosing where you cross, why did you 4 choose the site with the 42 inches rather than with the 5 36 inches? 6 MR. PAYNE: That's part of the route selection 7 process of the environmental assessment that looked at 8 that. There are issues with that route selection 9 process that outline why we are paralleling the 42 inch.=20 10 Perhaps Mr. Wesenger can -- 11 MS LEA: Okay. And they are in the evidence.=20 12 Perhaps you can tell us the section. 13 MR. PAYNE: They are in the evidence. Chapter 14 four of section 2 of the environmental assessment in the 15 route selection process. 16 MS LEA: Thank you. Now you are explaining 17 the reasons -- perhaps I can go back again. Was the 18 diversion channel used in the previous crossing? 19 MR. PAYNE: It's my understanding that the 20 diversion channel was used for the 42 inch pipeline 21 installation at that location. 22 MS LEA: All right. And you were in the midst 23 of explaining why you decided not to do that this time.=20 24 Please go ahead. 25 MR. PAYNE: If you look to the north along the 26 river, you will note a little island in the stream. The 27 flow of the river, the major flow of the river again is 28 two thirds of the way across on the east bank. All your =0C 191 PANEL NO. 3, ex (Lea) 1 flow comes down along that side. 2 In order to move water toward a diversion 3 which would occur through the flood plane area of the=20 4 sheep pasture that we are using for a staging area, you 5 would have to insert some sort of dam on the river on 6 the north side of that island to get the flow moving 7 back to the other side of the river. 8 We are talking about a significant flow of 9 water here. In June and July, July-August actually, the 10 average flow of water is 15 cubic metres per second, so 11 this is an immense amount of water. 12 You would have to dam the river off up here, 13 force it to the west side of the island and you would 14 have to make ready a trench through this pasture land 15 that is very flat. You would have to pile the material 16 from the trench on the sides to make this trench large 17 enough to contain the water coming down the Grand River.=20 18 You would have to line that and make it a stable trench 19 or sluiceway to move the water through. 20 You would have to go instream and make that 21 disturbance and then redirect the water with one more 22 disturbance. Then you have to work across this trench 23 to get the river crossing in on the east side of this 24 because your only flat area is on the west side. So you 25 have to work through this trench then to install your 26 pipeline. 27 You have the effect of significantly drying 28 out the channel of the river for an extended distance =0C 192 PANEL NO. 3, ex (Lea) 1 from the north side of this island all the way down 2 to -- you can see a little inlet just south of the 3 crossing point that the water would be discharged out of 4 this chute on. 5 You would have a major area of disturbance by 6 drawing out the Grand River in that location to some 7 degree. I'm not even sure that you could get it 8 perfectly dry without a massive structure in there. 9 You would then have to install the pipeline in 10 there and then go about re-establishing the river in its 11 proper channel, covering up the trench again and that 12 whole event could take a week to two weeks to complete 13 that effort. 14 When you look at weather forecasting and river 15 dynamics forecasting over that sort of time period, your 16 risk factors increase greatly. Should a mid-summer 17 thunder storm of major proportions come through, you 18 could be inundated with water over top of the man-made 19 dam you put in north of this island or the channel 20 itself through the working area could be lost on you, so 21 there is some significant risk in that sort of 22 operation. 23 I'm not exactly sure of what went on during 24 the 42 inch pipeline crossing. Certainly there wasn't 25 at that time the degree of environmental mitigation, if 26 you will, or concern about water bodies or knowledge 27 about the impacts of water bodies that we have today. 28 With that knowledge in mind, the decision was =0C 193 PANEL NO. 3, ex (Lea) 1 made to go to a typical wet crossing and reduce the 2 impact on the river bed and reduce the impacts, the 3 potential impacts and risks of being in the river for 4 that extended length of time. 5 MS LEA: What are the impacts that you expect 6 from the operation as proposed and how do you propose to 7 mitigate them? 8 MR. PAYNE: The impacts from the crossing are 9 really the excavation of the trench and the working of 10 equipment instream. We worked, like I say, extensively 11 with the GRCA on this issue. That would be their 12 preferred method of crossing. They have indicated to us 13 that that's the way they would like us to go. 14 The short term impacts in the river are the 15 key to mitigation in this case. By getting in and 16 completing the work in a quick time period where your 17 equipment is ready and your site is ready and having the 18 river backfilled quickly, that's the major mitigation 19 measure here. 20 MS LEA: What about sediment control? You 21 have indicated that a lot of the material in the river 22 bed is coarse, sort of glacial pill type stuff, but you 23 must have some finer sediment and also, I guess, with 24 that much trenching and that much flow, you are going to 25 mobilize some larger particles also. 26 MR. PAYNE: You are going to mobilize some 27 larger particles, some smaller particles. You are going 28 to see silt downstream as a result of this crossing.=20 =0C 194 PANEL NO. 3, ex (Lea) 1 The silt will move downstream to the first basin that is 2 there as a natural sediment area. You are going to 3 deposit that sediment there. 4 MS LEA: Do we have any knowledge as to where 5 that area is and whether it's harbouring any species 6 that in mid-summer would be adversely affected and 7 whether these species are important in the sense of 8 being endangered, rare, threatened or -- 9 MR. PAYNE: We do know that there are species 10 that are sensitive to this type of disturbance. They 11 are sensitive to this type of disturbance in given time 12 periods. By scheduling the crossing after July 2, their 13 sensitive period to this type of disturbance is past. 14 MS LEA: Okay. 15 MR. PAYNE: Timing and quick schedule again 16 are major mitigation measures for this type of crossing. 17 MS LEA: Okay. You mentioned that the river 18 bed presently has a profile where the maximum depth is 19 about one third of the way from the eastern bank. I'm 20 presuming that it has other, you know, typical 21 morphological features of the river in this area. 22 Do you intend to restore the stream's profile 23 in the same way so that we don't get changes in patterns 24 of erosion and bank cutting, that kind of thing, 25 subsequently? 26 MR. PAYNE: Yes, we do. Part of this crossing 27 plan that we put together -- in order to get 28 authorization for a wet crossing, we need to put =0C 195 PANEL NO. 3, ex (Lea) 1 together what's called a site-specific sediment and 2 erosion control plan. 3 This plan is clearly focused on this crossing 4 of this pipeline. It's not a generic item. Part of the 5 information in that, the commitments in that, clearly 6 outline that we will do a topographical survey of the 7 river bed at the location of the disturbance and that 8 after construction and backfill, we will redo that 9 survey to ensure that we have got things back to exactly 10 the right locations and right levels that they were 11 before. 12 If for some reason there is some variation in 13 that, we will return to the river and make those 14 adjustments promptly. 15 MS LEA: Are flow studies to determine whether 16 the flow characteristics of the water are similar after 17 the reconstruction? 18 MR. PAYNE: By putting the bed of the river 19 back to that same form and by armouring the banks on the 20 erosion-prone points, those are the things that are key 21 to success. 22 MS LEA: You mentioned that you are going to 23 armour the banks in erosion-prone areas. You also are 24 going to rehabilitate vegetation on the river banks and 25 also instream vegetation, if any. 26 MR. PAYNE: There isn't much in terms of 27 instream vegetation there because it's a very cobbly 28 bottom. We wouldn't be doing intrusive rehabilitation =0C 196 PANEL NO. 3, ex (Lea) 1 of that. Definitely the banks of the river have been 2 disturbed and we would be putting down on the east side 3 of the river. We would be using rock wrip-wrap to the 4 high water mark. That's a stabilization, large stones, 5 make sure that we don't have an erosion issue there. 6 Back from that, we would be using erosion 7 control matting to quickly re-establish the grass 8 vegetation that is in the area now. 9 MS LEA: We did see the mention of one rare, 10 threatened or endangered special which was the Queen 11 Snake. It was indicated that its habitat will be 12 disturbed by this operation. Did you take that into 13 account in preparing your rehabilitation plan? 14 MR. PAYNE: Yes. To the best of our knowledge 15 and our discussions with the Grand River Conservation 16 Authority, we have discussed the crossing. We haven't=20 17 brought up to the point that there's any 18 havernaculae(ph) in the area of the crossing. It's a 19 transient snake that's known to be on the Grand River.=20 20 There is no specific mitigation in that event. 21 MS LEA: Okay. Now, you indicated that you 22 have been having extensive discussions with the Grand 23 River Conservation Authority. Did I hear you say also 24 that they are going to be conducting or assisting with 25 post-construction monitoring? 26 MR. PAYNE: To the extent where we would 27 involve them or send them a copy of environmental 28 monitoring reports for this crossing itself, =0C 197 PANEL NO. 3, ex (Lea) 1 particularly this crossing, unless some issues came up 2 with erosion, I don't think they would have a great 3 involvement for the Grand River crossing. 4 There's other sites on the project that they 5 may be more interested in. That's the prairie habitat 6 remnant to the east of the crossing. They have 7 indicated interest in being involved with that at a 8 higher level. 9 MS LEA: Is there some -- Union itself is 10 going to undertake the post-construction monitoring for 11 the Grand River Crossing. 12 MR. PAYNE: Yes, we are. 13 MS LEA: One moment, please. What about the 14 Department of Fisheries and Oceans? You indicated that 15 the DFO had an agreement with the GRCA. Is there 16 anything in addition that the DFO is going to require of 17 you or has that all been taken care of through your 18 discussions with the conservation authority? 19 MR. PAYNE: The GRCA has what's known as a 20 level three agreement with DFO to administer their 21 approval process. It's the note from -- it's our 22 indication from GRCA that they will be the main reviewer 23 of this DFO approval, so they will be doing this, all 24 the reviewing of information, for DFO at this crossing 25 as a one window agency. 26 MS LEA: Thank you. Would you be also 27 willing, and I don't think this is in the proposed 28 conditions of approval so you may want to think about =0C 198 PANEL NO. 3, ex (Lea) 1 this for a moment, would you be willing to inform the 2 Board or possibly Ms Crnojacki as its officer before you 3 commence the Grand River crossing, for instance seven 4 days in advance of the commencement of that work? 5 MR. PAYNE: Yes, understanding the fact that 6 there may be some scheduling issues surrounding the 7 weather. 8 MS LEA: Yes, of course. 9 MR. PAYNE: It may change from one day to the 10 next. We will certainly commit to doing that and 11 letting you know when we are going to cross the river. 12 MS LEA: Thanks. I understood from -- I don't 13 know whether it's from your evidence or discussions with 14 the witnesses that Board Staff have had, but there may 15 be blasting involved in this river crossing. Am I 16 understanding that correctly? 17 MR. PAYNE: We have done some geotechnical 18 work on the river crossing and we put some bore holes 19 down in the flood plane area on the west side of the 20 river. We put a bore hole down in the river itself on 21 the abandoned railway on the east side of the river and 22 just east of Highway 24. The bore hole results indicate 23 that there is no rock on the flood plain area that is 24 solid bedrock. North through the river the area of the 25 abandoned railway does not have a rock issue in terms of 26 the depth that we need to go but on the east side of 27 Highway 24 there is rocks present at that location. 28 MS LEA: Sorry. Is that close to the river?=20 =0C 199 PANEL NO. 3, ex (Lea) 1 I'm not quite -- yes, it is. Okay. I'm looking at the 2 photomosaic. 3 MR. PAYNE: Fairly close to the river. 4 MS LEA: Just leaving aside the river for a 5 moment. Are there other areas where blasting will be 6 required in this project as far as you know? 7 MR. PAYNE: Not to my knowledge. I think we 8 are clear on that. 9 MS LEA: Okay. So your belief is then that 10 the blasting may be required in the area of Highway 24 11 which is on the east bank of the river? 12 MR. PAYNE: Yes. 13 MS LEA: How close is the highway to the river 14 at that point? It looks very close in the photomosaic. 15 MR. PAYNE: I would think about 25 to 30 16 metres, all parts. There is the highway and then there 17 is a ditch between the highway and the railway 18 embankment and then the railway embankment drops off 19 into the river. 20 MS LEA: And do you anticipate that blasting 21 in that area will affect the river? 22 MR. PAYNE: I think further investigations 23 will clear that up for us in terms of whether it will or 24 not. But at this point we don't see it because there 25 isn't work rock in underneath the rail trail. So -- 26 MS LEA: Have you informed these agencies, the 27 Conservation Authority, the Department of Fisheries and 28 Oceans and MNR, that you may be completing blasting in =0C 200 PANEL NO. 3, ex (Lea) 1 the area of the river? 2 MR. PAYNE: We have informed them that we are 3 undertaking geotechnical studies and we haven't got back 4 to them since the conclusion of that. However, in 5 passing I believe we mentioned to the GRCA that in the 6 past and looking at the area there may be rock in that 7 area that is of concern to us and we have looked at the 8 options of removing that rock. 9 MS LEA: And do you now if further permits 10 will be required from these authorities if you do intend 11 to blast? 12 MR. PAYNE: If we intend to blast in the 13 river, which at this point I don't foresee, but if we 14 intended to blast in the river there is a DFO 15 authorization required for in-stream blasting. And in 16 the case that that was required, we would definitely get 17 that approval, either from GRCA as the level 3 reviewer 18 or from DFO. 19 MS LEA: Are there any other impacts that the 20 Board should be aware of with respect to blasting, 21 specifically with respect to rivers? I gather the DFO 22 permit will take care of fish kill issues. What about 23 the contamination of water, permanent disturbance of the 24 bed in an area not directly in the blasting site? 25 MR. PAYNE: The area that would be blasted if 26 there was rock that close to the river, would be 27 directly over the trench line. And that would be the 28 area that would be excavated out for the crossing =0C 201 PANEL NO. 3, ex (Lea) 1 itself. So it would be disturbed, yes, but it would be 2 excavated out and then after price installation, it 3 would be backfilled and rock armoured. So there would 4 be no additional disturbance above and beyond the 5 regular crossing itself. 6 MS LEA: But the actual act of blasting is not 7 going to disturb upstream and downstream of the blasting 8 site? 9 MR. PAYNE: No. 10 MS LEA: Okay. How close -- I beg your 11 pardon. How close are you to the existing pipeline in 12 that area? Are you going to run into difficulties in 13 terms of blasting along the routes with respect to 14 proximity to the pipeline? 15 MR. MALLETTE: We do not expect to have any 16 problem. We are 12 metres away from the existing 17 pipeline. But that is -- there has been a lot of 18 experience with blasting in that close of a proximity to 19 the existing line. 20 When blasting is done, vibrations are 21 monitored and if -- we also have a blasting consultant 22 that is used. So the patterns are examined ahead of 23 time, they are approved. A test blast is done as 24 monitoring is done and it is an incremental build-up to 25 the final amount of blasting and precaution is taken at 26 every step. So with the experience and with the 27 procedures that we have in place, there is no concern at 28 all. =0C 202 PANEL NO. 3, ex (Lea) 1 MS LEA: How close are houses and wells to 2 this area that might be blasted? 3 MR. PAYNE: I believe the closest houses are 4 down at the corner of -- if you look to the south of the 5 crossing, there is a road that flows directly east.=20 6 There is a house down there. That would be the closest 7 house. 8 MS LEA: Okay. I did see on the photomosaic, 9 you have pointed us to number 5, there is a drilled well 10 marked as 47 but it is not clear to us exactly whether 11 that -- it seems to be on the west bank fairly close to 12 the river but we didn't know what that was all about. 13 MR. PAYNE: Down in the flood plain? 14 MS LEA: Yes. 15 MR. PAYNE: I think what has happened there, 16 there is a small error. In 47, if you look above where 17 it says "47. Drilled well," up above that is "47. Hedge 18 row." 19 MS LEA: Oh, yes. 20 MR. PAYNE: So that refers to the hedge row 21 and 44 should refer to the well up on top of the hill at 22 the farm. 23 MS LEA: All right. Thank you. That is 24 helpful. 25 Now, if you do have to do blasting, do you 26 have a standard well water -- water well monitoring 27 program to ensure that there is no damage to wells and 28 water quality? =0C 203 PANEL NO. 3, ex (Lea) 1 MR. PAYNE: Yes, we do. 2 MS LEA: And will you be fulfilling that 3 program and mandate? 4 MR. PAYNE: Yes, we will. 5 MS LEA: Now, you mentioned the concern of the 6 Conservation Authority and we were also curious about 7 the "prairie remnant" which is listed as an area of 8 interest in here. And I think that that is also on the 9 photomosaic as number 49, prairie vegetation. Are we 10 looking at the right place? 11 MR. PAYNE: Yes, you are. 12 MS LEA: Now, do I understand then from what 13 you have said that the Grand River Conservation 14 Authority is keeping a close eye on damage to and 15 restoration of that prairie remnant? 16 MR. PAYNE: Yes, and we have come up with -- 17 ESG has come up with a proposal that mitigates our 18 impacts on that prairie remnant and that is found in 19 schedule -- the environmental assessment binder at 20 Section 2 in the original report and in the update 21 environmental report there is reference to that 22 mitigation plan for the prairie remnant. 23 MS LEA: I think it is in Appendix E. That is 24 the one that I looked at. 25 MR. PAYNE: That is correct. 26 MS LEA: Okay. 27 MR. PAYNE: As part of that work, we have 28 already undertaken fall seed collection on the prairie =0C 204 PANEL NO. 3, ex (Lea) 1 remnant and that material has been collected by ESG by 2 their -- his botanist. 3 MS LEA: Sorry. I thought it was going to be 4 some kind of squirrel. Anyway, sorry. It's 5:20. I'm 5 getting silly. I'm sorry. 6 --- Laughter 7 MR. PAYNE: It's a long day. By the botanist 8 and that has been preserved and ready for replanting 9 when the program will be completed. 10 MS LEA: Okay. So you had done the 11 pre-construction feed gathering and did I understand 12 that the Conservation Authority will be doing 13 post-construction monitoring of that remnant also? 14 MR. PAYNE: Yes, they will be having a look at 15 it to make sure the mitigation plan is successful. 16 MS LEA: Okay. Just one moment, please. 17 --- Pause 18 MS LEA: I would like to turn for a moment 19 please to a question with regard to social impact. We 20 read the evidence and it looked as if you were using 21 your standard mitigation measures. 22 I just want to confirm on the record that 23 Union will implement the standard construction, 24 post-construction mitigation and restoration measures to 25 minimize or possibly eliminate social impacts associated 26 with construction. And the ones that we had listed here 27 were traffic disruption, traffic safety, highway safety, 28 noise abatement during construction, dust control, =0C 205 PANEL NO. 3, ex (Lea) 1 access to private properties, you know, maintaining 2 driveways, that kind of thing and restoring damaged 3 lands on private property, that group of construction 4 and social impacts. Are you prepared to undertake the 5 measures that were prescribed in your evidence with 6 respect to those? 7 MR. PAYNE: Yes, we are. 8 MS LEA: Okay. And then there is also the 9 question of crop loss and restoration of agricultural 10 land. And I understand from your evidence that you have 11 committed Union to mitigate and monitor these impacts 12 and make restoration and compensation where necessary.=20 13 Is that still your intention? 14 MR. PAYNE: That is still our intention. 15 MS LEA: Okay. Now, do you need a take water 16 permit from MOE with respect to construction in this 17 project? 18 MR. PAYNE: Yes, we do for Beachville/Bright 19 and for Owen Sound/Brantford we need a permit to take 20 water from MOE. 21 MS LEA: Do you also have to discharge water? 22 MR. PAYNE: Yes, we do. 23 MS LEA: What is the status of the permit 24 application there? 25 MR. PAYNE: If I could just turn that up. 26 MS LEA: I'm sorry. I misheard your answer.=20 27 You said that you will -- what is the status of that 28 permit application? Sorry. =0C 206 PANEL NO. 3, ex (Lea) 1 MR. PAYNE: The permit applications, we are 2 working towards making the applications. Part or the 3 application for the Beachville/Bright project is to work 4 with the Upper Thames Region Conservation Authority to 5 use water out of the Pittock Reservoir as we indicated 6 in our IR No. 49. And we are working with them on the 7 allotment of the volume of water required for that and 8 we seem to be in good order with that. 9 And once we secure that information from them 10 we will apply to MOE with a letter appended to the 11 application indicating to MOE that the conservation 12 authority has okayed this and we will make that 13 application. The application to MOE for a permit to 14 take water out of the Grand River is fairly 15 straightforward. There is a large volume of water there 16 and we will not impact the flow by taking water. 17 MS LEA: And where do you discharge the water? 18 MR. PAYNE: At the -- on the Beachville-Bright 19 project we will be discharging the water into Phelan 20 Creek which is an agricultural drain that runs back into 21 the Pittock Reservoir and our discussions with the Upper 22 Thames Region have included that scenario and at the 23 Grand River we will be using the low flood plain area 24 away from our working zone on the west side of the river 25 to discharge our water there. 26 MS LEA: And the responsible authorities have 27 agreed to those locations? 28 MR. PAYNE: We are still working through that =0C 207 PANEL NO. 3, ex (Lea) 1 with -- but we don't foresee any significant problems 2 there at all. 3 MS LEA: What about road crossings. Do you 4 need permits from the counties or from the Ministry of 5 Transportation for road crossings for this project? 6 MR. MALLETTE: Yes, we do. 7 MS LEA: And what is the status of that from 8 an application purpose? 9 MR. MALLETTE: At the moment we don't have any 10 of those permits in hand but we don't see any difficulty 11 in obtaining them. 12 MS LEA: Thank you. Board staff sent to you 13 some time ago -- maybe only a few days; I don't know 14 exactly when -- proposed conditions of approval for this 15 project. Have you had an opportunity to look at those 16 conditions? 17 MR. MALLETTE: Yes, I have. 18 MS LEA: And are there any conditions that you 19 feel that you cannot comply with? 20 THE PRESIDING MEMBER: Excuse me, Ms Lea, the 21 panel have not seen those. 22 MS LEA: Okay. Madam Chair, I will be right 23 with you. I just want to hear from the witness if there 24 is something they want me to look at and then I will 25 pass it right up to you. 26 THE PRESIDING MEMBER: Fair enough. 27 MS LEA: I am sorry, I didn't know that you 28 didn't have them. You haven't read them either? =0C 208 PANEL NO. 3, ex (Lea) 1 MR. MALLETTE: We do have them. I have read 2 them. Mr. Payne has not fully reviewed them, I guess.=20 3 I am just waiting to hear if he has any concerns, 4 because a number of them do concern environmental 5 requirements. 6 MR. PAYNE: I have had a look at them. I was 7 just looking for the reference to the one point on 8 specimen trees just to point it out and say that we can 9 address that in the monitoring report. 10 MS LEA: Okay, thank you. So, as far as you 11 are aware, there is nothing in here that causes you a 12 problem? 13 MR. PAYNE: No. 14 MS LEA: Thank you very much. We will pass 15 these up to the panel immediately and we will make more 16 copies. 17 THE PRESIDING MEMBER: Ms Lea, do these 18 conditions contain conditions with respect to blasting? 19 MS LEA: No, and that is what I wanted to 20 address. As Madam Chair pointed out, these conditions 21 do not contain conditions related to blasting. At the 22 time of writing we didn't know there was going to be any 23 blasting. 24 There are a couple of conditions we were 25 thinking of. One was that there would be no blasting 26 along the route except in proximity to Highway 24. But 27 I wonder if that is too restrictive in the sense that 28 you haven't done enough work to know for sure that there =0C 209 PANEL NO. 3, ex (Lea) 1 is not going to be a requirement for blasting elsewhere? 2 MR. MALLETTE: We would rather not have that 3 condition. 4 MS LEA: One moment please. I think that 5 there is a standard blasting condition that we have used 6 before -- none of us seem to have a copy of it. We were 7 thinking of something like if blasting is required 8 during construction of this project, Union will comply 9 with its standard well monitoring program and all the 10 requirements of the various agencies involved. And that 11 would include the Grand River Conservation Authority, 12 the Department of Fisheries and Oceans. 13 So, in other words, we would be requiring you 14 to do what I presume you would be doing anyway, which is 15 comply with all the agencies that deal with these sorts 16 of matters. 17 I think there is notification also, isn't 18 there, to local residents of when blasting is going to 19 occur? You have a blasting protocol, as I understand 20 it? 21 MR. MALLETTE: Yes, we do. 22 MS LEA: So you would not have a problem 23 obviously if the condition required you to adhere to 24 your blasting protocol? 25 MR. MALLETTE: No, we would not. It might 26 better be described as a blasting specification. 27 MS LEA: Specifications, thank you. All 28 right, that is fine. =0C 210 PANEL NO. 3, ex (Lea) 1 MR. PAYNE: Perhaps if the condition read that 2 if in-stream blasting was required then authorization 3 would be needed from DFO, MNR and the conservation 4 authority then we would accept that. 5 MS LEA: Okay, thank you. When you discharge 6 water from hydrostatic testing, is there any problem 7 with respect to contaminants in that water? 8 MR. PAYNE: The pipeline that we are 9 installing is all new pipe. It is internally coated and 10 it is pegged prior to being filled with water. So any 11 solid debris is cleaned out. There is no contaminations 12 per se in that water, and MOE has not required us to do 13 any specific mitigation measures beyond our typical 14 hydrostatic water discharge site physical drawing -- I 15 am searching for a word for it, for sort of an enclosure 16 to stop erosion and sediments -- "dissipated" is the 17 word I am looking for. That has been their typical 18 requirement of us on that, and that is what we would be 19 proposing to do in this case. 20 MS LEA: Thank you, I have no other questions 21 for this panel. Thank you very much, gentlemen. 22 THE PRESIDING MEMBER: Thank you, Ms Lea. Ms 23 Simon, do you have a question? 24 MEMBER SIMON: I have a couple of clarifying 25 questions. Mr. Wesenger, I will ask you to turn back 26 again to the update -- I guess we will go back to the 27 one that Ms Lea pointed you to on page 15, the addendum 28 section 4.1.1 on study boundaries. =0C 211 PANEL NO. 3, ex (Lea) 1 MR. WESENGER: Is that the Beachville-Bright 2 study? 3 MEMBER SIMON: Owen Sound to Brantford. It is 4 the same thing in the other one but that was on page 14.=20 5 It doesn't matter which one you turn to. The same 6 section is on page 14 and the other one is on page 15. 7 What I wanted to turn your attention to is the 8 phrase as implied by the OEB in their EBRO 246 decision.=20 9 I think you have explained to us that in actuality what 10 you did in both cases for your cumulative impact 11 assessment is you went beyond the easement and the 12 temporary work area if there was a feature whose edge 13 was part of the easement and the temporary work area.=20 14 Have I understood that correctly? 15 MR. WESENGER: Yes, you have. 16 MEMBER SIMON: Indeed, you did a more 17 comprehensive look where it warranted, where there were 18 features beyond the easement and the temporary work 19 area? 20 MR. WESENGER: Yes, we did. 21 MEMBER SIMON: Just for the record, I just 22 wanted to clarify as someone who was involved in EBRO 23 246 that it was not the intention of the board in 24 writing that to imply that there was any kind of 25 restriction for cumulative impact assessment to cover 26 simply the easement and the temporary work area. I 27 think you have indicated that you did not actually take 28 that from what you actually did. It was simply a matter =0C 212 PANEL NO. 3, ex (Lea) 1 of wording clarification. 2 MR. WESENGER: That is correct. 3 MEMBER SIMON: I just had a couple of other 4 questions related to trade-offs in the route selection 5 process. The trade-offs were well explained in both 6 environmental impact assessments, the basis for choosing 7 one route over another. In making those trade-offs I 8 was wondering whether you had made some decisions in 9 advance of looking at the specific cases as to what 10 would be given more importance? 11 I know there are often trade-offs between 12 agricultural impacts versus forestry impacts and other 13 natural environment impacts. I was wondering if how you 14 were going to make those trade-offs in those situations 15 was done in advance of the specific case or whether you 16 looked at each case and decided on a case-by-case basis 17 how you were going to make those trade-offs. 18 MR. WESENGER: Each project was looked at on a 19 case-by-case basis. That is because we allowed the 20 public an opportunity in each study to comment on the 21 evaluation criteria. In the case of Owen Sound to 22 Brantford, Gow & Storey presented the full list of 23 criteria that would be used to evaluate all of the 24 routes at the first open house and allowed the public an 25 opportunity to comment on that -- what they felt would 26 be most important to be considered. And ESP did the 27 same for Beachville to Bright first open house. 28 MEMBER SIMON: In both cases, what was the =0C 213 PANEL NO. 3, ex (Lea) 1 public's view on the weighting of agricultural factors 2 versus natural environmental factors and forestry 3 factors? 4 MR. WESENGER: Given the communities that both 5 of these projects go through, they tend to have a 6 preference for the preservation of agricultural features 7 and agricultural soils. However, they did not express a 8 preference in the weighting. 9 MEMBER SIMON: When you were doing the work, 10 did you have that weighting preference in mind? 11 MR. WESENGER: No, not at all. 12 MEMBER SIMON: Thank you, those are my 13 questions. 14 THE PRESIDING MEMBER: Thank you, Ms Simon. I 15 just wanted to clarify the condition of blasting. I 16 assume that Union would agree to comply with any of its 17 standard form of blasting conditions where there have 18 been groups that have been blasted by Union? I know it 19 is late in the day and I do apologise. 20 You are going to have standard conditions 21 where there is blasting, and I assume that Union would 22 agree to comply with the board's standard terms and 23 conditions for blasting, if there is blasting on this 24 route. 25 MR. MALLETTE: I believe so. I think what you 26 are saying is that, if there is a condition that has 27 previously applied to a project and we have accepted it, 28 we would accept the same condition this time. I think =0C 214 PANEL NO. 3, ex (Lea) 1 that is fair. 2 THE PRESIDING MEMBER: That is right. There 3 may be modifications that may be required to the 4 blasting because there may be blasting in the river 5 crossing which you may not have done before. So you 6 would agree to work with board staff on reasonable 7 conditions for blasting in the river, such as the 8 conservation authority for example? 9 MR. PAYNE: Yes. Should there be blasting in 10 the river, which at this point we don't anticipate, we 11 would be fine with that. 12 THE PRESIDING MEMBER: I just want to confirm 13 that, subject to the amendment on blasting, these terms 14 and conditions would be acceptable? 15 MR. MALLETTE: Yes. 16 THE PRESIDING MEMBER: Thank you. Mr. Leslie, 17 do you have anything? 18 MR. LESLIE: Mr. Mallette had indicated to me 19 at the break that he wanted to correct something he had 20 said earlier. You can do that now, Mr. Mallette. 21 MR. MALLETTE: I just wanted to be sure I had 22 said the right thing in testimony. When talking about 23 the Maple Manor development where we have provided class 24 three design plates, I would like to clarify that that 25 location is just to the left of the east terminus of the 26 Owen Sound-Brantford section. 27 Secondly, in that Maple Manor development, 28 there has been two houses that were recently built.=20 =0C 215 PANEL NO. 3, ex (Lea) 1 They do fall somewhere -- we are not exactly sure how 2 far away they are away from the proposed pipeline, but 3 it would be somewhere between 10 metres and 50 metres.=20 4 I had previously said there was nothing closer than 50 5 metres and I believe these two recently built houses 6 would fall a bit closer than that. 7 THE PRESIDING MEMBER: Thank you. Anything 8 else Ms Lea or Mr. Leslie? 9 MR. LESLIE: I have nothing further by way of 10 evidence. 11 THE PRESIDING MEMBER: Thank you. Then I 12 think it is appropriate to excuse the panel now with our 13 thanks. Thank you very much. 14 MR. LESLIE: With respect to submissions, I 15 have spoken briefly to Ms Lea. I think we are both 16 agreed that we could do it in the morning. 17 MS LEA: Actually, I was going to volunteer to 18 do it this evening, depending on people's tolerance for 19 giving me 20 minutes to prepare and five minutes to 20 deliver my summary. It is up to the panel. 21 I could probably have it ready. My watch says 22 twenty to six, I could probably be ready by six and I 23 think I would be completed by 10 past. So that is one 24 option if I were going to deliver my summary of issues 25 tonight. 26 THE PRESIDING MEMBER: Mr. Leslie, did you 27 feel unduly prejudiced if Ms Lea does not do a summary 28 until tomorrow morning? =0C 216 1 MR. LESLIE: No, not at all. 2 THE PRESIDING MEMBER: That's fine. 3 I think that because it is late because there 4 are other people, court reporters, et cetera, that do 5 have commitments, so we will wait till tomorrow morning 6 to hear both. 7 MR. LESLIE: That's fine. 8 THE PRESIDING MEMBER: Is that satisfactory? 9 MR. LESLIE: Oh, yes. 10 THE PRESIDING MEMBER: Is there anything else? 11 MR. LESLIE: No. 12 THE PRESIDING MEMBER: Okay. Will you 13 additional time in the morning or will a 9:30 start 14 be -- 15 MR. LESLIE: At 9:30 will be fine. 16 THE PRESIDING MEMBER: Satisfactory. 17 MS LEA: The other thing, I don't know, 18 Mr. Leslie, whether you will need time after you hear 19 me. Do you think that you will need time? 20 MR. LESLIE: I don't think so. 21 MS LEA: Your best guess and I agree with 22 that. So 9:30 is fine with me. 23 THE PRESIDING MEMBER: Ms Lea, it makes me 24 wonder if we could just skip your submissions. 25 --- Laughter 26 MS LEA: Oh, no. 27 THE PRESIDING MEMBER: Fair enough. 28 Thank you very much and we stand adjourned =0C 217 1 until tomorrow morning at 9:30. 2 --- Whereupon the hearing adjourned at 1745, 3 to resume on Friday, February 9, 2001 at 0930 4 =20 5 =20 6 =20 7 =20 8 =20 9 =20 10 =20 11 =20 12 =20 13 =20 14 =20 15 =20 16 =20 17 =20 18 =20 19 =20 20 =20 21 =20 22 =20 23 =20 24 =20 25 =20 26 =20 27 =20 28 =20 =0C 218 1 INDEX OF PROCEEDING 2 PAGE 3 Upon commencing at 0944 3 4 Preliminary Matters 4 5 Comments by Mr. Dreher 7 6 SWORN: LYNN GALBRAITH 14 7 SWORN: PAUL GARDINER 14 8 SWORN: STEVE BAKER 14 9 Examination-in-chief by Mr. Leslie 14 10 Examination by Board staff 25 11 Upon recessing at 1100 42 12 Upon resuming at 1122 42 13 Questions by the Board 76 14 SWORN: LARRY HYATT 85 15 SWORN: LAURA CALLINGHAM 85 16 SWORN: GERRY MALLETTE 85 17 SWORN: MIKE PACKER 85 18 Examination-in-Chief by Mr. Leslie 85 19 Examination by Board staff 95 20 Upon recessing at 1300 103 21 Upon resuming at 1415 104 22 Questions by the Board 131 23 PREVIOUSLY SWORN: GERRY MALLETTE 135 24 SWORN: RON HALEY 135 25 SWORN: GREG PAYNE 135 26 SWORN: DAVID WESENGER 135 27 Examination-in-Chief 135 28 =20 =0C 219 1 INDEX OF PROCEEDING 2 PAGE 3 Examination by Board staff 148 4 Questions by the Board 154 5 Further examination by Board staff 158 6 Upon recessing at 1609 174 7 Upon resuming at 1630 174 8 Upon adjourning at 1745 217 9 =20 10 =20 11 =20 12 =20 13 =20 14 =20 15 =20 16 =20 17 =20 18 =20 19 =20 20 =20 21 =20 22 =20 23 =20 24 =20 25 =20 26 =20 27 =20 28 =20 =0C 220 1 LIST OF EXHIBITS 2 NO. PAGE 3 12.1 Package of curriculum vitae 5 4 of witnesses 5 11.1 Letter from Union Gas Limited 87 6 dated February 2 including 7 attachment 8 12.2 Extract from the Canadian 185 9 Pipeline Watercourse Crossing 10 Committee Book 11 =20 12 =20 13 =20 14 =20 15 =20 16 =20 17 =20 18 =20 19 =20 20 =20 21 =20 22 =20 23 =20 24 =20 25 =20 26 =20 27 =20 28 =20 =0C 221 1 LIST OF UNDERTAKINGS 2 NO. PAGE 3 614.1 Reanalysis of what Union 119 4 believes to be an unusual 5 state with gas prices which 6 would affect figures filed 7 =20 =1A