Rep: OEB Doc: 122V2 Rev: 1 ONTARIO ENERGY BOARD Issues Day Volume: 1 December 19, 2001 BEFORE: S. K. Halladay PRESIDING MEMBER B. BETTS MEMBER A. C. Spoel MEMBER 1 IN THE MATTER OF the Ontario Energy Board Act, 1998: 2 AND IN THE MATTER OF an application by The Consumers' Gas Company Ltd., carrying on business as Enbridge Consumers Gas, for an order or orders approving or fixing rates for the sale, distribution, transmission and storage of gas for its 2002 fiscal year. 3 APPEARANCES/COMPARUTIONS 4 PAT MORAN Board Counsel COLIN SCHUCH Board Staff JERRY FARRELL Enbridge Consumers Gas HELEN NEWLAND Enbridge Consumers Gas ANDREW GREEN Canadian Manufacturers & Exporters MALCOLM ROWAN Canadian Manufacturers & Exporters MURRAY KLIPPENSTEIN Pollution Probe JACK GIBBONS Pollution Probe PAT MCMAHON Union Gas LYNDA ANDERSON Union Gas DAVID POCH Green Energy Coalition BRIAN HOWELL Industrial Gas Users' Association IAN MONDROW HVAC Coalition TOM BRATT OASBO ROBERT WARREN Consumers Association of Canada TIBOR HAYNAL TransCanada Pipelines GEORGE VEGH CEED 5 --- Upon commencing at 9.58 a.m. 6 MS. HALLADAY: The Consumers Gas Company Limited, carrying on business as Enbridge Consumers Gas, has filed an application with the Board for an order or orders approving or fixing rates for the sale, distribution, transmission, and storage of gas for its fiscal 2002 year. Board Staff has circulated a draft issues list. An issues conference involving the companies, intervenors, and Board staff was held yesterday to discuss and clarify issues and to identify any modifications to the issues list. The Board is sitting this morning to hear submissions with respect to the proposed issues list formulated at the issues conference and, if possible, to fix the issues list. My name is Sheila Halladay. With me today are Cathy Spoel and Bob Betts. May I have appearances, please? 7 MR. FARRELL: Gerry Farrell, for the applicant. 8 MS. NEWLAND: Helen Newland, also for the applicant. 9 MR. POCH: David Poch, for the Green Energy Coalition. 10 MR. KLIPPENSTEIN: Good morning, Madam Chair, Members of the Panel. Murray Klippenstein, for Pollution Probe. 11 MS. HALLADAY: Good morning, Mr. Klippenstein. 12 MR. BRATT: Good morning, Madam Chair. Tom Bratt, for the Ontario Association of School Business Officials. 13 MS. HALLADAY: Good morning, Mr. Bratt 14 MR. MONDROW: Good morning, Madam Chair. Ian Mondrow, counsel for HVAC Coalition. 15 MS. HALLADAY: Good morning, Mr. Mondrow. 16 MR. GREEN: Good morning. Andrew Green, counsel for the Canadian Manufacturers and Exporters. 17 MS. HALLADAY: Good morning, Mr. Green. 18 MR. HOWELL: Good morning. Brian Howell, for IGUA. 19 MS. HALLADAY: Good morning, Mr. Howell. Any other appearances? 20 MR. VEGH: Good morning. George Vegh, for CEED. 21 MR. WARREN: Good morning. Robert Warren, for the Consumers Association of Canada. 22 MS. ANDERSON: Linda Anderson, Union Gas. 23 MS. HALLADAY: Good morning. 24 MR. McMAHON: Pat McMahon, for Union Gas. 25 MR. HAYNAL: Tibor Haynal, for TransCanada PipeLines. 26 MS. HALLADAY: It's difficult to see people. All the appearances. Mr. Moran? 27 MR. MORAN: For the Board, yes. 28 MS. HALLADAY: Before we begin, are there any preliminary matters? Okay. Mr. Farrell? 29 MR. FARRELL: Yes, Madam Chair. I should also for the record indicate that Ms. Newland and I are accompanied by Marika Hare and Paul Ladanyi from Enbridge Consumers Gas. There are a modified issues list, 36 issues. My understanding is you wish us to walk you through the issues and perhaps to indicate the reasons or to identify, which Mr. Schuch has done, by underscoring changes from the initial staff draft. Is that your wish? 30 MS. HALLADAY: Yes, please. 31 MR. FARRELL: For my purposes, I have put the issues into five categories. The first one is contested issues. There are only two contested issues. They are 8.2 and 8.3, and they are so indicated in the revised list of issues. The other issues are either contentious; that is to say, people haven't agreed on the outcome of the issue, haven't agreed on a resolution, and they will either be litigated or perhaps -- and hopefully negotiated in the settlement process. And then there are three other types of issues that I'll refer to as I go through here. One I call routine issues; namely, things that are dealt with by the Board on a regular basis, the clearance of deferral accounts, the calculation, as it were, of the ROE, according to the Board guidelines and so on. Then there are a couple of issues I call fine-tuning issues. They deal with adjustments to the QRAM mechanism that was approved by the Board when the settlement in the last case was approved by the Board. And finally, there are a couple of issues that we call place-holders. They are on the issues list because Enbridge Consumers Gas has yet to file a particular study or has yet to answer a particular interrogatory, and the people who are -- the parties, rather, who are interested in the study, the report, or the interrogatory response will want the issue on the list until they have seen what we have to file and either satisfy themselves that it's not an issue or carry on through the settlement process in discussing it. 32 So I'll identify the ones I consider to be routine, fine-tuning, or place-holders. The others, I think, are safe to assume, are contentious, and then there are the two contested issues that we'll be debating this morning. Is that approach satisfactory? 33 MS. HALLADAY: That is just fine, thank you. 34 MR. FARRELL: Okay. Ms. Newland and I have been assigned responsibilities for various issues. So one of the two of us will take you through them, and she has the first one, which is the gas volume budget. 35 MS. NEWLAND: Good morning. In listening to Mr. Farrell, I was trying to characterize gas volume budget as an issue in accordance with his scheme, and I think we can say that it will be a contentious issue. The issue as articulated this year is substantially similar to that as it was articulated last year. A large component of the gas volume forecast is attributed to the general service rate classes 1 and 6, and the methodology for forecasting rates 1 and 6 is based on an estimate of average uses. Intervenors reserved last year in the RP-2000-0040 settlement proposal the right to examine this issue in this rate case, and that is why the issue is on the list, Madam Chair. 36 MS. HALLADAY: Thank you. 37 MR. FARRELL: The next set of issues, Madam Chair, are mine; that is, gas costs and transportation. Issue 2.1 is a holdover, if you will, from last year's settlement, where the issue was settled on the basis that it would be examined in the context of this case. The issue 2.2 is an addition to Mr. Shuch's initial list, and this was actually part of the alliance vector issue in the last hearing. It was a separate issue dealing with the 50/50 sharing. So intervenors wished to have this issue added to the list, the draft list, rather, that Mr. Shuch prepared, and the company does not contend that it's not an issue, so it's on the list. 38 Issue 2.3 is just a reworking of what had been issue 2.2 on the initial list, and it has to do with the cost allocation of gas supply management costs. That was a study that was required as a result of last year's settlement, and the study has been filed, and the issue is a contentious one. 39 The next issue is, again, a breakout, or a rewrite, if you will, of the former issue 2.2, to identify separately the cost of managing system gas on a stand-alone basis. This issue, likewise, was the subject of last year's settlement, and we have yet to produce the study, and we expect it will be filed in mid-January. 40 2.5 is a reworking of issue 2.3 on Mr. Shuch's initial list. This has to do with the implications of the new QRAM methodology and the out-sourcing arrangements in terms of risk management on ECG's risk-management programme. You might recall that last year in the settlement there was to be a working group to examine the principles underlying the risk management programme. That working group did meet. They agreed that the existing set of principles with some minor word revisions were satisfactory, but then along came QRAM and then the out-sourcing, and so the working group -- excuse me, Enbridge Consumers Gas offered and the working group accepted the retaining of a consultant to examine the risk management programme in the light of those two factors. And that study will also be filed hopefully by mid-January. 41 So that -- issue 2.5 I would classify as a place-holder for now. We are just waiting for the report, and parties can examine it and see whether or not it's an issue that needs to be further addressed. 42 Issue 2.6 is what I call a fine-tuning issue. This is an adjustment to the QRAM mechanism that was approved in last -- in the last case's settlement. In the application that's now before you on gas costs for the second quarter of fiscal 2002, ECG reflected the large corporation's tax and capital tax. Even though those two items weren't reflected in the mechanism, they had the benefit from a rate-payer's perspective of reducing the revenue requirement by about half a million dollars, but intervenors felt that we should get the Board's approval of this issue so that the QRAM mechanism, with these additions, would have the Board's blessing. 43 The cost of capital issues are Ms. Newland's. 44 MS. NEWLAND: The first issue, 3.1, the establishment of the return on equity for fiscal 2002 using the Board's existing ROE guidelines is really a place-holder issue. I say that because the company has filed a number of responses to interrogatories that I don't believe the intervenors have had a chance to consider. These interrogatory responses actually give the intervenors the information on what the return of equity is using the existing ROE guidelines under the September consensus forecast. The intervenors have asked the company to provide the supporting information for the consensus forecast. Once that information is provided, I think this issue will probably fall away. 45 The second issue is ECG's proposal for a review of the ROE guideline. The Board has deferred this issue to a separate phase of the proceeding, and I guess we can expect that the Board will issue a procedural direction in due course. 46 The third issue is ECG's estimate of the cost of short-term and long-term debt for the 2002 test year. This is likely to be a contentious issue. Intervenors wish to examine the forecast of medium- and short-term issues. This was an addition to the draft issues list. We don't oppose it. The company has recently revised its forecast downward, its forecast of debt downwards. Again, intervenors probably have not have an opportunity to look at this new evidence. We hope that the new evidence will remove some of the -- some degree of the contention surrounding this issue. 47 I have the next issue as well, Madam Chair. It's rate base, 4.1, is ECG's capital budget for the 2002 test year. This is a routine issue. The major components of the capital budget are customer-related capital, system improvements and upgrades, underground storage facilities, and general and other plant, which includes routine expenditures on the hardware and software upgrades that are required to support the company's technology needs. 48 The second issue, 4.2, is ECG's distribution plant and asset management solution information technology project, which has been given the acronym of DPWAMS. This issue has to do with the company's proposal to spend approximately $20.5-million over two years on a packaged solution that will permit it to effectively manage its operational workload. We expect this issue will be somewhat contentious, Madam Chair. 49 MR. FARRELL: Before we leave 4.2, you should just write the word work into the issue after the word plant. That provides the W in the WAMS. 50 MS. NEWLAND: That's an unfortunate acronym. 51 MR. FARRELL: I have the asset sharing arrangements affiliates services issues, Madam Chair. The first issue is new compared to -- this is 5.1 -- compared to Mr. Shuch's draft list. This, it just ties off a gap, if you will, in terms of the assets that have been disposed of after October 1st, 2001. Some intervenors wanted to just make sure that was tied off. The reason for the word "disposition" is that some assets have been transferred and others have been retired, so it's not simply a transfer. 52 Issue 5.2 was -- is the same as 5.1 on the original list. Again, this is a carry-forward from the settlement in the last case in terms of the method of dealing with the sharing of utility-owned assets, or at least the cost consequences of them. And again, there was a study which was filed yesterday that would be examined in the context of this proceeding. 53 Issue 5.3 is an embellishment of issue 5.2 on the original list. Issue 5.3, as it's written now, serves to include additions that IGUA's counsel, Peter Thompson, had requested. He had made, I think, three suggestions, or the suggestion to have three separate issues, and during the issues conference yesterday, with IGUA's consent, they were combined with the old 5.2, and the result is what you see as 5.3. 54 The next group of issues are my responsibility as well, the PBR, O and M issues. 5.1 is something I would call a routine issue. It stems from the reference that's included in parentheses where the Board, in paragraph 3.0.22, in EBRO 497-01, expressed an expectation to review the specific results of the service quality indicators in rates cases as they unfolded. 55 6.2 is, again, in my view, a routine issue. It requires an adjustment of the formula by which O and M expenses are determined, and intervenors usually like to have a look at and satisfy themselves with the forecasted inflation that's used in that formula. 56 6.3 is an issue that is a carry-forward, again, from last year's settlement proposal. There was an issue dealing with the symmetry and ECG's budgeting for Z-factors of savings as well as expenses, and intervenors who were interested in that issue last time just want to examine ECG's performance in achieving symmetry, and there's evidence to that effect. 57 Ms. Newland has the next three sets of issues -- excuse me, the next two sets of issues. 58 MS. NEWLAND: 7.1, Madam Chair, is ECG's forecasts of net revenue from transactional services for the 2002 test year. This is a routine but contentious issue, as in past years we expect our forecast to be contentious. 59 Moving on to demand-side management, issue 8. As you will see, two out of the -- 60 MS. HALLADAY: Just one moment. 61 MS. NEWLAND: I'm sorry, Madam Chair. 62 MS. HALLADAY: Ms. Newland, it might be easier to deal with the contentious issues at the end once we've gone through the entire list of -- sorry, the contested issues at the end, not the contentious, routine, fine-tuning, and place-holder issues that we're going through right now. 63 MS. NEWLAND: I understand. In fact, that was my intention. I was going to deal with 8.1, 8.4, and 8.5, which are either routine or contested but not -- contentious but not contested. 64 MS. HALLADAY: Thank you. 65 MS. NEWLAND: 8.1 is ECG's DSM plan for the test year, including its O and M budget, its volume target, and the level of the proposed SSM incentive rate. Our DSM savings target, we are proposing a savings target of 100-million metres cubed and an O and M budget of 13.032-million for fiscal 2002. I just wanted to give you a bit of detail, because there is a bit of a departure here. We've based our budget on a formula that caps fixed costs at the level of actual fixed costs for fiscal 2001 and sets variable costs at a ratio of actual cost to the volume achieved, actually, in the -- the actual volume achieved in fiscal 2001, which works out to be 9-cents per MQ. 66 We're not proposing, Madam Chair, any change at all in the shared savings mechanism, or the SSM, itself. However, in order to address concerns expressed by intervenors through the DSM consultative, the company is proposing a reduction in the SSM marginal incentive rate coefficient from 35 percent to 20 percent of the value of the actual net benefits for the fiscal year. 67 And that -- the words which have been added to this issue and are underlined in the level of proposed assets and incentive rate have been added to reflect this proposal. 68 Moving on to the next uncontested issue under this heading, 8.4, is the scope of the demand-side management variance account . 69 This year the company's proposing that the DSMVA be limited to recording the differences between the forecast and the actual variable costs only. In other words, fixed costs are proposed to be excluded from this variance account, and that is the intention of this issue, is to examine the company's proposal in this regard. 70 Issue 8.5 is the clearance of the SSMBA and the 2000 LRAM. It's a routine issue, Madam Chair. We propose to clear the actual balances in both the 2000 SSM variance account and the 2000 LRAM in the context of this proceeding, and that -- our proposal to do this reflects the RP 2000-0040 settlement proposal, where it was agreed to clear these two accounts -- to synchronise the clearing of these two accounts in the same time period. 71 Madam Chair, did you wish for us to reserve our submissions on 8.2 and 8.3 until the very end of the issues list? 72 MS. HALLADAY: Yes, please. 73 MS. NEWLAND: Okay, then I'll turn things over to Mr. Farrell, as he has the next set of issues. 74 MR. FARRELL: The first set is customer information system. The two issues are -- the first issue, 9.1, is the same as 9.1 in Mr. Shuch's list. It's underlined because during the course of the issues conference there was a suggestion that 9.1 and 9.2 be combined, and there was a suggestion that they be unlinked. And so the text, notwithstanding the underscoring, is the same as in the original list. 75 There is a change to issue 9.2, and it's worded the way it is now because the original list talked about recovery charges for CIS services, but the CIS Z-factor is net of certain credit, so the actual amount in the proposed Z-factor would be less than the charges from the affiliate to ECG. That is the explanation for the change in the text. 76 Deferred taxes. The issue 10.1 is unchanged, and it deals with the company's proposal for deferral account mechanism to begin the recovery of the $50-million notional deferred tax account. 77 10.2 is a spike change, and the word "record" is used rather than recover, because what we're seeking now is the Board's approval to establish the deferral account, to record the $10-million, 5-million for fiscal 2001, 5-million for fiscal 2002, in the deferred tax account. 78 And then issue 10.3 deals with the proposal that has been made by the company to -- on the mechanics -- it uses the word preconditions;, and actually, 10.3 should have been underscored because it's new. This deals with the process, the proposed process of filing the tax returns on a confidential basis with the energy returns officer, as the mechanisms for drawing down or clearing the deferral account. So intervenors wish to examine the preconditions that are part of that draw-down process, and hence 10.3 was added to the list. 79 Ms. Newland has the next set of issues. 80 MS. NEWLAND: Deferral on variance accounts. 11.1 is amounts and disposition of balances in the fiscal 2001 deferral of variance accounts. This is a routine issue. We propose to clear -- we propose to, yes, clear a -- forecast supply in 16 non-gas supply deferral and variance accounts, and we'll be filing an exhibit later on that shows the actual balance in these accounts after the completion of -- we have the results for the 2001 test. We expect to file an exhibit that shows the actual balances in all of these accounts prior to the commencement of the settlement conference. 81 11.2 is also a routine issue. It's our request to continue or establish deferral and variance accounts for fiscal 2002, and this includes the late payment plan deferral account, which will record variances in the late payment penalty revenues and related bad debt expenses experienced during the test year as a result of changes that are expected to be made to the late payment penalty charge. 82 MR. FARRELL: The rate design issues, there are three. The first two are what I called originally fine-tuning. One is to change the mechanics, if you will, of allocating recovering carrying costs of gas inventory. I think for clarity you should delete the acronym QRAM from the issue because this applies to more than QRAM. This is an allocation methodology and -- but the reason for the cost allocation change is the quarterly adjustment, and the company feels that allocating to all customer classes on the basis of storage space and recovering over 12 months is more -- is a more equitable means of allocating the costs of gas in inventory, which change whenever the utility price of the QRAM mechanism changes. 83 Issue 12.2 is again a fine-tuning issue. It has to do, really, with rate 125, which is the equivalent of an unbundled rate. What the issue addresses is the removal of rate 125 from the scope of rider A, because there's no upstream transportation credit that should go to an unbundled rate. And then because rider A also imposes the direct purchase administration charge, by removing rate 125, we need to adjust rate 125 itself to impose the DPA thing . That's almost a housekeeping change. 84 Rate -- excuse me, issue 12.3 is, in effect, the Board's issue. This arises from paragraph 2.2.8, I believe I've got the correct paragraph number, where the Board -- in the last case where the Board expressed its concern about retroactivity, and I can assure you on behalf of Enbridge Consumers Gas that we have similar concerns and are trying our best to get back on track so we have cases filed, settled, and/or litigated with the Board decision prior to the commencement of the test year. 85 The -- I'll just go one out of turn and just deal with issue 14.1. This is, again, a place-holder. Intervenors are awaiting responses to at least one interrogatory that deal with affiliate and intercorporate financial transactions, and that may or may not be an issue once that material is made available. 86 Ms. Newland will now deal with the last issue, other than the two contested issues, which is late payment or penalty. 87 MS. NEWLAND: This is issue 13.1, and it's ECG's proposal to revise its late payment policy. On December 14th, Ms. Hare filed a letter with the Board describing the company's plans to come forward with a revised policy in this regard. That was in response to the OEB's direction on October 4th, 2001, and more recently to the Court of Appeal decision in the Garland case. I understand the Board is intending to establish a separate proceeding or process to deal with the company's proposal for a revised policy, so I expect this will fall off this particular issues list. 88 MS. HALLADAY: Thank you. 89 MR. FARRELL: So now we're just left with the two contested issues. My recollection of the procedure in the past issues day proceeding is that the proponents of the issues speak first and then the opponents, in this case, including the company, follow them. 90 MS. HALLADAY: Thank you. Before we go on to the contested issues, do any intervenors have any comments they would like to make with respect to any of the contentious routine, fine-tuning, or place-holder issues, as has been described by Mr. Farrell? 91 All content? Well done, Mr. Farrell and Ms. Newland. 92 All right, the contentious issues -- contested issues. I'll get the terminology straight. 8.2 and 8.3. Mr. Green, I understand this is your issue. 93 MR. GREEN: Yes, Madam Chair, it is our issue, and IGUA's issue as well. 94 If I could begin, I would like, with your permission, to deal with the two of them together because I think they have a similar basis and the problem is the same, so I would just like to talk through them together if that's all right with you. 95 MS. HALLADAY: Certainly. 96 MR. GREEN: I'd like to mention at the outset that the CME does support cost-effective DSM activities. This is not a challenge to running the programme as a whole. This is a question about how the system is structured. Recent experience has shown that there's increasing budgets every year, the company has consistently gotten over those budgets, and they've been getting large SSM -- shared saving mechanisms returns, in fact, much larger than had been previously expected. 97 What I'd like to do is go through just briefly what the issues are, then explain why we feel that they are a concern, and then talk about timing, why do we need to deal with these in this rate case. 98 The first issue is the continued use of the LRAM, the lost revenue adjustment mechanism. DSM reduces gas volumes. It's energy efficiency. Part of this is picked up in rates because there's a budget, and those are taken into account in the deficiency. But understandably, at some point, someone said, well, what if we don't hit our budget. Then we need to take that into account -- that lost revenue into account, and that's what the LRAM does. And we'll talk about the incentives that creates in just a second. But I'd like to note that it's not a given, though, that LRAMs are used. In many jurisdictions, according to a study commissioned by the company, don't have LRAMs. This is not a necessary element of a DSM programme. Moreover, some of the savings from the -- that result from the LRAM programme are notional, they are sort of predictions of the future, and as we'll talk about in a minute and it's the same case with the SSM -- a lot of the savings that we're talking about are notional but the cost, the money that actually goes to the company, is very real and is significant. 99 The second element on the issue is probably a little more obscure, and that's part of 8.3. It says, "The design of the shared saving mechanism, including resetting target volumes on the basis of variable budget increases." I have to explain how the budgets are set in this case. Basically, in the consultatives, they set a volume target for saying, you know, this is how much Enbridge should reduce the gas volumes. They then derive a budget. They say, well, this is how much it's going to cost to meet that volume target. But based on prior Board decisions, Enbridge has said, well, we can actually go over that budget by 20 percent without going back to the Board. 100 Now, the interesting thing about this is that they did this because they said, well, what if it is an unexpected success. Everyone starts to jump on board, we need more money to deal with this issue. The interesting thing about this is that, although the budget increases, the target volume does not increase. So the pivot point does not increase. 101 Why that's important is that it feeds into the shared savings mechanism. The shared savings mechanism is an incentive to get the company to do DSM. In the past it's been 35 percent of the net present value of future benefits, based on what's called the total resource cost test. These are notional savings projected into the future and then brought forward to the present. If the company beats the pivot point, if it does better than the pivot point, then they get the shared savings mechanism. 102 Now, to the extent that they can then increase their budget above 20 percent without increasing the pivot point, they have a chance to costlessly meet -- beat the pivot point and increase their shared savings mechanism. 103 Now, what's the impact of this? The shared savings mechanism came in 1999, and there's three things that happened since 1999. First, the budget that's been put forward by the company has been increasing every year, and they've gone over it every year. For 1999, the budget was $5-million. They actually spent $6.4- million. In 2000, the budget was $6.6-million. They actually spent $9.3-million. In 2001, the budget was $10.5-million. They actually spent $12.5-million. And for this test year, they're asking for $13.3-million. So you can see the budget is going up, up, up, and they are over it every year. 104 Related to that, they are also over their volume target every year consistently since 1999. In 1999 the target was 31.2 M 6s, and the actual was 52. In 2000, the target was 42, and the actual was 62.1. In 2001, the target was 70, and the actual was 93.5. That's not surprising, because they can set a budget and then they can go over it by 20 percent to try and beat that pivot point. 105 That's important, because now -- not only because of the actual budget volumes -- sorry, size of the budget which goes into rates, obviously, because of the Z-factor, but also because of the SSM. The SSM has actually been very large and been much larger than we expected. In 1999, the SSM reward to the company was $4.8-million. In 2000, according to a response to a Board interrogatory, the estimate for the SSM is $9.4-million. In 2001, we don't have an estimate yet. 106 So the question is, why are we dealing with this? I think it falls out from this impact. Costs are spiralling out of control, they are getting higher and higher and higher. The SSM is much larger than expected and continues to increase. And due to a combination of LRAM, the budget, the way the budget's set, and the SSM, it's not sufficient to go this year again, to look at the budget, look at the volume target, look at the incentive rate and just say, well, you know, let's drive on, we'll deal with this sometime in the future. These are very significant impacts on rate base, and we need to deal with them now. 107 The company's proposal is to reduce the SSM from 35 percent of net present revenue to 20 percent of net present revenue -- sorry, the net present value of societal benefits. That's better, obviously, but 20 percent of an unfair rate is still 20 percent of an unfair rate. We need to understand how that's set and structure it so that the incentives are correct. Right now the incentives are that the company costlessly pushes up the budget, goes over it, beats their pivot point, and then gets an increasingly large return. 108 Now, we raised this yesterday and we heard that the company needs more time to deal with this issue, they can't deal with it this year. It's a bit surprising, because we've been raising some of these issues for the past two years. In fact, the Board raised at least part of these issues last year in their decision when they expressed concern -- I'm taking from a Board interrogatory -- response to a Board interrogatory where the -- which quotes the Board's last decision, saying, "The Board shares the concern expressed by the customer-oriented parties about the overall rate at which the DSM costs are increasing relative to gas cost savings, the consequential impact on rates, and the extent to which ECG needs incentives to further control costs in this area." 109 ECG has made some proposals about fixed costs and variable costs, they've made proposals about reducing the SSM rate, but these aren't sufficient. We have to make sure that the structure is fair, because the impact on rates is significant and the SSM is ramping up year after year because of the way the structure is created. 110 That's why we believe that these two issues need to be on the issues list for this year. Thank you. 111 MS. HALLADAY: Thank you, Mr. Green. 112 I'm not sure who is speaking on behalf of IGUA. 113 MR. HOWELL: My name is Bryan Howell. I'm here to -- Peter Thompson is away and so I'm here to try and replace him. It's a difficult act to do. 114 I can add very little to what my friend has said, except to say that IGUA do endorse his arguments. We feel that the costs are going out of line, we feel that the parameters need to be looked at, and it would appear to us that with all the various pieces that have been outlined to you that there must be a need to put it on the issues list and look at it. 115 I'd also point out that where -- the two groups, IGUA and CME, represent probably nearly 100 percent of the large users in the province and do have a big stake in this. 116 MS. HALLADAY: Thank you, Mr. Howell. 117 Okay. Ms. Newland. 118 MS. NEWLAND: Madam Chair, I've agreed to follow Mr. Poch and other intervenors who wish to speak on this issue. 119 MS. HALLADAY: Mr. Poch. 120 MR. POCH: I think I've been elected, Madam Chair. 121 My friend, CME, raised three concerns at the outset of his submissions: increasing budgets, the ability to overbudget through the use of DSMVA, and the size of the rewards that the company has earned under the SSM mechanism. 122 Now, first of all, my understanding is that the DSMVA is not on the contested issues list. It's already on the issues list, a change in scope to that mechanism. 123 I think it's important to understand what is proposed by these contested issues that goes beyond what is already included in the agreed issues under issue 8.1. My friend indicates they don't have a problem with DSM per se, and I assume nobody is complaining about the success we've seen in that regard and the fact that customers are being saved many millions of dollars each year and that this collection of mechanisms, however imperfect they may be, has clearly inspired rapid growth in those programmes and increasing savings to customers. 124 There appears to be some concern about value for money or riches of reward embedded in my friend's comments, and I would suggest that these issues are already within the ambit of 8.1 without opening this wide open to a potentially huge hearing. 125 The incremental SSM rate which the company has proposed to change, which has been a topic of discussion in the consultative and which is on the table for further discussion if needed, responds directly to the question of the richness of reward. Obviously, if they take less of a percent of any exceedance of the target, less of a percent of the TRC benefits they generate, the reward will not be as great, nor will the incentive, nor will the penalty, I would add, if they fail to do so. 126 So that is already uncontested an issue that can be bargained if -- orally. 127 The scale of benefits is already in issue because the volume target's in issue. My friends want to see more benefits for the budget, then we can have further discussions about whether that 100 million cubic metres which is now proposed is the appropriate level . 128 The scale of costs is already in issue because the O and M budget is an issue. So you've got costs, you've got benefits, and you've got rewards already, items that are on the table. 129 Further, the company indicated we have, I think, jointly developed a proposal which curtails the use to which the DSMVA can be put. My friend in his submissions, I think, went on at length about how use of the DSMVA allows -- eases the company's ability to go after additional savings and therefore reap rewards. 130 Well, it's understandable. The genesis of the DSMVA is, you have programmes which are out there, getting people to put their set-back thermostats on the wall. And part the way the company does that is by helping to pay for the set-back thermostats. That's a variable cost. It's a cost which goes up per added participant, unavoidably, if this is the nature of the programme. 131 So I don't think there's any complaint from anyone that that hard cost has to get paid by someone and that that is the guts of the programme. If we don't have an ability to do that, then obviously it's a great disincentive to the company to have to shell out for that out of its pocket. 132 What we've done is created a mechanism which says we won't let the company increase its overheads, we won't let the company go out and hire more staff and buy more furniture and what-have-you. That's all part of the fixed costs within the year. The rate process sets that budget; they're stuck with it. If they want to go over/under on that, that's to their bottom line. The only thing that the DSMVA, it's proposed, will now be used for is these variable costs; that is, the hard delivery costs that change unavoidably as more people take up measures or fewer people take up measures, and the DSMVA goes both ways. Before we had incentives for DSM we had a situation where the utilities were often underspending their DSM budget and pocketing that, and we found that completely unacceptable from a customer's perspective, and the wrong incentive. 133 So we have developed a mechanism to contain that concern about the company being able to go over or under budget on costs that would then become a recurring problem; that is, overhead-type costs, costs that the company gets to keep. 134 So what the issue -- the contested issues deal with must be something more than this, and indeed they are, indeed, far more than those issues. They are quite fundamental. 135 First, the suggested issue of changing the SSM from a situation where we're incenting net benefits measured by the TRC, the total resource cost test, which is basically the sum of all the costs borne by the company and by customers and ultimately paid for by the customers, to move towards an incentive which focuses -- and the proposal here is some version of, as I read it, incenting a reduction in O and M spending per cubic metre of gas saved -- must be understood to be a suggestion to move -- to move away from counting all customer costs and benefits, apart from externalities, which we don't count in this SSM mechanism; that is, the TRC is, as I've said already, is the counting of all of these -- collecting of all these costs and benefits, and move to a narrow set of costs and benefits; that is, only the costs in O and M, not the customer's costs of a measure; and only gas volumes as opposed to TRC, which looks at a much bigger set of benefits; that is, gas volumes and their persistence over time. Some gas volumes would be very great but short-lived savings, and it's, I think, inappropriate to value them based simply on the cubic metre in the first year rather than the cubic metre and some measure of persistence. 136 So inevitably if we move away from TRC and incent some other set of indicators, we are, by definition, incenting the company to select a portfolio of DSM measures which is going to be less cost-effective ultimately from the customer's perspective. 137 So this is a proposal to fundamentally change the incentives to the company and to move away from what the Board, I think, painstakingly considered in the EBO 169-3 report. It's a 175-page decision where they went through this in some detail and looked at the kinds of tests that should be used, and the TRC and SCT were the foundational -- are the foundation of the Board's policies and have been to date. 138 Second, even the proposal to drop LRAM, taken on its own or suggested as a separate issue on its own, would require us to completely rethink the SSM, because the SSM of course was developed where the -- with an LRAM already existing for the company. And if you -- if the level of incentives and the style of incentive presumes the existence of an LRAM, that the company already is shielded from the disincentive of lost gas revenues by way of the LRAM, and then we look at, well, what's left that we have to address with an SSM, if we get rid of the LRAM, we really have to go back to the drawing board on SSM and reconsider its structure and adequacy. I don't think you can delink these issues. And I think my friend, in effect, acknowledged the interrelationship when he asked to argue these issues together. They really are intertwined. 139 Third, and I don't get into this detail because I want to put evidence and argument before you, so please treat my comments as really an indication of the kind of evidence and argument that you will have to wrestle with if this becomes an issue, if you incent lower O and M per cubic metre, that implies a whole range of issues that flow from that, one of which is, you're going to incent the company to retreat from incenting comprehensive DSM programmes where you take a range of cost-effective programmes, some more cost-effective than others, and you decide what's the best delivery vehicle, where can we get economy of scale on delivery. If you're going to knock on doors and get in the customer's door and have your person out there, let's do the cheap showerhead, but let's also see if we can get them to change over their furnace or what-have-you. Well, if we give the company incentive, they start lowering O and M per cubic metre, they're only going to do the really low-hanging fruit, the cheap showerhead. That's great, you do all the showerheads in year one, and we've had this great bang for the buck, apparently, and then next year you come back or three years down the road you come back, and say, well, we've done that, now what's next up on the cost curve of cost-effective DSM measures, and you get to the furnace. Well, you no longer have a guy going in the door. You've got to do that all over again. So you've lost that economy of scale, and the net effect is the overall long-term costs of the DSM portfolio to customers has gone up. 140 This is the kind of -- the complexity that we deal with when we start tinkering with the structure of the SSM and moving away from TRC in particular. 141 Now, having said that, and despite, you know, our certain knowledge that my friends are misguided, we do support their right to raise such issues, but we don't support their right to raise them at this time. There needs to be some respect for practicality and for the Board's time in this, what everybody recognizes, is a very busy regulatory agenda this year. And in that regard, I note that the -- in the DSM consultative, we have already begun and committed to review these issues; that is, structure of SSM or refinement of SSM, in the coming months, in large measure because everyone understands that we have to recanvas these various incentives in the context of impending CPBR, which the company is proposing to move ahead with. And the 2003 rate year will be the base line upon which CPBR mechanisms are to act. So it's on the agenda. We just haven't had a chance to get through it. 142 Now, I'm not promising my friends that they're going to get any relief from that process. I hope I'm going to be -- will be very persuasive in that process, and there won't be. But at least we should have a chance to go through that process, a process that I think, from the Board's perspective, it should be clear, has worked quite well at achieving consensus, largely achieving consensus on many DSM-related issues. We have not gone to hearing on DSM, I think, in recent years. Between that process and the ADR, it's been very effective at achieving results. 143 I think further, and perhaps most importantly, if we were to have these issues on now, and the likelihood is we would end up litigating it fully before you, I think it's reasonable to assume there's a good chance we'll be back here next year doing it again, because we'll then have the CPBR and a three-year or five-year, what-have-you, situation, and having to tinker with mechanisms. And we don't know fully what the details of that context, that CPBR context, are at this time. So I think there's a high risk we'd have a duplicative process. 144 Finally, if we're to open up the issue of structural changes to the SSM and the LRAM -- that is, changes beyond just adjusting the marginal rate -- then I think it's fair to warn the Board that we -- that is, the GEC -- would want to include a canvassing of our favourite alternatives too at the same time. I think it's only appropriate that we look at a range of alternatives. We have, in particular -- the GEC has been wishing to see better incenting of market transformation programmes, and the current SSM is not particularly well designed to do that. We think there are some twigs which could better do that, that we are proposing to talk about with the company and the other parties to the consultative in the coming months. But if this issue is coming to the table now, then we, I think, in fairness, would want to be able to put that on the table for the Board's consideration. 145 So for the reasons both that this represents a fundamental shift in direction from the EBO 169 approach, and because we think if we're going to discuss SSM then we need to discuss SSM thoroughly, we would be in a position of having to file evidence on these issues. But even if we weren't to bring in the spectre of us raising further alternatives, just to respond to these very fundamental proposals, we would need to file evidence. 146 And I think all of this suggests that the -- putting these issues on the table on the issues list at this time is simply premature. It's going to lead to duplication of the Board's efforts, of the parties' efforts. It's not utilising the consultative first as a -- in the hope of achieving some further consensus with the narrowing issues. And I think it risks a canvassing of this issue that is not a full and a best effort by all parties -- for all parties concerned, and that I think would be unfortunate. 147 Those are my submissions. Thank you very much. 148 MS. HALLADAY: Thank you, Mr. Poch. 149 Mr. Klippenstein, did you have something to add? 150 MR. KLIPPENSTEIN: I'd like to add something. I'll see if I can. 151 Pollution Probe would also respectfully suggest that these items not be added to the issues list. In my submission, putting this on the issues list for this particular hearing is like spending a lot of effort and time and money to fix something just before you're going to replace it, and that's not a very sensible way to proceed. Furthermore, we in Pollution Probe's view, we don't think it's broken anyway, but even if you think that it is, it's still not smart, I think, to fix it when you're going to replace it. The analogy I would use in a rough and ready way is, it's a bit like fixing your VHS video player just before you're going to switch to DVD. It doesn't really make sense. And the analogy is that, as Mr. Poch said, and as everybody knows, there's going to be a major hearing required in the next year for the five-year comprehensive performance-based regulation plan, and that's going to open up a lot of the issues. 152 So that upcoming major hearing, in my suggestion, is where these issues are going to have to be dealt with. The result is, first of all, that because of that CPBR hearing, these parties will have a chance to address these issues in that hearing. It can't be avoided, so it will be addressed. It's already been addressed in the ramp-up consultation, so it's not unfair to not include it in this hearing. 153 Secondly, to put it in this hearing means you then will have two major DSM hearings in the next year. As I said, I don't think you can get away from looking at the DSM issues in a major way as part of the five-year plan. So to look at it fundamentally in this hearing and then again look at it in the next hearing means you'll have two major hearings on it, on DSM, in the next year, and the Board has the electricity market on its mind and a very full schedule, and it doesn't make sense, in my submission, to have two major hearings on DSM.. 154 Thirdly, even if you do process this issue here and come up with a solution, how long is it going to last? It's like fixing something when you're going to replace it, because you're -- moving to comprehensive DBR means the solution you might come up with here is going to have to be looked at anyway. So you can't avoid looking at it again if you look at it now. 155 Fourthly, reviewing these issues now means there might be changes in the middle of the test year, because that's roughly when the decision would come down. So it would mean fundamental changes in the middle of the test year, and that's also not, in my submission, sensible, given the time frame that we're looking at here. 156 Fifthly, just to respond to the concern about the high figures, for example, the 9.4 proposed amount for the 2000, that's unaudited, it's really a false alarm. The comparable would be to note that the previous figure for 1999 was reduced in the process of the consultation and the settlement by $2-million. So the 9.4-million, if the future's like the past, is likely to be negotiated down. It shouldn't be some kind of fixed alarm sign, because it isn't, in my respectful submission. 157 Sixthly, given even those kinds of financial concerns, there are existing mechanisms that can make dramatic changes as part of the negotiation. Changing the incentive rate, changing volume target, those have been heavily negotiated in the past and large financial savings have resulted. Those are going to be there even if this does not appear on the issues list. 158 And seventhly, this is all about incentive regulation, and to fundamentally change that, for example, to now talk about discontinuing LRAM, is putting an axe to the root of the whole idea of incentive regulation, and that's not the direction things are moving, in my respectful submission, it's the opposite direction. 159 So in summary, even if it needs some fixing, the best place to do that is in the upcoming CPBR hearing, and don't spend a lot of time and money in this hearing on it, including on the experts that Pollution Probe will have to hire, and we don't want to in this hearing. Frankly, we don't think it's broken, we think it's working very, very well. So I don't want to concede that it needs any significant fixing. But the issue here, in my submission, is it doesn't make sense to have these fundamental issues in this hearing. 160 MS. HALLADAY: Thank you, Mr. Klippenstein. 161 Mr. Bratt. 162 MR. BRATT: Thank you, Madam Chair, Ms. Spoel, Mr. Betts. 163 I have just a few comments. I would largely endorse what you have heard from the preceding two speakers, Mr. Klippenstein and Mr. Poch. From the point of view of institutional customers, I think this group of customers have been substantial beneficiaries over the last several years of demand-side management in general, and in particular of utility-sponsored demand-side management. You do have a proposal in front of you by the company in this case which does react to concerns on the part of some people that the current SSM may yield a somewhat rich harvest to the utility. So they are responding to that. But I think the fundamental thing is that -- there's two fundamental points, I think. One is that we really don't have any other proposal in front of us in this case other than what the company has put in its evidence, and what we are talking about here is a very -- is a fundamental revision or revaluation of the DSM, of Consumers' DSM programme. 164 We don't really have anything to look at and to focus on, except what there is now in evidence. And to get to the point where we had the proper material to focus on would be very -- I think would be impractical in the context of this case. We don't have the time. It would require new company evidence; I think it would require intervenor evidence from one or several intervenors. And it's a complicated area. 165 I do think that, you know, there is a -- from time to time one should review these major issues, and this is a major activity of the utility, and I would be supportive of a review in the next rates case or in the -- as Mr. Klippenstein said, in the case that launches the performance-based rate-making. There there would be time for people to properly consider this. I mean, I think we should all understand that, as the previous speakers have mentioned, what's being proposed here, in effect, is a fundamental review of the DSM programme, because when you start talking about taking away LRAM and redesigning the SSM, you're really talking about a fundamental review of the utility-driven DSM programme. Most jurisdictions that have these on a world-wide basis have one or other of these mechanisms as part and parcel of their programme. In the United States in the last 12 months there's been a resurgence of DSM programmes, partly in light of some of the problems in the electricity marketplace. You have yourselves in the Board a major study underway of -- which will include the issue of DSM in electricity markets and whether -- and to what extent municipal electric or distribution utilities should be -- should be establishing DSM programmes like the gas utilities have. You have that work underway as we speak, and your consideration of this at a somewhat later date could be informed by that work. 166 So I think that it would make sense to have a look at this issue, but I would do it a year from now or 18 months from now. I think it would be impractical and it would complicate matters terrifically for you to try and put it into this case. 167 I guess as a final note, I do think that the Consumers' -- this is an area that I've looked at for a long time. I at one point ran a business in this area. I think the Consumers' programme has been a pretty good programme, and so I think that you could wait -- it wouldn't hurt to wait 12 months to 18 months to launch this examination. Thank you very much. Those are my comments. 168 MS. HALLADAY: Thank you, Mr. Bratt. 169 MR. WARREN: Madam Chair, Robert Warren, for the Consumers Distribution. 170 MS. HALLADAY: Sorry, Mr. Warren, I can't see you. 171 MR. WARREN: We, Madam Chair, thought it appropriate that you hear briefly from the CAC, because we share with my friend Mr. Green the fact that our clients bear in substantial measure the costs of the DSM programmes. Unfortunately for Mr. Green, we take exactly the opposite point of view. We do not believe that these two issues should be added to the list. We concur with the submissions of our friends, Mr. Poch and Mr. Klippenstein, on this point. We just wanted to add a couple of points to give our particular perspective. 172 To begin with, the CAC has now over the last two or three major rate cases of both of the natural gas utilities expressed its concern about the appropriateness of the returns in the SSM. Indeed, the citation that Mr. Green gave you, the expression of concern for the Board was an expression of concern that we insisted be reflected in the settlement agreement. The reality, however, is that there is a mechanism in place at the moment to canvas these issues, and we think it important to underscore the respect for the integrity of the consultative process which has worked effectively. And when you cut away through what my friend, Mr. Green, is proposing, what you're getting is an implicit attack on the effectiveness of that programme, the consultative process, as Mr. Klippenstein has said. These issues can and will be debated there and the Board should not, by deciding to add the issues list, cut the legs out from under the consultative process without there being some evidence that that process has failed. 173 The second issue which we'd like to underscore is the issue of prematurity. This issue, ECG has committed to this issue being canvassed comprehensively as part of the CPBR process. That is the appropriate place to do it. To do it, as Mr. Klippenstein has said, so that it might have some effect for half of a rate year. When you consider the extraordinary cost that will be entailed in a consideration in this case, cost that will be borne by consumers, it -- we have heard what, I say with some facetiousness, are Mr. Poch's or Mr. Klippenstein's inter orum (phoen) arguments about the evidence that they're going to lead -- we take that seriously, that implicit in, I think, what Mr. Poch was saying is that you can't pull one or two strings in this ball without the entire thing coming apart. There will be comprehensive evidence, in addition to which there will be an enormous number of, we believe, complicated arguments about the appropriateness of adding other aspects to the debate. This will not be the final consideration of the DSM issues if you accept these two issues, because there will be other collateral concerns that will, quite legitimately, be raised by, among others, Messrs. Poch and Klippenstein. 174 Mr. Poch has correctly pointed out that the -- if the concern, if the engine driving the proposal to add these issues is the richness of the return on the SSM, those issues will be considered in this case, in any event. In our respectful submission, if you look at this purely from a point of view of an important issue and what is the most cost-effective way to do it, the most cost-effective way to do that is to let the consultative process run its course and then consider this comprehensively in the CPBR programme. In our respectful submission, that is the appropriate way to do it, and not to add it to the contested issues in this case, because in our respectful submission, not wishing to overstate the matter, in this case, at the tail end of ECG's performance-based regulation programme, this will become the tail that wags the dog of this case. And that, in our respectful submission, is a waste of everybody's time and money. Thank you, Madam Chair. 175 MS. HALLADAY: Thank you, Mr. Warren. Anyone else? 176 MS. NEWLAND: Thank you, Madam Chair. I'd like to add the company's perspective, and I'll try to keep it brief, in light of the remarks that we have heard. We oppose the addition of these two issues for two separate but related reasons. The first is that an examination of these issues in this rate case at this time is simply premature. It would involve a fundamental rethink of DSM principles, and it's just premature to embark on this exercise at this time for reasons that I will go into in a minute. 177 The second reason we oppose the addition of these issues is that it would prejudice the company, and I will explain what I mean in a moment. But conversely, deferral of these issues to the company's fiscal 2003 rate case or to the comprehensive PBR case, both of which are expected to be brought forward in calendar year 2003, would not significantly -- sorry, 2002, calendar 2002, deferral of these issues would not significantly affect the parties who advocate the addition of these issues in this rate case, in light of the company's proposal to reduce the SSM incentive from 35 percent to 20 percent, and in light of the company's proposals with respect to the O and M budget. 178 Let me deal with the timing issue first, Madam Chair. The company reintroduced its DSM proposal and its SSM mechanism in concert with its performance-based regulation proposal in the 497-01 case, and I'm quoting, actually, from the 497-01 settlement proposal. Now, fiscal 2000 is the -- sorry, fiscal 2002 is the last year under the company's targeted PBR plan. We will be bringing forward a comprehensive PBR proposal to the Board in the first or second quarter of calendar 2002. This plan will necessitate a new and a fundamentally different approach to DSM, or it may necessitate a fundamentally different approach to DSM. We are in collaboration with the DSM consultative, initiating, or we have initiated a comprehensive review of our DSM programme. That review is underway, Madam Chair. It's not completed at this point. 179 And this leads me to the second reason that we oppose the addition of issues 8.2 and 8.3 on the issues list. Now, that is the prejudice to the company of proceeding with these issues now rather than later. 180 The comprehensive DSM review that I've just referred to that we have initiated includes examining what is happening in other jurisdictions with respect to DSM where these jurisdictions operate under an incentive rate mechanism. So we're taking a look at that, and we've got consultants working on that issue. We're also examining the relationship between the SSMVA, the DSMVA, and the LRAM. As my friends before me have rightly pointed out, all of those issues are interrelated. You can't raise one without raising the other. 181 Our review of these issues is not completed. After considering the results of this review, which are not available at this point, we will have to come forward and develop a DSM plan, including a proposal for any changes that may be necessary to the shared savings mechanism. That plan will have to be compatible with our proposed CPBR plan. 182 Our -- as I've stated, our review and the development of our plan is not completed. It won't be completed in the time frame that would allow us to move forward in this proceeding with evidence that would respond to issues 8.2 and 8.3. An adequate response to these issues would require, in my submission, a delay in this proceeding, and we definitely do not want to see a delay in this proceeding, especially given where we are in the fiscal year now. 183 On the other hand, the company has heard some of the -- has heard the concerns expressed by intervenors, and we have adjusted our DSM plan, and that was reflected in our latest filing. We have done a couple of things. We have reduced the incentive rate, or we are proposing to reduce the incentive rate under the SSM mechanism from 35 percent to 20 percent. We're also proposing that our O and M DSM budget be based on a formula that caps fixed costs at the level of actual fixed costs for fiscal 2001. And the third thing that we're doing in response to concerns expressed by intervenors is that we are proposing that variable -- that the O and M budget be set such that it's set at a ratio of variable costs to actual costs -- sorry, it sets variable costs at the ratio of actual costs of the volumes achieved in fiscal 2001. And that works out in terms of 100,000 metres of gas savings, that works out to 9-cents per MQ. 184 So there's some correlation -- there is a correlation now between gas savings and variable costs. 185 In my submission, these three measures go some way, a significant way, in my submission, to addressing the concerns expressed about cost overruns and the size of the incentive that falls out of the SSM mechanism. And given the company's commitment to come forward with a revised DSM plan that is compatible with its proposal under a comprehensive PBR plan in 2002, in my submission, is just simply impractical and unnecessary to add these issues, issues 8.2 and 8.3, to the list in this rate proceeding. Those are my submissions on behalf of Enbridge Consumers' Gas. Thank you. 186 MS. HALLADAY: Thank you, Ms. Newland. 187 MS. HALLADAY: Mr. Green, do you have anything else you would like to add? 188 MR. GREEN: If I could make just a brief reply to what we've heard. 189 I think we've heard from a number of parties that there is a need to examine these issues, and the question becomes, 1, method, and 2, timing. In terms of the method, a number of parties have said, well, there's a consultative in place. Use the consultative. Why haven't you been using the consultative. Why are we going before the Board. Well, as I said before, we've raised these issues for two years. We've tried to use the consultative, and it's been to no avail. In fact, we've been -- there's been delays over the past year. We haven't even got a budget on time when we were told that we were going to get the budget. Basically, the consultative isn't working, from our perspective, and we need to address these issues in this hearing. 190 The second point is, people say, well, just leave it, just leave it now, because we're going to deal with this later on, don't worry, we'll get this done, it's going to be a huge cost to deal with this, and you the Board, you are suffering under a heavy schedule. Well, I've got a couple of points on this. One is that the CPBR doesn't come in for quite some time. My friend, Mr. Klippenstein, used the analogy of, well, you don't change a VCR -- fix a VCR just before you change to a DVD. I have a slightly different analogy, and that is, you have a car that you think you're going to replace in two years, but you've got a huge hole in the gas tank and there's gas flowing out on to the ground everywhere, and it's costing you money to run that car, because it's just flowing out. Now, do you fix that or do you just run that for another two years until you get a new car? I think you fix that. 191 The fact that there's a very full schedule for the Board doesn't seem to me to be a reasonable excuse to put extra money on to the rate-payers' backs. Yes, it's going to be -- Board it may be expensive -- as friends say, they are going to raise evidence on this issue about fundamental changes to the structure. However, we know that there's potentially $9-million on the table from 2001 which are going into the company -- the company from the SSM. My friend said, well, maybe that's only $7-million. That doesn't make me feel much better, if that isn't a fair way to address that particular issue. 192 I don't think we're talking about a fundamental change in the nature of the process. We still want incentives, we still want -- a shared savings mechanism doesn't make sense, to give the company some incentive. We're just saying, the way it's structured using TRC isn't reasonable. We're still saying, fine, we have to set a budget, fine, we have to set a volume. We're saying the way that they are all fitting together, the structure itself, is not working. And you can see that from the amounts of money that are going to the company on this issue. The Board has dealt with it in the past and said, this is the way -- in 1999, they said, we want a shared savings mechanism on this basis. Well, they didn't have the experience that they have now with the resulting SSM benefits that come out of this. 193 So our submission is yes, there's a need to deal with this, as people have said. We need to deal with it now so that we can address the huge costs that are being borne by rate-payers. Thank you. 194 MS. HALLADAY: Thank you, Mr. Green. 195 Mr. Green, I just have a couple of questions. Do you have a specific proposal? Mr. Bratt indicated that there is no specific proposal on the table to respond to. 196 MR. GREEN: Yes, we do, Madam Chair. My friend, Mr. Poch, alluded to part of it, although we hadn't discussed it in our submissions given, that -- I thought we were just discussing the general issue. But we do have a specific proposal about changing the SSM to deal with the company gaining benefits on a less-cost basis as opposed to this notional net benefit -- net present value benefit for the future. My friend, Mr. Bratt, as you mentioned, said, well, there's nothing on the table. Well, it's not surprising, since the intervenors really haven't had a chance to put in evidence yet. So we haven't had a chance to put this forward. It's not surprising that the company hasn't put forward a different method, given the size of the SSM that's coming in. So yes, we have a different proposal, and yes, we can bring that forward and discuss it with the company through this process. 197 MS. HALLADAY: No, I appreciate you haven't had a chance to submit evidence. What, in your mind, cannot be dealt with -- it seems as though most of your argument was based on, as one of the intervenors said, the richness of the programme, and I note that issue 8.1 does deal with volumes, budgets, proposed levels. What, in your submission, cannot be dealt with under 8.1 if, in fact, it is the richness of the programme that's existing now, that's of main concern, so that you stop the gas leaking from your car? 198 MR. GREEN: The main concern in this is a combination of the 20 percent, but mainly it's the total resource cost. The shared savings mechanism is based on this notional net present value concept for setting up savings that the society gets and giving the company a proportion of that. Now the company is saying, well, let's just drop it from us getting 35 percent of this notional benefit to 20 percent of this notional benefit, and as I said in my initial submissions, that's better, but if it's still unfair, if the TRC is notional and has really no connection to what we should be giving them incentives on, why are we giving them 20 percent? I mean, to the extent we can say, okay, well, the level of the proposed SSM incentive rate should be zero, I guess we can do that, but that kind of fundamentally misses the point that you then take away all incentives, and we're not saying that you don't need an incentive structure here. You're just going through the back door and not really dealing with the issue. 199 MS. HALLADAY: Okay, thank you. 200 One moment, please. [The Board confers] 201 MS. HALLADAY: Thank you. The panel thinks now might be a convenient time to have an early lunch, and we will reconvene at 1:00. 202 --- Luncheon recess taken at 11:30 p.m. 203 --- On resuming at 1:05 p.m. 204 MS. HALLADAY: Please be seated 205 MR. POCH: Madam Chair, Mr. Klippenstein had to excuse himself. He had a litigation matter to attend to. 206 MS. HALLADAY: Certainly, no problem. Thank you for passing that along, Mr. Poch. 207 The Board has considered the submissions of the company with respect to the contentious routine, fine-tuning and place-holder issues. We accept the wording of these issues subject to the company's suggestion to add the word "work" after the word "plant" in issue 4.2 so that an acronym, DPWAMS -- what are we going to call that; do we know? Dip-whams? 208 MS. NEWLAND: No, it's actually DPWAMS. You've got it right. 209 MS. HALLADAY: Okay, thank you, DPWAMS is accurate. And deleting the reference to QRAM before the word "allocation" in issue 12.1. 210 In addition, for greater clarity, the Board directs that all acronyms be defined the first time they're used. 211 With respect to the contested issues of 8.2 and 8.3, the Board has considered the submissions of the intervenors and the company. As the Board has previously stated in RP-2000-0040, "The Board shares the concerns expressed by customer-oriented parties about the overall rate at which demand-side management costs are increasing relative to gas savings, the consequential impact on rates and the extent to which ECG needs incentives to further control costs in this area. The parties' agreement to determine the budget and the pivot point in advance of the test year is a good first step." 212 The Board notes that issue 8.1 covers ECG's DSM plan for 2002 test year, including the O and M budget, the volume target, and the level of the proposed SSM incentive rate. However, the Board considers that issues 8.2 and 8.3 would require an examination of the underlying design principles of the company's DSM plan. 213 As Mr. Green indicated, there's a need to review these issues; the question is when and how. The Board notes that the company has committed to completing its review and submitting a DSM plan that is compatible with comprehensive performance-based regulation in the first or second quarter of calendar 2002. As a result, the Board considers that it would be premature to put issues 8.2 and 8.3 on the issues list in this proceeding. 214 Are there any questions? 215 We note that the company is proposing to file additional evidence in mid-January and we also understand from Board Staff that the company may be filing updated evidence, and we will not be issuing any further procedural orders until this evidence and updates are filed. 216 Thank you very much. 217 --- Whereupon the hearing adjourned at 1:08 p.m.