Rep: OEB Doc: 129LY Rev: 0 ONTARIO ENERGY BOARD Volume: 4 10 JUNE 2002 BEFORE: S. HALLADAY PRESIDING MEMBER R. BETTS MEMBER A. SPOEL MEMBER 1 RP-2001-0032 TRANSCRIPT VOLUME #4 2 IN THE MATTER OF the Ontario Energy Board Act, 1998; 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 RP-2001-0032 TRANSCRIPT VOLUME #4 4 10 JUNE 2002 5 HEARING HELD AT TORONTO, ONTARIO 6 APPEARANCES 7 PAT MORAN Board Counsel COLIN SCHUCH Board Staff JERRY FARRELL Enbridge Consumers Gas MARIKA HARE Enbridge Consumers Gas RICHARD LANNI Enbridge Consumers Gas HELEN NEWLAND Enbridge Consumers Gas TOM MOUTSATSOS CME MALCOLM ROWAN CME PAT MCMAHON Union Gas DAVID POCH GEC THOMAS BRETT OASBO IAN MONDROW HVAC Coalition TIBOR HAYNAL TransCanada PipeLines ROBERT WARREN CAC MICHAEL JANIGAN VECC JOYCE POON VECC SUSAN LOTT VECC GEORGE VEGH CEED MURRAY KLIPPENSTEIN Pollution Probe JACK GIBBONS Pollution Probe PETER THOMPSON IGUA 8 TABLE OF CONTENTS 9 PRELIMINARY MATTERS: [17] ENBRIDGE CONSUMERS GAS - PANEL 4 [27] EXAMINATION BY MR. FARRELL: [34] CROSS-EXAMINATION BY MR. VEGH: [156] CROSS-EXAMINATION BY MS. LOTT: [1234] CROSS-EXAMINATION BY MR. MONDROW: [1472] 10 EXHIBITS 11 EXHIBIT NO. F.4.1: DOCUMENT ENTITLED INFORMATION FLOW WITH ACCOMPANYING SCHEMATIC AND REPORTS [97] EXHIBIT NO. F.4.2: REPORT ENTITLED JUNE-02 [125] EXHIBIT NO. F.4.3: REPORT ENTITLED JUNE DEMAND [127] EXHIBIT NO. F.4.4: REPORT ENTITLED DAILY DEMAND PROFILE [129] EXHIBIT NO. F.4.5: BLACK-LINED VERSION OF UPDATED SERVICES SCHEDULE [140] EXHIBIT NO. F.4.6: CEED MATERIALS FOR CROSS-EXAMINATION [175] 12 UNDERTAKINGS 13 UNDERTAKING NO. G.4.1: TO PROVIDE A SAMPLE COPY OF A SEND-OUT REPORT [316] UNDERTAKING NO. G.4.2: TO PROVIDE SAMPLE COPIES OF THE NOMINATION SUMMARIES THAT EOS PROVIDES TO EI UNDER THE APPROPRIATE SCHEDULE [453] UNDERTAKING NO. G.4.3: TO PROVIDE CONFIRMATION OF WHAT INFORMATION IS COVERED UNDER THE CATEGORY OF 'RECIPIENT FUNCTION OF GAS COSTS' PROVIDED BY EOS TO EI [476] UNDERTAKING NO. G.4.4: TO PROVIDE A SAMPLE COPY OF GAS ACQUISITION REPORT PREPARED BY EOS FOR EI [484] UNDERTAKING NO. G.4.5: TO PROVIDE SAMPLE COPIES OF TRANSPORTATION CONTRACTING REPORTS PREPARED BY EOS TO EI [489] UNDERTAKING NO. G.4.6: TO PROVIDE INFORMATION REGARDING THE TYPES OF BUSINESS THAT EI WILL BE CARRYING ON AS IT RELATES TO THE AGENCY AGREEMENT [589] UNDERTAKING NO. J.4.7: TO PROVIDE ENBRIDGE CONSUMERS GAS'S PROCUREMENT MANUAL FOR PURCHASING GAS [1136] UNDERTAKING NO. J.4.8: TO PROVIDE ALL AVAILABLE REGULATORY DECISIONS OR DOCUMENTS THAT DEAL WITH OUT-SOURCING TO ENTITIES THAT PARTICIPATE IN COMPETITIVE MARKETS [1496] UNDERTAKING NO. J.4.9 TO PROVIDE A CHART LISTING THE VARIOUS MAIN FUNCTIONS OF ENBRIDGE CONSUMERS GAS THAT WERE IDENTIFIED; TO PROVIDE THE BASIC COMPONENTS OF ACTIVITY UNDERLYING THOSE MAJOR FUNCTIONS AS WELL AS COLUMNS THAT ADVISE WHICH OF THOSE UNDERLYING FUNCTIONS HAVE NOW BEEN OUT-SOURCED AND TO WHOM [1548] 14 --- Upon commencing at 9:35 a.m. 15 MS. HALLADAY: Please be seated. 16 Good morning. Before we begin, are there any preliminary matters? 17 PRELIMINARY MATTERS: 18 MR. FARRELL: Yes, I have one, Madam Chair. 19 I just thought I would try to make sure that we understand the Board intentions when the QRAM panel comes tomorrow at 2:00 p.m. 20 MS. HALLADAY: Right. 21 MR. FARRELL: Our understanding is that the witnesses would be available for questions by the Board but that the QRAM process would remain submissions by parties. We didn't intend to bring the witnesses here to be cross-examined. 22 MS. HALLADAY: Right. 23 MR. FARRELL: Thank you. 24 Madam Chair, the witness panel here today is witness panel number 4, and it's speaking to issue 5.3, which, in its truncated version, is ECG's affiliate services arrangements. 25 Sitting closest to the Board is Janet Holder. She is vice-president, operations. Sitting to her right is Mr. Frank Brennan. He is director, energy policy and analysis. Sitting to Mr. Brennan's right is Steve McGill. He is manager, customer support and advocacy. And sitting to Mr. McGill's right is Arunas Pleckaitis, who is vice president, opportunity development. 26 Mr. McGill is the only witness who needs to be sworn or affirmed. 27 ENBRIDGE CONSUMERS GAS - PANEL 4 28 S.McGILL; Sworn. 29 J.HOLDER; Previously sworn. 30 F.BRENNAN; Previously sworn. 31 A.PLECKAITIS; Previously sworn. 32 MR. BETTS: The witness is sworn in. 33 MS. HALLADAY: Thank you, Mr. Betts. 34 EXAMINATION BY MR. FARRELL: 35 MR. FARRELL: Ms. Holder and gentlemen, the evidence relevant to issue 5.3 is listed in the settlement proposal at page 27. Were the exhibits that bear each of your names prepared by you or under your direction or control? 36 Ms. Holder? 37 MS. HOLDER: Yes. 38 MR. BRENNAN: Yes, they were. 39 MR. MCGILL: Yes, they were. 40 MR. PLECKAITIS: Yes. 41 MR. FARRELL: And are those exhibits accurate, to the best of your knowledge or belief? 42 MS. HOLDER: Yes, they are. 43 MR. BRENNAN: Yes, they are. 44 MR. MCGILL: Yes, they are. 45 MR. PLECKAITIS: Yes. 46 MR. FARRELL: Mr. McGill, as I mentioned, you are ECG's manager, customer support and advocacy. Would you please describe briefly your responsibilities in that position. 47 MR. MCGILL: Yes. 48 I'm responsible for a small group of people within the utility that oversees the relationship between Enbridge Consumers Gas and customer works. 49 In addition to that, we follow up on customer issues and are responsible for the planning for those services and their delivery to the various groups within Enbridge Consumers Gas. 50 MR. FARRELL: You mentioned customer works specifically. Do your responsibilities also include the arrangements with Enbridge Commercial Services? 51 MR. MCGILL: Yes, but to a more limited extent. 52 MR. FARRELL: Thank you. 53 Is ECG contemplating any changes in relation to the out-sourcing arrangements you've referred to? 54 MR. MCGILL: Not with respect to customer works. We are in the process of reviewing the arrangements we have with Enbridge Commercial Services as a result of the sale of Enbridge Services Inc.. 55 There will probably be some changes in the way some of those services are acquired or delivered that come into effect next year as a result of those -- that change. 56 MR. FARRELL: And when you said "next year," do you mean the next test year? 57 MR. MCGILL: Yes, the next test year. 58 MS. HALLADAY: Excuse me. I'm having problems hearing. Can everyone please speak up. 59 Thank you. 60 MR. FARRELL: Ms. Holder, you were ECG's vice president, market development and supply, from 1999 until June 1st, 2001? 61 MS. HOLDER: Yes. 62 MR. FARRELL: And did you have executive responsibility in your former position for negotiating and finalizing ECG's agreement with Enbridge Operational Services Inc., or EOS? 63 MS. HOLDER: Yes, I did, along with Ms. Beattie. 64 MR. FARRELL: Thank you. And the agreement with EOS is dated October 1, 2000? 65 MS. HOLDER: Yes. 66 MR. FARRELL: And you were one of ECG's signing officers? 67 MS. HOLDER: Yes. 68 MR. FARRELL: And what about ECG's agreement with Enbridge Inc.? 69 MS. HOLDER: I was involved in the initial discussions and approval of the concept of the out-sourcing arrangement between Enbridge Inc. and ourselves. 70 MR. FARRELL: Thank you. 71 Mr. Pleckaitis, you became ECG's vice president, opportunity development, on June 1st, 2001? 72 MR. PLECKAITIS: That's correct. 73 MR. FARRELL: And you assumed executive responsibility for finalizing ECG's agreement with Enbridge Inc.? 74 MR. PLECKAITIS: That's correct. 75 MR. FARRELL: And the agreement is dated July 1st, 2001? 76 MR. PLECKAITIS: Yes. 77 MR. FARRELL: And you were one of ECG's signing officers? 78 MR. PLECKAITIS: Yes, I was 79 MR. FARRELL: Mr. Brennan, you were ECG's director of gas supply services from 1999 until June 1, 2001, when you assumed your current position? 80 MR. BRENNAN: Yes, that's correct 81 MR. FARRELL: And you were involved in the negotiation and finalizing of both of these agreements and, in particular, the services schedule for each agreement? 82 MR. BRENNAN: Yes, the services schedules in both. Primarily, though, more on the latter, the one with gas services as opposed to the EOS. 83 MR. FARRELL: Thank you. And you signed the services schedule for each agreement on behalf of ECG? 84 MR. BRENNAN: Yes, that's correct. 85 MR. FARRELL: And you are responsible, as I understand it, for managing these out-sourcing arrangements on ECG's behalf? 86 MR. BRENNAN: On a day-by-day basis, yes. 87 MR. FARRELL: Thank you. 88 Do you have a copy of a document that is entitled "Information Flow" and has -- is, in effect, a schematic to which there are a number of reports attached? 89 MR. BRENNAN: Yes, I do. 90 MR. FARRELL: And did you prepare the schematic. 91 MR. BRENNAN: Yes, I did. 92 MR. FARRELL: Would you please lead us through it. 93 MR. BRENNAN: Certainly. 94 MS. HALLADAY: Excuse me, Mr. Farrell, is this an exhibit? 95 MR. FARRELL: I have just forgotten our practice of last week. I should mark it as an exhibit now. 96 MR. MORAN: That would be F.4.1. 97 EXHIBIT NO. F.4.1: DOCUMENT ENTITLED INFORMATION FLOW WITH ACCOMPANYING SCHEMATIC AND REPORTS 98 MR. FARRELL: Mr. Brett is looking for a copy. These are the document -- one of the documents that was distributed at the end of last week in the hearing room, I should add. 99 So, Mr. Brennan, could you take us through Exhibit F.4.1. 100 MR. BRENNAN: Yes, certainly. 101 What I'm trying to show here is the exchange of information between Enbridge Consumers Gas, Enbridge Inc., Enbridge Operational Services, those being the three main components, as well as Tecumseh Storage and also some of our direct purchase customers. And what I've shown here, numerically, are from -- 1 to 9 shows the arrows, I guess, where information is moved from one company to the other and the information that's actually transferred from one company to the other. 102 The first one I'd like to go through is the information that's transferred between Enbridge Consumers Gas to Enbridge Inc.. There we have -- it's listed as number 1, daily demand profiles. These are our 365 days of demand over three regions. Storage targets, these are basically our design criteria that we use. We want to have storage targets at certain dates throughout the year, the overall storage capacity, which is basically how much space is available for storage in each year. And there's something called the SMS report which -- the SMS stands for supply management services. It's essentially our nominations and scheduling group. 103 And that report contains information that relates to direct purchase activity, and this information is captured on a monthly basis, updated throughout the month, and if there are no changes then it doesn't get updated. So it captures items such as migration of system gas customers to direct purchasers and vice versa. It captures things like assignments, makeup, suspensions, and they're all done at the DPA level, or the direct purchase agreement level. 104 This information, as far as the agreement between Enbridge Inc. and Enbridge Consumers Gas, is referred to in that services schedule as the GPA data. 105 Number 2 is the information that Enbridge Inc. provides back to Enbridge Consumers Gas. And on that line, you'll see a long-range supply plan. This is our five-year forecast of supply and demand, how we're going to meet our market over the next five years. We also provide -- they also provide us with supply demand balance on a weekly basis to determine, for example, if we have to go out and buy gas, whether we have to curtail, what do we have to do on a week-by-week basis. 106 They also provide us confirmations of all transactional services deals and gas purchases as well. EI provides us with contracts that have to be executed, and there is conditions on what contracts EI can execute and which contracts Enbridge Inc. has to execute. And also they provide us with something called a portfolio summary which used to be called contract summary. It just summarizes all our contracts. 107 Number 3 is the information that Enbridge Operational Services provides to Enbridge Inc., and this information is the utilization of pipeline transportation capacity. This is information so we can know on a day-by-day basis what transportation assets can be used for transactional services. Also, they provide if there is a curtailment alert so that we have some heads up whether or not we could be in a curtailment situation. That way we can decide whether or not we actually have to curtail or whether we go out and purchase gas. And they also provide us with what's called aggregate telemetred volumes. In the service level agreement, this information was referred to as report called Esum4cst. That has been renamed now to a long-range forecast. This information is just an aggregate only of how we met our -- a summary of how we met our demand on each on day every. 108 Number 4 is the information that Enbridge Inc. provides Enbridge Operational Services, and this information includes, on an aggregate basis, what the transactional services volumes have to be for nomination purposes. Enbridge Inc. also provides Enbridge Operational Services with any information as it relates to spot purchases. That particular one has not been included there but should be added as well. 109 Number 5 includes information that Tecumseh storage provides to Enbridge Inc.. And this information is essentially storage balances. This allows us to reconcile our storage balances so that billing can take place. 110 Number 6 has to do with information that comes from EOS to Tecumseh storage, and that information has to do with our daily overall injection and withdrawal quotas. So, again, it's an aggregate number. This is what Enbridge Operational Services tells Tecumseh. But our total volume could be 300 million cubic feet a day of injections or withdrawals, as the case may be. 111 Number 7 is the information that comes from Enbridge Consumers Gas to Enbridge Operational Services. Again, it's the SMS report, if you like, as well as any curtailed delivered supply. This is supply that would be available that customers are allowed to bring in under certain circumstances when curtailment has been called. 112 Number 8 has to do with information that comes from western T-service direct purchase -- should be direct purchase suppliers as opposed to customers. 113 And number 9 is the information that goes between Ontario T-service direct purchase customers to Enbridge Operational Services, and what we receive there is just a courtesy copy of their supply nomination. 114 I hope that helps. Oh, I should mention -- I'm sorry, I should mention one thing. There are three reports attached to this document. These are sample reports of the information that I've spoken about. 115 The first one that has June-02 on the top corner, this is the SMS report. This is the information that talks about the -- at the direct purchase agreement level, assignments, makeups, suspensions, that goes between Enbridge Consumers Gas and Enbridge Inc.. 116 There is another report later on that has -- I'll point it out. It looks like this. This report is what's called the long-range forecast. 117 MR. FARRELL: Excuse me, Mr. Brennan, I think people are not sure which one you're looking at. This is the one with the -- at the top, it says June -- upper left-hand corner, near that "demand," and then it has the regions of Toronto and Niagara. And it says "GJ Report." 118 MR. BRENNAN: Correct. 119 On the left-hand side lists the dates starting at Saturday, June the 1st. 120 MR. FARRELL: Sorry, go ahead. 121 MR. BRENNAN: And the third report is a series of three tables. Up in the top left-hand corner, it has "Niagara Design Demand for 2002," and it's shown by month and day. These are our daily demand profiles, and you have three of them there, one for each of the three zones. 122 MR. FARRELL: Mr. Brennan, if you gave it, I missed it. Did you have -- the first report was the SNS report. And then the second one, did you give that a name so we can all just write it on? 123 MR. BRENNAN: Yes. It used to be called the Esum4cst but now it's been renamed to the long-range forecast. 124 MR. FARRELL: Perhaps for clarity, Madam Chair, we might mark each of these reports individually so there isn't confusion. We already have the schematic as F.4.1, and then that table that's entitled "June-02," that Mr. Brennan identified as the SNS report, I suggest be F.4.2.. 125 EXHIBIT NO. F.4.2: REPORT ENTITLED JUNE-02 126 MR. FARRELL: And then the next one that has "June Demand" that Mr. Brennan identified as the long-range forecast would be F.4.3. 127 EXHIBIT NO. F.4.3: REPORT ENTITLED JUNE DEMAND 128 MR. FARRELL: And finally, the daily demand profile which has -- for the three regions would be F.4.4. 129 EXHIBIT NO. F.4.4: REPORT ENTITLED DAILY DEMAND PROFILE 130 MR. FARRELL: Now, the services schedule to the agency agreement was updated and filed last week. That would be Exhibit I, tab 3, schedule 44, as a response to CEED interrogatory 44, attached to the interrogatory response document called "Agency Agreement," and then attached to it is a services schedule, and the update was filed last week. 131 As an aid to parties in reviewing that, we provided what I mentioned last week, a black-lined version on white paper. You can identify it by -- on the first page, section 1.6 is totally underlined because it was new, and this is a black-lined version of the -- showing the revisions to the correct -- the updated services schedule, Mr. Brennan? 132 MR. BRENNAN: Yes, it is. 133 MR. FARRELL: Perhaps that could be Exhibit F.4.5. 134 MS. HALLADAY: Or, Mr. Farrell, should it be an update to the exhibit? 135 MR. FARRELL: It's not -- the exhibit is updated and it's on blue sheets, as is the tradition. This really is an aid to the parties to be able to identify what was changed from the initial filing. 136 MS. HALLADAY: So this is just the black-lined -- 137 MR. FARRELL: Yes. The update was on blue paper, is the custom, and that was filed with the Board last week, and I think everyone has it. 138 MS. HALLADAY: Right. Okay, thank you. 139 MR. MORAN: That would be F.4.5. 140 EXHIBIT NO. F.4.5: BLACK-LINED VERSION OF UPDATED SERVICES SCHEDULE 141 MR. FARRELL: Mr. Brennan, the update of the services schedule includes the protocols for gas supply acquisition and transactional services. 142 MR. BRENNAN: Yes, that's correct, the protocols for the gas supply acquisition. There are some protocols that still have to be done, but the revision does include some protocols. 143 MR. FARRELL: And the protocols for both services refers to Enbridge which is -- just tell the Board what the term "Enbridge" means in this context. 144 MR. BRENNAN: Yes. 145 Enbridge means Enbridge Inc. or the service provider in this case or an affiliate of the service provider other than Enbridge Consumers Gas. 146 MR. FARRELL: Thank you, Mr. Brennan. 147 Now, Ms. Holder, would you please summarize ECG's position on this issue, issue 5.3. 148 MS. HOLDER: Yes. 149 We believe the Board has only two concerns with respect to this issue. The first is the cost consequences for which, for 2002, there are none. The cost consequences for 2003 will be dealt with in our 2003 rate case. And the second is to ensure the safe, reliable delivery of natural gas. We do not believe that the Board has any other role with respect to the relationships between ECG and any out-sourcing arrangement with either an affiliate or other service provider. 150 MR. FARRELL: Other than, I take it, compliance with the Affiliate Relationship's Code? 151 MS. HOLDER: That's correct. 152 MR. FARRELL: Thank you. 153 I have no further questions, Madam Chair. These witnesses are available for cross-examination. 154 MS. HALLADAY: Thank you, Mr. Farrell. 155 Mr. Vegh. 156 CROSS-EXAMINATION BY MR. VEGH: 157 MR. VEGH: Thank you, Madam Chair. 158 Good morning, panel. 159 I thought I'd give a list of the materials I was going to refer to in cross-examination so that the panel and the Board Panel might have those handy. It might make things go a little more smoothly. 160 In terms of your pre-filed evidence, panel, I was going to refer to Exhibit A, tab 13, schedule 1; Exhibit A, tab 14, schedule 6; Exhibit D.2, tab 2, schedule 1. I was going to refer to some interrogatories as well. Those are all the CEED interrogatories, so they're all at tab 3, and they're IRs 21, 44, 54, and 83. 161 MS. HOLDER: You may have to give us some time. We don't have all of those exhibits handy. 162 MR. FARRELL: Exhibit A, 13, 1, is transactional services, Mr. Vegh informs me, which was an issue that was settled. 163 MR. VEGH: I don't believe there's anything contentious that I'm going to raise. It was just to -- 164 MR. FARRELL: Just making sure that we prepared our evidence books, if you will, to include the exhibits that were listed under this issue and the settlement proposal, and Exhibit A, 13, 1, was not one of those exhibits because it relates to transactional services. Let's just see if we have it physically here. 165 There's going to be a brief delay, Madam Chair. The 14, 6, is a report that's the subject of the next witness panel so -- 166 MS. HALLADAY: Fine. 167 MR. FARRELL: Exhibit D.2, tab 2, schedule 1, is a gas supply or gas cost exhibit so we're scrambling to get that as well. 168 CEED interrogatory 21 was also a transactional services matter. Do we have -- does the panel have that? 169 MS. HOLDER: Yes. We're ready, I think. 170 MR. VEGH: Okay. Why don't we just go down the checklist. Pre-filed is Exhibit A, tab 13, schedule 1; Exhibit A, tab 14, schedule 6; and Exhibit D.2, tab 2, schedule 1. 171 Panel, do you have all of those materials? 172 MR. BRENNAN: Yes, we do. 173 MR. VEGH: Okay. In addition, I'll be -- I've collected or put together a book of materials that I'll be referring to. I've handed -- I provided a copy to Enbridge this morning and I gave a copy -- a few copies to Board staff this morning. The book that I put together is called "CEED Materials for Cross-Examination." If you could hand that up to the -- 174 MR. MORAN: That would be Exhibit F.4.6. 175 EXHIBIT NO. F.4.6: CEED MATERIALS FOR CROSS-EXAMINATION 176 MR. VEGH: Okay. So if we all have those available, those are the materials I plan to refer to. And, Panel, apart from a couple of questions on the material that I received last Friday and you talked about just a couple of minutes ago, in particular, the reports at F.4.2 to F.4.4, I don't think, frankly, I am going to be asking questions on these, at least not right off. 177 Unfortunately, I asked for the entire information flow between the parties back in March during the interrogatory process, and you declined to provide that information. 178 And I'm a little bit slow so it's difficult for me to just get this information this morning, have it explained to me, and prepare a cross-examination on that basis. 179 So what I would ask, Panel, is that I be allowed to stand down on this portion of the cross-examination until the other parties have completed. I can take a closer look at this material. Then I may have some additional questions. 180 MS. HALLADAY: Certainly, Mr. Vegh. Since you just got the information this morning, that's all right. 181 MR. FARRELL: No, it was sent to him at the end of last week, Madam Chair. 182 MR. VEGH: It was sent at the end of last week. There was no explanation as to what these documents were behind it or what they were to represent. And as I said, I asked for this information three months ago and I wasn't provided with it. 183 MS. HALLADAY: Well, Mr. Vegh, why don't we continue on and we'll see how things unfold, whether you need to ask additional questions after this. 184 MR. VEGH: Thank you. 185 With that, I may have a couple right off the bat, but as I say, I may have to return to this. 186 Panel, just by way of introduction, my client is The Coalition for Efficient Energy Distribution. It consists of wholesale and retail gas marketers in Ontario. 187 Just by way of background, in terms of the position that my clients take on 5.3 -- and to let the Panel know as well, my clients are not opposed to utility out-sourcing, per se, and they have some sympathy with the position that the Board should not be micro-managing a utilities business; however, they are extremely concerned when key utility functions are out-sourced to competitive parties, and that is whether the parties are affiliates of the utility or not. 188 Therefore, my clients do have some concerns with this proposal, and I would like you to appreciate that these concerns are not aimed primarily or certainly should not be considered an attack on ECG. 189 My clients have taken the position that system operations should not be run by competitive companies on wholesale and retail electricity and gas issues in other proceedings as well. 190 With that by way of background, Panel, I'd like to ask some questions about the materials. 191 MR. FARRELL: I just have one comment before Mr. Vegh starts. He used the word "proposal." This is not a proposal. We are not proposing something that we're seeking the Board's approval of. This is simply information that we've given the Board about the out-sourcing arrangement, and it's on the issues list. But this is not a proposal. 192 MS. HALLADAY: That's fine, Mr. Farrell. You will have an opportunity to rebut whatever Mr. Vegh says later on. 193 MR. FARRELL: I just didn't want any misunderstanding about -- 194 MS. HALLADAY: I understand. No doubt he will make a number of comments that you won't want to be misunderstood, so we will let him proceed. 195 Thank you, Mr. Vegh. Continue. 196 MR. VEGH: Thank you. 197 Panel, I understand that this -- what I will be referring to first is gas supply planning. That's a function that's been provided by Enbridge Inc. under this agreement; is that right? 198 MR. BRENNAN: Yes, it is. 199 MR. VEGH: Okay. And for the gas supply planning discussion, I'll be referring to the contract with Enbridge Inc., which is at Exhibit I, tab 3, schedule 44. And I'll also be referring to the evidence filed on the costs of managing system gas, which is Exhibit A, tab 14, schedule 6, and I will be cross-referencing these two pieces of evidence so that I have a clear understanding on what makes up gas supply planning. 200 MR. FARRELL: We don't object to Mr. Vegh asking questions on A.14.6 with the following caveat, Madam Chair, and that is that that is a piece of evidence that none of these witnesses are responsible for. It's Mr. Bracken's report. Mr. Bracken is appearing on the next panel. So as long as the answers that Mr. Vegh gets are taken with that caveat, we can proceed. 201 MS. HALLADAY: That's fine. 202 If you don't know the answers to the questions that Mr. Vegh asks, tell him you don't know the answers and he can ask those of the next panel, because they are responsible for this evidence. 203 MR. VEGH: Thank you. 204 Panel, you might also refer to the -- or I will also be referring to the agreement with Enbridge Operational Services, which is Exhibit I, tab 3, schedule 54. 205 Just generally, on this report prepared by Mr. Bracken, Panel, I take it that ECG reviewed this report before it was filed? 206 MR. BRENNAN: Yes, it did. 207 MR. VEGH: Mr. Brennan, you reviewed the report before it was filed? 208 MR. BRENNAN: Yes, and other individuals within ECG as well. 209 MR. VEGH: Okay. And when this report discussed operations carried out by ECG, I take it, Mr. Brennan, that ECG ensured that those operations were described properly. 210 MR. BRENNAN: Can you point me to whereabouts you're referring to in particular. 211 MR. VEGH: Okay. If you can go to pages 2 to 3, there's a description of the activity of gas supply planning. 212 MR. BRENNAN: Yes, generally, they are correct. 213 MR. VEGH: Okay. So if we could have that available, and also there is a description of the activity of gas supply or the services provided under the heading of gas supply planning in the EI contract. I'd like to kind of cross-reference the description of the services in the contract with the description of the services in the report. 214 So could you please turn to the services schedule of the contract and section -- gas supply planning is addressed in section 2.0. do you have that? 215 MR. BRENNAN: Yes, I do. 216 MR. VEGH: So I will be referring back and forth between these two documents. Under the Bracken report, it starts off by describing the activity of gas supply planning as, "Determining gas supply, transportation, and storage requirements for the entire distribution system." Is that correct? 217 MR. BRENNAN: That's what it says, yes. 218 MR. VEGH: Well, is that correct? 219 MR. BRENNAN: Yes, it is. 220 MR. VEGH: That's what the function of gas supply planning is? 221 MR. BRENNAN: To look at the needs in terms of not only looking at the demand for natural gas, demand forecast, but also what you need in order to meet that demand in terms of supply, transportation and storage requirements. That's based on -- at least the demand is based on our total demand, both system as well as direct purchase. 222 MR. VEGH: So it's the demand and supply for the entire system, not just system gas? 223 MR. BRENNAN: That's correct. 224 MR. VEGH: The next sentence talks about gas supply planning, including "the analysis of demand and supply from its various sources, availability of storage, and the daily and monthly patterns of supply and consumption across the distribution system and at other major delivery and receipt points." 225 Can you tell me, what is considered a major receipt point? 226 MR. BRENNAN: Dawn would be one. A major receipt point would be our CDA and EDA as well. It could also be Empress as well. 227 MR. VEGH: And I take it that this -- the analysis that's discussed in this sentence, it results in a long-term plan to meet forecast and consumption by all delivery customers. 228 MR. BRENNAN: It's the supply demand balance that's done to match up demand with supply for all customers. 229 MR. VEGH: And this analysis and reporting that's talked about in these first few sentences we've looked at, are those the services described in section 2.1 of the services agreement with EI? 230 MR. BRENNAN: Generally, they are. I think the -- my view is that 2.1 does not include the preparation of a demand profile, if you like. That is not done or not part of the agreement with Enbridge Inc.. That's still done with -- inside the utility. 231 MR. VEGH: So what Enbridge Inc. provides is the long-term analysis, supply demand balance. But you're saying, the actual profile is provided or is carried out within ECG. 232 MR. BRENNAN: That's correct. The demand profile is done within ECG. They pass it on to Enbridge Inc. and then they do -- and Enbridge Inc. does the supply demand balance. 233 MR. VEGH: Okay. The next part of the services agreement is section 2.2, and section 2.2 talks about carrying out the same kind of analysis as in section 2.1. But this is a -- this report is provided now on a short-term basis as well. 234 MR. BRENNAN: It's not really a report. It's, again, looking at the supply demand balance but on a much shorter time frame, typically over a week. We meet weekly to review our supply demand balance. 235 MR. VEGH: And is this, then, what's discussed in the next couple of sentences of the Bracken report? The Bracken report says, "Gas supply planning" -- I'm looking at the last two sentences in the first paragraph -- "results in short-term plans to update variables, including weather, on the other demand changes." 236 MR. BRENNAN: Yes, that's part of that. 237 MR. VEGH: And then the next sentence of this Bracken report says: "Or also frequent reviews of the plan, at least weekly, during the heating season to respond to daily changes in critical variables and determine the need for curtailment, spot or peaking supplies, or the use of other system balancing tools." 238 Now, in terms of identifying what's described as the variables or critical variables, I take it that one of those variables is weather? 239 MR. BRENNAN: Yes, and the resulting demand. 240 MR. VEGH: Right. Well, the variable of weather leads to an impact on demand; right? 241 MR. BRENNAN: That's correct. 242 MR. VEGH: And what are the other variables that are looked at? 243 MR. BRENNAN: Where our storage balances are, if there's any changes to our customer demand profile. For example, if there are some large-volume customers that are not up and operating, we would factor that in as well. 244 MR. VEGH: So for example, if a large customer like GM or -- as an example. I'm not saying specifically. 245 But if it adds another shift, or if it closes down for maintenance or something, that could have an impact on short-term supply? 246 MR. BRENNAN: Yes, we would try to factor that in. 247 MR. VEGH: Any other critical variables? 248 MR. BRENNAN: I'm sure there are, but they don't come to mind offhand. 249 MR. VEGH: Okay. The next paragraph of the Bracken report talks about the interchange between EI and ECG in the gas supply planning function, and it says that "The majority of this function is performed by EI in Calgary with input with ECG." 250 With respect to EI in particular, it states that, "EI prepares the plan, including transportation, supply and storage sources and costs, and monitors it for changes. During the heating season, EI, EOS, and ECG are all involved in monitoring critical elements and reacting to changes. This activity includes a weekly conference call among these three locations and ECG's Tecumseh storage operations near Sarnia." 251 Am I right to understand that the purpose of these calls, these regular meetings, would be to discuss these kind of critical variables we've been talking about, such as supply and demand changes resulting from weather, or the activities of large-volume customers? 252 MR. BRENNAN: Yes, it has to do with making sure that if we need additional gas, we can go out and purchase that gas, monitor our storage targets to make sure that if there are situations where we see too much gas -- our demand has dropped off, and there's too much gas coming to us, then what do we have to do to try and mitigate that. 253 MR. VEGH: Okay. Thank you. 254 Now, following this through again to the services agreement, section 2.3 of the agreement provides that EI is to provide a number of reports to ECG -- or "to provide reports to ECG and is based on information provided by ECG to EI." 255 And there's a cross-reference there to section 2.13, and I believe that's the information that ECG is to provide to EI; is that right? 256 MR. BRENNAN: This is -- you're talking about 2.13? 257 MR. VEGH: Yes. 258 MR. BRENNAN: This is the information that the service recipient, in this case ECG, will be providing to the service provider, but it's coming through Enbridge Operational Services. 259 MR. VEGH: So this information comes from EOS, and it goes to EI, and it may go via ECG; is that -- 260 MR. BRENNAN: Yes, that's correct. And you can see that that report, once some of the reports that are mentioned there -- the one I mentioned earlier, Esum4cst, which is now called the long-range forecast, will be an example, as well as the demand profiles that I have also mentioned this morning as well. 261 MR. VEGH: Okay. And just so we have an understanding of the material coming from EOS to ECG and to EI, could you turn, please, to the agreement with EOS, and in particular, appendix B of that agreement. 262 MR. FARRELL: This is Exhibit I, tab 3, schedule 54. 263 MR. VEGH: Thank you. 264 MR. BRENNAN: Appendix B? 265 MR. VEGH: Appendix B, yes. 266 MR. BRENNAN: Yes, I have that. 267 MR. VEGH: Now, appendix B is a schedule of reports that EOS provides to ECG; is that right? 268 MR. BRENNAN: Yes. The -- my hesitation here is that when the Enbridge Operational Services agreement was put in place, there was no out-sourcing of the gas supply function, if you like, to Enbridge Inc. 269 So when we have -- in this table, when it refers from the services provider, that would be EOS at that point in time, to services recipient, it was meant, at that point in time, ECG. 270 In fact, this agreement would have to be updated or amended to reflect what information is actually going from the service provider, EOS, to ECG or, as the case may be, EI. And that has not been done yet. 271 MR. VEGH: Well, maybe we could just have some clarification around that. 272 In the far right-hand column -- or the far right-hand column is entitled "Recipient Functions"; do you see that? 273 MR. BRENNAN: Yes, I see that. 274 MR. VEGH: So when we drop down, the first set of functions are described as "All," and then the second set are "Gas Supply Planning" for the next three sets of reports. 275 MR. BRENNAN: Yes, that's correct, and at the time this document was executed, that -- those functions were being performed by ECG. 276 MR. VEGH: Are they now performed by EI? 277 MR. BRENNAN: Parts of them are, yes. 278 MR. VEGH: So would EI be the recipient now of these reports? 279 MR. BRENNAN: I'd have to look at what -- there's different reports. Some of them may have remained within the utility itself. 280 MR. VEGH: Well, is EOS providing this service now? 281 MR. BRENNAN: Yes, it is. 282 MR. VEGH: So who is it providing these reports to? 283 MR. BRENNAN: It's providing the reports to either Enbridge Inc. or Enbridge Consumers Gas. 284 MR. VEGH: And who inside of ECG is responsible to implement this agreement or to oversee the operations of this agreement? 285 MR. BRENNAN: That would be myself. 286 MR. VEGH: So then you are the one who should know; right? 287 MR. BRENNAN: That's correct. 288 MR. VEGH: So where is this information going? Is this information going to EI? 289 MR. BRENNAN: Some of this information is going to EI; that's correct. 290 MR. VEGH: But you don't know what part is? 291 MR. BRENNAN: Yes, I think I outlined on my information flow what information was going from EOS to Enbridge Inc., what information was going from EOS to Enbridge Consumers Gas, and the different combinations. 292 MR. VEGH: Well, let's try it one by one, then. 293 Why don't we just start off by the ones that we know are going to EI. The schedule 2.13 of the agreement talks about operational services, or ECG providing the reports entitled "Esum4cst" and "Send-out" to EI," and both of those reports are provided on a daily basis; right? 294 MR. BRENNAN: Yes, those reports are going to both Enbridge Consumers Gas as well as Enbridge Inc.. 295 MR. VEGH: Okay. And so the Esum4cst, this is a daily -- a summary of the send-out forecast. Can you tell me what "send-out" is? 296 MR. BRENNAN: What send-out looks at is just, on a given day, how do we meet our demands. So it would look at what the demand is for that particular day and what gas, if you like, we have to send out to meet that market. So it summarizes our demand and all our supplies, storage, to meet the particular day's demand. 297 MR. VEGH: That's for all customers, direct purchase and system customers? 298 MR. BRENNAN: Yes, it's an aggregate basis. It would be to meet our total market requirements. 299 MR. VEGH: So it's a report that -- well, what it is is a report of gas leaving the system to customers. 300 MR. BRENNAN: Yes, if you like, it's being sent out to the customers. 301 MR. VEGH: Okay. And so with the information on gas being sent out to customers, you could derive individual consumption of large customers, could you not? 302 MR. BRENNAN: No, you couldn't. 303 MR. VEGH: No? 304 MR. BRENNAN: No. As I said, it's an aggregate information. It tells us what our total transportation is on TransCanada. It's not broken out by customer. It tells us our total storage, injection, withdrawals, and not by customer. It's aggregate numbers only. 305 MR. VEGH: But don't you rely -- my understanding was that EI relied on this information to address critical variables, such as consumption by large customers. 306 MR. BRENNAN: Only if we are identified, we are told by an individual customer, would we try and factor that in. We don't break it down by individual customers. 307 MR. VEGH: Yes, but if you have that information, you try to factor it in. 308 MR. BRENNAN: We would add that to our aggregate supply and demand balance, correct. 309 MR. VEGH: Well, you would include that information as part of the analysis of the gas consumed by the system on a daily basis. 310 MR. BRENNAN: Correct. We would try to adjust our demand and our supply accordingly but only if -- again, if the customer provides us that information. 311 MR. VEGH: Right. Now, this send-out report, does that provide -- you say it provides aggregate information. Could you provide a sample copy of a send-out report? Part of the problem I have is I'm trying to understand what kind of information comes out of this report, but we are working in a bit of a vacuum. 312 MR. BRENNAN: Yes, I think we probably could. 313 MR. VEGH: Will you undertake to do that? 314 MR. MORAN: That will be undertaking G 4.1, Madam Chair. 315 MS. HALLADAY: Thank you, Mr. Moran. 316 UNDERTAKING NO. G.4.1: TO PROVIDE A SAMPLE COPY OF A SEND-OUT REPORT 317 MR. VEGH: And when I receive that copy, I'd like to ask you some questions on it as well. 318 So that's the gas supply management service. I wanted to ask some questions about another of the services that EI provides and that's contract management. Contract management is described at page 5 of Mr. Bracken's report and section 5 of the services agreement with EI. 319 Another document you may want to have available when I ask you these questions is CEED interrogatory 83, and the book of materials that's now Exhibit 4.6. 320 Do you have all of that available? 321 MR. BRENNAN: Yes, I do. 322 MR. VEGH: Okay. Going first to the description of contract management in Mr. Bracken's report, he describes it as the function of exercising the rights and responsibilities of ECG under terms of its supply transportation and storage contracts that requires detailed understanding of the specific contract provisions. 323 Do you agree with that description? 324 MR. BRENNAN: Yes, I would say that's correct. It's basically managing our supply transportation and contracts, and making sure, for example, if there are renewal rights that have to get in place, that we meet those dates; that the contracts are always up to date so different parties know which is the appropriate contract that's in place at any given time. 325 MR. VEGH: Okay. And with that, I'd like to step back a bit and get -- ask some questions about the management of service entitlements under transportation contracts. First, I would like to do this on the big picture and then we'll talk about how it's divided up between the different companies and service agreements, okay? 326 Do you understand? 327 MR. BRENNAN: Yes. 328 MR. VEGH: Okay. Well, when looking at long -- or upstream transportation contracts, again, we are stepping back and looking at the big picture, ECG has, in its own name, certain services entitlements and capacity rights on those contracts; right? 329 MR. BRENNAN: Yes, it does. 330 MR. VEGH: And these service entitlements and capacity rights are used by ECG to arrange for the shipment of gas to the franchise area. 331 MR. BRENNAN: Yes, that's correct. 332 MR. VEGH: And when a customer is on direct purchase, that customer has ECG's service entitlement allocated to them with respect to their volumes of gas. 333 MR. BRENNAN: Not necessarily. 334 MR. VEGH: Okay. Could you expand on that, then. 335 MR. BRENNAN: Yes. There are a couple of ways that can be done. We have -- as far as direct purchase customers are concerned. We have what's called a western T where the gas is received at the inlet, for example, at Empress and TransCanada. Under that case, that space is allocated to the direct purchase customer, but ECG would manage that transportation capacity. 336 Another situation is what's called an Ontario T-service customer. This particular customer would then take a temporary assignment of our capacity that we hold with TransCanada, for example, and under that temporary assignment, they would be responsible to TransCanada for all charges and managing that transportation. Ultimately, that capacity would revert back to ECG at the termination of the assignment. 337 MR. VEGH: Okay. Thank you for that clarification. So let's talk about western T, then, and that's where there is an allocation of ECG's entitlements to a customer. 338 MR. BRENNAN: Okay. 339 MR. VEGH: And as I understand it, large direct purchase customers would have their own service entitlements allocated to them, while smaller end-use customers would have service entitlements allocated to their marketers or agents on an aggregated basis; is that right? 340 MR. BRENNAN: Could you make the distinction again, or you are making a distinction between large-volume customers versus small-volume customers? 341 MR. VEGH: Yes. 342 MR. BRENNAN: The small-volume customers usually go through a marketer, correct. Large-volume customers may do it themselves, be allocated their own particular space. 343 MR. VEGH: Well, that's a distinction that Enbridge draws; right? Large-volume customers could have service entitlements allocated to them directly, while small-volume customers would have service entitlements allocated on an aggravated basis to their marketer or agent? 344 MR. BRENNAN: Typically, that's how it it's done, correct. 345 MR. VEGH: Okay. And these allocations to either type of direct purchase customers, those are addressed, really, through gas transportation agreements with -- between the customers or the marketers on behalf of an aggregated group of customers and ECG? 346 MR. BRENNAN: I'm sorry. What kind of arrangement did you say? 347 MR. VEGH: These allocations, they are provided through the gas transportation agreements. 348 MR. BRENNAN: With respect to the transportation, if it's, for example, a western T-service customer, they would have a -- what's called a GTA, or a gas transportation agreement. If they are buy/sell customer, they would have a gas purchase arrangement, or a GPA. 349 MR. VEGH: Okay. Let's talk about -- well, let's talk about direct purchase customers who are not on buy/sell. 350 MR. BRENNAN: Okay. 351 MR. VEGH: And buy/sell has been faded out already by the utility, hasn't it? 352 MR. BRENNAN: Ontario buy/sell has been phased out. We are in the process of phasing out the western buy/sell. 353 MR. VEGH: Okay. We're not talking about buy/sell then. We are talking about direct purchased western T customers, okay? And they are the ones who enter into these gas transportation agreements with ECG? 354 MR. BRENNAN: Yes, that's correct. 355 MR. VEGH: And I provided at tab 1 of the materials circulated this morning Exhibit F.4.6, a document entitled "Gas Transportation Agreement." 356 Is this a sample of the gas transportation agreement entered into by ECG and these direct purchase customers? 357 MS. HOLDER: It looks correct. I haven't been through it in detail to know whether it matches our current version or not, but it's close. 358 MR. VEGH: Okay. And I take it that it's mandatory for a customer, for a direct purchase customer operating under a western T arrangement to enter into this type of contract with ECG. This is a mandatory type of contract? 359 MS. HOLDER: That's correct. 360 Just to clarify, this contract could be with the customer or the agent of the customer. 361 MR. VEGH: Okay. 362 MS. HOLDER: There are some large-volume customers that work through an agent as well. 363 MR. VEGH: So a large-volume customer may sign this GTA directly, while, for small-volume customers, it would typically be an agent who signs this on behalf of a number of aggregated small-volume customers; is that right? 364 MS. HOLDER: And there is the third, I think, is that some non-residential customers -- there are some customers that you may classify as a large-volume customer that could also sign this through an agent, not necessarily directly themselves. 365 MR. VEGH: But in either case, it's necessary to enter into this kind of contract to have this service provided by Enbridge. 366 MS. HOLDER: Yes. 367 MR. VEGH: And in terms of the service entitlements -- or Enbridge's service entitlements on upstream transporters and how these entitlements are allocated to end-use customers, can you turn to article 3 that talks about volumes and just tell me if I have the correct understanding of this. 368 Under the GTA, there is an obligation for customers to deliver their gas to the utility on the basis of what's called the mean daily volume; is that right? 369 MS. HOLDER: Generally, yes. 370 MR. VEGH: And section 3.2 of this GTA provides that the mean daily volume is the total expected deliveries of the customer over the term of the contract divided by the number of days in the term of the contract. 371 MS. HOLDER: Yes. 372 MR. VEGH: That's right? 373 MS. HOLDER: Yeah. 374 MR. VEGH: So that the amount of gas to be delivered over a year, for example, is you take the total amount, you divide it by 365, and you have a daily amount that you have to deliver. 375 MR. BRENNAN: A fixed daily amount. That's correct. 376 MR. VEGH: Fixed daily amount. And that amount is the mean daily volume. 377 MS. HOLDER: Yes. 378 MR. BRENNAN: That's correct. 379 MR. VEGH: And when we are talking about an allocation, as I understand it, a direct purchase customer is to receive Enbridge's allocation in the sense that the direct purchase customer nominates an amount of gas to Enbridge, and then Enbridge nominates that amount of gas for all its customers and system gas customers to the upstream transportation company - we're talking big picture here, Enbridge Consumers Gas - prior to any contracting out. 380 MS. HOLDER: In big picture, yes. 381 MR. VEGH: Okay. So in big picture, ECG nominates gas on the mean-daily-volume basis on behalf of its direct purchase customers? 382 MR. BRENNAN: I'm sorry, could you repeat that again? 383 MR. VEGH: ECG nominates gas on a mean-daily-volume basis on behalf of its direct purchase customers. 384 MR. BRENNAN: In terms of the gas itself, the direct purchase customer's supplier would nominate to Enbridge Operational Services so we know what supply is coming in. And then EOS would make the nomination to the upstream transporter on behalf of all -- not suppliers or direct purchase, what I would call western T direct-purchase supply as well as system gas supply. 385 MR. VEGH: Okay. Again, you are going back into the distinction between EOS and ECG. I'm trying to understand just the relationship, really, between the -- the direct purchase customer makes a nomination to ECG, and -- or the ECG family of companies -- 386 MR. BRENNAN: No, it's not the direct purchase customers, it's the direct purchase customers' supplier. It's the supplier that nominates, if you like, to us, not the customer itself. 387 MR. VEGH: And that's true for both large customers who have their own -- or large customers who have transportation allocated to them as well as customers who have transportation allocated to marketers on their behalf? 388 MR. BRENNAN: I don't think there's any distinction to be made between those, no. 389 MR. VEGH: Okay. The nominations that are made -- let me see if I have this straight here. Does EOS or ECG make nominations, daily nominations, on behalf of direct purchase customers? 390 MR. BRENNAN: I'm sorry, does ECG make nominations on behalf -- 391 MR. VEGH: On behalf of -- 392 MR. BRENNAN: To whom? To upstream transporters? 393 MR. VEGH: Transporters. Yes. 394 MR. BRENNAN: Okay. On an aggregate basis? 395 MR. VEGH: On an aggregate basis, because that information -- well, you're saying the ultimate nominations are made on an aggregate basis -- 396 MR. BRENNAN: It's done by supplies so it's -- 397 MR. VEGH: But the information could come in on a customer-by-customer basis. 398 MR. BRENNAN: Not if you are talking about a marketer. Like we wouldn't -- a marketer whose individual customers -- no, we wouldn't. It would be one number for the marketer. 399 MR. VEGH: One number for the marketer and one number for a large-volume, end-use customer? 400 MR. BRENNAN: Yes, right. 401 MR. VEGH: So a person who knows how much gas a large-volume customer is projected -- 402 MR. BRENNAN: Just maybe as another point, that tends to be a standing nomination. By that I mean it's a nomination that doesn't change from day to day, particularly because direct purchase customers are obligated, I guess, under the transportation agreement to that supply every day. So particularly that number doesn't change. 403 MR. VEGH: Okay. So if I'm a large-volume, end-use customer and my MDV is 100 gJs a day, I have a standing nomination with Enbridge or Enbridge Operational Services to nominate 100 gJs a day on my behalf? 404 MS. HOLDER: Maybe we can put -- I will see if I can be helpful here by using an example. 405 If you are a large-volume customer and your mean daily volume is 100 units and your supplier is Shell, the nomination comes from Shell to Enbridge, the big Enbridge, and then Enbridge, the big Enbridge, takes that information and aggregates it with all other nominations from suppliers and gives the aggregate information to the upstream transporters. Is that helpful? 406 So the customer -- we don't normally ever hear from the customer, it's the supplier of the customer that's providing the nomination. 407 MR. VEGH: Okay. If you know how much information -- if you know how much gas a customer is nominating or is being nominated on behalf of a customer each day, then it's a pretty simple matter to determine how much gas that customer is consuming in the course of a year; right? 408 MR. BRENNAN: Not necessarily. Just because they nominate doesn't necessarily mean they consumed the same amount. 409 MR. VEGH: But isn't the theory that the amount that they're nominating on a daily basis is meant to be the 1/365 of the amount of that they consume over the course of a year. 410 MR. BRENNAN: In theory, that's the way it is. If you are able to match demand perfectly with the supply, yes. But I doubt if that ever happens. 411 MR. VEGH: Understood. In theory, the idea is that if you know someone's MDV, you are going to know what their annual consumption is expected to be anyway. 412 MR. BRENNAN: You may have a rough idea but you can't nail it down. I mean, past winter is probably a prime example. 413 MR. VEGH: Okay. I'd like to ask some more questions about the MDV information. 414 Could you turn, please, to Exhibit I, tab 3, schedule 83. That's an interrogatory of my client that asks -- this asks a question about the arrangement between EOS and ECG, and about the use of information transferred between EOS and ECG. The interrogatory response I'd like to ask you about in particular is on page 2, question sub (b). 415 I'm going to cross-reference your answer to the Affiliate Relationships Code which is at tab 2 of the materials I provided this morning. So if you could have both of them handy, okay? 416 My question in 83 sub (b) was a reference to -- I'll read you the question. It says: "Section 1.14 of schedule A to the Intercorporate Services Agreement," this is the agreement with EOS, "provides that the information related to performing services is for market operation purposes only." 417 I'd ask -- I asked you to clarify what is meant by "market operations purposes," and what use of information is excluded as a result of the provision. Your response is at page 2, and you refer to: "Market operation purposes having the same meaning as it does in section 2.6.2(a) of the Affiliate Relationships Code." 418 So if you could turn up 2.6.2(a), you say: "This section" -- that's 6.2.2(a) -- "precludes ECG from disclosing confidential information as defined in section 1.2 to an affiliate without the consent in writing of the consumer, marketer, or other utility service customer as the case may be, except where confidential information is required to be disclosed for market operation purposes." 419 You say: "ECG discloses contractual information for large-volume customers such as their respective mean daily volumes" -- so the MDVs we were talking about -- "to EOS in order to enable EOS to process their nominations market operation in accordance with the schedule or the services agreement." 420 So I believe that -- as I read your answer, I don't take it that there is an issue that mean daily volumes are considered confidential information, but that what you're saying is that this disclosure of this information from ECG to EOS is permitted under the Affiliate Relationships Code, because it's for market operation purposes; is that right? 421 MR. BRENNAN: Yes, that's correct. 422 MR. VEGH: Your next paragraph says: "ECG likewise disclosed its contractual information for general service customers who appoint a marketer as their agent. This type of disclosure, however, is made on an aggregated basis at the contract level. Section 2.6.3 of the Code permits such disclosure" -- so we are now down at 2.6.3 -- "without customer consent." 423 Now, if I understand it, you say that the disclosure of MDV information for large-volume customers is covered by 2.6(a), while for small-volume customers it's on an aggregated basis and therefore authorized by 2.6.3; is that right? 424 MR. BRENNAN: Yes, that's correct. 425 MS. HOLDER: I think it's fair to say that 2.6.2 would also apply for the aggregated information. 426 MR. BRENNAN: I agree. 427 MR. VEGH: And I guess you say that for both large-volume and small-volume customers, that this is covered by market operation purposes, because without this information, EOS could not nominate on upstream transporters and therefore the nomination process is part of market operations; is that the idea? 428 MR. BRENNAN: Yes, that's correct. 429 MR. VEGH: Now, with the claim that information is aggregated for the small-volume customers, can you look at 2.6.3 that you referred to. The last sentence says: "If this information is aggregated, it must be disclosed on a non-discriminatory basis to any party requesting this information." 430 Is the MDV information made available to all parties who request it? 431 MS. HOLDER: No. 432 MR. VEGH: So it's made available -- it's provided to EOS for market operations purposes. EOS then uses this information to make nominations on upstream transporters, and I understand that it also reports on these nominations under the services agreement; is that right? 433 MR. BRENNAN: I'm sorry, reports? Could you be a little more -- 434 MR. VEGH: Reports on these nominations. 435 MR. BRENNAN: Can you point me to where it says that in the services agreement? 436 MR. VEGH: If you go to appendix B, again of the EOS services agreement, that's the list of reports that it provides. Do you have that? 437 MR. BRENNAN: Yes, I do. 438 MR. VEGH: Okay. Going down one, two, three, four, five, six, seven -- eight cells down, I guess, is a nomination summary report provided by EOS on a daily basis to a group called Transactional Services. 439 Transactional Services is now in EI, isn't it? 440 MR. BRENNAN: Yes, that's correct. 441 MR. VEGH: So it provides -- EOS makes the nominations and then it provides EI with a daily nomination of Union Gas C-1 -- or gas under Union Gas C-1 contracts; is that right? 442 MR. BRENNAN: Yeah, that nomination summary is what we nominated in total to either Union or TransCanada. It's not broken out. It's just what the total number is. 443 MR. VEGH: No, it's aggregated information. 444 MR. BRENNAN: They are done, in fact, by -- I guess there's two contracts. 445 We collect all the transportation contracts for the -- into the EDA as one for nomination purposes and all of our CDA transportation contracts under another number. 446 So it's the sum of all the total nominations that we made under those two particular contracts of TransCanada, for example. 447 MR. VEGH: Okay. So can you provide copies of all the nomination -- or provide a sample copy of the nomination summaries that EOS provides to EI under this schedule. 448 MR. BRENNAN: Yes, I think so. 449 MR. VEGH: Okay. And that's the Union Gas C-1 nominations, the TransCanada nominations, the MichCon monthly nominations, the ANR monthly nominations, the -- we'll stop there for now. 450 MR. FARRELL: You want a sample report, I take it? 451 MR. VEGH: Sample report, yes. 452 MR. MORAN: That would be Undertaking G.4.2, Madam Chair. 453 UNDERTAKING NO. G.4.2: TO PROVIDE SAMPLE COPIES OF THE NOMINATION SUMMARIES THAT EOS PROVIDES TO EI UNDER THE APPROPRIATE SCHEDULE 454 MR. VEGH: Now, gas costs, is that in EI as well? 455 MR. BRENNAN: No, it's not. 456 MR. VEGH: It's not. This is ECG? 457 MR. BRENNAN: That's correct. 458 MR. VEGH: So this information is never provided to EI, the information that accompanies the gas cost recipient? 459 MR. BRENNAN: I'm sorry, could you repeat your question. I'm a little confused -- 460 MR. VEGH: The information that EOS provides to EI in its function as gas costs, that is, the information in the columns where gas costs is identified, that information is never provided to EI? 461 MR. BRENNAN: The information that goes to gas costs is information that's related to the billing, so we can check the bill against the nominated volumes to make sure that we are billed for the correct volumes. That's why gas cost is in that information. That information is coming from Enbridge Operational Services. 462 MR. VEGH: I know it comes from Enbridge Operational Services. I want to know who it goes to. 463 MR. BRENNAN: I'm sorry, I didn't hear the question. 464 MR. VEGH: The information comes from Enbridge Operational Services. 465 MR. BRENNAN: Right, to ECG, our gas cost group within ECG, for billing purposes. 466 MR. VEGH: So none of this information goes to EI? 467 MR. BRENNAN: I'd have to check. I'm not sure offhand. My belief is that it doesn't, but I'd have to confirm that. 468 MR. VEGH: Okay. So what I'd like you to do, then -- 469 MR. BRENNAN: Again, just to remind you that this report, if you like, or table, was done prior to EI taking over that function. 470 MR. VEGH: No, I understand. But I would like to know what information EOS makes available to EI. 471 MR. BRENNAN: I think if you go back to the information flow that I gave you earlier on, I think you'll find that's the information that goes back between EOS and EI, and that has to do with the nominations for transactional services. 472 MR. VEGH: But you've just told me that you're not sure if this information goes to EI, that you have to check that. 473 MR. BRENNAN: I will confirm that. 474 MR. VEGH: I'd like you to confirm that. And if this information does or can be exposed to EI, I'd like to know what's in the information. 475 MR. MORAN: That would be Undertaking G.4.3. 476 UNDERTAKING NO. G.4.3: TO PROVIDE CONFIRMATION OF WHAT INFORMATION IS COVERED UNDER THE CATEGORY OF 'RECIPIENT FUNCTION OF GAS COSTS' PROVIDED BY EOS TO EI 477 MR. VEGH: That relates to all of the information covered under the category, recipient function of gas costs. 478 Now, what about these next two categories, gas acquisition and transportation contract? Does any of this information get to EI? Or would you like to confirm that? 479 MR. BRENNAN: The ones under gas acquisition certainly would go to Enbridge Inc. because that function of gas acquisition is being performed by Enbridge Inc.. 480 MR. VEGH: Well, in that case, I'd like you to undertake to provide me with sample copies of the report that's provided under this heading. 481 MR. BRENNAN: Right. They are just the nominated volumes with those particular supplies. 482 MR. VEGH: I'd like to see a sample copy, please. 483 MR. MORAN: Undertaking G.4.4. 484 UNDERTAKING NO. G.4.4: TO PROVIDE A SAMPLE COPY OF GAS ACQUISITION REPORT PREPARED BY EOS FOR EI 485 MR. VEGH: The next category here is transportation contracting. Do any of these reports go to EI or can they be exposed to EI? 486 MR. BRENNAN: Yes, this information does go to Enbridge Inc. as well. 487 MR. VEGH: Okay. I would like to see sample copies of all those reports as well, please. 488 MR. MORAN: Undertaking G.4.5. 489 UNDERTAKING NO. G.4.5: TO PROVIDE SAMPLE COPIES OF TRANSPORTATION CONTRACTING REPORTS PREPARED BY EOS TO EI 490 MR. BRENNAN: Some of these reports we may not have. For example, failure to deliver, unless someone has failed to deliver, we may not have a report to be able to provide to you. 491 MR. VEGH: But you must have a template on what a failure-to-deliver report looks like. 492 MR. BRENNAN: I'm not sure that we do, but I'll check. 493 MR. VEGH: If you do, I'd like to see one. 494 I just have a couple more questions on the upstream nominations and then it would be a good time to break, if that's a convenient time for the Panel. 495 MS. HALLADAY: That's fine, Mr. Vegh. 496 MR. VEGH: Thank you. 497 So we talked about how -- maybe we didn't talk about this clearly enough yet. The information flow, then, that we're talking about now is from ECG to EOS, and EOS then uses that information, in the nominations context, to make nominations on behalf of ECG; that's right? Right? 498 MR. BRENNAN: On behalf of ECG and direct purchase customers. 499 MR. VEGH: Okay. So we've looked at nominations, then, with -- from the perspective of the EOS agreement, and I'd like to just finish on this point by looking at nominations from the perspective of the Enbridge Inc. agreement. 500 I'm taking you back to Exhibit I, tab 3, schedule 44. And the schedule -- service schedule of that agreement, at page 7, talks about -- the service of contract management, and then at section 5.12, talks about some information that ECG will provide to EI. And in particular, 5.12 says: "ECG will allocate its service entitlements or capacity rights, as the case may be with transporters, to GTA-type direct purchase agreements." 501 So, again, that's the allocation of transportation that ECG has directly with the upstream transporters. It then allocates that down, on a contract level, to GTA contract holders; is that right? 502 MR. BRENNAN: Sorry, whereabouts are you reading from? You're reading 5.12? 503 MR. VEGH: 5.12. 504 MR. BRENNAN: Yes, that's correct. The -- ECG would allocate the capacity rights to the different direct purchase customers, for example, like western T-service customers. 505 MR. VEGH: Right. It then says that ECG provides EI with the particulars of each allocation. Do you see that? 506 MR. BRENNAN: Yes, that's correct. That's, again, part of what I would call this SMS report that we talked about earlier this morning. That allows the service provider, or in this case the operational services, to know how much supply they expect to have coming in on behalf of direct purchase customers. 507 MR. VEGH: So that's the -- so this sentence is talking about the SMS report at Exhibit 4.2, the one you talked about this morning? 508 MR. BRENNAN: Yes, that's correct. 509 MR. VEGH: Can you just turn to Exhibit 4.2, then. I have a question or two for you on it now. There's some information that looks like it might have been whited out under -- first, under the column "Input By." What is that information? 510 MR. BRENNAN: This is the particular account exec's name who is putting this information into this file. 511 MR. VEGH: The account executive? 512 MR. BRENNAN: Yes. 513 MR. VEGH: That's ECG's personnel. 514 MR. BRENNAN: ECG, yes. 515 MR. VEGH: And the DPA number, that's the -- 516 MR. BRENNAN: Direct purchase agreement. 517 MR. VEGH: Okay. And so the DPA number, on behalf of -- just so we have it straight again, on behalf of a large-volume customer would be an aggregated -- I'm sorry, on behalf of a small-volume customer -- Jerry, can you move just a bit. Small-volume customers would be aggregated on a DPA, while large-volume customers would tend to have their own DPA? 518 MR. BRENNAN: Yes. 519 MR. VEGH: Okay. And the next column is "Contract Name," and that looks like it's whited out as well. 520 MR. BRENNAN: Yes, that's correct. 521 MR. VEGH: What would be in the contract name? 522 MR. BRENNAN: It would be, for example, a marketer's name or the large-volume customer's name. 523 MR. VEGH: Okay. And then this -- so these are particulars that ECG would provide to EI in section 5.12? 524 MR. BRENNAN: Right. And this file, if you like, is updated on a monthly basis for any changes. For example, if nothing has changed, then those DPAs would not be included in this particular file. So it tries to capture changes. For example, customers that are moving from system to direct purchase or vice versa, or moving from western T to Ontario T, all relate -- or customers that want to suspend or make up, or there's an assignment involved, this is information that Enbridge Inc. needs to know in order to be able to manage the transportation component. 525 MR. VEGH: Okay. So would they -- now, in order to make sense of these changes, you would need information on what is being changed from; right? 526 MR. BRENNAN: As an example, if you look at the first line on the first page, you'll see that this particular customer, "service type, Ontario ABC," was a western T, ABC. So they are switching from western T to an Ontario T, for example. And it would give you the whole MDV, and if there is a new MDV. 527 MR. VEGH: Now, would EI have the old MDV information available just as part of the -- part of its ongoing records? 528 MR. BRENNAN: They would have this information only to the extent that it's provided in this report. It would be -- sorry. 529 MR. VEGH: Go ahead. 530 MR. BRENNAN: The only information that EI takes from this or uses from this is to manage the transportation component of it. So, yes, if there was a change in volume, we would have to know about it as well in order to manage the transportation side of it. I'm sorry, Enbridge Inc. would need to know this. 531 MR. VEGH: Well, you would need to both the base case and the change, wouldn't you? 532 MR. BRENNAN: Yes. And I believe that it does have the old MDV and if you look on the next page, it has MDV EDA, so that was my -- that would be the new volume. 533 MR. VEGH: But for EI to manage transportation allocations on a regular basis, it would have to have the base case MDV, would it not? 534 MR. BRENNAN: Yes. 535 MR. VEGH: And so then it's provided with the base case MDV, and this advises them of changes in that base case MDV? 536 MR. BRENNAN: Yes, as one of many things that they should be changing, yes. That's one. 537 MR. VEGH: Okay. We've talked about why it's necessary to provide the MDV information to EOS in order for EOS to carry out nominations on upstream transporters, and I'd like to just explore that a bit in terms of how the information is provided to EI. 538 Can you go to section 5 of the intercorporate services agreement with EI. Sorry, the agency agreement with EI. This is the agreement itself, not the schedule. 539 Section 5(a) says that: "ECG acknowledges that EI will, during the term of this agreement, engage in the business of gas acquisitions, gas sales, gas supply management, and gas storage. Nothing in this agreement shall be interpreted as imposing upon EI any duty or obligation, whether fiduciary or otherwise, to the services recipient to refrain from participating in such businesses." 540 And it goes on to talk about -- 541 MR. BRENNAN: I think you should probably read the rest of it in terms of: "Except that section 3 shall continue to apply, and in such transaction where the service provider is acting as a principal for its own account in respect to any of the services, the procedures set out in the service schedule shall be followed." 542 And that refers to the protocols. 543 MR. VEGH: So let's talk about this scenario where EI is in the business of gas acquisition, sales, supply management, storage, but it's not transacting with ECG so that the protocols don't enter into it. Okay? 544 MR. BRENNAN: Well, the protocol -- okay, they don't enter into with ECG, okay. 545 MR. VEGH: Right. So ECG is not a counter party, just EI. 546 MR. BRENNAN: Okay. 547 MR. VEGH: So EI, then, will be buying and selling gas and buying and selling storage? 548 MR. BRENNAN: I do not know. I can tell you that it's not EI's intention to sell gas on a retail level, certainly not into the Ontario market, anyway. 549 MR. VEGH: Well, you've agreed in this section 5(a) that if EI does decide to buy and sell gas at whatever level that's not a problem, it's not a concern for ECG? 550 MR. BRENNAN: They are not refrained from doing it. 551 MR. VEGH: And you are acknowledging that they can do that without violating any obligation it would have to ECG? 552 MR. BRENNAN: Yes, that's correct. 553 MR. VEGH: And your position with the Board is that the Board shouldn't have any concerns about EI entering into these businesses in Ontario? 554 MR. BRENNAN: Well, I wouldn't say there's no concerns. I guess that the idea is that if EI wants to market gas within Ontario, it would have to, presumably, get a licence, at least at the retail level, anyway -- 555 MR. VEGH: Right. 556 MR. BRENNAN: -- to do so. And to date, it doesn't. 557 MR. VEGH: Okay. So I'm not sure what's the point of that. 558 MR. BRENNAN: Your question was whether or not EI would be selling gas on its own behalf into the Ontario market. And I'm saying, no, they haven't done it to date, and they have no licence to do so to date. 559 MS. HOLDER: And they require this Board to approve that licence. 560 MR. VEGH: For the small-volume customers? 561 MS. HOLDER: Yeah, for a licence in the retail market. 562 MR. VEGH: So ECG could sell to -- or EI could sell to large-volume customers, or it could just act in the wholesale market of trading gas and storage without selling to an end-use customer without further Board approval? 563 MS. HOLDER: The contract does allow them to do that, but I think what we're saying is it's not the intention of EI to sell gas in the Ontario market. 564 MR. VEGH: Well, regardless of what the intention is of EI, I'm asking you about your acknowledgment in this agreement that EI could carry on those activities in Ontario, and ECG would not have a concern about that. 565 MS. HOLDER: I'm not sure we could say we wouldn't have a concern about it. But this contract was written in light of what we knew, and what we knew was they weren't going to be marketing in this -- or selling gas into our market. 566 The fact is that they haven't applied for a licence, have no intentions of applying for a licence. So I think that's the -- that was the context of this agreement. 567 MR. VEGH: Well, we could really cut this short if you'd say you were prepared to amend the contract so that EI cannot participate in these activities in the Ontario market. 568 MS. HALLADAY: Mr. Vegh, I think you've made your point, so -- 569 MR. VEGH: Well, I'm not sure I -- we might be able to cut it short. 570 MR. PLECKAITIS: Can we have an undertaking to consider that proposal. Is that a proposal? 571 MR. VEGH: Going, going -- this would probably be a good time for a break. 572 MS. HALLADAY: Mr. Vegh, do you want this undertaking, to consider it? 573 MR. VEGH: Yes. 574 MS. HALLADAY: Mr. Farrell, do you want them to give this undertaking, to consider it? 575 MR. FARRELL: I think what Mr. Pleckaitis was indicating is that the witnesses would like to talk about Mr. Vegh's question and come back and either give him an answer or give an undertaking to discuss the matter with EI as the counter party to the agency agreement. 576 MS. HALLADAY: Fair enough. Is that fair, Mr. Vegh? 577 MR. VEGH: That's fair. 578 MS. HALLADAY: So now is an appropriate time. We'll break until 11:30. 579 --- Recess taken at 11:15 a.m. 580 --- On resuming at 11:35 a.m. 581 MS. HALLADAY: Please be seated. 582 MR. VEGH: Thank you, Ms. Halladay. 583 Panel, before we broke, we were talking about section 5, sub (a) of the agency agreement with EI, which identifies the businesses that EI will be participating in; that is, gas acquisitions, gas sales, gas supply management, and gas storage. I take it that nothing in the break has arisen which would allow you to say that EI will not be carrying on those businesses? 584 MR. PLECKAITIS: I spoke to the person that I directly deal with at EI and they are considering your question. As Ms. Holder indicated, EI right now is not actively involved in the retail side of that business -- the businesses that are outlined in this section 5, point (a). In fact, through the sale of Enbridge Services, the company has made a specific decision that it will not be in the retail side. The wholesale side is still one that we need to take under consideration, or EI would like to take under consideration, and hopefully we'll have a response this afternoon. 585 MR. FARRELL: May I just be clear and ask through you, Madam Chair, Mr. Vegh, the question is -- is his concern limited to Ontario or is his concern limited to the type of business, which may affect the answer that we would be able to give. 586 MR. VEGH: It's the -- it's the type of -- my concern is related to the type of business. So if there's a further information that comes on restricting the boundaries of that business, we'd have to think about it. So far we have just been addressing this issue on the basis of the contract as written, so I can't really provide any further clarification than that. 587 MR. FARRELL: That's fine. That's helpful, thank you. 588 MR. MORAN: I believe we have an undertaking, G.4.6, Madam Chair. 589 UNDERTAKING NO. G.4.6: TO PROVIDE INFORMATION REGARDING THE TYPES OF BUSINESS THAT EI WILL BE CARRYING ON AS IT RELATES TO THE AGENCY AGREEMENT 590 MS. HALLADAY: All right. Thank you. 591 MR. VEGH: So for the purposes of the discussion that we're having, and for the purposes of my question, let's just assume that EI will, during the term of this agreement, engage in all of the businesses that are identified in section 5(a), because that's the facts as we see them now. 592 So with that, as you know, there are other companies in Ontario that participate in these business, gas acquisitions, gas sales, gas supply management, gas storage. Are these other market participants given access to the information that ECG provides to EI that we've discussed this morning? 593 MR. BRENNAN: No, we haven't, to date. 594 MR. VEGH: So no other participant is provided with this information, and I take it that -- 595 MR. BRENNAN: Well, I guess if I could just explain why, I guess. 596 Typically, as we said, this information that's being transferred from one company to the other is for market operations, so for nominations. So I'm not sure whether these other companies that you suggested would have the same need as EOS or ECG would have for this information. 597 MR. VEGH: Well -- 598 MR. FARRELL: Do you mean to say EI, Mr. Brennan? You said ECG. You said EOS and ECG. That's where the confusion is. 599 MR. BRENNAN: Yes, where there's a need for EI or EOS. 600 MR. VEGH: Well, EI has access to all of this information when it, EI, engages in the business of gas acquisitions, gas sales, gas supply management, and gas storage; right? 601 MR. BRENNAN: Sorry, try that again. 602 MR. VEGH: EI has access to the information that we've talked about, when it engages in -- 603 MR. BRENNAN: Some of the information, sorry. 604 MR. VEGH: Pardon me? 605 MR. BRENNAN: Not all the information. I mean, we are clear and try to be clear as to what information EI gets versus EOS versus what ECG gets. 606 MR. VEGH: The information that's provided to EI -- 607 MR. BRENNAN: Correct. 608 MR. VEGH: -- is available to EI to use for the businesses of gas acquisition, gas sales, gas supply management, and gas storage; right? 609 MS. HOLDER: On behalf of ECG only. 610 MR. VEGH: Well, where does this agreement say that EI can't use that information when it carries on its own businesses? 611 MR. BRENNAN: Through the confidentiality agreement. 612 MR. VEGH: Show me. Can you identify for me what section you are talking about? 613 MR. BRENNAN: If you go to section 20. 614 MR. VEGH: Yes. 615 MR. BRENNAN: So paragraph 20(a), it says: "Each of the parties agree to keep all information provided by the other party," the disclosing party, "confidential, and the receiving party shall not, without the prior written consent of a senior officer in the disclosing party, disclose any part of such information that is not available in the public domain." 616 MR. VEGH: Yes. 617 MR. BRENNAN: So my point is that this information would be within either EOS or EI for the purposes of its agreement with Enbridge Consumers Gas. 618 MR. VEGH: So it can't disclose that information to a third party. 619 MR. BRENNAN: That's how I would view this, yes. 620 MR. VEGH: But it still doesn't say that it cannot use that information for its own business purposes. 621 MR. BRENNAN: No, you're right, it does not say that. I guess the only point I would say is that we would see -- we have a hard time understanding what value those other parties would have with this information. 622 MR. VEGH: You would have a hard time understanding what value EI would have in using this information to carry out its other businesses? 623 MR. BRENNAN: Right. 624 MR. VEGH: Isn't information about consumption of customers useful information if you are going to carry out business of providing services to those customers? 625 MS. HOLDER: I was just going to say -- but as we mentioned, they're not in the business of providing services to our in-franchise customers. 626 MR. VEGH: I said, let's assume that they are in the businesses identified in section 5(a). 627 MS. HOLDER: If they were in the business, is that what you're asking? 628 MR. VEGH: Well, we're talking about the businesses permitted by section 5(a), and my question is, or my observation is that there is nothing in the contract which prevents EI from using information gained in providing these services to use in the provision of the businesses identified in section 5(a). 629 MR. BRENNAN: I guess we're just having difficulty trying to understand, Mr. Vegh, as to how this information would be used by EI to have a competitive advantage over someone else. I wonder if you could maybe help us with that a bit. 630 MR. VEGH: So it doesn't occur to you that if a system operator has information on system operations and consumption patterns of customers, that could be used for competitive advantage? That doesn't occur to you? 631 MR. BRENNAN: We don't -- we're having a hard time understanding how it would be used. If you could maybe give us an example, it might be helpful. 632 MR. VEGH: Okay. I'll give you some -- we'll get to some examples in a minute. I just wanted to confirm for now, that there's nothing in the agreement that prevents that use for that information. 633 MR. BRENNAN: That's correct. 634 MR. VEGH: Okay. Now, when carrying out these businesses of gas acquisitions, gas sales, gas supply management, gas storage, EI is not providing distribution services; right? 635 MR. BRENNAN: EI is not providing distribution services, that's correct. 636 MR. VEGH: And when carrying out these businesses, it's not providing services necessary for system operations; right? 637 MR. BRENNAN: Define "system operations" for me. 638 MR. VEGH: Well, services necessary to operate the system. 639 MR. BRENNAN: Such as gas control and those types of things? 640 MR. VEGH: Sure. 641 MR. BRENNAN: I mean, it is doing things on behalf -- you are talking about Enbridge Inc. here now, I guess. 642 MR. VEGH: I'm talking about when Enbridge Inc. is carrying out the businesses identified in section 5(a) on its own behalf. Those businesses are not necessary for system operation. 643 MR. BRENNAN: That's correct. 644 MR. VEGH: And Enbridge when -- Enbridge Inc., when carrying out those businesses, is not providing system gas; right? 645 MR. BRENNAN: Enbridge Inc. is not providing system gas, that's correct. 646 MR. VEGH: And when carrying out those services, Enbridge Inc. is not providing services to a marketer; right? 647 MR. BRENNAN: To a marketer? I -- 648 MR. FARRELL: Sorry, I think the question was slightly unclear. Mr. Vegh, as I heard it said, "In carrying out those services, Enbridge Inc. is not providing services." And I'm sure he meant to say businesses. 649 MR. VEGH: Sorry, in carrying out the businesses identified in section 5(a), Enbridge Inc. is not providing a utility service to a marketer. 650 MR. BRENNAN: No. 651 MR. VEGH: Okay. Now, a few minutes ago we talked about compliance with the Affiliate Relationships Code, and there was another one of our interrogatories that talked about compliance with the proposed Distribution Access Rule, and I wanted to ask you a question about that. That was your answer to interrogatory number 82. In question F of that interrogatory, I asked you a question about this agreement, the EI agreement. And I asked you to advise how that agreement complied with the treatment of customer information in section 7 of the proposed Distribution Access Rule. And your answer, do you have your answer? It's at schedule 82, page 6. 652 MS. HOLDER: Yes. 653 MR. BRENNAN: Yes, I have it. 654 MR. VEGH: In section F, your answer was quite unequivocal. You said, "The agency agreement, including the services schedule, complies completely with section 7 of the proposed Distribution Access Rule." 655 So could you turn, please, to the Distribution Access Rule, the proposed one, at tab 3 of the materials I provided this morning, and go to section 7, which talks about the treatment of customer information. 656 Can you turn to section 7.1.1. 657 MS. HOLDER: Yes. 658 MR. VEGH: It says that, "Distributors may collect and use customer data or information necessary..." And then it provides a list of services. And I take it that -- well, we've just gone through that list of services, and you confirmed that this information is not being used for those services. 659 And then the fourth bullet point goes on to say: "...for a purpose expressly set out in the service level agreement, and for no other reason." 660 So the use of the data and the information that we have talked about, if that information is being used for EI to carry out the businesses that we've talked about, then that's not consistent with this restriction, is it? 661 MR. BRENNAN: Well, I would say with respect, as far as ECG is concerned, we feel that the agency agreement complies with distribution access, as EI is acting as ECG's agent. And therefore it does carry out some of these functions on behalf of the utility. 662 MR. VEGH: So when it carries out those functions to provide distribution services or system operations or to provide system gas, then to that extent, it complies with section 7; is that what you're saying? 663 MR. BRENNAN: Yes. 664 MR. VEGH: And then to the extent that it uses this information to carry out the businesses that we've talked about, gas supply, or gas acquisitions, gas sales, storage services, then it's not complying with section 7; right? 665 MR. FARRELL: If it were to -- 666 MR. VEGH: Right. If it were to carry out the businesses identified in section 5(a) and use this information to carry out those businesses, then it would not be in compliance with section 7. 667 MR. BRENNAN: Yes. But this is, again, in respect to ECG's view of the services that are being provided by EI to ECG, not what EI is doing for anyone else. 668 MR. VEGH: So when EI is carrying out the businesses identified in section 5(a), and if it uses system information to carry out those businesses, then this information use is not in compliance with section 7.1; right? 669 MS. HOLDER: I don't think I can give you a legal -- I think you are now getting a little too far down the legal path for my comfort. So I'm not sure we can respond to that. 670 And again, I think we need to emphasize "if" EI was to perform the services, not "when." 671 MR. VEGH: If. 672 Now, what I'm asking about is your answer to the interrogatory, not a legal opinion. Your answer was that there's full compliance with section 7. 673 MS. HOLDER: Yes. 674 MR. VEGH: And I'm just asking you -- 675 MR. FARRELL: Well, I'd like the witnesses to read the entirety of the response to F, because Mr. Vegh hasn't gotten to the last part of it, where there's a provision in the agency agreement. 676 MR. VEGH: Go ahead. 677 Does that shed any further light on the issue of compliance with section 7? 678 MS. HOLDER: I think we've said our response is as written here in F. We believe that we are in compliance of section 7, that ECG is in compliance. 679 MR. BRENNAN: And just to carry on, ECG would have the obligation to ensure that EI's conduct would not offend section 7 as well. 680 MR. VEGH: So what have you done to ensure that, then? 681 MR. PLECKAITIS: Well, I think a couple of things, if I can try to encapsulate. 682 First of all, Mr. Brennan and Ms. Holder indicated that, as far as we are concerned and aware, Enbridge Inc. is not, in fact, in its own business of wholesaling or retailing those services. They are simply providing those services on behalf of the various affiliates that they provide those services to, one of which is ECG. 683 Number 2, the information that we are providing to EI, we have difficulty in trying to understand how that information could be used to their competitive advantage, if they were in that business. 684 And third, our position is that we agree that we should not be providing them with confidential information that is available only to ECG, to their benefit, if they weren't operating in a competitive business. 685 MR. VEGH: Well, I'll take that as your answer. I'll take that as your answer and we can address some further questions, then, in argument. The issues of compliance. 686 So let's then talk about the wholesale market and the services that can be provided in the wholesale market, and this might shed some light on some of the concerns that my clients have about a system operator being able to participate in that market in competition with them. 687 MR. FARRELL: Could you define for the witnesses what you mean by "system operator"? 688 MR. VEGH: Hopefully that will become clear as the questions develop. 689 I wanted to ask you -- I wanted to get some clarity around what wholesale services are. I think that one approach that may be helpful to do this is to go to your evidence on transactional services, which is Exhibit A, tab 13, schedule 1. There is a list in section -- in paragraph 4 of page 1 of that evidence which refers to transactional services as, "Peak storage, off-peak storage, loans, exchanges and transportation assignments." 690 Now, under the -- I don't know if they are current or the old rules, but traditionally, ECG uses excess utility assets to provide these sorts of services; right? Peak storage, off-peak storage, loans, exchanges, transportation assignments? 691 MR. BRENNAN: Yes, ECG, in the past, managed or tried to optimize the use of these assets or its assets to provide these to the extent that those assets were not required by the utility. 692 MR. VEGH: Right. And as I understand it, ECG, in doing that, did not really solicit business from customers or go out and market these services; but if a customer contacted transactional services, then the group would provide the service that was requested; is that right? 693 MR. BRENNAN: No, I don't think so. I think ECG would also make it known that it was able to provide these types of services, as well as -- customers are coming to them as well. So it just wasn't the one-way street, I guess is what I'm saying. 694 MR. VEGH: Okay. Maybe I misunderstood it, then. I was referring to your evidence at Exhibit I, tab 3, schedule 21, which was an answer to a CEED interrogatory. Your answer there was: "Typically, the transactional services group does not solicit business from ECG customers, per se; however, if an ECG customer contacts a transactional services group looking for a particular service, the TS group will attempt to provide the requested service. If the TS group is not able to provide the service, it will indicate this to the ECG customer." 695 So I took it from this that although these services would be made available, the ECG transactional services group was not aggressively pursuing that market? 696 MR. BRENNAN: We were not aggressively -- or did not pursue it in terms of meeting the needs, say, of our customers. We would be out there for other third parties. But as far as our own customers are concerned, if our customers had a need for a transactional services, then they would come to us. We didn't go out pursuing that in terms of our own customers as opposed to, say, marketers. 697 MR. VEGH: So you don't consider marketers to be your customers? 698 MS. HOLDER: Not in the context of this question. 699 MR. BRENNAN: Not in the context of this question, that's correct. 700 MS. HOLDER: This was referring to our end-use customers as opposed to our marketers and brokers. 701 MR. BRENNAN: Instead of marketers, let's say third parties. 702 MR. VEGH: Okay. So if -- I'm just trying to understand. My sense was that the transactional services group was not so much aggressively marketing a service as making use of excess utility assets, trying to use those assets more efficiently than leaving them idle if they weren't necessary for meeting system purposes. 703 MR. BRENNAN: That's true. And if we have assets that are not being fully utilized, just leaving them there doesn't help the ratepayers or anyone else. So we would go out and for bids for peak storage, off-peak storage to third parties, to try and make better use of those as assets. But it wasn't that we were going out to -- specifically to our end-use customers to necessarily market those services. 704 MR. VEGH: Okay. Now, these types of services that we're talking about, those are the same kind of wholesale services that are contemplated in section 5(a), that is, services at the wholesale market more than the retail market; is that right? 705 MR. BRENNAN: I would say probably more at the wholesale level, correct. 706 MR. VEGH: So that's the type of services we're looking at, though gas storage services, gas -- maybe gas trading more than gas sales to end-use customers, wholesale services. 707 MR. BRENNAN: I'm sorry, you are mixing it up here. Which services are you talking about? Are you talking about 5(a) or are you talking about what we do under transactional services? 708 MR. VEGH: I'm looking for -- I'm looking to see if there is a similarity between the services provided by the transactional services and the services identified -- or the businesses identified in 5(a). 709 MR. BRENNAN: The ones that are contemplated under transactional services are the ones that we mentioned: the peak, the off-peak storage, exchanges, loans, assignments. Those are the only ones that we do under transactional services. Under 5(a), they may include some of those. May not. 710 MR. VEGH: Okay. Thank you for helping me with that. 711 Now, 5(a) talks about specifically the business of gas storage, and so that's where there may be some overlap. Transactional services provides gas storage services, and Enbridge Inc., under 5(a), is contemplated to provide gas storage services. 712 MR. BRENNAN: That's a possibility; correct. 713 MR. VEGH: Okay. Now, let's just be a little more clear on what we mean by "storage service." Is it fair to say that a customer will be in the market for storage when they have acquired more gas than it is economical for them to either consume themselves or sell to somebody else? So they have some excess gas and they need a place to put it. 714 MR. BRENNAN: And in the context here of "customers," you're referring to our in-franchise customers, or are you just talking about customers in general? 715 MR. VEGH: Customers in general. 716 MR. BRENNAN: Yes, I would agree with that. 717 MR. VEGH: So customers would be in the market for storage where they have excess gas and they need a place to put the gas? 718 MR. BRENNAN: Yes, that's a possibility. 719 MR. VEGH: So if, during the course of a year, there was system information that indicated that a customer was nominating more gas than that customer was projected to consume, then that customer would be an attractive customer for a storage service provider, wouldn't they? 720 MR. BRENNAN: I would disagree in that the customer, if you are talking, again, about a direct purchase customer, that customer is nominating the volume -- same volume each and every day of the year. And I'm not sure who would have access to the information as to what volume is actually consumed, but Enbridge Inc. necessarily wouldn't know what volume was actually consumed by individual customers. 721 MS. HOLDER: The banked gas account, on behalf of all our direct purchase customers, is managed within ECG. That information is not available to EI or EOS. 722 So Enbridge Inc. would not have any knowledge of any of our end-use customers requiring storage. 723 MR. VEGH: Well, this may become a little more clear when we get more copies of the information that is going back and forth. But Enbridge Inc. would know each day what the supply -- what the demand requirements are for the entire system? 724 MS. HOLDER: In aggregate. 725 MR. BRENNAN: In aggregate. 726 MR. VEGH: In aggregate. 727 And they would know each day that there may be some changes to that, based on a different consumption pattern of a customer, a large customer? 728 MS. HOLDER: In aggregate. 729 MR. VEGH: Well, also specifically. I thought we had discussed earlier how if GM was going to shut down a shift or add another shift, then their consumption would change, and EI would have to know about that to do gas supply planning. 730 MS. HOLDER: No. What we've said, I believe, is that we would take that into consideration in looking at the overall daily demand forecast, and the aggregate information is available. 731 MR. VEGH: Well, the information at these daily and weekly meetings is simply provided on the basis, as I understood it, of customer input. 732 MS. HOLDER: For the example of very unique circumstances, which very seldom happen, such as a strike, that information would possibly be known because it's typically known by everybody. It's not confidential information. 733 But again, the information is aggregated with all the customers -- all customers' information. We don't say, the demand for customer A is this much and the demand for customer B is something else. 734 We talk about demand in general. We are here providing services to the entire market and the load balancing service to the entire market. We don't care specifically, from a control point of view, or gas supply point of view, who is using that gas and who is not. 735 MR. BRENNAN: Basically, we have to balance the system each and every day. 736 MR. VEGH: Right. Well, maybe you don't care, but maybe EI does care. 737 MR. BRENNAN: Well, they get the information, as we said, in aggregate form. Demand profiles that they get are all in aggregate form. 738 MS. HOLDER: Consumption data is only kept within the utility or within our billing system. I guess there's two places. It's in our billing system, but that information is never released to Enbridge Inc.. 739 MR. VEGH: Well, Enbridge Inc. has the information released to them on the daily MDV. 740 MS. HOLDER: Yes, which does not equal consumption. 741 MR. VEGH: And changes to the MDV. 742 MR. BRENNAN: Again, which does not equal consumption. 743 MR. VEGH: And critical demand variables, such as changes to consumption by a large-volume customer. 744 MS. HOLDER: Due to information that's typically publicly known, such as strikes. 745 MR. VEGH: Or you said the information would be provided directly from the customer to ECG. 746 MR. BRENNAN: Yeah, typically, I guess. If we know, for example, a customer is going to shut down, or there is a strike, then presumably that customer would let us know. 747 But again, we would factor into our demand, but we wouldn't highlight that individual customer's demand. It would be -- we would factor it into our aggregate demand that would go, then, to Enbridge Inc.. 748 MS. HOLDER: Let me maybe provide some clarity as well. 749 When we talk about a plant shutdown for the purposes of maintenance in the summertime, very seldomly the plant ever lets us know that they are shutting down for maintenance reasons. 750 Our system is so large, our total demand is so large that very few customers -- I could probably name only two -- have a significant impact on us on any given day. 751 GM shutting down for maintenance, we probably wouldn't notice it on any given day. We would notice it over the long term because we would notice in our consumption data that we are not getting the revenues that would normally expect to get. But other than a huge co-gen plant which -- TransAlta is the only one that's in existence today, or Whitby. Most of our customer information, on a large aggregate basis, do not impact our day-to-day business that much. 752 If there's a strike, we tend to know about it and we'll take it into consideration. If a customer is kind enough to call us, which isn't all the time - very seldom - we would know that information. 753 MR. VEGH: Well, I guess we can go around and around on this, but we've talked about how -- we've talked about the information that goes into supply planning and how -- what the critical variables are, and I thought that you identified for me one of the critical variables to be -- the use of a large-volume customer. 754 MS. HOLDER: Yes. 755 MR. FARRELL: The witness -- we are going around because the witnesses have told you at least three times now that that's factored into the aggregate data, and EI gets the aggregate data. 756 MR. VEGH: I'm not sure that's what they told me earlier. 757 MR. FARRELL: That's what they said. 758 MR. VEGH: We'll see what the transcript says. 759 Now, work with me under the following hypothetical scenario: If there were two storage service providers and one had access to a customer's nomination and consumption and one did not, would the one who has access to that information be in a better position to serve that customer? 760 MS. HOLDER: I think the answer is yes. But, again, Enbridge Inc. does not have customer consumption data. 761 MR. VEGH: See what the reports say. 762 Now, all things being equal, then, if there were two storage service providers and one had access to how much storage was available from the system as a whole, so not on an individual customer basis but how much storage was available on the system from ECG, and the other did not, then the one with access to that information would be in a better position to serve potential storage customers than one who did not have access to that information, wouldn't they? 763 MR. FARRELL: Just before the witness -- is your question premised on EI carrying on its business or EI being the agent for providing transactional services? I think the distinction is important. 764 MR. VEGH: Well, EI, through carrying out transactional services, has information, I take it, on the availability of system assets; right? 765 MR. BRENNAN: I'm sorry, could you repeat the question. 766 MR. VEGH: EI, in carrying -- in providing transactional services on behalf of the utility, would have information on the availability of storage, for example, from ECG to be available to the market through transactional services on an aggregated basis. 767 MR. BRENNAN: That's correct. 768 MR. VEGH: Okay. And ECG, under the agreement, can also provide its own storage services. 769 MR. BRENNAN: I'm sorry? 770 MR. VEGH: All right. Now I'm confusing things. EI, under the agreement, can also provide its own storage services. 771 MR. BRENNAN: Yes, that's correct. 772 MS. HOLDER: But not from the same assets. 773 MR. BRENNAN: That's correct as well. 774 MR. VEGH: That's right. Understood. 775 Now, again, all things being equal, if there are two storage service providers and one had access to how much storage was available from the system, from ECG, and the other did not have that information, then the one had who had access to that information would be in a better position to serve potential storage customers, wouldn't they? 776 MR. BRENNAN: No, I don't think so, because if you're saying in your hypothetical that if EI had access to our storage numbers, well, EI cannot use the assets only to -- cannot use the assets for its own purposes. It has to use it only for purposes of meeting or optimizing, if you like, ECG's storage assets. It can't -- basically, it can't use it for its own purposes, to offer storage services to other parties. 777 MR. VEGH: It can't use ECG assets to provide storage services on its own. 778 MR. BRENNAN: That's correct. So having access to our position in storage, I'm not sure what it does for them as far as trying to market that to other parties that are by itself as opposed to ECG. 779 MR. VEGH: Okay. Well, it has access, then, to its own position in storage. 780 MS. HOLDER: Sorry, I think we need to clarify one other point here and that is that the services that we are referring to, storage services or transactional services, are competitive services and are priced at the market. So the price is what the market sets for it, not what the supplier sets for it. 781 MR. VEGH: Well, the market sets price by supply and demand? 782 MS. HOLDER: That's correct. 783 MR. VEGH: And if you're providing a storage service, wouldn't you want to time the release of your storage at a time when the storage prices are likely to be high? 784 MS. HOLDER: I guess if at all possible but -- in that the utility doesn't have control when its storage is available, not available, because it really is driven by the demand of our customers. 785 MR. VEGH: Right. So now you have EI who is determining when -- EI who knows when system storage is available and when it is not available. EI is providing the system storage out to the market. At the same time, EI is providing its own storage services out to the market. So if you're EI, wouldn't you want to time the release of your services out to the market at a time when the prices are high? 786 MS. HOLDER: I suppose, if that's possible. 787 MR. VEGH: And the prices are set by price and demand. 788 MS. HOLDER: No, not entirely. They're set by -- there are other factors when it comes to storage services, because there is what you'd call phantom storage or pipeline storage. It really is a factor of -- well, I guess it's total need for storage as well as availability of storage or storage-like services. So it's not just physical capacity of storage that will drive the price of storage. It's the commodity price on the market. It's the demand for -- the difference between supply and demand. It's the availability of other like services such as phantom storage or transportation. 789 MR. VEGH: Like exchanges? 790 MS. HOLDER: Yes. 791 MR. VEGH: Well, EI has information about that too, doesn't it, EI providing transactional services, and that consists of a wide range of services, including transportation services and storage services, gas loan, it's doing your gas acquisitions. So EI has good information about the services the ECG is in a position to bring to the market for transactional services. 792 MS. HOLDER: Yes. 793 MR. VEGH: So in that role, isn't EI in a good position to know what is the available supply of services to be brought onto the market? 794 MS. HOLDER: I think that's fair. But, again, assuming the services that EI are providing would be identical to what the utility is providing, the utility provides very specific services based upon the assets that we have and the limitation of those assets. It may not be that EI can provide those services because they don't have access to those assets. 795 MR. VEGH: Well, it will have access to whatever -- it will have access to whatever assets it can acquire commercially; right? 796 MS. HOLDER: Right, which probably will be different than the assets of the utility. 797 MR. VEGH: Right. But the services that it provides, storage services that it provides, transportation -- gas management services it provides, those effectively compete with transactional services, don't they? 798 MS. HOLDER: I don't think they do today. That's why we're struggling with the hypothetical, is we don't see us in competition with any of the services that EI provides today. 799 MR. VEGH: Well, EI provides storage services; ECG provides storage services. Those are not in competition? 800 MR. FARRELL: I think you have to ask the witness to assume EI is providing storage service as a business, because they haven't said that EI is doing this business. That's the difficulty that they're having with your question. You're stating it as a fact and it's not. 801 MS. HOLDER: I think right now in Ontario, Enbridge Inc. does not have access to storage, unless they are contracted with Union Gas. But as far as I know, EI is not providing storage services in Ontario. 802 MR. VEGH: Let's assume -- well, the contract says that EI can provide storage services on its own behalf using its own assets in Ontario; right? 803 MR. BRENNAN: We'll assume that. 804 MR. VEGH: Well, the agreement says that; right? 805 MR. FARRELL: It doesn't say that, the words you used to describe it. 806 MS. HOLDER: I think you use "in Ontario" and I'm not sure that Enbridge Inc. has assets in Ontario. 807 MR. VEGH: It says that "EI will, during the term of this agreement, engage in the business of, among other things, gas storage." Okay? 808 MS. HOLDER: Yes, we can assume that. 809 MR. VEGH: Okay. So let's assume that it's engaging in the business of gas storage, okay? 810 MS. HOLDER: Yes. 811 MR. VEGH: And at the same time, it's carrying out the transactional services business for the utility. 812 MS. HOLDER: Yes. 813 MR. VEGH: So it knows when the utility will be releasing assets to provide transactional services in the market. 814 MS. HOLDER: Yes, specific to ECG's assets. 815 MR. VEGH: Right. So it will have information on supply of services brought to the market. 816 MS. HOLDER: As others would as well, yes. 817 MR. VEGH: Now, do others have access to the same type of information as EI has with respect to storage? 818 MS. HOLDER: No. 819 MR. BRENNAN: Well, certainly if we are going out for bids for storage, yes, they would, if we were going out for bids for a certain amount of space, a certain amount of deliverability, for a certain period of time. 820 MR. VEGH: Can we go to the service -- the schedule to the agency agreement with EI, please. 821 MR. BRENNAN: I have that. 822 MR. VEGH: Section 1.5 says: "The services recipient," so ECG, "will provide EI and Operational Services with updates of the particulars of GPA gas, curtailment to derive supply, and storage capacity on an ongoing basis as changes occur." 823 Will other storage service providers be provided with updates of storage capacity on an ongoing basis as changes occur? 824 MR. BRENNAN: I'd be happy to give that to anyone who wants it. All that is, it just tells me how much space I have as far as Tecumseh storage or Crowland storage. It's just the total number. It may change from year to year, depending on whether or not we add additional facilities, additional pools. That's just the number of 90-some-odd Bcf. It's publicly available. 825 MR. VEGH: Where is it publicly available? 826 MR. BRENNAN: I'm sure that it's somewhere. If I looked hard enough, I would find it in our evidence that we file in any rate case. 827 MR. VEGH: Can you turn to 6.4, where it says: "EI will consult with ECG and Operational Services, or both, daily in order to ascertain expected operating conditions for the distribution system, the storage capacity and supply portfolio." 828 Will other competitors that are providing storage services be provided with daily information on expected operating conditions for the supply -- for storage capacity? 829 MR. BRENNAN: Again, storage capacity is a single number. I think you are referring to storage balances, which is entirely different from storage capacity, in my mind. 830 MR. VEGH: EI will be provided with information on storage balances? 831 MR. BRENNAN: No, this says that it will be provided with storage capacity. 832 MR. VEGH: Don't you need information on storage balances to be able to provide transactional services? 833 MR. BRENNAN: Yes. 834 MR. VEGH: So EI will have that information? 835 MR. BRENNAN: Yes, they would, in aggregate. 836 MR. VEGH: And would any other provider of storage services have that information? 837 MR. BRENNAN: I'm sorry? 838 MR. VEGH: Would any other provider of storage services have that information? 839 MR. BRENNAN: Not to date, no. 840 MR. VEGH: Now -- so EI is out there -- assume with me that EI is out there in the market providing storage services as it's entitled to under the agreement. It sees a storage opportunity available and it can either sell the service on behalf of ECG or it can provide a storage service on its own behalf. Okay? That's the assumption. Now, if it sells a service on behalf of the transactional services business, then, as I understand it, under the current regulatory division, EI will be able to keep 10 percent of the net revenues; is that right? 841 MR. BRENNAN: It isn't EI. That goes back to ECG. 842 MR. VEGH: And ECG's shareholder. 843 MR. BRENNAN: Right. But the revenue does flow back to ECG and to ECG's ratepayers. 844 MR. VEGH: Ninety percent of the revenues go to the ratepayers; 10 percent to the shareholder. 845 MR. BRENNAN: Yes. 846 MR. VEGH: And EI is the shareholder. 847 MS. HOLDER: And that is only if we hit a target number. If we don't hit a target which is established by this Board, then ECG would not get any incremental revenue and therefore nor would Enbridge Inc.. 848 MR. VEGH: Okay. So let's assume -- you've had a pretty good record of hitting your targets, haven't you? 849 MS. HOLDER: Yes. 850 MR. VEGH: Let's assume you hit your target. So assuming all of that, that you've hit your target, there is an opportunity available for EI to sell their storage service, if it sells it through the TS group, then the revenue sharing is 90 percent in favour the ratepayers, assuming you've met your targets, and 10 percent in favour of the shareholder; right? 851 MR. BRENNAN: That's correct. 852 MR. VEGH: And if it sells a service on its own behalf, then it gets to keep 100 percent of the net revenues; right? 853 MR. BRENNAN: I'm sorry, I didn't catch that last part. 854 MR. VEGH: If it sells a service on its own behalf, in its own business, it keeps 100 percent of the net revenues. 855 MR. BRENNAN: Right. 856 MR. VEGH: So if 100 percent of its net revenues of its own sales are greater than 10 percent of the net revenues for sales from TS business, then wouldn't it be rational for EI to sell services on its own account and not for transactional services? 857 MR. BRENNAN: It depends on the mix of assets of those two, EI's storage assets versus ECG's assets, as to whether or not -- what's the market looking for. It may be that ECG's offering for space and deliverability may be more attractive. 858 MR. VEGH: Yes, it may be. But if you are EI, selling both services -- 859 MR. BRENNAN: It's going to depend on what the market wants, is I think what I'm trying to say. 860 MS. HOLDER: The only way they can be the exact same services is if they were using Enbridge Consumers Gas's assets to provide it, and they can't do that. 861 MR. VEGH: But these services are all alternatives to each other; right? I mean, there's -- you can sell transportation service or a commodity service or a storage service; these are all financial arrangements that allow people to manage their gas more effectively. 862 MS. HOLDER: They are actually physical arrangements not financial. 863 MR. VEGH: Whatever. So they are physical arrangements that allow people to manage their gas more effectively. There are substitute services, aren't there? 864 MS. HOLDER: They are, but each physical arrangement would have its own attributes. 865 I think what Mr. Brennan was saying, you would have to look at the attributes of the different services being offered out there, not just from Enbridge Inc. or from Enbridge Consumers Gas - that's assuming Enbridge Inc. is in this business - but other parties, and choose which service meets their needs the best at the right price. 866 MR. VEGH: And you emphasized by starting out this discussion that these services are competitive, and the price for these services is set in the market. 867 MS. HOLDER: Yes. 868 MR. VEGH: So there obviously must be some alternatives that customers can compare between these services? 869 MS. HOLDER: Yes, that's what I am saying. But the attributes can be different than the services. 870 MR. VEGH: And that all fits into the mix of a customer's perception of the value of these services? 871 MS. HOLDER: . Yes 872 MR. VEGH: And the supplier's ability to provide services more effectively, less expensively, whatever the mix is for that supplier; right? 873 MS. HOLDER: I think I heard you right. I think you're correct. 874 MR. VEGH: And EI is in a position where it knows the ECG situation, so it knows what ECG is bringing onto the market. So it has information on supply for these services that other competitors don't have; right? 875 MS. HOLDER: That's correct. 876 MR. BRENNAN: But I guess it really depends on what the market wants. 877 Yes, you may have different ones, but if the market doesn't want one, or favours one over the other, the market will take what it wants regardless of what they have, who has access to what information. 878 MR. VEGH: Such are the vicissitudes of the market; right? And that applies to all marketers, right, of storage services? 879 MR. BRENNAN: They will purchase what they require; correct. 880 MR. VEGH: No. Well, all participants in the market face that kind of competitive uncertainty, trying to have a product that's attractive in the market. 881 MR. BRENNAN: Yes. 882 MR. VEGH: Let's leave storage services aside and talk about wholesale commodity acquisitions in Ontario. 883 Now, again, going back to section 5(a) of the agreement, when it -- when 5(a) talks about EI engaging in the business of gas acquisitions and gas sales, I understood you to say that their main interest is not in selling gas to end-use customers. 884 MR. BRENNAN: That's correct. 885 MR. VEGH: So we are talking more about gas training operations in section 5(a)? 886 MR. BRENNAN: Gas acquisitions, for example, if that's what you are referring to, in terms of purchasing gas. 887 MR. VEGH: Well, gas acquisitions in sales. 888 MR. BRENNAN: Yes. 889 MR. VEGH: Is that what we are talking about? More trading operations than -- 890 MR. BRENNAN: No, no, no. No, they are not -- EI is not intended to be what I would call a "market maker." They don't want to be on either side of a deal. Their only involvement would be the managing of the assets, whether they're storage or transportation assets. 891 MR. VEGH: You are talking about when it provides these services for ECG or on its own behalf? 892 MR. BRENNAN: On its own behalf. 893 MR. VEGH: Can you say that again, then, because I don't follow. 894 MR. BRENNAN: Now, my understanding is that EI, its only interest in gas acquisition or -- gas acquisition, I guess, particularly, would be an example where they have their own capacity on Vector and Alliance, and they would be looking to infill that supply, so buying gas to infill their own transportation assets. That's as distinct from what they are doing on behalf of ECG. 895 MR. VEGH: I guess you could approach it that way, that is, on your assumption of what EI is going to carry out -- businesses EI is going to carry out. Or we could look at -- what I would like to look at is the businesses that this agreement authorizes a contracting party to carry out. 896 So when I look at gas acquisitions and gas sales, one thing that those terms include is the ability to buy and sell gas; no? 897 MR. BRENNAN: Yes, that's correct. 898 MR. VEGH: And presumably, you could -- or EI could assign this agreement tomorrow to a party that is not interested in the limited commercial arrangements that EI considers itself. 899 MR. BRENNAN: I'd have to check to see whether or not this contract is, in fact, assignability. 900 MR. VEGH: Well, I haven't seen any restrictions on the assignments, so maybe you can point them out to me. My point is that if you create a valuable contractual rate within EI, EI can then transfer that right to someone who does run more of a gas trading operation. 901 MS. HOLDER: I don't believe this contract does give the right to -- for EI to assign this. 902 MR. FARRELL: Paragraph 28 -- or section 28 of the contract -- of the agency agreement, on page 10, requires the prior written consent of either party to an assignment by the other. 903 MR. VEGH: Okay. So if EI wanted to assign this agreement to Duke Energy Marketing, for example -- 904 MS. HOLDER: Who originally wanted this contract. 905 MR. VEGH: Pardon me? 906 MS. HOLDER: One of the many parties who originally wanted a contract like this. 907 MR. VEGH: I'm sure they did. Rest assured, I can understand why. This is a very valuable right to have. And just to clarify that example a little further, if this agreement is okay for Enbridge Consumers Gas and EI, then it's also okay for Union Gas and for Duke, right, its shareholders? 908 MS. HOLDER: I'm not -- I don't think I can make a call on what's right for somebody else. 909 MR. VEGH: Right. So when we talk about gas acquisitions and gas sales, we -- as part of this arrangement, we should keep in mind not just what Enbridge Inc.'s intentions may be, but what rights it now acquires under this contract and how those rights can either be provided to third parties or may be exercised by -- in other circumstances by companies that may have different intentions. Isn't that a fair way to approach this issue? 910 MR. PLECKAITIS: You are specifically contemplating something where the company that Enbridge Inc. would assign this to would be in the competitive market as opposed to not being in the competitive market, as we stated today. Is that the hypothetical circumstance? 911 MR. VEGH: The hypothetical circumstance is that the counter-party to this agreement carries out the businesses that you've acknowledged that they can carry out under this agreement, and the counter-party today may have an intention of being very conservative and then that intention could change tomorrow. 912 MR. PLECKAITIS: Right. 913 MR. VEGH: Or the counter-party could change. And if the Board is to look at this agreement and consider whether it has concerns, it should be concerned about the contents of the agreement; right? Not the intentions of your current counter-party to this agreement. 914 MR. PLECKAITIS: Correct. 915 MR. VEGH: Okay. 916 So this agreement, then, allows the counter-party to carry on a gas trading operation; right? 917 MR. BRENNAN: The buying and selling of gas. 918 MR. VEGH: Right. And the commercial -- 919 MS. HOLDER: Can I just -- buying and selling of gas is not, in my mind, and I think most people's minds, the same thing as trading. I just want to be clear. 920 MR. VEGH: Why don't you clarify that for me, then. 921 MS. HOLDER: I think, as we've said, that Enbridge is not in the market-making end of a transaction. They may buy gas to sell gas but they are not trading gas, which is just playing the market speculatively, or could be. Sorry, not necessarily is but could be. 922 MR. VEGH: Let's talk about the activities authorized by this agreement, including -- do you see anything in this agreement that prevents gas trading? 923 MR. BRENNAN: The agreement doesn't include gas trading, if that's what you mean. It's gas acquisition and gas sales, it doesn't say "gas trading." 924 MR. VEGH: Can you tell me what's missing if you wanted to carry out a gas trade? You can carry out an acquisition; you can carry out a sale. What are you missing? 925 MR. BRENNAN: Typically, you are not on both sides of the deal. You are either selling gas to a particular party for that purpose only or buying gas for a particular reason. You are not necessarily buying gas to sell gas. 926 MR. VEGH: Well, you are buying gas and you are selling gas; right? 927 MR. BRENNAN: Different transactions, different reasons. 928 MR. VEGH: Okay. And this permits buying gas and selling gas. 929 MR. BRENNAN: It provides for gas acquisitions, buying gas, and gas sales, selling gas. 930 MR. VEGH: And trading in gas involves a purchase and a sale? 931 MR. BRENNAN: In our view, it doesn't include gas trading, it just includes gas acquisitions and gas sales. 932 MR. VEGH: Okay. So let's call it not the trading business but the gas acquisitions and sales business. 933 MR. BRENNAN: Fair enough. 934 MR. VEGH: And if you are participating in the gas acquisitions and sales business, I guess your concern is that you'd like your gas sales to be at a higher price than your gas acquisitions. 935 MR. BRENNAN: Yes, that would make sense. 936 MR. VEGH: And different margins are available on gas sales and gas acquisitions as prices change at trading points. 937 MR. BRENNAN: At different times. 938 MR. VEGH: Yes. So the skill in that business is the ability to manage that volatility of prices changing; fair? 939 MR. BRENNAN: To the extent that you can manage it, yes, or we can take advantage of it, yes. 940 MR. VEGH: And the market prices for gas acquisitions and gas sales, those are also determined by supply and demand, right, like storage is? 941 MR. BRENNAN: Yes. 942 MS. HOLDER: There is one difference, though, and that is that the price for the gas commodity is -- where at least the utility buys the gas, is typically at a liquid trading point, which means the price is very transparent. 943 MR. VEGH: Yes. Oh, I see. So the price of gas is more transparent than the price of storage services; is that your point? 944 MS. HOLDER: We're -- if you are talking about EI's function of buying gas for the utility versus buying gas on their own behalf, they are buying gas at a trading point for the utility, typically, which is on an exchange, such as NYMEX, or AECO, NIT. 945 MR. VEGH: Well, you brought in the point that I wanted to get to, is that in addition to carrying out its own gas acquisitions and gas sales, EI is providing a gas acquisition service to ECG; right? 946 MS. HOLDER: Right. 947 MR. VEGH: And that gas acquisition service is set out in section 3 of the services agreement. 948 MR. BRENNAN: Yes, that's correct. 949 MR. VEGH: And as I read section 3, EI is given authority to sign agreements, it says, "gas acquisition agreements on ECG's behalf, where those agreements are for a term of less than one year"; is that right? 950 MR. BRENNAN: Less than one year and less than $50 million. 951 MR. VEGH: Okay. I thought it was one or the other. In 3.1 -- 952 MR. BRENNAN: Either one can trigger it. 953 MR. VEGH: Right. So either less than one year or for less than $50 million. 954 MR. BRENNAN: Correct. 955 MR. VEGH: Or both. 956 MR. BRENNAN: Or both. 957 MR. VEGH: Well, that would go without saying. 958 And longer term agreements or agreements for a greater amount would have to be signed directly by ECG. That's the idea? 959 MR. BRENNAN: Yes, they would be executed by ECG. 960 MR. VEGH: So it's the short-term agreements that I would like to talk about. In doing that, I'd like to, just for some context, refer to your gas cost evidence in this proceeding, which is at D.2, tab 2, and the materials I provided this morning, which is your gas cost evidence from your previous case. 961 MS. HOLDER: Sorry. Was the reference D.2 or D.1? 962 MR. VEGH: Do I have it wrong? 963 MS. HOLDER: I may have heard it wrong. 964 MR. VEGH: Sorry, D.2, tab 2. Is that right? Yeah. 965 MS. HALLADAY: Mr. Vegh. 966 MR. VEGH: I just wondered if this was a -- I wondered if I was getting a signal that this was a good time to break. 967 MS. HALLADAY: No. How much longer do you think you will be on this topic, bearing in mind, of course, how responsive the panel is to your questions? 968 MR. VEGH: This could be a while, then. 969 MS. HALLADAY: If this could be a while, then I think that this might be an appropriate time for a break. 970 Mr. Farrell? 971 MR. FARRELL: Perhaps Mr. Vegh could give us his reference to make sure -- this is gas cost evidence which this panel is normally responsible for. At least Mr. Brennan, wearing another hat might be. So we want to make sure we come back with the right pieces of paper. 972 MS. HALLADAY: Is that satisfactory to you, Mr. Vegh? 973 MR. VEGH: Sure. Well, why don't we talk about that. 974 MS. HALLADAY: You'll talk with Mr. Farrell off the record in the luncheon break, okay. 975 MR. FARRELL: Yes, we'll do this off the record -- 976 MS. HALLADAY: One moment, please. 977 [The Board confers] 978 MS. HALLADAY: Now is an appropriate time to break. We'll break for lunch until 2:00. 979 --- Luncheon recess taken at 12:43 p.m. 980 --- On resuming at 2:04 p.m. 981 MS. HALLADAY: Please be seated. 982 Before we begin this afternoon, are there any preliminary matters? 983 MR. FARRELL: Just a couple, Madam Chair. 984 You should have three documents that look something like this. They're just there on your dias for convenience of reference. I think these are the schedules that Mr. Vegh was referring to. So we don't need to mark them as exhibits, they already are for exhibits. But just for convenience I thought I would leave them with you so you don't have to dig through the binders. 985 MS. HALLADAY: Thank you very much, Mr. Farrell. 986 MR. FARRELL: And there's another procedural matter that I hesitate to raise, but I probably should, and that is I think the F and G numbering for these exhibits may be a Union Gas convention, but Exhibit F in the Consumers Gas series of exhibits is actually rate of return evidence and Exhibit G is cost allocation and rate design. So conventionally, the number -- or the letter K was used to mark exhibits that we've been marking as F, and the letter J has conventionally been used to denote undertakings that we've been marking as G, so -- 987 MR. MORAN: I think Mr. Farrell is right. I picked this up in a Union case or several Union cases in a row and just assumed it was Board-wide. 988 MR. FARRELL: And I didn't catch it so -- Ms. Spratt did catch it. 989 MS. HALLADAY: Well done, Ms. Spratt. 990 Why don't we just change the numbers. 991 MR. FARRELL: That's what I've suggested. Maybe we'll prepare a list of what are now the J and K exhibits so that people can have the list and go forward. And we'll make sure that the -- Mr. Schuch has advised me that the Board secretary's office would like to have three files for the public record. We've been diligently putting two copies in the public file at the back, but I think people have been poaching them when there's been nothing else in the hearing room. So we'll make sure that the Board's public file is not only lettered correctly but complete with the requisite number of copies. 992 MS. HALLADAY: Thank you very much, Mr. Farrell. 993 Anything else before we proceed? 994 MR. FARRELL: I think before Mr. Vegh resumes, Mr. Pleckaitis can respond to Undertaking J.4.6. 995 MS. HALLADAY: Okay. 996 MR. PLECKAITIS: Yes, the question, as I understand it, from Mr. Vegh was, given the nature or the wording of the service agency agreement with Enbridge Inc., that did not in any way preclude the services recipient, in this case Enbridge Inc., from providing services on its own behalf. 997 MR. FARRELL: Businesses on its own behalf. 998 MR. PLECKAITIS: Businesses on its own behalf. The question was asked, and we indicated in the cross-examination that as far as we were aware, that Enbridge Inc. was not currently engaged in those services, and the question was whether Enbridge Inc. would ever become engaged in those services; and if not, could we undertake to make that commitment on the record. 999 In discussing this with Enbridge Inc. in Calgary, first of all, they are prepared to commit that with respect to the retailing of those services, that they would commit not to do that. They are currently not doing that. They sold that business when they sold Enbridge Services and they do not intend to get back into the retailing. 1000 With respect to wholesaling of those services, they -- the clarification is, first of all, they do not provide those services today, other than to affiliates as part of the services that they would, for example, provide to Enbridge Consumers Gas in transactional services, or in managing any of our assets or possibly other affiliates, such as other pipeline businesses that they may own or transportation businesses that they may own. 1001 However, they've also said that even though they do not envision -- there's nothing in their strategy that would get them involved directly in these businesses from a competitive point of view, other than purely to support the optimization of assets in existing businesses, they do not want to prohibit themselves from doing so in future. 1002 So I guess the second part of the question is -- with respect to wholesale is no, they're not prepared at this stage to limit their ability or flexibility to get into those services should they choose to do so in the future. 1003 MR. VEGH: Thank you. So in other words, when we look at section 5(a), then, it means what it says, that ECG is recognizing that or acknowledging that, during the term of this agreement, EI, this says "will" but you are saying "may" engage in the business of gas acquisition, gas sales, gas supply management, and gas storage, and we should just leave it at that? 1004 MR. PLECKAITIS: Yes, that's correct. 1005 MR. VEGH: Okay, panel. So when I ask you questions now about the businesses provided in 5(a), what I'd like you to do is assume for the purposes of our discussion that EI will actually be engaging in those businesses, okay? And so we don't have to go through the -- we don't have to go through -- the polite way to say this -- the exercise of changing that assumption and saying that EI is not going to engage in these businesses, so we don't have to worry about that possibility, okay? 1006 Now, maybe just to clarify on a point you just made, when you talked about "retailing" gas, what do you mean by that? 1007 MR. PLECKAITIS: Selling gas or other services directly to the end-use customer. 1008 MR. VEGH: Now, will this agreement be amended, then, to address that? 1009 MR. PLECKAITIS: Saying that they are precluded from doing that? 1010 MR. VEGH: Yes. 1011 MR. PLECKAITIS: It was not our plan to do that. 1012 MR. VEGH: Well, then, as long as this agreement doesn't preclude them from doing that, they would be entitled to do that, wouldn't they? 1013 MR. PLECKAITIS: That's correct. 1014 MR. VEGH: So again, I don't think we should be assuming that there's anything in this agreement that prevents them from -- that prevents EI from retailing; right? 1015 MR. PLECKAITIS: That's correct. 1016 MR. VEGH: And so when the Board is reviewing this agreement to determine whether it has concerns and what it should do about those concerns if it does have those concerns, the Board should just assume -- or the Board should be evaluating this on the basis of an agreement that allows a service provider to participate in all of those businesses without restrictions? 1017 MR. PLECKAITIS: Other than the restrictions that exist within the contract already. 1018 MR. VEGH: Right. 1019 MR. PLECKAITIS: Yes. 1020 MR. VEGH: Okay. Thank you for clarifying that. 1021 I'd like to go back to one of the businesses in the agreement that we were talking about, which is gas acquisitions and sales. And just to recap -- I don't have to take you to it again, I think -- under the agreement, Enbridge Inc. is entitled to participate in gas acquisitions and sales on its own behalf, and at the same time, it can -- it provides gas acquisitions services to Enbridge Consumers Gas; right? 1022 MR. BRENNAN: Yes, that's correct. 1023 MR. VEGH: And for gas acquisition contracts that are less than a year or less than a certain amount -- I think it's $50 million -- Enbridge Inc. can enter into those contracts as agent for Enbridge Consumers Gas without -- or just directly as agent for Enbridge Consumers Gas? 1024 MR. BRENNAN: Well, I'd like to qualify that just a little bit, because the process -- the way it would work, we would have a -- if we're talking about supply, for example, there would be a supply program. 1025 Enbridge Inc. would come back to the utility with a supply program, and ECG would review that program, see how it fits into our overall supply portfolio, and then either say "yea" or "nay" or modify it as it saw fit. And then go back to EI and say, okay we have agreed with this; now, you go ahead and implement that supply program. 1026 MR. VEGH: I see. And then within the parameters of the supply program, EI could enter into these sorts of agreements, these agreements for less than one year and less than -- 1027 MR. BRENNAN: Yes, that's correct. 1028 MR. VEGH: Okay, thank you. 1029 And it was with that that I wanted to just talk to you about the -- some agreements -- I'm sorry, some gas cost arrangements that ECG has in place and, in particular, on short term gas supply agreements. 1030 And the evidence that I'll be referring to you -- referring you to is the evidence that Mr. Farrell just passed up. And that has your summary of gas costs to operations for the years ending September 30, 2000, September 30, 2001, and September 30, 2002. 1031 Do you have that? 1032 MR. BRENNAN: Yes, I do. 1033 MR. VEGH: And as I told your counsel before the break, the point I wanted to get out of these -- out of this evidence was the relationship between the one -- gas supply contracts of less than one year as a percentage of the total supply portfolio. 1034 And so when I look at the summary of gas cost to operations for the year ended September 30, 2000, I'm comparing or taking as a percentage the volumes in number 4, "Total Other," and taking that as a percentage of total supply costs. 1035 Is that the right way to get a sense of the percentage of your short term contracts versus your entire portfolio? 1036 MR. BRENNAN: The supplies under "Other Supplies" listed as point 4 -- or 4, I should say, they represent the shorter term contracts, typically less than one year. 1037 MR. VEGH: Okay. So if I look at the "Total Other" 2.5 ten cubed, m cubed, and I take that as a percentage of total supply, then I'll have the percentage of your short-term contracts? 1038 MR. BRENNAN: Just going back to 4.2, we're having discussion here about item 4.2, Western at Empress. 1039 Some of those contracts could be one-year contracts. I know back in 2002, some of them probably were one-year contracts. I'm sorry, did I say it too fast? In fiscal 2000, some of those contracts could be one-year contracts as opposed to, say, less than one year. 1040 MR. VEGH: So maximum one year. 1041 MR. BRENNAN: So maximum one year, if you want to go on that basis. 1042 MR. VEGH: So if we go on that basis, maximum one year, then, you are comfortable with that approach to understanding what the percentage is? 1043 MR. BRENNAN: Yes, I think so. 1044 MR. VEGH: And my only point was -- so with that, as I look at the percentages for these three years that we've talked about - and you can confirm my math later but I hope it's right - as I see it, the percentage of your short-term contracts as a percentage of your total contracts, or the volumes covered by those contracts in the year ending September 30, 2000, was around 42 percent; for 2001, it was about 62 percent -- sorry, about 60 percent; and then ending September 2002, it was about 69 percent. 1045 Does that sound about right? So the percentages are 42 percent, 60 percent -- 42 percent in 2000, 60 percent in 2001, and 69 percent in 2002. 1046 MR. BRENNAN: I'll take that, subject to check. 1047 MR. VEGH: Subject to check. So given that, is it fair to say that the short-term gas supply arrangements are a growing part of Enbridge's gas supply portfolio? 1048 MR. BRENNAN: I think there is a trend towards shorter-term contracts for gas supply, but I think you'd have to keep in mind as well that our total system gas supply requirements had been decreasing over the years, directly related to the migration from system gas over to direct purchase customers. So our total system gas requirements are probably decreasing over time. 1049 MR. VEGH: So the total system gas requirements are decreasing and -- 1050 MR. BRENNAN: I think you can see that if you go to our total supply in fiscal 2000. It's 5627, if you like, on line 5; and then you go to 2001, it's down to 5179; and in 2002, it's down to 4686. 1051 MR. VEGH: So -- 1052 MR. BRENNAN: So while the denominator may be decreasing, it may be one of the reasons why that percentage is increasing over time. 1053 MR. VEGH: Fair enough. That's a reason for it, I guess, and I suppose also in total numbers, the total discretionary numbers are increasing as well, though perhaps not as accelerated a rate as the percentage numbers are. 1054 MR. BRENNAN: Yes, they are increasing slightly. 1055 MR. VEGH: Okay. Just looking at these numbers again, it appears that these -- the short-term arrangements can have gas delivered at a number of different sources, and that varies as well. And I'm looking at now, for each of the years, the percentage of the total discretionary supplies that are made up of Ontario supplies. 1056 Again, if you could take this subject to check, in the year ending September 30, 2000, it looks like Ontario-delivered supply constituted about 19 percent of all short-term supply, while for the year ended September 30, 2001, Ontario supply constituted about 46 percent of total discretionary. And then I think for the year ending September 30, 2002, Ontario supply constituted only about 1.7 percent. 1057 MR. BRENNAN: Again, subject to check, those look about right. 1058 MR. VEGH: So it's fair to say that there's a certain amount of flexibility in the gas purchasing arrangements with respect to discretionary supply from year to year. 1059 MR. BRENNAN: Yes, it really depends a lot on the weather and our forecast and demand. 1060 MR. VEGH: But there's also a lot of, yes, I guess, discrepancy in the amount that's delivered from any particular supply source, so Ontario can fluctuate quite dramatically from year to year. 1061 MR. BRENNAN: Yes, it can. 1062 MR. VEGH: And just in total numbers, then, for Ontario supply, we see quite a range. We see September 2002, there's about 57,000 ten cubed, m cubed, and for the year 2001, there is about 1.4 million, so there's -- again, there's a great fluctuation both in percentage and in terms of total volumes. 1063 MR. BRENNAN: Yes, that's correct. 1064 MR. VEGH: Now, I take it that what would account for the difference in the amount purchased in Ontario versus another supply source would be impacted by ECG's view of where the market opportunities are more favorable at different types of -- at different delivery points; is that fair? 1065 MR. BRENNAN: Are you talking about the amount of gas that we're actually buying or where we're buying it? 1066 MR. VEGH: Where you're buying it. 1067 MR. BRENNAN: Typically, the ones that are shown in 4.1 to 4.3, those are usually gas delivered into the upstream pipeline, whereas Ontario-delivered tends to be delivered service which could be purchased at Dawn, for example. Or it doesn't have to be Dawn, but it could be purchased into our delivery area. 1068 MR. VEGH: Right. But the -- my point is, though, that the choice of delivery area is driven by ECG's view of where it can get the best, most attractive arrangement in purchasing gas. 1069 MR. BRENNAN: No, not necessarily, because if we -- we are limited to a certain amount, especially on the upstream, limited to our level of transportation capacity we have to move it to the market. 1070 So if we're looking for a discretionary, we would probably be buying it closer to the market where we have transportation to move it to the market. 1071 MR. VEGH: Well, that's something you would take into account, wouldn't you, about what is a more attractive spot to be purchasing gas? 1072 MR. BRENNAN: Oh, yes. For example, whether we buy gas at Chicago or buy it at Dawn, for example. 1073 MR. VEGH: Right. 1074 MS. HOLDER: I think one of the points, though, is the upstream transportation contracts are firm contracts that have to be filled with gas, so that's the 4.1, 4.2, and 4.3. 1075 They're typically not variable. It's a contract amount that may change from year to year, based upon the upstream contracts we've signed with TransCanada, Alliance and Vector. But once those contracts have been signed, then we must fill that capacity. 1076 MR. VEGH: But I asked about Ontario supplies, and I pointed out how they fluctuate from year to year. But the same is true for every other point of supply for these discretionary contracts, isn't it? 1077 MS. HOLDER: I just didn't want to leave -- I sort of got the impression that maybe you thought that was totally discretionary on our part, that at the beginning of the year we can just arbitrarily choose where we're buying gas. But a lot of where we buy our gas is driven by the upstream contracts in place. 1078 MR. VEGH: And from year to year, there's variances, again, for each of these supply points? 1079 MS. HOLDER: Yes, and we've agreed with that. 1080 MR. VEGH: Right. 1081 And there are a number of things that could make one supply point more attractive than another, such as a transportation contract or the price at that supply point? 1082 MR. BRENNAN: Certainly the price. I'm not sure where you are going in terms of transportation. In terms of whether or not you have transportation to move it? 1083 MR. VEGH: Yes, in terms of how the -- I thought the point you were making was that your transportation arrangements and your entitlements that you have in place are going to have an impact on what makes a certain supply point attractive or not to be purchasing gas. 1084 MR. BRENNAN: No, it's more of -- as Ms. Holder mentioned, it's our contractual obligations in terms of utilizing our upstream transportation. We want to make sure our upstream transportation is fully utilized, so that restricts us as to where we can buy gas. 1085 As an example, I mean, our TransCanada contracts all start at Empress. So typically, we would buy gas at either Empress, or in some cases, we do buy it at AECO and move it on -- a small amount of NOVA capacity to Empress. 1086 But we're restricted to making sure that we keep those -- that TransCanada capacity full, so basically we are restricted to buying the gas at those two locations, for example. 1087 MR. VEGH: Well, I'm not sure we are disagreeing at all, but there seems to be some riders that are added to the end of each answer, and maybe we'll just look at it this way: 1088 When I look at your other supplies, comparing 2000, for example, to 2002, there is a variance, quite a significant variance, not just in Ontario, but NOVA, significant variance between the amounts purchased at each of those spots on a short-term basis, Empress, quite a difference, the U.S. supplies there's quite a difference. 1089 So there is variability, not just in Ontario, but all the other supply points. 1090 MR. BRENNAN: And some of those variances are due to migration of system gas customers to direct purchase or vice versa, so that, again, impacts the amount of gas we have to buy at those points. And ensuring, again, that our transportation requirements -- entitlements are fully utilized. 1091 MR. VEGH: So within those points, and taking into account your contractual entitlements and, therefore, the efficiencies of buying gas at supply points that make sense, in light of your contractual requirements, and taking into account the price of gas at different supply points, I take it that all that information feeds into what, in ECG's view, is an optimal purchasing strategy with respect to these different points of supply for one year or less gas? 1092 MR. BRENNAN: Yes, that's correct. 1093 MR. VEGH: Okay. And we heard evidence in the most recent Union case that there has been increased volatility at various trading points; is that consistent with your experience? 1094 MR. BRENNAN: Volatility in gas prices at different trading points? 1095 MR. VEGH: Yes. 1096 MR. BRENNAN: Yes, I think that's fair to say. 1097 MR. VEGH: And prices at each of these trading points are based on supply and demand? 1098 MR. BRENNAN: Primarily, but, I mean, there could be -- some parties, I guess, are taking a position or speculative position on gas prices. 1099 MR. VEGH: Short-term prices tend to be driven by short-term supply and demand; is that fair? 1100 MR. BRENNAN: Or again, they could be taking a position. 1101 MR. VEGH: And when someone takes a position, that position is driven by their expectation of supply and demand, isn't it? 1102 MR. BRENNAN: Not necessarily on the immediate, but it could be out in the future. 1103 MS. HOLDER: I think if you look at the actual volume traded at NYMEX, for instance, and AECO, the volume traded on any given day is far greater than the actual demand of gas on those days. So there is a lot of speculative activity in the market. 1104 So it's -- I would agree that it's supply and demand, if you consider supply and demand more or broader, I should say, than just the physical supply and demand of natural gas. 1105 MR. VEGH: Thank you for that clarification. So let's approach it this way: When we talk about supply and demand, we're not looking at demand for consumption at any one point but, rather, demand to purchase gas at that point, perhaps, for trading operations? 1106 MS. HOLDER: For a given day or period of time, yes. 1107 MR. VEGH: For whatever the period is. 1108 Now, in terms of Ontario itself, so we look at Ontario supplies, is it fair to say that ECG is one of the larger purchasers of commodity in Ontario? 1109 MR. BRENNAN: I have no idea. We may be. We may in some years, maybe not in other years. I don't know. I can't tell you offhand. 1110 MR. VEGH: So that would change from year to year? 1111 MR. BRENNAN: It could. 1112 MR. VEGH: And on those years where ECG is one of the larger purchasers of commodity in Ontario, is it fair to say that major purchasing activities of ECG could influence prices in Ontario for commodity? 1113 MR. BRENNAN: Are you talking about -- I'm assuming that you are talking about gas purchased within Ontario, an example like gas being purchased at Dawn. 1114 MR. VEGH: Yes. 1115 MR. BRENNAN: And no, I don't think we buy -- the gas that we buy at Dawn, for example, I don't think we would have an influence on the price. It's just the way we go about acquiring that gas. 1116 MR. VEGH: What do you mean by the way you go about acquiring that gas? 1117 MR. BRENNAN: To use an example, if we have a requirement for 50 million cubic feet a day of gas, we would not go to the market with a request for 50 million. We may go out for maybe 10 million and therefore preventing the market from moving. 1118 MR. VEGH: So your approach is -- the approach you take to the issue now is you do not want the markets to move as a result of your commodity purchases. 1119 MR. BRENNAN: That's correct. 1120 MR. VEGH: Okay. Now, I take it there's nothing in the agreement with EI that requires EI to continue to take this approach to ensure that the market does not move with Enbridge's -- with commodity purchases on behalf of Enbridge Consumers Gas. 1121 MR. BRENNAN: EI would continue to abide by the gas purchasing and procurement policy which would include that aspect where we would not want to be moving the market. 1122 MR. VEGH: Can you help me out and identify where the limitation is on EI, either in this contract or in another document, that would prevent it from moving the market? 1123 MR. BRENNAN: It's included -- well, you are talking on behalf of ECG, when it purchases gas on behalf -- for ECG? 1124 MR. VEGH: Yes. 1125 MR. BRENNAN: There is a procurement policy and procedures which is identified in the service level agreement which Enbridge Inc. has to abide by. 1126 MR. VEGH: Yes. 1127 MR. BRENNAN: And in there it tells you the -- basically the guidelines, and how we should -- how they should be purchasing gas. 1128 MR. VEGH: Is that document available somewhere? 1129 MR. BRENNAN: It -- I don't believe it's part of this record. In any case, it is being revised now to reflect the arrangement with Enbridge Inc. as well as just to generally update it and to include additional protocols that have been talked about this morning in terms of gas acquisition. And we will be filing that updated procurement policy as part of our 2003 rate case. 1130 MR. VEGH: Could you undertake now to identify -- or to provide me with the document that you rely upon to say that Enbridge Inc. would not be acting in accordance with Enbridge Consumers Gas policy by doing gas acquisitions in a way that would move the market. 1131 MR. BRENNAN: Going back to the policies and procedures, it again tells us the bidding process, the whole process of how we should be going out for gas. We have not included in that anything that includes the extent that whenever we go out for gas, that we do not move the market. It has been our practice to not go out and move the market, and it's this practice that will be incorporated, if you like, into the revised procurement policy. 1132 MR. VEGH: Well, I'd like to see what you have in place today. 1133 MR. BRENNAN: We can certainly provide that. 1134 MR. VEGH: Thank you. 1135 MR. MORAN: I almost hesitate to give this an undertaking number. J.4.7. 1136 UNDERTAKING NO. J.4.7: TO PROVIDE ENBRIDGE CONSUMERS GAS'S PROCUREMENT MANUAL FOR PURCHASING GAS 1137 MR. FARRELL: All I was going to say, Madam Chair, is that the procurement manual as it exists today was filed in a previous case, although I can't remember the Board's file number, but that we will retrieve a copy for Mr. Vegh in response to this undertaking. 1138 MS. HALLADAY: Thank you, Mr. Farrell. 1139 Is that satisfactory, Mr. Vegh? 1140 MR. VEGH: It is. I may have some questions arising out of that once I see the information. 1141 MS. HALLADAY: All right. Thank you. 1142 MR. VEGH: Thank you. 1143 I guess where I'm going with this, Mr. Brennan, I take it that you would agree that if someone who participates in the market at Dawn was aware of a transaction or series of transactions by a large player such as Enbridge that would move the market, then that marketer could benefit from that information. 1144 MR. BRENNAN: Could you explain to me how that marketer would benefit from it? 1145 MR. VEGH: Well, if the marketer knew that a large acquisition was coming and that would have an impact on price, then the marketer would trade around that price, wouldn't they? If the price was going to go down, they would trade today; if the price was going to go up, they would trade tomorrow. 1146 MR. BRENNAN: Assuming that whatever they are doing will move the market. 1147 MR. VEGH: Right. Well, we'll get the information, then. We may have some more questions on that. 1148 One final area, panel, and this is kind of full circle back to our earlier discussion around the DPAs and nominations under the DPAs. Just to take you back a bit, remember we talked about the daily nominations on the basis of mean daily volume, and the theory, and, Mr. Brennan, you emphasized that this was just a theory, but the theory was that by the end of the year, the customer should have delivered through his main -- through his mean daily volumes the amount of gas that that customer has actually consumed by the end of the year. 1149 MR. BRENNAN: Yes. When you -- when the direct purchase customer determines what that MDV is, because it's the customer who terms that MDV, typically they are basing it on prior years' consumption. And to the extent that nothing else changes, the weather is the same and everything else, then one would assume or could speculate, I guess if you like, that whatever's nominated over the year would match their consumption. 1150 MR. VEGH: Right. Now, during the course of the year, at any given time, there is likely to be -- even if at the end of the year everything does work out absolutely perfect like it's made in theory, during the course of the year, there will likely be an imbalance at any given time between what is being delivered and what is consumed. 1151 MR. BRENNAN: I would say probably every day. 1152 MR. VEGH: Every day. And the difference is maintained in an account, the banked gas account; right? 1153 MR. BRENNAN: There's a banked gas account, correct. 1154 MR. VEGH: And the banked gas account records the difference between the amount delivered and the amount consumed? 1155 MR. BRENNAN: Yes, that's correct. 1156 MR. VEGH: And there's a -- there's a requirement for direct purchase customers to, at the end of the year, be balanced within a certain threshold. 1157 MR. BRENNAN: Yes, within the -- they should be balanced -- well, let's put it this way: If they are out of balance greater than 20 times their MDV, then there's an automatic true-up, if you like. 1158 MR. VEGH: Yes. 1159 MR. BRENNAN: If it's equal to or less than 20 times their MDV, then they have 180 days to come within balance. 1160 MR. VEGH: And this true-up or -- so if a customer faces a true-up, what they really face is the risk that they are going to have to make a -- I know you don't like to use the word "penalties"; I'm trying to find another way -- but there's a financial incentive to come within that balance; right? 1161 MS. HOLDER: There can be, depending on the market circumstances. In other situations, it could be a benefit to the customer by having that imbalance. 1162 MR. VEGH: Okay. So let's clear this up, then. If the customer has -- if the customer has under-delivered gas beyond this -- beyond their threshold, and it works out to about 5 percent of their total amount is 20 MDV, it's about 5 percent; right? 1163 MR. BRENNAN: It's 20 times the MDV. 1164 MS. HOLDER: Yes. 1165 MR. VEGH: That's about 5 percent; right? 1166 MS. HOLDER: Yes. 1167 MR. VEGH: Okay. So if a customer has under-delivered during the course of the year beyond that 5-percent threshold, then for that amount, they effectively purchase gas from ECG at a price of WACOG plus 20 percent. 1168 MS. HOLDER: Not always. Actually, very seldom. In most cases, they are presented the option of making up that gas in which case that can be a benefit in that if they'd been under-delivered during a year when gas prices are high, then at the end of their contract term, if gas prices have dropped, they get to make up that gas at a lower price than was actually consumed during the course of the year. 1169 MR. VEGH: Let me put it this way: There are work-arounds around the penalty, but the basic fall-back position that is -- is that they have to purchase gas at the price of WACOG plus 20 percent, and then they might want to work around that. But that's the penalty that they would otherwise face. 1170 MS. HOLDER: That's true, and that's why customers want to not incur that penalty. They would rather make up the gas supply or suspend to offset. 1171 MR. VEGH: Okay. And where the customer -- that's where the customer under-delivers. Where the customer over-delivers throughout the course of the year, and they over-deliver beyond this 5 percent threshold, then, as I understand it, the penalty that they could be potentially exposed to, leaving aside work-arounds, the penalty is that they effectively sell that gas to ECG at the price of WACOG minus 20 percent. 1172 MS. HOLDER: That's correct. 1173 MR. VEGH: So the penalty component or the risk of a penalty component is about 20 percent of WACOG, either a premium or a discount; right? 1174 MS. HOLDER: Correct. Again, those penalties are there to try to avoid the circumstances from occurring, which caused -- the circumstances cause -- can cause cost to be incurred by all remaining customers of the system. And therefore, that's why the penalties are there. 1175 MR. VEGH: So you provide a negative incentive, and it would make sense for marketers to try to avoid exposure to those sorts of penalties; right? 1176 MS. HOLDER: Right. 1177 MR. VEGH: And throughout the course of the year, marketers are provided with information about the status of their BGAs; right? 1178 MR. BRENNAN: Yes, they are. 1179 MS. HOLDER: Yes. 1180 MR. VEGH: And these records are supposed to provide a status report and a projected year-end balance, aren't they? 1181 MS. HOLDER: That's correct. 1182 MR. VEGH: And we will be discussing the accuracy of these records with your next panel, so we won't get into them. But let's assume that they actually have some useful information about the projected balance at the end of the year. So let's just assume that these records actually do what they say they're going to do, okay? 1183 MS. HOLDER: Okay. 1184 MR. VEGH: So let's assume that marketers relying on these records will try to avoid being exposed to the type of penalties that we've talked about at the end of the year, and so they rely on these records to try to bring their projected year-end account into balance. 1185 MS. HOLDER: Correct. I also should point out, though, that customers, or marketers on behalf of customers, have some ability to track this information on their own, without the utility providing the data to them. 1186 MR. VEGH: So whether the marketer is relying on their own information or the information provided by the utility, what this means is that if a marketer is forecasted to be over-delivered by the end of the year, then it will seek to curtail deliveries throughout the course of the year to bring itself into balance; fair? 1187 MR. BRENNAN: Correct. It will be looking to suspend. 1188 MR. VEGH: Right. And if the marketer is projected to under-deliver, then it will be looking to deliver makeup gas during the period towards the end of the year? 1189 MR. BRENNAN: Yeah, makeup. But in either one of those cases, it could be done through a title transfer. But, in essence, they want to bring their balance into line. 1190 MS. HOLDER: So what we're saying is another alternative to either suspending their deliveries or making up is do a swap of banked gas accounts between the customers in the opposite situation of -- than themselves. 1191 MR. VEGH: Okay. I understand that option. 1192 Let's leave that option aside for a moment and just talk about suspensions and makeup deliveries, okay? 1193 MS. HOLDER: Fine. 1194 MR. VEGH: Now, as I understand it, how the system works under the rates handbook is that a marketer may request the ability to suspend delivery or provide makeup delivery, but ECG has discretion on whether or not to allow that? 1195 MS. HOLDER: Yes, and that's usually based upon the impact upon the remaining customers of Enbridge Consumers Gas and whether it would cause any cost to be incurred by the remaining system. 1196 MR. VEGH: But Enbridge has discretion around whether to accept these requests or not? 1197 MS. HOLDER: Yes, for a very good reason. It's necessary in order to manage our business. 1198 MR. VEGH: I'm not questioning whether it's a good reason or not. 1199 You do have discretion under the rates handbook; right? 1200 MS. HOLDER: I have agreed to that, yes. 1201 MR. VEGH: Right. And if we assume that you are acting in good faith, then you will exercise that discretion to -- because of concerns of system integrity, that's what you are saying; right? 1202 MS. HOLDER: Not just system integrity. It could be -- it may also have a long-term impact or a short-term impact upon our overall cost of gas which we have to manage on behalf of all ratepayers. 1203 MR. VEGH: And that's one of the factors that you would have to balance into exercising your discretion? 1204 MS. HOLDER: That's correct. 1205 I will give you a prime example. If a customer wanted to suspend deliveries during the coldest day of the year, we could probably allow that, but it would mean we would have to exercise our rights under peaking service contract which is very high in cost. So we do not allow the customer, therefore, to suspend their deliveries during very cold periods. That's one example. 1206 MR. VEGH: Okay. Thank you for that. 1207 Now, under your arrangement with Enbridge Inc., if you go to section -- if you can go to that agreement, please, section 5.7 of the services schedule talks about these requests for -- talks about addressing these requests for the -- to suspend deliveries. No, I'm sorry, to make up prior short-falls, so to make up deliveries. Do you see that, section 5.7? 1208 MR. BRENNAN: Yes, I see that. 1209 MR. VEGH: So as I understand it, under this agreement, ECG gets a request from the marketers to make up for short falls, but then ECG may pass on these requests to Enbridge Inc.; is that right? 1210 MR. BRENNAN: Yes, that's correct. Enbridge Consumers Gas will look at that request to see whether it's a valid request, and then if it feels necessary, it will pass it on to Enbridge Inc. to evaluate whether or not it could be done, again to meet our operational -- see if there is any operational constraints around doing that. 1211 MR. VEGH: And then Enbridge Inc. has authority under -- then Enbridge Inc. acts, and it acts under section 5.7 where it assesses these requests made by -- made to Enbridge Consumers Gas by direct purchase customers to suspend deliveries, and then Enbridge Inc. recommends acceptance or denial with reasons; right? 1212 MR. BRENNAN: Yes, that's correct. 1213 MR. VEGH: And when we look back at the activities that Enbridge Inc. is carrying on, it turns out Enbridge Inc. is actually a competitor of the marketers who are making this request, isn't it? 1214 MR. BRENNAN: I'm sorry, in what way? 1215 MR. VEGH: Well, Enbridge Inc. provides gas sales and gas acquisitions and the marketers provide gas sales and gas acquisitions, so they compete with each other in providing gas sales and gas acquisitions. 1216 MR. BRENNAN: Let's just take this -- let's just go through an example, if you like. Let's say that a customer is required to make up gas or is requesting make up gas, so that request then -- first of all, ECG would look to see whether or not they are within the bounds of the 20 days to see whether or not they are a legitimate candidate for makeup gas. If they believe it is, then they would send it out to Enbridge Inc.. 1217 Enbridge Inc. -- the planning group within Enbridge Inc., the gas supply planning group within Enbridge Inc., would take a look at it to see what it does to the overall supply and demand balance to see whether or not there is any constraints around doing such a makeup. And if the answer is yes, then they will come back to Enbridge Consumers Gas and then we would notify the customer. If the answer is no, then Enbridge Inc. would have to provide us with reasons as to why they couldn't do that. 1218 MR. VEGH: Well, under this scenario where the entire ability to allow these makeup deliveries rests only with the gas company, then I would expect -- with Enbridge Consumers Gas, then I would expect that a marketer may be comfortable in making this request in recognizing that Enbridge Consumers Gas has some discretion. But, you know, you're -- you run this system on behalf of everybody. But what this proposal does, or what this section does is it allows Enbridge Inc. to determine whether its competitors should be exposed to penalties for having under-delivered gas. 1219 MR. BRENNAN: I disagree. I mean, what they're doing is that it's a different group within the planning group. The planning group may not know what else is going on out there. Their only function is to see whether or not there's any difficulties in meeting, I guess, our supply demand requirements. It doesn't necessarily know, per se, if there is an opportunity out there for someone else to do something. All it's doing is assessing this particular request. 1220 MR. VEGH: Well, so you say. You are assuming that to be true, but this agreement puts in a competitor the decision to determine whether or not -- 1221 MR. BRENNAN: Excuse me, could I just have a minute. 1222 MR. VEGH: Take your time. 1223 MR. BRENNAN: If Enbridge Inc. comes back and denies a request for whatever reason because -- as you were suggesting, that for competitive reasons, they may not want this particular customer to do makeup, we would have to -- it would have to be good reasons for that, and I myself would have to look at those reasons to see whether or not those are reasonable. If there wasn't, then -- if there weren't good reasons, then I would be challenging Enbridge Inc. as to why this could not occur. I mean, ultimately we are responsible to the customers still from Enbridge Consumers Gas's perspective. 1224 MR. VEGH: You can appreciate why marketers who are your customers would not feel comfortable with that sort of arrangement, wouldn't you? 1225 MS. HOLDER: I also would say that the marketers who are representing customers have the ability to come back to either the account manager or up even to myself and challenge one of those decisions and feel comfortable that they are legitimate reasons for denying a makeup or suspension. 1226 MR. VEGH: Well, then, why would you leave the -- why would you put EI in this position, then? Aren't you putting it in a complete conflict of interest position? It's determining whether or not its competitors should be subject to a penalty. Isn't their decision going to be obvious? 1227 MR. BRENNAN: No, I disagree. EI is there to -- they're providing a service, if you like, that Enbridge Consumers Gas would have done in the utility, which is looking after gas supply planning and making sure that our demand is met and we have the appropriate supplies. That's all it's doing. 1228 And when it's checking these requests, it's -- it's with that intent in mind, to make sure that we can still operate the system. 1229 MR. VEGH: Well, that's quite a leap of faith you are asking for, but I don't have any more questions on it. 1230 Those are all my questions, panel. Thank you very much. 1231 MS. HALLADAY: Thank you very much, Mr. Vegh. 1232 MS. LOTT: My name is Sue Lott. I'm with the Vulnerable Energy Consumers Coalition. 1233 MS. HALLADAY: Ms. Lott. 1234 CROSS-EXAMINATION BY MS. LOTT: 1235 MS. LOTT: Thanks very much. 1236 What I'm going to talk about here today, I will tell you what references to evidence I'm going to be using. I'm going to be looking at the Affiliate Relationships Code, which I provided to you, and I gather the Panel has copies of that. I have copies here as well if anyone on the Board or intervenors would like. But the Board has copies. 1237 I'm also going to be looking at the intercorporate services agreement and the -- with EOS and the EI agency agreement. And I will also tell you, I'm going to be referencing a few IR responses, and those are the Board staff interrogatory number 37, which is Exhibit I, tab 1, schedule 37, as well as the Board IR response number 40, and Exhibit I, tab 1, schedule 40. And finally, the CEED IR response, number 50, which is Exhibit I, tab 3, schedule 50. 1238 So those are the documents I will be speaking about with you. So everyone has all those? 1239 The first part of what I want to talk to you about today is I want to examine the new out-sourcing arrangements for 2002 under the Affiliates Relationships Code forecast utilities. 1240 And the second area I want to look at is to ask a bit about the conflicts and protection of ECG ratepayers and, in particular, system gas customers, their interest that would arise under these agency and intercorporate services agreements. 1241 So I'd like to start off by referencing the Affiliates Relationships Code. Can you describe to me what factors, for example, cost or transactional ease, led to the ECG management decision to out-source such key utility functions, that were really core utility services as defined by the Code, section 1.2, to an affiliate service provider? 1242 MS. HOLDER: Sorry, as I understand it, you're asking what led us to -- 1243 MS. LOTT: What are the critical factors? 1244 MS. HOLDER: I'll start, and -- as there are two different factors, or two sets of factors involved here, so I will start with EOS moving gas control to Edmonton. 1245 I think one of the -- there are a couple of things in play here. We had always run a 24-hour, seven-days-a-week, operation with a staffing that provided on weekends or evenings only one gas controller to be on shift and no supervisor. The -- which always gave us some concerns if there was an illness in the middle of the night or on a weekend, trying to find a backup controller. Also, if anything was to happen during that time, it was very -- there wasn't a supervisor on staff. 1246 The other factor that came into play is our SCADA system, which is the system that monitors pressures and flows throughout our system, had outdone its useful life by a matter of a few years, actually, and we were in a process of having to build a new system. 1247 So we -- the third factor that came into play is that Enbridge Inc. was actually looking at consolidating their control functions on the liquid side. 1248 So when we looked at everything all together, it made sense for us not only to have Enbridge Inc. responsible for the SCADA system, which meant that they could actually develop it, but also that they would have better staffing to maintain that system. This is the computer people to maintain that system and support that system. 1249 Also, by consolidating with the liquids control centre, we would have better oversight from a supervisory point of view. There would be more supervisors to manage a larger group of individuals, and that we no longer would be just one person on shift. 1250 Of course, the other added benefits, which didn't really come into play so much, but there were added benefits by the fact that we could get cross-training between the liquids and the gas and therefore not be at risk to the same extent as we were before with the gas controller becoming ill, or a gas controller actually leaving the business. 1251 So that, sort of in a nutshell, is the considerations for Enbridge Operational Services. 1252 I should add one point, too. As technology has changed significantly over the years, the technology advancements also allowed us to move these sort of functions to Edmonton, actually, with better control and oversight, from a technology point of view, than we had when it was sitting here in Toronto. 1253 From the perspective of gas services, to some extent, it was similar in that we have always found it difficult within the Toronto market to find the skill sets that we needed in order to manage our business. 1254 At one point in time we actually had our gas acquisition group in Calgary, but that was fairly expensive running a shop in Calgary and a shop in Toronto. We moved the Calgary office back to Toronto but found that we were struggling with trying to find the right skill sets to keep the gas supply function managed appropriately. So by moving to Calgary, then we can draw on the right individuals with the right skill sets to manage this type of business. 1255 MS. LOTT: So you have -- you've only spoken very briefly about cost considerations and I wanted to take you to the Board staff interrogatory number 37 where you were asked specifically about employee costs and transferring of functions and assets as well and the net book value. Your response to that, if you can pull that up, I would put to you that that response -- based on that response, that the Board really doesn't know whether the cost is going to be higher or lower from performing those functions in house; isn't that correct? I mean, you've said here: "Has no significance for rate-making purposes." 1256 MS. HOLDER: Yes, I think our response -- because 2002 we are not dealing with the cost consequences of either of these actions. I think what was more important, though, when we want to talk about costs and the benefit to ratepayers, which is part of our decision-making process, really was around -- on the operations side, its gas control side, was really around better reliability and better security of supply. It was not driven by a cost matter. Not that that wasn't important, but we were really concerned about the reliability of our supplies. 1257 With respect to gas services, I think the benefit to the ratepayer from a cost perspective is having the people in the area that deal with this type of business, in an area where the industry is really driven. The heart of the natural gas industry really tends to be more of an Alberta thing than it is a Toronto thing, and therefore we should actually capture benefits through our gas costs acquisition policy as opposed to a cost to the ratepayer for the 14 people involved. 1258 MS. LOTT: I guess I would still put it to you, though, that based on that response, it is impossible for the Board to know on those specific issues whether there is a cost impact. 1259 MS. HOLDER: There is no cost impact. There has been no cost impact to the ratepayers for 2001 or 2002, and we will raise -- bring forward the costs of those services for the 2003 rate case. So there has been no cost to ratepayers by the movement. 1260 MS. LOTT: So we don't know whether that will be -- 1261 MS. HOLDER: No, there has been no cost to date to the ratepayers. 1262 MR. FARRELL: That's because these costs are part of the targeted PBR plan. They are O&M expenses, in other words. 1263 MS. LOTT: Okay. I wanted to take you to the agency agreement Enbridge Inc. which is Exhibit I, tab 3, schedule 44 attachment. And I just wanted you to look both at that agreement, on the very first page of the agreement, paragraph 2, and the intercorporate services agreement with Enbridge Operational Services, which is schedule 54 attachment, also on that very first page of that agreement, paragraph 3. 1264 I just wanted to point out that you -- would you agree that both those paragraphs are somewhat similar in that they state that both the agreement -- the parties to the agreement are subject to the Code; is that correct? 1265 MS. HOLDER: I think you're correct. I'm looking over Mr. Brennan's shoulder at the one reference. 1266 MS. LOTT: The language is fairly similar. 1267 MS. HOLDER: Yes, that's a fair statement. 1268 MS. LOTT: So is it your view that the agency agreement and the intercorporate agreement comply fully with the requirements of the Affiliates Relationships Code? 1269 MS. HOLDER: Sorry, the elevator just zoomed by again and that's why we keep missing parts of questions. 1270 MS. LOTT: Is it your view that the agency agreement and the intercorporate services agreement both comply fully with the requirements of the Affiliates Relationship Code? 1271 MS. HOLDER: Yes. 1272 MS. LOTT: Now, if we could look at section 2.24 of the Code, that section talks about sharing of employees between the utility and the energy service provider, and essentially states that: "It shall not share with an affiliate that it is an energy service provider for any employee who controls access to utility services or directs the manner in which the utility services are provided to customers." 1273 Just on that issue, how many employees of ECG and of EI and EOS are involved in these out-sourcing agreements? 1274 MS. HOLDER: I think probably the easiest way for -- 1275 MS. LOTT: I guess I'm looking for here -- if you can give me an idea of number and location and functions. 1276 MS. HOLDER: I think what we can provide you with is the number of employees that were used within utility that we transferred to each of these functions and -- 1277 MS. LOTT: Can you provide that in an undertaking? 1278 MR. BRENNAN: Under -- this goes to Exhibit A, tab 14, schedule 3, which is our pre-filed evidence on gas and operational services. And if you look under gas services, item number 3, it talks about ECG transferred 13 positions but only one employee to EI in this regard. And I believe if you flip over to the next page, under operational services, item number 8, it talks about ECG transferring 12 positions but only three employees to EOS in this regard. So those are the positions that got transferred to those two particular affiliates. 1279 MS. LOTT: So could you explain that a bit more, about how that -- 1280 MS. HOLDER: The first number was 13 to Enbridge Operational Services. 1281 MR. BRENNAN: Thirteen to Enbridge Inc.. So there's 13 positions that went to Enbridge Inc. but only one employee elected to go. The other positions were to be filled by EI. 1282 MS. LOTT: Okay. 1283 MS. HOLDER: And primarily those were filled from the street, per se, in Calgary. 1284 MS. LOTT: And what are the functions of those employees? 1285 MR. BRENNAN: They were to provide the services under the agreement, which would be gas supply planning, risk management, gas acquisition, transactional services. Those are the big four. There are a few other small ones. 1286 MS. LOTT: I wonder if you could explain, then, how do the EI and the EOS employees basically comply with the requirements of this piece of -- this part of the Code, 2.24? How do they control both the access to the utility services, and how do they direct the manner in which the utility services are provided to customers? 1287 MR. FARRELL: Before you answer that, are you assuming that there's somehow shared employees? Because that's what the section deals with. 1288 MS. LOTT: Yes, I am making that assumption. 1289 MS. HOLDER: There are no sharing of employees. 1290 MS. LOTT: There are no sharing of employees. 1291 MS. HOLDER: No. 1292 MS. LOTT: Is EOS and/or EI an energy service provider as defined in the Code? And that's at the very beginning of the Code, which is the top of page 2 of the Code, section 1.2, under definitions. 1293 MR. FARRELL: I take it you're looking for a layman's view. 1294 MS. HOLDER: My layman's view is they are not an energy service provider in that they are not supplying electricity or gas or related activities, including retailing of electricity, marketing of natural gas, generation of electricity, energy management services, as I understand them to be, demand-side management programs or appliance sales, service and rentals in the province of Ontario. I'm not sure that they are doing any of those outside of Ontario, but I don't believe they are engaged in any of those activities within the province of Ontario so, therefore, would not be an energy service provider. 1295 MS. LOTT: So I wonder if you could clarify that. You're saying that neither EI nor EOS fit that definition? 1296 MS. HOLDER: EOS does not fit this definition no matter where you are referring to. But from EI's perspective, I do not believe - and this again is my layman terms - that they would be considered an energy service provider under this definition. 1297 MS. LOTT: Because they don't provide those services in Ontario. 1298 MS. HOLDER: That's correct. 1299 MS. LOTT: I wonder if we could go to section 2.3.2 of the Code which talks about transfer pricing. And it says that "In purchasing a service, resource or product from an affiliate, a utility shall pay no more than the fair market value." 1300 My question is: Were the services tendered, and how does that fair market value criterion apply? 1301 MS. HOLDER: These services were not tendered, and the fair market value, I don't believe applies in that there is no impact on ratepayers until we hit the 2003 rate case. 1302 MS. LOTT: I wonder if you could explain that answer. I guess I'm wondering how fair market value would impact on the issue of -- the impact on ratepayers. I thought that would be immaterial. 1303 MS. HOLDER: In that we're in the targeted PBR today and we are in the targeted PBR at the time that these employees were transferred to either EOS or gas services. The O&M costs, the costs of providing those services, are embedded in our targeted PBR base. So there is no impact on the O&M that's being recovered by ratepayers due to moving these two businesses. There could be an impact starting 2003 which we would deal with in our 2003 rate case. But right now, any of the costs that have been incurred by moving these businesses to either EOS or Enbridge Inc. has actually been borne by the shareholder. And what we're recovering in rates are the costs that we were incurring at the time that the PBR base was established. 1304 MS. LOTT: Okay. Well, if I could move on to section 2.5.1 where we're talking about equal access to services. Section 2.5.1 deals with the issue of preferential endorsement or supporting the market activities of an affiliate that is an energy service provider. 1305 Now, you've indicated that your -- you're not sure whether or not EOS doesn't fit that category, but EI might. 1306 MS. HOLDER: No, sorry, EOS does not fit that category. 1307 I do not believe that EI does. In any event, we are not preferentially endorsing our affiliate, because from a customer's perspective, unless they are listening to this conversation we're having today, does not know that EOS is providing the gas control functions and that Enbridge Inc. is providing the gas supply functions. 1308 Because Enbridge Inc. is providing those functions as our agent, so we are still responsible for those services. So we're -- we do not promote EI, nor do we promote Enbridge Operational Services. 1309 MS. LOTT: How could the provision of gas management transactional services for the country's largest utility by these affiliates not provide some support or underpinning for their marketing activities? 1310 MS. HOLDER: They are always acting as ECG. So if you were to nominate to Enbridge Operational Services, for example, you are actually nominating to Enbridge Consumers Gas. It's just that nomination goes to an affiliate as opposed to ourselves, but the customers are still nominating to ECG. 1311 And if you are transacting with transactional services, buying incremental storage services or incremental -- or doing an exchange, those are still being done with ECG. 1312 MS. LOTT: But don't you think it's possible that EI could have an incentive to prefer transactional services on its own account rather than transactional services for ECG and its customers so that there would be a financial incentive there? 1313 MS. HOLDER: Actually, they probably have more of an incentive to operate under ECG's account because they have a target they must hit, which is established by this Board, on transactional services. 1314 MS. LOTT: I wonder if you could move to this CEED interrogatory, number 50, which -- your response to that, which is Exhibit I, tab 3, schedule 50. 1315 Have you got that there? 1316 MR. BRENNAN: Yes, we have that. 1317 MS. LOTT: My question, based on that is: Is Enbridge Inc. and EOS performing the equivalent services for ECG's franchise area as the independent electricity market operated for the electricity market in Ontario? 1318 Are they doing, you know, supply planning and daily operations, based on your response to that interrogatory? 1319 MR. BRENNAN: I'm not sure what they do on the electric side. I can only tell you what they are doing on behalf of ECG, and those are the functions that I've mentioned earlier: gas supply planning, gas acquisition, risk management, transaction services, contract management, and I believe the other one was regulatory support as well. 1320 MS. LOTT: Moving back to the Code, and I wanted to look at section 2.8, which is the record-keeping and reporting requirements, and I specifically wanted to look at section 2.8.3 and subsection (c) of that, where the total cost of transactions exceeds that the -- "the utility shall maintain and make available separate records showing the form of price or cost determination." 1321 I'm just wondering, has the company reported to the Board the form of price or cost determination for each service as required under this section of the Code? 1322 MR. FARRELL: Excuse me, it's only required upon request. 1323 MS. HOLDER: We have not provided that information, nor would we request -- 1324 MS. LOTT: Thank you for clarifying that. But have you provided on it -- 1325 MS. HOLDER: No, we have not. You're referring to (c), right, the form of price for cost information? 1326 MS. LOTT: That's right, yes. 1327 MS. HOLDER: Yes. 1328 MS. LOTT: If I could look at Exhibit I, tab 1, schedule 40, that's the Board staff interrogatory number 40 and your response. 1329 MS. HALLADAY: Excuse me, Ms. Lott, we didn't get the reference to the schedule number for the Board staff IR. 1330 MS. LOTT: It's Exhibit I, tab 1, schedule 40. 1331 MS. HALLADAY: Forty. Thank you. 1332 MS. LOTT: And it's page 3 of that schedule. 1333 If you have got that in front of you, I would just take you to line items 22 and 23. 1334 MR. BRENNAN: Yes. 1335 MS. LOTT: They show the transfer of pricing basis for the gas supply management and for the gas control and nominations. 1336 And as we can see, both of those are described as being cost-based; is that correct? That's how I'm reading that. 1337 MR. BRENNAN: That's correct, yes. 1338 MS. LOTT: Now, if -- with respect to the actual form of the market price or cost-based fees -- now, this is dealt with under section 6 of the agency agreement with Enbridge Incorporated, and it also comes under, I think, the services agreement to the agency agreement, which is schedule A, section 9. The intercorporate services agreement with EOS, this is dealt with. This form of the market price or cost-based fees is dealt with in sections 5 and 7. 1339 Now, I don't know if you've been able to reference those, but I just wanted to be correct about that, that the actual form is dealt with under those sections. 1340 MR. BRENNAN: Could you go back and tell me which one it is you're referring to? 1341 MS. LOTT: Yes, the agency agreement with EI, section 6. 1342 MR. BRENNAN: Which talks about transactional services. 1343 MS. LOTT: Yes. 1344 MR. FARRELL: She's referring to the contract itself. 1345 MS. LOTT: Yes, and the services agreement to that agency agreement, which is schedule A, section 9. 1346 MR. BRENNAN: Okay, I'm at Enbridge Inc. agency agreement, pricing, section 6, where it talks about the fees for the service. 1347 MS. LOTT: Right. 1348 MR. BRENNAN: Okay. 1349 MS. LOTT: And to the services agreement -- the services agreement to the EI agency agreement. 1350 MR. FARRELL: Services schedule? 1351 MS. LOTT: Schedule A, section 9. 1352 MR. BRENNAN: Section 9? 1353 MS. LOTT: Yes. 1354 MR. BRENNAN: Under the fees? 1355 MS. LOTT: That's right. 1356 MR. BRENNAN: Yes. 1357 MS. LOTT: And then I just want to confirm that it's in the intercorporate services agreement with EOS, sections 5 and 7. 1358 MS. HOLDER: I think it's 5, 6, and 7. The pricing is section 5 and 6 and the price adjustment is section 7. 1359 MS. LOTT: Okay. So those deal with the actual form of the market price of the cost-based fees. My question is that in section 8.3 of schedule A of the agreement with EOS, which is found on page 7 of that schedule A to the agreement, section 8.3. 1360 MS. HOLDER: Yes. 1361 MS. LOTT: Have you found that on page 7? Are you there? 1362 MS. HOLDER: Yes. 1363 MS. LOTT: There it indicates that market pricing benchmarks are part of the methodology. So I am confused. Can you explain the difference between your answer to the interrogatory response number 40. 1364 MS. HOLDER: The interrogatory response refers to cost-based because it's based upon the costs that were being incurred by the utility, which is what is embedded in rates. On a go-forward basis, it will be under a -- based upon market pricing benchmarks. 1365 MS. LOTT: On a go-forward basis, would you -- 1366 MS. HOLDER: Because the costs were what the costs were embedded in rates starting in 2001 and 2002. That's the reference to the cost. 1367 MS. LOTT: But isn't the agreement in place now? 1368 MS. HOLDER: Yes, but -- I'm trying to figure out how to best explain this. The agreements are in place. Prior to the agreements being put in place, we had established an O&M base for our targeted PBR agreement. And what would have been embedded in that base was providing these two functions, gas supply and gas control, at cost, the utility's cost. 1369 We have since moved those businesses to Calgary and Edmonton, but they have no impact upon our O&M base for rate-making purposes because that base was already established before the move. So essentially, embedded in rates today is the cost of ECG doing both the gas supply function and the gas control function. 1370 In 2003, we will need to come back to the Board to establish the O&M base at which time we will bring forward the costs that are -- that's been incurred by the utility to have Enbridge Inc. and Enbridge Operating Services perform these functions. 1371 MR. BRENNAN: I'm sorry. 1372 MR. MCGILL: If I can just clarify. At the time when this was put together, these agreements, we looked to try and see if we could find a comparable market price, and we could not. So what we did do was we determined what our cost-based price was and those are the fees that have been incorporated in the agreements. 1373 When we come back for our 2003 application, we are going to need to defend those costs. And to the extent that we can identify comparable market data, we will bring that forward. 1374 MR. BRENNAN: And I think 8.3, if you look at it, that's what it tries to say: "The parties agree to review the above fee schedule and available market pricing." I'm emphasizing the word "available." So if it's available, market pricing, then we will bring that forward in 2003. 1375 MS. LOTT: Well, I wonder if you could provide a detailed explanation of how the price or cost-based fee is determined for each service under each of the agreements. 1376 MR. FARRELL: Why is that necessary? 1377 MS. LOTT: Well, I guess I am still confused about the actual methodology that's being used here. I'm not clear about what is for one response a cost-based methodology, and for the other, is market pricing. So I'm not clear about that distinction. 1378 MR. BRENNAN: I'm sorry, whereabouts does it say we are relying on market base? 1379 MS. LOTT: Section 8.3 of schedule A of the agreement with EOS, page 7, as we looked at before. You are indicating there that market pricing benchmarks are part of the methodology. 1380 MR. BRENNAN: No, we are saying: "The parties agree to review the above fee schedule and available market pricing benchmarks every two years and amend the fee accordingly if market pricing benchmarks support such amendments." Right now it's all cost-based, it's all fully allocated costs. 1381 MS. LOTT: Well, then, why didn't you say cost-based? 1382 MR. MCGILL: That's what we indicated in the IR response to Board staff number 40. 1383 MS. LOTT: Okay. I'm going to move on. I wanted to ask you about the -- some questions about the intercorporate services agreement and the agency agreement. Just a general question here about those two agreements. By what commercial standard should we judge these agreements? Are they arm's length arrangements, or are they related party agreements? 1384 MS. HOLDER: I don't want to tread into the legal realm of what an arm's length agreement is or is not. 1385 MS. LOTT: Well, are these arm's length agreements between distinct commercial entities, not related parties? 1386 MR. FARRELL: The answer is obvious. 1387 MS. HOLDER: They are related. 1388 MS. LOTT: Sorry, what is your answer to my question? 1389 MS. HOLDER: The agreements are between two related parties, and I think it is fair to say that from ECG's perspective, we hired external counsel only representing ECG on these matters. We did not use in-house counsel. 1390 MS. LOTT: Just looking specifically at the EOS intercorporate agreement. I wanted to look at schedule A of that agreement, section 8.1, which is page 6 of that schedule. 1391 MS. HOLDER: Yes. 1392 MS. LOTT: Why, in your view, is a seven-year fixed term agreement with Enbridge Operational Services appropriate? 1393 MS. HOLDER: It was partly due to the capital investment in a SCADA system that was required in order to perform these functions. 1394 MS. LOTT: Sorry. Could you expand on that a bit. 1395 MS. HOLDER: My recollection is that historic -- the SCADA system that performs the gas control functions, the computer system that is used to monitoring pressures and flows, historically it had a life of four to five years. Our experience is that that life is actually closer to seven years, so that is the term of the agreement. 1396 Enbridge was -- it was necessary for Enbridge to invest capital in a new SCADA system in that the SCADA system that Enbridge Consumers Gas had at the time had outlived its useful life. 1397 MS. LOTT: Looking at section 7 of that same schedule, and it's the same page, which is dealing with performance measures. 1398 My question is: Is it your view that the performance measures in section 7 are adequate to address both the utility's exposure to upstream transportation penalties and also, for example, to curtailment penalties? 1399 MR. BRENNAN: Yes, I have reviewed this with the EOS staff, and we're satisfied, for now at least, that these performance measures are adequate. 1400 MS. LOTT: What about direct purchase customers who might have concerns about penalties on TCPL or from load balancing on ECG? Shouldn't you have measures that would address both types of performance? 1401 MR. BRENNAN: You're talking about the penalties on TCPL? 1402 MS. LOTT: Yeah. 1403 MR. BRENNAN: By direct purchase customers? I'm not sure that direct purchase customers do, in fact, incur penalties on TransCanada. At least not under a situation where they're taking an assignment of ECG. 1404 I'm not sure -- do you have some example of how that penalty would work? Because I'm not familiar that there would be any. 1405 MS. LOTT: Okay. 1406 MS. HOLDER: No, we manage -- for those direct purchase customers' transportation we manage, by the very nature of the contract that they have with us, there are no penalties on TransCanada. 1407 MS. LOTT: What about load balancing? 1408 MS. HOLDER: Load balancing is an old -- a rolled-in cost. And again, there are no penalties incurred by a customer if we are doing the load balancing for them. 1409 MS. LOTT: Just a general question now about the agency agreement with Enbridge Inc.. Who makes decisions about ECG gas supply and transportation portfolio on an annual and a longer term basis? 1410 MR. BRENNAN: In terms of the long-range plan or supply portfolio or -- that is done by Enbridge Inc. through their gas supply planning group. 1411 What they will do is they'll look at, for example, over the next five years, what our demand is and what our requirements in terms of additional supply, transportation, and storage. They -- and then in turn will come back to Enbridge Consumers Gas, myself in particular, with recommendations as to what they should be doing in terms of signing up for additional transportation capacity or developing or contracting additional storage. 1412 I will review it on behalf of the company and then either agree or disagree or modify that supply program, if you like. And then it will be left, then, with Enbridge Inc., then, to go back and implement that portfolio or program. 1413 MS. LOTT: Okay. I wanted to talk now about the protocols that have been amended with appendices B and C of this schedule to the agency agreement. 1414 I gather that's been identified as Exhibit F.4.5. 1415 MR. BRENNAN: Yes, that's correct. 1416 MS. LOTT: These protocols for gas supply acquisition and transactional services. 1417 MR. BRENNAN: Actually, the black-lined version is F.4.5. 1418 MS. LOTT: Sorry, that's what I'm referring to, is the black-lined version. 1419 MR. BRENNAN: Okay. 1420 MS. LOTT: My question is: How do these protocols comply with the Code? For example, how would they comply with section 2.5, the "no preference for affiliates" that we had talked about earlier, or section 2.8.3 which we've also discussed, the reporting of affiliate transactions greater than $100,000 annually? 1421 MR. FARRELL: What was your first reference? 1422 MS. LOTT: For example, section 2.5, the "no preference for affiliates." 1423 MR. FARRELL: 2.5 is entitled: "Equal Access to Services," so you are going to have to be more specific. 1424 MS. LOTT: Sorry, I meant 2.5.1: "That the utility should not preferentially endorse or support market activities of an affiliate that is an energy service provider." 1425 MS. HOLDER: I think part of the answer goes back to that they are not an energy service provider; and the second is that they are not acting on their own behalf, they are acting as an agent of ECG. So we are not preferentially endorsing or supporting the activities of an affiliate. 1426 MR. FARRELL: Excuse me. It says "marketing activities," and I take it you are using the word "marketing" as it's defined on page 2 of the Code? 1427 MS. LOTT: Yes. 1428 MR. FARRELL: So when you say "marketing activities," you are referring to providing an offer or contract that is characterized by door-to-door selling, tele-marketing, direct mail, selling activities, and any other means by which an energy marketer or salesperson interacts directly with a consumer; that's the meaning you are attributing to it? 1429 MS. LOTT: I don't think that that's necessarily the case. 1430 MR. FARRELL: That's what it says. 1431 MR. BRENNAN: The point is that the -- the answer is it does not preferentially treat Enbridge Inc.. The whole idea of the protocols is to make sure that there is a level playing field and that, for example, if Enbridge Inc. wanted to bid on a transactional services or one of ECG's assets, that it didn't have preferential treatment, that there were guidelines or protocols, if you like, to make sure that all bidders were treated fairly. That was the whole purpose of the protocols. 1432 MS. LOTT: How can you ensure that the Board and that we, as intervenors, get access to information about counter-party transactions to enable us to be assured these are commercial arm's length and not self-dealing? 1433 MR. BRENNAN: Well, for example, if you are talking about things like gas acquisition, the Board, through the energy returns officer, I guess, can do a review of our procurement practices, which they have done in the past. They've just done one fairly recently. They can continue to do that. 1434 MS. LOTT: I guess that leaves me going back to the proposed settlement agreement and the sort of broader issue that was raised under the discussion of this issue, 5.3, about the concerns that have been raised by intervenors -- some of the intervenors about the affiliate out-sourcing. 1435 I would say that VECC and other intervenors are concerned that the out-sourcing of such critical utility functions which encompass both gas supply and transportation arrangements and daily operations, such as deliveries to the franchise, to an affiliate, may have several impacts. At best, they could restrict the Board's ability to enquire into the prudence of and cost consequences of the utility's gas supply and operations management functions; and at worst, there could be an attempt to remove from the Board's direct oversight key utility services as defined in the Code and for which services the rates are set under the section 36 of the Act. I guess my question would be: What does the company have to offer in response to some of these concerns? 1436 MS. HOLDER: There was a lot there, sorry. Responding to part of the -- your comments around the out-sourcing of critical functions, in the gas industry, it is actually fairly common from -- to out-source your gas control functions. If you want to talk to anybody about what's happening on the Iroquois system, which is in the -- which is east of here, you'll actually be talking to somebody down in Houston who probably has never seen the Iroquois system. So gas control functions being performed outside of the entity that is delivering the service is common. 1437 So we don't see this as -- we see this as a critical function, no question, and it deserves the oversight that we give it; but we don't believe it's necessary to be done by the utility itself. And in our respect, we think we get better service by out-sourcing this. 1438 In the situation of energy services or gas services, there are also entities who are providing that service to other utilities. I think it's KeySpan that provides these types of services to Boston. 1439 MR. BRENNAN: Boston Gas, Speed One, Brooklyn Union, as well as Long Island Lighting. So they'll do it for all those three utilities. 1440 MS. HOLDER: And we know that there are other marketers out there, if you want to call them that, who are interested in providing these services to other utilities as well, and we've been approached by many. So as far as these being critical, we don't see them -- we see them as critical functions but not critical to being done within the utility. 1441 MS. LOTT: I guess I'm also raising the issue, though, of the Board's ability to have regulatory oversight once these critical core functions are no longer being provided by the utility. 1442 MR. FARRELL: Could you give the witness a for instance of what you mean by "regulatory oversight," other than rate-making and cost consequences? 1443 MS. LOTT: Well, that's really it. 1444 MS. HOLDER: I think they have that ability through the affiliate code, as we've been talking about today, and the fact that we all get to come here once -- we're hoping not once a year, much longer. But we are before the Board on a regular basis, determining cost consequences, and so the process is here. 1445 MS. LOTT: I guess I would also add that VECC has concerns about the information flow and the accountability to customers and the Board. 1446 The question here would be: Are the record-keeping and reporting requirements that are placed on EI and EOS by these agreements adequate for the company to be fully accountable to the Board and its customers, and the cost consequences of these gas supply arrangements and operations? 1447 Or is it possible that there's going to be a veil here that will be cloaking some real situation? For example, if the company was paying too much per commodity and transportation and for service fees, and we just wouldn't know? 1448 MR. BRENNAN: No, I don't think there's an issue there. I think, again, if the Board wants to do a review of our purchasing practices, if you like, they are more than welcome to do that. They have every right to do it, and we will certainly comply with that. 1449 MS. LOTT: I guess my last two questions here, just as a follow-up: Will Enbridge Inc. and Enbridge Operational Services as the independent market operator, so-called, of ECG's gas supply and transportation portfolio and gas operations, be preparing evidence on and testifying to the Board on the gas supply and operations to be undertaken for ECG and the -- on the test-year consequences for setting rates? 1450 MR. BRENNAN: ECG is still responsible, myself in particular, I guess, for providing evidence as it relates to these particular service level agreements. 1451 So the responsibility rests with the utility still in terms of regulatory -- primary regulatory evidence, if you like, not myself. 1452 MS. LOTT: And my final question would be: I wonder if you could comment on whether, given the non-traditional arrangements for out-sourcing these core utility services to the affiliates, whether the Board should impose conditions or classifications or practices applicable to this, the sale, transmission, distribution, or storage of gas as provided for under section 36 of the Act, 36(4) of the Act. 1453 I wonder if you could comment on that? 1454 MR. FARRELL: Again, I take it you are asking for a layman's interpretation of the statute? 1455 MS. LOTT: Yeah. 1456 MR. FARRELL: Let me just give the witnesses a copy of that. 1457 MS. LOTT: I mean, it is important to remember that this is part of the scoping of the issue from the settlement agreement. 1458 MS. HOLDER: Was your reference to all of 36 or 36 point something? 1459 MS. LOTT: 36(4). 1460 MS. HOLDER: Oh, four. Okay. So specifically, what's your question again? 1461 MS. LOTT: I guess I would just like your comment on whether you think that the Board, given the non-traditional arrangements here for out-sourcing that are being undertaken by these agreements, whether the Board should impose the conditions that it can impose under that subsection of the act? 1462 MS. HOLDER: We don't believe there's any need for any more conditions to be imposed than -- we believe the protocols, the contracts we have in place, the ability to do audits, the information that we would provide to the Board on a regular basis through our gas cost applications should be sufficient. 1463 MS. LOTT: Those are all my questions. Thank you. 1464 MS. HALLADAY: Thank you, Ms. Lott. 1465 Now, might be a convenient time to have our afternoon break, and we will reconvene at four o'clock. 1466 --- Recess taken at 3:45 p.m. 1467 --- On resuming at 4:02 p.m. 1468 MS. HALLADAY: Please be seated. 1469 MR. MONDROW: I believe I'm next, Madam Chair. 1470 MS. HALLADAY: Mr. Mondrow. 1471 MR. MONDROW: Thank you. 1472 CROSS-EXAMINATION BY MR. MONDROW: 1473 MR. MONDROW: Panel, I've got a -- I've been struggling for some words with which to pose this. I want to look at this stuff from a higher level. 1474 Actually, before I get to that, I did have one follow-up question arising from VECC's counsel's questioning. 1475 Ms. Holder, you said it was, in fact, quite common in the gas industry to out-source operational services. Did I hear that correctly? 1476 MS. HOLDER: Referring not necessarily to the out-sourcing, but your gas control is not necessarily resident at your -- where the facilities that you are operating are. 1477 MR. MONDROW: Okay. So now I guess I'm a bit confused. I thought I was clear. 1478 What you are suggesting is that it may be the same regulated utility, but the gas control operations are done physically from an office somewhere away from the system that's being operated? 1479 MS. HOLDER: It would not be necessarily the same regulated utility, though. 1480 MR. MONDROW: All right. 1481 MS. HOLDER: But it is a true out-sourcing. 1482 MR. MONDROW: So it is an out-sourcing, okay. I did hear you correctly. And do you have any insight on how common such out-sourcing would be where the service provider is a company or an entity that also provides services, energy services, in the competitive marketplace? The kind of concern that's been raised here, has that occurred elsewhere? 1483 MS. HOLDER: Yes, I believe it has. 1484 MR. MONDROW: Can you point us, and the Board, to any precedent approvals or regulatory decisions that would address some of the concerns raised here by intervenors and give us some sort of framework to work with? 1485 MS. HOLDER: Not specifically. One of the circumstances I'm aware of was Enron, which probably doesn't exist today, so I don't have any specifics that I can direct you to. 1486 MR. MONDROW: I wonder if you might undertake, and this can even be informal if you wish, just to consider that, and if you can find some regulatory decision or document that would provide some insight into how other regulators have handled out-sourcing to entities that participate in competitive markets, you might advise the Board and perhaps file those, on the understanding that it's your position that, at least right now, EI is not competing in the marketplace. 1487 MS. HOLDER: Yes. 1488 MR. MONDROW: That's the concern that's been raised. So if there's some precedent that would help us, it may be useful to have that, and you're probably in the best place to find that. 1489 MS. HOLDER: I will try. One of the other responses could be that we're aware of the circumstances occurring but there's no regulatory precedent because the entity has not been before a regulator to address the issue. 1490 MR. MONDROW: That's fine. And if that's the case, that would also help. Thank you. 1491 MS. HALLADAY: Are you asking for a formal undertaking for that, Mr. Mondrow? 1492 MR. MONDROW: Why don't we have it just to keep track of it, Madam Chair, if we could. And even if the undertaking response is sparse, at least it will be checked off that way. 1493 MS. HALLADAY: Thank you. 1494 Mr. Moran. 1495 MR. MORAN: That would be J.4.8. 1496 UNDERTAKING NO. J.4.8: TO PROVIDE ALL AVAILABLE REGULATORY DECISIONS OR DOCUMENTS THAT DEAL WITH OUT-SOURCING TO ENTITIES THAT PARTICIPATE IN COMPETITIVE MARKETS 1497 MR. MONDROW: Thank you, Ms. Holder. Let me get back to where I started to start off. 1498 I want to take a relatively quick and relatively high-level look at this out-sourcing topic that's being considered. So I've been struggling with some words which I'll put to you, and ask you to help me with these. I've been looking for some way to describe the basic components of the regulated utility services that Enbridge Consumers Gas provides and I came up with three, and I'll ask you just to listen to them and supplement them if you think it's appropriate. 1499 The first is, and again these are the basic components of what the regulated utility does and what is regulated by the Board, the acquisition of gas for sale to system customers, the acquisition of upstream delivery services on behalf of system customers, that is, getting the gas to your distribution system, and then the physical distribution of the gas deliveries to customers. And at this point I'm talking about both system and direct purchase customers, and this last component would include things like system operations, like balancing the system by managing deliveries and storage operations. 1500 So I've got acquisition of gas, system gas, acquisition of upstream delivery to get the gas to your system, and then the physical distribution and the operation of the distribution system. My question is: Are there any other major components, and by "major" I mean at that level of generality, that I don't have on my list? 1501 MS. HOLDER: I think the first time I heard you talk about physical distribution you didn't refer to the physical plant. Are you assuming the physical distribution also includes the actual maintaining and construction of the physical plant? 1502 MR. MONDROW: Yes. That's a good point. 1503 MS. HOLDER: And I think one other major component, from our perspective, is operating the storage assets. 1504 MR. MONDROW: Okay. 1505 MS. HOLDER: Another major component from our perspective is actually growing the market. 1506 MR. MONDROW: I'm sorry, growing the market? 1507 MS. HOLDER: Yes. 1508 Another major component would be billing our customers. 1509 MR. MONDROW: Okay. 1510 MS. HOLDER: And all the components that go along with that. 1511 MR. MONDROW: Right. 1512 MS. HOLDER: And another major component would be being responsive to our customer's needs. 1513 MR. MONDROW: Customer care? 1514 MS. HOLDER: I think -- yes, all types of customer care, whether that be wanting a new service, a question about their bill, a question about their banked gas account, whatever the customer's needs may be. 1515 MR. MONDROW: Thank you. 1516 Each of these basic components, the three I listed, and the five you've added, of course, have a lot of underlying functions, many of which have been talked about during the course of today. So that's just to give you an idea of the various levels here. 1517 By the basic components, I'm trying to get a picture of what you do as a regulated utility, and then what you do generally is underpinned by a bunch of other activities. 1518 And I'm wondering whether we could get from you a chart that lists the various main functions that we've just identified and for each of those, the subcomponents, the basic components of activity underlying those major functions. And then columns that will tell us which of those underlying functions have now been out-sourced. And if they have been, to which company? 1519 So we would have a column for Enbridge Inc. and a column for Enbridge Operational Services, a column for Enbridge Commercial Services. There would probably be a column for Customer Works Limited Partnership, and then if there are other affiliates that have had functions out-sourced, there would be additional columns. 1520 But we would thereby have a picture of the utility operations and who's now doing them in one place. Would that be something you could produce without some effort? 1521 MR. PLECKAITIS: Can I just clarify, when you ask -- when you say out -- because you used the word "affiliate" and "out-source" synonymously. 1522 You're asking the question whether we out-source it to an affiliate or not, or is it relevant -- in your mind, is it you are distinctly asking where you've out-sourced it only to an affiliate? 1523 MR. MONDROW: No. That's a good correction, Mr. Pleckaitis. It's where you've out-sourced. 1524 MR. PLECKAITIS: Period? 1525 MR. MONDROW: Yeah. I'm trying to get a map of the utility functions and where they are now being carried out in one place. 1526 MR. PLECKAITIS: In many cases, their services are provided by both the company, or we've out-sourced it. So, for example, in operations, construction activity could be carried out by both company-owned personnel, employees of Enbridge Consumers Gas, or we could contract out. 1527 Usually, in many of these, there is a mix of both. 1528 MR. MONDROW: So we could get an "X" in two columns or more, for that matter. Could you do that? 1529 MS. HOLDER: Yes, we can. I'm just trying to -- I assume you're not referring to simple little things such as sending a document out to be copied. 1530 MR. MONDROW: No, I'm not. Janitorial services, I'm not concerned about. 1531 We're talking about the -- and that's why I was trying to do a picture of the levels of -- of the hierarchy, which I did very inelegantly, and I apologize for that. 1532 But I tried to identify what you do as a utility, and then each of those basic utility activities has a number of fairly major components. We've talked about the components for transactional services, for example, this morning for the gas acquisition, for operating a system and managing the storage and the deliveries. 1533 So those are the types of functions that I'd like to see on the list, and an indication of where they are being carried out. 1534 MR. PLECKAITIS: Just, it is a question to some degree on how much peel the onion on this, because we have thousands of out-sourcing arrangements. 1535 Out-sourcing -- be a definition where we are buying a service from a consultant or a contractor, everything from doing some research for us in the marketing area to more extensive out-source arrangements such as call centre activity and billing activity. 1536 So I guess one of the things that would be helpful is what level of granularity are you looking for in terms of the level of out-sourcing? 1537 MR. MONDROW: How could you make the task reasonable? How could I end up with a chart that would be no more than a couple pages long, at most? A dollar figure cut-off? Would that work? 1538 I'm trying to get a big picture here. I don't want you to go away and produce reams of paper. 1539 MR. PLECKAITIS: Well, I think maybe the cut-off, if we can try to put it on a maximum of two pages, that maybe will make it easier. 1540 MR. MONDROW: In a readable font. Why don't we start with that. That's fine. 1541 MS. HOLDER: In anticipation of your question, I have one full page just from operations alone, so it may be two pages and a little bit. 1542 MR. MONDROW: Okay. Well, we have eight major components. Let's see if we can keep it to eight pages or less. How about that? 1543 MR. FARRELL: I've got seven. Well, I'll check the transcript. 1544 MR. MONDROW: We'll go with that number, whatever number Mr. Farrell has. 1545 MS. HALLADAY: Mr. Moran? 1546 MR. MORAN: That would be Undertaking J.4.9. 1547 MR. MONDROW: Thank you very much. 1548 UNDERTAKING NO. J.4.9 TO PROVIDE A CHART LISTING THE VARIOUS MAIN FUNCTIONS OF ENBRIDGE CONSUMERS GAS THAT WERE IDENTIFIED; TO PROVIDE THE BASIC COMPONENTS OF ACTIVITY UNDERLYING THOSE MAJOR FUNCTIONS AS WELL AS COLUMNS THAT ADVISE WHICH OF THOSE UNDERLYING FUNCTIONS HAVE NOW BEEN OUT-SOURCED AND TO WHOM 1549 MR. MORAN: Now, still at a very high level, could I ask you to turn to Exhibit J.4.1, which is the information flow diagram, I believe. 1550 MR. FARRELL: Actually, it's "K." 1551 MR. MONDROW: It's "K." Okay, sorry. 1552 MR. FARRELL: As I said earlier, we'll try to put together a list that -- former exhibit number, correct exhibit number, et cetera. 1553 MR. MONDROW: Exhibit K.4.1, the information flow diagram that was discussed in your directed evidence this morning. 1554 If I drew a line around the three boxes, Enbridge Consumers Gas, Enbridge Operational Services, and Enbridge Inc., I'd end up with a triangle. 1555 Would that triangle graphically capture functions that were all previously carried on within the Consumers Gas regulated utility? 1556 MR. BRENNAN: Yes, I would think so. 1557 MR. MONDROW: So with the out-sourcing we're talking about today, what we have now are three companies that are essentially, certainly as depicted on this diagram, working together to provide the utility services that we talked about, some of the utility services that I talked to you off the top of my cross-examination? 1558 MR. BRENNAN: Yes, that's correct. 1559 MR. MONDROW: And as I understood your answers to some of the questions put by counsel for VECC, these functions have been split into pieces for the sake of both efficiency and, I guess, system security. 1560 MS. HOLDER: Yes. 1561 MR. MONDROW: And that efficiency would apply across the entire Enbridge group. It's not just efficiency from the Consumers Gas's perspective but from the entire Enbridge operational ambit's perspective? 1562 MS. HOLDER: Yes, for Enbridge Services. I'm not sure there's efficient -- I guess there would be at EOS as well, yes. 1563 MR. MONDROW: I gather that the intention is that with the out-sourcing there would be no alteration to the means or the objects of this Board's oversight of the utility services that Consumers Gas provides. I am not -- you are not intending to remove any of that from the ambit of regulatory oversight. 1564 MS. HOLDER: That's correct. 1565 MR. MONDROW: And I gather that there should be no essential change to the information available to this Board for the purposes of setting rates, or for any other purposes, permitted and mandated by the relevant legislation; is that fair? 1566 MS. HOLDER: Yes. 1567 MR. MONDROW: Mr. Brennan, when you were discussing matters with counsel for VECC, you asked him for a specific example of how the regulatory system will work under this out-sourcing arrangement, or what her concern was, and I'd like to take you to one such example. 1568 If you could open for me the CEED interrogatory response, Exhibit I, tab 3, schedule 82, the 16-page response. I'd like you to turn to page 5, please. 1569 It's at page 5, Mr. Brennan, of 16, looking at response part B. And the last sentence of that part B says: "The Ontario Energy Board would carry out," and the example being used here is a prudence review, "of ECG's procurement practices through EI as agent in the usual fashion. Section 7.0 (Regulatory Support) of the schedule to the agency agreement (Services Schedule) is intended to facilitate the regulatory process." 1570 So can I ask you then to turn to section 7.0 of the services schedule, which I guess is at CEED response number 44, as I recall. 1571 MR. BRENNAN: Section 7 of the service schedule? 1572 MR. MONDROW: I think that's what the reference in this interrogatory response is to, isn't it? 1573 MR. FARRELL: Yes, it is. 1574 MR. MONDROW: Just bear with me while I catch up to you. I'm looking at schedule 7.0, and in particular subsection 7.2 -- sorry, 7.0 of the services schedule, and in particular, subsection 7.2 which requires: "The services provider," Enbridge Inc., "to provide assistance and support to the services recipient," Enbridge Consumers Gas, "as required in furtherance of applications to the Ontario Energy Board for the following purposes: The approval of rates and services, including further unbundling; the designation of storage areas; the corresponding authorizations to store gas therein; and to construct related facilities." 1575 So I gather this example of the prudence review of procurement would fall under the approval of rates phrase in this subsection 7.2; is that your understanding? 1576 MR. BRENNAN: Yes, it could, in terms of information that we would need to support the rates that were looking to seek recovery of. 1577 MR. MONDROW: Okay. And can you then elaborate for us precisely how Enbridge Inc. will be involved in such a -- or would be involved in such a review of your gas procurement? What role would they actually play in the proceeding? 1578 MR. BRENNAN: In -- maybe if I just go back to the interrogatory response, in B: "The OEB would carry out a prudence review of ECG procurement practice." We would be filing our updated procurement policy and procedures with the Board as part of our 2003 rate case, so it will be reviewed by the Board. 1579 MR. MONDROW: Right. 1580 MR. BRENNAN: So that's what I'm talking about there in terms of the carrying out a prudence review of ECG's procurement practices. 1581 Now, in addition to that -- 1582 MR. MONDROW: Let me just stop you there because maybe I'm misunderstanding. Again, the last sentence of this part B of the interrogatory response says that: "Section 7.0 of the schedule to the Agency Agreement is intend to facilitate the regulatory process." Section 7.0 that we looked at talks about the things that the services provider will do in order to support the utility's regulatory process. So I'm asking you what precisely will EI do, using this example of the prudence review, that will support your application in that respect? 1583 MR. BRENNAN: The response there is there to ensure that if there's any information that EI can provide in order for us to go forward with the procurement policy and procedures to get approval, they will support us. Any information that we need from them in order to do that, they will provide that information. 1584 MR. MONDROW: Okay. And I gather, then, that it's intended that the same principles apply to any other area of regulatory approval that the utility requires; that is, if EI, or EOS for that matter, has information in support of your application for such approvals, they'll provide it so that it can be put on the record and reviewed by interested parties and the Board; is that fair? 1585 MR. BRENNAN: Yes, I think if you go to the actual agreement itself, the services that are being provided by EI include, as I said, gas supply planning, gas acquisition, risk management, transactional services, contract management, and regulatory support. So I would, under that category, include everything that we need to support our regulatory process here in Ontario. 1586 MR. MONDROW: Okay, but not just production of materials. What I'm asking you is whether these affiliates will, and under this agreement you are obligated to provide information, feed information on these out-sourced services back into the utility so that it can be placed before this Board. I assume that's the intention. 1587 MR. BRENNAN: Yes, it is. 1588 MS. HOLDER: I just want to add one other qualifying comment to that, though, and that's with -- if we're out-sourcing something to a third party, whether it be an affiliate or not, and it falls within the boundaries of the transfer pricing presented in the Affiliate Relationships Code, then that is the information we will provide. 1589 MR. MONDROW: I don't understand, Ms. Holder, sorry. 1590 MS. HOLDER: For example, we out-source construction to a bunch of contractors. We provide, or we will provide to the Board the cost that we incur to out-source those activities. 1591 MR. MONDROW: Right. 1592 MS. HOLDER: Relative to the terms and conditions of those contracts. If it's an affiliate, we may just provide -- if it's out-sourcing of, I don't know, fleet -- that wouldn't be to an affiliate. Out-sourcing something to an affiliate such as customer works, we would provide the transfer pricing information as necessary according to the Affiliate Relationships Code. 1593 MR. MONDROW: I guess what I was asking Mr. Brennan is I gathered, and I tried to take you to a specific example, but in reviewing the documentation, I saw in a number of instances a reference or a requirement that the services provider, whether EOS or EI, those are the two cases we're really examining here, was obligated to support the utility's regulatory applications. And I gathered what that meant was, provide any requisite information in support of those applications for whatever approvals this Board should give you. I took Mr. Brennan to agree that that is what is intended by these agreements. 1594 MS. HOLDER: Yes, just the -- sorry, when you -- I think what I heard in your question, though, was you used the broad term of out-sourcing to affiliates as all affiliates. So I was just -- 1595 MR. MONDROW: Okay. 1596 MS. HOLDER: If you are referring to those two documents, you were correct. 1597 MR. MONDROW: And your concern about out-sourcing beyond these two particular -- or beyond these two particular arrangements is what? 1598 MS. HOLDER: I have no concern. I'm just saying that we have -- it's not just those agreements we have to comply to. We also have to comply to the Affiliate Relationships Code and the information we have to provide to the Affiliate Relationships Code. 1599 MR. MONDROW: In addition to the information requirements for the services that are out-sourced by these two agreements. 1600 MS. HOLDER: Yes. 1601 MR. MONDROW: Okay. Great. If I could just ask you to -- 1602 MR. PLECKAITIS: Mr. Mondrow, just the -- what I was asking my other panel members is I heard you use the word, "any information," and if you are asking that question to specifically get a commitment from Enbridge to say any time it out-sources an activity to -- whether it's an affiliate or not an affiliate, should it have access to all information for -- that that affiliate or non-affiliate might have to present here in front of the regulator, I would say no, that's not correct. Would it be information that we consider to be relevant to the Board's responsibilities to provide oversight with respect to the quality and cost of service provided? Yes. 1603 MR. MONDROW: It's not intended that there be any change in respect of information-ability from the situation that was obtained prior to the out-sourcing. 1604 MR. PLECKAITIS: It's not specifically designed for that purpose. But whenever you out-source to a third party, for example, your ability and your desire to acquire -- you are no longer in control of the staff directly that -- they are no longer employees of your company they are employees of a third party company or an affiliate, so your limitations on your span and control is less. 1605 MR. MONDROW: So there may be less information available now than before is what you're telling me. 1606 MR. PLECKAITIS: Well, one of the reasons that people out-source is to try to simplify the responsibility of management and managing an operation or to improve costs in some fashion. So with part of that comes the -- you have a contractual arrangement that tries to specify exactly what the out-source provider needs to provide to the company. 1607 MR. MONDROW: But you're not just people, you're a regulated utility. So the concern is that the regulator will have less information now than before, and I assumed that wasn't intended but now I'm not sure. 1608 MR. PLECKAITIS: Well, we said right at the beginning, Ms. Holder indicated that the company's -- the company's view is that the range of approval that the regulator has with respect to these particular services is limited on the basis of the quality of the service provided and the cost of the service provided. So our view is respect to either of those two issues, the cost and the quality of service, that we are prepared to provide all the information that the regulator needs to respond to those. 1609 MR. MONDROW: Okay. I just want to ask you a couple of detailed -- relatively detailed questions on these arrangements and on your material filed, in particular. Could I take you back to Exhibit K.4.1 which is the information flow diagram. And I could probably do this myself but I might, in fact, make a mistake somewhere. 1610 You've attached to this, when you delivered it, and they have now been given separate exhibit numbers three reports: The SMS report, the long-range forecast and the daily demand profile. Could you just, for each of those reports, tell me which arrow they match to? 1611 MR. BRENNAN: Yes, certainly. The first report, the SMS report which I take it now is Exhibit K.4.2, is referenced on the information flow diagram to mean -- on, if you like, arrow number 1, and arrow number 7, where we talk about the SMS report. 1612 MR. MONDROW: Okay. 1613 MR. BRENNAN: With respect to the next one, which I believe is K.4.3, are the long-range forecast that is used in arrow number 4 where we talk about aggregate telemetred volumes, for planning purposes. 1614 MR. MONDROW: Okay. 1615 MR. BRENNAN: And finally Exhibit K.4.4, I assume, which is the daily demand profiles, that will be arrow number 1. 1616 MR. MONDROW: I would have missed at least one of those arrows, so thank you. 1617 Mr. Pleckaitis, you might be able to help me. I think you answered a couple of these types of questions earlier, and you've made it clear that currently neither Enbridge Operational Services nor Enbridge Inc. provides services to unrelated third parties; is that correct? 1618 MR. PLECKAITIS: To the best of my knowledge, that's correct. 1619 MR. MONDROW: Did they provide -- 1620 MR. FARRELL: Repeat your question. I didn't quite hear it myself. 1621 MR. MONDROW: That neither EOS nor EI provide any unrelated services to any unrelated third parties at present. 1622 MR. PLECKAITIS: Unrelated meaning non-affiliate to -- 1623 MR. MONDROW: Non-affiliate to the service provider. 1624 MR. PLECKAITIS: I'm going to correct myself. Enbridge Operational Services, for example, does provide some services to non-affiliated entities, for example, Alliance or Vector. 1625 MR. BRENNAN: Vector. 1626 MR. PLECKAITIS: Vector. So that is a pipeline that it has an ownership interest in but less than the, I think, 51 percent that would be required as by definition as being an affiliate. 1627 MR. MONDROW: Okay. That would be a third party, then, using that definition. 1628 MR. PLECKAITIS: Yes. 1629 MR. MONDROW: Are there any other examples of any other cases? 1630 MS. HOLDER: There are some other circumstances, but I believe that would be confidential information but I am aware that they do provide services to other companies other than just Vector. 1631 MR. MONDROW: All right. Do they provide -- do either of those companies, EOS or EI currently provide services to other affiliates of them other than the utility? 1632 MS. HOLDER: Yes. 1633 MR. MONDROW: Can you tell me which affiliates those are? Is it a long list? 1634 MS. HOLDER: No, I'm trying to think of what their names would be, in that Enbridge Operational Services is providing the liquids control for all the liquids lines, so every one of those liquid lines, whatever they may be, and there's more than a couple of them, they are providing service to some gas transmission lines as well such as Vector so -- which I guess is not an affiliate. 1635 MR. PLECKAITIS: And they are providing some services to Enbridge Gas New Brunswick. 1636 MR. MONDROW: To? 1637 MR. PLECKAITIS: Enbridge Gas New Brunswick. 1638 MR. MONDROW: Which is the regulated distribution utility in New Brunswick. 1639 MR. PLECKAITIS: Yes. 1640 MS. HOLDER: We should also add they also provide services to St. Lawrence Gas in New York state which is an affiliate. 1641 MR. MONDROW: Also a regulated distribution utility, St. Lawrence Gas? 1642 MS. HOLDER: Yes. 1643 MR. MONDROW: I don't think I will need to take you to the evidence reference on this, but there is a mention in a few places it harmonized EOS and EI agreements with each other, and I don't fully understand that. Perhaps one of you can explain what you are going to try to harmonize there. 1644 MR. BRENNAN: Certainly. The agreement with EOS was done in October of 2000. At that point in time, there was no intention of creating the relationship with Enbridge Inc. so the service level agreement, if you like, was set up with the transfer of information being between ECG and EOS. 1645 Now, with the creation of Enbridge Inc., there is a transfer of information between not only ECG and EI but between ECG and EOS, but now between EI and EOS, so we would have to make sure that the -- in particular, the EOS agreement would reflect the information that originally was coming from ECG would now be provided to EI and vice versa. 1646 MR. MONDROW: I see. So it's to cut EI into the loop in the appropriate places, essentially. 1647 MR. BRENNAN: Yes, if you like. 1648 MR. MONDROW: Pardon my colloquialism, but I think I understand. 1649 Two more quick areas. Maybe I better take you to this reference. Can we look at the main EI agency agreement which is the first attachment to VECC -- sorry, CEED response number 44. Exhibit I, tab 3, I think is schedule 44, and in particular on page 4, it's section 12. It's a one-section part of this agreement that talks about a transition period. It says: "The services schedule will be subject to a transition period which shall last for the period of time indicated within the services schedule." 1650 And then I follow that thread through to Exhibit K.4.5 which is the black-lined version of the services schedule and, in particular, article 1.11 which is on the second page of that black-lined version which simply says: "The transition period for the purposes of section 12 of the agency agreement," the section I just read to you, "is two months from the commencement date." 1651 I haven't been able to find out what the function of this transition period is, though, and I wonder if you could help me find that. 1652 MR. BRENNAN: It was more or less to make sure that the services that were being provided by EI, those new personnel were familiar with the policies and procedures of the utility in terms of, for example, gas acquisition, risk management, for example, what are the criteria that are used in evaluating transactional service deal. Basically, it was a period of time where the new personnel would become more familiar with what the -- what was being done previously within the utility. 1653 MR. MONDROW: Is there some other provision in the documentation either the main agreement or the services schedule that uses this term transition period and sets out what occurs during this period? 1654 Mr. Farrell, I'm happy if you have the answer. 1655 MR. FARRELL: Yes. If you look at the original services schedule, the one that had the effective date of July 1, 2001, the section 11 on page 14 had a section entitled "11.0 Transition Measures," and when we developed the protocols, essentially what happened, the former 11.1 became, through no intent, 1.11; in other words, we moved the transition period from there and turned the old section 11 into the one that dealt with the protocols and the preceding section called "orientation" gives more elaboration to what Mr. Brennan was indicating would be done in the transition period, and that's 10.0. 10.0 remains in the modified or the updated services schedule as well, if that's helpful. 1656 In other words, the orientation began on July 1st and then the transition period was to continue two months after the commencement date to ensure that there was -- that the personnel were communicating with one another in order to convey the appropriate institutional knowledge, if I can put it that way. 1657 MR. MONDROW: Okay. I'll take a look at that. As I understand it now, there's not much that turns on it at this point. Thank you. 1658 One more area quickly, Mr. McGill. In your direct, right off the top, you talked about another set of affiliate out-sourcing arrangements with Enbridge Commercial Services, and as I heard your direct evidence, you said that the utility was revisiting those arrangements in light of the sale of Enbridge Services Inc., Centrica, did I hear that correctly? 1659 MR. MCGILL: That's correct. 1660 MR. MONDROW: And as I understand your evidence, I think the reference is Exhibit A, tab 16, schedule 2, the services currently being performed by Enbridge Commercial Services are information technology, fleet management, payroll administration, maintenance of employee-related data, benefits administration, and employee service centre; is that correct? 1661 MR. MCGILL: That's correct. 1662 MR. MONDROW: And customer care which used to be provided by Enbridge Commercial Services is now being provided by the Customer Works Limited Partnership. 1663 MR. MCGILL: Customer Works Limited Partnership, yes. 1664 MR. MONDROW: Could you maybe give us some foreshadowing of why you are revisiting the current ECS out-sourcing and what that has to do with the sale of EHS to Centrica? 1665 MR. MCGILL: The reason we are looking at the services provided by ECS, Enbridge Commercial Services, is because they had been providing some of those services both to ECG and to Enbridge Services Inc.. And with the sale of Enbridge Services Inc., it's quite likely that Enbridge Services Inc. will take on the administration or the undertaking of some of those functions themselves, so there won't be a need for a shared services provider, if you will, as Enbridge Commercial Services was. 1666 So what we need to do now is take a look at that package of services and determine which ones are the most appropriate ones to continue to acquire from Enbridge Commercial Services and which ones are the most appropriate ones to undertake on our own within ECG. 1667 MR. MONDROW: What would dictate the determination one way or the other, generally? 1668 MR. MCGILL: I think largely it will be determined by Enbridge Services Inc.'s willingness to continue to acquire the services from Enbridge Commercial Services. 1669 MR. MONDROW: But what changes for the utility if Enbridge Services Inc. doesn't continue to procure any set of services? 1670 MR. MCGILL: Well, not necessarily anything. But what we want to try and do is make sure that we are acquiring the services or providing for them in the most effective way possible so that -- and that has changed, to some extent, with the sale of Enbridge Services Inc. 1671 MR. MONDROW: Can I ask you this: Was the point of Enbridge Commercial Services, was the point of setting up Enbridge Commercial Services to put functions there that could be shared with both the utility and an unregulated company? Is that the raison d'etre for these services -- 1672 MR. MCGILL: One of the reasons of putting Enbridge Commercial Services in places was so that they could potentially take on unrelated parties as clients. One of the outcomes of that was Customer Works where B.C. Gas took an ownership interest in a new entity that was formed to undertake the customer care components of what Enbridge Commercial Services had been doing, and also became a client of Customer Works. 1673 One of the reasons that that split had to take place when Customer Works was formed was that B.C. Gas was only interested in acquiring the customer care elements of the services that Enbridge Commercial Services was providing, so it's very much circumstantial. 1674 MR. MONDROW: So if Enbridge Services Inc. drops a particular component of the services that it was taking before the sale, and the only customer for those particular services is, after that, the utility, you might bring it back in-house because there's no reason to have it out in a separate company; is that right? 1675 MR. MCGILL: That's correct. 1676 MR. MONDROW: So to a large extent, that organizational change that gave rise to Enbridge Commercial Services and then a spin-off or a spinning off of it to Customer Works was to facilitate the sharing of services without the utility providing the sharing. It participated, but it wasn't the service provider; is that fair? 1677 MR. MCGILL: That's correct, yes. 1678 MR. MONDROW: That's it, anyway. Thank you very much. Thank you, panel. 1679 MS. HALLADAY: Thank you very much, Mr. Mondrow. 1680 Are there any other intervenors who think that they can finish cross-examination in 15 minutes? Mr. Thompson, you're shaking your head. No. 1681 MR. THOMPSON: No, ma'am. 1682 MS. HALLADAY: All right. Then that being the case, now might be -- 1683 MR. THOMPSON: Mr. Brett has some questions. 1684 MS. HALLADAY: Mr. Brett, can you do it in 15 minutes? 1685 MR. BRETT: No, I can't. Not even close. 1686 MS. HALLADAY: Then I think it may be appropriate for us to adjourn for today, and we'll reconvene tomorrow morning at 9:30. Thank you. 1687 --- Whereupon the hearing adjourned at 4:45 p.m.