Rep: OEB Doc: 129M3 Rev: 0 ONTARIO ENERGY BOARD Volume: 8 17 JUNE 2002 BEFORE: S. HALLADAY PRESIDING MEMBER R. BETTS MEMBER A. SPOEL MEMBER 1 RP-2001-0032 TRANSCRIPT VOLUME #8 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 #8 4 17 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 ELISABETH VEGH CEED MURRAY KLIPPENSTEIN Pollution Probe JACK GIBBONS Pollution Probe PETER THOMPSON IGUA 8 TABLE OF CONTENTS 9 PRELIMINARY MATTERS: [19] ENBRIDGE CONSUMERS GAS - PANEL 6 [42] EXAMINATION BY MR. FARRELL: [50] CROSS-EXAMINATION BY MR. VEGH: [142] CROSS-EXAMINATION BY MS. LOTT: [983] RE-EXAMINATION BY MR. FARRELL: [1057] ENBRIDGE CONSUMERS GAS - UNDERTAKINGS PANEL [1077] EXAMINATION BY MR. FARRELL: [1082] 10 EXHIBITS 11 EXHIBIT NO. K.8.1: DOCUMENT ENTITLED "COMPARISON OF COSTS RECOVERED FROM SYSTEM GAS AND DIRECT PURCHASE CUSTOMERS" [69] EXHIBIT NO. K.8.2: DOCUMENT ENTITLED "ABC-SERVICE OVERVIEW" [115] EXPLANATION OF EXHIBIT NO. J.3.14: ORAL [1107] EXPLANATION OF EXHIBIT NO. J.5.5: ORAL [1115] EXPLANATION OF EXHIBIT NO. J.5.1: ORAL [1164] EXPLANATION OF EXHIBIT NO. J.5.2: ORAL [1169] EXPLANATION OF EXHIBIT NO. J.5.3: ORAL [1172] EXPLANATION OF EXHIBIT NO. J.5.4: ORAL [1175] 12 UNDERTAKINGS 13 UNDERTAKING NO. J.8.1: TO MAKE INQUIRIES OF THE APPROPRIATE PEOPLE AND ADVISE IF THE LAST SENTENCE OF FOOTNOTE 2 MEANS THAT THE END RESULT WAS THAT THERE WAS MORE SYSTEM GAS IN STORAGE THAN ECG HAD ORIGINALLY THOUGHT THERE WAS [378] UNDERTAKING J.8.2: TO PROVIDE AN EXAMPLE OF A DAILY BILLING SUMMARY FILE [468] RESPONSE TO UNDERTAKING NO. J.5.1: FILED [972] RESPONSE TO UNDERTAKING NO. J.5.2: FILED [974] RESPONSE TO UNDERTAKING NO. J.5.3: FILED [976] RESPONSE TO UNDERTAKING NO. J.5.4: FILED [978] RESPONSE TO UNDERTAKING NO. J.8.1: ORAL [1086] RESPONSE TO UNDERTAKING NO. J.3.4: ORAL [1096] RESPONSE TO UNDERTAKING NO. J.6.2: ORAL [1100] RESPONSE TO UNDERTAKINGS J.5.6, J.6.3, J.6.6: ORAL [1132] 14 --- Upon commencing at 9:32 a.m. 15 MS. HALLADAY: Please be seated. 16 Good morning. Before we begin, are there any preliminary matters? 17 MR. FARRELL: Yeah, we have some more responses to undertakings that I'd like to file before we get started with this panel, Madam Chair. 18 MS. HALLADAY: Thank you, Mr. Farrell. 19 PRELIMINARY MATTERS: 20 MR. FARRELL: What Mr. Schuch has handed to you, Madam Chair, is an another copy of documents that were distributed last week that will be identified by this panel when we start with them. 21 MS. HALLADAY: Thank you. 22 MR. FARRELL: I should note before I make the next filing that on Friday, at paragraph 736 of volume 7 of the transcript, I said, "The next is in response to Undertaking J.5.6," and that's what the exhibit was entitled. But it, in fact, also contained the response to Exhibit J.6.3 and Exhibit J.6.6, and when we file our undertaking lists, you'll see -- and we'll do it -- not so much filed, but provide copies to parties that will refer to each undertaking to where the -- either the transcript reference, the exhibit reference or in some cases both, so everyone will have a path as to where to find each response. 23 The first is a response to Undertaking J.3.8, and we've marked it Exhibit J.3.8. This was a request -- I believe, by Mr. Moran; I've lost track of who made the request anyway -- to provide a list of Board files involving decisions that either mention prudence or discuss it -- discuss the topic. 24 And what we've done is we're giving not only a list but a copy of the decisions or the excerpts from decisions, that we've taken it -- taken this list from Exhibit I, tab 2, schedule 70, which was a list of Board decisions that Dr. Foster had reviewed. So we are providing the Board and all parties with a copy of the decisions themselves in addition to the list. Copies will be at the back. 25 Next, Madam Chair, is a response to two undertakings, J.3.5 and J.3.6. These were Mr. Moran's requests for particulars of the three TransCanada PipeLines applications that are referred to in Exhibit A, tab 14, schedule 4, I believe. 26 And what we've done is we've provided the particulars. And then just so the Board can be aware of them, what we've attached to the document are the cover page of the NEB decision plus a table in each case that lists the shippers that were the subject of that particular expansion by TransCanada. 27 So this covers the following proceedings at the National Energy Board, GH-3-96, GH-2-97, which you might recall started life as the Nexus phase 1 filing and then was converted into what the record shows as a conventional expansion. And finally, GH-3-98. 28 Next is a response to -- I'll just wait until Mr. Schuch distributes those. It includes, among other things, the date the NEB's Reasons for Decision were released. 29 The next is a response to Undertaking J.3.7. This was particulars of the TriState project, and when you get it, you'll see that we've given you the details of both the Federal Energy Regulatory Commission and the National Energy Board in terms of dates filed, dates withdrawn, and so on. 30 And finally, at the moment, anyway, response to Undertaking J.3.1. This was a VECC question on -- to list the pipelines that were planned to move gas away from Chicago or by -- that had been announced by November 1996. Copies of these are at the back. 31 I'm told that -- I was going to say that we -- the first one we filed was so thick, we didn't bring as many as people needed. But Mr. Ladanyi is now distributing them. We have extras downstairs that we'll put at the back of the room. 32 So I think that the plan we're operating on for today is that we will likely conclude this panel by the lunch break, and then we would propose to bring back certain of our witnesses from the issue 2.1 and issue 5.3 panels to explain the documents that have been filed. And then I think it's the preference of most, if not all counsel for intervenors, that they -- we would -- they would then go away and consider the explanation, review the documents, and then we would be returning another day for them to ask questions on the responses to undertakings. 33 In speaking with counsel about this process, Mr. Thompson advised me that he would be unable to attend tomorrow, so I -- taking into account that a lot of the undertakings were from him, I would propose that we would then resume on Wednesday morning. 34 MS. HALLADAY: That's fine, Mr. Farrell. 35 MR. FARRELL: Thank you very much. 36 I have nothing further at this time. We would hope to have some more documents, kill a few more trees, after the break. 37 MS. HALLADAY: Thank you, Mr. Farrell. 38 MR. FARRELL: So this panel of five witnesses is presented to deal with issues 2.3 and 2.4 jointly. 39 Sitting closest to the Board is Jim Bracken. Mr. Bracken is managing director, advisory services, of Acres Management Consulting. To Mr. Bracken's right is Mr. Brennan. To Mr. Brennan's right is Pascale Duguay, and to her right is Dave Charleson, and to his right is Steve McGill. 40 Now, I should advise you that Mr. Charleson is manager, strategic and key accounts, and you've been apprised of the positions held by the other witnesses. 41 So I think we need to have Mr. Bracken and Mr. Charleson sworn or affirmed. 42 ENBRIDGE CONSUMERS GAS - PANEL 6 43 J.BRACKEN; Sworn. 44 D.CHARLESON; Sworn. 45 S.McGILL; Previously sworn. 46 F.BRENNAN; Previously sworn. 47 P.DUGUAY; Previously sworn. 48 MR. BETTS: The panel has been sworn. 49 MS. HALLADAY: Thank you, Mr. Betts. 50 EXAMINATION BY MR. FARRELL: 51 MR. FARRELL: Ms. Duguay and gentlemen, except Mr. Charleson, who doesn't have any prepared evidence, the evidence relevant to issues 2.3 and 2.4 is listed in the settlement proposal at page 14. Were the exhibits that bear each of your names prepared by you or under your direction or control, starting with you, Mr. Bracken? 52 MR. BRACKEN: Yes, they were. 53 MR. BRENNAN: Yes, they were. 54 MR. DEWOLF: Yes, they were. 55 MS. DUGUAY: Yes, they were. 56 MR. FARRELL: And are these exhibits accurate to the best of your knowledge and belief? 57 MR. BRACKEN: Yes. 58 MR. BRENNAN: Yes. 59 MS. DUGUAY: Yes. 60 MR. DEWOLF: Yes. 61 MR. FARRELL: Now, Ms. Duguay, you are ECG's manager of rate research and design? 62 MS. DUGUAY: That is correct. 63 MR. FARRELL: Would you describe briefly your responsibilities. 64 MS. DUGUAY: I am responsible for management and policy in the area of cost allocation, rate design, revenue forecasting, deferral accounts clearing, as well as working cash volumes. 65 MR. FARRELL: Thank you. Do you have a copy of the document that's entitled "Comparison of Costs recovered from System Gas and Direct Purchase Customers"? 66 MS. DUGUAY: Yes, I do. 67 MR. FARRELL: Can we have an exhibit number for that document, please. 68 MR. MORAN: K.8.1. 69 EXHIBIT NO. K.8.1: DOCUMENT ENTITLED "COMPARISON OF COSTS RECOVERED FROM SYSTEM GAS AND DIRECT PURCHASE CUSTOMERS" 70 MR. FARRELL: Thank you. K.8.1. 71 Ms. Duguay, did you prepare this document? 72 MS. DUGUAY: Yes, I did. 73 MR. FARRELL: Would you lead us through it, please. 74 MS. DUGUAY: Certainly. 75 The purpose of this table is to compare the rates components for charges that are applicable to system gas and direct purchase customers respectively, and to outline, at the high level, the costs that these rates components are designed to recover. 76 So the way that the exhibit is laid out is in the left-hand side are the charges that are applicable to system supply customers, and on the left -- I'm sorry, the right-hand side, the charges that are applicable to direct purchase customers. So I will start off with system supply. 77 So the first charge is the gas supply charge, and the cost that this rates component is designed to recover is the cost associated with the commodity, fuel, working cash allowance as it relates to gas costs, the commodity-related bad debt, the system gas fee, as well as an allocated return for distribution and general plans in the rate base. 78 The second charge is a load balancing charge, and by "load balancing" I mean -- I allude to the means that the company employs to ensure that the supply and demand equation are met on a daily basis. So those means include pipeline transportation on TransCanada PipeLines, Alliance, Vector, ANR, MichCon, Link, the carrying costs of gas and inventory, the transportation cost for delivered and peaking supplies, as well as DSM operating costs; DSM, demand side management. 79 In terms of the distribution charges, these charges are recovered through the monthly customer charge as well as the delivery charge, per se. This rates component is designed to recover the operating expense for the utility as well as the storage operation, that is, Tecumseh, Union's M-12, and TCPL STS costs, return on taxes for utility and storage operations, unbilled and unaccounted-for gas, and finally, distribution-related bad debt. 80 Both riders, rider A and rider B, are applicable to direct purchase customers, so system gas customers would not pay any charges contained in that rate rider. And finally, this is not a charge for a refund that is included in the rate handbook, but as per the rate order: "The company will dispose of its deferral/variance accounts." And with regard to the purchased gas variance account, system gas customers would be partaking in the disposition of the commodity price variance as well as the load balancing price variance. 81 Now, turning to direct purchase customers, the gas supply charge is only applicable to buy/sell customers. It recovers the same component as system gas customers with the exception of the system gas fee. The load balancing charges are identical for all customers, that is, that they are the same at the rate class level in comparison to a customer on system supply. The distribution charges are also identical. 82 Rider A is applicable to transportation service customer and these are designed to recover and mend costs associated with the procurement of direct purchase, and there's also a provision there for transportation tolls credit. Rider B is designed to -- or contains the administration charges applicable to buy/sell customers. 83 And finally, in terms of the disposition of the PGVA, customers on direct purchase or T-service customers only are responsible for load balancing price variance in the PGVA, whereas buy/sell customers - and I should have made that more clear - would partake in the disposition of the commodity variance. 84 MR. FARRELL: Thank you, Ms. Duguay. 85 Mr. Charleson, you are, as I mentioned earlier, ECG's manager, strategic and key accounts. 86 MR. CHARLESON: Yes, that's correct. 87 MR. FARRELL: Would you briefly describe your responsibilities. 88 MR. CHARLESON: I'm responsible for all of the interactions with our large-volume customers, as well as with the agents, brokers, and marketers. 89 These responsibilities include all of the sales activities, as well as responsibility for all of the contracting, whether it be the rate contracting or direct purchase agreements. 90 MR. FARRELL: Thank you. 91 And your CV, Mr. Charleson, is Exhibit A -- excuse me, Exhibit A, tab 6, schedule 7? 92 MR. CHARLESON: That's correct. 93 MR. FARRELL: Mr. Bracken, you were retained by ECG to prepare a report on the cost of managing system gas on a stand-alone basis? 94 MR. BRACKEN: Yes, I was. 95 MR. FARRELL: And your report is Exhibit A, tab 14, schedule 6? 96 MR. BRACKEN: Yes, that's right. 97 MR. FARRELL: And your CV is Exhibit A, schedule 6, tab 5. 98 MR. BRACKEN: That's right. 99 MR. FARRELL: You had your own business, Bracken Consulting, when you were retained and when you prepared your report? 100 MR. BRACKEN: Yes, I did. 101 MR. FARRELL: And you are now the managing director, advisory services, for Acres Management Consulting in Toronto? 102 MR. BRACKEN: That's right. 103 MR. FARRELL: Please describe briefly your responsibilities in that position. 104 MR. BRACKEN: I'm responsible for providing a number of energy consulting services as well as energy supply management services to clients. 105 MR. FARRELL: Thank you. And you were employed by Union Gas Limited from 1989 to 1999? 106 MR. BRACKEN: Yes, I was. 107 MR. FARRELL: And your last two positions were vice president, marketing and supply, from 1996 to 1999, and vice president, delivery system planning, in 1999. 108 MR. BRACKEN: That's right. And in those positions, I was called to give evidence and testimony for the Ontario Energy Board and the National Energy Board on gas supply and transportation issues, among other things. 109 MR. FARRELL: And you've -- and that's because you had executive responsibility for Union's system supply portfolio? 110 MR. BRACKEN: That's right. 111 MR. FARRELL: Mr. McGill, do you have a copy of a document entitled "ABC-Service Overview"? 112 MR. MCGILL: Yes, I do. 113 MR. FARRELL: If that could be the next exhibit, K.8.2. 114 MR. MORAN: That's correct, Madam Chair. 115 EXHIBIT NO. K.8.2: DOCUMENT ENTITLED "ABC-SERVICE OVERVIEW" 116 MR. FARRELL: Did you prepare this document? 117 MR. MCGILL: Yes, I did. 118 MR. FARRELL: Could you lead us through it. 119 MR. MCGILL: Yes. 120 The purpose of this document is to clarify the nature of the company's ABC-service, so I'll just run through it. 121 The ABC-service is a non-utility activity of Enbridge Consumers Gas. That was determined to be the case by the Board in its EBO 179-14/15 decision in March of 1999. 122 The fully allocated costs associated with the service were eliminated from cost of service and eliminated from the company's fiscal 2000 PBR O&M base, leading into the current PBR arrangement. 123 The service is priced -- was originally priced to recover the fully allocated costs associated with it for a 1999 fiscal year. Since that time, the prices haven't changed, and the prices aren't necessarily cost-based anymore. It's really more a market-based price at this point in time. 124 The ABC-service is an optional service. It's provided to gas marketers, not the utility ratepayers. The service fees are charged to the gas marketers, not to the utility ratepayers, and there's no requirement for gas marketers to participate in the program. It's completely optional. 125 Gas marketers are free to bill their customers in any way they see fit, whether they want to do that on a stand-alone basis or through a credit card company or what have you. 126 ECG calculates the gas marketer's commodity gas charged based on the volume of gas consumed by the customer, using the marketers' price. And this amount is billed as a separate line item on the Enbridge bill. We also identify the supplier and a telephone contact number for each supplier on each and every bill. 127 We provide a daily billing summary file as part of the service to each broker that -- or gas marketer that partakes in the service. So the way that works is every night we produce bills, we create an electronic file that is a summary of all the charges and the volumes that relate to those charges for each account for each marketer, and that's communicated to them electronically. Every day we create bills. 128 The end customers retain access to all the company's optional billing and payment fee through things like the equal billing plan, pre-authorized payment; they can pay at the bank, they can pay by telephone; and the golden age service program still applies to those who qualify for it. 129 ECG remits to the gas marketers each month based on the volume of gas delivered by the gas marketer in the preceding month and these remits are based on the gas marketer's price. Payments to the gas marketer match their delivery pattern. Only annual true-ups with respect to pricing adjustments and the difference between what we bill the customers and what we've remitted to the marketers are required. Our fees are netted against the remit and to the marketers, so there's no separate invoicing, and we provide monthly statements that summarize gas delivery, payments, settlement and fees calculations in those transactions. And the gas marketer's payments can be directed to third parties or upstream suppliers if that is required. 130 Under the collection service agreement, which is the agreement between the company and the gas marketer, ECG is appointed as the receiving agent of the gas marketer. The company is taking an assignment of the marketer's receivables, and as such is at risk for the recovery of those amounts. 131 The gas marketer is totally covered with respect to collection risk, so for the fee they pay for the billing service each month, part of the benefit that the marketer gets for that is there's exposure to bad debt as part of the service. ECG imposes no security or prudential requirements on a gas marketer with respect to the program and again, the gas marketer incurs no bad debt expense in relation to their commodity sales. And in terms of equality, one of the things in Ms. Duguay's piece of evidence that she just presented, it indicates that system gas is allocated a pro rata share of the company's forecast bad debt expense. So that in terms of bad debt, both system gas customers and customers that are being billed through the ABC program are on equal footing. So that's basically my summary of this piece of evidence. 132 MR. FARRELL: Thank you, Mr. McGill. 133 Mr. Brennan, would you summarize ECG's position on this issue -- or on these issues, I should say. 134 MR. BRENNAN: Certainly. 135 We believe that Mr. Bracken's report properly identifies the functions necessary to manage system gas on a stand-alone basis. We see system gas being different than direct purchase gas in many ways. 136 While the company manages or balances both system gas customers and direct purchase customers, ECG does this on a daily basis, where the direct purchase customers balance on an annual basis. 137 MR. FARRELL: Thank you, Mr. Brennan. 138 I have no further questions. The witnesses are available for cross-examination. 139 MS. HALLADAY: Thank you, Mr. Farrell. 140 Mr. Vegh. 141 MR. VEGH: Thank you, Madam Chair. 142 CROSS-EXAMINATION BY MR. VEGH: 143 MR. VEGH: Panel, before I commence my cross-examination, I wanted to get clarification of some of the evidence you discussed this morning first. 144 First, Exhibit K.8.1, Ms. Duguay, I believe you walked through that discussion. 145 MS. DUGUAY: That's correct. 146 MR. VEGH: And again, just for clarification, could you turn up, please, CEED interrogatory number 38 -- sorry, 68. 147 MS. DUGUAY: I have that. 148 MR. VEGH: 68, thank you. I apologize for that. My question is around 68(a) where I've asked you to identify all supply costs that ECG considers to be in distribution services and not in gas services, and your response at the bottom identifies a number of functions that you considered to be just -- to be in distribution and not in gas supply. I wonder if you could just cross-reference this response to the items you identified in your chart, K.8.1. So, for example, gas control, where would I find that? 149 MS. DUGUAY: That would be under the distribution charges. 150 MR. VEGH: As a subheading to one of these? 151 MS. DUGUAY: That's correct. So that's part of the operating expense for the utility. 152 MR. VEGH: So gas control is operating expense. Telemetry? 153 MS. DUGUAY: Yes, that would be the same thing. 154 MR. VEGH: Okay. Gas supply planning? 155 MS. DUGUAY: Same thing. 156 MR. VEGH: Load balancing? 157 MS. DUGUAY: Same. 158 MR. VEGH: Managing upstream transportation capacity? 159 MS. DUGUAY: It would all be included in the distribution charges. 160 MR. VEGH: So all of these items in CEED 68(a) are under the heading, "Distribution Charges"? 161 MS. DUGUAY: That's correct. 162 MR. VEGH: Okay. Thank you. 163 Mr. McGill, I'd like to ask you a couple of questions about your discussions around the ABC overview. You referred to the removal of costs through fully allocated costing, and can I just ask you, do you mean by that the distribution ratepayers do not contribute to the cost of ABC-service? 164 MR. MCGILL: Yes, that's the effect of removing the costs of the program at their fully allocated cost. There was -- $3 million were removed from the company's O&M base going into the PBR for fiscal 2000. 165 MR. VEGH: And that's to ensure that distribution ratepayers do not contribute to the cost of billing for direct purchase customers. 166 MR. MCGILL: Yes, I think that was part of the reason for removing those costs. 167 MR. VEGH: So a marketer who provides a direct purchase service must internalize the billing and collection costs either through the ABC-service or some alternative service available in the market. 168 MR. MCGILL: I would assume that anyone selling a product needs to bill their customers for it, and I would assume that there would be some costs associated with that and there is a number of options available to commercial entities that enable them to bill their customers. 169 MR. VEGH: So putting these assumptions together as a -- from a regulatory perspective, the marketer must internalize those costs? 170 MR. MCGILL: Well, the marketer -- a marketer, a seller of a service or product, I would assume, does face some billing costs. 171 MR. VEGH: So the answer is, yes, that's something to be internalized by the marketer, those costs -- 172 MR. MCGILL: Well, I'm not sure exactly what the word "internalized" means in this context. I guess I'm agreeing that if you are in the business of selling things, there's probably some costs associated with rendering a bill. 173 MR. VEGH: And whatever those costs are should be absorbed by -- or, in fact, are absorbed by the marketer and not by distribution customers? 174 MR. MCGILL: Yes, that would be the case. 175 MR. VEGH: Thank you. 176 Okay, with that, I'd like to turn to my cross-examination, and thank you for your clarifications on what you provided this morning. And I'll just give you a reference to the materials that I will be referring to so you can have them handy. 177 First, I will be referring to the ADR settlement proposal, so have that available. In terms of your pre-filed evidence, I will be referring to, Mr. Bracken, your report at Exhibit A, tab 14, schedule 6. And I will also be referring to a document filed last week. It's Exhibit J.4.9, ECG Out-sourcing Matrix. 178 There are a number of interrogatories I will be referring to, and I will just give you a list now so that we can have them all available. These are all CEED interrogatories numbers 44 and 54. Those are the EI agency agreement and the EOS operational services agreement that we discussed last week. 179 I will also be referring to CEED IR's 57, 58, 59, 66, 70, 72, 73, and 86. 180 During the course of the cross-examination, I will be referring to a couple of documents that are filed in evidence, but I don't think -- I don't expect to have to take you to them. They should be uncontroversial. That's the rates handbook, which is at page 2, tab 6, section 1, and the evidence filed on the stand-alone issue, which is G.1, tab 1, schedule 2. 181 Now, Board Panel and witness panel, before I start with my questions, I'd like to provide just a little context to this issue as my client sees it. This may be helpful because this issue addresses policy matters on what, from my clients' perspectives, are very important policy matters around the costing and functions of distribution service on the one hand and system gas service on the other. 182 It is an issue that my clients have been pursuing for several years now in a variety of different ways. And going back a case or two ago, the plan was to have this issue addressed somewhat more completely in this case than it apparently will be. 183 In terms of how this issue was originally intended to be addressed, I'd like you to turn to an interrogatory that addresses this point. It's CEED interrogatory, schedule 73. 184 In that interrogatory, my client asked about the fully allocated costing study that was originally anticipated to be filed in this case. And in particular, if you go to sub (c) of this interrogatory, there's a request to confirm that what this review would include, this fully-allocated costing study. And just to demonstrate that this is not controversial, if you flip the next page, you see the response to this undertaking is that this is confirmed. 185 So the question in schedule -- the question in 73 sub (c) is confirmed, and that is that the review of the fully allocated costing study would include a review and comparison of the duties, functions, and services provided by ECG and corresponding costs to system gas customers and direct purchase customers in order to, (A), ensure that these costs were compatible between the two types of customers; (2), review the cost drivers that are causing the costs to be incurred; (3), review the detailed level of expenses, based on the 2002 budget; (4), review the assignment of administrative and general expenses of the fully allocated study to reflect the fully allocated approach and; (5), examine the equity of costs of the recovery of costs from each type of customer. 186 So that was the purpose of this exercise, as confirmed by ECG. 187 Now, in fact, this study was not filed in a manner that would allow a final review to be carried out in this case. In terms of the reason why this study was not filed, if you turn back an interrogatory to schedule -- to CEED interrogatory number 72, you see that in the preamble, there is a quotation from the company's evidence. 188 So I'm referring to the preamble, tab 3, schedule 72, because the evidence states that, and this is a quote, with the original reference to G.1, tab 1, schedule 2, page 1: "As the company began undertaking this study for their fiscal 2002 test year, it became apparent that as a result of the company operating in the targeted performance-based regulation environment, the detailed review of the existing functions and expenditures would be difficult to obtain and inconsistent with the targeted performance-based regulation environment." 189 So in other words, from ECG's perspective, it was not appropriate to do this study as originally discussed during the term of the PBR term. But the parties have agreed in the settlement proposal on how we can deal with this issue during the course of the PBR term, and we've agreed to an approach where we can get some direction from the Board in this case on how that study can be carried out in the next case. And that's what I will be asking some questions on. 190 And just to be clear on what that is, if you go to the settlement proposal, this issue is discussed at page 14. So that's Exhibit N.1, tab 1, schedule 1, page 14, but I'm looking in particular at the last two paragraphs where it says: "ECG also retained a consultant," that's Mr. Bracken, "for the purpose described earlier, the cost of managing system gas on a stand-alone basis, and he prepared a report card on the cost of managing system gas supply." Sorry, "He prepared a report on the cost of managing system gas supply. ECG proposes to use the functions identified in this report in preparing the FAC study for fiscal 2003." 191 "Some of the other parties," and that includes my client, "contend that the consultant's study has not identified all of the functions and all of the associated costs that would be required by a person who provides system gas on a stand-alone basis, that is, separated from distribution service per se in a manner similar to district purchase gas instead of integrated with distribution service, as is now the case. These parties also contend that if the Board finds that there are additional functions, the Board should direct ECG to include them in the FAC study for fiscal 2003, and in addition, the Board should consider requests for further relief in this proceeding." 192 So in addition to any other remedies you provide, the direction that you provide in this case will set the terms of the study for next year's case. And next year's case is extremely important because it will set the base for a new PBR period. And remember, this type of study must be done in a cost-of-service environment; otherwise, according to ECG, a detailed review is difficult and inappropriate and inconsistent with PBR. 193 So with that by way of background, I'd like to start my question with the members of the panel who are from the company. And Mr. Bracken, I will be asking you some questions later on. I don't need to hear from you on these policy questions, I'm going to ask the company. But I will have some questions for you later on on your report. 194 So this is directed to the company panel, and first I want to see if we can agree on some general principles. 195 The first general principle that I'd like to put to you is that ECG is required to provide non-preferential treatment to its distribution customers; would you agree with that principle? 196 MR. BRENNAN: Yes, I would. 197 MR. VEGH: The second principle is that direct purchase customers and system gas customers are both distribution customers of ECG. 198 MR. BRENNAN: Yes, that's correct. 199 MR. VEGH: The third principle is that ECG should not provide a more favourable distribution service to system customers -- to system gas customers than it offers to direct customer customers. 200 MR. BRENNAN: I would agree with that. 201 MR. VEGH: And then the fourth principle is that ECG should not provide itself or any other provider of system gas with more favourable distribution services than it provides for any other supplier who provides gas to customers using ECG's distribution system; would you agree with that? 202 MR. BRENNAN: Yes, I would. 203 MR. VEGH: Okay. So with that in mind, I would like to compare the services that ECG provides to system gas customers on the one hand with the services that it provides to direct purchase customers on the other hand. 204 I'd like to carry this out largely by reference to two interrogatories that were filed by my client. Those are interrogatories numbered 57 and 58. So the references are CEED interrogatory tab 3, schedule 57 and 58. Do you have those? 205 MR. BRENNAN: Yes, we have those. 206 MR. VEGH: Now, the way these interrogatories work is that in interrogatory 57, a number of costs are identified and ECG is asked to confirm that direct purchase customers incur those costs. Then at 58, ECG was asked to confirm whether system gas customers are exposed to those costs as well. So 57 and 58 are that comparison; that is, 57 asked you to confirm these are costs for direct purchasers; 58 asks you to confirm whether those are costs for system gas as well. 207 Now, so -- I'll go through this list with you and take it as a bit of a launching pad into some other questions. As I do this, I'd like to just have a bit of an overview statement, because during the course of this cross-examination, I want to assure my friends at the CAC and at VECC, maybe CAC on the record and VECC personally, that my approximate clients are not here to challenge the entitlement of system gas customers. In my clients' perspective, these customers should be treated fairly. However, in my clients' perspective, it is appropriate to explore whether ECG is, in fact, providing favourable treatment to customers who choose to have their gas provided by ECG as opposed to direct purchase customers who choose to have their gas supplied by another supplier. And I think it's clear from the record that distribution customers pay the same distribution rates as Enbridge Consumers Gas's system gas customers, and if -- and therefore they are entitled to similar treatment. 208 Now, going back to section -- or to schedule 57, the first question that I've asked you to confirm is whether direct purchase customers incur the costs of managing nominations to stay within the permitted parameters of banked gas accounts under part 4 of the rates handbook, that's sub (1), and your answer is that this is confirmed. 209 So with that, I'd like to -- and before looking at how system gas customers are treated here, I'd like to discuss with you just briefly the parameters of the rates handbook and how they impose costs. We've talked about this issue or touched on it briefly in the context of other issues last week, so hopefully this discussion will be more of a refresher than having to start from scratch. But just for everyone's reference, this discussion comes from the rates handbook which is in the record at Exhibit H.2, tab 6, section 1. And I won't take you to it, but that's the background to this. 210 Now, the rates handbook talks about a banked gas account, and I believe we talked about that before, Mr. Brennan. The banked gas account, as I understand it, is a record of the difference between the quantity of gas delivered by a direct purchase customer or its agent under a DPA and the gas consumed by the customer or by the agent's customers under the DPA; is that right? 211 MR. BRENNAN: Yes, that's correct. 212 MR. VEGH: And again, we addressed this point earlier, but the reason there is a difference between the amount delivered and the amount consumed is that gas is delivered on the basis of a mean daily volume, which is the same amount of gas every day, while it is consumed on the basis of actual usage. So at any time there will be a difference between these two amounts; is that right? 213 MR. BRENNAN: Yes, that's correct. 214 MR. VEGH: And the banked gas account is a record of that difference. 215 MR. BRENNAN: Yes. 216 MR. VEGH: And the rates handbook also provides that the company shall periodically report to customers the net balance in their BGA. And in interrogatory number 26, I asked you to provide a sample of this information reporting and you responded with -- your response was at schedule 86, and I'd like to go to the attachment at schedule 86, page 1 of 4. 217 Is this the monthly reporting document that direct purchase customers receive from Enbridge? 218 MR. CHARLESON: Yes, it is. 219 MR. VEGH: Okay. I just want to confirm my understanding of how this document works. 220 Column B in this document has a forecasted volume and the -- in the sample you've provided at the bottom, the forecasted volume is 43 million cubic -- what's the measurement here? 221 MR. CHARLESON: This is in cubic metres. 222 MR. VEGH: So it's 43 million cubic metres and then to -- we look at that forecasted volume, and that's for the entire year? 223 MR. CHARLESON: Yes, that would be an annual forecast. 224 MR. VEGH: And then that forecast is divided by 365 to produce an MDV? 225 MR. CHARLESON: That's correct. 226 MR. VEGH: And the MDV number then at the top -- or in the box in the top left-hand corner, the 118,688 cubic metres, that's the result that's derived from dividing this forecasted volume by 365? 227 MR. CHARLESON: That's how that should be arrived at, yes. 228 MR. VEGH: All right. Now, next to the forecast -- next to the forecasted volume column, which is B, we have C, that's cumulated forecast -- or cumulative forecast. And can you explain how this cumulative forecast works in relation to the forecast column in B? 229 MR. CHARLESON: The cumulative forecast really represents a year-to-date calculation for the forecast where it would take the sum of the preceding months and add the current month's forecast to that. 230 MR. VEGH: So December and January under forecast -- under forecast volume heading B, 5 million to 8 million, you add that together to have January of 13 million. 231 MR. CHARLESON: That's correct. 232 MR. VEGH: I see. The next column is then actual volume, and is this the actual amount consumed? 233 MR. CHARLESON: Yes, it is. 234 MR. VEGH: Now, that consumption, is that based on metre reads or estimates of metre reads? How is that determined? 235 MR. CHARLESON: It will represent a combination given that our -- given that a number of our metre reads are done on an estimated basis each month. It's -- the actual volume will be determined based on the billed consumption. 236 MR. VEGH: So this is a mix of actual and estimate. 237 MR. CHARLESON: That's correct. 238 MR. VEGH: And then the next volume, cumulative actuals, does that work the same way? It's just the addition of the monthly actuals? 239 MR. CHARLESON: Yes, it does. 240 MR. VEGH: And then table F, MDV variance, that's the difference on a monthly basis between the actual consumption in D and the forecasted consumption in C? 241 MR. CHARLESON: That's correct. 242 MR. VEGH: And then table I, that's the difference, is it, between the actual consumption and the actual amount delivered? 243 MR. CHARLESON: No, table I would be the actual amounts delivered. 244 MR. FARRELL: Excuse me. You both said table I. I think you mean column I. 245 MR. VEGH: I'm sorry -- column I. 246 MR. FARRELL: Column I, you said table I. 247 MR. VEGH: Could you explain again what column I is? 248 MR. CHARLESON: Column I would represent the actual volume of gas delivered during that month. 249 MR. VEGH: Table G, then, is the difference between the amount delivered and the amount consumed? 250 MR. CHARLESON: That's correct. 251 MR. VEGH: Okay. So it's really -- we would really look at table G -- our marketer would look at table G to -- column G -- the marketer would look at column G to determine the difference between what they've delivered and what they've consumed and what must be brought into balance at the end of the year; is that right? 252 MR. CHARLESON: That's correct. 253 MR. VEGH: Now, at the end of the year, then, to the extent that this -- or maybe just to back up. So this is really -- column G is the BGA account at any time; would that be right? 254 MR. CHARLESON: I believe that column G is -- for each individual -- is showing the variance within each individual month. You would take -- the total of column G would be the -- their position in their BGA at any point in time. 255 MR. VEGH: Okay. 256 Now, then, so how this works is that at the end of the year, if this amount, this total amount is less than 20 times the MDV or roughly, say, 5 percent of the total amount forecast, then the marketer may request to clear this amount by scheduling makeup deliveries or curtailments within 180 days of the next contract period; is that how that works? 257 MR. CHARLESON: Yeah, there is a number of options available. It could mean makeup deliveries. It may be suspensions, depending on the position, or they may choose to do title transfers with -- between other direct purchase agreements. 258 MR. VEGH: So makeup suspension or title transfers, those tend to be the major options? 259 MR. CHARLESON: Yes. 260 MR. VEGH: Now, in terms of makeup deliveries or suspensions, during that 180-day period in the next contract year, I take it that ECG has discretion over whether or not it will accept these makeup deliveries; is that right? 261 MR. CHARLESON: That's correct. At any point in time we would look at the operating constraints of the system to determine whether we are able to accept those deliveries. 262 MR. VEGH: And so, for example, if storage would not be available to accept the gas of a makeup delivery, then ECG can refuse to accept the makeup delivery; is that right? 263 MR. BRENNAN: It's not so much whether or not the storage is available or not. It's a question, for example, if a customer comes to us towards the end of the injection cycle, it's September and October where we are trying to fill storage, trying to do makeup. 264 That would be a situation where we would have -- have to look at and have some difficulty as to whether or not if we accept the makeup gas, what that does in terms of providing us too much gas, such that we would have to back off some of our transportation contracts and incur UDC. 265 So that would be one instance, for example, where it would be an operating constraint and where other customers, not just system gas customers, but all customers, including direct purchase customers, may have a negative impact on them. 266 MR. VEGH: Okay. So transportation entitlements is one issue or is one factor that would go into determining whether or not gas could be over-delivered? 267 MR. BRENNAN: Yes, there's lots of them. For example -- another example would be if someone wanted to suspend on a peak day. Well, the way our system is designed, we assume or have in our design expecting a certain amount of volume coming into the franchise in each day. We would not want -- be allowing customers to suspend on a peak day, for example. 268 MR. VEGH: Okay, but I don't understand you, then, to be disagreeing with me. You'd look at the system storage requirements, the system transportation requirements, the system commodity requirements, and on that basis make a determination of whether or not gas can be -- whether or not a customer can schedule a makeup delivery? 269 MR. BRENNAN: Right. We look at our operating ... 270 MR. VEGH: Which would include storage, transportation, commodity? 271 MR. BRENNAN: Yes. 272 MR. VEGH: And we referred -- so that's on the makeup delivery or the suspension. And the other option you referred to, or someone referred to, I forget who, was the title transfer option? 273 MR. CHARLESON: Yes, the other option you have is title transfers. And I'd like to add as well, they do also have the option of a purchaser sale of gas with the utility, which, in essence, is similar to a title transfer. 274 MR. VEGH: On the title transfer option -- title transfers, maybe you can help me out. As I understand them, they are effectively swaps of gas stored in the system. So to effect a title transfer, a DP customer who is short on gas could find a DP customer who is long on gas, and the two of them would trade title to that gas. 275 MR. CHARLESON: Yes, that's right. 276 MR. VEGH: Is that how that works? 277 Now, customers tend to find themselves out of balance very often because of weather changes, don't they? 278 MR. CHARLESON: Weather is obviously a contributing factor. 279 MR. VEGH: It's an important factor. 280 MR. CHARLESON: Yes. 281 MR. VEGH: And that would tend to affect customers the same way, wouldn't it, so that customers would tend to be long at the same time, and customers would tend to be short at the same time? 282 MR. CHARLESON: Given that different agreements will start at different periods within the year, there's different weather that's going to influence each direct purchase agreement that's out there. 283 So you may have an agreement that starts on November 1 for one -- with one customer and another one that starts on, say, April 1, and there's going to be different weather patterns influencing those. 284 So I think you can have offsets occurring at any point in time. 285 MR. VEGH: You can have, but isn't it more typical that customers would tend to be long at the same time or short at the same time? 286 MR. CHARLESON: I would say there is a tendency that you will see more of that, but not -- there will always be offsets available. 287 MR. VEGH: So there is a tendency for that. And to the extent that that tendency is at work at any given time, that will limit the practicality of a title transfer under those circumstances, wouldn't it? 288 MR. CHARLESON: There may be some limitations on availability. 289 MR. VEGH: Right. Now, I understand as well that the gas -- in order to meet a requirement to clear a balance, the gas has to actually be delivered to the franchise; is that right? So if I'm short on gas and there's no -- and let's just take the example that there's no storage available, so for that reason I can't have an over-delivery, accepting that there may be other reasons. But for the reason that storage planning does not allow me to make up a delivery, if I am short and I cannot find someone who is long to trade with, so a title transfer isn't a reasonable prospect, then can I make up my short-fall of gas by delivering gas to some other storage facility and then providing ECG with contractual access to that gas? 290 MR. BRENNAN: I think we would have to evaluate that on a case-by-case basis to see whether or not -- where that storage is. For example, if someone wants to give us gas and they have access to, for example, Michigan storage, for example, that doesn't do us any good, having that gas in Michigan storage. It would be different, for example, if they were able to do it -- if they had position either under a transactional service in Tecumseh or with Union Gas, that may be different. 291 And it would depend also as to when that makeup was occurring as well, because, for example, if someone wanted to give us makeup gas in the summer, that's one thing; if they want to give us makeup gas in the middle of the winter, it would be another -- it would be another situation. 292 MR. VEGH: Well, that's for the same reason you've discussed earlier, right, because of system planning issues? 293 MR. BRENNAN: That's correct, yes. 294 MR. VEGH: But in terms of a contractual entitlement to outer franchise gas, I'm not sure why -- I'm not sure I understand the rationale for not allowing that as an option. 295 MR. BRENNAN: Well, for example, if the customer wants to give us access to gas in Michigan storage, how do we get that gas to our franchise area? 296 MR. VEGH: If they would arrange gas and transportation to get that gas to your franchise area, would that be sufficient? 297 MR. BRENNAN: Yes, it would, because that's all we're asking for is that the gas has to be delivered to the franchise. 298 MR. VEGH: Is it your practice now to accept contractual assignments as opposed to delivery to the franchise? 299 MR. BRENNAN: Contractual in terms of allowing customers to do a title transfer to a storage facility that's outside the franchise area? 300 MR. VEGH: Yes. 301 MR. BRENNAN: No, it hasn't. No one has come forward with that option, but I guess our concern, again, would be making sure that we are able to get -- that gas gets delivered to the franchise area. 302 MR. VEGH: Right. We can go through a number of interrogatories, but my understanding is that your practice now is that the gas has to be physically delivered and a contractual assignment is not sufficient; is that right? 303 MR. BRENNAN: Again, we're talking about doing a title transfer within the storage; is that what you're saying? The obligation of the customer is to make sure that the gas gets delivered to the franchise area. That's the short of it. 304 MR. VEGH: Right, and they have to do that through either physical delivery -- 305 MR. BRENNAN: Yes. 306 MR. VEGH: -- or a title transfer within the franchise. 307 MR. BRENNAN: Correct. 308 MR. VEGH: And they can't do that through an alternative contractual -- 309 MR. BRENNAN: I'm sorry, I didn't catch that. I was talking to my colleague here. I'm sorry. 310 MR. VEGH: I will just rely on the information in the undertakings. 311 Now, so what we've been talking about, then, is clearing an imbalance within a permitted tolerance, so the amount that's within the 20 times of the MDV over the 180 days of the next contract term. 312 Now, if the customer -- or if the imbalance is larger than the 20 times the MDV, then if a customer has under-delivered gas throughout the course of the year, then it's short on gas and it's exposed to a charge or penalty that, as I understand it, is the financial equivalent of a purchase of gas from ECG at a price of WACOG plus 20 percent; is that right? 313 MR. CHARLESON: Yes, that's correct. There's a regulated rate for that purchase. 314 MR. VEGH: And if the customer has over-delivered gas during the period, then it is long on gas and it must effectively sell that gas to ECG at a discounted price of WACOG minus 20 percent; is that right? 315 MR. CHARLESON: Yes, again, there is a regulated rate. 316 MR. VEGH: But that is the -- 317 MR. CHARLESON: Yes, correct. 318 MR. VEGH: So 20 percent is the incentive or penalty or charge component; WACOG plus or minus 20. 319 MR. CHARLESON: Yes, that would be the incentive. 320 MR. VEGH: So when we talk about the costs of managing -- or the direct purchase customer faces now in managing nominations to ensure that they fall within the parameters of the rates handbook, and you answer that customer's faced that cost, the parameters that we've talked about -- just a second. The parameters that we are talking about are the year-end 20 times MDV. Those are the parameters; right? Maybe I will state that -- try to state that question a little more clearly. 321 The original interrogatory asked about the cost of managing nominations to stay within the permitted parameters of banked gas accounts, that's in 57.1, and the perimeter or the permitted parameters are the 20 times MDV; right? 322 MR. CHARLESON: Yes, that's correct. 323 MR. VEGH: So when we go back to that question at interrogatory 57, you say marketers do -- or direct purchase customers do face that cost, and the IR at 58, which asked you to confirm whether system gas customers face that -- also incurred those costs, the answer you give is that the nomination costs attributable to system gas customers are recovered through the applicable gas supply charge. 324 And I suppose that that's true as far as it goes, and maybe it's a bit of a trick question. But isn't it more accurate to say that system gas customers are not exposed to the costs of managing these nominations to stay within permitted parameters because ECG does not impose those parameters on system gas customers? 325 MR. BRENNAN: I'm not sure whether this answers your question, but I'll take a stab at it in any case. 326 ECG nominates or is responsible for nominating supply system gas, and here I'm talking about -- I would like to make a distinction with system gas. System gas is gas that's there to meet system gas customer needs, but system gas is also there to balance the system on behalf of all customers, both system gas customers as well as direct purchase customers. 327 So to that extent, then, nominations are being done for all customers. 328 MR. VEGH: Okay. And with respect to the nominations done to meet the needs of system gas customers, okay -- 329 MR. BRENNAN: Yes. 330 MR. VEGH: -- ECG does not impose the parameters of 20 times MDV on the gas that goes to those customers, does it? 331 MR. BRENNAN: No, it doesn't, because each and every day the utility is balancing or managing the demands for both system gas customers as well as direct purchase customers. 332 Direct purchase customers, their only requirement is to provide equal volume each and every day, and they have to do an annual true-up at the end of the year. This is the 20 times the MDV. 333 ECG balances on a daily basis both its system gas customer requirements plus load balancing for all customers. 334 MR. VEGH: On the system gas customer requirements, then, ECG does not impose fixed parameters on requiring those customers to be in balance or else face penalties; right? 335 MS. DUGUAY: No, not directly. But at the end of the day, system gas customers are exposed to commodity price variance every single day, which is not the case for direct purchase customers. And that is why there is an incentive in terms of -- and condition of the rate handbook to mitigate those balances at the end of the contract year, not at the end of every single day. 336 MR. VEGH: And I am going to get to commodity price variance in a second because that's really dealt with in the next part of this interrogatory. I just want to nail down the first part of this first, which are the parameters of the rates handbook which, as I understand your evidence, applies to system customers but does not -- applies to direct purchase customers but does not apply to system customers; right? 337 MS. DUGUAY: I missed part of the question. What does not apply to -- 338 MR. VEGH: This requirement to bring yourself into balance within the parameters, as we've discussed, or else be exposed to penalties, that requirement does not apply to system gas customers. 339 MS. DUGUAY: Not in the rate handbook. But by definition, given that we need to meet the demand of system gas customers every single day, there is a requirement. 340 MR. BRENNAN: Yes, because if -- obviously, if we are able to meet our requirements and balance each and every day, there isn't anything to true up at the end of the year for system gas customers, because we do it each and every day. 341 MR. VEGH: We'll get to -- we'll get to your balancing. 342 Let me just put it this way: If you didn't meet a balancing obligation imposed on yourself, you don't charge a penalty for that? 343 MR. BRENNAN: Well, we would not be able to meet customers' requirements. 344 MR. VEGH: We'll get to that. But there's no penalty incentive? 345 MR. BRENNAN: No. 346 MR. VEGH: Now, for example, you talked about bringing your -- that's fine. So let's move on for a second and just explore the point you were just discussing with me, which is your obligation to bring the -- to bring system gas customers in balance -- into balance every day. 347 I wanted to ask you a question about that that arises out of the settlement agreement and some -- the impact statement under the settlement agreement. So if you could turn, please, to the -- or the settlement proposal. At tab 2 of the proposal -- sorry, you know what, the reference is Exhibit N.1, tab 1, schedule 1, page 59, appendix D. This is your PGVA reconciliation. 348 I'm particularly interested in your treatment of storage withdrawals for system customers, and there's a discussion of that at footnote 2. 349 Do you have that? 350 MR. BRENNAN: Yes, just give us a minute, so we can read it, please. 351 MR. VEGH: Sure. 352 Okay. There's a correcting entry there that footnote 2 discusses, which is in the amount of $44.9 million. And the discussion around that entry is set out in footnote 2 and I'd like to draw your attention to the last two sentences in footnote 2 which explains this recalculations. It says: "ECG had overstated the storage withdrawals for sales customers, and by undervaluing the inventory reevaluation adjustment, ECG then recalculated the inventory balances and made the correcting entry to the PGVA." 353 So as I read this, this says that there was a miscalculation with respect to storage that had a financial impact of around 44.9 million, and that this 44.9 million resulted from an overstatement of the amount of storage withdrawals for system customers; is that right? 354 MS. DUGUAY: That would be my understanding, yes. 355 MR. VEGH: So isn't this another way of saying that you were wrong about the amount of system gas that was in storage? 356 MS. DUGUAY: My understanding, Mr. Brennan nor myself are responsible for that so we're trying to answer your questions to the best of our abilities, but my understanding is the apportionment of the physical storage between sells and T, that was miscalculated, and an offsetting adjustment needed to be made in the PGVA. 357 MR. VEGH: So there was more system gas in storage than ECG originally thought there was. 358 MS. DUGUAY: Yes. ECG can determine, like, the telemetred or the gas that is physically in storage, but there would be gas for system and potentially direct purchase customers given that ECG balances for every customer. The way I understand this is that the split was miscalculated. 359 MR. VEGH: So, in other words, there was more system gas in storage than ECG thought there was. 360 MR. FARRELL: Madam Chair, I'm wondering whether the more efficient way of providing Mr. Vegh with a response is to have the witnesses speak to the person who is responsible for this appendix to get a better explanation. As Ms. Duguay mentioned, neither one of these witnesses prepared this particular table and so they are struggling to interpret the footnote for which they are not responsible. 361 MS. HALLADAY: Is that fine for you, Mr. Vegh? 362 MR. VEGH: Well, was there an answer from the panel on this? 363 MR. BRENNAN: Well, again, recognizing I'm not responsible, my interpretation of this would say that it starts off by saying that ECG verifies that the total send-out, based on invoices it receives from TransCanada and Union Gas, as well as its own information from storage operations, and to calculate gas costs requires distinguishing between the sales send-out and T-service send-out. And we are saying that prior to fiscal 2001, the only way to make any distinction was to assume that the monthly billed T-service deliveries represented the monthly T-service consumption, and remaining was assumed to be deliveries for sales. 364 And so the difference between the deliveries and the consumption is the basis for determining gas costs and storage balances. And in the typical year, so I guess -- I'm sorry. So my understanding of this was that there was an actual difference between the deliveries and the consumptions which then rolled back into having to go back and recalculate what the assumed T-service deliveries would be. 365 MR. VEGH: All right. So when the second last sentence of footnote 2 says that "ECG had overstated the storage withdrawals for sales customers" -- 366 MR. BRENNAN: It was based on the assumptions that it had made for T-service customers. 367 MR. VEGH: Right. And those assumptions turned out to be incorrect. 368 MR. BRENNAN: Well, yeah, to the extent that T-service consumption didn't match T-service deliveries, yes. 369 MR. VEGH: Right. So the result -- the end result of that, and I don't mean to be critical of this particular instance, I'm just using this as an example of how ECG brings a system into balance, but at the end of the day, after all the assumptions were corrected and the numbers were looked at again in the light of new evidence or new information, the bottom-line determination was that there was more system gas in storage than ECG thought there was, so we had a financial reconciliation of around $44.9 million; is that fair? 370 MR. BRENNAN: I'm sorry, I don't think I could tell you. 371 MR. VEGH: Okay. 372 MR. BRENNAN: I don't mean to be speculating, and I don't think that's appropriate. 373 MR. VEGH: Well, can you provide an undertaking, then, to make inquiries of the appropriate people and determine whether -- and advise if the last sentence means that the end result of all this was that there was more system gas in storage than ECG had originally thought there was. 374 MR. BRENNAN: Yes, we can undertake to look at that. 375 MR. VEGH: Okay. 376 MR. MORAN: That would be Undertaking J.8.1, Madam Chair. 377 MS. HALLADAY: Thank you. 378 UNDERTAKING NO. J.8.1: TO MAKE INQUIRIES OF THE APPROPRIATE PEOPLE AND ADVISE IF THE LAST SENTENCE OF FOOTNOTE 2 MEANS THAT THE END RESULT WAS THAT THERE WAS MORE SYSTEM GAS IN STORAGE THAN ECG HAD ORIGINALLY THOUGHT THERE WAS 379 MR. VEGH: Now, while we're waiting for verification of that, could you, for the purposes of my next question, just assume that that is the case. Just assume that there was more gas in storage than ECG thought there was, okay? 380 MR. BRENNAN: On behalf of whom? 381 MR. VEGH: System gas customers. 382 MR. BRENNAN: Okay. 383 MR. VEGH: Now, conceptually, wouldn't this be the same as an over-delivery by a direct purchase customer? You're using more storage than you thought you were going to. 384 MR. BRENNAN: No, I would disagree with that. 385 MR. VEGH: Okay. Why? 386 MR. BRENNAN: I think, this is just more my guess, it's an accounting of what's in there. I don't think it's -- deliveries are the deliveries, so they are what they are. 387 MR. VEGH: Well, do you ever find yourself in a situation where you deliver more gas for system gas customers than they end up using? 388 MR. BRENNAN: No, I don't think so. If we take more deliveries for system gas customers than created in the consumption, then we don't have the storage space to accommodate that, then we have to back off our transportation and absorb UDC and that is something that we simply avoid at all costs. 389 MR. VEGH: Well, what you said was that if you take more deliveries than your storage can accommodate, assuming that your storage can accommodate the deliveries, have you ever been in a situation where you have delivered more than the customer has actually consumed but you've kept that difference in storage? 390 MR. BRENNAN: The gas in storage is not just for system gas customers, as you know, it's for all customers. So I don't know whether I could give you an answer for that. Certainly, there's cases where if it's a particularly warm winter, we may be carrying over-inventory from one year to the next, but I wouldn't say that's necessarily there just for system gas customers. It's there for all customers because it's part of the balancing that we need. 391 MR. VEGH: But in terms of these discrete services of buying gas for system gas customers and buying gas for system balancing purposes, have you ever been in the situation where you bought more gas for system gas customers on the assumption that this gas would be consumed by system gas customers and it turned out they consumed less than that? 392 MR. BRENNAN: It would be very difficult for us to establish that because when we buy gas, system gas again, it's -- we can't break out, for example, how much of that is for system customers, the customers themselves, or how much is there for load balancing purposes for all customers. When we buy gas, we don't make that distinction. 393 MR. VEGH: Well, do you have projections on how much gas you're to buy for system gas customers in a year? 394 MR. BRENNAN: We have projections in the amount of gas that we have to buy for all system supply, if you like, which would include system gas customers as well as for load balancing. 395 MR. VEGH: Right. But that would contain an assumption of how much is needed for system customers. 396 MR. BRENNAN: We don't break it out that way. It's just a total number. 397 MR. VEGH: So if half your -- if you project 10 percent of your system customers to leave, that doesn't have an impact on gas acquisitions? 398 MR. BRENNAN: To that extent it does, but that's not what you asked. And I think -- because that would adjust what we have to buy, but then there's -- as to the remaining that we have to buy, we can't break out between what is there for system gas customers solely versus for load balancing. 399 MR. MCGILL: What you have to understand is day in, day out, we are balancing the total demand on the system to the total available supply. System gas is effectively the plug. We know what all the direct purchase customers have nominated, and then we have to make up the difference on the day with gas that we acquire. That's in the heating season, in the middle of winter, a vast majority of that gas that comes in on a day would go to direct purchase customers to meet their demand on that day, because they deliver based on their average daily requirements over the contract year. That's why it's very difficult, if not impossible, to split it out as we're being asked. 400 MR. VEGH: Okay. Let's assume -- let's accept that you can't break it out. So when you look at your total expected purchases based on the assumption of how much would be consumed by system gas customers, how much would be consumed by direct purchase customers, so you purchase gas on the basis of what's needed to balance the system in light of those two factors. Okay so far? 401 MR. BRENNAN: Well, I think it's more the way Mr. McGill described it, where we know how much is coming in for direct purchase and then we'll buy the rest to serve the remaining demand. Part of that is to balance direct purchase customers; the rest is to meet the needs of system gas customers. 402 MR. VEGH: Okay. So the remaining demand, a portion is for direct purchase, a portion is for system gas, and it's impossible to determine how much is for each? 403 MR. BRENNAN: That's correct. 404 MR. VEGH: Now, have you ever -- has ECG ever miscalculated on the remaining demand, that is, purchased more gas than it turns out is required for the remaining demand in aggregate, if not broken down? 405 MR. BRENNAN: Again, no, that would not be our intention, obviously. We -- obviously, we only buy gas to meet our customers' needs. 406 And to the extent that our forecast, based on budget degree days, for example, is different -- we have warmer than normal weather than there is, we may have bought gas, for example, that would remain in storage and be carried forward into next year. 407 But again, it would be for both direct purchase customers as well as system gas customers. 408 MR. VEGH: Okay. So your intention is never to do that, but actual sometimes varies in forecast and you end up doing that? 409 MR. BRENNAN: We may have purchased gas that gets carried over from one year to the next. 410 MR. VEGH: And when you carry over gas from one year to the next, is there any exposure to balancing penalties or requirement to clear that within a certain amount? 411 MR. BRENNAN: By whom? 412 MR. VEGH: By ECG? 413 MR. BRENNAN: No. 414 MR. VEGH: Now, the next point in interrogatory 57 is on -- is sub (2). And the point of comparison here is exposure to commodity market risk where the forecast of consumption is different than actual consumption. 415 So we are not talking about penalties now or charges for being out of balance, but the commodity risk. 416 And, Ms. Duguay, I believe this is something that you referred to on behalf of the system side, so why don't we start there. 417 So if we could turn to CEED interrogatory 58(2), you were asked about how system gas customers are exposed to commodity market risk. The answer is: "The exposure to commodity market risk yielding price variances borne by system gas customers through clearance of PGVA." 418 And I want to make sure that we do address this point clearly, because you seem to emphasize that both in your answer just now, as well as in other interrogatories. 419 And the other one I'm thinking of in particular is CEED interrogatory number 70. On page 3, the second to last paragraph says: "System gas customers, through their stand-alone supplier, in sharp contrast to direct purchase customers, do not have the luxury of annual balancing. They must balance supply and demand on a daily basis, in effect, and they do so by means of the operational flexibility that is built into the supplier's gas purchase arrangements. Securing the requisite degree of operational flexibility is not a cost-free exercise. The producers or other suppliers of system gas price accordingly, and as a result, the cost of balancing system gas is embedded in the price that system gas customers pay through their supplier." 420 So is that the same point that you were making, Ms. Duguay, that it's really reflected more in the commodity price on a -- or managing that -- managing the -- to -- why don't you explain it. 421 MS. DUGUAY: Well, the point that I'm making in interrogatory 58, I guess, part 2, is the fact that whenever ECG disposes of the PGVA, it is -- just to keep it simple, it is essentially separated into three major components; (A), the commodity; (B), load balancing variances; (C), tolls variances. There are some other things in there, non-compliance and so on, but I won't get into that. 422 The commodity component is allocated to system and buy/sell customers only, and the commodity variance represents the variance between the actual western buy/sell reference price inclusive of fuel and the forecast amount that underpins the gas supply charge in rates. 423 So those variances are accumulated; some of them are daily; some of them are monthly. Most of them are monthly. 424 And to the extent that there are any variances, they will be responsible in full to either pay ECG for the difference if the forecast was understated, and conversely ECG will refund to the extent that its forecast was overstated. 425 But these variances, if we had to buy additional commodity for a T-service customer that is in a debit position, these costs, if it were not for the incentive, the 20 percent you were alluding to earlier, system gas and buy/sell customers would fully pay the additional costs that they imposed on the system. 426 MR. VEGH: And that's something you want to avoid through these incentives and penalties? 427 MS. DUGUAY: Absolutely. Absolutely. That's the intent of the incentives. 428 MR. VEGH: No, I understand that, and we're looking at what disciplines are on ECG right now. 429 And as I understood the answer, perhaps more directly addressed in schedule 70 than in 58, is that, really, the cost of doing this is found in the -- the cost of meeting -- the cost of managing the supply/demand variance is found more in the commodity costs, because you have to pay for that kind of flexibility that you require to manage this balancing on a daily basis; is that a correct interpretation of schedule 70? 430 Mr. Brennan, this was your answer, not Ms. Duguay's, so maybe it's more fair to ask that question of you. 431 MR. BRENNAN: Certainly. 432 Yes, that's what it's saying. It's saying, for example, some of our gas supply arrangements -- I can give you an example. 433 One example would be one of our long-term contracts where we have the option to go up to 105 percent of our contracted volume on any given day. So we can use that flexibility, if you like, in that contract, should it be colder than normal, whatever. But there's a price to be paid for that flexibility. 434 MR. VEGH: Now, will you grant me this, though, that the exposure to commodity prices to meet the necessary flexibility for meeting balancing obligation is something that applies to both ECG as a system gas supplier and to a marketer as a direct purchase supplier? 435 MR. BRENNAN: Yes, I would agree with that. 436 MR. VEGH: But I guess your point is that for a marketer it's easier because they only have to bring themselves into balance at the end of the year; is that right? 437 MR. BRENNAN: I wouldn't say necessarily easier, but I think they both have -- or have to deal with the commodity variance in prices, I guess, if you like. 438 MR. VEGH: So this applies to both the system gas supplier and a marketer as a direct purchase supplier. 439 MR. BRENNAN: Yes, to some degree. 440 MR. VEGH: Okay. So then with that I'd like to talk about the assets that you make available for ECG to manage its exposure, or to manage its balancing requirements. 441 MS. HALLADAY: Excuse me, Mr. Vegh, if you are heading on to another topic now, we think that now might be a convenient time for a morning break. 442 MR. VEGH: Thank you, that's fine. 443 MS. HALLADAY: Or else you'll keep right on going, I know. So perhaps it might be convenient to break now and we will reconvene at 20 after 11:00. 444 --- Recess taken at 11:05 a.m. 445 --- On resuming at 11:25 a.m. 446 MS. HALLADAY: Please be seated. 447 Mr. Vegh. 448 MR. VEGH: Thank you. 449 MR. BRENNAN: Mr. Vegh, I wonder if I could just make a comment on the last point where we were talking about commodity variances. 450 I just want to point out that while we think that both system gas customers as well as direct purchase customers are exposed to commodity variances, I just want to make it clear that system gas customers see that on a daily or monthly basis whereas, I think, direct purchase customers are only exposed, say, at the end of the year when they have to do the true-up. 451 MR. VEGH: I think that's fair, perhaps with this caveat: Don't direct purchase customers face that not just at the end of the year when they actually want to do the true-up but during the course of the year when it appears that they may be out of balance at the end of the year; therefore, they want to avoid penalty? 452 MR. BRENNAN: Assuming that they are in the position where they can have makeup or suspensions, correct. 453 MR. VEGH: But the idea is that you want them to manage their portfolio throughout of the year so they don't get into a position of being out of balance at the end of the year. 454 MR. BRENNAN: My point is, I think, that system gas customers probably do that more frequently than direct purchase customers. That's my only point. 455 MR. VEGH: I think that's fair. Thank you for clearing that up. 456 And what we'll get to in a minute is the type of information that's available to the different types of customers. But before doing that, I just wanted clarification, Mr. McGill, of something you said in chief, and it's referred to in Exhibit K.8.2. So I want to make a bit of a detour back to that, if you will. 457 K.8.2 talks about the ABC-service and you say there that -- in the third major section, the second sub-bullet, you say, "Daily billing summary files are electronically communicated to gas marketers each day." And what I wanted to ask you was, if you go back to CEED interrogatory number 86, you were asked to provide a sample form of the information that ECG provides to direct purchase customers or their agents that records the amount of gas delivered, the amount consumed, and the physical reconciliation. And you didn't provide a copy of a daily billing summary file. Why is that? 458 MR. MCGILL: Well, I believe that is the case, and my only explanation is that that would have been an oversight at the time the interrogatory response was prepared. 459 MR. VEGH: Okay. So could you then provide a sample copy of this daily billing summary file that's electronically communicated? 460 MR. MCGILL: Yes, we can provide a printed copy of a section of what that file would look like. 461 MR. VEGH: Okay. And is this provided to every marketer? 462 MR. MCGILL: The daily billing summary is provided to all marketers that contract for agent billing collection services. 463 MR. VEGH: So every ABC customer gets it? 464 MR. MCGILL: Every marketer that is contracted for the agent billing collection service. 465 MR. VEGH: Okay. 466 MR. MORAN: Madam Chair, that would be Undertaking J.8.2, example of a daily billing summary file. 467 MS. HALLADAY: Thank you. 468 UNDERTAKING J.8.2: TO PROVIDE AN EXAMPLE OF A DAILY BILLING SUMMARY FILE 469 MR. VEGH: And does this record -- which daily billing does this record? Is this the previous day's or -- 470 MR. MCGILL: Well, the way the billing operation works is that every evening we produce roughly 50,000 bills. And to the extent that a proportion of those have agent billing collection commodity charges on them, we provide a summary of basically the line items that we depict on those bills. And the main -- one of the main reasons we did this at the time we instituted the program was so that if customers were phoning a marketer the day they got their bill to inquire about their charge, the marketer would have a certain amount of information to enable them to address that inquiry; things such as the amount of gas consumed, the price that was applied and the total amount billed, along with information that would enable the marketer to identify which customer was which. 471 So that information is summarized into an electronic file and transmitted to the brokers electronically every night as part of the billing process and as part of the ABC-service. 472 MR. VEGH: How current is that information by the time a marketer receives it? 473 MR. MCGILL: They would get it virtually the same time as the bills were calculated, for all intents and purposes. So the bills we produce tonight, that file would be transmitted sometime between now and tomorrow morning, and it would be available to the marketer for their use. 474 MR. VEGH: And what's your billing cycle? 475 MR. MCGILL: Well, we cycle -- day one usually starts on, say, around the 5th or 6th of the month, and we bill for -- on 21 business days per month or per billing month. 476 MR. VEGH: So when you send out the summary for June -- 477 MR. MCGILL: No, we send out the summary for -- tonight we'll be sending out the summary for whatever today is, June 17th. 478 MR. VEGH: For all the bills that go out June 17th? 479 MR. MCGILL: That's right. 480 MR. VEGH: And what's the consumption period covered by the bills that go out on June 17th? 481 MR. MCGILL: That would be roughly from about May 10th, on average, to about June 10th on average. 482 MR. VEGH: And when was this instituted? 483 MR. MCGILL: That has been available since the agent billing collection service was introduced in either June of '98 or '97. I have to go back and check. 484 MR. VEGH: That's fine. So if you could provide a sample, I'd appreciate it. 485 So with that, I'd like to pick up where we left off before the break where we talked about the exposure to commodity price variance for system gas and direct purchase customers. 486 And, Mr. Brennan, you provided clarification that system customers must bring themselves into balance much more regularly -- or system customers must be brought into balance much more regularly than direct purchase customers; therefore, they face a higher volatility. Is that fair? 487 MR. BRENNAN: Yes. 488 MR. VEGH: Okay. 489 So now I want to talk about the information that's made available to manage that kind of risk. And first, the -- one way to look at this is to refer to ECG's agreement with EI, because EI is now doing gas supply acquisition on behalf of ECG? 490 MR. BRENNAN: Yes, that's correct. 491 MR. VEGH: And can you turn, please, to the performance measures at page 12 of that agreement, which is at Exhibit I, tab 3, schedule 44. 492 MR. BRENNAN: You're talking about the service schedule or the -- 493 MR. VEGH: Sorry, the service schedule. 494 MR. BRENNAN: Page 12? 495 MR. VEGH: Yes. 496 MR. BRENNAN: Yes, I have that. 497 MR. VEGH: So this responsibility to bring the system into balance and to bring and to manage the price volatility for system gas, that's now undertaken by EI under this agency agreement? 498 MR. BRENNAN: Yes. EI looks after the gas supply planning, gas acquisition, to make sure that the total system is balanced on each and every day for all customers, whether it be system gas customers or direct purchase customers. 499 MR. VEGH: And doing that, I take it that they are bound by these performance measures that are set out in section 8.2? 500 MR. BRENNAN: I'd just like to point out that these are not necessarily performance measures, per se. These are objectives that will be used to develop performance measures. 501 MR. VEGH: Okay. So these objectives include, for example, section -- the first one is: "Provide adequate supply to load balancing as well as consumptive or end-use purposes in accordance with the supply portfolio" -- which I understand to mean system customer acquisitions -- "in order to meet demand for gas on a daily, seasonal, and annual basis." 502 Number 2: "Provide proposals" -- 503 MR. BRENNAN: Sorry, when you say "supply portfolio," it's there to meet, again, not just system supply customers but also to do the balancing for all customers. 504 MR. VEGH: Could you -- that's not my understanding of the definition of supply portfolio, so could you turn, please, to the definitions at page 20 of the services schedule. 505 My understanding is that a supply portfolio is defined as: "Agreements for the procurement of system gas." 506 MR. BRENNAN: Right, and I guess my definition of "system gas" is gas to meet system gas customers, as well as to do balancing for all customers. 507 MR. VEGH: Well, the agreement's definition of "system gas" is: "Gas purchased by the service recipient for resale to its customers and to Gaz Affaire for resale to its customers, other than gas purchased under GPA-type direct purchase agreements." 508 MR. BRENNAN: Right. 509 MR. FARRELL: Excuse me. That was the definition in the "as filed" version of the -- in the blue sheet version, the definition of system gas was changed. 510 MR. VEGH: Okay. Well, thanks for that clarification. I hadn't appreciated that. I don't think much turns on it. 511 So then the supply portfolio is both for system gas and for direct purchase. 512 MR. BRENNAN: That's correct. 513 MR. VEGH: And instead of going through all these objectives, is it fair to say that what's expected of EI is that it's to put together a supply program for both system gas and for direct purchase customers based on the optimal mix of commodity, transportation and storage for these customers? 514 MR. BRENNAN: The supply portfolio, I believe, if I'm not mistaken, excludes storage, but I'd have to check that. But generally, the supply portfolio -- just let me check. 515 MR. VEGH: It's both storage programs and supply programs. So whether one is included in the other, the obligation is to manage both storage and supply, to come to an optimal mix of both storage and supply for system gas customers and for balancing obligations. 516 MR. BRENNAN: The supply portfolio looks at essentially the supply, the commodity and the transportation side of it. 517 MR. VEGH: Okay. So EI is to develop a supply program based on the optimal mix of commodity and transportation; is that more clear? 518 MR. BRENNAN: Yes. 519 MR. VEGH: And in terms of the information provided to EI to carry out this obligation, we've referred to already, I don't have to take you to it, but appendix B to the EOS agreement sets out a number of reports that you provided copies of on Friday. And I take it that EI is to use these reports, the forecasts, variations from forecast, et cetera, to put together its supply program. 520 MR. BRENNAN: I wouldn't want to just use that general statement. I think you'd have to go through the reports one by one to see what the actual use of these individual reports are. Some of them are just nomination reports, for example. 521 MR. VEGH: Well, to the extent that those reports are relevant for purposes of putting together a supply and transportation portfolio, you would expect EI to make use of those reports so that it can meet the objectives in the services agreement. 522 MR. BRENNAN: Yes, that's correct. 523 MR. VEGH: And last week, Mr. Brennan, you referred to -- I think you referred to daily weather forecasts and updates from daily weather forecasts throughout the course of a day. 524 MR. BRENNAN: Yes, that's something that the EOS group do in Calgary. They look at what the weather forecast is for the day and try and balance the system for that day, and to the extent that there are additional weather forecasts throughout the day, then that process would again continue throughout the day in terms of trying to balance the system. 525 MR. VEGH: EOS would do this and you would expect EI to balance the system in light of ongoing information as well. 526 MR. BRENNAN: Only to the extent that additional gas had to be purchased, for example. But primarily it would be left with the EOS group in, for example, whether or not they would have to inject or withdrawal gas out of storage primarily. EI would only be involved, for example, if there was, for some reason, a need throughout the day, which is highly unlikely, that you would have to go out and purchase gas, for example. 527 MR. VEGH: But you would expect EI and EOS to coordinate so that each is meeting their respective obligations to keep the system in balance on a daily basis. 528 MR. BRENNAN: I would think that EI has less of a need to look at the day-by-day stuff than EOS. EOS is primarily looking after the day to day. EI is looking more at what you are doing in a month, seasonal or annual. 529 MR. VEGH: They are looking more at that, but they are also involved in the day to day. 530 MR. BRENNAN: Not really. I think it's mostly EOS, that would be my -- how I would view it. 531 MR. VEGH: Well, if you are in a position where you are going to be short on a given day, wouldn't you require EI to go into the market to purchase some gas? 532 MR. BRENNAN: It depends what you mean by "short". For example, we may have given a quota for withdrawals to Tecumseh. To the extent that the weather has turned and we need more gas, then we would -- EOS would then contact Tecumseh and increase that quota. It wouldn't necessarily mean going out and purchasing gas. It's typically very difficult to go out and buy gas throughout the day. Usually, you would buy gas the day prior for the next day. 533 MR. VEGH: Okay. So you would expect EI to be involved on the day-to-day changes to forecast but not the intra-day changes to forecast; is that the idea? 534 MR. BRENNAN: To the extent, but again, usually that happens very rarely. Mostly we can manage those day-by-days with our injection and withdrawal price out of storage. 535 MR. VEGH: But you would want to make sure that you are using all the assets optimally, so you would look at storage and you would look at gas acquisition, and to the extent that storage is a better option, you would get the gas from storage; right? 536 MR. BRENNAN: Absolutely. 537 MR. VEGH: But that would involve looking at acquisition possibilities as well. I mean, you would expect the left hand to know what the right hand is doing. 538 MR. BRENNAN: Yeah, there's some odd cases, I guess, where we may decide whether or not we want to curtail versus buying gas versus what our storage withdrawals are. So yes, but those don't necessarily tend to be day to day. They're looked at throughout the winter period. 539 MR. VEGH: Understood. 540 And in terms of the -- you will be going through later, I think, the information provided to EI under schedule B, but it's fair that whatever information is provided to EI under schedule B, EI would be expected to use that information to manage the commodity risk so as to make it -- just to manage it effectively so as to avoid exposure to higher costs as a result of the volatility in prices. 541 MR. BRENNAN: Yes. 542 MR. VEGH: Now, in terms of the costs of accumulating all the systems necessary to collect this information, to aggregate this information, to produce it, to communicate it among EOS, EI, and ECG, I take it that the costs of doing that are borne by all distribution customers? 543 MR. BRENNAN: Yes, those system requirements we talked about - I'm thinking here about IT requirements, I think is where you are going - those would be borne by all customers. 544 MR. VEGH: Yes, okay. Thank you. 545 Now, I'd like to compare, then, the information that may be made available to EI to carry out its responsibilities, and you will shed more light on that later as we go through the reports. But I would like to compare that information to the information that's available to a marketer who is putting together a portfolio to serve the marketer's customers. And can you help me with that, please, by going to Exhibit I, tab 3, schedule 57. 546 In small numeral (ii), I asked whether a marketer incurs the costs of exposure to commodity market risk where ECG's forecast of consumption is different than actual consumption, and your answer is that you can't confirm the underlying assumption. 547 And you go on: "ECG does not forecast consumption for large volume customers. Rather, the volumetric forecast for large-volume customers is derived from the customers' expectations regarding their volumetric consumption in a given test year. In the case of aggregated direct purchase agreements, the aggregated mean daily volume used as the default for the nominations is based on the most recent historical consumption adjusted upward or downward, as per instructions received from the marketers." 548 So when it comes to direct purchase customers and their ability to use system information to deal with a forecast to manage their own exposure, I take it that they get none of the reports that are provided to EI to manage exposure for system gas customers. 549 MR. BRENNAN: Those reports would have -- typically would have demand on an aggregate basis. It wouldn't break it out between direct purchase or system gas customers. It's demand in total. 550 And I think if you look at the undertaking -- or the exhibits that we filed as part of the sample reports, you'll see as far as the daily demand profiles are concerned, if you look at that, those demands are the aggregate demand for all customers. 551 MR. VEGH: Well, the aggregate demand is based on things like weather. 552 MR. BRENNAN: There is assumptions in there for weather; correct. 553 MR. VEGH: Right, but those assumptions are not shared with marketers providing gas to direct purchase customers; right? They are only used for the purposes of purchasing gas by EI. 554 MR. BRENNAN: It's there to have the daily demand such that we can balance the system on each and every day for both system customers and direct purchase customers. 555 MR. VEGH: But it's not made available to marketers to provide gas supply to direct purchase customers? 556 MR. BRENNAN: No, and to date, and maybe Mr. Charleson can correct me, but I don't think any customers have actually asked for it. 557 I know customers have asked for degree day information, for example, actually degree days, and we are happy and have provided that information to customers. 558 MR. VEGH: But on a systematic basis, the customers are not kept in the loop on forecast variations from forecast, et cetera; isn't that fair? 559 MR. BRENNAN: You're talking about direct purchase customers? 560 MR. VEGH: Yes. 561 MR. BRENNAN: Marketers in particular? 562 MR. VEGH: Marketers, for example, yeah. 563 MR. MCGILL: Well, I think there's two points here: One is that a direct purchase customer or an agent acting on their behalf is only required to deliver the mean daily volume on a day. So I don't believe that their day-in, day-out information requirements are to the same extent as they are for someone who's trying to balance the entire demand on a system on a day to the total available incoming supply streams on any particular day. 564 The second point is that between -- at least with respect to the marketers that have signed on for the ABC-service, they are getting a daily report that's telling them what their customers are using as soon as we know what they are using; and they also know how much gas they delivered to us on each and every day. So I would submit that they do have access to certainly enough information to manage their portfolios. 565 MR. VEGH: Well, we'll explore in a minute just how effective this information has been. Why don't we just address now the information that is provided to EI for the purposes of system gas customers and whether that information is also provided to marketers. 566 Maybe to just -- 567 MR. BRENNAN: Well, again, it's not just there for system gas customers and that's the point I keep trying to emphasize. It's there for direct purchase customers as well in order to be able to balance their needs on a day-by-day basis as well. So just saying it's there for system gas customers is inaccurate. 568 MR. VEGH: Well, it's there for the -- it's there for ECG to use to balance the system for both system gas customers and direct purchase customers. 569 MR. BRENNAN: That's correct. 570 MR. VEGH: And it's there for EI to use to purchase gas for system gas customers. 571 MR. BRENNAN: As well as the balancing needs for direct purchase customers as well. 572 MR. VEGH: And it's not available for marketers to use to purchase gas for direct purchase customers. 573 MR. BRENNAN: No, because they are providing their gas each and every day on a mean daily volume. That's their obligation. 574 MR. VEGH: And their obligation is also to bring themselves into balance throughout the year so at the end of the year they don't face an imbalance penalty. 575 MR. BRENNAN: That's correct. 576 MR. VEGH: But at the same time, this information is not made available to them to assist them in that. 577 MR. BRENNAN: There are reports and information that go to direct purchase customers that will allow them to view where they are on a periodic basis, as to what their position is in terms of whether they've over-supplied or -- I should say, over-consumed or under-consumed. 578 MR. VEGH: We'll get to how effective those reports have been. I'm just asking you to agree that they don't receive these reports that EI receives. 579 MR. BRENNAN: That's correct. 580 MR. VEGH: Okay. And for -- in terms of forecasting volumes for a year, the marketer basically makes their own forecast. 581 MR. CHARLESON: That's correct. 582 MR. VEGH: And Enbridge does not normalize those forecasts for weather. 583 MR. CHARLESON: That's correct. To date we provide the historical consumption for the customers that the marketer is aggregating. 584 MR. VEGH: So you leave that to the marketer as well. 585 MR. BRENNAN: And I also believe we provide them, in some cases, with the actual degree days such that they can do that normalization themselves. 586 MR. CHARLESON: That's correct, we do provide the actual degree days. 587 MR. VEGH: On an ongoing and updated basis? 588 MR. CHARLESON: Yes, we do. We'll provide the degree days on a monthly basis. 589 MR. VEGH: On a forecasted basis or an a -- 590 MR. CHARLESON: On an actual, degree-day basis. 591 MR. VEGH: So a retrospective basis. 592 MR. BRENNAN: Right, but that's what you would use to try to normalize it. 593 MR. VEGH: Well, you don't normalize it. But I take it that Union does normalize consumption for direct purchase customers for the purposes of forecasting; do you know that? 594 MR. BRENNAN: I don't know for a fact, no. 595 MR. VEGH: Isn't it fair to say, then, just concluding on this, that although both system gas -- although there is exposure to commodity risk for both system gas customers and direct purchase customers, there is a disparity in the resources made available for the supply of system gas customers than the resources made available for the supply by marketers for direct purchase customers; isn't that fair? 596 MR. BRENNAN: No, I wouldn't say that's fair. 597 MR. VEGH: The next question I wanted to ask was around sub (3), 57 sub (3), which again refers to these balancing penalties. We've talked before about managing gas supply so that it doesn't trigger penalties, but now I'd like to actually look at the actual financial -- specific financial exposure that DP customers have been exposed to. 598 And to do that, could you go, please, to CEED interrogatory number 59, schedule 59 of Exhibit I, tab 3. 599 At page 2 of schedule 59, there is a chart that sets out the monetary value of BGA, banked gas accounts, dispositions in excess of 20 times the MDV, and I want to make sure I understand what this chart is, and in particular, column 1 entitled "Total Excess." 600 That compares the years 1998, 1999, 2000, and 2001, and I'd just like to go through that -- each column, the credit and debit column so that I have a clear understanding. 601 And so that column 1, "Total Excess," under the credit column, I take it that when a customer has a delivered amount of gas greater than 20 times MDV, that amount, that over-delivery -- the financial consequences of that over-delivery are listed as a credit? 602 MR. CHARLESON: That's correct. 603 MR. VEGH: So that credit would be payable by -- from the customer to ECG? 604 MR. CHARLESON: Can you repeat that. 605 MR. VEGH: I'm sorry, that credit is payable by ECG to the customer? 606 MR. CHARLESON: That's correct. 607 MR. VEGH: Right. And it's payable, again, at a discount of 20 percent to WACOG. That's how this number is figured? 608 MR. CHARLESON: Yes, it's done at the regulated rate. 609 MR. VEGH: And the regulated rate is WACOG discounted by 20 percent? 610 MR. CHARLESON: That's correct. 611 MR. VEGH: So for 2001, the total amount paid to direct purchase customers as a credit was 9.8 million in total. And my calculations that I provided to you earlier in this process was that the 20 percent penalty amount or the 20 percent incentive amount ends up being around $2.5 million of that, and the rest is the WACOG price; is that right? 612 MR. CHARLESON: I think you have to be careful, though, in terms of taking that total excess and using that for a calculation. You have to take into consideration also columns 2 and columns 3. 613 Column 3 reflects amounts where the billing of the excess was delayed. This excess was delayed due to either questions being raised by the customers where we reconsidered the applicable -- kind of the disposition of the gas and provided the customer with the opportunity to make up those volumes, rather than billing them at the 20 percent. 614 So if you really want to assess the impact, you should really be looking more just at column 2. 615 MR. VEGH: Can we go through this one column at a time first, because column 2 and column 3 add up to column 1; right? 616 MR. CHARLESON: That's correct. 617 MR. VEGH: So let's go to column 1. That will give us a total amount, and that's what I'm looking for first. That's the total exposure, and then there are variations from that. 618 MR. CHARLESON: Okay, subject to checking your calculation. 619 MR. VEGH: Okay. So then the 20 percent -- I'll call it a penalty figure, recognizing you don't like that word. But the penalty figure, let's call it 2.5 million of this 9.8, and the rest is like a WACOG charge. 620 MR. CHARLESON: Subject to check, yes. 621 MR. VEGH: In terms of the next column, the debit, this arises where a customer has under-delivered an amount greater than 20 times MDV. And so in this case, it's a debit payable from the customer to ECG? 622 MR. CHARLESON: That's correct. 623 MR. VEGH: Okay. And the debit for 2001 was around 25.88 million. Now, this includes a 20 percent WACOG -- premium to WACOG, and my calculation is that the value there of the penalty isolated, then, is about 4.3 million; is that -- 624 MR. CHARLESON: On the same assumptions as before, yeah. 625 MR. VEGH: Well, I did provide you with these assumptions a few months ago, right, and you didn't correct me on that. 626 MR. CHARLESON: That's correct. 627 MR. VEGH: So if I were to look at the penalties payable by DP customers in 2001, the initial amounts payable -- and then we can talk later about how they may be adjusted -- but the initial amounts payable, I would take this 2.5 million, add it to the 4.3, and I'm looking at total penalties of 6.8 million. 628 MR. CHARLESON: I would agree that those incentives were billed for customers that had not taken load balancing action prior to the termination of their agreement. 629 MR. VEGH: Well, these are the penalties that were charged to the customer? 630 MR. CHARLESON: Correct, but the customers also had the opportunity to perform load balancing prior to the end of their agreement to mitigate those. 631 MR. BRENNAN: In fact, I have to maybe just qualify that a bit. 632 This may be the total excess, but whether that -- those dollars are actually charged to the customer, you would have to look at the columns 2 and 3 before you can make that determination. 633 MR. VEGH: This is the exposure, right, the total 6.8? 634 MR. BRENNAN: Right, before we do anything else. 635 MR. VEGH: Right. And when you look at 2001 compared to the earlier years, it's quite a dramatic difference, isn't it? 636 MR. BRENNAN: Yes, there is. 637 MR. CHARLESON: Yes, there is. 638 MR. BRENNAN: And I think there's probably a couple of reasons for that. One certainly has to do with gas prices. Gas prices in 2001 were probably much higher than they were back in 1998, which would reflect a much higher number in 2001. 639 The other thing as well, I would think, would be the migration of direct purchase customers from system gas to direct purchase, would also have a bearing on the -- that change between early years and the later years. 640 MR. VEGH: We're looking at a tripling of the amounts between 2000 and 2001, effectively? 641 MR. BRENNAN: Yes, and -- well, we know where gas prices were back in 2000, 2001. They went from $10 down to $2.50, or from $3 up to $10, so ... 642 MR. VEGH: So there was a lot of volatility between those two years? 643 MR. BRENNAN: Yes, that's correct. 644 MR. VEGH: And the total exposure being around 6.8 million. This interrogatory asks you to identify what were the -- what accounts for this difference. And the last paragraph on schedule 9, page 2, talks about a number of factors, you say, "the most significant factor being the colder than expected weather that was experienced in the winter period of fiscal 2001." 645 Again, going back, so if a customer's only -- if the only basis that a customer had for predicting consumption for 2001 was the actual consumption in 2000, then in that case they'd face very serious exposure when the winter period is different in those two years; right? 646 MR. CHARLESON: I would disagree because again, during the winter, recognizing that it was a colder year, they had the opportunity to do load balancing transactions prior to the end of their contract. 647 MR. VEGH: But during the course of the year, do you provide updated information on expected consumption by -- for customers? 648 MR. BRENNAN: I don't think that's -- no, we don't, but I don't know whether that's necessarily the relevant issue. The relevant issue is where they are versus -- their consumption versus their deliveries is probably the important thing. I mean, they can carry on assuming their MDV would be a good guess. But at any point in time they would know where their imbalance is and then it would be up to them, at that point in time, one would think, to take action as soon as they could. 649 MR. VEGH: Except you originally set out a forecast consumption, or the marketer has to give you a forecast of consumption for their customers; right? 650 MR. BRENNAN: Yes. 651 MR. VEGH: And then you have -- you have information internally that demonstrates how the system consumption develops over the course of the year and how forecasts change; right? 652 MR. BRENNAN: I guess our forecast would be -- if the weather doesn't materialize, we would be out as much as direct purchase customers forecast would be out. 653 MR. VEGH: But don't you have better information to manage that variance than a direct purchase customer has? When you -- the direct purchase customer is supposed to give you the information for their customers. 654 MR. BRENNAN: Right. 655 MR. VEGH: But don't you have better information than the direct purchase customer has? 656 MR. BRENNAN: I could argue that, but the relevant point here, I think, is that going through a winter, if it ends up not being the way it was forecasted, then the direct purchase customer would be able to know that in terms of what his imbalance is and be able to take action. 657 MR. VEGH: So when you look at the difference between 2000 and 2001 and the tripling of exposure to penalties, is that because direct purchase customers became incapable or less capable during those years to manage than they were in earlier years? 658 MR. BRACKEN: There's one important thing, Mr. Vegh, that we are missing here. This schedule doesn't give us any description at all on what the direct purchase marketers were doing and what some of the economic consequences of the decisions that they were making during the year were. They get monthly information on what actual consumption is, they can compare that to their MDVs, and they can see these imbalances building or accumulating. They have a choice to make as to how soon and when they want to react to that. This doesn't show us in here any place what decisions they've made in deferring decisions, deferring the choice to make up some imbalances and incurring some prices in market at that time. 659 In other words, they could have decided that they are seeing an imbalance and these prices may have been better for them than other prices they might have otherwise incurred. They've made a commitment to provide supply to their customers at a price, there's a profit built into that, and presumably they've made some assessment of the risk that they are exposed to around temperature and other variables on demand. And over the course of the year, they see that coming up and all this is showing is that at the end of the year, this seems to be the number they're exposed to. It doesn't say what other choices they made. 660 MR. VEGH: Okay. So you're saying that this number derives from an assessment of market risk that was made during the course of the year? 661 MR. BRACKEN: Certainly market risk during the course of the year by a marketer, and I know some of these folks are very intelligent marketers, would have a huge effect on us. 662 MR. VEGH: And to make that assessment, they would have to have a pretty good sense, wouldn't they, of what their exposure is going to be at the end of the year. They'd have to have good information from the system to do that. 663 MR. BRACKEN: They would have to make some forecasts and some judgment on that, and they would make that forecast and judgment based on the historic usage that the customers that they are supplying have incurred, and they would also make some assessment of where they see weather going. They can use weather forecasts that are available to them, they can see weather trends accumulating, they can look at forward curves on gas prices, and all of those factors would come into play when they decided each month whether they are going to respond or react in any particular way to the imbalances they see being incurred. 664 MR. VEGH: So you would attribute, then, the tripling of these penalties from 2000 to 2001, as I hear you, based on changes in weather? 665 MR. BRACKEN: No, that's not what I'm saying. 666 MR. VEGH: I haven't finished my list yet. That's one of the elements, changes in weather? 667 MR. BRACKEN: No. No, what I'm saying is that this chart isn't telling us all the factors; that all of these other factors around suppliers risk managing their price exposure are completely unknown to us here. 668 MR. VEGH: Maybe I'll try it in the other order, and that might satisfy you. 669 You are attributing the tripling here on the basis of an assessment of market risk, and marketers were just wrong? 670 MR. BRACKEN: No, I'm saying that we -- we can't account for all of the difference here just by looking at the numbers; that there are opportunity costs to the marketers that aren't shown on this chart and can't be by its nature. 671 MR. BRENNAN: Maybe just giving an example, I think, trying to help out, this past winter, which is obviously warmer than normal, we would have expected from our direct purchase customers to be requesting a lot of suspensions. We haven't seen that. We haven't seen a great request for a lot of suspensions, and we are wondering, like, why wouldn't we? But it could be that the marketers are looking at what -- if they have to suspend, what they can sell their gas for if they take it off the system. 672 So I think, as Mr. Bracken mentioned, I think there's other decisions that the marketers are making throughout the year as well as to when is the best time to do makeup or do suspensions and whether or not -- I don't want to call them "penalties," but being out of balance at the -- may be financially better for them than taking action earlier on. 673 MR. VEGH: That's the assessment of market risk point that -- you would say that that's a contributing factor for why 2001 is tripled over 2000. 674 MR. BRENNAN: Well, another significant -- 675 MR. VEGH: Just can you answer that. That's -- 676 MR. BRENNAN: No, I'm not saying that's the only one. I'm saying that there is a lot of things that that would account for, this is -- that gas price, as I said, is probably high on the list as well. 677 MR. VEGH: So let's get them: The changes in gas prices, market assessment risk by marketers. 678 MR. BRENNAN: Yes. 679 MR. VEGH: Weather? 680 MR. BRENNAN: The migration of system gas customers to direct purchase customers would be another one. 681 MR. MCGILL: There is a 48-percent increase in the number of direct purchase customers between 2000 and 2001. That probably had an impact on those figures. 682 And the reference is part E to our response to CEED interrogatory number 85. That's tab 3, schedule 85. 683 MR. VEGH: Well, I actually see at the bottom of schedule 59 that you say for fiscal 2000 and fiscal 2001, there's an approximate increase of 18 percent in consumption by direct purchase customers. 684 MR. CHARLESON: That's correct. Volumetrically, it was 18 percent. 685 MR. VEGH: Correct, and the differences we are talking about here are 300 percent; right? 686 Now, these factors, then -- 687 MR. BRENNAN: I can tell you that that gas price over that time frame probably fluctuated well over that three times. 688 MR. VEGH: Fluctuated up and down? 689 MR. BRENNAN: Right. 690 MR. VEGH: Between 2000 and 2001. 691 MR. BRENNAN: Well, for fiscal 2001, I can tell you that -- our fiscal 2000, which would include the period from October 2000 to September 2001, as we talked about in other aspects of this hearing, gas prices in December of 2000 were up around the $10 mark. 692 So again, depending when these customers had to come in balance, then they could be exposed to these dollars amount which, going back in 2000, 1999, you didn't see those high gas prices. 693 MR. FARRELL: Would you mind giving the unit that you are quoting. If it's $10, it's $10 per -- 694 MR. BRENNAN: I would say $10 per gJ would be a good number. 695 MR. FARRELL: Thank you. 696 MR. VEGH: So when I -- tell me, when I have this list, I have price changes, commodity price changes, market assessment by marketers, weather, and migration from the system to direct purchase, those are the four factors you are attributing to account for this tripling? 697 MR. CHARLESON: I think, as well, what we indicate in there, there was also some early contract renewals where there was pro-ration of the volumes that contributed as well to some of this. 698 MR. VEGH: So the fifth would be patterns in contract renewals? 699 MR. CHARLESON: It was just for a couple of the marketers, they elected to do some early renewals on their contracts which had some significant financial impacts. 700 MR. BRACKEN: It could also be that during that year, given that volatility, some of those very high prices early on, some of those marketers that found themselves out of balance at the end of the year may have contributed to their own imbalance by taking some market opportunities earlier in the year at those higher prices. In other words, they may have chosen to move off some of their supply and capture higher prices for it and that may have, over the course of the year, benefited them even after paying these penalties. 701 MR. VEGH: So that's a market opportunities point; right? So we've covered that off. 702 Now, when I look at these five points that you say would contribute to this tripling of penalties, can you identify for me -- would you expect all those five points to be relevant in the Union franchise as well; that is, if Union faced volatility in price charges, would direct purchase customers have the same kind of market assessment in Union as they would in Enbridge? Does Union face generally the same kind of weather variations as Enbridge does, same levels of migration, and the same patterns in contract renewal? 703 MR. BRENNAN: I would say some of them, but I think the big distinction that you have to make between Enbridge Consumers Gas's franchise and Union's franchise is that our franchise is very highly residential, whereas Union is more commercial/industrial. So I think you have a significant difference in the customer mix which would, I think, have a strong bearing on any differences between Union and Enbridge Consumers Gas. 704 MR. VEGH: Okay. So with that -- subject to that caveat, these are, sort of, industry-wide and province-wide patterns that you would expect to be in play in both franchise areas? 705 MR. BRENNAN: Yes, most of them, I would say, yes. 706 MR. VEGH: And are you aware of what Union's balancing penalties were for the -- within the year 2001? 707 MR. BRENNAN: No, I'm not. 708 MR. VEGH: And if there were a -- okay, why don't we just leave it at that, then. 709 I'd like to ask you something else about Union Gas. Can you turn to IR 66, please, CEED 66. 710 MR. BRENNAN: Mr. Vegh, just to maybe point out, if you're doing any comparison between Union and Enbridge Consumers Gas, you have to remember that we're on different fiscal years as well. 711 MR. VEGH: Right. All right. So that could account for some of the difference as well. 712 CEED IR 66 refers to a portion of the settlement agreement in Union 499 in the pre-amble where it says: "Although errors in reporting are infrequent, in instances where a customer has not been able to balance as a result of Union's reporting error, Union will ensure that a mutual agreement is reached which may include balancing extensions or waiving of penalty fees." 713 Enbridge doesn't have this kind of policy, does it? 714 MR. BRENNAN: There is no stated policy per se, but I think in one of the interrogatory responses, and I can't remember which one offhand, we have indicated that if a customer is making an effort to balance on a periodic basis, even though at the end of the day they are using information that is not necessarily up to date or accurate, that we will talk to that customer on an individual basis and make some arrangements in terms of whether or not we would allow future or additional time for that customer to come into balance. 715 MR. CHARLESON: And I believe the interrogatory that Mr. Brennan is referring to is CEED number 67, so Exhibit I, tab 3, schedule 67. 716 MR. VEGH: So it's your policy to talk to the customer, but you don't really take on the commitment that Union takes on, which is that it will come to an agreement. 717 MR. BRENNAN: Well, I think that's -- in practice, that's what we do. 718 MR. VEGH: I'm just wondering, because of all these factors you identified, at no point do you -- you seem to have -- it's entirely one-sided. Is it your position that ECG provides good enough information for a customer to carry out this balancing? 719 MR. BRENNAN: We provide the best information we have at the time, yes. 720 MR. VEGH: And if it turns out your information is incorrect, will you stand behind the information you provide to the customer? So if a customer relies on your information, the information provided by you to bring themselves into balance, will you agree that that customer should not be exposed to penalties? 721 MR. BRENNAN: We would agree that, depending on the circumstances, yes, if they are using information that was incorrect but they are making every attempt to come into balance, then we would make some arrangement where they would have additional time to come into balance. 722 MR. VEGH: So you would be prepared to agree to that? 723 MR. BRENNAN: Yes. 724 MR. VEGH: Okay. Finally, in IR 57, the question asks whether -- this is sub (4), the question asks whether DP customers and system customers -- 57 asks whether DP customers are exposed to the costs of transactional services to avoid balancing penalties, and you agree in 57 that -- you effectively say yes, "The purchasing of transactional services is one way to avoid these penalties." And then you also agree in 58 that "Bundled system gas customers would not enter into transactional services deals." 725 And just to expand on this, I'd like to step back a bit and look at how transactional services operate for the context of, first, direct purchase customers and how they may -- their activities may create a command demand for transactional services. 726 I may be rehashing some ground here that we've covered, but allow me to do it to just set up this scenario. 727 First, during the course of the year, if a direct purchase customer determines that it may become out of balance at the end of the year because, for example, it's under-delivering gas, then the customer, all things being equal, would want to have some makeup deliveries or some other mechanism in place to avoid that imbalance; is that fair? 728 MR. BRENNAN: Yes, that's correct. 729 MR. VEGH: And let's talk about an example or an instance earlier where we talked about whether storage is available to accept over-deliveries. I take it that if storage is not available to accept an over-delivery and if a title transfer is not a realistic option, so if those kinds of system actions are not capable of meeting the under-delivery problem, then that customer could go to the wholesale market and purchase a solution; right? 730 MR. BRENNAN: And have it delivered to the franchise. 731 Just going back with storage, I'm not sure where storage necessarily enters into this per se. The only place where I would say storage enters into it, and using my example this morning, for example, if we were close to the end of the injection season where taking makeup is -- taking makeup would put us in a situation where we wouldn't be able to use all of our pipeline capacity and then we're exposed to UDC, then we would have a concern around that and not maybe allow makeup at that date. 732 But having said that, though, I mean, there's -- if someone is out of balance and wants to provide makeup in the spring, for example, where we can then adjust our supply purchases, then makeup would not be an issue as it relates to our ability to use storage, for example. 733 MR. VEGH: Right. But storage could be an issue and you could say, sorry customer, you can't -- I know that you want to avoid being out of balance at the end of the year, but we can't accept an over-delivery now, one of the reasons being that we really have no space in our storage to receive gas. Has that ever happened? 734 MR. BRENNAN: I don't know. I can't tell you if that's ever happened. 735 MR. VEGH: That's not a crazy scenario, though. 736 MR. BRENNAN: No, it's not. No. 737 MR. VEGH: That could be a typical response, depending on the status of the system. 738 MR. BRENNAN: Yes, that's correct. 739 MR. VEGH: Storage is unavailable. 740 So if storage is unavailable within the franchise, then one of the things that that customer could do is purchase storage service, say, through transactional services? 741 MR. BRENNAN: No, I don't think so. I mean, they could, but I mean if the storage -- it's the same space. So if we have a concern with it in September and October, it wouldn't make any difference. They couldn't go to a transactional service, because the first thing that would happen would be that if they wanted to do that, it would have to go to the planning group; the planning group would say sorry, there's no space, we can't accommodate this, so the transactional service could not be accommodated. So they couldn't -- I mean, they could request to do it, but it would probably get turned down by the planning group. 742 MR. VEGH: And that planning group is in EI now? 743 MR. BRENNAN: That's correct. 744 MR. VEGH: So if EI decides that storage is not available to the direct purchase customer, then, in a sense, hasn't EI created more of a demand for wholesale services that it can provide? 745 MR. BRENNAN: You would have to explain that to me. I don't see that. 746 MR. VEGH: Okay. So a customer -- so storage is not available so the customer cannot make a makeup delivery into the system. 747 MR. BRENNAN: Okay. I'm with you. 748 MR. VEGH: The customer then finds themselves in a position where they have to deal with this issue from -- say, from a transportation perspective. They can make a transportation -- 749 MR. BRENNAN: They can acquire additional transportation and move the gas to the franchise? 750 MR. VEGH: Yes. 751 MR. BRENNAN: Yes, that's an option. 752 MR. VEGH: That's an option that's available as a transactional service, isn't it? Isn't it, purchase of additional transportation? 753 MR. BRENNAN: No, it's not. 754 MR. VEGH: Is that an option that EI would offer for itself in terms of optimizing EI's transportation assets. 755 MR. BRENNAN: I'm sorry, EI would be making transportation available to ECG? 756 MR. VEGH: No, to a direct purchase customer who was in need of transportation, they would go to EI for that transportation, for example? 757 MR. BRENNAN: Only to the extent that that transportation capacity is not being utilized, they could, yes. 758 MR. VEGH: So isn't EI, then, in a position where if a customer is seeking to bring in over-deliveries of gas into the system, EI is in the position of determining whether or not the system -- system storage space should be made available for that customer -- 759 MR. BRENNAN: Well, it's not system storage, it's storage on behalf of all customers. 760 MR. VEGH: Whatever, the system storage. What's the difference? 761 MR. BRENNAN: Well, your implication there, it was there for system gas customers, and it's more than just system gas customers. 762 MR. VEGH: Sorry, I meant system storage for the system as a whole. 763 MR. BRENNAN: Fair enough. 764 MR. VEGH: So EI is determining whether system storage space is available for that customer? 765 MR. BRENNAN: It's not so much -- like, I mean, we are getting hung up on storage here. It's a question of whether -- and ultimately, that ends up being the deciding factor. But it's a question of whether or not, from an operational point of view, what happens if we accept that additional gas, and what does it do to us. 766 MR. VEGH: I'm using storage just as a simplified example, but EI is involved in making that determination? 767 MR. BRENNAN: That's correct. Again, I have to make the caveat assuming, of course, that the request actually comes to EI. Because the first step is, of course, whether or not a customer is in a makeup or a suspension situation, and that would be done by the group in Toronto. 768 MR. VEGH: Right. So we are assuming that they are, and then ECG will ask EI -- 769 MR. BRENNAN: Correct. 770 MR. VEGH: -- to make a recommendation. 771 MR. BRENNAN: Correct. 772 MR. VEGH: And then EI, in making that recommendation, would consider whether storage space, for example, among other assets, should be made available to those customers -- to that customer. 773 MR. BRENNAN: Not storage space made available to them. It's whether or not we can accept the makeup. 774 MR. VEGH: One of the factors is, for example, whether storage space would be made available. 775 MR. BRENNAN: Yes. 776 MR. VEGH: So it has to make that determination, and at the same time, it's in the market, for example, or it can be in the market under the agreement as we've talked about in selling -- to sell its own storage services; right? 777 MR. BRENNAN: Enbridge Inc.? Yes. 778 MR. VEGH: So it determines, really, whether we should give this customer storage on a kind of -- make system-wide storage available for that customer or make the customer go out and buy it in the market. 779 MR. BRENNAN: Well, I think that we would do that -- we would make every accommodation to make sure that customers are able to balance their requirements. And to the extent we can, we certainly would. There's only certain windows throughout the year where we have difficulty. 780 MR. VEGH: So that's the one scenario, where a customer -- or where a direct purchase customer creates a demand for these kinds of services. 781 The second scenario I'd like to just get an understanding of -- we're still talking about transactional services. I'd like an understanding of the restrictions on EI's provision of transactional services, okay? So this is the step EI has to go through before it brings a transactional service onto the market, and this is an ECG transactional service, on an EI wholesale service. 782 I think that's addressed in the EI agreement, tab -- which is tab 3, schedule 44, section 6, of the services schedule. 783 MR. BRENNAN: I have that. 784 MR. VEGH: I don't. 785 Section 6 sets out -- section 6 sub (1) sets out the principles that EI has to abide by when providing each transactional service. 786 And the first one is that: "The service must not appear at the time to have the consequential impact of increasing the service recipient's" -- that's ECG's -- "purchased gas costs." 787 And what I take that to mean is that system assets should not be used to provide transactional services when at the time the service is provided, it appears it could increase gas costs? 788 MR. BRENNAN: That's fair. 789 MR. VEGH: Now, the wording here is kind of awkward, but -- with the reference to the time at which it has the appearance, but I think the bottom line is meant to say that the perspective on the impact of gas costs is contemporaneous with the provision of the service, not looking back in hindsight. 790 MR. BRENNAN: Yes, that's correct. 791 MR. VEGH: And the basic idea here is that EI should not use system assets to provide transactional services where that could increase the cost of system gas. 792 MR. BRENNAN: Gas to -- providing costs to all customers. 793 MR. VEGH: Well, it says purchased gas costs. 794 MR. BRENNAN: Right, that's correct. 795 MR. VEGH: So isn't that system gas? 796 MR. BRENNAN: It's -- again, my definition of system gas is gas purchased to meet system gas customers as well as load balancing. So it's all customers. 797 MR. VEGH: So it's system gas costs plus gas acquisitions to meet load balancing. 798 MR. BRENNAN: Yes. 799 MR. VEGH: Okay. So, for example, if EI is considering to sell, and again let's just keep the simple example of the storage service, okay? If EI is considering the sale of the storage service as a transactional services on behalf of ECG, before doing that it should satisfy itself that providing that service will not increase gas costs. That's both system gas costs; the costs for system gas customers to pay for gas commodity and the cost to the system of buying additional gas. 800 MR. BRENNAN: Right, the planning group in Calgary would run their send-out model, their model that looks at the supply-demand balances, with that transactional service in and see what the impact is on gas costs. If there is an increase in gas cost, then that service would not go through, that transactional service would not be approved. 801 MR. VEGH: Right. Now, as we've discussed, so direct purchase customers may also have the need to use storage, for example, if they want to avoid being out of balance at the end of the year. Because as I read the agreement, there's nothing in it that requires EI to satisfy itself that providing a storage service would not increase costs for direct purchase customers. 802 MR. BRENNAN: Well, it's -- again, my definition of system gas is both system gas customers and direct purchase customers. 803 MR. VEGH: So is your interpretation of this requirement, then, that transactional services cannot be brought to market where a direct purchase customer requires access to storage to bring itself into balance. 804 MR. BRENNAN: Where a direct purchase customer would require storage to bring itself into balance? 805 MR. VEGH: Storage or any other system asset to bring itself into balance. 806 MR. BRENNAN: We would look at that, again, at the time to see what the operating conditions are, whether it's -- and we make no distinction as to what type of customer it is or -- we're looking at the time as to whether or not we can accommodate the direct purchase customer. 807 MR. VEGH: So I'm a direct purchase customer, I'm out of balance or I project to be out of balance at the end of the year, and I say I would like to over-deliver gas. You would require -- now, I expect to over-deliver gas; therefore, I would like to have access to some storage now to prevent that over-delivery at the end of the year. So that's the scenario and that's how I come to you. 808 Now, you're saying that you then will ensure that I have access to those assets before those assets are released to EI to provide transactional services? 809 MR. BRENNAN: No, I am not saying that. I'm saying -- 810 MR. VEGH: I'll let you finish in a second. But if you are planning for system gas customers, you will say to EI, you can't use these assets to provide transactional services until the -- if it's going to have any impact on the costs that system gas customers pay. 811 MR. BRENNAN: Well, I would think the same thing would happen whether it's system gas or direct purchase customers. If there isn't an ability to accommodate that, then in either case, the transactional services would not be accommodated. 812 MR. VEGH: Well, this could be quite an advancement because it's not my understanding of the evidence, and perhaps if we could just clarify it, then this could settle some issue. 813 If a direct purchase customer faces the risk of being out of balance, will you -- will EI be required to meet that customer's demand for services -- for use of assets before releasing those assets to sale as transactional services? 814 MR. BRENNAN: You are assuming that there is an accommodation for that transactional service at the time, is that what your underlying assumption is, that there is the capability for this transaction to occur? For example, we have storage available at the time. 815 MR. VEGH: You have storage available at the time, and none of that storage is being used to provide transactional services. 816 MR. BRENNAN: Okay. 817 MR. VEGH: So it's a question of what's in priority, the use of an asset to provide transactional service or the use of an asset to allow a customer to balance? 818 MR. BRENNAN: Well, to the extent that we know at the time when a customer wants to come to us and look for our assets to -- we will do that under transactional services, assuming that that transaction or that storage, if you like, is available at the time. 819 MR. VEGH: Not as a transactional service. Prior to releasing these assets for use as a transactional service. 820 MR. BRENNAN: We don't know when a customer is going to come to us wanting to balance. You know, we're looking at trying to maximize the use of the assets that are there at the time. Are you suggesting that we just don't do any transactional services and wait for direct purchase customers to come to us and say, listen, we want to do makeup now so please provide us some storage? 821 MR. VEGH: I'm trying to understand what your policy is. If a direct purchase customer says, I want to do -- I want to do makeup; therefore, I need some storage, is that a reason -- would you have to make that storage available to that customer before releasing it to EI to sell as a transactional service? 822 MR. BRENNAN: If it's available, we would do that. I mean, we're not going to take back storage that we've already done on a transactional service just to accommodate a direct purchase customer, no. 823 MR. VEGH: You won't take back storage but you will not release storage if a customer required it to bring themselves into balance; is that what you're saying? 824 MR. BRENNAN: I've been told maybe it would be helpful if I use an example, so I will try and do that. 825 Let's say, for example, ECG has 100 units of storage available and we have a request, two requests if you like; one is a transactional service request for 100 units of storage, and another request for a makeup that requires 100 units of storage. They both come in at the same time, and we have the storage. We would give the storage to the direct purchase customer to be able to balance. 826 Does that answer your question? 827 MR. VEGH: Well, you would be prepared to include that in section -- a requirement that EI do that in section 6 of the agreement? 828 MR. BRENNAN: I feel it's already there, in my mind. I mean, when we say that we are here to protect and make sure that, you know, storage is there or transactional services are there, and that we won't enter into any transactional services that would have an impact on ratepayers or customers, so ... 829 MR. VEGH: Or on the ability of a direct purchase customer to meet their balancing obligations? 830 MR. BRENNAN: Right. For example -- I mean, going back to my example, let's say we have 100 units of storage, we have a transactional service that's looking to do a deal for 100 units at one time, and then maybe, I don't know, a month later, a makeup customer comes and says, I want to do 100 units and that 100 units is gone, then we can't accommodate that. But to the extent that it's available at the time, we will ensure that the direct purchase customer has access to transactional services. 831 MR. VEGH: Well, to assets, not to transactional services. 832 MR. BRENNAN: Or we would accommodate the makeup situation. I won't necessarily say it's being done with storage, necessarily. But we would accommodate the makeup. 833 MR. VEGH: As a priority to providing transactional services, so we will include that in one of the list of items in 6.1 as to what are the principles that have to be followed when providing a transactional service. 834 MR. BRENNAN: I will consider that. 835 MR. VEGH: Thank you. 836 Mr. Bracken, I have some questions for you on your report, and I won't be that long, so we can either break now or continue before lunch. I don't expect to be more than 15 minutes. 837 MS. HALLADAY: Fifteen minutes? Then why don't you continue, and we'll finish with you, Mr. Vegh, for the morning. 838 MR. VEGH: Thank you. 839 Mr. Bracken, I just have some questions around your methodology, in particular, at -- you discuss this at page 2, the first full paragraph. 840 As I understand your approach, is you start with a broad span of activities relating to gas supply and system balancing, and then you apply what you call a logic test to eliminate those functions that are not specifically system supply related; right? That's the basic approach? 841 MR. BRACKEN: Yes, that's right. 842 MR. VEGH: So in other words, you start with the activities currently carried out by ECG as an integrated gas supplier and distribution system operator, and then carry out a process of subtracting from those activities. 843 MR. BRACKEN: Yes, but I included in that not just ECG, but ECG's affiliates, so it was the entire universe of activities that could even be considered to be related to system gas supply, whether they're within the ECG entity or one of its affiliates. 844 MR. VEGH: Okay, so you are correcting me so that when I say the activities carried out by ECG, it's carried out by -- ECG is responsible, but it may be carried out through affiliate agreement, agency appointments, that sort of thing. 845 MR. BRACKEN: That's right. 846 MR. VEGH: Okay. So that's the process, and in terms of the result of this -- result of this process of elimination, could you go, please, to your table of contents. I think it's probably the simplest way of setting out the result of this subtraction. 847 In the table of contents, you list eight functions that are carried out, and then throughout the rest of your report, you talk about functions that you can take out of this eight. So here's my checklist, as I go through it. 848 Under the first heading, you have the functions require both gas supply and system balancing. Then as we go through the subtraction, I take it that what you do is you take out gas supply planning, because you say that's -- in order to determine what a stand-alone system gas supplier would provide, they would not provide gas supply planning because that's a distribution function. 849 MR. BRACKEN: That's right. 850 MR. VEGH: Right. So we'll take out 1.1. 851 And this process is to get at what's left as a stand-alone system gas supplier. We leave in gas acquisition; right? 852 MR. BRACKEN: Yes. 853 MR. VEGH: We leave in risk management. 854 MR. BRACKEN: That's right. 855 MR. VEGH: We keep in contract management. 856 MR. BRACKEN: Yes. 857 MR. VEGH: And as I understand it, gas control -- we take out gas control; right? 858 MR. BRACKEN: That's right. 859 MR. VEGH: And nominations, I think you include nominations in contract management, don't you? 860 MR. BRACKEN: I include nominations capability. It doesn't include all of the nominations activities that would exist today for all of the distribution business as well. But there is a nominations activity in the stand-alone piece. 861 MR. VEGH: Right. So you'd leave it in? 862 MR. BRACKEN: Part of it. 863 MR. VEGH: Okay. Part of it. 864 Invoice processing and payment you leave in? 865 MR. BRACKEN: Yes, the significant part of it. 866 MR. VEGH: And reporting you'd leave in? 867 MR. BRACKEN: That's right. 868 MR. VEGH: So effectively, we start with a list of eight, you take out two, you take out gas control and gas supply planning, and you're left with six. And these are the six functions necessary for a stand-alone system gas operator -- supplier. 869 MR. BRACKEN: That's right. 870 MR. VEGH: And I wonder if we could carry out this -- or at least carry out the subtraction a little further, or at least coordinate it with evidence that's already been filed in this case. And I'm thinking of, in particular, Exhibit J.4.9 which sets out what's involved in system gas. I'm sorry, it sets out what's involved in the different services. And I just want to make sure we're cross-referencing things properly. 871 MR. FARRELL: Just a moment. We have to get this exhibit for the witnesses. 872 MR. BRACKEN: Okay, we have that. 873 MR. VEGH: I seem to have misplaced my copy of that now, I apologize. 874 MR. FARRELL: We're, to date, unsuccessfully looking for a copy at the back. 875 MR. VEGH: I apologize, I have -- I thought I had my copy here but I've misplaced it. So I'll do that to my prejudice and just move on. If I find it somewhere, I'll come back. 876 MR. FARRELL: We have one. Thank you, Mr. Thompson. 877 MR. VEGH: Thank you. Okay. 878 So to compare, then, your reduced list in the table of contents to the list in the ECG out-sourcing matrix in J.4.9, we have six in yours and four in 4.9. And I think we may be able to -- if we were to change 4.9 to be consistent with yours, I take it that in terms of the acquisition of system gas in J.4.9, you would take gas supply planning and move that down into distribution? 879 MR. BRACKEN: Gas supply planning appears twice on J.4.9. 880 MR. VEGH: Okay. I'm just -- but you would move gas supply planning from acquisition to gas distribution. 881 MR. BRACKEN: I consider it a distribution function, so yes, I guess that would be the effect. 882 MR. VEGH: Okay. And for load balancing, you'd move that down to distribution as well? 883 MR. BRACKEN: Yes. 884 MR. VEGH: So it really becomes acquisition and risk management, and can we just -- would you agree that you've identified some particular elements, but ultimately what they both come down to is acquisition and risk management and that's what you would include in a stand-alone gas supplier. 885 MR. BRACKEN: Well, I've also included contract management, which is in that next category on J.4.9, and I've included some nominations capability which is also there. 886 MR. VEGH: Yes, I see that. Okay. 887 MR. BRACKEN: And then the invoice processing and payment and reporting, I'm not sure where that would marry up with this schedule, but that's also included in my stand-alone piece. 888 MR. VEGH: Okay, that would probably be considered part of acquisition. You're talking here about invoicing and paying upstream suppliers not end-use customers; right? 889 MR. BRACKEN: That's right. 890 MR. VEGH: Now, then, this stand-alone supplier would carry on the supply business through a number of functions and that would be acquiring gas, risk management, contract management, including -- and in addition some nominations, invoice processing and reporting. That's your stand-alone supplier? 891 MR. BRACKEN: Yes, it is. 892 MR. VEGH: And we've said that the invoicing processing and payment is for supply transportation and storage. It means paying suppliers, right, not being paid by customers? 893 MR. BRACKEN: Well, it's not transportation, it is just supply. But it's receiving invoices, verifying invoices, and paying invoices for the system gas supply itself. 894 MR. VEGH: Okay. And as I see it, your stand-alone supplier has no means of billing and collecting from customers. 895 MR. BRACKEN: That's right. 896 MR. VEGH: So it would not be paid? 897 MR. BRACKEN: No, I didn't see that as a function of providing or managing system gas supply. 898 MR. VEGH: Well, would your stand-alone supplier be paid for gas? 899 MR. BRACKEN: Presumably, it would be paid by the distribution company. 900 MR. VEGH: So the distributor will bill and collect for your stand-alone supplier? 901 MR. BRACKEN: That's right. 902 MR. VEGH: Will they charge a fee for that? 903 MR. BRACKEN: I believe they make billing payments, or they do billing for all distribution activities, so I presume it's included in that. 904 MR. VEGH: Yeah, but we're not talking about distribution activities, we are talking about gas supply activity. 905 MR. BRACKEN: Well, I've considered the billing of distribution customers to be a distribution activity. 906 MR. VEGH: But we're billing them now for gas supply. 907 MR. BRACKEN: But it's on the same invoice. 908 MR. VEGH: Direct -- or marketers pay the full cost of billing and collecting for their customers? 909 MR. BRACKEN: I -- they have a number of options, including an ABC fee of ABC-service. 910 MR. VEGH: Whichever option they choose, it's done on -- it's done at their expense? 911 MR. BRACKEN: Yes, it is, but -- 912 MR. VEGH: Your stand-alone supplier has it done for free by the distributor? 913 MR. MCGILL: I think if we take a look at Mr. Bracken's report, at page 2, the first full paragraph, the second bullet, and what is coined here as a logic test. And the second part of the logic test is if there were no system supply at all, okay, would the function or activity still be needed by ECG? And that's the criteria that's been used to determine whether or not this expense is something that would be applicable to system gas. 914 The facts are that if there were no system gas, ECG would still be in a position where it had to bill for in excess of 1.5 million customers per month. 915 If we were to -- the costs for doing that don't vary with the number of system gas customers, so if we were to allocate a portion of those costs to system gas, the next time a marketer knocks on one of those customers' doors and signs them up and starts to supply them with gas, the company would be unable to recover whatever the cost was associated with billing that had been allocated to the system gas supply charge, and that would be inappropriate. 916 MR. VEGH: I think you're arguing the unbundling case now, not the issue that we're looking at here. 917 If there were no system supply, then every customer would be a direct purchase customer; fair? 918 MR. MCGILL: Yes. 919 MR. VEGH: So that every supplier of that customer would have to absorb the cost of billing and collecting from that customer. 920 MR. MCGILL: Yes, as would the gas distribution company. 921 MR. VEGH: We're talking about the costs of billing and collecting for supply. 922 MR. MCGILL: I understand that. 923 MR. VEGH: Well, does the distributor billing collect for free to other stand-alone suppliers, or just to this ECG as a stand-alone gas supplier? 924 MR. BRACKEN: I'm not aware of what else ECG bills for, but I have included in this stand-alone a reporting capability that includes the costing of system gas supply. And my assumption is that because the -- as a distribution company, the rules of system gas supply are defined by regulation that this stand-alone entity would report the cost of those based on that regulatory fee, and it would, in effect, bill the distribution company based on that reporting. 925 MR. VEGH: And then the distribution company will provide a billing service for the stand-alone supplier. 926 MR. BRACKEN: Along with its distribution service, yes. 927 MR. VEGH: All right, and that would be free. 928 MR. BRACKEN: Well, it's not entirely free, because the stand-alone entity does have the cost of doing this costing report. So there is within it the capability of costing and informing the distribution company of what that cost would be. 929 MR. VEGH: But the service that the distribution company provides as billing and collection service for a stand-alone supplier is a free service? 930 MR. BRACKEN: There's nothing in the stand-alone entity that bills end-use customers. 931 MR. VEGH: Okay. I understand that point. I wonder how long that stand-alone entity would stay in business. 932 The final point about the stand-alone supplier, I notice from your report, is that this supplier, unlike direct -- unlike marketers who provide direct purchase gas, is never exposed to any balancing penalties; is that right? 933 MR. BRACKEN: That's right. And -- but there is a reason for that, and it's because this is based on the rules of system supply the way they exist today. 934 System supply is very different from the kind of supply that marketers provide to their customers. There are a number of differences, and that's one of them. 935 MR. VEGH: So if we were to -- there are a number of differences. So if we were to go through the exercise of separating out system supply from distribution functions so that we could look at system supply as if it were provided on a non-integrated basis, like a marketer provides direct purchase gas, then that would be quite a different supplier than the one we're talking about in your model. 936 MR. BRACKEN: Well, what I've done in this model is I've taken system supply the way it is provided today with the rules that it is today and structured this as though it could operate on a stand-alone basis. 937 If you are suggesting that we should start by saying, let's change the rules of system gas supply so that it is like the kind of supply that direct purchase marketers provide their customers, that would be a different sort of thing. Then you would have a supply that -- the system supply would then be something that whoever provides it could count on being there on a contractual basis. 938 Right now, there is no contract with a customer that supports system gas supply. The customers come and go to system gas supply, by definition, by regulatory fiat, in fact. They come and go whenever they want. Whereas with direct purchase supply, there is a contractual commitment that the supplier can count on. And that has a very significant effect on the cost of commodity and the way the system gas supplier would then provide that supply. 939 There's also the requirement that system gas supply, in effect, balances daily, and we've talked about that earlier today. Whereas, with direct purchase supply, there is the ability within the year to have, in effect, unrestricted imbalances every month end; and at year end, or at least within 180 days of year end, subject to a free plus or minus 5 percent, that there is a requirement to come into balance. 940 Again, that's very different from system gas supply, which has to be there every day and has to, in effect, be balanced every day. 941 MR. VEGH: So it was quite -- imagining system gas as a stand-alone business, something that's provided in a similar manner to direct purchase gas and not integrated with distribution services, that's quite a different model than you've addressed in your report. 942 MR. BRACKEN: What I have addressed in my report is providing it stand-alone, that is, separate and not integrated with. 943 What I have not addressed is changing the rules of system supply to be some other beast. 944 MR. VEGH: Well, what you haven't addressed -- you haven't -- you haven't addressed these other issues, such as balancing and billing that you -- that are in place for direct purchase gas and are not in place for system gas. 945 MR. BRACKEN: What I haven't done is I have not changed system gas supply from what it is today to make it something that it isn't. 946 MR. VEGH: And something that it isn't is separated from distribution services. Is that what you mean by that? 947 MR. BRACKEN: No, that's not what I mean by that. 948 What I have done here is I have done the effect of separating it from the distribution business. What I haven't done is given it the ability to not have to balance until year end, subject to plus or minus 5 percent, and those other sorts of things that direct purchases within the contractual arrangement of the direct purchase service. 949 MR. VEGH: Well, just let me ask you this, then: Would your report tell us what would be required by a person to provide system gas on a stand-alone basis in a manner similar to direct purchase gas instead of integrated with distribution service, as is now the case? 950 MR. BRACKEN: There's an awful lot of qualifiers to that question, and if I go back to it, if I understand it correctly, what this report does is it shows what system gas -- what the cost would be of managing system gas supply under the current rules of system gas supply on a stand-alone basis, not integrated with the distribution business. 951 What it doesn't do, though -- I guess the only exception I'm taking in your question is that it doesn't make it the same as direct purchase, because it's not the same as direct purchase. It is a different kettle of fish. 952 MR. VEGH: And in your view, that would be entirely a process of subtracting from what is now provided as opposed to also adding some functions that would be required for system gas to move to a stand-alone supplier? 953 MR. BRACKEN: I'm not sure I follow that question. 954 MR. VEGH: Well, you've talked about the current requirements for -- or the current functions that are provided by an integrated basis, you reduce some of those -- you subtract some of those functions to look at a stand-alone. Are there any elements -- or I guess, what I was getting at is your process doesn't involve considering any kind of additions that would be required if a system gas were provided on a stand-alone basis. Just subtractions from the status quo, not any additions to the status quo? 955 MR. BRACKEN: No, it requires -- includes all the activities necessary to run it on a stand-alone basis. What it doesn't include is any changes, whether they are pluses or minuses, to make it the same as district purchase, in other words, to have the same contractual terms that district purchase has. 956 The thing I'm trying to point out is that direct purchase supply is a different service than system gas supply. System gas supply is a default supply. Customers are allowed to come and go from it. It doesn't have contractual commitments, and it doesn't have somebody - in this case, the distribution company - back-stopping imbalances every month of the year up until 180 days after the contract year end. 957 It doesn't have those things, so I haven't changed those things in this report. 958 MR. VEGH: Okay. Thank you. Those are my questions. 959 Thank you, Panel. I have no further questions. 960 MS. HALLADAY: Thank you, Mr. Vegh. 961 Now would be an appropriate time to break for lunch. 962 One moment. 963 [The Board confers] 964 MS. HALLADAY: We'll reconvene at 2:15. Thank you. 965 --- Luncheon adjournment taken at 1:00 p.m. 966 --- On resuming at 2:22 p.m. 967 MS. HALLADAY: Please be seated. 968 Before we begin this afternoon, are there any preliminary matters, Mr. Farrell? 969 MR. FARRELL: Yes, thank you, Madam Chair. 970 We killed a few more trees over the lunch break, so what we've given the panel are responses to three additional undertakings. All of these were Mr. McGill's undertakings; I believe they were all made to Mr. Brett. 971 The first is Exhibit G.5.1, which matches the undertaking number. So that's stapled and clearly indicated at the top. 972 RESPONSE TO UNDERTAKING NO. J.5.1: FILED 973 MR. FARRELL: The next is a response to Undertaking J.5.2, which is the package that has a rubber band around it. 974 RESPONSE TO UNDERTAKING NO. J.5.2: FILED 975 MR. FARRELL: The next is a response to Undertaking J.5.3. It's a single page. 976 RESPONSE TO UNDERTAKING NO. J.5.3: FILED 977 MR. FARRELL: And the last is a response to Undertaking J.5.4, and it's paper-clipped. 978 RESPONSE TO UNDERTAKING NO. J.5.4: FILED 979 MR. FARRELL: And when we have what we're calling the clean-up panel come back, then Mr. McGill will briefly explain these responses and Ms. Holder and others will explain their responses. There may be one or two that can be given orally alone, but that's where matters sit now. 980 MS. HALLADAY: Thank you, Mr. Farrell. 981 Ms. Lott. 982 MS. LOTT: Thank you very much. 983 CROSS-EXAMINATION BY MS. LOTT: 984 MS. LOTT: I'm only going to be speaking for about 15 minutes at the most, but I do have some -- a few questions. 985 Just by way of introduction, these issues that we're dealing with right now, issues 2.3 and 2.4, are carry-over from the RP-2000-0040 settlement agreement and the undertakings that the company made regarding reviewing the fully allocated cost study for system gas management costs and a study of the costs of managing system gas on a stand-alone basis. 986 My question is simply: Did the company comply with these undertakings fully, and if not, if you could just state briefly what the issues are arising in this hearing. 987 If Mr. Brennan would like to speak to that. 988 MR. BRENNAN: I'll speak to one of the issues which is 2.4, I believe, which is supply and stand-alone basis. And the answer to that is yes, we feel we have completely responded to that undertaking. 989 MS. DUGUAY: With regard to issue 2.3, we did file the -- an allocation of gas supply management cost study on the fully allocated basis, found at G.1, tab 1, schedule 2. I don't have the exact wording of the settlement proposal last year, but I don't think that the directive was specific in terms of the approach nor the scope. So having said that, I would have to say that what we have filed would be in compliance with the ADR proposal. 990 MS. LOTT: Okay. Thank you. If we could maybe then just turn to that 2002 fully allocated cost study which is Exhibit G.2, tab 2, schedule 1. And I specifically wanted to look at Exhibit G.2, tab 3, schedule 4, and that's page 1 which is the functionalization of the operating and maintenance costs. 991 MS. DUGUAY: I'm not sure we will be looking at the same thing because I've got the version underlined, the second impact statement. I don't have what we originally filed. 992 MS. LOTT: Okay. 993 MR. FARRELL: What was the reference again, please? 994 MS. LOTT: I have Exhibit G.2, tab 3, schedule 4, and it's page 1 of 3 pages. 995 MS. DUGUAY: I have that. 996 MS. LOTT: I wonder if you could just look at -- I'm interested in lines 1.4 and 1.5, the system gas management and direct purchase management. Just to show that the costs for the system gas management and the direct purchase are approximately $880,000 and $840,000 respectively. 997 MS. DUGUAY: That's correct. 998 MS. LOTT: Do you see what I'm looking at? 999 MS. DUGUAY: Yes. 1000 MS. LOTT: What is included in those costs shown on 1.4 and 1.5 and what has to be added to get the total cost? 1001 MS. DUGUAY: Well, the base for the costs that are appearing in column 1 were the incremental costs that were identified back in EBRO 497 escalated to reflect the targeted PBR formula. So in terms of what was filed back in EBRO 497 -- 1002 MR. FARRELL: Just a second. Could you see if you can turn that microphone a little bit closer to you, Ms. Duguay. Apparently, people at the back are having a hard time hearing. 1003 MS. DUGUAY: Sorry. 1004 So I'm looking at EBRO 497, EBO 179-14 Exhibit G.2, tab 3, schedule 1, and there's a table at the bottom outlining the incremental costs associated with system gas as well as direct purchase. So without going through the numbers per se, the activities that were identified pertaining to system supply were risk management, gas acquisition, nomination, reporting costs, supervision, as well as fringe benefits. Whereas the costs associated with direct purchase were some level of risk management, direct purchase contracting, nomination, reporting, and fringe benefits. So those costs served as the base and after 1999, as I mentioned earlier, those were escalated by the output of the PBR formula. 1005 MS. LOTT: Okay. But corporate overheads are not included in that. 1006 MS. DUGUAY: That's correct. 1007 MS. LOTT: That's correct, okay. 1008 I'm just wondering, how does that fully allocated cost compare to the stand-alone cost that we see in Mr. Bracken's report, which we have looked at previously, at Exhibit A.14, tab 1, schedule 6? And I think his figure is on page 17 of that. 1009 MS. DUGUAY: Well, for the 2002 test year, I'm now looking at Exhibit G.1, tab 1, schedule 2, page 5. 1010 And on the fully allocated costs, the costs associated with system gas would be essentially $1 million. And in Mr. Bracken's report, it is $684,000. 1011 MS. LOTT: Sorry, could you repeat that. It's what? 1012 MS. DUGUAY: $684,000, that number was corrected at some point. 1013 MS. LOTT: That's after the amendments? 1014 MS. DUGUAY: Pardon me? 1015 MR. BRACKEN: Yes, that's the correct number. 1016 MS. LOTT: Okay. I guess I'm wondering what changes will the company make to the fully allocated cost study for system gas management costs for 2003, and how material do you think the impact will be? 1017 MS. DUGUAY: Well, I think that Mr. Brennan touched on that today, that in terms of the activities that are being performed on the basis of system gas customers, we agree with the activities that Mr. Bracken did outline in his report. 1018 In terms of conducting the study and coming up with a quantum, it would be premature for me to give you any indication. I don't know. We haven't started performing the study yet. 1019 MS. LOTT: Just to move, now, to the sort of broader issue of looking at the system gas supply in the range of ECG's services, can you confirm that unlike what Union is proposing to do for its franchise area, that ECG provides bundled distribution service for small-volume customers. And can you indicate what is included in that service? 1020 MS. DUGUAY: I'm sorry, I don't understand your question. Can you rephrase it. 1021 MS. LOTT: Can you confirm that, unlike what Union is proposing to do for its franchise area, that ECG actually provides bundled distribution service for its small-volume customers; is that correct? 1022 MS. DUGUAY: I don't have the specific numbers, but I would say 99.9 percent of ECG's customers take service pursuant to the bundled service. 1023 We have a handful of customers under rate 300 and, I believe, one under 305, but we're talking maybe five. 1024 MS. LOTT: Can you indicate what's included in that service? 1025 MS. DUGUAY: In the bundled service? 1026 Going back to the exhibit -- maybe that would be easier -- that was filed this morning as being Exhibit K.8.1, so if you look in, for example, the charges that are appearing in the left-hand side of the table, the bundled service, the only charge that is not a mandatory charge is the gas supply charge. So to the extent, and in the case that -- in the case of small-volume customers, which I understand you are particularly interested in, to the extent that you are an ABC T-service customer, ECG's gas supply charge would not be applicable. 1027 However, customers would be responsible to pay for load balancing charges as well as distribution charges, which are lumped in from the billing standpoint, all within the delivery charge. But those are the charges that are applicable. 1028 MS. LOTT: Okay. Do system gas customers incur inventory revaluation costs that direct purchase customers don't? 1029 MS. DUGUAY: Yes. 1030 MS. LOTT: Now, I just wanted to speak briefly about the load balancing issue of direct purchase customers. I'm wondering if you could look at the rate handbook, which is Exhibit H.2, tab 6, schedule 1. 1031 And I particularly wanted to look at -- I know you've talked about this earlier today, the banked gas accounts section under the terms and conditions, which is sections D, E, and F. 1032 MS. DUGUAY: Yes. 1033 MS. LOTT: You've got that there. 1034 I know, as I said, that this has been discussed this morning. I wonder if you could just very briefly summarize the requirements related to banked gas accounts. 1035 MS. DUGUAY: All three sections, or the disposition of the banked gas account, section F? 1036 MS. LOTT: Just very quickly, just a very quick summary of -- 1037 MS. DUGUAY: Well, I think that the most relevant section is the section around disposition. And essentially, at the end of a contract year, the direct purchase customer can be in a debit position, meaning that his level of consumption has exceeded the level of deliveries within that contractual year. 1038 And in that particular situation, if the customer is within the preset tolerance ban, which is set at 20 times the MDV or 5 percent, they have, essentially, two options: Buy the gas from the utility or elect to make up. 1039 If the customer falls outside the preset tolerance ban of 5 percent, they have to, essentially, buy the gas from the utility at 120 percent of the western buy/sell price, inclusive of the fuel at the end of the contract year. 1040 Conversely, if the customer is in the credit position, the same rules apply with regard to the tolerance. And if the customer falls outside the tolerance, they would have -- or the company would buy their supply at 80 percent of the western Canada buy price less the Ontario transportation service credit, both in effect at the end of the contract year. 1041 MS. LOTT: Have all these terms and conditions been reviewed with direct purchase customers and their retail energy marketers prior to being approved by the Board as part -- as being part of this rate handbook? 1042 MS. DUGUAY: I'm trying to recollect because there was a change made to these provisions, I believe, two years ago. I don't recall having discussions at that time. I understand, however, that there are -- since that time there has been some ABM council meeting and that could have been the topic that would have come up for discussion. 1043 MR. BRENNAN: Yes, that's certainly the case, that we've instituted ABM councils where agents, marketers and brokers get together with the company personnel to discuss issues, and certainly these issues have been discussed at great length. Marketers, brokers would like certain changes to this. The utility would like to see changes on its side as well. 1044 There was, I can remember, a subcommittee formed to deal with some of these issues. At the end of the day, after some time of debating it back and forth, it was agreed that we just leave it the way it is because we couldn't -- parties couldn't come to an agreement, or consensus, let's say, on all the changes that both sides were looking for. 1045 MS. LOTT: Okay. And you're aware, of course, from the cross-examination this morning, that the retail energy marketers are concerned with about the penalties related to banked gas accounts. My question is, is the company doing anything about banked gas accounts to address the concerns of the REMs? 1046 MR. BRENNAN: Well, I guess to the extent that we'll, obviously, continue to try to talk with the ABM council to see if we can come to some conclusion or consensus, no -- that's -- we're trying to do it in consultation with the ABMs. 1047 MS. LOTT: And will the allocation of costs for load balancing be part of ECG's application for unbundling of distribution services and of rates? 1048 MS. DUGUAY: Yes, they would be. 1049 MS. LOTT: And subject to any further direction that would come from the Board, am I correct that ECG is proposing to do its 2003 fully allocated cost study for system gas and for direct purchase costs based on the functions that were set out in Mr. Bracken's report and that was -- I'm specifically looking here at section 2.1 of that report, which would be page 8, and the functions that are outlined there. 1050 MS. DUGUAY: Yeah, that is correct. 1051 MS. LOTT: Is that correct? Thanks. 1052 Those are my questions, thank you. 1053 MS. HALLADAY: Thank you, Ms. Lott. 1054 I understand Board staff have no questions, or do you? 1055 Mr. Farrell, do you have any questions? 1056 MR. FARRELL: Yes, I do, just a couple. 1057 RE-EXAMINATION BY MR. FARRELL: 1058 MR. FARRELL: Mr. Brennan, this is just a question of clarification. This morning, and it seems to be a sentence, as internal inconsistency, the sentence -- this morning you referred to the EOS group in Calgary. Did you mean to say that? 1059 MR. BRENNAN: No, it's the EOS group in Edmonton. 1060 MR. FARRELL: Then the only other area that -- I'm just concerned there may be -- the record may be a bit confusing. Mr. Vegh spoke to you about title transfers of gas and storage, and the example that was used is would you take a title transfer of gas in Michigan storage. It wasn't clear to me, in any event, as I was sitting and listening to your answer that -- just -- whether you were prepared to say yes, you would, subject to conditions, or no, you wouldn't at all. And at one point you mentioned in an answer, I think, that you would consider it if there was a transportation path to move the gas to your franchise area, and then the next time, in response to a similar question, you didn't refer to a transportation path. So just clarify what the company's practice or policy is on makeup by title transfers of gas and storage. 1061 MR. BRENNAN: Yes. The practice would be that if there is -- if a title transfer is the first choice, it would obviously have the gas delivered into the franchise area. That's where we need the gas so that's where we would like to see it delivered. 1062 Failing that, I mean there may be instances where we could accept something, gas, as far as makeup, at either Tecumseh storage or Union Gas storage. But apart from that -- and it would depend on the time of year, for example, as to when that would happen. For example, if it was the summer, it would be easier because we could just inject it into storage; there is no transportation involved. However, in the winter, where we would have transportation involved, we wouldn't accept it necessarily at Dawn. And the same thing would be if we tried to accept storage at other locations. The idea is can we get it into our franchise area without incurring additional costs ourselves. 1063 MR. FARRELL: Thank you, Mr. Brennan. 1064 Those are all the questions I have, Madam Chair. 1065 Thank you, Mr. Farrell. 1066 Thank you. This panel has no questions so we excuse this witness panel with our thanks. Thank you very much. 1067 MR. FARRELL: Madam Chair, may I suggest just a five-minute break so the people -- 1068 MS. HALLADAY: I was wondering the same thing as well, Mr. Farrell, so we'll just take -- 1069 MR. FARRELL: Or if you wanted to take ten, that would be fine, too. Your call. 1070 MS. HALLADAY: Fifteen, because this Board panel is prompt in coming back on time. 1071 Okay, so why don't we take a 15-minute break. We'll take our afternoon break now, and we'll reconvene at 3:00. 1072 MR. FARRELL: Thank you. 1073 --- Recess taken at 2:43 p.m. 1074 --- On resuming at 3:02 p.m. 1075 MS. HALLADAY: Please be seated. 1076 MR. FARRELL: Madam Chair, the witnesses that have been recalled for the undertaking responses are Ms. Holder, closest to the Board, then Mr. Brennan, then Mr. McGill, and finally, Mr. Pleckaitis. 1077 ENBRIDGE CONSUMERS GAS - UNDERTAKINGS PANEL 1078 J.HOLDER; Previously sworn. 1079 F.BRENNAN; Previously sworn. 1080 S.McGILL; Previously sworn. 1081 A.PLECKAITIS; Previously sworn. 1082 EXAMINATION BY MR. FARRELL: 1083 MR. FARRELL: And there are a couple of questions that don't have to do with paper. I thought we'd just get them out of the way. 1084 Mr. Brennan, this morning you gave an Undertaking J.8.1 to Mr. Vegh in terms of the discussion you had about footnote 2 on pages 59 and 60 of the settlement proposal; namely, the two pages that comprise appendix D. 1085 Are you in a position to respond to that undertaking now? 1086 RESPONSE TO UNDERTAKING NO. J.8.1: ORAL 1087 MR. BRENNAN: Yes, I am, and I'll try to use it by way of an example, if I can. 1088 What the footnote was trying to say was that is a case, for example -- on a given day, let's say the send out, the volume going out to the customers was 250 units, for example. We know deliveries from system gas are 100 units and deliveries from direct purchase customers is 100 units. So that's 200, and the rest of the 250, or the 50 units, if you like, comes out of storage. 1089 So the volume that's coming out of storage, we don't know whether it is on behalf of direct purchase customers or on system gas customers, let's say. 1090 So what we tried to do for gas cost purposes is to use -- make an assumption as to what the, if you like, the T-service volumes are, and that assumption or -- is based on using billed data, if you like, billed consumption. And to the extent that that doesn't match the calendar, then there's going to be a difference. 1091 Now, in the past, where we only had one rate change throughout the year, it really wasn't an issue, because at the end of the year, it didn't really make, any difference, because consumption always came in line with what was actually delivered -- I'm sorry, consumption came in with what was actually billed. 1092 What's happening here though, unfortunately, is that now we've gone to this quarterly rate change, and so now we're seeing this anomaly, if you like, where you are catching it part way through the year, where there's always going to be a discrepancy between making the assumption as to what's in there for T-service customers, and what's in there for sales customers. 1093 And all this was, was just making that correction. 1094 MR. FARRELL: Thank you, Mr. Brennan. 1095 In one of the undertakings given on the third day of the hearing, Undertaking J.3.4 was the date of the announcement of the Nexus project, and have you been able to determine that date? 1096 RESPONSE TO UNDERTAKING NO. J.3.4: ORAL 1097 MR. BRENNAN: The best I can do in terms of coming up with a date, I spoke to someone at TransCanada and their advice was that it was during the summer of 1996 when it was announced. 1098 MR. FARRELL: Thank you. 1099 Now, Ms. Holder, before we get to the paper for which you are responsible, Undertaking J.6.2 was the status of services provided by ECG to St. Lawrence Gas gas under the 1998 undertakings. And you recall, there was a discussion about whether that had been grandfathered, I think was the term, which you used. Have you been able to determine the status? 1100 RESPONSE TO UNDERTAKING NO. J.6.2: ORAL 1101 MS. HOLDER: Yes. It appears that we did not ask for special exemption from this Board regarding our services being provided to St. Lawrence Gas. 1102 MR. FARRELL: Thank you. 1103 The first document I'd like Ms. Holder to explain is Exhibit J.3.14. This is a document that has exhibits to it, if you will. It has a list of documents. This was -- the response was to an undertaking given to you, Madam Chair. And if you could just have that document in front of you, there's one typographical error on the first page. 1104 Exhibit T is described as the Consumers Gas Company Ltd. notice of meeting of the board of directors, and the date given is 1997-07-18. 1105 The date, actually, if you look at the document that's marked as Exhibit T is July the 28th, so 18 should be 28. 1106 Now, Ms. Holder, would you please describe this document in general purposes -- in general terms, rather. 1107 EXPLANATION OF EXHIBIT NO. J.3.14: ORAL 1108 MS. HOLDER: I think the undertaking was intended for us to provide internal documents and memos that were -- that related to our decision on Alliance and Vector. 1109 And I think we were really hearing just, sort of, two questions: One was, Was the board of directors aware of our decisions, and the second was, What was the -- what support did we have underpinning these memos, in particular the Mr. Otsason memo? 1110 We have reviewed all our files, and at least all those that we could find and -- or could think of, recognizing many of these files are in long-term storage, which we have retrieved those that we are aware of. 1111 Many of the files would have been destroyed by employees when they last left the organization. And, of course, we have no way of knowing if anything has been misfiled through the years. 1112 So in the end, I think the information that we've provided in this very thick document supports the -- all the factors that have been provided in the memo by Mr. Otsason. And also, the package includes information that was before the ECG or the Enbridge Consumers Gas board of directors regarding Vector and Alliance, and this material confirms that Mr. Riedl and Mr. Aiken did have the authority to sign the first Alliance contract and that the board of directors did not need to approve that contract. Further, this package shows that the board of directors were aware of these contracts. 1113 MR. FARRELL: Thank you. 1114 Now, next I'd like you to turn to Exhibit J.5.5.. 1115 EXPLANATION OF EXHIBIT NO. J.5.5: ORAL 1116 MS. HOLDER: Yes. 1117 MR. FARRELL: There are four attachments to that. Could you just indicate, if it's not clear from the description on the first page, who prepared the document that is attached, and could you also indicate the pages on which you have redacted information and explain why the redaction was made. 1118 MS. HOLDER: Okay. The first document is called the common service provider, and for your information, the common service provider was the initial concept of what became EOS or Enbridge Operational Services. This presentation was prepared by Scott Campbell and Will Ackermanns who reported to me at the time. I believe that document is complete. 1119 The second is a letter from Mr. Riedl to myself regarding the common service provider and this memo is sort of self-explanatory, is explaining that he would like to have some more information regarding a common service provider. 1120 The third document which starts on page 15 is titled "Common Service provider." This was prepared by ECG. On page 16, you will see that there are some revenues that have been eliminated. These are the revenues at current rates that were paid by each of the affiliates that were going to be using the common service provider or EOS. It also has blanked out a number that would be the amount that would need to increase and -- it's the revenue that would need to come in addition to the revenues in the paragraph above in order to get a return, and actually I deleted the return as well. Again, I don't believe those numbers are relevant for this case and also most of these numbers are for other affiliates, not for ECG. 1121 MR. FARRELL: I think the next page there were some redactions is page 18. 1122 MS. HOLDER: Yes, page 18. Again, this -- these numbers relate to a company called Ultra. At the time that we had this information on Ultra, they were not publicly traded, so I do not know if this information was confidential or not, so therefore I deleted it. I don't think it is relevant to this case in any event. 1123 The next is a -- again, a memo from Mr. Riedl to Pat Daniel with -- regarding centralizing gas and liquids control centre. Pat Daniel at this time would have been -- he reported to the CEO, Brian MacNeill, Pat Daniel and Steven Warry were members of the CLT at the time of this memo. 1124 MR. FARRELL: Page -- the redaction on page 22. 1125 MS. HOLDER: On page 22, again, have removed similar dollar amounts. Again, it's the dollar amounts that were going to be required to be spent by Enbridge Operational Services in order to start up this business. It also has numbers that they would save in O&M costs. It also has -- I've eliminated any net present values again because these are for Enbridge Operational Services, not for ECG. 1126 MR. FARRELL: And are they numbers for EOS that would cover all of its services, not just to ECG but to the other affiliates? 1127 MS. HOLDER: Yes, that's correct, sir. 1128 MR. FARRELL: The next is page 24. 1129 MS. HOLDER: And again I've eliminated the financial evaluation, the equity cash flows and net income and the annual return on equity, again, because they relate to EOS and all the services are provided, not just ECG. The same goes for the top of page 25 and the middle of page 25. 1130 MR. FARRELL: Now, could you turn to the next document which is -- Exhibit J.5.6 is the exhibit number and the header, Madam Chair, and it says Undertaking J.5.6 but the first line under the word "response" indicates it's actually a response to three undertakings, J.5.6, J.6.3 and J.6.6. 1131 Now, can we go through a similar exercise here, Ms. Holder, where you tell me who prepared the documents that are attached to the cover page? 1132 RESPONSE TO UNDERTAKINGS J.5.6, J.6.3, J.6.6: ORAL 1133 MS. HOLDER: Yes. The first document is called gas supply and storage unbundling, dated November 7th, 2000. This presentation was presented at a workshop dated November 20th, which I'll explain here. 1134 On page 2, I've eliminated the amount of Bcf that we have under consideration for development because that is strategic and confidential in nature. 1135 MR. FARRELL: This is for storage, you're talking about? 1136 MS. HOLDER: Yes, for storage. Page 3, the top slide, there is a bullet under the Link pipeline that I've deleted. It related to a contract that does not exist today so it's not relevant to the assets that were available. 1137 MR. FARRELL: Page 10. 1138 MS. HOLDER: Page 10, I've eliminated the FTEs that were working on this project, both full time and for 50 percent of their time. Again, these are O&M dollars that are covered under targeted PBR. 1139 MR. FARRELL: Then the next document is an agenda. 1140 MS. HOLDER: Yes. So page 11, which is the agenda of a workshop that the previous presentation was presented at, so the workshop actually took place on November 20th, the presentation was prepared on November 7th. And this workshop was for the Enbridge distribution and services workshop, which is -- would have included those businesses in the east that report to Steve Letwin who is a group vice president member of CLT. I have eliminated the agenda items other than the one agenda item, gas storage and supply unbundling, and the other agenda items do not relate to this case. Some are strategic in nature, some are informational in nature. 1141 Starting on page 13 is a presentation called, "Repositioning Strategy for Natural Gas Assets and Activities," dated January 16th, 2001. This is a presentation that was given to the CLT in Calgary on January 16th, 2001. It was prepared by a Mr. Jarvis who works for Enbridge Inc.. I provided input and assistance on this presentation and I was present at the presentation to the CLT. 1142 The first omission is page -- 1143 MR. FARRELL: Page 15. 1144 MS. HOLDER: Page 15, the top slide says: "With ESP, expect transactional revenues to increase by dollar amount." I have eliminated those because, again, that's an Enbridge number not the ECG number. ECG's transactional services are covered by our cases here before the OEB. 1145 The next is page 16, two slides with respect to storage. Again, these were not relating to the ESP, they relate to storage. Again, they are strategic and again, not an issue in this case. 1146 MR. FARRELL: And now I think you are to the next document which starts at page 19. 1147 MS. HOLDER: "Implementation Update Positioning Merchant Gas Capability," dated March 5, 2001. Again, this is a presentation that was given on March 5th, 2001, to the CLT in Calgary. Again, the document's primarily prepared by a Mr. Jarvis with my input. Again, we were both present at the presentation. 1148 On page 25, you can see dollar amounts have been removed. Again, these dollar amounts relate to Enbridge Inc. and not to ECG and therefore I have eliminated the dollar amounts. 1149 The last document is a matrix that deals with the issue of Affiliate Relationship Code and issues that we addressed in looking at that. 1150 MR. FARRELL: Just coming back to page 25. 1151 MS. HOLDER: Yes. 1152 MR. FARRELL: These optimization guides, I take it from your description, relate to optimization values for affiliates in addition to ECG. In other words, this is an EI or an Enbridge perspective as opposed to an ECG perspective; is that what I should take from this? 1153 MS. HOLDER: That's correct. For example, it says, "Introduce commodity." That is not an activity that we can do. We can only buy gas and sell gas to our in-franchise customers, we are not in a position to buy gas and sell gas to third parties. So that is -- does not relate to ECG at all. Likewise, the Alliance-Vector capacity would be their merchant capacity, storage optionality, again, relating to Enbridge. 1154 MR. FARRELL: Thank you. 1155 Now, Mr. McGill, I filed four undertaking responses that you are responsible for. The first is Exhibit J.5.1 -- just a moment, Madam Chair. 1156 Yes, Mr. Thompson has pointed out that if you look at page 30 of Exhibit J.6.6, Ms. Holder, that's the matrix that you were referring to. 1157 MS. HOLDER: Yes. 1158 MR. FARRELL: Look in the right-hand column, it's entitled: "Considerations, Recommendations." Look at the third box in that column, the second line. 1159 MS. HOLDER: Oh, yes, sorry. Yes. We've eliminated the dollars that the ECG was paying to the ESP. I believe those numbers were given, at least in order of magnitude, previously by Mr. Brennan. 1160 MR. FARRELL: Yes. Thank you. 1161 So, Mr. McGill, Exhibit J.5.1, these are the services schedules for the master agreement between ECG and Customer Works. 1162 MR. MCGILL: Yes, that's correct. 1163 MR. FARRELL: Would you just explain, in general terms, what you have redacted from these services schedules? 1164 EXPLANATION OF EXHIBIT NO. J.5.1: ORAL 1165 MR. MCGILL: Yes, I've removed all of the references to price, forecast, volume activity levels and service levels. 1166 MR. FARRELL: The next is Exhibit J.5.2, and these are the services schedules to ECG's agreement with Enbridge Commercial Services or ECS? 1167 MR. MCGILL: Yes, that's correct. 1168 MR. FARRELL: And again, could you just describe what you have redacted? 1169 EXPLANATION OF EXHIBIT NO. J.5.2: ORAL 1170 MR. MCGILL: And again, I've removed all the references to price, forecast volumes of activity, and service levels. And just to clarify, there are several schedules at the back of the response that have been superseded by the service schedules that pertain to Customer Works. 1171 MR. FARRELL: The next is a single page, Exhibit J.5.3, and this is -- the undertaking had to do with the ECS labour relations employee records package. Is there anything you need to explain in addition to what's written? 1172 EXPLANATION OF EXHIBIT NO. J.5.3: ORAL 1173 MR. MCGILL: Well, this one pretty much speaks for itself. It's expected that these activities will return to ECG as of this October. 1174 MR. FARRELL: And finally, Exhibit J.5.4. 1175 EXPLANATION OF EXHIBIT NO. J.5.4: ORAL 1176 MR. MCGILL: Yes, this is the undertaking that pertains to the arrangements with Enbridge Inc., and I've included a copy of the master agreement and again, I've removed all the references to price, forecast volumes of activity and service levels. 1177 MR. FARRELL: Thank you, Mr. McGill. 1178 That is all we have. 1179 MS. HALLADAY: Thank you, Mr. Farrell. 1180 MR. FARRELL: I think there are a total of eight outstanding responses, one of which was given this morning -- or two this morning. We've answered one, there's one outstanding, and we'll -- we're working on those, and if we have them in writing and we can get them around to people tomorrow, we'll try to do that so they have them in advance of the panel returning on Wednesday morning. 1181 MS. HALLADAY: Thank you. 1182 So as I understand it, that concludes the session for this afternoon and -- 1183 You're looking at me, Mr. Thompson. You're ready to ask questions already or are we going to wait until Wednesday morning to start our questions of this panel? 1184 MR. THOMPSON: No, I'm happy to wait. I just wanted to indicate to the panel that I will be asking that the complete copies of the documents attached to J.5.5 and J.5.6 be filed. And I've indicated to Mr. Farrell, to expedite the submissions on that point, I've asked the company to have available these complete documents for the panel, that's the Board panel, to inspect so as you're going along hearing my submissions, you will be able to look at that document. And under the Rules of Civil Procedure in court, I think it's Rule 30.06(d), there is authority to have the documents available for inspection by the Tribunal. It's asked to rule on whether the claim for redaction on the grounds of, as I understand it, relevance in some cases and confidentiality in other cases is appropriate. 1185 So I just wanted to alert you that that's what I've asked the company to do. 1186 MS. HALLADAY: Thank you. 1187 MR. FARRELL: And we're prepared to do that. 1188 MS. HALLADAY: That was my next question, Mr. Farrell. 1189 MR. FARRELL: Provide them to the Board under seal, as the expression goes. 1190 MS. HALLADAY: Fair enough. Thank you. 1191 Any other comments before we rise for this afternoon? 1192 All right, then. Thank you very much. We will reconvene on Wednesday morning at 9:30. 1193 --- Whereupon the hearing adjourned at 3:25 p.m.