Rep: OEB
Doc: 129M4
Rev: 0













ONTARIO ENERGY BOARD

Volume: 9

19 JUNE 2002


BEFORE:



S. HALLADAY

PRESIDING MEMBER

R. BETTS

MEMBER

A. SPOEL

MEMBER



1
RP-2001-0032 TRANSCRIPT VOLUME #9

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 #9


4
19 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

MICHAEL PENNY

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:

[18]





MOTION:

[38]




SUBMISSIONS BY MR. THOMPSON:

[39]





SUBMISSIONS BY MR. BRETT:

[122]





SUBMISSIONS BY MR. JANIGAN:

[126]





SUBMISSIONS BY MR. WARREN:

[134]





SUBMISSIONS BY MR. VEGH:

[144]





SUBMISSIONS BY MR. PENNY:

[163]





REPLY SUBMISSIONS BY MR. FARRELL:

[184]





FURTHER SUBMISSIONS BY MR. THOMPSON:

[303]





DECISION:

[333]






PROCEDURAL MATTERS:

[343]





ENBRIDGE CONSUMERS GAS - UNDERTAKINGS PANEL; RESUMED

[406]




CROSS-EXAMINATION BY MR. WARREN:

[411]





CROSS-EXAMINATION BY MR. JANIGAN:

[582]





CROSS-EXAMINATION BY MR. VEGH:

[876]






10
EXHIBITS

11

EXHIBIT NO. K.9.1: EXCERPTS FROM STATUTORY POWERS AND PROCEDURES ACT

[188]









EXHIBIT NO. K.9.2: EXCERPTS FROM THE FREEDOM OF INFORMATION AND PROTECTION OF PRIVACY ACT

[191]









EXHIBIT NO. K.9.3: GUIDELINES FOR THE TREATMENT OF FILINGS MADE IN CONFIDENCE - PHASE 1 - EFFECTIVE MARCH 19, 2001

[192]









EXHIBIT NO. J.3.9: RESPONSE TO UNDERTAKING J.3.9

[346]










EXHIBIT NO. J.4.8: RESPONSE TO UNDERTAKING J.4.8

[350]









EXHIBIT NO. K.9.4: DISCUSSION PAPER FILED DURING RP-1999-0001

[617]









EXHIBIT NO. K.9.5: APPLICATION BY B.C. GAS UTILITY LIMITED FOR THE DISPOSITION OF PROPERTY AND APPROVAL OF CUSTOMER CARE ARRANGEMENTS

[706]









EXHIBIT NO. K.9.6: SUMMARY REPORT ON REVIEW OF THE CUSTOMER WORKS JOINT VENTURE TO BE IMPLEMENTED BY B.C. GAS AND ENBRIDGE, JANUARY 8, 2002 - PREPARED FOR THE BRITISH COLUMBIA UTILITIES COMMISSION

[720]









12
UNDERTAKINGS

13

RESPONSE TO UNDERTAKING NO. J.3.14: FILED

[28]





RESPONSE TO UNDERTAKING NO. J.3.11: ORAL

[352]





RESPONSE TO UNDERTAKING NO. J.6.5: ORAL

[356]





RESPONSE TO UNDERTAKING NO. J.6.7: ORAL

[363]





UNDERTAKING NO. J.9.1: TO PROVIDE ANY DIFFERENCE WITH RESPECT TO THE ALLOCATION OF UPSTREAM COSTS FOR THE ALLIANCE AND VECTOR PIPELINES FROM WHAT IS SET OUT IN THE REPORT WHICH IS THE DISCUSSION PAPER IN RP-1999-0001

[639]





UNDERTAKING NO. J.9.2: TO DETERMINE PIPELINE IN CONTRACT CITATION

[679]





RESPONSE TO UNDERTAKING NO. J.9.1: ORAL

[826]





RESPONSE TO UNDERTAKING NO. J.9.2: ORAL

[831]





RESPONSE TO UNDERTAKING NO. J.3.10: ORAL

[844]





14
--- Upon commencing at 9:35 a.m.
15
MS. HALLADAY: Please be seated.

16
Good morning. Before we begin are there any preliminary matters?

17
MR. FARRELL: Yes, Madam Chair.

18
PRELIMINARY MATTERS:

19
MR. FARRELL: I've given each of you an envelope that contains unredacted versions of Exhibit J.5.6 and Exhibit J.5.5. The filed versions had page numbers typed on them; the unredacted versions have handwritten pages but they correspond, so in relation to Mr. Thompson's request, that the Board members have it.

20
My understanding is that he wished you to have them provide a context for the submissions he will make, and perhaps others, in favour of disclosure that I will be making opposed to disclosure. I would like you to return them to me prior to your ruling, but if you need them for your deliberative purposes, that's fine.

21
MS. HALLADAY: Thank you, Mr. Farrell.

22
MR. FARRELL: I have one response -- well, perhaps I should just indicate what I see the procedure for this morning being.

23
I have one undertaking response to file now. There are others that are down in ECG's offices in this building that I have not had an opportunity to go over with the witnesses to make sure that the response is complete. So when argument is finished on this matter, I'd be asking the Board for an early, or maybe right on time, mid-morning break so that we can do that and file as many of them as we can to -- I think there were eight outstanding when we adjourned on Monday, to get them in everyone's hands as soon as we can. So I think that notwithstanding it might be an earlier adjournment, it would be time well spent, in my view.

24
MS. HALLADAY: That's fine, Mr. Farrell. Thank you.

25
MR. FARRELL: And then further, when we resume, if you and your colleagues haven't reached a decision, then my proposal would be that we would proceed with the witnesses in relation to the other undertaking responses and that, after your ruling, then we'll proceed with the examination of the witnesses on those two undertaking responses.

26
MS. HALLADAY: That's fine. Thank you.

27
MR. FARRELL: So the undertaking response that I have is -- it will be Exhibit J.3.12. And this is in response to, I think, an undertaking given to you, Madam Chair, but it's entitled "ECG's Dollar Limit For Contracts Not Requiring Approval by ECG's Board of Directors." So what I'm about to file is the director's resolution that is currently in force. The director's resolution that I'm filing reflects the out-sourcing arrangement with Enbridge Inc., but the resolution that was in force at the time of the precedent agreement with Alliance is the one that appears as item P in Exhibit J.3.14. So if you're -- excuse me. No, it is item P, it's actually the resolution that's attached to the one page that's marked as item P or exhibit P in Exhibit J.3.14

28
RESPONSE TO UNDERTAKING NO. J.3.14: FILED

29
MR. FARRELL: Now, I've asked Ms. Holder to go to the witness table because in reviewing the unredacted copy, I -- I will wait until Mr. Schuch does -- the unredacted copy of Exhibit J.5.6, we discovered that there was one page on which some information had been removed but it wasn't obvious on the face of the page. And so Ms. Holder -- neither Ms. Holder nor I realized that we'd overlooked one item when we were going through her explanation on Monday. So I'd ask her to turn to Exhibit J.5.6, page 9.

30
Ms. Holder.

31
MS. HOLDER: Yes.

32
MR. FARRELL: And it's the second slide on the page, as I understand it.

33
MS. HOLDER: Yes. So on page 9, the second slide says: "Action Plan Components Continued," and it says "To be completed by January 16th," and then there are six bullets underneath that, the first being "Market Power Study." I deleted from the first four bullets a name that had been attached to each one of those items. Again, at the time, it was not relevant to the matters before the -- this -- in this case; however, I got a little overzealous, I think, in that -- the market power study, for instance, my name was beside that activity and a supplier of last resort strategy for ECG, my name was beside that activity.

34
So what you have is, there is a name that is blanked out beside "Comprehensive risk Management Program" and a name that is blanked out beside "Commodity Strategy".

35
MR. FARRELL: Thank you, Ms. Holder. That's all. I think we are now at the stage of Mr. Thompson's submissions.

36
MS. HALLADAY: Thank you, Mr. Farrell.

37
Mr. Thompson.

38

MOTION:

39
SUBMISSIONS BY MR. THOMPSON:

40
MR. THOMPSON: Yes, thank you, Madam Chair, Members of the Board.

41
What I'd like to present to you is essentially a motion for production of the redacted portions of the documents produced in response to Undertaking J.5.5 and Undertaking J.5.6. Just to have the documents that I will be making some reference to in order and before you. Of course, you'd have now from Mr. Farrell the unredacted copies of the material to inspect and I encourage you to do that as I make my submissions with respect to the redacted components.

42
Secondly, I'd like you to have available Undertaking K.6.1 which was the letter that the company wrote to Mr. Laughren back in August of 2000, and sequentially it comes after the documents that are -- form part of J.5.5.

43
The third document that I think you should have available is Exhibit J.6.4 which is a memorandum from Mr. Farrell to Mr. Grant. It's dated March 5th of 2000 and sequentially it follows, at least in my arrangement of the documents, J.5.6.

44
And then finally, the last document that fits into the scheme of things is Exhibit K.6.2 which is the letter that the company wrote to Mr. Laughren in April of 2001.

45
The points of argument on which I rely in support of this request for full disclosure of the redacted information are essentially two:

46
First, the test to be applied, in my submission, is the semblance of relevancy test; that is, if the information is arguably relevant to the position of any parties with respect to matters in issue, it ought to be disclosed. This test, as far as I'm concerned, is well recognized and I don't intend to say anything more about it other than it is a test that ought to be applied.

47
The second point of argument on which I rely and will expand upon more fully as this argue progresses is that the issue to which this information relates is a broad one; that is issue 5.3 on the Board's issues list. And I think it's fair to say, certainly from my client's position, the full breadth of the issue was not appreciated until we had obtained some of the documents that had been produced in Undertaking J.5.5 and J.5.6.

48
The issue you will find framed in the settlement proposal, which is Exhibit N.1, tab 1, schedule 1, page 25, and it reads: "ECG's affiliate services arrangements, including the implications of out-sourcing gas services and operational services as defined in Exhibit A, tab 14, schedule 3, to affiliates and their personnel located in Alberta."


49
In the context of the issue, I would like to simply remind you of the decision-making criteria that the company suggested the Board should apply, and those criteria were safety and reliability, cost consequences - and they argue this is short-term cost consequences limited to the 2002 test year only - and thirdly, compliance with the Affiliates Relationship Code.

50
During the course of the cross-examination by intervenors, other criteria were mentioned and it's apparent that the Board will be urged to apply criteria that are broader in scope than the three criteria the company relies on. These broader criteria included harm to ratepayers, lack of benefit to ratepayers, and other public interest factors.

51
So when considering and applying the semblance of relevancy test, you should be cognizant not only of the broad scope of the issue in this case but also the scope of the decision-making criteria that all parties suggest are applicable to a determination of the issue.

52
Another factor that, in my submission, you should take into account is the quality and timeliness of the disclosure of information pertaining to the broad issue in this case. This topic of the quality and timeliness of the company's disclosure of information pertaining to the transfer of utility functions to affiliates was the subject matter of your ruling to which Mr. Pleckaitis referred during the course of his examination. That was a ruling on a motion that IGUA and others had brought to review the setting of the base, I guess it was, for the 2000 test year, I believe it was, following introduction of PBR.

53
That's the motion and decision dated June 29, 2000; it's in docket number RP-1999-0001. In paragraphs 4.1, 4.4, and 4.5, the Board did comment on the obligation of the company to make a timely and quality disclosure of information with respect to its out-sourcing plans. I don't intend to read those paragraphs to you. They have been referenced previously.

54
Paragraph 4.5 does sum up, I believe, your view on the company's obligation where the Board Panel did say: "The company has an affirmative obligation to provide the Board with the best possible evidence, and it is not incumbent on the intervenors to ensure, through cross-examination of the company's witnesses, that the record is adequate and complete. The company cannot shirk its responsibilities as a regulated entity by submitting evidence that is vague and incomplete."

55
And it's in that context that you should consider, in my submission, what was disclosed in the evidence in this case, and it's in Exhibit A, I believe it is, tab 14, which wasn't a whole lot of stuff. And prior to that, what was disclosed to the Board were just these two letters that I've mentioned, Exhibit A.1 -- sorry, K.6.1 and K.6.2.

56
Those letters were written after your decision in the RP-1999-0001 decision, that decision is dated June 29, 2000. And in the context of the information that we've managed to extract during the course of cross-examination, being all these documents forming part of J.5.5 and J.5.6, it's my submission that the principles that you expressed in that decision about the company's obligation appear to have been honoured by the company in the breach thereof.

57

So when considering whether to favour disclosure versus supporting the continued redaction, I submit you should be leaning towards disclosure in the context of the company's obligations to make full disclosure as you've described them in the decision on that motion.

58
So turning, then, to the question that, in my submission, the Board Panel should be asking itself, it is this: What considerations are arguably relevant to the Board's consideration of the broad issue pertaining to ECG's affiliate relationships, including the out-sourcing of gas services and operational services to affiliates in Alberta.

59
The first consideration, in my respectful submission, that is arguably relevant is a consideration of all of the factors and information pertaining thereto which the company considered - when I say "the company," I mean the company and its owner considered - during the decision-making and implementation processes pertaining to the out-sourcing of these functions which are critical to the operation of a distribution utility.

60
Now, what were these factors? These can be gleaned from the material that has been filed, which I'll come to in a little more detail in a moment.

61
But, first of all, what appears to be of primary importance was increased returns for EI, and increased returns apparently above some threshold level that the company at EI regarded as of significance. So that the level of increased returns to EI is of relevance and may be of relevance to the terms and conditions that my client, and perhaps others, will propose with respect to the out-sourcing of these functions.

62
What the documents reveal, and I'll come to them in a moment, is that a level of increased returns to EI can lead to, and did lead, apparently, to an out-sourcing of these critical functions, critical utility functions, even if the quality of service, operational service, is temporarily jeopardized.

63
And just to highlight that point, if, for example, you look at Undertaking J.5.5, at page 13, you'll see Mr. Riedl's memo to Ms. Holder, at the bottom bullet point, raises this question of level of earnings.

64
In the second paragraph, he talks about an executive summary which hasn't been produced, but says "It doesn't provide enough financial information. Could you have it packaged/amended to fit the business development case standard use by Richard Bird's group," and then the last bullet point on the page, the -- well, second last, he talks about revenues, earnings and ROE and then he asks this point about significance: "Is this of significant earnings potential to be on our strategic radar screen?" That suggests that this had to produce some meaningful and significant returns to get over that threshold and that theme finds its expression elsewhere in the document.

65
But the point I wanted to emphasize here is that a matter of concern which that theme appears to override is this question of operational risk, and you'll see at page 17, for example, in the -- I guess it's the third -- well, second paragraph on the page, just above the heading "Alternate Proposals," where they talk about the expectation that three to four current employees working in gas control at Enbridge Consumers Gas would be willing to transfer to Edmonton. If this was to occur, then the CSP would not be at risk -- the implication being that if this were not to occur, the CSP would be at risk.


66
Then if you jump over to page 22, you again see this point about the risk of not having qualified people go to Edmonton. At the bottom of the page, it's noted: "The incremental risk of moving gas operations to Edmonton is that the new group will have limited operating experience," and the same point is made on page 24 under the heading "Risks and mitigants." And we know that only one person, as I understand it, went to Edmonton and so what you -- that's the evidence, as I understand it. Now, I may be mistaken there, but what we have, then, is the returns driver, if you will, temporarily overriding risks with respect to quality of operational personnel. So that, again, illustrates the importance, in the scheme of things, of this return driver.

67
Initially, what these documents reveal is, in my submission, that this was being done pursuant to some strategy of EI, and the strategy appears to contemplate what I call an end-run around the regulated rate of return through the out-sourcing of utility functions and the diversion of transactional services revenues to ECG's parent EI.

68
The information of the expected magnitude of this, in my submission, will be very relevant to the possible submissions by some intervenors, including IGUA, that conditions should be attached to this out-sourcing which prevent this end-run around the board-determined rate of return which is arguably an abuse of the ratepayers, in my submission.

69
On this point of return and cost consequences in the 2002 test year, we shouldn't overlook that rate of return is an issue for the 2002 test year. The company has told us that they want an increased utility rate of return for 2002 and that will be the subject matter of a separate subset of the 2002 test year case. Certainly this information, redacted information, about what has been expected and achieved as a result of this end-run will be relevant to a 2002 test year issue, being the rate of return issue.

70
The information in the documents pertaining to the level of return is, as I've mentioned, relevant to an understanding -- what prompted the company to act in the way it acted. Some of the information, as I understand it, has been redacted on the grounds that it reveals EI's strategy and EI's strategy is clearly relevant to the company's decision to out-source these functions. The information ought not to be redacted, particularly when the company has filed EI's 2001 annual report, I forget the exhibit number, which contains in its introductory pages a description of EI's key strategic thrusts, you'll find that at page 4 of the annual report, and its progress on strategies on pages 4 and 5.

71
So there is information in the record pertaining to this topic and there is, in my submission, therefore, no basis for excluding other information pertaining to the same topic.

72
MR. MORAN: Madam Chair, that was Exhibit K.6.4, just for the record.

73
MS. HALLADAY: Thank you.

74
MR. THOMPSON: Thank you, Mr. Moran.

75

All of the redacted versions of the -- redacted portions of the document are, in my submission, arguably relevant to the broad issue of policy, the importance of which, as I mentioned, was probably not appreciated initially by all intervenors because of the quality of disclosure that we had in the first instance.

76
In the context, then, of these broad submissions, I would like to just take you through the documents and emphasize that the information is in the documents to support the conclusions that I urge you to draw.

77
The first -- and so I'll start with Undertaking J.5.5 and the first document is the common service provider document.

78
This document, as I understand it, was evidence of the concept developed in 1998. Now, just on that point, you may recall we asked whether there was some master plan at work here and we were told no, there wasn't, these things just came to us on an ad hoc basis, or words to that effect. Yet we see now, with production of documents, a common service provider concept in 1998, this is even before targeted PBR and, of course, before disclosure of what was called the massive out-sourcing in the motion following the 1999-0001 case.

79
At page 3 of this document, you'll see that this concept had what was called "Initial Services to be Offered." At page 4 of this document, you'll see that apparently one of the motivating factors for this concept was PBR motivation. We can question as to what that means; I certainly have my own conclusions as to what it meant.

80
You'll see at page 7 the financial assumptions that were underpinning this concept. Ten-year periods, so this is a long-range conceptual plan that was being formulated in 1998. And in pages 11 and 12, you'll see the conclusions that were drawn. Again, big picture, this was not just some isolated scheme to out-source the operations only, in my submission.

81
We then go to page 13, which is Mr. Riedl's letter to Ms. Holder to which I've referred, and that document, you'll note, refers to, in the second paragraph, an executive summary which hasn't been produced, but there are obviously other documents pertaining to this concept that we haven't seen. This is the document that's dated in 1998, and then we have the common service provider memo which we're told is completed in early 2000.

82
So I find it hard to believe there were no documents with respect to this concept in 1999, but in any event, we have the common service provider document developed in early 2000.

83
And you'll see one of the driving factors in this concept was a decision that's referred to in the third paragraph, with respect to this concept is required -- "a decision regarding the corporate entity within the CSP business will be carried on is needed as soon as possible in order to allow the CSP to enter into key service contracts, particularly a service contract with Vector."

84
So obviously what was happening was that EI or ECG, or one of them, was offering nomination and other type services to Vector and they wanted to get this all in place before Vector started up.

85
It's interesting to note, coming back to the Affiliate Relationships Code issues, that the paragraph just before the word structure is: "There was a concern," I don't know if that's the paragraph or not, "There was a concern" -- sorry, it's up in the second paragraph: "The physical separation must happen prior to August 15, 2000, the start-up date at Vector. This is necessary to ensure the stakeholders of Vector that Enbridge Consumers Gas does not have access to Vector pipeline confidential information."

86
In other words, the big boys in Vector, of which Enbridge was one, didn't want ECG to be using Vector's confidential information. It depends, I guess, on your size as to when you get your Affiliate Relationships Code concerns moved to the front of the agenda. But anyway, that was a concern.

87
At page 16, we have, as I understand, the first component of redacted information. These are the financials. This information indicates there were prior financials, financial projections for the CFP which have recently been updated. We don't have what was updated, but they go on and spell out what the dollars are and what the return on equity is.

88
So that information, in my submission, is relevant, arguably relevant, and should be produced for the reasons that I have expressed.

89
Over on page 17, we have reference to this one company, one vision concept, again, the strategy of EI. We have reference to the operational risks associated with too few people going to Alberta, and it's apparent that they were prepared to make this decision despite those risks.

90
At page 18, there is the exclusion of information with respect to Ultra. As I understand it, the company's not in a position to say that information is confidential, they just say it may be. That, in my submission, is not a basis to exclude it from production. If they are relying on confidentiality to exclude it, make the case; if not, produce the information. So the components of that document that have been redacted, in my submission, should be produced.

91
At page 20, we have Mr. Riedl's letter to Mr. Daniel and Mr. Warry who are described in the undertaking response as president -- Mr. Daniel is president and COO Energy Delivery Enbridge Inc.; Mr. Warry, I hope I'm pronouncing that correctly, Enbridge Pipelines Inc. and Enbridge Inc..

92
Again, the critical date being the start-up of Vector and their deal with Vector. Page 22, we have the redaction of the financial implications of the proposal which, in my submission, must be produced. At page 23, we see, interestingly enough, that corporate approval, in the second paragraph, for this concept was received in June of 1999. We don't have any evidence of that. In the first paragraph, we have again reference to the vision of the concept, and the vision contemplates utilizing the Enbridge reputation to gain a competitive advantage if offering services to third party. That appears to raise Affiliate Relationship Code issues.

93

It goes on, and over on page 24, we've had the risks and mitigants sections that I've referenced, and then the financial evaluation. Again, longer term, it's done over the course of six years, indicating once again this was not a one-off type of deal, a longer range plan. And all of that information and the information that follows -- that has been redacted on the following page, in my submission, is relevant for the reasons that I have outlined.

94
So internally, we have some of the documents; we don't have all of them. We have an indication that corporate approval for this project was received in 1999. A whole lot of financial considerations. There were some operational risks involved and then the notice that the Board gets of all of this is Mr. -- is the letter to Mr. Laughren which is Exhibit K.6.1, and that letter talks about the fait accompli decision, in my submission, to centralize these functions in Edmonton. It does not provide any of the detail that has been provided internally with respect to the project, including operations and reliability risks that have been considered, in my submission.

95
Turning to the second undertaking response, J.5.6. Again, I'll just highlight some of the pages to focus on why I've submitted that the redacted portions ought to be produced.

96
On page 1, again, and this is apropos of the evidence that there was no master plan at work here, you'll see the -- this is entitled "Gas Supply and Storage Unbundling," and then it's "Scope and Objective of Analysis." And the first bullet point is "Consider repositioning of Enbridge Consumers Gas commodity storage, gas supply and transportation activities within non-regulated Enbridge entities."

97
The second bullet point: "Determine the optimal positioning to allow for capture of maximum shareholder return when taking into consideration risk profile, regulatory requirements, changing marketplace and Enbridge's customers," last but not least on the totem pole. And then we go on from there.

98
So this, I suggest, contradicts to some degree this notion that what was going on here was not part of a major long-term plan.

99
On page 2, we have some redacted information with respect to storage. Storage is part of the concept under consideration. It's one of the reasons why the company and its parent have undertaken this out-sourcing decision, but the development amount of storage for the future is redacted. In my submission, that is not irrelevant information; that is, arguably, relevant. How much storage are they likely to be developing to use to, in effect, support future transactional services and perhaps other activities that they are trying to remove from the ambit of regulation. So I submit that information is not properly redacted.

100
At page 3, as I understand it, information was removed because it was -- historically, it just did not occur. There again, I don't submit -- I submit that that's not a proper ground for redacting the information and it ought not to be redacted.

101
Page 4 and so on, we have a strategy discussion, we have a discussion about returns, we have discussion about regulatory requirements and implications.

102

At page 5, we see the part of the concept here in the last bullet point is one of the points that we were raising with ECG witnesses in cross-examination, about this plan putting beyond the reach of those interested in unbundling the access to assets for use of the provision of unbundled services. You see the bullet point "Unbundling of rates puts storage in the hands of marketers." So it's trying to prevent marketers from getting any benefits from unbundling, appears to be one of the motivating forces.

103
The material goes on and it describes a number of components to the high-level action plan, starting at pages 8 and 9, the deletion of the individuals support responsible for the action plan. In my submission, that's not irrelevant. The comprehensive risk management program presumably involves an ECG employee, and if it doesn't - I suppose Mr. Farrell will tell us that it doesn't - but if this involves ECG employees or, for that matter, affiliate employees, in my submission, we should have the names. There's no sound reason for excluding that.

104
Page 10, there's been a white-out, as I understand it, of the resources. That goes to cost consequences longer term, and is improperly redacted.

105
At page 11, we have the agenda for the distribution and services workshop meeting, the number of redactions in the overview of the current initiative being pursued. Again, my understanding is these have been removed because they relate to the overall strategy of EI and, for reasons I've attempted to explain, this is relevant to the decisions that the company made. And there is already evidence in the record about it so that these redactions are, in my submission, improper.

106
The next slide presentation starts at page 13. We're now at January 2001, talking about repositioning strategy for natural gas assets and activities, very broad concept. Then -- and this goes to the point that I was trying to make earlier about one of the reasons for this appears to be to divert transactional services revenues to EI, so you have this discussion about current trends, talking about raising the bar for transactional services, which to me means raising the forecast which has the effect of providing ratepayers with 90 percent of the forecasted transactional services gross margin.

107
It goes on and talks about transactional services revenues, goes on to talk about the horizon once again and includes that the unbundling could lead to the allocation of 40 to 70 percent of upstream transportation and storage to marketers; reiterating that part of this game plan is to prevent that from happening.

108
Then over on page 15, they've redacted the amount that transactional services revenues are expected to increase, and this is based on the assertion, as I understand it, that, well, this is EI's revenue -- and I don't accept for a moment that's EI's revenue. That may as well be ratepayers' revenue. But we need to know the extent to which this diversionary exercise was anticipated to be achievable. So that is an improper redaction, in my submission.

109
Again, the diverting revenues from ratepayers theme you'll see expressed at the bottom of page 15, talking about trying to get this ESP concept in place prior to CPBR, which means that optimization revenue would continue to flow to ratepayers. A strategy must be developed to address this, i.e., take it away from ratepayers.

110

On page 16, we have key issues with respect to storage which have been redacted, and storage, as I indicated, is part of the major plan. That information should be available so that the party can address the implications of this -- the out-sourcing arrangements. I don't believe there are any further redactions in that material.

111
The implementation update, I'm not so sure we saw the original implementation plan to which -- of which this is an update. This document talks about phase 1 and phase 2, and on that point, this is where Mr. Farrell's memo comes into the picture. This presentation, implementation update, is dated March 5, 2001. Mr. Farrell's memo, Exhibit J.6.4, is also dated March 5, 2001. And in the second paragraph of that memo you'll see phase 1 is define: "Phase 1 comprises the out-sourcing of as many of the functions as can be accomplished without the need for regulatory approval and, in particular, the prior approval of the OEB."

112
So that, I believe, is what phase 1 and phase 2 in this slide refers to.

113
And the slide goes on in detail really describing the extent to which this fait accompli is in place. But then at page 25, they redact all of the optimization values for phases 1 and 2 that are driving this plan. For reasons that I've articulated, I submit that's a completely inappropriate redaction and we should have those amounts.

114
On the issue of reliability, of the impact of all of this on reliability, we have at page 27 a bullet point: "Current systems available within Enbridge do not meet requirements." Enbridge, I believe, must refer to Enbridge Inc.. Mr. Farrell will tell me I'm wrong if I am wrong. That's what it means to me, but we're going ahead with this even though they are apparently unreliable.

115
At page 30, we have this chart assessing Affiliate Relationship Code requirements and there's been an amount redacted there in the third transfer pricing box. That amount, in my submission, should be there particularly, as I understand it, the amounts, broadly speaking, have already been put on the record by Mr. Brennan. So that amount, it may well be a total of the amounts that Mr. Brennan was mentioning, or may be something different, but it should be in the record.

116
Again, in the context of all of that, the last document I wanted to draw your attention to was the letter that the company then wrote to Mr. Laughren on April 17th of 2001. With all of this going on within the company, and then on April 17th, 2001, we have the notice to the Board of what's going on. Pretty flimsy description of all that has transpired in the context of the Board's January -- sorry, June 2000 decision as to the quality of disclosure that the -- that the Board expects.

117
So for all of these reasons, it's my submission that the redacted portions of the documents that have been produced are inappropriately redacted and I ask that you direct the company to produce unredacted pages of these undertaking responses before IGUA cross-examines the panel on this information.

118
Thank you. Those are my submissions.

119
MS. HALLADAY: Thank you, Mr. Thompson.


120
Any other intervenors in support of Mr. Thompson's motion?

121
Mr. Brett.

122
SUBMISSIONS BY MR. BRETT:

123
MR. BRETT: Yes, Madam Chair and Panel, I support all of Mr. Thompson's arguments, I support his position. I'm not going to repeat anything he said or offer anything further. Thank you.

124
MS. HALLADAY: Thank you, Mr. Brett.

125
Mr. Janigan.

126
SUBMISSIONS BY MR. JANIGAN:

127
MR. JANIGAN: Yes, VECC is in support of the motion of Mr. Thompson. We think that the information requested is directly relevant to the resolution of the issue under 5.3 which envisioned the Board reviewing the desirability of either restricting or conditioning ECG's out-sourcing of utility functions. Certainly, that information is related to that task. It seems difficult to understand how that task can be performed in the absence of this information.

128
What is contemplated, or what has been contemplated or put in place by the plan of ECG represents a whole scale change of affiliate relations. It makes little sense, from a public interest standpoint, to draw the veil across these activities, and particularly to draw the veil across these activities because we are under a -- currently a scheme of a targeted PBR.

129
Certainly what is proposed to be sheltered from the Board and intervenors' purview is substantially different from the kind of overall oversight to the O&M components of ECG as contemplated by the implementation of the targeted PBR.

130
Finally, on a related issue that we intend to be bringing to the Board's attention later, that in fact in the B.C. Utilities Commission, the -- involved with the Customer Works joint venture between B.C. Gas and Enbridge, similar to the kinds of activities that have been reviewed in this proceeding, there in fact was disclosure of revenue from shared services associated with that particular venture, notwithstanding the fact that the B.C. Gas utility was subject to a form of PBR at that time.

131
So for all of those reasons, VECC would submit that Mr. Thompson's motion should be granted. Thank you.

132
MS. HALLADAY: Thank you, Mr. Janigan.

133
Mr. Warren.

134
SUBMISSIONS BY MR. WARREN:

135
MR. WARREN: Madam Chair, the CAC supports Mr. Thompson's request for production of the information. I would only add the following observations:

136
In our respectful submission, Mr. Thompson's request must be seen in the context of what has transpired in this entire case, both with respect to the Affiliate Relations issue and with the Alliance-Vector issue. I think it's instructive for the Board to remember the context within which these submissions arise. There are matters on the issues list; there is pre-filed evidence; there are interrogatories; there's cross-examination; and then there are undertakings; and there's further information and we're still asking for further information.

137
We are so far, in our respectful submission, from the standard which was set by the Board in its June 2000 decision -- or 2001 decision that Mr. Thompson referred to that, in our respectful submission, what must emerge from this case is what amounts to an entirely new paradigm for the obligations which are imposed on the utility to disclose information. We do not yet know what information is out there. We don't know that we have the entirety of the information. We know that we have some of it, which has been painfully drawn from the utility after repeated layers of cross-examination and undertakings delivered to the Board itself.

138
The real risk, in our respectful submission -- in our respectful submission, it goes without saying that this process really disables the intervenors, because we're still fishing for information at the very eleventh hour of this case. But more importantly, in our respectful submission, it disables the regulatory process, because you do not have the full information on which you can make informed decisions -- full, informed decisions about what is relevant and what is outside the range of relevance. And unless all of us have that information, we cannot make those decisions.

139
In our respectful submission, a bias, the overwhelming bias of the Board should be to require full disclosure of information related to decision -- to ECG to take actions, and then at that point, decisions can be made about what is appropriately excluded.

140
In our respectful submission, Mr. Thompson's request should be granted, as I say, as part of our articulation of what has to be a new paradigm for disclosure.

141
Thank you, Madam Chair.

142
MS. HALLADAY: Thank you, Mr. Warren.

143
Mr. Vegh.


144
SUBMISSIONS BY MR. VEGH:

145
MR. VEGH: Thank you, Madam Chair.

146
CEED also supports Mr. Thompson's submissions, but we'd like to make -- I would like to make additional submissions just with respect to one set of documents that, from my client's perspective, are particularly important, and I would like to draw them to your attention without taking anything away from our support of IGUA's submissions.

147
The documents that I'm referring to, that I'd like to take a few minutes making submissions on, are the documents at page 16 of J.5.6. These are the two slides in the January 16, 2001, PowerPoint. These two slides deal with -- or are entitled "Key Issues - Storage" and "Risks - Storage." The issue of the development of a competitive storage market and how that development is impacted by this arrangement is something of central concern, in particular, to my clients and perhaps to others in this room and I would just like to take a few minutes to talk about why, in my submission, those documents should be produced.

148
The evidence that's been produced last week, as well as other evidence in this proceeding, makes it clear, in my submission, that the gas services out-sourcing agreement, the agency arrangement with EI, is inextricably linked to EI's ability to manage storage and transportation assets. In particular, the out-sourcing arrangement is one part of a more organic strategy aimed, in part, at controlling, or if not entirely preventing, the development of a competitive wholesale services market, and in particular a storage market in Ontario. These two documents, in my submission, shed some light on that and that is an issue in this case.

149
Now, my point is that there is -- before turning to these documents in particular, there is one strategy for gas acquisition and gas management. This case may only be the first phase of that strategy, and Mr. Thompson took you to page 20 of J.5.6 which talks about phasing this strategy. This may only be the first phase but it's one part of an integrated strategy. So the gas acquisition agreement is clearly linked to the issues of storage that are addressed in the slides at page 16.

150
Now, if you look at the document immediately preceding this PowerPoint presentation, that document is the agenda document at page 12. This is the agenda for the November 20th meeting and the PowerPoint presentation that I'm talking about is January 2001, so this is immediately preceding. I'm sorry, I said page 12, it starts at page 11.

151
You'll see that there is an entry for the agenda for Ms. Holder's presentation and the presentation is on gas storage and supply unbundling, so the two issues were presented as a single issue, as a linked issue. So when we are looking at this out-sourcing arrangement for gas services, we are also looking at how this fits into the strategy for storage. So from a strategic perspective, it's really one issue.

152

Then when you go to -- when you go back to the PowerPoint presentation I'm talking about that starts at page 13, you see the title to this presentation is "Repositioning Strategy for Natural Gas Assets and Activities." So the assets that we're talking about are storage, are transportation, and commodity. They're all integrated, again, into one strategy.

153
At page 14, which is the next page, part of this PowerPoint presentation, you see there's a discussion on the top slide about what's on the horizon. The second bullet point talks about rates and services unbundling and how this could lead to an allocation that's not in the interest of the shareholder. And you see the next bullet point talks about premiums being captured by marketers.

154
So clearly the prospect of unbundling storage is an issue that this strategy is aimed at, dealing with, and the issue that unbundling storage presents is that other participants in the market, not just EI, can sell storage, can participate in that market.

155
Page 15 also addresses this point, and you'll see in the middle slide on page 15, in the second bullet, it says: "Key issues for the energy service provider." That's EI. Now, we know who that is. There's increased strategic value of assets by capturing optimization because ECG cannot buy and sell gas to optimize assets. Well, what this agreement does that we're looking at, it allows EI to buy and sell gas to optimize assets. So the assets that we're talking about here include all assets, including storage and transportation.

156
And then finally, there is other evidence on the impact of this agreement on future unbundling and that's evidence from Ms. Holder's cross-examination the other day, and particular transcript volume 6 at line 444. Mr. Thompson is asking Ms. Holder about the transfer of the transactional services activity from ECG to EI under this agreement and he says: "Okay. And so by" -- I'm reading from line 446 now. Mr. Thompson says: "Okay. And so by transferring this -- the power to perform this service, the transactional services, to an agent who was apparently not regulated by this Board, do you agree with me that you've, in effect, transferred monopoly power away from the regulated utility?" Ms. Holder says: "No." Mr. Thompson asks her to explain and her answer is: "I'm struggling how it can be so hard for me to explain why not. They are acting as our agent. They are using our assets according to the rules and procedures we have put in place for them to use our assets." And this next sentence I particularly rely upon. She says: "With respect to the unbundling of rates and services or further unbundling of rates and services, we do not see this in any way a barrier to that continual evolution of deregulation."

157
Well, the -- Enbridge's strategy for dealing with that evolution of deregulation insofar as it effects storage assets is addressed in Ms. Holder's testimony here, but it's also addressed in a contemporaneous document at page 16 of the materials that I was referring to. And my submission is that -- there is partial evidence on direct. My submission is that to have a better understanding of this issue, it's really necessary to look at the independent or the real evidence.

158
So in closing, these two slides are particularly relevant because they shed light on the agreement generally, the objectives the agreement tries to make, and they also likely shed light on why ECG has agreed to this section 5.A that we've spent some time talking about already, section 5.A of the agreement, under which ECG agrees to waive any right it has to rely upon or to insist upon its -- the fiduciary or other legal obligations that it would be entitled to receive the benefit of, that would otherwise prevent EI from carrying out the competitive businesses, including the storage business.

159
So in my submission, these documents are relevant and we ask for their disclosure, in particular.

160
Thank you. Those are my submissions.

161
MS. HALLADAY: Thank you, Mr. Vegh.

162
Any other intervenors in support of the motion?

163
SUBMISSIONS BY MR. PENNY:

164
MR. PENNY: Madam Chair, my name is Michael Penny. You have not seen me before. I am counsel for Union Gas, and I do have a brief submission.

165
MS. HALLADAY: Yes, Mr. Penny.

166
MR. FARRELL: Do you have standing in this case?

167
MR. PENNY: We are an intervenor.

168
MS. HALLADAY: They are, indeed, an intervenor.

169
And you are supporting the motion, Mr. Penny?

170
MR. PENNY: While I take no positions on the merits of the motion, Madam Chair, in terms of the actual documents that are before you, but I do have a brief submission on the principles that we say the Board should take into account in considering the issue.

171
MS. HALLADAY: Continue, Mr. Penny.

172
MR. PENNY: Thank you very much, Madam Chair.

173
As I've said, Madam Chair, Union takes no position on the particular documents in this case. It is our submission, however, that the Board should take into account three principles or factors when considering issues relating to document production.

174
The first is whether the document is relevant; the second is whether the document is protected by some legally recognized privilege, the most widely recognized of which is solicitor-client and litigation privilege; and third, whether or not withstanding it is relevant to a matter in issue and whether it is legally producible in the technical sense or not, whether it is in the long-term interests of the parties and the public interest to require production. And it's the third of these that I want to focus on in my submission.


175
The regulation of a privately-owned company in the -- of a monopoly in the public interest is different than ordinary commercial litigation. In commercial litigation, only the parties are before the court and it's only the interests of those parties in that particular dispute that are in issue. Obviously, in rate regulation, the Board is concerned not only with the resolution of particular issues in a particular case but with the long-term health of the regulatory system. And it's in everyone's interests, in our submission - the ratepayer, the Board, the company, and its shareholders - that the company be in a position to run its business effectively and efficiently to maximize the benefits for everyone.

176
So how does this relate to the production of documents. Well, I say, with respect, it is not practical for a utility to conduct its business knowing that every piece of paper, every report, every board of directors' presentation, and every piece of analysis business risk might be produced in a public forum, and that the Board must take into account, in my submission, the effect of requiring production of such materials on the long-term health of the regulatory system.

177
In my submission, for example, the production of such material could lead to documents -- to internal business documents being tailored to potentially wider or public audiences or not being done at all, or at least not being done in writing. This is not, in my submission, in the extreme, not in the interests of the ratepayers or the company.

178
So all I say, with respect, is that in evaluating this question of what is required to be produced, you reflect on the long-term impact of requiring production of internal business documents and the effect that will have on the business being carried on. Not just on the narrow legal issues of relevance and privilege, but on the wider issue as well.

179
The Board has recognized this issue in the past and, in my submission, has been careful to recognize that there's a balance between production on the one hand and permitting the company the scope to carry on business on the other; and that there are, indeed, problems associated with having to carry on a business when internal business documents and analyses and reports are required to be produced in a public forum.

180
The wider view, therefore, is clearly part of the Board's public interest mandate, and it is appropriate in general terms to decline production of sensitive material, not because it's not relevant or not because it's not protected by a legal privilege, but because requiring that production may throw off that delicate balance of disclosure and allowing the company the space to carry on its business.

181
Thank you. Those are my submissions.

182
MS. HALLADAY: Thank you, Mr. Penny.

183
Mr. Farrell.

184
REPLY SUBMISSIONS BY MR. FARRELL:


185
MR. FARRELL: I have some materials that I'd like to hand to the Board that I will be referring to during the course of my submissions.

186
MS. HALLADAY: Mr. Moran.

187
MR. MORAN: Madam Chair, the documents you have are primarily statutory references, with the exception of the Board's Guidelines for the Treatment of Filings Made in Confidence, and perhaps those should be marked as an exhibit for the purposes of reference. We would -- we're at K.9.1.

188
EXHIBIT NO. K.9.1: EXCERPTS FROM STATUTORY POWERS AND PROCEDURES ACT

189
MR. FARRELL: I would prefer that you -- the Statutory Powers and Procedures Act be K.9.1 and then -- which I should identify is not the complete document but only the excerpts of the sections I propose to refer to. And then likewise, the next document, if I could, Madam Chair, propose it to be K.9.2, just to make it easier to refer to it. Again, this is excerpts from the Freedom of Information and Protection of Privacy Act. And if the Board wishes to have complete copies of either Statute, we can easily prepare them. I didn't want to kill another tree to have sections that I wasn't going to refer to.

190
I've included in K.9.2 the index so that you can see the other sections of the Act plus section 2, which contains certain defined terms, and then as K.9.3 is the Board's own document entitled "Guidelines for the Treatment of Filings made in Confidence - Phase 1 - Effective March 19, 2001."

191
EXHIBIT NO. K.9.2: EXCERPTS FROM THE FREEDOM OF INFORMATION AND PROTECTION OF PRIVACY ACT

192
EXHIBIT NO. K.9.3: GUIDELINES FOR THE TREATMENT OF FILINGS MADE IN CONFIDENCE - PHASE 1 - EFFECTIVE MARCH 19, 2001

193
MR. FARRELL: Now, I have included -- or I have asked you to look at Exhibit K.9.1 because the Board's power to compel disclosure is not contained in the Ontario Energy Board Act itself but rather in the Statutory Powers and Procedure Act and in particular section 5.4, subsection 1, which is the third page of the exhibit. And the marginal heading is "Disclosure" and subsection 1 reads: "If the Tribunal's rules made under section 25.1 deal with disclosure, the Tribunal may, at any stage of the proceeding before all hearings are complete, make orders for" -- and then it lists five different things.

194
At this stage, I'm not too sure whether Mr. Thompson is asking you to make an order providing for particulars or make an order for any other form of disclosure, but to me it would be a difference without a distinction. So that's where your power comes from, and I would ask you to note in subsection 2 that you are not authorized to make an order requiring the disclosure of privileged information.

195

Mr. Thompson, during the course of his cross-examination, indicated that he wanted produced Exhibit J.6.4 which was my "opinion," and I'll put the word "opinion" in quotation marks; it's the memorandum that I wrote to Mr. Grant. We have effectively waived that privilege by producing the document.

196
Now, I don't intend to take you through what's privileged and what's not. I'm prepared to concede that while there are four principles that must be satisfied in order to claim privilege, that the documentation we are talking about now may qualify under some, but I think it's a stretch to argue that they would qualify under all four principles that the Supreme Court of Canada has adopted from Professor Wigmore's treatise.

197
But even if the information is not privileged, which I am conceding, you should not compel disclosure because the information is not relevant to issue 5.3. And I would further submit that at this point, the semblance of relevancy test that Mr. Thompson advocated is not applicable either because that's a test that applies to the discovery phase.

198
Relevance, in my submission, requires, or has two elements to it. There must be logical connection with what must be proved in the case and sometimes referred to as, it must be material. The second aspect is it must have probative value in the sense of actually tending to prove the material matter.

199
We say that in the evidence adduced so far is that there are no rate-making consequences for the test year arising from the out-sourcing arrangements. You don't need to know what has been redacted in order to set rates. This information is not material and it has no probative value.

200
And even if there were some rate-making consequences in the test year, which we deny, the information is not utility information but rather information about other entities. And I won't repeat Mr. Penny's submissions on the balance, but you'll hear some of that theme in the submissions that are going to follow.

201
I might just premise my remarks by making the following observation: that Mr. Thompson's submissions and those, I guess, of Mr. Warren and Mr. Vegh, indicate that their view of the ambit of regulation is having a utility disclose on virtually a day-to-day basis what it's doing, what concepts it may be developing. Whether or not in the end result those concepts ever materialize seems to be irrelevant. Their submissions, in my world, make the term "micromanagement" an understatement.

202
I'd like you to have volume 8 of the transcript available, Madam Chair, because I'm going to take you through what Ms. Holder had to say about each of -- about each of the redactions. And I'm going to start with Exhibit J.5.5.

203
MS. HALLADAY: I'm sorry, what reference, Mr. Farrell?

204
MR. FARRELL: You'll need Exhibit J.5.5, which -- you have an unredacted form, and volume 8 of the transcript.

205

Now, the first -- attached to Exhibit J.5.5 are four documents. The third document is called: "Common Service Provider," and I'm now reading from the first page of the exhibit, "Not dated, completed early 2000." This document was prepared by ECG, and if you could turn now in volume 8 to paragraph 1120, which is near the back of the transcript.

206
Page 16 of Exhibit J.5.5 is the first page in this exhibit in which there has been a redaction of information. Now, Ms. Holder's explanation is the following: "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 return as well."

207
So if you look at page 16, you'll see that there have been redacted revenues from TransAlta. It then speaks of an NPV of equity flow for six years out, and then there's another redaction. But this is the NPV of the equity flow to Enbridge Operational Services, it has absolutely nothing to do with ECG. This is EOS information.

208
Then the paragraph goes on to talk about yearly revenues from affiliates and there's a redacted amount for St. Lawrence Gas, a redacted amount for Gaz Affaire, a redacted amount for Niagara Gas Transmission, and a redacted amount for Gas New Brunswick which is actually now called Enbridge Gas New Brunswick. Then it goes on. So that information is information about other affiliates of ECG, but not about ECG.

209
Then the next sentence talks about: "A reduction in costs or an increase in revenues of," and the amount has been redacted per year, "in order to result in a positive return on equity." Whose return on equity? EOS's return on equity. Then in the next sentence it talks about "an increase of," a redacted amount, "per year from either Enbridge affiliates or third parties would result in a," redacted, "return on equity." Again, this is EOS's return on equity, it's not ECG's return on equity. It has nothing to do with this case, including a subsequent ROE phase in this case.

210
The fourth document in this exhibit is Mr. Riedl's e-mail to Pat Daniel. And this is obviously an ECG document which Ms. Holder describes or refers to in paragraph 1125. And she says on page 22, so if you could turn to page 22 in the document that you have -- excuse me, I should take you back to page 18.

211
I apologize for overlooking another redaction. There is another redaction on page 18 with respect to an entity known as Ultra, and Ms. Holder refers to it in paragraph 1122 of volume 8 of the transcript.

212
I ask you to accept from me the fact that Ultra is not a related party. So what Mr. Thompson's asking you is to have the utility disclose revenues and related information for an unrelated party.

213

I'll now go back to where I took you a couple of minutes ago and that's to the fourth document, which is Mr. Riedl's memo. It starts at page 19, and then I want you to go to page 22. Ms. Holder's explanation at paragraph 1125 is: "On page 22, again, I have removed similar dollar amounts. Again, it's the dollar amounts that were going to be required to be spent by," and I emphasize this, "Enbridge Operational Services in order to start up this business. It also has numbers that they would save in O&M costs and it also -- I've eliminated any net present values, again because these are for Enbridge Operational Services, not for ECG."

214
And then I asked her the following question: "And are they numbers for EOS that would cover all of its services, not just to ECG but to the other affiliates?" And her answer was: "Yes, that's correct."

215
So what the document is speaking to on page 22 is the start-up costs of EOS, whether it was located in Toronto or located in Edmonton. Don't be -- don't jump to a conclusion with a reference to Toronto. This was a document what was talking about what was then called the common service provider, or CSP, and became Enbridge Operational Services. So this is not a comparison between leaving it in the utility or moving it to Edmonton. It's moving it out of the utility and then deciding which location the gas control centre should be, in the event it became a combined Enbridge energy control centre for both liquids and gas. It is not, in other words, a duplicate of the facilities that the utility had in Toronto prior to the out-sourcing arrangement.

216
So in my submission, the Board does not need, and the intervenors do not deserve, to have the data that has been redacted from page 22.

217
I make the similar submissions for the information that has been redacted from pages 24 and 25. On page 24, what we're talking about on the bottom of the page under the heading "Financial Evaluation" is the financial evaluation of Enbridge Operational Services in a base case.

218
Then at the top of page 25, it is a modified case that is described at the bottom of the previous page, rather, as a table that summarizes a downside case where the single third party revenue is eliminated. Again, this is an analysis of Enbridge Operational Services, not the utility. And the next table on page 25 under the heading "Cost Variance Evaluation," again this is a comparison of locating EOS in Edmonton compared to locating EOS in Toronto.

219
So I turn now to Exhibit J.5.6. This is the response, actually, as I mentioned before, to three undertakings; J.5.6, J.6.3, and J.6.6.

220
On page 2, Ms. Holder has redacted the storage capacity, that would be the Bcf number, and the deliverability, which would be the MMCF/D number, from the last bullet of the second slide. And that is storage under consideration for development. Her reason for that, in volume 8 of the transcript, paragraph 1134, is that, and I quote, "we have under consideration for development because that is strategic and confidential in nature."

221
I think it's common knowledge that Union Gas and ECG are competitors for developing new storage in Ontario. Union is an intervenor in this case. So in effect what Mr. Thompson wants, and those who support him, is for us to disclose the development plans for storage, something that would put ECG at a competitive disadvantage.

222

On page 3, Ms. Holder redacted the last bullet in the first slide and her reason, at paragraph 1136, is: "It related to a contract that does not exist today." And so she simply redacted it because it is a plan for the future, assuming a project were to materialize. Again, at the conceptual stage, we see no reason for reams of information for concepts that may never materialize.

223
Page 9, she deleted some names; she told you why this morning. I didn't make a note of it so I can't repeat it. Then on page 10, she simply redacted the names of employees who would be involved in the exercise. I don't see why the intervenors need to know who those people are, assuming they remain -- or still are employees of the utility.

224
Now, the second document in this exhibit, unlike the first, is not an Enbridge Consumers Gas document. It is an Enbridge Inc. document and it relates to the distribution and services group of which Mr. Letwin, who is not an employee of ECG, is in charge of as a group vice president of Enbridge Inc.. And the title for the agenda items that have been redacted is called "Current New Business Development Initiatives."

225
At paragraph 1140, Ms. Holder explains that this is an agenda of a workshop that the previous presentation, the first document, was presented at. And she refers to those businesses in the east that report to Steve Letwin, who was a group vice president, member of CLT, that's Enbridge Inc.'s corporate leadership team. And she left in the item that you see in the redacted version, "Gas Storage and supply Unbundling," that was her presentation, and she redacted the other items that relate to new business development initiatives of the Enbridge distribution and services group. This is not utility information, but it does show that ECG, as a member of the Enbridge family of companies, does participate in and provides expertise to, I would suggest, Enbridge initiatives.

226
If ECG is going to continue that role, to have a voice in Enbridge Inc.'s overall planning, then I suggest to you that common sense says that if the utility has to produce documents prepared by the parent relating to the parent's businesses, that that participation is not likely to continue for much longer.

227
As you can see from the unredacted version, Madam Chair, none of the items that were redacted relate to ECG or to issue 5.3 in this case.

228
The third document in Exhibit J.5.6 is a PowerPoint presentation, at pages 13 to 18, entitled: "Repositioning Strategy for Natural Gas Assets and Activities." And the first redaction occurs on page 15. In the top slide, first bullet, it says: "Increased synergies with" - and I emphasize this - "all Enbridge assets." Not all ECG assets, all Enbridge assets. And then it -- the second bullet talks about "Capture market premiums on storage for shareholder," and then it refers to ESP, which is now Enbridge Inc., as providing gas services.

229
So this slide has to do with revenues stemming from increased synergies with all Enbridge assets, not just the utility.

230
Now, on page 15 -- excuse me, we're on page 15. Yes, Ms. Holder, just to back up for a second, I apologize for this, in talking about this repositioning document, indicated in paragraph 1141 that it was prepared by Guy Jarvis who works for Enbridge Inc., and she said she provided input and assistance in the presentation and she was present at the presentation. But this was an Enbridge Inc. presentation.


231
On page 15, she explains that she's deleted the expected transactional revenues, the dollar amounts, in any event, and her explanation is, and I quote, "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."

232
Page 16 seemed to capture a lot of attention because it deals with storage. Ms. Holder, in paragraph 1144 -- excuse me, 1145, explains the reason why she redacted these items, she said, "They were strategic and, again, not an issue in this case."

233
You've heard reference, I think, to Storco in the evidence to date. These two slides refer to storage, as you can see, in the unredacted version. Storco, if I might say so, is an issue for another day. If you thought that DPWAMS was premature, Storco is premature in the extreme. Now is not the time to look at it. The time to look at it is when Storco brings forth its application to the Board. There's no need to trouble yourselves with what may be in line for storage operations.

234
Now, the fourth document in this exhibit is another PowerPoint presentation and this is the implementation update. At paragraph 1147, Ms. Holder says that "This document was primarily prepared by Mr. Jarvis with my input." So, again, it's an Enbridge Inc. document.

235
At page 25, the numbers under phase 1 and phase 2 are redacted. Again, according to Ms. Holder, paragraph 114, "These dollar amounts relate to Enbridge Inc. and not to ECG and therefore I have eliminated the dollar amounts."

236
These are values, dollar values, that relate to an unregulated parent company with operations described of the scope described in its annual report. You don't need these numbers to regulate ECG's rates.

237
The fifth document was the so-called Affiliate Relationships Code Matrix and there was a value eliminated, as Mr. Thompson pointed out, in the right-hand column in the fourth box, I suppose, when it was -- Mr. Brennan has already given you an order of magnitude number that you can write in there if you wanted to. Mr. Thompson suggested, or actually asked the question, I think, expecting a response from me that maybe it related to the two combined or some other number. This matrix is -- pertains only to the out-sourcing arrangement between ECG and EI. It has nothing to do with EOS and I think if you look at the text of the various boxes on this page, which is the final page in Exhibit J.5.6, you'll see that that is, in fact, the case.

238

Now, I'd like you now to turn to the second document that I handed to you through Board staff and this has been marked as Exhibit K.9.2. This is an excerpt from the Freedom of Information and Protection of Privacy Act, and if you go to the third page in that excerpt, you'll see in section 2, which contains definitions, and the first defined term is "Head," and in the context of the Board, it would mean the person designated as head of the Board in the regulations. I didn't bother to go to the regulations, but you need to know that definition to go to section 17, which is the second last page in the excerpt, page 8 of the Statute, and there it says: "A head shall refuse to disclose a record that reveals a trade secret or scientific, technical" -- and I underscore the next two words -- "commercial, financial or labour relations information supplied in confidence implicitly or explicitly, where the disclosure could reasonably be expected to, A, prejudice significantly a competitive position or interfere significantly with the contractual or other negotiations of a person, group of persons or organization; B, result in similar information no longer being supplied to the institution where it is in the public interest that similar information continue to be so applied; C, result in undue loss or gain to any person, group, committee, financial institution or agency." And there is a D on the next page but that, in my view, is not relevant to the topic we're discussing today.

239
So the irony, as we see it, is that if we had filed these -- this information with the energy returns officer, for example, on a confidential basis, then as I interpret section 17 of this Statute on the basis of the submissions that I have made and will make about commercial harm to Enbridge Inc., the Board will not be able to disclose it. So I'd ask you to bear that analogy in mind in your deliberations.

240
Next I turn to Exhibit K.9.3 which are the Board's guidelines. On page 3 -- and I don't propose to quote all of these to you but I'll refer you to the sections that I'd like you to focus your attention on. Section 1.1.2 indicates: "The purpose of the guidelines" -- and we're in a proceeding before the Board, this has nothing to do with an application to the director of licensing -- "is to assist parties in a proceeding before the Board on how matters related to confidentiality will be addressed by the Board."

241
Section 1.2.2, and here I will quote it: "The Board recognizes that the need for confidentiality might be different between competitive and monopoly businesses and will consider this distinction when making confidentiality decisions."

242
Well, Enbridge Inc. is in a competitive business, ECG is in a monopoly business, and on that basis alone, we say that ECG should not be compelled to disclose Enbridge Inc.'s material that it has in its possession.

243
Section 1.2.3 talks, just generally, about the Board usually placing information on the public record, but then it goes on to say in the last sentence: "The Board recognizes that disclosing confidential information might harm the filer" -- in this case, ECG -- "or others" -- in this case, Enbridge Inc. and other affiliates -- "under certain conditions and that maintaining confidentiality may be necessary." That, in our submission, is the case here.

244
Then if you just turn the page to page 4, Madam Chair, section 1.3.1 simply describes the source legislation. One of the sources is the Statute excerpts which are now Exhibit K.9.2.

245
And now if you could turn to the next page, page 5, section 1.6 is entitled "Highlights of the Guidelines," and section 1.6.2 refers, in its last sentence, to allowing parties to a proceeding to object to the confidential treatment of a record whose type is listed in appendix 1. If you look now to appendix 1 on page 14, item number 5 near the bottom of page 14 refers to the Freedom of Information and Privacy Protection Act, and in particular to third-party information as described in section 17 of that piece of legislation. And that was the section that I drew to your attention earlier, that I highlighted in Exhibit K.9.2.

246
Now, if we could go to page 9. This is section 3 and it deals with proceedings before a Panel of the Board. This provides some guidance and deals in 3.2 with initial filing requirements which we're not dealing with at the moment.

247
If I could ask you to turn to page 13, at the bottom of the previous page, there is a heading 3.8, "Expedited Process," and then on page 13, there is section 3.8.2 and it deals with the situation we're in today, where a Panel, the three of you, are conducting an oral hearing where an issue of confidentiality arises. It allows the Panel to take whatever action it considers appropriate, including but not restricted to the four items that are listed there. And I don't propose to read them into the record; they are here in the exhibit.

248
But one of the references that I would take you to is appendix 2, at page 16, and these are -- this appendix is entitled "Considerations in Assessing Confidentiality."

249
I'm sorry, I overlooked a reference that I wanted to emphasize in 3.8.2. So if you could turn back to page 13, and this is the first one, A, your -- "You can take whatever action you consider appropriate, including but not restricted to, A, deciding that the panel will analyze the record" - in this case, the unredacted copies of these two exhibits that you have - "and decide if it will be maintained in confidence or put in the public record."

250
So that's the decision you are being asked to make here. We are asking you to maintain it in confidence, and Mr. Thompson and his supporters are asking you to put it in the public record.

251
Now, with that, I take you to page 16 which is the considerations in assessing confidentiality. I think here it is a summary of what Mr. Penny told you. If you look at the second sentence in the first paragraph: "The basic principle underlying the assessment process is to achieve an appropriate balance between the interest of the general public in disclosure and the potential harm resulting from the disclosure of the information." And that goes on in the next paragraph to refer to the criteria in Rule 47.01 which is intimate -- which includes: "Intimate financial or commercial matters, disclosure of which would cause harm," and goes on to say and may take -- you and your colleagues may take into account the following considerations: "1) whether disclosure of the record," the unredacted copies of these exhibits, "could reasonably be expected to prejudice the competitive position of any party significantly, impede or diminish the capacity of a party to fulfil existing contractual obligations, or interfere significantly with negotiations being carried out by a party."

252
Now, I've read the full thing, but I would like you to focus -- to underscore: "Prejudice the competitive position of any party significantly," because the prejudice is not really to ECG, the prejudice is to Enbridge Inc. and its other affiliates.

253
And the third item is to "Consider whether disclosure of the record," these unredacted copies, "is likely to produce loss or gain to any person, group, agency or committee. Definitions of personal harm and financial harm are included in appendix 3."

254
The next page, page 17, includes the definition of financial harm, and I don't propose to read it to you. You and your colleagues, Madam Chair, can read it yourselves.

255

I return to the comment that I made earlier about ECG's participation in Enbridge Inc.'s distribution and services group, and the contributions that ECG could make given its expertise and, at the same time, have an opportunity not only to point out things to the shareholder, but to point out things for the ratepayers' benefit. Disclosure of this type of information, in my submission, is going to put a chill on that because common sense tells us that if Enbridge Inc. does not want to disclose this information, then it won't put ECG in a position to be compelled to disclose it in the future.

256
I'd now like to reply to some of the submissions that Mr. Thompson made that I -- that may not be explicitly covered. I'm not going to reply to everything that he said. He talked about other criteria. He mentioned harm to ratepayers as one, and as another, lack of benefit to ratepayers. I don't know whether there's a distinction without a difference between those two. I am aware, although I didn't bring it up with me, of a decision of the Alberta Energy Utilities Board which talks about no harm to ratepayers, and where there are benefits and harms, achieving a balance or looking at it on an even keel. And if you are interested in an excerpt from that decision, I can get it for you at the break. But I would ask Mr. Thompson in his reply comments or reply submissions to clarify, if he can, what he means, and to distinguish between those two if he's alleging they are distinct criteria.

257
He made a big deal, if I may put it that way, of the lack of disclosure, the quality of disclosure, as he put it. The original evidence was filed before the issue was formulated, and I would simply say this about that allegation: ECG is not applying to the Board for approval of an out-sourcing arrangement. ECG, in my submission, does not need, and did not need at the time, approval for Enbridge Commercial Services or for Enbridge Inc. or for Enbridge Operational Services or for the assignment or switch, if you will, from ECS to Customer Works.

258
So the level of disclosure hinges, I would submit, on what a utility is applying for. If we're applying for approval for something, that's one thing. When we're informing the Board and intervenors, that's quite another.

259
He mentioned that -- or he made submissions based upon Exhibit J.5.5 that achieving a meaningful return on equity threshold seemed to override operational risk. If IGUA or any other party is concerned about operational risk, they can certainly ask these witnesses whether that is, in fact, the case. He doesn't need the redacted data to satisfy himself, and neither does the Board, that operational risks that effect safety and reliability have been taken into account.

260
He mentioned the diversion of transactional services revenue to EI. I, frankly, don't understand that submission. The slide which I mentioned earlier was talking about Enbridge assets. Enbridge Inc. is acting as ECG's agent in providing transactional services and, by definition, the revenues that flow from that are revenues that are owned by the principal ECG and are taken into account by the Board in the rate-making process.

261
He also made a big deal of the date on some of this information, that it was back in 1998, and then took you through to Mr. Riedl's letter to Mr. Laughren and so on. Ms. Holder, and I don't have a reference for this, and the words I'm about to use are my description of what her evidence was, but she said that the EOS concept, or the common service provider concept as it was known at the time, was not an easy sell to EI. It took some time before Enbridge Inc. became persuaded that this was a good thing to do.

262

In 1998 it was at the conceptual stage. I again return to the submission I made earlier that it's micromanagement in the extreme to expect ECG to disclose concepts and ideas on a day-to-day basis. That isn't, in my view, the raison d'etre of regulation. That is not taking something out of the ambit of regulation. It's putting the Board, and perhaps intervenors, at the board of directors table within a privately-owned corporation.

263
He did make a comment that I do want to specifically refer to so I need to turn up the evidence. He made two comments; one was that -- again, on the safety issue, that only one party or one employee went to Edmonton. I don't think there is evidence on the record to support that. There was evidence given during cross-examination about the number of employees who went to gas services at Enbridge Inc. in Calgary. If I'm wrong, Mr. Thompson will point that out. But I don't believe there was evidence of what positions went or didn't go to Edmonton to Enbridge Operational Services. But again, that's something that can be clarified on the basis of the unredacted exhibit.

264
Just bear with me for a moment, Madam Chair.

265
He referred you to Exhibit J.5.6, and in particular page 27. And this was the first bullet on that page. It says: "Current systems available within Enbridge do not meet requirements." And he suggested to you that that was an indication that Enbridge Inc. and, by extension, ECG, had no concerns about safety or reliability of service. This document pertains to gas services, not operational services.

266
Both Mr. Thompson and Mr. Warren talked about the quality of disclosure. As I said earlier, and I'm sorry if I'm repeating myself but I want to make sure I've covered off the point, that the level of disclosure turns on what an applicant is applying for.

267
Mr. Vegh's submissions all had to do with the -- his unquenchable curiosity to get information on Storco. He'll have his opportunity and so will others, but now is not the time for that.

268
Those are my submissions. Thank you, Madam Chair.

269
MS. HALLADAY: Thank you, Mr. Farrell.

270
Mr. Moran.

271
MR. MORAN: Madam Chair, Mr. Farrell has made reference to a number of statutory provisions and there's a few others that I think are appropriate to draw to your attention, perhaps before Mr. Thompson makes his reply in case Mr. Farrell wishes to comment further, with your permission.

272
MS. HALLADAY: Certainly.

273
MR. MORAN: Thank you.

274

Mr. Farrell has already drawn your attention to section 5.4 in the Statutory Powers and Procedure Act and 5.4 is the section that deals with disclosure and the Board's authority with respect to disclosure of information between parties.

275
I would like you to take also into account section 2 of the SPPA, and unfortunately we don't have copies at the moment but perhaps over the break we can do that. Section 2 says that "This Act, and any rule made by a Tribunal under section 25.1, shall be liberally construed to secure the just, most expeditious and cost-effective determination of every proceeding on its merits."

276
Then we have section 12 which says that "A Tribunal may require any person, including a party, by summons, A, to give evidence on oath or affirmation at an oral or electronic hearing; and, B, to produce in evidence at an oral or electronic hearing documents and things specified by the Tribunal relevant to the subject matter of the proceeding and admissible at a hearing."

277
With respect to what's admissible at a hearing, you then have to turn to section 15. Section 15 says: "Subject to subsections 2 and 3, a Tribunal may admit as evidence at a hearing, whether or not given or proven under oath or affirmation or admissible as evidence in a court, A, any oral testimony; and, B, any document or any thing relevant to the subject matter of the proceeding, and may act on such evidence, but the Tribunal may exclude anything unduly repetitious."

278
And then the following subsections indicate what is not admissible and there's references to things that are privileged under the law of evidence or otherwise inadmissible because of a statutory reference.

279
Finally, in the Ontario Energy Board Act, section 21(1) indicates that "The Board may, at any time, on its own motion and without a hearing, give directions or require the preparation of evidence incidental to the exercise of the powers conferred upon the Board by this or any other Act."

280
Mr. Farrell also referred you to the Freedom of Information and Protection of Privacy Act, section 17, and made a reference to a comparison to filing something with the energy returns officer. Again, you don't have this section, but section 64 of the Freedom of Information and Protection of Privacy Act states that: "1) This Act does not impose any limitation on the information otherwise available by law to a party to litigation." And 64(2) says: "This Act does not affect the power of a court or a tribunal to compel a witness to testify or compel the production of a document."

281
And while we're on the subject of the energy returns officer, there are some specific provisions that deal with information that come into the -- comes into the possession of the energy returns officer.

282
If you start with section 110 of the Ontario Energy Board Act, 110(1) says: "The energy returns officer, any deputy officer, any person authorized by the chair of the Board, in writing, under section 108, and any inspector, may be called as a witness by the Board in any Board proceeding." 110(2) says: "No document, record or copy thereof in the hands of the energy returns officer shall be excluded as evidence on the ground of privilege in any Board proceeding." And then 110(3) sets up a requirement to give notice to the person who provided the information before it gets introduced into evidence in a Board proceeding.


283
So there is a complete procedure to deal with the information in the hands of the energy returns officer in the context of a Board proceeding.

284
Section 111 deals with confidentiality of information in the hands of the energy returns officer, and section 112 says that: "No document, record or copy thereof, or any return made under this part, is admissible in evidence in any proceeding, except proceedings respecting an order of the Board or in proceedings with respect to offences under section 126."

285
The last statutory provision I want to refer you to is in relation to the guideline Exhibit K.9.3. Mr. Farrell took -- brought you to page 16 of that document, and in the first paragraph, second line, he referred you to a sentence setting out the basic principle. It says: "The basic principle underlying the assessment process is to achieve an appropriate balance between the interest of the general public in disclosure and the potential harm resulting from the disclosure of the information."

286
The statutory underpinning for that particular principle is to be found in the SPPA at section 9. And section 9(1) says: "An oral hearing shall be open to the public except where the tribunal is of the opinion that A, matters involving public security may be disclosed; or, B, intimate financial or personal matters or other matters may be disclosed at the hearing of such a nature, having regard to the circumstances, that the desirability of avoiding disclosure thereof in the interests of any person affected or in the public interest outweighs the desirability of adhering to the principle that hearings be open to the public."

287
Those are all of the references.

288
MS. HALLADAY: Thank you, Mr. Moran.

289
Mr. Thompson. I'm sorry, Mr. Farrell.

290
MR. FARRELL: I -- just to complete Mr. Moran's quote, "in which case the Tribunal may hold the hearing in the absence of the public."

291
MR. MORAN: Thank you, Mr. Farrell.

292
MR. FARRELL: I have a no further submissions to make.

293
MS. HALLADAY: Thank you, Mr. Farrell.

294
Mr. Thompson.

295

MR. THOMPSON: Madam Chair, would it be possible to have a brief break. It's a respite for health reasons for one thing, but the other is Mr. Farrell has thrown a lot at us here and I would just like to brief moment to confer with my supporters to see if there's any points they wanted me to make in reply along with my own.

296
MS. HALLADAY: Certainly, I was hoping that we might skip the morning break and go straight to lunch, to your submissions, Mr. Thompson, but however --

297
MR. THOMPSON: A short break.

298
MS. HALLADAY: A short break would be fine. Why don't we reconvene at 12:00.

299
--- Recess taken at 11:48 a.m.
300
--- On resuming at 12:07 p.m.
301
MS. HALLADAY: Please be seated.

302
Mr. Thompson.

303
FURTHER SUBMISSIONS BY MR. THOMPSON:

304
MR. THOMPSON: Yes, thank you, Madam Chair. I'll try and reply to my friend's points as briefly as I can.

305
First of all, with respect to the materials that were filed pertaining to the Freedom of Information Act and the guidelines with respect to documents filed in confidence with the ERO, I'd like to emphasize that we're not dealing here with documents filed with an institution to which the Freedom of Information Act applies, in my submission, nor are we dealing with documents filed in confidence with the ERO. We're dealing with documents produced in response to an undertaking given during the course of cross-examination from which the producing party has elected to white-out certain portions. And, in my submission, this practice of allowing the whiting out of documents that are produced in response to an undertaking given on the record during cross-examination should be allowed very infrequently, if at all.

306
The whiting out, in this case, is justified on the grounds of relevance -- or irrelevance, and the focus of your consideration of whether it's appropriate or inappropriate to white out these portions of the documents should focus on relevance. My friend indicated that the semblance of relevancy test doesn't apply because we are at trial. Well, the reality is, intervenors have really not had an opportunity to consider the trial aspect of relevancy because none of the information has been produced. We have to extract it, begrudgingly, during the course of cross-examination.

307
So my submission is that while you have the information before and may consider semblance of relevancy and ultimately trial relevancy, intervenors don't have it. And I suggest to you the semblance of relevancy test in this particular case, with respect to these particular documents, is the correct test to apply.


308
Now, the information that we're asking for and to which we believe what's been redacted relates, is information pertaining to the performance of utility functions. These are functions, in my submission, that this Board regulates, and you ought not to be deterred from conducting a scrutiny of those functions because the company chooses to structure the performance of the functions by affiliates or chooses to phase applications pertaining to a grand plan to change the way these functions are performed over the course of time in a series of cases, and then come to you and say, well, we don't -- the information with respect to the performance of these functions isn't relevant to this particular case because there's another case coming to deal with that.

309
What you're seeing here is an attempt to constrain access to relevant information by two things: restructuring of the performance of utility functions in affiliates; and secondly, having a progressive phasing of a series of applications to gradually move utility functions out of the entity that the Board regulates into other entities, one of which, of course, Storco will be regulated, and the others will not be regulated. My submission is the nature of the disclosure of the information does not turn on whether the application is, in some fashion, constrained or whether the applicant considers that it needs Board approval or doesn't need Board approval of some of the restructuring that it's gone through.

310
The nature of the disclosure turns on, in my submission, what is the nature of the functions and if the functions are utility functions, then you have full authority to scrutinize all of the relevant information pertaining to their performance.

311
An item of authority that, in my submission, is germane to the effect on production of relevant information of introducing affiliates into the mode of providing regulated functions is Rule 30.02 of the Rules of Civil Procedure. And I'm -- in particular, this is the rule that relates to documentary disclosure and it provides every document relating to any matter in issue is producible. That's rule sub (1). I'm paraphrasing that, but it's interesting that in sub (4) of this rule, it says: "The court may order a party to disclose all relevant documents in the possession, control or power of the parties, subsidiary or affiliate corporation, or of a corporation controlled directly or indirectly by the party, to produce for inspection all such documents that are not privileged."

312
My point is that the rules recognize that you can't, in effect, subvert access to relevant information by restructuring through affiliates. You can get access to that information through the documentary production process, and I submit that your rules construed broadly and liberally do provide, I think, somewhere, I don't have them with me, that you should have regard to other Rules of Civil Procedure and relevant law. And I submit that that clause is of some significance or should be considered.

313
It goes hand in hand, I suggest, with section 21 of the Act to which Mr. Moran referred which basically says the same thing: You can get relevant information from anyone and order it to be produced if you consider it to be relevant.

314
So don't be spooked by this notion that the phasing of the applications or the restructuring through affiliates precludes access to relevant information. I want to emphasize we're not asking here to micromanage ECG's plans or plans pertaining to the performance of utility functions. We're asking for information relevant to ECG's affiliate services relationships pertaining to the performance of utility functions, and that's what issue 5.3 says.

315
What happens in some other case I don't think should influence your decision here. I think it should be -- I submit it should be considered on the basis of the request for the provision of redacted information and to undertaking the responses that are before the Board.

316
Proof, I submit, that some evidence -- that I submit is relevant to whether this information about the performance of these utility functions is or is not of relevance is the fact that whatever the company thought of its rights to do things with or without approval, it disclosed to the Board on the public record by the letters to Mr. Laughren, and subsequently in its filings in evidence in this case, the fact that these functions had been out-sourced to affiliates. That, I suggest, strongly reflects a recognition that the information is of great -- of relevance to the Board.

317
Now, in terms of the -- Mr. Farrell's point about -- it does -- this information doesn't have rate-making implications. I suggest a case before the Board, and this case before the Board, like many others, is of broader scope than simply the rate schedules that come out of it. We went through this to some degree in cross-examination where we were discussing the conditions that should or should not be attached that the Board issues under section 36, and the Board's power to issue such terms and conditions and the scoping of such issue described in the settlement proposal makes it clear that it has implications far beyond the simple implication of, is there going to be a rate effect in 2002. So it's not as narrow as Mr. Farrell suggests, in my submission.

318
The returns, in my submission, the returns of EOS and EI from the performance of these utility functions, are highly relevant to the manner in which issue 5.3 should be ultimately decided. The returns were highly relevant to the decision to out-source these functions in the first place and for that reason alone should be presented on the public record so that parties can at least consider the level of returns that would prompt this.

319
On the level of returns point, we do have the evidence in the EI annual report where they're indicating they're achieving returns on equity in the order of more than 18 percent, and I would submit that if that's the kind of number that's indicative in these materials that you have, then you're seeing a significant bypass of the returns that the Board considers to be appropriate for performance of utility functions which is return on equity of 9 percent and something -- 9.5, perhaps.

320
The fact that the information in the material is EI numbers and EOS numbers and not ECG numbers should not be determinative of the issues of relevance, in my submission, as my friend Mr. Farrell suggests.

321
With respect to the Storco point, he says that this information is coming; however, again, that relates to my point about you can't segregate your applications to, in effect, exclude the provision of that information at this time which would be timely disclosure of relevant information.

322
Excuse me, I'm just trying to find another point.

323

He asked me to address in my submissions this point about the benefits to -- sorry, harm to ratepayers versus the lack of benefits to ratepayers. What I had in mind there was the harm to ratepayers test and the benefits to ratepayers test that were being discussed during the cross-examination of Ms. -- of the out-sourcing services panel as being two distinct tests germane to the manner in which the Board may wish to exercise its public interest jurisdiction with respect to this activity.

324
Subject to any questions, I think I'd simply be repeating myself if I added anything further. Thank you for your attention.

325
MS. HALLADAY: Thank you, Mr. Thompson. Thank you very much.

326
Now might be an appropriate time for a lunch break.

327
[The Board confers]

328
MS. HALLADAY: I thank you. We will reconvene at 1:45.

329
--- Luncheon adjournment at 12:20 p.m.
330
--- On resuming at 1:55 p.m.
331
MS. HALLADAY: Please be seated.

332
Good afternoon.

333
DECISION:

334
MS. HALLADAY: The Panel has considered the motion brought by Mr. Thompson on behalf of IGUA for production of the information redacted by Enbridge from documents provided to the Board in response to Undertakings J.5.5 and J.5.6. The Board agrees with Mr. Farrell that this information is not relevant for rate-making purposes in this test year; however, the Board also agrees with Mr. Thompson and other intervenors that issue 5.3 is broader than merely considering the rate-making implications of affiliate out-sourcing.

335
We've reviewed the redacted information and determined that disclosure of this specific information is not material to the ability of intervenors to argue that the Board should impose conditions on out-sourcing arrangements in this proceeding. The Panel anticipates that we will be making further comments on disclosure of information in our written reasons.

336
MR. FARRELL: Thank you, Madam Chair.

337
I'll collect the unredacted copies later, if I might.


338
MS. HALLADAY: Mr. Thompson, we were discussing that -- Mr. Farrell, we were discussing that at the break. Our concern is that the information was filed in confidence with the Board, and while it's not in the public record, it still has been filed with the Board. It formed the basis for us making this determination on this motion. If anyone wants to appeal our decision on this motion, for example, we would still need the documents.

339
MR. FARRELL: I take your point. I withdraw my request.

340
MS. HALLADAY: Thank you.

341
We will carefully put it back in your manila envelopes, fold it, and you can be rest assured that I have forgotten the numbers already.

342
MR. FARRELL: Thank you, Madam Chair.

343
PROCEDURAL MATTERS:

344
MR. FARRELL: We have two written responses to outstanding undertakings and then we can provide oral responses to three more, and then I can tell you where we're at, so to speak, on the other -- I think that would leave only two outstanding. So perhaps if I could deal with the written ones first.

345
The first is a response to Undertaking J.3.9, and it would be Exhibit J.3.9. Mr. Moran has copies for the Panel and the public record and we've distributed copies to the intervenors and I think there are more at the back.

346
EXHIBIT NO. J.3.9: RESPONSE TO UNDERTAKING J.3.9

347
MR. FARRELL: The second is a response to Undertaking J.4.8. This was an undertaking given to Mr. Mondrow where he asked for regulatory decisions or documents on out-sourcing to energy services providers in a competitive marketplace. And what we filed is the best we could do to -- at this point. We had help from Dr. Foster as well as our own internal research. We did speak to ECG's U.S. counsel, but he did not think that he could provide anything more than this within the limited time available.

348
So I guess at this point, we'll go with what we've got. If somehow we come up with something later, I don't think Mr. Mondrow intended to come back and cross-examine on regulatory decisions or that these couldn't speak to them necessarily anyway, but if we could leave it that if, upon further reflection, we have more information on this topic, we would simply file a revised exhibit if that's acceptable to you and to the intervenors.

349

MS. HALLADAY: That's fine with me. Thank you, Mr. Farrell.

350
EXHIBIT NO. J.4.8: RESPONSE TO UNDERTAKING J.4.8

351
MR. FARRELL: Then, Mr. Brennan, Undertaking J.3.11, requesting the point when -- or the time when ECG began discussions with parties to move gas out of Chicago.

352
RESPONSE TO UNDERTAKING NO. J.3.11: ORAL

353
MR. BRENNAN: Yes, those discussions began in late spring, early summer of 1996.

354
MR. FARRELL: Thank you.

355
And Mr. Brennan, as well, Undertaking J.6.5 was to provide the date on which the agency agreement was signed by ECG and EI.

356
RESPONSE TO UNDERTAKING NO. J.6.5: ORAL

357
MR. BRENNAN: Yes. The date on which ECG executed the agency agreement was August 29th, 2001. I'm not sure of the date that EI signed it. All I can tell you is I think EI signed it prior to ECG executing it.

358
MR. FARRELL: Thank you.

359
And then Undertaking J.6.7 was an undertaking given to Mr. Moran, and my note says it was to provide the response of EI, EOS, and Customer Works to a request to provide evidence, and then in parentheses, (EG witnesses, documents) as may be required for the Board's regulatory purposes.

360
Mr. Brennan, I understand you've spoken to representatives of both EI and EOS?

361
MR. BRENNAN: Yes, I have.

362
MR. FARRELL: Would you provide their responses to you.

363
RESPONSE TO UNDERTAKING NO. J.6.7: ORAL

364
MR. BRENNAN: Yes, I can.

365

EI and EOS were asked to provide information, as Mr. Moran defined it in his undertaking.

366
MR. FARRELL: Mr. Moran asked for evidence.

367
MR. BRENNAN: Evidence? I'm sorry.

368
MR. MORAN: A commitment to provide evidence.

369
MR. BRENNAN: Fair enough.

370
In Undertaking J.6.7, as far as providing witnesses and documents of EI and EOS on their own, both affiliates have declined to provide this information; however, they did indicate that they would be prepared to assist ECG in providing any information or assistance it would need in providing its application and supporting material to the extent that ECG requires assistance.

371
MR. FARRELL: Thank you.

372
And, Mr. McGill, I understand that you've spoken to a representative of Customer Works for the same purpose?

373
MR. MCGILL: Yes, I have.

374
MR. FARRELL: Would you provide their response, please.

375
MR. MCGILL: Yes.

376
Customer Works Limited Partnership has declined to make any commitment to provide evidence, including documents and witnesses, relating to the services that they provide to ECG. Customer Works Limited Partnership's participation in future regulatory proceedings would be dependent on the nature of the issues being examined and on the contractual arrangements in place with its client at the time of such proceeding.

377
MR. FARRELL: Thank you, Mr. McGill.

378
Now, by my count, Madam Chair, that leaves two outstanding undertakings. One was given by Mr. McGill to Mr. Vegh on Monday, J 8.2, and that was to provide a sample of daily billing summary files.

379
I understand, Mr. McGill, that that's under preparation but it's not yet complete?

380
MR. MCGILL: That's correct.

381
MR. FARRELL: And the other, Madam Chair, was Undertaking J.3.10 which was given to Mr. Moran, and my note says briefly, the cost consequences of Alliance at 50 million cubic feet a day, that being the first decision; of Alliance at 75 million cubic feet per day, that being the incremental 25; the first tranche of Vector and the second tranche of Vector, and we're struggling to provide a meaningful response. We don't feel that we can give you the cost consequences alone of those. But what we're struggling with is if ECG didn't have that capacity, it would have to find other capacity or else it would short the market, in other words, it wouldn't meet its requirements. So it's -- to us, it's a question of what is the comparator.

382
So we're still struggling with a response, and if -- I plan to speak with Mr. Brennan at the afternoon break to see whether we can come up with something that he feels is responsive to Mr. Moran's undertaking, but also presents ECG's side of it; that is, we needed some capacity to get to market so how do we take that into account in this exercise. So if you could bear with us, we'll try to be responsive.

383
MS. HALLADAY: Thank you.

384
MR. FARRELL: That's all I have, I'm sorry.

385
MS. HALLADAY: Thank you, Mr. Farrell.

386
MR. MORAN: Madam Chair, I think there was one other outstanding item, and that was to provide an updated version of the timeline exhibit.

387
MR. FARRELL: Oh, excuse me, you're quite right.

388
Mr. Brennan, where is that?

389
MR. BRENNAN: I have --

390
MS. HALLADAY: Mr. Brennan's had nothing else to do during this hearing.

391
MR. BRENNAN: I have the dates all listed, I just haven't had a chance to update the table itself.

392
MR. FARRELL: So what we plan to do is rather than filing that as a response to an undertaking, we'd simply file a revised exhibit, which I think it was a K series exhibit.

393
Thank you, Mr. Moran, I forgot about that.

394
MS. HALLADAY: That's fine. Thank you.

395
Mr. Farrell, I understand that this witness panel is available to be questioned by counsel for intervenors with respect to the updated interrogatory responses they've provided; is that correct?

396
MR. FARRELL: To the responses to undertakings.

397
MS. HALLADAY: Right. Thank you.

398
MR. FARRELL: It all blurs after a while, doesn't it.

399
MS. HALLADAY: I apologize. Responses to undertakings that they provided; is that correct?

400
MR. FARRELL: That's correct.

401
MS. HALLADAY: Thank you.

402
MR. FARRELL: And we had a brief discussion beforehand and I think all counsel agreed that we'd do it not in an issue-by-issue basis but on a counsel-by-counsel basis so that when they were completed, they didn't have to wait around for their turn on a second issue.

403
MS. HALLADAY: Fair enough. Well done. So who drew the straw to go first?

404
Mr. Warren.

405
MR. WARREN: Thank you, Madam Chair.

406
ENBRIDGE CONSUMERS GAS - UNDERTAKINGS PANEL; RESUMED

407
J.HOLDER; Previously sworn.

408
F.BRENNAN; Previously sworn.

409
S.McGILL; Previously sworn.

410
A.PLECKAITIS; Previously sworn.

411
CROSS-EXAMINATION BY MR. WARREN:

412
MR. WARREN: Panel, I have a couple of questions at the beginning that can be grouped under the topic heading of the process and the criteria by which you decide to produce or not produce documents, and I have two areas that I want covered.

413
The first, if you turn up two documents, please, the first is an interrogatory delivered by my client, which is CAC interrogatory number 63, Exhibit I, tab 2, schedule 63.

414
MS. HOLDER: Sorry?

415
MR. WARREN: Exhibit I, tab 2, schedule 63.

416
MS. HOLDER: Yes.

417
MR. WARREN: And the second document is Exhibit F.3.6.

418
MR. BRENNAN: Can you describe that document, Mr. Warren?

419
MR. WARREN: This is the letter to you, Mr. Brennan, dated January 21st, 1998, from IGUA. I'm not sure whether it's still in F.3.6 or a K.3.6. The context for it, Ms. Holder was answering questions that were being asked by Ms. Halladay on the 7th of June. It appears in volume 3 of the transcript, beginning at around paragraph 1249 or thereabouts.

420
MS. HOLDER: Sorry. What paragraphs are you referring to?

421
MR. WARREN: Volume 3, paragraph 1249. Actually, 1247 is where the exchange begins.

422
MR. FARRELL: Volume 3.

423
MS. HOLDER: Yes, I have that.

424
MR. WARREN: Now, in the exchange with Ms. Halladay, you -- beginning at paragraph 1250, you indicated that you approached large-volume customers through IGUA and that they provided you a letter, and then Ms. Halladay asked if the letter could be produced and what was produced was marked as Exhibit F.3.6.

425

Now, in the interrogatory which I've asked you to turn up, you were asked to provide all studies, reports, notes, and any other written material, whether internal to ECG or otherwise, relied on, considered in relation to, or in support of, among other things, the list is the decision to acquire firm transportation service from Alliance.

426
Now, what I'm interested in at this point, Ms. Holder, is would you agree with me that it would appear that F.3.6 would fall into the category of written material, whether internal to ECG or otherwise, considered in relation to the Alliance decision?

427
MS. HOLDER: The way I read your interrogatory question, which is CAC interrogatory number 63, it says: "Please provide all studies, reports, notes, and any other written material, whether internal to ECG or otherwise, relied on" -- emphasis there -- "considered in relation to" -- emphasis there -- "or in support of the following." You were referring to a decision that was made in November of 1996 and a decision in regard to Alliance again in November of 1997. The letter that was presented to us by IGUA is dated January 21st, 1998. So it was not used to come to a decision in November '96 or November '97 so therefore it was not provided as part of the response to this undertaking or interrogatory, sorry.

428
MR. WARREN: So you applied an interpretation of my questioning, saying that what the question really means is material that was relied on in the period up to the time the decision was made; is that right?

429
MS. HOLDER: I think that's the way this question reads, yes.

430
MR. WARREN: That's the way you read it.

431
MS. HOLDER: Yes.

432
MR. WARREN: Okay. And that's the reason you didn't produce this letter.

433
MS. HOLDER: That's correct. At the time that we responded to the interrogatory.

434
MR. WARREN: Now, the second category of information, Ms. Holder, again staying with that particular interrogatory, interrogatory number 63, and if I could ask you to, in the same volume of the transcript, turn up the exchange again with Ms. Halladay which begins at around paragraph 1199. Ms. Halladay is asking you about corporate governance questions and whether matters were reviewed by the board. I understand she meant the board of Enbridge Consumers Gas. At paragraph 1200, your answer is: "I don't know. I asked the question to confirm prior to coming here whether they were reviewed by the board, and the answer I got back was yes. I did not ask if that was the complete board or just a subset of the board."

435
Now, in light of the review which you undertook, and in light of the questions that were -- the question that was asked in number 63, when I look at the undertaking response which is collected in J.3.14, there are a substantial number of materials related to board of directors' decisions. And what I want to understand is, in light of interrogatory number 63, was a decision taken not to disclose these board of directors' materials?


436
MS. HOLDER: No, I think again I maybe used the wrong choice of words in response to Ms. Halladay when I said "reviewed." I think the words I got back from my legal counsel that I asked the question of was actually there were discussions before the board.

437
So I think it's very clear that from the evidence that we've filed, that never was this information before the board for the board to make a decision on and the board -- I'm referring here to the Enbridge Consumers Gas board. In the materials that we submitted as part of the undertaking, it's not discussions with the board to approve these documents or these contracts, I should say, but it's actually evidence at least that the board of directors was aware that we were signing these contracts. Nowhere in the documentation was the board asked to approve these contracts because we didn't need to ask for that approval. But they were aware that contracts were signed.

438
So again, taking your question in number 63 very literally, which is what we did do, we didn't look -- view the fact that the Enbridge Consumers Gas board of directors was aware that we were signing these contracts or aware of the contracts, that that was in support of us making the decisions.

439
MR. WARREN: All right. I just -- let me ask this question: Do I take it from your answer that you parsed CAC interrogatory 63 and decided that it did not encompass board of director materials; have I understood your answer correctly?

440
MS. HOLDER: No. I think what we read your question to be was what did we use, what information did we use, what knowledge did we have to make the decision of signing the contract in 1996 and 1997, 1999 June, 1999 December. We took it that you wanted information that we used to say "these are the right decisions for us to make," not "was your board aware of this."

441
MR. WARREN: So may I take it, then, that you were aware at the time you responded to interrogatory number 63 that there were materials, what I'll call broadly board-related materials that were in existence, but you didn't think my question was broad enough to --

442
MS. HOLDER: No, as a matter of fact, we did not know that there was any board materials at the time we responded to your interrogatory. At the time we responded to your interrogatory, we knew that the board had not approved these contracts; therefore, we never looked to see what the board had knowledge of. I had never been before the board on these matters - again, I'm referring to the board of directors. I asked the question, which was my response in paragraph 1200, I asked the question of our legal counsel to search this information for me only about two days before I appeared here as a witness.

443
MR. WARREN: Okay. Now, you said in response to Ms. Halladay's question at paragraph 1200 that you had -- you asked the question prior to coming to confirm that they were reviewed by the board and had got that answer back, yes. When you got the answer back, yes, did you feel it incumbent upon you to see if, among other things, you had responded fully and accurately to interrogatory number 63?

444

MS. HOLDER: I believe we did respond to what we believe you were asking for. We had no reason -- from this question, had no reason to believe that you were looking for us to provide information that our board of directors had knowledge of these contracts. That was not part of our decision-making process. They had knowledge, but that didn't come into play when we made the recommendations to sign these contracts.

445
MR. WARREN: I have your answers. Thank you, witness.

446
Can I then return to the specifics of Exhibit F.3.6. This is a letter dated January 21st, 1998, to you, Mr. Brennan, and it refers in the first line of the text to "your letter." I presume that's the letter from you, Mr. Brennan, dated 19th of January, 1998. Is that letter in existence?

447
MR. BRENNAN: Well, quite frankly, I don't even remember this letter at all, myself.

448
MR. WARREN: Which letter, the letter you wrote or the response?

449
MR. BRENNAN: Both.

450
MR. WARREN: So I take it the answer to my question, "Does it exist?" you don't know whether it exists.

451
MR. BRENNAN: At this point in time, no, I don't.

452
MR. WARREN: Well, did you, prior to, for example, responding to your undertaking which became J.3.14, did you make a search for that letter?

453
MR. BRENNAN: No, I did not. I didn't know at the time the undertaking was filed the existence of this letter here, the January 21st letter.

454
MS. HOLDER: This January 21st --

455
MR. WARREN: Sorry, can I just stay with that? I'm sorry.

456
Let me understand that clearly. At the time this undertaking was delivered, you weren't aware of the existence of this letter?

457
MS. HOLDER: No, let me -- maybe -- that's why I was going to help you understand --

458
MR. WARREN: Can I just stay with Mr. Brennan's answer for a moment, Ms. Holder. I just want to stay with that. I will give you any opportunity you want to fill it.

459

But this letter, Mr. Brennan, was filed as an exhibit on the 7th of June prior to the undertaking that was given to Ms. Halladay to produce what became J.3.14. So I assume, since you were on the panel sitting right next to Ms. Holder, that you were aware of the text of what became Exhibit F.3.6.

460
MR. BRENNAN: This is Ms. Holder's copy of the letter. I do not have a copy of it.

461
MR. WARREN: Sorry. So that Mr. Farrell had it in his hand, it was produced as an exhibit, but you didn't read it on June 7th; is that right?

462
MR. BRENNAN: Did I read it on June 7th?

463
MR. WARREN: Yes.

464
MR. BRENNAN: No, I didn't.

465
MR. WARREN: So sorry, Ms. Holder, you were going to give a gloss on the answer.

466
MS. HOLDER: That's what I was going to say. Mr. Brennan was not aware that I had a copy of this memo and it was found in my files just -- which is clearly shown by the fact that I cc'd Mr. Riedl, Mr. Sepick and Mr. Schultz, and signed it, "FYI, Janet." So this came from my files, it did not come from Mr. Brennan's files.

467
MR. WARREN: So I think you have answered my question, Mr. Brennan. You didn't make a search for, and you don't know whether the January 19th letter exists.

468
MR. BRENNAN: No, I don't, offhand.

469
MR. WARREN: And can you, I assume -- I'll assume the answer to this question, but one should never assume anything in this case. May I safely assume, Mr. Brennan, that you don't know what you said in the letter that went to Mr. Fournier, dated January 19th, 1998?

470
MR. BRENNAN: The only thing I could say was just whether or not -- where IGUA was in relation to entering into the contracts for Alliance and what their thoughts were and what impact it may have on their industrial customers.

471
MR. WARREN: And do you know whether or not, for example, you provided comparative tables showing the options that were being considered?

472

MR. BRENNAN: No, I don't. I think it was just sort of a general question, what their thought was in terms of entering into a long-term contract and the fact that -- well, I think you can take from the letter what IGUA's views were as to any expansion on TransCanada. I think it's fair to say that IGUA had some concerns about continued expansion on TransCanada and was also looking -- its customers were looking to alternatives to TransCanada, and I think that's what the letter indicates. So it was more or less just sort of a general --

473
MR. WARREN: What intrigues me about the letter, Mr. Brennan, if you turn up the second page of it, the very last sentence, Mr. Fournier makes a point of, and I quote: "IGUA therefore views Consumers' initiative and contracting for capacity on Alliance as a positive" -- and I underscore the following word -- "prudent action."

474
Now, I take from that that Mr. Fournier was invited to comment on the prudence of your decision to contract for capacity; is that a fair assumption on my part?

475
MR. BRENNAN: It's an assumption. I don't know that that was necessarily the case.

476
MR. WARREN: And you can't tell me what data would have been provided to Mr. Fournier that would have allowed him to preach the conclusion that this was or was not a prudent action?

477
MR. BRENNAN: I can safely say there wasn't any particular data. What it was was, what are your views on ECG signing up for Alliance capacity.

478
MR. WARREN: Can we then turn to the pile of documents which was produced as J.3.14.

479
Members of the Panel, these are given letter designations as you go through the pile and I'm going to refer, for ease of reference, to the letter designations.

480
I'd like to begin, if I can, panel, with Exhibit B within this undertaking response.

481
MS. HOLDER: Was that D or B?

482
MR. WARREN: B as in Barbara, Barbie.

483
Do the Members of the Panel have this pile of documents?

484
Exhibit B is identified on the cover page of the undertaking response as "Excerpt from Audit Finance Risk Committee Meetings with Attachment." And the first document -- I'm sorry, the second page is something called "Corporate Risk Assessment." Can you tell me, panel, what this document is and who produces it and for what reason?

485

MS. HOLDER: The document is a corporate risk assessment that's prepared every year by various members of the executive. It is then presented by the president to the Enbridge board of directors, actually a subcommittee of the Enbridge board of directors called the -- it says the audit finance and risk committee. It is just to outline the various risks that the corporation may be faced with and it's to provide the board with some assurances that there is mitigation measures in place to deal with all those risks.

486
MR. WARREN: Now, on the first page when you talk about -- this is all under the heading "Gas Supply," you have got a heading called "Importance" and then under the heading "Inherent Risks," about six or seven bullet points down, you've got "Regulatory Risk."

487
"Any disallowance of imprudently incurred gas costs (supply arrangements or risk management program) for recovery in rates would impact earning."

488
Then you've got on the next page under the heading "Mitigation of Risk," this is page 13 of the document, the second to last bullet in this -- that list is: "All gas acquisition and transportation/storage arrangements undertaken in the expectation of a prudency review by the OEB."

489
Now, panel, I'm going to put my interpretation of these items to you to see if I am reasonable in my interpretation. What these two items suggest to me is that in 1996, Enbridge Consumers Gas recognized that there was a risk of disallowance on a prudency review and that you had to demonstrate to the Board that your, among other things, transportation and storage arrangements had been undertaken prudently; is that fair?

490
MS. HOLDER: I'm not sure that's -- that is entirely fair. I think if you read -- it says: "Regulatory Risk. Any disallowance of imprudency-incurred gas costs, supply arrangements or risk management program." That is always a risk, and I think I've actually given that as evidence in this hearing; that we recognize that we are always before this Board asking for recovery of our gas costs after the fact. I think to be fair, this document was never prepared by lawyers and the words "imprudency," "imprudent," may not have the same definition as they do in the Act or the definition that this Board may apply.

491
What we would be meaning by that statement "Inherent Risk" is basically that this regulator and this Board can disallow costs, gas costs, which they have done in the past. So that is a risk that we always face, and I think you'd see that statement common through all risk assessments that are presented to our board of directors.

492
Then if you go to your point that says: "All gas acquisition and transportation/storage arrangements undertaken in the expectation of a prudency review by the OEB." So that's a mitigation of risk that we do come before the regulator and explain all our gas costs every year, as we have done for quite some time now, after the fact to justify what those costs are.

493
MR. WARREN: You know, Ms. Holder, it isn't the eleventh commandment that you have to disagree with me when I ask a question. I take it that you agreed with my proposition that in 1996 it was recognized as a risk that the Board might disallow your investment in transportation and storage arrangements because they weren't prudently incurred. That's all I said. Am I wrong in that, Ms. Holder?


494
MS. HOLDER: I think -- sorry, it was the tone and that was sort of the -- maybe I'm a little defensive on some of these matters, but --

495
MR. WARREN: I'm sorry. I'll be kinder, gentler in my approach.

496
MS. HOLDER: Okay. I will agree with you. It is always a concern. It is a concern every year that we have the risk of disallowance.

497
MR. WARREN: And asking this in the kindest and gentlest way that I know --

498
MS. HOLDER: And I appreciate that.

499
MR. WARREN: -- would I be wrong in assuming that, having recognized the risk in 1996, you would have taken all reasonable measures necessary to demonstrate to the Board that the transportation and storage arrangements had been prudently entered into?

500
MS. HOLDER: And I think we have. At least we're trying.

501
MR. WARREN: Okay. And just in connection with that, Ms. Holder, am I wrong in assuming that as part of that exercise, you would have documented, in as thorough and comprehensive a way as you could, the rationale for making the transportation and storage arrangements that you made?

502
MS. HOLDER: And we have. It comes back to the business that we were in, and the business of gas acquisition, gas planning. As this package indicates and supports my evidence, the board of directors had given us the authority to sign these types of contracts at the volume and dollar value that we did sign. The board of directors was confident that we have the procedures in place to make these decisions.

503
We made our decision; we filed, through evidence, the key assumptions made in making those decisions. I think that says and is enough information to say, we did make those decisions prudently. We have since then filed some more information to assist, to show that yes, in our files, we do have supporting documentation; for example, the Mr. Otsason letter. This is a day in the life of a utility. And I know that's very hard for some to believe, but we go through the analysis, we know what information we have available, we have presented that information, we have presented the assumptions we were making at the time we made these decisions, and then with the knowledge, of course, that was inherent in the individuals making those decisions, the recommendations went forward to the executive to sign the contract. And I have to believe, though I was not there, that somebody who was a CFO of an organization signing a long-term contract for gas supply would ask all the relevant questions as well.

504
MR. WARREN: Will you turn up D, Exhibit D, within this undertaking response.

505
MS. HOLDER: Exhibit D?

506
MR. WARREN: D as in David.

507
Now, this is identified on the cover sheet as being -- these are identified as: "Alliance Progress Report No. 1 and Alliance Progress Report No. 2." Can you tell me, Ms. Holder, or Mr. Brennan, who prepared these documents?

508
MR. BRENNAN: My understanding would be a person named Murray Ross. He was hired on contract to do the analysis for the Alliance project. He was -- worked on this extensively for a good nine months doing all the analysis, and he reported to Mr. Juri Otsason.

509
MR. WARREN: Can you tell me for whom these reports were produced?

510
MR. BRENNAN: He was producing these reports for Juri Otsason.

511
MR. WARREN: Now, there are the two progress reports, the second to last of which is August 15th, 1996. Can you tell me if there are other progress reports?

512
MR. BRENNAN: I haven't been able to find any more than this.

513
MR. WARREN: Now, if I look at progress report number 1, which is dated August 1, 1996, and I go to item number 8, it says: "At CC with IPL today." Can you tell me what CC is?

514
MR. BRENNAN: Actually, I wondered that myself. But after reading the document, I came to the conclusion that it can only stand for conference call.

515
MR. WARREN: Can you tell me who IPL is?

516
MR. BRENNAN: Interprovincial Pipeline, at the time.

517
MR. WARREN: Was that the parent of Enbridge Consumers Gas at the time?

518
MR. BRENNAN: Yes.

519
MR. WARREN: Can I conclude, or would it be reasonable for me to conclude that this progress report indicates that on August 1st, 1996, Enbridge Consumers Gas was discussing the Alliance contract with its parent, Interprovincial Pipelines?

520

MR. BRENNAN: No, that would be incorrect. And the reason I say that is this talks about line 6(B) alternative. This was an oil pipeline that extends from Chicago to Sarnia and we were asked what other alternatives was ECG looking at as far as moving gas away from Chicago. Line 6(B), they were looking at that whether or not they could convert the service from oil to natural gas, so that's what the discussions were, could IPL afford taking that line out of oil service and converting it to gas.

521
In addition to that, this section of pipe also had several loop sections attached to it. It wasn't completely looped, but there were certain sections that were looped that were out of service. So the other idea was if IPL couldn't allow line 6(B) to be converted to gas, could they reactivate the loop sections and just in-fill those pieces of pipe, pieces that were missing in order to provide a route between Chicago and Dawn.

522
MR. WARREN: Certainly we can conclude from this first progress report that Enbridge Consumers Gas was discussing with its parent the routing of natural gas from Chicago to Dawn; correct?

523
MR. BRENNAN: We were inquiring, ECG was inquiring of IPL if there was ways of getting gas between Chicago and Dawn to move our Alliance capacity away. This is one of several alternatives. The other one was, as stated on the record, the ANR-MichCon-Link alternative. This was just one of many.

524
MR. WARREN: Now, if I go to progress report number 2, I look at the item number 2 and it says: "Have now identified and costed 14 potential alternatives (3 costing cases). Memo sent to IPL people for today's conference call." Do we have a copy of that memorandum?

525
MR. BRENNAN: I'm not sure if it's -- that's the particular one, but there is a document here later on, I'm not sure which one it is, which identifies essentially four alternatives. And I think these alternatives were more or less how do we get the gas from Chicago right into line 6(B). I think that was the alternatives that they were looking at. It wasn't necessarily 14 different alternatives from getting gas from Dawn hauled away to -- all the way from Chicago to Dawn. It was how to get the gas from the outlet of Alliance into line 6(B).

526
MR. WARREN: My question was do we have the memo?

527
MR. BRENNAN: I believe if you look at exhibit -- or the same exhibit under tab F, if you like, there are -- in that attachment, I believe there's about 14. These are the 14 alternatives that are discussed in that particular progress report.

528
MR. WARREN: And is it your evidence under oath that this is the memo that's referred to in the progress report?

529
MR. BRENNAN: I'm not saying that's the memo necessarily; I'm saying the 14 alternatives what they're discussing here are the ones that are shown in tab F.

530
MR. WARREN: My question simply is was a search undertaken to determine if this memo existed and if it could be produced?


531
MR. BRENNAN: No, this is all the material we were able to find.

532
MR. WARREN: Now, in that -- just staying with that memo. You've already told us what 6(B) is, but going to item number 3 in the second of the progress reports at the very bottom of the page, the follow sentence appears: "NB expansion and extension application received preliminary approval from FERC." What does NB expansion refer to?

533
MR. BRENNAN: Northern Border.

534
MR. WARREN: Now, if you go to the next exhibit which is Exhibit E, this is a memorandum to Juri Otsason and Anthony Zlahtic --

535
MR. FARRELL: Zlahtic.

536
MR. WARREN: Zlahtic, I'm sorry. I apologize.

537
MR. FARRELL: Spell it for the court reporter's benefit.

538
MR. WARREN: Z-l-a-h-t-i-c.

539
MR. FARRELL: Thank you.

540
MR. WARREN: -- from Mr. Ross, and there's a note in the upper right-hand corner that's dated August 14, 1996. Whose note is that?

541
MR. BRENNAN: I believe it was the person who actually found it in the files. There is no date on -- actually the date is on the next page, actually. If you look at the top of the next page, you'll see 1996-8-14. It was just easier to put it on the front page.

542
MR. WARREN: Okay. Now, as I read this, this is -- it says: "Attached is a table showing a more complete analysis of the cost of potential alternate routes to get from the Alliance terminus near Morris, Illinois, to the Lakehead line 6(B) north of Griffith, Indiana."

543
Am I reading this incorrectly, panel, that it appears to assume that there will be a contract with Alliance and that the issue will be moving Alliance gas from its terminus into Ontario?

544
MR. BRENNAN: No, I disagree. I think at the time we were looking at our options with Alliance, and in order to complete the analysis if you like, we had to look at alternatives to moving the gas away from our outlet to our market area.


545
MR. WARREN: Now I'd like you to turn up item O in this package, please, Exhibit O, I'm sorry. This is a memorandum dated the 30th of October, 1996, from Mr. Riedl to Mr. Munkley.

546
Can you describe for the Board, please, the respective positions of Mssrs. Riedl and Munkley as of the date of this memorandum.

547
MS. HOLDER: Sorry, I've missed your question.

548
MR. WARREN: As of the date of this memorandum, what was Mr. Riedl's position?

549
MS. HOLDER: Mr. Riedl's position is either vice president of gas supply or vice president of gas supply and strategic planning.

550
MR. WARREN: And Mr. Munkley's position at the time?

551
MS. HOLDER: Was president.

552
MR. WARREN: Of Enbridge Consumers Gas?

553
MS. HOLDER: Yes.

554
MR. WARREN: Now, if I look at the second paragraph, it says, and I quote: "The 50 MMCF per day recommendation will fall short of Alliance's expectations. Before we communicate our commitment to the Alliance partners, I would appreciate an opportunity to discuss with you the" -- and I underscore the following words -- "broader implications of our capacity commitment."

555
First of all, can you tell me, Alliance's expectations, what does that refer to?

556
MS. HOLDER: I would only be hazarding a guess, but I would believe it probably reflects the extra 25 million a day that -- or was it 50 million a day that Alliance was -- I guess what little recollection we have of what Mr. Riedl might have referred to there is we were assuming that Alliance would -- wanted us to sign more than the 50, but only -- our market at the time could only support the 50.

557
MR. WARREN: But you did ultimately go to 75 within, I think, six months is roughly the time frame?

558
MR. BRENNAN: No, it was much later than that. I believe it was just before we went to the National Energy Board in the Alliance hearing, and I believe that was in early 1998. So I am assuming that our decision was just prior to that. We have a timeline. I could probably tell you what it was.

559

MR. WARREN: Do you know if your decision was for that, or was a decision made much earlier on the additional 25?

560
MR. BRENNAN: I'd have to get the date when we made the commitment.

561
MR. FARRELL: The date was November of 1997, as I think the response to CAC number 27 shows.

562
MR. WARREN: But I had a different -- it was a different question I was asking; whether or not the decision that was taken, as opposed to formally communicating the commitment, was made earlier than that; and if so, was it made in response to "Alliance's expectations"?

563
MR. BRENNAN: I believe the decision was made just prior to the November date because it had to do with the timing in which AEC, who wanted to give up, if you like, some of the capacities on Alliance. So it was -- I think this happened sometime after this memo was produced.

564
I'm just trying to remember. There was an interrogatory that was asked in terms of the 50 million -- I'm sorry, the incremental 25 million, and if you just give me a second, I'll try and pull it up.

565
MR. WARREN: It's all right, sir, we're all running out. We are the EveryReady bunny about to die. So I'll take it in the kinder and gentler spirit in which we were operating that there is an interrogatory and I'll find it in the fullness of time. Thank you very much for your offer.

566
Could you just tell me, though, finally on this page, "what the broader implications of our capacity are," what that means?

567
MS. HOLDER: I don't know.

568
MR. WARREN: My final questions, mercifully, panel, for everybody concerned, particularly you, are with respect to Exhibit W. Am I right -- this is described in the cover page of the undertaking as "Vector pipeline presentation to ECG," and it is the 17th of May, 1999; correct?

569
MS. HOLDER: Correct.

570
MR. WARREN: When I -- this isn't paginated, Panel and members Of the Board. If you turn in about 14 pages, you will find a slide presentation that's headed: "Landed Cost of gas At Dawn - CERA Average of Scenarios." It's about 14 pages in.

571
MS. HOLDER: The CERA or PERA?

572
MR. WARREN: The C-E-R-A, whatever --

573
MS. HOLDER: The next one sounds very much similar.

574
MR. WARREN: And on the next page is "Landed Cost of Gas at Dawn - PERA October '98."

575
And I just wanted to have you confirm for me, or deny as you wish, that I've read this correctly. That it would appear that in Vector pipeline's presentation to you in 1999, that it was estimated that over the 15-year lifetime between -- 17 years, 1998 to 2015, that Chicago gas landed at Dawn via Vector was going to be cheaper than Empress gas landed in TCPL's eastern zone.

576
Have I read that -- am I reading the chart correctly? Both charts appear to have that same -- although the second one, the PERA one, doesn't go out as far, it only goes out as far as 2004. But in each case, it would appear that Chicago gas landed at Dawn by Vector is the cheaper alternative to TCPL; is that correct?

577
MR. BRENNAN: That's what it shows in terms of -- as of May 17th, 1999, that's correct. And again, that was one of the reasons that we entered into the second tranche of Vector. When we looked at our capacity on TransCanada and our option to not renew, we did not renew on TransCanada and then decided to purchase that gas in Chicago and move it on to the second tranche of Vector.

578
MR. WARREN: Thank you, panel.

579
Thank you Members of the Board.

580
MS. HALLADAY: Thank you, Mr. Warren.

581
Mr. Janigan.

582
CROSS-EXAMINATION BY MR. JANIGAN:

583
MR. JANIGAN: Yes, thank you, Madam Chair.

584
Panel, I wonder if I could commence with some questions that are associated with the IGUA letter that was produced by Mr. Farrell as Exhibit F.3.6.

585
Earlier in cross-examination on this proceeding, Mr. Small indicated to me in volume 3, you don't have to turn it up, line 756, that industrial customers are predominantly bundled T-service customers; do you agree with that?

586
MR. BRENNAN: Yes.

587

MR. JANIGAN: And in addition, these Ontario bundled T-service customers are only assigned TCPL capacity or hold their own TCPL capacity.

588
MR. BRENNAN: Currently that's the situation, that's correct.

589
MR. JANIGAN: They --

590
MR. BRENNAN: I'm sorry. They also could bring in their own gas to the extent they're turned back some of our capacity.

591
MR. JANIGAN: And furthermore, they get a rider A credit whereby ECG provides these bundled T-service customers a credit that equals the TCPL tolls?

592
MR. BRENNAN: That would be for Ontario T-service customers.

593
MR. JANIGAN: Yes. That's correct?

594
MR. BRENNAN: Yes, that's correct.

595
MR. JANIGAN: And --

596
MR. BRENNAN: I'm sorry, again, these are customers that have taken an assignment of -- our Ontario T-service customers have taken an assignment of capacity. It wouldn't necessarily be T-service customers who hold their own capacity on TransCanada.

597
MR. JANIGAN: And what this bundled T-service customer would be paying for transportation is the toll that's embedded in the bundled service; am I correct on that?

598
MR. FARRELL: Can we just stop for a second. I don't think Mr. Brennan's answer is correct.

599
MR. BRENNAN: No, I thought of that as soon as I said it. Right. I think, yes, all T-service customers do get the TCPL credit because -- all Ontario T-service customers get the credit because we recovered that in rates, so we would have to return it to them.

600
Thank you, Mr. Farrell.

601
MR. JANIGAN: And I think you just indicated that -- what the bundled -- how a bundled T-service customer pays for upstream transportation is the toll that's embedded in the bundled service; am I correct?

602

MR. MCGILL: That's not exactly the case. The bundled rates have different proportions of the TCPL toll allocated to them, so that some rate classes are allocated more than 100 percent of the TCPL toll at 100 percent load factor and some of the rate classes are allocated less than the TCPL toll at 100 percent load factor.

603
MR. JANIGAN: But what they pay for upstream transportation is a toll calculated on whatever load factor that's embedded in the bundled service?

604
MR. MCGILL: No, what they pay is whatever they pay for the transportation service they've either been assigned or have on their own account.

605
MR. JANIGAN: Okay. Now, I believe --

606
MR. FARRELL: Just wait for a second. I must confess that maybe it's just the length of time we've been on this, but I am afraid that there's a mismatch between what people are meaning by the word "bundled." There is Ontario bundled T and there's western bundled T. And western bundled T, there's no assignment so -- I think there is an allocation instead. So I hope counsel and witnesses are using the same meaning of the word "bundled" in the same type of service when they're questioning and answering, because to me, at times, it doesn't appear to be that.

607
MR. BRENNAN: Maybe we can just assume that we're talking about Ontario bundled T, those customers that take an assignment of our TransCanada capacity, okay?

608
MR. JANIGAN: That's fine.

609
Now, it was confirmed, I believe by Mr. Thompson, earlier in this proceeding that ECG is not proposing to change the principle of how -- the principles on which ECG assigns TCPL capacity to these bundled T-service customers in this proceeding, and any change will have to wait until an unbundling application comes before the Board; am I correct on that?

610
MR. BRENNAN: I can say it certainly is not of this proceeding. As to when it will proceed, whether it's a separate application or whether it's the unbundling, that's yet to be determined.

611
MR. JANIGAN: So there's no current plans to file an unbundling application concerning this?

612
MR. BRENNAN: Nothing immediate.

613
MR. JANIGAN: Okay. Now, I wonder if I could provide you with a few pages of a report on the current allocation of upstream costs by ECG, and it's -- this report is a discussion paper that the company filed in RP-1999-0001, Exhibit D, tab 5, schedule 1, pages 8, 9 and 10.

614

MR. FARRELL: It's actually Exhibit D.2.

615
MR. JANIGAN: It should have been Exhibit D.2.

616
MR. MORAN: Exhibit K.9.4, Madam Chair.

617
EXHIBIT NO. K.9.4: DISCUSSION PAPER FILED DURING RP-1999-0001

618
MR. JANIGAN: And on page 8 and page 9 of what I've given you, the current upstream transportation methodology is discussed; correct?

619
MS. HOLDER: To some extent, yes.

620
MR. JANIGAN: And is this how the Alliance-Vector costs will be allocated to each rate class, this concept of 40/6 DP manual?

621
MS. HOLDER: I don't think these decisions have been made at this point in time, and there's no evidence in this record that we can point to as to what the answer would be. We are not the right people to be talking about rate design.

622
MR. JANIGAN: Well, do you have the -- do you have information as to how it will be allocated if it's different from this particular document?

623
MS. HOLDER: No, I don't think we have knowledge of how the rate design is going to look when we come forward with an unbundling of rates and services application.

624
MR. BRENNAN: Recognizing this is a discussion paper that's about three years old on unbundling.

625
MR. JANIGAN: Okay. So there's been no decision taken as to whether or not the methodology set out herein by way of the allocation of upstream costs will be applicable to the Alliance-Vector costs?

626
MS. HOLDER: I don't know if there's a firm decision made. Again, it may happen, but this panel isn't in a position to answer those questions. We're not rate design -- none of us are involved in rate design matters.

627
MR. BRENNAN: I guess the short answer is that this will be addressed, I guess, when we come forward with our unbundling application.

628
MR. JANIGAN: How about in the interim when these Alliance-Vector costs are incurred? How will they be allocated to the rate class?

629
MS. HOLDER: I think the rates -- that we cannot change our allocation -- cost allocation methodology, my understanding, without this Board's approval. So we will be addressing rate design and cost allocation methodology in our 2003 rate application where this can be discussed. When we come forward with an unbundling rates and services, which I think is more relevant to the issue, the matter will be discussed. And I also expect that there will be some consultation between now and whenever this unfolds with stakeholders.

630
MR. JANIGAN: So in terms of Alliance-Vector costs that are being incurred today, how are they going to be allocated to the various rate classes?

631
MR. MCGILL: Well, I think, Mr. Janigan, to the extent that they would be incurred this year, they would be allocated in the way described in Ms. Duguay's evidence.

632
MR. JANIGAN: And that is in accord with the report that I've directed your attention to?

633
MR. MCGILL: I don't think any of us are in a position to comment on that at this point in time.

634
MR. JANIGAN: Could you undertake to provide me with an answer to indicate any differences with respect to the allocation of upstream costs from what is set out in the report which is the discussion paper in RP-1999-0001?

635
MR. FARRELL: Before we give the undertaking, we seem to be straying from the purpose of this panel, which is to respond to responses to undertakings. In the meantime, I'm trying to see whether Ms. Duguay's pre-filed evidence might shed some light on it.

636
MR. JANIGAN: If I could just respond to Mr. Farrell's point, this arises, perhaps collaterally, out of the IGUA letter which indicated support being evinced by the president of IGUA for the proceeding ahead with the pipeline. I think it's important to look at where the allocation of upstream costs are in relation to the various rate classes when we come to assessing what the merit or what weight might be attached to that particular letter. If I receive that undertaking from ECG, I'm happy to move on to another area.

637
MS. HALLADAY: Okay. We'll give it an undertaking number, Mr. Moran.

638
MR. MORAN: That would be J.9.1, Madam Chair.

639
UNDERTAKING NO. J.9.1: TO PROVIDE ANY DIFFERENCE WITH RESPECT TO THE ALLOCATION OF UPSTREAM COSTS FOR THE ALLIANCE AND VECTOR PIPELINES FROM WHAT IS SET OUT IN THE REPORT WHICH IS THE DISCUSSION PAPER IN RP-1999-0001

640
MR. FARRELL: Could you repeat the number for me.


641
MR. MORAN: J.9.1.

642
MS. HALLADAY: And perhaps Mr. Farrell can continue looking through Ms. Duguay's pre-filed evidence --

643
MR. FARRELL: As I understand it --

644
MS. HALLADAY: -- and answer the undertaking.

645
MR. FARRELL: The undertaking is, as I take it, as to whether, in this proceeding, the Alliance and Vector transportation costs will be apportioned on the same basis as set out under the heading "Long-haul upstream transportation costs" on page 8 of Exhibit K.9.4; is that correct, Mr. Janigan?

646
MR. JANIGAN: Yes, it is, Mr. Farrell.

647
MR. FARRELL: We'll see whether we can do that at the break.

648
MS. HALLADAY: Okay. Thank you.

649
MR. JANIGAN: Now, I wonder if I could ask you to turn up item I in the package, response to Undertaking J.3.14. And this is a memo from Mr. Ladanyi of October 15th, 1996, regarding affiliate transactions with Alliance Pipeline.

650
Now, according to this memo, if ownership of Alliance by IPL was greater than 10 percent, there would be a need to seek approval from the Board for the transaction. And on page 5 -- sorry, page 4 of the letter, it notes about halfway down the page: "According to the draft revised undertakings, a prior approval of the OEB would not be necessary for affiliate transactions dealing with sale, transport or storage of gas. The company would only need to report on the transaction at the OEB within 30 days after it takes place."

651
And down further below: "If IPLE has more than 10 percent of the common equity in Alliance, my advice is that we should proceed with an application to the OEB as required by the 94 undertakings and amendments."

652
So did ECG ever file an application with the Board regarding the Alliance contract?

653
MS. HOLDER: No.

654
MR. JANIGAN: Did ECG ever send a letter to the OEB informing them of the transaction on Alliance?

655

MS. HOLDER: I'm not sure whether there was or was not a letter, nor am I sure or not sure that there was no discussions with Board members. We could not find any evidence of any discussions or any letter.

656
MR. JANIGAN: Okay. Do you know the reason why ECG didn't file an application, nor did they notify the Board?

657
MS. HOLDER: Yes. With all due respect to Mr. Ladanyi, who is not a lawyer, we took it upon ourselves to ask for a legal opinion in these matters, and though this memo would suggest that Alliance is an affiliate, the legal advice that we got is that Alliance is not an affiliate and therefore we did not need to ask for prior Board approval.

658
MR. JANIGAN: So along the side here is a little note, appears to be a little note to -- whom I assume to be Rudy Riedl, that "FYI, IPL equity is currently 10.8 percent and they are looking to increase the level, so we will definitely need to seek approval under the current undertakings for any contract with Alliance."

659
That, presumably, the legal advice you received indicated that that particular piece of information was not relevant to this issue?

660
MS. HOLDER: Yes. Mr. Ladanyi sent this memo to Mr. Otsason. The sort of "JO" at the bottom of that note to Mr. Rudy Riedl is from Mr. Otsason, so I suspect he was relying on the information in this memo, not on the information that was received from legal counsel.

661
MR. JANIGAN: Okay. So both Mr. Otsason's note and Mr. Riedl's note is dependent upon the legal advice that had been given by Mr. Ladanyi; is that correct?

662
MS. HOLDER: Based upon the advice given by Mr. Ladanyi, yes.

663
MR. JANIGAN: Now, when did IPLE increase its ownership interest in excess of 10.8 percent? Is that in the revised timeline?

664
MR. BRENNAN: No, it isn't, but it's covered off in one of the interrogatories from CAC.

665
MR. JANIGAN: I'll look that up, thank you.

666
If you could turn up item W. Now, in the rates and tariffs line, this is the second page of that --

667
MR. BRENNAN: Excuse me, which page are you on?

668
MR. JANIGAN: If you look at rates and tariffs page, it has rates and tariffs continued, it's on that page. This is Vector pipeline on the top left.

669
MR. BRENNAN: Okay, I have that.

670
MR. JANIGAN: There was a condition associated with failure to renew insofar as if there's a failure to renew, there is a need to pay down appreciation in the remaining three years. And on the -- I guess it's two pages along, there's a graph, Vector versus TriState, that depicts Vector with 15 years with a no-renewal, whereby the rates spike up substantially. Am I correct?

671
MR. BRENNAN: That's what the graph shows.

672
MR. JANIGAN: Okay. And if I take you back to item number M in this undertaking, and it's -- which is a memo from Murray Ross to Mr. Otsason and Zlahtic, I believe. If you look at point 6, it indicates depreciation. "'Depreciation rates fluctuate in order to levelize the toll. The U.S. pipeline has a back-end kicker so that if a shipper does not renew its capacity beyond the initial 15-year period, the depreciation rates in the last five years will be adjusted so that the shipper pays an average of 4 percent over his transportation agreement.' I couldn't find a reference to the kicker on the Canadian pipeline, although we are expecting one. I didn't mention this one to Crawford."

673
Does the Alliance contract on the Canadian pipeline have this kicker?

674
MS. HOLDER: Are you referring to Alliance contract or Vector contract?

675
MR. JANIGAN: Alliance.

676
MR. FARRELL: We can check at the break.

677
MS. HALLADAY: Should we get an undertaking number, Mr. Moran?

678
MR. MORAN: J.9.2.

679
UNDERTAKING NO. J.9.2: TO DETERMINE PIPELINE IN CONTRACT CITATION

680
MR. JANIGAN: Now, when I reviewed the numerical analysis in this whole package, no analysis appeared to have the MPV assessment of the Alliance deal over a 15-year period compared to TCPL for the same length of time; am I correct in that?

681
MR. BRENNAN: Yes, that's correct.

682

MR. JANIGAN: And one of the other things I wonder if you could find out, in the event that there is a kicker in the fashion that we've described, how long is ECG required to substantially renew the Alliance contract for, after the 15-year period, for this depreciation kicker not to take place, that's if it exists for the pipeline.

683
MR. BRENNAN: Yes, we can check that.

684
MR. MORAN: I assume that will be part of the same undertaking.

685
MS. HALLADAY: I assume the same thing.

686
MR. JANIGAN: Now, I wonder if you could turn up in the materials for -- from the National Energy Board.

687
MS. HOLDER: Yes, I have it.

688
MR. JANIGAN: You have that? And I'm looking at tab 5 and the cross-examination of Mr. Dan, who was a witness for ECG, at page 8213.

689
MR. FARRELL: Just before Mr. Janigan goes on, this is for the record, Exhibit J.3.13.

690
MR. JANIGAN: And Mr. Dan says on page 8213 in response to a question from Mr. Johnson, about three quarters of the way down the page: "Mr. Johnson, if we can add to that, we see a possibility in the future that the Chicago area could be a market hub, so to speak, or a supply hub. So there is a possibility at some point in time in the future that we are contracting for capacity on pipelines only from Chicago to Ontario."

691
Now, in light of this view of the future, as Mr. Dan stated, why would ECG have signed a 15-year deal on Alliance at all?

692
MR. BRENNAN: This evidence was given to the National Energy Board in the spring of 1998, well after we entered into the contract with Alliance in November of 1996.

693
MR. JANIGAN: The second question: Given the likelihood of the development of Chicago as a hub, why would ECG enter into the contract with respect to the second tranche with Vector?

694
MR. BRENNAN: I'm sorry, could you repeat the question again? I didn't quite catch it all.

695
MR. JANIGAN: Given the likelihood or the probability as -- I'm sorry, I'm overstating that, the possibility in the future that is seen by Mr. Dan with respect to the development of the Chicago market, why did ECG enter into the contract with respect to the second tranche capacity for Vector?

696

MR. BRENNAN: Well, for that reason, we looked at the economics of renewing our capacity on TransCanada versus moving gas out of Chicago, and the economics favoured moving gas out of Chicago on the second tranche of Vector.

697
MR. JANIGAN: Okay. Finally, I have some questions that -- with respect to the out-sourcing arrangements, the undertakings arising thereto, which was not my area on cross-examination so I trust you will take Mr. Warren's advice and be kind and gentle to me as I review them with you.

698
MS. HOLDER: I learned my lesson.

699
MR. JANIGAN: First of all, I believe I've handed to your counsel and possibly to you some documentation which I referred to earlier, I guess, in our argument on the motion, on the -- Mr. Thompson's motion consisting of an application in the British Columbia Utilities Commission and a summary by B.C. Gas Utility Limited, as well as a summary report on review of the Customer Works joint venture being implemented by B.C. Gas and Enbridge, a document filed from Doug Louth & Associates?

700
MR. MCGILL: Yes, I have those documents.

701
MR. JANIGAN: And if we turn up page 9 of the Doug Louth & Associates --

702
MS. HALLADAY: Excuse me, Mr. Janigan, I think we may need an exhibit number.

703
MR. FARRELL: I think it's pronounced Louth, L-o-u-t-h. The township I grew up in, it's pronounced the same way.

704
MR. JANIGAN: You're a louth-mouth. Sorry.

705
MR. MORAN: That would be Exhibit K.9.5.

706
EXHIBIT NO. K.9.5: APPLICATION BY B.C. GAS UTILITY LIMITED FOR THE DISPOSITION OF PROPERTY AND APPROVAL OF CUSTOMER CARE ARRANGEMENTS

707
MR. FARRELL: Excuse me, Mr. Moran, are you marking -- giving one number to both documents?

708
MR. MCGILL: Actually, there's three sets of materials in here there's our old unbundling position paper.

709
MR. FARRELL: That was K.9.4.

710
MR. MCGILL: Okay.


711
MR. MORAN: Perhaps if Mr. Janigan can just name them, because I don't have copies of them.

712
MR. FARRELL: I would prefer separate numbers.

713
MR. MORAN: So K.9.5, the one that I just referenced, which one would that be?

714
MR. JANIGAN: That will be the application.

715
MR. MORAN: Can you give the full title, just for the record.

716
MR. JANIGAN: It is an application by B.C. Gas Utility Limited for the disposition of property and approval of customer care arrangements.

717
MR. MORAN: So that's K.9.5.

718
MR. JANIGAN: And the other document is a document prepared for the British Columbia Utilities Commission, summary report on review of the Customer Works joint venture to be implemented by B.C. Gas and Enbridge, January 8th, 2002, by Douglas Louth & Associates.

719
MR. MORAN: That would be K.9.6.

720
EXHIBIT NO. K.9.6: SUMMARY REPORT ON REVIEW OF THE CUSTOMER WORKS JOINT VENTURE TO BE IMPLEMENTED BY B.C. GAS AND ENBRIDGE, JANUARY 8, 2002 - PREPARED FOR THE BRITISH COLUMBIA UTILITIES COMMISSION

721
MR. JANIGAN: And on page 9 of the Louth document, it sets out a summary of the annual charges paid -- payable to Customer Works.

722
MR. MCGILL: Yes, I've got that.

723
MR. JANIGAN: Can you tell me how these charges compare to the charges that Customer Works bills to ECG?

724
MR. FARRELL: I object to the question.

725
MR. JANIGAN: May I have the basis for the objection?

726

MR. FARRELL: The objection is based on the fact that the costs charged to -- by Customer Works to ECG have no rate-making implications in the test year because they are covered by the targeted PBR plan.

727
MR. JANIGAN: Are you aware that B.C. Gas is under a targeted PBR plan as well?

728
MR. MCGILL: I believe they are, but I'm relying on your information with respect to that.

729
MR. JANIGAN: It would appear by this document that these figures were disclosed to the Commission.

730
MR. MCGILL: Well, they were --

731
MR. FARRELL: Just a minute, Mr. McGill. I mean --

732
MR. JANIGAN: That's a yes or no, I mean, that's not a --

733
MR. FARRELL: Well, it is "yes" with a qualifier, and it's a legal qualifier. We don't know the statutory regime under which B.C. Gas utility made its application, so we don't know whether this was gratuitous disclosure or compulsory disclosure.

734
MR. JANIGAN: No, it was disclosed.

735
MR. FARRELL: We don't know whether it was gratuitous or compulsory. If it was compulsory, Mr. Janigan, B.C. Gas utility had no choice.

736
MR. JANIGAN: And I understand that ECG has over three times more customers than B.C. Gas, more or less.

737
MR. MCGILL: Well, based on the information in this report, we have about double the number of customers.

738
MR. JANIGAN: I wonder if I could ask you to turn up page 10 of Undertaking J.5.5.

739
MS. HOLDER: Yes.

740
MR. JANIGAN: And it indicates that a competitive market for CSP does not currently exist and competition is imminent. Has competition developed at this time?

741
MS. HOLDER: For these types of services, I don't believe so.

742

MR. JANIGAN: And was a status quo alternative developed?

743
MS. HOLDER: The -- I think the status quo alternative was the status quo at the time, which was to leave gas control and related functions within the utility.

744
MR. JANIGAN: Okay. So there was no other kind of plan that was developed to -- in the event that competition didn't go.

745
MS. HOLDER: No, we believed at the time that competition was going to start. We had reason to believe that. In the end, I'm not sure it did happen. We had been approached by a couple of other companies who had an interest in us.

746
MR. JANIGAN: Now, I wonder if I could ask you to turn up page 13 of Undertaking J.5.6 which is "Repositioning strategy for natural gas assets and activities."

747
MS. HOLDER: Yes.

748
MR. JANIGAN: And I believe this slide presentation sets out a direction to aggressively pursue market share and for ECG to exit the market under the merchant function.

749
MR. FARRELL: Where are you looking?

750
MS. HOLDER: Yes. Can you give me the reference again, please.

751
MR. JANIGAN: Page 13 and beyond, particularly at the bottom of the page, the overview of recommendation.

752
MS. HOLDER: You mean the bottom of page 14?

753
MR. JANIGAN: Did I say ECG or ESI?

754
MS. HOLDER: First of all, I'm trying to find this on page 13.

755
MR. JANIGAN: Page 14.

756
MS. HOLDER: So on the bottom of page 14, there's a slide that says "Overview of recommendations continued." Is that what you are referring to?

757
MR. JANIGAN: Yes, I think that's --

758
MS. HOLDER: It says "Enbridge should review the strategy with the following components"?

759
MR. JANIGAN: Yes.

760
MS. HOLDER: "ESI, which is our affiliate but unregulated affiliate at the time, which no longer exists, at least as our affiliate, they were, as I think this Board and all stakeholders were aware, actively pursuing customers in the commodity market." That's the first bullet. Is that your question?

761
MR. JANIGAN: Yes. And then the second part of it, you were -- ECG was going to exit the merchant function.

762
MS. HOLDER: I think it's -- go back to the date here.

763
MR. JANIGAN: Unless I'm misinterpreting the term "migration strategy"; am I misinterpreting that term?

764
MS. HOLDER: I am trying to recall. I believe that's fair. At that time, there was still consideration that we would exit the merchant function. That seemed to be a message that we were hearing from many of our stakeholders. Since that time, we have made a decision, at least at this point, we will not be exiting the merchant function.

765
MR. JANIGAN: Okay. And ESI was your gas marketer affiliate that you indicated was sold to Centrica.

766
MS. HOLDER: Yes.

767
MR. JANIGAN: Now, on the following page, you have a slide that seems to indicate that the OEB may be an obstacle to this migration strategy.

768
MS. HOLDER: Where would that reference be, sorry?

769
MR. JANIGAN: That would be on page 17.

770
MS. HOLDER: You're referring to the significant regulatory risks if the OEB had already rejected one proposal by the Ontario utilities to exit the merchant function?

771
MR. JANIGAN: Yes.

772
MS. HOLDER: Yes, that is a fact.


773
MR. JANIGAN: And at the bottom of the page, despite the obstacles, the recommendation is that ESP should proceed regardless of timing and decisions on storage and commodity; am I correct?

774
MS. HOLDER: Yes, because we believed at the time that the ESP is independent of the ESI commodity strategy, and is also independent of our storage strategy.

775
MR. JANIGAN: And you've indicated that this strategy regarding the merchant function and system gas customers has changed now that ESI has been sold at a profit.

776
MS. HOLDER: No, I believe it actually changed before that decision was made to sell ESI.

777
MR. JANIGAN: Do you know, how was this change announced and when did it occur?

778
MS. HOLDER: Sorry?

779
MR. JANIGAN: How -- well, presumably it did not happen as a single incident, there was likely a decision taken following a chain of events that they would -- the strategy was no longer applicable. And I want to ask you, when did that occur, if it did not occur at the time you sold ESI?

780
MS. HOLDER: It wasn't long after this date of January 16th. Let's see if I get my presentations right here. I believe the decision was made just after this presentation or soon thereafter.

781
MR. JANIGAN: And finally, I wonder if you could turn up the final page of this exhibit on page 30, which is the code matrix.

782
MS. HOLDER: Yes.

783
MR. JANIGAN: And in particular, I refer you to the top line with physical and financial separation. As I understand it, earlier in this proceeding in your response to a question from counsel from VECC, you indicated that it was the view of ECG that the EI was not an energy service provider, according to the definitions set out in section 1.2 of the Affiliate Relationship Code; do you recall that?

784
MS. HOLDER: Yes. I'm not sure I recall the context, but --

785
MR. JANIGAN: And at the top line here on page 30, the company indicates that as long as EI is not retailing gas in Ontario, according to your recommendation, you have good arguments to suggest it's not an ESP.

786
MS. HOLDER: It's not an energy service provider, yes.


787
MR. JANIGAN: Now, was any clarification ever sought from the Board on this point?

788
MS. HOLDER: From this Board?

789
MR. JANIGAN: Yes.

790
MS. HOLDER: No.

791
MR. JANIGAN: No. And was EI providing services to ESI from July 2001 to May 2002?

792
MS. HOLDER: The dates were July 2001 to --

793
MR. JANIGAN: May 2002.

794
MS. HOLDER: They may have been providing some, I'm not sure.

795
MR. JANIGAN: Now, if you look at the line 3, the transfer pricing, in the right-hand box, this appears to indicate that the fair market value could be less than avoided cost. Will the company bring forward evidence on market value in its next rate case?

796
MS. HOLDER: If it's appropriate to do so and we can find it.

797
MR. JANIGAN: Now, if you look at line 4, that's the preferential treatment of affiliates, the company indicates that the company recognizes that by EI and ESI having access to ECG assets it could be argued that this supports EI and ESI. Again, was ESI an energy marketer until May 2002, and is EI involved in gas transportation and storage sales and marketing today?

798
MS. HOLDER: Can I go back -- your first question was?

799
MR. JANIGAN: Was ESI an energy marketer until May 2002?

800
MS. HOLDER: Yes.

801
MR. JANIGAN: And is EI involved in gas transportation and storage sales and marketing today?

802
MS. HOLDER: I think the only service that we know, or business we know that they're into today is transportation. We know they are not in selling gas to end-use customers in Ontario, and I don't believe they're in storage.

803
MR. JANIGAN: Thank you, Madam Chair, and thank you, Panel. Those are all my questions for this panel.

804
MS. HALLADAY: Thank you, Mr. Janigan.

805
Now might be an appropriate time for an afternoon break. So we will reconvene at a quarter to four.

806
MR. FARRELL: Before we rise, Madam Chair, we were trying to respond to the other undertakings and I'm not sure if we can read the contracts and talk to Mr. Brennan in the space of 15 minutes. I think if we had a slightly longer break there, we might be able to come back with responses.

807
MS. HALLADAY: That's fine. I was just trying to get through this session today.

808
MR. FARRELL: We are too. We are hopeful.

809
MS. HALLADAY: Mr. Brett is not looking hopeful.

810
MR. FARRELL: Even finish today, if we can sit beyond the normal closing time. And let me just indicate that it's my understanding from Mr. Schuch that the Board is not available tomorrow.

811
MS. HALLADAY: That's correct.

812
MR. FARRELL: And it's my understanding from my witness panel that they are not available on Friday. If we don't finish today, then we're back on Monday.

813
MS. HALLADAY: All right. Perhaps I can talk to Board staff at the break and see --

814
MR. FARRELL: And we'll do what we can to try and provide responses to the outstanding undertakings and keep our fingers crossed and see where we get to today.

815
MR. FARRELL: 4:00, Madam Chair?

816
MS. HALLADAY: Yes, thank you.

817
MR. FARRELL: Thank you.

818
--- Recess taken at 3:30 p.m.
819

--- On resuming at 4:02 p.m.
820
MS. HALLADAY: Please be seated.

821
Mr. Farrell, were you successful on the break?

822
MR. FARRELL: Yes, in more ways than one. I've managed to persuade the witnesses that if need be, they will make themselves available on Friday. But if the Board has made plans such that it would be Monday, then we're in your hands because that's what I left you with. So it's your call, Madam Chair.

823
MS. HALLADAY: Why don't we just proceed on this afternoon and we'll see.

824
MR. FARRELL: We'll see where we're at at the end of the day. I noticed a grimace which is why I -- now, we do have some responses to undertakings, both were to Mr. Janigan.

825
So, Mr. Brennan, were you able to get a response to Undertaking J.9.1 which had to do with the allocation of upstream transportation costs including Alliance-Vector?

826
RESPONSE TO UNDERTAKING NO. J.9.1: ORAL

827
MR. BRENNAN: Yes, I do. I was talking to Ms. Duguay over the break, I had an e-mail from Ms. Duguay and what they indicated was that for fiscal 2002, all long-haul upstream transportation costs, including Vector and Alliance, shall be classified and allocated based on the 60/40 ratio annual methodology. All upstream transportation costs are recovered through the gas supply load-balancing charge. Ontario bundled T customers in turn receive a transportation service credit under the -- included under rider A which is -- went to the TCPL demand charge and commodity tolls at 100 percent load factor, given that they are taking a temporary assignment of the TCPL capacity.

828
MR. FARRELL: If I just might complete that, Madam Chair. Paragraph number 7 of Exhibit A, tab 14, schedule 9, indicates that the gas supply load-balancing charge for small-volume customers is included in the delivery charge, so it would be a separate line item on the bill. And for large-volume customers, there is, as this evidence says, a separately identified load-balancing charge.

829
Then J -- Undertaking J.9.2 was basically a question Mr. Janigan had about what he called the depreciation kicker, and it's a question of so -- if your colleagues don't mind, Madam Chair, I will provide the answer to that.

830
MS. HALLADAY: That's fine.

831
RESPONSE TO UNDERTAKING NO. J.9.2: ORAL

832

MR. FARRELL: In Exhibit I.2.26, which is the response to CAC interrogatory number 26, we filed the precedent agreement between ECG and the Alliance Canadian partnership and ECG and the Alliance U.S. partnership. And schedule D to the Canadian agreement is entitled "Toll Principles" and it speaks of "Depreciation of transportation plant use for the purposes of driving tolls will be calculated annually in accordance with table 1."

833
Table 1 sets out the depreciation rates for the Canadian section of the pipeline and there is no depreciation kicker on the Canadian side.

834
In the U.S. agreement, however, schedule C to the precedent agreement is entitled "Rate Principles." I should have given you a reference for the Canadian one. It's paragraph numbered 5 in schedule D, "Toll Principles." Paragraph numbered 5 in schedule C is entitled "Rate Principles", this is the U.S. precedent agreement now. And it, again, or similarly, rather, sets out the depreciation rates in table 1.

835
When you compare table 1 in each precedent agreement, you'll see that the depreciation rates on the U.S. side are low in the early years. That's called back-end loading where the level -- it's effectively a toll-leveling device, where you have less than the norm for depreciation rates in the earlier years. So the rate principles go on to say: "If, at any point, a shipper elects not to exercise its rolling right to extend the primary term of its transportation agreement, then during the final five years of that transportation agreement, the shipper's rates will be adjusted so that the average depreciation rate for the term of the shipper's transportation agreement is 4 percent."

836
Four percent would be equivalent to a 25-year life of a contract. So I then checked the transportation service agreements that were not filed in this year's case but rather were cross-referenced in the response to CAC number 27, they were filed last year as a response to CEED interrogatory number 1, and the -- so I won't deal with the Canadian contract -- well, actually, I will.

837
In article 6, it sets the primary term at 15 years and the shipper "has the right to extend the term beyond the 15 years for further periods of a minimum of one year each, by providing written notice to that effect not less than five years prior to the expiration of the primary term, or any extended terms, as the case may be."

838
So -- and the transporter can waive the five-year requirement. So in year 10, if ECG wanted to renew the contract for one year, it would have to notify Alliance in year 10 that it wanted to add to 16, in year 11 if it wanted to add a year 17, and so on. But that doesn't affect the calculation of the depreciation.

839
In the U.S. contract, there are similar renewal features in section 2 and it calls -- again, it's 15 years, minimum of one year, five years prior. So the mechanics work the same way, so that when you look at the same provision that's attached as appendix B to the transportation service agreement, you have the same provisions such that if ECG were to renew the contract in year 10 for, let's say, one year but didn't renew it in year 11 for a 17th year, then the depreciation rates would be recalculated in order that the average transportation rate over, in my example, the 16-year term would have to equal 4 percent, and that was the kicker.

840

MS. HALLADAY: Thank you, Mr. Farrell.

841
MR. FARRELL: I think we're still -- Mr. McGill is still waiting for the material to respond to Undertaking J.8.2; is that correct, Mr. McGill.

842
MR. MCGILL: Yes, that's correct. I've got someone working on that right now.

843
MR. FARRELL: So that leaves, at the moment, Undertaking J.3.10 which was the cost consequences of the four decision points or the four individual contractual decisions. And, Mr. Brennan, can you just explain where you're at at this point?

844
RESPONSE TO UNDERTAKING NO. J.3.10: ORAL

845
MR. BRENNAN: Yes, I can probably explain the difficulty we're having in trying to respond to this undertaking.

846
As I understand the undertaking, what Board staff are looking for, if the Board were to decide to not approve one of the four contracts, those being the first 50 million on Alliance, the second 25 on Alliance, and the two Vector contracts, what would the cost consequences be. And the difficulty that I see in doing that -- for example, let's say, I'll pick the easy one first, let's say the Board were to deny the second tranche of Vector. In that case, the cost of that contract on Vector, the transportation cost on Vector 2, is in the neighborhood of some $11-odd-million. But then the question would be, if the Board were to deny that, we still would have had to have contracted on some other pipeline to meet our demand.

847
And in interrogatory number -- or Exhibit I, tab 11, schedule 30, which is a VECC interrogatory, there we look at what the alternative was to Vector 2, and that was to contract on TransCanada. In that interrogatory, it shows that it was less expensive to go to contract on Vector 2 than it was to go the TransCanada route. So I'm not sure, if the Board was to disallow that, how they would handle it in terms of the cost consequences because it would end up being more expensive if we had continued to contract on TransCanada. That's one aspect.

848
The other aspects, another example would be if the Board were to deny, say, the first 50 million on Alliance, that amount represents, I believe, going from memory here, to around 27, $28 million in transportation costs. But in addition to that, it would make part of the first tranche of Vector essentially useless as well, because you wouldn't have any need for that 50 million of Vector capacity as well.

849
So if I was just to take a look at those costs, again, I don't think that those are the appropriate dollars because then again the same argument would be: We would have had a contract for something else, whether it be TransCanada or whatever, so what is the appropriate amount in terms of the gas -- the cost consequences.

850

And that's just if I'm looking at the transportation side of it. Then I have to factor in -- because the total costs, you have to look at what the delivered costs were, because the gas into Alliance is less expensive than gas into the TransCanada system.

851
So I'm not sure what my benchmark is as to what I should be comparing the Alliance disallowance, if you like, or not contracting the 50 million on Alliance, what I would be comparing that to in order to come up with what would be the appropriate difference or cost consequence. So that's as far as I am right now.

852
MS. HALLADAY: Mr. Moran, can you give some assistance?

853
MR. MORAN: Madam Chair, Mr. Schuch has had a chance to talk to Mr. Brennan on the break and I think we'll follow up afterwards, when we break for today, and see where we are.

854
MS. HALLADAY: That's probably a good idea. Thank you.

855
MR. MORAN: On the timing issue, if Friday -- it appears to be available to the witnesses, they smile when I say that, Mr. Vegh and Mr. Thompson are both available and Mr. Brett, I guess, on Friday as well. I think that relieves pressure on sitting later today, as I understand it.

856
MS. HALLADAY: Mr. Vegh, you are shaking your head.

857
MR. VEGH: Let's keep the pressure on.

858
MS. HALLADAY: Just one moment, please.

859
[The Board confers]

860
MS. HALLADAY: I apologize. Mr. Brett, I understand you are the next person to cross-examine.

861
MR. BRETT: Well, I would have been, but Mr. Vegh has asked me if he could precede me because he has some plans later in the week, I gather.

862
MS. HALLADAY: Now, I understand that that's on the assumption because Mr. Vegh couldn't come in on Monday. Can you come in on Friday, Mr. Vegh?

863
MR. VEGH: Well, I think Mr. Brett and I have swapped times anyway, but I could come in Friday morning, though I expect if I could get started I would finish by the end of the day.

864
MS. HALLADAY: I'm now getting totally confused because I thought you were going to go after Mr. Thompson.


865
MR. VEGH: No, I'm next.

866
MR. FARRELL: I think the sequence was intended to be Mr. Vegh, Mr. Thompson and Mr. Brett, sort of a reverse of the batting order, on the assumption that depending how long we sat today, Mr. Vegh may be finished and Mr. Thompson may be finished, and since Mr. Thompson is from Toronto he would be able to come back more easily, say, than Mr. Thompson on Friday.

867
MS. HALLADAY: So we're going to try to get Mr. Vegh and Mr. Thompson finished today.

868
MR. THOMPSON: That was the objective, on the assumption that you were coming back on Monday, not Friday. I can come back Friday. So getting Mr. Vegh through today would, I think, give everybody a much-needed relief.

869
MS. HALLADAY: I think now we have a plan. All right.

870
MR. FARRELL: Closest to the wall.

871
Mr. Vegh, you're going to be -- how long do you think you will be?

872
MR. VEGH: Probably about 45 minutes.

873
MS. HALLADAY: So we can put the pressure on. The clock is ticking.

874
Mr. Vegh.

875
MR. VEGH: Thank you very much.

876
CROSS-EXAMINATION BY MR. VEGH:

877
MR. VEGH: Panel, I have some questions both on the information flow material, Mr. Brennan, you provided last week, as well as the information behind Undertaking J.5.6.

878
So, Mr. Brennan, if we could first talk about the information flow material and I have questions just on clarification so that -- I did read your presentation on the record. I just want to make sure I understand this as well.

879

First I'd like to start with a question on document -- I think what you called the SMS report which is 4.2 and you provided this document in your evidence in chief and I mentioned after your evidence in chief that I may come back with some more questions, and again, these are questions just for clarification. Do you have that document, 4.2, the SMS report?

880
MR. FARRELL: This is K?

881
MR. VEGH: It's the one you provided in chief behind your information flow diagram.

882
MR. BRENNAN: Yes, I have that.

883
MR. VEGH: Okay. And just to understand this document, it -- this is -- these are a few pages of what would otherwise be, I take it, a very wide document. That is, the line along -- the horizontal lines cover all of the information in the columns that are -- that go on for several pages?

884
MR. BRENNAN: Yes. What I provided here, you can see that there's three rows, for example.

885
MR. VEGH: Yes.

886
MR. BRENNAN: And the columns extend from -- for the three or four pages, whatever there are, across the top. So that if I was to take these pages out and put them side by side then you would have three rows and a whole bunch of columns.

887
MR. VEGH: Okay. And the rows, then, these are -- I think you mentioned these are by DPA agreements.

888
MR. BRENNAN: Yes, that's correct.

889
MR. VEGH: So that could be either by marketer or by a large-volume customer?

890
MR. BRENNAN: Yes, that's correct.

891
MR. VEGH: So it's specific when it comes to -- let me put it this way: Where the PDA holder is a marketer, then this -- the rows are not aggregated -- it's not an aggregated collection for all the DPAs for that marketer -- it's marketed by marketer, customer-specific.

892
MR. BRENNAN: Right. Maybe just to explain a little bit, these are typically just DPAs that have changed throughout the course of the month. It's not all -- we don't list all the DPAs, but just those DPAs that have changed in a particular month.

893
MR. VEGH: Right.

894

MR. BRENNAN: And what I've shown here, why there are only three rows here, I think the file is a fairly large file, an Excel spreadsheet, that would have the account exec's name at each tab. So I just printed out one tab of one of the account execs.

895
MR. VEGH: If we look at DPA 1, 2, 3, 4, which is the first one you've indicated, under the name we could have a marketer or a large-volume customer.

896
MR. BRENNAN: That's correct.

897
MR. VEGH: And then the information that's provided in the columns all relate to that particular DPA.

898
MR. BRENNAN: That's correct.

899
MR. VEGH: So when we go through the information that's respecting that DPA, we have the start date, the end date, that's for the underlying DPA that's on page 2?

900
MR. BRENNAN: Yes, that's correct.

901
MR. VEGH: And if you turn four pages in, there's an entry for nomination company name and I believe it's whited out here; who would that refer to?

902
MR. BRENNAN: The nomination company name?

903
MR. VEGH: Yes.

904
MR. BRENNAN: It would be, say, the supplier.

905
MR. VEGH: The supplier to the marketer or the large-volume customer?

906
MR. BRENNAN: Correct.

907
MR. VEGH: Okay. And going -- so we have that page, the next page, two pages following, there's an entry -- a column entitled: "BGA Report Company name." Could you explain what would be in that information -- I'm sorry, in that column.

908
MR. BRENNAN: I should have brought a copy that didn't have the stuff whited out. I believe that is there just to check the -- whether or not if there is a makeup or a suspension that someone within the company, within the transportation contracting group, had checked to make sure that they were in a suspension situation or a makeup situation. So it would be someone's initials.

909

MR. VEGH: It would be someone's initials within EI or ECG?

910
MR. BRENNAN: ECG and EI.

911
MR. VEGH: And then going over to the next page, "BGA Report Contact Name," what's that?

912
MR. BRENNAN: I'm sorry, I thought that's --

913
MR. FARRELL: It was previously on the previous page where it said --

914
MR. VEGH: Company name.

915
MR. BRENNAN: Yes, I'm sorry. I got -- the BGA report contact name is the one that has the initials of who is checking it. And "BGA Report Company Name," I suspect that would be ECG.

916
MR. VEGH: Could you just maybe confirm that for me.

917
MR. BRENNAN: Because in this particular case, I don't think there was anything in this particular table that had anything in there.

918
MR. VEGH: Okay. So over to the next page under the heading "Total," there's a measurement for cubic metre in gJ, I take it that that's the volume of gas under the DPA?

919
MR. BRENNAN: Yes.

920
MR. VEGH: That's the total volume?

921
MR. BRENNAN: Yes, that's the total volume. That's the -- in fact, if you look, it is the MDV. If you go back to the second page, you'll see MDV, eastern delivery area, and it's 10,855. And if you flip back to the page you just had there, it's the same number, 10,85, but converted to gJ.

922
MR. VEGH: Thank you.

923
Now, this report, is this report downloaded from an electronic data base, or how is this report compiled?

924
MR. BRENNAN: It's an Excel spreadsheet that's held within ECG.

925

MR. VEGH: And the spreadsheet -- is the spreadsheet itself transferred to EI as part of this process or is it -- or is the data underlying the spreadsheet transferred? I'm just trying to understand how the information access works.

926
MR. BRENNAN: My understanding is it's e-mailed to --

927
MR. VEGH: So this would be an e-mail of this document.

928
MR. BRENNAN: That's my understanding, yes.

929
MR. VEGH: Okay. Thank you.

930
Now, turn to the documents you provided then in response to the -- to the undertakings.

931
MR. FARRELL: I don't know whether Mr. Vegh mentioned the exhibit number for what we've been discussing, but it was originally marked as F.4.2 and then changed to K.4.2.

932
MR. VEGH: K.4.2. Thank you.

933
In terms of the documents you provided by way of answer to undertaking, I'd like to ask you some questions about two sets, in particular the documents entitled "Makeup Volumes" and the documents entitled "Suspension Summaries."

934
MR. BRENNAN: Yes, that's J.4.5?

935
MR. VEGH: I think that's right. So first look -- that's right. The first one is makeup volumes, J.4.5, and you did provide a description of this for the record, but I'm not sure I follow it. Could you just explain under the column in the top left-hand corner, there's a reference to shipper and to company and then the shipper there is A. Sharp and the company, I take it that's whited out of this document.

936
MR. BRENNAN: Yes, that's correct.

937
MR. VEGH: So the company is --

938
MR. BRENNAN: Again, it could be the marketer or the end-use customer, because you see the DPA number beside it as well.

939
MR. VEGH: Okay. So that's the -- basically the -- it's the DPA contract holder is the customer.

940
MR. BRENNAN: Yes.

941
MR. VEGH: Or the company.

942
MR. BRENNAN: It's the customer.

943
MR. VEGH: Right. And again, for a marketer, that would be on a marketer-by-marketer basis as a contract holder.

944
MR. BRENNAN: Right. It would be on a customer-by-customer basis if you like, whoever is requesting the makeup.

945
MR. VEGH: Okay. Can I ask you, why did you delete the company names in preparing this material?

946
MR. BRENNAN: Well, I didn't -- I wanted to -- I haven't gone back to the customers to see if they are comfortable with providing this information on the public record.

947
MR. VEGH: Okay. But when you provide this information to EI, they will have the customer name -- they will have this document with the customer name on it.

948
MR. BRENNAN: Yes. They need this information in order to -- for example, not necessarily for the makeup one, but they have to understand how the gas is coming into the system for planning purposes. In some cases, if it's a suspension, it could mean that an assignment is required of TransCanada capacity.

949
MR. VEGH: Okay. So that's your rationale for excluding it here and including it for EI.

950
Can you turn to the next page, the suspension summary document.

951
MR. BRENNAN: I'm sorry.

952
MR. VEGH: The suspension summary printout.

953
MR. BRENNAN: Yes, I have that.

954
MR. VEGH: I take it that the discussions we've had with respect to the other documents in terms of the identification of specific customers which may be marketers or large end-users applies here as well so the customer name would be either a marketer or a large end-user.

955
MR. BRENNAN: Yes, that's correct.

956

MR. VEGH: And you deleted references to the customer and the capacity assigned to -- the entries there for the same reasons you've just described?

957
MR. BRENNAN: Yes, that's right. Typically under a suspension, for example, if it is a western T-service customer, then what we would do, we would assign them some of our capacity on TransCanada to move their volumes to the market and then they are responsible for moving the gas away from the market, if you like, away from the market franchise. So again, we had eliminated who we were assigning the capacity to.

958
MR. VEGH: All right. But again, EI would have this information.

959
MR. BRENNAN: Yes, that's right, because they have -- they control or make sure that the FT assignments with TransCanada are in place and that we -- all that paperwork is in place so that we know exactly how much transportation is being utilized. What we don't want is, of course, not utilizing all our transportation for whatever reason.

960
MR. VEGH: Now I'd like to ask you a question on J.4.4. And J.4.4 references two sets of reports. I understand from your transcript evidence that you have not provided copies of these reports. Could you clarify that for me, please. As I understand it, the recipient for these reports is supposed to be gas acquisition?

961
MR. BRENNAN: In fact, that's us. It was at one point in time, in particular the spot gas supply. A lot of that is done now by EI. In fact, these reports, the reports that are in here, I guess, in terms of spot supplies, that is actually being done by EI itself so they would send that information to EOS as well as us. So it's not information going to EI, it's coming from EI.

962
MR. VEGH: I see. So EI has these reports, but they create these reports.

963
MR. BRENNAN: That's correct.

964
MR. VEGH: All right. And the reports contain the same information -- the reports created by EI contain the same information that is described here, the daily and year-to-date nominated volumes?

965
MR. BRENNAN: Yes, it's primarily the spot supply, if we're buying monthly gas such that EOS has that information when they're trying to look at -- do the daily demand-supply balance in each day.

966
MR. VEGH: When there's a reference to percentages by contract and interconnect, what contracts are being referred to?

967
MR. BRENNAN: I'm sorry, what was your question again?

968
MR. VEGH: The reference in the description to percentages by contract and interconnect.

969
MR. BRENNAN: What supply contract it's coming from and whereabouts the gas is being received, whether it's coming into TransCanada, whether it's coming into Vector, let's say for example. That would be the interconnect. These are our contracts.

970
MR. VEGH: That's what I was just going to ask you. Are these ECG gas contracts?

971
MR. BRENNAN: Oh, absolutely.

972
MR. VEGH: Not direct purchase contracts?

973
MR. BRENNAN: These are our contracts.

974
MR. VEGH: And then the other documents that I haven't seen, or if they're here I missed them, you've provided the -- going down the list, then, under J.4, you've provided confirm suspensions, confirmed makeup deliveries, Gaz Affaire we don't need. The next two rows, "Confirm deliveries for T-service DPAs in cubic metres," you haven't produced those, have you?

975
MR. BRENNAN: No. Originally that function was thought to be less, but, in fact, those reports are -- continue to be generated and used within the utility.

976
MR. VEGH: Does EI not get those reports, then, as part of its transportation contract?

977
MR. BRENNAN: I'm sorry? The T-service deliveries, is that the one you are referring to?

978
MR. VEGH: That's right.

979
MR. BRENNAN: That's right, they don't.

980
MR. VEGH: Do they get that information in another form?

981
MR. BRENNAN: No, this is just primarily for billing for ABCs, as I understand.

982
MR. VEGH: And the last row, then, "Any failure to deliver gas by direct purchase customer," is that information provided to EI?

983
MR. BRENNAN: No, I believe that information really comes from -- used to be coming from EOS because they're the ones that are doing the -- they would know, first of all, whether or not there is supply that wasn't being delivered, and that information would come back to ECG. So we would contact the customer and find out what was going on.

984
MR. VEGH: That information would not go to EI?

985
MR. BRENNAN: That's my understanding, yes.

986
MR. VEGH: Okay. Could you just confirm that again.

987
MR. BRENNAN: Yes, I could.

988
MR. VEGH: Okay. Thank you.

989
MR. BRENNAN: I can do that, but I can tell you that failure to deliver is usually a very rare occurrence. So that's one of the reasons there is no documentation on it, I guess, because it doesn't happen that often.

990
MS. HOLDER: I suspect there hasn't been a failure to deliver since gas supply moved to Calgary, so I'm not sure you will find anything.

991
MR. VEGH: You must have some plan in place if someone fails to deliver, and my only question is would EI be in the loop on that happening?

992
MR. BRENNAN: I suspect that they probably would. There wouldn't necessarily be a report, but they would be notified, because if there is a supplier failure, then we would have to step in and buy gas or uptake one of our supply contracts.

993
MR. VEGH: So what if -- assume that if there was a failure to deliver EI would be informed -- would be provided with the particulars of that so we could step in and purchase the gas.

994
MR. BRENNAN: That's correct.

995
MR. VEGH: One other question on these interrogatories.

996
Mr. McGill, this question on materials that you provided, and this is actually just following up on a question from Panel Member Betts when he asked you -- when he was asking this panel some questions. He asked that -- you were talking about the agreement with Enbridge Services Inc. and you said that -- the reference here is at volume 6 of the transcript, line 1117, you said, "One of the things that you've built into the Customer Works agreement, and it will be in the package of materials that I will file with respect to the undertakings, is a thing we call the confidential data access protocol."

997
Is that part of the materials that you filed?

998

MR. MCGILL: I'll have to check to see whether we got that or not. If it's not, I can have that added.

999
MR. VEGH: If you could just let me know where I -- if it is here, just let me know where I could find it. That's volume 6, line 1117. Okay. Thank you. Thank you for that.

1000
I'd like to ask some questions now around the documents under Undertaking J.5.6. The first document I'd like to refer to is the November 7, 2000 PowerPoint entitled: "Gas Supply and Storage Unbundling."

1001
MS. HOLDER: Yes.

1002
MR. VEGH: Ms. Holder, at the bottom of the first line, behind the cover page, there's a quotation which says: "To be better positioned for further growth and opportunities." Can you tell me what is that quotation from, is this have a vision statement or a mission statement or something of that sort? It looks like you are borrowing a phrase from somewhere; do you remember?

1003
MS. HOLDER: No, I don't. If it came from anywhere, it would definitely be a concept that we had had in our strat plan; I may have just put quotes around it because it was referencing something that our strategic plan would address.

1004
MR. VEGH: Do you remember whose positioning that you were talking about here? Like, who is it that would be in a better position for growth and opportunities? Is it Enbridge Consumers Gas, is it EI the parent, is it a particular affiliate, is it the EI family or the Enbridge families?

1005
MS. HOLDER: This would be both Enbridge Consumers Gas and the Enbridge family.

1006
MR. VEGH: So this would be both.

1007
MS. HOLDER: Yes.

1008
MR. VEGH: At page 3 of the response, the slide entitled "Return to Shareholder Today," this is where it talks about the contributions of earnings from various assets from storage, from transportation, from transactional services. I take it that the point of this slide is to demonstrate that these contributions are insufficient.

1009
MS. HOLDER: No, I think the point of this slide was just to put everything in perspective of what it is that the ECG brings to the table. So we earn $5.25 million on our storage for rate base, we have $10 million of transactional services, so -- this was just merely fact of what -- so everybody who was present at the time, which is in the next exhibit of this undertaking, could understand what it is that ECG does.

1010
MR. VEGH: Aren't you demonstrating the point here that right now, the return is suboptimal and what we should be doing is coming up with a strategy to make that return more optimal?

1011
MS. HOLDER: No. I think this is exactly the same as the slide above which is just giving the facts that exist today.

1012
MR. VEGH: Can you turn, please, to page 5, the slide on top that talks about issues and I take it that these are issues that you want to address in light of the objective of this presentation, which is to better position both EI and ECG for future growth and opportunities. Well, first of all, what -- back up a bit. What was the purpose of this presentation?

1013
MS. HOLDER: The purpose of this presentation was to update Enbridge Distribution and Services Group on a strategy or concept that we were pursuing with regards to gas storage and supply unbundling. So this was sort of the initial introduction of some thoughts that we were going through.

1014
MR. VEGH: The introduction of some thoughts, but it seems like a more purposive activity you are talking about repositioning the assets I take it that you are repositioning these activities to make these activities more valuable to the company.

1015
MS. HOLDER: That, and some of the other evidence I've given around providing better service to the ratepayers.

1016
MR. VEGH: Right, of course. And at page 5 when you talk about the issues, and you have this -- the bottom entry there, "unbundling of rates puts storage in the hands of marketers," I take it your concern there was that with unbundling of rates, storage may not be made available to the utility or to its ratepayer or to its shareholder to optimize value and that there were other persons who would be permitted to optimize the storage for the benefit of their customers; is that fair?

1017
MS. HOLDER: No, actually I think this is something that we have -- an issue that we have raised before the Board in the past. When we talk about putting storage in the hands of the marketers, it's not actually so much the asset but the value of that storage. And with burner tip sales, marketers can now sell to customers at a price set within the market. And at this time when we were thinking about exiting the merchant function, we would not be a benchmark in that market as far as price goes. So marketers would set their price relative to gas-on-gas competition relative to electricity and relative to oil, and they would then contract for appropriate storage, appropriate transportation, and gas to get the commodity to the end-use customer and also contract for distribution services, obviously, from the utility.

1018
A concern that we've always had is that our storage price is actually a cost-based rate and I'll throw out a number of around 45 cents NCF. If you're selling gas at a burner tip, you can buy that storage at our cost-base rate which is regulated by this Board at the 45 cents. But you could embed it in the end-use price or the price to the end-use customer at market, which at this point in time was running around 80 cents. So the difference between the 45 cents and the 80 cents would be going to the marketer and not to the ratepayer. So when we were talking about unbundling rates, putting storage in the hands of the marketers our concern is we're taking that asset right away from the -- our ratepayers or our customers. It wasn't taking it away from the utility, it was not taking it away from the utility. It's taking away the value for the ratepayers.


1019
MR. VEGH: So your concern, then, that you are expressing here of unbundling of rates, is that the storage assets would not be optimized for the benefit of customers any longer.

1020
MS. HOLDER: That's fair, yes.

1021
MR. VEGH: And that's because it would be optimized by marketers.

1022
MS. HOLDER: To the benefit of the marketers, not to the benefit of the ratepayers.

1023
MR. VEGH: And there's no concern at all expressed in this meeting that if this happens, then there's a risk that EI would not be able to optimize on those assets.

1024
MS. HOLDER: EI is optimizing on ECG's assets on behalf of ECG, so they're not optimizing their assets, or they are but we're -- storage happens to be the utility assets.

1025
MR. VEGH: There's no concern here that EI is being left out of this, that EI is watching this profitable opportunity go by?

1026
MS. HOLDER: No.

1027
MR. VEGH: When you have a -- can you go, please, to page 6. And you talk about intuitive model or ESI activities, EGS activities, which is, I guess, Enbridge Gas Supply or something.

1028
MS. HOLDER: Gas services.

1029
MR. VEGH: Gas services, and you say, your intuitive model would have Enbridge Gas Services take on commercial responsibility for all non-distribution natural gas assets including storage. I take it that what you're referring to there is that the intuitive model would have EI, or whoever this gas -- EGS entity optimizing the value of storage; isn't that what taking commercial responsibility means?

1030
MS. HOLDER: Yes, but their own storage, which could be in Alberta. They have no storage, as far as I know, at this point in time, but this is not referring to necessarily -- it's not referring to ECG storage, this is referring to storage that they may acquire at some point in time such as a market storage. It could be storage in Houston, it could be storage in Alberta, Michigan, as far as I know, it may be tough for them to get storage in Ontario.

1031
MR. VEGH: Okay. So they will be optimizing -- or the model here is that EI will be optimizing storage assets, but not necessarily ECG's -- or not ECG's storage assets.

1032

MS. HOLDER: That's what this comment is referring to. So that's when it says: "Responsible for all non-distribution natural gas assets." So these are all the assets that are not the utility assets.

1033
MR. VEGH: Then the other thing that EGS or EI would do is develop wholesale products and services for sales to third parties. Those are the types of products and services that you and I have talked about and that are addressed in section 5(a) of the EI agreement.

1034
MS. HOLDER: And potentially others, yes. Not -- we have been sort of limiting our conversation to what happens in the Canadian part of the market or at least the northern part of North America. There could be other products and services out of the Houston office.

1035
MR. VEGH: And Ontario?

1036
MS. HOLDER: Yes, right.

1037
MR. VEGH: And this positioning strategy that you're going through at that time was positioning -- was to assist in positioning EI to take on that role, and we'll just call them EI, not EGS.

1038
MS. HOLDER: Okay. Yes, we were helping positioning EI to better manage our own assets as well as better manage their own assets, recognizing that they did have transportation on both Alliance and Vector at this point in time.

1039
MR. VEGH: The next bullet point is: "Optimize all assets and portfolios," that's both EI assets and ECG assets?

1040
MS. HOLDER: So it's all EI affiliates, is a better way of putting it. So the assets that belong to EI, Enbridge Gas New Brunswick, St. Lawrence Gas, Gaz Affaire, the Houston office.

1041
MR. VEGH: The next event we have that I'd like to ask some questions about is the workshop, and the documents there start at page 11. Under the agenda, as I understand it, everyone was given 10 minutes. So you were given 10 minutes to make a presentation on the gas storage and supply unbundling strategy?

1042
MS. HOLDER: Yes, and that is the presentation that we just went through.

1043
MR. VEGH: Okay. Right. So that's what I wanted to confirm, that was the PowerPoint that we just went through, you provided -- you provided that in your 10-minute allotment.

1044
MS. HOLDER: I speak fast.

1045
MR. VEGH: I'm trying to do the same thing.


1046
MS. HOLDER: I will explain the differences in date. I believe the workshop was supposed to be on the 7th and it was deferred. So the workshop ended up on the 20th, but I had done my presentation and prepared for the 20th.

1047
MR. VEGH: Okay. And so at that presentation, you went through -- you went through the issues as you've described them. And if I have your characterization correct from the discussion we've just had in your presentation, you said that you just provided a neutral explanation of the assets that ECG has, the fact that they're not really providing much of a return to shareholder at all -- to the shareholders at all. There is a risk that the marketers may be able to optimize these assets but no suggestion that EI should be taking a role to optimize these assets for its benefit.

1048
MS. HOLDER: Sorry, I struggle with the one comment you made that this presentation says that we aren't making enough money or -- I'm not sure that this presentation says that anywhere. But -- so what was your final question then?

1049
MR. VEGH: Why don't we go to the next document which starts at page 13. This is your repositioning strategy, and your first slide entitled "current trends," the third bullet point talks about "pressure to raise the bar for transactional services, TS is less and less profitable as bar gets raised," what is that referring to, the pressure to raise the bar?

1050
MS. HOLDER: In my first draft, I think you referred to your presentation, or your repositioning strategy, this was not mine.

1051
MR. VEGH: I meant the corporate you. Who was the corporation feeling pressure from to raise the bar?

1052
MS. HOLDER: I think as I indicated, I did provide some input into this presentation and we were referring to the fact that the target for transactional services seems to get higher and higher every year, and the concerned that if we don't hit that target as that bar gets raised, it actually will be at the shareholder expense.

1053
MR. VEGH: Okay. So you -- in the next slide where there is a reference to the split again, and it looks like, from how this is presented, that the upside goes to the ratepayer, the downside goes to the shareholder, is it fair to say that that was a concern of Enbridge at the time?

1054
MS. HOLDER: Yes.

1055
MR. VEGH: And is it fair to say that this strategy you're developing was meant to address that concern?

1056
MS. HOLDER: I think the strategy was at least to take all relevant facts into consideration, and this would be a relevant fact.

1057

MR. VEGH: But wasn't this a problem that you are trying to fix?

1058
MS. HOLDER: However, the ESP as this was called or EI doing our gas supply does not change this at all, so the strategy did not fix this.

1059
MR. VEGH: Wasn't the strategy aimed at fixing this?

1060
MS. HOLDER: No, I think it was a consideration but we can't -- the -- changing this issue has to be done before this regulator, and I think we have mentioned to at least the stakeholders that we plan to address the way in which transactional services will go forward starting in 2003.

1061
MR. VEGH: But as I read this, all of these issues are being discussed at the same time. You're developing one strategy to deal with a few issues and it appears that this strategy may be phased. But isn't it fair to say that the transactional services slide demonstrates that there is a problem, or a mismatch, and part of what Enbridge is trying to do is to fix that problem?

1062
MS. HOLDER: Yes, I think -- that's why I said it is a concern and I think we have mentioned to all stakeholders that we will be back to all stakeholders, I think it's our fiscal year 2003 case, to develop a strategy for transactional services on a go-forward basis.

1063
MR. VEGH: Well, I look forward to that. But what's being discussed in this presentation is not coming to the stakeholders in 2003, it's preparing a strategy to address an immediate problem, right?

1064
MS. HOLDER: But --

1065
MR. FARRELL: I think she's answered that question twice now.

1066
MR. VEGH: Well, I asked the question, then I am told about what case you are going to bring in 2003. That's not what was being discussed at this presentation, was it?

1067
MS. HOLDER: At this presentation, we addressed all issues and relevant facts to gas-supply matters, and transactional services is a gas-supply matter. And the fact that we were moving gas supply to Calgary, it's relevant to be talking about all aspects of gas supply including transactional services. We raised here a concern which I've agreed to is a concern of ours, that the shareholder has all the downside risk and the ratepayers has all the upside risk. And that's an issue we would like to address.

1068
What I'm saying is our strategy to date has not addressed that; we will address that at a later date.

1069

MR. VEGH: Go ahead to page 15 at the top slide entitled "benefits." You say under the heading "capture" on the top slide, Capture Market Premiums for Shareholder, "with ESP, energy service provider, expect revenue to increase" and then you've taken out the number, but doesn't that suggest that ESP is a solution to this problem because ESP is expected to increase transactional revenues for the benefit of the shareholder.

1070
MS. HOLDER: The ESP expects transactional revenues to increase. The transactional revenues belong to Enbridge Consumers Gas. If we're referring to optimization of the assets of Enbridge Consumers Gas so that would be a benefit to the shareholder and the ratepayer. We believe that there's a better opportunity by having the function in Calgary manage these transactions such that, hopefully, we don't have to take any of the downside risk and that we can actually meet our targets. But this is not -- and obviously if we pass our targets, some of that benefit will go to the shareholder, the majority goes to the ratepayer.

1071
MR. VEGH: When you talk about capturing market premiums on storage for shareholders, aren't you talking about a method to fix the problem that right now the market premiums go to ratepayers?

1072
MS. HOLDER: Not all the market premiums go to the ratepayers as long as we hit our targets, so there is a sharing. Those ratepayers and shareholders as we have always -- as we have done for the last many years through the methodology that's been approved by this Board, that methodology still exists. And so if we can increase the amount of transactional services through the ESP, the ratepayer will get 75 percent of that and the shareholder will get 25 percent. So yes, some of the market premiums will be captured by the shareholder; the majority will be captured by the ratepayer under our current methodology.

1073
MR. VEGH: Okay. Well, you appreciate when it comes -- you didn't prepare this document, though; right?

1074
MS. HOLDER: No, I did not. I had some input into it.

1075
MR. VEGH: And you appreciate, when it comes to argument, other parties may draw different inference from what's in the documents than seems to be coming out today.

1076
MS. HOLDER: Sorry, can I just make a comment on that, though. I think I did make -- I did mention that I actually was present at the presentation and the discussion to the CLT around this document, so I am speaking from my knowledge.

1077
MR. VEGH: And this document speaks -- this document, in some way, speaks for itself and there's an issue of just how credible some of these descriptions are.

1078
On page 14, at the top slide, there is a reference to "on the horizon," and the second bullet point in particular talks about: "Rates and service unbundling could lead to the allocation of 40 to 70 percent of upstream transportation of storage to marketers, storage and market premiums captured by marketers."

1079
The issue here again: Is this a lamentation that these premiums will not be captured by EI, or is it another one of your concerns about ratepayers not being able to capture those premiums?


1080
MS. HOLDER: It's the same issue I've already addressed.

1081
MR. VEGH: Right. And does your -- as I look at this rates and services unbundling point, and the concern -- I take it that the concern is that a good portion, 40 to 70 percent, of the transportation and storage assets could be allocated to marketers. Could you specify for me what is the specific concern about losing the 40 to 70 percent of the assets in this way?

1082
MS. HOLDER: I don't think there is a concern addressed here. This is just what's on the horizon. Again, these are just laying out the facts.

1083
MR. VEGH: Is this a problem -- did you -- did Enbridge identify this as a problem, the prospect of losing these assets, or losing these assets through allocation? Is this a problem that Enbridge was -- wanted to address, wanted to prevent from happening?

1084
MS. HOLDER: No. I think the concern is actually that third bullet, and that's storage and market premiums are captured by the marketers.

1085
MR. VEGH: So, then, would your proposal be to have an effective market so that market premiums are not captured but are -- or do not exist but that ratepayers will actually have an effective storage and transportation market?

1086
MS. HOLDER: I think there is an effective storage market. I think what we're talking about here is the storage rates that are embedded in the distribution charge to our customers. And right now, the ratepayer gets that storage at cost-based rates. The concern at this time was that if we exit the merchant function, that they may be paying a premium for storage and that premium will be going all to the marketers, not necessarily to the ratepayer and not, to some extent, back to the shareholder.

1087
MR. VEGH: And you talk about when -- you talk about this proposal you will be coming forward for in 2003. Would I be taking a wild guess to predict that this proposal will, in some way, prevent the allocation of storage transportation assets to marketers?

1088
MS. HOLDER: No, what I said we were bringing forward was a methodology on how we were going to treat transactional services revenue.

1089
MR. VEGH: What about your unbundling proposal? Will it be in response to this problem of allocating transportation storage assets to marketers?

1090
MS. HOLDER: I think we're confusing the actual allocation of the assets for the use of the marketers and the price at which the marketer would be paying for it.

1091
MR. VEGH: Well, maybe you can clarify that for me, then.

1092
MS. HOLDER: Unbundling rates and services will deal with the allocation of storage and transportation assets to our customers, including marketers as our customers, and it will deal with the rate-making implications of allocating those assets. And anything that's being discussed here is not intended to change that process.

1093
MR. VEGH: In your overview of recommendations, you say Enbridge Pipelines Inc. should pursue position and gas services as the energy service provider to both Enbridge and to ESI. And in terms of the first point, the energy service provider to Enbridge Consumers Gas, that culminated in the Enbridge Inc.-Consumers Gas agency agreement that has been filed in this case?

1094
MS. HOLDER: Yes.

1095
MR. VEGH: Now, did EI -- is EI also the service provider to Enbridge Services Inc.?

1096
MS. HOLDER: They were performing some minimal functions is my understanding. At the time that this gas supply moved to Calgary, Enbridge Services Inc. had their gas supply already under contract so there was some, I believe, activities going on. I do not believe they were performing those functions for Centrica.

1097
MR. VEGH: They will not be?

1098
MS. HOLDER: Will not be.

1099
MR. VEGH: Can you go to page 16, please, which talks about the risks for the energy service provider. And we've talked about the allocation of upstream transportation to marketers, but then you say the amount or the document says amount available for energy service provider to use is unknown. Could you explain that, please, what would -- what upstream transportation would be available for use to the ESP?

1100
MS. HOLDER: I'm hazarding a guess that it would refer to the Vector-Alliance contracts, but I'm not 100 percent sure.

1101
MR. VEGH: Okay. We'll just take it that you're not sure what that reference refers to so, we'll have to just draw our own inference from that.

1102
Now I'd like to go out of the -- go out of order a bit in terms of the documents you presented but not out of chronological order because, as I see it, the next document is dated March 1 and that's the e-mail that attaches the matrix that's been talked about.

1103
MS. HOLDER: I obviously can't read dates. I meant to put this into chronological order.

1104

MR. VEGH: Is this January 3 or March 1?

1105
MS. HOLDER: Well, March 1 was when I sent it to file. The document was actually prepared on -- oh, no, no, sorry, it's March 1, yes.

1106
MR. VEGH: Okay. That's the matrix.

1107
MS. HOLDER: Yeah.

1108
MR. VEGH: You were asked a question about the -- I take it that this matrix was put together after some sort of discussion about the impact of the Affiliate Relationship Code on the developing ESP strategy; is that right?

1109
MS. HOLDER: Yes.

1110
MR. VEGH: And you were asked about the column along the top which talks about physical and financial separation and you had some debate about whether ESP and -- as an energy service provider, but maybe the debate is academic. Is there actual accounting and financial separation between EI and ECG?

1111
MS. HOLDER: Under the agency agreement, yes.

1112
MR. VEGH: Well, is there?

1113
MS. HOLDER: Yes.

1114
MR. VEGH: So this issue around 2.1.2 of the Affiliate Relationships Code really doesn't matter if it's an energy service provider because you've met the requirements; is that what you're saying?

1115
MS. HOLDER: Sorry, I'm struggling because I'm not -- I don't recall -- I answered that based upon my knowledge of what I think of as separation of accounting and financial records. I'm not sure what the affiliate code defines as separation.

1116
MR. VEGH: And I'm sorry, I think one of the problems that comes from trying to rush through is you end up taking more time. You should have a copy of the Affiliate Relationships Code. It's included in the book marked F.6, materials we prepared for cross-examination, do you have that?

1117
MR. MORAN: K.4.6.

1118
MS. HOLDER: Yes, we have a copy.


1119
MR. VEGH: And section 2.1.2 under standards of conduct; do you have that?

1120
MS. HOLDER: 2.1.2?

1121
MR. VEGH: Yes. "The utility shall be physically separated from any affiliate who is an energy service provider." Are you physically separated from EI?

1122
MS. HOLDER: Yes.

1123
MR. VEGH: The bottom row addresses the confidential information issue. Can you tell me who prepared this matrix?

1124
MS. HOLDER: It is, again, the name is Tanya Persad who is internal legal counsel.

1125
MR. VEGH: Okay. The -- sorry. The bottom right-hand corner sets out considerations and recommendations based on this confidential information section, and it says that "other market participants may use this provision" -- that is the confidential information provision of the Affiliate Relationships Code -- "to gain access to confidential information that has been aggregated." And we've talked a bit about aggregated information, can you tell me, in light of this observation, what has Enbridge done to comply with this requirement that other participants are able to use this provision to obtain access to confidential information that has been aggregated?

1126
MS. HOLDER: I think our position has always been that if marketers wish access to total aggregated data of our market demand, that we would provide that information. But I think we're talking total aggregated demand not by marketer because we believe that that's specific to any one marketer.

1127
MR. VEGH: So -- so the GPAs that we've been talking about, you don't consider that aggregated information, that's customer-specific information; is that what you're saying?

1128
MS. HOLDER: That's correct. DPA is for a -- is a contract with a specific marketer and so it is specific to that marketer. It's not the same as aggregating all our demand data.

1129
MR. VEGH: Okay. So we should be treating that as customer- or marketer-specific information for purposes of the Code?

1130
MS. HOLDER: Yes.

1131

MR. VEGH: The point underneath the point I've just read says: "Giving ESP access to confidential information may be permitted if we could say that ESP functions are for market operation purposes." So you need to be able to say that. It then goes on to say that "this phrase is not defined but that otherwise access to information will require written customer consent."

1132
Before we get to how you dealt with this market operations issue, did it ever occur to you that perhaps before spreading this -- before sharing this information, one way to go about this would be to get written customer consent to provide information to EI?

1133
MS. HOLDER: I don't believe that was ever discussed, though we never kept this a secret. So by the mere fact that we've sent letters to all of our customers, which would include the marketers, with respect to where their nomination should be that that should be in -- sent to EOS, I guess we believe our -- the marketers and the customers are aware of what was happening.

1134
MR. VEGH: Well, you tell them to send their nominations to EOS. Is that the same as consent to share your nomination information with a competitor of yours?

1135
MS. HOLDER: We don't believe EI is a competitor. Sorry, we have had this discussion already and I --

1136
MR. VEGH: I never heard before that you didn't think EI was a competitor so that's new to me and that explains the look on my face.

1137
MS. HOLDER: No, I think that's -- why we've struggled through a lot of your cross-examination is we have not had -- we have had to take your assumptions on what EI is or is not. We don't see EI as our competitor.

1138
MR. VEGH: No, as a competitor to marketers or -- a competitor to both, actually, but you don't see EI as a competitor to other wholesale service providers?

1139
MS. HOLDER: No.

1140
MR. PLECKAITIS: Not today. And I think, Mr. Vegh, if I could -- the questioning I think you asked me and I -- during my cross-examination by you earlier, in terms of what is it that EI is currently doing and asking if there is -- for example, they would undertake to stay out of certain markets, et cetera. And if I remember, I indicated -- I stated on the -- in my response that, number 1, that EI is not currently retailing energy services in Ontario or elsewhere; and secondly, they are not wholesaling those services other than in the objective of optimizing the assets that EI is attempting to optimize amongst its various affiliate companies.

1141
So I think what Ms. Holder is saying is currently we do not believe that EI is competing with other marketers because it is not in the -- that is not the business, the way I understand it, that other marketers are -- how they are operating in the market today.

1142
MR. VEGH: Well, I know what you said, Mr. Pleckaitis. As I said, we'll draw our inferences from the materials that have been provided, the objective real evidence as to just how consistent some of this is.

1143
But for the purposes of moving on, I'm sure the panel doesn't want to hear us argue this one through again, but I take it that what -- this is -- under this proposal, then, you recognized that there's an issue around confidential information and what you're going to do is come up with some kind of plausible explanation for describing EI as a market operator now; isn't that what this -- what that box says in the corner?

1144
MS. HOLDER: No. I think what it says is that because they are a market operator, we believe the only way this works is if they are defined as a market operator. I don't think we are saying that's the only plausible answer. It is the answer. They are a market operator and therefore need this information in order to manage our assets for us.

1145
MR. VEGH: Well, it says this would only be permitted if you could say that it is a market operator, and then from that we go into this next document, which is the March 5 presentation that all of us said for the first time brings in -- introduced this idea of agency into the picture. This is the first time I've seen a reference to agency. Was there an earlier one than that?

1146
MS. HOLDER: No.

1147
MR. VEGH: Okay. So now it says what we'll do -- on the very first slide -- we'll position this as an agency relationship for gas supply, storage and transactional services. And isn't that positioning in response to the March 1st memo which says, we have to find a way to describe this as a market operator?

1148
MR. BRENNAN: No, I disagree entirely. Our opinion is that under the Affiliate Relationships Code this is market operation purposes. And this is where we're giving information to EOS for nominations, where we're giving -- or EOS is giving information to EI on the amount of space that's available so they can look at optimizing transactional services, information that's coming from ECG to EI in order to account for makeup and suspensions. So this is all information that EI has to have in order to be able to make sure that our assets are being fully utilized. Making sure, for example, that we don't have unutilized transportation capacity or that we don't have enough gas to fill our transportation entitlements. That's what it's there for, it's market operations, to make sure that the operations of the pipeline and our contracts are fully utilized.

1149
MR. VEGH: It says here that the agency relationship is how this should be positioned and that's what you've done; right? You've positioned this as an agency relationship.

1150
MS. HOLDER: Yes.

1151
MR. VEGH: And by doing that, it provides the required access to assets. So that's one thing that makes the agency relationship preferable to other sorts of arrangements; is that right?

1152
MS. HOLDER: It's one of the reasons, yes.

1153

MR. VEGH: Right. And then it also says that it sets the stage for future changes to be proposed. So I take it that the agency relationship is more effective than other options at setting the stage for future changes to be proposed.

1154
MS. HOLDER: I need to remind you, again, that I didn't prepare this document and I'm struggling to recall what this meant.

1155
MR. VEGH: Well, we're all curious about this meant.

1156
MS. HOLDER: I think that's why we struggled with the fact that it's difficult filing Enbridge documents that relate to Enbridge Inc. activities, not ECG activities.

1157
MR. BRENNAN: One of the things, I guess, for going with the agency agreement is it talks about providing access to assets. It could have been done either --

1158
MR. VEGH: Could you continue -- could you start over. I wasn't hearing that.

1159
MR. BRENNAN: Okay. We talk here about the agency agreement and the reasons why we went with the agency agreement. It talks about "provides required access to assets," and that could have been done whether it went with, say a contractor like a third party if you like, or whether it's an agency agreement. The difference between the two is that the assets, the control -- the rights to the assets still retain -- is retained within the utility. It's not like we have assigned our contracts for transportation and storage away to a third party. These contracts are still operated and owned by ECG.

1160
MR. VEGH: Right. So what's the relevance of that?

1161
MR. BRENNAN: Well, I guess my point is that the idea was that it didn't make any difference which way -- whether it was a contract or -- both provide access to the assets. One is different from the other in that under the agency agreement we still have control or title to those assets, where the third party is they would have taken assignment and been able to use those assets differently.

1162
MR. VEGH: Are you just making this up off the top of your head, Mr. Brennan, there are different ways to structure all parties with access?

1163
MR. BRENNAN: No, that's not true at all. I was there when the discussions were going on whether or not it should be an agency or a contract, and this is one of the reasons.

1164
MR. VEGH: Well, as I see it, the agency relationship is being presented as some kind of a Trojan horse that would allow EI to go behind the line, get competitive information, and participate in that market. But that's my observation.

1165
And thank you very much. Those are all my questions.


1166
MS. HALLADAY: Thank you very much, Mr. Vegh.

1167
So as I understand it, we have Mr. Brett and Mr. Thompson left; is that correct? And as I also understand it, the panel have graciously agreed to come on Friday.

1168
MS. HOLDER: This chair is getting quite comfortable.

1169
MR. FARRELL: It was gracious in the end result.

1170
MS. HALLADAY: So we are not sitting tomorrow, we will reconvene, and it is our intention to finish Friday morning. Is that doable?

1171
MR. THOMPSON: Yes.

1172
MS. HALLADAY: Yes, that is doable. Thank you.

1173
And perhaps, then, Mr. Farrell, you might also on Friday provide us with the revised schedule for --

1174
MR. FARRELL: Yes, Madam Chair. I would ask counsel to be here before 9:30 so -- we can just maybe discuss it now and then we'll finalize it, so I'm in a position to provide you with a consensus proposal.

1175
MS. HALLADAY: I would appreciate that. Thank you.

1176
So we are adjourned until Friday morning at 9:30.

1177
--- Whereupon the hearing adjourned at 5:25 p.m.