Rep: OEB Doc: 12KP5 Rev: 0 ONTARIO ENERGY BOARD Volume: 1 30 OCTOBER 2002 BEFORE: R. BETTS PRESIDING MEMBER K. MCCANN MEMBER F. PETERS MEMBER 1 RP-2002-0106 TRANSCRIPT VOLUME #1 2 IN THE MATTER OF the Ontario Energy Board Act, 1998, S.O. 1998, c.15 (Sched. B); AND IN THE MATTER OF an application by Wellandport Gas Company Limited for an order of the Ontario Energy Board, pursuant to section 43 of the Ontario Energy Board Act, 1998, approving the disposition of its natural gas distribution system assets located in the County of Haldimand to Stanley Boyt; AND IN THE MATTER OF an application by Reliant Energy Ltd. for an order of the Ontario Energy Board, pursuant to section 43 of the Ontario Energy Board Act, 1998, approving its acquisition of the voting securities of Wellandport Gas Company Limited; AND IN THE MATTER OF an application by Wellandport Gas Company Limited for an order of the Ontario Energy Board, pursuant to section 43 of the Ontario Energy Board Act, 1998, approving the disposition of its natural gas distribution system assets located in the Township of West Lincoln and Township of Wainfleet to Enbridge Gas Distribution Inc.; AND IN THE MATTER OF an application by Enbridge Gas Distribution Inc. for an order of the Ontario Energy Board, pursuant to section 36 of the Ontario Energy Board Act, 1998, classifying the amounts paid in relation to the acquisition of the gas distribution system in the Township of West Lincoln and the Township of Wainfleet as amounts to be included in the rate base of Enbridge Gas Distribution Inc. for the purposes of the fixing or approving of just and reasonable rates under section 36. 3 RP-2002-0106 TRANSCRIPT VOLUME #1 4 30 OCTOBER 2002 5 HEARING HELD AT TORONTO, ONTARIO 6 APPEARANCES 7 JENNIFER LEA Board Counsel KATHI LITT Board Staff WILFRED TEPPER Board Staff FRED CASS Enbridge Gas Dist. 8 TABLE OF CONTENTS 9 APPEARANCES: [28] PRELIMINARY MATTERS: [37] WELLANDPORT GAS COMPANY LIMITED - PANEL 1 [71] EXAMINATION BY MR. CASS: [79] CROSS-EXAMINATION BY MS. LEA: [158] RELIANT ENERGY LTD. - PANEL 2 [251] EXAMINATION BY MR. CASS: [254] CROSS-EXAMINATION BY MS. LEA: [273] QUESTIONS FROM THE BOARD: [322] MINISTRY OF NATURAL RESOURCES - PANEL 3 [338] EXAMINATION BY MR. CASS: [347] CROSS-EXAMINATION BY MS. LEA: [361] ENBRIDGE GAS DISTRIBUTION INC. - PANEL 4 [438] EXAMINATION BY MR. CASS: [445] CROSS-EXAMINATION BY MS. LEA: [485] QUESTIONS FROM THE BOARD: [619] PROCEDURAL MATTERS: [625] PRELIMINARY MATTERS: [647] SUBMISSIONS BY MS. LEA: [657] SUBMISSIONS BY MR. CASS: [698] DECISION: [761] 10 EXHIBITS 11 EXHIBIT NO. K.1.1: PROPOSED STEPS OF THE WELLANDPORT GAS TRANSACTION [132] EXHIBIT NO. K.1.2: DIAGRAMS OF THE WELLANDPORT SYSTEM [244] 12 UNDERTAKINGS 13 UNDERTAKING NO. J.1.1: TO EXPLAIN THE ORIGIN, RESPONSIBILITY AND AMOUNT OF THE CAPITAL GAINS TAX LISTED AT EXHIBIT H, TAB 1, SCHEDULE 10, PAGE 2. [550] 14 --- Upon commencing at 9:35 a.m. 15 MR. BETTS: Please be seated. Those who wish to stay, take your seats. 16 Welcome, everybody. I assume we were scheduled to start at 9:30. Great, thanks. I was afraid we had sent out a procedural order and that we would -- 17 MS. LEA: We were just all late, Mr. Chairman. 18 MR. BETTS: I'm glad everybody was communicating prior to the hearing. That's a good sign. 19 Good morning, everybody. Can you all hear me all right? Is the volume correct in the back? Thank you. 20 The Board is sitting today to hear application RP-2002-0106, dated June 28th, 2002, filed by Enbridge Gas Distribution Inc., Reliant Energy Limited, and the Wellandport Gas Company Limited. 21 The application seeks the following orders from the Board, all to be granted pursuant to the Ontario Energy Board Act, 1998: 22 First, an order pursuant to section 43 of the Ontario Energy Board Act, 1998, approving the disposition by the Wellandport Gas Company Limited of its natural gas distribution system assets located in the County of Haldimand to Mr. Stanley Boyt; 23 Next, an order pursuant to section 43 of the Ontario Energy Board Act, 1998 approving the acquisition by Reliant Energy Ltd. of all of the issued and outstanding shares of Wellandport Gas Company Limited; 24 Also, an order pursuant to section 43 of the Ontario Energy Board Act, 1998, approving the disposition by Wellandport Gas Company Limited of its natural gas distribution system assets located in the Townships of Wainfleet and West Lincoln to Enbridge Gas Distribution Inc.; 25 And finally, an order pursuant to section 36 of the Ontario Energy Board Act, 1998 classifying the amounts paid by Enbridge Gas Distribution Inc. in relation to the acquisition of the gas distribution system in the Townships of West Lincoln and Wainfleet as amounts to be included in the rate base of Enbridge Gas Distribution Inc. for the purposes of fixing and approving of just and reasonable rates. 26 My name is Bob Betts. I will be presiding at this hearing. Joining me on the panel are fellow Board members. On my left, Mr. Ken McCann and on my right, Mr. Fred Peters. 27 May I have appearances, please. First for the applicant. 28 APPEARANCES: 29 MR. CASS: Good morning, Mr. Chairman and panel members. Fred Cass for the applicants. 30 MS. LEA: Jennifer Lea for Board Staff. Sorry. 31 MR. BETTS: Please, go ahead. 32 MS. LEA: Jennifer Lea for Board Staff. 33 MR. BETTS: I understand there are two intervenors in the procedure. The latest information I have is that they will be monitoring the proceeding but not active at this hearing. Is that correct, or does anyone have any other information? 34 MS. LEA: That's my understanding, Mr. Chairman. 35 MR. BETTS: Thank you very much, Ms. Lea. 36 Are there any preliminary matters, Ms. Lea? 37 PRELIMINARY MATTERS: 38 MS. LEA: No, except with respect to the affidavits of service. 39 MR. BETTS: Perhaps I can indicate for the record -- can you indicate whether this is a duly convened meeting? 40 MS. LEA: Unfortunately the affidavits of service haven't reached our hands yet, but I do understand they are on the way. I think Mr. Cass can speak to whether the Board's orders of service and publication have been complied with. 41 MR. CASS: Those matters have been complied with, Mr. Chairman, and I'm told that the affidavits will be filed by noon today at the latest. 42 MR. BETTS: Thank you. 43 MS. LEA: I think we can proceed on that basis, Mr. Chairman. I have no reason to believe there was any problem. 44 MR. BETTS: Thanks, Ms. Lea. 45 Are there any other preliminary matters, Mr. Cass? 46 MR. CASS: I have one small matter, Mr. Chairman, which you actually anticipated yourself in your opening remarks. When this application was originally filed, the name of one of the applicants was the Consumers Gas Company Limited. It has since changed its name to Enbridge Gas Distribution Inc. I had simply intended to ask that the record reflect the change of name of that particular applicant, and indeed in your opening remarks, Mr. Chairman, you were good enough to actually make note of the new name of that applicant. 47 MR. BETTS: Thank you. I think for the record that's wise to make that point as well. Thank you very much. 48 I guess we're ready at this point to begin the evidence process and, Mr. Cass, I would ask you to please proceed. 49 MR. CASS: Mr. Chairman, I wonder if it might be perhaps useful to the Board panel and to Board Staff if I were to explain the panels that the applicants propose to call just so that questions can be directed to the appropriate witnesses as we proceed. 50 MR. BETTS: That would be very helpful. 51 MR. CASS: Mr. Chairman, the first panel that we would propose to bring forward, I might loosely called a Wellandport panel. There are two witnesses from Wellandport Gas whom I will introduce when we call the panel: Mr. Stan Boyt and Ms. Sue-Ellen Merritt. As well, two Enbridge witnesses will sit on that panel. Perhaps in order to introduce the proceedings, I will have the Enbridge witnesses provide the Board with a bit of an overview of what this proposal is all about. However, there will be a full Enbridge panel later on. 52 So I just wanted to make people aware that the real purpose of the first panel is to address issues relating to Wellandport, Wellandport assets and so on. 53 Then we propose a second panel that will have Mr. Andre Czychun from Reliant, and as well an Enbridge witness. We would expect that that panel we would be able to address issues relating to the role of Reliant and so on. I understand that Mr. Rudy Rybansky from the Ministry of Natural Resources is here. Our thinking is that if there are questions put to Mr. Czychun that perhaps might be better answered by Mr. Rudy Rybansky that he could perhaps, if necessary, and only if necessary, take the stand as a third panel on his own. But that remains to be seen as to whether the witness from Reliant can answer all of the questions that there may be in that area. 54 Then finally, Mr. Chairman, we would propose an Enbridge panel. Again, I will identify them all when I call them forward, but that panel would address all of the issues relating to Enbridge's role in the transaction, economic feasibility and all those sorts of matters. That's the plan that I have in mind, and I hope that will be workable for the Board and for Board Staff 55 MR. BETTS: I believe that's quite clear from our point of view. Ms. Lea. 56 MS. LEA: Thank you. Mr. Cass, as your advisers did provide us with a list of panels in advance, I did rely on having Mr. Rybansky available to ask questions so I will have questions for him. Your staff, however, has done such a wonderful job in answering our written questions that the extent of cross-examination this morning will be relatively brief compared to what it was planned to be initially, so I don't think that his stay here in the room will, by any means, go beyond this morning. 57 MR. CASS: All right. Through you, Mr. Chairman, potentially he could take the stand with Mr. Czychun if that would assist your examination. I will leave that to you as to how you want us to proceed with that. 58 MS. LEA: It's your case, Mr. Cass. My preference is to have him as a separate expert witness because he does have a perspective that is different than that of the applicants, and it is that knowledge and expertise and independence as well that I wish to draw on as well. 59 MR. CASS: That's fine. 60 MS. LEA: Thank you so much. 61 MR. CASS: Mr. Chairman, it's just come to my mind that I should address one other matter before I call the first panel forward. 62 There were some additional filings, some supplementary interrogatories were answered. I believe, if I'm correct, that the answers were e-mailed to Board Staff yesterday. I believe that hard copies of those answers have been provided to everyone. In addition, everyone should have a small package with some changes to the original prefiled evidence. The changes are very minor, in my view at least. They just clarify the status of the certificate and franchise rights held by the various parties, and they update the expected timing of construction because the Board may recall in the original evidence it was thought that construction would be completed by September of this year, and obviously a bit of an update was needed there. I hope that everyone has that. I believe it's been handed around. 63 MS. LEA: Do you have that, Mr. Chairman? I'm not sure that you do. I do not. 64 MR. BETTS: We certainly have the updates to the interrogatories and -- 65 MS. LEA: Perhaps Mr. Tepper could provide that. 66 MR. BETTS: Yes, sorry. We do have it. 67 MS. LEA: You do have it? Thank you so much. 68 MR. BETTS: Thank you. And I think we have a complete record here. 69 MR. CASS: Having said all that, Mr. Chairman, if I may call forward the first witness panel to be sworn. This would be Mr. Stan Boyt of Wellandport Gas. Ms. Sue-Ellen Merritt, also of Wellandport Gas, Mr. Neil Harte, and Mr. Richard Lanni of Enbridge Gas Distribution. 70 MR. BETTS: If those people will please come forward and be sworn in. 71 WELLANDPORT GAS COMPANY LIMITED - PANEL 1 72 R.LANNI; Sworn. 73 S.MERRITT; Sworn. 74 S.BOYT; Sworn. 75 N.HARTE; Sworn. 76 MR. BETTS: Thank you. Let the record show that the witnesses have been sworn in. 77 Mr. Cass, you may proceed as you wish. 78 MR. CASS: Thank you. 79 EXAMINATION BY MR. CASS: 80 MR. CASS: Mr. Boyt, if I could start with you and ask you just a few questions to introduce you to the Board. 81 I understand that you are the president of Wellandport Gas; is that correct? 82 MR. BOYT: That's correct. 83 MR. CASS: And I understand that you've filled that role for approximately 14 years? 84 MR. BOYT: That's correct. 85 MR. CASS: And could you just briefly indicate to the Board why Wellandport wishes to proceed with the proposal that's before the Board, or its part in the proposal? 86 MR. BOYT: Well, I would just like to retire. 87 MR. BETTS: I'm sorry, Mr. Boyt, we have to depend on these mics so everybody can hear you. Bring it as close as you can to yourself and lean a little forward and we'll probably pick you up. 88 MR. BOYT: I feel that it's time for me to retire. I'm 68 years old now and I just feel it's time to retire. 89 MR. CASS: Okay. Thank you, Mr. Boyt. 90 Ms. Merritt, you are the secretary-treasurer and office manager of Wellandport; is that correct? 91 MS. MERRITT: Yes, I am. 92 MR. CASS: And you've been doing that for something like 13 years? 93 MS. MERRITT: That's correct. 94 MR. CASS: What is your role with Wellandport? 95 MS. MERRITT: I manage everything actually inside, financial reports, everything except basically repairs and maintenance to the outside properties. 96 MR. CASS: Thank you. 97 Mr. Lanni, you are associate legal counsel, regulatory and litigation with Enbridge; is that correct? 98 MR. LANNI: That's correct. 99 MR. CASS: And you're curriculum vitae setting out your education and work experience is included in the filed materials, is it? 100 MR. LANNI: Yes, it is. 101 MR. CASS: And you were responsible for certain evidence and interrogatory responses bearing your name; is that correct? 102 MR. LANNI: That's correct. 103 MR. CASS: Do you have any corrections to that evidence, being the evidence bearing your name? 104 MR. LANNI: That -- the existing evidence with my name on it, no. 105 MR. CASS: Okay. And was that evidence prepared by you or under your direction and control? 106 MR. LANNI: Yes, it was. 107 MR. CASS: And is that evidence accurate to the best of your knowledge or belief? 108 MR. LANNI: Yes, it is. 109 MR. CASS: Now as well, I think there have been some supplementary interrogatory responses filed that have just been referred to in some discussions. Can you indicate whether there are any corrections necessary to that evidence? 110 MR. LANNI: Yes. Before I go there, there's been a refilled for the purpose need and timing section with a few corrections that already did have my name on it. The supplemental interrogatories that were filed with the Board yesterday, I believe by e-mail and today in hard copy, I had -- I accept them as my evidence. There's no name on them yet, but I would ask the Board that I be given an opportunity just to review them prior to the end of today, so subject to any further small changes that I can make, that's fine. 111 MR. CASS: All right. Are there any corrections you're aware of now in relation to those? 112 MR. LANNI: Yes. In fact, if I can have a copy that would be good. And a copy of the supplementary interrogatories. 113 MR. BETTS: Mr. Lanni, would you just pull that mic a little bit closer. I will have to ask all of the witnesses to try and speak as loudly as they can. 114 MR. LANNI: One change that I did notice, one area that I did notice was on IR number 54, which I believe the question asked about the status of the trust funds. And at the time the parties to the application were under the belief that the Ministry would require Wellandport Gas to keep the trust fund that it has, and therefore that trust fund would stay with Wellandport as the company was transferred to Reliant. In fact, the Ministry has advised that it will permit Wellandport Gas to transfer its trust to Stan Boyt so he can carry that trust into his new companies and the reason for that is simply because that trust which will operate in the Haldimand well. And the reason for that is simply because that fund was in existence prior to 1997, I believe. It has a benefit of -- the owner of that trust has the benefit of topping it up incrementally only by 10 per cent, which is a benefit that Mr. Boyt, I guess, wanted to keep. And the Ministry is going to allow that. That's the only change. 115 MR. CASS: Okay. So you're going to give those supplementary responses a careful perusal today, and subject to that check then you adopt them as part of your evidence in this proceeding? 116 MR. LANNI: Yes. 117 MR. CASS: Thank you. 118 Turning to you, Mr. Harte, you are the manager operations for the Niagara region of Enbridge; is that correct? 119 MR. HARTE: That's correct. 120 MR. CASS: Again, you have a curriculum vitae in the prefiled evidence that accurately sets out your work experience and qualifications? 121 MR. HARTE: Yes, I do. 122 MR. CASS: All right. You were also responsible for certain evidence and interrogatory responses bearing your name? 123 MR. HARTE: That's correct. 124 MR. CASS: All right. And were those prepared by you or under your direction and control? 125 MR. HARTE: Yes, they were. 126 MR. CASS: And is that evidence accurate, to the best of your knowledge or belief? 127 MR. HARTE: Yes, it is. 128 MR. CASS: All right. Mr. Chairman, as I said, this is more or less a Wellandport panel. But for the benefit of the Board, I hope, and to assist the hearing, I'm just going to ask a couple of questions of the Enbridge Gas witnesses to give an overview of what this case is about. 129 Mr. Lanni, could I start with you. Could you give the Board an overview of the proposal that's before us. 130 MR. LANNI: Yes. I have a handout I'd like to share with interested parties. I don't know who can assist in passing this around. 131 MS. LEA: Exhibit numbers in this proceeding will be listed under the K series, so this would be K.1.1. 132 EXHIBIT NO. K.1.1: PROPOSED STEPS OF THE WELLANDPORT GAS TRANSACTION 133 MR. BETTS: How are we going to describe this? 134 MS. LEA: I don't know. I have to see it first. 135 MR. LANNI: I guess I can start by saying, a former Enbridge Gas employee, John Graham, undertook negotiations with Mr. Boyt, or Wellandport Gas -- 136 MS. LEA: Sorry, Mr. Lanni, I just want to give a title to this exhibit, now that I have it in front of me. I think we can call it proposed steps of the Wellandport Gas transaction, exactly as the title appears on the exhibit. Thank you. 137 Sorry, Mr. Lanni. Please go ahead. 138 MR. LANNI: They entered into negotiations regarding the sale of the Wellandport Gas Company. John Graham has since retired, and I have tried to fill in, or step into his shoes in this project. Letters of intent were signed in the fall setting out essentially what you have before you. There have been minor changes since the letter of intent were entered into, and they were not -- they were formal letters of intent but non-binding, and all the parties understood that. 139 And if I can take you through this exhibit. The first step of the transaction, of the proposed transaction, would be the removal of the Haldimand assets from the Wellandport Gas Co. Ltd. Wellandport currently offers in three townships: Haldimand County, the Township of Wainfleet and the Township of West Lincoln. The first step would be the removal of the gas wells distribution system and the trust fund from Wellandport Gas to Stan Boyt, or Stan Boyt Co. His new company to be operated that will operate the Haldimand County assets. 140 The second step will be the sale of Wellandport Gas to Reliant, and that's a share sale, 100 per cent of the voting shares to Reliant for $300,000. 141 Immediately -- or concurrently, I guess, would be the sale of the Wellandport Gas Company as it is owned by Reliant, its sole shareholder, to Enbridge Gas Distribution Inc. This would be an asset sale and it would be the sale of the Wellandport Gas distribution system assets to Enbridge Gas Distribution Inc. for $300,000. Again, at the same time, immediately at that time, Enbridge would pay $282,850 to Reliant to plug and abandon all of Wellandport Gas's wells and gathering lines. $78,000 of this amount will immediately be put towards establishing a trust fund pursuant Ministry of Natural Resources direction. 142 In accordance with regulation under the Oil, Gas and Salt Resources Act, those wells would be required to be plugged and abandoned within 12 months of the closing of the deal. 143 MR. CASS: All right. Thank you, Mr. Lanni. And then just one more question for you, Mr. Harte. Can you explain what the distribution assets are that Enbridge will acquire from Wellandport, and just quickly what changes Enbridge will make upon acquisition of those assets? 144 MR. HARTE: The distribution assets would include distribution pipelines, the service laterals, the meters and regulators on those assets, and our plan would be -- we plan on constructing a new pipeline to Wellandport to be supplied off of Enbridge's distribution system. And it would be a high-pressure pipeline. We'll build regulating facilities once we get to Wellandport to regulate the gas going into the distribution system. Once the gases start being supplied into the distribution system, we plan on changing all of the meters and regulators, all of the customers premises, and we plan on this connecting and shutting off the gathering lines that supply into the system. Then we will go through a process of reclassifying the system to operate at a higher operating pressure so that we can supply all the gas to the existing customers and future customers. 145 MR. CASS: Thank you, Mr. Harte. I said one question, and I'm going to ask you another. Do you have a chart with you that shows the assets to be acquired and the changes to the assets that Enbridge proposes? 146 MR. HARTE: Yes, I do. 147 MR. CASS: Could you maybe use that chart to show the Board and Board Staff what those assets are, please. 148 MR. HARTE: Sure. I think first of all if I can familiarize the Board and Board Staff with the location. This is a map of the Regional Municipality of Niagara. Lake Ontario to the north and Lake Erie to the south. This is the Welland Canal. The area shaded in green is the area that Wellandport currently has to operate a distribution system. Our proposal is from our existing Gainsborough gate station, which we take the gas from Trans Mountain Pipeline. We have an existing high-pressure pipeline that comes up to the corner of the Wellandport area that supplies the distribution system in this area. 149 And what we intend to do is put an extension of 4-inch steel extra high-pressure pipeline down into Wellandport and build a little district station there to provide gas into the Wellandport system. So we'll be cutting the pressure from 250 psig initially down to 22 psig, and the system which is existing operating pressure from the wells in the Wellandport system. 150 We also have a small extension of 4-inch polyethylene, that's the intermediate pressure that we intend to extend along Regional Road 20 to supply potential customers and chicken barn operations along the highway. 151 If I can maybe go into a little more detail in the system. It's hard to see, but we have on this plan marked all of the distribution lines, all of the pipelines on the system. All of the wells are indicated; these little circles on the system that are presently supplying gas into the system. We have Union Gas facility here, the regulating metering facilities that's used to back up the well-gathering system when the pressure in the distribution system falls. And basically this is the well-gathering system south of the river. This can go as high as the shown pressure of about 90 psig, points per square inch, and they regulate here, Wellandport does, and cuts the gas to 22 psig as I've mentioned previously that supplies gas into the main part of Wellandport, in here. 152 So it's our intent then to bring down this high-pressure pipeline, put a little station in here, and as I said operate at the 22 psig. And once we have done that, then we will go through Wellandport and we will shut off all of the gas going into the system. We intend to do that next spring/summer time frame, when the load in the system is low so it will be easy to shut down the system. 153 And then we want to go through after that to do a pressure elevation on the system north of the river. This 22 pounds in here, we will eventually go up to a test pressure of 60 pounds and then we intend to operate at 50 pounds operating pressure for its duration. Then we will bypass the facility here and supply the 50 pounds into the rest of the system. 154 We'll also note that on this particular plan here, that Wellandport Gas, as I've shown previously, operate from the Welland River going north on this system, but they have extensive facilities south of the river all the way through here, that's Enbridge's existing franchise area. So these facilities are in the existing franchise area. This will be a new operating area. 155 MR. CASS: Thank you, Mr. Harte. Those are my questions of the panel, Mr. Chairman. 156 MR. BETTS: Thank you. Any questions from Board Staff? 157 MS. LEA: Yes, thank you. 158 CROSS-EXAMINATION BY MS. LEA: 159 MS. LEA: A couple of questions for Mr. Boyt, please. 160 Mr. Boyt, when did you acquire the Wellandport Gas Company Limited? 161 MR. BOYT: July 1st -- July 1st, 1988. 162 MS. LEA: 1988. Was it called Wellandport at that time? 163 MR. BOYT: Yes, it was. 164 MS. LEA: And do you know how long the company was distributing gas from these wells, do you know how long such a company had been in operation before you purchased it? 165 MR. BOYT: It started in 1961. 166 MS. LEA: Okay. And if these transactions are approved by the Board, how do you intend to structure your ownership of the assets in Haldimand, if I can put it that way; as a sole proprietor? Are you intending to incorporate? What's the plan there? 167 MR. BOYT: Well, I plan to form another company to look after that little field and continue supplying the customers that are there now. 168 MS. LEA: And will that be an incorporated company? Maybe you haven't decided yet. Anyone can answer. 169 MS. MERRITT: I believe it will be, but the final decision has not been made. 170 MS. LEA: All right. Thank you. 171 Ms. Merritt, do you know if you're going to be continuing on with Mr. Boyt after this transaction? 172 MS. MERRITT: I'm assuming so, yes. 173 MS. LEA: Okay. And Mr. Boyt, do you know if you're planning to take on any additional employees to assist you with the outside work? 174 MR. BOYT: No, I haven't. 175 MS. LEA: The reason I ask is that you indicated, sir, that you wanted to retire and I was wondering whether it's feasible for you to continue to provide the outdoor services for the Haldimand area. 176 MR. BOYT: Well, I hope that I won't have it for very long. I'm hoping that somebody else will come along and buy that little field from me. 177 MS. LEA: Okay. So you're hoping that someone will purchase it from you. You know that if someone does purchase it from you, you'll have to come back to us again for another approval under section 43. 178 MR. BOYT: Yes. 179 MS. LEA: I presume that you're not proposing to expand the system yourself in the Haldimand area. 180 MR. BOYT: No. 181 MS. LEA: And what rates do you intend to charge? How do you intend to set the rates in that area? 182 MS. MERRITT: Can I speak to that? 183 MS. LEA: Sure, absolutely. 184 MS. MERRITT: Our practice in the past, and it will continue to be so, that we do try to stay abreast of Enbridge/Union's rates. So when it increases, Union does supply us when we need to have the extra gas, so we try to keep up with their rates. 185 MS. LEA: Okay. So you'll be basing them on Union's rates then? 186 MS. MERRITT: Yes, we would. 187 MS. LEA: Now, I just wanted to clarify something and anyone, as I say, on the panel can answer this. When Reliant acquires the shares of Wellandport Gas, do I understand that Wellandport Gas is going to retain all the capital assets in Haldimand county, including the lease rights and the easements and the wells and everything, and all of that would be transferred to Mr. Boyt? Do I understand correctly? 188 MR. LANNI: Yes. 189 MS. LEA: Okay. Thank you. One moment, please. 190 Mr. Lanni, there were a couple of things I wanted to understand, a few things about your evidence. You've indicated that there are connections to the present distribution in Wellandport between Consumers and Wellandport; is that correct? Yes, sure, whoever. Sorry, Mr. Harte probably would be the better person. I don't know why I addressed it to you, sir. 191 MR. HARTE: There's no connection. 192 MS. LEA: There's no connection at present. 193 MR. HARTE: Not at present, no. 194 MS. LEA: Is there a connection between Wellandport and Union at this time? 195 MR. HARTE: Yes, there is, and I pointed that out on the map at the south end of the system. 196 MS. LEA: Okay. That's fine then. And that connection will survive these transactions, I understand? In other words, it will continue to be a connection there? 197 MR. HARTE: No. After we have pressure elevated the distribution system we intend to disconnect Union's supply. 198 MS. LEA: Okay. What I'm trying to understand is this: Enbridge will be operating the system in West Lincoln and Wainfleet, and then there's Mr. Boyt who is operating the system in Haldimand. I'm wondering whether there is any connection for the Haldimand customers to any other LDC, and I see Ms. Merritt is nodding. 199 MS. MERRITT: Yes, and we would continue our connection with Union Gas in that respect. If we were not able to supply we would continue to buy from Union. 200 MS. LEA: So there is a physical connection, then, with the Union system, which will survive this transaction and assist security for supply to the Haldimand customers. 201 MS. MERRITT: That's correct. 202 MS. LEA: Okay, thank you. 203 There was a point on the map, Mr. Harte, where you were pointing out something and you said, "This can go to 90 psig", and I wasn't sure how much of the system you were referring to, or at what point of the system you were referring to. 204 MR. HARTE: Maybe I can show you that. 205 MS. LEA: Thank you. 206 MR. HARTE: Everything from this station here south is all tied into the well, and the well pressure can be shut in. In the summertime, this pressure and the flow, when the requirement for gas is low in the system, then everything from here south could go as high as 90 psi. And it's regulated here going north to 22. 207 MS. LEA: All right, thank you. I understand now. 208 Now, I have some questions that deal with the transaction between Wellandport and Reliant and I wasn't sure which panel to put them to, so I'm going to start here. If you can't answer you can pass it on to the next panel. 209 As we understand the financial evidence that's been filed, there's about $87,000 of liquid assets in the Wellandport Gas Company now, as we understood the numbers, and I'm wondering if someone can tell me what liquid assets will remain with Wellandport. 210 MS. MERRITT: I'm assuming that's referring to the bank account? 211 MS. LEA: There's things like accounts receivable, and prepaid expenses, and inventory. All those things. 212 MS. MERRITT: All will remain with Wellandport Gas. 213 MS. LEA: What happens with those -- 214 MR. LANNI: Sorry, all will be -- they will all be removed and transferred to Stan Boyt. 215 MS. LEA: Right. That's what I'm trying to get. They're with Wellandport now, they're not going to be changing. What's going to happen through the transaction? Just tell me again so it's clear. 216 MS. MERRITT: They will remain with Stanley Boyt. 217 MS. LEA: Okay. 218 MS. LEA: Sorry these questions are slow. We got a lot of information last night and I'm trying to catch up as I know you are. 219 There was mention of some $37,000 going to Reliant and I'm trying to remember the evidentiary reference to that. 220 MR. LANNI: That might be supplemental IR number 54. 221 MS. LEA: Perhaps you can assist me with that then, please. I have it number 53 but you might be right, it might be 54. 222 MR. LANNI: Yes, it is 54. 223 MS. LEA: Okay, yes. 224 MR. LANNI: That's the one I caught on the way up to the 25th floor. That's -- 225 MS. LEA: And that's the trust fund amount? 226 MR. LANNI: That's right. Initially we thought there would be problems in transferring the Wellandport trust fund to Mr. Boyt. Upon further conversation with the Ministry and Mr. Rudy Rybansky, we were advised that the Ministry would permit under its discretion that this trust fund be transferred to Stan Boyt and essentially become the trust fund for the new -- newly operated company in Haldimand County. 227 MS. LEA: Okay. I understand, okay. Again, this is -- this may require some reconciliation. You may want to look at these exhibits and get back to me. I wonder if you could look at Exhibit H, tab 1, schedule 53, which is one of the new supplemental interrogatories. 228 In the second paragraph, it states in the first paragraph that: "Payment of dividends to Stanley Boyt will be made from cash on hand." Okay? Then we reconciled that with the financial exhibits which appear as an attachment to interrogatory number 1 -- 2, rather. And that was a balance sheet, an unaudited balance sheet of December 31st, 2001, and we looked at that balance sheet in preparing the case previously. And I don't know if you want to look at it now and if you can tell me, and you can get back to me, or maybe you can answer it. 229 So could you turn up, please, interrogatory number 2, the attachment being the unaudited balance sheet of Wellandport of December 31st, 2001. When we look at that balance sheet it gives us a cash amount of $50,216. And then there were things like accounts receivable, income taxes, inventories, prepaid expenses which Ms. Merritt and I just discussed and that adds up -- that total comes to about $37,000. And that's where we got the idea that maybe those were going to Reliant. So we didn't know how much of what was listed under current assets is going to go to Mr. Boyt and what's going to go to Reliant. 230 MS. MERRITT: I believe everything listed under the current assets will go to Mr. Boyt. 231 MS. LEA: Okay, thank you. That's helpful. 232 MS. LEA: So other assets that Wellandport Gas has, and again you can bounce this to the next panel if you want, there are things like petroleum and natural gas rights, and easements, and rights of way, the cushion of residual gas, they're all going to Reliant, I understand. 233 MS. MERRITT: I believe that for those things specific to the area, that Reliant and eventually Enbridge taking over, they will go. Things specific to the Haldimand field would remain with Mr. Boyt and his newly formed company. 234 MS. LEA: Okay. That's helpful, thank you. 235 Thank you very much for your answers. Those are my questions for this panel. 236 MR. LANNI: Thank you. 237 MR. HARTE: Thank you. 238 MR. BETTS: Thank you. Any questions from panel members? 239 MS. LEA: I'm sorry, I did think of something else. 240 Mr. Cass, were you intending that the large charts which you've used to demonstrate things to us were to remain exhibits with this Board? 241 MR. CASS: I was intending that. I assume we'll probably need to prepare some smaller copies of those for filing. I don't think that's been done, but I spoke to Mr. Harte and he indicated that he could do that, put them in a form that can be deposited into the Board file. 242 MS. LEA: Actually, we could do that. The larger ones are useful as well. All right. Yes, that would be helpful, Mr. Cass, if you do have smaller ones that could fit into the file. That would be helpful. 243 Let's give them an exhibit number now, then. Diagrams of the Wellandport system will be K.1.2, and we'll expect the filing of those at your convenience. 244 EXHIBIT NO. K.1.2: DIAGRAMS OF THE WELLANDPORT SYSTEM 245 MR. CASS: Thank you, Ms. Lea. 246 MR. BETTS: That's fine. It appears the panel is okay. Mr. Cass, is there any re-examination? 247 MR. CASS: No, Mr. Chairman, thank you. 248 MR. BETTS: Then at your will you may dismiss this panel and call the next. 249 MR. CASS: Thank you, sir. Mr. Lanni will stay. He will sit on the next panel as well. The rest of you are excused. 250 The additional witnesses for the next panel is Mr. Andre Czychun for Reliant, if he can come forward and be sworn, please. 251 RELIANT ENERGY LTD. - PANEL 2 252 A.CZYCHUN; Sworn. 253 R.LANNI; Previously sworn. 254 EXAMINATION BY MR. CASS: 255 MR. BETTS: Thank you. It looks as though we're back up and running, so please proceed. 256 MR. CASS: Thank you, Mr. Chairman. I have just a few questions for Mr. Czychun. 257 You are the president of Reliant; are you, sir? 258 MR. CZYCHUN: Yes. 259 MR. CASS: Can you just generally describe for the Board what the business of Reliant is. 260 MR. CZYCHUN: Plugging wells, consulting services, we do some prospecting for gas plays in Ontario in the oil field. We did some design work on facilities for other clients in Ontario. 261 MR. CASS: Thank you. I understand as well that you're a licensed well examiner; is that the correct terminology? 262 MR. CZYCHUN: Yes. 263 MR. CASS: And what sorts of activities are you licensed to do? 264 MR. CZYCHUN: To examine the abandonment of wells, plug and abandonment, the cementing practices, when abandoning ore drilling wells. Any activities required by an examiner through the MNR for drilling, producing, and abandoning oil and gas wells in Ontario, and also production facilities in Ontario for the oil and gas industry. 265 MR. CASS: And if the Board approves this application, what will the activities of Reliant be? 266 MR. CZYCHUN: Reliant through Wellandport will -- initial issue is to put up the $70,000 trust account with the Ministry. That has to take place prior to the transfer of ownership of the 31 wells in the Wellandport field from Stan Boyt to myself. Then I'd review all the well records in the Ministry office in London for details of how these wells were constructed, many of which I have already. Review with the Ministry of Natural Resources my proposed procedure to plug these wells, and proceed with plugging wells as soon as the wells are released through Enbridge and they are not used for producing in the system any more. 267 MR. CASS: Can you just briefly outline for the Board what your experience is in plugging wells. 268 MR. CZYCHUN: I've been in the industry since 1979, both in Ontario and Alberta, plugging wells over the last 20 years, probably involved with, I would estimate, a couple hundred wells. And recently through Reliant I've done many wells for other clients in Ontario. Actually here close to Toronto for CP Rail, actually. Some for the Ontario Realty Corp. and Ontario government in south Cayuga and many other clients. 269 MR. CASS: All right. Thank you, Mr. Czychun. Those are my questions of the panel, Mr. Chairman. 270 MR. BETTS: Thank you. 271 Ms. Lea? 272 MS. LEA: Thank you. I have a few questions. 273 CROSS-EXAMINATION BY MS. LEA: 274 MS. LEA: Mr. Lanni, I understand from the transactions that appear in the evidence, their description, that Enbridge is not paying the amounts to Reliant until the form 10 from the Ministry is received; is that right? 275 MR. LANNI: That's right. 276 MS. LEA: Okay. I was a little confused about holdbacks and so on, just that phrase, because of what I saw as an apparent difference, and it may be just my reading of it, between interrogatory number 11 and the supplemental interrogatory number 52. It's not an important point, but I just wanted to understand it. 277 In interrogatory number 11, we asked you to describe any contractual holdbacks or financial protections and bid bonds and so on, and you've -- the answer in interrogatory number 11 indicated that there would not be any holdbacks or bid bonds. And then in the answer that you provided us last night in number 52 -- no I've got the wrong remembrance, I guess. 278 MR. LANNI: I'm sorry. May I say something? 279 MS. LEA: Yes, go ahead. 280 MR. LANNI: I'm just refreshing my memory having read 11. 281 MS. LEA: It's page 51 -- it's schedule 51 in the new stuff. And it's the second last paragraph. It states: "Monies held back by Enbridge," and I think all I wanted to make clear was that that was the 282 and so on and so forth -- 282 MR. LANNI: No. The payment structure actually hasn't been finalized and that will be upon the -- when the parties enter into a definitive asset purchase agreement. 283 MS. LEA: Yes. 284 MR. LANNI: In fact, there may be one asset purchase agreement and one separate agreement for the capping of the wells, or it may be combined in one all-encompassing agreement and that's something that we will do after -- or upon approval. 285 But I believe the money will be put -- and we haven't -- we haven't agreed on a method of payment, but there will be some monies held back. Mr. Czychun, or Reliant, will require some money up front as well to fund the work. Of the 282,000 and change, 70,000 will immediately be put towards a trust fund, pursuant to Ministry direction, and I imagine what will be fair to all the parties may be a -- money could be put into some kind of trust where Reliant can dip into as wells are capped on a per-well basis. And then by the end of the year, once the form 10s are filed, he will have received all that money for the capping of the wells and the $70,000 trust fund would be liquidated and go to Reliant as well. 286 MS. LEA: I understand. I guess my concern was not with the details of it, and I understand that those may still be somewhat uncertain, but that there was some assurance -- if consumers -- if Enbridge is rolling some of this money into rates, that their ratepayers are getting what they're paying for. In other words, the monies will not be given out until the wells are actually capped. From what your description is, it sounds like it might be done on a per-well basis. Do you know if the form 10s are received on a per-well basis, or are they all at once? 287 MR. CZYCHUN: On a per-well basis, and they need to be submitted within 30 days of completing the well-capping procedure. 288 MS. LEA: So one possibility then is to structure the financial transactions to follow upon the receipt of the form 10 by Enbridge. Is that your intent as you understand it now? 289 MR. LANNI: Something along those lines may work. But again it's -- I -- I'm not sure at this point how exactly -- 290 MS. LEA: Okay. Then perhaps I can leave this with your counsel to address in argument. I am sure the Board would be interested to understand whether or not there is some assurance that monies will be given out only when the work has been properly completed. No insult, Mr. Czychun. It's just that there are ratepayers involved here so we might have to probe into these things more than we would otherwise. 291 The form 10s -- I gather that the capping of the wells, the inspection that's done is by someone who's employed by the MNR. I know you're an inspector, but you won't be doing your own inspections, I presume. 292 MR. CZYCHUN: No, the examiners -- we are allowed to inspect in Ontario as an examiner. Other companies doing this work, it's specific to work done, the examiner -- I guess at that point in time I put my examiner hat on and record the data. We have -- the Ministry has a report which we fill out which has to be submitted to the Ministry within 7 days of that examination. So that's the first thing the Ministry sees that -- how the well was cemented, how much cement was used, et cetera, their plugging form is filled out and sent in. And then within 30 days the form 10 is submitted to the Ministry. In this case I will be doing all the examinations. And the Ministry, Rudy can speak to this, the Ministry does have inspectors and they come out on an unannounced basis. 293 When I was plugging a well here in Toronto last spring, the inspector shows up and has a look at what we're doing, how we're proceeding, and they just do that on a -- on their own timetable. 294 MS. LEA: And is what you're describing standard practice in the industry? 295 MR. CZYCHUN: Yes, it is. 296 MS. LEA: Thank you. Now, in its interrogatory number 16, Enbridge said that all engineering, environmental and other liabilities with respect to the Wellandport field that you're taking care of will be the responsibility of Reliant after the transactions are completed. Is that also your understanding? 297 MR. CZYCHUN: Yes. 298 MS. LEA: Okay. And in interrogatory number 6, Enbridge indicated that one reason for choosing not to purchase the whole system of Wellandport Gas was a disinclination to accept potential environmental liabilities associated with the wells and gathering lines that you're going to be dealing with. 299 What is your ability to deal with such liabilities that -- can you tell me how you assessed the risk of this, and decided that the transaction was still something that you wanted to undertake? 300 MR. CZYCHUN: Well, I physically inspected all the wells, the gathering systems that are exposed to surface which have to be removed. I understand how the field is operated, having worked in wells in this area. I've done some decommissioning through other employers and so I have a sense at where there -- what the potential environmental risks are. The process I intend to take is -- one of the last steps in capping these wells is they have to be dug out a minimum of 1 metre below surface, cut off, and a steel plate welded on the casing of the well. At that time we look at discolouration or any foreign material around the well, and there are some third-party costs allocated in my cost to plug these wells to have an environmental lab come in and analyze these samples. 301 But from what I see, and from my experience in working with many of these wells, I don't envision any environmental issues. 302 MS. LEA: So you have had an opportunity to specifically assess this particular set of wells and their -- 303 MR. CZYCHUN: Exactly. 304 MS. LEA: Pardon? 305 MR. CZYCHUN: Yes. 306 MS. LEA: Okay. 307 With respect to the -- your purchase of the shares of Wellandport Gas, I presume that -- and I asked this question of the last panel as well -- I presume that with respect to the area of the system that you will be acquiring, that you'll be acquiring the petroleum and natural gas rights, the easements, the rights of way, that kind of thing? 308 MR. CZYCHUN: Yes. 309 MS. LEA: And will that be retained by you or transferred to Consumers? 310 MR. CZYCHUN: We haven't discussed the details. Whatever easements they require will be -- I assume will go on with the distribution system. Once the wells are plugged, form 10s are accepted, the intention of -- is to release those oil/gas leases off title and close the company, so they're really of -- 311 MS. LEA: Is there a petroleum and natural gas right that will still continue in that land that somebody will own after these transactions? 312 MR. CZYCHUN: Once it's released or surrendered from the landowner's deed, it goes back to the landowner. 313 MS. LEA: Okay, thank you. 314 There was one other small detail that we didn't understand, and that was in interrogatory number 10, page 2, the capital gains tax. That indicates there's a capital gains tax to be paid by Reliant; is that right? 315 MR. CZYCHUN: Yes. 316 MS. LEA: How does this liability for tax arise? 317 MR. CZYCHUN: Well, I'm not an accountant, but I had my accountant and Enbridge's accountant review the issue. The $300,000 that the distribution assets is sold to Enbridge from Wellandport Gas has got capital gains tax implications. This is to reimburse Reliant for those tax liabilities of the $300,000 acquisition. 318 MS. LEA: Okay, thank you. One moment. 319 Thank you very much. Those are my questions for these gentlemen. Thank you. 320 MR. BETTS: Questions? 321 I have one question to Mr. Czychun. 322 QUESTIONS FROM THE BOARD: 323 MR. BETTS: It really doesn't pertain to the decision to be made here for today but for the education of the Board, and particular this panel member. I wonder if you could describe in very simple layman terms the procedure you go through to actually plug a well. I heard a bit of it in your testimony. Perhaps you could just fill in those blanks. 324 MR. CZYCHUN: I'll step up to the mic. Basically it's pulling any records that are available on how the well was constructed. These wells have permit numbers so that they're traceable back to how they were made. 325 Then depending on how they're constructed, all the tubular casing pipe that's not cemented in place, it has to be removed if possible. The intention of plugging a well properly is to isolate the gas zone to its own formation, and typically what is done is the hole in the ground is cleaned of any foreign material, so you're back to the total depth of the well when it was originally drilled. And then you start cementing from the bottom of the well up to ensure that you have placement of cement across all gas-bearing and all -- all formations that have any frost impermeability, all the water zones. So you want to make the well so that there is no cross-flow of any fluids or gases between different formations or obviously not the surface. 326 So typically in these shallow wells, it's just as cost effective to cement from the total depth of the well right to surface. Typically that can be done in one or two cement processes. As the cement does, by weight, feed into the reservoir, so it falls back in, is fed a little bit into some formations, washed away, for example. Once the well is full of cement, it's confirmed that cement is there and sealing everything off, the casing is exposed at minimal 1 metre below ground level, cut off, steel plate welded on top and re-levelled and backfilled, and all these -- that process is reported both on the examiner report and the form 10 report to the Ministry. 327 MR. BETTS: Thank you, very much. That was quite informative. Thank you for that. 328 Mr. Cass, any re-examination of this panel? 329 MR. CASS: No. 330 MR. BETTS: At your discretion, you can call the next panel. Is it time for the evidence from the next panel, or is it getting time for a break? 331 MR. CASS: The next witness, Mr. Chairman, would be Mr. Rybansky. I'm not sure how long Ms. Lee thinks she'd be. 332 MS. LEA: I have about 15 minutes cross-examination. 333 MR. CASS: I'm in the Board's hands. 334 MR. BETTS: Let us proceed, then, if everybody is agreeable and we'll get through at least the third panel. 335 Mr. Cass, go ahead. 336 MR. CASS: Thank you. 337 Would Mr. Rudy Rybansky please come forward to be sworn. 338 MINISTRY OF NATURAL RESOURCES - PANEL 3 339 R.RYBANSKY; Sworn. 340 --- Recess taken at 10:45 a.m. 341 --- On resuming at 11:05 a.m. 342 MR. BETTS: Thank you, everyone. Please be seated. 343 Okay. We're back on the air. 344 Before we proceed with this panel, are there any preliminary matters that have popped up? Okay, thank you. 345 Mr. Cass. 346 MR. CASS: Thank you, sir. 347 EXAMINATION BY MR. CASS: 348 MR. CASS: Mr. Rybansky, just a few questions. Can you tell us, please, what your position is with the Ministry of Natural Resources? 349 MR. RYBANSKY: I am currently employed as chief engineer in the petroleum resources center in London. I've been with the Ministry for almost 22 years in an engineering capacity there, responsible for the various regulations, standards, engineering standards, and technical requirements that we draft and put into legislation, and engineering inspection audits in the field and that sort of thing. I have, obviously, a lot of experience in the various aspects of the oil and gas industry. I'm also involved with the storage industry from the standards development point of view. 350 MR. CASS: And I believe, sir, that you have previously testified before this Board? 351 MR. RYBANSKY: Yes, on a number of occasions, primarily with the natural gas storage pool designation areas. 352 MR. CASS: Okay. I know that this question is one that could require a long answer, but I wonder if you could just briefly indicate the role of the Ministry in relation to wells, and particularly well plugging. 353 MR. RYBANSKY: Well, the Ministry of Natural Resources under the Oil, Gas and Salt Resources Act requires that any drilling of wells be licensed and any work on wells be in accordance with that license. When it comes to the demise of production, wells must be plugged, and as such there are standards and rules in -- under the Oil, Gas and Salt Resources Act that stipulate how you plug such wells. And we enforce those rules. 354 MR. CASS: And, sir, I think you would be aware that part of the proposal before the Board is for certain of the wells now operated by Wellandport Gas to be plugged by Reliant. From your point of view, is this a good thing or a bad thing to see these wells plugged in due course? 355 MR. RYBANSKY: Most definitely. Ontario has a very long drilling history, most of which was in times that were unregulated, and consequently there is a huge legacy of unplugged wells. Unplugged wells represent potential environmental and public safety hazards. They represent obstacles to future development of the land and liabilities to the land as well. The plugging of the wells returns the natural environment to its original condition, as Mr. Czychun explained. The object of plugging wells is to prevent any cross-flow of fluids and to isolate the various formations which contain those fluids or gases in the formation that they occur so that they do not cause future problems, whether it's contamination of fresh water zones, leakage of gas into the surface of environment, whether it be households or other buildings, and so on. 356 MR. CASS: Thank you, Mr. Rybansky. 357 Those are my questions, Mr. Chairman. Thank you. 358 MR. BETTS: Thank you. 359 Ms. Lea. 360 MS. LEA: Thank you. 361 CROSS-EXAMINATION BY MS. LEA: 362 MS. LEA: Mr. Rybansky, thank you very much for attending to give us your evidence today. We really appreciate the opportunity for Staff to ask you questions and get some matters clarified. 363 In the evidence in this matter, under Exhibit A, tab 4, schedule 3, there's a letter from the Ministry of Natural Resources which does indicate that the Ministry supports the venture, provided Enbridge commits to paying to plug the wells and Reliant Energy commits to plugging them. I gather that that's, obviously from what you've just said, that's still your opinion today. 364 MR. RYBANSKY: Yes, it is. 365 MS. LEA: What about the wells and system in the Haldimand area that Mr. Boyt is taking over from Wellandport, are they a concern as well? 366 MR. RYBANSKY: Well, every well that falls within the scope -- within the scope of the Oil, Gas and Salt Resources Act has to be plugged. Part of the regulations under that act stipulate the security funds that have been previously mentioned here, and they will be secured by Mr. Boyt, as I understand, by the required security deposit. The Ministry has stated that they will honour Mr. Boyt's rights under Wellandport to continue the incremental top-up of his security deposit requirement. 367 MS. LEA: Okay, thank you. 368 Are there any other outstanding MNR orders with respect to Wellandport Gas? 369 MR. RYBANSKY: Yes, I believe there are. It has to do with a specific well to deal with. The original order dealt with a plugging requirement, a plugging order, and it's my understanding that that well has been plugged. There's an outstanding form 10 that's due to the Ministry, and I understand from Wellandport that it will be filed forthwith. There are similar orders to -- with respect to two wells, to bring the pipelines that are laid on surface into compliance with today's standards, that is, if they are going to continue to operate, to bury them and be constructed with the proper materials. That may become moot if they are going to be removed. That is the only outstanding work order from the Ministry. 370 MS. LEA: With respect to the first well where you said you understood it has been plugged but there is still a form 10 outstanding, is that in the Haldimand area or in the area that Reliant will be in? 371 MR. RYBANSKY: I'm not sure without checking the records. 372 MS. LEA: With respect to the pipelines then, do you know whether they are in the area that Mr. Boyt is continuing with or -- 373 MR. RYBANSKY: I have the same answer. 374 MS. LEA: I understand. 375 MR. RYBANSKY: If you give me a moment, I may be able to provide you with an answer, however. 376 MS. LEA: Unless the applicant can assist us. I don't know whether the applicant was aware of the outstanding orders. The evidence was to the contrary, so -- 377 MR. CASS: I certainly wasn't aware of them. 378 MR. RYBANSKY: There were three orders issued in 2001; one, as I spoke of, dealt with the requirement to plug an unused well. And as I said earlier that well has been plugged, according to my discussions with Wellandport. The other two orders dealt with replacing existing gathering pipeline installed at two wells, the PL Jackson-Wellandport Number 3 -- 379 MS. LEA: Sorry, the what? 380 MR. RYBANSKY: PL -- initials PL, Jackson Wellandport 3, RN -- it's a long well name -- McPherson 1. And similarly, the same name only it's the Wellandport -- no, I'm sorry. That's the only outstanding order with respect to a pipeline. 381 MS. LEA: Okay. So there were two -- 382 MR. RYBANSKY: Now, if that well is in that side, is in Haldimand, or the other side, I couldn't tell you. 383 MS. LEA: All right. We'll seek further clarification with respect to that, then. 384 Now, you've indicated that it's your view that the best plan for the wells that are going to be assumed by Reliant is to plug them. Is there not some gas that could still be extracted from this field? Is there not some loss of resource by plugging -- by choosing to plug the wells rather than to use them as producing wells? 385 MR. RYBANSKY: Well, it would depend on economics. Every company has its own different overheads and costs of doing business. Ultimately a lot of wells -- these wells are particularly, when you look at the resource, as you say, are at its end. They have produced for a lot of years, the gas resources have been depleted. If economics change, sure, the amount of gas that's being produced today could be deemed to be worthwhile. That's in the eye of the beholder, as it were. 386 MS. LEA: Okay, thank you. 387 Mr. Czychun, in his evidence, just gave us a description of plugging and also of obtaining a form 10. In other words, he could change from his plugger's hat to his well inspector's hat and then produce a form -- take the report to the Ministry and receive a form 10. Is that an accurate description of how that process works? 388 MR. RYBANSKY: Not quite. 389 MS. LEA: Okay. Maybe I paraphrased wrong. 390 MR. RYBANSKY: Every operator of a well who plugs a well, A, has to do it in accordance with the standards which stipulates where you place cement plugs as previously described. Upon completion of the plugging of the well, the operator is required by the regulations to report the manner and the nature of the plugging to the Ministry on form 10, and that's required to be submitted within 30 days of the completion of the work. 391 In addition to that requirement, there's a requirement that persons certified by the Ministry, otherwise known as examiners, must view the operations and certify that the work is done in accordance with the standards. 392 MS. LEA: Okay. And is it standard or acceptable industry practice to have the same person do the certifying that did the plugging? 393 MR. RYBANSKY: That's very common. Many examiners -- the certification involves assessing whether the parties have the necessary skills and knowledge, not only technically but of the standards and the rules, to determine whether they are being followed, and in many cases they are employees of companies engaged in oil and gas activities and therefore are one and the same. It's a skill set, the certification process, as opposed to ensuring third-party compliance. 394 MS. LEA: So in giving its blessing, if I can put it that way, to this transaction, I assume that the MNR has some confidence in the ability of Reliant to produce the desired result? 395 MR. RYBANSKY: Our primary support stems from the desire and the problems related to old wells, but simply getting rid of old wells is a benefit to the Province and to the landowners and to society in general, as well as the environment. Our confidence in Mr. Czychun is -- we have no reason to believe that he won't carry out the required plugging operations in accordance with the standards. But our primary support stems from the benefits, the broader benefits to getting rid of these old -- older gas wells. 396 MS. LEA: Would it be true to say that you're not aware of any reason to doubt his ability to do that? 397 MR. RYBANSKY: No, I'm not. 398 MS. LEA: Mm-hm. Enbridge filed some supplementary interrogatories, and in that -- in number 54 of that series, that is, interrogatory number 54, H.1, schedule 54, they do describe the Ministry trust funds, what happens to those trust funds, the responsibilities, and so on and so forth. Have you had an opportunity to review that answer? 399 MR. RYBANSKY: Yes, I have. 400 MS. LEA: And is the description there, with the exception of what Mr. Lanni pointed out to us today already, an accurate description, from your understanding? 401 MR. RYBANSKY: It essentially is correct. I would clarify it from the Ministry's perspective. Simply put, the regulations require that operators of wells post security in the prescribed manner. How that happens, whether it's through these various business transactions, is really not of concern to the Ministry. We just want to see the money there in the name of the operator who has control and care of the wells. So the references to transferring trust funds and so on is not technically correct. We just -- our concern is that the money is there and it's in the proper name for the proper wells. 402 MS. LEA: All right. 403 MR. RYBANSKY: How it happens is irrelevant to us. 404 MS. LEA: I understand. And from the evidence in this case, you're confident that the money -- the evidence suggests the money will be there. 405 MR. RYBANSKY: Yes. 406 MS. LEA: Okay. And I understood, perhaps imperfectly, that one of the reasons for having a transfer of the present existing trust fund in Wellandport to Mr. Boyt was because that grandfathered his ability to top-up the fund, 10 per cent a year I think was the figure, rather than I presume some additional amount being put into the fund. Do you know what was being referred to there? And I guess the gravamen of my question is, are you satisfied with that arrangement with respect to the Haldimand matter? Does that comply with the Ministry's regulations, and is it sufficient from their perspective? 407 MR. RYBANSKY: Basically what the Ministry is agreeing to do is to continue the 10 per cent or incremental top-up to the $70,000 ceiling which was made available back in 1997 when the Ministry raised the well security rates. And as a transition for companies that felt that was a harsh jump in rates, we offered this 10 per cent -- 408 MS. LEA: You offered, I'm sorry? 409 MR. RYBANSKY: It's a 10 per cent incremental scaling up of the security requirements from where they were at to the new level. 410 MS. LEA: I understand. 411 MR. RYBANSKY: And it was a one-time offer at the time to anyone who applied. We are agreeing that Mr. Boyt can continue with that right in his new company for the remaining 17 wells. Again, references to transferring one fund to another are probably not accurate. The Ministry will only look that the fund be there in the name of Mr. Boyt's company, and we will accede to letting him continue with the 10 per cent incremental top-up. 412 MS. LEA: Okay, thank you. That's helpful. 413 And is that $70,000, is that per well or is it $70,000 in total? 414 MR. RYBANSKY: It's in total per operator. 415 MS. LEA: Per operator. I understand. Okay, thank you. 416 Now, I asked an earlier panel about potential environmental liabilities associated with the wells and gathering lines that Reliant is assuming control of, and part of the answer was that knowledge of the wells in the area and an understanding of the types of difficulties that have or have not occurred assists in understanding the level of potential liability that Reliant might have to face here. I think there's some concern on the part of Staff simply to make sure that Reliant is in a position where they understand the potential liabilities and are capable of dealing with them if they arise. 417 Can you assist me at all in understanding your view of the level of potential environmental liability that an operator in this area might face with respect to this age of well; what types of things might be a problem and, I don't know if you can assist us, how likely they are. 418 MR. RYBANSKY: Well, relatively speaking, when we're talking about old gas wells in the Niagara peninsula area, these wells are probably in better shape than most. So from a relative perspective, the risks are lower with these wells because they've been operated, maintained, and, from an age point of view, they are a lot younger than the other older gas wells in the area. Most of them have been constructed with cement behind the casing to set the pipe in the ground and isolate the various porous impermeable formations and from that perspective, it makes plugging much easier. And I would say that the risks, again, are relatively lower. 419 There are always risks in any sort of industrial activity, and you can always run into problems in plugging wells. I don't expect any -- from an environmental point of view, in the uncontrolled flow of wells, because the reservoir has been drawn down, the formations are well identified and known, and for the most part the wells have been cased and cemented in their original construction. So in a very general, relative sense, the risks are lower. 420 MS. LEA: Thank you. I gather the bond for the MNR -- does that cover such types of liabilities? 421 MR. RYBANSKY: The security fund is intended to ensure that wells are plugged at the end of the day and that the associated works are cleaned up and removed in accordance with the rules. Security funds, as you can see from the economics presented in this case, are inadequate, and the Ministry is constantly dealing with industry to raise those. As I said previously, they were last raised in 1997. That concern exists whoever's contemplating operating it and producing and ultimately plugging wells. 422 MS. LEA: And plugging? 423 MR. RYBANSKY: Producing and plugging wells. 424 MS. LEA: Thank you. One moment. 425 Thank you very much, sir, for your answers. 426 Thank you, Mr. Chairman. Those are my questions. 427 MR. BETTS: Thank you. The panel has no questions. 428 Mr. Cass, anything for re-examination? 429 MR. CASS: No, Mr. Chairman. Thank you. 430 MR. BETTS: Thank you. Are we likely to see Mr. Rybansky later at all, or does this conclude his evidence? 431 MR. CASS: I think this concludes his evidence, sir. 432 MR. BETTS: Thank you. I just wanted to express the panel's thanks as well for your attendance here today. It's helped us and given us additional comfort in the information we've received, so thank you very much. 433 MR. RYBANSKY: You're welcome. 434 MR. BETTS: Mr. Cass, you may call your next panel. 435 MR. CASS: Yes. Thank you, sir. This will be the last panel. We will recall Mr. Harte and Mr. Lanni. As well, the other members of the panel will be Ms. Murdock, Mr. Abdel-Qader, and Mr. Ladanyi. Because of the seating arrangements, perhaps Mr. Ladanyi will just sit at the end of this table and join the panel in that manner. 436 If I can ask the witnesses who haven't been sworn to come forward and be sworn. 437 Mr. Abdel-Qader would wish to be affirmed rather than being sworn. Thank you. 438 ENBRIDGE GAS DISTRIBUTION INC. - PANEL 4 439 T.LADANYI; Sworn. 440 S.MURDOCK; Sworn. 441 A.ABDEL-QADER; Affirmed. 442 R.LANNI; Previously sworn. 443 N.HARTE; Previously sworn. 444 MR. BETTS: Thank you. Please proceed. 445 EXAMINATION BY MR. CASS: 446 MR. CASS: I just have a few questions to introduce the remaining witnesses and complete the adoption of the evidence. 447 Ms. Murdock, you are manager operations administration and sales for the Niagara region of Enbridge; is that correct? 448 MS. MURDOCK: Yes, that's correct. 449 MR. CASS: As with the others, your curriculum vitae included in the materials accurately sets out your education and qualifications? 450 MS. MURDOCK: That's correct. 451 MR. CASS: And you were responsible for evidence and interrogatory responses bearing your name; were you? 452 MS. MURDOCK: Yes, that's correct. 453 MR. CASS: Do you have any corrections to any of that evidence? 454 MS. MURDOCK: No, I do not. 455 MR. CASS: Right. Was it prepared by you or under your direction and control? 456 MS. MURDOCK: Yes, it was. 457 MR. CASS: And is it accurate to the best of your knowledge or belief? 458 MS. MURDOCK: Yes, it is. 459 MR. CASS: Thank you. 460 Mr. Abdel-Qader, you are senior financial analyst, financial business performance for Enbridge; is that correct? 461 MR. ABDEL-QADER: This was my position when I prepared the evidence. Currently I'm a program manager with the engineering department. 462 MR. CASS: Right. Thank you. And you were responsible for the evidence in the area of economic feasibility; were you, sir? 463 MR. ABDEL-QADER: Yes, I was. 464 MR. CASS: And your curriculum vitae, subject to the change in position you've just described, accurately sets out your qualifications and work experience? 465 MR. ABDEL-QADER: That's correct. 466 MR. CASS: And in relation to the evidence bearing your name, including interrogatory responses, are there any corrections that would need to be made to your evidence? 467 MR. ABDEL-QADER: No, I do not. 468 MR. CASS: All right. And was that prepared by you or under your direction and control? 469 MR. ABDEL-QADER: Yes, it was. 470 MR. CASS: And is it accurate, to the best of your knowledge and belief? 471 MR. ABDEL-QADER: Yes, it is. 472 MR. CASS: Finally, Mr. Ladanyi, you are manager, regulatory proceedings for Enbridge; is that correct? 473 MR. LADANYI: Yes, I am. 474 MR. CASS: And your curriculum vitae that has been filed with the Board accurately sets out your background? 475 MR. LADANYI: Yes, it does. 476 MR. CASS: All right. And the evidence bearing your name, including interrogatory responses, can you tell us whether there are any corrections that need to be made to that? 477 MR. LADANYI: There are no corrections that I know of. 478 MR. CASS: Was that evidence prepared by you or under your direction and control? 479 MR. LADANYI: Yes, it was. 480 MR. CASS: And was it accurate to the best of your knowledge and belief? 481 MR. LADANYI: It is, Mr. Cass. 482 MR. CASS: Thank you. 483 Mr. Chairman, I don't have any further questions for this panel. They are available for cross-examination. 484 MR. BETTS: Thank you. Board Staff. 485 CROSS-EXAMINATION BY MS. LEA: 486 MS. LEA: Thank you. 487 I have some questions about the physical system and plans, and then some questions about the financial transactions. I'll begin with questions about the physical system. 488 First something left over with Mr. Rybansky's evidence, can anyone assist me. He indicated I think, in the end, that there were two orders outstanding against Wellandport, one of which he is confident will be satisfied very shortly with the issuance of a form 10 with respect to one well. But there was also an order outstanding with respect to a pipeline described as the PL Jackson Wellandport 3, RN McPherson 1. I think that had to do with all one well. 489 Does anybody -- can anybody assist me as to whether that pipeline or well, whatever that order relates to, is part of the field that Reliant is assuming, or whether it is in the Haldimand area. 490 MR. HARTE: It's in the field of Reliant. 491 MS. LEA: Do you know what the plans are then, dealing with the outstanding order? You can answer this by way of undertaking if you are not aware of the situation. 492 MR. HARTE: I wasn't aware of it, but all the pipelines that are exposed or on top of the ground will be removed and the wells will be plugged as part of Reliant's contract. 493 MS. LEA: So it's a gathering line and it's going to be taken out of service in any event. 494 MR. HARTE: That's correct. 495 MS. LEA: All right, thank you. That's helpful. 496 What is the -- what is the present planned timing of the various aspects of the physical work you need to do to complete this project? You spoke about this already, Mr. Harte, but what I'm asking you to address is, have the plans changed in terms of timing, and what does that mean for the need for your -- for a decision quickly from this Board? I'm trying to work backwards from when you need a decision and so on. Can you address that for me, please. 497 MR. HARTE: Well, the plans have changed because the construction of our pipeline to Wellandport to supply them with Enbridge Gas distribution gas will not occur until next spring or early summer, so the physical assets wouldn't be transferred until that time. 498 MS. LEA: Okay. So there's -- although a timely decision is nice to have, it's not like you're waiting with your shovels poised above the ground at this time. 499 MR. HARTE: No, we're not. 500 MS. LEA: Okay, thank you. You answered a considerable number of questions in the written evidence about what was described as the 1997 review of the pipelines here. Did that review and what you learned from it inform your decision to invest in this system? How was it taken into account in determining your investment strategy? 501 MR. HARTE: The 1997 review was basically to go over the distribution system and produce that plan that I had shown. 502 MS. LEA: I see. 503 MR. HARTE: That would show the pipelines, where they are, the types of material that's there, and how much of the distribution system would require upgrading for us to operate it, and to operate it at the new, higher operating pressure. Because -- and in the absence of records, this is why we have to reclassify the piping system. 504 MS. LEA: So it was a field survey of the lines. 505 MR. HARTE: A field survey and also the pressure elevation which will do the reclassification. 506 MS. LEA: Mm-hm, okay. So do I gather, then, and I don't know whether it would be Mr. Harte or someone else that would answer this question, that the facts and the understanding that you gained from that review were taken into account when you negotiated the purchase of this system? 507 MR. HARTE: They were included as part of the costs that were done in the feasibility analysis, including the purchase price. 508 MS. LEA: Okay. You've talked about testing that needs to be done in the future; is that correct? Some testing of these pipelines, repressurizing needs to be done still. 509 MR. HARTE: We will reclassify the pipeline by retesting the pipeline after we construct our facilities. 510 MS. LEA: And I think you've indicated now that you plan to do that during the summer season when demand for gas is lower. 511 MR. HARTE: That's correct. 512 MS. LEA: Do you anticipate that the testing would cause any interruption in service? 513 MR. HARTE: It should not. 514 MS. LEA: Under what circumstances might it? 515 MR. HARTE: If there happened to be a major leak or a rupture on a piece of pipeline, but we wouldn't anticipate that because the materials that are in the piping system from our review in 1997 are relatively new materials. 516 MS. LEA: Okay. And do I understand you're also going to be inspecting appliances that are connected into the system? 517 MR. HARTE: When we exchange the meter and regulator at the customer appliance, when we reintroduce the gas at the customer, it's a requirement that we do an inspection. 518 MS. LEA: Is it possible then that some appliances could be red-tagged, that is, taken out of service for a period of time? 519 MR. HARTE: That's possible. 520 MS. LEA: How long does it usually take to get the situation corrected that would allow that red tag to be removed? 521 MR. HARTE: The red tag is up to 90 days, I think -- 522 MS. LEA: I see. 523 MR. HARTE: -- that it has to be cleared. That's if the appliance is left on. Sometimes, depending on the infraction, the appliance will be disconnected from the system until such time as it is fixed. 524 MS. LEA: I see. I understand, okay. 525 With respect to the meters, you indicated in the supplemental interrogatories that you delivered to us, that you intend to replace all the meters. Do you have reason to believe the existing meters do not conform to Measurement Canada standards for requirements? 526 MR. HARTE: I'm not aware whether they are or they aren't, but we included the cost of replacing them in the feasibility because I believe we are probably going to have to replace the meters. Some of them may be relatively old and may be due for replacement. 527 MS. LEA: So it's your understanding of the age of the plant rather than any specific information about them that has led you to allow a cost for total replacement? 528 MR. HARTE: Well, it's also the nature of the distribution system and the wells and the gas from the wells, that sometimes the -- this is considered to be like wet gas. So there could be some moisture in the meter, there could be some internal corrosion. I don't know, I haven't looked. So we figured the best thing to do is to replace all the meters. 529 MS. LEA: Okay, thank you. One moment, please. 530 As you probably heard, Mr. Tepper is interested in further with respect to the timing, and this flows into the questions I have with respect to the financial aspects of the transaction in any event. 531 If this Board does grant Enbridge's and the other applicant's applications today, do you know when these transactions will actually occur and is there a specific order for the transactions? Probably Mr. Lanni would be the best to answer that. 532 MR. LANNI: Well, the first step would be to -- we'd have to get in touch with the representative at the Ministry of Natural Resources and figure out when they would allow for the transfer of the well licences, and that will need to be done in conjunction with the actual execution of the definitive asset purchase agreement and share purchase agreements. I would imagine that we would get -- get, I guess, working on those agreements as soon as we receive word from the Board. But I'm not sure -- I don't have a date in my mind when they will be done. 533 MS. LEA: If you could just review your -- the evidence that you gave in chief this morning, Mr. Lanni. You were talking about which -- I'm looking now at Exhibit K.1.1, which you kindly provided us. You indicated that some of these transactions would be simultaneous, as I recall. 534 Perhaps you can just review the order of the transactions and which ones take place altogether, and how much time you might anticipate might elapse between them. 535 MR. LANNI: Right. In fact, on further review, I guess I could have listed the final three transaction as 3A, B, and C, because essentially they will be taking place at the same time. The money that is going to Stan Boyt will never really remain with Reliant. I don't know what commercial -- how it's going to be arranged, but that's the intent. 536 And I think all the parties are under the understanding that all -- each of those agreements will be signed, you know, at the same time. 537 MS. LEA: Okay. All right, thank you. 538 I wanted to follow up on a couple of questions I asked about the tax -- capital gains tax that I referred to earlier in my questions, I think, to the first panel. I guess I'm confused about who is getting the gain and therefore who is liable for the tax. Just looking at it without understanding, perhaps, completely, I would think that Wellandport would be liable for that tax since it is getting the $300,000 less 30,000. Can anybody comment on that. 539 MR. LANNI: Can you give that answer, Mr. Abdel-Qader. 540 MR. ABDEL-QADER: I assume that this is correct, Wellandport will be responsible for it. But for Enbridge, I'm not aware of any capital gains that would be incurred. 541 MS. LEA: Right. No, I understand that Enbridge is not incurring capital gain. The reason I ask the question, though, is that it is included in the calculations in the amount that Enbridge is going to be paying Reliant, and I'm wondering why it's -- is it in the 282 -- Yes, I'm looking at interrogatory -- thank you. 542 I'm looking at interrogatory number 10, and the capital gains tax, under interrogatory number 10, is listed as part of the 282,850 being paid by Reliant -- paid to Reliant by Enbridge in the general basket of capping the wells. It's not -- I just want to understand why it might be included there if it's the capital gains on the 300,000 which is going to end up with Mr. Boyt. And you can think about this and give an undertaking if it's more appropriate. 543 MR. LANNI: That's fine. I think we would accept an undertaking. What's the question again? 544 MS. LEA: It's probably best that I try again, and if Staff or a Board member can help me with the wording I'd appreciate it. 545 Interrogatory number 10, Exhibit H, tab 1, schedule 10, lists a $34,350 capital gains tax liability as an amount to be paid by Reliant, and it also indicates that this is part of the price that Enbridge is paying Reliant for well-capping. That seems to us to be a strange categorisation because, just looking at the transactions, we would think that the liability rests with Wellandport, that is, Mr. Boyt, who is receiving the $300,000, because I think the earlier evidence talked about the source of the gain. 546 So our question is: Why is it being paid by Reliant? What's the origin of it, I guess? Why is it being paid by Reliant? And why is Consumers -- why is that part of Consumers' payment to Reliant for the well-capping? There may be good answers, I just don't know what they are. 547 The other thing is I don't know how the amount is determined. It was indicated today that tax experts and lawyers looked at this and that was the amount that they had determined would be payable. Some brief explanation of that amount would be of assistance. We don't require a lot of detail with respect to the determination of the amount. 548 The undertakings in this case are in the J series, so that would be Undertaking J.1.1, if that is acceptable to the applicant. 549 MR. CASS: Yes, that's fine, Ms. Lea. 550 UNDERTAKING NO. J.1.1: TO EXPLAIN THE ORIGIN, RESPONSIBILITY AND AMOUNT OF THE CAPITAL GAINS TAX LISTED AT EXHIBIT H, TAB 1, SCHEDULE 10, PAGE 2. 551 MS. LEA: A few more details. As I say, thank you very much for your answers to so many of the questions that we had. 552 I wonder if I could ask you to turn to Exhibit D, tab 2, schedule 1, page 4. That's the first page of the -- of some financial calculations. 553 Mr. Abdel-Qader, you're listed as being the person responsible for this matter. 554 MR. ABDEL-QADER: That's correct. 555 MS. LEA: Thank you. 556 We're trying to figure out line 15. What's an average revenue rate? 557 MR. ABDEL-QADER: This was part of the response in IR number 42. What I did was I just divided the total sales revenue by the total volumes, and we gave that figure just as an indication of the average revenue. 558 MS. LEA: Okay, so it was an attempt to represent an average revenue rate. 559 I guess what confused us was, when you look at interrogatory 42 it does give that answer, but then it looks as if this figure, that is, the average revenue rate, was used to calculate the sales revenue. Therefore, we were thinking, Well, you can't calculate this figure using the sales revenue if you used it to calculate the sales revenue, and we presume that from Exhibit D, tab 2, schedule 1, page 6. And again here we're at line 17, gas sales and distribution revenue. 560 It seems to us that the answer in interrogatory number 42 refers to a circular -- more circular calculation. 561 MR. ABDEL-QADER: No, it does not, actually. 562 MS. LEA: It does not. Please explain again, then. 563 MR. ABDEL-QADER: Well, this is just a number that we put there to give an indication of the average revenue, but it's not -- you're correct, it's not a circular reference. It is just simply calculated by dividing the volume by the -- the revenue by the volume. But it's not the other way around, no. 564 MS. LEA: Okay. So when we look at Exhibit D, tab 2, schedule 1, page 6, what are the inputs, then, to line 17? 565 MR. ABDEL-QADER: It's the volumes multiplied by the revenue rate. This is the average revenue rate. The revenue rate -- 566 MS. LEA: Okay, the volumes multiplied by? 567 MR. ABDEL-QADER: The revenue for each volume. The revenues will vary with volume. When we have higher volumes, revenue will go down. 568 MS. LEA: I understand. 569 MR. ABDEL-QADER: So for each customer we will multiply the volumes by the relevant rates, and that's how this number was derived. However, the number you're referring to is just an average for the whole thing, the whole volume and the whole revenue. 570 MS. LEA: All right, thank you. I understand that explanation now. 571 Now, you've also given us, in interrogatory number 42, part D, a $60.59 gas cost. Is there a relationship between that gas cost and the average revenue rate in this way: If we subtract the $60.59 from the $134.69, the difference is $74.10. Is this the distribution revenue? Is there -- or are we making up a relationship here that does not exist? 572 MR. ABDEL-QADER: Yes, I would -- this is the distribution margin, correct. You have -- you move your -- you deduct your gas cost out of your revenue. This is your distribution margin, that's correct. 573 MS. LEA: Okay, thank you. One moment, please. 574 Thank you for those clarifications. I appreciate it. 575 MR. ABDEL-QADER: You're welcome. 576 MS. LEA: Now, this might be a question for Mr. Ladanyi, but anyone is welcome to answer. 577 In interrogatory number 39 -- in interrogatory number 39 you state that the impact on rates for Enbridge's customers of including the costs of this transaction and rate base would be inconsequential, and I gather that's because this is a very small amount relative to the rest of the rate base; is that correct? 578 MR. LADANYI: That's right. 579 MS. LEA: So why is it so important to have the Board confirm in this application that the costs are recoverable in rates? Is this not also an inconsequential amount for the shareholder? 580 MR. LADANYI: Well, no, it isn't, because if we were to spend, for example, this amount of money and -- for the purpose of this discussion, I'll take the total amount which is 582,000 for the assets plus the plugging of wells, and if this was disallowed by the Board, what would happen is this would immediately be a hit to the bottom line of Enbridge. We would -- essentially this would be unrecoverable, so on the financial statements for the year that this occurred, we would really have to write off that amount immediately. 581 MS. LEA: But I guess what I'm trying to understand is the relative magnitude. If it's an inconsequential amount for the ratepayer, why is it not inconsequential for the shareholder? 582 MR. LADANYI: Well, it's not that it's not inconsequential for the ratepayers. What it is is that the impact on the ratepayer is so small that it cannot be calculated with the accuracy of our calculations -- 583 MS. LEA: I take that point. 584 MR. LADANYI: -- because we're dealing with a $3 billion rate base and we're adding something that's -- a million dollars to it, essentially, this entire project. So it's so small that we really cannot show an impact on rates. 585 MS. LEA: I accept that. Now, with respect to the shareholder, though. 586 MR. LADANYI: Well, as I said, this would be a hit to the bottom line immediately. In the year that this -- this money cannot be recovered from ratepayers, that would be minus 582,000 for the bottom line. And yes, I mean everything counts in any year, so you're trying to have all of your costs recovered and justified. 587 MS. LEA: Can you assist us in understanding why that amount is consequential for the shareholder? I mean, can you compare it to some figure-like rate base? If you're comparing it to rate base for customers, I don't know whether that's the appropriate number for the shareholder, though. 588 MR. LADANYI: Well, these are very difficult questions. 589 MS. LEA: It is, yes. Do your best. That's all right. 590 MR. LADANYI: I would say when you look at the total income of a corporation, you know, any amount is significant, you know. It's -- I would say that when you're looking at the bottom line, and I suppose if it was 5 cents it was not -- it would not be significant. But an amount of this size is significant. This amount is in the order of half a million dollars and I would consider that to be significant, even for a large corporation like Enbridge. 591 MS. LEA: Now, you've indicated in interrogatory number 47 as well that Enbridge may not proceed with the transaction if the findings sought under section 36 is denied. Can you tell me why that is. 592 MR. LADANYI: Well, I think in that -- if I can just turn to that interrogatory for a moment. 593 MS. LEA: Yes, certainly. 594 MR. LADANYI: My answer there is, if you look in part B -- 595 MS. LEA: Part B, yes. 596 MR. LADANYI: -- in part B, I explain in part B that, if this was -- that if the recovery was denied, this would be an indication, a signal to our investors that prudently incurred the investments in the distribution assets in Ontario would not be recoverable through rates, and it would be a signal to the investment community that we are a higher risk utility, so to speak, you know; that we are at risk of making investments which would not be allowed by the regulator, investments which clearly, as we explained in the evidence, would be in the public interest. 597 So we believe that although the amount of money is not large, the potential impact in the understanding of the -- of this by the investment community could be a significant impact, and therefore it is important for us to be ensured that this can be recovered if we were to proceed with it. We do not want to be at risk, even for this small amount. 598 MS. LEA: I understand. Mr. Ladanyi, my questions here and then what I'm going to ask you are venturing into argument, so if you're not comfortable answering you can leave it to your counsel. 599 But I guess what I'm thinking is that the company takes risks when it does any kind of project, and sometimes the risks taken by the company in proceeding with projects without any kind of preapproval for rate recoverability are considerably higher than the amount we're talking about in this case. I'm just trying to understand what makes this case special. 600 MR. LADANYI: That's actually a very good question. 601 What makes this case special, to some degree, is really the history of similar purchases by either Consumers Gas, a predecessor company of Enbridge Gas Distribution, or by Union Gas or Northern and Central Gas in Ontario, the history of similar purchases across Canada. And I think I filed in response to one of the interrogatories a -- some recent decisions in other provinces. 602 As you can read these decisions, you will notice that regulators in many instances did not allow the recovery of any amounts above the book value of the assets of the vendor. So this, in some -- because of that, this makes this application somewhat more riskier than a typical system expansion application, and that's why we're seeking, obviously, a bit of a greater assurance -- 603 THE COURT REPORTER: I'm sorry, could you slow down, please, Mr. Ladanyi. 604 MR. LADANYI: Okay, certainly. 605 That's why we're considering this application to be somewhat riskier, or this project to be somewhat riskier than the typical leave-to-construct or a system expansion application, even though the amount of money in a typical system expansion application might, in fact, be much greater, as we had, for example, in the South Niagara project about a year ago. 606 MS. LEA: Yes, thank you. I appreciated, by the way, the filings of all those decisions as part of that interrogatory. When I came onto this case a couple of days ago, I was quite surprised to find such legal research had been done for me. I appreciate it very much. 607 So your assessment was that the regulatory risk in this proceeding was higher than in other projects that you may be proceeding with. 608 MR. LADANYI: Yes. 609 MS. LEA: Okay. One moment, please. 610 Have you had an opportunity to look at the Board Staff proposed conditions of approval, which I think were sent to you a few days ago? 611 There is one typo on them which I would like to correct at this time, or at least one that I found; there may be others. The typo occurs in paragraph 2, and it's the last three words or whatever which reads, "Number 3 as is." That should just be deleted. That was my suggestion to Staff to leave in number 3 from another version, so I'm sorry that remained in the conditions. 612 With that correction, is Enbridge, and are the other applicants - and I gather that at least your counsel and possibly you are speaking for the other applicants as well - are they prepared to accept these conditions of approval as they're drafted? 613 MR. LADANYI: Yes, we are. 614 MS. LEA: Are there any amendments you need to make it possible for you to comply with them? 615 MR. LADANYI: There are no amendments. 616 MS. LEA: Thank you very much. Thank you very much for the opportunity to ask you questions, and for your answers. Those are my questions of this panel. Thank you. 617 MR. BETTS: Thank you very much. 618 Any questions? I have one question I think for Mr. Lanni. 619 QUESTIONS FROM THE BOARD: 620 MR. BETTS: Just for clarification. I've heard evidence, or read evidence regarding the shares to be transferred in the Wellandport sale to Reliant. I've heard the term that all of the voting shares will be transferred; I've heard the term that all of the outstanding and issued shares will -- will there be any shares, voting, non-voting or otherwise, that will not be transferred with Wellandport to Reliant? 621 MR. LANNI: All shares of Wellandport Gas Company will be transferred to Reliant. 622 MR. BETTS: Thank you. That's very clear. 623 That was the only question I had, so, Mr. Cass, is there any re-examination? 624 MR. CASS: No, Mr. Chairman, there is not. And, in fact, this completes the applicant's evidence. 625 PROCEDURAL MATTERS: 626 MR. BETTS: Thank you very much. 627 It's 12:00 at this point. We do have several things yet to do before we can conclude the hearing portion. One would be to receive arguments from the applicant, and then to receive a submission from Board Staff, and finally reply from the applicant. 628 Does anyone want to do that at this point? Mr. Cass, would you prefer some time to prepare? 629 MR. CASS: I would prefer some time, Mr. Chairman, if you don't mind. I'm not talking about a lot of time. 630 MS. LEA: Also there is the possibility, Mr. Chairman, to eliminate one of those steps, if my friend pleases. I have no problem with going ahead with our argument. I mean we're not -- we're not fighting over the application, we're not opponents in this case, so I don't see any harm, if the applicant sees none, in my giving a proposed argument which would contain any gaps or whatever, things we're inviting Mr. Cass to address, and then he could simply reply, respond to that. 631 It is not common in an advocacy proceeding to do that, but I don't mind giving up hearing Mr. Cass's argument in chief, wonderful though it would be, and proceeding, because I think I understand the case from the evidence of witnesses and what their points are. If that is acceptable, that would reduce the steps from two to one. 632 MR. BETTS: Do you think you could do that at this time, or would you like some time? 633 MS. LEA: I think I would need a little bit of time to prepare. If we can take lunch, I can do that over the lunch break, if that's of assistance to you. 634 MR. BETTS: Okay. Then -- and Mr. Cass, is that all appropriate with you? 635 MR. CASS: Definitely, Mr. Chairman. Thank you. Yes. 636 MR. BETTS: Okay. I think our panel would be satisfied with an hour's lunch, but considering that there is some work to be done, is that sufficient for counsel? 637 MS. LEA: I'd prefer an hour and 15 minutes, sir, simply because I need some time to talk with Staff and then digest it and then come back and do some more work. 638 MR. BETTS: And that's fine with you? 639 MR. CASS: That's fine, sir, yes. 640 MR. BETTS: So let us reconvene at 1:15, and we will recess at this point. Thank you very much. 641 --- Luncheon recess taken at 12:03 p.m. 642 --- On resuming at 1:22 p.m. 643 MR. BETTS: Thank you, and please be seated. 644 Welcome back, everybody. I hope you all were able to get in some lunch in that short break. 645 I believe we're at the stage that Board Staff, represented by Ms. Lea, was prepared to provide her submissions. Are there -- before I do that, are there any preliminary matters that anyone would like to bring forward? 646 MS. LEA: There are two, I guess. 647 PRELIMINARY MATTERS: 648 MS. LEA: One is that the affidavit of publication of service has been received and we've checked it and it's fine. 649 The second thing is we've just received Undertaking J.1.1. I wanted to take a moment to consider that before delivering my argument, and I do mean a moment. I just want to read it over. 650 MR. BETTS: Very well. Mr. Cass, anything from your side? 651 MR. CASS: Just one small matter, Mr. Chairman. Mr. Lanni indicated that he was going to give a careful read to the supplementary interrogatory responses that he adopted in his evidence, and he's confirmed that he's done that and that there are no further corrections that need to be made. 652 MR. BETTS: Thank you. That completes the record there. 653 We'll just take a moment while Ms. Lea reviews that undertaking. 654 MS. LEA: Thank you very much. 655 MR. BETTS: Thank you. You are ready then? 656 MS. LEA: Thank you very much. 657 SUBMISSIONS BY MS. LEA: 658 MS. LEA: I do have a few remarks with respect to this application that I hope will be of assistance to the Board and possibly the applicant. In this hearing, the Board is considering several applications under section 43 of the Act and one application under section 36 of the Act. 659 Regarding the section 43 applications first, there are three transactions for which approval is sought: The disposition of the Wellandport Gas system in Haldimand to Mr. Boyt; the acquisition of the Wellandport Gas shares by Reliant; and, the disposition of the Wellandport system in West Lincoln and Wainfleet to Enbridge. 660 Section 43(6) says that the Board shall grant or refuse leave for these transactions. No test or standard for granting leave is given in the section so the Board has to consider its general duty to decide applications in the public interest. 661 Section 2 of the Ontario Energy Board Act, 1998 gives several objectives for the Board to consider in making decisions in relation to gas. Objectives 1, 2, 3, and 5 may be relevant to this case, as well as the general public interest in the safe operation of gas systems in the Province. 662 Dealing first with the West Lincoln and Wainfleet portion of the system and the transactions related to that. With respect to objective number 1 in section 2 of the Act, that objective is to facilitate competition in the sale of gas to users. The purchase of the Wellandport Gas system -- gas distribution system by Enbridge through Reliant will facilitate competition in the sale of gas. The operation of the system by Enbridge will allow gas users to choose their gas supplier, and that option it presently not open to them. 663 Objective number 2 under the Act, to maintain just and reasonable rates, is also forwarded by these transactions. Wellandport Gas prices have been tied to regulated utility rates, and the evidence in this case suggests that the rates will not increase but, in fact, may decrease slightly. 664 Objective number 3 that the Board is to consider is to facilitate rational expansion of transmission and distribution systems. This objective is assisted by the transactions as well, as the purchase of the system by Enbridge allows for better rationalization of their distribution system. The transactions also provide for an orderly succession of this gas system from one operator to another. In addition, service to new users will be facilitated by the acquisition of the system by Enbridge. There is a demand from new users for gas which Enbridge can satisfy. Customers presently served by Wellandport will also benefit from increased security of supply due to their connection to a province-wide distribution system and the integration within that system. 665 Objective number 5 is to facilitate opportunities for energy efficiency. This objective may be assisted by the transactions as new customers will have access to the DSM programs of Enbridge. In addition, gas service may provide a more efficient and less environmentally harmful fuel than present alternatives for new customers. 666 The general public interest in safety is promoted by the transactions. The evidence is that some wells in the Wellandport system are not up to current standards. Reliant will cap these wells and remove the gathering lines from service. Enbridge will re-test the distribution system and replace it where necessary, as well as the meters, and will test appliances attached to the system. The system will be subject to the safety and inspection standards of Enbridge subsequent to the transactions. So there are considerable public interest benefits to the section 43 transactions, according to the evidence. 667 However, there are some public interest issues left outstanding. First, the disposition of the system in Haldimand to Mr. Boyt maintains the status quo. The transactions as a whole mean that Mr. Boyt has fewer customers and a smaller geographic area to deal with. However, this is still a one-man operation with respect to the physical plant work, and that man today has told us that he is interested in retiring. So I would ask what public interest is served by this first transaction, except that it facilitates the other transactions for which approval is being sought. 668 Secondly, in approving the second and third transactions requested under section 43, the Board is allowing the safety and environmental liabilities that may be associated with the Wellandport production system to be borne by Reliant. Enbridge indicated in its evidence that it was not interested in bearing those liabilities. It is clear, however, that Enbridge would have greater financial wherewithal to bear the costs of such liabilities than Reliant. At the same time, the evidence is that the likelihood of some environmental liability is relatively low. We've had that evidence not only from the Reliant panel, but also from Mr. Rybansky. Also, my recollection isn't entirely clear, but I seem to recall something in the evidence that suggested that Enbridge was of the view that Reliant had more capability of doing the work than the company itself. In any event, I'd invite Mr. Cass to address these two public interest issues in his argument, and perhaps clarify the evidence for us. 669 Much of the evidence in this case has revolved around the financial arrangements of the transactions, and the financial arrangements are relevant for at least two reasons. First, the Board must be reasonably satisfied that the public interest in safety will be adequately met. That is, the Board needs to be assured that Reliant has the financial wherewithal as well as the technical expertise to cap the wells and deal with the gathering lines. 670 Secondly, as Enbridge is a regulated utility, it is seeking to have the amounts paid by it to acquire the Wellandport assets recovered in rates. 671 Reliant's ability to perform its tasks has been reasonably demonstrated through the evidence of Mr. Czychun's expertise. In addition, the Ministry of Natural Resources has oversight over the capping process. So I think the issue I raised there about the financial wherewithal and technical expertise has been reasonably satisfied by the evidence here. 672 Enbridge has taken the unusual step of seeking an order under section 36 in this proceeding. Enbridge has presented its case much as a facility expansion case might be presented. The customer -- the company wants to serve customers in the Wellandport service area and beyond, as well as increase system security and rationality, and the company argues that it can either build the system or buy it, and it chose the least-cost alternative. 673 The assets acquired will be used and useful, and as they were prudently acquired, argues the company, recovery of the costs of acquisition should be allowed. There is certainly some merit of this way of considering the application. 674 However, it is submitted that it is necessary to be clear about what the panel hearing this case can grant the applicant in response to its application under section 36. This panel, as I understand it, is not being asked to amend the rates schedules, so the recovery in rates of these costs will not be finally determined by this panel. 675 I submit that this panel can make a finding with respect to the prudence of the costs of this acquisition on the facts before it, but in my submission, this panel cannot bind a rates panel. I agree that if this panel were to find that the costs were not imprudent, it is unlikely that the rates panel would have any interest in reconsidering prudence. 676 But, for example, if the circumstances surrounding these transactions changed between now and the rates case, or if problems arose with respect to rates shock, a rates panel could reconsider whether these costs should be recovered. 677 I submit that the panel hearing this application today cannot give a 100 per cent guarantee of recovery, and I submit that the extent of the jurisdiction you should exercise under section 36 in this matter is to make a finding with respect to prudence based on the evidence that has been given before you. And I'd invite Mr. Cass to address in his argument what he is asking this panel to grant under section 36, and what determinations will remain in the hands of the rates panel that eventually changes the rates schedules for the company. 678 The costs of this acquisition and expansion project can be ground into three headings, I think. There is the cost of repair to the old system and the building of new plant, and that cost has been estimated at about $588,066. There's the amount paid to Reliant to deal with the wells and gathering lines, and that amount is $282,850. And then the amount paid to acquire the system from Wellandport which is paid through Reliant is about $300,000. 679 The first two sources of costs are reasonably well justified, on balance, in the written and oral evidence. But what leaps out of this -- out of the evidence in this case is the payment for the gas distribution system. The book value was estimated to be about $30,000. That's in the prefiled evidence. Enbridge is paying about $300,000. On the face of it, this cost seems imprudent and therefore it could be argued that Enbridge should not be able to recover this amount in rates. Why should ratepayers pay for this premium? Why should the Board grant the section 36 application? 680 In general, utility regulators consider rate recovery of acquisition premiums on a case-by-case basis because each case presents unique facts. This case certainly presents a unique situation. Wellandport has been a one-man operation, as regards to the physical plant at least, for many years. There is, therefore, a considerable public interest in ensuring an orderly succession of the distribution system to another operator. In addition, Wellandport has not been subject to regulatory oversight for more than 10 years. Therefore, the value of its rate base has not been reviewed for at least that long. Accounting practices that would accurately value the system have not been in place either. 681 These facts suggest that the book value of the assets is not a true measure of the value of the system to the purchaser. The book value does not capture the purchaser's expectation of revenue from the system. There is an argument to be made, therefore, that -- I guess I can put it this way: There's a question as to whether a premium is being paid by Enbridge, and if a premium is being paid, is it as great as it appears. 682 If this panel did find that there is a premium being paid, should the Board find that the costs are not imprudent and therefore recoverable in rates, as I submitted earlier, this Board and other regulators treat recovery of acquisition premiums on an individual case basis. In general, applicants have to show exceptional circumstances for recovery to be permitted. A definite prerequisite is that benefits to ratepayers must outweigh cost to ratepayers. The applicant has kindly provided some recent decisions in interrogatory number 50, but I'd also like to draw the Board's attention to its own decision in 1971 regarding Northern and Central Gas Company's acquisition of various distribution systems. The Sault Saint Marie acquisition, which is described at pages 39 and 40 of that decision, may be similar to this case. 683 A more recent decision of this Board, at least somewhat more recent since its 1974, is EBRO-309, which was a Union decision. Both these cases reinforce the principle that ratepayers must receive a benefit before acquisition premiums should be recoverable in rates. 684 So do the facts in this case justify a finding that the acquisition costs are not imprudent? Some factors that suggest the costs are prudent include the following: It is difficult to assess the true value of the premium, as the book value may not be representative of the value of the distribution system. The evidence is that economically there is a benefit in the long term to Enbridge's existing customers as the project benefits do outweigh the costs over a 40-year horizon. The negotiations were arms-length and there have been previous negotiations with respect to this asset purchase. These two factors suggest that there is some market discipline operating in the purchase price here. 685 Even including the premium, the buy option, if I can put it that way, is the least-cost alternative for Enbridge to provide service in the area. The evidence is that to build the system from scratch would cost more. 686 Lastly, there are benefits in the transaction to customers which have value but are not represented by the book value of the system. These include increased safety, increased security of supply, and the opportunity to choose a gas supplier other than the distributor. 687 The question then for the Board, when considering the section 36 application, is whether the benefits to customers arising from the acquisition of the distribution system are sufficient to indicate that the price being paid is not imprudent. 688 The company has argued that the impact on ratepayers of inclusion of these costs in rates will be negligible. However, the ratepayers would clearly be better off economically if the premium was not recovered in rates. As I submitted earlier, this argument cuts both ways. If the amount of the cost is negligible to ratepayers, why is it not similarly negligible to shareholders. 689 Further, the evidence from Enbridge is that the approval under section 36 is a necessary part of the transactions. The argument is that the public interest benefits of the section 43 transactions may not be realised unless this Board grants the section 36 approval. I would invite Mr. Cass to address the reasons for this argument in his argument. 690 The Board may find that it does not accept the evidence that the section 36 approval is a prerequisite to the transaction that's taking place. If the Board does accept the evidence that the transactions will not take place without the approval under section 36, the Board must balance the public interest gains against the costs to ratepayers. Pardon me. If the Board chooses to find that the costs are not imprudent, Staff recommends the imposition of a condition to which the applicant has agreed that allows tracking of the costs in the company's next rates case. And I believe you'll find that as condition number 3 in the Staff-proposed conditions of approval. 691 Just in closing, I would like to, on behalf of Staff, thank the applicant very much for the extraordinary efforts it put into producing the written evidence for this proceeding. The amount of information and the quality we received was extremely helpful, and we thank them very much for that. 692 Thank you very much, Mr. Chairman. 693 MR. BETTS: Thank you, Ms. Lea. That was a very good summary of the evidence, certainly from your perspective. Thank you. 694 Mr. Cass, there was a lot there, and Ms. Lea challenged you to respond to a few points in your arguments. Would you like some time to prepare those, or did you anticipate the questions? 695 MR. CASS: I don't think I need time, Mr. Chairman. I believe I'm ready to proceed if the Board is ready. 696 MR. BETTS: We would be more than happy if you would do that. Please proceed. 697 MR. CASS: Thank you, sir. 698 SUBMISSIONS BY MR. CASS: 699 MR. CASS: Mr. Chairman, I think it's fair to say that we wouldn't be here today if the proposal in front of the Board was not perceived by the applicants at least to be in the public interest of the Province of Ontario on a wide range of different grounds. Ms. Lea herself has talked about the public interest a fair amount in her summary. I would like to discuss it as well because I think it lies at the core of this application. I may repeat some of the points that Ms. Lea made, and I apologise for that, but I think it is important to understand the full scope of the public interest in this case. As well I think she brought out some additional points that had not actually occurred to me. Just, for example, the availability of Enbridge's DSM programs to the current customers of Wellandport that are not available to them at this point in time. 700 Anyway, to come back to where I started, I think that because this application is perceived to be in the public interest is the very reason that we are here, and that will -- that will flow through, I think, most of my submission. 701 So in addressing the public interest, I start with some of the basic propositions in this case. 702 First of all, we have Mr. Boyt as the operator and the sole operator, at least as far as field matters are concerned, of Wellandport who is 68 years old and who indicated to the Board in his testimony, really needs -- or is looking to retire, which I suggest is not an unreasonable point of view for him to be taking at all. 703 Next, second, we have evidence today from Mr. Rybansky that there are, in fact, some issues that need to be addressed in the Wellandport system. It was the first I became aware of it, but Mr. Rybansky did point out that there are some outstanding Ministry orders in relation to the Wellandport system. I understand that the issue about the plugging of a particular well looks like it's been resolved, but he did mention some above-ground pipes that do not meet current standards, and I understand some order has been made in that regard. I don't know that you need to turn it up, but if you look at the response to Board Staff interrogatory number 10, you will see within the work that Reliant is going to do is, in fact, the removal of two surface pipes. That is right within the breakdown of Reliant's work described in the response to interrogatory number 10. And Mr. Rybansky himself referred to two surface pipes. 704 And I made a note of Mr. Rybansky's testimony when he was talking about this. His word was, this becomes moot if it is something that Reliant is going to deal with. So there's another aspect of this application. 705 The matters that need to be addressed in the Wellandport system are going to be addressed. 706 Another aspect I think that needs to be taken into account, also arising from the testimony of Mr. Rybansky, he was being cross-examined about the wells to be plugged by Reliant. Again, I made note of his comments. He said, the resource has been depleted and the reserves are at their end. He did, of course, point out it's always a matter of economics, and if the price is right someone can always produce something that may not be economic at another price. But his description was, essentially, that the resource is at an end. So we have customers of Wellandport who need somebody to supply gas to them. We have Mr. Boyt looking to retire. We have the resource in the wells coming to an end, and there's a real need here for somebody to step up and supply these people who are existing natural gas customers. 707 In addition to the existing customers of Wellandport, or at least the gas usage of existing customers, there's the factor that Wellandport actually has not been able to serve the full demand that might be coming from customers within its territory. I think that's discussed at a few places in the evidence, but I'll give you one example. 708 Again, I don't think we need to turn it up but I can give you the reference, at paragraph 17 of the main prefiled evidence, Exhibit A, tab 3, schedule 1, page 8. There was evidence about certain barns within the Wellandport territory that remain on oil simply because Wellandport lacks the capacity to serve them. So not only do we have these existing customers who in the circumstances need someone to step in and supply them, we have additional needs that have not been met in the past that could be met by a new supplier and can be met by Enbridge. 709 Another factor is that in relation to the areas that we're talking about, West Lincoln and Wainfleet, Enbridge already has in place the certificates and the franchises, so there's no need for a new player to come along and meet the requirements for those aspects of gas distribution. Enbridge already has them for the same areas that Wellandport is distributing gas in, leaving aside Haldimand of course. And the only thing that has stopped Enbridge in the past has been the undertaking that was given not to exercise their rights in Mr. Boyt's area. That of course will be dealt with as part of the transaction, and there is now a logical party with the necessary rights in place to come forward and meet the needs of these customers. 710 Another aspect of the public interest which Ms. Lea did allude to is that this project has a positive economic impact insofar as Enbridge is concerned. The profitability index is greater than 1.0. In fact, it has been calculated to be 1.08. Going even one step beyond that, as Ms. Lea pointed out, the economics of this project are better than they would be for Enbridge to build from scratch. The costs would be more to build from scratch, so to speak, and the calculation of the PI for an alternative that would require construction of all the facilities, I believe, was 0.92. And the reference for that is Board Staff interrogatory number 20. 711 So we have the existing ratepayers of Enbridge will be better off because the project does have a profitability index of greater than 1.0; we have prospective customers who will be better off because Enbridge will be better able to meet needs that Wellandport has not been able to meet in the past; we will have existing customers of Wellandport who will be better off because they will pay slightly lower rates and also because of advantages referred to by Ms. Lea such as more secure service delivery; and, I suggest as well that the Province as a whole will be better off. 712 And again I thank the testimony of Mr. Rybansky for this because he said very clearly, when talking about the wells to be plugged by Reliant, getting rid of old wells is in the interests of the Province and society in general. So we have a lot of interests that are being served by this application, and as we do know, the Ministry of Natural Resources has provided a letter in which it, in its words, or the words of the author of the letter, it strongly supports this venture. That's at Exhibit A, tab 4, schedule 3. 713 So for all of those reasons, I suggest that this is a project that -- or proposal that meets a wide range of interests and is very much in the public interest that this Board would consider in its deliberations. 714 Now, this long list of factors that I've referred to, I think, tell us more than just that this proposal is in the public interest, at least in my mind. And I submit to the Board, these factors also tell us that this case really is an exceptional one if not a unique one. And, again, I won't go through all the facts I just laid out, but we have the operation of a set of wells and a distribution system almost single-handedly by one man with, of course, very able office assistants. We have the need for customers of this system to be served because he's at the point of retirement. We have a smaller distributor whose rates have not been regulated by this Board because of the exemption in the Ontario regulation. So we have all these many factors that not only drive the public interest, but also indicate, I submit, that this case is really exceptional, if not unique, when the Board comes to consider the regulatory treatment that is requested by the applicants. 715 Now, Ms. Lea did invite me to address a couple of other aspects of the public interest, one being the distribution -- sorry, the disposition of the system in Haldimand and whether leaving that system to continue to be a one-man operation is part of the public interest, bearing in mind that the disposition of that system does require its own approval from this Board. 716 The Board did hear the evidence of Mr. Boyt that it is his plan to sell that system, so I suggest to the Board, at a minimum, this is in the public interest because it facilitates the main transaction. And furthermore, it results in the assets being held and divided in a way that will facilitate the end goal. In other words, the assets that are within Enbridge Consumers Gas' franchise territory will remain with Wellandport if the Board approves the section 43 request, and will then be able to be assumed by a very experienced gas distributor and any difficulties in respect of those assets will be solved. 717 The remaining assets, yes, they will remain with Mr. Boyt but they are now discrete, to be only those in Haldimand. He is going to be looking to sell them. They are not assets in Enbridge's franchise territory. So in my submission it's a logical step towards the ultimate goal of Mr. Boyt being able to dispose of all of his assets, to separate those, and for him to look to sell those separately because they are not in Enbridge's franchise territory. 718 The evidence does contain some discussion about the extent to which Union Gas may have an interest in that. I won't go down that road. My point is simply I think this is a logical step to divide the assets in that way so that Mr. Boyt can fulfil his ultimate plan of retiring. So in my submission, it is all in the public interest. 719 Another issue that Ms. Lea asked me to address is the fact that there may be a risk of some liabilities to be borne in relation to environmental or other matters, and in her words, Enbridge would have a greater financial wherewithal to handle that than Reliant. In my submission, the approach -- what I would suggest is the correct approach might be a little different than that. I think the concern of Enbridge in taking on that sort of liability or risk -- it's only a risk we're talking about and one that's been described as relatively low -- but the concern of Enbridge is this is not Enbridge's business, as we all know. Enbridge is a gas distributor, a gas storage company, but it's not in the business of capping wells and assessing the environmental liability attached with something like that. That's why we have Mr. Czychun and Reliant. He is the expert. He has assessed the risk. And in my submission, that's entirely appropriate, that Enbridge should not put itself into that business and begin assessing this sort of environmental risk; somebody with the background should do it. Mr. Czychun has done it and he's comfortable with it, as we all heard, and his evidence is supported by Mr. Rybansky. 720 So I think, in my submission, that's the correct approach, that the person who has the knowledge and the expertise should be the one assessing the risk and taking it on, which is what is happening here. 721 Now, I did want to talk a little bit about the regulatory requests that the applicants have made. I was going to go through the section 43 request, but Ms. Lea has done that and I won't repeat it. 722 The one feature that I would add, having heard the testimony of the witnesses today, is that one element of the transaction and the approvals necessary would be leave for Wellandport to sell the Haldimand county distribution system. Now, I think Mr. Boyt's evidence is that, as opposed to holding that personally, he would incorporate a company for that purpose. So although Ms. Lea described it as approval to sell to Mr. Boyt, I think to be strictly accurate, based on the evidence we've heard, the approval for that part of the transaction would be for the distribution system to be sold to Stan Boyt or a company to be incorporated by him for that purpose. 723 I did just also want to make a brief comment about one of the other approvals. Under section 43(2), Reliant needs approval to acquire the shares of Wellandport in the application that's described as voting securities. That's not intended to imply in any way that there are some other shares out there that are not covered, and the witnesses did confirm this. The only reason for this specific reference to voting securities in the application is that, I believe, is in fact the way subsection 42(3) reads. So it's simply an attempt to track the language of the section when the reference to voting securities is used. 724 Now, the other approval that Ms. Lea has discussed and certainly is a feature of this application is the request under section 36 of the Ontario Energy Board Act for the Board to classify the amounts to be paid by Enbridge as amounts to be included in rate base. Ms. Lea said a number of things on that point that I agree with, but if I could just start by making one small quibble with her comments. I just have to find my note here. 725 She referred a number of times to a rates panel and what a rates panel might or might not do in the future. For whatever the significance of this point is, my view would be that you are a rates panel. In fact, that's the very reason for having made a section 36 application in addition to the other sections that the application was founded on. The very reason for that is to constitute you as a rates panel. That's not to say that the applicant is looking for any sort of a full order that would result from a rates proceeding. The applicant is looking for nothing more than is described in the application, and that is an order that would classify the amounts that the applicant paid as amounts to be included in rate base. So I'm not suggesting that you would exercise all of the powers that a rates panel exercises in a full case, but I do think you are a panel sitting under section 36, just like a rates panel. 726 And I don't think there's any question about the jurisdiction for the Board to do what has been requested. Under section 36, as I think we all know, what I call the new Act, I guess it's not so new anymore, subsection 3, contrary to what was in place before, makes it very clear that in fixing or approving just and reasonable rates, the Board may adopt any -- I think the wording is method or technique that it deems -- that it considers appropriate. So there's a very broad foundation in subsection 3 to begin with. Then, of course, we have subsection 4 which is part of this application that specifically says that an order may include conditions, classifications, practices, rules respecting the calculation of rates. So the jurisdiction is, in my submission, clearly there. 727 The question that then arises is, as I understand it, why does Enbridge see the need to make that sort of an application under section 36. 728 Mr. Ladanyi addressed this in his evidence, and I believe he made some very valid points. I won't repeat them. I will provide perhaps a slightly different perspective, and this ties in with what I said about how I believe the public interest just flows through this entire case. 729 Enbridge, as would be apparent from the evidence, is not making this proposal of acquiring the distribution system of Wellandport because this is an important strategic plan for Enbridge or its shareholders. Enbridge is doing this and has come forward because it has a perception that something needs to be done here that is strongly in the public interest, and that should proceed as a utility initiative with costs in rate base. That's the reason we're here. 730 At the same time, we all recognize, and Enbridge recognizes, that the final arbiter of what is in the public interest and what should be a utility activity included in rate base is the Board. So Enbridge is essentially coming to the Board and saying, in these exceptional circumstances that I've described, we believe that this is in the public interest and should proceed as a utility activity. 731 But does the Board agree? If the Board says no, you are wrong, you didn't consider some things or other factors that we think you should have taken into account, we don't believe that this is in the public interest and should be pursued as a utility activity with inclusion in rate base, then Enbridge will accept that and not proceed. But the very reason we're here and what is driving this whole application is Enbridge's perception, as I've described it, and it will be up to the Board to decide whether Enbridge was right or wrong, because of course the Board is the final decision-maker on the public interest. 732 So that's my submission to the Board on why the section 36 request, and why the evidence indicates that if the request is not successful, Enbridge doesn't intend to proceed. 733 Sorry, I'm just checking my notes of some of the other points that Ms. Lea made. 734 Now, she did refer to what a future panel might or might not do, and I would fairly concede, because I think it's been recognized many times that one panel cannot fetter the discretion of another, and that is certainly something that we can't throw any doubt on. And of course if circumstances change, then a future panel would have to take that into account. But in respect of what's before this Board now, in my submission, this is a Board sitting under section 36. The applicant is simply asking that money spent by Enbridge, when spent, will be classified for inclusion in rate base. The applicant's not asking for anything more in terms of amending rates schedule or producing an immediate rate impact or anything else. 735 I don't -- I don't propose to get into the regulatory precedence. I do agree with Ms. Lea that each case is unique, and, for all the reasons I've already given, I think this case is unique and provides a very strong foundation for what the applicants have requested. I think there are situations where -- on acquisitions, premiums have been allowed and disallowed, and premiums have been cut down so that they accord with what the benefits are that are assessed by the Board. But each case is unique, and for all reasons I've given, I think that -- and I submit to the Board that the requested approval is appropriate in this case. 736 And to the extent -- Ms. Lea did raise an issue, and then, in my mind, actually answered it, or at least gave the same answer that I was going to give, so here I would have to repeat her, but I think the Board can feel very confident with respect to the benefit that the ratepayers will receive and the prudence of the amounts to be expended. And she made the points herself. 737 In relation to the $300,000 to be paid to -- for the distribution assets, it's a figure negotiated at arms length, as was the figure with Reliant. So these are arm's-length negotiations. The overall profitability index of this is greater than 1.0 when you build these very numbers into the profitability index. So comparing it to a system expansion, it's economic to proceed in this fashion. And because the profitability index is over 1.0, it has a benefit to existing ratepayers. 738 Finally, as I said and Ms. Lea said, that is a better economic approach than building from scratch. 739 So for all of those reasons, I think the Board can feel comfortable that this unique case does meet the criteria that the Board would want to see in order to allow the relief requested by the applicant. 740 One other point that came up during the hearing of the evidence but Ms. Lea did not address in her submissions was -- had to do with security for the performance of Reliant, and I did, I think, indicate that I would address that and I think I should do so, even though it didn't arise out of her summary at the conclusion of the case. 741 As the Board is aware, to begin with there will clearly be a $70,000 bond posted as security for performance of what Reliant is expected to do, and that is provided under the regulations and I believe is the maximum under the regulations. So in accordance with the legislative regime that is in place, that has been determined to be an appropriate maximum security for this type of work, and Reliant is going to post it -- or it will be posted on Reliant -- on behalf of Reliant if the money comes directly from Enbridge, whichever route it takes. So the Board, I think, can be comfortable that there is a legislative regime in place that established what appropriate security is and that the maximum will be put forward. 742 Now, if the Board did have any concerns that it should go even further, I feel that I should express to you Reliant's point of view. 743 First of all, when Reliant takes the transfer of the wells, it will have an immediate responsibility for these wells. In my simplistic way of looking at things I think of it almost as an asset with negative value. Somebody has to fill the responsibility of plugging these wells. So from Reliant's point of view, I don't think Reliant will perceive it as being fair that it would take on this negative asset and responsibility and then be told, wait to get your money some time later. 744 The other aspect of it from Reliant's point of view is that Reliant -- it's not part of this proposal that Reliant will front capital costs out of its own pocket, and so if it doesn't get any money in advance and there's required to be additional arrangements as well as the bond posted with the Ministry, Reliant is really being asked to do more than its expectation because it will somehow have to front the capital costs. 745 Now, there are additional precautions that the Board could consider in conditions of approval if it's not satisfied with the appropriateness of the $70,000 bond. One would be, as Mr. Lanni referred to, the possible use of a trust fund. Another would be in conjunction with the trust fund, that money be advanced in increments. Again, I think in fairness to Reliant, it would only be fair that they get the money in advance so that they can fund their costs, but if it was in increments, like 50 or $75,000, possibly that would be an additional precaution with respect to the expenditure of the money. 746 As well, I'm told, and I don't know a lot about this, but I understand in the construction industry, for example, there are performance bonds, and I'm told that perhaps in relation to the work of Reliant -- so this would not be the bond to the Ministry, this would be Enbridge requiring a performance bond in relation to the work of Reliant to ensure that it is performed properly. 747 So those are possible additional precautions if the Board feels it necessary. But again I go back to the fundamental point which is that the legislative scheme has established a maximum. Presumably somebody directed their mind to what types of security really ought to be needed, and the maximum will be provided in this case. 748 Those are my submissions, Mr. Chairman. If there are any questions, of course I'd be happy to try to address them. 749 MR. BETTS: Thank you. 750 I'll ask the panel if there are any questions of either Board Staff submissions or Mr. Cass's submission. 751 There are none. I think at this point the ball comes over to our court, and it's timely for us to consider a recess and delivery. 752 Let me just confer with my panel for a moment. 753 [The Board confers] 754 MR. BETTS: My fellow panel members feel as I do that we are likely able to deliver an oral decision on this today. And I'm not sure how long we'll take, but I think I'll start off by saying that we could probably anticipate us returning at 3:30. And if that doesn't work, someone will be here to advise when we will be returning or what our plans are. 755 So our efforts will be to deliberate and deliver an oral decision, if possible, this afternoon. 756 If there is nothing else for us to consider prior to that, then, I will recess this hearing until 3:30. Thank you. 757 --- Recess taken at 2:10 p.m. 758 --- On resuming at 4:45 p.m. 759 MR. BETTS: Please be seated. 760 Thank you all for sticking around, and our apologies that we were unable to deliver that in the time that we predicted, but it was a -- we have made a decision. You'll all be pleased to hear that. And we did want to properly deliberate and make sure that the wording was appropriate as well. So I will now read the decision made by the panel. 761 DECISION: 762 MR. BETTS: We do have a copy for the court reporter if you're concerned at all. 763 The Board in making this decision has considered all of the evidence and submissions before it. The Board cites the evidence and submissions that are relevant to its decision. 764 With respect to the three applications made under section 43 of the Act, the Board finds that the proposed transactions are in the public interest for the following reasons: 765 For the disposition of the gas distribution system in the county of Haldimand, the reasons are as follows: 766 This transaction preserves the level and quality of service to these customers; 767 It is not anticipated to result in increased rates to these customers; 768 It is expected that Mr. Boyt will be able to continue to provide gas and gas distribution services to these customers; 769 It reduces the number of customers and geographic area that Mr. Boyt is required to serve; 770 Severing this part of the distribution system facilitates the proposed transactions and any future transaction of the Haldimand assets. 771 The acquisition by Reliant of all of the voting securities of Wellandport Gas Company Ltd. is supported for the following reasons: 772 Having the wells and gathering lines appropriately removed from service as a result of the transaction satisfies a legitimate public interest; 773 It achieves an orderly transfer of responsibility for the wells and gathering lines to an owner capable of capping the wells to the required standard and capable of removing the gathering lines from the service to the required standard; 774 MNR supports the application; 775 The Board notes that in bringing Reliant into the transaction Enbridge is providing expertise that is not part of its core business. 776 Finally with regard to the disposition of gas distribution assets in the Townships of Wainfleet and West Lincoln to Enbridge Gas Distribution Inc., the reasons as -- the supporting reasons are as follows: 777 Competitively supplied gas will be offered to gas consumers in this area for the first time; 778 Enbridge will be able to expand its system in a more rational manner; 779 Gas consumers will be offered Enbridge's Demand Side Management and energy efficiency programs; 780 Service will be expanded to customers, whereas expansion was previously unavailable; 781 Enbridge will provide enhanced service at initially reduced rates; 782 The distribution system will be upgraded and maintained to Enbridge's standard; 783 An orderly succession of service provider from Mr. Boyt to Enbridge will ensue; 784 Service and response times will likely be enhanced by the availability of the resources of a large corporation. 785 The three proposed transactions are in the public interest for all the above reasons. 786 The section 36 application raised several issues, including the treatment and potential recovery of the acquisition premium. 787 Regulators would generally not allow an acquisition premium to be recoverable in rates in the absence of evidence that the benefits to ratepayers exceed the costs. Based on the "exceptional, if not unique" circumstances in this case, the Board will approve classifying the amounts paid by Enbridge Gas Distribution Inc. in relation to the acquisition premium of the gas distribution system in the Townships of West Lincoln and Wainfleet as amounts to be included in rate base of Enbridge Gas Distribution Inc. for several reasons, including the following: 788 The book value of the assets being acquired by Enbridge may not be a true measure of the value of the system to the purchaser; 789 The prudency of the amount negotiated and therefore the reasonable assumption that this is a fair market price is suggested by: the arm's length negotiations and the two past failed negotiations; 790 The proposed classification does not give rise to an undue burden to Enbridge's existing ratepayers in the short term, and the benefits exceed the costs to ratepayers over the long term; 791 Enbridge will provide the gas consumers in the area a higher level of service; 792 Enbridge will provide gas distribution initially at rates lower than those charged by Wellandport; 793 Enbridge has chosen the least cost alternative for providing service; 794 Wellandport Gas Company Limited is not subject to rate regulation whereas Enbridge is; 795 Service will no longer be provided by a one-man operation, it will be provided by a large corporation; 796 Capital assets and depreciation have not been considered in over a decade, and have not been used in the establishment of rates for Wellandport. 797 Enbridge has proposed to recover the costs of the investment through rates. The Board accepts the applicant's evidence of the costs to repair the old system and to build a new plant, the amount paid to Reliant to deal with the capping of the wells and removing the gathering lines from service and the costs to acquire the distribution assets. 798 Therefore, the Board grants leave under section 43 of the Act for the three transactions in this application and classifies the actual costs related to these transactions to a maximum of $1,170,916 as amounts to be included in the rate base of the company, under section 36 of the Act. 799 The Conditions of Approval proposed by the Staff and accepted by the applicants will form part of the Board's order. 800 An order of the Board shall be issued forthwith. 801 In concluding the hearing, I would just like to make a few remarks. First of all, to offer thanks to our court reporter who seemed to get over a couple of problems that the computer gave her. I want to give a very special thanks to our Staff who have helped us through this process and made it very expeditious in delivery. But really through their comments and supported by the panel, we want to thank the applicant for a very thorough and complete application, and an obvious intent to answer all interrogatories thoroughly and expeditiously. 802 The process has been rewarding, I think, to all of us. We've accomplished it in a short period of time. As we commented amongst ourselves, probably improved our average in terms of delivery of decisions. 803 But apart from that, we are very pleased with the participation of all parties, including those that gave evidence to us. We wish to thank you all, and I think with those concluding remarks, we will adjourn this hearing. Thank you. 804 MR. CASS: Thank you. 805 --- Whereupon the hearing adjourned at 4:55 p.m.