Rep: OEB Doc: 12J46 Rev: 0 ONTARIO ENERGY BOARD Volume: 1 26 SEPTEMBER 2002 BEFORE: P. SOMMERVILLE PRESIDING MEMBER M. JACKSON MEMBER G. DOMINY MEMBER 1 RP-2002-0130 TRANSCRIPT VOLUME #1 2 IN THE MATTER OF the Ontario Energy Board Act, S.O. 1998, c. 15 (Scheule B); AND IN THE MATTER OF an Application by Union Gas Limited for an Order or Orders approving or fixing just and reasonable rates and other charges for the sale, transmission distribution, and storage of gas as of January 1, 2003. AND IN THE MATTER OF the customer review process approved by the Ontario Energy Board in the RP-1999-0017 Decision with Reasons. 3 RP-2002-0130 TRANSCRIPT VOLUME #1 4 26 SEPTEMBER 2002 5 HEARING HELD AT TORONTO, ONTARIO 6 APPEARANCES 7 PAT MORAN Board Counsel ROMAN CHYCHOTA Board Staff ZORA CRNOJACKI Board Staff BRYAN GOULDEN Union Gas MICHAEL PENNY Union Gas MARCEL REGHELINI Union Gas ROBERT WARREN CAC THOMAS BRETT OASBO PETER THOMPSON IGUA ALICK RYDER City of Kitchener DWAYNE QUINN City of Kitchener RANDALL AIKEN London Property Mgmt LORRAINE LAND Pollution Probe BRUCE MACODRUM Canadian Manufacturers MALCOLM ROWAN Canadian Manufacturers MARK MATTSON Energy Probe DAVID POCH GEC MICHAEL JANIGAN VECC JOYCE POON VECC ROBERT ROWE Enbridge Consumers Gas TIBOR HAYNAL TCPL GLEN MACDONALD Hydro One Networks ANGELA YORGIADIS Hydro One Networks 8 TABLE OF CONTENTS 9 APPEARANCES: [16] ISSUE 2.3 [40] SUBMISSIONS BY MR. THOMPSON: [41] SUBMISSIONS BY MR. MACODRUM: [85] SUBMISSIONS BY MR. POCH: [101] SUBMISSIONS BY MR. WARREN: [105] SUBMISSIONS BY MR. BRETT: [109] SUBMISSIONS BY MR. MATTSON: [121] SUBMISSIONS BY MR RYDER: [128] SUBMISSIONS BY MR. AIKEN: [136] SUBMISSIONS BY MR. JANIGAN: [141] SUBMISSIONS BY MR. PENNY: [147] QUESTIONS FROM THE BOARD: [231] REPLY BY MR. THOMPSON: [283] FURTHER SUBMISSIONS BY MR. PENNY: [313] ISSUE 3.3 [329] SUBMISSIONS BY MR. JANIGAN: [330] SUBMISSIONS BY MR. PENNY: [365] QUESTIONS FROM THE BOARD: [384] REPLY BY MR. JANIGAN: [404] ISSUES 11.1 AND 11.3 [424] SUBMISSIONS BY MR. RYDER: [425] SUBMISSIONS BY MR. THOMPSON: [457] SUBMISSIONS BY MR. ROWAN: [462] SUBMISSIONS BY MR. PENNY: [468] QUESTIONS FROM THE BOARD: [487] REPLY BY MR. RYDER: [523] SUBMISSIONS BY MR. QUINN: [537] ISSUE 11.4 [552] SUBMISSIONS BY MR. MORAN: [553] SUBMISSIONS BY MR. PENNY: [562] DECISION: [586] 10 EXHIBITS 11 12 UNDERTAKINGS 13 14 ---Upon commencing at 9:35 a.m. 15 MR. SOMMERVILLE: Please be seated. Thank you. My name is Paul Somerville. Sitting to my left is Malcolm Jackson and to my right, George Dominy. We are sitting today in the matter of file number RP-2002-0130, to hear -- this is the issues day, related to a customer review process that arises from the Board's decision in July of 2001 in the matter RP-1999-0017. Could I have appearances, please. 16 APPEARANCES: 17 MR. PENNY: Yes, Mr. Chairman, my name is Michael Penny. I appear as counsel for the applicant, Union Gas Ltd. 18 MR. WARREN: Robert Warren for the Consumers' Association of Canada. 19 MR. BRETT: Good morning. Tom Brett for the Ontario Association of School Business Officials. 20 MR. THOMPSON: Peter Thompson for the Industrial Gas Users Association. 21 MR. RYDER: Alick Ryder for the City of Kitchener. 22 MR. QUINN: Dwayne Quinn, City of Kitchener. 23 MR. AIKEN: Randy Aiken, for the London Property Management Association, and Wholesale Gas Services Purchasers Group. 24 MS. LAND: Lorraine Land, articling student with Murray Klippenstein, appearing for Pollution Probe. 25 MR. MacODRUM: Mr. Chairman, my name is Bruce MacOdrum, and with me is Mr. Malcolm Rowan, and we represent the Canadian Manufacturers and Exporters, CME. 26 MR. MATTSON: Good morning Mr. Chairman, Mark Mattson, counsel for Energy Probe. 27 MR. POCH: Good morning, Mr. Chairman. David Poch on behalf of Green Energy Coalition and the Canadian Institute for Environmental Law and Policy, GEC and CELAP. 28 MR. JANIGAN: Good morning, Mr. Chair. I'm Michael Janigan on behalf of the Vulnerable Energy Consumers Coalition. With me is Joyce Poon. 29 MR. ROWE: Robert Rowe, Enbridge Gas Distribution. 30 MR. HAYNAL: Good morning, Mr. Chair. I am Tibor Haynal for TransCanada PipeLines Limited. 31 MR. MACDONALD: My name is Glenn MacDonald, for Hydro One Networks. 32 MS. YORGIADIS: Angela Yorgiadis, for Hydro One Networks. 33 MR. MORAN: Pat Moran, Board counsel. 34 MR. SOMMERVILLE: Are there any preliminary matters? The Board does have before it a notice of motion with respect to one of the matters in issue today. Are there other preliminary matters with respect to the issues list or any other matter related to this proceeding? 35 MR. PENNY: It appears not, Mr. Chairman. It appears yesterday we had a very productive session in the conference on the issues, and I think what we're left with is perhaps four or five contested issues, and they are noted -- I hope the Board has before it the list that was prepared as a result of yesterday's meeting by Board Staff, and it notes which issues are contested. So it's only those issue that is we need to address you on today, it's issue 2.3, 3.3, and then 11.1, 11.2, and 11.4. 36 I think we also agreed yesterday that because the weather normalization was of a slightly different character than the others, and it is the subject of a Notice of Motion, that we would deal with that first and separately -- it also happens to come first, as it happens, on the list -- and then proceed with the other four, and on the basis that those who are propounding those other issues will speak first and say why they think they should be on the list and those who oppose will then respond. 37 MR. SOMMERVILLE: That's perfectly satisfactory. 38 Mr. Thompson, are you ready to proceed with your motion? 39 MR. THOMPSON: Yes, thank you, Mr. Chairman. 40 ISSUE 2.3 41 SUBMISSIONS BY MR. THOMPSON: 42 MR. THOMPSON: I assume that the Board has my Notice of Motion which was sent under cover letter a couple of days ago. I apologize, I didn't number the pages of the motion, so I would ask everybody, if they wouldn't mind, if they would start by numbering the pages of the motion 1 to 12 inclusive. 43 MR. PENNY: Where does page 1 start? 44 MR. THOMPSON: Notice of Motion. 45 Just to make sure everybody has the paper, the first four pages are the body of the Notice of Motion, and then pages 5 to 9 contain the exchange of correspondence that occurred with respect to the weather normalization topic being on the issues list, and then pages 10 to 12 inclusive contain some excerpts from the Board's RP-1999-0017 decision and the RP-2001-0029 decision. 46 As you can see from the paragraph (a) of the motion, the motion is for an order or direction that all matters relevant to the new weather normalization method that Union proposes to implement in this customer review process for 2003 rate be deferred for consideration in Union's 2004 rates application, i.e., that is after the expiry of the PBR term. 47 The 2004 rates application will be a case in which the cost of service and revenue estimates or revenue requirement will be re-based, so it's the re-basing case that we say this topic -- in which this topic should be addressed and not during the course of the customer review process under PPR. 48 Union seeks to include this topic in the customer review process on the basis of the contention that it is a non-routine adjustment. The evidence that Union has adduced with respect to the matter I've referenced in the Notice of Motion appears under Exhibit B, tab 2 in the white pages and it starts approximately page 3, goes through to page 30, and then there are a number of appendices dealing with the topic. And as you can see, it's a very broad topic indeed. 49 If you've had a chance to review it, even in a cursory way, what you'll see that Union is asking for is a change to the method that it uses to normalize for weather. 50 The method to normalize for weather, as everybody knows, is an integral component of the volume forecasting process, and the volume forecasts for 2003, in our respectful submission, are not in issue during the customer review process. The volumes to be used during the PBR are the Board-approved 1999 volumes. They are to be used through the duration of the PBR. This was at Union's request and insistence, if I recall it correctly. 51 So it's my submission that the Board-approved 1999 weather normalized volumes are a fundamental component of the PBR plan base, which cannot be changed during the term of the plan. 52 A new method for forecasting volumes is, in my submission, a re-basing issue and not a customer review process issue. The characterization of the topic as a non-routine adjustment, in my submission, is incorrect. 53 You'll find Union's evidence dealing with this attempted characterization at paragraphs 14 through to 18 of the Exhibit B, tab 2, pages 4 through to 6. And there they attempt to bring the adjustment that they're advocating into the four corners of paragraph 2.324 of your RP-1999-0017 decision and I'd like to address that just briefly, if I might. Because, in my submission, the adjustment that is being proposed does not fit within those criteria. 54 While weather is certainly a matter that is beyond management's control, the method used by management to normalize for weather is a volume forecast methodology, which is clearly a matter entirely within the control of management. The decision to review the process that was used to establish the 1999 Board-approved volumes, the decision to analyze the database that was analyzed during the course of the review, the conclusion that the methodology reflected in the Board-approved volumes is deficient in some respects is the result of an exercise that is entirely within the control of management. And that is what Union is asking you to consider in approving this case. 55 And in my submission, that does not fall within the ambit of what the Board considers to be a non-routine adjustment. 56 Secondly, the non-routine adjustments, in my respectful submission, relate to costs, and I suggest that's clear from the excerpts from your 0017 decision that you'll find at page 10 of the Notice of Motion material, paragraphs 2.323 and 324 and it's also, I suggest, clear from the excerpt from your recent decision in 0029 in paragraph 564. And we're not dealing here with the cost that Union has suffered as a result of weather, what we're dealing here with is Union's proposal to change revenue estimates based on a new methodology. 57 The costs that Union incurs as a result of warmer than normal weather compared to what's reflected in the Board-approved 1999 volumes are those costs which find their way into Union's various deferral accounts and such costs are recoverable, provided they've been prudently incurred and cannot be mitigated by Union. That's not what we're talking about here. 58 The amount that Union seeks to recover in 2003 rates is not a cost but a shortfall in revenues, which Union, in effect, acknowledges in its pre-filed evidence, where it characterizes the claim -- I'm looking at Exhibit B, tab 2, page 6, in the bullet points -- characterizes its claim as unrealized revenues and lower revenue expectation. 59 Unrealized revenues, lowered revenue expectations arising from a forecast methodology that's embedded in the Board-approved 1999 volumes, in my submission, do not fall within the ambit of non-routine adjustments. 60 What we have here is a management-promoted methodology change which is ineligible for consideration at this time. 61 Now, you'll see in the -- I guess the last point I want to address is my understanding of Union's position with respect to this matter. You'll see in the correspondence portion of the material that was attached to our motion, starting at page 5, that intervenors attempted during the consultative process to persuade Union to withdraw this topic from the CRT process, and Union responded to that initially by letter of August 16, 2002. It was sent to all participants in the information gathering process that had been held on August the 7th. 62 I won't read exactly verbatim what they say, but the substance of their position, as I understand it, is that we've included this in our application, it's therefore an issue for the Board to consider. And the concerns that we have raised about whether it's a non-routine adjustment or not a non-routine adjustment can only be addressed at the end of the case after all evidence has been -- has been aired. 63 There's a further letter that I sent on the 20th, trying to explain, well, we really weren't trying to get anything decided with respect to the particular adjustment, other than to defer the issue. So I am doing my best to try and get them to remove it from the list. And then we have their letter of the 21st of August, where they basically say, you've advanced nothing new, and Mr. Penny says: "It seems to me that the time for reconsideration of positions is in the context of a negotiated settlement." 64 So what's coming out of this exchange of correspondence, which is the point I wanted to address, is Union is saying we have raised it in our application. It's got to stay there. It can't come off the list, and we want to leave it on, because we may get some leverage from it in the ADR negotiations. That's the message that's being transmitted, and I submit it shouldn't be left on the list for that -- that purpose. 65 If it's clear from the evidence that has been filed that this is not a claim that falls within the ambit of customer review process as a non-routine adjustment or otherwise, then it ought to be excluded from the list of issues to be considered with respect to this particular process. 66 And in considering Union's position on this, I submit you should -- you should consider the implications of leaving it on the list, because the process established by the procedural rules calls for interrogatories and intervenor filing of evidence all before the settlement conference takes place. And if the issue is opened up, this issue of the 1999 Board-approved volumes, if it's opened up for adjustment, then the scope of the topic, in my submission, is extremely broad. 67 It raises not only questions with respect to volume estimates, it has impact for inventory, it has impact for working capital, it has impact on the UFG calculation. It may have been impact on the gas cost allocation, it has impact on the cost allocation and underpins the base rates. And it also raises the question of whether there are perhaps rate design solutions to this weather problem that Union is focusing on, such as increasing the fixed charges under the rates to weather-sensitive rate classes. There may be other ways of responding to the concern, other than this adjustment that Union proposes. 68 And apart from all of that, we have to scrutinize the study on which Union relies, the alternatives which it rejects, the approaches used by other distributors, which you -- which you regulate. 69 So this topic is it extremely broad, and it ought not to be included on the list, simply because Union wants to leave it there as a bargaining chip for the ADR process. 70 You should, in my submission, consider the costs and efficiencies associated with having intervenors go down this road of having to ask all the questions, retain their own experts with respect to a topic that at the end of the day, according to Union, you could find does not qualify as a non-routine adjustment. 71 So for all of these reasons, I urge you to grant the motion for the grounds stated therein, and to defer this issue to Union's 2004 rate case. 72 Finally, in terms of recent decisions that I submit support this -- suggest the disposition of the matter, I relied on your most recent decision in the 0029 case, where implications of the weather normalization for customer entitlements was recognized by the Board to be a very complex matter and paragraph 5.62 indicates that these implications should be brought forward on the occasion of re-basing. 73 Again, I brought this to Mr. Penny's attention and tried to get him to withhold the issue, but he points to, as I understand it, paragraph 5.64 to justify leaving the issue in. And there again, the last sentence of that paragraph reads: "If and when there are cost consequences, if not before, these questions may have to be addressed." 74 I come back to the point I made earlier, that we're not here dealing with cost consequences. We're here dealing with a method that's used to derive revenues. And so in my submission, this paragraph on which Mr. Penny relies does not help him. 75 So unless there are any questions, those are my submissions. 76 MR. SOMMERVILLE: Thank you, Mr. Thompson. 77 There are no questions from the panel at this point. Mr. Penny? 78 MR. PENNY: Perhaps, Mr. Chairman, if others who have anything to add to Mr. Thompson's submission in support of it can go first, then I can respond. I don't think there's anyone on my side on that one. 79 MR. SOMMERVILLE: I note that. The Notice of Motion was a little ambiguous as to on whose behalf it was actually filed. In the normal course one would expect that a motion -- a mover carries his own motion, but I'm prepared to listen to others in support. 80 MR. THOMPSON: If you want me just to speak to that point, Mr. Chairman. Intervenors as a group have met and agreed that this is what we would try and do for Union. Union wanted some advance notice of what the position would be, so I took it on my shoulders on behalf -- and the other intervenors to deliver this motion. 81 MR. SOMMERVILLE: That's fine, thank you. 82 MR. PENNY: Mr. Chairman, I don't quarrel with that. If others want to take their bite at the apple, they can do that. 83 MR. SOMMERVILLE: Thank you, Mr. Penny. 84 Mr. MacOdrum. 85 SUBMISSIONS BY MR. MACODRUM: 86 MR. MacODRUM: Thank you, Mr. Chairman. I just want to briefly speak to item D of the grounds listed on the second page of Mr. Thompson's motion, which is not an appropriate non-routine adjustment. 87 First, I just want to associate myself with Mr. Thompson's remarks. I'm fully in agreement with them, and I want to touch upon basically three aspects of why introducing a new method of volume forecasting by changing the weather normalization methodology is not an appropriate non-routine adjustment. 88 First, I'd like to briefly discuss, really, what is a non-routine adjustment or a Z-factor. And secondly, and I won't go over this in any detail, Mr. Thompson is drawing your attention very carefully to what the Board has said in previous cases with Union, and then I just want to touch upon also what the Board has said about it in other places. 89 First, my understanding of a non-routine performance- or incentive-based regulation. It just doesn't meet the fundamental test that it's non-predictable cost beyond the control of management. 90 As I said, Mr. Thompson drew your attention, and it's attached to his motion to your decision in RP-1999-0017, and he drew your attention to paragraph 324, which I think really summarizes the Board's view: "Criteria for the recovery of non-routine costs would include: that the expense is clearly outside of the base upon which rates were derived." 91 As Mr. Thompson pointed out, this is clearly an attempt to change the base indirectly, because they clearly can't do it directly. 92 Finally, I just want to point out what the Board has said, and I know this is not in any way binding upon you in this case, but what you have said in the rate handbook that you've issued for electricity distributors with respect to Z-factors. And that's found in chapter 5.5 of the rate handbook. 93 And I'm -- on page 5.5, you list four tests that should be met for a Z-factor: Causation, materiality, the inability of management to control, and prudence. 94 It's interesting, under prudence: "The expense must have been prudently incurred. This means that the option selected must represent the most cost effective option, (not necessarily least initial cost) for ratepayers." 95 So even by analogy of what you have said with respect though Z-factors for the electricity distributor, if you look at those tests, I don't think you can find that Union's proposals meet any of those tests. 96 I think it's important to remember that this is just a three-year plan, which we are more than halfway through. And what is an appropriate Z-factor in a five-year plan or an eight-year plan I think is quite different from what it should be in a short plan like a three-year plan, particularly when there's just over a year to run in it. And I think the Board should be very, very stingy about what routine adjustments it allowed. 97 Z-factors can be used to frustrate the benefit that customers would otherwise receive from the formula, and management -- creative managements are always looking for ways to cut costs that they can't squeeze to take advantage of the productivity index, to sort of put on the track of a non-routine cost. And I think the Board has to be very, very vigilant in preventing these end-runs around the formula. 98 Mr. Thompson has said -- spoken about the volume of the material that's been filed and what the consequences of that will be for the hearing as it develops. I remarked to Mr. Rowan one day that I think if this matter goes in, we're all going to spend a month watching the weather channel just to be able to understand the material that's been filed. 99 Mr. Penny, in his letter that Mr. Thompson has alluded to, says you can't really judge this matter until you consider all the evidence. Well, I think that's really just a red herring. Mr. Penny has brought a dog into this proceeding, and he's telling us we can't tell it's a dog without a full veterinary examination and without having it properly groomed. It is a dog, and it doesn't belong here. Mr. Chair and members of the panel, I do believe this is not an appropriate non-routine adjustment. 100 MR. SOMMERVILLE: Mr. Poch. 101 SUBMISSIONS BY MR. POCH: 102 MR. POCH: Yes, very briefly, Mr. Chairman. We would likely find ourselves in the position of supporting the company in a bid to recognize the impact of global warming, but we are in support of this motion because we believe that the Board's definition set out in 0017, paragraph 2.33, which includes the word "unexpected" should be respected. And the concern we have is the -- in a CRB process between re-basings, the company has a great ability -- if the company is able to bring forward, recognize such unexpected events asymmetrically, that is, recognize the ones that help it and ignore the ones that don't, we're going to have an unfair situation. And in a CRB process such as this, the intervenors are not in the same position to be able to bring forward other issues which might well fall in that category, and that would offset the net impact as they are better positioned to do so in a full rates case at the time of re-basing. 103 So it's that asymmetry that the Board should guard against and I think it's indisputable that the concern about global warming affecting the company's revenue -- I don't think anybody is getting into the merits of whether the facts are made out that in fact it does, but I'm prepared to grant, for the sake of argument, that it is eroding revenues, but I would argue that certainly that's not -- that's no surprise that came out of the blue such that it falls within the Board's definition. I think the Board should support its previous definition. 104 Thank you, Mr. Chairman. 105 SUBMISSIONS BY MR. WARREN: 106 MR. WARREN: Mr. Chairman, just for the record, the Consumers' Association of Canada supports the position taken by the Industrial Gas Users Association. I won't to take your time to elaborate on that, beyond quoting -- this is a segue from Mr. MacOdrum -- beyond quoting the late but not lamented Ross Perot: "This dog don't hunt." 107 Thank you, sir. 108 MR. SOMMERVILLE: Mr. Brett. 109 SUBMISSIONS BY MR. BRETT: 110 MR. BRETT: Mr. Chairman, I just would also like to say that the OASBO supports the motion of Mr. Thompson, and I would make two brief comments. 111 First of all, I think the Board has been quite reluctant to interfere with the 1999 base volumes and other factors for the PBR plan. I think your view has been essentially the fewer moving parts, the better. And you've also made the point -- you make it again in this recent decision at paragraph 2.92 -- that if you start to tamper -- you say: "The Board will be cautious in tampering with one aspect of the underlying principles of the PBR, because if you start to tamper with one, you tend to open up the whole thing." 112 Thirdly, you have as specific examples in the recent case, and this is at paragraph 5.37 and 5.38, you've declined to change the tax rate used from -- to calculate the grossed up carrying cost in the gas and inventory and you've said it's more appropriate to continue with the tax rate that was used in 1999. 113 Again, I think, because what you're saying is you make as few changes to the basic principles as possible. You do make accommodation for changes in the price of gas, but you don't go beyond that. And you also, in an earlier case going back a couple of years, were reluctant to revisit the base. Having established the 1990 base you were asked to reconsider that in light of certain circumstance that followed and moved to actuals, and you declined to do that. 114 So in all these cases, I think you've been consistent in making as few -- in not tampering with the basic fundamentals of the program, because I think you want to compare apples with apples over the course of the program. 115 The only -- the second -- the only other point I would make is simply to say that as Mr. Thompson noted, this evidence is -- the evidence that has been filed is complicated. I believe there are discontinuities in it, there are some inconsistencies in it. I think it will lead to a lot of interrogatories. It will almost necessarily lead to intervenor evidence, because it's of a nature of expert evidence, at least in part. And most of the other issues on this -- most of the other issues on this list, as I think you'll have observed, are fairly straightforward. A lot of them are informational items. I would think most will be settled. There will be some significant discussion around the cluster of issues associated with UDC, the S&T program, but most of these things are fairly small points, I believe, and will be susceptible to settlement. 116 This almost by definition can't be settled, and it will therefore -- it will make the process significantly more attenuated than it would otherwise be. 117 And I think, therefore -- that's a reason, I think -- another reason to be cautious on this. 118 Those are my submissions, Mr. Chairman and panel. Thank you very much. 119 MR. SOMMERVILLE: Thank you, Mr. Brett. 120 Mr. Mattson. 121 SUBMISSIONS BY MR. MATTSON: 122 MR. MATTSON: Thank you, Mr. Chairman. 123 Just briefly on behalf of Energy Probe, we support the motion brought by Mr. Thompson and the intervenors for a number of reasons. I think it's important to recognize, Mr. Chairman, that it's not just the company that would like to see a review of the weather normalization rate, but also there are a number of intervenors in the room that would like to see that as well. We recognize this isn't the appropriate time to do that, and that the company should not be able to bring in those changes in methodology in this midterm review process where many of the rights and the processes that would be available in the full review are not available at this time. 124 This is a very controversial issue because it is very deeply embedded in the rate methodology of the company. As Mr. Thompson indicated, there are a number of indications that arise out of a change: Volume estimates, working capital, UFG, gas costs, cost allocation and importantly as he indicated, rate design solutions. 125 There are a number of rate design options that are available to the company that could be taken currently as opposed to the change in the weather normalization variable, and certainly these need to be fully addressed and will be addressed, I'm sure, in the 2004 full hearing after the PBR hearing is finished, but this isn't the appropriate time to do it. 126 If the company was able to bring in what we also consider and agree with Mr. Thompson as a management-promoted methodology change at a time where full rights and processes aren't available to deal with it, it would be not a benefit to the customers nor to the process, so we support the motion. Thank you. 127 MR. RYDER: Mr. Chairman, I have two observations I'd like to put before you. 128 SUBMISSIONS BY MR RYDER: 129 MR. RYDER: Kitchener supports the application and the argument you've heard, particularly the, 'dog don't hunt' argument of Mr. Warren. 130 The first observation is that the use of 1999 volumes for determining base delivery rates was one of a large number of contested issues which determined base delivery volumes in RP-1999-0017. And in that case, you may recall that Union argued for the 1999 volume, and the intervenors argued that the volume should be adjusted upwards, and the Board made no adjustment in its decision. 131 And the second is that in the result, this case is very like Union's proposal to vary base delivery volumes -- revenues -- that are brought to you in EP-2001-0778, which is a request to allow for restructuring costs as an additional -- as an add-on to the base revenue requirement. 132 And one of the factors which underpinned the Board's rejection of that application is set out in paragraph 3.54 of that decision, and that was the fact that the impugned element was not beyond the influence of Union. And as others have argued, that factor applies to the weather normalizing methodology, which Union is proposing to change today. 133 So for those reasons, I add -- Kitchener adds its support to the motion. 134 MR. THOMPSON: Thank you, Mr. Ryder. 135 MR. AIKEN: Mr. Chairman, the LPMA and the Wholesale Group also support the motion. 136 SUBMISSIONS BY MR. AIKEN: 137 MR. AIKEN: We have one further comment or submission to make, and it relates to paragraph 2.316 in the RP-1999-0017 decision, and I'll quote that paragraph. It says, "The Board agrees with the intervenors that the use of Z-factors limited to changes in legislative and regulatory requirements and generally accepted accounting principles specific to the natural gas business is appropriate." 138 It's our submission that a change in the forecast methodology for degree days is none of those, and that's -- that's my simple submission. 139 MR. SOMMERVILLE: Thank you Mr. Aiken. 140 Mr. Janigan. 141 SUBMISSIONS BY MR. JANIGAN: 142 MR. JANIGAN: Yes, Mr. Chairman. 143 VECC also supports the motion, and adopts comments of Mr. Thompson with respect to the reasons for its support. We would only add that -- note that the company seeks to alter a methodology here, which is based upon a set of multiple-year observations that was in place at the time of the setting of the price cap. 144 It's considerably doubtful whether or not the fact that it's discovered now, two years since the setting of the price cap, that the 17-year trend that is in existence with respect to weather warming, whether or not this discovery qualifies as a non-routine adjustment. It seems to me better dealt with as a matter to be looked at when a new price cap -- or whatever regulatory regime the Board determines -- the conclusion of this particular regime. And for that reason, we are in support of the motion. 145 MR. SOMMERVILLE: Thank you. 146 Mr. Penny, I think your time has come. 147 SUBMISSIONS BY MR. PENNY: 148 MR. PENNY: Yes, Mr. Chairman, thank you. 149 I advised the parties that I had prepared a small brief with some excerpts of Board decisions and a few other things, but our photocopier was slow, so I didn't have it before. We just pulled these together last night. Some of this material also includes some excerpts and so on for some of the other issues that are coming. This isn't just for weather, this is for issues day at large, and Mr. Reghelini is passing that out. 150 I'm going to begin my response with a general overview with what I submit the issue is here on issues day, and what the Board's approach to that issue should be. I'll then turn to the specific arguments that have been advanced in support of this motion to expunge the warming trend and weather from the record. 151 I want to begin with the observation, and that this is issues day, and it's remarkable to me that 95 percent of what you've heard this morning goes to the merits of Union's application and whether it should succeed as a non-routine adjustment or not, and then -- let's remember, that this is issues day. Nothing has started, there's no pre-judging of anything that's happening. This is simply a day to determine what issues are going to be dealt with. 152 My starting point, Mr. Chairman, is that the Board in RP-1999-0017 accepted the proposition that it was appropriate to provide for non-routine events or Z-factors in a price cap plan as a safeguard against events that are outside management's control. 153 At paragraph 324 of that decision, the Board adopted a four-part test, and the test is: That the matter be clearly outside the base on which the rates were derived; the second part is that the cost is material and has a significant influence on the company's operations; the third component is that the cost is attributable to an event outside of management's ability to control; and fourthly, that the cost associated with it has been prudently incurred. 154 This approach to the provision for non-routine events was, in my submission, not unprecedented. Many incentive rate making plans make provision for X-factors, including the plan adopted by the Energy Board for electricity distribution utilities. Mr. MacOdrum made reference to this, and I've reproduced for you the excerpt from section 5 of the handbook. And if you'll turn to page 6 of my bundle, you'll see that it's, in fact, a very similar four-part test: Causation, the expense is outside the base upon which rate where is derived; materiality, has a significant influence on the operation of the utility; inability of management to control, the cost must be attributable to an event outside of management's ability to control; and finally, prudence. 155 And in so in this case, Union is seeking to clear 2002 deferral account balances and to set rates for 2003, the third year of its trial PBR plan. And under the Board-approved Z-factor or non-routine adjustment rules, Union is seeking an adjustment based on a warming trend in Ontario's weather, and the adjustment is being sought -- the adjustment that is being sought in response to that warming trend is to move to a more accurate weather normalization methodology to recover the financial consequences of that warming weather trend. 156 The test for non-routine adjustments for the term of Union's trial three-year PBR has already been established by the Board, and the test itself, in my submission, therefore, cannot and should not be changed during the term of the plan. 157 You've heard a number of comments this morning, for example, that, well, it will be inconvenient to deal with the matter in this case, it will be more convenient to deal with it in another case. In my submission, that is completely irrelevant consideration, and that is, in effect, changing the nature of the test. It's putting a qualifier on the test that says, "Well, if it's more convenient to do it another time, then we won't do it." That's clearly not part of the test, and the test should not be changed until the end of the term. 158 Whether a particular proposal for an adjustment under this test qualifies as a non-routine adjustment, in my submission, is a pure question of fact. And questions of fact, in my submission, cannot be determined in advance of the hearing of the evidence and a weighing of that evidence in the circumstances of the particular case. 159 And in this case, Union has filed evidence addressing the issue of the test for a non-routine adjustment, and it's Union's position that the adjustment it is seeking meets the test for a non-routine adjustment. It will be, for example, Union's evidence at the hearing that the expense associated with this warming trend is clearly outside the base on which current rates are set, because the warming trend is not reflected in Union's 1999 rates. 160 Secondly, Union is seeking an adjustment in the order of $13 million as a non-routine adjustment. This clearly exceeds the $1.5 million threshold and is both material and will have a significant influence on the company's operation. 161 Thirdly, the warming trend and the impact on the revenue requirement associated with that warming trend are outside of management's ability to control. And finally, it will be Union's evidence that its response to this warming trend is a prudent one by seeking to adopt a weather normalization methodology, which accurately reflects actual weather trends. 162 So it is not for us to decide today whether the proposed weather normalization change meets the Board's four-part test or not, the issue for today is more fundamental, it's whether Union is entitled to even bring its proposal forward to the Board for adjudication. And in this case, the intervenors are trying to preemptively oust this issue, and notwithstanding that it is an issue of fact, that can only be resolved after a thorough review and weighing of the evidence. They are seeking to have you, the Board, effectively decide this issue on its merits without a hearing. 163 The intervenors are asking the Board to find as a fact before hearing any evidence that the change in weather is not outside the base upon which rates were set, that the financial impact of the change is not material, that the change in weather is not outside the power of management to control, or that it is not prudent to adopt a different or more accurate methodology in the face of this weather change. 164 The IGUA motion, if granted, would have the effect of depriving Union or anyone else who might be the subject of this approach of asking for a preliminary ruling on a question of fact of their natural justice rights, the right to have their evidence heard and to have their issue adjudicated on the evidence. 165 I would also note that if the Board agreed to the appropriateness of this kind of pre-emptive procedure prior to hearing any evidence on a matter of fact, the approach would be equally applicable whether someone was seeking a preliminary ruling that an adjustment did not qualify as a non-routine adjustment or seeking a preliminary ruling that an adjustment did qualify as a non-routine adjustment. It would open the door to any party to seek a preliminary or summary ruling on virtually any issue. The concept of resolving such issues on the basis of preliminary rulings, in my submission, stands the hearing procedure on its head when you are dealing with an issue of fact. 166 When a matter depends on findings of fact as opposed to a discrete issue of law or interpretation, it is simply not appropriate for -- to be dealt with on a summary basis at all. That's recognized in the Ontario Energy Board Act at Section 21(2), which is reproduced at page 9 of the bundle of material. 167 And there -- it's 21(2). The Act says: "Subject to any provision to the contrary in this or any other Act, the Board shall not make an order under this or any Act until it has held a hearing after giving notice in such matter and to such persons as the Board may direct." 168 Then there's an exemption under sub 4 which says that: "Despite the Statutory Powers Procedure Act," and that section just deals with all parties consenting, "the Board may, in addition to its power under that section, dispose of a proceeding without a hearing if --" and then. 169 sorry. Thank you. I will try and slow down. 170 I think the relevant one here Mr. Chairman, is sub c: "The Board determines that the proceeding is trivial, frivolous or vexatious." 171 In my submission, it has not been advanced and cannot be shown that Union's proposal is trivial, frivolous or vexatious. It's anything but. Whether it will be acceptable to the Board or not of course is entirely a different question, but that question is not for today and can only be decided after a full review of the evidence and the testing of that evidence. 172 So let me, then, turn to the specific arguments. 173 The intervenors rely principally on two arguments. First, they say that the change in -- that the change in weather will effectively change the volumes, or the change in weather methodology will effectively change the volumes upon which the base rates were set. And I believe Mr. Thompson said it is a fundamental part of PBR that the base cannot be changed during the plan. And it will be my submission to you that that is simply wrong. 174 And secondly, they say that the change in weather methodology will have collateral effects beyond the adjustments to today's revenue. And to that I will say that first of all, there's no evidence before you that there are such collateral effects, and in any event, that is a consequence of, not a reason for, denying a non-routine adjustment, if it otherwise qualifies. 175 Let me say first of all that neither of these points arises under the Board's threshold test for non-routine adjustments. In other words, the Board did not say in the PBR decision, or for that matter in the electricity rate handbook, that you can have an adjustment for material impacts outside of management's control, but only -- only -- if they don't change the underlying volumes or only if there are no collateral effects. 176 That is not surprising because, in my submission, many if not most Z-factor adjustments that one can imagine will notionally affect the base volumes or have collateral effects. Take, for example, an adjustment that is already being made under the price cap formula, the lost revenue adjustment mechanism. The LRAM adjustment is clearly based on notionally changed volumes because it is compensating for margin lost due to lower throughput due to Union's compensation measures, a direct analogy to the reduced demand brought about by the warming trend in the weather. 177 And so, just as Union is seeking to do with the change in weather in this case as a non-routine adjustment, the LRAM brings about a financial adjustment to rates based on notionally reduced volumes, initially by a deferral account mechanism in the first year and subsequently through an actual rate adjustment for succeeding years. 178 So Mr. Thompson is quite wrong to suggest that nothing can change the base volumes during the PBR term; it's already happening. Other examples could arise from any number of legislative changes, a category which I'll remind you of change that was recognized as a clear basis for non-routine adjustments in the PBR decision. You can imagine, for example, a circumstance where legislation came into force which prohibited the generation of electricity by burning fossil fuels of any kind. This would have a huge impact on Union's throughput and any rate adjustment resulting from a non-routine adjustment based on this kind of legislative change would clearly be based on notionally changing the volumes from the 1999 base. Similarly, such a change might have some kind of collateral impact as a result of reduced throughput from certain types of customers. 179 But this would not be a reason for denying the adjustment. Any collateral effects are either left to a re-basing year or worked out as part of the adjustment, but they don't constitute grounds for throwing up your hands and saying that there can be no adjustment at all. Now, I would pause here to note that there is no evidence before you in support of this proposition that there even would be substantial collateral effects, and in my submission, this is further evidence that the objection is premature. 180 In the last case, in fact, questions were asked. In matter 29 questions were asked about the impact of the change in weather methodology on, for example, cost allocation. And the evidence given -- and the evidence given in those interrogatory responses was to the effect that any cost allocation impacts would be insignificant because the majority of the costs are allocated on the basis of design day demand, and the change in weather methodology would have no impact on design day demand. 181 That, I've reproduced at page 10 of my bundle of material, and you'll see there are a number of questions put by Mr. Aiken that relate to -- to weather -- to the weather methodology, including the impact on cost allocation. And you'll see in the part that I've black lined, it says: "A new normal weather methodology would impact cost allocated within the cost allocation study; however, it is expected that any impact would be insignificant. The majority of the costs in the cost study are allocated using design day demand, and the impact on design day demand as a result on the weather method will be insignificant." 182 Now, I bring this to your attention, of course, not because you would decide an issue like that today, but simply to say that the argument that there will be a hopelessly complex collateral impact resulting from this change is at best speculative in the extreme, and in fact, to the extent there has previously been any evidence before you on the issue, it's to contrary effect. You can not assume, therefore, that there will be any significant ripple or collateral effect. 183 But the more important point is that the very argument emphasizes the premature nature of the motion to expunge this issue. Even to determine whether there are collateral impacts and the extent of them requires evidence, which is not before you now. 184 In my submission, Mr. Thompson and others have confused the relationship between collateral impacts and Z-factor adjustments. Collateral impacts are a consequence of, not reasons for denying Z-factor treatment. To the extent there are collateral impacts they must be dealt with either at the time or on re-basing, and that will be an issue for evidence and further argument, I suppose. But to say that collateral impacts are a basis for denying Z-factor is inconsistent with the Board's four-part test and ends up having the impact's tail, to use the dog analogy, wagging the non-routine adjustment dog. 185 So the issue of changes to volumes or the collateral impacts, even if there were any is, in my submission, a red herring. It puts the cart before the horse. The fact that there may be collateral impacts on volumes does not trump an application for a non-routine adjustment. Indeed, volumetric impacts are, in my submission, likely to be features of most non-routine adjustments. 186 One is ultimately taken back to the test articulated by the Energy Board. The question is not whether there are notional volumetric or collateral impacts, the question is whether such a adjustment sought qualifies as a non-routine adjustment. And if it qualifies, in my submission, it is entitled to Z-factor treatment in accordance with the parameters laid out by the Board in its RP-1999-0017 decision. 187 Then the question becomes, how does the Board decide whether a particular adjustment meets the test for a non-routine adjustment. And as I've said, it's clearly a question of fact that can only be resolved after a thorough review of the evidence. 188 An analogy to what the intervenors are attempting here can be found in the Rules of Procedure for Summary Judgment in civil proceedings. That's a context in which a court can dismiss a claim on a motion for summary judgment if it makes a finding that there is no genuine issue for trial. Whether there is a genuine issue for trial is well settled in various decisions of the Ontario Court of Appeal, and in sum, its substance. You cannot say there is no genuine issue for trial if one must determine credibility issues, weigh evidence, make factual findings, or draw factual inferences. 189 And I've provided for you an excerpt from one of those leading Court of Appeal decisions. It's called the Aguonie case. If you will turn to page 15 of my bundle, you'll see there's a black-lined portion that simply makes this point. It says, "In ruling on a motion for summary judgment, the court will never assess credibility, weigh the evidence, or find the facts. Instead, the court's role is narrowly limited to assessing the threshold issue of whether a genuine issue exists as to material facts requiring a trial. Evaluating credibility, weighing evidence and drawing factual inferences are all functions reserved for the trier of fact." 190 So they're saying that to the extent you need to make factual findings or draw factual inferences, it's not appropriate to make preliminary determinations. 191 Here the intervenors are even more extreme in asking to you reject Union's application, because it's before any evidence is heard. They're asking to you make adverse factual findings that the threshold for qualification as a non-routine adjustment has not been meet in this case before you hear any of the evidence. And that, in my submission, you cannot do. 192 Now, Mr. Thompson has also relied upon the argument that in order to qualify as a non-routine adjustment, the matter has to involve cost, and, in my submission, that is also demonstratively wrong. The best example of that is the late payment penalty adjustment which is already in place as a non-routine adjustment. That is not about cost, it is about lost revenue. 193 That -- I also say by way of footnote to that, that that is a case contrary to the suggestion that Union is somehow picking and choosing what adjustments it will make. That late payment penalty adjustment that's being sought in this case is a benefit to customers. It is lowering rates because cost recovery is being improved. 194 Now, the intervenors also rely upon a passage from the Board's recent decision in RP-2001-0029 at paragraph 5.62, and that -- the relevant paragraphs are at page 16 of my bundle, Mr. Chairman. 195 Let me say, first, that Union withdrew its request for any relief with respect to weather normalization in that case. That was in the context of trying to facilitate a faster hearing and decision in the first rate-setting process under PBR in the particular circumstances that it was facing at the time resulting from the timing of the release of the PBR decision. As a result, however, and the important point is, there was no evidence on this issue before the Board in the last case, and no testing of the evidence in cross-examination, and no argument on the issue. So one can understand that the Board might have felt that the record in that case, because these issues were not explored, was not sufficient to enable it to make determinations or approve actions that affected storage entitlement. 196 So the passage that I take my friends to be relying upon in paragraph 5.62 where it says: "Changes such as this, as they may affect customers' current entitlements, should best be made at the time a PBR program is instituted or re-based," must be read in the context of the fact that the issue -- that there was no evidence of this issue before the Board. That that evidence was effectively withdrawn prior to the hearing, because Union wasn't seeking any adjustments with respect to the warming trend in the weather. 197 And as a result, the issue of whether the warming trend qualified as a non-routine adjustment was not before the Board and was not addressed in any way. Union was not given the opportunity to try to make its case, nor were the parties given the opportunity to try and disprove that claim. The matter was simply not before the Board at all. 198 One must assume, therefore, that the Board in its most recent decision was not trying to deprive Union or anyone else of their rights to natural justice, and that the Board was not trying to decide this issue without affording anyone the opportunity to be heard. In fact, in my submission, the opposite intention can be seen from the last sentence of paragraph 5.62 and in the next paragraph, 5.63, which is, in fact, the paragraph I'm relying upon, not 5.64. And that's where it says: "It is the Board's view that at the very least, the changes attended to change in weather normalization deserve very careful and comprehensive analysis before they should affect changes in service entitlements." 199 And then below, the passage that reads: "Until such time as it brings an application forward seeking Board approval of its use and there is an opportunity to review concerns such as those of Kitchener." Well, that's this case. 200 Union has brought forward this application, and the suggestion from Mr. Mattson that somehow parties rights and procedures are constrained is just preposterous, in my submission. The parties in this case have every procedural right. The evidence is there, they cross-examined, they filed their own evidence, and all of that will be exactly the same in 2004. There's just simply nothing to the suggestion that the parties are in any way deprived of any form of procedural right or process by the process that Union is following. 201 So the Board cannot in matter 29, in my submission, be taken to have meant in this passage that Mr. Thompson relies on that Union's proposal to deal with the change in weather did not qualify as a non-routine adjustment, because that issue was never before the Board in that case. 202 Altogether apart from the fact that Union as a matter of natural justice is entitled make its claim and to have a hearing on whether the proposed adjustment to account for the warming trend qualifies as a non-routine adjustment, there are other reasons why this issue is best dealt with sooner rather than later. At page 114 of the recent decision in matter 29, the Board addressed Union's request for an increase to the maximum of Union's range rate for C1 storage. And I've reproduced that page at page 17 of my bundle. 203 The Board said at paragraph 6.118: "The Board believes that it is appropriate for Union to attempt to maximize the value of existing utility assets that are being used to provide services beyond in-franchise requirements." 204 To a similar effect on the next page, on page 18 of my bundle at paragraph 6.122, the Board said: "These considerations, expressed by Union in a prior proceeding, are still relevant to this issue. Further, notwithstanding the concerns of some parties that Union's proposal will inhibit the development of the secondary storage market, the Board believes that it would be inappropriate, in an attempt to foster development of the secondary market, to require a regulated utility to provide such transactional services -- excess to in-franchise requirements and underpinned by utility assets substantiated by in-franchise customers -- to other parties at a discount to market value: such an approach merely transfers the net benefits to a third party who simply has to mark up the service and flip it to realize a gain." 205 Now as things currently stand, under the current storage allocation situation, the Board has directed Union to defer application of the weather normalized -- of the new weather normalization methodology to the extent -- in operational terms -- to the extent that it affects storage allocations until such time as it brings forward an application seeking Board approval of its use. 206 What this means is that Union will have to allocate storage to unbundled customers on the basis of a 30-year weather average normalization methodology when, in fact, that methodology overstates the amount of storage those unbundled customers will actually require for their own needs because those customers actual demands have fallen. 207 This sets up the situation that the Board was trying to avoid in dealing with the upper end of the C1 storage range rate in the passage I just read to you. That is because unbundled customers, or more practically, marketers on their behalf, will be allocated more storage than they require at Union's cost-based rates and be able to flip that storage at market rates thereby transferring them to themselves the very benefit or wealth that the Board sought to retain in the system by increasing the upper limit of the range rate for C1 storage. 208 Therefore, storage capacity, which Union has been optimizing by selling on a short-term basis at market prices which then generates the S&T revenues which are shared 75% with in-franchise customers, will now be used by marketers to obtain 100 percent of the market value above the cost-based rate. The in-franchise customers will then receive nothing from that secondary market transaction. 209 So that's -- presents, in my submission, altogether apart from the principle of the thing, a very practical reason why it's better to deal with this sooner rather than later, to resolve that issue and ensure that the differential between market-based and cost-based rates is captured for the benefit of the system rather than for the benefit of commercial players. 210 In summary, let me review briefly the grounds for Mr. Thompson's motion as set out in his Notice of Motion. In paragraphs (a) and (b), he relies on the fact that the adjustment will reduce Board-approved 1999 volumes. That, we say, is completely irrelevant. There is nothing sacrosanct about these volumes in relation to events outside of management's control that will have a material impact on revenue. We already have an adjustment mechanism in this very price cap that notionally reduces those volumes, and many, if not most, of the very things you can imagine as cropping up as non-routine adjustments, like changes to environmental legislation, would involve notionally-reduced volumes. 211 There has to be a base, and 1999 volumes are it, but there's no requirement that says if something not already in the base comes along that otherwise qualifies a non-routine adjustment, it will nevertheless be rejected if it notionally reduces those 1999 volumes. 212 Paragraph (c) of Mr. Thompson's Notice of Motion refers to unexpected or unusual events. That, in my submission, imports a requirement that is not in the Board's decision, and indeed, is not -- is clearly not a required element, and for the reasons that I'll give you in a moment. 213 Changes -- let me give you two examples: They are the Ontario income tax change and the late payment penalty adjustment. Both -- both were mooted before you in the context of non-routine adjustments. Changes in provincial corporate income tax were neither unusual nor expected. Indeed, they were specifically commented on by the Board in the PBR decision. They were never -- it was never suggested that they did not qualify as non-routine adjustments, because they were known in advance of them happening. 214 And similarly, with respect to the late payment penalty, that was clearly something that was known in advance as a result of the litigation involving Enbridge Consumers Gas in proceedings that went to the Supreme Court of Canada of which Board is well aware. 215 Even more importantly, we say that whether something is unusual or unexpected is again a matter of fact and a matter of evidence that cannot be decided before a hearing of that evidence. 216 Mr. Thompson's paragraph (d) deals with the non-routine adjustment criteria itself. That I have dealt with. Just to summarize briefly, it's simply wrong to try and decide on a preliminary motion, an issue that is entirely dependent upon the facts. This is not a discrete exercise of an interpretation or a matter of law. Whether the adjustment qualifies or not is a matter of evidence for the hearing, not for a preliminary motion. 217 Mr. Thompson's paragraph (e) is the collateral impact argument. As I say, there's no evidence before you whether there even are any of significance, but these are matters of evidence again that you must hear and decide on and not just sweep away on a summary application. 218 Paragraph (f) seems to suggest that it's a timing issue, that we're going to be coming before the Board with a re-basing application in 2004, and you've heard this from some of the intervenors this morning. This seems to suggest that since we are filing a re-basing hearing anyway, well, why not just leave it for another year as a matter of convenience; as a matter of convenience. 219 And this argument, too, is completely irrelevant to the question at hand. If the adjustment, positive or negative, to rates qualifies as a non-routine adjustment, it is of no moment whatever whether it will only apply for one year or for longer. The party proposing that non-routine adjustment is at least entitled to a hearing, and if it qualifies, entitled to the adjustment and that would, of course, apply equally to whether it was a positive or a negative impact to rates. 220 Paragraph (g) of Mr. Thompson's motion is just a reference to the Board's four-part test for what qualifies as a non-routine adjustment, and paragraph (h) of the Notice of Motion is the passage from the recent 29 decision that I've already alluded to. 221 The issue in this case, whether the warming trend qualifies as a non-routine adjustment, was not before the Board in that case, so the Board could not have been purporting to dispose of that issue in the last decision. 222 In conclusion, Mr. Chairman, the issue that is before the Board in this case is whether Union's response to the warming trend in the weather qualifies as a non-routine adjustment, that the adjustment would change no small volumes or has collateral effects is completely irrelevant to that issue. Virtually any material change of this nature will affect the volume base or have collateral effects. Those are matters of evidence that will have to be dealt with, but they do not trump the application for a non-routine adjustment. 223 Whether the warming trend qualifies as a non-routine adjustment or not is a matter of fact. This issue cannot be decided as a pure question of interpretation and cannot be decided before hearing the evidence. 224 So I say with respect, Union is entitled its day in court. Parties may disagree with Union's position that the methodological change qualifies as a non-routine adjustment, but the Board cannot decide that on issues day without resorting to the facts in this issue, therefore, it cannot be decided on a summary basis. 225 Thank you Mr. Chairman. Those are my submissions. 226 MR. SOMMERVILLE: Thank you, Mr. Penny. 227 I would like to proceed to the conclusion of this motion, if we can. Mr. Thompson, do you expect to be long in reply? 228 MR. THOMPSON: No. Probably ten minutes or so, if that's satisfactory. 229 MR. SOMMERVILLE: My colleague has indicated, Mr. Penny, that he may have a question or two for you, and this may be the most appropriate time and then we'll see where we're at in terms of continuing before we break. 230 MR. JACKSON: Mr. Penny, I thought it might be advantageous to ask you these questions at this point where you could reply to them. 231 QUESTIONS FROM THE BOARD: 232 MR. JACKSON: Can everyone hear me? I don't think the mic's working as well as it should. 233 MR. PENNY: I maybe sensed it was cutting in and out a little bit. 234 MR. JACKSON: Okay. We'll try again. I thought it might be appropriate to give you a chance to respond to some of these questions that may be in our mind now, and also it would be perhaps fair to Mr. Thompson, because he would have a chance to address them in reply, too. 235 Could you just remind me, your application, I think is to take any changes to the weather methodology and apply them to the 1999 volumes which the Board had approved for -- 236 MR. PENNY: That's correct, Mr. Chairman, and actually I'm glad you raised that because that was a point I had noted that I wanted to deal with. Mr. Thompson had suggested it was to use 2003 volumes, that's incorrect. It applies to the 1999 base. 237 MR. JACKSON: Thank you. You would probably have a position on whether intervenors should look broadly at volumes if it were to get into this at all. You would probably say that they should just make the downward adjustment that you know already would come out of any approval of your new methodology for -- of weather? 238 MR. PENNY: Our position is that if it qualifies as a non-routine adjustment, that that -- I mean we're not actually changing volumes, obviously. We're only notionally changing volumes, because we're dealing -- just like with the LRAM account we're dealing with the consequence, the financial consequence. 239 Our position on that, Mr. Chairman, would be that if there is another matter that was -- qualified as a non-routine adjustment that had the effect of notionally increasing the volumes, that intervenors are fully at liberty to bring that forward and make application to have that adjustment made. But the mere fact that a non-routine -- I think this perhaps underlines your question -- the mere fact that a non-routine adjustment happens to affect the notional volumes doesn't in and of itself open up the whole question of volumes. 240 MR. JACKSON: I thought that would probably be your position, but I just wanted to clarify. 241 MR. PENNY: But that, of course, I should say, that would also be a matter for evidence and argument in the case. That would be our position on it, but that's, of course -- that would be a live issue -- 242 MR. JACKSON: Yes. 243 MR. PENNY: -- in the case, as to whether that happened or not. 244 MR. JACKSON: If the Board were to allow the discussion of whether methodology then in this case is an issue, would it also, if it so desired to give intervenors a chance to look at the effect on volumes more broadly, have to be very clear about that in defining the issues list too then, at this point in time? Or would Union perhaps take the position that if it didn't address anything more than the methodological change that Union wouldn't have to answer any interrogatories with respect to its better, more up-to-date volume forecast. 245 MR. PENNY: My response to that is similar to the response I gave earlier, Mr. Jackson. Our position -- I mean, that would, of course -- ultimately that would be a matter for the Board to decide, how broadly to cast the issue, but our position is the way the Z-factor treatment is supposed to work is it's only the Z-factor that qualifies for review. And to the extent that it has an impact on something else, that doesn't mean that it opens that issue up completely. It may be that you need to make some other adjustments, but I think our position even on that would be that, in most cases at least, of that collateral adjustment should not be made, but certainly that it doesn't open the issue up. That would be our position. 246 So our submission to you on the scope of this issue would be that it's only -- it's only the non-routine adjustment itself and its impact that has an impact -- that has an effect, and that it does not open the whole issue up. 247 As I've said similarly, if the intervenors have some other non-routine adjustment they want to seek that has a volumetric impact, similarly, it would qualify under those but with the same limitation. 248 MR. JACKSON: Thank you, Mr. Penny. I think I understand that point. I was really just looking for some advice with respect to procedure, because I was trying to anticipate the problems we could get into if the Board didn't address this as fully as it was perhaps thinking in its mind when it ruled on the one matter of discussion of a change in weather methodology. But we can leave that. 249 MR. PENNY: I certainly agree with you, sir, that it would be beneficial to the parties to define the scope of the issue as tightly as possible in advance. As a matter of principle, I completely agree with that. 250 MR. JACKSON: Thank you, Mr. Penny. 251 Mr. Penny, I want to come to this new assertion that you make on behalf of Union, and that is that convenience is irrelevant. To be fair, you put it in the obverse, but I'm just deducing this point. You said that inconvenience is irrelevant. 252 It seems to me that the gist of much of the PBR proposal that came forward from Union was that we could come into a process where -- where we would get a number of benefits of convenience, and should the Board just ignore what this would do to that in order to decide your -- whether or not to hear your application to change the weather methodology, or should the Board give some recognition of what it thought was Union's proposal with respect to convenience in the PBR methodology. 253 MR. PENNY: Let me answer that in two stages, Mr. Chairman. 254 First of all, whether it will or won't be inconvenient, in my submission, is, at this stage of the game, purely a matter of speculation. There's no evidence before you that -- to demonstrate that it will be, you know, hopelessly complex as I think Mr. Thompson's motion material said, or create procedural or process problems, as Mr. Mattson said. That's a matter of complete speculation. 255 With respect to the underlying principle, what I'm submitting to you is that the Board acknowledged in the PBR decision that it was appropriate to have a provision for Z-factors, and the Board defined what the parameters for those Z-factors are. And my submission to you is that if a Z-factor qualifies, whether it has a positive or negative impact on rates -- let's take the proposition that an intervenor brought forward a proposal based on a non-routine adjustment that something that met the qualifications for a non-routine adjustment had occurred, that it had a beneficial $10-million impact in favor of customers. It would not be an answer to Union -- for Union to say "Well, there's only one year left of the PBR, why don't you let us keep the $10 million for the year and we'll deal with it in re-basing." It would not be an answer for Union to say, "It will have all these different issues that will come up, and it will be inconvenient to deal with it. It will complicate the hearing. Just let us keep the $10 million for the year and we'll deal with it on re-basing." 256 We're dealing with exactly that situation when we're talking about this issue. 257 So while I perhaps put it -- it's perhaps too strong to say it is completely irrelevant, and so I'll resile from the extent of the position, but not the substance of it, Mr. Chairman, which is that the fundamental premises is that -- and the fundamental principle is that if it's something outside of control and not in the base and it otherwise qualifies, then it needs to be dealt with. And the fact that it may make the hearing a little longer is not really, in my submission, a significant issue. 258 And if the result of this is a determination in the re-basing year that the Z-factor qualifications need to be redefined or reassessed or whatever, then that may be the case, but right now, we're dealing with a three-year PBR term and it's Union's position in good faith that we have an issue here that qualifies and we want to bring it forward for consideration. 259 MR. JACKSON: Just a related question, and maybe I should be able to deduce this from the answers you've given so far, but I -- so maybe you could just very briefly confirm your position on this. I'd like to ask you first of all what sort of a position you would take on the Board's procedural right or authority to sever this issue from this proceeding if it anticipated that it would take a long time and that it would be complex to the stakeholders, even if the Board thought it was not complex to itself. 260 But if it perceives that it's a very complex issue to any of the parties and wishes to give them rights to explore it, what would your response be to the question that perhaps this should be severed from other adjustments in the CRP? 261 MR. PENNY: I guess I would struggle with what the benefit of doing that would be from this perspective, Mr. Chairman, that the evidence has been around for a few years now. And it would be dealt with -- it would -- I'm presuming on your question it would have to be dealt with within the PBR. As I understand it, your question is -- assuming for the moment that it qualified as a non-routine adjustment or at least that the Board felt that that issue should go forward -- should go forward prior to the re-basing year, in other words, in dealing with its impact on 2003 rates, whether there would be a benefit to severing that issue and, in effect, having two stages of the hearing. And I'm not sure -- I'm struggling with what the benefits of that would be, only because it would still need to be dealt with. And frankly, I think my submission would be that by cutting it up, that it would probably tend to increase the amount of hearing time rather than decrease. 262 MR. JACKSON: All I was thinking of, and I don't mind you responding to this again if you didn't get it the first time, but I was thinking it might be an opportunity to get your rates in effect prospectively in January, whereas, if we include this issue, you can't get a new set of final rates in as fast. 263 And that as you said, perhaps the adjustments to this -- that the result from this one change, if the Board were to approve it, could be dealt with as -- as a minor adjustment to rates or as an adjustment to rates at some other time using deferral accounting in the intermediate time, as we are so want to do these days. 264 MR. PENNY: I think fundamentally the response to that is the one I've just given you, that I think Union's view is that it wouldn't necessarily save time and of course, the down side is that there is another deferral, another after-the-fact charge that's simply being pushed out on -- from a timing point of view, being pushed out and then comes back, and this comes back to be revisited on customers after the fact. 265 MR. JACKSON: Mr. Penny, I think this may be my last question, but I think you were saying that the warming trend is not reflected in the 1999 volumes, and hence not in the 1999 rates. I think rates was the word you used. 266 MR. PENNY: The warming trend that we're talking about, the change -- the discernible change from what was being measured before, yes, that's right. It's my submission that that is not in rates. What's in rates is a 30-year average, and that is not what's happening out there in the world. 267 MR. JACKSON: So we're missing the effect of two or three years of data, is really what you're telling us; is that right? 268 MR. PENNY: It's -- I think it's both. There's ten years difference in the data between 30 and 20 years, but there's also -- it's not measuring the slump, and that's the difference between an average and a trend. So it's more than just missing a few years' data. 269 MR. JACKSON: I understand. Thank you very much. 270 Those are my questions. 271 MR. SOMMERVILLE: Thank you Mr. Penny. 272 Mr. Moran, you have a question for Mr. Penny? 273 MR. MORAN: Mr. Chair, there's just an excerpt in the 0017 decision that nobody's referred to and I just wanted to draw it to your attention so that if Mr. Penny or any other party wanted to -- or Mr. Thompson wanted to comment on it, they would have that opportunity. 274 At page 184 of the decision, and this is the section that deals with additional risks and benefits, section 2.10. 275 Page 184 in paragraph 2.682, there's a heading, the warming trend in weather, and the decision says: "The present practice is to use a 30-year rolling average of actual degree days updated at each rates case to determine 'average weather' for the purpose of throughput estimates. Under its proposal, Union would assume weather-related risk for the term of the plan." I just wanted to draw your attention to that. 276 MR. PENNY: Mr. Chairman, I wasn't going to comment on that because I think the answer to it is obvious, but I will now that Mr. Moran has raised it. 277 This is in a section of the decision that is simply reciting Union's position, and as the Board is well aware, Union was prepared to assume weather risk under its proposal. But the decision is very unlike Union's proposal and in my submission will -- you know, this issue of what Union was willing to assume is what was on the basis of the proposal that Union put forward and is now completely irrelevant because the PBR plan under which Union is operating is very different from what Union proposed. 278 MR. SOMMERVILLE: I think we will break until 25 minutes to 12. That gives us just over 15 minutes to break. At that point, we will proceed with your reply, Mr. Thompson, and hopefully proceed to the next issue as well. 279 So we will break until 25 minutes to 12. Thank you. 280 ---Recess taken at 11:10 a.m. 281 ---On resuming at 11:38 a.m. 282 MR. SOMMERVILLE: Mr. Thompson? 283 REPLY BY MR. THOMPSON: 284 MR. THOMPSON: Yes. Thank you, Mr. Chair. 285 The first topic I wanted to address in reply is this notion that Mr. Penny advances that my proposal would deny Union natural justice. My response to that is we're not proposing Union's issue of weather normalization not be heard or considered. We're simply proposing to defer the issue to a proceeding that is expected to be commenced within the next six months. 286 So that making the order that we propose, in my submission, does not deprive Union of its right to have its proposal considered. What we're suggesting is that the three-year term of the PBR constrains, to some degree, that the rights within which Union can raise certain issues and have them heard. So there is no proposal to deny Union natural justice, in my submission. 287 The second point I would like to address in reply is Mr. Penny's point that revenue items fall within the ambit of non-routine adjustments, and it's not just costs and expenses. And he points to a number of examples to support this proposition. 288 The first is the late payment penalty provision. Now, that aspect is a feature in this case, because the court ordered ECG -- the court decision triggered the requirement that certain policy changes be made to the late payment penalties, and that court decision, as I recall it, triggered some order from the Board to address this topic. So this topic is not on the agenda because it's some non-routine adjustment promoted by Union management, it's there because of a court decision and subsequent orders of the Board. 289 And Mr. Penny says it's a revenue item. I think, in fact, what it is is a cost shift. What the company is presenting in its evidence is an estimate of costs currently in the cost of service being recovered from ratepayers that will be recovered from late payers under the revised late payment policy, and so the numbers in the material represent a cost shift. 290 So that, in my submission, does not support the notion that management promoted changes in methodology having an impact on the revenue line are a non-routine adjustment. 291 The second example he referenced was the LRAM account, as I understand it, which is a deferral account. We are not here dealing with a proposal for a deferral account or the operation of a deferral account. We're dealing with a proposal to change a component part of the base. So the deferral accounts and pass-through items, in my submission, operate outside of the box, the PBR-formula box, and don't help Mr. Penny's case. 292 The third category of item that he referred to under these lines was the income tax change, and there again, that wasn't anything that was brought forward as a non-routine adjustment without initial Board requirements. My recollection is that the income tax change was pending at the time the Board rendered its 0017 decision, and the Board specifically directed Union to bring forward the results of that impact -- the impact of that change in its 2000 and 2002, customer review process. Again we're not there dealing with the management-promoted change in methodology as a non-routine adjustment. 293 And that's what I was talking about when I suggested that that -- these types of changes do not qualify as a non-routine adjustment. 294 That then brings me to the third area of submissions that Mr. Penny made, to which I would like to respond, and he says, "Questions of fact cannot be determined in advance of the hearing." And I submit to you, that is wrong. 295 Questions of fact can be determined in advance of the hearing on the basis of admissions from Union or on the basis of evidence which is not in dispute. And that's the situation that we have here. The event that Union is seeking relief for is not the warming trend, the event that Union is seeking relief for is Union's study of the impact of the warming trend, which it wants to relate back to 1999. 296 And you'll see from the pre-filed evidence, there's no dispute that that's what Union is seeking relief for in its pre-filed evidence. It talks about, in paragraph 15, that in 1999 the company began to study the weather normal issue, and it goes on and describes the results of its study, and that this led to an analysis completed in 2001, that is documented in this proposal. 297 That's the event that Union is trying to translate into an adjustment to volumes. And if I left the impression that I thought Union was trying to change 2003 volumes, that's not my understanding. I agree that they're trying to adjust 1999 Board-approved volumes, with the results of their study of this event. And that study of that event is a fact that is completely within the control of Union's management, and there's no dispute about that. 298 In the context of that undisputed fact, you can, in my submission, conclude that that fact and its consequences, does not fall within the ambit of what constitutes a non-routine adjustment. 299 And on that point, what constitutes a non-routine adjustment, there is a passage in your 0029 decision that I didn't refer to in my motion material or in argument-in-chief, but it's in paragraph 1.2 where you're describing the application. And there, in the last sentence, you say: "Non-routine adjustments are unusual and unexpected, beyond management's ability to control." 300 The warming weather trend is not something that suddenly came out of the blue in 2002 for impact in 2003, as others have pointed out. And in any event, that's not the fact that Union is trying to seek relief for, the fact is the study that they have exclusive control over and its results. 301 So you can find, in my submission, on the basis of the undisputed facts and on Union's own admission, that the relief that they're seeking here does not fall within the ambit of what constitutes a non-routine adjustment. 302 The final area that I wanted to respond to is Mr. Penny's submissions about what I've characterized as the balance of convenience issue. 303 In drawing your attention to the consequences of leaving this issue on the list, and in particular, the broad scope of the issue, I wasn't really relying on that to urge you to find it's convenient to bunch this issue from the list. What I was relying on it for was to demonstrate that the issue falls inside the base, not outside the base. 304 And in my submission, it's not speculation to recognize that estimates of volume have linkage to other components of the base. Everybody knows that, even Union. And if that component of the base is opened up, it opens up an issue with broad scope -- an extremely broad scope. In fact, Mr. Penny says, Well if it's left on the list, we're going to have to now scope the issue. So if it's left on the list this issues day, I guess, we'll have to be adjourned, because we're going to have to scope that issue. And as you can appreciate, it's extremely broad, and from the perspective of a number of intervenors, it's an issue that cannot be constrained to Board-approved 1999 volumes. It needs to be examined in the context of the volumes at the time the issue is considered. And that would bring into play the 2001, 2002 and perhaps the forecasted 2003 and beyond. 305 So all of that, in my submission, which is not speculative, it's real, supports the finding, the conclusion -- it supports that Union acknowledges this issue is inside the box, not outside the box. 306 Finally, with respect to what's inside the box and what's outside the box, there is a passage in your 0017 decision which relates to paragraph 2.682 of the decision to which Mr. Moran referred and Mr. Penny had some comments. And the follow-up passage is at 2.734. This is not in the Union submissions section, this is the Board's findings section, where the Board says: "The Board recognizes that under its proposal Union faces the risks associated with asset utilization for planning use for customers, changing economic conditions, interest rate changes, impact upon debt cost, and the warming trend in weather that may exceed the risks the company would have faced under traditional cost-of-service regulation. The Board believes that the net effect of these risk factors is likely to be positive to shareholders rather than negative." 307 What Union is in effect seeking to do, in my submission, is to vary that conclusion. They, in effect, want a retroactive adjustment to -- for weather during the term of the PBR. And in my submission, they can't have it, can't get at it, until the re-basing hearing which is in 2004. 308 The only other point, I guess I should add in this context is in response to Mr. Jackson's suggestion, well, should we separate this topic from the 2003 customer review. And as I understand it, the upshot of all of that would be it might lead to the creation of a deferral account for 2003 with respect to weather. And in my submission, that would be a result that was inconsistent with the conclusion in paragraph 2.734, and in effect, retroactive adjustment to the PBR plan. 309 Unless there are any questions, those are my reply submissions. 310 MR. SOMMERVILLE: Thank you Mr. Thompson. The Board will reserve -- 311 MR. PENNY: Mr. Chairman, may I just address one issue that came out of Mr. Thompson's reply, which I submit is not proper reply. He was relying on the passage from the Board's decision which dealt with the allocation of risk and that could have easily been put in his examination or his argument-in-chief and I'd just like to say a sentence or two about that passage from the decision if I might. 312 MR. SOMMERVILLE: Go ahead, Mr. Penny. 313 FURTHER SUBMISSIONS BY MR. PENNY: 314 MR. PENNY: What I wanted to say about that passage, Mr. Chairman, is just to point out that, of course, in that decision the Board created the Z-Factor issue or the non-routine adjustment issue. And obviously the Board in summarizing the circumstances facing Union going forward was not considering any non-routine adjustment. So again, I've made this point on a couple of other issues before, but the issue that's before you today was obviously not before the Board at the time that it issued its 0017 decision. So, in my submission, the statement that was made there is generic in nature and has no application and no relevance to the issue that's before you today. 315 Thank you. 316 MR. SOMMERVILLE: Thank you, Mr. Penny. 317 The Board will reserve. Can we move to the next item on the issues list. 318 MR. POCH: Mr. Chairman, I wonder if I might inquire. Will the Board have any questions on matters that aren't earmarked as contested? If not, I might be able to take my leave. 319 MR. SOMMERVILLE: We don't anticipate any such questions. 320 MR. POCH: Thank you very much, Mr. Chairman. With your permission, I'll withdraw. 321 MR. SOMMERVILLE: You are excused, Mr. Poch. Thank you. 322 MR. MATTSON: I'm in the same position, Mr. Chairman. On the remaining contested issues that Energy Probe has no -- 323 MR. SOMMERVILLE: Thank you, Mr. Mattson. You're excused. 324 MR. WARREN: There's a flight from the room, Mr. Chairman. The CAC takes no position with respect to the balance of the contested issues. If I might be excused. 325 MR. SOMMERVILLE: Thank you, Mr. Warren. 326 MR. PENNY: Mr. Chairman, as I said earlier, I think the agreement we reached yesterday was that for the remaining, I believe, four issues, that those who want the issue on the list will make their initial submission, and then anyone else, including Union, ultimately, will make their responding submissions. 327 MR. SOMMERVILLE: With respect to item 3.3, who is the proponent? 328 MR. JANIGAN: Mr. Chairman, VECC is the proponent for the conclusion of this issue on the issues list, and it concerns the volumes that are being used for the calculation of the changes in WACOG for company-use gas, namely, compressor fuel and gas in inventory. 329 ISSUE 3.3 330 SUBMISSIONS BY MR. JANIGAN: 331 MR. JANIGAN: Specifically, to reference the evidence of the applicant, if you would turn up Exhibit B, tab 3, schedule 3. 332 MR. SOMMERVILLE: This is a schedule entitled "Intra-period WACOG Change"? 333 MR. JANIGAN: That's correct. It involves the calculation of the amounts that are set out on lines 6, 7, and 12. And the reason we wish to put these calculations in issue, or the reasons, are three-fold. 334 The first is to resolve what confusion that at least exists in our mind with respect to the decision setting up the price cap RP-1999-0017, concerning different sections of that decision that have treated this particular subject matter, and I want to take the panel through those sections to show the reason for our confusion. 335 Secondly, we wish on the issues list to examine the effect of two changes in the way in which inventory and compressor fuel is valued or is derived in actual fact, that have occurred since the date of the price cap decision. 336 And thirdly, with respect to the general purpose of the customer review process for the purpose of monitoring and obtaining the appropriate information to assess the particular benefits of this particular pass-through -- the way in which this pass-through item has been handled. 337 First, I want to take the Board through the sections in the RP-1999-0017 decision that have dealt with this and explain our confusion, and I believe I have some sections excerpted. I will also be referring to Mr. Penny's compilation as well. 338 MR. SOMMERVILLE: Sorry, I missed that last comment. 339 MR. JANIGAN: I will also be referring to Mr. Penny's compilation that he was using in his previous argument. 340 MR. SOMMERVILLE: Thank you. 341 MR. JANIGAN: And firstly, I would ask the Board to turn up on page 105 of the decision with reasons, paragraph 2.355. I haven't numbered my particular compilation, but it should be able to be found on page 105. 342 The section -- paragraph under the subject heading: The Board Findings Pass-through Items Including Gas Costs. "The Board is prepared to accept adjustments to reflect changes to gas prices and thereby reduce this risk to which the company would otherwise be exposed. The Board deals with the methodology for the treatment of unaccounted for gas volumes separately below in section 2.5.7." 343 "With respect to inventory carrying costs and compressor fuel, the Board accepts Union's proposal that these be dealt with annually through the customer review process on a forecast basis. The Board believes that it is appropriate for Union to be at risk for volume variances in these items, at least a year at a time as they have proposed. However, since the Board believes that gas prices are largely beyond management's control, it directs that price variances be tracked and dealt with annually through the customer review process." 344 Now, it would appear that the pass-through items in the Board's view were to be dealt with annually in the customer review process, and there was a forecast to be made at least a year at a time. As you know currently, or at least for the last provision, EBRO499 volumes were used which are a forecast of the 1999 volumes derived in 1998 by Union. 345 If we skip ahead to the -- further in that decision, page 219 under Board findings, price cap adjustments, allocation of one-time adjustments and pass-through items, the Board notes at paragraph 3.17: "Ideally, there should be a correspondence between the total actual cost to be recovered and the associated volumes. In other words, cost for any period should be recovered on the basis of volumes for that period. The Board expects that this principle will be recognized in the rate derivation, which will be reviewed in the customer review process, and this review will provide intervenors with an opportunity to evaluate the rate adjustment." 346 Now, from these sections we have taken, the idea was that there was to be a forecast of these volumes that you would review in the customer review process. It's supposed to match up as best as possible to the actuals and we'll go forward on that basis. 347 However, if we skip ahead in the decision, and in this circumstance I would ask you to turn to Mr. Penny's compilation of materials, on page 21 of his materials under the heading "Board findings of allocation of future pass-through items", we have in paragraph 3.94: "The Board approves the proposal to pass-through the impact of the most recent QRAM on delivery-related gas costs, subject to the customer review process. The Board also approves the use of EBRO 499 approved volumes to calculate the unit price changes associated with changes in the inventory carrying costs and compressor fuel." 348 And the next paragraph indicates: "The Board notes that early in this decision it accepted Union's proposed ratio methodology for the calculation of unaccounted-for gas volumes. The Board accepts the use of the updated WACOG and 1999 volumes in calculating the delivery-rate gas cost adjustments for the term of the trial PBR plan. The Board expects Union to monitor the impact of this methodology." 349 VECC has tried to construe these two sections in a way that is most favourable to attempt to get a unified position that favours the idea that these volumes would be examined on an annual basis. And using the latter part of this decision to justify it, we frankly cannot reconcile these two sections as to what is supposed to occur with respect to the volumes associated with these two pass-through items, namely, the compressor fuel and the gas inventory. 350 We do not wish to revisit the extensive arguments that were made as to the principles of incentive-based regulation in the context of the price cap decision. We would just note that, generally, with the case of pass-throughs, the emphasis is on getting it right as the first element, because it is a pass-through and it should reflect as best is possible what the company is paying. The best numbers usually suck. 351 Now, obviously, the best sometimes conflict with what might be the simplest method to calculate that, and we would respectfully submit in this circumstance that if it's a choice between doing something simple and getting the matter right, then this circumstance shouldn't require too much complexity to get it right. 352 Secondly, if we are -- we have misconstrued these particular passages, we would note that since the date of the decision, there have been -- two changes have impacted the volumes that are under discussion in this particular pass-through item, the compressor fuel cost, and the inventory adjustment. 353 In the Union RP-2001-0029 ADR agreement, the party agreed to accept changes in the inventory methodology. In effect, we no longer evaluate the gas inventory associated with direct-purchase customers. So in the WACOG pass-through gas calculations, ratepayers pay an inventory adjustment cost in the delivery rates which, if it's derived from the use of the EBR499 volumes, includes the direct-purchase customers. This change has occurred since the date of the price cap and we would at a minimum like to explore what impact this methodology has on the inventory re-evaluation. The inventory valuation for the PGA is approved in the RP-2001-0029 decision, and whether or not it has a significant affect on the inventory cost adjustment. 354 The other change is the compressor fuel charge. When the EBRO 499 volumes for evaluating the cost change in compressor fuel was in place, there was no ability for M13, M16 or C1 firm transportation customers to supply their own fuel. In the RP-2001-0029 decision, the terms and conditions for the service of M13 and M16 and C1 were changed so customers could supply their own fuel. And in the RP-2001-0029 decision, on page 117, which I think is included in our materials, paragraph 6.130 -- 6.130, has the Board approved the fact that these class of customers can now supply their own fuel. 355 "The Board sees no objection to permitting Union an option to request customers provide their own fuel." So in effect, the compressor fuel volumes that were expressed on EBRO 499 could be higher relative to what might potentially be the outcome in 2003, since these customers now have the option to provide their own fuel due to the RP-2001-0029 decision. 356 In the same paragraph of the RP-2001-0029 decision, the Board notes the following: "With respect to the request of some intervenors to report on the volume of gas which is transported, or for which the customer provides its own fuel, the Board does not know what value stakeholders would find in that information, nor does it understand why it would be costly to Union to provide such information. Stakeholders, if they so wish this information, may review their request for it through the interrogatory process and the subsequent CRP." 357 Now, if we could bring some clarification of that issue, at least from this party requesting the information, we believe it goes directly to the issue of whether or not the EBRO 499 volumes are accurately reflecting the company costs associated with the compressor fuel -- pass-through charge for compressor fuel. And we believe these are important changes that should be examined in the context of this issue. 358 Thirdly, if we have mistaken or misconstrued in any respect the general way in which these issues are to be approached, we still believe that it is important that these issues be monitored in the course of this process and the information gathered. 359 We note that the Board in the context of the RP-1999-0017 decision noted in paragraph 2.51 that: "The Board has decided on balance that it would be the public interest to adopt, on a trial basis, a modification for Union's price-cap PBR proposal for a shorter term than what was applied for. This will allow the Board and all parties to explore the benefits and disbenefits in relationship to the traditional annual or bi-annual adjustment of rates based on forecast cost of service." 360 So if we are correct in our conclusion that, in fact, the earlier sections of the decision that we've cited should be operative, then this issue should be on the list simply for addressing that -- addressing that point. If we are incorrect, it strikes me that at a minimum the two changes that have taken place since that decision should be examined. And finally, that this is a matter which falls directly within the examination of the benefits or disbenefits that should take place within a price cap, period. 361 I would note that we did give notice of our intention to raise this issue in our argument in the previous proceeding, and we did accept the volume -- 1999 volumes for 2001 in the ADR agreement. Unfortunately, this was before we had conducted a thorough review of the issue, but we felt bound by the terms of the agreement to continue in place in this proceeding. So those are my submissions. 362 MR. SOMMERVILLE: Is there any other party who wishes to speak in favour of the inclusion of this issue? 363 If not, Mr. Penny, can I call on you to reply. 364 MR. PENNY: Yes, thank you very much, Mr. Chairman. My reply will be reasonably brief. 365 SUBMISSIONS BY MR. PENNY: 366 MR. PENNY: I think Mr. Janigan has correctly apprehended at least the fundamental substance of Union's position. And our principal objection to this issue being on the issues list is simply that of this issue has already been before the Board on two occasions. The matter has been decided. It's res judicata, and to put it on the issues list again will just contribute to litigating various facets of the same thing over and over again. 367 The -- Union's original PBR proposal was to use approved EBRO 499 volumes for calculating all pass-through adjustments, and in the original PBR decision, matter 0017, at paragraph 250 which is at page 19 of my bundle of material, the Board accepted that proposal and -- albeit with some reservation, but you'll see in the last sentence of paragraph 2.50 of page 32 of the decision, the Board makes its final determination on this issue, saying: "The Board accepts the 1999 test year data approved in EBRO 499 as the basis for PBR plan which the Board has approved for Union in this decision." 368 And the Board made this finding despite having acknowledged earlier in the same section of the decision at paragraph 2.25 that VECC had criticized the use of Union's -- criticized Union's proposal to use the 1999 Board-approved test year data. And you'll see that at the bottom of page 20 of my material in paragraph 2.25. 369 It's a recitation of VECC's argument on some related issues, and then the last sentence: "Further, VECC criticized Union's use of 1999 Board-approved test year data. 370 So that threshold issue was resolved. And then as Mr. Janigan has indicated, you'll see at page 21 of my material on the specific issue -- on the specific issue of the allocation of future pass-through items, the Board specifically ruled in paragraph 3.94 that the Board approved the use of EBRO 499-approved volumes to calculate the unit price changes associated with the changes in inventory carrying cost and compressor fuel. 371 In my submission, that is, in effect, the end of the matter. 372 And I say that -- I should have said that to put these passages in context, you'll recall that the whole concept of adopting volumes for the purpose -- one fixed set of volumes for the purpose of these pass-through items was to remove the controversial nature of the volume forecasts done each year, which in the past, as the Board knows, has always occupied an enormous amount of time in these hearings, and to have an albeit imperfect base upon which these pass-through adjustments would be made without having to litigate every year the volume -- the volume basis. 373 Further, as an analogous issue, in matter 29, another -- this general issue came up again, because in that case, certain intervenors advanced the position that the income tax rate used for calculating the inventory carrying cost pass-through should be the current year tax rate rather than the year 2000 tax rate, which was embedded in rates. And Union's position was the WACOG pass-throughs were pass-throughs of price variance only, and even though the actual inventory carrying cost was affected by changes in taxes, inventory volumes and interest rates, the Board only approved the pass through of the price variance. And Union was to be at risk for the other variances. 374 And the Board said in the matter 29 decision, which I've excerpted at page 23, in the black-lined passaged of paragraph 5.37: "The value of the inventory changes as the price of gas changes. The Board, in RP-1999-0017 allowed the pass-through of 'price' variances related to the change in the price of gas to Union from the price that was reflected in base rates. Such variances were to be 'price' variances only." 375 Now Mr. Janigan had referred you to a passage at the beginning of that matter 0017 case which referenced dealing annually with adjustments to the customer review process on a forecast basis, but in my submission, that -- consistent with what the Board has said in the two passages I just referred you to, that forecast basis was forecast of price only, and not forecast of anything else, including volume. 376 So in my submission, what VECC is really trying to do is re-litigate an issue which is already, in effect, been decided twice. I can see not a precise point that VECC is putting before you, but closely analogous points have already been decided twice, once in the matter 0017 case and once in the matter 0029 case. This is just another facet of the same issue. 377 There's no need, in my submission, to re-litigate this for a third time. There has to be some finality to the dispositions by the Board of these issues and some end to the litigation over issues that have already been resolved. And the effect of the Board's determination in the matter 0017 case and with respect to this analogous issue in the matter00 29 case is to have resolved those issues, and that the only variance that comes through in the pass-through items is price variance not volume variance. So in my submission, for that reason, the matter should not surface again. 378 With respect to the change in the valuation of gas and inventory, first of all, of course, the parties agreed to that without qualification. And I guess the real point is that this is simply an accounting mechanism to ensure -- to ensure that the price of the inventory is done correctly and that revaluations don't benefit the company one way or the other. 379 And so they use actual inventories to derive actual prices, the purpose of which is to insulate system customers from direct-purchase impacts, and it doesn't go any further than that. 380 With respect to the compressor fuel issue, this was to calculate the pass-through in a way that removed customer-supplied fuel, and that's how Union does it. It has no impact whether you use 1999 volumes or not, it's simply a way of -- of backing out the customer-supplied fuel. 381 So again, no impact on the issue of whether you use '99 volumes or some other volumes. 382 If -- what VECC really wants is simply to examine again what the impact of -- and the manner of the accounting or the manner in which Union has treated the compressor fuel issue, that in my submission -- we're willing to show them a second time how precisely we do that, but I don't take that to be Mr. Janigan's position. What they really want is to just open up the whole issue of the volume base for the purposes of all the pass-throughs and see what happens if you use current volumes. And that, in my submission, is not on the table and should not be on the table. 383 Those are my submissions, subject to any questions. 384 QUESTIONS FROM THE BOARD: 385 MR. JACKSON: Mr. Penny, I'm just trying to make sure I understand this issue, and I would like to ask you a question or two about the question that was settled in the 0029 case. And I believe that was with respect to what would be re-priced when inventory is revalued, in terms of the inventory of gas in storage that you have. 386 And am I correct in recalling that what you and the stakeholders agreed to was that only the system gas would be re-priced and not the direct purchasers gas that was in storage? 387 MR. PENNY: That's correct. 388 MR. JACKSON: Can you tell me, what is the volume of gas that the Board would have approved through approving the settlement in 499 and carrying forward with it? What is the volume of gas in inventory, and I specifically am curious as to whether or not that volume of gas would at that time include direct purchasers' gas as well as system gas. 389 MR. PENNY: With your indulgence for a moment. The original was the average inventory, which included direct purchase. The change was to use actual and to -- in accounting terms, take out the direct purchase so that only the portion that was for system was subject to the revaluation. 390 MR. JACKSON: So that essentially you were getting a return on a component of rate base, working capital component of rate base, that valued direct purchasers' gas, notwithstanding that they owned it while it was in storage? That's a question. 391 MR. PENNY: I'm sorry, Mr. Chairman. Could you repeat the question because I didn't quite follow it. 392 MR. JACKSON: I'm just trying to understand what was in rate base and what wasn't, and I don't think there was any dispute over the fact that the value of inventory related to serving system-gas customers was in rate base. Am I correct in that? You would agree with me on that? 393 MR. PENNY: Yes. Again average. 394 MR. JACKSON: On average, yes. Yes indeed. 395 But what I would like to just understand is whether in rate base there was also a valuation of the direct purchasers' gas that was held by Union. 396 MR. PENNY: Thank you. If I can just consult. 397 The gas that was owned by direct purchasers, which was most of it, most of the difference, was not in rate base. Only that portion of Union's gas that was used for balancing would have been in rate base, so that would be very small. That would be a very small percentage. So the real answer to your question is no, that the direct-purchase gas was not in rate base. 398 MR.. JACKSON: Okay. So there are -- in Union's submission, then, can I take this that Union would say there are no consequent effects for inventory valuation that flow from the notion of -- or the adopting of valuing system gas only. And I think I may have misstated that, because obviously, the one -- there is one change and that has to do with what gets re-priced. 399 Are we saying that the balancing gas doesn't get re-priced? What is really changing, then? If you weren't re-pricing the direct-purchase gas beforehand, and then you agreed in the 0029 case to reprice only the system gas, how is that different from what you were doing before? 400 MR. PENNY: The difference, Mr. Chairman -- I said before they used average and now they use actual. And then the other difference is before they were repricing the balancing gas and the system gas, now they're only repricing the system gas. I'm sorry if I wasn't clear about that before. 401 MR.. JACKSON: That does clear it up a lot for me. So there are really no consequent effects on the direct purchasers' gas. That's really being treated the same after this settlement as before the settlement. 402 MR. PENNY: I understand that to be correct. 403 MR.. JACKSON: Well, that resolves a couple of my questions. Thank you very much, Mr. Penny. I'm still trying to understand what the -- what Mr. Janigan's issue is, then. So I'll leave it, and he has a reply. 404 REPLY BY MR. JANIGAN: 405 MR. JANIGAN: Yes, very briefly, Mr. Chairman. 406 Obviously if the issue of inventory gas and direct-purchase gas is resolved in the fashion Mr. Penny is suggested, then that's not something that we necessarily have to explore. I think the issue of compressor gas, and in particular, the volumes that are supplied by customers that are now permitted to supply is still on the table. One amount -- what that amounts to, may or may not be significant. 407 But first and foremost, I just want to revisit some of Mr. Penny's points. I think he's incorrect on the matter that this has been litigated and re-litigated. In fact, as we pointed out in the initial decision, in fact, there is considerable wording that suggests that the process that should take place is in accordance with what we would suggest, that there is a forecast of actual volumes. 408 I think to some extent, Mr. Penny inflates the issue with the use of -- the whole issue associated with the use of actual volumes. With the particular issue that is associated with these two pass-throughs, and that is whether or not the actual volume should be used to derive the actual cost of the company and pass it through on that basis. The issue, what we're doing with respect to the other elements of the price gap associated with the EBRO 499 volumes, is downstream. It's been dealt with. 409 The question of whether or not the pass-through items should accurately reflect costs is directly in play, in our view, from the wording of the decision. And frankly, while Mr. Penny puts stress on those elements of the decision which favour his interpretation, we could do the same and parse the same with vehemence, that this in fact is what the Board declared. 410 In fact, we have difficulty resolving those two sections, and we would suggest that if it's going to be resolved, it should be resolved in the fashion that makes the most sense in terms of the theory of pass-throughs. That, in fact, the forecast of actual costs should be what's passed on, not something that's a variable that is fixed in time. 411 It makes -- it's difficult to understand what goal or objective is associated with performance-based regulation with -- fixing the pass-through volume in this circumstance. We are trying to pass on actual or the best cost, we are not trying to incent company performance in this particular area. So that's the reason for pass-throughs, and we would suggest that the Board's wording in those sections is best dealt with as part of the customer review process should be considered. 412 Finally, we think that the issue itself, because of the declining volumes, is one that should be examined in the context of the process itself. Looking at the benefits or disbenefits of the PBR plan should be examined in advance of the review in the event that the Board does not -- or is in accordance with the views expressed by Mr. Penny as to how these items should be calculated. We still believe this is a matter that should be examined and should be put forward as an issue, and stay on the issues list in this proceeding. 413 Thank you. 414 MR. SOMMERVILLE: Thank you, Mr. Janigan. 415 We'll reserve on that. 416 MR. JANIGAN: Thank you, Mr. Chairman. 417 MR. SOMMERVILLE: The next item is 11.1, I think, which has to do with consideration of delivery point flexibility alternatives. There's also Item 11.2. We have approximately a half hour before we take a lunch break. Is there anything in taking either one of those first? 418 MR. PENNY: Well, both of those are Mr. Ryder's, and subject to how Mr. Ryder wanted to proceed, I was going to suggest that he deal with them both and I respond to them both. 419 MR. SOMMERVILLE: That's satisfactory to the Board as well. 420 Mr. Ryder, would you like to proceed? 421 MR. RYDER: Yes, thank you. 422 MR. JANIGAN: Mr. Chairman, I wonder if I could have -- we don't have any submissions to make on the remaining issues, I would like permission to withdraw. With your permission, VECC will withdraw, we will leave. 423 MR. SOMMERVILLE: You're excused, Mr. Janigan. Thank you very much. 424 ISSUES 11.1 AND 11.3 425 SUBMISSIONS BY MR. RYDER: 426 MR. RYDER: Yes, I have prepared some documents that I may refer to to support my submissions on these two points, and my friend has a copy from yesterday. And I think Board staff has a copy and there's others here if anybody wants one. 427 Tab 1 is my letter to Board Staff prior to the issuance of its draft issues list that was used when the parties conferred, and it generally sets out the position that Kitchener has on both of these issues that remain -- that remain contested. 428 By far, the most important issue from Kitchener's point of view, and I think for the regulatory process and to the customers generally, is 11.2, and that is the issue as to whether or not customers have the right to see on request any Union policy with affects any of its regulated services or programs. So this issue only applies to policies that relate to Union's regulated services and programs, not to it's unregulated services and programs. 429 And the reality is that there are policies which affect a customer's right to access -- to services, such as transportation and storage and unbundling services, and Kitchener is a large customer of Union, and it is the most -- I believe, the most unbundled of all of Union's customers, under it's T3 carriage service contract. And also, there are policies which affect when a charge will or will not be imposed. So what my letter seeks to do is set out two examples of where Kitchener has been confronted by Union's assertion that it is acting on the basis of a policy without disclosing the policy. 430 The first example in my letter is the imposition of a DCC charge on the removal of gas from storage, which did not attract when it was delivered -- did not attract a DCC credit. So the issue raised by me here is whether or not Union should be obliged to disclose the policy, which Union asserts to be the basis for its conduct. And if it doesn't, the result is that parties such as Kitchener are left with -- in the impossible position of responding to a policy which it cannot see. And we say that's not appropriate for a regulated company and in a regulatory regime. 431 Union's material that it filed this morning on its last page produces a response to a question by Mr. Quinn during cross-examination in the 0029 case. And all I say to that in advance of Mr. Penny's submission, is that an undertaking during the customer review process on a specific item is no substitute for the right of a customer to see at any time the full policy which applies to a regulated program. 432 We say a regulated company should be required disclose its authority for its charges or for its rules for access, and where the authority is a policy, then it should disclose the policy. 433 So that's the first example. And on a practical level, there are two observations. If Union does not publish its policies or make them available for customers that seek them, then the customer is forced to make decisions without prior knowledge of constraints or costs which Union could impose at a later date. And when that happens, the customer is left with no avenue or recourse. It may have signed up for a service, and it doesn't know all of the charges or the implications of having done so. 434 And I note that when I last looked, no other -- no customer had taken up Union's unbundling initiative and I think that may well be because there is a lack of uncertainty as to what constraints or charges can be imposed. 435 I say where there is a lack of certainty you will always have a discouraging impact on any commercial activity. And there's a second practical observation, and that is an unpublished policy affecting a regulated service is a gap in regulatory oversight, and I submit it should be closed, or at the very least for the purposes of today, the question of whether or not it should be closed, is a matter that is appropriate for discussion in the customer review process. 436 The second example that my letter refers to is a policy that Union has affecting what it calls level -- levels of priority service. And what we know is that Union has the right to curtail all deliveries, including firm deliveries, from storage in certain circumstances. And what is also known is that Union has categorized the -- into different levels of priority movements of gas to and from storage, including movements for its own transactional services. 437 And that the higher the level of the movement, then the less likely it is that the customer will have its deliveries curtailed. 438 And we say it's important for a customer to be able to judge the likelihood of curtailment in any situation. It's especially important for public utilities such as Enbridge or Kitchener or Kingston who have purchased storage rights from Union, and it's important for all customers who have purchased storage rights from Union. 439 Our submission simply is that all customers have a right to the disclosure of policies which affect their contractual rights or their rights under the rate schedules approved by the Board. 440 And so finally, let me say why I think this is appropriate for customer review process. First of all, it's an important issue. It affects access to Union services and its unbundling services, and it affects the relationship between Union and its customers. 441 Secondly, I say it's within the intended scope of the customer review process. And in this, I say that the process is not limited simply to addressing Union's specific proposals for rate recovery. And on this point Mr. Quinn just handed me an excerpt from the transcript in 0017 on June 19, 2000, page 49, where Mr. Baker was discussing with Mr. Dominy the fact that if there was a dispute with respect to the allocation to a customer of storage rights, that is a matter that could be taken up in the customer review process. 442 Well, so I think the inclusion of this issue is consistent with the assurances that Union has made with respect to the scope of the customer review process. It's not limited to its own proposals, but it also addresses matters of concern to customers. 443 And the third reason why we say it should be included is that currently, there's no other forum to address these concerns. I should finally say that Kitchener intends to call evidence to support its position on this issue, and it will also be filing interrogatories which should produce some additional evidence. 444 Now, sir, if you like I could deal with delivery point flexibility. 445 MR. SOMMERVILLE: Please. 446 MR. RYDER: Again, my letter sets out Kitchener's position on this point, and also on tab 3, there is an excerpt from the ADR agreement in RP-1999-0017, which dealt with the delivery point flexibility issue. 447 And the agreement provided for what was called a 20 percent system-wide solution, which involved the purchase of M12 capacity from TCPL. And at page 17 of the ADR agreement, the last page in tab 3, at the top of the page, the following proviso was agreed to. 448 It states: "To the extent that there is no consensus agreement among the parties to either renew the 150 MMCFD three-year M12 temporary assignment, or to expand the level of capacity supporting a system-wide solution above the 20 percent level, any party may file an application with the Board to advance specific controls." 449 There is no consensus for renewing the 20 percent solution and that means that the only arrangement for delivery point flexibility that currently exists will expire on October 3rd -- 30th, 2003. So there will be no arrangement for the winter of 2003/2004 unless some new proposal is advanced. 450 And it is the City of Kitchener's intention to propose -- advance a proposal for a different way of providing -- 451 MR. SOMMERVILLE: We've had a small technical glitch here, Mr. Ryder. 452 MR. RYDER: I think I was about to say that Kitchener wishes to advance in this case a proposal for a different way of producing deliver point flexibility. And I submit that the ADR agreement provides a clear right for it to do so, and it intends to support its proposal by evidence that it will file and by interrogatory. 453 Now, I appreciate that Kitchener's proposal is opposed by Union, and in that respect, it even declined to answer our interrogatories in the last case which sought to make some inquiries about its ideas for providing a greater delivery point flexibility. But I submit that the opposition to our proposal is no reason to oppose it. 454 Finally, let me say that delivery point flexibility is a concern to others, that's evidenced by the ADR agreement in 0017. And we say that issues of concern, especially when there will be no delivery point flexibility unless Kitchener or some other party does advance a proposal, we say levels of concern to customers should be addressed in the customer review process. And that's why we seek to have it in this issues list. 455 Thank you. 456 MR. SOMMERVILLE: Is there anyone else speaking in support of the inclusion of this issue? 457 SUBMISSIONS BY MR. THOMPSON: 458 MR. THOMPSON: Yes, speaking in support of the inclusion of these issues, Mr. Chairman, for the reasons articulated by Mr. Ryder and particularly in the context of his statement to the Board that Kitchener will be leading evidence with respect to the issues. In this context they are, in my submission, issues which fall within the ambit of the customer review process, and the customer should be allowed to address them in evidence. 459 The only point I wish to add about delivery point flexibility is a reference to the settlement agreement in 0029. It's in Mr. Ryder's brief, but I think it's at page 16. 460 There again, the agreement was expressly without prejudice to the right of any party to raise this issue in the 2003 customer review process. 461 Those are my submissions. 462 SUBMISSIONS BY MR. ROWAN: 463 MR. ROWAN: Mr.. Chairman, I'd just like to add my voice to Mr. Ryder's comments with respect to the other issue, 11.2, the publication of Union policies. 464 I think any customer should have a right to see a regulated utility's policies that relate to a regulated service. And it is surprising to me that they would have, for example, a priority system in place with respect to storage volumes, that the customers whose very volumes are being affected by that don't have access to see the policy and don't have the ability to make decisions in their own business affairs with respect to the policies that would impact them. And it just seems to me that that should be a matter that the Board should require the utilities to make available to customers. 465 MR. SOMMERVILLE: Are there any other submissions in favour of the inclusion of these issues? 466 Mr. Penny. 467 MR. PENNY: Yes, thank you, Mr. Chairman, I can deal with the delivery point flexibility, very briefly, because Mr. Ryder has changed his position from yesterday. 468 SUBMISSIONS BY MR. PENNY: 469 MR. PENNY: The issue that was in dispute was that Mr. Ryder was not prepared yesterday to undertake to file evidence to bring forward a proposal, and we felt, having regard to the language of the ADR agreement, that if Mr. Ryder's client wanted a proposal, that he ought to step up to the bar and bring one forward instead of going on a fishing expedition like he did last year through interrogatories, and they were not prepared to make that undertaking. They have now, on the record, undertaken to file evidence to support this proposal. 470 So in light of that, and I should say subject to that, in other words -- in other words, to be clear, that if the City of Kitchener is undertaking to file evidence to support its proposal, then we're prepared to concede that it should go in the issues list. The issue in dispute was that they were not previously prepared to do that. That may end that issue. I assume it does. 471 Then, with respect to the other issue, 11.2, the publication of Union's policies, I really have -- we have two objections to this. The first is a general one and that is as stated; the issue is just vastly over-broad. It would involve every policy that Union has on every service on every program that it administers, and there's simply no reason to think that all of those things could conceivably be relevant in this process to set 2003 rates. It would be -- result in the production of volumes of material for no apparent purpose, and in my submission, it is truly a fishing expedition of Himalayan proportions. There's simply no scenario that you can imagine under which all of Union's policies could conceivably be relevant to any issue properly part of this case. 472 So then, secondarily, I then say, even looking at the two specific issues the City has raised, one of them, at least, is clearly an issue, in my submission -- I'll come to it in a second -- an issue that ought not to be on the issues list. And that is the DCC claw-back issue. 473 So in other words, if we look at the two specific issues Mr. Ryder has raised, we say that the DCC claw-back issue is not properly part of the proceedings for this case. 474 Although, again, having regard to Mr. Ryder's undertaking that the City of Kitchener is going to file evidence with respect to the second, that is the priority of service, we indeed yesterday -- even yesterday even without that undertaking were prepared to put the priority of service issue on the issues list. 475 What we took exception to was the fact -- and still are. What we take exception to is the over-broad nature of the request to review all of Union's policies. 476 So particularly in light of the concession that they will file evidence on this issue, then we again are prepared to agree -- as we were yesterday -- to agree that the issue of the -- of priority of service in circumstances when Union itself is constrained and, therefore, how they decide what transactional or interruptible services are interrupted first, that is an issue that could properly be on the issues list. 477 That brings me, then, to the final alternative, which is this -- which is this issue of the DCC claw-back. 478 The Board may recall extensive if not excruciating cross-examination of Mr. Packer by Mr. Quinn on this very issue in the last case. And Mr. Packer was even asked for a transcript undertaking to explain why Union believed that it was entitled to exercise its DCC claw-back rights in respect of this very issue. 479 And an exhibit was filed that addressed this, and it's the one that Mr. Ryder has already referred you to at page 24 of the bundle of my material. This is a detailed explanation of the basis upon which Union says that it is entitled to exercise DCC claw-back rights. 480 So for whatever reason, the City didn't make argument on this case in the last case; although, they certainly had their chance, and they're just trying to dredge it up again -- again, I guess, for reasons unknown. But this issue, in my submission, should not be permitted to be this ever-repeating albatross that just comes up. 481 They raised it last time. They got an explanation. They chose not to make any argument on it, and now it's just coming back again like the bad -- the proverbial bad penny. I always make that joke at my own expense. 482 Other than that, I simply wanted to respond to two particular things that Mr. Ryder said about this issue. First of all, he said that Union should be obliged to disclose its policy, and we know from Mr. Packer's answer here and from, as I recall, evidence he gave that the customer representative for the City of Kitchener explained all of this to Mr. Quinn at the time. 483 So it's simply not correct to say that Union was not disclosing the basis for why it was doing what it was doing or why it took the position that it took. 484 And Mr. Ryder also made the submission that a customer didn't know what the implications of making the choice were. And again, that is not so. Mr. Quinn was told when he made the relevant nomination that's in issue here that it was not allowed, but he proceeded to do it anyway. 485 So what, I guess, fundamentally my submission on this issue is that it's an issue that's been raised before. The answer has been given. It's really an issue of contractual interpretation, and there's no reason for it to be on the issues list. 486 MR. SOMMERVILLE: Thank you, Mr. Penny. 487 QUESTIONS FROM THE BOARD: 488 MR.. JACKSON: Mr. Penny, your last comment, then, are you saying that these provisions are clearly spelled out in the contract which are attached to, perhaps, as appendices to the contract which Kitchener would have? 489 MR. PENNY: Well, my understanding is -- and it's in the standard answer to interrogatory. There is a provision in the contract, Clause 14. Mr. Packer makes reference to it. 490 He says in the last sentence of page 24: "The delivery commitment credit is discussed at Clause 14 of the attached contract." 491 Because at the time we attached a form of contract so as not to disclose the particulars of the City's contract. And the wording in the standard clause is identical to that contained in the current contract. 492 Now, my suspicion is that, perhaps, you said clearly set out. It may or may not be clearly set out. I don't know what the answer to that is, but, no doubt, part of the source of this dispute has to do with what's permitted or not permitted under the contract. 493 But more to the point, I guess, for today's purposes, Mr. Jackson, I would -- I was referring to the entirety of the answer, so that the City of Kitchener knows what the answer to the question that it's posing here is. 494 This is Union's policy on this issue. So there's no reason to come back to it. They've been told what the policy is. 495 What the issue is, they don't like the policy, but that's not what Mr. Ryder is trying to put to you today. He's trying to suggest that we should just review all of Union's policies about all of its services and the administration of all of its programs. And that we take great exception to. 496 MR.. JACKSON: My understanding was that the only issue was whether or not they should be published, not scrutiny and review of all of the policies. 497 Now, perhaps Kitchener should just clarify that for us in a minute. But that was my understanding that it was an issue whether anybody other than the person with the contract and provision spelled out in the contract or attached thereto could know what the provisions of service were for which rates were published. 498 MR. PENNY: Any customer that asks for policies is told what they are. And partly, the question presumes that there are, first of all, written policies for all of these things. Of course, no company could operate reducing every possible scenario to a written policy. 499 And Mr. Chairman, it may sound at a certain level innocent enough to say, Just publish the policy, but once they're published, then they're relevant issues in the hearing. 500 I guess what we're worried about is that we're then going to devolve into an examination of all the policies. And we already know there's one that the City of Kitchener takes great exception to, and there may be others. 501 MR.. JACKSON: The difficulty I'm having is that maybe for practical purposes, we've not delved into something that stakeholders have not asked us to delve into in the past, and perhaps we've even put boundaries on some of the extent to which we will question things. 502 But surely when we are setting prices, we have to know what we're setting them for. We have to understand the service that we are pricing. 503 And I think that if we have not done that in the past, knowingly -- knowingly kept in the dark about what service we were pricing, maybe we haven't finished our job. And I would be willing to make the assumption that we thought we knew what we were pricing. 504 MR. PENNY: And you did know what you were pricing, Mr. Chairman. What you're pricing is what's in the rate schedule. That, of course, is your job, and that's your statutory mandate. 505 MR.. JACKSON: There are terms and conditions that I seem to remember at one time were published with the rate schedules, and I guess the question is how far they need to go, whether they are complete enough. 506 MR. PENNY: Let's take the example that's been raised, which we agree is appropriately in issue, because a customer has raised it, and that is what happens when Union is constrained in respect of interruptible or transactional services, that there's a concern about that. 507 We say, Fine, if there's a concern about it; let's deal with it. But that is an issue which wouldn't be subject to a rate order. You have an interruptible service. It says that any customer may be interrupted at any time. That's what they pay for. They pay knowing that they're going to be interrupted. 508 What the City is raising is the issue of Well, in what order are they interrupted? And that -- that probably didn't arise before, because no one has raised it. 509 But I would say that the Board would obviously know that people were going to be interrupted if they took interruptible service, and Union was constrained. The manner in which they may do that hasn't surfaced before. 510 Now that it has, we agree that that's perfectly appropriate for someone to raise. What it doesn't engage is, therefore, a need to suddenly embark upon a Royal Commission into all of Union's policies. That's the concern. 511 MR.. JACKSON: Well, I think that, perhaps, the issue should not be stated so broadly as to -- as to require an examination of your HR policies. I think that's certainly true. 512 But I didn't get the sense that's what the person requesting this was looking for. And in fact, Mr. Ryder, I think, talked about regulated services. Maybe the issues list needs a little bit of revision in order to tighten it up. 513 But in any event, fair enough. We'll deal with this in a few minutes. 514 MR. PENNY: I guess the bottom line of my submission, Mr. Jackson and members of the Board, is that two issues have been raised. Let's deal with those two issues, and we're happy to do that. 515 MR.. JACKSON: And Mr. Penny, did I sense that you were saying that an oral explanation by a service rep would be sufficient to define policy? 516 MR. PENNY: Well, in certain circumstances, that might well be the case. It depends what it is, of course. 517 Certain issues are issues of a repetitive nature or significant enough that you would, perhaps, want a written policy or something of that nature. Others are one-offs that come up, you know, once in a blue moon, and those, I would think, would not be appropriate to have written policies about, (a), because, perhaps, parties didn't realize they would ever come up, and, (b), they may never come up again. 518 Similarly, I mean, in this DCC claw-back issue, I mean, it's quite frankly -- and I think there was evidence about this in the hearing last time. It's Union's view that the City of Kitchener is trying to drive a square peg through a round loophole and that they're simply not permitted to do that. 519 So it's, in a sense, not really an issue of a policy. It's an issue of whether a customer is entitled to take advantage of some -- to sort of gain the system or take advantage of some rule in an inappropriate way or a way that was not contemplated. 520 There's a whole range of possibilities out there, depending on how the issue comes up. 521 MR.. JACKSON: Thank you, Mr. Penny. 522 MR. SOMMERVILLE: Mr. Ryder? 523 REPLY BY MR. RYDER: 524 MR. RYDER: Can I just confer with Mr. Quinn for just a moment? 525 MR. SOMMERVILLE: Mr. Ryder? 526 MR. RYDER: Well, dealing with the delivery point, flexibility point, I thought that I had made it clear to Mr. Penny in a confidential meeting yesterday that he just exposed -- but that's all right -- that it was our intention to call evidence. 527 My concern is that the ability of Kitchener to particularize this proposal will depend on the willingness of Union to answer our interrogatories, but I didn't think I said that we will not call evidence. 528 With respect to the policies, I think my friend seeks to deflect the issue. We are not seeking publication of all of its policies. What we are saying is that when Union tells a customer that it is relying on a policy for what it is doing, then it should be obliged to produce the policy if the customer requests it. That's all. If it relies on a policy, then produce the policy. 529 And the reason the DCC comes back like a bad penny is because Union has just recently billed Kitchener a whopping DCC charge and then claims it's been authorized to do so by a policy. Fine. Produce the policy, so we can examine it. 530 Well, it's not enough to produce its policies through interrogatories during a customer review process. We should have the right to see its policies whenever it relies on them during the course of a year. We shouldn't have to wait for a customer review process and an interrogatory to get it. 531 Now, Union doesn't deny the existence of policies, and so they do exist. And they've been raised by Union in its responses to Kitchener's queries respecting Union's conduct. 532 And so all we say is, When it occurs, be prepared to back it up with a written production. That's all. 533 With your leave, could Mr. Quinn just add something that is too technical for my understanding. 534 MR. SOMMERVILLE: I'm considering it, Mr. Ryder. 535 Yes, Mr. Quinn, you can proceed. 536 MR. QUINN: Thank you, sir. I'll be brief. 537 SUBMISSIONS BY MR. QUINN: 538 MR. QUINN: Just one clarifying comment about that charge. That was not communicated up front verbally or in writing. It was imposed on an invoice without notice, and we received and asked the question about it. 539 So we requested a transaction. The cost was not identified and then subsequently charged, based upon a policy, which we can't see. So I hope that clarifies the issue. 540 Very broadly, though, sir, what we're seeking to do is access policies as the Board set out in 1999/2000 to set out a distribution access rule. Storage and transmission was part of that agenda. 541 It was subsequently removed from the agenda, because it did not want to prejudice Union's PBR and unbundling submissions. 542 To this point, we still do not have a storage and transportation access rule, and without seeing these policies, customers may be denied proper indiscriminatory access to asset rights that they've contracted for, and that's why the issue is brought. 543 We are hopeful that the Board continues to proceed on a track where an S&T access rule is ultimately developed, but in absence of that rule, we're asking for at least access to policies which impact our rights. 544 Thank you. 545 MR. SOMMERVILLE: Thank you, Mr. Quinn. 546 The Board will reserve on this subject as well. We will adjourn. 547 Your indulgence for a moment, please. 548 MR. PENNY: Mr. Chairman, I note it's late, but this is quite a short issue, and I can tell you that my submissions on it are no more than five to eight minutes. I'm not sure. I think it's Board Staff that's propounding this issue. 549 I don't know how long Mr. Moran proposes to be, but my preference, obviously with your indulgence, would be, since I don't think this will take long, that we just finish it off, and then we'll be done, because this is the last one. 550 MR. SOMMERVILLE: I'm prepared to proceed on that basis. 551 Mr. Moran? 552 ISSUE 11.4 553 SUBMISSIONS BY MR. MORAN: 554 MR. MORAN: Mr. Chair, with respect to issue 11.4, which is currently listed as "Market Hub Partners Impact on Ratepayers S&T Deferral Account Balance," the rationale behind putting this issue forward is based on the proposition that there is an application before the Board by an entity known as Market Hub Partners, and as a result of potential approval of that application, Union could be acquiring storage services, injecting as early as June, withdrawing in the fall; and therefore, there are some costs and revenue consequences potentially taking place in 2003. 555 So it's really about the trackability of these things as they arise in 2003 ahead of how that would be dealt with. 556 In discussion with Ms. Litt, I would point out that we already have on the issues list under deferral accounts issue 5.1, which is not contested. And to the extent we're talking about the trackability of these kinds of costs, it's a discussion that could take place under 5.1. 557 So I mean, I'm not sure on what basis it's contested by Union, but I guess we will hear from them. 558 But that's the nub of the issue as it's been put forward. 559 It's really a question of: Is this the opportunity that we have to establish the ground rules for how some of these costs are tracked, given that they might arise in the course of 2003; albeit, to be disposed of if they're in a deferral account in 2004. That's what it comes down to. 560 MR. SOMMERVILLE: Mr. Penny? 561 MR. PENNY: Yes, thank you, Mr. Chairman. Let me -- just to respond on Mr. Moran's last point. 562 SUBMISSIONS BY MR. PENNY: 563 MR. PENNY: There's nothing about this particular cost that distinguishes it from any other, so there's no reason why it needs any kind of special treatment. It's not as if there's some window of opportunity here that's going to close. 564 The background facts to this are that Market Hub Partners has filed an application with the Energy Board to develop a storage facility using the St. Clair pool. And then, among other things, it's seeking to have that area defined as a designated storage area. 565 There's been notice of application published. The Board has yet to issue a procedural order or establish any registered intervenor list. 566 According to the application, the storage pool is slated to begin no later than June the 15th. That's, of course, what they're hoping for. 567 Union has agreed to enter into a contract for certain storage services with that entity. And of course, that contract is subject to specific approval by the Board, and the specific approval has been requested by Market Hub Partners as part of its application in another proceeding. 568 Given that this pool will not even be in service until June of 2003, there are, then, effectively three reasons why Union submits this doesn't need to be an issue in this proceeding. 569 First, the storage facility and associated contract with Union have not affected 2002 deferral account balances, which is the only thing we're dealing with in this case. It may affect 2003 deferral account balances, but that won't be dealt with until 2004. 570 So as I said at the outset, there's nothing special about this contract that distinguishes it from anything else that Union might do during the PBR, so there's no need for any special consideration. 571 Second, it will -- it will not affect any rate adjustments allowed under the price cap for setting 2003 rates. That's the other purpose that we're here for is to set 2003 rates. There's no proviso under the price cap mechanism that enables this to slip in in any way, shape, or form, other than through deferral account treatment, which as I say, will be dealt with in due course in 2004. 572 Third, any examination of Union's plans with respect to storage will be -- if the concern is Union's plans with respect to storage at large, we've already said in our current application that that will be dealt with by Union in the 2004 re-basing application. 573 Union has already informed the Board and the parties in this case that it will be filing comprehensive evidence concerning Union's storage plans and the competitive state of the storage market in that case. 574 So in our submission, the 2003 rate application is not the place where these issues arise. 575 And further, since the Board has not yet approved Market Hub's application, any examination in Union's 2003 rate application, i.e., an examination now, would be speculative at best and, frankly, directed towards the wrong company in the wrong proceeding. 576 The appropriate place to deal with issues relating to the Market Hub storage facility would be, in our submission, in the Market Hub proceeding. 577 So it's simply for those reasons that we submit that this is not an appropriate issue for this case, and that proceeding ought to unfold, and that the other issues -- any related issues will be dealt with in due course through the existing mechanism. 578 MR. SOMMERVILLE: Thank you, Mr. Penny. 579 Mr. Moran? 580 MR. MORAN: I've got no further submissions. 581 MR. SOMMERVILLE: We'll reserve on that issue. 582 We'll reconvene at 20 minutes to three, at which time we hope to have decisions on some or all of the issues that are outstanding. 583 We will adjourn. 584 ---Luncheon recess taken at 1:19 p.m. 585 ---On resuming at 2:45 p.m. 586 DECISION: 587 MR. SOMMERVILLE: Please be seated. 588 Thank you. 589 The Board is prepared to issue its decision with respect to the issues. 590 Dealing first with issue 11.1, which relates to the delivery point flexibility alternatives, Kitchener has indicated that it will be making a proposal supported by evidence respecting this issue, and accordingly, the issue will be included. 591 It will now be 11.1, Kitchener's proposal for delivery point flexibility alternatives. 592 With respect to item 11.2, we are prepared to consider in this proceeding the question of access to policies affecting the provision of regulated services and the administration of customer programs. 593 We are not prepared to embark on -- in any degree upon a review or interpretation of those policies at this time. So that matter will go forward with that clear understanding. 594 The question 11.4, Market Hub Partners, the Board is of the view that this matter should not be included as a discrete issue in this proceeding. To the extent that the matter has impacts on deferral accounts or any other financial implications, it can be dealt with in connection with the disposal of deferral accounts respecting operations in 2003 or during the re-basing exercise for 2004 rates. 595 Other implications of the arrangement can be dealt with in connection with the Market Hub application for storage facility. 596 With respect to the issue that is marked as 3.3, the Board recognizes that its decision arising from the 0017 case may require some clarification, and we will allow that matter to go forward for that purpose. 597 And finally, with respect to the weather normalization matter, the Board considers that the customer review process was developed as a mechanism with very specific objectives. It was designed to permit a mid-course opportunity to set the inflation rate adjustment, deal with the disposal of deferral accounts, deal with pass-throughs, and to allow for the accommodation of occurrences, which have material implications for the utility, are substantially unanticipated and unpredictable, and are beyond the power of management to influence. 598 In our view, the adoption and application of a different weather methodology by the utility does not qualify as a Z-Factor or non-routine adjustment. The warming trend in weather was known to the applicant at the time of the 0017 filing, and the adoption of the new methodology is a matter squarely within the scope of management's prerogatives. Accordingly, we will not include that matter as an issue in this proceeding. 599 The Board will issue a procedural order and a new issues list reflecting our determination on these points today. 600 Are there any questions or other matters? 601 MR.. THOMPSON: Mr. Chairman, just a note that in our motion -- I don't know if we asked for it -- but there is the matter of costs. I would be content just to have that matter go forward as -- costs of this motion be addressed as part of the costs claimed in the case at large rather than deal with it now. 602 MR.. SOMMERVILLE: Thank you, Mr. Thompson. That's satisfactory to the Board. 603 If there's nothing else, we stand adjourned. Thank you very much for everyone's help. 604 ---Whereupon the hearing concluded at 2:53 p.m.