Rep: OEB Doc: 12KPF Rev: 0 ONTARIO ENERGY BOARD Volume: 0 17 FEBRUARY 2003 BEFORE: P. SOMMERVILLE PRESIDING MEMBER F. PETERS MEMBER 1 RP-2002-0130 PRESENTATION OF SETTLEMENT PROPOSAL 2 IN THE MATTER OF the Ontario Energy Board Act, 1998, S.O. 1998, c.15, Schedule 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 PRESENTATION OF SETTLEMENT PROPOSAL 4 17 FEBRUARY 2003 5 HEARING HELD AT TORONTO, ONTARIO 6 APPEARANCES 7 PAT MORAN Board Counsel JAMES WIGHTMAN Board Staff MARTIN DAVIES Board Staff NEIL YEUNG Board Staff PATRICIA JACKSON Union Gas Limited MARCEL REGHELINI Union Gas Limited BRYAN GOULDEN Union Gas Limited ROBERT FRANK CEED DAVID MACINTOSH Energy Probe BILL KILLEEN Direct Energy BARBARA BODNAR Enbridge Gas BRUCE MACODRUM CME 8 TABLE OF CONTENTS 9 APPEARANCES: [16] PROCEDURAL MATTERS: [28] 10 EXHIBITS 11 EXHIBIT NO. 1 SETTLEMENT PROPOSAL [58] 12 UNDERTAKINGS 13 14 --- Upon commencing at 9:32 a.m. 15 MR. SOMMERVILLE: Good morning, ladies and gentlemen, my name is Paul Sommerville. To my right is Mr. Fred Peters. We're sitting there morning with respect to file RP-2002-0130 to hear matters arising out of a customer review process requested by Union Gas and approved by the Board as part of a PBR plan set out in the Board's decision of July, 2001 in RP-1999-0017. Specific purpose of our proceeding today is to receive presentation of the settlement agreement. May I have appearances, please. 16 APPEARANCES: 17 MS. JACKSON: Patricia Jackson for Union Gas, Mr. Chair. 18 MR. SOMMERVILLE: Are there any other appears. 19 MR. MacODRUM: My name is Bruce MacOdrum and I represent Canadian Manufacturers & Exporters. 20 MR. SOMMERVILLE: Thank you, Mr. MacOdrum. Are there any other parties which wish to be recognized? 21 MR. FRANK: Robert Frank for CEED. 22 MS. BODNAR: Barbara Bodnar, Enbridge Gas Distribution Inc. 23 MR. MACINTOSH: David MacIntosh, Energy Probe. 24 MR. HAYNAL: Tibor Haynal for TransCanada PipeLines Limited. 25 MR. MORAN: Pat Moran, Board counsel. 26 MR. SOMMERVILLE: Are you ready to proceed? 27 MS. JACKSON: We are, Mr. Chair. 28 PROCEDURAL MATTERS: 29 Our understanding is the principal purpose of today's attendance is to provide the Board with whatever background that the Board seeks today with respect to the ADR agreement which I understand was submitted to the Board in late January. Mr. Reghelini to my left is prepared to give the Board an overview and then respond to inquiries, and perhaps the best thing would be to have that overview which is very short, and then the Board could indicate which additional detail if any it would like to receive with respect to the settlement agreement, if that is acceptable. 30 MR. SOMMERVILLE: That seems to be reasonable. Are there any comments with the proposal of the applicant? 31 In which case, Mr. Reghelini, could you proceed. 32 MR. REGHELINI: Thank you Mr. Chair. The settlement that we offer to the Board today is a fairly comprehensive settlement and I would describe the settlement as generally resulting in Union's proposals for the purposes of setting 2003 rates being accepted, except where the settlement indicates that no settlement was achieved, and -- and except for two concessions made by Union to facilitate the achievement of the overall settlement. The two concessions made by Union were the use of the calculation of the price cap rate adjustment as advocated by the intervenor groups, and that calculation is described under issue 1.1 of the settlement agreement. 33 And the second concession made by Union was to reduce Union's request for recovery from customers of unabsorbed demand charges to $3.1 million from the $6.2 million that Union had incurred and was originally seeking recovery of. 34 So as I said, for the most part, the settlement reflects the acceptance of Union's proposals, and with that I'd entertain any questions that the Board would have about the specific issues of the settlement. 35 MR. SOMMERVILLE: Are there any comments that arise as a result of Mr. Reghelini's presentation of the -- or characterization of the agreement? 36 MR. MacODRUM: Mr. Chairman, we support Mr. Reghelini's characterization and we do support the agreement. 37 MR. SOMMERVILLE: I'm going to regard silence as being a general consent to Mr. Reghelini's representation. The Board does have some comment with respect to the settlement agreement. First, Mr. Reghelini, with respect to the portion that deals with retroactivity. This is issue 5.6, the Board simply wants to indicate its pleasure at the attention the parties have placed on this particular subject matter and to note that there is a review of the QRAM process, which has, as one of its purposes, the management of retroactivity and simply want to put on the record the Board's interest in the subject matter and endorsement that the parties are focusing on it as they have done on this agreement. 38 With respect to issue 5.8, the risk management costs and benefits subject matter, Mr. Reghelini, I wonder if you could indicate to the Board what the scope of the report from the consultant is to be. 39 MR. REGHELINI: Certainly. We actually have a document we can distribute. 40 Coming out of the settlement agreement from the RP-2001-0029 case, Union made a commitment to engage a third party consultant to assess Union's the risk management program, and we agreed that we would circulate terms of reference or -- for the request for proposal to all intervenors prior to engaging that study, and we, in fact, did circulate the terms of reference in the summer of last year to the Board staff and to the intervenors. 41 We received comments, I believe, from three parties, and took those into consideration in the finalization of the terms of reference and what you have before you is the terms of reference. 42 MR. SOMMERVILLE: May the record show that the Board has been presented with a document dated August 19th, a brief letter or memorandum from Mr. David Dent of Union Gas that contains the terms of reference of the risk management report. I haven't had a chance to read that Mr. Reghelini. Does it provide for a review, a specific transactions or is it basically structure of the risk management program. 43 MR. REGHELINI: It involves both, looking at the performance of the historic risk management program over a five-year period and comparing the performance of the program to the objectives that the program had as described in the risk management policy, which the Board had seen previously, and then it looks to the current market conditions and whether there are best practices from other utilities that Union can look at to improve upon its risk management for the future. 44 MR. SOMMERVILLE: Will that include some review of affiliate relationships as far as the risk management program is concerned? It seems to me, just having read it very quickly, that it probably does encompass that, but I'm -- could you put your mind to that. 45 MR. REGHELINI: Perhaps, Mr. Chairman, you could point me to the specific clause you're looking at. 46 MR. SOMMERVILLE: I guess the review of best practices, one might think, has -- might draw one to a consideration as to whether affiliate transactions are best practices, or could be best practices in such an activity. 47 MR. REGHELINI: I suppose potentially. The only comment I would make is that affiliate transactions -- there are no appreciable affiliate transactions with respect to our risk management activities today, so it wasn't really thought of as a significant component of the risk management review. 48 MR. SOMMERVILLE: Okay. Thank you. 49 With respect to item 6.2, which is the appropriate treatment of asset dispositions, as you know, the Board in receiving the settlement agreements does not necessarily adopt the regulatory devices contained in these agreements. We just wanted to emphasize, that with respect to asset disposition, this is not a methodology of asset disposition that the Board would -- should be thought of as specifically approving or disapproving with respect to -- as a result of receiving -- should the Board receive this settlement agreement. 50 Do you have any comment about that, really just indicating our basic approach to that? 51 MS. JACKSON: May I just seek some clarification, Mr. Chair. I take you to be saying that if the Board accepts the settlements agreement including what's in 6.2 that's not considered to be a precedent with respect to the treatment of 6.2. 52 MR. SOMMERVILLE: Exactly, Ms. Jackson. 53 MS. JACKSON: I think we understand and accept that, Mr. Chair. 54 MR. SOMMERVILLE: No questions from Mr. Peters. Board counsel. 55 MR. MORAN: I have no questions, Mr. Chair. Did you want to mark this as an exhibit, the document you referred to? 56 MR. SOMMERVILLE: That would be appropriate. 57 MR. MORAN: SD Exhibit 1, settlement thing. 58 EXHIBIT NO. 1 SETTLEMENT PROPOSAL 59 MR. SOMMERVILLE: Are there any questions arising from the Board's questions from anyone else? 60 Are there any submissions from any other party with respect to the settlement agreement? 61 There is a deafening silence. If the Board could just have a moment, please. 62 There being no further question from the panel and no further questions from the -- any other party, the Board is prepared to receive this settlement agreement, and the parties can prepare as they wish accordingly for next Monday's commencement of the proceeding proper. 63 Ms. Jackson -- 64 MS. JACKSON: May I just ask, Mr. Chair, when usually the Board receives the settlement agreement, does that mean that the terms of the settlement agreement are acceptable to the Board? 65 MR. SOMMERVILLE: Yes, it does. 66 MS. JACKSON: Thank you, Mr. Chair. 67 MR. SOMMERVILLE: That's precisely what it means. 68 I understand there are some suggestions with respect to timing and organization of the applicant's case for Monday. Could I -- could we put that on the record for parties who may not be here today. 69 MS. JACKSON: May I just have a moment, Mr. Chair. I'm a temporary substitute for Mr. Penny on this. 70 MR. SOMMERVILLE: Fair enough. Sure. 71 MS. JACKSON: If it's agreeable to the Board, Mr. Reghelini, who's familiar with the arrangements will put them on the record. 72 MR. SOMMERVILLE: That's perfectly acceptable. 73 MR. REGHELINI: Union proposes to start its presentation of evidence with the panel to deal with issue 11.5, affiliate transactions involving Duke and Union's S and T group, impact on the conduct of S and T marketing. That will be followed by the panel dealing with the vertical slice, which will be issues 4.1 and 4.2. And then we will proceed to dealing with issue 10.5, which is the elimination of the delivery commitment credit and that same panel will deal with issues 11.1, 11.3, 11.4, and 9.1. So in essence, there will be three panels: One to deal with the affiliate transactions, one to deal with the vertical slice, and the third panel dealing with the remaining matters. 74 MR. SOMMERVILLE: Do you anticipate basically a day for each of those panels, Mr. Reghelini; is that your scheduling? 75 MR. REGHELINI: A day to a day and a half. 76 MR. SOMMERVILLE: Do we have any sense of the intervenors' timing for the panels that they will be introducing? 77 MR.. MORAN: Mr. Chair, on our side of it, there's a conflict on March 4th and 5th. I'm not sure how that runs up against the overall schedule. I just wanted to put that on the record. I have to be somewhere else on those two days. 78 MR. SOMMERVILLE: I guess we will have to await submission from the intervenors as to when they are going to be in a position to present their panels. I take it that none of the parties represented here this morning are able to indicate whether they will be offering evidence or at what time they will be doing so. 79 MR. HAYNAL: Mr. Chair, I can speak on behalf of TransCanada. TransCanada will not offer any evidence. 80 MR. MacODRUM: Mr. Chair, in light of my earlier comment, we don't intend to lead evidence. 81 MR. SOMMERVILLE: Thank you, Mr. MacOdrum. 82 MR. KILLEEN: Nor does Direct Energy. 83 MR. SOMMERVILLE: Thank you. I don't think you were recorded during the appearances, sir. 84 MR. KILLEEN: My apologies for my late arrival. My name is Bill Killeen, with Direct Energy. 85 MS. JACKSON: I understand that, Mr. Chair, that VECC is calling evidence and has indicated that they anticipate and want to call that evidence on March the 3rd. I think there are some constraints with respect to timing. 86 MR. SOMMERVILLE: It looks as though we will have to look at some scheduling following March the 3rd for argument, oral argument and such things and we will deal with those on Monday. It may be well if the parties could put their minds to that at the earliest possible time. 87 Is there anything else that anyone would like to raise this morning before this panel? 88 MS. JACKSON: Nothing from the applicant, Mr. Chair. 89 MR. SOMMERVILLE: In which case we stand adjourned until Monday morning. 90 --- Whereupon the hearing concluded at 9:47 a.m.