Rep: OEB Doc: 12N9T Rev: 0 ONTARIO ENERGY BOARD Volume: 1 24 MARCH 2003 BEFORE: R. BETTS PRESIDING MEMBER G. DOMINY MEMBER 1 RP-2002-0133 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 Enbridge Gas Distribution Inc. for an Order or Orders approving or fixing just and reasonable rates and other charges for the sale, distribution, transmission and storage of gas commencing October 1, 2002. 3 RP-2002-0133 4 24 MARCH 2003 5 HEARING HELD AT TORONTO, ONTARIO 6 APPEARANCES 7 PAT MORAN Board Counsel COLIN SCHUCH Board Staff SUZANNE TONG Board Staff FRED CASS Enbridge Gas HELEN NEWLAND Enbridge Gas ROBERT WARREN CAC DAVID POCH GEC/CIELAP BRUCE MACODRUM CME MURRAY KLIPPENSTEIN Pollution Probe SUE LOTT VECC IAN MONDROW Direct Energy CRAIG PARRY Energy Probe BRIAN DINGWALL HVAC ELISABETH DEMARCO CEED JAY SHEPHERD OPSBA VINCE DEROSE IGUA 8 TABLE OF CONTENTS 9 PRELIMINARY MATTERS: [22] APPEARANCES: [45] ENBRIDGE GAS DISTRIBUTION PANEL ON ISSUE 9.6: WILSON, RYCKMAN, SQUIRES [64] EXAMINATION BY MS. NEWLAND: [70] CROSS-EXAMINATION BY MR. WARREN: [184] CROSS-EXAMINATION BY MR. POCH: [281] CROSS-EXAMINATION BY MR. MACODRUM: [326] CROSS-EXAMINATION BY MR. PARRY: [402] CROSS-EXAMINATION BY MR. MORAN: [836] RE-EXAMINATION BY MS. NEWLAND: [899] CME PANEL ON ISSUE 9.6: ROWAN [946] EXAMINATION BY MR. MacODRUM: [951] CROSS-EXAMINATION BY MR. WARREN: [990] CROSS-EXAMINATION BY MR. KLIPPENSTEIN: [1285] 10 EXHIBITS 11 EXHIBIT NO. K.1.1: BINDER ENTITLED ISSUE 9.6: 2000-2001 SSM VA LRAM EXHIBITS AND PRIOR BOARD DECISIONS [34] EXHIBIT NO. K.1.2: TABLE OF TARGETS O&M AND SSM, 1999-2001 [149] EXHIBIT NO. K.1.3: GEC/CIELAP CROSS-EXAMINATION MATERIALS [304] EXHIBIT NO. K.1.4: LETTER DATED MARCH 21, 2003 FROM ENBRIDGE, WITH ATTACHMENTS [538] EXHIBIT NO. K.1.5: POLLUTION PROBE CROSS-EXAMINATION REFERENCE BOOK [1283] 12 UNDERTAKINGS 13 UNDERTAKING NO. J.1.1: TO PROVIDE PORTION OF SETTLEMENT PROPOSAL CLAIM ALLOCATED TO RESIDENTIAL CONSUMERS AND PORTION ALLOCATED TO COMMERCIAL CLASSES [260] UNDERTAKING NO. J.1.2: ENBRIDGE'S TRC ALLOCATION SPLIT BETWEEN RESIDENTIAL AND INDUSTRIAL CUSTOMERS [517] 14 --- Upon commencing at 9:41 a.m. 15 MR. BETTS: Thank you, everybody. Please be seated. 16 Good morning, everybody. We have several new faces that weren't here last week, so welcome, everybody. At least just a couple of housekeeping items in terms of Board matters, and then we will ask for preliminary matters from any parties. 17 First of all, back there, can you hear me okay? I see nods of approval, so that's great. 18 There are a couple of scheduling items. First of all, with respect to our hearing, on April 7th, a matter has come up before the Board through an application from Union Energy, Union Gas, Union, and they will require this hearing room on April 7th and they will probably require the attendance of many of the people that are in this hearing, so we will be standing down on April 7th, ideally recommencing on April 8th. We will determine the time that we will commence on the 8th as we get closer to that. 19 Another matter hopefully all of you are aware of. A letter was sent on out on Friday from the Board secretary regarding the motion from Direct Energy. It indicated some timing and the methodology by which -- the timing by which the panel would prefer to proceed on that. The panel will proceed on that motion based on written submissions. Direct Energy has been directed to serve their submission -- file their submissions today at 4 p.m. Any parties wishing to respond to those submissions shall serve and file those submissions by 4:00 tomorrow, and finally, Direct Energy will have until 4 p.m. on Wednesday, the 26th for their reply to those submissions. 20 Those are the two procedural items from the Board's perspective. I will now seek any preliminary matter from participants. 21 Mr. Cass, good morning. Are there any preliminary matters? 22 PRELIMINARY MATTERS: 23 MR. CASS: The only matter I would mention, Mr. Chairman, is that the letter was sent out on Friday that I described to the Board on Thursday, I guess it was. There may have been some delivery problems. I'm not sure that everyone has received it, including the Board itself. Additional copies are being made in order to ensure that there will be copies for anyone who needs it. 24 MR. MORAN: Mr. Chair, you have a copy in front of you. 25 MR. BETTS: I do have that copy, thank you. 26 Are there any participants that do not have a copy of that letter? I see several hands back there, so... 27 Is that everyone? All interested parties? 28 Mr. Cass, did you want to speak to that letter at this point, or is it really -- I must admit this is the first time I seen it too, so I'm not aware of its content. 29 MR. CASS: Mr. Chair, I don't think there's any point in my speaking to it until parties have had a chance to read it and think about it. I don't think there's anything I could add in advance of people actually reading the letter. 30 MR. BETTS: Thank you. 31 Are there any other preliminary matters. Mr. Moran, from the Board point of view? 32 MR. MORAN: Mr. Chair, you've got a large black binder in front of you as well, that I guess will be marked as the first exhibit, and that will be addressed by the panel that's coming up. Exhibit K.1.1. It's a binder entitled "Issue 9.6, 2000-2001 SSM VA LRAM Exhibits and Prior Board decisions. 33 MR. BETTS: Thank you, Mr. Moran. 34 EXHIBIT NO. K.1.1: BINDER ENTITLED ISSUE 9.6: 2000-2001 SSM VA LRAM EXHIBITS AND PRIOR BOARD DECISIONS 35 MR. BETTS: Any other preliminary matters, Mr. Moran? 36 MR. MORAN: I have none, sir. 37 MR. BETTS: Are there any preliminary matters that other participants would like to bring forward? 38 MR. WARREN: Mr. Chairman, just before Mr. MacOdrum -- first of all, Mr. Chairman, I understand that an appearance was entered on behalf of my client, the Consumers' Association of Canada, on Thursday. May I enter a personal live appearance for the CAC this morning. I express my satisfaction in being back from Florida and being in this room. Yes, I missed everybody, as I'm sure they missed me, Ms. Newman. 39 The second issue, Mr. Chairman, is I understand there were four issues that were raised in a letter from the Board that were discussed on Thursday, and one of the issues was the question of a production -- a request for production of certain financial information, and my understanding was that the Board's desire was that someone from - to use a popular term these days - the coalition, IGUA, CAC and VECC, speak to the question of when we might be bringing a motion for production of that information. 40 And what I might say on that issue, Mr. Chairman, is that I was advised over the weekend that Mr. Cass had sent the letter. I didn't get it until this morning -- through no one's fault, just didn't get through our system. And what I'd like to advise the Board is that we, that is, the representatives of CAC, VECC and IGUA, will review this letter over the course of today and this evening and then have discussions with Mr. Cass to see whether or not what Mr. Cass has proposed satisfactions all of the production requirements, in which case the need for a motion or any Board order might disappear in its entirety. 41 If it doesn't disappear and then a motion is required, I will advise the Board, I hope, as early as tomorrow, what the timing on that might be. We understand, sympathize with the Board's desire to get this issue resolved as quickly as possible and we are working towards a quick resolution, but Mr. Cass's letter needs to be reviewed in detail and if that timeline is acceptable, that's the one that we propose to follow. 42 MR. BETTS: Thank you, Mr. Warren. That's certainly acceptable to us. Any objections from any of the parties? 43 That would work well. Thank you. 44 I should have at the outset invited anyone who has not been formally added to our list of appearances to introduce themselves at this point, if they would like to do that? 45 APPEARANCES: 46 MR. MacODRUM: Mr. Chair, Bruce MacOdrum. I think I have had an appearance entered on my behalf, but I, like Mr. Warren, am returning from another location, and I just wanted to register an appearance on behalf of CAC. I did have another matter, but Mr. Moran has spoke to me and I understand it's going to be addressed later on, so I may have something more to add on the scheduling later. 47 MR. BETTS: Thank you, Mr. MacOdrum. Anyone else? 48 MR. CASS: Mr. Chairman, in relation to appearances, if I may, Helen Newland is here on behalf of the company to address 2000, 2001 DSM issues. Following that, with the remainder of the DSM issues, it will be Dennis O'Leary appearing on behalf of the company who, of course, has appeared previously in this proceeding. So when the preliminary matters are finished this morning, I will be excusing myself for a period of time. 49 MR. BETTS: Thank you, and welcome. 50 MS. NEWLAND: Thank you. 51 MR. BETTS: Are there any other parties that needed introducing at this point? There are not then. 52 MS. LOTT: I just arrived. I'm Sue Lott. I'm counsel for VECC, Vulnerable Energy Consumers Coalition. 53 MR. BETTS: Thank you, and welcome as well. Anyone else? 54 MR. PARRY: Good morning. I may have been previously introduced. My name is Craig Parry. I'm counsel for Energy Probe. 55 MR. BETTS: You were, Mr. Parry, but welcome. 56 Any other parties? I think all are accounted for, then. 57 I did interrupt the request for preliminary matters to do that introduction. Are there any other preliminary matters from any parties? 58 Thank you. Then I believe we are ready to proceed at this point, and Mr. Cass -- Mr. Cass at this point, or are you turning it over -- 59 MR. CASS: Ms. Newland will take over now. 60 MR. BETTS: Good morning, Ms. Newland. 61 MS. NEWLAND: Good morning, Mr. Chairman. Perhaps I could ask the Enbridge witnesses to take their seats. 62 MR. BETTS: Shall we swear them in. 63 MS. NEWLAND: Yes, sir, please. 64 ENBRIDGE GAS DISTRIBUTION PANEL ON ISSUE 9.6: WILSON, RYCKMAN, SQUIRES 65 A.WILSON; Sworn. 66 N.RYCKMAN; Sworn. 67 P.SQUIRES; Sworn. 68 MR. BETTS: The panel has been sworn in, so please proceed. 69 MS. NEWLAND: Thank you. 70 EXAMINATION BY MS. NEWLAND: 71 MS. NEWLAND: Mr. Chairman, this panel is here to present testimony in support of the settlement proposal that was filed with the Board in connection with the disposition of the 2000 and 2001 SSM VA and LRAM. Seated closest to you is Ms. Patricia Squires, who is Manager, DSM and Program Evaluation for Enbridge. Ms. Squares' CV is at Exhibit A.1, tab 8, schedule 57. 72 Seated next to Ms. Squires is Mr. Norm Ryckman. Mr. Ryckman is Manager, Utility Planning and Evaluation for the company, and his CV is at Exhibit A.1, tab 8, schedule 1, page 54. 73 Seated next to Mr. Ryckman is Ms. Ann Wilson. Ms. Wilson is a principal of Cum Pane Consulting. Ms. Wilson's CV is at Exhibit A.1, tab 8, schedule 5, page 1. 74 Now, the December settlement proposal, there are two settlement proposals that you will be considering during the course of this proceeding, and so I will refer to the settlement proposal that pertains to the 2000 and 2001, SSM VA and LRAM as of the December settlement proposal. That settlement proposal deals with this disposition of not only the 2000 SSM VA and 2000 LRAM, but also the 2001 SSM VA and the 2001 LRAM. The parties to the settlement proposal saw merit in dealing with both of the 2000 and 2001 accounts in order to put these two fiscal years behind us and to move forward. 75 For 2000 Enbridge seeks the authorization of the Board to clear $3.5 million the SSM VA and $186,546 for the LRAM; and for 2001 the company seeks to clear 4.6 million from the SSM VA and $15,736 from the LRAM. 76 I should mention that the settlement proposal is a partial settlement of the disposition of the 2000 and 2001 account, because Enbridge and certain of the other parties who discussed the issue agreed with the settlement, but two of the parties, CME and Energy Probe, disagree with the settlement. 77 The evidence that supports the settlement proposal is identified on page 9 of the settlement proposal itself. And a concise description of each evidentiary reference is also provided on page 9. 78 Each of those five items Mr. Chairman, that I described on page 9 of the settlement, were refiled with the Board last week, and assigned exhibit numbers, and I have a copy of the filing letter if anyone doesn't have it and requires a copy. I'll just pass that to the end. 79 I should also mention that last Friday we provided members of the Board and Board counsel, through Mr. Moran, with copies of a black binder that contains the five exhibits which are mentioned in the settlement proposal and which append that proposal, as well as copies of Enbridge's 2000 and 2001 DSM plans and various relevant excerpts from past Board decisions and settlement agreements. We prepared those binders in order to assist the Board in following the testimony on issue 9.6. Enbridge and intervenors are intimately familiar with this issue -- perhaps too intimately -- but we don't expect the Board or its counsel to have the same degree of familiarity, so we thought that these binders might assist you in following the testimony. 80 We've served a copy of the letter that accompanied these binders and a copy of the index to the binders on all parties, so parties are well aware of what we have compiled for you and what we have in front of us. There's nothing that's not already on the record as an exhibit, Mr. Chairman, so I don't think there should be any concerns in that regard. 81 MR. BETTS: Thank you. That looks very helpful. 82 MS. NEWLAND: Ms. Squires, did you participate in the December 2002 settlement conference and in subsequent negotiations that resulted in the settlement proposal? 83 MS. SQUIRES: Yes. 84 MS. NEWLAND: Were the schedules in Exhibit I with your name on them, being Enbridge's responses to interrogatories, prepared by you or under your direction or control? 85 MS. SQUIRES: Yes. 86 MS. NEWLAND: Are they accurate, to your knowledge and belief? 87 MS. SQUIRES: Yes. 88 MS. NEWLAND: Was Exhibit A.7, tab 5, schedule 1, which was the company's 2001 monitoring and evaluation report and Exhibit A.7 tab 5, schedule 5, which is Enbridge's revised 2000 SSM LRAM claim, prepared by you or under your direction and control? 89 MS. SQUIRES: Yes. 90 MS. NEWLAND: Are these exhibits accurate, to the best of your knowledge? 91 MS. SQUIRES: Yes. 92 MS. NEWLAND: I understand that Exhibit A.7, tab 5 schedule 3, which is the company's 2000 monitoring and evaluation report, was not prepared by you or under your direction and control; is that correct? 93 MS. SQUIRES: Yes, it is. 94 MS. NEWLAND: Have you reviewed this exhibit? 95 MS. SQUIRES: Yes. 96 MS. NEWLAND: Do you adopt it as your evidence in this proceeding? 97 MS. SQUIRES: Yes, I do. 98 MS. NEWLAND: Thank you. 99 Mr. Ryckman, did you participate in the December 2002 settlement conference? 100 MR. RYCKMAN: Yes, I did. 101 MS. NEWLAND: And were the schedules in Exhibit I with your name, being Enbridge's responses to interrogatories, prepared by you or under your direction and control? 102 MR. RYCKMAN: Yes. 103 MS. NEWLAND: Are these schedules accurate, to the best of your knowledge and belief? 104 MR. RYCKMAN: Yes, they are. 105 MS. NEWLAND: And was Exhibit A.7, tab 5, schedule 1, the 2001 monitoring and evaluation report, prepared by you or under your direction and control? 106 MR. RYCKMAN: Yes. 107 MS. NEWLAND: Is this exhibit accurate, to the best of your knowledge and belief? 108 MR. RYCKMAN: Yes. 109 MS. NEWLAND: I understand that neither Exhibit A.7, tab 5, schedule 3, which is the 2000 monitoring and evaluation report, nor Exhibit A.7, tab 5, schedule 5, which is Enbridge's revised SSM LRAM, were prepared under your direction or control; is that correct? 110 MR. RYCKMAN: That's correct. 111 MS. NEWLAND: Have you nevertheless reviewed these exhibits? 112 MR. RYCKMAN: Yes, I have. 113 MS. NEWLAND: Do you adopt these exhibits as your evidence in this proceeding? 114 MR. RYCKMAN: Yes, I do. 115 MS. NEWLAND: Ms. Wilson, you are the principal of Cum Pane? 116 MS. WILSON: Yes. 117 MS. NEWLAND: And from 1985 to 1999, you were employed by Enbridge Gas Distribution Inc.? 118 MS. WILSON: Yes, I was. 119 MS. NEWLAND: And for some of that time you had the position of Manager, DSM Financial Planning? 120 MS. WILSON: Yes. 121 MS. NEWLAND: Would you briefly describe your responsibilities in this regard. 122 MS. WILSON: I was responsible for developing the financial aspects of the initial DSM plan filed and approved by the Board in EBRO-485. Subsequently I was responsible for monitoring an evaluation of DSM until 1999. 123 MS. NEWLAND: Thank you. I understand you were retained by Enbridge to assist in the preparation of the 2001 monitoring and evaluation report, which is Exhibit A.7, tab 5, schedule 1 of these proceedings? 124 MS. WILSON: Yes. 125 MS. NEWLAND: Is this document accurate, to the best of your knowledge and belief? 126 MS. WILSON: Yes, it is. 127 MS. NEWLAND: Mr. Chairman, we have some more substantive examination in chief for the witnesses, prepared in order to put the issue which you have to deal with under 9.6 into some kind of context, so with that caveat or that introduction, may I proceed? 128 MR. BETTS: Please do. 129 MS. NEWLAND: Thank you. 130 Mr. Ryckman, SSM and LRAM are fairly complicated, and someone who's not familiar with the history may have some difficulty. Could you provide us with a high-level summary of the SSM and LRAM mechanisms. 131 MR. RYCKMAN: Sure. The objective of the SSM, as stated in EBRO-497-01 at Exhibit C, Section 7, page 5, is to provide Enbridge with a positive incentive to continue to build and pursue DSM. 132 The EBRO-497-01 case was a proceeding that considered Enbridge's application for targeted performance-based regulation. In this proceeding Enbridge reintroduced the SSM and the Board subsequently approved it by accepting the settlement proposal of Enbridge and the intervenors. 133 Under of the terms of the Board-approved settlement, the shared savings that would be allocated to Enbridge were calculated as 35 percent of the difference between the net present value of a budget stream of future benefits and the net present value of future benefits based on actual program results. The budget net benefits are referred to as the pivot point. 134 The pivot point varies from year to year depending on the DSM volumetric target, the mix of programs, and the cost of the programs. Net benefits are calculated using a total resource cost test, or TRC test as it's known. The TRC test calculates the benefits of the DSM plan by subtracting customer and utility costs from the benefits which are the avoided supply cost of gas, electricity, and water. The TRC does not include externalities, such as CO2 reductions. At the end of the fiscal year, the actual program results are screened and the net benefits are calculated. 135 All of this can be summarized as follows: In any given year, Enbridge's DSM volumetric target, that is, the forecast of gas savings, forms the basis for calculating the forecast of net benefits known as the pivot point. By generating net benefits in excess of the pivot point, Enbridge becomes eligible to receive a shareholder incentive that is calculated as 35 percent of that access. Conversely, if the actual net benefits achieved are less than the forecast net benefit or pivot point, the incentive would be negative, that is, a penalty. 136 Obviously the calculation of net benefits will depend on the underpinning assumptions. Some of the assumptions that influence the calculation are energy savings per measure, avoided gas costs, discount rates and measure lives. Program assumptions are documented in the annual DSM plan which is filed as part of the company's annual rate case. 137 The treatment of underpinning programs assumptions was addressed in the settlement proposal that was approved by the Board in the fiscal 2000 proceeding, that is, in RP-1999-0001. In that settlement, at pages 28 and 29, Enbridge and all intervenors agreed on a pivot point value of $50.9 million based on a volumetric target of 42 million cubic metres. 138 Parties also agreed that the pivot point would be subsequently adjusted to give effect to any variances between the forecast and actual net benefits that arose from variances in four underpinning assumptions; namely, energy savings per measure, avoided costs, discount rates, and measure lives. 139 MS. NEWLAND: Thank you, Mr. Ryckman. I understand that you and Ms. Squires have prepared a table that summarizes on one page the history of Enbridge's SSM claims from the preaudit stage through to the amounts agreed in the December settlement. 140 MR. RYCKMAN: Yes, we have. 141 MS. NEWLAND: Mr. Chairman, we have prepared this table as a handy reference for the Board and for parties as they examine this panel. I've provided copies of the table to the intervenors, and what I propose now is to take the witnesses through the table and have them explain the various entries, and then perhaps we can mark it as an exhibit. 142 Would that be an acceptable way of proceeding? 143 MR. BETTS: It would. 144 Ms. Newland, any reason why we shouldn't mark it as an exhibit now? 145 MS. NEWLAND: No, I don't think it's controversial. It certainly can be marked as an exhibit now, Mr. Chairman. 146 MR. BETTS: Mr. Moran. 147 MR. MORAN: Mr. Chair, that would be Exhibit K.1.2, table of targets O&M, SSM for 1999-2001. 148 MR. BETTS: Thank you. 149 EXHIBIT NO. K.1.2: TABLE OF TARGETS O&M AND SSM, 1999-2001 150 MS. NEWLAND: Mr. Ryckman, you have this table that's just been marked as an exhibit in front of you. It's entitled, "Targets O&M and SSM 1999-2001." Could you take the panel through this table line by line. 151 MR. RYCKMAN: Sure. 152 What the table shows on lines 1 and 2 are the company's applied-for and Board-approved DSM volumetric targets and O&M budgets for the periods 1999 through 2001. 153 As you can see, the approved volumetric target increased from 42 million cubic metres in 2000 to approximately 70 million cubic metres in 2001, while the approved O&M expenditure of 6 million in 2000 increased to 10.5 million in 2001. 154 Line 3 shows what the company's SSM claim would have been for fiscal 2000 and 2001 if the RP-1999-0001 methodology regarding program assumptions, as I described earlier, had been followed. 155 MS. NEWLAND: I take it that this methodology was not followed. Could you explain the reasons why. 156 MR. RYCKMAN: Sure. 157 No, it wasn't applied, and I think since the time of RP-1999-0001, everyone - Enbridge and other members of the DSM consultatives - I think we've gained a better understanding of how the SSM mechanism should operate. 158 When the consultatives started to consider the company's preaudit SSM results for fiscal 2000, I think it's fair to say that there was no real discussion about reverting to the methodology set out in the 1999-0001 settlement. 159 MS. NEWLAND: Was agreement reached about a new methodology for the treatment of input assumptions? 160 MR. RYCKMAN: There was a lot of discussions, but no agreement was ever reached. 161 MS. NEWLAND: Could you explain what the difference between SSM claims for fiscal 2000 are shown on lines 4 and 5 of the table? 162 MR. RYCKMAN: Line 4 shows our original SSM claim before the audit of our program results for fiscal 2000. Line 5 shows our post-audit claim of 6.5 million. This reflects the adjustment made to our pre-audit claim based on acceptance of some, but not all of, some but not all of the auditor's recommendations. 163 A detailed description of how we got from line 4 to line 5 for fiscal 2000 can be found in Exhibit A.7, tab 5, schedule 5, which is a document entitled "Revised Fiscal 2000 SSM and LRAM Claim." The document also sets out the principles that underpinned our post-audit claim of 6.5 million and helped guide us in formulating our position that led us to the acceptance of the compromised position in this settlement. 164 MS. NEWLAND: Thank you, Mr. Ryckman. 165 Finally, can you explain the difference between lines 5 and 6 on this table. 166 MR. RYCKMAN: Sure. 167 Line 6 shows the SSM amounts for fiscal 2000 and 2001 that the company is seeking to clear from the SSM VA underpinning to the December 2002 partial settlement that was reached with all of the intervenors except Energy Probe and CME. 168 MS. NEWLAND: The agreed upon claims for fiscal 2000 and 2001 are significantly lower than the company's post-audit claims for 2000 and its pre-audit claim for 2001. Why did Enbridge agree to much lower amounts? 169 MR. RYCKMAN: Well, for two reasons. The first is that we prepared a post-audit SSM fiscal 2000 claim at the end of July 2002. At that time, we were still of the view that no changes should be made to the calculation of the pivot point to reflect the fact that the measure life of existing water heaters had been assumed to be 15 years. The useful life of new tanks is assumed to be 15 years so the life of older tanks should be something less than 15 years. 170 This was an honest oversight and I think it's fair to say that it wasn't on anyone's radar screen before it was brought to our attention by the audit report in April 2002. 171 If we had made an adjust to our post-audit claim to reflect this oversight, our fiscal 2000 claim would have decreased by approximately 1.2 million, that is, from 6.5 million to 5.3 million. By the time we got to the settlement conference in December of 2002, our thinking had evolved and we realized that this honest oversight should be corrected. 172 The reasons we agreed to something less than 5.3 million really had to do with the compromises that all parties to the settlement had to make to get agreement and allow the process to move forward. 173 MS. NEWLAND: Thank you, Mr. Ryckman. And finally, can you comment briefly on the company's 2000 and 2001 LRAM claim. 174 MR. RYCKMAN: Sure. 175 The LRAM is simply a mechanism to adjust for margins the utility loses or gains if its DSM program is more or less successful than planned in the period after rates are set. 176 MS. NEWLAND: Thank you, sir. 177 Mr. Chairman, that completes my examination in chief of these witnesses, and they are now available for cross-examination. 178 MR. BETTS: Thank you. 179 I think at this point we really haven't established any order for cross-examination, but I think unless parties have agreed to one in advance, I'll probably go from the front row towards the back, which is -- 180 MR. MacODRUM: Mr. Chairman, since these witnesses are really in support of the partial settlement agreement, it might be useful to have any other parties who are also in support of the partial settlement agreement, if they do have any questions, if they went first. 181 MR. BETTS: Thank you, Mr. MacOdrum, that would be very appropriate. Thank you. We will do that first. We will ask for submissions from any parties in support of that proposal. 182 Mr. Warren? 183 MR. WARREN: Thank you, sir. 184 CROSS-EXAMINATION BY MR. WARREN: 185 MR. WARREN: Panel, I have only just a few questions for you and they're just really to clarify some of the points you made this morning, Mr. Ryckman, and some of the numbers. 186 In reviewing the history of the development of the SSM, you started with the 1997 -- sorry, 497-01, and do I understand your evidence that it was in that -- the settlement agreement in 497-01 that the -- both the concept of an SSM and the mechanism by which it would be calculated were agreed to by all parties; is that correct? 187 MR. RYCKMAN: Yeah, that was 497-01. 188 MR. WARREN: And when I use the term "all parties", did that include the two, if I may use the term, dissenters, the Canadian Manufacturers & Exporters and Energy Probe? 189 MR. RYCKMAN: It included Energy Probe. Mr. Chairman, they won't find CME. At the time Canadian Manufacturers & Exporters Association was called the Alliance of Manufacturers and Exporters, so it's shown as AMEC. So yes, to answer Mr. Warren's question for somebody else, we were there. 190 MR. BETTS: Thank you for the clarification. 191 MR. WARREN: Do you adopt the answer that was volunteered by Mr. Rowan? 192 MR. RYCKMAN: Yes, we do. 193 MR. WARREN: Probably for the last time, but let's cherish the moment while its here. 194 Now, I'd like to then move on to the next step in the history and that is the RP-1999-001 settlement agreement and your evidence in chief this morning was that there was an agreement on the pivot point volume and an agreement to a mechanism for revisions to the pivot point going forward; is that correct as I understood your evidence? 195 MR. RYCKMAN: Yes. 196 MR. WARREN: Was that -- were those agreements or did the two dissenters, if I can call them that, agree to that settlement agreement as well? 197 MR. RYCKMAN: Yes. 198 MR. WARREN: Now, I'd like you, then, to take you forward to looking at Exhibit P.1.2, and in 1999, there -- I look at the left-hand column, that's column number 1, I see approved, settled SSM claim as under item 6 under 1999. Can you explain to me, Mr. Ryckman, what that number, 4.8 million, represents. 199 MR. RYCKMAN: Pat may be able to speak to that better than I could. 200 MS. SQUIRES: Just to clarify, you're speaking about the amount shown in line 5 or line 6? 201 MR. WARREN: I'm sorry, line 6. It's 1999, and it says, approved settled SSM claim of $4.8 million. Can you me what that is, Ms. Squires? 202 MS. SQUIRES: That amount represents the amount of the SSM that was agreed to by all parties in the consultative group to be cleared for the DSM achievements that occurred in 1999. 203 MR. WARREN: Ms. Squires, it's more -- may I suggest more than just a consultative group. Was it an ADR settlement agreement that went forward and was approved by the Board, ultimately? 204 MS. SQUIRES: That agreement actually did occur during the DSM consultative meeting. There was no settlement negotiation that resulted in that number. It was settled through the consultative process. 205 MR. WARREN: In the case RP-2000-0040, there are reasons for decision of the Board dated August 17th, 2001. Do you have that document? 206 MS. SQUIRES: No, I'll just take a minute to find it. Can you repeat it again, please. 207 MR. WARREN: It's RP-2000-0040, decision of the Board. 208 MS. SQUIRES: I have the decision in front of me. 209 MR. WARREN: If you could turn up, please, the settlement agreement, which is an attachment that document, the settlement proposal which was appendix 8 of that decision. Could you turn that up, please. 210 MS. SQUIRES: Yes, I have that. 211 MR. WARREN: Could you ask you to turn to page 36 of 54 of that document. 212 MS. SQUIRES: Okay, I have it. 213 MR. WARREN: Do you have that? 214 Now, first of all, it says: "The following parties participated in the discussion of this issue: ECG, CME, GEC, Pollution Probe, Schools, and VECC." 215 Do I take it from that list that the two dissenters in this case -- sorry, the two dissenters from this settlement agreement were parties to the settlement agreement in this case, the RP-2000-0040 case? 216 MS. SQUIRES: I don't see Energy Probe listed. 217 MR. WARREN: Sorry. But the CME was a participant; is that correct? 218 MS. SQUIRES: Yes, CME was. 219 MR. WARREN: And it says under the heading: "There was agreement to this issue on the following basis." May I read this into the record. "The EBRO-497-01 settlement proposal established the monitoring and reporting requirements for ECG's annual DSM plan. The RP-1999-001 settlement proposal modified these requirements in order to implement an independent evaluation process. There was in the result a constructive, open, and cooperative approach to the evaluation, verification and audited of ECG's DSM plan for fiscal 1999, including the amount initially claimed by ECG for the shared saving mechanism variance account for fiscal 1999. This approach in turn led to a reduction of $2 million, from 6.8 million to 4.8 million of the amount claimed for 1999 SSM VA." 220 And the next bullet point reads: "The debit balance of 4.8 million reported in the 1999 SSM VA will be allocated and cleared in accordance with EBRO-497-0017 proposal." 221 Have I accurately read what's in that document? 222 MS. SQUIRES: Yes, you have. 223 MR. WARREN: Ms. Squires, can I summarize it this way, Ms. Squires and Mr. Ryckman, that in the original case 497-01, the principles of the -- both the principle of having an SSM and the means by which it was calculated were agreed to; correct? 224 MS. SQUIRES: Yes. 225 MR. RYCKMAN: Yes. 226 MR. WARREN: Then in the subsequent case -- I'm going to get these numbers wrong. 227 Thanks. Mr. Poch is as ever the better half of my memory. The 001 case, there was an agreement on modification to the calculation of the pivot point; correct? 228 MR. RYCKMAN: Can you direct me to where you're referring to again. 229 MR. WARREN: I'm referring to your testimony in chief this morning that in the 497 -- sorry, in the 1999-0001 there was a settlement on the pivot point volume -- 230 MR. RYCKMAN: Yes. Yes. 231 MR. WARREN: And that resulted, may I understand it, in the RP-2000-0040 settlement agreement on an amount of the SSM, which is 4.8 million, which everybody agreed to, including the CME; have I got that correct? 232 MR. RYCKMAN: Yes. 233 MR. WARREN: All right. Now, the next issue I want to turn to with respect to the numbers, and it might help if you turn up K.1.2 is -- K.1.2. This is this... 234 Now, this total of the preaudit SSM claim of Enbridge was a total of some $23.1 million for 2000 and 2001; is that right? 235 MR. RYCKMAN: Yes. 236 MR. WARREN: Mr. Chairman, you get that by looking at column 4 -- sorry, columns 2 and 3, line 4. 237 Have I got that correct, that's how you get to that number? 238 MR. RYCKMAN: Yes. 239 MS. SQUIRES: Yes. 240 MR. WARREN: So the original claim was for 23.1 million and that was reduced then -- a post-audit claim of 2000 was reduced to $6.5 million; is that correct? 241 MR. RYCKMAN: Yes. 242 MR. WARREN: Going into the settlement discussions in December, Mr. Ryckman or Ms. Squires, on the opening day of the settlement discussions, the amount of SSM claimed by ECG was what amount in total for those two years? 243 MS. SQUIRES: Oh, for the two years. We came in with a claim of 6.5 for 2000. That was a post-audit claim and going into 2001, we had a preaudit claim of 13.7 million. 244 MR. WARREN: That's approximately $20.2 million; have I got that correct? 245 MS. SQUIRES: Yes. 246 MR. WARREN: And the settled amount in the settlement agreement that was before the Board for its consideration was $8.1 million; is that correct? 247 MS. SQUIRES: Yes, it is. 248 MR. WARREN: Now, the amount of the SSM claim, and whoever can answer it can answer it, that amount is allocated among customer classes; is that correct? 249 MS. SQUIRES: Yes. 250 MR. WARREN: And can you tell me, of the 8.1, approximately -- not approximately. How much would be allocated to residential consumers? 251 MS. SQUIRES: I just need a minute to flip to the settlement proposal. 252 I'm referring to the December settlement proposal, and page 8 of 9. There's a table on that page that describes the allocation and I'm sorry, you're asking about the allocation for the full 8.1 million? 253 MR. WARREN: Yes. 254 MS. SQUIRES: Of that 8.1 million, 7.8 million approximately will be allocated to rate 1 residential customers. 255 MR. WARREN: Now, do you know panel, and if you don't can you get me the information, how much of the original claim of $20.2 million would have been allocated to residential consumers? 256 MS. SQUIRES: We don't have that information with us right now. 257 MR. WARREN: Can you undertake to get that information for me? 258 MS. SQUIRES: Yes. 259 MR. MORAN: Mr. Chair, that would be Undertaking J.1.1. 260 UNDERTAKING NO. J.1.1: TO PROVIDE PORTION OF SETTLEMENT PROPOSAL CLAIM ALLOCATED TO RESIDENTIAL CONSUMERS AND PORTION ALLOCATED TO COMMERCIAL CLASSES 261 MR. WARREN: May I presume at least on an intuitive level, Ms. Squires, that an amount that would have been allocated to residential consumers out of $20.1 million would be substantially more than the $7.8 million allocated under the settlement agreement? 262 MS. SQUIRES: I think that's a safe assumption. 263 MR. WARREN: Now, can you tell me, Ms. Squires, under the settlement proposal, how much of the $8.1 million is allocated to what I might term the commercial interests, whether they're industrial or otherwise, non-residential? 264 MS. SQUIRES: That would be the balance between the 7.8 that I mentioned and the 8.1, so we're talking about approximately $300,000, just under 300,000. 265 MR. WARREN: Now, my final question, Ms. Squires, and this may be stating the obvious, but I need that kind of reassurance at my age: May I presume, Ms. Squires, that if the Board were to reject the settlement agreement, that Enbridge would go to a hearing claiming $20.2 million; is that fair? 266 MS. SQUIRES: Yes, that's correct. 267 MR. WARREN: And can we agree, Ms. Squires, that residential consumers, if this settlement agreement were rejected by the Board as two parties are asking, that residential consumers would therefore be at risk for something more than -- you said something substantially more than $7.8 million; is that fair? 268 MS. SQUIRES: Yes, that's fair. 269 MR. WARREN: Can you tell me out of the $20.2 million, how much of that would have been allocated to the commercial classes? 270 MS. SQUIRES: Again, I don't have that information with me today. 271 MR. WARREN: Can you give me an undertaking to get that information. 272 MS. SQUIRES: Yes. 273 MR. MORAN: I wonder if that could just be included as part of the same undertaking. 274 MR. WARREN: Again, at an intuitive level, would it be substantially more than $300,000? 275 MS. SQUIRES: Yes. 276 MR. WARREN: Thank you very much, panel, those are my questions. 277 MR. BETTS: Thank you, Mr. Warren. 278 Are there any other parties that wish to cross-examine that are in support of the proposal. 279 Mr. Poch. 280 MR. POCH: Yes, Mr. Chairman. I just have a very few questions because we are in support of this proposal. 281 CROSS-EXAMINATION BY MR. POCH: 282 MR. POCH: Mr. Ryckman or Ms. Squires, may I ask, the programs and measures which were in your year 2000 DSM efforts and that were subject to the audit, are they similar to the ones that were in the 2001 year? 283 MS. SQUIRES: Yes, they are. 284 MR. POCH: All right. And as I think we'll probably get clearer as we go on through the day and we hear from the other parties, a lot of the concern about this proposal from those who are content with it, this settlement proposal, turns on the treatment of the free-rider assumption for custom projects; correct? 285 MS. SQUIRES: That's my understanding. 286 MR. POCH: And it was budgeted at either 5 or 10 percent depending which subgroup; correct? 287 MS. SQUIRES: Yes. 288 MR. POCH: And in the course of the audit, it came to light when some further evaluation work was done that it's likely to have been much higher, and the auditor was finding on the sample -- the auditor did numbers averaging about 48 percent. 289 MS. SQUIRES: That's correct. 290 MR. POCH: And I take it that the auditor found those numbers but didn't actually make a recommendation as to what was the appropriate figure to use in an SSM clearance is that correct? 291 MS. SQUIRES: Yes, and the auditor did not recommend the process by which it should be applied. 292 MR. POCH: Right. 293 Now, that finding of a higher free-rider rate in the customs -- and just for the panel's benefit, I take it that there's two broad kind of programs; there's prescriptive measure programs and custom. 294 MS. SQUIRES: Yes, that's correct. 295 MR. POCH: All right. And the custom is largely -- in the large industrial situation. 296 MS. SQUIRES: Large industrial and commercial. 297 MR. POCH: All right. 298 Now, that finding of a much higher free rating in the custom area, did that come as a surprise to the company? 299 MS. SQUIRES: The fact that it was higher was not as much of a surprise as the extent to which it was higher. 300 MR. POCH: Is it fair to say that in the discussions that you had in the DSM consultative amongst all the parties, no one was anticipating something on that scale? 301 MS. SQUIRES: That's correct. 302 MR. POCH: Now, in our materials, Mr. Chairman, I've placed before you a stapled together package which was entitled "GEC/CIELAP Cross-Examination Materials", and I would ask the witness to turn up the first page of that. 303 MR. MORAN: Perhaps we can mark that as an exhibit, Mr. Chairman. K.1.3, GEC/CIELAP Cross-Examination Materials. 304 EXHIBIT NO. K.1.3: GEC/CIELAP CROSS-EXAMINATION MATERIALS 305 MR. POCH: At this point in the hearing, I'm just going to ask you about the first page of that. Given that you've filed a table summarizing the numbers already, you've made this a little easier for me. 306 This sets out some other ways of looking at the potential numbers that were being tossed around, and I wonder if you could assist me this far. 307 One way of thinking about or envisioning the settlement, and I'm not suggesting that this was the basis of the settlement, but one way that -- a standard that one might measure it against is if you accepted the auditor's recommendations for such things as water heaters as you referred to, Mr. Ryckman, in your introductory comments, and simply suspended the application of the SSM for those custom project where this surprise free-ridership rate arose and we tried to represent that on the first row. 308 We provided you this some time ago to get you to be in a position to be able to confirm this. Are these numbers in the ballpark? 309 MS. SQUIRES: Yes, they are. 310 MR. POCH: All right. 311 And the -- the next row would be a further scenario, where we take all the auditor's recommendations with respect to those prescriptive programs and we apply the RP-1999-0001 agreement with respect to what gets frozen and what gets updated for purposes of calculating SSM; that is, we apply that to this free-ridership issue, and we hold them at the originally budgeted 5 or 10 percent depending on which subsector, and you get those numbers. Is that correct, in the second row? 312 MS. SQUIRES: Yes, the second row is approximately correct. 313 MR. POCH: The third row is obviously the proposed settlement; I guess the fourth row I can ask other witnesses about, so I don't need your comments there. Thank you, that's helpful. 314 Finally, just CME has raised, and I'm not sure if -- to what extent this is an issue, mostly for 2003 as opposed to 2001, so I just have one question at this point on this, it raises the question of how the audit subcommittee - the subcommittee for the DSM consultative - rules for that, and we will certainly hear more about this in the second phase of the DSM proceedings. I just had one question for the purposes of the 2000-2001 SSM issue, which is -- how is the audit subcommittee functioning at this point, the newly formed 2000 forward-looking committee? 315 MS. SQUIRES: It's functionally effectively. We have had some delays due to the parties' involvements in the settlement process that's occurred in the last month, but it's functioning effectively. 316 MR. POCH: The meetings are going smoothly? 317 MS. SQUIRES: Yes. 318 MR. POCH: Thank you. That's it for now. 319 MR. BETTS: Thank you. 320 Any other parties in support of the proposal? 321 MR. KLIPPENSTEIN: No question from Pollution Probe, Mr. Chair. 322 MR. BETTS: Thank you. 323 MR. DeROSE: No question from IGUA. 324 MR. BETTS: Thank you. 325 That appears to be all, so cross-examination from parties that would oppose the proposal. 326 CROSS-EXAMINATION BY MR. MACODRUM: 327 MR. MacODRUM: Could we turn, first, panel, to Exhibit K.1.2 that was introduced this morning. And as I understand it from your discussion with Mr. Warren, the figures for -- in the first line, the targets, the word "approved" really means "agreed"; is that correct, that they were agreed upon? These numbers have not been approved by any regulatory -- 328 MS. SQUIRES: They were agreed upon in the settlement process and then the settlement was Board approved. 329 MR. MacODRUM: For 2000, 2001? 330 MS. SQUIRES: Yes. 331 MR. MacODRUM: But they were agreed-upon numbers? 332 MS. SQUIRES: Yes, which were subsequently approved by the Board. 333 MR. MacODRUM: The settlement was approved by the Board? 334 MS. SQUIRES: Yes. 335 MR. MacODRUM: Do you have the actuals for 1999, 2000, and 2001? 336 MS. SQUIRES: The actual volumes achieved? 337 MR. MacODRUM: Yes. If we had a third line applied for what we called approved, and we had a line under that and we called them actual, what would the actuals -- the actual numbers... 338 MS. SQUIRES: I'm referring to the company's 2003 evidence at Exhibit A.7, tab 3, schedule 1, page 5 and there's a table summarizing the historical DSM performance. 339 MR. MacODRUM: Could you just help me and say what would be the numbers, then, that we would put under 1999, 2000 and 2001. 340 MS. SQUIRES: For 1999 it would be 52.0 million. And for 2000, it would be 58.9, and I should mention that the 58.9 would be consistent with the company's revised SSM and LRAM claim that would have been put forward in July of last year. 341 MR. MacODRUM: And for 2001? 342 MS. SQUIRES: And for 2001, 82.4 million. 343 MR. MacODRUM: 82.4. 344 Now, I'm certainly not as familiar with all this DSM process as those of you who have been spending weeks and weeks and even months immersed in it, so I'm trying to get an understanding of it, but as I understand it, the SSM incentive for the company arises from the difference between the approved target and the actual number; is that correct? 345 MS. SQUIRES: Not exactly. The SSM amount arises from the difference between the total resource cost test NPV amounts in the budget and the actual, so it's not directly as a result of the volumetric inputs. 346 MR. MacODRUM: But the volumetric difference is an input to that. 347 MS. SQUIRES: That's correct. 348 MR. MacODRUM: So it's an important factor to, if I can call it, the size the honey pot available to the company. 349 MS. SQUIRES: It's an important contributor to the total TRC amount, yes. 350 MR. MacODRUM: So there is an incentive with the target for the company to be as conservative as possible? 351 MR. RYCKMAN: That's fair. Yes. 352 MR. MacODRUM: I believe, and Mr. Poch touched upon this, that DSM programs are described as being either prescriptive or custom or targeted or something like that. They're divided into those two categories; is that correct? 353 MS. SQUIRES: Yes. 354 MR. MacODRUM: And what are prescriptive programs? 355 MS. SQUIRES: Prescriptive programs can be characterized best as programs which are directed at mass markets, residential, obviously. To some degree small commercial markets are treated as mass markets, and those types of programs are designed to address a more homogeneous group of customers. So to the extent that the savings that arise from the installation of a high-efficiency furnace are relatively consistent over thousands of customers, they're treated as prescriptive in that way. 356 Custom programs can be characterized as programs which are addressed at a more heterogenous group of customers, such as large industrial and commercial customers for whom their energy efficiency needs are very different from one customer to another, so the programs that are delivered or the projects that occur in the custom markets are very unique. 357 MR. MacODRUM: Are the custom projects, are they targeted at specific companies? 358 MS. SQUIRES: I would say that more accurately they're targeted at certain market segments. 359 MR. MacODRUM: Would the people who are delivering these programs go and meet with specific companies and talk about their needs and the programs? 360 MS. SQUIRES: That's correct. 361 MR. MacODRUM: So they are targeted to specific companies that you are expecting to deliver the results. 362 MS. SQUIRES: At the program delivery stage, yes. 363 MR. MacODRUM: Now, the other concept -- another concept, one of many in this area that I'm having difficulty understanding, is this concept of free ridership, and is it -- is free ridership where the market participants in a sector take the desired action, that is, the intent of the DSM program, for some reason other than just the program inactives, for some reason other than the program incentives. 364 MS. SQUIRES: Yes. Maybe I can try and define it in my own words. Would that help? 365 MR. MacODRUM: If you can. 366 MS. SQUIRES: Free ridership is defined as the percentage of program participants that would have undertaken the DSM activity even without the program. 367 MR. MacODRUM: So what -- how does the concept of free ridership apply to the custom or, as I call it, the targeted sector of the program? 368 MS. SQUIRES: It's an assumption that's made for both custom and prescriptive programs in a similar way about the share of the -- in this case -- custom projects that would have occurred even without the company's DSM efforts. 369 MR. MacODRUM: But you said custom projects are projects which, at the program delivery stage, are ones where you would actually go and talk to specific companies, so it doesn't become a program until you've, if I can call it this, sort of married the program delivery to a specific company. 370 How does it concern anybody else? How do you get on the bus for this to be a free rider when the bus doesn't stop at your stop? 371 MS. SQUIRES: It's really the activity that we're talking about, and I'll give you an example. 372 In the case of, say, an industrial plant that needs a new boiler, they -- they may undertake to, or they may have already made a decision to purchase a higher efficiency boiler, and through conversation with the company's sales representative they learn that there is an incentive and they undertake the activity to take advantage of the incentive. In that case, they would have been a free rider. 373 MR. MacODRUM: Now, am I correct in saying that there is an inverse relationship between the amount of the free ridership and the potential size of the honey pot available to the company, the amount of the potential SSM? 374 MS. SQUIRES: To the extent that our results and the actual TRC are reduced by the free-rider amount, that does affect the SSM in that way, yes. 375 MR. MacODRUM: Do you -- I believe it's the actual auditor's report I believe we made an exhibit in this proceeding, and I'm looking at business markets review, section 5, page 5-23. And do you have that? 376 MS. SQUIRES: Yes, I do. 377 MR. MacODRUM: And at the top of that page is a table entitled "5-17: Suggestive Ranges for Effective Free-Rider Assumptions." 378 MS. SQUIRES: Yes. 379 MR. MacODRUM: I believe Mr. Poch and you were having a discussion, a figure of 48 percent was mentioned. I gather that the overall medium of free-ridership assumptions suggested here is 49 percent, in table 5-17? 380 MS. SQUIRES: Yes, that's what's in that table. 381 MR. MacODRUM: And would you turn to recommendation number 7 on that page. 382 MS. SQUIRES: Yes. 383 MR. MacODRUM: Let me just read to you: "We recommend that the current business markets free-rider assumption of 10 percent be replaced by a value between the low and the high end indicated in table 5-17 above." Did I read that correctly? 384 MS. SQUIRES: Yes. 385 MR. MacODRUM: So the auditor, in fact, was recommending a different free-rider assumption than the 10 percent used by the company? 386 MS. SQUIRES: Yes. 387 MR. MacODRUM: And since the suggestion is between the low and the high end, that only leaves the medium, which is the 49 percent. 388 MS. SQUIRES: Yes. 389 MR. MacODRUM: Is that correct? 390 So you do have a specific recommendation from the auditor for a different free-rider assumption than the 10 percent? 391 MS. SQUIRES: There is a specific recommendation on the free-rider rate, but there is not a specific recommendation on how -- on how it should be applied. 392 MR. MacODRUM: Turning back to table K.1.2, line 5. For 2001 in line 5, it says "N/A". Why does it say that? 393 MS. SQUIRES: It says that because the audit for 2001 was not complete at the time of the preparation of this table, and therefore a post-audit SSM claim was not available yet. 394 MR. MacODRUM: So there is not an audited number available? 395 MS. SQUIRES: That's correct. 396 MR. MacODRUM: Those are all my questions, Mr. Chairman. 397 MR. BETTS: Thank you, Mr. MacOdrum. 398 Any other parties? 399 MR. PARRY: Yes. 400 MR. BETTS: Thank you, Mr. Parry. 401 MR. PARRY: Thank you. 402 CROSS-EXAMINATION BY MR. PARRY: 403 MR. PARRY: I will start with some broad-brush strokes and then try and get more detailed as we go through. 404 Dealing with the concept of the shared savings mechanism that was developed in EBRO-497, as I understand it, the overall concept of -- the idea is that the company is asking the consumer to adopt the company's conservation program, and the whole SSM is an incentive to the company to create these programs. Is that fair to say? 405 MS. SQUIRES: Yes. 406 MR. PARRY: The benefit being a reduction in gas consumption, hopefully; is that fair to say? 407 MS. SQUIRES: Yes. 408 MR. PARRY: And an offsetting benefit might be, for example, environmental -- environmental benefit to society? 409 MS. SQUIRES: Yes. 410 MR. PARRY: And, of course, a financial benefit to the consumer? 411 MS. SQUIRES: Yes. 412 MR. PARRY: Because you're spending less money on gas. And the company will have their income affected by the lower volume in gas distribution; is that fair to say? 413 MS. SQUIRES: The company's income is corrected for any of those types of changes affected by the lost revenue adjustment mechanism. 414 MR. PARRY: Thank you. So the SSM doesn't deal with compensating for lost revenue; it deals strictly with trying to encourage the company to exceed its targets. 415 MS. SQUIRES: That's correct. 416 MR. PARRY: And historically before this mechanism was employed, there was a history of the company falling short of its targets. 417 MS. SQUIRES: That's correct. 418 MR. PARRY: So, thus the need for the SSM? 419 MS. SQUIRES: Yes. 420 MR. PARRY: And if we talked about the incentive in general terms, what we're talking about is the company getting a share of the customer's savings that were achieved above and beyond the targets set? 421 MS. SQUIRES: That's one view of it. 422 MR. PARRY: That's why we called it shared savings; right? There's a reason for the name, isn't there? 423 MS. SQUIRES: That describes the methodology for calculating it, yes. 424 MS. WILSON: If I might clarify, it's a share of the net benefits from the TRC test, a share of those over and above the targeted level that are returned to the company. 425 MR. PARRY: And that net benefit in the TRC test that you referred to is a benefit enjoyed by the customers? When these programs are implemented -- 426 MS. WILSON: It's a societal benefit. 427 MR. PARRY: Yes. 428 MS. WILSON: Yes. 429 MR. PARRY: it may be of assistance, just at this stage, to define the TRC test. 430 MS. SQUIRES: I don't know that I can direct you to any reference quickly that has a definition, but I can attempt to do it off the top of my head. TRC stands for the total resource cost test, which incorporates the benefits associated with avoided fuel savings -- sorry, avoided fuel costs such as avoided gas costs, electricity and water. 431 And on the costs side, we deduct the customer and utility costs associated with delivering the program, so the difference between those costs and benefits result in the net TRC benefits. 432 MR. PARRY: And as I understand the whole DSM exercise, one of the conceptual rationales for structuring the SSM in the way it's structure is the company is seen as being the most efficient vehicle for creating or getting consumers to adopt these programs, these savings; is that fair to say? 433 MS. SQUIRES: It's a vehicle for delivering the programs effectively. 434 MR. PARRY: It's an effective vehicle, because they have the customer base, they have contact with the customers, they have mailing lists, addresses. They can easily pursue incentive programs through service calls, et cetera. 435 MS. SQUIRES: Yes, that's correct. 436 MR. PARRY: The goal is to create conservation where it would not have existed but for the DSM programs of the company? 437 MS. SQUIRES: That's the goal of DSM, yes. 438 MR. PARRY: And the SSM is to share savings that it would -- the goal of it is to share savings that would not have existed but for the programs of the company? 439 MS. SQUIRES: The goal of the SSM, going back to the evidence that Mr. Ryckman referred to in his direct testimony, is as stated in EBRO-497, to continue to provide Enbridge with a positive incentive to continue to build and pursue DSM. 440 MR. PARRY: But the source of that incentive is coming from savings. That's the theory; right? 441 MS. SQUIRES: From TRC savings, right. 442 MR. PARRY: And the source of the incentive is not just to come from any savings, but it's to come from savings that would not have existed but for the company's programs. 443 MS. SQUIRES: That's the intention, yes. 444 MS. WILSON: Just to be clear, the way the mechanism is structured is based on the net resource benefits achieved compared to what was in the pivot point or the targeted benefits that flow from the savings target, the volumetric savings target. The way it's structured, it's actually based on the delta between actual and the budget net benefits. 445 MR. PARRY: Putting ourselves in the position of the customer, one can imagine this scheme being justifiable if one is concluding as a customer, well, I would not have saved that money but for this program, so it's palatable, then, to share my savings via increased rates with the party responsible for creating or inducing those savings. 446 MS. SQUIRES: That's the theory, yes. 447 MR. PARRY: When we look at the settlement proposal for fiscal year 2000, we have a number of 3.5 million. If we try and reconcile that with the theory, again putting ourselves in the minds of the customer, can we say that it is consistent with the theory the customer finds sharing this $3.5 million with the company as palatable, because that would not have occurred but for the measure of the company? Is that really how we should be assessing this $3.5 million number? 448 MS. SQUIRES: Yes, and in addition to assessing it from the standpoint that the objective of the SSM is meant to be incentive to the company to pursue DSM. 449 MR. PARRY: It's not just an incentive to pursue DSM; it's an incentive to exceed targets that have been set. 450 MS. SQUIRES: Yes. Correct. 451 MR. PARRY: It was never anticipated through this SSM program that positive incentives would be given for merely meeting targets. 452 MS. SQUIRES: I'm sorry, could you repeat the question. 453 MR. PARRY: It was never intended that actual monetary incentives or positive incentive would be provided for merely meeting a target, because you don't make money from merely your meeting a target. 454 MS. SQUIRES: That's correct. With this mechanism, that's correct. 455 MR. PARRY: Now, am I correct in concluding that there is no document of agreement by the Board or the parties that the company should be rewarded for savings it did not produce? 456 MS. SQUIRES: That's correct. 457 MR. PARRY: But this $3.5 million is, in essence, a reward for savings that were not produced. 458 MS. SQUIRES: No, I don't believe that's correct. 459 MR. PARRY: If we assume for the sake of argument at this stage that the audit numbers are accurate, the audit numbers of Energy Probe and CME would suggest not a $3.5 million but a negative $67,000 number. 460 MS. NEWLAND: Excuse me, Mr. Parry, are you suggesting that CME's numbers were audited? I think what you probably meant to say was the numbers proposed by Energy Probe on the basis of the audit. 461 MR. PARRY: Yes, based on the audit, sorry. 462 MS. SQUIRES: I'm sorry, the question again? 463 MR. PARRY: The audit results led CME and Energy Probe, when referring to those audit results, to conclude that there was actually or should actually be a negative incentive. 464 MS. SQUIRES: That's right. 465 MR. PARRY: And that's based on the facts as determined by the audit results. 466 MS. SQUIRES: That's based on a certain application of the facts determined by the auditor. 467 MR. RYCKMAN: I think that's important to at least flesh out a little bit, because what we're talking about here are some corrections. In my direct I talked about the measure life of water heaters, where it was an oversight, and when we approached or at least had the discussions around accepting the settlement proposal, we took that into account, so we have this reduction in 2000 from 6.5 million to 3.5. 468 I think one of the most significant items that are included in CME and Energy Probe's proposal is one that includes issues around free ridership, and I think that is really critical to keep in mind, because free ridership is extremely difficult to come to grips with. 469 I mean, when we look at the influences that are on a customer, whether it's their contract or whether it's manufacturers and equipment, whether it's government policy, I think there are a number of things here that will influence customers, and to turn around and say that, you know, the salesperson had X percent of influence on this particular sale and the resulting volumes, I think, is a pretty challenging thing to do at best. 470 And customers, I think, if you ask them, certainly through my sales experience, and I have had significant sales experience, if a sales call is executed well, they are of the opinion that they made the decision to do it, you're fulfilling a customer need and a customer benefit. 471 So when you look at free ridership, I think, you have to keep in mind the subjectivity around that and all the influences that a play on a customer. I also think you have to keep in mind our ability to influence, to be able to influence on the front lines. We're a utility and there's credibility issues and we have to be fair to all customers, so we can't pick and choose who we decide to give DSM programs and products to. And I think that's a critical distinction that needs to be made on those assumptions of which the company -- 472 MR. PARRY: I will return to that in due course. 473 But before I get to that, I'd like to deal first with the current suggested allocation of SSM liability. And as I understand it currently -- I didn't remember the number off the top of my head -- it's roughly seven point something million dollars of the $8 million for 2000 and 2001 were going to be allocated to residential customers; is that correct? 474 MS. SQUIRES: Yes, 7.8. 475 MR. PARRY: So that's roughly 98 percent; is that... 476 MS. SQUIRES: That sounds about right. 477 MR. PARRY: So 2 percent, then, to industrial or commercial customers. 478 MS. SQUIRES: Yes. 479 MR. PARRY: Would you agree with me, though, that the actual ratio of benefits to those two groups, as I've just referred to them, is not 98 percent and 2 percent but something closer to 65 and 35? 480 MS. SQUIRES: I can't -- I don't have information that would tell you exactly what the amount -- the correct amount is. 481 MR. PARRY: If I might refer you to Exhibit I, tab 30, schedule 1. 482 MS. WILSON: Could we get that reference again, please. 483 MR. PARRY: Exhibit I, tab 30, schedule 1. 484 MS. SQUIRES: Is that an interrogatory? 485 MR. PARRY: Yes. 486 MS. WILSON: From who? 487 MR. PARRY: The February 7th, 2003 interrogatory number 1 of witness Norm Newman. 488 MS. WILSON: From which intervening party? 489 MR. PARRY: From Pollution Probe. 490 MR. BETTS: I'm having a little trouble finding that reference. Could anybody else or someone find it for me. 491 MR. KLIPPENSTEIN: Mr. Chairman, I don't know if this is helpful: I have prepared for Pollution Probe a cross-examination reference book that includes that if you don't have that already. That is included at tab 5. 492 MR. BETTS: Thank you. 493 MS. NEWLAND: Mr. Parry, what interrogatory number were you referring to? 494 MR. PARRY: If I may have a moment. If I've got my nomenclature right, I'm looking at Exhibit I, tab 30, schedule 1-3, and it's interrogatory number 1 of Pollution Probe interrogatories. 495 MR. BETTS: The panel is organized if everyone else is. 496 MS. SQUIRES: Yes. 497 MR. PARRY: Referring to the chart which is in the first response, which outlines some of the actual net present value TRCs. You see that chart on page 2. You see the third row on that chart under actual net present value TRCs suggests a number of -- a total for the residential retrofit and residential new construction of approximately 33,877,000. 498 MS. SQUIRES: Yes. 499 MR. PARRY: Is that a number you agree with? 500 MS. SQUIRES: I haven't verified these numbers. 501 MR. PARRY: Then we see, moving down, three -- sorry, four rows down, a total of the -- what would appear to me to be programs aimed at industrial and commercial customers of approximately 18,696,000. 502 Assuming those numbers are accurate, and they represent the relative benefits to residential customers versus industrial commercial customers, that would suggest a ratio closer to 65 percent for residential and 35 percent for commercial/industrial. 503 MS. NEWLAND: Mr. Parry, if I could just seek a point of clarification. These numbers, as I understand it, are numbers produced by Energy Probe in response to an interrogatory from Pollution Probe, so these are the numbers being proposed by Energy Probe in respect of the budget TRC and actual TRC. These are not numbers, as I understand, that are being produced by Enbridge or being supported by Enbridge; are we agreed on that point? 504 MR. BETTS: Mr. Parry? 505 MR. PARRY: That's fair. 506 MS. NEWLAND: Are you asking my witnesses to accept these numbers? 507 MR. PARRY: What I would ask the witnesses to do is to undertake to investigate what the actual allocation of benefits is. 508 MS. SQUIRES: That's actually laid out in -- it's laid out in the Kai Millyard's reconciliation report. I can find the exhibit number. That was one of the exhibits that was filed last week by the company and the company's position is laid out in a very similar way in that table, table 1. 509 MR. PARRY: The point I'm getting at, just so we can clarify the inquiry, I understand what the suggested allocation of liability is, that is, that 98 percent is domestic/residential versus 2 percent for industrial/commercial. What I'm interested to know is whether or not that reflects the true proportion of actual benefits. 510 MS. SQUIRES: That does not reflect the proportion of actual benefits as laid out in the company's claim. 511 MR. PARRY: And how far off is it? 512 MS. SQUIRES: I haven't done the math to be able to quantify that for you. 513 MR. PARRY: Would you undertake to do that? 514 MS. SQUIRES: Yes. Just to clarify, you're looking for the company's allocation split between descriptive and custom based on its claim? 515 MR. PARRY: Forgive me if I'm using a term that's awkward, but I'm looking at the split between residential customers versus industrial/commercial customers. 516 MR. MORAN: That will be Undertaking J.1.2. 517 UNDERTAKING NO. J.1.2: ENBRIDGE'S TRC ALLOCATION SPLIT BETWEEN RESIDENTIAL AND INDUSTRIAL CUSTOMERS 518 MS. SQUIRES: Again, we're talking about fiscal 2000 and the company's pre-ADR position. 519 MR. PARRY: Yes. 520 MS. NEWLAND: This is the split of the TRC benefits between residential and commercial/industrial companies for fiscal 2000 -- 521 MR. PARRY: Yes. 522 MR. BETTS: Just a small point of order. I'd just prefer all comments to be directed through me rather than a dialogue between counsel, if I could, thank you. 523 MS. NEWLAND: Certainly. 524 MR. BETTS: Please proceed. 525 MR. PARRY: Thank you. 526 I'm about to enter into a new area. I'm wondering if this might be an appropriate time for a break. 527 MR. BETTS: Are there any objections to that? I think that would be appropriate and probably what we will do, we talked about going through the afternoon session without a break, so we will break now. We'll stay at it a little bit longer, and break a little bit later for lunch and that will shorten up the afternoon period as well. 528 So if there are no objections, let's try to be back here in 20 minutes, and that will make it at 25 minutes to 12. 529 We will return at 11:35. 530 --- Recess taken at 11:17 a.m. 531 --- On resuming at 11:35 a.m. 532 MR. BETTS: Please be seated, everyone. 533 Mr. Parry, I think when we left, had you completed your cross-examination at that point? 534 MR. PARRY: No, I just was moving on to a new area. 535 MR. MORAN: Mr. Chairman, just before Mr. Parry continues, a housekeeping matter. 536 There was a letter filed with you this morning by Enbridge dated March 21st, and I don't think we marked it as an exhibit. Perhaps we could do that. I just lost my list... 537 That would be K.1.4, a letter with attachments filed by Enbridge, dated March 21, 2003. 538 EXHIBIT NO. K.1.4: LETTER DATED MARCH 21, 2003 FROM ENBRIDGE, WITH ATTACHMENTS 539 MR. BETTS: Thank you. 540 MR. MORAN: That's all I had, sir. 541 MR. BETTS: Are there any other preliminary matters that have arisen? 542 Mr. Parry. 543 MR. PARRY: Thank you. 544 I'd like to refer to the terms of reference for the 2000 and 2001 audit, which I understand is found at Exhibit I.9.25. I'm specifically referring to page 1 of the attachments. 545 MS. NEWLAND: Excuse me, Mr. Chairman. 546 MR. BETTS: Yes. 547 MS. NEWLAND: I'm sorry, I'm not following Mr. Parry. Could you get him to repeat his reference, please. 548 MR. BETTS: Mr. Parry, go ahead. 549 MR. PARRY: Thank you, sir. 550 It's Exhibit I, tab 9, schedule 25. I'm sorry, "I," not 1. 551 MR. BETTS: Does that clear that up? 552 MS. NEWLAND: Thank you, sir. Yes. 553 MR. BETTS: Thank you. 554 MR. PARRY: And there are a number of drafts of the terms of reference. I'm just looking at the first page of the January 23rd, 2001 draft, under "Requirements," the first paragraph. 555 MS. SQUIRES: I'm sorry to interrupt, but which year, for which year? 556 MR. PARRY: Pardon me, I didn't hear your question. 557 MS. SQUIRES: For which year, '99, 2000, or 2001? 558 MR. PARRY: This is the terms of reference for independent audit of 2000 evaluation report. Does that assist? Does that assist? 559 MR. BETTS: We will just wait until everybody has that in front of them. 560 MR. DOMINY: I assume you mean the draft, 23rd January, 2001. 561 MR. PARRY: Yes. The paragraph I'm referring to seems to be repeated in the draft, January 23rd, 2001, and also the revised draft of March 5th, 2001, and also the revised draft of April 16th, 2001. It's the first paragraph under "Requirements." 562 MR. BETTS: Is everybody ready now? 563 MS. SQUIRES: Yes. 564 MR. BETTS: Okay. 565 MR. PARRY: The paragraph I'm referring to states: "The ultimate goal of an independent audit is to make a determination of whether the company's claimed SSM amount is accurate and appropriate given the supporting documentation, and give confidence to all stakeholders that the claim will be fair and justified." 566 Now, I've seen a number of drafts, and the question I have is: Did the company ultimately accept that ultimate goal for the terms of reference for the 2000 evaluation report -- audit of the 2000 evaluation report? 567 MS. SQUIRES: Yes. 568 MR. PARRY: Obviously one of the things we're talking about here today, in light of the audit done of the fiscal year 2000, is the accuracy of the evaluation report; is that fair to say? 569 MS. SQUIRES: I'm sorry, I didn't quite hear the question. 570 MR. PARRY: One of the central subjects that's in dispute is the accuracy of the evaluation report and the accuracy of the audit? 571 MS. SQUIRES: I don't know if I would characterize it exactly that way. It seems to me that the dispute is about the application of audit-recommended changes to program assumptions. 572 MR. PARRY: Those program assumptions have a direct effect on the accuracy of the evaluation report; is that fair to say? 573 MS. SQUIRES: On the actual assumption itself, yes. 574 MR. PARRY: Well, the changes in assumptions can lead to changes in conclusions; fair to say? 575 MS. SQUIRES: Yes. 576 MR. PARRY: I actually meant before going on, and perhaps I will stop here before moving forward. In dealing with the last area about the proportionality between the proposed SSM liability and the actual TRC benefits between household and industrial/commercial customers, I had meant to refer you to the EBRO-497-01, Exhibit C, section 9, which I'm told is also called the decision with reasons. 577 MS. SQUIRES: Could you repeat the reference, please. 578 MR. PARRY: Yes, EBRO-497-01, Exhibit C, section 9.0. The page reference is 9 of 16. 579 MR. DOMINY: Excuse me, has this been filed in this hearing or is it a reference to a previous hearing? 580 MR. PARRY: If I may just have a moment to answer that question. 581 I understand it has been filed. This is a previous decision of the Board. 582 MR. DOMINY: Thank you. 583 MR. PARRY: And Mr. Adams is bringing up a copy for the Board's assistance. 584 MS. NEWLAND: Mr. Chairman, just so we can assist the witnesses in assisting Mr. Parry, the witnesses have an excerpt of the decision from 497-01, and the settlement. Could you ask him to repeat the reference and describe what the reference is, as opposed to just stating what the exhibit number is. 585 MR. PARRY: As I understand it, it's EBRO-497-01's decision with reasons, and it's Exhibit C, section 9, and I'm referring to page 9 of that decision with reasons. 586 MS. NEWLAND: Thank you. 587 MR. BETTS: Has everybody found that reference? Okay, I believe we're ready to proceed, Mr. Parry. 588 MR. PARRY: Thank you, very much. 589 When we were talking about how the shared saving mechanism liability was to be apportioned between domestic and industrial consumers, we talked about what the proposal was, roughly a 98 percent to 2 percent ratio, and I've asked the witnesses to discover what the actual ratio of benefits was between those two rate classes. 590 And I'm now asking the witnesses if they would confirm that the decision with reasons -- and you'll see this in the third bullet on page 9, which indicates: "The eligible amount for each fiscal year would be allocated to the rate classes that correspond to the residential, commercial and the industrial sectors respectively in the same proportions as the actual net benefits are allocated to each such rate class for the purpose of the DSM plan for the fiscal year. The allocation will be made after the fiscal year using the company's actual performance for the fiscal year." 591 Would you agree that, given that statement in the decision, that it would be important that the proposed shared saving mechanism liability proportions reflect the true proportions of TRC benefits enjoyed by the various rate classes? 592 MS. SQUIRES: Yes. 593 MR. PARRY: Is it fair to say, though, at this point we don't know whether that's the case? 594 MS. SQUIRES: Well, subject to my completing the undertaking, I can't answer that, but -- I can't answer that until we have the undertaking. 595 MR. PARRY: I'd like to move on now to something that's been talked about briefly so far today, and that's changes in what have been called "assumptions," for now we know are the correct assumptions, or variables that were applied in the past. 596 And just as an overview, as I understand it, the fiscal 2000 audit revealed that approximately half of the savings from customer projects were erroneously -- were incorrectly attributed to the company's DSM efforts. Is that something you agree with? 597 MS. SQUIRES: The audit recommended a range of free-rider rates and recommended that a number in that range be used, but did not recommend how it would be applied to the retrospective -- to the year in question. 598 MR. PARRY: As I understand it, the evaluation report originally had an estimation of 5 or 10 percent in custom programs, and if you could just help me, the 5 percent was for which subcategory of custom programs? 599 MS. SQUIRES: I don't know if I can find the answers that quickly. 600 MR. PARRY: Well, perhaps for now I'll leave that, but depending on the type of custom program you're talking about, it was either 5 or 10 percent was the estimation? 601 MS. SQUIRES: That's correct. 602 MR. PARRY: And that was something that was indicated in the company's evaluation report; is that correct? 603 MS. SQUIRES: Yes. 604 MR. PARRY: And had -- at that stage when the evaluation report was prepared, had the company done an evaluation of its custom projects to determine the potential accuracy of that estimate? 605 MS. SQUIRES: I'm sorry, can you repeat the question, please. 606 MR. PARRY: At the time the company had done its evaluation reports, had the company done an evaluation of its past and potential future custom projects to determine whether or not that 5 and 10 percent estimation is accurate? 607 MS. SQUIRES: No. 608 MR. PARRY: And that was a number that was used in 1999 as well; is that correct? 609 MS. SQUIRES: That's correct. That was the same numbered that been approved in DSM plans, I think going back historically to the beginning of those programs. 610 MR. PARRY: And in 1999, the company was the party who audited or reviewed its evaluation reports and its custom projects; is that correct? 611 MS. SQUIRES: No, the company did not audit its own evaluation reports. 612 MS. WILSON: Fiscal '99, there wasn't an external audit of the evaluation plan. 613 MR. PARRY: So there was strictly an internal audit? 614 MS. WILSON: No, there was an external audit of fiscal '99, monitoring the evaluation plan. 615 MR. PARRY: And was that done was that an independent or non-independent audit for fiscal 1999? 616 MS. SQUIRES: Can you clarify what you mean by "independent". 617 MS. WILSON: It was done by an outside party. 618 MR. PARRY: Was that outside party under the direction of the company? 619 MS. SQUIRES: Yes. 620 MR. PARRY: Which is a different arrangement than occurred in fiscal 2000, -- 621 MS. SQUIRES: That's correct. 622 MR. PARRY: -- where the auditors were truly independent, they were not under the direction of the company? 623 MS. SQUIRES: They were under the direction of a committee comprised of three intervenor groups and the company. 624 MR. PARRY: In fiscal 2000, we, I think, now all agree that the 5 to 10 percent number for estimate was inaccurate; is that fair to say? 625 MS. SQUIRES: Yes, I think that's fair to say. 626 MR. PARRY: There has not been an audit of the same nature done for the 1999 year involving an auditor that answered to a committee as you described; correct? 627 MS. SQUIRES: That's right. 628 MR. PARRY: Is it possible that the findings of fiscal 2000 suggest that -- might suggest that the findings in fiscal 1999 about the custom project free ridership were not correct. In other words, can you extrapolate backwards from the year 2000 and re-examine 1999 -- 629 MS. SQUIRES: As I understand the evaluation work that the auditor did in 2000, they looked at the custom project that has occurred in 2000 and not before that year, so I don't think you can generalize without applying those findings back to 1999. 630 MR. PARRY: The nature of the programs of the custom projects, had they varied much between 1999 and 2000? 631 MS. SQUIRES: Not dramatically. 632 MR. PARRY: And had the way they were implemented varied much between 1999 and 2000? 633 MS. SQUIRES: I'm hesitating, because I haven't -- it's probably not my area of expertise in terms of the program delivery between 1999 and 2000. At a minimum, I could say that over the entire historical period of the delivery of these program, they have evolved year to year, so there have been changes, albeit perhaps not dramatic ones from year to year. 634 MR. PARRY: Any changes that you're aware of in the program that would lead to a drastic jump in free ridership or undetected free ridership? 635 MS. SQUIRES: Probably not a drastic jump, no. 636 MS. WILSON: I think free ridership is something that necessarily stems from the way a program is delivered. It's my understanding that it's the company's position that free ridership is an underlying assumption used in calculating net benefits, and it's a factor that is driven from a number of different underlying factors in the marketplace, and it's something that the utility really doesn't control or can't direct. It's the programs of certain customers that have a sign on their head that says, I would have done this anyway. 637 I think it's important to remember that the company negotiates these savings targets in the context of the consultative, and with the intervenor groups. 638 And when that negotiation takes place, there's an underlying understanding of what the free ridership will be in those programs. And so when the auditor found that free ridership in 2000 was something different than the 10 percent, it's a -- the question that has to be asked is Should that number be applied in setting the company's incentives? 639 The audit report really didn't address whether or not a number other than 10 percent should be applied to both the budget and the actual, and I think that's a key question in this discussion about free ridership. The auditor didn't take a position on whether or not a different number other than 10 percent should be used in both the budget and actual, and because the incentive that the company is given, which is in place in order to try and get the company to pursue DSM, is derived based on the difference between budget and actual any assumptions that would change in the actual should also be changed in the budget, because otherwise the company incentive is based on factors that are outside its control. 640 MR. PARRY: Would you agree with me that what is and what is not within the company's control is one of the subjects of debate at this hearing? 641 MS. SQUIRES: That's my understanding, yes. 642 MR. PARRY: It seems to me lots has been made of the fact that the consultative has or had approved of the budget numbers for F-2000, but is it not fair to say that the information they had available to them at that point in time was information provided by an external auditor that was under the direction of the company? 643 MS. SQUIRES: Are you talking about the 2000 DSM plan? 644 MR. PARRY: Well, when -- yes. When you look at the 2000 DSM plan, you have the consultative that has been provided with numbers from the fiscal year 1999; correct? 645 MS. SQUIRES: They've been supplied with historical DSM achievements and volume numbers from the company. They were certainly supplied with the auditor's report, which may or may not have covered every single one of the assumptions -- well, it didn't cover every single one of the assumptions that would be embedded in the 2000 plan. 646 MR. PARRY: At the time they come to this agreement, they don't have the benefit, obviously, of an independent audit of the kind that we have in fiscal 2000? 647 MS. SQUIRES: They have the benefit of the audit that we did conduct in 1999. 648 MR. PARRY: Which is an audit conducted by a party that's under the direction of the company? 649 MS. SQUIRES: Of Enbridge, yes. 650 MS. WILSON: Yeah, just to be clear, I think your question was at the time that the savings target was agreed upon by parties, did they have the information from the 2000 audit? Have I got that right? 651 MR. PARRY: That's -- well, it's a two-prong question, I suppose, so I've probably not worded it clearly enough. 652 One, did they have -- at the time of target setting for 2000, did they have the benefit of the 1999 audit numbers from the external auditor under the direction of the company, so I understand your answer to that is yes? 653 MS. SQUIRES: Yeah. Actually, now that I heard the question again, I realize I might have misspoke. 654 I can't remember the exact timing, but it's possible that parties did not have the 1999 final audit when we set the 2000 target, because the audit would have been occurring during 2000, so I stand corrected. 655 MR. PARRY: So at the time of this agreement amongst the consultative, then, they're, in essence, coming to an agreement when they're a bit in the dark; is that fair to say? 656 MS. SQUIRES: Well, to some degree, yes. 657 MS. WILSON: That's precisely the way the process works is that when negotiating the targets, information that's available to all parties at that point may not have been informed by some of these studies where -- which would have updated information. 658 So the targets are set based on a certain understanding about the values for these assumptions, which may change after the fact. 659 MR. PARRY: Now, if I could turn, then, to the concept of free ridership in custom programs, custom programs, as I understand it, you've described today being programs where you have, generally speaking, commercial or industrial customers who are needing to set up or utilize gas for a facility. And they need equipment and so on to accomplish their industrial goals, and the company helps with that process. 660 MS. SQUIRES: In the context of DSM, the company is typically helping them make decisions about energy solutions which may or may not involve new equipment and may involve behavioural changes or process changes. 661 MR. PARRY: When you go to a company, though, or a company comes to you, and says, Look, we're planning on, for example, building an extension onto our plant and we need to have hot water tanks, we need to have certain things that will require gas energy, isn't one of the things the company would be generally be asked is: Well, what are you planning on doing, what are you thinking of installing? Wouldn't that be one of the basic questions asked of a customer? 662 MR. RYCKMAN: That might be better for the panel that has the manager of the business markets to answer. 663 I think when we get into free ridership, it is somewhat subjective, in fact the auditor in the 2000 audit report of page 5-19 says, "As discussed, a final free-ridership determination for each sector depends on subjective judgments." 664 And I'm thinking back to a discussion I had with one of the energy management consultants and they had a particular customer that they couldn't understand why they weren't adopting some of the measures. They have gone through the calculations on their own and it didn't make sense and they talked to the customer, and what they found was the customer had gone through some calculations on their own and made some errors. 665 When the management consultant reported that out to them, they said, Oh, okay that makes some sense and went ahead and adopted those measures. How do you put a number on what influences that situation? The representative that had a long-standing relationship with that customer over time as well; so there's things like relationships, and there's all kinds of things that I think go into a business decision to hold the company out of harm's way that it can't influence and something that is highly subjective, I don't agree with. 666 MR. PARRY: I appreciate that, but at one point you seem to be suggesting I reserve the questioning for another panel and on the other side you seem to be providing evidence about it. I need to ask you some questions about it. 667 MR. RYCKMAN: I'm providing some evidence based on my experience and discussion with someone who's delivering these kinds of programs. 668 MR. PARRY: The point I'm trying to make is it would seem to me if you have a long-standing relationship with a customer, if you know what the customer is intending to do, yet you know what you can do for a customer, you would know -- and if your customer ultimately adopted what you thought was the best approach, then you would know or at least be able to provide some transparent demonstration of what may have happened but for the company's intervention with that customer. 669 MS. SQUIRES: I think you may or may not have, and I think -- again I'm not a sales expert, but in speaking with our sales staff, it often won't happen that a sales representative will discuss at length the less efficient option. I mean, they go in, trying to encourage a customer to adopt the most efficient option available to them, and likely don't spend a lot of time talking about the least efficient option. So that may or may not be apparent. 670 MR. PARRY: That's fair to say. I think that's the point I'm trying to make is, as I understand it, you've just said it's likely you're not talking about the least efficient option. In other words, it's likely we're not talking about what they would have done, and the point being raised here is that the company is in the best position to speak to its customers, and find out what they would have done. And when we look at the audit, we find out from the audit, and it seemed to be something of general agreement, that when an auditor goes and asks the company, What would you have done, we come up with a greater number than the 5 to 10 percent originally estimated. 671 And it doesn't seem to be that anybody is suggesting the 5 to 10 percent numbers are still correct. It seems to be now the retroactive knowledge of those numbers are incorrect. 672 The question then becomes: Why couldn't have those questions been asked ahead of time? 673 MR. RYCKMAN: I think it's still challenging to do, because if the customer wants to become aware of why you're asking these questions and understands that it relates to an incentive, it gets challenging to get at the real issues. And once again, they're subjected to a number of influences out there; to suggest that we can pin down with a great degree of accuracy here what free ridership is -- and it's information that is found out after the fact. It's not a performance measure; it's an assumption. 674 MR. PARRY: But it doesn't seem to me that at that customer would be disentitled to an incentive because they say they were going to do it anyway, and that incentive can be recovered through the LRAM. 675 So it seems to me that the logic of what you're saying is, well, look, we don't want to say to customers, well, you'll get this incentive if you adopt this mechanism. And there seems to be this fear, well, then, they're not going to tell us the truth about whether or not they would have done it ahead of time. 676 MS. SQUIRES: I think the point that needs to be made here is that I think, as Mr. Ryckman tried to explain earlier, a successful sales transaction leaves a customer believing that they made the decision because they came up with the idea. We want customers to feel good about the choices that they make and the last thing we want to do, either through obvious questions about who influenced you to make this decision or by after-the-fact surveys, we don't want to create that discomfort and that uncertainty in the customer's mind. We want to have positive feelings about the decision that they made and that they made it themselves. 677 So I guess my point is that it's a very difficult thing to measure by either means. 678 MR. PARRY: Well, getting to that, you seem to be suggesting that a customer is less likely to adopt a more conservation-friendly approach if then don't think it's their idea. 679 MR. RYCKMAN: I think the issue is, you know, we're out in the marketplace, and we're serving needs, and sometimes those needs are more easily met than other times. I mean, that's the nature of business. 680 If there was an ability to go out there and just get the easy ones, then all of us would be quite wealthy. But the logic of the proposition that was just put forward was that we don't want to scare away the customer by telling them, What you're proposing isn't as energy efficient as what we can propose; why not take this instead. And there seems to be a fear of doing that, and I'm trying to understand the logic behind it. 681 MS. SQUIRES: I wouldn't say there's a fear behind doing that. I think in each circumstance and each substantial project is addressed by a salesperson or sales representative that tries to gauge that level of awareness and that level of willingness up front and whatever the situation demands in terms of a sales approach, that's what gets applied, whether it's sort of a soft sell or a more aggressive sell. 682 MR. PARRY: The next question I have is: If there is an expressed resistance to the approach I suggested because of a fear or concern about an impact on a sales relationship, has the alternative approach that's been suggested by me ever been attempted? In other words, has there been an attempt to do the job differently so one can determine whether or not one's concerns are justified? 683 MS. SQUIRES: Largely as a result of the experience in the 2000 audit, Enbridge is currently looking at ways to measure free ridership in a more -- in a more real-time way. I can't speak -- we haven't implemented anything at this point in time, but because of all the discussion and attention to this matter, we are looking at ways to measure it more accurately, I suppose. 684 And I'd like to add to that, that part of this examination of ways to measure these things, we've also acknowledged - and I think the point should be made - that in addition to a discount for free ridership, it could be argued that there are lots of spillover effects of the energy efficiency programs that are promoted, not just in custom projects but across the Board, and it's quite likely that a number of our customers, once they learn about an energy-efficient technology or behaviour, that they actually implement it in other areas of their facilities and those might turn out to be efficiency gains that we never hear about and never take credit for. 685 I just make that point to illustrate that there are mitigating effects of the work that we do that we haven't actually attempted to take credit for at this time. 686 MR. PARRY: I find it very encouraging that Enbridge is currently attempting to provide better accurate real-time estimates of free ridership, but the question becomes, if it's possible to attempt that now, why wasn't it attempted in the past? 687 MS. SQUIRES: I'm sorry, could you repeat the question, please. 688 MR. PARRY: Well, it seems that if it is currently possible to make attempts to more accurately identify real-time free-rider participants now, and that's a process that is currently taking place, what was to stop Enbridge from making those efforts in 1999 and 2000? 689 MS. SQUIRES: Well, I think I could characterize both the 1999 and the 2000 audit as learning experiences for all parties, including the company. I do recall going back two or three years, or even four years, in discussions amongst the consultative group about free ridership and whether 10 percent was the right number and, in the early years, coming to the conclusion that this was a good enough number to use at the time. 690 Through the experience of the 2000 audit, that opinion started to shift, and it's only as a result of that that we've decided to allocate resources to improving the methodology. 691 MR. PARRY: Now, looking forward, we've heard estimates of free ridership for the fiscal year of 2000 at somewhere around 48, 49 percent, that being the middle range, I think, is the term that's been used. But looking forward to future budgets, is the company suggesting that the value be used or some lesser value? 692 MS. SQUIRES: We're suggesting in our 2003 -- well, not in the plan, in the settlement that was -- partial settlement that's before the Board for 2003, we've adopted a free-rider rate of 30 percent in the custom projects. 693 MR. PARRY: And I think based on what I've heard today, is it fair to say that any budget calculation of free ridership is, to a certain extent, a subjective exercise? Does that fairly summarize your evidence? 694 MS. SQUIRES: Yes. 695 MR. PARRY: And the company gains financially if that subjective exercise results in a relatively lower number than some other competing numbers. 696 MS. SQUIRES: The company does not gain financially if the free-rider values are locked in and helps -- we use the term "symmetrical", equal in the budget and actual. 697 MR. PARRY: And perhaps if I could put it this way: that there would appear to be differing opinions on what the appropriate budget amount should be if 30 percent represents a compromise by some of the interested parties; is that fair to say? 698 MS. SQUIRES: That's my understanding of other parties' positions, yes. 699 MR. PARRY: Were higher numbers adopted, such as 49 percent as a budget, that would make it harder for the company to exceed the budget? 700 MS. SQUIRES: If the target was -- if the budget volumetric target was adjusted accordingly to that higher free-rider rate, no, it wouldn't make it harder. It would be the same level of effort with the same dollars to achieve fewer volumes. 701 MR. PARRY: In the fiscal year of 2000, and before that, for that matter, were there any disincentives for sales staff of the company to prevent them from seeking out free riders, known free riders? 702 MS. SQUIRES: Frankly, I don't believe that when the sales staff is out addressing customers and trying to promote DSM that they're thinking about free riders. They're thinking about promoting energy efficiency and getting their customers to adopt the most efficient option. 703 So I don't think it's a very front-of-mind concept for the sales staff. 704 MR. PARRY: Do the sales staff receive financial incentives for sales? 705 MS. SQUIRES: My understanding is that the sales staff performance objectives are based on gross savings targets, so free-rider rates would not have an implication on that. 706 MR. PARRY: Is there any incentive for sales staff to promote company DSM programs; is there any financial incentive? 707 MS. SQUIRES: To the extent that they have DSM targets in their performance objectives, yes. 708 MR. PARRY: And I should say I'm specifically referring to custom programs when I'm talking about sales staff, so that we -- 709 MS. SQUIRES: Yes. 710 MR. PARRY: -- limit the inquiry. So they have some incentive, then, to promote products or mechanisms that are in support of the company's DSM program? 711 MS. SQUIRES: Yes, they have those objectives as well as other non-DSM type objectives. 712 MR. PARRY: They receive a financial benefit for getting a company to adopt a DSM measure? 713 MS. SQUIRES: I can't speak to the financial aspects of their compensation. 714 MR. PARRY: But there is certainly no disincentive for an employee to seek out free riders of DSM measures. 715 MS. SQUIRES: No, as I said, I don't think they're considering free riders in the first place. 716 MR. PARRY: I just want to recap on one area of your evidence that I'm not sure I understood, so I just want to try and digest it. 717 I had thought that if the company, for example, grossly underestimated the number of free riders in custom projects, that that would make it easier for the company to exceed goals. In other words, if you set lower goals, it would be easier to exceed them, and you seem to disagree with that point, and I didn't understand the point you were making, so I wonder if we could return to that. 718 MS. SQUIRES: Sure. Let's use some fictitious numbers for an example. 719 If your free-rider rate is at 10 percent and you go after a hundred cubic metres of gross volumes, then the net volumes are 90 cubic metres. Similarly, if you change your free-rider rate to 40 percent, then your net savings are going to be 60 cubic metres. 720 In either case, you still have to go after the 100. The free-rider rate is really used as an adjustment or a correction to the gross number that you achieve. So the sales staff are still going after -- they still have to undertake the same level of activity to get the 100 cubic metres, and it's only an after the fact adjustment to that that gives you your net-of-free-rider impact. 721 It still costs the same amount of money and it's still the same level of effort to achieve... 722 MR. PARRY: But wouldn't changes in your assumptions affect what goals you use? 723 MS. WILSON: Yes, they definitely would. 724 MS. SQUIRES: Yes. 725 MS. WILSON: So just to clarify on that example, if you're setting your target with an understanding that the free-ridership rate would be higher than 10 percent, that is, for example, 40 percent, then your net savings goal is 60; whereas if you use the 10 percent in your target, then your net savings goal would be 90, which, as you would say, is a more difficult number to exceed than using 40 percent free ridership. 726 So when the targets were negotiated between parties and the company, and for 2000, the target, negotiated target was 42 million cubic metres, there was an understanding at that time that free ridership would be 10 percent. 727 And I would suspect that had there been an understanding that the 10 percent would change to something different, that the target at that point would have been -- would have been negotiated as a different number. So once new information comes to light, it's important it be applied symmetrically, or wait and apply it in a prospective manner. 728 MS. SQUIRES: Perhaps to summarize, I think it can be said that the company undertook its DSM plan with the best information available at the time the plan was set. 729 MR. PARRY: I want to turn to another area where there's some argument about what was in the company's control and what wasn't and that's the domestic hot water tanks swap program I think it's referred to as. 730 As I understand that correctly, just in layman's terms, that deals with turning down the thermostat on people's hot water tanks so that less gas is used over the long haul. Is that the essence of the program? 731 MS. SQUIRES: Yes, it is. 732 MR. PARRY: And when the companies made an assessment of the potential benefits of this program, there was a calculation of how much would be saved over the course of a year, and then a variable used to assess on average how many years one of these tanks would last. And the original variable used was 15 years, so we have X amount of dollars of savings per year over the life span of 15 years. That was the original calculation; is that right? 733 MS. SQUIRES: Yes, and the future year benefits are discounted to an NPV. 734 MR. PARRY: And that calculation was erroneous, because most of the adjustments to these hot water tank thermostats don't occur in year 1, and the average is roughly halfway through the life cycle of water tank. Is that -- it's probably an oversimplification, but is that the general concept behind why that calculation was wrong? 735 MS. SQUIRES: Yes, that's an issue that came out through the 2000 audit that was identified through that process, and that is a position that a number of parties took. 736 MS. WILSON: Just -- 737 MR. PARRY: The original calculations or propositions or calculations put forth by the company? 738 MS. SQUIRES: The original calculation put forth by the company and the calculations embedded in our readvised claim assume the full 15 years. I think it's fair to say, though, as Mr. Ryckman described in his evidence this morning, that's a specific example of a correction, if you will, that through the discussions leading up to and at the settlement conference in December that we recognized as probably being an oversight on our part, so we included a correction for that type of adjustment in our thinking when we -- the proposed settled amount. 739 MR. RYCKMAN: And that was the $1.2 million that took us from 6.5 to 5.3 million. 740 MR. PARRY: And that -- well, I'll turn to that in a second. 741 Admittedly, that was an honest oversight by the company which was stated this morning. But would you agree with me that that was an oversight or that was an issue that was within the company's control at the time the calculations were made? 742 MS. WILSON: I would characterize that as not something within the company's -- well, it's really the correction of an assumption on the age of the equipment and, therefore, the life over which the savings will be generated. 743 MR. PARRY: That may be the wrong way of wording the question. Maybe it's better to ask: Was it not the company who was in the best position to know what the correct assumptions ought to have been? 744 MS. SQUIRES: That's correct. 745 MR. PARRY: And the correct assumptions about the total resource cost benefits for the domestic hot water program, can you assist me with what that original assessment of the actual total resource cost was? 746 MS. SQUIRES: I don't believe I have a reference to that exact number at this time. The closest thing would be the -- an estimate of the total resource benefits arising from all of the residential programs. That's all I have available right now. 747 MR. PARRY: Well, would you undertake to provide that number? 748 MS. SQUIRES: Okay, can you repeat it one more time, please. 749 MR. PARRY: Certainly. 750 The original estimate by the company of the actual TRC benefit from the domestic hot water tank set point program. 751 MS. SQUIRES: Okay, I'll undertake to do that. 752 MR. PARRY: Just further, I'm going to add to that. Then I would also be looking to see what the revised estimate of the actual TRC benefit was from the domestic tank set point program after putting in the new, presumably more accurate variables. 753 MS. SQUIRES: Okay, the second part of that request is not something the company has already calculated or filed. We can do the calculation, but I want to be clear that that hasn't been done by anything that's already been released by us. 754 MR. PARRY: Thank you. That would be helpful, if you would undertake to do that calculation. 755 MR. MORAN: Mr. Chairman, that would be Undertaking J.1.3. 756 MR. PARRY: The obvious goal is to determine what the difference is of the delta between those two numbers. 757 MR. POCH: Mr. Chairman, in the interests of being helpful, I think if my friend is only after the difference those two, that is on the record, at least, and I think Ms. Squires can take you there if you simply look at the spreadsheets Mr. Millyard did in his report. That's part of package K.1.1. It's a reconciliation report. 758 MR. MORAN: It's tab 84. 759 MR. POCH: It's table 2, which is page 5 of that reconciliation report. 760 MS. NEWLAND: Mr. Chairman, in the binders that the company provided to you, that would be found under tab 4. 761 MR. BETTS: Under tab... 762 MS. NEWLAND: A.4. 763 MR. MORAN: A.4. 764 MS. NEWLAND: A.4. 765 MR. BETTS: Section A, okay. 766 And does Mr. Parry have a copy of that as well, that reference? 767 MR. PARRY: If I may just have a moment. 768 Could you repeat the reference, please. 769 MS. SQUIRES: This is one of the exhibits that the company filed last week under A.7, tab 5. I believe it's schedule 4. It's the Enbridge Consumers' Gas fiscal 2000 DSM audit, SSM replication final report. 770 MR. PARRY: I don't have it at my fingertips, but I wonder if you could tell me what that delta number is. 771 MS. SQUIRES: Yes -- well, it depends. There's two possible numbers, depending on whether you're starting from 15 years or 12 years, because there are -- different parties had different positions on that. 772 Going from 15 years to a half life of 7.5 year, which is exactly half of 15, the impact on SSM is $990,000, a decline in SSM of $990,000. 773 MR. PARRY: And the other number arrived at, then, is based on assessment of the changes in the thermostatic occurring at approximately an average of 6.3 years? 774 MS. SQUIRES: That's correct, and that result is a 1.16 million reduction in SSM. 775 MR. PARRY: And the reason for the different estimate in the number of years occurs is because of the differences in estimates about the life span. 776 MS. WILSON: Perhaps I could just clarify that. There's two elements to the program. One of the elements is that the temperature is set back on new water heaters coming out of the manufacturer, so those are new tanks, and the assumption on new tanks is that they have a 15-year lifespan. 777 And then there are tanks on which the temperature is set back by -- during service call, so those are tanks, existing tanks that are on customer premises where the temperature is adjusted, so those are the tanks for which one would reasonably expect to be a shorter remaining life span over which the DSM measure would have effect. 778 MR. PARRY: So the $990,000 figure does not take into account, then, those older tanks and their life span? 779 MS. SQUIRES: It does. It takes into account only the effect on the older tanks. 780 MR. PARRY: I just want to now turn to -- 781 MR. BETTS: Mr. Parry, could I just ask how long you anticipate continuing with this panel, just judging lunch breaks and things. 782 MR. PARRY: One final area, which I expect maybe five minutes. 783 MR. BETTS: Great. 784 MR. MORAN: If Mr. Parry could confirm if he still needs an answer to Undertaking J.1.3. 785 MR. BETTS: Did this response satisfy that requirement, Mr. Parry? 786 MR. PARRY: If I may have a moment, Mr. Chairman. 787 Yes, the response is fine. 788 MR. MORAN: So we can strike that undertaking, Mr. Chairman. 789 MR. BETTS: Thank you. 790 MR. PARRY: I just wanted to turn, then, to some general conceptual points and the various positions on retroactivity and symmetry. 791 When we're dealing with those issues, what we were dealing with in terms of retroactivity is how we deal with the revelation that one of the underlying assumptions was incorrect and has been revised. Is that the general principle behind retroactivity? 792 MS. SQUIRES: Yes. And it would appear that all concerned parties agreed that input variables that are otherwise the company's control or were outside the company's control should not be something that the company should be held responsible for? 793 MS. SQUIRES: That's Enbridge's position. 794 MR. PARRY: And the position of parties like Energy Probe, the two parties that have not endorsed the settlement proposal, is that the company should be held accountable for factors that were within the company's control. Is that a fair outline of the dispute? 795 MS. SQUIRES: That's my understanding of their position. 796 MR. PARRY: So the one issue, then, is what was and what was not in the company's control? 797 MS. SQUIRES: Yes. 798 MR. PARRY: And then the other issue is how to deal with both changes in variables, the ones that were and were not in the company's control. 799 Just to go through the possible ways of dealing with changes, there has been -- I read a term called the no-no approach, and I'm not sure if that's a term in common usage or not. So I'm just going to go through what I understand to be the one possible way of dealing with the variations. One possible way of dealing with it is basically pretend that the revelation did not occur and the old variables should apply both to the budget and to the actual. Is that -- 800 MS. SQUIRES: The effect is correct, but I don't think it's correct to say that the people that endorse that principle are suggesting that the corrections did not occur. 801 That principle is consistent with the idea that new information should be applied to future years. 802 MS. WILSON: In other words, yes, new information that comes to light should be taken into consideration in the target setting, the savings target setting exercise for some future period for which the targets haven't been set yet. 803 MR. PARRY: The other possible approach, then, is to assume that you - the company, that is - knew the correct input value all along; in other words, that you insert the correct input value into the budget as well as into the actuals. 804 MS. SQUIRES: I believe that's what we're characterizing as a yes-yes application, but again, it doesn't necessarily mean that the company knew about the correction all along. Again, it's a new learning, and that's some parties' view about how it should be applied. 805 MR. PARRY: In recent years, had the company adopted the yes-yes application? 806 MS. SQUIRES: In situations where the company acknowledged that there was some sort of clerical error or arithmetic error or, as we characterized the measure life just a few minutes ago, sort of an honest mistake type of error, we have made those types of corrections. 807 MR. PARRY: And you would characterize the domestic hot water tank error as something falling within that category? 808 MS. SQUIRES: That's how we came to see it by last December. 809 MR. PARRY: And has the company, in its settlement proposal, then, adopted the yes-yes approach to the domestic hot water tank error? 810 MS. SQUIRES: In which settlement? 811 MR. PARRY: In the proposed settlement that's before -- or in dispute before the hearing today? 812 MS. SQUIRES: The half life, the 6.3 measure life has been adopted in that -- in the company's budget and target for 2003. 813 MR. PARRY: For, sorry? I'm talking about in terms of dealing retroactively for 2000. Has the company taken a yes-yes approach to the domestic hot water tank? 814 MS. SQUIRES: I'm struggling a little bit, because for future years embedded in the settlement proposal is a no-no policy for new information, and in this case, we've just -- we have adjusted our budget amount only. We don't have actuals yet, for 2003. 815 MR. RYCKMAN: It is reflected in our acceptance of the proposal, so it was a consideration as we considered that number. So once again, there was the original 6.5 and then there was the $1.2 million correction. So it is considered within the acceptance of our proposal. 816 MR. PARRY: Would you agree that this yes-yes approach provides the company with a greater incentive to more accurately determine its input variables? 817 MS. SQUIRES: I think there is an incentive to accurately determine input variables in any case. 818 MR. PARRY: In terms of relative degrees of incentive, would you agree that it's a greater incentive under the yes-yes theme than under the no-no scheme? 819 MS. WILSON: The company adopts a yes-yes approach in certain -- for certain situations, not for things that it assumes are underlying assumptions. 820 So I guess it's -- they sort of fall into different categories, so your question is difficult to answer. 821 MR. PARRY: I have one broad final question, then. In principle, do you believe the company should be rewarded to gas savings that did not actually occur? I should say, as a result of the company's DSM program. 822 MR. RYCKMAN: We're incented to build DSM, to develop programs, to develop programs and to try to take them through the implementation. 823 MR. PARRY: Assuming that the incentives occur, despite the absence of savings, would you agree that the party that bears the cost of those savings would then be the customer? 824 MS. SQUIRES: In that case, that would be the effect, but I think I should point out as well that in the company's -- the company's principle with regard to correcting program assumptions allows for that effect to be mitigated as years go by. We're proposing that the company's position is that new information and new learnings be applied to prospective years, so there's always, I suppose, a natural correction built into that from one year to the next. 825 So over time, that impact on ratepayers nets itself out. 826 MR. PARRY: Over time it would lessen, in other words. Over time you don't foresee a rebate for these -- 827 MS. SQUIRES: Well, to the extent that our assumption may be too high or too low, it could go in either direction, but that's why I say it would net each other out. 828 MR. PARRY: Which would be an assumption that you can't predict over time, how things are going to net one way or the other? 829 MS. SQUIRES: Not with specific accuracy, no. 830 MR. PARRY: Thank you. 831 MR. BETTS: Does that conclude your questioning, Mr. Parry? 832 MR. PARRY: Yes, Mr. Chairman. 833 MR. BETTS: Are there any other intervenors that would like to cross-examine this panel? 834 Any questions from Board staff? 835 MR. MORAN: Just a brief reply, Mr. Chair. 836 CROSS-EXAMINATION BY MR. MORAN: 837 MR. MORAN: Panel if you could just turn up Exhibit K.1.2 for a moment, please, and that's the table. I just want to explore the role of the free ridership as an example of assumptions. 838 First of all, before I ask that question, the assumptions that we -- that you've built into the budgeting process, that's what we see in the evidence at Exhibit A.7, tab 3, schedule 8, program by program. 839 MS. SQUIRES: Yes. 840 MR. MORAN: Let's just take as an example line 1, column 2 on the target in Exhibit K.1.2. 841 MS. SQUIRES: Yes. 842 MR. MORAN: The approved target is 42, 10 to the power of 6 M cubed. As I understand it, the free-ridership assumption is built into the development of that target? 843 MS. SQUIRES: That's right. 844 MR. MORAN: Then when we see the actual for that year which, if I recall the answer to an earlier question, was 58.9 as set out in Exhibit A.7, tab 3, schedule 1, page 5 of 5, the same free-ridership assumption is built into the calculation of the actual? 845 MS. SQUIRES: That's correct. 846 MR. MORAN: All right. So if we wanted to test the effect of changing one of the assumptions, then an easy way to do that would be, for example, on free ridership, to adjust the free-ridership assumption for both of them; right? And then you could see what the resulting difference would be. 847 MS. SQUIRES: Yes. If you adjusted the free-rider rate, that would give you different net savings amounts, different cubic metres savings amounts. 848 MR. MORAN: Right. But you would have to do the calculation just to see how significant that was. 849 MS. SQUIRES: Right. 850 MR. MORAN: If we turn to the audit report for 2000, which is in Exhibit K.1.1, tab A.3. If you turn up page 5-23. 851 MS. SQUIRES: Okay. 852 MR. MORAN: At the top of that page, there's table 5-17, suggested ranges for effective free-rider assumptions, and then further down there's a recommendation in relation to the -- in relation to free-ridership assumptions; right? 853 MS. SQUIRES: Yes. 854 MR. MORAN: And as I understand it, it's recommending that higher free-ridership assumptions than the one that's used in the prefiled evidence used going forward. Is that essentially what it's suggesting? 855 MS. SQUIRES: It's making a suggestion that the current free-rider rate of 10 percent be replaced. It doesn't actually reference in which plan and at which point in time it should be replaced. 856 MR. MORAN: Right, but if you were going to do the replacement, it would be in that table, for example, that is correct we see in the prefiled evidence at Exhibit A.7, tab 3, schedule 8? 857 MS. SQUIRES: That's right. 858 MR. MORAN: Now, I assume that all these calculations are set up in spreadsheets; right? 859 MS. SQUIRES: Yes. 860 MR. MORAN: Would it be particularly difficult for you to take the recommendations as we see it on page 5-23 of the audit report and use those to replace the free-ridership assumptions that we currently see set out for year 2000 as an example? 861 MS. SQUIRES: Some of that is already set out in the reconciliation report prepared by Mr. Millyard, which -- which presents the different positions of the different intervenors on different free-rider rates, and in fact, I believe the assumption that was used on that table was the mid-point of the range, which would be the 49 percent, so that comparison is there. 862 MR. MORAN: And if we look at -- going back to the table set out in Exhibit K.1.2, if we take the approved target for year 2000 at 42 and the actual at 58.9, would it be possible to do a recalculation of those two numbers using recommendations in the audit report? 863 MS. NEWLAND: Mr. Moran, just to point out, the auditor on that page of the audit report that you've referenced doesn't actually recommend -- make any recommendation with respect to what point in time that change should be made, so you're just assuming -- when you say recommendation, you're saying take the mid-point, and you're asking them to say what the effect of 2000 is; is that correct? 864 MR. MORAN: Yes, Mr. Chair. I wasn't assuming that the recommendation here was actually to be applied to the year 2000. I'm just exploring with the witnesses the possibility of taking these recommendations and applying them to the year 2000 numbers so we can get a test of what the real impact might be of dealing with that assumption. 865 MS. SQUIRES: If you're talking about just the mid-point of the range, that is laid out in the reconciliation report that I've prepared. 866 MR. MORAN: Could you show me where that is, please. 867 MS. SQUIRES: Sure. That is one of the items that the company filed last week under A.7, tab 5, I believe it's schedule 4. 868 MR. MORAN: So in the black binder, Exhibit K.1.1, we would see that at tab A.4? 869 MS. SQUIRES: Yes, tab A.4. 870 MR. MORAN: Thank you. Could you give me the page reference, please. 871 MS. NEWLAND: Page 5. 872 MS. SQUIRES: Table 2 on page 5. 873 The analysis that I believe you're looking for is captured in the last few lines of that table beside the heading, "Custom Projects," and there's two different positions shown there. 874 The positions of Energy Probe and CME suggest that a change should be made to the actual free-rider rate but not the budget free-rider rate, so I guess we call that an asymmetric change, if you will, and the impact on the company's SSM claim of 6.5 million would be a reduction of 4.499 million. 875 MR. MORAN: All right. That's a little bit different from what I'm asking you, I think, because what I was asking whether you could do the same kind of calculation for the budget, for the target figure of 42. As I understand, what you've just showed me shows a recalculation to the actual, right? 876 MS. SQUIRES: That's correct. 877 MR. MORAN: But it doesn't show a recalculation with respect to the budget. 878 MS. SQUIRES: Yes, we can do that for you. 879 MR. POCH: Again, to be helpful, if you look a little farther on in appendix B, page 3, it will be dash 4. If I've understood my friend correctly, he's asking for a symmetrical adjustment, that is, you adjust it in the budget and the actuals and see what the difference is? 880 MR. MORAN: That's correct. 881 MR. POCH: I believe that's been done there. 882 MR. MORAN: Sorry, could I have the reference again. 883 MR. POCH: Sorry, it's the same exhibit, and it's at appendix B of that exhibit, page 3, and it's table B-4. 884 MS. WILSON: Yeah, I believe there it shows, if I'm reading this correctly, that the SSM would be reduced by approximately $200,000. If you apply the mid-point of the range to budget and actual, which would be characterized as a yes-yes in the nomenclature we've been talking about this morning. 885 MR. MORAN: All right. So if I'm to understand table B-4, as we're discussing it, the numbers that we see on that table would be the difference of the SSM claim that results from recalculating both the target and the budget number for 2000; right? 886 MS. SQUIRES: That's correct. 887 MR. MORAN: Based on the recommendations as they were set out in the recommended free-ridership number set out in the audit report? 888 MS. SQUIRES: Yes. 889 MR. MORAN: Thank you. Then I don't need that undertaking and we have the answer then. 890 Those are all my questions Mr. Chairman. 891 MR. BETTS: Thank you. 892 Any re-examination, Ms. Newland, or would it be appropriate to break at this point? 893 MS. NEWLAND: I have just a couple of questions by way of re-examination, but we can break. I'm in your hands. I'm ready to proceed right now -- 894 MR. BETTS: If your panel is up to it, and you are, that way we could allow the panel to leave their -- change seats after lunch. 895 MS. NEWLAND: Certainly. Why don't we do that. 896 MR. BETTS: Why don't we do that. 897 MS. NEWLAND: Thank you. 898 If I may just have one moment to collect my notes. 899 RE-EXAMINATION BY MS. NEWLAND: 900 MS. NEWLAND: Ms. Squires or Mr. Ryckman, whoever wishes to take this one, in an earlier questions to you, Mr. Parry, on behalf of Energy Co., stated that the auditor had found mistakes or oversights with respect to the applicable free-rider rate for custom projects, and we've had a lot of discussion about that issue, but I'm just focusing on Mr. Parry's characterization of that particular finding of the auditor as a mistake or oversight. Would you agree with that characterization? 901 MS. SQUIRES: Are you talking about the free-rider rates? 902 MS. NEWLAND: Yes. 903 MS. SQUIRES: No, I wouldn't agree with that. 904 MS. NEWLAND: How would you characterize it? 905 MS. SQUIRES: I would characterize the new information on free-rider rates as a new learning, something that we didn't know at the time the plan was made, nor did we know during the year when the programs were being delivered. 906 MS. NEWLAND: And in Mr. Ryckman's direct testimony, he referred to the company's principles as being set out in a document that had been filed with the Board, and I believe that was the revised -- the company's revised SSM claim for 2000, and that, Mr. Chairman, is in tab 5 of the black binder. 907 And so my question, Mr. Ryckman and Ms. Squires, is: What is the principle that would apply to that kind of a new learning at the company? What principle does the company endorse with respect to learnings that fall out of an audit report after the start of a fiscal year? 908 MS. SQUIRES: The company's position on how that information is to be applied is that it should only be applied in the first available year for which targets and budgets have not yet been set. 909 MS. NEWLAND: And the reason for that, again, is? 910 MS. SQUIRES: Because if it's applied to any past year, that could penalize or reward the company for information that it did not have available at the time when it was delivering its programs. 911 MS. NEWLAND: Thank you. 912 Can the influence of those factors that affect free ridership change over the course of a fiscal year from the beginning of a program, the time of the program -- the DSM plan is completed, such as a free-rider rate that was appropriate going into the fiscal year might no longer be appropriate at the end of the fiscal year? 913 MS. SQUIRES: It's -- in general, I think it's safe to say that free-rider rates don't change that quickly, and the reason I say that is because there is a whole life cycle aspect to custom programs in terms of how they're designed and how they're delivered, and that doesn't change overnight. 914 So unless there's some market condition that changes drastically and immediately, it's unlikely that free-rider rates would change to any great degree during the course of the year. 915 MS. NEWLAND: And maybe this question -- I would have thought something as volatile as gas prices could change free-ridership rates throughout the course of the fiscal year. 916 MS. SQUIRES: That -- depending on the extent of that type of change, I think that's -- there's a possibility for some influence there. But again, I would revert back to the nature of the life cycle of the program and the way in which decisions are made in the business market customers, especially for big investments. 917 Even with a sudden increase in gas prices, it's unlikely that a large industrial commercial customer would be able to make a decision that quickly to make a significant investment in energy efficiency overnight. 918 MS. NEWLAND: Thank you for that clarification. 919 Mr. Ryckman, in your response to a question from Mr. Parry again on free-rider rates, you made a distinction between performance measures on the one hand and assumptions -- program assumptions that are input on the one hand, and I don't think I understood the distinction you were making and why you were making it, why it was important. 920 MR. RYCKMAN: Well, I think it's important, because assumptions that underpin an analysis may be something that we can't influence, and that's the case with free ridership. Performance measures are things that are within our control, and we can try to drive behaviour to enhance performance, so I think they're distinct items. 921 Assumption is something that's embedded in the calculation of performance. Performance is a reflection of our efforts over the course of the year. 922 MS. NEWLAND: Thank you. 923 And, Ms. Squires, this is my final question, and I'm hoping I can articulate this question correctly, but Mr. Parry in his questions to you regarding the allocation of TRC among customer classes, he asked you a number of questions about that. I'm not sure it's clear on the record how the company allocates the SSM burden, if I may, the SSM that is recovered from customer classes versus how TRC may be allocated -- TRC benefits may be allocated among customer classes. Is it done the same way? 924 MS. SQUIRES: The methodology for allocating the SSM amount is to look at the actual TRC benefits that were enjoyed by the different rate classes. So you take your starting point SSM, whatever that amount is, and you divide it up on the basis of the TRC benefits that were enjoyed by the customers that participated in those programs. 925 So in other words, if 30 percent of the benefits were enjoyed by rate 1 customers, then rate 1 customers would pay for 30 percent of the SSM. 926 MS. NEWLAND: Okay. I believe that clears it up. Thank you very much. 927 Those are my questions, Mr. Chairman. 928 MR. BETTS: Thank you, Ms. Newland. 929 The panel has no questions of this panel, and I'll ask you, Ms. Newland, do you intend to lead any more evidence on this issue after the lunch break, or does this conclude -- 930 MS. NEWLAND: That was not our intention. This will conclude our case, Mr. Chairman, unless the panel required further information -- 931 MR. BETTS: No, not at this point. 932 MS. NEWLAND: -- on 9.6. Of course, we have yet to put our case as to the other nine issues. 933 MR. BETTS: Right. Right. 934 Thank you. Then certainly we can excuse you during the lunch break, and thank you very much for your assistance on this particular issue. 935 We will break now for lunch, and I think in the interest of time -- we have pressed it -- we will try and be back in just over an hour, let's say at 2:15. We will reconvene at that point with the panel of witnesses from CME. 936 MS. NEWLAND: Thanks. 937 MR. BETTS: With that, we will stand adjourned. 938 --- Luncheon recess taken at 1:15 p.m. 939 --- On resuming at 2:16 p.m. 940 MR. BETTS: Please be seated, everyone. 941 Welcome back, everybody. Were there any preliminary matters that arose during the lunch break? 942 I see none. 943 Then Mr. MacOdrum, would you introduce your panel. 944 MR. MacODRUM: Thank you, Mr. Chairman. And I've moved positions, courtesy of the applicant. And perhaps the witness, Malcolm Rowan, could be sworn. 945 MR. BETTS: Thank you. 946 CME PANEL ON ISSUE 9.6: ROWAN 947 M.ROWAN; Sworn. 948 MR. BETTS: And the witness has been sworn. 949 MR. MacODRUM: Mr. Chairman, although Mr. Rowan has participated in proceedings of the Board in recent years, he has not previously testified before the Board, and so I do want to briefly refer to his qualifications. 950 MR. BETTS: Please do. 951 EXAMINATION BY MR. MacODRUM: 952 MR. MacODRUM: Mr. Rowan, do you have a copy of a one-page document filed as tab 6 of Exhibit L, tab 4, entitled "Malcolm Rowan, Curriculum Vitae"? 953 MR. ROWAN: Yes. 954 MR. MacODRUM: This document indicates that you were a Deputy Minister with the Ontario government for 15 years. It states that you were the Deputy Minister of Energy. For how many years were you the Deputy Minister of Energy? 955 MR. ROWAN: For nearly five years, from 1976 to 1981. 956 MR. MacODRUM: During this time, did energy conservation programs form a significant part of the Ministry's mandate and budget? 957 MR. ROWAN: Yes. 958 MR. MacODRUM: And were you responsible for the review of such energy conservation programs to determine their efficacy and cost effectiveness? 959 MR. ROWAN: Yes. 960 MR. MacODRUM: As a result of such reviews, were you required to form judgments and to make decisions with respect to such programs? 961 MR. MacODRUM: Yes. 962 MR. ROWAN: And did you explain and defend such decisions to the Minister in the government's internal expenditure approval process and in the estimates process in the provincial legislature? 963 MR. ROWAN: Yes. 964 MR. MacODRUM: How many years have you been involved with Enbridge's DSM consultatives? 965 MR. ROWAN: Approximately 8 years. 966 MR. MacODRUM: Mr. Rowan, did you prepare Exhibit L, tab 4, a document entitled "Evidence of Malcolm Rowan on Behalf of Canadian Manufacturers & Exporters, January 21st, 2003"? 967 MR. ROWAN: Yes. 968 MR. MacODRUM: Is it your testimony in this proceeding? 969 MR. ROWAN: Yes. 970 MR. MacODRUM: Do you have any corrections to make to this exhibit? 971 MR. ROWAN: Yes. On page 7 of 17, there are two paragraphs numbered 21. The second one might be numbered 21(a) for ease of reference. 972 MR. MacODRUM: Mr. Rowan, in order to assist the Board today, would you briefly summarize CME's evidence as it is set out in Exhibit L, tab 4? 973 MR. ROWAN: Yes. 974 Mr. Chairman, this is the first opportunity for the Board to hear evidence with respect to a shared savings claim for demand-side management since the shared savings mechanism was introduced by EBRO-497-01, the ADR settlement agreement. 975 It's time for the Board to determine the merits of the applicant's fiscal 2000 and fiscal 2001 SSM claims. The principles used in that determination will apply to fiscal 2002 and, if applicable, to fiscal 2003. 976 We are here to share with the Board why the applicant's proposal to clear the fiscal 2000 and fiscal 2001 SSM VA account, at a cost to ratepayers of $8.1 million, should be rejected. 977 CME was a party to EBRO-497-01 ADR settlement agreement; however, because of the experience gained with the fiscal 1999 DSM SSM, and with the audit of the fiscal 2000 evaluation report, CME opposes the proposed partial settlement agreement. 978 The fiscal 2000 evaluation process was flawed. Similarly, the applicant's fiscal 2000 $3.5 million SSM claim is flawed. The applicant concurred with the auditor's terms of reference and with her selection, yet the applicant's claim ignores the auditor's recommendations. 979 The applicant's $4.1 million fiscal 2001 claim is also flawed, as it is not based on an audit of the fiscal 2001 evaluation report. CME's evidence describes these flaws in detail. 980 This flawed process produced a flawed result. The partial settlement does not correct the flawed result; it compounds it. Given the above, it is not in the public interest, or in ratepayer interest, to pay 8.1 million to the applicant. 981 So in summary, Mr. Chairman, the fiscal 2000 SSM claim should be based on the findings and recommendations of the auditor, and the fiscal 2001 evaluation report should be audited before any SSM is claimed. 982 Thank you, Mr. Chairman. 983 MR. BETTS: Thank you. 984 MR. MacODRUM: Mr. Chairman, Mr. Rowan is available for any questions my colleagues may have. 985 MR. BETTS: Thank you. 986 First of all, is there any cross-examination or question from parties wishing to support this position? 987 Then questions or cross-examination from parties opposing this particular position on the settlement. 988 MR. WARREN: Thank you, Mr. Chairman. 989 MR. BETTS: Mr. Warren? 990 CROSS-EXAMINATION BY MR. WARREN: 991 MR. WARREN: Mr. Rowan, I have only a few questions, and they are in three areas. 992 Before I get to the first of the areas, I just wanted to confirm with you that we are talking about the same set of numbers, and as a reference point, I'd like you to turn up, if I could, two documents. The first is Exhibit K.1.2, which was an exhibit introduced with the panel this morning. It's a summary. 993 MR. ROWAN: Yes. 994 MR. WARREN: And I'd like you to turn up as well, Mr. Rowan, your Exhibit L, tab 4, at page 6 of 17. 995 Do you have those two documents, Mr. Rowan? Thanks. 996 Just on the question of numbers, and I ran through these with the Enbridge panel this morning, but I just want to make sure that you and I are in agreement on the numbers. For purposes of fiscal 2000, the claim, the SSM claim of Enbridge is $6.5 million; do you agree with that? 997 MR. ROWAN: Yes, I do. 998 MR. WARREN: And for fiscal 2001, the original Enbridge claim was 13.7 million; do you agree with that? 999 MR. ROWAN: Yes. 1000 MR. WARREN: My math, which I checked with Ms. Squires, who's better at this than I am, and I'm sure you're much better at it than I am, is that the defined SSM claims for 2000, 2001, as originally proposed, were $20.2 million. 1001 MR. MacODRUM: Just to understand Mr. Warren, you're adding line 5, column 2, and line 4, column 3, on Exhibit K.1.2? 1002 MR. WARREN: Yes. 1003 MR. MacODRUM: So you're adding across certain apparent differences? 1004 MR. WARREN: Mr. MacOdrum, I think we will get along fine if I can ask the questions, and if your witness is confused, then your witness can say he is confused he. 1005 I'm asking you, Mr. Rowan, if you agree with Ms. Squires and me that the total Enbridge Gas Distribution SSM claim for 2000 and 2001 is $20.2 million? 1006 MR. ROWAN: That's correct. 1007 MR. WARREN: Okay. Now, can we also agree that the settlement agreement with which your client disagrees is for an amount of $8.1 million? 1008 MR. ROWAN: Yes. 1009 MR. WARREN: A reduction, according to my math, of some $12.1 million from what Enbridge was originally claiming. Can we agree on that? 1010 MR. ROWAN: Yes. 1011 MR. WARREN: The second document that I asked you to refer to, or to have in front of you, was your table 2 on page 6 of 17. And looking at the column on the right side, the total claim of $8.1 million is allocated there among four rate classes; correct? 1012 MR. ROWAN: Yes. 1013 MR. WARREN: Did you prepare that table? 1014 MR. ROWAN: No, I did not. 1015 MR. WARREN: Whose table is that? 1016 MR. ROWAN: That came out of the settlement agreement. 1017 MR. WARREN: But it's in your evidence, and I take it you agree with its accuracy? 1018 MR. ROWAN: I don't disagree with it. 1019 MR. WARREN: And can you and I agree that, using rounded numbers, the $8.1 million would be allocated roughly $7.8 million to residential consumers who comprise Rate 1; is that correct? 1020 MR. ROWAN: According to that table, that's correct. 1021 MR. WARREN: And the balance of some $300,000 would be allocated to the other three rate classes which I will characterize as commercial rate classes; would you agree with that? 1022 MR. ROWAN: According to that table, that's correct. 1023 MR. WARREN: Do you have any reason to disagree with those numbers, Mr. Rowan? 1024 MR. ROWAN: No. 1025 MR. WARREN: You were a participant in the settlement process in December? 1026 MR. ROWAN: Yes. 1027 MR. WARREN: Now, since you've referred to, in your evidence, a number of -- if I can put it this way, you've agreed to the importance of getting the principles right, I'd like to put to you a number of propositions about settlement discussions to see if you agree with them. 1028 Would you agree with me, sir, that in the settlement discussions, individual ratepayer groups have their own representatives? 1029 MR. ROWAN: They come to the settlement group representing a group of individuals. I don't think it is necessarily the case that all of the participants in the settlement agreements only look at the implications of the -- a settlement in terms of just their client groups. 1030 MR. WARREN: Then let's just deal with the way they look at it for a moment for their own client groups. Would you agree with me, sir, at least at a notional level, that each group would weigh the costs and benefits to their client group of a particular settlement? 1031 MR. ROWAN: I'm sure they would do that, yes. 1032 MR. WARREN: Would you agree with me as well that one of the factors they would look at would be the risks of what the Board might do with Enbridge's proposal if the matter were to go to hearing? 1033 MR. ROWAN: They might do that, I'm sure. 1034 MR. WARREN: And would you agree with me that, in terms of protecting the interests of their constituencies, that they might agree to a settlement in order to mitigate the risk of what might happen if the issues were to go to the Board for determination? 1035 MR. ROWAN: It's quite possible. 1036 MR. WARREN: And you agree with me, I take it, Mr. Rowan -- or can you agree with me, Mr. Rowan, that the calculation of risks and benefits for individual constituency groups would be different for each one of them? 1037 MR. ROWAN: According to that table 2 that you referred to, the answer would be yes. 1038 MR. WARREN: Now, looking at table 2, can you and I agree that if the Board were to accept the settlement proposal, that the cost of the SSM for a two-year period allocated to commercial groups would be in the order of $300,000? 1039 MR. ROWAN: According to that table, yes. 1040 MR. WARREN: Now, you may be able to help me with this, sir. Within rate groups 6, 100 and 145, is the CME's constituency all of those groups or some of those groups? What is it? 1041 MR. ROWAN: It would be all of those groups, from six through. 1042 MR. WARREN: Now, one of the issues which we have been talking about, sir, is the calculation of risk. Is it the position of the CME in -- sorry. Just one other issue which I want to cover off. 1043 Can you tell me, sir, even in approximate terms, in any year how much money in total would be paid by the members of rates 6, 100, and 145 in total for gas, for gas costs and gas distribution costs? 1044 MR. ROWAN: I have no idea. 1045 MR. WARREN: Can you agree with me, sir, at a high level of probability, that $300,000 is likely to be a tiny percentage of the total amount that they pay anyone? 1046 MR. ROWAN: I'm sure it is, but that's not the issue. 1047 MR. WARREN: And we can agree that the $300,000 which is in issue isn't just one year, it's two years; correct? 1048 MR. ROWAN: That is correct, if it were the issue. 1049 MR. WARREN: Now, if the Board, speaking hypothetically, were to reject the settlement agreement, and if, as Ms. Squires said this morning in her testimony, Enbridge would be asking the Board to approve not 8.1 million but 20.2 million for SSM, can you agree with me that the risk of the amount of SSM that residential consumers in rate 1 would have to pay, that the risk of their paying more would increase and would probably increase significantly? 1050 MR. ROWAN: I would -- I would assume so. 1051 MR. WARREN: Now, can you tell me, sir, is the constituency of the -- I want to get the name right. It's the -- it's not the Canadian Manufacturers -- it's Canadian Manufacturers & Exporters Association, or is it Manufacturers and Exports Canada, I'm sorry. 1052 MR. ROWAN: It's Canadian Manufacturers & Exporters. 1053 MR. WARREN: Can you agree with me that the constituency of that organization is not individual consumers of natural gas, ratepayers? 1054 MR. ROWAN: Would you define "individual consumers", please. 1055 MR. WARREN: Residential consumers. 1056 MR. ROWAN: Residential. Yes, I can confirm that. 1057 MR. WARREN: Can you and I agree, sir, that by proposing this settlement agreement, you have put at risk the amount of money which residential consumers might pay for an SSM for a two-year period? 1058 MR. ROWAN: Depends on the risk involved. 1059 MR. WARREN: But you can agree, sir, that one of the possible outcomes of the position you take in proposing the settlement is to put at risk the amount of amount of money which residential consumers would pay by way of an SSM. Would you agree with that? 1060 MR. ROWAN: If it's one? One out of how many, a million, 2 million, who knows. 1061 MR. WARREN: Can you agree that you would put it at risk? 1062 MR. ROWAN: There would be an elements of risk; that is correct. 1063 MR. WARREN: Can you agree with me then, sir, that you have chosen to put at risk the amount of money paid by a group that not represented by the Canadian Manufacturers & Exporters? 1064 MR. ROWAN: Well, Mr. Warren, the -- 1065 MR. WARREN: Is the answer yes or no, Mr. Rowan? You can offer whatever explanation you want, but is the answer yes or no? 1066 MR. ROWAN: Would you repeat the question. 1067 MR. WARREN: Would you agree with me that by taking the position that you have put at risk the amount of money to be paid by residential consumers, a group which is not represented by the CME? 1068 MR. ROWAN: If you are interpreting that CME only represents and its interest should only be limited to manufacturers, then the answer is yes. But that's an assumption on your part. 1069 MR. WARREN: I'm sorry, I thought you answered my question that the CME did not represent the interests of these individual residential consumers of natural gas. 1070 MR. ROWAN: What I did say, that CME comes to these hearings with not a narrow focus but rather what is in the broad public interest as well, the ratepayer interest as well as its own members. 1071 MR. WARREN: So the Board is to understand that the CME, even though its members do not comprise or do not consist of residential consumers of natural gas, that the CME purports to speak for that group as well? 1072 MR. ROWAN: No. What the CME is speaking for is advocating that the decision as to how -- the determination as to how the share savings mechanism and claim should be determined is on the basis of principle. 1073 MR. WARREN: Can you tell me, sir, when you took the decision to oppose this settlement, did you seek instruction from the CME, and in seeking those instructions, did you say that you would be putting at risk the amount of money which is -- might be paid by residential consumers taking that position? 1074 MR. ROWAN: Let me deal with the second part -- 1075 MR. MacODRUM: Mr. Chairman, I don't understand the relevance of that question to the merits of Mr. Rowan's testimony. I really think it's getting beyond the four corners of the testimony. 1076 MR. WARREN: When the Board or if the Board wishes to review the prefiled evidence of Mr. Rowan, you will see that it is replete with statements that this settlement is not in the interest of ratepayers, and I want to know, first of all, what he meant by ratepayers and whom the CME represents. 1077 One of the touchstones, if you wish, the integrity of the process before the Board, is that the groups that you see before you reflect the interests of identifiable constituencies, that when, for example, that CAC takes the position, the Board understands the position that we have for residential consumers. 1078 Now, if for example, the CAC were to begin to take positions that it purported to represent the interests of, let's say, Mr. DeRose's constituency, the Industrial Gas Users Association, then in our respectful submission, the integrity of the Board's process is fundamentally undermined. 1079 My questions are designed to determine whether or not Mr. Rowan's organization purports to represent the interests of residential consumers, and his authority for doing what it is he acknowledges he's done, which is to put in issue or put at risk the amount of money which residential consumers pay by way of SSM. 1080 Those, seems to me, go fundamentally to the question of this man's representative status, and to the implications of the position which his client is taking, and that's why I'm asking these questions. 1081 MR. MacODRUM: Mr. Chair, I was not objecting to Mr. Warren's earlier questions. I was just objecting to his question that I think it's inappropriate for him to ask what the internal mechanisms are by which any representative of a client obtains their instructions. It would certainly be inappropriate for me to ask Mr. Warren how he obtains his instructions from his client, and I think it's inappropriate for him to ask Mr. Rowan that. 1082 MR. WARREN: If I may respond to that, Mr. Chairman. First of all, there are interrogatory responses, not posed -- interrogatories that were proposed not by my client but by others on the question of how it is that CME, and particularly Mr. Rowan, went about getting his instructions, and Mr. Rowan has answered those, admittedly in somewhat of an oblique fashion. But the mechanism by which he gets the instructions is neither here nor there. 1083 I think it's important for the Board to know whether or not the Canadian Manufacturers Association has given instructions to Mr. Rowan and presumably to Mr. MacOdrum to take a position with respect to this settlement that puts somebody else's constituency at substantial risk. And my question is: Was the CME informed that its representatives in this hearing were taking a position with respect to the interests of residential consumers, and did it give specific instructions to Mr. Rowan and Mr. MacOdrum, for that matter, to take that position? 1084 MR. BETTS: Mr. Rowan, can you answer that question? 1085 MR. ROWAN: Well, I can certainly try, Mr. Chairman. Maybe not to the satisfaction of Mr. Warren, but I will certainly try. 1086 MR. BETTS: Do your best. 1087 MR. ROWAN: The CME comes and has come at this, that is, this issue, inasmuch as this is the first time that the Board itself has even considered issues around principle of the shared savings mechanism, that they have felt that it is appropriate to establish principles under which the claims of the utility should be determined. 1088 CME is of the view that cutting a deal, coming to an agreement which, for some parties, may seem like a pretty good deal, $300,000 over two years for your members in those three commercial and industrial rate categories, a pretty good deal, and that's really what Mr. Warren is suggesting. 1089 And I suppose one could take that narrow, short-term view, that it's not a bad deal, so why bother going any further? And I'm sure, as Mr. Warren has suggested, that's how some of the intervenors, when they signed onto the partial agreement, how they rationalized their positions. 1090 However, we came at this a different route; namely, that the Board does need to look at this whole DSM SSM structure that has been built over the past three or four years and to provide some guidelines, some principles under which we can determine whether or not the claim that is now before us is an appropriate claim, and not only with those principles. We can go forward and we can, with confidence, deal with future claims. 1091 So for Mr. Warren to suggest that we should have been thinking only in a narrow sense of the risked reward for CME members, in this particular case, overlooks the point that if we don't get it settled now, we don't get some guidance from the Board now, we will forever be operating in this morass of not knowing who's sharing the risk and reward, not only in this case but in future cases, and so we took that position. 1092 And I might add, Mr. Chairman, that yes, I have been communicating with the CME on this whole issue of the DSM, and there is -- I hope to satisfy Mr. Warren that that communication has been ongoing. And I have provided it, through interrogatory, a response to the mechanism. 1093 MR. WARREN: Mr. Chairman, I wonder if I might go back and ask the question which I asked originally and see if I can get an answer to that question. 1094 My question, Mr. Rowan, in seeking instructions from the CME about the position to take with respect to the settlement, did you advise the CME that the position you were taking was putting at risk the amount of money to be paid by residential consumers by way of SSM? Did you advise them? 1095 MR. ROWAN: In those terms, as you've described them, the answer is no, I did not. 1096 MR. WARREN: Do you have instructions from the CME to take a position with respect to SSM that bears upon the interests of residential consumers? 1097 MR. ROWAN: We have -- the answer specifically to your question, no, but we have the approach of dealing this in a principle rather than a deal-cutting manner. 1098 MR. WARREN: Now, you spoke just a moment ago in giving -- I'll characterize it, for the sake of ease of reference, as a response to my question. You spoke about establishing principles for the SSM on a go-forward basis. 1099 As I read your evidence, Mr. Rowan, you are proposing, with respect to fiscal 2003 going forward, that there not be any SSM at all; is that fair? 1100 MR. ROWAN: That would be our position. That is correct. 1101 MR. WARREN: So we're not going to establish principles on a go-forward basis. We're establishing principles on a looking-backward basis over the last two years because, according to you, we don't need those principles on a go-forward basis. 1102 MR. ROWAN: That's not correct, Mr. Warren, as you know, because the 2002 program and evaluation report still is on the table and is still to go through this process, so I think you're incorrect in that. 1103 MR. WARREN: Well, with respect to two years which have passed, as opposed to a going-forward basis, would you accept that? 1104 MR. ROWAN: Yes, I will, and keep in mind that should the Board decide that an SSM of some sort be required, then the comments that I made are very germane. 1105 MR. WARREN: But you're certainly going to try and persuade the Board that there should not be an SSM principle or otherwise; correct? 1106 MR. ROWAN: That is correct. 1107 MR. WARREN: Now, in terms of trying to understand this position of the allocation of risks, as I read your evidence, Mr. Rowan, and correct me if I'm wrong, you are adopting the position which is taken by Energy Probe in its opposition to this settlement; is that fair? 1108 MR. ROWAN: Yes, we have the same position. 1109 MR. WARREN: Okay. Now, in the course of Mr. Parry's cross-examination of the Enbridge panel this morning, Mr. Parry asked a series of questions about how the costs of the SSM were allocated. He said, as I recollect -- this is my gloss on his cross-examination -- he said that looking at the proposed allocation of the settlement costs, about 98 percent of the costs are being allocated to residential consumers and two to commercial consumers. Do you remember that? 1110 MR. ROWAN: Yes, I remember that. 1111 MR. WARREN: And do you remember Mr. Parry's suggestion he put to the witness panel a portion of the text for the settlement agreement in 497-01, in which the Board said the allocation of costs should follow the benefits derived from the TRC. Do you remember him putting that proposition to the witness panel? 1112 MR. ROWAN: Generally, yes. 1113 MR. WARREN: And he said according to Energy Probe's calculation, it was about a 65/35 split of the benefit; 65 to residential consumers and 35 to commercial consumers. 1114 MR. ROWAN: Yes, I remember that. 1115 MR. WARREN: And I take the logic of that that the position -- that position, if adopted, is that the $8.1 would not be allocated on a 98/2 basis but on a 65/35 basis; is that fair? 1116 MR. ROWAN: If you follow Mr. Parry's testimony this morning or questions of this morning, yes. 1117 MR. WARREN: And if the Board were to accept that analysis, can we agree that rather than paying $300,000, those three rate classes would pay 35 percent of $8 million, which is in the order of, let's say for the sake of argument, $2 million; would you agree with that? 1118 MR. ROWAN: Using that formula, that is correct. 1119 MR. WARREN: And if the Board would adopt that position from Energy Probe, with which -- you have said you agree with Energy Probe's position, then as a result of your opposing the settlement agreement, there is a possibility that the constituency that you represent may pay a significant amount more by way of SSM than just $300,000; do you agree with that? 1120 MR. ROWAN: No, I don't. Because when you first asked whether we agreed with the Energy Probe position, rightly or wrongly, I made the assumption that it was on the calculation of the SSM that should be paid or not paid in 2000. 1121 I did not make the assumption, nor did you indicate in your question at the time, whether it had to do with a ratio of benefits, whether it should be 98/2 or 65/35. 1122 MR. WARREN: So I take it if that's Energy Probe's position, the cost of the SSM should be allocated in relation to benefits, that is, 65/35. You don't agree with that; right? 1123 MR. ROWAN: No, I don't think you can assume that either, Mr. Warren. There are two different interpretations at least of how you allocate benefits. There is the one that was -- that comes out with a 98/2, and the other one, that perhaps comes out at 65/35. I guess the CME's position is whatever is appropriate, whatever is appropriate. And that squares directly with our view on what the SSM -- how the SSM should be -- claim should be determined, and that is by principle. 1124 Let the Board decide which is appropriate, and the CME will live with that. 1125 MR. WARREN: The CME will live with that. 1126 Now, does the CME have a position on what the allocation of the cost of the SSM should be? 1127 MR. ROWAN: We have not looked at that. 1128 We had assumed to this point -- and I should also remind you that during the ADR agreement there was some discussion as to how costs should be -- and benefits should be allocated, and there was some confusion on the part of Enbridge at the time -- 1129 MR. POCH: Mr. Chairman, if I can jump in, I don't want Mr. Rowan giving evidence about what discussions occurred in the settlement, because all of us are impacted by that. 1130 MR. BETTS: Thank you, and that is appropriate. 1131 MR. ROWAN: And I regret that I got into that. But in the pursuit of an answer to Mr. Warren's question, I tended to forget that that's... 1132 MR. WARREN: Mr. Rowan, perhaps let me see if I can assist in this. 1133 Do I understand it that the CME has no position on how the allocation of the costs of the SSM should be allocated. Do I understand that? 1134 MR. ROWAN: We accepted the Enbridge interpretation. 1135 MR. WARREN: So you disagree, then, with the position of the -- that's been suggested by Mr. Parry in his cross-examination? 1136 MR. ROWAN: In the sense that we accepted the other, we haven't taken a look at his approach in any form, so I'm not able to say one way or the other; only what I have said, that we agreed -- or accepted the Enbridge interpretation. 1137 MR. WARREN: Do I take it from the answer that you may look at Mr. Parry's formally of 65/35 and find some merit in it and agree with it? 1138 MR. ROWAN: I can't comment on that until I've taken a look at it in more detail. 1139 MR. WARREN: But it's a possibility, I take it from your answer. 1140 MR. ROWAN: I don't comment on possibilities. 1141 MR. WARREN: Do I understand from your earlier answer that you accept -- the CME accepts that in sorting out the principles that ought to be applied to the SSM, that one of the issues at play is the proper formula for allocation of the costs of the SSM? 1142 MR. ROWAN: Yes. 1143 MR. WARREN: Can I take it to that extent that there is a possibility the Board should arrive at a principle which is different from the 98/2 split; is that fair? 1144 MR. ROWAN: Yes. 1145 MR. WARREN: And if the Board arrives at a different formula, let's say 65/35, there's a possibility that the CME's constituency may pay more as a result of the Board arriving at that principle than they would under the 98/2 split; is that fair? 1146 MR. ROWAN: That's fair. 1147 MR. WARREN: In seeking instructions from the CME about taking a principal position in this case, did you advise your clients that one of the results or one of the outcomes may be that their members will have to pay more than $300,000 as their portion of the SSM? 1148 MR. ROWAN: That issue never came up. That issue only arose this morning when Mr. Parry talked about the 65/35 issue. 1149 MR. WARREN: But I take it before you ever heard Mr. Parry you would have agreed with the proposition that one of the issues at play in the hearing was the proper allocation; you've agreed with that. So it was a risk, was it not, going into the hearing? 1150 MR. ROWAN: It was not an issue. 1151 MR. WARREN: Now that you understand it may be an issue, do you have a different position with respect to the settlement, given that there may be a risk, a higher risk for the CME? 1152 MR. ROWAN: No. 1153 MR. WARREN: Is it something you think you ought to get instructions on, Mr. Rowan? 1154 MR. ROWAN: Is that a legitimate question. 1155 MR. WARREN: Do you think you should get instructions from your client? 1156 MR. ROWAN: I'll take it under advisement. 1157 MR. WARREN: Thanks. 1158 Now, the second area I want to talk about, Mr. Rowan, is the issue of principles, a word which hasn't tripped easily from a lawyer's lips, I can tell you. 1159 MR. MORAN: Speak for yourself. 1160 MR. POCH: Speak for yourselves. 1161 MR. MacODRUM: You guys should be qualified -- 1162 MR. WARREN: Oh, the robes of righteousness. 1163 Can I ask you to turn up Exhibit L.4, Mr. Rowan, and I want you to look at two references. 1164 The first is page 3 of 17, and if you could sort of, metaphorically speaking, put your thumb in that, and also look at page 7 of 17. 1165 Now, the first reference, Mr. Rowan, and members of the panel, on page 3 of 17, the text I want to refer to is paragraph 5(f). The bottom of page 17, a statement appears: "The Board has never addressed the principles of an incentive mechanism and the ramifications." Have I read that accurately, Mr. Rowan? 1166 MR. ROWAN: Yes. 1167 MR. WARREN: Yes? 1168 MR. ROWAN: Yes. 1169 MR. WARREN: On page 17 of 17, looking at what now has been re-marked as paragraph 21(a), I'm quoting: "In accepting an incentive mechanism as a result of 1999 EBRO-497-01 ADR settlement agreement, the Board established no principles to guide how the SSM should be calculated." Have I read that accurately? 1170 MR. ROWAN: Yes. 1171 MR. WARREN: Now, as I heard the chronology that the EGD panel went through this morning, CME was a party to that EBRO-497-01 agreement; is that right? 1172 MR. ROWAN: That's correct. 1173 MR. WARREN: You were a party to an agreement that established an SSM, you say, without principles. Have I understood that correctly? 1174 MR. ROWAN: I think what the evidence states is that the Board didn't determine any principles. 1175 MR. WARREN: But certainly CME would appear to have agreed to the creation and operation of an SSM that was, according to you, without principles. Can we agree with that? 1176 MR. ROWAN: There was a mechanism that was agreed upon in the ADR agreement; however, the Board itself has never examined that mechanism in detail, and that is what this hearing is all about. 1177 MR. WARREN: My question to you, sir, was a different one. My question to you: Can I understand that in agreeing to the creation of an SSM to its operation in 497-01, you were agreeing to an SSM that was without principles? Is that a fair conclusion on my part? 1178 MR. ROWAN: If you are saying that there are -- there is a section in 497-01 that is headed, "Principles," then the answer, if I recall my reading of that settlement agreement, is there is no such heading. 1179 And if you are saying that I was a party to that settlement agreement, and because it didn't have principles contained in it, I -- for it was in some way derelict in my duty, if that's the nature of your question, then I have to say yes. 1180 MR. WARREN: I would never suggest, sir, that you were derelict in respect of any other -- any duty, sir. That wasn't my question. But let me put a different focus on it, sir. If I can take you to the settlement agreement in RP-2000-0040. Do you have that? 1181 MR. ROWAN: What page, Mr. Warren? 1182 MR. WARREN: I'm looking, Mr. Rowan, at the ADR agreement, which for purposes of the record is appendix A to that decision. It's appendix A to the reasons for decision, dated August 17th, 2001. 1183 Appendix A is the settlement proposal, and I'm going to refer you, Mr. Rowan, specifically to page 36 of 54. 1184 MR. ROWAN: Okay. 1185 MR. WARREN: I'm just waiting for the members of the panel, if they -- 1186 MR. MORAN: Mr. Chair, you'll find that excerpt in the black binder, Exhibit K.1.1, tab C-2. 1187 MR. BETTS: We're fine, thank you. Please proceed. 1188 MR. WARREN: Page 36 of 54, under the heading 8.2, to summarize it, I put this -- the exact text to the witness panel this morning, and I won't repeat that now, but what -- as I read this document, the parties to the settlement agreement agreed that the DSM -- sorry, the SSM mechanism, which had been created in 497-01, would result in an SSM payment in the amount of $4.8 million. Do you agree with that? 1189 MR. ROWAN: That's what it says. 1190 MR. WARREN: And you were a party to that agreement. When I say "you," Mr. Rowan, I mean the CME were a party to that agreement? 1191 MR. ROWAN: Yes. 1192 MR. WARREN: And I take it, sir, that the CME in this case agreed that $4.8 million should be paid by way of SSM in the absence of principles. 1193 MR. ROWAN: We agreed to the payment of $4.8 million after there had been a -- an audit of the 1999 evaluation plan. 1194 It was on the basis of the experience, as I said in my opening statement, of the 1999 audit and the 2000 audit that we came to the conclusion that there -- that there were no principles, there was no guidance; and that the Ontario Energy Board needed to look at this whole house of cards that has been established through ADR settlement agreements that has caused us to pay out large sums of money under rather strange circumstances of assumptions being made, deals being cut. And it just seemed to us that now is the time to look at the principles that the Board recognized. 1195 MR. WARREN: Can you turn up, please, page 7 of 17 of your evidence, Mr. Rowan? 1196 MR. ROWAN: Yes. 1197 MR. WARREN: Looking at the text of the paragraph, what is now marked as paragraph 21(a), "In accepting an SSM-incentive mechanism as a result of the 1999 EBRO-497-01 ADR settlement agreement, the Board established no principles to guide how the SSM should be calculated." 1198 In the RP-2000-0040 case, the CME agreed to a payment of $4.8 million notwithstanding the absence of principles. Is that not true? 1199 MR. ROWAN: That is true, but they were not Board principles, and we were a party to an agreement, that is true, that, in retrospect, if I had the opportunity to go back and do it over again, we would not have been a party to. 1200 MR. WARREN: If you had the opportunity, you would resile from your agreement; is that right? 1201 MR. ROWAN: I don't think you understood what I said. If we had an opportunity to go back to the beginning of the process, we would not have been a party to the agreement, because what we would have been a party to is a different kind of audit than the one that was undertaken in 1999 -- or for the 1999 evaluation report. 1202 But one cannot do -- undo the past, so we are stuck with the 2000-0040 settlement agreement. 1203 MR. WARREN: Now, you and I -- if I have understood it correctly, since the CME is taking the position going forward there shouldn't be an SSM, therefore we don't have any principles going forward, what we're talking about is establishing principles which should govern the SSM for fiscal 2000 and fiscal 2001; is that correct? 1204 MR. ROWAN: And fiscal 2002. 1205 MR. WARREN: And fiscal 2002. 1206 Now, can you tell me, sir, when I look at Exhibit L.4 -- sorry, L.4, -- can you show me where in the evidence the CME sets out the principles which it believes the Board should adopt for those three fiscal years? 1207 MR. ROWAN: If you're looking for another heading which says these are the principles that should apply, the answer is no. However, in the -- our evidence, we do talk in terms of the -- the assumptions that should be agreed upon beforehand. 1208 MR. WARREN: What principles -- when the Board looks at Exhibit L.4 -- when Mr. Betts and Dominy retire to their chambers to make a decision on this and they look at L.4, can you tell those panel members where they would find the principles which CME says should govern the calculation of the SSM in 2000, 2001 and 2002. Where are they? 1209 MR. ROWAN: I've already indicated to you that there is no such section in the report. 1210 MR. WARREN: All right. 1211 Now, I'd like you to turn, please, to page 6 of 17 of your testimony, and in particular I'd like you to look at paragraph 15. And in that paragraph it says, and I quote: "The cost, if any, to ratepayers of moving forward should be determined after the Board rules on the issues surrounding fiscal 2000 audit and after the fiscal 2001 M&E report has been independently audited." It says "rules surrounding the fiscal 2000 audit." 1212 Can you tell me, sir, where in Exhibit L.4 I can find of list of issues surrounding the audit? 1213 MR. ROWAN: Well, I think in the evidence is the issue of the -- and bear with me as I just take a look. Let me get the right section. I want to be as precise as possible to answer your question. 1214 One area -- one issue had to do with the way in which the audit was -- the preparation for the audit. And if you look starting on paragraph 16, you will note that when the Board accepted the settlement proposal in EBRO-497-01, they also accepted Enbridge's undertaking to do certain things, and that is set out in paragraph 16 in the portion that is indented. 1215 That commitment was with respect to when the evaluation report would be made available. Enbridge reconfirmed that commitment in RP-1999-001 and again did not meet its own commitment. 1216 So one of the issues is when Enbridge makes a commitment that is a -- an essential part of getting an evaluation report ready by a specific date available so it can go through a review process, including an audit, then Enbridge should be held accountable for that commitment, and it is an issue. 1217 MR. WARREN: Let's just stay with that. What would the Board do about that? They were late in getting and delivering a document. That presumably can't be corrected, if they were late. Should the Board punish them for doing that; and if so, how do you calculate an amount and a mechanism by which they should be punished, sir? Is that what the Board is doing now? We're going to punish them ex post facto for being late in the delivery of something? 1218 MR. ROWAN: Well, it goes to the time that was available to the auditor to complete a report. There were parts of that report where the analysis -- the analysis she was not able to finish, and the report could have been better written. And we had a time deadline of July 1st -- 31st, 2002, in which to comply. 1219 It goes to the delays that have been occasioned by the way in which Enbridge conducted its affairs. 1220 MR. WARREN: Is the CME asking the Board to punish Enbridge Gas Distribution in some way, and if so, in what way, for failing to deliver reports on time? 1221 MR. ROWAN: We're not asking the Board to do anything but to take note of the circumstances, and the Board can exercise its own judgment as to what remedy, if any, is necessary. 1222 MR. WARREN: May I say with the greatest of deference, sir, that that answer is facile. Are you making a reference to this Board that they should punish Enbridge Gas Distribution in some way for the late filing of reports; yes or no? 1223 MR. MacODRUM: Mr. Chairman, I would object to that question. If Mr. Warren wants to throw a temper tantrum, that's fine. Mr. Rowan answered his question to the best of his ability. I think Mr. Warren should move on to another subject. 1224 MR. WARREN: Mr. Chairman, I'm entitled to an answer which is responsive, and Mr. Rowan has said in his evidence that there were issues you have to resolve. He said they were late. I want to know, is the CME recommending to the Board. He said the wants the Board to take note of the issue. What do they want the Board to do with the issue? Do they want them to impose a penalty, yes or no, and if so, how do we calculate the penalty? What are the answers, Mr. Rowan? 1225 MR. ROWAN: I think I've already answered that question, Mr. Chairman, When I said the -- CME is not asking the Board to impose a penalty. It is asking the Board to take note of the way in which Enbridge managed or didn't manage the process well, and it, in turn, caused some severe problems with respect to the availability and the quality of the audited report. 1226 MR. WARREN: Well, I have your answer, Mr. Rowan. 1227 Now, I'd like, finally, sir, to try and short-circuit this a bit. We now have your answer that you will not be supporting an SSM. You will not be recommending against an SSM going forward. I'd like to understand from CME's perspective what process you envisage for this proceeding in the event the Board were to reject the settlement. 1228 Do I understand it, sir, that the Board would be asked in a discrete proceeding to hear evidence on and resolve these issues with respect to process and issues with respect to principle for fiscal 2000 and 2001? 1229 MR. ROWAN: My understanding is that there are -- as a result of the ADR -- I'm sorry, of the auditor's report, there were positions of the various parties that were calculated in terms of the SSM claim. 1230 It comes down to -- there are many other factors, but let me deal with two. One has to do with the free-rider rate for business markets and the application of that free-rider rate. 1231 If you follow the CME logic, that would result in a small penalty of approximately $69,000, and Energy Probe supports that logic. If you follow another logic, which would have the auditor's recommendation for free-ridership rate not being applied in 2000, then you would have a variety of different possible claims. You've got the Enbridge claim at 6.5 and you've got the Pollution Probe claim of 4.4 and you've got the Green Energy Coalition claim of $670,000. 1232 It would be only possible, but a very easy calculation, be only possible to calculate what the SSM should be once the Board has decided on the issue of the amplification of the auditor's recommendation with respect to the free-ridership rate. 1233 Now, there are some other minor issues, but that's the main issue. 1234 MR. WARREN: I must have misunderstood your testimony, then. As I understood your testimony, what you felt or the CME felt was required before the Board could make any decision on fiscal 2001 SSM, there had to be an audit; is that not right? 1235 MR. ROWAN: We're talking about 2001, there has to be an audit. Not 2002. 1236 MR. WARREN: I'm sorry, I said 2001. Do I understand your evidence correctly that before the Board -- CME's position is that before the Board can make a decision on fiscal 2001, there has to be an audit; is that right? 1237 MR. ROWAN: Yes. 1238 MR. WARREN: So the Board can't make any decision with respect to fiscal 2001 SSM until that audit? 1239 MR. ROWAN: In our view, it should not. 1240 MR. WARREN: So then the Board can't make a decision on that. The only question that the Board can resolve is fiscal 2000 SSM; is that correct? 1241 MR. ROWAN: That is correct. 1242 MR. WARREN: And do I understand that the only live issue is with respect to calculation of free-ridership rates? 1243 MR. ROWAN: No, I said there were other issues that could affect the actual calculation, but that's -- that seems to be the principal issue. 1244 MR. WARREN: What about all the principles -- aren't there a bunch of principles that you want the Board to decide? 1245 MR. ROWAN: Well, let me suggest to you, then, Mr. Warren, that the principle of the application of the auditor's recommendation is a principle in itself. The principle being that when the auditor goes through a -- an evaluation report that has been -- the terms of reference for which have been agreed upon by all parties, and the auditor comes and finds that there is something wrong, something different than what the evaluation report says, then it's CME's position that that identification by the auditor of a need to change a -- an assumption should be done in this particular year, not a future year. 1246 So in this case, when the auditor recommended, as the auditor did, that the free-rider rate for a business market programs should be, on average, 49 percent, the change was -- should be made -- applied to the 2000 fiscal year, not to some future year. 1247 MR. WARREN: So the scope of the applications in the auditor's report is one of the principles that you want the Board to resolve; is that right? 1248 MR. ROWAN: It is one of the principles, yes. 1249 MR. WARREN: But you also, as I take it, as I read your evidence, sir, you not only want an audit for fiscal 2001, you want something called a value-for-money audit; is that correct? 1250 MR. ROWAN: I don't think you -- I would like to see a value-for-money component included in the terms of reference for 2001. However, that would be an issue -- that would be an issue that would be and should be debated by the DSM consultative. And naturally, it's going to be an issue that the Board -- this panel, when we deal with other items on the nine series of issues, will be faced with. 1251 MR. WARREN: I just -- I'm trying to understand, sir, the relief you're asking in respect to fiscal 2000 and fiscal 2001. Do you want or do you not want the audit of fiscal 2001 to be a value-for-money audit? 1252 MR. ROWAN: We would like to see -- I have already answered that question, but we would like to see a value-for-money component included. 1253 I think the main issue, however, is that we would like this panel, OEB panel, to separate the SSM claim for 2000 from the SSM claim for 2001. And the principal reason for that separation is that the 2000, 2001 report has not been audited, and it is inappropriate, in CME's view, to put forward a claim that has not been audited. 1254 MR. WARREN: Finally, sir, I just want to understand again by way of process. So the Board would send back fiscal 2001 for audit, and do I take it, sir, that that audit would then go to the DSM consultative to see if they could agree on it; and if they couldn't agree on it, it would go to a further ADR; and if then couldn't agree on it, it would come back to the Board for a hearing. Is that fair? 1255 MR. ROWAN: The way you've described it is not accurate. It's not a matter of the Board sending it back. 1256 What a more accurate description would be, Mr. Warren, is that -- that the company would make available the evaluation report, and, as you know, they did that on November the 20th or 22nd of 2002. And indeed, a -- there was a discussion of the terms of reference of that audit process and an audit subcommittee was struck, as you may recall. 1257 However, an issue before this panel in the nine series of DSM issues will be the manner in which that audit subcommittee was struck. 1258 And what we would, and have proposed in our evidence, is that the Board rule on the way in which audit subcommittees are struck, and rule on the issues such as the value for money. 1259 MR. WARREN: So let me kind of take up the reins again. I just want to understand the process. So the Board will rule on how an audit committee will be struck, and on terms of reference for the audit committee. And then if the Board does that, the audit committee will then monitor the audit evaluation report for 2001; is that correct? 1260 MR. ROWAN: Let me just see I understand that. That doesn't ring -- no, that is not correct. 1261 MR. WARREN: The audit committee will do something with the 2001 results because they are not yet audited, are they? 1262 MR. ROWAN: The audit committee will determine the terms of reference for the auditor -- 1263 MR. WARREN: Sorry, I thought the Board was going to do that in this case. No? Okay. 1264 MR. ROWAN: I didn't say that. 1265 The audit committee will select the auditor. The audit committee will manage the process under which the auditor conducts the audit. 1266 MR. WARREN: This is for fiscal 2001? 1267 MR. ROWAN: That's correct. 1268 MR. WARREN: And then when the audit is produced, do I take it that it goes back to the DSM consultative for their consideration to see if they can agree on the results? 1269 MR. ROWAN: Under the agreement that was made earlier in EBRO-497-01, and also RP-1999-001, if you followed the process set out there, that is correct. 1270 MR. WARREN: Then if the DSM consultative -- or if the auditor's report for the 2001 can't agree, then I take it it goes to an ADR process; is that fair? 1271 MR. ROWAN: That would be the normal pattern, yes. 1272 MR. WARREN: Then it would ultimately come back to this Board at some point if the ADR process can't reach an agreement; is that right? 1273 MR. ROWAN: That's usually the process. 1274 MR. WARREN: Thank you very much, Mr. Rowan. I appreciate your answers. 1275 MR. BETTS: Are there any further questions of this witness? 1276 Mr. Poch? 1277 MR. KLIPPENSTEIN: Mr. Chairman, I think both Pollution Probe and the Green Energy Coalition have some questions and others I'm sure, but we've worked out that Pollution Probe would proceed next. 1278 MR. POCH: That's fine, Mr. Chairman. 1279 MR. BETTS: Fine. Please proceed. 1280 MR. KLIPPENSTEIN: Mr. Chairman, before I begin, it might be useful for Board members to have before you a book prepared by Pollution Probe which I believe should be on your desk, which is a proposed exhibit that compiles documents that I will be referring to. And I don't think there's much that's new in there, it's mostly various documents from other filings, and I've compiled them for sake of convenience of reference and provided them last week to my friends. I haven't heard any objections, and if there aren't any, I propose that that document could be made an exhibit. 1281 MR. BETTS: That would be appropriate, thank you. 1282 MR. MORAN: Mr. Chair, that would be Exhibit K.1.5, Pollution Probe Cross-Examination Reference Book. 1283 EXHIBIT NO. K.1.5: POLLUTION PROBE CROSS-EXAMINATION REFERENCE BOOK 1284 MR. BETTS: Thank you. Please proceed. 1285 CROSS-EXAMINATION BY MR. KLIPPENSTEIN: 1286 MR. KLIPPENSTEIN: Mr. Rowan, I take it you have a copy of Pollution Probe's cross-examination reference book handy? 1287 MR. ROWAN: Yes, I do. 1288 MR. KLIPPENSTEIN: Thank you. 1289 I'd like to begin my cross-examination with a number of questions relating to the issue of retroactivity, and just specifically on the issue of the free ridership question which you mentioned a minute ago was one of the main issues in relation to the 2000 and -- the 2000 SSM. 1290 If you could turn to tab 1 of the document book, and that's an excerpt from the SSM final report study prepared for the audit subcommittee by Kai Millyard & Associates; is that right? 1291 MR. ROWAN: Yes. 1292 MR. KLIPPENSTEIN: I take it you've seen this document before? 1293 If you could turn to the second page of that excerpt, it's entitled, "Table 2, "Summary of Impacts of Positions of Intervenor Audit Committee Members." Do you see that? And towards the right side there's three columns, one entitled CME, one entitled EP, and one entitled GEC and I take it those are the adjustments made by, respectively, CME, whom you represent, Energy Probe, and the Green Energy Coalition; is that right? 1294 MR. ROWAN: Yes, that's correct. 1295 MR. KLIPPENSTEIN: As of that time. 1296 MR. ROWAN: As of that time. 1297 MR. KLIPPENSTEIN: And I'll get into the subsequent changes. But as of that time, those columns, I look down the CME column, for instance, and I see various suggested changes, and near the bottom, I come to a figure of approximately 4.5 million, and as I understand it, that's the free-rider issue; right? 1298 MR. ROWAN: Yes. 1299 MR. KLIPPENSTEIN: So that is the suggested change made by CME to the SSM payment to the company, and CME is suggesting that about $4.5 million should be deducted because of a difference of opinion about the free-ridership issue on the custom or commercial/industrial project; is that right? 1300 MR. ROWAN: Yes. 1301 MR. KLIPPENSTEIN: And that's why, a few minutes ago, you said the free-ridership issue is the main issue, and some other issues in the column, but that's by far the biggest one; right? 1302 MR. MacODRUM: Mr. Klippenstein, perhaps you could pause after the question. I think the reporter is having difficulty getting the witness's answers. 1303 MR. KLIPPENSTEIN: I'm sorry, I apologize. 1304 If you could turn, then, please, Mr. Rowan, to tab 3 of the document book. And that's an excerpt from the Board's decision with reasons in the 1999-0001 case in December of 1999; correct? 1305 MR. ROWAN: Yes. 1306 MR. KLIPPENSTEIN: And we've excerpted two pages related to the DSM plan at the time, and I'm going to read one short paragraph there, but first of all, if you'll look at the heading 6.1, there's a reference to DSM plan; correct? 1307 MR. ROWAN: That's correct, yes. 1308 MR. KLIPPENSTEIN: And I take it you're roughly familiar with this decision? 1309 MR. ROWAN: Yes. 1310 MR. KLIPPENSTEIN: And you'll see the heading or the phrase there in the heading, "Complete Settlement"; right? 1311 MR. ROWAN: Mm-hm. 1312 MR. KLIPPENSTEIN: Which means there was a settlement of all the relevant or interested parties on an agreement for the DSM plan; correct? 1313 MR. ROWAN: Yes. 1314 MR. KLIPPENSTEIN: And in this decision, the Board adopted and approved that settlement; is that correct? 1315 MR. ROWAN: Yes. 1316 MR. KLIPPENSTEIN: All right. Dropping down to the first paragraph, the decision with reasons of the Board says: "The following parties participated in the discussion of this issue," and in that list there's AMEC, which is now the CME; correct? 1317 MR. ROWAN: That's correct. 1318 MR. KLIPPENSTEIN: And indeed you represented AMEC in that discussion and agreement; correct? 1319 MR. ROWAN: Yes. 1320 MR. KLIPPENSTEIN: I see later there's Energy Probe as well; correct? 1321 MR. ROWAN: Yes. 1322 MR. KLIPPENSTEIN: Then the next sentence says: "There is agreement to settle this issue on the following basis." And I drop to the second bullet point, which I'll read. It says: "The value of the pivot point in the SSM formula for the test year is increased accordingly, subject to subsequent adjustment --" Let me pause there. Would you agree with me that the effect of that is that although the pivot point in the formula is set, the parties are agreeing that it can be subsequently adjusted as set out in the following sentence; is that correct? 1323 MR. ROWAN: Yes. 1324 MR. KLIPPENSTEIN: Yes. And then I'm continuing: "...In order to give effect to the variances, if any, between the forecast net benefits and the actual net benefits, i.e., the net present value of resource benefits based on the total resource cost test using the company's actual gas savings for the test year that arise from variances in the following inputs and assumptions". And it's in that phrase "that arise from variances in the following inputs and assumptions" is the wording that describes when the subsequent adjustments will be allowed; is that right? 1325 MR. ROWAN: Yes. 1326 MR. KLIPPENSTEIN: And then there's a list of four types of inputs and assumptions: Energy savings per measure, avoided costs, discount rates and measure loss. So there we have four types of inputs and assumptions that will allow retroactive -- in which variances will allow retroactive adjustments; is that right? 1327 MR. ROWAN: If you're saying that those four are the only variances that could be allowed; is that your question? 1328 MR. KLIPPENSTEIN: Well, we will get to that. But first of all, my question is those four are identified inputs and assumptions which will allow retroactive adjustments; right? 1329 MR. ROWAN: Which will allow the retroactive adjustments. Would you like to rephrase that question, because I'm not quite clear what you're trying to get at. 1330 MR. KLIPPENSTEIN: That variances -- to use the term from that sentence, variances in those four categories for inputs and assumptions will allow retroactive adjustment of the pivot point? That's a fair reading of that sentence; is that not correct? 1331 MR. ROWAN: , No, I don't see the word "retroactive" there. 1332 MR. KLIPPENSTEIN: Well, I saw the word "subsequent" and I'll substitute that if you want. 1333 MR. ROWAN: Well, you used the word retroactive and I didn't see it so I'm having a hard time agreeing. 1334 MR. KLIPPENSTEIN: Let me change the word, then. Those four identified types of inputs and assumptions, when variances occur in them, will be the grounds for subsequently adjusting the value of the pivot point; isn't that fair? That's what it says. 1335 MR. ROWAN: This whole sentence must have been written by a lawyer. It's very difficult to parse. I'm not trying to be difficult. I'm just trying to be responsive to your -- 1336 MR. KLIPPENSTEIN: Well, you hurt my feelings. 1337 MR. ROWAN: I beg your pardon. 1338 MR. KLIPPENSTEIN: You hurt my feelings. 1339 MR. ROWAN: I do apologize for that. 1340 MR. KLIPPENSTEIN: Do you want me to rephrase it? 1341 MR. ROWAN: Yes, please rephrase it. 1342 MR. KLIPPENSTEIN: I don't think this is controversial, but as I understand it, when there are variances in the inputs and assumptions that are listed there -- the four types of them -- 1343 MR. ROWAN: Yes. 1344 MR. KLIPPENSTEIN: -- That will allow subsequent adjustment in the agreed-upon pivot point? 1345 MR. ROWAN: I think that's a better way of expressing it, yes. 1346 MR. KLIPPENSTEIN: Just to make sure I've got that again, the gist of that. When there are variances in those four types of inputs and assumptions, that will be good grounds for a subsequent adjustment to the previously set pivot point? 1347 MR. ROWAN: Mm-hm. 1348 MR. KLIPPENSTEIN: Yes. 1349 Now, the four categories that are mentioned there are energy savings per measure; avoided costs, thirdly, discount rates; and four, measure loss; is that correct? 1350 MR. ROWAN: That's what it says. 1351 MR. KLIPPENSTEIN: Now, we're getting to the issues you alluded to earlier. The question of free-ridership rates is not one of identified inputs and assumptions that allow for subsequent adjustment; is that right? 1352 MR. ROWAN: It is. Free-ridership rate is not listed along with the four; that is correct. 1353 MR. KLIPPENSTEIN: Now, let me drop to the bottom of that page, but at the bottom of the page under heading 6.1.2 there is another term of that settlement agreement, right, which was also approved by the Board. And if you will quickly scan through that, you will see that in a discussion of monitoring and evaluation, free ridership is specifically mentioned as an item that will be monitored and evaluated; do you see that? 1354 MR. ROWAN: Yes. 1355 MR. KLIPPENSTEIN: Now, in the paragraph at the top of the page, you agree -- you both you personally as a representative of CME and CME as your client agreed to that term of the agreement; right? 1356 MR. ROWAN: Yes. 1357 MR. KLIPPENSTEIN: And you agreed to that term of the agreement that allowed some variances without having in that term the issue of free ridership even though that issue was discussed elsewhere in the agreement; is that right? 1358 MR. ROWAN: That is correct. 1359 MR. KLIPPENSTEIN: So I put it to you that when you agreed to that paragraph on subsequent adjustments, you either didn't think of putting free ridership in there, or else you thought about it and compromised on that issue; isn't that fair? 1360 MR. ROWAN: I can't think of any other alternatives to those. 1361 MR. KLIPPENSTEIN: So what we have here is a term of the agreement which was agreed to by all the relevant parties; correct? 1362 MR. ROWAN: Yes. 1363 MR. KLIPPENSTEIN: It was approved by the Board; correct? 1364 MR. ROWAN: Yes. 1365 MR. KLIPPENSTEIN: It talks about when subsequent changes to inputs and assumptions will be made; correct? 1366 MR. ROWAN: Yes. 1367 MR. KLIPPENSTEIN: And it doesn't include -- 1368 MR. ROWAN: Excuse me. Assumptions -- 1369 MR. KLIPPENSTEIN: Inputs and assumptions. 1370 MR. ROWAN: It talks about the following assumptions and identifies four. 1371 MR. KLIPPENSTEIN: Right. 1372 And it identifies the fact that subsequent adjustments can be made to the pivot point, based on variances in those four categories? 1373 MR. ROWAN: That is correct. 1374 MR. KLIPPENSTEIN: Now, you, however, and your client are suggesting in this hearing that based on variances in the inputs and assumptions about free ridership, that the Board should go back, because of some kind of principle, and make a major change to the SSM agreement, even though the free-ridership factor was not included in the section which specifically allows changes; right? 1375 MR. ROWAN: No. Not the way you've phrased it, I don't believe. 1376 MR. KLIPPENSTEIN: Tell me how I'm wrong. 1377 MR. ROWAN: Well, this section deals only with the pivot point, and if I understand correctly, you are asking me to agree to something broader than just the pivot point, and I don't believe that we're asking the Board to -- with respect to retroactivity, to change the pivot point. 1378 If, in your definition of the pivot point, that it would be 42.1 -- 42 M 6 M 3 for the pivot point; Is that correct for that year? 1379 MR. KLIPPENSTEIN: You tell me. 1380 MR. ROWAN: Well, I'm looking at this exhibit that was K.1.2, and the approved target for 2000 was 42 M 6 M 3. 1381 MR. KLIPPENSTEIN: Yes. 1382 MR. ROWAN: So if what you are suggesting to me is that we agree that the -- that the only way in which the pivot point could be changed would be change to inputs and assumptions, and the following inputs and assumptions related to energy savings per measure, avoided cost, discount rates and measure lives, that those are the only four that could change that's 42 M 6 M 3. 1383 MR. KLIPPENSTEIN: All right. 1384 MR. ROWAN: That's how I'm understanding it, and I could be misunderstanding your question, but if that is what you're saying, then I will agree with that. However, free ridership is not in that, and we're not asking for the pivot point to be changed. 1385 MR. KLIPPENSTEIN: All right. Well, let's just take that idea a step further. You're saying that that section which allows changes, subsequently, when there's variations in the inputs and assumptions, deals with pivot points, and that's not what you're talking about, as I understand you; right? 1386 MR. ROWAN: That is correct. 1387 MR. KLIPPENSTEIN: Well, it is interesting that we have a section here which very carefully itemizes some important factors which, if they turn out to be wrong as inputs and assumptions, can be used to change subsequently a key part of the formula. 1388 Can you tell me is there anything in this Board approval decision or in that settlement agreement, or indeed anywhere else that authorizes a change subsequently or retroactively to the free ridership factor? Or as a result of a change in hindsight to the free ridership factor? 1389 MR. ROWAN: With respect to what, the pivot point? 1390 MR. KLIPPENSTEIN: With respect to anything. I'm saying this here talks about the pivot point and it has a specific mechanism that's agreed upon that is a safeguard, an escape hatch, a hindsight adjustment on some pretty important factors. 1391 Now, you say, well, it's only on the pivot point, and I say well, fine, if you want to change, in hindsight, the free ridership, can you point to me anywhere in any of this that suggests that's possible? 1392 MR. ROWAN: The only reason that I'm having some difficulty following your line of argument -- your questions is that you started out with the pivot point in 6.1. 1393 MR. KLIPPENSTEIN: Okay. 1394 MR. ROWAN: And I think what I have agreed with you is that free ridership is not one of the inputs and assumptions that is listed. Then you seem to go somewhere else and I'm having some difficulty with that. 1395 MR. KLIPPENSTEIN: Okay. I'm taking the next step. I'm saying you want -- you seem to be suggesting, in fact, you are suggesting that the Board should make a major change to one of the important assumptions or inputs based on hindsight; correct? 1396 MR. ROWAN: We're asking the Board to rule -- the auditor recommended a change in a free-ridership event that took place in 2000. It wasn't 10 percent. It was 49 percent. That's what we're asking the Board to do. 1397 We don't think that we -- that that in any way is or should be influenced by the wording in this RP-1999-0001. 1398 MR. KLIPPENSTEIN: Can you point me to the auditor's point that you're referring to? 1399 MR. ROWAN: Yes. It's -- it's in the auditor's report. It's page 5-23. It's recommendation number 7. It's on page 5 -- I'm sorry, it's on table 5-17. I don't have it here. It's all from memory. 1400 Mr. Chairman, just for your -- it is the auditor's report. It is section 5, page 23, and it is recommendation number 7 where it says: "We recommend that the current business market's free rider of 10 percent be replaced by a value between the low and high end indicated in table 5-17 above." And the mid-point of that table is 49 percent. 1401 MR. KLIPPENSTEIN: And can you point to anything that suggests that the auditor is suggesting that be applied retroactively? 1402 MR. ROWAN: No, and neither did she indicate that it should be applied in the future. 1403 MR. KLIPPENSTEIN: Well, it seems to me that applying something retroactively is a bit of a difficult and problematic step to take, and it's not usually done lightly, and it's not usually done without specifically being addressed. 1404 And so again, you can't, I take it, identify anything anywhere where the auditor says that this recommended -- we all know that it may well be appropriate to adjust the free ridership based on what we learn as we go along, but we can't point anywhere in this report where the auditor says the change should be made retroactively; is that correct? 1405 MR. ROWAN: That is correct, which one exception. I don't understand your use of the word "retroactive." The auditor was dealing in the year -- with a report in the year that it took place. It was talking about what was the actual facts that were at play. It wasn't dealing with something in the future and applying what happened in the future. It was what were the circumstances that played in the year 2000. 1406 And what the auditor said after a high degree of analysis is that we went and we interviewed these companies that Enbridge claimed were participants in this business market DSM program, and we asked them a very specific question. 1407 And that question was: Would you have done this in any event? And what the auditor found was that a high percentage of them would have done the DSM activities in any event, and the auditor came to the conclusion that almost half of the projects shouldn't have been in the program, shouldn't be counted for purposes of calculating the TRC. 1408 MR. KLIPPENSTEIN: Ah, let me just follow up on what you've just said. 1409 Can you turn in that report to page 1-2. 1410 MR. ROWAN: The auditor's report? 1411 MR. KLIPPENSTEIN: Yes. 1412 Now you're suggesting that the auditor said that those free-ridership figures shouldn't be used in calculating TRC. I think that's what you just said. 1413 Let me refer you to page 1-2 of that report, and item number 6, and I'll quote it to you, and that says: "The specific conditions under which budget and/or actual inputs would be changed based on new information from this audit or other sources will be determined by the audit subcommittee." And I suggest to you, Mr. Rowan, that the auditor is specifically saying, Here are my findings, and I am making no recommendations about how these should be applied, because that's not my business. 1414 MR. ROWAN: You're absolutely correct. 1415 MR. KLIPPENSTEIN: Okay. Now, so we don't find in the audit report anything to suggest that these benefits of further study in terms of free ridership should be used to change the budget or forecast and actual figures used for the SSM? 1416 MR. ROWAN: I don't understand your use of the term "further study". 1417 MR. KLIPPENSTEIN: I mean the further study of the audit; in other words, the further information we get as we learn. 1418 MR. ROWAN: The auditor was doing her job. She was asked to determine whether -- what was the free-ridership rate, and she did a good job. 1419 MR. KLIPPENSTEIN: Right. And we can't say to the members of the panel today that the auditor was saying, you should change what was earlier agreed to, because I've found, with the benefit of hindsight, that some of our assumptions were somewhat off? 1420 MR. ROWAN: What the auditor did say was that we recommend that the current business market free-rider assumption of 10 percent be replaced, be replaced by a value between the low and high end indicated in table 5-17 above. 1421 MR. KLIPPENSTEIN: And isn't it true, Mr. Rowan, that those better-focused and more accurate insights are, in fact, being used in subsequent years? 1422 MR. ROWAN: We don't agree that -- first of all, I don't know that, but we don't agree that it should be subsequent. 1423 But in the year in which she made the audit, that's when they should be, in our view. 1424 MR. KLIPPENSTEIN: But you're going farther than what the auditor says; right? 1425 MR. ROWAN: Yes, and so is the applicant. 1426 MR. KLIPPENSTEIN: I haven't yet heard from you any other document that you can refer to, that you can point as assistance to the Board today which states that adjustments should be made to the free-rider rates when calculating the SSM payout. 1427 If the Board says in its mind, there appears to have been an agreement on this methodology, and if they understand you to be saying that the assumptions, the free-rider rates should be changed because of subsequently acquired knowledge, can you point to this Board any document of any kind with any authority that can give them comfort that they're not retroactively changing the rules of an agreed-upon game? 1428 MR. ROWAN: I'm having some difficulty with your introduction to that question, because we're not asking -- if you are referring to 6.1.1, we are not asking that the pivot point be changed. So I just want to establish that and make that clear. 1429 In response to your other part of your question, there is no other document that I can point to one way or the other. 1430 MR. KLIPPENSTEIN: Mr. Chairman, I'm going to be leaving this subject. I'm not finished, but I don't know if the Board had a schedule in mind for closing today. 1431 I will be more than five minutes in my next subject, but I am in your hands for further guidance. 1432 MR. BETTS: We certainly do have flexibility. It's clear we will not complete your interests in this witness today, so I'm really looking to you to suggest an appropriate time to break. We would like to break as close to the four o'clock hour as is practical. 1433 So if you'd like to go beyond that, and it makes sense to do so, we would not have a problem with that. 1434 MR. KLIPPENSTEIN: I'm certainly not going to finish any new subject matter before four o'clock, so this might be a good time to break, then. 1435 MR. BETTS: Then in the interest of trying to stick to that schedule, which we promised we would, we will do that. 1436 Perhaps can we find out at this stage, to help us with tomorrow's planning, who else would like to cross-examine this witness? 1437 MR. POCH: I would, Mr. Chairman. 1438 MR. BETTS: Thank you. 1439 MS. LOTT: I will as well, but I will have not very many questions. 1440 MR. BETTS: Ms. Lott, thank you. 1441 Anyone else? Thank you. Mr. DeRose as well. 1442 And is that everybody? 1443 MR. MORAN: I may have some questions also. 1444 MS. NEWLAND: Mr. Chairman, if I have any questions left after all that, it won't be more than about ten minutes. 1445 MR. BETTS: Thank you very much. 1446 Then with that, the prospects of that for tomorrow, Mr. Rowan, we will see you in the morning. And I assume you were planning on coming or will have no difficulty in arriving tomorrow? 1447 MR. ROWAN: Wouldn't miss it. 1448 MR. BETTS: Great. 1449 We will stand adjourned until 9:30 tomorrow morning. 1450 --- Whereupon the hearing concluded at 3:57 p.m.