Rep: OEB Doc: 12RWV Rev: 0 ONTARIO ENERGY BOARD Volume: 1 10 JUNE 2003 BEFORE: R. BETTS PRESIDING MEMBER G. DOMINY MEMBER 1 EB-2003-0126 2 IN THE MATTER OF the Ontario Energy Board Act, 1998, S.O. 1998, c.15 (Sched. B); AND IN THE MATTER OF an application by Enbridge Gas Distribution Inc. for an Order or Orders approving or fixing just and reasonable rates and other charges for the sale, distribution and transmission and storage of gas as of July 1, 2003; AND IN THE MATTER OF the Quarterly Rate Adjustment Mechanism approved by the Ontario Energy Board. 3 EB-2003-0126 4 10 JUNE 2003 5 HEARING HELD AT TORONTO, ONTARIO 6 APPEARANCES 7 PAT MORAN Board Counsel TURGOT HASSAN Board Staff CHRIS MACKIE Board Staff JERRY FARRELL EGD TANYA PERSAD EGD GEORGE VEGH OESC et al ROBERT WARREN CAC MICHAEL JANIGAN VECC PETER THOMPSON IGUA VINCENT DeROSE IGUA JAY SHEPHERD OPSBA TIBOR HAYNAL TCPL TOM BRETT OASBO 8 TABLE OF CONTENTS 9 APPEARANCES: [22] PRELIMINARY MATTERS: [43] SUBMISSIONS BY MR. WARREN RE SETTLEMENT PROPOSAL: [58] SUBMISSIONS BY MR. VEGH RE SETTLEMENT PROPOSAL: [97] SUBMISSIONS BY MR. DeROSE RE SETTLEMENT PROPOSAL: [130] SUBMISSIONS BY MR. SHEPHERD RE SETTLEMENT PROPOSAL: [143] SUBMISSIONS BY MR. JANIGAN RE SETTLEMENT PROPOSAL: [151] SUBMISSIONS BY MR. BRETT RE SETTLEMENT PROPOSAL: [157] SUBMISSIONS BY MR. FARRELL RE SETTLEMENT PROPOSAL: [165] REPLY SUBMISSIONS BY MR. WARREN RE SETTLEMENT PROPOSAL: [184] DECISION: [199] ENBRIDGE GAS DISTRIBUTION PANEL 1; GIRIDHAR, DUGUAY, SMALL, BRENNAN [207] EXAMINATION BY MR. FARRELL: [214] CROSS-EXAMINATION BY MR. DeROSE: [366] CROSS-EXAMINATION BY MR. VEGH: [798] CROSS-EXAMINATION BY MR. JANIGAN: [1094] 10 EXHIBITS 11 EXHIBIT NO. K.1.1: GRAPH ENTITLED "PROJECTED 2003 PGVA BALANCES" [276] EXHIBIT NO. K.1.2: GRAPH ENTITLED "2003 VOLUMES" [279] EXHIBIT NO. K.1.3: MATER IALS FOR CROSS-EXAM INATION FILED BY SUPERIOR ENERGY MANAGEME NT, ONTARIO ENERGY SAVINGS CORP., AND UNION ENERGY [803] 12 UNDERTAKINGS 13 UNDERTAKING NO. J.1.1: TO CONFIRM WHETHER THE UNION GAS UNAUTHORIZED OVERRUN CHARGES REFERRED TO IN EXHIBIT I, TAB 4, SCHEDULE 5, PAGE 4 OF 4(C) WAS APPROVED BY THE ONTARIO ENERGY BOARD IN A RATES APPLICATION OR A QRAM APPLICATION [494] UNDERTAKING NO. J.1.2: TO DETERMINE WHAT THE UOG OVERRUN REVENUES WERE THAT ARE ALLOCATED TO THE SHAREHOLDER [774] UNDERTAKING NO. J.1.3: TO PROVIDE A BLACK-LINED VERSION OF EXHIBIT Q.4-1, TAB 2, SCHEDULE 1, APPENDIX A, WHEN COMPARED TO THE ORIGINAL AGREEMENT [954] 14 --- Upon commencing at 9:10 a.m. 15 MR. BETTS: Good morning. Can everybody hear me in the back there? So the system is working? 16 Thank you, and I see everybody is awake, because I see nodding heads, so that's great. 17 The Board is sitting today in the matter of application RP-2002-0133 and specifically EB-2003-0126 submitted by Enbridge Gas Distribution Inc. for an order or orders approving or fixing rates for the sale, distribution, transmission, and storage of gas. The application was made pursuant to the applicant's approved quarterly rate adjustment mechanism. 18 While the normal Enbridge QRAM process incorporates a shortened written methodology for comment and response, several features of this application are outside of the norm, causing the Board to accept intervenor request for an oral process. The oral hearing will allow parties to examine the application while facilitating a tight timeline for the Board decision. 19 The Board expects arguments to be delivered orally following the evidentiary portion of the hearing with the objective of completing the hearing today. However, the Board has allowed for a spillover to tomorrow morning if that becomes necessary. 20 My name is Bob Betts. I am the presiding member in this hearing, and joining me is fellow Board member George Dominy. 21 May I have appearances, please. 22 APPEARANCES: 23 MR. FARRELL: Yes, Mr. Chairman. My name is Farrell, initials J.H., and I appear for Enbridge Gas Distribution. 24 MR. BETTS: Thank you, Mr. Farrell. 25 MR. VEGH: Good morning, sir. George Vegh, V-e-g-h, here on behalf of Ontario Energy Savings Corp., Superior Energy Management, and Union Energy. 26 MR. BETTS: Okay. 27 MR. WARREN: Robert Warren for the Consumers' Association of Canada. 28 MR. BETTS: Mr. Warren. 29 MR. DeROSE: Vincent DeRose, Industrial Gas Users Association. 30 MR. BETTS: Mr. DeRose. 31 MR. JANIGAN: Michael Janigan for the Vulnerable Energy Consumers Coalition. 32 MR. BETTS: Good morning. 33 MR. SHEPHERD: Jay Shepherd, the Ontario Public School Boards' Association. 34 MR. BETTS: Thank you, Mr. Shepherd. 35 MR. HAYNAL: Tibor Haynal for TransCanada PipeLines. 36 MR. BETTS: Mr. Haynal. 37 Any other parties? 38 MR. MORAN: Pat Moran, Board counsel. 39 MR. BETTS: Thank you, Mr. Moran. 40 And that is everybody? 41 Are there any preliminary matters? 42 MR. FARRELL: Yes, I have one, Mr. Chairman. 43 PRELIMINARY MATTERS: 44 MR. FARRELL: We'd like an adjournment of an hour or so -- I guess let's be specific and say an hour to review a further set of interrogatory questions that IGUA sent late yesterday but that we did not receive until a few -- well, 15 or 20 minutes ago. And I would like our witnesses to have the opportunity to read through and understand the questions before they're either asked orally or the witnesses are asked to provide an undertaking to provide a response. So we think it would be worthwhile and expedite the process if we had an hour to do that task. 45 I'm also advised by some counsel for intervenors that they did not receive a full set of Enbridge's responses to timely interrogatories until either late last night or this morning, and I am advised that counsel for the intervenors would like some time to digest the answers before they begin their cross-examination. 46 So the request is for an adjournment of an hour. 47 MR. BETTS: Are there any other comments or submissions on that request? 48 I take it, then, there is no objection to the request. 49 The Board understands that and finds it acceptable. I think what we will do under those circumstances is perhaps to allow an hour and 20 minutes. We'll reconvene at 10:30, and we will not have a morning -- that will be our morning break as well. We will go from there through to lunch if that's suitable. 50 And just at the outset, I appreciate the -- all parties', really, efforts to deal with a very, very short interrogatory process. I think it's remarkable that the questions were able to be asked and the answers delivered to the extent that they have been, and the Board certainly understands that there will be some that are filtering in at this time. 51 So with that, we will accept the recommendation for an adjournment, and we will adjourn until 10:30 this morning. 52 MR. FARRELL: Thank you, Mr. Chair. 53 --- Recess taken at 9:30 a.m. 54 --- On resuming at 10:45 a.m. 55 MR. BETTS: Welcome back, everybody. 56 Before we began, I see we have a witness panel in place, and we will go through the process of swearing those people in. 57 Are there any preliminary matters to deal with before we do that? 58 SUBMISSIONS BY MR. WARREN RE SETTLEMENT PROPOSAL: 59 MR. WARREN: There is, Mr. Chairman, and it is this. The intervenors want to make a proposal to the Board for a way to expedite today's proceeding, and I make this application on behalf of the CAC and leave to others to make their submissions with respect to it, but it is a submission which is made, in the final analysis, on behalf of all of the intervenors. 60 As the Board will be aware, Mr. Vegh's client through interrogatories, and also Mr. DeRose's client through interrogatories, have raised a number of issues that are complex issues, issues that would, in the ordinary course, be dealt with at a main rates proceeding. 61 The important point, however, is that they are issues that require the production of information that requires a considerable amount of time to explore in cross-examination and a considerable amount of time to consider and make reasoned submissions on. 62 And I refer to Mr. Vegh's clients and to Mr. DeRose's clients, not meaning to exclude the residential consumers for whom I appear. The issues that have been raised are equally of significance to them as well, and the full and reasoned examination of all of the relevant information is important to my clients as well. 63 Against that background, Mr. Chairman, we are proposing a solution to today's proceeding along the following lines. 64 There is a proposal to clear a PGVA balance in the amount of, I'll use a round number, $172 million, which has the following components to it. 65 $22 million of that is related to gas costs. The balance of the amount, some $150 million, is attributed to what is described as load-balancing costs. Now, within the $150 million in load-balancing costs, the proposal is to allocate some $62 million of that to system customers and some $88 million of that to direct-purchase customers. 66 Our proposal, Mr. Chairman and Mr. Dominy, is that the Board, on an interim basis, order that the amount that is attributable, according to EGD, to the system customers, which would be a total of some $84 million, be cleared through the use of a rate rider recoverable over a period of 6 months. 67 That would leave the issue of the $88 million to be resolved in a subsequent proceeding, and I'll deal with the nature of that subsequent proceeding in a moment. 68 The rationale for the proposal is this, Mr. Chairman. As I have already indicated, there are a substantial number of other complex factual and policy issues that need to be resolved, and it is difficult virtually to the point of impossibility to deal with those in a rational and thorough way within the compass of a hearing which lasts a few hours. 69 They are going to have to be dealt with, in any event, in a main rates case where the PGVA clearance is ultimately trued up and the prudency issues are resolved. 70 I think it is fair for me to submit that the driver for today's proceeding, the policy driver behind the whole QRAM mechanism, is a concern on the part of everybody, both the intervenors and on the part of the utility, to avoid, to the extent humanly possible, rate retroactivity. We all share that concern, and the proposal that we have made would take some of, although not all of, the sting out of the rate retroactivity by clearing on an interim basis the sum of $84 million to the system customers through a rate rider. 71 Now, it may be the case, when the issues are finally resolved, that, for example, all $150 million attributable to load balances costs might be allocated to system customers. So there would be a component of, in that doomsday scenario, if you wish, there would be some component of rate retroactivity, but it would be reduced or mitigated or lessened in its impact by the proposal that we are making today. 72 On the other hand, it may be the case that some portion of the $84 million which would be recovered from system customers, the Board may ultimately decide that not all of that should have been recovered from system customers, in which case there are mechanisms to allow that to be repaid. 73 So the proposal that I am suggesting for the Board's consideration is not at all insensitive to the concern about rate retroactivity, but it balances that concern against the importance of natural justice and rational decision-making. 74 With respect to the other issues which are alive in this hearing, one is the penalty applicable to the unauthorized overrun gas. As I understand, the driver for that in the company's proposal is a desire to give notice to direct-purchase customers that there will be a change in this policy. That is an entirely desirable thing to do. However, if that issue is, as we propose, deferred to another proceeding, in our view the notice has been given by virtue of this application that there is a possible change in penalty coming. 75 There is, finally, the issue of the underrecovery of distribution revenues. That is an issue which is alive in the 2003 rates case. The monetary implications of that are not all that significant, and in our view, it could be deferred to a later proceeding. 76 Now, when I talk about deferring to a later proceeding, there are two alternative proposals that the Board might follow. One would be to have another hearing much along the lines of this case, but to allow a period of let's say -- to postpone that for perhaps three weeks or a month to allow a fuller interrogatory process by which I mean the utility has the time to answer the interrogatories, so that the intervenors can then consider that and ask reasoned questions in cross-examination and make full and reasoned submissions. 77 The other alternative is simply to defer consideration of these issues until the 2004 rates case, whenever that is considered, presumably reasonably soon, and to remember, of course, that the issues, the ultimate disposition of the PGVA has to be considered in that case as well, so that one of the virtues of what we are proposing is that it avoids a replication or duplication, if you wish, of all of the issues. 78 I can't presume to speak for Mr. Farrell and his client, but I presume that one of the principal concerns they would have with this proposal is with the stigma, I guess, that's attached to rate retroactivity and it is our intention to try and reduce, to some extent, that stigma by indicating that this is a proposal which is made on behalf of the CAC and joined in by others, so that we are accepting the fact that some payments will be required now, although some will be deferred. 79 So our request, Mr. Chairman, is that all of the issues that are alive before the Board today be disposed of without the need for a contested hearing at this point along the lines that I have proposed. 80 Those are my submissions. Thank you, sir. 81 MR. BETTS: Thank you, Mr. Warren. 82 MR. DOMINY: Mr. Warren, I just have one question, and it is related to this question of the penalty charge and this comment that it would be accepted that the notice has been given in the context that this proceeding is taking place, and the fact that subsequently would parties who might be subject to the penalty argue that they had not received notice because they hadn't had anything formal but there had just been this sort of communication or even a communication from a salesman to them that the notice might be changed. Are we running a risk that if you came ultimately to decide the situation, that they would be arguing individually that they hadn't received notice? 83 MR. WARREN: I would prefer, I think in fairness, to defer to my friends Mr. Vegh and Mr. DeRose to respond to that, because it is their constituencies who would be more directly affected by this than would be the CAC. 84 MR. DOMINY: Okay, thanks. 85 MR. BETTS: And perhaps before we take that answer, I'll ask another question that may be deferred as well. 86 Can you explain to me, Mr. Warren, and perhaps you may want to defer this, with respect to the first issue, what specific questions were raised that you or some party feels cannot be dealt with today? 87 MR. WARREN: It is not a question, sir, of -- that they can't be dealt with. Anything can be dealt with. 88 The question is whether or not they can be dealt with adequately or fairly given the compass of the time, and I would prefer to defer to Mr. DeRose in particular, whose most recent series of questions have raised it. 89 But they relate, really, to the prudency and to whether or not some or all of the $150 million really should be characterized as balancing -- load-balancing costs. And that in turn requires an analysis of what the rules of the game are at the moment with respect to the obligations of direct-purchase customers. 90 So it is an issue, broadly speaking, of -- really, of fairness and also of rational decision-making, which requires as thorough as possible examination of the issues. 91 Against that general background, perhaps Mr. DeRose would be in a better position to respond to it than I. 92 MR. BETTS: Well, I will ask for submissions, then, in favour of the proposal. 93 Can I ask everybody to be as brief as possible and yet provide the panel with as much information as they can. I don't want the discussion of this proposal to, in fact, determine that we cannot go any further, because we have taken too much time on it. So please, and I will -- if you see me waving my arms, you know I'll be saying, Move things along. 94 Who would like to be first? 95 Mr. Vegh? 96 MR. VEGH: Thank you, sir. I'll be brief, and I'll make submissions in support of the proposal and my reasons why. 97 SUBMISSIONS BY MR. VEGH RE SETTLEMENT PROPOSAL: 98 MR. VEGH: Basically, under the current QRAM methodology, all of the amounts in question, the $172 million, would be cleared to system-gas customers through a rate rider. And Enbridge's proposal in this case is to carve out a piece of that, the 88 million, and clear this to direct-purchase customers through a rate rider. 99 And the controversy in this case, then, is how to address this 88 million on an interim basis. Do we clear it to system-gas customers as the current methodology says we do, or do we clear it through a rate rider to direct-purchase customers? 100 And that's -- the question is: Do we have a material change here in the methodology? And that's something that my clients take very seriously as working with direct-purchase customers. It's a material change. 101 Now, we've asked our interrogatories. They have been answered. I have seen this morning the interrogatories filed by IGUA. Frankly, they raise some points we hadn't considered yet. So the question -- and we haven't heard the answers to any of those interrogatories yet, so we are, sort of, speculating on whether or not we're going to have satisfactory information going into this case. 102 And our submission would be in support of this, the proposal put forward by Mr. Warren, that this is a controversial issue, how to deal with this $88 million, whether to change the QRAM methodology, and we would look for a more orderly and fulsome process to deal with this. 103 In terms of the response to the question on the notice issue, on the other issue of unauthorized gas, I don't see a particular notice problem on behalf of my clients. 104 [The Board confers] 105 MR. DOMINY: Mr. Vegh, I just wanted to confirm my understanding, and probably it's the company that would provide the answer. 106 But my understanding is that the intent of this proposal is to clear in what they view as the amount that would be going to the direct-purchase customers now as opposed to doing it when they check the prudency and the balances in the PGVA at the end of the year; is that correct? 107 In fact, if they are correct in their assumptions about the process and the methodology and the allocation, by not clearing it now to direct purchasers, what you would be doing is clearing it to them at a later time. 108 MR. VEGH: That's the company's position; that's right. And the position in response to that, I guess, is both a procedural one and a substantive one. 109 First, we would like to push back on that $88 million figure, and procedurally, which is actually the main concern of my clients, is that this is a departure from the existing methodology, which is quite explicit on how clearances are to be made through rate riders, how load-balancing charges are to be addressed in rates, and that -- that maintaining the existing methodology is quite important, of course, because people plan their businesses around that existing methodology. 110 So it is a procedural issue, perhaps, around the method for changing the methodology, but the impacts on clients, on direct-purchase customers for those procedural issues are material. 111 MR. DOMINY: In the context, then, of a potential future charge to direct-purchase customers, what happens with regard to market signals? 112 MR. VEGH: The market signals, sorry, for the one-time clearance? 113 MR. DOMINY: In the sense that if you have the system customers having a substantial charge implemented through a rate rider now, and the direct-purchase customer not seeing that but potentially having that introduced some time later, what is the effect on market signals? 114 MR. VEGH: Well, the market signal aspect of the agreement is something that was agreed to as well, so if there is a one-time clearance of $88 million, and if that amount is actually attributable to direct-purchase customers, then that's in accordance with the agreement that they have entered into. And, you know, the fact is that that's the amount that is charged to them on a one-time basis. 115 You see, the market -- the market signal as impacted by the rate rider is supposed to be simply related to the charge cleared to system-gas customers. That's the current understanding of the market signal. 116 So when you go out and talk to a direct-purchase customer about how to understand their gas commodity charges and how to understand system-gas commodity charges, you do that in accordance with the rules that have been thoroughly negotiated. And you say, Well, system-gas customers pay the utility price, and system-gas customers get a debit or a credit on the PGVA rider, and so they -- they make their decisions on that basis. 117 And now, of course, they'll be -- having made that decision, they now see that when they compared the bill, they see, Oh, now there's a rider applied to direct-purchase customers. So that sends a very confusing market signal, a much more confusing market signal than the one-time adjustment, which is already part of the landscape of direct purchasers. 118 MR. DOMINY: So, in fact, the direct-purchase customer -- I mean, I really don't know how the direct-purchase community will handle the additional rider if it came to be levied, the 88 million came to be levied from the direct-purchase customer, that there's this future 88-million obligation that may be landed on them at some later time. And how would -- would that be absorbed by the marketer, or would it be reflected in the price he would charge? 119 I'm not sure how it would be landed on him. 120 MR. VEGH: Well, I think it's cleared through distribution -- distribution charges. So the load-balancing charges would be cleared through adjustments -- well, cleared back through PGVA, so back to -- back to customers. 121 And, you know, the fact is when we talk about the market signal, these costs have already been incurred, and they have been incurred months ago. So the market signals you're talking about are those that would start to kick in July 1st. 122 So I don't know if you have a clear -- you know, adding a commodity component in July for commodity costs that were incurred, you know, January/February, I don't know if that provides a lot of clarity around or additional clarity around market signals in any event. 123 MR. DOMINY: Okay. Thank you. 124 MR. BETTS: One point of clarification, Mr. Vegh. Did I understand your proposal to be somewhat different from what I heard Mr. Warren say? Were you suggesting that the 172 million should be cleared to system-gas customers as per the existing QRAM methodology? 125 MR. VEGH: Well, I'm saying the existing methodology default would clear that amount to system-gas customers, and the controversial component of that 172 million is the 88 million. So the issue in this case is what to do about that 88 million. 126 So I am not disagreeing with Mr. Warren as to what we do about it, which is to have a more thorough analysis and determination of what should be done with that $88 million. 127 MR. BETTS: And again, for clarification, you then are agreeing with him that the $84 million would be cleared to system gas and nothing would happen with the $88 million at this point? 128 MR. VEGH: At this point, that's right. 129 MR. BETTS: Okay. Mr. DeRose, did you have a brief comment? 130 SUBMISSIONS BY MR. DeROSE RE SETTLEMENT PROPOSAL: 131 MR. DeROSE: I'll make it brief. 132 First of all, IGUA supports both Mr. Warren and Mr. Vegh's submissions, and I will try not to duplicate. 133 With respect to the notice issue that you asked about, we do take a different approach than Mr. Warren and Mr. Vegh. If we proceed today, a number of my questions will be related to the notice provided with respect to the unauthorized overrun gas, and if the Board accepts Mr. Warren's submissions, our submission would be it would be prudent for Enbridge to send a notice to, certainly, interruptible and large-volume direct-purchase customers as those are the customers that, as I understand it, would in large part be subject to the unauthorized overrun gas charges. 134 With respect to a question asked by Mr. Dominy, and it was premised with the statement that if correct about the assumptions, then there would be a clearance of $88 million to direct-purchase customers, and in our submission, when a change to the QRAM methodology occurs, as it is proposed to change in this case, intervenors are entitled to test the assumptions to make sure that they are correct. 135 So this isn't simply a formulaic application of the QRAM methodology, but it is a change of that methodology, and as intervenors, we will be looking to test the assumptions. 136 And it is important to keep in mind that the time frame, which I would describe as compressed, that we have been working with. We received the application 13 days ago. I myself received the interrogatories for the first time this morning at about 10 to 9:00. 137 In all fairness, we sent a number of supplementary interrogatories last night. As I understand it, for some reason they did not arrive at the Enbridge office, so Enbridge received our supplementary interrogatories this morning, and the purpose of our supplementary interrogatories were to try and provide witnesses with as much of a heads-up as possible, because we feel that we need as much evidence as possible and as much time to assess the evidence in order to, first of all, make a well-thought-out cross-examination, and secondly, to make well-thought-out submissions. 138 And it is no surprise that a key argument, if we proceed today, will be that the changes sought, first of all, are inappropriate in a QRAM process, but secondly, are inappropriate in a compressed time frame. 139 And Mr. Warren's submission addresses the inappropriateness of a QRAM-methodology change in a compressed time frame of 13 to 14 days, and in our submission, the evidence and information that we have received this morning and that we would receive over the balance of today and possibly tomorrow would be very technical in nature. And to then immediately provide oral submissions to this Board, as I believe the process is intended to proceed, in our submission, would cause prejudice certainly to our clients and, in our submission, the intervenors, certainly IGUA, would be disadvantaged in comparison to the company. 140 So our submission would be that in this regard to issue a decision at this time with respect to changes in the QRAM methodology would violate the most basic tenets of fairness, equity and natural justice. 141 MR. BETTS: Thank you. 142 Are there any further submissions in support? Mr. Shepherd. 143 SUBMISSIONS BY MR. SHEPHERD RE SETTLEMENT PROPOSAL: 144 MR. SHEPHERD: Thank you, Mr. Chairman. 145 It is no secret that the school boards are hawks on the issue of rate retroactivity, something that is of considerable importance to us. However, we do support this proposal. It occurs to us that what is suggested is that some very complex issues that we are all having trouble getting our heads around in this short time frame be deferred for a month or two, and therefore, that our rate rider be deferred over the low-volume summer month or months, one or two months over the low-volume summer, for one class of customer, which, by the way, most school boards are direct purchase customers. 146 It seems to me that is a relatively low-impact retroactivity that is worth risking in order to get the numbers right in an appropriate time frame. 147 I note that the Enbridge 2004 hearing is being talked about for the middle of August, which means that we could actually even defer it until then and still not have a very big retroactivity problem, but my preference would be to have this dealt with over the next three or four weeks, if that is possible. 148 Those are our submissions. 149 MR. BETTS: Thank you, Mr. Shepherd. 150 Mr. Janigan. 151 SUBMISSIONS BY MR. JANIGAN RE SETTLEMENT PROPOSAL: 152 MR. JANIGAN: Yes, very briefly, Mr. Chairman, we support the proposal that has been put forward by Mr. Warren in relation to the disposition of the issues associated with this proceeding on an interim basis. 153 If the Board -- one point that has arisen I would like to deal with. If the Board feels that dealing with the penalty charge in the fashion that we have proposed collides with principles of regulatory fairness, I think that issue may be severable and can be dealt with in the proceeding today and the remainder of the issues disposed of in the fashion that Mr. Warren has proposed. 154 And those are all our submissions on this matter. 155 MR. BETTS: Thank you, Mr. Janigan. 156 Mr. Brett. 157 SUBMISSIONS BY MR. BRETT RE SETTLEMENT PROPOSAL: 158 MR. BRETT: Thank you, Mr. Chairman. I do agree with the suggestions of Mr. Warren. 159 I have had difficulty understanding this evidence with respect to the allocation or the derivation of the $88 million. I know the company says that this issue was decided in 495; it must have been decided with very little argument. I don't recall it being a large item in that case. There is a lot of money involved in this at this stage, and I can't, for the life of me, make out from the evidence, pre-filed evidence, which is very brief, how these numbers were derived. 160 And I asked a bunch of interrogatories. Now, I didn't get them over to the company until Friday evening. I haven't gotten any responses yet. I see their responses to some of the other interrogatories this morning. I haven't had a chance to read those. So I don't think, from a process point of view, we really have had a chance to find out, to really look at this information properly. So from those points of view, I would like to see this deferred briefly. 161 Those are my -- I am particularly concerned with that issue, Mr. Chairman. Those are my submissions. Thank you. 162 MR. BETTS: Thank you, Mr. Brett. 163 Are there any further submissions in support of the motion? 164 Submissions opposing the motion. Mr. Farrell, would that be you? 165 SUBMISSIONS BY MR. FARRELL RE SETTLEMENT PROPOSAL: 166 MR. FARRELL: That's how it appears. 167 Mr. Chairman, we do oppose the motion on a couple of grounds. We are -- we worked very hard, by the way, to respond to the interrogatories, including Mr. Brett's, which were late, which means we didn't really get an effective start until Monday morning. We spent the last hour and a half, more or less, working our way through IGUA's interrogatories, or their supplemental interrogatories, and we are prepared to go. 168 We see this as an issue, and I don't mean to be flip, but I'll say it in a way that captures what used to be a commercial: You can pay me now or you can pay me later. 169 And essentially what the company is proposing, due to the magnitude of the load-balancing component in the PGVA, is that the clearance of the projected year-end balance simply be advanced in time. 170 The mechanics we are proposing were approved in EBRO-495. That's five years ago, and they've been applied ever since. 171 So the mechanics are not new. The timing is new; we admit that. But we say that there's good reason for advancing the timing, and that's all set out in the filed evidence. 172 For that reason, we don't subscribe to Mr. Vegh's comment, for example, that this is a material change in the QRAM process. It is a material change in timing but not in effect, is what we would say. 173 Mr. Vegh made comments to the effect, in response to Mr. Dominy's questions, that from a procedural point of view, the impact is material. Well, that's what Mr. Vegh may say, but we don't have any evidence to that effect. 174 Again, I make the point that it's pay me now or pay me later. Direct purchasers will pay their fair share, and we say that there's enough evidence in the record, or will be when the witnesses respond to the late interrogatories from IGUA, to allow the two of you as the Board sitting in this case to make a rational and thoroughly reasoned decision. 175 We disagree with Mr. DeRose's submission that the notice for the unauthorized overrun gas charge is inadequate. We think it is adequate, and it is a proposal that is made now for timing reasons that are again explained in the written evidence. And that evidence should have the ability to be tested in the process of this case before you jump to a conclusion that the notice wasn't adequate. 176 We concede that there are changes to the QRAM process that we are proposing here. We have never thought of the QRAM process as being carved in stone in the sense that it couldn't be modified to adjust itself to contingencies as they arise. The fact that the Board's having a hearing is a modification of the QRAM process, because it was written to be something that was to be dealt with in writing. 177 We're not objecting to the hearing, but we're simply saying the fact that we're all here today is a means of accommodating and testing the changes that the company is proposing and the application as a whole. 178 And just one last comment, Mr. Chairman, and it has to do with costs. We're here. We're ready to go. The intervenors are here, and it just seems to us to be inefficient if we -- if the company and, therefore, ratepayers, are saddled with the costs of today, which is simply a deferral exercise, only to be exposed to the costs of another day. 179 Those are my submissions. Thank you. 180 MR. BETTS: Thank you, Mr. Farrell. 181 Are there any other submissions opposing the motion? 182 Any reply? Rather than reply from everybody, if there could be either a representative or, perhaps, two representatives to indicate a reply, that would be fine. 183 Mr. Warren? 184 REPLY SUBMISSIONS BY MR. WARREN RE SETTLEMENT PROPOSAL: 185 MR. WARREN: Just two, Mr. Chairman. 186 Mr. Farrell, no doubt, without intention pointed to a contradiction in the position. He said that the mechanics of the process were approved five years ago and that only the timing is new, and not 2 1/2 minutes later, he said that the procedure for the QRAM has never been cast in stone and is open to change. And what that inadvertently raises as the issue is that there are different perspectives on what is or is not cast in stone. 187 And so what -- in the guise of this hearing, you're going to hear arguments -- you're going to hear evidence about and arguments in relation to whether or not this is an appropriate issue to be dealt with in the QRAM. 188 But let me get to the nub of the issue. The nub of the issue is the sensitivity that everybody in this room has to retroactive rate payments. The company certainly has that, because they would bear the brunt of any criticism that might be levelled. And what we're proposing is a way to mitigate that, consistent with and balanced against the critical importance of having a thorough analysis of these issues. 189 Now, Mr. DeRose was modest in his submissions, but if you look at the questions that have been raised is -- raised in the supplementary interrogatories, they go to the heart of the obligations of direct purchasers to balance their own -- to do their own load balancing. And those issues are -- frankly, I hadn't thought about them until I saw those questions. They are issues of importance, and they are issues of some propensity. 190 The fact that the company says this morning they're ready to go is, in our respectful submission, really not the determinant. The question is whether or not the intervenors are ready to go in light of the complexity of these issues. 191 I say at the end of the day that we can all collectively agree that if we can find a means of balancing appropriately the need for a thorough hearing with the risk of rate retroactivity, that that's what we should do. And in our respectful submission, our proposal strikes the right balance, rather than embarking on a process that risks being unfair to everybody. 192 Those are my reply submissions. 193 MR. BETTS: Does anyone else feel the need to reply? Does that cover it? 194 [The Board confers] 195 MR. BETTS: Mr. Dominy and I will consider the submissions that we have received. We would like everybody to stick around. We'll give everybody, perhaps, a 20-minute break, which will try to have us back at quarter to 12 with some answer. If we can't, then one of our Board Staff will indicate what the expectation is. 196 We will adjourn now until 11:45. 197 --- Recess taken at 11:25 a.m. 198 --- On resuming at 12:15 p.m. 199 DECISION: 200 MR. BETTS: The Board has considered the arguments it received on this motion and has decided to continue with the application today. 201 Our concerns relate to the issues of retroactivity to all customers, direct and system gas, and the fact that the size of the balances in this case are significantly large to again add to that concern about rate retroactivity. 202 We also recognize that the opportunity for true-up still exists and in fact, some of the issues that have been raised regarding the methodology of QRAM and allocation methods can be considered as part of the 2004 rates case. 203 With that, we will then proceed with the application as it's been presented today. 204 The panel's preference is to hear the evidence in direct and then break for lunch after that, and we will commence cross-examination at that point. 205 Are there any questions? 206 Mr. Farrell, please proceed. Oh, we have not sworn in the panel yet, so we'll do that. 207 ENBRIDGE GAS DISTRIBUTION PANEL 1; GIRIDHAR, DUGUAY, SMALL, BRENNAN 208 M.GIRIDHAR; Affirmed. 209 P.DUGUAY; Sworn. 210 D.SMALL; Sworn. 211 F.BRENNAN; Sworn. 212 MR. BETTS: The witnesses have been sworn in, and although there are familiar faces on the panel, perhaps you could introduce them. 213 MR. FARRELL: Yes, I will. Thank you, Mr. Chair. 214 EXAMINATION BY MR. FARRELL: 215 MR. FARRELL: Sitting closest to the Board is Malini Giridhar, M-a-l-i-n-i, G-i-r-i-d-h-a-r. Her title is Manager, Rate Design. 216 Sitting to Ms. Giridhar's right is Pascale Duguay, and she is Manager, Rate Research and Design. 217 Sitting to her right is Don Small -- and I don't have to spell that one -- Manager, Gas Cost Knowledge Centre; and to his right is Frank Brennan, and his position is Director, Energy Policy and Analysis. 218 So I'll have the same questions for each of you, just to get the evidence into the record, and I'll start with you, Ms. Giridhar. Were the exhibits that were assigned to you prepared by you or under your direction or control? 219 MS. GIRIDHAR: Yes, they were. 220 MR. FARRELL: And are the exhibits that were assigned to you and one or more of your colleagues prepared by you jointly or under your joint direction or control? 221 MS. GIRIDHAR: Jointly. 222 MR. FARRELL: And do you have any corrections you wish to this material? 223 MS. GIRIDHAR: Yes, I do. I have one correction to an interrogatory response that was provided this morning. This is Exhibit I, tab 5, schedule 2, page 2 of 2, and it is the third bullet point. I would like to add some words at the end. 224 MR. FARRELL: Just wait until we get everybody -- 225 MR. BETTS: That was schedule 2? 226 MR. FARRELL: Yes. 227 MR. BETTS: So I have I, tab 5, schedule 2. 228 MR. FARRELL: Schools interrogatory number 2. 229 MR. BETTS: And page? 230 MS. GIRIDHAR: 2. 231 MR. BETTS: Thank you. 232 MS. GIRIDHAR: The third bullet point reads: "Customer takes service on an interruptible rate class, but fails to curtail consumption when ordered to do so." I would like to add the words "or does not deliver their mean daily volume." 233 Thank you. 234 MR. FARRELL: Thank you, Ms. Giridhar. And with that correction, are the exhibits for which you have sole or joint responsibility accurate, to the best of your knowledge and belief? 235 MS. GIRIDHAR: Yes, they are. 236 MR. FARRELL: Ms. Duguay, the same questions for you: Are the exhibits that were assigned to you, were they prepared by you or under your direction or control? 237 MS. DUGUAY: Yes, they were. 238 MR. FARRELL: And are the exhibits that were assigned to you and others prepared by you jointly or under your joint direction or control? 239 MS. DUGUAY: Yes, they were. 240 MR. FARRELL: And do you have any corrections you wish to make? 241 MS. DUGUAY: I have some references to correct, and the first one being the response to Board staff interrogatory number 1, and that is on page 1, parts B and C. On the fourth line, the sentence starts "This is seen at Exhibit Q.4-4." It should really read "Q.4-3". 242 And I also have a similar correction in the written direct evidence found at Q.4-2, tab 4. And the correction is in paragraph 2, in the fourth line of paragraph 2. And it should read -- I just want to double-check and make sure I got it right. Yeah. So it should read "Exhibit Q.4-3, tab 1" instead of tab 2, schedule 2. The rest is okay. 243 And those are my corrections. 244 MR. FARRELL: Thank you. And are the exhibits for which you have sole or joint responsibility accurate with that correction, to the best of your knowledge and belief? 245 MS. DUGUAY: Yes, they are. 246 MR. FARRELL: Mr. Small, are the exhibits that are assigned to you, were they prepared by you or under your direction or control? 247 MR. SMALL: Yes, they were. 248 MR. FARRELL: And are the exhibits that are assigned to you and others on the panel prepared by you jointly or under your joint direction or control? 249 MR. SMALL: Yes, they were. 250 MR. FARRELL: Do you have any corrections you would like to make? 251 MR. SMALL: Yes, I would. If I could direct you to Board Staff interrogatory number 2, it is Exhibit I, tab 1, schedule 2, and in the response to that interrogatory, in the second bullet we state that "Under the current PGVA methodology, unauthorized-overrun-gas penalties are not captured in the PGVA deferral account," and I just wanted to clarify that. 252 If, in the case that an interruptible customer has been asked to curtail consumption at his end-use location and he fails to do that, or in essence continues to consume natural gas, then he will be billed an unauthorized-overrun penalty. In that situation, those revenues or the amount billed to that customer would in fact be charged to the deferral account to offset some of the balance in the deferral account. 253 However, if a situation occurs and it is not a curtailment situation and a direct-purchase customer fails to deliver their mean daily volume but does not, so in essence self-suspends, but continues to use natural gas, they would also be charged an unauthorized overrun. And under the current methodologies any monies associated with that unauthorized overrun do not go to the PGVA. 254 Those were the only corrections I had. 255 MR. FARRELL: Thank you, Mr. Small. And with those corrections, those corrections are the exhibits on which you have sole or joint responsibility accurate, to the best of your knowledge and belief? 256 MR. SMALL: Yes, sir. 257 MR. FARRELL: And finally, Mr. Brennan, were the exhibits assigned to you prepared by you or under your direction or control? 258 MR. BRENNAN: Yes, they were. 259 MR. FARRELL: And were the exhibits that are assigned to you and others on the panel prepared by you jointly or under your joint direction or control? 260 MR. BRENNAN: Yes, they were. 261 MR. FARRELL: And do you have any corrections that you wish to make? 262 MR. BRENNAN: No, I do not. 263 MR. FARRELL: And are the exhibits, then, accurate, to the best of your knowledge and belief? 264 MR. BRENNAN: Yes, they are. 265 MR. FARRELL: Okay. Now, Mr. Chairman, I have some remaining examination in chief, and I think that the best way to go through this is to have you and Mr. Dominy and everyone else in the room turn to the application, which is Exhibit Q.4-1, tab 2, schedule 1. 266 And if you turn to page 2 of that where the heading "Utility Price" starts, this is where I'm going to start the balance of my examination in chief. And I don't really have any questions on the utility price calculation. I'm going to start with the PGVA. 267 And for that purpose, enclosed with the first letter that was sent yesterday filing responses to interrogatories were two sheets of paper: One entitled "Projected 2003 PGVA Balance" and the other entitled "2003 Volumes." 268 And we have colour copies of those, and I'd like to distribute them now so that you and Mr. Dominy and the intervenors and their counsel can follow along these two exhibits. So I'll hand these to Mr. Moran for the Board and Board Staff. 269 And we're distributing copies now. I'll say that there is no change in the graphics, that these are -- or the documents, except these are colour, and the other ones were black and white. 270 MR. BETTS: Mr. Farrell, would it be worthwhile to give those exhibit numbers if they're going to be referenced directly or -- 271 MR. FARRELL: Yes, I was going to propose that. I was going to ask Mr. Small to identify them, then ask you for an exhibit number, and then we'd go from there. But we can give them exhibit numbers now just to expedite the process. 272 MR. BETTS: Thank you. 273 MR. FARRELL: I'm going to refer him first to the document entitled "Projected 2003 PGVA Balances," so that should be the first exhibit. 274 MR. MORAN: Mr. Chair, a graph entitled "Projected 2003 PGVA Balances" becomes Exhibit K.1.1. 275 MR. BETTS: Thank you. 276 EXHIBIT NO. K.1.1: GRAPH ENTITLED "PROJECTED 2003 PGVA BALANCES" 277 MR. MORAN: And a graph entitled "2003 Volumes" becomes Exhibit K.1.2. 278 MR. BETTS: Thank you. 279 EXHIBIT NO. K.1.2: GRAPH ENTITLED "2003 VOLUMES" 280 MR. FARRELL: Mr. Small, do you have a copy of Exhibit K.1.1? 281 MR. SMALL: Yes, I do. 282 MR. FARRELL: Was that document prepared by you? 283 MR. SMALL: Yes, it was. 284 MR. FARRELL: Would you please explain what it was intended to depict. 285 MR. SMALL: What we were attempting to show here was a breakdown of the 2003 projected PGVA balance, and the first column on the bar chart identified as "Projected Balance" shows the component of a total projected year-end balance of $266 million. 286 And I have broken that down into an amount for load balancing and an amount for commodity, the load-balancing component being the 150 million that we're talking about, and then the commodity component being 116 million. 287 Just for ease of reference, if you looked at Exhibit Q.4-3, tab 1, schedule 2, page 2 of 2 -- 288 MR. FARRELL: Do you want to repeat the reference, Mr. Small, please. 289 MR. SMALL: Q.4-3, tab 1, schedule 2, page 2 of 2. And that's a schedule that shows the projected year-end balance in the PGVA. 290 And I apologize, the columns aren't labelled, but the 7th -- approximately the 7th column, it's entitled "Forecasted Year-to-Date PGVA," if you go down to item 1.13, it shows an amount of 266 million. So that's where I was getting the 266 million from, to show the two components of that 266 million. 291 The second bar, if you will, the estimated collection to date representing approximately $94 million represents the sum of the inventory adjustments that would have taken place at the individual QRAM dates, the January one and the April one, for example. Plus added to that would be a forecasted amount of some $28 million anticipated to be collected from the rider that was implemented April 1 and would have been in place for April, May, and June, leaving us with a final balance to be collected of 172 million. 292 So what I was trying to show was that of the initial 266, how much had already been collected or estimated to be collected from sales customers, and what is the residual left to be collected that we were -- going to be proposing for our rider to be in place July 1. 293 MR. FARRELL: Thank you, Mr. Small. And did you prepare Exhibit K.1.2? 294 MR. SMALL: Yes, I did. 295 MR. FARRELL: And would you explain this exhibit, please. 296 MR. SMALL: Certainly. 297 What we were attempting to show as part of this graph was the budgeted supplies and the budgeted send-out for 2003, and comparing that with the estimated supplies and the estimated send-out for 2003, the estimate being actuals to date plus a forecast for the remainder of the year. 298 The red line on the graph represents the deliveries on a monthly basis of the budgeted supplies, and those supplies would include volumes that the company would have anticipated a purchase to in-fill into its pipeline capacity, TransCanada, for example, plus its forecast of peaking supplies and other load-balancing supplies, as well as deliveries on a monthly basis from direct-purchase customers. So that what -- and the dotted red line then represents the monthly consumption. 299 So what we were trying to illustrate was the difference between the supplies and the send-out would be what was being ate up, effectively, by storage, so that we were providing a load-balancing service. 300 The dark blue line represents the estimated supplies, again, including direct-purchase deliveries plus whatever actual deliveries we would have purchased from peaking supply contracts or load-balancing supplies, and trying to illustrate how this past winter we had to acquire additional supplies to satisfy an increase in the estimated send-out, the dotted blue line. 301 So we're trying to give an indication of what was -- how the additional costs in the PGVA, if you will, were arising through the additional supplies that we had to purchase to satisfy the additional demand. 302 MR. FARRELL: Thank you, Mr. Small. 303 Ms. Duguay, would you please summarize how the company proposes to clear the PGVA. 304 MS. DUGUAY: Certainly. 305 Given the timing of this application and the magnitude of the forecast year-end PGVA balance, the company is proposing to clear the balance of $172.1 million through a rate rider, Rider C, over a six-month period starting in cycle day one of July 2003. 306 The rationale for proposing an extension for the recovery period is mainly driven by the fact that the company would like to smooth the financial impact on all customers by virtue of adding three additional months on which the rate rider would apply. This proposal is consistent with the guidelines contained in the settlement conference proposal in the context of the company's 2003 rate case application. 307 I'd like now to turn on to the methodology that is provisioned for in the QRAM as it relates to clearing the PGVA. The way it works now is on an interim basis. All amounts that are captured in the PGVA are deemed to be commodity-related and hence are being cleared on an interim basis to sales-service customers. And by "sales-service customers," I mean system-supply customers inclusive of buy/sell customers as well. 308 So this mechanism is described in the settlement proposal in the RP-2000-0040 settlement proposal, and was put in place for simplicity and I say that because to essentially isolate the component or the various elements comprised in the PGVA takes some time to do. So in order to expedite the process within the existing guidelines, there is an assumption that is being made and it is entirely deemed to be commodity-related and, hence, clear to one specific group of customers. 309 However, the latter settlement proposal also describes the true-up mechanism that typically occurs at the end of the company's fiscal year-end where there is a recognition for the actual composition of the PGVA. And by that I mean that the company would isolate price variances attributable to commodity, price variance attributable to any change in transportation tolls, price variances associated with load balancing, price variances associated with non-compliance, and so on and so forth. 310 So that extra step takes place even within the context of a QRAM as part of the final PGVA or deferral account true-up, and the company also takes into consideration annualized consumption for all customers for the test year period in question, because as you know, for example, in the current application, we are proposing that rider C be applicable from July 1st through to December 31st, 2003, being a period of six months. 311 When we do the final true-up, we would take into consideration consumption, and consumption for sales service customers as well as transportation service customers, for the period October 1st, 2002, through to September 30th, 2003. So notwithstanding our proposal contained within this application, that true-up would still take place at the end of the fiscal year. 312 So as indicated by Mr. Farrell earlier in his submission, what is contained in the existing application is not a change in methodology per se, with regard to the disposition of the PGVA; it is strictly advancing the timing of a -- I hesitate to call it a final true-up, because there would be a subsequent true-up, but it would clearly mitigate the final true-up from a customer's perspective. 313 So in terms of why we are proposing in this application to advance the timing is mainly due to the identified seasonal load-balancing variance currently included in the 2003 PGVA. Mr. Small has indicated that we have identified on an actual and forecast basis that that seasonal load-balancing variance would amount to approximately $150 million. 314 So consequently, if we were today to abide to the existing QRAM guidelines and deem the full balance in the PGVA to be commodity-related, inclusive of the $150 million that we have recognized as being for load-balancing purposes, that would mean that for sales-service customers we would recover, through rider C, significant amounts only to refund to these class of customers significant amount when we would proceed with the final clearing of the PGVA. And essentially, the amounts that would be refunded to system-supply customers would be charged to customers on direct purchase. 315 So just to illustrate that, for a typical residential customer on system supply, using the six-month scenario for which the rider would be applicable, that would mean spreading a charge of approximately $155, starting in July and ending in December - and I am assuming that the rider would be in place for the full six months - and consequently -- or subsequently to that, I should say, the company would give back to that typical residential customer on system supply a refund of $77. 316 So the company doesn't see the merit of doing that and would like to recognize the fact that we provide a load-balancing service currently to all customers, inclusive of direct-purchase customers, for which they pay the forecast costs in the gas-supply load-balancing charge. So from the company's standpoint, and as was approved by the OEB in its EBRO-495 decision with reasons, if direct-purchase customers pay for the forecast costs of load balancing it doesn't make sense to the company that the difference between actual and budget should be borne by sales-service customers only. 317 MR. FARRELL: Thank you, Ms. Duguay. 318 Now, if we could turn back, everyone, to Exhibit Q.4-1, tab 2, schedule 1, which is the application, and go to page 3, there is a marginal heading "Unauthorized Overrun Gas", and it is dealt with in paragraphs 13 through 16. And I would ask you, Ms. Giridhar, to describe unauthorized overrun gas; in other words, tell us what it is. 319 MS. GIRIDHAR: Certainly. Unauthorized overrun gas may happen for one of the following reasons: 320 For a direct-purchase customer on rate 1 or 6, it would happen if a customer did not deliver their mean daily volume. By "mean daily volume" I mean the annual average, so if you take the average consumption over the year and divided by 365, you come up with a mean daily volume. 321 For large-volume customers there is both some more flexibility as well as some constraints. So if a large-volume customer were not to deliver the mean daily volume, it might still not be considered unauthorized overrun, provided they also reduce their consumption on that day by the same amount by their theoretical maximum which is their contract demand. So in other words, a large volume customer could deliver less than the mean daily volume as long as the consumption was also correspondingly lower on that day. 322 Now in terms of the constraints for a large-volume customer, for a general-service customer we would take the entire swing from that mean daily volume. Large-volume customers are constrained by a contract demand, which is a theoretical maximum that they could consume on a particular day. So if a large daily customer delivered their mean daily volume but consumes more than they should be consuming, then they would be in an unauthorized gas-overrun situation. 323 And finally, for interruptible customers we have yet another definition. If an interruptible customer is ordered to curtail consumption on a particular day but fails to do so, then they would be in an unauthorized overrun situation. Alternatively, if they did not consume but also failed to deliver gas, i.e., the company did not have the ability to use the gas on that day, then also it would be considered unauthorized overrun. 324 So it encompasses several different situations, all of which I have described here. 325 The consequences for the company from an unauthorized overrun situation is that it is an unplanned event, and therefore the company has to either physically go out and procure more gas, because the gas is not available, or withdraw more gas from storage or have some means to deal with that situation. 326 MR. FARRELL: And could you explain the purpose of a rate for unauthorized overrun gas. 327 MS. GIRIDHAR: The intent of having a rate that would be applied to unauthorized overrun gas is to dissuade such behaviour such that customers don't end up in these situations. So it is intended as an incentive to conform to predictable behaviour. 328 The current rate for it is based on Rate 320, which is our back-stopping rate, and there is a penalty attached to it, so it's 150 percent of Rate 320. 329 Rate 320 itself is derived from a weighted average cost of gas concept, which -- so it takes an average of 12 months of forecast gas prices. 330 What we have observed this past winter was that that was not a sufficient incentive in the sense that the spot price of gas exceeded that penalty on several occasions, and there is an interrogatory response that points to that. It's Exhibit I, tab 4, schedule 5. It was an interrogatory from VECC. 331 The company is, therefore, proposing to change that rate to 150 percent of the highest market price in the calendar month, and it would depend on whether the customer is in CDA or EDA. We have two different prices based on the "Gas Daily." 332 Sorry. I was just advised to walk you through that interrogatory response. It's Exhibit I, tab 4, schedule 5. There's four pages to that response, but if you were to turn to page 2. 333 MR. BETTS: Thank you. 334 MS. GIRIDHAR: You will see in column 1 the price -- the Niagara price based on "Gas Daily," which is a publication. 335 I'm sorry. Column 1 shows you the Niagara price; column 2 shows you the current penalty as defined by Rate 320; and column 3 shows you the excess of the spot price over the penalty. And the transaction date lists the dates on which that, in fact, happened over the period January/February 2003. This is for Niagara, which means the CDA. 336 Page 3 shows the same thing for the Iroquois export point, which will be used for overrun instances in EDA. 337 Thank you. 338 MR. FARRELL: And finally, Mr. Chair, if we turn back to the application again and now to page 4, paragraphs 17 to 20 deal with the under-recovery of distribution revenue. I would ask Ms. Duguay to explain what the company is seeking in relation to this matter. 339 MS. DUGUAY: And I'll try to be brief. 340 In the context of its final 2003 rate order, Enbridge Gas Distribution submitted evidence explaining that, as a result of using an average approach for the purpose of deriving its final distribution revenues for elements that are gas-cost related, there was a mismatch between distribution revenues and gas costs that would arise starting from May 1st onwards. 341 As a remedial action, the company proposed to record in the 2003 deferred rebate account, or DRA, the under-recovery attributable to gas losses. This proposal at the time was premised on the assumption that a recalculated utility price would supersede the existing utility price effective July 1st, 2003, and there was some evidence relating to the mechanics of that as well. 342 Since the existing utility price is unchanged, as supported by this application, the company is requesting that the capture in the 2003 deferred rebate account be extended until the end of our fiscal year, being September 30th, 2003. 343 Within this application, Enbridge is requesting the OEB to approve this -- its proposal for consideration in its 2003 decision with reasons. Therefore, the company is not expecting that the Board will rule on that specific issue within this July QRAM proceeding. 344 Thank you. 345 MR. FARRELL: So if I could just make sure this is clear, Ms. Duguay, the request the company is making is to account for a change of plan, if I can put it that way, from the time you were first proposing remedial action to this QRAM application? 346 MS. DUGUAY: Yes, that's correct. 347 MR. FARRELL: Thank you. 348 Those are all the questions I have in examination in chief, Mr. Chairman. 349 MR. BETTS: Thank you, Mr. Farrell. 350 I think it's, then, appropriate to break for lunch now and give the intervenors an opportunity to think about their questions, perhaps, and read a little bit more in the interrogatory responses. 351 Let us, though, be frugal with our time, and we'll be back here at two o'clock to reconvene. 352 MR. FARRELL: May I add one comment before we rise. 353 I mentioned in the context of my submissions on Mr. Warren's proposal that we had spent some time trying to work our way through the supplemental interrogatories that were provided by IGUA, and so my suggestion is we don't -- well, I'll make a statement of fact first. 354 We don't have the means of providing written answers, so my suggestion in the context of this proposal is that the questions that Mr. DeRose wishes answers on, the witnesses are prepared to answer questions posed during his cross-examination. 355 MR. BETTS: Thank you. 356 Mr. DeRose? 357 MR. DeROSE: Well, not only is that satisfactory, it was expected. So that's fine with me. 358 MR. BETTS: Thank you. 359 Then if there are no more points at this point, we will adjourn now until two o'clock. 360 --- Luncheon recess taken at 12:55 p.m. 361 --- On resuming at 2:00 p.m. 362 MR. BETTS: Welcome back, everybody. We are, I think, at the stage where we were about to entertain cross-examination questions from intervenors. Before we do that, are there any preliminary matters? 363 There appear to be none. Has there been any discussion about the order of questioning? 364 MR. DeROSE: I believe, Mr. Chair, I have been nominated to go first. 365 MR. BETTS: Thank you, Mr. DeRose. Please proceed. 366 CROSS-EXAMINATION BY MR. DeROSE: 367 MR. DeROSE: Good afternoon, panel. I believe I have met you all. My name is Vince DeRose. I am here on behalf of IGUA. 368 First of all, just to let you know where I am going with most of my questions, IGUA has two central concerns about this application. The first is EGD's proposal to apply rider C to all customers instead of just system-sales customers; and secondly, the proposal with respect to the increase of the unauthorized overrun gas or UOG. 369 However, as a preliminary matter, I would like to just ask a few questions about the under-recovery of distribution revenues, and Ms. Duguay, you provided some evidence in RP-2002-0133, that is the 2003 rates case, which we finished the evidence on but we haven't -- we are in the midst of putting submissions in. And at that time, you had indicated that the amount was $570,000; is that right? 370 MS. DUGUAY: That's correct. 371 MR. DeROSE: And as I understand the evidence, that amount you anticipate will be increased to $1.2 million; right? 372 MS. DUGUAY: That's correct. 373 MR. DeROSE: And in the context of the 2003 rates case, you had indicated to Mr. Thompson who was asking questions on behalf of IGUA that the $570,000 would be cleared on a volumetric basis. I assume the intention is to clear the 1.2 million on the same basis? 374 MS. DUGUAY: That's right. 375 MR. DeROSE: And you also indicated to Mr. Thompson that the $570,000 would not have a significant impact on large industrial users. Can the same be said to the 1.2 million? 376 MS. DUGUAY: Well, I think that as part of that cross-examination, we pointed to the unit rates that would be applicable to consumption over that period, and the unit rate was .04628 cents per cubic metre. It is always difficult as it relates to large-volume users, because in order to qualify for a large-volume rate, the minimum annual volume is 340,000 cubic metres per year, but it could range to several million cubic metres per year. So it's very difficult to say whether it would be significant or not from a customer's perspective. 377 MR. DeROSE: Can I take it that -- and I'm sorry, I have .046, and then you mentioned other numbers. 378 MS. DUGUAY: 28, and the company has filed in support of the 1.2 million a supporting exhibit in response to Schools interrogatory number 3, and I believe that was part A of the interrogatory, which I will be checking right now. Yes, that is Exhibit I, tab 5, schedule 3, page 2, and it is indeed in response to part A. 379 MR. DeROSE: And just for the record, can you just let us know what the number that you now anticipate it to be is? 380 MS. DUGUAY: With regard to? 381 MR. DeROSE: Just that interrogatory, I understand, just the number there, if we can just have that on the record. 382 MS. DUGUAY: The number is the $1.2 million for the period May 1st through to the end of September. 383 MR. DeROSE: And am I right to understand that the .04628, if that was for 570,000, we would be looking at about double that for 1.2 million or no? 384 MS. GIRIDHAR: No, it is the same. 385 MS. DUGUAY: It is the same unit rate. It is just the volume to which the unit rate applies has now been extended to capture the losses for the month of July, August and September of 2003. So it rises from 570,000 to 1.2 million dollars. 386 MR. DeROSE: Thank you. 387 Now, panel, can we agree as a broad, general proposition that QRAMs are intended to be formulaic and non-contentious? 388 MS. DUGUAY: Well, that certainly would be the intent. However, I think QRAM is a model and I think this year we are dealing with unusual or extraordinary circumstances in terms of the weather and the company is simply trying to address some of the issues as they arise and as we gain more experience with the QRAM. 389 MR. DeROSE: And in RP-2000-0040 you have set out in your evidence that that hearing prescribed the QRAM process through a settlement agreement that was adopted by the Board; correct? 390 MS. DUGUAY: That's right. 391 MR. DeROSE: And as I understand it, in that settlement agreement the rate rider was set out to be collected from sales-service customers and not direct-purchase customers; correct? 392 MS. DUGUAY: That's correct. 393 MR. DeROSE: And subsequently, in RP-2002-0133, in that settlement agreement there was also certain changes to the QRAM methodology that were agreed upon; right? 394 MS. DUGUAY: That's right; but I would however, like to make the point that with regard to the true-up as it relates to the PGVA the guidelines are included in the original settlement proposal that deals with the QRAM. So the company is not, per se, changing the rules, but as I indicated earlier, as well as in pre-filed evidence, the company is proposing to advance the timing of the methodology set forth in the settlement proposal. 395 MR. DeROSE: And you are proposing to advance through the issuance -- through a change to the rate rider? 396 MS. DUGUAY: That's correct, but that is no change except for the fact that it would be dealt with through a rate rider, which is a separate line item on the bill. Whether it is called a rider or the annual year-end adjustment, at the end of the day, it is the same thing. 397 MR. DeROSE: Well, if the Board agrees with the company and rider C is to be issued to both sales-service customers and direct-purchase customers, direct-purchase customers won't be told, This is your year-end clearance, will they? They'll be told, This is rider C or this is a rider that is now applicable to you. 398 MS. DUGUAY: Yes; however, the company would provide an explanation which essentially would be the same explanation as the annual year-end adjustment as it relates to the load-balancing variance in the PGVA. So it's a question of nomenclature. 399 MR. DeROSE: Okay, and just to confirm, to wrap this up, in RP-2002-0133, we have already confirmed that there were changes to the methodology, to the QRAM methodology, but there was no change to the fact that the rider C was to be collected from sales-service customers; correct? 400 MS. DUGUAY: That's correct. 401 MR. DeROSE: In that settlement agreement. 402 MS. DUGUAY: In the settlement agreement, yes. 403 MR. DeROSE: Okay. Now, in your experience, does the way in which the QRAM methodology was changed in RP-2002-133, as an example, so it was changed in a rates application, is that how QRAM methodology is normally changed? 404 MS. DUGUAY: I am not sure I understand your question. 405 MR. DeROSE: Well, in that case, it was -- the methodology was changed in the context of a full rate application, and in this hearing it is being changed in the context of a QRAM application. 406 MS. DUGUAY: I see. 407 MR. DeROSE: So my question would be, or my understanding, and I would like to know if you agree with me, is that under normal circumstances, QRAM methodology is changed in a rate application and not a QRAM application. 408 MS. DUGUAY: I think in this specific circumstance, clearly, in the context of our 2003 rates case, that was an issue that was brought up to the attention of the Board and all interested parties. When we presented the settlement proposal, there was also an update within the hearing for our 2003 rates case, and I am just mentioning those facts, because I think inherent into a QRAM application, we are asking the Board to rule on an expedited basis. 409 However, the proposed treatment with regard to the seasonal load-balancing variance in the PGVA has been brought up to the attention of all parties a few months ago. 410 So this is certainly not a new element, and I think people have had the chance to be aware of what are the specific circumstances this year and the company's position on that. And we filed the QRAM application 13 days ago, but this issue has been brought up. And I wish I would remember the date; I don't, but -- I'm told it's March the 20th. 411 So it has been quite a few months, and I think people would have had the opportunity to turn their mind around this issue. 412 MR. DeROSE: Okay. Perhaps I can take you to VECC interrogatory number 4. It's Exhibit I, tab 4, schedule 4, page 1 of 1. 413 Do you have that, panel? 414 MS. DUGUAY: Yes. 415 MR. DeROSE: And this is an interrogatory in which VECC asked, Why didn't Enbridge bring forward -- oh, I'm sorry. This is in the unauthorized overrun gas charge. 416 MS. DUGUAY: Yes. 417 MR. DeROSE: Well, let me put the question to you: Why didn't Enbridge bring forth the change with respect to load balancing in the 2003 rates proceeding? 418 MR. SMALL: Possibly the interrogatory you might have been thinking of was VECC number 3, and we just alluded to the fact that when we were here to discuss the proposed settlement agreement back on March the 20th, we took that opportunity to alert the Board and intervenors of the projected balance and the size of the amount that we were anticipating to be the amount related to the load balancing, and that load-balancing amount would be collected from everyone. 419 And then we came forward again at the end of April as well. 420 MR. DeROSE: Would you have had knowledge of the large load-balancing component prior to the settlement conference in RP-2002-0133? 421 MR. SMALL: I think if you look back to when we filed our April 1 QRAM, we did that based upon prices up to and including the 15th of February. And at that time, we were only projecting a year-end balance of some $30 million. 422 Now, what happened subsequent to that -- preparation of that filing was that the prices rose drastically, and it continued to stay cold the latter part of February and into March. And that was what precluded -- or that was the reason why on March 20th that we came forward to apprise the intervenors and the Board of the significant change in the projected year-end balance of the PGVA. 423 MR. DeROSE: Okay. I now have some questions about the procedure for final disposition of the PGVA under the normal circumstances. And first of all, when the PGVA is cleared under normal circumstances, direct-purchase customers would have an opportunity to test the prudence of the PGVA costs as well as the allocation; is that right? 424 MS. DUGUAY: I would agree with that. 425 MR. DeROSE: Okay. And as I understand it, that final disposition would occur simultaneously with the clearance of other deferral accounts; is that right? 426 MS. DUGUAY: Typically, yes. 427 MR. DeROSE: Okay. And as a general proposition, would you agree that when final true-up occurs, most direct-purchase customers are either going to be in a debit or credit position when the initial true-up happens before the company tells them whether they're over or under by a little bit; do you agree with that? 428 MS. DUGUAY: Are you alluding to this, our 2003 clearing of our deferral/variance accounts and -- I just don't understand your question in light of our proposal. 429 MR. DeROSE: Well, when a direct-purchase customer in the normal circumstances -- 430 MS. DUGUAY: Yes. 431 MR. DeROSE: -- when the PGVA is cleared -- 432 MS. DUGUAY: Yes. 433 MR. DeROSE: -- and you've indicated that would normally happen simultaneously with the clearance of other deferral accounts? 434 MS. DUGUAY: That's correct. 435 MR. DeROSE: As I understand it, it would be a very rare circumstance that a direct-purchase customer would have neither a credit nor a debit, but they'd be absolutely perfectly -- they'd hit zero when all the deferral accounts are cleared. Is that -- I don't think this is a -- or am I misunderstanding? 436 MR. FARRELL: I don't understand the question, but are you talking about an individual direct-purchase customer's banked-gas account at the time the PGVA is cleared? 437 MR. DeROSE: Correct. 438 MR. FARRELL: Well, that was the missing element in your question. 439 MR. DeROSE: That would be helpful. Thank you, Mr. Farrell. 440 MS. DUGUAY: Well, it's just that the clearing of the variance and deferral accounts typically occurs -- well, I know we've been delayed. For example, this year we just cleared our deferral accounts, our 2002 deferral accounts in May. As I recall it, last year it was July or August, but if we were back on track, it would be October. 441 And of course, with regard to customers on direct purchase, their contracts would be staggered throughout the year, so I can't answer that question. 442 MR. SMALL: And just to add as well, a direct-purchase customer has 180 days at the expiry of their contract to make that decision of whether or not they want to provide the additional volumes if they are in a make-up situation or to suspend their deliveries to get back into line with the banked-gas balance as well. 443 MR. DeROSE: So direct-purchase customers currently would be able to plan in advance that they know exactly when they're going to have to make the decision? They have a 180-day window, as you pointed out, to make that decision? 444 MS. DUGUAY: To return the commodity if they're in a debit situation, yes, provided that they're not outside the tolerance -- tolerance band around the banked-gas account, which is 20 times the mean daily volume or 5 percent. 445 MR. BRENNAN: And the other point, too, is that it's at the end of the contract or the anniversary of the contract. It is not necessarily related to any -- like, the fiscal year, necessarily. 446 MS. DUGUAY: Yeah. 447 MR. DeROSE: Next if I can have you turn to Q.4-2, tab 4, schedule 1. This is your rate design evidence, and if I can have you turn to page 5 of 7. 448 And specifically, paragraph 10, that reads as follows: 449 "If approved by the Board, this change would become effective on July 1, 2003, well in advance of the next heating season, thus providing adequate notice to all interruptible and direct-purchase customers." 450 So I now have some questions about the notice that you're referring to there. 451 First of all, was any notice provided to interruptible or direct-purchase customers prior to the filing of your application May 28th, and I realize you did bring to people's attention in RP-2002-0133 the possibility that this was coming. Other than that? 452 MS. GIRIDHAR: Notice was provided after the filing but not before, I think, in the sense of to customers directly through communication. 453 MR. BRENNAN: Mr. DeRose, I just want to make sure. You are -- you're now talking about UOG? 454 MR. DeROSE: Yes. I'm sorry. Sorry. This is in the context of UOG. 455 MS. GIRIDHAR: U-O-G. 456 MR. DeROSE: U-O-G. 457 MS. GIRIDHAR: Just to elaborate, we had our large-volume customer meetings last week in Ottawa, Niagara, and Toronto, and my presentation at these meetings included a section on our proposals for the July QRAM and a discussion of the changes to the UOG. 458 MR. DeROSE: And I take it that your presentation would have apprised them of the customer-specific impacts or the possible impacts that they would face? 459 MS. GIRIDHAR: Of the UOG? 460 MR. DeROSE: Yes. 461 MS. GIRIDHAR: I don't know how that would explain a customer-specific impact. The UOG impact only happens if a customer fails to deliver or consumes beyond what they should be consuming. 462 But certainly we told them that it would be based on a spot price of gas and would be using gas daily and all of that. So I can't be any more specific without knowing the specific circumstances of a customer. 463 MR. DeROSE: For those large volume -- 464 MR. SMALL: Sorry, just to add, keeping in mind the whole concept of UOG is to act as a disincentive. 465 MR. DeROSE: And to be clear, where I am coming from is -- well, first of all, panel, you would agree with me to be a disincentive, the customer must know about the penalty; correct? 466 MS. GIRIDHAR: That's right, exactly. 467 MR. DeROSE: Because if they don't know about it, it won't act as a deterrent. 468 MS. GIRIDHAR: That's right. 469 MR. DeROSE: Which is why I am asking questions about the notice, because I take it you would agree if you don't provide notice, customers won't stop doing what you are attempting to have them stop doing; they won't stop gaming. 470 MR. SMALL: Fair enough. 471 MR. DeROSE: Okay. For those customers that would not have attended your meetings, would you be sending them some sort of a paper notice or any type of copy of your presentation? 472 MS. GIRIDHAR: Well, what we could do is have the account executives talk to their customers. Usually, that's the informal means by which we communicate any potential changes that might be coming up. 473 MR. DeROSE: And I take it that if the Board were to approve the increase of UOG in this application, the company would have no -- would not be prejudiced if they did just that, had the account executives call each customer and tell them. 474 MS. GIRIDHAR: Well, when the Board -- or if the Board would approve our application, our proposal, it would become part of the rate handbook at that point, and that would be the means by which they would be able to see it. 475 MR. DeROSE: Okay. Next if I could just have you turn to VECC number 5. This is Exhibit I, tab 4, schedule 5, page 4 of 4. And this is a question, just to give you the context of the question, the question asked by VECC was as follows: "Please confirm that Union Gas currently has a Board-approved failure-to-deliver penalty charge that is also related to the highest market price in a month." 476 And in your answer, you confirmed that in fact Union Gas does have an unauthorized overrun charge for bundled transportation service based on gas-supply charges, which is in turn based on a weighted average price of gas. 477 MS. GIRIDHAR: Mm-hm. 478 MR. DeROSE: Would you know whether they obtained that unauthorized overrun charge through a QRAM application or through a rates application? 479 MS. GIRIDHAR: I don't know enough about that process to comment on it. 480 What I did observe was that it was part of their -- well, I looked at one of the rate schedules, M7, which is what I was asked to look at by the person I communicated with, and that alludes to Schedule "A", which because it has gas supply charges, I am presuming Schedule "A" is approved as part of QRAM. 481 As to the notion of an unauthorized overrun charge, I believe they have had it just as we have had an unauthorized overrun charge, so I don't know if that answers your question. 482 MR. DeROSE: Panel, I apologize, I don't have the citation for the Union Gas case book. Perhaps just subject to check, you could accept that they would have obtained that through a rates application and not a QRAM application, subject to check? 483 MS. GIRIDHAR: The approval for -- 484 MR. DeROSE: For Union Gas' unauthorized overrun charge, which you are referring to in your interrogatory. 485 MS. DUGUAY: Are you talking about the methodology, the inception of the methodology as it relates to UOG? Because for us, each time we have a QRAM, we will change rate 320 to reflect the recalculated utility price. So we do that all the time throughout our QRAM process. So I am not sure whether you are talking about the fact that we are planning to move away from a forecast that was established at a certain point in time to an index; is that where you are coming from? 486 MR. DeROSE: Actually, my question -- you have referred to it in an interrogatory, a Union Gas unauthorized overrun charge, and my understanding is that that was established, that overrun charge and the formula for it was established through a rates application and not a QRAM methodology; that's the simple question. Perhaps you could just check that. 487 MR. BRENNAN: That may be. It may depend whether or not the QRAM process was in existence at the time that the UOG was introduced. 488 MR. DeROSE: If you feel that you need to make that point, then certainly make it. Now, panel -- 489 MR. FARRELL: Do you want us to check by way of an undertaking; is that your question? 490 MR. DeROSE: Perhaps that would be the best. 491 MR. BETTS: Mr. Moran. 492 MR. MORAN: Yes, Mr. Chair, that will be Undertaking J.1.1. Just for the court reporter, could we perhaps restate it for the record, Mr. Chair. 493 MR. DeROSE: To confirm whether the Union Gas unauthorized overrun charges referred to in Exhibit I, tab 4, schedule 5, page 4 of 4(c), was approved by the Ontario Energy Board in a rates application or a QRAM application. 494 UNDERTAKING NO. J.1.1: TO CONFIRM WHETHER THE UNION GAS UNAUTHORIZED OVERRUN CHARGES REFERRED TO IN EXHIBIT I, TAB 4, SCHEDULE 5, PAGE 4 OF 4(C) WAS APPROVED BY THE ONTARIO ENERGY BOARD IN A RATES APPLICATION OR A QRAM APPLICATION 495 MR. BETTS: Thank you. 496 MR. DeROSE: Now, panel, one final question on the UOG. If I can have you refer to VECC number 4. This is Exhibit I, tab 4, schedule 4, page 1 of 1, and the question which VECC asked you is Why didn't Enbridge bring forward this redesign of the penalty charge during the 2004 rates proceeding. 497 First of all, in that interrogatory, you confirmed that you were aware of the potential gaming opportunity in February 2003; right? 498 MS. GIRIDHAR: That's correct. 499 MR. DeROSE: Correct? 500 MS. DUGUAY: Yes. 501 MR. DeROSE: And you also confirmed that that was prior to the settlement conference in March 2003? 502 MS. DUGUAY: That was discussed at the settlement conference where the company shared its finding as it relates to UOG and its intent with the parties that took part of the settlement conference. 503 MR. DeROSE: Okay, and it is actually the next sentence which I am interested in which reads: "At that point, the regulatory schedule did not allow for investigation of the issue and the introduction of new evidence. 504 Can you please explain what you mean by that sentence. 505 MS. GIRIDHAR: Well, we were already into the settlement conference process, and this was -- actually, we had curtailment in the last ten days of February, starting February the 18th, and I think in response to another interrogatory, I can't remember -- just a second. IGUA 4. Actually, it is VECC 5. I apologize, it is actually VECC 5. So that's the very next interrogatory, schedule 5, part B. The question is: When did Enbridge first become aware of this potential gaming? 506 If you were to look at the response there, I have stated that the company's contract-compliance group first became aware when I believe it was two interruptible customers called to confirm what our penalties were for unauthorized overrun gas, and they also asked what the future consequences would be if they were not to deliver gas as they were supposed to. 507 It was at that point that the contract compliance group became aware that potentially -- that the penalty was not sufficient to induce the behaviour that they had hoped to, so they investigated the issue and brought it to our attention, I believe it was, some time that week or the subsequent week. 508 But we were already within the settlement conference process at that point, and for us to then subsequently investigate the issue and come up with a proposal, while I believe -- I don't have my dates exactly in memory, but I believe it was March the 7th that the proposal had to be written up. So it didn't seem to us that the regulatory schedule at that point allowed us to address it. 509 However, we believe we did the responsible thing by bringing it to the attention of the parties as part of that process. 510 MR. DeROSE: Okay. So am I right, then, in my understanding that because of the timing that the settlement conference was on, you didn't have time to investigate the issue and prepare the evidence, or is it that you felt that you couldn't introduce new evidence during the settlement conference? 511 MS. DUGUAY: I would say the latter, and in terms of what we indicated at the time is this issue arose as a result of the manner in which we deal through a QRAM process with the existing Rate 320, which is a back-stopping rate. And we felt -- or speaking for myself, anyway, I felt at the time that this is a gas cost issue, and at the end of the day, what we are proposing today in terms of this application is a fairly minor change. 512 All we are asking is to pin the price to an index, rather than pinning it to the recalculated utility price that is being dealt with in the context of a QRAM. And in periods of high volatility, if we assume that we change our rates on a quarterly basis, that price can be stale up to 4 1/2 months. 513 And when we're dealing with the circumstances that prevailed this year where gas prices were essentially way above the utility price that prevailed for that period of time, it sets the stage for some people to take advantage of the situation to the -- potentially the detriment of others. 514 So we felt, having said that, that I don't think the company's proposal is very drastic in nature, and in my opinion, it could be accommodated through a QRAM process. 515 MR. DeROSE: Thank you. 516 I'd like to now turn to what have been referenced a number of times this morning as supplemental interrogatories of IGUA. 517 And it may be of assistance to the Board if they were to have a copy. I believe a copy has been provided to you. 518 I would take the Board's direction on whether you would like to mark that as either an exhibit or whether that would be an "I" exhibit or a "K" exhibit. 519 MR. BETTS: I think for ease of reference, let's give it an exhibit number, and I'd like to make certain I'm looking at the right documents as well. 520 MR. MORAN: Mr. Chair, just looking at the document, it appears that the questions are numbered sequentially with the ones already filed, and so it could be just added to the existing interrogatories, but without a response. 521 MR. BETTS: Okay. 522 MR. DeROSE: That's fine with me. 523 MR. BETTS: That's fine, then. We'll do it that way. Thanks. 524 MR. DeROSE: Now, panel, first of all, it would be useful for you to pull up Q.4-2, tab 4, schedule 7, and I think starting at page 4 of 9. 525 First of all -- 526 MR. FARRELL: It is three, actually. 527 MR. DeROSE: I'm sorry, Q.4-3. 528 In that case, Mr. Chair, at number 6 of the supplemental interrogatories at the end of the first paragraph, you'll see we say Exhibit Q.4-2, and that should be changed to Q.4-3. 529 First of all, Ms. Duguay, you told us this morning that direct-purchase customers contract to the company for a mean daily volume; correct? 530 MS. DUGUAY: Well, they usually deliver their mean daily volume, yes. 531 MR. DeROSE: Right. And the company tracks the volume of gas delivered by direct-purchase customers and used by that customer in the banked-gas account; right? 532 MS. DUGUAY: That's right. 533 MR. DeROSE: And at any given point in time, as I understand it, there may be a credit or a debit for each customer in that account? 534 MS. DUGUAY: Correct. 535 MR. SMALL: Just so we can clarify just one thing, it's not tracked by customer, per se, because you could have -- one particular customer could have their own DPA, and then, yes, it could be tracked by a direct-purchase customer -- be tracked by a customer. 536 But you could have a number of customers under one particular direct-purchase agreement, sorry. 537 MR. DeROSE: Okay. In the context of large industrial customers, by and large they have their own BGA; is that right? 538 MR. SMALL: Fair enough. 539 MR. DeROSE: Okay. And I take it at least with large industrial customers that you have a single customer to a single BGA. The company would periodically report to the customer on their balance? 540 MR. BRENNAN: Yes, that's correct. 541 MR. DeROSE: And as my memory serves me, that was one of the rationales for the EnTRAC proposal; right? 542 MR. BRENNAN: Correct -- 543 MR. DeROSE: Trying to improve reporting? 544 MR. BRENNAN: Yes. 545 MR. DeROSE: Now, in that context, can you tell me what "make-up volume" is. 546 MR. BRENNAN: Yes. Just maybe going back to your interrogatory, in your first sentence there you say: 547 "Under the Board-approved rate handbook, direct purchasers are obligated to provide make-up volumes." 548 Just to correct that, direct-purchase customers are not obligated to provide make-up volumes. If a customer has consumed volumes greater than they've delivered, then there could be what's called a make-up situation; they, in fact, owe gas. 549 Those customers can essentially come to the utility and request to be able to do make-up, and the utility's more than happy to do that, typically, during the wintertime. But unfortunately, a lot of direct-purchase customers don't necessarily take advantage of doing make-up during the winter. They tend to try and do make-up later on in the summer when gas prices tend to be lower. 550 MR. DeROSE: Okay. And when consumption of a direct-purchase customer is greater than anticipated, what, then, is the process for make-up volume? 551 MR. BRENNAN: Well, typically, going through the winter, what we would do -- and this past winter is an example -- we would -- our customer accountants would be trying to talk to the customers to encourage them to do make-up, because typically at the end of their contract, if you like, they have 180 days to clear that banked-gas account, whether it's in a debit or whatever. 552 And I say, most of them tend to do that. Some customers try to come in balance throughout the year. 553 This year, so far, some customers have elected to take the make-up and are doing that now, but I suspect there's a lot more out there that haven't done it yet. 554 MR. DeROSE: And what happens to a customer that is notified that -- I take it you would call it -- that they're under and they -- 555 MR. BRENNAN: They are in a make-up situation, you mean? 556 MR. DeROSE: They are in a make-up situation, and they choose not to make-up. What happens to them? 557 MR. BRENNAN: That's entirely up to them. At the end of the contract year, we would look at what the balance is in the BGA, if you like, and if it's within 20 times the MDV, mean daily volume, then they have 180 days to clear that balance. 558 Now, my understanding is if it's above 20 times MDV, then it gets disposed of right away. 559 MR. DeROSE: Okay. But if it's not above 20 times, and they failed to make up, is there a penalty? 560 MR. BRENNAN: If they do not come in balance within the 180 days? 561 MR. DeROSE: Correct. 562 MR. BRENNAN: Yes, I believe there is, yes. 563 MR. DeROSE: If I can now have you pull up two interrogatories, and I think it is useful to pull them up both at the same time. They are both from Superior Energy Management, and it is interrogatory number 1 and number 14, and I am going to refer to number 14 first. It is Exhibit I, tab 3, schedule 14, page 1 of 2. And actually, if I can have you turn to page 2 of 2. Do you have that, panel? 564 MR. BRENNAN: Yes, I have that. 565 MR. DeROSE: Now, as I understand it, first of all, can you tell me what this chart is showing? 566 MR. BRENNAN: Yes, I believe the interrogatory was looking for us to provide the amount delivered by Enbridge Gas Services in each month of fiscal 2003. I think this has -- due to the quantities that we purchased, and what we are showing here is spot purchases, if you like, that we acquired through the period October 1st, 2002, through to April 2003. And then we have an estimate of what we are forecasting to have to purchase September of 2003. 567 MR. DeROSE: And are these spot purchases in part -- I take it these would be driving the load-balancing charges? 568 MR. SMALL: That's correct. 569 MR. BRENNAN: That's correct. 570 MR. DeROSE: Okay, and -- 571 MR. BRENNAN: In part. 572 MR. DeROSE: In part. And these amounts which you have set out here, is that for both direct purchase and for system-gas customers? 573 MR. BRENNAN: Yes, it is. 574 MS. DUGUAY: I just would like to add that these volumes, like in relation to the seasonal load-balancing variance that we have identified to the tune of $150 million, there is no variance associated with the commodity, per se, or the molecule which I think you were alluding to with the question around the BGA and the fact that direct-purchase customers need to return their commodity. The $150 million are costs over and above the deemed commodity element included in the PGVA. So those are two distinct processes. 575 MR. DeROSE: Okay, are you able to tell whether, for the months of October, November, December and January, any of that quantity was purchased for direct-purchase customers? 576 MR. BRENNAN: No, I don't think we -- I am not sure that we would have any way of breaking that out. 577 MR. DeROSE: Okay. Is it possible that none of that was purchased for direct-purchase customers? 578 MR. BRENNAN: No, I wouldn't think that's very likely at all. 579 MR. DeROSE: Okay, if I could have you then turn to interrogatory number 1, which is Superior Energy Management, and again, page 2 of 2. And if I understand this right, what we have in the top set of numbers is the budget for the BGA balances. 580 MR. SMALL: That's correct. 581 MR. DeROSE: And I take it that's what, if everybody were to provide the exact amount of gas that they are obligated to provide and consumed the exact amount of gas that they were obligated to consume, that's what the BGA should be in any given month. 582 MR. SMALL: Yes. You can see that the line identified as Deliveries is fairly consistent throughout the -- through the whole year. So that would be a flat level or flat line in MDV, if you will, each and every day. 583 MR. DeROSE: And what is the closing balance in the budget? 584 MR. SMALL: At which particular month? 585 MR. DeROSE: Actually, let me rephrase that, then. The closing balance for the budget is what? That's your forecast? 586 MR. SMALL: The assumption would have been that on October 1, the direct-purchase customers would have predelivered, if you will, an amount of 687,000 103M3. Over the course of the year their deliveries and consumption wouldn't have matched, so they would have been working off their banked gas-account balance, and on a budgeted basis at the end of September the balance would have grown to 729,000. So that would have reflected, maybe, changes in our direct purchase forecast, the number of customers throughout the year. 587 MR. DeROSE: Okay, but -- 588 MR. SMALL: But theoretically on a budgeted basis the deliveries and consumption would match. 589 MR. DeROSE: And I take it that the set of numbers below that with the title "2003 Actual Banked Gas Account Balances" show how much gas was actually delivered. 590 MR. SMALL: That's correct. 591 MR. DeROSE: So, for instance, if we take October, direct-purchase customers delivered more gas to Enbridge than was budgeted for. 592 MR. SMALL: For the month of October, no, that is incorrect. The budget assumed that they would have delivered 667,000 103M3, and in actual fact they delivered only 642,000, and the difference there would have been a reflection on the number of customers, direct-purchase customers assumed in the budget, and that actually occurred. 593 MR. DeROSE: But in terms of the closing balance, so their deliveries versus their consumption, your closing balance was greater in the actuals than it was in your budget. 594 MR. SMALL: That's correct. 595 MR. DeROSE: And if I follow it over, your closing balance for the months of October, November, December and January were all greater in actuals than they were in the budgets; is that right? 596 MR. SMALL: That's correct. 597 I would just like to caution you, though, you have to be careful about when you are just comparing exact numbers, though, that there would have been a number of customers identified in the budget and the assumed delivery consumption for those particular customers. If the number of customers changed, then the delivery volume would have been different and the consumption volume would have been different as well. 598 MR. DeROSE: Well, and that perhaps leads to my next question, and you can clarify it for me. 599 If you have more in your closing balances than you are budgeting for, why were you purchasing spot gas for October, November, December and January would be my question. Can you explain that to me? 600 MR. BRENNAN: Well, your question really is, I guess, relates to why we were purchasing spot gas in October, November and December. 601 MR. DeROSE: And January. 602 MR. BRENNAN: And January. 603 We look at our supply-demand balance going into the wintertime. We start off in, say, October, our fiscal year, and we meet weekly to review what our storage position is, and we look at what our forecast is for an overall basis, an aggregate basis for our system requirements, and if we see that we are in a position where we won't be able to meet certain of our storage targets, we will be out purchasing gas. Now we don't necessarily go out and buy all of it. We'll buy bits and pieces. What we don't want to do is go out and buy a whole bunch of gas only to find that the weather ends up being warmer at the end and then we have too much gas. So it is a bit of a balancing act. 604 So we are looking at, forward where we think we are going to be and trying to make an assessment of how much gas we should be buying and when we should be buying it. On the other case, we don't want to be buying all of it in January at peak prices, for example. So we try and balance that. 605 MR. DeROSE: Okay. So even though direct-purchase customers in the BGA may be in a credit position in that they are delivering more than they are consuming, they will nevertheless face load-balancing charges for spot gas purchases. 606 MR. BRENNAN: Well, typically coming into the winter, those balances are going to be positive because they are coming out of the summer and they will turn around throughout the winter. 607 MR. DeROSE: Okay. If I can now take you back to our supplementary interrogatories and specifically to page 2, number 6(C). Do you have that, panel? 608 MR. BRENNAN: Yes, we do. 609 MR. DeROSE: Are there any differences in the obligations to provide make-up volumes applicable to -- and then it sets out the four -- 610 MR. BRENNAN: Well, maybe the first correction is there are no Ontario buy-sells that I'm aware of. But as far as the other three, no, I don't think that there are any -- well, again, I'd have to correct the fact that you used the word "obligations." There are no obligations to provide make-up, so that's another correction you may want to consider. 611 But as far as customers who are using any of these particular arrangements, no, the only difference would be where they would give us the make-up volumes, if they decide to do make-up volumes. 612 For example, the Western -- Western Delivery T-service would give it to us primarily at Empress; whereas, the Ontario would give it to us in the delivery area. 613 MR. DeROSE: Okay. 614 Mr. Chair, I'm going to be taking the panel through about another 3 1/2, 4 pages of interrogatories, and I will try my best to, perhaps, summarize them in a sentence, if I can, rather than just reading them onto the record. Or would you prefer that I simply read the interrogatories right onto the record? 615 What would be better for the Board? 616 MR. BETTS: I think the reference is fine, as long as they are part of the record, which they are. 617 MR. DeROSE: Fair enough. 618 If I can then take you to number 7, and I realize you have already pointed out that there is not an obligation on direct purchasers to provide make-up volumes, but perhaps we can say an option to provide make-up volumes. 619 Our understanding is that that option was intended in part to relieve direct-purchase customers from major changes in gas commodity relating to balancing, load-balancing costs; do you agree with that? 620 MR. BRENNAN: That's not our understanding. 621 MS. DUGUAY: The customer has the option throughout the contractual year to make up for differences between deliveries and consumption. 622 I would like to, maybe, turn to the manner in which -- or what customers pay for in rates, and as it relates to the seasonal load-balancing variance in the PGVA, we're talking here specifically about peaking service costs as well as discretionary supplies. 623 And what happens in the case of direct-purchase customers is they might be out of balance throughout their contractual year, and let's say for the sake of simplicity, because they don't have any obligation to make up throughout the contractual year but rather at the end of the -- their contractual year, that they don't return any gas at all. 624 So what is happening there is that they are borrowing the gas from the utility for which they pay the carrying costs of gas and storage through the gas supply load-balancing charge. 625 At the end of the year, they will return -- let's say they're in a debit situation, meaning that they consumed more than they deliver, they will return the gas to the company. But to the extent that the company had to acquire -- and this is all we're talking about here -- spot gas and peaking service gas, and those purchases, at least in terms of the -- our peaking service contract, that gas is expensive and is likely -- like, I really don't see that a direct-purchase customer would make up with the company using a peaking service contract. I think that that is totally unrealistic. 626 So as a result of that, to the extent that we had on a given day, because we load balance on behalf of all customers to purchase peaking service gas, what we're going to do is we will impute the difference over and above the commodity, meaning the premium associated with the peaking service contract, as well as the transportation element to all customers. 627 And that's the way we derive rates today, and this is essentially what is currently comprised in the gas supply load-balancing charge. So the commodity has been removed to take into consideration that direct-purchase customers will return that commodity. 628 I think the key issue in this proceeding is what is the reference price, or what is the price we should attach to the commodity? 629 And in my opinion, as I stated earlier, it certainly is not the price associated with a peaking service contract, for example. 630 MR. DeROSE: Okay. In that case, can I have you turn to number 14 of our supplementary interrogatories. 631 First of all, can EG identify on a customer-specific or marketer-specific basis those direct purchasers, first of all, that have exercised their option to make up volumes, first of all. And then secondly, are you able to track on a customer-specific or a marketer-specific basis which people are causing the company to incur seasonal load-balancing charges and which aren't, on a customer-specific basis, not on a rate-class basis? 632 MR. SMALL: We do keep track of the individual direct-purchase customers' BGA balance, so the difference between their deliveries and consumption. 633 Now, each direct-purchase customer is provided with what's called a variance report, because it's anticipated that because the deliveries are the same volume each and every day, there will be times when he is in a debit or credit position. 634 But what the direct-purchase customer really needs to know is how far away he is in that debit or credit position. So he's not necessarily provided with a BGA balance specifically for each month; he is provided with a variance report. 635 What we would have available to us is the particular BGA reports for those direct-purchase contracts that are renewing. Again, having -- what I said before about whether or not it's customer specific, it would be direct-purchase specific. 636 I don't agree with whether or not they've honoured it, because you have to take into consideration the expiry date of that direct-purchase agreement and the fact that they still have 180 days to make up that imbalance. 637 I guess the only other thing is we may know who it is on a direct-purchase basis, but I am questioning whether or not that is information that we should be providing openly. 638 MR. DeROSE: Would you be able to provide it, perhaps, by rate class -- 639 MR. SMALL: No -- 640 MR. DeROSE: -- and tell us which rate class -- which direct-purchase customers by rate class are driving these load-balancing charges? 641 MR. SMALL: That therein lies the problem, because you can have a direct-purchase customer that has customers -- or a direct-purchase agreement that encompasses customers under a number of different rate classes, so it would be, in my mind, impossible to break down that BGA balance by rate class. 642 MR. FARRELL: I am also having, Mr. Chairman, a bit of a problem with the premise of the question, which seems to assume that certain customers are making up as they go along, and, therefore, they're providing gas at the time when load balancing is provided. 643 And I think Mr. Small's answers indicate that that make-up usually doesn't occur until the end of the contract, so I don't think we are talking about a contemporaneous event here. 644 MR. SMALL: And as Mr. Brennan alluded to earlier, we have received some make-up volumes, a very small amount. But if memory serves me correct, we only received make-up -- a small amount in May, and we're receiving some make-up now in June. 645 We certainly didn't receive any make-up volumes throughout the winter. They're only now starting to deliver make-up volumes now. 646 MR. DeROSE: Okay. 647 MS. DUGUAY: And I think, additionally, the information would have to be provided on a daily basis to be meaningful, because at the end of the day, that's the role of the company as it exists today, to ensure that the load is balanced on a daily basis. 648 MR. DeROSE: Okay. So I take it the company is not in a position or is not able to, for instance, tell us that Rate 145 customers are driving this $88 million in load-balancing charges and rate 100 isn't, or vice versa? 649 MS. DUGUAY: That's correct. We have separated or apportioned the PGVA between commodity-related variance as well as the seasonal load balancing based on a methodology that was approved in EBRO-495, and has been in place since 1998. 650 MR. DeROSE: Okay. But that methodology -- well, I'll move on. 651 If I can take you to number 11. Panel, were any of the make-up volumes provided by direct purchasers used to support EGD's sale of transactional services? 652 MR. BRENNAN: No. 653 MR. DeROSE: And then if I can take you to number 12. As I understand it, a number of direct purchasers on rates 145 and 170 were curtailed for extensive periods of time between October 1st -- and I actually believe between May 31st; is that correct? 654 MR. BRENNAN: I would need to take some exception to the words "extensive period of times". There is two periods where we had what we call seasonal curtailment. 655 MR. DeROSE: Okay. 656 MR. BRENNAN: And those periods, there were two 10-day periods. 657 MR. DeROSE: And would those two 10-day periods, for instance, were there two 10-day periods in 2002 or 2001 fiscal years? 658 MR. BRENNAN: For fiscal 2002, I don't think -- there was next to no curtailment. In fiscal 2001, yes, there were two periods of 10 days of interruption. 659 MR. SMALL: We curtailed in December 2000 and then again in January of 2001, I believe. 660 MR. DeROSE: Okay, and in terms of when the curtailment period was ongoing, those direct-purchase customers would have still been obligated to deliver their MDV. 661 MS. GIRIDHAR: That is the purpose of having interruptible customers, i.e., they do provide their MDV on the day they are curtailed, so yes. 662 MR. DeROSE: Panel, are you able to provide the information requested in (A), (B), and (C) of question number 12? In fact, Mr. Brennan, you have already asked -- or well -- 663 MR. FARRELL: Mr. Brennan has answered C already. 664 MR. DeROSE: That's what I was about to say, although -- 665 MR. FARRELL: But I am objecting to A and B on the ground that it is simply not relevant to a QRAM process. This is historical information on periods of curtailment. 666 MR. DeROSE: Well, Mr. Chair, we are -- the company is now seeking to have direct-purchase customers have a rate rider applied to them that is, in our submission, a change to the QRAM methodology. We certainly think it's appropriate that we be allowed to understand and explore the drivers for this large load-balancing amount which direct-purchase customers are now going to have a rate rider applied for. 667 MS. DUGUAY: In response to that, I just would like to say that with regard to the peaking service load-balancing variance of the PGVA, which is part of the 150 and which accounts for -- well, not the bulk of it, it is 13 million -- that this variance is allocated at the rate-class level based on their responsibility on peak day. 668 So having said that, the fact that we have interruptible customers taking service pursuant to rate 145 and rate 170, the allocation factor would already reflect the fact that those customers have hardly any consumption on peak day, so therefore will bear very little responsibility as it relates to that pricing variance. 669 Additionally, for the discretionary supplies, the allocation factor is based on seasonal space, which means that it measures the variation of annual deliveries versus -- or annual consumption versus the rate of consumption during the winter months. So here again, it is load-factor driven and would take into consideration the rate-class requirements for load balancing. 670 So those things are already factored in the methodology that we currently use. It is not customer-specific, but it is rate-class specific. 671 MR. DeROSE: I think I require a decision from the Board with respect to Mr. Farrell's objection. 672 MR. BETTS: Mr. Farrell, is there any -- 673 MR. FARRELL: I would just like to add one thing. 674 Mr. DeRose's point was that the direct purchaser is being asked to pay a rate rider, and that is a variation, and I don't disagree with that. But it does not imply that direct-purchase customers haven't paid load-balancing charges before, because that has been the process. Just as we have said earlier, we have just advanced the time at which we are asking direct-purchase customers to participate in the clearance of the PGVA in relation to load balancing. 675 MS. DUGUAY: Yeah, and we had an interrogatory supporting that and -- 676 MR. BETTS: The Board will consider this. 677 [The Board confers] 678 MR. BETTS: Can we have an assessment from the applicant as to how much time it would take to create this information or provide this information. 679 MR. SMALL: The one qualifier I guess I would have to check on is that I am just not sure of whether or not -- how many of our interruptible customers are direct-purchase customers. 680 It is possible that we could have an interruptible customer that is not a direct-purchase customer. 681 So that, again, would make it a little bit difficult in breaking it out or trying to make a distinction between direct-purchase and -sales customers. 682 We can certainly identify the days and the expected volume of curtailment by day, by rate class. Then we would need some time to tie that back into whatever the delivery volume was that we were -- should have been getting under the direct-purchase agreement. 683 MR. BETTS: Okay. Thank you. 684 The Board's feeling on this at this point is that we are dealing with an issue that might rightfully be dealt with in the 2004 rate hearing when the parties have an opportunity to review the methodology of the clearance of this particular account and others. On the other hand, I am finding this to be a useful exercise, because it is getting the information to all the parties that will eventually require it one way or the other. 685 I really don't want at this point to allow the development of that information to delay this process -- let's put it that way -- but I would be more than happy if the applicant could proceed to provide that information to all parties at the earliest possible time, but I don't see it being part of this QRAM process. 686 MR. DeROSE: If I can -- 687 MR. BETTS: Mr. DeRose, does that unduly hamper you in terms of your -- 688 MR. DeROSE: No, I am in your hands, Mr. Chair. 689 MR. BETTS: Okay. Well, then, we will ask the applicant to provide that information on a best-efforts basis, but it's not -- I'm not even going to take it as an undertaking at this point. 690 MR. DeROSE: Fair enough. 691 Panel, if I can take you to number 16, then. 692 And, Mr. Brennan, I believe this is a question for you. Are you able to confirm that information? 693 MR. BRENNAN: Yes, I am. I think the same question was asked in the course of our outsourcing. The only correction would be that in the question it says: 694 "Please confirm that there are no costs recorded in the PGVA for the test year ending September 30th associated with the TCPL FT capacity, which TCPL purchased." 695 And it should be not "TCPL." It should be "EGD." 696 MR. DeROSE: Panel, if I can move to 17, then, and perhaps to try and speed it up, are you in a position to provide any of the information requested in sub (a) to (f)? 697 MR. BRENNAN: The answer to the first question: 698 "Was EGD also buying gas it needed from its affiliates?" 699 The answer was: 700 "Yes, it purchased gas from Enbridge Gas Services." 701 And maybe just to explain a little bit about that, Enbridge Gas Services is our service provider for -- in part, for gas acquisition. The -- we -- Enbridge Gas Services has access to electronic exchanges, kind of like the stock exchange, if you like, where they can go out and buy gas where parties post supply on the exchange with a price, term, whatever else, and then people can bid into it. 702 Enbridge Gas Services has access to those exchanges, and particularly, I think, there are three. They are NGX, Natural Gas Exchange. There is one called Intercontinental Exchange or ICE. And then there's UBS Energy, or UBS. 703 And so they have access to those electronic exchanges, if you like, and so they will put bids in and purchase gas on behalf of Enbridge Gas Distribution. And then they invoice us -- "they" being Enbridge Gas Services -- invoice the utility for the same price. There is no markup. Whatever they purchase for it on the screen, if you like, is what we pay. 704 MR. BETTS: Mr. DeRose, can I just interrupt you for a minute and ask you how long you think your questioning might go? 705 MR. DeROSE: I think 15 minutes, depending on how fast the witnesses are. I have -- I can let you know I have -- if the panel has any more information they can provide me with with respect to (a) to sub (f) of 17, and then I'll be going to 19 and then 20. 706 So I have -- 707 MR. BETTS: Well, I think -- 708 MR. DeROSE: -- a few more questions. 709 MR. BETTS: I'm going to ask everybody to give me an assessment of how long they think they're going to need for cross-examination, and then I think we will take a bit of a health break for 15 minutes and come back and spend some portion of the remainder of the day. 710 With that, can I have an indication of those that expect to cross-examine on these matters. 711 Mr. Vegh? 712 MR. VEGH: I expect to go for 45 minutes. 713 MR. BETTS: Others? 714 MR. WARREN: Ten minutes maximum, sir. 715 MR. BETTS: Mr. Janigan? 716 MR. JANIGAN: About the same, ten minutes. 717 MR. BETTS: About the same. 718 Others? Mr. Shepherd? 719 MR. SHEPHERD: Mr. Chairman, about ten or fifteen minutes. 720 MR. BETTS: Sorry, I didn't get -- 721 MR. SHEPHERD: Ten or fifteen minutes. 722 MR. BETTS: Ten or fifteen. 723 And, Mr. Brett? 724 MR. BRETT: About 20 minutes, Mr. Chairman, I guess. 725 MR. BETTS: And I think that's everybody. Any other questions? 726 Let us take a 15-minute break. We will try to come back at 25 minutes to the hour, and we'll assess where we are from there. 727 Thank you. 728 --- Recess taken at 3:20 p.m. 729 --- On resuming at 3:35 p.m. 730 MR. BETTS: Are our witnesses close? 731 Just by way of information, it's clear that we will not conclude the questioning tonight. It's clear only in that the Board has a previous commitment that will not allow it to sit beyond five o'clock tonight, so it would appear that there will be some questions for tomorrow, which we will entertain at that time and then go into oral arguments afterward. 732 I think, if it's possible, it would probably be worthwhile to get Mr. Vegh's questions in, unless the parties have a different way to approach it. The Board is open to any other suggestion. And that might cause both Mr. DeRose and Mr. Vegh to be as expeditious as possible in investigating the questions. 733 But certainly, we want to give you ample time and opportunity to ask your questions to the extent that you need to. 734 MR. DeROSE: Mr. Chair, perhaps with an eye to time, I suspect that my next question is probably for Mr. Brennan, so perhaps we could start, and if the company feels that the other two witnesses are required, then we can sit and wait. 735 MR. BETTS: Mr. Farrell, is that -- 736 MR. FARRELL: That's fine by me. I apologize for the disconnect, it would appear, in terms of checking one's wristwatch. 737 MR. BETTS: No problem. 738 Please proceed, Mr. DeRose. 739 MR. DeROSE: Mr. Brennan, right before the break I was asking you some questions about 17(a), (b), (c), (d), (e), and (f), and in an attempt to expedite this cross-examination, I asked what information, if any, the panel had about those subquestions. 740 You had answered sub (a), I think, fully. 741 MR. BRENNAN: Right. 742 MR. DeROSE: And which left (b), (c), (d), (e), and (f). And let me just indicate unless you are in a position to verbally provide that information, when I look at that, the information being requested, it seems like the type of information that would be best through a written response, but I'm in your hands. 743 Do you have all of that information? 744 MR. BRENNAN: Well, certainly I can answer (c), which the question was, Please identify each and every -- the only affiliate was Enbridge Gas Services. 745 MR. DeROSE: Okay. 746 MR. FARRELL: I was just going to make the point based upon Mr. Brennan's answer to (a), that is, yes, gas was bought from Enbridge Gas Services, but only that gas that Enbridge Gas Services bought on an exchange, and the price was the cost paid on the exchange. There was a cost-base price of pass-through, if you will. 747 I really wonder about the efficacy of -- of the other (b), (c), (d) -- was it (b), (c) -- well, (b), (d), (e), and (f) if there was no markup, for lack of a better term. 748 MR. DeROSE: Thank you, Mr. Farrell. 749 Perhaps with respect to sub (e), Mr. Brennan, I take it from your earlier question that no affiliate transaction would have contributed to the debit balance in the PGVA? 750 MR. BRENNAN: Well, I mean, to the extent that we're out buying gas to meet our demand above and beyond what we had forecast by, whether it's with an affiliate or any other supplier, that all contributes to the load-balancing charge. 751 MR. FARRELL: But I think, perhaps, that -- I think go back to the point that I made. I read the intent of E as being an affiliate transaction that, per se, carried some costs, like a markup or a fee paid to the affiliate, as opposed to just the cost of gas being recorded. If I didn't interpret the question properly, Mr. DeRose can help me. 752 MR. DeROSE: I think Mr. Brennan has answered my question satisfactorily, so we can move on. 753 MR. BETTS: Thank you. 754 MR. DeROSE: On page 5, with respect to (G)(3), this morning, panel, you provided an explanation of certain circumstances where the UOG charges would be recorded in the PGVA. For those UOG charges that are not recorded in the PGVA, where are they recorded? 755 MR. SMALL: Currently, those charges would accrue directly to the shareholder. I would just like to add, though, that those revenues in the past would have been minor in nature, and what we were attempting to do with the revision to the UOG was, again, to try to have an accurate penalty charge, if you will, to hopefully continue to dissuade customers from operating in an unauthorized gas situation. 756 MR. DeROSE: Okay. And panel, I believe that you may have answered this in an interrogatory. If you did, I apologize, but I have tried to make it through them the best I can. 757 Are you able to provide the total UOG paid for fiscal 2003 to date and, if so, are you also able to break out that amount by which portion is put into the PGVA, and which portion is attributed to the shareholder? 758 MR. SMALL: Sorry -- 759 MR. DeROSE: Either one of you. 760 MR. SMALL: Sorry, I do not know what the UOG would have been in the situation where, say, a customer failed to deliver their MDV and continued to use and consume gas. 761 But what I do know is the UOG penalties with respect to non-compliance with a curtailment situation, we are just in the process of finalizing that information and it would appear that it would be in the magnitude of $2 million. 762 MR. DeROSE: And that $2 million would be recorded in the PGVA? 763 MR. SMALL: That's correct. 764 MR. DeROSE: Okay, and -- 765 MR. SMALL: It is not currently reflected in the information that you have in front of you. 766 MR. DeROSE: Okay. And panel, would you be able to find out what the UOG that is attributed to shareholders would be for the same time period? Is that something that you could find out for us? 767 MR. SMALL: I can attempt to find out, but again, I am expecting the number to be diminimus. 768 MR. DeROSE: I'm sorry, I didn't hear the last point. 769 MR. BETTS: You have to get a little closer to the mike. 770 MR. SMALL: Sorry, yes, I can attempt to find that out. 771 MR. DeROSE: Okay, thank you. 772 MR. BETTS: Shall we have an undertaking on that, perhaps? 773 MR. MORAN: That will be Undertaking J.1.2, an undertaking to determine what the UOG overrun revenues were that are attributable to the shareholder. 774 UNDERTAKING NO. J.1.2: TO DETERMINE WHAT THE UOG OVERRUN REVENUES WERE THAT ARE ALLOCATED TO THE SHAREHOLDER 775 MR. DeROSE: Thank you. 776 MR. BETTS: Thank you. 777 MR. MORAN: Or allocated to the shareholder. 778 MR. DeROSE: Now, panel, if I can take you to page 7 of our interrogatories, and first of all, (A) at the top of the page. If we assume hypothetically for a moment that the Board does not allow the company to recover $88 million through a rate rider to be paid by direct-purchase customers, or -- I guess and/or -- the Board does not allow your application for an increase of UOG, can you provide any information to us on how you would propose to deal with those two items in the future? 779 MS. DUGUAY: With regard to the UOG, were the Board to decide not to rule with this specific issue in the context of a QRAM, the company would then re-file its submission in the context of its 2004 rate case, which is the next proceeding that the company will deal with. 780 And with regard to the $88 million, that is, the load balancing or the seasonal load-balancing variance that the company has identified as being attributable to direct-purchase customers -- I just want to understand, is your question were the Board to deny that any portion would go to load-balancing customers or denied to deal with this with regard to this application and we would subsequently, as we normally do, clear it as the final true-up of the PGVA? I am not sure I understand what you mean. 781 MR. DeROSE: Well, if the Board were to agree with certain intervenors who believe that your request for a change in methodology is not appropriate in a QRAM application -- and I don't want to guess whether the Board would either say that sales-service customers pay the entire 150 or that the sales-service customers pay what you have identified as their portion of the 150 -- 782 MS. DUGUAY: Right. 783 MR. DeROSE: -- but if we are successful on that one point, would it then just shift to -- well, when would you deal with that issue? 784 MS. DUGUAY: Well, that issue would then be deferred to when the company will dispose of our 2003 deferral/variance accounts. I guess an issue that we would have to deal with at that time is, typically, those are cleared as a one-time adjustment. 785 So I guess, given the magnitude of the dollars, we potentially would have to take into consideration some smoothing scenarios and so on. So there might be a divergence there from what we typically do, but I think, at the end of the day, it would be dealt with with all our other 2003 deferral/variance accounts. 786 MR. DeROSE: Okay, thank you. And finally, would the company be prejudiced in any way if the clearance of the debit amounts recorded in the PGVA either were, A, not cleared by way of rider C to direct-purchase customers at this time? 787 MS. DUGUAY: I believe that the company would not be prejudiced to the extent that we would be able to recover the variances at a later point in time. 788 MR. DeROSE: Okay, and I take it if you aren't prejudiced if you don't recover the entire $88 million, you also wouldn't be prejudiced if you only recovered a portion of the $88 million from direct-purchase customers at this time? 789 MS. DUGUAY: All other things being equal, yes, that's correct. 790 MR. DeROSE: Okay. Thank you for your patience, Mr. Chair. I realize it was a little bit long. 791 MR. BETTS: Thank you, that's fine. 792 I mentioned Mr. Vegh's name. Is there any reason why Mr. Vegh should not proceed at this point, or is there anyone that has a heavier schedule than he does? 793 MR. FARRELL: I feel like you are getting married. 794 MR. BETTS: That was worded the wrong way. I'm sorry, Mr. Vegh, we won't even look for a response to that. Please proceed. 795 MR. VEGH: Thank you, Mr. Chair, they will have to forever hold their peace. 796 MR. WARREN: I wouldn't count on that. 797 MR. VEGH: Thank you, sir, and thank you, panel. 798 CROSS-EXAMINATION BY MR. VEGH: 799 MR. VEGH: Panel, I'll be referring to some materials you might just want to have handy. First, I have prepared a book called materials for cross-examination on behalf of superior, Ontario Energy Savings Corp., and Union Energy, and I believe Board Staff has passed a couple of sets up to the panel. 800 I'll be referring to your pre-filed evidence, as well as to the interrogatories. 801 MR. BETTS: Mr. Moran, let's have an exhibit number for that as well. 802 MR. MORAN: Yes, Mr. Chair. That would become Exhibit K.1.3, materials for cross-examination filed by Superior Energy Management and Ontario Energy Savings Corp. and Union Energy. 803 EXHIBIT NO. K.1.3: MATERIALS FOR CROSS-EXAMINATION FILED BY SUPERIOR ENERGY MANAGEMENT, ONTARIO ENERGY SAVINGS CORP., AND UNION ENERGY 804 MR. BETTS: Thank you, please proceed. 805 MR. VEGH: Thank you. 806 And just by way of introduction to the witness panel and to the panel, my clients all sell gas to direct-purchase customers. They all have commercial relationships with direct-purchase customers. My clients have also invested significant time and resources into the QRAM methodology since it was first proposed in the 2000-0040 rates case and just to expand on that for a minute why that is. 807 My clients take the position that commercial certainty is an absolute prerequisite to a competitive market, let alone facilitating competition, and my clients have made appearances in QRAM proceedings consistently with Enbridge to take the position that the existing methodology that's been worked through, negotiated, and decided upon and approved by the Board should not be -- should not be amended except in accordance with an orderly process. 808 And these positions were put forward even when it was against the short-term commercial interests of my clients, and I don't have to remind the Board -- but I will -- last year at this time going into the 4th quarter, there was an anticipated surplus of $30 million in the PGVA, and there was some issue about how to spread that out. 809 And my clients were quite insistent that the methodology not be departed from, with the end result that system gas prices be reflected to be -- ended up being much lower than a market would suggest. 810 But the point was that having a methodology and sticking with the methodology is more important than any short-term commercial advantage or more important than any short-term political or other advantage that may arise when you don't like the price that the methodology spits out. 811 MR. WARREN: Is that your argument? 812 MR. VEGH: It's my opening statement to put my questions in some context. 813 So with that, I'd like to step back a bit and address load balancing and first get, perhaps, a more clear understanding of just how load-balancing costs are derived, according to your evidence. And the evidence reference I was going to make was to your prefiled evidence, tab 4, schedule 1, page 2. 814 And at paragraph 4 -- 815 MR. BETTS: Can we have that reference again, Mr. Vegh. 816 MR. VEGH: Yes, tab 4, schedule 1, page 2, paragraph 4. 817 MR. FARRELL: That is Exhibit Q.4-2. 818 MR. BETTS: Q.4-2. 819 Thank you. 820 MR. VEGH: Thank you. 821 And my reference is to, I guess, the third full sentence, half-way through the paragraph where, panel, you describe how this $150 million is identified. You say the forecast load-balancing variance amounts to a debit balance of $150 million, and it should be borne by all customers. 822 And you say: 823 "This variance includes a premium of the total supply costs over and above the Western buy-sell reference price, inclusive of fuel for peaking service as well as Ontario and U.S. discretionary supplies." 824 So just so we have it, then, when we talk about the load-balancing costs, we're talking about the positive difference between the total supply costs and the Western buy-sell reference price; is that right? 825 MS. DUGUAY: We look, firstly, at the total variance for peaking service as well as discretionary supplies. We back out of that price variance any difference between the deemed commodity element, which is derived by using essentially the Empress price inclusive of fuel. So we look at what was embedded in rates and what was actually the actual Western buy-sell reference price inclusive of fuel for that period. 826 So we take out that difference, and the rest is the load-balancing element. And -- 827 MR. VEGH: So the load balancing is the difference between -- 828 MS. DUGUAY: The total price variance minus the variance in the deemed commodity costs for the fiscal period. 829 MR. VEGH: All right. 830 MS. DUGUAY: And it might be helpful just to have a better -- to view it through a flowchart. There is a diagram that was appended in response to Board Staff interrogatory number 1, and that exhibit is an excerpt from evidence that was filed in the prior case. 831 And the exhibit is entitled "EBRO-495, Exhibit D.1, Tab 5, Schedule 1," and it is after or right after the excerpt from the Board's decision with reasons in the EBRO-495 proceeding. 832 MR. BETTS: Thank you. We have it. 833 MS. DUGUAY: Okay. So essentially, what we do is we have a total balance in the PGVA. And this flowchart is simplified, so I'll just keep to the simplified version. 834 So the first step would be to calculate, if applicable, any toll variances that took place throughout the fiscal year, and the remainder being the total forecast year-end PGVA balance, minus any toll variance is the commodity variance. So that's where we start. 835 The next step is within that commodity variance, we will isolate the price variance, the total price variance associated with peaking supplies as well as discretionary. And that pool of costs will be further separated into a commodity variance, which will be borne by system and buy-sell customers only and a load-balancing variance. And the manner in which this is done mirrors what we do for rate-making purposes. 836 Once we are dealing with the costs that are delivered in Ontario, we don't know -- for example, in terms of peaking service supplies, they're delivered, and the company doesn't know how much it's paying for the commodity and how much it's paying for the transportation, per se. So there is a mechanism in place where we deem the commodity to be the Western buy-sell price inclusive of fuel. 837 So when we deal with the PGVA, we isolate that pricing variance, and that's going to be borne by system supply customers, because that has to do with the costs of the molecule, and we know that direct-purchase customers, by virtue of the terms and conditions around banked-gas accounts, they will return that molecule to the company, so we don't want to impute to them any price variance. 838 So having said that, the next step is to look at the total price variance minus the commodity, and the rest is load balancing. 839 So by definition, that load-balancing component is the premium over and above that deemed commodity as well as transportation. And based on the existing methodology for clearing the PGVA, this is borne by all customers, because all customers pay for that in rates at the budget level. 840 So it makes sense that they should pick up the difference between actual and budget, and these variances are clear to all customers, including direct purchase. 841 So I hope this is helpful. 842 MS. GIRIDHAR: The intent being that the load-balancing variance pertains to the cost of having the molecule for you when you need it, the molecule itself being returned at a later point in time. The premium reflects the costs of having it there when it's desired for consumption. 843 MR. VEGH: Thank you for that. That was helpful. 844 When we talk about the premium for the cost of having the commodity there when you need it, what you are doing is identifying the difference between the embedded -- the commodity price embedded in the rates and then your total and the difference between the two is that premium. 845 MS. GIRIDHAR: There may be a commodity variance by itself, so you are not just comparing it to the commodity price in rates. You are trying to estimate what the commodity variance is, because the actual buy/sell reference price may be different from what you have in rates. 846 MR. VEGH: Right. 847 MS. GIRIDHAR: So there is a two-step process in estimating the variance. 848 MR. VEGH: So just on that variance then, when we talk about the premium, just to be clear, and I am trying to compare this perhaps briefly to how Union, for example, determines load balancing. When you identify -- and just for your benefit or to state it for the record, I am sure you are more familiar with this than I am, but Union effectively will determine the summer/winter differential and attribute that differential to load balancing. 849 Your approach is different, I take it, where you don't look at the summer/winter differential, you would have the total premium. 850 MS. DUGUAY: Well, I think in Union's case, the premise is that direct-purchase customers would return the commodity in the summer. So that's why, as a reference price, they look at the differential between winter and summer prices. With regard to Enbridge methodology, the assumption is not that the customer will return their gas specifically in the summer; they could return it essentially throughout the fiscal year and we use an average of prices throughout the fiscal year which excludes -- because by virtue of determining what the buy/sell reference price is, it excludes any costs associated with peaking and U.S. discretionary or typically higher-priced gas. 851 So that is -- based on the company's proposal, the reference point is an average of prices throughout the year exclusive of peaking service and discretionary supplies, as opposed to summer prices only. 852 MR. SMALL: And just to add one point too. My understanding of Union's, even though they track the difference between the winter and the summer prices, that differential that they identify as load balancing is then collected from everybody, inclusive of direct-purchase customers. 853 MR. VEGH: That's my understanding as well. 854 MS. DUGUAY: Yes. 855 MR. VEGH: The only point is that they use the summer/winter differential and you use a different type of methodology. 856 MS. DUGUAY: Yes. 857 MR. VEGH: We are not saying here which is better or worse, but they are different. 858 MS. DUGUAY: That's right. 859 MR. VEGH: Now given that Union uses a summer/winter differential, it is possible at least theoretically in Union, to have a negative variance, that is, a summer price may end up being more expensive than the winter price. Is that possible under Enbridge's methodology? 860 MS. DUGUAY: Yes, absolutely. 861 MR. VEGH: So when you talk about the premium between the two, that may with a discount as well; it is really a variance as opposed to a premium. 862 MS. DUGUAY: Yeah, it works both ways and we do the same thing when we establish rates. We could have some credits going into the gas-supply load-balancing charge. 863 MR. VEGH: Okay, thank you. 864 And just another area of clarification. This relates to an interrogatory of my clients' that Mr. DeRose referred to, Exhibit 1, tab 3, schedule 1. We went through that in some detail earlier where you looked at that time budget and the actual gas account balances. 865 I wanted to ask you a question about the actual gas-account balances. The information here ends in May, and I understand why that would be, but as we go forward into June, July, August, September, would you expect to see the closing balance in the actual decline and come closer to zero on that? 866 MR. SMALL: Well, it would hopefully become a positive balance, whether -- I don't believe it would become a zero. The idea would be that it would come back closer to what the opening balance was at October 1, assuming the direct-purchase customer did in fact deliver the make-up. 867 MR. VEGH: So this number of negative 964 would during those months hopefully turn into a positive number. 868 MR. SMALL: That's correct. 869 MR. VEGH: Now what impact would that have, if any, on the forecasted load-balancing costs if we were to look at this, say, in September when we had a positive number? 870 MR. SMALL: It would have no effect. 871 MR. VEGH: Can you just explain why that is? 872 MR. SMALL: Make-up volumes -- direct-purchase customers delivering make-up volumes have no costs. We don't buy those volumes. So to the extent that we are not buying that gas, then there would be no balance going -- or no dollars going into the PGVA account. 873 MR. VEGH: Okay, thank you for that. I wanted to ask you some questions, then, about the current QRAM methodology. You filed a document at Exhibit Q.4-1, tab 2, schedule 1, appendix A; again, that is Q.4-1, tab 2, schedule 1, appendix A, entitled "Quarterly Rate Adjustment Mechanism", and this sets out what the settlement agreement was, and I take it you have updated it to address the most recent rates case, the settlement agreement rates case. So just maybe by way of background first, this QRAM methodology was originally negotiated in the 2000-0040 rates case, that would have been for the 2001 test year. 874 MS. DUGUAY: That was 2002. 875 MR. VEGH: Sorry, 2002. No, it was -- 876 MS. DUGUAY: Sorry, it was 2001, I'm sorry. 877 MR. VEGH: So it was 2001. 878 MS. DUGUAY: Sorry about that. 879 MR. VEGH: And then it was recently negotiated -- or re-negotiated as part of the 2003 test-year case. 880 MS. DUGUAY: Yes. 881 MR. VEGH: And that most recent negotiation which took place in the ADR for that case, that was part of a pre-scheduled review, right? That review was scheduled to take place. 882 MS. DUGUAY: That is correct. 883 MR. VEGH: And the plan was to review a year's -- or review the experience with this new QRAM methodology in light of a number of principles? 884 MS. DUGUAY: Yes. 885 MR. VEGH: And then so that review was carried out and some negotiations carried forward, and ultimately, the stakeholder community unanimously approved any changes to the QRAM methodology. 886 MS. DUGUAY: Yes. 887 MR. VEGH: And then these changes were put in front of the Board as a settlement proposal and the Board approved those changes as well. 888 MS. DUGUAY: Correct. 889 MR. VEGH: So I would like to go through this a little bit and ask some questions about the current methodology, and my purpose of doing this would be to distinguish between how the current methodology treats the load balancing on the one hand, and then the quarterly PGVA clearances on the other. So that's what I would like to focus in on. And I know Mr. DeRose covered this off, but I would like to just maybe go in a little more detail on some of these points. 890 So first I would like to look at how the current methodology addresses load balancing, and the reference that I would like to go to in particular starts at paragraph 8. This section of the QRAM methodology agreement addresses price adjustments, and I know you do not have a price adjustment proposed for this current QRAM methodology, but I would like to talk to you about how this price adjustment has an impact on load balancing. 891 In particular, paragraph 8 talks about when a recalculated utility price comes into effect, and then some of the implications of that, and in the second sentence it says: 892 "Enbridge uses the recalculated utility price together with the consequential effect on commodity-related costs as a basis for adjusting the revenue requirement for a test year, and in turn the gas-supply charges for sales service and the delivery charges and gas-supply load-balancing charges" -- there is a term in parenthesis I would like you to leave aside for a minute and we'll come back to -- "the gas-supply load-balancing charges for distribution service effective at the beginning of the quarter. 893 So as I read that, every -- load balancing is contemplated in here in the sense that whenever there is a new utility price calculated, there is an adjustment for load-balancing purposes. 894 MS. DUGUAY: That's correct. 895 MR. VEGH: And so the commodity-related component of -- I want to be careful how I say this -- the gas-cost component of distribution rates are impacted by these quarterly utility price adjustments? 896 MS. DUGUAY: That's correct. 897 MR. VEGH: And so -- and this last year, the four quarters of -- well, we'll deal with this year -- the four quarters of 2003, I have asked your counsel to just confirm with you my understanding of what the utility prices were for those four quarters, and maybe I'll just list them to put them on the record. 898 The prices I have were -- this is in 103M3 -- 237.963, 259.519, 312.877 -- 899 MR. FARRELL: Do you want to repeat those, please. 900 MR. VEGH: So Q-1 2003 was 237.963; Q-2 2003 was 259.519; Q-3 2003 was 312.877; and Q-4 stays the same at 312.877. So we've had material adjustments this year in that price, in the utility price; right? 901 MS. DUGUAY: Mm-hm. 902 MR. VEGH: And those adjustments also had impact on load balancing -- the load-balancing component of rates during this year. 903 Can I ask you a question as well, this is on clarification and just how these adjustments work their way into -- into the rates, and my reference is to an interrogatory that my clients filed. The interrogatory is tab 3, schedule 9. 904 And in tab 3, schedule 9 you set out the calculation of your peak and load-balancing PGVA variances, and the -- well, you set out the actual unit rate, the budget unit rate and the variance and, therefore, the total amount resulting from the variance. 905 And I take it that this chart substantiates what you were going on earlier about, how you determine this variance? 906 MS. DUGUAY: Yeah. 907 MR. VEGH: And could you explain to me the relationship between the range of utility prices that we've talked about in 2003, that is the range from 237 to 312, and the budget unit rate -- well, and to the figures used in this chart. 908 MR. SMALL: The -- for example, the budgeted unit rate for the Western buy-sell with fuel price would be a blend of the -- in this case the October 1 price, the January 1 price, and the April 1 price for the fiscal year. 909 MR. VEGH: So this 223 is a blend of those prices? 910 MR. SMALL: That's correct. 911 MR. VEGH: But those -- 912 MR. SMALL: So it becomes an average for the year, if you will. 913 MR. VEGH: But the prices we've been looking at are in the range of 237 to 312, so I'm a bit confused -- 914 MR. SMALL: The Western buy-sell price or the buy-sell reference price is calculated on a monthly basis. So you would have the monthly buy-sell reference price; you would back off the applicable transportation costs to come up with the Western buy-sell with fuel price. So dependent upon each month's prices. 915 MS. DUGUAY: So the utility price that you were referring to earlier, (a), they include transportation tolls, which are not included in those numbers; and, (b), I touched upon that earlier. I may not have been clear, is when we calculate the Western buy-sell reference price, it excludes any costs associated with peaking service as well as discretionary supplies. 916 So those are typically, at least for the peaking, more expensive, so that would also reduce the price in relation to the utility price, because everything is included in there, including peaking. 917 MR. VEGH: So when the -- when, in accordance with the settlement agreement, every quarter you update the load-balancing component to reflect the utility price, what does that do? 918 MS. DUGUAY: Yeah, so each time we change the utility price, we would change the -- what I was referring to, the deemed commodity element, which is the budgeted Western buy-sell price inclusive of fuel. So that would change, and that would essentially drive the level of the recalculated gas-supply charge. And we would also recalculate the gas-supply load-balancing charges, given that the deemed commodity element has changed as well as the total costs. 919 But the most important driver in terms of varying the gas-supply load-balancing charge in the QRAM is the carrying costs of gas in inventory, and what we do is we take the average of averages of volume of gas in storage, and we apply the differential between the existing utility -- utility price and the recalculated utility price, and this is the component where the bulk of the dollars are. 920 MR. VEGH: Right. So they're -- I know, and I just wanted to go to the first component, which would be the unit price adjustment that has an impact on load balancing, and then we'll talk about some other areas that it could -- 921 MS. DUGUAY: Yeah, as well as the gas-supply charge, because now we have a new gas-supply portfolio, and we determine what is payable from system supply versus all customers and the carrying costs of gas in inventory, which is paid by all customers as well. 922 MR. VEGH: Right. So when we change the -- or when the Board changes the price each quarter, assuming that it would change, then there are a few impacts on load-balancing amounts, including the commodity price adjustment, including the inventory adjustment? 923 MS. DUGUAY: Yes. 924 MR. VEGH: And there are -- so thank you for that. 925 And there are some other sections in the agreement that also address how these -- how these impacts are, and the one in particular I would like to take you to is at paragraph 17. 926 This is in the section of the agreement dealing with the PGVA, and this says whenever there is a change in upstream transportation tolls -- sorry. 927 Have you got that? So when there's a change in upstream transportation tolls, that also has an impact on load-balancing costs? 928 MS. DUGUAY: Mm-hm. That's right. 929 MR. VEGH: And that's something that's applicable to all customers? 930 MS. DUGUAY: That's right. 931 MR. VEGH: And then in paragraph 16, there's an implicit reference, I guess, and paragraph 16 is the paragraph that talks about these year-end adjustments -- 932 MS. DUGUAY: Yes. 933 MR. VEGH: -- of all accounts, and that would include load balancing? 934 MS. DUGUAY: Yeah. 935 MR. VEGH: And it doesn't specifically refer to load balancing, but that would be one of the accounts that it cleared in accordance with this methodology -- 936 MS. DUGUAY: Yeah. It's implicit with the word "composition," where we looked at variance associated with the commodity, the load balancing, toll variance, and all other elements that are currently captured in the PGVA. 937 MR. VEGH: Right. So then this -- the settlement agreement has about four areas that we've talked about that specifically address how load balancing is to be addressed. 938 MS. DUGUAY: Mm-hm. 939 MR. VEGH: And there may be more, but I think these are the four key areas anyway; would you agree with that? 940 MS. DUGUAY: Yeah. 941 MR. VEGH: Now, before we address how this agreement addresses rate riders, I do want to return back to an issue I had you -- something I pointed out to you and then said I would come back to, and that's in paragraph 8 where we have talked about this, how the new unit price -- or the new utility price becomes the new gas-supply load-balancing charge, and then there were these words I asked you to skip over that I would now like to ask you some more about. 942 MS. DUGUAY: "When discrete"? 943 MR. VEGH: Right. Now every earlier version I have seen of this agreement did not use those words. So the words "when discrete" are added in brackets in this, and I haven't seen in any earlier version of the agreement. So could you expand on that? 944 MS. DUGUAY: The reason for inserting "when discrete" is with regard to gas-supply load-balancing charges for customers under rate 1, rate 6 and rate 9. Even though the company does a separate calculation, it's rolled into the delivery charge whereas for large-volume users, the gas-supply load-balancing charge is identified separately in the rate schedule as well as the bill. 945 So "when discrete" means if you see it as a separate item in the rate schedule and the bill, as opposed to general service customer. It is just more precision, that's all it is. That's all it means. 946 MR. FARRELL: For the record discrete in this case is d-i-s-c-r-e-t-e. 947 MR. VEGH: Thanks for clearing that up, Mr. Farrell. 948 Is there anywhere else in this agreement, in this document where we have changes from what has been previously agreed to? 949 MS. DUGUAY: Well, the tenses have been changed. 950 MR. VEGH: Could I ask you this, perhaps, as an undertaking overnight. Could you provide a black-lined version of this document against the document that has been agreed to? My concern is that we have a unanimous stakeholder arrangement approved by the Board and your additions to that cause us some concern when we go through this, and we are not sure that we have caught every particular difference. 951 So could you provide us with a black-lined version of this document against the document that was approved in -- actually, against the document that was approved in RP-2000-0040? 952 MS. DUGUAY: Yes. 953 MR. MORAN: Mr. Chair, that would be Undertaking J.1.3, an undertaking to provide a black-lined version of Exhibit Q.4-1, tab 2, schedule 1, appendix A, when compared to the original agreement. 954 UNDERTAKING NO. J.1.3: TO PROVIDE A BLACK-LINED VERSION OF EXHIBIT Q.4-1, TAB 2, SCHEDULE 1, APPENDIX A, WHEN COMPARED TO THE ORIGINAL AGREEMENT 955 MR. VEGH: And also for the purposes of this case, does anything turn on the addition of these words, "from Enbridge's perspective"? 956 MS. DUGUAY: Not that I recall, no. 957 MR. VEGH: Okay, so we have talked then about how load balancing is addressed in the QRAM methodology. I would like to now look at how PGVA clearances through rate riders are addressed in the current methodology. And I think the thrust of that is really in paragraph 15. That deals with the clearance of PGVAs through rate riders. 958 in paragraphs 15 (A) and (C), when you are talking here about clearing the PGVA through a rate rider on the basis of forecast consumption in the remainder of the year, we are talking in every instance in this agreement a forecast assumption for -- sorry, forecast consumption for sales customers; right? 959 MS. DUGUAY: That's correct. 960 MR. VEGH: And there is no reference anywhere in this agreement for clearance of any component of the PGVA through rate riders to all distribution customers. 961 MS. DUGUAY: No, with the exception of the true-up that we covered as part of paragraph 16; yes. 962 MR. VEGH: Right, and that true-up methodology is not part of the clearance in paragraph 15 where we are talking about the clearance of PGVA amounts through the rate rider, rider C. 963 MS. DUGUAY: That's correct. 964 MR. VEGH: And there is no reference in this agreement to looking in the future at potential impacts from clearing PGVA amounts through the rate rider and what the impact would be on future accounts. 965 MS. DUGUAY: What do you mean by "future accounts"? 966 MR. VEGH: Well, there is nothing in the methodology which says that, as part of determining how the clearances through rider C are carried out, Enbridge or the others are supposed to give thought to what the impact of what such clearances might be on future clearances of other accounts; it is a discrete mechanism for clearing the PGVA accounts to system customers. 967 MS. DUGUAY: I would agree with that on an interim basis, yes. 968 MR. VEGH: Well, this doesn't say on an interim basis, this says you will clear through system customers. 969 MS. DUGUAY: It is interim because it will be subject to a true-up at the end of the fiscal year. 970 MR. VEGH: The clearances through the rate rider are clearances through the rate rider; they are not described as interim clearances. I understand that later in the year you'll have another system of clearing accounts. But this agreement doesn't describe the PGVA clearances through rate riders as merely interim arrangements; right? 971 MS. DUGUAY: Maybe not in words, but it is implicit through the true-up mechanism -- 972 MR. FARRELL: And the Board's orders are described as interim. 973 MS. DUGUAY: And all QRAM applications, the rates are interim, so given that rider C is part of an interim rate, I view that as being interim. 974 MR. VEGH: Okay, well, rider -- there is nothing in this agreement that says rider 3 amounts are to be adjusted by reference to any future considerations. 975 MS. DUGUAY: Well, I am repeating, but implicit in the true-up, yes; because whenever we establish rider C, there are some assumptions being made with regard to, A, the composition of the PGVA, the PGVA is a moving target throughout the fiscal year, so that's another variance. 976 And we also account for the final true-up to, essentially, base the rate-class responsibility using annualized consumption rather than partial consumption throughout the year. So at the end of the year, we take all of these factors into consideration. We recalculate the rate-class responsibility for the PGVA, and we net out pre-payments or refunds that have taken place on an interim basis throughout the fiscal year through the rate rider and the net of the two will be the final adjustment that the customers will see on the bill. 977 So given the fact that we use the amounts that were collected or refunded through rider C to calculate the final adjustment on the bill, in my view, it is interim. 978 MR. VEGH: Well, why don't we just use your language then, that this paragraph directs Enbridge in calculating the amounts to be cleared through the PGVA rider, through rider C, directs Enbridge to assume that all of those amounts are commodity-related. 979 MS. DUGUAY: Yes. 980 MR. VEGH: And it doesn't direct Enbridge to distinguish between amounts that may be commodity-related and may be load-balancing related; is that fair? 981 MS. DUGUAY: Throughout the QRAM, yes, it would be true -- 982 MR. VEGH: For the purpose of clearing rider C. 983 MS. DUGUAY: Yes, subject to a final adjustment. 984 MR. VEGH: Okay. And so it is fair to say, isn't it, that the QRAM methodology has a discrete treatment of adjustments for load balancing on the one hand, which is really entirely separate and apart from the quarterly PGVA clearances through the rate riders. 985 MS. DUGUAY: Yeah, because those are two different elements. 986 MR. VEGH: Okay, thank you. 987 I would like to refer to the materials that are in the materials for cross-examination. Tab 1 is an excerpt from the company's evidence for Q4, 2002, so this was sort of the equivalent of this year's going into the last quarter. 988 MS. DUGUAY: Yes. 989 MR. VEGH: And at paragraph 7 of the evidence, there is a reference to an adjusted year-end PGVA net balance of $35.1 million, so that was, sort of, the opposite situation we had this year. Last year you had a credit going into the final quarter of 35 million; is that right? 990 MS. DUGUAY: Yes. 991 MR. VEGH: Now, when Enbridge looked at clearing this credit, you didn't consider whether a component of that would be offset by increases in future load-balancing charges, did you? 992 MS. DUGUAY: No. 993 MR. VEGH: And then the year following, 2003, which is this year, of course, the first quarter of 2003 there was a need to increase load-balancing costs; right? 994 MS. DUGUAY: Mm-hm. 995 MR. VEGH: And so in a sense, part of what was paid out to system-gas customers at the end of 2002 was effectively clawed back in the early part of 2003 as a load-balancing charge? 996 MS. DUGUAY: I don't understand your -- 997 MR. VEGH: Well, going to the -- so going to the fourth quarter of 2002, cleared out $35 million entirely to system-gas customers. 998 MS. DUGUAY: Mm-hm. 999 MR. VEGH: First quarter 2003, there was a deficit in the load-balancing component of the PGVA account. 1000 MS. GIRIDHAR: The PGVA or -- I am just wondering if there's two issues here, one being the rate increase as part of the QRAM utility price-setting process, and the other being the PGVA? So while it is true -- 1001 MR. VEGH: Well, maybe you could -- maybe you could address for both then, because I understand that there was a slight -- a slight clearance for both in a positive way. So maybe first on the PGVA? 1002 MS. DUGUAY: There's no provision in the QRAM guidelines for a PGVA clearing in the first quarter. 1003 MR. VEGH: Okay. 1004 MS. DUGUAY: So it has to be -- 1005 MR. VEGH: So the PGVA would have been for the last quarter of -- 1006 MS. DUGUAY: Yeah. You're talking about the change in the revenue requirement stemming from the recalculated utility price, which would be effective through changes in rates, and that's distinct from the PGVA. 1007 So in -- the $35 million here is strictly PGVA-related, and it was taking into account when we did the final disposition of the 2002 PGVA just this past May. 1008 MR. VEGH: Okay. And in that final disposition of the 2002 PGVA, was there a positive or negative variance? 1009 MS. DUGUAY: Well, it was a credit, and you can see in response to an interrogatory from VECC -- I believe it's VECC number 5, subject to check. I'll check that right now. 1010 It is VECC number -- number 2, and what we've done here, we've appended some appendices from the rate order going back five years, so you see exactly the amounts that were cleared in the PGVA. And in addition, you see the breakdown to reflect the actual composition of the PGVA by component. 1011 So you were asking me with regard to 2002, and that would be the attachment on page 5, column 3. We refunded in the month of May of 2003 $41.7 million as it related to the 2002 PGVA. 1012 MR. VEGH: And that was commodity -- that component was commodity-related? 1013 MS. DUGUAY: Well, you see through item 1.1 to 1.8 all the various elements that were taken into consideration and had their specific methodology for classification and allocation as approved by the Board. 1014 MR. SMALL: Just to maybe draw your attention to the load-balancing component for 2002, it would have been $303.7 thousand inclusive of interest. So when we were looking at what we were planning to do with a projected balance going into the 4th quarter of 2002, any amount in the PGVA related to load-balancing costs would have been minuscule. 1015 So we were comfortable in allocating it all as commodity last year. 1016 MS. DUGUAY: It's a question of quantum as well. For example, when we file for the April QRAM, we were forecasting at that time that we would accumulate at the end of the 2003 fiscal year $40 million in the PGVA. That number did not prompt us to look at -- because we didn't have actual prices for the month of January, February, and so on, to essentially suggest a departure from the guidelines inherent to the QRAM process. 1017 So I think, as I was saying earlier, it's a question of circumstances, and now we're looking at the forecast PGVA year-end balance of $172 million, which is a large number. And based on the existing methodology, a seasonal load-balancing variance of $150 million, and the resulting consequences as well, were we to say, Well, we're going to follow the methodology by the book and deem it as being entirely commodity-related. 1018 And I think in my opening statement, that would mean for a typical residential customer on system supply to collect $155 from them only to return $77 later. 1019 So these are things that -- they are specific circumstances where there are or might be some merit to suggest some changes to the methodology, and that's exactly what we are doing. 1020 MR. VEGH: I understand that, and I take it you would say that it's fair to balance against that. You also -- the reason you have a methodology is so that you have some certainty about how that methodology is going to be applied? 1021 MS. DUGUAY: True, but from a practical perspective -- I know for myself, I am a residential customer on system supply, and if it were, you know -- if I were billed $155 now, well, over a certain period of time only to receive a credit of essentially 80 bucks a couple of months from now, it wouldn't make sense to me. 1022 And we're trying to look at it from what -- how people will react and trying to mitigate, to the extent possible, confusion. 1023 MR. VEGH: Well, why don't we save this argument for argument. I know your point and -- 1024 MS. DUGUAY: Yeah. 1025 MR. VEGH: -- hopefully the Board will know mine. 1026 Could I just ask you, though, you talk about, you know, the results-oriented approach to QRAM, and you have been clear on that, and I understand that. 1027 But I take it that you're also -- you're also saying there's something a little more fundamental here; that is, you've pointed to some flaws with the current methodology, because it doesn't seem to capture what it is you'd like to capture. And I direct you in particular to your prefiled evidence, tab 4, schedule 1. So this is Exhibit Q.4-2, tab 4, schedule 1, page 3, and it is paragraph 5. 1028 And in the last -- and in this paragraph, you talk about this issue of what the results would be, but you also say in the last sentence that -- you say -- the approach that you're proposing, which is to depart from the current clearance methodology by identifying a separate load-balancing component and a separate commodity component and have them cleared through different methods, you state at the end that -- the last sentence reads that: 1029 "Your proposal would send better price signals to direct-purchase customers regarding the actual costs of providing a load-balancing service over and above the amounts that were embedded in the applicable gas-supply load-balancing charges." 1030 So you are saying here that what you are proposing is an improvement over the current methodology. 1031 MS. DUGUAY: It's an improvement in the sense that it is not included with other elements as it typically is when we clear our deferral accounts, because the PGVA is typically the most important deferral account that we have -- or variance account, I should say -- but there are others as well, and certainly you can see that in response to VECC's interrogatory number 4, where for example, last year there was a large credit attributable to the deferral account dealing with gas losses. It was I think in the neighbourhood of 15 million, so everything was rolled together. 1032 MR. VEGH: But the one you are talking about here is specifically identifying separately the load-balancing component. 1033 MS. DUGUAY: Yeah. 1034 MR. VEGH: And clearing that through the rate rider, and you are saying that's better because that makes load balancing components more transparent. 1035 MS. DUGUAY: It is more transparent, that's correct. 1036 MR. VEGH: So you are saying if we follow this new changed methodology we would have a better QRAM than the current QRAM because it would have this added element of price transparency for load balancing. 1037 MS. DUGUAY: Well, in this specific instance, yes. But I don't mean to imply, or -- implied in your question is that the company would identify the load-balancing element of the PGVA on an ongoing basis through every QRAM application. 1038 MR. VEGH: Just whenever you felt like it. 1039 MS. DUGUAY: That is -- well, when we feel it is appropriate to do so would be a better characterization. 1040 MR. VEGH: So what you are proposing today is a one-time change, not a change to the methodology on a going-forward basis? 1041 MS. DUGUAY: That's correct. 1042 MR. VEGH: Now, I would like to ask you just briefly about how it is deficiencies of QRAM methodology can be addressed in other processes apart from a QRAM application. 1043 And you have already spoken to Mr. DeRose about the settlement negotiations in the 2003 rates case, and I believe, from stringing together some interrogatories, that Enbridge effectively became aware that there was going to be a large load-balancing debit in around February, February or March of this year. 1044 MR. SMALL: I think you might be referring to VECC interrogatory number 3 where we came -- 1045 MR. VEGH: Sorry, I am referring to my interrogatory where I asked you that question, When did you become aware of the magnitude, and you referred me to VECC as an answer. So I take it that is an answer to my question, not just VECC's question. 1046 MR. SMALL: And the answer to VECC number 3 talks about how on March 20th, at that time, when we were here talking about the settlement proposal, we identified the projected year-end balance and the amount that we are estimating to be associated with load balancing and we were concerned about the size of the projected balance and how much it had risen since we had filed our April 1 QRAM. 1047 MR. VEGH: Right. And you could have simply addressed your proposed change to the QRAM methodology as part of the scheduled review in the 2003 rates case. 1048 MR. SMALL: I would -- we were already talking about the settlement proposal at that time, and I believe the -- 1049 MS. DUGUAY: We were presenting the settlement proposal, so it had already been endorsed by the intervenors. It was clearly too late. 1050 MR. VEGH: Well, it would have required -- it would have involved, effectively, a change in your position, wouldn't it? You agreed to the settlement proposal in the 2003 case; you subsequently came across information that made you question your position. And so you just kept it back. 1051 MS. DUGUAY: Yeah, but I think -- 1052 MR. SMALL: I disagree. I think as part of our settlement proposal, we were anticipating trying to make a change to the QRAM process, clearing the projected balance in the last quarter over a six-month period, for example. And I think we have been trying to take this QRAM process, something that is very good at updating for quarterly adjustments and prices, but what it maybe is lacking is what do we do with those projected balances in the PGVA when there is significant price movement. 1053 And this is just another example, in my mind -- I think we are trying to see what we can do to enhance the QRAM process. 1054 MR. VEGH: Well, just to go back a minute, when you said in March you made people aware, I guess -- is it fair to say that what you made people aware of is that there would be a projected large year-end PGVA balance, as opposed to you made people aware that you would be separating out the commodity and the load balancing -- 1055 MS. DUGUAY: It is the latter. We did indicate both: That there would be a load-balancing variance on two instances, and that that would be that the company would propose for it to be allocated to all customers inclusive of direct purchase. 1056 And going back to your question as well, with regard to the settlement proposal, I think by definition that would mean that that would be a proposal that the company is -- would apply on an ongoing basis, and that certainly is not the case. 1057 The QRAM, the way it is laid out, these are sort of the rules that we apply most of the times through the QRAM process and I think to do what you are suggesting the company should have done is to say, Okay, these are -- this may be the outcome of some unusual or extraordinary circumstances. The company may contemplate to do this, that, that, that, and have that sitting in the document that the company may elect to exercise from time to time because those are discretionary. So I really don't view this as being a reasonable thing to do. 1058 MR. VEGH: Well, again, we could argue this, but I don't see where in the QRAM methodology you view this, you base the view that this is discretionary. We are talking about a methodology that fundamentally distinguishes between load balancing on the one hand and clearance of PGVAs on the other. 1059 And you are saying now, I take it, that there are both fundamental flaws because it sends the wrong price signal, but you may change it sometime and you may not, and we won't find out until you file your next QRAM, and then we can go through this process again, depending on the circumstances, depending on how large the amount is. And then the Board should come to a different decision. 1060 And that is the position you seem to be putting forward, and all I am suggesting is you could have even made that argument in your rates case. If you wanted to add some discretion to Enbridge's treatment of load-balancing components for the purposes of the QRAM, that could have been an issue in that case. 1061 MS. DUGUAY: Yeah -- 1062 MR. SMALL: That would be true, but I would have to say that at the time we were going through the rates proceeding, we didn't contemplate that we were going to see the magnitude of price changes and the impact on the PGVA that we did see. 1063 So it wasn't something that we had foreseen. 1064 MR. VEGH: Okay. There are other opportunities to address the treatment of load-balancing charges that I would like to just bring to your attention. 1065 The first is -- the reference for the first is in the book of materials that we provided, tab 5, which is an excerpt from this Board decision in your 2002 rates case, and an issue in that case, as you will recall, was the treatment of -- the allocation of costs to system-gas customers versus direct-purchase customers as well as the provision of services to each categories of customer. 1066 And the excerpt that I will refer to is at paragraph -- page 83, paragraph 464, where the Board directed Enbridge to file a fully allocated cost study in two formats, one format proposed by the company, and the second format in the format proposed by CEED, which would identify and quantify all of the resources used by the company to balance and to bill and collection system-gas customers. 1067 So what the Board directed Enbridge to do in the 2003 rates case was to file a fully allocated cost study that would look at balancing costs and how those costs are collected from system-gas customers? 1068 MS. DUGUAY: No. These are O&M costs. What we're talking here are gas-supply costs, which are totally different things. These are the resources used to facilitate direct purchase and manage system supply. 1069 What we're talking here in the QRAM is the cost of a gas-supply portfolio. It doesn't have, for example, the salaries of Mr. Brennan, who deals with the planning of the gas-supply portfolio or anything else like that. So those are two different -- 1070 MR. VEGH: Well, the direction my clients at that time requested, and the direction that the Board answered was to identify and quantify all of the resources used to balance, and there was quite a discussion in that case about the comparative balancing services provided to system-gas and direct-purchase customers. 1071 And you're now saying in your current case that the costs of balancing services provided to direct-purchase customers should be made more transparent, so the fully allocated costing study would provide an excellent opportunity to address that. 1072 MR. BRENNAN: Mr. Vegh, again, I concur with Ms. Duguay that this was meant to address O&M costs. It had nothing to do with gas costs whatsoever. You're mixing apples and oranges. 1073 MR. VEGH: And then the Board directs -- so I take your point, then. You'll understand we'll just disagree on that. 1074 And then the Board directed Enbridge to file that study, and as I understand it, going into this current rates case, 2003, Enbridge did not file that study; is that right? 1075 MS. DUGUAY: Yes. 1076 MR. VEGH: And instead, in the settlement agreement Enbridge agreed to file that study in 2004. 1077 MS. DUGUAY: Yes. 1078 MR. VEGH: And will you be filing that study as part of your 2004 case? 1079 MS. DUGUAY: I'm uncertain at this stage. 1080 MR. VEGH: So the situation we're left with, then, and I'll just conclude on this -- perhaps it is an observation, and you can comment on this -- is you want to change the current rules to deal with the way in which load-balancing costs are paid for, that is, on a -- through a rate rider as opposed to a one-time adjustment; yet, whenever the opportunity comes up to look at how load-balancing costs are actually allocated and addressed through the rates process, there always seems to be a reason not to address that. 1081 MR. FARRELL: Excuse me. I think Mr. Brennan has told you he does not agree with your premise that gas costs are part of an FAC study, so you can't turn that answer into a "yes" when he's given you a "no." 1082 MR. VEGH: Thank you. Those are my questions. 1083 MR. BETTS: Thank you, Mr. Vegh. 1084 I think, then, that will conclude our activities for today. 1085 Mr. Janigan, I saw you reaching for your mic? 1086 MR. JANIGAN: I have about five minutes of questions left, Mr. Chairman. I was hoping as well that I could address the issue of submissions, and to the effect that I have another engagement tomorrow. It's not a binding commitment, but I'd like to keep it if I could, and, if possible, whether or not my submissions could be made in writing before noon tomorrow. 1087 I would indicate that my submissions will be in support of the company's application, so I don't think the company would feel a need to reply to it, if that might be possible. And as a consequence, I was hoping to finish off with about three or four questions and take my leave. 1088 MR. BETTS: Any submissions with respect to that? 1089 I'll make one, that your three or four questions have probably got a time limit of about three minutes. Is that possible? 1090 MR. JANIGAN: That's possible. 1091 MR. BETTS: Okay. Then with respect to arguments being presented in writing by noon tomorrow, is that satisfactory to the participants? 1092 Yes, that's satisfactory. So your three minutes begins now, Mr. Janigan. 1093 MR. JANIGAN: Thank you, Mr. Chairman. 1094 CROSS-EXAMINATION BY MR. JANIGAN: 1095 MR. JANIGAN: Just looking at VECC interrogatory number 4, it would appear that the current load-balancing costs that are being sought to be cleared in this proceeding are -- I'm sorry, it's number 2; tab 4, number 2. 1096 The current load-balancing costs that are sought to be cleared in this proceeding are something in the order of 3 1/2 times the next largest amount that appeared in the previous five years; am I correct on that? 1097 MR. SMALL: That's fair. 1098 MR. JANIGAN: Could you tell me when the load-balancing costs were fixed, in February or March of 2003? 1099 MR. BRENNAN: What do you mean by "fixed"? 1100 MR. JANIGAN: When did you confirm that -- the amount of 150 million? 1101 MR. SMALL: To go through the process of doing the load-balancing calculation and the segregation of the PGVA balance? 1102 MR. JANIGAN: Yes. 1103 MR. SMALL: It would have been after the March 20th presentation, the proposed settlement agreement. 1104 MR. JANIGAN: Okay. Just dealing with unauthorized overruns, how was the cost currently picked up by the company when the company has to purchase gas on the spot market because of unauthorized overruns? 1105 MS. GIRIDHAR: Well, currently, if the unauthorized overrun has resulted in a situation where we have to go out and purchase gas, that would form part of the PGVA. 1106 MR. JANIGAN: Under what part of costs? Under load-balancing costs or under commodity? 1107 MS. DUGUAY: In the case of interruptible customers, it would be captured through the non-compliance component of the PGVA, and that's allocated. It has its own allocation basis, so it wouldn't be part of the commodity -- it would be removed from the commodity and put into another box, which has its specific allocation methodology. 1108 MR. JANIGAN: And it would be recovered only from interruptible customers, then? 1109 MS. DUGUAY: It's being recovered or remitted back to all customers -- it's a little complicated. 1110 It's been filed as part of an interrogatory response, and maybe I'll refer you to that rather than attempting to explain it in my own words. 1111 MR. JANIGAN: Okay. 1112 MS. DUGUAY: And that would be as a response to Board Staff number 1. There's an exhibit there that bears the reference RP-2002-0133, Exhibit A.8, tab 2, schedule 1, and that's an appendix to the response to Board Staff number 1. And the methodology is described fully in paragraph 14. 1113 MR. JANIGAN: Okay. Thank you very much. 1114 Those are all my questions. 1115 MR. BETTS: Thank you, Mr. Janigan. I think you did that in less than three minutes. 1116 Is there anything else that the panel should be aware of before we conclude today? 1117 We will reconvene tomorrow, then, at 9 a.m. again, and we will try to deal with the final questions in cross-examination and then reply, and we will follow with oral arguments and, hopefully, tidy up things by the end of the day. 1118 With that, we will adjourn now until nine o'clock tomorrow morning. Thank you. 1119 --- Whereupon the hearing adjourned at 5:02 p.m.